<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM 8-K/A
---------------
CURRENT REPORT
---------------
PURSUANT TO SECTION 13 OF 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
MARCH 30, 2000
Date of Report (date of earliest event reported)
------------------------
PEREGRINE SYSTEMS, INC.
(Exact name of Registrant as specified in its charter)
<TABLE>
<S> <C> <C>
DELAWARE 000-22209 95-3773312
(State or other jurisdiction of (Commission File Number) (I.R.S. Employer Identification
incorporation or organization) Number)
</TABLE>
12670 HIGH BLUFF DRIVE
SAN DIEGO, CALIFORNIA 92130
(Address of principal executive offices)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (858) 481-5000
NOT APPLICABLE
(Former name or former address, if changed since last report)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
Peregrine Systems, Inc. hereby amends the following items, financial
statements, exhibits, or other portions of its Current Report on Form 8-K,
originally filed with the Securities and Exchange Commission on April 6, 2000
(the "Form 8-K"), as set forth in the pages attached hereto.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
(a) Financial Statements for Telco Research Corporation Limited.
On February 3, 2000, the Board of Directors of Peregrine Systems, Inc., a
Delaware corporation ("Peregrine" or the "Company"), approved the acquisition of
all of the issued shares of Telco Research Corporation Limited, a Canada
Business Act corporation ("Telco"). Pursuant to the Acquisition Agreement for
Plan of Arrangement, dated as of February 8, 2000, by and among the Company,
Peregrine Nova Scotia Company, an unlimited liability company existing under the
Nova Scotia Companies Act and a direct wholly owned subsidiary of the Company,
Telco, and 1400066 Ontario Inc., an Ontario corporation (the "Amalgamation
Sub"), providing for the amalgamation of Telco and Amalgamation Sub to form a
new entity that will become a wholly-owned subsidiary of Peregrine Nova Scotia
Company, Peregrine purchased all of the common stock of Telco (the
"Acquisition"). The Acquisition was completed on March 30, 2000.
The aggregate purchase price for all issued shares of Telco consisted of
2,520,447 shares of Peregrine's common stock.
The purpose of this amended Form 8-K is to file required financial
statements relating to the Acquisition, including required pro-forma financial
information. The following financial statements relating to the Acquisition are
attached hereto:
FINANCIAL STATEMENT INDEX
<TABLE>
<CAPTION>
PAGE
--------
<S> <C>
TELCO RESEARCH CORPORATION LIMITED (A CANADA BUSINESS ACT
CORPORATION)
Report of Independent Public Accountants.................... F-1
Consolidated Balance Sheets as of January 31, 2000 and
December 31, 1998......................................... F-2
Consolidated Statements of Income (Loss) for the thirteen
months ended January 31, 2000 and the year ended
December 31, 1998......................................... F-3
Consolidated Statements of Retained Earnings (Deficit) as of
January 31, 2000 and December 31, 1998.................... F-4
Consolidated Statements of Cash Flows for the thirteen
months ended January 31, 2000 and the year ended
December 31, 1998......................................... F-5
Notes to Consolidated Financial Statements.................. F-6
</TABLE>
<TABLE>
<CAPTION>
<S> <C>
TELCO RESEARCH CORPORATION (A TENNESSEE CORPORATION)
Report of Independent Public Accountants.................... F-14
Balance Sheets as of December 31, 1997 and 1996............. F-15
Statements of Income for the years ended December 31, 1997
and 1996.................................................. F-16
Statements of Stockholders' Equity for the years ended
December 31, 1997 and 1996................................ F-17
Statements of Cash Flows for the years ended December 31,
1997 and 1996............................................. F-18
Notes to Financial Statements............................... F-19
</TABLE>
2
<PAGE>
(b) Pro Forma Financial Information.
The following unaudited pro forma combined financial statements are attached
hereto:
PRO FORMA FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
--------
<S> <C>
Pro Forma Combined Financial Information.................... F-24
Unaudited Pro Forma Statement of Operations for the year
Ended March 31, 2000...................................... F-25
Notes to the Unaudited Pro Forma Combined Financial
Information............................................... F-26
</TABLE>
(c) Exhibits.
<TABLE>
<S> <C>
2.1 Acquisition Agreement for Plan of Arrangement, dated as of
February 8, 2000, by and among Peregrine, Peregrine Nova
Scotia Company, an unlimited liability company existing
under the Nova Scotia Companies Act and a direct wholly
owned subsidiary of Company, Telco, and 1400066
Ontario, Inc., an Ontario corporation. The disclosure
schedule of Telco Research Corporation Limited to the
Acquisition Agreement for Plan of Arrangement, which cites
to certain factual matters as exceptions to the contractual
representations of Telco Research Corporation Limited, has
been omitted in accordance with Item 601(b)(2) of
Regulation S-K. Peregrine agrees to supplementally furnish a
copy of such disclosure schedule to the Commission upon
request.
23.1 Consent of Arthur Andersen LLP, Independent Public
Accountants
99.1++ Press release of Peregrine Systems, Inc.
</TABLE>
- ------------------------
++ Previously filed.
Pursuant to Item 601(b)(2) of Regulation S-K, the schedules to the
Acquisition Agreement for Plan of Arrangement have been omitted. Peregrine
hereby agrees to furnish such schedules upon request of the Securities and
Exchange Commission.
3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
Peregrine Systems, Inc. has duly caused this Amended Current Report on
Form 8-K/A to be signed on its behalf by the undersigned hereunto duly
authorized.
Dated: May 22, 2000
<TABLE>
<S> <C> <C>
PEREGRINE SYSTEMS, INC.
By: /s/ DAVID A. FARLEY
-----------------------------------------
David A. Farley
SENIOR VICE PRESIDENT, FINANCE AND
ADMINISTRATION, CHIEF FINANCIAL OFFICER
</TABLE>
4
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders of
Telco Research Corporation Limited
We have audited the consolidated balance sheets of Telco Research
Corporation Limited as at January 31, 2000 and December 31, 1998 and the
consolidated statements of income, retained earnings (deficit) and cash flows
for the thirteen months ended January 31, 2000 and the year ended December 31,
1998. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with Canadian generally accepted
auditing standards. Those standards require that we plan and perform an audit to
obtain reasonable assurance 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.
In our opinion, these consolidated financial statements present fairly, in
all material respects, the financial position of the Company as at January 31,
2000 and December 31, 1998 and the results of its operations and its cash flows
for the thirteen months ended January 31, 2000 and the year ended December 31,
1998 in accordance with Canadian generally accepted accounting principles.
Arthur Andersen LLP
Chartered Accountants
March 17, 2000
Toronto, Canada
/s/ ARTHUR ANDERSEN LLP
--------------------------------------
ARTHUR ANDERSEN LLP
F-1
<PAGE>
TELCO RESEARCH CORPORATION LIMITED
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
AS AT
--------------------------
JANUARY 31, DECEMBER 31,
2000 1998
----------- ------------
<S> <C> <C>
Assets
Current
Cash and cash equivalents................................... $ 18,911 $ 2,922
Accounts receivable......................................... 10,002 7,042
Inventory (Note 4).......................................... 678 34
Prepaid expenses and sundry assets.......................... 918 626
Income taxes recoverable.................................... 379 --
-------- -------
30,888 10,624
Capital assets (Note 5)..................................... 2,512 1,560
Software development costs (Note 6)......................... 1,843 1,482
Deferred income taxes....................................... 958 --
Goodwill, net of amortization (Note 1)...................... 12,862 --
-------- -------
$ 49,063 $13,666
======== =======
Liabilities
Current
Accounts payable and accrued liabilities.................... $ 6,637 $ 2,068
Deferred revenue............................................ 9,991 7,143
Current portion of long-term debt (Note 7).................. 6,239 --
-------- -------
22,867 9,211
Long-term debt (Note 7)..................................... 5,974 --
Deferred credit, net........................................ 1,104 1,301
-------- -------
29,945 10,512
-------- -------
Commitments (Note 7)
Shareholders' Equity
Share capital (Note 9)...................................... 28,957 1
Retained earnings (deficit)................................. (10,060) 2,991
Cumulative translation adjustment........................... 221 162
-------- -------
19,118 3,154
-------- -------
$ 49,063 $13,666
======== =======
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED BALANCE
SHEETS.
F-2
<PAGE>
TELCO RESEARCH CORPORATION LIMITED
CONSOLIDATED STATEMENTS OF INCOME (LOSS)
(IN THOUSANDS, EXCEPT EARNINGS PER SHARE)
<TABLE>
<CAPTION>
THIRTEEN
MONTHS ENDED YEAR ENDED
JANUARY 31, DECEMBER 31,
2000 1998
------------ ------------
<S> <C> <C>
Revenue (Note 10)........................................... $35,669 $25,265
Cost of revenue............................................. 15,067 6,346
------- -------
Gross profit................................................ 20,602 18,919
------- -------
Expenses
Operating................................................... 4,778 2,568
Selling and marketing....................................... 7,987 4,143
Research and development, net of investment tax credits of
$226
(1998--nil)............................................... 4,429 3,242
------- -------
17,194 9,953
------- -------
Earnings before the undernoted.............................. 3,408 8,966
Unusual items (Note 11)
Management bonus.......................................... 2,210 8,063
------- -------
Income before income taxes.................................. 1,198 903
Provision for income taxes (Note 12)........................ 1,221 42
------- -------
Net income (loss)........................................... $ (23) $ 861
======= =======
Earnings per share.......................................... $ 0.00 $ 0.15
======= =======
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED STATEMENTS.
F-3
<PAGE>
TELCO RESEARCH CORPORATION LIMITED
CONSOLIDATED STATEMENTS OF RETAINED EARNINGS (DEFICIT)
(IN THOUSANDS)
<TABLE>
<CAPTION>
AS AT
--------------------------
JANUARY 31, DECEMBER 31,
2000 1998
----------- ------------
<S> <C> <C>
Retained earnings, beginning of period...................... $ 2,991 $2,130
Net income (loss)........................................... (23) 861
Dividends................................................... (13,028) --
-------- ------
Retained earnings (deficit), end of period.................. $(10,060) $2,991
======== ======
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED STATEMENTS.
F-4
<PAGE>
TELCO RESEARCH CORPORATION LIMITED
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
THIRTEEN YEAR
MONTHS ENDED ENDED
JANUARY 31, DECEMBER 31,
2000 1998
------------ ------------
<S> <C> <C>
Cash provided by (used in):
Operating
Net income (loss)........................................... $ (23) $ 861
Add items not involving cash
Depreciation................................................ 1,277 703
Amortization................................................ 199 (82)
-------- ------
1,453 1,482
Net change in non-cash working capital balances related to
operations................................................ (3,610) (655)
-------- ------
(2,157) 827
-------- ------
Financing
Proceeds from long-term debt................................ 10,152 --
Proceeds from issuance of common shares..................... 55 --
Dividends................................................... (13,028) --
-------- ------
(2,281) --
-------- ------
Investing
Capital asset additions, net................................ (649) (219)
Business acquisition (Note 1)............................... 21,076 --
-------- ------
20,427 (219)
-------- ------
Increase in cash and cash equivalents....................... 15,989 608
Cash and cash equivalents, beginning of year................ 2,922 2,314
-------- ------
Cash and cash equivalents, end of year...................... $ 18,911 $2,922
======== ======
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED STATEMENTS.
F-5
<PAGE>
TELCO RESEARCH CORPORATION LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CANADIAN FUNDS; AUDITED; TABULAR AMOUNTS IN THOUSANDS, EXCEPT NUMBER OF SHARES
AND PERCENTAGES)
1 REVERSE TAKEOVER OF TSB INTERNATIONAL INC.
Effective August 1, 1999 TSB International Inc. ("TSB") acquired all the
outstanding shares of Telco Research Corporation ("TRC") by way of a share
exchange under which the shareholders of TRC exchanged 100% of the outstanding
shares of TRC for 6,149,069 common shares of TSB and warrants to acquire an
additional 1,298,701 common shares. Subsequent to the reverse takeover, TSB
changed its name to Telco Research Corporation Limited.
For accounting purposes, the transaction has been treated as a reverse
takeover of TSB by TRC. The consolidated financial statements are issued under
the name of Telco Research Corporation Limited (formerly TSB) but are considered
to be a continuation of the financial statements of TRC, the legal subsidiary.
Accordingly, the consolidated financial statements include the results of TSB
only for the period from August 1, 1999 forward. Results for all previous
periods are those of TRC only.
Goodwill arising on the transaction was calculated as follows:
<TABLE>
<S> <C>
Value of the shares and warrants issued in consideration of
the acquisition........................................... $28,901
Less (add back):
Cash acquired............................................. 21,076
Fair value of net liabilities acquired, net of transaction
costs..................................................... (5,367)
-------
Allocated to goodwill....................................... $13,192
=======
</TABLE>
2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) ACCOUNTING PRINCIPLES
The consolidated financial statements have been prepared in accordance
with accounting principles generally accepted in Canada.
(b) BASIS OF CONSOLIDATION
The consolidated financial statements include the assets, liabilities,
revenues and expenses of Telco Research Corporation Limited ("the
Company") and those of its subsidiaries. All significant inter-company
transactions have been eliminated.
(c) REVENUE RECOGNITION
SOFTWARE LICENSE FEES--Revenue on software license fees is generally
recognized upon shipment of the software to the customer, provided there
are no significant vendor obligations remaining and collection is
probable.
PROFESSIONAL SERVICES--Revenue on professional services is recognized as
the services are performed.
MAINTENANCE AND ENHANCEMENTS--Revenue on service contracts is recognized
ratably over the contract period. The Company provides product support
services to new customers for one year following the date of sale of a
product. After the first year, the customer may purchase support on an
annual basis for a cost equal to a percentage of the current software
cost. The revenue associated with product support services is recorded in
deferred revenue in the accompanying combined balance sheets and
amortized over the period in which the services are provided.
F-6
<PAGE>
TELCO RESEARCH CORPORATION LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(CANADIAN FUNDS; AUDITED; TABULAR AMOUNTS IN THOUSANDS, EXCEPT NUMBER OF SHARES
AND PERCENTAGES)
2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
SERVICE BUREAU--The Company provides telemanagement services to customers
for a monthly fee including rental fees on the equipment used by the
customers. The revenue on these contracts is recognized monthly as the
services are performed.
HARDWARE--Revenue on hardware sales is recognized upon shipment to the
customer.
(d) INVENTORY
Inventory is recorded at the lower of cost and net realizable value using
the weighted average cost method.
(e) CAPITAL ASSETS
Capital assets are recorded at cost. Depreciation and amortization are
provided annually at rates calculated to amortize the cost over the
estimated useful lives as follows:
<TABLE>
<S> <C>
Furniture and fixtures......... 20% declining balance
E.D.P. equipment............... 33% straight-line
Motor vehicles................. 25% straight-line
Leasehold improvements......... Straight-line over the term of the lease
Software licenses.............. 20% straight-line
</TABLE>
Land held for resale is recorded at cost. In the opinion of management,
the fair market value of the property exceeds its recorded value.
(f) DEFERRED REVENUE
Deferred revenue represents amounts billed with respect to maintenance
and support services to be provided in future periods.
(g) GOODWILL
Goodwill represents the excess of purchase consideration over fair market
value of net identifiable assets acquired, and is amortized on a
straight-line basis over the 20 year estimated useful life of those
assets. Goodwill is written down where there has been a permanent
impairment in the value of unamortized goodwill. A permanent impairment
in goodwill is determined by comparison of the carrying value of
unamortized goodwill with the estimated undiscounted future earnings of
the related businesses.
(h) RESEARCH AND DEVELOPMENT
Research and development costs incurred up to the date on which
management determines that the product to which the research and
development costs relate is technologically and commercially viable are
expensed as incurred, net of investment tax credits recognized. After
technological and commercial viability are established, costs are
capitalized and amortized on a straight-line basis over three years.
(i) DEFERRED CREDIT
The deferred credit represents the excess of fair value of net assets
acquired over their purchase price, and is amortized on a straight-line
basis over the estimated useful life of those assets.
F-7
<PAGE>
TELCO RESEARCH CORPORATION LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(CANADIAN FUNDS; AUDITED; TABULAR AMOUNTS IN THOUSANDS, EXCEPT NUMBER OF SHARES
AND PERCENTAGES)
2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(j) FOREIGN CURRENCY TRANSLATION
(i) TRANSACTIONS DENOMINATED IN FOREIGN CURRENCIES
Monetary assets and liabilities are translated at the rates in effect
at the balance sheet dates; other assets and liabilities are translated at
exchange rates prevailing at the respective transaction dates.
Revenues and expenses arising are translated at average exchange
rates prevailing during the periods. Exchange gains and losses are
reflected in net income for the periods.
(ii) FOREIGN SUBSIDIARIES
Subsidiaries are treated as self-sustaining operations. Assets and
liabilities of the subsidiaries are translated at the exchange rates in effect
at the balance sheet dates. Revenues and expenses (including
depreciation and amortization) are translated at the average exchange
rates in effect during the periods. Exchange gains or losses arising
from the translation of the Company's net equity investments in these
subsidiaries are deferred and included as a separate component of
shareholders' equity.
(k) USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make certain
estimates and assumptions that affect the reported amounts of assets and
liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Subsequent
experience could differ from those estimates.
3 TELCO BUSINESS SYSTEMS, LLP FORMATION AND RE-ACQUISITION
On December 30, 1996 the shareholders of TRC formed Telco Business Systems,
LLP ("TBS") as a separate partnership which purchased the service bureau line of
business from TRC. The service bureau line of business consists of various
contracts with customers to provide telemanagement services. Under the terms of
the agreement between TBS and TRC, TBS paid TRC a lease fee for the use of its
service bureau assets and a monthly management fee based on a percentage of TBS
revenues.
On July 16, 1999, TRC acquired the assets of TBS for nominal consideration
satisfied by the issuance of 458,318 shares of TRC. The Company recorded the
acquisition at $nil representing the carrying value of the assets acquired.
The acquisition has been accounted for using the purchase method, and
results of operations have been included in the consolidated financial
statements from the date of acquisition.
F-8
<PAGE>
TELCO RESEARCH CORPORATION LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(CANADIAN FUNDS; AUDITED; TABULAR AMOUNTS IN THOUSANDS, EXCEPT NUMBER OF SHARES
AND PERCENTAGES)
4 INVENTORY
<TABLE>
<CAPTION>
JANUARY 31, DECEMBER 31,
2000 1998
----------- ------------
<S> <C> <C>
Raw materials........................................ $179 $--
Work in process...................................... 101 --
Finished goods....................................... 398 34
---- ---
$678 $34
==== ===
</TABLE>
5 CAPITAL ASSETS
<TABLE>
<CAPTION>
2000 1998
ACCUMULATED ACCUMULATED
DEPRECIATION DEPRECIATION
AND AND
COST AMORTIZATION NET COST AMORTIZATION NET
-------- ------------ -------- -------- ------------ --------
<S> <C> <C> <C> <C> <C> <C>
Land held for resale................ $ 412 $ -- $ 412 $ 436 $ -- $ 436
Furniture and fixtures.............. 3,188 2,681 507 1,071 623 448
E.D.P. equipment.................... 13,118 11,991 1,127 2,842 2,362 480
Motor vehicles...................... 537 360 177 145 96 49
Leasehold improvements.............. 803 537 266 240 93 147
Software licences................... 595 572 23 -- -- --
------- ------- ------ ------ ------ ------
$18,653 $16,141 $2,512 $4,734 $3,174 $1,560
======= ======= ====== ====== ====== ======
</TABLE>
6 SOFTWARE DEVELOPMENT COSTS
<TABLE>
<CAPTION>
2000 1998
-------- --------
<S> <C> <C>
Balance as at beginning of period........................... $1,482 $ 540
Expenses capitalized during period.......................... 1,150 1,172
Costs amortized during period............................... (789) (231)
------ ------
Balance as at end of period................................. $1,843 $1,482
====== ======
</TABLE>
7 LONG-TERM DEBT
<TABLE>
<CAPTION>
2000 1998
-------- ----------
<S> <C> <C>
U.K. bank term loan bearing interest at LIBOR plus 1.75% per
annum..................................................... $ 3,506 $ --
U.S. bank term loan bearing interest at LIBOR plus 2.00% per
annum..................................................... 8,707 --
Less: current portion....................................... (6,239) --
------- ----------
$ 5,974 $ --
======= ==========
</TABLE>
The U.K. bank term loan is denominated in sterling and is secured by a
mortgage debenture providing a charge over the assets of the Company's U.K.
subsidiary, Telco Research Limited, and by the guarantee of the Company. The
loan is repayable over a period of six years ending October 31, 2004 at the rate
of $434,000 per year plus interest.
F-9
<PAGE>
TELCO RESEARCH CORPORATION LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(CANADIAN FUNDS; AUDITED; TABULAR AMOUNTS IN THOUSANDS, EXCEPT NUMBER OF SHARES
AND PERCENTAGES)
7 LONG-TERM DEBT (CONTINUED)
The U.S. bank term loan is denominated in U.S. dollars and is secured by a
security agreement providing a charge over the assets of TRC, and by the
guarantees of certain shareholders. The loan is repayable over a period of two
years ending July 28, 2001 at the rate of $5,887,000 per year plus interest.
8 COMMITMENTS
The Company has entered into operating leases for the use of office
premises, equipment and automobiles expiring between 2001 and 2005. Future
minimum lease payments, exclusive of certain incremental occupancy and operating
costs and sales taxes, are approximately as follows:
<TABLE>
<S> <C>
2001........................................................ $ 836
2002........................................................ 733
2003........................................................ 638
2004........................................................ 611
2005........................................................ 560
------
$3,378
======
</TABLE>
9 SHARE CAPITAL
(a) Prior to the August 1, 1999 reverse takeover (see Note 1)
Capital stock of TRC:
<TABLE>
<S> <C> <C>
Authorized: 10,000,000 common shares, no par value.....................
Issued: 5,092,418 common shares.................................... $ 1
</TABLE>
(b) As at August 1, 1999, giving effect to the reverse takeover (see Note 1)
<TABLE>
<S> <C>
Share capital:
Existing share capital of TRC............................... $ 1
Value of TSB shares issued in exchange for TRC shares....... 28,901
----------
$ 28,902
==========
Outstanding common shares:
Balance of outstanding common shares of TSB as at January
31, 1999.................................................. 4,717,781
Issued for cash under private placement..................... 1,298,701
Issued for no additional consideration under private
placement adjustment...................................... 143,000
Issued for cash on exercise of options.................... 10,000
Issued for cash through Employee Share Ownership Plan..... 4,801
----------
Balance of common shares of TSB as at July 31, 1999......... 6,174,283
Common shares of TSB issued to effect reverse takeover...... 6,149,069
----------
Balance of common shares of the Company as at August 1,
1999...................................................... 12,323,352
==========
</TABLE>
F-10
<PAGE>
TELCO RESEARCH CORPORATION LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(CANADIAN FUNDS; AUDITED; TABULAR AMOUNTS IN THOUSANDS, EXCEPT NUMBER OF SHARES
AND PERCENTAGES)
9 SHARE CAPITAL (CONTINUED)
(c) Subsequent to August 1, 1999
<TABLE>
<CAPTION>
NO. OF AMOUNT
SHARES (000'S)
---------- --------
<S> <C> <C>
Balance as at August 1, 1999........................... 12,323,352 $28,902
Issued for cash on exercise of options................. 10,000 40
Issued for cash through Employee Share Ownership
Plan................................................. 2,981 15
---------- -------
Balance as at January 31, 2000......................... 12,336,333 $28,957
========== =======
</TABLE>
On February 19, 1999 TSB completed the private placement of 1,298,701 units
for gross proceeds of $5,000,000. Each unit consisted of one common share and a
warrant to purchase an additional common share at prices escalating from $4.75
to $5.50. The warrants expire on February 18, 2004. As at October 31, 1999 the
Company had warrants outstanding for 2,597,402 common shares (1998--nil)
exercisable at prices between $4.75 and $5.50 per share and expiring in the
Company's 2005 fiscal year.
As at October 31, 1999 the Company had stock options outstanding for 459,746
common shares (1998--209,492 common shares) exercisable at prices between $3.95
and $6.38 per share and expiring between the Company's 2003 and 2005 fiscal
years.
The Company operates an Employee Share Ownership Plan under which up to
32,000 common shares may be issued up to December 31, 1999. The Company has
agreed to contribute $1 for each $5 the employees contribute. The contributions
of the Company are recorded as an operating expense.
10 GEOGRAPHIC SEGMENTS
<TABLE>
<CAPTION>
UNITED
KINGDOM UNITED
CANADA AND EUROPE STATES ELIMINATIONS TOTAL
-------- ---------- -------- ------------ --------
<S> <C> <C> <C> <C> <C>
2000
Sales to customers......................... $ 1,033 $8,946 $25,690 $ -- $35,669
Transfers between segments................. 1,744 -- -- (1,744) --
------- ------ ------- -------- -------
Total revenue.............................. $ 2,777 $8,946 $25,690 $ (1,744) $35,669
------- ------ ------- -------- -------
Income (loss) before income taxes.......... $ 862 $ 873 $ (207) $ (330) $ 1,198
Provision for (recovery of ) income
taxes.................................... 345 436 440 1,221
------- ------ ------- -------- -------
Net income (loss).......................... $ 517 $ 437 $ (647) $ (330) $ (23)
------- ------ ------- -------- -------
Identifiable assets........................ $48,574 $7,345 $10,567 $(17,114) $49,372
======= ====== ======= ======== =======
</TABLE>
F-11
<PAGE>
TELCO RESEARCH CORPORATION LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(CANADIAN FUNDS; AUDITED; TABULAR AMOUNTS IN THOUSANDS, EXCEPT NUMBER OF SHARES
AND PERCENTAGES)
10 GEOGRAPHIC SEGMENTS (CONTINUED)
<TABLE>
<CAPTION>
UNITED
KINGDOM UNITED
CANADA AND EUROPE STATES ELIMINATIONS TOTAL
---------- ---------- -------- ------------ --------
<S> <C> <C> <C> <C> <C>
1998
Sales to customers.......................... $ -- $ -- $25,265 $ -- $25,265
Transfers between segments.................. -- -- -- -- --
---------- ---------- ------- ---------- -------
Total revenue............................... $ -- $ -- $25,265 -- $25,265
---------- ---------- ------- ---------- -------
Income before provision for income taxes.... $ -- $ -- $ 903 $ -- $ 903
Provision for income taxes.................. -- -- 42 -- 42
---------- ---------- ------- ---------- -------
Net income.................................. $ -- $ -- $ 861 $ -- $ 861
---------- ---------- ------- ---------- -------
Identifiable assets......................... $ -- $ -- $13,666 $ -- $13,666
========== ========== ======= ========== =======
</TABLE>
Transfers between geographic segments are accounted for at prices comparable
to open market prices for similar products and services.
11 BONUS PAYMENTS TO SHAREHOLDERS
Prior to August 1, 1999, TRC was an S Corporation, and, under Subchapter S
of the U.S. Internal Revenue Code, its income was taxed in the hands of its
shareholders. During this period, the equivalent to TRC's pre-tax earnings were
paid out to its shareholders by way of bonus. Effective August 1, 1999 TRC
reverted to a taxable C Corporation and ceased to bonus out pre-tax income.
12 INCOME TAXES
The provision for income taxes differs from the amount that would have been
expected by applying the statutory Canadian income tax rates to income before
taxes. The principal reasons for this difference are as set out in the following
table.
<TABLE>
<CAPTION>
2000 1999
-------- --------
<S> <C> <C>
Income before taxes......................................... $1,198 $ 40
Corporate tax rates......................................... 44.6% 44.6%
Expected income tax expense................................. $ 534 $ 18
Increase (decrease) in income taxes resulting from:
Non-taxable S corporation status............................ (174) (18)
Conversion to taxable C corporation status.................. 736 --
Tax rate differential on income earned in foreign
jurisdictions............................................. (194) --
Non-deductible acquisition costs............................ 201 --
Non-deductible amortization charges......................... 84 --
Other....................................................... 34 --
------ -----
$1,221 $ --
====== =====
</TABLE>
F-12
<PAGE>
TELCO RESEARCH CORPORATION LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(CANADIAN FUNDS; AUDITED; TABULAR AMOUNTS IN THOUSANDS, EXCEPT NUMBER OF SHARES
AND PERCENTAGES)
13 SUBSEQUENT EVENT
On February 8, 2000 the Company entered into a definitive merger agreement
under which Peregrine Systems, Inc. ("Peregrine") will acquire all of the
Company's outstanding shares. The merger agreement was approved by the Boards of
Directors of both companies and is subject to approval by the Company's
shareholders, regulatory approvals, court approvals and customary closing
conditions. The transaction is structured as stock-for-stock exchange through a
plan of arrangement, at a fixed ratio of .082511 shares of Peregrine Common
Stock for each share of the Company. As consideration for the merger, Peregrine
expects to issue approximately 1.28 million shares in exchange for all of the
outstanding equity securities of the Company. All share amounts herein are prior
to the announced Peregrine 2:1 stock split to be effected in the form of a stock
dividend, payable February 18, 2000.
14 UNCERTAINTY DUE TO THE YEAR 2000 ISSUE
Most entities depend on computerized systems and therefore are exposed to
the Year 2000 conversion risk which, if not properly addressed, could affect an
entity's ability to conduct normal business operations. Management is addressing
this issue; however, given the nature of this risk, it is not possible to be
certain that all aspects of the Year 2000 issue affecting the Company and those
with whom it deals, such as customers, suppliers or other third parties, will be
fully resolved without adverse impact on the Company's operations.
15 U.S. AND CANADIAN GENERALLY ACCEPTED ACCOUNTING PRINCIPLES ("GAAP")
These consolidated financial statements have been prepared in accordance
with Canadian GAAP. The Company's management believes that there would be no
material differences in the consolidated financial statements if they were
prepared in accordance with U.S. GAAP.
16 IMPACT OF 13 MONTH REPORTING PERIOD
As a result of the reverse takeover of TSB (Note 1) the Company's reporting
year end was changed to January 31, 2000, as TRC was required to adopt the
reporting period of TSB, the legal parent. Consequently, these consolidated
financial statements have been prepared on a thirteen-month reporting period
from December 31, 1998 to January 31, 2000. The Consolidated results of
operations of TRC for the one month ended January 31, 2000 were as follows:
<TABLE>
<S> <C>
Revenue $1,621
Cost of revenue and expenses 2,590
Recovery of income taxes (368)
------
Net loss $ (601)
======
</TABLE>
17 PRIOR YEAR FINANCIAL STATEMENTS
Certain reclassifications have been made to the 1998 consolidated financial
statements to conform with the current year presentation.
F-13
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of
Telco Research Corporation:
We have audited the accompanying balance sheets of TELCO RESEARCH
CORPORATION (A TENNESSEE CORPORATION) as of December 31, 1997 and 1996, and the
related statements of income, stockholders' equity and cash flows for the years
then ended. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits 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 Telco Research Corporation
as of December 31, 1997 and 1996, and the results of its operations and cash
flows for the years then ended in conformity with generally accepted accounting
principles.
/s/ ARTHUR ANDERSEN LLP
--------------------------------------
ARTHUR ANDERSEN LLP
Nashville, Tennessee
February 27, 1998
F-14
<PAGE>
TELCO RESEARCH CORPORATION
BALANCE SHEETS
DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents................................. $1,597,447 $1,745,954
Trade accounts receivable, net of allowance for doubtful
accounts of $43,349 and $43,349, respectively........... 4,735,686 4,026,510
Receivable from related party............................. 200,000 50,000
Other current assets...................................... 56,936 30,187
Deferred tax asset........................................ -- 182,769
---------- ----------
Total current assets.................................... 6,590,069 6,035,420
PROPERTY AND EQUIPMENT, NET................................. 851,658 846,161
SOFTWARE DEVELOPMENT COSTS, NET............................. 353,001 258,334
SERVICE BUREAU ASSETS, NET.................................. 96,325 160,311
LAND HELD FOR RESALE........................................ 283,539 283,539
RECEIVABLE FROM RELATED PARTY............................... -- 200,000
---------- ----------
Total assets............................................ $8,174,592 $7,783,765
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued expenses..................... $1,387,538 $1,278,392
Deferred revenue.......................................... 4,364,150 3,473,573
Short term note payable................................... -- 300,000
Income taxes payable...................................... -- 139,048
---------- ----------
Total current liabilities............................... 5,751,688 5,191,013
DEFERRED CREDIT............................................. 931,552 1,013,332
NON CURRENT DEFERRED TAX LIABILITY.......................... -- 129,335
---------- ----------
Total liabilities....................................... 6,683,240 6,333,680
---------- ----------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common stock, no par value; 10,000,000 shares authorized,
1,000,000 issued and outstanding at December 31, 1997
and 1996................................................ 1,000 1,000
Additional paid-in capital................................ 99,236 99,236
Retained earnings:
Undistributed C corporation earnings.................... 1,349,849 1,349,849
Undistributed S corporation earnings.................... 41,267 --
---------- ----------
1,391,116 1,349,849
---------- ----------
Total stockholders' equity............................ 1,491,352 1,450,085
---------- ----------
Total liabilities, stockholders' equity............... $8,174,592 $7,783,765
========== ==========
</TABLE>
The accompanying notes to financial statements are an integral part of these
balance sheets.
F-15
<PAGE>
TELCO RESEARCH CORPORATION
STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
REVENUE:
Software license fees..................................... $ 3,402,800 $ 2,362,219
Professional services..................................... 2,035,946 1,849,968
Maintenance and enhancements.............................. 4,118,688 4,078,631
Service Bureau............................................ 508,990 837,692
Hardware and other........................................ 1,810,727 1,734,338
----------- -----------
Total revenue........................................... 11,877,151 10,862,848
OPERATING EXPENSES:
Research and development.................................. 2,912,475 2,828,073
Selling and marketing..................................... 5,667,846 5,212,702
General and administrative................................ 3,404,271 2,521,916
----------- -----------
Total operating expenses................................ 11,984,592 10,562,691
----------- -----------
Operating income (loss)................................... (107,441) 300,157
AMORTIZATION OF DEFERRED CREDIT............................. 81,780 81,780
OTHER INCOME, net........................................... 66,928 424,393
----------- -----------
Income before income taxes................................ 41,267 806,330
----------- -----------
PROVISION FOR INCOME TAXES:
Current................................................... -- 145,000
Deferred.................................................. -- 98,628
----------- -----------
-- 243,628
----------- -----------
Net income.............................................. $ 41,267 $ 562,702
=========== ===========
</TABLE>
The accompanying notes to financial statements are an integral part of these
statements.
F-16
<PAGE>
TELCO RESEARCH CORPORATION
STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
ADDITIONAL RETAINED
COMMON STOCK PAID-IN CAPITAL EARNINGS TOTAL
------------ --------------- ---------- ----------
<S> <C> <C> <C> <C>
BALANCE, December 31, 1995................. $1,000 $99,236 $1,287,147 $1,387,383
Purchase and retirement of treasury
stock.................................. -- -- (500,000) (500,000)
Net income............................... -- -- 562,702 562,702
------ ------- ---------- ----------
BALANCE, December 31, 1996................. 1,000 99,236 1,349,849 1,450,085
Net income............................... -- -- 41,267 41,267
------ ------- ---------- ----------
BALANCE, December 31, 1997................. $1,000 $99,236 $1,391,116 $1,491,352
====== ======= ========== ==========
</TABLE>
The accompanying notes to financial statements are an integral part of these
statements.
F-17
<PAGE>
TELCO RESEARCH CORPORATION
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
1997 1996
---------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income................................................ $ 41,267 $ 562,702
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization......................... 528,329 583,043
Amortization of deferred credit....................... (81,780) (81,780)
Deferred income taxes................................. 53,434 98,628
Changes in current assets and current liabilities:
Trade accounts receivable........................... (709,176) (280,055)
Inventory........................................... 416 19,467
Prepaid expenses and other.......................... (27,165) 91,584
Accounts payable.................................... 3,425 (102,312)
Accrued expenses.................................... (33,327) 417,322
Deferred revenue.................................... 890,577 (452,650)
---------- -----------
Net cash provided by operating activities......... 666,000 855,949
---------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and equipment....................... (356,507) (267,013)
Additions to service bureau assets........................ -- (185,793)
Retirement of property and equipment...................... -- 17,201
Additions to software development costs................... (208,000) (180,000)
Acquisition and retirement of treasury stock.............. -- (500,000)
Issuance of note to related party......................... -- (250,000)
Proceeds from note to related party....................... 50,000 --
---------- -----------
Net cash used in investing activities............. (514,507) (1,365,605)
---------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from short-term debt............................. -- 300,000
Payments on short-term debt............................... (300,000) --
---------- -----------
Net cash provided by (used in) financing
activities...................................... (300,000) 300,000
---------- -----------
NET DECREASE IN CASH........................................ (148,507) (209,656)
CASH, at beginning of year.................................. 1,745,954 1,955,610
---------- -----------
CASH, at end of year........................................ $1,597,447 $ 1,745,954
========== ===========
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash payments of interest................................. $ -- $ 25,532
========== ===========
Cash payments of income taxes............................. $ 135,192 $ 21,634
========== ===========
</TABLE>
The accompanying notes to financial statements are an integral part of these
statements.
F-18
<PAGE>
TELCO RESEARCH CORPORATION
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1996
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION
Telco Research Corporation (the "Company") was incorporated under the laws
of the state of Tennessee on December 30, 1977 for the purpose of designing,
manufacturing and marketing telecommunication management systems. Telco operates
primarily in the United States and its customers consist of corporations of
various sizes as well as government agencies.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid debt instruments with a maturity of
three months or less to be cash equivalents.
PROPERTY AND EQUIPMENT
Depreciation is provided using principally the straight-line method over 3
to 7 years.
Expenditures for maintenance and repairs are generally charged to expense as
incurred, whereas expenditures for renewals and betterments are capitalized.
SERVICE BUREAU ASSETS
Service Bureau assets consist of assets owned by the Company which it leases
to customers. The assets are amortized on a straight-line basis over the life of
the customer lease, which is primarily three years.
SOFTWARE DEVELOPMENT COSTS
Software development costs incurred in the research and development of new
software products and enhancements to existing software products are expensed as
incurred until technological feasibility has been established. After
technological feasibility is established, costs are capitalized in accordance
with Statement of Financial Accounting Standards ("SFAS") No. 86 ACCOUNTING FOR
THE COSTS OF COMPUTER SOFTWARE TO BE SOLD, LEASED, OR OTHERWISE MARKETED." The
Company amortizes these costs on a straight-line basis over three years.
DEFERRED CREDIT
The deferred credit represents the excess of the fair value of net assets
acquired from NYNEX in 1990 over their purchase price and is being amortized on
a straight-line basis over 20 years.
REVENUE RECOGNITION
Trade accounts receivable represent receivables from customers in the
ordinary course of business. Management believes that all appropriate reserves
have been provided.
The Company accounts for software revenues in accordance with the American
Institute of Certified Public Accountants' Statement of Position 91-1, Software
Revenue Recognition ("SOP 91-1").
SOFTWARE LICENSE FEES--Revenues for software license fees are generally
recognized upon shipment of the software to the customer, providing there are no
significant vendor obligations remaining and collection is probable.
F-19
<PAGE>
TELCO RESEARCH CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997 AND 1996
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
PROFESSIONAL SERVICES--Revenues on professional services is recognized as
the services are performed.
MAINTENANCE AND ENHANCEMENTS--Revenue on service contracts is recognized
ratably over the contract period. The Company provides product support services
to new customers for one year following the date of sale of a product. After the
first year, the customer may purchase support on an annual basis for a cost
equal to a percentage of the current software cost. The revenue associated with
product support services is recorded in deferred revenue in the accompanying
balance sheets and amortized over the period in which the services are provided.
SERVICE BUREAU--In 1997 this revenue consists of a management fee and
equipment rental income received from Telco Business Systems, LLP (see Note 6).
Prior to 1997, the Company provided telemanagement services to customers for a
monthly fee. The revenues on these contracts were recognized monthly as the
services were performed.
HARDWARE--Revenues on hardware sales is recognized upon shipment to the
customer.
The American Institute of Certified Public Accountants has issued Statement
of Position 97-2, Software Revenue Recognition ("SOP 97-2"), which supercedes
SOP 91-1 and clarifies certain issues under SOP 91-1. The Company will be
required to adopt SOP 97-2 effective January 1, 1998. Management has reviewed
the SOP 97-2 and does not anticipate the adoption thereof to result in any
change to its revenue recognition policy.
INCOME TAXES
Effective January 1, 1997, the shareholders elected to convert from a C
Corporation to an S Corporation and, under Subchapter S of the Internal Revenue
Code, to have Company income taxed directly to the shareholders. Under this
election, each shareholder will include their share of the Company's applicable
taxable income or loss in their individual federal income tax returns.
Prior to 1997, the Company accounted for income taxes in accordance with the
provisions of SFAS 109, ACCOUNTING FOR INCOME TAXES. The provision for current
income taxes was based on earnings reported in Telco's tax return. A deferred
income tax asset or liability was determined by applying currently enacted tax
laws and rates to the expected reversal of the cumulative temporary differences
between the carrying value of assets and liabilities for financial statement and
income tax purposes. A deferred income tax provision or benefit was measured by
the change in the deferred income tax asset or liability during the year.
USE OF ESTIMATES
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 these estimates.
F-20
<PAGE>
TELCO RESEARCH CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997 AND 1996
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
LONG-LIVED ASSETS
In March 1995, the Financial Accounting Standards Board ("FASB") issued
SFAS 121, ACCOUNTING FOR THE IMPAIRMENT OF LONG-LIVED ASSETS AND LONG-LIVED
ASSETS TO BE DISPOSED OF. This statement imposes stricter criteria for long-term
assets by requiring that such assets be probable of future recovery at each
balance sheet date. The Company adopted SFAS 121 effective January 1, 1996, the
result of which did not have a material impact on the results of operations,
financial condition or cash flows of the Company.
RECLASSIFICATIONS
Certain reclassifications have been made in the 1996 financial statements to
conform to the 1997 presentation.
2. PROPERTY AND EQUIPMENT
Property and equipment, at December 31, 1997 and 1996, consists of the
following:
<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
Furniture and fixtures............................... $ 780,258 $ 696,540
Computer equipment................................... 1,556,550 1,292,066
Leasehold improvements............................... 157,486 149,181
---------- ----------
2,494,294 2,137,787
Less accumulated depreciation........................ (1,642,636) (1,291,626)
---------- ----------
$ 851,658 $ 846,161
========== ==========
</TABLE>
3. LAND HELD FOR RESALE
During 1993, certain land related to a previously planned facility was
transferred to the Company from an affiliated party. The Company intends to
dispose of the property and has placed it on the open market for sale. In the
opinion of management, the fair market value of the property exceeds its
recorded value. This property has been included in land held for resale in the
accompanying balance sheets.
4. RETAINED EARNINGS
Effective January 1, 1997, the Company's shareholders elected to convert the
Company's legal form to an S Corporation. Cumulative undistributed earnings
subsequent to the date of the conversion total $41,267 as of December 31, 1997.
Prior to the date of the conversion, the Company operated as a C corporation and
had retained earnings of $1,349,849 at the date of conversion.
5. INCOME TAXES
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. With the Company's change
in tax status from a C Corporation to an S Corporation, the Company eliminated
its deferred tax assets and liabilities and other associated tax reserves. The
change in
F-21
<PAGE>
TELCO RESEARCH CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997 AND 1996
5. INCOME TAXES (CONTINUED)
tax status did not result in a significant effect to the Company's operations
during 1997. Significant components of the Company's deferred tax assets as of
December 31, 1996 were as follows:
<TABLE>
<CAPTION>
1996
---------
<S> <C>
Current deferred tax assets:
Reserves on assets........................................ $ 16,473
Liabilities not yet deductible............................ 166,296
---------
Total current deferred tax asset........................ 182,769
---------
Noncurrent deferred tax assets (liabilities):
Accumulated depreciation and amortization................. (43,194)
Deferred software costs................................... (98,167)
Other..................................................... 12,026
---------
Total non-current deferred tax liability................ (129,335)
---------
Net total deferred tax assets........................... $ 53,434
=========
</TABLE>
A reconciliation of the U.S. Federal statutory rate to the effective rate
for the year ended December 31, 1996 is as follows:
<TABLE>
<CAPTION>
1996
--------
<S> <C>
Federal expense at 34%...................................... $146,652
State benefit, net of Federal deduction..................... 17,253
Expenses not deductible..................................... (62,777)
Tax liability resulting from gain on sale of Service Bureau,
eliminated in combination................................. 142,500
--------
$243,628
========
</TABLE>
6. TELCO BUSINESS SYSTEMS, LLP
On December 30, 1996 the shareholders of the Company formed Telco Business
Systems (the "Partnership") as a separate partnership and purchased the service
bureau line of business from the Company for $375,000 by paying the Company
$125,000 cash and issuing a payable to the Company for $250,000. The payable is
included in receivables from related parties in the accompanying financial
statements and has a balance of $200,000 at December 31, 1997. The service
bureau line of business consists of various contracts with customers to provide
telemanagement services. Under the terms of the agreement between the
Partnership and the Company, the Partnership will pay the Company a lease fee
for the use of the Service Bureau assets and a monthly management fee based on a
percentage of the Partnership's revenues. The Company received payments under
this agreement totaling $508,990 in 1997.
7. SHORT TERM NOTE PAYABLE
The Company had a note payable to a bank which totaled $300,000 at
December 31, 1996. The note was paid in full in January of 1997.
F-22
<PAGE>
TELCO RESEARCH CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997 AND 1996
8. COMMITMENTS AND CONTINGENCIES
LEASE COMMITMENTS
The Company leases its office facilities under an operating lease. Total
rent expense in fiscal 1997 and 1996 amounted to $366,150 and $375,389,
respectively. Future minimum rental payments required under this operating lease
at December 31, 1997 are as follows:
<TABLE>
<S> <C>
1998.................................................... $ 420,345
1999.................................................... 421,355
2000.................................................... 421,355
2001.................................................... 421,355
2002.................................................... 421,355
Thereafter.............................................. 1,264,065
----------
$3,369,830
==========
</TABLE>
PENSION PLAN
The Company sponsors both a defined contribution pension plan and a 401(k)
plan which cover substantially all of its employees. All employees are eligible
to participate in both plans after six months of service and the attainment of
age 20.5. The Company makes annual contributions to the pension and 401(k) plans
totaling 3.00% and 2.70%, respectively, of eligible participant wages. Company
contributions to the pension and 401(k) plans for 1997 and 1996 totaled $263,085
and $172,307, respectively.
9. COMMON STOCK
The transferability of the Company's common stock is restricted by the terms
of a stockholders' agreement. The agreement gives the Company a right of first
refusal and each stockholder a right of second refusal in any proposed sale of
stock by a stockholder.
10. STOCK RETIREMENT
During 1996, the Company purchased and retired all the stock of a former
shareholder. When the stock was acquired it was recorded at cost and was
subsequently retired through retained earnings at its acquisition cost.
F-23
<PAGE>
UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS
The following unaudited pro forma combined condensed statement of operations
assumes a business combination between Peregrine Systems, Inc. and Telco
Research Corporation (Telco) accounted for using the purchase method. The pro
forma combined condensed statement of operations assumes the acquisition was
consummated as of April 1, 1999 and is based on the respective historical
consolidated financial statements and the notes thereto, see related Telco
historical financial statements included herein and Peregrine's form 10-K.
A pro forma combined condensed balance sheet is not presented herein as the
balance sheet of Telco is included in the balance sheet of Peregrine as of
March 31, 2000.
The pro forma information is presented for illustrative purposes only and is
not necessarily indicative of the operating results that would have occurred had
the merger occurred during the period presented nor is it necessarily indicative
of future operating results.
F-24
<PAGE>
TELCO RESEARCH LIMITED CORPORATION AND PEREGRINE SYSTEMS, INC.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED MARCH 31, 2000
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
PRO FORMA
TELCO RESEARCH
(YEAR ENDED PSI (YEAR ENDED PRO FORMA PRO FORMA
JANUARY 31, 2000) MARCH 31, 2000) ADJUSTMENTS COMBINED
----------------- --------------- ----------- ---------
(NOTE 2) (NOTE 1)
<S> <C> <C> <C> <C> <C>
Revenues:
Revenue................................ $32,027 $ -- (32,027) A,H $ 0
Licenses............................... -- 168,467 17,761 A 186,228
Services............................... -- 84,833 14,266 A 99,099
------- -------- --------
Total revenues....................... 32,027 253,300 285,327
------- -------- --------
Costs and Expenses:
Cost of revenue........................ 14,063 -- (14,063) A,H 0
Cost of licenses....................... -- 1,426 2,069 A 3,495
Cost of services....................... -- 51,441 11,995 A 63,436
Sales and marketing.................... 6,351 101,443 -- 107,794
Research and development............... 3,747 28,517 -- 32,264
Operating.............................. 3,477 -- (3,477) A --
General & administrative............... -- 19,871 3,598 A 23,469
Amortization of intangible assets...... -- 34,753 17,183 A,B,D,F 51,936
Acquired in-process research and
development costs.................... -- 24,505 -- C,E 24,505
------- -------- --------
Total costs and expenses............. 27,638 261,956 306,899
------- -------- --------
Income (loss) from operations............ 4,389 (8,656) (21,572)
Interest income, net..................... -- 38 122 A 160
-------- --------
Income (loss) from operations before
income taxes........................... 4,389 (8,618) (21,412)
Income taxes............................. 1,938 16,452 -- 18,390
------- -------- --------
Net income (loss)...................... $ 2,451 $(25,070) $(39,802)
======= ========
Net income (loss) per share--basic:
Net income (loss) per share............ $ (0.24) $ (0.39)
======== ========
Shares used in computation............. 102,332 -- B,G 102,332
======== ========
Net income (loss) per share--diluted:
Net income (loss) per share............ $ (0.24) $ (0.39)
======== ========
Shares used in computation............. 102,332 -- B,G 102,332
======== ========
</TABLE>
F-25
<PAGE>
NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED
STATEMENT OF OPERATIONS
1. BASIS OF PRESENTATION
The unaudited pro forma combined condensed statement of operations for
Peregrine has been prepared based on the historical financial statements of
Peregrine for the year ended March 31, 2000 and for Telco for the year ended
January 31, 2000 considering the effects of the combination under the purchase
method. The pro forma statement of operations for the year ended March 31, 2000
has been prepared as if the combination had been consummated on April 1, 1999.
In management's opinion, all material adjustments necessary to reflect the
effects of the combination have been made. The unaudited pro forma combined
condensed statement of operations is not necessarily indicative of the actual
results of operations of Peregrine would have been assuming the combination had
been completed as of April 1, 1999, nor is it indicative of the results of
operations for future periods. The pro forma combined condensed statement of
operations should be read in conjunction with the Telco historical financial
statements included herein and Peregrine's form 10-K incorporated by reference
herein.
2. PRO FORMA ADJUSTMENTS AND ASSUMPTIONS
(A) The historical results of Telco Research have been adjusted to
conform to the Combined Company's basis of presentation for its Condensed
Consolidated Financial Statements.
(B) The purchase price for the completion of the Telco Research
acquisition was determined by combining the value of Peregrine Common Stock
issued to Telco Research stockholders (approximately 2,564,000 common shares
valued at $43.875 per share), the fair value of net assets acquired of Telco
Reserch and the estimated transactions costs for the acquisition. The
estimated direct transaction costs to be incurred by the Combined Company
include transaction fees for investment bankers, attorneys, accountants,
financial printing, and other related charges. The purchase price for the
completion of the acquisition is summarized below (in thousands):
<TABLE>
<S> <C>
Common stock and value of options assumed................... $112,496
Estimated transaction costs................................. 8,327
Net assets acquired, including (I) and excluding (G)........ (13,431)
--------
$107,392
========
</TABLE>
(C) The estimated allocation of the purchase price for the completion of
the Telco Research acquisition was determined as follows (in thousands):
<TABLE>
<S> <C>
Acquired in-process technology.............................. $ 21,479
Intangible assets........................................... 85,913
--------
$107,392
========
</TABLE>
The components of the pro forma adjustment to intangible assets,
investments, and other, net are as follows (in thousands):
<TABLE>
<S> <C>
Intangible assets (see above) resulting from this
transaction............................................... $ 85,913
Less: Telco intangible assets............................... (10,085)
--------
Net adjustment.......................................... $ 75,828
========
</TABLE>
F-26
<PAGE>
NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED
STATEMENT OF OPERATIONS (CONTINUED)
2. PRO FORMA ADJUSTMENTS AND ASSUMPTIONS (CONTINUED)
(D) Amortization of the intangible assets for Telco Research will be on
the straight-line method over five years and will be included in the
amortization of intangible assets in the Combined Company's Statement of
Operations.
(E) The pro forma statement of operations excludes the charge of $21.5
million for acquired in-process research and development costs, which arose
from the acquisition. These charges will be included in the Combined
Company's consolidated financial statements for the three-month period
ending March 31, 2000.
(F) Reflects the amortization of intangible assets beginning April 1,
1998. The purchase price for the Telco Research acquisition was allocated to
the tangible and intangible assets of Telco Research based on preliminary
estimates of the fair market value of those assets.
(G) Reflects a two-for-one stock split effected by Peregrine in February
2000.
(H) Revenues include approximately $7.3 million of hardware sales, and
cost of revenues include approximately $6.0 million of hardware costs. After
consummation of the merger, Peregrine expects to record these revenues and
costs on a net basis.
3. TELCO RESEARCH LIMITED PRO FORMA CONSOLIDATED STATEMENT OF INCOME
TELCO RESEARCH CORPORATION LIMITED
PRO FORMA CONSOLIDATED STATEMENT OF INCOME
YEAR ENDED JANUARY 31, 2000
(UNAUDITED, IN THOUSANDS)
<TABLE>
<CAPTION>
(CANADIAN FUNDS,(B)) (US FUNDS)
------------------------------------------------------ ------------
TSB(B) TRCL(C) ADJUSTMENTS CONSOLIDATED CONSOLIDATED
-------- -------- ----------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Revenue.............................. $12,969 $34,048 $ 360 (d)(i) $47,377 $32,027
Cost of revenue...................... 6,761 14,042 -- (i) 20,803 14,063
------- ------- ------- ------- -------
Gross profit......................... 6,208 20,006 360 26,574 17,964
------- ------- ------- ------- -------
Expenses
Selling............................ 2,041 7,354 -- 9,395 6,351
Research & development............. 1,480 4,063 -- 5,543 3,747
Operating.......................... 936 4,212 (5 )(d)(e) 5,143 3,477
Bonus payments to shareholders..... -- 2,210 (2,210 )(f) -- --
------- ------- ------- ------- -------
4,457 17,839 (2,215) 20,081 13,575
------- ------- ------- ------- -------
Income before income taxes........... 1,751 2,167 2,575 6,493 4,389
Provision for income taxes........... 683 1,589 595 (g) 2,867 1,938
------- ------- ------- ------- -------
Net income........................... $ 1,068 $ 578 $ 1,980 $ 3,626 $ 2,451
======= ======= ======= ======= =======
</TABLE>
NOTES TO TELCO RESEARCH CORPORATION LIMITED PRO FORMA CONSOLIDATED FINANCIAL
STATEMENTS
Effective August 1, 1999 TSB International Inc. ("TSB") acquired all the
outstanding shares of Telco Research Corporation ("TRC") by way of a share
exchange. Subsequent to the reverse takeover, TSB changed its name to Telco
Research Corporation Limited ("TRLC").
F-27
<PAGE>
NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED
STATEMENT OF OPERATIONS (CONTINUED)
3. TELCO RESEARCH LIMITED PRO FORMA CONSOLIDATED STATEMENT OF INCOME (CONTINUED)
The unaudited pro forma consolidated statements of income have been prepared
to illustrate the effect of the reverse takeover had it occurred as at
February 1, 1999, immediately prior to the opening of the pro forma period, on
the following basis:
(a) all amounts in U.S. dollars have been translated to Canadian dollars at the
average rates prevailing during the pro forma periods;
(b) actual results of TSB prior to August 1, 1999 are included in a separate
column;
(c) actual results of TRCL are included on a reverse takeover basis (i.e.
including the results of the former TSB only for the period from August 1,
1999 forward);
(d) the results of TRCL include the results of Telco Business Systems, a
partnership acquired by TRC in July 1999, throughout the pro forma period;
(e) the results of TRCL have been adjusted to include charges of amortization of
goodwill arising from the reverse acquisition throughout the pro forma
period;
(f) the results of TRCL have been adjusted to exclude bonus payments made to
shareholders of TRC prior to the merger;
(g) the results of TRCL have been adjusted to include a provision for income
taxes with respect to the earnings of TRC prior to the merger;
(h) as a result of the reverse takeover of TSB , TRC's reporting year end was
changed to January 31, 2000, as TRC was required to adopt the reporting
period of TSB, the legal parent. Consequently, the results of TRC reflect a
thirteen-month reporting period from December 31, 1998 to January 31, 2000.
The Consolidated results of operations of TRC for the one month ended
January 31, 2000 were as follows:
(i) the revenues of TRCL include approximately $7.3 million of hardware sales,
and the associated cost of revenues include approximately $6.0 million of
hardware costs. After consummation of the merger, Peregrine expects to
record these revenues on a net basis.
<TABLE>
<S> <C>
Revenue $1,621
Cost of revenue and expenses 2,590
Recovery of income taxes (368)
Net loss $ (601)
</TABLE>
These Results have been elminated from the thirteen month results of TRC.
The unaudited pro forma consolidated financial statements have been prepared in
accordance with Canadian generally accepted accounting principles ("GAAP"). The
management of Peregrine believes that there would be no material differences in
the financial statements if they were prepared in accordance with U.S. GAAP.
F-28
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT PAGE
------------------------------------------------------------ --------
<C> <S> <C>
2.1 Acquisition Agreement for Plan of Arrangement, dated as of
February 8, 2000, by and among Peregrine, Peregrine Nova
Scotia Company, an unlimited liability company existing
under the Nova Scotia Companies Act and a direct wholly
owned subsidiary of Company, Telco, and 1400066
Ontario, Inc., an Ontario corporation. The disclosure
schedule of Telco Research Corporation Limited to the
Acquisition Agreement for Plan of Arrangement, which cites
to certain factual matters as exceptions to the contractual
representations of Telco Research Corporation Limited, has
been omitted in accordance with Item 601(b)(2) of Regulation
S-K. Peregrine agrees to supplementally furnish a copy of
such disclosure schedule to the Commission upon request.
23.1 Consent of Arthur Andersen LLP, Independent Public
Accountants.
99.1++ Press release of Peregrine Systems, Inc.
</TABLE>
- ------------------------
++ Previously filed.
<PAGE>
ACQUISITION AGREEMENT FOR PLAN OF ARRANGEMENT
BY AND AMONG
PEREGRINE SYSTEMS, INC.,
PEREGRINE NOVA SCOTIA COMPANY,
TELCO RESEARCH CORPORATION LIMITED,
AND
1400066 ONTARIO, INC.
DATED AS OF FEBRUARY 8, 2000
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
PAGE
<S> <C>
ARTICLE I THE PLAN OF ARRANGEMENT.....................................................................................2
1.1 Implementation Steps by Company.....................................................................2
1.2 Interim Order.......................................................................................2
1.3 Effect of the Arrangement...........................................................................3
1.4 Effect on Capital Stock.............................................................................3
1.5 Dissenting Shares...................................................................................4
1.6 Surrender of Certificates...........................................................................5
1.7 No Further Ownership Rights in Company Common Shares................................................7
1.8 Lost, Stolen or Destroyed Certificates..............................................................7
1.9 Tax and Accounting Consequences.....................................................................7
1.10 Taking of Necessary Action; Further Action..........................................................7
1.11 Closing ............................................................................................8
ARTICLE II REPRESENTATIONS AND WARRANTIES OF COMPANY AND AMALGAMATION SUB.............................................8
2.1 Organization and Qualification; Subsidiaries........................................................8
2.2 Articles of Incorporation and Bylaws................................................................9
2.3 Capitalization......................................................................................9
2.4 Authority Relative to this Agreement...............................................................11
2.5 No Conflict; Required Filings and Consents.........................................................11
2.6 Compliance; Permits................................................................................12
2.7 Ontario Filings; Financial Statements..............................................................13
2.8 No Undisclosed Liabilities.........................................................................14
2.9 Absence of Certain Changes or Events...............................................................14
2.10 Absence of Litigation..............................................................................15
2.11 Employee Benefit Plans.............................................................................15
2.12 Labor Matters......................................................................................17
2.13 Circular Disclosure................................................................................18
2.14 Restrictions on Business Activities................................................................19
2.15 Title to Property..................................................................................19
2.16 Taxes .............................................................................................19
2.17 Environmental Matters..............................................................................21
2.18 Brokers ...........................................................................................22
2.19 Intellectual Property..............................................................................23
2.20 Agreements, Contracts and Commitments..............................................................27
2.21 Insurance .........................................................................................29
2.22 Opinion of Financial Advisor.......................................................................29
-i-
<PAGE>
TABLE OF CONTENTS
(CONTINUED) PAGE
2.23 Board Approval.....................................................................................29
2.24 Vote Required......................................................................................29
2.25 Issuance and Resale of Parent Common Stock.........................................................29
ARTICLE III REPRESENTATIONS AND WARRANTIES OF PARENT AND CANADIAN SUB................................................29
3.1 Organization and Qualification; Subsidiaries.......................................................30
3.2 Authority Relative to this Agreement...............................................................30
3.3 No Conflict; Required Filings and Consents.........................................................30
3.4 SEC Filings; Financial Statements..................................................................31
3.5 Circular Disclosure................................................................................32
3.6 Absence of Litigation..............................................................................32
3.7 No Undisclosed Liabilities.........................................................................32
3.8 TSB International Tax Treatment....................................................................32
3.9 Issuance of Resale of Parent Common Stock..........................................................33
ARTICLE IV CONDUCT PRIOR TO THE EFFECTIVE TIME.......................................................................33
4.1 Conduct of Business by Company.....................................................................33
4.2 Conduct of Business by Parent......................................................................36
ARTICLE V COMPANY SHAREHOLDER APPROVAL...............................................................................36
5.1 Circular; Other Filings; Board Recommendations.....................................................36
5.2 Meeting of Company Shareholders....................................................................37
ARTICLE VI ADDITIONAL AGREEMENTS.....................................................................................39
6.1 Confidentiality; Access to Information.............................................................39
6.2 No Solicitation....................................................................................39
6.3 Public Disclosure..................................................................................41
6.4 Reasonable Efforts; Notification...................................................................41
6.5 Third Party Consents...............................................................................42
6.6 Stock Options......................................................................................42
6.7 Form S-8 ..........................................................................................43
6.8 Indemnification....................................................................................43
6.9 Nasdaq Listing.....................................................................................43
6.10 Company Affiliate Agreement........................................................................43
6.11 Regulatory Filings; Reasonable Efforts.............................................................43
6.12 Termination of Severance Plans.....................................................................44
6.13 Benefit Arrangements...............................................................................44
6.14 Listing of Company Common Shares...................................................................44
-ii-
<PAGE>
TABLE OF CONTENTS
(CONTINUED) PAGE
6.15 Warrant Exercise...................................................................................44
6.16 Consulting Agreements..............................................................................45
6.17 Management Agreements..............................................................................45
6.18 TSE Approval.......................................................................................45
ARTICLE VII CONDITIONS TO THE ARRANGEMENT............................................................................45
7.1 Conditions to Obligations of Each Party to Effect the Arrangement..................................45
7.2 Additional Conditions to Obligations of Company....................................................46
7.3 Additional Conditions to the Obligations of Parent.................................................46
ARTICLE VIII TERMINATION, AMENDMENT AND WAIVER.......................................................................48
8.1 Termination........................................................................................48
8.2 Notice of Termination; Effect of Termination.......................................................50
8.3 Fees and Expenses..................................................................................50
8.4 Amendment .........................................................................................51
8.5 Extension; Waiver..................................................................................51
ARTICLE IX GENERAL PROVISIONS........................................................................................52
9.1 Non-Survival of Representations and Warranties.....................................................52
9.2 Notices ...........................................................................................52
9.3 Interpretation; Knowledge..........................................................................53
9.4 Counterparts.......................................................................................54
9.5 Entire Agreement; Third Party Beneficiaries........................................................54
9.6 Severability.......................................................................................54
9.7 Other Remedies; Specific Performance...............................................................55
9.8 Governing Law......................................................................................55
9.9 Rules of Construction..............................................................................55
9.10 Assignment.........................................................................................55
9.11 WAIVER OF JURY TRIAL...............................................................................55
9.12 Currency ..........................................................................................55
ARTICLE X ADDITIONAL DEFINITIONS.....................................................................................56
10.1 Additional Definitions.............................................................................56
</TABLE>
-iii-
<PAGE>
INDEX OF EXHIBITS
<TABLE>
<CAPTION>
<S> <C>
Exhibit A Form of Company Voting Agreement
Exhibit B Form of Stock Option Agreement
Exhibit C Form of Company Affiliate Agreement
Exhibit D Form of Continuance Resolution
Exhibit E Form of Arrangement Resolution
Exhibit F Plan of Arrangement
Exhibit G Form of Noncompetition Agreement
</TABLE>
-iv-
<PAGE>
ACQUISITION AGREEMENT FOR PLAN OF ARRANGEMENT
This ACQUISITION AGREEMENT FOR PLAN OF ARRANGEMENT (this "AGREEMENT")
is made and entered into as of February 8, 2000, among Peregrine Systems, Inc.,
a Delaware corporation ("PARENT"), Peregrine Nova Scotia Company, an unlimited
liability company existing under the Nova Scotia Companies Act and a direct
wholly owned subsidiary of Parent ("CANADIAN SUB"), and Telco Research
Corporation Limited, a Canada Business Corporations Act corporation ("COMPANY"),
and 1400066 Ontario Inc., an Ontario corporation ("AMALGAMATION SUB").
RECITALS
A. Upon the terms and subject to the conditions of this Agreement and
in accordance with the Business Corporations Act (Ontario) (the "OBCA"), Parent,
Canadian Sub, Amalgamation Sub and Company intend to enter into a business
combination transaction.
B. The Board of Directors of Company (i) has determined that the
Arrangement (as defined in Article X) is consistent with and in furtherance of
the long-term business strategy of Company and fair to, and in the best
interests of, Company and its shareholders, (ii) has approved this Agreement,
the Arrangement and the other transactions contemplated by this Agreement and
(iii) has determined to recommend that the shareholders of Company adopt and
approve this Agreement and approve the Continuance and the Arrangement (as
defined in Article X).
C. Concurrently with the execution of this Agreement, and as a
condition and inducement to Parent's willingness to enter into this Agreement,
certain affiliates of Company are entering into Voting Agreements in
substantially the form attached hereto as EXHIBIT A (the "COMPANY VOTING
AGREEMENTS").
D. Concurrently with the execution of this Agreement, and as a
condition and inducement to Parent's willingness to enter into this Agreement,
Company shall execute and deliver a Stock Option Agreement in favor of Parent in
substantially the form attached hereto as EXHIBIT B (the "STOCK OPTION
AGREEMENT"). The Board of Directors of Company have approved the Stock Option
Agreement.
E. Concurrently with the execution of this Agreement, and as a
condition and inducement to Parent's willingness to enter into this Agreement,
certain affiliates of Company (the "COMPANY AFFILIATES") are entering into
Company Affiliate Agreements in substantially the form attached hereto as
EXHIBIT C (the "COMPANY AFFILIATE AGREEMENTS").
F. The parties intend, by executing this Agreement, to adopt a plan of
reorganization within the meaning of Section 368 of the United States Internal
Revenue Code of 1986, as amended (the "UNITED STATES CODE").
<PAGE>
G. It is also intended by the parties hereto that the Arrangement shall
qualify for accounting treatment under United States generally accepted
accounting principles ("U.S. GAAP") as a purchase.
H. Capitalized terms used herein, if not otherwise defined, shall have
the meanings given to them in Article X below.
NOW, THEREFORE, in consideration of the covenants, promises and
representations set forth herein, and for other good and valuable consideration,
the receipt and sufficiency of which are hereby acknowledged, the parties agree
as follows:
ARTICLE I
THE PLAN OF ARRANGEMENT
1.1 IMPLEMENTATION STEPS BY COMPANY. Company and Amalgamation Sub each
covenants in favor of Parent that Company shall, or shall cause Amalgamation Sub
to:
(a) as soon as reasonably practicable, apply in a manner
acceptable to Parent under Section 182 of the OBCA for an order approving the
Arrangement and for the Interim Order, and thereafter proceed with and
diligently pursue the obtaining of the Interim Order;
(b) convene and hold the Company Shareholders Meeting (as
defined in Section 2.13) for the purpose of considering the Arrangement
Resolution and the Continuance Resolution (and for any other proper purpose as
may be set out in the notice for such meeting);
(c) subject to obtaining such shareholder approval as is
required by the CBCA, the OBCA and the Interim Order, proceed with and
diligently pursue the Continuance, send to the Director under the CBCA, for
endorsement and filing by such Director, the Articles of Continuance under the
OBCA and, obtain a certification of continuance, and diligently pursue the
application to the Court for the Final Order; and
(d) subject to obtaining the Final Order and the satisfaction
or waiver of the other conditions herein contained in favor of each party, send
to the Director Articles of Arrangement and such other documents as may be
required in connection therewith under the OBCA to give effect to the
Arrangement.
1.2 INTERIM ORDER. The notice of motion for the application referred to
in Section 1.1(a) shall request that the Interim Order provide:
(a) for the class of persons to whom notice is to be provided
in respect of the Arrangement and the Company Shareholders Meeting and for the
manner in which such notice is to be provided:
-2-
<PAGE>
(b) that the requisite shareholder approval for the
Arrangement Resolution shall be 66-2/3% of the votes cast on the Arrangement
Resolution by holders of Company Common Shares present in person or by proxy at
the Company Shareholders Meeting;
(c) that, in all other respects, the terms, restrictions and
conditions of the by-laws and articles of Company, including quorum requirements
and all other matters, shall apply in respect of the Company Shareholders
Meeting; and
(d) for the grant of the Dissenters' Rights.
1.3 EFFECT OF THE ARRANGEMENT. At the Effective Time, the effect of the
Arrangement shall be as provided in this Agreement and the Plan of Arrangement
and the applicable provisions of the OBCA. Without limiting the generality of
the foregoing, and subject thereto, at the Effective Time all the property,
rights, privileges, powers and franchises of Company will continue to repose in
Company, and all debts, liabilities and duties of Company will continue as the
debts, liabilities and duties of Company.
1.4 EFFECT ON CAPITAL STOCK. Subject to the terms and conditions of
this Agreement, at the Effective Time, by virtue of the Arrangement, the
following shall occur:
(a) EXCHANGE OF COMPANY COMMON SHARES. Each outstanding
capital share of the Company (each a "COMPANY COMMON SHARE" and collectively,
the "COMPANY COMMON SHARES") issued and outstanding immediately prior to the
Effective Time, other than any Company Common Shares to be canceled pursuant
to Section 1.6(b) and any Dissenting Shares (as defined in and to the extent
provided in Section 1.5(a)), will, after giving effect to the Amalgamation,
be automatically exchanged (subject to Section 1.4(e)) with Canadian Sub for
0.165017 shares of Common Stock, $0.001 par value per share, of Parent (the
"PARENT COMMON STOCK") (the "EXCHANGE RATIO") (which reflects the two-for-one
stock split effected as a stock dividend to be paid by Parent (the "STOCK
SPLIT") on February 18, 2000) upon surrender of the certificate representing
such Company Common Share in the manner provided in Section 1.6 (or in the
case of a lost, stolen or destroyed certificate, upon delivery of an
affidavit (and bond, if required) in the manner provided in Section 1.8). In
no event will Parent be required to issue more than 2,563,273 shares of
Parent Common Stock in connection with the Arrangement, inclusive of shares
of Parent Common Stock issuable in connection with the assumption of
warrants, options or other rights to acquire Company Common Shares as
required by this Agreement. If any Company Common Shares outstanding
immediately prior to the Effective Time are unvested or are subject to a
repurchase option, risk of forfeiture or other condition under any applicable
restricted shares purchase agreement or other agreement with Company, then
the shares of Parent Common Stock issued in exchange for such Company Common
Shares will also be unvested and subject to the same repurchase option, risk
of forfeiture or other condition, and the certificates representing such
shares of Parent Common Stock may accordingly be marked with appropriate
legends. Company shall take all action that may be necessary to ensure that,
from and after the Effective Time, Parent is entitled to exercise any such
repurchase option or other right set forth in any such restricted shares
purchase agreement or other
-3-
<PAGE>
agreement. Where used herein, the term "COMPANY COMMON SHARES" shall, if the
context so requires, refer to common shares of Amalco.
(b) CANCELLATION OF PARENT-OWNED STOCK. Each Company Common
Share held by Company, Parent or any direct or indirect wholly-owned subsidiary
of Company or of Parent immediately prior to the Effective Time shall be
canceled and extinguished without any conversion thereof.
(c) STOCK OPTIONS. At the Effective Time, all options to
purchase Company Common Shares then outstanding under Company's Management's
Stock Option Plan and the management stock option agreements referred to in
Section 2.3(a) of the Company Schedule (collectively, the "COMPANY OPTION
PLANS") shall be assumed by Parent in accordance with Section 6.6 hereof.
(d) ADJUSTMENTS TO EXCHANGE RATIO. The Exchange Ratio shall be
adjusted to reflect appropriately the effect of any stock split, reverse stock
split, stock dividend (including any dividend or distribution of securities
convertible into Parent Common Stock or Company Common Shares), extraordinary
cash dividends, reorganization, recapitalization, reclassification, combination,
exchange of shares or other like change with respect to Parent Common Stock or
Company Common Shares occurring on or after the date hereof and prior to the
Effective Time. Notwithstanding the foregoing, no adjustment to the Exchange
Ratio shall be made in connection with the Stock Split to be paid February 18,
2000.
(e) FRACTIONAL SHARES. No fraction of a share of Parent Common
Stock will be issued by virtue of the Arrangement, but in lieu thereof each
holder of Company Common Shares who would otherwise be entitled to a fraction of
a share of Parent Common Stock (after aggregating all fractional shares of
Parent Common Stock that otherwise would be received by such holder) shall, upon
surrender of such holder's Certificates(s) (as defined in Section 1.6(c))
receive from Parent an amount of cash (rounded to the nearest whole cent),
without interest, equal to the product of (i) such fraction, multiplied by (ii)
the closing price of one share of Parent Common Stock for the five (5) most
recent days that Parent Common Stock has traded ending on the trading day
immediately prior to the Effective Time, as reported on the Nasdaq National
Market ("NASDAQ").
1.5 DISSENTING SHARES.
(a) Notwithstanding any provision of this Agreement to the
contrary, the shares of any holder of Company Common Shares who has demanded and
perfected appraisal and dissent rights ("DISSENTERS' RIGHTS") for such shares in
accordance with the Interim Order, the CBCA, or the OBCA and who, as of the
Effective Time, has not effectively withdrawn or lost such appraisal rights
("DISSENTING SHARES"), shall not be converted into or represent a right to
receive Parent Common Stock pursuant to Section 1.6, but the holder thereof
shall only be entitled to such rights as are granted by the Interim Order, the
CBCA, or the OBCA, as the case may be.
-4-
<PAGE>
(b) Notwithstanding the provisions of subsection (a), if any
holder of Company Common Shares who demands appraisal of such shares under the
CBCA or the OBCA shall effectively withdraw (or otherwise by law not be entitled
to) the right to appraisal, then, as of the later of the Effective Time and the
occurrence of such event, such holder's shares shall automatically be converted
into and represent only the right to receive Parent Common Stock, without
interest thereon, upon surrender of the certificate representing such shares.
(c) Company shall give Parent (i) prompt notice of any written
demands for appraisal of any Company Common Shares, withdrawals of such demands,
and any other instruments served pursuant to the CBCA or the OBCA and received
by Company which relate to any such demand for appraisal and (ii) the
opportunity to participate in all negotiations and proceedings which take place
prior to the Effective Time with respect to demands for appraisal under the CBCA
or the OBCA. Company shall not, except with the prior written consent of Parent,
voluntarily make any payment with respect to any demands for appraisal of
Company Common Shares or offer to settle or settle any such demands.
1.6 SURRENDER OF CERTIFICATES.
(a) EXCHANGE AGENT. Parent shall select a bank or trust
company reasonably acceptable to Company to act as the exchange agent (the
"EXCHANGE AGENT") in the Arrangement.
(b) PARENT TO PROVIDE COMMON SHARES. Promptly after the
Effective Time, Parent shall cause Canadian Sub to make available to the
Exchange Agent, for exchange in accordance with this Article I, the shares of
Parent Common Stock issuable pursuant to Section 1.4 in exchange for outstanding
Company Common Shares, and cash in an amount sufficient for payment in lieu of
fractional shares pursuant to Section 1.4(e) and any dividends or distributions
to which holders of Company Common Shares may be entitled pursuant to Section
1.4(d).
(c) EXCHANGE PROCEDURES. Promptly after the Effective Time,
Parent shall cause the Exchange Agent to mail to each holder of record (as of
the Effective Time) of a certificate or certificates (the "CERTIFICATES"), which
immediately prior to the Effective Time represented outstanding Company Common
Shares whose shares were exchanged for shares of Parent Common Stock pursuant to
Section 1.4, cash in lieu of any fractional shares pursuant to Section 1.4(e)
and any dividends or other distributions pursuant to Section 1.4(d), subject to
receipt of (i) a duly completed and validly executed letter of transmittal in
customary form (which shall specify that delivery shall be effected, and risk of
loss and title to the Certificates shall pass, only upon delivery of the
Certificates to the Exchange Agent and shall contain such other provisions as
Parent may reasonably specify) and (ii) instructions for use in effecting the
surrender of the Certificates in exchange for certificates representing shares
of Parent Common Stock, cash in lieu of any fractional shares pursuant to
Section 1.4(e) and any dividends or other distributions pursuant to Section
1.4(d). Upon surrender of Certificates for cancellation to the Exchange Agent or
to such other agent or agents as may be appointed by Parent, together with such
letter of transmittal, duly completed and validly executed in accordance with
the instructions thereto, the holders of such Certificates shall be entitled
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to receive in exchange therefor certificates representing the number of whole
shares of Parent Common Stock into which their Company Common Shares were
exchanged at the Effective Time, payment in lieu of fractional shares which
such holders have the right to receive pursuant to Section 1.4(e) and any
dividends or distributions payable pursuant to Section 1.4(d), and the
Certificates so surrendered shall forthwith be canceled. Until so
surrendered, outstanding Certificates will be deemed from and after the
Effective Time, for all corporate purposes, subject to Section 1.4(d) as to
dividends and other distributions, to evidence only the ownership of the
number of full shares of Parent Common Stock into which such Company Common
Shares are entitled to be exchanged and the right to receive an amount in
cash in lieu of the issuance of any fractional shares in accordance with
Section 1.4(e) and any dividends or distributions payable pursuant to Section
1.4(d).
(d) DISTRIBUTIONS WITH RESPECT TO UNEXCHANGED SHARES. No
dividends or other distributions declared or made after the date of this
Agreement with respect to Parent Common Stock with a record date after the
Effective Time will be paid to the holders of any unsurrendered Certificates
with respect to the shares of Parent Common Stock represented thereby until the
holders of record of such Certificates shall surrender such Certificates.
Subject to applicable law, following surrender of any such Certificates, the
Exchange Agent shall deliver to the record holders thereof, without interest,
certificates representing whole shares of Parent Common Stock issued in exchange
therefor along with payment in lieu of fractional shares pursuant to Section
1.4(e) hereof and the amount of any such dividends or other distributions with a
record date after the Effective Time payable with respect to such whole shares
of Parent Common Stock.
(e) TRANSFERS OF OWNERSHIP. If certificates representing
shares of Parent Common Stock are to be issued in a name other than that in
which the Certificates surrendered in exchange therefor are registered, it will
be a condition of the issuance thereof that the Certificates so surrendered will
be properly endorsed and otherwise in proper form for transfer and that the
persons requesting such exchange will have paid to Parent or any agent
designated by it any transfer or other taxes required by reason of the issuance
of certificates representing shares of Parent Common Stock in any name other
than that of the registered holder of the Certificates surrendered, or
established to the satisfaction of Parent or any agent designated by it that
such tax has been paid or is not payable.
(f) REQUIRED WITHHOLDING. Each of the Exchange Agent, Parent
and Canadian Sub shall be entitled to deduct and withhold from any consideration
payable or otherwise deliverable pursuant to this Agreement to any holder or
former holder of Company Common Shares such amounts as may be required (as
advised by tax counsel for Parent) to be deducted or withheld therefrom under
the United States Code or under any provision of United States or Canadian
federal, state, provincial, regional, local or foreign tax law or under any
other applicable legal requirement. To the extent such amounts are so deducted
or withheld, such amounts shall be treated for all purposes under this Agreement
as having been paid to the person to whom such amounts would otherwise have been
paid.
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(g) NO LIABILITY. Notwithstanding anything to the contrary in
this Section 1.8, neither the Exchange Agent, Parent, Canadian Sub or
Amalgamation Sub nor any party hereto shall be liable to a holder of shares of
Parent Common Stock or Company Common Shares for any amount properly paid to a
public official pursuant to any applicable abandoned property, escheat or
similar law.
1.7 NO FURTHER OWNERSHIP RIGHTS IN COMPANY COMMON SHARES. All shares of
Parent Common Stock issued or transferred in accordance with the terms hereof
(including any cash paid in respect thereof pursuant to Section 1.4(e)) shall be
deemed to have been issued in full satisfaction of all rights pertaining to such
Company Common Shares, and there shall be no further registration of transfers
on the records of Amalco of Company Common Shares which were outstanding
immediately prior to the Effective Time. If, after the Effective Time,
Certificates are presented to Amalgamation Sub for any reason, they shall be
canceled and exchanged as provided in this Article I.
1.8 LOST, STOLEN OR DESTROYED CERTIFICATES. In the event that any
Certificates shall have been lost, stolen or destroyed, the Exchange Agent shall
issue in exchange for such lost, stolen or destroyed Certificates, upon the
making of an affidavit of that fact by the holder thereof, certificates
representing the shares of Parent Common Stock into which the Company Common
Shares represented by such Certificates were converted pursuant to Section 1.4,
cash for fractional shares, if any, as may be required pursuant to Section
1.4(e) and any dividends or distributions payable pursuant to Section 1.4(d);
PROVIDED, HOWEVER, that Parent may, in its discretion and as a condition
precedent to the issuance of such certificates representing shares of Parent
Common Stock, cash and other distributions, require the owner of such lost,
stolen or destroyed Certificates to deliver a bond in such sum as it may
reasonably direct as indemnity against any claim that may be made against
Parent, the amalgamated corporation or the Exchange Agent with respect to the
Certificates alleged to have been lost, stolen or destroyed.
1.9 TAX AND ACCOUNTING CONSEQUENCES.
(a) It is intended by the parties hereto that the Arrangement
shall constitute a reorganization within the meaning of Section 368 of the
United States Code. The parties hereto adopt this Agreement as a "plan of
reorganization" within the meaning of Sections 1.368-2(g) and 1.368-3(a) of the
United States Income Tax Regulations.
(b) It is intended by the parties hereto that the Arrangement
shall be treated under U.S. gaap as a purchase for accounting purposes.
1.10 TAKING OF NECESSARY ACTION; FURTHER ACTION. If, at any time after
the Effective Time, any further action is necessary or desirable to carry out
the purposes of this Agreement and to ensure Company following the Effective
Time continues to have full right, title and possession to all assets, property,
rights, privileges, powers and franchises of Company, the officers and directors
of Company will take all such lawful and necessary action.
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1.11 CLOSING. The closing of the Arrangement (the "CLOSING") shall take
place at the offices of Wilson Sonsini Goodrich & Rosati, Professional
Corporation, at a time and date to be specified by the parties, which shall be
no later than the second business day after the satisfaction or waiver of the
conditions set forth in Article VII, or at such other time, date and location as
the parties hereto agree in writing (the "CLOSING DATE"). The parties shall use
their reasonable commercial efforts to ensure that the Closing Date is on or
before March 31, 2000.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF COMPANY AND AMALGAMATION SUB
As of the date hereof and as of the Closing Date, Company and
Amalgamation Sub jointly and severally represent and warrant to Parent and
Canadian Sub, subject to such exceptions as are specifically disclosed in
writing in the disclosure letter supplied by Company to Parent dated as of the
date hereof and certified by a duly authorized officer of Company, which
disclosure shall provide an exception to or otherwise qualify the
representations or warranties of Company specifically referred to in such
disclosure and such other representations and warranties to the extent such
disclosure shall reasonably appear to be applicable to such other
representations or warranties (the "COMPANY SCHEDULE"), as follows:
2.1 Organization and Qualification; Subsidiaries.
(a) Each of Company and its subsidiaries is a corporation duly
organized, validly existing and in good standing under the laws of the
jurisdiction of its incorporation and has the requisite corporate power and
authority to own, lease and operate its assets and properties and to carry on
its business as it is now being conducted, except where the failure to do so
would not, individually, or in the aggregate, have a Material Adverse Effect (as
defined in Section 9.3). Each of Company and its subsidiaries is in possession
of all franchises, grants, authorizations, licenses, permits, easements,
consents, certificates, approvals and orders ("APPROVALS") necessary to own,
lease and operate the properties it purports to own, operate or lease and to
carry on its business as it is now being conducted, except where the failure to
have such Approvals would not, individually or in the aggregate, have a Material
Adverse Effect on Company.
(b) Company has no subsidiaries except for the corporations
identified in Section 2.1(b) of the Company Schedule. Neither Company nor any of
its subsidiaries has agreed nor is obligated to make nor is bound by any
written, oral or other agreement, contract, subcontract, lease, binding
understanding, instrument, note, option, warranty, purchase order, license,
sublicense, insurance policy, benefit plan, commitment or undertaking of any
nature, as of the date hereof or as may hereafter be in effect (a "CONTRACT")
under which it may become obligated to make, any future investment in or capital
contribution to any other entity. Neither Company nor any of its subsidiaries
directly or indirectly owns any equity or similar interest in or any interest
convertible, exchangeable or exercisable for, any equity or similar interest in,
any corporation, partnership, joint venture or other business, association or
entity.
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(c) Company and each of its subsidiaries is qualified to do
business as a foreign corporation, and is in good standing, under the laws of
all jurisdictions where the nature of their business requires such qualification
and where the failure to so qualify would have a Material Adverse Effect on the
Company.
(d) Amalgamation Sub is a wholly-owned subsidiary of Company
and has no assets or liabilities and no obligations, other than as contemplated
herein.
2.2 ARTICLES OF INCORPORATION AND BYLAWS. Company has previously
furnished to Parent a complete and correct copy of its Articles of Amalgamation
and Bylaws as amended to date (together, the "COMPANY CHARTER DOCUMENTS"). Such
Company Charter Documents and equivalent organizational documents of each of its
subsidiaries are in full force and effect. Company is not in violation of any of
the provisions of the Company Charter Documents, and no subsidiary of Company is
in violation of its equivalent organizational documents.
2.3 CAPITALIZATION.
(a) The authorized capital stock of Company consists of an
unlimited number of Company Common Shares without par value. At the close of
business on the date of this Agreement (i) 12,336,333 Company Common Shares were
issued and outstanding, all of which are validly issued, fully paid and
nonassessable; (ii) no Company Common Shares were held by subsidiaries of
Company; (iii) no Company Common Shares were available for future issuance
pursuant to Company's ESPP; (iv) 439,246 Company Common Shares were reserved for
issuance upon the exercise of outstanding options to purchase Company Common
Shares under the Management Stock Option Plan; (v) 160,000 Company Common Shares
were reserved for issuance upon the exercise of outstanding options to purchase
Company Common Shares under the management stock option agreements referred to
in Section 2.3(a) of the Company Disclosure Schedule; (vi) no Company Common
Shares were available for future grant under the Management Stock Option Plan;
(vii) 2,597,802 Shares were reserved for future issuance upon conversion of
warrants of the Company (the "WARRANTS"); and (viii) 3,091,143 Company Common
Shares were reserved for future issuance pursuant to the Stock Option Agreement.
No Company Preferred Shares are authorized, issued or outstanding, and no rights
under the ESPP are outstanding or will be outstanding as of the Effective Time.
Section 2.3(a) of the Company Schedule sets forth the following information with
respect to each Warrant and Company Stock Option (as defined in Section 6.6)
outstanding as of the date of this Agreement: (i) the name and address of the
holder or optionee; (ii) the particular plan pursuant to which such Company
Stock Option was granted; (iii) the number of Company Common Shares subject to
such Warrant or Company Stock Option; (iv) the exercise price of such Warrant or
Company Stock Option; (v) the date on which such Warrant or Company Stock Option
was granted; (vi) the applicable vesting schedule; (vii) the date on which such
Warrant or Company Stock Option expires; and (viii) whether the exercisability
of such Warrant or Company Stock Option will be accelerated in any way by the
transactions contemplated by this Agreement, and indicates the extent of
acceleration. Company has made available to Parent accurate and complete copies
of all Warrants and stock option plans pursuant to which the Company
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has granted such Company Stock Options that are currently outstanding and the
form of all stock option agreements evidencing such Company Stock Options.
All Company Common Shares subject to issuance as aforesaid, upon issuance on
the terms and conditions specified in the instrument pursuant to which they
are issuable, would be duly authorized, validly issued, fully paid and
nonassessable. The Company is in compliance with all applicable securities
legislation in each province of Canada and each state of the United States.
Except as set forth in Section 2.3(a) of the Company Schedule, there are no
commitments or agreements of any character to which the Company is bound
obligating the Company to accelerate the vesting of any Company Stock Option
as a result of the Arrangement. The number of holders of record of the
Warrants is set forth in Section 2.3(a) of the Company Schedule. All
outstanding Company Common Shares, all outstanding Company Stock Options, all
outstanding Warrants and all outstanding shares of capital stock of each
subsidiary of the Company have been issued and granted in compliance with (i)
all applicable securities laws and other applicable Legal Requirements (as
defined below) subject to receiving final approval of the TSE in respect of
the December 7, 1999 amendment to the Management Stock Option Plan as it
relates to the grant of stock options to certain employees effective December
7, 1999 and subject to filing of all documents required under Tennessee
securities legislation in respect of the grant of stock options to residents
of Tennessee and (ii) all requirements set forth in applicable Contracts. For
the purposes of this Agreement, "LEGAL REQUIREMENTS" means any federal,
provincial, regional, state, local, municipal, foreign or other law, statute,
constitution, principle of common law, resolution, ordinance, code, edict,
decree, rule, regulation, ruling or requirement issued, enacted, adopted,
promulgated, implemented or otherwise put into effect by or under the
authority of any Governmental Entity (as defined below) and (ii) all
requirements set forth in applicable contracts, agreements, and instruments.
(b) Company owns free and clear of all liens, pledges,
hypothecations, charges, mortgages, security interests, encumbrances, claims,
infringements, interferences, options, right of first refusals, preemptive
rights, community property interests or restrictions of any nature (including
any restriction on the voting of any security, any restriction on the transfer
of any security or other asset, any restriction on the possession, exercise or
transfer of any other attribute of ownership of any asset) directly, or
indirectly through one or more subsidiaries, and except for shares of capital
stock or other similar ownership interests of subsidiaries of the Company that
are owned by certain nominee equity holders as required by the applicable law of
the jurisdiction of organization of such subsidiaries (which shares or other
interests do not materially affect the Company's control of such subsidiaries),
all of the outstanding share capital of each subsidiary of the Company, which
subsidiaries are listed on Section 2.3(b) of the Company Schedule. Other than as
set forth on Schedule 2.3(b), Company has no subsidiaries or affiliated
companies and does not otherwise own or control any equity, partnership, or
similar ownership interest in any corporation, limited liability company,
association, or similar business entity. Except as set forth in Section 2.3(b)
of the Company Schedule or as set forth in Section 2.3(a) hereof and except for
the Stock Option Agreement, there are no subscriptions, options, warrants,
equity securities, partnership interests or similar ownership interests, calls,
rights (including preemptive rights), commitments or agreements of any character
to which Company or any of its subsidiaries is a party or by which it is bound
obligating Company or any of its subsidiaries to issue, deliver or sell, or
cause to be issued, delivered
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or sold, or repurchase, redeem or otherwise acquire, or cause the repurchase,
redemption or acquisition of, any shares of capital stock, partnership
interests or similar ownership interests of the Company or any of its
subsidiaries or obligating the Company or any of its subsidiaries to grant,
extend, accelerate the vesting of or enter into any such subscription,
option, warrant, equity security, call, right, commitment or agreement.
Except as contemplated by this Agreement, there are no registration rights
and there is no voting trust, proxy, rights plan, antitakeover plan or other
agreement or understanding to which the Company or any of its subsidiaries is
a party or by which they are bound with respect to any equity security of any
class of the Company or with respect to any equity security, partnership
interest or similar ownership interest of any class of any of its
subsidiaries.
2.4 AUTHORITY RELATIVE TO THIS AGREEMENT. Each of Company and
Amalgamation Sub has all necessary corporate power and authority to execute and
deliver this Agreement and the Stock Option Agreement and to perform its
obligations hereunder and thereunder and, subject to obtaining the approval of
the shareholders of Company to the Continuance and the Arrangement and of the
Court to the Arrangement, to consummate the transactions contemplated hereby and
thereby. The execution and delivery of this Agreement and the Stock Option
Agreement by Company and Amalgamation Sub and the consummation by Company and
Amalgamation Sub of the transactions contemplated hereby and thereby have been
duly and validly authorized by all necessary corporate action on the part of
Company and Amalgamation Sub and no other corporate proceedings on the part of
Company and Amalgamation Sub are necessary to authorize this Agreement, the
Stock Option Agreement or to consummate the transactions so contemplated (other
than the approval and adoption of this Agreement, the Continuance, and the
Arrangement by holders of not less than 66-2/3% of the outstanding Company
Common Shares in accordance with the CBCA and the OBCA, the Interim Order and
the Company Charter Documents). This Agreement and the Stock Option Agreement
have been duly and validly executed and delivered by Company and Amalgamation
Sub and, assuming the due authorization, execution and delivery by Parent and
Canadian Sub, constitute legal and binding obligations of Company, enforceable
against Company in accordance with their respective terms.
2.5 NO CONFLICT; REQUIRED FILINGS AND CONSENTS.
(a) The execution and delivery of this Agreement and the Stock
Option Agreement by Company and Amalgamation Sub do not, and the performance of
this Agreement and the Stock Option Agreement by Company and Amalgamation Sub
shall not, (i) conflict with or violate the Company Charter Documents or the
equivalent organizational documents of any of Company's subsidiaries, (ii)
subject to obtaining the approval of Company's shareholders of the Continuance
and the Arrangement and compliance with the requirements set forth in Section
2.5(b) below, conflict with or violate any law, rule, regulation, order,
judgment or decree applicable to Company or any of its subsidiaries or by which
its or any of their respective properties is bound or affected, or (iii) 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 materially impair Company's or
any of its subsidiaries' rights or alter the rights or obligations of any third
party under, or give to others any
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rights of termination, amendment, acceleration or cancellation of, or result
in the creation of a lien or encumbrance on any of the properties or assets
of Company or any of its subsidiaries pursuant to, any material note, bond,
mortgage, indenture, contract, agreement, lease, license, permit, franchise
or other instrument or obligation to which Company or any of its subsidiaries
is a party or by which Company or any of its subsidiaries or its or any of
their respective properties are bound or affected.
(b) The execution and delivery of this Agreement and the Stock
Option Agreement by Company and Amalgamation Sub do not, and the performance of
this Agreement by Company and Amalgamation Sub and the issuance of Company
Common Shares upon exercise of the Stock Option Agreement shall not, require any
consent, approval, authorization or permit of, or filing with or notification
to, any court, administrative agency, commission, governmental or regulatory
authority, whether in the United States, Canada or another applicable
jurisdiction (a "GOVERNMENTAL ENTITY"), except for (A) applicable requirements,
if any, of the securities legislation of each province of Canada (the "CANADIAN
SECURITIES LEGISLATION"); the filing required under the Competition Act
(Canada); the filing required with Industry Canada under the Investment Canada
Act (Canada); approval of the TSE; the Interim Order and Final Order of the
Court in respect of the Arrangement; and the pre-merger notification
requirements (the "HSR APPROVAL"), of the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended (the "HSR ACT"); and (B) where the failure
to obtain such consents, approvals, authorizations or permits, or to make such
filings or notifications, could not, individually or in the aggregate,
reasonably be expected to have a Material Adverse Effect on Company or, after
the Effective Time, Parent, or prevent consummation of the transactions or
otherwise prevent the parties hereto from performing their obligations under
this Agreement.
(c) Company, together with its affiliates, does not have
assets in Canada in aggregate value as at January 31, 1999 or January 31, 2000,
or gross revenues from sales in, from or into Canada for the year ended January
31, 1999 or January 31, 2000, that exceed in any such case $50,000,000, as
determined in accordance with the Notifiable Transaction Regulations promulgated
under the Competition Act (Canada). Assuming the accuracy of the representations
and warranties contained in Section 3.3(c), there is no pre-notification
requirement by Company under the Competition Act (Canada) in connection with the
Arrangement.
(d) At January 31, 2000, the value of Company's consolidated
assets, as determined in accordance with Canadian gaap and the provisions of the
Investment Canada Act (Canada), were less than $184,000,000.
2.6 COMPLIANCE; PERMITS.
(a) Neither Company nor any of its subsidiaries is in conflict
with, or in default or violation of, (i) any material law, rule, regulation,
order, judgment or decree applicable to Company or any of its subsidiaries or by
which its or any of their respective properties is bound or affected, or (ii)
any material note, bond, mortgage, indenture, contract, agreement, lease,
license, permit, franchise or other instrument or obligation to which Company or
any of its subsidiaries is a party or
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by which Company or any of its subsidiaries or its or any of their respective
properties is bound or affected, except for any conflicts, defaults or
violations that (individually or in the aggregate) would not cause the
Company to lose any material benefit or incur any material liability. No
investigation or review by any governmental or regulatory body or authority
is pending or, to the knowledge of Company, threatened against Company or its
subsidiaries, nor has any governmental or regulatory body or authority
indicated to the Company an intention to conduct the same, other than, in
each such case, those the outcome of which could not, individually or in the
aggregate, reasonably be expected to have the effect of prohibiting or
materially impairing any business practice of the Company or any of its
subsidiaries, any acquisition of material property by the Company or any of
its subsidiaries or the conduct of business by the Company or any of its
subsidiaries.
(b) Company and its subsidiaries hold all permits, licenses,
variances, exemptions, orders and approvals from governmental authorities which
are material to operation of the business of Company and its subsidiaries taken
as a whole (collectively, the "COMPANY PERMITS"). Company and its subsidiaries
are in compliance in all material respects with the terms of the Company
Permits.
2.7 ONTARIO FILINGS; FINANCIAL STATEMENTS.
(a) Company has made available to Parent a correct and
complete copy of each report, schedule, circular, filing and other document
filed by Company with the OSC and the TSE since January 31, 1997, which are all
the forms, reports and documents required to be filed by Company with the OSC
since January 31, 1997, and, prior to the Effective Time, Company will have
furnished Parent with true and complete copies of any additional documents filed
hereafter with the OSC by Company prior to the Effective Time (all such filings,
including any financial statements or other documents, including any schedules
included therein, are referred to as the "COMPANY REGULATORY REPORTS"). Company
has not filed any confidential material change report with the OSC or any other
securities authority or regulator or any stock exchange or other self-regulatory
authority which at the date hereof remains confidential. The Company Regulatory
Reports (A) were prepared in accordance with the requirements of the Canadian
Securities Legislation, the TSE and the CBCA, as the case may be, and (B) did
not at the time they were filed (and if amended or superseded by a filing prior
to the date of this Agreement then on the date of such filing) contain any
untrue statement of a material fact or omit to state a material fact required to
be stated therein or necessary in order to make the statements therein, in light
of the circumstances under which they were made, not misleading. None of
Company's subsidiaries is required to file any reports or other documents with
the OSC or the TSE.
(b) Each set of consolidated financial statements (including,
in each case, any related notes thereto) contained in the Company Regulatory
Reports and Company's audited consolidated financial statements as at and for
the periods ended through October 31, 1999 (copies of which have been furnished
to Parent) were prepared in accordance with Canadian generally accepted
accounting principles ("CANADIAN GAAP") applied on a consistent basis throughout
the periods involved and each fairly presents the consolidated financial
position of Company and its subsidiaries
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at the respective dates thereof and the consolidated results of its
operations and cash flows for the periods indicated, except that the
unaudited interim financial statements were or are subject to normal
adjustments which were not or are not expected to be material in amount.
(c) The Company is a "reporting issuer" or its equivalent for
the purposes of the Canadian Securities Legislation and is not in violation of
any requirement thereunder.
2.8 NO UNDISCLOSED LIABILITIES. Neither Company nor any of its
subsidiaries has any liabilities (absolute, accrued, contingent or otherwise) of
a nature required to be disclosed on a balance sheet or in the related notes to
the consolidated financial statements prepared in accordance with Canadian gaap
which are, individually or in the aggregate, material to the business, results
of operations or financial condition of Company and its subsidiaries taken as a
whole, except (i) liabilities provided for in Company's balance sheet as of
October 31, 1999 or (ii) liabilities incurred since October 31, 1999 in the
ordinary course of business, none of which is material to the business, results
of operations or financial condition of Company and its subsidiaries, taken as a
whole.
2.9 ABSENCE OF CERTAIN CHANGES OR EVENTS. Since October 31, 1999, there
has not been: (i) any Material Adverse Effect on Company, (ii) any declaration,
setting aside or payment of any dividend on, or other distribution (whether in
cash, shares or property) in respect of, any of Company's or any of its
subsidiaries' share capital, or any purchase, redemption or other acquisition by
Company of any of Company's share capital or any other securities of Company or
its subsidiaries or any options, warrants, calls or rights to acquire any such
shares or other securities except for repurchases from employees following their
termination pursuant to the terms of their pre-existing stock option or purchase
agreements, (iii) any split, combination or reclassification of any of Company's
or any of its subsidiaries' share capital, (iv) any granting by Company or any
of its subsidiaries of any increase in compensation or fringe benefits, except
for normal increases of cash compensation in the ordinary course of business
consistent with past practice, or any payment by Company or any of its
subsidiaries of any bonus, except for bonuses made in the ordinary course of
business consistent with past practice, or any granting by Company or any of its
subsidiaries of any increase in severance or termination pay or any entry by
Company or any of its subsidiaries into any currently effective employment,
severance, termination or indemnification agreement or any agreement the
benefits of which are contingent or the terms of which are materially altered
upon the occurrence of a transaction involving Company of the nature
contemplated hereby, (v) entry by Company or any of its subsidiaries into any
licensing or other agreement with regard to the acquisition or disposition of
any Intellectual Property (as defined in Section 2.19) other than licenses in
the ordinary course of business consistent with past practice, (vi) any material
change by Company in its accounting methods, principles or practices, except as
required by concurrent changes in Canadian gaap, or (vii) any revaluation by
Company of any of its assets, including, without limitation, writing down the
value of capitalized inventory or writing off notes or accounts receivable or
any sale of assets of the Company other than in the ordinary course of business.
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2.10 ABSENCE OF LITIGATION. There are no claims, actions, suits or
proceedings pending or, to the knowledge of Company, threatened (or, to the
knowledge of Company, any governmental or regulatory investigation pending or
threatened) against Company or any of its subsidiaries or any properties or
rights of Company or any of its subsidiaries, before any court, arbitrator or
administrative, governmental or regulatory authority or body, domestic or
foreign.
2.11 EMPLOYEE BENEFIT PLANS.
(a) All employee compensation, incentive, fringe or benefit
plans, programs, policies, commitments or other arrangements (whether or not set
forth in a written document and including, without limitation, all International
Employee Plans (as defined in subsection (e) below) and all "employee benefit
plans" within the meaning of Section 3(3) of the United States Employee
Retirement Income Security Act of 1974, as amended ("ERISA"), regardless of
whether ERISA is applicable thereto), covering any active, former employee,
director or consultant of Company (an "EMPLOYEE," which shall for this purpose
mean an Employee of Company or any Affiliate (as defined below)), any subsidiary
of Company or any trade or business (whether or not incorporated) which is a
member of a controlled group or which is under common control with Company
within the meaning of Section 414 of the United States Code (an "AFFILIATE"), or
with respect to which Company has liability, are listed in Section 2.11(a) of
the Company Schedule (the "PLANS"). Company has provided to Parent: (i) correct
and complete copies of all documents embodying each Plan and each management,
employment, severance, consulting, relocation, repatriation, expatriation,
visas, work permit, or other agreement, contract or understanding between
Company or any Affiliate and any Employee ("EMPLOYMENT AGREEMENT"), including
(without limitation) all amendments to each such Plan and/or Employment
Agreement, and all material written agreements and contracts relating to each
such Plan; (ii) the most recent summary plan description together with the
summary(ies) of material modifications thereto, if any, with respect to each
Plan; (iii) all Internal Revenue Service (the "IRS") determination, opinion,
notification and/or advisory letters; (iv) all correspondence to or from any
Governmental Entity relating to any Plan; (v) if the Plan is funded, the most
recent annual and periodic accounting of Plan assets; (vi) all material written
agreements and contracts relating to each Plan, including, but not limited to,
administrative service agreements, group annuity contracts and group insurance
contracts, and trust agreements; (vii) all material communications to Employees
relating to any Plan and any proposed Plan, in each case, relating to any
amendments, terminations, establishments, increases or decreases in benefits,
acceleration of payments or vesting schedules, or other events which would
result in any material liability to Company or any Affiliate; (viii) all
policies pertaining to fiduciary liability insurance covering the fiduciaries
for each Plan; (ix) all registration statements, annual reports (Form 11-K and
all attachments thereto) and prospectuses prepared in connection with any Plan;
(x) current financial information with respect to each Plan that is a pension
plan (including copies of cost certificates, actuarial valuation reports,
investment reports disclosing Plan assets and annual information returns); and
(xi) with respect to each Plan that is a pension plan, (A) actuarial assumptions
or employee data, since the most recent actuarial reports which could have a
significant financial impact on the Plan's funded status, and (B) surplus
entitlement or contribution holiday opinion letters received with
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respect to each such Plan and any correspondence relating thereto with
pension regulatory authorities.
(b) Company has performed in all material respects all
obligations required to be performed by it under, is not in default or violation
of, and has no knowledge of any default or violation by any other party to each
Plan, and each Plan has been maintained and administered in all material
respects in compliance with its terms and with the requirements prescribed by
any and all statutes, orders, rules and regulations which are applicable to each
such Plan. No suit, action or other litigation (excluding claims for benefits
incurred in the ordinary course of Plan activities) has been brought, or to the
knowledge of Company is threatened, against or with respect to any such Plan.
There are no audits, inquiries or proceedings pending or, to the knowledge of
Company, threatened by any Governmental Entity with respect to any Plan. All
contributions, reserves or premium payments required to be made or accrued as of
the date hereof to any Plan has been timely made or accrued. Company does not
have any plan or commitment to establish any new Plan, to modify any Plan
(except to the extent required by law or to conform any such Plan to the
requirements of any applicable law, in each case as previously disclosed to
Parent in writing, or as required by this Agreement), or to enter into any new
Plan. Each Plan (other than any stock option plan) can be amended, terminated or
otherwise discontinued after the Effective Time in accordance with its terms,
without liability to Parent, Company or any of its Affiliates (other than
ordinary administration expenses and expenses for benefits accrued but not yet
paid). No unfunded liabilities or solvency deficiencies exist for any Plan. With
respect to any Plan that is a pension plan, no material changes have occurred
which would affect the actuarial valuation reports, and with respect to all
Plans, no material changes have occurred which would affect the financial
statements provided to Parent. Each Employee Plan that is required or intended
to be qualified under applicable law or registered or approved by a Governmental
Entity has been timely qualified, registered or approved, and, to Company's
knowledge, nothing has occurred since the date of the last qualification,
registration or approval to adversely affect, or cause, the appropriate
Governmental Entity to revoke such qualification, registration or approval.
(c) Neither Company nor any of its Affiliates has at any time
ever maintained, established, sponsored, participated in, or contributed to any
plan subject to Title IV of ERISA or Section 412 of the United States Code and
at no time has Company or any of its Affiliates contributed to or been requested
to contribute to any "multiemployer plan," as such term is defined in ERISA or
any similar provision of Canadian law or to any plan described in Section 413(c)
of the United States Code or any similar provision of Canadian law. Neither
Company nor any of its Affiliates, nor any officer or director of Company or any
of its Affiliates is subject to any liability or penalty under Section 4975
through 4980B of the United States Code or Title I of ERISA or any similar
provision of Canadian law. No "prohibited transaction," within the meaning of
Section 4975 of the United States Code or Sections 406 and 407 of ERISA or any
similar provision of Canadian law, and not otherwise exempt under Section 4975
of the United States Code, and Section 408 of ERISA or any similar provision of
Canadian law, has occurred with respect to any Plan which could subject Company
or its Affiliates to material liabilities.
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(d) Neither Company nor any of its affiliates has, prior to
the Effective Time and in any material respect, violated any of the health
continuation requirements of COBRA, the requirements of the Family Medical Leave
Act of 1993, as amended, the requirements of the Women's Health and Cancer
Rights Act, as amended, the requirements of the Newborns' and Mothers' Health
Protection Act of 1996, as amended, the requirements of the Health Insurance
Portability and Accountability Act of 1996, as amended, or any similar
provisions of state law or Canadian law applicable to Employees of Company or
any of its Affiliates. None of the Plans promises or provides retiree medical
benefits to any person except as required by applicable law, and neither Company
nor any of its affiliates has represented, promised or contracted (whether in
oral or written form) to provide such retiree benefits to any Employee or
dependent thereof, except to the extent required by statute; to the extent that
Company or any of its affiliates provides retiree benefits, no unfunded
obligations to provide such coverage or benefits exists.
(e) Neither the execution and delivery of this Agreement, nor
the consummation of the transactions contemplated hereby will (either alone or
upon the occurrence of any additional or subsequent events) (i) constitute an
event under any Plan, Employee Agreement, trust or loan that will or may result
in any payment (whether of severance pay or otherwise), acceleration,
forgiveness of indebtedness, vesting, distribution, increase in benefits or
obligation to fund benefits with respect to any Employee; or (ii) result in any
payment or benefit which will or may be made by the Company or its Affiliates
with respect to any Employee will be characterized as a "parachute payment,"
within the meaning of Section 280G(b)(2) of the United States Code or any
similar provision of Canadian law.
(f) Each International Employee Plan (as defined below) has
been established, maintained and administered in material compliance with its
terms and conditions and with the requirements prescribed by any and all
statutory or regulatory laws that are applicable to such International Employee
Plan. Furthermore, no International Employee Plan has unfunded liabilities that,
as of the Effective Time, will not be offset by insurance or fully accrued.
Except as required by law, no condition exists that would prevent the Company or
Parent from terminating or amending any International Employee Plan at any time
for any reason without liability to the Company, Parent or any of their
respective Affiliates. For purposes of this Section, "INTERNATIONAL EMPLOYEE
PLAN" shall mean each Plan that has been adopted or maintained by the Company or
any of its Affiliates, whether informally or formally, or with respect to which
the Company or any Affiliate will or may have any liability, for the benefit of
Employees outside the United States.
2.12 LABOR MATTERS.
(a) (i) There are no material controversies, claims, labor
disputes or grievances pending or, to the knowledge of each of Company and its
respective subsidiaries, threatened, between Company or any of its subsidiaries
and any of their respective current or former employees directors or consultants
(collectively, "Employees"); (ii) as of the date of this Agreement, neither
Company nor any of its subsidiaries is a party to any collective bargaining
agreement or other labor union contract applicable to persons employed by
Company or its subsidiaries nor does Company or
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its subsidiaries know of any activities or proceedings of any labor union to
organize any such employees; and (iii) as of the date of this Agreement,
neither Company nor any of its subsidiaries has any knowledge of any strikes,
slowdowns, work stoppages or lockouts, or threats thereof, by or with respect
to any Employees of Company or any of its subsidiaries.
(b) Company and each of its subsidiaries: (i) is in material
compliance with all applicable foreign, federal, provincial, state and local
laws, rules and regulations respecting employment, employment practices, terms
and conditions of employment and wages and hours, in each case, with respect to
Employees, (ii) has withheld and reported all amounts required by law or by
agreement to be withheld and reported with respect to wages, salaries and other
payments to Employees, (iii) is not liable for any arrears of wages or any taxes
or any penalty for failure to comply with any of the foregoing, and (iv) is not
liable for any payment to any trust or other fund governed by or maintained by
or on behalf of any governmental authority, with respect to unemployment
compensation benefits, pension plans, health tax, workplace safety and
insurance, social security or other benefits or obligations for Employees (other
than routine payments to be made in the normal course of business and consistent
with past practice). There are no pending or, to the knowledge of Company,
threatened, or reasonably anticipated claims or actions against Company under
any worker's compensation policy, workplace safety and insurance or long-term
disability policy.
(c) To the knowledge of Company, no shareholder, officer,
employee or consultant of Company or any of its subsidiaries is obligated under
any contract or agreement subject to any judgment, decree or order of any court
or administrative agency that would interfere with such person's efforts to
promote the interests of Company and its subsidiaries or that would interfere
with Company's and its subsidiaries' business. Neither the execution nor
delivery of this Agreement, nor the carrying on of Company's business as
presently conducted or proposed to be conducted nor any activity of such
officers, directors, employees or consultants in connection with the carrying on
of Company's business as presently conducted or currently proposed to be
conducted, will to the knowledge of Company conflict with or result in a breach
of the terms, conditions or provisions of, or constitute a default under, any
contract or agreement under which any of such officers, directors, employees or
consultants is now bound.
2.13 CIRCULAR DISCLOSURE. None of the information supplied or to be
supplied by Company for inclusion or incorporation by reference in the Circular
to be filed with the Court by Company pursuant to Section 5.1(a) hereof will, at
the date mailed to the shareholders of Company, at the time of the shareholders
meeting of Company (the "COMPANY SHAREHOLDERS MEETING") in connection with the
transactions contemplated hereby and as of the Effective Time, contain any
untrue statement of a material fact or omit to state any material fact required
to be stated therein or necessary in order to make the statements therein, in
light of the circumstances under which they are made, not misleading, or contain
any misrepresentations (as such term is defined the Securities Act (Ontario) as
of each such date or time. The Circular will comply as to form in all material
respects with the requirements of the CBCA, the Interim Order, the Canadian
Securities Legislation and the TSE.
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2.14 RESTRICTIONS ON BUSINESS ACTIVITIES. There is no agreement,
commitment, judgment, injunction, order or decree binding upon Company or its
subsidiaries or to which Company or any of its subsidiaries is a party which has
or could reasonably be expected to have the effect of prohibiting or materially
impairing any business practice of Company or any of its subsidiaries, any
acquisition of property by Company or any of its subsidiaries or the conduct of
business by Company or any of its subsidiaries as currently conducted.
2.15 TITLE TO PROPERTY. Neither Company nor any of its subsidiaries
owns any material real property. Company and each of its subsidiaries have good
and defensible title to all of their material properties and assets, free and
clear of all liens, charges and encumbrances except liens for taxes not yet due
and payable and such liens or other imperfections of title, if any, as do not
materially detract from the value of or materially interfere with the present
use of the property affected thereby; and all leases pursuant to which Company
or any of its subsidiaries lease from others material real or personal property
are in good standing, valid and effective in accordance with their respective
terms, and there is not, under any of such leases, any existing material default
or event of default of Company or any of its subsidiaries or, to the Company's
knowledge, any other party (or any event which with notice or lapse of time, or
both, would constitute a material default and in respect of which Company or
subsidiary has not taken adequate steps to prevent such default from occurring).
All the plants, structures and equipment of Company and its subsidiaries, except
such as may be under construction, are in good operating condition and repair,
in all material respects.
2.16 TAXES.
(a) DEFINITION OF TAXES. For the purposes of this Agreement,
"TAX" or "TAXES" refers to any and all federal, provincial, regional, state,
municipal, local and foreign taxes, assessments and other governmental charges,
duties, impositions and liabilities relating to taxes, including taxes based
upon or measured by gross receipts, income, profits, sales, use and occupation,
and value added, ad valorem, transfer, franchise, withholding, payroll,
recapture, employment, excise, goods and services, workers' compensation and
property taxes, together with all interest, penalties and additions imposed with
respect to such amounts and any obligations under any agreements or arrangements
with any other person with respect to such amounts and including any liability
for taxes of a predecessor entity.
(b) TAX RETURNS AND AUDITS.
(i) Company and each of its subsidiaries have timely
filed all federal, state, local and foreign returns, estimates, declarations,
information statements and reports ("RETURNS") relating to Taxes required to be
filed by Company and each of its subsidiaries with any Tax authority, except
such Returns which are not material to Company. Company and each of its
subsidiaries have paid all Taxes shown to be due on such Returns.
(ii) Company and each of its subsidiaries as of the
Effective Time will have withheld with respect to its employees all Taxes and
other Taxes required to be withheld.
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(iii) Neither Company nor any of its subsidiaries has
been delinquent in the payment of any material Tax nor is there any material Tax
deficiency outstanding, proposed or assessed against Company or any of its
subsidiaries, nor has Company or any of its subsidiaries executed any unexpired
waiver of any statute of limitations on or extending the period for the
assessment or collection of any Tax.
(iv) No audit or other examination of any Return of
Company or any of its subsidiaries by any Tax authority is presently in
progress, nor has Company or any of its subsidiaries been notified of any
request for such an audit or other examination.
(v) No adjustment relating to any Returns filed by
Company or any of its subsidiaries has been proposed in writing, formally or
informally, by any Tax authority to Company or any of its subsidiaries or any
representative thereof.
(vi) Neither Company nor any of its subsidiaries has
any liability for any unpaid Taxes which has not been accrued for or reserved on
Company balance sheet dated October 31, 1999 in accordance with Canadian gaap,
whether asserted or unasserted, contingent or otherwise, other than any
liability for unpaid Taxes that may have accrued since October 31, 1999 in
connection with the operation of the business of Company and its subsidiaries in
the ordinary course.
(vii) There is no contract, agreement, plan or
arrangement to which Company or any of its subsidiaries is a party as of the
date of this Agreement, including but not limited to the provisions of this
Agreement, covering any employee or former employee of Company or any of its
subsidiaries that, individually or collectively, would reasonably be expected to
give rise to the payment of any amount that would not be deductible pursuant to
Sections 280G, 404 or 162(m) of the United States Code. There is no contract,
agreement, plan or arrangement to which Company or any of its subsidiaries is a
party or by which it is bound to compensate any individual for excise taxes paid
pursuant to Section 4999 of the United States Code.
(viii) Neither Company nor any of its subsidiaries
has filed any consent agreement under Section 341(f) of the United States Code
or agreed to have Section 341(f)(2) of the United States Code apply to any
disposition of a subsection (f) asset (as defined in Section 341(f)(4) of the
United States Code) owned by Company or any of its subsidiaries.
(ix) Neither Company nor any of its subsidiaries is
party to or has any obligation under any tax-sharing, tax indemnity or tax
allocation agreement or arrangement.
(x) Company has (a) never been a member of an
affiliated group (within the meaning of United States Code Section 1504(a))
filing a consolidated federal income Tax Return (other than a group the common
parent of which was Company) and (b) no liability for the Taxes of any person
(other than Company or any of its Subsidiaries) under United States Treas.
Reg. Section 1.1502-6 (or any similar provision of state, local or foreign law),
as a transferee or successor, by contract, or otherwise.
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(xi) None of Company's or its subsidiaries' assets
are tax exempt use property within the meaning of Section 168(h) of the United
States Code.
(xii) Neither Company nor any of its subsidiaries has
distributed the shares of any corporation in a transaction satisfying the
requirements of Section 355 of the United States Code. The shares of neither
Company nor any of its subsidiaries has been distributed in a transaction
satisfying the requirements of Section 355 of the United States Code.
(xiii) To Company's knowledge, no circumstances exist
which would make Company or any subsidiary subject to the application of any of
Sections 79 to 80.04 of the Income Tax Act (Canada). Neither Company nor any of
its subsidiaries have acquired property or services from or disposed of property
or provided services to, a person with whom it does not deal at arm's length
(within the meaning of the Income Tax Act (Canada)) for an amount that is other
than the fair market value of such property or services, or has been deemed to
have done so for purposes of the Income Tax Act (Canada).
(xiv) Company has not deducted any material amounts
in computing its income in a taxation year which may be included in a subsequent
taxation year under Section 78 of the Income Tax Act (Canada).
2.17 ENVIRONMENTAL MATTERS.
(a) HAZARDOUS MATERIAL. Except as would not result in
liability to Company or any of its subsidiaries, no underground storage tanks
and no amount of any substance that has been designated by any Governmental
Entity or by applicable federal, provincial, regional, state, municipal, or
local law to be radioactive, toxic, hazardous or otherwise a danger to health or
the environment, including, without limitation, PCBs, asbestos, petroleum,
urea-formaldehyde and all substances listed as hazardous substances or
contaminants pursuant to the Environmental Protection Act (Ontario) or the
United States Comprehensive Environmental Response, Compensation, and Liability
Act of 1980, as amended, or defined as a hazardous waste pursuant to the United
States Resource Conservation and Recovery Act of 1976, as amended, and the
regulations promulgated pursuant to said laws, but excluding office and
janitorial supplies (a "HAZARDOUS MATERIAL") are present, as a result of the
actions of Company or any of its subsidiaries or any affiliate of Company, or,
to Company's knowledge, as a result of any actions of any third party or
otherwise, in, on or under any property, including the land and the
improvements, ground water and surface water thereof, that Company or any of its
subsidiaries has at any time owned, operated, occupied or leased.
(b) HAZARDOUS MATERIALS ACTIVITIES. Except as would not result
in a material liability to Company (in any individual case or in the aggregate)
(i) neither Company nor any of its subsidiaries has transported, stored, used,
manufactured, disposed of, released or exposed its employees or others to
Hazardous Materials in violation of any law in effect on or before the Closing
Date, and (ii) neither Company nor any of its subsidiaries has disposed of,
transported, sold, used, released, exposed its employees or others to or
manufactured any product containing a Hazardous Material (collectively
"HAZARDOUS MATERIALS ACTIVITIES") in violation of any rule, regulation, treaty
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or statute promulgated by any Governmental Entity in effect prior to or as of
the date hereof to prohibit, regulate or control Hazardous Materials or any
Hazardous Material Activity.
(c) PERMITS. Company and its subsidiaries currently hold all
environmental approvals, permits, licenses, clearances and consents (the
"COMPANY ENVIRONMENTAL PERMITS") necessary for the conduct of Company's and its
subsidiaries' Hazardous Material Activities and other businesses of Company and
its subsidiaries as such activities and businesses are currently being
conducted.
(d) ENVIRONMENTAL LIABILITIES. No action, proceeding,
revocation proceeding, amendment procedure, writ or injunction is pending, and
to the Company's knowledge, no action, proceeding, revocation proceeding,
amendment procedure, writ or injunction has been threatened by any Governmental
Entity against Company or any of its subsidiaries in a writing delivered to
Company or any of its subsidiaries concerning any Company Environmental Permit,
Hazardous Material or any Hazardous Materials Activity of the Company or any of
its subsidiaries. The Company is not aware of any fact or circumstance which
could involve Company or any of its subsidiaries in any environmental litigation
or impose upon Company any material environmental liability.
(e) COMPLIANCE WITH ENVIRONMENTAL LAWS. Company, the operation
of its business, the property and assets owned, leased or used by Company and
the use, maintenance and operation thereof have been and are in compliance with
all Environmental Laws. Company has complied in all material respects with all
reporting and monitoring requirements under all Environmental Laws. Company has
not received any notice of any non-compliance with any Environmental Laws, and
Company has never been convicted of an offense for non-compliance with any
Environmental Laws or been fined or otherwise sentenced or settled such
prosecution short of conviction.
(f) DEFINITION OF ENVIRONMENTAL LAWS. As used herein,
"Environmental Laws" shall mean all applicable statutes, regulations,
ordinances, by-laws, and codes and all international treaties and agreements,
now or hereafter in existence in Canada (whether federal, provincial or
municipal) and, to the extent applicable to the conduct of Company's business in
the United States (whether federal, state or local) or any other jurisdiction in
which Company carries on business relating to the protection and preservation of
the environment, occupational health and safety, product safety or product
liability including, without limitation, the Comprehensive Environmental
Response, Compensation and Liability Act of 1980, as amended; the Resource
Conservation and Recovery Act of 1976, as amended; the Federal Water Pollution
Control Act, as amended; the Clean Air Act, as amended; the Environmental
Protection Act, R.S.O. 1990, c E.19 (Ontario), as amended; the Canadian
Environmental Protection Act, R.S.C. 1985, C. 16 (4th Supp.), as amended; and
the regulations promulgated pursuant to such laws.
2.18 BROKERS. With the exception of the fees payable to Deutsche Banc
Alex. Brown under its engagement letter with Company dated January 19, 2000 (a
copy of which has been provided to
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Parent), Company has not incurred, nor will it incur, directly or indirectly,
any liability for brokerage or finders fees or agent's commissions or any
similar charges in connection with this Agreement or any transaction
contemplated hereby.
2.19 INTELLECTUAL PROPERTY. For the purposes of this Agreement, the
following terms have the following definitions:
"INTELLECTUAL PROPERTY" shall mean any or all of the following and all
Canadian, United States and foreign common law and statutory rights in,
arising out of, or associated therewith: (i) patents and applications
therefor and all reissues, divisions, renewals, extensions,
provisionals, continuations and continuations-in-part thereof
("PATENTS"); (ii) inventions (whether patentable or not), invention
disclosures, improvements, trade secrets, proprietary information, know
how, technology, technical data and customer lists, formulae and all
documentation relating to any of the foregoing; (iii) copyrights,
copyrights registrations and applications therefor, and all other
rights corresponding thereto throughout the world; (iv) domain names,
uniform resource locators ("URLs") and other names and locators
associated with the Internet ("DOMAIN NAMES"); (v) industrial designs
and any registrations and applications therefor; (vi) trade names,
logos, common law trademarks and service marks, trademark and service
mark registrations and applications therefor ("Trademarks"); (vii) all
databases and data collections and all rights therein; (viii) all moral
and economic rights of authors and inventors, however denominated, (ix)
mask works, mask work registrations and applications therefor; (x)
computer software including source code, object code, firmware,
development tools, files, records and data, as well as all media on
which any of the foregoing is recorded; (xi) slogans, packaging
designs, and (xii) any similar or equivalent rights to any of the
foregoing (as applicable), and all goodwill associated therewith
throughout the world.
"COMPANY INTELLECTUAL PROPERTY" shall mean any Intellectual Property
that is owned by, or exclusively licensed to, Company and it
subsidiaries.
"REGISTERED INTELLECTUAL PROPERTY" means all Canadian, United States
and foreign Intellectual Property that is the subject of an
application, certificate, filing, registration or other document
issued, filed with, or recorded by any private, state, government or
other legal authority.
"COMPANY REGISTERED INTELLECTUAL PROPERTY" means all of the Registered
Intellectual Property owned by, or filed in the name of, the Company or
any of its subsidiaries.
(a) Section 2.19(a) of the Company Schedule is a complete and
accurate list of all Company Registered Intellectual Property and specifies,
where applicable, the jurisdictions in which each such item of Company
Registered Intellectual Property has been issued or registered the date of
issue, registration or the like, the expiry date of such registration, if any,
the next due date for payment of any registration, renewal or maintenance fee
and lists any proceedings or actions before
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any court or tribunal (including the Canadian or United States Patent and
Trademark Offices (the "PTO") or equivalent authority anywhere in the world)
related to any of the Company Registered Intellectual Property.
(b) Section 2.19(b) of the Company Schedule is a complete and
accurate list (by name and version number) of all products or service offerings
of Company or any of its subsidiaries ("COMPANY PRODUCTS") that have been
distributed or provided in the [January 1, 1999] year period preceding the date
hereof or which Company or any of its subsidiaries currently intends to
distribute or provide in the future, including any products or service offerings
under development.
(c) No Company Intellectual Property or Company Product is
subject to any proceeding or outstanding decree, order, judgment, contract,
license, agreement, or stipulation restricting in any material manner the use,
transfer, or licensing thereof by Company or any of its subsidiaries, or which
may affect the validity, use or enforceability of such Company Intellectual
Property or Company Product.
(d) Each item of Company Registered Intellectual Property is
valid and subsisting, all necessary registration, maintenance and renewal fees
currently due in connection with such Company Registered Intellectual Property
have been made and all necessary documents, recordations and certificates in
connection with such Company Registered Intellectual Property have been filed
with the relevant patent, copyright, trademark or other authorities in Canada,
the United States or foreign jurisdictions, as the case may be, for the purposes
of maintaining such Company Registered Intellectual Property.
(e) Section 2.19(e) of the Company Schedule is a complete and
accurate list of all Company Registered Intellectual Property which is the
subject of an application or filing but which has not yet been granted, issued
or otherwise registered by the applicable authority, all of which is currently
being processed in the ordinary course, and actions that are required to be
taken by Company within ninety (90) days of the date hereof with respect to any
of the Company Registered Intellectual Property.
(f) Company owns and has good and exclusive title to, or is
the exclusive licensee of each material item of Company Intellectual Property
owned or licensed by it free and clear of any lien or encumbrance (subject to
non-exclusive licenses and related restrictions granted in the ordinary course
which are listed on the Company Schedule). Without limiting the foregoing: (i)
Company is the exclusive owner or is the exclusive licensee of all Trademarks
used in connection with the operation or conduct of the business of Company and
its subsidiaries, including the sale, distribution or provision of any Company
Products by Company or its subsidiaries; (ii) Company owns exclusively, or is
the exclusive licensee of and has good title to, all copyrighted works that are
Company Products or which Company or any of its subsidiaries otherwise purports
to own or license; (iii) to the extent that any Patents would be infringed by
any Company Products, Company is the exclusive owner of such Patents.
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(g) To the extent that any Intellectual Property has been
developed or created independently or jointly by a third party for Company or
any of its subsidiaries or is incorporated into any of the Company Intellectual
Property or any of the Company Products, Company has a written agreement with
such third party with respect thereto and Company thereby either (i) has
obtained ownership of, and is the exclusive owner of all such third party's
Intellectual Property (including the right to seek past and future damages with
respect to such Intellectual Property) in such work, material or invention by
operation of law or by valid assignment, to the fullest extent it is legally
possible to do so or (ii) has obtained a perpetual, non-terminable license
(sufficient for the conduct of its business as currently conducted and as
proposed to be conducted). Any such third party waived its moral rights in any
such Intellectual Property which has been conveyed by such third party to
Company or any of its subsidiaries.
(h) Neither Company nor any of its subsidiaries has
transferred ownership of, or granted any exclusive license with respect to, any
Intellectual Property that is material Company Intellectual Property used or
proposed to be used in the conduct of Company's business to any third party.
None of Company's rights in material Company Intellectual Property has lapsed or
entered the public domain.
(i) Section 2.19(i) of the Company Schedule lists all material
contracts, licenses and agreements to which Company or any of its subsidiaries
is a party: (i) with respect to Company Intellectual Property licensed or
transferred to any third party (other than end-user licenses in the ordinary
course which are substantially identical to Company's standard form of license
agreement attached under Section 2.19 of the Company Schedule; or (ii) pursuant
to which a third party has licensed or transferred any material Intellectual
Property to Company. Any such end-user licenses granted in the ordinary course
noted above have been only in respect of object code versions of the software
comprised in the Intellectual Property, and no third party has rights in or to
any source code comprised in the Intellectual Property.
(j) All contracts, licenses and agreements relating to either
(i) Company Intellectual Property or (ii) Intellectual Property of a third party
licensed to Company or any of its subsidiaries, are in full force and effect.
The consummation of the transactions contemplated by this Agreement will neither
violate nor result in the breach, modification, cancellation, termination or
suspension of such contracts, licenses and agreements. Each of Company and its
subsidiaries is in material compliance with, and has not materially breached any
term of any such contracts, licenses and agreements and, to the knowledge of
Company, all other parties to such contracts, licenses and agreements are in
compliance with, and have not materially breached any term of, such contracts,
licenses and agreements. Following the Closing Date, Company will be permitted
to exercise all of its rights under such contracts, licenses and agreements to
the same extent Company and its subsidiaries would have been able to had the
transactions contemplated by this Agreement not occurred and without the payment
of any additional amounts or consideration other than ongoing fees, royalties or
payments which Company would otherwise be required to pay. Neither this
Agreement nor the transactions contemplated by this Agreement will to Company's
knowledge, result in (i) Parent's granting to any third party any right to or
with respect to any material Intellectual
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Property right owned by, or licensed to, it, (ii) Parent's being bound by, or
subject to, any non-compete or other material restriction on the operation or
scope of its business, or (iii) Parent's being obligated to pay any royalties
or other material amounts to any third party in excess of those payable by
Parent prior to the Closing.
(k) The operation of the business of Company and its
subsidiaries as such business currently is conducted, including (i) Company's
and its subsidiaries' design, development, manufacture, distribution,
reproduction, marketing or sale of the products or services of Company and its
subsidiaries (including Company Products ) and (ii) Company's use of any
product, device or process, has not, does not and, to its knowledge, will not
infringe or misappropriate the Intellectual Property of any third party or
constitute unfair competition or trade practices under the laws of any
jurisdiction or violates the rights of any person (including rights to privacy
or publicity).
(l) Neither Company nor any of its subsidiaries has received
notice from any third party that the operation of the business of Company or any
of its subsidiaries or any act, product or service of Company or any of its
subsidiaries, infringes or misappropriates the Intellectual Property of any
third party or constitutes unfair competition or trade practices under the laws
of any jurisdiction, or violates the rights of any person (including rights to
privacy or publicity). No Company Intellectual Property or product, technology
or service of Company or its subsidiaries is subject to any proceeding or
outstanding decree, order, judgment, agreement or stipulation that restricts in
any manner the use, transfer or licensing thereof by Company or its subsidiaries
or may affect the validity, use or enforceability of such Company Intellectual
Property.
(m) To the knowledge of Company, no person has or is
infringing or misappropriating any Company Intellectual Property.
(n) Company and each of its subsidiaries has taken reasonable
steps in accordance with normal industry practice to protect Company's and its
subsidiaries' rights in confidential information and trade secrets of the
Company or its subsidiaries that Company wishes to protect or any trade secrets
or confidential information of third parties provided to Company or any of its
subsidiaries, and, without limiting the foregoing, each of Company and its
subsidiaries has and uses its best efforts to enforce a policy requiring each
employee and contractor to execute a proprietary information/confidentiality
agreement substantially in the form provided to Parent and all current and
former employees and contractors of Company and any of its subsidiaries have
executed such an agreement, except where the failure to do so is not reasonably
expected to be material to Company. As a matter of contract or otherwise by law,
no current or former employee, consultant or contractor of Company or any
subsidiary has rights to any Company Intellectual Property and each has waived
his or her moral rights in any Company Intellectual Property.
(o) All of the Company Products (i) record, store, process,
calculate and present calendar dates falling on and after (and if applicable,
spans of time including) January 1, 2000, and calculate any information
dependent on or relating to such dates in the same manner, and with the same
functionality, data integrity and performance, as the Company Products recorded,
stored, processed, calculated and presented calendar dates on or before December
31, 1999, or calculated
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any information dependent on or relating to such dates (collectively, "YEAR
2000 COMPLIANT"), and (ii) lost no functionality with respect to the
introduction of records containing dates falling on or after January 1, 2000.
All of Company's or its subsidiaries' Information Technology (as defined
below) is Year 2000 Compliant, and did not cause an interruption in the
ongoing operations of the Company's or any of its subsidiaries' business on
or after January 1, 2000. For purposes of the foregoing, the term
"INFORMATION TECHNOLOGY" shall mean and include all software, hardware,
firmware, telecommunications systems, network systems, embedded systems and
other systems, components and/or services (other than general utility
services including gas, electric, telephone and postal) that are owned or
used by Company or any of its subsidiaries in the conduct of their business,
or purchased by Company or any of its subsidiaries from third-party suppliers.
(p) There are neither contracts, licenses nor agreements
between either Company or any of its subsidiaries on the one hand and any other
person on the other with respect to Company Intellectual Property under which
there is any dispute known to Company or any of its subsidiaries regarding the
scope of such agreement or performance under such agreement including with
respect to any payments to be made or received by Company or any of its
subsidiaries thereunder.
(q) Neither Company nor any of its subsidiaries is obligated
to pay any royalties or other compensation to any person in respect of its
ownership, use or license of any of the Company Intellectual Property.
2.20 AGREEMENTS, CONTRACTS AND COMMITMENTS. Neither Company nor any of
its subsidiaries is a party to or is bound by:
(a) any employment or consulting agreement, contract or
commitment with any officer, director, Company employee currently earning an
annual salary in excess of (U.S.) $55,000 or member of Company's Board of
Directors, other than those that are terminable by Company or any of its
subsidiaries on no more than thirty (30) days' notice without liability or
financial obligation to the Company;
(b) any agreement or plan, including, without limitation, any
stock option plan, shares appreciation right plan or stock purchase plan, any of
the benefits of which will be increased, or the vesting of benefits of which
will be accelerated, by the occurrence of any of the transactions contemplated
by this Agreement or the value of any of the benefits of which will be
calculated on the basis of any of the transactions contemplated by this
Agreement;
(c) any material agreement of indemnification or any guaranty
other than any agreement of indemnification entered into in connection with the
sale or license of software products in the ordinary course of business;
(d) any material agreement, contract or commitment containing
any covenant limiting in any respect the right of Company or any of its
subsidiaries to engage in any line of business or to compete with any person or
granting any exclusive distribution rights;
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(e) any agreement, contract or commitment currently in force
relating to the disposition or acquisition by Company or any of its subsidiaries
after the date of this Agreement of a material amount of assets not in the
ordinary course of business or pursuant to which Company or any of its
subsidiaries has any material ownership interest in any corporation,
partnership, joint venture or other business enterprise other than Company's
subsidiaries;
(f) any dealer, distributor, joint marketing or development
agreement currently in force under which Company or any of its subsidiaries have
continuing material obligations to jointly market any product, technology or
service and which may not be canceled without penalty upon notice of ninety (90)
days or less, or any material agreement pursuant to which Company or any of its
subsidiaries have continuing material obligations to jointly develop any
intellectual property that will not be owned, in whole or in part, by Company or
any of its subsidiaries and which may not be canceled without penalty upon
notice of ninety (90) days or less;
(g) any agreement, contract or commitment currently in force
to provide source code to any third party for any product or technology that is
material to Company and its subsidiaries taken as a whole;
(h) any material agreement, contract or commitment currently
in force to license any third party to manufacture or reproduce any Company
product, service or technology or any agreement, contract or commitment
currently in force to sell or distribute any Company products, service or
technology except agreements with distributors or sales representative in the
normal course of business cancelable without penalty upon notice of ninety (90)
days or less and substantially in the form previously provided to Parent;
(i) any mortgages, indentures, guarantees, loans or credit
agreements, security agreements or other written agreements or instruments
relating to the borrowing of money or extension of credit;
(j) any material settlement agreement entered into within five
(5) years prior to the date of this Agreement; or
(k) any other agreement, contract or commitment that has a
value of (U.S.) $22,000 or more individually.
Neither Company nor any of its subsidiaries, nor to Company's knowledge
any other party to a Company Contract (as defined below), is in breach,
violation or default under, and neither Company nor any of its subsidiaries has
received written notice that it has breached, violated or defaulted under, any
of the material terms or conditions of any of the agreements, contracts or
commitments to which Company or any of its subsidiaries is a party or by which
it is bound that are required to be disclosed in the Company Schedule (any such
agreement, contract or commitment, a "COMPANY CONTRACT") in such a manner as
would permit any other party to cancel or terminate any such Company Contract,
or would permit any other party to seek material damages or other remedies (for
any or all of such breaches, violations or defaults, in the aggregate).
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2.21 INSURANCE. Company maintains insurance policies and fidelity bonds
covering the assets, business, equipment, properties, operations, employees,
officers and directors of Company and its subsidiaries (collectively, the
"INSURANCE POLICIES") which are of the type and in amounts customarily carried
by persons conducting businesses similar to those of Company and its
subsidiaries. There is no material claim by Company or any of its subsidiaries
pending under any of the material Insurance Policies as to which coverage has
been questioned, denied or disputed by the underwriters of such policies or
bonds.
2.22 OPINION OF FINANCIAL ADVISOR. Company has been advised by its
financial advisor, Deutsche Banc Alex. Brown (which advice will be confirmed in
writing to Company prior to the mailing of the Circular) that in its opinion, as
of the date of this Agreement, the Exchange Ratio is fair to the shareholders of
Company from a financial point of view.
2.23 BOARD APPROVAL. The Board of Directors of Company has, as of the
date of this Agreement, unanimously (i) approved, subject to shareholder
approval and approval of the Court, this Agreement, the Stock Option Agreement
and the transactions contemplated hereby and thereby, (ii) determined that the
Arrangement is in the best interests of the shareholders of Company and is on
terms that are fair to such shareholders and (iii) recommended that the
shareholders of Company approve the Continuance and the Arrangement.
2.24 VOTE REQUIRED. Subject to the terms of the Interim Order, the
affirmative vote of not less than 66-2/3% of the votes that holders of the
outstanding Company Common Shares voting on such matter are entitled to vote
with respect to the Continuance Resolution and the Arrangement Resolution is the
only vote of the holders of any class or series of Company's capital stock
necessary to approve this Agreement and the transactions contemplated hereby.
2.25 ISSUANCE AND RESALE OF PARENT COMMON STOCK. The issuance and
exchange of Parent's Common Stock to the shareholders of Company at the
Effective Time under Section 1.4(a) above constitutes an exempt transaction
under Section 3(a)(10) of the United States 1933 Act. In addition, the shares of
Parent Common Stock received in exchange for Company Common Shares at the
Effective Time will be freely transferable under the United States 1933 Act,
except that the shares of Parent Common Stock received in exchange for Company
Common Shares held by persons who are deemed to be "affiliates" (as such term is
defined in the rules and regulations under the United States 1933 Act) of
Company prior to the Effective Time may be resold by them only in transactions
permitted under Rule 145 of the United States 1933 Act or as otherwise permitted
by the United States 1933 Act.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF PARENT AND CANADIAN SUB
Parent and Canadian Sub jointly and severally represent and warrant to
Company and Amalgamation Sub, subject to such exceptions as are specifically
disclosed in writing in the disclosure letter and referencing a specific
representation supplied by Parent to Company dated as of
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the date hereof and certified by a duly authorized officer of Parent (the
"PARENT SCHEDULE"), as follows:
3.1 ORGANIZATION AND QUALIFICATION; SUBSIDIARIES. Each of Parent and
its subsidiaries is a corporation duly organized, validly existing and in good
standing under the laws of the jurisdiction of its incorporation and has the
requisite corporate power and authority to own, lease and operate its assets and
properties and to carry on its business as it is now being conducted, except
where the failure to do so would not, individually or in the aggregate, have a
Material Adverse Effect on Parent.
3.2 AUTHORITY RELATIVE TO THIS AGREEMENT. Each of Parent and Canadian
Sub has all necessary corporate power and authority to execute and deliver this
Agreement and the Stock Option Agreement, and to perform its obligations
hereunder and thereunder and to consummate the transactions contemplated hereby
and thereby. The execution and delivery of this Agreement and the Stock Option
Agreement by Parent and Canadian Sub and the consummation by Parent and Canadian
Sub of the transactions contemplated hereby and thereby have been duly and
validly authorized by all necessary corporate action on the part of Parent and
Canadian Sub, and no other corporate proceedings on the part of Parent or
Canadian Sub are necessary to authorize this Agreement and the Stock Option
Agreement, or to consummate the transactions so contemplated. This Agreement and
the Stock Option Agreement have been duly and validly executed and delivered by
Parent and Canadian Sub and, assuming the due authorization, execution and
delivery by Company and Amalgamation Sub, constitute legal and binding
obligations of Parent and Canadian Sub, enforceable against Parent and Canadian
Sub in accordance with their respective terms. The shares of Parent Common Stock
issued at the Effective Time pursuant to the terms of this Agreement shall be
fully paid and non-assessable.
3.3 NO CONFLICT; REQUIRED FILINGS AND CONSENTS.
(a) The execution and delivery of this Agreement by Parent and
Canadian Sub and the Stock Option Agreement by Parent do not, and the
performance of this Agreement by Parent and Canadian Sub and the Stock Option
Agreement by Parent shall not, (i) conflict with or violate the Certificate of
Incorporation, Bylaws or equivalent organizational documents of Parent or any of
its subsidiaries, (ii) subject to compliance with the requirements set forth in
Section 3.3(b) below, conflict with or violate any law, rule, regulation, order,
judgment or decree applicable to Parent or any of its subsidiaries or by which
it or their respective properties are bound or affected, or (iii) result in any
breach of or constitute a default (or an event that with notice or lapse of time
or both would become a default) under, or impair Parent's or any such
subsidiary's rights or alter the rights or obligations of any third party under,
or give to others any rights of termination, amendment, acceleration or
cancellation of, or result in the creation of a lien or encumbrance on any of
the properties or assets of Parent or any of its subsidiaries pursuant to, any
material note, bond, mortgage, indenture, contract, agreement, lease, license,
permit, franchise or other instrument or obligation to which Parent or any of
its subsidiaries is a party or by which Parent or any of its subsidiaries or its
or any of their respective properties are bound or affected, except to the
extent
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such conflict, violation, breach, default, impairment or other effect could
not in the case of clauses (ii) or (iii) individually or in the aggregate,
reasonably be expected to have a Material Adverse Effect on Parent.
(b) The execution and delivery of this Agreement by Parent and
Canadian Sub and the Stock Option Agreement by Parent do not, and the
performance of this Agreement by Parent and Canadian Sub shall not, require any
consent, approval, authorization or permit of, or filing with or notification
to, any Governmental Entity except (i) for applicable requirements, if any, of
the United States 1933 Act; the United States 1934 Act; the securities laws of
various states within the United States and various provinces of Canada; the
pre-merger notification requirements of the HSR Act and of foreign governmental
entities and the rules and regulations thereunder; the rules and regulations of
Nasdaq; the filing required under the Competition Act (Canada); the filing
required with Industry Canada under the Investment Canada Act (Canada); and (ii)
where the failure to obtain such consents, approvals, authorizations or permits,
or to make such filings or notifications, (x) would not prevent consummation of
the Arrangement or otherwise prevent Parent or Canadian Sub from performing
their respective obligations under this Agreement or (y) could not, individually
or in the aggregate, reasonably be expected to have a Material Adverse Effect on
Parent.
(c) Parent, together with its affiliates, does not have assets
in Canada in the aggregate as at March 31, 1999, or gross revenues from sales
in, from or into for the year ended March 31, 1999, in, from or into Canada,
that exceed in any such case $350,000,000, respectively, in aggregate value as
determined in accordance with the Notifiable Transaction Regulations promulgated
under the Competition Act (Canada). Assuming the accuracy of the representations
and warranties contained in Section 2.5(c), there is no pre-notification
requirement of Parent under the Competition Act (Canada) in connection with the
Arrangement.
3.4 SEC FILINGS; FINANCIAL STATEMENTS.
(a) Parent has made available to Company a correct and
complete copy of each report, schedule, registration statement and definitive
proxy statement filed by Parent with the SEC on or after March 31, 1998 (the
"PARENT SEC REPORTS"), which are all the forms, reports and documents required
to be filed by Parent with the SEC since March 31, 1998. The Parent SEC Reports
(A) were prepared in accordance with the requirements of the United States 1933
Act or the United States 1934 Act, as the case may be, and (B) did not at the
time they were filed (or if amended or superseded by a filing prior to the date
of this Agreement, then on the date of such filing) contain any untrue statement
of a material fact or omit to state a material fact required to be stated
therein or necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading. None of Parent's
subsidiaries is required to file any reports or other documents with the SEC.
(b) Each set of consolidated financial statements (including,
in each case, any related notes thereto) contained in the Parent SEC Reports was
prepared in accordance with U.S. gaap applied on a consistent basis throughout
the periods involved (except as may be indicated in the
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notes thereto or, in the case of unaudited statements, do not contain
footnotes as permitted by Form 10-Q of the United States 1934 Act) and each
fairly presents in all material respects the consolidated financial position
of Parent and its subsidiaries at the respective dates thereof and the
consolidated results of its operations and cash flows for the periods
indicated, except that the unaudited interim financial statements were or are
subject to normal adjustments which were not or are not expected to be
material in amount.
(c) Since December 31, 1999, the date of the balance sheet
included in Parent's report on Form 10-Q filed with the SEC for the quarter
ended December 31, 1999, there has not occurred any Material Adverse Effect on
Parent.
3.5 CIRCULAR DISCLOSURE. None of the information supplied or to be
supplied by Parent for inclusion or incorporation by reference in the Circular
will, at the dates mailed to the shareholders of Company, at the time of the
Company Shareholders Meeting and as of the Effective Time, contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary in order to make the statements therein, in light of
the circumstances under which they are made, not misleading. Notwithstanding the
foregoing, Parent makes no representation or warranty with respect to any
information supplied by Company which is contained in the Circular.
3.6 ABSENCE OF LITIGATION. Except as is set forth in the Parent SEC
Reports, there are no claims, actions, suits or proceedings pending or, to the
knowledge of Parent, threatened (or, to the knowledge of Parent, any
governmental or regulatory investigation pending or threatened) against Parent
or any of its subsidiaries or any properties or rights of Parent or any of its
subsidiaries, before any court, arbitrator or administrative, governmental or
regulatory authority or body, domestic or foreign, that are required to be
disclosed in any Parent SEC Report (or as of the date hereof which would be
required to be disclosed in any Parent SEC Report to be filed).
3.7 NO UNDISCLOSED LIABILITIES. Neither Parent nor any of its
subsidiaries has any liabilities (absolute, accrued, contingent or otherwise) of
a nature required to be disclosed on a balance sheet or in the related notes to
the consolidated financial statements prepared in accordance with U.S. gaap
which are, individually or in the aggregate, material to the business, results
of operations or financial condition of Parent and its subsidiaries taken as a
whole, except (i) liabilities provided for in Parent's balance sheet as of
December 31, 1999 or (ii) liabilities incurred since December 31, 1999 in the
ordinary course of business, none of which is material to the business, results
of operations or financial condition of Parent and its subsidiaries, taken as a
whole.
3.8 TSB INTERNATIONAL TAX TREATMENT. In connection with Company's
participation in a stock exchange transaction in accordance with an Exchange
Agreement dated as of July 28, 1999 (the "Exchange Agreement") among Company,
TSB International, Inc. and certain shareholders of TSB International, Inc.,
Parent agrees, on behalf of itself, its subsidiaries and its affiliates, that it
will not file any tax return that reports the exchange transaction in any manner
inconsistent with the tax treatment described in the recitals of the Exchange
Agreement, unless otherwise required by the determination of the United States
Internal Revenue Service.
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3.9 ISSUANCE OF RESALE OF PARENT COMMON STOCK. The issuance and
exchange of Parent's Common Stock to the shareholders of Company at the
Effective Time under Section 1.4(a) above constitutes an exempt transaction
under Section 3(a)(10) of the United States 1933 Act. In addition, the shares of
Parent Common Stock received in exchange for Company Common Shares at the
Effective Time will be freely transferable under the United States 1933 Act,
except that the shares of Parent Common Stock received in exchange for Company
Common Shares held by persons who are deemed to be "affiliates" (as such term is
defined in the rules and regulations under the United States 1933 Act) of
Company prior to the Effective Time may be resold by them only in transactions
permitted under Rule 145 of the United States 1933 Act or as otherwise permitted
by the United States 1933 Act.
ARTICLE IV
CONDUCT PRIOR TO THE EFFECTIVE TIME
4.1 CONDUCT OF BUSINESS BY COMPANY. During the period from the date of
this Agreement and continuing until the earlier of the termination of this
Agreement pursuant to its terms or the Effective Time, Company and each of its
subsidiaries shall, except to the extent that Parent shall otherwise consent in
writing, carry on its business, in the usual, regular and ordinary course, in
substantially the same manner as heretofore conducted and in compliance with all
applicable laws and regulations, pay its debts and taxes when due subject to
good faith disputes over such debts or taxes, pay or perform other material
obligations when due, and use its commercially reasonable efforts consistent
with past practices and policies to (i) preserve intact its present business
organization, (ii) keep available the services of its present officers and
employees and (iii) preserve its relationships with customers, suppliers,
distributors, licensors, licensees, and others with which it has significant
business dealings.
In addition, except as permitted by the terms of this Agreement, and
except as provided in Section 4.1 of the Company Schedule, without the prior
written consent of Parent, during the period from the date of this Agreement and
continuing until the earlier of the termination of this Agreement pursuant to
its terms or the Effective Time, Company shall not do any of the following and
shall not permit its subsidiaries to do any of the following:
(a) Waive any shares repurchase rights, accelerate, amend or
change the period of exercisability of options or restricted shares, or reprice
options granted under any employee, consultant, director or other stock plans or
authorize cash payments in exchange for any options granted under any of such
plans;
(b) Grant any severance or termination pay to any officer or
employee except pursuant to written agreements outstanding, or policies
existing, on the date hereof and as previously disclosed in writing or made
available to Parent, or adopt any new severance plan, or amend or modify or
alter in any manner any severance plan, agreement or arrangement existing on the
date hereof;
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(c) Transfer or license to any person or entity or otherwise
extend, amend or modify any rights to the Company Intellectual Property, or
enter into grants to transfer or license to any person future patent rights,
other than in the ordinary course of business consistent with past practices,
provided that in no event shall Company license on an exclusive basis or sell
any Company Intellectual Property;
(d) Declare, set aside or pay any dividends on or make any
other distributions (whether in cash, shares, equity securities or property) in
respect of any capital stock or split, combine or reclassify any capital stock
or issue or authorize the issuance of any other securities in respect of, in
lieu of or in substitution for any capital stock;
(e) Purchase, redeem or otherwise acquire, directly or
indirectly, any shares of capital stock or other securities of Company or its
subsidiaries, except repurchases of unvested shares at cost in connection with
the termination of the employment relationship with any employee pursuant to
stock option or purchase agreements in effect on the date hereof;
(f) Issue, deliver, sell, authorize, pledge or otherwise
encumber or propose any of the foregoing with respect to, any shares of capital
stock or any securities convertible into shares of capital stock, or
subscriptions, rights, warrants or options to acquire any shares of capital
stock or any securities convertible into shares of capital stock, or enter into
other agreements or commitments of any character obligating it to issue any such
shares or convertible securities, other than (x) the issuance delivery and/or
sale of Company Common Shares pursuant to the exercise of the Warrants and the
exercise of Company Stock Options outstanding as of the date of this Agreement,
and (y) the granting of stock options (and the issuance of Common Shares upon
exercise thereof), in the ordinary course of business and consistent with past
practices;
(g) Cause, permit or propose any amendments to the Company
Charter Documents (or similar governing instruments of any of its subsidiaries);
(h) Acquire or agree to acquire by merging or consolidating
with, or by purchasing any equity interest in or a portion of the assets of, or
by any other manner, any business or any corporation, partnership, association
or other business organization or division thereof, or otherwise acquire or
agree to enter into any joint ventures, strategic partnerships or alliances;
(i) Sell, lease, license, encumber or otherwise dispose of any
properties or assets except sales of inventory in the ordinary course of
business consistent with past practice, except for the sale, lease or
disposition (other than through licensing) of property or assets which are not
material, individually or in the aggregate, to the business of Company and its
subsidiaries;
(j) Incur any indebtedness for borrowed money or guarantee any
such indebtedness of another person, issue or sell any debt securities or
options, warrants, calls or other rights to acquire any debt securities of
Company, enter into any "keep well" or other agreement to maintain any financial
statement condition or enter into any arrangement having the economic effect
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of any of the foregoing other than in connection with the financing of
ordinary course trade payables consistent with past practice;
(k) Adopt or amend any employee benefit plan, policy or
arrangement, any employee stock purchase or employee stock option plan, or enter
into any employment contract or collective bargaining agreement (other than
offer letters and letter agreements entered into in the ordinary course of
business consistent with past practice with employees who are terminable "at
will"), pay any special bonus or special remuneration to any director or
employee, or increase the salaries or wage rates or fringe benefits (including
rights to severance or indemnification) of its directors, officers, employees or
consultants;
(l) (i) 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) other than the payment, discharge, settlement or
satisfaction, in the ordinary course of business consistent with past practice
or in accordance with their terms, or liabilities recognized or disclosed in the
most recent consolidated financial statements (or the notes thereto) of Company
included in the Company Regulatory Reports or incurred since the date of such
financial statements, or (ii) waive the benefits of, agree to modify in any
manner, terminate, release any person from or knowingly fail to enforce any
confidentiality or similar agreement to which Company or any of its subsidiaries
is a party or of which Company or any of its subsidiaries is a beneficiary;
(m) Make any individual or series of related payments outside
of the ordinary course of business in excess of (U.S.) $50,000;
(n) Except in the ordinary course of business consistent with
past practice, modify, amend or terminate any material contract or agreement to
which Company or any subsidiary thereof is a party or waive, delay the exercise
of, release or assign any material rights or claims thereunder;
(o) Enter into, renew or materially modify any contracts,
agreements, or obligations relating to the distribution, sale, license or
marketing by third parties of Company's products or products licensed by Company
other than renewals of existing nonexclusive contracts, agreements or
obligations;
(p) Except as required by Canadian gaap, revalue any of its
assets or make any change in accounting methods, principles or practices;
(q) Incur or enter into any agreement, contract or commitment
requiring Company or any of its subsidiaries to pay in excess of (U.S.) $50,000;
(r) Engage in any action that could reasonably be expected to
cause the Arrangement to fail to qualify as a "reorganization" under Section
368(a) of the United States Code;
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(s) Settle any litigation;
(t) Make any tax election that, individually or in the
aggregate, is reasonably likely to adversely affect in any material respect the
tax liability or tax attributes of Company or any of its subsidiaries or settle
or compromise any material income tax liability;
(u) Agree in writing or otherwise to take any of the actions
described in Section 4.1 (a) through (t) above.
4.2 CONDUCT OF BUSINESS BY PARENT. During the period from the date of
this Agreement and continuing until the earlier of the termination of this
Agreement pursuant to its terms or the Effective Time, except as permitted by
the terms of this Agreement and the Stock Option Agreement, without the prior
written consent of Company, Parent shall not engage in any action that could
reasonably be expected to (i) cause the Arrangement to fail to qualify as a
"reorganization" under Section 368(a) of the United States Code or (ii)
materially delay the closing of the Arrangement.
ARTICLE V
COMPANY SHAREHOLDER APPROVAL
5.1 CIRCULAR; OTHER FILINGS; BOARD RECOMMENDATIONS.
(a) As promptly as practicable after the execution of this
Agreement, Company, Canadian Sub and Parent will prepare, and Company and
Amalgamation Sub will file with the Court, the Circular. Each of Parent and
Company shall provide promptly to the other such information concerning its
business and financial statements and affairs as, in the reasonable judgment of
the providing party or its counsel, may be required or appropriate for inclusion
in the Circular, or in any amendments or supplements thereto, and to cause its
counsel and auditors to cooperate with the other's counsel and auditors in the
preparation of the Circular. Each of Company, Parent, Amalgamation Sub and
Canadian Sub will afford the other parties an opportunity to review all
materials to be submitted to the Court, and shall make all such changes as are
reasonably requested. Each of Company, Amalgamation Sub, Canadian Sub and Parent
will respond to any comments of the Court, and will use its respective
commercially reasonable efforts to have the Interim Order issued as promptly as
practicable after such filing, and Company will cause the Circular to be mailed
to its shareholders at the earliest practicable time after the Interim Order has
been granted by the Court. As promptly as practicable after the date of this
Agreement, each of Company, Amalgamation Sub, Canadian Sub and Parent will
prepare and file any other filings required to be filed by it pursuant to the
requirements of the CBCA, the OBCA, the Interim Order, the Canadian Securities
Legislation, the TSE and any other Canadian, United States or other laws
relating to the Arrangement and the transactions contemplated by this Agreement
(the "OTHER FILINGS"). Each of Company, Amalgamation Sub, Canadian Sub and
Parent will notify the other promptly upon the receipt of any comments from the
Court or its staff or any other government officials and of any request by the
Court or its staff or any other government officials for
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amendments or supplements to the Circular or any Other Filing or for
additional information and will supply the other with copies of all
correspondence between such party or any of its representatives, on the one
hand, and the Court or its staff or any other government officials, on the
other hand, with respect to the Circular, the Arrangement or any Other
Filing. Each of Company, Amalgamation Sub, Canadian Sub and Parent will cause
all documents that it is responsible for filing with the Court or other
regulatory authorities under this Section 5.1(a) to comply in all material
respects with all applicable requirements of law and the rules and
regulations promulgated thereunder. Whenever any event occurs which is
required to be set forth in an amendment or supplement to the Circular or any
Other Filing, Company, Amalgamation Sub, Canadian Sub or Parent, as the case
may be, will promptly inform the other of such occurrence and cooperate in
filing with the Court or its staff or any other government officials, and/or
mailing to shareholders of Company, such amendment or supplement.
(b) Subject to Section 5.2(c), the Circular will include the
unanimous recommendation of the Board of Directors of Company in favor of
approval of the Continuance and the Arrangement.
5.2 MEETING OF COMPANY SHAREHOLDERS.
(a) Promptly after the date hereof, Company will take all
action pursuant to the requirements of the CBCA, the OBCA, the Interim Order,
the Canadian Securities Legislation (and all other applicable securities laws),
the TSE and the Company Charter Documents to convene the Company Shareholders
Meeting to be held as promptly as practicable, and in any event Company will use
its best efforts to convene such meeting not later than March 24, 2000, for the
purpose of voting upon the Continuance and the Arrangement. Subject to Section
5.2(c), Company will use its commercially reasonable efforts to solicit from its
shareholders proxies in favor of the approval of the Continuance and the
Arrangement and will take all other action necessary or advisable to secure the
vote or consent of its shareholders required by the rules of the TSE and the
requirements of the CBCA, the OBCA, the Interim Order, the Canadian Securities
Legislation and all other applicable securities laws to obtain such approvals.
Notwithstanding anything to the contrary contained in this Agreement, Company
may adjourn or postpone the Company Shareholders Meeting to the extent necessary
to ensure that any necessary supplement or amendment to the Circular is provided
to Company's shareholders in advance of a vote on the Continuance and the
Arrangement or, if as of the time for which the Company Shareholders Meeting is
originally scheduled (as set forth in the Circular) there are insufficient
Company Common Shares represented (either in person or by proxy) to constitute a
quorum necessary to conduct the business of the Company Shareholders Meeting.
Company shall ensure that the Company Shareholders Meeting is called, noticed,
convened, held and conducted, and that all proxies solicited by the Company in
connection with the Company Shareholders Meeting are solicited, in compliance
with the CBCA (including, without limitation, the Canadian Securities
Legislation), the OBCA, the Interim Order, the Company Charter Documents, the
rules of the TSE and all other applicable legal requirements. Company's
obligation to call, give notice of, convene and hold the Company Shareholders
Meeting in accordance with this
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Section 5.2(a) shall not be limited to or otherwise affected by the
commencement, disclosure, announcement or submission to Company of any
Acquisition Proposal.
(b) Subject to Section 5.2(c): (i) the Board of Directors of
Company shall unanimously recommend that Company's shareholders vote in favor of
and adopt and approve the Continuance and the Arrangement at the Company
Shareholders Meeting; (ii) the Circular shall include a statement to the effect
that the Board of Directors of Company has unanimously recommended that
Company's shareholders vote in favor of and adopt and approve the Continuance
and the Arrangement at the Company Shareholders Meeting; and (iii) neither the
Board of Directors of Company nor any committee thereof shall withdraw, amend or
modify, or propose or resolve to withdraw, amend or modify in a manner adverse
to Parent, the unanimous recommendation of the Board of Directors of Company
that Company's shareholders vote in favor of and adopt and approve the
Continuance and the Arrangement. For purposes of this Agreement, said
recommendation of the Board of Directors shall be deemed to have been modified
in a manner adverse to Parent if said recommendation shall no longer be
unanimous.
(c) Nothing in this Agreement shall prevent the Board of
Directors of Company from withholding, withdrawing, amending or modifying its
unanimous recommendation in favor of the Continuance and the Arrangement if (i)
a Superior Offer (as defined below) is made to Company and is not withdrawn,
(ii) neither Company nor any of its representatives shall have violated any of
the restrictions set forth in Section 6.2, and (iii) the Board of Directors of
Company concludes in good faith, after consultation with its outside counsel,
that, in light of such Superior Offer, the withholding, withdrawal, amendment or
modification of such recommendation is required in order for the Board of
Directors of Company to comply with its fiduciary obligations to Company's
shareholders under applicable law. Nothing contained in this Section 5.2 shall
limit Company's obligation to hold and convene the Company Shareholders Meeting
(regardless of whether the unanimous recommendation of the Board of Directors of
the Company shall have been withdrawn, amended or modified). For purposes of
this Agreement, "SUPERIOR OFFER" shall mean an unsolicited, bona fide written
offer made by a third party to consummate any of the following transactions: (i)
an amalgamation, consolidation, business combination, recapitalization,
liquidation, dissolution or similar transaction involving Company pursuant to
which the shareholders of Company immediately preceding such transaction hold
less than 51% of the equity interest in the surviving or resulting entity of
such transaction; (ii) a sale or other disposition by Company of assets
(excluding inventory and used equipment sold in the ordinary course of business)
representing in excess of 51% of the fair market value of Company's business
immediately prior to such sale, or (iii) the acquisition by any person or group
(including by way of a tender offer or an exchange offer or issuance by
Company), directly or indirectly, of beneficial ownership or a right to acquire
beneficial ownership of shares representing in excess of 51% of the voting power
of the then outstanding shares of capital stock of Company, in each case on
terms that the Board of Directors of Company determines, in its reasonable
judgment (based on written advice of a financial advisor of nationally
recognized reputation) to be more favorable to Company shareholders from a
financial point of view than the terms of the Arrangement; PROVIDED, HOWEVER,
that any such offer shall not be deemed to be a "Superior Offer" if any
financing required to consummate the transaction contemplated by such offer
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is not committed and is not likely in the judgment of Company's Board of
Directors to be obtained by such third party on a timely basis.
ARTICLE VI
ADDITIONAL AGREEMENTS
6.1 CONFIDENTIALITY; ACCESS TO INFORMATION.
(a) The parties acknowledge that Company and Parent have
previously executed a Mutual Confidentiality Agreement, dated as of December 1,
1999 (the "CONFIDENTIALITY AGREEMENT"), which Confidentiality Agreement will
continue in full force and effect in accordance with its terms.
(b) ACCESS TO INFORMATION. Company and Parent will afford the
other and its respective accountants, counsel and other representatives
reasonable access during normal business hours, upon reasonable notice, to the
properties, books, records and personnel of Company and Parent during the period
prior to the Effective Time to obtain all information concerning the business,
including the status of product development efforts, properties, results of
operations and personnel of Company or Parent , as may be reasonably requested.
No information or knowledge obtained by Parent or Company in any investigation
pursuant to this Section 6.1 will affect or be deemed to modify any
representation or warranty contained herein or the conditions to the obligations
of the parties to consummate the Arrangement.
6.2 NO SOLICITATION.
(a) From and after the date of this Agreement until the
Effective Time or termination of this Agreement pursuant to Article VIII,
Company and its subsidiaries will not, nor will they authorize or permit any of
their respective officers, directors, affiliates or employees or any investment
banker, attorney or other advisor or representative retained by any of them to,
directly or indirectly (i) solicit, initiate, encourage or induce the making,
submission or announcement of any Acquisition Proposal (as defined below), (ii)
participate in any discussions or negotiations regarding, or furnish to any
person any non-public information with respect to, or take any other action to
facilitate any inquiries or the making of any proposal that constitutes or may
reasonably be expected to lead to, any Acquisition Proposal, (iii) engage in
discussions with any person with respect to any Acquisition Proposal, (iv)
subject to Section 5.2(c), approve, endorse or recommend any Acquisition
Proposal or (v) enter into any letter of intent or similar document or any
contract, agreement or commitment contemplating or otherwise relating to any
Acquisition Transaction (as defined below); provided, however, that between the
date on which the Circular is mailed to the shareholders of Company and the date
on which this Agreement is approved by the required Company Shareholder Vote,
this Section 6.2(a) shall not prohibit Company from furnishing nonpublic
information regarding Company and its subsidiaries to, entering into a
confidentiality agreement with or entering into discussions with, any person or
group in response to a Superior Offer submitted by such person or group (and not
withdrawn) if (1) neither Company nor any representative of Company and its
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subsidiaries shall have violated any of the restrictions set forth in this
Section 6.2, (2) the Board of Directors of Company concludes in good faith,
after consultation with its outside legal counsel, that such action is required
in order for the Board of Directors of Company to comply with its fiduciary
obligations to Company's shareholders under applicable law, (3) (x) at least two
days prior to furnishing any such nonpublic information to, or entering into
discussions or negotiations with, such person or group, Company gives Parent
written notice of the identity of such person or group and of Company's
intention to furnish nonpublic information to, or enter into discussions or
negotiations with, such person or group and (y) Company receives from such
person or group an executed confidentiality agreement containing customary
limitations on the use and disclosure of all nonpublic written and oral
information furnished to such person or group by or on behalf of Company, and
(4) contemporaneously with furnishing any such nonpublic information to such
person or group, Company furnishes such nonpublic information to Parent (to the
extent such nonpublic information has not been previously furnished by Company
to Parent). Company and its subsidiaries will immediately cease any and all
existing activities, discussions or negotiations with any parties conducted
heretofore with respect to any Acquisition Proposal. Without limiting the
foregoing, it is understood that any violation of the restrictions set forth in
the preceding two sentences by any officer or director of Company or any of its
subsidiaries or any investment banker, attorney or other advisor or
representative of Company or any of its subsidiaries shall be deemed to be a
breach of this Section 6.2 by Company. In addition to the foregoing, Company
shall (i) provide Parent with at least forty-eight (48) hours prior notice (or
such lesser prior notice as provided to the members of Company's Board of
Directors but in no event less than eight hours) of any meeting of Company's
Board of Directors at which Company's Board of Directors is reasonably expected
to consider a Superior Offer and (ii) provide Parent with at least five (5)
business days prior written notice of a meeting of Company's Board of Directors
at which Company's Board of Directors is reasonably expected to recommend a
Superior Offer to its shareholders and together with such notice a copy of the
definitive documentation relating to such Superior Offer.
For purposes of this Agreement, "ACQUISITION PROPOSAL" shall mean any
offer or proposal (other than an offer or proposal by Parent) relating to any
Acquisition Transaction. For the purposes of this Agreement, "ACQUISITION
TRANSACTION" shall mean any transaction or series of related transactions other
than the transactions contemplated by this Agreement involving: (A) any
acquisition or purchase from Company by any person or group of more than a 10%
interest in the total outstanding voting securities of Company or any of its
subsidiaries or any tender offer or exchange offer that if consummated would
result in any person or group beneficially owning 10% or more of the total
outstanding voting securities of Company or any of its subsidiaries or any
amalgamation, consolidation, business combination, amalgamation, plan of
arrangement or similar transaction involving Company pursuant to which the
shareholders of Company immediately preceding such transaction hold less than
90% of the equity interests in the surviving or resulting or amalgamated entity
of such transaction; (B) any sale, lease (other than in the ordinary course of
business), exchange, transfer, license (other than in the ordinary course of
business), acquisition or disposition of more than 10% of the assets of Company;
or (C) any liquidation or dissolution of Company.
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(b) In addition to the obligations of Company set forth in
paragraph (a) of this Section 6.2, Company as promptly as practicable shall
advise Parent orally and in writing of any request received by Company for
nonpublic information which Company reasonably believes would lead to an
Acquisition Proposal or of any Acquisition Proposal, or any inquiry received by
Company with respect to or which Company reasonably should believe would lead to
any Acquisition Proposal, the material terms and conditions of such request,
Acquisition Proposal or inquiry, and the identity of the person or group making
any such request, Acquisition Proposal or inquiry. Company will keep Parent
informed in all material respects of the status and details (including material
amendments or proposed amendments) of any such request, Acquisition Proposal or
inquiry.
6.3 PUBLIC DISCLOSURE. Parent and Company will consult with each other,
and to the extent practicable, agree, before issuing any press release or
otherwise making any public statement with respect to the Arrangement, this
Agreement or an Acquisition Proposal and will not issue any such press release
or make any such public statement prior to such consultation, except as may be
required by law or any listing agreement with a national securities exchange.
The parties will agree to the text of the joint press release announcing the
signing of this Agreement.
6.4 REASONABLE EFFORTS; NOTIFICATION.
(a) Upon the terms and subject to the conditions set forth in
this Agreement, each of the parties agrees to use all reasonable efforts to
take, or cause to be taken, all actions, and to do, or cause to be done, and to
assist and cooperate with the other parties in doing, all things necessary,
proper or advisable to consummate and make effective, in the most expeditious
manner practicable, the Arrangement and the other transactions contemplated by
this Agreement, including using reasonable efforts to accomplish the following:
(i) the taking of all reasonable acts necessary to cause the conditions
precedent set forth in Article VII to be satisfied, (ii) the obtaining of all
necessary actions or nonactions, waivers, consents, approvals, orders and
authorizations from Governmental Entities and the making of all necessary
registrations, declarations and filings (including registrations, declarations
and filings with Governmental Entities, if any) and the taking of all reasonable
steps as may be necessary to avoid any suit, claim, action, investigation or
proceeding by any Governmental Entity, (iii) the obtaining of all consents,
approvals or waivers from third parties required as a result of the transactions
contemplated in this Agreement, (iv) the defending of any suits, claims,
actions, investigations or proceedings, whether judicial or administrative,
challenging this Agreement or the consummation of the transactions contemplated
hereby, including seeking to have any stay or temporary restraining order
entered by any court or other Governmental Entity vacated or reversed and (v)
the execution or delivery of any additional instruments reasonably necessary to
consummate the transactions contemplated by, and to fully carry out the purposes
of, this Agreement. In connection with and without limiting the foregoing,
Company and its Board of Directors shall, if any takeover statute or similar
statute or regulation is or becomes applicable to the Arrangement, this
Agreement or any of the transactions contemplated by this Agreement, use all
reasonable efforts to ensure that the Arrangement and the other transactions
contemplated by this Agreement may be consummated as promptly as practicable on
the terms contemplated by this
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Agreement and otherwise to minimize the effect of such statute or regulation
on the Arrangement, this Agreement and the transactions contemplated hereby.
(b) Company shall give prompt notice to Parent upon becoming
aware that any representation or warranty made by it contained in this Agreement
has become untrue or inaccurate, or of any failure of Company to comply with or
satisfy in any material respect any covenant, condition or agreement to be
complied with or satisfied by it under this Agreement, in each case, such that
the conditions set forth in Section 7.3(a) or 7.3(b) would not be satisfied;
PROVIDED, HOWEVER, that no such notification shall affect the representations,
warranties, covenants or agreements of the parties or the conditions to the
obligations of the parties under this Agreement.
(c) Parent shall give prompt notice to Company upon becoming
aware that any representation or warranty made by it contained in this Agreement
has become untrue or inaccurate, or of any failure of Parent Sub to comply with
or satisfy in any material respect any covenant, condition or agreement to be
complied with or satisfied by it under this Agreement, in each case, such that
the conditions set forth in Section 7.2(a) or 7.2(b) would not be satisfied;
PROVIDED, HOWEVER, that no such notification shall affect the representations,
warranties, covenants or agreements of the parties or the conditions to the
obligations of the parties under this Agreement.
6.5 THIRD PARTY CONSENTS. As soon as practicable following the date
hereof, Parent and Company will each use its commercially reasonable efforts to
obtain any consents, waivers and approvals under any of its or its subsidiaries'
respective agreements, contracts, licenses or leases required to be obtained in
connection with the consummation of the transactions contemplated hereby.
6.6 STOCK OPTIONS. At the Effective Time, each then outstanding option
to purchase Company Common Shares (each, a "Company Stock Option") under the
Company Option Plans, whether or not vested, shall by virtue of the Arrangement
be assumed by Parent. Each Company Stock Option so assumed by Parent under this
Agreement will continue to have, and be subject to, the same terms and
conditions of such 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 Stock
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 Company Common Shares that were issuable upon exercise
of such Company Stock Option immediately prior to the Effective Time multiplied
by the Exchange Ratio, rounded down to the nearest whole number of shares of
Parent Common Stock and (ii) the per share exercise price for the shares of
Parent Common Stock issuable upon exercise of such assumed Company Stock Option
will be equal to the quotient determined by dividing the exercise price per
share of Company Common Shares at which such Company Stock Option was
exercisable immediately prior to the Effective Time by the Exchange Ratio,
rounded up to the nearest whole cent.
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6.7 FORM S-8. Parent shall file, if available for use by Parent, a
registration statement on Form S-8 for the shares of Parent Common Stock
issuable with respect to assumed Company Stock Options as soon as is reasonably
practicable after the Effective Time.
6.8 INDEMNIFICATION. From and after the Effective Time, Parent will
cause Company to fulfill and honor in all respects its obligations pursuant to
any indemnification agreements between Company and its directors and officers in
effect immediately prior to the Effective Time (the "INDEMNIFIED PARTIES") and
any indemnification provisions under the Company Charter Documents as in effect
on the date hereof. The provisions of the Articles of Amalgamation and Bylaws of
Company as in effect on the date hereof will not be amended, repealed or
otherwise modified for a period of six (6) years from the Effective Time in any
manner that would adversely affect the rights thereunder of individuals who,
immediately prior to the Effective Time, were directors, officers, employees or
agents of Company, unless such modification is required by law. Parent agrees to
use reasonable efforts to secure, or cause Canadian Sub to secure, directors'
and officers' insurance coverage for Company's directors and officers who are
currently covered by Company's directors' and officers' insurance, on a three
year "trailing" (or "run-off") basis and on terms no less advantageous then
those applicable to such directors and officers. If a trailing policy is not
available at a reasonable cost, then Parent agrees that for the period from the
Effective Time until three years after the Effective Time, Parent will cause
Company or any successor to Company to maintain Company's current directors' and
officers' insurance policy or an equivalent policy subject in either case to
terms and conditions no less advantageous to the directors and officers of
Company who are currently covered by Company's directors' and officers'
insurance, than those contained in the policy in effect on the date thereof,
covering claims made prior to or within three years after the Effective Time,
provided that such insurance remains available to Company or such successor at a
cost that is no greater than 150% of the cost to Company of such insurance as at
the date hereof.
6.9 NASDAQ LISTING. Parent agrees to cause the listing on Nasdaq of the
shares of Parent Common Stock issuable, and those required to be reserved for
issuance, in connection with the Arrangement, subject to official notice of
issuance.
6.10 COMPANY AFFILIATE AGREEMENT. Set forth in the Company Schedule is
a list of those persons who may be deemed to be, in Company's reasonable
judgment, affiliates of Company within the meaning of Rule 145 promulgated under
the United States 1933 Act (each, a "COMPANY AFFILIATE"). Company will provide
Parent with such information and documents as Parent reasonably requests for
purposes of reviewing such list. Each Company Affiliate Agreement will be in
full force and effect as of the Effective Time. Parent will be entitled to place
appropriate legends on the certificates evidencing any Parent Common Stock to be
received by a Company Affiliate pursuant to the terms of this Agreement, and to
issue appropriate stop transfer instructions to the transfer agent for the
Parent Common Stock, consistent with the terms of the Company Affiliate
Agreement.
6.11 REGULATORY FILINGS; REASONABLE EFFORTS. As soon as may be
reasonably practicable, Company and Parent each shall file with the United
States Federal Trade Commission (the "FTC") and the Antitrust Division of the
United States Department of Justice ("DOJ") Notification and
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Report Forms relating to the transactions contemplated herein as required by
the HSR Act, as well as comparable pre-merger notification forms required by
the merger notification or control laws and regulations of Canada or any
other applicable jurisdiction, as agreed to by the parties. Company and
Parent each shall promptly (a) supply the other with any information which
may be required in order to effectuate such filings and (b) supply any
additional information which reasonably may be required by the FTC, the DOJ
or the competition or merger control authorities of any other jurisdiction
and which the parties may reasonably deem appropriate; PROVIDED, HOWEVER,
that Parent shall not be required to agree to any divestiture by Parent or
Company or any of Parent's subsidiaries or affiliates of shares of capital
stock or of any business, assets or property of Parent or its subsidiaries or
affiliates or of the Company, its affiliates, or the imposition of any
material limitation on the ability of any of them to conduct their businesses
or to own or exercise control of such assets, properties and shares.
6.12 TERMINATION OF SEVERANCE PLANS. Company and its affiliates, as
applicable, each agrees to terminate any and all group severance, separation or
salary continuation plans, programs or arrangements that are covered under ERISA
immediately prior to the Closing Date. Parent shall receive from Company
evidence that Company's and each affiliate's (as applicable) plan(s) has been
terminated pursuant to resolution of each such entity's Board of Directors (the
form and substance of which resolutions shall be subject to review and approval
of Parent), effective as of the day immediately preceding the Closing Date. In
addition, Company shall terminate its 401(k) plan effective as of the day
immediately preceding the Closing Date, and shall terminate the TSB
International Inc. Share Ownership Plan 1998 and the TSB International Inc.
Share Ownership Plan 1999 (the "Ownership Plans") in accordance with Article 18
of such Plans, effective as of the day immediately preceding the Closing Date.
6.13 BENEFIT ARRANGEMENTS. Parent covenants and agrees that to the
extent permitted by applicable law and to the extent the existing benefit plans
and arrangements provided by Company to its employees are terminated on or after
the Effective Time, such employees shall be entitled to benefits which are
available or subsequently become available to Parent's employees, and on a basis
which is on parity with Parent's employees. For purposes of satisfying the terms
and conditions of such plans, Parent shall give full credit for eligibility,
vesting or benefit accrual to the extent possible for each participant's period
of service at the Company prior to the Effective Time.
6.14 LISTING OF COMPANY COMMON SHARES. Company shall ensure that the
Company Common Shares remain listed on a prescribed stock exchange up until and
including the Effective Time for purposes of the definition of "taxable Canadian
property" in Section 248(1) of the Income Tax Act (Canada) so long as any such
shares are held by any person other than Parent, any of its subsidiaries or
affiliates.
6.15 WARRANT EXERCISE. Company shall use its reasonable best efforts to
cause each holder of a Warrant to exercise such Warrant for cash prior to the
Effective Time.
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6.16 CONSULTING AGREEMENTS. Company shall not extend the consulting
agreements of Andrew Gutman and Richard Vaughn with Company beyond their
termination on July 31, 2000, nor to make any severance payments thereunder.
6.17 MANAGEMENT AGREEMENTS. On or before the Closing Date, Company
shall use its reasonable best efforts to cause the employment agreements of each
of Ralph Sonntag and Ray Montgomery to be terminated and replaced with
employment agreements providing to each cash compensation of (U.S.) $300,000 per
year and otherwise on terms and conditions mutually agreeable to Peregrine and
to Mr. Sonntag and to Mr. Montgomery.
6.18 TSE APPROVAL. The Company shall use its reasonable best efforts to
obtain TSE approval of the Stock Option Agreement as soon as practicable after
the date of this Agreement.
ARTICLE VII
CONDITIONS TO THE ARRANGEMENT
7.1 CONDITIONS TO OBLIGATIONS OF EACH PARTY TO EFFECT THE ARRANGEMENT.
The respective obligations of each party to this Agreement to effect the
Arrangement shall be subject to the satisfaction at or prior to the Closing Date
of the following conditions:
(a) SHAREHOLDER APPROVAL. This Agreement shall have been
approved and adopted, and the Continuance and the Arrangement shall have been
duly approved, by the requisite vote under applicable law, by the shareholders
of Company, and in accordance with any additional conditions which may be
imposed by the Interim Order and which are satisfactory to each of Company and
Parent.
(b) COURT ORDERS. The Interim Order and the Final Order shall
each have been obtained in form and on terms satisfactory to each of Parent and
Company and shall not have been set aside or modified in a manner unacceptable
to such parties on appeal or otherwise.
(c) NO ORDER; HSR ACT. No Governmental Entity shall have
enacted, issued, promulgated, enforced or entered any statute, rule, regulation,
executive order, decree, injunction or other order (whether temporary,
preliminary or permanent) which is in effect and which has the effect of making
the Arrangement illegal or otherwise prohibiting consummation of the
Arrangement. All waiting periods, if any, under the HSR Act and the Competition
Act (Canada) relating to the transactions contemplated hereby will have expired
or terminated early and all antitrust approvals under Canadian or other laws
required to be obtained prior to the Arrangement in connection with the
transactions contemplated hereby shall have been obtained.
(d) TAX OPINIONS. Parent and Company shall each have received
written opinions from their respective tax counsel (Wilson Sonsini Goodrich &
Rosati, Professional Corporation, and Sherrard & Roe, respectively), in form and
substance reasonably satisfactory to them, to the effect that the Arrangement
will constitute a reorganization within the meaning of Section 368(a) of the
United States Code and such opinions shall not have been withdrawn; PROVIDED,
HOWEVER, that if the
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counsel to either Parent or Company does not render such opinion, this
condition shall nonetheless be deemed to be satisfied with respect to such
party if counsel to the other party renders such opinion to such party. The
parties to this Agreement agree to make such reasonable and customary
representations as requested by such counsel for the purpose of rendering
such opinions.
(e) NASDAQ LISTING. The shares of Parent Common Stock
transferable to the shareholders of Company pursuant to the Arrangement and such
other shares required to be reserved for issuance in connection with the
Arrangement shall have been authorized for listing on Nasdaq upon official
notice of issuance.
7.2 ADDITIONAL CONDITIONS TO OBLIGATIONS OF COMPANY. The obligation of
Company to consummate and effect the Arrangement shall be subject to the
satisfaction at or prior to the Closing Date of each of the following
conditions, any of which may be waived, in writing, exclusively by Company:
(a) REPRESENTATIONS AND WARRANTIES. Each representation and
warranty of Parent contained in this Agreement (i) shall have been true and
correct as of the date of this Agreement and (ii) shall be true and correct on
and as of the Closing Date with the same force and effect as if made on the
Closing Date except (A) in each case, or in the aggregate, as does not
constitute a Material Adverse Effect on Parent, (B) for changes contemplated by
this Agreement and (C) for those representations and warranties which address
matters only as of a particular date (which representations shall have been true
and correct (subject to the qualifications as set forth in the preceding clause
A) as of such particular date) (it being understood that, for purposes of
determining the accuracy of such representations and warranties, (i) all
"Material Adverse Effect" qualifications and other qualifications based on the
word "material" or similar phrases contained in such representations and
warranties shall be disregarded and (ii) any update of or modification to the
Parent Schedule made or purported to have been made after the date of this
Agreement shall be disregarded). Company shall have received a certificate with
respect to the foregoing signed on behalf of Parent by an authorized officer of
Parent.
(b) AGREEMENTS AND COVENANTS. Parent shall have performed or
complied in all material respects with all agreements and covenants required by
this Agreement to be performed or complied with by them on or prior to the
Closing Date, and Company shall have received a certificate to such effect
signed on behalf of Parent by an authorized officer of Parent.
(c) APPROVALS. Parent shall have obtained all Appropriate
Regulatory Approvals required of it under this Agreement, all of which shall be
in full force and effect, except where the failure to obtain any Appropriate
Regulatory Approval would not prevent consummation of the Arrangement or
otherwise prevent Parent or Amalgamation Sub from performing their respective
obligations under this Agreement, or could not reasonably be expected to have a
Material Adverse Effect on Parent.
7.3 ADDITIONAL CONDITIONS TO THE OBLIGATIONS OF PARENT. The obligations
of Parent to consummate and effect the Arrangement shall be subject to the
satisfaction at or prior to the Closing
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Date of each of the following conditions, any of which may be waived, in
writing, exclusively by Parent:
(a) REPRESENTATIONS AND WARRANTIES. Each representation and
warranty of Company contained in this Agreement (i) shall have been true and
correct as of the date of this Agreement and (ii) shall be true and correct on
and as of the Closing Date with the same force and effect as if made on and as
of the Closing Date except (A) in each case, or in the aggregate, as does not
constitute a Material Adverse Effect on Company, provided however, such Material
Adverse Effect qualifier shall be inapplicable with respect to representations
and warranties contained in Section 2.3, (B) for changes contemplated by this
Agreement and (C) for those representations and warranties which address matters
only as of a particular date (which representations shall have been true and
correct (subject to the qualifications as set forth in the preceding clause (A)
as of such particular date) (it being understood that, for purposes of
determining the accuracy of such representations and warranties, (i) all
"Material Adverse Effect" qualifications and other qualifications based on the
word "material" or similar phrases contained in such representations and
warranties shall be disregarded and (ii) any update of or modification to the
Company Schedule made or purported to have been made after the date of this
Agreement shall be disregarded). Parent shall have received a certificate with
respect to the foregoing signed on behalf of Company by an authorized officer of
Company.
(b) AGREEMENTS AND COVENANTS. Company shall have performed or
complied in all material respects with all agreements and covenants required by
this Agreement to be performed or complied with by it at or prior to the Closing
Date, and Parent shall have received a certificate to such effect signed on
behalf of Company by the Chief Executive Officer and the Chief Financial Officer
of Company.
(c) AFFILIATE AGREEMENTS. Each of the Company Affiliates shall
have entered into the Company Affiliate Agreement and each of such agreements
will be in full force and effect as of the Effective Time.
(d) APPROVALS. Company shall have obtained all Appropriate
Regulatory Approvals required of it under this Agreement (all of which shall be
in full force and effect), except where the failure to obtain any Appropriate
Regulatory Approval would not prevent consummation of the Arrangement or
otherwise prevent Parent or Canadian Sub from performing their respective
obligations under this Agreement, or could not reasonably be expected to have a
Material Adverse Effect on Company. In addition, Company shall have obtained all
consents, waivers and approvals required in connection with the consummation of
the transactions contemplated hereby in connection with the agreements,
contracts, licenses or leases set forth on Schedule 2.5(a) of the Company
Schedule.
(e) DISSENTERS. Holders of no more than 5% in the aggregate of
the issued and outstanding Company Common Shares shall have exercised
Dissenters' Rights in respect of the Continuance and/or the Arrangement.
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(f) WARRANTS. Each outstanding Warrant shall have been
exercised in full for cash.
(g) AVAILABLE CASH. Company shall have available cash or cash
equivalents as of the Closing Date (including cash received upon exercise of
outstanding Warrants as set forth in Section 7.3 (f)) totaling not less than
(U.S.) $ 14,000,000 and shall have provided evidence thereof reasonably
acceptable to Parent.
(h) NON-COMPETITION AGREEMENT. Each of Ray Montgomery and
Ralph Sonntag shall have entered into a Non-Competition Agreement in
substantially the form attached hereto as Exhibit G.
(i) EMPLOYMENT AGREEMENTS. Each of Messrs. Sonntag and
Montgomery shall have entered into employment agreements in accordance with
Section 6.17 above.
(j) EXCHANGE AGREEMENT RELEASE. Each of Company, Mr. Sonntag
and Mr. Montgomery shall have agreed in writing to release or waive as of the
Effective Time any rights they may have against each other and against Polar
Capital Corporation pursuant to the terms of the Exchange Agreement, the form of
such release or waiver to be to the reasonable satisfaction of Parent.
ARTICLE VIII
TERMINATION, AMENDMENT AND WAIVER
8.1 TERMINATION. This Agreement may be terminated at any time prior to
the Effective Time, whether before or after the requisite approval of the
shareholders of Company:
(a) by mutual written consent duly authorized by the Boards of
Directors of Parent and Company;
(b) by either Company or Parent if the Arrangement shall not
have been consummated by June 30, 2000 for any reason; PROVIDED, HOWEVER, that
the right to terminate this Agreement under this Section 8.1(b) shall not be
available to any party whose action or failure to act has been a principal cause
of or resulted in the failure of the Arrangement to occur on or before such date
and such action or failure to act constitutes a breach of this Agreement;
(c) by either Company or Parent if a Governmental Entity shall
have issued an order, decree or ruling or taken any other action, in any case
having the effect of permanently restraining, enjoining or otherwise prohibiting
the Arrangement, which order, decree, ruling or other action is final and
nonappealable, or if the Final Order is not granted;
(d) by either Parent or Company if (i) the Company
Shareholders Meeting (including any adjournments or postponements thereof) shall
have been held and completed and Company's shareholders shall have taken a final
vote on a proposal to approve the Arrangement, and
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(ii) the Arrangement shall not have been approved at such meeting by the
required Company shareholder vote (and shall not have been approved at any
adjournment or postponement thereof); PROVIDED, HOWEVER, that Company shall
not be permitted to terminate this Agreement pursuant to this Section 8.1(d)
unless Company shall have paid to Parent the Termination Fee (defined below)
required to be paid to Parent pursuant to Section 8.3(b).
(e) by Company, upon a breach of any representation, warranty,
covenant or agreement on the part of Parent set forth in this Agreement, or if
any representation or warranty of Parent shall have become untrue, in either
case such that the conditions set forth in Section 7.2(a) or Section 7.2(b)
would not be satisfied as of the time of such breach or as of the time such
representation or warranty shall have become untrue, PROVIDED, that if such
inaccuracy in Parent's representations and warranties or breach by Parent is
curable by Parent through the exercise of its commercially reasonable efforts,
then Company may not terminate this Agreement under this Section 8.1(e) for
thirty (30) days after delivery of written notice from Company to Parent of such
breach, provided Parent continues to exercise commercially reasonable efforts to
cure such breach (it being understood that Company may not terminate this
Agreement pursuant to this paragraph (e) if it shall have materially breached
this Agreement or if such breach by Parent is cured during such thirty (30)-day
period);
(f) by Parent, upon a breach of any representation, warranty,
covenant or agreement on the part of Company set forth in this Agreement, or if
any representation or warranty of Company shall have become untrue, in either
case such that the conditions set forth in Section 7.3(a) or Section 7.3(b)
would not be satisfied as of the time of such breach or as of the time such
representation or warranty shall have become untrue, PROVIDED, that if such
inaccuracy in Company's representations and warranties or breach by Company is
curable by Company through the exercise of its commercially reasonable efforts,
then Parent may not terminate this Agreement under this Section 8.1(f) for
thirty (30) days after delivery of written notice from Parent to Company of such
breach, provided Company continues to exercise commercially reasonable efforts
to cure such breach (it being understood that Parent may not terminate this
Agreement pursuant to this paragraph (f) if it shall have materially breached
this Agreement or if such breach by Company is cured during such 30-day period);
(g) by Parent, upon a breach of the provisions of Section 6.2
of this Agreement;
(h) by Parent if a Triggering Event (as defined below) shall
have occurred; or
(i) by Company or Parent if this Agreement or the terms of the
Plan of Arrangement shall be modified by the Court through either the Interim
Order or the Final Order (and all reasonable avenues of appeal with respect to
such modification have been exhausted) in such a manner as would materially
impair the ability of Company or Parent to effect the Arrangement or would
materially and adversely alter the economic benefits of the Arrangement to
either Parent or Company as contemplated by this Agreement.
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For the purposes of this Agreement, a "Triggering Event" shall be
deemed to have occurred if: (i) the Board of Directors of Company or any
committee thereof shall for any reason have withdrawn or shall have amended or
modified in a manner adverse to Parent its unanimous recommendation in favor of,
the Continuance and the Arrangement; (ii) Company shall have failed to include
in the Circular the unanimous recommendation of the Board of Directors of
Company in favor of the adoption and approval of the Agreement and the approval
of the Continuance and the Arrangement; (iii) the Board of Directors of Company
fails to reaffirm its unanimous recommendation in favor of the adoption and
approval of the Agreement and the approval of the Continuance and the
Arrangement within five (5) business days after Parent requests in writing that
such recommendation be reaffirmed at any time following the announcement of an
Acquisition Proposal; (iv) the Board of Directors of Company or any committee
thereof shall have approved or recommended any Acquisition Proposal; (v) Company
shall have entered into any letter of intent or similar document or any
agreement, contract or commitment accepting any Acquisition Proposal; (vi) a
tender or exchange offer relating to securities of Company shall have been
commenced by a person unaffiliated with Parent and Company shall not have sent
to its securityholders, within ten (10) business days after such tender or
exchange offer is first published sent or given, a statement disclosing that
Company recommends rejection of such tender or exchange offer or (vii) Company
(or any of its officers or directors) shall have provided any recommendation to
the Court in connection with the Final Order inconsistent with the unanimous
recommendation of Company's Board of Directors in favor of the Continuance and
the Arrangement.
8.2 NOTICE OF TERMINATION; EFFECT OF TERMINATION. Any termination of
this Agreement under Section 8.1 above will be effective immediately upon (or,
if the termination is pursuant to Section 8.1(e) or Section 8.1(f) and the
proviso therein is applicable, thirty (30) days after) the delivery of written
notice of the terminating party to the other parties hereto. In the event of the
termination of this Agreement as provided in Section 8.1, this Agreement shall
be of no further force or effect, except (i) as set forth in this Section 8.2,
Section 8.3 and Article 9 (General Provisions), each of which shall survive the
termination of this Agreement, and (ii) nothing herein shall relieve any party
from liability for any intentional or willful breach of this Agreement. No
termination of this Agreement shall affect the obligations of the parties
contained in the Confidentiality Agreement, all of which obligations shall
survive termination of this Agreement in accordance with their terms.
8.3 FEES AND EXPENSES.
(a) GENERAL. Except as set forth in this Section 8.3, all fees
and expenses incurred in connection with this Agreement and the transactions
contemplated hereby shall be paid by the party incurring such expenses whether
or not the Arrangement is consummated.
(b) COMPANY PAYMENTS.
(i) Company shall pay to Parent in immediately
available funds, within one (1) business day after demand by Parent, an amount
equal to (U.S.) $4,400,000 (the "TERMINATION FEE") if this Agreement is
terminated by Parent pursuant to Section 8.1(d) or (g) or (h).
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(ii) Company shall pay to Parent in immediately
available funds, within one (1) business day after demand by Parent, an amount
equal to the Termination Fee if this Agreement is terminated by Parent or
Company, as applicable, pursuant to Section 8.1(b) and any of the following
shall occur:
a) if following the date hereof and
prior to the termination of this Agreement, a third party has announced an
Acquisition Proposal and within twelve (12) months following the termination of
this Agreement a Company Acquisition (as defined below) is consummated; or
b) if following the date hereof and
prior to the termination of this Agreement, a third party has announced an
Acquisition Proposal and within twelve (12) months following the termination of
this Agreement Company enters into an agreement or letter of intent providing
for a Company Acquisition.
(iii) Company acknowledges that the agreements
contained in this Section 8.3(b) are an integral part of the transactions
contemplated by this Agreement, and that, without these agreements, Parent would
not enter into this Agreement; accordingly, if Company fails to pay in a timely
manner the amounts due pursuant to this Section 8.3(b) and, in order to obtain
such payment, Parent makes a claim that results in a judgment against Company
for the amounts set forth in this Section 8.3(b), Company shall pay to Parent
its reasonable costs and expenses (including reasonable attorneys' fees and
expenses) in connection with such suit, together with interest on the amounts
set forth in this Section 8.3(b) at the prime rate of The Chase Manhattan Bank
in effect on the date such payment was required to be made. Payment of the fees
described in this Section 8.3(b) shall not be in lieu of damages incurred in the
event of breach of this Agreement. For the purposes of this Agreement, "COMPANY
ACQUISITION" shall mean any of the following transactions (other than the
transactions contemplated by this Agreement): (i) an amalgamation,
consolidation, business combination, merger, plan of arrangement,
recapitalization, liquidation, dissolution or similar transaction involving
Company pursuant to which the shareholders of Company immediately preceding such
transaction hold less than 50% of the aggregate equity interests in the
surviving or resulting entity of such transaction, (ii) a sale or other
disposition by Company of assets representing in excess of 50% of the aggregate
fair market value of Company's business immediately prior to such sale or (iii)
the acquisition by any person or group (including by way of a tender offer or an
exchange offer or issuance by Company), directly or indirectly, of beneficial
ownership or a right to acquire beneficial ownership of shares representing in
excess of 50% of the voting power of the then outstanding shares of capital
stock of Company.
8.4 AMENDMENT. Subject to applicable law, this Agreement may be amended
by the parties hereto at any time by execution of an instrument in writing
signed on behalf of each of Parent and Company.
8.5 EXTENSION; WAIVER. At any time prior to the Effective Time, any
party hereto may, to the extent legally allowed, (i) extend the time for the
performance of any of the obligations or other
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acts of the other parties hereto, (ii) waive any inaccuracies in the
representations and warranties made to such party contained herein or in any
document delivered pursuant hereto and (iii) waive compliance with any of the
agreements or conditions for the benefit of such party contained herein. Any
agreement on the part of a party hereto to any such extension or waiver shall
be valid only if set forth in an instrument in writing signed on behalf of
such party. Delay in exercising any right under this Agreement shall not
constitute a waiver of such right.
ARTICLE IX
GENERAL PROVISIONS
9.1 NON-SURVIVAL OF REPRESENTATIONS AND WARRANTIES. The representations
and warranties of Company, Parent and Amalgamation Sub contained in this
Agreement shall terminate at the Effective Time, and only the covenants that by
their terms survive the Effective Time shall survive the Effective Time.
9.2 NOTICES. All notices and other communications hereunder shall be in
writing and shall be deemed given if delivered personally or by commercial
delivery service, or sent via telecopy (receipt confirmed) to the parties at the
following addresses or telecopy numbers (or at such other address or telecopy
numbers for a party as shall be specified by like notice):
(a) if to Parent, Canadian Sub, or Amalgamation Sub, to:
Peregrine Systems, Inc.
12670 High Bluff Drive
San Diego, California 92130
Attention: General Counsel
Telephone No.: (858) 481-5000
Telecopy No.: (858) 794-5057
with a copy to:
Wilson Sonsini Goodrich & Rosati
Professional Corporation
650 Page Mill Road
Palo Alto, California 94304-1050
Attention: Douglas H. Collom, Esq.
Telephone No.: (650) 493-9300
Telecopy No.: (650) 845-5000
and to:
Aird & Berlis
BCE Place
Suite 1800, Box 754
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181 Bay Street
Toronto, Ontario M5J279
Attention: Jay A. Lefton, Esq.
Telephone No.: (416) 865-7720
Telecopy No.: (416) 863-1515
(b) if to Company, to:
Telco Research Corporation Limited
5399 Eglinton Avenue West
Toronto, Ontario M9C 5K6
Attention: President
Telephone No.: (416) 622-7010
Telecopy No.: (416) 622-3540
with a copy to:
Lang Michener
BCE Place, Suite 2500
181 Bay Street
Toronto, Ontario M5J 2T7
Attention: Philippe Tardif, Esq.
Telephone No.: (416) 307-4085
Telecopy No.: (416) 365-1719
and to:
Sherrard & Roe, PLC
424 Church Street
Suite 2000
Nashville, Tennessee 37219
Attention: John Voigt, Esq.
Telephone No. (615) 742-4200
Telecopy No.: (615) 742-4539
9.3 INTERPRETATION; KNOWLEDGE.
(a) When a reference is made in this Agreement to Exhibits,
such reference shall be to an Exhibit to this Agreement unless otherwise
indicated. When a reference is made in this Agreement to Sections, such
reference shall be to a Section of this Agreement. Unless otherwise indicated
the words "include," "includes" and "including" when used herein shall be deemed
in each case to be followed by the words "without limitation." The table of
contents and headings contained in this Agreement are for reference purposes
only and shall not affect in any way the meaning or interpretation of this
Agreement. When reference is made herein to "the business of" an entity, such
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reference shall be deemed to include the business of all direct and indirect
subsidiaries of such entity. Reference to the subsidiaries of an entity shall be
deemed to include all direct and indirect subsidiaries of such entity.
(b) For purposes of this Agreement, the term "KNOWLEDGE" means
with respect to a party hereto, with respect to any matter in question, that any
of the executive officers of such party has actual knowledge of such matter, or
such knowledge as such officer would be expected to have in the reasonable
discharge of his responsibilities as an officer of a corporation under
applicable law.
(c) For purposes of this Agreement, the term "MATERIAL ADVERSE
EFFECT" when used in connection with an entity means any change, event,
violation, inaccuracy, circumstance or effect, 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, assets (including intangible assets), capitalization, financial
condition, results of operations or prospects of such entity and its
subsidiaries taken as a whole; PROVIDED, HOWEVER, that no Material Adverse
Effect shall be deemed to have occurred solely as a result of any change in the
trading price of Parent Common Stock or Company Common Shares, respectively,
that is unrelated to any change, event or circumstance materially adverse to the
business, assets (including intangible assets), capitalization, financial
condition, results of operations or prospects of Parent or Company, as the case
may be.
(d) For purposes of this Agreement, the term "PERSON" shall
mean any individual, corporation (including any non-profit corporation), general
partnership, limited partnership, limited liability partnership, joint venture,
estate, trust, company (including any limited liability company or joint shares
company), firm or other enterprise, association, organization, entity or
Governmental Entity.
9.4 COUNTERPARTS. This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same agreement and
shall become effective when one or more counterparts have been signed by each of
the parties and delivered to the other party, it being understood that all
parties need not sign the same counterpart.
9.5 ENTIRE AGREEMENT; THIRD PARTY BENEFICIARIES. This Agreement and the
documents and instruments and other agreements among the parties hereto as
contemplated by or referred to herein, including the Company Disclosure Schedule
and the Parent Disclosure Schedule (a) constitute the entire agreement among the
parties with respect to the subject matter hereof and supersede all prior
agreements and understandings, both written and oral, among the parties with
respect to the subject matter hereof, it being understood that the
Confidentiality Agreement shall continue in full force and effect until the
Closing and shall survive any termination of this Agreement; and (b) are not
intended to confer upon any other person any rights or remedies hereunder,
except as specifically provided in Section 6.8.
9.6 SEVERABILITY. In the event that any provision of this Agreement, or
the application thereof, becomes or is declared by a court of competent
jurisdiction to be illegal, void or
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unenforceable, the remainder of this Agreement will continue in full force
and effect and the application of such provision to other persons or
circumstances will be interpreted so as reasonably to effect the intent of
the parties hereto. The parties further agree to replace such void or
unenforceable provision of this Agreement with a valid and enforceable
provision that will achieve, to the extent possible, the economic, business
and other purposes of such void or unenforceable provision.
9.7 OTHER REMEDIES; SPECIFIC PERFORMANCE. Except as otherwise provided
herein, any and all remedies herein expressly conferred upon a party will be
deemed cumulative with and not exclusive of any other remedy conferred hereby,
or by law or equity upon such party, and the exercise by a party of any one
remedy will not preclude the exercise of any other remedy. The parties hereto
agree that irreparable damage would occur in the event that any of the
provisions of this Agreement were not performed in accordance with their
specific terms or were otherwise breached. It is accordingly agreed that the
parties shall be entitled to seek an injunction or injunctions to prevent
breaches of this Agreement and to enforce specifically the terms and provisions
hereof in any court of the United States or any state having jurisdiction, this
being in addition to any other remedy to which they are entitled at law or in
equity.
9.8 GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the State of California, regardless of the laws that
might otherwise govern under applicable principles of conflicts of law thereof.
9.9 RULES OF CONSTRUCTION. The parties hereto agree that they have been
represented by counsel during the negotiation and execution of this Agreement
and, therefore, waive the application of any law, regulation, holding or rule of
construction providing that ambiguities in an agreement or other document will
be construed against the party drafting such agreement or document.
9.10 ASSIGNMENT. No party may assign either this Agreement or any of
its rights, interests, or obligations hereunder without the prior written
approval of the other parties. Subject to the preceding sentence, this Agreement
shall be binding upon and shall inure to the benefit of the parties hereto and
their respective successors and permitted assigns.
9.11 WAIVER OF JURY TRIAL. EACH OF PARENT, COMPANY AND AMALGAMATION SUB
HEREBY IRREVOCABLY WAIVES ALL RIGHT TO TRIAL BY JURY IN ANY ACTION, PROCEEDING
OR COUNTERCLAIM (WHETHER BASED ON CONTRACT, TORT OR OTHERWISE) ARISING OUT OF OR
RELATING TO THIS AGREEMENT OR THE ACTIONS OF PARENT, COMPANY OR AMALGAMATION SUB
IN THE NEGOTIATION, ADMINISTRATION, PERFORMANCE AND ENFORCEMENT HEREOF.
9.12 CURRENCY. Unless otherwise specified, all sums of money referred
to in this Agreement are expressed in Canadian currency.
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ARTICLE X
ADDITIONAL DEFINITIONS
10.1 ADDITIONAL DEFINITIONS.
In this Agreement, unless there is something in the subject matter or
context inconsistent therewith, the following terms shall have the following
meanings respectively:
"AMALCO" means the corporation resulting from the Amalgamation.
"AMALGAMATION" means amalgamation, to be effected pursuant to the
Arrangement, of the Company and Amalgamation Sub under the OBCA.
"APPROPRIATE REGULATORY APPROVALS" means those sanctions, rulings,
consents, orders, exemptions, permits and other approvals (including the lapse,
without objection, of a prescribed time under a statute or regulation that
states that a transaction may be implemented if a prescribed time lapses
following the giving of notice without an objection being made) of Governmental
Entities, regulatory agencies or self-regulatory organizations, as set out in
Sections 2.5(b) and 3.5(b) of this Agreement.
"ARRANGEMENT" means an arrangement under Section 182 of the OBCA on the
terms and subject to the conditions set out in this Agreement and the Plan of
Arrangement, subject to any amendments or variations thereto made in accordance
with the provisions of this Agreement or made at the direction of the Court in
the Final Order.
"ARRANGEMENT RESOLUTION" means the special resolution of the holders of
Company Common Shares to be substantially in the form and content of Exhibit E
annexed hereto.
"ARTICLES OF ARRANGEMENT" means the articles of arrangement of Company
in respect of the Arrangement, required by the OBCA to be filed with the
Director after the Final Order is made.
"CBCA" means the Canada Business Corporations Act, as amended.
"CIRCULAR" means the notice of the Company Shareholders Meeting and
accompanying management information circular to be sent to holders of Company
Common Shares in connection with the Company Shareholders Meeting, including all
appendices thereto.
"CONTINUANCE" means the continuance of Company under the OBCA, pursuant
to Section 188 of the CBCA and Section 180 of the OBCA
"CONTINUANCE RESOLUTION" means the special resolution in respect of the
Continuance to be considered by the shareholders of the Company at the Company
Shareholders Meeting, substantially in the form and content of Exhibit D annexed
hereto.
"COURT" means the Superior Court of Justice (Commercial List)
(Ontario).
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"DIRECTOR" means the director appointed pursuant to OBCA.
"EFFECTIVE DATE" means the date shown on the certificate of arrangement
to be issued by the Director under the OBCA giving effect to the Arrangement.
"EFFECTIVE TIME" has the meaning ascribed thereto in the Plan of
Arrangement.
"FINAL ORDER" means the final order of the Court approving the
Arrangement as such order may be amended at any time prior to the Effective Date
or, if appealed, then, unless such appeal is withdrawn or denied, as affirmed.
"INTERIM ORDER" means the interim order of the Court in respect of the
Arrangement, as contemplated by Section 1.2.
"NSCA" means the Nova Scotia Companies Act, as amended.
"OBCA" means the Business Corporations Act (Ontario), as amended.
"OSC" means the Ontario Securities Commission.
"PLAN OF ARRANGEMENT" means the plan of arrangement substantially in
the form and content of Exhibit F annexed hereto and any amendments or
variations thereto made in accordance with the provisions of this Agreement or
made at the direction of the Court in the Final Order and which are acceptable
to Parent and Company.
"SEC" means the United States Securities and Exchange Commission.
"TSE" means The Toronto Stock Exchange.
"UNITED STATES 1933 ACT" means the United States Securities Act of
1933, as amended.
"UNITED STATES 1934 ACT" means the United States Securities Exchange
Act of 1934, as amended.
*****
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their duly authorized respective officers as of the date first
written above.
PEREGRINE SYSTEMS, INC.
By: /s/ RICHARD T. NELSON
-----------------------------------------
Name: Richard T. Nelson
---------------------------------------
Title: Vice President
--------------------------------------
TELCO RESEARCH CORPORATION LIMITED
By: /s/ RALPH E. SONNTAG
-----------------------------------------
Name: Ralph E. Sonntag
---------------------------------------
Title: President
--------------------------------------
By: /s/ REID M. DRURY
-----------------------------------------
Name: Reid M. Drury
---------------------------------------
Title: Chairman
--------------------------------------
PEREGRINE NOVA SCOTIA COMPANY
By: /s/ RICHARD T. NELSON
-----------------------------------------
Name: Richard T. Nelson
---------------------------------------
Title:
--------------------------------------
1400066 ONTARIO, INC.
By: /s/ REID M. DRURY
-----------------------------------------
Name:
---------------------------------------
Title:
--------------------------------------
<PAGE>
EXHIBIT A
VOTING AGREEMENT
THIS VOTING AGREEMENT (this "AGREEMENT") is made and entered into as of
February __, 2000, among Peregrine Systems, Inc., a Delaware corporation
("PARENT"), and the undersigned shareholder and/or option or warrant holder (the
"SHAREHOLDER") of Telco Research Corporation Limited, an Ontario corporation
(the "COMPANY").
RECITALS
A. The Company and the Company's wholly-owned subsidiary, and Parent
and Parent's wholly-owned subsidiary have entered into an Acquisition Agreement
for Plan of Arrangement (the "ARRANGEMENT AGREEMENT"), which provides for a plan
of arrangement (the "ARRANGEMENT"). Pursuant to the Arrangement, all outstanding
capital shares of the Company (the "COMPANY SHARES") shall be exchanged for the
right to receive Common Stock of Parent, as set forth in the Arrangement
Agreement.
B. Shareholder is the beneficial owner of such number of outstanding
capital shares of the Company and shares subject to outstanding options and
warrants as is indicated on the signature page of this Agreement.
C. In consideration of the execution of the Arrangement Agreement by
Parent, Shareholder (in his or her capacity as such) agrees to vote the Shares
(as defined below) and other such capital shares of the Company over which
Shareholder has voting power so as to facilitate consummation of the
transactions contemplated by the Arrangement Agreement.
NOW, THEREFORE, intending to be legally bound, the parties hereto agree
as follows:
1. CERTAIN DEFINITIONS. Capitalized terms not defined herein shall have
the meanings ascribed to them in the Arrangement Agreement. For purposes of this
Agreement:
(a) "EXPIRATION DATE" shall mean the earlier to occur of (i)
such date and time as the Arrangement Agreement shall have been terminated
pursuant to Article VIII thereof or (ii) such date and time as the Arrangement
shall become effective in accordance with the terms and provisions of the
Arrangement Agreement.
(b) "PERSON" shall mean any individual, corporation, limited
liability company, partnership or other entity, or governmental authority.
(c) "SHARES" shall mean: (i) all securities of the Company
(including all Company Shares and all options, warrants and other rights to
acquire Company Shares) owned by Shareholder as of the date of this Agreement;
and (ii) all additional securities of the Company (including all additional
Company Shares and all additional options, warrants and other rights to acquire
Company Shares) of which Shareholder acquires ownership during the period from
the date of this Agreement through the Expiration Date.
(d) TRANSFER. A Person shall be deemed to have effected a
"TRANSFER" of a security if such person directly or indirectly: (i) sells,
pledges, encumbers, grants an option with respect to,
<PAGE>
transfers or disposes of such security or any interest in such security; or (ii)
enters into an agreement or commitment providing for the sale of, pledge of,
encumbrance of, grant of an option with respect to, transfer of or disposition
of such security or any interest therein; PROVIDED, HOWEVER, that a transfer
shall not include the purchase of or the entering into a contract by Shareholder
providing for Shareholder's right to sell after the Effective Time securities of
Parent received by the Shareholder in connection with the Arrangement, as long
as such contract does not compromise or amend the obligation of Shareholder or
right of Parent under the Power of Attorney (defined below) to vote the Shares
as contemplated by Sections 3 and 4 below.
2. TRANSFER OF SHARES.
(a) TRANSFEREE OF SHARES TO BE BOUND BY THIS AGREEMENT.
Shareholder agrees that, during the period from the date of this Agreement
through the Expiration Date, Shareholder shall not cause or permit any Transfer
of any of the Shares to be effected unless such Transfer is in accordance with
any affiliate agreement between Shareholder and Parent contemplated by the
Arrangement Agreement and each Person to which any of such Shares, or any
interest in any of such Shares, is or may be transferred shall have: (a)
executed a counterpart of this Agreement and a power of attorney in the form
attached hereto as EXHIBIT A (with such modifications as Parent may reasonably
request); and (b) agreed in writing to hold such Shares (or interest in such
Shares) subject to all of the terms and provisions of this Agreement.
(b) TRANSFER OF VOTING RIGHTS. Shareholder agrees that, during
the period from the date of this Agreement through the Expiration Date,
Shareholder shall not deposit (or permit the deposit of) any Shares in a voting
trust or grant any proxy or power of attorney or enter into any voting agreement
or similar agreement in contravention of the obligations of Shareholder under
this Agreement with respect to any of the Shares.
3. AGREEMENT TO VOTE SHARES. Shareholder agrees that, during the period
from the date of this Agreement through the Expiration Date, at every meeting of
the Shareholders of the Company called, and at every adjournment thereof, and on
every action or approval by written consent of the Shareholders of the Company,
Shareholder (in his or her capacity as such) shall cause the Shares to be voted
in favor of approval of the Continuance and the Arrangement and in favor of any
matter that could reasonably be expected to facilitate the Arrangement, and
against any Company Acquisition Proposal or any other matter the approval of
which might reasonably be expected to delay or hinder the Arrangement.
4. IRREVOCABLE POWER OF ATTORNEY. Concurrently with the execution of
this Agreement, Shareholder agrees to deliver to Parent a power of attorney in
the form attached hereto as EXHIBIT A (the "POWER OF ATTORNEY"), which shall be
irrevocable during the term of this Agreement to the fullest extent permissible
by law, with respect to the Shares.
5. REPRESENTATIONS AND WARRANTIES OF THE SHAREHOLDER. Shareholder (i)
is the beneficial owner of Company Common Shares and the options, warrants, and
rights to purchase Company Shares indicated on the final page of this Agreement,
free and clear of any liens, claims, options, rights of first refusal, co-sale
rights, charges or other encumbrances; (ii) does not beneficially own any
securities of
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<PAGE>
the Company other than the Company Common Shares and options and warrants to
purchase Company Common Shares indicated on the final page of this Agreement;
and (iii) has full power and authority to make, enter into and carry out the
terms of this Agreement and the Power of Attorney. Shareholder has identified on
the final page of this Agreement any nominee or agent or other person or entity
in whose name are held Company Common Shares beneficially owned by Shareholder,
and contact information relating to such person or entity.
6. ADDITIONAL DOCUMENTS. Shareholder (in his or her capacity as such)
hereby covenants and agrees to execute and deliver any additional documents
necessary or desirable, in the reasonable opinion of Parent, to carry out the
intent of this Agreement.
7. LEGENDING OF SHARES. If so requested by Parent, Shareholder agrees
that the Shares shall bear a legend stating that they are subject to this
Agreement and to an irrevocable power of attorney. Subject to the terms of
Section 2 hereof, Shareholder agrees that Shareholder shall not Transfer the
Shares without first having the aforementioned legend affixed to the
certificates representing the Shares.
8. TERMINATION. This Agreement shall terminate and shall have no
further force or effect as of the Expiration Date.
9. MISCELLANEOUS.
(a) SEVERABILITY. If any term, provision, covenant or
restriction of this Agreement or the Power of Attorney is held by a court of
competent jurisdiction to be invalid, void or unenforceable, then the remainder
of the terms, provisions, covenants and restrictions of this Agreement shall
remain in full force and effect and shall in no way be affected, impaired or
invalidated.
(b) BINDING EFFECT AND ASSIGNMENT. This Agreement and all of
the provisions hereof shall be binding upon and inure to the benefit of the
parties hereto and their respective successors and permitted assigns, but,
except as otherwise specifically provided herein, neither this Agreement nor any
of the rights, interests or obligations of the parties hereto may be assigned by
either of the parties without prior written consent of the other.
(c) AMENDMENTS AND MODIFICATION. This Agreement may not be
modified, amended, altered or supplemented except upon the execution and
delivery of a written agreement executed by the parties hereto.
(d) SPECIFIC PERFORMANCE; INJUNCTIVE RELIEF. The parties
hereto acknowledge that Parent shall be irreparably harmed and that there shall
be no adequate remedy at law for a violation of any of the covenants or
agreements of Shareholder set forth herein. Therefore, it is agreed that, in
addition to any other remedies that may be available to Parent upon any such
violation, Parent shall have the right to enforce such covenants and agreements
by specific performance, injunctive relief or by any other means available to
Parent at law or in equity.
(e) NOTICES. All notices and other communications pursuant
to this Agreement shall be in writing and deemed to be sufficient if
contained in a written instrument and shall be deemed given if delivered
personally, telecopied, sent by nationally-recognized overnight courier or
mailed by
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<PAGE>
registered or certified mail (return receipt requested), postage prepaid, to
the parties at the following address (or at such other address for a party as
shall be specified by like notice):
If to Parent: Peregrine Systems, Inc.
12670 High Bluff Drive
San Diego, California 92130
Attention: General Counsel
Telecopy No.: (858) 794-5057
With a copy to: Wilson Sonsini Goodrich & Rosati
Professional Corporation
650 Page Mill Road
Palo Alto, California 94304
Attention: Douglas H. Collom, Esq.
Telecopy No.: (650) 845-5000
If to Shareholder: To the address for notice set forth
on the signature page hereof.
(f) GOVERNING LAW. This Agreement shall be governed by the
laws of the State of Delaware, without reference to rules of conflicts of law.
(g) ENTIRE AGREEMENT. This Agreement and the Proxy contain the
entire understanding of the parties in respect of the subject matter hereof, and
supersede all prior negotiations and understandings between the parties with
respect to such subject matter.
(h) EFFECT OF HEADINGS. The section headings are for
convenience only and shall not affect the construction or interpretation of
this Agreement.
(i) COUNTERPARTS. This Agreement may be executed in several
counterparts, each of which shall be an original, but all of which together
shall constitute one and the same agreement.
[The remainder of this page has been intentionally left blank.]
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<PAGE>
IN WITNESS WHEREOF, the parties have caused this Agreement to be
duly executed on the day and year first above written.
PEREGRINE SYSTEMS, INC. SHAREHOLDER
By: By:
--------------------------------- ------------------------------------
Signature of Authorized Signatory Signature
Name: Name:
------------------------------- ----------------------------------
Title: Title:
------------------------------ ---------------------------------
---------------------------------------
---------------------------------------
Print Address
---------------------------------------
Telephone
---------------------------------------
Facsimile No.
Share beneficially owned:
_______________ Company Shares
_______________ Company Shares issuable
upon exercise of outstanding options or
warrants
Name and contact information of any
person or entity required pursuant to
Section 5:
---------------------------------------
---------------------------------------
---------------------------------------
---------------------------------------
[SIGNATURE PAGE TO VOTING AGREEMENT]
<PAGE>
IRREVOCABLE POWER OF ATTORNEY
The undersigned Shareholder of Telco Research Corporation Limited, a
corporation existing under the laws of Canada (the "COMPANY"), hereby
irrevocably (to the fullest extent permitted by law) appoints the directors on
the Board of Directors of Peregrine Systems, Inc., a Delaware corporation
("PARENT"), and each of them, as the sole and exclusive attorneys of the
undersigned, with full power of substitution and resubstitution, to vote and
exercise all voting and related rights (to the full extent that the undersigned
is entitled to do so) with respect to all of the capital shares of the Company
that now are or hereafter may be beneficially owned by the undersigned, and any
and all other shares or securities of the Company issued or issuable in respect
thereof on or after the date hereof (collectively, the "SHARES") but solely with
respect to the matters referred to in Section 3 of the Voting Agreement to which
this Power of Attorney is attached in accordance with the terms of this Power of
Attorney. The Shares beneficially owned by the undersigned Shareholder of the
Company as of the date of this Power of Attorney are listed on the final page of
this Power of Attorney. Upon the undersigned's execution of this Power of
Attorney, any and all prior powers of attorney and proxies given by the
undersigned with respect to any Shares are hereby revoked and the undersigned
agrees not to grant any subsequent powers of attorney or proxies with respect to
the Shares until after the Expiration Date (as defined below).
This Power of Attorney is irrevocable (to the fullest extent permitted
by law), is coupled with an interest and is granted pursuant to that certain
Voting Agreement of even date herewith by and among Parent and the undersigned
Shareholder (the "VOTING AGREEMENT"), and is granted in consideration of Parent
entering into that certain Acquisition Agreement for Plan of Arrangement (the
"ARRANGEMENT AGREEMENT"), among Parent, its wholly-owned subsidiary, and the
Company. The Arrangement Agreement provides for a plan of arrangement in
accordance with its terms (the "ARRANGEMENT"). As used herein, the term
"EXPIRATION DATE" shall mean the earlier to occur of (i) such date and time as
the Arrangement Agreement shall have been validly terminated pursuant to Article
VIII thereof or (ii) such date and time as the Arrangement shall become
effective in accordance with the terms and provisions of the Arrangement
Agreement. This Power of Attorney shall expire on the Expiration Date.
The attorneys and appointees named above, and each of them, are hereby
authorized and empowered by the undersigned, at any time prior to the Expiration
Date, to act as the undersigned's attorney and nominee to vote the Shares, and
to exercise all voting, consent and similar rights of the undersigned with
respect to the Shares (including, without limitation, the power to execute and
deliver written consents) at every annual, special or adjourned meeting of
shareholders of the Company and in every written consent in lieu of such meeting
in favor of approval of the Arrangement, the execution and delivery by the
Company of the Arrangement Agreement and the adoption and approval of the terms
thereof and in favor of each of the other actions contemplated by the
Arrangement Agreement and any action required in furtherance hereof and thereof,
and against any Company Acquisition Proposal or any other matter the approval of
which might reasonably be expected to delay or hinder the Arrangement. For
greater certainty, nothing in the Power of Attorney shall confer upon the
attorneys named above the
<PAGE>
right to exercise control or direction over the voting rights attached to the
Shares in any circumstance other than the limited circumstances expressly
referred to herein.
The attorneys and nominees named above may not exercise this Power of
Attorney on any other matter except as provided above. The undersigned
Shareholder may vote the Shares on all other matters.
Any obligation of the undersigned hereunder shall be binding upon the
successors and assigns of the undersigned.
[The remainder of this page has been intentionally left blank.]
<PAGE>
This Power of Attorney is irrevocable (to the fullest extent permitted
by law). This Power of Attorney shall terminate, and be of no further force and
effect, automatically upon the Expiration Date.
Dated: , 2000
----------------------
Signature of Shareholder:
--------------------------
Print Name of Shareholder:
-------------------------
Shares beneficially owned:
___________ Company Shares
___________ Company Shares issuable upon
exercise of outstanding options or
warrants
[SIGNATURE PAGE TO IRREVOCABLE POWER OF ATTORNEY]
<PAGE>
EXHIBIT B
STOCK OPTION AGREEMENT
THE SECURITIES REPRESENTED HEREBY AND THE SECURITIES ISSUABLE UPON THE
EXERCISE OF THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
UNITED STATES SECURITIES ACT OF 1933, AS AMENDED.
THIS STOCK OPTION AGREEMENT (this "AGREEMENT") is made and entered into
as of February ___, 2000, among Peregrine Systems, Inc., a Delaware corporation
("Parent"), and Telco Research Corporation Limited, a corporation existing under
the Canada Business Corporations Act (the "Company"). Capitalized terms used but
not otherwise defined herein will have the meaning ascribed to time in the
Arrangement Agreement (as defined below).
RECITALS
A. The Company, Canadian Sub, Amalgamation Sub and Parent have
entered into an Acquisition Agreement for Plan of Arrangement (the "Arrangement
Agreement") which provides for a plan of arrangement among Parent, Canadian Sub,
Amalgamation Sub and the Company (the "Arrangement"). Pursuant to the
Arrangement, all outstanding capital shares of the Company will be exchanged for
the right to receive Common Stock of Parent.
B. As a condition to Parent's willingness to enter into the
Arrangement Agreement, Parent has requested that the Company agree, and the
Company has so agreed, to grant to Parent an option to acquire up to 3,091,144
common shares of the Company (the "Company Shares"), upon the terms and subject
to the conditions set forth herein.
NOW, THEREFORE, in consideration of the foregoing and of the
mutual covenants and agreements set forth herein and in the Arrangement
Agreement and for other good and valuable consideration, the receipt and
adequacy of which are hereby acknowledged, the parties hereto agree as follows:
1. GRANT OF OPTION. The Company hereby grants to Parent an irrevocable
option (the "Option") to acquire up to a number of Company Shares equal to 19.9%
of the then issued and outstanding common shares, which option may be exercised
at any time on or after the first date, if any, upon which an Exercise Event (as
defined in Section 2(a) below) occurs (the "Option Shares"), in the manner set
forth below by paying cash at a price of (U.S.) $7.05 per share (the "Exercise
Price").
<PAGE>
2. EXERCISE OF OPTION.
(a) The Option may be exercised by Parent, in whole or in
part, at any time or from time to time if the Arrangement Agreement is
terminated pursuant to any of Sections 8.1(b), (and an event causing the
Termination Fee to become payable pursuant to Section 8.3(b)(ii) of the
Arrangement Agreement occurs), 8.1(d), 8.1(g), or 8.1(h) thereof (any of the
events being referred to herein as an "Exercise Event"). In the event Parent
wishes to exercise the Option, Parent will deliver to the Company a written
notice (each an "Exercise Notice") specifying the total number of Option Shares
it wishes to acquire. Each closing of a purchase of Option Shares (a "Closing")
will occur on a date and at a time prior to the termination of the Option
designated by Parent in an Exercise Notice delivered at least two business days
prior to the date of such Closing, which Closing will be held at the principal
offices of the Company in the City of Toronto (or in such other place where the
Company's principal offices are located and of which Company has previously
notified Parent).
(b) The Option will terminate upon the earliest of (i) the
Effective Time, (ii) twelve (12) months following the date on which the
Arrangement Agreement is terminated pursuant to Section 8.1(b) thereof, if no
event causing the Termination Fee to become payable pursuant to Section 8.3(b)
of the Arrangement Agreement has occurred, (iii) twelve (12) months following
the date on which the Arrangement Agreement is terminated pursuant to Section
8.1(g) or 8.1(h) thereof, (iv) in the event the Arrangement Agreement has been
terminated pursuant to Section 8.1(b) thereof and the Termination Fee became
payable pursuant to Section 8.3(b)(ii) thereof, twelve (12) months after payment
of the Termination Fee; and (v) the date on which the Arrangement Agreement is
terminated if neither a Triggering Event nor the announcement of an Acquisition
Proposal by a third party occurred on or prior to the date of such termination;
PROVIDED, HOWEVER, that if the Option cannot be exercised by reason of any
applicable government order or because the waiting period related to the
issuance of the Option Shares under the HSR Act or any other similar legislation
will not have expired or been terminated, then the Option will not terminate
until the tenth business day after such impediment to exercise will have been
removed or will have become final and not subject to appeal.
3. CONDITIONS TO CLOSING. The obligation of the Company to issue Option
Shares to Parent hereunder is subject to the conditions that (A) any waiting
period under the HSR Act and any other similar legislation or other government
order applicable to the issuance of the Option Shares hereunder will have
expired or been terminated; (B) all material consents, approvals, orders or
authorizations of, or registrations, declarations or filings with, any federal,
provincial, regional state, municipal, or local administrative agency, stock
exchange or commission or governmental authority, if any, required in connection
with the issuance of the Option Shares hereunder will have been obtained or
made, as the case may be; and (C) no preliminary or permanent injunction or
other order by any court of competent jurisdiction prohibiting or otherwise
restraining such issuance will be in effect. It is understood and agreed that at
any time during which the Option is exercisable, the parties will use their
respective best efforts to satisfy all conditions to Closing, so that a Closing
may take place as promptly as practicable.
4. CLOSING. At any Closing, (A) the Company will deliver to Parent a
single certificate in definitive form representing the number of Company Shares
designated by Parent in its Exercise Notice, such certificate to be registered
in the name of Parent against delivery of (B) payment by
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<PAGE>
Parent to the Company of the aggregate purchase price for the Company Shares so
designated and being purchased by delivery of a certified cheque or bank cheque.
5. REPRESENTATION AND WARRANTIES OF THE COMPANY. The Company represents
and warrants to Parent that (A) the Company is a corporation duly organized,
validly existing and in good standing under the laws of Canada and has the
corporate power and authority to enter into this Agreement and to carry out its
obligations hereunder; (B) the execution and delivery of this Agreement by the
Company and consummation by the Company of the transactions contemplated hereby
have been duly authorized by all necessary corporate action on the part of the
Company and no other corporate proceedings on the part of the Company are
necessary to authorize this Agreement or any of the transactions contemplated
hereby; (C) this Agreement has been duly executed and delivered by the Company
and constitutes a legal, valid and binding obligation of the Company and,
assuming this Agreement constitutes a legal, valid and binding obligation of
Parent, is enforceable against the Company in accordance with its terms; (D)
except for any filings required under the HSR Act and rules of The Toronto Stock
Exchange, the Company has taken all necessary corporate and other action to
authorize and reserve for issuance and to permit it to issue upon exercise of
the Option, and at all times from the date hereof until the termination of the
Option will have reserved for issuance, a sufficient number of unissued Company
Shares for Parent to exercise the Option in full and will take all necessary
corporate or other action to authorize and reserve for issuance all additional
Company Shares or other securities which may be issuable pursuant to Section
8(a) upon exercise of the Option, all of which, upon their issuance and delivery
in accordance with the terms of this Agreement, will be validly issued, fully
paid and non-assessable; (E) upon delivery of the Company Shares and any other
securities to Parent upon exercise of the Option, Parent will acquire such
Company Shares or other securities free and clear of all material claims, liens,
charges, encumbrances and security interests of any kind or nature whatsoever,
excluding those imposed by Parent; (F) the execution and delivery of this
Agreement by the Company do not, and the performance of this Agreement by the
Company will not, (i) conflict with or violate the Articles of Amalgamation or
Bylaws or equivalent organizational documents of the Company or any of its
subsidiaries; (ii) conflict with or violate any law, rule, regulation, order,
judgement or decree applicable to the Company or any of its subsidiaries or by
which its or any of their respective properties is bound or affected or (iii)
result in any breach of or constitute a default (or an event that with notice or
lapse of time or both would become a default) under, or impair the Company's or
any of its subsidiaries' rights or alter the rights or obligations of any third
party under, or give to others any rights of termination, amendment,
acceleration or cancellation of, or result in the creation of a lien or
encumbrance on any of the properties or assets of the Company or any of its
subsidiaries pursuant to, any material note, bond, mortgage, indenture,
contract, agreement, lease, license, permit, franchise or other instrument or
obligation to which the Company or any of its subsidiaries is a party or by
which the Company or any of its subsidiaries or its or any of their respective
properties are bound or affected; (G) the execution and delivery of this
Agreement by the Company does not, and the performance of this Agreement by the
Company will not, require any consent, approval, authorization or permit of, or
filing with, or notification to, any Governmental Entity except pursuant to the
HSR Act and rules of The Toronto Stock Exchange.
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<PAGE>
6. CERTAIN RIGHTS.
(a) PARENT PUT. At the request of and upon notice by Parent
(the "Put Notice"), at any time during the period during which the Option is
exercisable pursuant to Section 2 (the "Purchase Period"), the Company (or any
successor entity thereof) will purchase from Parent the Option, to the extent
not previously exercised, at the price set forth in subparagraph (i) below (as
limited by subparagraph (iii) below), and the Option Shares, if any, acquired by
Parent pursuant thereto, at the price set forth in subparagraph (ii) below (as
limited by subparagraph (iii) below):
(i) The difference between the "Market/Tender Offer
Price" for the Company Shares as of the date Parent gives notice of its intent
to exercise its rights under this Section 6(a) (defined as the higher of (A) the
highest price per share offered as of such date pursuant to any Acquisition
Proposal which was made prior to such date and (B) the highest closing sale
price of Company Shares then on The Toronto Stock Exchange during the 20 trading
days ending on the trading day immediately preceding such date) and the Exercise
Price, multiplied by the number of Company Shares purchasable pursuant to the
Option, but only if the Market/Tender Offer Price is greater than the Exercise
Price. For purposes of determining the highest price offered pursuant to any
Acquisition Proposal which involves consideration other than cash, the value of
such consideration will be equal to the higher of (x) if securities of the same
class of the proponent as such consideration are traded on any national
securities exchange or by any registered securities association, a value based
on the closing sale price or asked price for such securities on their principal
trading market on such date and (y) the value ascribed to such consideration by
the proponent of such Acquisition Proposal, or if no such value is ascribed, a
value determined in good faith by the Board of Directors of the Company.
(ii) The Exercise Price paid by Parent for Company
Shares acquired pursuant to the Option PLUS the difference between the
Market/Tender Offer Price and such Exercise Price (but only if the Market/Tender
Offer Price is greater than the Exercise Price) multiplied by the number of
Company Shares so purchased.
(iii) Notwithstanding subparagraphs (i) and (ii)
above, pursuant to this Section 6, the Company will not be required to pay
Parent in excess of an aggregate of (x) (U.S.) $4,400,000 PLUS (y) the Exercise
Price paid by Parent for Company Shares acquired pursuant to the Option MINUS
(z) any amounts paid to Parent by the Company pursuant to Section 8.3(b) of the
Amalgamation Agreement.
(b) PAYMENT AND REDELIVERY OF OPTION OR SHARES. In the event
Parent exercises it rights under Section 6(a), the Company will, within five
business days after Parent delivers notice pursuant to Section 6(a), pay the
required amount to Parent in immediately available funds and Parent will
surrender to the Company the Option and the certificates evidencing the Company
Shares purchased by Parent pursuant thereto.
7. LISTING AND HSR FILING. The Company will promptly file an
application to list the Company Shares to be acquired upon the exercise of the
Option for listing and posting on The Toronto Stock Exchange and will use its
best efforts to obtain approval of such listing as soon as practicable. Promptly
after the date hereof, each of the parties hereto will promptly file with the
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<PAGE>
Federal Trade Commission and the Antitrust Division of the United States
Department of Justice all required pre-merger notification and report forms and
other documents and exhibits required to be filed under the HSR Act to permit
the acquisition of the Company Shares subject to the Option at the earliest
possible date.
8. ADJUSTMENT UPON CHANGES IN CAPITALIZATION; RIGHTS PLANS.
(a) In the event of any change in the Company Shares by reason
of stock dividends, stock splits, reverse stock splits, mergers,
reorganizations, amalgamations, recapitalizations, reclassifications,
combinations, exchanges of shares and the like (other than in connection with
the Arrangement), the type and number of shares or securities subject to the
Option, the Exercise Price will be adjusted appropriately, and proper provision
will be made in the agreements governing such transaction so that Parent will
receive, upon exercise of the Option, the number and class of shares or other
securities or property that Parent would have received in respect of the Company
Shares if the Option had been exercised immediately prior to such event or the
record date therefor, as applicable.
(b) At any time during which the Option is exercisable, and at
any time after the Option is exercised (in whole or in part, if at all), the
Company will not enact a Company Shareholder Rights Protection Plan nor adopt
(nor permit the adoption of) any type of shareholders rights plan or other type
of "poison pill" arrangement, that contains provisions for the distribution or
exercise of rights thereunder as a result of Parent or any affiliate or
transferee being the beneficial owner of shares of the Company by virtue of the
Option being exercisable or having been exercised (or as a result of
beneficially owning shares issuable in respect of any Option Shares).
9. BINDING EFFECT. This Agreement will be binding upon and inure to the
benefit of the parties hereto and their respective successors and assigns.
10. SPECIFIC PERFORMANCE. The parties hereto recognize and agree that
if for any reason any of the provisions of this Agreement are not performed in
accordance with their specific terms or are otherwise breached, immediate and
irreparable harm of injury would be caused for which money damages would not be
an adequate remedy. Accordingly, each party hereto agrees that in addition to
other remedies the other party hereto will be entitled to an injunction
restraining any violation or threatened violation of the provisions of this
Agreement or the right to enforce any of the covenants or agreements set forth
herein by specific performance. In the event that any action will be brought in
equity to enforce the provisions of the Agreement, neither party hereto will
allege, and each party hereto hereby waives the defence, that there is an
adequate remedy at law.
11. ENTIRE AGREEMENT. This Agreement and the Arrangement Agreement
(including the appendices thereto) constitute the entire agreement between the
parties hereto with respect to the subject matter hereof and supersede all other
prior agreements and understandings, both written and oral, between the parties
hereto with respect to the subject matter hereof.
12. FURTHER ASSURANCES. Each party hereto will execute and deliver all
such further documents and instruments and take all such further action as may
be necessary in order to consummate the transactions contemplated hereby.
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<PAGE>
13. VALIDITY. The invalidity or unenforceability of any provision of
this Agreement will not affect the validity or enforceability of the other
provisions of this Agreement, which will remain in full force and effect. In the
event any Governmental Entity of competent jurisdiction holds any provision of
this Agreement to be null, void or unenforceable, the parties hereto will
negotiate in good faith and will execute and deliver an amendment to this
Agreement in order, as nearly as possible, to effectuate, to the extent
permitted by law, the intent of the parties hereto with respect to such
provision.
14. NOTICES. All notices and other communications hereunder will be in
writing and will be deemed given if delivered personally or by commercial
delivery service, or sent via telecopy (receipt confirmed) to the parties at the
following addresses or telecopy numbers (or at such other address or telecopy
numbers for a party as will be specified by like notice):
(a) if to Parent, to:
Peregrine Systems, Inc.
12670 High Bluff Drive
San Diego, California 92130
Attention: General Counsel
Telephone No.: (858) 481-5000
Telecopy No.: (858) 794-5057
with a copy to:
Wilson, Sonsini, Goodrich & Rosati, P.C.
650 Page Mill Road
Palo Alto, California 94304-1050
Attention: Douglas H. Collom, Esq.
Telecopy No.: (650) 845-5000
(b) if to the Company, to:
Telco Research Corporation Limited
5399 Eglinton Avenue West
Suite 115
Toronto, Ontario M9C 5K6
Attention: President
Telephone No.: (416) 622-7010
Telecopy No.: (416) 622-3540
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<PAGE>
with a copy to:
Lang Michener
BCE Place, 181 Bay Street
Suite 2500
Toronto, Ontario M5J 2T7
Attention: Philippe Tardif, Esq.
Telephone No.: (416) 307-4085
Telecopy No.: (416) 365-1719
15. GOVERNING LAW. This Agreement will be governed by and construed in
accordance with the laws of the State of Delaware applicable to agreements made
and to be performed entirely within such State.
16. EXPENSES. Except as otherwise expressly provided herein or in the
Arrangement Agreement, all costs and expenses incurred in connection with the
transactions contemplated by this Agreement will be paid by the party incurring
such expenses.
17. AMENDMENTS; WAIVER. This Agreement may be amended by the parties
hereto and the terms and conditions hereof may be waived only by an instrument
in writing signed on behalf of each of the parties hereto, or, in the case of a
waiver, by an instrument signed on behalf of the party waiving compliance.
18. COUNTERPARTS. This Agreement may be executed in counterparts, each
of which will be deemed to be an original, but both of which, taken together,
will constitute one and the same instrument.
19. REPLACEMENT. Upon receipt of evidence satisfactory to the Company
of the loss, theft, destruction or mutilation of this Option and, if requested
by the Company, upon delivery of a bond of indemnity satisfactory to the Company
(or, in the case of mutilation, upon surrender of this Option), the Company will
issue to Parent a replacement option (containing the same terms and conditions
as this Option)
-7-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their respective duly authorized officers as of the date first above
written.
PEREGRINE SYSTEMS, INC.
By:
-----------------------------------
Name:
---------------------------------
Title:
--------------------------------
TELCO RESEARCH CORPORATION
LIMITED
By:
-----------------------------------
Name:
---------------------------------
Title:
--------------------------------
Title:
--------------------------------
<PAGE>
EXHIBIT C
COMPANY AFFILIATE AGREEMENT
THIS COMPANY AFFILIATE AGREEMENT (this "AGREEMENT") is made and entered
into as of February __, 2000, among Peregrine Systems, Inc., a Delaware
corporation ("PARENT"), and the undersigned shareholder who may be deemed an
affiliate ("AFFILIATE") of Telco Research Corporations Limited, an Ontario
corporation ("COMPANY"). Capitalized terms used but not otherwise defined herein
shall have the meanings ascribed to them in the Arrangement Agreement (as
defined below).
RECITALS
A. Company and Company's wholly-owned subsidiary and Parent and
Parent's wholly-owned subsidiary have entered into an Acquisition Agreement for
Plan of Arrangement (the "ARRANGEMENT AGREEMENT") which provides for a plan of
arrangement among Parent, its wholly-owned subsidiary and Company and Company's
wholly-owned subsidiary. Pursuant to the Arrangement, all outstanding capital
shares of Company (the "Company Shares") shall be exchanged for the right to
receive Common Stock of Parent.
B. Affiliate has been advised that Affiliate may be deemed to be an
"affiliate" of the Company, as the term "affiliate" is used for purposes of Rule
144 of the Rules and Regulations (the "RULES AND REGULATIONS") of the United
States Securities and Exchange Commission (the "COMMISSION").
C. The execution and delivery of this Agreement by Affiliate is a
material inducement to Parent to enter into the Arrangement Agreement.
NOW, THEREFORE, intending to be legally bound, the parties hereto agree
as follows:
1. ACKNOWLEDGMENTS BY AFFILIATE. Affiliate acknowledges and understands
that the representations, warranties and covenants by Affiliate set forth herein
shall be relied upon by Parent, the Company and their respective affiliates,
counsel and accounting firms, and that substantial losses and damages may be
incurred by these persons if Affiliate's representations, warranties or
covenants are breached.
2. BENEFICIAL OWNERSHIP OF COMPANY CAPITAL STOCK. The Affiliate is the
sole beneficial owner of the number of Company Shares set forth next to its name
on the signature page hereto (the "SHARES"). The Shares are not subject to any
claim, lien, pledge, charge, security interest or other encumbrance or to any
rights of first refusal of any kind, except as have been disclosed in writing
to, and approved by, Parent. There are no options, warrants, calls, rights,
commitments or agreements of any character, written or oral, to which the
Affiliate is party or by which it is bound obligating the Affiliate to issue,
deliver, sell, repurchase or redeem, or cause to be issued, delivered, sold,
repurchased or redeemed, any Shares or obligating the Affiliate to grant or
enter into any such option, warrant, call, right, commitment or agreement,
except as have been disclosed in writing to,
<PAGE>
and approved by, Parent. The Affiliate has the sole right to transfer such
Shares. The Shares constitute all shares of Company Shares owned, beneficially
or of record, by the Affiliate. The Shares are not subject to preemptive rights
created by any agreement to which the Affiliate is party. All shares of Company
Shares and common stock of Parent ("Parent Common Stock") acquired by Affiliate
as a result of the Arrangement from the date hereof (including shares of Parent
Common Stock acquired in the Arrangement) through the Effective Time shall be
subject to the provisions of this Agreement as if held by Affiliate as of the
date hereof.
3. COMPLIANCE WITH RULE 145 AND THE SECURITIES ACT.
(a) Affiliate has been advised that (i) the issuance of shares
of Parent Common Stock in connection with the Arrangement is expected to be
effected pursuant to a court-approved plan of arrangement under the Canadian
law, as described in the Arrangement Agreement, and the resale of such shares
shall be subject to restrictions on transfer set forth in Rule 145 under the
United States Securities Act of 1933, as amended (the "1933 Act"), and (ii)
Affiliate may be deemed to be an affiliate of the Company. Affiliate accordingly
agrees not to sell, transfer or otherwise dispose of any Parent Common Stock
issued to Affiliate in the Arrangement unless (i) such sale, transfer or other
disposition is made in conformity with the requirements of Rule 145(d)
promulgated under the 1933 Act, (ii) such sale, transfer or other disposition is
made pursuant to an effective registration statement under the 1933 Act or an
appropriate exemption from registration, (iii) Affiliate delivers to Parent a
written opinion of counsel, reasonably acceptable to Parent in form and
substance, that such sale, transfer or other disposition is otherwise exempt
from registration under the 1933 Act or (iv) an authorized representative of the
Commission shall have rendered written advice to Affiliate to the effect that
the Commission would take no action, or that the staff of the Commission would
not recommend that the Commission take any action, with respect to the proposed
disposition if consummated.
(b) Parent shall give stop transfer instructions to its
transfer agent with respect to any Parent Common Stock received by Affiliate
pursuant to the Arrangement and there shall be placed on the certificates
representing such Common Stock, or any substitutions therefor, a legend stating
in substance:
"THE SHARES REPRESENTED BY THIS CERTIFICATE WERE ISSUED IN A
TRANSACTION TO WHICH RULE 145 APPLIES AND MAY ONLY BE
TRANSFERRED IN CONFORMITY WITH RULE 145(d) OR PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE UNITED STATES
SECURITIES ACT OF 1933, AS AMENDED, OR IN ACCORDANCE WITH A
WRITTEN OPINION OF COUNSEL, REASONABLY ACCEPTABLE TO THE
ISSUER IN FORM AND SUBSTANCE, THAT SUCH TRANSFER IS EXEMPT
FROM REGISTRATION UNDER THE UNITED STATES SECURITIES ACT OF
1933, AS AMENDED."
-2-
<PAGE>
The legend set forth above shall be removed (by delivery of a substitute
certificate without such legend) and Parent shall so instruct its transfer
agent, if Affiliate delivers to Parent (i) satisfactory written evidence that
the shares have been sold in compliance with Rule 145 or sold pursuant to an
effective registration statement (in which case, the substitute certificate
shall be issued in the name of the transferee), or (ii) an opinion of counsel,
in form and substance reasonably satisfactory to Parent, to the effect that
public sale of the shares by the holder thereof is no longer subject to Rule
145.
4. TERMINATION. This Agreement shall be terminated and shall
be of no further force and effect in the event of the termination of the
Arrangement Agreement pursuant to Article VIII of the Arrangement Agreement.
5. MISCELLANEOUS.
(a) WAIVER; SEVERABILITY. No waiver by any party hereto of any
condition or of any breach of any provision of this Agreement shall be effective
unless in writing and signed by each party hereto. In the event that any
provision of this Agreement, or the application of any such provision to any
person, entity or set of circumstances, shall be determined to be invalid,
unlawful, void or unenforceable to any extent, the remainder of this Agreement,
and the application of such provision to persons, entities or circumstances
other than those as to which it is determined to be invalid, unlawful, void or
unenforceable, shall not be impaired or otherwise affected and shall continue to
be valid and enforceable to the fullest extent permitted by law.
(b) BINDING EFFECT AND ASSIGNMENT. This Agreement and all of
the provisions hereof shall be binding upon and inure to the benefit of the
parties hereto and their respective successors and permitted assigns, but,
except as otherwise specifically provided herein, neither this Agreement nor any
of the rights, interests or obligations of the parties hereto may be assigned by
either of the parties without prior written consent of the other party hereto.
(c) AMENDMENTS AND MODIFICATION. This Agreement may not be
modified, amended, altered or supplemented except upon the execution and
delivery of a written agreement executed by the parties hereto.
(d) INJUNCTIVE RELIEF. Each of the parties acknowledge that
(i) the covenants and the restrictions contained in this Agreement are
necessary, fundamental, and required for the protection of Parent and the
Company and to preserve for Parent the benefits of the Arrangement; (ii) such
covenants relate to matters which are of a special, unique, and extraordinary
character that gives each of such covenants a special, unique, and extraordinary
value; and (iii) a breach of any such covenants or any other provision of this
Agreement shall result in irreparable harm and damages to Parent and the Company
which cannot be adequately compensated by a monetary award. Accordingly, it is
expressly agreed that in addition to all other remedies available at law or in
equity, Parent and the Company shall be entitled to the immediate remedy of a
temporary restraining order, preliminary injunction, or such other form of
injunctive or equitable relief as may be used by any
-3-
<PAGE>
court of competent jurisdiction to restrain or enjoin any of the parties hereto
from breaching any such covenant or provision or to specifically enforce the
provisions hereof.
(e) GOVERNING LAW. This Agreement shall be governed by and
construed, interpreted and enforced in accordance with the internal laws of the
State of Delaware without giving effect to any choice or conflict of law
provision or rule (whether of the State of Delaware or any other jurisdiction)
that would cause the application of the laws of any jurisdiction other than the
State of Delaware.
(f) ENTIRE AGREEMENT. This Agreement, the Arrangement
Agreement and the other agreements referred to in the Arrangement Agreement set
forth the entire understanding of Affiliate and Parent relating to the subject
matter hereof and thereof and supersede all prior agreements and understandings
between Affiliate and Parent relating to the subject matter hereof and thereof.
(g) ATTORNEYS' FEES. In the event of any legal actions or
proceeding to enforce or interpret the provisions hereof, the prevailing party
shall be entitled to reasonable attorneys' fees, whether or not the proceeding
results in a final judgment.
(h) FURTHER ASSURANCES. Affiliate shall execute and/or cause
to be delivered to Parent such instruments and other documents and shall take
such other actions as Parent may reasonably request to effectuate the intent and
purposes of this Agreement.
(i) THIRD PARTY RELIANCE. Counsel to and independent auditors
for Parent and the Company shall be entitled to rely upon this Affiliate
Agreement.
(j) SURVIVAL. The representations, warranties, covenants and
other provisions contained in this Agreement shall survive the Arrangement.
(k) NOTICES. All notices and other communications pursuant to
this Agreement shall be in writing and deemed to be sufficient if contained in a
written instrument and shall be deemed given if delivered personally,
telecopied, sent by nationally-recognized overnight courier or mailed by
registered or certified mail (return receipt requested), postage prepaid, to the
parties at the following address (or at such other address for a party as shall
be specified by like notice):
If to Parent: Peregrine Systems, Inc.
12670 High Bluff Drive
San Diego, California 92130
Attention: General Counsel
Telecopy No.: (858) 794-5057
-4-
<PAGE>
With a copy to: Wilson Sonsini Goodrich &
Rosati, P.C.
650 Page Mill Road
Palo Alto, California 94304
Attention: Douglas H. Collom, Esq.
Telecopy No.: (650) 845-5000
If to Affiliate: To the address for notice set forth
on the signature page hereof.
(l) COUNTERPARTS. This Agreement shall be executed in one or
more counterparts, each of which shall be deemed an original, and all of which
together shall constitute one and the same instrument.
[The remainder of this page has been intentionally left blank.]
-5-
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Affiliate Agreement to
be duly executed on the day and year first above written.
PEREGRINE SYSTEMS, INC. AFFILIATE
By: By:
----------------------------- ----------------------------------
Name: Affiliate's Address for Notice:
---------------------------
-------------------------------------
Title:
-------------------------- -------------------------------------
-------------------------------------
Shares beneficially owned:
_______ Company Shares
_______ Company Shares issuable
upon exercise of
outstanding options
and warrants
_______ shares of Parent Common
Stock
[SIGNATURE PAGE TO AFFILIATE AGREEMENT]
<PAGE>
EXHIBIT D
CONTINUANCE RESOLUTION
"BE IT RESOLVED as a Special Resolution that:
(a) Telco Research Corporation Limited ("Telco") is hereby authorized
pursuant to Section 188 of the CANADA BUSINESS CORPORATIONS ACT (the
"CBCA") to apply under Section 180 of the BUSINESS CORPORATIONS ACT
(the "OBCA") for a Certificate of Continuance under the OBCA;
(b) Telco is hereby authorized to apply to the Director under the CBCA
for authorization under the CBCA to continue Telco under the OBCA;
(c) the Articles of Continuance continuing Telco under the OBCA, in
substance identical to Telco's existing Articles of Amalgamation, be
approved and adopted with such amendments, deletions or alterations
as may be deemed necessary or advisable by any officer of Telco in
order to assure compliance with the provisions of the OBCA and the
requirements of the Director thereunder;
(d) the directors of Telco are hereby authorized in their sole
discretion without further approval of the shareholders of Telco to
revoke, by means of a resolution of the directors of Telco, the
foregoing provisions of this Special Resolution in their entirety,
thereby abandoning the application for continuance at any time prior
to the endorsement by the Director under the OBCA for a Certificate
of Continuance in respect thereof; and
(e) any officer or director of Telco is hereby authorized and directed for
and on behalf of Telco to execute the Articles of Continuance and to
deliver or cause to be delivered, all such other documents and
instruments and to perform or cause to be performed all such other acts
and things as in such person's opinion may be necessary or desirable to
give full effect to the foregoing resolution and the matters authorized
thereby, such determination to be conclusively evidenced by the
execution and delivery of such document, agreement or instrument or the
doing of any such act or thing."
<PAGE>
EXHIBIT E
ARRANGEMENT RESOLUTION
"BE IT RESOLVED as a Special Resolution that:
(a) the Arrangement under Section 182 of the BUSINESS CORPORATIONS ACT
(Ontario) ("OBCA") involving Telco Research Corporation Limited
("Telco"), 1400066 Ontario Inc. ("Amalgamation Sub"), Peregrine
Systems, Inc. ("Peregrine") and Peregrine Nova Scotia Company
("AcquisitionCo"), as more particularly described and set forth in
Telco's Management Proxy Circular dated February 21, 2000 (the
"Circular"), as the Arrangement may be modified or amended, is hereby
authorized, approved and adopted;
(b) the Plan of Arrangement involving Telco, Amalgamation Sub, Peregrine
and AcquisitionCo, the full text of which is set out as Appendix D to
the Circular, as contemplated by the acquisition agreement made as of
February 8, 2000 between Telco, Amalgamation Sub, Peregrine and
AcquisitionCo (the "Acquisition Agreement") (as the Plan of Arrangement
may be or may have been amended), is hereby approved and adopted;
(c) any director or officer of Telco is hereby authorized and directed for
and on behalf of Telco to execute, under the seal of Telco or
otherwise, and to deliver articles of arrangement and such other
documents as are necessary or desirable to the Director under the OBCA
in accordance with the Acquisition Agreement for filing;
(d) the directors of Telco are hereby authorized and empowered (i) to amend
the Acquisition Agreement, or the Plan of Arrangement to the extent
permitted by the Acquisition Agreement, and/or (ii) not to proceed with
the Arrangement without further approval of the shareholders of Telco,
but only if the Acquisition Agreement is terminated in accordance with
Article VIII thereof; and
(e) any officer or director of Telco is hereby authorized and directed for
and on behalf of Telco to deliver or cause to be delivered, all such
other documents and instruments and to perform or cause to be performed
all such other acts and things as in such person's opinion may be
necessary or desirable to give full effect to the foregoing resolution
and the matters authorized thereby, such determination to be
conclusively evidenced by the execution and delivery of such document,
agreement or instrument or the doing of any such act or thing."
<PAGE>
EXHIBIT F
PLAN OF ARRANGEMENT UNDER SECTION 182
OF THE BUSINESS CORPORATIONS ACT (ONTARIO)
ARTICLE 1
DEFINITIONS AND INTERPRETATION
SECTION 1.01 DEFINITIONS: In this plan of arrangement except as provided below
and unless something in the subject matter or context is inconsistent therewith,
the following words and phrases shall have the meanings hereinafter set forth:
(a) "ACQUISITION AGREEMENT" means the Acquisition Agreement by and
among Parent, Canadian Sub, Amalgamation Sub and Company dated
February 8, 2000, as the same may be amended from time to
time;
(b) "AMALCO" means the amalgamated corporation formed under the
OBCA upon the amalgamation of Amalgamation Sub and Company;
(c) "AMALGAMATING CORPORATIONS" means Company and Amalgamation
Sub;
(d) "AMALGAMATION SUB" means 1400066 Ontario Inc., a corporation
incorporated under the OBCA and a wholly-owned subsidiary of
Company;
(e) "AMALGAMATION SUB COMMON SHARES" means the common shares in
the capital of Amalgamation Sub;
(f) "ARRANGEMENT" means the arrangement contemplated herein to be
made on the terms set out in this Plan;
(g) "ARRANGEMENT RESOLUTION" means the special resolution in
respect of the Arrangement considered and approved by Company
Common Shareholders at the Meeting;
(h) "CANADIAN DOLLAR EQUIVALENT" means, in respect of an amount
expressed in a foreign currency (the "FOREIGN CURRENCY
AMOUNT") at any date the product obtained by multiplying (a)
the Foreign Currency Amount by (b) the noon spot exchange rate
on such date for such foreign currency expressed in Canadian
dollars as reported by the Bank of Canada;
(i) "CANADIAN SUB" means Peregrine Nova Scotia Company, an
unlimited liability company incorporated under the COMPANIES
ACT (Nova Scotia) as a wholly-owned subsidiary of Parent;
(j) "CBCA" means the CANADA BUSINESS CORPORATIONS ACT, as now in
effect and as it may be amended from time to time prior to the
Effective Date, including the regulations made thereunder;
(k) "CERTIFICATE OF ARRANGEMENT" means the certificate of
arrangement endorsed upon the articles of arrangement of the
Company by the Director;
<PAGE>
(l) "COMPANY" means Telco Research Corporation Limited.;
(m) "COMPANY COMMON SHAREHOLDERS" means the registered holders of
Company Common Shares;
(n) "COMPANY COMMON SHARES" means the common shares in the capital
of Company and shall include, as applicable, common shares in
the capital of Amalco following the amalgamation of the
Company with Amalgamation Sub;
(o) "COMPANY OPTIONS" means the unexpired options, warrants and
other rights to purchase Company Common Shares which are
outstanding immediately prior to the Effective Time;
(p) "CONTINUANCE" means the continuance of Company under the OBCA
pursuant to section 188 of the CBCA and section 180 of the
OBCA;
(q) "CONTINUANCE RESOLUTION" means the special resolution in
respect of the Continuance considered and approved by the
Company Common Shareholders at the Meeting;
(r) "DIRECTOR" means the director appointed under the OBCA;
(s) "DISSENT PROCEDURES" shall have the meaning ascribed thereto
in Section 3.02;
(t) "DISSENT RIGHTS" shall have the meaning ascribed thereto in
Section 3.01;
(u) "DISSENTING SHAREHOLDER" means a holder of Company Common
Shares who dissents in respect of the Continuance Resolution
or the Arrangement Resolution in compliance with the Dissent
Procedures;
(v) "EFFECTIVE DATE" means the date of the Certificate of
Arrangement;
(w) "EFFECTIVE TIME" means 12:01 a.m. (Toronto time) on the
Effective Date;
(x) "EXCHANGE AGENT" means ChaseMellon Shareholder Services,
L.L.C.;
(y) "EXCHANGE RATIO" means 0.165017 (which reflects the
two-for-one stock split effected as a stock dividend paid by
Parent to holders of Parent Common Shares on February 18,
2000), subject to adjustment, if any, as provided herein;
(z) "MEETING" means the special meeting of Company Common
Shareholders, and all adjournments and postponements thereof,
called and held to, among other things, consider and approve
the Continuance Resolution and to consider and approve the
Arrangement Resolution;
(aa) "NASDAQ" means the Nasdaq National Market;
(bb) "OBCA" means the BUSINESS CORPORATIONS ACT (Ontario), as now
in effect and as it may be amended from time to time prior to
the Effective Date, including the regulations made thereunder;
(cc) "PARENT" means Peregrine Systems, Inc., a Delaware
corporation;
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<PAGE>
(dd) "PARENT COMMON SHARES" means the shares in the common stock of
Parent;
(ee) "REPLACEMENT OPTION"shall have the meaning ascribed thereto in
Section 2.02(d);
(ff) "THIS PLAN", "PLAN OF ARRANGEMENT", "HEREOF", "HEREIN",
"HERETO" and like references mean and refer to this plan of
arrangement.
Words and phrases used herein that are defined in the OBCA and not defined
herein shall have the same meaning herein as in the OBCA unless the context
otherwise requires.
SECTION 1.02 INTERPRETATION NOT AFFECTED BY HEADINGS, ETC.: The division of this
Plan into articles and sections and the insertion of headings are for
convenience of reference only and shall not affect the construction or
interpretation of this Agreement.
SECTION 1.03 GENDER AND NUMBER: Unless the context requires the contrary, words
importing the singular only shall include the plural and vice versa and words
importing the use of any gender shall include all genders.
ARTICLE 2
ARRANGEMENT
SECTION 2.01 BINDING EFFECT: This Plan of Arrangement will become effective at,
and be binding at and after, the Effective Time on (i) Parent, (ii) Canadian
Sub, (iii) Company, (iv) Amalgamation Sub, (v) all holders of Company Common
Shares, and (vi) all holders of Company Options.
SECTION 2.02 ARRANGEMENT: As of the Effective Time, the following events shall
occur and shall be deemed to occur in the following sequence without any further
act or formality:
(a) Company and Amalgamation Sub shall amalgamate and continue as
one corporation under the OBCA upon the following terms:
(i) the name of the amalgamated corporation will remain
"Telco Research Corporation Limited";
(ii) the Articles of Amalco shall be the Articles of
Company until amended;
(iii) the by-laws of Amalco shall be the by-laws of Company
until repealed, amended or altered;
(iv) the property and assets of each of Amalgamation Sub
and Company will become the property and assets of
Amalco and Amalco will be liable for all of the
liabilities and obligations of each of Amalgamation
Sub and Company; and
(v) each Amalgamation Sub Common Share shall be cancelled
without any repayment of capital in respect thereof;
(b) each holder of Company Common Shares (other than Parent, or
any direct or indirect subsidiaries of Parent) will obtain
0.165017 Parent Common Shares from Canadian Sub in exchange
for each Company Common Share held and Canadian Sub shall
cause the Exchange Agent to effect this exchange;
2
<PAGE>
(c) each Company Option shall be exchanged for an option (a
"REPLACEMENT OPTION") to purchase a number of Parent Common
Shares equal to the product of the Exchange Ratio multiplied
by the number of Company Common Shares issuable on exercise of
such Company Option immediately prior to the Effective Time,
rounded down to the nearest whole number. Such Replacement
Option shall provide for an exercise price per Parent Common
Share equal to the quotient determined by dividing the
exercise price per share of such Company Option immediately
prior to the Effective Time by the Exchange Ratio rounded up
to the nearest whole cent. If the foregoing calculation
results in a Replacement Option being exercisable for a
fraction of a Parent Common Share, then the number of Parent
Common Shares subject to such Replacement Option shall be
rounded down to the next whole number of Parent Common Shares
and the total exercise price for the Replacement Option will
be reduced by the exercise price of the fractional Parent
Common Share. The term to expiry, conditions to and manner of
exercising, vesting schedule, and all other terms and
conditions of such Replacement Option will otherwise be
unchanged, and any document or agreement previously evidencing
a Company Option shall thereafter evidence and be deemed to
evidence such Replacement Option; and
(d) all Company Common Shares then held by Parent or any of its
direct or indirect subsidiaries (other than Canadian Sub) will
be cancelled.
SECTION 2.03 ADJUSTMENT TO EXCHANGE RATIO: Except as set out in this Section
2.03, the Exchange Ratio shall be adjusted to reflect fully the effect of any
stock split, reverse split, stock dividend (including any dividend or
distribution of securities convertible into Parent Common Shares or Company
Common Shares other than stock dividends paid in lieu of ordinary course
dividends), reorganization, recapitalization or other like change with respect
to Parent Common Shares or Company Common Shares occurring after the date of the
Acquisition Agreement and prior to the Effective Time. Notwithstanding the
foregoing, the Exchange Ratio shall not be adjusted to take into account the
two-for-one stock split effected on a stock dividend paid by Parent to holders
of Parent Common Shares on February 18, 2000.
ARTICLE 3
RIGHTS OF DISSENT
SECTION 3.01 GENERAL: Notwithstanding Article 2, each Dissenting Shareholder is
entitled to be paid by the Company the fair value of the Company Common Shares
held by such holder in respect of which such holder dissents, determined as of
the close of business on the day before the date on which the Continuance
Resolution or the Arrangement Resolution is passed, as the case may be (and in
the event the Continuance and/or the Arrangement becomes effective) (the
"DISSENT RIGHTS"), provided that (i) such holder complies with Section 190 of
the CBCA (in respect of the Continuance Resolution) or Section 185 of the OBCA
(in respect of the Arrangement Resolution), and (ii) such holder shall not have
voted any of its Company Common Shares in favour of the Continuance Resolution
or the Arrangement Resolution, as the case may be, at the Meeting in person or
by proxy.
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<PAGE>
SECTION 3.02 TREATMENT OF DISSENTING SHAREHOLDERS: A Company Common
Shareholder who:
(a) properly exercises the Dissent Right by complying with all of
the procedures (the "DISSENT PROCEDURES") required to be
complied with by a Dissenting Shareholder in respect of the
Continuance or the Arrangement, will:
(i) be bound by the provisions of this Article 3,
(ii) be deemed not to have participated in the
Arrangement, and
(iii) cease to have any rights as a holder of Company
Common Shares other than the right to be paid the
fair value of such shares by the Company in
accordance with the Dissent Procedures, or
(b) seeks to exercise the Dissent Right, but:
(i) who for any reason does not properly fulfil each of
the Dissent Procedures required to be completed by a
Dissenting Shareholder,
(ii) subsequent to giving its written notice of dissent
provided for in Section 190 of the CBCA in respect of
the Continuance Resolution, acts inconsistently with
such dissent, or
(iii) subsequent to giving its written notice of dissent
provided for in Section 185 of the OBCA in respect of
the Arrangement Resolution, acts inconsistently with
such dissent,
will be deemed to have participated in the Continuance and the Arrangement on
the same basis as each Company Common Shareholder and shall receive such number
of Parent Common Shares as it is entitled to on the basis determined in
accordance with Article 2.
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<PAGE>
ARTICLE 4
CERTIFICATES AND FRACTIONAL SHARES
SECTION 4.01 ISSUANCE OF CERTIFICATES: At or promptly after the Effective Time,
Canadian Sub shall deposit with the Exchange Agent, for the benefit of the
holders of Company Common Shares who will receive Parent Common Shares in
connection with the Arrangement, certificates representing the Parent Common
Shares issuable pursuant to Section 2.02(b) upon the exchange of Company Common
Shares. Upon surrender to the Exchange Agent for cancellation of a certificate
which immediately prior to the Effective Date represented outstanding Company
Common Shares which were exchanged for Parent Common Shares pursuant to Section
2.02, together with a duly completed and validly executed letter of transmittal
and such other documents as the Exchange Agent deems necessary, the holder of
such surrendered certificate shall be entitled to receive in exchange therefor,
and the Exchange Agent shall deliver to such holder, a certificate representing
that number (rounded down to the nearest whole number) of Parent Common Shares
which such holder has the right to receive (together with any dividends or
distributions with respect thereto pursuant to Section 4.04 hereof and any cash
in lieu of fractional Parent Common Shares pursuant to Section 4.05 hereof), and
the certificate so surrendered shall forthwith be cancelled. Until surrendered
as contemplated by this Section 4.01, each certificate which immediately prior
to the Effective Date represented outstanding Company Common Shares that were
exchanged into Parent Common Shares in accordance with Section 2.02(b), shall be
deemed at any time after the Effective Date to represent only the right to
receive upon such surrender (i) the certificate representing Parent Common
Shares as contemplated by this Section 4.01, (ii) a cash payment in lieu of any
fractional Parent Common Shares as contemplated by Section 4.05 hereof and (iii)
any dividends or distributions with a record date after the Effective Date
theretofore paid or payable with respect to Parent Common Shares as contemplated
by Section 4.04 hereof.
SECTION 4.02 SHARE CERTIFICATES:
(a) As soon as practicable following the Effective Date, where a
holder of Company Common Shares has delivered to the Exchange
Agent a duly completed letter of transmittal, the certificates
representing such holder's Company Common Shares, and such
other documents as the Exchange Agent deems necessary,
Canadian Sub will cause the Exchange Agent either:
(i) to forward or cause to be forwarded by first class
mail to the holder at the address specified in the
letter of transmittal; or
(ii) if the letter of transmittal does not specify an
address, to forward or cause to be forwarded to the
holder at the address of the holder as shown on the
share register maintained by Company, as applicable;
certificates representing the Parent Common Shares required to
be delivered to such holder pursuant to the provisions hereof.
(b) As soon as practicable following the Effective Date, where a
holder of Company Common Shares has not delivered a letter of
transmittal and certificates contemplated by Section 4.02(a)
and has not exercised the Dissent Right in accordance with
Article 3, Canadian Sub will cause the Exchange Agent to make
available certificates representing the Parent Common Shares
required to be delivered to such holder pursuant to the
provisions hereof upon presentation of a duly completed letter
of transmittal, the
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certificates evidencing such holder's Company Common Shares,
and such other documents as the Exchange Agent deems
necessary.
(c) Any certificates formerly representing Company Common Shares
that, following the Effective Date, are not deposited with the
Exchange Agent, together with a duly executed letter of
transmittal, and such other documents as the Exchange Agent
deems necessary, on or before the sixth anniversary of the
Effective Date, shall cease to represent a right or claim of
any kind or nature and the right of the holder of such
securities to receive Parent Common Shares as provided for in
the Arrangement Agreement, shall be deemed to be surrendered
to Canadian Sub together with all dividends or distributions
thereon held for such holder.
SECTION 4.03 ENTITLEMENT TO OPTIONS: After the Effective Date, the holders of
outstanding Company Options shall be entitled to receive documentation
evidencing Replacement Options in accordance with the provisions of Section
2.02(c).
SECTION 4.04 DISTRIBUTIONS WITH RESPECT TO UNSURRENDERED CERTIFICATES: No
dividends or other distributions declared or made after the Effective Date with
respect to Parent Common Shares with a record date after the Effective Date
shall be paid to the holder of any unsurrendered certificate which immediately
prior to the Effective Date represented outstanding Company Common Shares that
were exchanged for Parent Common Shares pursuant to the procedures set out in
Article 2, and no cash payment in lieu of fractional shares shall be paid to any
such holder pursuant to Section 4.05 hereof, unless and until the holder of
record of such certificate shall surrender such certificate in accordance with
Section 4.01 hereof. Subject to applicable law, at the time of such surrender of
any such certificate (or, in the case of clause (iii) below, at the appropriate
payment date), there shall be paid to the record holder of the certificates
representing whole Parent Common Shares, without interest (i) the amount of any
cash payable in lieu of a fractional Parent Common Share to which such holder is
entitled pursuant to Section 4.05 hereof, (ii) the amount of dividends or other
distributions with a record date after the Effective Date theretofore paid with
respect to such Parent Common Shares, and (iii) the amount of dividends or other
distributions with a record date after the Effective Date but prior to surrender
and a payment date subsequent to surrender payable with respect to such Parent
Common Shares.
SECTION 4.05 NO FRACTIONAL SHARES: No certificates or scrip representing
fractional Parent Common Shares shall be issued upon the surrender for exchange
of certificates pursuant to Section 4.01 hereof and, subject to the last
sentence of this Section 4.05, no dividend, stock split or other change in the
capital structure of Parent shall relate to any such fractional security and
such fractional interests shall not entitle the owner thereof to vote or to
exercise any rights as a security holder of Parent. In lieu of any such
fractional securities, each person entitled to a fractional interest in a Parent
Common Share will receive from Canadian Sub an amount of cash (rounded to the
nearest whole cent), without interest, equal to the product (or, at the option
of Canadian Sub, the Canadian dollar equivalent of the product) of (i) such
fraction, multiplied by (ii) the average of the closing price for Parent Common
Shares on Nasdaq as of each of the five (5) consecutive trading days immediately
preceding the Effective Date as quoted in THE WALL STREET JOURNAL or other
reliable financial newspaper or publication. For the purposes of the preceding
sentence, a "trading day" means a day on which trading generally takes place on
Nasdaq and on which trading in Parent Common Shares has occurred and "Canadian
dollar equivalent" means the applicable United States dollar amount multiplied
by the noon spot rate on the day prior to the Effective Date for Canadian
dollars expressed in United States dollars as reported by the Bank of Canada.
SECTION 4.06 LOST CERTIFICATES: In the event any certificate which immediately
prior to the Effective Date represented outstanding Company Common Shares that
were exchanged pursuant to Section 2.02 shall have been lost, stolen or
destroyed, upon the making of an affidavit of that fact by the person
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claiming such certificate to be lost, stolen or destroyed, the Exchange Agent
will issue in exchange for such lost, stolen or destroyed certificate,
certificates representing Parent Common Shares (and any dividends or
distributions with respect thereto and any cash pursuant to Section 4.04 hereof)
deliverable in respect thereof as determined in accordance with Section 2.02
hereof. When authorizing such issuance and/or payment in exchange for any lost,
stolen or destroyed certificate, the person to whom certificates representing
Parent Common Shares are to be issued shall, at the discretion of Canadian Sub,
as a condition precedent to the issuance thereof, give a bond satisfactory to
Canadian Sub, in such sum as Canadian Sub may direct or otherwise indemnify
Canadian Sub in a manner satisfactory to Canadian Sub against any claim that may
be made against Canadian Sub with respect to the certificate alleged to have
been lost, stolen or destroyed.
ARTICLE 5
WITHHOLDING RIGHTS
SECTION 5.01 WITHHOLDING RIGHTS: Parent, Canadian Sub and Exchange Agent shall
be entitled to deduct and withhold from the consideration otherwise payable
pursuant to this Arrangement to any holder of Company Common Shares such amount
as Parent, Canadian Sub or the Exchange Agent determine is required to deduct
and withhold with respect to the making of such payment under the UNITED STATES
INTERNAL REVENUE CODE OF 1986, as amended, the INCOME TAX ACT (Canada) or any
provision of state, local, provincial or foreign tax law. To the extent that
amounts are so withheld, such withheld amounts shall be treated for all purposes
hereof as having been paid to the holder of the shares in respect of which such
deduction and withholding was made, provided that such withheld amounts are
actually remitted to the appropriate taxing authority. Parent, Canadian Sub and
the Exchange Agent are hereby authorized to sell or otherwise dispose of at fair
market value such portion of such consideration as is necessary to provide
sufficient funds to Parent, Canadian Sub or the Exchange Agent, as the case may
be, in order to enable it to comply with such deduction or withholding
requirement and Parent, Canadian Sub or the Exchange Agent shall give an
accounting to the holder with respect thereto and any balance of such proceeds
of sale.
ARTICLE 6
AMENDMENTS
SECTION 6.01 AMENDMENT OF THE ARRANGEMENT: Company reserves the right to amend,
modify and/or supplement this Arrangement at any time and from time to time
provided that any such amendment, modification, or supplement must be contained
in a written document which is (i) agreed to by Parent pursuant to the
Acquisition Agreement, (ii) filed with the Court and, if made following the
Company Meeting, approved by the Court and (iii) communicated to holders of
Company Common Shares in the manner required by the Court (if so required).
Any amendment, modification or supplement to this Arrangement may be proposed by
Company at any time prior to or at Company Meeting (provided that Parent shall
have consented thereto unless otherwise permitted by the Acquisition Agreement)
with or without any other prior notice or communication, and if so proposed and
accepted by the persons voting at Company Meeting (other than as may be required
under the Interim Order), shall become part of this Arrangement for all
purposes.
Any amendment, modification or supplement to this Arrangement which is approved
by the Court following Company Meeting shall be effective only (i) if it is
consented to by Company and (ii) if it is agreed to by Parent pursuant to the
Acquisition Agreement.
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Any amendment, modification or supplement to this Arrangement may be made
following the Effective Date unilaterally by Company, provided that (i) it is
agreed to by Parent pursuant to the Acquisition Agreement and (ii) it concerns a
matter which, in the reasonable opinion of Company, is of an administrative
nature required to better give effect to the implementation of this Arrangement
and is not adverse to the financial or economic interests of the holders of
Parent Common Shares.
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EXHIBIT G
NONCOMPETITION AGREEMENT
THIS NONCOMPETITION AGREEMENT is being executed and delivered as of
February __, 2000 by _______________ (the "Shareholder") in favor of and for the
benefit of PEREGRINE SYSTEMS, INC., a Delaware corporation ("Parent"), and TELCO
RESEARCH CORPORATION LIMITED, a Canada Business Corporations Act corporation
(the "Company").
RECITALS
A. As an employee and shareholder of the Company, Shareholder has
obtained and will obtain extensive and valuable knowledge and information
concerning the business of the Company (including confidential information
relating to the Company and its operations, assets, contracts, customers,
personnel, plans and prospects).
B. Contemporaneously with the execution and delivery of this
Noncompetition Agreement, the Company and its wholly-owned subsidiary are
entering into an Acquisition Agreement for Plan of Arrangement with Parent and a
subsidiary of Parent (the "Acquisition Agreement"), which provides (subject to
the conditions set forth therein) for a plan of arrangement among Parent, its
wholly-owned subsidiary and the Company and its wholly-owned subsidiary (the
"Arrangement"). It is contemplated that, as a result of the Arrangement, the
Company will become an indirect wholly-owned subsidiary of Parent, and
Shareholder will receive shares of common stock of Parent in exchange for
Shareholder's common shares of the Company.
C. It is also contemplated that, on the date as of which the
Arrangement becomes effective (the "Effective Date"), Shareholder will remain an
employee of the Company and, as such, will obtain extensive and valuable
knowledge and information concerning the business of Parent (including
confidential information relating to Parent and its operations, assets,
contracts, customers, personnel, plans and prospects).
D. In connection with the Arrangement (and as a condition to entering
into the Acquisition Agreement and consummating the Arrangement), and to more
fully secure unto Parent the benefits of the Arrangement, Parent has requested
that Shareholder enter into this Noncompetition Agreement; and Shareholder is
entering into this Noncompetition Agreement in order to induce Parent to
complete the transactions contemplated by the Acquisition Agreement.
E. Parent and Shareholder acknowledge that it would be detrimental to
Parent if Shareholder would compete with Parent following the Arrangement.
F. Both Parent and the Company have conducted, are conducting and will
continue to conduct their respective businesses on a worldwide basis.
<PAGE>
AGREEMENT
In order to induce Parent to enter into the Acquisition Agreement and
consummate the Arrangement, and in consideration of the issuance and delivery to
Shareholder of shares of common stock of Parent pursuant to the Acquisition
Agreement upon the closing of the Arrangement, Shareholder agrees as follows:
1. ACKNOWLEDGMENTS BY SHAREHOLDER. Shareholder acknowledges that the
promises and restrictive covenants that Shareholder is providing in this
Noncompetition Agreement are reasonable and necessary to the protection of
Parent's business and Parent's legitimate interests in its acquisition of the
Company (including the Company's goodwill) pursuant to the Acquisition
Agreement. Shareholder acknowledges that, in connection with the consummation of
the Arrangement, all of the Shareholder's common shares of the Company will be
exchanged for shares of common stock of Parent.
2. NONCOMPETITION. During the Restriction Period (as defined below),
Shareholder shall not (other than in connection with employment with the
Company, Parent, their successors, or assigns):
(a) engage in software development in the market for
infrastructure management software applications (including, without limitation,
related help desk, asset management, and facilities management applications);
(b) be or become an officer, director, shareholder, owner,
affiliate, salesperson, co-owner, partner, trustee, promoter, technician,
engineer, analyst, employee, agent, representative, supplier, consultant,
advisor or manager of or to, or otherwise acquire or hold any interest in, any
person or entity that competes in the market for infrastructure management
software applications (including, without limitation, related help desk, asset
management, and facilities management applications); or
(c) provide any service (as an employee, consultant or
otherwise), support, product or technology to any person or entity, if such
service, support, product or technology involves or relates to software
development in the market for infrastructure management software applications
(including, without limitation, related help desk, asset management, and
facilities management applications);
PROVIDED, HOWEVER, that nothing in this Section 2 shall prevent Shareholder from
owning as a passive investment less than 1% of the outstanding shares of the
capital stock of a publicly-held Company if (A) such shares are actively traded
on an established national securities market in the United States and (B)
Shareholder is not otherwise associated directly or indirectly with such
corporation or any affiliate of such corporation.
"Restriction Period" as used herein shall mean the period commencing on
the Effective Date and ending on the date that is 24 months from the Effective
Date; provided that notwithstanding the lapse of such period, the Restriction
Period shall continue for six months from the date of Shareholder's termination
of employment by Parent or any subsidiary of Parent for any reason.
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3. NONSOLICITATION. Shareholder further agrees that Shareholder
will not:
(a) personally or through others, encourage, induce, attempt
to induce, solicit or attempt to solicit (on Shareholder's own behalf or on
behalf of any other person or entity) during the Restricted Period any employee
of the Company, Parent or any of Parent's subsidiaries to leave his or her
employment with the Company, Parent or any of Parent's subsidiaries;
(b) employ, or permit any entity over which Shareholder
exercises voting control to employ, during the Restricted Period any person who
shall have terminated his or her employment with the Company, Parent or any of
Parent's subsidiaries, provided that the foregoing restriction shall not limit
the Shareholder's ability to employ any member of the Shareholder's immediate
family following the third anniversary of the closing of the Arrangement; or
(c) personally or through others, interfere or attempt to
interfere with the relationship or prospective relationship of the Company,
Parent or any of Parent's subsidiaries with any person or entity that is, was or
is expected to become a customer or client of the Company, Parent or any of
Parent's subsidiaries.
4. INDEPENDENCE OF OBLIGATIONS. The covenants and obligations of
Shareholder set forth in this Noncompetition Agreement shall be construed as
independent of any other agreement or arrangement between Shareholder, on the
one hand, and the Company or Parent on the other.
5. SPECIFIC PERFORMANCE. Shareholder agrees that in the event of any
breach by Shareholder of any covenant, obligation or other provision contained
in this Noncompetition Agreement, Parent and the Company shall be entitled (in
addition to any other remedy that may be available to them including but not
limited to a claim for damages based on the stock and cash consideration paid to
Shareholder by Parent) to the extent permitted by applicable law (a) a decree or
order of specific performance to enforce the observance and performance of such
covenant, obligation or other provision, and (b) an injunction restraining such
breach or threatened breach.
6. NON-EXCLUSIVITY. The rights and remedies of Parent and the Company
hereunder are not exclusive of or limited by any other rights or remedies which
parent or the Company may have, whether at law, in equity, by contract or
otherwise, all of which shall be cumulative (and not alternative). Without
limiting the generality of the foregoing, the rights and remedies of Parent and
the Company hereunder, and the obligations and liabilities of Shareholder
hereunder, are in addition to their respective rights, remedies, obligations and
liabilities under the law of unfair competition, misappropriation of trade
secrets and the like. This Noncompetition Agreement does not limit Shareholder's
obligations or the rights of Parent or the Company (or any affiliate of Parent
or the Company) under the terms of any other agreement between Shareholder and
Parent or the Company or any affiliate of Parent or the Company.
7. NOTICES. Any notice or other communication required or permitted to
be delivered to Shareholder, the Company or Parent under this Noncompetition
Agreement shall be in writing and shall be deemed properly delivered, given and
received when delivered (by hand, by registered mail, by courier or express
delivery service or by facsimile) to the address or facsimile telephone number
set forth beneath the name of such party below (or to such other address or
facsimile telephone
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number as such party shall have specified in a written notice delivered in
accordance with this Section 7):
IF TO PARENT: Peregrine Systems, Inc.
12670 High Bluff Drive
San Diego, California 92130
Attention: General Counsel
Facsimile No.: (619) 794-6033
IF TO SHAREHOLDER:
-----------------------------------
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8. SEVERABILITY. If any provision of this Noncompetition Agreement or
any part of any such provision is held under any circumstances to be invalid or
unenforceable in any jurisdiction, then (a) such provision or part thereof
shall, with respect to such circumstances and in such jurisdiction, be deemed
amended to conform to applicable laws so as to be valid and enforceable to the
fullest possible extent, (b) the invalidity or unenforceability of such
provision or part thereof under such circumstances and in such jurisdiction
shall not affect the validity or enforceability of such provision or part
thereof under any other circumstances or in any other jurisdiction, and (c) such
invalidity of enforceability of such provision or part thereof shall not affect
the validity or enforceability of the remainder of such provision or the
validity or enforceability of any other provision of this Noncompetition
Agreement. Each provision of this Noncompetition Agreement is separable from
every other provision of this Noncompetition Agreement, and each part of each
provision of this Noncompetition Agreement is separable from every other part of
such provision.
9. GOVERNING LAW. This Noncompetition Agreement shall be construed in
accordance with, and governed in all respects by, the laws of the Commonwealth
of Tennessee without giving effect to the conflicts of laws principles thereof.
10. WAIVER. No failure on the part of Parent or the Company to exercise
any power, right, privilege or remedy under this Noncompetition Agreement, and
no delay on the part of Parent or the Company in exercising any power, right,
privilege or remedy under this Noncompetition Agreement, shall operate as a
waiver of such power, right, privilege or remedy; and no single or partial
exercise of any such power, right, privilege or remedy shall preclude any other
or further exercise thereof or of any other power, right, privilege or remedy.
Neither Parent nor the Company shall be deemed to have waived any claim arising
out of this Noncompetition Agreement, or any power, right, privilege or remedy
under this Noncompetition Agreement, unless the waiver of such claim, power,
right, privilege or remedy is expressly set forth in a written instrument duly
executed and delivered on behalf of such party; and any such waiver shall not be
applicable or have any effect except in the specific instance in which it is
given.
11. CAPTIONS. The captions contained in this Noncompetition Agreement
are for convenience of reference only, shall not be deemed to be a part of this
Noncompetition Agreement
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and shall not be referred to in connection with the construction or
interpretation of this Noncompetition Agreement.
12. FURTHER ASSURANCES. Shareholder shall execute and/or cause to be
delivered to the Company and Parent such instruments and other documents and
shall take such other actions as Company and Parent may reasonably request to
effectuate the intent and purposes of this Noncompetition Agreement.
13. ENTIRE AGREEMENT. This Noncompetition Agreement, and the other
agreements referred to herein set forth the entire understanding of Shareholder,
the Company and Parent relating to the subject matter hereof and thereof and
supersede all prior agreements and understandings between any of such parties
relating to the subject matter hereof and thereof.
14. AMENDMENTS. This Noncompetition Agreement may not be amended,
modified, altered, or supplemented other than by means of a written instrument
duly executed and delivered on behalf of Parent and Shareholder.
15. ASSIGNMENT. This Noncompetition Agreement and all obligations
hereunder are personal to Shareholder and may not be transferred or assigned by
Shareholder at any time. Parent may assign its rights under this Noncompetition
Agreement to any entity in connection with any sale or transfer of all or
substantially all of Parent's assets to such entity.
16. BINDING NATURE. Subject to Section 15, this Noncompetition
Agreement will be binding upon Shareholder and Shareholder's representatives,
executors, administrators, estate, heirs, successors and assigns, and will inure
to the benefit of Parent and the Company and their respective successors and
assigns.
IN WITNESS WHEREOF, the undersigned has executed this Noncompetition
Agreement as of the date first above written.
SHAREHOLDER:
--------------------------------------
[Name of Shareholder]
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EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation of
our report dated March 17, 2000 on the financial statements of Telco Research
Corporation Limited and our report dated February 27, 1998 on the financial
statements of Telco Research Corporation included in this Form 8-K/A, into
Peregrine Systems, Inc. previously filed Registration Statements Files
No. 333-37105, 333-44699, 333-60423, 333-65541, 333-84355, 333-90325, 333-31850,
333-35536, 333-5504, and 333-31848.
/s/ Arthur Andersen LLP
San Diego, California
May 19, 2000
