<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 5, 2000
REGISTRATION NO. 333-
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
TELETECH HOLDINGS, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
DELAWARE 7389 84-1291044
(State or Other Jurisdiction (Primary Standard Industrial (I.R.S. Employer
of Incorporation or Organization) Classification Code Number) Identification No.)
</TABLE>
------------------------
1700 LINCOLN STREET, SUITE 1400
DENVER, COLORADO 80203
(303) 894-4000
(Address, Including Zip Code, and Telephone Number, Including Area Code, of
Registrant's Principal Executive Offices)
------------------------------
JAMES B. KAUFMAN, ESQ.
SENIOR VICE PRESIDENT AND GENERAL COUNSEL
TELETECH HOLDINGS, INC.
1700 LINCOLN STREET, SUITE 1400
DENVER, COLORADO 80203
(303) 894-4000
(Name, Address, Including Zip Code, and Telephone Number, Including Area Code,
of Agent for Service)
------------------------------
COPIES TO:
<TABLE>
<S> <C> <C>
STEVEN A. COHEN, ESQ. M. WAINWRIGHT FISHBURN, ESQ.
HOGAN & HARTSON L.L.P. COOLEY GODWARD LLP
ONE TABOR CENTER, SUITE 1500 4365 EXECUTIVE DRIVE
1200 SEVENTEENTH STREET SUITE 1100
DENVER, COLORADO 80202 SAN DIEGO, CALIFORNIA 92121
(303) 899-7300 (858) 550-6000
</TABLE>
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE OF THE SECURITIES TO THE
PUBLIC: As soon as practicable after the effective date of this Registration
Statement.
If the securities being registered on this form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. / /
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. / /
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
------------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
AMOUNT PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT OF
TITLE OF EACH CLASS OF TO BE OFFERING PRICE PER AGGREGATE OFFERING REGISTRATION
SECURITIES TO BE REGISTERED REGISTERED(1) COMMON SHARE PRICE(2) FEE(3)
<S> <C> <C> <C> <C>
Common Stock, $0.01 par value per share..... 8,428,371 N/A $155,398,094 $41,025
</TABLE>
(1) Represents the maximum number of shares of common stock, par value $0.01 per
share, of TeleTech expected to be issued pursuant to the transactions
described herein, based on (i) the number of shares of Newgen common stock
outstanding on August 21, 2000 (10,535,464 shares) and (ii) the highest
exchange ratio of .80 of a share of TeleTech common stock for each share of
Newgen common stock applicable in the merger.
(2) Estimated solely for purposes of calculating the registration fee and
computed pursuant to Rule 457(c) and 457(f)(1) under the Securities Act of
1933, as amended, based on the market value of the Newgen common stock to be
converted into TeleTech common stock in the merger, as established by the
average of the high and low sales prices per share of Newgen common stock as
reported on the Nasdaq National Market on October 2, 2000.
(3) This fee has been calculated pursuant to Section 6(b) of the Securities Act
as .0264 of one percent of $155,398,094.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
<PAGE>
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY
NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER
TO SELL THESE SECURITIES AND IT IS NOT SOLICITING AN OFFER TO BUY THESE
SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
<PAGE>
[LOGO]
MERGER PROPOSED--YOUR VOTE IS VERY IMPORTANT
Dear Newgen Stockholders:
The boards of directors of TeleTech Holdings, Inc. and Newgen Results
Corporation have approved a merger agreement that provides for the merger of
Newgen with a wholly owned subsidiary of TeleTech. As a result of the merger,
Newgen will become a wholly owned subsidiary of TeleTech. If the parties
complete the merger, you will receive shares of TeleTech common stock in
exchange for your shares of Newgen common stock. The number of shares of
TeleTech common stock you will receive is based on an exchange ratio that will
be determined by dividing $18.00 by the average closing price of TeleTech's
common stock for the 20 consecutive trading days ending on the second full
trading day prior to the closing date of the merger. However, you will receive
no less than .48 and no more than .80 of a share of TeleTech common stock for
each share of Newgen common stock that you own.
TeleTech's common stock is listed on the Nasdaq National Market under the
trading symbol "TTEC." On , 2000, the last reported trading price of
TeleTech's common stock was $ .
The parties cannot complete the merger unless a majority of the stockholders
of Newgen adopt the merger agreement. The board of directors of Newgen has
scheduled a special meeting of its stockholders to vote on this matter. The
special meeting is being held on , 2000, at .m. local time at
. Whether or not you plan to attend the Newgen special meeting,
please take the time to vote by completing and mailing the enclosed proxy card
or by voting by telephone or through the Internet as instructed on your proxy
card. If you sign, date and mail your proxy card without indicating how you want
to vote, your proxy will be counted as a vote in favor of the merger proposal
presented at the Newgen special meeting. If you do not return your card or you
do not appoint a proxy by telephone or through the Internet, or you do not
instruct your broker how to vote any shares held for you in "street name," it
will have the same effect as a vote against the merger.
THE NEWGEN BOARD OF DIRECTORS HAS UNANIMOUSLY APPROVED THE MERGER AGREEMENT
AND RECOMMENDS THAT ITS STOCKHOLDERS ADOPT THE MERGER AGREEMENT.
Various stockholders of Newgen (including members of management), which
beneficially own a total of approximately 56.6% of the outstanding shares of
Newgen's common stock, have entered into voting agreements with TeleTech,
pursuant to which they have agreed to vote all of their Newgen shares in favor
of the adoption of the merger agreement. As a result, the adoption of the merger
agreement by Newgen stockholders at the Newgen special meeting is assured.
THIS PROXY STATEMENT/PROSPECTUS PROVIDES YOU WITH DETAILED INFORMATION ABOUT
THE NEWGEN SPECIAL MEETING AND THE MERGER. YOU CAN ALSO GET INFORMATION FROM
PUBLICLY AVAILABLE DOCUMENTS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION.
WE ENCOURAGE YOU TO READ THIS ENTIRE DOCUMENT CAREFULLY. IN PARTICULAR, YOU
SHOULD CAREFULLY CONSIDER THE "RISK FACTORS RELATING TO THE MERGER AND AN
INVESTMENT IN TELETECH COMMON STOCK" BEGINNING ON PAGE 25 OF THIS PROXY
STATEMENT/PROSPECTUS.
Sincerely,
Gerald L. Benowitz
CHAIRMAN OF THE BOARD, PRESIDENT AND
CHIEF EXECUTIVE OFFICER
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THE SECURITIES TO BE ISSUED IN THE
MERGER OR PASSED UPON THE ADEQUACY OR ACCURACY OF THIS PROXY
STATEMENT/PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
This proxy statement/prospectus is dated , 2000 and is first being
mailed to stockholders on or about , 2000.
<PAGE>
[LOGO]
12680 HIGH BLUFF DRIVE, SUITE 300
SAN DIEGO, CALIFORNIA 92130
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON , 2000
NOTICE IS HEREBY GIVEN that a special meeting of stockholders of Newgen
Results Corporation, a Delaware corporation, will be held at .m.,
local time, on , 2000, at , for the following purposes:
1. To consider and vote upon a proposal to adopt the Agreement and Plan
of Merger dated as of August 21, 2000, by and among Newgen Results
Corporation, TeleTech Holdings, Inc., a Delaware corporation and NG
Acquisition Corp., a Delaware corporation and a wholly owned subsidiary
TeleTech Holdings, Inc., as described in more detail in the proxy
statement/prospectus that accompanies this Notice.
2. To transact such other business as may properly come before the
special meeting or any adjournment or postponement of the meeting.
The board of directors of Newgen Results Corporation has fixed the close of
business on , 2000, as the record date for the determination of the
stockholders entitled to notice of, and to vote at, the special meeting and any
adjournment or postponement of the special meeting. A complete list of
stockholders entitled to vote at the special meeting will be open to examination
by the stockholders, during regular business hours, for a period of ten days
prior to the special meeting at Newgen Results Corporation's principal executive
offices at 12680 High Bluff Drive, Suite 300, San Diego, California 92130.
THE BOARD OF DIRECTORS OF NEWGEN RESULTS CORPORATION HAS DETERMINED THAT THE
MERGER IS ADVISABLE AND IN THE BEST INTERESTS OF THE NEWGEN RESULTS CORPORATION
STOCKHOLDERS AND UNANIMOUSLY RECOMMENDS THAT YOU VOTE TO ADOPT THE MERGER
AGREEMENT AT THE SPECIAL MEETING. THE AFFIRMATIVE VOTE OF A MAJORITY OF THE
OUTSTANDING SHARES OF NEWGEN COMMON STOCK IS REQUIRED TO ADOPT THE MERGER
AGREEMENT.
By order of Newgen Results Corporation's
Board of Directors,
Samuel Simkin
SENIOR VICE PRESIDENT, CHIEF OPERATING
OFFICER AND SECRETARY
, 2000
WHETHER OR NOT YOU PLAN TO ATTEND THE SPECIAL MEETING IN PERSON, AND WHETHER
YOU OWN ONE OR MORE SHARES OF NEWGEN COMMON STOCK, PLEASE COMPLETE, DATE, SIGN
AND PROMPTLY RETURN THE ENCLOSED PROXY IN THE ENCLOSED ENVELOPE, WHICH REQUIRES
NO POSTAGE, OR VOTE BY TELEPHONE OR THROUGH THE INTERNET AS INSTRUCTED ON THE
ENCLOSED PROXY CARD. YOU MAY REVOKE YOUR PROXY AT ANY TIME BEFORE THE VOTE IS
TAKEN BY DELIVERING TO THE SECRETARY OF NEWGEN A WRITTEN REVOCATION OR A PROXY
WITH A LATER DATE OR BY VOTING YOUR SHARES IN PERSON AT THE SPECIAL MEETING.
EACH VOTE IS IMPORTANT. PLEASE COMPLETE, SIGN, DATE AND RETURN YOUR PROXY CARD
OR SUBMIT YOUR PROXY VIA THE INTERNET OR BY PHONE.
Please do not send your stock certificates with your proxy card.
<PAGE>
REFERENCE TO ADDITIONAL INFORMATION
This document incorporates important business and financial information
about TeleTech that is not included in this document. That information is
described under "Where You Can Find More Information." TeleTech will provide the
information incorporated into this document without charge to you upon written
or oral request, to the extent it does not already accompany this document.
Requests should be made in writing or by telephone to the following:
TeleTech Holdings, Inc.
1700 Lincoln Street, Suite 1400
Denver, Colorado 80203
Telephone number: (303) 894-4000
Attention: General Counsel
IN ORDER TO ENSURE TIMELY DELIVERY OF THE INFORMATION PRIOR TO THE NEWGEN
STOCKHOLDER MEETING, REQUESTS MUST BE RECEIVED BY , 2000.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
--------
<S> <C>
QUESTIONS & ANSWERS ABOUT THE MERGER........................ 1
SUMMARY..................................................... 4
The Companies............................................. 4
The Newgen Special Meeting; Vote Required................. 4
Share Ownership of Newgen's Management.................... 4
Newgen Voting Agreements.................................. 4
No Dissenters' Rights..................................... 5
The Merger................................................ 5
Recommendation of Newgen's Board of Directors............. 5
Fairness Opinion of Newgen's Financial Advisor............ 5
Conflicts of Interest of Newgen's Directors and Executive
Officers in the Merger.................................. 5
The Merger Agreement...................................... 5
Conversion of Newgen Common Stock......................... 5
Conditions to the Merger.................................. 6
Termination of the Merger Agreement; Termination Fees..... 6
Regulatory Approvals...................................... 6
Federal Income Tax Consequences........................... 6
Accounting Treatment...................................... 6
Comparison of Stockholder Rights.......................... 7
Where You Can Find More Information....................... 7
SELECTED HISTORICAL AND UNAUDITED PRO FORMA FINANCIAL
DATA........................................................ 8
NEWGEN RESULTS CORPORATION QUARTERLY FINANCIAL INFORMATION
(UNAUDITED)................................................. 11
COMPARATIVE PER SHARE INFORMATION........................... 12
PRICE RANGE OF COMMON STOCK................................. 13
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL
INFORMATION................................................. 15
RISK FACTORS RELATING TO THE MERGER AND AN INVESTMENT IN
TELETECH COMMON STOCK....................................... 25
Risks Related to the Merger............................... 25
You will receive shares of TeleTech common stock based
on an exchange ratio that is determined by the market
value of TeleTech common stock......................... 25
If the merger fails to qualify as a reorganization you
will recognize gain or loss on your Newgen shares...... 25
TeleTech may not be able to treat the merger as a
pooling of interests for accounting purposes........... 25
The requirement for regulatory approvals may delay
completion of the merger............................... 26
The issuance of shares of TeleTech common stock in the
merger will result in immediate dilution of the
outstanding TeleTech common stock...................... 26
Sales of substantial amounts of TeleTech's common stock
in the open market could depress TeleTech's stock
price.................................................. 26
Failure of Newgen stockholders to adopt the merger
agreement may require Newgen, under certain
circumstances, to pay termination fees and may result
in a decrease in the market price of Newgen common
stock.................................................. 26
The directors and executive officers of Newgen may have
interests in the completion of the merger that are
different from the interests of Newgen's
stockholders........................................... 27
TeleTech may encounter difficulties in the integration
and development of the business of Newgen.............. 27
</TABLE>
i
<PAGE>
<TABLE>
<CAPTION>
PAGE
--------
<S> <C>
General uncertainty related to the merger could harm the
combined company....................................... 28
The costs of the merger and the costs of integrating
TeleTech's and Newgen's operations are substantial and
will make it more difficult for TeleTech to achieve
profitability.......................................... 28
Risks Related to TeleTech's Business...................... 28
TeleTech's loss of any of its major clients may
materially reduce its revenues......................... 28
The terms of TeleTech's contracts with its clients do
not guarantee a minimum level of revenue............... 29
The service fees that TeleTech charges its clients may
not cover the costs TeleTech incurs in providing
services............................................... 29
TeleTech's customer interaction centers occasionally are
under used, but TeleTech incurs the same operating
costs regardless of level of use....................... 29
TeleTech's failure to manage effectively its rapid
growth may delay its achievement of its business
strategy............................................... 29
TeleTech must enhance its services and develop new ones
to be successful in the rapidly changing market........ 30
TeleTech's success depends on its retention of key
personnel and its ability to hire other key
personnel.............................................. 30
TeleTech's success depends on the maintenance of good
labor relations and its ability to effectively respond
to high personnel turnover............................. 30
The market TeleTech faces is highly competitive and
TeleTech may not be able to compete effectively........ 30
TeleTech may experience difficulties in completing and
integrating acquired companies and joint ventures,
which may slow its growth.............................. 31
A system failure could delay or interrupt service to
TeleTech clients....................................... 31
TeleTech's international operations subject it to
additional risks....................................... 31
TeleTech has experienced and may continue to experience
fluctuations in its quarterly operating results........ 31
Changes in key industries that use TeleTech's services
may negatively affect TeleTech's revenues.............. 32
TeleTech's success depends on the success of TeleTech's
clients' products...................................... 32
A WARNING ABOUT FORWARD-LOOKING STATEMENTS.................. 33
THE NEWGEN SPECIAL MEETING.................................. 34
Date, Time and Place of the Special Meeting............... 34
Matters to be Considered at the Special Meeting........... 34
Stock Entitled to Vote.................................... 34
Quorum.................................................... 34
Voting Rights; Vote Required for Approval................. 34
Abstentions, Failures to Vote and Broker Non-Votes........ 34
Voting by Proxy; Revocation of Proxy...................... 35
Certain Beneficial Owners................................. 35
Voting via the Internet or by Telephone................... 35
Solicitation of Proxies................................... 36
No Dissenters' Rights..................................... 36
THE MERGER.................................................. 38
Background of the Merger.................................. 38
Recommendation of Newgen's Board of Directors............. 42
Newgen's Reasons for the Merger........................... 42
Opinion of Financial Advisor to Newgen.................... 44
TeleTech's Reasons for the Merger......................... 49
Interests of Certain Persons in the Merger................ 50
</TABLE>
ii
<PAGE>
<TABLE>
<CAPTION>
PAGE
--------
<S> <C>
Structure of the Merger and Conversion of Newgen Common
Stock................................................... 51
Exchange of Newgen Stock Certificates for TeleTech Stock
Certificates............................................ 52
Material United States Federal Income Tax Consequences of
the Merger.............................................. 52
Accounting Treatment of the Merger........................ 54
Regulatory Filings and Approvals Required to Complete the
Merger.................................................. 55
Restrictions on Sales by Affiliates of Newgen and
TeleTech................................................ 55
Additional Restrictions on Sales of Shares of TeleTech
Common Stock by Affiliates of Newgen.................... 56
Listing on the Nasdaq National Market of TeleTech Common
Stock to be Issued in the Merger........................ 56
Delisting and Deregistration of Newgen Common Stock after
the Merger.............................................. 56
Operations after the Merger............................... 56
THE MERGER AGREEMENT........................................ 57
Closing; Effective Time of the Merger..................... 57
Representations and Warranties of TeleTech, NG Acquisition
Corp. and Newgen........................................ 57
Newgen's Conduct of Business before Completion of the
Merger.................................................. 58
TeleTech's Conduct of Business before Completion of the
Merger.................................................. 59
Newgen's Employee Benefit Plans; Termination of Newgen's
Employee Stock Purchase Plan............................ 60
Treatment of Newgen Stock Options; Grant of TeleTech Stock
Options................................................. 60
Conditions to Completion of the Merger.................... 61
No Solicitation by Newgen................................. 62
Termination of the Merger Agreement....................... 63
Expenses.................................................. 65
Extension, Waiver and Amendment of the Merger Agreement... 65
Indemnification; Directors' and Officers' Insurance....... 65
The Voting Agreements..................................... 66
INFORMATION ABOUT THE COMPANIES............................. 69
TeleTech Holdings, Inc.................................... 69
Recent Events............................................. 71
Security Ownership of Certain Beneficial Owners and
Management of TeleTech.................................. 71
Newgen Results Corporation................................ 73
Risks Related to Newgen's Business........................ 86
Newgen Management's Discussion and Analysis of Financial
Condition and Results of Operations..................... 98
Newgen's Quantitative and Qualitative Disclosure about
Market Risk............................................. 104
Additional Newgen Information............................. 105
Security Ownership of Certain Beneficial Owners and
Management of Newgen.................................... 105
NG Acquisition Corp....................................... 107
</TABLE>
iii
<PAGE>
<TABLE>
<CAPTION>
PAGE
--------
<S> <C>
COMPARISON OF TELETECH COMMON STOCK AND NEWGEN COMMON
STOCK....................................................... 108
Authorized Capital........................................ 108
Board of Directors........................................ 108
Committees of the Board of Directors...................... 109
Newly Created Directorships and Vacancies................. 110
Removal of Directors...................................... 110
Officers.................................................. 111
Special Meetings of Stockholders.......................... 111
Quorum at Stockholder Meetings............................ 111
Stockholder Action by Written Consent..................... 112
Advance Notice of Stockholder-Proposed Business at Annual
Meetings................................................ 112
Amendment of Governing Documents.......................... 112
Indemnification Of Directors And Officers................. 113
Business Combination with an Interested Stockholder....... 113
LEGAL MATTERS............................................... 115
EXPERTS..................................................... 115
OTHER MATTERS............................................... 115
WHERE YOU CAN FIND MORE INFORMATION......................... 115
WHAT INFORMATION YOU SHOULD RELY ON......................... 117
ANNEX A--Agreement and Plan of Merger..................... A-1
ANNEX B--Primary Voting Agreement......................... B-1
ANNEX C--Secondary Voting Agreement....................... C-1
ANNEX D--Chase H&Q Fairness Opinion....................... D-1
</TABLE>
iv
<PAGE>
QUESTIONS & ANSWERS ABOUT THE MERGER
Q: WHY ARE TELETECH AND NEWGEN PROPOSING THE MERGER?
A: Both TeleTech and Newgen believe that the merger will provide the combined
company with:
- the ability to leverage Newgen's services in international markets using
TeleTech's infrastructure;
- opportunities to expand Newgen's services beyond the automotive industry;
and
- potentially greater financial, technological and human resources to
develop new products and services.
Q: HOW IS THIS TRANSACTION BEING STRUCTURED?
A: If all conditions to the merger are satisfied (or waived), NG Acquisition
Corp., a wholly owned subsidiary of TeleTech, will be merged into Newgen. As
a result of the merger, NG Acquisition Corp. will cease to exist and Newgen
will continue as the surviving corporation. Following the merger, Newgen
will be a wholly owned subsidiary of TeleTech.
Q: WHAT WILL I RECEIVE FOR MY SHARES OF NEWGEN COMMON STOCK?
A: In the merger, your shares of Newgen common stock will be converted into the
right to receive shares of TeleTech common stock. The number of shares of
TeleTech common stock that you will receive for your shares of Newgen common
stock will be determined by an exchange ratio. The exchange ratio will be
determined by dividing $18.00 by the average closing price per share of
TeleTech common stock for the 20 consecutive trading days ending on the
second full trading day prior to the closing date of the merger as reported
on the Nasdaq National Market. However, you will receive no less than .48
and no more than .80 of a share of TeleTech common stock for each share of
Newgen common stock that you own.
For example, if you own 100 Newgen shares and the exchange ratio is .6076
(based on an average closing price of $29.625 per share of TeleTech common
stock), then you would receive 60 shares of TeleTech common stock and $22.52
in cash in the merger. The following chart sets forth examples of the
exchange ratios for various average closing prices per share of TeleTech
common stock:
<TABLE>
<CAPTION>
IF THE 20-DAY AVERAGE CLOSING
PRICE PER SHARE OF TELETECH THEN THE EXCHANGE
COMMON STOCK IS: RATIO WILL BE:
----------------------------- -------------------
<S> <C>
$22.50 or less............ .80
$25.50.................... .7059
$30.50.................... .5902
$35.50.................... .5070
$37.50 or more............ .48
</TABLE>
Q: WILL ANY FRACTIONAL SHARES OF TELETECH COMMON STOCK BE ISSUED IN THE MERGER?
A: No. Cash based on the 20-day average closing price per share of TeleTech
common stock will be paid instead of fractional shares.
Q: WILL THE SHARES OF TELETECH COMMON STOCK ISSUED IN THE MERGER BE LISTED ON
THE NASDAQ NATIONAL MARKET?
A: Yes. The shares of TeleTech common stock issued in the merger will be listed
on the Nasdaq National Market.
Q: DO I GET TO VOTE ON THE MERGER AGREEMENT?
A: If you held Newgen common stock at the close of business on ,
2000, the record date, you may vote on the adoption of the merger agreement.
TeleTech's stockholders will not vote on the merger agreement.
Q: WHAT AM I BEING ASKED TO VOTE UPON?
A: Newgen stockholders are being asked to adopt the merger agreement, which
provides for the merger of NG Acquisition Corp., a wholly owned subsidiary
of TeleTech, into Newgen. Adoption of the merger agreement requires the
affirmative vote of a majority of the outstanding shares of Newgen common
stock as of the record date.
THE NEWGEN BOARD OF DIRECTORS HAS UNANIMOUSLY APPROVED THE MERGER AGREEMENT
1
<PAGE>
AND RECOMMENDS THAT NEWGEN STOCKHOLDERS VOTE FOR ADOPTION OF THE MERGER
AGREEMENT.
TeleTech stockholders are not being asked to approve, and are not required
to approve, the merger agreement.
Q: DO NEWGEN STOCKHOLDERS HAVE DISSENTERS' RIGHTS?
A: No. Newgen stockholders do not have rights to an appraisal of their shares
under Delaware law because Newgen common stock is listed on Nasdaq and
Newgen stockholders will receive consideration in the merger consisting of
shares of TeleTech common stock, which is also listed on Nasdaq, and cash in
lieu of fractional shares.
Q: HOW SOON AFTER THE NEWGEN SPECIAL MEETING WILL THE MERGER OCCUR?
A: If the merger agreement is adopted at the special meeting, TeleTech
anticipates that the merger will occur as soon as practicable after the
completion of the Newgen special meeting. Both TeleTech and Newgen hope to
complete the merger during the fourth quarter of 2000. Because the merger is
subject to governmental approvals, however, TeleTech cannot predict the
exact timing of the closing.
Q: WHAT ARE THE TAX CONSEQUENCES OF THE MERGER TO STOCKHOLDERS OF NEWGEN AND
TELETECH?
A: For United States federal income tax purposes, Newgen stockholders will not
recognize any gain or loss on the exchange of their shares of Newgen common
stock for shares of TeleTech common stock, except with respect to the cash
received, if any, instead of fractional shares of TeleTech common stock.
However, different tax consequences may apply to you because of your
individual circumstances or because special tax rules apply to you. The
merger will not have any tax consequences for TeleTech stockholders.
Q: WHAT WILL MY TAX BASIS BE IN THE TELETECH COMMON STOCK I RECEIVE IN THE
MERGER?
A: Your tax basis in the total shares of TeleTech common stock you receive in
the merger will equal your current tax basis in your total shares of Newgen
common stock, reduced by the amount of basis allocable to fractional shares
for which you receive cash.
THE TAX CONSEQUENCES TO YOU WILL DEPEND ON YOUR PERSONAL SITUATION. YOU
SHOULD CONSULT YOUR TAX ADVISOR FOR A FULL UNDERSTANDING OF THE TAX
CONSEQUENCES OF THE MERGER TO YOU.
Q: WHAT DO I NEED TO DO NOW?
A: After carefully reading and considering the information contained in this
proxy statement/prospectus, please fill out and sign your proxy card. Then
mail your completed, signed and dated proxy card in the enclosed return
envelope as soon as possible so that your shares can be voted at the Newgen
special meeting. In the alternative, you may appoint a proxy via the
Internet or by phone.
If you sign and send in your proxy card and do not indicate how you want to
vote, your proxy will be voted in favor of the proposal to adopt the merger
agreement. If you do not sign and send in your proxy card, do not appoint a
proxy via the Internet or by phone or if you abstain, it will have the
effect of a vote against the merger agreement.
Q: CAN I CHANGE MY VOTE AFTER I HAVE MAILED MY SIGNED PROXY CARD OR VOTED BY
PHONE OR OVER THE INTERNET?
A: You may change your vote by sending a written notice stating that you would
like to revoke your proxy or by completing and submitting a new, later-dated
proxy card or by acting at a later date via the Internet or by telephone.
You also may attend the Newgen special meeting and vote in person. However,
Newgen stockholders who are parties to voting agreements with TeleTech may
not revoke the proxies they granted to TeleTech and NG Acquisition Corp.
under those agreements.
Q: IF MY SHARES ARE HELD IN "STREET NAME" BY MY BROKER, WILL MY BROKER VOTE MY
SHARES FOR ME?
A: Your broker will vote your shares of Newgen common stock only if you provide
instructions on how to vote. You should instruct your broker how to vote
your shares,
2
<PAGE>
following the directions your broker provides. If you do not provide
instructions to your broker, your shares will not be voted and this will
have the effect of voting against the merger agreement.
Q: SHOULD I SEND IN MY STOCK CERTIFICATES NOW?
A: No. You should not send in your Newgen stock certificates at this time. After
the merger is completed, you will receive written instructions for
exchanging your Newgen stock certificates for TeleTech stock certificates.
Q: WHO CAN ANSWER MY OTHER QUESTIONS?
A: If you have more questions about the merger, you should contact Sam Simkin,
Newgen's Chief Operating Officer, at (858) 481-7545 or
[email protected].
3
<PAGE>
SUMMARY
THIS SUMMARY HIGHLIGHTS SELECTED INFORMATION FROM THIS PROXY
STATEMENT/PROSPECTUS. IT MAY NOT CONTAIN ALL OF THE DETAILED INFORMATION THAT
MAY BE IMPORTANT TO YOU. TO UNDERSTAND THE MERGER FULLY AND FOR A MORE COMPLETE
DESCRIPTION OF THE LEGAL TERMS OF THE MERGER, YOU SHOULD READ CAREFULLY THIS
ENTIRE DOCUMENT AND THE OTHER DOCUMENTS TO WHICH THIS DOCUMENT REFERS, INCLUDING
THE MERGER AGREEMENT, WHICH IS ATTACHED AS AN ANNEX TO THIS PROXY
STATEMENT/PROSPECTUS. FOR MORE INFORMATION ABOUT TELETECH AND NEWGEN, SEE "WHERE
YOU CAN FIND MORE INFORMATION" ON PAGE 115. EACH ITEM IN THIS SUMMARY REFERS TO
THE PAGES WHERE THAT SUBJECT IS DISCUSSED MORE FULLY.
THE COMPANIES (SEE PAGE 69)
TELETECH HOLDINGS, INC.
1700 Lincoln Street, Suite 1400
Denver, Colorado 80203
(303) 894-4000
TeleTech Holdings, Inc. is a leading provider of eCommerce-enabling customer
management solutions for large domestic, foreign and multinational companies.
TeleTech helps its clients acquire, serve, and retain their customers by
strategically managing inbound telephone and Internet-based inquiries on their
behalf. Such programs include both automated and human-assisted support and
involve all stages of the customer relationship. Programs consist of a variety
of customer management and product support activities, such as providing new
product information, enrolling customers in client programs, providing 24-hour
technical and help desk support and resolving customer complaints.
NEWGEN RESULTS CORPORATION
12680 High Bluff Drive, Suite 300
San Diego, California 92130
(858) 481-7545
Newgen Results Corporation provides customized, outsourced database management,
direct marketing and related services for automobile dealerships' service
departments and automobile manufacturers. Newgen combines its expertise in
database marketing and customer retention services, its focus on customer
service and its in-depth knowledge of automobile service department operations
to provide highly targeted and customized solutions. Newgen's RESULTS Program
employs efficient and cost-effective technology to enable dealerships to
increase their number of service department customers as well as revenues per
customer. Newgen has grown its customer base from 177 dealerships at
December 31, 1995 to 5,039 dealerships at June 30, 2000.
THE NEWGEN SPECIAL MEETING; VOTE REQUIRED (SEE PAGE 34)
The special meeting of Newgen stockholders will be held on ____________,
____________, 2000 at ______.m., local time. At the special meeting, holders of
shares of Newgen common stock will be asked to vote to adopt the merger
agreement providing for the merger of NG Acquisition Corp., a wholly owned
subsidiary of TeleTech, into Newgen. The adoption of the merger agreement
requires the affirmative vote of the holders of a majority of the outstanding
shares of Newgen common stock entitled to vote at the Newgen special meeting.
You can vote at the special meeting of Newgen stockholders if you owned shares
of Newgen common stock at the close of business on ____________, 2000.
SHARE OWNERSHIP OF NEWGEN'S MANAGEMENT (SEE PAGE 105)
As of the record date for the Newgen special meeting, the executive officers and
directors of Newgen and their affiliates beneficially owned 6,019,466 shares of
Newgen common stock, representing approximately 57.1% of the outstanding shares
of Newgen common stock entitled to vote at the Newgen special meeting.
NEWGEN VOTING AGREEMENTS (SEE PAGE 66)
Various stockholders of Newgen (including members of management) have entered
into voting agreements with TeleTech under which they have agreed to vote all of
their shares of Newgen common stock in favor of adoption of the merger
agreement. As of the record date for the Newgen
4
<PAGE>
special meeting, the stockholders that are parties to the voting agreements
beneficially owned a total of 5,957,386 shares of Newgen common stock,
representing approximately 56.6% of the outstanding shares of Newgen common
stock entitled to vote at the Newgen special meeting.
Because the adoption of the merger agreement requires the affirmative vote of
the holders of a majority of the outstanding shares of Newgen common stock
entitled to vote at the Newgen special meeting, including the shares covered by
the voting agreements, the adoption of the merger agreement by Newgen
stockholders at the Newgen special meeting is assured. The voting agreements are
attached as Annexes B and C to this proxy statement/prospectus.
NO DISSENTERS' RIGHTS (SEE PAGE 36)
Under the Delaware General Corporation Law, the Newgen stockholders do not have
any right to a court determination, in a proceeding known as an appraisal, of
the fair value of their shares of Newgen common stock, in connection with the
proposed merger with TeleTech.
THE MERGER (SEE PAGE 38)
In the merger, NG Acquisition Corp. will merge into Newgen and NG Acquisition
Corp. will cease to exist. As a result of the merger, Newgen will become a
wholly owned subsidiary of TeleTech.
RECOMMENDATION OF NEWGEN'S BOARD OF DIRECTORS (SEE PAGE 42)
The Newgen board of directors has unanimously approved the merger agreement and
recommends that Newgen stockholders vote FOR the adoption of the merger
agreement. Please see pages 43 and 44 for a description of the factors that the
Newgen board of directors considered in determining whether to approve the
merger agreement.
FAIRNESS OPINION OF NEWGEN'S FINANCIAL ADVISOR (SEE PAGE 44)
In deciding to approve the merger agreement, the Newgen board of directors
considered the oral opinion, delivered on August 16, 2000, of its financial
advisor, Chase H&Q, that, as of that date, the consideration to be received in
the merger was fair, from a financial point of view, to the holders of Newgen
common stock. Such opinion was confirmed in writing on August 21, 2000. This
opinion is attached as Annex D to this document. WE ENCOURAGE NEWGEN
STOCKHOLDERS TO READ THIS OPINION CAREFULLY.
CONFLICTS OF INTEREST OF NEWGEN'S DIRECTORS AND EXECUTIVE OFFICERS IN THE MERGER
(SEE PAGE 50)
In considering the recommendation of Newgen's board of directors with respect to
the merger, Newgen's stockholders should be aware of the existence of various
employment agreements, bonus arrangements, voting agreements and indemnification
obligations. As a result, some of Newgen's directors and executive officers may
have interests in the merger that differ from, or are in addition to, the
interests of Newgen stockholders generally.
THE MERGER AGREEMENT (SEE PAGE 57)
The merger agreement is attached at the back of this proxy statement/prospectus
as Annex A. We urge you to carefully read the merger agreement in its entirety
as it is the legal document that governs the merger.
CONVERSION OF NEWGEN COMMON STOCK
(SEE PAGE 51)
In the merger, your shares of Newgen common stock will be converted into the
right to receive TeleTech common stock. The number of shares of TeleTech common
stock that you will receive for your shares of Newgen common stock will be
determined by an exchange ratio. The exchange ratio will be determined by
dividing $18.00 by the average closing price per share of TeleTech common stock
for the 20 consecutive trading days ending on the second full trading day prior
to the closing date of the merger as reported on the Nasdaq National Market.
However, you will receive no less than .48 and no more than .80 of a share of
TeleTech common stock for each share of Newgen common stock that you own. Cash
based on the 20-day average closing price per share of TeleTech common stock
will be paid instead of fractional shares.
5
<PAGE>
CONDITIONS TO THE MERGER (SEE PAGE 61)
Before the merger can be completed, a number of conditions must be satisfied.
These include:
- adoption of the merger agreement by the requisite vote of Newgen
stockholders;
- absence of legal impediments preventing the completion of the merger;
- effectiveness of the registration statement on Form S-4 of which this
proxy statement/ prospectus is a part;
- expiration or termination of the applicable waiting period under the
Hart-Scott-Rodino Antitrust Improvements Act of 1976 and receipt of any
necessary approvals; and
- other customary closing conditions.
Where the law permits, Newgen or TeleTech could decide to complete the merger
even though one or more conditions were not satisfied. By law, neither Newgen
nor TeleTech can waive (a) the requirement that the Newgen stockholders adopt
the merger agreement, or (b) any court order or law preventing completion of the
merger. Whether any of the conditions would be waived would depend on the facts
and circumstances as determined by the reasonable business judgment of the
Newgen board of directors or the TeleTech board of directors.
It is also a condition to the completion of the merger that at least one of
Hogan & Hartson L.L.P., counsel to TeleTech, and Cooley Godward LLP, counsel to
Newgen, deliver an opinion that the merger qualifies as a reorganization under
the provisions of section 368(a) of the Internal Revenue Code. This condition
will not be waived.
TERMINATION OF THE MERGER AGREEMENT; TERMINATION FEES (SEE PAGE 63)
The merger agreement contains provisions addressing the circumstances under
which Newgen or TeleTech may terminate the merger agreement. In addition, the
merger agreement provides that, in several circumstances, Newgen may be required
to pay to TeleTech a termination fee of $5 million and reimburse TeleTech for up
to $1 million of expenses incurred in connection with the merger agreement.
REGULATORY APPROVALS (SEE PAGE 55)
TeleTech and Newgen have made filings and taken other actions necessary to
obtain approvals from regulatory authorities, including U.S. antitrust
authorities, in connection with the merger. The initial filings under the
Hart-Scott-Rodino Antitrust Improvements Act were made on September 22, 2000.
The parties expect to obtain approval from the U.S. antitrust authorities and
all other necessary regulatory approvals before the Newgen special meeting.
However, it is not certain that the parties will obtain all required regulatory
approvals by that date or at all. Any approvals that the parties receive may be
subject to conditions that could be detrimental to TeleTech or Newgen.
FEDERAL INCOME TAX CONSEQUENCES (SEE PAGE 52)
TeleTech and Newgen intend for the merger to qualify as a reorganization within
the meaning of section 368(a) of the Internal Revenue Code of 1986, as amended.
If the merger qualifies as a reorganization, then the holders of Newgen common
stock will not recognize a gain or loss for United States federal income tax
purposes as a result of the merger, except to the extent of the cash received as
part of the merger consideration in lieu of fractional shares. However,
different tax consequences may apply to you because of your individual
circumstances or because special tax rules apply to you. YOU SHOULD CONSULT YOUR
TAX ADVISOR FOR A FULL UNDERSTANDING OF THE TAX CONSEQUENCES OF THE MERGER TO
YOU.
ACCOUNTING TREATMENT (SEE PAGE 54)
The merger is expected to be treated as a pooling of interests for financial
accounting purposes. The pooling of interests method of accounting assumes, for
purposes of financial statement presentation, that TeleTech and Newgen have
always been combined. If the merger is consummated, TeleTech will restate
retroactively at the effective date of the merger its consolidated financial
statements to include the assets, liabilities, stockholders' equity and results
of operations of Newgen, as if the companies had
6
<PAGE>
been combined as of the earliest date reported by the combined financial
statements. If the SEC determines that merger may not be treated as a pooling of
interests for financial accounting purposes, TeleTech may terminate the merger
agreement.
COMPARISON OF STOCKHOLDER RIGHTS (SEE PAGE 108)
TeleTech and Newgen are both Delaware corporations. Currently, the rights of
stockholders of Newgen are determined by reference to Delaware law and Newgen's
certificate of incorporation and bylaws. At the effective time of the merger,
stockholders of Newgen will become stockholders of TeleTech. As a result, their
rights as stockholders will then be determined by reference to Delaware law and
TeleTech's certificate of incorporation and bylaws. There are differences
between the two corporations' certificates of incorporation and bylaws.
WHERE YOU CAN FIND MORE INFORMATION
(SEE PAGE 115)
If you would like more information about TeleTech or Newgen, you can find this
information in documents filed by TeleTech and Newgen with the SEC. Please see
page 115 for instructions on how you can obtain copies of these documents.
7
<PAGE>
SELECTED HISTORICAL AND UNAUDITED PRO FORMA FINANCIAL DATA
The summaries below set forth selected historical financial data and
selected unaudited pro forma financial data. This financial data should be read
in conjunction with the historical consolidated financial statements and related
notes of TeleTech contained in its 1999 Form 10-K and March 31, 2000 and
June 30, 2000 Form 10-Q's, which are incorporated by reference in this proxy
statement/prospectus, with the historical consolidated financial statements and
related notes of Newgen included elsewhere in this proxy statement/prospectus,
and with the unaudited pro forma combined financial statements and related notes
of TeleTech included elsewhere in this proxy statement/prospectus.
SELECTED HISTORICAL FINANCIAL DATA
The selected historical consolidated financial data of TeleTech and Newgen
for the five years ended December 31, 1999, set forth below, has been derived
from audited financial statements. The selected historical financial statements
for the six months ended June 30, 1999 and 2000 for TeleTech and Newgen, have
been derived from unaudited financial statements which reflect, in the opinon of
TeleTech and Newgen, all adjustments, which include only normal recurring
adjustments, necessary for a fair presentation of the financial data for such
periods. Results for interim periods do not necessarily indicate results for the
full year.
TELETECH HOLDINGS, INC.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30, YEAR ENDED DECEMBER 31,
------------------- ----------------------------------------------------
2000 1999 1999 1998 1997 1996 1995
-------- -------- -------- -------- -------- -------- --------
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF
INCOME DATA:
Operating revenue............. $369,853 $248,877 $549,076 $384,771 $284,683 $171,265 $54,933
Total operating expenses...... 335,027 228,859 503,119 351,257 251,256 147,646 50,171
-------- -------- -------- -------- -------- -------- -------
Income from operations........ 34,826 20,018 45,957 33,514 33,427 23,619 4,762
Other income.................. 11,310 188 6,835 137 2,299 18 2,468
-------- -------- -------- -------- -------- -------- -------
Income before income taxes and
minority interest........... 46,136 20,206 52,792 33,651 35,726 23,637 7,230
Provision for income
taxes..................... 18,233 8,009 20,847 13,344 14,206 9,773 2,992
-------- -------- -------- -------- -------- -------- -------
Income before minority
interest.................... 27,903 12,197 31,945 20,307 21,520 13,864 4,238
Minority interest........... (399) -- -- -- -- -- --
-------- -------- -------- -------- -------- -------- -------
Net income.................... $ 27,504 $ 12,197 $ 31,945 $ 20,307 $ 21,520 $ 13,864 $ 4,238
======== ======== ======== ======== ======== ======== =======
Net income per common share
Basic....................... $ 0.42 $ 0.20 $ 0.50 $ 0.32 $ 0.35 $ 0.25 $ 0.08
Diluted..................... $ 0.39 $ 0.20 $ 0.48 $ 0.31 $ 0.33 $ 0.24 $ 0.08
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
JUNE 30, ----------------------------------------------------
2000 1999 1998 1997 1996 1995
--------- -------- -------- -------- -------- --------
(AMOUNTS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital................ $163,036 $ 85,667 $ 65,579 $ 82,154 $ 88,511 $11,305
Total assets................... 465,977 311,552 238,969 194,947 147,011 30,583
Long-term debt................. 47,888 26,344 6,798 10,566 10,144 3,590
Redeemable convertible
preferred stock.............. -- -- -- -- -- 12,867
Total stockholder's equity..... 296,539 210,798 169,064 139,401 108,530 4,068
</TABLE>
8
<PAGE>
NEWGEN RESULTS CORPORATION
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30, YEAR ENDED DECEMBER 31,
------------------- ----------------------------------------------------
2000 1999 1999 1998 1997 1996 1995
-------- -------- -------- -------- -------- -------- --------
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF
OPERATIONS DATA:
Operating revenue........... $39,847 $25,696 $55,188 $40,106 $26,414 $11,629 $ 3,614
Total operating expenses.... 36,385 24,004 50,948 43,240 28,185 16,091 6,422
------- ------- ------- ------- ------- ------- -------
Income (loss) from
operations................ 3,462 1,692 4,240 (3,134) (1,771) (4,462) (2,808)
Other income (expenses)..... 1,427 (31) 726 (69) (418) (229) (3)
------- ------- ------- ------- ------- ------- -------
Income (loss) before income
taxes..................... 4,889 1,661 4,966 (3,203) (2,189) (4,691) (2,811)
Provision for income
taxes................... 178 -- 131 -- -- -- --
------- ------- ------- ------- ------- ------- -------
Net income (loss)........... 4,711 1,661 4,835 (3,203) (2,189) (4,691) (2,811)
Adjustment for accretion of
redeemable convertible
preferred stock........... -- (487) (487) (1,371) (132) -- --
------- ------- ------- ------- ------- ------- -------
Income (loss) applicable to
common stockholders....... $ 4,711 $ 1,174 $ 4,348 $(4,574) $(2,321) $(4,691) $(2,811)
======= ======= ======= ======= ======= ======= =======
Net income (loss) per common
share
Basic..................... $ 0.46 $ 0.23 $ 0.57 $ (1.21) $ (0.62) $ (1.25) $ (0.75)
Diluted................... $ 0.42 $ 0.19 $ 0.50 $ (1.21) $ (0.62) $ (1.25) $ (0.75)
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
JUNE 30, ----------------------------------------------------
2000 1999 1998 1997 1996 1995
--------- -------- -------- -------- -------- --------
(AMOUNTS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital...................... $27,546 $26,279 $ 2,558 $ 6,291 $ 484 $ (15)
Total assets......................... 57,571 51,095 12,772 12,302 5,492 1,190
Long-term debt....................... 1,125 1,225 874 435 1,264 24
Redeemable convertible preferred
stock.............................. -- -- 16,050 14,679 5,422 --
Total stockholder's equity
(deficit).......................... 47,555 42,347 (11,133) (6,815) (4,494) (477)
</TABLE>
9
<PAGE>
SELECTED UNAUDITED PRO FORMA COMBINED FINANCIAL DATA
The selected unaudited pro forma combined financial data combine the
historical consolidated balance sheets and statements of income of TeleTech and
Newgen after giving effect to the merger under the pooling of interests method
of accounting, assuming that the merger had been effective for all periods
presented. Pro forma per share data for common stock give effect to the
conversion of each share of Newgen common stock into TeleTech common stock based
upon an assumed exchange ratio of .6076 shares of TeleTech common stock for each
share of Newgen common stock. This data does not reflect any cost savings or
other synergies anticipated by management as a result of the merger. The
selected unaudited pro forma combined financial data does not necessarily
indicate the operating results or financial position that would have occurred
had the merger been consummated on the date for which the merger is being given
effect, nor do they necessarily indicate future operating results or financial
position.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30, YEAR ENDED DECEMBER 31,
------------------- ----------------------------------------------------
2000 1999 1999 1998 1997 1996 1995
-------- -------- -------- -------- -------- -------- --------
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
UNAUDITED PRO FORMA COMBINED
STATEMENT OF INCOME DATA (1):
Operating revenue............. $409,700 $274,573 $604,264 $424,877 $311,097 $182,894 $58,547
Total operating expenses...... 371,412 252,863 554,067 394,497 279,441 163,737 56,593
-------- -------- -------- -------- -------- -------- -------
Income from operations........ 38,288 21,710 50,197 30,380 31,656 19,157 1,954
Other income (expenses)....... 12,737 157 7,561 68 1,881 (211) 2,465
-------- -------- -------- -------- -------- -------- -------
Income before income taxes and
minority interest........... 51,025 21,867 57,758 30,448 33,537 18,946 4,419
Provision for income
taxes..................... 18,411 8,009 20,978 13,344 14,206 9,773 2,992
-------- -------- -------- -------- -------- -------- -------
Income before minority
interest.................... 32,614 13,858 36,780 17,104 19,331 9,173 1,427
Minority interest........... (399) -- -- -- -- -- --
-------- -------- -------- -------- -------- -------- -------
Net income.................... $ 32,215 $ 13,858 $ 36,780 $ 17,104 $ 19,331 $ 9,173 $ 1,427
======== ======== ======== ======== ======== ======== =======
Net income per common share
Basic....................... $ 0.45 $ 0.20 $ 0.53 $ 0.24 $ 0.30 $ 0.16 $ 0.03
Diluted..................... $ 0.42 $ 0.20 $ 0.51 $ 0.24 $ 0.28 $ 0.15 $ 0.02
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
JUNE 30, ----------------------------------------------------
2000 1999 1998 1997 1996 1995
--------- -------- -------- -------- -------- --------
(AMOUNTS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
UNAUDITED PRO FORMA COMBINED
BALANCE SHEET DATA (1):
Working capital................ $182,982 $111,946 $ 68,137 $ 88,445 $ 88,995 $11,290
Total assets................... 523,548 362,647 251,741 207,249 152,503 31,773
Long-term debt................. 49,013 27,569 7,672 11,001 11,408 3,614
Redeemable convertible
preferred stock.............. -- -- 16,050 14,679 5,422 12,867
Total stockholder's equity..... 336,494 253,145 157,931 132,586 104,036 3,591
</TABLE>
------------------------
(1) TeleTech and Newgen estimate that they will incur merger related expenses of
approximately $7.6 million, consisting primarily of transaction costs for
fees of financial advisors, attorneys, accountants, financial printing and
one-time charges related to the transaction. This estimate is preliminary
and is therefore subject to change. These non-recurring expenses will be
charged to operations in the first fiscal quarter in which the merger is
consummated. The Unaudited Pro Forma Combined Balance Sheet gives effect to
such expenses as if they had been incurred as of June 30, 2000, but the
Unaudited Pro Forma Combined Statement of Income does not give effect to
such expenses in accordance with Regulation S-X.
10
<PAGE>
NEWGEN RESULTS CORPORATION QUARTERLY FINANCIAL INFORMATION
(UNAUDITED)
<TABLE>
<CAPTION>
QUARTER ENDED
----------------------------------------------------------------------
MAR. 31, JUNE 30, SEPT. 30, DEC. 31, MAR. 31, JUNE 30,
1998 1998 1998 1998 1999 1999
--------- --------- ---------- --------- --------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
Database marketing services
revenues...................... $ 6,908 $ 7,562 $ 8,124 $ 8,919 $10,572 $11,963
Consulting revenues............. 2,366 2,539 1,710 1,978 1,532 1,629
------- ------- ------- ------- ------- -------
Total revenues................ 9,274 10,101 9,834 10,897 12,104 13,592
Gross profit.................... 2,277 2,651 2,663 3,252 4,184 5,488
Selling, general and
administrative expenses....... 1,854 1,893 2,045 3,085 2,927 3,401
Net income (loss)............... (663) (647) (664) (1,229) 524 1,137
Adjustment for accretion of
redeemable convertible
preferred stock............... (341) (341) (341) (349) (365) (122)
------- ------- ------- ------- ------- -------
Income (loss) applicable to
common stockholders........... $(1,004) $ (988) $(1,005) $(1,578) $ 159 $ 1,015
======= ======= ======= ======= ======= =======
Basic net income (loss) per
share......................... $ (0.27) $ (0.26) $ (0.27) $ (0.42) $ 0.04 $ 0.15
======= ======= ======= ======= ======= =======
Diluted net income (loss) per
share......................... $ (0.27) $ (0.26) $ (0.27) $ (0.42) $ 0.03 $ 0.12
======= ======= ======= ======= ======= =======
Shares used in basic per share
calculation................... 3,767 3,767 3,767 3,767 3,830 6,568
======= ======= ======= ======= ======= =======
Shares used in diluted per share
calculation................... 3,767 3,767 3,767 3,767 4,681 9,384
======= ======= ======= ======= ======= =======
<CAPTION>
QUARTER ENDED
----------------------------------------------
SEPT. 30, DEC. 31, MAR. 31, JUNE 30,
1999 1999 2000 2000
---------- --------- --------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
Database marketing services
revenues...................... $12,656 $14,266 $19,312 $19,386
Consulting revenues............. 1,515 1,055 508 640
------- ------- ------- -------
Total revenues................ 14,171 15,321 19,820 20,026
Gross profit.................... 5,727 5,822 7,312 9,283
Selling, general and
administrative expenses....... 3,038 3,219 4,811 5,051
Net income (loss)............... 1,907 1,267 1,132 3,579
Adjustment for accretion of
redeemable convertible
preferred stock............... -- -- -- --
------- ------- ------- -------
Income (loss) applicable to
common stockholders........... $ 1,907 $ 1,267 $ 1,132 $ 3,579
======= ======= ======= =======
Basic net income (loss) per
share......................... $ 0.19 $ 0.13 $ 0.11 $ 0.35
======= ======= ======= =======
Diluted net income (loss) per
share......................... $ 0.18 $ 0.12 $ 0.10 $ 0.32
======= ======= ======= =======
Shares used in basic per share
calculation................... 10,015 10,026 10,132 10,192
======= ======= ======= =======
Shares used in diluted per share
calculation................... 10,802 10,763 11,113 11,187
======= ======= ======= =======
</TABLE>
11
<PAGE>
COMPARATIVE PER SHARE INFORMATION
The following table compares historical and pro forma earnings per share and
book value per share information for TeleTech and Newgen. You should read the
table together with the financial information for TeleTech and Newgen included
or incorporated by reference in this proxy statement/ prospectus. You should not
rely on the pro forma financial information as an indication of the results that
TeleTech would have achieved if the merger had taken place earlier or of the
results that TeleTech will achieve after the merger.
<TABLE>
<CAPTION>
SIX MONTHS YEAR ENDED
ENDED JUNE 30, DECEMBER 31,
2000 1999
-------------- --------------
<S> <C> <C>
TeleTech--historical
Net income per share (diluted)............... $0.39 $0.48
Book value per share (1)..................... $4.49 $3.24
Newgen--historical
Net income per share (diluted)............... $0.42 $0.50
Book value per share (1)..................... $4.66 $4.22
Pro forma combined net income per share
(diluted)
Pro forma net income per share (diluted)
(2)........................................ $0.42 $0.51
Equivalent pro forma net income per Newgen
share (3).................................. $0.26 $0.31
Pro forma combined book value per share
Pro forma book value per share (4)........... $4.77 $3.56
Equivalent pro forma book value per Newgen
share (3).................................. $2.90 $2.16
</TABLE>
------------------------
(1) The historical book value per share is calculated by dividing stockholders'
equity by the total number of outstanding shares of common stock at the end
of the period.
(2) The pro forma combined net income per share is calculated by dividing the
pro forma net income by the pro forma number of diluted shares outstanding
at the end of the period.
(3) The equivalent pro forma combined amounts are calculated by multiplying the
pro forma combined per share amounts by an assumed exchange ratio of .6076
of a share of TeleTech common stock for each share of Newgen common stock
equivalent share.
(4) The pro forma combined book value per share is calculated by dividing the
pro forma stockholders' equity by the pro forma number of outstanding shares
of common stock at the end of the period.
12
<PAGE>
PRICE RANGE OF COMMON STOCK
TELETECH MARKET PRICE DATA
The TeleTech common stock is listed on the Nasdaq National Market under the
symbol "TTEC." The following table sets forth the range of high and low sales
prices for TeleTech common stock as reported on the Nasdaq National Market.
<TABLE>
<CAPTION>
PERIOD HIGH LOW
------ -------- --------
<S> <C> <C>
1999
First Quarter............................................... $12.38 $ 5.56
Second Quarter.............................................. 10.25 5.56
Third Quarter............................................... 14.94 9.69
Fourth Quarter.............................................. 34.38 11.13
2000
First Quarter............................................... $43.69 $23.38
Second Quarter.............................................. 41.19 27.13
Third Quarter............................................... 38.31 19.75
Period commencing on October 1, 2000 and ending on
, 2000
</TABLE>
Newgen stockholders are urged to obtain current quotations for the market
prices of TeleTech common stock. No assurance can be given as to the market
price of TeleTech common stock at the effective time of the merger.
NEWGEN MARKET PRICE DATA
The Newgen common stock is listed on the Nasdaq National Market under the
symbol "NWGN." The following table sets forth the range of high and low sales
prices for Newgen common stock as reported on the Nasdaq National Market since
May 21, 1999. Prior to that time, there was no public market for Newgen common
stock.
<TABLE>
<CAPTION>
PERIOD HIGH LOW
------ -------- --------
<S> <C> <C>
1999
First Quarter............................................... N/A N/A
Second Quarter.............................................. $13.63 $10.19
Third Quarter............................................... 13.63 8.69
Fourth Quarter.............................................. 14.13 8.13
2000
First Quarter............................................... $19.38 $ 9.75
Second Quarter.............................................. 17.00 8.38
Third Quarter............................................... 17.88 11.00
Period commencing on October 1, 2000 and ending on
, 2000
</TABLE>
13
<PAGE>
RECENT CLOSING PRICES
On August 21, 2000, the last trading day before the public announcement of
the merger agreement, the closing prices for TeleTech common stock and Newgen
common stock as reported on the Nasdaq National Market were:
<TABLE>
<S> <C>
TeleTech.................................................... $29.625
Newgen...................................................... $13.125
</TABLE>
On , 2000, the closing price of TeleTech common stock as
reported on the Nasdaq National Market was $ per share and the closing price of
Newgen common stock as reported on the Nasdaq National Market was $ per
share.
DIVIDEND INFORMATION
Neither TeleTech nor Newgen has ever paid any cash dividends on its stock,
and both anticipate that they will continue to retain any earnings for the
foreseeable future for use in the expansion and operation of their respective
businesses.
NUMBER OF STOCKHOLDERS
As of August 15, 2000, there were 92 holders of record of TeleTech common
stock and as of September 14, 2000 there were 44 holders of record of Newgen
common stock.
14
<PAGE>
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION
The following unaudited pro forma condensed combined financial statements,
including the notes thereto, are qualified in their entirety by reference to and
should be read in conjunction with, the historical consolidated financial
statements of TeleTech and Newgen, including the notes thereto, included or
incorporated by reference in this proxy statement/prospectus.
The unaudited pro forma condensed combined financial statements give effect
to the merger of TeleTech and Newgen using the pooling of interests method of
accounting and are based on each company's respective historical consolidated
financial statements and notes thereto, which are included or incorporated by
reference in this proxy statement/prospectus. The unaudited pro forma condensed
combined balance sheet combines Teletech's unaudited consolidated condensed
balance sheet as of June 30, 2000 with Newgen's unaudited condensed balance
sheet as of June 30, 2000, giving effect to the merger as if it had occurred at
June 30, 2000. The unaudited pro forma combined condensed statements of income
combine TeleTech's historical results for the years ended December 31, 1999,
1998 and 1997 and the six-month periods ended June 30, 2000 and 1999, with
Newgen's historical results for the years ended December 31, 1999, 1998 and 1997
and the six-month periods ended June 30, 2000 and 1999, respectively, giving
effect to the merger as if it had occurred at the beginning of the earliest
period presented.
The pro forma information is presented for illustrative purposes only and is
not necessarily indicative of financial position or operating results that would
have occurred had the merger been consummated at the beginning of the earliest
period presented, or at June 30, 2000, as appropriate, nor is it necessarily
indicative of future operating results or financial position of TeleTech. This
data does not reflect any cost savings or other synergies anticipated by
management as a result of the merger.
15
<PAGE>
TELETECH HOLDINGS, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET AT JUNE 30, 2000
(IN THOUSANDS)
<TABLE>
<CAPTION>
PRO FORMA
TELETECH NEWGEN ADJUSTMENTS COMBINED
-------- -------- ----------- ---------
<S> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents......................... $ 6,360 $19,032 $ -- $ 25,392
Short-term investments............................ 47,406 -- -- 47,406
Investment securities available-for-sale.......... 70,839 1,495 -- 72,334
Accounts receivable, net.......................... 146,543 13,026 -- 159,569
Prepaids and other assets......................... 7,939 2,819 -- 10,758
-------- ------- ------- --------
Total current assets............................ 279,087 36,372 -- 315,459
PROPERTY AND EQUIPMENT, net......................... 138,748 7,730 -- 146,478
OTHER ASSETS:
Long-term accounts receivable..................... 2,290 -- -- 2,290
Goodwill, net..................................... 22,296 11,213 -- 33,509
Contract acquisition cost, net.................... 13,893 -- -- 13,893
Intangible assets................................. 2,230 -- -- 2,230
Deferred tax asset................................ 550 -- -- 550
Deferred charges.................................. 113 -- -- 113
Other assets...................................... 6,770 2,256 -- 9,026
-------- ------- ------- --------
Total assets.................................... $465,977 $57,571 $ -- $523,548
======== ======= ======= ========
</TABLE>
16
<PAGE>
TELETECH HOLDINGS, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET AT JUNE 30, 2000
(IN THOUSANDS)
<TABLE>
<CAPTION>
PRO FORMA
TELETECH NEWGEN ADJUSTMENTS COMBINED
-------- -------- ----------- ---------
<S> <C> <C> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt................. $ 13,472 $ 1,119 $ -- $ 14,591
Bank overdraft.................................... 1,253 -- -- 1,253
Related party debt................................ 930 -- -- 930
Accounts payable.................................. 13,297 4,989 7,600(3) 25,886
Accrued employee compensation..................... 31,780 1,114 -- 32,894
Accrued income taxes.............................. 10,456 696 -- 11,152
Deferred income taxes............................. 16,733 -- -- 16,733
Other accrued expenses............................ 24,931 908 -- 25,839
Customer advances, deposits and deferred income... 3,199 -- -- 3,199
-------- ------- ------- --------
Total current liabilities....................... 116,051 8,826 7,600 132,477
LONG-TERM DEBT, net of current portion:
Capital lease obligations......................... 23 775 -- 798
Line of credit.................................... 43,000 -- -- 43,000
Other debt........................................ 4,865 350 -- 5,215
Deferred rent..................................... -- 65 -- 65
-------- ------- ------- --------
Total liabilities............................... 163,939 10,016 7,600 181,555
-------- ------- ------- --------
MINORITY INTEREST, in consolidated subsidiaries..... 5,499 -- -- 5,499
-------- ------- ------- --------
STOCKHOLDERS' EQUITY:
Stock purchase warrants........................... 5,100 -- -- 5,100
Common stock; $.01 par value; 150,000,000 shares
authorized; 62,745,671 and 68,947,079 (giving
effect to the merger) shares issued and
outstanding..................................... 633 -- 62(2) 695
Common stock; $.01 par value; 28,000,000 shares
authorized; 10,206,399 and 0 (giving effect to
the merger) shares issued and outstanding....... -- 10 (10)(2) --
Additional paid-in capital........................ 137,290 52,535 (52)(2) 189,773
Accumulated other comprehensive income (loss)..... 37,555 (8) -- 37,547
Retained earnings................................. 115,961 (4,079) (7,600)(3) 104,282
Deferred compensation............................. -- (763) -- (763)
Notes receivable from stockholders................ -- (140) -- (140)
-------- ------- ------- --------
Total stockholders' equity...................... 296,539 47,555 (7,600) 336,494
-------- ------- ------- --------
Total liabilities and stockholders' equity...... $465,977 $57,571 $ -- $523,548
======== ======= ======= ========
</TABLE>
See accompanying notes to unaudited pro forma condensed combined
balance sheet and statements of income
17
<PAGE>
TELETECH HOLDINGS, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 2000 AND 1999
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
TELETECH NEWGEN PRO FORMA COMBINED
------------------- ------------------- -------------------
2000 1999 2000 1999 2000 1999
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
REVENUES.......................... $369,853 $248,877 $39,847 $25,696 $409,700 $274,573
-------- -------- ------- ------- -------- --------
OPERATING EXPENSES:
Costs of services............... 245,991 166,241 23,251 16,024 269,242 182,265
Other operating expenses........ 89,036 62,618 13,134 7,980 102,170 70,598
-------- -------- ------- ------- -------- --------
Total operating expenses...... 335,027 228,859 36,385 24,004 371,412 252,863
-------- -------- ------- ------- -------- --------
INCOME FROM OPERATIONS............ 34,826 20,018 3,462 1,692 38,288 21,710
-------- -------- ------- ------- -------- --------
OTHER INCOME (EXPENSE):
Interest expense................ (2,088) (1,041) (120) (205) (2,208) (1,246)
Interest income................. 1,322 1,202 547 174 2,869 1,376
Gain on sale of securities...... 12,762 -- -- -- 12,762 --
Other........................... (686) 27 1,000 -- (686) 27
-------- -------- ------- ------- -------- --------
Total other income
(expense)................... 11,310 188 1,427 (31) 12,737 157
-------- -------- ------- ------- -------- --------
INCOME BEFORE INCOME TAXES AND
MINORITY INTEREST............... 46,136 20,206 4,889 1,661 51,025 21,867
Provision for income taxes...... 18,233 8,009 178 -- 18,411 8,009
-------- -------- ------- ------- -------- --------
INCOME BEFORE MINORITY INTEREST... 27,903 12,197 4,711 1,661 32,614 13,858
Minority interest, net of income
taxes......................... (399) -- -- -- (399) --
-------- -------- ------- ------- -------- --------
NET INCOME........................ 27,504 12,197 4,711 1,661 32,215 13,858
Adjustment for accretion of
redeemable convertible
preferred stock............... -- -- -- (487) -- (487)
-------- -------- ------- ------- -------- --------
Net income applicable to
common stockholders......... $ 27,504 $ 12,197 $ 4,711 $ 1,174 $ 32,215 $ 13,371
======== ======== ======= ======= ======== ========
WEIGHTED AVERAGE SHARES
OUTSTANDING (NOTE 2)
Basic........................... 65,563 64,197 6,174 3,159 71,737 67,356
Diluted......................... 69,980 65,635 6,773 5,229 76,753 70,864
NET INCOME PER SHARE
Basic........................... $ 0.42 $ 0.20 $ 0.45 $ 0.20
Diluted......................... $ 0.39 $ 0.20 $ 0.42 $ 0.20
</TABLE>
See accompaning notes to unaudited pro forma condensed combined
balance sheet and statements of income
18
<PAGE>
TELETECH HOLDINGS, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1999
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
PRO FORMA
TELETECH NEWGEN COMBINED
-------- -------- ---------
<S> <C> <C> <C>
REVENUES.................................................... $549,076 $55,188 $604,264
-------- ------- --------
OPERATING EXPENSES:
Costs of services......................................... 372,182 33,967 406,149
Other operating expenses.................................. 130,937 16,981 147,918
-------- ------- --------
Total operating expenses................................ 503,119 50,948 554,067
-------- ------- --------
INCOME FROM OPERATIONS...................................... 45,957 4,240 50,197
-------- ------- --------
OTHER INCOME (EXPENSE):
Interest expense.......................................... (2,509) (340) (2,849)
Interest income........................................... 2,372 1,066 3,438
Gain on settlement of long-term contract.................. 6,726 -- 6,726
Other..................................................... 246 -- 246
-------- ------- --------
Total other income (expense)............................ 6,835 726 7,561
-------- ------- --------
INCOME BEFORE INCOME TAXES.................................. 52,792 4,966 57,758
Provision for income taxes.............................. 20,847 131 20,978
-------- ------- --------
NET INCOME.................................................. 31,945 4,835 36,780
Adjustment for accretion of redeemable convertible
preferred stock......................................... -- (487) (487)
-------- ------- --------
Net income applicable to common stockholders............ $ 31,945 $ 4,348 $ 36,293
======== ======= ========
WEIGHTED AVERAGE SHARES OUTSTANDING (NOTE 2)
Basic..................................................... 64,447 4,641 69,088
Diluted................................................... 66,670 5,917 72,587
NET INCOME PER SHARE
Basic..................................................... $ 0.50 $ 0.53
Diluted................................................... $ 0.48 $ 0.51
</TABLE>
See accompanying notes to unaudited pro forma condensed combined
balance sheet and statements of income
19
<PAGE>
TELETECH HOLDINGS, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1998
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
PRO FORMA
TELETECH NEWGEN COMBINED
-------- -------- ---------
<S> <C> <C> <C>
REVENUES.................................................... $384,771 $ 40,106 $424,877
-------- -------- --------
OPERATING EXPENSES:
Costs of services......................................... 253,427 29,262 282,689
Other operating expenses.................................. 97,830 13,978 111,808
-------- -------- --------
Total operating expenses................................ 351,257 43,240 394,497
-------- -------- --------
INCOME FROM OPERATIONS...................................... 33,514 (3,134) 30,380
-------- -------- --------
OTHER INCOME (EXPENSE):
Interest expense.......................................... (1,446) (212) (1,658)
Interest income........................................... 3,074 143 3,217
Equity in income of affiliate............................. 70 -- 70
Business combination expenses............................. (1,321) -- (1,321)
Other..................................................... (240) -- (240)
-------- -------- --------
Total other income (expense)............................ 137 (69) 68
-------- -------- --------
INCOME BEFORE INCOME TAXES.................................. 33,651 (3,203) 30,448
Provision for income taxes.............................. 13,344 -- 13,344
-------- -------- --------
NET INCOME.................................................. 20,307 (3,203) 17,104
Adjustment for accretion of redeemable convertible
preferred
stock................................................... -- (1,371) (1,371)
-------- -------- --------
Net income applicable to common stockholders............ $ 20,307 ($ 4,574) $ 15,733
======== ======== ========
WEIGHTED AVERAGE SHARES OUTSTANDING
Basic..................................................... 63,214 2,289 65,503
Diluted................................................... 65,316 4,910 70,226
NET INCOME PER SHARE
Basic..................................................... $ 0.32 $ 0.24
Diluted................................................... $ 0.31 $ 0.24
</TABLE>
See accompanying notes to unaudited pro forma condensed combined
balance sheet and statements of income
20
<PAGE>
TELETECH HOLDINGS, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1997
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
PRO FORMA
TELETECH NEWGEN COMBINED
-------- -------- ---------
<S> <C> <C> <C>
REVENUES.................................................... $284,683 $26,414 $311,097
-------- ------- --------
OPERATING EXPENSES:
Costs of services......................................... 182,509 20,397 202,906
Other operating expenses.................................. 68,747 7,788 76,535
-------- ------- --------
Total operating expenses................................ 251,256 28,185 279,441
-------- ------- --------
INCOME FROM OPERATIONS...................................... 33,427 (1,771) 31,656
-------- ------- --------
OTHER INCOME (EXPENSE):
Interest expense.......................................... (1,166) (463) (1,629)
Interest income........................................... 3,404 45 3,449
Equity in income of affiliate............................. 302 -- 302
Other..................................................... (241) -- (241)
-------- ------- --------
Total other income (expense)............................ 2,299 (418) 1,881
-------- ------- --------
INCOME BEFORE INCOME TAXES.................................. 35,726 (2,189) 33,537
Provision for income taxes................................ 14,206 -- 14,206
-------- ------- --------
NET INCOME.................................................. 21,520 (2,189) 19,331
Adjustment for accretion of redeemable convertible
preferred stock......................................... -- (132) (132)
-------- ------- --------
Net income applicable to common stockholders............ $ 21,520 ($2,321) $ 19,199
======== ======= ========
WEIGHTED AVERAGE SHARES OUTSTANDING
Basic..................................................... 61,699 2,289 63,988
Diluted................................................... 64,910 4,602 69,512
NET INCOME PER SHARE
Basic..................................................... $ 0.35 $ 0.30
Diluted................................................... $ 0.33 $ 0.28
</TABLE>
See accompanying notes to unaudited pro forma condensed combined
balance sheet and statements of income
21
<PAGE>
TELETECH HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
AND STATEMENTS OF INCOME
NOTE 1: BASIS OF PRESENTATION
The unaudited pro forma condensed combined statements of operations combine
the historical statements of operations of TeleTech for the years ended December
31, 1999, 1998, and 1997 and the six-month periods ended June 30, 2000 and 1999,
with the historical statements of operations of Newgen for the years ended
December 31, 1999, 1998, and 1997 and the six-month periods ended June 30, 2000
and 1999.
No adjustments have been made in these pro forma financial statements to
conform the accounting policies of the combining companies. The nature and
extent of such adjustments, if any, are not expected to be significant.
NOTE 2: PRO FORMA NET INCOME PER SHARE
The number of shares of TeleTech's Common Stock that will be issued in
exchange for the outstanding shares of Newgen's Common Stock is based on the
exchange ratio. The exchange ratio is based on the average closing price per
share of TeleTech common stock for the 20 consecutive trading days ending on the
second full trading day prior to the closing date of the merger. An assumed
exchange ratio of 0.6076 shares of TeleTech common stock for each share of
Newgen common stock was used in preparing the pro forma combined financial data.
The following table provides the calculation of the assumed exchanged ratio:
<TABLE>
<S> <C>
Agreed price per share of Newgen stock...................... $18.00
Assumed average closing price for TeleTech stock............ 29.625
--------
Exchange ratio............................................ 0.6076
========
</TABLE>
The following table provides the pro forma number of shares to be issued in
the merger.
<TABLE>
<S> <C>
Newgen common stock outstanding as of June 30, 2000......... 10,206,399
Assumed exchange ratio...................................... 0.6076
----------
Number of shares of TeleTech common stock exchanged for
Newgen common stock....................................... 6,201,408
----------
TeleTech common stock outstanding as of June 30, 2000....... 66,009,671
TeleTech common stock outstanding after completion of the
merger.................................................... 72,211,079
==========
</TABLE>
Under Statement of Financial Accounting Standards No. 128 (SFAS No. 128),
basic earnings or loss per share is computed by dividing the net earnings or
loss by the weighted average number of shares of common stock outstanding.
Diluted earnings or loss per share is determined by dividing the net earnings or
loss by the sum of (1) the weighted average number of shares of common stock
outstanding, (2) if not anti-dilutive, the number of shares of convertible
preferred stock as if converted upon issuance, and (3) if not anti-dilutive, the
effect of outstanding stock options determined utilizing the treasury stock
method.
22
<PAGE>
TELETECH HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
AND STATEMENTS OF INCOME (CONTINUED)
NOTE 2: PRO FORMA NET INCOME PER SHARE (CONTINUED)
A reconciliation of the numerators and denominators of the basic and diluted
per share computations for income for the years ended December 31, 1999, 1998,
and 1997 and the six-month periods ended June 30, 2000 and 1999 are as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1997
-------------------------------------------
INCOME SHARES PER SHARE AMOUNT
----------- ---------- ----------------
<S> <C> <C> <C>
Basic earnings per share--
Income available to common stockholders........... $19,199,000 63,988,000 $0.30
=====
Warrants.......................................... 70,000
Options issued to directors and employees......... 3,383,000
Convertible preferred stock....................... 132,000 2,071,000
----------- ----------
Diluted earnings per share
Net income........................................ $19,331,000 69,512,000 $0.28
=========== ========== =====
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1998
-------------------------------------------
INCOME SHARES PER SHARE AMOUNT
----------- ---------- ----------------
<S> <C> <C> <C>
Basic earnings per share--
Income available to common stockholders........... $15,733,000 65,503,000 $0.24
=====
Warrants.......................................... 70,000
Options issued to directors and employees......... 2,582,000
Convertible preferred stock....................... 1,371,000 2,071,000
----------- ----------
Diluted earnings per share--
Net income........................................ $17,104,000 70,266,000 $0.24
=========== ========== =====
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1999
-------------------------------------------
INCOME SHARES PER SHARE AMOUNT
----------- ---------- ----------------
<S> <C> <C> <C>
Basic earnings per share--
Income available to common stockholders........... $36,293,000 69,088,000 $0.53
=====
Warrants.......................................... 56,000
Options issued to directors and employees......... 2,649,000
Convertible preferred stock....................... 487,000 794,000
----------- ----------
Diluted earnings per share--
Net income........................................ $36,780,000 72,587,000 $0.51
=========== ========== =====
</TABLE>
23
<PAGE>
TELETECH HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
AND STATEMENTS OF INCOME (CONTINUED)
NOTE 2: PRO FORMA NET INCOME PER SHARE (CONTINUED)
<TABLE>
<CAPTION>
FOR THE SIX MONTHS ENDED JUNE 30, 2000
-------------------------------------------
INCOME SHARES PER SHARE AMOUNT
----------- ---------- ----------------
<S> <C> <C> <C>
Basic earnings per share--
Income available to common stockholders........... $32,215,000 71,737,000 $0.45
=====
Warrants.......................................... 510,000
Options issued to directors and employees......... 4,506,000
Convertible preferred stock....................... --
----------- ----------
Diluted earnings per share--
Net income........................................ $32,215,000 76,753,000 $0.42
=========== ========== =====
</TABLE>
<TABLE>
<CAPTION>
FOR THE SIX MONTHS ENDED JUNE 30, 1999
-------------------------------------------
INCOME SHARES PER SHARE AMOUNT
----------- ---------- ----------------
<S> <C> <C> <C>
Basic earnings per share--
Income available to common stockholders........... $13,371,000 67,356,000 $0.20
=====
Warrants.......................................... 60,000
Options issued to directors and employees......... 1,930,000
Convertible preferred stock....................... 487,000 1,518,000
----------- ----------
Diluted earnings per share--
Net income........................................ $13,858,000 70,864,000 $0.20
=========== ========== =====
</TABLE>
The pro forma combined net income per share is based on the combined
weighted average number of common (basic) and dilutive common equivalent shares
(diluted) of TeleTech and Newgen and assumes, based upon an assumed exchange
ratio as of June 30, 2000 of .6076 shares of TeleTech common stock for each
share of Newgen common stock, the issuance of 6,201,408 shares of TeleTech
common stock for all of the outstanding shares of Newgen common stock. The
actual number of shares of TeleTech common stock to be exchanged for all of the
outstanding shares of Newgen common stock will be determined at the effective
time of the merger based on the average 20-day closing price of TeleTech common
stock.
NOTE 3: PRO FORMA ADJUSTMENTS
TeleTech and Newgen estimate that they will incur merger-related expenses of
approximately $7.6 million, consisting primarily of transaction costs for fees
of financial advisors, attorneys, accountants and financial printing and other
one-time charges related to the transaction. This estimate is preliminary and is
therefore subject to change. These nonrecurring expenses will be charged to
operations in the first fiscal quarter in which the merger is consummated.
The pro forma condensed combined balance sheet gives effect to such expenses
as if they had been incurred as of June 30, 2000; however, in accordance with
Regulation S-X the pro forma condensed combined statements of operations do not
give effect to such expenses.
24
<PAGE>
RISK FACTORS RELATING TO THE MERGER AND
AN INVESTMENT IN TELETECH COMMON STOCK
YOU SHOULD CAREFULLY CONSIDER THE FOLLOWING FACTORS, TOGETHER WITH THE OTHER
INFORMATION CONTAINED OR INCORPORATED BY REFERENCE IN THIS PROXY
STATEMENT/PROSPECTUS, BEFORE DETERMINING WHETHER OR NOT TO VOTE IN FAVOR OF THE
ADOPTION OF THE MERGER AGREEMENT. IF ANY OF THE FOLLOWING RISKS ACTUALLY OCCUR,
TELETECH'S BUSINESS AND FINANCIAL CONDITION AND ITS RESULTS OF OPERATIONS COULD
BE SERIOUSLY HARMED. IF THAT HAPPENS, THE VALUE OF TELETECH'S COMMON STOCK COULD
DECLINE, AND YOU MAY LOSE ALL OR PART OF YOUR INVESTMENT.
RISKS RELATED TO THE MERGER
YOU WILL RECEIVE SHARES OF TELETECH COMMON STOCK BASED ON AN EXCHANGE RATIO THAT
IS DETERMINED BY THE MARKET VALUE OF TELETECH COMMON STOCK.
In the merger, shares of common stock held by Newgen stockholders will be
converted into the right to receive shares of TeleTech common stock. The value
you receive in the merger for each of your Newgen shares is a fraction of a
share of TeleTech common stock that is targeted to have a value of $18.00,
except as provided below. An exchange ratio will be used to determine the
fraction of a share of TeleTech common stock you will receive for each of your
shares of Newgen common stock. The exchange ratio will be determined by dividing
$18.00 by the average closing price per share of TeleTech common stock for the
20 consecutive trading days ending on the second full trading day prior to the
closing date of the merger. However, the exchange ratio is limited so that you
will receive:
- no more than .80 of a share of TeleTech common stock for each share of
Newgen common stock you own even if the average closing price per share of
TeleTech common stock during the 20-day period is less than $22.50; and
- no less than .48 of a share of TeleTech common stock for each share of
Newgen common stock you own even if the average closing price per share of
TeleTech common stock during the 20-day period is more than $37.50.
TeleTech cannot predict the market prices for its common stock and we
encourage you to obtain current market quotations of the TeleTech common stock,
which is listed on the Nasdaq National Market under the symbol "TTEC."
IF THE MERGER FAILS TO QUALIFY AS A REORGANIZATION YOU WILL RECOGNIZE GAIN OR
LOSS ON YOUR NEWGEN SHARES.
Newgen and TeleTech have structured the merger to qualify as a
reorganization under section 368(a) of the Internal Revenue Code of 1986, as
amended. Although the Internal Revenue Service has not provided a ruling on the
merger, Newgen and TeleTech each intend to obtain a legal opinion from their
respective counsels that the merger qualifies as a reorganization under the
Internal Revenue Code of 1986, as amended. These opinions neither bind the IRS
nor prevent the IRS from adopting a contrary position. If the merger fails to
qualify as a reorganization, you would generally recognize gain or loss on each
share of Newgen common stock exchanged in the merger in the amount of the
difference between your basis in such share and the fair market value of the
TeleTech common stock and cash you receive in exchange for such share of Newgen
common stock at the time of the merger.
TELETECH MAY NOT BE ABLE TO TREAT THE MERGER AS A POOLING OF INTERESTS FOR
ACCOUNTING PURPOSES.
For the merger to qualify as a pooling of interests for financial accounting
reporting purposes, TeleTech and Newgen, and their respective affiliates, must
meet the criteria for pooling of interests accounting treatment as established
in opinions published by the Accounting Principles Board and interpreted by the
Financial Accounting Standards Board and the SEC. These opinions are complex and
the interpretation of them is subject to change. Recent actions and comments
from the SEC have
25
<PAGE>
indicated that the SEC is scrutinizing the application of the pooling of
interests method of accounting for business combinations. The SEC may challenge
TeleTech's conclusions and ultimately seek to treat the merger under the
purchase method of accounting. TeleTech has the right to terminate the merger
agreement if the SEC determines that the merger may not be accounted for as a
pooling of interests transaction for financial accounting purposes.
If the merger is not permitted to be accounted for as a pooling of interests
and TeleTech does not exercise its right to terminate the merger agreement as
result of the accounting treatment, the merger would be accounted for under the
purchase method of accounting. Newgen's assets would be recognized at their fair
value and any excess of the purchase price over such fair value, other than
amounts charged to in-process research and development costs, if any, would be
recognized as goodwill on TeleTech's balance sheet. The goodwill would be
amortized as an expense over its anticipated useful life. Because the amount of
goodwill would be substantial, purchase accounting treatment could materially
adversely affect the combined company's financial results throughout the
amortization period.
THE REQUIREMENT FOR REGULATORY APPROVALS MAY DELAY COMPLETION OF THE MERGER.
Completion of the merger is conditioned upon the receipt of all material
governmental authorizations, consents, orders and approvals, including the
expiration or termination of the applicable waiting periods, and any extension
of the waiting periods, under U.S. antitrust laws. Newgen and TeleTech intend to
pursue vigorously all required regulatory approvals. No assurance can be given,
however, that these approvals will be obtained, or, if they are obtained, as to
the terms, conditions and timing of these approvals. The requirement for these
approvals could delay the completion of the merger after Newgen stockholders
have approved the merger agreement at the special meeting.
THE ISSUANCE OF SHARES OF TELETECH COMMON STOCK IN THE MERGER WILL RESULT IN
IMMEDIATE DILUTION OF THE OUTSTANDING TELETECH COMMON STOCK.
Upon completion of the merger, up to 9,463,218 million shares of TeleTech
common stock will be issued or reserved for issuance to holders of Newgen common
stock and options to purchase or acquire Newgen common stock. The resulting
dilution of TeleTech's common stock could have a negative impact on its market
price.
SALES OF SUBSTANTIAL AMOUNTS OF TELETECH'S COMMON STOCK IN THE OPEN MARKET COULD
DEPRESS TELETECH'S STOCK PRICE.
Sales of a large number of shares of TeleTech common stock in the public
market following the completion of the merger, or even the belief that such
sales could occur, could cause a drop in the market price of TeleTech common
stock and could impair TeleTech's ability to raise capital through offerings of
TeleTech's equity securities. Immediately after the merger, there will be
approximately million shares of TeleTech common stock outstanding. All of
the shares issued to Newgen stockholders will be freely tradable without
restrictions or further registration under the Securities Act of 1933, unless
such shares are held by any TeleTech "affiliate" or any person who was an
"affiliate" of Newgen prior to the merger, as that term is defined in Rule 144
under the Securities Act of 1933. The term "affiliate" would include directors,
some officers and principal stockholders of TeleTech and Newgen. See "The
Merger--Additional Restrictions on Sales of Shares of TeleTech Common Stock by
Affiliates of Newgen" on page 56.
FAILURE OF NEWGEN STOCKHOLDERS TO ADOPT THE MERGER AGREEMENT MAY REQUIRE NEWGEN,
UNDER CERTAIN CIRCUMSTANCES, TO PAY TERMINATION FEES AND MAY RESULT IN A
DECREASE IN THE MARKET PRICE OF NEWGEN COMMON STOCK.
If the Newgen stockholders fail to adopt the merger agreement, or if the
merger is not completed for any reason, Newgen may be subject to material risks,
including the risk that under certain
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circumstances, Newgen would be required to pay up to $6 million in termination
fees and expenses to TeleTech. Moreover, any termination of the merger
agreement, whether or not termination fees and expenses are required to be paid,
could lead to a possible decline in the market price of Newgen common stock to
the extent current market prices reflect a market assumption that the merger
will be completed. For a more detailed discussion on termination fees and
expenses, see "The Merger Agreement--Termination of the Merger
Agreement--Termination fee; Reimbursement of expenses" on page 64.
If, following termination of the merger agreement, the Newgen board of
directors determines to seek another merger or business combination, there can
be no assurance that it will be able to find a partner willing to pay an
equivalent or more attractive price than would be provided by TeleTech in the
merger. Under the terms of the merger agreement, before the termination of the
merger agreement Newgen is not permitted to invite, initiate, solicit or
encourage any takeover proposal or engage in any discussions or negotiations
with, or provide any information or data to, any person relating to, or that may
reasonably be expected to lead to, a takeover proposal. See "The Merger
Agreement--No Solicitation by Newgen" on page 62.
THE DIRECTORS AND EXECUTIVE OFFICERS OF NEWGEN MAY HAVE INTERESTS IN THE
COMPLETION OF THE MERGER THAT ARE DIFFERENT FROM THE INTERESTS OF NEWGEN'S
STOCKHOLDERS.
On August 21, 2000 each of Samuel Simkin, Gerald Benowitz and Leslie Silver
entered into employment agreements with TeleTech that become effective upon
completion of the merger. Generally, each of these employees will be eligible to
receive a higher base salary than he is currently receiving under his existing
employment arrangement with Newgen due to anticipated expansion of roles and
responsibilities following the merger and to ensure their compensation is
consistent with TeleTech management, and Messrs. Simkin and Silver will each
receive options to purchase 100,000 shares of TeleTech common stock upon
effectiveness of their respective employment agreements. In addition,
Messrs. Simkin, Benowitz and Silver will, concurrently with the consummation of
the merger, receive cash bonuses in an aggregate of approximately $1 million
relating to services performed up to the date of the merger.
Various stockholders of Newgen (including members of management), which
beneficially own approximately 56.6% of the outstanding shares of Newgen
entitled to vote at the Newgen special meeting, have entered into voting
agreements with TeleTech. Under the voting agreements, these stockholders have
agreed to vote all shares of Newgen common stock owned of record by each of
them, or that they otherwise have the power to vote for adoption of the merger
agreement. See "The Merger Agreement--The Voting Agreements" on page 66.
In addition, TeleTech and Newgen have agreed that all rights to
indemnification and limitations on liability under the Newgen charter documents
will survive the merger. Subject to limitations, directors' and officers'
liability insurance coverage substantially equivalent to levels of coverage
currently in effect under Newgen's existing directors' and officers' liability
insurance will be maintained for six years. See "The Merger
Agreement--Indemnification; Directors' and Officers' Insurance" on page 65.
The existence of the employment agreements, option grants, bonus
arrangements, voting agreements and indemnification obligations may influence
Newgen's directors in making their recommendation that you vote in favor of the
adoption of the merger agreement.
TELETECH MAY ENCOUNTER DIFFICULTIES IN THE INTEGRATION AND DEVELOPMENT OF THE
BUSINESS OF NEWGEN.
TeleTech will face technical, operational and strategic challenges that may
prevent TeleTech from successfully integrating Newgen with TeleTech. The
transactions involve risks related to the integration and management of acquired
technology, operations and personnel. TeleTech's integration of Newgen will be a
complex, time consuming and expensive process and may disrupt TeleTech's and
Newgen's businesses if not completed in a timely and efficient manner. Following
the merger, TeleTech and
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Newgen must operate as a combined organization using common information and
communication systems, operating procedures, financial controls and human
resources practices. TeleTech may encounter substantial difficulties, costs and
delays involved in integrating the acquired operations with TeleTech's own,
including:
- potential incompatibility of business cultures;
- potential difficulties in coordinating geographically separated
organizations, with Newgen's operations located primarily in San Diego,
California, and TeleTech's operations headquartered in Denver, Colorado;
- potential adverse changes in business focus, whether perceived or actual;
- potential conflicts in third-party relationships; and
- the loss of key employees and diversion of the attention of management
from other ongoing business concerns.
GENERAL UNCERTAINTY RELATED TO THE MERGER COULD HARM THE COMBINED COMPANY.
TeleTech's or Newgen's customers may, in response to the announcement of the
proposed merger, delay or defer purchasing decisions. If TeleTech's or Newgen's
customers delay or defer purchasing decisions, the combined company's revenues
could materially decline. Similarly, TeleTech's and Newgen's employees may
experience uncertainty about their future role with the combined company. This
may harm the combined company's ability to attract and retain key management,
marketing and technical personnel. Also, speculation regarding the likelihood of
the completion of the merger could increase the volatility of TeleTech's and
Newgen's stock prices. The disruption of the businesses of TeleTech and Newgen
caused by these issues could cause quarterly operating results to be lower than
expected.
THE COSTS OF THE MERGER AND THE COSTS OF INTEGRATING TELETECH'S AND NEWGEN'S
OPERATIONS ARE SUBSTANTIAL AND WILL MAKE IT MORE DIFFICULT FOR TELETECH TO
ACHIEVE PROFITABILITY.
TeleTech will incur substantial costs in connection with the merger that may
make it more difficult to achieve profitability in the future. TeleTech
estimates that it will incur costs associated with the merger, consisting of
transaction fees for investment bankers, attorneys, accountants and other
related costs incurred by TeleTech and Newgen and additional nonrecurring
restructuring charges, in an amount currently estimated to be approximately
$7.6 million. TeleTech cannot assure you that it will not incur additional
charges in excess of these amounts to reflect costs associated with the merger,
including the costs of integrating the TeleTech and Newgen operations.
RISKS RELATED TO TELETECH'S BUSINESS
TELETECH'S LOSS OF ANY OF ITS MAJOR CLIENTS MAY MATERIALLY REDUCE ITS REVENUES.
TeleTech strategically focuses its marketing efforts on developing long-term
relationships with large and multinational companies in targeted industries. As
a result, TeleTech derives a substantial portion of its revenues from relatively
few clients. TeleTech cannot assure you that it will not become more dependent
on a few significant clients, that TeleTech will be able to retain any of its
largest clients, that the volumes or profit margins of its most significant
programs will not be reduced, or that TeleTech would be able to replace such
clients or programs with clients or programs that generate a comparable amount
of profits. Consequently, the loss of one or more of TeleTech's significant
clients could have a material adverse effect on the business, results of
operations or financial condition of TeleTech.
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THE TERMS OF TELETECH'S CONTRACTS WITH ITS CLIENTS DO NOT GUARANTEE A MINIMUM
LEVEL OF REVENUE.
TeleTech's contracts do not ensure that TeleTech will generate a minimum
level of revenues, and the profitability of each client program may fluctuate,
sometimes significantly, throughout the various stages of such program. Although
TeleTech seeks to sign multiyear contracts with its clients, TeleTech's
contracts generally enable its clients to terminate the contract, or terminate
or reduce customer interaction volumes, on relatively short notice. Although
many of such contracts require the client to pay a contractually agreed amount
in the event of early termination, TeleTech cannot assure you that it will be
able to collect such amount or that such amount, if received, will sufficiently
compensate TeleTech for its investment in the canceled program or for the
revenues it may lose as a result of the early termination. TeleTech usually is
not designated as its client's exclusive service provider; however, TeleTech
believes that meeting its clients' expectations can have a more significant
impact on revenues generated by TeleTech than the specific terms of its client
contracts. TeleTech cannot assure you, however, that it will meet its clients'
expectations. In addition, some of TeleTech's contracts limit the total amount
TeleTech can charge for its services, and several prohibit TeleTech from
providing services to the client's direct competitors that are similar to the
services TeleTech provides to such client.
THE SERVICE FEES THAT TELETECH CHARGES ITS CLIENTS MAY NOT COVER THE COSTS
TELETECH INCURS IN PROVIDING SERVICES.
A few of TeleTech's contracts allow TeleTech to increase its service fees if
and to the extent certain cost or price indices increase; however, most of
TeleTech's significant contracts do not contain such provisions and some
contracts require TeleTech to decrease its service fees if, among other things,
TeleTech does not achieve certain performance objectives. Increases in
TeleTech's service fees that are based upon increases in cost or price indices
may not fully compensate TeleTech for increases in labor and other costs
incurred in providing services.
TELETECH'S CUSTOMER INTERACTION CENTERS OCCASIONALLY ARE UNDER USED, BUT
TELETECH INCURS THE SAME OPERATING COSTS REGARDLESS OF LEVEL OF USE.
TeleTech's profitability is influenced significantly by its customer
interaction center capacity use. TeleTech attempts to maximize use; however,
because almost all of TeleTech's business is inbound, TeleTech has significantly
higher use during peak (weekday) periods than during off-peak (night and
weekend) periods. TeleTech has experienced periods of excess capacity,
particularly in its shared customer interaction centers, and occasionally has
accepted short-term assignments to use the excess capacity. In addition,
TeleTech has experienced, and in the future may experience, at least short-term,
excess peak period capacity when it opens a new customer interaction center or
terminates or completes a large client program. There can be no assurance that
TeleTech will be able to achieve or maintain optimal customer interaction center
capacity use.
TELETECH'S FAILURE TO MANAGE EFFECTIVELY ITS RAPID GROWTH MAY DELAY ITS
ACHIEVEMENT OF ITS BUSINESS STRATEGY.
TeleTech has experienced rapid growth over the past several years. Future
growth, and the pace of that growth, will depend on a number of factors,
including TeleTech's ability to (a) initiate, develop and maintain new client
relationships and expand its existing client programs; (b) recruit, motivate and
retain qualified management and hourly personnel; (c) rapidly identify, acquire
or lease suitable customer interaction center facilities on acceptable terms and
complete build outs of such facilities in a timely and economic fashion; and
(d) maintain the high quality of the services and products that it provides to
its clients. TeleTech cannot assure you that it will be able to effectively
manage its expanding operations or maintain its profitability. If TeleTech is
unable to effectively manage its growth, its business, results of operations or
financial condition could be materially adversely affected.
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TELETECH MUST ENHANCE ITS SERVICES AND DEVELOP NEW ONES TO BE SUCCESSFUL IN THE
RAPIDLY CHANGING MARKET.
TeleTech's business is highly dependent on its computer and
telecommunications equipment and software capabilities. TeleTech's failure to
maintain the superiority of its technological capabilities or to respond
effectively to technological changes could have a material adverse effect on
TeleTech's business, results of operations or financial condition. TeleTech's
continued growth and future profitability will be highly dependent on a number
of factors, including TeleTech's ability to (a) expand its existing service
offerings; (b) achieve cost efficiencies in TeleTech's existing customer
interaction center operations; and (c) introduce new services and products that
leverage and respond to changing technological developments. There can be no
assurance that technologies or services developed by TeleTech's competitors will
not render TeleTech's products or services non-competitive or obsolete, that
TeleTech can successfully develop and market any new services or products, that
any such new services or products will be commercially successful or that the
integration of automated customer support capabilities will achieve intended
cost reductions.
TELETECH'S SUCCESS DEPENDS ON ITS RETENTION OF KEY PERSONNEL AND ITS ABILITY TO
HIRE OTHER KEY PERSONNEL.
Continued growth and profitability will depend upon TeleTech's ability to
maintain its leadership infrastructure by recruiting and retaining qualified,
experienced executive personnel. Competition in TeleTech's industry for
executive-level personnel is fierce and there can be no assurance that TeleTech
will be able to hire, motivate and retain highly effective executive employees,
or that TeleTech can do so on economically feasible terms.
TELETECH'S SUCCESS DEPENDS ON THE MAINTENANCE OF GOOD LABOR RELATIONS AND ITS
ABILITY TO EFFECTIVELY RESPOND TO HIGH PERSONNEL TURNOVER.
TeleTech's success is largely dependent on its ability to recruit, hire,
train and retain qualified employees. TeleTech's industry is very
labor-intensive and has experienced high personnel turnover. A significant
increase in TeleTech's employee turnover rate could increase TeleTech's
recruiting and training costs and decrease operating effectiveness and
productivity. Also, if TeleTech obtains several significant new clients or
implements several new, large-scale programs, it would be required to recruit,
hire and train qualified personnel at an accelerated rate. TeleTech may not be
able to continue to hire, train and retain sufficient qualified personnel to
adequately staff new customer management programs. Because a significant portion
of TeleTech's operating costs relate to labor costs, an increase in wages, costs
of employee benefits or employment taxes could have a material adverse effect on
TeleTech's business, results of operations or financial condition. In addition,
certain of TeleTech's customer interaction centers are located in geographic
areas with relatively low unemployment rates, which could make it more difficult
and costly to hire qualified personnel.
THE MARKET TELETECH FACES IS HIGHLY COMPETITIVE AND TELETECH MAY NOT BE ABLE TO
COMPETE EFFECTIVELY.
TeleTech believes that the market in which it operates is fragmented and
highly competitive and that competition is likely to intensify in the future.
TeleTech competes with small firms offering specific applications, divisions of
large entities, large independent firms and, most significantly, the in-house
operations of clients or potential clients. A number of competitors have or may
develop greater capabilities and resources than those of TeleTech. Similarly,
there can be no assurance that additional competitors with greater resources
than TeleTech will not enter TeleTech's market. Because TeleTech's primary
competitors are the in-house operations of existing or potential clients,
TeleTech's performance and growth could be adversely affected if its existing or
potential clients decide to provide in-house customer management services that
currently are outsourced, or retain or increase their in-house customer service
and product support capabilities. In addition, competitive pressures from
current or future competitors also could cause TeleTech's services to lose
market acceptance or result in significant
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price erosion, with a material adverse effect upon TeleTech's business, results
of operations or financial condition.
TELETECH MAY EXPERIENCE DIFFICULTIES IN COMPLETING AND INTEGRATING ACQUIRED
COMPANIES AND JOINT VENTURES, WHICH MAY SLOW ITS GROWTH.
One component of TeleTech's growth strategy is to pursue strategic
acquisitions of companies that have services, technologies, industry
specializations or geographic coverage that extend or complement TeleTech's
existing business. There can be no assurance that TeleTech will be successful in
acquiring such companies on favorable terms or in integrating such companies
into TeleTech's existing businesses, or that any completed acquisition will
enhance TeleTech's business, results of operations or financial condition.
TeleTech has faced, and in the future may continue to face, increased
competition for acquisition opportunities, which may inhibit TeleTech's ability
to consummate suitable acquisitions on favorable terms. TeleTech may require
additional debt or equity financing for future acquisitions, which financing may
not be available on terms favorable to TeleTech, if at all. As part of its
growth strategy, TeleTech also may pursue strategic alliances in the form of
joint ventures. Joint ventures involve many of the same risks as acquisitions,
as well as additional risks associated with possible lack of control of such
joint ventures.
A SYSTEM FAILURE COULD DELAY OR INTERRUPT SERVICE TO TELETECH CLIENTS.
TeleTech's operations are dependent upon its ability to protect its customer
interaction centers, computer and telecommunications equipment and software
systems against damage from fire, power loss, telecommunications interruption or
failure, natural disaster and other similar events. In the event TeleTech
experiences a temporary or permanent interruption at one or more of its customer
interaction centers, through casualty, operating malfunction or otherwise,
TeleTech's business could be materially adversely affected and TeleTech may be
required to pay contractual damages to some clients or allow some clients to
terminate or renegotiate their contracts with TeleTech. TeleTech maintains
property and business interruption insurance; however, such insurance may not
adequately compensate TeleTech for any losses it may incur.
TELETECH'S INTERNATIONAL OPERATIONS SUBJECT IT TO ADDITIONAL RISKS.
In addition to its operations in the United States, TeleTech currently
conducts business in Argentina, Australia, Brazil, Canada, Mexico, New Zealand,
Spain, Singapore and the United Kingdom. In addition, a key component of
TeleTech's growth strategy is continued international expansion. There can be no
assurance that TeleTech will be able to increase or maintain its market share in
the international markets in which TeleTech currently conducts business and
successfully market, sell and deliver its services in additional international
markets. In addition, there are certain risks inherent in conducting
international business, including exposure to currency fluctuations, longer
payment cycles, greater difficulties in accounts receivable collection,
difficulties in complying with a variety of foreign laws, unexpected changes in
regulatory requirements, difficulties in managing capacity utilization and in
staffing and managing foreign operations, political instability and potentially
adverse tax consequences. Any one or more of such factors could have a material
adverse effect on TeleTech's international operations and, consequently, on
TeleTech's business, results of operations or financial condition.
TELETECH HAS EXPERIENCED AND MAY CONTINUE TO EXPERIENCE FLUCTUATIONS IN ITS
QUARTERLY OPERATING RESULTS.
TeleTech has experienced and could continue to experience quarterly
variations in revenues as a result of a variety of factors, many of which are
outside TeleTech's control. Such factors include the timing of new contracts;
labor strikes and slowdowns; reductions or other modifications in its clients'
marketing and sales strategies; the timing of new product or service offerings;
the expiration or termination of existing contracts or the reduction in existing
programs; the timing of increased expenses incurred to obtain and support new
business; changes in the revenue mix among TeleTech's various
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service offerings; and the seasonal pattern of certain of the businesses
serviced by TeleTech. In addition, TeleTech makes decisions regarding staffing
levels, investments and other operating expenditures based on its revenue
forecasts. If TeleTech's revenues are below expectations in any given quarter,
its operating results for that quarter would likely be materially adversely
affected.
CHANGES IN KEY INDUSTRIES THAT USE TELETECH'S SERVICES MAY NEGATIVELY AFFECT
TELETECH'S REVENUES.
TeleTech generates a majority of its revenues from clients in the
telecommunications, technology, transportation, financial services and
government services industries. TeleTech's growth and financial results are
largely dependent on continued demand for TeleTech's services from clients in
these industries and current trends in such industries to outsource certain
customer management services. A general economic downturn in any of these
industries or a slowdown or reversal of the trend in any of these industries to
outsource certain customer management services could have a material adverse
effect on TeleTech's business, results of operations or financial condition.
TELETECH'S SUCCESS DEPENDS ON THE SUCCESS OF TELETECH'S CLIENTS' PRODUCTS.
In substantially all of its client programs, TeleTech generates revenues
based, in large part, on the amount of time that TeleTech's personnel devotes to
a client's customers. Consequently, and due to the inbound nature of TeleTech's
business, the amount of revenues generated from any particular client program is
dependent upon consumers' interest in, and use of, the client's products and/or
services. Furthermore, a significant portion of TeleTech's expected revenues and
planned capacity use relate to recently introduced product or service offerings
of TeleTech's clients. There can be no assurance as to the number of consumers
who will be attracted to the products and services of TeleTech's clients and who
will therefore need TeleTech's services, or that TeleTech's clients will develop
new products or services that will require TeleTech's services.
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A WARNING ABOUT FORWARD-LOOKING STATEMENTS
TeleTech and Newgen have each made forward-looking statements (as such term
is defined in the Private Securities Litigation Reform Act of 1995) in this
document and in documents that are incorporated by reference in this document
that are subject to risks and uncertainties. Forward-looking statements include
the information concerning possible or assumed future results of operations of
TeleTech and Newgen. Also, statements including words such as "believes,"
"expects," "anticipates," "intends," "plans," "estimates," or similar
expressions are forward-looking statements. Stockholders should note that many
factors, some of which are discussed elsewhere in this document and in the
documents incorporated by reference in this document, could affect the future
financial results of TeleTech and Newgen and could cause actual results to
differ materially from those expressed in forward-looking statements contained
or incorporated by reference in this document. Important factors that could
cause actual results to differ materially from the expectations reflected in the
forward-looking statements in this proxy statement/prospectus include, among
others:
- risks associated with integrating the businesses of TeleTech and Newgen;
- risks relating to the respective businesses of TeleTech and Newgen;
- other risks and uncertainties set forth under the caption "Risk Factors
Relating to the Merger and an Investment in TeleTech Common Stock;"
- other risks and uncertainties set forth under the caption "Information
About The Companies--Risks Related to Newgen's Business;" and
- general economic, business and market conditions, changes in laws and
increased competitive pressure in the customer management and product
support industry.
Neither TeleTech nor Newgen undertakes any obligation to update their
forward-looking statements after the date of this proxy statement/prospectus.
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THE NEWGEN SPECIAL MEETING
DATE, TIME AND PLACE OF THE SPECIAL MEETING
The special meeting of the Newgen stockholders is scheduled to be held on
, 2000, at a.m. local time, at .
MATTERS TO BE CONSIDERED AT THE SPECIAL MEETING
The purpose of the special meeting is:
1. To consider and vote upon a proposal to adopt the Agreement and Plan of
Merger dated as of August 21, 2000, by and among Newgen Results
Corporation, a Delaware corporation, TeleTech Holdings, Inc., a Delaware
corporation and NG Acquisition Corp., a Delaware corporation and a wholly
owned subsidiary of TeleTech Holdings, Inc.; and
2. To transact such other business as may properly come before the special
meeting or any adjournment or postponement of the meeting.
STOCK ENTITLED TO VOTE
The Newgen board of directors has fixed the close of business on ,
2000, as the record date for the determination of the Newgen stockholders
entitled to receive notice of and to vote at the Newgen special meeting. A
complete list of stockholders entitled to vote at the special meeting will be
open to examination by the stockholders, during regular business hours, for a
period of ten days before the special meeting at the principal executive offices
of Newgen at 12680 High Bluff Drive, Suite 300 San Diego, California 92130. As
of the record date, shares of Newgen common stock were outstanding.
QUORUM
The presence of a majority of Newgen common stock entitled to vote, present
in person or represented by proxy, is necessary to constitute a quorum. Newgen
will count shares of Newgen common stock present at the meeting that abstain
from voting or that are the subject of broker non-votes as present for purposes
of determining a quorum. A broker non-vote occurs when a nominee holding Newgen
common stock for a beneficial owner does not vote on a particular matter because
the nominee does not have discretionary voting power with respect to that item
and has not received voting instructions from the beneficial owner.
VOTING RIGHTS; VOTE REQUIRED FOR APPROVAL
Each Newgen stockholder is entitled to one vote for each share of Newgen
common stock held on the record date with regard to the proposal to adopt the
merger agreement and with regard to each other matter that may properly come
before the Newgen special meeting. The affirmative vote of the holders of a
majority of the outstanding shares of Newgen common stock is required to adopt
the merger agreement.
ABSTENTIONS, FAILURES TO VOTE AND BROKER NON-VOTES
Because the affirmative vote of a majority of the outstanding shares of
Newgen common stock is required for adoption of the merger agreement, a proxy
marked "ABSTAIN" with respect to the adoption of the merger agreement will have
the effect of a vote "AGAINST" the adoption of the merger agreement. In
addition, the failure of a Newgen stockholder to return a proxy or vote in
person at the Newgen special meeting or by other permitted means will have the
effect of a vote "AGAINST" the adoption of the merger agreement. Brokers who
hold shares in street name for customers have the
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authority to vote on "routine" proposals when they have not received
instructions from beneficial owners. Brokers are precluded from exercising their
voting discretion with respect to proposals for non-routine matters such as the
adoption of the merger agreement. Thus, absent specific instructions from the
beneficial owner of Newgen common stock, brokers are not permitted to vote these
shares with respect to the adoption of the merger agreement. Since the
affirmative vote described above is required for adoption of the merger
agreement, a broker non-vote will have the effect of a vote "AGAINST" adoption
of the merger agreement.
BECAUSE ADOPTION OF THE MERGER AGREEMENT REQUIRES THE AFFIRMATIVE VOTE OF A
MAJORITY OF THE OUTSTANDING SHARES OF NEWGEN COMMON STOCK, ABSTENTIONS AND
BROKER NON-VOTES WILL HAVE THE SAME EFFECT AS NEGATIVE VOTES. THE FAILURE TO
APPOINT A PROXY OR VOTE YOUR SHARES IN PERSON WILL ALSO HAVE THE SAME EFFECT AS
A NEGATIVE VOTE. ACCORDINGLY, THE NEWGEN BOARD OF DIRECTORS URGES YOU TO
COMPLETE, DATE AND SIGN THE ACCOMPANYING PROXY AND RETURN IT PROMPTLY IN THE
ENCLOSED, POSTAGE-PAID ENVELOPE, OR TO APPOINT A PROXY BY INTERNET OR BY
TELEPHONE IN ACCORDANCE WITH THE INSTRUCTIONS ON THE PROXY FORM.
VOTING BY PROXY; REVOCATION OF PROXY
You may vote shares either in person or by duly authorized proxy. In
addition, you may appoint a proxy by telephone or through the Internet by
following the instructions provided on the enclosed proxy card. You may use the
proxy accompanying this proxy statement/prospectus if you are unable to attend
the Newgen special meeting in person or if you wish to have your shares voted by
proxy even if you do attend the Newgen special meeting. You may revoke any proxy
given by you in response to this solicitation at any time before the proxy is
voted at the Newgen special meeting by delivering to Newgen a written notice of
revocation, by delivering to Newgen a subsequently dated, properly executed
proxy or appointing a proxy as of a later date, or by attending the Newgen
special meeting and electing to vote in person. Your attendance at the Newgen
special meeting, by itself, will not constitute a revocation of a proxy. You
should address any written notices of proxy revocation to: Newgen Results
Corporation, 12680 High Bluff Drive, Suite 300, San Diego, California 92130,
Attention: Secretary.
All shares represented by the effective proxies on the accompanying Newgen
proxy card received by Newgen at or before the Newgen special meeting, and not
revoked before they are exercised, will be voted at the Newgen special meeting
in accordance with their terms. If no instructions are given, signed Newgen
proxies will be voted "FOR" the adoption of the merger agreement and at the
discretion of the proxy holders on any other matters that properly come before
the Newgen special meeting. The Newgen board of directors is not aware of any
other matters to be presented at the Newgen special meeting other than matters
incidental to the conduct of the Newgen special meeting.
CERTAIN BENEFICIAL OWNERS
Various stockholders of Newgen, who collectively beneficially own
approximately 56.6% of the outstanding shares of Newgen common stock as of the
record date, have entered into agreements with TeleTech in which they have
agreed to vote their shares "FOR" adoption of the merger agreement. See "The
Merger Agreement--The Voting Agreements" on page 66 for more information about
these agreements. Accordingly, even if all other stockholders were to vote
against the adoption of the merger agreement, the adoption of the merger
agreement at the Newgen special meeting is assured.
VOTING VIA THE INTERNET OR BY TELEPHONE
A number of brokers and banks are participating in programs provided through
ADP Investor Communication Services and American Stock Transfer and Trust
Company, Newgen's transfer agent, that offer telephone and Internet voting
options. If your shares are held in an account with a broker or bank
participating in either of these programs, or if your shares are registered in
your name, you may
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vote those shares telephonically by calling the telephone number shown on the
proxy card received from your broker or bank or from American Stock Transfer and
Trust Company, or via the Internet at either ADP Investor Communication
Services' voting Web site (WWW.PROXYVOTE.COM) or American Stock Transfer and
Trust Company's voting Web site (WWW.VOTEPROXY.COM). You may revoke any proxy or
voting instructions submitted via the Internet or by telephone in response to
this solicitation at any time before the proxy is voted or votes are cast at the
Newgen special meeting by using the same program used to appoint your proxy or
submit your voting instructions via the Internet or by telephone.
Proxies or voting instructions submitted via the Internet or by telephone
using the program provided by ADP Investor Communication Services must be
received by .m. time on , 2000. Submitting your
proxy via the Internet or by telephone will not affect your right to vote in
person should you decide to attend the Newgen special meeting.
THE TELEPHONE AND INTERNET VOTING PROCEDURES ARE DESIGNED TO AUTHENTICATE
STOCKHOLDERS' IDENTITIES, TO ALLOW STOCKHOLDERS TO GIVE THEIR VOTING
INSTRUCTIONS AND TO CONFIRM THAT STOCKHOLDERS' INSTRUCTIONS HAVE BEEN RECORDED
PROPERLY. STOCKHOLDERS USING THE INTERNET SHOULD UNDERSTAND THAT THERE MAY BE
COSTS ASSOCIATED WITH ELECTRONIC ACCESS, SUCH AS USAGE CHARGES FROM INTERNET
ACCESS PROVIDERS AND TELEPHONE COMPANIES, THAT MUST BE BORNE BY THE STOCKHOLDER.
SOLICITATION OF PROXIES
Newgen will bear the entire cost of the solicitation of proxies for the
Newgen special meeting. However, expenses of printing and mailing this proxy
statement/prospectus will be divided equally between Newgen and TeleTech. In
addition to the solicitation of proxies by mail, officers, directors, employees
and agents of Newgen may solicit proxies by correspondence, telephone, e-mail,
facsimile or other electronic means, or in person, but without extra
compensation. Newgen will request banks, brokers and other record holders to
send proxies and proxy materials to the beneficial owners of Newgen common stock
and secure their voting instructions and will reimburse their reasonable charges
and expenses incurred in forwarding the proxies and proxy materials. Further
solicitation of proxies may be made by telephone, e-mail or in person with some
Newgen stockholders following the original solicitation. All further
solicitation will be made by officers and other employees of Newgen who will not
be additionally compensated for their activities.
NO DISSENTERS' RIGHTS
Both TeleTech and Newgen are incorporated under Delaware law. Under the
Delaware General Corporation Law, Newgen stockholders do not have any right to a
court determination, in a proceeding known as an appraisal, of the fair value of
their shares in connection with the proposed merger with TeleTech. Under the
Delaware General Corporation Law, dissenters' rights of appraisal are available
to a stockholder of a corporation only in connection with certain mergers or
consolidations involving that corporation. Appraisal rights are not available
under the Delaware General Corporation Law if the corporation's stock is either:
- listed on a national securities exchange or designated as a national
market system security on an interdealer quotation system by the National
Association of Securities Dealers, Inc., as the shares of Newgen common
stock are; or
- held of record by more than 2,000 stockholders;
except that appraisal rights would be available if a merger or consolidation
required stockholders to exchange their stock for anything other than:
- shares of the surviving corporation;
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- shares of another corporation that will be listed on a national securities
exchange, designated as a national market system security on an
interdealer quotation system by the National Association of Securities
Dealers, Inc. or held of record by more than 2,000 stockholders, as the
shares of TeleTech common stock are;
- cash in lieu of fractional shares; or
- a combination of the foregoing.
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THE MERGER
THIS SECTION OF THE PROXY STATEMENT/PROSPECTUS DESCRIBES CERTAIN ASPECTS OF
THE MERGER, INCLUDING THE MERGER AGREEMENT AND THE VOTING AGREEMENTS. WHILE THE
PARTIES BELIEVE THAT THE DESCRIPTION COVERS THE MATERIAL TERMS OF THE MERGER AND
THE RELATED TRANSACTIONS, THIS SUMMARY MAY NOT CONTAIN ALL OF THE INFORMATION
THAT IS IMPORTANT TO YOU. YOU SHOULD READ CAREFULLY THE ENTIRE MERGER AGREEMENT
AND THE OTHER DOCUMENTS REFERRED TO HEREIN FOR A MORE COMPLETE UNDERSTANDING OF
THE MERGER.
BACKGROUND OF THE MERGER
Representatives of Newgen were first approached by representatives of a
third party with regard to the possible acquisition of Newgen in April 1999,
prior to Newgen's initial public offering. At the time, Newgen's representatives
indicated that Newgen was not interested in negotiating a sale of the company to
the third party on the terms offered. This third party was not TeleTech or an
affiliate of TeleTech.
On December 28, 1999, Michael Foss, TeleTech's Chief Financial Officer, met
with Gerald Benowitz, Newgen's President and Chief Executive Officer in San
Diego. Steve Early, TeleTech's Vice President of Global Sales, Mike Canaday,
TeleTech's Director of Business Development and Ian Steyn, Newgen's Vice
President of Sales and Marketing also attended this meeting. The group discussed
the possibility of a collaborative effort to improve TeleTech and Newgen's
respective business relationships with their common customer, Ford Motor
Company. In addition, Mr. Foss expressed TeleTech's potential interest in
exploring a possible acquisition of Newgen. The group determined that a
subsequent meeting would take place.
In early January 2000, Mr. Foss told Mr. Benowitz in a phone conversation
that TeleTech would not continue any further discussions with Newgen due to
TeleTech's then current involvement in the formation of a joint venture with
Ford. Newgen had no further communications with TeleTech until June.
Between January and May 2000, representatives of the joint venture between
TeleTech and Ford (known as Percepta, LLC), Ford and Newgen met several times to
discuss the capabilities of Percepta and Newgen and to determine if there were
opportunities to develop a business relationship between Percepta and Newgen
that would allow each to better serve their mutual customer, Ford.
On May 31, 2000, Don Sparkman, an officer of Percepta, called
Leslie Silver, Newgen's Executive Vice President, to inform him that Ford was
not interested in a strategic relationship with Newgen, but supportive of
TeleTech and Newgen pursuing further discussions on developing a business
relationship. Mr. Sparkman suggested that Mr. Silver call Mr. Foss. On June 2,
2000, Mr. Silver contacted Mr. Foss indicating he was calling in response to the
May 31, 2000 phone call he had received from Mr. Sparkman. Messrs. Foss and
Silver arranged a meeting for June 5, 2000 in Las Vegas.
During the discussions among Newgen, Percepta and Ford, on May 18, 2000,
representatives from the third party that had initially approached Newgen about
a possible acquisition in April 1999 contacted representatives of Newgen to
renew discussions regarding a proposed acquisition. Mr. Benowitz and Samuel
Simkin, Newgen's Senior Vice President and Chief Financial Officer, informed the
third party that it would have to offer a significant premium to Newgen's market
price in order for Newgen to be interested in a possible acquisition proposal.
From May 19, 2000 through early June 2000 representatives of the third party and
Newgen continued to discuss possible acquisition structures and consideration
and the potential benefits to each party of a combination. On May 25, 2000, the
board of directors of Newgen held a regular meeting at Newgen's offices in San
Diego. During this meeting, Messrs. Benowitz and Simkin reported on their most
recent discussions with the third party.
On June 5, 2000, Mr. Foss, Scott Thompson, TeleTech's Chief Executive
Officer, and James Kaufman, TeleTech's Senior Vice President and General
Counsel, and Messrs. Benowitz and Silver met in Las Vegas. During this meeting,
Mr. Thompson stated that TeleTech was now interested in acquiring
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Newgen for a specified premium to Newgen's then-current market price in a
stock-for-stock deal. Messrs. Benowitz and Silver told Messrs. Foss, Thompson
and Kaufman that the offer price was not sufficient to interest Newgen but
suggested that Newgen might be interested in pursuing discussions with TeleTech
if TeleTech were prepared to improve its proposal.
On June 6, 2000, Mr. Simkin met with representatives of the third party that
had expressed renewed interest in acquiring Newgen at the meeting on May 18,
2000 described above. This meeting took place at the offices of the third party.
Representatives from both companies discussed possible benefits of, and possible
structures for, a combination of the two companies, and the representatives
exchanged information about their respective businesses. No specific proposals
were made during this meeting.
On June 7, 2000, Mr. Foss, together with representatives of Morgan Stanley &
Co. Incorporated, TeleTech's financial advisor, visited Newgen's offices in San
Diego and spent the day discussing Newgen's business with Messrs. Benowitz,
Silver and Simkin.
On June 8, 2000, Newgen and TeleTech entered into a mutual confidentiality
and non-disclosure agreement.
On or about June 9, 2000, Newgen engaged Chase H&Q to serve as Newgen's
financial advisor in connection with Newgen's discussions with TeleTech and the
third party.
On June 13, 2000, representatives from the third party that had expressed an
interest in acquiring Newgen met all day with Messrs. Benowitz, Silver and
Simkin of Newgen and representatives of Chase H&Q at the offices of Cooley
Godward LLP, Newgen's legal counsel, in San Diego. During the meeting, the
parties discussed their respective businesses and the potential benefits of a
combination. Representatives of the third party outlined a preliminary proposal
to acquire Newgen. Under the third party's proposal, the third party would
purchase all of the outstanding stock of Newgen for cash equal to a nominal
premium over the then-market price of Newgen common stock. The representatives
of the third party indicated that they would not be able to offer a greater
price for Newgen in part due to the third party's inability to account for the
acquisition as a pooling of interests. Mr. Benowitz indicated that the proposed
price was inadequate, that Newgen had received a proposal from another party and
that Newgen would not be interested in a transaction with the third party unless
they would offer a substantially higher premium to Newgen's stockholders than
they were then offering.
On June 14, 2000, Mr. Foss and Norman Blome, TeleTech's Vice President of
Finance, together with representatives of Morgan Stanley & Co. Incorporated, met
all day with Messrs. Benowitz, Silver and Simkin of Newgen and representatives
of Chase H&Q at the offices of Cooley Godward LLP in San Diego. The parties
again discussed the possible acquisition of Newgen by TeleTech, and TeleTech
again proposed that TeleTech acquire Newgen in a merger wherein Newgen
stockholders would receive TeleTech common stock in exchange for Newgen common
stock. Mr. Benowitz indicated that TeleTech would have to offer TeleTech common
stock valued at a significant premium to Newgen's common stock price in order
for such an exchange to be attractive to Newgen's stockholders. Mr. Benowitz
also noted that Newgen was entertaining another proposal to be acquired and that
any proposal from TeleTech would have to be better than that other proposal.
After a day of negotiation, the parties could not reach agreement on the value
of the TeleTech common stock that Newgen stockholders would receive as
consideration.
Throughout the period from June 5 through June 14, Mr. Benowitz regularly
spoke with several of the members of Newgen's board of directors to keep them
apprised of the discussions with TeleTech and the third party.
On June 15, 2000, the Newgen board of directors held a special telephonic
meeting. During this meeting, Messrs. Benowitz and Simkin reported on their most
recent discussions with TeleTech and the third party.
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At various times between June 15 and July 31, 2000, representatives of
Newgen spoke with representatives of each of TeleTech and the third party
regarding their respective interests to acquire Newgen.
On July 27, 2000, Mr. Thompson communicated in a letter to Mr. Benowitz
TeleTech's continued interest in acquiring Newgen and possible structure and
pricing features of such an acquisition.
On July 31, 2000, Messrs. Foss and Thompson and Kenneth Tuchman, TeleTech's
Chairman of the Board, met with Messrs. Benowitz, Silver and Simkin of Newgen in
San Diego to see if the parties could come to an agreement on the terms of a
possible acquisition. Representatives of Morgan Stanley & Co. Incorporated,
Chase H&Q and Cooley Godward LLP also participated in this meeting. The
discussions and analysis focused on the exchange ratio that would determine the
fraction of a share of TeleTech common stock into which each share of Newgen
common stock would convert in the acquisition at various market prices of
TeleTech's common stock, the possibility of a collar on the exchange ratio, and
the ability of TeleTech to obtain voting agreements from Newgen's principal
stockholders. Following this meeting, Newgen continued to consult regularly with
Chase H&Q regarding the financial elements of the proposed transaction with
TeleTech.
Between July 31 and August 4, 2000, representatives of TeleTech, Morgan
Stanley & Co. Incorporated, Newgen and Chase H&Q held numerous discussions
regarding the terms of a possible acquisition, and TeleTech proposed pricing
formulas that included various exchange ratios subject to collars. TeleTech
representatives agreed to attend a special meeting of the Newgen board of
directors that was scheduled for August 4, 2000 to give a presentation on
TeleTech's business.
On August 4, 2000, the Newgen board of directors held a special board
meeting to discuss the state of the negotiations with TeleTech and to hear
presentations by Chase H&Q and TeleTech. At that meeting, a representative of
Chase H&Q first gave an overview of the state of the negotiations between
TeleTech and Newgen and on the general structure of the proposed transaction. A
representative of Chase H&Q also reported to the Newgen board that Chase H&Q, as
part of its engagement, had surveyed the landscape of other potential acquirers
and identified only three other companies that would likely be interested in
acquiring Newgen, one of which was the third party with whom Newgen was already
negotiating. Mr. Simkin then reported on the status of discussions with such
third party. Mr. Simkin reported that the third party had suggested it would be
interested in a transaction whereby it would purchase for cash all of Newgen's
outstanding stock. Mr. Simkin noted that the per-share price was less than the
per-share price of the then-current proposal from TeleTech and that it was
possible no formal proposal would be made by such third-party until certain
other business conditions were satisfied, and that there was a risk that those
conditions would not be met. Following the presentation by Chase H&Q and
management, Messrs. Tuchman, Thompson and Foss of TeleTech were invited to join
the Newgen board meeting and deliver a presentation about TeleTech's business.
Newgen's board was given the opportunity to ask questions and discuss TeleTech's
current and future business and prospects. Following the presentation by
TeleTech management, representatives from Chase H&Q reviewed for the Newgen
board their preliminary analysis of TeleTech's proposal. During the meeting, a
representative of Cooley Godward LLP gave a presentation to the Newgen board,
without representatives of Chase H&Q or TeleTech being present, regarding the
fiduciary duties of the Newgen board in this type of acquisition transaction.
At the end of the August 4, 2000 Newgen board meeting, the Newgen board of
directors authorized Messrs. Benowitz and Simkin to proceed with negotiations
with TeleTech, in consultation with Newgen's legal and financial advisors, and
to commence a due diligence investigation of TeleTech. Newgen's board of
directors further authorized Chase H&Q to contact the other parties that it
believed could be interested in acquiring Newgen in order to assist the Newgen
board in determining that the transaction terms being proposed by TeleTech were
the best terms reasonably available for the possible sale of Newgen.
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During the week of August 7, 2000, a representative of Chase H&Q contacted
two other companies to inquire about their respective interests in engaging in a
strategic transaction with Newgen. Neither party elected to make a proposal.
On August 7, 2000, Hogan & Hartson L.L.P., TeleTech's legal counsel,
presented an initial draft of the merger agreement and commenced its due
diligence investigation of Newgen at the offices of Cooley Godward LLP. Both
parties met with their respective financial and legal advisors on a regular
basis throughout the week to discuss and negotiate the terms of the merger
agreement and related documents.
On August 14, 2000, Mr. Simkin and representatives of Chase H&Q and Cooley
Godward LLP went to Denver to meet with Messrs. Foss and Blome, and conduct due
diligence on TeleTech. Throughout this time, the legal and financial advisors of
the parties continued to negotiate the terms of the merger agreement and related
documents.
From August 8 through August 18, 2000, TeleTech and Newgen, together with
their respective legal, financial and accounting advisors, including Morris,
Nichols, Arsht & Tunnell, special Delaware counsel to TeleTech, and Richards,
Layton & Finger, special Delaware counsel to Newgen, conducted due diligence
reviews and negotiated the terms of the definitive merger agreement and the
other agreements related to the merger, including the following:
- termination rights under the merger agreement;
- the size of the breakup fee and the conditions upon which any breakup fee
would be payable;
- the possible ability of the Newgen board of directors to consider and
respond to a possible alternative offer that could emerge for Newgen
following the execution of the merger agreement;
- the existence and terms and conditions of voting and affiliate agreements;
- accounting treatment of the merger; and
- the representations, warranties and covenants to be made.
On August 16, 2000, the Newgen board of directors held a special telephonic
board meeting to review the state of negotiations with TeleTech. Prior to the
meeting, copies of the current versions of the merger agreement and other
ancillary agreements were distributed to the members of the Newgen board.
Present at the meeting were representatives of Chase H&Q and Cooley Godward LLP.
Representatives of Cooley Godward LLP summarized the terms of the merger
agreement and the related agreements in their current form and responded to
questions from members of the Newgen board about the terms of those agreements.
Representatives of Cooley Godward LLP and Richards, Layton & Finger, special
Delaware counsel to Newgen, also reviewed with the directors, without
representatives of Chase H&Q present, the fiduciary duties they were obligated
to meet under applicable provisions of the Delaware General Corporation Law in
the consideration of a transaction with TeleTech. In addition, Chase H&Q
presented its analysis of various information to serve as the basis for
evaluating the exchange ratio and orally informed the Newgen board of its
opinion, subsequently confirmed in writing, that, based on the then current
terms of the relevant transaction documents, the consideration to be received by
Newgen's stockholders in the proposed merger was fair from a financial point of
view to the stockholders of Newgen. Chase H&Q also responded to questions raised
by members of the Newgen board regarding its analysis and opinion. Chase H&Q
also reported that they had made further contact with the other companies that
it had previously identified as possible acquisition candidates, and that they
continued to get no indication of interest at or near the price offered by
TeleTech. Following this presentation, the Newgen board engaged in a full
discussion of the terms of the proposed merger and the analysis and opinion of
Chase H&Q. The members of Newgen's board present at the meeting then unanimously
concluded that the proposed merger was in the best interests of Newgen and its
stockholders, and approved the financial terms of the transaction
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with TeleTech as presented and authorized the officers of Newgen and its
financial and legal advisors to continue to negotiate for a final resolution on
the remaining terms.
From August 14 through August 21, 2000, representatives from the third party
that had made the cash proposal to acquire Newgen continued to call Mr. Simkin
informally regarding the possibility of re-opening negotiations. Mr. Simkin
informed them that they would need to make an offer substantially above their
previous highest offer in order for Newgen to be interested in re-opening
discussions with them. Mr. Simkin also informed the third party that if it
wanted to make an offer, it would have only a limited window of time in which to
do so.
On Friday, August 18, 2000, the Newgen board of directors held a special
telephonic meeting to review the status of negotiations with TeleTech. The
Newgen board, reviewing the substantially final merger agreement and ancillary
agreements, noted that significant progress in resolving final transaction terms
had been made since August 16, 2000. Newgen's counsel reviewed the resolution of
the issues that had been unresolved and reviewed again the terms of the
definitive merger agreement and the ancillary agreements. Chase H&Q also orally
indicated to the Newgen board that they continued to be of the opinion that the
transaction was fair to Newgen and its stockholders. The Newgen board then
engaged in an extensive discussion of the deal, of the opinion of Chase H&Q,
asking questions of the representatives of Cooley Godward LLP and Chase H&Q.
Based on this review, Newgen's board determined that the merger was fair to and
in the best interests of Newgen and the Newgen stockholders, that the merger
agreement and the transactions contemplated thereby were advisable and that the
board should recommend that the stockholders of Newgen adopt the merger
agreement and Newgen's board approved the merger agreement, the ancillary
agreements and related matters and authorized management to finalize and execute
the agreements on behalf of Newgen.
Final negotiations between the parties continued through the weekend and
into the afternoon of August 21, 2000, at which time the parties reached final
agreement on the remaining terms and executed and delivered the merger
agreement. Concurrently with the execution of the merger agreement, several of
Newgen's stockholders, including members of management, entered into voting
agreements pursuant to which they agreed, subject to certain conditions, to vote
all of their shares in favor of the adoption of the merger agreement. See the
section entitled "The Merger Agreement--The Voting Agreements" on page 66 for
more information relating to these agreements.
TeleTech and Newgen jointly announced the merger in the morning of
August 22, 2000 prior to the opening of trading on Nasdaq.
RECOMMENDATION OF NEWGEN'S BOARD OF DIRECTORS
After careful consideration, the Newgen board of directors has unanimously
determined the merger agreement to be fair to, and in the best interests of, the
Newgen stockholders. The Newgen board of directors recommends that Newgen
stockholders vote for the proposal to adopt the merger agreement.
In considering the recommendation of the Newgen board of directors with
respect to the merger agreement, you should be aware that certain directors and
officers of Newgen have certain interests in the merger that are different from,
or are in addition to the interests of Newgen stockholders generally. Please see
the section entitled "The Merger--Interests of Certain Persons in the Merger" on
page 50.
NEWGEN'S REASONS FOR THE MERGER
The Newgen board of directors consulted with Newgen's senior management, as
well as Newgen's legal counsel, independent accountants and financial advisors,
in reaching its decision to adopt the merger agreement and the merger and
recommend that the stockholders of Newgen approve the merger agreement. During
the course of its deliberations, Newgen's board of directors considered a
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number of factors that it believes make the merger attractive to Newgen's
stockholders and could contribute to the success of the combined companies,
including:
- the merger will offer the stockholders of the combined company the
potential benefits described below under the heading "TeleTech's Reasons
for the Merger;"
- the merger will create a combined company with potentially greater
financial, technological and human resources to develop new products and
services, and greater sales and marketing resources to help promote
Newgen's products that are currently under development;
- Newgen's stockholders will have the opportunity to participate in the
potential for growth of the combined company after the merger and to
benefit from the potential appreciation in the value of TeleTech common
stock;
- the value of the shares of TeleTech common stock that Newgen's
stockholders will receive in the merger represents a significant premium
for Newgen's stockholders over the price of Newgen's common stock as
reported on the Nasdaq National Market immediately prior to the
announcement of the merger;
- the terms and conditions of the merger agreement, including the price
protection provided by the pricing collar and the expected tax-deferred
treatment to Newgen's stockholders;
- the potential synergies created by each company's business relationship
with Ford Motor Company;
- the analysis prepared by Chase H&Q and presented to the Newgen board of
directors that the consideration to be received by Newgen's stockholders
in the proposed merger was fair from a financial point of view to the
stockholders of Newgen, as described more fully in the text of the entire
opinion attached as Annex D to this proxy statement/prospectus; and
- the ability of the Newgen board of directors for a limited period of time
under the merger agreement to enter into discussions with another party in
response to an unsolicited superior offer to the merger if the Newgen
board of directors believed in good faith, after consultation with its
legal counsel, that such action was required in order to comply with its
fiduciary obligations.
The Newgen board of directors also identified and considered a variety of
potential risks and other negative factors in its deliberations concerning the
merger, including, but not limited to:
- the risk to Newgen's stockholders that the value to be received in the
merger could decline significantly if the value of TeleTech's common stock
were to fall below the exchange ratio collar prior to the closing of the
merger;
- the loss of control over the future operations of Newgen following the
merger;
- the impact of the loss of Newgen's status as an independent company on its
stockholders, employees and customers;
- the risk that the potential benefits sought in the merger might not be
fully realized;
- the possibility that the merger might not be completed;
- the potential adverse effects of the public announcement of the merger on:
-- Newgen's sales and operating results;
-- Newgen's ability to attract and retain key employees;
-- the progress of some of Newgen's strategic initiatives; and
-- Newgen's overall competitive position;
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- the risk that, despite the efforts of TeleTech and Newgen, key technical,
sales and management personnel might not remain employees of TeleTech or
Newgen following the completion of the merger;
- the risk that the attention of Newgen's management may be diverted from
Newgen's business operations;
- the transaction costs expected to be incurred in connection with the
merger; and
- the other risks described in this proxy statement/prospectus under the
heading "Risk Factors Relating to the Merger and an Investment in TeleTech
Common Stock" beginning on page 25.
The Newgen board of directors also considered what alternatives existed to
the merger, including reviewing the prospects for Newgen as an independent
company. In light of the factors described above, the Newgen board of directors
determined that the value and benefits available to Newgen stockholders from the
merger exceeded the value and potential benefits they might realize from Newgen
continuing as an independent company.
The foregoing discussion of the information and factors considered by the
Newgen board of directors is not intended to be exhaustive but is believed to
include all material factors considered by Newgen's board of directors. In view
of the complexity and wide variety of information and factors, both positive and
negative, considered by the Newgen board of directors, it did not find it
practical to quantify, rank or otherwise assign relative or specific weights to
the factors considered. In addition, the Newgen board of directors did not reach
any specific conclusion with respect to each of the factors considered, or any
aspect of any particular factor, but, rather, conducted an overall analysis of
the factors described above, including discussions with Newgen's management and
legal and financial advisors. In considering the factors described above,
individual members of the Newgen board of directors may have given different
weight to different factors. The Newgen board of directors considered all these
factors as a whole and believes that the merger is fair to, and in the best
interests of, Newgen and its stockholders and unanimously recommends that the
stockholders of Newgen consent to the merger.
OPINION OF FINANCIAL ADVISOR TO NEWGEN
Newgen engaged Chase H&Q, a division of Chase Securities Inc., to act as an
exclusive financial advisor to Newgen in connection with the proposed merger.
The Newgen board of directors selected Chase H&Q to act as an exclusive
financial advisor based on Chase H&Q's qualifications, expertise and reputation,
as well as Chase H&Q's historic investment banking relationship and familiarity
with Newgen. Chase H&Q delivered its preliminary oral opinion on August 16,
2000, subsequently confirmed in writing, to the Newgen board of directors that,
based upon and subject to the assumptions made, matters considered and limits of
the review undertaken by Chase H&Q, the consideration in the proposed merger was
fair from a financial point of view to the stockholders of Newgen.
THE FULL TEXT OF THE OPINION DELIVERED BY CHASE H&Q TO THE NEWGEN BOARD OF
DIRECTORS, DATED AUGUST 21, 2000, WHICH SETS FORTH THE ASSUMPTIONS MADE, GENERAL
PROCEDURES FOLLOWED, MATTERS CONSIDERED AND LIMITATIONS ON THE SCOPE OF REVIEW
UNDERTAKEN BY CHASE H&Q IN RENDERING ITS OPINION, IS ATTACHED AS ANNEX D TO THIS
PROXY STATEMENT/PROSPECTUS AND IS INCORPORATED HEREIN BY REFERENCE. CHASE H&Q'S
ADVISORY SERVICES AND CHASE H&Q'S OPINION WERE PROVIDED FOR THE INFORMATION AND
ASSISTANCE OF THE NEWGEN BOARD OF DIRECTORS IN CONNECTION WITH ITS CONSIDERATION
OF THE TRANSACTION CONTEMPLATED BY THE MERGER AGREEMENT AND SUCH OPINION DOES
NOT CONSTITUTE A RECOMMENDATION TO ANY NEWGEN STOCKHOLDER AS TO HOW SUCH
STOCKHOLDER SHOULD VOTE WITH RESPECT TO THE MERGER AGREEMENT. THE SUMMARY OF THE
CHASE H&Q OPINION SET FORTH BELOW IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
THE FULL TEXT OF SUCH OPINION ATTACHED HERETO AS ANNEX D. NEWGEN STOCKHOLDERS
ARE URGED TO, AND SHOULD, READ THE OPINION CAREFULLY IN ITS ENTIRETY.
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In reviewing the proposed transaction, and in arriving at its opinion, Chase
H&Q, among other things:
- reviewed the publicly available consolidated financial statements of
TeleTech for recent years and interim periods to date and certain other
relevant financial and operating data of TeleTech (including its capital
structure) made available to Chase H&Q from published sources and from the
internal records of TeleTech;
- reviewed certain internal financial and operating information relating to
TeleTech prepared by the management of TeleTech;
- discussed the past and current business, financial condition and prospects
of TeleTech with certain members of senior management of TeleTech;
- reviewed the publicly available consolidated financial statements of
Newgen for recent years and interim periods to date and certain other
relevant financial and operating data of Newgen made available to Chase
H&Q from published sources and from the internal records of Newgen;
- reviewed certain internal financial and operating information relating to
Newgen prepared by the senior management of Newgen;
- discussed the past and current business, financial condition and prospects
of Newgen with certain members of senior management of Newgen;
- reviewed the recent reported prices and trading activity for the common
stock of TeleTech and the common stock of Newgen and compared such
information and certain financial information for TeleTech and Newgen with
similar information for certain other companies engaged in businesses
Chase H&Q considered comparable;
- reviewed the financial terms, to the extent publicly available, of certain
comparable merger and acquisition transactions;
- reviewed the merger agreement dated August 21, 2000; and
- performed such other analyses and examinations and considered such other
information, financial studies, analyses and investigations and financial,
economic and market data as Chase H&Q deemed relevant.
Chase H&Q did not assume responsibility for independent verification of, and
did not independently verify, any of the information, including without
limitation any financial information, forecasts or projections, concerning
Newgen or TeleTech in connection with its review of the proposed merger.
Accordingly, for purposes of its opinion, Chase H&Q assumed and relied upon the
accuracy and completeness of all such information. In connection with its
opinion, Chase H&Q did not prepare or obtain any independent valuation or
appraisal of any of the assets or liabilities of Newgen or TeleTech, and it did
not conduct a physical inspection of the properties and facilities of Newgen or
TeleTech. For the purposes of its opinion, Chase H&Q also assumed that neither
Newgen nor TeleTech was a party to any material pending transactions, including
without limitation external recapitalizations or material merger or acquisition
discussions, other than the proposed merger and transactions in the ordinary
course of conducting their respective businesses. Newgen advised Chase H&Q, and
for purposes of its opinion Chase H&Q assumed, that the proposed merger would be
tax-deferred to each of Newgen and TeleTech and would be treated as a pooling of
interests transaction for financial accounting purposes.
In performing its analyses, Chase H&Q used financial forecasts and
projections based on published research analyst estimates for both Newgen and
TeleTech. Projections were based on numerous assumptions with respect to
industry performance, general business and economic conditions and other
matters, many of which are beyond the control of Newgen, TeleTech or Chase H&Q.
The analyses performed by Chase H&Q and summarized below are not necessarily
indicative of actual values or actual future results, which may be significantly
more or less favorable than suggested by such analyses.
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Because such analyses are inherently subject to uncertainty, being based upon
numerous factors or events beyond the control of Newgen, TeleTech or their
respective advisors, neither Newgen, Chase H&Q nor any other person assumes
responsibility if future results or actual values are materially different from
the results of analyses based on forecasts or assumptions. Additionally,
analyses relating to the values of businesses do not purport to be appraisals or
to reflect the prices at which businesses or securities may actually be acquired
or bought or sold.
Chase H&Q's opinion is necessarily based upon market, economic, financial
and other conditions as they existed and can be evaluated as of the date of the
opinion and any subsequent change in such conditions would require a
reevaluation of such opinion. Although subsequent developments might have
affected its opinion, Chase H&Q has not been engaged by the Newgen board of
directors, nor has Chase H&Q assumed any obligation to update, revise or
reaffirm such opinion.
The preparation of a fairness opinion is a complex process and is not
necessarily susceptible to summary description. The summary of Chase H&Q's
analyses set forth below summarizes the material analyses presented to the
Newgen board of directors but is not a complete description of the presentation
by Chase H&Q to the Newgen board of directors or the analyses performed by Chase
H&Q in connection with preparing its opinion. In arriving at its opinion, Chase
H&Q did not attribute any particular weight to any analyses or factors
considered by it, but rather made subjective, qualitative judgments as to the
significance and relevance of each analysis and factor. Accordingly, Chase H&Q
believes that its analyses and the summary set forth below must be considered as
a whole and that selecting portions of its analyses, without considering all
analyses, or of the following summary, without considering all factors and
analyses, could create an incomplete view of the processes underlying the
analyses set forth in the Chase H&Q presentation to the Newgen board of
directors and Chase H&Q's opinion.
The terms of the proposed merger were determined through negotiations
between Newgen and TeleTech and were approved by the Newgen board of directors.
Although Chase H&Q provided advice to Newgen during the course of these
negotiations, the decision to enter into the merger agreement was solely that of
the Newgen board of directors. As described above, the opinion of Chase H&Q and
its presentation to the Newgen board of directors were only two of a number of
factors taken into consideration by the Newgen board of directors in making its
determination to approve the proposed merger.
The following is a brief summary of the material financial analyses
performed by Chase H&Q and presented to the Newgen board of directors on
August 16, 2000, which formed the basis for providing its written opinion to the
Newgen board of directors on August 21, 2000. THE SUMMARY INCLUDES INFORMATION
PRESENTED IN TABULAR FORMAT. YOU SHOULD READ THESE TABLES TOGETHER WITH THE TEXT
OF EACH SUMMARY, BECAUSE THE TABLES ALONE ARE NOT A COMPLETE DESCRIPTION OF THE
FINANCIAL ANALYSES.
COMPARABLE COMPANIES ANALYSIS. This analysis reviews a business' operating
performance and outlook relative to a group of peer companies to determine an
implied value per share for Newgen. Using publicly available research analyst
estimates, Chase H&Q compared, among other things, the enterprise values and
projected revenues for calendar years 2000 and 2001 and the share prices and
projected earnings per share for calendar years 2000 and 2001 for Newgen to
corresponding measures for certain publicly traded companies that Chase H&Q
considered comparable.
The companies that Chase H&Q considered comparable were:
- Equifax Inc.
- Acxiom Corporation
- Harte-Hanks, Inc.
- Fair, Isaac and Company, Incorporated
- The Profit Recovery Group International, Inc.
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- infoUSA Inc.
- MemberWorks, Inc.
- Pegasus Solutions, Inc.
- CCC Information Services Group Inc.
Chase H&Q determined enterprise value to revenue multiples and share price to
earnings per share multiples for these companies. Enterprise value is defined as
the share price multiplied by the diluted shares outstanding plus debt and
minority interest less cash. Applying ranges of such multiples for the
comparable companies to projected calendar year 2000 and 2001 revenues and 2000
and 2001 earnings per share of Newgen generated implied value per share ranges.
The following table summarizes the results of the analysis:
<TABLE>
<CAPTION>
SELECTED IMPLIED VALUE
MULTIPLE RANGE PER SHARE
------------------------------- ------------------------------
VALUATION METRIC LOW HIGH LOW HIGH
---------------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
2000E Revenues........................ 1.2x -- 1.9x $10.37 -- $15.28
2001E Revenues........................ 1.1 -- 1.6 11.04 -- 15.17
2000E EPS............................. 20.0 -- 22.2 12.80 -- 14.08
2001E EPS............................. 12.0 -- 16.0 12.48 -- 16.64
</TABLE>
Chase H&Q compared these results to the proposed implied offer price of $18.00
per share and observed that the implied offer price per share will be
approximately $18.00 if the TeleTech 20-day average closing price per share is
between $22.50 and $37.50. Chase H&Q noted that the closing price per share of
TeleTech common stock on August 16, 2000 was $29.63.
COMPARABLE TRANSACTIONS ANALYSIS. This analysis reviews financial
information of selected public companies that have been recently acquired and
are in similar industries as the business being evaluated to determine an
implied value per share for Newgen. Using publicly available information, Chase
H&Q compared the proposed merger with twelve selected mergers and acquisitions
transactions involving companies in the information services industry. The
acquirors and targets in the transactions that Chase H&Q deemed comparable to
the proposed merger were:
- Reynolds & Reynolds Co./HAC Group LLC
- ChoicePoint Inc./DBT Online Inc.
- Equifax Inc./R.L. Polk & Co. - Consumer Information Solutions Group
- CoStar Group, Inc./Comps.com Inc.
- Newgen Results Corporation/Automatic Data Processing, Inc. - Computer Care
division
- infoUSA Inc./First Data Corporation - Donnelley Marketing subsidiary
- Telespectrum Worldwide Inc./International Data Response Corporation
- Quintiles Transnational Corp./Pharmaceutical Marketing Services Inc.
- Great Universal Stores plc/Metromail Corp.
- Great Universal Stores plc/Direct Marketing Technology Inc.
- Reed Elsevier plc/MDL Information Services Inc.
- Reynolds & Reynolds Co./COIN Inc.
Chase H&Q determined transaction value to latest twelve months ("LTM") revenue
multiples and transaction value to LTM EBITDA multiples for these transactions.
Transaction value is defined as the offer price per share multiplied by the
diluted shares outstanding plus debt and minority interest less cash for the
most recent period immediately preceding the announcement of the transaction.
EBITDA is defined as earnings before interest, taxes, depreciation and
amortization. Applying ranges of such
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multiples for the comparable transactions to LTM revenues and LTM EBITDA of
Newgen generated implied value per share ranges. The following table summarizes
the results of the analysis:
<TABLE>
<CAPTION>
SELECTED IMPLIED VALUE
MULTIPLE RANGE PER SHARE
------------------------------- ------------------------------
VALUATION METRIC LOW HIGH LOW HIGH
---------------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
LTM Revenues....................... 1.6x -- 2.9x $11.15 -- $18.62
LTM EBITDA......................... 12.2 -- 17.6 11.82 -- 16.20
</TABLE>
Chase H&Q compared these results to the proposed implied offer price of $18.00
per share and observed that the implied offer price per share will be
approximately $18.00 if the TeleTech 20-day average closing price is between
$22.50 and $37.50. Chase H&Q noted that the closing price of TeleTech common
stock on August 16, 2000 was $29.63.
Chase H&Q observed that no company used in the above analysis is identical
to Newgen and the circumstances surrounding each of the companies are inherently
different. Accordingly, an analysis of the results of the foregoing is not
mathematical; rather it involves complex, qualitative considerations and
judgments, reflected in Chase H&Q's opinion, concerning differences in the
financial and operating characteristics of the compared companies and other
factors that could affect the public trading values of the comparable companies
and Newgen.
PREMIUMS PAID ANALYSIS. This analysis reviews the premiums paid over the
current market price in a significant number of recent transactions across
numerous industries to determine an implied value per share for Newgen. Chase
H&Q compared the implied premium as of August 15, 2000 of the consideration to
be paid in the proposed merger to the implied premiums paid in all thirty-one
$100 million to $250 million public stock-for-stock transactions announced since
May 1, 1999, based on data supplied by Securities Data Corporation. The mean and
median of the premiums paid are set forth in the following table:
<TABLE>
<CAPTION>
PERIOD MEAN MEDIAN
------ -------- --------
<S> <C> <C>
Premium one trading day prior............................... 25.7% 28.4%
Premium one week prior...................................... 38.6 46.9
Premium one month prior..................................... 50.0 51.9
</TABLE>
Chase H&Q applied a range of premiums of 30% to 50% to the closing price per
share of Newgen common stock of $13.38 on August 15, 2000, which resulted in an
implied value per share range of $17.39 to $20.06.
Chase H&Q compared these results to the proposed implied offer price of
$18.00 per share and observed that the implied offer price per share will be
approximately $18.00 if the TeleTech 20-day average closing price per share is
between $22.50 and $37.50. Chase H&Q noted that the closing price per share of
TeleTech common stock on August 16, 2000 was $29.63.
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DISCOUNTED CASH FLOWS ANALYSIS. This analysis compares the implied value
per share for Newgen based on net present value of unlevered free cash flows
relative to the proposed implied offer price per share. Chase H&Q performed a
discounted cash flow analysis of Newgen based upon publicly available research
analyst estimates, for the years ending December 31, 2000 and 2001, and based on
projection information based on Chase H&Q discussions with Newgen management for
the years ending December 31, 2002 and 2003. Utilizing such information, Chase
H&Q calculated a range of values based upon the discounted present value of the
sum of the projected stream of unlevered free cash flows, defined as EBITDA less
taxes less the change in working capital less capital expenditures, of Newgen
from August 15, 2000 through December 31, 2003 and the projected terminal value
of Newgen at December 31, 2003 based upon a range of forward net income
multiples applied to estimated unlevered net income in 2004. Chase H&Q
calculated a range of enterprise values of Newgen as of August 15, 2000 based on
discount rates of 10%, 11% and 12% and on 2004 forward net income terminal
multiples of 10.5x, 12.5x and 14.5x, which resulted in a range of values of
$11.98 to $16.55 per share.
Chase H&Q compared these results to the proposed implied offer price of
$18.00 per share and observed that the implied offer price per share will be
approximately $18.00 if the TeleTech 20-day average closing price per share is
between $22.50 and $37.50. Chase H&Q noted that the closing price per share of
TeleTech common stock on August 16, 2000 was $29.63.
The foregoing description of Chase H&Q's opinion is qualified in its
entirety by reference to the full text of such opinion that is attached as Annex
D to this proxy statement/prospectus.
Chase H&Q, as part of its investment banking services, is regularly engaged
in the valuation of businesses and their securities in connection with mergers
and acquisitions, strategic transactions, corporate restructurings, negotiated
underwritings, secondary distributions of listed and unlisted securities,
private placements and valuations for corporate and other purposes.
Chase H&Q has previously provided investment banking and other financial
advisory services to Newgen and has received fees for rendering these services.
In May 1999, Chase acted as lead underwriter in a public offering of 3,725,000
shares of Newgen common stock and received customary fees and commissions in
connection therewith.
Pursuant to an engagement letter with Chase H&Q, Newgen has agreed to pay
Chase H&Q a fee of 1.2% of the aggregate consideration to the Newgen
stockholders in connection with the financial advisory services provided by
Chase H&Q and the delivery of the fairness opinion. Pursuant to the terms of
such engagement letter, $500,000 of the fee is payable upon delivery of the
fairness opinion and is creditable towards the aggregate 1.2% fee, which is
subject to and payable upon the closing of the proposed transaction. Newgen also
agreed to reimburse Chase H&Q for its reasonable out-of-pocket expenses and to
indemnify Chase H&Q against certain liabilities, including liabilities under the
federal securities laws or relating to or arising out of Chase H&Q's engagement
as financial advisor.
TELETECH'S REASONS FOR THE MERGER
The TeleTech board of directors believes that the terms of the merger are in
the best interests of TeleTech and its stockholders, and has unanimously
approved the merger agreement.
The TeleTech board of directors views the merger as a means of helping
achieve TeleTech's long term strategic and financial goals. In reaching its
conclusion to approve the merger agreement, the TeleTech board of directors also
considered the following factors:
- information concerning the financial performance and condition, business
operations and prospects of Newgen, and Newgen's projected future
performance and prospects on a combined basis with TeleTech;
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- current industry, economic and market conditions, which have encouraged
business combinations and other strategic alliances in the industry;
- the structure of the transaction and the terms of the merger agreement and
the merger consideration, which were the result of arms' length
negotiations between TeleTech and Newgen;
- the ability to expand Newgen's services beyond the automotive industry;
- the ability to leverage Newgen's services in international markets using
TeleTech's infrastructure;
- the historical performance and reputation of Newgen;
- that the merger is expected to be accounted for as a pooling of interests;
and
- the likelihood that the merger would be completed.
In determining that the merger is in the best interest of TeleTech's
stockholders, the TeleTech board of directors considered the factors listed
above as a whole and did not assign specific or relative weights to any of those
factors.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
When considering the recommendation of the Newgen board of directors that
the stockholders of Newgen adopt the merger agreement, you should be aware that
the directors and officers of Newgen have certain interests in the merger and
have certain arrangements that are different from, or are in addition to, those
of Newgen stockholders generally. These include:
EMPLOYMENT AGREEMENTS
Each of Samuel Simkin, Gerald Benowitz and Leslie Silver entered into
employment agreements on August 21, 2000 with TeleTech that become effective
upon completion of the merger. Generally, each of these employees will be
eligible to receive a higher base salary than he is currently receiving under
his existing employment arrangement with Newgen due to anticipated expansion of
roles and responsibilities following the merger and to ensure their compensation
is consistent with TeleTech management, and Messrs. Silver and Simkin will
receive options to purchase 100,000 shares of TeleTech common stock upon
effectiveness of their respective employment agreements. In addition,
Messrs. Simkin, Benowitz and Silver will, concurrently with the consummation of
the merger, receive cash bonuses in an aggregate of approximately $1 million
relating to services performed up to the date of the merger.
VOTING AGREEMENTS
Certain stockholders of Newgen, including members of management, have
entered into a primary voting agreement and a secondary voting agreement with
TeleTech. Under the voting agreements, these stockholders have agreed to vote
all shares of Newgen common stock owned of record by each of them, or that they
otherwise have the power to vote:
- for adoption of the merger agreement; and
- in favor of any other matter necessary for completion of the transactions
contemplated by the merger agreement that is considered at any Newgen
stockholders' meeting, and to execute any documents which are necessary or
appropriate in order to consummate the transactions contemplated by the
merger agreement.
See the section entitled "The Merger Agreement--The Voting Agreements" for more
information about these agreements. The full text of the voting agreements are
attached as Annexes B and C to this proxy statement/prospectus and are
incorporated by reference.
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INDEMNIFICATION
TeleTech and Newgen have agreed that all rights to indemnification and
limitations on liability under the Newgen charter documents will survive the
merger. Subject to limitations, directors' and officers' liability insurance
coverage substantially equivalent to levels of coverage currently in effect
under Newgen's existing directors' and officers' liability insurance will be
maintained for six years. See "The Merger Agreement--Indemnification; Directors'
and Officers' Insurance" on page 65.
STRUCTURE OF THE MERGER AND CONVERSION OF NEWGEN COMMON STOCK
Pursuant to the terms and conditions of the merger agreement and subject to
adoption of the merger agreement by the Newgen stockholders, NG Acquisition
Corp., a newly formed and wholly owned subsidiary of TeleTech, will be merged
into Newgen. As a result of the merger, the separate corporate existence of NG
Acquisition Corp. will cease and Newgen will survive the merger as a wholly
owned subsidiary of TeleTech.
In the merger, holders of Newgen common stock will receive the right to
convert each share of Newgen common stock into a number of fully paid and
non-assessable shares of TeleTech common stock that is determined by an exchange
ratio. The number of shares of TeleTech common stock that Newgen stockholders
will receive is variable and will be based on an average of the closing prices
of TeleTech common stock prior to the closing of the merger. The exchange ratio
will be determined by dividing $18.00 by the average closing price per share of
TeleTech's common stock for the 20 consecutive trading days ending on the second
full trading day prior to the closing date as reported on the Nasdaq National
Market. If the average closing price per share over such period is greater than
$37.50, then $37.50 will be used as the average closing price in the exchange
ratio calculation. If the average closing price per share is less than $22.50,
then $22.50 will be used as the average closing price in the exchange ratio
calculation. As a consequence, Newgen stockholders will receive between .48 and
.80 of a share of TeleTech common stock for each share of Newgen common stock
that they own. The number of shares of TeleTech common stock issuable in the
merger will be proportionately adjusted for any stock split, stock dividend or
similar event with respect to Newgen common stock or TeleTech common stock
effected between the date of the merger agreement and the completion of the
merger. No certificate or scrip representing fractional shares of TeleTech
common stock will be issued in connection with the merger. Instead, Newgen
stockholders will receive cash, without interest, in lieu of any fraction of a
share of TeleTech common stock they would otherwise receive. The amount of cash
payable in exchange for any fractional share interest of TeleTech common stock
will be calculated by multiplying the fractional share interest the Newgen
stockholder would otherwise be entitled to by the 20-day average closing price.
At the effective time of the merger, each outstanding option to purchase
shares of Newgen common stock will be assumed by TeleTech. Each assumed option
will entitle the holder to acquire the number of shares of TeleTech common stock
determined by multiplying the exchange ratio by the number of shares of Newgen
common stock issuable under the Newgen option. The exercise price for each such
assumed option to purchase TeleTech common stock will be determined by dividing
the exercise price under the Newgen option by that exchange ratio. For these
purposes, the "exchange ratio" will be the same ratio and subject to the same
limits as described above.
If the merger were completed on [ ], 2000 the former stockholders
of Newgen would hold approximately million shares of TeleTech common stock
or approximately [ ]% of the outstanding shares of TeleTech common stock,
assuming the outstanding Newgen options are converted into TeleTech options and
are not exercised prior to the closing of the merger. In addition, approximately
million shares of TeleTech common stock will be subject to the converted
Newgen options.
The merger will become effective when a certificate of merger is duly filed
with the Secretary of State of the State of Delaware or at such later time as
will be specified in the certificate of merger.
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The closing of the merger will occur as soon as practicable after the completion
of the Newgen special meeting or as soon as practicable after the last condition
in the merger agreement has been satisfied or waived, unless the parties agree
otherwise.
EXCHANGE OF NEWGEN STOCK CERTIFICATES FOR TELETECH STOCK CERTIFICATES
When the merger is completed, TeleTech's exchange agent will mail to Newgen
stockholders a letter of transmittal and instructions for use in surrendering
Newgen stock certificates in exchange for TeleTech stock certificates. When
Newgen stockholders delivers Newgen stock certificates to the exchange agent
along with an executed letter of transmittal and any other required documents,
they will receive TeleTech stock certificates representing the number of full
shares of TeleTech common stock to which they are entitled under the merger
agreement. Newgen stockholders will receive payment in cash, without interest,
in lieu of any fractional shares of TeleTech common stock that would have been
otherwise issuable to them in the merger.
NEWGEN STOCKHOLDERS SHOULD NOT SUBMIT NEWGEN STOCK CERTIFICATES FOR EXCHANGE
UNLESS AND UNTIL THEY RECEIVE THE TRANSMITTAL INSTRUCTIONS AND A FORM OF LETTER
OF TRANSMITTAL FROM THE EXCHANGE AGENT.
Newgen stockholders are not entitled to receive any dividends or other
distributions on TeleTech common stock until the merger is completed and they
have surrendered their Newgen stock certificates in exchange for TeleTech stock
certificates.
Subject to the effect of applicable laws, promptly following surrender of
Newgen stock certificates and the issuance of the corresponding TeleTech
certificates, Newgen stockholders will be paid the amount of dividends or other
distributions, without interest, with a record date after the completion of the
merger that were previously paid with respect to their whole shares of TeleTech
common stock.
TeleTech will only issue Newgen stockholders a TeleTech stock certificate or
a check in lieu of a fractional share in a name in which the surrendered Newgen
stock certificate is registered. If you wish to have your certificate issued in
another name you must present the exchange agent with all documents required to
show and effect the unrecorded transfer of ownership and show that you paid any
applicable stock transfer taxes.
MATERIAL UNITED STATES FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER
The following summary discusses the material federal income tax consequences
of the merger. The summary is based on the Internal Revenue Code of 1986, as
amended, referred to in this section as the Internal Revenue Code, applicable
U.S. Treasury regulations under the Internal Revenue Code, administrative
rulings and judicial authority, all as of the date of this proxy
statement/prospectus. All of the foregoing authorities are subject to change,
and any change could affect the continuing validity of this summary. The summary
assumes that the holders of shares of Newgen common stock hold their shares as a
capital asset. The summary does not address the tax consequences that may be
applicable to particular Newgen stockholders in light of their individual
circumstances or to Newgen stockholders who are subject to special tax rules,
like tax-exempt organizations, dealers in securities, financial institutions,
mutual funds, insurance companies, non-United States persons, stockholders who
acquired shares of Newgen common stock from the exercise of options or otherwise
as compensation or through a qualified retirement plan and stockholders who hold
shares of Newgen common stock as part of a straddle, hedge, or conversion
transaction, stockholders who are subject to the alternative minimum tax
provisions of the Internal Revenue Code and stockholders whose shares are
qualified small business stock for purposes of Section 1202 of the Internal
Revenue Code. This summary also does not address any consequences arising under
the tax laws of any state, locality, or foreign jurisdiction. Furthermore, the
following discussion does not address (i) the tax consequences of transactions
effectuated before, after or at the same time as the merger, whether or not they
are in connection with the merger, including, without limitation, transactions
in which Newgen shares are acquired or TeleTech shares are
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disposed of or (ii) the tax consequences of the receipt of TeleTech shares other
than in exchange for Newgen shares.
ACCORDINGLY, NEWGEN STOCKHOLDERS ARE ADVISED AND EXPECTED TO CONSULT THEIR
OWN TAX ADVISORS REGARDING THE U.S. FEDERAL INCOME TAX CONSEQUENCES OF THE
MERGER IN LIGHT OF THEIR PERSONAL CIRCUMSTANCES AND THE CONSEQUENCES UNDER
STATE, LOCAL AND FOREIGN TAX LAWS.
One of the conditions for the merger to take place is that TeleTech and
Newgen must receive an opinion from either Hogan & Hartson L.L.P. or Cooley
Godward LLP, that the merger will qualify for federal income tax purposes as a
reorganization within the meaning of section 368(a) of the Internal Revenue
Code. The opinions by Hogan & Hartson L.L.P. and Cooley Godward LLP must be
reasonably satisfactory to TeleTech and Newgen. The opinions will be based on
the Internal Revenue Code, the U.S. Treasury regulations promulgated under the
Internal Revenue Code and related administrative interpretations and judicial
decisions, all as in effect as of the effective date of the merger, on several
assumptions, stated in the opinions, including that the merger takes place as
described in the merger agreement, and on representations to be provided to
Hogan & Hartson L.L.P. and Cooley Godward LLP by TeleTech and Newgen that relate
to the satisfaction of specific requirements to a reorganization within the
meaning of section 368(a) of the Internal Revenue Code, including limitations on
repurchases by TeleTech of shares of TeleTech common stock to be issued upon the
merger. Unlike a ruling from the Internal Revenue Service, an opinion of counsel
is not binding on the Internal Revenue Service and there can be no assurance
that the Internal Revenue Service will not take a position contrary to one or
more of the positions reflected in the opinions or that these positions will be
upheld by the courts if challenged by the Internal Revenue Service.
Subject to the assumptions and limitations discussed above, it is the
opinion of Cooley Godward LLP, tax counsel to Newgen, and Hogan & Hartson LLP,
tax counsel to TeleTech that:
- The merger will be treated for federal income tax purposes as a
reorganization within the meaning of section 368(a) of the Internal
Revenue Code.
- TeleTech and Newgen will not recognize any gain or loss solely as a result
of the merger.
- Except as discussed below regarding cash received instead of a fractional
share of TeleTech common stock, a Newgen stockholder will recognize no
gain or loss upon the exchange of Newgen common stock for TeleTech common
stock in the merger.
- The tax basis of TeleTech common stock received by a Newgen stockholder in
the merger will be the same as the stockholder's aggregate tax basis in
Newgen common stock surrendered in exchange therefor.
- The holding period of TeleTech common stock received by a Newgen
stockholder in the merger will include the holding period of Newgen common
stock surrendered in exchange therefor, assuming Newgen common stock was
held as a capital asset.
- The receipt by a Newgen stockholder of cash instead of fractional shares
of TeleTech common stock will be treated as if the fractional shares were
distributed as part of the merger and then were redeemed by TeleTech.
Generally, this cash payment will result in capital gain or loss equal to
the difference between the basis allocable to the fractional share and the
cash received.
With respect to a cash payment received by a Newgen stockholder in lieu of a
fractional share of TeleTech common stock, a noncorporate stockholder of Newgen
may be subject to backup withholding at a rate of 31%. However, backup
withholding will not apply to a stockholder who either (i) furnishes a correct
taxpayer identification number and certifies that he or she is not subject to
backup withholding by completing the substitute Form W-9 that will be included
as part of the transmittal letter, or (ii) otherwise proves to TeleTech and its
exchange agent that the stockholder is exempt from backup withholding.
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Each Newgen stockholder who receives TeleTech common stock in the merger
will be required to file a statement with his or her federal income tax return
setting forth his or her basis in the Newgen common stock surrendered and the
fair market value of the TeleTech common stock and cash, if any, received in the
merger, and to retain permanent records of these facts relating to the merger.
A successful challenge by the IRS to the status of the merger as a
reorganization within the meaning of section 368(a) of the Internal Revenue Code
would result in significant adverse tax consequences to the Newgen stockholders
who would recognize taxable gain or loss with respect to each share of Newgen
common stock surrendered equal to the difference between each stockholder's
basis in such share and the fair market value, as of the effective time, of the
TeleTech common stock received in exchange therefor. In such event, a Newgen
stockholder's aggregate basis in the TeleTech common stock so received would
equal its fair market value, and the holding period of such stock would begin
the day after the effective date of merger.
Options to purchase Newgen common stock that are outstanding at the
effective date of the merger will be assumed by TeleTech in the merger. Each
assumed option will entitle the holder to purchase shares of TeleTech common
stock. See "The Merger Agreement--Treatment of Newgen Stock Options; Grant of
TeleTech Stock Options" on page 60. The assumption of the options by TeleTech
should not be a taxable event and former holders of Newgen options who hold
options to purchase TeleTech common stock after the merger should be subject to
the same federal income tax treatment upon exercise of those options as would
have applied if they had exercised their Newgen options.
THIS DISCUSSION IS ONLY A GENERAL SUMMARY OF THE MATERIAL FEDERAL INCOME TAX
CONSEQUENCES OF THE MERGER. THE TAX CONSEQUENCES OF THE MERGER TO YOU MAY BE
DIFFERENT FROM THOSE SUMMARIZED ABOVE, BASED ON YOUR INDIVIDUAL SITUATION. THE
STOCKHOLDERS OF NEWGEN ARE STRONGLY URGED TO CONSULT THEIR OWN TAX ADVISORS AS
TO THE SPECIFIC TAX CONSEQUENCES TO THEM OF THE MERGER EITHER AS A STOCKHOLDER,
OPTION HOLDER OR BOTH, INCLUDING TAX RETURN REPORTING REQUIREMENTS, THE
APPLICABILITY AND EFFECT OF FEDERAL, STATE, LOCAL AND OTHER APPLICABLE TAX LAWS,
AND THE EFFECT OF ANY PROPOSED CHANGES IN THE TAX LAWS.
ACCOUNTING TREATMENT OF THE MERGER
The merger is intended to qualify as a pooling of interests transaction for
financial accounting purposes. TeleTech has the right to terminate the merger
agreement if the SEC determines that the merger may not be accounted for as a
pooling of interests transaction. Under the pooling of interests method of
accounting, at the effective date of the merger, TeleTech will retroactively
restate its consolidated financial statements to include the assets,
liabilities, stockholders' equity and results of operations of Newgen, subject
to any adjustments required to conform with the accounting policies and
financial statement classifications of the two companies, as if the companies
had been combined as of the earliest date reported by the combined financial
statements. In future financial statements, the results of operations of the
combined entity will include the results of both TeleTech and Newgen for the
entire fiscal year in which the merger occurs and all prior periods presented.
For the merger to qualify as a pooling of interests for financial accounting
purposes, TeleTech and Newgen, together with their respective affiliates, must
meet the criteria for pooling of interests accounting treatment as established
in opinions published by the Accounting Principles Board and interpreted by the
Financial Accounting Standards Board and the SEC. These opinions are complex and
the interpretations of them are subject to change. Recent actions and comments
from the SEC have indicated that the SEC is scrutinizing the application of the
pooling of interests method of accounting for business combinations. The SEC may
challenge the parties' conclusions and ultimately seek to treat the merger under
the purchase method of accounting.
Under SEC guidelines interpreting generally accepted accounting principles,
with certain limited exceptions, the sale of TeleTech common stock or Newgen
common stock by an affiliate of either TeleTech or Newgen generally within
30 days prior to the effective date of the merger or thereafter prior to the
publication of results that include a minimum of at least 30 days of combined
operations of
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TeleTech and Newgen after the effective time of the merger could preclude
pooling of interests accounting treatment for the merger. Each of the current
executive officers, directors and other affiliates of TeleTech and each of the
current executive officers, directors and other affiliates of Newgen will, prior
to the closing of the merger, enter into an affiliate agreement agreeing not to
sell any shares of TeleTech and Newgen until the combined company releases
financial results covering at least 30 days of combined operations. See "The
Merger--Restrictions on Sales by Affiliates of Newgen and TeleTech" on page 55.
If the SEC does not permit the merger to be accounted for as a pooling of
interests and TeleTech does not exercise its right to terminate the merger
agreement, the merger would be accounted for under the purchase method of
accounting. This would mean that Newgen's assets would be recognized at their
fair value and that any excess of the purchase price over such fair value, other
than amounts charged to in-process research and development costs, if any, would
be recognized as goodwill on TeleTech's balance sheet. The goodwill would be
amortized as an expense over its anticipated useful life. Because the amount of
goodwill would be substantial, purchase accounting treatment could materially
adversely affect the combined company's future results throughout the
amortization period.
REGULATORY FILINGS AND APPROVALS REQUIRED TO COMPLETE THE MERGER
Under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended,
and the rules and regulations promulgated thereunder, the merger may not be
consummated until notifications have been given and certain information has been
furnished to the Federal Trade Commission and the Antitrust Division of the
United States Department of Justice and specified waiting period requirements
have been satisfied. TeleTech and Newgen filed or caused to be filed the
required notification and report forms under the Hart-Scott-Rodino Antitrust
Improvements Act with the Federal Trade Commission and the Antitrust Division of
the Justice Department on September 22, 2000.
Each state in which TeleTech or Newgen has operations also may review the
merger under state antitrust laws.
At any time before the effective date of the merger, the Antitrust Division
of the Justice Department, the Federal Trade Commission, a state or non-United
States governmental authority or a private person or an entity could seek under
the antitrust laws, among other things, to enjoin the merger or to cause
TeleTech to divest itself, in whole or in part, of businesses conducted by
Newgen or of other businesses conducted by TeleTech. There can be no assurance
that a challenge to the merger will not be made, or that, if such a challenge is
made, TeleTech and Newgen will prevail. The obligations of TeleTech and Newgen
to consummate the merger are subject to the condition that there be no temporary
restraining order, preliminary or permanent injunction or other order issued by
any court of competent jurisdiction or other legal restraint or prohibition
preventing the completion of the merger. Each party has agreed to use reasonable
efforts to have any such injunction, order, restraint or prohibition vacated.
TeleTech and Newgen believe that they will obtain all required regulatory
approvals prior to the Newgen special meeting. However, it is not certain that
all such approvals will be received by such time, or at all, and governmental
authorities may impose unfavorable conditions for granting the required
approvals.
RESTRICTIONS ON SALES BY AFFILIATES OF NEWGEN AND TELETECH
The merger agreement provides that TeleTech and Newgen will use their
reasonable best efforts to cause each of their respective officers, directors
and each other person who is an "affiliate" of TeleTech or Newgen, respectively,
to deliver on or prior to the effective time a written agreement to the effect
that such persons will not offer to sell or otherwise dispose of any shares of
TeleTech or Newgen common stock, as the case may be, during the 30 days prior to
the effective date of the merger until
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after the results covering at least 30 days of post-merger combined operations
of TeleTech and Newgen have been filed with the SEC, sent to stockholders of
TeleTech or otherwise publicly issued.
ADDITIONAL RESTRICTIONS ON SALES OF SHARES OF TELETECH COMMON STOCK BY
AFFILIATES OF NEWGEN
The shares of TeleTech common stock to be issued in connection with the
merger will be registered under the Securities Act and will be freely
transferable under the Securities Act, except for shares of TeleTech common
stock issued to any person who is deemed to be an "affiliate" of Newgen under
the Securities Act at the time of the Newgen special meeting. Persons who may be
deemed to be affiliates include individuals or entities that control, are
controlled by, or are under common control of Newgen and may include directors
and executive officers, as well as principal stockholders of Newgen. Affiliates
may not sell their shares of TeleTech common stock acquired in connection with
the merger except pursuant to:
- an effective registration statement under the Securities Act covering the
resale of those shares;
- an exemption under paragraph (d) of Rule 145 under the Securities Act; or
- another applicable exemption under the Securities Act.
The merger agreement requires that Newgen use its reasonable best efforts to
cause each of its affiliates to execute a written agreement to the effect that
such persons will not offer, sell or otherwise dispose of any of the shares of
TeleTech common stock issued to them in the merger in violation of the
Securities Act or the related SEC rules.
TeleTech has the right to place legends on the certificates evidencing
shares of TeleTech common stock issued to Newgen affiliates in the merger
summarizing the restrictions under Rule 145 until a sale, transfer, pledge or
other disposition of the shares of TeleTech common stock represented by these
certificates has been registered under the Securities Act or is made in
compliance with Rule 145 or another exemption under the Securities Act.
This proxy statement/prospectus does not cover resales of TeleTech common
stock received by any person who may be deemed to be an affiliate of Newgen or
TeleTech.
LISTING ON THE NASDAQ NATIONAL MARKET OF TELETECH COMMON STOCK TO BE ISSUED IN
THE MERGER
It is a condition to the closing of the merger that the shares of TeleTech
common stock to be issued in the merger be approved for listing on the Nasdaq
National Market, subject to official notice of issuance.
DELISTING AND DEREGISTRATION OF NEWGEN COMMON STOCK AFTER THE MERGER
If the merger is completed, the Newgen common stock will be delisted from
the Nasdaq National Market and will be deregistered under the Securities
Exchange Act.
OPERATIONS AFTER THE MERGER
Following the merger, Newgen will continue its operations as a wholly owned
subsidiary of TeleTech. The stockholders of Newgen will become stockholders of
TeleTech, and their rights as stockholders will be governed by the TeleTech
certificate of incorporation, the TeleTech bylaws and the Delaware General
Corporation Law. See the section entitled "Comparison of TeleTech Common Stock
and Newgen Common Stock" on page 108.
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THE MERGER AGREEMENT
THE FOLLOWING IS A SUMMARY OF THE MATERIAL TERMS OF THE MERGER AGREEMENT,
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE MERGER AGREEMENT, WHICH IS
ATTACHED AT THE BACK OF THIS PROXY STATEMENT/ PROSPECTUS AS ANNEX A AND IS
INCORPORATED BY REFERENCE. WE URGE YOU TO READ THE MERGER AGREEMENT AS IT IS THE
LEGAL DOCUMENT THAT GOVERNS THE MERGER.
CLOSING; EFFECTIVE TIME OF THE MERGER
The completion of the merger will occur no later than the second business
day after the satisfaction or waiver of the conditions set forth in the merger
agreement or at such other date or time as may be agreed by TeleTech, NG
Acquisition Corp. and Newgen.
As soon as practicable after all conditions to the completion of the merger
are satisfied (or waived, if waivable), the parties will execute and file a
certificate of merger with the Secretary of State of the State of Delaware
relating to the merger. The merger will become effective upon the filing of the
certificate of merger with the Secretary of State of the State of Delaware or
upon such later time as is specified in the certificate of merger.
REPRESENTATIONS AND WARRANTIES OF TELETECH, NG ACQUISITION CORP. AND NEWGEN
The merger agreement contains representations and warranties by each of
TeleTech, NG Acquisition Corp. and Newgen relating to, among other things:
- due organization and good standing;
- capitalization;
- authorization to enter into the merger agreement and to consummate the
merger;
- enforceability of the merger agreement;
- no breach of organizational documents or material agreements as a result
of the merger agreement;
- required governmental and third-party consents;
- compliance with SEC reporting requirements and generally accepted
accounting principles;
- no undisclosed liabilities;
- no violation of laws;
- no material changes since June 30, 2000;
- accuracy of information supplied by each party in the registration
statement of which this proxy statement/prospectus forms a part;
- tax matters;
- each party not having taken any action or failed to take action that would
prevent treatment of the merger as pooling of interests for financial
accounting purposes; and
- anti-takeover statutes.
In addition, Newgen also made representations and warranties to TeleTech and
NG Acquisition Corp. relating to, among other things:
- environmental matters;
- employee benefits and labor matters;
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- no material legal proceedings;
- no stockholder rights plan or poison pill;
- receipt of fairness opinion of financial advisor;
- required stockholder approval;
- insurance policies;
- material contracts;
- permits related to Newgen's business; and
- intellectual property matters.
We urge you to carefully read the section of the merger agreement entitled
"Representations and Warranties of the Company" and "Representations and
Warranties of Parent and Sub."
NEWGEN'S CONDUCT OF BUSINESS BEFORE COMPLETION OF THE MERGER
Newgen has agreed that until the completion of the merger or termination of
the merger agreement, unless the parties to the merger agreement agree
otherwise, Newgen and its subsidiaries will, among other things:
- conduct their operations in the ordinary course of business consistent
with past business practices;
- use reasonable best efforts to preserve intact their business organization
and goodwill, to keep available the services of their officers and
employees and maintain satisfactory relationships with suppliers,
distributors, customers and others with which they have business dealings;
- confer with TeleTech at such times as TeleTech may reasonably request to
report material operational matters and the general status of material
ongoing operations;
- notify TeleTech of any emergency or other change in the normal course of
their businesses or the operation of their properties and of any
governmental complaints, investigations or hearings that would have a
material adverse effect;
- not authorize or pay any dividend on or make any distributions with
respect to their outstanding stock;
- not enter into or amend, except in the ordinary course of business
consistent with past practice with persons who are not directors or
officers, any employment, severance or similar agreement or arrangement
with any of their respective directors and executive officers, or increase
the compensation, bonus or other benefits of any director, officer or
other employee, or pay any benefit or amount not required by any plan or
arrangement in effect at the date of the merger agreement;
- not merge or consolidate with any other person, acquire assets having an
individual purchase price in excess of $250,000 or a total purchase price
in excess of $1,000,000, make any capital expenditure other than in the
ordinary course of business in excess of $500,000 in total, otherwise sell
or dispose of any assets, properties or securities with an individual fair
market value in excess of $250,000 or a total fair market value of
$1,000,000, or provide any release or relinquishment of any rights in any
material contract without consideration;
- not amend their organizational documents, or adopt any plan of liquidation
or other reorganization;
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- not issue any securities (except pursuant to existing obligations
disclosed in Newgen's SEC reports) or effect any stock split or otherwise
change their capitalization as it existed on June 30, 2000, or grant any
options, warrants, conversion rights or other rights to acquire any shares
of capital stock (except for options to purchase a total of 50,000 shares
of Newgen common stock under any of Newgen's equity incentive plans and
its non-employee directors stock option plan granted only to non-officer
employees), or purchase or redeem any shares of stock or any rights,
warrants or options to acquire any such shares (except in the ordinary
course of business in connection with existing employee incentive and
benefit plans);
- except in the ordinary course of business in connection with employee
incentive and benefit plans, programs or arrangements in existence on the
date of the merger agreement, not purchase or redeem any shares of its
stock or any rights, warrants or options to acquire any such shares;
- not take any actions that would, or would be reasonably likely to, prevent
TeleTech from accounting for the merger in accordance with the pooling of
interests method of accounting;
- not amend in any significant respect the terms of their existing employee
benefit plans, programs or arrangements or any severance or similar
arrangements, or adopt any new employee benefit plans or any severance
arrangements;
- not enter into any material loan agreement or otherwise incur any
indebtedness or guarantee any such indebtedness;
- not make any material tax election or settle or compromise any material
tax liability;
- not pay or settle any claims, obligations or litigation in an amount or
with a value in excess of insurance proceeds received of $250,000 or more,
other than the payment or satisfaction, in the ordinary course of
business, of any liability recognized or disclosed in the most recent
consolidated financial statements included in Newgen's SEC reports or
incurred since the date of such financial statements, or modify, terminate
or release any person from or fail to enforce any confidentiality,
standstill or similar agreement to which Newgen or any of its subsidiaries
is a party or of which Newgen or any of its subsidiaries is a beneficiary;
- not change any method of accounting or accounting practice, except for any
such change required by generally accepted accounting principles;
- not take any action that would give rise to a claim under the Worker
Adjustment and Retraining Notification Act of 1988, as amended, or any
similar state law or regulation;
- not make any election under any of Newgen's stock option plans to pay cash
in exchange for terminating awards under such plans; or
- not agree to take any of the foregoing prohibited actions or take any
action that would prevent or significantly delay any of the conditions to
completion of the merger from being satisfied.
TELETECH'S CONDUCT OF BUSINESS BEFORE COMPLETION OF THE MERGER
TeleTech has agreed that, until the completion of the merger or termination
of the merger agreement, unless the parties to the merger agreement agree
otherwise, TeleTech will, among other things:
- notify Newgen of any emergency or other change in the normal course of
TeleTech's or its subsidiaries' businesses or the operation of their
properties, or of any governmental complaints, investigations or hearings
that would have a material adverse effect;
- notify Newgen of any material transaction;
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- not take any actions that would, or would be reasonably likely to, prevent
TeleTech from accounting for the merger in accordance with the pooling of
interests method of accounting; and
- not agree to take any of the foregoing prohibited actions or take any
action that would prevent or significantly delay any of the conditions to
completion of the merger from being satisfied.
NEWGEN'S EMPLOYEE BENEFIT PLANS; TERMINATION OF NEWGEN'S EMPLOYEE STOCK PURCHASE
PLAN
After completion of the merger and until December 31, 2001, TeleTech will
provide employee benefits to employees of Newgen and its subsidiaries that are
at least as favorable to those provided to these employees prior to the merger.
After the merger TeleTech will cause those employees of Newgen and its
subsidiaries that participate in TeleTech employee benefit plans, including
TeleTech's employee stock purchase plan, to be credited with time of service
equivalent to the time employed by Newgen and its subsidiaries for purposes of
eligibility and vesting under TeleTech's employee benefit plans, unless
applicable law prohibits.
On the date of the closing of the merger Newgen's employee stock purchase
plan will terminate by its terms and the participant's accumulated payroll
deductions will be used to purchase shares of Newgen common stock under Newgen's
employee stock purchase plan. The shares of Newgen common stock received by the
Newgen employee stock purchase plan participants upon termination of such plan
will be converted into shares of TeleTech common stock on the basis of the
exchange ratio. The exchange ratio will be determined by the market price of
TeleTech common stock prior to merger and is described in detail under the
heading "The Merger--Structure of the Merger and Conversion of Newgen Common
Stock" on page 51.
TREATMENT OF NEWGEN STOCK OPTIONS; GRANT OF TELETECH STOCK OPTIONS
At the effective time, each Newgen stock option outstanding under any of
Newgen's equity incentive plans, its non-employee director stock option plan and
any related option agreements, whether or not then vested, will be assumed by
TeleTech. Each assumed Newgen stock option will entitle the holder of the
assumed option to purchase:
- a number of shares of TeleTech common stock that equals the product of
(1) the number of shares of Newgen common stock subject to the Newgen
option immediately prior to the completion of the merger and (2) the
exchange ratio, rounded down to the nearest whole number of shares of
TeleTech common stock,
- at an option exercise price determined by dividing the option exercise
price for the shares of Newgen common stock subject to the Newgen option
immediately prior to the completion of the merger by the exchange ratio,
rounded up to the nearest whole cent.
The exchange ratio will be determined by the closing price of TeleTech
common stock prior to the completion of the merger and is described in detail
under the heading "The Merger--Structure of the Merger and Conversion of Newgen
Common Stock" on page 51.
The following example illustrates the manner in which Newgen stock options
will be treated in the merger. Assuming for the purposes of this example that
the option assumed in the merger is exercisable for 100 shares of Newgen common
stock, the exercise price is $8.00 and the exchange ratio is .6076 (based on an
average closing price of TeleTech common stock of $29.625), the holder will be
entitled to purchase 60 shares of TeleTech common stock at an exercise price of
$13.17 ($18.00 divided by .6076, rounded up to the next cent).
The other terms that apply to each Newgen option before the merger will
continue to apply to each Newgen option assumed, including any provisions
providing for repurchase rights, vesting and acceleration.
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CONDITIONS TO COMPLETION OF THE MERGER
CONDITIONS TO EACH PARTY'S OBLIGATIONS TO EFFECT THE MERGER. The respective
obligations of TeleTech, NG Acquisition Corp. and Newgen to complete the merger
are subject to the satisfaction or waiver of the following conditions:
- the adoption of the merger agreement by the affirmative vote of the
holders of a majority of the outstanding shares of Newgen common stock;
- no statute, rule, regulation, executive order, decree, ruling, or
injunction will have been entered or enforced by any governmental
authority prohibiting the completion of the merger;
- the registration statement on Form S-4 of which this proxy
statement/prospectus forms a part will have become effective and will not
be the subject of any stop order by the SEC;
- the applicable waiting period under the Hart-Scott-Rodino Antitrust
Improvements Act of 1976 will have expired or been terminated; and
- TeleTech and Newgen will have received from their respective tax counsel,
dated as of the effective date of the merger, an opinion to the effect
that the merger will constitute a reorganization within the meaning of
section 368(a) of the Internal Revenue Code.
CONDITIONS TO THE OBLIGATIONS OF NEWGEN TO EFFECT THE MERGER
In addition, the obligation of Newgen to complete the merger is subject to
the satisfaction or waiver of the following conditions:
- each of the representations and warranties of TeleTech and NG Acquisition
Corp. contained in the merger agreement, disregarding all qualifications
and exceptions relating to "materiality" or "material adverse effect,"
will be accurate as of the date of the closing of the merger:
-- except for inaccuracies resulting from changes or actions contemplated
by the merger agreement;
-- except to the extent that these representations and warranties are
expressly limited by their terms to another date, in which case these
representations and warranties will be true and correct as of that other
date; and
-- except where the failure of these representations and warranties to be
accurate would not, individually or in the aggregate, have a material
adverse effect on the business, capitalization, condition, operations,
assets, or liabilities of TeleTech and its subsidiaries taken as a
whole;
- TeleTech and NG Acquisition Corp. will have performed in all material
respects all obligations required to be performed by them under the merger
agreement at or before the closing of the merger;
- since the date of the merger agreement, there will have been no material
adverse change in the business, capitalization, condition, operations,
assets, or liabilities of TeleTech and its subsidiaries taken as a whole;
- TeleTech will have listed the shares of TeleTech common stock to be issued
in the merger on the Nasdaq National Market, subject to official notice of
issuance; and
- Newgen will have received a certificate of TeleTech's Chairman of the
Board, Chief Executive Officer and President or a Senior Vice President
certifying to the first three conditions listed under this paragraph.
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CONDITIONS TO THE OBLIGATIONS OF TELETECH TO EFFECT THE MERGER
The obligation of TeleTech to complete the merger is also subject to the
satisfaction or waiver of the following conditions:
- each of the representations and warranties of Newgen contained in the
merger agreement, disregarding all qualifications and exceptions relating
to "materiality" or "material adverse effect," will be accurate as of the
date of the merger agreement and as of the closing of the merger:
-- except for inaccuracies resulting from changes or actions contemplated
by the merger agreement;
-- except to the extent that these representations and warranties are
expressly limited by their terms to another date, in which case these
representations and warranties will be true and correct as of that other
date; and
-- except where the failure of these representations and warranties to be
accurate would not have a material adverse effect on the business,
capitalization, condition, operations, assets, or liabilities of Newgen
and its subsidiaries taken as a whole;
- Newgen will have performed in all material respects all obligations
required to be performed by it under the merger agreement at or before the
completion of the merger;
- since the date of the merger agreement, there will have been no material
adverse change in the business, capitalization, condition, operations,
assets, or liabilities of Newgen and its subsidiaries taken as a whole;
and
- TeleTech will have received a certificate of Newgen's Chairman of the
Board, Chief Executive Officer and President or a Senior Vice President
certifying to each of the above.
NO SOLICITATION BY NEWGEN
Newgen has agreed that it will not permit any of its or its subsidiaries'
officers or directors to authorize any of its or its subsidiaries', employees,
attorneys, financial advisors, agents or other representatives to solicit,
initiate or knowingly encourage, or take any other action intended to
facilitate, directly or indirectly, the making of any proposal that constitutes
a takeover proposal, or engage in or continue discussions or negotiations with
any third party relating to a takeover proposal by or involving such third
party, nor shall Newgen approve the taking of any action prohibited by the
provisions of this sentence above. In addition, Newgen agreed upon signing the
merger agreement to immediately terminate any existing activities with respect
to any takeover proposal. For purposes of the merger agreement, a "takeover
proposal" means a proposal relating to:
- an acquisition, purchase, tender offer or exchange offer by a person or
group of 25% or more of Newgen's total outstanding voting securities, or
merger, consolidation, business combination or similar transaction
pursuant to which Newgen's stockholders immediately preceding such
transaction would not hold, directly or indirectly, at least 75% of the
equity interests in the surviving or resulting entity of such transaction
immediately following such transaction;
- a sale, exchange, transfer or other disposition of any businesses or
assets that account for 25% or more of the consolidated revenues, net
income or assets of Newgen and its subsidiaries taken as a whole; or
- any liquidation or dissolution of Newgen with similar results to the
transactions described above.
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Notwithstanding the foregoing:
- Newgen may, to the extent applicable, comply with Rule 14d-9 and
Rule 14e-2 under the Exchange Act with respect to a takeover proposal; and
- Newgen may file a Form 8-K with the SEC with respect to the execution of
the merger agreement.
The merger agreement also provides that, if during the period commencing on
the date of the merger agreement and ending on September 11, 2000, the Newgen
board of directors had received an unsolicited bona fide written takeover
proposal from a third party, the Newgen board of directors had concluded in good
faith that such takeover proposal constituted a superior proposal, Newgen had
notified TeleTech of such superior proposal and TeleTech had not made a binding
written offer to acquire 100% of the Newgen equity interests on terms that were
at least as favorable to Newgen's stockholders as such superior proposal, the
Newgen board of directors could have withdrawn, modified or qualified its
recommendation to Newgen stockholders to adopt the merger agreement.
For purposes of the merger agreement, a "superior proposal" means a bona
fide unsolicited written proposal made by a third party to, directly or
indirectly, acquire Newgen pursuant to a tender or exchange offer, merger, share
exchange, consolidation or sale of all or substantially all of the assets of
Newgen and its subsidiaries or otherwise:
- on terms which a majority of the disinterested members of the Newgen board
of directors determines in good faith, taking into account the advice of
an independent financial advisor and outside counsel, to be more favorable
to Newgen stockholders than those provided for in the merger agreement,
taking into account, among other things, all known legal, financial,
regulatory and other aspects of such proposal;
- for which financing, to the extent required, is fully committed or, in the
good faith reasonable judgment of a majority of Newgen's disinterested
board members after consultation with an independent financial advisor, is
reasonably capable of being obtained; and
- which the Newgen board of directors determines in good faith to be
reasonably capable of being completed.
TERMINATION OF THE MERGER AGREEMENT
RIGHT TO TERMINATE
The merger agreement may be terminated at any time before the completion of
the merger, whether before or after adoption of the merger agreement by the
Newgen stockholders, as follows:
- by mutual written consent of Newgen and TeleTech;
- by either Newgen or TeleTech if:
-- the merger has not been completed before December 31, 2000; however,
neither Newgen nor TeleTech may terminate the merger agreement if its
breach of its obligations under the merger agreement materially
contributed to the merger not being completed;
-- a statute, rule, regulation or executive order has been enacted,
entered or enforced by any governmental authority prohibiting the
completion of the merger, or an order, decree, ruling or injunction
prohibiting the completion of the merger becomes final and
non-appealable; provided that the party seeking to terminate the
agreement has used its reasonable best efforts to remove such order,
decree, ruling or injunction;
-- the holders of a majority of the outstanding shares of Newgen common
stock fail to adopt the merger agreement at the Newgen special meeting,
but neither Newgen nor TeleTech
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may terminate the merger agreement for this reason if its breach of its
obligations under the merger agreement materially contributed to the
failure to obtain such stockholder approval; or
-- upon a material breach by the other of any of its representations,
warranties, covenants or agreements contained in the merger agreement,
which has not been cured within 30 days after notice of such breach has
been received by the party alleged to be in breach; provided that the
party seeking to terminate the agreement is not itself in material
breach of any of its representations, warranties, covenants or
agreements contained in the merger agreement.
- by TeleTech if:
-- the Newgen board of directors fails to include in the proxy
statement/prospectus, or withdraws, modifies or qualifies its
recommendation to Newgen stockholders to adopt the merger agreement or
fails to call the Newgen special meeting following the effectiveness of
this proxy statement/prospectus;
-- any of Newgen's stockholders party to the voting agreements breaches
any of the voting and nonsolicitation obligations under the voting
agreements or if Samuel Simkin, Gerald Benowitz or Leslie Silver (other
than as a result of such person's death or disability) ceases to be, and
is not rehired as, an employee of Newgen; or
-- the SEC does not permit the merger to be accounted for as a pooling of
interests transaction.
EFFECT OF TERMINATION
Except for provisions in the merger agreement regarding confidentiality of
nonpublic information, payment of fees and expenses, the effect of termination
and specified miscellaneous provisions, if the merger agreement is terminated as
described above, the merger agreement will become void and have no effect. In
addition, if the merger agreement is so terminated, there will be no liability
on the part of TeleTech, NG Acquisition Corp., or Newgen, except liability
arising out of a willful breach of the merger agreement or as provided for in
the confidentiality agreement. The confidentiality agreement, dated June 8,
2000, between TeleTech and Newgen will continue in effect notwithstanding any
termination of the merger agreement.
TERMINATION FEE; REIMBURSEMENT OF EXPENSES
Newgen will pay to TeleTech a termination fee and reimburse TeleTech for
certain costs if a takeover proposal has been made to Newgen or its subsidiaries
or directly to Newgen's stockholders, or a takeover proposal has otherwise
become publicly announced and subsequently the merger agreement is terminated:
- by either party by reason of the holders of a majority of the outstanding
shares of Newgen common stock failing to adopt the merger agreement at the
Newgen special meeting and Newgen entering into an agreement relating to
an acquisition within nine months following such termination; provided
that the party who terminated the merger agreement did not breach any of
its obligations under the merger agreement, which breach materially
contributed to the failure to obtain such stockholder approval; and
- by TeleTech, if the Newgen board of directors has failed to include or
withdrawn, modified or qualified its recommendation to Newgen stockholders
to adopt the merger agreement, or shall have materially breached any of
its nonsolicitation obligations under the merger agreement or taken any
action or made any statement inconsistent with such recommendation in
connection with the Newgen special meeting;
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However, Newgen will not be required to pay TeleTech a termination fee or
reimburse TeleTech for certain costs if:
- Newgen would be entitled to terminate the merger agreement if TeleTech is
in material breach of any of its representations, warranties, covenants or
agreements contained in the merger agreement, or
- a material adverse effect has occurred on the business, capitalization,
condition, operations, assets or liabilities of TeleTech and its
subsidiaries taken as a whole.
The termination fee that TeleTech may be entitled to receive is $5,000,000.
In addition, TeleTech may be entitled to be reimbursed for up to $1,000,000 of
out of pocket costs, fees and expenses reasonably incurred by TeleTech or NG
Acquisition Corp. in connection with the merger agreement and all transactions
contemplated by the merger agreement.
EXPENSES
Newgen and TeleTech will equally divide any filing fees payable in
connection with antitrust filings, expenses and compensation of the exchange
agent and expenses payable in connection with the printing and mailing of this
proxy statement/prospectus. Newgen will pay all transfer taxes. Except as
described above, each party to the merger agreement and all of Newgen's
stockholders will bear their own fees and expenses in connection with the merger
and the transactions contemplated by the merger agreement subject to applicable
law.
EXTENSION, WAIVER AND AMENDMENT OF THE MERGER AGREEMENT
At any time before the completion of the merger, the parties may, in
writing:
- extend the time for the performance of any of the obligations of the other
party;
- waive any inaccuracies in the representations and warranties of the other
party contained in the merger agreement or in any document delivered
pursuant to the merger agreement; or
- waive compliance with any of the agreements or conditions of the other
party contained in the merger agreement subject to applicable law.
The merger agreement may be amended by the parties in writing at any time
before the filing of the certificate of merger relating to the merger. However,
following adoption of the merger agreement by Newgen's stockholders, the
consideration to be received by Newgen stockholders in the merger may not be
amended without further approval of Newgen's stockholders. In addition,
amendments of the merger agreement may not violate applicable law.
INDEMNIFICATION; DIRECTORS' AND OFFICERS' INSURANCE
In the merger agreement, TeleTech and NG Acquisition Corp. have agreed to
provide exculpation and indemnification to the current or former directors,
officers, employees and agents of Newgen. This exculpation and indemnification
will be the same as provided to these persons by Newgen in its certificate of
incorporation, bylaws and any other agreements in effect immediately before the
completion of the merger. This exculpation and indemnification covers actions
only on or before the completion of the merger.
In addition, the certificate of incorporation and bylaws of the surviving
corporation in the merger will contain provisions with respect to exculpation
and indemnification that are at least as favorable to the current or former
directors, officers, employees and agents of Newgen as those contained in the
certificate of incorporation and bylaws of Newgen as currently in effect. These
provisions will not be amended, repealed or otherwise modified for a period of
six years from the completion of the merger
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in any manner that would adversely affect the rights of any of these persons or
of individuals who, immediately prior to the completion of the merger, were
employees or agents of Newgen, unless such modification is required by law.
In addition, for a period of six years after the completion of the merger,
TeleTech will cause the surviving corporation to maintain in effect, to the
extent available, directors' and officers' liability insurance covering those
persons who are currently covered by Newgen's directors' and officers' liability
insurance policy on terms equivalent to those currently applicable to Newgen's
directors and officers.
THE VOTING AGREEMENTS
Various stockholders of Newgen, including members of management, have
entered into a primary voting agreement and a secondary voting agreement with
TeleTech. The primary voting agreement and the secondary voting agreement relate
to shares of Newgen common stock beneficially owned by these stockholders
representing approximately 40% and 16.6%, respectively, of the outstanding
shares of Newgen common stock entitled to vote at the Newgen special meeting.
Under the voting agreements, these stockholders have agreed to vote all
shares of Newgen common stock owned of record by each of them, or that they
otherwise have the power to vote:
- for adoption of the merger agreement; and
- in favor of any other matter necessary for completion of the transactions
contemplated by the merger agreement which is considered at any Newgen
stockholders' meeting, and to execute any documents which are necessary or
appropriate in order to complete the transactions contemplated by the
merger agreement.
In each case, the stockholder has given TeleTech an irrevocable proxy to vote
his, her or its shares of Newgen common stock in accordance with the terms of
the voting agreements.
In addition, each stockholder has agreed that during the term of the voting
agreements, such stockholder will not:
- transfer or consent to any transfer of his, her or its shares of Newgen
common stock or any interest in such shares, or permit to exist any
encumbrance on such shares, unless the transfer or encumbrance is made
subject to the voting requirements of the voting agreements, including the
irrevocable proxy to vote the transferred or encumbered shares of Newgen
common stock;
- enter into any contract, option or other agreement or understanding with
respect to any transfer of his, her or its shares of Newgen common stock
or any interest in such shares, unless the transfer when made is subject
to the voting requirements of the voting agreements, including the
irrevocable proxy to vote the transferred shares of Newgen common stock;
- grant any proxy, power-of-attorney or other authorization in or with
respect to his, her or its shares of Newgen common stock;
- deposit his, her or its shares of Newgen common stock into a voting trust
or enter into a voting agreement or arrangement with respect to such
shares; or
- take any other action that would in any way restrict, limit or interfere
with the performance of such stockholder's obligations under the voting
agreements or the merger agreement.
Each such stockholder, while acting in the capacity of a stockholder, also
is restricted, and may not permit its officers, directors, employees, agents or
representatives, to:
- solicit, initiate or encourage, directly or indirectly, any inquiries
regarding or the submission of any takeover proposal;
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- participate in any discussions or negotiations regarding, or furnish to
any person any information or data with respect to, or take any other
action to knowingly facilitate the making of any proposal that
constitutes, or may reasonably be expected to lead to, any takeover
proposal; or
- enter into any agreement with respect to any takeover proposal or approve
or resolve to approve any takeover proposal.
In addition, each stockholder has agreed to cease, and cause its officers,
directors, employees, agents and representatives to cease any existing
discussions or negotiations with any parties with respect to any takeover
proposal. Each stockholder will promptly notify TeleTech of the existence of any
proposal, discussion, negotiation or inquiry received by such stockholder, and
each stockholder will promptly communicate to TeleTech the name of the third
party making the takeover proposal and the terms of any such proposal,
discussion, negotiation or inquiry that such stockholder may receive.
For purposes of the voting agreements, a "takeover proposal" means a
proposal relating to:
- an acquisition, purchase, tender offer or exchange offer by a person or
group of 25% or more of Newgen's total outstanding voting securities, or
merger, consolidation, business combination or similar transaction
pursuant to which Newgen's stockholders immediately preceding such
transaction would not hold, directly or indirectly, at least 75% of the
equity interests in the surviving or resulting entity of such transaction
immediately following such transaction;
- a sale, exchange, transfer or other disposition of any businesses or
assets that account for 25% or more of the consolidated revenues, net
income or assets of Newgen and its subsidiaries as a whole; or
- any liquidation or dissolution of Newgen with similar results to the
transactions described above.
Under the secondary voting agreement, if, during the period commencing on
the date of the merger agreement and ending on September 11, 2000, the Newgen
board of directors had withdrawn, modified or qualified its recommendation to
Newgen stockholders to adopt the merger agreement, the terms of such voting
agreement relating to voting in favor of the merger agreement at Newgen's
special meeting would have terminated and been of no further force and effect in
which case such stockholders would only have committed to vote in favor of the
adoption of the merger agreement their shares covered by the primary voting
agreement.
The voting agreements also provide that, if, during the period commencing on
the date of the merger agreement and ending on September 11, 2000, the Newgen
board of directors had withdrawn, modified or qualified its recommendation to
Newgen's stockholders to adopt the merger agreement, and the merger agreement
was subsequently terminated, under certain circumstances, each stockholder party
to the voting agreements would have had to pay TeleTech 50% of any excess
consideration he, she or it would have received in connection with a takeover
proposal entered into within nine months of termination of the merger agreement
over the consideration he, she or it would have received in connection with the
merger if the merger were completed on the date the merger agreement was
terminated.
The voting agreements provide further that, if, during the period commencing
on the date of the merger agreement and ending on September 11, 2000, the Newgen
board of directors had withdrawn, modified or qualified its recommendation to
Newgen stockholders to adopt the merger agreement based upon a takeover proposal
that constituted a superior proposal, each stockholder party to the voting
agreements would have had to pay TeleTech 50% of the additional consideration
he, she or it would have received from TeleTech as a result of TeleTech's
response to the superior proposal over the amount of consideration he, she or it
would have received in connection with the merger if the merger were completed
on the terms of the merger agreement entered into on August 21, 2000.
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For purposes of the voting agreements, a "superior proposal" means a bona
fide unsolicited written proposal made by a third party to, directly or
indirectly, acquire Newgen pursuant to a tender or exchange offer, merger, share
exchange, consolidation or sale of all or substantially all of the assets of
Newgen and its subsidiaries or otherwise:
- on terms which a majority of the disinterested members of the Newgen board
of directors determines in good faith, taking into account the advice of
an independent financial advisor and outside counsel, to be more favorable
to Newgen stockholders than those provided for in the merger agreement,
taking into account, among other things, all known legal, financial,
regulatory and other aspects of such proposal;
- for which financing, to the extent required, is fully committed or, in the
good faith reasonable judgment of a majority of Newgen's disinterested
board members after consultation with an independent financial advisor, is
reasonably capable of being obtained; and
- which the Newgen board of directors determines in good faith to be
reasonably capable of being completed.
The voting agreements terminate on the earlier of the unanimous written
consent of the stockholders who entered into the voting agreements and TeleTech,
the effective time of the merger or the termination of the merger agreement.
Because the Newgen board of directors did not withdraw, modify or qualify its
recommendation to Newgen's stockholders to adopt the merger agreement on or
prior to September 11, 2000, the foregoing provisions obligating certain
stockholders of Newgen to pay TeleTech 50% of the profit they receive in
connection with a takeover proposal or a superior proposal are of no further
force or effect.
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INFORMATION ABOUT THE COMPANIES
TELETECH HOLDINGS, INC.
TeleTech is a leading provider of eCommerce-enabling customer management
solutions for large domestic, foreign and multinational companies. TeleTech
helps its clients acquire, serve, retain and maximize their revenue from
customers by strategically managing inbound telephone and Internet-based
inquiries on their behalf. Such programs include both automated and
human-assisted support and involve all stages of the customer relationship.
Programs consist of a variety of customer management and product support
activities, such as providing new product information, enrolling customers in
client programs, providing 24-hour technical and help desk support and resolving
customer complaints. TeleTech's customer management solution encompasses the
following capabilities:
- strategic consulting and process redesign;
- infrastructure deployment including the securing, designing and building
of world-class customer interaction centers;
- recruitment, education and management of client-dedicated customer care
representatives;
- electronic intelligence delivery to clients;
- engineering operational process controls and quality systems;
- technology consulting and implementation, including the integration of
hardware, software, network and computer-telephony technology; and
- database management, which involves the accumulation, management and
analysis of customer information to deliver actionable marketing
solutions.
TeleTech delivers its customer management services mostly through
customer-initiated telephone calls, e-mail and the Internet. Services are
provided via automated support and by trained customer care representatives in
response to an inquiry that a customer makes by calling a toll-free telephone
number, by sending an e-mail message or by clicking on an icon on a Web site
asking for immediate help or service.
Representatives respond to customer inquiries from customer interaction
centers using state-of-the-art workstations, which operate on TeleTech's
sophisticated technology platform. This technology platform incorporates digital
switching, client/server technology, object-oriented software modules,
relational database management systems, proprietary call tracking management
software, computer telephony integration and interactive voice response.
In 1999, TeleTech launched CyberCare, an innovative multichannel eCommerce
technology platform. CyberCare integrates TeleTech's best of breed software,
system integration capabilities and customer management to enable companies to
sell to and service their customers on a very large scale anytime, anywhere,
over any media. The solution incorporates the full spectrum of Internet
communications, including custom e-mail response, chat and extensive Web
co-browsing capabilities. Whether a customer sends an e-mail, clicks an icon on
a Web site asking for immediate help or service or places a telephone call,
CyberCare routes the inquiry to a trained and technology-enabled TeleTech
representative. The representative is then able to perform a host of services,
including personalized customer care, billing and technical support, online
sales, loyalty and affinity programs, real-time product availability and
delivery status, Web site support, up-selling, cross-selling and more.
The primary components of TeleTech's CyberCare solution are as follows:
- Customer-Centric Platform: TeleTech's customer relationship management
software that has been enhanced to manage the various Web-based
communications associated with CyberCare;
- E-mail: Provides automated e-mail responses to customer interactions, or
routes customer e-mail to appropriate representative to respond in a
personalized fashion;
- Chat: Allows for representative interaction with the customer real-time
over the Web;
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- Web Co-browsing: Provides representatives with the ability to
simultaneously view a Web site with the customer and navigate based upon
the customer's request for information--a phone call or chat session is
simultaneously initiated to interact with the customer during the
co-browsing session;
- Web Call Back: Customers have the ability to click an icon on a Web site
to request a phone call back from a representative either immediately or
at a specific time;
- Real-time Training: Incorporates real-time training via the Internet for
CyberCare representatives delivered directly to the desktop;
- Online Reference Library: Provides representatives with access to a
searchable online database and comprehensive information resource; and
- Automated Support: TeleTech's inference-based expert system enables
customers to diagnose and resolve support issues via interactive response,
e-mail or the Internet.
TeleTech provides services from customer interaction centers leased,
equipped and staffed by TeleTech and from customer interaction centers leased
and equipped by its clients and staffed by TeleTech. TeleTech's fully outsourced
customer interaction centers serve either multiple clients or one dedicated
client. TeleTech typically establishes strategic relationships, formalized by
contracts, with selected clients in the telecommunications, technology,
transportation, financial services and government services industries. TeleTech
targets clients in these industries because of their complex product and service
offerings and large customer bases, which require frequent, increasingly
sophisticated, customer interactions.
TeleTech manages its U.S. customer interaction centers through its
Technology Command Center in Colorado. The Command Center operates 24 hours a
day, seven days a week, and is responsible for monitoring, coordinating and
managing TeleTech's U.S. operations. Each U.S. customer interaction center is
connected to the Command Center and to other U.S. customer interaction centers
through multiple fiber-optic voice/data T-1 circuits to form an integrated and
redundant wide area network. This network connectivity provides a high level of
security and redundancy that is integral to TeleTech's ability to ensure
recovery capabilities in the event of a disaster or structural failure.
TeleTech has established uniform operational policies and procedures to
ensure the consistent delivery of high-quality service at each customer
interaction center. These policies and procedures detail specific performance
standards, productivity and profitability objectives and daily administrative
routines designed to ensure efficient operation. All TeleTech customer
interaction centers are designed to operate 24 hours a day, seven days a week.
TeleTech believes that recruiting, training and managing full-time
representatives who are dedicated to a single client facilitate integration
between client and representative, enhance service quality and efficiency and
differentiate TeleTech from its competitors.
TeleTech uses a number of sophisticated applications designed to minimize
administrative burdens and maximize productivity. Such applications include a
proprietary representative performance system that tracks representative
activity at each workstation and a proprietary billing system that tracks time
spent on administration, training, data processing and other processes conducted
in support of client or internal tasks.
TeleTech monitors and measures the quality and accuracy of its customer
interactions through a quality assurance department located at each interaction
center. Each department evaluates, on a real-time basis, approximately 1% of the
calls per day. TeleTech also has the ability to enable its clients to monitor
customer interactions as they occur. Quality assurance professionals monitor
customer interactions and simultaneously evaluate representatives according to
criteria mutually determined by TeleTech and the client. Representatives are
evaluated and provided with feedback on their performance on a weekly basis and,
as appropriate, recognized for superior performance or scheduled for additional
training and coaching.
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TeleTech operates seven customer interaction centers in Spain; six customer
interaction centers in Canada; three customer interaction centers in Australia;
two customer interaction centers in Mexico; and one customer interaction center
in each of Argentina, Brazil, New Zealand, Singapore and the United Kingdom. A
key component of TeleTech's growth strategy is to continue its international
expansion, which may include the acquisition of businesses with products or
technologies that extend or complement TeleTech's existing businesses.
RECENT EVENTS
On August 31, 2000 TeleTech acquired Contact Center Holdings, S.L., one of
Spain's largest privately held customer management companies. Contact Center
Holdings is the parent company of Difusio Telemarketing Grup S.A., Spain's
largest customer relations management company. Through seven customer
interaction centers Difusio services industries complementary to TeleTech's
focus, such as telecommunications and financial services.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT OF TELETECH
Except as otherwise noted, the following table sets forth certain
information regarding the ownership of TeleTech's common stock as of August 15,
2000 by:
- each of TeleTech's current directors;
- both of TeleTech's chief executive officers during 1999, its next four
most highly compensated executive officers who were serving as executive
officers at the end of 1999, and one additional executive officer, Steven
Coburn, for whom disclosure would have been required but for the fact that
Mr. Coburn was not serving as an executive officer at the end of 1999;
- all current executive officers and directors of TeleTech as a group; and
- all those known by TeleTech to be beneficial owners of more than five
percent of TeleTech's common stock.
Unless otherwise indicated in the footnotes to this table and subject to
community property laws where applicable, TeleTech believes that each of the
stockholders named in this table has sole voting and investment power with
respect to the shares indicated as beneficially owned. Applicable percentages
are based on 62,803,813 shares outstanding on August 15, 2000, adjusted as
required by rules promulgated by the SEC. Except as shown otherwise in the
footnotes to the table, the address of each person listed is in care of TeleTech
Holdings, Inc., 1700 Lincoln Street, Suite 1400, Denver, Colorado 80203. Share
information provided for former executive officers is reported as of
December 31, 1999.
<TABLE>
<CAPTION>
TOTAL SHARES SUBJECT TO
NUMBER OF SHARES OPTIONS *** APPROXIMATE
NAME AND ADDRESS OF BENEFICIAL OWNER BENEFICIALLY OWNED ** (INCLUDED IN TOTAL) PERCENT OF CLASS
------------------------------------ --------------------- ------------------- ----------------
<S> <C> <C> <C>
Kenneth D. Tuchman.......................... 36,533,520(1) 58.2%
Kern Capital Management, LLC................
114 West 47th Street, Suite 1926
New York, NY 10036 3,413,000(2) 5.4%
Scott D. Thompson........................... 500,000 500,000 *
James E. Barlett............................ 31,000 31,000 *
Rod Dammeyer................................ 99,750 99,750 *
George H. Heilmeier......................... 91,000(3) 88,000 *
Morton H. Meyerson.......................... 817,330 344,855 1.3%
Alan Silverman.............................. 392,630(4) 173,000 *
Vincent Cipolla(5).......................... 47,022 *
Steven B. Coburn(6)......................... 48,426(7) 46,667 *
Richard S. Erickson......................... 53,116 53,116 *
Deborah C. Gentry(8)........................ 12,000(9) 10,000 *
Joseph D. Livingston........................ 825,200 825,200 1.3%
All current directors and executive officers
as a group (13 persons)................... 34,373,121 2,126,921 60.6%
</TABLE>
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------------------------
* Less than 1%.
** Includes shares subject to acquisition through exercise of stock options
within 60 days.
*** Shares subject to acquisition through exercise of stock options within
60 days.
(1) Includes (a) 306,895 shares of common stock held by the Tuchman Family LLLP,
of which Mr. Tuchman is the managing general partner; (b) 100,000 shares
owned by the Kenra Family LLP, a Colorado limited liability partnership in
which Mr. Tuchman and his spouse own direct or indirect controlling
partnership interests; (c) 20,000,000 shares owned by KDT Family LLLP, which
Mr. Tuchman controls indirectly; (d) 300,000 shares owned by the Tuchman
Family Foundation, which was established for the benefit of entities that
have been granted exempt status under Section 501(c)(3) of the Internal
Revenue Code; (e) 7,670 shares owned by a trust for the benefit of
Mr. Tuchman's nephews and nieces, of which Mr. Tuchman's spouse is the
trustee; and (f) 10,000 shares owned by Mr. Tuchman's spouse. Mr. Tuchman
disclaims beneficial ownership of the shares held by his spouse, the Tuchman
Family Foundation and the trust for the benefit of Mr. Tuchman's nieces and
nephews.
(2) Based on 13F filings reported by Bloomberg.
(3) Includes 3,000 shares subject to shared voting and investment power.
(4) Includes 40,000 shares held by the Alan and Joanna Silverman Family
Foundation, of which Mr. Silverman is the trustee, and 11,300 shares subject
to shared voting and investment power.
(5) Mr. Cipolla served as the Company's Chief Marketing Officer from March 16,
1999 until December 31, 1999.
(6) Mr. Coburn served as the Company's Chief Financial Officer until
August 1999 and as Senior Vice President of Finance until December 31, 1999.
(7) Includes 1,000 shares subject to shared voting and investment power.
(8) Ms. Gentry served as Senior Vice President of Global Human Resources until
February 29, 2000.
(9) Includes 2,000 shares subject to shared voting and investment power.
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NEWGEN RESULTS CORPORATION
Newgen was incorporated in California in February 1994 and it reincorporated
in Delaware in December 1998.
INTRODUCTION
Newgen provides customized, outsourced database management, direct marketing
and related services for automobile dealerships' service departments and
automobile manufacturers. Newgen believes that the combination of its breadth of
services, its customer base and its technological innovations make it among the
leaders in the industry. Newgen combines its expertise in database marketing and
customer retention services, its focus on customer service and its in-depth
knowledge of automobile service department operations to provide highly targeted
and customized solutions. Its RESULTS Program employs efficient and
cost-effective technology to enable dealerships to increase their number of
service department customers as well as revenues per customer. In addition,
Newgen believes its services improve the operations and processes of a
dealership's service department thereby differentiating the dealership from its
competition and creating enhanced customer satisfaction and loyalty. Newgen has
grown its customer base from 177 dealerships at December 31, 1995 to 5,039
dealerships at June 30, 2000, notwithstanding competition from a number of
competitors, including three companies with significantly greater resources.
INDUSTRY BACKGROUND
Increasing competition is driving businesses to enhance their market
position by strengthening relationships with existing customers and targeting
new markets and customers. While technological advances, such as the Internet,
are making information more accessible and less expensive, the marketing cost to
reach and retain customers is increasing. As a result, businesses are trying to
use their marketing resources more efficiently and effectively to drive customer
retention and loyalty through the use of specialized information products and
data management services. Many businesses, however, lack the technology
infrastructure or expertise to implement these new marketing methods. Businesses
are increasingly electing to outsource key processes to service providers that
are able to apply advanced database systems to capture, process and store
customer and market information, and use this experience to provide targeted and
effective services.
The automobile industry is relatively mature. According to the National
Automobile Dealers Association ("NADA"), the number of automobiles sold annually
by dealerships has not grown significantly between 1987 and 1998. A number of
industry and market trends, however, are affecting the future structure of the
industry. Over the next five years, the number of automobile dealerships in the
United States is expected to decrease, reflecting the consolidation of the
industry into fewer and larger dealerships. In addition, margins on sales of new
vehicles are decreasing because of the emergence of megadealers and
Internet-based comparison shopping. According to the NADA, the average
dealership realized pre-tax income margins of only 1.74% in 1998. Newgen
believes that the emergence of megadealers resulting from the industry's
consolidation, together with emerging sales and marketing channels such as the
Internet, will lead to greater professionalization of management at dealerships,
and correspondingly, more sophisticated approaches to increasing dealership
revenues and margins.
Automobile dealerships historically have focused on sales of automobiles,
viewing customer retention for service-related revenue as being secondary.
Customer dissatisfaction with dealership service combined with increased
competition from other service outlets, such as Sears Auto Center or Jiffy Lube,
have caused consumers to avoid returning to dealerships for vehicle service or
maintenance. Based on Newgen's experience, it believes that dealerships perform
only a small portion of required maintenance and service on the automobiles they
sell. The balance of maintenance is performed
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elsewhere, or not at all. For example, Newgen believes that U.S. consumers spend
approximately $250 billion annually to service and repair their vehicles, but
according to the NADA, in 1998 dealerships provided only $64 billion, or
approximately 25%, of those services. Moreover, those customers that do return
for service historically do not always receive satisfactory service. Not only
are dealerships performing a small portion of all service on automobiles, but
their revenue from warranty-related service is declining. The reduction in
revenues from warranty-related service is due to increased scrutiny of warranty
claims and higher quality manufacturing of automobiles. As a result, dealerships
are being forced to rely more on customer pay labor and parts sales in order to
replace lost warranty-related service revenues.
Dealerships are realizing that their parts and service departments represent
an opportunity for increased revenues and profits. More importantly, despite
declining market share of service related spending by consumers at dealerships,
the percentage of dealership profits generated from the service and parts
department has increased from approximately 16% in 1985 to approximately 47% in
1998. Based on these trends, Newgen believes that dealerships will increase the
portion of their marketing budgets dedicated to automobile service department
customer retention and loyalty programs.
Typically, automobile dealerships have used general mass media
advertisements, bulk mail coupons or generic reminder notices to promote their
services. However, the effectiveness of these solicitation techniques is limited
for several reasons. First, because these forms of marketing often involve
untargeted mailings, many solicitations are sent to individuals who no longer
own their vehicle. In addition, these general marketing solicitations lack the
impact associated with a more focused marketing program. Furthermore, these
solicitation techniques have limited data gathering and storing capabilities and
do not allow dealerships to receive customer feedback, or monitor customer
response. Because of the deficiencies of these traditional marketing methods,
these methods also tend to be expensive when compared to the amount of revenue
they generate for dealerships. Some manufacturers have attempted to support
their dealerships through manufacturer sponsored marketing. However, many
manufacturers do not have specific information about dealership customers nor do
they track maintenance activity at the dealerships. Consequently, many
manufacturers are unable to develop effective nationwide programs to encourage
customers to return to dealerships for service.
The proper implementation of a targeted marketing campaign promoting
automobile service is highly complex. Maintenance schedules vary immensely from
vehicle to vehicle. At a typical Ford dealership, for example, there may be as
many as 2,500 different maintenance schedule combinations based on a vehicle's
model, year, engine and other characteristics. Matching the correct maintenance
schedule to each vehicle, while taking into account other factors such as the
owner's driving habits, service history of the car, seasonal and regional
variations, and any special maintenance programs offered by the dealership,
requires complex algorithms and advanced data management systems. Adding to this
complexity, dealerships need to manage and update their databases of service
customers in order to eliminate customers who should not be solicited and to
focus on customers who are most likely to return for service. Ensuring that the
right maintenance reminder gets to the right person at the right time requires
sophisticated database marketing techniques and the use of a system that
continuously updates customer data and monitors the results of the marketing
campaign.
While advances in technology and information processing now permit
dealerships to engage in highly targeted marketing initiatives, these
initiatives are generally dependent upon complex and costly data management
processes. For example, dealerships require sophisticated systems that enable
the purification of databases that contain old or inaccurate data to effectively
market to customers. Dealerships are increasingly focusing on their core
competency of selling automobiles and outsourcing to experts the development and
implementation of complex processes to support and enhance their business
objectives. Thus, automobile dealerships need outsourced services that employ
efficient and cost-effective technology to increase the number of service
department customers per dealership and dealership revenues per customer. These
services will also improve the operations and processes of the
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dealership thereby differentiating the dealership from its competition and
creating increased customer satisfaction and loyalty.
THE NEWGEN SOLUTION
Newgen provides customized, outsourced database management, direct marketing
and related services for automobile dealerships' service departments and
automobile manufacturers. Newgen's expertise in both database marketing and
customer retention services, as well as its in-depth knowledge of automobile
service department operations enable it to provide comprehensive and highly
targeted marketing and service solutions.
Newgen's RESULTS Program promotes automobile service business from a
dealership's customer base by using direct marketing campaigns involving direct
mail and outbound teleservice follow-up. Newgen implements its RESULTS Program
for automobile dealerships using a dealership's own customer and transaction
data that it processes and purifies to ensure the data is current and relevant.
After downloading a dealership's database into Newgen's system, Newgen combines
the data with maintenance schedule databases and Newgen's proprietary databases
and algorithms to develop customized solicitations targeting service visits.
Newgen's system tracks every dealership customer in order to update the database
appropriately throughout the solicitation process and to provide feedback to the
dealership. Newgen's services are designed to:
- attract more service customers to dealerships from the dealerships'
customer base;
- attract more sales customers to dealerships from the dealerships' customer
base;
- increase dealership revenues per customer;
- promote customer loyalty;
- increase customer satisfaction;
- differentiate the dealership from its competition through improved
operations and processes; and
- provide dealership customers with the benefits of a safer vehicle with
increased resale value.
Newgen's studies indicate that over the course of a year, customers it
solicits for a dealership will visit that dealership more than three times as
often, and spend more than two and one-half times as much on service, compared
to customers with similar demographic characteristics not solicited by Newgen.
Furthermore, customers solicited by Newgen are more than three times more likely
to purchase a new vehicle from the dealership compared to unsolicited customers.
Newgen's RESULTS Program significantly reduces untargeted solicitations and
unnecessary expenses. This, in turn, increases a dealership's return on
investment compared with untargeted customer retention programs. As a result,
Newgen estimates that approximately 25% to 30% of dealership customers solicited
by it return to the dealership for vehicle service. This compares very favorably
with response rates for direct mail marketing campaigns, which typically range
between 1% and 3%. Through its teleservice department, Newgen is able to forward
dealership customer concerns to the dealership before those customers defect to
alternative service providers. Dealerships can address these concerns and
significantly increase the satisfaction of their customers. In addition, Newgen
provides dealerships with comprehensive monthly management reports that track
response rates and spending habits of solicited customers. Dealerships can
therefore measure the quantifiable financial and customer retention benefits
attributable to Newgen's services. Newgen has an extensive customer support
infrastructure to provide assistance to dealership management in understanding
the benefits of Newgen's services. Newgen also advises dealerships on methods of
customized solicitation, such as promotions, coupons and special targeted
programs, and works closely with its customers to
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accommodate their individual requests and needs. In providing all of these
services, Newgen regularly contacts most of its customers either by telephone or
at their facility.
Newgen has recently introduced a number of new services that utilize its
expertise in automobile service department operations and complement the RESULTS
Program. Newgen's Reservations Service provides dealerships with a solution for
the challenges of scheduling service appointments with dealership customers and,
subsequently, loading the service department for maximum efficiency. Newgen's
Connections Service provides a survey tool, so that dealerships may receive
feedback from their customers. These services, together with others in
development, evidence Newgen's ability to leverage its existing database
marketing and customer retention expertise to provide a range of additional
outsourced services to dealerships.
Newgen has also recently incorporated two subsidiaries to provide additional
services to automobile dealerships and manufacturers. The first, Newgen
Management Services, Inc., provides outsourced management for dealership service
departments, under the Ultimate Service brand. Many dealerships view the
operation of the service department as a difficult process, and want a third
party to assist them in managing their fixed operation. Newgen Management
Services provides trained personnel to dealerships to direct the operations of
the dealership parts and service operation. These employees implement a number
of processes and procedures at the dealership, including the utilization of the
RESULTS Program and Reservations Service. Newgen Management Services recently
received an endorsement from the Dealer Development division of Ford Motor
Company, whereby Newgen Management will provide Ultimate Service to up to twenty
dealerships.
Newgen's second new subsidiary, Carabunga.com, Inc., utilizes the Internet
as a marketing tool for dealerships. Newgen believes that Carabunga.com is the
first automotive dealership Internet portal that offers one-to-one marketing
programs in the automobile industry. The Internet site includes three
value-added products for dealerships and manufacturers. These products are
discussed further below in "Services--Carabunga.com."
Newgen maintains a close working and strategic relationship with Ford.
Newgen strongly believes that its work with Ford supports Newgen's own marketing
and product development efforts as well as Newgen's credibility with
dealerships. Ford also has acted as a key reference account in Newgen's effort
to develop relationships with other manufacturers. The key elements of Newgen's
relationship with Ford include:
- marketing programs developed jointly by Newgen and Ford for deployment to
Ford dealerships nationwide;
- private labeling by Ford of Newgen's Results Program as the Quality Care
Maintenance Reminder System; and
- a consulting engagement that puts Newgen in contact with Ford dealerships.
Newgen's Consulting Division leverages its expertise in automobile service
department operations to develop and implement new techniques and programs that
enable dealerships to grow their business, streamline inefficient processes and
more effectively market their services. Newgen believes that Newgen's consulting
services enhance Newgen's overall understanding of dealership needs and
processes, and also reinforce Newgen's business relationships with dealerships.
In addition, the Consulting Division is a key generator of new service ideas
that can be deployed throughout Newgen's dealership base. For example, Newgen's
Pricing Center Program was developed by Newgen's Consulting Division and is now
implemented throughout the company's Ford dealership base. Newgen expects to
transition all of Newgen's consultants to Newgen Management Services through
fiscal year 2000.
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GROWTH STRATEGY
Newgen's objective is to be the leading provider of customized, outsourced
database management, direct marketing and related services for automobile
dealerships and manufacturers. Using its sophisticated database management
capabilities, personalized customer service and in-depth knowledge of automobile
service department operations, Newgen has quickly and effectively penetrated the
automobile dealership and manufacturer industry. Newgen's growth strategy
consists of the following key elements:
PROVIDE SERVICES TO MORE AUTOMOBILE DEALERSHIPS. Newgen has experienced
significant growth in the number of dealerships it services. Newgen's customer
base has grown from 177 dealerships at December 31, 1995 to 5,039 dealerships at
June 30, 2000. Newgen's strategy to increase its share of the automobile
dealership market consists of the following elements:
- increasing the size of its direct field sales force;
- more actively marketing its services to dealerships;
- continuing to expand its field force of customer satisfaction
representatives to service and sell to Newgen's dealership base;
- seeking to establish additional manufacturer relationships using the Ford
relationship as a model;
- lengthening the term of its dealership contracts; and
- acquiring complimentary businesses or technologies.
INCREASE THE NUMBER OF ACTIVE NAMES PER AUTOMOBILE DEALERSHIP. Newgen's
revenues for the RESULTS Program are based on a monthly fee per active name in
Newgen's database. As a result, dealerships generally control the number of
active names in Newgen's database in order to control their expenses. Currently,
Newgen solicits approximately 15% of its total database, and Newgen believes
that this is only 40% of its potential customers. Newgen seeks to increase the
number of active names per dealership by demonstrating a tangible return on
investment to dealerships resulting from Newgen's programs. As Newgen further
demonstrates the economic value of its services to its customer base, it
believes dealerships are likely to increase the number of active names that it
solicits. Newgen is focused on developing tools and sales techniques designed to
emphasize the tangible financial benefits of Newgen's services.
OFFER A BROAD RANGE OF CUSTOMIZED DIRECT MARKETING SERVICES TO AUTOMOBILE
DEALERSHIPS. Newgen intends to cross-sell new services to satisfied dealerships,
as well as to sell broader lines of services to new customers. For example, it
recently introduced two new targeted direct marketing programs:
- Reservations Service--designed to improve the efficiency of service
department appointment scheduling and shop loading; and
- Connections Service--a survey tool that enables customers to provide
feedback to dealerships through a variety of methods.
In addition, Newgen is currently developing several other innovative
services and programs. For example, Newgen's Carabunga.com subsidiary offers a
Web-based marketing portal for dealerships.
UTILIZE THE INTERNET AS A DELIVERY PLATFORM FOR NEWGEN'S SERVICES. Newgen
believes that the Internet may provide a compelling platform to deliver Newgen's
database management and direct marketing services for automobile dealerships and
manufacturers. Newgen has begun to develop a number of on-line services that
complement and extend the capabilities of Newgen's current services. Newgen
believes that e-mail may serve as an effective mechanism for delivering service
reminder notices. Newgen has been collecting e-mail addresses through Newgen's
dealership customer contacts and are
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delivering Newgen's RESULTS Program using e-mail for those customers who have
expressed a preference for e-mail. Newgen's Connections Service will allow
dealers to survey their customers via e-mail. Newgen recently introduced
Newgen's Reservations Service, which it intends to make accessible over the
Internet such that dealership customers will be able to schedule service
appointments on-line. Newgen also has recently developed ROAD, a service that is
designed to allow dealerships to access, manipulate and query Newgen's database
and receive Newgen's management reports over the Internet. Newgen intends to
continue to actively develop services that leverage the Internet's advantages as
an information and content delivery platform.
ACQUIRE COMPLIMENTARY BUSINESSES AND/OR TECHNOLOGIES. Newgen may seek to
expand its operations and use of its technology and process expertise by
investing in or acquiring businesses or technologies complementary to Newgen's
existing operations. For example, on November 30, 1999, Newgen acquired Computer
Care (a New York general partnership and division of the Dealer Services Group
of Automatic Data Processing, Inc. (ADP)). Computer Care has over 2,000
customers and manufacturer relationships with Volkswagen, Audi, Jaguar, Volvo,
Hyundai and Kia. The average Computer Care dealership spends approximately $450
per month, compared to approximately $1,500 per month for the average Newgen
dealership. Over time, Newgen hopes to change the spending habits of the former
Computer Care customers to more closely mirror Newgen customers. Newgen also
hopes to sell these customers Newgen's additional products and services. Newgen
cannot assure you that any future acquisitions will be completed or that, if
completed, any such acquisitions will be effectively integrated with Newgen's
operations.
SERVICES
Newgen's services include (1) the RESULTS Program, (2) Reservations Service,
(3) Connections Service, (4) Ultimate Service, and (5) Carabunga.com. All of
Newgen's services utilize its expertise in both database marketing and customer
retention services, as well as Newgen's knowledge of automobile service
department operations.
RESULTS PROGRAM. The RESULTS Program promotes automobile service business
from a dealership's own customer base by using direct marketing campaigns
involving direct mailing and outbound teleservice follow-up. Newgen implements
its RESULTS Program on behalf of dealerships using dealership customer and
transaction data that Newgen processes and purifies to ensure that the data is
current and relevant. Newgen enhances the dealership's database by combining it
with maintenance schedule databases and Newgen's own proprietary databases and
algorithms to develop customized solicitations targeting service visits.
Newgen's closed-loop customer retention system tracks the status of each
dealership customer to enable targeted and personalized interaction and
follow-up with the customer at every phase of the solicitation process. Newgen
monitors results daily and provides dealerships with comprehensive monthly
management reports that track maintenance, response rates and spending habits of
solicited customers.
DATABASE UPDATING, MAINTENANCE AND INTEGRATION. Newgen's RESULTS Program is
based on sophisticated data management. The first phase of the RESULTS Program
is a download of a dealership's database of customer transaction data onto
Newgen's database management system. This initial data download is
comprehensive, but often inaccurate. To ensure Newgen's database is current,
Newgen also downloads customer transaction data each time a dealership customer
comes into the dealership. Newgen uses this data to update the information and
history relating to a particular customer or vehicle. This data is compiled to
develop a maintenance schedule for each vehicle in the database. In order to
maximize response rates, Newgen purifies each dealership's initial database by
eliminating:
- dealership employees;
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- fleet customers performing their own maintenance;
- dealership trades;
- database records with incomplete names or addresses;
- database records with missing or incomplete vehicle identification
numbers; and
- other vehicles that are inappropriate for dealership servicing (such as a
Dodge purchased at a Toyota dealership).
CUSTOM DATA MANAGEMENT. Newgen uses the purified, enhanced database and its
industry knowledge and expertise to design and execute a customized direct
marketing campaign for the dealership. After the data is analyzed, it is then
overlaid on other relevant databases such as maintenance schedules or zip code
exclusion tables. Newgen consults with dealerships on a customized program that
takes into account maintenance schedules, geography, demographics and the
dealership's service operations. Once Newgen's database includes all of the
necessary data, Newgen is able to execute the RESULTS Program and begin to
provide direct marketing services.
TARGETED DIRECT MAIL SOLICITATION. Newgen sends each dealership customer a
personalized letter on that dealership's letterhead. The personalized letter is
tailored to each customer's car make, mileage and maintenance schedule,
indicating that the vehicle is due for service. The letter also describes the
suggested service required, as well as dealership contact information and hours
of operation. Newgen can then monitor the response rate of Newgen's direct mail
solicitations through regular transaction downloads from dealerships, as well as
use the most current information to update and enhance its database for each
dealership. Newgen also utilizes e-mail reminder notices instead of letters for
those customers who have expressed a preference for e-mail.
TELESERVICE FOLLOW-UP. If the regular transaction downloads show that the
vehicle owner did not visit the dealership within a specified time after the
personalized letter or e-mail is sent, a telephone solicitation from Newgen is
made on behalf of the dealership, encouraging the dealership customer to bring
the vehicle to the dealership for service. Ideally, the Newgen teleservice
representative speaks directly to the dealership customer and is able to:
- confirm the vehicle's mileage;
- explain the type of service that is due;
- set an appointment for service of the vehicle; and
- obtain customer feedback for dealerships.
If an answering machine is reached, a message is left for the dealership
customer. Newgen's research indicates that the response rate from solicitations
by telephone messages is approximately the same as solicitations by direct
telephone contact. If an appointment is scheduled, the dealership customer's
name returns to the database for future solicitation. If the dealership customer
is no longer appropriate for solicitation (for example, because the customer
sold the vehicle or moved away), the name is made inactive in the database and
no longer solicited. If Newgen's teleservice representatives receive a complaint
from a dealership customer, a "customer opportunity" form is created identifying
the reason for the dissatisfaction (for example, the customer experienced a rude
service advisor or the vehicle was not ready when promised). Each "customer
opportunity" form is immediately sent to the dealership via facsimile. These
forms provide an opportunity for dealerships to salvage fragile customer
relationships and improve customer retention. Newgen believes that Newgen's
teleservice calls are effective because they are not made as sales calls.
Rather, they are simply reminder calls provided as a service to the vehicle
owner.
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CLOSED-LOOP SYSTEM. The RESULTS Program is a closed-loop system that allows
Newgen to know whether a dealership customer has responded to Newgen's direct
marketing services. By updating Newgen's database throughout the solicitation
process, its closed-loop system is designed to ensure that all dealership
customers experience appropriate and personalized interaction and follow-up. The
RESULTS Program is effective because Newgen is able to maintain the most current
record possible for each dealership customer and vehicle. As a result, Newgen
minimizes inappropriate and ineffective solicitations.
COMPREHENSIVE MANAGEMENT REPORTS. Each month, Newgen produces comprehensive
management reports for each of Newgen's dealerships. These reports are sent to
dealerships shortly after the end of the month and contain specific,
quantifiable information about the results of their customized program. The
information in these reports includes data on customer spending habits, return
on the dealership's investment and database purification. These reports also
contain information on service advisor performance and other relevant feedback
enabling the dealership to improve its operations and processes. Newgen is also
able to provide manufacturers with consolidated management reports, which
enables them to track the progress of their dealerships.
RESERVATIONS SERVICE. One of the most challenging processes for the service
department of an automobile dealership is the reservations process. The service
department is difficult for the dealership to staff appropriately, such that
service advisors often spend inadequate time with customers on the phone to
address service or maintenance concerns, especially at peak times such as Monday
mornings. Furthermore, service advisors may not check the dealership customer's
service history report to determine whether or not the customer is due for
additional maintenance that could result in additional revenue to the
dealership. Finally, service advisors generally are not trained in proper
service shop loading techniques, resulting in an inefficient system for
completing service orders.
Newgen's Reservations Service is designed to overcome these challenges. When
a dealership customer calls the dealership to set an appointment for service,
the call is transferred to Newgen's teleservice facility. Through Newgen's
database, the dealership customer's service history is accessed along with the
dealership's service calendar. Newgen service representatives are trained to
ascertain the nature of the problem with the vehicle. At the same time, the
teleservice representative can recommend other needed maintenance. Newgen then
transmits the reservation information to the dealership's computer system.
Through Newgen's proprietary scheduling algorithm, the repair work is scheduled
for a mutually convenient time that is designed to load the service department
for maximum efficiency. Newgen currently has nineteen dealerships in pilot, and
expects to launch this service on a larger scale during 2001. The Reservations
Service is only available to dealerships who use Newgen's RESULTS Program.
In addition, in the future Newgen plans to offer dealership customers the
ability to make service reservations with the dealership via the Internet. When
a dealership customer receives an e-mail reminder, he will be able to click on a
link that will allow him to make a service reservation on-line.
CONNECTIONS SERVICE. Many dealerships call their customers after a service
visit to inquire about the quality of their experience. Newgen is well
positioned to provide this service through Newgen's Connections Service on an
outsourced basis because it already acquired the necessary data as part of
Newgen's RESULTS Program. Newgen's Connections Service is a survey system that
enables Newgen's dealerships to track their customer satisfaction. This program
allows Newgen to leverage its existing teleservice expertise and operational
infrastructure.
Newgen gathers customer responses through either a telephone call or an
e-mail a few days after the service, to ensure that the service experience was
satisfactory and the vehicle is working properly. Feedback from these surveys is
sent to the dealership on a regular basis, with immediate notification to the
dealership of any responses that would warrant special handling.
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ULTIMATE SERVICE. Newgen's subsidiary, Newgen Management Services, Inc.,
provides outsourced management for dealership service departments under the
Ultimate Service brand. Many dealerships view the operation of the service
department as a difficult process, and want a third party to assist them in
managing their fixed operation. Newgen Management Services provides trained
employees to the dealership, who have line authority to direct the operations of
the parts and service operation. These employees implement a number of processes
and procedures at the dealership, including the utilization of the RESULTS
Program and Reservation Service. Newgen Management Services recently received an
endorsement from the Dealer Development division of Ford Motor Company, whereby
Newgen Management will provide Ultimate Service to up to twenty dealerships.
Newgen also leverages its industry expertise in the parts and service
departments' operations of automobile dealerships through its Consulting
Division. Newgen currently has a separate consulting purchase order to help Ford
dealerships increase sales of tires and brakes. This program is called Around
The Wheel and is expected to conclude in the fourth quarter of 2000. Newgen
expects to redeploy its consultants into Newgen Management Services at the
conclusion of the existing contract.
CARABUNGA.COM. Newgen's other subsidiary, Carabunga.com, Inc., utilizes the
Internet as a marketing tool for dealerships. Newgen believes that it is the
first dealership portal for one-to-one marketing programs for the automotive
industry. The Internet site showcases the following three value-added products
for dealers and manufacturers:
- E-PROMOTIONS identifies service customers who are ready to purchase
another vehicle and creates an on-line program of specialty letters and
telephone follow-up calls.
- E-COUPONS provides an electronic format for the delivery of coupons that
offer discounted services.
- ROAD provides an electronic format that will enable dealerships and
manufacturers to analyze and purify their customer database for consumer
trends, perform data visualization and mapping techniques, and
consequently generate lists of customers who are ready to buy another
vehicle.
SALES AND MARKETING
SALES. At June 30, 2000, Newgen employed 52 sales professionals located in
major markets throughout the United States. Although Newgen's sales
representatives and their supervisors do receive a small monthly expense
allowance, the sales force is otherwise compensated exclusively by commission.
The commission is based on a salesperson's implementation of the RESULTS Program
and other programs at the dealerships.
The continued consolidation of automobile dealerships has enabled Newgen to
target its sales efforts more effectively. Because the larger dealerships are
able to derive the greatest benefit from Newgen's services and represent
Newgen's greatest potential source of revenue, Newgen's sales professionals
focus primarily on these dealerships.
Newgen uses two different strategies for selling services to automobile
dealerships. When a manufacturer or dealership group recommends Newgen's
services, Newgen's salesperson is able to more effectively contact the
dealership principal. Newgen's salesperson also is able to make a sales
presentation that is tailored to the manufacturer or dealership group program.
Manufacturers influence the decisions made by dealerships through both financial
and non-financial incentives and support Newgen's sales efforts. For example,
Ford's recommendation of Newgen's services has been instrumental in securing
appointments with Ford-affiliated dealership principals. In turn, sales of
Newgen's services to Ford dealerships have increased. In addition, through
Ford-sponsored dealership seminars, Newgen has enrolled several hundred
dealerships in Newgen's Around the Wheel Program. Other benefits of a
manufacturer's recommendation include co-branded marketing materials and
administrative support with Newgen's management of receivables and the fee
collection process.
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When a dealership is not affiliated with a manufacturer that recommends
Newgen's services, Newgen's sales representatives directly solicit the
dealership. Newgen employs an active prospecting and sales management process
intended to increase direct sales by facilitating appointments with key
decision-makers at dealerships. Regional market-support personnel address
administrative responsibilities for teams of salespeople. Word-of-mouth,
cold-call prospecting by market-support personnel, special mailings to
dealerships and booths at local and regional dealership exhibits create sales
leads that are then responded to by sales representatives. In addition, Newgen
has an internal database system that electronically tracks its customer
prospects.
Newgen believes that its credibility among automobile dealerships is based
on its ethical sales practices, demonstrated industry expertise, manufacturer
recommendations, leading edge technology and efficient back office operations.
MARKETING. Newgen's marketing department is responsible for the development
and maintenance of manufacturer accounts through its business development
managers. In addition, Newgen's marketing efforts focus on enhancing Newgen's
brand name recognition. The marketing department is also responsible for
Newgen's participation in the annual National Automobile Dealers Association
trade show, dealership association presentations, as well as other smaller
regional trade shows across the United States that increase awareness of
Newgen's services.
OPERATIONS
Newgen has developed broad expertise in the operational aspects of database
management, direct marketing and teleservice. Newgen's core competencies
include:
- developing and installing databases with dealership-specific information;
- downloading dealership data through Newgen's highly automated computer
system;
- purifying and enhancing data;
- maintaining automobile maintenance schedules; and
- providing systems for personalized customer solicitation through direct
mail and teleservice.
In December 1997, Newgen completed the certification process for ISO 9001.
To become ISO 9001 certified, an independent certifying agency audited Newgen's
internal processes and certified that they met a set of specific international
quality standards established by the International Standards Organization. In
August 2000, Newgen passed an ISO 9001 audit, enabling Newgen to retain its ISO
9001 certification. Newgen believes that ISO 9001 certification will allow
Newgen to achieve special vendor status with major manufacturers by signifying
Newgen's attention to quality and operational excellence. Newgen believes that
its operations expertise provides it with a competitive advantage and is a key
reason for the growth of Newgen's customer base.
INSTALLATIONS. The installation department has the initial interaction with
a dealership in implementing the RESULTS Program. This department's activities
consist primarily of programming scripts to obtain dealership data via modem,
ensuring that all appropriate maintenance schedules and dealership information
are input to Newgen's database system and creating customized digital letterhead
for sending to dealership customers. In addition, the installation department
works with dealerships to develop customized dealership-specific information for
Newgen's database or other special dealership offerings, such as "winterization"
packages in Michigan or "desert protection" plans in Texas. The installation
department also creates letter templates for the direct marketing component of
Newgen's business. Finally, Newgen's installation department is utilized to help
install Computer Care dealerships on the RESULTS Program.
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SYSTEMS MANAGEMENT. The systems management department downloads the initial
data from the dealership and is responsible for downloading data from the
dealership on a daily basis. For most dealerships, data is automatically
downloaded nightly containing a detailed list of dealership customers who have
come in for service or have purchased a vehicle, although Newgen recently signed
an agreement with ADP to download this information to Newgen. This highly
automated system allows Newgen to know whether a contacted dealership customer
has come in for service or made an appointment. If the dealership customer has
had his or her vehicle serviced, the record is returned to the file for future
solicitation. If the dealership customer does not come in for service within a
time frame specified by the dealership, the name is transferred to a phone list.
The systems management department is also responsible for maintaining Newgen's
HP9000 and Sun computers. In addition, the systems management department
facilitates the analysis of data for sale to manufacturers as part of Newgen's
data warehousing and mining services.
DATABASE OPERATIONS. Newgen is focused on maintaining a comprehensive
transaction database by concentrating on continuous database purification. The
database operations department prepares new records for processing by ensuring
that each dealership customer name has a proper salutation, proper address
(utilizing the National Change of Address Registry) and that each address is in
compliance with postal regulations. The database operations department also
processes the files that are used to generate letters and downloads these files
to Newgen's print vendors. Newgen's print vendors then utilize innovative
print-on-demand technology to generate customized letters on dealership
letterhead.
Dealerships are able to change the number of active customers in their
database at any time. New names are added to the database whenever an existing
active name is made inactive as part of the ongoing database purification
activities or when a new vehicle is sold. This process helps Newgen maintain the
number of active names requested by the dealership.
TELESERVICE. The teleservice department contacts dealership customers that
do not respond to solicitation letters. At June 30, 2000, the teleservice
department had 326 employees. The teleservice department currently contacts over
1 million customers per month. When a personal contact cannot be made, a message
is left for the dealership's customer. Newgen's research indicates that the
response rate from solicitations by telephone messages is approximately the same
as solicitations by direct telephone contact. When a contact is made, the
teleservice department either makes an appointment for the dealership, or
"closes the loop" by establishing reasons for non-response. Teleservice
representatives may also identify dealership customers who are dissatisfied with
the dealership and do not wish to return for service. Newgen believes that
Newgen's teleservice calls are effective because they are not made as sales
calls. Rather, they are simply reminder calls provided as a service to the
vehicle owner.
CUSTOMER SERVICE. The customer service center ensures that the needs of
dealerships are addressed. This department answers questions from dealerships
and Newgen's own employees about all of Newgen's services. The customer service
center also implements changes to a dealership's program, such as letter changes
and maintenance schedule changes. Newgen uses the information it gathers through
its customer service center to constantly improve Newgen's processes. This
department employed 57 people at June 30, 2000 and is available to answer
questions 24 hours a day, seven days a week. The customer service center also
maintains general and dealership-specific information for Newgen's database.
This database includes current information on virtually every make and model of
vehicle produced for sale in North America and their recommended maintenance
schedules. These standard maintenance schedules include a combination of time
parameters (for example, every six months) and mileage parameters (for example,
every 3,000 miles). Newgen's proprietary software individualizes these schedules
by making adjustments for the driving habits of each vehicle owner in its
database.
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TECHNOLOGY
Newgen is a leader in applying advanced technology to database management
and direct marketing. Newgen's current software and database systems have been
developed over several years, and while Newgen has increased their functionality
as the company has grown, Newgen's system requires further development. Newgen
has, where necessary, license agreements for the software it uses from third
parties.
In order to take advantage of the most current advanced technology, Newgen
will migrate Newgen's current system to a new system. Newgen expects to complete
this migration by the second quarter of 2001. Newgen expects to greatly enhance
its core computing and database management services through the implementation
of the migration. Newgen believes that the improvements in its operating
processes as a result of the migration will produce a significant return on
investment through cost savings. In particular, Newgen believes the migration
will:
- provide Newgen with increased scalability as its customer base grows;
- result in a more flexible database that will enhance Newgen's ability to
provide new services and customized extract reports;
- enable Newgen to introduce new products and services more quickly;
- increase Newgen's data processing efficiency;
- enhance Newgen's ability to utilize the Internet as part of future service
offerings;
- improve Newgen's customer service by providing more effective user
interfaces and information; and
- strengthen Newgen's ability to more effectively purify data, which will
reduce labor and postage expense.
In early 1999, Newgen installed new telephony equipment for its teleservice
operations, which has resulted in significant performance improvements. In
particular, Newgen believes the telephony equipment has increased the
efficiency, consistency and quality of Newgen's services, as well as providing
increased feedback that will enable Newgen to better understand its business.
COMPETITION
Newgen operates in a highly competitive business environment. Newgen
competes with a variety of companies, including large national or multi-national
companies that have greater financial and marketing resources than Newgen does,
and smaller regional or local companies that are involved to varying degrees in
the same business as Newgen. Newgen's significant national competitor is
Reynolds & Reynolds, Co. In addition, R.L. Polk and Moore Corporation Limited
have offered services that are similar to Newgen's on a limited basis.
Reynolds &Reynolds' Service Systems Division offers automobile dealerships
database management and customer retention services that compete directly with
Newgen's services. Moore also delivers integrated business communications,
personalized direct marketing and other related services. Moreover, Reynolds &
Reynolds, Moore and R.L. Polk have significantly greater financial and marketing
resources and actively compete against Newgen for dealership business. For
example, R&R has in the past offered a discount on customer retention systems to
dealerships that purchase certain hardware and software. Newgen also competes to
a limited degree with other small customer retention service providers and
in-house customer retention systems. As the trend towards dealership
consolidation continues, dealerships will be able to create internal economies
of scale, and could choose to satisfy their database management and directed
marketing needs internally rather than outsourcing. Newgen's potential customers
may decide to internally
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develop database management and direct marketing services. Newgen's ability to
compete effectively will depend on a number of factors, including:
- Newgen's knowledge of dealership service department operations;
- the value of the services Newgen offers;
- the state of Newgen's relationships with automobile manufacturers;
- the quality and breadth of Newgen's service;
- Newgen's ability to identify, develop and offer innovative services;
- Newgen's ability to overcome difficulties associated with replacing
incumbent service providers; and
- pricing and reputation among dealerships.
Reynolds & Reynolds and Moore price their services on a per letter basis,
although certain customers of Moore may elect to be billed on the number of
active names in the customer base. Therefore, meaningful price comparisons
between Newgen's services and those of its competitors are difficult.
Dealerships may perceive that Newgen's services are priced higher than those of
Newgen's competitors. In addition, Newgen's competitors may increase their
emphasis on programs similar to those programs Newgen offers and new competitors
may enter the market. Furthermore, dealerships or automobile manufacturers
themselves may introduce competing programs. If any of these were to occur,
Newgen may be unable to compete effectively against them.
TELEMARKETING REGULATIONS
Newgen is subject to varying degrees of federal, state and local
telemarketing regulation. The jurisdiction of the Federal Trade Commission, or
FTC, and the Federal Communications Commission, FCC, extends to the
telemarketing industry, including some of the services Newgen provides to its
customers. The FTC has issued regulations that prohibit specific types of
deceptive or abusive telemarketing acts or practices. Regulations issued by the
FCC place limits on the use of specific types of equipment used in telephone
solicitation, require telemarketing companies to provide identifying
information, and require the maintenance of a list of persons who do not wish to
be called. Newgen does not currently engage in, and has no plans to engage in,
any of the activities prohibited by the FTC and FCC regulations. The FCC and FTC
regulations have, therefore, not materially restricted Newgen's operations. If
the FCC and FTC or other regulatory bodies adopt new regulations in the future,
Newgen's business may be materially adversely affected. In addition, violations
may occur in the future as a result of human error, equipment failure or other
causes. Newgen's failure to comply with applicable domestic and international
regulations could have a material adverse effect on Newgen's business, financial
condition and results of operations. The media often publicizes perceived
non-compliance with consumer protection regulations and violations of standards
of fair dealing with consumers. Any such negative publicity is potentially
damaging to Newgen's reputation, client relationships and consumer acceptance
and loyalty.
NEWGEN'S EMPLOYEES
As of June 30, 2000, Newgen had 664 employees. From time to time, Newgen
also employs independent contractors within its information technology
department and Consulting Division. Newgen's employees are not represented by
any collective bargaining organization and it has never experienced a work
stoppage. Newgen believes that its relations with its employees are good.
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NEWGEN'S PROPERTIES
Newgen currently leases a facility in San Diego, California having
approximately 28,000 square feet of space. The current lease for this facility
expires in September 2001. In addition, Newgen presently leases a second
facility in San Diego, California having approximately 40,000 square feet of
space. This facility houses its teleservice operations. The lease for this
facility expires in February 2001.
Newgen also has signed a $52-million, 15-year lease to build an
approximately 103,000 square foot corporate headquarters, with a projected
building completion and occupancy date of April 2001. Newgen intends to
consolidate its current San Diego operations into this new facility.
LEGAL PROCEEDINGS INVOLVING NEWGEN
In June 2000, Newgen was notified by four individuals asserting claims for
unspecified equity interests in Newgen. Newgen believes that the claims of these
individuals are without merit and it intends to vigorously defend any lawsuit
asserting the claims of these individuals. However, should any litigation be
decided adversely to Newgen, it might be required to pay damages or issue shares
of Newgen's common stock to these individuals.
RISKS RELATED TO NEWGEN'S BUSINESS
NEWGEN HAS A HISTORY OF LOSSES AND MAY EXPERIENCE FUTURE LOSSES.
Newgen incurred net losses of $4.7 million in 1996, $2.2 million in 1997 and
$3.2 million in 1998. As of June 30, 2000, Newgen had an accumulated retained
deficit of $4.1 million. Newgen achieved profitability on an annual basis for
the first time in 1999, but Newgen may incur net losses in the future. Newgen
anticipates significant sales and marketing, service development, technology,
and general and administrative expenses as it continues to develop and introduce
new services, increase its customer base, and extend its technology
capabilities. As a result, Newgen will need to generate significantly higher
revenues to sustain profitability. Although Newgen's revenues have grown in
recent quarters, Newgen cannot be certain that it will continue to achieve
revenue growth or generate sufficient revenues to achieve profitability.
Newgen's financial results would be harmed if its revenue does not grow or grows
more slowly than it anticipates, or if its operating or capital expenditures
exceed its expectations and cannot be adjusted accordingly.
NEWGEN'S LIMITED OPERATING HISTORY PROVIDES LITTLE INFORMATION WITH WHICH TO
EVALUATE ITS BUSINESS AND PROSPECTS.
Newgen was incorporated in February 1994 and has a limited operating
history. Investors must consider Newgen's business and prospects in light of the
risks typically encountered by companies in their early stages of development.
Some of the risks that Newgen faces, in addition to those risks discussed
elsewhere in this section, include:
- the intensely competitive market for outsourced database management and
direct marketing services to automobile dealerships and manufacturers;
- the risks relating to the timely introduction of new services;
- the risks associated with the expansion of Newgen's operational and
technology infrastructure;
- the challenges encountered in expanding Newgen's sales and customer
support organization; and
- Newgen's reliance on the cyclical auto industry.
Newgen may not be successful in implementing any of its business strategies or
in addressing these risks or others. Even if Newgen is successful, it still may
not be profitable in the future.
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THERE ARE MANY FACTORS, INCLUDING SOME BEYOND NEWGEN'S CONTROL, THAT MAY
CAUSE FLUCTUATIONS IN NEWGEN'S QUARTERLY RESULTS.
Newgen's quarterly and annual revenues, gross margins and operating results
have fluctuated in the past and are likely to fluctuate in the future. The
various services Newgen offers have different gross margins and, as a result,
Newgen's revenue mix will affect its total gross margin. In addition, some of
Newgen's operating expenses are relatively fixed and cannot be reduced in the
short term to compensate for unanticipated variations in revenue. Thus, Newgen's
total gross margin will be materially adversely affected in the event of any
unexpected revenue shortfall. Likewise, any short-term increase in expenses may
adversely affect Newgen's operating performance if revenues do not increase at
the same or higher rate.
Future fluctuations in Newgen's results of operations may be caused by
various factors, many of which are outside of Newgen's control. Some of these
factors include:
- Newgen's ability to attract new dealerships as customers;
- the cancellation of contracts;
- Newgen's ability to maintain an ongoing relationship with its manufacturer
and megadealer customers;
- changes in Newgen's average revenues per customer;
- Newgen's ability to introduce new services, including those offered by its
Newgen Management Services, Inc. and Carabunga.com, Inc. subsidiaries;
- Newgen's ability to integrate businesses or technologies that it has
acquired or may acquire in the future;
- the introduction of alternative services by competitors;
- Newgen's ability to retain existing personnel and attract new personnel in
a timely and effective manner;
- changes in Newgen's pricing policies or those of its competitors resulting
from competitive pressures and other factors;
- the amount and timing of operating costs and capital expenditures relating
to expansion of Newgen's business, operations and infrastructure,
including the rewrite of its database management and customer retention
software and upgrades to its computer and telephony technology;
- Newgen's ability to effectively manage growth;
- increases in costs of services and supplies provided to Newgen by third
parties, including the price of paper, toner and postage; and
- the cost of labor.
Historically, Newgen's quarterly fluctuations in revenue have been due
primarily to fluctuations in consulting revenues, which have consisted of a
small number of significant contracts. For example, in the fourth quarter of
1997, total revenues increased by $2.1 million to $9.0 million, primarily as a
result of an increase in consulting revenues. Consulting revenues as a
percentage of Newgen's total revenues for the eight quarterly periods ended
December 31, 1999 ranged from 7% to 26%. In addition, Newgen's consulting
business currently depends entirely on Ford. Ford has engaged Newgen's
Consulting Division to perform discrete consulting projects. Newgen's current
consulting purchase order with Ford was completed in September 2000. Ford is
under no obligation to engage Newgen for future projects. Newgen expects that
after the completion of the current project, Newgen will redeploy
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Newgen's consultants into the Ultimate Service program offered by Newgen's
subsidiary, Newgen Management Services, Inc.
Newgen may need to invest a significant amount of resources and capital in
order to implement its Internet strategy successfully. Further, Newgen is in the
process of developing its computer systems, which may require additional
significant investment. Either of these expenses could affect Newgen's quarterly
operating results.
Due to these and other factors, quarterly revenues, expenses and results of
operations could vary significantly in the future, and period-to-period
comparisons should not be relied upon as indications of future performance.
Newgen may not be able to increase its revenues in future periods or be able to
sustain its existing level of revenues or its rate of revenue growth on a
quarterly or annual basis. In addition, Newgen's annual or quarterly operating
results may not meet the expectations of securities analysts and investors.
NEWGEN IS HIGHLY DEPENDENT ON ITS RELATIONSHIP WITH FORD MOTOR COMPANY.
Newgen derives a substantial portion of its revenues from Ford and Ford
dealerships. In 1999, sales of Newgen's RESULTS Program to Ford dealerships
represented 53% of Newgen's total revenues while consulting services provided to
Ford represented 10% of Newgen's total revenues. Newgen collects accounts
receivable from a majority of Ford dealerships directly from Ford. Newgen
expects that sales to Ford and Ford dealerships will continue to comprise a
significant percentage of Newgen's revenues and accounts receivable for the
foreseeable future.
Due to a change in Ford's accounting system in late 1998, Newgen was
temporarily unable to collect accounts receivable from Ford in a timely manner.
If in the future Newgen is unable to collect accounts receivable from Ford in a
timely manner for any reason, this could reduce the amount of cash available to
Newgen to operate its business. As a result, Newgen could be required to use
cash reserves or increase its outstanding indebtedness in order to continue its
normal business operations. Also, there is no assurance that Ford will continue
to allow Newgen to collect Ford dealership receivables directly from Ford. In
that case, Newgen would have to collect these receivables directly from
individual dealerships, which could increase the time to collect receivables
from those dealerships.
Ford also has acted as a key reference in Newgen's solicitation of Ford
dealerships and other manufacturers as new customers. Newgen expects that it
will need to continue to develop relationships with existing and future Ford
management in order to maintain strong ties with Ford and to continue to receive
Ford's endorsement of Newgen's services to Ford dealerships. Newgen's
relationship with Ford could be damaged if Leslie Silver, Newgen's Executive
Vice President and President of Newgen Management Services, a subsidiary of
Newgen, who has developed a relationship with certain key Ford personnel,
terminates his employment with Newgen. Newgen contracts individually with Ford
dealerships that are under no obligation to use Newgen's services. Any change in
Newgen's relationship with Ford or any change in Ford's recommendation of
Newgen's services could result in a significant reduction in the number of
customers Newgen services and hinder Newgen's ability to contract with new
customers that could harm its business, financial condition and results of
operations.
NEWGEN IS ALSO HIGHLY DEPENDENT ON ITS RELATIONSHIPS WITH A FEW AUTOMOBILE
MANUFACTURERS AND DEALERSHIP GROUPS.
In addition to Ford, Newgen derives a substantial portion of its revenues
from other manufacturers, such as Volkswagen, Audi, Mitsubishi, Hyundai, Kia,
Volvo, and Jaguar, as well as the AutoNation and CarMax superstore chains.
These manufacturers and dealership groups have acted as a key reference in
Newgen's solicitation of dealerships and other manufacturers as new customers.
Newgen expects that it will need to continue to develop relationships with
existing and future management of these manufacturers and dealership
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groups in order to maintain strong ties with them. Although Newgen contracts
individually with other dealerships that have relationships with these
manufacturers and dealership groups, they are under no obligation to use
Newgen's services. Hence, any change in Newgen's relationship with these
manufacturers and dealership groups could result in a significant reduction in
the number of customers Newgen services and hinder its ability to contract with
new customers that could harm its business, financial condition and results of
operations.
NEWGEN'S COMPUTER SOFTWARE UTILIZES OUTDATED TECHNOLOGY.
Newgen's computer system utilizes technology that was developed in the
1980's. Accordingly, it does not contain many of the features and tools that
could make it more efficient. In 1999, Newgen expected to receive new
enterprise-wide software that it had commissioned from a third-party vendor.
However, the software that was delivered to Newgen was not acceptable because it
failed to operate reliably. As a result, Newgen continues to utilize outdated
software.
Newgen is currently planning a strategy that will enable it to update its
existing systems. By utilizing selected existing software and combining it with
programs that Newgen will write, it believes that it can migrate its existing
platform to a new and improved platform. Newgen expects this migration to occur
during the first half of 2001. Migrations of this kind are inherently subject to
uncertainty regarding completion date, and Newgen may not be able to achieve the
migration in the anticipated time frame. Newgen is incurring expenses of between
$25,000 and $50,000 per month that could be eliminated as a result of the
migration. In addition, Newgen is incurring substantial capital and operating
costs associated with the migration. Further delays or failure in the completion
of the migration may result in additional costs.
By performing the migration internally, some of Newgen's technology
resources are being diverted away from servicing Newgen's existing customers, or
developing new services. Any such diversion of resources may reduce Newgen's
customers' level of satisfaction with Newgen's existing services or in delays in
the development or introduction of new services. Newgen's new enterprise-wide
database management software will be complex and may initially impair Newgen's
ability to provide satisfactory customer service. It may result in the
distribution of incorrect data. In addition, Newgen's current hardware may be
insufficient to support the software migration and thus may require Newgen to
make additional capital expenditures for adequate hardware. Newgen's
introduction of new services is dependent in part upon the development and
implementation of the new software. Other risks related to the migration
include:
- the integration of the new software with Newgen's existing systems;
- the training of technical personnel to use and enhance the new system;
- cost overruns associated with development and implementation of the
system;
- lost productivity associated with testing and debugging the software,
unexpected defects or failures;
- credits to customers that may be required in connection with such defects
or failures and additional costs associated with converting to and
supporting the software rewrite; and
- the inability to scale Newgen's existing software to support a substantial
increase in the number of customer dealerships without modifying Newgen's
existing software.
Any delay or failure to successfully complete or implement the software
could harm Newgen's business, financial condition and results of operations.
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NEWGEN WILL NEED TO INTRODUCE NEW SERVICES TO EXPAND ITS BUSINESS.
Newgen's future growth will depend, in part, on its ability to enhance
existing services with new features and to develop new services that address the
expanding needs of its customers. In addition, Newgen's future growth will also
depend on its ability to respond to technological advances and emerging industry
practices in a timely and cost-effective manner. Acceptance of Newgen's new
services depends on several factors, including dealerships' needs for these
services, demonstration of tangible benefits of the services, pricing and
dealership industry conditions and trends. Newgen recently introduced its
Reservations and Connections services. Newgen also recently introduced new
services through its Newgen Management Services, Inc. and Carabunga.com, Inc.
subsidiaries. Newgen's customers may not accept or enter into contracts for any
of the company's new services. In addition, certain of Newgen's new services may
benefit competitors of Newgen's current customers, which may cause certain of
Newgen's current customers to cease using its services. Also, several of
Newgen's competitors have substantially greater resources than Newgen. This may
allow those competitors to introduce new services or features before Newgen does
or develop services or features superior to Newgen's services. In the future,
Newgen may experience product development, marketing and other difficulties that
could delay or prevent Newgen's development, introduction or marketing of new or
enhanced services. A substantial portion of the $4.3 million in technology and
product development expenses Newgen incurred in 1999 consisted of expenses
related to the development of new services. As of June 30, 2000, Newgen has
capitalized $2,094,000 related to computer software developed for internal use.
In the future, Newgen will also have to incur substantial marketing expenses to
encourage the acceptance of its new services by its customers and any potential
new customers. If Newgen is unable to develop and introduce new or enhanced
services in a timely or cost-effective manner, its business could be harmed.
Newgen has recently incorporated a new subsidiary, Newgen Management
Services, Inc., which provides outsourced management of the service departments
of dealerships. In order to be effective, Newgen Management Services must
develop and implement a series of processes and procedures that will help the
dealerships to whom it provides services. Newgen cannot assure you that Newgen
Management will be able to develop appropriate processes and procedures in a
timely or cost effective manner, or that its customers will benefit from these
services.
Newgen's other subsidiary, Carabunga.com, Inc., utilizes the Internet as a
marketing tool for dealerships. To Newgen's knowledge it is the first dealership
portal for one-to-one marketing programs for the automotive industry. The
Internet site showcases the following three value-added products for dealers and
manufacturers:
- E-PROMOTIONS identifies service customers who are ready to purchase
another vehicle and create an on-line program of specialty letters and
telephone follow-up calls.
- E-COUPONS provides an electronic format for the delivery of coupons that
offer discounted services.
- ROAD provides an electronic format that enables dealerships and
manufacturers to analyze and purify their customer database for consumer
trends, perform data visualization and mapping techniques, and
consequently generate lists of customers who are most likely to buy
another vehicle.
NEWGEN'S ABILITY TO SECURE NEW CONTRACTS WILL AFFECT NEWGEN'S FUTURE GROWTH.
If Newgen is unable to expand its customer base or successfully market and
sell its services to automobile dealerships, it may not be able to increase its
revenues, or its revenues may decline. In general, Newgen's ability to secure
new contracts depends upon several factors, including:
- the effectiveness of Newgen's sales and marketing personnel;
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- the establishment of more automobile manufacturer relationships;
- the ability of Newgen's sales personnel to gain access to decision makers
at dealerships;
- the perceived value of Newgen's services; and
- Newgen's reputation among dealerships.
Newgen's growth has been driven largely by increasing Newgen's dealership
base. Newgen's customer base grew from 177 dealerships at December 31, 1995 to
5,039 dealerships at June 30, 2000. Newgen may not be able to secure new
contracts in the future or successfully retain Newgen's existing contracts.
Newgen is also seeking to develop relationships with automobile manufacturers as
a means of securing service contracts with dealerships. In the event Newgen is
unable to develop those relationships, its ability to secure or retain service
contracts with dealerships may be hindered. Newgen may not be successful in
developing or maintaining relationships with automobile manufacturers and
Newgen's competitors may use their greater financial and other resources to
preclude or hinder Newgen's efforts to develop those relationships. Newgen's
failure to increase the number of dealerships it services would limit its future
growth and would harm its business.
Newgen's growth strategy is based, in part, on increasing Newgen's revenues
per dealership, both by activating more names on the RESULTS Program and by
selling more services to dealerships, particularly with respect to those
dealership contracts that Newgen acquired in the purchase of Computer Care from
ADP in November 1999. Newgen's failure to increase the revenue per dealership
would restrict its future growth and harm its business.
DEALERSHIP TURNOVER MAY HARM NEWGEN'S BUSINESS.
Newgen's contracts with dealerships are of various durations, typically
ranging from six months to two years. All of Newgen's contracts may be
terminated upon the expiration of the contract term. In addition, during the
contract term, some dealerships may choose to reduce the number of active names
serviced by Newgen, which may result in reduced revenues to Newgen. Newgen's
ability to renew customer contracts is dependent upon various factors including:
- the perceived value of Newgen's services;
- the ability of Newgen's sales and customer service representatives to deal
proactively with issues as they arise;
- the quality of Newgen's services;
- Newgen's ability to develop new services;
- the pricing of Newgen's services; and
- Newgen's ability to retain manufacturer and megadealer endorsements.
Newgen's inability to meet the expectations of its customers with respect to
any of these factors may result in cancellation of its services by such
customers. Although Newgen has taken measures to reduce turnover, dealership
turnover rates may increase in the future. In 1999, 401 customers cancelled
their contracts after the expiration of their contract term. In the six month
period ended June 30, 2000, 260 customers cancelled their contracts after the
expiration of their contract term. Because Newgen's contracts are subject to
risk of cancellation, the number of dealerships contracting for Newgen's
services at any given time may not be a reliable measure of Newgen's future
revenues. Any termination, significant reduction or modification of Newgen's
business relationships with a significant number of dealerships may harm its
business.
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NEWGEN MAY NOT BE ABLE TO SUSTAIN THE BUSINESS RELATIONSHIPS IT ACQUIRED
THROUGH ITS ACQUISITION OF COMPUTER CARE.
On November 30, 1999, Newgen acquired Computer Care from the Dealer Services
Division of ADP. Many of the existing contracts with Computer Care customers are
cancelable with 30 days notice. Accordingly, Newgen's business could be harmed
if it is unable to retain these customers. Furthermore, Newgen acquired certain
contracts between Computer Care and various manufacturers, including Volkswagen,
Audi, Volvo, Jaguar, and Kia. If Newgen is not able to satisfy these
manufacturers, and they choose to withdraw their endorsements, Newgen's revenues
may be reduced and it could harm Newgen's reputation.
NEWGEN MAY BE UNABLE TO COMPETE EFFECTIVELY IN THE MARKET FOR OUTSOURCED
SERVICES TO AUTOMOBILE DEALERSHIPS AND MANUFACTURERS.
Newgen operates in a highly competitive business environment. Newgen
competes with a variety of companies, including large national or multi-national
companies that have greater financial and marketing resources than Newgen does,
and smaller regional or local companies that are involved to varying degrees in
the same business as Newgen. Newgen's significant national competitor is
Reynolds & Reynolds, Co. In addition, R.L. Polk and Moore Corporation Limited
have offered services that are similar to Newgen's on a limited basis.
Reynolds & Reynolds' Service Systems Division offers automobile dealerships
database management and customer retention services that compete directly with
Newgen's services. Moore also delivers integrated business communications,
personalized direct marketing and other related services. Moreover, Reynolds &
Reynolds, Moore and R.L. Polk have significantly greater financial and marketing
resources and actively compete against Newgen for dealership business. For
example, in the past R&R has offered a discount on customer retention systems to
dealerships that purchase certain hardware and software from them. Newgen must
also compete to a limited degree with other smaller customer retention service
providers and in-house customer retention systems. Dealerships may decide to
satisfy their database management and direct marketing needs internally rather
than outsourcing those services, especially as dealerships grow larger due to
industry consolidation.
R&R and Moore price their services on a per letter basis, although certain
customers of Moore may elect to be billed on the number of active names in the
customer database. Therefore, meaningful price comparisons between Newgen's
services and its competitors are difficult. Dealerships may perceive that
Newgen's services are priced higher than those of its competitors. In addition,
Newgen's competitors may increase their emphasis on programs similar to those
programs Newgen offers and new competitors may enter the market. Furthermore,
dealerships or automobile manufacturers themselves may introduce competing
programs. If any of these were to occur, Newgen may be unable to compete
effectively against them.
NEWGEN'S RELIANCE ON A SMALL NUMBER OF SUPPLIERS EXPOSES IT TO BUSINESS
INTERRUPTIONS.
Newgen depends on a small number of suppliers to enable it to deliver its
services. For example, Anderson Print & Mail, Inc. ("Anderson") is currently the
only source for Newgen's printing and direct mail needs. Since August 1998
Newgen has agreed to purchase a significant portion of its printing requirements
from Anderson. To date, Newgen has not experienced quality problems with
Anderson. However, Anderson may not continue to perform in a satisfactory manner
or Newgen may experience quality or performance problems from Anderson in the
future. In addition, Newgen depends on a small number of companies to provide it
with information that assists Newgen in managing its database. A sudden
unexpected loss of services provided by key suppliers could interrupt Newgen's
business and prevent it from providing services to its customers, which, in turn
could adversely affect Newgen's results of operations and damage its
relationships with affected dealerships. Newgen's reliance on these limited
source vendors could result in performance shortfalls and may limit its control
over quality and costs. Newgen may experience quality or performance problems
with any of its suppliers. Further, a
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significant increase in the price of one or more of these services could harm
Newgen's business by forcing it to raise its prices or by decreasing its gross
margins.
NEWGEN RELIES ON A LIMITED NUMBER OF THIRD PARTIES TO ACCESS ITS DEALERSHIP
CUSTOMERS' DATA.
Newgen depends on third parties for access to the data of a portion of its
dealership customer base. For example, Universal Computer Systems ("UCS") is
Newgen's sole source for data updates from dealerships that use UCS
dealership-services software and Newgen does not have a fixed-term contract with
UCS to obtain such data. Approximately 10% of Newgen's dealership customers use
UCS software. Newgen obtains data updates from most of its other dealership
customers by interfacing directly with the dealership's computer system. A
change in dealership computer hardware or software may inhibit Newgen's access
to dealership data and would inhibit Newgen's ability to provide services to its
customers. Newgen recently entered into an agreement with ADP pursuant to which
ADP will provide Newgen with data from various dealerships. Although Newgen has
not yet implemented this agreement, when it does begin receiving these
downloads, the failure of ADP to provide timely and accurate information could
result in lost revenues and harm Newgen's relationships with its customers.
NEWGEN IS DEPENDENT ON THE PROFITABILITY OF THE AUTOMOBILE INDUSTRY AND ON
GENERAL ECONOMIC CONDITIONS.
Newgen's business depends on both the profitability of automobile
dealerships and the volume of sales of new automobiles, as well as general
economic conditions that may affect the service and maintenance habits of
automobile owners. The automobile industry is highly cyclical and historically
has experienced periods of reduced demand for automobiles. When automobile sales
decline, dealerships have historically looked for ways to cut costs, including
reducing expenditures for certain marketing and outsourced functions. General
economic conditions directly impact the demand for new and used automobiles and
may affect the service and maintenance habits of automobile owners. During
periods of economic slowdown, automobile owners may have their vehicles serviced
less often. They may also be less inclined to have their vehicles serviced at
automobile dealerships, which generally have a reputation for being more
expensive than other automotive repair shops. Newgen believes that a downturn in
new and used automobile sales or decreased dealership profitability could result
in contract cancellations, reduced revenues from its ongoing dealership
relationships and difficulty in attracting new dealership customers. In
addition, the automobile dealership industry has been undergoing consolidation.
This consolidation trend may result in decreased demand for its services if
large dealerships or dealership chains decide to implement their own data
management and marketing services rather than outsource those services to Newgen
and other third parties.
NEWGEN IS SUBSTANTIALLY DEPENDENT ON ITS MANAGEMENT TEAM AND KEY PERSONNEL
AND THOSE INDIVIDUALS MAY NOT REMAIN WITH NEWGEN IN THE FUTURE.
Newgen's continued success is largely dependent on the efforts and abilities
of its senior management and other key personnel, and in particular Gerald
Benowitz, its Chief Executive Officer, and Leslie Silver, its Executive Vice
President, and President of Newgen Management Services, Inc. Newgen's dependence
on its management is due to their individual and combined experience in the
market for outsourced services for automobile dealerships and manufacturers.
This includes their personal relationships, knowledge of Newgen's operations and
technology, and understanding of the competitive environment in which Newgen
operates. In particular, its relationship with Ford could be damaged if
Mr. Silver, who has developed a relationship with certain key Ford personnel,
terminates his employment with Newgen. The loss of the services of certain
management and key personnel could harm Newgen's business.
NEWGEN MAY NOT BE ABLE TO RECRUIT AND RETAIN THE PERSONNEL IT WILL NEED TO
SUCCEED IN THE FUTURE.
Newgen has experienced growth in revenues and expansion of its operations
that have placed significant demands on its management and facilities. Continued
growth will also require Newgen to
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hire more sales, operations, technical and administrative personnel. Newgen has
at times experienced, and continues to experience, difficulty in recruiting and
retaining qualified personnel, in particular technical and sales personnel, and
service department personnel for Newgen Management Services. For example, Newgen
has experienced turnover in its sales personnel and technology personnel and
Newgen cannot assure you that this turnover will decrease in the future.
Recruiting qualified personnel is an intensely competitive and time-consuming
process and Newgen expects competition for such personnel to remain intense. In
addition, with its introduction of new products and services, the pay scales for
direct labor to support these new products and services may change. The affected
personnel may not find these changes satisfactory. Newgen may not be able to
attract and retain the necessary personnel to accomplish its growth strategies
and it may experience constraints that will adversely affect its ability to
satisfy customer demand in a timely fashion or to support satisfactorily its
customers and operations. Newgen's inability to attract and retain key employees
could harm its business.
INCREASES IN THE COST OF PAPER, TONER OR POSTAGE RATES MAY REDUCE NEWGEN'S
PROFITABILITY.
Newgen's services require significant quantities of paper and toner to
generate and mail letters. The price of paper increased significantly during
1995 and the price of toner increased significantly in 1996. Newgen generally
has not been able to change its prices to its dealerships to compensate for
increases in paper and toner prices. The price of paper or toner may increase in
the future. Furthermore, although Newgen has the right under its dealership
contracts to increase the prices of its services in response to increases in
postage rates, it may choose to absorb postage rate increases rather than pass
them on to dealerships for competitive reasons. Although Newgen adjusted its
rates to reflect the most recent postage rate increase in January 1999, it may
not be able to pass on future postage rate increases in its pricing. Any
significant increase in paper or toner prices or postage rates that are not
reflected in its pricing to dealerships could materially adversely affect its
business, financial condition and results of operations.
NEWGEN'S FAILURE TO MANAGE ITS GROWTH IN OPERATIONS MAY HARM ITS BUSINESS.
Newgen's rapid growth has placed significant demands on its managerial,
operational and financial resources. In order to address these demands, Newgen
continues to hire new employees, invest in new equipment and make other capital
expenditures. In addition, if Newgen increases the number of services offered to
automobile dealerships and the number of dealerships to which Newgen provides
services, it will need to develop further financial and managerial controls and
reporting systems and procedures. Newgen expects that it will need to expand
into additional facilities as it continues to grow and has recently entered into
agreements for a new headquarters facility. Newgen's business may be harmed if
it fails to expand any of the foregoing areas in an efficient manner or if it
otherwise is unable to manage growth effectively.
NEWGEN MAY ENGAGE IN FUTURE ACQUISITIONS THAT CAUSE NEWGEN TO INCUR DEBT AND
ASSUME CONTINGENT LIABILITIES AND NEWGEN MAY EXPERIENCE DIFFICULTIES IN
INTEGRATING BUSINESSES, PRODUCTS AND TECHNOLOGIES IT MAY ACQUIRE INTO ITS
BUSINESS.
Newgen may seek to expand its operations and leverage its technology,
database management and dealership processes expertise by investing in or
acquiring businesses or technologies complementary to its existing operations.
For example, in November 1999, Newgen acquired the Computer Care partnership
from the Dealer Services Division of ADP.
Newgen's investment in or acquisition of businesses or technologies could
materially adversely affect its operating results. Acquisitions also entail
numerous risks, including:
- difficulties in the assimilation of acquired operations, technologies or
products;
- unanticipated costs;
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- diversion of management's attention from other business concerns;
- adverse affects on existing business relationships with suppliers and
customers;
- risks of entering markets where Newgen has no or limited prior experience;
and
- potential loss of key employees.
Newgen may not be able to successfully integrate any businesses, products,
technologies or personnel that it has acquired or will acquire in the future,
and its failure to do so could harm Newgen's business. In addition, future
acquisitions may require Newgen to incur substantial debt or assume contingent
liabilities.
NEWGEN'S FAILURE TO ADEQUATELY PROTECT ITS PROPRIETARY RIGHTS COULD HARM ITS
BUSINESS.
Newgen's success and ability to compete is dependent in part upon its
proprietary technology. The most critical element of Newgen's operations is its
database management system. Newgen relies primarily on a combination of
copyright and trademark laws, trade secrets and nondisclosure agreements to
protect its proprietary rights. Newgen currently has no issued patents. Newgen
typically enters into confidentiality and proprietary information agreements
with its employees and limits access to and distribution of its software,
documentation and other proprietary information. Newgen's protection of this
system has served as a barrier to its competitors who have not been able to
duplicate such a database management system. If competitors were able to
duplicate Newgen's database management system, Newgen would lose its competitive
advantage and face increased competition. Newgen's confidentiality agreements
and confidentiality procedures may not be adequate to deter misappropriation or
independent third-party development of its technology or to prevent an
unauthorized third party from obtaining or using information that it regards as
proprietary. For example, attempts may be made to copy aspects of Newgen's
technology or to obtain and use information that Newgen regards as proprietary.
Accordingly, Newgen may not be able to protect its proprietary rights against
unauthorized third party copying or use. Any infringement of Newgen's
proprietary rights could materially adversely affect Newgen's future operating
results. Furthermore, policing the unauthorized use of Newgen's products is
difficult and litigation may be necessary in the future to enforce its
intellectual property rights, to protect its trade secrets or to determine the
validity and scope of the proprietary rights of others. Such litigation could
result in substantial costs and diversion of resources and could materially
adversely affect Newgen's future operating results.
THIRD PARTIES MAY ASSERT INFRINGEMENT CLAIMS AGAINST NEWGEN OR ITS
CUSTOMERS.
Third parties may assert infringement claims against Newgen or its
customers. Newgen believes that its technological processes do not infringe upon
the proprietary rights of others, but it cannot assure you that third parties
will not assert claims that it violates their rights. In addition, Newgen
believes that it has the right to use the data it collects for its database, but
it cannot assure you that third parties will not assert claims that it violates
their trade secrets or copyrights. Although there has not been any claim of this
type in the past, any claims or litigation, should they occur, could subject
Newgen to significant liability for damages or could result in invalidation of
its rights. In addition, even if Newgen prevails, litigation could be time
consuming and expensive to defend, and could result in diversion of Newgen's
time and attention. Any claims or litigation from third parties may also result
in limitations on Newgen's ability to use the trademarks and other intellectual
property subject to these claims or litigation. Newgen may be required to enter
into arrangements with the third parties responsible for the claims or
litigation, which may be unavailable on commercially reasonable terms, if at
all.
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SYSTEM FAILURE, INTERRUPTIONS OR SECURITY BREAKS IN THE TELECOMMUNICATIONS
INFRASTRUCTURE OF NEWGEN'S COMPUTER AND TELEPHONY SYSTEMS MAY HARM ITS BUSINESS.
Newgen's operations are dependent on its ability to protect its computer and
telephony systems and databases against damage or system interruptions from
fire, earthquake, power loss, telecommunications failure, technical failure,
unauthorized entry or other events beyond its control. Newgen receives data from
dealerships primarily via modem. In addition, a significant portion of Newgen's
business involves contacting dealerships' customers telephonically. Newgen's
mailings to dealership customers are dependent upon the data generated using
Newgen's computer systems. A significant amount of Newgen's computer and
telephony equipment is located at a single site in San Diego, California. In the
future, Newgen intends to increase it usage of the Internet as a platform for
delivery of its services. Any actual or perceived degradation in the performance
of the Internet as a whole could undermine the benefits of Newgen's services. In
addition, the Internet could lose its viability as a commercial medium due to
delays in the development or adoption of new technology required to accommodate
increased levels of Internet activity or due to increased government regulation.
Unanticipated problems with Newgen's computer, telephony or other communications
systems may result in a significant system outage or data loss, which could
result in interruptions in the company's operations. Despite implementing
security measures, Newgen's infrastructure may also be vulnerable to break-ins,
computer viruses or other disruptions caused by its customers or other third
parties. Newgen's business will be materially adversely affected if there is any
damage to its databases, failure of communication links, security breach or
other loss that causes interruptions in its operations.
NEWGEN MAY DEPEND ON THE INTERNET AS A DELIVERY PLATFORM FOR ITS PRODUCTS
AND SERVICES, WHICH WILL REQUIRE INTEGRATION OF NUMEROUS INTERNAL AND EXTERNAL
RESOURCES.
Newgen's growth strategy depends in part on providing database management
and direct marketing services for automobile dealerships and manufacturers over
the Internet. This includes delivering RESULTS Program reminder notices via
e-mail, providing certain information contained in its databases on an
outsourced basis to Newgen web sites, providing dealerships and their customers
with an online appointment reservations system, providing dealership customers
with the ability to provide online feedback to dealerships, providing
dealerships access to its database via the Internet, and allowing dealerships to
fulfill promotions online. Development and implementation of any of these and
other services using the Internet is subject to substantial risks and
uncertainties.
Newgen has limited experience providing database management and direct
marketing services over the Internet. Newgen may need to hire additional
personnel and expend significant resources to develop these services. The manner
in which Newgen intends to provide and charge for these services is new and
unproven and may result in lower revenues or gross margins. Newgen may need to
enter into agreements with third parties, such as Internet service providers, to
implement these services. Privacy concerns may cause consumers to resist
providing the personal data necessary to support these services in development.
For example, consumers may be unwilling to disclose their identity, vehicle
identification information or e-mail addresses. Moreover, Newgen's ability to
disseminate data generated from its databases may be limited by agreements with
its customers. System failures or delays may decrease Newgen's ability to
effectively deliver information contained in its databases to automobile
dealerships, manufacturers, dealership customers or web sites. Newgen's servers
and network infrastructure may not be able to handle the volume of data traffic
generated as a result of the deployment of these new services. Implementation of
an Internet-based reservations system will require Newgen to interface with
dealership service department appointment calendars, which will be complex and
may be prone to errors. Newgen's future services using the Internet may not be
successfully developed and implemented, widely accepted or result in future
revenues.
The widespread acceptance and adoption of the Internet by automobile
dealerships and manufacturers to conduct business and exchange information is
likely to occur only if greater
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efficiencies and improvements in service can be demonstrated to these
dealerships and manufacturers. The recent growth in Internet traffic has caused
frequent periods of decreased performance and reliability. Newgen's ability to
provide services over the Internet will be ultimately limited by and dependent
upon the speed and reliability of the Internet. Additionally, the tax treatment
of the Internet and e-commerce is currently unsettled. A number of proposals
have been made at the federal, state and local level and by certain foreign
governments that could impose taxes on the sale of goods and services and
certain other Internet activities. Furthermore, costs of communication over the
Internet may increase substantially if access fees are imposed on Internet
service providers and on-line service providers. If Newgen is unable to adapt
its business to meet changes in the database management and direct marketing
industry as a result of growth in the Internet, its business may be harmed.
NEWGEN COULD BE ADVERSELY AFFECTED BY GOVERNMENTAL REGULATIONS.
Newgen is subject to varying degrees of federal, state and local
telemarketing regulation. The jurisdiction of the Federal Trade Commission, or
FTC, and the Federal Communications Commission, or FCC, extends to the
telemarketing industry, including some of the services Newgen provides to its
customers. The FTC has issued regulations that prohibit certain types of
deceptive or abusive telemarketing acts or practices. Regulations issued by the
FCC place limits on the use of certain types of equipment used in telephone
solicitation, require telemarketing companies to provide certain identifying
information, and require the maintenance of a list of persons who do not wish to
be called. Newgen believes that it is not currently engaging in, and it does not
plan to engage in, any of the activities prohibited by the FTC and FCC
regulations. The FCC and FTC regulations have, therefore, not materially
restricted Newgen's operations. If the FCC and FTC or other regulatory bodies
adopt future regulations, Newgen's business may be harmed. In addition,
violations may occur in the future as a result of human error, equipment failure
or other causes. Newgen's failure to comply with applicable domestic and
international regulations could also harm its business. Furthermore, the media
often publicizes perceived non-compliance with consumer protection regulations
and violations of notions of fair dealing with consumers. Any such negative
publicity involving Newgen is potentially damaging to the company's reputation,
client relationships and consumer acceptance and loyalty.
NEWGEN MAY BE EXPOSED TO LIABILITY FROM ITS MANAGEMENT OF DEALERSHIP SERVICE
DEPARTMENTS.
Newgen's wholly-owned subsidiary, Newgen Management Services provides
personnel to manage the service departments of automobile dealerships. Newgen
could be liable for damages resulting from claims by third parties against such
service departments. Claims could include, but are not limited to, improper
repairs of automobiles, employment law issues or injuries related to the
workplace. Newgen may not be successful in its defense against any such claims,
and any adverse judgments resulting from any claims may harm Newgen's business.
NEWGEN MAY BE EXPOSED TO RISKS ASSOCIATED WITH INTERNATIONAL EXPANSION.
Currently, Newgen provides services to automobile dealerships in the United
States and Canada. Newgen may expand its database management, customized direct
marketing services and teleservices to automobile dealerships in foreign markets
other than Canada. Newgen has had limited experience providing services outside
the United States. Conducting business outside of the United States is subject
to certain risks, including:
- longer accounts receivable collection cycles;
- difficulties in managing operations across disparate geographic areas;
- difficulties associated with enforcing agreements and collecting
receivables through foreign legal systems;
- changes in a specific country's or region's political or economic
conditions;
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- trade protection measures;
- import or export licensing requirements;
- fluctuations in currency exchange rates;
- potential adverse tax consequences;
- unexpected changes in regulatory requirements; and
- reduced or limited protection of its intellectual property rights in some
countries.
In addition, Newgen may be unable to successfully market, sell and deliver its
services in foreign markets and it cannot be certain that one or more of such
factors will not harm its future international operations.
NEWGEN MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
THE FOLLOWING DISCUSSION AND ANALYSIS OF THE FINANCIAL CONDITION AND RESULTS
OF OPERATIONS OF NEWGEN SHOULD BE READ IN CONJUNCTION WITH THE CONSOLIDATED
FINANCIAL STATEMENTS AND THE RELATED NOTES THERETO INCLUDED ELSEWHERE IN THIS
PROXY STATEMENT/PROSPECTUS AND THE AUDITED CONSOLIDATED FINANCIAL STATEMENTS AND
NOTES THERETO FOR THE YEAR ENDED DECEMBER 31, 1999 INCLUDED IN NEWGEN'S ANNUAL
REPORT ON FORM 10-K.
CERTAIN STATEMENTS SET FORTH BELOW CONSTITUTE "FORWARD-LOOKING STATEMENTS".
SUCH FORWARD-LOOKING STATEMENTS INVOLVE KNOWN AND UNKNOWN RISK, UNCERTAINTIES
AND OTHER FACTORS INCLUDING, BUT NOT LIMITED TO, THOSE DISCUSSED IN THIS PROXY
STATEMENT/PROSPECTUS AND IN NEWGEN'S FORM 10-K FOR THE YEAR ENDED DECEMBER 31,
1999, THAT MAY CAUSE NEWGEN'S ACTUAL RESULTS, PERFORMANCE OR ACHIEVEMENTS, OR
INDUSTRY TO BE MATERIALLY DIFFERENT FROM ANY FUTURE RESULTS, PERFORMANCE, OR
ACHIEVEMENTS OR IMPLIED BY SUCH FORWARD-LOOKING STATEMENTS. GIVEN THESE
UNCERTAINTIES, INVESTORS AND PROSPECTIVE INVESTORS ARE CAUTIONED NOT TO PLACE
UNDUE RELIANCE ON SUCH FORWARD-LOOKING STATEMENTS. NEWGEN DISCLAIMS ANY
OBLIGATION TO UPDATE INFORMATION CONTAINED IN ANY FORWARD-LOOKING STATEMENT.
OVERVIEW
Newgen provides customized, outsourced database management, direct marketing
and related services, including consulting, for service departments of
automobile dealerships and automobile manufacturers. Newgen has expertise both
in database marketing and customer retention services, as well as an in-depth
knowledge of automobile service department operations. Database marketing
services revenues consist of revenues from the RESULTS program as well as
ancillary products and services.
Newgen generates revenue from database marketing services and consulting
services. Newgen's revenues from database marketing services are derived
primarily from its customer retention services, including the RESULTS Program.
Database marketing services comprised 97% of total revenues for the six months
ended June 30, 2000 and 90% of total revenues for the year ended December 31,
1999. Revenues for these periods from consulting services were derived from
consulting services provided to Ford Motor Company and its dealerships and
services provided to automobile dealerships service and parts departments by
Newgen Management Services, Inc. Consulting services comprised 3% of total
revenues for the six months ended June 30, 2000 and 10% of Newgen's total
revenues for the year ended December 31, 1999. Newgen has increased its customer
base from approximately 177 dealerships at December 31, 1995 to 5,039
dealerships at June 30, 2000. Newgen's revenues grew at a rate of 38% to
$55.2 million in 1999 from $40.1 million in 1998.
Database marketing services revenues consist of revenues from the RESULTS
program as well as ancillary products and services. Revenues for the RESULTS
program are based on the number of active names in a dealership's database,
typically a fixed number determined by the dealership. For
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customers acquired in connection with the acquisition of Computer Care in
November 1999, who are not on the RESULTS program, revenues are based on the
number of service reminder letters and follow-up phone calls performed on behalf
of the dealer. For services provided under the RESULTS program, the Company
invoices each of the dealers on a monthly basis in advance. For services
provided under the former Computer Care program, dealers are invoiced at the end
of the month. Consulting revenues from Newgen Management Services, Inc. are
based on installation fees, fixed monthly fees and profit sharing. All other
consulting revenues are based principally on a per diem rate for the services
provided. Newgen is also reimbursed for travel expenses and associated costs it
incurs in providing consulting services, which are included as revenues. Newgen
recognizes all of its revenues in the month during which it performs the related
database marketing or consulting services.
Newgen derives a significant portion of its revenues from Ford and Ford
dealerships. Although each Ford dealership utilizing Newgen's database marketing
services enters into a separate contract with Newgen, collection of receivables
from Ford dealerships is centralized through Ford's accounting department.
Newgen's current consulting engagement with Ford relating to the implementation
of the Around The Wheel program for certain Ford dealers has been substantially
completed. Ford has extended certain maintenance aspects of the project through
the end of August 2000. Newgen is currently negotiating an extension through
December 2000. Consulting revenue is expected to decrease as a result of the
completion of the Around The Wheel contract. Newgen is not currently seeking a
commitment from Ford for new consulting engagements beyond the completion of the
Around The Wheel project, except for services provided by Newgen Management
Services, Inc. A significant amount of Newgen's database marketing services is
attributable to Ford dealerships. Sales of RESULTS program to Ford dealerships
represented 39% of revenues for the six months ended June 30, 2000 and 53% of
revenues during the year ended December 31, 1999. Newgen also continues to
provide data mining services to Ford Motor Company. Services provided under this
agreement have begun to diminish as the project nears completion, which is
expected in fourth quarter of 2000. One hundred percent of consulting services
were provided to Ford during the six months ended June 30, 2000.
Cost of revenues consists of database marketing services costs, consulting
costs and installation costs. Costs of database marketing services include the
printing and mailing of letters, as well as the costs of the teleservice
contacts of dealership customers. The costs of database marketing services also
include all costs of managing and purifying the dealership databases, as well as
the costs associated with maintaining our customer service department. Costs of
consulting include the direct costs of consulting personnel, as well as the cost
of any independent consultants subcontracted by Newgen. Costs of consulting also
include costs of travel and associated costs incurred by Newgen's Consulting
Division. Installation costs include the direct costs (excluding sales
commissions) of implementing Newgen's program at dealerships and the costs of
the initial download, setup and purification of the dealership's customer
database. These costs are expensed as incurred and represent a one-time charge
for each new dealership added to Newgen's customer base. As a result, unless
Newgen installs a greater number of dealerships than in the past, these costs
are expected to decrease as a percentage of total revenues as database marketing
services revenues increase. Installation costs are presented as a separate line
item to illustrate investment in implementing new dealerships. For the purposes
of calculating the gross profit associated with database marketing services in
Management's Discussion and Analysis of Financial Condition and Results of
Operations, installation costs are added to cost of database marketing services.
Operating costs consist of fixed costs, such as selling, general and
administrative and technology and product development costs. Newgen anticipates
that operating costs will increase as it develops and introduces new services
and increases its customer base. Historically, Newgen has been able to leverage
operating costs over a growing revenue base, and to the extent that the business
continues to grow, it expects that operating costs as a percentage of total
revenues will continue to decline even though they are expected to increase in
absolute dollars. However, because Newgen is generally unable to
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significantly reduce costs in the short term to compensate for any unexpected
revenue shortfall, any such shortfall would have an immediate adverse effect on
the business, results of operations and financial condition. Likewise, any
short-term increase in expenses would likely have an immediate adverse effect on
the business, results of operations and financial condition of Newgen, unless it
was able to also increase revenues in the short term. Selling costs include
costs of internal sales department, as well as commissions earned and certain
expenses incurred by sales representatives. General and administrative costs
include accounting, payroll and human resources functions. General and
administrative costs also include other non-allocated costs, such as
professional fees and general corporate services. Technology and product
development costs include the cost of personnel who maintain the Company's
information systems and conduct research and product development activities.
As of December 31, 1999, Newgen had net operating loss carryforwards for
federal reporting purposes of approximately $2.5 million. These net operating
loss carryforwards expire in various years beginning in 2009, unless previously
utilized. The net deferred asset recorded on the balance sheet at June 30, 2000
was $747,000 and is expected to be fully utilized in the third quarter of this
year. Utilization of Newgen's net operating loss carryforwards may be limited as
a result of certain changes in Newgen's ownership.
On November 30, 1999, Newgen acquired Computer Care, a division of the
Dealer Services Group of Automatic Data Processing, Inc. (ADP). Under the terms
of the agreement, Newgen paid approximately $11.0 million in cash at closing,
and may pay up to an additional $9.0 million in cash dependent on certain
earn-out criteria, which would be payable in the first quarter of 2001 and
reflected as an increase in goodwill. Newgen acquired a business that services
over 2,000 dealerships. These include approximately 1,100 manufacturer accounts
and 1,100 individual dealerships to whom Newgen will be providing database
marketing services. The acquisition has been accounted for using the purchase
method of accounting. The operations of Computer Care are included in Newgen's
results of operations and financial position subsequent to the date of
acquisition. Acquisition goodwill of $12.0 million is being amortized on a
straight-line basis over nine years.
In February 2000, Newgen incorporated a wholly owned subsidiary called
Carabunga.com, Inc. Carabunga.com utilizes the Internet as a marketing tool for
dealerships. It is intended to be a dealership portal for one-to-one marketing
programs for the automotive industry. Live operations on the Internet site began
on June 26, 2000. The Internet site showcases the following three value-added
products for dealers and manufacturers:
- E-PROMOTIONS will identify service customers who are ready to purchase
another vehicle and create an on-line program of specialty letters and
telephone follow-up calls.
- E-COUPONS will provide an electronic format for the delivery of coupons
that offer discounted services.
- ROAD will provide an electronic format that will enable dealerships and
manufacturers to analyze their customer database to better understand
potential opportunities, perform data visualization and mapping
techniques, and consequently generate lists of customers who are ready to
buy another vehicle.
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COMPARISON OF SIX MONTHS ENDED JUNE 30, 2000 AND 1999
REVENUES. Revenues from database marketing services increased by
$16.2 million, or 72%, to $38.7 million in the six months ended June 30, 2000
from $22.5 million in the six months ended June 30, 1999. The increase in
database marketing services revenues was due primarily to a net increase of
approximately 1,260 RESULTS program customers including the new customers
associated with the acquisition of Computer Care in November 1999, and
reductions in certain customer discounts and credits. Revenues from consulting
services decreased by $2.0 million, or 64%, to $1.1 million in the six months
ended June 30, 2000 from $3.2 million in the six months ended June 30, 1999. The
decrease in consulting services revenues was due primarily to the fact that
Newgen has completed its implementation of the Around The Wheel consulting
project in almost all of Newgen's target dealerships.
GROSS PROFIT. Gross profit from database marketing services increased by
$7.7 million, or 83%, to $16.9 million in the six months ended June 30, 2000
from $9.2 million in the six months ended June 30, 1999. As a percentage of
database marketing services revenues, database marketing services gross profit
increased to 44% in the six months ended June 30, 2000 from 41% for the six
months ended June 30, 1999. The increase reflects the reorganization and
rationalization of Newgen's field customer satisfaction department, previously
recorded in cost of revenues. The former field customer satisfaction
representative's main purpose was to service existing accounts. Modifying
Newgen's sales methodology allowed the sales representatives the ability to
service accounts while selling new products to existing dealers, in addition to
selling new accounts. Some cost efficiency was also obtained through upgrading
Newgen's technical infrastructure. Gross profit from consulting services
decreased by $769,000, or 172%, to a gross loss of $322,000 in the six months
ended June 30, 2000 from a gross profit of $447,000 in the six months ended
June 30, 1999. This decrease was due primarily to the fact that the Around The
Wheel project was in its concluding stages, resulting in less than full
utilization of Newgen's consultants.
SELLING, GENERAL AND ADMINISTRATIVE. Selling, general and administrative
costs increased by $3.5 million, or 56%, to $9.9 million for the six months
ended June 30, 2000 from $6.3 million in the six months ended June 30, 1999. The
increase was due primarily to higher commissions associated with the selling of
longer-term contracts for new dealerships. To a lesser extent, the increase was
due to continued growth of the marketing department, the addition of
administrative personnel and the reorganization of the sales department. As a
percentage of total revenues, selling, general and administrative costs were 25%
for the six months ended June 30, 2000 and 1999.
TECHNOLOGY AND PRODUCT DEVELOPMENT. Technology and product development
costs increased by $550,000, or 33%, to $2.2 million in the six months ended
June 30, 2000 from $1.7 million in the six months ended June 30, 1999. The
increase was due primarily to Newgen's decision to invest heavily in new service
development and the difficulty of attracting qualified full-time employees. As a
result, Newgen was required to pay higher salaries and utilize higher cost
contractors. As a percentage of total revenues, technology and product
development costs were 6% for the six months ended June 30, 2000 and 1999. For
the six months ended June 30, 2000, Newgen capitalized $2,094,000 of the cost
associated with software developed for internal use in accordance with Statement
of Position 98.
AMORTIZATION OF GOODWILL AND ACQUISITION-RELATED COSTS. As a result of
Newgen's acquisition of Computer Care in November 1999, for the six months ended
June 30, 2000, Newgen recognized $1,069,000 of amortization of goodwill and
various acquisition-related costs.
OTHER INCOME (EXPENSE), NET. Net other income increased by $1.5 million to
$1.4 million in the six months ended June 30, 2000 from net other expense of
$30,000 for the six months ended June 30, 1999. This increase was due primarily
to a gain of $1.0 million related to the settlement of a vendor dispute, which
was recorded in Other Income during the second quarter 2000.
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COMPARISON OF YEARS ENDED DECEMBER 31, 1999 AND 1998
REVENUES. Total revenues increased by $15.1 million, or 38%, to
$55.2 million in 1999 from $40.1 million in 1998. Revenues from database
marketing services increased by $17.9 million, or 57%, to $49.5 million in 1999
from $31.5 million in 1998. The increase in database marketing services revenues
was primarily due to a net increase of almost 700 RESULTS Program customers. To
a lesser extent, the increase was due to its acquisition of Computer Care, as
well as improved operations, which allowed Newgen to eliminate certain customer
discounts and credits. Revenues from consulting services decreased by
$2.9 million, or 33%, to $5.7 million in 1999 from $8.6 million in 1998. The
decrease in consulting services revenues was primarily due to the fact that
Newgen has completed its implementation of the Around The Wheel consulting
project in almost all Newgen's target dealerships.
GROSS PROFIT. Gross profit increased by $10.4 million, or 96%, to
$21.2 million in 1999 from $10.8 million in 1998. As a percentage of total
revenues, gross profit increased to 38% in 1999 from 27% in 1998. Gross profit
from database marketing services increased by $11.4 million, or 128%, to
$20.4 million in 1999 from $8.9 million in 1998. This increase was primarily due
to leverage obtained by spreading new customer installation costs over a larger
revenue base and greater efficiency in operations, derived principally from the
deployment of a new Aspect telephone system. Gross profit from consulting
services decreased by $1.1 million, or 56% to $843,000 in 1999 from
$1.9 million in 1998. This decrease was primarily due to the completion of the
Around The Wheel consulting project and due to lower utilization of consulting
personnel.
SELLING, GENERAL AND ADMINISTRATIVE. Selling, general and administrative
expenses increased by $3.7 million, or 42%, to $12.6 million in 1999 from
$8.9 million in 1998. The dollar increase was due primarily to the continued
growth of the marketing department and the addition of sales personnel and
related infrastructure. As a percentage of revenues, selling, general and
administrative expenses increased to 22.8% in 1999 from 22.1% in 1998. This
increase was due primarily to increased infrastructure associated with being a
public company.
TECHNOLOGY AND PRODUCT DEVELOPMENT. Technology and product development
expenses decreased by $812,000, or 16%, to $4.3 million in 1999 from
$5.1 million in 1998. As a percentage of revenues, technology and product
development expenses decreased to 8% in 1999 from 13% in 1998. In connection
with Newgen's software rewrite, expenses were incurred of $168,000 and
$2.8 million for 1999 and 1998, respectively. If the software rewrite expenses
were excluded, technology and product development expenses would have increased
by $1.9 million, or 82% to $4.1 million in 1999 from $2.3 million in 1998. As a
percentage of revenues, technology and product development expenses would have
increased to 8% in 1999 from 6% in 1998. The dollar increase and the percentage
increase were primarily due to Newgen's decision to invest heavily in the
development of new services and the increased costs associated with the
difficulty of attracting qualified full time employees. As a result, Newgen was
required to pay higher salaries and utilize higher cost contractors. Due to
major deficiencies in the functionality of the software rewrite, Newgen elected
in the fourth quarter of 1999 not to deploy the software rewrite.
OTHER INCOME (EXPENSE). Net interest and investment income increased to
$726,000 in 1999 from an expense of $69,000 in 1998. This increase was primarily
due to increases in interest and investment income related to higher cash and
short-term investment balances resulting from the initial public offering in May
of 1999.
COMPARISON OF YEARS ENDED DECEMBER 31, 1998 AND 1997
REVENUES. Total revenues increased by $13.7 million, or 52%, to
$40.1 million in 1998 from $26.4 million in 1997. Revenues from database
marketing services increased by $10.5 million, or 50%, to $31.5 million in 1998
from $21.0 million in 1997. The increase in database marketing services
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revenues was primarily due to a net increase of over 600 RESULTS Program
customers. To a lesser extent, the increase was due to Newgen's improved
operations, which allowed it to eliminate certain customer discounts and
credits. Revenues from consulting services increased by $3.2 million, or 58%, to
$8.6 million in 1998 from $5.4 million in 1997. The increase in consulting
services revenues was primarily due to the continuation of the Around the Wheel
Program for Ford throughout 1998.
GROSS PROFIT. Gross profit increased by $4.8 million, or 80%, to
$10.8 million in 1998 from $6.0 million in 1997. As a percentage of total
revenues, gross profit increased to 27.0% in 1998 from 22.8% in 1997. Gross
profit from database marketing services increased by $4.1 million, or 86%, to
$8.9 million in 1998 from $4.8 million in 1997. This increase was primarily due
to leverage obtained by spreading new customer installation costs over a larger
revenue base and greater efficiency in operations. Gross profit from consulting
services increased by $691,000, or 57% to $1.9 million in 1998 from
$1.2 million in 1997. This increase was primarily due to Newgen's ability to
fully utilize its consulting personnel as a result of the Around the Wheel
Program throughout 1998.
SELLING, GENERAL AND ADMINISTRATIVE. Selling, general and administrative
expenses increased by $2.6 million, or 42%, to $8.9 million in 1998 from
$6.2 million in 1997. The dollar increase was due primarily to the establishment
of the marketing department and the addition of sales personnel and related
infrastructure. To a lesser extent, the increase resulted from the write-off in
December 1998 of $600,000 in deferred expenses relating to Newgen's previously
delayed initial public offering and increased deferred compensation charges
related to stock options granted in 1997 and 1998. As a percentage of revenues,
selling, general and administrative expenses decreased to 22.1% in 1998 from
23.6% in 1997. This decrease was due primarily to Newgen's ability to leverage
its existing infrastructure across a larger revenue base.
TECHNOLOGY AND PRODUCT DEVELOPMENT. Technology and product development
expenses increased by $3.5 million, or 228%, to $5.1 million in 1998 from
$1.5 million in 1997. As a percentage of revenues, technology and product
development expenses increased to 13% in 1998 from 5.9% in 1997. The dollar
increase and the percentage increase were primarily due to the development of
new services and the addition of technical personnel and related infrastructure
in preparation for the completion of the software rewrite. Software rewrite
expenses included in technology and development expense, for the years ended
December 31, 1998 and 1997 were $2.8 million and $617,000, respectively.
OTHER INCOME (EXPENSE). Net interest expense decreased to $69,000 in 1998
from $419,000 in 1997. This decrease was primarily due to decreases in the
amount of Newgen's indebtedness and increases in interest income related to
higher cash balances resulting from its Series B Preferred Stock financing.
LIQUIDITY AND CAPITAL RESOURCES
Since Newgen's inception, Newgen has financed its operations primarily
through the sale of equity securities and through borrowings under the credit
facility with Silicon Valley Bank. Through 1998, Newgen raised approximately
$14.5 million, net of fees and expenses, through the sale of preferred stock. In
May 1999, Newgen completed its initial public offering and raised net proceeds
of approximately $32.1 million. The acquisition of the Computer Care division of
ADP and associated expenses initially required approximately $11.6 million in
cash, which was funded with cash on hand. Subject to earn-out provisions, the
acquisition may require up to an additional $9.0 million in cash in
January 2001.
Cash provided by (used in) operating activities was $6.8 million and $(2.4)
million for the years ended December 31, 1999 and 1998, respectively. The
increase in cash provided by operating activities was primarily due to the net
income for the year ended December 31, 1999, compared to the net loss in the
same period in 1998. Cash provided by operating activities was $2.8 million and
$5.0 million for the six months ended June 30, 2000 and 1999, respectively. The
decrease in cash provided by operating
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activities was primarily due to the timing of the collection of accounts
receivable in the six months ended June 30, 2000 compared to the same period in
1999.
Cash used in investing activities was $32.2 million and $1.5 million for the
years ended December 31, 1999 and 1998, respectively. The increase in cash used
in investing activities was primarily due to the purchases of short-term
investments, capital expenditures and the acquisition of Computer Care in
November of 1999. Cash provided by (used in) investing activities was
$10.0 million and $9.9 million in the six months ended June 30, 2000 and 1999,
respectively. The increase in cash provided by investing activities was
primarily due to the maturity of short-term investments.
Cash provided by financing activities was $30.4 million and $58,000 for the
years ended December 31, 1999 and 1998, respectively. Cash provided by financing
activities was $316,000 and $30.9 million in the six months ended June 30, 2000
and 1999, respectively. The increase in cash provided by financing activities in
1999 versus 1998, and the decrease in cash provided by financing activities in
the six months ended June 30, 2000 and 1999, were due to Newgen's completion of
its initial public offering in May 1999, which resulted in net proceeds of
approximately $32.1 million.
Newgen has a working capital line of credit with Silicon Valley Bank that is
secured by substantially all of its assets. The total available amount of the
line of credit is $7.0 million, including a $3.3 million sub-limit for securing
letters of credit. Borrowings under this credit facility bear interest at
Silicon Valley Bank prime rate (9.5% at June 30, 2000), plus 0.5% with a
maturity date of May 9, 2001. As of June 30, 2000, there are no borrowings
outstanding under this line of credit. Newgen has a $2,790,000 letter of credit,
which expires on March 31, 2001, to secure the facility lease obligation for its
future facility. In addition, an amount of $113,000 has been reserved to cover
facility lease obligations for the existing facility, which is expected to
expire in April 2001, pending final lease termination negotiations. These
letters of credit reduce the amount available under the line of credit. The line
of credit contains certain covenants and restrictions, including a limitation on
indebtedness requiring Newgen, as of the last day of each quarter, to maintain a
ratio of quick assets to current liabilities of at least 2.0 to 1.0. Newgen also
has a $2.0 million equipment line of credit with Silicon Valley Bank that bears
an interest rate of Silicon Valley Bank prime rate plus 0.5% with a draw period
up to June 30, 2000. As of June 30, 2000, Newgen had outstanding borrowings of
$550,000 under the equipment line of credit.
Newgen has signed a $52-million, 15-year lease to build an approximately
103,000-square foot corporate headquarters, with a projected building completion
and occupancy date of April 2001.
As of June 30, 2000, Newgen has approximately $20.5 million of cash, cash
equivalents, and short-term investments. From time to time, Newgen may utilize
the credit facility with SVB to meet short-term needs. Newgen believes that its
existing capital resources together with cash generated from operations and
amounts available under the line of credit will be sufficient to meet
requirements for at least the next twelve months and its potential earn-out
obligation related to its Computer Care acquisition.
DISAGREEMENTS WITH NEWGEN'S ACCOUNTANTS
None.
NEWGEN'S QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
Newgen invests its excess cash in short-term, interest-bearing
investment-grade securities that are held for the duration of the term of the
respective instrument. Newgen does not utilize derivative financial instruments,
derivative commodity instruments or other market risk sensitive instruments,
positions or transactions in any material fashion. Accordingly, Newgen's
management believes that, while the investment-grade securities Newgen holds are
subject to changes in the financial standing of
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the issuer of such securities, it is not subject to any material risks arising
from changes in interest rates, foreign currency exchange rates, commodity
prices, equity prices or other market changes that affect market risk sensitive
instruments.
ADDITIONAL NEWGEN INFORMATION
EMPLOYMENT AGREEMENTS
On January 1, 2000, Gerald Benowitz, Leslie Silver and Samuel Simkin
received salary increases in connection with new employment agreements with
Newgen. In addition to the salary increases, during the first two quarters of
2000, Messrs. Benowitz, Silver and Simkin negotiated additional terms of the new
employment agreements, including severance arrangements. The new employment
agreements were signed in August 2000 and were effective as of January 1, 2000.
STOCK OPTION ACTIVITY
During the six months ended June 30, 2000, Newgen granted stock options to
purchase a total of 353,000 shares of its common stock. For the period from
July 1, 2000 to September 30, 2000, Newgen has granted additional stock options
to purchase approximately 71,000 shares of its common stock. In August 2000,
Newgen received additional notes from Gerald Benowitz in the aggregate amount of
approximately $2,728,000.
BONUS PAYMENTS
Messrs. Benowitz, Silver and Simkin will, concurrently with the consummation
of the merger, receive cash bonuses in an aggregate of approximately $1 million
relating to services performed up to the date of the merger.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT OF NEWGEN
The following table sets forth certain information regarding the ownership
of Newgen's common stock as of August 15, 2000 by:
- each of Newgen's directors;
- each of Newgen's chief executive officer and its other four most highly
compensated executive officers;
- all executive officers and directors of Newgen as a group; and
- all those known by Newgen to be beneficial owners of more than five
percent of Newgen's common stock.
Unless otherwise indicated in the footnotes to this table and subject to
community property laws where applicable, Newgen believes that each of the
stockholders named in this table has sole voting and investment power with
respect to the shares indicated as beneficially owned. Applicable percentages
are based on 10,535,464 shares outstanding on August 15, 2000, adjusted as
required by rules promulgated by the SEC. Except as shown otherwise in the
footnotes to the table, the address of
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each person listed is in care of Newgen Results Corporation, 12680 High Bluff
Drive, Suite 300, San Diego, CA 92130.
<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP (1)
---------------------------------------------------
SHARES ISSUABLE UPON
EXERCISE OF OPTIONS
OR WARRANTS
TOTAL EXERCISABLE WITHIN
NUMBER 60 DAYS OF PERCENT OF
BENEFICIAL OWNER OF SHARES (2) AUGUST 15, 2000 TOTAL
---------------- ------------- ---------------------- ----------
<S> <C> <C> <C>
John Moragne................................................ 1,595,346 2,000 15.1%
Trident Capital Management (3)
Jess R. Marzak.............................................. 1,152,246 62,455 10.9%
BankAmerica Ventures (4)
Bernard C. Simkin........................................... 807,630 2,000 7.7%
Gary Simkin................................................. 752,629 9,575 7.1%
Johari Investment Company Ltd. (5)
Eugene J. Fischer (6)....................................... 454,021 2,000 4.3%
Gerald L. Benowitz (7)...................................... 737,168 -- 7.0%
Samuel Simkin............................................... 300,529 6,533 2.9%
K&S Imports, Inc. (8)
Leslie J. Silver (9)........................................ 267,465 23,860 2.5%
James K. Roche.............................................. 39,747 4,215 *
Fred Wallace................................................ 21,985 21,155 *
Bob Dorf.................................................... 29,000 9,000 *
Bert Winemiller............................................. 8,000 8,000 *
Abraham L. Simkin........................................... 2,000 2,000 *
All executive officers and directors as a group (16 persons)
(10)...................................................... 6,200,232 180,766 57.9%
</TABLE>
------------------------------
* Less than one percent.
(1) This table is based upon information supplied by officers, directors and
principal stockholders and Schedules 13D and 13G filed with the SEC.
(2) Includes shares issuable pursuant to options and other rights to purchase
shares of Newgen's common stock exercisable within 60 days of August 15,
2000.
(3) Of the total shares indicated as beneficially owned: Information
Associates-II, L.P. owns 923,430 shares, which represents 8.8% of the total
shares; Information Associates, L.P. owns 598,908 shares, which represents
5.7% of the total shares; and IA-II Affiliates Fund, L.L.C. owns 53,869
shares and Information Associates, C.V. owns 16,714 shares, which in each
case represent less than one percent of the total shares of Newgen
outstanding as of the date set forth above. The general partner of
Information Associates-II, L.P. and the coordinating member of IA-II
Affiliates Fund, L.L.C. is Trident Capital Management-II, L.L.C., a Delaware
limited liability company. One of Newgen's directors, John Moragne, is a
member of Trident Capital Management-II, L.L.C. The general partner of
Information Associates, L.P. and the investment general partner of
Information Associates, C.V. is Trident Capital Management, L.L.C., a
Delaware limited liability company. Mr. Moragne is also a member of Trident
Capital Management, L.L.C. Trident Capital Management-II, L.L.C. and Trident
Capital Management, L.L.C. are collectively referred to as "Trident
Capital." Mr. Moragne disclaims beneficial ownership of the shares held by
these entities, except to the extent of his pecuniary interest in such
shares arising from his interest in Trident Capital. The address of
Mr. Moragne and each entity is 2480 Sand Hill Road, Menlo Park, CA 94025.
(4) Of the total shares indicated as beneficially owned, BankAmerica Ventures
owns 980,812 shares and warrants to purchase 54,409 shares, which (assuming
the exercise of such warrants) represents 9.8% of the total shares; and BA
Venture Partners II owns 108,979 shares and warrants to purchase 6,046
shares which (assuming the exercise of such warrants) represents 1.1% of the
total shares of Newgen as of the date set forth above. Jess R. Marzak, a
director of Newgen, is a managing director of BankAmerica Ventures and a
general partner of BA Venture Partners II. Mr. Marzak disclaims beneficial
ownership of all shares owned by BankAmerica Ventures and BA Venture
Partners II except to the extent of his proportionate general partnership
interest in BA Venture Partners II. The address Mr. Marzak and each entity
is 950 Tower Lane, Suite 700, Foster City, CA 94404.
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(5) Of the total shares indicated as beneficially owned, Johari Investment
Company Ltd. owns 743,054 shares and warrants to purchase 7,575 shares,
which (assuming exercise of such warrants) represents 7.1% of the total
shares. Gary Simkin, a director of Newgen, is the President of Johari
Investment Company Ltd. Mr. Simkin disclaims beneficial ownership of such
shares except to the extent of his pecuniary interest therein.
(6) Includes 451,221 shares owned by Capstone Ventures, which represents 4.0% of
the total shares. Eugene J. Fischer, a director of Newgen, is a managing
member of Capstone Management LLC, the general partner of Capstone Ventures.
Mr. Fischer disclaims beneficial ownership of such shares except to the
extent of his pecuniary interest therein. The address of Mr. Fischer and
Capstone Ventures is 3000 Sand Hill Road, Suite 1-290, Menlo Park, CA 94025.
(7) Includes 377,185 shares held by Gerald L. Benowitz and Sandra H. Benowitz as
trustees of the Gerald and Sandra Benowitz Trust dated January 29, 1999.
(8) Includes 267,218 shares held by K&S Imports. Mr. Samuel Simkin, one of
Newgen's executive officers, is President of K&S and disclaims beneficial
ownership of such shares except to the extent of his pecuniary interest
therein.
(9) Includes 207,623 shares held by Leslie J. Silver and Francis Silver as
trustees of the Silver Family Trust dated January 15, 1996, and an aggregate
of 8,300 shares held by Leslie J. Silver as custodian for Leigh Silver,
Mason Silver and Darcy Silver, Mr. Silver's minor children.
(10) Includes shares listed in notes 3 to 9 above, and 4,493 shares owned by and
27,573 shares purchasable by exercise of options held by executive officers
of Newgen not listed in the above table.
NG ACQUISITION CORP.
NG Acquisition Corp. is a newly formed, wholly owned subsidiary of TeleTech.
NG Acquisition Corp. has transacted no business to date other than in connection
with the merger agreement. NG Acquisition Corp. is a Delaware corporation that
was incorporated on August 16, 2000 solely for the purposes of completing the
merger with Newgen.
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COMPARISON OF TELETECH COMMON STOCK AND NEWGEN COMMON STOCK
The rights of Newgen stockholders are currently governed by the Delaware
General Corporation Law, the Newgen certificate of incorporation and the Newgen
bylaws. In accordance with the merger agreement, at the effective time of the
merger each issued and outstanding share of Newgen common stock will be
converted into the right to receive between .48 and .80 of a share of TeleTech
common stock based on a formula specified in the merger agreement. Accordingly,
upon completion of the merger, the rights of Newgen stockholders who become
stockholders of TeleTech will be governed by the Delaware General Corporation
Law, the TeleTech certificate of incorporation and TeleTech bylaws. The
following are summaries of the material differences between the rights of Newgen
stockholders and the rights of TeleTech stockholders. For additional
information, see "Where You Can Find More Information."
AUTHORIZED CAPITAL
NEWGEN. Newgen has the authority to issue an aggregate of 30,000,000 shares
of capital stock, consisting of 28,000,000 shares of common stock, par value
$.001 per share, and 2,000,000 shares of preferred stock issuable from time to
time by the Newgen board of directors in one or more classes or series. As of
August 21, 2000, there were (a) 10,535,464 shares of Newgen common stock
outstanding, (b) no shares of Newgen common stock were held in the treasury of
Newgen or any of its subsidiaries, (c) 1,306,609 shares of Newgen common stock
were reserved for issuance upon the exercise of outstanding options to purchase
shares of Newgen common stock, and (d) no shares of preferred stock outstanding.
TELETECH. TeleTech has the authority to issue an aggregate of 160,000,000
shares of capital stock, consisting of 150,000,000 shares of common stock, par
value $.01 per share, and 10,000,000 shares of preferred stock issuable from
time to time by TeleTech's board of directors in one or more classes or series.
As of August 15, 2000, there were 62,803,813 shares of TeleTech common stock and
no shares of preferred stock outstanding.
BOARD OF DIRECTORS
NEWGEN. Under the Newgen certificate of incorporation and bylaws, the
number of directors of Newgen will be fixed exclusively by resolutions adopted
by Newgen's board of directors. The current number of Newgen directors is nine,
but may be increased or decreased by Newgen's board of directors. The Newgen
board of directors is divided into three classes. The Newgen directors in each
class are elected for three-year terms by a plurality vote at each third annual
stockholders meeting, with one class of directors elected at each annual meeting
on a rotating schedule. If for any cause the directors are not elected at an
annual meeting, they may be elected as soon thereafter as convenient at a
special meeting called for that purpose, by plurality vote at such meeting. A
quorum at any meeting of the Newgen board of directors consists of a majority of
the total number of directors fixed from time to time by Newgen's board of
directors, and a majority of the directors present at any meeting at which a
quorum is present is required to approve Newgen board of directors action,
unless a different vote is required by the Delaware General Corporation Law, the
Newgen certificate of incorporation or bylaws.
TELETECH. Under the TeleTech bylaws, the number of TeleTech directors will
be between two and nine, as fixed from time to time by resolution adopted by a
majority of TeleTech's board of directors. The current number of TeleTech
directors is seven. The TeleTech bylaws provide that directors are elected for
one-year terms by a plurality of the voting rights represented by the shares
present in person or represented by proxy at the annual stockholders' meeting
and entitled to vote in the election. A quorum at any meeting of the TeleTech
board of directors consists of a majority of the number of directors then in
office, and a majority of the directors present at any meeting at which a quorum
is
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present is required to approve TeleTech board of directors action, unless a
different vote is required by the Delaware General Corporation Law, TeleTech's
certificate of incorporation or bylaws.
COMMITTEES OF THE BOARD OF DIRECTORS
NEWGEN. Under the Newgen bylaws, the Newgen board of directors may appoint
one or more committees, including an executive committee, from among its
members. The Newgen bylaws provide that an executive committee may be designated
by a resolution adopted by a majority of the Newgen board of directors, while
other committees may be appointed by the Newgen board of directors as permitted
by law. The Newgen bylaws provide that, to the extent provided in the
authorizing resolutions or Newgen bylaws, a committee shall have and may
exercise all the powers and authority of the Newgen board of directors in the
management of Newgen's business and affairs, including the authority and power
to declare a dividend, to authorize the issuance of stock or to adopt a
certificate of ownership and merger. However, a committee may not:
- amend the Newgen certificate of incorporation (except, if authorized in
the resolutions, fix the designations, preferences and rights of shares
issued by Newgen, or fix the number of shares of any series of stock or
authorize an increase or decrease in the number of shares of any series of
stock),
- adopt an agreement of merger or consolidation,
- recommend to the Newgen stockholders the sale, lease or exchange of all or
substantially all of Newgen's property and assets;
- recommend to the Newgen stockholders a dissolution of Newgen or a
revocation of a dissolution of Newgen, or
- amend the Newgen bylaws.
The Newgen board of directors currently has an audit committee and a
compensation committee. The audit committee makes recommendations to Newgen's
board of directors regarding the selection of independent auditors and reviews
the scope and results of the audit and other services provided by Newgen's
independent auditors, as well as reviews and evaluates Newgen's internal control
functions. The compensation committee makes recommendations regarding Newgen's
stock incentive plans and makes recommendations concerning salaries and
incentive compensation for Newgen's employees and consultants.
TELETECH. Under the TeleTech bylaws, the TeleTech board of directors may
designate one or more committees, from among its members, by resolution of a
majority of the TeleTech board of directors. The TeleTech bylaws provide that,
to the extent provided in the authorizing resolutions or TeleTech bylaws, a
committee shall have and may exercise all the powers and authority of the
TeleTech board of directors in the management of TeleTech's business and
affairs, including the authority and power to declare a dividend, to authorize
the issuance of stock or to adopt a certificate of ownership and merger.
However, a committee may not:
- amend TeleTech's certificate of incorporation (except, if authorized in
the resolutions, fix the designations, preferences and rights of series of
stock);
- adopt an agreement of merger or consolidation;
- recommend to TeleTech's stockholders the sale, lease or exchange of all or
substantially all of TeleTech's property and assets;
- recommend to TeleTech's stockholders a dissolution of TeleTech or a
revocation of a dissolution of TeleTech; or
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- amend TeleTech's bylaws.
The TeleTech board of directors currently has an audit committee, a
compensation committee and a nominating committee. The audit committee reports
to TeleTech's board of directors regarding the appointment of TeleTech's
independent public accountants, the scope and fees of the prospective annual
audit and the results thereof, compliance with TeleTech's accounting and
financial policies and management's procedures and policies relative to the
adequacy of TeleTech's internal accounting controls. The compensation committee
reviews performance goals and determines or approves the annual salary and bonus
for each TeleTech executive officer (consistent with the terms of any applicable
employment agreement), reviews, approves and recommends terms and conditions for
all employee benefit plans (and changes thereto), and administers TeleTech's
stock option and employee benefit plans. The nominating committee nominates and
reviews the performance and compensation of TeleTech board members.
NEWLY CREATED DIRECTORSHIPS AND VACANCIES
NEWGEN. Under the Newgen certificate of incorporation and bylaws, newly
created directorships resulting from an increase in the number of directors and
any vacancies in the board of directors will be filled by the affirmative vote
of a majority of the Newgen board of directors then in office, even though less
than a quorum, unless the Newgen board of directors determines by resolution
that any such vacancies or newly created directorships will be filled by Newgen
stockholders. If at the time of filling any vacancy or any newly created
directorship, the Newgen directors then in office constitute less than a
majority of the whole Newgen board of directors (as constituted immediately
prior to any such increase), the Delaware Court of Chancery may, upon
application of stockholders holding at least ten percent (10%) of the
outstanding shares having the right to vote for such directors, summarily order
an election be held to fill any such vacancies or newly created directorships,
or to replace the directors chosen by the directors then in office.
Directors elected to fill a newly created directorships or other vacancies
will hold office for the remainder of the full term of the corresponding class
of directors and until such director's successor has been elected and qualified.
No decrease in the number of directors will shorten the term of an incumbent
director.
TELETECH. Under the TeleTech bylaws, vacancies and newly created
directorships resulting from an increase in the authorized number of TeleTech
directors may be filled by a majority of the TeleTech directors then in office,
even if less than a quorum, or by a sole remaining director. Each director
elected to fill a newly created directorship or other vacancies will hold office
until such director's successor has been elected and qualified.
REMOVAL OF DIRECTORS
NEWGEN. Under the Newgen certificate of incorporation, a director may be
removed from office, with cause, at a meeting called for that purpose, by the
vote of the holders of at least a majority of the voting power of all
then-outstanding shares of Newgen common stock entitled to vote in the election
of directors, or without cause by the vote of the holders of at least sixty-six
and two-thirds percent (66 2/3%) of the voting power of all then-outstanding
shares of Newgen common stock entitled to vote in the election of directors.
TELETECH. Under the TeleTech bylaws, any director or the whole TeleTech
board of directors may be removed, with or without cause, by the holders of a
majority of outstanding shares then entitled to vote at an election of
directors.
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OFFICERS
NEWGEN. Under the Newgen bylaws, the officers of Newgen are elected by the
Newgen board of directors at its annual organization meeting and consist of the
Chairman of the Board, the Chief Executive Officer, the President, one or more
Vice Presidents, the Secretary, the Chief Financial Officer, the Treasurer and
the Controller. The Newgen board of directors may also elect other officers,
including one or more Assistant Secretaries, Assistant Treasurers, Assistant
Controllers and such other officers and agents with such powers and duties as
Newgen's board of directors may deem necessary or appropriate. No officer other
than the Chairman of the Board need be a director. Any officer may be removed
from office at any time, with or without cause, by vote of a majority of the
Newgen directors at any meeting of the board, by the unanimous written consent
of the Newgen directors or by any committee or superior officers upon whom such
power of removal may have been conferred by Newgen's board of directors.
TELETECH. Under the TeleTech bylaws, the officers of TeleTech are elected
by the TeleTech board of directors at the first meeting of the TeleTech board of
directors held after the annual stockholders meeting and consist of the Chairman
of the Board, the President, the Chief Operating Officer, the Secretary and the
Treasurer. The TeleTech board of directors may also elect additional officers,
including one or more Vice Presidents, Assistant Secretaries and Assistant
Treasurers as TeleTech's board of directors may deem necessary with such duties
to be determined by the TeleTech's board of directors. The TeleTech board of
directors may remove any officer whenever in its judgment the best interest of
TeleTech will be served thereby, but such removal shall be without prejudice to
the contract rights, if any, of the person so removed.
SPECIAL MEETINGS OF STOCKHOLDERS
NEWGEN. Under the Newgen bylaws, a special meeting of the stockholders of
Newgen may be called for any purpose by a majority of the board of directors,
the Chairman, the Chief Executive Officer or the holders of shares entitled to
cast not less than ten percent (10%) of the votes at the meeting.
TELETECH. Under the TeleTech bylaws, a special meeting of the stockholders
of TeleTech may be called for any purpose by the Chairman of the Board, the
President, any Vice President or the Secretary upon the request of the TeleTech
board of directors.
QUORUM AT STOCKHOLDER MEETINGS
NEWGEN. Under the Newgen bylaws, the holders of a majority of the
outstanding shares of stock entitled to vote at the meeting, present in person
or represented by proxy, constitute a quorum at each stockholder meeting. In the
absence of a quorum, the chairman of the meeting or holders of a majority of the
shares present in person or represented by proxy at a meeting may adjourn the
meeting. When a meeting is adjourned to another time or place, notice need not
be given of the adjourned meeting if the time and place thereof are announced at
the meeting at which the adjournment is taken.
TELETECH. Under the TeleTech bylaws, unless otherwise provided by the
TeleTech certificate of incorporation, the holders of a majority of the voting
power of the stock issued and outstanding and entitled to vote at the meeting,
and who are present in person or represented by proxy, will constitute a quorum
at all meetings of the stockholders. The holders of a majority of the voting
power represented by the shares represented at a meeting, whether or not a
quorum is present, may adjourn such meeting from time to time, without notice
other than announcement at the meeting at which adjournment is taken of the time
and place of the adjourned meeting.
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STOCKHOLDER ACTION BY WRITTEN CONSENT
NEWGEN. Under the Newgen bylaws, no action required or permitted to be
taken at any annual or special meeting of stockholders may be taken without a
meeting.
TELETECH. Under the TeleTech bylaws, any action required or permitted to be
taken at any annual or special meeting of stockholders may be taken without a
meeting, without prior notice and without a vote, if written consents setting
forth the action so taken are signed by the holders of outstanding stock having
not less than the minimum number of votes that would be necessary to take such
action at a meeting at which all shares entitled to vote were present and voted.
Prompt notice of the taking of any action without a meeting by less than
unanimous written consent shall be given to those stockholders who have not
consented in writing.
ADVANCE NOTICE OF STOCKHOLDER-PROPOSED BUSINESS AT ANNUAL MEETINGS
NEWGEN. The Newgen certificate of incorporation and bylaws provide that a
stockholder must give notice to Newgen before bringing business before an annual
meeting. Generally, the stockholder must give such notice not less than sixty
days or more than ninety days prior to the anniversary of the previous year's
annual meeting.
TELETECH. Neither the certificate of incorporation nor the bylaws of
TeleTech includes a provision addressing stockholder-proposed business.
AMENDMENT OF GOVERNING DOCUMENTS
NEWGEN. Newgen may amend, alter, change or repeal any provision of its
certificate of incorporation as permitted by the Delaware General Corporation
Law and the Newgen certificate of incorporation, except as noted below. Under
the Delaware General Corporation Law, an amendment to a corporation's
certificate of incorporation requires the recommendation of a corporation's
board of directors, the approval of a majority of all shares entitled to vote
thereon, voting together as a single class, and the approval of a majority of
the outstanding stock of each class entitled to vote separately thereon unless a
higher vote is required in the corporation's certificate of incorporation. Under
the Newgen certificate of incorporation, the affirmative vote of at least
two-thirds of the voting rights of any particular class or series of the voting
stock required by law and the affirmative vote of a holder of at least sixty-six
and two-thirds percent (66 2/3%) of the voting power of all of the
then-outstanding shares entitled to vote at an election of directors is required
to amend, alter or repeal Article V (election of directors), Article VI
(limitation of liability), and Article VII (amendment of certificate of
incorporation) of the Newgen certificate of incorporation.
The Newgen bylaws may be amended or repealed by the stockholders or by the
board of directors. under the Newgen certificate of incorporation, the Newgen
board of directors has the power to adopt, alter, amend and repeal the Newgen
bylaws. However, amendment or repeal of the bylaws by the stockholders requires
the affirmative vote of the holders of at least 66 2/3% of the voting power of
the then-outstanding shares entitled to vote.
TELETECH. Neither the TeleTech certificate of incorporation nor the
TeleTech bylaws address amendment of the TeleTech certificate of incorporation.
However, under the Delaware General Corporation Law, an amendment to a
corporation's certificate of incorporation requires the recommendation of a
corporation's board of directors, the approval of a majority of all shares
entitled to vote thereon, voting together as a single class, and the approval of
a majority of the holders of outstanding stock of each class entitled to vote
separately thereon unless a higher vote is required in the corporation's
certificate of incorporation.
112
<PAGE>
The TeleTech bylaws may be altered, amended or repealed and new bylaws
adopted by the TeleTech stockholders by vote at a meeting or by written consent
without a meeting and, subject to the previously described power of the TeleTech
stockholders, by the TeleTech board of directors.
INDEMNIFICATION OF DIRECTORS AND OFFICERS
NEWGEN. Newgen's certificate of incorporation provides that no director
will be personally liable to Newgen or Newgen's stockholders for monetary
damages for any breach of fiduciary duty as a director, except that a director
will be liable if he or she (1) breached the director's duty of loyalty to
Newgen or Newgen's stockholders, (2) intentionally acted, or omitted to act, in
bad faith, (3) paid dividends or purchased stock unlawfully, or (4) derived an
improper personal benefit from any transaction. Modification or repeal of this
provision will not increase the personal liability of any Newgen director for
any act taking place prior to such modification or repeal.
Newgen's bylaws provide that Newgen may enter into indemnification
agreements with its directors and executive officers and may purchase and
maintain insurance on behalf of any director, officer, employee or agent of
Newgen against any liability arising from actions in their corporate capacity.
Newgen is not required to indemnify any director in connection with any
proceeding initiated by such director unless (1) such indemnification is
expressly required to be made by law, (2) Newgen's board of directors authorized
the proceeding, (3) Newgen's board of directors decides to provide such
indemnification under the powers vested in Newgen under the Delaware General
Corporation Law or (4) an indemnification agreement between Newgen and such
director covers such proceeding. If the indemnifiable director or executive
officer agrees to repay any amounts advanced if it is ultimately determined that
he or she was not entitled to be indemnified, Newgen will advance any director
or executive officer all expenses, including attorney's fees, incurred by him or
her in defense of any threatened, pending or completed action, suit or
proceeding against him or her due to his or her status as a director or
executive officer of Newgen. Newgen will not advance an executive officer any
funds if a majority of the disinterested members of the Newgen board of
directors or Newgen's independent legal counsel by written opinion determine
that such person acted in bad faith.
Newgen's bylaws also provide that Newgen may indemnify its other officers,
employees or agents to the extent permitted by any applicable law.
TELETECH. TeleTech's certificate of incorporation and bylaws provide that
TeleTech will indemnify, to the fullest extent permitted by Delaware General
Corporation Law, all directors, officers, employees and agents of TeleTech in
defending any civil, criminal, administrative or investigative action, suit or
proceeding. Delaware General Corporation Law grants each corporation the power
to indemnify any or all of its directors, officers, employees or agents who were
or are a party or are threatened to be made parties to an action of any kind by
reason of the fact of such persons' connection with the corporation but only
when such persons' conduct is determined to be worthy of indemnification. To the
extent that a director or officer of a corporation has been successful in
defense of any action, suit or proceeding, he or she will be indemnified against
all costs, charges and expenses, including attorneys' fees, actually and
reasonably incurred by him or her or on his or her behalf. Modification or
repeal of this provision will not increase the personal liability of any
director, officer, employee or agent of TeleTech for any act taking place prior
to such modification or repeal.
BUSINESS COMBINATION WITH AN INTERESTED STOCKHOLDER
Newgen and TeleTech are subject to the provisions of Section 203 of the
Delaware General Corporation Law. Section 203 of the Delaware General
Corporation Law limits specified business combinations of Delaware corporations
with interested stockholders. Under the Delaware General Corporation Law, if a
person acquires beneficial ownership of 15% or more of the stock of a Delaware
corporation, which makes that person an interested stockholder, that person
generally may not engage
113
<PAGE>
in specified business combinations with the corporation for a period of three
years following the time that the stockholder became an interested stockholder
unless
- prior to the time that the person became an interested stockholder, the
corporation's board of directors approved either the acquisition of stock
which resulted in the stockholder becoming an interested stockholder or
the business combination,
- upon consummation of the transaction in which the person became an
interested stockholder, the interested stockholder owned at least 85% of
the voting stock of the corporation outstanding at the time the
transaction commenced, excluding voting stock owned by directors who are
also officers and specified employee stock ownership plans, or
- at or subsequent to the time that the person became an interested
stockholder, the business combination is approved by the board of
directors and authorized at an annual or special meeting by the
affirmative vote of 66 2/3% of the outstanding voting stock which is not
owned by the interested stockholder.
114
<PAGE>
LEGAL MATTERS
The validity of the TeleTech common stock and certain tax matters will be
passed upon for TeleTech by Hogan & Hartson L.L.P., Denver, Colorado, as special
corporate, securities and tax counsel for TeleTech.
Certain legal and tax matters will be passed upon for Newgen by Cooley
Godward LLP, as corporate, securities and tax counsel to Newgen.
EXPERTS
The audited financial statements included (or incorporated by reference) in
this prospectus and elsewhere in the registration statement have been audited by
Arthur Andersen LLP, independent public accountants, as indicated in their
reports with respect thereto, and are included herein in reliance upon the
authority of said firm as experts in giving said reports.
OTHER MATTERS
As of the date of this proxy statement/prospectus, the Newgen board of
directors does not know of any matters that will be presented for consideration
at the Newgen special meeting other than those described in this proxy
statement/prospectus. If any other matters properly come before the special
meeting or any adjournments or postponements of the special meeting, and are
voted upon, the enclosed proxies will confer discretionary authority on the
individuals named as proxies to vote the shares represented by those proxies as
to any other matters. Those individuals named in the proxies intend to vote or
not vote in accordance with the recommendation of Newgen's management.
Newgen will hold an annual meeting in the year 2001 only if the merger has
not already been completed. If an annual meeting is held, the deadline for
receipt of a proposal to be considered for inclusion in Newgen's proxy statement
for the 2001 annual meeting is January 15, 2001. The deadline for notice of a
proposal for which a stockholder will conduct his or her own solicitation is
April 9, 2001. Any such notice of a proposal should be directed to the attention
of the Secretary, Newgen Results Corporation, 12680 High Bluff Drive, Suite 300,
San Diego, California 92130.
WHERE YOU CAN FIND MORE INFORMATION
TeleTech has filed with the SEC a registration statement on Form S-4
(333- ) of which this proxy statement/prospectus forms a part. The
registration statement registers the distribution to Newgen stockholders of the
shares of TeleTech common stock to be issued in connection with the merger. The
registration statement, including the attached annexes, exhibits and schedules,
contains additional relevant information about shares of TeleTech common stock.
The rules and regulations of the SEC allow us to omit certain information
included in the registration statement from this proxy statement/prospectus. In
addition, TeleTech and Newgen file reports, proxy statements and other
information with the SEC under the Securities Exchange Act of 1934. You may read
and copy any of this information at the following locations of the SEC:
<TABLE>
<S> <C> <C>
Public Reference Room 450 New York Regional Office 7 Chicago Regional Office
Fifth Street, N.W. Room 1024 World Trade Center Suite 1300 Citicorp Center 500 West
Washington, D.C. 20549 New York, NY 10048 Madison Street Suite 1400
Chicago, IL 60661 2511
</TABLE>
You may obtain information on the operation of the SEC's Public Reference
Room by calling the SEC at 1-800-SEC-0330.
115
<PAGE>
The SEC also maintains an Internet web site that contains reports, proxy
statements and other information regarding issuers, including TeleTech and
Newgen, who file electronically with the SEC. The address of that site is
http://www.sec.gov.
The SEC allows TeleTech to "incorporate by reference" information in this
document, which means that TeleTech can disclose important information to you by
referring you to another document filed separately with the SEC. The information
incorporated by reference is considered to be a part of this proxy
statement/prospectus, except for any information that is superseded by
information included directly in this document.
The documents listed below that TeleTech has previously filed with the SEC
are considered to be a part of this proxy statement/prospectus. They contain
important information about TeleTech and its financial condition.
<TABLE>
<CAPTION>
TELETECH SEC FILINGS:
<S> <C>
1999 Annual Report on Form 10-K...... Filed on March 29, 2000
Quarterly Report on Form 10-Q........ Filed on May 15, 2000
Quarterly Report on Form 10-Q........ Filed on August 14, 2000
Current Report on Form 8-K........... Filed on August 25, 2000
Current Report on Form 8-K........... Filed on September 6, 2000
Registration Statement on Form 8-A... Filed on July 19, 1996, setting forth
the description of TeleTech's common
stock
</TABLE>
TeleTech incorporates by reference additional documents that it may file
with the SEC between the date of this proxy statement/prospectus and the date of
the Newgen special meeting. These include periodic reports, such as Annual
Reports on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on
Form 8-K, as well as proxy materials.
Documents incorporated by reference are available from TeleTech, without
charge, excluding all exhibits unless specifically incorporated by reference as
an exhibit to this document. Stockholders of Newgen may obtain documents of
TeleTech incorporated by reference in this document by requesting them in
writing or by telephone from TeleTech at the following address and phone number:
TeleTech Holdings, Inc.
1700 Lincoln Street, Suite 1400
Denver, Colorado 80203
(303) 894-4000
IF YOU WOULD LIKE TO REQUEST DOCUMENTS, PLEASE DO SO AT LEAST FIVE BUSINESS
DAYS BEFORE THE DATE OF THE NEWGEN SPECIAL MEETING IN ORDER TO RECEIVE TIMELY
DELIVERY OF SUCH DOCUMENTS BEFORE THE SPECIAL MEETING. If you request any
incorporated documents, TeleTech will mail them to you by first class mail, or
another equally prompt means, within one business day after TeleTech receives
your request.
TeleTech has supplied all information contained or incorporated by reference
in this proxy statement/prospectus relating to TeleTech, as well as all pro
forma financial information, and Newgen has supplied all such information
relating to Newgen. This document constitutes the prospectus of TeleTech and a
proxy statement of Newgen.
116
<PAGE>
WHAT INFORMATION YOU SHOULD RELY ON
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION THAT DIFFERS FROM, OR ADDS TO, THE INFORMATION DISCUSSED IN THIS
PROXY STATEMENT/PROSPECTUS OR IN THE ANNEXES ATTACHED HERETO WHICH ARE
SPECIFICALLY INCORPORATED BY REFERENCE. THEREFORE, IF ANYONE GIVES YOU DIFFERENT
OR ADDITIONAL INFORMATION, YOU SHOULD NOT RELY ON IT.
THIS DOCUMENT IS DATED , 2000. THE INFORMATION CONTAINED IN THIS
PROXY STATEMENT/ PROSPECTUS SPEAKS ONLY AS OF ITS DATE UNLESS THE INFORMATION
SPECIFICALLY INDICATES THAT ANOTHER DATE APPLIES. THIS PROXY
STATEMENT/PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO EXCHANGE OR SELL, OR A
SOLICITATION OF AN OFFER TO EXCHANGE OR PURCHASE, SHARES OF TELETECH COMMON
STOCK OR TO ASK FOR PROXIES, TO OR FROM ANY PERSON TO WHOM IT IS UNLAWFUL TO
DIRECT THESE ACTIVITIES.
117
<PAGE>
INDEX TO FINANCIAL STATEMENTS
NEWGEN RESULTS CORPORATION AND SUBSIDIARIES
<TABLE>
<CAPTION>
PAGE
--------
<S> <C>
Consolidated Financial Statements
Report of Independent Public Accountants.................. F-2
Consolidated Balance Sheets as of December 31, 1999 and
1998.................................................... F-3
Consolidated Statements of Operations for the Years Ended
December 31, 1999, 1998 and 1997........................ F-4
Consolidated Statements of Stockholders' Equity (Deficit)
for the Years Ended December 31, 1999, 1998 and 1997.... F-5
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1999, 1998 and 1997........................ F-6
Notes to Consolidated Financial Statements................ F-7
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Newgen Results Corporation:
We have audited the accompanying consolidated balance sheets of NEWGEN
RESULTS CORPORATION (a Delaware corporation) and subsidiaries as of December 31,
1999 and 1998, and the related consolidated statements of operations,
stockholders' equity (deficit) and cash flows for each of the three years in the
period ended December 31, 1999. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Newgen Results Corporation
and subsidiaries as of December 31, 1999 and 1998, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1999, in conformity with accounting principles generally accepted
in the United States.
ARTHUR ANDERSEN LLP
San Diego, California
February 23, 2000
F-2
<PAGE>
NEWGEN RESULTS CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS--DECEMBER 31, 1999 AND 1998
<TABLE>
<CAPTION>
1999 1998
----------- -----------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents................................. $ 5,849,906 $ 816,753
Short-term investments, available-for-sale................ 17,417,971 --
Accounts receivable, net of allowance for doubtful
accounts of $347,000 and $299,000, respectively......... 9,471,175 8,211,773
Prepaid expenses and other................................ 972,301 376,636
----------- -----------
Total current assets.................................... 33,711,353 9,405,162
PROPERTY AND EQUIPMENT, net................................. 5,719,542 2,931,836
GOODWILL, net............................................... 11,444,279 --
OTHER ASSETS................................................ 219,337 435,337
----------- -----------
Total assets............................................ $51,094,511 $12,772,335
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) CURRENT
LIABILITIES:
Accounts payable.......................................... $ 4,395,736 $ 2,787,802
Accrued and other current liabilities..................... 2,059,773 2,324,041
Notes payable to related parties.......................... -- 800,000
Current portion of capital lease obligations.............. 976,429 935,256
----------- -----------
Total current liabilities............................... 7,431,938 6,847,099
----------- -----------
LONG-TERM LIABILITIES:
Long-term portion of capital lease obligations............ 1,225,032 874,147
Deferred rent............................................. 90,930 134,481
----------- -----------
1,315,962 1,008,628
----------- -----------
COMMITMENTS AND CONTINGENCIES
REDEEMABLE PREFERRED STOCK, no par value, 2,000,000 and
3,500,000 shares authorized at December 31, 1999 and 1998,
respectively:
Series A convertible, 0 and 1,250,137 shares issued and
outstanding at December 31, 1999 and 1998, respectively
(aggregate liquidation preference of $9,386,229 at
December 31, 1998), stated at........................... -- 5,925,054
Series B convertible, 0 and 2,158,604 shares issued and
outstanding at December 31, 1999 and 1998, respectively
(aggregate liquidation preference of $15,876,412 at
December 31, 1998), stated at........................... -- 10,124,726
STOCKHOLDERS' EQUITY (DEFICIT):
Common stock, $.001 par value, 28,000,000 and 15,000,000
shares authorized, 10,032,866 and 3,767,415 shares
issued and outstanding at December 31, 1999 and 1998,
respectively............................................ 10,033 3,767
Additional paid-in capital................................ 52,282,503 5,384,455
Deferred compensation..................................... (1,104,228) (1,393,968)
Notes receivable from stockholders........................ (56,250) --
Accumulated other comprehensive income.................... 3,885 --
Retained deficit.......................................... (8,789,332) (15,127,426)
----------- -----------
Total stockholders' equity (deficit).................... 42,346,611 (11,133,172)
----------- -----------
Total liabilities and stockholders' equity (deficit).... $51,094,511 $12,772,335
=========== ===========
</TABLE>
The accompanying notes should be read in conjunction with these consolidated
balance sheets.
F-3
<PAGE>
NEWGEN RESULTS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
<TABLE>
<CAPTION>
1999 1998 1997
----------- ------------ ------------
<S> <C> <C> <C>
REVENUES:
Database marketing services........................ $49,456,670 $ 31,512,768 $ 20,974,032
Consulting services................................ 5,730,941 8,593,061 5,439,660
----------- ------------ ------------
Total revenues................................... 55,187,611 40,105,829 26,413,692
----------- ------------ ------------
COST OF REVENUES:
Cost of database marketing services................ 27,619,963 21,156,695 14,231,960
Cost of consulting services........................ 4,887,907 6,694,764 4,232,822
Installation costs................................. 1,458,724 1,410,997 1,931,649
----------- ------------ ------------
Total cost of revenues........................... 33,966,594 29,262,456 20,396,431
----------- ------------ ------------
Gross profit..................................... 21,221,017 10,843,373 6,017,261
----------- ------------ ------------
OPERATING COSTS:
Selling, general and administrative expenses....... 12,585,304 8,876,608 6,234,096
Technology and product development................. 4,289,034 5,100,975 1,553,845
Amortization of goodwill........................... 106,956 -- --
----------- ------------ ------------
Total operating costs............................ 16,981,294 13,977,583 7,787,941
----------- ------------ ------------
Income (loss) from operations.................... 4,239,723 (3,134,210) (1,770,680)
----------- ------------ ------------
OTHER INCOME (EXPENSE):
Interest and investment income..................... 1,066,419 143,381 44,660
Interest expense................................... (340,192) (212,300) (463,322)
----------- ------------ ------------
Other income (expense), net...................... 726,227 (68,919) (418,662)
----------- ------------ ------------
Income (loss) before tax......................... 4,965,950 (3,203,129) (2,189,342)
INCOME TAXES......................................... 131,000 -- --
----------- ------------ ------------
Net income (loss)................................ 4,834,950 (3,203,129) (2,189,342)
ADJUSTMENT FOR ACCRETION OF REDEEMABLE CONVERTIBLE
PREFERRED STOCK.................................... (486,807) (1,370,909) (132,236)
----------- ------------ ------------
Net income (loss) applicable to common
stockholders................................... $ 4,348,143 $ (4,574,038) $ (2,321,578)
=========== ============ ============
Basic income (loss) per share........................ $ .57 $ (1.21) $ (0.62)
=========== ============ ============
Diluted income (loss) per share...................... $ .50 $ (1.21) $ (0.62)
=========== ============ ============
Shares used in basic per share calculation........... 7,638,170 3,767,415 3,766,915
=========== ============ ============
Shares used in diluted per share calculation......... 9,739,549 3,767,415 3,766,915
=========== ============ ============
</TABLE>
The accompanying notes should be read in conjunction with these consolidated
financial statements.
F-4
<PAGE>
NEWGEN RESULTS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
<TABLE>
<CAPTION>
NOTES ACCUMULATED
COMMON STOCK ADDITIONAL RECEIVABLE OTHER
------------------------- PAID-IN DEFERRED FROM COMPREHENSIVE
SHARES AMOUNT CAPITAL COMPENSATION STOCKHOLDERS INCOME
---------- ------------ ----------- ------------ ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1996..... 3,766,915 $ 3,738,184 $ -- $ -- $ -- $ --
Accretion of redeemable
preferred stock............ -- -- -- -- -- --
Deferred compensation related
to options granted......... -- 900,900 -- (900,900) -- --
Net loss..................... -- -- -- -- -- --
---------- ------------ ----------- ------------ --------- ------
Balance, December 31, 1997..... 3,766,915 4,639,084 -- (900,900) -- --
Accretion of redeemable
preferred stock............ -- -- -- -- -- --
Deferred compensation related
to options granted......... -- 748,825 -- (748,825) -- --
Amortization of deferred
compensation............... -- -- -- 255,757 -- --
Exercise of stock options.... 500 313 -- -- -- --
Reincorporation.............. -- (5,384,455) 5,384,455 -- -- --
Net loss..................... -- -- -- -- -- --
---------- ------------ ----------- ------------ --------- ------
Balance, December 31, 1998..... 3,767,415 3,767 5,384,455 (1,393,968) -- --
Public offering, net......... 2,724,370 2,724 32,098,458 -- -- --
Accretion of redeemable
preferred stock............ -- -- -- -- -- --
Conversion of preferred
stock...................... 3,408,741 3,409 14,543,226 -- -- --
Deferred compensation related
to options granted......... -- -- 112,311 (112,311) -- --
Amortization of deferred
compensation............... -- -- -- 402,051 -- --
Exercise of stock options.... 103,240 103 138,401 -- (56,250) --
Exercise of warrants......... 29,100 30 5,652 -- -- --
Unrealized gains from short-
term investments........... -- -- -- -- -- $3,211
Cumulative foreign currency
translation................ -- -- -- -- -- 674
Net income................... -- -- -- -- -- --
---------- ------------ ----------- ------------ --------- ------
Balance, December 31, 1999..... 10,032,866 $ 10,033 $52,282,503 $(1,104,228) $ (56,250) $3,885
========== ============ =========== ============ ========= ======
<CAPTION>
RETAINED COMPREHENSIVE
DEFICIT TOTAL INCOME
------------- ------------ -------------
<S> <C> <C> <C>
Balance, December 31, 1996..... $ (8,231,810) $ (4,493,626)
Accretion of redeemable
preferred stock............ (132,236) (132,236)
Deferred compensation related
to options granted......... -- --
Net loss..................... (2,189,342) (2,189,342)
------------- ------------ ------------
Balance, December 31, 1997..... (10,553,388) (6,815,204)
Accretion of redeemable
preferred stock............ (1,370,909) (1,370,909)
Deferred compensation related
to options granted......... -- --
Amortization of deferred
compensation............... -- 255,757
Exercise of stock options.... -- 313
Reincorporation.............. -- --
Net loss..................... (3,203,129) (3,203,129)
------------- ------------ ------------
Balance, December 31, 1998..... (15,127,426) (11,133,172)
Public offering, net......... -- 32,101,182
Accretion of redeemable
preferred stock............ (486,807) (486,807)
Conversion of preferred
stock...................... 1,989,951 16,536,586
Deferred compensation related
to options granted......... -- --
Amortization of deferred
compensation............... -- 402,051
Exercise of stock options.... -- 82,254
Exercise of warrants......... -- 5,682
Unrealized gains from short-
term investments........... -- 3,211 $ 3,211
Cumulative foreign currency
translation................ -- 674 674
Net income................... 4,834,950 4,834,950 4,834,950
------------- ------------ ------------
Balance, December 31, 1999..... $ (8,789,332) $ 42,346,611 $ 4,838,835
============= ============ ============
</TABLE>
The accompanying notes should be read in conjunction with these consolidated
financial statements.
F-5
<PAGE>
NEWGEN RESULTS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
<TABLE>
<CAPTION>
1999 1998 1997
------------- ------------ ------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)......................................... $ 4,834,950 $ (3,203,129) $ (2,189,342)
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Depreciation and amortization........................... 2,159,988 1,292,943 837,492
Deferred rent........................................... (43,551) 25,605 25,604
Amortization of deferred compensation................... 402,051 255,757 --
Changes in assets and liabilities:
Accounts receivable................................... (1,259,402) (3,301,942) (2,086,897)
Prepaid expenses and other............................ (595,665) 357,720 (460,833)
Accounts payable...................................... 1,607,934 1,059,642 335,690
Accrued and other current liabilities................. (264,268) 1,136,779 864,607
------------- ------------ ------------
Net cash provided by (used in) operating activities... 6,842,037 (2,376,625) (2,673,679)
------------- ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of short-term investments....................... (59,304,198) -- --
Proceeds from sales of short-term investments............. 41,889,438 -- --
Purchases of property and equipment....................... (3,422,022) (1,128,928) (500,467)
Aquisition of business.................................... (11,551,235) -- --
Other assets.............................................. 216,674 (365,454) (709)
------------- ------------ ------------
Net cash used in investing activities................. (32,171,343) (1,494,382) (501,176)
------------- ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from stock offerings............................. 32,101,182 -- 9,125,096
Proceeds from stock options and warrant exercises......... 87,936 313 --
Repayments of related party loans......................... (800,000) -- (400,000)
Proceeds from related party loans......................... -- 200,000 --
Payments on capital lease obligations..................... (1,226,329) (735,134) (313,857)
Increase in restricted cash............................... -- -- 566,105
(Repayments) proceeds of/from lines of credit, net........ 199,670 592,434 (1,300,000)
------------- ------------ ------------
Net cash provided by financing activities............. 30,362,459 57,613 7,677,344
------------- ------------ ------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS........ 5,033,153 (3,813,394) 4,502,489
CASH AND CASH EQUIVALENTS, beginning of period.............. 816,753 4,630,147 127,658
------------- ------------ ------------
CASH AND CASH EQUIVALENTS, end of period.................... $ 5,849,906 $ 816,753 $ 4,630,147
============= ============ ============
Supplemental disclosure of cash flow information:
Cash paid for interest.................................... $ 350,192 $ 212,300 $ 452,886
============= ============ ============
Supplemental disclosure of non-cash investing and financing
activities:
Capital lease obligations entered into for equipment...... $ 1,618,387 $ 1,730,420 $ 661,931
============= ============ ============
Accretion of redeemable preferred stock................... $ 486,807 $ 1,370,909 $ 132,236
============= ============ ============
Conversion of preferred stock............................. $ 16,536,586 $ -- $ --
============= ============ ============
</TABLE>
The accompanying notes should be read in conjunction with these consolidated
financial statements.
F-6
<PAGE>
NEWGEN RESULTS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
<TABLE>
<CAPTION>
NOTES ACCUMULATED
COMMON STOCK ADDITIONAL RECEIVABLE OTHER
------------------------- PAID-IN DEFERRED FROM COMPREHENSIVE
SHARES AMOUNT CAPITAL COMPENSATION STOCKHOLDERS INCOME
---------- ------------ ----------- ------------ ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1996..... 3,766,915 $ 3,738,184 $ -- $ -- $ -- $ --
Accretion of redeemable
preferred stock............ -- -- -- -- -- --
Deferred compensation related
to options granted......... -- 900,900 -- (900,900) -- --
Net loss..................... -- -- -- -- -- --
---------- ------------ ----------- ------------ --------- ------
Balance, December 31, 1997..... 3,766,915 4,639,084 -- (900,900) -- --
Accretion of redeemable
preferred stock............ -- -- -- -- -- --
Deferred compensation related
to options granted......... -- 748,825 -- (748,825) -- --
Amortization of deferred
compensation............... -- -- -- 255,757 -- --
Exercise of stock options.... 500 313 -- -- -- --
Reincorporation.............. -- (5,384,455) 5,384,455 -- -- --
Net loss..................... -- -- -- -- -- --
---------- ------------ ----------- ------------ --------- ------
Balance, December 31, 1998..... 3,767,415 3,767 5,384,455 (1,393,968) -- --
Public offering, net......... 2,724,370 2,724 32,098,458 -- -- --
Accretion of redeemable
preferred stock............ -- -- -- -- -- --
Conversion of preferred
stock...................... 3,408,741 3,409 14,543,226 -- -- --
Deferred compensation related
to options granted......... -- -- 112,311 (112,311) -- --
Amortization of deferred
compensation............... -- -- -- 402,051 -- --
Exercise of stock options.... 103,240 103 138,401 -- (56,250) --
Exercise of warrants......... 29,100 30 5,652 -- -- --
Unrealized gains from short-
term investments........... -- -- -- -- -- $3,211
Cumulative foreign currency
translation................ -- -- -- -- -- 674
Net income................... -- -- -- -- -- --
---------- ------------ ----------- ------------ --------- ------
Balance, December 31, 1999..... 10,032,866 $ 10,033 $52,282,503 $(1,104,228) $ (56,250) $3,885
========== ============ =========== ============ ========= ======
<CAPTION>
RETAINED COMPREHENSIVE
DEFICIT TOTAL INCOME
------------- ------------ -------------
<S> <C> <C> <C>
Balance, December 31, 1996..... $ (8,231,810) $ (4,493,626)
Accretion of redeemable
preferred stock............ (132,236) (132,236)
Deferred compensation related
to options granted......... -- --
Net loss..................... (2,189,342) (2,189,342)
------------- ------------ ------------
Balance, December 31, 1997..... (10,553,388) (6,815,204)
Accretion of redeemable
preferred stock............ (1,370,909) (1,370,909)
Deferred compensation related
to options granted......... -- --
Amortization of deferred
compensation............... -- 255,757
Exercise of stock options.... -- 313
Reincorporation.............. -- --
Net loss..................... (3,203,129) (3,203,129)
------------- ------------ ------------
Balance, December 31, 1998..... (15,127,426) (11,133,172)
Public offering, net......... -- 32,101,182
Accretion of redeemable
preferred stock............ (486,807) (486,807)
Conversion of preferred
stock...................... 1,989,951 16,536,586
Deferred compensation related
to options granted......... -- --
Amortization of deferred
compensation............... -- 402,051
Exercise of stock options.... -- 82,254
Exercise of warrants......... -- 5,682
Unrealized gains from short-
term investments........... -- 3,211 $ 3,211
Cumulative foreign currency
translation................ -- 674 674
Net income................... 4,834,950 4,834,950 4,834,950
------------- ------------ ------------
Balance, December 31, 1999..... $ (8,789,332) $ 42,346,611 $ 4,838,835
============= ============ ============
</TABLE>
The accompanying notes should be read in conjunction with these consolidated
financial statements.
F-5
<PAGE>
NEWGEN RESULTS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
<TABLE>
<CAPTION>
1999 1998 1997
------------- ------------ ------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)......................................... $ 4,834,950 $ (3,203,129) $ (2,189,342)
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Depreciation and amortization........................... 2,159,988 1,292,943 837,492
Deferred rent........................................... (43,551) 25,605 25,604
Amortization of deferred compensation................... 402,051 255,757 --
Changes in assets and liabilities:
Accounts receivable................................... (1,259,402) (3,301,942) (2,086,897)
Prepaid expenses and other............................ (595,665) 357,720 (460,833)
Accounts payable...................................... 1,607,934 1,059,642 335,690
Accrued and other current liabilities................. (264,268) 1,136,779 864,607
------------- ------------ ------------
Net cash provided by (used in) operating activities... 6,842,037 (2,376,625) (2,673,679)
------------- ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of short-term investments....................... (59,304,198) -- --
Proceeds from sales of short-term investments............. 41,889,438 -- --
Purchases of property and equipment....................... (3,422,022) (1,128,928) (500,467)
Aquisition of business.................................... (11,551,235) -- --
Other assets.............................................. 216,674 (365,454) (709)
------------- ------------ ------------
Net cash used in investing activities................. (32,171,343) (1,494,382) (501,176)
------------- ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from stock offerings............................. 32,101,182 -- 9,125,096
Proceeds from stock options and warrant exercises......... 87,936 313 --
Repayments of related party loans......................... (800,000) -- (400,000)
Proceeds from related party loans......................... -- 200,000 --
Payments on capital lease obligations..................... (1,226,329) (735,134) (313,857)
Increase in restricted cash............................... -- -- 566,105
(Repayments) proceeds of/from lines of credit, net........ 199,670 592,434 (1,300,000)
------------- ------------ ------------
Net cash provided by financing activities............. 30,362,459 57,613 7,677,344
------------- ------------ ------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS........ 5,033,153 (3,813,394) 4,502,489
CASH AND CASH EQUIVALENTS, beginning of period.............. 816,753 4,630,147 127,658
------------- ------------ ------------
CASH AND CASH EQUIVALENTS, end of period.................... $ 5,849,906 $ 816,753 $ 4,630,147
============= ============ ============
Supplemental disclosure of cash flow information:
Cash paid for interest.................................... $ 350,192 $ 212,300 $ 452,886
============= ============ ============
Supplemental disclosure of non-cash investing and financing
activities:
Capital lease obligations entered into for equipment...... $ 1,618,387 $ 1,730,420 $ 661,931
============= ============ ============
Accretion of redeemable preferred stock................... $ 486,807 $ 1,370,909 $ 132,236
============= ============ ============
Conversion of preferred stock............................. $ 16,536,586 $ -- $ --
============= ============ ============
</TABLE>
The accompanying notes should be read in conjunction with these consolidated
financial statements.
F-6
<PAGE>
NEWGEN RESULTS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999, 1998 AND 1997
1. NATURE OF BUSINESS AND BASIS OF PRESENTATION
Newgen Results Corporation ("Newgen") was incorporated in California on
February 16, 1994 and is a provider of customized, outsourced database
management, direct marketing and related services for automobile dealerships'
service departments and automobile manufacturers throughout the United States
and Canada. Newgen also provides consulting services to both automobile
manufacturers and individual dealerships. In December 1998, the Company
reincorporated in Delaware and established the par value of its preferred and
common stock at $0.001.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
In 1998, Newgen formed Newgen Dealer Pricing Center, Inc. ("NDPC"). NDPC is
a wholly-owned subsidiary of Newgen. In 1999, Newgen formed three wholly-owned
subsidiaries, Newgen Results Canada, Ltd. ("NRC"), Newgen Management
Services, Inc. ("NMS"), and NGR Acquisition Corp. ("NGR"). The consolidated
financial statements include the accounts of Newgen, NDPC, NRC, NMS, and NGR and
are collectively referred to as the "Company". All significant intercompany
accounts and transactions have been eliminated in consolidation.
In February 2000, Newgen incorporated a wholly-owned subsidiary called
Carabunga.com, Inc.
USE OF ESTIMATES
The preparation of the financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities, and
disclosure of contingent assets and liabilities at the date of the financial
statements, and the reported amounts of revenue and expenses during the
reporting period. Actual results could differ from those estimates.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts of cash and cash equivalents, accounts receivable,
other current assets, accounts payable, and accrued and other current
liabilities approximate fair value because of the short-term nature of those
instruments. Based on borrowing rates currently available to the Company for
credit arrangements with similar terms, the carrying amounts of balances under
capital lease obligations approximate fair value.
REVENUE RECOGNITION
With the exception of its Computer Care customers (see Note 3), the Company
has standard agreements with its database marketing services customers. Although
the terms of each individual agreement may vary, most agreements call for the
Company to provide customized letters and telephone contacts for its dealership
customers, in exchange for the payment of a monthly fee per active name in the
automobile dealership's customer list. Most agreements have an initial minimum 6
to 24 month term, with 30-day notice of cancellation without penalty thereafter.
With respect to the Company's Computer Care customers, the Company has standard
agreements which generally call for the Company to provide customized letters
and telephone contacts in exchange for a transaction fee based on the services
provided. Most of these agreements may be terminated with 30 to 60 days notice.
F-7
<PAGE>
NEWGEN RESULTS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999, 1998 AND 1997
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
The Company recognizes revenue from both its database marketing services and
consulting services in the month that services are provided. In certain
instances, the Company's customers may pay an amount in advance for services to
provided over a period of time. In other cases, customers may pay the Company a
fixed amount per month with the Company providing more services in certain
months than in others. Advance payments are reflected as deferred revenue.
CONCENTRATION OF RISKS
Certain of the database marketing services provided by the Company have been
recommended by its major customer, Ford Motor Company ("Ford"). However, the
Company contracts separately with each individual dealership and uses the
corporate recommendation to generate business. For all periods presented,
substantially all of the Company's consulting business is with Ford. During the
years ended December 31, 1999, 1998 and 1997, approximately 69%, 77%, and 75% of
the Company's revenues were with Ford and its dealerships, respectively.
As of December 31, 1999 and 1998, 75% and 91% of the Company's accounts
receivable are due from Ford and its dealerships, respectively.
The Company depends on a small number of suppliers for the delivery of
services. Specifically, the Company has one source for their printing and direct
mailing needs. Although the Company has not experienced any problems in this
regard, any such problems or a change in suppliers, however, could cause a delay
in service delivery and a possible loss of revenues, which would affect
operating results adversely.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments with an original
maturity of three months or less to be cash equivalents. Cash equivalents at
December 31, 1999 and 1998 consisted primarily of money market accounts and
commercial paper.
SHORT-TERM INVESTMENTS
Investments are accounted for in accordance with Statement of Financial
Accounting Standards No. 115, "Accounting for Certain Investments in Debt and
Equity Securities" ("SFAS 115"), which requires that the Company determine the
appropriate classification of investments at the time of purchase and reevaluate
such designation as of each balance sheet date. The Company invests its excess
cash and has established guidelines relative to diversification and maturities
in an effort to maintain safety and liquidity. These guidelines are periodically
reviewed and modified to take advantage of trends in yields and interest rates.
At December 31, 1999, the Company considered all investments as available for
use in its current operations, and therefore classified them short-term,
available-for-sale investments. Available-for-sale investments are stated at
fair value, with unrealized gains and losses, if any, net of tax, reported as a
separate component of stockholders' equity. The cost of securities sold is
F-8
<PAGE>
NEWGEN RESULTS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999, 1998 AND 1997
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
based on the specific identification method. At December 31, 1999, cash, cash
equivalents and short-term investments available-for-sale consisted of the
following:
<TABLE>
<CAPTION>
ESTIMATED UNREALIZED
COST GAINS FAIR VALUES
----------- ---------- -----------
<S> <C> <C> <C>
Cash..................................................... $ 3,451,661 $ -- $ 3,451,661
Cash equivalents......................................... 2,397,299 946 2,398,245
----------- ------ -----------
Total cash and cash equivalents...................... 5,848,960 946 5,849,906
----------- ------ -----------
Short-term investments:
Corporate securities................................... 14,922,643 2,228 14,924,871
Government securities.................................. 2,493,063 37 2,493,100
----------- ------ -----------
Total short-term investments......................... 17,415,706 2,265 17,417,971
----------- ------ -----------
Total cash, cash equivalents and short-term
investments........................................ $23,264,666 $3,211 $23,267,877
=========== ====== ===========
</TABLE>
Investments in corporate and government securities as of December 31, 1999
in the amount of $17,417,971 are scheduled to mature within one year. Proceeds
from the sale of investments aggregated approximately $41,889,000 for the year
ended December 31, 1999. The realized net gain on these sales totaled
approximately $468,000.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. The Company provides for
depreciation and amortization using the straight-line method by charges to
operations in amounts estimated to allocate the costs of the property or
equipment over the estimated useful lives. The estimated useful lives for
computer equipment, furniture and other is three years, and for leasehold
improvements is the shorter of the estimated useful life of the leaseholds or
the life of the lease. Periodically, the Company reviews for possible impairment
of its long-lived assets. Whenever events or changes in circumstances indicate
that the carrying amount of an asset may not be fully recoverable, asset values
are adjusted accordingly.
Property and equipment consist of the following at December 31,:
<TABLE>
<CAPTION>
1999 1998
------------ -----------
<S> <C> <C>
Computer equipment, furniture and other............ $ 9,874,709 $ 5,408,905
Leasehold improvements............................. 682,620 324,322
------------ -----------
10,557,329 5,733,227
Accumulated depreciation and amortization.......... (4,837,787) (2,801,391)
------------ -----------
Property and equipment, net........................ $ 5,719,542 $ 2,931,836
============ ===========
</TABLE>
Maintenance and repairs are charged to operations as incurred. When assets
are sold, or otherwise disposed of, the cost and related accumulated
depreciation are removed from the accounts and any gain or loss is included in
operations.
F-9
<PAGE>
NEWGEN RESULTS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999, 1998 AND 1997
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
GOODWILL
Goodwill represents the excess of amounts paid and liabilities assumed over
the fair value of identifiable tangible and intangible assets acquired. This
amount is amortized using the straight-line method over a period of nine years.
The Company evaluates the carrying value of goodwill for potential impairment on
an ongoing basis.
STOCK-BASED COMPENSATION
The Company has adopted the disclosure only provisions of Statement of
Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" ("SFAS 123"). Accordingly, the Company accounts for its
stock-based compensation plans under the provisions of Accounting Principles
Board No. 25 under which compensation cost is measured by the excess, if any, of
the fair market value of the Company's common stock at the date of grant over
the exercise price of the option.
INCOME TAXES
The Company accounts for income taxes utilizing the liability method in
accordance with Statement of Financial Accounting Standards No. 109, "Accounting
for Income Taxes" ("SFAS 109"). Under this method, deferred income taxes are
recorded to reflect the tax consequences on future years of temporary
differences between the tax bases of assets and liabilities and their financial
reporting amounts at each year end. If it is more likely than not that some
portion or all of the net deferred tax asset will not be realized, a valuation
allowance is recognized.
DEFERRED RENT
Rent expense is recognized on a straight-line basis over the terms of the
leases. Accordingly, rent expense incurred in excess of rent paid is reflected
as deferred rent.
COMPREHENSIVE INCOME
The Company has implemented SFAS 130, "Reporting Comprehensive Income". This
statement requires that all items that are required to be recognized under
accounting standards as components of comprehensive income be reported in a
financial statement that is displayed with the same prominence as other
financial statements. Accordingly, in addition to reporting net income, the
Company has displayed the components of comprehensive income and has displayed
an amount representing total comprehensive income for 1999. The Company has
presented the required information in the Consolidated Statements of
Stockholders' Equity (Deficit). There were no components of comprehensive income
in 1998 or 1997.
F-10
<PAGE>
NEWGEN RESULTS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999, 1998 AND 1997
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
SOFTWARE DEVELOPMENT AND REWRITE COSTS
Beginning in 1997, the Company commissioned a substantial rewrite of its
enterprise-wide database management software. Through December 31, 1998, the
Company expensed the costs of these rewrites as incurred, approximately
$2,842,000 and $617,000 in 1998 and 1997, respectively. In 1999, in accordance
with the adoption of the American Institute of Certified Public Accountants'
("AICPA") Statement of Position 98-1, "Accounting for the Cost of Computer
Software Developed or Obtained for Internal Use", the Company capitalized
certain of its 1999 rewrite development costs. Due to major deficiencies in the
functionality of the software rewrite, the Company elected in the fourth quarter
of 1999 not to deploy the software rewrite and wrote off approximately $168,000,
the net remaining capitalized costs.
COMPUTATION OF NET INCOME (LOSS) PER SHARE
The Company has adopted the provisions of Statement of Financial Accounting
Standards No. 128 "Earnings Per Share" ("SFAS 128"). SFAS 128 requires companies
to compute basic and diluted per share data for all periods for which a
statement of operations is presented. Basic net income (loss) per share is
computed by dividing income (loss) available to common stockholders by the
weighted average number of common shares that were outstanding during the
period. Diluted income (loss) per share is computed giving effect to all
dilutive potential common shares that were outstanding for the periods
presented.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------
1999 1998 1997
---------- ------------ ------------
<S> <C> <C> <C>
Net income (loss)..................................... $4,834,950 $ (3,203,129) $ (2,189,342)
Accretion of redeemable convertible preferred stock... (486,807) (1,370,909) (132,236)
---------- ------------ ------------
Income (loss) applicable to common stockholders....... $4,348,143 $ (4,574,038) $ (2,321,578)
========== ============ ============
Shares used in basic per share calculation............ 7,638,170 3,767,415 3,766,915
Effect of dilutive securities:
Warrants............................................ 92,210 -- --
Employee stock options.............................. 701,707 -- --
Conversion of preferred stock....................... 1,307,462 -- --
---------- ------------ ------------
Shares used in diluted per share calculation.......... 9,739,549 3,767,415 3,766,915
========== ============ ============
Basic net income (loss) per share..................... $ 0.57 $ (1.21) $ (0.62)
Diluted net income (loss) per share................... $ 0.50 $ (1.21) $ (0.62)
</TABLE>
RECENT ACCOUNTING PRONOUNCEMENTS
In December 1999, the Securities and Exchange Commission (the "SEC") issued
Staff Accounting Bulletin (SAB) No. 101, "Revenue Recognition in Financial
Statements". This SAB summarizes the SEC's view in applying generally accepted
accounting principles to revenue recognition in financial statements. This SAB
was amended by SAB 101A, which defers the effective date for all registrants
with fiscal years that begin between December 16, 1999 and March 15, 2000, to
allow for the option of implementing during the second quarter of fiscal 2000.
Management is currently determining the
F-11
<PAGE>
NEWGEN RESULTS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999, 1998 AND 1997
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
impact of SAB No. 101 on the company's financial statements, and does not
believe that its adoption will have a material impact on the Company's financial
statements.
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities", which
establishes accounting and reporting standards for derivative instruments and
hedging activities. SFAS 133 requires that an entity recognize all derivatives
as either assets or liabilities in the statement of financial position and
measure those instruments at fair value. This Statement was amended by SFAS No.
137 which defers the effective date to all fiscal quarters of fiscal years
beginning after June 15, 2000. The adoption of SFAS 133 is not expected to have
a material effect on the Company's financial position or results of operations.
RECLASSIFICATIONS
Certain prior year amounts have been reclassified to conform to the current
presentation.
3. ACQUISITION OF BUSINESS
On November 30, 1999, Newgen, together with its subsidiary NGR, acquired the
partnership interest, including certain net assets and liabilities of Computer
Care, a New York general partnership and wholly owned operation of Automatic
Data Processing, Inc. ("ADP"). Under the terms of the partnership purchase
agreement. Newgen acquired the 100 percent interest in Computer Care for a
purchase price of approximately $11,000,000 in cash, excluding transaction
costs, and up to an additional $9,000,000 earn-out which may be paid based upon
certain earn-out criteria. As of December 31, 1999, no additional earn-outs have
been paid to ADP. The acquisition has been accounted for using the purchase
method of accounting. The operations of Computer Care are included in Newgen's
results of operations and financial position subsequent to the date of the
acquisition. Acquisition goodwill of $11,551,000 is being amortized on a
straight-line basis over nine years.
Unaudited pro forma results of operations for the years ended December 31,
1999 and 1998 below assumes the purchase of Computer Care had been consummated
as of January 1, 1998. The pro forma results of operations include adjustments
to give effect to amortization of goodwill and certain other adjustments and are
not necessarily indicative of the results of operations that would have occurred
had the purchase been made at the beginning of the periods presented or the
future results of the combined operations.
<TABLE>
<CAPTION>
1999 1998
----------- ------------
(UNAUDITED)
<S> <C> <C>
Revenues.......................................... $70,700,000 $ 64,700,000
Net income (loss)................................. $ (300,000) $ (6,700,000)
Net income (loss) available to common
shareholders.................................... $ (800,000) $ (8,000,000)
Net income (loss) per share:
Basic........................................... $ (0.10) $ (2.12)
Diluted......................................... $ (0.10) $ (2.12)
</TABLE>
F-12
<PAGE>
NEWGEN RESULTS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999, 1998 AND 1997
4. LINES OF CREDIT
The Company has a revolving line of credit with a bank that is secured by
substantially all assets. The total available amount of the revolving line is
$5,000,000, including a $3,300,000 sub-limit for securing letters of credit.
Borrowings under the line of credit bear interest at the prime rate plus 1.00%
with a maturity date of May 9, 2000. The Company also has a $2,000,000 equipment
line of credit that bears an interest rate of the prime rate plus .50% with the
draw period up to March 31, 2000. The credit facilities contain certain
covenants and restrictions, including a limitation on indebtedness requiring the
Company, as of the last day of each quarter, to maintain a ratio of quick assets
to current liabilities of at least 2.50 to 1.0. At December 31, 1999 and 1998,
no borrowings were outstanding. In February 2000, the bank issued a letter of
credit in the amount of $266,442, which is due on August 1, 2000.
The Company also has two lease lines of credit of $2,000,000 each for
equipment acquisitions. These lines of credit expired on December 31, 1999. The
Company is currently in negotiations with new and existing lenders to acquire
additional equipment financing for fiscal 2000.
5. INCOME TAXES
The components of the provision for income taxes are as follows at
December 31:
<TABLE>
<CAPTION>
1999 1998 1997
-------- ---------- ----------
<S> <C> <C> <C>
Federal--current....................................... $111,800 $ -- $ --
Federal--deferred...................................... -- -- --
State--current......................................... 19,200 -- --
State--deferred........................................ -- -- --
-------- ---------- ----------
Total.................................................. $131,000 $ -- $ --
======== ========== ==========
</TABLE>
A reconciliation from the expected federal income tax provision at the
statutory rate to the effective rate is as follows at December 31:
<TABLE>
<CAPTION>
1999 1998 1997
------------ ------------ ----------
<S> <C> <C> <C>
Expected tax provision................ $ 1,689,000 $ (1,089,000) $ (744,000)
State income taxes, net of federal
benefit............................. 298,000 (192,000) (131,000)
Other................................. (270,000) 223,000 15,000
Change in valuation allowance......... (1,586,000) 1,058,000 860,000
------------ ------------ ----------
Actual tax provision................ $ 131,000 $ -- $ --
============ ============ ==========
</TABLE>
F-13
<PAGE>
NEWGEN RESULTS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999, 1998 AND 1997
5. INCOME TAXES (CONTINUED)
The net deferred tax asset results from the following temporary differences:
<TABLE>
<CAPTION>
1999 1998
------------ ------------
<S> <C> <C>
Depreciation and amortization..................... $ 195,646 $ (5,856)
Accrued and other current liabilities............. 660,176 580,262
Net operating loss carryforwards.................. 980,944 2,473,182
Other............................................. 7,019 382,599
------------ ------------
Total........................................... 1,843,785 $ 3,430,187
Less valuation allowance...................... (1,843,785) (3,430,187)
------------ ------------
Total............................................. $ -- $ --
============ ============
</TABLE>
As of December 31, 1999 the Company had net operating loss carryforwards of
approximately $2.5 million for federal reporting purposes.
The federal loss carryforwards will begin expiring in 2009, unless
previously utilized. The Company has approximately $70,000 of research and
development credits which will begin expiring in 2012. Utilization of the
Company's net operating loss carryforwards may be limited as a result of certain
changes in the Company's ownership. The realization of the deferred tax asset is
dependent upon the Company generating sufficient taxable income prior to
expiration of its operating loss and credit carryforwards. Due to the
uncertainty regarding realization of the deferred tax asset, management has
provided a full valuation allowance against the net deferred tax asset. During
fiscal 1999, the Company paid $131,000 in income taxes.
6. REDEEMABLE CONVERTIBLE PREFERRED STOCK
In May 1999, at the closing of the initial public offering, all outstanding
shares of preferred stock were converted into 3,408,741 shares of common stock.
At December 31, 1999, 2,000,000 shares of preferred stock were authorized and
none were outstanding.
As of December 31, 1998, the Company has authorized 3,500,000 shares of
preferred stock for issuance. The Board of Directors designated 1,260,137 and
2,200,000 shares as Series A Preferred Stock and Series B Preferred Stock,
respectively. The remaining 39,863 shares of preferred stock are undesignated.
Both issuances of preferred stock carried the following rights and privileges:
a) VOTING: The holder of each preferred share has a right to the number
of votes equal to the number of shares issuable upon conversion, as
defined.
b) REDEMPTION: Beginning November 26, 2002, and in each year thereafter,
the Company is obligated to redeem, at the option of the preferred
stockholders, up to 25% of the aggregate number of shares
outstanding. The redemption value of each share shall equal the
original issuance price ($4.40 for Series A and $4.52 for Series B),
plus any declared and unpaid dividends and a premium of 8% per annum,
compounded annually. In order to state the preferred stock at
redemption value, as of December 31, 1998, the Company has accreted
approximately $1,503,000, including amounts related to the 8%
premium.
F-14
<PAGE>
NEWGEN RESULTS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999, 1998 AND 1997
6. REDEEMABLE CONVERTIBLE PREFERRED STOCK (CONTINUED)
c) DIVIDENDS: The preferred stockholders are entitled to non-cumulative
dividends, when and if declared, at the same rate the dividends are
paid to the common stockholders.
d) LIQUIDATION: In the event of any merger, sale or reorganization in
which control transfers or in liquidation or dissolution, the
preferred stockholders have a liquidation preference over common
stockholders. The liquidation preference is an amount equal to a
multiple of 1.5 times the original purchase price.
e) CONVERSION: Each share of the preferred stock is generally
convertible at the option of the holder into one share of common
stock and is subject to certain anti-dilution provisions. The
preferred stock automatically converts into a certain number of
common shares, as defined, upon the closing of certain offerings, as
defined, and upon the election of 75% and 70% of the Series A
Preferred Stock and the Series B Preferred Stock, respectively.
The Board of Directors has the authority, without further action by the
shareholders, to issue any authorized but undesignated shares of preferred stock
in one or more series and to fix all the terms, including rights, preferences,
restrictions and redemptions.
7. STOCKHOLDERS' EQUITY (DEFICIT)
STOCK OPTION PLANS
In August 1996, the Company adopted the 1996 Equity Incentive Plan ("the
Plan"), under which incentive stock options, non-statutory options and rights to
purchase restricted stock may be granted to employees, directors, consultants or
advisors of the Company. Options issued under the Plan vest over either four or
five years. No options granted under the Plan have a term in excess of ten years
from the date of grant. The exercise price of an incentive stock option may not
be less than 100% of the fair market value of the common stock on the date of
grant. The exercise price of a non-statutory option cannot be less than 85% of
the fair market value of the common stock on the date of grant. As of December
31, 1999 and 1998, 700,000 common shares have been reserved for issuance under
the Plan. As of December 31, 1999 and 1998, 410,260 and 512,300 options are
outstanding under the 1996 Plan, respectively.
In August 1998, the Board of Directors adopted the 1998 Equity Incentive
Plan ("the 1998 Plan") and obtained stockholder approval in November 1998. The
1998 Plan permits the granting of incentive stock options, non-statutory
options, stock appreciation rights and rights to purchase restricted stock. An
aggregate of 1,000,000 shares of the Company's common stock have initially been
reserved for issuance pursuant to the exercise of stock awards granted to
employees, directors and consultants under the 1998 Plan. An additional 500,000
shares may be reserved for issuance under the 1998 Plan to the extent that
options outstanding on the effective date of the Company's initial public
offering under the Company's 1996 Plan are returned to the 1996 Plan. The
exercise price of an Incentive Stock Option cannot be less than 100% of the fair
market value of the common stock on the date of the grant. The exercise price of
a non-statutory stock option cannot be less than 85% of the fair market of the
common stock on the date of grant. Options granted under the 1998 Plan vest at
the rate specified in the option agreement. No options granted under the 1998
Plan have a term in excess of ten years from
F-15
<PAGE>
NEWGEN RESULTS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999, 1998 AND 1997
7. STOCKHOLDERS' EQUITY (DEFICIT) (CONTINUED)
the grant date. As of December 31, 1999 and 1998, 847,523 and 332,370 options
are outstanding under the 1998 Plan, respectively.
EMPLOYEE STOCK PURCHASE PLAN
In August 1998 the Board of Directors adopted the Employee Stock Purchase
Plan ("Purchase Plan") and obtained stockholder approval in November 1998. The
Company has reserved 350,000 shares of common stock for issuance under the
Purchase Plan. The Purchase Plan will enable eligible employees to purchase
common stock at 85% of the lower of the fair market value of the Company's
common stock on the first day of each option purchase period, or the relevant
purchase date. As of December 31, 1999 and 1998, no shares have been issued
under the Purchase Plan. Included in accounts payable as of December 31, 1999
and 1998 are employee stock purchase plan withholdings of approximately $115,000
and $0, respectively. On January 31, 2000, 16,145 shares were issued under the
Purchase Plan.
NON-EMPLOYEE DIRECTORS STOCK OPTION PLAN
In August 1998, the Board of Directors adopted and in November 1998 the
stockholders approved the Non-employee Director's Option Plan ("Director Plan").
The Company has reserved 150,000 shares of common stock for issuance under the
Director Plan. The Director Plan provides an initial grant of options to
purchase 6,000 shares of common stock to each new eligible outside director of
the Company upon election to the Board. In addition, such eligible outside
directors will be granted an option to purchase 2,000 shares of common stock at
each annual meeting of the stockholders. The exercise price per share of all
options granted under the Director Plan will be equal to 100% of the fair market
value of the Company's common stock on the date of grant. Options granted expire
after ten years and generally vest monthly over a one-year period. The initial
grant options vest monthly over a three-year period. As of December 31, 1999 and
1998, 56,000 and zero options have been granted under the Director Plan,
respectively.
In 1998, certain officers were granted 80,000 options outside of the
Company's stock option plans.
F-16
<PAGE>
NEWGEN RESULTS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999, 1998 AND 1997
7. STOCKHOLDERS' EQUITY (DEFICIT) (CONTINUED)
The following table summarizes stock option plan activity:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------------------------------------------
1999 1998 1997
--------------------- -------------------- -------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
SHARES PRICE SHARES PRICE SHARES PRICE
---------- -------- --------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Outstanding, beginning of year.... 924,670 $2.31 641,100 $1.06 38,250 $0.50
Granted........................... 639,113 10.16 416,270 4.12 616,250 1.09
Exercised......................... (103,240) 1.34 (500) 0.63 -- --
Terminated........................ (66,760) 5.02 (132,200) 1.97 (13,400) 0.73
---------- --------- --------
Outstanding, end of year.......... 1,393,783 5.85 924,670 2.31 641,100 1.06
========== ========= ========
Exercisable, end of period........ 241,026 1.86 111,455 0.87 7,400 0.50
Weighted average fair value of
options granted................. -- $6.02 -- $5.91 -- $2.32
</TABLE>
As required by SFAS 123, the Company has determined the pro forma
information as if the Company had accounted for stock options under the minimum
value method of SFAS 123. The following weighted average assumptions were used;
risk-free interest rate ranging between 5.3% and 6.8%; dividend yield of zero;
expected market price volatility factor of 47.7%; and a weighted average
expected life of the options of seven years. Had compensation cost for stock
options granted during the year ended December 31, 1997 been determined
consistent with SFAS 123, the Company's net loss and related per share amounts
on a pro forma basis would not materially differ from the amounts reported in
the accompanying consolidated statements of operations for that period. Had
compensation cost for stock options granted during the years ended December 31,
1999 and 1998 been determined consistent with SFAS 123, the Company's net income
(loss) and related per share amounts on a pro forma basis would be as follows:
<TABLE>
<CAPTION>
1999 1998
------------------------ ---------------------------
AS REPORTED PRO FORMA AS REPORTED PRO FORMA
----------- ---------- ------------ ------------
<S> <C> <C> <C> <C>
Net income (loss) applicable to common
stockholders............................. $4,348,143 $3,673,561 $ (4,574,038) $ (4,753,424)
Basic net income (loss) per share.......... $ .57 $ .48 $ (1.21) $ (1.26)
Diluted net income (loss) per share........ $ .50 $ .43 $ (1.21) $ (1.26)
</TABLE>
The Company recorded $900,900 as deferred compensation related to 429,000
options granted in December 1997. The deferred compensation is being amortized
on a straight-line basis over the four or five-year vesting period of the
underlying options.
In 1998, the Company issued 416,270 options at exercise prices ranging
between $2.50 and $4.50 per share. The Company recorded deferred compensation
charges of $748,825 related to the grant of certain of these options. The
deferred compensation is being amortized over the four or five-year vesting
period of the underlying options.
F-17
<PAGE>
NEWGEN RESULTS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999, 1998 AND 1997
7. STOCKHOLDERS' EQUITY (DEFICIT) (CONTINUED)
In 1999, the Company issued 639,113 options at exercise prices ranging
between $5.25 and $13.00 per share. The Company recorded deferred compensation
charges of $112,311 related to the grant of certain of these options. The
deferred compensation is being amortized on a straight-line basis over the four
or five-year vesting period of the underlying options. Total stock based
deferred compensation expense charged to operations was $402,051, $255,757, and
$0 in 1999, 1998 and 1997, respectively.
WARRANTS
As of December 31, 1998, the Company had outstanding warrants to purchase
10,000 shares of its Series A preferred stock. The warrants have an exercise
price of $4.40 per share and expire in November 2001. Upon the closing of the
public offering in May 1999, this warrant became a warrant to purchase 10,000
shares of common stock. As of December 31, 1999, 10,000 of these warrants are
outstanding.
In addition, as of December 31, 1999, and 1998, the Company has outstanding
warrants to purchase 75,606 and 106,024 shares of its common stock at $0.75 per
share, respectively. The warrants expire at various dates in 2002.
8. EMPLOYEE BENEFITS
The Company has a 401(k) Plan ("the 401(k) Plan") covering substantially all
full-time employees. The 401(k) Plan is subject to the provisions of the
Employee's Retirement Income Security Act of 1974. The 401(k) Plan allows for
the Company to make matching contributions, up to a maximum of $750 per year per
employee. The contributions made by the Company were approximately $103,000,
$53,000, and $35,000 for the years ended December 31, 1999, 1998, and 1997,
respectively.
The Company has a bonus plan for certain members of management. The bonuses
earned are based upon factors such as meeting certain operating targets,
including defined results of operations. During the years ended December 31,
1999, 1998, and 1997, the Company granted discretionary bonuses to its officers
and employees in the amount of approximately $1,339,000, $928,000, and $834,000,
respectively.
9. RELATED PARTY TRANSACTIONS
The Company had notes payable to related parties in the amount of $0 and
$800,000 at December 31, 1999 and 1998, respectively. These notes were secured
and subordinated to the bank line of credit. These notes were repaid in May
1999. Interest expense related to these notes totaled approximately $30,000,
$73,000, and $101,000 for the years ended December 31, 1999, 1998, and 1997,
respectively.
The Company had entered into an administrative service agreement with Newgen
Services L.P., an affiliate, wherein the Company agreed to provide
administrative services for Newgen Services L.P., in exchange for a monthly
payment of up to $7,500, subject to adjustment. The agreement was for a period
of one year, with automatic renewals, unless terminated by the mutual consent of
both companies. This agreement was terminated as of January 1, 1999. Amounts
earned under this agreement totaled $0, $43,000, and $90,000 for 1999, 1998, and
1997, respectively. The Company also
F-18
<PAGE>
NEWGEN RESULTS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999, 1998 AND 1997
9. RELATED PARTY TRANSACTIONS (CONTINUED)
performs consulting services for customers of this affiliate and has earned
approximately $17,000, $59,000, and $131,000 for the years ended December 31,
1999, 1998, and 1997, respectively.
10. COMMITMENTS AND CONTINGENCIES
LEASES
The Company has both operating and capital lease commitments for facilities
and certain equipment, which expire through June 2003. Provisions of the
facility lease provide for abatement of rent during certain periods and
escalating rent payments during the lease term. The Company maintains a letter
of credit of $266,442 as collateral related to the facility lease. Collateral
requirements decline annually over the term of the lease.
The future lease commitments as of December 31, 1999, are summarized as
follows:
<TABLE>
<CAPTION>
OPERATING CAPITAL
YEAR ENDED DECEMBER 31, LEASES LEASES
----------------------- ---------- ----------
<S> <C> <C>
2000................................................. $1,083,308 $1,156,786
2001................................................. 476,984 829,919
2002................................................. 442 451,163
2003................................................. -- 65,602
2004................................................. -- --
Thereafter........................................... -- --
---------- ----------
Total minimum lease payments......................... $1,560,734 2,503,470
==========
Less amount representing interest.................... (302,009)
----------
Present value of remaining minimum capital lease
payments........................................... 2,201,461
Less current portion................................. (976,429)
----------
Long-term portion of obligations under capital
leases............................................. $1,225,032
==========
</TABLE>
Rent expense for the years ended December 31, 1999, 1998, and 1997 was
approximately $1,204,000, $813,000, and $574,000, respectively. At December 31,
1999 and 1998, the net book value of assets subject to capital leases was
$2,219,000 and $1,597,000, respectively.
CONTINGENCIES
The Company is subject to various claims that arise out of the normal course
of business. In the opinion of management, based in part on the advice of legal
counsel, the ultimate disposition of these matters will not have a material
adverse effect on the financial position or results of operations of the
Company.
F-19
<PAGE>
NEWGEN RESULTS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999, 1998 AND 1997
10. COMMITMENTS AND CONTINGENCIES (CONTINUED)
PROCESSING AGREEMENTS
The Company has an annual agreement with a third party, whereby the Company
was given the rights to purchase dealerships' customer names to whom it provides
services, for a fixed rate and a percentage of the Company's revenue from those
dealers. Although the Company is under no obligation to purchase any data from
this company at any time, the Company continues to exercise its rights under
this agreement and incurred costs of approximately $1,563,000, $1,498,000, and
$1,552,000 during the years ended December 31, 1999, 1998, and 1997,
respectively.
The Company has agreements with third parties whereby it purchases postage
and services relating to the production of letters for the Company's customers.
Costs incurred related to these agreements during the years ended December 31,
1999, 1998, and 1997 were approximately $9,806,000, $6,666,000, and $4,304,000,
respectively.
11. OTHER FINANCIAL STATEMENT DATA
Accrued and other current liabilities consist of the following at December
31:
<TABLE>
<CAPTION>
1999 1998
---------- ----------
<S> <C> <C>
Compensation and benefits............................ $ 819,339 $ 699,162
Deferred revenue..................................... 756,835 694,128
Other................................................ 483,599 930,751
---------- ----------
$2,059,773 $2,324,041
========== ==========
</TABLE>
In December 1998, the Company wrote off to general and administrative
expense approximately $600,000 of previously deferred costs related to its
delayed 1998 proposed initial public offering.
12. SEGMENT INFORMATION
The Company's revenues are substantially derived from two service segments:
database marketing and consulting operations.
The database marketing segment provides outsourced database management,
direct marketing and related customer retention services for the service
department of automobile dealerships and manufacturers.
The consulting segment develops and implements new techniques and programs
that enable automobile dealerships to grow their business, streamline
inefficient processes and more effectively market their services.
F-20
<PAGE>
NEWGEN RESULTS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999, 1998 AND 1997
12. SEGMENT INFORMATION (CONTINUED)
The following table summarizes segment information for the years ended
December 31, 1999, 1998 and 1997:
<TABLE>
<CAPTION>
1999
---------------------------------------
DATABASE
MARKETING CONSULTING CONSOLIDATED
----------- ---------- ------------
<S> <C> <C> <C>
Revenues:
Segment revenues.................................... $49,456,670 $5,730,941 $55,187,611
Segment cost of revenues............................ 29,078,687 4,887,907 33,966,594
----------- ---------- -----------
Segment gross profit................................ $20,377,983 $ 843,034 $21,221,017
=========== ========== ===========
Depreciation:
Segment depreciation and amortization............... $ 2,098,525 $ 61,463 $ 2,159,988
Assets:
Segment assets...................................... $49,781,813 $1,312,698 $51,094,511
Capital expenditures................................ $ 3,393,742 $ 28,280 $ 3,422,022
</TABLE>
<TABLE>
<CAPTION>
1998
---------------------------------------
DATABASE
MARKETING CONSULTING CONSOLIDATED
----------- ---------- ------------
<S> <C> <C> <C>
Revenues:
Segment revenues.................................... $31,512,768 $8,593,061 $40,105,829
Segment cost of revenues............................ 22,567,692 6,694,764 29,262,456
----------- ---------- -----------
Segment gross profit................................ $ 8,945,076 $1,898,297 $10,843,373
=========== ========== ===========
Depreciation:
Segment depreciation and amortization............... $ 1,236,961 $ 55,982 $ 1,292,943
Assets:
Segment assets...................................... $10,957,700 $1,814,635 $12,772,335
Capital expenditures................................ $ 1,058,469 $ 70,459 $ 1,128,928
</TABLE>
<TABLE>
<CAPTION>
1997
---------------------------------------
DATABASE
MARKETING CONSULTING CONSOLIDATED
----------- ---------- ------------
<S> <C> <C> <C>
Revenues:
Segment revenues.................................... $20,974,032 $5,439,660 $26,413,692
Segment cost of revenues............................ 16,163,609 4,232,822 20,396,431
----------- ---------- -----------
Segment gross profit................................ $ 4,810,423 $1,206,838 $ 6,017,261
=========== ========== ===========
Depreciation:
Segment depreciation and amortization............... $ 781,377 $ 56,115 $ 837,492
Assets:
Segment assets...................................... $10,246,762 $2,055,320 $12,302,082
Capital expenditures................................ $ 285,954 $ 214,513 $ 500,467
</TABLE>
F-21
<PAGE>
NEWGEN RESULTS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999, 1998 AND 1997
12. SEGMENT INFORMATION (CONTINUED)
The following table reconciles the Company's reportable segments' gross
profit to consolidated income (loss) before tax for the years ended
December 31, 1999, 1998 and 1997:
<TABLE>
<CAPTION>
1999 1998 1997
----------- ------------ ------------
<S> <C> <C> <C>
Gross profit from reportable
segments........................... $21,221,017 $ 10,843,373 $ 6,017,261
Operating costs...................... 16,981,294 13,977,583 7,787,941
----------- ------------ ------------
Income (loss) from operations........ 4,239,723 (3,134,210) (1,770,680)
Other income (expense), net.......... 726,227 (68,919) (418,662)
----------- ------------ ------------
Income (loss) before tax............. $ 4,965,950 $ (3,203,129) $ (2,189,342)
=========== ============ ============
</TABLE>
The Company's operations are primarily in the United States. The Company's
operations in its Canadian subsidiary as a result of the acquisition discussed
in Note 3 are not significant as of December 31, 1999.
F-22
<PAGE>
INDEX TO UNAUDITED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
--------
<S> <C>
Interim Unaudited Consolidated Financial Statements
Consolidated Balance Sheets at June 30, 2000 (Unaudited)
and December 31, 1999................................... F-24
Consolidated Statements of Income (Unaudited) for the
Three Months Ended June 30, 2000 and 1999 and the Six
Months Ended June 30, 2000 and 1999..................... F-25
Consolidated Statements of Cash Flows (Unaudited) for the
Six Months Ended June 30, 2000 and 1999................. F-26
Notes to Consolidated Financial Statements (Unaudited).... F-27
</TABLE>
F-23
<PAGE>
NEWGEN RESULTS CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
2000 1999
----------- ------------
(UNAUDITED)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents................................. $19,031,904 $ 5,849,906
Short-term investments, available-for-sale................ 1,495,350 17,417,971
Accounts receivable, net of allowance for doubtful
accounts of $375,000 and $347,000 respectively.......... 13,025,519 9,471,175
Prepaid expenses and other current assets................. 2,819,425 972,301
----------- -----------
Total current assets.................................... 36,372,198 33,711,353
PROPERTY AND EQUIPMENT, net............................... 7,730,076 5,719,542
GOODWILL, net............................................. 11,213,036 11,444,279
OTHER ASSETS.............................................. 2,255,739 219,337
----------- -----------
Total assets............................................ $57,571,049 $51,094,511
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable.......................................... $ 4,989,208 $ 4,395,736
Accrued and other current liabilities..................... 2,718,368 2,059,773
Current portion of capital lease obligations.............. 918,823 976,429
Current portion of equipment loan payable................. 199,902 --
----------- -----------
Total current liabilities............................... 8,826,301 7,431,938
LONG-TERM LIABILITIES:
Long-term portion of capital lease obligations............ 775,298 1,225,032
Long-term portion of equipment loan payable............... 349,829 --
Deferred rent............................................. 64,950 90,930
----------- -----------
Total liabilities....................................... 10,016,378 8,747,900
----------- -----------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common stock, $.001 par value, 28,000,000 shares
authorized; 10,206,399 and 10,032,866 shares issued and
outstanding respectively................................ 10,206 10,033
Additional paid-in capital................................ 52,534,977 52,282,503
Deferred compensation..................................... (762,967) (1,104,228)
Notes receivable from stockholders........................ (140,346) (56,250)
Accumulated other comprehensive income (loss)............. (8,420) 3,885
Retained deficit.......................................... (4,078,779) (8,789,332)
----------- -----------
Total stockholders' equity.............................. 47,554,671 42,346,611
----------- -----------
Total liabilities and stockholders' equity.............. $57,571,049 $51,094,511
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-24
<PAGE>
NEWGEN RESULTS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
--------------------------- -------------------------
2000 1999 2000 1999
------------ ------------ ----------- -----------
<S> <C> <C> <C> <C>
REVENUES:
Database marketing services............. $19,386,457 $11,963,306 $38,698,834 $22,534,821
Consulting services..................... 639,726 1,628,612 1,147,895 3,160,748
----------- ----------- ----------- -----------
Total revenues........................ 20,026,183 13,591,918 39,846,729 25,695,569
----------- ----------- ----------- -----------
COST OF REVENUES:
Cost of database marketing services..... 9,503,838 6,344,527 20,905,896 12,560,056
Cost of consulting services............. 841,327 1,373,634 1,469,838 2,713,604
Installation costs...................... 398,003 385,959 875,553 749,957
----------- ----------- ----------- -----------
Total cost of revenues................ 10,743,168 8,104,120 23,251,287 16,023,617
----------- ----------- ----------- -----------
Gross profit.......................... 9,283,015 5,487,798 16,595,442 9,671,952
----------- ----------- ----------- -----------
OPERATING COSTS:
Selling, general and administrative..... 5,051,490 3,400,653 9,862,173 6,327,509
Technology and product development...... 1,145,455 1,025,609 2,202,614 1,652,922
Amortization of goodwill and acquisition
- related costs....................... 587,985 -- 1,068,518 --
----------- ----------- ----------- -----------
Total operating costs................. 6,784,930 4,426,262 13,133,305 7,980,431
----------- ----------- ----------- -----------
Income from operations................ 2,498,085 1,061,536 3,462,137 1,691,521
----------- ----------- ----------- -----------
OTHER INCOME (EXPENSE):
Interest, investment and other income... 1,249,240 171,861 1,547,217 174,379
Interest expense........................ (63,517) (96,422) (120,481) (204,762)
----------- ----------- ----------- -----------
Other income (expense), net........... 1,185,723 75,439 1,426,736 (30,383)
----------- ----------- ----------- -----------
Income before taxes................... 3,683,808 1,136,975 4,888,873 1,661,138
PROVISION FOR INCOME TAXES................ 105,050 -- 178,250 --
----------- ----------- ----------- -----------
Net income............................ 3,578,758 1,136,975 4,710,623 1,661,138
ADJUSTMENT FOR ACCRETION OF REDEEMABLE
CONVERTIBLE PREFERRED STOCK............. -- (121,702) -- (486,807)
----------- ----------- ----------- -----------
Income applicable to common
stockholders........................ $ 3,578,758 $ 1,015,273 $ 4,710,623 $ 1,174,331
=========== =========== =========== ===========
Basic income per share.................... $ 0.35 $ 0.15 $ 0.46 $ 0.23
=========== =========== =========== ===========
Diluted income per share.................. $ 0.32 $ 0.12 $ 0.42 $ 0.19
=========== =========== =========== ===========
Shares used in basic per share
calculation............................. 10,191,984 6,568,199 10,161,864 5,199,097
=========== =========== =========== ===========
Shares used in diluted per share
calculation............................. 11,187,355 9,384,239 11,147,066 8,606,391
=========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-25
<PAGE>
NEWGEN RESULTS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30,
---------------------------
2000 1999
----------- -------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income................................................ $ 4,710,623 $ 1,661,138
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization........................... 2,080,186 846,699
Deferred rent........................................... (25,980) (17,574)
Deferred compensation................................... 204,339 201,025
Changes in assets and liabilities:
Accounts receivable................................... (3,554,344) 821,532
Prepaid expenses and other current assets............. (1,823,824) (464,448)
Accounts payable...................................... 593,472 1,016,697
Accrued and other current liabilities................. 658,595 952,824
----------- -------------
Net cash provided by operating activities........... 2,843,067 5,017,893
----------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of short-term investments....................... (2,081,260) (31,898,470)
Proceeds from matured short-term investments.............. 18,000,000 23,500,000
Purchases of property and equipment....................... (3,604,883) (1,740,037)
Proceeds from sale of property and equipment.............. 22,605 --
Other assets.............................................. (2,313,601) 271,938
----------- -------------
Net cash provided by (used in) investing
activities........................................ 10,022,861 (9,866,569)
----------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from stock transactions.......................... 144,094 32,109,807
Proceeds from stock options and warrant exercises......... 129,585 --
Payments on capital lease obligations..................... (507,340) (607,832)
Payments of related party loans........................... -- (800,000)
Proceeds from equipment loan.............................. 599,706 --
Payments on equipment loan................................ (49,975) --
Net proceeds from lines of credit......................... -- 199,643
----------- -------------
Net cash provided by financing activities........... 316,070 30,901,618
----------- -------------
NET INCREASE IN CASH AND CASH EQUIVALENTS................... 13,181,998 26,052,942
CASH AND CASH EQUIVALENTS, beginning of period.............. 5,849,906 816,753
----------- -------------
CASH AND CASH EQUIVALENTS, end of period.................... $19,031,904 $ 26,869,695
=========== =============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest.................................... $ 120,481 $ 214,762
=========== =============
Cash paid for taxes....................................... $ 178,250 $ --
=========== =============
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING
ACTIVITIES:
Capital lease obligations entered into for equipment...... $ -- $ 1,467,746
=========== =============
Accretion of redeemable preferred stock................... $ -- $ 486,807
=========== =============
Conversion of preferred stock............................. $ -- $ 16,536,586
=========== =============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-26
<PAGE>
NEWGEN RESULTS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF PRESENTATION
The consolidated interim financial statements included herein have been
prepared by Newgen Results Corporation and subsidiaries (the "Company") pursuant
to the rules and regulations of the Securities and Exchange Commission (the
"Commission") for interim financial information. Certain information and
footnote disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been condensed or
omitted pursuant to such rules and regulations, although the Company believes
that the disclosures are adequate to make the information presented not
misleading. The results of operations for the three and six month periods ended
June 30, 2000, are not necessarily indicative of the results to be expected for
the full year. For further information, refer to the consolidated financial
statements and footnotes thereto included in the Company's annual report on Form
10-K for the year ended December 31, 1999. In the opinion of management, these
interim consolidated financial statements contain all adjustments (consisting of
normal recurring entries) which are necessary for a fair and accurate
presentation of financial position at June 30, 2000, and the results of
operations and cash flows for the three and six month periods ended June 30,
2000 and 1999. Certain reclassification have been made to prior consolidated
financial statements to conform with current presentations.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
2. INVESTMENTS
Investments are accounted for in accordance with Statement of Financial
Accounting Standards (SFAS) No. 115, ACCOUNTING FOR CERTAIN INVESTMENTS IN DEBT
AND EQUITY SECURITIES, which requires that the Company determine the appropriate
classification of investments at the time of purchase and reevaluate such
designation as of each balance sheet date. At June 30, 2000, the Company
considered all investments as available for use in its current operations, and
therefore classified them short-term, available-for-sale investments.
Available-for-sale investments are stated at fair value, with unrealized gains
and losses, if any, net of tax, reported as a separate component of
stockholders' equity. The cost of securities sold is based on the specific
identification method. There were no realized gains or losses for the three and
six months ended June 30, 2000.
F-27
<PAGE>
NEWGEN RESULTS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
2. INVESTMENTS (CONTINUED)
At June 30, 2000, cash, cash equivalents and short-term investments
available-for-sale consisted of the following (unaudited):
<TABLE>
<CAPTION>
ESTIMATED
UNREALIZED FAIR
COST LOSSES VALUES
----------- ---------- -----------
<S> <C> <C> <C>
Cash..................................................... $ 4,871,905 $ -- $ 4,871,905
Cash equivalents......................................... 14,160,619 (620) 14,159,999
----------- ------ -----------
Total cash and cash equivalents........................ 19,032,524 (620) 19,031,904
----------- ------ -----------
Short-term investments:
Government securities.................................. 1,495,400 (50) 1,495,350
----------- ------ -----------
Total cash, cash equivalents and short-term
investments............................................ $20,527,924 $ (670) $20,527,254
=========== ====== ===========
</TABLE>
Investments in government securities as of June 30, 2000, in the amount of
$1,495,350 are scheduled to mature within one year.
3. COMPUTATION OF BASIC AND DILUTED NET INCOME PER SHARE
Net income per share has been calculated under Statement of Financial
Accounting Standards (SFAS) No. 128, EARNINGS PER SHARE. This statement requires
companies to compute earnings per share under two different methods (basic and
diluted). Basic earnings per share are based on the weighted average number of
shares of common stock outstanding during the period. Diluted earnings per share
are based on the weighted average number of shares of common stock and
potentially dilutive securities (options and warrants) outstanding during the
period, computed using the treasury stock method.
F-28
<PAGE>
NEWGEN RESULTS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
3. COMPUTATION OF BASIC AND DILUTED NET INCOME PER SHARE (CONTINUED)
The following table sets forth the computation of basic and diluted earnings
per share for the periods indicated.
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
---------------------------- --------------------------
2000 1999 2000 1999
------------- ------------ ------------ -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
NET INCOME PER SHARE--BASIC
Income applicable to common stockholders.... $ 3,578,758 $1,015,273 $ 4,710,623 $1,174,331
=========== ========== =========== ==========
Weighted average number of common shares.... 10,191,984 6,568,199 10,161,864 5,199,097
=========== ========== =========== ==========
Net income per share--basic................. $ 0.35 $ 0.15 $ 0.46 $ 0.23
=========== ========== =========== ==========
NET INCOME PER SHARE--DILUTED
Net income.................................. $ 3,578,758 $1,136,975 $ 4,710,623 $1,661,138
=========== ========== =========== ==========
Weighted average number of common shares.... 10,191,984 6,568,199 10,161,864 5,199,097
Potentially dilutive securities:
Preferred stock........................... -- 1,893,745 -- 2,499,469
Stock options............................. 924,708 823,348 910,866 809,889
Warrants.................................. 70,663 98,947 74,336 97,936
----------- ---------- ----------- ----------
Total................................... 11,187,355 9,384,239 11,147,066 8,606,391
=========== ========== =========== ==========
Net income per share--diluted............... $ 0.32 $ 0.12 $ 0.42 $ 0.19
=========== ========== =========== ==========
</TABLE>
4. SEGMENT INFORMATION
The Company's revenues are substantially derived from two service segments:
database marketing and consulting operations. The database marketing segment
provides outsourced database management, direct marketing and related customer
retention services for the service department of automobile dealerships and
manufacturers. The consulting segment develops and implements new techniques and
programs that enable automobile dealerships to grow their business, streamline
inefficient processes and more effectively market their services, and includes
the services offered by Newgen Management Services, Inc., a wholly-owned
subsidiary of the Company.
F-29
<PAGE>
NEWGEN RESULTS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
4. SEGMENT INFORMATION (CONTINUED)
The following tables summarize segment information for the three and six
months ended June 30, 2000 and 1999.
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30,
---------------------------------------------------------------------------------
2000 1999
--------------------------------------- ---------------------------------------
(UNAUDITED) (UNAUDITED)
DATABASE DATABASE
MARKETING CONSULTING CONSOLIDATED MARKETING CONSULTING CONSOLIDATED
----------- ---------- ------------ ----------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
REVENUES:
Segment revenues..... $19,386,457 $ 639,726 $20,026,183 $11,963,306 $1,628,612 $13,591,918
Segment cost of
revenues........... 9,901,841 841,327 10,743,168 6,730,486 1,373,634 8,104,120
----------- ---------- ----------- ----------- ---------- -----------
Segment gross profit
(loss)............. $ 9,484,616 $ (201,601) $ 9,283,015 $ 5,232,820 $ 254,978 $ 5,487,798
=========== ========== =========== =========== ========== ===========
</TABLE>
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30,
---------------------------------------------------------------------------------
2000 1999
--------------------------------------- ---------------------------------------
(UNAUDITED) (UNAUDITED)
DATABASE DATABASE
MARKETING CONSULTING CONSOLIDATED MARKETING CONSULTING CONSOLIDATED
----------- ---------- ------------ ----------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
REVENUES:
Segment revenues..... $38,698,834 $1,147,895 $39,846,729 $22,534,821 $3,160,748 $25,695,569
Segment cost of
revenues........... 21,781,449 1,469,838 23,251,287 13,310,013 2,713,604 16,023,617
----------- ---------- ----------- ----------- ---------- -----------
Segment gross profit
(loss)............. $16,917,385 $ (321,943) $16,595,442 $ 9,224,808 $ 447,144 $ 9,671,952
=========== ========== =========== =========== ========== ===========
</TABLE>
The following table reconciles the Company's reportable segments' gross
profit to consolidated net income for the periods presented:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
JUNE 30, SIX MONTHS ENDED JUNE 30,
----------------------- --------------------------
2000 1999 2000 1999
---------- ---------- ------------ -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Gross profit from reportable segments........ $9,283,015 $5,487,798 $16,595,442 $9,671,952
Operating costs.............................. 6,784,930 4,426,262 13,133,305 7,980,431
---------- ---------- ----------- ----------
Income from operations..................... 2,498,085 1,061,536 3,462,137 1,691,521
Other income (expense), net.................. 1,185,723 75,439 1,426,736 (30,383)
Provision for income taxes................... 105,050 -- 178,250 --
---------- ---------- ----------- ----------
Net income................................. $3,578,758 $1,136,975 $ 4,710,623 $1,661,138
========== ========== =========== ==========
</TABLE>
F-30
<PAGE>
NEWGEN RESULTS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
5. COMPREHENSIVE INCOME
Comprehensive income for the three and six months ended June 30, 2000 and
1999 consisted of:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
JUNE 30, SIX MONTHS ENDED JUNE 30,
----------------------- --------------------------
2000 1999 2000 1999
---------- ---------- ------------ -----------
<S> <C> <C> <C> <C>
Net income................................... $3,578,758 $1,136,975 $ 4,710,623 $1,661,138
Other comprehensive income:
Unrealized gain (loss)..................... 1,416 -- (670) --
Foreign currency translation............... (4,880) -- (7,750) --
---------- ---------- ----------- ----------
Comprehensive income......................... $3,575,294 $1,136,975 $ 4,702,203 $1,661,138
========== ========== =========== ==========
</TABLE>
6. SOFTWARE DEVELOPMENT COSTS
In accordance with the adoption of the American Institute of Certified
Public Accountants' ("AICPA") Statement of Position 98-1, ACCOUNTING FOR THE
COST OF COMPUTER SOFTWARE DEVELOPED OR OBTAINED FOR INTERNAL USE, the Company
capitalized $1,088,000 and $2,094,000 for the three and six months ended June
30, 2000, respectively, and is included in Other Assets in the accompanying
consolidated balance sheets.
7. RECENT ACCOUNTING PRONOUNCEMENTS
In December 1999, the Commission issued Staff Accounting Bulletin ("SAB")
No. 101, REVENUE RECOGNITION IN FINANCIAL STATEMENTS. This SAB summarizes the
Commission's view in applying generally accepted accounting principles to
revenue recognition in financial statements. This SAB was amended by SAB 101B,
which defers the effective date for all registrants with fiscal years that begin
after December 15, 1999 to allow for the option of implementing no later than
the fourth quarter of fiscal 2000. Management is currently determining the
impact of SAB No. 101 and does not believe that its adoption will have a
material impact on the Company's consolidated financial statements.
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities", which
establishes accounting and reporting standards for derivative instruments and
hedging activities. SFAS 133 requires that an entity recognize all derivatives
as either assets or liabilities in the statement of financial position and
measure those instruments at fair value. This Statement was amended by SFAS No.
137 which defers the effective date to all fiscal quarters of fiscal years
beginning after June 15, 2000. The adoption of SFAS 133 is not expected to have
a material effect on the Company's financial position or results of operations.
8. STOCK OPTION ACTIVITY AND NOTES RECEIVABLE FROM STOCKHOLDERS
During the six months ended June 30, 2000, the Company granted stock options
to purchase a total of 353,000 shares of its common stock. For the period from
July 1, 2000 to September 30, 2000, the Company has granted additional stock
options to purchase approximately 71,000 shares of its common stock.
F-31
<PAGE>
NEWGEN RESULTS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
8. STOCK OPTION ACTIVITY AND NOTES RECEIVABLE FROM STOCKHOLDERS (CONTINUED)
The Company received notes from two executive officers in the aggregate
amount of $140,000 as payment for stock options exercised. The following table
describes the terms of these notes:
<TABLE>
<CAPTION>
EXECUTIVE DATE OF NOTE AMOUNT OF NOTE INTEREST RATE TERM
--------- ------------ -------------- ------------- --------
<S> <C> <C> <C> <C>
Gerald Benowitz.......................... 1/29/99 $44,950.00 4.64% 4 years
Gerald Benowitz.......................... 1/31/00 $44,950.00 6.21% 4 years
</TABLE>
<TABLE>
<CAPTION>
EXECUTIVE DATE OF NOTE AMOUNT OF NOTE INTEREST RATE TERM
--------- ------------ -------------- ------------- --------
<S> <C> <C> <C> <C>
Gerald Benowitz.......................... 1/31/00 $27,839.81 6.21% 4 years
Samuel Simkin............................ 1/29/99 $11,237.50 4.64% 4 years
Samuel Simkin............................ 1/31/00 $11,237.50 6.21% 4 years
</TABLE>
In August 2000, the Company received additional notes from Gerald Benowitz
in the aggregate amount of approximately $2,728,000 for payment of stock options
exercised.
9. OTHER INCOME
In June 2000, the Company recorded a gain of $1,000,000 related to the
settlement of a vendor dispute in Other Income.
10. SUBSEQUENT EVENTS
On August 21, 2000 the Company entered into an Agreement and Plan of Merger
("the Agreement") with TeleTech Holdings, Inc ("TeleTech"). Pursuant to the
terms of the Agreement the Company would be acquired by TeleTech in a stock for
stock exchange of approximately $200 million.
Concurrently with the consummation of the merger, three senior executives
will receive cash bonuses in an aggregate of approximately $1 million relating
to services performed up to the date of the merger.
F-32
<PAGE>
ANNEX A
AGREEMENT AND PLAN OF MERGER
AMONG
TELETECH HOLDINGS, INC.,
NG ACQUISITION CORP.
AND
NEWGEN RESULTS CORPORATION
DATED AS OF AUGUST 21, 2000
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
--------
<S> <C> <C>
ARTICLE I DEFINITIONS........................................................ 2
Section 1.1 Certain Definitions......................................... 2
Section 1.2 Terms Generally............................................. 9
ARTICLE II THE MERGER........................................................ 10
Section 2.1 The Merger.................................................. 10
Section 2.2 Closing..................................................... 10
Section 2.3 Effective Time.............................................. 10
Section 2.4 Effects of the Merger....................................... 10
Section 2.5 Certificate of Incorporation and Bylaws..................... 10
Section 2.6 Directors................................................... 11
Section 2.7 Plan of Reorganization...................................... 11
ARTICLE III EFFECT OF THE MERGER ON THE STOCK OF THE
CONSTITUENT CORPORATIONS; EXCHANGE OF CERTIFICATES......................... 11
Section 3.1 Effect on Stock............................................. 11
Section 3.2 Exchange of Certificates.................................... 13
Section 3.3 Further Assurances.......................................... 16
ARTICLE IV STOCKHOLDER APPROVAL; BOARD OF DIRECTORS
RECOMMENDATION............................................................. 16
Section 4.1 Stockholder Approval........................................ 16
Section 4.2 Board of Directors Recommendation........................... 16
ARTICLE V REPRESENTATIONS AND WARRANTIES OF THE COMPANY...................... 17
Section 5.1 Organization, Qualification, Etc............................ 17
Section 5.2 Capital Stock............................................... 18
Corporate Authority Relative to this Agreement; No
Section 5.3 Violation................................................... 19
Section 5.4 Reports and Financial Statements............................ 19
Section 5.5 No Undisclosed Liabilities.................................. 20
Section 5.6 No Violation of Law......................................... 20
Section 5.7 Environmental Compliance.................................... 21
Section 5.8 Absence of Changes in Benefit Plans......................... 22
Section 5.9 ERISA Compliance............................................ 23
Section 5.10 Absence of Certain Changes or Events........................ 24
Section 5.11 Investigations; Litigation.................................. 26
Proxy Statement/Prospectus; Registration Statement; Other
Section 5.12 Information................................................. 26
Section 5.13 Rights Plan................................................. 27
Section 5.14 Lack of Ownership of Parent Common Stock.................... 27
Section 5.15 Tax Matters................................................. 27
Section 5.16 Opinion of Financial Advisor................................ 28
Section 5.17 Required Vote of Company Stockholders....................... 29
Section 5.18 Pooling of Interests........................................ 29
Section 5.19 Insurance................................................... 29
Section 5.20 Labor Matters; Employees.................................... 29
Section 5.21 Material Contracts.......................................... 31
Section 5.22 Permits..................................................... 32
Section 5.23 Intellectual Property....................................... 33
Section 5.24 Takeover Statutes........................................... 35
ARTICLE VI REPRESENTATIONS AND WARRANTIES OF PARENT
AND SUB.................................................................... 35
Section 6.1 Organization, Qualification, Etc............................ 36
Section 6.2 Capital Stock............................................... 36
Corporate Authority Relative to this Agreement; No
Section 6.3 Violation................................................... 36
Section 6.4 Reports and Financial Statements............................ 37
</TABLE>
i
<PAGE>
<TABLE>
<CAPTION>
PAGE
--------
<S> <C> <C>
Section 6.5 No Undisclosed Liabilities.................................. 37
Section 6.6 No Violation of Law......................................... 38
Section 6.7 Absence of Certain Changes or Events........................ 38
Proxy Statement/Prospectus; Registration Statement; Other
Section 6.8 Information................................................. 38
Section 6.9 Lack of Ownership of Company Common Stock................... 39
Section 6.10 Pooling of Interests........................................ 39
Section 6.11 Takeover Statutes........................................... 39
Section 6.12 Tax Matters................................................. 39
ARTICLE VII COVENANTS AND AGREEMENTS......................................... 39
Section 7.1 Conduct of Business by the Company or Parent................ 39
Section 7.2 Investigation............................................... 43
Section 7.3 Cooperation................................................. 43
Section 7.4 Affiliate Agreements........................................ 45
Section 7.5 Employee Stock Options, Incentive and Benefit Plans......... 45
Section 7.6 Filings; Other Action....................................... 45
Section 7.7 Further Assurances.......................................... 46
Section 7.8 Takeover Statute............................................ 46
Section 7.9 No Solicitation............................................. 46
Section 7.10 Public Announcements........................................ 48
Section 7.11 Indemnification and Insurance............................... 48
Section 7.12 Accountants' "Comfort" Letters.............................. 48
Section 7.13 Additional Reports.......................................... 48
Section 7.14 Termination of Company ESPP................................. 49
ARTICLE VIII CONDITIONS TO THE MERGER........................................ 49
Conditions to Each Party's Obligation to Effect the
Section 8.1 Merger...................................................... 49
Conditions to Obligations of the Company to Effect the
Section 8.2 Merger...................................................... 50
Section 8.3 Conditions to Obligations of Parent to Effect the Merger.... 51
ARTICLE IX TERMINATION; WAIVER; AMENDMENT; CLOSING........................... 51
Section 9.1 Termination or Abandonment.................................. 51
Section 9.2 Termination Fee............................................. 53
Section 9.3 Amendment or Supplement..................................... 54
Section 9.4 Extension of Time, Waiver, Etc.............................. 55
ARTICLE X MISCELLANEOUS...................................................... 55
Section 10.1 No Survival of Representations and Warranties............... 55
Section 10.2 Expenses.................................................... 55
Section 10.3 Counterparts; Effectiveness................................. 55
Section 10.4 Governing Law............................................... 55
Section 10.5 Notices..................................................... 55
Section 10.6 Assignment; Binding Effect.................................. 57
Section 10.7 Severability................................................ 57
Section 10.8 Enforcement of Agreement.................................... 57
Section 10.9 Miscellaneous............................................... 57
Section 10.10 Headings.................................................... 57
Section 10.11 Finders or Brokers.......................................... 58
</TABLE>
ii
<PAGE>
AGREEMENT AND PLAN OF MERGER
This AGREEMENT AND PLAN OF MERGER, dated as of August 21, 2000 (this
"Agreement"), among TeleTech Holdings, Inc., a Delaware corporation ("Parent"),
NG Acquisition Corp., a Delaware corporation and wholly-owned subsidiary of
Parent ("Sub"), and Newgen Results Corporation, a Delaware corporation (the
"Company").
RECITALS
WHEREAS, the respective Boards of Directors of Parent, Sub and the Company
(i) have approved and have declared advisable the merger of Sub with and into
the Company (the "Merger"), upon the terms and subject to the conditions set
forth herein and (ii) have determined that the Merger and the other transactions
contemplated hereby are consistent with, and in furtherance of, their respective
business strategies and goals;
WHEREAS, concurrently herewith and as a condition and inducement to Parent's
willingness to enter into this Agreement, certain stockholders of the Company
are entering into a voting agreement whereby they are agreeing to vote in favor
of the approval and adoption of this Agreement (the "Primary Voting Agreement");
WHEREAS, concurrently herewith and as a condition and inducement to Parent's
willingness to enter into this Agreement, the stockholders of the Company
identified on Schedule 1 hereto (the "Principal Stockholders") are entering into
a voting agreement whereby they are agreeing to vote in favor of the approval
and adoption of this Agreement subject to certain conditions (the "Secondary
Voting Agreement," and, together with the Primary Voting Agreement, the "Voting
Agreements");
WHEREAS, the parties desire to make certain representations, warranties,
covenants and agreements in connection with the Merger and also to prescribe
various conditions to the Merger;
WHEREAS, for federal income tax purposes, it is intended that the Merger
will qualify as a reorganization under the provisions of Section 368(a) of the
Internal Revenue Code of 1986, as amended (the "Code"), and the parties to this
Agreement intend to adopt this Agreement as a "plan of reorganization" within
the meaning of Sections 1.368-2(g) and 1.368-3(a) of the United States Treasury
Regulations; and
WHEREAS, for financial accounting purposes, it is intended that the Merger
will be accounted for as a pooling of interests transaction.
<PAGE>
AGREEMENT
NOW, THEREFORE, in consideration of the mutual agreements, provisions and
covenants contained in this Agreement, the parties hereby agree as follows:
ARTICLE I
DEFINITIONS
Section 1.1 CERTAIN DEFINITIONS. As used in this Agreement, the following
capitalized terms shall have the meanings set forth or referenced below.
"Affiliate" shall mean, as to any Person, any other Person which, directly
or indirectly, controls, or is controlled by, or is under common control with,
such Person. As used in this definition, "control" (including, with its
correlative meanings, "controlled by" and "under common control with") shall
mean the possession, directly or indirectly, of the power to direct or cause the
direction of management or policies of a Person, whether through the ownership
of securities or partnership or other ownership interests, by contract or
otherwise.
"Agreement" shall have the meaning set forth in the introductory paragraph.
"APB No. 16" shall have the meaning set forth in Section 7.1(a)(xii).
"Average Closing Price" shall have the meaning set forth below in the
definition of "Parent's Closing Date Price."
"Certificate of Merger" shall have the meaning set forth in Section 2.3.
"Certificates" shall have the meaning set forth in Section 3.1(b).
"Change in Company Recommendation" shall have the meaning set forth in
Section 4.2.
"Clean-up" shall mean removal or remediation of, or other response to
(including, without limitation, testing, monitoring, sampling or investigating
of any kind) any Release or Contamination, to the satisfaction of all applicable
governmental agencies, in compliance with Environmental Laws and in compliance
with good commercial practice.
"Closing" shall have the meaning set forth in Section 2.2.
"Closing Date" shall have the meaning set forth in Section 2.2.
"Code" shall have the meaning set forth in the Recitals.
"Common Exchange Ratio" shall have the meaning set forth in Section 3.1(b).
"Company" shall have the meaning set forth in the introductory paragraph.
"Company Acquisition" shall mean a merger, consolidation, business
combination, recapitalization or similar transaction involving the Company
pursuant to which the stockholders of the Company immediately preceding such
transaction do not hold (directly or indirectly) at least 50% of the aggregate
equity interests in the surviving or resulting entity of such transaction or a
parent entity following such transaction.
"Company Benefit Plans" has the meaning set forth in Section 5.8.
"Company Common Stock" shall have the meaning set forth in Section 5.2.
"Company Disclosure Letter" shall mean the disclosure letter delivered by
the Company to Parent concurrently with entry into this Agreement.
"Company ESPP" shall have the meaning set forth in Section 3.1(f).
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"Company Options" shall have the meaning set forth in Section 3.1(d).
"Company Option Plans" shall have the meaning set forth in Section 3.1(d).
"Company Recommendation" shall have the meaning set forth in Section 4.2.
"Company Required Approvals" shall have the meaning set forth in
Section 5.3.
"Company SEC Reports" shall have the meaning set forth in Section 5.4(a).
"Company Stockholders Meeting" shall have the meaning set forth in
Section 4.1(a).
"Company Termination Fee" shall have the meaning set forth in Section 9.2.
"Company Termination Fee Event" shall have the meaning set forth in
Section 9.2.
"Computer Programs" shall mean (a) any and all computer software programs
and software development tools, including all source and object code,
(b) databases and compilations, including any and all data and collections of
data, whether machine readable or otherwise, (c) all descriptions, flow-charts
and other work product used to design, plan, organize and develop any of the
foregoing, (d) all domain names and the content contained on the respective
Internet site(s) and (e) all documentation, including user manuals and training
materials, relating to any of the foregoing.
"Confidentiality Agreement" shall have the meaning set forth in
Section 7.2.
"Contamination" shall mean the presence of any Hazardous Material at, on, or
under any real property.
"Damages" shall mean, collectively, losses, Liabilities, Liens, costs,
damages, claims and expenses (including reasonable fees and disbursements of
counsel, consultants or experts and expenses of investigation) and, without
limiting the generality of the foregoing, with regard to environmental matters
shall also include specifically response costs, corrective action costs, natural
resource damages, costs to comply with orders or injunctions, damages or awards
for property damage or personal injury, fines, penalties and costs for testing,
remediation or cleanup costs, including those related to administrative review
of site remediation.
"DGCL" shall mean the Delaware General Corporation Law, as amended.
"Effective Time" shall have the meaning set forth in Section 2.3.
"Employment Agreements" shall mean collectively those employment agreements
of even date herewith by and between the Company and respectively, Samuel
Simkin, Gerald Benowitz and Leslie Silver.
"Environmental Laws" shall mean all federal, state, local and municipal Laws
in existence, enacted or in effect at or prior to Closing relating to pollution
or protection of public health and safety, the workplace and the environment,
including, without limitation, Laws relating to Releases, threatened Releases or
otherwise relating to the generation, manufacture, processing, distribution,
use, treatment, storage, disposal, transport, labeling, advertising, sale,
display or handling of Hazardous Materials. "Environmental Laws" shall include,
but not be limited to the following statutes and all rules and regulations
relating thereto, all as amended and modified from time to time:
(a) The Comprehensive Environmental Response, Compensation and
Liability Act ("CERCLA"), 42 U.S.C. SectionSection 9601-9675; the Resource
Conservation and Recovery Act of 1976, 42 U.S.C. SectionSection 6901-6991;
the Clean Water Act 33 U.S.C. Section 1321 et seq.; the Clean Air Act 42
U.S.C. SectionSection 7401 et seq.; the Federal Insecticide, Fungicide and
Rodenticide Act, 7 U.S.C. Section 136 et seq.; the Toxic Substances Control
Act, 15 U.S.C. SectionSection 2601-2671; and the Food, Drug and Cosmetic
Act, and
(b) all similar state and local laws, statutes, codes, ordinances,
regulations and rules.
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"Environmental Permits" shall have the meaning set forth in Section 5.7(b).
"ERISA" shall mean the Employee Retirement Income Security Act of 1974, as
amended, and the rules and regulations promulgated thereunder.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as amended.
"Exchange Agent" shall have the meaning set forth in Section 3.2(a).
"Exchange Fund" shall have the meaning set forth in Section 3.2(a).
"Former Real Property" shall have the meaning set forth in Section 5.7(a).
"GAAP" shall mean generally accepted accounting principles, as in effect in
the United States, from time to time.
"Governmental Authority" shall mean any agency, public or regulatory
authority, instrumentality, department, commission, court, ministry, tribunal or
board of any government, whether foreign or domestic and whether national,
federal, provincial, state, regional, local or municipal.
"HSR Act" shall mean the Hart-Scott-Rodino Antitrust Improvements Act of
1976, as amended.
"Hazardous Materials" shall mean those materials that are regulated by or
form the basis of liability under Environmental Laws and includes, without
limitation, (a) all substances identified under any Environmental Law as a
pollutant, contaminant, hazardous substance, liquid, industrial or solid or
hazardous waste, hazardous material or toxic substance, dangerous substance or
dangerous good, (b) petroleum or petroleum derived substance or waste,
(c) asbestos or asbestos-containing material, (d) PCBs or PCB-containing
materials or fluids, (e) any other substance with respect to which a
Governmental Authority may require environmental investigation or remediation
and (f) any radioactive material or substance.
"Income Tax Regulations" means the Income Tax Regulations issued by the
Department of the Treasury, as amended from time to time.
"Indebtedness" shall mean (a) all indebtedness of such Person for borrowed
money or for the deferred purchase price of property or services (other than
current trade liabilities incurred in the ordinary course of business and
payable in accordance with customary practices) and including earn-out or
similar contingent purchase amounts, (b) any other indebtedness of such Person
which is evidenced by a note, bond, debenture or similar instrument, (c) all
obligations of such Person under lease, (d) all obligations of such Person in
respect of acceptances issued or created for the account of such Person,
(e) all liabilities secured by any Lien on any property owned by such Person
even though such Person has not assumed or otherwise become liable for the
payment thereof and (f) all guarantees by such Person of obligations of others.
"Indemnified Parties" shall have the meaning set forth in Section 7.11.
"Intellectual Property" shall mean all intellectual property rights used in
the business of the Company, including: all patents and patent applications;
trademarks, trademark registrations and applications; all service marks, service
mark registrations and applications, logos, designs, proprietary rights, slogans
and general intangibles of like nature, together with all goodwill related to
the foregoing; all trade names, copyrights, copyright registrations and
applications; Computer Programs; all product plans, technology, process
engineering, drawings, schematic drawings, secret processes; proprietary
knowledge, including without limitation, trade secrets, know-how, confidential
confirmation, proprietary processes and formulae.
"IRS" means the Internal Revenue Service or any successor entity.
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"Knowledge" with respect to any particular representation or warranty
contained in this Agreement, when used to apply to the "Knowledge" of the
Company, shall be deemed to be followed by the phrase "after due inquiry" and
shall mean the actual knowledge or conscious awareness after due inquiry of any
officer or employee of the Company with managerial or higher responsibility for
the subject matter of such representation.
"Laws" shall mean statutes, common laws, rules, ordinances, regulations,
codes, licensing requirements, orders, judgments, injunctions and decrees, of a
Governmental Authority.
"Liabilities" shall mean debts, liabilities, commitments, obligations,
duties and responsibilities of any kind and description, whether absolute or
contingent, monetary or non-monetary, direct or indirect, known or unknown or
matured or unmatured, or of any other nature.
"Licenses" shall have the meaning set forth in Section 5.23(d).
"Lien" shall mean any security interest, lien, mortgage, claim, charge,
pledge, restriction, equitable interest or encumbrance of any nature and in the
case of securities any put, call, preemptive or similar right of a third party
with respect to such securities.
"Material Adverse Effect" with respect to the Company, shall mean any
change, event, violation, inaccuracy, circumstance or effect, individually or
when aggregated with other changes, events, violations, inaccuracies,
circumstances or effects, that is or would reasonably be expected to be
materially adverse to the business, capitalization, condition (financial or
otherwise), operations, assets or liabilities of the Company and its
Subsidiaries, taken as a whole; provided, however, that the Company's failure to
meet published third-party forecasts or revenue or earnings predictions shall
not by itself constitute, or be taken into account in determining whether there
has been or will be a Material Adverse Effect.
"Material Adverse Effect" with respect to Parent, shall mean any change,
event, violation, inaccuracy, circumstance or effect, individually or when
aggregated with other changes, events, violations, inaccuracies, circumstances
or effects, that is or would reasonably be expected to be materially adverse to
the business, capitalization, condition (financial or otherwise), operations,
assets or liabilities of Parent and its Subsidiaries, taken as a whole;
provided, however, that Parent's failure to meet published third-party forecasts
or revenue or earnings predictions shall not by itself constitute, or be taken
into account in determining whether there has been or will be a Material Adverse
Effect.
"Material Contracts" shall have the meaning set forth in Section 5.21.
"Merger" shall have the meaning set forth in the Recitals.
"Merger Consideration" shall have the meaning set forth in Section 3.1(b).
"Nasdaq" means the Nasdaq National Market.
"National Priorities List" shall have the meaning set forth in
Section 5.7(e).
"Notice of Superior Proposal" shall have the meaning set forth in
Section 7.9(b).
"Parent" shall have the meaning set forth in the introductory paragraph.
"Parent Common Stock" shall have the meaning set forth in Section 6.2.
"Parent Disclosure Letter" shall mean the disclosure letter delivered by
Parent to the Company concurrently with entry into this Agreement.
"Parent ESPP" shall have the meaning set forth in Section 3.1(f).
"Parent Required Approvals" shall have the meaning set forth in
Section 6.3.
"Parent SEC Reports" shall have the meaning set forth in Section 6.4.
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"Parent's Closing Date Price" shall mean the average closing price of Parent
Common Stock as reported on Nasdaq for the 20 consecutive trading days through
and including the trading day two trading days prior to the Closing Date (the
"Average Closing Price"); provided, however, that in the event that the Average
Closing Price is less than $22.50, then Parent's Closing Date Price shall be
$22.50; and further provided, however, that in the event that the Average
Closing Price is greater than $37.50, then Parent's Closing Date Price shall be
$37.50.
"PCBs" shall have the meaning set forth in Section 5.7(d).
"Permits" shall have the meaning set forth in Section 5.22.
"Person" shall mean any natural person, corporation, business trust, joint
venture, association, company, firm, partnership or other entity or government
or Governmental Authority.
"Primary Voting Agreement" shall have the meaning set forth in the Recitals.
"Principal Stockholders" shall have the meaning set forth in the Recitals.
"Proxy statement/prospectus" shall have the meaning set forth in
Section 5.12.
"Purchase Rights" shall have the meaning set forth in Section 3.1(f).
"Qualifying Change in Company Recommendation" shall have the meaning set
forth in Section 4.2.
"Real Property" shall have the meaning set forth in Section 5.7(a).
"Registration Statement" shall mean the registration statement on Form S-4
to be filed with the SEC by Parent in connection with the issuance of the Parent
Common Stock in or as a result of the Merger.
"Regulatory Action(s)" shall mean any claim, demand, action or proceeding
brought or instigated by any Governmental Authority in connection with any
Environmental Law (including without limitation civil, criminal or
administrative proceedings), whether or not seeking costs, damages, penalties or
expenses.
"Release" shall mean the spilling, leaking, disposing, discharging,
emitting, depositing, injecting, leaching, escaping or any other release or
threatened release, however defined, and whether intentional or unintentional,
of any Hazardous Material.
"SEC" shall mean the Securities and Exchange Commission or any successor
entity.
"Secondary Voting Agreement" shall have the meaning set forth in the
Recitals.
"Securities Act" shall mean the Securities Act of 1933, as amended.
"Sub" shall have the meaning set forth in the introductory paragraph.
"Subsidiaries" shall mean any corporation or other form of legal entity of
which more than 50% of the outstanding voting securities are on the date hereof
directly or indirectly owned by the Company or Parent, as the case may be.
"Superior Proposal" shall mean a bona fide Takeover Proposal not solicited
by the Company in violation of Section 7.9 made by a third party on terms that a
majority of the members of the Board of Directors of the Company who are
unaffiliated with such third party determines in their good faith judgment
(after considering the advice of an independent financial advisor and outside
counsel, taking into account, among other things, all known legal, financial,
regulatory and other aspects of the Takeover Proposal) are more favorable to the
stockholders of the Company than the transactions contemplated hereby (including
any amendments hereto) and for which any required financing is committed or
which, in the good faith judgment of a majority of such members (after
consultation with any independent financial advisor), is reasonably capable of
being financed by such third party and which in the good faith judgment of a
majority of such members is reasonably capable of being completed.
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"Surviving Corporation" shall have the meaning set forth in Section 2.1.
"Takeover Proposal" shall mean any proposal or offer contemplating any
transaction or series of related transactions (other than the transactions
contemplated by this Agreement) that constitutes (A) an acquisition or purchase
from the Company by any person or "group" (as defined under Section 13(d) of the
Exchange Act and the rules and regulations thereunder) of more than a 25%
interest in the total outstanding voting securities of the Company or any tender
offer or exchange offer that if consummated would result in any person or
"group" (as defined under Section 13(d) of the Exchange Act and the rules and
regulations thereunder) beneficially owning 25% or more of the total outstanding
voting securities of the Company or any merger, consolidation, business
combination or similar transaction involving the Company pursuant to which the
stockholders of the Company immediately preceding such transaction do not hold,
directly or indirectly, at least 75% of the equity interests in the surviving or
resulting entity of such transaction or in any parent entity immediately
following such transaction, (B) any sale, exchange, transfer or other
disposition of any business or businesses or assets that constitute or account
for 25% or more of the consolidated net revenues, net income or assets of the
Company and its Subsidiaries taken as a whole or (C) any liquidation or
dissolution of the Company having similar effect to the foregoing.
"Tax Return" means any return, report or similar statement (including the
attached schedules) required to be filed with respect to any Tax, including,
without limitation, any information return, claim for refund, amended return or
declaration of estimated Tax.
"Taxes" shall mean all taxes, charges, fees, duties, levies, penalties or
other assessments, including, without limitation, income, gross receipts,
excise, real and personal property, sales, transfer, license, payroll,
withholding, social security, franchise, unemployment insurance, workers'
compensation, employer health tax, Built-in Gain Tax or other taxes, imposed by
any Governmental Authority and shall include any interest, penalties or
additions to tax attributable to any of the foregoing.
"Third Party Environmental Claim(s)" shall mean third party claims, actions,
demands or proceedings (other than Regulatory Actions) based on negligence,
trespass, strict liability, nuisance, toxic tort or detriment to human health or
welfare due to any Release of Hazardous Materials or Contamination, and whether
or not seeking costs, damages, penalties or expenses.
"Voting Agreements" shall have the meaning set forth in the Recitals.
"WARN Act" shall mean the Worker Adjustment and Retraining Notification Act
of 1988, as amended.
"Window Period" shall mean the period of time commencing on the date of this
Agreement and ending at midnight Pacific Daylight Time on September 11, 2000,
unless the Company shall have furnished to Parent a Notice of Superior Proposal
in accordance with Section 7.9(b)(iii) during the final 60 hours of such period,
in which case the Window Period shall be extended beyond such time and shall end
60 hours following Parent's receipt of such Notice of Superior Proposal.
Section 1.2 TERMS GENERALLY. The definitions in Section 1.1 shall apply
equally to both the singular and plural forms of the terms defined. Whenever the
context may require, any pronoun shall include the corresponding masculine,
feminine and neuter forms. The words "include," "includes" and "including" shall
be deemed to be followed by the phrase "without limitation" even if not actually
followed by such phrase unless the context expressly provides otherwise. All
references herein to Articles, Sections, paragraphs, Exhibits and Schedules
shall be deemed references to this Agreement unless the context shall otherwise
require. Unless otherwise expressly defined, terms defined in the Agreement
shall have the same meanings when used in any section, Exhibit or Schedule and
terms defined in any section, Exhibit or Schedule shall have the same meanings
when used in the Agreement or in any other section, Exhibit or Schedule. The
words "herein," "hereof," "hereto" and "hereunder"
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and other words of similar import refer to this Agreement as a whole and not to
any particular provision of this Agreement.
ARTICLE II
THE MERGER
Section 2.1 THE MERGER. Upon the terms and subject to the conditions set
forth in this Agreement, and in accordance with the DGCL, Sub shall be merged
with and into the Company at the Effective Time. Following the Effective Time,
the separate corporate existence of Sub shall cease and the Company shall be the
surviving corporation (the "Surviving Corporation"), shall succeed to and assume
all the rights and obligations of Sub in accordance with the DGCL and shall
become a wholly-owned subsidiary of Parent.
Section 2.2 CLOSING. The closing of the Merger (the "Closing") will take
place at 10:00 a.m. on a date to be specified by the parties (the "Closing
Date"), which shall be no later than the second business day after satisfaction
or waiver of the conditions set forth in Article VIII (other than those
conditions that by their nature are to be satisfied at the Closing, but subject
to the satisfaction or waiver of those conditions), unless another time or date
is agreed to by the parties hereto. The Closing will be held at the offices of
Hogan & Hartson L.L.P., 1200 17th Street, Suite 1500, Denver, Colorado 80202.
Section 2.3 EFFECTIVE TIME. Subject to the provisions of this Agreement,
as soon as practicable on or after the Closing Date, the parties shall file a
certificate of merger (the "Certificate of Merger") executed in accordance with
the relevant provisions of the DGCL and shall make all other filings or
recordings required under the DGCL. The Merger shall become effective at such
time as the Certificate of Merger is filed with the Secretary of State of the
State of Delaware, or at such subsequent date or time as Parent and the Company
shall agree and specify in the Certificate of Merger.
Section 2.4 EFFECTS OF THE MERGER. The Merger shall have the effects set
forth in Section 259 of the DGCL.
Section 2.5 CERTIFICATE OF INCORPORATION AND BYLAWS. At the Effective
Time, subject to the provisions of Section 7.11, the Certificate of
Incorporation of the Company shall be amended and restated to be the same in
substance as the Certificate of Incorporation of Sub as in effect immediately
prior to the Effective Time (except that the name of the Company will remain
unchanged), and said amended and restated Certificate of Incorporation shall be
the Certificate of Incorporation of the Surviving Corporation. At the Effective
Time, subject to the provisions of Section 7.11, the Bylaws of the Company shall
be amended and restated to be the same in substance as the Bylaws of Sub as in
effect immediately prior to the Effective Time, and such amended and restated
Bylaws shall be the Bylaws of the Surviving Corporation until thereafter
amended.
Section 2.6 DIRECTORS. The directors of Sub immediately prior to the
Effective Time shall be the directors of the Surviving Corporation until the
next annual meeting of stockholders of the Surviving Corporation (or their
earlier resignation or removal) and until their respective successors are duly
elected and qualified, as the case may be.
Section 2.7 PLAN OF REORGANIZATION. For federal income tax purposes, the
Merger is intended to constitute a reorganization within the meaning of
Section 368 of the Code. The parties to this Agreement hereby adopt this
Agreement as a "plan of reorganization" within the meaning of
Sections 1.368-2(g) and 1.368-3(a) of the Income Tax Regulations.
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ARTICLE III
EFFECT OF THE MERGER ON THE STOCK OF THE CONSTITUENT
CORPORATIONS; EXCHANGE OF CERTIFICATES
Section 3.1 EFFECT ON STOCK. As of the Effective Time, by virtue of the
Merger and without any action on the part of Sub, the Company or the holders of
any securities of the Company or Sub:
(a) CANCELLATION OF COMPANY STOCK AND PARENT-OWNED STOCK. Each share
of Company Common Stock that is owned directly by the Company or by Parent
or any of their wholly-owned Subsidiaries, if any, shall automatically be
cancelled and retired and shall cease to exist, and no consideration shall
be delivered in exchange therefor.
(b) CONVERSION OF COMPANY COMMON STOCK. Subject to Sections 3.1(e) and
3.2(e), each issued and outstanding share of Company Common Stock (other
than shares to be cancelled in accordance with Section 3.1(a)) shall be
converted into the right to receive that number of fully paid and
non-assessable shares of Parent Common Stock determined by dividing $18.00
by Parent's Closing Date Price (the "Common Exchange Ratio"), which number
of shares of Parent Common Stock (together with any cash in lieu of a
fractional share as provided in Section 3.2(e)) shall constitute the "Merger
Consideration." As of the Effective Time and without any action on the part
of the holders thereof, all such shares of Company Common Stock shall no
longer be outstanding and shall automatically be cancelled and retired and
shall cease to exist, and each holder of a certificate or certificates that
immediately prior to the Effective Time represented outstanding shares of
Company Common Stock (the "Certificates") shall cease to have any rights
with respect thereto, except the right to receive (i) the Merger
Consideration and (ii) certain dividends and other distributions in
accordance with Section 3.2(c).
(c) CONVERSION OF COMMON STOCK OF SUB. Each issued and outstanding
share of common stock, par value $0.01 per share, of Sub shall be converted
into and become one validly issued, fully paid and nonassessable share of
common stock of the Surviving Corporation.
(d) COMPANY OPTIONS. At the Effective Time, each outstanding option to
purchase shares of Company Common Stock (each, a "Company Option") under the
1998 Equity Incentive Plan, the 1996 Equity Incentive Plan, the Non-Employee
Directors Stock Option Plan (the "Company Option Plans") or any stock option
agreements to which the Company is a party, whether or not vested, shall be
assumed by Parent. Each Company Option so assumed by Parent under this
Agreement will continue to have, and be subject to, the same terms and
conditions of such Company Options immediately prior to the Effective Time
(including, without limitation, any repurchase rights or vesting provisions
and provisions regarding the acceleration of vesting on certain
transactions, other than the transactions contemplated by this Agreement),
except that (i) each Company Option will be exercisable (or will become
exercisable in accordance with its terms) for that number of whole shares of
Parent Common Stock equal to the product of the number of shares of Company
Common Stock that were issuable upon exercise of such Company Option
immediately prior to the Effective Time multiplied by the Common Exchange
Ratio, rounded down to the nearest whole number of shares of Parent Common
Stock, and (ii) the per share exercise price for the shares of Parent Common
Stock issuable upon exercise of such assumed Company Option will be equal to
the quotient determined by dividing the exercise price per share of Company
Common Stock at which such Company Option was exercisable immediately prior
to the Effective Time by the Common Exchange Ratio, rounded up to the
nearest whole cent. Parent shall comply with the terms of all such Company
Options and use its best reasonable efforts to ensure, to the extent
required by and subject to the provisions of, the Company Option Plans, and
to the extent permitted under the Code, that any Company Options that
qualified for tax treatment as incentive stock options under Section 422 of
the Code prior to the Effective Time continue to so qualify after the
Effective Time. Parent represents that it has taken all corporate
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actions necessary to reserve for issuance a sufficient number of shares of
Parent Common Stock for delivery upon exercise of assumed Company Options on
the terms set forth in this Section 3.1(d).
(e) ADJUSTMENTS TO COMMON EXCHANGE RATIO. The Common Exchange Ratio
and any other applicable numbers or amounts shall be adjusted to reflect
appropriately the effect of any stock split, reverse stock split, stock
dividend (including any dividend or distribution of securities convertible
into or exercisable or exchangeable for Parent Common Stock or Company
Common Stock), extraordinary dividend, reorganization, recapitalization,
reclassification, combination, exchange of shares or other like change with
respect to Parent Common Stock or Company Common Stock occurring or having a
record date on or after the date hereof and prior to the Effective Time.
(f) EMPLOYEE STOCK PURCHASE PLAN. At the Effective Time, the Company's
1998 Employee Stock Purchase Plan (the "Company ESPP") shall terminate in
accordance with its terms, and the participants' accumulated payroll
deductions shall be used to purchase shares of Company Common Stock under
the Company ESPP ("Purchase Rights") which shares shall be converted (in
accordance with the Common Exchange Ratio) into shares of Parent Common
Stock. Parent agrees that, as soon as practicable after the Effective Time,
Company's employees shall be entitled to participate in the employee stock
purchase plan sponsored by Parent (the "Parent ESPP"), subject to the terms
and conditions of the Parent ESPP, and that service with Company shall be
treated as service with Parent for determining eligibility of Company's
employees under the Parent ESPP.
Section 3.2 EXCHANGE OF CERTIFICATES.
(a) EXCHANGE AGENT. Prior to the Closing Date, Parent shall enter into
an agreement with such bank or trust company as may be designated by Parent
and as shall be reasonably satisfactory to the Company to act as exchange
agent for the purpose of exchanging Certificates for the Merger
Consideration (the "Exchange Agent"). At or prior to the Effective Time,
Parent shall deposit with the Exchange Agent, for the benefit of the holders
of shares of Company Common Stock, for exchange in accordance with this
Article III, through the Exchange Agent, Parent certificates representing
the number of whole shares of Parent Common Stock issuable pursuant to
Section 3.1 in exchange for outstanding shares of Company Common Stock.
Parent shall also make available to the Exchange Agent, from time to time as
required after the Effective Time, cash necessary to pay dividends and
distributions in accordance with Section 3.2(c) and to make payments in lieu
of any fractional shares in accordance with Section 3.2(e). Any certificates
of Parent Common Stock and cash deposited with the Exchange Agent as
provided above shall hereinafter be referred to as the "Exchange Fund."
(b) EXCHANGE PROCEDURES. As soon as reasonably practicable after the
Effective Time, but no later than 10 days thereafter, the Exchange Agent
shall mail to each holder of record of a Certificate whose shares were
converted into the Merger Consideration pursuant to Section 3.1, (i) a
letter of transmittal (which shall specify that delivery shall be effected,
and risk of loss and title to the Certificates shall pass, only upon
delivery of the Certificates to the Exchange Agent and shall be in such form
and have such other provisions as Parent and the Company may reasonably
specify) and (ii) instructions for use in effecting the surrender of the
Certificates in exchange for the Merger Consideration. Upon surrender of a
Certificate for cancellation to the Exchange Agent, together with such
letter of transmittal, duly executed, and such other documents as may
reasonably be required by the Exchange Agent, the holder of such Certificate
shall be entitled to receive in exchange therefor a Parent certificate
representing that number of whole shares of Parent Common Stock that such
holder has the right to receive pursuant to the provisions of this
Article III, certain dividends or other distributions in accordance with
Section 3.2(c) and cash in
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lieu of any fractional share in accordance with Section 3.2(e) and the
Certificate so surrendered shall forthwith be cancelled. In the event of a
transfer of ownership of Company Common Stock that is not registered in the
transfer records of the Company, a certificate representing the proper
number of shares of Parent Common Stock may be issued to a Person other than
the Person in whose name the Certificate so surrendered is registered if
such Certificate shall be properly endorsed or otherwise be in proper form
for transfer and the Person requesting such issuance shall pay any transfer
or other non-income taxes required by reason of the issuance of shares of
Parent Common Stock to a Person other than the registered holder of such
Certificate or establish to the satisfaction of Parent that such tax has
been paid or is not applicable. Until surrendered as contemplated by this
Section 3.2, each Certificate shall be deemed at any time after the
Effective Time to represent only the right to receive upon such surrender
the Merger Consideration that the holder thereof has the right to receive
pursuant to the provisions of this Article III, and if applicable, certain
dividends or other distributions in accordance with Section 3.2(c). No
interest will be paid or will accrue on any cash payable to holders of
Certificates pursuant to the provisions of this Article III.
(c) DISTRIBUTIONS WITH RESPECT TO UNEXCHANGED SHARES. No dividends or
other distributions with respect to Parent Common Stock with a record date
after the Effective Time shall be paid to the holder of any unsurrendered
Certificate with respect to the shares of Parent Common Stock represented
thereby, and no cash payment in lieu of fractional shares shall be paid to
any such holder pursuant to Section 3.2(e), and all such dividends, other
distributions and cash in lieu of fractional shares of Parent Common Stock
shall be paid by Parent to the Exchange Agent and shall be included in the
Exchange Fund, in each case until the surrender of such Certificate in
accordance with this Article III. Subject to the effect of applicable
escheat or similar laws, following surrender of any such Certificate, there
shall be paid to the holder of the certificate representing whole shares of
Parent Common Stock issued in exchange therefor, without interest, (i) at
the time of such surrender, the amount of dividends or other distributions
with a record date after the Effective Time theretofore paid with respect to
such whole shares of Parent Common Stock and the amount of any cash payable
in lieu of a fractional share of Parent Common Stock to which such holder is
entitled pursuant to Section 3.2(e) and (ii) at the appropriate payment
date, the amount of dividends or other distributions with a record date
after the Effective Time but prior to such surrender and with a payment date
subsequent to such surrender payable with respect to such whole shares of
Parent Common Stock. Parent shall make available to the Exchange Agent cash
for these purposes.
(d) NO FURTHER OWNERSHIP RIGHTS IN THE COMPANY COMMON STOCK. All
shares of Parent Common Stock issued upon the surrender for exchange of
Certificates in accordance with the terms of this Article III shall be
deemed to have been issued in full satisfaction of all rights pertaining to
the shares of Company Common Stock theretofore represented by such
Certificates, subject, however, to the Surviving Corporation's obligation to
pay any dividends or make any other distributions with a record date prior
to the Effective Time that may have been authorized or made by the Company
on such shares of Company Common Stock that remain unpaid at the Effective
Time, and there shall be no further registration of transfers on the stock
transfer books of the Surviving Corporation of the shares of Company Common
Stock that were outstanding immediately prior to the Effective Time. If,
after the Effective Time, Certificates are presented to the Surviving
Corporation or the Exchange Agent for any reason, they shall be cancelled
and exchanged as provided in this Article III, except as otherwise provided
by law.
(e) NO FRACTIONAL SHARES.
(i) No certificates or scrip representing fractional shares of
Parent Common Stock shall be issued upon the surrender for exchange
of Certificates, no dividend or distribution of Parent shall relate
to such fractional share interests and such fractional
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share interests will not entitle the owner thereof to vote or to any
rights of a stockholder of Parent.
(ii) As promptly as practicable following the Effective Time,
Parent shall pay to each former holder of Company Common Stock an
amount in cash equal to the product obtained by multiplying (A) the
fractional share interest to which such former holder (after taking
into account all shares of Company Common Stock held at the Effective
Time by such holder) would otherwise be entitled by (B) Parent's
Closing Date Price.
(iii) As soon as practicable after the determination of the
amount of cash, if any, to be paid to holders of Company Common Stock
with respect to any fractional share interests, the Exchange Agent
will make available such amounts to such holders of Company Common
Stock subject to and in accordance with the terms of Section 3.2(c).
(f) TERMINATION OF EXCHANGE FUND. Any portion of the Exchange Fund
that remains undistributed to the holders of the Certificates for six months
after the Effective Time shall be delivered to Parent, upon demand, and any
holders of the Certificates who have not theretofore complied with this
Article III shall thereafter look only to Parent for payment of their claim
for Merger Consideration and any dividends or distributions with respect to
Parent Common Stock.
(g) NO LIABILITY. None of Parent, the Company, Sub, the Surviving
Corporation or the Exchange Agent shall be liable to any Person in respect
of any shares of Parent Common Stock (or dividends or distributions with
respect thereto) or cash from the Exchange Fund in each case properly
delivered to a public official pursuant to any applicable abandoned
property, escheat or similar law. If any Certificate shall not have been
surrendered prior to seven years after the Effective Time and shall not
previously have been required to be escheated to or become the property of
any Governmental Authority, any such Merger Consideration or cash, dividends
or distributions in respect of such Certificate shall, to the extent
permitted by applicable law, become the property of Parent, free and clear
of all claims or interest of any Person previously entitled thereto.
(h) INVESTMENT OF EXCHANGE FUND. The Exchange Agent shall invest any
cash included in the Exchange Fund, as directed by Parent, on a daily basis.
Any interest and other income resulting from such investments shall be paid
to Parent.
(i) LOST CERTIFICATES. If any Certificate shall have been lost, stolen
or destroyed, upon the making of an affidavit of that fact by the Person
claiming such Certificate to be lost, stolen or destroyed and, if required
by the Surviving Corporation or Parent, the posting by such Person of a bond
in such reasonable amount as the Surviving Corporation or Parent may direct
as indemnity against any claim that may be made against either of them with
respect to such Certificate, the Exchange Agent will issue in exchange for
such lost, stolen or destroyed Certificate the Merger Consideration and
unpaid dividends and distributions on shares of Parent Common Stock
deliverable in respect thereof, in each case pursuant to this Agreement.
(j) WITHHOLDING RIGHTS. Each of the Surviving Corporation and Parent
shall be entitled to deduct and withhold from the consideration otherwise
payable pursuant to this Agreement to any holder of shares of Company Common
Stock such amounts as it is required to deduct and withhold with respect to
the making of such payment under the Code and the rules and regulations
promulgated thereunder, or any provision of state, local or foreign tax law.
To the extent that amounts are so withheld by the Surviving Corporation or
Parent, as the case may be, such withheld amounts shall be treated for all
purposes of this Agreement as having been paid to the holder of the shares
of Company Common Stock in respect of which such deduction and withholding
was made by the Surviving Corporation or Parent, as the case may be.
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Section 3.3 FURTHER ASSURANCES. At and after the Effective Time, the
officers and directors of the Surviving Corporation shall be authorized to
execute and deliver, in the name and on behalf of the Company or Sub, any deeds,
bills of sale, assignments or assurances and to take and do, in the name and on
behalf of the Company or Sub, any other actions and things to vest, perfect or
confirm of record or otherwise in the Surviving Corporation any and all right,
title and interest in, to and under any of the rights, properties or assets
acquired or to be acquired by the Surviving Corporation as a result of, or in
connection with, the Merger.
ARTICLE IV
STOCKHOLDER APPROVAL; BOARD OF DIRECTORS RECOMMENDATION
Section 4.1 STOCKHOLDER APPROVAL. Subject to the terms and conditions
contained herein, as soon as reasonably practicable following the effectiveness
of the Registration Statement, this Agreement shall be submitted for approval to
the holders of shares of Company Common Stock entitled to vote thereon at a
meeting to be duly held for this purpose by the Company (the "Company
Stockholders Meeting").
Section 4.2 BOARD OF DIRECTORS RECOMMENDATION. The Board of Directors of
the Company shall recommend approval of this Agreement by the stockholders of
the Company (the "Company Recommendation"), and shall not withdraw, modify or
qualify (or propose to withdraw, modify or qualify) in any manner adverse to
Parent such recommendation or take any action or make any statement in
connection with the Company Stockholders Meeting inconsistent with such
recommendation (collectively, a "Change in Company Recommendation"); provided
the foregoing shall not prohibit disclosure (and such disclosure shall not be
deemed to be a Change in Company Recommendation) of factual information
regarding the business, financial condition or results of operations of the
Company or Parent or the fact that a Takeover Proposal has been made, the
identity of the party making such proposal or the material terms of such
proposal in the proxy statement/ prospectus or otherwise; and, provided further,
that the Board of Directors of the Company may make a Change in Company
Recommendation (a) pursuant to Section 7.9 hereof (a "Qualifying Change in
Company Recommendation") or (b) if the Board of Directors of the Company
otherwise concludes in good faith, after consultation with its outside legal
counsel, that the Change in Company Recommendation is required in order for the
Board of Directors of Company to comply with its fiduciary obligations to the
Company's stockholders under applicable law. Notwithstanding any Change in
Company Recommendation, this Agreement shall be submitted to the stockholders of
the Company at the Company Stockholders Meeting for the purpose of adopting and
approving this Agreement; provided that this Agreement shall not be required to
be submitted to the stockholders of the Company at the Company Stockholders
Meeting if this Agreement has been terminated pursuant to Section 9.1 hereof.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to Parent and Sub that the statements
contained in this Article V are true and correct as of the date of this
Agreement, subject to such exceptions as are disclosed in writing in the Company
Disclosure Letter, which disclosure shall provide an exception to or otherwise
qualify the representations and warranties of the Company contained in the
Section of this Agreement corresponding by number to such disclosure, as well as
the other representations and warranties of the Company herein to the extent
that the specific disclosure could be reasonably interpreted to apply to any
such representations and warranties.
Section 5.1 ORGANIZATION, QUALIFICATION, ETC. The Company is a corporation
duly organized, validly existing and in good standing under the laws of the
State of Delaware, has the corporate power and authority to own its properties
and assets and to carry on its business as it is now being conducted and is duly
qualified to do business and is in good standing in each jurisdiction in which
the ownership
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of its properties or the conduct of its business requires such qualification,
except for jurisdictions in which such failure to be so qualified or to be in
good standing would not have a Material Adverse Effect on the Company. The
Company has furnished to Parent true, correct and complete copies of the
Company's certificate of incorporation and bylaws as in full force and effect on
the date hereof. SCHEDULE 5.1 of the Company Disclosure Letter lists all of the
Company's Subsidiaries. All of the Company's Subsidiaries are corporations duly
organized, validly existing and in good standing under the laws of their
respective states of incorporation and each has the corporate power and
authority to own its properties and assets and to carry on its business as it is
now being conducted and is duly qualified to do business and is in good standing
in each jurisdiction in which the ownership of its properties or the conduct of
its business requires such qualification, except for jurisdictions in which such
failure to be so qualified or to be in good standing would not have a Material
Adverse Effect on the Company. All the outstanding shares of capital stock of
the Company's Subsidiaries are validly issued, fully paid and non-assessable and
are owned by the Company, directly or indirectly, free and clear of all Liens.
Except as set forth on SCHEDULE 5.1 of the Company Disclosure Letter, there are
no existing options, rights of first refusal, preemptive rights, calls or
commitments of any character relating to the issued or unissued capital stock or
other securities of, or other ownership interests in, any Subsidiaries of the
Company (other than rights of first refusal, preemptive rights or similar rights
held by the Company with respect to such Subsidiaries).
Section 5.2 CAPITAL STOCK. As of the date of this Agreement, the
authorized stock of the Company consists of 28,000,000 shares of common stock,
par value $.001 per share ("Company Common Stock") and 2,000,000 shares of
preferred stock, par value $0.001 per share ("Company Preferred Stock"). As of
the date of this Agreement, 10,535,464 shares of Company Common Stock, were
issued and outstanding and no shares of Company Common Stock were held in
treasury or by any Subsidiary of the Company. As of the date of this Agreement,
no shares of Company Preferred Stock were issued and outstanding. All the
outstanding shares of Company Common Stock are duly authorized, validly issued
and are fully paid and non-assessable. As of the date of this Agreement, there
are no outstanding subscriptions, options, warrants, rights or other
arrangements or commitments obligating the Company to issue any shares of its
capital stock other than Company Options to receive or acquire 1,213,559 shares
of Company Common Stock granted on or prior to the date of this Agreement
pursuant to the Company Option Plans and Company Options to acquire 80,000
shares of the Company Common Stock granted outside of the Company Option Plans.
As of the date of this Agreement, no changes in Company Common Stock have
occurred since June 30, 2000 except as follows: (1) 311,431 shares of Company
Common Stock were issued pursuant exercise of Company Options and (2) options to
purchase 47,375 shares of Company Common Stock were granted. SCHEDULE 5.2 of the
Company Disclosure Letter sets forth a complete and correct list, as of
June 30, 2000 of (i) the name of each holder of outstanding Company Options,
(ii) the name of each holder of any other rights to purchase or to receive
Company Common Stock granted under the Company Option Plans, (iii) the number of
shares of Company Common Stock subject to each Company Option, (iv) the exercise
prices thereof and (v) the name of the Company Option Plan pursuant to which
such Company Options were issued. Except as set forth in this Section 5.2 or
disclosed on SCHEDULE 5.2 of the Company Disclosure Letter or as otherwise
specifically contemplated by this Agreement, as of the date of this Agreement
(x) there are not issued, reserved for issuance or outstanding (A) any shares of
capital stock or other voting securities of the Company or any of its
Subsidiaries (other than shares of capital stock or other voting securities of
such Subsidiaries that are directly or indirectly owned by the Company),
(B) any securities of the Company or any of its Subsidiaries convertible into or
exchangeable or exercisable for shares of capital stock or other voting
securities of, or other ownership interests in, the Company or any of its
Subsidiaries or (C) any warrants, calls, options or other rights to acquire from
the Company or any of its Subsidiaries, and no obligation of the Company or any
of its Subsidiaries to issue, any capital stock or other voting securities of,
or other ownership interests in, or any securities convertible into or
exchangeable or exercisable for any capital stock or other voting
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securities of, or ownership interests in, the Company or any of its
Subsidiaries, (y) there are not any outstanding obligations of the Company or
any of its Subsidiaries to repurchase, redeem or otherwise acquire any such
securities or to issue, deliver or sell, or cause to be issued, delivered or
sold, any such securities and (z) the Company is not a party to any voting
agreement, registration rights agreement or other similar agreement with respect
to any of its securities. Neither the Company nor any Subsidiary is a party to
or sponsor of any phantom stock plans, stock appreciation rights plans, phantom
stock agreement or stock appreciation rights agreements.
Section 5.3 CORPORATE AUTHORITY RELATIVE TO THIS AGREEMENT; NO
VIOLATION. The Company has the requisite corporate power and authority to enter
into this Agreement and (subject to the approval of this Agreement by the
stockholders of the Company as provided herein) to carry out its obligations
hereunder. The execution and delivery of this Agreement and the consummation of
the transactions contemplated hereby have been duly and validly authorized by
the Board of Directors of the Company and, except for the approval of this
Agreement by the stockholders of the Company as provided herein, no other
corporate proceedings on the part of the Company are necessary to authorize this
Agreement and the transactions contemplated hereby. The Board of Directors of
the Company has determined that the transactions contemplated by this Agreement
are in the best interest of the Company and its stockholders and to recommend to
such stockholders that they vote in favor of the adoption and approval of this
Agreement. This Agreement has been duly and validly executed and delivered by
the Company and, assuming this Agreement constitutes a valid and binding
agreement of the other parties hereto, this Agreement constitutes a valid and
binding agreement of the Company, enforceable against the Company in accordance
with its terms (except insofar as enforceability may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium or similar laws affecting
creditors' rights generally, or by principles governing the availability of
equitable remedies). The Company is not subject to or obligated under any
charter or bylaw provision, or subject to any order or decree, that would be
breached or violated by its executing or, subject to the adoption and approval
of this Agreement by the Company's stockholders, carrying out this Agreement.
The execution and carrying out of this Agreement by the Company will not breach
or violate any contract provision or agreement evidencing indebtedness or any
license, franchise or permit, except for any breaches or violations that would
not, individually or in the aggregate, have a Material Adverse Effect on the
Company. Other than in connection with or in compliance with any provisions of
the DGCL, the Securities Act, the Exchange Act, the HSR Act and the securities
or blue sky laws of the various states that require the authorization, consent
or approval of, or filing with, any Governmental Authority prior to the
Effective Time in connection with the Merger (collectively, the "Company
Required Approvals"), no authorization, consent or approval of, or filing with,
any Governmental Authority or any non-governmental third party is necessary for
the consummation by the Company of the transactions contemplated by this
Agreement, except for such authorizations, consents, approvals or filings, the
failure to obtain or make which would not, individually or in the aggregate,
have a Material Adverse Effect on the Company or substantially impair or delay
the consummation of the transactions contemplated hereby.
Section 5.4 REPORTS AND FINANCIAL STATEMENTS. The Company has previously
made available to Parent (including through the SEC's EDGAR system) true and
complete copies of: (a) the Company's Annual Report on Form 10-K filed with the
SEC for the year ended December 31, 1999; (b) the Company's Quarterly Report on
Form 10-Q filed with the SEC for the quarter ended June 30, 2000; (c) the
definitive proxy statement filed by the Company with the SEC on or about May 1,
2000; (d) the final prospectus filed by the Company with the SEC with respect to
its initial public offering; and (e) all Current Reports on Form 8-K filed by
the Company with the SEC since December 31, 1999. As of their respective dates
(or if amended or superseded by a filing prior to the date of this Agreement,
then on the date of such filing), such reports, proxy statements and
prospectuses (individually a "Company SEC Report" and collectively, the "Company
SEC Reports") (i) complied as to form in all material respects with the
applicable requirements of the Securities Act, the Exchange Act and the
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rules and regulations promulgated thereunder and (ii) 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 therein, in light of the
circumstances under which they were made, not misleading. The audited
consolidated financial statements and unaudited consolidated interim financial
statements included in the Company SEC Reports (including any related notes and
schedules) complied as to form, as of their respective dates of filing with the
SEC, in all material respects with all applicable accounting requirements and
the published rules and regulations of the SEC with respect thereto, were
prepared in accordance with GAAP consistently applied during the periods
involved (except as otherwise disclosed in the notes thereto, and except that
unaudited statements do not contain footnotes in substance or form required by
GAAP, as is permitted by Form 10-Q of the Exchange Act) and fairly presented the
financial position of the Company and its consolidated Subsidiaries as of the
dates thereof and the results of operations and cash flows for the periods or as
of the dates then ended (subject, where appropriate, to normal year-end
adjustments). Since the date of the effectiveness of the final prospectus for
the Company's initial public offering, the Company has timely filed all reports
and other filings required to be filed by it with the SEC under the rules and
regulations of the SEC.
Section 5.5 NO UNDISCLOSED LIABILITIES. Except as set forth in
SCHEDULE 5.5 of the Company Disclosure Letter, neither the Company nor any of
its Subsidiaries has any liabilities or obligations of any nature, whether or
not accrued, contingent or otherwise, except (a) liabilities or obligations
reflected in any of the Company SEC Reports and (b) liabilities or obligations
incurred in the ordinary course of business and consistent with past practices
and that are not reasonably likely to have a Material Adverse Effect on the
Company.
Section 5.6 NO VIOLATION OF LAW. The businesses of the Company and its
Subsidiaries have not been, and are not being, conducted in violation of any
Laws except (a) as described in any of the Company SEC Reports filed and
publicly available prior to the date hereof and (b) for violations or possible
violations that would not, individually or in the aggregate, have a Material
Adverse Effect on the Company.
Section 5.7 ENVIRONMENTAL COMPLIANCE.
(a) (i) The Company and all real property owned, operated or leased by
the Company ("Real Property") is currently, and at all times during the
Company's ownership or operation of its business has been, in compliance
with all applicable Environmental Laws and (ii) at all times during the
period of the Company's ownership, tenancy, or operation of the Real
Property or any real property formerly owned, operated, or leased by the
Company ("Former Real Property"), there has not been any Contamination or
Release at, on, under or from the Real Property, except any such Release or
Contamination permitted by, and made in accordance with, applicable
Environmental Laws and which will not have a Material Adverse Effect on the
Company. To the Knowledge of the Company, at all times prior to the
Company's ownership or operation of the Real Property, there did not occur
any Contamination or Release at, on, under or from the Real Property, except
any such Contamination or Release permitted by, and made in accordance with,
applicable Environmental Laws and which will not have a Material Adverse
Effect on the Company.
(b) The Company has obtained and maintained in full force and effect,
all environmental permits, licenses, certificates of compliance, approvals
and other authorizations necessary to conduct the activities and business of
the Company as currently conducted and to own or operate the Real Property
(collectively the "Environmental Permits"). The Company has conducted its
activities and business in compliance in all material respects with all
terms and conditions of any Environmental Permits. The Company has filed all
reports and notifications required to be filed under applicable
Environmental Laws, and timely filed applications for all Environmental
Permits, except for those where the failure to file would not have a
Material Adverse Effect on the
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Company. All of the Environmental Permits are transferable and none require
consent, notification, or other action to remain in full force and effect
following consummation of the transaction contemplated hereby.
(c) The Company has not received any notice that any Third Party
Environmental Claims or Regulatory Actions have been asserted or assessed
against the Company or the Real Property or any Former Real Property and no
Third Party Environmental Claims or Regulatory Actions are pending or, to
the Knowledge of the Company, threatened, against the Company, the Former
Real Property or the Real Property arising out of or due to, or allegedly
arising out of or due to, (i) the Release of any Hazardous Materials;
(ii) any Contamination of the Real Property, including, without limitation,
the presence of any Hazardous Material which has come to be located on or
under the Real Property from another location; (iii) any violation or
alleged violation of any Environmental Law with respect to the Real
Property, the Former Real Property, or the activities of the Company;
(iv) any injury to human health or safety or to the environment by reason of
the past or present condition of, or past or present activities on or under,
the Real Property or the Former Real Property; or (v) the generation,
manufacture, storage, treatment, handling, transportation or other use,
however defined, of any Hazardous Material by or for the Company on or off
the Real Property.
(d) Except as set forth on SCHEDULE 5.7(D) of the Company Disclosure
Letter, no polychlorinated biphenyls ("PCBs"), asbestos or asbestos
containing materials, radon, urea formaldehyde or radioactive materials are
present at the Real Property.
(e) The Company has not transported or arranged for the treatment,
disposal, or transportation of any Hazardous Materials to any location
(i) which is listed on the Environmental Protection Agency's National
Priorities List (the "National Priorities List"); (ii) which is listed on
the Comprehensive Environmental Response, Compensation, Liability
Information System or on any similar state list; or (iii) which may lead to
claims against Parent for damages to natural resources, personal injury,
Clean-up costs or Clean-up work, including, but not limited to, claims under
CERCLA.
(f) None of the Real Property or Former Real Property is listed in the
National Priorities List or any other list, schedule, log, inventory or
record, however defined, maintained by any federal, state or local
governmental agency with respect to sites from which there is or has been a
Release of any Hazardous Material or any Contamination. To the Knowledge of
the Company, no part of the Real Property or Former Real Property was ever
used, nor is it now being used (i) as a landfill, dump or other disposal,
storage, transfer or handling area for Hazardous Materials which requires a
permit under Environmental Laws; or (ii) as a gasoline service station.
There are no and never have been any underground improvements or above
ground tanks on the Real Property used for the storage of Hazardous
Materials.
(g) The Company has furnished to Parent copies of all environmental
assessments, reports, audits and other documents in its possession or under
its control that relate to the Real Property, compliance with Environmental
Laws, or any other real property that the Company or its Subsidiaries
formerly owned, operated, or leased. Any information the Company has
furnished to Parent concerning the environmental condition of the Real
Property, the Former Real Property or the operations of the Company related
to compliance with Environmental Laws is accurate and complete.
(h) No authorization, notification, recording, filing, consent, waiting
period, remediation, investigation, or approval is required under any
Environmental Law in order to consummate the transaction contemplated
hereby.
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Section 5.8 ABSENCE OF CHANGES IN BENEFIT PLANS. Except as described on
SCHEDULE 5.8 of the Company Disclosure Letter, since the date of the most recent
audited financial statements included in the Company SEC Reports filed and
publicly available prior to the date hereof, there has not been (a) any adoption
or amendment by the Company or any of its Subsidiaries of any employment
agreement with any director, officer or employee of the Company or any of its
Subsidiaries or of any collective bargaining agreement or (b) any adoption or
amendment of any bonus, pension, profit sharing, deferred compensation,
incentive compensation, stock ownership, stock purchase, stock option, phantom
stock, retirement, vacation, severance, disability, death benefit,
hospitalization, medical, welfare benefit or other plan, arrangement or
understanding providing compensation or benefits to any current or former
director, officer or employee of the Company or any of its Subsidiaries
(collectively, the "Company Benefit Plans"), or any change in any actuarial or
other assumption used to calculate funding obligations with respect to any of
the Company's pension plans, or any change in the manner in which contributions
to any of the Company's pension plans are made or the basis on which such
contributions are determined.
Section 5.9 ERISA COMPLIANCE.
(a) SCHEDULE 5.9 of the Company Disclosure Letter provides a list of
each of the Company Benefit Plans. True, correct, and complete copies of
each of the Company Benefit Plans, and related trusts, if applicable,
including all amendments thereto, have been furnished to Parent. There has
also been made available to Parent, with respect to each Company Benefit
Plan required to file such report and description, the most recent report on
Form 5500 and the summary plan description.
(b) The Company and its Subsidiaries do not contribute to or have an
obligation to contribute to, and have not at any time within six years prior
to the date of this Agreement contributed to or had an obligation to
contribute to, a plan subject to Section 412 of the Code, Section 302 of
ERISA, or Title IV of ERISA (including, without limitation, a multiemployer
plan within the meaning of Section 3(37) of ERISA).
(c) The Company and its Subsidiaries have substantially performed all
obligations, whether arising by operation of Law or by contract, required to
be performed by them in connection with the Company Benefit Plans, and there
have been no defaults or violations by any other party to the Company
Benefit Plans, except, in each case, for any failure to perform, default or
violation that is not reasonably likely to have a Material Adverse Effect on
the Company. With respect to the Company Benefit Plans, no Liability has
been incurred and, to the Knowledge of the Company, there exists no
condition or circumstances in connection with which the Company or any of
its Subsidiaries could be subject to any liability that is reasonably likely
to have a Material Adverse Effect on the Company.
(d) Each Company Benefit Plan has been operated and administered in
compliance with its governing documents and applicable law, except for any
failures so to operate or administer any Company Benefit Plan that are not
reasonably likely to have a Material Adverse Effect on the Company.
(e) There are no actions, suits, or claims pending (other than routine
claims for benefits) or, to the Knowledge of the Company, threatened
against, or with respect to, any of the Company Benefit Plans or their
assets.
(f) To the Knowledge of the Company, there is no matter pending (other
than routine qualification determination filings) with respect to any of the
Company Benefit Plans before the IRS, the Department of Labor, or other
Governmental Authority.
(g) The execution and delivery of this Agreement and the consummation
of the transactions contemplated hereby will not (i) require the Company or
any of its Subsidiaries to make a larger
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contribution to, or pay greater benefits or provide other rights under, any
Company Benefit Plan than it otherwise would, whether or not some other
subsequent action or event would be required to cause such payment or
provision to be triggered, or (ii) create or give rise to any additional
vested rights or service credits under any Company Benefit Plan (other than
acceleration of vesting of options in accordance with their terms).
Section 5.10 ABSENCE OF CERTAIN CHANGES OR EVENTS. Other than as disclosed
on SCHEDULE 5.10 of the Company Disclosure Letter and in the Company SEC Reports
filed and publicly available prior to the date hereof, since June 30, 2000
(a) each of the Company and its Subsidiaries has conducted its respective
business only in the ordinary course of business and consistent with past
practices, (b) there have not been any developments or events which have had or
could reasonably be expected, with the passage of time, to have, a Material
Adverse Effect on the Company and (c) neither the Company nor any of its
Subsidiaries has:
(i) (A) incurred, assumed or refinanced any Indebtedness other than
in the ordinary course of business consistent with past practice, or
(B) made any loans, advances or capital contributions to, or investments
in, any Person other than a wholly-owned Subsidiary or any employee or
officer as a cash advance, in each case in the ordinary course of
business and consistent with past practice;
(ii) paid, discharged or satisfied any liability, obligation, or
Lien other than payment, discharge or satisfaction of (A) Indebtedness as
it matures and become due and payable or (B) liabilities, obligations or
Liens in the ordinary course of business consistent with past practice;
(iii) (A) changed any of the accounting or tax principles, practices
or methods used by the Company or any of its Subsidiaries, except as
required by changes in applicable Tax Laws or (B) changed reserve amounts
or policies;
(iv) (A) entered into any employment contract or other arrangement
or made any change in the compensation payable or to become payable to
any of the officers of the Company or any of its Subsidiaries' officers,
employees, agents, consultants or Persons acting in a similar capacity
(other than general increases in wages to employees and salaries to
officers or Persons acting in a similar capacity or Affiliates in the
ordinary course consistent with past practice, and other than consultants
engaged by the Company in its Information Technology department in the
ordinary course of business), or to Persons providing management services
for the Company of any of its Subsidiaries, (B) entered into or amended
any employment, severance, consulting, termination or other agreement or
employee benefit plan, other than with respect to consultants engaged by
the Company in its Information Technology department in the ordinary
course of business, and except for cash advances made in the ordinary
course of business consistent with past practice, (C) paid any bonuses
payable or to become payable to any of the officers of the Company or any
of its Subsidiaries' officers, employees, agents, consultants or Persons
acting in a similar capacity or (D) made any change in its existing
borrowing or lending arrangements for or on behalf of any of such Persons
pursuant to an employee benefit plan or otherwise;
(v) (A) paid or made any accrual or arrangement for payment of any
pension, retirement allowance or other employee benefit pursuant to any
existing plan, agreement or arrangement to any Affiliate, officer,
employee or Person acting in a similar capacity, or paid or agreed to pay
or made any accrual or arrangement for payment to any Affiliate,
officers, employees or Persons acting in a similar capacity of any amount
relating to unused vacation days, except payments and accruals made in
the ordinary course consistent with past practice, (B) granted, issued,
accelerated or accrued salary or other payments or benefits pursuant to
any pension, profit-sharing, bonus, extra compensation, incentive,
deferred compensation,
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stock purchase, stock option, stock appreciation right, group insurance,
severance pay, retirement or other employee benefit plan, agreement or
arrangement, or any employment or consulting agreement with or for the
benefit of any Affiliate, officer, employee, agent or consultant or
Person acting in a similar capacity, whether past or present or (C) or
amended in any material respect any such existing plan, agreement or
arrangement to effect any of the foregoing;
(vi) made any payments (other than regular compensation and cash
advances payable to officers and employees or Persons acting in a similar
capacity of the Company or any of its Subsidiaries in the ordinary course
consistent with past practice), loans, advances or other distributions,
or enter into any transaction, agreement or arrangement with, the
Principal Stockholders, Company's Affiliates, officers, employees,
agents, consultants or Persons acting in a similar capacity, stockholders
of their Affiliates, associates or family members;
(vii) made or authorized any capital expenditures, except in the
ordinary course of business consistent with past practices, which are not
in excess of $500,000 individually or $1,000,000 in the aggregate;
(viii) settled or compromised any Tax liability or agreed to any
adjustment of any Tax attribute or made any election with respect to
Taxes;
(ix) (A) made any change in its working capital practices generally,
including accelerating any collections of cash or accounts receivable or
deferring payments or (B) failed to make timely accruals, including with
respect to accounts payable and liabilities incurred in the ordinary
course of business;
(x) failed to renew (at levels consistent with presently existing
levels), terminated or amended or failed to perform any of its
obligations or permitted any material default to exist or caused any
material breach under, or entered into (except for renewals in the
ordinary course of business consistent with past practice), any policy of
insurance;
(xi) except in the ordinary course of business consistent with past
practice pursuant to appropriate confidentiality agreements, and except
as required by any Law or any existing agreements set forth on
SCHEDULE 5.21 of the Company Disclosure Letter or as may be reasonably
necessary to secure or protect intellectual or other property rights of
the Company, provided any confidential information to any Person other
than Parent;
(xii) suffered any change in the normal operating balances of the
Company's inventory or the inventory of any of its Subsidiaries; or
(xiii) cancelled, compromised, waived or released any right or claim
outside the ordinary course of business.
Section 5.11 INVESTIGATIONS; LITIGATION. Other than as disclosed on
SCHEDULE 5.11 of the Company Disclosure Letter or in any of the Company SEC
Reports filed and publicly available prior to the date hereof:
(a) No investigation or review by any Governmental Authority with
respect to the Company or any of its Subsidiaries that is reasonably likely
to have a Material Adverse Effect on the Company is pending nor has any
Governmental Authority notified the Company of an intention to conduct the
same, nor is there any reasonable basis therefor;
(b) There are no actions, suits or proceedings pending (or, to the
Company's Knowledge, threatened) against or affecting the Company or its
Subsidiaries, or any of their respective properties at law or in equity, or
before any Governmental Authority, that are reasonably likely to have a
Material Adverse Effect on the Company, nor is there any reasonable basis
therefor;
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(c) There is no judgment, decree, injunction, rule or order of any
Governmental Authority or arbitrator outstanding against the Company or any
of its Subsidiaries having, or that individually or in the aggregate is
reasonably likely to have, a Material Adverse Effect on the Company; and
(d) There are no facts, circumstances or conditions that are reasonably
likely to give rise to any liability of, or form the basis of a claim
against, the Company or any of its Subsidiaries under any applicable
statutes, laws, ordinances, rules or regulations, which liability or claim
is reasonably likely to have a Material Adverse Effect on the Company.
Section 5.12 PROXY STATEMENT/PROSPECTUS; REGISTRATION STATEMENT; OTHER
INFORMATION. None of the information with respect to the Company or its
Subsidiaries to be included in the proxy statement/ prospectus or the
Registration Statement will, in the case of the proxy statement/prospectus or
any amendments thereof or supplements thereto, at the time of the mailing of the
proxy statement/ prospectus or any amendments or supplements thereto, and at the
time of the Company Stockholders Meeting, or, in the case of the Registration
Statement, at the time it becomes effective, contain any untrue statement of a
material fact or omit to state any material fact required to be stated therein
or necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading, provided that the
representations made by the Company hereunder with respect to the proxy
statement/prospectus are limited solely to information supplied in writing by
the Company or any Affiliate of the Company to Parent specifically for inclusion
in the proxy statement/prospectus. The proxy statement/prospectus will comply as
to form in all material respects with the provisions of the Exchange Act and the
rules and regulations promulgated thereunder. The letter to stockholders, notice
of meeting, proxy statement and form of proxy to be distributed to Company
stockholders in connection with the Merger and any schedules required to be
filed with the SEC in connection therewith are collectively referred to herein
as the "proxy statement/prospectus".
Section 5.13 RIGHTS PLAN. The Company does not have, and the Company's
Board of Directors has not approved, any stockholder rights plan, poison pill or
similar arrangement.
Section 5.14 LACK OF OWNERSHIP OF PARENT COMMON STOCK. Neither the Company
nor any of its Subsidiaries owns any shares of Parent Common Stock or other
securities convertible into shares of Parent Common Stock (exclusive of any
shares owned by the Company's employee benefit plans).
Section 5.15 TAX MATTERS. Except as set forth on SCHEDULE 5.15 of the
Company Disclosure Letter:
(a) Each of the Company and its Subsidiaries has timely filed with the
appropriate governmental agencies all Tax Returns that it was required to
file. All such Tax Returns were correct and complete in all respects. All
Taxes owed by any of the Company and its Subsidiaries (whether or not shown
on any Tax Return) have been paid. None of the Company and its Subsidiaries
currently is the beneficiary of any extension of time within which to file
any Tax Return. No claim has ever been made by an authority in a
jurisdiction where any of the Company and its Subsidiaries does not file Tax
Returns that it is or may be subject to taxation by that jurisdiction. There
are no security interests on any of the assets of any of the Company and its
Subsidiaries that arose in connection with any failure (or alleged failure)
to pay any Tax.
(b) Each of the Company and its Subsidiaries has withheld and paid all
Taxes required to have been withheld and paid in connection with amounts
paid or owing to any employee, independent contractor, creditor,
stockholder, or other third party.
(c) To the Knowledge of the Company, there is no basis for any Tax
authority to assess any additional Taxes against the Company or any of its
Subsidiaries for any period for which Tax Returns have been filed. There is
no action, suit, proceeding, audit, investigation, assessment, dispute or
claim concerning any Tax liability of the Company or any of its Subsidiaries
either (i) claimed or raised by any authority in writing or (ii) as to which
the Company or any of the
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Company's Subsidiaries has Knowledge based upon personal communication or
contact with any agent of such authority.
(d) The Company and its Subsidiaries will make available to Parent
prior to the Closing correct and complete copies of all federal, state,
local and foreign income Tax Returns and all written communications from the
IRS or other Tax authorities relating to any such Tax Returns, examination
reports and statements of deficiencies assessed against or agreed to by any
of the Company and its Subsidiaries since January 1, 1995.
(e) None of the Company and its Subsidiaries has waived any statute of
limitations in respect of any Taxes or agreed to any extension of time with
respect to a Tax assessment or deficiency.
(f) None of the Company and its Subsidiaries has: (A) engaged in any
transaction that would result in a deemed election under Section 338(e) of
the Code, or (B) filed a consent under Section 341(f) of the Code concerning
collapsible corporations.
(g) None of the Company and its Subsidiaries has made any payments, or
is a party to any agreement that under certain circumstances could obligate
it to make any payments, that will not be deductible pursuant to
Section 280G of the Code. Each of the Company and its Subsidiaries has
disclosed on its federal income Tax Returns all positions taken therein that
could give rise to a substantial understatement of federal income Tax within
the meaning of Section 6662 of the Code. None of the Company and its
Subsidiaries is a party to any Tax allocation or sharing agreement. None of
the Company and its Subsidiaries (A) has been a member of an any affiliated
group within the meaning of Section 1504(a) of the Code filing a
consolidated federal income Tax Return (other than a group the common parent
of which was the Company) or (B) has any Liability for the Taxes of any
Person (other than any of the Company and its Subsidiaries) under
Section 1.1502-6 of the Income Tax Regulations (or any similar provision of
state, local, or foreign law), as a transferee or successor, by contract, or
otherwise.
(h) The unpaid Taxes of the Company and its Subsidiaries do not exceed
the reserve for Tax liability (rather than any reserve for deferred Taxes
established to reflect timing differences between book and Tax income) set
forth on the face of their balance sheets for their 1999 fiscal year (rather
than in any notes thereto) as adjusted for the passage of time through the
Closing Date in accordance with the past custom and practice of the Company
and its Subsidiaries in filing their Tax Returns.
(i) Neither the Company nor any of its Subsidiaries knows of any fact
or has taken, or will take, any action that could reasonably be expected to
prevent the Merger from qualifying as a reorganization within the meaning of
Section 368(a) of the Code.
Section 5.16 OPINION OF FINANCIAL ADVISOR. The Board of Directors of
Company has received the opinion of Chase H&Q, dated as of the date hereof, to
the effect that, as of such date, the Common Exchange Ratio is fair to holders
of Company Common Stock from a financial point of view. A copy of such written
opinion will be delivered to Parent as soon as practicable after the date of
this Agreement.
Section 5.17 REQUIRED VOTE OF COMPANY STOCKHOLDERS. The affirmative vote
of the holders of a majority of the outstanding shares of Company Common Stock
(the "Company Stockholder Approval") is required to approve the Merger. No other
vote of the stockholders of the Company is required by law, the certificate of
incorporation or bylaws of the Company or otherwise in order for the Company to
consummate the Merger and the transactions contemplated hereby.
Section 5.18 POOLING OF INTERESTS. Except as set forth in SCHEDULE 5.18 of
the Company Disclosure Letter, to the Knowledge of the Company and based upon
the advice of the Company's independent accountants, neither it nor any of its
Subsidiaries has taken any action or failed to take any action
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which action or failure (without giving effect to any actions or failures to act
by Parent or any of its Subsidiaries) would prevent the treatment of the Merger
as a pooling of interests for accounting purposes.
Section 5.19 INSURANCE. SCHEDULE 5.19 of the Company Disclosure Letter
sets forth a complete and accurate list as of the date hereof of all primary,
excess and umbrella policies, bonds and other forms of insurance owned or held
by or on behalf of or providing insurance coverage to the Company, each
Subsidiary and their respective business, properties and assets (or their
respective officers, salespersons, agents or employees or Persons acting in a
similar capacity) and the extent, if any, to which the limits of liability under
such policies have been exhausted. True and complete copies of such policies
have been delivered to Parent. All such policies are in full force and effect
and all such policies in such amounts will be outstanding and in full force and
effect without interruption until the Effective Time. Neither the Company nor
any of its Subsidiaries has received notice of default under any such policy,
nor has the Company or any of its Subsidiaries received written notice of any
pending or threatened termination of cancellation, coverage limitation or
reduction, or material premium increase with respect to any such policy.
Schedule 5.19 of the Company Disclosure Letter sets forth a complete and
accurate summary of all of the self-insurance coverage provided by the Company
or any of its Subsidiaries. No letters of credit have been posted and no cash
has been restricted to support any reserves for insurance on the balance sheet
of the Company or any of its Subsidiaries.
Section 5.20 LABOR MATTERS; EMPLOYEES.
(a) Except as set forth on SCHEDULE 5.20(A) of the Company Disclosure
Letter, (i) there is no labor strike, dispute, slowdown, work stoppage or
lockout actually pending or, to the Knowledge of the Company, threatened
against or affecting the Company or any of its Subsidiaries and, during the
past five years, there has not been any such action, (ii) none of the
Company or any of its Subsidiaries is a party to or bound by any collective
bargaining or similar agreement with any labor organization, or work rules
or practices agreed to with any labor organization or employee association
applicable to employees of the Company or any of its Subsidiaries,
(iii) none of the employees of the Company or any of its Subsidiaries are
represented by any labor organization and none of the Company or any of its
Subsidiaries have any knowledge of any current union organizing activities
among the employees of the Company or any of its Subsidiaries nor does any
question concerning representation exist concerning such employees,
(iv) the Company and its Subsidiaries have each at all times been in
material compliance with all applicable Laws respecting employment and
employment practices, including Title VII of the Civil Rights Act of 1964,
the Civil Rights Act of 1991, 42 U.S.C. Section 1981, the Americans With
Disabilities Act, the Fair Labor Standards Act, ERISA, the Occupational
Safety and Health Act, the Family Medical Leave Act, the Immigration Reform
and Control Act, the National Labor Relations Act, and any other law,
ordinance or regulation respecting the terms and conditions of employment,
including authorization to work in the United States, equal employment
opportunity (including prohibitions against discrimination, harassment, and
retaliation), payment of wages, hours of work, occupational safety and
health, and labor practices, (v) there is no unfair labor practice charge or
complaint against any of the Company or any of its Subsidiaries pending or,
to the Knowledge of the Company, threatened before the National Labor
Relations Board or any similar state or foreign agency, (vi) there is no
grievance or arbitration proceeding arising out of any collective bargaining
agreement or other grievance procedure relating to the Company or any of its
Subsidiaries pending, or to the Knowledge of the Company, threatened, before
the National Labor Relations Board or any similar state or foreign agency,
(vii) neither the Occupational Safety and Health Administration nor any
corresponding state agency is threatening to file any citation, and there
are no pending citations, relating to the Company or any of its
Subsidiaries, and (viii) there are no pending or, to the Knowledge of the
Company, threatened material claims by any current or former employee of the
Company or any employment-related claims or investigations by any
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Governmental Authority, including any charges to the Equal Employment
Opportunity Commission or state employment practice agency, investigations
regarding compliance with federal, state or local wage and hour laws, audits
by the Office of Federal Contractor Compliance Programs, complaints of
sexual harassment or any other form of unlawful harassment, discrimination,
or retaliation.
(b) Except as set forth on SCHEDULE 5.20(B) of the Company Disclosure
Letter, none of the Company or any of its Subsidiaries has effectuated
(i) a "plant closing" (as defined in the WARN Act) affecting any site of
employment or one or more facilities or operating units within any site of
employment or facility of any of the Company or any of its Subsidiaries or
(ii) a "mass layoff" (as defined in the WARN Act) affecting any site of
employment or facility of the Company or any of its Subsidiaries, nor has
the Company or any of its Subsidiaries been affected by any transaction or
engaged in layoffs or employment terminations sufficient in number to
trigger application of any similar state or local law, in each case that
could reasonably be expected to have a Material Adverse Effect on the
Company.
(c) Neither the Company nor any of its Subsidiaries has received a
notice of any violation of any immigration and naturalization laws relating
to employment and employees and has properly completed and maintained all
applicable forms (including, but not limited to, I-9 forms) and the Company
and each Subsidiary is in compliance with all such immigration and
naturalization laws and there are no citations, investigations,
administrative proceedings or formal complaints of violations of the
immigration or naturalization laws pending or threatened before the
Immigration and Naturalization Service of any federal, state or
administrative agency or court against or involving the Company or any of
its Subsidiaries.
Section 5.21 MATERIAL CONTRACTS.
(a) SCHEDULE 5.21 of the Company Disclosure Letter sets forth a list of
each contract, lease, indenture, agreement, license, arrangement or
understanding to which, as of the date hereof, the Company or any of its
Subsidiaries is a party or subject that would be required to be included as
an exhibit to a Form S-1 Registration Statement pursuant to the rules and
regulations of the SEC if such a registration statement were to be filed by
the Company on the date hereof and no previous filings had been made (the
"Material Contracts"), except for those Material Contracts previously filed
by the Company with the SEC, and sets forth any of the following that exists
as of the date hereof, whether or not such contract would be required to be
disclosed pursuant to the above-stated guidelines:
(i) any employment, severance, noncompetition, consulting or other
agreements of any nature (other than Company-standard agreements of the
type entered into by the Company's non-officer employees) with any
current or former stockholder, partner or officer of the Company, any of
its Subsidiaries or any Affiliate of any of such Persons;
(ii) any agreements relating to the making of any loan or advance by
the Company or any of its Subsidiaries;
(iii) any agreements providing for the indemnification by the
Company or any of its Subsidiaries of any Person;
(iv) any agreements with any Governmental Authority except those
entered into in the ordinary course of business which are not material to
the Company or any of its Subsidiaries;
(v) any contracts and agreements for the sale of assets or for the
furnishing of services, goods or products by or to the Company or any of
its Subsidiaries, including supply agreements, (A) with commitments
having a value in excess of $1,000,000 or (B) with commitments having a
value in excess of $500,000 and having a term which is greater than six
months and which is not terminable by the Company on less than 90 days'
notice without the payment of any termination fee or similar payment;
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(vi) any broker, distributor, dealer or representative or agency
agreements pursuant to which the Company made payments in excess of
$100,000 during the preceding fiscal year;
(vii) any agreements (including settlement agreements) currently in
effect pursuant to which the Company or any of its Subsidiaries licenses
the right to use any Intellectual Property to any Person or from any
Person (other than license agreements related to off-the-shelf software
products);
(viii) any confidentiality agreements entered into by the Company or
any of its Subsidiaries during the period commencing three years prior to
the date hereof pursuant to which confidential information has been
provided to a third party or by which the Company or any of its
Subsidiaries was restricted from providing information to third parties,
other than confidentiality agreements entered into in the normal course
of business;
(ix) any voting trust or similar agreements relating to any of the
ownership interests in the Company or any of its Subsidiaries to which
any of Principal Stockholders, the Company or any of its Subsidiaries is
a party;
(x) any joint venture, partnership or similar documents or
agreements;
(xi) any agreement that materially limits or purports to materially
limit the ability of the Company or any of its Subsidiaries to own,
operate, sell, transfer, pledge or otherwise dispose of any assets; and
(xii) all other agreements, contracts or commitments not made in the
ordinary course of business which are material to the Company or any of
its Subsidiaries.
(b) To the Knowledge of the Company, each Material Contract is legal,
valid and binding on and enforceable against the Company or its Subsidiary
party thereto and the other parties thereto and is in full force and effect,
subject to applicable bankruptcy, insolvency or other similar laws, now or
hereafter in effect, affecting creditors' rights generally. Except as set
forth on SCHEDULE 5.21(B) of the Company Disclosure Letter, upon
consummation of the transactions contemplated by this Agreement, each
Material Contract shall remain in full force and effect without any loss of
benefits thereunder and without the need to obtain the consent of any party
thereto to the transactions contemplated by this Agreement. Neither the
Company nor any of its Subsidiaries is (and with the giving of notice or
lapse of time would not be) in material breach of, or material default
under, any Material Contract and, to the Knowledge of the Company, no other
party thereto is in material breach of, or material default under, any
Material Contract, except for those breaches which would not result in a
Material Adverse Effect to the Company. Neither the Company nor any of its
Subsidiaries has received any written notice that any Material Contract is
not enforceable against any party thereto, that any Material Contract has
been terminated before the expiration of its term or that any party to a
Material Contract intends to terminate such Material Contract prior to the
termination date specified therein, or that any other party is in breach of,
or default under, any Material Contract. True and complete copies of all
Material Contracts or, in the case of oral agreements that constitute
Material Contracts, if any, written summaries thereof have been delivered to
Parent.
Section 5.22 PERMITS. The Company or its Subsidiaries hold all material
permits, licenses, certificates, consents, approvals, entitlements, plans,
surveys, relocation plans, environmental impact reports and other authorizations
of any Governmental Authorities ("Permits") required or necessary to construct,
run, operate, use or maintain their properties and conduct their operations as
presently conducted. The Company and its Subsidiaries are in compliance with the
terms of such Permits, except for such failure to hold or instances of
noncompliance, that would not have a Material Adverse Effect on the Company.
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Section 5.23 INTELLECTUAL PROPERTY.
(a) Except as set forth on SCHEDULE 5.23(A) of the Company Disclosure
Letter, the Company or one of its Subsidiaries is the sole and exclusive
owner, or has the valid right to use, sell and license, the Intellectual
Property necessary or otherwise material to the conduct of the Company's
business as now conducted. Each such item of Intellectual Property will be
owned by or available for use by the Company or its respective Subsidiary on
substantially identical terms immediately subsequent to the Closing, free
and clear of all Liens. For purposes of this Section 5.23, the term "Liens"
shall not include any license agreement or lease pursuant to which the
Company or any of its Subsidiaries has the right to use any Intellectual
Property. SCHEDULE 5.23(A) of the Company Disclosure Letter sets forth a
complete and accurate list (including whether the Company or one of its
Subsidiaries is the owner or licensee thereof) of all (i) patents and patent
applications, (ii) trademark or service mark registrations and applications,
(iii) copyright registrations and applications and (iv) material
unregistered copyrights, service marks, trademarks and trade names, each as
owned or licensed by the Company or one of its Subsidiaries. Except as
otherwise disclosed on SCHEDULE 5.23(A) of the Company Disclosure Letter,
the Company or one of its Subsidiaries currently is listed in the records of
the appropriate United States, state or foreign agency as the sole owner of
record for each owned application and registration listed on
SCHEDULE 5.23(A) of the Company Disclosure Letter.
(b) Except as provided on SCHEDULE 5.23(B) of the Company Disclosure
Letter, the registrations listed on SCHEDULE 5.23(A) of the Company
Disclosure Letter are valid and subsisting, in full force and effect in all
material respects and have not been canceled, expired or abandoned. There is
no pending, existing, or to the Knowledge of the Company, threatened,
opposition, interference, cancellation proceeding or other legal or
governmental proceeding before any court or registration authority in any
jurisdiction against the registrations listed on SCHEDULE 5.23(A) of the
Company Disclosure Letter or the Intellectual Property.
(c) SCHEDULE 5.23(C) of the Company Disclosure Letter lists all of the
Computer Programs, other than off-the-shelf applications, which are owned,
licensed, leased or otherwise used by the Company or any of its Subsidiaries
in connection with the operation of its businesses as currently conducted,
and identifies which is owned, licensed, leased, or otherwise used, as the
case may be. Each Computer Program listed on SCHEDULE 5.23(C) of the Company
Disclosure Letter is either (i) owned by the Company or any of its
Subsidiaries, (ii) currently in the public domain or otherwise available to
the Company or any of its Subsidiaries without the license, lease or consent
of any third party or (iii) used under rights granted to the Company or any
of its Subsidiaries pursuant to a written agreement, license or lease from a
third party, which written agreement, license or lease is set forth on
SCHEDULE 5.23(C) of the Company Disclosure Letter. The Company and its
Subsidiaries use the Computer Programs set forth on SCHEDULE 5.23(C) of the
Company Disclosure Letter in connection with the operation of their
respective businesses as conducted on the date hereof and, to the Knowledge
of the Company, such use does not violate the rights of any third party. All
Computer Programs owned by the Company and set forth in SCHEDULE 5.23(C) of
the Company Disclosure Letter were either developed by (x) employees of the
Company or one of its Subsidiaries within the scope of their employment,
(y) third parties as "work-made-for-hire," as that term is defined under
Section 101 of the United States copyright laws, pursuant to written
agreements or (z) independent contractors who have assigned their rights to
the Company or one of its Subsidiaries pursuant to written agreements.
(d) SCHEDULE 5.23(D) of the Company Disclosure Letter sets forth as of
the date hereof a complete and accurate list of all agreements pertaining to
the use of or granting any right to use or practice any rights under any
Intellectual Property, whether the Company or one of its Subsidiaries is the
licensee or licensor thereunder (the "Licenses") and any written settlements
or assignments relating to any Intellectual Property. The Licenses are valid
and binding obligations of
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each party thereto, and to the Knowledge of the Company, enforceable against
each such party in accordance with their terms, except that (i) such
enforcement may be subject to applicable bankruptcy, insolvency or other
similar laws, now or hereafter in effect, affecting creditors' rights
generally and (ii) the remedy of specific performance and injunctive and
other forms of equitable relief may be subject to equitable defenses and to
the discretion of the court before which any proceeding therefor may be
brought, and there are no breaches or defaults under any Licenses.
(e) No trade secret or confidential know-how material to the business
of the Company or any of its Subsidiaries as currently operated has been
disclosed or authorized to be disclosed to any third party, other than
pursuant to a non-disclosure agreement that protects the Company or such
Subsidiary's proprietary interests in and to such trade secrets and
confidential know-how, and other than disclosures to employees, officers,
directors, agents, attorneys, accountants, consultants, independent
contractors or other representatives of the Company or such Subsidiary, each
of whom is obligated (by contract, employment policy, cannons of ethics or
the like) to maintain the confidentiality of such information.
(f) To the Knowledge of the Company, the conduct of the business of the
Company and its Subsidiaries does not infringe upon any intellectual
property right owned or controlled by any third party and to the Knowledge
of the Company, no third party is infringing upon any Intellectual Property
owned by the Company or any of its Subsidiaries and no such claims have been
made against a third party by the Company or any of its Subsidiaries. There
are no claims or suits pending or, to the Knowledge of the Company,
threatened, and neither the Company nor any of its Subsidiaries has received
any written notice of a third party claim or suit (x) alleging that the
Company's or any of its Subsidiary's activities or the conduct of their
businesses infringes upon or constitutes the unauthorized use of the
proprietary rights of any third party or (y) challenging the ownership, use,
validity or enforceability of the Intellectual Property.
(g) Except as provided on SCHEDULE 5.23(G) of the Company Disclosure
Letter, there are no settlements, consents, judgments, orders or other
agreements to which the Company or any of its Subsidiaries is subject which
restrict the rights of the Company or such Subsidiary to use any
Intellectual Property, or other agreements which restrict the Company or any
of its Subsidiaries' rights to use any Intellectual Property owned by the
Company or such Subsidiary.
(h) The consummation of the transactions contemplated hereby will not
result in the loss or impairment of the right of Parent, Sub, the Surviving
Corporation or any of their successors to own, use, license or sublicense
any of the Intellectual Property currently owned, used, licensed or
sublicensed by the Company or its Subsidiaries nor will it require the
consent of any Governmental Authority or third party in respect of any such
Intellectual Property and no present or former employee, or officer of the
Company or any its Subsidiaries has any right, title or interest, directly
or indirectly, in whole or in part, in any Intellectual Property.
(i) Except as provided on SCHEDULE 5.23(I) of the Company Disclosure
Letter, all officers, directors and employees of the Company have executed
and delivered to the Company an agreement regarding assignment to the
Company of any Intellectual Property arising from services performed for the
Company by such Persons. All officers and directors of the Company's
Subsidiaries have executed and delivered to such Subsidiary an agreement
regarding assignment to such Subsidiary or to the Company of any
Intellectual Property arising from services performed for such Subsidiary by
such Persons. There is no Intellectual Property developed by a shareholder,
director, officer, consultant or employee of the Company that is used in the
business of the Company or any of its Subsidiaries that has not been
transferred to, or is not owned free and clear of any liens or encumbrances
by, the Company or its Subsidiaries.
Section 5.24 TAKEOVER STATUTES. The Board of Directors of the Company has
approved the terms of this Agreement and the Voting Agreements, and such
approval constitutes sufficient approval of this
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Agreement and the Voting Agreements by the Board of Directors of the Company to
render the restrictions on business combinations contained in Section 203 of the
DGCL inapplicable to the Merger. Other than Section 203(b)(1) of the DGCL, to
the Knowledge of the Company, no state takeover statute or similar statute or
regulation applies or purports to apply to this Agreement, the Merger or any of
the other transaction documents contemplated by this Agreement.
ARTICLE VI
REPRESENTATIONS AND WARRANTIES OF PARENT AND SUB
Parent and Sub jointly and severally represent and warrant to the Company
that the statements contained in this Article VI are true and correct as of the
date of this Agreement, subject to such exceptions as are disclosed in writing
in the Parent Disclosure Letter, which disclosure shall provide an exception to
or otherwise qualify the representations and warranties of Parent and Sub
contained in the Section of this Agreement corresponding by number to such
disclosure, as well as the other representations and warranties of Parent herein
to the extent that the specific disclosure could be reasonably interpreted to
apply to any such representations and warranties.
Section 6.1 ORGANIZATION, QUALIFICATION, ETC. Each of Parent, Sub and
Parent's other Subsidiaries is a corporation duly organized, validly existing
and in good standing under the laws of the State of Delaware, has the corporate
power and authority to own its properties and assets and to carry on its
business as it is now being conducted and is duly qualified to do business and
is in good standing in each jurisdiction in which the ownership of its
properties or the conduct of its business requires such qualification, except
for jurisdictions in which such failure to be so qualified or to be in good
standing would not have a Material Adverse Effect on Parent. Parent has made
available to the Company true, correct and complete copies of the certificates
of incorporation and bylaws of Parent and Sub as in full force and effect on the
date hereof.
Section 6.2 CAPITAL STOCK. The authorized capital stock of Parent consists
of 150,000,000 shares of common stock, par value $.01 per share ("Parent Common
Stock"). The shares of Parent Common Stock to be issued in the Merger or upon
the exercise of the Company Options, warrants, conversion rights or other rights
or vesting or payment of other the Company equity-based awards thereafter will,
when issued, be validly issued, fully paid and non-assessable. As of the date of
this Agreement, 62,803,713 shares of Parent Common Stock were issued, of which 0
shares of Parent Common Stock were held in Parent's treasury. As of the date of
this Agreement, there were no outstanding subscriptions, options, warrants,
rights or other arrangements or commitments obligating Parent to issue any
shares of its capital stock other than (i) a warrant to purchase 750,000 shares
of Parent Common Stock and (ii) options to purchase 10,788,087 shares of Parent
Common Stock. No changes in Parent Common Stock have occurred since June 30,
2000 except as follows: (x) 58,042 shares of Parent Common Stock were issued
pursuant exercise of stock options and (y) options to purchase 84,400 shares of
Parent Common Stock were granted.
Section 6.3 CORPORATE AUTHORITY RELATIVE TO THIS AGREEMENT; NO
VIOLATION. Each of Parent and Sub has the requisite corporate power and
authority to enter into this Agreement and to carry out its obligations
hereunder and thereunder. The execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby and thereby have been duly
and validly authorized by the Boards of Directors of Parent and Sub (as
appropriate) and no other corporate proceedings on the part of Parent or Sub are
necessary to authorize this Agreement or the Registration Rights Agreement and
the transactions contemplated thereby. This Agreement has been duly and validly
executed and delivered by Parent and Sub, as applicable, and, assuming this
Agreement constitutes valid and binding agreements of the other parties hereto,
this Agreement constitutes valid and binding agreements of Parent and Sub (as
appropriate), enforceable against them in accordance with their respective terms
(except insofar as enforceability may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium or similar laws affecting creditors'
rights generally, or by
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principles governing the availability of equitable remedies). Neither Parent nor
Sub is subject to or obligated under any charter, bylaw or contract provision or
agreement evidencing indebtedness or any license, franchise or permit, or
subject to any order or decree, that would be breached or violated by its
executing or carrying out this Agreement, except for any breaches or violations
that would not, individually or in the aggregate, have a Material Adverse Effect
on Parent. Other than in connection with or in compliance with the provisions of
the DGCL, the Securities Act, the Exchange Act, the HSR Act, Section 4043 of
ERISA, and the securities or blue sky laws of the various states and other than
any necessary approvals of the United States government or any agencies,
departments or instrumentalities thereof (collectively, the "Parent Required
Approvals"), no authorization, consent or approval of, or filing with, any
Governmental Authority or any non-governmental third party is necessary for the
consummation by Parent of the transactions contemplated by this Agreement,
except for such authorizations, consents, approvals or filings, the failure to
obtain or make which would not, individually or in the aggregate, have a
Material Adverse Effect on Parent or substantially impair or delay the
consummation of the transactions contemplated hereby.
Section 6.4 REPORTS AND FINANCIAL STATEMENTS. Parent has previously made
available to the Company true and complete copies of Parent's Annual Reports on
Form 10-K filed with the SEC for each of the years ended December 31, 1997
through 1999, Parent's Quarterly Report on Form 10-Q filed with the SEC for the
quarter ended June 30, 2000, each definitive proxy statement filed by Parent
with the SEC since December 31, 1997, each final prospectus filed by Parent with
the SEC since December 31, 1997 and all Current Reports on Form 8-K filed by
Parent with the SEC since December 31, 1999. As of their respective dates, such
reports, proxy statements and prospectuses (collectively, "Parent SEC Reports")
(a) complied as to form in all material respect with the applicable requirements
of the Securities Act, the Exchange Act, and the rules and regulations
promulgated thereunder and (b) 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 therein, in light of the circumstances under
which they were made, not misleading. Except to the extent that information in
any Parent SEC Report has been revised or superseded in a later filed Parent SEC
Report, none of the Parent SEC Reports contains any untrue statement of a
material fact or omits to state a material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading. The audited consolidated financial
statements and unaudited consolidated interim financial statements included in
the Parent SEC Reports (including any related notes and schedules) complied as
to form, as of their respective dates of filing with the SEC, in all material
respects with all applicable accounting requirements and the published rules and
regulations of the SEC with respect thereto, were prepared in accordance with
past practice and GAAP consistently applied during the periods involved (except
as otherwise disclosed in the notes thereto) and fairly presented the financial
position of Parent and its consolidated Subsidiaries as of the dates thereof and
the results of their operations and their cash flows for the periods or as of
the dates then ended (subject, where appropriate, to normal year-end
adjustments). Since December 31, 1997, Parent has timely filed all material
reports and other filings required to be filed by it with the SEC under the
rules and regulations of the SEC.
Section 6.5 NO UNDISCLOSED LIABILITIES. Neither Parent nor any of its
Subsidiaries has any liabilities or obligations of any nature, whether or not
accrued, contingent or otherwise, except (a) liabilities or obligations
reflected in any of the Parent SEC Reports filed and publicly available prior to
the date hereof and (b) liabilities or obligations that would not, individually
or in the aggregate, have a Material Adverse Effect on Parent.
Section 6.6 NO VIOLATION OF LAW. The businesses of Parent and its
Subsidiaries have not been, and are not being, conducted in violation of any
law, ordinance or regulation of any Governmental Authority except (a) as
described in any of the Parent SEC Reports filed and publicly available prior to
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the date hereof and (b) for violations or possible violations that would not,
individually or in the aggregate, have a Material Adverse Effect on Parent.
Section 6.7 ABSENCE OF CERTAIN CHANGES OR EVENTS. Other than as disclosed
in the Parent SEC Reports filed and publicly available prior to the date hereof,
since June 30, 2000, the businesses of Parent and its Subsidiaries have been
conducted in all material respects in the ordinary course and there has not been
(a) any event, occurrence, development or state of circumstances or facts that
has had, or would be reasonably likely to have, a Material Adverse Effect on
Parent, (b) any declaration, setting aside or payment of any dividend or other
distribution (whether in cash, stock or property) with respect to any of
Parent's capital stock, except for dividends or other distributions declared,
set aside or paid by Parent as required by and in accordance with the respective
terms of such capital stock as of the date hereof, (c) any split, combination or
reclassification of any of Parent's capital stock or any issuance or the
authorization of any issuance of any other securities in respect of, in lieu of
or in substitution for shares of Parent's capital stock, (d) any damage,
destruction or loss, whether or not covered by insurance, that individually or
in the aggregate would be reasonably likely to have a Material Adverse Effect on
Parent, (e) except insofar as may have been required by a change in GAAP, any
change in accounting methods, principles or practices by Parent or any of its
Subsidiaries or (f) any tax election or any settlement or compromise of any
income tax liability that individually or in the aggregate is reasonably likely
to adversely affect the tax liability or tax attributes of Parent or any of its
Subsidiaries in any material respect or any settlement or compromise of any
material income tax liability.
Section 6.8 PROXY STATEMENT/PROSPECTUS; REGISTRATION STATEMENT; OTHER
INFORMATION. None of the information with respect to Parent or its Subsidiaries
provided by Parent for inclusion in the proxy statement/prospectus or the
Registration Statement will, in the case of the proxy statement/prospectus or
any amendments thereof or supplements thereto, at the time of the mailing of the
proxy statement/ prospectus or any amendments or supplements thereto, and at the
time of the Company Stockholders Meeting, or, in the case of the Registration
Statement, at the time it becomes effective, contain any untrue statement of a
material fact or omit to state any material fact required to be stated therein
or necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading, provided that the
representations made by Parent hereunder with respect to the proxy
statement/prospectus are limited solely to information supplied in writing by
Parent or any Affiliate of Parent to the Company specifically for inclusion in
the proxy statement/prospectus.
Section 6.9 LACK OF OWNERSHIP OF COMPANY COMMON STOCK. Neither Parent nor
any of its Subsidiaries owns any shares of Company Common Stock or other
securities convertible into shares of Company Common Stock (exclusive of any
shares owned by Parent's employee benefit plans).
Section 6.10 POOLING OF INTERESTS. To the knowledge of Parent and based
upon the advice of its independent accountants, neither it nor any of its
Subsidiaries has taken any action or failed to take any action which action or
failure (without giving effect to any actions or failures to act by the Company
or any of its Subsidiaries) would prevent the treatment of the Merger as a
pooling of interests for accounting purposes.
Section 6.11 TAKEOVER STATUTES. The Board of Directors of Parent has
approved the terms of this Agreement and the Voting Agreements, and such
approval constitutes approval of this Agreement and the Voting Agreements by the
Board of Directors of Parent under the provisions of Section 203 of the DGCL.
Other than Section 203(b)(1) of the DGCL, to the knowledge of Parent, no state
takeover statute or similar statute or regulation applies or purports to apply
to this Agreement, the Merger or any of the other transaction documents
contemplated by this Agreement.
Section 6.12 TAX MATTERS. Neither Parent nor any of its Subsidiaries knows
of any fact or has taken, or will take, any action that could reasonably be
expected to prevent the Merger from qualifying as a reorganization within the
meaning of Section 368(a) of the Code.
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ARTICLE VII
COVENANTS AND AGREEMENTS
It is further agreed as follows:
Section 7.1 CONDUCT OF BUSINESS BY THE COMPANY OR PARENT. Prior to the
earlier of the Effective Time or the date, if any, on which this Agreement is
terminated pursuant to Section 9.1, and except as may be agreed to by the other
parties hereto or as may be permitted pursuant to this Agreement:
(a) the Company:
(i) shall, and shall cause each of its Subsidiaries to, conduct its
operations in the ordinary course of business consistent with past
practices;
(ii) shall use its reasonable best efforts, and cause each of its
Subsidiaries to use its reasonable best efforts, to preserve intact its
business organizations and goodwill in all material respects, keep
available the services of its officers and employees as a group, subject
to changes in the ordinary course, and maintain satisfactory
relationships with suppliers, distributors, customers and others having
business relationships with them in the ordinary course consistent with
past practice;
(iii) shall confer at such times as Parent may reasonably request
with one or more representatives of Parent to report material operational
matters and the general status of material ongoing operations (to the
extent Parent reasonably requires such information);
(iv) shall notify Parent of any emergency or other change in the
normal course of its or its Subsidiaries' respective businesses or in the
operation of its or its Subsidiaries' respective properties and of any
complaints, investigations or hearings (or communications indicating that
the same may be contemplated) of any Governmental Authority if such
emergency, change, complaint, investigation or hearing would have a
Material Adverse Effect on the Company;
(v) shall not, and shall not (except in the ordinary course of
business consistent with past practice) permit any of its Subsidiaries
that is not wholly owned to, authorize or pay any dividends on or make
any distribution with respect to its outstanding shares of stock;
(vi) shall not, and shall not permit any of its Subsidiaries to,
except (i) in the ordinary course of business consistent with past
practice with Persons who are not directors or officers of the Company or
(ii) as otherwise provided in this Agreement enter into or amend any
employment, severance or similar agreements or arrangements with any of
their respective directors or executive officers or increase the
compensation, bonus or other benefits of any director, officer or other
employee or pay any benefit or amount not required by any plan or
arrangement as in effect on the date hereof to any such Person except as
disclosed in Item 7 of Schedule 5.10 to the Company Disclosure Letter;
(vii) shall not, and shall not permit any of its Subsidiaries to
(A) merge or consolidate with any other Person, (B) acquire assets having
an individual purchase price in excess of $250,000 or an aggregate
purchase price in excess of $1,000,000, (C) make any capital expenditure
other than in the ordinary course of business consistent with past
practice and in any event not to exceed $500,000 in the aggregate,
(D) otherwise sell or dispose of any assets, properties or securities
with an individual fair market value in excess of $250,000 or an
aggregate fair market value of $1,000,000 or (E) provide any release or
relinquishment of any rights in any Material Contract without
consideration.
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(viii) shall not, and shall not permit any of its Subsidiaries to,
propose or adopt any amendments to its certificate of incorporation or
bylaws (or similar organizational documents) or any plan of complete or
partial liquidation or other reorganization;
(ix) shall not, and shall not permit any of its Subsidiaries to,
issue any securities (whether through the issuance or granting of
options, but excluding the issuance of Company Common Stock upon the
exercise of outstanding options), warrants, rights or otherwise and
except pursuant to existing obligations disclosed in the Company SEC
Reports filed and publicly available prior to the date hereof) or effect
any stock split or otherwise change its capitalization as it existed on
June 30, 2000 (except as contemplated herein);
(x) shall not, and shall not permit any of its Subsidiaries to,
grant, confer or award any options, warrants, conversion rights or other
rights, not existing on the date hereof, to acquire any shares of its
capital stock, other than options under the Company Option Plans to
purchase, in the aggregate, up to 50,000 shares of Company Common Stock,
which such options may be granted only at the market price on the date of
the grant in accordance with the terms of the Company Option Plans as of
the date hereof and only to non-officer employees of the Company;
(xi) shall not, and shall not permit any of its Subsidiaries to,
except in the ordinary course of business in connection with employee
incentive and benefit plans, programs or arrangements in existence on the
date hereof, purchase or redeem any shares of its stock or any rights,
warrants or options to acquire any such shares;
(xii) shall not, and shall not permit any of its Subsidiaries to
take any actions that would, or would be reasonably likely to, prevent
Parent from accounting for the Merger in accordance with the pooling of
interests method of accounting under the requirements of Opinion No. 16
"Business Combinations" of the Accounting Principles Board of the
American Institute of Certified Public Accountants, as amended by
applicable pronouncements by the Financial Accounting Standards Board
("APB No. 16"); provided, that this covenant will not be violated by the
taking of any action by the Company or any of its Subsidiaries that its
independent accountants advised would not be reasonably likely to have
such effect;
(xiii) shall not, and shall not permit any of its Subsidiaries to,
amend in any significant respect the terms of their respective employee
benefit plans, programs or arrangements or any severance or similar
agreements or arrangements in existence on the date hereof, or adopt any
new employee benefit plans, programs or arrangements or any severance or
similar agreements or arrangements;
(xiv) shall not, and shall not permit any of its Subsidiaries to,
enter into any material loan agreement or otherwise incur any
Indebtedness or guarantee any such Indebtedness of another Person, issue
or sell any debt securities or warrants or other rights to acquire debt
securities, other than in each case in the ordinary course of business
consistent with past practice;
(xv) shall not, and shall not permit any of its Subsidiaries to,
make any material Tax election or settle or compromise any material Tax
liability; shall provide Parent with copies of any amended Tax returns
filed prior to the Effective Time;
(xvi) shall not, and shall not permit any of its Subsidiaries to,
(A) pay, discharge, settle or satisfy any claims, Liabilities or
obligations (absolute, accrued, asserted or unasserted, contingent or
otherwise) or litigation (whether or not commenced prior to the date of
this Agreement) in an amount or with a value in excess of insurance
proceeds received of $250,000 or greater, other than the payment,
discharge, settlement or satisfaction, in the ordinary course of business
consistent with past practice or in accordance with its terms, of any
liability
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recognized or disclosed in the most recent consolidated financial
statements (or the notes thereto) of the Company included in the Company
SEC Reports filed and publicly available prior to the date hereof or
incurred since the date of such financial statements or (B) waive the
benefits of, or agree to modify in any manner, terminate, release any
Person from or fail to enforce any confidentiality, standstill or similar
agreement to which the Company or any of its Subsidiaries is a party or
of which the Company or any of its Subsidiaries is a beneficiary;
(xvii) shall not change any method of accounting or accounting
practice by the Company or any of its Subsidiaries, except for any such
change required by GAAP;
(xviii) shall not take any action that would give rise to a claim
under the WARN Act or any similar state law or regulation because of a
"plant closing" or "mass layoff" (each as defined in the WARN Act);
(xix) shall not make any election under any of its stock option
plans to pay cash in exchange for terminating awards under such plans;
and
(xx) shall not, and shall not permit any of its Subsidiaries to,
agree, in writing or otherwise, to take any of the foregoing actions or
take any action that would result in any of the conditions to the Merger
set forth in Article VIII not being satisfied, or, except as otherwise
allowed hereunder, that could reasonably be expected to prevent, impede,
interfere with or significantly delay the transactions contemplated
hereby.
(b) Parent:
(i) shall notify the Company of any emergency or other change in the
normal course of its or its Subsidiaries' respective businesses or in the
operation of its or its Subsidiaries' respective properties and of any
complaints, investigations or hearings (or communications indicating that
the same may be contemplated) of any Governmental Authority if such
emergency, change, complaint, investigation or hearing would have a
Material Adverse Effect on Parent;
(ii) shall notify the Company of any material transaction;
(iii) shall not, and shall not permit any of its Subsidiaries to,
take any actions that would, or would be reasonably likely to, prevent
Parent from accounting for the Merger in accordance with the pooling of
interests method of accounting under the requirements of APB No. 16;
provided, that this covenant will not be violated by the taking of any
action by Parent or any of its Subsidiaries that its independent
accountants advised would not be reasonably likely to have such effect;
and
(iv) shall not, and shall not permit any of its Subsidiaries to,
agree, in writing or otherwise, to take any of the foregoing actions or
take any action that would result in any of the conditions to the Merger
set forth in Article VIII not being satisfied, or, except as otherwise
allowed hereunder, that could reasonably be expected to prevent, impede,
interfere with or significantly delay the transactions contemplated
hereby.
Section 7.2 INVESTIGATION. Each of the Company and Parent shall afford to
one another and to one another's officers, employees, accountants, counsel and
other authorized representatives full and complete access during normal business
hours, throughout the period prior to the earlier of the Effective Time or the
date of termination of this Agreement, to its and its Subsidiaries' plants,
properties, contracts, commitments, books, and records (including but not
limited to Tax Returns) and any report, schedule or other document filed or
received by it pursuant to the requirements of federal or state securities laws
and shall use their reasonable best efforts to cause their respective
representatives to furnish promptly to one another such additional financial and
operating data and other information as to its and its Subsidiaries' respective
businesses and properties as the other or its
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duly authorized representatives may from time to time reasonably request. The
parties hereby agree that each of them will treat any such information in
accordance with the Confidentiality Agreement dated as of June 8, 2000 between
the Company and Parent (the "Confidentiality Agreement"). Notwithstanding any
provision of this Agreement to the contrary, no party shall be obligated to make
any disclosure in violation of applicable contracts, licenses, laws or
regulations, although the party bound thereby will use its reasonable efforts to
obtain a waiver from the disclosure restriction for the benefit of the other
party hereto.
Section 7.3 COOPERATION.
(a) The Company and Parent shall together, or pursuant to an allocation
of responsibility to be agreed upon between them:
(i) prepare and file with the SEC as soon as is practicable the
proxy statement/ prospectus and the Registration Statement, and shall use
all reasonable best efforts to cause the proxy statement/prospectus and
the Registration Statement to comply with the rules and regulations
promulgated by the SEC, to respond promptly to any comments of the SEC or
its staff and to have the proxy statement/prospectus cleared by the SEC
under the Exchange Act and the Registration Statement declared effective
by the SEC under the Securities Act as promptly as practicable after it
is filed;
(ii) as soon as reasonably practicable take all such action as may
be required under state blue sky or securities laws of every jurisdiction
of the United States in which any registered holder of Company Common
Stock has an address of record on the record date for determining the
stockholders entitled to notice of and to vote and the Company
Stockholders Meeting; PROVIDED, HOWEVER, that Parent shall not be
required (A) to qualify to do business as a foreign corporation in any
jurisdiction in which it is not now qualified or (B) to file a general
consent to service of process in any jurisdiction;
(iii) promptly prepare and file with Nasdaq and such other stock
exchanges as shall be agreed upon listing applications covering the
shares of Parent Common Stock issuable in the Merger or upon exercise of
the Company Stock Options, warrants, conversion rights or other rights or
vesting or payment of other the Company equity-based awards and use its
reasonable best efforts to obtain, prior to the Effective Time, approval
for the listing of such Parent Common Stock, subject only to official
notice of issuance;
(iv) cooperate with one another in order to lift any injunctions or
remove any other impediment to the consummation of the transactions
contemplated herein; and
(v) cooperate with one another in obtaining opinions of Cooley
Godward LLP, counsel to the Company, and Hogan & Hartson L.L.P., tax
counsel to Parent, dated as of the date the Registration Statement is
declared effective satisfying the requirements of Item 601 of
Regulation S-K promulgated under the Securities Act and opinions of
Cooley Godward LLP and Hogan & Hartson L.L.P., dated as of the Effective
Time, to the effect that the Merger qualifies as a reorganization under
the provisions of Section 368(a) of the Code. In connection therewith,
each of the Company and Parent shall deliver to Cooley Godward LLP and
Hogan & Hartson L.L.P. representation letters in customary form and shall
deliver any such letters obtained to Cooley Godward LLP and Hogan &
Hartson L.L.P.
(b) Subject to the limitations contained in Section 7.2, the Company
and Parent shall each furnish to one another and to one another's counsel
all such information as may be required in order to effect the foregoing
actions and each represents and warrants to the other that no information
furnished by it in connection with such actions or otherwise in connection
with the consummation of the transactions contemplated by this Agreement
will contain any untrue statement of a material fact or omit to state a
material fact required to be stated in order to make
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any information so furnished, in light of the circumstances under which it
is so furnished, not misleading.
(c) No party to this Agreement knows of any fact or has taken, or will
take, any action that could reasonably be expected to prevent the Merger
from qualifying as a reorganization within the meaning of Section 368(a) of
the Code.
(d) The Company will use all reasonable best efforts to cause the proxy
statement/prospectus to be mailed to the Company's stockholders as promptly
as practicable after the Form S-4 Registration Statement is declared
effective under the Securities Act. The Company shall promptly furnish to
Parent all information concerning the Company, its Subsidiaries and the
Company's stockholders that may be required or reasonably requested in
connection with any action contemplated by this Section 7.3. If any event
relating to the Company or any of its Subsidiaries occurs that is required
to be disclosed in an amendment or supplement to the Registration Statement
or the proxy statement/prospectus, or if the Company becomes aware of any
information that is required to be disclosed in an amendment or supplement
to the Registration Statement or the proxy statement/prospectus, then the
Company shall promptly inform Parent thereof and shall cooperate with Parent
in filing such amendment or supplement with the SEC and, if appropriate, in
mailing such amendment or supplement to the stockholders of the Company. If
any event relating to Parent or any of its Subsidiaries occurs that is
required to be disclosed in an amendment or supplement to the Registration
Statement or the proxy statement/ prospectus, or if Parent becomes aware of
any information that is required to be disclosed in an amendment or
supplement to the Registration Statement or the proxy statement/prospectus,
then Parent shall promptly inform the Company thereof and shall cooperate
with the Company in filing such amendment or supplement with the SEC.
Section 7.4 AFFILIATE AGREEMENTS.
(a) The Company shall, prior to the Effective Time, deliver to Parent a
list setting forth the names and addresses of all Persons who are, at the
time of the Company Stockholders Meeting, in the Company's reasonable
judgment, "affiliates" of the Company for purposes of Rule 145 under the
Securities Act or under applicable SEC accounting releases with respect to
pooling of interests accounting treatment. The Company shall furnish such
information and documents as Parent may reasonably request for the purpose
of reviewing such list. The Company shall use its reasonable best efforts to
cause each Person who is identified as an "affiliate" in the list furnished
pursuant to this Section 7.4(a) to execute a written agreement on or prior
to the Effective Time, in substantially the form of EXHIBIT 7.4(A) hereto.
(b) Parent shall, prior to the Effective Time, deliver to the Company a
list setting forth the names and addresses of all Persons who are, at the
time of the Company Stockholders Meeting, in Parent's reasonable judgment,
"affiliates" of Parent under applicable SEC accounting releases with respect
to pooling of interests accounting treatment. Parent shall furnish such
information and documents as the Company may reasonably request for the
purpose of reviewing such list. Parent shall use its reasonable best efforts
to cause each Person who is identified as an "affiliate" in the list
furnished pursuant to this Section 7.4(b) to execute a written agreement at
or prior to the Effective Time, in substantially the form of EXHIBIT 7.4(B)
hereto.
Section 7.5 EMPLOYEE STOCK OPTIONS, INCENTIVE AND BENEFIT PLANS. From and
after the Effective Time and through December 31, 2001, employees of the Company
and its Subsidiaries shall be provided with employee benefits that are at least
as favorable to them as those provided to employees of the Company and its
Subsidiaries immediately prior to the Effective Time. Except as prohibited by
applicable law, to the extent employees of the Company participate in employee
benefit plans maintained by Parent, Parent shall cause employees of Company and
its Subsidiaries to be credited with service with Company and each of its
Subsidiaries for purposes of eligibility and vesting under
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each employee benefit plan maintained by Parent or its Subsidiaries after the
Effective Time to the extent of their service with Company and its Subsidiaries.
Section 7.6 FILINGS; OTHER ACTION. Subject to the terms and conditions
herein provided, the Company and Parent shall (a) promptly make their respective
filings and thereafter make any other required submissions under the HSR Act,
(b) use reasonable efforts to cooperate with one another in (i) determining
whether any filings are required to be made with, or consents, permits,
authorizations or approvals are required to be obtained from, any third party,
the United States government or any agencies, departments or instrumentalities
thereof or other governmental or regulatory bodies or authorities of federal,
state, local and foreign jurisdictions in connection with the execution and
delivery of this Agreement and the consummation of the transactions contemplated
hereby and thereby and (ii) timely making all such filings and timely seeking
all such consents, permits, authorizations or approvals, and (c) use reasonable
efforts to take, or cause to be taken, all other actions and do, or cause to be
done, all other things necessary, proper or advisable to consummate and make
effective the transactions contemplated hereby, including, without limitation,
taking all such further action as reasonably may be necessary to resolve such
objections, if any, as the Federal Trade Commission, the Antitrust Division of
the Department of Justice, state antitrust enforcement authorities or
competition authorities of any other nation or other jurisdiction or any other
Person may assert under relevant antitrust or competition laws with respect to
the transactions contemplated hereby and to ensure that it is a "poolable
entity" eligible to participate in a transaction to be accounted for under the
pooling of interests method of accounting. Nothing in this Agreement shall be
deemed to require Parent to agree to, or proffer to, divest or hold separate any
assets or any portion of any business of Parent, the Company or any of their
respective Subsidiaries if the Board of Directors of Parent determines that so
doing would materially impair the benefit intended to be obtained by Parent in
the Merger.
Section 7.7 FURTHER ASSURANCES. In case at any time after the Effective
Time any further action is necessary or desirable to carry out the purposes of
this Agreement, the proper officers of the Company and Parent shall take all
such necessary action.
Section 7.8 TAKEOVER STATUTE. If any "fair price," "moratorium," "control
share acquisition" or other form of antitakeover statute or regulation shall
become applicable to the transactions contemplated hereby, each of the Company
and Parent and the members of their respective Boards of Directors shall grant
such approvals and take such actions as are reasonably necessary so that the
transactions contemplated hereby may be consummated as promptly as practicable
on the terms contemplated hereby and otherwise act to eliminate or minimize the
effects of such statute or regulation on the transactions contemplated hereby.
Section 7.9 NO SOLICITATION.
(a) From and after the date hereof and continuing until the earlier of
the Effective Time or the termination of this Agreement pursuant to
Article IX, the Company will not, and shall not permit any of its or any of
its Subsidiaries' officers or directors to, or authorize any of its or any
of its Subsidiaries' employees, attorneys, financial advisors, agents or
other representatives to, directly or indirectly, solicit, initiate or
knowingly encourage (including by way of furnishing information), or take
any other action intended to facilitate, the making of any proposal that
constitutes a Takeover Proposal from any Person, or engage in or continue
discussions or negotiations with any third party relating to a Takeover
Proposal by or involving such third party, nor shall the Company approve the
taking of any action prohibited by the provisions of this sentence above.
The Company agrees that it will, and will cause its officers, directors and
representatives to, immediately cease and cause to be terminated any
activities, discussions or negotiations existing as of the date of this
Agreement with any parties conducted heretofore with respect to any Takeover
Proposal. Notwithstanding anything in this Agreement to the contrary, the
Company and its Board of Directors shall be permitted to (i) to the extent
applicable, comply with Rule 14d-9 and Rule 14e-2
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promulgated under the Exchange Act with respect to a Takeover Proposal,
(ii) file a Form 8-K with the SEC with respect to the entering into of this
Agreement, including any exhibits deemed appropriate with respect thereto,
or (iii) effect a Change in Company Recommendation during the Window Period,
if and only to the extent that, in any such case as is referred to in
clause (iii) (A) the Company has received during the Window Period a bona
fide written Takeover Proposal from a third party not solicited by the
Company in violation of this Section 7.9 and such Takeover Proposal
constitutes a Superior Proposal, (B) the Company has furnished to Parent a
Notice of Superior Proposal in accordance with Section 7.9(b)(iii) and
(C) Parent does not, within 48 hours of Parent's receipt of the Notice of
Superior Proposal, deliver to the Company a binding, written offer to
acquire 100% of the equity securities of the Company (by merger or
otherwise) that the Board of Directors of the Company determines in its good
faith judgment (after receipt of written advice of its financial advisor of
nationally recognized reputation) to be at least as favorable to the
Company's stockholders as such Superior Proposal. The Company agrees that it
will use its best efforts to promptly inform its directors, officers, key
employees, agents and representatives of the obligations undertaken in this
Section 7.9.
(b) During the Window Period, and at any time thereafter if the Board
of Directors of the Company shall have effected a Change in Company
Recommendation, the Company may engage in discussions or negotiations with,
or provide information to, any Person in response to a bona fide written
Takeover Proposal by any such Person not solicited by the Company in
violation of this Section 7.9, if and only to the extent that, (i) such
Takeover Proposal constitutes a Superior Proposal, (ii) prior to providing
any non-public information or data to any person in connection with a
Takeover Proposal by any such Person, the Company's Board of Directors
receives from such Person an executed confidentiality agreement containing
confidentiality terms as least as stringent as those contained in the
Confidentiality Agreement referred to in Section 7.2 and (iii) at least
48 hours prior to providing any non-public information or data to any Person
in connection with a Takeover Proposal or entering into discussions or
negotiations with any Person in connection with a Takeover Proposal, the
Company notifies Parent of such Takeover Proposal, any such non-public
information requested from the Company, or any such discussions or
negotiations sought to be initiated or continued with, any of the Company's
representatives indicating, in connection with such notice, the name of such
Person and the material terms and conditions of any inquiries, proposals or
offers (a "Notice of Superior Proposal"). Notwithstanding any provision of
this Agreement to the contrary, in the event that subsequent to the date of
this Agreement and prior to the earlier of (x) the expiration of the Window
Period and (y) such time as this Agreement becomes available on the SEC's
EDGAR system, any Person makes an unsolicited request for a copy of this
Agreement, the Company shall be permitted to provide such Person with a copy
of this Agreement.
(c) Nothing in this Section 7.9 shall (i) permit the Company to
terminate this Agreement or (ii) affect any other obligation of the Company
under this Agreement.
Section 7.10 PUBLIC ANNOUNCEMENTS. The Company and Parent will consult
with each other before issuing any press release relating to this Agreement or
the transactions contemplated herein and shall not issue any such press release
prior to such consultation except as may be required by law or by obligations
pursuant to any listing agreement with any national securities exchange or
similar applicable self-regulatory organization.
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Section 7.11 INDEMNIFICATION AND INSURANCE. Parent and Sub agree that all
rights to exculpation and indemnification for acts or omissions occurring prior
to the Effective Time now existing in favor of the current or former directors,
officers, employees or agents of the Company (the "Indemnified Parties") as
provided in its certificate of incorporation or bylaws or in any agreement shall
be assumed by Parent at the Effective Time and shall survive the Merger and
shall continue in full force and effect as direct obligations of both the
Surviving Corporation and Parent in accordance with their terms. Without
limiting the generality of the foregoing, the Certificate of Incorporation and
Bylaws of the Surviving Corporation will contain provisions with respect to
exculpation and indemnification that are at least as favorable to the
Indemnified Parties as those contained in the Certificate of Incorporation and
Bylaws as in effect on the date hereof, which provisions will not be amended,
repealed or otherwise modified for a period of six years from the Effective Time
in any manner that would adversely affect the rights thereunder of any
Indemnified Party or of individuals who, immediately prior to the Effective
Time, were employees or agents of the Company, unless such modification is
required by law. In addition, for a period of six years after the Effective
Time, Parent will cause the Surviving Corporation to maintain in effect, to the
extent available, directors' and officers' liability insurance covering those
persons who are currently covered by the Company's directors' and officers'
liability insurance policy on terms equivalent in all material respects to those
applicable to the current directors and officers of the Company; PROVIDED,
HOWEVER, that in no event will Parent be required to expend an annual premium
for such coverage in excess of 200% of the annual premium currently paid by the
Company and PROVIDED, FURTHER, that if the annual premium payable for such
insurance coverage exceeds such amount, Parent shall be obligated to obtain a
policy with the greatest coverage available for an annual premium not exceeding
such amount. The provisions of this Section 7.11 are (a) intended to be for the
benefit of, and will be enforceable by, each of the Indemnified Parties and
(b) in addition to, and not in substitution for, any other rights to
indemnification or contribution that any such Indemnified Party may have by
contract or otherwise.
Section 7.12 ACCOUNTANTS' "COMFORT" LETTERS. The Company and Parent will
each use reasonable best efforts to cause to be delivered to each other letters
from their respective independent accountants, dated a date within two business
days before the date of the Registration Statement, in form reasonably
satisfactory to the recipient and customary in scope for comfort letters
delivered by independent accountants in connection with registration statements
on Form S-4 under the Securities Act.
Section 7.13 ADDITIONAL REPORTS. The Company and Parent shall each furnish
to the other copies of any reports of the type referred to in Sections 5.4 and
6.4 that it files with the SEC on or after the date hereof, and each of the
Company and Parent, as the case may be, represents and warrants that as of the
respective dates thereof, such reports will 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 therein, in light of the circumstances under
which they were made, not misleading. Any unaudited consolidated interim
financial statements included in such reports (including any related notes and
schedules) will fairly present the financial position of the Company and its
consolidated Subsidiaries or Parent and its consolidated Subsidiaries, as the
case may be, as of the dates thereof and the results of operations and changes
in financial position or other information included therein for the periods or
as of the date then ended (subject, where appropriate, to normal year-end
adjustments), in each case in accordance with past practice and GAAP
consistently applied during the periods involved (except as otherwise disclosed
in the notes thereto).
Section 7.14 TERMINATION OF COMPANY ESPP The Board of Directors of the
Company shall adopt resolutions dated at least one day prior to the Effective
Time (a) authorizing the Company ESPP participants to use their accumulated
payroll deductions to purchase Company Common Stock thereunder, (b) terminating
the Company ESPP participants' rights under the then-ongoing offering under the
ESPP and (c) addressing any other matter required to be addressed by the Board
of
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Directors of the Company under the Company ESPP to effect the provisions
contemplated in Section 3.1(f) hereof.
ARTICLE VIII
CONDITIONS TO THE MERGER
Section 8.1 CONDITIONS TO EACH PARTY'S OBLIGATION TO EFFECT THE
MERGER. The respective obligations of each party to effect the Merger shall be
subject to the fulfillment at or prior to the Closing of the following
conditions, any of which may be waived if waived in writing by both Parent and
the Company:
(a) The holders of issued and outstanding shares of Company Common
Stock shall have duly adopted and approved this Agreement, all in accordance
with applicable law.
(b) No statute, rule, regulation, executive order, decree, ruling or
injunction shall have been enacted, entered, promulgated or enforced by any
Governmental Authority which prohibits the consummation of the Merger
substantially on the terms contemplated hereby. In the event any order,
decree or injunction shall have been issued, each party shall use its
reasonable efforts to remove any such order, decree or injunction.
(c) The Registration Statement shall have been declared effective in
accordance with the provisions of the Securities Act and no stop order
suspending such effectiveness shall have been issued and remain in effect.
(d) Any applicable waiting period under the HSR Act shall have expired
or been terminated and any other Company Required Approvals and Parent
Required Approvals shall have been obtained, except where the failure to
obtain such other Company Required Approvals and Parent Required Approvals
would not have a Material Adverse Effect on the Company or Parent, as the
case may be.
(e) Each of the Company and Parent shall have received an opinion of
its tax counsel, Cooley Godward LLP and Hogan & Hartson L.L.P.,
respectively, in form and substance reasonably satisfactory to it, and dated
as of the Effective Time, to the effect that the Merger will qualify for
federal income tax purposes as a reorganization within the meaning of
Section 368(a) of the Code; PROVIDED, HOWEVER, that if either tax counsel to
Parent (Hogan & Hartson L.L.P.) or tax counsel to the Company (Cooley
Godward LLP) does not render such opinion or renders but withdraws such
opinion, this condition shall nonetheless be deemed to be satisfied if
counsel to the Company (Cooley Godward LLP) renders, and does not withdraw,
such opinion to Parent or tax counsel to Parent (Hogan & Hartson L.L.P.)
renders, and does not withdraw, such opinion to the Company. In rendering
such opinions, Cooley Godward LLP and Hogan & Hartson L.L.P. may rely upon
representations of officers of the Company and Parent referred to in
Section 7.3(a)(v).
Section 8.2 CONDITIONS TO OBLIGATIONS OF THE COMPANY TO EFFECT THE
MERGER. The obligation of the Company to effect the Merger is subject to the
fulfillment at or prior to the Closing of the following additional conditions,
any of which may be waived if waived in writing by the Company:
(a) The representations and warranties of Parent and Sub contained
herein shall be accurate in all respects (but without regard to any
materiality qualifications or references to Material Adverse Effect
contained in any specific representation or warranty) as of the Closing Date
with the same effect as though made as of the Closing Date except (i) for
inaccuracies arising from changes or actions contemplated by this Agreement,
(ii) that the accuracy of representations and warranties that by their terms
speak as of the date of this Agreement or some other date will be determined
as of such date (subject to the qualification set forth in clause (iii)
below) and (iii) where any such failure of the representations and
warranties to be true and correct in all respects would not constitute a
Material Adverse Effect on Parent;
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(b) Parent and Sub shall have performed in all material respects all
obligations and complied in all material respects with all covenants
required by this Agreement to be performed or complied with by them prior to
the Closing Date;
(c) During the period from the date hereof to the Closing Date, there
shall not have been any Material Adverse Effect on Parent;
(d) The shares of Parent Common Stock issuable in the Merger shall have
been approved for listing on the Nasdaq, subject only to official notice of
issuance; and
(e) Parent shall have delivered to the Company a certificate, dated the
Closing Date and signed by its Chairman of the Board, Chief Executive
Officer and President or a Senior Vice President, certifying that the
conditions of Sections 8.2(a), 8.2(b) and 8.2(c) have been satisfied.
Section 8.3 CONDITIONS TO OBLIGATIONS OF PARENT TO EFFECT THE MERGER. The
obligation of Parent to effect the Merger is subject to the fulfillment at or
prior to the Closing of the following additional conditions, any of which may be
waived if waived in writing by Parent:
(a) The representations and warranties of the Company contained herein
shall be accurate in all respects (but without regard to any materiality
qualifications or references to Material Adverse Effect contained in any
specific representation or warranty) as of the Closing Date with the same
effect as though made as of the Closing Date except (i) for inaccuracies
arising from changes or actions contemplated by this Agreement, (ii) that
the accuracy of representations and warranties that by their terms speak as
of the date of this Agreement or some other date will be determined as of
such date (subject to the qualification set forth in clause (iii) below) and
(iii) where any such failure of the representations and warranties in the
aggregate to be true and correct in all respects would not constitute a
Material Adverse Effect on the Company;
(b) The Company shall have performed in all material respects all
obligations and complied in all material respects with all covenants
required by this Agreement to be performed or complied with by it prior to
the Closing Date;
(c) During the period from the date hereof to the Closing Date, there
shall not have been any Material Adverse Effect on the Company; and
(d) The Company shall have delivered to Parent a certificate, dated the
Closing Date and signed by its Chairman of the Board, Chief Executive
Officer and President or a Senior Vice President, certifying that the
conditions of Sections 8.3(a), 8.3(b) and 8.3(c) have been satisfied.
ARTICLE IX
TERMINATION; WAIVER; AMENDMENT; CLOSING
Section 9.1 TERMINATION OR ABANDONMENT. Notwithstanding anything contained
in this Agreement to the contrary, this Agreement may be terminated and
abandoned at any time prior to the Effective Time, whether before or after any
approval of this Agreement by the stockholders of the Company:
(a) by the mutual written consent of the Company and Parent;
(b) by either the Company or Parent if the Effective Time shall not
have occurred on or before December 31, 2000; provided, that the party
seeking to terminate this Agreement pursuant to this Section 9.1(b) shall
not have breached in any material respect its obligations under this
Agreement in any manner that shall have materially contributed to the
failure to consummate the Merger on or before such date;
(c) by either the Company or Parent if (i) a statute, rule, regulation
or executive order shall have been enacted, entered, promulgated or enforced
by any Governmental Authority prohibiting the consummation of the Merger
substantially on the terms contemplated hereby or (ii) an order,
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decree, ruling or injunction shall have been entered permanently
restraining, enjoining or otherwise prohibiting the consummation of the
Merger substantially on the terms contemplated hereby and such order,
decree, ruling or injunction shall have become final and non-appealable;
provided, that the party seeking to terminate this Agreement pursuant to
this Section 9.1(c)(ii) shall have used its reasonable best efforts to
remove such order, decree, ruling or injunction;
(d) by either the Company or Parent if (i) the Company Stockholders
Meeting (including any adjournments thereof) shall have been held and
completed and the stockholders of the Company shall have taken a final vote
on a proposal to approve this Agreement, and (ii) the approval of the
stockholders of the Company contemplated by this Agreement shall not have
been obtained; provided, that the party seeking to terminate this Agreement
pursuant to this Section 9.1(d) shall not have breached in any material
respect its obligations under this Agreement in any manner that shall have
materially contributed to the failure to obtain such approval;
(e) by Parent, if the Company shall have failed to include in the proxy
statement/prospectus the Company Recommendation or effected a Change in
Company Recommendation (or the Company's board of directors has resolved to
take any such action), whether or not permitted by the terms hereof, which
Change in Company Recommendation shall not have been rescinded or reversed
prior to such termination, or shall have failed to call the Company
Stockholders Meeting in accordance with Section 4.1 promptly following the
effectiveness of the Registration Statement, or shall have materially
breached any of its obligations under Section 7.9;
(f) by the Company if there shall have been a material breach by Parent
of any of its representations, warranties, covenants or agreements contained
in this Agreement such that the conditions set forth in Section 8.2(a) or
Section 8.2(b) would not be satisfied as of the time of such breach, and
such breach shall not have been cured within 30 days after written notice
thereof shall have been received by Parent; provided that the Company shall
not itself be in material breach of any of its representations, warranties,
covenants or agreements contained in this Agreement so as to permit the
termination of this Agreement by Parent pursuant to Section 9.1(g);
(g) by Parent if there shall have been a material breach by the Company
of any of its representations, warranties, covenants or agreements contained
in this Agreement such that the conditions set forth in Section 8.3(a) or
Section 8.3(b) would not be satisfied as of the time of such breach, and
such breach shall not have been cured within 30 days after written notice
thereof shall have been received by the Company; provided that Parent shall
not itself be in material breach of any of its representations, warranties,
covenants or agreements contained in this Agreement so as to permit the
termination of this Agreement by the Company pursuant to Section 9.1(f);
(h) by Parent if (i) any of the Principal Stockholders breaches in any
material respect its voting and nonsolicitation obligations under Sections
1.1 and 1.5 of the Voting Agreements, or (ii) any executive officer of the
Company who is a party to an Employment Agreement has ceased to be an
employee of the Company (other than by reason of death or disability) at or
prior to the Effective Time and shall not prior to such termination become
re-employed by the Company; and
(i) by Parent if the SEC does not accept the Merger as a pooling of
interests transaction for financial accounting purposes.
In the event of termination of this Agreement pursuant to this Section 9.1,
this Agreement shall terminate, and there shall be no other liability on the
part of the Company or Parent to the other except liability arising out of a
willful breach of this Agreement or as provided for in the Confidentiality
Agreement (which shall survive such termination).
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Section 9.2 TERMINATION FEE.
(a) In the event that a Company Termination Fee Event (as defined
below) occurs, then the Company shall pay Parent a fee equal to $5,000,000
(the "Company Termination Fee") payable by wire transfer of same day funds
at the applicable time set forth below. A "Company Termination Fee Event"
shall mean, after a Takeover Proposal shall have been made to the Company or
any of its Subsidiaries or shall have been made directly to the stockholders
of the Company generally (and shall not have been withdrawn) or shall have
otherwise become publicly known or any Person shall have publicly announced
an intention (whether or not conditional) to make a Takeover Proposal (and
shall not have withdrawn such announcement or publicly announced that it
will not make or pursue a Takeover Proposal), the occurrence of any one of
the following:
(i) a termination of this Agreement by either party pursuant to
Section 9.1(d) (provided that the basis for termination is the failure of
the Company's Stockholders to approve and adopt this Agreement at a vote
duly taken) followed by the entering into of a Company Acquisition within
9 months following any such termination; or
(ii) a termination of this Agreement by Parent pursuant to
Section 9.1(e);
PROVIDED, HOWEVER that no Company Termination Fee Event shall be deemed to have
occurred pursuant to any of the preceding clauses if, at the time of
termination, Parent shall be in material breach of any of its representations,
warranties, covenants or agreements contained in this Agreement and as a result
the Company would be entitled to terminate this Agreement pursuant to
Section 9.1(f) or there shall have occurred a Material Adverse Effect on Parent.
In the event of a Company Termination Fee Event describe in clause (i) of this
Section 9.2(a), the Company Termination Fee will be payable upon the
consummation of the Company Acquisition described therein, and in the event of a
Company Termination Fee Event described in clause (ii) of this Section 9.2(a),
the Company Termination Fee will be payable within two business days following
such termination.
(b) Each party acknowledges that the agreements contained in this
Section 9.2 are an integral part of the transactions contemplated by this
Agreement, and that, without these agreements, the other party would not
enter into this Agreement; accordingly, if the Company fails promptly to pay
any Company Termination Fee when due pursuant to this Section 9.2, and, in
order to obtain such payment, Parent commences a suit that results in a
final and non-appealable judgment against the Company for the such Company
Termination Fee, the Company shall pay to Parent its costs and expenses
actually incurred (including reasonable attorneys' fees and expenses) in
connection with such suit, together with interest on the amount of the fee
at the prime rate of Bank of America, N.A. in effect on the date such
payment was required to be made.
(c) Notwithstanding the foregoing provisions of this Section 9.2, in no
event shall a Termination Fee or any other amount be payable by the Company
upon or following any termination of this Agreement pursuant to Section 9.1
except upon the occurrence of a Company Termination Fee Event entitling
Parent to the payment of a Termination Fee hereunder.
(d) In addition to the foregoing, upon the occurrence of a Company
Termination Fee Event the Company shall, at the time any related Termination
Fee is due and payable and upon submission of one or more statements
therefor, accompanied by reasonable supporting documentation, reimburse
Parent for up to $1,000,000 of all out of pocket costs, fees and expenses
reasonably incurred by Parent or Sub or on their behalf arising out of, in
connection with, or related to this Agreement, the Merger and the
consummation of all transactions contemplated by this Agreement (including,
without limitation, HSR Act and other filing fees, fees and expenses of
printers, accountants, financial advisors, attorneys, consultants and
appraisers).
Section 9.3 AMENDMENT OR SUPPLEMENT. At any time before or after approval
of this Agreement by the stockholders of the Company and prior to the Effective
Time, this Agreement may be amended
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or supplemented in writing by the Company with respect to any of the terms
contained in this Agreement, except that following approval by the stockholders
of the Company there shall be no amendment or change to the provisions hereof
with respect to the Common Exchange Ratio provided herein nor any amendment or
change not permitted under applicable law, without further approval by the
stockholders of the Company.
Section 9.4 EXTENSION OF TIME, WAIVER, ETC. At any time prior to the
Effective Time, the Company and Parent may: (a) extend the time for the
performance of any of the obligations or acts of the other party; (b) waive any
inaccuracies in the representations and warranties of the other party contained
herein or in any document delivered pursuant hereto; or (c) waive compliance
with any of the agreements or conditions of the other party contained herein.
Notwithstanding the foregoing, no failure or delay by the Company or Parent in
exercising any right hereunder shall operate as a waiver thereof nor shall any
single or partial exercise thereof preclude any other or further exercise
thereof or the exercise of any other right hereunder. Any agreement on the part
of a party hereto to any such extension or waiver shall be valid only if set
forth in an instrument in writing signed on behalf of such party.
ARTICLE X
MISCELLANEOUS
Section 10.1 NO SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All the
representations and warranties made by the Company in this Agreement or in any
instrument to be delivered pursuant to this Agreement shall survive until (but
not beyond) the Effective Time.
Section 10.2 EXPENSES. Whether or not the Merger is consummated, all costs
and expenses incurred in connection with this Agreement and the transactions
contemplated hereby and thereby shall be paid by the party incurring such
expenses, except that (a)(i) the filing fee in connection with any HSR Act
filing, (ii) the expenses and compensation of the Exchange Agent and (iii) the
expenses incurred in connection with the printing and mailing of the proxy
statement/prospectus shall be shared equally by the Company and Parent and
(b) all transfer taxes shall be paid by the Company. Prior to the signing
hereof, the Company has provided Parent with information on all third-party
legal, financial and accounting advisory fees and any other fees incurred. All
stockholders of the Company shall bear their own expenses in connection
herewith.
Section 10.3 COUNTERPARTS; EFFECTIVENESS. This Agreement may be executed
in two or more counterparts, each of which shall be an original, with the same
effect as if the signatures thereto and hereto were upon the same instrument,
and shall become effective when one or more counterparts have been signed by
each of the parties and delivered (by facsimile or otherwise) to the other
parties.
Section 10.4 GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the laws of the State of Delaware.
Section 10.5 NOTICES. All notices and other communications hereunder shall
be in writing (including facsimile or similar writing) and shall be effective
(a) if given by facsimile, when such facsimile is transmitted to the facsimile
number specified in this Section 10.5 and the appropriate
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facsimile confirmation is received or (b) if given by any other means, when
delivered at the address specified in this Section 10.5:
(a) if to Parent or Sub, to:
TeleTech Holdings, Inc.
1700 Lincoln Street, Suite 1400
Denver, CO 80203
Attention: Chief Financial Officer
Telephone: (303) 894-4000
Fax: (303) 894-7321
TeleTech Holdings, Inc.
1700 Lincoln Street, Suite 1400
Denver, CO 80203
Attention: General Counsel
Telephone: (303) 894-4000
Fax: (303) 894-7321
with a copy to:
Hogan & Hartson L.L.P.
1200 17th Street, Suite 1500
Denver, CO 80202
Attention: Steven A. Cohen
Telephone: (303) 899-7300
Facsimile: (303) 899-7333
(b) if to the Company to:
Newgen Results Corporation
12680 High Bluff Drive, Suite 300
San Diego, CA 92130
Attention: Samuel Simkin
Telephone: (858) 481-7545
Fax: (858) 481-4151
with a copy to:
Cooley Godward LLP
4365 Executive Drive, Suite 1100
San Diego, CA 92121-2128
Attention: M. Wainwright Fishburn Jr.
Telephone: (619) 550-5000
Fax: (619) 453-3555
Section 10.6 ASSIGNMENT; BINDING EFFECT. Neither this Agreement nor any of
the rights, interests or obligations hereunder shall be assigned by any of the
parties hereto (whether by operation of law or otherwise) without the prior
written consent of the other parties. Subject to the preceding sentence, this
Agreement shall be binding upon and shall inure to the benefit of the parties
hereto and their respective successors and assigns.
Section 10.7 SEVERABILITY. Any term or provision of this Agreement that is
invalid or unenforceable in any jurisdiction shall, as to that jurisdiction, be
ineffective to the extent of such invalidity or unenforceability without
rendering invalid or unenforceable the remaining terms and
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provisions of this Agreement in any other jurisdiction. If any provision of this
Agreement is so broad as to be unenforceable, such provision shall be
interpreted to be only so broad as is enforceable.
Section 10.8 ENFORCEMENT OF AGREEMENT. Except as otherwise provided
herein, any and all remedies herein expressly conferred upon a party will be
deemed cumulative with and not exclusive of any other remedy conferred hereby,
or by law or equity upon such party, and the exercise by a party of any one
remedy will not preclude the exercise of any other remedy. The parties hereto
agree that money damages or other remedy at law would not be sufficient or
adequate remedy for any breach or violation of, or a default under, this
Agreement by them and that in addition to all other remedies available to them,
each of them shall be entitled to the fullest extent permitted by law to an
injunction restraining such breach, violation or default or threatened breach,
violation or default and to any other equitable relief, including, without
limitation, specific performance, without bond or other security being required.
Section 10.9 MISCELLANEOUS. This Agreement, along with the Confidentiality
Agreement constitutes the entire agreement, and supersedes all other prior
agreements and understandings, both written and oral, between the parties, or
any of them, with respect to the subject matter hereof and thereof; and except
for the provisions of Section 7.11 hereof, is not intended to and shall not
confer upon any Person other than the parties hereto and the Company's
stockholders any rights or remedies hereunder.
Section 10.10 HEADINGS. Headings of the Articles and Sections of this
Agreement are for convenience of the parties only, and shall be given no
substantive or interpretive effect whatsoever.
Section 10.11 FINDERS OR BROKERS. Except for Chase H&Q with respect to the
Company, a copy of whose engagement agreement with the Company has been provided
to Parent, and Morgan Stanley & Co. Incorporated with respect to Parent, a copy
of whose engagement agreement with Parent has been or will be provided to the
Company, neither the Company nor Parent nor any of their respective Subsidiaries
has employed any investment banker, broker, finder or intermediary in connection
with the transactions contemplated hereby who might be entitled to any fee or
any commission in connection with or upon consummation of the Merger.
[SIGNATURE PAGE FOLLOWS]
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly
executed and delivered as of the date first above written.
<TABLE>
<S> <C> <C>
PARENT
TELETECH HOLDINGS, INC.
By: /s/ MICHAEL E. FOSS
-----------------------------------------
Name: Michael E. Foss
Title: CFO
SUB
NG ACQUISITION CORP.
By: /s/ MICHAEL E. FOSS
-----------------------------------------
Name: Michael E. Foss
Title: President
COMPANY
NEWGEN RESULTS CORPORATION
By: /s/ SAM SIMKIN
-----------------------------------------
Name: Sam Simkin
Title: Senior Vice President & Chief
Financial Officer
</TABLE>
A-46
<PAGE>
ANNEX B
PRIMARY VOTING AGREEMENT
THIS PRIMARY VOTING AGREEMENT, dated as of August 21, 2000 (the
"Agreement"), is entered into among TeleTech Holdings, Inc., a Delaware
corporation ("Parent"), and certain stockholders of Newgen Results Corporation,
a Delaware corporation (the "Company") whose names appear on SCHEDULE I hereto
(collectively, the "Stockholders").
WITNESSETH:
WHEREAS, contemporaneously with the execution and delivery of this
Agreement, Parent, NG Acquisition Corp., a Delaware corporation ("Sub"), and the
Company are entering into an Agreement and Plan of Merger, dated as of the date
hereof (the "Merger Agreement"), which provides for, upon the terms and subject
to the conditions set forth therein, the merger of Sub with and into the Company
(the "Merger");
WHEREAS, as of the date hereof, each Stockholder is the beneficial owner (as
defined in Rule 13d-3 under the Exchange Act) of the number of shares of Company
Common Stock set forth opposite such Stockholder's name on SCHEDULE I hereto
(the "Owned Shares") which shares constitute in the aggregate not less than
forty percent (40%) of the issued and outstanding shares of Company Common Stock
as of the date hereof;
WHEREAS, contemporaneously with the execution and delivery of this
Agreement, Parent and the Stockholders are also entering into that certain
Secondary Voting Agreement, dated as of the date hereof, setting forth certain
covenants of the Stockholders with respect to certain additional shares of
Company Common Stock beneficially held by the Stockholders (the "Secondary
Voting Agreement");
WHEREAS, as a condition to Parent's willingness to enter into the Merger
Agreement, Parent has required that the Stockholders enter into this Agreement
and the Secondary Voting Agreement; and
WHEREAS, in order to induce Parent to enter into the Merger Agreement, the
Stockholders are willing to enter into this Agreement and the Secondary Voting
Agreement.
NOW, THEREFORE, in consideration of the foregoing and the mutual covenants
and agreements herein contained, and intending to be legally bound hereby,
Parent and each of the Stockholders, severally and not jointly, hereby agree as
follows:
ARTICLE I
TRANSFER AND VOTING OF SHARES;
OTHER COVENANTS OF THE STOCKHOLDERS
SECTION 1.1. VOTING OF SHARES. Each Stockholder agrees, at any meeting of
the stockholders of the Company, however called, and in any action by consent of
the stockholders of the Company, that such Stockholder shall vote its Owned
Shares (i) in favor of the approval and adoption of the Merger Agreement (as
amended from time to time) and (ii) in favor of any other matter necessary for
consummation of the transactions contemplated by the Merger Agreement which is
considered at any such meeting of stockholders, and in connection therewith to
execute any documents which are necessary or appropriate in order to effectuate
the foregoing, including the ability for Parent or its nominees to vote such
Owned Shares directly solely with respect to the matters referred to in this
Section 1.1.
SECTION 1.2. NO INCONSISTENT ARRANGEMENTS. Except as contemplated by this
Agreement, each Stockholder shall not during the term of this Agreement
(i) transfer (which term shall include, without
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<PAGE>
limitation, any sale, assignment, gift, pledge, hypothecation or other
disposition), or consent to any transfer of, any or all of such Stockholder's
Owned Shares or any interest therein, or create or permit to exist any
Encumbrance (as defined below) on such Owned Shares unless such transfer or
Encumbrance is done subject to the voting requirements set forth in Section 1.1
and subject to any such transferee or the beneficiary of any such Encumbrance
executing a Proxy (as defined below), (ii) enter into any contract, option or
other agreement or understanding with respect to any transfer of any or all of
such Owned Shares or any interest therein on terms that would, at the time of
entering into such contract, option or other agreement or understanding or with
the passage of time, violate clause (i) above, (iii) grant any proxy,
power-of-attorney or other authorization in or with respect to such Owned
Shares, (iv) deposit such Owned Shares into a voting trust or enter into a
voting agreement or arrangement with respect to such Owned Shares or (v) take
any other action that would in any way restrict, limit or interfere with the
performance of such Stockholder's obligations hereunder or the transactions
contemplated hereby or by the Merger Agreement. Notwithstanding anything in this
Agreement to the contrary, each Stockholder may transfer all or any of such
Stockholder's Owned Shares to any trust, partnership or similar vehicle formed
for estate, tax or family planning purposes of which such Stockholder controls
the vote, provided that as a condition of such transfer, such Stockholder
notifies Parent and provides the Parent with documentation reasonably
satisfactory to Parent as to the consent of the transferee to be bound by all of
the provisions of this Agreement.
SECTION 1.3. PROXY. Each Stockholder hereby revokes any and all prior
proxies or powers-of-attorney in respect of any of such Stockholder's Owned
Shares and constitutes and agrees to execute the proxy in the form attached
hereto as EXHIBIT A (the "Proxy").
SECTION 1.4. STOP TRANSFER. Each Stockholder shall not request that the
Company register the transfer (book-entry or otherwise) of any certificate or
uncertificated interest representing any of such Stockholder's Owned Shares,
unless such transfer is made in compliance with this Agreement (including the
provisions of Article III hereof) and acknowledges that Parent and the Company
may notify the Company's transfer agent of the terms hereof.
SECTION 1.5. NO SOLICITATION. From and after the date hereof and
continuing until the earlier of the Effective Time or the termination of the
Merger Agreement pursuant to Article IX thereof, each Stockholder shall not, nor
shall it permit or authorize any of its officers, directors, employees, agents
or representatives (collectively, the "Representatives") to, (i) solicit or
initiate, or encourage, directly or indirectly, any inquiries regarding or the
submission of, any Takeover Proposal, (ii) participate in any discussions or
negotiations regarding, or furnish to any Person any information or data with
respect to, or take any other action to knowingly facilitate the making of any
proposal that constitutes, or may reasonably, be expected to lead to, any
Takeover Proposal or (iii) enter into any agreement with respect to any Takeover
Proposal or approve or resolve to approve any Takeover Proposal. Upon execution
of this Agreement, each Stockholder shall, and it shall cause its
Representatives to, immediately cease any existing activities, discussions or
negotiations with any parties conducted heretofore with respect to any of the
foregoing. Each Stockholder will promptly notify Parent of the existence of any
proposal, discussion, negotiation or inquiry received by such Stockholder with
respect to a Takeover Proposal, and each Stockholder will promptly communicate
to Parent the terms of any such proposal, discussion, negotiation or inquiry
which it may receive (and will promptly provide to Parent copies of any written
materials received by it in connection with such proposal, discussion,
negotiation or inquiry) and the identity of the Person making such proposal or
inquiry or engaging in such discussion or negotiation. Nothing in this
Section 1.5 shall be a limitation on any Stockholder or Representative thereof
serving as a director of the Company or as an officer of the Company acting at
the direction of the Board of Directors of the Company and in such capacity
taking any action on behalf of the Company that the Company is permitted to take
under Section 7.9 of the Merger Agreement, each of whom in his capacity as a
director or an officer of the Company shall be subject to the terms and
provisions of Section 7.9 of the Merger Agreement.
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<PAGE>
ARTICLE II
DISCLOSURE
SECTION 2.1. DISCLOSURE. Each Stockholder hereby authorizes Parent and the
Company to publish and disclose in the proxy statement/prospectus (including all
documents and schedules filed with the SEC) its identity and ownership of the
Owned Shares and the nature of its commitments, arrangements and understandings
under this Agreement.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE STOCKHOLDERS
Each Stockholder hereby represents and warrants to Parent as follows:
SECTION 3.1. DUE AUTHORIZATION, ETC. Such Stockholder has all requisite
personal or corporate power and authority to execute, deliver and perform this
Agreement, to appoint Parent as its Proxy and to consummate the transactions
contemplated hereby. The execution, delivery and performance of this Agreement,
the appointment of Parent as Stockholder's Proxy and the consummation of the
transactions contemplated hereby have been duly authorized by all necessary
action on the part of such Stockholder. This Agreement has been duly executed
and delivered by or on behalf of such Stockholder and constitutes a legal, valid
and binding obligation of such Stockholder, enforceable against such Stockholder
in accordance with its terms, except as enforcement may be limited by
bankruptcy, insolvency, moratorium or other similar laws and except that the.
availability of equitable remedies, including specific performance, is subject
to the, discretion of the court before which any proceeding for such remedy may
be brought. There is no beneficiary or holder of a voting trust certificate or
other interest of any trust of which such Stockholder is trustee whose consent
is required for the execution and delivery of this Agreement of the consummation
by such Stockholder of the transactions contemplated hereby.
SECTION 3.2. NO CONFLICTS; REQUIRED FILINGS AND CONSENTS.
(a) The execution and delivery of this Agreement by such Stockholder does
not, and the performance of this Agreement by such Stockholder will not,
(i) conflict with or violate any trust agreement or other similar documents
relating to any trust of which such Stockholder is trustee, (ii) conflict with
or violate the articles of incorporation, bylaws or similar organizational
documents to which such Stockholder is subject, (iii) conflict with or violate
any law applicable to such Stockholder or by which such Stockholder or any of
such Stockholder's properties is bound or affected or (iv) result in any breach
of or constitute a default (or an event that with notice or lapse of time or
both would become a default) under, or give to others any rights of termination,
acceleration or cancellation of, or result in the creation of a lien or
encumbrance on any assets of such Stockholder, including, without limitation,
such Stockholder's Owned Shares, pursuant to any note, bond, mortgage,
indenture, contract, agreement, lease, license, permit, franchise or other
instrument or obligation to which such Stockholder is a party or by which such
Stockholder or any of such Stockholder's assets is bound or affected, except, in
the case of clauses (iii) and (iv), for any such breaches, defaults or other
occurrences that would not prevent or delay the performance by such Stockholder
of such Stockholder's obligations under this Agreement.
(b) The execution and delivery of this Agreement by such Stockholder does
not, and the performance of this Agreement by such Stockholder will not, require
any consent, approval, authorization or permit of, or filing with or
notification to, any governmental or regulatory authority (other than any
necessary filing under the Exchange Act), domestic or foreign, except where the
failure to obtain such consents, approvals, authorizations at permits, or to
make such filings or notifications, would not prevent or delay the performance
by such Stockholder of such Stockholder's obligations under this Agreement.
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<PAGE>
SECTION 3.3. TITLE TO SHARES. Such Stockholder is the sole record and
beneficial owner of its Owned Shares, free and clear of any pledge, lien,
security interest, mortgage, charge, claim, equity, option, proxy, voting
restriction, voting trust or agreement, understanding, arrangement, right of
first refusal, limitation on disposition, adverse claim of ownership or use or
encumbrance of any kind ("Encumbrances"), other than restrictions imposed by the
securities laws or pursuant to this Agreement or the Merger Agreement or as
otherwise disclosed by such Stockholder to Parent.
SECTION 3.4. NO FINDER'S FEES. Except as disclosed in the Merger
Agreement, no broker, investment banker, financial advisor or other person is
entitled to any broker's, finder's, financial advisor's or other similar fee or
commission in connection with the transactions contemplated hereby based upon
arrangements made by or on behalf of such Stockholder the payment of which could
become the obligation of the Company or Parent. Such Stockholder, on behalf of
itself and its affiliates, hereby acknowledges that it is not entitled to
receive any broker's, finder's, financial advisor's or other similar fee or
commission in connection with the transactions contemplated hereby or by the
Merger Agreement.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF PARENT
Parent hereby represents and warrants to the Stockholders as follows:
SECTION 4.1. DUE ORGANIZATION, AUTHORIZATION, ETC. Parent is duly
organized, validly existing and in good standing under the laws of the State of
Delaware. Parent has all requisite corporate power and authority to execute and
deliver this Agreement and to consummate the transactions contemplated hereby.
The execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby by Parent has been duly authorized by all
necessary corporate action on the part of Parent. This Agreement has been duly
executed and delivered by Parent and constitutes a legal, valid and binding
obligation of Parent, enforceable against Parent in accordance with its terms,
except as enforcement may be limited by bankruptcy, insolvency, moratorium or
other similar laws and except that the availability of equitable remedies,
including specific performance, is subject to the discretion of the court before
which any proceeding for such remedy may be brought.
ARTICLE V
ALTERNATIVE DISPOSITIONS
SECTION 5.1 PROFIT CAPTURE. In the event that any of the Owned Shares are
sold, transferred, exchanged, canceled or disposed of in connection with or as a
result of any Takeover Proposal that is entered into within 9 months of a
Qualifying Termination of the Merger Agreement (as defined below) and such
Takeover Proposal shall have been made to the Company or any of its Subsidiaries
or shall have been made directly to the stockholders of the Company generally
(and shall not have been withdrawn) or shall have otherwise become publicly
known or any Person shall have publicly announced an intention (whether or not
conditional) to make such Takeover Proposal (and shall not have withdrawn such
announcement or publicly announced that it will not make or pursue such Takeover
Proposal) prior to a Qualifying Termination of the Merger Agreement (as defined
below) (an "Alternative Disposition") then, subject to Section 5.4 below, each
Stockholder shall tender and pay to, or shall cause to be tendered and paid to,
Parent, or its designee, in immediately available funds, 50% of the Profit (as
defined below) received or receivable from such Alternative Disposition with
respect to all of such Stockholder's Owned Shares. As used in this Section 5.1,
"Profit" shall mean an amount equal to the excess, if any, of (i) the
Alternative Transaction Consideration (as defined below) received or receivable
with respect to a Stockholder's Owned Shares over (ii) the Current Transaction
Consideration (as defined below) received or receivable with respect to a
Stockholder's Owned Shares.
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<PAGE>
SECTION 5.2 DEFINITIONS; INTERPRETATION. "Alternative Transaction
Consideration" shall mean on a per share basis determined at the time the Board
of Directors of the Company approves an Alternative Disposition, all cash,
securities, settlement or termination amounts, notes or other debt instruments,
and other consideration received or to be received, directly or indirectly, by
each Stockholder in connection with an Alternative Disposition (including,
without limitation, any employment agreement (except a bona fide employment
agreement pursuant to which the Stockholder is required to devote, and under
which the Stockholder in good faith intends to devote, substantially all of his
business time and effort to the performance of executive services for the
Company or the acquiror in such Alternative Disposition), consulting agreement,
non-competition agreement, confidentiality agreement, settlement agreement or
release agreement) entered into, directly or indirectly, by the Stockholder as a
part of or in connection with the Alternative Disposition. "Current Transaction
Consideration" shall mean on a per share basis the lower of (i) $18 per share of
Company Common Stock or (ii) the value per share of Company Common Stock
calculated pursuant to the terms of Section 3.1(b) of the Merger Agreement on
the date on which the Qualifying Termination Occurs (the "Termination Date")
expressed as a dollar amount based on what the Parent's Closing Date Price and
the Common Exchange Ratio would be if the Termination Date were the Closing Date
under the Merger Agreement. "Qualifying Termination of the Merger Agreement"
means a termination of the Merger Agreement other than pursuant to Sections
9.1(a), 9.1(c), 9.1(f) or 9.1(i) thereof. For purposes of determining Profit
under this Article V, (i) all non-cash items shall be valued based upon the fair
market value thereof as determined by an independent expert selected by Parent
and who is reasonably acceptable to the Stockholders, (ii) all deferred payments
or consideration shall be discounted at a market rate to reflect the net present
value thereof as determined by the above-referenced independent expert,
(iii) all contingent payments will be assumed to have been paid and (iv) if less
than all of the Owned Shares are subject to the Alternative Disposition, then
the Current Transaction Consideration shall be deemed to be an amount equal to
the Current Transaction Consideration multiplied by a fraction, the numerator of
which is the number of the Owned Shares sold, transferred, exchanged, canceled
or disposed of in such Alternative Disposition and the denominator of which is
the total number of the Owned Shares. In the event any contingent payments
included in the determination of Profit ultimately are not paid pursuant to an
Alternative Disposition, then Parent shall reimburse Stockholder for any amounts
paid to Parent hereunder in respect of such uncollected contingent payments
promptly after receipt of written notice of such non-payment, unless the
Stockholder has not used its best efforts to receive such contingent payments.
SECTION 5.3 ALTERNATIVE DISPOSITION WITH PARENT. In the event that after
the date of this Agreement and following the delivery by the Company to Parent
of a Notice of Superior Proposal under Section 7.9(b)(iii) of the Merger
Agreement, the amount of consideration to be received by the Stockholders in
connection with the Merger should be increased in a transaction (a "Second
Transaction") beyond the amount otherwise receivable by the Stockholders in
accordance with the Merger Agreement as in effect on the date hereof (the
"Existing Consideration") then each Stockholder shall either tender and pay, or
cause to be tendered and paid, to Parent, or its designee, in immediately
available funds 50% of the Profit payable from such Second Transaction with
respect to all of such Stockholder's Owned Shares. As used in this Section 5.3,
Profit shall mean an amount equal to the excess, if any, of (i) the Second
Transaction Consideration (as defined below) received or receivable with respect
to a Stockholder's Owned Shares over (ii) the Existing Consideration received or
receivable with respect to a Stockholder's Owned Shares. "Second Transaction
Consideration" shall mean all cash, securities, settlement or termination
amounts, notes or other debt instruments, and other consideration received or to
be received, directly or indirectly, by the Stockholder in respect of its Owned
Shares in connection with or as a result of the Second Transaction.
SECTION 5.4 PAYMENT OF PROFIT. In the event that the Alternative
Transaction Consideration received or receivable in an Alternative Disposition
is solely cash or cash equivalents, each Stockholder shall pay all amounts due
and owing by it pursuant to this Article V within three business days after
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<PAGE>
receipt of any such consideration. In the event that the Alternative Transaction
Consideration received or receivable in an Alternative Disposition is other than
cash or cash equivalents, Parent shall make available to each Stockholder a loan
for payment of the amounts due and owing pursuant to this Article V. In the
event that the Alternative Transaction Consideration received or receivable in
an Alternative Disposition is in a combination of cash or cash equivalents and
consideration other than cash or cash equivalents, then each Stockholder shall
pay all amounts due and owing by it pursuant to this Article V within three
business days after receipt of any such consideration to the extent of the cash
or cash equivalents received and, to the extent that such cash or cash
equivalents are insufficient to cover the amounts due and owing pursuant to this
Article V, Parent shall make available to each Stockholder a loan for the
shortfall. In the event loans from Parent are required hereunder, Parent and
each Stockholder shall agree on the terms and conditions of such loan which
terms and conditions shall include the following: (i) each loan shall bear
interest at the rate of ten percent (10%) per annum and (ii) each loan shall be
secured by a the grant of a security interest in or pledge of the Alternative
Transaction Consideration received or receivable in an Alternative Disposition.
Subject to the foregoing, Parent and each Stockholder shall agree on any other
terms and conditions of any such loan, including the maturity date thereof
(which shall in any event be no later than six months following the closing of
the Alternative Disposition). If the parties do not reach agreement on any such
additional loan terms within fifteen days of the closing of the Alternative
Disposition and Parent shall have negotiated such terms in good faith, all
amounts due pursuant to this Article V shall be paid within sixty days of the
closing of the Alternative Disposition.
SECTION 5.5 TERMINATION. This Article V shall terminate and be of no
further force and effect upon the expiration of the Window Period, provided that
no Qualifying Change in Company Recommendation has been made.
ARTICLE VI
MISCELLANEOUS
SECTION 6.1. DEFINITIONS. Terms used but not otherwise defined in this
Agreement have the meanings ascribed to such terms in the Merger Agreement.
SECTION 6.2. TERMINATION. Unless a Qualifying Change in Company
Recommendation has been made during the Window Period, in which case the
provisions of Article V of this Agreement shall survive until such time as the
Stockholders have no further payment obligations pursuant to Article V, this
Agreement shall terminate and be of no further force and effect (i) by the
unanimous written consent of the parties hereto or (ii) automatically and
without any required action of the parties hereto upon (x) the Effective Time or
(y) the termination of the Merger Agreement in accordance with its terms. No
such termination of this Agreement shall relieve any party hereto from any
liability for any breach of this Agreement prior to termination.
SECTION 6.3. FURTHER ASSURANCE. From time to time, at another party's
request and without consideration, each party hereto shall execute and deliver
such additional documents and take all such further action as may be necessary
or desirable to consummate and make effective, in the most expeditious manner
practicable, the transaction contemplated by this Agreement. Each Stockholder
understands and acknowledges that Parent and Sub are entering into the Merger
Agreement in reliance upon each Stockholder's execution and delivery of this
Agreement.
SECTION 6.4. CERTAIN EVENTS. Each Stockholder agrees that this Agreement
and such Stockholder's obligations hereunder shall attach to such Stockholder's
Owned Shares and shall be binding upon any person or entity to which legal or
beneficial ownership of such Owned Shares shall pass, whether by operation of
law or otherwise, including, without limitation, such Stockholder's heirs,
guardians, administrators, or successors. Notwithstanding any transfer of Owned
Shares, the transferor shall remain liable for the performance of all its
obligations under this Agreement.
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SECTION 6.5. NO WAIVER. The failure of any party hereto to exercise any
right, power, or remedy provided under this Agreement or otherwise available in
respect hereof at law or in equity, or to insist upon compliance by any other
party hereto with its obligations hereunder, any custom or practice of the
parties at variance with the terms hereof shall not constitute a waiver by such
party of its right to exercise any such or other right, power or remedy or to
demand such compliance. Any party hereto may (i) extend the time for the
performance of any of the obligations or other acts of the other parties hereto,
(ii) waive any inaccuracies in the representations and warranties of the other
parties hereto contained herein or in any document delivered pursuant hereto and
(iii) waive compliance by the other parties hereto with any of their agreements
or conditions contained herein. Any agreement on the part of a party hereto to
any such extension or waiver shall be valid only as against such party and only
if set forth in an instrument in writing signed by such party. The failure of
any party hereto to assert any of its rights under this Agreement or otherwise
shall not constitute a waiver of those rights.
SECTION 6.6. SPECIFIC PERFORMANCE. Each Stockholder acknowledges that if
such Stockholder fails to perform any of its obligations under this Agreement
immediate and irreparable harm or injury. would be caused to Parent for which
money damages would not be an adequate remedy. In such event, each Stockholder
agrees that Parent shall have the right, in addition to any other rights it may
have, to specific performance of this Agreement. Accordingly, if Parent should
institute an action or proceeding seeking specific enforcement of the provisions
hereof, each Stockholder hereby waives the claim or defense that Parent has an
adequate remedy at law and hereby agrees not to assert in any such action or
proceeding the claim or defense that such a remedy at law exists. Each
Stockholder further agrees to waive any requirements for the securing or posting
of any bond in connection with obtaining any such equitable relief.
SECTION 6.7. NOTICE. All notices and other communications hereunder shall
be in writing (including facsimile or similar writing) and shall be effective
(i) if given by facsimile, when such facsimile is transmitted to the facsimile
number specified in this Section 6.7 and the appropriate facsimile confirmation
is received or (ii) if given by any other means, when delivered to the following
addresses (or at such other address for a party as shall be specified by like
notice):
<TABLE>
<S> <C> <C>
(a) If to Parent: TeleTech Holdings, Inc.
1700 Lincoln Street, Suite 1400
Denver, CO 80203
Attention: Chief Financial Officer
Telephone: (303) 894-4000
Fax: (303) 894-7321
TeleTech Holdings, Inc.
1700 Lincoln Street, Suite 1400
Denver, CO 80203
Attention: General Counsel
Telephone: (303) 894-4000
Fax: (303) 894-7321
with a copy to: Hogan & Hartson L.L.P.
1200 17th Street, Suite 1500
Denver, CO 80202
Facsimile: 303-899-7333
Attention: Steven A. Cohen
</TABLE>
(b) If to a Stockholder, at the address or facsimile number set forth below
such Stockholder's name on SCHEDULE I hereto.
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SECTION 6.8. EXPENSES. Except as otherwise expressly set forth herein, all
fees, costs and expenses incurred in connection with this Agreement and the
transactions contemplated hereby shall be paid by the party incurring such fees,
costs and expenses.
SECTION 6.9. HEADINGS. The headings contained in this Agreement are for
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
SECTION 6.10. SEVERABILITY. If any term or other provision of this
Agreement is invalid, illegal or incapable of being enforced by any rule of law,
or public policy, all other conditions and provisions of this Agreement shall
nevertheless remain in full force and effect so long as the economic or legal
substance of the transactions contemplated hereby is not affected in any manner
adverse to any party. Upon such determination that any term or other provision
is invalid, illegal, or incapable of being enforced, the parties hereto shall
negotiate in good faith to modify this Agreement so as to effect the original
intent of the parties as closely as possible in an acceptable manner to the end
that transactions contemplated hereby are fulfilled to the maximum extent
possible.
SECTION 6.11. ENTIRE AGREEMENT; NO THIRD-PARTY BENEFICIARIES. This
Agreement constitutes the entire agreement and supersedes any and all other
prior agreements and undertakings, both written and oral, among the parties, or
any of them, with respect to the subject matter hereof, and this Agreement is
not intended to confer upon any other person any rights or remedies hereunder.
SECTION 6.12. ASSIGNMENT. This Agreement shall not be assigned by
operation of law or otherwise.
SECTION 6.13. GOVERNING LAW. This Agreement shall be governed by, and
construed in accordance with, the laws of the State of Delaware applicable to
contracts executed in and to be performed entirely within that State.
SECTION 6.14. AMENDMENT. This Agreement may not be amended except by an
instrument in writing signed by the parties hereto.
SECTION 6.15. COUNTERPARTS. This Agreement may be executed in one or more
counterparts, and by the different parties hereto in separate counterparts, each
of which when executed shall be deemed to be an original but all of which shall
constitute one and the same agreement.
[SIGNATURE PAGE FOLLOWS]
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<PAGE>
IN WITNESS WHEREOF, Parent and the Stockholders have caused this Agreement
to be executed as of the date first written above.
<TABLE>
<S> <C> <C>
TELETECH HOLDINGS, INC.
By: /s/ MICHAEL E. FOSS
-----------------------------------------
Name: Michael E. Foss
TITLE: CHIEF FINANCIAL OFFICER
STOCKHOLDERS
INFORMATION ASSOCIATES, L.P.
By: Trident Capital Management, L.L.C., its
general partner
By: /s/ JOHN MORANGE
-----------------------------------------
Name: John Morange
TITLE: MANAGING DIRECTOR
INFORMATION ASSOCIATES, C.V.
By: Trident Capital Management, L.L.C., its
investment general partner
By: /s/ JOHN MORANGE
-----------------------------------------
Name: John Morange
TITLE: MANAGING DIRECTOR
INFORMATION ASSOCIATES-II, L.P.
By: Trident Capital Management-II, L.L.C., its
general partner
By: /s/ JOHN MORANGE
-----------------------------------------
Name: John Morange
TITLE: MANAGING DIRECTOR
</TABLE>
B-9
<PAGE>
<TABLE>
<S> <C> <C>
IA-II AFFILIATES FUND, L.L.C.
By: /s/ JOHN MORANGE
-----------------------------------------
Name: John Morange
TITLE: MANAGING DIRECTOR
BANK OF AMERICA VENTURES
By: /s/ JESS R. MARZAK
-----------------------------------------
Name: Jess R. Marzak
TITLE: MANAGING DIRECTOR
BA VENTURE PARTNERS II
By: /s/ JESS R. MARZAK
-----------------------------------------
Name: Jess R. Marzak
TITLE: GENERAL PARTNER
By: /s/ BERNARD C. SIMKIN
-----------------------------------------
Name: Bernard Simkin
JOHARI INVESTMENT CO. LTD.
By: /s/ GARY SIMKIN
-----------------------------------------
Name: Gary Simkin
TITLE: PRESIDENT
CAPSTONE VENTURES, A Delaware Limited
Partnership
By: Capstone Management, LLC
By: /s/ EUGENE J. FISCHER
-----------------------------------------
Name: Eugene J. Fischer
By: /s/ GERALD BENOWITZ
-----------------------------------------
Name: Gerald Benowitz
</TABLE>
B-10
<PAGE>
<TABLE>
<S> <C> <C>
K & S IMPORTS, INC.
By: /s/ SAM SIMKIN
-----------------------------------------
Name: Sam Simkin
TITLE: PRESIDENT
By: /s/ SAM SIMKIN
-----------------------------------------
Name: Samuel Simkin
By: /s/ LESLIE SILVER
-----------------------------------------
Name: Leslie Silver
</TABLE>
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<PAGE>
SCHEDULE I
<TABLE>
<CAPTION>
NAME AND ADDRESS OF STOCKHOLDER NUMBER OF SHARES BENEFICIALLY OWNED
------------------------------- -----------------------------------
<S> <C>
Information Associates, L.P. ............................... 423,717
2480 Sand Hill Road
Menlo Park, CA 94025
Information Associates, C.V. ............................... 11,824
2480 Sand Hill Road
Menlo Park, CA 94025
Information Associates - II, L.P. .......................... 653,311
2480 Sand Hill Road
Menlo Park, CA 94025
IA-II Affiliates Fund, L.L.C. .............................. 38,111
2480 Sand Hill Road
Menlo Park, CA 94025
BankAmerica Ventures ....................................... 693,908
950 Tower Lane, Ste. 700
Foster City, CA 94404
BA Venture Partners II ..................................... 77,100
950 Tower Lane, Ste. 700
Foster City, CA 94404
Bernard Simkin ............................................. 569,969
c/o Newgen Results Corporation
9449 Carroll Park Drive
San Diego, CA 92121
Johari Investment Co. Ltd. ................................. 525,698
c/o Newgen Results Corporation
9449 Carroll Park Drive
San Diego, CA 92121
Capstone Ventures .......................................... 319,231
3000 Sand Hill Road
Building 1, Suite 290
Menlo Park, CA 94025
Gerald Benowitz ............................................ 521,534
5008 McGill Way
San Diego, CA 92130
K & S Imports, Inc. ........................................ 189,052
4722 Sun Valley Road
Del Mar, CA 92104
Samuel Simkin .............................................. 18,944
4722 Sun Valley Road
Del Mar, CA 92104
Leslie Silver .............................................. 171,780
4705 Reedly Terrace
San Diego, CA 92130
---------
Total:...................................................... 4,214,179
Percentage:................................................. 40.00%
</TABLE>
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<PAGE>
EXHIBIT A
IRREVOCABLE PROXY
By its execution hereof, and in order to secure its obligations under the
Primary Voting Agreement (the "Primary Agreement") of even date herewith among
TELETECH HOLDINGS, INC., a Delaware corporation and certain stockholders of
NEWGEN RESULTS CORPORATION, a Delaware corporation (the "Company"), the
undersigned (the "Stockholder") hereby irrevocably constitutes and appoints
TELETECH HOLDINGS, INC. and NG ACQUISITION CORP., a Delaware corporation
("Sub"), and each of them and each of their successors and assigns, with full
power of substitution and resubstitution, from the date hereof to the
termination of the Primary Agreement, as such Stockholder's true and lawful
attorney and proxy (its "Proxy"), for and in such Stockholder's name, place and
stead, to demand that the Secretary call a special meeting of Stockholders of
the Company for the purpose of considering any action related to the Merger
Agreement and to vote each of the Owned Shares of the Stockholder as such
Stockholder's Proxy at every annual, special or adjourned meeting of
Stockholders of the Company, and to sign on behalf of such Stockholder (as a
Stockholder of the Company) any ballot, proxy, consent, certificate or other
document relating to the Company that law permits or requires, in a manner
consistent with Section 1.1 of the Primary Agreement. This Proxy is coupled with
an interest and the Stockholder intends this Proxy to be irrevocable to the
fullest extent permitted by law. Each Stockholder hereby revokes any proxy
previously granted by such Stockholder with respect to such Stockholder's
Shares. Capitalized terms used but not defined herein shall have the meaning set
forth in the Primary Agreement. Each Stockholder shall perform such further acts
and execute such further documents and instruments as may reasonably be required
to vest in Parent and Sub, or any of their nominees, the power to carry out and
give effect to the provisions of this Proxy.
IN WITNESS WHEREOF, the undersigned has executed this Irrevocable Proxy this
day of , 2000.
--------------------------------------
Name:
--------------------------------------------------------------------------------
Address:
--------------------------------------
--------------------------------------
--------------------------------------
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<PAGE>
ANNEX C
SECONDARY VOTING AGREEMENT
THIS SECONDARY VOTING AGREEMENT, dated as of August 21, 2000 (the
"Agreement"), is entered into among TeleTech Holdings, Inc., a Delaware
corporation ("Parent"), and certain stockholders of Newgen Results Corporation,
a Delaware corporation (the "Company") whose names appear on SCHEDULE I hereto
(collectively, the "Stockholders").
WITNESSETH:
WHEREAS, contemporaneously with the execution and delivery of this
Agreement, Parent, NG Acquisition Corp., a Delaware corporation ("Sub"), and the
Company are entering into an Agreement and Plan of Merger, dated as of the date
hereof (the "Merger Agreement"), which provides for, upon the terms and subject
to the conditions set forth therein, the merger of Sub with and into the Company
(the "Merger");
WHEREAS, as of the date hereof, each Stockholder is the beneficial owner (as
defined in Rule 13d-3 under the Exchange Act) of the number of shares of Company
Common Stock set forth opposite such Stockholder's name on SCHEDULE I hereto
(the "Owned Shares") which shares constitute in the aggregate approximately
sixteen and one-half percent (16.5%) of the issued and outstanding shares of
Company Common Stock as of the date hereof;
WHEREAS, contemporaneously with the execution and delivery of this
Agreement, Parent and the Stockholders are also entering into that certain
Primary Voting Agreement, dated as of the date hereof, setting forth certain
covenants of the Stockholders with respect to certain additional shares of
Company Common Stock beneficially held by the Stockholders (the "Primary Voting
Agreement");
WHEREAS, as a condition to Parent's willingness to enter into the Merger
Agreement, Parent has required that the Stockholders enter into this Agreement
and the Primary Voting Agreement; and
WHEREAS, in order to induce Parent to enter into the Merger Agreement, the
Stockholders are willing to enter into this Agreement and the Primary Voting
Agreement.
NOW, THEREFORE, in consideration of the foregoing and the mutual covenants
and agreements herein contained, and intending to be legally bound hereby,
Parent and each of the Stockholders, severally and not jointly, hereby agree as
follows:
ARTICLE I
TRANSFER AND VOTING OF SHARES;
OTHER COVENANTS OF THE STOCKHOLDERS
SECTION 1.1. VOTING OF SHARES. Subject to Section 1.6, each Stockholder
agrees, at any meeting of the stockholders of the Company, however called, and
in any action by consent of the stockholders of the Company, that such
Stockholder shall vote its Owned Shares (i) in favor of the adoption and
approval of the Merger Agreement (as amended from time to time) and (ii) in
favor of any other matter necessary for consummation of the transactions
contemplated by the Merger Agreement which is considered at any such meeting of
stockholders, and in connection therewith to execute any documents which are
necessary or appropriate in order to effectuate the foregoing, including the
ability for Parent or its nominees to vote such Owned Shares directly solely
with respect to the matters referred to in this Section 1.1.
SECTION 1.2. NO INCONSISTENT ARRANGEMENTS. Except as contemplated by this
Agreement, each Stockholder shall not during the term of this Agreement
(i) transfer (which term shall include, without limitation, any sale,
assignment, gift, pledge, hypothecation or other disposition), or consent to any
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transfer of, any or all of such Stockholder's Owned Shares or any interest
therein, or create or permit to exist any Encumbrance (as defined below) on such
Owned Shares unless such transfer or Encumbrance is done subject to the voting
requirements set forth in Section 1.1 and subject to any such transferee or the
beneficiary of any such Encumbrance executing a Proxy (as defined below),
(ii) enter into any contract, option or other agreement or understanding with
respect to any transfer of any or all of such Owned Shares or any interest
therein on terms that would, at the time of entering into such contract, option
or other agreement or understanding or with the passage of time, violate
clause (i) above, (iii) grant any proxy, power-of-attorney or other
authorization in or with respect to such Owned Shares, (iv) deposit such Owned
Shares into a voting trust or enter into a voting agreement or arrangement with
respect to such Owned Shares or (v) take any other action that would in any way
restrict, limit or interfere with the performance of such Stockholder's
obligations hereunder or the transactions contemplated hereby or by the Merger
Agreement. Notwithstanding anything in this Agreement to the contrary, each
Stockholder may transfer all or any of such Stockholder's Owned Shares to any
trust, partnership or similar vehicle formed for estate, tax or family planning
purposes of which such Stockholder controls the vote, provided that as a
condition of such transfer, such Stockholder notifies Parent and provides the
Parent with documentation reasonably satisfactory to Parent as to the consent of
the transferee to be bound by all of the provisions of this Agreement.
SECTION 1.3. PROXY. Subject to Section 1.6, each Stockholder hereby
revokes any and all prior proxies or powers-of-attorney in respect of any of
such Stockholder's Owned Shares and constitutes and agrees to execute the proxy
in the form attached hereto as EXHIBIT A (the "Proxy").
SECTION 1.4. STOP TRANSFER. Each Stockholder shall not request that the
Company register the transfer (book-entry or otherwise) of any certificate or
uncertificated interest representing any of such Stockholder's Owned Shares,
unless such transfer is made in compliance with this Agreement (including the
provisions of Article III hereof) and acknowledges that Parent and the Company
may notify the Company's transfer agent of the terms hereof.
SECTION 1.5. NO SOLICITATION. From and after the date hereof and
continuing until the earlier of the Effective Time or the termination of the
Merger Agreement pursuant to Article IX thereof, each Stockholder shall not, nor
shall it permit or authorize any of its officers, directors, employees, agents
or representatives (collectively, the "Representatives") to, (i) solicit or
initiate, or encourage, directly or indirectly, any inquiries regarding or the
submission of, any Takeover Proposal, (ii) participate in any discussions or
negotiations regarding, or furnish to any Person any information or data with
respect to, or take any other action to knowingly facilitate the making of any
proposal that constitutes, or may reasonably, be expected to lead to, any
Takeover Proposal or (iii) enter into any agreement with respect to any Takeover
Proposal or approve or resolve to approve any Takeover Proposal. Upon execution
of this Agreement, each Stockholder shall, and it shall cause its
Representatives to, immediately cease any existing activities, discussions or
negotiations with any parties conducted heretofore with respect to any of the
foregoing. Each Stockholder will promptly notify Parent of the existence of any
proposal, discussion, negotiation or inquiry received by such Stockholder with
respect to a Takeover Proposal, and each Stockholder will promptly communicate
to Parent the terms of any such proposal, discussion, negotiation or inquiry
which it may receive (and will promptly provide to Parent copies of any written
materials received by it in connection with such proposal, discussion,
negotiation or inquiry) and the identity of the Person making such proposal or
inquiry or engaging in such discussion or negotiation. Nothing in this
Section 1.5 shall be a limitation on any Stockholder or Representative thereof
serving as a director of the Company or as an officer of the Company acting at
the direction of the Board of Directors of the Company and in such capacity
taking any action on behalf of the Company that the Company is permitted to take
under Section 7.9 of the Merger Agreement, each of whom in his capacity as a
director or an officer of the Company shall be subject to the terms and
provisions of Section 7.9 of the Merger Agreement.
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<PAGE>
SECTION 1.6 TERMINATION. If during the Window Period, the Board of
Directors makes a Qualifying Change in Company Recommendation, Sections 1.1, 1.3
and 1.5 hereof, and the Proxy executed by each Stockholder, shall terminate and
be of no further force and effect.
ARTICLE II
DISCLOSURE
SECTION 2.1. DISCLOSURE. Each Stockholder hereby authorizes Parent and the
Company to publish and disclose in the proxy statement/prospectus (including all
documents and schedules filed with the SEC) its identity and ownership of the
Owned Shares and the nature of its commitments, arrangements and understandings
under this Agreement.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE STOCKHOLDERS
Each Stockholder hereby represents and warrants to Parent as follows:
SECTION 3.1. DUE AUTHORIZATION, ETC. Such Stockholder has all requisite
personal or corporate power and authority to execute, deliver and perform this
Agreement, to appoint Parent as its Proxy and to consummate the transactions
contemplated hereby. The execution, delivery and performance of this Agreement,
the appointment of Parent as Stockholder's Proxy and the consummation of the
transactions contemplated hereby have been duly authorized by all necessary
action on the part of such Stockholder. This Agreement has been duly executed
and delivered by or on behalf of such Stockholder and constitutes a legal, valid
and binding obligation of such Stockholder, enforceable against such Stockholder
in accordance with its terms, except as enforcement may be limited by
bankruptcy, insolvency, moratorium or other similar laws and except that the.
availability of equitable remedies, including specific performance, is subject
to the, discretion of the court before which any proceeding for such remedy may
be brought. There is no beneficiary or holder of a voting trust certificate or
other interest of any trust of which such Stockholder is trustee whose consent
is required for the execution and delivery of this Agreement of the consummation
by such Stockholder of the transactions contemplated hereby.
SECTION 3.2. NO CONFLICTS; REQUIRED FILINGS AND CONSENTS.
(a) The execution and delivery of this Agreement by such Stockholder does
not, and the performance of this Agreement by such Stockholder will not,
(i) conflict with or violate any trust agreement or other similar documents
relating to any trust of which such Stockholder is trustee, (ii) conflict with
or violate the articles of incorporation, bylaws or similar organizational
documents to which such Stockholder is subject, (iii) conflict with or violate
any law applicable to such Stockholder or by which such Stockholder or any of
such Stockholder's properties is bound or affected or (iv) result in any breach
of or constitute a default (or an event that with notice or lapse of time or
both would become a default) under, or give to others any rights of termination,
acceleration or cancellation of, or result in the creation of a lien or
encumbrance on any assets of such Stockholder, including, without limitation,
such Stockholder's Owned Shares, pursuant to any note, bond, mortgage,
indenture, contract, agreement, lease, license, permit, franchise or other
instrument or obligation to which such Stockholder is a party or by which such
Stockholder or any of such Stockholder's assets is bound or affected, except, in
the case of clauses (iii) and (iv), for any such breaches, defaults or other
occurrences that would not prevent or delay the performance by such Stockholder
of such Stockholder's obligations under this Agreement.
(b) The execution and delivery of this Agreement by such Stockholder does
not, and the performance of this Agreement by such Stockholder will not, require
any consent, approval, authorization or permit of, or filing with or
notification to, any governmental or regulatory authority
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<PAGE>
(other than any necessary filing under the Exchange Act), domestic or foreign,
except where the failure to obtain such consents, approvals, authorizations at
permits, or to make such filings or notifications, would not prevent or delay
the performance by such Stockholder of such Stockholder's obligations under this
Agreement.
SECTION 3.3. TITLE TO SHARES. Such Stockholder is the sole record and
beneficial owner of its Owned Shares, free and clear of any pledge, lien,
security interest, mortgage, charge, claim, equity, option, proxy, voting
restriction, voting trust or agreement, understanding, arrangement, right of
first refusal, limitation on disposition, adverse claim of ownership or use or
encumbrance of any kind ("Encumbrances"), other than restrictions imposed by the
securities laws or pursuant to this Agreement or the Merger Agreement or as
otherwise disclosed by such Stockholder to Parent.
SECTION 3.4. NO FINDER'S FEES. Except as disclosed in the Merger
Agreement, no broker, investment banker, financial advisor or other person is
entitled to any broker's, finder's, financial advisor's or other similar fee or
commission in connection with the transactions contemplated hereby based upon
arrangements made by or on behalf of such Stockholder the payment of which could
become the obligation of the Company or Parent. Such Stockholder, on behalf of
itself and its affiliates, hereby acknowledges that it is not entitled to
receive any broker's, finder's, financial advisor's or other similar fee or
commission in connection with the transactions contemplated hereby or by the
Merger Agreement.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF PARENT
Parent hereby represents and warrants to the Stockholders as follows:
SECTION 4.1. DUE ORGANIZATION, AUTHORIZATION, ETC. Parent is duly
organized, validly existing and in good standing under the laws of the State of
Delaware. Parent has all requisite corporate power and authority to execute and
deliver this Agreement and to consummate the transactions contemplated hereby.
The execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby by Parent has been duly authorized by all
necessary corporate action on the part of Parent. This Agreement has been duly
executed and delivered by Parent and constitutes a legal, valid and binding
obligation of Parent, enforceable against Parent in accordance with its terms,
except as enforcement may be limited by bankruptcy, insolvency, moratorium or
other similar laws and except that the availability of equitable remedies,
including specific performance, is subject to the discretion of the court before
which any proceeding for such remedy may be brought.
ARTICLE V
ALTERNATIVE DISPOSITIONS
SECTION 5.1 PROFIT CAPTURE. In the event that any of the Owned Shares are
sold, transferred, exchanged, canceled or disposed of in connection with or as a
result of any Takeover Proposal that is entered into within 9 months of a
Qualifying Termination of the Merger Agreement (as defined below) and such
Takeover Proposal shall have been made to the Company or any of its Subsidiaries
or shall have been made directly to the stockholders of the Company generally
(and shall not have been withdrawn) or shall have otherwise become publicly
known or any Person shall have publicly announced an intention (whether or not
conditional) to make such Takeover Proposal (and shall not have withdrawn such
announcement or publicly announced that it will not make or pursue such Takeover
Proposal) prior to a Qualifying Termination of the Merger Agreement (as defined
below) (an "Alternative Disposition") then, subject to Section 5.4 below, each
Stockholder shall tender and pay to, or shall cause to be tendered and paid to,
Parent, or its designee, in immediately available funds, 50% of the Profit (as
defined below) received or receivable from such Alternative Disposition with
respect
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to all of such Stockholder's Owned Shares. As used in this Section 5.1, "Profit"
shall mean an amount equal to the excess, if any, of (i) the Alternative
Transaction Consideration (as defined below) received or receivable with respect
to a Stockholder's Owned Shares over (ii) the Current Transaction Consideration
(as defined below) received or receivable with respect to a Stockholder's Owned
Shares.
SECTION 5.2 DEFINITIONS; INTERPRETATION. "Alternative Transaction
Consideration" shall mean on a per share basis determined at the time the Board
of Directors of the Company approves an Alternative Disposition, all cash,
securities, settlement or termination amounts, notes or other debt instruments,
and other consideration received or to be received, directly or indirectly, by
each Stockholder in connection with an Alternative Disposition (including,
without limitation, any employment agreement (except a bona fide employment
agreement pursuant to which the Stockholder is required to devote, and under
which the Stockholder in good faith intends to devote, substantially all of his
business time and effort to the performance of executive services for the
Company or the acquiror in such Alternative Disposition), consulting agreement,
non-competition agreement, confidentiality agreement, settlement agreement or
release agreement) entered into, directly or indirectly, by the Stockholder as a
part of or in connection with the Alternative Disposition. "Current Transaction
Consideration" shall mean on a per share basis the lower of (i) $18 per share of
Company Common Stock or (ii) the value per share of Company Common Stock
calculated pursuant to the terms of Section 3.1(b) of the Merger Agreement on
the date on which the Qualifying Termination Occurs (the "Termination Date")
expressed as a dollar amount based on what the Parent's Closing Date Price and
the Common Exchange Ratio would be if the Termination Date were the Closing Date
under the Merger Agreement. "Qualifying Termination of the Merger Agreement"
means a termination of the Merger Agreement other than pursuant to Sections
9.1(a), 9.1(c), 9.1(f) or 9.1(i) thereof. For purposes of determining Profit
under this Article V, (i) all non-cash items shall be valued based upon the fair
market value thereof as determined by an independent expert selected by Parent
and who is reasonably acceptable to the Stockholders, (ii) all deferred payments
or consideration shall be discounted at a market rate to reflect the net present
value thereof as determined by the above-referenced independent expert,
(iii) all contingent payments will be assumed to have been paid and (iv) if less
than all of the Owned Shares are subject to the Alternative Disposition, then
the Current Transaction Consideration shall be deemed to be an amount equal to
the Current Transaction Consideration multiplied by a fraction, the numerator of
which is the number of the Owned Shares sold, transferred, exchanged, canceled
or disposed of in such Alternative Disposition and the denominator of which is
the total number of the Owned Shares. In the event any contingent payments
included in the determination of Profit ultimately are not paid pursuant to an
Alternative Disposition, then Parent shall reimburse Stockholder for any amounts
paid to Parent hereunder in respect of such uncollected contingent payments
promptly after receipt of written notice of such non-payment, unless the
Stockholder has not used its best efforts to receive such contingent payments.
SECTION 5.3 ALTERNATIVE DISPOSITION WITH PARENT. In the event that after
the date of this Agreement and following the delivery by the Company to Parent
of a Notice of Superior Proposal under Section 7.9(b)(iii) of the Merger
Agreement, the amount of consideration to be received by the Stockholders in
connection with the Merger should be increased in a transaction (a "Second
Transaction") beyond the amount otherwise receivable by the Stockholders in
accordance with the Merger Agreement as in effect on the date hereof (the
"Existing Consideration") then each Stockholder shall either tender and pay, or
cause to be tendered and paid, to Parent, or its designee, in immediately
available funds 50% of the Profit payable from such Second Transaction with
respect to all of such Stockholder's Owned Shares. As used in this Section 5.3,
Profit shall mean an amount equal to the excess, if any, of (i) the Second
Transaction Consideration (as defined below) received or receivable with respect
to a Stockholder's Owned Shares over (ii) the Existing Consideration received or
receivable with respect to a Stockholder's Owned Shares. "Second Transaction
Consideration" shall mean all cash, securities, settlement or termination
amounts, notes or other debt instruments, and other
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consideration received or to be received, directly or indirectly, by the
Stockholder in respect of its Owned Shares in connection with or as a result of
the Second Transaction.
SECTION 5.4 PAYMENT OF PROFIT. In the event that the Alternative
Transaction Consideration received or receivable in an Alternative Disposition
is solely cash or cash equivalents, each Stockholder shall pay all amounts due
and owing by it pursuant to this Article V within three business days after
receipt of any such consideration. In the event that the Alternative Transaction
Consideration received or receivable in an Alternative Disposition is other than
cash or cash equivalents, Parent shall make available to each Stockholder a loan
for payment of the amounts due and owing pursuant to this Article V. In the
event that the Alternative Transaction Consideration received or receivable in
an Alternative Disposition is in a combination of cash or cash equivalents and
consideration other than cash or cash equivalents, then each Stockholder shall
pay all amounts due and owing by it pursuant to this Article V within three
business days after receipt of any such consideration to the extent of the cash
or cash equivalents received and, to the extent that such cash or cash
equivalents are insufficient to cover the amounts due and owing pursuant to this
Article V, Parent shall make available to each Stockholder a loan for the
shortfall. In the event loans from Parent are required hereunder, Parent and
each Stockholder shall agree on the terms and conditions of such loan which
terms and conditions shall include the following: (i) each loan shall bear
interest at the rate of ten percent (10%) per annum and (ii) each loan shall be
secured by a the grant of a security interest in or pledge of the Alternative
Transaction Consideration received or receivable in an Alternative Disposition.
Subject to the foregoing, Parent and each Stockholder shall agree on any other
terms and conditions of any such loan, including the maturity date thereof
(which shall in any event be no later than six months following the closing of
the Alternative Disposition). If the parties do not reach agreement on any such
additional loan terms within fifteen days of the closing of the Alternative
Disposition and Parent shall have negotiated such terms in good faith, all
amounts due pursuant to this Article V shall be paid within sixty days of the
closing of the Alternative Disposition.
SECTION 5.5 TERMINATION. This Article V shall terminate and be of no
further force and effect upon the expiration of the Window Period, provided that
no Qualifying Change in Company Recommendation has been made.
ARTICLE VI
MISCELLANEOUS
SECTION 6.1. DEFINITIONS. Terms used but not otherwise defined in this
Agreement have the meanings ascribed to such terms in the Merger Agreement.
SECTION 6.2. TERMINATION. Unless a Qualifying Change in Company
Recommendation has been made during the Window Period, in which case the
provisions of Article V of this Agreement shall survive until such time as the
Stockholders have no further payment obligations pursuant to Article V, this
Agreement shall terminate and be of no further force and effect (i) by the
unanimous written consent of the parties hereto or (ii) automatically and
without any required action of the parties hereto upon (x) the Effective Time or
(y) the termination of the Merger Agreement in accordance with its terms. No
such termination of this Agreement shall relieve any party hereto from any
liability for any breach of this Agreement prior to termination.
SECTION 6.3. FURTHER ASSURANCE. From time to time, at another party's
request and without consideration, each party hereto shall execute and deliver
such additional documents and take all such further action as may be necessary
or desirable to consummate and make effective, in the most expeditious manner
practicable, the transaction contemplated by this Agreement. Each Stockholder
understands and acknowledges that Parent and Sub are entering into the Merger
Agreement in reliance upon each Stockholder's execution and delivery of this
Agreement.
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SECTION 6.4. CERTAIN EVENTS. Each Stockholder agrees that this Agreement
and such Stockholder's obligations hereunder shall attach to such Stockholder's
Owned Shares and shall be binding upon any person or entity to which legal or
beneficial ownership of such Owned Shares shall pass, whether by operation of
law or otherwise, including, without limitation, such Stockholder's heirs,
guardians, administrators, or successors. Notwithstanding any transfer of Owned
Shares, the transferor shall remain liable for the performance of all its
obligations under this Agreement.
SECTION 6.5. NO WAIVER. The failure of any party hereto to exercise any
right, power, or remedy provided under this Agreement or otherwise available in
respect hereof at law or in equity, or to insist upon compliance by any other
party hereto with its obligations hereunder, any custom or practice of the
parties at variance with the terms hereof shall not constitute a waiver by such
party of its right to exercise any such or other right, power or remedy or to
demand such compliance. Any party hereto may (i) extend the time for the
performance of any of the obligations or other acts of the other parties hereto,
(ii) waive any inaccuracies in the representations and warranties of the other
parties hereto contained herein or in any document delivered pursuant hereto and
(iii) waive compliance by the other parties hereto with any of their agreements
or conditions contained herein. Any agreement on the part of a party hereto to
any such extension or waiver shall be valid only as against such party and only
if set forth in an instrument in writing signed by such party. The failure of
any party hereto to assert any of its rights under this Agreement or otherwise
shall not constitute a waiver of those rights.
SECTION 6.6. SPECIFIC PERFORMANCE. Each Stockholder acknowledges that if
such Stockholder fails to perform any of its obligations under this Agreement
immediate and irreparable harm or injury. would be caused to Parent for which
money damages would not be an adequate remedy. In such event, each Stockholder
agrees that Parent shall have the right, in addition to any other rights it may
have, to specific performance of this Agreement. Accordingly, if Parent should
institute an action or proceeding seeking specific enforcement of the provisions
hereof, each Stockholder hereby waives the claim or defense that Parent has an
adequate remedy at law and hereby agrees not to assert in any such action or
proceeding the claim or defense that such a remedy at law exists. Each
Stockholder further agrees to waive any requirements for the securing or posting
of any bond in connection with obtaining any such equitable relief.
SECTION 6.7. NOTICE. All notices and other communications hereunder shall
be in writing (including facsimile or similar writing) and shall be effective
(i) if given by facsimile, when such facsimile is transmitted to the facsimile
number specified in this Section 6.7 and the appropriate facsimile confirmation
is received or (ii) if given by any other means, when delivered to the following
addresses (or at such other address for a party as shall be specified by like
notice):
<TABLE>
<S> <C>
(a) If to Parent: TeleTech Holdings, Inc.
1700 Lincoln Street, Suite 1400
Denver, CO 80203
Attention: Chief Financial Officer
Telephone: (303) 894-4000
Fax: (303) 894-7321
TeleTech Holdings, Inc.
1700 Lincoln Street, Suite 1400
Denver, CO 80203
Attention: General Counsel
Telephone: (303) 894-4000
Fax: (303) 894-7321
</TABLE>
C-7
<PAGE>
<TABLE>
<S> <C>
with a copy to: Hogan & Hartson L.L.P.
1200 17th Street, Suite 1500
Denver, CO 80202
Facsimile: 303-899-7333
Attention: Steven A. Cohen
</TABLE>
(b) If to a Stockholder, at the address or facsimile number set forth below
such Stockholder's name on SCHEDULE I hereto.
SECTION 6.8. EXPENSES. Except as otherwise expressly set forth herein, all
fees, costs and expenses incurred in connection with this Agreement and the
transactions contemplated hereby shall be paid by the party incurring such fees,
costs and expenses.
SECTION 6.9. HEADINGS. The headings contained in this Agreement are for
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
SECTION 6.10. SEVERABILITY. If any term or other provision of this
Agreement is invalid, illegal or incapable of being enforced by any rule of law,
or public policy, all other conditions and provisions of this Agreement shall
nevertheless remain in full force and effect so long as the economic or legal
substance of the transactions contemplated hereby is not affected in any manner
adverse to any party. Upon such determination that any term or other provision
is invalid, illegal, or incapable of being enforced, the parties hereto shall
negotiate in good faith to modify this Agreement so as to effect the original
intent of the parties as closely as possible in an acceptable manner to the end
that transactions contemplated hereby are fulfilled to the maximum extent
possible.
SECTION 6.11. ENTIRE AGREEMENT; NO THIRD-PARTY BENEFICIARIES. This
Agreement constitutes the entire agreement and supersedes any and all other
prior agreements and undertakings, both written and oral, among the parties, or
any of them, with respect to the subject matter hereof, and this Agreement is
not intended to confer upon any other person any rights or remedies hereunder.
SECTION 6.12. ASSIGNMENT. This Agreement shall not be assigned by
operation of law or otherwise.
SECTION 6.13. GOVERNING LAW. This Agreement shall be governed by, and
construed in accordance with, the laws of the State of Delaware applicable to
contracts executed in and to be performed entirely within that State.
SECTION 6.14. AMENDMENT. This Agreement may not be amended except by an
instrument in writing signed by the parties hereto.
SECTION 6.15. COUNTERPARTS. This Agreement may be executed in one or more
counterparts, and by the different parties hereto in separate counterparts, each
of which when executed shall be deemed to be an original but all of which shall
constitute one and the same agreement.
[SIGNATURE PAGE FOLLOWS]
C-8
<PAGE>
IN WITNESS WHEREOF, Parent and the Stockholders have caused this Agreement
to be executed as of the date first written above.
<TABLE>
<S> <C> <C>
TELETECH HOLDINGS, INC.
By: /s/ MICHAEL E. FOSS
-----------------------------------------
Name: Michael E. Foss
TITLE: CHIEF FINANCIAL OFFICER
STOCKHOLDERS
INFORMATION ASSOCIATES, L.P.
By: Trident Capital Management, L.L.C., its
general partner
By: /s/ JOHN MORANGE
-----------------------------------------
Name: John Morange
TITLE: MANAGING DIRECTOR
INFORMATION ASSOCIATES, C.V.
By: Trident Capital Management, L.L.C., its
investment general partner
By: /s/ JOHN MORANGE
-----------------------------------------
Name: John Morange
TITLE: MANAGING DIRECTOR
INFORMATION ASSOCIATES-II, L.P.
By: Trident Capital Management-II, L.L.C., its
general partner
By: /s/ JOHN MORANGE
-----------------------------------------
Name: John Morange
TITLE: MANAGING DIRECTOR
</TABLE>
C-9
<PAGE>
<TABLE>
<S> <C> <C>
IA-II AFFILIATES FUND, L.L.C.
By: /s/ JOHN MORANGE
-----------------------------------------
Name: John Morange
TITLE: MANAGING DIRECTOR
BANK OF AMERICA VENTURES
By: /s/ JESS R. MARZAK
-----------------------------------------
Name: Jess R. Marzak
TITLE: MANAGING DIRECTOR
BA VENTURE PARTNERS II
By: /s/ JESS R. MARZAK
-----------------------------------------
Name: Jess R. Marzak
TITLE: GENERAL PARTNER
By: /s/ BERNARD C. SIMKIN
-----------------------------------------
Name: Bernard Simkin
JOHARI INVESTMENT CO. LTD.
By: /s/ GARY SIMKIN
-----------------------------------------
Name: Gary Simkin
TITLE: PRESIDENT
CAPSTONE VENTURES, A Delaware Limited
Partnership
By: Capstone Management, LLC
By: /s/ EUGENE J. FISCHER
-----------------------------------------
Name: Eugene J. Fischer
By: /s/ GERALD BENOWITZ
-----------------------------------------
Name: Gerald Benowitz
</TABLE>
C-10
<PAGE>
<TABLE>
<S> <C> <C>
K & S IMPORTS, INC.
By: /s/ SAM SIMKIN
-----------------------------------------
Name: Sam Simkin
TITLE: PRESIDENT
By: /s/ SAM SIMKIN
-----------------------------------------
Name: Samuel Simkin
By: /s/ LESLIE SILVER
-----------------------------------------
Name: Leslie Silver
</TABLE>
C-11
<PAGE>
SCHEDULE I
<TABLE>
<CAPTION>
NAME AND ADDRESS OF STOCKHOLDER NUMBER OF SHARES BENEFICIALLY OWNED
------------------------------- -----------------------------------
<S> <C>
Information Associates, L.P. ............................... 175,191
2480 Sand Hill Road
Menlo Park, CA 94025
Information Associates, C.V. ............................... 4,890
2480 Sand Hill Road
Menlo Park, CA 94025
Information Associates - II, L.P. .......................... 270,119
2480 Sand Hill Road
Menlo Park, CA 94025
IA-II Affiliates Fund, L.L.C. .............................. 15,758
2480 Sand Hill Road
Menlo Park, CA 94025
BankAmerica Ventures ....................................... 286,904
950 Tower Lane, Ste. 700
Foster City, CA 94404
BA Venture Partners II ..................................... 31,879
950 Tower Lane, Ste. 700
Foster City, CA 94404
Bernard Simkin ............................................. 235,661
c/o Newgen Results Corporation
9449 Carroll Park Drive
San Diego, CA 92121
Johari Investment Co. Ltd. ................................. 217,356
c/o Newgen Results Corporation
9449 Carroll Park Drive
San Diego, CA 92121
Capstone Ventures .......................................... 131,990
3000 Sand Hill Road
Building 1, Suite 290
Menlo Park, CA 94025
Gerald Benowitz ............................................ 215,634
5008 McGill Way
San Diego, CA 92130
K & S Imports, Inc. ........................................ 78,166
4722 Sun Valley Road
Del Mar, CA 92104
Samuel Simkin .............................................. 7,834
4722 Sun Valley Road
Del Mar, CA 92104
Leslie Silver .............................................. 71,025
4705 Reedly Terrace
San Diego, CA 92130
---------
Total:...................................................... 1,742,407
Percentage:................................................. 16.54%
</TABLE>
C-12
<PAGE>
EXHIBIT A
IRREVOCABLE PROXY
By its execution hereof, and in order to secure its obligations under the
Secondary Voting Agreement (the "Secondary Agreement") of even date herewith
among TELETECH HOLDINGS, INC., a Delaware corporation and certain stockholders
of NEWGEN RESULTS CORPORATION, a Delaware corporation (the "Company"), the
undersigned (the "Stockholder") hereby irrevocably constitutes and appoints
TELETECH HOLDINGS, INC. and NG ACQUISITION CORP., a Delaware corporation
("Sub"), and each of them and each of their successors and assigns, with full
power of substitution and resubstitution, from the date hereof to the
termination of the Secondary Agreement, as such Stockholder's true and lawful
attorney and proxy (its "Proxy"), for and in such Stockholder's name, place and
stead, to demand that the Secretary call a special meeting of Stockholders of
the Company for the purpose of considering any action related to the Merger
Agreement and to vote each of the Owned Shares of the Stockholder as such
Stockholder's Proxy at every annual, special or adjourned meeting of
Stockholders of the Company, and to sign on behalf of such Stockholder (as a
Stockholder of the Company) any ballot, proxy, consent, certificate or other
document relating to the Company that law permits or requires, in a manner
consistent with Section 1.1 of the Secondary Agreement. This Proxy is coupled
with an interest and the Stockholder intends this Proxy to be irrevocable to the
fullest extent permitted by law. Each Stockholder hereby revokes any proxy
previously granted by such Stockholder with respect to such Stockholder's
Shares. Capitalized terms used but not defined herein shall have the meaning set
forth in the Secondary Agreement. Each Stockholder shall perform such further
acts and execute such further documents and instruments as may reasonably be
required to vest in Parent and Sub, or any of their nominees, the power to carry
out and give effect to the provisions of this Proxy.
IN WITNESS WHEREOF, the undersigned has executed this Irrevocable Proxy this
day of , 2000.
--------------------------------------
Name:
--------------------------------------------------------------------------------
Address:
--------------------------------------
--------------------------------------
--------------------------------------
C-13
<PAGE>
ANNEX D
CHASE H&Q
A Division of Chase Securities Inc.
One Bush Street
San Francisco, CA 94104
Tel 415-371-3000
August 21, 2000
CONFIDENTIAL
The Board of Directors
Newgen Results Corporation
12680 High Bluff Drive, Suite 300
San Diego, CA 92130
Gentlemen:
You have requested our opinion as to the fairness from a financial point of
view to the stockholders of Newgen Results Corporation ("Newgen" or the
"Company") of the consideration to be received, pursuant to the Agreement and
Plan of Merger dated as of August 21, 2000 (the "Agreement") between TeleTech
Holdings, Inc. ("TeleTech"), NG Acquisition Corp. ("Merger Sub"), and Newgen.
The Agreement provides, among other things, for the merger of the Merger Sub
with and into the Company (the "Proposed Transaction"), as a result of which the
Company will become a wholly-owned subsidiary of TeleTech. As set forth more
fully in the Agreement, as a result of the Proposed Transaction, each share of
Common Stock, par value $0.01 per share, of Newgen will be converted into the
right to receive that number of shares of Common Stock, par value $0.01 per
share, of TeleTech determined by dividing $18.00 by "Parent's Closing Date
Price". Parent's Closing Date Price is defined in the Agreement as the average
of the closing prices of TeleTech Common Stock for the 20 consecutive trading
days through and including the trading day two days prior to the Closing Date,
as defined in the Agreement; provided, however, that Parent's Closing Date Price
shall not be greater than $37.50 or less than $22.50. The Agreement provides for
holders of Newgen Common Stock to receive a cash payment in lieu of fractional
shares of TeleTech Common Stock to which they would otherwise be entitled. For
the purposes of this opinion, we have assumed that the Proposed Transaction will
qualify as a tax-free reorganization under the United States Internal Revenue
Code and that the Proposed Transaction will be accounted for as a pooling of
interests.
Chase Securities Inc. ("Chase"), as part of its investment banking services,
is regularly engaged in the valuation of businesses and their securities in
connection with mergers and acquisitions, strategic transactions, corporate
restructurings, negotiated underwritings, secondary distributions of listed and
unlisted securities, private placements and valuations for corporate and other
purposes. In May 1999, Chase acted as lead underwriter in a public offering of
3,725,000 shares of Newgen common stock and received customary fees and
commissions in connection therewith. We have acted as a financial advisor to the
Board of Directors of Newgen in connection with the Proposed Transaction, and we
will receive a fee for our services, which include the rendering of this
opinion.
[LOGO]
SAN FRANCISCO - NEW YORK - BOSTON - ATLANTA - NEWPORT BEACH - SAN DIEGO
MEMBERS NEW YORK STOCK EXCHANGE - AMERICAN STOCK EXCHANGE - PACIFIC STOCK
EXCHANGE
<PAGE>
The Board of Directors
Newgen Results Corporation
Page 2
In the past, we have provided investment banking and other financial
advisory services to Newgen and have received fees for rendering these services.
In the ordinary course of business, Chase acts as a market maker and broker in
the publicly traded securities of Newgen and receives customary compensation in
connection therewith, and also provides research coverage for Newgen. In the
ordinary course of business, Chase actively trades in the equity and derivative
securities of Newgen and TeleTech for its own account and for the accounts of
its customers and, accordingly, may at any time hold a long or short position in
such securities. Chase may in the future provide additional investment banking
or other financial advisory services to TeleTech.
In connection with our review of the Proposed Transaction, and in arriving
at our opinion, we have, among other things:
(i) reviewed the publicly available consolidated financial statements of
TeleTech for recent years and interim periods to date and certain other
relevant financial and operating data of TeleTech (including its
capital structure) made available to us from published sources and from
the internal records of TeleTech;
(ii) reviewed certain internal financial and operating information relating
to TeleTech prepared by the management of TeleTech;
(iii) discussed the past and current business, financial condition and
prospects of TeleTech with certain members of senior management;
(iv) reviewed the publicly available consolidated financial statements of
Newgen for recent years and interim periods to date and certain other
relevant financial and operating data of Newgen made available to us
from published sources and from the internal records of Newgen;
(v) reviewed certain internal financial and operating information relating
to Newgen prepared by the senior management of Newgen;
(vi) discussed the past and current business, financial condition and
prospects of Newgen with certain members of senior management;
(vii) reviewed the recent reported prices and trading activity for the
common stocks of TeleTech and Newgen and compared such information and
certain financial information for TeleTech and Newgen with similar
information for certain other companies engaged in businesses we
consider comparable;
(viii) reviewed the financial terms, to the extent publicly available, of
certain comparable merger and acquisition transactions;
(ix) reviewed the Agreement dated August 21, 2000;
(x) performed such other analyses and examinations and considered such
other information, financial studies, analyses and investigations and
financial, economic and market data as we deemed relevant.
In rendering our opinion, we have assumed and relied upon the accuracy and
completeness of all of the information concerning TeleTech and Newgen considered
in connection with our review of the Proposed Transaction, and we have not
assumed any responsibility for independent verification of such information. We
have not prepared any independent valuation or appraisal of any of the assets or
D-2
<PAGE>
The Board of Directors
Newgen Results Corporation
Page 3
liabilities of TeleTech or Newgen, nor have we conducted a physical inspection
of the properties and facilities of either company. With respect to the
financial forecasts and projections made available to us and used in our
analysis, we have assumed that they reflect the best currently available
estimates and judgments of the expected future financial performance of TeleTech
and Newgen. For purposes of this opinion, we have assumed that neither TeleTech
nor Newgen is a party to any pending transactions, including external
financings, recapitalizations or material merger discussions, other than the
Proposed Transaction and those activities undertaken in the ordinary course of
conducting their respective businesses. We have relied upon the assessment by
the respective managements' of Newgen and TeleTech of their ability to retain
key employees of Newgen. We have also relied upon, without independent
verification, the assessment by the respective managements' of Newgen and
TeleTech of: (i) the strategic, financial and other benefits expected to result
from the Proposed Transaction; (ii) the timing and risks associated with the
integration of Newgen and TeleTech; and (iii) the validity of, and risks
associated with, Newgen's and Teletech's existing and future technologies,
services or business models. Our opinion is necessarily based upon market,
economic, financial and other conditions as they exist and can be evaluated as
of the date of this letter and any change in such conditions would require a
reevaluation of this opinion. We express no opinion as to the price at which
TeleTech common stock or Newgen common stock will trade subsequent to the
Effective Time (as defined in the Agreement). In rendering this opinion, we have
assumed that the proposed merger will be consummated substantially on the terms
discussed in the Agreement, without any waiver of any material terms or
conditions by any party thereto.
It is understood that this letter is for the information of the Board of
Directors of Newgen in connection with its consideration of the Proposed
Transaction and may not be used for any other purpose without our prior written
consent; provided, however, that this letter may be reproduced in full in any
filing (in respect of the Proposed Transaction) by Newgen of the Proxy
Statement/Prospectus with the United States Securities and Exchange Commission.
This letter does not constitute a recommendation to any stockholder as to how
such stockholder should vote on the Proposed Transaction.
Based upon and subject to the foregoing and after considering such other
matters as we deem relevant, we are of the opinion that as of the date hereof
the consideration to be received in the Proposed Transaction is fair, from a
financial point of view, to the stockholders of Newgen.
Very truly yours,
CHASE SECURITIES INC.
/s/ DAVID GOLDEN
--------------------------------------
David Golden
Managing Director
D-3
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Under the Delaware General Corporation Law, a corporation shall have the
power to indemnify any person who was or is a party or is threatened to be made
a party to any threatened, pending or completed action, suit or proceeding,
whether civil, criminal, administrative or investigative (other than an action
by or in the right of the corporation) by reason of the fact that the person is
or was a director, officer, employee or agent of the corporation or is or was
serving at the request of the corporation as a director, officer, employee or
agent of another corporation, partnership, joint venture, trust or other
enterprise, against expenses (including attorney's fees), judgments, fines and
amounts paid in settlement actually and reasonably incurred by the person in
connection with such action, suit or proceeding if the person acted in good
faith and in a manner such person reasonably believed to be in or not opposed to
the best interests of the corporation, and, with respect to any criminal action
or proceeding, had no reasonable cause to believe the person's conduct was
unlawful.
Although the Delaware General Corporation Law permits a corporation to
indemnify any person referred to above against expenses (including attorney
fees) that are actually and reasonably incurred by such person ("Expenses"), in
connection with the defense or settlement of an action by or in the right of the
corporation, provided that such person acted in good faith and in a manner such
person reasonably believed to be in or not opposed to the corporation's best
interests, if such person has been judged liable to the corporation,
indemnification is for such Expenses only permitted to the extent that the Court
of Chancery, or the court in which the action or suit was brought, determines
that, despite the adjudication of liability, such person is entitled to
indemnity for such Expenses as the Court of Chancery, or such other court, deems
proper.
The determination, with respect to a person who is a director or officer at
the time of such determination, as to whether a person seeking indemnification
has met the required standard of conduct is to be made (i) by a majority vote of
the directors who are not parties to such action, suit or proceeding, even
though less than a quorum, or (ii) by a committee of such directors designated
by majority vote of such directors, even though less than a quorum, or (iii) if
there are no such directors, or if such directors so direct, by independent
legal counsel in a written opinion, or (iv) by the stockholders.
The Delaware General Corporation Law also provides that to the extent that a
present or former director or officer of a corporation has been successful on
the merits or otherwise in defense of any action, suit or proceeding covered by
the statute, such person shall be indemnified against expenses (including
attorneys' fees) actually and reasonably incurred by such person in connection
therewith. In addition, the Delaware General Corporation Law provides for the
general authorization of advancement of a director's or officer's litigation
expenses, subject to an undertaking by such person to repay any such
advancements if such person is ultimately found not to have been entitled to
reimbursement for such expenses and that indemnification and advancement of
expenses provided by the statute shall not be deemed exclusive of any other
rights to which those seeking indemnification or advancement of expenses may be
entitled under any bylaw, agreement, vote of stockholders or disinterested
directors or otherwise. TeleTech's Restated Certificate of Incorporation
provides that TeleTech shall indemnify its directors, officers, employees and
agents to the fullest extent permitted by the Delaware General Corporation Law.
TeleTech also is authorized to secure insurance on behalf of any person it is
required or permitted to indemnify. Pursuant to this provision, TeleTech
maintains liability insurance for the benefit of its directors and officers.
II-1
<PAGE>
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(A) EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT NO. EXHIBIT DESCRIPTION
----------- -------------------
<C> <S>
2.1 Agreement and Plan of Merger, dated as of August 21, 2000,
by and among TeleTech Holdings, Inc., NG Acquisition Corp.
and Newgen Results Corporation (included in this
Registration Statement as Annex A to the proxy
statement/prospectus)
5.1* Opinion of Hogan & Hartson L.L.P. regarding the legality of
the shares of common stock being registered
8.1* Opinion of Hogan & Hartson L.L.P. regarding the
qualification of the merger as a reorganization for federal
income tax purposes and related federal income tax
consequences
8.2* Opinion of Cooley Godward LLP regarding the qualification of
the merger as a reorganization for federal income tax
purposes and related federal income tax consequences
23.1 Consent of Arthur Andersen LLP (TeleTech)
23.2 Consent of Arthur Andersen LLP (Newgen)
23.3 Consent of Hogan & Hartson L.L.P. (included in Exhibit 5.1)
23.4 Consent of Hogan & Hartson L.L.P. (included in Exhibit 8.1)
23.5 Consent of Cooley Godward LLP (included in Exhibit 8.2)
23.6 Consent of Chase H&Q (included in this Registration
Statement as Annex D to the proxy statement/prospectus)
24.1 Power of attorney (included on signature page)
99.1 Newgen--Form of Proxy
99.2 Primary Voting Agreement, dated as of August 21, 2000, by
and between TeleTech and certain stockholders of Newgen
(included in this Registration Statement as Annex B to the
proxy statement/prospectus)
99.3 Secondary Voting Agreement, dated as of August 21, 2000, by
and between TeleTech and certain stockholders of Newgen
(included in this Registration Statement as Annex C to the
proxy statement/prospectus)
</TABLE>
------------------------
* to be filed by amendment
ITEM 22. UNDERTAKINGS
The Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(i) to include any prospectus required by section 10(a)(3) of the
Securities Act of 1933;
(ii) to reflect in the prospectus any facts or events arising after the
effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or
II-2
<PAGE>
in the aggregate, represent a fundamental change in the information set
forth in the registration statement. Notwithstanding the foregoing, any
increase or decrease in volume of securities offered (if the total dollar
value of securities offered would not exceed that which was registered) and
any deviation from the low or high end of the estimated maximum offering
range may be reflected in the form of prospectus filed with the Commission
pursuant to rule 424(b) if, in the aggregate, such changes in volume and
price represent no more than a 20% change in the maximum aggregated offering
price set forth in the "Calculation of Registration Fee" table in the
effective registration statement;
(iii) to include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or any
material change to such information in the registration statement.
(2) That, for the purpose of determining any liability under the Securities
Act of 1933, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial BONA
FIDE offering thereof.
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of the
offering.
(4) That, for the purpose of determining any liability under the Securities
Act of 1933, each filing of the registrant's annual report pursuant to
section 13(a) or section 15(d) of the Securities Exchange Act of 1934 (and,
where applicable, each filing of an employee benefit plan's annual report
pursuant to section 15(d) of the Securities Exchange Act of 1934) that is
incorporated by reference in the registration statement shall be deemed to be a
new registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(5) That before any public reoffering of the securities registered
hereunder through use of a prospectus which is a part of this registration
statement, by any person or party who is deemed to be an underwriter within the
meaning of rule 145(c), the issuer undertakes that such reoffering prospectus
will contain the information called for by the applicable registration form with
respect to reofferings by persons who may be deemed underwriters, in addition to
the information called for by the other items of the applicable form.
(6) That every prospectus: (i) that is filed pursuant to paragraph (5)
immediately preceding, or (ii) that purports to meet the requirements of
section 10(a)(3) of the Act and is used in connection with an offering of
securities subject to rule 415, will be filed as a part of an amendment to the
registration statement and will not be used until such amendment is effective,
and that, for purposes of determining any liability under the Securities Act of
1933, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial BONA
FIDE offering thereof.
(7) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to trustees, officers and controlling persons of
the registrant pursuant to the foregoing provisions, or otherwise, the
registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities, other than the payment by the registrant of expenses
incurred or paid by a trustee, officer or controlling person of the registrant
in the successful defense of any action, suit or proceeding, is asserted by such
trustee, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to
II-3
<PAGE>
a court of appropriate jurisdiction the question whether such indemnification by
it is against public policy as expressed in the Act and will be governed by the
final adjudication of such issue.
(8) To respond to requests for information that is incorporated by
reference into the prospectus pursuant to Item 4, 10(b), 11, or 13 of this form,
within one business day of receipt of such request, and to send the incorporated
documents by first class mail or other equally prompt means. This includes
information contained in documents filed subsequent to the effective date of the
registration statement through the date of responding to the request.
(9) To supply by means of a post-effective amendment all information
concerning a transaction, and TeleTech being acquired involved therein, that was
not the subject of and included in the registration statement when it became
effective.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, the registrant has duly
caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Denver, State of Colorado
on October 5, 2000.
<TABLE>
<S> <C> <C>
TELETECH HOLDINGS, INC.
BY: /S/ SCOTT D. THOMPSON
-----------------------------------------
Scott D. Thompson
CHIEF EXECUTIVE OFFICER
</TABLE>
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Scott D. Thompson and Michael E. Foss, and each
of them, his true and lawful attorneys-in-fact and agents, with full power of
substitution and resubstitution, to sign, execute and file with the Securities
and Exchange Commission (or any other governmental or regulatory authority), for
us and in our names in the capacities indicated below, this registration
statement on Form S-4 (including all amendments thereto) with all exhibits and
any and all documents required to be filed with respect thereto, granting unto
said attorneys-in-fact and agents and each of them, full power and authority to
do and to perform each and every act and thing necessary and/or desirable to be
done in and about the premises in order to effectuate the same as fully to all
intents and purposes as he himself might or could do if personally present,
hereby ratifying and confirming all that said attorneys-in-fact and agents, or
any of them, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Registration Statement on Form S-4 has been signed on October 5, 2000 by the
following persons in the capacities indicated:
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<C> <S> <C>
/s/ SCOTT D. THOMPSON Chief Executive Officer
------------------------------------------- (Principal Executive Officer)
Scott D. Thompson
/s/ MICHAEL E. FOSS Chief Financial Officer
------------------------------------------- (Principal Financial and
Michael E. Foss Accounting Officer)
/s/ KENNETH D. TUCHMAN Chairman of the Board
-------------------------------------------
Kenneth D. Tuchman
/s/ JAMES E. BARLETT Director
-------------------------------------------
James E. Barlett
</TABLE>
II-5
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<C> <S> <C>
/s/ ROD DAMMEYER Director
-------------------------------------------
Rod Dammeyer
/s/ DR. GEORGE H. HEILMEIER Director
-------------------------------------------
Dr. George H. Heilmeier
Director
-------------------------------------------
Morton H. Meyerson
/s/ ALAN SILVERMAN Director
-------------------------------------------
Alan Silverman
/s/ SCOTT D. THOMPSON Director
-------------------------------------------
Scott D. Thompson
</TABLE>
II-6
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NO. EXHIBIT DESCRIPTION
----------- -------------------
<C> <S>
2.1 Agreement and Plan of Merger, dated as of August 21, 2000,
by and among TeleTech Holdings, Inc., NG Acquisition Corp.
and Newgen Results Corporation (included in this
Registration Statement as Annex A to the proxy
statement/prospectus)
5.1* Opinion of Hogan & Hartson L.L.P. regarding the legality of
the shares of common stock being registered
8.1* Opinion of Hogan & Hartson L.L.P. regarding the
qualification of the merger as a reorganization for federal
income tax purposes and related federal income tax
consequences
8.2* Opinion of Cooley Godward LLP regarding the qualification of
the merger as a reorganization for federal income tax
purposes and related federal income tax consequences
23.1 Consent of Arthur Andersen LLP (TeleTech)
23.2 Consent of Arthur Andersen LLP (Newgen)
23.3 Consent of Hogan & Hartson L.L.P. (included in Exhibit 5.1)
23.4 Consent of Hogan & Hartson L.L.P. (included in Exhibit 8.1)
23.5 Consent of Cooley Godward LLP (included in Exhibit 8.2)
23.6 Consent of Chase H&Q (included in this Registration
Statement as Annex D to the proxy statement/prospectus)
24.1 Power of attorney (included on signature page)
99.1 Newgen--Form of Proxy
99.2 Form of Primary Voting Agreement, dated as of August 21,
2000, by and between TeleTech and certain stockholders of
Newgen (included in this Registration Statement as Annex B
to the proxy statement/prospectus)
99.3 Form of Secondary Voting Agreement, dated as of August 21,
2000, by and between TeleTech and certain stockholders of
Newgen (included in this Registration Statement as Annex C
to the proxy statement/prospectus)
</TABLE>
------------------------
* to be filed by amendment
II-7
