<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 24, 2000.
REGISTRATION NO. 333-
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM F-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
SOPHEON PLC
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
ENGLAND AND WALES 7371 NONE
(State or other Jurisdiction (Primary Standard Industrial (I.R.S. Employer
of Incorporation or Classification Code Number) Identification Number)
Organization)
</TABLE>
STIRLING HOUSE
SURREY RESEARCH PARK
GUILDFORD, SURREY
GU2 5RF, UNITED KINGDOM
+44 (0) 1483 883000
(Address and telephone number, including area code, of registrant's principal
executive offices)
BARRY K. MENCE, CHAIRMAN AND CHIEF EXECUTIVE OFFICER
SOPHEON PLC
STIRLING HOUSE
SURREY RESEARCH PARK
GUILDFORD
SURREY GU2 5RF
UNITED KINGDOM
+44 (0) 1483 883000
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
COPIES TO:
<TABLE>
<S> <C> <C>
CHRISTOPHER C. CLEVELAND, ESQ. HUGH EDMUNDS, ESQ. THOMAS R. KING, ESQ.
BRIGGS AND MORGAN, HAMMOND SUDDARDS EDGE FREDRIKSON & BYRON, PA
PROFESSIONAL ASSOCIATION 18 SOUTHAMPTON PLACE 900 SECOND AVENUE SOUTH #1100
2400 IDS CENTER LONDON MINNEAPOLIS, MN 55402
MINNEAPOLIS, MN 55402 ENGLAND WC1A 2AJ (612) 347-7059
(612) 334-8400 011-44-20-7404-4701
</TABLE>
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO PUBLIC:
AS SOON AS PRACTICABLE AFTER THE REGISTRATION STATEMENT BECOMES EFFECTIVE.
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following and list
the Securities Act registration statement number of the earlier effective
registration statement for the same offering: / /
If this Form is a post-effective amendment filed pursuant to Rule 462 (d)
under the Securities Act, check the following and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering: / /
------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT TO OFFERING PRICE AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED BE REGISTERED PER SHARE OFFERING PRICE(1) REGISTRATION FEE
<S> <C> <C> <C> <C>
Ordinary Shares.................... 5,000,000 Shares Not applicable. $-0- $-0-
</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(f)(2) and (3) based on the par value of Teltech's
securities, less the cash to be paid by Sopheon in connection with the
merger.
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION ACTING PURSUANT TO SUCH SECTION 8(A)
MAY DETERMINE.
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
<PAGE>
TELTECH RESOURCE NETWORK CORPORATION
[LOGO]
August 25, 2000
Dear Teltech Shareholder:
The attached proxy statement/prospectus provides you with information
concerning the proposed merger of Teltech Resource Network Corporation and
Sopheon Corporation, a United States subsidiary of Sopheon plc, a company
organized in the United Kingdom, which was previously announced in March, 2000.
We encourage you to read the attached proxy statement/prospectus carefully.
Teltech's board of directors has carefully reviewed and considered the terms
and conditions of the proposed business combination and believe it will create
additional opportunities for Teltech stockholders by providing a stronger
platform from which to accelerate business. A merger of Teltech and Sopheon
would, in our view, better position the combined entity to introduce its range
of products and services to both new and existing customers on both sides of the
Atlantic. The boards of directors of Teltech and Sopheon have agreed, each by
unanimous approval, to the terms and conditions of the merger. THE BOARD OF
DIRECTORS OF TELTECH STRONGLY RECOMMENDS THAT TELTECH SHAREHOLDERS VOTE TO
APPROVE THE MERGER AGREEMENT AT THE SPECIAL MEETING. Under the merger, each
holder of Teltech stock or options will receive a mix of cash and Sopheon
shares, the precise combination and amount of which depends on the class of
shareholder or option holder and the market price of Sopheon shares at the date
the merger is completed. Illustrative details are provided in the attached
document. The total consideration payable to holders of shares and options in
Teltech, measured at the completion date, will be no less than $34 million and
could be higher depending on the Sopheon share price, during the period prior to
the closing.
This merger will create a knowledge management software and services group
with a substantial customer base in Europe and in the United States. Underpinned
as it will be by the development capital raised by Sopheon in March of this
year, we believe this merger will create a platform on which we will have the
opportunity to build a truly global business in knowledge management.
We are excited about the opportunities that lie ahead for the combined
companies.
<TABLE>
<S> <C>
Very truly yours, [SIGNATURE]
[SIGNATURE]
Joe Shuster, Barry Mence,
CHAIRMAN CHAIRMAN AND CHIEF EXECUTIVE OFFICER
TELTECH RESOURCE NETWORK CORPORATION SOPHEON PLC
</TABLE>
<PAGE>
TELTECH RESOURCE NETWORK CORPORATION
2850 METRO DRIVE
MINNEAPOLIS, MINNESOTA 55425
------------------------
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON SEPTEMBER 8, 2000
------------------------
TO THE SHAREHOLDERS OF TELTECH RESOURCE NETWORK CORPORATION:
NOTICE IS HEREBY GIVEN that a Special Meeting of the holders of common stock
and Series A, B, C, D and E preferred stock of Teltech Resource Network
Corporation, a Minnesota corporation, will be held at the offices of Teltech
Resource Network Corporation, 2850 Metro Drive, Seminar Room 108, Minneapolis,
Minnesota 55425, on Friday, September 8, 2000 at 8:00 a.m. local time. At the
special meeting, the holders of Teltech common stock and preferred stock will:
1. Consider and vote on a proposal to approve and adopt the Agreement and
Plan of Merger and Reorganization, dated as of January 21, 2000, as
amended April 28, 2000 and July 31, 2000, among Sopheon plc, Sopheon
Corporation, a wholly owned subsidiary of Sopheon plc, and Teltech
Resource Network Corporation, providing for the merger of Teltech
Resource Network Corporation with and into Sopheon Corporation. Sopheon
Corporation will be the surviving corporation wholly owned by Sopheon,
and each issued and outstanding share of Teltech common and preferred
stock, other than shares with respect to which dissenters' rights have
been properly exercised, will be converted into the right to receive cash
and Sopheon plc ordinary shares; and
2. Address procedural matters that may properly come before the special
meeting or any adjournment or postponement of the special meeting.
These items of business are more fully described in the proxy
statement/prospectus attached to this notice.
In connection with the merger, dissenters' rights will be available to
Teltech shareholders. Please see the section entitled "THE MERGER--Dissenters'
Rights" beginning on page 45 of the proxy statement/ prospectus for a discussion
of the availability of dissenters' rights and the procedures to be followed in
asserting dissenters' rights in connection with the proposed transactions.
Only those persons who were holders of record of our common or preferred
stock at the close of business on July 15, 2000, will be entitled to notice of,
and to vote at, the special meeting and any adjournment or postponement of the
special meeting. We cannot complete the merger unless a majority of our
shareholders vote for the merger.
YOUR VOTE IS IMPORTANT TO US. WHETHER OR NOT YOU PLAN TO ATTEND THE SPECIAL
MEETING IN PERSON AND REGARDLESS OF THE NUMBER OF SHARES OF COMMON OR PREFERRED
STOCK THAT YOU OWN, PLEASE COMPLETE, SIGN, DATE AND RETURN THE ENCLOSED PROXY
CARD PROMPTLY IN THE ENCLOSED PRE-ADDRESSED POSTAGE-PAID ENVELOPE. FAILURE TO
RETURN A PROPERLY EXECUTED PROXY CARD OR VOTE AT THE SPECIAL MEETING WILL HAVE
THE SAME EFFECT AS A VOTE AGAINST THE MERGER AGREEMENT.
PLEASE DO NOT SEND YOUR STOCK CERTIFICATES AT THIS TIME. In the event the
merger is consummated, you will be sent instructions regarding the procedures
for exchanging your existing stock certificates for a cash payment.
Minneapolis, Minnesota BY ORDER OF THE BOARD OF
DIRECTORS
August 25, 2000
Andrew L. Michuda
CHIEF EXECUTIVE OFFICER
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
--------
<S> <C>
QUESTIONS AND ANSWERS ABOUT THE MERGER...................... 2
SUMMARY..................................................... 9
MARKET PRICE DATA........................................... 16
CURRENCIES AND EXCHANGE RATES............................... 17
RISK FACTORS................................................ 18
Risks Relating to the Merger.............................. 18
Risks Relating to Sopheon................................. 19
Risks Relating to Teltech................................. 20
SELECTED FINANCIAL DATA..................................... 22
UNAUDITED CONDENSED PRO FORMA CONSOLIDATED FINANCIAL
INFORMATION OF SOPHEON.................................... 25
COMPARATIVE PER SHARE DATA.................................. 33
THE SPECIAL MEETING......................................... 34
Date, Time and Place of the Special Meeting............... 34
Matters to be Considered at the Special Meeting........... 34
Record Date............................................... 34
How Shares will be Voted at the Special Meeting........... 34
How to Revoke a Proxy..................................... 34
Required Vote; Quorum..................................... 35
Solicitation of Proxies................................... 36
THE MERGER.................................................. 37
Background of the Merger.................................. 37
Sopheon's Reasons for the Merger.......................... 40
Teltech's Reasons for the Merger.......................... 41
Recommendation of the Teltech Board; Additional
Considerations of the Teltech Board..................... 42
Financial Advisor to Teltech.............................. 43
Interests of Members of Teltech Board and Management in
the Merger.............................................. 43
Director and Officer Indemnification and Insurance........ 45
Accounting Treatment...................................... 45
Dissenters' Rights........................................ 45
Source and Amount of Funds and Other Consideration........ 48
Other Effects of the Merger............................... 48
Litigation................................................ 48
Regulatory Matters........................................ 48
MATERIAL TAX CONSEQUENCES................................... 49
General................................................... 49
United States Federal Income Tax Consequences to United
States Holders of Teltech Common Stock and Teltech
Preferred Stock......................................... 49
United States Federal Income Tax Consequences to United
States Holders of Employee Stock Options................ 50
United States Federal Income Tax Consequences to
Dissenting Shareholders................................. 50
United States Federal Income Tax Consequences of the
Ownership of Sopheon Ordinary Shares.................... 51
United Kingdom Tax Consequences of the Ownership of
Sopheon Ordinary Shares................................. 52
Qualifications............................................ 53
THE MERGER AGREEMENT........................................ 55
Structure of the Merger................................... 55
Effective Time and Effects of the Merger.................. 55
</TABLE>
i
<PAGE>
<TABLE>
<CAPTION>
PAGE
--------
<S> <C>
Merger Consideration...................................... 55
Exchange of Share Certificates............................ 59
Treatment of Teltech Stock Options and Warrants........... 59
Representations and Warranties............................ 60
Certain Covenants......................................... 61
Certain Other Covenants................................... 62
Additional Agreements..................................... 62
Conditions to Each Party's Obligation to Effect the
Merger.................................................. 62
Conditions to the Obligations of Teltech.................. 63
Conditions to the Obligations of Sopheon.................. 63
Amendments; Waivers....................................... 64
No Solicitation by Teltech................................ 64
Termination of the Merger Agreement....................... 64
Expenses and Termination Fees............................. 65
Dissenters' Rights........................................ 65
DESCRIPTION OF SOPHEON...................................... 66
Introduction.............................................. 66
History and Background.................................... 66
Technologies.............................................. 67
Healthcare Case Study..................................... 69
Channel Strategy and Partners............................. 71
Ongoing Product Development............................... 71
Recent Share Issuances.................................... 71
Properties................................................ 72
DIRECTORS AND MANAGEMENT OF SOPHEON......................... 73
Directors and Executive Officers.......................... 73
Security Ownership of Certain Beneficial Owners and
Management.............................................. 74
Compensation of Directors and Executive Officers.......... 75
Rights to Purchase Securities from Sopheon................ 75
SOPHEON MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS....................... 76
DESCRIPTION OF TELTECH...................................... 81
DIRECTORS AND MANAGEMENT OF TELTECH......................... 81
Directors and Executive Officers.......................... 81
Security Ownership of Certain Beneficial Owners and
Management.............................................. 82
TELTECH MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS....................... 84
DESCRIPTION OF SOPHEON ORDINARY SHARES...................... 88
General................................................... 88
Dividends................................................. 88
Preemptive Rights and New Issues of Shares................ 88
Disclosure of Interests in Shares......................... 88
Changes in Capital........................................ 89
Transfer of Shares........................................ 89
General Meetings and Notices.............................. 89
Liability of Directors and Officers....................... 90
Registrar................................................. 90
COMPARISON OF RIGHTS OF TELTECH SHAREHOLDERS AND SOPHEON
SHAREHOLDERS.............................................. 91
FEES AND EXPENSES........................................... 111
</TABLE>
ii
<PAGE>
<TABLE>
<CAPTION>
PAGE
--------
<S> <C>
VALIDITY OF SECURITIES...................................... 112
EXPERTS..................................................... 112
CHANGES IN ACCOUNTANTS...................................... 112
OTHER MATTERS............................................... 113
WHERE YOU CAN FIND MORE INFORMATION......................... 113
INDEX TO FINANCIAL STATEMENTS............................... F-1
APPENDIX A--AGREEMENT AND PLAN OF MERGER AND
REORGANIZATION............................................ A-1
APPENDIX B--SECTIONS 302A.471 AND 302A.473 OF THE MINNESOTA
BUSINESS CORPORATION ACT.................................. B-1
</TABLE>
iii
<PAGE>
PROSPECTUS
FOR
SOPHEON PLC
----------------
PROXY STATEMENT
FOR
TELTECH RESOURCE NETWORK CORPORATION
----------------
RELATING TO
THE MERGER OF TELTECH RESOURCE NETWORK CORPORATION
INTO A SUBSIDIARY OF SOPHEON PLC
The Teltech board of directors has unanimously approved a merger with
Sopheon plc. In the merger, Sopheon will issue ordinary shares and cash to
holders of Teltech common stock and Teltech preferred stock. After the merger,
Teltech shareholders are expected to hold approximately 2,419,505, or 6.7%, of
the outstanding ordinary shares of Sopheon.
Sopheon's ordinary shares are quoted on the Alternative Investment Market of
the London Stock Exchange, referred to as AIM, and the EURO.NM market of the
Amsterdam Exchanges. There is no U.S. trading market for Sopheon's ordinary
shares and none is expected to develop after the merger.
The merger requires the approval of a majority of the outstanding shares of
Teltech common stock and a majority of the outstanding shares of Teltech
preferred stock, voting together as a class. Approval also requires the
affirmative vote of the holders of the majority of outstanding shares of Teltech
preferred stock, voting as a single class. The directors of Teltech unanimously
recommend that the shareholders of Teltech vote "FOR" the merger.
This document provides you with detailed information about the proposed
merger. You are encouraged to read this entire document before you decide how
you wish to vote. YOU SHOULD ALSO CAREFULLY CONSIDER THE RISK FACTORS RELATING
TO THE MERGER BEGINNING ON PAGE 18 OF THIS DOCUMENT.
YOUR VOTE IS VERY IMPORTANT. To vote your shares, you may use the enclosed
proxy card or attend the special shareholder meeting. The special meeting will
be held on Friday, September 8, 2000, at 8:00 a.m., Central time, at the offices
of Teltech, 2850 Metro Drive, Seminar Room 108, Minneapolis, Minnesota, 55425.
If you fail to vote, the effect will be a vote against the merger.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved the Sopheon ordinary shares to be issued
in the merger, or determined if this proxy statement/prospectus is truthful or
complete. Any representation to the contrary is a criminal offense. This proxy
statement/prospectus does not constitute an offer to sell or a solicitation of
an offer to buy any securities in any jurisdiction where an offer or
solicitation would be illegal.
This proxy statement/prospectus is dated August 25, 2000 and will be mailed
to Teltech shareholders on or about August 25, 2000.
<PAGE>
QUESTIONS AND ANSWERS ABOUT THE MERGER
Q. WHY IS SOPHEON ACQUIRING TELTECH?
A. Sopheon and Teltech believe that the merger represents an opportunity for
each business to complement the other and to reach global markets more
effectively, and that the merger will generate significant opportunities to
deliver greater value to Sopheon shareholders.
Q. WHAT WILL TELTECH SHAREHOLDERS RECEIVE IN THE MERGER?
A. Sopheon will pay $14.0 million in cash and will issue Sopheon ordinary
shares and options with a minimum value of $20.0 million. Generally, the
cash and Sopheon ordinary shares will be allocated to Teltech's shareholders
as follows:
- Preferred shareholders will first receive cash and Sopheon ordinary shares
in a dollar amount equal to the preference for each series, as set forth
in Teltech's restated articles of incorporation.
- Common shareholders will receive an amount of cash and Sopheon ordinary
shares equal to the aggregate paid in capital of Teltech.
- Holders of certain Teltech options will receive options to purchase
Sopheon ordinary shares with a value equal to the dollar amount the option
holders would have received if they had exercised their Teltech options.
- Common and preferred shareholders will receive the remaining Sopheon
ordinary shares.
The following charts give examples of the total payout value per share that
Teltech shareholders could receive in the merger. To estimate the value you
will receive in the merger, refer to the chart for the series of Teltech
stock that you own. The dollar values appearing below each bar are assumed
average prices per Sopheon ordinary share in the 15 trading days ending on
the second day before the merger. The exact number and dollar value of the
Sopheon shares to be issued will depend on this average price and will be
determined on the effective date of the merger. The value may be higher than
shown in the tables, if additional options to purchase Teltech common stock
are exercised before the merger.
Sopheon is bearing the risk of a drop in its average share price or in the
value of the U.S. dollar relative to the pound. If the average closing price
per Sopheon ordinary share is less than $9.12, as converted into U.S.
dollars, Sopheon will issue additional shares and options so that the total
equity value remains at $20,000,000. This means that you will receive at
least the value shown in the three bars on the left side of the charts.
To obtain current information on the price of Sopheon ordinary shares,
please call (800) 327-2480. The market value for Sopheon ordinary shares on
August 22, 2000 was L4.60, or $6.83, at the exchange rate in effect on that
date.
2
<PAGE>
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
COMMON STOCK
<TABLE>
<CAPTION>
ASSUMED
AVERAGE
<S> <C> <C> <C>
PRICE PER TOTAL PAYOUT VALUE PER TELTECH SHARE
SOPHEON
SHARE CASH STOCK TOTAL
$7.30 $1.06 $1.92 $2.98
$8.20 $1.06 $1.92 $2.98
$9.12 $1.06 $1.92 $2.98
$11.55 $1.06 $2.49 $3.55
$16.51 $1.06 $3.65 $4.71
</TABLE>
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
SERIES A
<TABLE>
<CAPTION>
ASSUMED
AVERAGE
<S> <C> <C> <C>
PRICE PER TOTAL PAYOUT VALUE PER TELTECH SHARE
SOPHEON
SHARE CASH STOCK TOTAL
$7.30 $1.07 $1.98 $3.05
$8.20 $1.07 $1.98 $3.05
$9.12 $1.07 $1.98 $3.05
$11.55 $1.07 $2.55 $3.62
$16.51 $1.07 $3.71 $4.78
</TABLE>
3
<PAGE>
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
SERIES B
<TABLE>
<CAPTION>
ASSUMED
AVERAGE
<S> <C> <C> <C>
PRICE PER TOTAL PAYOUT VALUE PER TELTECH SHARE
SOPHEON
SHARE CASH STOCK TOTAL
$7.30 $2.01 $2.26 $4.27
$8.20 $2.01 $2.26 $4.27
$9.12 $2.01 $2.26 $4.27
$11.55 $2.01 $2.83 $4.84
$16.51 $2.01 $3.99 $6.00
</TABLE>
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
SERIES C
<TABLE>
<CAPTION>
ASSUMED
AVERAGE
<S> <C> <C> <C>
PRICE PER TOTAL PAYOUT VALUE PER TELTECH SHARE
SOPHEON
SHARE CASH STOCK TOTAL
$7.30 $3.92 $3.01 $6.93
$8.20 $3.92 $3.01 $6.93
$9.12 $3.92 $3.01 $6.93
$11.55 $3.92 $3.64 $7.56
$16.51 $3.92 $4.94 $8.86
</TABLE>
4
<PAGE>
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
SERIES D
<TABLE>
<CAPTION>
ASSUMED
AVERAGE
<S> <C> <C> <C>
PRICE PER TOTAL PAYOUT VALUE PER TELTECH SHARE
SOPHEON
SHARE CASH STOCK TOTAL
$7.30 $5.20 $3.52 $8.72
$8.20 $5.20 $3.52 $8.72
$9.12 $5.20 $3.52 $8.72
$11.55 $5.20 $4.20 $9.40
$16.51 $5.20 $5.60 $10.80
</TABLE>
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
SERIES E
<TABLE>
<CAPTION>
ASSUMED
AVERAGE
<S> <C> <C> <C>
PRICE PER TOTAL PAYOUT VALUE PER TELTECH SHARE
SOPHEON
SHARE CASH STOCK TOTAL
$7.30 $2.75 $2.47 $5.22
$8.20 $2.75 $2.47 $5.22
$9.12 $2.75 $2.47 $5.22
$11.55 $2.75 $3.04 $5.79
$16.51 $2.75 $4.20 $6.95
</TABLE>
5
<PAGE>
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
TELTECH OPTIONS
<TABLE>
<CAPTION>
ASSUMED
AVERAGE
<S> <C> <C>
PRICE PER TOTAL PAYOUT VALUE PER TELTECH OPTION SHARE
SOPHEON
SHARE STOCK TOTAL
$7.30 $2.98 $2.98
$8.20 $2.98 $2.98
$9.12 $2.98 $2.98
$11.55 $3.55 $3.55
$16.51 $4.71 $4.71
</TABLE>
Q. WHAT IS THE CURRENT TRADING PRICE OF SOPHEON STOCK?
A. On August 22, 2000, prior to the mailing of this proxy statement/prospectus,
Sopheon's shares closed at L4.60 per share. At the exchange rate on
August 22, 2000, this translates into $6.83 per share. See "MARKET PRICE
DATA" on page 16 for quarterly high and low prices for Sopheon shares from
1998 through June 2000 in UK pounds and Euros. Various exchange rates for
the U.S. dollar against the pound from 1995 through 1999 are included in a
table on page 17 under "CURRENCIES AND EXCHANGE RATES."
Q. WILL I OWE TAXES AS A RESULT OF THE MERGER?
A. Although the merger is a non-taxable transaction to Sopheon and Teltech, you
will be taxed as a Teltech shareholder. The cash you receive in the merger
for your shares of common or preferred stock and any cash you receive from
exercising your dissenter's rights will be subject to United States federal
income tax and also may be taxed under applicable state, local and other tax
laws. In general, you will recognize gain or loss equal to the difference
between (1) the amount of cash you receive and (2) the tax basis of your
shares of Teltech common and preferred stock. Teltech option holders who do
not exercise their options and who receive options to purchase Sopheon
ordinary shares will not be taxed in the merger. Refer to the section
entitled "MATERIAL TAX CONSEQUENCES" beginning on page 49 of this document
for a more detailed explanation of the tax consequences of the merger. You
should consult your tax advisor on how specific tax consequences of the
merger apply to you.
Q. WHEN IS THE MERGER EXPECTED TO BE COMPLETED?
A. Within a few business days after receiving the approval of Teltech's
shareholders at the upcoming shareholder meeting on September 8, 2000.
Q. SHOULD I SEND IN MY STOCK CERTIFICATES NOW?
A. No. After the companies complete the merger, Sopheon will send instructions
to Teltech shareholders whose shares were converted in the merger. These
instructions will explain how to exchange Teltech stock certificates for
Sopheon ordinary shares and cash.
6
<PAGE>
Q. WHO IS ENTITLED TO VOTE AT THE SPECIAL MEETING?
A. Holders of record of our common and preferred stock as of the close of
business on July 15, 2000 are entitled to vote at the special meeting. Each
shareholder has one vote for each share of common stock owned and one vote
for each share of common stock into which his or her preferred stock is
convertible.
Q. WHAT VOTE IS REQUIRED FOR THE TELTECH SHAREHOLDERS TO APPROVE THE MERGER?
A. In order for the merger to be approved, holders of a majority of our
outstanding common and preferred stock voting together must vote for the
merger. In addition, a majority of our outstanding preferred stock, voting
as a single class, must vote for the merger.
Q. HOW DO I VOTE?
A. After you have carefully read this document, simply mail your signed proxy
card in the enclosed postage-paid envelope to Jack Johnson at Teltech as
soon as possible, so that your shares will be represented and voted at the
Teltech special meeting. You may also vote in person at the Teltech special
meeting. If your shares are held in the name of a broker, bank or other
record holder, you must either direct the record holder as to how to vote
your shares or obtain a proxy from the record holder to vote at the special
meeting.
Q. IF MY SHARES ARE HELD FOR ME BY MY BROKER, WILL MY BROKER VOTE THOSE SHARES
FOR ME?
A. Your broker will vote your shares only if you provide instructions to your
broker on how to vote. You should instruct your broker on how to vote your
shares, using the instructions which will be provided to you by your broker
prior to the special meeting.
Q. DO I NEED TO ATTEND THE SPECIAL MEETING IN PERSON?
A. No. It is not necessary for you to attend the special meeting in order to
vote your shares, although you are welcome to attend.
Q. CAN I CHANGE MY VOTE?
A. Yes. You may withdraw your proxy or change your vote by delivering a
later-dated, signed written notice of revocation or proxy card to Jack
Johnson at Teltech before the Teltech special meeting or by voting in person
at the Teltech special meeting.
Q. WILL I HAVE THE RIGHT TO HAVE MY SHARES APPRAISED IF I DISSENT FROM THE
MERGER?
A. Yes. You will have dissenter's rights. If you wish to exercise your
dissenter's rights, you must not vote in favor of the merger and you must
strictly follow the requirements of Minnesota law. A summary describing the
requirements you must meet in order to exercise your dissenter's rights is
provided in the section entitled "THE MERGER--Dissenters' Rights" beginning
on page 45 of this document.
Q. WHAT HAPPENS TO THE MERGER IF MORE THAN 10% OF TELTECH SHARES DISSENT FROM
IT?
A. If more than 10% of Teltech's common shares dissent from the merger, Sopheon
has the right to not proceed with the merger, at Sopheon's option.
Q. WILL THE SOPHEON SHARES I RECEIVE BE FREELY TRADABLE?
A. Yes, except that shareholders of Teltech who own more than 5,000 shares of
Teltech will be asked to enter into agreements not to sell the Sopheon
shares received in the merger for a limited
7
<PAGE>
period of time. Shareholders who are employed by Teltech and who own more
than 5,000 Teltech shares will not be able to sell their Sopheon shares for
12 months following the merger. Other shareholders who own more than 5,000
shares of Teltech may not sell their Sopheon shares for six months following
the merger.
Q. HOW CAN I TRADE THE SOPHEON SHARES THAT I RECEIVE?
A. The Sopheon shares you receive in the merger can be traded on the
Alternative Investment Market of the London Stock Exchange. There is no
trading market at the present time for Sopheon shares in the United States.
In order to trade Sopheon shares, Teltech shareholders will need to buy or
sell through a broker in the United Kingdom.
Q. WAS A FAIRNESS OPINION OBTAINED BY TELTECH'S BOARD?
A. No. With the assistance of an investment banker, Teltech conducted an
extensive market check for a strategic buyer over a period of approximately
16 months. This resulted in only one firm offer which the Board deemed to be
reasonable and fair, that being the Sopheon offer. Management had advised
the Board that in order to generate acceptable growth, it would require
significant additional cash and personnel resources, resources to which
Teltech did not have access. In addition, most of Teltech's shareholders
have been investors in Teltech for over 10 years. Although Teltech had
sought to provide its shareholders with an exit strategy through initial
public offering attempts and strategic relationships, it has been unable to
provide shareholders with liquidity. Given the business and shareholder
requirements to effect a strategic sale of Teltech, the fact that Teltech is
a private company, the extensive sales process conducted by Teltech and the
terms of the merger agreement with Sopheon which guarantees Teltech's
shareholders and optionholders a MINIMUM of $34 million in cash and stock,
which consideration can be increased, the Teltech Board of Directors does
not believe a fairness opinion is necessary.
Q. ARE THERE ANY MATERIAL DISADVANTAGES OR EFFECTS OF THE MERGER?
A. Teltech's board and management team believe the merger addresses critical
issues for Teltech and its shareholders, and has few disadvantages. Teltech
has been looking for a way to give its shareholders liquidity, and has also
been looking for additional equity to permit it to implement its growth
strategy. The merger provides both of these things. Disadvantages to the
merger are minimal, such as the fact that Sopheon is a foreign issuer and
trading in Sopheon shares will likely be more complicated for Teltech
shareholders than if the acquirer were a U.S. issuer. There are also market
risks associated with holding a significant number of shares of Sopheon
common stock, and risks related to Sopheon's ability to integrate Teltech
and its other recently acquired businesses. You should review the risks
described under "RISK FACTORS" beginning on page 18.
Q. WHO CAN I CALL WITH QUESTIONS?
A. If you have more questions about the merger, you should contact:
Jack Johnson
Teltech Resource Network Corporation
2850 Metro Drive
Minneapolis, Minnesota 55425
(952) 583-1560 or (800) 327-2480
8
<PAGE>
SUMMARY
You should read the entire document to fully understand the merger.
THE COMPANIES
SOPHEON PLC
Stirling House
Surrey Research Park
Guildford
Surrey GU2 5RF
United Kingdom
+44 (0) 1483 883000
Sopheon, formerly named PolyDoc plc, develops and implements software
applications that support business activities involving the creation,
maintenance, exchange and re-use of knowledge. The software, generally termed
knowledge management software, is particularly relevant to information based on
text, concepts, and images, as distinct from numeric and statistical data which
is typically catered for by accounting, order processing and similar systems.
Examples of industry sectors which have particular need for help with knowledge
management are healthcare, life sciences and high technology manufacturing, and
Sopheon has focused its efforts to meet the requirements of these sectors.
Sopheon also offers software system integration and consulting services to
support the implementation of its products.
Sopheon has developed a generic, flexible software platform that can be
customized to specific customer requirements through standardized methods,
either by Sopheon directly or by its business partners, which include consulting
firms, system integrators and other software development companies.
Sopheon has operations in the United Kingdom, the United States and the
Netherlands and has approximately 110 employees as of the date of this document.
It is quoted on the Alternative Investment Market (AIM) of the London Stock
Exchange and the EURO.NM market of the Amsterdam Exchanges.
TELTECH RESOURCE NETWORK CORPORATION
2850 Metro Drive
Minneapolis, Minnesota 55425
(800) 833-8330
Teltech Resource Network Corporation is a full-service research and
knowledge-management company that focuses its services on the needs of
technology-driven companies. Its research services include access to technical
and industry experts organized in teams dedicated to the chemical, life science,
electronics, mechanical engineering and business/legal disciplines. Teltech also
conducts "in-depth" research of technologies, competitors, industries and
markets. In the knowledge-management area, Teltech designs and develops
customized knowledge-management strategies to meet customers' goals such as
product development, increased efficiency and improved profitability.
Teltech has operations in the United States and has approximately 125
employees at the present time. Its shares of capital stock are not traded on any
exchange.
THE MERGER (SEE PAGE 37)
The merger agreement provides that, following the approval of the merger
agreement by the shareholders of Teltech and the satisfaction and waiver of the
other conditions to the merger, Teltech
9
<PAGE>
will merge with Sopheon Corporation, a wholly owned subsidiary of Sopheon, with
Sopheon Corporation being the surviving entity.
The total merger consideration will have a value of at least $34,000,000. In
the merger, Teltech shareholders will receive Sopheon ordinary shares and cash.
Certain Teltech option holders will receive options to purchase Sopheon ordinary
shares. Sopheon will pay a minimum of $14,000,000 in cash plus Sopheon ordinary
shares and options to purchase Sopheon ordinary shares having a total minimum
value of $20,000,000, based on the average closing price and average exchange
rate for the 15 trading days ending on the second trading day before the merger.
If the average closing price per Sopheon ordinary share is less than $9.12,
Sopheon will issue additional shares and grant additional options so that the
total equity value remains at $20,000,000. In addition, Sopheon will increase
the total cash consideration by the amount paid to Teltech upon the exercise of
Teltech stock options between January 21, 2000 and the effective date of the
merger. Sopheon will also grant additional options to purchase Sopheon ordinary
shares equal in value to the aggregate exercise price of certain Teltech options
that are not exercised before the merger.
See "Questions and Answers" for a summary of the cash and stock that
Teltech's shareholders will receive in the merger.
RECOMMENDATION OF THE TELTECH BOARD (SEE PAGE 42)
The Teltech board has unanimously determined that the merger is in the best
interests of Teltech and its shareholders and has approved the merger and the
merger agreement and declared their advisability. Accordingly, the Teltech board
recommends that Teltech shareholders vote "FOR" approval and adoption of the
merger agreement and the merger.
SOURCE AND AMOUNT OF FUNDS (SEE PAGE 48)
Sopheon will pay $14.0 million in cash to Teltech shareholders in the
merger. This payment, as well as expenses related to the merger, will be
financed by the proceeds from a private placement of Sopheon ordinary shares in
the United Kingdom, which was completed in March 2000, as well as from generally
available funds of Sopheon.
INTERESTS OF MEMBERS OF THE TELTECH BOARD AND MANAGEMENT (SEE PAGE 43)
Teltech's officers and directors hold 282,188 shares of Teltech common stock
and Teltech preferred stock, and options and warrants to purchase 1,153,209
shares of Teltech common stock and Teltech preferred stock. Each officer and
director will receive the same consideration for his Teltech stock as any other
Teltech shareholder or optionholder. Holders of each of the various series of
Teltech's preferred shares have the right to a payment before any payment may be
made to holders of common shares, as set forth in the following table:
<TABLE>
<CAPTION>
SERIES OF PREFERRED STOCK PREFERENCE PER SHARE
------------------------- --------------------
<S> <C>
Series A.................................................. $1.38058
Series B.................................................. 2$.60
Series C.................................................. 5$.05
Series D.................................................. 6$.70
Series E.................................................. 3$.55
</TABLE>
Options held by Teltech's management have exercise prices which range from
$1.00 per share to $3.55 per share. The options generally vest over four years,
and usually have a term of 10 years, although both the vesting and term vary
from option to option. In connection with the merger, Teltech's Board of
Directors will accelerate the vesting of all options to purchase Teltech stock
prior to the merger, including those owned by management. Upon acceleration of
the vesting of the options,
10
<PAGE>
under the terms of the stock option agreements, the holder of the option will
have the right to purchase the full number of shares subject to the option at
the option's exercise price. Certain of Teltech's officers will continue as
employees of the surviving corporation, and may be awarded Sopheon ordinary
shares and options to purchase Sopheon ordinary shares as participants in
Sopheon's incentive plans.
RISK FACTORS (SEE PAGE 18)
In determining whether to vote to approve and adopt the merger agreement,
you should consider carefully the risk factors described in this document,
including the risks that:
- the expected benefits from the merger may not be realized;
- there is no United States trading market for the Sopheon ordinary shares
you will receive in the merger; and
- the value of Sopheon ordinary shares that you will receive in the merger
will fluctuate.
CONDITIONS TO THE MERGER (SEE PAGE 62)
Sopheon and Teltech will not complete the merger unless a number of
conditions are satisfied or waived by them. These include:
- approval by Teltech shareholders;
- all required approvals from government entities having been obtained;
- the board of directors of Teltech not having revoked its approval of the
merger;
- the representations and warranties of Sopheon and Teltech in the merger
agreement being accurate in all material respects;
- there having been no material adverse event or effect upon Teltech since
the date of the merger agreement;
- dissenting shares not constituting more than 10% of the shares of Teltech
common stock outstanding immediately prior to the effective time of the
merger;
- Sopheon having taken all necessary action under English law and the
Amsterdam and London Stock Exchanges necessary to approve the merger;
- shares of Sopheon ordinary shares issuable to Teltech shareholders in the
merger having been admitted to trading on the Alternative Investment
Market of the London Stock Exchange; and
- holders of 5,000 or more shares of Teltech stock having entered into
agreements not to sell the Sopheon shares received in the merger for six
months after the merger in the case of non-employees or 12 months after
the merger in the case of employees.
TERMINATION OF THE MERGER AGREEMENT (SEE PAGE 64)
Either Sopheon or Teltech may terminate the merger agreement if it is not in
material breach of the merger agreement and:
- Sopheon and Teltech do not complete the merger by September 30, 2000; or
- the shareholders of Teltech do not approve the merger; or
- a governmental authority permanently restrains, enjoins or otherwise
prohibits the merger.
11
<PAGE>
Sopheon may terminate the merger agreement if:
- the board of directors of Teltech withdraws its recommendation of the
merger to its shareholders; or
- Teltech recommends another acquisition transaction proposed by a third
party; or
- Teltech breaches any of its representations, warranties or agreements
under the merger agreement, and this breach results in the failure of a
condition to the merger to be met which cannot be or is not cured within
10 days; or
- The average closing price for Sopheon ordinary shares falls below $7.30
per share, as converted into U.S. dollars.
Teltech may terminate the merger agreement if Sopheon breaches any of its
representations, warranties or agreements under the merger agreement, and this
breach results in the failure of a condition to the merger to be met which
cannot be or is not cured within 10 days.
EXPENSES AND TERMINATION FEES (SEE PAGE 65)
Teltech will be required to pay Sopheon a termination payment of $1,500,000
if the merger agreement is terminated if:
- the board of directors of Teltech withdraws its recommendation of the
merger to its shareholders; or
- the board of directors of Teltech recommends another acquisition
transaction proposed by a third party; or
- Teltech intentionally breaches a material representation, warranty or
agreement made in the merger agreement which cannot be or is not cured
within 10 days.
Sopheon would have been required to pay Teltech a termination payment not to
exceed $200,000 in the event Teltech terminated the merger agreement because
Sopheon was unable to raise required funding to consummate the transaction.
Because Sopheon completed a private offering of 2,500,000 ordinary shares and
raised L19.9 million, net of offering costs, this requirement has been met.
DISSENTERS' RIGHTS (SEE PAGE 45)
Under Minnesota law, holders of Teltech common stock or preferred stock have
the right to demand and to receive, instead of what Sopheon is offering in the
merger, an amount that a court decides is the fair value of the shares of
Teltech stock. This amount may be more or less than the value of what these
holders would otherwise receive in the merger. Sopheon is not obligated to
complete the merger if dissenting shares constitute more than 10% of the shares
of Teltech common stock outstanding immediately prior to the effective time of
the merger. Dissenters are not required to return any amounts received by them
in excess of the fair value of the shares as determined by the Court.
Holders of Teltech stock wishing to exercise dissenters' rights must not
vote in favor of the merger and must take the steps described in the section
entitled "THE MERGER--Dissenters' Rights" and set forth in full in Appendix B.
ACCOUNTING TREATMENT (SEE PAGE 45)
Sopheon will account for the merger as an acquisition under accounting
principles generally accepted in the United Kingdom, which is similar to
purchase accounting under generally accepted accounting principles in the United
States.
12
<PAGE>
UNITED STATES FEDERAL INCOME TAX CONSEQUENCES (SEE PAGE 49)
The merger will be a tax-free reorganization for federal income tax
purposes. The merger will be tax-free to United States holders of Teltech common
and preferred stock, except with respect to cash received in the merger. Teltech
option holders who do not exercise their options and who receive options to
purchase Sopheon ordinary shares will not be taxed in the merger. You are urged
to consult your tax adviser to determine the specific tax consequences of the
merger to you.
RECORD DATE FOR VOTING; VOTE REQUIRED OF TELTECH SHAREHOLDERS (SEE PAGE 34)
You can vote at the special meeting of Teltech shareholders if you owned
Teltech common stock or Teltech preferred stock on July 15, 2000.
In order to complete the merger, it must be approved by holders of a
majority of the outstanding shares of Teltech common stock and a majority of the
outstanding shares of Teltech preferred stock voting together. Each share of
Teltech stock outstanding on the record date is entitled to the number of votes
shown in the following table:
<TABLE>
<CAPTION>
NUMBER OF
TYPE OF SHARES VOTES PER SHARE
-------------- ---------------
<S> <C>
Common...................................................... 1.00
Series A Preferred.......................................... 1.00
Series B Preferred.......................................... 1.00
Series C Preferred.......................................... 1.122222
Series D Preferred.......................................... 1.207207
Series E Preferred.......................................... 1.00
</TABLE>
There are no other classes of voting securities of Teltech presently
outstanding. As of the record date, directors and executive officers of Teltech
and their affiliates owned approximately 9.40% and 49.19% of the outstanding
shares of Teltech common stock and Teltech preferred stock, respectively.
COMPARISON OF RIGHTS OF HOLDERS OF SOPHEON ORDINARY SHARES WITH HOLDERS OF
TELTECH COMMON STOCK (SEE PAGE 91)
As a result of the merger, holders of Teltech stock will receive Sopheon
ordinary shares. There are numerous differences between the rights of a
shareholder in Teltech, a Minnesota corporation, and the rights of a shareholder
in Sopheon, an English company. For example,
- except in limited circumstances, holders of Sopheon ordinary shares will
not be entitled to dissenters' rights in mergers or any other types of
transactions;
- only holders representing 5% or more of the voting power of Sopheon will
be able to make proposals at a shareholders meeting;
- persons acquiring 3% or more of the voting power of Sopheon will generally
be required to make public disclosures and notifications with respect to
their ownership;
- amendments to the memorandum and articles of association of Sopheon will
require the approval of at least 75% of the votes cast at a shareholders
meeting;
- Sopheon generally will not be permitted the same freedom as Teltech has to
adopt defensive measures in the event of a takeover bid; and
- although holders of Sopheon ordinary shares will be permitted to initiate
lawsuits on behalf of the company in limited circumstances, holders will
not be able to initiate class action lawsuits against Sopheon.
You should also be aware that it may be difficult to effect service of
process to begin a lawsuit in a United States court against directors and
officers of Sopheon, unless they become residents of the United States.
13
<PAGE>
SOPHEON SUMMARY FINANCIAL DATA
The following table sets forth the:
- historical financial data as of December 31, 1999 and 1998 and for the
years ended December 31, 1999, 1998 and 1997 of Sopheon; and
- summary unaudited pro forma condensed consolidated financial data as of
and for the year ended December 31, 1999 of Sopheon.
The pro forma profit and loss account data give effect to the acquisitions
of AppliedNet and Teltech as if the transactions had occurred on January 1,
1999. The pro forma balance sheet data give effect to the acquisitions as if
they had occurred on December 31, 1999.
The summary of historical financial data for 1999, 1998 and 1997 and the
summary of the historical balance sheet as at December 31, 1999 and 1998 have
been derived from the audited financial statements of Sopheon. These financial
statements have been included as part of this proxy statement/prospectus.
The unaudited pro forma financial data have been provided for information
purposes only. They are not necessarily indicative of future results or what
operating results would have been if the acquisitions of AppliedNet and Teltech
had been consummated on the dates assumed.
The following information has been prepared in accordance with UK GAAP. The
differences between US and UK GAAP have been described in Note 20 of the Notes
to the Financial Statements of Sopheon and Note 12 of the Notes to the Financial
Statements of AppliedNet.
AMOUNTS IN ACCORDANCE WITH UK GAAP
PROFIT AND LOSS ACCOUNT DATA
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------
PRO FORMA
1997* 1998* 1999* 1999
-------- -------- -------- ---------
(L THOUSANDS, EXCEPT PER SHARE AND SHARE
DATA)
<S> <C> <C> <C> <C>
Turnover................................... 241 891 1,510 13,681
Cost of sales.............................. (709) (608) (983) (8,428)
------ ------ ------ -------
Gross profit/(loss)........................ (468) 283 527 5,253
Sales and marketing expenses............... (484) (502) (760) (2,486)
Administration expenses.................... (856) (913) (1,799) (4,545)
Other operating income/(expense)........... 136 29 16 (1,110)
Amortization of goodwill................... -- -- -- (9,809)
------ ------ ------ -------
Operating loss............................. (1,672) (1,103) (2,016) (12,697)
Bank interest receivable................... 46 13 62 104
Interest payable and similar charges....... (6) (52) (118) (232)
------ ------ ------ -------
Loss for the year.......................... (1,632) (1,142) (2,072) (12,825)
====== ====== ====== =======
Loss per share, basic and diluted.......... (8.7)p (6.1)p (10.1)p (36.5)p
</TABLE>
BALANCE SHEET DATA
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------
PRO FORMA
1998* 1999* 1999
-------- -------- ---------
(L THOUSANDS)
<S> <C> <C> <C>
Cash and cash equivalents.......................... 127 7,751 7,751
Total assets....................................... 1,171 17,104 42,726
Creditors: amounts falling due after more than one
year............................................. (3) (55) (230)
Total shareholders' funds.......................... (864) 13,479 34,977
</TABLE>
------------------------
* Prior year amounts have been restated following the change of accounting
policy to write-off all development expenditure incurred (see Note 17 of
Notes to the Financial Statements).
14
<PAGE>
TELTECH SUMMARY FINANCIAL DATA
The following table sets forth summary statements of operations data for the
year ended December 31, 1999, 1998 and 1997 and summary balance sheet data as of
December 31, 1999 and 1998. These data have been derived from the audited
financial statements of Teltech included as part of this proxy
statement/prospectus.
STATEMENTS OF OPERATIONS DATA
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------
1997 1998 1999
-------- -------- --------
(U.S. DOLLARS IN THOUSANDS,
EXCEPT PER SHARE AND SHARE
DATA)
<S> <C> <C> <C>
Revenues............................................ 18,359 16,436 16,199
Cost of revenues.................................... 11,523 11,124 9,965
------ ------ ------
Gross profit........................................ 6,836 5,312 6,234
Operating expenses.................................. 6,254 5,648 6,143
------ ------ ------
Operating income (loss)............................. 582 (336) 91
Other income (expense), net......................... 32 (20) (183)
------ ------ ------
Net income (loss)................................... 614 (356) (92)
====== ====== ======
Net income (loss) per common and common equivalent
share, diluted.................................... 0.09 (0.22) (0.10)
====== ====== ======
Weighted average number of common and common
equivalent shares outstanding, diluted............ 6,666 2,450 2,451
====== ====== ======
</TABLE>
BALANCE SHEET DATA
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1998 1999
-------- --------
(U.S. DOLLARS IN
THOUSANDS)
<S> <C> <C>
Working capital (deficit)................................. (2,611) (2,927)
Total assets.............................................. 4,768 5,010
Redeemable convertible preferred stock.................... 16,204 16,346
Total stockholders' equity (deficit)...................... (17,786) (18,017)
</TABLE>
15
<PAGE>
MARKET PRICE DATA
Sopheon's shares are listed on the Alternative Investment Market of the
London Stock Exchange. Quarterly high and low share prices for Sopheon on AIM
are given below.
<TABLE>
<CAPTION>
PERIOD HIGH (UK PENCE) LOW (UK PENCE)
------ --------------- --------------
<S> <C> <C>
First Quarter 1998............................. 272 142
Second Quarter 1998............................ 232 172
Third Quarter 1998............................. 217 145
Fourth Quarter 1998............................ 147 120
First Quarter 1999............................. 157 141
Second Quarter 1999............................ 175 152
Third Quarter 1999............................. 159 132
Fourth Quarter 1999............................ 405 126
First Quarter 2000............................. 1,762 435
Second Quarter 2000............................ 1,025 435
</TABLE>
Sopheon's shares are also listed on the EURO.NM market of the Amsterdam
Exchanges. The shares traded on the EURO.NM are recorded through a single
nominee account in the shareholders' register. Of the total shares issued at the
present time, less than 10% are in the name of this nominee account. Quarterly
high and low share prices for Sopheon on EURO.NM are given below.
<TABLE>
<CAPTION>
PERIOD HIGH (EURO) LOW (EURO)
------ ------------- ------------
<S> <C> <C>
First Quarter 1998............................. 4.44 2.31
Second Quarter 1998............................ 3.95 2.72
Third Quarter 1998............................. 3.68 1.90
Fourth Quarter 1998............................ 2.22 1.82
First Quarter 1999............................. 2.25 1.75
Second Quarter 1999............................ 2.75 2.10
Third Quarter 1999............................. 2.45 1.90
Fourth Quarter 1999............................ 6.00 1.75
First Quarter 2000............................. 27.00 5.30
Second Quarter 2000............................ 17.95 7.25
</TABLE>
There is no trading market at the present time for Sopheon shares in the
United States, and Sopheon has not been notified of any holdings by United
States investors.
There is no public trading market for Teltech stock.
Teltech shareholders are urged to obtain current market quotations for
Sopheon ordinary shares before making a decision with respect to the merger.
16
<PAGE>
CURRENCIES AND EXCHANGE RATES
References in this document to "United States dollars," "$" or "cents" are
to the currency of the United States and references to "pounds sterling,"
"pounds," "L," "pence" or "p" are to the currency of the United Kingdom. There
are 100 pence to each pound. Solely for your convenience, this document contains
translations of certain pounds sterling amounts into United States dollars at
specified rates. You should not take these translations as assurances that the
pounds sterling amounts currently represent United States dollar amounts or
could be converted into United States dollars at the rate indicated or at any
other rate, at any time.
The table below sets forth, for the periods and dates indicated, the
exchange rate for the United States dollar against the pound based on the noon
buying rate, expressed in dollars per pound sterling. The period average is
based on the average of the noon buying rates on the last day of the month
during the period.
<TABLE>
<CAPTION>
PERIOD PERIOD
YEAR ENDED DECEMBER 31, HIGH LOW AVERAGE END
----------------------- -------- -------- -------- --------
<S> <C> <C> <C> <C>
1995............................................. 1.64 1.53 1.58 1.55
1996............................................. 1.71 1.49 1.57 1.71
1997............................................. 1.70 1.58 1.64 1.64
1998............................................. 1.72 1.61 1.66 1.66
1999............................................. 1.65 1.58 1.61 1.62
</TABLE>
On August 22, 2000, the exchange rate for the United States dollar against
the pound, based on the noon buying rate, was $1.48.
17
<PAGE>
RISK FACTORS
FORWARD-LOOKING STATEMENTS MAY PROVE INACCURATE. Sopheon and Teltech have
made forward-looking statements in this document, including statements about:
- the benefits of the merger;
- cash needs, liquidity and capital resources;
- financial results;
- product development; and
- business strategies.
The words "believes," "expects," "anticipates" and similar expressions
identify forward-looking statements. Those statements are about future events
and are subject to the risks and uncertainties described in this section, which
could cause actual results to differ materially from those projected. Neither
Sopheon nor Teltech can make any assurance that these statements will prove
correct.
RISKS RELATING TO THE MERGER
THE EXPECTED BENEFITS FROM THE MERGER MAY NOT BE REALIZED. Sopheon and
Teltech entered into the merger agreement with the expectation that the merger
will result in increased revenues and geographic and product line expansion.
There can be no assurance that the combined company will realize these
anticipated benefits. If the expected benefits are not realized, the price of
Sopheon's ordinary shares could be adversely affected. Factors that could reduce
or eliminate cost savings or increased revenues include:
- higher than anticipated costs of integrating the two businesses;
- changes in economic conditions in markets served by the operations of
Sopheon or Teltech that adversely affect the level of demand for services;
- greater than anticipated competitive activity requiring reduced pricing or
new product offerings or resulting in higher operating costs or slower
customer growth;
- the impact of new business opportunities requiring significant up-front
investments;
- increased capital spending from the deployment of new technologies; and
- the possibility that technologies will not perform according to
expectations or that vendors' performance will not meet the requirements
of Sopheon or Teltech.
THE VALUE OF THE SOPHEON ORDINARY SHARES TO BE RECEIVED IN THE MERGER MAY
DECLINE. Because the market price of Sopheon ordinary shares fluctuates,
Teltech shareholders will bear the risk that the value of the Sopheon shares
will decline after the merger. At a minimum, the aggregate value of the Sopheon
ordinary shares and options to be received by Teltech shareholders will be
$20,000,000 at the time of the merger. For historical market prices of the
Sopheon ordinary shares, see "MARKET PRICE DATA."
THE ABSENCE OF A UNITED STATES TRADING MARKET FOR SOPHEON'S SHARES WILL MAKE
TRADING MORE DIFFICULT FOR UNITED STATES SHAREHOLDERS. Sopheon's ordinary
shares to be issued to Teltech shareholders in the merger will be listed for
trading only on the Alternative Investment Market of the London Stock Exchange.
Sopheon has no present plans to list its ordinary shares on any United States
stock exchange or on Nasdaq or to create an ADR program for its ordinary shares.
Consequently, it will be more difficult for United States shareholders to
dispose of their Sopheon ordinary shares than if there were a United States
trading market. Quotations for Sopheon ordinary shares are available in the
United States edition of the FINANCIAL TIMES and on the Nasdaq-Amex web site at
18
<PAGE>
http://www.nasdaq-uk.com. but are not generally available in the U.S.
newspapers. Some United States brokerage firms may add a surcharge to their
customary commissions for some trades executed through foreign exchanges. Sales
of Sopheon ordinary shares may result in a United Kingdom stamp tax of 50p per
100 pounds sterling (or portion thereof), although this tax is usually paid by
the purchaser.
EXCHANGE RATE FLUCTUATIONS MAY REDUCE THE VALUE YOU RECEIVE FROM SELLING
SOPHEON SHARES. United States holders of Sopheon's ordinary shares will bear
exchange rate risk. United States holders who wish to sell their shares must
sell them on the Alternative Investment Market of the London Stock Exchange and
then have the proceeds of the sale converted into U.S. dollars.
SOPHEON'S ORGANIZATION IN ENGLAND AND WALES MAY BE CONFUSING TO UNITED
STATES SHAREHOLDERS. The rights of holders of Sopheon ordinary shares are
governed by the laws of England and Wales, including the Companies Acts, and by
Sopheon's memorandum and articles of association. These rights differ in certain
respects from the rights of Teltech's shareholders. You may have difficulty
understanding your rights as a Sopheon shareholder because of the differences
between United States and United Kingdom corporate law and procedures, and may
find it difficult to find attorneys or other advisors in the United States who
are familiar with the rights of a shareholder in a United Kingdom corporation.
RISKS RELATING TO SOPHEON
SOPHEON HAS A LIMITED OPERATING HISTORY AND IT IS DIFFICULT TO EVALUATE OUR
BUSINESS AND PROSPECTS. Sopheon was founded in 1993 and has a limited operating
history. Sopheon's business strategy is still developing, and the revenue and
profit potential of our business and market are unproven. Some of the factors
that may affect us include:
- lack of sufficient customers, orders, sales or cash flow;
- the uncertain market demand for our products; and
- difficulties in managing rapid growth in personnel and operations
resulting from recent acquisitions.
If we do not address any of these factors adequately, our business strategy
may not be successful.
THE UNPREDICTABILITY OF SOPHEON'S REVENUES AND RESULTS OF OPERATIONS MAKES
IT DIFFICULT TO PREDICT OUR FINANCIAL PERFORMANCE AND MAY CAUSE VOLATILITY OR
DECLINE IN THE PRICE OF OUR ORDINARY SHARES. Sopheon's operating results have
varied significantly, and we expect these fluctuations to continue. Future
operating results may vary depending on a number of factors, many of which are
outside of Sopheon's control. In the short term, Sopheon expects its revenues to
be significantly dependent on the sale of a small number of relatively large
orders for our products and services. Our products require a substantial
commitment of resources by our customers or their consultants over an extended
period of time. The time required to complete a product sale may vary from
customer to customer and may be protracted due to unforeseen circumstances.
PERIOD-TO-PERIOD COMPARISONS OF SOPHEON'S RESULTS OF OPERATIONS ARE NOT
NECESSARILY MEANINGFUL AND SUCH COMPARISONS SHOULD NOT BE RELIED UPON AS
INDICATIONS OF FUTURE PERFORMANCE. Sopheon's operating results in future
periods may be below the expectations of public market analysts and investors,
which could cause volatility or a decline in the price of our ordinary shares.
THE DEPARTURE FROM SOPHEON OF CERTAIN KEY EXECUTIVES COULD, IN THE SHORT
TERM, ADVERSELY AFFECT SOPHEON. While service agreements have been entered into
with each of these key executives, the retention of their services cannot be
guaranteed.
19
<PAGE>
THE LOSS OF TRADING RELATIONSHIPS WITH KEY CUSTOMERS WOULD, IN THE SHORT
TERM, MATERIALLY ADVERSELY AFFECT SOPHEON'S INCOME. A few major customers
account for a substantial amount of Sopheon's revenues. Sopheon expects that it
will continue to depend on a relatively small number of customers for a
substantial portion of its revenue in the foreseeable future.
SOPHEON'S MARKETS ARE AT AN EARLY STAGE OF DEVELOPMENT AND IT IS POSSIBLE
THAT SOPHEON'S PRODUCTS MAY NOT SELL IN THE QUANTITIES OR AT THE PRICES REQUIRED
TO ACHIEVE SUSTAINED PROFITABILITY. The market for knowledge management
software is emerging and evolving. Because this market is new, it is difficult
to determine its potential size and growth rate, or whether Sopheon's products
will achieve market acceptance. A delay or failure in the development of the
market for Sopheon's products would harm Sopheon's business and operating
results.
SOPHEON'S CURRENT SALES STRATEGY MAY NOT SUCCEED. The establishment of the
business partner network is at an early stage and it is possible that the
prospective partners will not be as successful in selling Sopheon's products as
Sopheon's management expects. In those circumstances, Sopheon would receive less
income than expected.
IT IS UNLIKELY THAT DIVIDENDS WILL BE PAID TO SOPHEON'S SHAREHOLDERS IN THE
FORESEEABLE FUTURE. Sopheon's strategy is to apply funds that would otherwise be
available to pay dividends toward the development of its business and maximizing
market share and revenue growth.
SOPHEON COULD BE SUBJECT TO DAMAGES CLAIMS FOR ERRORS IN ITS
PRODUCTS. Sopheon may be exposed to claims for damages from customers in the
event that there are errors in its software products. Sopheon has sought to
protect itself from such risks through its development methodologies, its
contract terms and insurance, and is not aware of any such claims at this time.
THE AMSTERDAM EXCHANGES MAY ISSUE A PUBLIC STATEMENT RELATING TO SOPHEON'S
COMPLIANCE WITH LISTING REQUIREMENTS AND THE SHARES BEING ISSUED IN THE MERGER
MAY NOT ALWAYS BE TRADABLE ON THE EURO.NM. The compliance department of the
Amsterdam Exchanges, or AEX, has informed Sopheon that in its view Sopheon
should have published a prospectus in the Netherlands to effect the listing on
the EURO.NM of shares issued in connection with and subsequent to the
acquisition of AppliedNet Limited and the working capital fund raising carried
out in November 1999. Although a shareholder's circular was prepared and made
available to the shareholders in the UK and the Netherlands, it does not qualify
as a prospectus for AEX purposes. Sopheon is currently in discussions with the
AEX as to how an appropriate document can be provided. The AEX has also informed
Sopheon that its compliance department may recommend that a public statement is
made noting that the AEX considers that Sopheon has breached some of its Listing
and Issuing Rules in connection with the November 1999 share issues. Sopheon's
day to day share trading activities on the EURO.NM market have not been affected
by the matters noted above. Based on its ongoing dialogue with the AEX, Sopheon
does not believe there is any current risk of its shares being de-listed by the
AEX, though as with any public exchange there is a risk of de-listing in the
future if the AEX requirements are not eventually met, which would result in
Sopheon's shares not being tradable on the EURO.NM and which could have a
detrimental impact on the share price in other markets in the short-term.
RISKS RELATING TO TELTECH
TELTECH'S LACK OF CAPITAL MAKES IT DIFFICULT TO REMAIN A STAND-ALONE ENTITY
WITHOUT THE FINANCIAL RESERVES TO ADEQUATELY COMPETE. Over the past several
years, Teltech has developed new business platforms in the information
technology market, which management believes could develop into significant
revenue generators. However, Teltech does not have the financial capacity to
build these businesses, nor does it have the ability to raise sufficient debt or
equity financing to adequately fund them. As such, Teltech's growth
possibilities are limited, which makes it very difficult for Teltech to remain a
stand-alone entity.
20
<PAGE>
TELTECH HAS A HISTORY OF LOSSES AND ITS BUSINESS MAY NEVER BECOME
PROFITABLE. Since 1994, Teltech has incurred losses every year but one. Its
accumulated deficit as of December 31, 1999 was $18,703,769. Given Teltech's
limited access to equity and bank financing, it may never be in a position to
make the investment in its business to generate sufficient sales to enable it to
sustain profitability.
THE MARKETS FOR INFORMATION PRODUCTS AND SERVICES OFFERED BY TELTECH ARE
INTENSELY COMPETITIVE AND TELTECH MAY NOT SUCCEED IN THEM. Competition in these
markets is characterized by the amount and depth of industry information
provided, the quality of the attendant services and the price of the services.
There are numerous companies engaged in commercial activities in the market
niches served by Teltech, most of whom have significantly greater financial and
business resources than Teltech does. In addition, this industry is evolving
quickly and other competitors will emerge. Furthermore, e-commerce is becoming
an essential component of the information industry, and while Teltech has
developed e-commerce capability, substantial investment is required before its
e-commerce facilities will be competitive.
TELTECH IS DEPENDENT UPON CERTAIN KEY MANAGEMENT PERSONNEL, THE LOSS OF
WHICH COULD HAVE A MATERIAL IMPACT ON IT IN THE SHORT TERM. These people
include Andrew Michuda, President and CEO, and Jack Johnson, COO. The loss of
the services of these and other key employees could have a material adverse
effect on Teltech. In addition, it has become increasingly difficult to retain
key employees, and the competition for qualified employees has become
exceedingly difficult.
THE LOSS OF KEY CLIENTS WHICH HAVE CONTRACTS EXPIRING IN LESS THAN TWO YEARS
COULD MATERIALLY AFFECT TELTECH'S REVENUES IN THE SHORT TERM. Teltech's top two
clients represented 12.5% and 6% of its total revenue for the year ended
December 31, 1999. These clients are currently on three year contracts which
expire December 31, 2001 and September 30, 2002, respectively. There is no
guarantee that either client will continue to do business with Teltech after the
end of the current contract. The loss of either of these clients would have an
adverse effect on Teltech.
THE LACK OF LIQUIDITY IN TELTECH SHARES COULD MEAN THAT ITS SHAREHOLDERS
HAVE NO MARKET IN WHICH TO DISPOSE OF THEIR TELTECH STOCK. Teltech has been a
privately-held company since 1984 and has attempted to take its shares public
three separate times without success. There is no liquidity in Teltech stock and
there may never be.
21
<PAGE>
SELECTED FINANCIAL DATA
The following tables set forth selected historical financial data of Sopheon
and Teltech for each of the last five fiscal years ended December 31. The
selected historical financial data of Sopheon and Teltech have in part been
derived from, and should be read in conjunction with, Sopheon's and Teltech's
audited consolidated financial statements, including the notes thereto,
contained elsewhere in this proxy statement/prospectus.
Sopheon reports in accordance with UK GAAP and Teltech reports in accordance
with US GAAP. The main differences between US GAAP and UK GAAP that are relevant
to Sopheon's consolidated financial statements are described in Note 20 of the
Notes to the Financial Statements of Sopheon.
SOPHEON PROFIT AND LOSS ACCOUNT DATA
AMOUNTS IN ACCORDANCE WITH UK GAAP
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------------------------
1995* 1996* 1997* 1998* 1999
-------- -------- -------- -------- --------
(POUNDS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
Turnover........................................... 736 625 241 891 1,510
Cost of sales...................................... (471) (656) (709) (608) (983)
---- ---- ------ ------ ------
Gross profit/(loss)................................ 265 (31) (468) (283) 527
Sales and marketing expense........................ (129) (200) (484) (502) (760)
Administrative expenses............................ (399) (555) (856) (913) (1,476)
Other operating income............................. -- 139 136 29 16
Amortization of goodwill........................... -- -- -- -- (323)
---- ---- ------ ------ ------
Operating loss..................................... (263) (647) (1,672) (1,103) (2,016)
Other income (expense), net........................ 2 (4) 40 (39) (56)
---- ---- ------ ------ ------
Loss for the year.................................. (261) (651) (1,632) (1,142) (2,072)
==== ==== ====== ====== ======
Loss per share..................................... (1.9)p (4.3)p (8.7)p (6.1)p (10.1)p
</TABLE>
AMOUNTS IN ACCORDANCE WITH US GAAP
<TABLE>
<S> <C> <C>
Turnover.................................................... 891 1,510
Cost of sales............................................... (608) (983)
------ ------
Gross profit/(loss)......................................... (283) 527
Sales and marketing expense................................. (502) (886)
Administrative expenses..................................... (913) (1,476)
Other operating income...................................... 29 16
Amortization of goodwill.................................... -- (349)
------ ------
Operating loss.............................................. (1,103) (2,168)
Other income (expense), net................................. (310) (707)
------ ------
Loss for the year........................................... (1,413) (2,857)
====== ======
Loss per share.............................................. (7.5)p (14.0)p
</TABLE>
22
<PAGE>
SOPHEON BALANCE SHEET DATA
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------------
1995* 1996* 1997* 1998* 1999*
-------- -------- -------- -------- --------
(POUNDS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
Working capital......................................... 136 799 163 (1,231) 5,543
Total assets............................................ 467 1,327 848 1,171 17,104
Creditors: amounts falling due after more than one
year.................................................. (101) -- (317) (3) (55)
Total shareholders' equity (deficit).................... 157 952 156 (864) 13,479
</TABLE>
AMOUNTS IN ACCORDANCE WITH US GAAP
<TABLE>
<S> <C> <C>
Working capital............................................. (1,231) 5,543
Total assets................................................ 1,171 17,782
Long-term obligations less current portion.................. (3) (55)
Total shareholders' equity (deficit)........................ (864) 14,319
</TABLE>
------------------------
* Historical amounts have been restated to reflect the prior year adjustment
related to development expenditure, as described in the notes to Sopheon's
audited consolidated financial statements.
23
<PAGE>
TELTECH STATEMENT OF OPERATIONS DATA
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------------
1995 1996 1997 1998 1999
-------- -------- -------- -------- --------
(U.S. DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
Revenues............................................ 16,086 18,553 18,359 16,436 16,199
Cost of revenues.................................... 10,354 12,863 11,523 11,124 9,965
------ ------ ------ ------ ------
Gross profit........................................ 5,732 5,690 6,836 5,312 6,234
Operating expenses:
Marketing and sales................................. 5,611 4,710 2,972 2,368 1,925
General and administrative.......................... 2,443 2,148 2,149 2,124 2,419
Research and development............................ 1,059 962 1,133 1,156 1,799
------ ------ ------ ------ ------
Total operating expenses............................ 9,113 7,820 6,254 5,648 6,143
------ ------ ------ ------ ------
Operating income (loss)............................. (3,381) (2,130) 582 (336) 91
Other income (expense), net......................... 93 (17) 32 (20) (183)
------ ------ ------ ------ ------
Net income (loss)................................... (3,288) (2,147) 614 (356) (92)
====== ====== ====== ====== ======
Net income (loss) per common share, basic........... (1.44) (0.96) 0.18 (0.22) (0.10)
Net income (loss) per common and potential common
share, diluted.................................... (1.44) (0.96) 0.09 (0.22) (0.10)
====== ====== ====== ====== ======
Weighted average common shares, basic............... 2,409 2,439 2,447 2,450 2,451
====== ====== ====== ====== ======
Weighted average number of common and potential
common shares outstanding, diluted................ 2,409 2,439 6,666 2,450 2,451
====== ====== ====== ====== ======
</TABLE>
TELTECH BALANCE SHEET DATA
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------------------------------
1995 1996 1997 1998 1999
-------- -------- -------- -------- --------
(U.S. DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Working capital (deficit)....................... (939) (2,803) (2,209) (2,611) (2,927)
Total assets.................................... 9,727 5,514 5,582 4,768 5,010
Long-term debt, less current portion............ 0 74 328 270 283
Redeemable convertible preferred stock.......... 15,546 15,920 16,028 16,204 16,346
Total stockholder's equity (deficit)............ (15,208) (17,705) (17,255) (17,786) (18,017)
</TABLE>
24
<PAGE>
UNAUDITED CONDENSED PRO FORMA CONSOLIDATED
FINANCIAL INFORMATION OF SOPHEON
The following information, which is unaudited, gives pro forma effect to the
proposed merger with Teltech and, in the case of the condensed pro forma
consolidated profit and loss account, the acquisition on November 22, 1999 of
AppliedNet. The consolidated pro forma information has been prepared under UK
GAAP which differs from US GAAP as described in Note 20 of Notes to the
Financial Statements of Sopheon. Pro forma loss for the year and shareholders'
funds as adjusted for the differences applicable to Sopheon are set out in
Note 2 of Notes to the Unaudited Condensed Pro Forma Consolidated Financial
Information of Sopheon.
The acquisition of AppliedNet has been, and the merger with Teltech will be,
accounted for using the acquisition method under UK GAAP and, for the purposes
of US GAAP, using the purchase method of accounting. Under these methods of
accounting, the purchase price for an acquisition is allocated to the net assets
acquired based on their fair values at the date of acquisition. The cost of the
acquisition of Teltech for UK GAAP purposes will comprise the fair value of the
Sopheon shares issued, based on their quoted price on the date that the
agreement became unconditional together with the cash consideration payable. In
the pro forma financial information, the fair value of the Sopheon shares to be
issued is based on a Sopheon share price of 552.5p on January 21, 2000, the date
that Sopheon and Teltech entered into the merger agreement and the agreement
became unconditional. The allocations of the purchase price of AppliedNet
reflected within Sopheon's historical balance sheet at December 31, 1999 has not
been finalized. Similarly, the allocation of the purchase price of Teltech has
also not yet been determined. Accordingly, the amounts reflected below may
differ from the amounts that would have been determined had the final
allocations of the purchase prices been known.
For the purposes of US GAAP, the cost of acquisition of Teltech will be
based on the average Sopheon price taking an average of the share price for a
period of seven days before and after the announcement of the merger, and a
price of 1,325p will be used.
No adjustments are required to the Teltech historical financial statements
in order to state them in accordance with UK GAAP.
The following information is not necessarily indicative of the results of
operations and financial position of Sopheon as they may be in the future or as
they might have been had the acquisitions occurred on the dates assumed.
The unaudited condensed pro forma consolidated financial information should
be read in conjunction with the historical financial statements of Sopheon,
Teltech and AppliedNet included elsewhere in this proxy statement/prospectus.
25
<PAGE>
UNAUDITED CONDENSED PRO FORMA CONSOLIDATED PROFIT AND LOSS ACCOUNT OF SOPHEON
YEAR ENDED DECEMBER 31, 1999
The following unaudited condensed pro forma consolidated profit and loss
account for the year ended December 31, 1999, gives pro forma effect to the
merger with Teltech and the acquisition of AppliedNet and the financing of these
acquisitions as if they had occurred on January 1, 1999. The historical
financial information for Sopheon, which includes the results of operations of
AppliedNet from November 22, 1999, is derived from its audited historical
consolidated profit and loss account for the year ended September 30, 1999. The
historical financial information of AppliedNet, which is for the period
January 1, 1999 to November 21, 1999, is derived from its audited historical
profit and loss account for the year ended September 30, 1999. The historical
financial information for Teltech is derived from its audited statement of
operations for the year ended December 31, 1999.
The purchase price allocated to the tangible and intangible assets of
Teltech is preliminary and is based on the book values of those assets at
December 31, 1999, the latest practical date that information is available. All
of the excess of the purchase price over the book value of assets purchased is
being treated as goodwill. In addition, the pro-forma profit and loss account
does not reflect the compensation cost of the stock incentive plan to be
implemented by Sopheon for Teltech employees on completion of the merger, as the
costs are one-time in nature.
Amounts in United States dollars have been translated from pounds sterling
at the noon buying rate on December 31, 1999 of $1.62 = L1.00 solely for your
convenience.
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA
---------------------------------------- ----------------------------------------
TELTECH
US AND UK ADJUSTMENTS
SOPHEON APPLIEDNET GAAP (NOTE 1) CONSOLIDATED
---------- ------------ ------------ ----------- -------------------------
(IN THOUSANDS, EXCEPT SHARES AND PER SHARE AMOUNTS)
L L L L L $
<S> <C> <C> <C> <C> <C> <C>
Turnover.............................. 1,510 2,172 9,999 13,681 22,163
Cost of sales......................... (983) (1,294) (6,151) (8,428) (13,654)
---------- ------------ ---------- ----------- -----------
Gross profit.......................... 527 878 3,848 5,253 8,509
Sales and marketing expense........... (760) (538) (1,188) (2,486) (4,027)
Administration expenses............... (1,783) (1,269) (1,493) (4,545) (7,363)
Research and development.............. -- -- (1,110) (1,110) (1,798)
Amortization of goodwill.............. -- -- -- (9,809)(a) (9,809) (15,891)
---------- ------------ ---------- ---------- ----------- -----------
Operating profit...................... (2,016) (929) 57 (9,809) (12,697) (20,570)
Interest receivable................... 62 42 -- 104 168
Interest payable and similar
charges............................. (118) -- (114) (232) (376)
---------- ------------ ---------- ---------- ----------- -----------
Loss for the year(1).................. (2,072) (887) (57) (9,809) (12,825) (20,778)
========== ============ ========== ========== =========== ===========
Loss per share........................ (10.1)p (36.5)p $ (0.59)
========== =========== ===========
Shares used in per share
calculation......................... 20,565,985 14,592,855(b) 35,158,840 35,158,840
========== ========== =========== ===========
</TABLE>
------------------------------
(1) Pro forma loss for the year adjusted for the effects of the significant
differences between UK GAAP and US GAAP is set forth in Note 2 of Notes to
the Unaudited Condensed Pro Forma Consolidated Financial Information.
SEE NOTES TO THE UNAUDITED CONDENSED PRO FORMA CONSOLIDATED FINANCIAL
INFORMATION.
26
<PAGE>
UNAUDITED CONDENSED PRO FORMA CONSOLIDATED BALANCE SHEET OF SOPHEON
DECEMBER 31, 1999
The following unaudited condensed pro forma consolidated balance sheet at
December 31, 1999, gives pro forma effect to the merger with Teltech and the
financing of the acquisition, as if these transactions had occurred on
December 31, 1999. The historical financial information for Sopheon is derived
from its audited historical consolidated balance sheet at December 31, 1999. The
historical financial information for Teltech is derived from its audited
historical balance sheet at December 31, 1999.
Amounts in United States dollars have been translated from pounds sterling
at the noon buying rate on December 31, 1999 of $1.62 = L1.00 solely for your
convenience.
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA
-------------------- ------------------------------------
TELTECH
US AND UK ADJUSTMENTS
SOPHEON GAAP (NOTE 1) CONSOLIDATED
-------- --------- ----------- -------------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
L L L L $
FIXED ASSETS
Intangible Fixed Assets.................... 7,605 -- 22,529 (c) 30,134 48,817
Tangible Fixed Assets...................... 386 950 -- 1,336 2,164
------ ------- --------- ------ -------
7,991 950 22,529 31,470 50,981
CURRENT ASSETS
Debtors.................................... 1,362 2,143 -- 3,505 5,678
Cash at bank and in hand................... 7,751 -- -- (d) 7,751 12,557
------ ------- --------- ------ -------
9,113 2,143 -- 11,256 18,235
CREDITORS: amounts falling due within one
year..................................... 3,570 3,949 -- 7,519 12,181
------ ------- --------- ------ -------
NET CURRENT ASSETS......................... 5,543 (1,806) -- 3,737 6,054
------ ------- --------- ------ -------
TOTAL ASSETS LESS CURRENT LIABILITIES...... 15,534 (856) 22,529 35,207 57,035
CREDITORS: amounts falling due after more
than one year............................ 55 175 -- 230 373
------ ------- --------- ------ -------
13,479 (1,031) 22,529 34,977 56,662
------ ------- --------- ------ -------
SHAREHOLDERS' FUNDS
Called up share capital.................... 4,491 41 115 (e) 4,647 7,528
Shares to be issued........................ 10 -- 2,079 (f) 2,089 3,385
Share premium account...................... 17,960 10,472 (1,145)(g) 27,287 44,205
Merger reserve............................. -- -- 9,936 (h) 9,936 16,096
Profit and loss account.................... (8,982) (11,544) 11,544 (i) (8,982) (14,552)
------ ------- --------- ------ -------
13,479 (1,031) 22,529 34,977 56,662
====== ======= ========= ====== =======
</TABLE>
------------------------
(1) Pro forma shareholders' equity adjusted for the effects of the significant
differences between UK GAAP and US GAAP is set forth in Note 2 of Notes to
the Unaudited Condensed Pro Forma Consolidated Financial Information.
SEE NOTES TO THE UNAUDITED CONDENSED PRO FORMA CONSOLIDATED FINANCIAL
INFORMATION.
27
<PAGE>
NOTES TO THE UNAUDITED CONDENSED PRO FORMA
CONSOLIDATED FINANCIAL INFORMATION OF SOPHEON
NOTE 1--PRO FORMA ADJUSTMENTS
PROFIT AND LOSS ACCOUNT
The unaudited condensed pro forma consolidated profit and loss account gives
effect to the following pro forma adjustments:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, 1999
------------------------------
(L THOUSANDS, EXCEPT SHARES)
<S> <C> <C> <C>
(a) Amortization of goodwill:
Goodwill arising on the acquisition of Teltech of
L22,529,000 amortized over its estimated useful life of
three years............................................. 7,510
Goodwill arising on the acquisition of AppliedNet of
L7,766,000 amortized over its estimated useful life of
three years............................................. 2,589
Less amount included in the historical financial
statements.............................................. (290)
----------
2,299
----------
9,809
==========
(b) Number of shares used in calculating per share amounts:
Ordinary shares to be issued in connection with the merger
with Teltech............................................ 1,814,917
Ordinary shares issued in connection with the acquisition
of AppliedNet........................................... 6,402,961
Less number included in historical financial statements... (701,694)
----------
5,701,267
Ordinary shares issued in November 1999 for cash in
connection with the acquisition of AppliedNet............. 6,500,000
Less number included in historical financial statements..... (712,329)
----------
5,787,671
Ordinary shares issued in March 2000 for cash in connection
with the merger with Teltech.............................. 2,602,500
Less number not directly attributable to the merger with
Teltech................................................... (1,313,500)
----------
1,289,000
----------
Total....................................................... 14,592,855
==========
</TABLE>
28
<PAGE>
NOTES TO THE UNAUDITED CONDENSED PRO FORMA
CONSOLIDATED FINANCIAL INFORMATION OF SOPHEON (CONTINUED)
NOTE 1--PRO FORMA ADJUSTMENTS (CONTINUED)
BALANCE SHEET
The unaudited condensed pro forma consolidated balance sheet gives effect to
the transactions as follows:
<TABLE>
<CAPTION>
TRANSACTION
ALLOCATIONS
-------------
(L THOUSANDS)
<S> <C>
Merger with Teltech:
Share consideration of 1,814,917 shares at 552.5p per
share, the mid-market price on January 21, 2000
Share capital (nominal value of 5p per share)............. 91
Merger reserve (premium of 547.5p per share).............. 9,936
Excess of fair value of options to be assumed over their
exercise price.......................................... 2,079
------
Total share and option consideration...................... 12,106
Cash consideration.......................................... 8,642
Legal and other costs....................................... 750
------
Total cost of investment.................................... 21,498
Less total net liabilities acquired......................... 1,031
------
Goodwill.................................................... 22,529
======
The private placing:
Issue of 2,622,500 ordinary shares at 800p each, net of
issuance costs
Share capital (nominal value of 5p per share)............. 131
Share premium account (premium of 795p per share) net of
issuance costs.......................................... 19,769
------
Net proceeds................................................ 19,900
Of which to be used for payment of cash consideration and
legal and other costs relating to merger with Teltech... (9,392)
------
Funds raised not directly attributable to merger with
Teltech................................................. 10,508
======
Comprising:
Share capital........................................... 66
Share premium........................................... 10,442
------
10,508
======
</TABLE>
29
<PAGE>
NOTES TO THE UNAUDITED CONDENSED PRO FORMA
CONSOLIDATED FINANCIAL INFORMATION OF SOPHEON (CONTINUED)
NOTE 1--PRO FORMA ADJUSTMENTS (CONTINUED)
The pro forma adjustments arising as a result of the above transactions can
be summarized as follows:
<TABLE>
<CAPTION>
ADJUSTMENTS
-------------
(L THOUSANDS)
<S> <C> <C>
(c) Intangible Fixed Assets
Goodwill.................................................... 22,529
=======
(d) Cash
Cash consideration for Teltech............................ (8,642)
Legal and other costs..................................... (750)
Net proceeds from private placement....................... 19,900
Less funds raised from private placement not directly
attributable to the merger with Teltech................. (10,508)
-------
Total....................................................... --
=======
(e) Called-up share capital
Shares issued in the private placement...................... 131
Less shares not directly attributable to merger with
Teltech................................................... (66)
Shares issued as partial consideration for Teltech.......... 91
Elimination of Teltech...................................... (41)
-------
Total....................................................... 115
=======
(f) Shares to be issued
Excess fair value over exercise price of vested options in
Teltech to be rolled over at the date of the acquisition
to options to purchase 648,198 Sopheon ordinary shares, as
per "Exhibit 3.1(a) at 5.525 Pounds" to Amendment No. 1 to
the Merger Agreement, measured at a price per Sopheon
share of 552.5p........................................... 2,079
=======
(g) Share premium account
Premium of 795p per share arising on shares issued in the
private placement at 800p per share....................... 19,769
Less premium on shares issued in private placement not
directly attributable to merger with Teltech.............. (10,442)
Elimination of Teltech...................................... (10,472)
-------
(1,145)
=======
(h) Merger reserve
Premium of 547.5p per share arising from shares issued as
part of the consideration for Teltech at 552.5p per share,
which pursuant to the provisions of the Companies Act 1985
of Great Britain does not need to be credited to the share
premium account........................................... 9,936
=======
(i) Profit and Loss Account
Elimination of Teltech...................................... 11,544
=======
</TABLE>
30
<PAGE>
NOTES TO THE UNAUDITED CONDENSED PRO FORMA
CONSOLIDATED FINANCIAL INFORMATION OF SOPHEON (CONTINUED)
NOTE 2--DIFFERENCES BETWEEN UK GAAP AND US GAAP
UK GAAP and US GAAP differ in certain respects. The historical differences
applicable to Sopheon are summarized in Note 20 to the Financial Statements of
Sopheon and Note 12 of Notes to the Financial Statements and Applied Net.
Differences relating to the acquisition of Teltech are summarized below. Amounts
in United States dollars have been translated from pounds sterling at the noon
buying rate on December 31, 1999 of $1.62--L1.00 solely for your convenience.
INCOME
The effect of the adjustment to pro-forma income for the year ended
December 31, 1999 which would be required if US GAAP were to be applied instead
of UK GAAP are summarized as follows:
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA
------------------------------------- -------------------------------------
TELTECH US
AND
SOPHEON APPLIEDNET UK GAAP ADJUSTMENTS CONSOLIDATED
---------- ---------- ----------- ----------- -----------------------
(IN THOUSANDS)
L L L L L $
<S> <C> <C> <C> <C> <C> <C>
Loss for the year under UK GAAP.............. (2,072) (887) (57) (9,809) (12,825) (20,778)
US GAAP adjustments:
Operating expenses........................... (126) -- -- -- (126) (204)
Goodwill amortization........................ (26) -- -- (6,271) (6,297) (10,201)
Interest payable and similar charges......... (651) -- -- -- (651) (1,055)
---------- ---- --- ---------- ---------- ----------
Pro forma loss for the year under US GAAP.... (2,875) (887) (57) (16,080) (19,899) (32,238)
========== ==== === ========== ========== ==========
Net loss per share as adjusted (basic and
diluted)................................... L (0.14) L (0.56) $ (0.92)
========== ========== ==========
Shares used in computing per share amounts... 20,565,985 14,592,885 35,158,840 35,158,840
========== ========== ========== ==========
</TABLE>
SHAREHOLDERS' FUNDS. The effect of the adjustment to pro-forma shareholders
funds at December 31, 1999 which would be required if US GAAP were to be applied
instead of UK GAAP are summarized as follows:
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA
---------------------- ---------------------------------
TELTECH US
AND ADJUSTMENTS
SOPHEON UK GAAP (NOTE 1) CONSOLIDATED
-------- ----------- ----------- -------------------
(IN THOUSANDS)
L L L L $
<S> <C> <C> <C> <C> <C>
Pro forma shareholders' funds under UK GAAP................. 13,479 (1,031) 22,529 34,977 56,662
US GAAP adjustments:
Goodwill--Appliednet........................................ 704 -- -- 704 1,140
Goodwill--Teltech........................................... -- -- 19,028 19,028 30,825
Shares to be issued--beneficial conversion feature on
convertible loan stock.................................... 162 -- -- 162 262
------ ------ ------ ------ ------
Pro forma shareholders' funds under US GAAP................. 14,345 (1,031) 41,557 54,871 88,889
====== ====== ====== ====== ======
</TABLE>
31
<PAGE>
NOTES TO THE UNAUDITED CONDENSED PRO FORMA
CONSOLIDATED FINANCIAL INFORMATION OF SOPHEON (CONTINUED)
NOTE 2--DIFFERENCES BETWEEN UK GAAP AND US GAAP (CONTINUED)
ACQUISITION OF TELTECH
(a) Goodwill adjustments
For UK GAAP purposes, the purchase price for Teltech will be based on the
market price of Sopheon shares of 552.5p on January 21, 2000, the date the
transaction became unconditional. For US GAAP purposes, the purchase price will
be based on the average market price over a reasonable period before and after
the announcement of the merger. Taking a period covering seven days either side
of the announcement date gives a price of 1,325p, increasing the overall
purchase price recorded for Teltech by L19,028,000.
For UK GAAP purposes the entire excess of the purchase price over the net
assets acquired of L22,529,000 will be treated as goodwill. For US GAAP
purposes, a proportion of the excess purchase price will be allocated to
identifiable intangible assets. The analysis of this allocation, together with
the estimated useful life to be applied for amortization purposes, based on an
independent third party valuation, is as follows:
<TABLE>
<CAPTION>
CATEGORY ALLOCATION ESTIMATED LIFE
-------- ------------ -------------------
(L THOUSAND) (YEARS)
<S> <C> <C>
Assembled workforce......................... 2,469 3
Customer list............................... 7,870 3
Patent...................................... 895 5
In process research and development......... 463 Immediate write off
Goodwill.................................... 29,860 3
------
Total....................................... 41,557
======
</TABLE>
The effects of the increase in total purchase price and the allocation of
purchase price to intangible assets required for US GAAP purposes, are to
increase the amortization to be charged, as compared to that charged for UK GAAP
purposes, by L6,068,000. In the year of acquisition this increase would be
enlarged by an immediate write off of L463,000 relating to in process research
and development costs which is not reflected in the pro-forma adjustments since
it is a one-time charge.
As described in Note 20 to the Financial Statements of Sopheon, the charge
for goodwill amortization in respect of the acquisition of AppliedNet Limited
under US GAAP is L26,000 higher than the equivalent UK GAAP charge in respect of
1999, and L229,000 in respect of a full year. When combined with the increased
charge of L6,068,000 per annum noted above in respect of Teltech, this gives an
overall increase to the goodwill amortization of L6,297,000 per annum for
pro-forma US GAAP purposes, resulting in a pro forma US GAAP adjustment of
L6,271,000.
(b) The pro-forma profit and loss account does not reflect the compensation
cost of the incentive scheme to be implemented by Sopheon for Teltech employees
on completion of the merger referred to in "THE MERGER--Interests of Members of
Teltech's Board and Management in the Merger," as the costs are one-time in
nature.
32
<PAGE>
COMPARATIVE PER SHARE DATA
The following table presents unaudited historical and pro forma per share
data that reflect the completion of the merger based upon the historical
financial statements of Sopheon and Teltech. The pro forma data is not
indicative of the results of future operations or the actual results that would
have occurred had the merger been consummated at the beginning of the periods
presented. You should read the data presented below together with the
consolidated financial statements and notes of Sopheon and Teltech contained in
this document.
The first column on the left in the tables below presents historical per
share amounts for Sopheon and Teltech at and for the year ended December 31,
1999. The second column sets forth pro forma equivalent data based on the number
of Sopheon ordinary shares to be issued in the merger.
SOPHEON
<TABLE>
<CAPTION>
PRO FORMA
HISTORICAL CONSOLIDATED
---------- ------------
<S> <C> <C>
Net loss per ordinary share.......................... L0.10 L0.37
Book value per share................................. L0.41 L0.99
</TABLE>
TELTECH
<TABLE>
<CAPTION>
PRO FORMA
HISTORICAL EQUIVALENT
---------- ----------
<S> <C> <C>
Net loss per common share............................ $(0.10) $(0.12)
Book value per share................................. $(7.40) $ 0.42
</TABLE>
The pro forma equivalent is calculated by multiplying the pro forma net loss
per common share and the pro forma book value per common share by the exchange
ratio. The exchange ratio assumes a Sopheon share price of $9.12.
33
<PAGE>
THE SPECIAL MEETING
DATE, TIME AND PLACE OF THE SPECIAL MEETING
The special meeting of Teltech shareholders will be held at 8:00 a.m.,
Central time, on Friday, September 8, 2000 at 2850 Metro Drive, Seminar
Room 107, Minneapolis, Minnesota 55425.
MATTERS TO BE CONSIDERED AT THE SPECIAL MEETING
At the special meeting, the shareholders of record of Teltech common stock
and preferred stock will:
- consider and vote on a proposal to approve and adopt the Agreement and
Plan of Merger and Reorganization, dated as of January 20, 2000, among
Sopheon plc, Sopheon Corporation, a wholly owned subsidiary of Sopheon
plc, and Teltech Resource Network Corporation, providing for the merger of
Teltech Resource Network Corporation with and into Sopheon Corporation;
and
- address procedural matters that may properly come before the special
meeting or any adjournment or postponement of the special meeting.
RECORD DATE
Teltech has fixed the close of business on July 15, 2000 as the record date
for the determination of Teltech shareholders entitled to notice of, and to vote
at, the special meeting. As of the record date, there were 2,464,327 outstanding
shares of Teltech common stock and 4,218,736 outstanding shares of Teltech
preferred stock, held by approximately 471 holders of record.
Only holders of record of Teltech common stock and Teltech preferred stock
at the close of business on the record date are entitled to notice of and to
vote at the special meeting.
HOW SHARES WILL BE VOTED AT THE SPECIAL MEETING
Proxies that are properly executed by holders of Teltech common stock and
Teltech preferred stock, if received in time for the special meeting and not
subsequently revoked, will be voted at the special meeting in accordance with
the instructions given in the proxies. Proxies that are properly executed but do
not contain instructions with respect to the proposal for approval of the merger
will be voted "FOR" approval of the merger.
As noted in "THE MERGER--Dissenters' Rights," a Teltech shareholder who
votes in favor of the merger will forfeit his or her dissenters' rights under
Minnesota law with respect to the merger.
Teltech shareholders should not send stock certificates with the enclosed
proxy card. If the merger is completed, Sopheon will furnish Teltech
shareholders with instructions for exchanging their shares of Teltech stock for
Sopheon ordinary shares.
HOW TO REVOKE A PROXY
If you are holding Teltech shares in your own name, you may revoke a
previously given proxy at any time prior to its exercise by:
- delivering, prior to the special meeting, a written notice of revocation
or a proxy having a later date or time than the executed proxy; or
- voting in person at the special meeting.
34
<PAGE>
Written notices of revocation must be received before shareholders vote at
the Teltech special meeting. Attendance at the special meeting will not by
itself constitute revocation of the proxy granted by the proxy card.
Shareholders must mail written notices of revocation to:
Jack Johnson
Teltech Resource Network Corporation
2850 Metro Drive
Minneapolis, MN 55425
If you do not hold Teltech shares in your own name, you may revoke a
previously given proxy by following the revocation instructions provided by the
bank, broker or other party who is the registered owner of your shares.
REQUIRED VOTE; QUORUM
Holders of Teltech common stock and Teltech preferred stock will vote both
together and separately on proposals to approve and adopt the merger agreement.
Approval of the merger requires the affirmative vote of:
- Holders of a majority of Teltech outstanding shares of common and
preferred stock entitled to vote at the special meeting, voting as a
single class; and
- Holders of a majority of Teltech outstanding shares of preferred stock
entitled to vote at the special meeting, voting as a class.
Each share of Teltech stock outstanding on the record date is entitled to
the number of votes shown in the following table:
<TABLE>
<CAPTION>
NUMBER OF
TYPE OF SHARES VOTES PER SHARE
-------------- ---------------
<S> <C>
Common...................................................... 1.00
Series A Preferred.......................................... 1.00
Series B Preferred.......................................... 1.00
Series C Preferred.......................................... 1.122222
Series D Preferred.......................................... 1.207207
Series E Preferred.......................................... 1.00
</TABLE>
There are no other classes of voting securities of Teltech presently
outstanding.
As of the record date, directors and executive officers of Teltech and their
affiliates owned approximately 9% of the outstanding shares of Teltech common
stock and 74% of the outstanding shares of Teltech preferred stock, as converted
into common stock. Joseph Shuster and Yuval Almog have agreed to vote 219,838
shares of common stock and 1,915 shares of preferred stock, respectively, in
favor of the merger. Coral Partners I and Coral Partners II, affiliated
shareholders which in the aggregate own 2,947 shares of common stock and
1,070,057 shares of preferred stock, have agreed to vote their shares in favor
of the merger and have granted Sopheon an irrevocable proxy to vote their
shares. These agreements cover 19.90% of Teltech's currently outstanding shares.
Consequently, the requisite votes will be satisfied if an additional 30.11% of
Teltech outstanding shares, common or preferred, vote in favor of the merger and
an additional 24.02% of Teltech outstanding shares of preferred stock vote in
favor of the merger. See "DIRECTORS AND MANAGEMENT OF TELTECH--Stock Ownership
of Directors, Executive Officers and Five Percent Shareholders."
Brokers and nominees are precluded from exercising their voting discretion
on the approval and adoption of the merger agreement and, for this reason,
absent specific instructions from the beneficial
35
<PAGE>
owner of shares of Teltech common stock or Teltech preferred stock, may not vote
these shares. Shares that are not voted because brokers did not receive
instructions are referred to as "broker non-votes." Holders of a majority in
voting power of the Teltech common stock and Teltech preferred stock outstanding
on the record date must be present in person or by proxy at the special meeting
to constitute a quorum. Abstentions and broker non-votes are counted as present
or represented for purposes of determining a quorum for the special meeting.
HOWEVER, AN ABSTENTION, UNRETURNED PROXY OR BROKER NON-VOTE WILL BE TREATED AS A
VOTE AGAINST APPROVAL AND ADOPTION OF THE MERGER.
Shareholders on the record date who do not vote in favor of approving the
merger, who file with Teltech before the vote on the merger a written notice of
intent to demand the fair value of their shares and comply with the other
statutory requirements of Sections 302A.471 and 302A.473 of the Minnesota
Business Corporation Act will be entitled to dissenter's rights under Minnesota
law. See "THE MERGER--Dissenters' Rights."
SOLICITATION OF PROXIES
Teltech will bear the costs of the special meeting, including any
solicitation of proxies. Sopheon and Teltech will share equally all other
expenses incurred in connection with the printing and distribution of this proxy
statement/prospectus. In addition to solicitation by mail, the directors,
officers and employees of Teltech may also solicit proxies from shareholders by
telephone, facsimile, telegram or other electronic means or in person. Teltech
will reimburse brokerages and others custodians, nominees and fiduciaries that
send the proxy materials to beneficial owners.
36
<PAGE>
THE MERGER
BACKGROUND OF THE MERGER
Teltech was incorporated in 1984. It remains a private company, although
there have been several unsuccessful attempts to take Teltech public. Most of
its shareholders made their investment in Teltech in the 1980s.
In July 1998, the board of directors of Teltech decided to seek an acquirer
for the following reasons:
- to attain acceptable growth, Teltech would require significantly more
capital and such capital was not available;
- the marketplace was consolidating and Teltech needed technology products
to complement its services; and
- Teltech needed to obtain liquidity for its shareholders.
In connection with its decision to seek an acquirer, Teltech's board of
directors determined that it would require the services of an investment banker
and asked PricewaterhouseCoopers Securities, LLC ("PWC Securities") to provide
the board of directors with its recommendations. In a presentation to the board
of directors, PwC Securities provided the board with an overview of Teltech and
its markets. In July 1998, PwC Securities advised the board that, based on its
access to a network of technology experts, its expertise in knowledge management
and its knowledge management clientele, Teltech should position itself as a
leading knowledge management consulting company. However, PwC Securities further
advised the board of directors that the marketplace would evaluate Teltech as
two distinct businesses--research/information retrieval and knowledge management
consulting services. The most important valuation factor would be a prospective
purchaser's ability to leverage Teltech's significant experience in knowledge
management to drive the purchaser's revenues and profits. PwC Securities
concluded that the estimated enterprise value range of Teltech was $30 million
to $40 million. In arriving at this assessment, PwC Securities utilized three
traditional methodologies: (i) discounted cash analysis - an analysis of
meaningful projections developed by Teltech management over a relevant time
frame to drive a present value; (ii) comparable companies analysis; and
(iii) comparable transactions analysis. In arriving at its assessment of the
estimated enterprise value range of Teltech, PwC Securities observed that the
discounted cash flow analysis was the most appropriate valuation methodology
since Teltech and comparable transaction analyses are limited in their accuracy
because of the multitude of differences between comparable publicly traded
companies and the lack of available information relating to acquisitions of
comparable target companies. PwC Securities also provided the board of directors
with a list of potential acquirers drawn from research and information services,
consulting and system integration and knowledge management technology vendors.
After considering PwC Securities' proposal, the board of directors concluded
that the timing was not optimal for seeking an acquirer and determined to
postpone its pursuit of an acquirer until the spring of 1999. The board believed
that shareholder value could be maximized by concentrating Teltech's resources
on the completion of its TT.com portal product, increasing revenues and
attaining profitability.
The pursuit of an acquirer was postponed until the spring of 1999 because
the board of directors decided that Teltech's resources should be focused on the
production of its TT.com portal product. In addition, the board of directors
decided that the TT.com product, stabilization of revenues and profitability
would be required to maximize shareholder value.
In early spring of 1999, Teltech management had several discussions with
Dialog, a holder of 31.65% of Teltech's outstanding preferred stock on an as
converted basis, regarding its interest in
37
<PAGE>
acquiring Teltech. After several weeks of intense discussions, the parties
mutually agreed that Dialog was not in a position to make an offer that Teltech
deemed viable, and merger discussions were terminated.
In April of 1999, Teltech and Sopheon entered into an agreement which
provides that Teltech may sell and market Sopheon's software products and
related technologies on a non-exclusive basis for two years to existing Teltech
customers. Teltech has the right to render services related to the products.
Revenues from the sales of the products are shared, 20/80 between
Teltech/Sopheon for the first sale, 30/70 for the second sale, and 40/60 for all
subsequent sales. Teltech, at its election, can become trained to perform
software customization. To date, Teltech has not sold any of Sopheon's software
products pursuant to this agreement. Teltech has purchased some of Sopheon's
software for approximately $250,000 for deployment in an internet product of its
expert network call X-pertHub.com in March 2000.
After interviewing several investment banking firms, PwC Securities was
retained in May, 1999 to serve as Teltech's investment banker. PwC Securities
and Teltech prepared a confidential offering memorandum. As part of its
services, PwC Securities helped Teltech develop a sale strategy which positioned
Teltech in such a way that it would demonstrate the full value of Teltech to
strategic buyers. In addition, PwC Securities delivered the confidential private
memorandum to 100 potential acquirors identified by PwC Securities and screened
by PwC Securities for financial and strategic suitability. Of the 100 companies
contacted, two submitted offers, one of which was Sopheon.
One of the companies which made an offer was About.com. Over a period of
several months ending on September 4, 1999, Teltech and About.com conducted due
diligence, signed a letter of intent for a stock merger and began the process of
drafting and negotiating a definitive merger agreement. PwC Securities was
directly involved in the negotiations with About.com. On September 4, 1999,
About.com advised Teltech that it was temporarily terminating the acquisition
process for the purpose of conducting a follow-up offering.
Based on About.com's termination of the acquisition process, PwC Securities
was asked to resume its efforts to find Teltech a strategic partner. After
reviewing the list of potential acquisition candidates, Teltech asked PwC
Securities to send Sopheon the confidential information memorandum. After the
completion of its offering in October 1999, About.com advised Teltech it was no
longer interested in acquiring Teltech on the previously discussed terms, but
was willing to consider a significantly reduced acquisition price. For this
reason and the fact that management believed that Sopheon could be a potential
acquiror, Teltech terminated discussions with About.com.
In late November, Andrew Michuda, Teltech's Chief Executive Officer, called
Barry Mence, the Chief Executive Officer of Sopheon, to discuss the potential
synergies between the two companies. Mr. Mence expressed his interest in
continuing discussions and coming to Minneapolis to view Teltech's facilities
and talk to Teltech management. On December 8, 1999, Mr. Mence arrived in
Minneapolis and several days later, after conducting his initial due diligence
review, he indicated to Mr. Michuda that he was very interested in having
Sopheon acquire Teltech.
On December 13, Teltech received its first offer from Sopheon in the form of
a draft letter of intent. The initial offer was $28 million in cash or
$34 million in Sopheon ordinary shares value. This offer and certain other
conditions in the letter of intent were not acceptable to Teltech's board of
directors. Over the next week, the parties continued negotiating the terms of
the letter of intent. At a board meeting in Guildford, England on December 16,
1999, Barry Mence presented his preliminary due diligence findings on Teltech to
the other directors of Sopheon, and updated them as to the stage of his
negotiations. The Sopheon board authorized Barry Mence to complete the
negotiations. At the conclusion of these negotiations, the merger consideration
subsequently became a cash and stock offer, at $14 million in cash and
$20 million in Sopheon ordinary shares. It was also agreed that the number of
shares would be determined by dividing $20 million by the closing price of
Sopheon ordinary shares
38
<PAGE>
on the day prior to signing the definitive merger agreement. If the average
closing price of the Sopheon ordinary shares in the 15 business days prior to
closing were greater than the initial quoted price, the number of shares of
Sopheon ordinary shares to be distributed to Teltech shareholders would not be
decreased. If the average closing price were less than the initial quoted price,
then the number of Sopheon shares to be distributed to Teltech shareholders
would be increased in an amount so that the value of the Sopheon shares would
never be less than $20,000,000. Certain other less important provisions in the
original draft letter of intent were revised. On December 23, 1999, both parties
signed a final letter of intent.
PwC Securities did not participate in any of the Sopheon negotiations nor
did Teltech consult with PwC Securities regarding the negotiations. Neither did
PwC provide Teltech with a fairness opinion of any kind. However, while the
Teltech board of directors did not directly refer to PwC Securities'
$30 million to $40 million assessment of the estimated value range of Teltech in
its approval of Sopheon's proposed minimum merger consideration of $34 million,
PwC Securities' assessment of estimated values of Teltech was a factor in the
board's approval of the merger. PwC Securities' services as Teltech's investment
banker were not a factor in Sopheon's approval of the merger.
Management of Teltech met with Sopheon executives in Amsterdam, The
Netherlands and Guildford, England, on January 4, 2000 to begin Teltech's due
diligence review and to begin discussing specific terms of the definitive merger
agreement. Teltech completed its due diligence on January 20, 2000 and Sopheon
completed its due diligence on January 17, 2000. During this period, Teltech's
board of directors was in constant contact with management regarding the status
of the transaction.
On January 7, 2000, Teltech's legal representatives delivered an initial
draft of a proposed merger agreement. From that time through January 20, 2000,
Teltech management and Sopheon management and their respective legal
representatives continued to negotiate the terms of the merger agreement. Early
in the week of January 16, 2000, the board of directors received a draft of the
merger agreement. By January 20, 1999, the parties had agreed on all of the
terms of the merger agreement.
During the week ending January 21, 2000, Barry Mence, joined by two of his
fellow directors, Richard Maddocks and James Macfarlane, went to Minnesota with
a view to completing the negotiation process. At a meeting held in Minnesota on
January 21, 2000 the three directors who were in the United States were joined
by the other directors of Sopheon via telephone and together they reviewed the
latest draft of the merger agreement and schedules thereto as well as due
diligence materials. At that meeting Sopheon's board of directors resolved to
approve the terms of the merger agreement and authorized Barry Mence to agree to
final amendments and to execute the merger agreement on behalf of Sopheon.
At a special meeting of the board of directors of Teltech held on
January 21, 2000, Barry Mence made a presentation during which he reviewed the
mission of Sopheon, the business fit between Sopheon and Teltech and his plans
for Sopheon and Teltech. Teltech's management confirmed its strong support for
the merger. Teltech's legal representatives then reviewed the material terms of
the merger agreement. Teltech's board of directors then discussed in detail the
terms of the merger agreement and the consideration to be received, taking
special note of the fact that Teltech shareholders are protected if Sopheon's
stock price increases and they receive the direct benefit of the increase of the
average price in Sopheon's stock. Teltech's full board of directors reviewed and
considered the other matters described below under "THE MERGER--Teltech's
Reasons for the Merger." After a comprehensive discussion, Teltech's board of
directors unanimously approved and adopted the merger agreement and the
transaction contemplated thereby. The board of directors unanimously resolved
that the terms of the merger are fair to, and in the best interests of,
Teltech's shareholders, and unanimously resolved to recommend that the
shareholders vote to approve and adopt the merger agreement. The merger
agreement was then duly executed by Sopheon, Teltech and Sopheon Corporation,
the acquisition subsidiary, on January 21, 2000.
39
<PAGE>
On April 28, 2000 the merger agreement was amended to permit holders of
options to acquire Teltech common stock to receive options to acquire Sopheon
ordinary shares in lieu of exercising their Teltech options. On July 31, 2000,
the merger agreement was amended to permit Teltech to extend the term of certain
warrants through September 30, 2000 and to extend until September 30, 2000 the
date by which the merger must be completed.
On June 27, 2000, Sopheon made a loan of $1,900,000 to Teltech, which bears
interest at a rate of 9% per annum. The loan is repayable on demand and is
secured, but is subordinated to Teltech's existing bank line of credit.
SOPHEON'S REASONS FOR THE MERGER
The board of directors of Sopheon plc has unanimously approved the merger
agreement and the merger between Sopheon, Teltech and Sopheon's wholly owned
subsidiary, Sopheon Corporation. In reaching its decision the Sopheon board of
directors considered a number of factors, including the following:
- Teltech is a knowledge management and research services company based in
the United States, which delivers a proportion of its products and
services to its customers through Internet portals. These products and
services are entirely complementary with Sopheon's business objectives.
- There is limited overlap between the two organizations in terms of
products and services and geographical coverage, whereas the overall size
and target market of the two organizations is similar, offering the
potential for a rapid integration of the businesses.
- Teltech has a long and well-established presence in the North American
market, with a large number of Fortune 500 companies as clients. This
would significantly enhance Sopheon's customer footprint in North America
as well as enhancing the channel through which to market its own products
and applications.
- By the same token Sopheon has an established client base and marketing
presence in Europe, which would offer the potential to bring Teltech
products and services to markets beyond North America.
- Access to Teltech's marketing, research and analysis services in the
United States would provide the opportunity to upgrade Sopheon's own
capability to develop and promote new products and technology.
- The integration of the two businesses would double the size of Sopheon's
global organization.
- Teltech's ability to deliver highly specialized knowledge management
services would provide Sopheon with a service capability it did not
possess prior to the acquisition.
- Teltech's sales include a significant recurring element, which would
provide Sopheon with a relatively stable element within its revenue base.
- The development of Teltech's Internet portal technology strategy would
provide Sopheon with the potential to move more rapidly into the new and
emerging markets around business-to-business, e-business and e-commerce.
Having considered each of these factors, the Sopheon board of directors
determined that Sopheon, as a result of the merger, would be a stronger and
larger organization with a broader range of product and service opportunities,
in a market where speed of growth and speed to market are essential ingredients
of business strategy. These factors would also better position Sopheon to obtain
future financing, if required to accelerate its plans.
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Accordingly, the Sopheon board of directors have concluded that the merger
is in the best interests of its shareholders.
TELTECH'S REASONS FOR THE MERGER
- In the merger, Teltech shareholders will receive Sopheon ordinary shares
and cash. Certain Teltech option holders will receive options to purchase
Sopheon ordinary shares. Sopheon will pay a minimum of $14,000,000 in cash
plus Sopheon ordinary shares and options to purchase Sopheon ordinary
shares having a total minimum value of $20,000,000, based on the average
closing price and average exchange rate for the 15 trading days ending on
the second trading day before the closing. If the average closing price
per Sopheon ordinary share is less than $9.12, Sopheon will issue
additional ordinary shares and grant additional options so that the total
equity value remains at $20,000,000. In addition, in the event that
Teltech options or warrants are exercised before the merger, Sopheon will
increase the total cash consideration by the amount paid in to Teltech
upon their exercise. Sopheon will also grant additional options to
purchase Sopheon ordinary shares equal in value to the aggregate exercise
price of certain Teltech options that are not exercised before the merger.
The board of directors believes that the $34 million valuation of the
merger consideration with the potential for the valuation to increase by
closing is fair to Teltech and its shareholders.
- Teltech has been a private company since it was incorporated in 1984. On
three different occasions, Teltech attempted to go public without success.
There is currently no liquidity for the Teltech shareholders and there is
no assurance that the Teltech stock will ever be liquid. In the proposed
merger with Sopheon, the Teltech shareholders will receive cash and
Sopheon ordinary shares which will be freely tradable, subject in certain
cases to lockup agreements.
- The merger will provide the Teltech shareholders with the opportunity to
receive, on a tax-free basis, Sopheon ordinary shares that will enable the
Teltech shareholders to participate in the growth opportunities in the
combined company.
- Over the past several years, Teltech has developed new business platforms
in the information technology market which management believes could
develop into significant revenue generators. However, Teltech does not
have the financial capacity to build these businesses, nor does it have
the ability to raise sufficient debt or equity financing to adequately
fund these ventures. As such, Teltech's growth possibilities are limited,
which makes it very difficult for Teltech to remain a stand-alone entity.
- The belief of the Teltech directors is that the combination of the two
companies will create more growth opportunities for both companies and
provide more resources to enable the combined company to compete more
effectively with competitors having greater resources than Teltech.
- Teltech's lengthy and ongoing review of available strategic alternatives
led to the conclusion that the merger offered the best opportunity to
maximize shareholder value. Teltech's board of directors took into account
its unsuccessful attempts to go public, the transaction with The Dialog
Corporation plc and the fact that a former financial advisor, PwC
Securities, had contacted a substantial number of bidders in a process
designed to elicit third-party proposals to enter into a strategic
relationship with Teltech and that such participants in this process were
afforded ample opportunity to submit proposals but did not do so.
- Teltech believes that Sopheon's management team, its business platform and
access to resources present Teltech with a significant opportunity for
growth and financial success that is not otherwise currently available.
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RECOMMENDATION OF THE TELTECH BOARD; ADDITIONAL CONSIDERATIONS OF THE TELTECH
BOARD
At its meeting on January 21, 2000, the board of directors of Teltech, by
unanimous vote, determined that the merger was in the best interests of Teltech
and Teltech shareholders, approved and declared advisable the merger and related
transactions and recommended that the shareholders of Teltech approve and adopt
the merger agreement.
In the course of reaching its determinations, the Teltech board consulted
with Teltech's management, as well as its financial and legal advisors. The
Teltech board conducted the following activities:
- reviewed and discussed internal financial statements and financial and
operating data concerning Teltech and Sopheon prepared by the respective
managements of both companies;
- discussed the past and current operations and financial conditions and the
prospects of Teltech and Sopheon, including information relating to
strategic, financial and operational benefits anticipated from the merger;
- analyzed the estimated pro forma impact of the merger on Sopheon's
earnings per share, cash flow, consolidated capitalization and financial
ratios;
- reviewed the reported prices and trading activity for Sopheon ordinary
shares;
- reviewed and discussed with senior executives of Sopheon the strategic
rationale for, and regulatory issues associated with, the merger;
- reviewed the financial terms, to the extent publicly available, of
comparable transactions;
- participated in discussions and negotiations with representatives of
Sopheon and its financial, legal and accounting advisors; and
- reviewed the merger agreement and related documents.
The discussion above of the factors considered by the board of directors of
Teltech is not intended to be exhaustive but includes the material factors
considered by the Teltech board. In view of the wide variety of factors
considered by the Teltech board in connection with its evaluation of the merger
and the complexity of these matters, the Teltech board did not consider it
practical, and did not attempt, to quantify, rank or otherwise assign relative
weights to the specific factors it considered in reaching its decision. The
Teltech board conducted a discussion of the factors described above, including
asking questions of Teltech's management and Teltech's legal and financial
advisors, and reached unanimous consensus that the merger was in the best
interests of Teltech and the Teltech shareholders. In considering the factors
described above, individual members of the Teltech board may have given
different weight to different factors.
The Teltech board of directors did not seek to obtain a fairness opinion
regarding the fairness of the merger terms to the Teltech shareholders. With the
assistance of an investment banker, Teltech conducted an extensive market check
for a strategic buyer over a period of approximately 16 months. This resulted in
only one firm offer which the Board deemed to be reasonable and fair, that being
the Sopheon offer. Management had advised the Board that in order to generate
acceptable growth, it would require significant additional cash and personnel
resources, resources to which Teltech did not have access. In addition, most of
Teltech's shareholders have been investors in Teltech for over 10 years.
Although Teltech had sought to provide its shareholders with an exit strategy
through initial public offering attempts and strategic relationships, it has
been unable to provide shareholders with liquidity. Given the business and
shareholder requirements to effect a strategic sale of Teltech, the fact that
Teltech is a private company, the extensive sales process conducted by Teltech
and the terms of the merger agreement with Sopheon which guarantees Teltech's
shareholders and optionholders a MINIMUM
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of $34 million in cash and stock, which consideration can be increased, the
Teltech Board of Directors does not believe a fairness opinion is necessary.
The board of directors of Teltech has unanimously approved the merger
agreement, the merger and each of the transactions contemplated thereby and
declared their advisability. Accordingly, the Teltech board recommends that
Teltech shareholders vote "FOR" approval and adoption of the merger agreement.
FINANCIAL ADVISOR TO TELTECH
Teltech has agreed to pay PwC Securities the amount of $250,000 related to
the merger of Teltech and Sopheon. Teltech has to date paid PwC Securities the
sum of $70,000 and will pay an additional $180,000 to PwC Securities upon the
consummation of the merger.
The services performed by PwC Securities included assisting with analyzing
the value of Teltech, assisting with the marketing strategy and related
marketing of Teltech, and assisting Teltech in negotiations as an advisor. In
PwC Securities' role as a financial advisor to Teltech, PwC Securities assisted
primarily with its evaluation and the development of its strategy for obtaining
a strategic relationship. PwC Securities acted in an advisory capacity, but did
not reach any specific conclusions regarding the fairness of the transaction or
any other substantive matter.
PwC Securities was not involved with the Sopheon merger negotiations, or in
the identification of Sopheon as a potential merger partner. However, under its
contract with Teltech, PwC was arguably entitled to a fee if Teltech completed a
transaction within 12 months of the termination of PwC's engagement.
Accordingly, Teltech and PwC Securities negotiated a payment of $250,000 in
settlement of PwC Securities' advisor fees.
INTERESTS OF MEMBERS OF TELTECH BOARD AND MANAGEMENT IN THE MERGER
In considering the recommendation of the Teltech board to vote "FOR"
approval and adoption of the merger agreement, Teltech shareholders should be
aware that a number of directors and officers of Teltech have certain interests
in the merger that are different from, or in addition to, the interests of
Teltech shareholders generally. The Teltech board recognized those interests and
determined that they neither supported nor detracted from the advisability of
the merger or the internal reorganization to Teltech or its shareholders.
Teltech executive officers and directors hold an aggregate of 282,188 common
and preferred shares of Teltech. In addition, they hold options and warrants to
purchase 1,153,209 shares of common and preferred stock, of which 951,071 are
exercisable as of this date or within 60 days of this date. In connection with
the merger, Teltech's board of directors will accelerate the vesting of all
options to purchase common stock of Teltech prior to the effective date of the
merger, thereby increasing the number of options and warrants which are
exercisable at the time of the merger to 1,153,209 shares.
The number of shares beneficially held by each executive officer and
director, including options and warrants which are exercisable or which will
become exercisable within 60 days of this date, are set forth in the table
below. Shares not outstanding but deemed beneficially owned by virtue of the
right of
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a person to acquire them are treated as outstanding only when determining the
percent owned by such individual and the percent owned by the group.
<TABLE>
<CAPTION>
NUMBER OF SHARES PERCENT
BENEFICIALLY OWNED OF SHARES
------------------ ---------
<S> <C> <C>
Joseph Shuster.............................................. 447,000(1) 6.53%
Jack Johnson................................................ 250,651(2) 4.55%
Andrew Michuda.............................................. 502,890(3) 7.30%
Ean Brown................................................... 1,401,282(4) 20.93%
Yuval Almog................................................. 1,294,676(5) 19.17%
James J. Mahoney, Jr........................................ 774,113(6) 11.36%
--------- -----
All executive officers and directors as a group............. 4,670,612 60.05%
</TABLE>
------------------------
(1) Includes 167,507 shares which may be purchased upon exercise of options or
warrants.
(2) Consists of 250,651 shares which may be purchased upon exercise of options
or warrants.
(3) Includes 502,110 shares which may be purchased upon exercise of options or
warrants.
(4) Includes 1,380,282 shares owned by The Dialog Corporation, of which
Mr. Brown is an Executive Vice President and 21,000 shares which may be
purchased upon exercise of options or warrants by The Dialog Corporation.
(5) Includes 1,073,004 shares owned by Coral Partners I and II, of which
Mr. Almog is a general partner, and 188,954 shares which may be purchased
upon exercise of options or warrants by Coral Partners I and II. Mr. Almog
disclaims beneficial ownership of shares held by Coral Partners I and II.
(6) Includes 633,902 shares owned by HLM Partners I and II, of which
Mr. Mahoney is a general partner, and 140,211 shares which may be purchased
upon exercise of options or warrants held by HLM Partners I and II.
The options and warrants held by the officers, directors and their
affiliates have exercise prices which range from $1.00 to $5.05 per share. Prior
to the effective date, the board of directors of Teltech will take action
necessary to accelerate the vesting of all options and warrants. Each option or
warrant holder may exercise fully vested options and warrants prior to the
effective date to own shares of Teltech capital stock and receive cash and
Sopheon ordinary shares in the merger. The merger agreement also provides that
certain unexercised options will receive options to purchase Sopheon ordinary
shares. Each officer or director of Teltech will receive the same consideration
for each share or option to purchase a share as current Teltech shareholders.
Sopheon has agreed to make incentive payments in the form of Sopheon
ordinary shares to certain Teltech employees who remain employed by Sopheon at
two key dates. The first payment of shares will be made on March 31, 2001 only
if a $20 million revenue target is achieved for fiscal year 2000. The components
of the target are:
- Teltech's sales to third parties;
- sales of Sopheon software and services by Sopheon's Denver office in
excess of $1 million;
- sales of Teltech products and services by Sopheon's Denver office; and
- Sopheon sales of Teltech products and services.
The maximum number of shares to be issued in this payment will be calculated by
dividing $1 million by the greater of the share price on March 31, 2001 or
L5.525, as translated into U.S. dollars at the exchange rate in effect on that
date.
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The second payment will be made on the 12-month anniversary of the effective
date of the merger, without regard to any revenue target. Up to 109,647 shares
will be issued in the second payment.
Assuming that they continue their employment with Sopheon and that the other
conditions to payment are met, Andrew Michuda will be eligible to receive shares
having a value of $380,000 in the first payment and 41,666 Sopheon ordinary
shares in the second payment and Jack Johnson will be eligible to receive shares
having a value of $236,000 in the first payment and 25,877 Sopheon ordinary
shares in the second payment.
DIRECTOR AND OFFICER INDEMNIFICATION AND INSURANCE
Teltech's restated articles of incorporation, pursuant to Minnesota law,
provide that Teltech will indemnify its officers, directors and employees
against judgments, penalties and fines by reason of their position with Teltech
so long as such person acted in good faith and reasonably believed the conduct
was in Teltech's best interests. Teltech maintains directors' and officers'
insurance.
ACCOUNTING TREATMENT
Sopheon will account for the merger as an acquisition under UK GAAP in
accordance with Financial Reporting Standard 6, "Acquisitions and Mergers," and
will account for the merger as a purchase for US GAAP purposes in accordance
with APB Opinion No. 16, "Business Combinations."
Under UK GAAP, the excess of the purchase price over the fair value of the
net assets acquired will be recorded as goodwill and amortized over its
estimated economic life. The merger will result in a goodwill amortization
charge of approximately $12,000,000 per year under UK GAAP for three years after
the merger, thereby reducing the reported consolidated profit of Sopheon under
UK GAAP. This goodwill amortization arises as an accounting charge against
profit upon the consolidation of Sopheon and Teltech but will not affect
Sopheon's cash flows, distributable reserves or ability to pay dividends.
Following the merger, Sopheon will report earnings per share before goodwill
amortization expense and profit or loss on the disposal of fixed asset
investments, in addition to basic and diluted earnings per share. For more
detail about the amount of goodwill Sopheon will have to record and the way in
which such goodwill will be amortized, see note 2 to the unaudited pro forma
consolidated financial statements included in "UNAUDITED CONDENSED PRO FORMA
CONSOLIDATED FINANCIAL INFORMATION OF SOPHEON."
Under US GAAP, the excess of the purchase price over the net tangible assets
acquired will be allocated to the various intangible assets acquired, including
in process research and development and goodwill. The future associated charges
to profits will depend upon the final purchase price allocation, which has not
yet been performed.
DISSENTERS' RIGHTS
The following summary of the applicable provisions of Sections 302A.471 and
302A.473 of the Minnesota Business Corporation Act, or MBCA, is not intended to
be a complete statement of such provisions and is qualified in its entirety by
reference to such sections, the full texts of which are attached as Appendix B
to this document. These sections should be reviewed carefully by any Teltech
shareholder who wishes to exercise dissenters' rights or who wishes to preserve
the right to do so, since failure to comply with the statutory procedures
summarized below will result in the loss of dissenters' rights. Any holder who
forfeits his or her dissenter's rights by failure to follow these procedures
will then receive the merger consideration described in this document.
The merger agreement constitutes a plan of merger for which shareholder
approval is required under the MBCA. Holders of Teltech common stock and
preferred stock will have the right, by fully complying with the applicable
provisions of Sections 302A.471 and 302A.473 of the MBCA, to dissent with
respect to the merger and to obtain payment in cash of the "fair value" of their
shares of Teltech
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stock after the merger is completed. The term "fair value" means the value of
the shares of Teltech stock immediately before the effective time of the merger.
Only Teltech shareholders as of the record date, and beneficial owners as of
the record date who hold through shareholders, may exercise dissenters' rights.
A person having beneficial ownership of shares of Teltech stock that are held of
record in the name of another person, such as a broker, nominee, trustee or
custodian, must act promptly to cause the record holder to follow the steps
summarized below properly and in a timely manner in order to perfect whatever
dissenters' rights such beneficial owner may have.
Shareholders of record who desire to exercise their dissenters' rights under
the MBCA must satisfy all of the following conditions:
- Before the Teltech special meeting, deliver a written notice of intent to
demand fair value for shares to the Secretary of Teltech, 2850 Metro
Drive, Minneapolis, Minnesota 55425. The written demand should specify the
shareholder's name and mailing address, the number of shares owned and
that the shareholder intends to demand the value of his or her shares.
This written demand must be in addition to and separate from any proxy or
vote against the merger. Voting against, abstaining from voting or failing
to vote on the merger does not by itself constitute a demand for appraisal
within the meaning of MBCA.
- Teltech shareholders that elect to exercise their dissenters' rights under
the MBCA must not vote for adoption of the merger. A shareholder's failure
to vote against the merger will not constitute a waiver of dissenters'
rights. However, if a shareholder returns a signed proxy but does not
specify a vote against adoption of the merger or direction to abstain, the
proxy will be voted for adoption of the merger, which will have the effect
of waiving that shareholder's dissenters' rights.
- Teltech shareholders may not assert dissenters' rights as to less than all
of the shares registered in such holder's name, except where certain
shares are beneficially owned by another person but registered in such
holder's name. If a record owner, such as a broker, nominee, trustee or
custodian, wishes to dissent with respect to all of the shares
beneficially owned by another person, such record owner must dissent with
respect to all of such shares and must disclose the name and address of
the beneficial owner on whose behalf the dissent is made. A beneficial
owner of shares of Teltech stock who is not the record owner of such
shares may assert dissenters' rights as to shares held on such person's
behalf, provided that such beneficial owner submits a written consent of
the record owner to Teltech at or before the time such rights are
asserted.
After approval of the merger by the shareholders at the Teltech special
meeting, the surviving corporation will send a written notice to each
shareholder who filed a written demand for dissenters' rights. The notice will
contain the following information:
- The address to which the shareholder must send a demand for payment and
the stock certificates in order to obtain payment and the date by which
they must be received.
- A form to be used to certify the date on which the shareholder, or the
beneficial owner on whose behalf the shareholder dissents, acquired the
shares or an interest in them and to demand payment.
- A copy of Sections 302A.471 and 302A.473 of the MBCA and a copy of this
summary describing the procedures to be followed in asserting dissenters'
rights.
In order to receive fair value for his or her shares, a dissenting
shareholder must, within 30 days after the date the notice from the surviving
corporation was given, send his or her stock certificates and all other
information specified in the notice, to the address identified in such notice. A
dissenting shareholder will retain all rights as a shareholder until the
effective time of the merger. After a valid
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<PAGE>
demand for payment and the related stock certificates and all other information
are received, or after the effective time, whichever is later, the surviving
corporation will remit to each dissenting shareholder who has complied with
statutory requirements the amount that the surviving corporation estimates to be
the fair value of such shareholder's shares, with interest commencing five days
after the effective time at a rate prescribed by statute. Remittance will be
accompanied by the surviving corporation's closing balance sheet and statement
of income for a fiscal year ending not more than 16 months before the effective
time, together with the latest available interim financial data, an estimate of
the fair value of the shareholder's shares and a brief description of the method
used to reach the estimate, a brief description of the procedure to be followed
if such holder is demanding supplemental payment and copies of
Sections 302A.471 and 302A.473 of the MBCA.
If the dissenting shareholder believes that the amount remitted by the
surviving corporation is less than the fair value of such holder's shares, plus
interest, the shareholder may give written notice to the surviving corporation
of such holder's own estimate of the fair value of the shares, plus interest,
within 30 days after the mailing date of the remittance and demand payment of
the difference. Such notice must be delivered to the executive offices of the
surviving corporation. A shareholder who fails to give such written notice
within this time period is entitled only to the amount remitted by the surviving
corporation.
Within 60 days after receipt of a demand for supplemental payment, the
surviving corporation must either pay the shareholder the amount demanded or
agreed to by such shareholder after discussion with the surviving corporation or
petition a court for the determination of the fair value of the shares, plus
interest. The petition must name as parties all shareholders who have demanded
supplemental payment and have not reached an agreement with the surviving
corporation. The court, after determining that the shareholder or shareholders
in question have complied with all statutory requirements, may use any valuation
method or combination of methods it deems appropriate to use, whether or not
used by the surviving corporation or the dissenting shareholder, and may appoint
appraisers to recommend the amount of the fair value of the shares. The court's
determination will be binding on all Teltech shareholders who properly exercised
dissenters' rights and did not agree with the surviving corporation as to the
fair value of the shares. Dissenting shareholders are entitled to judgment for
the amount by which the court-determined fair value per share, plus interest,
exceeds the amount per share, plus interest, remitted to the shareholders by the
surviving corporation. The shareholders shall not be liable to the surviving
corporation for any amounts paid by the surviving corporation which exceed the
fair value of the shares as determined by the court, plus interest. The costs
and expenses of such a proceeding, including the expenses and compensation of
any appraisers, will be determined by the court and assessed against the
surviving corporation, except that the court may, in its discretion, assess part
or all of those costs and expenses against any shareholder whose action in
demanding supplemental payment is found to be arbitrary, vexatious or not in
good faith. The court may award fees and expenses to an attorney for the
dissenting shareholders out of the amount, if any, awarded to such shareholders.
Fees and expenses of experts or attorneys may also be assessed against any
person who acted arbitrarily, vexatiously or not in good faith in bringing the
proceeding.
The surviving corporation may withhold the remittance of the estimated fair
value, plus interest, for any shares owned by any person who was not a
shareholder or who is dissenting on behalf of a person who was not a beneficial
owner on the public announcement date of the proposed merger, which was
March 3, 2000. The surviving corporation will forward to any such dissenting
shareholder who has complied with all requirements in exercising dissenters'
rights the notice and all other materials sent after shareholder approval of the
merger to all shareholders who have properly exercised dissenters' rights,
together with a statement of the reason for withholding the remittance and an
offer to pay the dissenting shareholder the amount listed in the materials if
the shareholder agrees to accept that amount in full satisfaction. The
shareholder may decline this offer and demand payment by following the same
procedure as that described for demand of supplemental payment by shareholders
who owned their shares as of the public announcement date. Any shareholder who
did not own shares
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on the public announcement date and who fails properly to demand payment will be
entitled only to the amount offered by the surviving corporation. Upon proper
demand by any such shareholder, rules and procedures applicable in connection
with receipt by the surviving corporation of the demand for supplemental payment
given by a dissenting shareholder who owned shares on the public announcement
date will also apply to any shareholder properly giving a demand but who did not
own shares of record or beneficially on the public announcement date, except
that any such shareholder is not entitled to receive any remittance from the
surviving corporation until the fair value of the shares, plus interest, has
been determined pursuant to such rules and procedures.
Shareholders considering exercising dissenters' rights should bear in mind
that the fair value of their shares determined under Sections 302A.471 and
302A.473 of the MBCA could be more than, the same as or, in certain
circumstances, less than the consideration they would receive pursuant to the
merger agreement if they do not seek appraisal of their shares.
Cash received pursuant to the exercise of dissenters' rights may be subject
to federal or state income tax. See "MATERIAL TAX CONSEQUENCES."
SOURCE AND AMOUNT OF FUNDS AND OTHER CONSIDERATION
Sopheon will pay $14.0 million in cash to holders of shares of Teltech
common stock and preferred stock in the merger. This amount will be financed by
the proceeds from a private placement of Sopheon ordinary shares in the United
Kingdom, which was completed in March, 2000, as well as from generally available
funds of Sopheon. Sopheon will also issue or grant options to purchase at least
2,192,982 ordinary shares to Teltech shareholders and option holders.
OTHER EFFECTS OF THE MERGER
The content and timing of reports and notices that Sopheon will file with
the SEC differ in several respects from the reports and notices that United
States public corporations file or that Teltech a private corporation, give to
its shareholders. Sopheon is a foreign private issuer for the purposes of the
reporting rules under the Exchange Act. As such, Sopheon will be required to:
- file with the SEC an annual report on Form 20-F within five months after
the end of each fiscal year;
- furnish reports on Form 6-K upon the occurrence of significant corporate
events.
Sopheon will not be required under the Exchange Act to file quarterly
reports on Form 10-Q after the end of each financial quarter. As a foreign
private issuer, Sopheon will also be exempt from the rules under the Exchange
Act that require annual reports to shareholders and proxy statements. However,
Sopheon's annual report on Form 20-F will contain audited financial statements
prepared in conformity with UK GAAP, as well as US GAAP reconciliations and a
discussion of Sopheon's financial results.
LITIGATION
As of the date of this proxy statement/prospectus, neither Sopheon nor
Teltech were parties to any litigation.
REGULATORY MATTERS
Under the merger agreement, neither party is required to complete the merger
unless all required regulatory consents and approvals that would be material to
Sopheon and Teltech on a combined basis are obtained without any restrictions or
conditions that would have a material adverse effect on Sopheon and Teltech on a
combined basis. It is possible that these regulatory consents and approvals will
not be obtained at all or on a timely basis or that material conditions will be
imposed on these consents and approvals. See "THE MERGER AGREEMENT--Conditions."
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MATERIAL TAX CONSEQUENCES
GENERAL
The following is a discussion of the material United States federal income
tax consequences of the merger to United States holders of Teltech common stock,
Teltech preferred stock and the material United States federal income tax
considerations and United Kingdom tax considerations applicable to the ownership
of Sopheon shares by United States holders. As used herein, a "United States
holder" means a beneficial owner of a Teltech or Sopheon security who is treated
as a United States person for United States federal income tax purposes. This
discussion does not address all aspects of United States federal income taxation
or United Kingdom taxation that may be relevant to Teltech shareholders in light
of their particular circumstances, or to shareholders who are subject to special
provisions of United States federal income tax law. In addition, this discussion
is limited to shareholders who hold Teltech shares as capital assets and who
will hold Sopheon shares as capital assets. Please refer to the "Qualifications"
section on page 53.
Teltech's legal counsel, Fredrikson & Byron, P.A., has delivered an opinion
with respect to the United States income tax consequences of the merger. The
opinion has been filed as an exhibit to Sopheon's registration statement.
The summary is of a general nature only and does not discuss all aspects of
United States and United Kingdom taxation that may be relevant to a particular
investor. Because this summary is limited to a brief consideration of the more
commonly relevant provisions, in no case should it be taken as constituting
advice to as to how a person will or will not be taxed in any jurisdiction and
in no circumstances is it a substitute for professional advice.
UNITED STATES FEDERAL INCOME TAX CONSEQUENCES TO UNITED STATES HOLDERS OF
TELTECH COMMON STOCK AND TELTECH PREFERRED STOCK
The merger will be a tax-free reorganization for United States federal
income tax purposes. Accordingly, United States holders of Teltech common stock
will not recognize loss, but will recognize gain in an amount equal to the
lesser of the gain realized, if any, with respect to each share of Teltech
common stock exchanged and any cash received in exchange for the share of
Teltech common stock. The amount of gain realized with respect to each share of
Teltech common stock exchanged will equal the excess of the sum of the fair
market value of the portion of a Sopheon ordinary share and the amount of any
cash received for the Teltech share over the United States holder's tax basis in
such share. As further discussed below, different rules apply to cash received
in lieu of fractional shares and to any stockholder of Teltech who will own,
actually or constructively, at least five percent of Sopheon by vote or value
immediately after the merger.
Subject to the following sentence, any recognized gain will be capital gain,
and will be long-term capital gain with respect to Teltech common stock held for
more than 12 months at the effective time of the merger. However, the gain could
be treated as dividend income to a Teltech shareholder who either will exercise
some control with respect to corporate affairs or will own, actually or
constructively, more than a very small percentage interest in Sopheon.
The tax basis of each Sopheon ordinary share received in the merger will
equal the tax basis of the Teltech common stock exchanged therefor, increased by
the amount of gain, including any gain that is treated like a dividend,
recognized with respect to the exchange of those shares. This amount will be
decreased by the basis of any portion of those exchanged shares converted into
cash in lieu of a fractional Sopheon ordinary share, and further decreased by
the amount of cash received with respect to those exchanged shares, other than
cash received in lieu of a fractional Sopheon ordinary share. The holding period
of the Sopheon ordinary shares will include the holding period of the Teltech
common stock exchanged therefor.
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<PAGE>
If a United States holder of Teltech common stock receives cash in lieu of a
fractional Sopheon ordinary share, the cash amount will be treated as received
in exchange for the fractional Sopheon ordinary share. Subject to the rule
discussed above with respect to gain recognized in the merger, the difference
between the cash amount received for the fractional Sopheon ordinary share and
the proportion of the United States holder's tax basis in Teltech common stock
exchanged and allocable to the fractional Sopheon ordinary share will be capital
gain or loss. The capital gain or loss will be long-term capital gain or loss
with respect to shares of Teltech common stock held for more than 12 months at
the effective time of the merger.
A TELTECH SHAREHOLDER WHO WILL OWN, ACTUALLY OR CONSTRUCTIVELY, AT LEAST
FIVE PERCENT OF SOPHEON BY VOTE OR VALUE IMMEDIATELY AFTER THE MERGER WILL
QUALIFY FOR NON-RECOGNITION TREATMENT AS DESCRIBED HEREIN ONLY IF THE
SHAREHOLDER FILES A "GAIN RECOGNITION AGREEMENT" WITH THE IRS. ANY SUCH
SHAREHOLDER IS URGED TO CONSULT WITH HIS OR HER TAX ADVISOR CONCERNING THE
DECISION TO FILE A "GAIN RECOGNITION AGREEMENT" AND THE PROCEDURES TO BE
FOLLOWED IN CONNECTION WITH THAT FILING.
UNITED STATES FEDERAL INCOME TAX CONSEQUENCES TO UNITED STATES HOLDERS OF
EMPLOYEE STOCK OPTIONS
The exchange pursuant to the merger by a United States holder of an option
to acquire a share of Teltech common stock received as compensation for services
for an option to acquire Sopheon shares will not be taxable for United States
federal income tax purposes. A United States holder of an option to acquire a
share of Teltech common stock or, after the merger, of an option to acquire a
Sopheon share, who received the option as compensation for services and who
exercises the option will, subject to the discussion below, recognize ordinary
income for United States federal income tax purposes in an amount equal to the
excess of the fair market value on the exercise date of the stock received
pursuant to such exercise over the price paid for that stock pursuant to the
option. A United States holder's basis in stock received pursuant to the
exercise of such an option will equal the fair market value of the stock on the
exercise date. Thereafter, the United States holder will be subject to the rules
discussed above with respect to United States holders of Teltech common stock or
discussed below with respect to United States holders of Sopheon Teltech shares.
The foregoing discussion does not address the United States federal income tax
consequences of the exercise of any option that is treated as an incentive stock
option within the meaning of section 422(b) of the United States tax code. Any
United States holder of an option that is treated as an incentive stock option
is urged to consult his or her own tax advisor concerning the consequences to
him or her of the merger and exercise of the option.
UNITED STATES FEDERAL INCOME TAX CONSEQUENCES TO DISSENTING SHAREHOLDERS
Subject to the discussion below, a United States holder who exercises the
holder's right to dissent from the merger will recognize gain or loss on the
exchange of the holder's Teltech stock for cash in an amount equal to the
difference between the amount of cash received, other than amounts, if any,
which are or are deemed to be interest for federal income tax purposes, which
amounts will be taxed as ordinary income, and the holder's basis in its Teltech
stock. The gain or loss will be capital gain or loss if the Teltech shares were
held as capital assets at the effective time of the merger. The capital gain or
loss will be long-term capital gain or loss with respect to Teltech stock held
for more than 12 months at that time. A dissenting shareholder may be required
to recognize any resulting gain or loss in the year the merger closes,
irrespective of whether the dissenting shareholder actually receives payment for
his or her shares in that year. In some instances, cash received by a dissenting
Teltech shareholder could be taxed as a dividend if the shareholder actually or
constructively owns Sopheon ordinary shares immediately after the merger.
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<PAGE>
UNITED STATES FEDERAL INCOME TAX CONSEQUENCES OF THE OWNERSHIP OF SOPHEON
ORDINARY SHARES
TAXATION OF DIVIDENDS
Dividends paid to a United States holder of Sopheon ordinary shares will be
treated as foreign source dividend income to the United States holder for United
States federal income tax purposes to the extent that they are paid out of
Sopheon's current or accumulated earnings and profits, as determined for United
States federal income tax purposes. The income will equal the United States
dollar value of the dividend on the date the dividend is actually or
constructively received by the United States holder, calculated by reference to
the exchange rate on the relevant date.
A United States holder may be entitled to a foreign tax credit for United
Kingdom tax withheld with respect to cash dividends paid on Sopheon ordinary
shares. If a United States holder is so entitled, the foreign tax credit would
be equal to one-ninth of any dividend received and would give rise to additional
dividend income in the same amount. United States holders that do not elect, or
are not permitted, to claim a foreign tax credit may be entitled to claim a
deduction for foreign tax withheld.
The United States and the United Kingdom have entered into negotiations of a
new income tax treaty. Each United States holder is urged to consult his or her
tax advisor concerning whether the United States holder is eligible for benefits
under the United Kingdom-United States tax treaty and whether, and to what
extent, a foreign tax credit or deduction will be available with respect to
dividends received from Sopheon.
A United States holder that relies on the United Kingdom-United States tax
treaty should consider disclosing this reliance on the United States holder's
United States federal income tax return. A United States holder that fails to
disclose reliance on a treaty where disclosure is required would be subject to
penalties under United States federal income tax law.
Distributions by Sopheon in excess of current and accumulated earnings and
profits, as determined for United States federal income tax purposes, will be
treated as a return of capital to the extent of the United States holder's basis
in its Sopheon shares and thereafter as capital gain. Dividends paid by Sopheon
will not be eligible for the dividends-received deduction allowed to United
States corporations in respect of dividends received from other United States
corporations. United States holders should consult their own tax advisors
regarding the treatment of any foreign currency gain or loss on any pounds
sterling received on the Sopheon shares which are not converted into United
States dollars on the date the pounds sterling are actually or constructively
received by the depository, in the case of Sopheon, or by the United States
holder, in the case of Sopheon ordinary shares. For foreign tax credit
limitation purposes, dividends paid by Sopheon will be income from sources
outside of the United States.
TAXATION OF CAPITAL GAINS
Upon a sale or other disposition of Sopheon shares, a United States holder
will generally recognize a gain or loss for United States federal income tax
purposes in an amount equal to the difference between the United States dollar
value of the amount realized on such sale or disposition and the United States
holder's adjusted tax basis, determined in United States dollars, in the Sopheon
shares. Such gain or loss recognized will be a long-term capital gain or loss
with respect to Sopheon shares held for more than 12 months at the time of the
sale or other disposition and any gain recognized generally will be income from
sources within the United States for foreign tax credit limitation purposes.
A United States holder that is liable for both United Kingdom and United
States tax on a gain on the disposal of Sopheon shares will generally be
entitled, subject to certain limitations and under the terms of the Income Tax
Convention, to credit the amount of United Kingdom capital gains or corporation
tax, as the case may be, paid in respect of such gain against such United States
holder's
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<PAGE>
United States federal income tax liability in respect of such gain. United
States holders should seek professional tax advice to determine their
entitlement to credit United Kingdom tax against their United States federal
income tax liability.
BACKUP WITHHOLDING AND INFORMATION REPORTING
The relevant paying agents for the Sopheon shares must comply with
information reporting requirements in connection with dividend payments or other
taxable distributions made with respect to Sopheon shares within the United
States to a non-corporate United States person. In addition, "backup
withholding" at the rate of 31% will apply to these payments unless the holder
or beneficial owner provides an accurate taxpayer identification number in the
manner required by United States law and applicable regulations, certifies that
the holder or beneficial owner is not subject to backup withholding, and the
holder or beneficial owner otherwise complies with applicable requirements of
the backup withholding rules.
In general, payment of the proceeds from the sale of Sopheon shares to or
through a United States office of a broker is subject to both United States
backup withholding and information reporting requirements, unless the holder or
beneficial owner certifies its non-United States status under penalties of
perjury or otherwise establishes an exemption as described in the preceding
paragraph. In general, United States backup withholding and information
reporting will not apply to a payment made outside the United States of the
proceeds of a sale of Sopheon shares through an office outside the United States
of a non-United States broker. Special rules may require information reporting
in the case of payments made outside the United States of the proceeds of the
sale of Sopheon shares through a United States broker.
Amounts withheld under the backup withholding rules may be credited against
a United States holder's United States federal income tax liability, and a
holder may obtain a refund of any excess amounts withheld under the backup
withholding rules by filing the appropriate claim for a refund with the IRS.
UNITED KINGDOM TAX CONSEQUENCES OF THE OWNERSHIP OF SOPHEON ORDINARY SHARES
TAXATION OF DISTRIBUTIONS
A United States holder who receives a dividend from Sopheon will not have
any further United Kingdom tax to pay in respect of the dividend but will not be
able to claim any payment in respect of the dividend under the United
Kingdom-United States tax treaty. See "United States Federal Income Tax
Consequences of the Ownership of Sopheon Ordinary Shares--Taxation of
Dividends."
TAXATION OF CAPITAL GAINS
A United States holder who is neither resident or ordinarily resident for
tax purposes in the United Kingdom will not normally be liable for United
Kingdom tax on capital gains realized on the disposal of Sopheon ordinary
shares. However, this will not apply if at the time of the disposal, the United
States holder carries on a trade, which for this purpose includes a profession
or vocation, in the United Kingdom through a branch or agency which constitutes
a permanent establishment and the disposed Sopheon ordinary shares are or have
been used in or for the purposes of that trade or are or have been used or held
by or for the purposes of the branch or agency. An individual United States
holder who is only temporarily not resident in the United Kingdom may, under
anti-avoidance legislation, still be liable for United Kingdom tax on capital
gains realized, subject to any available exemption or relief.
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<PAGE>
INHERITANCE AND GIFT TAXES
Sopheon ordinary shares are assets situated in the United Kingdom for the
purposes of United Kingdom inheritance tax. A gift of these assets by, or the
death of, an individual holder may, subject to certain exemptions and relief,
give rise to a liability for United Kingdom inheritance tax even if the holder
is neither domiciled in the United Kingdom nor deemed to be domiciled there
under special rules relating to long residence or previous domicile.
For United Kingdom inheritance tax purposes, a transfer of assets at less
than full market value may be treated as a gift and particular rules apply to
gifts where the donor reserves or retains some benefit. Special rules also apply
to close companies and to trustees of settlements holding Sopheon ordinary
shares, bringing them within the charge to inheritance tax.
An individual who is domiciled in the United States and who is not a
national of the United Kingdom for the purposes of the United Kingdom-United
States estate and gift tax convention will generally not be subject to United
Kingdom inheritance tax in respect of the Sopheon ordinary shares on the
individual's death or on a gift of the Sopheon ordinary shares during the
individual's lifetime, provided that any applicable United States federal gift
or estate tax liability is paid, unless the Sopheon ordinary shares are part of
the business property of a permanent establishment of an enterprise of the
individual in the United Kingdom or pertain to a fixed base in the United
Kingdom of the individual used for the performance of independent personal
services.
Sopheon ordinary shares placed in trust will generally not be subject to
United Kingdom inheritance tax if the settlor, at the time of settlement, was a
United States holder domiciled in the United States for the purposes of the
United Kingdom-United States estate and gift tax convention and was not a United
Kingdom national, provided that the Sopheon ordinary shares are not part of the
business property of a permanent establishment in the United Kingdom and do not
pertain to a fixed base in the United Kingdom, as more fully summarized above.
In the exceptional case where the Sopheon ordinary shares are subject both
to United Kingdom inheritance tax and to United States federal gift or estate
tax, the estate and gift tax convention generally provides for the tax paid in
the United Kingdom to be credited against tax paid in the United States or for
tax paid in the United States to be credited against tax payable in the United
Kingdom based on priority rules set out in the estate and gift tax convention.
STAMP DUTY AND STAMP DUTY RESERVE TAX
Sopheon and Teltech will be jointly and severally liable for all stamp
duties, stamp duty reserve tax and similar taxes and governmental levies imposed
in connection with the issuance or creation of the Sopheon ordinary shares
constituting the stock consideration.
A transfer for value of the Sopheon ordinary shares will generally be
subject to AD VALOREM stamp duty or to stamp duty reserve tax. Stamp duty will
arise on the execution of an instrument to transfer Sopheon ordinary shares.
Stamp duty reserve tax will arise on the entry into an agreement to transfer
Sopheon ordinary shares but the charge may be canceled if stamp duty has been
paid. Stamp duty and stamp duty reserve tax are normally a liability of the
purchaser. Any transfer for value of the underlying Sopheon ordinary shares
represented by Sopheon may give rise to a liability on the transferee to United
Kingdom stamp duty or stamp duty reserve tax. The rate of stamp duty payable is
50p per L100, or part thereof, and 0.5% of the consideration in the case of
stamp duty reserve tax.
QUALIFICATIONS
As noted above, the foregoing discussion does not address all aspects of
United States federal income taxation or United Kingdom taxation that may be
relevant to all Teltech shareholders in light of their particular circumstances.
For instance, the discussion does not address all aspects of United States
53
<PAGE>
federal income taxation or United Kingdom taxation to shareholders that are
resident, or, in the case of an individual shareholder, ordinarily resident, in
the United Kingdom, shareholders who conduct a trade or business in the United
Kingdom through a permanent establishment situated therein, or who perform
independent personal services from a fixed base situated therein, and, in either
case, to which holding of Teltech stock is effectively connected.
In addition, the foregoing discussion does not address all aspects of United
States federal income taxation or United Kingdom taxation that may be relevant
to shareholders who are subject to special provisions of United States federal
income tax law. For example, the discussion does not address all aspects of
United States federal income taxation or United Kingdom taxation that may be
relevant to:
- shareholders liable for alternative minimum tax;
- shareholders that actually or constructively will own 5% or more by vote
and value of the outstanding stock of Sopheon;
- shareholders that hold their stock as part of a straddle, hedge, synthetic
security, conversion transaction or other integrated investment composed
of Teltech shares and one or more other investments;
- shareholders whose "functional currency" is not the United States dollar;
- financial institutions;
- insurance companies;
- tax-exempt organizations;
- traders in securities that elect mark-to-market accounting treatment; or
- broker-dealers.
Further, this discussion does not address the United States federal income
tax consequences of the merger to United States state or local taxation or
taxation by countries other than the United States and the United Kingdom.
The foregoing discussion is based on existing United States federal income
and United Kingdom tax law, including legislation, administrative rulings and
court decisions, as well as on the United Kingdom-United States tax treaty, all
as in effect on the date of this proxy statement/prospectus, all of which are
subject to change, or changes in interpretation, possibly with retrospective
effect. In particular, the United States and the United Kingdom have entered
into negotiations of a new United Kingdom-United States income tax treaty.
Finally, Sopheon believes that it is not and will not become a "passive
foreign investment company" for United States federal income tax purposes within
the meaning of Section 1297(a) of the United States tax code and the foregoing
discussion so assumes.
EACH TELTECH SHAREHOLDER IS ADVISED TO CONSULT HIS OR HER OWN TAX ADVISOR AS
TO THE TAX CONSEQUENCES OF THE MERGER AND THE OWNERSHIP AND DISPOSITION OF THE
SOPHEON SHARES, IN EACH CASE IN LIGHT OF THE SHAREHOLDER'S UNIQUE FACTS AND
CIRCUMSTANCES.
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<PAGE>
THE MERGER AGREEMENT
The following is a materially complete summary of significant provisions of
the merger agreement. The merger agreement, as amended, is attached as
Appendix A and is incorporated into this prospectus/proxy statement by
reference. You should read the merger agreement for a complete understanding of
its terms.
STRUCTURE OF THE MERGER
The merger agreement provides that, following the approval of the merger
agreement by the shareholders of Teltech and the satisfaction and waiver of the
other conditions to the merger, Teltech will merge with Sopheon Corporation, a
wholly owned subsidiary of Sopheon, with Sopheon Corporation being the surviving
entity. Pursuant to the merger, Teltech shareholders will receive cash and
Sopheon ordinary shares and certain Teltech option holders will receive options
to purchase Sopheon ordinary shares.
Sopheon Corporation was organized as a Minnesota corporation in January 2000
for the purpose of effecting the merger. To date, Sopheon Corporation has not
conducted any business other than in connection with its formation and
capitalization and the transactions contemplated by the merger agreement.
EFFECTIVE TIME AND EFFECTS OF THE MERGER
The parties expect to close within a few business days after receiving the
approval of Teltech shareholders. The merger will be effective upon the filing
of articles of merger with the Office of the Secretary of State of the State of
Minnesota, or at a later time specified in the articles of merger. The parties
plan to file the articles of merger as soon after approval of the merger
agreement by Teltech shareholders at the special meeting and satisfaction or
waiver of the other conditions to the merger contained in the merger agreement.
MERGER CONSIDERATION
The total merger consideration will have a value of at least $34,000,000. In
the merger, Teltech shareholders will receive Sopheon ordinary shares and cash.
Certain Teltech option holders will receive options to purchase Sopheon ordinary
shares. Sopheon will pay a minimum of $14,000,000 in cash plus Sopheon ordinary
shares and options to purchase Sopheon ordinary shares having a total minimum
value of $20,000,000, based on the average closing price and average exchange
rate for the 15 trading days ending on the second trading day before the merger.
If the average closing price per Sopheon ordinary share is less than $9.12,
Sopheon will issue additional ordinary shares and grant additional options so
that the total equity value remains at $20,000,000. In addition, Sopheon will
increase the total cash consideration by the amount paid to Teltech upon the
exercise of Teltech stock options between January 21, 2000 and the effective
date of the merger. Sopheon will also grant additional options to purchase
Sopheon ordinary shares equal in value to the aggregate exercise price of
certain Teltech options that are not exercised before the merger.
The cash will be allocated among holders of Teltech preferred stock and
common stock according to the method described in Steps 1 and 2 below. Teltech
option holders will not receive cash but will receive options to purchase
Sopheon shares.
STEPS 1 AND 2--PAYMENT OF PREFERENCE ON PREFERRED STOCK AND RETURN OF
CAPITAL TO COMMON STOCK
First, the holders of each class of Teltech preferred stock will be paid
cash and Sopheon ordinary shares to satisfy the preferences stated in Teltech's
restated articles of incorporation.
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<PAGE>
The preferences are shown in the following table:
<TABLE>
<CAPTION>
SERIES OF PREFERRED STOCK PREFERENCE PER SHARE
------------------------- --------------------
<S> <C>
Series A.................................................. $1.38058
Series B.................................................. $2.60
Series C.................................................. $5.05
Series D.................................................. $6.70
Series E.................................................. $3.55
</TABLE>
Second, the holders of Teltech common stock will be paid cash and Sopheon
ordinary shares as a return of the aggregate capital paid in from the issuance
of all common stock through the effective date of the merger. As of July 31,
2000, this amount was $1.54 per share, based on $3,812,930 of paid in capital
and 2,469,327 shares of common stock outstanding on that date. This amount would
increase if Teltech receives additional paid in capital from the issuance of
common stock before the effective date of the merger.
The amount of the preferences that will be paid in cash will be determined
on the effective date of the merger by the following method. The total
preference amount payable to holders of the preferred stock will be calculated
by multiplying the number of outstanding shares of each series by the preference
amount for that series. And then add to this the aggregate paid in capital which
is payable to common shareholders. The amount of cash available, which will be
$14,000,000 plus any cash paid in to Teltech upon the exercise of options
between the date of signing of the merger agreement and the effective date, will
be divided proportionately between each series of preferred stock and the common
stock as shown in the example beginning on page 57.
The example assumes that the total preferred stock preference was
$15,754,105, that the paid in capital on the common stock was $3,798,030, and
that Teltech received $1,162,883 as payment of the exercise price on stock
options. If these amounts are the same on the effective date of the merger, the
cash paid to shareholders would be $15,162,883, which consists of the
$14,000,000 merger consideration and the $1,162,883 paid upon the exercise of
options. Each share would receive 77.55%, or $15,162,883 divided by $19,552,135,
of its respective preference in cash. The amount paid in cash will increase if
additional options and warrants are exercised before the effective time of the
merger. The remainder of the preferences will be paid in Sopheon ordinary
shares, based upon the average closing price and average exchange rate in effect
prior to the merger. For additional examples of these calculations, see Steps 1
and 2 of the example beginning on page 57.
STEP 3--ISSUANCE OF OPTIONS
Holders of Teltech options that have an exercise price less than the total
consideration payable to a share of common stock, as described in Steps 2 and 4,
will receive Sopheon options in exchange for their Teltech options. These
options are referred to as "participating options." Teltech options that have an
exercise price equal to or greater than the merger consideration payable to a
share of common stock will be cancelled.
For example, if the average closing price of a Sopheon ordinary share is
$9.12 or less, then options with an exercise price of $2.75 or less would
participate in the merger, and options with a higher exercise price would be
cancelled. If the average closing price of Sopheon shares is $11.55 per share,
then options with an exercise price of $3.00 or less would participate in the
merger, and options with a higher exercise price would be cancelled.
Holders of participating options will receive Sopheon shares in the merger
which have a value equal to the dollar amount option holders would have received
as described in Step 2 above and Step 4 below if they had exercised their
Teltech options before the merger. The total exercise price of the new
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<PAGE>
Sopheon options will equal the total exercise price of the participating
options. Each Sopheon option will preserve the terms of the participating option
that it replaces.
If the average closing price of Sopheon ordinary share is $9.12 or less, as
converted into U.S. dollars, a holder of a participating option would receive
approximately $2.89 in value of options for Sopheon shares for each Teltech
option. If the average closing price of a Sopheon ordinary share is higher than
$9.12, than the dollar value received would be higher. If the average closing
price of Sopheon shares is $11.55 per share, as converted into U.S. dollars, the
value of options for Sopheon shares received would be approximately $3.55. These
amounts are approximations only and will not be known until closing.
STEP 4--PAYMENT OF REMAINING SOPHEON ORDINARY SHARES
In the final step of calculating the merger consideration, the total Sopheon
shares will be reduced by the Sopheon shares payable in Steps 1 and 2 and
issuable pursuant to options in Step 3 above. The remainder of the shares will
be allocated among all holders of Teltech common stock and preferred stock, on
an as-converted basis, with the exception that the number of Sopheon shares
payable to holders of Teltech common stock as a group will be reduced by, and
the number of Sopheon shares payable to holders of Teltech preferred stock as a
group will be increased by, the difference between (i) the aggregate value the
holders of common stock received pursuant to Step 2 above and (ii) the aggregate
value that the holders of Teltech common stock would have received if all
options had been exercised.
If the price of Sopheon shares is $9.12 per share, as converted into U.S.
dollars, then there would be approximately 1,330,335 Sopheon shares available
for distribution in this step. Assuming that 7,367,801 shares of Teltech common
and preferred stock are outstanding, each share of Teltech preferred stock would
receive $1.67 in Sopheon shares and each share of common share would receive
$1.61 in Sopheon shares. If the price of Sopheon shares is $11.55, then there
would be approximately 1,414,111 Sopheon shares available, and each share of
Teltech preferred stock would receive $2.24 in Sopheon shares and each share of
common stock would receive $2.18. For an example of this calculation, see Step 4
in the following example.
EXAMPLE
The following provides an example of the allocation of merger consideration
assuming that the closing price of a Sopheon ordinary share is $9.12, based on
the average closing price and average exchange rate for the 15 trading days
ending on the second trading day before the merger.
STEP 1: PAYMENT OF PREFERENCE ON PREFERRED STOCK
<TABLE>
<CAPTION>
STOCK VALUE
PREFERENCE PER SHARE CASH PER SHARE PER SHARE SHARES OF STOCK
-------------------- -------------- ----------- ---------------
<S> <C> <C> <C> <C>
Series A............. $1.38058 1$.07 $.31 .03
Series B............. 2.60 2.02 .58 .06
Series C............. 5.05 3.92 1.13 .12
Series D............. 6.70 5.20 1.50 .16
Series E............. 3.55 2.75 .80 .09
$15,754,105 $12,217,472 $3,536,633 387,784 shares
======== ===== ===== ===
Total..............
</TABLE>
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<PAGE>
STEP 2: PAYMENT OF PAID IN CAPITAL ON COMMON STOCK
<TABLE>
<CAPTION>
PAID IN CAPITAL STOCK VALUE
PER SHARE CASH PER SHARE PER SHARE SHARES OF STOCK
--------------- -------------- ----------- ---------------
<S> <C> <C> <C> <C>
Common................... $1.37 $1.06 $.31 .03
$3,798,030 $2,945,411 $852,519 93,488 shares
=========== ============ ========= =============
Total..................
</TABLE>
STEP 3: ISSUANCE OF OPTIONS
<TABLE>
<CAPTION>
TELTECH OPTION STOCK VALUE
EXERCISE PRICE SHARES OF STOCK PER SHARE
-------------- --------------- -----------
<S> <C> <C>
$5.05............................................ -- --
3.00............................................ -- --
2.75............................................ .33 $2.98
2.00............................................ .33 2.98
1.75............................................ .33 2.98
1.50............................................ .33 2.98
1.40............................................ .33 2.98
1.25............................................ .33 2.98
1.00............................................ .33 2.98
648,198 shares $5,911,566
=== =====
Total..........................................
</TABLE>
STEP 4: PAYMENT OF REMAINING SOPHEON ORDINARY SHARES
<TABLE>
<CAPTION>
STOCK VALUE
SHARES OF STOCK PER SHARE
---------------- -----------
<S> <C> <C>
Series A....................................... .183 $1.67
Series B....................................... .183 1.67
Series C....................................... .206 1.88
Series D....................................... .221 2.02
Series E....................................... .183 1.67
Common......................................... .176 1.61
1,330,336 shares $12,138,818
==== =====
Total........................................
</TABLE>
The exact per share value in United States dollars which will be payable
upon consummation of the merger will not be known until closing and will depend
upon the average exchange rate of pounds sterling into United States dollars and
the average closing price of Sopheon ordinary shares, each over the 15 trading
days prior to the closing. In no event will the United States dollar value be
less than as shown above based upon a Sopheon ordinary share value of L5.525, or
$9.12 as converted into United States dollars; any fluctuation downward in the
average closing price of Sopheon ordinary shares will result in an increase in
the number of Sopheon ordinary shares received by Teltech shareholders and
option holders. Due to fluctuation of the market price of Sopheon ordinary
shares, the actual United States dollar value of Sopheon ordinary shares may
increase based on the then current value. There is no guaranty that the actual
closing price of Sopheon ordinary shares will be greater than L5.525, or $9.12
as converted into United States dollars.
Below is a table showing the total per share value in United States dollars
received by each class of Teltech shares based upon three possible average
closing prices for Sopheon ordinary shares, L4.42, L4.97, L5.525, L7.00 and
L10.00 each converted into United States dollars at an exchange rate of 1.6507
pounds sterling per United States dollar. While the total consideration of cash
and Sopheon shares will
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<PAGE>
have a value of at least $34,000,000, the final payout in cash and the number of
Sopheon shares received will depend upon both the number of options for Teltech
stock which are exercised before the merger and the average closing price of
Sopheon shares at the time of the merger. The numbers in the table represent
approximations in U.S. dollars of the cash and value of Sopheon shares to be
received.
TOTAL PAYOUT VALUE PER SHARE (IN U.S. DOLLARS)
<TABLE>
<CAPTION>
$7.30 PER SHARE $8.20 PER SHARE $9.12 PER SHARE $11.55 PER SHARE $16.51 PER SHARE
--------------- --------------- --------------- ---------------- ----------------
<S> <C> <C> <C> <C> <C>
Series A............. $3.05 $3.05 $3.05 $3.62 $4.78
Series B............. 4.27 4.27 4.27 4.84 6.00
Series C............. 6.93 6.93 6.93 7.56 8.86
Series D............. 8.72 8.72 8.72 9.40 10.80
Series E............. 5.22 5.22 5.22 5.79 6.95
Common............... 2.98 2.98 2.98 3.55 4.71
Option holders....... 2.98 2.98 2.98 3.55 4.71
</TABLE>
No fractional Sopheon shares will be issued in the merger. A Teltech
shareholder who would otherwise be entitled to receive a fraction of a Sopheon
share will be paid cash instead. The cash amount paid for fractional shares will
equal the product obtained by multiplying the fractional share interest by the
last reported closing price for Sopheon ordinary shares on the London Stock
Exchange on the date the merger becomes effective. Options for Sopheon ordinary
shares will be issued for the nearest whole number of shares.
EXCHANGE OF SHARE CERTIFICATES
Promptly after the effective date of the merger, an exchange agent will mail
transmittal forms to each holder of record of Teltech stock and instructions for
use in forwarding stock certificates for surrender and exchange for cash and
Sopheon ordinary shares. After receipt of the transmittal forms, each holder of
Teltech stock certificates should surrender them to the exchange agent according
to the detailed instructions contained in the transmittal forms. TELTECH
SHAREHOLDERS SHOULD NOT SEND IN THEIR CERTIFICATES UNTIL THEY RECEIVE A
TRANSMITTAL FORM.
TREATMENT OF TELTECH STOCK OPTIONS AND WARRANTS
Prior to the effective time of the merger, the board of directors of Teltech
will adopt resolutions accelerating the vesting of all Teltech stock options so
that the stock options will become fully exercisable 20 days prior to the
effective time of the merger, provided that the merger occurs.
Teltech option holders who have not exercised their Teltech options prior to
the merger may be entitled to receive Sopheon options, as described in Step 3 on
page 56. These option holders will receive statements from Sopheon or its
exchange agent describing the Sopheon options issued to them. All options to
purchase Sopheon shares will be issued for the nearest whole number of shares.
The board of directors of Teltech will take any action necessary to ensure that
all Teltech stock options which are not entitled to consideration in the merger
will be automatically terminated and canceled.
The board of directors of Teltech will also take any action necessary to
ensure that any warrants to purchase Teltech stock which remain unexercised
immediately prior to the effective time of the merger will be automatically
terminated and canceled.
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REPRESENTATIONS AND WARRANTIES
Sopheon and Teltech have each made customary representations and warranties
to the other in the merger agreement relating to, among other things:
- their organization, the organization of subsidiaries, and similar
corporate matters;
- their capital structure;
- litigation;
- the authorization, execution, delivery, and performance of the merger
agreement and the absence of conflicts, violations, or defaults under
their organizational documents or conflicts with or violations of any laws
as a result of executing the merger agreement;
- governmental authorizations and filings;
- the tax free reorganization status of merger;
- financial statements; and
- the absence of undisclosed liabilities and material adverse events since
December 31, 1998.
In addition to the representations and warranties described above, Sopheon
has made representations and warranties to Teltech as to certain matters,
including the following:
- the filing of documents with the London and Amsterdam Stock Exchanges
since January 1, 1999 and the accuracy of the information in the documents
filed;
- the ownership of the subsidiary formed to effect the merger;
- the lack of liabilities, other than those incurred in incorporation or
organization, of the subsidiary formed to effect the merger; and
- the merger subsidiary's status as a first tier subsidiary and lack of
business operations.
In addition to the representations and warranties described above, Teltech
has made representations and warranties to Sopheon as to certain matters,
including the following:
- its employee benefits plans;
- compliance with governmental regulations concerning employees and
relations with employees;
- the status of employment relationships;
- the filing of tax returns and the payment of taxes;
- title to its properties;
- ownership, use, and non-infringement of intellectual property rights;
- compliance with environmental laws and other environmental matters;
- disclosure and lack of default of any material agreements and commitments;
- the lack of request of a fairness opinion;
- maintenance of insurance coverage;
- the status of commercial relationships;
- the condition of tangible assets;
- accuracy of the proxy statement;
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- that Teltech is not a guarantor;
- year 2000 compliance;
- takeover statute status; and
- relationships with customers and suppliers.
CERTAIN COVENANTS
From the date of the execution of the merger agreement until the effective
time of the merger, Teltech has agreed to carry on its business in the ordinary
course consistent with past practice. Teltech has also agreed to use all
reasonable efforts to keep available the services of its current officers,
significant employees, and consultants, to preserve its current relationship
with its corporate partners, customers, and suppliers, and to preserve
substantially intact its business organization.
During the period before the effective time of the merger, Teltech, without
Sopheon's consent, will not, with certain exceptions stated in the merger
agreement, do or agree to do any of the following:
- amend or otherwise change its articles of incorporation or bylaws;
- issue any stock, options, warrants, or other rights other than those
issued pursuant to the exercise of stock options and warrants under the
terms of the merger agreement;
- sell, encumber, or allow the acquisition of any material property or
assets of Teltech;
- acquire any interest in any entity, other than in the ordinary course of
business;
- incur any indebtedness for borrowed money, issue any debt securities, or
assume any obligations of any entity for borrowed money;
- terminate, cancel, or request any material change in any material
contracts;
- make any capital expenditure not budgeted for fiscal year 2000 in excess
of $100,000 in aggregate;
- declare or pay any dividend with respect to any capital stock;
- reclassify, combine, split, subdivide, or acquire, directly or indirectly,
any of its capital stock;
- amend the terms of, repurchase, redeem or otherwise acquire any of its
securities;
- amend the period of exercisability of any stock options (other than the
acceleration of vesting of all options);
- increase the compensation payable to any officer, director, consultant, or
employee or enter any agreement which provides benefits to such
individuals upon a change in control;
- establish or amend any collective bargaining, bonus, profit sharing,
thrift, compensation, stock option, restricted stock, pension, retirement,
deferred compensation, employment termination, severance, or other plan or
agreement for the benefit of any director, officer, consultant, or
employee;
- satisfy any claims, liabilities, or obligations other than in the ordinary
course of business;
- make any change to its accounting methods or policies;
- make a material tax election or settle any tax liability; or
- along with directors, officer, agents, employees, shareholders and other
holders of equity in Teltech, trade in or otherwise obtain or dispose of
Sopheon ordinary shares.
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Since the day the merger agreement was entered into, Teltech has granted
options to employees to purchase 193,678 shares of its common stock and has
extended the expiration date of warrants from July 31, to September 30, 2000,
both with Sopheon's consent.
CERTAIN OTHER COVENANTS
The merger agreement contains certain mutual covenants of the parties,
including covenants relating to notifications, confidentiality of information,
tax-free reorganization, purchase of common stock of the parties, obtaining of
consents and approvals, and efforts to consummate the merger.
The merger agreement also contains, subject to certain exceptions, covenants
by Teltech to:
- provide Sopheon with access to all facilities, books and records and
furnish information as requested; and
- not solicit, initiate, or encourage any competing acquisition transactions
for Teltech, and to provide certain information and rights to Sopheon in
the event of a competing transaction proposal.
ADDITIONAL AGREEMENTS
Sopheon and Teltech have each made additional agreements in the merger
agreement relating to, among other things:
- the filing of a registration statement with the SEC covering the Sopheon
ordinary shares to be issued to Teltech shareholders;
- that none of the information supplied for use in the registration
statement or proxy statement is false or misleading;
- Teltech's special meeting of shareholders to approve the merger;
- the execution of a letter agreement by certain of Teltech's affiliates;
- Sopheon will use all reasonable efforts to comply with applicable state
securities laws prior to the effective time;
- that the provisions in the articles and bylaws of the surviving
corporation will not be amended or repealed for six years in any manner
that would adversely affect the rights of any individuals who were at or
at any time prior to the effective date of the merger directors, officers,
employees, or agents of Teltech;
- that the surviving corporation of the merger will indemnify and hold
harmless each present and former director and officer of Teltech; and
- that the surviving corporation will assume all employment agreements and
arrangements in effect at Teltech as of the date of the merger agreement.
CONDITIONS TO EACH PARTY'S OBLIGATION TO EFFECT THE MERGER
The obligations of Sopheon and Teltech to consummate the merger are subject
to the satisfaction or waiver of certain conditions, including the following:
- the registration statement of which this proxy statement/prospectus is a
part having become effective under the Securities Act and not being
subject to any stop order or related proceeding by the SEC, and all state
securities laws or other authorizations necessary to carry out the merger
having been obtained;
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- Sopheon having taken all action necessary under English law and the Dutch
and London Stock Exchanges necessary to approve the merger;
- Teltech having obtained all approvals of its shareholders necessary to
adopt the merger agreement and approve the merger;
- Sopheon having obtained all approvals of its shareholders necessary to
approve the merger agreement, if required by applicable law;
- the Sopheon ordinary shares issuable to Teltech's shareholders in the
merger having been admitted to trading on the Alternative Investment
Market of the London Stock Exchange;
- no law or regulation, judgment or injunction of any court or government
having prohibited the consummation of the merger;
- any waiting period applicable to the merger under the Hart-Scott-Rodino
Act or other similar applicable law having expired or terminated;
- all required approvals from government entities having been obtained; and
- the board of directors of Teltech not having revoked its approval of the
merger.
CONDITIONS TO THE OBLIGATIONS OF TELTECH
The obligations of Teltech to effect the merger are further subject to the
satisfaction of certain conditions, including the following:
- the representations and warranties of Sopheon in the merger agreement
being accurate in all material respects, with the receipt from the chief
executive officer and chief financial officer of Sopheon of a statement to
that effect; and
- Sopheon having performed or complied in all material respects with all
covenants required to be performed or complied with by or on the effective
time of merger, with the receipt from the chief executive officer and
chief financial officer of Sopheon of a statement to that effect.
CONDITIONS TO THE OBLIGATIONS OF SOPHEON
The obligations of Sopheon to effect the merger are further subject to the
satisfaction of certain conditions, including the following:
- the representations and warranties of Teltech in the merger agreement
being accurate in all material respects, with the receipt from the chief
executive officer and chief financial officer of Teltech of a statement to
that effect;
- Sopheon having received a certificate of the chief executive officer and
chief financial officer of Teltech setting forth the number of Sopheon
ordinary shares each shareholder of Teltech is entitled to receive upon
the consummation of the merger and the number of Sopheon ordinary shares
issuable as options upon the rollover of certain Teltech stock options;
- Teltech having performed or complied in all material respects with all
covenants required to be performed or complied with by or on the effective
time of merger, with the receipt from the chief executive officer and
chief financial officer of Teltech of a statement to that effect;
- there having been no material adverse event or effect upon Teltech since
the date of the merger agreement;
- there having been no action by any governmental entity or other entity for
the purpose of preventing or questioning the validity of the merger which
would be reasonably expected to materially damage Sopheon or Teltech if
the merger is consummated;
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- any consents, approvals, and licenses required from any governmental
entity or third party having been received;
- dissenting shares not constituting more than 10% of the shares of Teltech
common stock outstanding immediately prior to the effective time of
merger; and
- Sopheon having received from all holders of 5,000 or more shares of
Teltech common stock agreements not to sell or otherwise dispose of their
Sopheon ordinary shares within the period found in the merger agreement
and not to dispose of Sopheon ordinary shares other than through a broker
specified by Sopheon or after full consultation with such a broker.
At the time the parties entered into the merger agreement, a condition to
Sopheon's obligation to effect the merger was raising sufficient funds to meet
its cash obligations for the merger. In March 2000, Sopheon completed a private
offering of its ordinary shares in which it raised L19.9 million after deducting
offering expenses.
AMENDMENTS; WAIVERS
Sopheon and Teltech may amend or waive any provision of the merger
agreement, provided that after the adoption of the merger agreement by Teltech's
shareholders, no amendment which would change the amount or type of
consideration into which Teltech stock will be converted under the merger
agreement may be made.
NO SOLICITATION BY TELTECH
Teltech has agreed not to:
- solicit, initiate, continue, or encourage any discussions or proposals
with any third party regarding a business combination or sale of assets or
other property involving Teltech; or
- except as required by fiduciary duty, participate in negotiations with, or
furnish information to, a third party seeking to engage in such a
transaction.
Teltech has agreed to inform Sopheon of any offer, proposal or inquiry
relating to any acquisition proposal and to promptly furnish Sopheon with copies
of any written communications or documents received with respect to the
competing acquisition proposal. In the event that Teltech determines such a
proposal is superior to the merger agreement, Teltech must notify Sopheon of
that fact and allow Sopheon 48 hours to meet the proposal. If Sopheon does not
meet such a proposal, Teltech has the right to terminate the merger agreement.
TERMINATION OF THE MERGER AGREEMENT
The merger agreement may be terminated and the merger may be abandoned at
any time prior to the effective time of the merger, notwithstanding the adoption
and approval of the merger agreement by Teltech's shareholders:
- by mutual written consent of the boards of directors of both parties;
- by either party if the merger has not occurred on or before September 30,
2000, but not by a party whose failure to fulfill obligations under the
merger agreement caused the failure of the merger;
- by either Sopheon or Teltech if any government order, writ, injunction, or
decree preventing the consummation of the merger has been issued by any
court of competent jurisdiction and has become final and non-appealable;
or
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- by either Sopheon or Teltech if the merger agreement and the merger fail
to receive the requisite votes for approval at Teltech's shareholders'
meeting.
The merger agreement may be terminated by Sopheon:
- if the board of directors of Teltech withdraws its recommendation of the
merger agreement or merger, recommends a competing acquisition
transaction, fails to recommend against a competing acquisition
transaction, fails to reconfirm within 15 days its recommendation of the
merger agreement and merger when a competing acquisition transaction has
been announced, or determines that a competing acquisition transaction is
superior to the merger;
- if Teltech breaches certain representations, warranties, covenants, or
other aspects of the agreement and is unable to cure within 10 days, if
the merger agreement allows Teltech to cure the situation; or
- if the average closing price of Sopheon ordinary shares, as defined in the
merger agreement, has decreased more than 20% from $9.12 per share as
converted into United States dollars.
The merger agreement may be terminated by Teltech if Sopheon breaches
certain representations, warranties, covenants or other aspects of the agreement
and is unable to cure within 10 days, if the merger agreement allows Sopheon to
cure the situation.
If the merger agreement is validly terminated, the merger agreement will
thereafter be void. There will be no liability under the merger agreement on the
part of any party thereto or any of their affiliates, officers, or directors,
and all rights and obligations of Sopheon and Teltech will cease, unless either
party is in willful breach of any of its representations, warranties, covenants,
or agreements contained in the merger agreement.
EXPENSES AND TERMINATION FEES
Except as described below, any expense incurred in connection with the
merger agreement and the merger will be paid by the party that incurs the
expense, except that Sopheon and Teltech will each pay one-half of all printing,
filing, and mailing expenses for this document and all other SEC and regulatory
filing fees, along with any fees required to be paid under the Hart-Scott-Rodino
Act.
Teltech will reimburse Sopheon for all its expenses and an additional
$1,500,000 in the event Sopheon terminates the merger agreement pursuant to
Teltech's board of directors' withdrawal of recommendation of the merger
agreement or action adverse to Sopheon with respect to a third party
acquisition, or because of a material breach of the merger agreement by Teltech.
Sopheon will reimburse Teltech for all of its expenses incurred in
connection with the merger agreement, not to exceed $200,000, in the event that
Teltech terminates the merger agreement because of Sopheon's inability to obtain
funding necessary to close the merger agreement.
DISSENTERS' RIGHTS
Any dissenting shares will be converted into the right to receive
consideration as may be determined to be due with respect to such dissenting
shares pursuant to Minnesota law. Teltech must give Sopheon prompt notice of any
dissenting shares, and Sopheon will have the sole right to direct all
negotiations and proceedings with respect to dissent demands. See "THE
MERGER--Dissenters' Rights."
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DESCRIPTION OF SOPHEON
INTRODUCTION
Sopheon, formerly named PolyDoc plc, develops and implements software
applications that support business activities involving the creation,
maintenance, exchange and re-use of knowledge. The software, generally termed
knowledge management software, is particularly relevant to information based on
text, concepts, and images, as distinct from numeric and statistical data which
is typically catered for by accounting, order processing and similar systems.
Examples of industry sectors which have particular need for help with knowledge
management are healthcare, life sciences and high technology manufacturing, and
Sopheon has focused its efforts to meet the requirements of these sectors.
Sopheon also offers software system integration and consulting services to
support the implementation of its products.
Sopheon has developed a generic, flexible software platform that can be
customized to specific customer requirements through standardized methods,
either by Sopheon directly or by its business partners, which include consulting
firms, system integrators and other software development companies.
Sopheon has operations in the United Kingdom, the United States and the
Netherlands and has approximately 110 employees at the date of this document. It
is quoted on the Alternative Investment Market (AIM) of the London Stock
Exchange and the EURO.NM market of the Amsterdam Exchanges.
HISTORY AND BACKGROUND
PolyDoc, Sopheon's predecessor, was formed in 1993 by two of its current
executive directors, Barry Mence and Huub Rutten, to develop and market software
to facilitate knowledge management within large organizations. The founders
spent a year developing and testing product concepts and received a grant from
the European Union's EUREKA program. After a small round of investment from
management which financed the development of prototype software, the founders
obtained venture capital backing in 1994. Initial commercial success was
achieved in 1996 when an international chemical manufacturing business assisted
with the development of the first product, NORMFLOw. Since that time, Sopheon
has continued to develop its business model and now focuses on the healthcare,
life sciences and high technology manufacturing sectors.
In 1998, Sopheon acquired Lessenger Associates BV, an electronic document
management software vendor with 60 healthcare customers, for L0.2 million. The
L8.2 million acquisition of AppliedNet Limited was made at the end of 1999 and
provided Sopheon with additional knowledge management expertise, as well as
significantly increasing Sopheon's business in Europe, and the United Kingdom in
particular.
AppliedNet was established in 1985 to serve the emerging market for
communications software in the United Kingdom. From the late 1980s, it increased
its focus on consulting and developing software applications to assist with the
profiling and searching of text stored in a variety of electronic forms,
including internal databases and the Internet. Early customers included the BBC
World Service, Financial Times, Exxon, Shell and Government Defense
Communications Agency. Part of AppliedNet's strategy was to become a supplier of
software and services for Verity, Netscape and OpenMarket software products.
In 1995, AppliedNet secured private venture funding to develop its
KNOWLEDGEAGENTS-TM- range of software products. In March 1999, AppliedNet
secured L1.5 million of venture capital funds from the 3i Group to accelerate
its product development plans, having first secured early adopter contracts with
Unilever, Rio Tinto and City Consultants.
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During 1999 Sopheon also began to expand its North American presence,
initially with the recruitment of a chief technology officer, and later, with
the creation of a sales and development base in Denver, Colorado, which now has
over 10 staff.
Key events for Sopheon are described in the following time line:
<TABLE>
<S> <C>
September 1993...... PolyDoc NV incorporated in the Netherlands.
June 1996........... Sopheon incorporated as PolyDoc plc in the United
Kingdom.
August 1996......... PolyDoc NV acquired by Sopheon for 14,099,990
ordinary shares of 20p.
September 1996...... 3,089,836 ordinary shares placed in Sopheon's initial
public offering at 65p. Shares admitted to AIM.
March 1997.......... 1,525,549 Sopheon ordinary shares placed at 65p.
Shares admitted to EURO.NM.
June 1998........... Convertible loan stock issued to raise L1,570,920.
Terms: convertible or repayable at 146p on July 31,
2000 (extended from July 1999). In addition, 900,000
warrants to subscribe for ordinary shares at 146p
granted to loan shareholders.
December 1998....... Lessenger Associates BV acquired for 40,000 Sopheon
ordinary shares and L90,000 in cash. 68,500 Sopheon
ordinary shares placed at 146p to finance cash
element of consideration.
March 1999.......... 340,000 Sopheon ordinary shares issued at 147p to
raise L499,800.
April 1999.......... Repayment of convertible loan stock of L1,570,920
extended by 12 months from July 31, 1999 to July 31,
2000.
November 1999....... Acquisition of AppliedNet for 6,402,961 Sopheon
ordinary shares. Nominal value of ordinary shares
changed from 20p to 5p.
November 1999....... Placing of 6,500,000 Sopheon ordinary shares at 125p
to raise L7.5 million after expenses. PolyDoc plc
changes its name to Sopheon plc.
March 2000.......... Placing of 2,622,500 Sopheon ordinary shares at 800p
to raise L19.9 million after expenses.
</TABLE>
TECHNOLOGIES
INTEGRATED DOCUMENT PRODUCTION ARCHITECTURE
Sopheon's range of software products is based on its Integrated Document
Production Architecture or IDP/A. IDP/A enables the creation of specific
software applications for a wide variety of industry sectors. With IDP/A, the
creation and maintenance of a software application are distinct from the access
to published material and searching processes. International patents for IDP/A
were applied for in 1996 under the Patent Cooperation Treaty process and are
currently pending.
Sopheon has used its IDP/A technology to develop the following capabilities:
SOPHEON COMPOSER provides a way to create advanced, maintainable and high
quality knowledge databases. Sopheon composer includes tools to help write
well-structured, linguistically correct and
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consistent texts, keywords, links and cross-references. A terminology checker
allows authors and editors to check their choice of wording against a central
terminology database. Sopheon composer also provides features to facilitate
translation into other languages.
SOPHEON PUBLISHER provides a way to search for and disseminate information
contained in a knowledge database. Sopheon Publisher can provide the information
in a variety of formats such as word processed documents or web page, and offers
additional features of value to the user. For example, terms are highlighted and
can be clicked by the reader in order to see their meaning or to obtain
background information. The search function allows a user to create personalized
searches of content across disciplines, domains, processes and even languages.
With this function, Sopheon can apply any modern search technique and is able to
connect with a range of search engines.
SOPHEON TERMS provides a way to create, store and maintain a terminology
database. Sopheon Terms can help an organization to communicate efficiently and
effectively, avoiding expensive misunderstandings. The terminology database is
also available for other functions, including lookup dictionaries, spell
checkers, terminology checkers, and advanced search facilities. It also helps
with the integration of Sopheon software with any third party software products.
SOPHEON MODELER, which is presently under development, will enable the
Sopheon IDP/A software to be customized rapidly for individual applications.
Sopheon Modeler will include software configuration tools designed to improve
the speed and ease with which channel partners and customers can modify Sopheon
IDP/A for their own specific requirements.
The Sopheon IDP/A family of software permits the creation and maintenance of
several databases:
- The structured semantic database stores the knowledge objects at the
finest level of granularity. These are the semantic elements, which might
be characterized as the building blocks of corporate knowledge. Each
semantic element is tagged by the software, which keeps track of what it
is, where it came from and what it relates to. These tags are added
automatically by virtue of the way that the information is gathered by the
software and requires no manual tagging.
- The terminology database contains the lexicons, taxonomies and
dictionaries that are necessary for language management and "pop-up" term
definitions.
- The workflow database holds information required for managing business
processes and activities, and may involve third-party workflow software if
this is available or deployed within the client's organization.
- The publishing database contains all completed documents of a defined
version that need to be made available to users. Documents in the
publishing database are held in a format appropriate to the customer's
infrastructure. A list of semantic elements represents the content of the
document and the objects the document must contain, such as drawings,
tables, or multimedia files, and also appropriate formatting information
for the output medium. The output media typically includes RTF or other
paper-oriented output, HTML for Internet and intranet publishing, SGML for
electronic interoperability standards and other electronic media for
publishing to CD-ROM.
Sopheon has so far developed the following application solutions using its
technologies:
QUALIFLOW is an application for the healthcare sector for use by hospitals
and other organizations. The product allows these institutions to create,
maintain and publish medical protocols and procedures. In using the product,
healthcare organizations build a database of very detailed clinical best
practices which grows over time. Beyond the practical benefit of building and
using this knowledge base, a healthcare organization can reduce legal risk by
applying the most up to date and best practices available.
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The QUALIFLOW database can maintain links to databases created by other
software applications such as electronic patient records. QUALIFLOW is described
in more detail in "DESCRIPTION OF SOPHEON--Healthcare Case Study."
NORMFLOW is an application for manufacturing and process industries. The
product enables these industries to produce and distribute standards, safety
cases, directives, product specifications and other information relating to the
manufacturing process. NORMFLOW allows users to standardize the use of complex
terminology pertinent to a specific manufacturing process. NORMFLOW also allows
users to produce documents containing standards which provide version control
functionality, to build terminology databases and to then distribute this
information into a variety of output formats.
RESEARCHFLOW is an application designed for those conducting and reporting
on all types of research. The product offers a methodology and software to
capture and identify knowledge acquired during the research process. The product
is designed to enable research projects to be completed more rapidly and with
higher quality. RESEARCHFLOW also allows users to track project progress and the
utilization of resources.
PROFILEFLOW is an application designed for organizations with large numbers
of highly skilled knowledge workers. Examples include financial services and
research organizations. The product allows, for example, the discovery of who
knows what or who has what skills, experience or contacts within the
organization. This technology promotes the efficient use of an organization's
resources, and reduces "re-inventing the wheel" activities. The product can be
integrated with existing human resources packages.
LESSENGER
Lessenger is a software solution which provides document management to
support the specific procedures required for the certification of laboratories,
sections of the pharmacy and other areas within healthcare institutions. Input
is from standard word processors. Publishing can be on paper, with the
appropriate headers and footers added and distribution lists generated
automatically, or it can be electronic, through intranet browsers or through
special viewers.
SOPHEON AGENTS
Sopheon Agents is designed as a central corporate knowledge base that can
act as both the repository for and the distributor of information. The product
provides the ability to gather, filter, and disseminate information from both
internal and external sources, while also profiling that information
automatically for distribution to individual users.
Sopheon Agents allows users to define a profile on a subject that is
critical to their work. That profile translates into a set of triggers that are
then used to identify the right information. Searching through the corporate
knowledge base, Sopheon Agents delivers information to the desktop, either via
e-mail or as a special Internet page. Sopheon Agents can also make use of
external information feeds and the Internet. Users can have more than one
profile of interest simultaneously.
HEALTHCARE CASE STUDY
Over the last 10 years the amount of electronic information stored and
exchanged inside the healthcare system has increased dramatically. Network-based
information technology increasingly is the method by which this sector
functions. Across Europe there are numerous initiatives which place technology
at the center of the strategic development of organized healthcare.
Hospitals essentially manage both their medical and non-medical processes on
the basis of procedures and guidelines. These guidelines are used in areas such
as nursing, laboratories, pharmacies, administration and management, staff
training and in compiling checklists and treatment plans by
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clinicians and nurses. The application of these guidelines is a key element in
managing the quality and efficiency of healthcare institutions and is often
decisive for clinical prognoses, liability claims, and issues surrounding
budgetary control.
Some of the most critical problems faced by hospitals are:
- The build up of backlogs in writing and maintaining the thousands of
guidelines that form the core of the medical process.
- The availability and accessibility of these guidelines at the place of
work. The guidelines may be kept in paper folders and cabinets at a
separate physical location from where they need to be used.
- The quality of the guidelines in terms of completeness and consistency in
language and terminology. Guidelines must be understandable and useable
over time.
In 1997, the Quality Law for Healthcare was introduced in the Netherlands,
which dictates that all Dutch healthcare institutions must implement certain
quality procedures relating to care and liability management. This new law was a
driver behind the formation of Pro-Gram BV in 1998 as a software publishing
company. The original shareholders of Pro-Gram are three academic hospitals that
have been using Sopheon's QUALIFLOW software to develop knowledge bases of
clinical procedures. Sopheon joined them in February 2000, as a 25% shareholder.
The objective of Pro-Gram is to market the QUALIFLOW software, together with the
knowledge bases created by the academic hospitals, to other institutions
involved in managed healthcare. These institutions could include hospitals, the
insurance industry, the legal sector, community care practitioners, medical
instrument makers, schools, pharmaceutical companies and government
institutions.
The potential for the Pro-Gram offering at an operational level can be
described as follows:
- Guidelines and procedures are available from one database, which provides
a single, consistent source to a range of output options. Examples include
paper, through an intranet or Internet site, or in machine readable form
to interface with medical equipment.
- The guidelines can be viewed and searched wherever a network connection is
available, for example by a specialist preparing for an operation in the
office, a nurse checking a diagnosis at the bedside, a paramedic in an
ambulance, or a patient at home looking for some explanation and advice.
The information provided will depend on the role of the individual; a
nurse and a specialist would not necessarily get the same response to the
same question.
- The database includes dictionaries that can be clicked to explain medical
terminology in multiple languages.
- Tools designed to ensure that guidelines are complete and consistently
structured support the authoring and editing process. Authors are helped
with templates, terminology checkers and other features. The system also
supports the incorporation of distinctive decision trees or rules.
- Supporting documentation for the guidelines, such as minutes of meetings
and background material can be stored permanently, always accessible for
study and ready to support revisions.
The most important next phase of development of the software is the
integration of QUALIFLOW with electronic patient record systems and enterprise
resource planning systems. Medical professionals would benefit from advanced
decision support software that can combine the complex dependencies of drugs,
indications and contraindications and patient specific information. QUALIFLOW
together with the knowledge bases created by Pro-Gram could contain and deliver
the data and rules for these systems, and a range of software development
activities are being undertaken in this area.
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<PAGE>
CHANNEL STRATEGY AND PARTNERS
Sopheon believes that for the next 12 to 18 months, the best way forward is
a strategy of forming alliances with software systems integrators and
complementary software vendors that have a focus on particular geographical and
industry sectors. This will allow Sopheon to:
- Accelerate the penetration of those market sectors and geographies;
- reduce the internal effort associated with direct sales and support to
individuals customers; and
- move toward critical mass in building a customer base, with a view to
making Sopheon's products attractive to global systems integration
companies who can provide volume sales.
The first phase of this strategy has already been implemented with the
signing of an agreement with Marlow Consulting in the United Kingdom for the
marketing and sales of Sopheon software into the healthcare and manufacturing
sectors. Sopheon had also entered into a software resale agreement with Teltech
before entering into merger negotiations, although Teltech has not made any
sales under this arrangement. Sopheon intends to emphasize the sale of its
software through Teltech following the merger.
Sopheon intends to develop relationships with software suppliers having
existing customer bases, with a view to integrating Sopheon software into their
offerings. Such an agreement has recently been signed with an Italian enterprise
resource planning specialist, Gruppo Formula. Sopheon has also entered into an
agreement with Hiscom in the Netherlands whereby it will collaborate on medical
knowledge systems to accelerate the development of electronic patient dossiers.
Hiscom is a major medical information technology supplier in the Netherlands and
is widening its focus to other markets, including Belgium and the Scandinavian
countries.
ONGOING PRODUCT DEVELOPMENT
A product development plan and delivery schedule is in place to continue the
enhancement of the Sopheon IDP/A components and to bring the first levels of the
integration of IDP/A and Sopheon Agents to the market during the second half of
2000. These new products are intended to enhance the existing industry-specific
Sopheon application solutions, such as QUALIFLOW, and also for use in the next
generation of Sopheon solutions that are currently in the development planning
process.
RECENT SHARE ISSUANCES
In March 2000, Sopheon completed the raising of approximately L19,900,000,
after offering expenses, through the institutional placing of 2,500,000 ordinary
shares at L8.00. These funds will be used to support its acquisition strategy in
the United States, including the acquisition of Teltech, and to further
strengthen its working capital base to accelerate the sales and marketing effort
on both sides of the Atlantic. Sopheon's broker, Durlacher, has used all its
proceeds of commissions due under the placing to subscribe for shares in Sopheon
at the placing price. Including certain other adviser fees settled through the
issue of shares at the placing price, this resulted in a further 122,500 shares
being issued at the placing price pursuant to the offering.
Since the year end, Sopheon has issued 455,000 ordinary shares for L91,000
in cash to option holders exercising their options. Of these options, R.V.
Maddocks, a director, held 400,000.
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<PAGE>
PROPERTIES
Sopheon does not own real property but leases premises in several locations.
The basic terms for these leases and their locations are as follows:
<TABLE>
<CAPTION>
TOTAL
LOCATION EXPIRATION SQUARE FOOTAGE
-------- --------------------------------------- --------------
<S> <C> <C>
Arvada, Colorado, United States........ May 1, 2005 3,743
Guildford, Surrey, United Kingdom...... September 2, 2000 6,329
Amsterdam, The Netherlands............. December 31, 2001 4,887
Amsterdam, The Netherlands............. Annual rolling lease 1,389
Maastricht, The Netherlands............ Annual rolling lease requiring notice
of termination six months before
March 31 3,875
</TABLE>
Sopheon is in negotiation to extend its rental facilities in the United
Kingdom in the same building as its current office, with 50% additional floor
area. The proposed new premises would require refitting at a cost that is
currently estimated at no more than L0.1 million.
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<PAGE>
DIRECTORS AND MANAGEMENT OF SOPHEON
DIRECTORS AND EXECUTIVE OFFICERS
The directors and executive officers of Sopheon, each of whom will continue
to serve after the merger, are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- -------- ----------------------------------------------
<S> <C> <C>
Barry Keith Mence......................... 47 Chairman, Chief Executive Officer and Director
Richard Vincent Maddocks.................. 46 Managing Director
James Macfarlane.......................... 44 Global Business Development Director
Huub Rutten............................... 51 Research Director
Arif Karimjee............................. 33 Group Finance Director
Michael John Brooke....................... 58 Director
Stuart Andrew Silcock..................... 52 Director
Hans Coltof............................... 74 Director
Iljitsj Wiebenga.......................... 54 Secretary
</TABLE>
All directors hold office until the next annual meeting of shareholders or
until their successors have been duly elected and qualified. Executive officers
of Sopheon are appointed by and serve at the direction of the board of
directors.
BARRY KEITH MENCE has served as Chairman, Chief Executive Officer and
Director since Sopheon's inception. From 1976 to 1990, Mr. Mence was the major
shareholder and Group Managing Director of Rendeck Group of Companies based in
Holland. Following the sale of Rendeck International N.V. to CTG, Inc., a United
States public company, Mr. Mence continued to run the European business of that
public company for two additional years. From 1991 to 1992 Mr. Mence was a
founding board member of a joint venture company in Germany formed with IBM and
two major German computer services companies. Mr. Mence is currently a
non-executive director of two property development companies, Crowstone Estates
Limited and BSN Limited, and a privately owned golf club, The Burstead Golf
Club, all based in England.
RICHARD VINCENT MADDOCKS has served as Managing Director since 1995.
Mr. Maddocks was previously the Vice President and Managing Director of CTG
Europe and Director of several CTG Europe subsidiaries from 1992 until 1995.
JAMES MACFARLANE has served as Global Business Development Director of
Sopheon since November 1999, when AppliedNet Limited was acquired by Sopheon.
Mr. Macfarlane had been the Managing Director of AppliedNet since 1985.
HUUB RUTTEN has served as a Director and an employee of Sopheon for over
five years.
ARIF KARIMJEE has served as Group Finance Director since February 2000.
Mr. Karimjee was an accountant and auditor with Ernst & Young from August 1988
until joining Sopheon.
MICHAEL JOHN BROOKE has served as a Director of Sopheon since November 1999.
Mr. Brooke was Chairman of AppliedNet from 1996 to 1999. He has been Chairman of
ATL Networks Ltd. since 1997, and a director of Prelude Investment Trust since
1998 and Interquad Group Ltd. since 1999. He also served as Chairman of the
following computer hardware or software companies: Azlan plc from 1987 to 1997,
Active Imaging plc from 1987 to 1998, Comins plc from 1991 to 1999, CMS Ltd.
from 1994 to 1999 and C-Dilla Ltd. from 1996 to 1999.
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<PAGE>
STUART ANDREW SILCOCK has served as a Director of Sopheon since June 1996.
Since 1982, Mr. Silcock has been a principal partner of Lawford & Co. and a
director of Lawford Ltd., chartered accountants.
HANS COLTOF has served as a Director since Sopheon's inception. Since 1993,
Mr. Coltof has also been a part-time senior management consultant of Van de Bunt
Management Consultants in Amsterdam.
ILJITSJ WIEBENGA has served as Secretary since Sopheon's inception in 1993
and as a Director until resigning in February 2000.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding ownership of
Sopheon's ordinary shares by (i) each person known to Sopheon to own
beneficially more than 5% of its ordinary shares, (ii) each executive and
non-executive director of Sopheon, and (iii) all directors as a group. Unless
otherwise indicated, the information is as of March 31, 2000 and each person has
sole voting and investment power as to the shares shown. Beneficial ownership is
determined in accordance with the rules of the Securities and Exchange
Commission, and includes any shares as to which the person has sole or shared
investment power and any shares which the person has the right to acquire within
60 days of March 31, 2000, through the exercise of any stock option or other
right.
<TABLE>
<CAPTION>
NUMBER PERCENTAGE
NAME OF BENEFICIAL OWNER OF SHARES OWNED
------------------------ ---------- ----------
<S> <C> <C>
Barry Keith Mence........................................... 8,637,800(1) 24.3%
Richard Vincent Maddocks.................................... 405,000(2) 1.1%
James Macfarlane............................................ 1,718,286 4.9%
Huub Rutten................................................. 482,500 1.4%
Arif Karimjee............................................... 0 *
Michael John Brooke......................................... 691,724 2.0%
Stuart Andrew Silcock....................................... 274,460(3) *
Hans Coltof................................................. 100,000(4) *
Iljitsj Wiebenga............................................ 315,000 *
Current executive and non-executive directors as a group
(nine persons)............................................ 12,624,770(5) 35.4%
</TABLE>
------------------------
* Less than 1%.
(1) Includes 3,847,800 ordinary shares held in trust over which Mr. Mence
exercises investment control and 300,000 ordinary shares purchasable under
warrants.
(2) Includes 5,000 ordinary shares purchasable under options held by
Mr. Maddocks' spouse.
(3) Includes 5,850 ordinary shares held by Mr. Silcock's wife and 107,010
ordinary shares registered in Mr. Silcock's name but held in trust for two
adult children, a sister and a corporation. Mr. Silcock disclaims beneficial
ownership of the shares held in trust.
(4) Consists of ordinary shares purchasable under options.
(5) Includes ordinary shares purchasable under warrants or held in trusts. See
notes (1) through (4) above.
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<PAGE>
COMPENSATION OF DIRECTORS AND EXECUTIVE OFFICERS
The compensation paid in respect of the year ended December 31, 1999 to the
directors and executive officers of Sopheon who served during the year is set
forth below. Pension contributions are made to individual director's personal
pension schemes.
<TABLE>
<CAPTION>
BASIC SALARY CONTRIBUTIONS
NAME AND FEES BONUS BENEFITS TO PENSION TOTAL 1999
---- ------------ -------- -------- ------------- ----------
(L)
<S> <C> <C> <C> <C> <C>
Barry Keith Mence........................... 67,356 -- 11,808 3,000 82,164
Richard Vincent Maddocks.................... 78,016 -- 16,115 6,876 101,007
James Macfarlane(1)......................... 8,253 2,885 1,731 825 13,694
Huub Rutten................................. 58,511 -- 11,050 2,701 72,262
Michael John Brooke(1)...................... 1,000 -- -- -- 1,000
Stuart Andrew Silcock....................... 31,818 -- -- -- 31,818
Hans Coltof................................. 6,200 -- -- -- 6,200
Iljitsj Wiebenga(2)......................... 31,207 -- 7,803 1,440 13,694
</TABLE>
------------------------
(1) Consists of compensation received since his appointment on November 22,
1999.
(2) Resigned as a Director on February 1, 2000.
The compensation of Stuart A. Silcock and Michael John Brooke are paid
respectively to Lawfords Limited, of which Mr. Silcock is a director, and
Coinshire Limited, of which Mr. Brooke is a director.
RIGHTS TO PURCHASE SECURITIES FROM SOPHEON
The following table sets forth certain information concerning rights to
acquire new Sopheon ordinary shares held by Sopheon's directors and executive
officers as of March 31, 2000.
<TABLE>
<CAPTION>
NUMBER OF EXERCISE OR
NAME SHARES PURCHASABLE CONVERSION PRICE
---- ------------------ ----------------
<S> <C> <C>
Barry Keith Mence........................................... 658,657(1) 146p
Richard Vincent Maddocks.................................... -- --
James Macfarlane............................................ -- --
Huub Rutten................................................. -- --
Arif Karimjee............................................... 100,000(2) 150p
Michael John Brooke......................................... -- --
Stuart Andrew Silcock....................................... -- --
Hans Coltof................................................. 100,000 20p
Iljitsj Wiebenga............................................ -- --
</TABLE>
------------------------
(1) Consists of warrants to subscribe on or before December 31, 2000 for 300,000
ordinary shares at L1.46 per share, and 358,657 ordinary shares issuable
July 31, 2000 upon conversion of 5% Convertible Loan Stock
(2) Mr. Karimjee's options are not exercisable until November 22, 2002.
Furthermore, the vesting of 50,000 of his options is linked to agreed
performance criteria.
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<PAGE>
SOPHEON MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the Consolidated
Financial Statements and notes thereto, drawn up under UK GAAP, included
elsewhere in this proxy statement/prospectus. The discussion contains forward
looking statements which involve risks and uncertainties as set forth under
"RISK FACTORS."
OVERVIEW
Founded in 1993 as PolyDoc NV in the Netherlands, Sopheon is an
international software product development and implementation group offering a
range of complementary technologies used in the rapid development of business
applications, to support specific knowledge and language intensive processes and
functions, with particular focus on the healthcare, life sciences and high
technology manufacturing sectors. Sopheon also offers system integration and
consultancy services for its software products and other complementary products
within the knowledge management and web publishing markets.
In August 1996, PolyDoc plc acquired 100% of PolyDoc NV which was accounted
for as a merger transaction, it effectively involved a group reorganization. In
September 1996, it obtained admission to the Alternative Investment Market (AIM)
of the London Stock Exchange, raising L1.66 million at that time. A further
L0.89 million was raised from a venture capitalist in the Netherlands in January
1997 and this was followed by admission to the EURO.NM market in March 1997.
In July 1998, PolyDoc plc secured a L1.57 million convertible loan from
three shareholders, which bears interest at 5%. The loan is repayable or
convertible at a price of L1.46 per ordinary share, on July 31, 2000. As part of
the transaction the three shareholders were also granted 300,000 warrants each
for ordinary shares at the same price of L1.46 per ordinary share.
In December 1998, PolyDoc plc acquired Lessenger Associates BV, a Dutch
company offering document management solutions with a customer base of 50
healthcare institutions, for L0.17 million in a mixed stock and cash
transaction, with the cash element raised primarily through a L0.10 million
share issue. An additional L0.5 million was raised in March 1999 through a
further share issue.
In November 1999, PolyDoc plc acquired AppliedNet Limited, a United Kingdom
company offering knowledge management solutions with an established United
Kingdom market presence and commercial infrastructure, for L8.3 million in
stock. Simultaneously it raised L7.5 million net of costs through an
institutional placing of its shares and changed its name to Sopheon plc. Total
costs associated with the transaction were of the order of L0.6 million. At the
time of the acquisition of AppliedNet, Sopheon indicated its intention to seek
an acquisition in the United States.
During 1999 Sopheon also began to expand its North American presence,
initially with the recruitment of a chief technology officer, and later, with
the creation of a sales and development base in Denver Colorado which now has
over 10 staff.
In February 2000, Sopheon paid L170,000 to Pro-Gram BV, as part of a
commitment to contribute a total of L430,000 for a 25% equity interest in the
joint venture.
In March 2000, Sopheon announced the raising of approximately L19.9 million
net of costs of approximately L1.1 million through an institutional placing of
its shares, and also announced the proposed acquisition of Teltech.
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<PAGE>
RESULTS OF OPERATIONS
The results for the three year period ended December 31, 1999 are summarized
in the table below.
<TABLE>
<CAPTION>
CONTINUING
OPERATIONS APPLIEDNET TOTAL
1999 1999 1999 1998 1997
---------- ---------- -------- -------- --------
(L THOUSAND)
<S> <C> <C> <C> <C> <C>
TURNOVER........................................ 874 636 1,510 891 241
Cost of sales................................... (676) (307) (983) (608) (709)
------ ---- ------ ------ ------
GROSS PROFIT/(LOSS)............................. 198 329 527 283 (468)
Sales and marketing expenses.................... (659) (101) (760) (502) (484)
Administrative expenses......................... (1,225) (574) (1,799) (931) (856)
Other operating income.......................... 16 -- 16 29 136
------ ---- ------ ------ ------
OPERATING LOSS.................................. (1,670) (346) (2,016) (1,103) (1,672)
Other income (expense), net..................... (56) (39) 40
------ ------ ------
LOSS FOR THE YEAR............................... (2,072) (1,142) (1,632)
====== ====== ======
</TABLE>
The 1998 and 1997 results have been restated to reflect a change in
accounting policy incorporated in 1999, whereby development costs that have been
capitalized and amortized in the past are now written off as they arise. These
years have also been restated whereby certain costs, mainly relating to internal
research and development activities, have been reallocated from cost of sales to
administration costs. Both of these changes were undertaken to bring accounting
policies and disclosures into line on a group basis following the acquisition of
AppliedNet. These restatements have been reflected in the 1999 financial
statements.
The results for the three years can also be expressed in percentage of
turnover terms as follows:
<TABLE>
<CAPTION>
CONTINUING
OPERATIONS APPLIEDNET TOTAL
1999 1999 1999 1998 1997
---------- ---------- -------- -------- --------
(L THOUSAND)
<S> <C> <C> <C> <C> <C>
TURNOVER...................................... 100% 100% 100% 100% 100%
Cost of sales................................. (77) (48) (65) (68) (294)
---- --- ---- ---- ----
GROSS PROFIT/(LOSS)........................... 23 52 35 32 (194)
Sales and marketing expenses.................. (75) (16) (50) (56) (201)
Administrative expenses....................... (140) (90) (119) (102) (355)
Other operating income........................ 2 -- 1 3 56
---- --- ---- ---- ----
OPERATING LOSS................................ (190) (54) (133) (123) (694)
Other income (expense), net................... 4 (4) 17
---- ---- ----
LOSS FOR THE YEAR............................. (137) (127) (677)
==== ==== ====
</TABLE>
REVENUE
Sales performance has been characterized by caution in the marketplace over
enterprise wide knowledge management as an investment area, particularly in the
run up to the Millennium, as well as the very slow buying cycles associated with
the some of the key target sectors, notably public sector healthcare
institutions, which paradoxically, have been those which have proved most
willing to explore the application of the technology.
1997 and 1998 in particular were years of consolidation and
commercialization of the core product set and this is reflected in the
development of the revenue profile. The majority of the 1997 revenue of
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<PAGE>
L241,000 can be attributed to relatively exploratory work in a number of
industries, following a pattern set in previous years. Revenue grew to L891,000
in 1998, an increase of 270%. L600,000 of the 1998 growth was generated by a
major order for Sopheon's healthcare solution, QUALIFLOW, delivered through
Pro-Gram BV, a joint venture between three Dutch teaching hospitals which
Sopheon has itself joined in 2000. The remainder of revenue in 1998 was earned
in the manufacturing and research sectors for sales of the NORMFLOW and
RESEARCHFLOW products respectively, with the United Kingdom's Defense Evaluation
and Research Agency and the Dutch company OCE being key customers in these
sectors.
Revenue performance in 1999 is made up of two components, being the
continuing operations of the former PolyDoc business on the one hand and the
acquired AppliedNet business on the other, as shown in the table above. Revenue
in the former category followed a very similar profile to 1998, with the
Pro-Gram BV QUALIFLOW order generating L540,000 in revenues. Manufacturing and
research sectors accounted for most of the other revenues, represented by the
same early adopter customers as in 1998.
Exceeding expectations and historic performance, a large part of post
acquisition revenues of L636,000 recorded for AppliedNet resulted from a major
customer implementation that required rapid expansion of resources. AppliedNet
recorded revenues of L2,172,000 in the period from January 1, 1999 to the date
of acquisition.
GROSS MARGIN
The variability of the gross margin of the continuing business between 1997
and 1999 reflects the developmental nature of the business and of the major
projects that were entered into. As highlighted above, much of the revenue was
linked to a relatively small number of orders, which is not conducive to
consistent margins year to year. The negative gross margin of 194% in 1997 is in
particular a function of a major project for a customer in the United Kingdom
media sector which did not generate the revenues anticipated. Over the 1998 and
1999 period the relative stability brought by the healthcare and research sector
sales referred to above resulted in a positive margin of 32% in 1998 and 23% in
1999. Gross margins for the acquired business, AppliedNet, in the
post-acquisition period were 52%.
SALES, MARKETING AND ADMINISTRATIVE COSTS
Sales, marketing and administrative expenses for the continuing business in
1997 and 1998 remained relatively flat on an absolute basis, reflecting a stable
headcount and tightly controlled operating costs. Comparisons of these costs as
a proportion of revenue are not appropriate in view of the early stage of the
business, as referred to above. From 1998 to 1999 these costs showed a
significant acceleration reflecting a conscious escalation in the pace of
commercialization and development. Sales and marketing costs increased by
L157,000 excluding the AppliedNet business, reflecting the recruitment of
permanent marketing resource and engagement of sales and marketing consultants.
Administrative costs on the same basis increased by L312,000 reflecting in
particular the travel and headcount costs of expansion into the United States
with the establishment of Sopheon's Denver operation.
The administrative expenses shown for the acquired entity AppliedNet include
amortization charges of L290,000 in respect of the goodwill arising on its
acquisition. The goodwill is being amortized over a three year period.
RESEARCH AND DEVELOPMENT COSTS
Administrative costs include internal research and development costs net of
research grants received. The business has benefited from the European Union's
EUREKA grants for a number of years, both for its patented Integrated Document
Production Architecture and more recently to support
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<PAGE>
research into its Integrated Terminology Management Cycle project, both of which
underpin the core product set. The gross and net research costs can be analyzed
as follows:
<TABLE>
<CAPTION>
CONTINUING
OPERATIONS APPLIEDNET TOTAL
1999 1999 1999 1998 1997
---------- ---------- -------- -------- --------
(L THOUSAND)
<S> <C> <C> <C> <C> <C>
Research and Development............. 805 73 878 815 578
EUREKA Grants........................ (315) -- (315) (304) (162)
---- -- ---- ---- ----
Net expenditure charged.............. 490 73 563 511 416
==== == ==== ==== ====
</TABLE>
The internal research base grew from 1997 to 1998, reflecting the additional
resources which EUREKA grants made available to the organization. The AppliedNet
research costs related to its ongoing development of the Knowledge Agents
product set.
OTHER OPERATING INCOME
This item represents operating exchange differences arising on foreign
currency transactions and balances.
OTHER INCOME (EXPENSE)
This category includes the net of bank interest receivable and interest
payable and similar charges. The increased interest burden in 1999 reflects the
impact of a full year of charge arising from the L1.5 million 5% convertible
loan which was issued in the summer of 1998.
At December 31, 1999 tax losses estimated at L7,046,000 were available to
carry forward by Sopheon, arising from historic losses incurred. A full
valuation allowance has been made against the deferred tax asset relating to
these losses, due to prior year reported losses and the lack of certainty over
future operating profits in the relevant companies.
LIQUIDITY AND CAPITAL RESOURCES
A summary of Sopheon's historic fund raising activities is provided in the
overview above.
On December 31, 1999 Sopheon plc had L7,751,000 available in cash resources
and debt of L1,653,000. Net current assets were L5,543,000 at the year end. Of
this amount, L430,000 has been committed since the year end for investment in
the Pro-GRAM BV joint venture. Sopheon will secure a 25% equity stake in the
joint venture with this investment. The objective of Pro-GRAM BV is to market
knowledge management solutions to the Dutch healthcare industry and it is
anticipated that it will continue to provide a sales channel for Sopheon's
software products.
Since the year end, an institutional placing of approximately L19,900,000
net of expenses has further augmented the cash position. Of the total amount
raised, approximately L9,500,000 will be used to fund the acquisition of
Teltech, and associated costs of the transaction, leaving an additional
L10,400,000 in cash available for working capital to the combined business.
While Sopheon does not own any real property, it occupies several office
locations around the world involving leases of varying duration, with a current
rent expense of approximately L270,000 per annum. Sopheon is in the process of
expanding its United Kingdom premises by 50%, which is expected to increase the
rent expense by approximately L85,000 per annum. It is anticipated that the
proposed expansion of the United Kingdom premises will also require expenditure
of approximately L100,000 in order to fit out the building. Additional space may
also be added to the Denver, Colorado location, which would increase the annual
rent expense by up to L80,000 per annum.
Sopheon's tangible fixed assets totaled L386,000 on a net book value basis
at the end of 1999 and in the main comprised computer equipment and office
fittings. At this time additional capital expenditure of approximately
L1,100,000 is anticipated for 2000 for the existing Sopheon business. The
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<PAGE>
majority of this amount is made up of the United Kingdom new building costs, and
investments in computer equipment both for infrastructure purposes and to equip
new staff and new teams as they join the business.
Sopheon does not anticipate a need for additional financing in the next
12 months to support its existing operations, or upon completion of the merger,
those of Teltech. In the event that Sopheon engages in a material corporate
transaction, or its financial results differ materially from those projected, it
could require new debt or equity financing.
QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK
Sopheon's principal financial instruments comprise cash and short-term
deposits. The main purpose of these financial instruments is to fund the
operations of the business. Sopheon has various other financial instruments,
such as trade debtors and trade creditors, that arise directly from its
operations.
It is, and has been throughout the period under review, Sopheon's policy
that no trading in financial instruments will be undertaken.
The main risks arising from the group's financial instruments are interest
rate risk, liquidity risk and foreign currency risk as summarized below. The
board reviews and agrees upon policies for managing each of these risks. These
policies have remained unchanged during 1998 and 1999.
INTEREST RATE RISK
On July 28, 1998, the former PolyDoc business issued L1,570,918 convertible
loan stock in order to fund the working capital requirements of the business.
The convertible loan stock bears an interest rate of 5% and was repayable or
convertible on July 31, 1999. Following agreement between Sopheon and the
holders of the convertible loan stock the redemption date and the conversion
date for the convertible loan stock was moved from July 31, 1999 to July 31,
2000. On July 31, 2000 the convertible loan stock was converted in full,
resulting in 1,075,971 ordinary shares of 5p each being issued.
The former AppliedNet business had a bank loan which remains outstanding at
year end and bears interest at a floating rate. Sopheon also has overdraft
facilities in pounds sterling, United States dollars and Dutch Guilders at
floating rates of interest.
Where Sopheon has significant cash resources available that are in excess of
the short term needs of the business, such funds are maintained in pounds
sterling and are placed on short and medium term bank deposit at the best
interest rate available.
LIQUIDITY RISK
Sopheon's objective is to maintain a balance between continuity of funding
and flexibility through the use of overdrafts and bank loans. Short term
flexibility is achieved by overdraft facilities.
FOREIGN CURRENCY RISK
As a result of having significant operating units in the United States and
the Netherlands, which give rise to short term creditors, debtors and cash
balances in United States dollars and Dutch Guilders, the group's balance sheet
can be affected by movements in the United States dollar/pound sterling and
Dutch Guilder/pounds sterling exchange rates. In managing its structural
exposures, Sopheon's objectives are to maintain a low cost of borrowings and to
retain some potential for currency related appreciation.
Sopheon also has transactional currency exposures. Such exposures arise from
sales or purchases by an operating unit in currencies other than that unit's
functional currency. Sopheon uses its multi-currency bank facility to minimize
such currency exposures.
80
<PAGE>
DESCRIPTION OF TELTECH
Teltech Resource Network Corporation was incorporated in 1984 to develop and
market expert and information services to the research and development divisions
of technology-driven companies throughout the United States. Teltech uses its
primary and secondary research capabilities and Web-based knowledge transfer
systems to deliver filtered technical and business intelligence to the desktop.
Teltech's service offerings include turnkey development of knowledge management
solutions and vertical information portals. Customers gain access to Teltech's
services by paying annual subscription, transactional or project fees. In order
to finance its business activities, Teltech has sold common stock and five
series of preferred stock in private placements. For the past five years,
Teltech's revenues have remained essentially flat and, except for 1997, Teltech
has incurred losses ranging from $3,288,000 in 1995 to $90,000 in 1999.
For the past five years, Teltech has concentrated its resources and efforts
on its knowledge management services and research services which during 1999
accounted for 11% and 89% of its revenues, respectively. In the third quarter of
1999, Teltech introduced its new portal product, TT.com, as a self-search
business information tool. Teltech is continuing its development efforts to
enhance this product, both in content as well as capabilities, such as
personalization and news alerts. In addition, the product is being developed to
offer customized information to each major client.
DIRECTORS AND MANAGEMENT OF TELTECH
DIRECTORS AND EXECUTIVE OFFICERS
The directors and executive officers of Teltech are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- -------- ---------------------------------------------------------
<S> <C> <C>
Andrew Michuda............... 45 President, Chief Executive Officer and Director
Jack Johnson................. 51 Chief Financial Officer, Chief Operating Officer and
Secretary
Joseph Shuster............... 67 Chairman
Yuval Almog.................. 50 Director
James J. Mahoney, Jr......... 57 Director
Ean Brown.................... 35 Director
</TABLE>
ANDREW MICHUDA was elected President and Chief Executive Officer of Teltech
in April 1997 and has served as a Director since that time. Mr. Michuda held the
position of Vice President of Teltech from 1994 until 1997.
JACK JOHNSON is the Chief Financial Officer and Chief Operating Officer of
Teltech and was elected to these positions in October 1996. Mr. Johnson also
acts as Secretary to the company. Prior to joining Teltech, Mr. Johnson was the
Vice President and General Manager of National Computer Systems, a data capture
company.
JOSEPH SHUSTER founded Teltech in 1984 and has served as Chairman of the
board of directors since 1995.
YUVAL ALMOG has served as a Director since 1993 and has been the President
of Coral Group, Inc., a shareholder of Teltech capital stock, a venture capital
enterprise.
JAMES J. MAHONEY, JR. has served as a Director since 1988. Mr. Mahoney has
been principal of HLM Partners I and II, a shareholder of Teltech capital stock
involved in investment management, for 17 years.
81
<PAGE>
EAN BROWN was elected Executive Vice President of The Dialog Corporation,
plc, a shareholder of Teltech capital stock, in January 1999 and has served as a
Director since 1999. Mr. Brown was Senior Vice President of The Dialog
Corporation from November 1997 to January 1999, and was Vice President of that
entity from January 1994 to November 1997. The Dialog Corporation is involved in
online information.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding ownership of
each class of Teltech's stock by (i) each person known to Teltech to own
beneficially more than 5% of its stock, (ii) each director of Teltech, and
(iii) all directors and executive officers as a group. Unless otherwise
indicated, the information is as of July 17, 2000 and each person has sole
voting and investment power as to the shares shown. For the purposes of this
proxy statement, beneficial ownership is determined in accordance with the rules
of the Securities and Exchange Commission, and includes any shares as to which
the person has sole or shared investment power and any shares which the person
has the right to acquire within 60 days of July 17, 2000, through the exercise
of any stock option or other right.
<TABLE>
<CAPTION>
NAME AND ADDRESS CLASS NUMBER PERCENT
OF BENEFICIAL OWNER OF SHARES OF SHARES OF CLASS
------------------- -------------- --------- --------
<S> <C> <C> <C>
Coral Partners I and II ............................... Common 82,774(1) 3.25%
60 South Sixth Street Series A Pfd. 410,000 56.60%
Minneapolis, MN 55402 Series B Pfd. 56,411 11.39%
Series C Pfd. 191,338 30.11%
Series D Pfd. 183,949 42.81%
Series E Pfd. 228,359 15.44%
HLM Partners I and II ................................. Common 83,873(2) 3.29%
222 Berkley Street Series A Pfd. -- --
Boston, MA 02116 Series B Pfd. 288,462 58.25%
Series C Pfd. 132,273 20.82%
Series D Pfd. 74,626 17.37%
Series E Pfd. 194,879(3) 9.13%
The Dialog Corporation ................................ Common 21,000(4) 0.84%
1100 Regency Parkway, Suite 10 Series E Pfd. 1,380,282 66.46%
Cary, NC 27511
Trilon Dominion ....................................... Common 1,965 0.08%
Series A Pfd. 273,333 37.74%
Series B Pfd. 37,607 7.59%
Series C Pfd. 127,566 20.07%
Series D Pfd. -- --
Series E Pfd. 110,638 5.33%
Joseph Shuster ........................................ Common Stock 386,296(5) 14.73%
24060 E Cedar Lake Road Series A Pfd. -- --
New Prague, MN 56071 Series B Pfd. 7,292 1.47%
Series C Pfd. -- --
Series D Pfd. -- --
Series E Pfd. 53,412(6) 2.56%
Jack Johnson .......................................... Common 250,651(7) 9.23%
13815 Guild Avenue
Apple Valley, MN 55124
</TABLE>
82
<PAGE>
<TABLE>
<CAPTION>
NAME AND ADDRESS CLASS NUMBER PERCENT
OF BENEFICIAL OWNER OF SHARES OF SHARES OF CLASS
------------------- -------------- --------- --------
<S> <C> <C> <C>
Andrew Michuda ........................................ Common 502,890(8) 16.95%
13635 Duluth Drive
Apple Valley, MN 55124
Ean Brown(9) .......................................... Common -- --
5908 Baird Drive
Raleigh, NC 27606
Yuval Almog(10) ....................................... Common 29,000(11) 1.16%
Coral Ventures Series E Pfd. 3,718(12) 0.18%
60 S Sixth Street
Minneapolis, MN 55402
James J. Mahoney, Jr.(13) ............................. Common -- --
86 Winding River Road
Needham, MA 02492
</TABLE>
------------------------
(1) Includes 79,827 shares which may be purchased upon exercise of warrants.
(2) Consists of 83,873 shares which may be purchased upon exercise of options
or warrants.
(3) Includes 56,338 shares which may be purchased upon exercise of warrants.
(4) Consists of 21,000 shares which may be purchased upon exercise of options.
(5) Includes 158,408 shares which may be purchased upon exercise of options or
warrants.
(6) Includes 9,099 shares which may be purchased upon exercise of warrants.
(7) Consists of 250,651 shares which may be purchased upon exercise of options.
(8) Includes 502,110 shares which may be purchased upon exercise of options.
(9) Mr. Brown is an Executive Vice President of The Dialog Corporation and
exercises sole voting power over all Teltech shares held by it. Shares
owned or subject to purchase by The Dialog Corporation are not included in
the figures shown in the table for Mr. Brown.
(10) Mr. Almog is a general partner of Coral Partners I and II and exercises
sole voting power over all Teltech shares held by them. Shares owned or
subject to purchase by Coral Partners I and II are not included in the
figures shown in the table for Mr. Yuval.
(11) Consists of 29,000 shares which may be purchased upon exercise of options.
(12) Includes 1,803 shares which may be purchased upon exercise of warrants.
(13) Mr. Mahoney is a general partners of HLM Partners I and II and exercises
sole voting power over all Teltech shares held by them. Shares owned or
subject to purchase by HLM Partners I and II are not included in the
figures shown in the table for Mr. Mahoney.
83
<PAGE>
TELTECH MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with
"SELECTED FINANCIAL DATA" and the Financial Statements of Teltech and Notes
thereto included elsewhere in this proxy statement/ prospectus. Except for the
historical information contained herein, the discussion in this proxy statement/
prospectus contains certain forward-looking statements that involve risks and
uncertainties, such as statements of Teltech's plans, objectives, expectations
and intentions. When used in this proxy statement/prospectus, the words
"anticipate," "plan," "believe," "estimate," "expect" and similar expressions as
they relate to Teltech's or its management are intended to identify such
forward-looking statements. The cautionary statements made in this proxy
statement/prospectus should be read as being applicable to all related
forward-looking statements wherever they appear in this proxy
statement/prospectus. Teltech's actual results, performance or achievements
could differ materially from the results expressed in, or implied by, these
forward-looking statements. Factors that could cause or contribute to such
differences include those discussed in "RISK FACTORS," as well as those
discussed elsewhere herein.
RESULTS OF OPERATIONS
The table below summarizes changes in selected operating indicators, showing
certain income, cost and expense items as a percentage of total revenue for each
of the past three years. Inflation has not been a significant factor in
Teltech's operations to date.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------
1997 1998 1999
------ ------ ------
<S> <C> <C> <C>
Revenues.......................................... 100.0% 100.0% 100.0%
Cost of Revenues.................................. 62.8% 67.7% 61.5%
----- ----- -----
Gross Margin...................................... 37.2% 32.3% 38.5%
----- ----- -----
Operating Expenses:
Marketing and Sales............................. 16.2% 14.4% 11.9%
General and Administrative...................... 11.7% 12.9% 15.0%
Research and Development........................ 6.2% 7.1% 11.1%
----- ----- -----
Operating Income (Loss)........................... 3.1% (2.1)% 0.5%
Other Income (Expense)............................ 0.2% (0.1)% (1.1)%
----- ----- -----
Net Earnings (Loss)............................... 3.3% (2.2)% (0.6)%
===== ===== =====
</TABLE>
REVENUE BY SERVICE
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------
1997 1998 1999
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Research Services................................. 17,175 14,785 14,481
Knowledge Management Consulting Services.......... 1,184 1,651 1,718
------ ------ ------
18,359 16,436 16,199
====== ====== ======
</TABLE>
84
<PAGE>
COMPARISON OF 1999 TO 1998
REVENUES
Teltech's revenues for 1999 were $16.2 million, a 1.4% decrease from 1998
revenues of $16.4 million. Revenues for Knowledge Management Consulting Services
increased slightly by $67,000 year to year.
Revenues for the Research Services business decreased 2.1%. The new portal
product, TT.com, was introduced in the third quarter of 1999 as a self-search
tool to extend the product line full cycle. Sales of "Advantage" full service
subscription contracts and renewal of current customer contracts left Teltech
with a contract base equal to that of the prior year. Over the three prior
years, this business had consistently declined by approximately 15% annually.
Revenues from large client outsourcing increased by 9.7%, to $4.6 million from
$4.2 million in 1998. The increase was due to considerable growth in activity
levels of one client, as well as the execution of more favorable long-term
contracts with all major clients. Custom project revenues increased 37%, with
two projects from a single client making up 27% of the total increase.
Teltech ended 1999 with a backlog of $1,342,000 which was seven and a half
times greater than at December 31, 1998. Based on the current backlog, Teltech
expects the Knowledge Management Consulting Services revenues to increase in
2000 and for Research Services revenues to increase for the first time in five
years.
GROSS MARGIN
Gross margin for 1999 was $6.2 million, or 38.5% of revenues, as compared to
$5.3 million, or 32.3% of revenues, for 1998. This represents a $921,000, or
17.3%, increase from 1998 to 1999. Higher gross profit margins reflect a change
in strategy to purchase content directly from suppliers versus the use of
aggregators and continued productivity gains in professional services. Teltech
expects a further increase in gross margin percentage in 2000 due to planned
increases in revenues which will provide leverage over certain fixed costs, and
changes in its mix of sales, from lower to higher margin consulting projects.
MARKETING AND SALES, GENERAL AND ADMINISTRATIVE
Marketing and sales expense decreased 18.7% in 1999 to $1.9 million, from
$2.4 million in 1998. The significant decrease resulted from reductions in
marketing costs, sales force and conference activity. Teltech expects marketing
and sales expense to increase in 2000 to a level higher than in 1999 due to
expansion of its sales force, increased conference activity and greater
marketing efforts.
General and administrative expenses were $2.4 million and $2.1 million, or
15.0% and 12.9% of revenues, during 1999 and 1998, respectively. Contributors to
higher general and administrative expenditures in 1999 included payment of a
bonus to management.
RESEARCH AND DEVELOPMENT
Research and development expenses for 1999 were $1.8 million, or 11.1% of
revenues, as compared to $1.2 million, or 7.1% of revenues, in 1998. The
increase in research and development spending in 1999 was driven by activities
related to development of the TT.com research portal product as well as higher
depreciation costs from system upgrades and Y2K equipment purchases. A portion
of Teltech's portal development efforts are included in the cost of revenues and
are essentially customer-sponsored product development expenses.
85
<PAGE>
OTHER INCOME AND EXPENSES
Other expense is primarily interest expense and for 1999 was ($183,000)
compared to ($20,000) for 1998. The increase in other expense was attributable
to borrowing on the line of credit to finance development of the portal.
NET INCOME/LOSS
Teltech experienced a reduced net loss in 1999 of ($92,000) compared to a
net loss in 1998 of ($356,000), despite a decrease in revenues of 1.4%. The
smaller net loss occurred in 1999 as a result of a significant improvement in
gross margin percentage.
COMPARISON OF 1998 TO 1997
REVENUES
Teltech's revenues for 1998 were $16.4 million, a 10.5% decrease from 1997
revenues of $18.4 million in 1997. Knowledge Management Consulting revenues
increased 39% to $1,651,000 primarily due to large contracts with several new
clients.
The revenue decrease was primarily due to Research Services revenue
decreasing 13.9%. Pinpoint research services decreased 15% as the Internet
continued to allow clients to locate information on their own, reducing their
need for Teltech's professional services. Teltech's strategy to develop a
self-research portal came from the need to reinvent this business. Large
outsource contract revenues increased 9% and custom project revenues decreased
28%, with lower sales to one client resulting in 55% of the decrease.
GROSS MARGIN
The gross margin in dollars decreased 22.3% from 1997 to 1998. Gross profit
for 1998 was $5.3 million, or 32.3% of revenues, as compared to $6.8 million, or
37.2% of revenues, for 1997. The drop in gross profit margins was the result of
higher costs incurred in obtaining published content. As client demand for
Pinpoint services decreased, fixed price content did not allow for cost
decreases. Teltech consequently looked to alternative suppliers which led to
retraining its work force and caused a 90 - 120 day overlap of duplicate
contract costs. On a positive note, a three year loss reserve relating to a
major outsource contract expired in mid 1998.
MARKETING AND SALES, GENERAL AND ADMINISTRATIVE
Marketing and sales expense in 1998 decreased 20.3% to $2.4 million from
$3.0 million in 1997. The significant drop resulted from decreases in sales
force costs as well as decreases in marketing and conference costs.
General and administrative expenses remained flat at $2.1 million,
representing 12.9% of revenues for 1998 and 11.7% of revenues for 1997.
RESEARCH AND DEVELOPMENT
Research and development expenses in 1998 of $1.2 million, or 7.4% of
revenues increased slightly over 1997, with the mid-year approval of a product
development strategy to build a TT.com portal product.
86
<PAGE>
OTHER INCOME AND EXPENSES
Other expense for 1998 was ($20,000) compared to other income of $32,000 for
1997. This change was the result of using cash to fund operations and product
development, thereby increasing borrowings and interest expense under the line
of credit.
NET INCOME/LOSS
Teltech experienced a net loss in 1998 of ($356,000) compared to net
earnings in 1997 of $614,000 primarily as a result of significantly lower
revenues. While Teltech experienced lower total operating expenses, which
decreased approximately 9.7% from 1997, it could not make up for the decline in
revenues which fell 10.5%, resulting in a 22.3% decrease in gross margin.
LIQUIDITY AND CAPITAL REQUIREMENTS
Since inception, Teltech's funding requirements have been met by private
equity investments, cash flow from operations and bank financing. The last
financing conducted by Teltech was in 1995 when it sold $5,000,000 million of
Series E Preferred stock. Since that time, Teltech's working capital
requirements have been funded solely by cash flow and bank financing. Because
Teltech has been profitable in only one of the last five years, it has had to
monitor cash outflows carefully, and its product development activities have
necessarily been restricted. In the past three years, costs of development
activities attributable to new research services have averaged approximately
$1,350,000. Capital expenditures were $684,000 in 1999 and are expected to
approximate $700,000 in 2000.
Teltech's cash position as of December 31, 1999 was an overdraft of $219,893
as compared to a positive balance of $262,370 at the end of 1998. The decrease
in cash in 1999 was the result of lower borrowings under its bank line. While
cash generated by operations in 1999 was $418,551, overall Teltech had a working
capital deficit of $2,927,000 as of December 31, 1999.
Teltech has in place a $2,000,000 line of bank credit secured by 80% of
Teltech's accounts receivable. As of June 30, 2000, there was approximately
$1,170,000 of credit available on this bank line. Borrowings bear interest at
the rate of 3% over the bank's prime rate (9.0% at July 12, 2000). The line of
credit requires certain covenants to be met and expires in June 2001. Teltech's
management believes that cash generated from operations and available borrowings
will be sufficient to meet its working capital and capital expenditure
requirements through 2000. The belief is predicated on Teltech's ability to meet
revenue and cost targets established in its 2000 Business Plan.
MARKET RISK
Teltech's interest rate risk is that changes in interest rates would change
its interest expense since most of Teltech's debt is at a floating rate. At
December 31, 1999, Teltech had $996,543 of floating rate debt outstanding. A 2%
change in the prime rate would change Teltech's interest expense by
approximately $20,000 based on the amount outstanding at December 31, 1999.
Teltech's foreign currency risk is not significant.
87
<PAGE>
DESCRIPTION OF SOPHEON ORDINARY SHARES
GENERAL
The following information is a summary of the material terms of Sopheon
ordinary shares as set out in the Sopheon memorandum and articles of association
as presently in effect. You are encouraged to read the form of memorandum and
articles of association of Sopheon which are filed as an exhibit to the
registration statement of which this proxy statement/prospectus forms a part.
See also "COMPARISON OF RIGHTS OF TELTECH SHAREHOLDERS AND SOPHEON
SHAREHOLDERS."
All of the issued Sopheon ordinary shares are fully paid. Sopheon ordinary
shares are represented in certificated form and also in uncertificated form
under "CREST." CREST is an electronic settlement system in the United Kingdom
which enables Sopheon ordinary shares to be evidenced other than by a physical
certificate and transferred electronically rather than by delivery of a physical
certificate. All Sopheon ordinary shares:
- may be represented by certificates in registered form issued (subject to
the terms of issue of the shares) following issuance or receipt of the
form of transfer bearing the appropriate stamp duty by Sopheon's
registrars; or
- may be in uncertificated form with the relevant CREST member account being
credited with the Sopheon ordinary shares issued or transferred.
Under English law, persons who are neither residents nor nationals of the
United Kingdom may freely hold, vote and transfer Sopheon ordinary shares in the
same manner and under the same terms as United Kingdom residents or nationals.
DIVIDENDS
Holders of Sopheon ordinary shares may, by ordinary resolution, declare
dividends but may not declare dividends in excess of the amount recommended by
the directors. The directors may also pay interim dividends. No dividend may be
paid other than out of profits available for distribution. Dividends on Sopheon
ordinary shares will be announced and paid in pounds sterling.
PREEMPTIVE RIGHTS AND NEW ISSUES OF SHARES
Under Section 80 of the Companies Act of Great Britain, directors are, with
certain exceptions, unable to allot relevant securities without the authority of
the shareholders in a general meeting. Relevant securities as defined in the
Companies Act would include Sopheon ordinary shares or securities convertible
into Sopheon ordinary shares. In addition, Section 89 of the Companies Act
imposes further restrictions on the issue of equity securities, which would
include Sopheon ordinary shares and securities convertible into ordinary shares,
which are, or are to be, paid up wholly in cash and not first offered to
existing shareholders.
DISCLOSURE OF INTERESTS IN SHARES
The Companies Act gives Sopheon the power to require persons who it believes
to have, or to have acquired within the previous three years, an interest in its
voting shares, to disclose certain information with respect to those interests.
Failure to supply the information required may lead to disenfranchisement of the
relevant shares and a prohibition on their transfer and receipt of dividends and
payments in respect of those shares. In this context, the term "interest" is
widely defined and will generally include an interest of any kind whatsoever in
voting shares. See "COMPARISON OF RIGHTS OF TELTECH SHAREHOLDERS AND SOPHEON
SHAREHOLDERS--Disclosure of Interests."
88
<PAGE>
CHANGES IN CAPITAL
The Sopheon shareholders may pass an ordinary resolution to do any of the
following:
- consolidate, or consolidate and then divide, all or any of Sopheon's share
capital into new shares of larger nominal amounts than its existing
shares;
- cancel any shares which have not, at the date of the relevant resolution,
been subscribed or agreed to be subscribed by any person and reduce the
amount of Sopheon's authorized share capital by the amount of the shares
so canceled;
- divide some or all of Sopheon's shares into shares of a smaller nominal
amount; and
- increase Sopheon's share capital.
Sopheon will also be able to:
- with the authority of shareholders by ordinary or special resolution,
depending on the circumstances relating to the purchase, purchase its own
shares; and
- by special resolution and, where required by the Companies Act, with the
sanction of the court, reduce its share capital, any capital redemption
reserve, share premium account or any other undistributable reserve.
TRANSFER OF SHARES
The Sopheon memorandum and articles of association do not restrict the
transferability of Sopheon ordinary shares. Sopheon ordinary shares can be
transferred by an instrument in any usual form or in any form acceptable to the
directors. The directors may refuse to register a transfer:
- if it is of shares which are not fully paid;
- if it is not stamped and duly presented for registration, together with
the share certificate and evidence of title as the directors reasonably
require;
- if it is with respect to more than one class of shares;
- if it is in favor of more than four persons jointly; or
- in certain circumstances, if the holder has failed to provide the required
particulars to the investigating power referred to under "--Disclosure of
Interests in Shares" above.
Sopheon may not refuse to register transfers of Sopheon ordinary shares if
this refusal would prevent dealings in the shares on the AIM market of the
London Stock Exchange from taking place on an open and proper basis. The
registration of transfers may be suspended at any time and for any period as the
directors may determine. The register of shareholders may not be closed for more
than 30 days in any year.
GENERAL MEETINGS AND NOTICES
A shareholder who is not registered on Sopheon's register of shareholders
with an address in the United Kingdom and who has not supplied to Sopheon an
address within the United Kingdom for the purpose of giving notice will not be
entitled to receive notices from Sopheon. In certain circumstances, Sopheon will
be able to give notices to shareholders by advertisement in newspapers in the
United Kingdom. Under the Sopheon memorandum and articles of association, the
annual general meeting of shareholders will be held within 15 months after the
preceding annual general meeting and at a time and place determined by the
directors.
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<PAGE>
LIABILITY OF DIRECTORS AND OFFICERS
See "COMPARISON OF RIGHTS OF TELTECH SHAREHOLDERS AND SOPHEON
SHAREHOLDERS--Liability of Directors and Officers" for a discussion of the
inability of an English company to exempt directors and officers from certain
liabilities.
REGISTRAR
The registrar for Sopheon ordinary shares is Independent Registrars Group
Limited (IRG) of Balfour House, 390/398 High Road, Ilford, Essex, England.
90
<PAGE>
COMPARISON OF RIGHTS OF
TELTECH SHAREHOLDERS AND SOPHEON SHAREHOLDERS
As a result of the merger, holders of Teltech stock who do not exercise
their dissenters' rights will receive ordinary shares of Sopheon, a company
incorporated under the laws of England and Wales. The following is a materially
complete summary comparing the differences between the rights of a Teltech
shareholder and a Sopheon shareholder arising from the differences between the
corporate laws of Minnesota and of England and Wales, the governing instruments
of the two companies, and the securities laws and regulations governing the two
companies. This summary is not a complete description of the laws of Minnesota
or of England and Wales, the other rules or laws referred to in this summary,
Teltech's restated articles of incorporation, the Teltech bylaws, or the Sopheon
memorandum and articles of association.
VOTING RIGHTS
<TABLE>
<CAPTION>
PROVISIONS CURRENTLY APPLICABLE TO PROVISIONS APPLICABLE TO SOPHEON
TELTECH SHAREHOLDERS SHAREHOLDERS AFTER THE MERGER
--------------------------------------------- ---------------------------------------------
<S> <C>
- Teltech shareholders may take action by - A shareholder entitled to vote at a
the affirmative vote of the holders of a shareholders' meeting is entitled to one
majority of the voting power of the shares vote on a show of hands regardless of the
present at a meeting, except where a number of shares he or she holds;
larger proportion is required by the PROVIDED, HOWEVER, that if a poll is
articles of incorporation or the bylaws. lawfully demanded, each ordinary
The Teltech restated articles of shareholder would be entitled to one vote
incorporation: for each ordinary share held by the
(1) do not alter the voting rights of shareholder.
holders of Teltech common stock, and - The Sopheon memorandum and articles of
(2) grant the holders of Teltech association provide that:
preferred stock the right to vote in (1) resolutions will be conducted on a
the election of directors and matters show of hands, unless a poll is
coming before any shareholders' demanded by:
meeting on which the holders of (a) the chairman of the meeting,
Teltech common stock are entitled to (b) at least five shareholders present that
vote, on the basis of the number of have the right to vote at the meeting,
shares of common stock into which the (c) any shareholder or shareholders
preferred shares are then convertible representing at least 10% of the voting
for each share held. rights of all shareholders that have the
- The Teltech bylaws provide that the right to vote at the meeting, or
presence of the holders of a majority of (d) any shareholder or shareholders holding
the outstanding voting power entitled to shares that have voting rights at the
vote constitutes a quorum for the meeting on which the aggregate sum paid on
transaction of business at a shareholders' its or their shares is equal to at least
meeting. 10% of the total sum paid on all the
- Under Minnesota law, articles of shares having these voting rights at the
incorporation may provide that in meeting; and
elections of directors and other specified (2) proxies of shareholders will be entitled
circumstances, shareholders are entitled to attend, speak and vote at shareholders'
to cumulate votes. Teltech's restated
articles of incorporation expressly
provide that no shareholder may cumulate
votes in the election of directors.
</TABLE>
91
<PAGE>
<TABLE>
<CAPTION>
PROVISIONS CURRENTLY APPLICABLE TO PROVISIONS APPLICABLE TO SOPHEON
TELTECH SHAREHOLDERS SHAREHOLDERS AFTER THE MERGER
--------------------------------------------- ---------------------------------------------
<S> <C>
meetings on both a show of hands and on
a poll.
- Under English law, ordinary resolutions
must be approved by holders of at least a
majority of the votes cast at the meeting.
Both special and extraordinary resolutions
require the affirmative vote of at least
75% of the votes cast at the meeting to be
approved.
- Two shareholders present in person, by
representative (in the case of a corporate
member) or by proxy and entitled to vote
constitute a quorum for purposes of a
general meeting.
- Cumulative voting is not recognized under
English law.
</TABLE>
ACTION BY WRITTEN CONSENT
<TABLE>
<CAPTION>
PROVISIONS CURRENTLY APPLICABLE TO PROVISIONS APPLICABLE TO SOPHEON
TELTECH SHAREHOLDERS SHAREHOLDERS AFTER THE MERGER
--------------------------------------------- ---------------------------------------------
<S> <C>
- Under Minnesota law, shareholders may take - Under English law, shareholders of a
any action required or permitted to be public company such as Sopheon are not
taken at a shareholders' meeting without a permitted to pass resolutions by written
meeting if consented to in writing by all consent.
shareholders entitled to vote thereon.
Teltech's bylaws do not modify Minnesota
law regarding written action by
shareholders.
</TABLE>
SHAREHOLDER PROPOSALS AND SHAREHOLDER NOMINATIONS OF DIRECTORS
<TABLE>
<CAPTION>
PROVISIONS CURRENTLY APPLICABLE TO PROVISIONS APPLICABLE TO SOPHEON
TELTECH SHAREHOLDERS SHAREHOLDERS AFTER THE MERGER
--------------------------------------------- ---------------------------------------------
<S> <C>
- Under English law, shareholders may demand
that a resolution be voted on at an annual
general meeting if the demand is made:
(1) by shareholders holding at least 5%
of the voting power of shares having a
right to vote on the resolution, or
(2) by at least 100 shareholders holding
shares on which there has been paid up
an average sum per shareholder of at
least L100.
The shareholders must deposit the demand at
the company's registered office at least
six weeks before the annual general
meeting to which it relates. In general,
resolutions to
</TABLE>
92
<PAGE>
<TABLE>
<CAPTION>
PROVISIONS CURRENTLY APPLICABLE TO PROVISIONS APPLICABLE TO SOPHEON
TELTECH SHAREHOLDERS SHAREHOLDERS AFTER THE MERGER
--------------------------------------------- ---------------------------------------------
<S> <C>
appoint directors must be put to
shareholders on the basis of one
resolution for each nominated director.
- A resolution including more than one
director may be voted upon at a general
meeting only if the shareholders have
first unanimously approved so doing.
</TABLE>
SOURCES AND PAYMENT OF DIVIDENDS
<TABLE>
<CAPTION>
PROVISIONS CURRENTLY APPLICABLE TO PROVISIONS APPLICABLE TO SOPHEON
TELTECH SHAREHOLDERS SHAREHOLDERS AFTER THE MERGER
--------------------------------------------- ---------------------------------------------
<S> <C>
- Minnesota law provides that a board may - Subject to the prior rights of holders of
authorize, and a corporation may make, a preferred shares, an English company may
distribution only if the corporation is pay dividends on its ordinary shares only
able to pay its debts in the ordinary out of its distribut-able profits, defined
course of business after making the as accumulated, realized profits less
distribution. accumulated, realized losses, and not out
- The bylaws of Teltech provide that subject of share capital, which includes share
to the provisions of law, the board of premiums, being the excess of the
directors may authorize distributions consideration for the issue of shares over
whenever, and in such amounts as, in its the aggregate nominal amount of such
opinion, the condition and affairs of the shares. Amounts credited to the share
corporation shall render it advisable. premium account, however, may be used to
pay up unissued shares which may then be
distributed to shareholders in proportion
to their holdings.
- In addition, under English law, Sopheon
will not be permitted to make a distribution
if, at the time, the amount of its net
assets is less than the aggregate of its
issued and paid-up share capital and
undistributable reserves. Subject to these
limitations, the Sopheon board will have
the power under the Sopheon memorandum and
articles of association to pay cash
dividends.
</TABLE>
RIGHTS OF PURCHASE AND REDEMPTION
<TABLE>
<CAPTION>
PROVISIONS CURRENTLY APPLICABLE TO PROVISIONS APPLICABLE TO SOPHEON
TELTECH SHAREHOLDERS SHAREHOLDERS AFTER THE MERGER
--------------------------------------------- ---------------------------------------------
<S> <C>
- Under Minnesota law, a corporation may - Sopheon may issue redeemable shares on
acquire its own shares only if the board such terms as may be provided by its articles
determines that the corporation will be of association.
able to pay its debts in the ordinary - Sopheon may purchase its own shares,
course of business after making the including any redeemable shares, if
purchase. Furthermore, a public (a) in the case of an open-market
corporation may not purchase any voting purchase, authority to make the market
shares from a person who beneficially owns purchase has been given by
more than 5% of the voting power of
</TABLE>
93
<PAGE>
<TABLE>
<CAPTION>
PROVISIONS CURRENTLY APPLICABLE TO PROVISIONS APPLICABLE TO SOPHEON
TELTECH SHAREHOLDERS SHAREHOLDERS AFTER THE MERGER
--------------------------------------------- ---------------------------------------------
<S> <C>
the corporation for more than the market an ordinary resolution of its
value of the shares if the shares have shareholders, or (b) in all other cases,
been beneficially owned by that person for the purchase has been approved by a
less than two years, unless the purchase special resolution.
is approved at a meeting of shareholders - Sopheon may redeem or repurchase shares
by the majority of all shares entitled to only if the shares are fully paid and only
vote, or unless the corporation makes an out of:
offer of at least equal value per share to (1) distributable profits, or
all holders of the class to be purchased (2) the proceeds of a new issue of shares
and any holders of securities that may be made for the purpose of the repurchase
converted into that class. or redemption.
- Teltech's bylaws provide that, subject to
the provisions of law, the board of
directors may authorize the acquisition of
the corporation's shares whenever and in
such amounts as, in its opinion, the
condition of the affairs of the
corporation render it advisable.
</TABLE>
SPECIAL MEETINGS OF SHAREHOLDERS
<TABLE>
<CAPTION>
PROVISIONS CURRENTLY APPLICABLE TO PROVISIONS APPLICABLE TO SOPHEON
TELTECH SHAREHOLDERS SHAREHOLDERS AFTER THE MERGER
--------------------------------------------- ---------------------------------------------
<S> <C>
- Minnesota law requires a corporation to - Under English law, an extraordinary
hold a special meeting of shareholders on general meeting of shareholders may be called
call of the chief executive officer, the by
chief financial officer, two or more (1) the board of directors; or
directors, a shareholder or shareholders (2) shareholders holding at least one-tenth
holding 10% or more of the voting power of the paid-up capital of the company
(or 25% or more of the voting power for carrying voting rights at general
decision effecting a business meetings.
combination) or the persons authorized - The notice requirements for an ordinary
to do so in the corporations articles of resolution, an extraordinary resolution
incorporation or bylaws. and a special resolution are as follows:
- The Teltech bylaws provide that (1) Ordinary resolution--14 clear days'
shareholders entitled to receive notice of notice;
a special meeting must receive notice (2) Extraordinary resolution--14 clear days'
of the meeting at least five days and notice; and
not more than 60 days prior to the (3) Special resolution--21 clear days'
meeting, provided that at least 14 days notice.
notice is required for a meeting at In addition, general meetings may be called
which there is to be considered a upon shorter notice if:
proposal to adopt a plan of merger or (1) in the case of an annual general
exchange. meeting, all the shareholders who are
permitted to attend and vote agree to
the shorter notice; or
(2) in the case of an extraordinary general
meeting, a majority of the shareholders
holding at least 95% by nominal value of
</TABLE>
94
<PAGE>
<TABLE>
<CAPTION>
PROVISIONS CURRENTLY APPLICABLE TO PROVISIONS APPLICABLE TO SOPHEON
TELTECH SHAREHOLDERS SHAREHOLDERS AFTER THE MERGER
--------------------------------------------- ---------------------------------------------
<S> <C>
the shares which can be voted at this
meeting so agree.
"Clear days' notice" means calendar days and
excludes (i) the date of mailing,
(ii) the date of receipt of the notice and
(iii) the date of the meeting itself.
- Sopheon's articles of association will
provide that documents sent by mail are
considered received 24 hours after
mailing.
- "Extraordinary resolutions" are relatively
unusual and are confined to matters out of
the ordinary course of business, such as a
proposal to wind up the affairs of the
company.
- "Special resolutions" generally involve
proposals to
(1) change the name of the company;
(2) alter its capital structure;
(3) change or amend the rights of
shareholders;
(4) permit the company to issue new shares
for cash without applying the
shareholders' preemptive rights;
(5) amend the company's objects, or purpose,
clause in its memorandum of association;
(6) amend the company's articles of
association; or
(7) carry out other matters for which the
company's articles of association or the
Companies Act prescribe that a "special
resolution" is required.
- All other proposals relating to the
ordinary course of the company's business,
such as the election of directors and
transactions, such as mergers,
acquisitions and dispositions, are the
subject of an "ordinary resolution."
</TABLE>
95
<PAGE>
DISSENTERS' RIGHTS
<TABLE>
<CAPTION>
PROVISIONS CURRENTLY APPLICABLE TO PROVISIONS APPLICABLE TO SOPHEON
TELTECH SHAREHOLDERS SHAREHOLDERS AFTER THE MERGER
--------------------------------------------- ---------------------------------------------
<S> <C>
- Under Minnesota law, a shareholder of a - While English law does not generally
corporation is entitled to receive payment provide for dissenters' rights, a shareholder
for the fair value of his or her shares may apply to a court and the court may
if, among other things, such shareholder specify terms for the compulsory
dissents from a plan of share exchange, acquisition of that shareholder's shares
sale or exchange of all or substantially that it considers appropriate as described
all of the property of the corporation, or under "--Shareholders' Votes on Certain
a merger or control share acquisition to Transactions" below
which such corporation is a party.
- Dissenters' rights are not available to
the holders of shares of a surviving
corporation in the merger, if the merger
does not require the approval of the
shareholders of that corporation. For a
description of the dissenters' rights to
which Teltech shareholders are entitled in
connection with the merger, see "THE
MERGER--Dissenters' Rights."
</TABLE>
PREEMPTIVE RIGHTS
<TABLE>
<CAPTION>
PROVISIONS CURRENTLY APPLICABLE TO PROVISIONS APPLICABLE TO SOPHEON
TELTECH SHAREHOLDERS SHAREHOLDERS AFTER THE MERGER
--------------------------------------------- ---------------------------------------------
<S> <C>
- Minnesota law grants shareholders certain - Under English law, the issuance for cash
preemptive rights to purchase newly issued of: (1) equity securities, being those which,
shares or rights of the company, with with respect to dividends or capital,
certain exceptions, unless restated carry a right to participate beyond a
otherwise provided in the articles of specified amount; or (2) rights to
incorporation. subscribe for or convert into equity
- The restated articles of incorporation of securities must be offered first to the
Teltech provide that no shareholder will existing equity shareholders in proportion
be entitled to any preemptive right to to the respective nominal values of their
purchase, subscribe for or otherwise holdings, unless a special resolution to
acquire any new or additional securities the contrary has been passed by
of the corporation, or any options or shareholders in a general meeting.
warrants to purchase, subscribe for or - At its annual general meeting each year,
otherwise acquire any such new additional Sopheon has passed, as is the custom of
securities before the corporation may many English companies listed on the
offer them to other persons. London Stock Exchange, a resolution to
authorize the board of directors of
Sopheon to allot up to a specified amount
of share capital for cash without these
preemption rights.
</TABLE>
96
<PAGE>
AMENDMENT OF GOVERNING INSTRUMENTS
<TABLE>
<CAPTION>
PROVISIONS CURRENTLY APPLICABLE TO PROVISIONS APPLICABLE TO SOPHEON
TELTECH SHAREHOLDERS SHAREHOLDERS AFTER THE MERGER
--------------------------------------------- ---------------------------------------------
<S> <C>
- Under Minnesota law, an amendment to the - Under English law, shareholders have the
articles of incorporation can be proposed power to amend:
by a resolution approved by a majority of (1) the objects, or purpose, clause in a
the directors, or proposed by a company's memorandum of association;
shareholder or shareholders holding and
three percent or more of the voting (2) any provisions of the company's articles
power of the shares entitled to vote. of association by special resolution,
An amendment to the articles of subject to, in the case of amendments to
incorporation requires the the objects clause of the memorandum of
affirmative vote of a majority of the association, the right of dissenting
voting power of the shares entitled to shareholders to apply to the courts to
vote unless the articles of cancel the amendments.
incorporation, the bylaws, a shareholder - Under English law, the board of directors
control agreement or the laws of is not authorized to change the memorandum of
Minnesota require a larger proportion or association or the articles of
number. In certain circumstances, the association. Amendments affecting the
holders of the outstanding shares of a rights of the holders of any class of
class or series are entitled to vote as shares may, depending on the rights
a class or series upon a proposed attached to the class and the nature of
amendment, whether or not entitled to vote the amendments, also require approval by
thereon by the provisions of the articles extraordinary resolution of the classes
of incorporation. The restated articles of affected in separate class meetings. See
incorporation of Teltech do not contain a "--Stock Class Rights."
provision specifically addressing the
amendment to the articles.
- Minnesota law states that the bylaws may
be adopted or amended by the board of
directors, unless the power is reserved
exclusively for shareholders in the
articles of incorporation, and subject to
certain instances in which shareholder
approval is required. After initial bylaws
are adopted, the board of directors may
not, without shareholder approval, adopt,
amend or repeal a bylaw fixing a quorum
for meetings of shareholders, prescribing
procedures for removing directors or
filling vacancies in the board, or fixing
the number of directors or their
classifications, qualifications or terms
of office except that the board may adopt
or amend a bylaw to increase the number of
directors. Holders of three percent or
more of the voting power may call for the
adoption, amendment or repeal of a bylaw.
The restated articles of incorporation and
bylaws of Teltech do not supplement
Minnesota law regarding the amendment of
bylaws.
</TABLE>
97
<PAGE>
PREFERRED STOCK AND PREFERENCE STOCK
<TABLE>
<CAPTION>
PROVISIONS CURRENTLY APPLICABLE TO PROVISIONS APPLICABLE TO SOPHEON
TELTECH SHAREHOLDERS SHAREHOLDERS AFTER THE MERGER
--------------------------------------------- ---------------------------------------------
<S> <C>
- Teltech has five classes of preferred - Subject to the rights of any existing
stock. Without the affirmative vote of the shareholders, the Sopheon memorandum and
holders of at least a majority of the articles of association permit Sopheon to
voting power of preferred shares (acting issue new shares with any rights granted
together as a single class), Teltech to holders of such shares, including
cannot: rights of priority over the Sopheon
(1) authorize or issue additional ordinary shares.
preferred shares or shares having - Sopheon has issued 19,228,885 deferred
priority over any series of preferred shares of 15p each.
shares;
(2) declare or pay dividends or make
other distributions on shares which
are junior to the preferred shares or
purchase or redeem shares which are
junior to the preferred shares;
(3) issue common shares below $3.55 per
share;
(4) sell, lease, license or otherwise
dispose of all or substantially all
of its assets, or consolidate with or
merge into any other corporation or
entity or permit any other
corporation or entity to consolidate
with or merge into it (other than
subsidiary mergers or mergers with
corporations 80% owned by
shareholders of Teltech).
- Holders of Teltech's preferred stock also
currently hold certain preferences upon
the liquidation or sale of Teltech.
Preferred stockholders will be paid the
preference amount upon consummation of the
merger. See "THE MERGER--Merger
Consideration."
</TABLE>
STOCK CLASS RIGHTS
<TABLE>
<CAPTION>
PROVISIONS CURRENTLY APPLICABLE TO PROVISIONS APPLICABLE TO SOPHEON
TELTECH SHAREHOLDERS SHAREHOLDERS AFTER THE MERGER
--------------------------------------------- ---------------------------------------------
<S> <C>
- Under Minnesota law, any change to the - The Sopheon memorandum and articles of
rights of holders of the Teltech common association provide that
stock or any series of preferred stock (1) the rights of any class of shares may
would require an amendment to the Teltech only be changed by an extraordinary
articles of incorporation. resolution passed at a separate class
- Minnesota law provides that the holders of meeting of the holders of the relevant
shares of a class or series shall be class of shares;
entitled to vote as a class upon a (2) the quorum required for the separate
proposed amendment if class meetings is at least two people
the amendment will: who hold, or act as proxies for, at
(1) increase or decrease the aggregate least one third of the total nominal
number of authorized shares of the value of the
class
</TABLE>
98
<PAGE>
<TABLE>
<CAPTION>
PROVISIONS CURRENTLY APPLICABLE TO PROVISIONS APPLICABLE TO SOPHEON
TELTECH SHAREHOLDERS SHAREHOLDERS AFTER THE MERGER
--------------------------------------------- ---------------------------------------------
<S> <C>
or series; existing shares of the class, except
(2) effect an exchange, reclassification, at any adjournment of a class
or cancellation of all or any part of meeting, one shareholder shall
the shares of the class or series; constitute a quorum, regardless of
(3) effect an exchange, or create a right the number of shares that person
of exchange, of all or any part of holds; and
the shares of another class or series (3) a poll may be demanded at a separate
for the shares of the class or series; class meeting by any person present in
(4) change the rights or preferences of person or by proxy and entitled to vote.
the shares of the class or series;
(5) change the shares of the class or
series, whether with or without par
value, in to the same or a different
number of shares, either with or
without par value, of another class
or series;
(6) create a new class or series of
shares having rights and preferences
prior and superior to the shares of
that class or series, or increase the
rights and preferences or the number
of authorized shares, of a class or
series having rights and preferences
prior or superior to the shares of
that class or series;
(7) divide the shares of the class into
series and determine the designation
of each series and the variations in
the relative rights and preferences
between the shares of each series, or
authorize the board to do so;
(8) limit or deny any existing preemptive
rights of the shares of the class or
series; or
(9) cancel or otherwise affect
distributions on the shares of the
class or series that have accrued by
have not been declared.
</TABLE>
SHAREHOLDER'S VOTES ON CERTAIN TRANSACTIONS
<TABLE>
<CAPTION>
PROVISIONS CURRENTLY APPLICABLE TO PROVISIONS APPLICABLE TO SOPHEON
TELTECH SHAREHOLDERS SHAREHOLDERS AFTER THE MERGER
--------------------------------------------- ---------------------------------------------
<S> <C>
- Generally, under Minnesota law, unless the - The Companies Act provides for schemes of
articles of incorporation provide for the arrangement, which are arrangements or
vote of a larger portion of the stock, compromises between a company and any
completion of a merger, consolidation, class of shareholders or creditors and
sale, lease or exchange of all or used in certain types of reconstructions,
substantially all of a corporation's amalgamations, capital reorganizations or
assets or dissolution requires takeovers. These arrangements require
(1) the approval of the majority of the
board
</TABLE>
99
<PAGE>
<TABLE>
<CAPTION>
PROVISIONS CURRENTLY APPLICABLE TO PROVISIONS APPLICABLE TO SOPHEON
TELTECH SHAREHOLDERS SHAREHOLDERS AFTER THE MERGER
--------------------------------------------- ---------------------------------------------
<S> <C>
of directors present at a meeting of (1) the approval at a special
the board of directors; and meeting convened by order of the
(2) approval by the vote of the holders court of, shareholders or
of a majority of the outstanding creditors representing 75% in
stock. value of the capital held by or debt
- In certain cases, classes or series of owed to the class of shareholders or
shares are entitled to vote separately as creditors or class thereof present and
a class or series. voting, either in person or by proxy, and
- In addition, Teltech's restated articles (2) the approval of the court.
of incorporation provide for approval by a - Once approved and sanctioned, all
majority of the voting power of all series shareholders and creditors of the relevant
of preferred shares, (voting together as a class are bound by the terms of the
single class) of a merger. scheme, and a dissenting shareholder would
have no rights comparable to appraisal
rights provided under Delaware law.
- Under the rules of the United Kingdom
Financial Services Authority, shareholder
approval:
(1) is usually required for an
acquisition by an AIM listed company if,
generally, the size of the company or
business to be acquired represents
100% or more of the size of the AIM
listed company; and
(2) may also be required for an acquisition
or disposal of assets between an AIM
listed company and parties, including:
(a) directors of the company or its
subsidiaries;
(b) holders of 10% of the nominal value of
any class of the company's or any
holding company's or its subsidiary's
shares having the right to vote; or
(c) any of their affiliates.
- The Companies Act of Great Britain also
provides:
(1) that where a takeover offer is made
for the shares of a United Kingdom company
incorporated in Great Britain; and
(2) within four months of the date of the
offer, the offeror has acquired or
contracted to acquire at least
nine-tenths in value of the shares of
any class to which the offer relates,
the offeror may,
</TABLE>
100
<PAGE>
<TABLE>
<CAPTION>
PROVISIONS CURRENTLY APPLICABLE TO PROVISIONS APPLICABLE TO SOPHEON
TELTECH SHAREHOLDERS SHAREHOLDERS AFTER THE MERGER
--------------------------------------------- ---------------------------------------------
<S> <C>
within two months of reaching the
nine-tenths level, require shareholders
who do not accept the offer to transfer
their shares on the terms of the offer.
A dissenting shareholder may object to
the transfer or its proposed terms by
applying to the court within six weeks
of the date on which notice of the
transfer was given. In the absence of
fraud or oppression, the court is
unlikely to order that the acquisition
not take effect, but it may specify
terms of the transfer that it finds
appropriate. A minority shareholder is
also entitled in these circumstances, in
the alternative, to require the offeror
to acquire his shares on the terms of
the offer.
</TABLE>
RIGHTS OF INSPECTION
<TABLE>
<CAPTION>
PROVISIONS CURRENTLY APPLICABLE TO PROVISIONS APPLICABLE TO SOPHEON
TELTECH SHAREHOLDERS SHAREHOLDERS AFTER THE MERGER
--------------------------------------------- ---------------------------------------------
<S> <C>
- Minnesota law provides that a shareholder, - Except when closed under the provisions of
beneficial owner, or a holder of a voting the Companies Act of Great Britain, the
trust certificate in a publicly held register and index of names of
corporation has, upon written demand shareholders of an English company may be
stating the purpose, a right at any inspected during business hours:
reasonable time to examine and copy the (1) for free, by its shareholders; and
corporation's share register and other (2) for a fee by any other person.
corporate records reasonably related to In both cases, the documents may be copied
the stated purpose and described with for a fee.
reasonable particularity in the written - The shareholders of an English public
demand upon demonstrating the stated company may also inspect, without charge,
purpose to be a purpose reasonably related during business hours:
to the person's interest as a shareholder, (1) minutes of meetings of the
beneficial owner, or holder of a voting shareholders and obtain copies of the
trust certificate of the corporation. minutes for a fee; and
(2) service contracts of the company's
directors, if the contracts have more
than 12 months unexpired or require more
than 12 months' notice to terminate.
- In addition, the published annual accounts
of a public company are required to be
available for shareholders at a general
meeting and a shareholder is entitled to a
copy of these accounts.
</TABLE>
101
<PAGE>
STANDARD OF CONDUCT FOR DIRECTORS
<TABLE>
<CAPTION>
PROVISIONS CURRENTLY APPLICABLE TO PROVISIONS APPLICABLE TO SOPHEON
TELTECH SHAREHOLDERS SHAREHOLDERS AFTER THE MERGER
--------------------------------------------- ---------------------------------------------
<S> <C>
- Minnesota law provides that a director - Under English law, a director has a
shall discharge the duties of the position fiduciary duty to act in a company's best
of director in good faith, in a manner the interest. This duty includes obligations:
director reasonably believes to be in the (1) not to create an actual or potential
best interests of the corporation, and conflict between his duty to the
with the care an ordinarily prudent company and duties to any other
person in a like position would person or his personal interests; and
exercise under similar circumstances. (2) to exercise his powers only in
A person who so performs those duties accordance with the memorandum and articles
is not liable by reason of being or of association of the company.
having been a director of the - In addition, a director must exercise
corporation. reasonable care and skill. The precise
- Neither the Teltech articles of scope of this duty is unclear, but the
incorporation nor the Teltech bylaws test appears to be both subjective (i.e.,
contains any specific provisions setting was the director's conduct that of a
forth the standard of conduct of a reasonably diligent person who has the
director knowledge and experience of the director)
and objective (i.e., was the director's
conduct that of a reasonably diligent
person having the knowledge and experience
that a director should have).
</TABLE>
CLASSIFICATION OF THE BOARD OF DIRECTORS
<TABLE>
<CAPTION>
PROVISIONS CURRENTLY APPLICABLE TO PROVISIONS APPLICABLE TO SOPHEON
TELTECH SHAREHOLDERS SHAREHOLDERS AFTER THE MERGER
--------------------------------------------- ---------------------------------------------
<S> <C>
- Minnesota law permits, but does not - English law permits a company to provide
require, a classified board of directors, for the classification of the board of
with the terms of any such classes to be directors with respect to the term of
provided for in the articles of office that any director may hold.
incorporation or bylaws. - The memorandum and articles of association
of Sopheon, however, will not provide for
a classified board.
</TABLE>
REMOVAL OF DIRECTORS
<TABLE>
<CAPTION>
PROVISIONS CURRENTLY APPLICABLE TO PROVISIONS APPLICABLE TO SOPHEON
TELTECH SHAREHOLDERS SHAREHOLDERS AFTER THE MERGER
--------------------------------------------- ---------------------------------------------
<S> <C>
- Under Minnesota law, any one or all of the - Under the Companies Act, shareholders may
directors may be removed at any time, with remove a director without cause by
or without cause, by the affirmative vote ordinary resolution, irrespective of any
of the majority of all shares entitled to provisions of the company's articles of
vote at an election of directors; provided association or service contract the
that, if a director has been elected director has with the company, provided
solely by the holders of a class or series that 28 clear days' notice of the
of shares, as stated in the articles or resolution is given to the company.
bylaws, then that director may be removed - The memorandum and articles of association
only by the affirmative vote of the of Sopheon provide that one-third of all
holders of a majority of the voting power directors, other than the Executive
of all shares of that class or series Chairman and Managing Director, in office
entitled to at the date
</TABLE>
102
<PAGE>
<TABLE>
<CAPTION>
PROVISIONS CURRENTLY APPLICABLE TO PROVISIONS APPLICABLE TO SOPHEON
TELTECH SHAREHOLDERS SHAREHOLDERS AFTER THE MERGER
--------------------------------------------- ---------------------------------------------
<S> <C>
vote at an election of that director. In a of an annual general meeting will retire
corporation permitting cumulative voting, from office. These retired directors will
unless the entire board is removed be eligible for reelection.
simultaneously, a director is not removed
from the board if there are cast against
removal of that director the votes of a
proportion of the voting power sufficient
to elect the director at an election of
the entire board under cumulative voting.
- Under Minnesota law, directors may be
removed by directors at any time, with or
without cause, if:
(1) the director was named by the board
to fill a vacancy;
(2) the shareholders have not elected
directors in the interval between the
time of the appointment to fill a
vacancy and the time of the removal;
and
(3) a majority of the remaining directors
votes affirmatively to remove the
director.
- Neither the Teltech restated articles of
incorporation nor the Teltech bylaws
address the issue of removal of directors
or permit cumulative voting. Accordingly,
any director of Teltech may be removed
only for cause by the affirmative vote of
holders of a majority of the shares
entitled to vote for the election of
directors.
</TABLE>
VACANCIES ON THE BOARD OF DIRECTORS
<TABLE>
<CAPTION>
PROVISIONS CURRENTLY APPLICABLE TO PROVISIONS APPLICABLE TO SOPHEON
TELTECH SHAREHOLDERS SHAREHOLDERS AFTER THE MERGER
--------------------------------------------- ---------------------------------------------
<S> <C>
- Under Minnesota law, vacancies resulting - Under English law, shareholders may by
from the death, resignation, removal or ordinary resolution appoint a person to be
disqualification of a director may be a director:
filled by the affirmative vote of a (1) to fill a vacancy; or
majority of the remaining directors, even (2) to become an additional director,
though less than a quorum, and vacancies subject to any maximum provided in the
resulting from a newly-created company's articles of association. The
directorship may be filled by the board of directors has the power to
affirmative vote of a majority of the appoint a director to serve until the
directors serving at the time of the next annual general meeting of the
increase. company, whereupon the director concerned
- The shareholders may elect a new director is required to retire but will be eligible
to fill a vacancy that is created by the for election.
removal of a director by the shareholders.
The Teltech restated articles of
incorporation provides that, subject to
the rights of any class of preferred
</TABLE>
103
<PAGE>
<TABLE>
<CAPTION>
PROVISIONS CURRENTLY APPLICABLE TO PROVISIONS APPLICABLE TO SOPHEON
TELTECH SHAREHOLDERS SHAREHOLDERS AFTER THE MERGER
--------------------------------------------- ---------------------------------------------
<S> <C>
shareholders:
(1) any vacancies on the Teltech board;
or
(2) newly created directorships will be
filled only by the affirmative vote
of a majority of the remaining
directors in office, even if less
than a quorum. The Teltech bylaws
also provide that any directors
chosen to fill a vacancy or newly
created directorship will serve until
their successors are elected by the
shareholders, who may make such
election at the next regular or
special meeting of the shareholders.
</TABLE>
LIABILITY OF DIRECTORS AND OFFICERS
<TABLE>
<CAPTION>
PROVISIONS CURRENTLY APPLICABLE TO PROVISIONS APPLICABLE TO SOPHEON
TELTECH SHAREHOLDERS SHAREHOLDERS AFTER THE MERGER
--------------------------------------------- ---------------------------------------------
<S> <C>
- Minnesota law provides that a corporation - English law does not permit a company to
may set forth in its articles of exempt any director or officer of the
incorporation a provision eliminating or company or any person employed by the
limiting the personal liability of a company as an auditor from any liability
director to the corporation or its arising from negligence, default, breach
shareholders for monetary damages for of duty or breach of trust against the
breach of his duties as a director, company.
provided that such provision shall not
eliminate or limit the liability of a
director:
(1) for any breach of the director's duty
of loyalty to the corporation or its
shareholders;
(2) for acts or omissions not in good
faith or which involve intentional
misconduct or are known to the
director to be a violation of law;
(3) for any vote for or assent to an
unlawful distribution to shareholders
as prohibited under Minnesota law or
for actions leading to certain civil
liabilities under Minnesota law;
(4) for any violation of the antifraud
provisions or registration provisions
of Minnesota's securities laws; or
(5) for any transaction from which the
director derived an improper personal
benefit.
- Teltech's restated articles of
incorporation provide that, to the fullest
extent permitted by Minnesota law, a
director of Teltech will not be liable to
Teltech or its shareholders for
</TABLE>
104
<PAGE>
<TABLE>
<CAPTION>
PROVISIONS CURRENTLY APPLICABLE TO PROVISIONS APPLICABLE TO SOPHEON
TELTECH SHAREHOLDERS SHAREHOLDERS AFTER THE MERGER
--------------------------------------------- ---------------------------------------------
<S> <C>
money damages for breach of fiduciary duty
as a director.
</TABLE>
INDEMNIFICATION OF DIRECTORS AND OFFICERS
<TABLE>
<CAPTION>
PROVISIONS CURRENTLY APPLICABLE TO PROVISIONS APPLICABLE TO SOPHEON
TELTECH SHAREHOLDERS SHAREHOLDERS AFTER THE MERGER
--------------------------------------------- ---------------------------------------------
<S> <C>
- Minnesota law requires corporations, - English law does not permit a company to
unless limited by their articles of indemnify:
incorporation, to indemnify any director, (1) a director or officer of the company;
officer or employee made or threatened to or
be made a party to a proceeding by reason (2) any person employed by the company as an
of the former or present "official auditor against any liability arising
capacity" of the person against from negligence, default, breach of duty
judgments, penalties and fines as well or breach of trust against the company,
as reasonable expenses incurred by the EXCEPT that indemnification is allowed
person in connection with the proceeding for liabilities incurred in proceedings
if the person has: in which (i) judgment is entered in
(1) not been indemnified by another favor of the director or officer or the
organization for the same director or officer is acquitted, or
liabilities; (ii) the director or officer is held
(2) acted in good faith; liable, but the court finds that he acted
(3) received no improper personal honestly and reasonably and that relief
benefit; should be granted.
(4) had no reasonable cause to believe - The Companies Act of Great Britain enables
the conduct was unlawful in the case companies to purchase and maintain
of a criminal proceeding; and insurance for directors, officers and
(5) depending on the nature of the auditors against any liability arising
conduct, the person either reasonably from negligence, default, breach of
believed that the conduct was in the duty or breach of trust against the
best interests of the corporation or company.
that the conduct was not opposed to - Sopheon will maintain directors' and
the best interests of the corporation. officers' insurance.
- Minnesota law further authorizes any court
of competent jurisdiction, unless the
articles of incorporation provide
otherwise, to order indemnification
generally if the court determines a
director or officer of a corporation is
entitled to mandatory indemnification or
is otherwise fairly and reasonably
entitled to indemnification in view of all
the relevant circumstances. Minnesota law
also authorizes corporations to advance
reasonable expenses in advance of final
disposition of a proceeding generally if
the individual affirms in writing a good
faith belief that he satisfies the
standard of conduct for permissive
indemnification, the individual undertakes
in a signed writing to repay the advance
if it is determined he does not satisfy
the standard of conduct for permissive
</TABLE>
105
<PAGE>
<TABLE>
<CAPTION>
PROVISIONS CURRENTLY APPLICABLE TO PROVISIONS APPLICABLE TO SOPHEON
TELTECH SHAREHOLDERS SHAREHOLDERS AFTER THE MERGER
--------------------------------------------- ---------------------------------------------
<S> <C>
indemnification and the corporation
determines that the facts then known do
not preclude indemnification.
- The Teltech bylaws provide that Teltech
will be required to indemnify a person for
such expenses, liabilities, in such
manner, under such circumstances, and to
such extent, as permitted under Minnesota
law.
- Teltech maintains directors' and officers'
insurance.
</TABLE>
SHAREHOLDERS' SUITS
<TABLE>
<CAPTION>
PROVISIONS CURRENTLY APPLICABLE TO PROVISIONS APPLICABLE TO SOPHEON
TELTECH SHAREHOLDERS SHAREHOLDERS AFTER THE MERGER
--------------------------------------------- ---------------------------------------------
<S> <C>
- Under Minnesota law, a court may grant any - English law only permits a shareholder to
equitable relief it deems just and initiate a lawsuit on behalf of the
reasonable in an action by a shareholder company in limited circumstances: the
when it is established that: Companies Act 1985, as amended permits a
(1) the directors are deadlocked in the shareholder whose name is on the register
management of the corporate affairs of shareholders of the company to apply
and the shareholders are unable to for a court order:
break the deadlock; (1) when the company's affairs are being
(2) the directors, or those in control of or have been conducted in a manner
the corporation, have acted unfairly prejudicial to the interests
fraudulently in or illegally toward of all or some shareholders,
one or more shareholders in their including the shareholder making the
capacities as shareholders or claim; or
directors of the corporation; (2) when any act or omission of the company
(3) the directors, or those in control of is or would be so prejudicial.
the corporation, have acted in a - A court has wide discretion in granting
manner unfairly prejudicial toward one or relief, and may authorize civil proceedings
more shareholders in their capacities as to be brought in the name of the company
shareholders or directors of a corporation by a shareholder on terms that the court
that is not publicly held; directs. Except in these limited
(4) the shareholders of the corporation circumstances, English law does not
are so divided in voting power that, generally permit class action lawsuits by
for a period of time that includes shareholders on behalf of the company or
the time when two consecutive regular on behalf of other shareholders.
meetings were held, they have failed
to elect successors to directors
whose terms have expired or would
have expired upon the election and
qualifications of their successors;
or
(5) the corporate assets are being
misapplied or wasted.
- The above statutory regulations do not
limit a shareholder's right to seek
redress on behalf
</TABLE>
106
<PAGE>
<TABLE>
<CAPTION>
PROVISIONS CURRENTLY APPLICABLE TO PROVISIONS APPLICABLE TO SOPHEON
TELTECH SHAREHOLDERS SHAREHOLDERS AFTER THE MERGER
--------------------------------------------- ---------------------------------------------
<S> <C>
of the corporation via a traditional
derivative suit under Minnesota law.
</TABLE>
CERTAIN PROVISIONS RELATING TO SHARE ACQUISITIONS
<TABLE>
<CAPTION>
PROVISIONS CURRENTLY APPLICABLE TO PROVISIONS APPLICABLE TO SOPHEON
TELTECH SHAREHOLDERS SHAREHOLDERS AFTER THE MERGER
--------------------------------------------- ---------------------------------------------
<S> <C>
- Minnesota law prohibits an "acquiring - Takeovers of public companies are
person" who makes a "control share regulated by the City Code, which is:
acquisition" in an "issuing public (1) comprised of non-statutory
corporation" from exercising voting rights rules unenforceable at law; and
on any "control shares" unless such (2) administered by the Takeover Panel, a
voting rights are conferred by a body consisting of representatives of
majority vote of the disinterested City of London financial and
shareholders of the issuing corporation professional institutions which oversees
at a special meeting of such the conduct of takeovers.
shareholders held upon the request and - The City Code provides that when:
at the expense of the acquiring person. (1) any person acquires, whether by a
Unless otherwise provided in a series of transactions over a period of
corporation's articles of incorporation time or not, shares which, together
or bylaws before a control share acquisition with shares held or acquired by
has occurred, in the event that control persons acting in concert with him,
shares acquired in a control share represent 30% or more of the voting
acquisition are accorded full voting rights of a public company; or
rights and the acquiring person (2) any person, together with persons acting
acquires control shares with a in concert with him, holds at least 30%
majority or more of all voting power, but not more than 50% of the voting
all shareholders of the issuing rights and that person, or any person
corporation have dissenters' rights acting in concert with him, acquires any
to receive the fair value of their additional shares, the person must
shares. "Control shares" mean shares generally make an offer for all of the
acquired by a person that, when added to equity shares of the company, whether
all other shares of the issuing public voting or non-voting, and any class of
corporation owned by that person or in voting non-equity shares of the company
respect of which that person may held by that person or any person acting
exercise or direct the exercise of in concert with him, for cash, or
voting power, would otherwise entitle accompanied by a cash alternative, at
that person to exercise voting power of not less than the highest price paid by
the issuing public corporation in the the person or these persons for the
election of directors within any of the relevant shares during the 12 months
following ranges: (a) at least 20% but preceding the date of the offer.
less than 33 1/3%, (b) at least 33 1/3%
but less than or equal to 50%, or
(c) over 50%. "Control share
acquisition" means, subject to certain
exceptions, the acquisition, directly or
indirectly, by an acquiring person of
beneficial ownership of shares of an
issuing public corporation that would,
when added to all other shares of the
issuing public corporation beneficially
owned by the acquiring person, entitle
the acquiring person, immediately after
the acquisition, to exercise or direct
the exercise of a new range of voting
power within any of the ranges specified
in the definition of "control shares."
Shares acquired within 120 days or
pursuant to a plan to make a control
share acquisition are considered to
</TABLE>
107
<PAGE>
<TABLE>
<CAPTION>
PROVISIONS CURRENTLY APPLICABLE TO PROVISIONS APPLICABLE TO SOPHEON
TELTECH SHAREHOLDERS SHAREHOLDERS AFTER THE MERGER
--------------------------------------------- ---------------------------------------------
<S> <C>
have been acquired in the same
acquisition. An "issuing public
corporation" is a corporation that has
50 or more shareholders. The above
provisions do not apply if, before a
control share acquisition is made, the
corporation's articles of incorporation
or bylaws (including a board adopted
bylaw) provide that said provisions do
not apply. Teltech's restated articles
of incorporation and bylaws do not
exclude Teltech from the restrictions
imposed by such provisions.
</TABLE>
ANTI-TAKEOVER MEASURES
<TABLE>
<CAPTION>
PROVISIONS CURRENTLY APPLICABLE TO PROVISIONS APPLICABLE TO SOPHEON
TELTECH SHAREHOLDERS SHAREHOLDERS AFTER THE MERGER
--------------------------------------------- ---------------------------------------------
<S> <C>
- Under Minnesota law, directors generally - Under English law, directors of a company
have a duty to act without self-interest, have a fiduciary duty to take only those
on a well-informed basis and in a manner actions which are in the interests of the
they reasonably believe to be in the best company. Generally, anti-takeover measures
interests of the shareholders. are not actions which fall within this
Nevertheless, a Minnesota court will category.
generally apply a policy of judicial - Under the City Code, a company is
deference to board of director decisions prohibited from taking any action without the
to adopt anti-takeover measures in the approval of its shareholders at a general
face of a potential takeover where the meeting after:
directors are able to show that: (1) a BONA FIDE offer has been
(1) they had reasonable grounds for communicated to its board of directors; or
believing that there was a danger to (2) its board of directors has reason to
corporate policy and effectiveness believe that a BONA FIDE offer might be
from an acquisition proposal; and imminent, which action could effectively
(2) the board action taken was reasonable result in the offer being frustrated or
in relation to the threat posed. in the shareholders being denied an
opportunity to decide on its merits.
</TABLE>
DISCLOSURE OF INTERESTS
<TABLE>
<CAPTION>
PROVISIONS CURRENTLY APPLICABLE TO PROVISIONS APPLICABLE TO SOPHEON
TELTECH SHAREHOLDERS SHAREHOLDERS AFTER THE MERGER
--------------------------------------------- ---------------------------------------------
<S> <C>
- Because Teltech does not have a class of - The Companies Act of Great Britain
equity securities registered under the provides that anyone who acquires a material
Exchange Act, there is no requirement for interest or becomes aware that he has
any party to report its ownership of acquired a material interest in 3% or more
Teltech stock in SEC filings. of any class of shares of a public
company's issued share capital carrying
rights to vote at general shareholder
meetings must notify that company in
writing of his interest within two days.
Thereafter, any increase or decrease of a
whole percentage or decrease which reduces
the interest to below 3% must be notified
in
</TABLE>
108
<PAGE>
<TABLE>
<CAPTION>
PROVISIONS CURRENTLY APPLICABLE TO PROVISIONS APPLICABLE TO SOPHEON
TELTECH SHAREHOLDERS SHAREHOLDERS AFTER THE MERGER
--------------------------------------------- ---------------------------------------------
<S> <C>
writing to the company. This requirement
will apply to holders of Sopheon ordinary
shares. In addition, the Companies Act
provides that a public company may, by
notice in writing, require a person whom
the company knows or reasonably believes
to be or to have been within the three
preceding years, interested in the
company's issued voting share capital to:
(1) confirm whether this is or is not the
case; and
(2) if this is the case, to give further
information that the company requires
relating to his interest and any other
interest in the company's shares of
which he is aware. The disclosure must
be made within a reasonable period as
specified in the relevant notice which
may be as short as one or two days.
- When such a notice is served by Sopheon on
a person who is or was interested in shares
of the company and that person fails to
give the company any information required
by the notice within the time specified in
the notice, the company impose
restrictions prohibiting, among other
things:
(1) any transfer of the shares;
(2) the exercise of voting rights;
(3) the issue of further shares; and
(4) other than in a liquidation, dividends
and other payments. These restrictions may
also void any agreement to transfer the
shares.
</TABLE>
ABILITY TO BRING SUITS, ENFORCE JUDGMENTS AND ENFORCE UNITED STATES LAW
<TABLE>
<CAPTION>
PROVISIONS CURRENTLY APPLICABLE TO PROVISIONS APPLICABLE TO SOPHEON
TELTECH SHAREHOLDERS SHAREHOLDERS AFTER THE MERGER
--------------------------------------------- ---------------------------------------------
<S> <C>
- Teltech is a United States company - Sopheon is an English company located in
incorporated under the laws of Minnesota. the United Kingdom. Many of the directors and
All of its directors and officers are officers of Sopheon will be residents of
residents of the United States, and the United Kingdom and not the United
Teltech has substantial assets located in States. In addition, although Sopheon will
the United States. As a result, United have substantial assets in the United
States investors generally can initiate States, a large portion of its assets and
lawsuits in the United States against of its directors and officers will be
Teltech and its directors and officers and located outside of the United States. As a
can enforce lawsuits based on United result, United States investors
States
</TABLE>
109
<PAGE>
<TABLE>
<CAPTION>
PROVISIONS CURRENTLY APPLICABLE TO PROVISIONS APPLICABLE TO SOPHEON
TELTECH SHAREHOLDERS SHAREHOLDERS AFTER THE MERGER
--------------------------------------------- ---------------------------------------------
<S> <C>
federal securities laws in United States may find it difficult in a lawsuit based
courts. on the civil liability provisions of the
United States federal securities laws:
(1) to effect service within the United
States upon Sopheon and the directors and
officers of Sopheon located outside
the United States;
(2) to enforce in United States courts or
outside the United States judgments
obtained against those persons in United
States courts;
(3) to enforce in United States courts
judgments obtained against those persons
in courts in jurisdictions outside the
United States; and
(4) to enforce against those persons in the
United Kingdom, whether in original
actions or in actions for the
enforcement of judgments of United
States courts, civil liabilities based
solely upon the United States federal
securities laws.
</TABLE>
PROXY STATEMENTS, NOTICES AND REPORTS TO SHAREHOLDERS
<TABLE>
<CAPTION>
PROVISIONS CURRENTLY APPLICABLE TO PROVISIONS APPLICABLE TO SOPHEON
TELTECH SHAREHOLDERS SHAREHOLDERS AFTER THE MERGER
--------------------------------------------- ---------------------------------------------
<S> <C>
- Under Minnesota law, Teltech must comply - As a foreign private issuer, Sopheon will
with notice requirements relating to the not be governed by the Exchange Act proxy
solicitation of proxies for shareholder rules. However, Sopheon will be governed
meetings. Teltech is not subject to the by the Companies Act of Great Britain and
Exchange Act proxy rules. the United Kingdom Financial Services
Authority rules regulating notices of
shareholder meetings, which provide that
notice of a shareholder meeting must be
accompanied by:
(1) a shareholder circular containing an
explanation of the purpose of the
meeting; and
(2) the recommendations of the board with
respect to actions to be taken. In
addition, Sopheon will send Sopheon
ordinary shareholders a copy of its
annual report and accounts or a summary
thereof. In addition, under the listing
rules, Sopheon will, depending on their
size and importance, be required to send
to shareholders details relating to
certain
</TABLE>
110
<PAGE>
<TABLE>
<CAPTION>
PROVISIONS CURRENTLY APPLICABLE TO PROVISIONS APPLICABLE TO SOPHEON
TELTECH SHAREHOLDERS SHAREHOLDERS AFTER THE MERGER
--------------------------------------------- ---------------------------------------------
<S> <C>
acquisitions, dispositions, takeovers,
mergers and offers either made by or in
respect of the company.
</TABLE>
REPORTING REQUIREMENTS
<TABLE>
<CAPTION>
PROVISIONS CURRENTLY APPLICABLE TO PROVISIONS APPLICABLE TO SOPHEON
TELTECH SHAREHOLDERS SHAREHOLDERS AFTER THE MERGER
--------------------------------------------- ---------------------------------------------
<S> <C>
- Teltech is not subject to any obligation - As a foreign private issuer, Sopheon will
to file reports with the SEC. be required to publicly file with the SEC
annual reports on Form 20-F within six
months after the end of each fiscal year
and to furnish reports on Form 6-K.
- Sopheon will also be required to notify
the London Stock Exchange of:
(1) any major new developments relating
to its business which are not public
knowledge and may lead to a
substantial movement in its stock
price;
(2) notifications received by it from
persons holding an interest in 3% or more of
any class of the company's share
capital;
(3) any changes in its board of directors;
(4) any purchase or redemption by it of its
own equity securities;
(5) interests of directors in its shares or
debentures; and
(6) changes in its capital structure.
</TABLE>
FEES AND EXPENSES
Pursuant to the merger agreement, Sopheon and Teltech have agreed to each
pay half of certain expenses. See "THE MERGER AGREEMENT--Expenses."
Estimated fees and expenses incurred or to be incurred by Sopheon in
connection with the merger are approximately $600,000. Estimated fees and
expenses incurred or to be incurred by Teltech in connection with the merger are
approximately $455,000. In addition, Teltech has agreed to pay
PricewaterhouseCoopers Securities LLC a fee of $250,000 in connection with the
merger. Neither Sopheon nor Teltech will pay any fees or commissions to any
other broker, dealer or person in connection with the merger. See "THE
MERGER--Financial Advisor to Teltech."
These fees and expenses related to the merger will be financed by generally
available funds of Sopheon and Teltech.
111
<PAGE>
VALIDITY OF SECURITIES
The legality and validity of the Sopheon ordinary shares to be issued under
the merger agreement will be passed upon by Edge Hammond Suddards Edge, London,
England, United Kingdom counsel for Sopheon.
EXPERTS
The consolidated financial statements of Sopheon as of December 31, 1999 and
1998, and for each of the three years in the period ended December 31, 1999
appearing in this proxy statement/prospectus have been audited by Ernst & Young,
independent auditors, as set forth in their report thereon appearing elsewhere
herein, and are included in reliance upon such report given upon the authority
of such firm as experts in auditing and accounting.
The financial statements of AppliedNet for each of the two years in the
period ended September 30, 1999 appearing in this proxy statement/prospectus
have been audited by Ernst & Young, independent auditors, as set forth in their
report thereon appearing elsewhere herein, and are included in reliance upon
such report given upon the authority of such firm as experts in auditing and
accounting.
The financial statements of Teltech as of December 31, 1998 and 1999 and for
each of the years in the two-year period ended December 31, 1999, have been
included herein and in the registration statement in reliance upon the report of
KPMG LLP, independent certified public accountants, appearing elsewhere herein,
and upon the authority of said firm as experts in accounting and auditing.
The report of KPMG LLP covering the December 31, 1998 and 1999 financial
statements contains an emphasis paragraph that Teltech was obligated to offer to
redeem one-half of the redeemable convertible preferred stock outstanding on
August 31, 1999, and each succeeding August 31 through 2004, however, Teltech
was advised by outside legal counsel that under Minnesota law, it was not
obligated to make such an offer as management believed sufficient funds were not
available to make such a redemption.
The financial statements of Teltech for the year ended December 31, 1997
included in this prospectus have been so included in reliance on the report of
PricewaterhouseCoopers, LLP, independent accountants, given on the authority of
said firm as experts in auditing and accounting.
CHANGES IN ACCOUNTANTS
PricewaterhouseCoopers, LLP ("PwC") performed and issued audit reports for
Teltech for the fiscal years 1994 through 1997. In August 1999, PwC chose to
resign to enable PricewaterhouseCoopers Securities, LLC to take an expanded role
as the Company's financial advisor. Also in August 1999, Teltech's board of
directors and audit committee decided to retain KPMG LLP as its independent
public accountants. PwC's report on the financial statements for 1997 did not
contain an adverse opinion or a disclaimer of opinion and was not qualified or
modified as to certainty, audit scope or accounting principles. After PwC chose
to resign, the decision to change accountants and select KPMG as its independent
public accountant was approved by both Teltech's audit committee and board of
directors. There were no disagreements with the former auditors on any matter of
accounting principles or practices, financial statement disclosure or auditing
scope of procedure at the time of the change with respect to Teltech's financial
statements for fiscal year 1997, which, if not resolved to the former auditors'
satisfaction, would have caused them to make reference to the subject matter of
the disagreement in connection with their report. Prior to retaining KPMG LLP,
Teltech had not consulted with KPMG LLP regarding accounting principles.
112
<PAGE>
OTHER MATTERS
It is not expected that any matters other than those described in this proxy
statement/prospectus will be brought before the Teltech special meeting. If any
other matters are presented, however, it is the intention of the persons named
in the proxy to vote the proxy in accordance with the discretion of such
persons.
WHERE YOU CAN FIND MORE INFORMATION
Sopheon filed a registration statement with the SEC on Form F-4 to register
the Sopheon ordinary shares that Teltech shareholders will receive in the
merger. This proxy statement/prospectus, which Sopheon believes is materially
complete, is a part of the registration statement and constitutes a prospectus
of Sopheon and the proxy statement of Teltech for its special meeting. You may
obtain the registration statement from the SEC's web site at "http//www.sec.gov"
or from the SEC's public reference rooms in Washington, D.C., New York, New York
and Chicago, Illinois. Please call the SEC at 1-800-732-0330 for further
information on the public reference rooms.
113
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
SOPHEON
Report of Independent Auditors.............................. F-2
Consolidated Profit and Loss Accounts for the years ended
December 31, 1997, 1998 and 1999 F-3
Consolidated Statements of Total Recognized Gains and Losses
for the years ended December 31, 1997, 1998 and 1999...... F-4
Consolidated Balance Sheets as of December 31, 1998 and
1999...................................................... F-5
Consolidated Statement of Changes of Shareholders' Funds for
the years ended December 31, 1997, 1998 and 1999.......... F-6
Consolidated Cash Flow Statements for the years ended
December 31, 1997, 1998 and 1999.......................... F-7
Notes to the Consolidated Financial Statements.............. F-8
APPLIEDNET
Report of Independent Auditors.............................. F-32
Consolidated Profit and Loss Accounts for the years ended
September 30, 1999 and 1998............................... F-33
Consolidated Statement of Changes in Shareholders' Funds for
the years ended September 30, 1999 and 1998............... F-34
Consolidated Statements of Cash Flows for the years ended
September 30, 1999 and 1998............................... F-35
Notes to the Financial Statements........................... F-36
TELTECH
Independent Auditors' Report................................ F-44
Report of Independent Accountants........................... F-45
Balance Sheets as of December 31, 1998 and 1999............. F-46
Statements of Operations for the years ended December 31,
1997, 1998 and 1999....................................... F-47
Statements of Stockholders' Deficit for the years ended
December 31, 1997, 1998 and 1999.......................... F-48
Statements of Cash Flows for the years ended December 31,
1997, 1998 and 1999....................................... F-49
Notes to Financial Statements............................... F-50
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors
Sopheon plc
We have audited the accompanying consolidated balance sheets of Sopheon plc
as of December 31, 1999 and 1998, and the related consolidated profit and loss
account and statements of total recognized gains and losses, changes in
shareholders' funds and cash flows for each of the three years in the period
ended December 31, 1999. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with United Kingdom auditing standards
which do not differ in any significant respect from United States generally
accepted auditing standards. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by the 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 consolidated financial statements referred to above
present fairly in all material respects, the consolidated financial position of
Sopheon plc at December 31, 1999 and 1998, and the consolidated results of its
operations and its consolidated cash flows for each of the three years in the
period ended December 31, 1999 in conformity with accounting principles
generally accepted in the United Kingdom which differ in certain respects from
those followed in the United States (see Note 20 of Notes to the Financial
Statements).
ERNST & YOUNG
Reading, England
April 27, 2000, except for
Note 23--Subsequent Events,
as to which the date is
August 8, 2000.
F-2
<PAGE>
SOPHEON PLC
CONSOLIDATED PROFIT AND LOSS ACCOUNT
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------------------------
1999 1998 1997
CONTINUING 1999 1999 (RESTATED) (RESTATED)
NOTES OPERATIONS ACQUISITIONS TOTAL (1) (1)
-------- ---------- ------------ -------- ---------- ----------
(L THOUSAND, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C>
TURNOVER..................................... 2 874 636 1,510 891 241
Cost of sales................................ (676) (307) (983) (608) (709)
------ ---- ------ ------ ------
GROSS PROFIT/(LOSS).......................... 198 329 527 283 (468)
Sales and marketing expenses................. (659) (101) (760) (502) (484)
Administrative expenses...................... (1,225) (574) (1,799) (913) (856)
Other operating income....................... 16 -- 16 29 136
------ ---- ------ ------ ------
OPERATING LOSS............................... 3 (1,670) (346) (2,016) (1,103) (1,672)
Bank interest receivable..................... 62 13 46
Interest payable and similar charges......... (118) (52) (6)
------ ------ ------
LOSS FOR THE YEAR(2)......................... (2,072) (1,142) (1,632)
====== ====== ======
Loss per share--basic and diluted (pence).... 7 (10.1)p (6.1)p (8.7)p
====== ====== ======
</TABLE>
------------------------
(1) Prior year amounts have been restated following the change of accounting
policy to write-off all development expenditure as incurred (see Note 17 of
Notes to the Financial Statements).
(2) A summary of the significant adjustments to net loss for the year that would
be required if United States generally accepted accounting principles were
to be applied instead of those generally accepted in the United Kingdom is
set out in Note 20 of Notes to the Financial Statements.
SEE ACCOMPANYING NOTES.
F-3
<PAGE>
SOPHEON PLC
CONSOLIDATED STATEMENT OF TOTAL RECOGNIZED GAINS AND LOSSES
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------
1998 1997
NOTES 1999 RESTATED RESTATED
-------- -------- -------- --------
(L THOUSAND)
<S> <C> <C> <C> <C>
Loss for the year........................................... (2,072) (1,142) (1,632)
Exchange difference on retranslation of net assets of
subsidiary undertakings................................... (45) 47 (170)
------ ------ ------
Total recognized gains and losses relating to the year...... (2,117) (1,095) (1,802)
Prior year adjustment (1)................................... 17 (373) -- --
------ ------ ------
Total gains and losses...................................... (2,490) (1,095) (1,802)
====== ====== ======
</TABLE>
------------------------
(1) Prior year amounts have been restated following the change of accounting
policy to write-off all development expenditure as incurred (see Note 17 of
Notes to the Financial Statements).
The statement of comprehensive income required under United States generally
accepted accounting principles is set out in Note 20 of Notes to the Financial
Statements.
SEE ACCOMPANYING NOTES.
F-4
<PAGE>
SOPHEON PLC
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1998
NOTES 1999 RESTATED(1)
-------- -------- -----------
(L THOUSAND)
<S> <C> <C> <C>
FIXED ASSETS
Intangible assets........................................... 8 7,605 167
Tangible assets............................................. 9 386 203
------ ------
7,991 370
CURRENT ASSETS
Debtors..................................................... 11 1,362 127
Cash at bank and in hand.................................... 7,751 674
------ ------
9,113 801
CREDITORS: amounts falling due within one year.............. 13 3,570 2,032
------ ------
NET CURRENT ASSETS/(LIABILITIES)............................ 5,543 (1,231)
------ ------
13,534 (861)
TOTAL ASSETS LESS CURRENT LIABILITIES CREDITORS: amounts
falling due after more than one year...................... 14 55 3
------ ------
13,479 (864)
====== ======
CAPITAL AND RESERVES
Called up share capital..................................... 16 4,491 3,773
Shares to be issued......................................... 10 15
Share premium account....................................... 17,960 2,213
Profit and loss account..................................... (8,982) (6,865)
------ ------
Shareholders' funds (all equity interests)(2)............... 13,479 (864)
====== ======
</TABLE>
------------------------
(1) Prior year amounts have been restated following the change of accounting
policy to write-off all development expenditure as incurred (see Note 17 of
Notes to the Financial Statements).
(2) A summary of the significant adjustments to shareholders' funds that would
be required if United States generally accepted accounting principles were
to be applied instead of those generally accepted in the United Kingdom is
set out in Note 20 of Notes to the Financial Statements.
SEE ACCOMPANYING NOTES.
F-5
<PAGE>
SOPHEON PLC
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' FUNDS
<TABLE>
<CAPTION>
NUMBER OF SHARE RETAINED TOTAL
ORDINARY SHARES ORDINARY SHARES TO BE PREMIUM EARNINGS SHAREHOLDERS'
(IN THOUSANDS) SHARES ISSUED ACCOUNT (RESTATED)(1) FUNDS
--------------- --------- ------------ ------------ ------------- -------------
(L THOUSAND)
<S> <C> <C> <C> <C> <C> <C>
AT JANUARY 1, 1997................... 17,190 3,438 1,390 (3,876) 952
Issuance of ordinary shares, net of
issuance costs of L92,000 for
cash............................... 1,525 305 686 991
Share issuance costs................. (92) (92)
Loss for the year.................... (1,632) (1,632)
Exchange differences on retranslation
of net assets and results of
subsidiary undertaking............. (170) (170)
------ ----- -- ------ ------ ------
AT DECEMBER 31, 1997................. 18,715 3,743 0 2,076 (5,770) 49
Issuance of ordinary shares for
cash............................... 99 20 86 106
Issuance of ordinary shares under
share option plans................. 10 2 2
Issuance of ordinary shares on the
acquisition of Lessenger Associates
BV................................. 40 8 51 59
Shares to be issued.................. 15 15
Retained loss for the year........... (1,142) (1,142)
Exchange differences on retranslation
of net assets and results of
subsidiary undertaking............. 47 47
------ ----- -- ------ ------ ------
AT DECEMBER 31, 1998................. 18,864 3,773 15 2,213 (6,865) (864)
Issuance of ordinary shares in
exchange for cash.................. 6,840 393 7,806 8,199
Issuance of ordinary shares under
share option plans................. 25 5 5
Retained loss for the year........... (2,072) (2,072)
Issuance of ordinary shares on
acquisition AppliedNet............. 6,402 320 7,941 8,261
Exchange differences on retranslation
of net assets and results of
subsidiary undertaking............. (45) (45)
Adjustment to Lessenger earn out..... (5) (5)
------ ----- -- ------ ------ ------
AT DECEMBER 31, 1999................. 32,131 4,491 10 17,960 (8,982) 13,479
====== ===== == ====== ====== ======
</TABLE>
------------------------------
(1) Prior year amounts have been restated following the change of accounting
policy to write-off all development expenditure as incurred (see Note 17 of
Notes to the Financial Statements).
SEE ACCOMPANYING NOTES.
F-6
<PAGE>
SOPHEON PLC
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
1998 1997
NOTES 1999 RESTATED(1) RESTATED(1)
-------- -------- ----------- -----------
(L THOUSAND)
<S> <C> <C> <C> <C>
NET CASH OUTFLOW FROM OPERATING ACTIVITIES............... 3 (1,278) (946) (1,654)
RETURN ON INVESTMENTS AND SERVICING OF FINANCE
Interest received........................................ 62 13 46
Interest paid............................................ (116) (50) (4)
Interest element of finance lease rental payments........ (2) (2) (2)
------ ------ ------
(56) (39) 40
CAPITAL EXPENDITURE AND FINANCIAL INVESTMENT
Payments to acquire tangible fixed assets................ (52) (52) (131)
------ ------ ------
ACQUISITIONS AND DISPOSALS
Purchase of subsidiary undertaking....................... (179) (95) --
Net cash acquired with subsidiary undertaking............ 389 2 --
------ ------ ------
210 (93) --
MANAGEMENT OF LIQUID RESOURCES
(Increase)/Decrease in short term deposits............... (6,602) (401) 803
------ ------ ------
NET CASH OUTFLOW BEFORE FINANCING........................ (7,778) (1,531) (942)
FINANCING
Issue of ordinary share capital.......................... 8,265 110 899
New long term loan....................................... 4 1,571 336
Repayment of long term loan.............................. -- (299) --
Repayment of capital element of finance lease............ (16) (12) (19)
------ ------ ------
8,253 1,370 1,216
------ ------ ------
INCREASE/(DECREASE) IN CASH)............................. 475 (161) 274
====== ====== ======
</TABLE>
------------------------
(1) Prior year amounts have been restated following the change of accounting
policy to write-off all development expenditure as incurred (see Note 17 of
Notes to the Financial Statements).
(2) The significant differences between the cash flow statements presented above
and those required under United States generally accepted accounting
principles are described in Note 20 of Notes to the Financial Statements.
SEE ACCOMPANYING NOTES.
F-7
<PAGE>
SOPHEON PLC
NOTES TO THE FINANCIAL STATEMENTS
1. ACCOUNTING POLICIES
ACCOUNTING CONVENTION. The financial statements are prepared under the
historical cost convention and in accordance with applicable United Kingdom
accounting standards.
BASIS OF CONSOLIDATION. The consolidated financial statements include the
results of Sopheon plc (the "Company") and its subsidiary undertakings (together
the "Group"). The results of AppliedNet Limited have been included since the
date of its acquisition, November 22, 1999.
TANGIBLE FIXED ASSETS. Tangible fixed assets are stated at historical cost,
less accumulated depreciation. Tangible fixed assets are depreciated on a
straight line basis at rates ranging from 20% to 33% per annum on cost over
their expected useful lives.
RESEARCH AND DEVELOPMENT. Research and development expenditure is written
off as incurred. The cost of registering patents and trademarks are written off
as incurred. Subsidies received from the European Eureka funding program are
credited to the profit and loss account over the period to which they relate.
PRIOR YEAR ADJUSTMENT. Historically, development expenditure incurred for
specific products was capitalized when its future recoverability could
reasonably have been regarded as assured, and amortized in line with the
expected future sales from the related product, to a maximum of five years.
Following the acquisition of AppliedNet Limited and subsequent harmonization of
group accounting policies, all such expenditure is now written off as incurred.
The effect of changing this policy has been reflected by way of a prior year
adjustment.
GOODWILL. Goodwill arising on consolidation is capitalized and amortized on
a straight line basis over its estimated useful economic life, currently
estimated at three to five years depending on circumstances. Goodwill is
reviewed for impairment at the end of the first full financial year after
acquisition and in other periods if events or changes in circumstances indicate
that carrying values may not be recoverable. If a subsidiary, associate or
business is subsequently sold or closed, any goodwill arising on acquisition
that has not been amortized is taken into account in determining the profit or
loss on sale or closure.
FOREIGN CURRENCIES. The assets and liabilities of the subsidiary
undertakings are translated at the rates of exchange ruling at the balance sheet
date. The profit and loss accounts are translated at the average rates of
exchange. The exchange differences arising on the re-translation of opening net
assets are taken directly to reserves. All other differences are taken to the
profit and loss account.
LONG TERM CONTRACTS. Profit on long term contracts is taken as the work is
carried out if the outcome can be assessed with reasonable certainty. The profit
included is calculated on a prudent basis to reflect the proportion of the work
carried out at the year end, by recording turnover and related costs as contract
activity progresses. Turnover is calculated as that proportion of total contract
value which costs incurred to date bear to total expected costs for that
contract. Revenues derived from variations on contracts are recognized only when
the customer has accepted them. Full provision is made for losses on all
contracts in the year in which they are first foreseen.
PENSIONS. Sopheon contributes to the personal pension arrangements of
certain employees, the costs of which are charged in the profit and loss account
as incurred.
F-8
<PAGE>
SOPHEON PLC
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
1. ACCOUNTING POLICIES (CONTINUED)
LEASING. Assets held under finance leases, which are leases where
substantially all risks and rewards of ownership of the assets have passed to
the Group are capitalized in the balance sheet and are depreciated over their
useful lives. The capital elements of future obligations under financial leases
are included as liabilities in the balance sheet. The interest element of the
rental obligations are charged to the profit and loss account over the period of
the lease and represent a constant proportion of the balance of capital
repayments outstanding. Rentals payable under operation leases are charged in
the profit and loss account on a straight line basis over the lease term.
CONCENTRATIONS OF CREDIT RISK. Financial instruments that potentially
subject the Company to concentrations of credit risk consist principally of
investments in cash equivalents and receivables from customers. The Company
invests its cash and cash equivalents with high-credit quality financial
institutions. The Company is exposed to credit risk in the event of default by
those financial institutions to the extent of the amount recorded on the balance
sheet. The Company performs ongoing credit evaluations of its customers and
generally does not require collateral. The Company maintains reserves for
potential credit losses, and such losses have been within management's
expectations.
USE OF ESTIMATES. The preparation of financial statements in conformity
with accounting principles generally accepted in the United Kingdom and United
States requires management to make estimates and assumptions. These estimates
and assumptions affect the reported amounts of assets and liabilities, the
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
2. TURNOVER AND SEGMENTAL INFORMATION
Turnover (excluding value added tax) represents the amounts derived from the
Group's principal activity which comprises the design, development, production
and marketing of knowledge management software products together with associated
implementation services. It operates within three geographical markets, the
United Kingdom, the Netherlands and the United States of America.
ANALYSIS OF TURNOVER BY GEOGRAPHICAL DESTINATION
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31
------------------------------
1999 1998 1997
-------- -------- --------
(L THOUSAND)
<S> <C> <C> <C>
United Kingdom............................................ 693 166 111
The Netherlands........................................... 777 722 93
United States of America.................................. 40 3 37
----- --- ---
1,510 891 241
===== === ===
</TABLE>
F-9
<PAGE>
SOPHEON PLC
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
2. TURNOVER AND SEGMENTAL INFORMATION (CONTINUED)
ANALYSIS OF TURNOVER AND OPERATING LOSS BY GEOGRAPHICAL ORIGIN
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
-------------------------------------------------------------------
OPERATING LOSS
---------------------------------- TURNOVER
1998 1997 ------------------------------
1999 (RESTATED) (RESTATED) 1999 1998 1997
-------- ---------- ---------- -------- -------- --------
(L THOUSAND)
<S> <C> <C> <C> <C> <C> <C>
United Kingdom......................... 346 -- -- 636 -- --
The Netherlands........................ 1,414 1,103 1,672 874 891 241
United States of America............... 256 -- -- -- -- --
----- ----- ----- ----- --- ---
2,016 1,103 1,672 1,510 891 241
===== ===== ===== ===== === ===
</TABLE>
Customers accounting for greater than 10% of revenue were as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------
CUSTOMER 1999 1998 1997
-------- -------- -------- --------
<S> <C> <C> <C>
A................................................... -- -- 35%
B................................................... -- -- 10%
C................................................... -- -- 16%
D................................................... -- 17% --
E................................................... 37% 64% --
F................................................... 15% -- --
G................................................... 13% -- --
</TABLE>
ANALYSIS OF NET ASSETS/(LIABILITIES) BY GEOGRAPHICAL ORIGIN
<TABLE>
<CAPTION>
1999 1998 1997
(RESTATED) (RESTATED) (RESTATED)
---------- ---------- ----------
(L THOUSAND)
<S> <C> <C> <C>
United Kingdom................................. 8,054 -- --
The Netherlands................................ 89 707 49
United States of America....................... (76) -- --
Unallocated cash and loans at Group level...... 5,412 (1,571) --
------ ------ --------
13,479 (864) 49
====== ====== ========
</TABLE>
ANALYSIS OF LONG LIVED ASSETS BY GEOGRAPHICAL ORIGIN
<TABLE>
<CAPTION>
1998
1999 RESTATED 1997
-------- -------- --------
(L THOUSAND)
<S> <C> <C> <C>
United Kingdom......................................... 7,668 -- --
The Netherlands........................................ 323 370 223
----- --- ---
7,991 370 223
===== === ===
</TABLE>
F-10
<PAGE>
SOPHEON PLC
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
3. OPERATING LOSS
(a) This is stated after charging/(crediting):
<TABLE>
<CAPTION>
1999 1998 1997
-------- -------- --------
(L THOUSAND)
<S> <C> <C> <C>
Auditors' remuneration--audit services................... 34 20 26
Auditors' remuneration--non audit services............... 13 3 --
Research and development expenditure written off......... 878 815 578
Eureka subsidies......................................... (315) (304) (162)
Foreign exchange gains/(losses).......................... 16 (29) (136)
Depreciation of owned assets............................. 74 63 60
Depreciation of assets held under finance leases......... 9 9 7
Operating lease rentals--land and buildings.............. 103 94 67
Operating lease rentals--motor vehicles.................. 84 79 83
==== ==== ====
</TABLE>
During 1999 L64,000 was charged by the auditors in respect of work
associated with due diligence and fund raising which has been capitalized or
written off to share premium as appropriate.
The 1998 and 1997 results have been restated to reflect the prior year
adjustment described in note 17, whereby development costs that have been
capitalized and amortized in the past are now written off as they arise. The
results have also been restated whereby certain costs, mainly relating to
internal research and development activities, have been reallocated from cost of
sales to administration costs. Both of these changes were undertaken to bring
accounting policies and disclosures into line on a Group basis following the
acquisition of AppliedNet Limited. Finally, in the 1998 and 1997 financial
statements, amounts disclosed as research and development costs written off
included cost of sales items relating to customer led projects that were
developmental in nature. The disclosures above exclude these costs.
Had the same allocation of costs been used, and had the prior year
adjustment not been recorded, consolidated research and development costs would
have been reported as L1,391,000 (1998--L1,197,000 1997--L1,155,000) and
consolidated cost of sales would have been reported as L1,383,000
(1998--L892,000 1997--L993,000).
RECONCILIATION OF OPERATING LOSS TO NET CASH OUTFLOW FROM OPERATING ACTIVITIES
<TABLE>
<CAPTION>
1999 1998 1997
-------- -------- --------
(L THOUSAND)
<S> <C> <C> <C>
Operating loss....................................... (2,016) (1,103) (1,672)
Depreciation......................................... 83 72 60
Amortisation......................................... 323 -- --
Intangible fixed assets written off.................. -- -- 9
Loss on disposal tangible fixed assets............... -- -- 8
Decrease in debtors.................................. (338) 9 107
Increase in creditors and provisions................. 715 30 7
Exchange movements................................... (45) 46 (173)
------ ------ ------
Net cash outflow from operating activities........... (1,278) (946) (1,654)
====== ====== ======
</TABLE>
F-11
<PAGE>
SOPHEON PLC
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
4. STAFF COSTS
<TABLE>
<CAPTION>
1999 1998 1997
-------- -------- --------
(L THOUSAND)
<S> <C> <C> <C>
Wages and salaries........................................ 1,231 857 923
Social security costs..................................... 124 74 40
Other pension costs....................................... 42 29 23
----- --- ---
1,397 960 986
===== === ===
</TABLE>
The fees and emoluments of all directors were as follows:
<TABLE>
<CAPTION>
1999 1998 1997
-------- -------- --------
(L THOUSAND)
<S> <C> <C> <C>
Fees....................................................... 24 19 18
Other emoluments........................................... 25 29 29
Salary..................................................... 235 238 243
Benefits................................................... 49 47 46
Pension contributions...................................... 15 15 15
--- --- ---
348 348 351
=== === ===
</TABLE>
Pension contributions are to personal defined contribution schemes and are
made for six directors. The emoluments of the highest paid director were as
follows:
<TABLE>
<CAPTION>
1999 1998 1997
-------- -------- --------
(L THOUSAND)
<S> <C> <C> <C>
Basic Salary............................................... 78 79 81
Benefits................................................... 16 16 15
Pension contributions to defined contribution scheme....... 7 7 7
--- --- ---
Total...................................................... 101 102 103
=== === ===
</TABLE>
The average monthly number of employees during the year was made up as
follows:
<TABLE>
<CAPTION>
1999 1998 1997
NUMBER NUMBER NUMBER
-------- -------- --------
<S> <C> <C> <C>
Development and operations.......................... 26 21 21
Sales and management................................ 14 10 9
-- -- --
40 31 30
== == ==
</TABLE>
5. INTEREST PAYABLE AND SIMILAR CHARGES
<TABLE>
<CAPTION>
1999 1998 1997
-------- -------- --------
(L THOUSAND)
<S> <C> <C> <C>
Bank loans and overdrafts.................................. 39 16 4
Convertible loan stock..................................... 78 34 --
Finance charges on finance leases.......................... 1 2 2
--- -- --------
118 52 6
=== == ========
</TABLE>
F-12
<PAGE>
SOPHEON PLC
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
6. TAXATION
There was no tax charge for 1999, 1998 or 1997. Tax losses are available for
carry forward by the Group the amount of which is under discussion with the
relevant authorities in the UK and the Netherlands. In accordance with the
Group's policy no provision has been made for the potential deferred tax asset
on these losses. The Company's effective tax rate of 0% for each of the three
years in the period ended December 31, 1999 differs from the UK statutory rate
of 30% for the year ended December 31, 1999 (1998--31%, 1997--31%) due to the
operating losses incurred by the Company in each of these years.
7. LOSS PER ORDINARY SHARE
The calculation of basic loss per ordinary share is based on a loss of
L2,072,000 (1998--L1,142,000 as restated, 1997--L1,632,000, as restated), and
20,565,985 (1998--18,730,633, 1997--18,652,691) ordinary shares, being the
weighted average number of ordinary shares in issue during the year.
The effect of all potential ordinary shares is antidilutive in 1999, 1998
and 1997.
The effect of the restatement of the results for the years ended
December 31, 1998 and 1997 was to increase the loss per share by (0.9)p and
(0.5)p per share respectively.
The historic earnings per share calculations are not affected by the
restructuring of share capital described in note 16 below because the total
number of ordinary shares in issue did not change as a result of the
restructuring.
8. INTANGIBLE FIXED ASSETS
YEAR ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
DEVELOPMENT
GOODWILL COSTS TOTAL
-------- ----------- --------
(L THOUSAND)
<S> <C> <C> <C>
COST
At January 1, 1998................................ -- 214 214
Exchange adjustments.............................. -- 25 25
Additions......................................... 167 227 394
--- ---- ----
At December 31, 1998.............................. 167 466 633
--- ---- ----
AMORTIZATION
At January 1, 1998................................ -- 22 22
Exchange adjustments.............................. -- 5 5
Provided during the year.......................... -- 66 66
--- ---- ----
-- 93 93
--- ---- ----
NET BOOK VALUE
At December 31, 1998.............................. 167 373 540
Prior year adjustment............................. -- (373) (373)
--- ---- ----
At December 31, 1998 (restated)................... 167 -- 167
=== ==== ====
</TABLE>
F-13
<PAGE>
SOPHEON PLC
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
8. INTANGIBLE FIXED ASSETS (CONTINUED)
YEAR ENDED DECEMBER 31, 1999
<TABLE>
<CAPTION>
DEVELOPMENT
GOODWILL COSTS TOTAL
-------- ----------- --------
(L THOUSAND)
<S> <C> <C> <C>
COST
At January 1, 1999............................... 167 466 633
Prior year adjustment............................ -- (466) (466)
Adjustment....................................... (5) -- (5)
Additions........................................ 7,766 -- 7,766
----- ---- -----
At December 31, 1999............................. 7,928 -- 7,928
----- ---- -----
AMORTIZATION
At January 1, 1999............................... -- 93 93
Prior year adjustment............................ -- (93) (93)
Provided during the year......................... 323 -- 323
----- ---- -----
At December 31, 1999............................. 323 -- 323
----- ---- -----
NET BOOK VALUE
At 31 December 1999.............................. 7,605 -- 7,605
===== ==== =====
</TABLE>
The prior year adjustment is discussed in note 17. The other adjustment
represents reduction in contingent consideration payable for Lessenger
Associates BV as described in note 10.
9. TANGIBLE FIXED ASSETS
YEAR ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
FURNITURE &
EQUIPMENT FITTINGS TOTAL
--------- ----------- --------
(L THOUSAND)
<S> <C> <C> <C>
COST
At January 1, 1998............................... 227 110 337
Exchange adjustments............................. 17 7 24
Additions........................................ 38 -- 38
--- --- ---
At December 31, 1998............................. 282 117 399
--- --- ---
DEPRECIATION
At January 1, 1998............................... 92 22 114
Exchange adjustments............................. 7 3 10
Provided during the year......................... 50 22 72
--- --- ---
At December 31, 1998............................. 149 47 196
--- --- ---
NET BOOK VALUE
At December 31, 1998............................. 133 70 203
=== === ===
</TABLE>
F-14
<PAGE>
SOPHEON PLC
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
9. TANGIBLE FIXED ASSETS (CONTINUED)
YEAR ENDED DECEMBER 31, 1999
<TABLE>
<CAPTION>
FURNITURE &
EQUIPMENT FITTINGS TOTAL
--------- ----------- --------
(L THOUSAND)
<S> <C> <C> <C>
COST
At January 1, 1999............................... 282 117 399
Exchange adjustments............................. (32) (13) (45)
Acquired with subsidiary undertaking............. 324 58 382
Additions........................................ 69 2 71
--- --- ---
At December 31, 1999............................. 643 164 807
--- --- ---
DEPRECIATION
At January 1, 1999............................... 149 47 196
Exchange adjustments............................. (20) (6) (26)
Acquired with subsidiary undertaking............. 158 11 169
Provided during the year......................... 57 25 82
--- --- ---
At December 31, 1999............................. 344 77 421
--- --- ---
NET BOOK VALUE
At December 31, 1999............................. 299 87 386
=== === ===
</TABLE>
The net book value of furniture and fittings above includes an amount of
L18,000 (1998: L27,000) in respect of assets held under finance leases.
Amortization of fixed assets held under finance leases is included in
deprecation expense. Other than those held under finances leases, fixed assets
are free and unencumbered.
10. BUSINESS COMBINATIONS
The Group acquired Lessenger Associates BV in 1998 for consideration of
L168,000, satisfied by payment of cash of L95,000, and by the issue of 40,000
ordinary shares. Also included in the consideration were 10,000 shares to be
issued at L1.46 contingent on certain conditions based on 1999 performance. At
the time of the acquisition management expectations were that these conditions
would be met and accordingly the full amount of contingent consideration was
included in the recorded acquisition cost. However, at the time the conditions
were tested to resolve the contingency, the conditions had not been met in full
and only 7,114 shares are required to be issued, reducing the contingent
consideration to L10,000 from the L15,000 originally recorded. This acquisition
has been accounted for using the acquisition method of accounting.
F-15
<PAGE>
SOPHEON PLC
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
10. BUSINESS COMBINATIONS (CONTINUED)
ANALYSIS OF THE ACQUISITION OF LESSENGER ASSOCIATES BV:
<TABLE>
<CAPTION>
BOOK AND
FAIR VALUE
------------
(L THOUSAND)
<S> <C>
Debtors..................................................... 32
Cash........................................................ 2
---
34
Creditors falling due within one year....................... 33
---
Net assets.................................................. 1
Goodwill arising on acquisition............................. 167
---
168
===
Discharged by:
Fair value.................................................. 58
Shares to be issued......................................... 15
Cash........................................................ 95
---
168
===
</TABLE>
Lessenger Associates BV made a loss after tax of L1,000 in the year ended
December 31, 1998 (1997: L700). There was a profit of L2,500 in the period
January 1, 1998 to December 3, 1998.
Pro forma results of operation if the acquisition of Lessinger Associates BV
had occurred at the beginning of 1997 have not been presented, as the pro forma
adjustments would not be significant.
On November 22, 1999 the Group completed the acquisition of AppliedNet
Limited (renamed Sopheon UK Limited) for consideration of 6,402,961 ordinary
shares of Sopheon plc in respect of the entire ordinary share capital of
AppliedNet and cash of L11,000 in respect of its entire preference share
capital, as well as attributed costs of L168,000. The market value of Sopheon
plc's ordinary shares on October 27, 1999, the date the acquisition became
unconditional, was 129p. Accordingly, the total cost recorded in respect of the
acquisition was L8,439,000.
F-16
<PAGE>
SOPHEON PLC
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
10. BUSINESS COMBINATIONS (CONTINUED)
ANALYSIS OF THE ACQUISITION OF APPLIEDNET LIMITED
<TABLE>
<CAPTION>
BOOK AND
FAIR VALUE
------------
(L THOUSAND)
<S> <C>
Tangible fixed assets....................................... 213
Debtors..................................................... 899
Cash........................................................ 389
-----
1,501
Creditors falling due within one year....................... (826)
Creditors falling due in more than one year................. (2)
-----
Net assets.................................................. 673
Goodwill arising on acquisition............................. 7,766
-----
8,439
=====
Discharged by:
Fair value of shares issued................................. 8,260
Attributable costs.......................................... 168
Cash........................................................ 11
-----
8,439
=====
</TABLE>
In the view of the directors there were no fair value adjustments required.
AppliedNet Limited had a loss before tax of L1,008,000 in the year ended
September 30, 1999 (year ended September 30, 1998 profit before tax of
L208,000). There was turnover of L2,693,000 and a loss before and after tax of
L1,002,000 in the period October 1, 1998 to November 22, 1999. There were no
recognized gains and losses other than the loss for the period. This acquisition
has been accounted for using the acquisition method of accounting.
The pro-forma results of operations if the acquisition of Applied Net had
occurred at the beginning of the periods presented are as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
-----------------------
1999 1998
---------- ----------
(L THOUSAND, EXCEPT PER
SHARE DATA)
<S> <C> <C>
Turnover............................................. 3,728 2,528
Net Loss............................................. (5,263) (3,531)
Loss per share....................................... (16.2)p (11.1)p
Shares used in per share calculation................. 32,393,699 31,902,961
</TABLE>
F-17
<PAGE>
SOPHEON PLC
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
11. DEBTORS
<TABLE>
<CAPTION>
1999 1998
-------- --------
(L THOUSAND)
<S> <C> <C>
Trade debtors............................................... 1,104 85
Other debtors............................................... 86 --
Prepayments and accrued income.............................. 172 42
----- ---
1,362 127
===== ===
</TABLE>
12. NOTES TO STATEMENT OF CASH FLOWS
(a) Reconciliation of net cash flow to movement in net funds.
<TABLE>
<CAPTION>
1999 1998 1997
-------- -------- --------
(L THOUSAND)
<S> <C> <C> <C>
(Decrease)/increase in cash............................ 475 (161) 274
Repayment of long term loans........................... 4 299 (336)
New loans.............................................. (8) -- --
Cash inflow from increase in debt...................... -- (1,571) --
Repayments of capital elements of finance leases....... 16 12 19
Cash inflow/(outflow) from change in liquid
resources............................................ 6,602 401 (803)
----- ------ ----
Change in net debt resulting from cash flows........... 7,089 (1,020) (846)
Loans and finance leases acquired with subsidiary...... (92) -- --
Other.................................................. -- -- (14)
----- ------ ----
Movement in net funds/(debt)........................... 6,997 (1,020) (860)
Net funds/(debt) at January 1.......................... (917) 103 963
----- ------ ----
Net funds/(debt) at December 31........................ 6,080 (917) 103
===== ====== ====
</TABLE>
F-18
<PAGE>
SOPHEON PLC
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
12. NOTES TO STATEMENT OF CASH FLOWS (CONTINUED)
(b) Analysis of changes in net funds
<TABLE>
<CAPTION>
SHORT TERM
CASH DEPOSITS/LIQUID CONVERTIBLE FINANCE
AT BANK RESOURCES* TERM LOANS LOAN STOCK LEASES TOTAL
-------- --------------- ------------ ----------- -------- --------
(L THOUSAND)
<S> <C> <C> <C> <C> <C> <C>
At January 1, 1997....................... 159 804 -- -- -- 963
Cashflow................................. 274 (803) (299) -- 19 (809)
Other non-cash movements................. -- -- -- -- (51) (51)
---- ----- ---- ------ --- ------
At December 31, 1997..................... 433 1 (299) -- (32) 103
Cashflow................................. (161) 401 299 (1,571) 12 (1,020)
---- ----- ---- ------ --- ------
At December 31, 1998..................... 272 402 -- (1,571) (20) (917)
Cashflow................................. 475 6,602 (4) -- 16 7,089
Acquisitions............................. -- (86) -- (6) (91)
---- ----- ---- ------ --- ------
At December 31, 1999..................... 747 7,004 (90) (1,571) (10) 6,080
==== ===== ==== ====== === ======
</TABLE>
------------------------
* Short term deposits/liquid resources are included within cash at bank and in
hand on the balance sheet.
13. CREDITORS: AMOUNTS FALLING DUE WITHIN ONE YEAR:
<TABLE>
<CAPTION>
1999 1998
-------- --------
(L THOUSAND)
<S> <C> <C>
Convertible loan stock 5%................................... 1,571 1,571
Current instalments due on bank loan........................ 28 --
Obligations under finance leases............................ 8 17
Trade creditors............................................. 619 306
Other taxes and social security costs....................... 241 25
Accruals and deferred income................................ 708 113
Other creditors............................................. 395 --
----- -----
3,570 2,032
===== =====
</TABLE>
The convertible loan stock carries an interest rate of 5% and was issued to
the Company's three largest shareholders on July 31, 1998. It was repayable or
convertible into ordinary shares at a conversion price of L1.46 on July 31,
1999, at the option of the loan stockholders. On April 12, 1999, the repayment
or conversion option was extended by the loan stockholders to July 31, 2000.
Interest on the convertible loan stock is payable on June 30 and December 31. On
July 31, 2000 the convertible loan stock was converted in full, resulting in
1,075,971 ordinary shares of 5p each being issued.
F-19
<PAGE>
SOPHEON PLC
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
14. CREDITORS: AMOUNTS FALLING DUE AFTER MORE THAN ONE YEAR:
<TABLE>
<CAPTION>
1999 1998
-------- --------
(L THOUSAND)
<S> <C> <C>
Obligations under finance leases............................ 1 3
Bank loan................................................... 54 --
-- --------
55 3
== ========
</TABLE>
The bank loan is a United Kingdom asset purchase facility at an implicit
rate of 8.8% and is repayable in 36 equal installments from October 31, 1999.
15. OBLIGATIONS UNDER LEASES
Amounts due under finance leases and hire purchase contracts:
<TABLE>
<CAPTION>
1999 1998
-------- --------
(L THOUSAND)
<S> <C> <C>
Amounts payable:
Within one year............................................. 8 17
In two to five years........................................ 1 4
-------- --
9 21
Less finance charges allocated to future periods............ -- 1
-------- --
9 20
======== ==
</TABLE>
At December 31, 1998 and 1999 the Group had annual commitments under
operating leases as set out below:
<TABLE>
<CAPTION>
LAND & LAND &
OTHER BUILDINGS OTHER BUILDINGS
1999 1999 1998 1998
-------- --------- -------- ---------
(L THOUSAND)
<S> <C> <C> <C> <C>
Operating leases which expire:
within one year.............................. 64 176 26 --
in two to five years......................... 97 51 63 100
--- --- -- ---
Totals....................................... 161 227 89 100
=== === == ===
</TABLE>
Total commitments under non-cancelable operating leases at December 31, 1999
are as follows:
<TABLE>
<CAPTION>
(L THOUSAND)
------------
<S> <C>
Due in fiscal:
2000...................................................... 329
2001...................................................... 148
2002...................................................... 65
2003...................................................... 5
---
Net operating lease commitments............................. 547
===
</TABLE>
F-20
<PAGE>
SOPHEON PLC
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
16. SHARE CAPITAL
<TABLE>
<CAPTION>
1999 1999 1998 1998
NUMBER L NUMBER L
AUTHORIZED ---------- --------- ---------- ---------
<S> <C> <C> <C> <C>
Ordinary shares of 20p each..................... -- -- 30,000,000 6,000,000
Ordinary shares of 5p each...................... 42,902,961 6,645,148 -- --
Deferred shares of 15p each..................... 19,228,885 2,884,333 -- --
========== ========= ========== =========
</TABLE>
<TABLE>
<CAPTION>
1999 1999 1998 1998
NUMBER L NUMBER L
ALLOTTED, CALLED UP AND FULLY PAID ---------- --------- ---------- ---------
<S> <C> <C> <C> <C>
Ordinary shares of 20p each..................... -- -- 18,863,885 3,772,777
Ordinary shares of 5p each...................... 32,131,846 1,606,592 -- --
Deferred shares of 15p each..................... 19,228,885 2,884,333 -- --
---------- --------- ---------- ---------
51,360,731 4,490,925 18,863,885 3,772,777
========== ========= ========== =========
</TABLE>
On October 15, 1998, 30,000 ordinary shares were issued for cash at 20p
each. On October 20, 1998 10,000 ordinary shares were allotted for cash to an
exercising holder of share options at 20p each. On December 9, 1998 68,500
ordinary shares of 20p each were issued at L1.46 for cash and a further 40,000
ordinary shares of 20p each were issued at L1.46 as part consideration for the
acquisition of Lessenger Associates BV. As described in note 11 a further 7,114
ordinary shares will be issued to the vendors of Lessenger Associates BV in
connection with a contingent consideration arrangement.
An Extraordinary General Meeting of the Company held on July 28, 1998,
approved the subscription of each of B K Mence, NPM Capital NV and Brandon
Limited, of L523,640 5% Convertible Loan Stock at par the conversion terms of
which are described in note 13, as well as the award of 300,000 Warrants each.
The Warrants did not attract any consideration. Each Warrant entitles the holder
to subscribe on or before December 31, 2000, for the one ordinary share of L1.46
per share. If not exercised by that date the Warrants lapse.
On January 20, 1999 5,000 ordinary shares were issued for cash to an
exercising holder of share options at 20p each. On March 10, 1999 340,000
ordinary shares were issued to institutions for cash at a price of L1.47 per
share. On April 28, 1999 20,000 ordinary shares were issued for cash to an
exercising holder of share options at 20p each.
On November 22, 1999 in an Extraordinary General Meeting of the Shareholders
the share capital of Sopheon plc was restructured such that each ordinary share
of 20p was converted into one ordinary share of 5p and one deferred share of
15p. The deferred shares carry no rights as to dividend, voting or return of
capital on liquidation, and are not listed on any exchange. The number of
ordinary shares in issue did not change as a consequence of the restructuring.
Similarly, the number, exercise price and other terms of any share options over
ordinary shares of 20p each remained unchanged as a consequence of the
restructuring.
On the same date 6,500,000 ordinary shares were placed with institutions at
a price of 125p per ordinary share, realizing net proceeds after attributed
costs of L7,699,000. Furthermore as referred to in note 10, 6,402,961 ordinary
shares were issued as consideration for the acquisition of 100% of the ordinary
share capital of AppliedNet Limited, at a price of 129p per ordinary share.
F-21
<PAGE>
SOPHEON PLC
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
16. SHARE CAPITAL (CONTINUED)
SHARE OPTION SCHEME
The directors have specified a maximum of 5% of ordinary shares over which
options could be granted under any employee share option scheme. Share options
are granted by the Board of directors on a discretionary basis under the terms
of various schemes as summarized below.
On August 28, 1996 the directors adopted, and the Company in general meeting
approved, a share option scheme to provide for the grant to certain directors
and employees of PolyDoc NV of options over ordinary shares in exchange for the
surrender by such directors and employees of their existing options over shares
in PolyDoc NV. The scheme also provided for the grant by the Company of
subsequent new options over ordinary shares to employees of the Group. On the
same date the directors adopted, and the Company in general meeting approved, an
executive share option scheme in a form approved by the Inland Revenue.
Since the establishment of the schemes several option grants have been made.
None of the grants have been made under the Inland Revenue approved scheme.
However in the majority of cases the rights of the options granted have been
consistent with the rights they would have had under that scheme. Vesting of
options is determined by the Board of directors. Of the options outstanding at
the year end, the majority vest 100% on the third anniversary of the grant date.
The remainder either become immediately exercisable on grant or vest equally on
each of the first four anniversaries of the grant date. Options are granted for
a maximum term of 10 years.
Pursuant to the acquisition of AppliedNet Limited, all options granted under
the AppliedNet unapproved share option scheme were released in exchange for the
grant of new options over shares in Sopheon plc. The new options are subject to
the rules of the original AppliedNet scheme.
Movements in options outstanding for the three years ending December 31,
1999 are as follows:
<TABLE>
<CAPTION>
NUMBER OF WEIGHTED AVERAGE
SHARES EXERCISE PRICE
--------- ----------------
L
<S> <C> <C>
Outstanding at January 1, 1997..................... 790,000 0.25
Granted............................................ 71,000 1.02
Lapsed............................................. (50,000) 0.2
---------
Outstanding at December 31, 1997................... 811,000 0.32
Granted............................................ 69,000 1.7
Lapsed............................................. (80,000) 0.7
---------
Outstanding at December 31, 1998................... 800,000 0.4
Granted............................................ 752,447 0.85
Lapsed............................................. (42,500) 0.7
---------
Outstanding at December 31, 1999................... 1,509,947 0.62
=========
</TABLE>
F-22
<PAGE>
SOPHEON PLC
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
16. SHARE CAPITAL (CONTINUED)
The following table summarizes options outstanding at December 31, 1999:
<TABLE>
<CAPTION>
OUTSTANDING OPTIONS
------------------------------------------------------ EXERCISABLE OPTIONS
WEIGHTED -----------------------------------
NUMBER OF AVERAGE WEIGHTED NUMBER OF
RANGE OF EXERCISE SHARES CONTRACTUAL LIFE AVERAGE SHARES WEIGHTED AVERAGE
PRICES (L) (IN THOUSANDS) (IN YEARS) EXERCISE PRICE (L) (IN THOUSANDS) EXERCISE PRICE (L)
------------------------------ -------------- ---------------- ------------------ -------------- ------------------
<S> <C> <C> <C> <C> <C>
0.086 - 0.2................... 965,217 3.85 0.164 660,000 0.2
0.87 - 0.9.................... 97,230 8.43 0.875 -- --
1.415 - 1.975................. 447,500 7.20 1.538 111,500 1.558
--------- -------
1,509,947 5.17 0.620 771,500 0.396
</TABLE>
These options will expire if not exercised by specific dates ranging from
July 2001 to November 2009.
17. PRIOR YEAR ADJUSTMENT
Historically, development expenditure incurred for specific products was
capitalized when its future recoverability could reasonably have been regarded
as assured, and amortized in line with the expected future sales from the
related product, to a maximum of five years. Following the acquisition of
AppliedNet Limited and subsequent harmonization of group accounting policies,
all such expenditure is now written off as incurred. The effect of changing this
policy has been reflected by way of a prior year adjustment to the 1998
financial statements of the Group, and has required a one off adjustment of
L373,000 being a net debit to reserves.
18. DERIVATIVES AND OTHER FINANCIAL INSTRUMENTS
INTEREST RATE RISK PROFILE OF FINANCIAL LIABILITIES. Excluding the
Convertible Loan Stock which bears a fixed rate of 5% on a nominal value of
L1,570,920, the financial liabilities of the Group at each year end are set out
below.
<TABLE>
<CAPTION>
1999 1998
-------- --------
(L THOUSAND)
<S> <C> <C>
Fixed rate loans and overdrafts--Sterling................... 82 --
Fixed rate loans and leases--Dutch Guilder.................. 9 20
-- --------
91 20
== ========
</TABLE>
These financial liabilities bear interest rates that are based on local bank
rates.
F-23
<PAGE>
SOPHEON PLC
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
18. DERIVATIVES AND OTHER FINANCIAL INSTRUMENTS (CONTINUED)
INTEREST RATE RISK PROFILE OF FINANCIAL ASSETS. The financial assets of the
Group at each year end comprise cash or cash deposits on money market deposit at
call and monthly rates. The amounts were as follows
<TABLE>
<CAPTION>
1999 1998
-------- --------
(L THOUSAND)
<S> <C> <C>
FLOATING RATE
Sterling.................................................... 7,004 --
Dutch Guilder............................................... -- 379
----- ---
7,004 379
NON-INTEREST BEARING
Sterling.................................................... 496 95
US Dollar................................................... 97 --
Dutch Guilder............................................... 154 200
----- ---
747 295
----- ---
Total financial assets...................................... 7,751 674
===== ===
</TABLE>
CURRENCY EXPOSURES. The table below shows the Group's transactional
currency exposures that give rise to the net currency gains and losses
recognized in the profit and loss account. Such exposures comprise the monetary
assets and monetary liabilities of the Group that are not denominated in the
operating currency of the operating unit involved. For these purposes the
functional currency is sterling.
<TABLE>
<CAPTION>
NET FOREIGN CURRENCY MONETARY ASSETS
-----------------------------------------------
OTHER
US DOLLAR DUTCH GUILDER CURRENCY TOTAL
--------- ------------- -------- --------
<S> <C> <C> <C> <C>
1998 Sterling.......................... -- 379 -- 379
1999 Sterling.......................... 97 -- -- 97
======== === ======== ===
</TABLE>
MATURITY OF FINANCIAL LIABILITIES. The maturity profile of the Group's
financial liabilities at each relevant period or year end was as set out in
Note 15.
BORROWING FACILITIES. The Group had no undrawn committed facilities
available at each relevant period or year end apart from overdraft facilities.
FAIR VALUES OF FINANCIAL ASSETS AND LIABILITIES. The fair values of
financial assets and liabilities are set out below. Finance leases are included
in the analysis of long term borrowings. The directors consider that there were
no material differences between the book values and fair values of all the
Group's financial assets and liabilities at each year and period end due to
their short term to maturity.
<TABLE>
<CAPTION>
BOOK VALUE
-------------------
1999 1998
-------- --------
(L THOUSAND)
<S> <C> <C>
Cash convertible and short term deposits.................... 7,751 674
Convertible loan stock...................................... 1,571 1,571
Current portion of long term borrowings..................... (136) (17)
Long term borrowings........................................ (55) (3)
===== =====
</TABLE>
F-24
<PAGE>
SOPHEON PLC
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
18. DERIVATIVES AND OTHER FINANCIAL INSTRUMENTS (CONTINUED)
During the periods covered by the financial statements, the Company has not
used any derivative instruments.
19. CONTINGENT LIABILITIES
In accordance with Article 403, Paragraph 1, Subsection b, Book 2 of the
Dutch Civil Code (B.W.), Sopheon plc guarantees the liabilities of Sopheon NV
and agrees with the departure from the regulations in Title 9 Book 2 of the
Dutch Civil Code (B.W.), that prescribes the submission of the accounts of
Sopheon NV to the Trade Register in Holland. As a consequence Sopheon NV need
not file its accounts at the Trade Register.
20. DIFFERENCES BETWEEN UNITED KINGDOM AND UNITED STATES GENERALLY ACCEPTED
ACCOUNTING PRINCIPLES
The financial statements of Sopheon are prepared in accordance with
accounting principles generally accepted in the United Kingdom ('UK GAAP') which
differ in certain respects from those generally accepted in the United States
('US GAAP'). The significant differences applicable to Sopheon Plc are described
below.
EQUITY INSTRUMENTS ISSUED IN EXCHANGE FOR SERVICES. Under UK GAAP, the
value of equity instruments issued in exchange for services and debt are valued
at their intrinsic value determined at the date those instruments are issued.
Under US GAAP, the value of such equity instruments is their fair value,
measured at the earlier of (i) the date at which a commitment for performance by
the counterparty to earn the equity instrument is reached; or (ii) the date at
which the counterparty performance is complete. Under US GAAP additional charges
of L126,000 would have arisen in connection with equity instruments issued by
the Company in exchange for marketing services during the year ended
December 31, 1999. The marketing services were provided in phases which were
reflected in the agreement to issue equity instruments. The first phase was from
March 30, 1999 through July 30, 1999 and the second phase was from August 1,
1999 through March 30, 2000. The measurement dates used for each phase in
respect of the financial statements to December 31, 1999 were July 30, 1999 and
December 31, 1999, respectively. The fair market value of the instrument was
calculated using a Black Scholes model. The market value of the underlying
ordinary shares at each of these dates, used in the computation of fair value
for the purposes of the valuation, were 145p and 345p respectively. Other
assumptions used were an expected life of 2.5 years, a risk free rate of
interest of 5% and a volatility of 35%.
CONVERTIBLE LOAN STOCK AND DETACHABLE WARRANTS. Under UK GAAP, the
accounting for loan stock with a non-detachable conversion feature should not
anticipate conversion, and accordingly no fair value is attributed to the
conversion feature. Under US GAAP the conversion feature should be valued on an
intrinsic basis if it is "in the money" at the date of issue, which would give
rise to an overall discount of L554,000. Amortized evenly over two year life of
the loan, this discount would give rise to charges of L115,000, L277,000 and
L161,000 in the years ended December 31, 1998, 1999 and 2000 respectively.
In addition, charges of L155,000 and L373,000 would have arisen in the years
ended December 31, 1998 and 1999, respectively, under US GAAP related to the
detachable warrants issued in connection with the issuance of the convertible
loan stock. The warrants were granted on July 31, 1998, which is
F-25
<PAGE>
SOPHEON PLC
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
20. DIFFERENCES BETWEEN UNITED KINGDOM AND UNITED STATES GENERALLY ACCEPTED
ACCOUNTING PRINCIPLES (CONTINUED)
used as the measurement date for the purposes of the valuation, at which date
the market price for the underlying ordinary shares was 197.5p. The total value
has been computed as L747,000 and is being amortized over the life of the
underlying convertible loan, being two years. The remaining amount to be
amortized in the year ended 31 December 2000 is L219,000. Other assumptions used
in the Black Scholes calculation were an expected useful life of 2.4 years,
being the life of the warrant, a risk free interest rate of 7% and a volatility
of 35%.
REVENUE RECOGNITION. Sales of software products are recognized on delivery
and when no significant vendor obligations remain, in accordance with AICPA
Statement of Position 97-2, Software Revenue Recognition. The Company also
provides implementation and post contract support services for certain of these
software products. As the implementation services offered by the Company in
respect of these arrangements are not essential to the functionality of the
software, can be performed by other suppliers, and are described in the
arrangement such that the total price of the arrangement would be expected to
vary as the result of the inclusion or exclusion of these services, these
services are accounted for as a separate element of the arrangement. Vendor
Specific Evidence of Fair Value is established by reference either to
established price lists or billable rates, which correspond to the actual price
charged for those elements when they are sold separately. In respect of the
service element, revenue is recognised as the services are performed.
Where the Company sells software which includes a significant element of
customer specific development, the entire arrangement including the software
component is accounted for in accordance with AICPA Statement of Position 81-1,
Accounting for Performance of Construction-Type and Certain Production-Type
Contracts. Revenue is recognised using the percentage of completion method.
Revenues related to significant Post-Contract Support agreements (generally
maintenance agreements) are deferred and recognized over the period of the
agreements.
ACQUISITION OF APPLIEDNET. For UK GAAP purposes the purchase price for
Appliednet was based on the market price of 129p of Sopheon shares on the date
the transaction was agreed and became unconditional on October 27, 1999. The
merger was announced on October 28, 1999. For US GAAP purposes the purchase
price should be based on the average market price over a reasonable period
before and after the agreement and announcement of the merger. Taking a period
covering five days around the agreement date gives a price of 140p, increasing
the overall purchase price recorded for Appliednet by L704,000.
For UK GAAP purposes the entire excess of the purchase price over the net
assets acquired of L7,776,000 has been treated as goodwill. For US GAAP
purposes, a proportion of the excess purchase price is allocated to identifiable
intangible assets. The analysis of this allocation together with the
F-26
<PAGE>
SOPHEON PLC
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
20. DIFFERENCES BETWEEN UNITED KINGDOM AND UNITED STATES GENERALLY ACCEPTED
ACCOUNTING PRINCIPLES (CONTINUED)
estimated useful life to be applied for amortization purposes, based on an
independent third party valuation, as follows:
<TABLE>
<CAPTION>
ALLOCATION ESTIMATED LIFE
CATEGORY (L THOUSAND) (YEARS)
-------- ------------ --------------
<S> <C> <C>
Assembled Workforce................................. 617 4
Customer List....................................... 1,389 2
Current Technology.................................. 1,389 5
Goodwill............................................ 5,075 3
-----
Total............................................... 8,470
=====
</TABLE>
The effects of the increase in total purchase price and the allocation of
purchase price to intangible assets required for US GAAP purposes, are to
increase the amortization charged, as compared to that charged for UK GAAP
purposes, by L26,000 for the year ended December 31,1999, and by L229,000 per
annum for subsequent years.
F-27
<PAGE>
SOPHEON PLC
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
20. DIFFERENCES BETWEEN UNITED KINGDOM AND UNITED STATES GENERALLY ACCEPTED
ACCOUNTING PRINCIPLES (CONTINUED)
INCOME. The effect of the adjustments to profit for the years ended
December 31, 1999 and 1998 and which would be required if US GAAP were to be
applied instead of UK GAAP are summarized as follows:
<TABLE>
<CAPTION>
1998
1999 (RESTATED)
------------ ------------
(L THOUSAND, EXCEPT SHARES
AND PER SHARE AMOUNTS)
<S> <C> <C>
Loss for the year as reported in the consolidated
profit and loss account under UK GAAP.............. (2,072) (1,142)
Adjustments:
Operating expenses--equity instruments issued in
exchange for services.............................. (126) --
Goodwill amortization................................ (26) --
Interest payable and similar charges................. (651) (271)
---------- ----------
Net loss as adjusted to accord with US GAAP.......... (2,875) (1,413)
========== ==========
Net loss per share as so adjusted (basic and
diluted)........................................... L(0.14) L(0.08)
========== ==========
Shares used in computing per share amounts........... 20,565,985 18,730,633
========== ==========
</TABLE>
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME. Comprehensive income under
US GAAP is as follows:
<TABLE>
<CAPTION>
1999 1998
-------- --------
(L THOUSAND)
<S> <C> <C>
Net loss in accordance with US GAAP......................... (2,875) (1,413)
Exchange differences on re-translation of net assets of
subsidiary undertaking.................................... (45) 47
------ ------
Comprehensive loss in accordance with US GAAP............... (2,920) (1,366)
====== ======
</TABLE>
Movements in other comprehensive loss amounts are as follows:
<TABLE>
<CAPTION>
(L THOUSAND)
------------
<S> <C>
At January 1, 1998.......................................... (422)
Movement in the year........................................ 47
----
At December 31, 1998........................................ (375)
Movement in the year........................................ (45)
----
At December 31, 1999........................................ (420)
====
</TABLE>
F-28
<PAGE>
SOPHEON PLC
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
20. DIFFERENCES BETWEEN UNITED KINGDOM AND UNITED STATES GENERALLY ACCEPTED
ACCOUNTING PRINCIPLES (CONTINUED)
SHAREHOLDERS' FUNDS. The effect of the adjustment to shareholders funds at
December 31, 1999 and 1998 which would be required if US GAAP were to be applied
instead of UK GAAP are summarized as follows:
<TABLE>
<CAPTION>
1999 1998
-------- --------
(L THOUSAND)
<S> <C> <C>
Shareholders' funds as reported in the consolidated balance
sheet under UK GAAP....................................... 13,479 (864)
Adjustments:
Goodwill--Appliednet........................................ 678 --
Creditors--beneficial conversion feature in loan stock...... 162 439
------ ----
Shareholders' equity/(deficit) as adjusted to accord with US
GAAP...................................................... 14,319 (425)
====== ====
</TABLE>
CONSOLIDATED STATEMENTS OF CASH FLOWS. The consolidated statement of cash
flows prepared under UK GAAP present substantially the same information as those
required under US GAAP but they differ, however, with regard to classification
of items within them and as regards the definition of cash and cash equivalents.
Under UK GAAP, cash is defined as cash in hand and at bank and deposits
repayable on demand less bank overdrafts. Under US GAAP, cash and cash
equivalents would not include bank overdrafts but would include cash deposits
repayable within three months at inception. Under UK GAAP, cash flows are
presented separately for operating activities, returns on investment,
acquisitions, equity dividends, management of liquid resources and financing. US
GAAP requires only three categories of cash flow activity to be reported:
operating, investing and financing. Cash flows from taxation and return on
investments and servicing of finance shown under UK GAAP would be included in
the determination of cash flows from operating activities under US GAAP. Under
US GAAP, the payment of dividends would be included as a financing activity and
capital expenditure and financial investment and acquisitions would be reported
within investing activities.
The categories of cash flow under US GAAP can be summarized as follows:
<TABLE>
<CAPTION>
1999 1998
-------- --------
(L THOUSANDS)
<S> <C> <C>
Cash outflow from operating activities...................... (1,334) (985)
Cash inflow from investing activities....................... 158 (145)
Cash inflow from financing activities....................... 8,253 1,370
------ -----
Increase(decrease) in cash and cash equivalents............. (7,077) 240
Cash and cash equivalents at beginning of period............ 674 434
------ -----
Cash and cash equivalents at end of period.................. 7,751 674
====== =====
</TABLE>
DEFERRED TAXATION. Under UK GAAP, provision is made for deferred taxation
using the liability method on short term timing differences and all other
material timing differences which are not expected to continue in the future.
Under US GAAP, deferred taxation is provided on a full liability basis on all
temporary differences between the tax and book bases of assets and liabilities
including the
F-29
<PAGE>
SOPHEON PLC
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
20. DIFFERENCES BETWEEN UNITED KINGDOM AND UNITED STATES GENERALLY ACCEPTED
ACCOUNTING PRINCIPLES (CONTINUED)
differences between the assigned fair values and the tax bases of assets and
liabilities acquired. Future tax benefits are recognized to the extent that it
is more likely than not that any part will not be realized.
At December 31, 1999 tax losses estimated at L7,046,000 (1998--L4,580,000)
are available for carry forward by the Group without expiring. A full valuation
allowance has been made against the related deferred tax assets due to the
reported losses to date and the lack of certainty over future operating profits.
STOCK BASED COMPENSATION. The Company elected to follow APB Opinion No. 25
"Accounting for Stock Issued to Employees", in accounting for our employee stock
options because, the alternative fair value accounting provided for under SFAS
No. 123, "Accounting for Stock-Based Compensation", requires the use of option
valuation models that were not developed for use in valuing employee stock
options. Under APB No. 25, because the exercise price of our employee stock
options generally equals the market price of the underlying stock on the date of
grant, no compensation expense is recognized in our financial statements.
Pro forma information regarding net income and earnings per share is
required by SFAS No. 123. This information is required to be determined as if we
had accounted for our employee stock options granted subsequent to December 31,
1994 under the fair value method of that statement. The fair value of options
granted in fiscal 1999 and 1998 reported below has been estimated at the date of
grant using Black-Scholes option pricing model assuming no expected dividends
and the following weighted average assumptions:
<TABLE>
<CAPTION>
1999 1998
-------- --------
<S> <C> <C>
Expected life (years)....................................... 5 5
Expected volatility......................................... 0.35 0.35
Risk free interest rate..................................... 5% 7%
</TABLE>
The weighted average fair value of options granted at exercise prices equal
to market value was L0.69 and the fair value of options granted at exercise
prices less than market value was L1.54 for the year ended December 31, 1999.
The weighted average exercise price of such options was L1.37 and L0.26 for
options granted with exercise prices equal to market value and less than market
value, respectively. The weighted average fair value of options granted during
the year ended December 31, 1998 was L0.73.
The Company's pro forma information is as follows for the year ended
December 31, 1999:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
-------------------
1999 1998
-------- --------
(IN L THOUSANDS,
EXCEPT PER SHARE
INFORMATION)
<S> <C> <C>
Net loss--Pro forma......................................... (2,575) (1,317)
Net loss per share--Basic and Diluted--Pro forma............ (0.13) (0.07)
</TABLE>
F-30
<PAGE>
SOPHEON PLC
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
20. DIFFERENCES BETWEEN UNITED KINGDOM AND UNITED STATES GENERALLY ACCEPTED
ACCOUNTING PRINCIPLES (CONTINUED)
The effects on pro forma disclosures of applying SFAS No. 123 are not likely
to be representative of the effects on pro forma disclosures of future years.
21. COMPANIES ACT
The financial statements do not comprise the Company's "statutory accounts"
within the meaning of Section 240 of the Companies Act 1985 of Great Britain.
Statutory accounts for the years ended December 31, 1999, 1998 and 1997 have
been delivered to the Registrar of Companies for England and Wales. The
auditors' reports on such accounts were unqualified.
22. EVENTS SINCE THE BALANCE SHEET DATE
Since the year end the Group has committed funds of L430,000 for a 25%
equity stake in Pro-Gram BV, a company established with a number of Dutch
healthcare institutions to market knowledge management solutions incorporating
Sopheon's software to the Dutch healthcare industry.
Since the year end 455,000 ordinary shares in Sopheon plc have been issued
for L91,000 in cash to option holders exercising their options, giving rise to a
premium of L68,250. Furthermore, since the year end the Directors have approved
the grant of options to purchase 82,360 ordinary shares.
A placing of 2,622,500 shares for cash of 800p per share, and a potential
acquisition, was announced on March 3, 2000.
23. SUBSEQUENT EVENTS
On June 27, 2000, the Company granted a loan of US$ 1,900,000 to Teltech
Resource Network Corporation ("Teltech") which bears interest at a rate of 9%
per annum. The loan is repayable on demand but is subordinated to Teltech's
existing bank line of credit.
On July 31, 2000 the L1,570,918 5% convertible loan stock described in
note 13 was converted in full, resulting in 1,075,971 ordinary shares of 5p each
being issued at a price of L1.46 per share.
F-31
<PAGE>
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors
AppliedNet Limited
We have audited the accompanying consolidated profit and loss accounts and
consolidated statements of changes in shareholders' funds and cash flows of
AppliedNet Limited for each of the two years in the period ended September 30,
1999. Our responsibility is to express an opinion on these financial statements
based on our audits.
We conducted our audits in accordance with United Kingdom auditing standards
which do not differ in any significant respect from United States generally
accepted auditing standards. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by the 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 consolidated financial statements referred to above
present fairly in all material respects, the consolidated results of operations
of AppliedNet Limited and its consolidated cash flows for each of the two years
in the period ended September 30, 1999 in conformity with accounting principles
generally accepted in the United Kingdom which differ in certain respects from
those followed in the United States (see Note 12 of Notes to the Financial
Statements).
ERNST & YOUNG
Reading, England
April 27, 2000
F-32
<PAGE>
APPLIEDNET LIMITED
CONSOLIDATED PROFIT AND LOSS ACCOUNT
<TABLE>
<CAPTION>
YEAR ENDED
SEPTEMBER 30,
-------------------
1999 1998
-------- --------
NOTES (L THOUSAND)
<S> <C> <C> <C>
TURNOVER.................................................... 2 1,982 1,637
Cost of sales............................................... 1,194 683
------ -----
GROSS PROFIT................................................ 788 954
Administrative expenses..................................... 1,814 763
------ -----
OPERATING (LOSS)/PROFIT..................................... (1,026) 191
Net interest................................................ 4 19 (5)
------ -----
(LOSS)/PROFIT ON ORDINARY ACTIVITIES BEFORE TAXATION........ 3 (1,007) 186
Taxation.................................................... 6 -- (42)
------ -----
NET (LOSS)/PROFIT........................................... (1,007) 144
Dividends (including non equity)............................ 8 (1) (12)
------ -----
RETAINED (LOSS)/PROFIT FOR THE YEAR......................... (1,008) 132
====== =====
</TABLE>
There were no recognized gains or losses other than the profit/loss for the
financial year.
SEE ACCOMPANYING NOTES.
F-33
<PAGE>
APPLIEDNET LIMITED
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' FUNDS
<TABLE>
<CAPTION>
NUMBER NUMBER OF
OF REDEEMABLE SHARE CAPITAL TOTAL
ORDINARY PREFERENCE ORDINARY PREFERENCE PREMIUM REDEMPTION RETAINED SHAREHOLDERS'
SHARES (1) SHARES SHARES SHARES ACCOUNT RESERVE EARNINGS EQUITY
---------- ---------- -------- ---------- -------- ---------- -------- -------------
(THOUSANDS) (L THOUSAND)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
AT OCTOBER 1, 1997... 365 10 37 10 27 -- 84 158
Redemption of share
capital and
associated
premium............ (97) -- (10) -- 10 (76) (76)
Profit for the
year............... -- 132 132
--- --- --- --- ----- --- ------ ------
AT SEPTEMBER 30,
1998............... 268 10 27 10 27 10 140 214
Issuance of ordinary
shares, in exchange
for cash........... 98 -- 10 -- 1,432 -- -- 1,442
Retained loss for the
year............... -- -- -- -- -- -- (1,008) (1,008)
--- --- --- --- ----- --- ------ ------
AT SEPTEMBER 30,
1999............... 366 10 37 10 1,459 10 (868) 648
=== === === === ===== === ====== ======
</TABLE>
------------------------
(1) See Note 16 of Notes to the financial statements for a description of the
movement in ordinary shares.
SEE ACCOMPANYING NOTES.
F-34
<PAGE>
APPLIEDNET LIMITED
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
--------------------------------------
NOTE 1999 1998
-------- -------- --------
(L THOUSAND)
<S> <C> <C> <C>
NET CASH (OUTFLOW)/INFLOW FROM OPERATING ACTIVITIES......... 11 (899) 279
RETURN ON INVESTMENTS AND SERVICING OF FINANCE
Interest received........................................... 28 7
Interest paid............................................... (8) (10)
Interest element of finance lease rental payments........... (1) (2)
Preference dividends paid................................... -- (1)
------ ----
19 (6)
TAXATION
UK corporation tax paid..................................... (36) (36)
CAPITAL EXPENDITURE & FINANCIAL INVESTMENT
Payments to acquire tangible fixed assets................... (135) (55)
Payments to acquire investments............................. -- (20)
Receipts from sales of tangible fixed assets................ 14 --
Receipts from sale of investments........................... 20 --
------ ----
(101) (75)
ACQUISITIONS AND DISPOSALS
Purchase of subsidiary undertaking.......................... -- (250)
Net cash acquired with subsidiary undertaking............... -- 179
------ ----
-- (71)
EQUITY DIVIDENDS PAID....................................... -- (11)
------ ----
NET CASH OUTFLOW BEFORE FINANCING........................... (1,017) 80
FINANCING
Issue of ordinary share capital............................. 1,442 --
Net movement on loan stock.................................. (64) (12)
Net movement on long term loans............................. 65 (25)
Capital element of finance lease and hire purchase
payments.................................................. 7 (9)
------ ----
1,436 (46)
------ ----
INCREASE IN CASH............................................ 419 34
====== ====
</TABLE>
The significant differences between the cash flow statements presented above
and those required under United States generally accepted accounting principles
are described in Note 12 of Notes to the Financial Statements.
SEE ACCOMPANYING NOTES.
F-35
<PAGE>
APPLIEDNET LIMITED
NOTES TO THE FINANCIAL STATEMENTS
1. ACCOUNTING POLICIES
The financial statements have been prepared in accordance with applicable
United Kingdom accounting standards and under the historical cost convention.
BASIS OF CONSOLIDATION. The consolidated financial statements consolidate
the financial statements of AppliedNet Limited ("the Company") and its
subsidiary undertakings (together the "Group"). The results of Network Managers
(UK) Limited, acquired in July 1998, have been included from the date of
acquisition. On acquisition of a subsidiary, all of the subsidiary's assets and
liabilities which existed at the date of acquisition are recorded at their fair
values reflecting their condition at that date.
Negative goodwill arising on consolidation, representing the excess of the
fair values of the identifiable net assets acquired over the fair value of the
consideration given, is capitalized, and written back to the profit and loss
account over four years.
TURNOVER. Turnover (excluding value added tax) represents the amounts
derived from the Group's principle activity, which comprises the design,
development, production and sale of software products together with associated
implementation services. The Group operates in two principal geographical
markets, the United Kingdom and North America.
DEPRECIATION. Depreciation is calculated to write down the cost less
estimated residual value of all tangible fixed assets on a straight line basis
over their expected useful lives. The rates generally applicable are:
<TABLE>
<S> <C>
Motor vehicles........................................ 25%
Fixtures & fittings................................... 25%
Computer equipment.................................... 33.3%
</TABLE>
RESEARCH AND DEVELOPMENT. Research and development expenditure is charged
to profits in the period in which it is incurred.
CONTRIBUTIONS TO PENSION FUNDS. AppliedNet contributes to the personal
arrangements of certain employees, the costs of which are charged to income as
incurred.
LEASED ASSETS. Assets held under finance leases and hire purchase contracts
are capitalized in the balance sheet and depreciated over their expected useful
lives. The interest element of leasing payments represents a constant proportion
of the capital outstanding and is charged to the profit and loss account over
the period of the lease.
All other leases are regarded as operating leases and the payments made
under them are charged to the profit and loss account on straight line basis
over the lease term.
F-36
<PAGE>
APPLIEDNET LIMITED
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
2. TURNOVER
An analysis of turnover by geographical market is given below:
<TABLE>
<CAPTION>
YEAR ENDED
SEPTEMBER 30,
-----------------------
1999 1998
-------- --------
(L THOUSAND)
<S> <C> <C>
United Kingdom............................................. 1,880 1,616
North America.............................................. 96 20
Rest of world.............................................. 6 1
----- -----
1,982 1,637
===== =====
</TABLE>
3. PROFIT ON ORDINARY ACTIVITIES BEFORE TAXATION
The profit is stated after charging:
<TABLE>
<CAPTION>
YEAR ENDED
SEPTEMBER 30,
-----------------------
1999 1998
-------- --------
(L THOUSAND)
<S> <C> <C>
Auditors' remuneration...................................... 39 6
Negative goodwill amortization.............................. (7) (1)
Depreciation................................................ 89 48
Hire of plant and machinery................................. 32 14
Other operating lease rentals............................... 141 74
Hire purchase interest...................................... 1 2
Profit on sale of fixed assets.............................. (8) --
=== ==
</TABLE>
4. NET INTEREST
<TABLE>
<CAPTION>
YEAR ENDED
SEPTEMBER 30,
-----------------------
1999 1998
-------- --------
(L THOUSAND)
<S> <C> <C>
On bank loans and overdrafts................................ 6 3
Finance charges in respect of finance leases................ 1 2
Other interest payable and similar charges.................. 3 7
--- --
10 12
Other interest receivable and similar income................ (29) (7)
--- --
(19) 5
--- --
</TABLE>
F-37
<PAGE>
APPLIEDNET LIMITED
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
5. DIRECTORS' EMOLUMENTS
<TABLE>
<CAPTION>
YEAR ENDED
SEPTEMBER 30,
-----------------------
1999 1998
-------- --------
(L THOUSAND)
<S> <C> <C>
Emoluments.................................................. 300 145
=== ===
</TABLE>
The emoluments of the highest paid director were L88,471 in 1999. During
1999, the Company paid L32,240 to the private pension plans of directors.
6. STAFF COSTS
Staff costs during the year were as follows:
<TABLE>
<CAPTION>
YEAR ENDED
SEPTEMBER 30,
-----------------------
1999 1998
-------- --------
(L THOUSAND)
<S> <C> <C>
Wages and salaries.......................................... 1,123 759
Social security costs....................................... 124 72
Other pension costs......................................... 38 16
----- ---
1,285 847
===== ===
</TABLE>
7. TAX ON PROFIT ON ORDINARY ACTIVITIES
The tax charge represents:
<TABLE>
<CAPTION>
YEAR ENDED
SEPTEMBER 30,
-----------------------
1999 1998
-------- --------
(L THOUSAND)
<S> <C> <C>
UK corporation tax.......................................... -- 31
Under provision in previous year............................ -- 3
Irrecoverable ACT........................................... -- 8
-------- --
-- 42
======== ==
</TABLE>
No tax is payable on account of losses incurred during the year. Tax losses
estimated at L625,000 are available for carry forward against future profits as
at September 30, 1999.
F-38
<PAGE>
APPLIEDNET LIMITED
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
8. DIVIDENDS
<TABLE>
<CAPTION>
YEAR ENDED
SEPTEMBER 30,
-----------------------
1999 1998
-------- --------
(L THOUSAND)
<S> <C> <C>
EQUITY DIVIDENDS:
Ordinary dividend of nil p per share (1998: 15.43p)......... -- 11
NON EQUITY DIVIDENDS:
Preference dividend of 10p per share (1998: 10p)............ 1 1
-------- --
1 12
======== ==
</TABLE>
The preference dividend for 1999 was not paid as at September 30, 1999.
9. LEASING COMMITMENTS
At September 30, 1999 and 1998 the Group had annual commitments under
operating leases as set out below.
<TABLE>
<CAPTION>
LAND AND
BUILDINGS OTHER
------------------- -------------------
1999 1998 1999 1998
-------- -------- -------- --------
(L THOUSAND)
<S> <C> <C> <C> <C>
Within one year...................................... 138 -- 16 --
Between two and five years........................... -- 138 37 22
--- --- -- --
138 138 53 22
=== === == ==
</TABLE>
10. BUSINESS COMBINATIONS
On July 27, 1998 the Company acquired 50,000 ordinary shares of L1 each in
Network Managers (UK) Limited being 100% of its ordinary share capital for a
consideration of L250,000 in cash. Negative goodwill arising on the acquisition
of Network Managers (UK) Limited has been capitalized. The purchase of Network
Managers (UK) Limited has been accounted for by the acquisition method of
accounting.
The results of Network Managers (UK) Limited for the period from October 1,
1997, the beginning of the subsidiary's financial year, to the date of
acquisition are shown below:
<TABLE>
<CAPTION>
(L THOUSAND)
<S> <C>
Turnover.................................................... 890
Operating loss.............................................. (47)
Loss before taxation........................................ (43)
Taxation.................................................... --
===
</TABLE>
The profit after taxation for the year ended September 30, 1997 was L20,914.
F-39
<PAGE>
APPLIEDNET LIMITED
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
10. BUSINESS COMBINATIONS (CONTINUED)
The assets and liabilities of Network Manager (UK) Limited acquired were as
follows:
<TABLE>
<CAPTION>
BOOK VALUE &
FAIR VALUE
------------
(L THOUSAND)
<S> <C>
Tangible fixed assets....................................... 58
Current assets
Stocks...................................................... 2
Debtors..................................................... 302
Bank and cash............................................... 179
---
541
---
Creditors
Trade creditors............................................. 21
Other creditors............................................. 224
Accruals.................................................... 18
---
Total liabilities........................................... 263
---
Net assets.................................................. 278
Negative goodwill........................................... (28)
---
250
===
Satisfied by:
Cash........................................................ 250
===
</TABLE>
11. NOTES TO CONSOLIDATED STATEMENT OF CASH FLOWS
(a) Reconciliation of operating loss to net cash outflow from operating
activities:
<TABLE>
<CAPTION>
YEAR ENDED
SEPTEMBER 30,
-------------------
1999 1998
-------- --------
(L THOUSAND)
<S> <C> <C>
Operating (loss)/profit..................................... (1,026) 191
Depreciation................................................ 89 48
Profit on sale of tangible fixed assets..................... (8) --
Amortization of negative goodwill........................... (7) (1)
Decrease in stocks.......................................... (90) 12
Increase in debtors......................................... (379) (84)
Increase in creditors and provisions........................ 522 113
------ ---
Net cash (outflow)/inflow from operating activities......... (899) 279
====== ===
</TABLE>
F-40
<PAGE>
APPLIEDNET LIMITED
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
11. NOTES TO CONSOLIDATED STATEMENT OF CASH FLOWS (CONTINUED)
(b) Reconciliation of net cash flow to movement in net funds (debt).
<TABLE>
<CAPTION>
YEAR ENDED
SEPTEMBER 30,
-------------------
1999 1998
-------- --------
(L THOUSAND)
<S> <C> <C>
Increase in cash............................................ 419 34
Cash inflow from decrease in debt and lease financing....... 6 46
--- ---
Change in net debt resulting from cash flows................ 425 80
Capitalisation of reserves into loan stock.................. -- (46)
Loan stock arising on redemption of shares.................. -- (30)
New hire purchase contracts................................. -- (11)
--- ---
Movement in net funds/(debt)................................ 425 (7)
--- ---
Net (debt) at October 1..................................... (24) (17)
--- ---
Net funds/(debt) at September 30............................ 401 (24)
=== ===
</TABLE>
(c) Analysis of changes in net (debt)/funds:
<TABLE>
<CAPTION>
CASH AT TERM LOAN FINANCE
BANK OVERDRAFT LOANS STOCK LEASES TOTAL
-------- --------- -------- -------- -------- --------
(L THOUSAND)
<S> <C> <C> <C> <C> <C> <C>
At October 1, 1997..................... 92 (47) (50) -- (12) (17)
Cashflow............................... 93 (59) 25 12 9 80
Capital restructuring.................. -- -- -- (76) -- (76)
New hire purchase contracts............ -- -- -- -- (11) (11)
--- ---- ---- ---- ---- ----
At September 30, 1998.................. 185 (106) (25) (64) (14) (24)
Cashflow............................... 313 106 (65) 64 7 425
--- ---- ---- ---- ---- ----
At September 30, 1999.................. 498 -- (90) -- (7) 401
=== ==== ==== ==== ==== ====
</TABLE>
12. DIFFERENCES BETWEEN UNITED KINGDOM AND UNITED STATES GENERALLY ACCEPTED
ACCOUNTING PRINCIPLES
The financial statements of AppliedNet are prepared in accordance with
accounting principles generally accepted in the United Kingdom ("UK GAAP") which
differ in certain respects from those generally accepted in the United States
("US GAAP"). There are no significant differences applicable to AppliedNet which
affect the profit/(loss) for the year. Under US GAAP, negative goodwill would be
deducted from the value of tangible fixed assets, rather than being capitalized.
This difference in treatment does not impact net income.
CONSOLIDATED STATEMENT OF CASH FLOWS. The consolidated statements of cash
flows prepared under UK GAAP present substantially the same information as those
required under US GAAP but they differ, however, with regard to classification
of items within them and as regards the definition of cash and cash equivalents.
F-41
<PAGE>
APPLIEDNET LIMITED
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
12. DIFFERENCES BETWEEN UNITED KINGDOM AND UNITED STATES GENERALLY ACCEPTED
ACCOUNTING PRINCIPLES (CONTINUED)
Under UK GAAP, cash is defined as cash in hand and at bank and deposits
repayable on demand less bank overdrafts. Under US GAAP, cash and cash
equivalents would not include bank overdrafts but would include cash deposits
repayable within three months at inception. Under UK GAAP, cash flows are
presented separately for operating activities, returns on investments,
acquisitions, equity dividends, management of liquid resources and financing. US
GAAP require only three categories of cash flow activity to be reported:
operating, investing and financing. Cashflows from taxation and returns on
investments and servicing of income shown under UK GAAP would be included in the
determination of cash flows from operating activities under US GAAP. Under US
GAAP, the payment of dividends would be included as a financing activity and
capital expenditure and financial investment and acquisitions would be reported
within investing activities.
The categories of cash flow under US GAAP can be summarized as follows:
<TABLE>
<CAPTION>
YEAR ENDED
SEPTEMBER 30,
-------------------
1999 1998
-------- --------
(L THOUSAND)
<S> <C> <C>
Cash (outflow)/inflow from operating activities............. (916) 238
Cash (outflow) from investing activities.................... (101) (146)
Cash inflow from financing activities....................... 1,330 1
------ ----
Increase in cash and cash equivalents....................... 313 93
Cash and cash equivalents at beginning of year.............. 185 92
------ ----
Cash and cash equivalents at end of year.................... 498 185
====== ====
</TABLE>
13. EVENTS SINCE THE BALANCE SHEET DATE
On November 22, 1999 the shareholders of AppliedNet agreed to the sale of
100% of the issued shares of the Company to Sopheon plc in exchange for
6,402,961 shares in Sopheon plc.
14. TRANSACTIONS WITH DIRECTORS AND OTHER RELATED PARTIES
Details of loans from directors to the Company are detailed below:
i. Unsecured loan stock
<TABLE>
<CAPTION>
MAXIMUM
AMOUNT LIABILITY
NAME OF DIRECTOR OUTSTANDING DURING YEAR
---------------- ------------ -----------
1999 1998 L
-------- ------------ -----------
(L THOUSAND)
<S> <C> <C> <C>
M Brooke....................................... -- 38,713 38,713
P Ely.......................................... -- 12,905 12,905
D Boul......................................... -- 12,905 12,905
--- ------ ------
-- 64,523 64,523
=== ====== ======
</TABLE>
The loan stock is repayable within one year and does not bear interest.
F-42
<PAGE>
APPLIEDNET LIMITED
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
14. TRANSACTIONS WITH DIRECTORS AND OTHER RELATED PARTIES (CONTINUED)
ii. Investors loans
<TABLE>
<CAPTION>
MAXIMUM
AMOUNT LIABILITY
NAME OF DIRECTOR OUTSTANDING DURING YEAR
---------------- ------------ -----------
1999 1998 L
-------- ------------ -----------
(L THOUSAND)
<S> <C> <C> <C>
M Brooke....................................... -- 15,000 15,000
P Ely.......................................... -- 5,000 5,000
D Boul......................................... -- 5,000 5,000
--- ------ ------
-- 25,000 25,000
=== ====== ======
</TABLE>
The loans were repaid in September 1999.
15. EMPLOYEE'S BENEFIT TRUST
The Company adopted the AppliedNet Employees' Benefit Trust on
September 16, 1998 ("the trust") and the AppliedNet Unapproved Share Option
Scheme on September 25, 1998 ("the Scheme"). Applied Network Technology Limited
("the Trustee") is trustee of the Trust which has been designed to provide share
incentives to selected employees and such incentives will take the form of share
transfers or options over issued and new shares at prices determined by the
Trustee in consultation with the Board of the Company. The Company can make
contributions or loans to the Trust to enable it to acquire shares. On sale of
such shares or the exercise of options the proceeds will be used by the trust to
repay loans made by the company. The cost of administering the trust will be
offset against the profits of selling or granting options.
In the year to September 30, 1999 the Trust acquired 6,763 10p ordinary
shares at an average price of 462p (1998--35,800 at an average price of 56p) and
it sold 32,876 10p ordinary shares at an average price of 221p (1998--9,673 at
an average price of 58p). As of September 30, 1999, 14 10p ordinary shares
remained held by the Trust.
16. ORDINARY SHARES
The movement in ordinary shares is as follows:
<TABLE>
<CAPTION>
A ORDINARY B ORDINARY REDEEMABLE B ORDINARY
SHARES SHARES ORDINARY SHARES SHARES
L0.10 EACH L0.10 EACH L0.10 EACH L0.10 EACH TOTAL
---------- ---------- --------------- ---------- --------
<S> <C> <C> <C> <C> <C>
At October 1, 1997
Redemption of share capital and associated
premium................................. 20 7 10 -- 37
Conversion of A and B ordinary shares into
ordinary shares......................... (20) (7) -- 27 --
---- --- --- --- ---
At September 30, 1998
Issuance of ordinary shares in exchange
for cash................................ -- -- -- 10 10
---- --- --- --- ---
At September 30, 1999..................... -- -- -- 37 37
==== === === === ===
</TABLE>
The Company redeemed all of the redeemable B ordinary shares on
September 25, 1998 in exchange for the issuance of L75,774 of unsecured loan
stock.
F-43
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of
Teltech Resource Network Corporation
We have audited the accompanying balance sheets of Teltech Resource Network
Corporation as of December 31, 1999 and 1998, and the related statements of
operations, stockholders' deficit, 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 audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
As discussed in note 8, under the terms of the preferred stock agreements,
the Company was obligated to offer to redeem one-half of the redeemable
convertible preferred stock outstanding on August 31, 1999, totaling $8.2
million, and to offer to redeem all shares on each succeeding August 31 through
2004, totaling $16.3 million. The Company has been advised by outside legal
counsel that under Minnesota law, it is not currently obligated to make such an
offer as management believes sufficient funds are not available to make such a
redemption at this time.
In our opinion, the 1999 and 1998 financial statements referred to above
present fairly, in all material respects, the financial position of Teltech
Resource Network Corporation as of December 31, 1999 and 1998, and the results
of its operations and its cash flows for the years then ended in conformity with
generally accepted accounting principles.
/s/ KPMG LLP
KPMG LLP
Minneapolis, Minnesota
March 3, 2000, except for note 15, which is
as of March 6, 2000
F-44
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders
of Teltech Resource Network Corporation:
In our opinion, the statements of operations, stockholders' deficit and cash
flows for the year ended December 31, 1997 present fairly, in all material
respects, the results of operations and cash flows of Teltech Resource Network
Corporation for the year ended December 31, 1997, in conformity with accounting
principles generally accepted in the United States. 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 audit. We
conducted our audit of these statements in accordance with auditing standards
generally accepted in the United States, which require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audit provides a reasonable basis for the opinion expressed
above. We have not audited the financial statements of Teltech Resource Network
Corporation for any period subsequent to December 31, 1997.
[LOGO]
PricewaterhouseCoopers LLP
Minneapolis, MN
April 17, 1998
F-45
<PAGE>
TELTECH RESOURCE NETWORK CORPORATION
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------
1998 1999
------------ ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ -- $ 262,370
Receivables, net of allowance for doubtful accounts
of $7,600 and $7,400, respectively...................... 3,211,563 2,840,976
Other current assets...................................... 259,771 365,325
------------ ------------
Total current assets...................................... 3,471,334 3,468,671
Equipment and improvements, net............................. 1,539,158 1,299,367
------------ ------------
Total assets............................................ $ 5,010,492 $ 4,768,038
============ ============
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Payable to bank........................................... $ 219,893 --
Accounts payable.......................................... 990,281 1,075,579
Accrued expenses.......................................... 915,216 709,802
Current portion of long-term debt......................... 137,417 173,544
Bank line of credit....................................... 1,003,457 1,200,000
Deferred revenue.......................................... 3,221,889 2,921,113
------------ ------------
Total current liabilities............................... 6,398,153 6,080,038
------------ ------------
Long-term debt, less current portion........................ 283,323 269,975
------------ ------------
Total current liabilities............................... 6,398,153 6,080,038
------------ ------------
Mandatorily redeemable convertible preferred stock
at redemption value....................................... 16,346,143 16,203,923
------------ ------------
Stockholders' deficit:
Common stock $.01 par value, 20,000,000 shares authorized;
2,435,385 and 2,450,885 shares issued and outstanding at
December 31, 1999 and 1998, respectively................ 24,534 24,509
Additional paid-in capital................................ 662,108 801,793
Accumulated deficit....................................... (18,703,769) (18,612,200)
------------ ------------
Total stockholders' deficit............................. (18,017,127) (17,785,898)
------------ ------------
Total liabilities and stockholders' deficit............. $ 5,010,492 $ 4,768,038
============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-46
<PAGE>
TELTECH RESOURCE NETWORK CORPORATION
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
---------------------------------------
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
Revenues.............................................. $16,198,694 $16,435,922 $18,358,599
Cost of revenues...................................... 9,965,079 11,123,690 11,522,673
----------- ----------- -----------
Gross margin...................................... 6,233,615 5,312,232 6,835,926
----------- ----------- -----------
Operating expenses:
Marketing and sales................................. 1,924,714 2,368,254 2,971,672
General and administrative.......................... 2,418,521 2,123,815 2,148,912
Research and development............................ 1,799,214 1,156,309 1.133,458
----------- ----------- -----------
Total operating expenses.......................... 6,142,449 5,648,378 6,254,043
----------- ----------- -----------
Operating income (loss)........................... 91,166 (366,146) 581,883
----------- ----------- -----------
Other (expense) income, net........................... (182,735) (19,587) 32,254
----------- ----------- -----------
Net (loss) income..................................... $ (91,569) (355,733) 614,137
=========== =========== ===========
Accretion of redemption
premium of preferred stock.......................... $ (142,220) $ (176,230) $ (168,289)
----------- ----------- -----------
Net (loss) income available to common shareholders.... (233,789) (531,963) 445,848
=========== =========== ===========
Net (loss) income per common share:
Basic............................................... $ (0.10) $ (0.22) $ 0.18
=========== =========== ===========
Diluted............................................. $ (0.10) $ (0.22) $ 0.09
=========== =========== ===========
Weighted average common shares........................ 2,451,298 2,450,328 2,447,442
=========== =========== ===========
Weighted average common and potential common shares... 2,451,298 2,450,328 6,666,178
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-47
<PAGE>
TELTECH RESOURCE NETWORK CORPORATION
STATEMENTS OF STOCKHOLDERS' DEFICIT
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL TOTAL
-------------------- PAID-IN ACCUMULATED STOCKHOLDERS'
SHARES AMOUNT CAPITAL DEFICIT DEFICIT
--------- -------- ---------- ------------ -------------
<S> <C> <C> <C> <C> <C>
Balances as of December 31, 1996... 2,446,898 $24,469 $1,140,646 $(18,870,604) $(17,705,489)
Exercise of stock options.......... 3,202 32 4,603 -- 4,635
Accretion of redemption premium of
preferred stock.................. -- -- (168,289) -- (168,289)
Net income......................... -- -- -- 614,137 614,137
--------- ------- ---------- ------------ ------------
Balances as of December 31, 1997... 2,450,100 24,501 976,960 (18,256,467) (17,255,006)
--------- ------- ---------- ------------ ------------
Exercise of stock options.......... 785 8 1,063 -- 1,071
Accretion of redemption premium of
preferred stock.................. -- -- (176,230) -- (176,230)
Net loss........................... -- -- -- (355,733) (355,733)
--------- ------- ---------- ------------ ------------
Balances as of December 31, 1998... 2,450,885 24,509 801,793 (18,612,200) (17,785,898)
--------- ------- ---------- ------------ ------------
Exercise of stock options.......... 2,500 25 2,535 -- 2,560
Accretion of redemption premium of
preferred stock.................. -- -- (142,220) -- (142,220)
Net loss........................... -- -- -- (91,569) (91,569)
--------- ------- ---------- ------------ ------------
Balances as of December 31, 1999... 2,453,385 $24,534 $ 662,108 $(18,703,769) $(18,017,127)
========= ======= ========== ============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-48
<PAGE>
TELTECH RESOURCE NETWORK CORPORATION
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------
1999 1998 1997
--------- ----------- ----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net (loss) income...................................... $ (91,569) $ (355,733) $ 614,137
Adjustments to reconcile net (loss) income to net cash
(used in) provided by operating activities:
Depreciation and amortization........................ 444,261 407,644 408,397
Changes in operating assets and liabilities:
Receivables........................................ (370,587) 151,011 129,945
Other current assets............................... 105,554 (182,062) (126,517)
Accounts payable................................... (175,298) (111,221) (805,911)
Accrued expenses................................... 205,414 (502,693) (14,805)
Deferred revenue................................... 300,776 (1,008,486) 146,362
--------- ----------- ----------
Net cash (used in) provided by operating
activities..................................... 418,551 (1,601,540) 351,608
--------- ----------- ----------
Cash flows from investing activities:
Additions to equipment and improvements................ (684,052) (397,513) (626,215)
--------- ----------- ----------
Net cash used in investing activities............ (684,052) (397,513) (626,215)
--------- ----------- ----------
Cash flows from financing activities:
Payable to bank........................................ 219,893 -- --
Net borrowings under note payable to bank.............. (219,322) 1,162,646 184,030
Proceeds from exercise of stock options................ 2,560 1,071 4,635
--------- ----------- ----------
Net cash provided by financing activities............ 3,131 1,163,717 188,665
--------- ----------- ----------
Net decrease in cash and cash equivalents................ (262,370) (835,336) (85,942)
Cash and cash equivalents, beginning of year............. 262,370 1,097,706 1,183,648
--------- ----------- ----------
Cash and cash equivalents, end of year................... $ -- $ 262,370 1,097,706
========= =========== ==========
Supplemental disclosure of cash flow information:
Cash paid during the year for interest................. $ 178,018 $ 68,155 $ 21,047
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-49
<PAGE>
TELTECH RESOURCE NETWORK CORPORATION
NOTES TO THE FINANCIAL STATEMENTS
1. NATURE OF BUSINESS
Teltech Resource Network Corporation (the "Company") provides research and
knowledge management services to the R&D and business development functions of
technology-driven companies throughout the United States. The Company uses its
primary and secondary research capabilities and Web-based knowledge transfer
systems to deliver filtered technical and business intelligence to the desktop.
Teltech's service offerings include turnkey development of knowledge management
solutions and vertical information portals. Customers gain access to the
Company's services by paying annual subscription, transactional or project fees.
FINANCING
The Company has historically been financed principally through mandatorily
redeemable preferred stock. As discussed in note 8, under the terms of the
preferred stock agreements, the Company was obligated to offer to redeem
one-half of the redeemable convertible preferred stock outstanding on
August 31, 1999, totaling $8.2 million, and to offer to redeem all shares on
each succeeding August 31 through 2004, totaling $16.3 million. The Company has
been advised by outside legal counsel that under Minnesota law, it is not
currently obligated to make such an offer as management believes sufficient
funds are not available to make such a redemption at this time. On the basis
that no funds will be required to redeem the mandatorily redeemable preferred
stock, management believes that cash flows from operations and proceeds
available from the August 1999 debt financing (notes 5 and 6) will be sufficient
to satisfy the working capital requirements through at least December 31, 2000.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
CASH AND CASH EQUIVALENTS
Cash equivalents are comprised of highly liquid investments with original
maturities of three months or less. Cash and cash equivalents are concentrated
in one financial institution.
EQUIPMENT AND IMPROVEMENTS
Equipment and improvements are stated at cost. Depreciation is computed
using the straight-line method over the estimated useful lives of the assets,
which generally range from three to seven years. Leasehold improvements are
amortized over the term of the lease. Significant additions or improvements
extending asset lives are capitalized, while repairs and maintenance are charged
to expense as incurred.
CAPITALIZED SOFTWARE
The Company capitalizes certain costs associated with significant internally
developed software products for internal use. The Company accounts for these
costs using AICPA Statement of Positions (SOP) No. 98-1, ACCOUNTING FOR COSTS OF
COMPUTER SOFTWARE DEVELOPED OR OBTAINED FOR INTERNAL USE. Under the provisions
of SOP 98-1, costs are capitalized for software developed or obtained for
internal use when both the preliminary project stage is completed and management
deems the project will probably be completed and used to perform the function
intended. Capitalization of such costs ceases no later that the point at which
the project is substantially complete and ready for its intended purpose.
Capitalized costs include only (1) external direct costs of materials and
services consumed in developing or obtaining software, and (2) payroll and
related costs for employees who are directly
F-50
<PAGE>
TELTECH RESOURCE NETWORK CORPORATION
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
associated with and who devote time to the software project, and (3) interest
costs incurred, when material, while developing software.
Research and development costs, website content costs, and other computer
software maintenance costs are expensed as incurred. Software development costs
are amortized using the straight-line method over a maximum of three years or
the expected life of the product, whichever is less. Approximately $344,000 of
these costs are included in capitalized website software development.
REVENUES AND COST RECOGNITION
Periodic subscription revenue is recognized ratably over the subscription
period. Estimated losses on fixed fee long-term subscription contracts are
recorded when identified. Deferred revenue results from the billing of
subscription amounts in advance of when the services are rendered.
Transaction-based contract revenue is billed and recognized as the related
services are rendered.
NEW ACCOUNTING PRONOUNCEMENTS
Statement of Financial Accounting Standard No. 133 "Accounting for
Derivative Instruments and Hedging" (SFAS No. 133), effective for the Company on
January 1, 2001, established new standards for recognizing all derivatives as
either assets of liabilities, and measuring those instruments at fair value.
Currently, we do not anticipate that SFAS No. 133 will have a material impact on
our financial position or results of operations.
In December 1999, the SEC staff issued Staff Accounting Bulletin No. 101,
"Revenue Recognition in Financial Statements" (SAB 101). SAB 101 summarizes
certain of the SEC staff's view in applying generally accepted accounting
principles to revenue recognition in financial statements. The Company does not
expect SAB 101 to have an impact on its financial statements. SAB 101 is
effective for the Company for the quarter ending June 30, 2000.
INCOME TAXES
Income taxes are accounted for on the liability method. Under the liability
method, deferred tax assets and liabilities are determined based on the
difference between the financial statement and tax bases of assets and
liabilities reduced by a valuation allowance, as necessary.
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 those estimates.
NET INCOME (LOSS) PER SHARE
Basic net income (loss) per share is computed based on the weighted average
number of common shares outstanding, while diluted net income (loss) per share
is computed based on the weighted average number of common shares outstanding
plus potential dilutive shares of common stock.
F-51
<PAGE>
TELTECH RESOURCE NETWORK CORPORATION
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Potential dilutive shares of common stock include stock options which have been
granted to employees and directors and outstanding warrants. Both basic and
diluted income (loss) per share are calculated after deducting the accretion
resulting from the mandatory redemption feature of preferred stock, except if
the assumed conversion of the preferred stock is dilutive.
3. EQUIPMENT AND IMPROVEMENTS
Equipment and improvements consists of the following at December 31, 1999
and 1998:
<TABLE>
<CAPTION>
1999 1998
----------- -----------
<S> <C> <C>
Computers and related equipment.................... $ 3,250,399 $ 2,920,489
Website software development....................... 343,883 --
Office furniture and equipment..................... 1,154,698 1,144,441
Leasehold improvements............................. 88,335 88,335
----------- -----------
4,837,315 4,153,265
Less accumulated depreciation and amortization..... (3,298,157) (2,853,898)
----------- -----------
$ 1,539,158 $ 1,299,367
=========== ===========
</TABLE>
4. LEASES
The Company is obligated under various operating leases for office equipment
and office facilities. The total future minimum lease payments due under
noncancellable leases are as follows:
<TABLE>
<CAPTION>
OPERATING
YEARS ENDING DECEMBER 31, LEASES
------------------------- ----------
<S> <C>
2000........................................................ $ 416,558
2001........................................................ 364,726
2002........................................................ 364,726
2003........................................................ 124,293
----------
Total future minimum lease payments......................... $1,270,303
==========
</TABLE>
Total rent expense under operating leases was approximately $420,000,
$398,000 and $467,000 in 1999, 1998 and 1997, respectively.
5. LINE OF CREDIT
In August 1999, the Company entered into a new line of credit. Borrowings
are limited to the lesser of $2,000,000 or 85% of eligible accounts receivable.
Borrowings bear interest at an annual rate of 3% above the bank's prime rate
(8.5% at December 31, 1999). The Company is required to pay 1/8 of 1% per month
on the unused balance of the line of credit and an annual commitment fee of
$10,000. The line of credit requires certain covenants to be met and expires in
June 2001. There was $1,004,000 outstanding under this line of credit at
December 31, 1999 with an additional available amount at that date of $996,543.
F-52
<PAGE>
TELTECH RESOURCE NETWORK CORPORATION
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
6. LONG-TERM DEBT
Long-term debt consists of the following at December 31, 1999 and 1998:
<TABLE>
<CAPTION>
1999 1998
--------- ---------
<S> <C> <C>
Equipment note payable; bears interest at
16.37% per annum.................................... $ 420,740 $ --
Equipment note payable; bears interest at
7.75% per annum;.................................... -- 443,519
--------- ---------
420,740 443,519
Current portion--long-term debt....................... (137,417) (173,544)
--------- ---------
Long-term debt........................................ $ 283,323 $ 269,975
========= =========
</TABLE>
Future maturities of long-term debt are as follows:
<TABLE>
<CAPTION>
YEARS ENDING DECEMBER 31,
-------------------------
<S> <C>
2000........................................................ $137,417
2001........................................................ 161,679
2002........................................................ 121,644
--------
$420,740
========
</TABLE>
In August 1999, the Company entered into a new equipment financing
agreement. The agreement replaces the equipment note outstanding at
December 31, 1998. Teltech has two loans under the agreement. Borrowings are
payable in monthly installments of $4,114 and $12,225 payable through April and
June, 2002, respectively. The loans include a lump-sum payment requirement of
$18,000 and $53,104 in the last month of the respective loans.
7. UNDESIGNATED STOCK
As of December 31, 1999 and 1998, the Company had 2,500,000 shares of
undesignated stock. The Board of Directors has the authority to determine the
rights and preferences of these shares, subject to authorization by the
preferred stockholders.
8. MANDATORILY REDEEMABLE CONVERTIBLE PREFERRED STOCK
The Company's redeemable convertible preferred stock is convertible into
common stock at the option of the preferred stockholders. The redeemable
convertible preferred stock will be converted into common stock if the Company
closes the sale and issuance of common stock in an underwritten public offering
whereby the net proceeds received by the Company are at least $10,000,000 and
the public offering price is at least $10.00 per share. The redeemable
convertible preferred stock conversion rate is one share of redeemable
convertible preferred stock for one share of common stock and is adjusted for
stock dividends and stock splits.
The series of redeemable convertible preferred stock entitles the holders
to:
- A liquidation preference of $1.38 per Series A preferred share, $2.60 per
Series B preferred share, $5.05 per Series C preferred share, $6.70 per
Series D preferred share, and $3.55 per Series E preferred share.
F-53
<PAGE>
TELTECH RESOURCE NETWORK CORPORATION
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
8. MANDATORILY REDEEMABLE CONVERTIBLE PREFERRED STOCK (CONTINUED)
- Special voting rights with regard to authorization or issuance of
additional preferred shares or shares of stock having priority over
preferred shares, declaration of dividends or any distribution on any
shares of capital stock junior to the preferred shares, issuance of common
shares at a price below $3.55 per share, amendment of rights or
preferences of preferred shares, and any disposition of substantially all
of the Company's assets or consolidation or merger of the Company with any
other entity.
Under the terms of the preferred stock agreements, the Company was obligated
to offer to redeem one-half of the redeemable convertible preferred stock
outstanding on August 31, 1999, totaling $8.2 million, and to offer to redeem
all shares on each succeeding August 31 through 2004, totaling $16.3 million.
The Company has been advised by outside legal counsel that under Minnesota law,
it is not currently obligated to make such an offer as management believes
sufficient funds are not available to make such a redemption at this time.
The redemption price is $1.52 per share for Series A, $2.86 per share for
Series B, $5.56 per share for Series C, $7.37 per share for Series D, and $3.91
per share for Series E. The difference between the amounts paid in on all issues
of redeemable convertible preferred stock and the redemption price (the
redemption premium) is being accreted over the period from the date of issuance
of the related redeemable convertible preferred stock to the earliest redemption
date. The redemption premium accretion is recorded as an increase to the
redeemable convertible preferred stock.
Redeemable convertible preferred stock, $.01 par value, at amounts paid in
plus accreted redemption premium, is summarized as follows:
<TABLE>
<CAPTION>
1999 1998
----------- -----------
<S> <C> <C>
Series A, authorized 725,000 shares; issued and
outstanding 724,333.............................. $ 1,097,959 $ 1,092,091
Series B, authorized 525,000 shares; issued and
outstanding 495,251.............................. 1,415,226 1,411,800
Series C, authorized 600,000 shares; issued and
outstanding 566,260.............................. 3,145,594 3,145,575
Series D, authorized 400,000 shares; issued and
outstanding 355,895.............................. 2,615,593 2,594,451
Series E, authorized 3,000,000 shares; issued and
outstanding 2,076,997............................ 8,071,791 7,960,006
----------- -----------
$16,346,143 $16,203,923
=========== ===========
</TABLE>
9. STOCK OPTIONS
The Company has three nonqualified stock option plans. Under the plans,
2,850,000 shares are reserved for stock options. The Board of Directors has the
authority to grant these options and set the terms and the Board determines the
estimated fair value of common stock with option grants. Options vest and are
exercisable in varying annual installments, generally over four years.
F-54
<PAGE>
TELTECH RESOURCE NETWORK CORPORATION
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
9. STOCK OPTIONS (CONTINUED)
Stock option activity under these plans is summarized as follows:
<TABLE>
<CAPTION>
WEIGHTED-
AVERAGE
EXERCISE
NUMBER OF EXERCISE PRICE PRICE PER
OPTIONS PER SHARE SHARE
---------- -------------- ---------
<S> <C> <C> <C>
Balance as of December 31, 1996........................... 1,870,060 $1.00 - 5.05 $1.54
Granted................................................... 1,227,955 1.00 - 2.25 1.06
Exercised................................................. (3,202) 1.40 - 2.25 1.45
Canceled.................................................. (1,354,126) 1.00 - 5.05 1.52
----------
Balance as of December 31, 1997........................... 1,740,687 1.00 - 5.05 1.22
----------
Granted................................................... 349,670 1.00 - 1.25 1.17
Exercised................................................. (785) 1.00 - 2.00 1.36
Canceled.................................................. (133,328) 1.00 - 3.00 1.01
----------
Balance as of December 31, 1998........................... 1,956,244 1.00 - 5.05 1.22
----------
Granted................................................... 171,226 1.00 - 1.75 1.67
Exercised................................................. (2,500) 1.00 - 1.25 1.03
Canceled.................................................. (164,022) 1.00 - 3.00 1.09
----------
Balance as of December 31, 1999........................... 1,960,948 1.00 - 5.05 1.27
==========
</TABLE>
The following summarizes information about stock options outstanding at
December 31, 1999:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
-------------------------------------- -----------------------
WEIGHTED-
AVERAGE WEIGHTED- WEIGHTED-
REMAINING AVERAGE AVERAGE
NUMBER CONTRACTUAL EXERCISE NUMBER EXERCISE
RANGE OF EXERCISE PRICES OUTSTANDING LIFE (YEARS) PRICE EXERCISABLE PRICE
------------------------ ----------- ------------ --------- ----------- ---------
<S> <C> <C> <C> <C> <C>
$1.00 - 1.75............................. 1,733,699 7.0 $1.10 1,167,811 $1.06
2.00 - 3.00............................. 203,400 5.2 2.25 203,400 2.25
5.05.................................... 23,849 4.1 5.05 23,849 5.05
--------- ---------
1.00 - 5.05............................. 1,960,948 1,395,060
========= =========
</TABLE>
The Company has adopted the disclosure-only provisions of Statement of
Financial Accounting Standards No. 123, "Accounting for Stock Based
Compensation" SFAS No. 123. For purposes of the pro forma disclosures below, the
estimated fair value of the options is amortized to expense over the options'
vesting period. Had compensation cost for the Company's stock plan been
determined based on the minimum value at the grant date for awards during 1999,
1998 and 1997 consistent with the
F-55
<PAGE>
TELTECH RESOURCE NETWORK CORPORATION
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
9. STOCK OPTIONS (CONTINUED)
provisions of SFAS No. 123, the Company's net (loss) income would have been
changed to the pro forma amounts indicated as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------
1999 1998 1997
--------- --------- --------
<S> <C> <C> <C>
Net (loss) income--as reported.............. $ (91,569) $(355,733) $614,137
Net (loss) income--pro forma................ (263,641) (506,584) 464,159
</TABLE>
The minimum value of each option grant is estimated on the date of grant
using the Black-Scholes option-pricing model with the following weighted-average
assumptions used for grants in 1999, 1998 and 1997, respectively; dividend yield
of 0%; risk-free interest rates of 6.3%, 6.3% and 6.4%; and expected lives of
seven and ten years depending on date of issue. Volatility factors are not
applicable to non-public companies.
10. STOCK WARRANTS
The Company has warrants outstanding to purchase 239,156 of its Series E
redeemable convertible preferred stock at $3.55 per share and 313,879 shares of
its common stock at $1.00 per share. The warrants expire in July 2000.
11. INCOME TAXES
Actual income tax expense differs from the expected amounts based upon the
statutory federal tax rates as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------
1999 1998 1997
-------- --------- ---------
<S> <C> <C> <C>
Expected federal income tax at statutory
rate........................................ $(31,100) $(120,900) $ 208,800
State income taxes, net of federal tax
effect...................................... (4,300) (10,000) 24,500
Increase in (reduction) of valuation
allowance................................... 33,000 117,000 (241,500)
Meals and entertainment....................... 4,900 8,200 8,400
Other......................................... (2,500) 6,500 (200)
-------- --------- ---------
-- -- --
======== ========= =========
</TABLE>
Temporary differences comprising the Company's gross deferred tax assets are
as follows:
<TABLE>
<CAPTION>
1999 1998
----------- -----------
<S> <C> <C>
Net operating loss carryforwards................... $ 6,495,000 $ 6,563,000
Accrued vacation and compensation.................. 232,000 82,000
Allowance for doubtful accounts.................... 3,000 3,000
Other, net......................................... 25,000 74,000
----------- -----------
Total gross deferred tax assets.................. 6,775,000 6,772,000
Valuation allowance................................ (6,775,000) (6,772,000)
----------- -----------
Net deferred taxes............................... $ -- $ --
=========== ===========
</TABLE>
F-56
<PAGE>
TELTECH RESOURCE NETWORK CORPORATION
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
11. INCOME TAXES (CONTINUED)
Based on the current year loss, as well as prior accumulated losses,
valuation allowances have been established for the entire tax benefit associated
with the carryforwards and net future deductible temporary differences as of
December 31, 1999 and 1998.
The Company's net operating loss carryforwards expire as follows unless
utilized:
<TABLE>
<CAPTION>
CARRYFORWARD
YEARS ENDING DECEMBER 31, EXPIRATION
------------------------- ------------
<S> <C>
2000........................................................ $ 418,042
2001........................................................ 1,223,020
2002........................................................ 1,446,462
2003........................................................ 1,460,796
2004........................................................ 1,173,438
Thereafter.................................................. 10,398,242
-----------
$16,120,000
===========
</TABLE>
The utilization of these carryforwards may be subject to limitations based
on future changes in ownership pursuant to Internal Revenue Code Section 382.
12. RELATED PARTY TRANSACTION
The Company purchases online information and hard copy documents from a
Series E preferred stockholder. Purchases of online information of approximately
$866,000, $2,300,000 and $3,000,000 were made in 1999, 1998 and 1997,
respectively, and are included in cost of revenues. As of December 31, 1999 and
1998, the Company owed the Series E preferred stockholder approximately $0 and
$360,000, respectively, for purchases of online information.
13. SIGNIFICANT CUSTOMER
The Company has one customer which comprised 9.3%, 12.2% and 11.9% of
revenues in 1997, 1998 and 1999, respectively.
14. INCOME (LOSS) PER SHARE
<TABLE>
<CAPTION>
1999
-----------------------------------------
INCOME (LOSS) SHARES PER-SHARE
(NUMERATOR) (DENOMINATOR) AMOUNT
------------- ------------- ---------
<S> <C> <C> <C>
Net loss................................. $ (91,569)
Less: Accretion resulting from mandatory
redemption feature of preferred
stock.................................... (142,220)
---------
Income per common share.................. (233,789) 2,451,298 $(0.10)
Effect of dilutive securities:
Stock options and warrants............. -- -- --
--------- --------- ------
Income (loss) per common share--assuming
dilution............................... $(233,789) 2,451,298 $(0.10)
========= ========= ======
</TABLE>
F-57
<PAGE>
TELTECH RESOURCE NETWORK CORPORATION
NOTES TO THE FINANCIAL STATEMENTS
14. INCOME (LOSS) PER SHARE (CONTINUED)
<TABLE>
<CAPTION>
1998
-----------------------------------------
INCOME (LOSS) SHARES PER-SHARE
(NUMERATOR) (DENOMINATOR) AMOUNT
------------- ------------- ---------
<S> <C> <C> <C>
Net loss................................................. $(355,733)
Less: Accretion resulting from mandatory redemption
feature of preferred stock......................... (176,230)
---------
Income per common share.................................. (531,963) 2,450,288 $(0.22)
Effect of dilutive securities:
Stock options and warrants............................. -- -- --
--------- --------- ------
Income (loss) per common share--assuming dilution........ $(531,963) 2,450,328 $(0.22)
========= ========= ======
</TABLE>
<TABLE>
<CAPTION>
1997
-----------------------------------------
INCOME (LOSS) SHARES PER-SHARE
(NUMERATOR) (DENOMINATOR) AMOUNT
------------- ------------- ---------
<S> <C> <C> <C>
Net loss................................................. $ 614,137
Less: Accretion resulting from mandatory redemption
feature of preferred stock......................... (168,289)
---------
Income per common share.................................. 445,848 2,447,442 $ 0.18
Effect of dilutive securities:
Convertible preferred stock............................ 168,289 4,218,736 --
--------- --------- ------
Income (loss) per common share--assuming dilution........ $ 614,137 6,666,178 $ 0.09
========= ========= ======
</TABLE>
As described in note 9, during 1997 options to purchase common shares at
exercise prices ranging from $1.00 to $5.05 were outstanding, but were not
included in the computation of diluted earnings per common share because the
options' exercise prices were not less than the average market price of the
common shares.
15. DEFINITIVE AGREEMENT TO SELL THE COMPANY
On March 6, 2000, the Company and Sopheon plc announced that they had
entered into an Agreement and Plan of Merger and Reorganization (the Agreement)
for the Company to be acquired by Sopheon plc. Under the Agreement, Sopheon plc
would pay $14,000,000 in cash and issue $2,192,954 of its shares to the
Company's shareholders. There is no assurance that this transaction will be
closed.
F-58
<PAGE>
APPENDIX A--AGREEMENT AND PLAN OF MERGER AND REORGANIZATION
A-1
<PAGE>
AGREEMENT AND PLAN OF MERGER AND REORGANIZATION
AMONG
SOPHEON PLC,
SOPHEON CORPORATION
AND
TELTECH RESOURCE NETWORK CORPORATION
DATED AS OF JANUARY 21, 2000
A-2
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
--------
<S> <C> <C>
ARTICLE I DEFINITIONS....................................................... A-6
SECTION 1.1 Defined Terms............................................... A-6
ARTICLE II THE MERGER....................................................... A-13
SECTION 2.1 The Merger.................................................. A-13
SECTION 2.2 Closing..................................................... A-14
SECTION 2.3 Effective Time.............................................. A-14
SECTION 2.4 Effect of the Merger........................................ A-14
SECTION 2.5 Articles of Incorporation; Bylaws; Directors and Officers of
Surviving Corporation..................................... A-14
ARTICLE III CONVERSION OF SECURITIES; EXCHANGE OF CERTIFICATES.............. A-14
SECTION 3.1 Conversion of Shares........................................ A-14
SECTION 3.2 Exchange of Shares Other than Dissenting Shares............. A-15
SECTION 3.3 Treatment of Stock Options.................................. A-17
SECTION 3.4 Treatment of Warrants....................................... A-17
SECTION 3.5 Stock Transfer Books........................................ A-17
SECTION 3.6 No Fractional Share Certificates............................ A-18
SECTION 3.7 Certain Adjustments......................................... A-18
SECTION 3.8 Dissenters' Rights.......................................... A-18
SECTION 3.9 Lost, Stolen or Destroyed Certificates...................... A-19
SECTION 3.10 Taking of Necessary Action; Further Action.................. A-19
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF COMPANY........................ A-19
SECTION 4.1 Organization and Qualification; Subsidiaries................ A-19
SECTION 4.2 Articles of Incorporation and Bylaws........................ A-19
SECTION 4.3 Capitalization.............................................. A-19
SECTION 4.4 Authority Relative to This Agreement........................ A-20
SECTION 4.5 No Conflict; Required Filings and Consents.................. A-21
SECTION 4.6 Permits; Compliance with Laws............................... A-21
SECTION 4.7 Filings; Financial Statements............................... A-21
SECTION 4.8 Absence of Certain Changes or Events........................ A-22
SECTION 4.9 Employee Benefit Plans, Labor Matters....................... A-22
SECTION 4.10 Contracts................................................... A-25
SECTION 4.11 Litigation.................................................. A-25
SECTION 4.12 Environmental Matters....................................... A-25
SECTION 4.13 Intellectual Property....................................... A-26
SECTION 4.14 Taxes....................................................... A-26
SECTION 4.15 Insurance................................................... A-27
SECTION 4.16 Properties.................................................. A-28
SECTION 4.17 Affiliates.................................................. A-28
SECTION 4.18 Brokers..................................................... A-28
SECTION 4.19 Board Recommendation........................................ A-28
SECTION 4.20 Proxy Statement............................................. A-29
SECTION 4.21 Employees and Labor Matters................................. A-29
SECTION 4.22 Condition of Assets......................................... A-29
SECTION 4.23 Guaranties.................................................. A-29
SECTION 4.24 Opinion of Financial Advisor................................ A-29
SECTION 4.25 Year 2000 Compliance........................................ A-29
</TABLE>
A-3
<PAGE>
<TABLE>
<CAPTION>
PAGE
--------
<S> <C> <C>
SECTION 4.26 Takeover Statutes........................................... A-30
SECTION 4.27 Certain Payments............................................ A-30
SECTION 4.28 Customers and Suppliers..................................... A-30
SECTION 4.29 Interests in Customers and Suppliers........................ A-30
SECTION 4.30 Tax Free Reorganization..................................... A-31
SECTION 4.31 Misrepresentations.......................................... A-31
ARTICLE V REPRESENTATIONS AND WARRANTIES OF PARENT AND
MERGER SUB...................................................... A-32
SECTION 5.1 Organization and Qualification; Subsidiaries................ A-32
SECTION 5.2 Articles of Association; Articles of Incorporation and
Bylaws.................................................... A-32
SECTION 5.3 Capitalization.............................................. A-32
SECTION 5.4 Authority Relative to This Agreement........................ A-33
SECTION 5.5 No Conflict; Required Filings and Consents.................. A-33
SECTION 5.6 Absence of Certain Changes or Events........................ A-33
SECTION 5.7 Filings; Financial Statements............................... A-34
SECTION 5.8 Litigation.................................................. A-35
SECTION 5.9 No Prior Activities......................................... A-35
SECTION 5.10 Compliance with Laws........................................ A-35
SECTION 5.11 Tax Free Reorganization..................................... A-35
SECTION 5.12 Merger Subsidiary........................................... A-37
SECTION 5.13 Financing................................................... A-37
ARTICLE VI COVENANTS........................................................ A-37
SECTION 6.1 Conduct of Business by Company Pending the Closing.......... A-37
SECTION 6.2 Notices of Certain Events................................... A-38
SECTION 6.3 Access to Information; Confidentiality...................... A-39
SECTION 6.4 No Solicitation of Transactions............................. A-39
SECTION 6.5 Tax-Free Transaction........................................ A-40
SECTION 6.6 Control of Operations....................................... A-40
SECTION 6.7 Purchases of Common Stock of the Other Party................ A-40
SECTION 6.8 Further Action; Consents; Filings........................... A-41
ARTICLE VII ADDITIONAL AGREEMENTS........................................... A-41
SECTION 7.1 Registration Statement...................................... A-41
SECTION 7.2 Stockholders' Meeting....................................... A-42
SECTION 7.3 Affiliates.................................................. A-42
SECTION 7.4 Directors' and Officers' Indemnification.................... A-43
SECTION 7.5 [THIS SECTION INTENTIONALLY NOT USED]....................... A-44
SECTION 7.6 Public Announcements........................................ A-44
SECTION 7.7 Blue Sky.................................................... A-44
SECTION 7.8 Employee Matters............................................ A-44
ARTICLE VIII CONDITIONS TO THE MERGER....................................... A-44
SECTION 8.1 Conditions to the Obligations of Each Party to Consummate
the Merger................................................ A-44
SECTION 8.2 Conditions to the Obligations of Company.................... A-45
SECTION 8.3 Conditions to the Obligations of Parent and Merger Sub...... A-46
</TABLE>
A-4
<PAGE>
<TABLE>
<CAPTION>
PAGE
--------
<S> <C> <C>
ARTICLE IX TERMINATION, AMENDMENT AND WAIVER................................ A-47
SECTION 9.1 Termination................................................. A-47
SECTION 9.2 Effect of Termination....................................... A-48
SECTION 9.3 Amendment................................................... A-48
SECTION 9.4 Waiver...................................................... A-48
SECTION 9.5 Termination Fee; Expenses................................... A-48
ARTICLE X GENERAL PROVISIONS................................................ A-49
SECTION 10.1 Non-Survival of Representations and Warranties.............. A-49
SECTION 10.2 Notices..................................................... A-49
SECTION 10.3 Severability................................................ A-49
SECTION 10.4 Assignment; Binding Effect; Benefit......................... A-50
SECTION 10.5 Incorporation of Exhibits................................... A-50
SECTION 10.6 Governing Law............................................... A-50
SECTION 10.7 Waiver of Jury Trial........................................ A-50
SECTION 10.8 Headings; Interpretation.................................... A-50
SECTION 10.9 Counterparts................................................ A-50
SECTION 10.10 Entire Agreement............................................ A-50
</TABLE>
A-5
<PAGE>
AGREEMENT AND PLAN OF MERGER AND REORGANIZATION
This Agreement and Plan of Merger and Reorganization is dated as of
January 21, 2000 (as amended, supplemented or otherwise modified from time to
time, this "AGREEMENT"), among SOPHEON PLC, a United Kingdom public company
limited by shares ("PARENT"), TELTECH RESOURCE NETWORK CORPORATION, a Minnesota
corporation ("COMPANY"), and SOPHEON CORPORATION, a Minnesota corporation and a
wholly owned subsidiary of Parent ("MERGER SUB").
W I T N E S S E T H:
WHEREAS, the boards of directors of Parent, Merger Sub and Company have
determined that it is advisable and in the best interests of their respective
companies and stockholders to enter into a business combination by means of the
merger of Company with and into Merger Sub, whereby Merger Sub would remain a
wholly owned subsidiary of Parent and the separate existence of Company will
cease (the "MERGER") and have approved and adopted this Agreement;
WHEREAS, for United States federal income tax purposes, it is intended that
the Merger shall qualify as a tax-free reorganization under Section 368(a) of
the Internal Revenue Code of 1986, as amended (together with the rules and
regulations promulgated thereunder, the "CODE"), and that this Agreement shall
be, and hereby is, adopted as a plan of reorganization for purposes of
Section 368 of the Code;
WHEREAS, Parent, Merger Sub and the Company are hereby adopting a plan of
merger, providing for the merger of Company with and into Merger Sub, with the
Merger Sub being the surviving corporation. The Merger will be consummated in
accordance with this Agreement upon the filing by the Company and Merger Sub of
Articles of Merger with the Minnesota Secretary of State (the "ARTICLES OF
MERGER"), such Merger to be consummated as of the Effective Time (as defined
below) of the Merger;
WHEREAS, upon consummation of the Merger, the separate corporate existence
of Company shall cease and the Merger Sub, as the surviving corporation in the
Merger (hereinafter referred to for the period at and after the Effective Time
of the Merger as the "SURVIVING CORPORATION"), shall continue its corporate
existence under the Minnesota Business Corporation Act (the "MBCA") and as
provided in this Agreement; and
WHEREAS, the Board of Directors of the Merger Sub and the Company have
directed that this Agreement be submitted to a vote of the shareholders in
accordance with the MBCA, and Parent, as sole shareholder of Merger Sub, has
duly approved this Agreement in accordance with the MBCA.
NOW, THEREFORE, in consideration of the foregoing and the representations,
warranties, covenants and agreements set forth herein, and other good and
valuable consideration, the receipt and adequacy of which are hereby
acknowledged, and intending to be legally bound hereby, the parties hereto
hereby agree as follows:
ARTICLE I
DEFINITIONS
SECTION 1.1 DEFINED TERMS. Unless the context otherwise requires, the
following terms, when used in this Agreement, shall have the respective meanings
specified below (such meanings to be equally applicable to the singular and
plural forms of the terms defined):
"AFFILIATE" shall mean, with respect to any Person, any other Person that
controls, is controlled by or is under common control with the first Person. For
purposes of the preceding sentence, the term "control" shall mean the power,
direct or indirect, to direct or cause the direction of the management
A-6
<PAGE>
and policies of a Person through the ownership of voting securities, by contract
or otherwise, whether or not such power is exercised.
"AFFILIATE AGREEMENT" shall have the meaning set forth in Section 7.3 of
this Agreement.
"AGREEMENT" shall have the meaning set forth in the Preamble of this
Agreement.
"ARTICLES OF MERGER" shall have the meaning set forth in the Recitals and in
Section 2.3 of this Agreement.
"AVERAGE CLOSING PRICE" shall mean the average of the per share daily
closing price of the Parent Common Stock on the Alternative Investment Market of
London Stock Exchange during the fifteen (15) consecutive trading days ending on
the second trading day prior to the Closing. The Average Closing Price, to be
used in connection with computing Total Merger Shares and for computations
elsewhere in this Agreement, shall be converted to United States dollars from
United Kingdom pounds pursuant to the average exchange rate (between such
dollars and pounds) during such fifteen (15) consecutive trading day period.
"AVERAGE COMMON CASH AMOUNT" shall equal a fraction, the numerator of which
is the aggregate capital paid in by all holders of Company Common Stock as
reflected on the financial statements of Company immediately before the
Effective Time and the denominator of which is the total number of shares of
Company Common Stock issued and outstanding immediately before the Effective
Time multiplied by the Cash Percentage.
"AVERAGE COMMON STOCK AMOUNT" shall equal a fraction, the numerator of which
is the aggregate capital paid in by all holders of Company Common Stock as
reflected on the financial statements of Company immediately before the
Effective Time and the denominator of which is the total number of shares of
Company Common Stock issued and outstanding immediately before the Effective
Time multiplied by the sum of 1.00 less the Cash Percentage.
"BLUE SKY LAWS" shall mean state securities or "blue sky" laws.
"BUSINESS DAY" shall mean any day on which the principal offices of the SEC
in Washington, D.C. are open to accept filings, or, in the case of determining a
date when any payment is due, any day on which banks are not required or
authorized by Law or executive order to close in the City of New York.
"CASH PERCENTAGE" shall equal a fraction the numerator of which shall equal
$14,000,000 plus the aggregate capital paid in to the Company upon the exercise
of Company Stock Options or Warrants to purchase shares of Company Capital Stock
from and after the date hereof until the Closing, and the denominator of which
shall equal the sum of the Total Preference plus the aggregate capital paid in
by all holders of Company Common Stock as reflected on the financial statements
of Company immediately before the Effective Time.
"CLOSING" shall have the meaning set forth in Section 2.2 of this Agreement.
"COBRA" shall have the meaning set forth in Section 4.9(f) of this
Agreement.
"CODE" shall have the meaning set forth in the Recitals of this Agreement.
"COMMON EXCHANGE RATIO" shall have the meaning set forth in Section 3.1(f)
of this Agreement.
"COMPANY" shall have the meaning set forth in the Preamble of this
Agreement.
"COMPANY BENEFIT PLANS" shall have the meaning set forth in Section 4.9(a)
of this Agreement.
"COMPANY CAPITAL STOCK" shall mean the authorized capital stock of the
Company consisting of the Company Common Stock and the Company Preferred Stock.
A-7
<PAGE>
"COMPANY CERTIFICATES" shall have the meaning set forth in Section 3.2(c) of
this Agreement.
"COMPANY COMMON STOCK" shall have the meaning set forth in Section 3.1(f) of
this Agreement.
"COMPANY COMPETING TRANSACTION" shall mean any of the following involving
Company (other than the Merger):
(i) any merger, consolidation, share exchange, business combination or
other similar transaction;
(ii) any sale, lease, exchange, transfer or other disposition of twenty
percent (20%) or more of the assets of such party and its subsidiaries,
taken as a whole, in a single transaction or series of transactions;
(iii) any Person having acquired beneficial ownership or the right to
acquire beneficial ownership of, or any "group" (as such term is defined
under Section 13(d) of the Exchange Act) having been formed (other than a
group consisting exclusively of those individuals who execute a Company
Affiliate Agreement) which beneficially owns or has the right to acquire
beneficial ownership of twenty percent (20%) or more of the outstanding
voting securities of such party;
(iv) any solicitation in opposition to the approval of this Agreement by
the stockholders of such party; or
(v) any public announcement of a proposal, plan or intention to do any
of the foregoing or any agreement to engage in any of the foregoing.
"COMPANY DISCLOSURE SCHEDULE" shall mean the disclosure schedule delivered
by Company to Parent prior to the execution of this Agreement and forming a part
hereof.
"COMPANY ERISA AFFILIATE" shall have the meaning set forth in
Section 4.9(a) of this Agreement.
"COMPANY FINANCIAL STATEMENTS" shall have the meaning set forth in
Section 4.7(b) of this Agreement.
"COMPANY MATERIAL ADVERSE EFFECT" shall mean any change in or effect with
respect to Company that, individually or in the aggregate (taking into account
all other such changes or effects), is materially adverse (a) to the business,
assets, liabilities, condition (financial or otherwise) or results of operations
of Company and the Company Subsidiaries taken as a whole; (b) to the ability of
the Company to perform its obligations under or consummate the transactions
contemplated by this Agreement; or (c) and which would or with substantial
certainty will, either upon occurrence or over the passage of time, become
material and adverse.
"COMPANY PERMITS" shall have the meaning set forth in Section 4.6 of this
Agreement.
"COMPANY PREFERRED STOCK" shall mean all of Company Series A Stock, Company
Series B Stock, Company Series C Stock, Company Series D Stock, and Company
Series E Stock.
"COMPANY SERIES A STOCK" shall have the meaning set forth in Section 3.1(a)
of this Agreement.
"COMPANY SERIES B STOCK" shall have the meaning set forth in Section 3.1(b)
of this Agreement.
"COMPANY SERIES C STOCK" shall have the meaning set forth in Section 3.1(c)
of this Agreement.
"COMPANY SERIES D STOCK" shall have the meaning set forth in Section 3.1(d)
of this Agreement.
"COMPANY SERIES E STOCK" shall have the meaning set forth in Section 3.1(e)
of this Agreement.
"COMPANY STOCK OPTIONS" shall have the meaning set forth in Section 3.3(a)
of this Agreement.
"COMPANY STOCK PLANS" shall mean Company's 1987 Non-qualified Stock Option
Plan, 1995 Vendor Stock Option Plan and 1995 Key Employee Non-qualified Stock
Option Plan.
A-8
<PAGE>
"COMPANY STOCKHOLDERS' MEETING" shall have the meaning set forth in
Section 7.1(a) of this Agreement.
"COMPANY SUPERIOR PROPOSAL" shall have the meaning set forth in Section 6.4
of this Agreement.
"COMPANY TERMINATION FEE" shall have the meaning set forth in
Section 9.5(b) of this Agreement.
"COMPANY UNAUDITED INTERIM BALANCE SHEET" shall have the meaning set forth
in Section 4.7(b) of this Agreement.
"CONFIDENTIAL INFORMATION" shall have the meaning set forth in
Section 4.13(c) of this Agreement.
"CONFIDENTIALITY AGREEMENT" shall mean that certain Non-Disclosure Agreement
dated November 16, 1999 between Parent and Company.
"CONTRACT" or "CONTRACTS" shall have the meaning set forth in Section 4.10
of this Agreement.
"COSTS" shall have the meaning set forth in Section 7.4(b) of this
Agreement.
"DISSENTING SHARES" shall mean those shares of the Company Capital Stock
that (i) prior to taking the vote of the shareholders of the Company on the
Merger, shall file with the Company written notice of intent to demand payment
of the fair value of such holder's shares of the Company Capital Stock if the
Merger is effected; (ii) do not vote in favor of the Merger; and (iii) after
taking such vote make written demand for payment of the fair value of such
shares of the Company's Capital Stock as provided in the MBCA.
"$" shall mean United States Dollars.
"EFFECTIVE TIME" shall have the meaning set forth in Section 2.3 of this
Agreement.
"ENCUMBRANCES" shall mean all claims, security interests, liens, pledges,
charges, escrows, options, proxies, rights of first refusal, preemptive rights,
mortgages, hypothecations, prior assignments, title retention agreements,
indentures, security agreements or any other encumbrance of any kind.
"ENVIRONMENTAL LAW" means any Law or order of any Governmental Entity
relating to the regulation or protection of human health, safety or the
environment or to emissions, discharges, releases or threatened releases of
pollutants, contaminants, chemicals or industrial, toxic or hazardous substances
or wastes into the environment (including, without limitation, ambient air,
soil, surface water, ground water, wetlands, land or subsurface strata) , or
otherwise relating to the manufacture, processing, distribution, use, treatment,
storage, disposal, transport or handling of pollutants, contaminants, chemicals
or industrial, toxic or hazardous substances or wastes.
"ERISA" shall mean the Employee Retirement Income Security Act of 1974, as
amended.
"EXCHANGE ACT" shall mean the Securities Exchange Act of 1934, as amended,
together with the rules and regulations promulgated thereunder.
"EXCHANGE AGENT" shall have the meaning set forth in Section 3.2(a) of this
Agreement.
"EXPENSES" shall mean, with respect to any party hereto, all reasonable
out-of-pocket expenses (including, without limitation, all fees and expenses of
counsel, accountants, investment bankers, experts and consultants to a party
hereto and its affiliates) incurred by such party or on its behalf in connection
with or related to the authorization, preparation, negotiation, execution and
performance of its obligations pursuant to this Agreement and the consummation
of the Merger, the preparation, printing, filing and mailing of the Registration
Statement and the Proxy Statement, the solicitation of stockholder approvals,
the filing of HSR Act notice, if any, and all other matters related to the
transactions contemplated hereby and the closing of the Merger.
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"GOVERNMENTAL ENTITY" shall mean any United States federal, state or local
or any foreign governmental, regulatory or administrative authority, agency or
commission, including the Securities and Exchange Commission of the Netherlands
and the London Stock Exchange, or any court, tribunal or arbitral body.
"GOVERNMENTAL ORDER" shall mean any order, writ, judgment, injunction,
decree, stipulation, determination or award entered by or with any Governmental
Entity.
"HAZARDOUS MATERIAL" means (a) any petroleum or petroleum products,
flammable explosives, radioactive materials, asbestos in any form that is or
could become friable, urea formaldehyde foam insulation and transformers or
other equipment that contain dielectric fluid containing N levels of
polychlorinated biphenyls (PCBs); (b) any chemicals or other materials or
substances which are now or hereafter become defined as or included in the
definition of "hazardous substances," "hazardous wastes," "hazardous materials,"
"extremely hazardous wastes," "restricted hazardous wastes," "toxic substances,"
"toxic pollutants" or words of similar import under any Environmental Law; and
(c) any other chemical or other material or substance, exposure to which is now
or hereafter prohibited, limited or regulated by any Governmental Entity under
any Environmental Law.
"HSR ACT" shall mean Hart-Scott-Rodino Antitrust Improvements Act of 1976,
as amended, together with the rules and regulations promulgated thereunder.
"INDEMNIFIED PARTIES" shall have the meaning set forth in Section 7.4(b) of
this Agreement.
"INITIAL QUOTED PRICE" shall mean the closing price of Parent's Common Stock
on the Alternative Investment Market of the London Stock Exchange on the last
trading day prior to the signature date of the Agreement and Plan of Merger and
Reorganization. The Initial Quoted Price, to be used in connection with
computing Total Merger Shares, shall be converted to United States dollars from
United Kingdom pounds pursuant to the exchange rate (between the dollars and
pounds) in effect on the date of execution of this Agreement.
"IRS" shall mean the United States Internal Revenue Service.
"INTELLECTUAL PROPERTY" means (a) all inventions (whether patentable or
unpatentable and whether or not reduced to practice), all improvements thereto,
and all patents, patent applications, and patent disclosures, together with all
reissuances, continuations, continuations-in-part, revisions, extensions, and
reexaminations thereof; (b) all trademarks, service marks, trade dress, logos,
trade names, and corporate names, together with all translations, adaptions,
derivations, and combinations thereof and including all goodwill associated
therewith, and all applications, registrations, and renewals in connection
therewith; (c) all copyrightable works, all copyrights, and all applications,
registrations, and renewals in connection therewith; (d) all maskworks and all
applications, registrations, and renewals in connection therewith; (e) all trade
secrets and confidential business information (including ideas, research and
development, know-how, formulas, compositions, manufacturing and production
processes and techniques, technical data, designs, drawings, specifications,
customer and supplier lists, pricing and cost information, and business and
marketing plans and proposals); (f) all computer software and underlying source
code and object code (including data related documentation); (g) all web sites,
internet addresses and domain names; (h) all other proprietary rights; and
(i) all copies and tangible embodiments thereof (in whatever form or medium).
"KNOW" or "KNOWLEDGE" shall mean, an individual shall be deemed to "know" or
have "knowledge" if (a) such individual is actually aware of a particular fact
or other matter; or (b) a prudent individual could be expected in the ordinary
course of business to discover or otherwise become aware of such fact or matter.
An entity will be deemed to "know" or have "knowledge" of a particular fact or
other matter if any individual serving as a director, officer, partner, executor
or trustee of the entity (or in any similar capacity) has, or at any time had,
"knowledge" or "knows" of such fact or matter.
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"L" shall mean United Kingdom Pounds.
"LAW" shall mean any federal, state, foreign or local statute, law,
ordinance, regulation, rule, code, order, judgment, decree, other requirement or
rule of law of the United States, England or any other jurisdiction, and any
other similar act or law.
"MBCA" shall mean the Minnesota Business Corporation Act.
"MATERIAL CONTRACT" shall have the meaning set forth in Section 4.10 of this
Agreement.
"MERGER" shall have the meaning set forth in the Preamble and in
Section 2.1 of this Agreement.
"MERGER SUB" shall have the meaning set forth in the Preamble of this
Agreement.
"PARENT" shall have the meaning set forth in the Preamble of this Agreement.
"PARENT CAPITAL STOCK" shall mean the Parent Common Stock and the Parent
Preferred Stock.
"PARENT CERTIFICATES" shall have the meaning set forth in Section 3.2(b) of
this Agreement.
"PARENT COMMON STOCK" shall mean the Ordinary Shares of 5 pence each (as
defined by Parent's Articles of Association).
"PARENT DISCLOSURE SCHEDULE" shall mean the disclosure schedule delivered by
Parent to Company prior to the execution of this Agreement and forming a part
hereof.
"PARENT MATERIAL ADVERSE EFFECT" shall mean any change in or effect with
respect to Parent that, individually or in the aggregate (taking into account
all other such changes or effects), is materially adverse (a) to the business,
assets, liabilities, condition (financial or otherwise) or results of operations
of Parent and the Parent Subsidiaries, taken as a whole; (b) to the ability of
Parent to perform its obligations under or consummate the transactions
contemplated by this Agreement; or (c) and which would or with substantial
certainty will, either upon occurrence or over the passage of time, become
material and adverse; PROVIDED, HOWEVER, that in no event shall a decrease in
the trading price of Parent Common Stock be considered a Parent Material Adverse
Effect.
"PARENT PREFERRED STOCK" shall mean the Deferred Shares of Parent of 15
pence each (as defined by Parent's Articles of Association).
"PARENT REPORTS" shall have the meaning set forth in Section 5.7(a) of this
Agreement.
"PARENT STOCK OPTIONS" shall have the meaning set forth in Section 5.3 of
this Agreement.
"PARENT SUBSIDIARIES" shall have the meaning set forth in Section 5.1(a) of
this Agreement.
"PERMITTED ENCUMBRANCES" shall mean (i) liens for Taxes, assessments and
other governmental charges not yet due and payable; (ii) immaterial unfiled
mechanics', workmen's, repairmen's, warehousemen's, carriers' or other like
liens arising or incurred in the ordinary course of business which are not yet
due and payable; and (iii) equipment leases with third parties entered into in
the ordinary course of business.
"PERSON" shall mean an individual, corporation, partnership, limited
partnership, limited liability company, syndicate, person (including, without
limitation, a "person" as defined in Section 13(d)(3) of the Exchange Act),
trust, association, entity or government or political subdivision, agency or
instrumentality of a government.
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"PRO RATA EXCHANGE RATIO" shall equal a fraction the numerator of which
shall equal:
the Total Merger Shares less that number of shares of Parent Common
Stock equal to the sum of the number of shares of Company Series A
Stock issued and outstanding immediately before the Effective Time
multiplied by the Series A Exchange Ratio, the number of shares of
Company Series B Stock issued and outstanding immediately before the
Effective Time multiplied by the Series B Exchange Ratio, the number
of shares of Company Series C Stock issued and outstanding
immediately before the Effective Time multiplied by the Series C
Exchange Ratio, the number of shares of Company Series D Stock issued
and outstanding immediately before the Effective Time multiplied by
the Series D Exchange Ratio, the number of shares of Company
Series E Stock issued and outstanding immediately before the
Effective Time multiplied by the Series E Exchange Ratio and the
number of shares of Company Common Stock issued and outstanding
immediately before the Effective Time multiplied by the Common
Exchange Ratio;
and the denominator of which shall equal:
the total number of shares of Company Common Stock issued and
outstanding immediately prior to the Effective Time plus the total
number of shares of Company Common Stock issuable upon the conversion
of Company Preferred Stock (in each case excluding Dissenting Shares,
if any).
"PROCESSES" shall have the meaning set forth in Section 4.25(a) of this
Agreement.
"PROXY STATEMENT" shall have the meaning set forth in Section 7.1(a) of this
Agreement.
"REGISTRATION STATEMENT" shall have the meaning set forth in Section 7.1(a)
of this Agreement.
"REORGANIZATION" shall have the meaning set forth in Section 4.30 of this
Agreement.
"REPRESENTATIVES" shall have the meaning set forth in Section 6.3 of this
Agreement.
"SECURITIES ACT" shall mean the Securities Act of 1933, as amended, together
with the rules and regulations promulgated thereunder.
"SERIES A CASH AMOUNT" shall equal $1.38058 multiplied by the Cash
Percentage.
"SERIES B CASH AMOUNT" shall equal $2.60 multiplied by the Cash Percentage.
"SERIES C CASH AMOUNT" shall equal $5.05 multiplied by the Cash Percentage.
"SERIES D CASH AMOUNT" shall equal $6.70 multiplied by the Cash Percentage.
"SERIES E CASH AMOUNT" shall equal $3.55 multiplied by the Cash Percentage.
"SERIES A EXCHANGE RATIO" shall have the meaning set forth in
Section 3.1(a) of this Agreement.
"SERIES B EXCHANGE RATIO" shall have the meaning set forth in
Section 3.1(b) of this Agreement.
"SERIES C EXCHANGE RATIO" shall have the meaning set forth in
Section 3.1(c) of this Agreement.
"SERIES D EXCHANGE RATIO" shall have the meaning set forth in
Section 3.1(d) of this Agreement.
"SERIES E EXCHANGE RATIO" shall have the meaning set forth in
Section 3.1(e) of this Agreement.
"SPECIAL MEETING" shall have the meaning set forth in Section 4.20 of this
Agreement.
"SUBSIDIARY" shall mean, with respect to any Person, any corporation,
limited liability company, partnership, joint venture or other legal entity of
which such Person (either alone or through or together with any other subsidiary
of such Person) owns, directly or indirectly, a majority of the stock or other
equity interests, the holders of which are generally entitled to vote for the
election of the board of directors or other governing body of such corporation
or other legal entity.
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"SURVIVING CORPORATION" shall have the meaning set forth in the Preamble and
in Section 2.1 of this Agreement.
"SYSTEMS" shall have the meaning set forth in Section 4.25(a) of this
Agreement.
"TAX" shall mean (i) any and all taxes, fees, levies, duties, tariffs,
imposts and other charges of any kind (together with any and all interest,
penalties, additions to tax and additional amounts imposed with respect thereto)
imposed by any Governmental Entity or taxing authority ("Taxing Authority"),
including, without limitation, taxes or other charges on or with respect to
income, franchises, windfall or other profits, gross receipts, property, sales,
use, capital stock, payroll, employment, social security, workers' compensation,
unemployment compensation or net worth; taxes or other charges in the nature of
excise, withholding, ad valorem, stamp, transfer, value-added or gains taxes;
license, registration and documentation fees; and customers' duties, tariffs and
similar charges; (ii) any liability for the payment of any amounts of the type
described in (i) as a result of being a member of an affiliated, combined,
consolidated or unitary group for any taxable period; and (iii) any liability
for the payment of amounts of the type described in (i) or (ii) as a result of
being a transferee of, or a successor in interest to, any Person or as a result
of an express or implied obligation to indemnify any Person.
"TAX RETURN" shall mean any return, statement or form (including, without
limitation, any estimated tax reports or return, withholding tax reports or
return and information report or return) required to be filed with respect to
any Taxes.
"TERMINATING COMPANY BREACH" shall have the meaning set forth in
Section 9.1(g) of this Agreement.
"TERMINATING PARENT BREACH" shall have the meaning set forth in
Section 9.1(i) of this Agreement.
"TOTAL MERGER CONSIDERATION" shall mean the Total Merger Shares plus
$14,000,000 (U.S. Dollars) plus the aggregate capital paid in to the Company
upon the exercise of Company Stock Options and Warrants to purchase shares of
Company Capital Stock from and after the date hereof until the Closing.
"TOTAL MERGER SHARES" shall mean as follows: if the Average Closing Price is
equal to or less than the Initial Quoted Price, then the Total Merger Shares
shall be the result of dividing $20,000,000 by the Average Closing Price. If the
Average Closing Price is greater than the Initial Quoted Price, then the Total
Merger Shares shall be the result of dividing $20,000,000 by the Initial Quoted
Price.
"TOTAL PREFERENCE" shall equal the sum of (i) the total number of Company
Series A Stock issued and outstanding immediately before the Effective Time
multiplied by $1.38058 plus (ii) the total number of Company Series B Stock
issued and outstanding immediately before the Effective Time multiplied by $2.60
plus (iii) the total number of Company Series C Stock issued and outstanding
immediately before the Effective Time multiplied by $5.05 plus (iv) the total
number of Company Series D Stock issued and outstanding immediately before the
Effective Time multiplied by $6.70 plus (v) the total number of Company
Series E Stock issued and outstanding immediately before the Effective Time
multiplied by $3.55.
"WARRANTS" shall have the meaning set forth in Section 3.4 of this
Agreement.
"YEAR 2000 COMPLIANT" shall have the meaning set forth in Section 4.25 of
this Agreement.
ARTICLE II
THE MERGER
SECTION 2.1 THE MERGER. Upon the terms and subject to the conditions set
forth in this Agreement, and in accordance with the MBCA, at the Effective Time
(as defined in Section 2.3), Company shall be merged with and into Merger Sub
(the "MERGER"). As a result of the Merger, the
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separate corporate existence of Company shall cease and Merger Sub shall
continue as the surviving corporation of the Merger as a wholly owned subsidiary
of Parent (the "SURVIVING CORPORATION").
SECTION 2.2 CLOSING. Unless this Agreement shall have been terminated and
the Merger herein contemplated shall have been abandoned pursuant to
Section 9.1 and subject to the satisfaction or waiver of the conditions set
forth in Article VIII, the consummation of the Merger shall take place as
promptly as practicable (and in any event within three (3) Business Days) after
satisfaction or waiver of the conditions set forth in Article VIII, at a closing
(the "CLOSING") to be held at the offices of Briggs and Morgan, Professional
Association, 2400 IDS Center, Minneapolis, Minnesota on or about May 31, 2000 at
10:00 a.m., unless another date, time or place is agreed to by Parent and
Company.
SECTION 2.3 EFFECTIVE TIME. At and after the time of the Closing, the
parties shall cause the Merger to be consummated by filing articles of merger
(the "ARTICLES OF MERGER") with the Office of the Secretary of State of the
State of Minnesota in such form as required by, and executed in accordance with
the relevant provisions of, the MBCA (the date and time of such filing, or such
later date and time as may be set forth therein, being the "EFFECTIVE TIME").
SECTION 2.4 EFFECT OF THE MERGER. At the Effective Time, the effect of the
Merger shall be as provided in the applicable provisions of the MBCA. Without
limiting the generality of the foregoing, and subject thereto, at the Effective
Time, except as otherwise provided herein, all the property, rights, privileges,
powers and franchises of Company and Merger Sub shall vest in Merger Sub as the
Surviving Corporation, and all debts, liabilities and duties of Company and
Merger Sub shall become the debts, liabilities and duties of Merger Sub as the
Surviving Corporation.
SECTION 2.5 ARTICLES OF INCORPORATION; BYLAWS; DIRECTORS AND OFFICERS OF
SURVIVING CORPORATION. Unless otherwise agreed by Parent and Company before the
Effective Time, at the Effective Time:
(a) the Articles of Incorporation and the Bylaws of Merger Sub as in
effect immediately prior to the Effective Time shall be the Articles of
Incorporation and the Bylaws of the Surviving Corporation, until thereafter
amended as provided by Law and such Articles of Incorporation or Bylaws;
(b) the officers of Merger Sub immediately prior to the Effective Time
shall serve in their respective offices of the Surviving Corporation from
and after the Effective Time, in each case until their successors are
elected or appointed and qualified or until their resignation or removal;
and
(c) the directors of Merger Sub immediately prior to the Effective Time
shall serve as the directors of the Surviving Corporation from and after the
Effective Time, in each case until their successors are elected or appointed
and qualified or until their resignation or removal.
ARTICLE III
CONVERSION OF SECURITIES; EXCHANGE OF CERTIFICATES
SECTION 3.1 CONVERSION OF SHARES. At the Effective Time, by virtue of the
Merger, and without any action on the part of Parent, Merger Sub, Company or the
holders of any of the following securities:
(a) Each share of Series A Convertible Preferred Stock, $0.01 par value
per share, of Company ("COMPANY SERIES A STOCK") issued and outstanding
immediately before the Effective Time, and all rights in respect thereof,
shall, forthwith cease to exist and be converted into and become
exchangeable for (i) the Series A Cash Amount plus (ii) that number of
shares of Parent Common Stock equal to a fraction, the numerator of which
equals $1.38058 less the Series A Cash Amount and the denominator of which
shall equal the Average Closing Price (the "SERIES A
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EXCHANGE RATIO") plus (iii) that number of shares of Parent Common Stock
equal to the Pro Rata Exchange Ratio.
(b) Each share of Series B Convertible Preferred Stock, $0.01 par value
per share, of Company ("COMPANY SERIES B STOCK") issued and outstanding
immediately before the Effective Time, and all rights in respect thereof,
shall, forthwith cease to exist and be converted into and become
exchangeable for (i) the Series B Cash Amount plus (ii) that number of
shares of Parent Common Stock equal to a fraction, the numerator of which
equals $2.60 less the Series B Cash Amount and the denominator of which
shall equal the Average Closing Price (the "SERIES B EXCHANGE RATIO") plus
(iii) that number of shares of Parent Common Stock equal to the Pro Rata
Exchange Ratio.
(c) Each share of Series C Convertible Preferred Stock, $0.01 par value
per share, of Company ("COMPANY SERIES C STOCK") issued and outstanding
immediately before the Effective Time, and all rights in respect thereof,
shall, forthwith cease to exist and be converted into and become
exchangeable for (i) the Series C Cash Amount plus (ii) that number of
shares of Parent Common Stock equal to a fraction, the numerator of which
equals $5.05 less the Series C Cash Amount and the denominator of which
shall equal the Average Closing Price (the "SERIES C EXCHANGE RATIO") plus
(iii) that number of shares of Parent Common Stock equal to the Pro Rata
Exchange Ratio.
(d) Each share of Series D Convertible Preferred Stock, $0.01 par value
per share, of Company ("COMPANY SERIES D STOCK") issued and outstanding
immediately before the Effective Time, and all rights in respect thereof,
shall, forthwith cease to exist and be converted into and become
exchangeable for (i) the Series D Cash Amount plus (ii) that number of
shares of Parent Common Stock equal to a fraction, the numerator of which
equals $6.70 less the Series D Cash Amount and the denominator of which
shall equal the Average Closing Price (the "SERIES D EXCHANGE RATIO") plus
(iii) that number of shares of Parent Common Stock equal to the Pro Rata
Exchange Ratio.
(e) Each share of Series E Convertible Preferred Stock, $0.01 par value
per share, of Company ("COMPANY SERIES E STOCK") issued and outstanding
immediately before the Effective Time, and all rights in respect thereof,
shall, forthwith cease to exist and be converted into and become
exchangeable for (i) the Series E Cash Amount plus (ii) that number of
shares of Parent Common Stock equal to a fraction, the numerator of which
equals $3.55 less the Series E Cash Amount and the denominator of which
shall equal the Average Closing Price (the "SERIES E EXCHANGE RATIO") plus
(iii) that number of shares of Parent Common Stock equal to the Pro Rata
Exchange Ratio.
(f) Each share of Common Stock, $0.01 par value per share, of Company
("COMPANY COMMON STOCK") issued and outstanding immediately before the
Effective Time, and all rights in respect thereof, shall, forthwith cease to
exist and be converted into and become exchangeable for (i) the Average
Common Cash Amount plus (ii) that number of shares of Parent Common Stock
equal to a fraction, the numerator of which is the Average Common Stock
Amount and the denominator of which shall equal the Average Closing Price
(the "COMMON EXCHANGE RATIO") plus (iii) that number of shares of Parent
Common Stock equal to the Pro Rata Exchange Ratio.
SECTION 3.2 EXCHANGE OF SHARES OTHER THAN DISSENTING SHARES.
(a) EXCHANGE AGENT. As of the Effective Time, Parent shall enter into an
agreement with a U.S. bank or a trust company reasonably acceptable to Company
to act as exchange agent for the Merger (the "EXCHANGE AGENT") as may be
designated by Parent.
(b) PARENT TO PROVIDE COMMON STOCK AND CASH. Promptly after the Effective
Time, Parent shall make available to the Exchange Agent for the benefit of the
holders of Company Capital Stock
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(i) certificates of Parent Common Stock ("PARENT CERTIFICATES") representing the
number of whole shares of Parent Common Stock issuable pursuant to Section 3.1
in exchange for shares of Company Capital Stock outstanding immediately prior to
the Effective Time; and (ii) sufficient funds to permit payment in lieu of
fractional shares pursuant to Section 3.6 and the cash to be paid in respect of
shares of Company Common Stock pursuant to Section 3.1.
(c) EXCHANGE PROCEDURES. The Exchange Agent shall mail to each holder of
record of certificates of Company Capital Stock ("COMPANY CERTIFICATES"), whose
shares were converted into the right to receive shares of Parent Common Stock,
cash in lieu of fractional shares pursuant to Section 3.6, and cash to be paid
in respect of shares of Company Common Stock pursuant to Section 3.1, promptly
after the Effective Time (and in any event no later than three (3) Business Days
after the later to occur of the Effective Time and receipt by Parent of a
complete list from Company of the names and addresses of its holders of record)
(i) a form letter of transmittal (which shall specify that delivery shall be
effected, and risk of loss and title to the Company Certificates shall pass,
only upon receipt of the Company Certificates by the Exchange Agent, and shall
be in such form and have such other provisions as Parent may reasonably
specify); and (ii) instructions for use in effecting the surrender of the
Company Certificates in exchange for Parent Certificates, cash in lieu of
fractional shares, and cash to be paid in respect of shares of Company Common
Stock pursuant to Section 3.1. Upon surrender of a Company Certificate for
cancellation to the Exchange Agent or to such other agent or agents as may be
appointed by Parent, together with such letter of transmittal, duly completed
and validly executed, and such other documents as may be reasonably required by
the Exchange Agent, the holder of such Company Certificate shall be entitled to
receive in exchange therefor a Parent Certificate representing the number of
whole shares of Parent Common Stock that such holder has the right to receive
pursuant to this Article III, payment of cash in lieu of fractional shares which
such holder has the right to receive pursuant to Section 3.6, and cash to be
paid in respect of shares of Company Common Stock pursuant to Section 3.1, and
the Company Certificate so surrendered shall forthwith be canceled. Until so
surrendered, each outstanding Company Certificate that, prior to the Effective
Time, represented shares of Company Capital Stock will be deemed from and after
the Effective Time, for all purposes other than the payment of dividends and
distributions, to evidence the ownership of the number of full shares of Parent
Common Stock into which such shares of Company Capital Stock shall have been so
converted and the right to receive an amount in cash in lieu of the issuance of
any fractional shares in accordance with Section 3.6. Notwithstanding any other
provision of this Agreement, no interest will be paid or will accrue on any cash
payable to holders of Company Certificates pursuant to the provisions of this
Article III.
(d) DISTRIBUTIONS WITH RESPECT TO UNEXCHANGED SHARES. No dividends or
other distributions with respect to Parent Common Stock with a record date after
the Effective Time will be paid to the holder of any unsurrendered Company
Certificate with respect to the shares of Parent Common Stock represented
thereby until the holder of record of such Company Certificate shall surrender
such Company Certificate. Subject to the effect of applicable escheat or similar
Laws, following surrender of any such Company Certificate, there shall be paid
to the record holder of the Parent Certificates issued in exchange therefor,
without interest, at the time of such surrender, the amount of any such
dividends or other distributions, if any, with a record date after the Effective
Time theretofore payable (but for the provisions of this Section 3.2(d)) with
respect to such shares of Parent Common Stock.
(e) TRANSFER OF OWNERSHIP. If any Parent Certificate is to be issued in a
name, or cash paid to a Person, other than that in which the Company Certificate
surrendered in exchange therefor is registered, it will be a condition of the
issuance and/or payment thereof that the Company Certificate so surrendered will
be properly endorsed and otherwise in proper form for transfer and that the
Person 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 a Parent
Certificate for shares of Parent Common Stock in any name other than that of the
registered holder of the Company Certificate surrendered, or
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established to the satisfaction of Parent or any agent designated by it that
such Tax has been paid or is not payable.
(f) TERMINATION OF EXCHANGE AGENT FUNDING. Any portion of funds (including
any interest earned thereon) or Parent Certificates held by the Exchange Agent
which have not been delivered to holders of Company Certificates pursuant to
this Article III within six (6) months after the Effective Time shall promptly
be paid or delivered, as appropriate, to Parent, and thereafter holders of
Company Certificates who have not theretofore complied with the exchange
procedures set forth in and contemplated by this Section 3.2 shall thereafter
look only to Parent (subject to abandoned property, escheat and similar Laws)
only as general creditors thereof for their claim for shares of Parent Common
Stock, any cash in lieu of fractional shares of Parent Common Stock and any
dividends or distributions (with a record date after the Effective Time) with
respect to Parent Common Stock to which they are entitled.
(g) NO LIABILITY. Notwithstanding anything to the contrary in this
Section 3.2, none of the Exchange Agent, the Surviving Corporation or any party
hereto shall be liable to any Person in respect of any shares of Parent Common
Stock or cash delivered to a public official pursuant to any applicable
abandoned property, escheat or similar Law.
SECTION 3.3 TREATMENT OF STOCK OPTIONS.
(a) Prior to the Effective Date, the Board of Directors of the Company shall
adopt appropriate resolutions and take all other action necessary to accelerate
the vesting of all options to purchase shares of Company Capital Stock (the
"COMPANY STOCK OPTIONS") such that all Company Stock Options vest in full and
become exercisable twenty (20) days prior to the Effective Time of the Merger
and permit exercise of all outstanding Company Stock Options during the twenty
(20) day period immediately preceding the Effective Time of the Merger, provided
that accelerated vesting of Company Stock Options and any exercise of the
Company Stock Options between the date hereof and the Effective Time of the
Merger shall be conditional upon consummation of the Merger. All rights under
any and all Company Stock Options which remain unexercised immediately prior to
the Effective Time of the Merger shall be automatically terminated and
cancelled. The Board of Directors of the Company shall take whatever action is
necessary prior to the Effective Time to terminate the unexercised Company Stock
Options as of such time.
(b) Parent agrees to establish a new stock option plan for employees of the
Merger Sub for the purposes of providing a reasonable incentive to the Merger
Sub employees. Within one (1) year after Closing, Parent will make reasonable
commercial efforts to take such necessary and appropriate action with the London
Stock Exchange to allow the exercise of such options and the sale of the
underlying stock on a freely tradable basis.
SECTION 3.4 TREATMENT OF WARRANTS. All rights under any and all warrants
to purchase shares of Company Capital Stock (the "WARRANTS") which remain
unexercised immediately prior to the Effective Time of the Merger shall be
automatically terminated and cancelled. The Board of Directors of the Company
shall take whatever action is necessary prior to the Effective Time to terminate
the unexercised Warrants as of such time.
SECTION 3.5 STOCK TRANSFER BOOKS.
(a) At the Effective Time, the stock transfer books of Company shall each be
closed, and there shall be no further registration of transfers of shares of
Company Capital Stock thereafter on the records of any such stock transfer
books. In the event of a transfer of ownership of shares of Company Capital
Stock that is not registered in the stock transfer records of Company at the
Effective Time, a certificate or certificates representing the number of full
shares of Parent Common Stock into which such shares of Company Capital Stock
shall have been converted shall be issued to the transferee together with a cash
payment in lieu of fractional shares, if any, in accordance with Section 3.6
hereof,
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and a cash payment in the amount of dividends, if any, in accordance with
Section 3.2(d) hereof, if the certificate or certificates representing such
shares of Company Capital Stock is or are surrendered as provided in
Section 3.2(c) hereof, accompanied by all documents required to evidence and
effect such transfer and by evidence of payment of any applicable stock transfer
tax.
(b) Notwithstanding anything to the contrary herein, certificates
surrendered for exchange by any Person constituting an Affiliate of Company
shall not be exchanged until Parent shall have received from such Person an
Affiliate letter as provided in Section 7.3.
SECTION 3.6 NO FRACTIONAL SHARE CERTIFICATES. No scrip or fractional share
Parent Certificate shall be issued upon the surrender for exchange of Company
Certificates, and an outstanding fractional share interest shall not entitle the
owner thereof to vote, to receive dividends or to any rights of a stockholder of
Parent or of Surviving Corporation with respect to such fractional share
interest. As promptly as practicable following the Effective Time, Parent shall
deposit with the Exchange Agent an amount in cash sufficient for the Exchange
Agent to pay each holder of Company Capital Stock an amount in cash, rounded to
the nearest whole cent, equal to the product obtained by multiplying (i) the
fractional share interest to which such holder would otherwise be entitled
(after taking into account all shares of Company Capital Stock held at the
Effective Time by such holder) by (ii) the last reported closing price of a
share of Parent Common Stock on the London Stock Exchange on the date the Merger
becomes effective. As soon as practicable after the determination of the amount
of cash, if any, to be paid to holders of Company Capital Stock with respect to
any fractional share interests, the Exchange Agent shall make available such
amounts, net of any required withholding Taxes, to such holders of Company
Capital Stock, subject to and in accordance with the terms of Section 3.2
hereof.
SECTION 3.7 CERTAIN ADJUSTMENTS. If between the date of this Agreement and
the Effective Time (a) the outstanding shares of Parent Common Stock or Company
Capital Stock shall be changed into a different number of shares by reason of
any reclassification, recapitalization, split-up, combination or exchange of
shares, or any dividend payable in stock or other securities shall be declared
thereon with a record date within such period; or (b) the number of shares of
Company Capital Stock on a fully diluted basis is in excess of that specified in
Section 4.3 and disclosed in Schedule 4.3 of the Company Disclosure Schedule
(regardless of whether such excess is a result of an additional issuance of
capital stock except as otherwise permitted pursuant to this agreement or a
correction to such Sections), then, in either case, the Exchange Ratio
established pursuant to the provisions of Section 3.1 shall be adjusted
accordingly to provide to Parent the same economic effect as contemplated by
this Agreement prior to such reclassification, recapitalization, split-up,
combination, exchange, dividend or increase.
SECTION 3.8 DISSENTERS' RIGHTS. Any Dissenting Shares shall not be
converted into, or be exchangeable for, the right to receive the Total Merger
Consideration but shall instead be converted into the right to receive such
consideration as may be determined to be due with respect to such Dissenting
Shares pursuant to Minnesota Law unless and until such holder shall have failed
to perfect or shall have effectively withdrawn or lost his right of appraisal
and payment, as the case may be. Company shall give Parent prompt notice of any
Dissenting Shares (and shall also give Parent prompt notice of any withdrawals
of such demands for appraisal rights) and Parent shall have the right to direct
all negotiations and proceedings with respect to such demands. Neither Company
nor the Surviving Corporation shall, except with the prior written consent of
Parent, voluntarily make any payments with respect to, or settle or offer to
settle, any such demand for appraisal rights. If, after the Effective Time, any
Dissenting Shares shall lose their status as Dissenting Shares, Parent shall
issue and deliver, upon surrender by such shareholder of certificate or
certificates representing shares of Company Capital Stock, the number of shares
of Parent Common Stock to which such shareholder would otherwise be entitled
pursuant to this Article III.
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SECTION 3.9 LOST, STOLEN OR DESTROYED CERTIFICATES. In the event any
Company Certificates shall have been lost, stolen or destroyed, the Exchange
Agent shall issue in exchange for such lost, stolen or destroyed Company
Certificates, upon the making of an affidavit of that fact by the holder
thereof, such shares of Parent Common Stock and cash as may be required pursuant
to Section 3.1, PROVIDED, HOWEVER, that Parent may, in its discretion and as a
condition precedent to the issuance thereof, require the owner of such lost,
stolen or destroyed Company Certificates to indemnify Parent against any claim
that may be made against Parent, the Surviving Corporation or the Exchange Agent
with respect to the Company Certificates alleged to have been lost, stolen or
destroyed.
SECTION 3.10 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 vest the Surviving Corporation with
full right, title and possession to all assets, property, rights, privileges,
powers and franchises of Company, the officers and directors of Company are
fully authorized in the name of their corporation or otherwise to take, and will
use good faith efforts to take, all such lawful and necessary action, so long as
such action is not inconsistent with this Agreement.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF COMPANY
Company hereby represents and warrants to Parent and Merger Sub, subject to
the exceptions specifically disclosed in writing in the Company Disclosure
Schedule, all such exceptions to be referenced to a specific representation set
forth in this Article IV, that:
SECTION 4.1 ORGANIZATION AND QUALIFICATION; SUBSIDIARIES.
(a) Company has been duly organized and is validly existing and in good
standing (to the extent applicable) under the Laws of the jurisdiction of its
incorporation or organization, as the case may be, and has the requisite
corporate power and authority to own, lease and operate its properties and to
carry on its business as it is now being conducted and as proposed to be
conducted. Company is duly qualified or licensed to do business, and is in good
standing (to the extent applicable), in each jurisdiction where the character of
the properties owned, leased or operated by it or the nature of its business
makes such qualification or licensing necessary, except for such failures to be
so qualified or licensed and in good standing that could not reasonably be
expected to have, individually or in the aggregate, a Company Material Adverse
Effect. Each such jurisdiction is set forth in Schedule 4.1 of the Company
Disclosure Schedule.
(b) The Company has no directly or indirectly owned Subsidiary. Except as
set forth in Schedule 4.1 of the Company Disclosure Schedule, the Company does
not own an equity interest in any partnership or joint venture arrangement or
other business entity.
SECTION 4.2 ARTICLES OF INCORPORATION AND BYLAWS. Schedule 4.2 of the
Company Disclosure Schedule contains accurate and complete copies, as of the
date hereof, of the Restated Articles of Incorporation and Bylaws of the
Company. Such Restated Articles of Incorporation and Bylaws are in full force
and effect. Company is not in violation of any of the provisions of its Restated
Articles of Incorporation or Bylaws.
SECTION 4.3 CAPITALIZATION.
(a) The Company Capital Stock consists of 20,000,000 shares of Company
Common Stock and 5,250,000 shares of Company Preferred Stock and 2,500,000
shares of undesignated stock. As of the date hereof, (i) 2,453,677 shares of
Company Common Stock are issued and outstanding, all of which are validly
issued, fully paid and non-assessable; (ii) 724,333 shares of Company's
Series A Convertible Preferred Stock are issued and outstanding, all of which
are validly issued, fully paid and
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non-assessable; (iii) 495,251 shares of Company's Series B Convertible Preferred
Stock are issued and outstanding, all of which are validly issued, fully paid
and non-assessable; (iv) 566,260 shares of Company's Series C Convertible
Preferred Stock are issued and outstanding, all of which are validly issued,
fully paid and non-assessable; (v) 355,895 shares of Company's Series D
Convertible Preferred Stock are issued and outstanding, all of which are validly
issued, fully paid and non-assessable; (vi) 2,076,997 shares of Company's
Series E Convertible Preferred Stock are issued and outstanding, all of which
are validly issued, fully paid and non-assessable; (vii) no shares of Company
Capital Stock are held in the treasury of Company; (viii) 1,853,939 shares of
Company Common Stock are reserved for future issuance pursuant to Company Stock
Options; and (ix) 553,035 shares of Company Common Stock are reserved for future
issuance upon the exercise of warrants. The name of each holder of a warrant or
Company Stock Option, the grant date of each warrant or Company Stock Option,
the number of shares of Company Capital Stock for which each Company Stock
Option or warrant is exercisable, the vesting or exercise schedule and the
exercise price of each warrant or Company Stock Option are set forth in
Schedule 4.3 of the Company Disclosure Schedule. Except for shares of Company
Capital Stock issuable pursuant to Company Stock Plans and as otherwise set
forth in Schedule 4.3(b) of the Company Disclosure Schedule, there are no
options, warrants or other rights, agreements, arrangements or commitments of
any character to which Company is a party or by which Company is bound relating
to the issued or unissued Company Capital Stock or obligating Company to issue
or sell any shares of Company Capital Stock of, or other equity interests in,
Company. All shares of Company Capital Stock subject to issuance as aforesaid,
upon issuance prior to the Effective Time on the terms and conditions specified
in the instruments pursuant to which they are issuable, will be duly authorized,
validly issued, fully paid and non-assessable. Except as set forth in
Schedule 4.3 of the Company Disclosure Schedule, there are no outstanding
contractual obligations of Company to repurchase, redeem or otherwise acquire
any shares of Company Capital Stock. Except as set forth in Schedule 4.3 of the
Company Disclosure Schedule, there are no outstanding contractual obligations of
Company to provide funds to, or make any investment (in the form of a loan,
capital contribution or otherwise) in, any other entity or Person.
(b) Schedule 4.3(b) of the Company Disclosure Schedule sets forth a complete
and correct list of each holder of Company Capital Stock holding outstanding
shares of Company Capital Stock as of the date of this Agreement.
SECTION 4.4 AUTHORITY RELATIVE TO THIS AGREEMENT. Company has all
necessary corporate power and authority to execute and deliver this Agreement,
to perform its obligations hereunder, and to consummate the transactions
contemplated hereby. The execution and delivery of this Agreement by Company and
the consummation by Company of the transactions contemplated hereby have been
duly and validly authorized by all necessary corporate action, and no other
corporate proceedings on the part of Company are necessary to authorize this
Agreement or to consummate the transactions contemplated hereby (other than,
with respect to the Merger, the approval of this Agreement by the holders of a
majority of the voting power of the outstanding shares of Company Common Stock
and a majority of the voting power of the outstanding shares of Company
Preferred Stock entitled to vote with respect thereto at the Company
Stockholders' Meeting (as defined in Section 7.1(a)), and the filing and
recordation of the Articles of Merger as required by the MBCA). This Agreement
has been duly executed and delivered by Company and, assuming the due
authorization, execution and delivery by the other parties hereto, constitutes
the legal, valid and binding obligation of Company, enforceable against Company
in accordance with its terms, except to the extent that enforceability hereof
may be limited by applicable bankruptcy, insolvency, reorganization or other
similar Laws affecting the enforcement of creditors' rights generally and by
principles of equity regarding the availability of remedies.
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SECTION 4.5 NO CONFLICT; REQUIRED FILINGS AND CONSENTS.
(a) The execution and delivery of this Agreement by Company do not, and the
performance by Company of its obligations hereunder, and the consummation of the
Merger will not (i) conflict with or violate any provision of the Restated
Articles of Incorporation or Bylaws of Company; (ii) assuming that all filings
and notifications described in Section 4.5(b) have been made, conflict with or
violate any Law applicable to Company or by which any property or asset is bound
or affected; or (iii) except as otherwise set forth in Schedule 4.5(a) of the
Company Disclosure Schedule, result in any breach of or constitute a default (or
an event which with the giving of notice or lapse of time or both could
reasonably be expected to become a default) under, or give to others any right
of termination, amendment, acceleration or cancellation of, or result in the
creation of a lien or other encumbrance on any property or asset of Company
pursuant to, any note, bond, mortgage, indenture, contract, agreement, lease,
license, permit, franchise or other instrument or obligation.
(b) The execution and delivery of this Agreement by Company do not, and the
performance by Company of its obligations hereunder and the consummation of the
Merger will not, require any consent, approval, authorization or permit of, or
filing by Company with or notification by Company to, any Governmental Entity,
except pursuant to applicable requirements of the Exchange Act, the Securities
Act, Blue Sky Laws, the pre-merger notification requirements of the HSR Act, and
the filing and recordation of the Certificate of Merger as required by the MBCA.
SECTION 4.6 PERMITS; COMPLIANCE WITH LAWS. Company is in possession of all
franchises, grants, authorizations, licenses, establishment registrations,
product listings, permits, approvals and orders of any Governmental Entity or
contract party (collectively, the "COMPANY PERMITS") necessary for Company to
own, lease and operate its properties and assets or otherwise to carry on its
business as it is now being conducted, and, as of the date of this Agreement,
none of the Company Permits has been suspended or canceled nor is any such
suspension or cancellation pending or, to the Knowledge of Company, threatened.
Except as set forth in Schedule 4.6 of the Company Disclosure Schedule, Company
is not in conflict with, or in default or violation of (i) any Law applicable to
Company or by which any property or asset of Company is bound or affected; or
(ii) any Company Permits, except for such conflicts, defaults or violations that
do not, or could not reasonably be expected to have, individually or in the
aggregate, a Company Material Adverse Effect. Schedule 4.6 of the Company
Disclosure Schedule sets forth, as of the date of this Agreement, all actions,
proceedings, investigations or surveys pending or, to the Knowledge of Company,
threatened against Company that could reasonably be expected to result in the
suspension or cancellation of any other Company Permit. Since January 1, 1996,
the Company has not received from any Governmental Entity or contract party any
oral or written notification with respect to possible conflicts, defaults or
violations of Laws.
SECTION 4.7 FILINGS; FINANCIAL STATEMENTS.
(a) Since January 1, 1996, Company has timely filed all forms, reports,
statements and documents required to be filed by it with any Governmental
Entities. Each form, report, statement and document referred to in the preceding
sentence was prepared in all material respects in accordance with the
requirements of applicable Law.
(b) Company has delivered to Parent the following financial statements and
notes (collectively, the "COMPANY FINANCIAL STATEMENTS") (i) the audited
consolidated balance sheets of the Company as of December 31, 1998, 1997 and
1996, and the related audited consolidated statements of operations, statements
of stockholders' equity and statements of cash flows of the Company for the
years ended December 31, 1998, 1997 and 1996, together with the notes thereto
and the unqualified report of KPMG, LLP relating to such statements for the
periods ended December 31, 1997 and 1996 and of KPMG relating to such statements
for the period ended December 31, 1998; and (ii) the unaudited consolidated
balance sheet of the Company as of November 30, 1999 (the "COMPANY UNAUDITED
INTERIM
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BALANCE SHEET"), and the related unaudited consolidated statement of operations
and a statement of cash flows of Company for the eleven (11) months then ended.
(c) The Company Financial Statements present fairly, in all material
respects, the consolidated financial position of Company as of the respective
dates thereof and the consolidated results of operations and cash flows for
Company for the periods covered thereby (subject, in the case of unaudited
statements, to normal and immaterial year-end adjustments). The Company
Financial Statements have been prepared in accordance with generally accepted
accounting principles applied on a consistent basis throughout the periods
covered (except as may be indicated in the notes thereto). Except for
liabilities or obligations which are accrued or reserved in the Company
Financial Statements (or reflected in the notes thereto) or which were incurred
after December 31, 1998 in the ordinary course of business, Company has no
material undisclosed liabilities or obligations, whether incurred by contract or
otherwise, (accrued, contingent, absolute, determined, determinable or
otherwise) GAAP to be reflected in a balance sheet or that would be required to
be disclosed in footnotes that would be required pursuant to Article 10 of
Regulation S-X promulgated by SEC in connection with the filing with the SEC of
a quarterly report on Form 10-Q.
SECTION 4.8 ABSENCE OF CERTAIN CHANGES OR EVENTS. Except as otherwise set
forth in Schedule 4.8 of the Company Disclosure Schedule, since December 31,
1998, Company has conducted its business only in the ordinary course consistent
with past practice and, since such date, there has not been (i) any Company
Material Adverse Effect; (ii) any Material Adverse Change in the relationship
with any customer which accounted for more than ten percent (10%) of any Company
revenues in the last two (2) fiscal years; (iii) any event that could reasonably
be expected to prevent or materially delay the performance of Company's
obligations pursuant to this Agreement and the consummation of the Merger by
Company; (iv) any material change by Company in its accounting methods,
principles or practices; (v) any declaration, setting aside or payment of any
dividend or distribution in respect of the shares of Company Capital Stock or
any redemption, purchase or other acquisition of any of Company's securities;
(vi) except in the ordinary course of business consistent with past practice,
any increase in the compensation or benefits or establishment of any bonus,
insurance, severance, deferred compensation, pension, retirement, profit
sharing, stock option (including, without limitation, the granting of stock
options, stock appreciation rights, performance awards or restricted stock
awards), stock purchase or other employee benefit plan, or any other increase in
the compensation payable or to become payable to any executive officers of
Company; (vii) any issuance or sale of any stock, notes, bonds or other
securities other than pursuant to the exercise of outstanding securities, or
entering into any agreement with respect thereto; (viii) any amendment to the
Company's Restated Articles of Incorporation or Bylaws; (ix) other than in the
ordinary course of business; any (x) purchase, sale, assignment or transfer of
any material assets, (y) mortgage, pledge or the institution of any lien,
encumbrance or charge on any material assets or properties, tangible or
intangible, except for liens for Taxes not yet delinquent and such other liens,
encumbrances or charges which do not, individually or in the aggregate, have a
Company Material Adverse Effect, or (z) waiver of any rights of material value
or cancellation or any material debts or claims; (x) any incurrence of any
material liability (absolute or contingent), except for current liabilities and
obligations incurred in the ordinary course of business consistent with past
practice; (xi) any incurrence of any damage, destruction or similar loss,
whether or not covered by insurance, materially affecting the business or
properties of Company; or (xii) any entering into any transaction of a material
nature other than in the ordinary course of business, consistent with past
practices.
SECTION 4.9 EMPLOYEE BENEFIT PLANS, LABOR MATTERS.
(a) With respect to each employee benefit fund, plan, program, arrangement
and contract (including, without limitation, any "pension" plan, fund or
program, as defined in Section 3(2) of ERISA, and any "employee benefit plan,"
as defined in Section 3(3) of ERISA) maintained, sponsored or contributed to or
required to be contributed to by Company or any Company Subsidiary or other
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trade or business (whether or not incorporated) treated as a single employer
with Company (a "COMPANY ERISA AFFILIATE") pursuant to Code Sections 414(b),
(c), (m) or (o) is a party, or with respect to which Company or any Company
ERISA Affiliate could incur liability under Section 4069, 4212(c) or 4204 of
ERISA or Section 412 of the Code, or to which Company or any Company ERISA
Affiliate is a party (the "COMPANY BENEFIT PLANS"), Company has set forth in
Schedule 4.9(a) of the Company Disclosure Schedule, and has delivered or made
available to Parent a true, complete and correct copy of (i) such Company
Benefit Plan and the most recent summary plan description related to such
Company Benefit Plan, if a summary plan description is required therefor;
(ii) each trust agreement or other funding arrangement relating to such Company
Benefit Plan; (iii) the most recent annual report (Form 5500) filed with the
IRS) with respect to such Company Benefit Plan; (iv) the most recent actuarial
report or financial statement relating to such Company Benefit Plan and (v) the
most recent determination letter issued by the IRS with respect to such Company
Benefit Plan, if it is qualified under Section 401(a) of the Code. Neither
Company nor any Company Affiliate has any express or implied commitment, whether
legally enforceable or not, to modify, change or terminate any Company Benefit
Plan, other than with respect to a modification, change or termination required
by ERISA or the Code.
(b) Each Company Benefit Plan has been administered in all material respects
in accordance with its terms and all applicable Laws, including, without
limitation, ERISA and the Code, and all contributions required to be made under
the terms of any of the Company Benefit Plans as of the date of this Agreement
have been timely made or have been reflected on the most recent consolidated
balance sheet of Company. With respect to the Company Benefit Plans, no event
has occurred and, to the Knowledge of Company, there exists no condition or set
of circumstances in connection with which Company or any Company ERISA Affiliate
could be subject to any material liability (other than for routine benefit
liabilities) under the terms of such Company Benefit Plans, ERISA, the Code or
any other applicable Law.
(c) Company on behalf of itself and all of the Company ERISA Affiliates
hereby represents that, except as set forth in Schedule 4.9(c) of the Company
Disclosure Schedule (i) each Company Benefit Plan which is intended to be
qualified under Section 401(a) of the Code or Section 401(k) of the Code has
received a favorable determination letter from the IRS as to its qualified
status under the Code, and each trust established in connection with any Company
which is intended to be exempt from federal income taxation under
Section 501(a) of the Code has received a determination letter from the IRS that
it is so exempt, and to Company's Knowledge no fact or event has occurred since
the date of such determination letter from the IRS to adversely affect the
qualified status of any such Company Benefit Plan or the exempt status of any
such trust; (ii) there has been no prohibited transaction (within the meaning of
Section 406 of ERISA or Section 4975 of the Code) with respect to any Company
Benefit Plan; and (iii) each Company Benefit Plan can be amended, terminated or
otherwise discontinued after the Effective Time in accordance with its terms,
without liability, other than (A) liability for ordinary administrative expenses
typically incurred in a termination event or (B) if the Company Benefit Plan is
a pension benefit plan subject to Part 2 of Title I of ERISA, liability for the
accrued benefits as of the date of such termination (if and to the extent
required by ERISA) to the extent that either there are sufficient assets set
aside in a trust or insurance contract to satisfy such liability or such
liability is reflected on the most recent consolidated balance sheet of Company.
No suit, administrative proceeding, action or other litigation has been brought,
or to the Knowledge of Company, is threatened, against or with respect to any
such Company Benefit Plan, including any audit or inquiry by the IRS or United
States Department of Labor (other than routine benefits claims).
(d) No Company Benefit Plan is a multi-employer pension plan (as defined in
Section 3(37) of ERISA) which is covered by Sections 4063 or 4064 of ERISA or
other pension plan subject to Title IV of ERISA and neither the Company nor any
Company ERISA Affiliate has sponsored or contributed to or been required to
contribute to a multi-employer pension plan or other pension plan subject to
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Title IV of ERISA. No liability under Title IV of ERISA has been incurred by
Company or any Company ERISA Affiliate that has not been satisfied in full, and
no condition exists that presents a material risk to Company or any Company
ERISA Affiliate of incurring or being subject (whether primarily, jointly or
secondarily) to a liability thereunder. None of the assets of Company or any
Company ERISA Affiliate is, or may reasonably be expected to become, the subject
of any lien arising under ERISA or Section 412(n) of the Code. There has not
been assessed any liability with respect to any multi-employer plan that is a
welfare plan under the terms of such plan, any collective bargaining agreement
or otherwise resulting from the cessation of contribution, cessation of an
obligation to make contribution or any other form of withdrawal from such
multi-employer plan. Except as set forth in Schedule 4.9(d) of the Company
Disclosure Schedule, Company and any Company ERISA Affiliate have not, at any
time, withdrawn from a multi-employer plan in which such plan might claim to be
a "complete withdrawal" or a "partial withdrawal" as defined in Sections 4023
and 4025 of ERISA, respectively, so as to result in a liability (contingent or
otherwise), including an obligation entered into in accordance with
Section 4204 of ERISA.
(e) With respect to each Company Benefit Plan required to be set forth in
the Company Disclosure Schedule that is subject to Title IV or Part 3 of
Title I of ERISA or Section 412 of the Code (i) no reportable event (within the
meaning of Section 4043 of ERISA, other than an event that is not required to be
reported before or within thirty (30) days of such event) has occurred or is
expected to occur; (ii) there was not an accumulated funding deficiency (within
the meaning of Section 302 of ERISA or Section 412 of the Code), whether or not
waived, as of the most recently ended plan year of such Company Benefit Plan;
and (iii) there is no "unfunded benefit liability" (within the meaning of
Section 4001(a)(18) of ERISA).
(f) Company has scheduled on Schedule 4.9(f) of the Company Disclosure
Schedule and has delivered or made available to Parent true, complete and
correct copies of (i) all employment agreements with officers and all consulting
agreements of Company and each Company ERISA Affiliate providing for annual
compensation in excess of $50,000; (ii) all severance plans, agreements,
programs and policies of Company and each Company ERISA Affiliate with or
relating to their respective employees, directors or consultants; and (iii) all
plans, programs, agreements and other arrangements of Company and each Company
ERISA Affiliate with or relating to their respective employees, directors or
consultants which contain "change of control" provisions. Except as set forth in
Schedule 4.9(f) of the Company Disclosure Schedule, which discloses the
Company's estimate of excess parachute payments based on assumptions described
therein, no payment or benefit which will be made by Company or any Company
ERISA Affiliate under any Company Benefit Plan or other arrangement will
constitute an excess parachute payment under Code Section 280(G)(1), and the
consummation of the transactions contemplated by this Agreement will not
individually or in conjunction with any other possible event (including
termination of employment) (i) entitle any current or former employee or other
service provider of Company or any Company ERISA Affiliate to severance benefits
or any other payment, compensation or benefit (including forgiveness of
indebtedness), except as expressly provided by this Agreement; or
(ii) accelerate the time of payment or vesting, or increase the amount of
compensation or benefit due any such employee or service provider.
(g) Company is not a party to any collective bargaining or other labor union
contract applicable to Persons employed by Company and no collective bargaining
agreement is being negotiated by Company. As of the date of this Agreement,
there is no labor dispute, strike or work stoppage against Company pending or,
to the Knowledge of Company, threatened which may interfere with the respective
business activities of Company. As of the date of this Agreement, to the
Knowledge of Company, none of Company or any of its respective representatives
or employees has committed any unfair labor practice in connection with the
operation of the respective businesses of Company, and there is no charge or
complaint against Company by the National Labor Relations Board or any
comparable Governmental Entity pending or threatened in writing.
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(h) Except as required by Law, no Company Benefit Plan provides any of the
following retiree or post-employment benefits to any Person: medical, disability
or life insurance benefits. To Company's Knowledge, Company and the Company
ERISA Affiliates are in compliance with (i) the requirements of the applicable
health care continuation and notice provisions of the Consolidated Omnibus
Budget Reconciliation Act of 1985 ("COBRA") and the regulations (including
proposed regulations) thereunder; and (ii) the applicable requirements of the
Health Insurance Portability and Accountability Act of 1996 and the regulations
(including the proposed regulations) thereunder.
SECTION 4.10 CONTRACTS. Schedule 4.10 of the Company Disclosure Schedule
sets forth a list of each Contract that is material to the business, assets,
liabilities, financial condition or results of operations of Company taken as a
whole and to which the Company is a party or under which it has any obligation
(each, a "MATERIAL CONTRACT"). Except as set forth in Schedule 4.10 of the
Company Disclosure Schedule, Company is not in material violation of or default
under (nor does there exist any condition which with the passage of time or the
giving of notice could reasonably be expected to cause such a material violation
of or default under) any Material Contract. Each Material Contract is in full
force and effect and is a legal, valid and binding obligation of Company and, to
the Knowledge of Company, each of the other parties thereto, enforceable in
accordance with its terms, except to the extent that enforceability thereof may
be limited by applicable bankruptcy, insolvency, reorganization or other similar
Laws affecting the enforcement of creditors' rights generally and by principles
of equity regarding the availability of remedies. Except as set forth in
Schedule 4.10 of the Company Disclosure Schedule, no consent of any third party
is required in connection with the Merger. For purposes of this Agreement, the
term "CONTRACT" or "CONTRACTS" shall mean and include any agreement,
arrangement, contract, personal property lease (operating) or financing, note,
loan, evidence of indebtedness, right of payment, purchase order, letter of
credit, franchise agreement, covenant not to compete, non-disclosure agreement,
non-use agreement, employment agreement, license, instrument, guarantee,
obligation or commitment) arising out of or relating to the business of the
Company, or to which any of the assets or other properties of the Company are
subject, whether oral or written, express or implied. For purposes of this
Section 4.10, Material Contract, where the payment of monies by the terms of the
Contract is required, shall also mean any Contract which requires payment by the
Company, or payment to the Company, in excess of $50,000 on an annual basis.
SECTION 4.11 LITIGATION. There is no suit, claim, action, proceeding,
arbitration, grievance, citation, summons, subpoena, inquiry or investigation
pending or, to the Knowledge of Company, threatened against or affecting Company
or interfere with Company's ability to consummate the transactions contemplated
herein, and Company has no reasonable basis to be aware of the same. Company is
not aware of any facts or circumstances which could reasonably be expected to
result in the denial of insurance coverage under policies issued to Company in
respect of such suits, claims, actions, proceedings and investigations, except
in any case as could not reasonably be expected to have, individually or in the
aggregate, a Company Material Adverse Effect. Company is not subject to any
outstanding order, writ, injunction or decree which could reasonably be expected
to have, individually or in the aggregate, a Company Material Adverse Effect or
interfere with Company's ability to consummate the transactions contemplated
herein.
SECTION 4.12 ENVIRONMENTAL MATTERS. Except as could reasonably be expected
to have, either individually or in the aggregate, a Company Material Adverse
Effect (i) Company is in compliance with all applicable Environmental Laws and
all Company Permits required by Environmental Laws; (ii) all past non-compliance
of Company with Environmental Laws or all Company Permits required by
Environmental Laws has been resolved without any pending, ongoing or future
obligation, cost or liability; and (iii) Company has not released a Hazardous
Material at, or transported a Hazardous Material to or from, any real property
currently or formerly owned, leased or occupied by Company, in violation of any
Environmental Law.
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SECTION 4.13 INTELLECTUAL PROPERTY.
(a) Schedule 4.13(a) of the Company Disclosure Schedule sets forth a true
and complete list of all Intellectual Property used in the conduct of its
business as now conducted, including (as applicable) the Governmental Entity
with which such Intellectual Property is registered. The Company (i) owns or has
the right to use, free and clear of all liens, all Intellectual Property used in
the conduct of its business as now conducted and necessary to the development,
operation and sale of all products and services sold or proposed to be sold by
Company, without infringing upon or otherwise active adversely to the right or
claimed right of any Person under or with respect to any of the Intellectual
Property; (ii) is not obligated or under any liability whatsoever to make any
payments by way of royalties, fees or otherwise to any owner of, licensor of or
other claimant to, any Intellectual Property or other intangible asset with
respect to the use thereof or in connection with the conduct of its business or
otherwise; (iii) owns or has the unrestricted right to use all Intellectual
Property, including all trade secrets, including know-how, customer lists,
inventions, designs, processes, computer programs, domain names, e-mail
addresses, and technical data free and clear of any rights, liens or claims of
others; and (d) is not using or infringing upon, and has received no notice of
infringement, with respect to any Intellectual Property of others.
(b) To the Knowledge of the Company, no third party has interfered with,
infringed upon, misappropriated, or otherwise come into conflict with any
Intellectual Property rights of the Company.
(c) Company has taken all commercially reasonable steps to protect and
preserve the confidentiality of all material Company Confidential Information,
used in the operations and business of Company. All use, disclosure or
appropriation of Confidential Information by or to a third party has been
pursuant to the terms of a legally binding and enforceable written
confidentiality and/or non-disclosure agreement between the Company or any
Subsidiary and such third party. Schedule 4.13(c) lists all such agreements
currently in effect. "CONFIDENTIAL INFORMATION" shall mean for purposes of this
Agreement any information or compilation of information not generally known to
the public or the industry or which Company has not disclosed to third parties
without written obligation of confidentiality, which is proprietary to Company,
relating to Company's procedures, techniques, methods, concepts, ideas, affairs,
products, processes and services, including, but not limited to, information
relating to finance, marketing, merchandising, selling, research, development,
manufacturing, purchasing, accounting, engineering, customers, customer plans,
pricing, billing, needs of customers and products and services used by
customers, all lists of customers and their addresses, prospects, sales calls,
products, services, prices and the like, as well as any specifications,
formulas, plans, drawings, accounts, or sales records, sales brochures, code
books, manuals, trade secrets, Knowledge, know-how, pricing strategies,
operating costs, sales margins, methods or operations, invoices or statements
and the like.
SECTION 4.14 TAXES.
(a) Schedule 4.14(a) sets forth true and complete copies of all Tax Returns
filed by the Company for each of their last three (3) fiscal years, excluding
its 1999 Tax Return (which the parties acknowledge is not yet due for filing).
(b) Except as set forth in Schedule 4.14(b) of the Company Disclosure
Schedule, the Company has properly completed and filed, within the time and in
the manner prescribed by Law, all Tax Returns and other documents required to be
filed in respect of all Taxes, and all such returns and other documents are
true, correct and complete. The Company has furnished to the Parent copies of
all income Tax Returns of the Company for the past three (3) fiscal years (1997,
1998 and 1999). The Company has, within the time and in the manner prescribed by
Law, paid all Taxes that are due and payable.
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(c) Except as set forth in Schedule 4.14(c):
(i) none of such returns contained a disclosure statement under
Section 6662 of the Code or any similar provision of foreign Law;
(ii) the Company has not received written notice from any federal or
foreign Taxing Authority asserting any deficiency against the Company or
claim for additional Taxes in connection therewith;
(iii) there is no pending action, audit, proceeding or investigation with
respect to the assessment or collection of federal or foreign Taxes or a
claim for refund made by the Company with respect to federal or foreign
Taxes previously paid;
(iv) all amounts that are required to be collected or withheld by the
Company with respect to federal or foreign Taxes have been duly collected or
withheld, and all such amounts that are required to be remitted to any
federal or foreign Taxing Authority have been duly remitted;
(v) no audit has been conducted of any federal or foreign income Tax
Return filed by the Company. The time during which such returns remain open
for examination has expired in accordance with applicable statute and
regulations, except for those returns for which the normally applicable
statutory/regulatory period has not yet elapsed. There are no pending or, to
the Knowledge of the Company, threatened audits, investigations, or claims
relating to any material liability for any Taxes, and there are no matters
pending or under discussion with any Taxing Authority or Governmental Entity
that is reasonably likely to result in any liability for any Tax. Company
has not been notified that any income or other Tax Authority intends to
audit a Tax Return for any period;
(vi) Company has not requested nor been granted any currently effective
waiver or extension of any statute of limitations with respect to the
assessment or filing of any federal or foreign Tax or return with respect
thereto;
(vii) no consent has been filed under Section 341(f) of the Code with
respect to the Company;
(viii) the Company is not required to include in income any adjustment
pursuant to Section 481(a) of the Code (or similar provisions of foreign
Laws or regulations) by reason of a change in accounting method nor does the
Company have any Knowledge that the IRS (or other federal or foreign Taxing
Authority) has proposed, or is considering, any such change in accounting
method;
(ix) Company is not a party to or bound by nor has any continuing
obligation under any Tax sharing or similar agreement or arrangement with
any Person;
(x) all transactions that could give rise to an understatement of any
Tax liability of the Company under Section 6662(d) of the Code are
adequately disclosed on such Tax Returns;
(xi) Company has not made any change in accounting methods for Tax
reporting purposes, received a ruling from any Taxing Authority or signed an
agreement with any Taxing Authority;
(xii) Company is not subject to the Tax liabilities of any Person;
(xiii) Company has never been a member of any affiliated group of
corporations within the meaning of Section 1504 of the Code; and
(xiv) Company is not a party to any joint venture, partnership, limited
liability company, or other arrangement or Contract that would be treated as
a partnership for federal or state income Tax purposes.
SECTION 4.15 INSURANCE. Schedule 4.15 of the Company Disclosure Schedule
sets forth a true and complete list of all current insurance policies owned or
held by the Company covering all risks with respect to the business, assets,
operations and employees of the Company. Company is presently insured, and
during each of the past five (5) calendar years has been insured against such
risks as
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companies engaged in a similar business would, in accordance with good business
practice, customarily be insured, including without limitation, policies fire,
theft, property, casualty, liability, EPLI and workers' compensation coverage).
The policies maintained with respect to the Company provide sufficient coverage
against loss. Company has provided to Parent complete and correct copies of all
such policies, together with all riders and amendments thereto. The Company has
not been subject to any retroactive premium adjustments or other loss-sharing
arrangements and adequate reserves therefore have been established. All such
policies are in full force and effect, provides all coverage required by
applicable Laws and all premiums due thereon have been paid to the date hereof.
There is no default under any policy of insurance nor has there been any failure
to give notice or present a claim in a due and timely manner. No notice of
cancellation or non-renewal of any policy or insurance coverage has been
received by Company. All such policies will continue to be in full force and
effect on identical terms to and following the Merger. Company has complied in
all material respects with the terms of such policies, and no party to any
policy has repudiated any term of any policy. Except as set forth in
Schedule 4.15 of the Company Disclosure Schedule, there are no outstanding
performance bonds covering or issued for the benefit of Company and Company has
not received:
(a) any notice of cancellation under any such insurance policy, refusal
of coverage, increase of premiums or failure to renew thereunder;
(b) any notice that any issuer of such policy has filed for protection
under applicable bankruptcy laws or is otherwise in the process of
liquidating or has been liquidated; or
(c) any other indication that such policies are no longer in full force
or effect or that the issuer of any such policy is no longer willing or able
to perform its obligations thereunder.
SECTION 4.16 PROPERTIES. Schedule 4.16 of the Company Disclosure Schedule
hereto correctly identifies all real and personal property owned by the Company
or leased (where such lease requires payment by the Company or to the Company in
excess of $50,000 on an annual basis) by or to the Company. Company has good and
valid title, free and clear of all Encumbrances, except for Permitted
Encumbrances, to all its properties and assets, whether tangible or intangible,
real, personal or mixed, reflected in the Company's Financial Statements as
being owned by Company as of the relevant date thereof, other than (i) any
properties or assets that have been sold or otherwise disposed of in the
ordinary course of business since the date of such financial statements, which
properties are set forth in Schedule 4.16 of the Company Disclosure Schedule;
and (ii) liens disclosed in Schedule 4.16 of the Company Disclosure Schedule.
All buildings, and all fixtures, equipment and other property and assets, held
under leases or sub-leases by Company are held under valid instruments
enforceable in accordance with their respective terms, subject to applicable
laws of bankruptcy, insolvency or similar Laws relating to creditors' rights
generally and to general principles of equity (whether applied in a proceeding
in Law or equity). There are no defaults under any such leases or subleases, and
Company has no reason to believe that any such default exists. Substantially all
of Company's equipment in regular use has been reasonably maintained and is in
good condition, reasonable wear and tear excepted. Company own or have the valid
right to use (pursuant to binding written agreements) all assets or properties
used in, or reasonably necessary for the operation of, the business of the
Company.
SECTION 4.17 AFFILIATES. Schedule 4.17 of the Company Disclosure Schedule
sets forth the names and addresses of each Person who is, in Company's
reasonable judgment, an Affiliate (as such term is used in Rule 145 under the
Securities Act).
SECTION 4.18 BROKERS. Except as otherwise disclosed in Schedule 4.18, no
broker, finder or investment banker is entitled to any brokerage, finder's or
other fee or commission in connection with the Merger based upon arrangements
made by or on behalf of Company.
SECTION 4.19 BOARD RECOMMENDATION. The Board of Directors of the Company,
pursuant to Section 302A.673 of the MBCA, at a meeting duly called and held, has
by unanimous vote approved this Agreement, the Merger and the other transactions
contemplated hereby and declared their
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advisability and has determined to recommend to the Company's shareholders that
they vote to approve this Agreement and the Merger.
SECTION 4.20 PROXY STATEMENT. The Proxy Statement to be mailed to the
shareholders of the Company in connection with the special meeting of the
shareholders of the Company (the "SPECIAL MEETING") and any amendment thereof or
supplement thereto, when, in the case of the Proxy Statement, mailed and at the
time of the Special Meeting shall not contain any untrue statement of a material
fact, or omit to state any material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances under
which they were made, not false or misleading, and shall comply with all
requirements of the Exchange Act, provided that this Section 4.20 shall not
apply to any written information provided to the Company by the Parent or Merger
Sub expressly for use in the Proxy Statement.
SECTION 4.21 EMPLOYEES AND LABOR MATTERS. To the Knowledge of the Company,
no executive, key employee, or group of employees has any plans to terminate
employment with the Company. There are no existing labor disputes or
disturbances which materially adversely affect the Company or the future
prospects of the Company's business. Except as set forth in Schedule 4.21 of the
Company Disclosure Schedule, there are no existing employment agreements or
collective bargaining agreements between Company and any of its employees or any
collective bargaining unit representing any such employees, and no such
agreements are currently in the process of being negotiated. No petition has
been filed or is pending with the National Labor Relations Board by any labor
organization or any group of employees for an election or certification
regarding the representation of any group of Company's employees by a labor
organization. There is no present solicitation or campaign by any labor
organization or employee for the representation of Seller's employees by a labor
organization.
SECTION 4.22 CONDITION OF ASSETS. All of the tangible assets of the
Company are free from defects, have been maintained in accordance with normal
industry practice, and are in good operating condition and repair (subject to
normal wear and tear), except as set forth in Schedule 4.22 of the Company
Disclosure Schedule.
SECTION 4.23 GUARANTIES. The Company is not a guarantor or otherwise
liable of any liability or obligation or any other Person.
SECTION 4.24 OPINION OF FINANCIAL ADVISOR. Company has not received, and
does not intend to seek, the opinion of a financial advisor to the Company,
dated as of the date of this Agreement, to the effect that, as of such date, the
consideration to be received in connection with the Merger as Total Merger
Consideration by the shareholders of the Company is fair to Company's
shareholders from a financial point of view. The Company shall rely on the
business judgment rule in determining the fairness of the consideration to be
received in connection with the Merger.
SECTION 4.25 YEAR 2000 COMPLIANCE. Except as set forth in Schedule 4.25 of
the Company Disclosure Schedule, Company is year 2000 compliant. The term "YEAR
2000 COMPLIANT" means, with respect to Company:
(a) The functions, calculations and other computer processes
(collectively the "PROCESSES") of all equipment, computer hardware, software
and systems of Company that are material to Company's operations
(collectively, "SYSTEMS"), including, but not limited to, internal systems
and embedded computer features within other systems and equipment of
Company, performed properly in an accurate and consistent manner regardless
of the date in time on which the Processes are actually performed and
regardless of the date of input, whether before, on or after January 1,
2000, and whether or not the dates are affected by leap years.
(b) The Systems accept, calculate, compare, sort, extract, sequence and
otherwise process data inputs and date values, and return and display date
values, in an accurate and consistent manner regardless of the dates used,
whether before, on or after January 1, 2000.
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(c) The Systems will function properly without interruptions or manual
interventions caused by the date in time on which the Processes are actually
performed or by the date of input to the software, whether before, on or
after January 1, 2000.
(d) The Systems accept and respond to two-digit year data input in the
Processes in a manner that resolves any ambiguities as to the century in a
defined, predetermined and appropriate manner.
(e) The Systems store and display data information in the Processes in
ways that are accurate and unambiguous as to the determination of the
century.
SECTION 4.26 TAKEOVER STATUTES. The Company has not opted-out of the
application of the "control share acquisition" anti-takeover statute enacted
under the MBCA. Company shall, to the extent applicable, take all appropriate
actions in order to not be governed by the control share acquisition statute.
SECTION 4.27 CERTAIN PAYMENTS. Company has not (a) directly paid or
delivered any fee, commission, or other sum of money or item of property,
however characterized, to any finder, agent, client, customer, supplier,
governmental official or other Person in the United States or any other country,
which is in any manner related to the business of the Company or operations of
the Company, which is or may be with the passage of time or discovery, illegal
under any federal, state, or local Laws of the United States (including without
limitation the United States Foreign Corrupt Practices Act) or any other
country; (b) participated, directly or indirectly, in any boycotts or similar
practices affecting any of its actual or potential customers; or
(c) established or maintained any unrecorded fund or asset for any purpose or
made any false entries on the books and records of Company for any reason.
SECTION 4.28 CUSTOMERS AND SUPPLIERS. Except as set forth in
Schedule 4.28 of the Company Disclosure Schedule, the Company has not received
any notice nor has any Knowledge that any customer from whom the Company
received more than $50,000 in gross receipts in 1998 or 1999 (i) has ceased, or
will cease, to use the products, goods or services of its business; (ii) has
substantially reduced, or will substantially reduce, the use of products, goods
or services of its business; or (iii) has sought, or is seeking, to reduce the
price it will pay for products, goods or services of its business. The Company
has not received any notice nor has any Knowledge that any supplier from who the
Company purchased more than $50,000 in goods during 1998 or 1999 will not sell
raw materials, supplies, merchandise and other goods to the Company at any time
after the Effective Time on terms and conditions similar to those used in the
current sales to the Company, subject to general and customary price increases
and unforeseeable supply or demand changes.
SECTION 4.29 INTERESTS IN CUSTOMERS AND SUPPLIERS. Except as set forth in
Schedule 4.29 of the Company Disclosure Schedule, Company, nor any officer or
director of Company, nor any Affiliates of the foregoing (nor any member of such
Person's immediate family):
(a) possesses, directly or indirectly, any material ownership in, or has
a director, officer or employee of any Person that is a supplier, agent,
customer, lessor, lessee, licensor, developer, competitor or potential
competitor of Company; or
(b) is presently a party to any material transaction with Company,
including without limitation, any Contract otherwise requiring payments to
(other than for services as officers, directors or employees of Company) any
such Person in which any such Person has an interest as a material
stockholder, officer, director, trustee or partner. Notwithstanding the
foregoing, the representations above shall not apply to any interest or
holdings in a publicly-registered traded Person, investment in stock by a
pension, profit-sharing or similar plan, or the employment by a Person in a
non-key position of any spouse of a director, officer or employee.
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SECTION 4.30 TAX FREE REORGANIZATION.
(a) Company shall use its best efforts to cause the Merger to be treated as
reorganization within the meaning of Section 368(a) of the Code (a
"Reorganization").
(b) To the extent permitted under applicable Tax Laws, the Merger shall be
reported as a Reorganization in all federal, state, and local tax returns filed
after the Effective Time.
(c) The assumption by Merger Sub of the liabilities of Company pursuant to
the Merger is for a bona fide business purpose and the principal purpose of such
assumption is not the avoidance of federal income Tax of the transfer of assets
of Company to Merger Sub pursuant to the Merger.
(d) The liabilities of Company assumed by Merger Sub and the liabilities to
which the transferred assets of Company are subject were incurred by Company in
the ordinary course of business. No liabilities of any Person other than Company
will be assumed by Merger Sub or Parent in the Merger, and none of the shares of
Company to be surrendered in exchange for Parent stock in the Merger will be
subject to any liabilities.
(e) At the Effective Time, Company will not be an investment company within
the meaning of Sections 368(a)(2)(F)(iii) and (iv) of the Code.
(f) Company is not under the jurisdiction of a court in a Title 11 or
similar case within the meaning of Section 368(a)(3)(A) of the Code.
(g) At the Effective Time, no indebtedness between Parent and Company or
between Merger Sub and Company will have been issued, acquired, or settled at a
discount and none will be settled at a discount.
(h) At the Effective Time, the fair market value of the assets of Company
will exceed the sum of its liabilities (including any liabilities to which its
assets are subject).
(i) As contemplated by Section 9.5 of this Agreement, each of the parties
will pay its own expenses, if any, incurred in connection with the Merger. None
of Parent, Merger Sub, and Company will pay any expenses of the stockholders of
Company incurred in connection with the Merger.
(j) The fair market value of the cash and Parent Common Stock to be received
by each holder of Company Capital Stock in the Merger will be approximately
equal to the fair market value of the Company Capital Stock surrendered by such
holders in exchange therefor.
(k) As a result of the Merger, Company will transfer to Merger Sub at least
ninety percent (90%) of the fair market value of the net assets and at least
seventy percent (70%) of the fair market value of the gross assets of Company
held by it immediately prior to the Merger. For this purpose, amounts used to
pay Dissenting Shares or to pay Reorganization expenses, and all redemptions and
distributions (except for regular, normal dividends) made by Company immediately
prior to the Merger will be considered as assets held by Company immediately
prior to the Merger. The Company has not redeemed any of the Company stock, has
not made any distribution with respect to any Company stock, and has not
disposed of any of its assets in anticipation of or as part of a plan for the
acquisition of Company by Merger Sub.
SECTION 4.31 MISREPRESENTATIONS. No representation or warranty by Company
nor any certificate, schedule, exhibit, statement, or other information
furnished by or on behalf of Company pursuant to this Agreement or the
transactions contemplated hereby contains or will contain any untrue statement
of a material fact, or omit or will omit to state any material fact required to
make the statements herein or therein not misleading. Company has, and will to
and upon the Closing, disclosed to Parent in writing all Material Adverse
Events. The representations and warranties contained in this Article IV, or
elsewhere in this Agreement, shall not be effected or deemed waived by reason of
the
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fact that Parent, Merger Sub and/or their respective representatives should have
known that any such representation or warranty might be inaccurate in any
respect, notwithstanding any investigation by or due diligence materials
provided to or obtained by Parent or Merger Sub.
ARTICLE V
REPRESENTATIONS AND WARRANTIES
OF PARENT AND MERGER SUB
Each of Parent and Merger Sub hereby represents and warrants to Company,
subject to the exceptions specifically disclosed in the Parent Disclosure
Schedule, all such exceptions to be referenced to a specific representation set
forth in this Article V, that:
SECTION 5.1 ORGANIZATION AND QUALIFICATION; SUBSIDIARIES.
(a) Parent and its subsidiaries, including Merger Sub (the "PARENT
SUBSIDIARIES"), has been duly organized and is validly existing and in good
standing (to the extent applicable) under the Laws of the jurisdiction of its
incorporation or organization, as the case may be, and has the requisite
corporate power and authority and all necessary governmental approvals to own,
lease and operate its properties and to carry on its business as it is now being
conducted. Parent and each Parent Subsidiary, including Merger Sub, is duly
qualified or licensed to do business, and is in good standing (to the extent
applicable), in each jurisdiction where the character of the properties owned,
leased or operated by it or the nature of its business makes such qualification
or licensing necessary, except for such failures to be so qualified or licensed
and in good standing that could not reasonably be expected to have, individually
or in the aggregate, a Parent Material Adverse Effect.
(b) Schedule 5.1 of the Parent Disclosure Schedule sets forth, as of the
date of this Agreement, a true and complete list of each Parent Subsidiary,
together with the jurisdiction of incorporation or organization of each Parent
Subsidiary and the percentage of each Parent Subsidiary's outstanding capital
stock or other equity interests owned by Parent or another Parent Subsidiary.
SECTION 5.2 ARTICLES OF ASSOCIATION; ARTICLES OF INCORPORATION AND
BYLAWS. The copies of (i) Parent's Memorandum of Association and New Articles
of Association; and (ii) Merger Sub's Articles of Incorporation and Bylaws
previously provided to Company by Parent are true, complete and correct copies
thereof. Such Memorandum of Association, New Articles of Association, Articles
of Incorporation and Bylaws are in full force and effect. Parent is not in
violation of any of the provisions of its Memorandum of Association and New
Articles of Association.
SECTION 5.3 CAPITALIZATION. The Parent Capital Stock consists of
42,902,961 shares of Parent Common Stock and 19,228,885 shares of Parent
Preferred Stock. As of the date hereof (i) 32,186,846 shares of Parent Common
Stock are issued and outstanding, all of which are validly issued, fully paid
and non-assessable; (ii) 19,228,885 shares of Parent Preferred Stock are issued
and outstanding, all of which are validly issued, fully paid and non-assessable;
(iii) no shares of Parent Common Stock are held in the treasury of Parent;
(iv) except as set forth in Schedule 5.3 of the Parent Disclosure Schedule, no
shares of Parent Common Stock are held by the Parent Subsidiaries; and
(v) shares of Parent Common Stock are reserved for future issuance pursuant to
outstanding options and warrants to purchase Parent Common Stock as set forth in
Schedule 5.3 of the Parent Disclosure Schedule ("PARENT STOCK OPTIONS"). Except
for the shares of Parent Common Stock issuable pursuant to the Parent Stock
Plans and except as disclosed on Schedule 5.3 of the Parent Disclosure Schedule,
there are no options, warrants or other rights, agreements, arrangements or
commitments of any character to which Parent is a party or by which Parent is
bound relating to the issued or unissued capital stock of Parent or any Parent
Subsidiary or obligating Parent or any Parent Subsidiary to issue or sell any
shares of capital stock of, or other equity interests in, Parent or any Parent
Subsidiary. All shares of Parent Common Stock subject to issuance as aforesaid,
upon issuance prior to the Effective Time on the terms and conditions
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specified in the instruments pursuant to which they are issuable, will be duly
authorized, validly issued, fully paid and non-assessable. There are no
outstanding contractual obligations of Parent or any Parent Subsidiary to
repurchase, redeem or otherwise acquire any shares of Parent Common Stock or any
capital stock of any Parent Subsidiary. Each outstanding share of capital stock
of each Parent Subsidiary is duly authorized, validly issued, fully paid and
non-assessable and each such share owned by Parent or another Parent Subsidiary
is free and clear of all security interests, liens, claims, pledges, options,
rights of first refusal, agreements, limitations on Parent's or such other
Parent Subsidiary's voting rights, charges and other Encumbrances of any nature
whatsoever. There are no material outstanding contractual obligations of Parent
or any Parent Subsidiary to provide funds to, or make any material investment
(in the form of a loan, capital contribution or otherwise) in, any Parent
Subsidiary or any other Person.
SECTION 5.4 AUTHORITY RELATIVE TO THIS AGREEMENT. Except as set forth in
Schedule 5.4 of the Parent Disclosure Schedule, (i) each of Parent and Merger
Sub has all necessary corporate power and authority to execute and deliver this
Agreement and, subject to the approval of its shareholders, to perform its
obligations hereunder to consummate the transactions contemplated hereby;
(ii) the execution and delivery of this Agreement by each of Parent and Merger
Sub and the consummation by Parent and Merger Sub of the transactions
contemplated hereby have been duly and validly authorized by all necessary
corporate action, and no other corporate proceedings, other than such
shareholder approval, on the part of Parent or Merger Sub are necessary to
authorize this Agreement or to consummate such transactions; and (iii) this
Agreement has been duly executed and delivered by each of Parent and Merger Sub
and, assuming the due authorization, execution and delivery by Company,
constitutes a legal, valid and binding obligation of each of Parent and Merger
Sub enforceable against Parent and Merger Sub in accordance with its terms.
SECTION 5.5 NO CONFLICT; REQUIRED FILINGS AND CONSENTS.
(a) The execution and delivery of this Agreement by Parent and Merger Sub
does not, and the performance by Parent and Merger Sub of their obligations
hereunder and the consummation of the Merger will not (i) conflict with or
violate any provision of the Articles of Incorporation or Bylaws of Parent or
any equivalent organizational documents of any Parent Subsidiary; (ii) assuming
that all consents, approvals, authorizations and permits described in
Section 5.5(b) have been obtained and all filings and notifications described in
Section 5.5(b) have been made, conflict with or violate any Law applicable to
Parent or any other Parent Subsidiary or by which any property or asset of
Parent or any Parent Subsidiary is bound or affected; or (iii) result in any
breach of or constitute a default (or an event which with the giving of notice
or lapse of time or both could reasonably be expected to become a default)
under, or give to others any right of termination, amendment, acceleration or
cancellation of, or result in the creation of a lien or other encumbrance on any
property or asset of Parent or any Parent Subsidiary pursuant to, any note,
bond, mortgage, indenture, contract, agreement, lease, license, permit,
franchise or other instrument or obligation.
(b) The execution and delivery of this Agreement by Parent and Merger Sub
does not, and the performance by Parent and Merger Sub of their obligations
hereunder and the consummation of the Merger will not, require any consent,
approval, authorization or permit of, or filing by Parent or Merger Sub with or
notification by Parent or Merger Sub to, any Governmental Entity, except
pursuant to applicable requirements of the Securities Act, the London Stock
Exchange, the pre-merger notification requirements of the HSR Act, if any, and
the filing and recordation of the Certificate of Merger as required by the MBCA.
SECTION 5.6 ABSENCE OF CERTAIN CHANGES OR EVENTS. Except as set forth in
Schedule 5.6 of the Parent Disclosure Schedule, since December 31, 1998, Parent
has conducted its business only in the ordinary course consistent with past
practice and, since such date, there has not been (i) any Parent Material
Adverse Effect; (ii) any event that could reasonably be expected to prevent or
materially delay
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the performance of Parent's obligations pursuant to this Agreement and the
consummation of the Merger by Parent; (iii) any material change by Parent in its
accounting methods, principles or practices; (iv) any declaration, setting aside
or payment of any dividend or distribution in respect of the shares of Parent
Capital Stock or any redemption, purchase or other acquisition of any of
Parent's securities; (v) except in the ordinary course of business consistent
with past practice, any increase in the compensation or benefits or
establishment of any bonus, insurance, severance, deferred compensation,
pension, retirement, profit sharing, stock option (including, without
limitation, the granting of stock options, stock appreciation rights,
performance awards or restricted stock awards), stock purchase or other employee
benefit plan, or any other increase in the compensation payable or to become
payable to any executive officers of Parent; (vi) any issuance or sale of any
stock, notes, bonds or other securities other than pursuant to the exercise of
outstanding securities, or entering into any agreement with respect thereto;
(vii) any amendment to the Parent's Articles of Incorporation or Bylaws;
(viii) other than in the ordinary course of business, any (x) purchase, sale,
assignment or transfer of any material assets, (y) mortgage, pledge or the
institution of any lien, encumbrance or charge on any material assets or
properties, tangible or intangible, except for liens for Taxes not yet
delinquent and such other liens, encumbrances or charges which do not,
individually or in the aggregate, have a Parent Material Adverse Effect, or
(z) waiver of any rights of material value or cancellation or any material debts
or claims; (ix) any incurrence of any material liability (absolute or
contingent), except for current liabilities and obligations incurred in the
ordinary course of business consistent with past practice; (x) any incurrence of
any damage, destruction or similar loss, whether or not covered by insurance,
materially affecting the business or properties of Parent; or (xi) any entering
into any transaction of a material nature other than in the ordinary course of
business, consistent with past practices.
SECTION 5.7 FILINGS; FINANCIAL STATEMENTS.
(a) Parent has timely filed all forms, reports, statements and documents
required to be filed by it (A) with the London Stock Exchange and/or the
Amsterdam Stock Exchange since January 1, 1999 (collectively, together with any
such forms, reports, statements and documents Parent may file subsequent to the
date hereof until the Closing, the "PARENT REPORTS") and (B) with any other
Governmental Entities. Each Parent Report (i) was prepared in accordance with
the requirements of the London Stock Exchange and/or the Amsterdam Stock
Exchange; and (ii) did not at the time it was filed 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 made therein, in the light
of the circumstances under which they were made, not misleading. Each form,
report, statement and document referred to in clause (B) of this paragraph was
prepared in all material respects in accordance with the requirements of
applicable Law.
(b) Each of the consolidated financial statements (including, in each case,
any notes thereto) contained in the Parent Reports was prepared in accordance
with standards required by the Companies Act of 1985 and the Companies Act of
1989 applied on a consistent basis throughout the periods indicated (except as
may be indicated in the notes thereto) and each presented fairly the
consolidated financial position of Parent and the Parent Subsidiaries as at the
respective dates thereof, and their consolidated results of operations,
stockholders' equity and cash flows for the respective periods indicated
therein, except as otherwise noted therein (subject, in the case of unaudited
statements, to normal and recurring immaterial year-end adjustments).
(c) Except as and to the extent set forth or reserved against on the
consolidated balance sheet of Parent and the Parent Subsidiaries as of
December 31, 1998 as reported in the Parent Reports, none of Parent or any
Parent Subsidiary have any liabilities or obligations of any nature (whether
accrued, absolute, contingent or otherwise) that would be required to be
reflected on a balance sheet or in notes thereto prepared in accordance with
United Kingdom generally accepted accounting principals, except for liabilities
or obligations incurred in the ordinary course of business consistent with past
practice since December 31, 1998.
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(d) The financial statements within the Parent Reports present fairly, in
all material respects, the consolidated financial position of Parent as of the
respective dates thereof and the consolidated results of operations and cash
flows for Company for the periods covered thereby (subject, in the case of
unaudited statements, to normal and immaterial year-end adjustments). Parent
Financial Statements have been prepared in accordance with United Kingdom
generally accepted accounting principles applied on a consistent basis
throughout the periods covered (except as may be indicated in the notes
thereto). Except for liabilities or obligations which are accrued or reserved in
Parent Financial Statements (or reflected in the notes thereto) or which were
incurred after December 31, 1998 in the ordinary course of business, Parent has
no liabilities or obligations (accrued or contingent).
SECTION 5.8 LITIGATION. There is no suit, claim, action, proceeding or
investigation pending or, to the Knowledge of Parent, threatened against Parent
or any Parent Subsidiary that could reasonably be expected to have, individually
or in the aggregate, a Parent Material Adverse Effect or materially interfere
with Parent's ability to consummate the transactions contemplated herein, and,
to the Knowledge of Parent, there are no existing facts or circumstances that
could reasonably be expected to result in such a suit, claim, action, proceeding
or investigation. Parent is not aware of any facts or circumstances which could
reasonably be expected to result in the denial of insurance coverage under
policies issued to Parent and Parent Subsidiaries in respect of such suits,
claims, actions, proceedings and investigations, except in any case as could not
reasonably be expected to have, individually or in the aggregate, a Parent
Material Adverse Effect. Neither Parent nor any Parent Subsidiary is subject to
any outstanding order, writ, injunction or decree which could reasonably be
expected to have, individually or in the aggregate, a Parent Material Adverse
Effect or materially interfere with Parent's ability to consummate the
transactions contemplated herein.
SECTION 5.9 NO PRIOR ACTIVITIES. Except for liabilities incurred in
connection with its incorporation or organization, and consummation of this
Agreement and the transactions contemplated hereby, Merger Sub has not incurred
any liabilities, and has not engaged in any business or activities of any type
or kind whatsoever or entered into any agreements or arrangements with any
Person or entity. Merger Sub is a wholly owned subsidiary of Parent.
SECTION 5.10 COMPLIANCE WITH LAWS. Parent is not in conflict with, or in
material default or material violation of (i) any Law applicable to Parent or by
which any property or asset of Parent is bound or affected; or (ii) any Parent
operating authorities, licenses and contracts, except for such conflicts,
defaults or violations that could not reasonably be expected to have,
individually or in the aggregate, a Parent Material Adverse Effect.
Schedule 5.10 of the Parent Disclosure Schedule sets forth, as of the date of
this Agreement, all actions, proceedings, investigations or surveys pending or,
to the Knowledge of Parent, threatened against Parent. Since January 1, 1996,
the Parent has not received from any Governmental Entity any written
notification with respect to possible conflicts, defaults or violations of Laws.
SECTION 5.11 TAX FREE REORGANIZATION.
(a) Parent and Merger Sub shall each use its best efforts to cause the
Merger to be treated as reorganization within the meaning of Section 368(a) of
the Code (a "Reorganization").
(b) To the extent permitted under applicable Tax Laws, the Merger shall be
reported as a Reorganization in all federal, state and local Tax Returns filed
after the Effective Time.
(c) Following the Merger and for a period of time sufficient to qualify the
Merger as a Reorganization, Parent will cause Surviving Corporation to continue
the historic business of Company or use a significant portion of Company's
historic assets in a business.
(d) Prior to the Merger, Parent will be in control of Merger Sub within the
meaning of Section 368(c) of the Code.
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(e) Following the Merger and for a period sufficient to qualify the Merger
as a Reorganization, Parent will retain control of Surviving Corporation, within
the meaning of Section 368(c) of the Code.
(f) Following the Merger and for a period sufficient to qualify the Merger
as a Reorganization, Parent will not reacquire any of its stock issued in the
Merger, whether directly or through a partnership, successor, or a person
related to Parent within the meaning of Treasury Regulation
Section 1.368-1(e)(3).
(g) Following the Merger and for a period sufficient to qualify the Merger
as a Reorganization, Parent will not liquidate Surviving Corporation, merge
Surviving Corporation with or into another corporation, sell or dispose of the
stock of Surviving Corporation (except for transfers described in
Section 368(a)(2)(C) of the Code), or cause Surviving Corporation to sell or
dispose of any of its assets, except for disposition in the ordinary course of
business.
(h) The assumption by Merger Sub of the liabilities of Company pursuant to
the Merger is for a bona fide business purpose and the principal purpose of such
assumption is not the avoidance of federal income Tax of the transfer of assets
of Company to Merger Sub pursuant to the Merger.
(i) To the Knowledge of Parent and Merger Sub, based solely on the
representations of Company (i) the liabilities of Company assumed by Merger Sub
and the liabilities to which the transferred assets of Company are subject were
incurred by Company in the ordinary course of business; (ii) no liabilities of
any person other than Company will be assumed by Merger Sub or Parent in the
Merger; and (iii) none of the shares of Company to be surrendered in exchange
for Parent stock in the Merger will be subject to any liabilities.
(j) At the Effective Time, neither Parent nor Merger Sub will be an
investment company within the meaning of Sections 368(a)(2)(F)(iii) and (iv) of
the Code.
(k) At the Effective Time, no indebtedness between Parent and Company or
between Merger Sub and Company will have been issued, acquired, or settled at a
discount and none will be settled at a discount.
(l) To the Knowledge of Parent and Merger Sub, based solely on the
representations of the Company, at the Effective Time, the fair market value of
the assets of Company will exceed the sum of its liabilities (including any
liabilities to which its assets are subject).
(m) As contemplated by Section 9.5 of this Agreement, each of the parties
will pay its own expenses, if any, incurred in connection with the Merger. None
of Parent, Merger Sub, and Company will pay any expenses of the stockholders of
Company incurred in connection with the Merger.
(n) No stock of Merger Sub will be issued in the Merger.
(o) The payment of cash in lieu of fractional shares of stock of Company was
not separately bargained for consideration and is being made for the purpose of
saving Parent the expense and inconvenience of issuing fractional shares.
(p) As a result of the Merger, Company will, based solely on the
representations of Company, transfer to Merger Sub at least ninety percent (90%)
of the fair market value of the net assets and least seventy percent (70%) of
the fair market value of the gross assets of Company held by it immediately
prior to the Merger. For this purpose, amounts used to pay Dissenting Shares or
to pay Reorganization expenses, and all redemptions and distributions (except
for regular, normal dividends) made by Company immediately prior to the Merger
will be considered as assets held by Company immediately prior to the Merger. To
the Knowledge of Parent, based solely on the representations of Company, Parent
is not aware of Company having redeemed any of the Company stock, having made
any distribution with respect to any Company stock, or having disposed of any of
its assets in anticipation of or as part of a plan for the acquisition of
Company by Merger Sub.
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SECTION 5.12 MERGER SUBSIDIARY. Merger Sub (i) was organized for the
purpose of effectuating the Merger and at no time has engaged in the conduct of
any business, and (ii) is a wholly-owned first tier subsidiary of Parent.
SECTION 5.13 FINANCING. Parent reasonably believes it will receive
commitments to provide through equity or debt financing cash sufficient to fund
the transactions contemplated by this Agreement, including the Merger, and to
satisfy all other costs and expenses arising in connection therewith.
ARTICLE VI
COVENANTS
SECTION 6.1 CONDUCT OF BUSINESS BY COMPANY PENDING THE CLOSING. Company
agrees that, between the date of this Agreement and the Effective Time, unless
Parent shall otherwise agree in writing, (x) the business of Company shall be
conducted only in, and Company shall not take any action except in, the ordinary
course of business consistent with past practice and (y) Company shall use all
reasonable efforts to keep available the services of such of the current
officers, significant employees and consultants of Company and to preserve the
current relationships of Company with such of the corporate partners, customers,
suppliers and other persons with which Company has significant business
relations in order to preserve substantially intact its business organization.
Without limitation, Company shall not, between the date of this Agreement and
the Effective Time, directly or indirectly, do, or agree to do, any of the
following without the prior written consent of Parent:
(a) amend or otherwise change its Restated Articles of Incorporation or
Bylaws or equivalent organizational documents;
(b) issue, sell, pledge, dispose of, grant, transfer, lease, license,
guarantee or encumber, or authorize the issuance, sale, pledge, disposition,
grant, transfer, lease, license or encumbrance of (i) any shares of Company
Capital Stock of any class, or securities convertible into or exchangeable or
exercisable for any shares of Company Capital Stock, or any options, warrants or
other rights of any kind to acquire any shares of such capital stock, or any
other ownership interest (including, without limitation, any phantom interest),
of Company, other than the issuance of shares of Company Common Stock or Company
Series E Stock pursuant to the exercise of stock options or warrants therefor
outstanding as of the date of this Agreement; or (ii) any material property or
assets of Company except (A) transactions pursuant to existing Contracts and
(B) dispositions, leases or licenses of inventory in the ordinary course of
business consistent with past practice;
(c) (i) acquire (including, without limitation, by merger, consolidation, or
acquisition of stock or assets) any interest in any corporation, partnership,
other business organization or Person or any division thereof, other than the
purchase of assets in the ordinary course of business consistent with past
practice; (ii) incur any indebtedness for borrowed money (other than
indebtedness with respect to working capital in amounts consistent with past
practice) or issue any debt securities or assume, guarantee or endorse, or
otherwise as an accommodation become responsible for, the obligations of any
Person for borrowed money or make any loans or advances material to the
business, assets, liabilities, financial condition or results of operations of
Company; (iii) terminate, cancel or request any material change in, or agree to
any material change in, any of Company's Material Contracts, in each case other
than in the ordinary course of business consistent with past practice;
(iv) make or authorize any capital expenditure, other than capital expenditures
in the ordinary course of business consistent with past practice that have been
budgeted for fiscal year 2000 and disclosed in writing to Parent and that are
not, in the aggregate, in excess of $100,000; or (v) enter into or amend any
contract, agreement, commitment or arrangement that, if fully performed, would
not be permitted under this Section 6.1(c);
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(d) declare, set aside, make or pay any dividend or other distribution,
payable in cash, stock, property or otherwise, with respect to any of its
capital stock;
(e) reclassify, combine, split, subdivide or redeem, purchase or otherwise
acquire, directly or indirectly, any of its capital stock 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) amend or change the period (or permit any acceleration, amendment or
change) of exercisability of options granted under Company Stock Plans or
authorize cash payments in exchange for any Company Stock Options granted under
any of such plans;
(g) amend the terms of, repurchase, redeem or otherwise acquire, any of its
securities;
(h) increase the compensation payable or to become payable to its directors,
officers, consultants or employees, grant any rights to severance or termination
pay to, or enter into any employment or severance agreement which provides
benefits upon a change in control of Company that would be triggered by the
Merger with, any director, officer, consultant or other employee of Company who
is not currently entitled to such benefits from the Merger, establish, adopt,
enter into or amend any collective bargaining, bonus, profit sharing, thrift,
compensation, stock option, restricted stock, pension, retirement, deferred
compensation, employment, termination, severance or other plan, agreement,
trust, fund, policy or arrangement for the benefit of any director, officer,
consultant or employee of Company, except to the extent required by applicable
Law or the terms of a collective bargaining agreement, or enter into or amend
any contract, agreement, commitment or arrangement between Company and any of
Company's directors, officers, consultants or employees;
(i) pay, discharge or satisfy any claims, liabilities or obligations
(absolute, accrued, asserted or unasserted, contingent or otherwise), other than
the payment, discharge or satisfaction of claims, liabilities or obligations
(A) in the ordinary course of business and consistent with past practice or
(B) claims, liabilities or obligations reflected or reserved against on the
November 1999 Balance Sheet, and only to the extent of such reserves;
(j) except as required by any Governmental Entity, make any material change
with respect to Company's accounting policies, principles, methods or
procedures, including, without limitation, revenue recognition policies, other
than as required by U.S. GAAP;
(k) make any material Tax election or settle or compromise any material Tax
liability;
(l) authorize or enter into any formal or informal agreement or otherwise
make any commitment to do any of the foregoing or to take any action which would
make any of the representations or warranties of Company contained in this
Agreement untrue or incorrect or prevent Company from performing or cause
Company not to perform its covenants hereunder or result in any of the
conditions to the Merger set forth herein not being satisfied; or
(m) together with its directors, officers, agents, employees, stockholders
and other holders of equity interests in the Company, shall not trade in, or
otherwise obtain or dispose of, Parent Common Stock; PROVIDED, FURTHER, that
Company shall (i) advise such Persons in writing of the foregoing obligation as
disclosure of this transaction becomes necessary and authorized under this
Agreement, and (ii) specifically state that such trading is prohibited under
Dutch and English Laws and regulations.
SECTION 6.2 NOTICES OF CERTAIN EVENTS. Each of Parent and Company shall
give prompt notice to the other of (i) any notice or other communication from
any Person alleging that the consent of such Person is or may be required in
connection with the Merger; (ii) any notice or other communication from any
Governmental Entity in connection with the Merger; (iii) any actions, suits,
claims, investigations or proceedings commenced or, to its Knowledge, threatened
against, relating to or involving or otherwise affecting Parent, the Parent
Subsidiaries or Company, respectively, which, if
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pending on the date hereof, would have been required to have been disclosed in
this Agreement, or that relate to the consummation of the Merger; (iv) the
occurrence of a default or event that, with the giving of notice or lapse of
time or both, will become a default under any Material Contract of the Parent or
Company; and (v) any change that could reasonably be expected to have a Parent
Material Adverse Effect or a Company Material Adverse Effect, respectively, or
to delay or impede the ability of either Parent or Company, respectively, to
perform their respective obligations pursuant to this Agreement and to effect
the consummation of the Merger.
SECTION 6.3 ACCESS TO INFORMATION; CONFIDENTIALITY.
(a) Except as required pursuant to any confidentiality agreement or similar
agreement or arrangement to which Parent or Company or any of the Parent
Subsidiaries is a party or pursuant to applicable Law or the regulations or
requirements of any stock exchange or other regulatory organization with whose
rules a party hereto is required to comply, from the date of this Agreement to
the Effective Time, Company shall (i) provide to Parent (and its officers,
directors, employees, accountants, consultants, legal counsel, investment
bankers, agents and other representatives (collectively, "REPRESENTATIVES")
access at reasonable times upon prior notice to its officers, employees, agents,
properties, offices and other facilities and to the books and records thereof;
and (ii) furnish promptly such information concerning its business, properties,
contracts, assets, liabilities and personnel as the other party or its
Representatives may reasonably request. No investigation by Parent or its
Representative, or information or documents received in connection with any such
investigation, conducted pursuant to this Section 6.3 shall affect or be deemed
to modify any representation or warranty made in this Agreement.
(b) The parties hereto shall comply with, and shall cause their respective
Representatives to comply with, all of their respective obligations under the
Confidentiality Agreement.
SECTION 6.4 NO SOLICITATION OF TRANSACTIONS. Company shall not, directly
or indirectly, and shall cause its Representatives not to, directly or
indirectly, solicit, initiate or encourage (including by way of furnishing
non-public information), any inquiries or the making of any proposal or offer
(including, without limitation, any proposal or offer to its stockholders) that
constitutes, or may reasonably be expected to lead to, any Company Competing
Transaction, or enter into or maintain or continue discussions or negotiate with
any Person in furtherance of such inquiries or to obtain a Company Competing
Transaction, or agree to or endorse any Company Competing Transaction, or
authorize or permit any of Company's Representatives to take any such action;
PROVIDED, HOWEVER, that nothing contained in this Section 6.4 shall prohibit the
Board of Directors of Company (i) from complying with Rule 14d-9 or 14e-2(a)
promulgated under the Exchange Act, or any successor rule, with regard to a
tender or exchange offer not made in violation of this Section 6.4; or
(ii) prior to receipt of the approval by the stockholders of Company of this
Agreement and the Merger from providing information (subject to a
confidentiality agreement at least as restrictive as the Confidentiality
Agreement) in connection with, and negotiating, another unsolicited, bona fide
written proposal regarding a Company Competing Transaction that (x) Company's
Board of Directors shall have concluded in good faith, after considering
applicable state Law, on the basis of a written opinion of Fredrikson & Byron,
P.A. or other independent outside counsel of nationally recognized reputation (a
copy of which shall promptly be supplied to Parent), that failure to take such
action would be a violation of Company's Board of Directors' fiduciary duties to
Company's stockholders under applicable Law, (y) if any cash consideration is
involved, shall not be subject to any financing contingency, and with respect to
which Company's Board of Directors shall have determined in the proper exercise
of its fiduciary duties to Company's stockholders that the acquiring party is
capable of consummating such Company Competing Transaction on the terms
proposed, and (z) Company's Board of Directors shall have determined (based upon
the written opinion of Company's independent financial advisors of nationally
recognized reputation, a copy of which shall be promptly provided to Parent)
taking into account all terms and conditions of the Company Competing
Transaction (including any break-up fees,
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expenses and conditions to consummation) in the proper exercise of its fiduciary
duties to Company's stockholders that such Company Competing Transaction
provides greater value to the stockholders of Company than the Merger (and
Company's independent financial advisors of nationally recognized reputation
opine in writing that such Company Competing Transaction is superior from a
financial point of view) (any such Company Competing Transaction being referred
to herein as a "COMPANY SUPERIOR PROPOSAL"). Company shall notify Parent in
writing promptly (but in no event more than twenty-four (24) hours after receipt
of the Company Competing Transaction), if any proposal or offer, or any inquiry
or contact with any Person with respect thereto, regarding a Company Competing
Transaction is made, such notice to include the identity of the Person making
such proposal, offer, inquiry or contact, and a copy of the Company Competing
Transaction. Company immediately shall cease and cause to be terminated all
existing discussions or negotiations with any parties conducted heretofore with
respect to a Company Competing Transaction. Company shall not release any third
party from, or waive any provision of, any confidentiality or standstill
agreement to which it is a party.
Any and all non-public information relating to Company that is provided to
the Person (or its Representatives) making the Company Competing Transaction
proposal shall also be provided to Parent. Company shall also promptly and
regularly inform Parent of the status and details, and provide any amendments,
revisions or replacements, with respect to the Company Competing Transaction
proposal. In the event that the Company Board of Directors determines that the
Company Competing Transaction is a Company Superior Proposal, Company shall
notify Parent of its determination in writing (and prior to any communication of
such fact to the Person making the Acquisition Proposal), and Company shall be
obligated to negotiate with Parent for a period not to exceed forty-eight (48)
hours during which Parent shall have the opportunity to agree to amend this
Agreement to meet the material terms and conditions of the Company Competing
Transaction. In the event such material terms and conditions are met by Parent
within such forty-eight (48) hour period (which terms and conditions shall not
be DE MINIMUS drafting changes, but rather terms and conditions which Company,
its financial advisors and legal counsel determine to be fundamental to their
advice in determining that the Company Competing Transaction is a Company
Superior Proposal), Company shall be obligated to discontinue and terminate
discussions with the Person making the Company Competing Transaction proposal
(and obtain the return of all information provided) and proceed under the terms
and conditions of this Agreement, as amended by the foregoing negotiations.
In the event Parent does not meet the material terms and conditions set
forth in the Company Competing Transaction, Company shall have the right to
terminate this Agreement and proceed with the consummation of the Company
Superior Proposal. Such termination, and the rights of the parties hereto, shall
be governed by Article X of this Agreement.
SECTION 6.5 TAX-FREE TRANSACTION. From and after the date of this
Agreement, each party hereto shall use all reasonable efforts to cause the
Merger to qualify, and shall not knowingly take any actions or cause any actions
to be taken which could reasonably be expected to prevent the Merger from
qualifying as a "reorganization" under Section 368(a) of the Code.
SECTION 6.6 CONTROL OF OPERATIONS. Nothing contained in this Agreement
shall give Parent, directly or indirectly, the right to control or direct the
operations of Company prior to the Effective Time. Prior to the Effective Time,
Company shall exercise, consistent with the terms and conditions of this
Agreement, complete control and supervision over its operations.
SECTION 6.7 PURCHASES OF COMMON STOCK OF THE OTHER PARTY. During the
period from the date hereof through the Effective Time, neither Parent nor any
of Parent Subsidiaries or other Affiliates will purchase any shares of Company
Common Stock, and neither the Company nor its Affiliates will purchase any
shares of Parent Common Stock.
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SECTION 6.8 FURTHER ACTION; CONSENTS; FILINGS.
(a) Upon the terms and subject to the conditions hereof, each of the parties
hereto shall use all reasonable efforts to (i) take, or cause to be taken, all
appropriate action, and do, or cause to be done, all things necessary, proper or
advisable under applicable Law or otherwise to consummate and make effective the
Merger; (ii) obtain from Governmental Entities any consents, licenses, permits,
waivers, approvals, authorizations or orders required to be obtained or made by
Parent or Company or any of their respective subsidiaries in connection with the
authorization, execution and delivery of this Agreement and the consummation of
the Merger; and (iii) make all necessary filings, and thereafter make any other
required or appropriate submissions, with respect to this Agreement and the
Merger required under (A) the Securities Act, the Exchange Act and any other
applicable Federal or state securities Laws, (B) the HSR Act, if any, and
(C) any other applicable Law. The parties hereto shall cooperate and consult
with each other in connection with the making of all such filings, including by
providing copies of all such documents to the non-filing parties and their
advisors prior to filing, and none of the parties shall file any such document
if any of the other parties shall have reasonably objected to the filing of such
document. No party shall consent to any voluntary extension of any statutory
deadline or waiting period or to any voluntary delay of the consummation of the
Merger at the behest of any Governmental Entity without the consent and
agreement of the other parties hereto, which consent shall not be unreasonably
withheld or delayed.
(b) Each of Company and Parent will give (or will cause their respective
subsidiaries to give) any notices to third persons, and use, and cause their
respective subsidiaries to use, their best efforts to obtain any consents from
third persons necessary, proper or advisable to consummate the transactions
contemplated by this Agreement.
ARTICLE VII
ADDITIONAL AGREEMENTS
SECTION 7.1 REGISTRATION STATEMENT.
(a) As promptly as practicable after the execution of this Agreement
(i) Parent shall prepare and shall file with the SEC a document or documents
that will constitute a registration statement on Form F-4 of Parent (together
with all amendments thereto, the "REGISTRATION STATEMENT"), in connection with
the registration under the Securities Act of Parent Common Stock to be issued to
Company's stockholders pursuant to the Merger; and (ii) Company and Parent shall
jointly prepare the proxy statement with respect to the Merger relating to the
special meeting of Company's stockholders to be held to consider approval of
this Agreement and the Merger (the "COMPANY STOCKHOLDERS' MEETING") (together
with any amendments thereto, the "PROXY STATEMENT"). Each of the parties hereto
shall use all reasonable efforts to cause the Registration Statement to become
effective as promptly as practicable after the date hereof, and, prior to the
effective date of the Registration Statement, the parties hereto shall take all
action required under any applicable Laws in connection with the issuance of
shares of Parent Common Stock pursuant to the Merger. Parent or Company, as the
case may be, shall furnish all information concerning Parent or Company as the
other party may reasonably request in connection with such actions and the
preparation of the Registration Statement and the Proxy Statement. Parent shall
notify Company of the receipt of any comments from the SEC on the Registration
Statement and of any requests by the SEC for any amendments or supplements
thereto or for additional information and shall provide to each other promptly
copies of all correspondence between Parent, Company or any of their
representatives and advisors and the SEC. As promptly as practicable after the
effective date of the Registration Statement, the Proxy Statement shall be
mailed to the stockholders of Company.
(b) The Proxy Statement shall include the approval of the Merger and the
recommendation of the Board of Directors of Company to Company's stockholders
that they vote in favor of approval of this Agreement and the Merger.
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(c) No amendment or supplement to the Proxy Statement shall be made without
the approval of Parent and Company, which approval shall not be unreasonably
withheld or delayed. Each of the parties hereto shall advise the other parties
hereto, promptly after it receives notice thereof, of the time when the
Registration Statement has become effective or any supplement or amendment has
been filed, of the issuance of any stop order, of the suspension of the
qualification of the Parent Common Stock issuable in connection with the Merger
for offering or sale in any jurisdiction, or of any request by the SEC for
amendment of the Registration Statement or comments thereon and responses
thereto or requests by the SEC for additional information.
(d) None of the information supplied by Company for inclusion or
incorporation by reference in the Registration Statement or the Proxy Statement
shall, in the case of the Registration Statement, at the time filed with the SEC
or other regulatory agency and, in addition, (i) in the case of the Proxy
Statement, at the date it or any amendments or supplements thereto are mailed to
stockholders of Company, at the time of Company Stockholders' Meeting and at the
Effective Time; and (ii) in the case of the Registration Statement, when it
becomes effective under the Securities Act and at 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. If at any time prior to the Effective Time any event or circumstance
relating to Company or its officers or directors, should be discovered by
Company that should be set forth in an amendment or a supplement to the
Registration Statement or the Proxy Statement, Company shall promptly inform
Parent.
(e) None of the information supplied by Parent for inclusion or
incorporation by reference in the Registration Statement or the Proxy Statement
shall, in the case of the Registration Statement, at the time filed with the SEC
or other regulatory agency and, in addition, (i) in the case of the Proxy
Statement, at the date it or any amendments or supplements thereto are mailed to
stockholders of Parent and Company, at the time of Company Stockholders'
Meeting, and at the Effective Time; and (ii) in the case of the Registration
Statement, when it becomes effective under the Securities Act and at 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. If, at any time prior to the Effective Time, any event or
circumstance relating to Parent or any Parent Subsidiary, or their respective
officers or directors, should be discovered by Parent that should be set forth
in an amendment or a supplement to the Registration Statement or the Proxy
Statement, Parent shall promptly inform Company.
SECTION 7.2 STOCKHOLDERS' MEETING. Company shall call and hold Company
Stockholders' Meeting as promptly as practicable after the date hereof for the
purpose of voting upon the approval of this Agreement and the Merger pursuant to
the Proxy Statement. Except as otherwise contemplated by this Agreement, Company
shall use all reasonable efforts to solicit from its stockholders proxies in
favor of the approval of this Agreement and the Merger pursuant to the Proxy
Statement and shall take all other action necessary or advisable to secure the
vote or consent of stockholders required by the MBCA or applicable other
requirements to obtain such approval. Company shall take all other action
necessary or, in the opinion of Parent, advisable to promptly and expeditiously
secure any vote or consent of stockholders required by applicable Law and
Company's Restated Articles of Incorporation and Bylaws to effect the Merger.
SECTION 7.3 AFFILIATES. Company will use reasonable efforts to obtain an
executed letter agreement substantially in the form of the applicable letter set
forth in Annex A (the "AFFILIATE AGREEMENT") hereto from (i) each Person who is
an officer, director or five percent (5%) or greater shareholder of the Company
is identified in Schedule 7.3 of Company Disclosure Schedule within fifteen (15)
days following the execution and delivery of this Agreement; and (ii) from any
Person who, to the Knowledge of Company, may be deemed to have become an
Affiliate of Company after the date of this Agreement and prior to the Effective
Time as soon as practicable after attaining such status.
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The foregoing notwithstanding, Parent shall be entitled to place legends as
specified in the Affiliate Agreement on the certificates evidencing any of the
Parent Common Stock to be received by (i) any Affiliate of Company; or (ii) any
Person Parent reasonably identifies (by written notice to Company) as being a
Person who may be deemed an "affiliate" within the meaning of Rule 145
promulgated under the Securities Act, and to issue appropriate stop transfer
instructions to the transfer agent for such Parent Common Stock, consistent with
the terms of the Affiliate Agreement, regardless of whether such Person has
executed Affiliate Agreement and regardless of whether such Person's name and
address appear on Schedule 7.3(a) of Company Disclosure Schedule.
SECTION 7.4 DIRECTORS' AND OFFICERS' INDEMNIFICATION.
(a) The provisions with respect to indemnification that are set forth in the
Articles of Incorporation and Bylaws of the Surviving Corporation shall not be
amended, repealed or otherwise modified for a period of six (6) years from the
Effective Time in any manner that would affect adversely the rights thereunder
of individuals who at or at any time prior to the Effective Time were directors,
officers, employees or agents of Company.
(b) From and after the Effective Time, the Surviving Corporation shall
indemnify and hold harmless each present and former director and officer of
Company (the "INDEMNIFIED PARTIES"), against any costs or expenses, judgments,
fines, losses, claims, damages or liabilities (collectively, "COSTS") incurred
in connection with any claim, action, suit, proceeding or investigation, whether
civil, criminal, administrative or investigative, arising out of or pertaining
to matters relating to their service as such an officer or director existing or
occurring at or prior to the Effective Time, whether asserted or claimed prior
to, at or after the Effective Time, to the fullest extent that Company would
have been permitted under Minnesota Law and its organizational documents (each
as in effect on the date hereof) to indemnify such Indemnified Parties;
PROVIDED, HOWEVER, that the foregoing covenant shall be applicable only in the
event that such Person has not acted, or omitted to act, in a manner
inconsistent with the conduct required of such Person to obtain indemnification
under Minnesota Law and the Company's (or its successors) organizational
documents. Such actions that will preclude indemnification shall include,
without limitation (i) a breach of the duty of loyalty owed to Company;
(ii) acts or omissions taken or omitted with respect to Company not taken in
good faith or which involve intentional misconduct or a knowing violation of
loss; or (iii) engaging in transactions with respect to Company from which such
Person derived an improper personal benefit. In the event of any Costs described
above, the Surviving Corporation shall pay the reasonable fees and expenses of
counsel selected by the Surviving Corporation, which counsel shall be reasonably
acceptable to the Indemnified Parties promptly after detailed statements,
accompanied by adequate supporting documentation, are received; PROVIDED,
HOWEVER, that (i) the Indemnified Party shall have the right to engage its own
counsel at its sole cost and expense, which counsel shall participate by
observation and suggestion only; and (ii) the Surviving Corporation shall be
under no obligation to indemnify any Person hereunder unless such Person first
executes an undertaking to reimburse all Costs and expenses incurred by the
Surviving Corporation, the Surviving Corporation or their respective successors
in connection with such indemnity if a final determination is made by a trier of
fact with appropriate jurisdiction that the Indemnified Party was not entitled
to indemnification hereunder.
(c) If the Surviving Corporation or any of its successors or assigns
(i) consolidates with or merges into any other Person and shall not be the
continuing or Surviving Corporation or entity of such consolidation or merger;
or (ii) transfers all or substantially all of its properties and assets to any
Person, then and in each such case, proper provision shall be made so that the
successors and assigns of the Surviving Corporation assume the obligations set
forth in this Section 7.4.
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SECTION 7.5 [THIS SECTION INTENTIONALLY NOT USED]
SECTION 7.6 PUBLIC ANNOUNCEMENTS. The initial press release concerning the
execution of this Agreement and the Merger shall be a joint press release and,
thereafter, Parent and Company shall consult with each other before issuing any
press release or otherwise making any public statements with respect to this
Agreement or the Merger and shall not issue any such press release or make any
such public statement without the prior written approval of the other, except to
the extent required by applicable Law, as determined by the written advice of
the issuing party's legal counsel (which shall be conclusive), in which case the
issuing party shall use all reasonable efforts to consult with the other party
before issuing any such release or making any such public statement. Company
shall not disclose or publish the fact that it has entered into this Agreement
without the consent of Parent, except for disclosure to its directors, officers,
key employees, legal and accounting advisors (and the Company shareholders at
the appropriate time and in accordance with applicable Law) for the purposes of
approving and implementing this transaction.
SECTION 7.7 BLUE SKY. Parent shall use all reasonable efforts to obtain
prior to the Effective Time all necessary permits and approvals required under
Blue Sky Laws to permit the distribution of the shares of Parent Common Stock to
be issued in accordance with the provisions of this Agreement.
SECTION 7.8 EMPLOYEE MATTERS. Simultaneously with the Merger, the
Surviving Corporation shall assume all employment agreements and termination
benefit agreements and arrangements which are in effect at Company on the date
hereof. Company and Parent agree to cooperate and take such reasonable actions
as may be required to effect an orderly transition of benefits coverage under
Company's 401(k) plan, including but not limited to, termination of such plan.
As of the Effective Time, Parent shall cause the Surviving Corporation to honor
and satisfy all obligations and liabilities with respect to Company Benefit
Plans. Notwithstanding the foregoing, the Surviving Corporation shall not be
required to continue any particular Company Benefit Plan after the Effective
Time, and any Company Benefit Plan may be amended or terminated in accordance
with its terms and applicable Law. To the extent that any Company Benefit Plan
is terminated or amended after the Effective Time so as to reduce the benefits
that are then being provided with respect to participants thereunder, Parent
shall arrange for each individual who is then a participant in such terminated
or amended plan to participate in a comparable Parent Benefit Plan in accordance
with the eligibility criteria thereof, provided that (i) such participants shall
receive full credit for years of service with Company prior to the Merger for
purposes of eligibility and vesting, but excluding benefit accrual or the amount
of benefits; (ii) such participants shall participate in the Parent Benefit
Plans on terms no less favorable than those offered by Parent to similarly
situated employees of Parent; and (iii) Parent shall cause any and all
pre-existing conditions limitations (to the extent such limitations did not
apply to a pre-existing condition under the Company Benefit Plans) and
eligibility waiting periods under any group health plans to be waived with
respect to such participants and their eligible dependents.
ARTICLE VIII
CONDITIONS TO THE MERGER
SECTION 8.1 CONDITIONS TO THE OBLIGATIONS OF EACH PARTY TO CONSUMMATE THE
MERGER. The obligations of the parties hereto to consummate the Merger are
subject to the satisfaction or, if permitted by applicable Law, waiver of the
following conditions:
(a) The Registration Statement shall have been declared effective by the
SEC under the Securities Act and no stop order suspending the effectiveness
of the Registration Statement shall have been issued by the SEC and no
proceeding for that purpose shall have been initiated by the SEC and not
concluded or withdrawn.
(b) Parent shall have received all necessary permits and approvals under
applicable Blue Sky Laws and other authorizations necessary to issue the
Parent Common Stock pursuant to this Agreement and under the Company Stock
Plans after the Merger.
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(c) Parent shall have taken all action necessary to be taken under
English Law and the Dutch and London Stock Exchanges to approve the Merger
and to provide to the Company's shareholders stock of Parent registered
under the Securities Act, subject to those certain shareholder agreements
referenced in Section 8.3(i) hereof.
(d) This Agreement and the Merger shall have been duly approved by the
requisite vote of stockholders of Company in accordance with the MBCA and
the Restated Articles of Incorporation of Company.
(e) This Agreement and the Merger shall have been duly approved by the
requisite vote of stockholders of Parent if so required by English Law, the
London Stock Exchange or other applicable Law or regulation.
(f) The shares of Parent Common Stock issuable to the Company's
stockholders in the Merger and under the Company Stock Plans after the
Merger in accordance with this Agreement shall have been admitted to trading
on the Alternative Investment Market of the London Stock Exchange, upon
official notice of issuance.
(g) No order, statute, rule, regulation, executive order, stay, decree,
judgment or injunction shall have been enacted, entered, promulgated or
enforced by any court or Governmental Entity which prohibits or prevents the
consummation of the Merger which has not been vacated, dismissed or
withdrawn prior to the Effective Time. Company and Parent shall use their
reasonable best efforts to have any of the foregoing vacated, dismissed or
withdrawn by the Effective Time.
(h) Any waiting period (and any extension thereof) applicable to the
consummation of the Merger under the HSR Act or any other applicable
competition, merger control or similar Law shall have expired or been
terminated.
(i) All consents, approvals and authorizations legally required to be
obtained to consummate the Merger shall have been obtained from all
Governmental Entities, including as may be required by English Law and the
rules of the London Stock Exchange, except where the failure to obtain any
such consent, approval or authorization could not reasonably be expected to
result in a Parent Material Adverse Effect or a Company Material Adverse
Effect.
(j) The Board of Directors of Company shall not have revoked, amended or
modified, in any adverse respect, its approval of the Merger or its
recommendation to Company's stockholders described in Section 7.1(b)(i).
SECTION 8.2 CONDITIONS TO THE OBLIGATIONS OF COMPANY. The obligations of
Company to consummate the Merger, or to permit the consummation of the Merger
are subject to the satisfaction or, if permitted by applicable Law, waiver of
the following further conditions:
(a) Each of the representations and warranties of Parent contained in
this Agreement shall be true, complete and correct in all material respects
both when made and on and as of the Effective Time as if made at and as of
the Effective Time (other than representations and warranties which address
matters only as of a certain date which shall be true, complete and correct
as of such certain date) and Company shall have received a certificate of
the Chief Executive Officer and Chief Financial Officer of Parent to such
effect.
(b) Parent shall have performed or complied in all material respects
with all covenants required by this Agreement to be performed or complied
with by it on or prior to the Effective Time and Company shall have received
a certificate of the Chief Executive Officer and Chief Financial Officer of
Parent to that effect.
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SECTION 8.3 CONDITIONS TO THE OBLIGATIONS OF PARENT AND MERGER SUB. The
obligations of Parent to consummate the Merger are subject to the satisfaction
or waiver of the following further conditions:
(a) Each of the representations and warranties of Company contained in
this Agreement shall be true, complete and correct in all material respects
both when made and on and as of the Effective Time as if made at and as of
the Effective Time (other than representations and warranties which address
matters only as of a certain date which shall be true, complete and correct
as of such certain date) and Parent shall have received a certificate of the
Chief Executive Officer and Chief Financial Officer of Company to such
effect.
(b) Parent shall have received a certificate of the Chief Executive
Officer and Chief Financial Officer of Company setting forth the number of
shares of Parent Common Stock that each stockholder of Company is to receive
upon consummation of the Merger and the number of shares of Parent Common
Stock issuable upon the exercise of options to purchase Company Common
Stock.
(c) Company shall have performed or complied in all material respects
with all covenants required by this Agreement to be performed or complied
with by it on or prior to the Effective Time and Parent shall have received
a certificate of the Chief Executive Officer and Chief Financial Officer of
Company to that effect.
(d) Parent shall have raised sufficient funds in order to meet its
$14 million cash obligation (U.S. Dollars), plus the amount of the aggregate
capital paid in to the Company upon the exercise of Company Stock Options
and Warrants from and after the date hereof until Closing, to Company
shareholders at Closing.
(e) There shall have been no Company Material Adverse Effect since the
date of this Agreement.
(f) No actions by any Governmental Entity or any other Person shall have
been instituted for the purpose of enjoining or preventing, or which
question the validity or legality of, the transactions contemplated hereby
and which would reasonably be expected to materially damage Merger Sub or
Parent or materially adversely affect the value of the Company Common Stock
or its assets, or the business or operations of the Company or Parent's
ability to own and operate the assets, business or operations of the Company
if the transactions contemplated hereby are consummated.
(g) All consents, approvals and licenses of any Governmental Entity or
any third party (including, without limitation, any consent listed on
Schedule 4.5 of the Company Disclosure Schedule) required in connection with
the execution, delivery and performance of this Agreement and for the
Surviving Corporation to conduct the business of the Company in
substantially the manner now conducted, shall have been obtained.
(h) Dissenting Shares shall constitute not more than ten percent (10%)
of the shares of the Company Common Stock outstanding immediately prior to
the Effective Time.
(i) Parent shall have received shareholder agreements from all holders
of 5,000 or more shares of Company Common Stock, as set forth in Annex A
hereto, as applicable to their individual status, not to sell, transfer or
otherwise dispose of their Parent stock for a period of six (6) months after
the Closing in the case of non-employees and twelve (12) months in the case
of employees. Notwithstanding such shareholder agreements, Parent may in
certain limited circumstances allow sales of its stock prior to the
expiration of the aforesaid lockup periods, but there is no requirement that
it do so. The holders of 5,000 or more shares of Company Common Stock shall
also agree after the expiration of the lockup agreement not to dispose of
their Parent stock other than through a broker specified by Parent or after
full consultation with such broker.
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ARTICLE IX
TERMINATION, AMENDMENT AND WAIVER
SECTION 9.1 TERMINATION. This Agreement may be terminated and the Merger
may be abandoned at any time prior to the Effective Time, notwithstanding any
requisite adoption and approval of this Agreement, as follows:
(a) by mutual written consent duly authorized by the Boards of Directors
of each of Parent and Company;
(b) by the Company, if by the scheduled Closing Parent has been unable
to raise the required funding described in Section 8.3(d) necessary to close
the Agreement;
(c) by either Parent or Company, if the Closing shall not have occurred
on or before July 31, 2000; PROVIDED, HOWEVER, that the right to terminate
this Agreement under this Section 9.1(c) shall not be available to any party
whose failure to fulfill any obligation under this Agreement shall have
caused, or resulted in, the failure of the Effective Time to occur on or
before such date;
(d) by either Parent or Company, if any Governmental Order, writ,
injunction or decree preventing the consummation of the Merger shall have
been entered by any court of competent jurisdiction and shall have become
final and non-appealable;
(e) by Parent, if (i) the Board of Directors of Company withdraws,
modifies or changes its recommendation of this Agreement or the Merger in a
manner adverse to Parent or its stockholders; (ii) the Board of Directors of
Company shall have recommended to the stockholders of Company a Company
Competing Transaction or shall have resolved to do so; and (iii) a Company
Competing Transaction shall have been announced or otherwise publicly known
and the Board of Directors of Company shall have (A) failed to recommend
against acceptance of such by its stockholders, (B) failed to reconfirm its
approval and recommendation of this Agreement and the transactions
contemplated hereby within fifteen (15) Business Days of the first
announcement or other public Knowledge of such competing offer or
(C) determined that such Company Competing Transaction was a Company
Superior Proposal and to take any of the actions allowed by clause (ii) of
Section 6.4(a); or (iv) the Board of Directors of Company resolves to take
any of the actions described above;
(f) by Parent or Company, if this Agreement and the Merger shall fail to
receive the requisite votes for approval at the Company Stockholders'
Meeting or at the Parent stockholder meeting, if it is determined that such
a meeting if necessary or any adjournment or postponement thereof;
(g) by Parent, ten (10) days after receipt by Company of a written
notice from Parent of 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, incomplete
or incorrect, in either case such that the conditions set forth in
Section 8.3 would not be satisfied (a "TERMINATING COMPANY BREACH");
PROVIDED, HOWEVER, that if such Terminating Company Breach is curable by
Company through the exercise of its reasonable efforts within ten (10) days
and for so long as Company continues to exercise such reasonable efforts,
Parent may not terminate this Agreement under this Section 9.1(g); and
PROVIDED, FURTHER that the preceding proviso shall not in any event be
deemed to extend any date set forth in paragraph (b) of this Section 9.1;
(h) by Parent, if the Average Closing Price has decreased more than 20
percent (20%) from the Initial Quoted Price or is less than L2.50; and
(i) by Company, ten (10) days after receipt by Parent of a written
notice from Company of 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,
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incomplete or incorrect, in either case such that the conditions set forth
in Section 8.2 would not be satisfied (a "TERMINATING PARENT BREACH");
PROVIDED, HOWEVER, that if such Terminating Parent Breach is curable by
Parent through the exercise of its reasonable efforts within ten (10) days
and for so long as Parent continues to exercise such reasonable efforts,
Company may not terminate this Agreement under this Section 9.1(i); and
PROVIDED, FURTHER that the preceding proviso shall not in any event be
deemed to extend any date set forth in paragraph (b) of this Section 9.1.
The right of any party hereto to terminate this Agreement pursuant to this
Section 9.1 will remain operative and in full force and effect regardless of any
investigation made by or on behalf of any party hereto, any Person controlling
any such party or any of their respective officers, directors, representatives
or agents, whether prior to or after the execution of this Agreement.
SECTION 9.2 EFFECT OF TERMINATION. Except as provided in Section 9.5, in
the event of termination of this Agreement pursuant to Section 9.1, this
Agreement shall forthwith become void, there shall be no liability under this
Agreement on the part of any party hereto or any of its Affiliates or any of its
or their officers or directors, and all rights and obligations of each party
hereto shall cease; PROVIDED, HOWEVER, that nothing herein shall relieve any
party hereto from liability for the willful or intentional breach of any of its
representations and warranties or the willful or intentional breach of any of
its covenants or agreements set forth in this Agreement.
SECTION 9.3 AMENDMENT. This Agreement may be amended by the parties hereto
by action taken by or on behalf of their respective boards of directors at any
time prior to the Effective Time; PROVIDED, HOWEVER, that, after the approval of
this Agreement by the stockholders of Company, no amendment may be made that
changes the amount or type of consideration into which Company Common Stock will
be converted pursuant to this Agreement. This Agreement may not be amended
except by an instrument in writing signed by the parties hereto.
SECTION 9.4 WAIVER. At any time prior to the Effective Time, any party
hereto may (a) extend the time for or waive compliance with the performance of
any obligation or other act of any other party hereto; (b) waive any inaccuracy
in the representations and warranties contained herein or in any document
delivered pursuant hereto; and (c) waive compliance by the other party with any
of the agreements or conditions contained herein. Any such extension or waiver
shall be valid if set forth in an instrument in writing signed by the party or
parties to be bound thereby.
SECTION 9.5 TERMINATION FEE; EXPENSES.
(a) Except as set forth in this Section 9.5, all Expenses incurred in
connection with this Agreement and the Merger shall be paid by the party
incurring such Expenses, whether or not the Merger is consummated, except that
Parent and Company each shall pay one-half ( 1/2) of all Expenses incurred
solely for printing, filing and mailing the Registration Statement and the Proxy
Statement and all SEC and other regulatory filing fees incurred in connection
with the Registration Statement and the Proxy Statement and any fees required to
be paid under the HSR Act.
(b) In the event that (i) Parent shall terminate this Agreement pursuant to
Section 9.1(e); or (ii) Parent shall terminate this Agreement due to a
Terminating Company Breach pursuant to Section 9.1(g), but only if such breach
was intentional, then Company shall pay to Parent (the "COMPANY TERMINATION
FEE") a sum equal to all of Parent's Expenses and an additional amount equal to
$1,500,000. Notwithstanding the foregoing, no fee shall be paid pursuant to this
Section 9.5(b) if Parent shall be in material breach of its obligations
hereunder. Any Company Termination Fee shall be paid in same day funds within
five (5) Business Days of the date of termination.
(c) In the event that Company shall terminate this Agreement pursuant to
Section 9.1(b), Parent will within five (5) days after the Company's termination
of this Agreement pay to the Company all of its documented Expenses incurred in
connection with this Agreement and the Merger, including, but not limited to,
all legal, accounting, printing, filing, and mailing fees, not to exceed
$200,000.
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(d) Parent and Company agree that the agreements contained in
Sections 9.5(b) and 9.5(c) above are an integral part of the transaction
contemplated by this Agreement and constituted liquidated damages and not a
penalty. If either Party fails to pay to the other Party any fee due under this
Section 9.5, the defaulting Party shall pay the Expenses (including legal fees
and expenses) in connection with any action, including the filing of any lawsuit
of other legal action, taken to collect payment.
ARTICLE X
GENERAL PROVISIONS
SECTION 10.1 NON-SURVIVAL OF REPRESENTATIONS AND WARRANTIES. The
representations and warranties in this Agreement shall terminate at the
Effective Time or upon the termination of this Agreement pursuant to
Section 9.1, as the case may be. This Section 10.1 shall not limit any covenant
or agreement of the parties which by its terms contemplates performance after
the Effective Time.
SECTION 10.2 NOTICES. All notices, requests, claims, demands and other
communications hereunder shall be in writing and shall be given (and shall be
deemed to have been duly given upon receipt) by delivery in person, by telecopy
or facsimile, by registered or certified mail (postage prepaid, return receipt
requested) or by a nationally recognized courier service to the respective
parties at the following addresses (or at such other address for a party as
shall be specified in a notice given in accordance with this Section 10.2):
<TABLE>
<S> <C> <C>
(a) if to Company: TELTECH RESOURCE NETWORK CORPORATION
2850 Metro Drive
Minneapolis, Minnesota 55425
Attention: Chief Executive Officer
Telecopier: 612-851-7598
with a copy to: Fredrikson & Byron, P.A.
1100 International Centre
900 Second Avenue South
Attention: Thomas King
Telecopier: 612-347-7077
(b) if to Parent or Merger Sub: SOPHEON PLC
Stirling House
Stirling Road, Surrey Research
Park, Guildford
Surrey, England
Attention: Barry K. Mence, Chairman
Telecopier: 011-44-1483-883050
with a copy to: Briggs and Morgan, P.A.
2400 IDS Center
80 South Eighth Street
Minneapolis, Minnesota 55402
Attention: Michael J. Grimes, Esq.
Telecopier: (612) 334-8650
</TABLE>
SECTION 10.3 SEVERABILITY. If any term or other provision of this
Agreement is invalid, illegal or incapable of being enforced by any rule of Law
or public policy, all other conditions and provisions of this Agreement shall
nevertheless remain in full force and effect so long as the economic or legal
substance of the Merger is not affected in any manner materially adverse to any
party. Upon such determination that any term or other provision is invalid,
illegal or incapable of being enforced, the parties hereto shall negotiate in
good faith to modify this Agreement so as to effect the original intent
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of the parties as closely as possible in a mutually acceptable manner to the
fullest extent permitted by applicable Law in order that the Merger may be
consummated as originally contemplated to the fullest extent possible.
SECTION 10.4 ASSIGNMENT; BINDING EFFECT; BENEFIT. Neither this Agreement
nor any of the rights, interests or obligations hereunder shall be assigned by
any of the parties hereto (whether by operation of Law or otherwise) without the
prior written consent of the other parties hereto. 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.
Notwithstanding anything contained in this Agreement to the contrary, other than
Section 7.4, nothing in this Agreement, expressed or implied, is intended to
confer on any Person other than the parties hereto or their respective
successors and permitted assigns any rights or remedies under or by reason of
this Agreement.
SECTION 10.5 INCORPORATION OF EXHIBITS. The Parent Disclosure Schedule,
the Company Disclosure Schedule and all Exhibits attached hereto and referred to
herein are hereby incorporated herein and made a part of this Agreement for all
purposes as if fully set forth herein. Parent and Company acknowledge that the
Parent Disclosure Schedule and the Company Disclosure Schedule (i) are qualified
in their entirety by reference to specific provisions of this Agreement; and
(ii) are not intended to constitute and shall not be construed as indicating
that such matter is required to be disclosed, nor shall such disclosure be
construed as an admission that such information is material with respect to
Parent or Company, as the case may be, except to the extent required or so
described by this Agreement and by applicable Law.
SECTION 10.6 GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY, AND
CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF MINNESOTA
OTHER THAN CONFLICT OF LAWS PRINCIPLES THEREOF DIRECTING THE APPLICATION OF ANY
LAW OTHER THAN THAT OF MINNESOTA.
SECTION 10.7 WAIVER OF JURY TRIAL. EACH PARTY HERETO HEREBY IRREVOCABLY
WAIVES ALL RIGHT TO TRIAL BY JURY IN ANY PROCEEDING (WHETHER BASED ON CONTRACT,
TORT OR OTHERWISE) ARISING OUT OF OR RELATING TO THIS AGREEMENT OR ANY
TRANSACTION OR AGREEMENT CONTEMPLATED HEREBY OR THE ACTIONS OF ANY PARTY HERETO
IN THE NEGOTIATION, ADMINISTRATION, PERFORMANCE OR ENFORCEMENT HEREOF.
SECTION 10.8 HEADINGS; INTERPRETATION. The descriptive headings contained
in this Agreement are included for convenience of reference only and shall not
affect in any way the meaning or interpretation of this Agreement. The parties
have participated jointly in the negotiation and drafting of this Agreement. In
the event an ambiguity or question of intent or interpretation arises, this
Agreement shall be construed as if drafted jointly by the parties, and no
presumption or burden of proof shall arise favoring or disfavoring any party by
virtue of the authorship of any provisions of this Agreement.
SECTION 10.9 COUNTERPARTS. This Agreement may be executed and delivered
(including by facsimile transmission) in one or more counterparts, and by the
different parties hereto in separate counterparts, each of which when executed
and delivered shall be deemed to be an original but all of which taken together
shall constitute one and the same agreement.
SECTION 10.10 ENTIRE AGREEMENT. This Agreement (including the Exhibits,
the Parent Disclosure Schedule and the Company Disclosure Schedule) and the
Confidentiality Agreement constitute the entire agreement among the parties with
respect to the subject matter hereof and supersede all prior agreements and
understandings among the parties with respect thereto. No addition to or
modification of any provision of this Agreement shall be binding upon any party
hereto unless made in writing and signed by all parties hereto.
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[SIGNATURE PAGE FOLLOWS]
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the date first written above by their respective officers
thereunto duly authorized.
SOPHEON PLC
By: /s/ BARRY MENCE
-----------------------------------
Name: Barry Mence
Title: CHAIRMAN
TELTECH RESOURCE NETWORK CORPORATION
By: /s/ ANDREW L. MICHUDA
-----------------------------------
Name: Andrew L. Michuda
Title: CEO AND PRESIDENT
SOPHEON CORPORATION
By: /s/ BARRY MENCE
-----------------------------------
Name: Barry Mence
Title: CHAIRMAN
A-52
<PAGE>
AMENDMENT NO. 1
This Amendment No. 1 to Agreement and Plan of Merger and Reorganization is
dated as of April 28, 2000 among SOPHEON PLC, a United Kingdom public company,
limited by shares ("PARENT"), TELTECH RESOURCE NETWORK CORPORATION, a Minnesota
corporation ("COMPANY") and SOPHEON CORPORATION, a Minnesota corporation and a
wholly-owned subsidiary of Parent ("MERGER SUB").
RECITALS:
A. Parent, Merger Sub and Company are parties to an Agreement and Plan of
Merger and Reorganization dated as of January 21, 2000 (the "Merger Agreement")
whereby Company will be merged with and into Merger Sub. Capitalized terms used
but not defined herein shall have the same meaning as in the Merger Agreement.
B. The Merger Agreement currently provides for the distribution of cash and
Parent Common Stock only to holders of outstanding shares of Company Common and
Preferred Stock through a description of calculations which shall be made at
closing.
C. The purpose of this Amendment is to revise the Merger Agreement to
permit individuals who hold options to purchase shares of Company Common Stock
to participate in the consideration payable to shareholders of Company in the
Merger without having to exercise their options by receiving options to purchase
Parent Common Stock. These option holders should receive options to purchase
Parent Common Stock in an equivalent value as if each had exercised his or her
options to purchase shares of Company Common Stock. Holders of Company Common
and Preferred Stock should also receive the same amount in value as if the
option holders had exercised their options.
D. The parties desire to set forth a description of the process to be
followed upon the effectiveness of the Merger to determine the allocation of the
Total Merger Consideration, with examples of how the calculations shall be made,
and the principles the parties agree to follow in performing the calculations.
NOW THEREFORE RESOLVED, the parties hereto agree as follows:
1. The following definitions contained in the Merger Agreement shall be
revised as follows:
"COMMON EXCHANGE RATIO" shall be deleted.
"COMPANY COMMON STOCK" shall mean each share of Common Stock, $0.01 par
value per share, of Company issued and outstanding immediately before the
Effective Time.
"COMPANY SERIES A STOCK" shall mean each share of Series A Convertible
Preferred Stock, $0.01 par value per share, of Company issued and outstanding
immediately before the Effective Time.
"COMPANY SERIES B STOCK" shall mean each share of Series B Convertible
Preferred Stock, $0.01 par value per share, of Company issued and outstanding
immediately before the Effective Time.
"COMPANY SERIES C STOCK" shall mean each share of Series C Convertible
Preferred Stock, $0.01 par value per share, of Company issued and outstanding
immediately before the Effective Time.
"COMPANY SERIES D STOCK" shall mean each share of Series D Convertible
Preferred Stock, $0.01 par value per share, of Company issued and outstanding
immediately before the Effective Time.
"COMPANY SERIES E STOCK" shall mean each share of Series E Convertible
Preferred Stock, $0.01 par value per share, of Company issued and outstanding
immediately before the Effective Time.
"PRO RATA EXCHANGE RATIO" shall be deleted.
"SERIES A EXCHANGE RATIO" shall be deleted.
A-53
<PAGE>
"SERIES B EXCHANGE RATIO" shall be deleted.
"SERIES C EXCHANGE RATIO" shall be deleted.
"SERIES D EXCHANGE RATIO" shall be deleted.
"SERIES E EXCHANGE RATIO" shall be deleted.
"PARTICIPATING OPTIONS" shall have the meaning set forth in Section
3.1(b) of this Agreement, as amended.
"TOTAL MERGER CONSIDERATION" shall mean the Total Merger Shares plus
$14,000,000 (U.S. Dollars) plus the aggregate capital paid into the Company upon
the exercise of Company Stock Options and Warrants to purchase shares of Company
Capital Stock from and after January 21, 2000 until the Closing, plus the number
of shares of Parent Common Stock equal to the aggregate exercise price of the
Participating Options divided by the Average Closing Price.
2. Section 3.1 of the Merger Agreement is amended in its entirety to read
as follows:
"SECTION 3.1 CONVERSION OF SHARES. At the Effective Time, by virtue of the
Merger, and without any action on the part of Parent, Merger Sub, Company or
anyone else, shares of Company Common Stock and of Company Preferred Stock and
Company Stock Options shall be converted into the right to receive the
consideration described below:
(a) The Total Merger Consideration shall first be allocated to the
holders of Company Preferred Stock in accordance with the preferences stated
in the Company's Restated Articles of Incorporation. The Total Merger
Consideration shall next be paid to holders of Company Common Stock to
return, on an average basis, the aggregate capital paid in by all holders of
Company Common Stock as reflected in the financial statements of the Company
immediately before the Effective Time. The cash portion of the Total Merger
Consideration shall be allocated between the holders of Company Preferred
Stock and holders of Company Common Stock pro rata based upon the relative
amounts payable in the aggregate to each such group pursuant to the
Company's Restated Articles of Incorporation. The remaining amount due
pursuant to the Company's Restated Articles of Incorporation shall be
payable in shares of Parent Common Stock based upon the Average Closing
Price. For examples of these calculations, see Exhibit 3.1(a) to this
Amendment attached hereto.
(b) Options to purchase shares of Parent Common Stock shall be allocated
to holders of Company Stock Options out of the Total Merger Shares in an
amount equal in value to the aggregate dollar value which would be payable
to holders of Company Stock Options if they had exercised their options less
the aggregate exercise price payable upon exercise of the Company Stock
Options. For examples of these calculations, see Exhibit 3.1(b) to this
Amendment, attached hereto. The calculation of the exercise prices of the
options to purchase Parent Common Stock are described in Section
3(e) below. Only those options to purchase Company Common Stock for which
their portion of the Total Merger Consideration would be greater than the
exercise price under the Company Stock Options shall receive options to
purchase Parent Common Stock. These Company Stock Options shall be referred
to as the "Participating Options." For examples of these calculations, see
Exhibit 3.1(b) to this Amendment, attached hereto. Each option to purchase a
share of Company Common Stock shall be converted into options to purchase a
number of shares of Parent Common Stock which is equal to the net value of
such option, based upon its particular exercise price. For examples of these
calculations, see Exhibit 3.1(b) to this Amendment, attached hereto.
(c) The Total Merger Shares shall be reduced by the shares of Parent
Common Stock payable in Section 3.1(a) and issuable pursuant to options in
Section 3.1(b) above. The remainder of the Total Merger Shares shall be
allocated pro rata amongst all holders of Company Common Stock
A-54
<PAGE>
and Company Preferred Stock, on an as-converted basis, with the exception
that the number of shares of Parent Common Stock payable to holders of
Company Common Stock as a group shall be reduced by, and the number of
shares of Parent Common Stock payable to holders of Company Preferred Stock
as a group shall be increased by, the difference between (i) the aggregate
value the holders of Company Common Stock received pursuant to Section
3.1(a) above and (ii) the aggregate value that the holders of Company Common
Stock would have received if all Participating Options had been exercised.
For examples of these calculations, see Exhibit 3.1(c) to this Amendment,
attached hereto.
(d) Because holders of Participating Options received consideration
which was limited to the net value of their options as described in Section
3.1(b) above, Parent shall issue additional options to holders of
Participating Options to compensate such holders in an amount equivalent to
the value of the exercise price that will be payable upon exercise of
options to purchase Parent Common Stock. These options shall be in addition
to those granted in Section 3.1(b) above and in addition to the Total Merger
Shares. The aggregate exercise price of the Participating Options shall be
divided by the Average Closing Price to determine the total additional
shares of Parent Common Stock to be granted as options. This number of
shares of Parent Common Stock shall be allocated amongst holders of
Participating Options based upon the exercise price of their respective
options. For examples of these calculations, see Exhibit 3.1(d) to this
Amendment, attached hereto.
(e) The exercise price of the options to purchase shares of Parent
Common Stock granted in subparts (b) and (d) of Section 3.1 herein shall be
equal, in the aggregate, to the aggregate exercise price of the
Participating Options and shall, on an option-by-option basis, preserve the
terms of the Company Stock Options. For examples of these calculations, see
Exhibit 3.1(e) to this Amendment, attached hereto.
3. Section 3.2(a) shall be amended in its entirety to read as follows:
"(a) EXCHANGE AGENT. As of the Effective Time, Parent shall enter into an
agreement with a U.S. bank or trust company reasonably acceptable to the Company
to act as exchange agent for the Merger (the "Exchange Agent") as may be
designated by Parent. The Exchange Agent shall have the right to subcontract
certain functions to third party specialists, such as investment brokers,
advisors and bankers for the purpose of effecting the transactions contemplated
by this Agreement and for assisting in the efficient trading of securities. The
subcontracted third party or parties shall be, for purposes of this Agreement,
Exchange Agent(s); PROVIDED, HOWEVER, such third party need not be a U.S. bank
or a trust company, and may be a foreign entity."
4. Section 3.2(b) of the Merger Agreement is amended in its entirety to
read as follows:
"(b) PARENT TO PROVIDE COMMON STOCK AND CASH. Promptly after the Effective
Time, Parent shall make available to the Exchange Agent for the benefit of the
holders of Company Capital Stock (i) certificates of Parent Common Stock
("PARENT CERTIFICATES") representing the number of whole shares of Parent Common
Stock issuable pursuant to Section 3.1 in exchange for shares of Company Capital
Stock outstanding immediately prior to the Effective Time; and (ii) sufficient
funds to permit payment in lieu of fractional shares pursuant to Section 3.6 and
the cash to be paid in respect of shares of Company Capital Stock pursuant to
Section 3.1."
5. The last two sentences of Section 3.3(a) of the Merger Agreement, (which
read "All rights under any and all Company Stock Options which remain
unexercised immediately prior to the Effective Time of the Merger shall be
automatically terminated and cancelled. The Board of Directors of the Company
shall take whatever action is necessary prior to the Effective Time to terminate
the unexercised Company Stock Options as of such time.") shall be deleted.
A-55
<PAGE>
6. The following is added to Section 3.3 of the Merger Agreement:
"(c) EXCHANGE PROCEDURES. The Exchange Agent shall mail to each holder of
record of Participating Options, whose options were converted into the right to
receive shares of Parent Common Stock, a statement indicating each Participating
Option has been amended into the right to purchase the number of shares of
Parent Common Stock as set forth in such amendment. No fractional shares shall
be issued; any fraction shall be rounded up or down to the nearest whole number.
(d) TERMINATION OF OPTIONS. All Company Stock Options which are not
Participating Options due to the fact that their exercise price is greater than
the value which is payable to holders of Company Common Stock as described in
subparts (a) and (c) of Section 3.1 above shall (i) be terminated by the Board
of Directors of the Company upon the effectiveness of the Merger; and (ii)
receive no consideration in the Merger."
7. Each of the parties agrees to act in good faith in performing the
calculations required in Section 3.1 of the Merger Agreement, as amended.
8. Each party may, at its option, have its accountants review the
computations and final determinations as described in Section 3.1 of the Merger
Agreement, as amended.
9. The Total Merger Consideration as finally calculated shall not exceed
$14,000,000 in cash plus the aggregate cash paid in upon exercise of Company
Stock Options and Warrants from January 21, 2000, to the Effective Date plus the
Total Merger Shares plus the number of shares of Parent Common Stock equal to
the aggregate exercise price of the Participating Options divided by the Average
Closing Price.
10. Section 6.1(g) of the Merger Agreement is amended in its entirety to
read as follows:
"(g) amend the terms of, repurchase, redeem or other acquire, any of its
securities other than pursuant to the terms of Section 3.3 above."
11. A new section is added to Article VII of the Merger Agreement to read as
follows:
"SECTION 7.9 LISTING OF PARENT STOCK OPTIONS ON AIM. Parent shall submit
to the London Stock Exchange an application to admit to trading on the
Alternative Investment Market ("AIM") all shares of Parent Common Stock issuable
upon exercise of options granted in the Merger in accordance with this Agreement
by a date sufficient to cause such shares to be so admitted as soon as
reasonably practicable after such issuances."
12. Section 8.1(f) of the Merger Agreement is amended in its entirety to
read as follows:
"(f) Parent shall have submitted an application to the London Stock Exchange
to admit to trading on the AIM all of the shares of Parent Common Stock issuable
to the Company's stockholders in the Merger by a date sufficient to cause such
shares of Parent Common Stock to be so admitted within three business days of
issuance of such shares."
13. All other terms and conditions of the Merger Agreement shall remain in
full force and effect, unamended. Except as set forth herein, all capitalized
terms that are undefined shall have the meanings ascribed to them as set forth
in the Merger Agreement.
[SIGNATURE PAGE FOLLOWS]
A-56
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
executed as of the date first written above by the respective officers thereunto
duly authorized.
SOPHEON PLC
By /s/ BARRY K. MENCE
--------------------------------------
Its CHAIRMAN AND CHIEF EXECUTIVE
OFFICER
SOPHEON CORPORATION
By /s/ BARRY K. MENCE
--------------------------------------
Its PRESIDENT
TELTECH RESOURCE NETWORK CORPORATION
By /s/ JACK A. JOHNSON
--------------------------------------
Its CHIEF OPERATING OFFICER
A-57
<PAGE>
EXHIBIT 3.1(a) TO AMENDMENT
AT 4.42 POUNDS
(ALL AMOUNTS IN US DOLLARS UNLESS NOTED OTHERWISE)
<TABLE>
<CAPTION>
TOTAL MERGER CONSIDERATION ALLOCATION
ORIGINAL ----------------------------------------------------------
COST BASIS CASH PARENT STOCK PARENT STOCK TOTAL $'S
----------- ----------- ------------ --------------- -----------
(IN SHARES) (IN US DOLLARS)
<S> <C> <C> <C> <C> <C>
ALLOCATION OF TOTAL MERGER
CONSIDERATION STEP 1:
Preferred A.................. $ 1,000,000 $ 775,510 30,768.466 $ 224,490 $ 1,000,000
Preferred B.................. 1,287,653 998,588 39,619.084 289,065 1,287,653
Preferred C.................. 2,859,613 2,217,659 87,985.971 641,954 2,859,613
Preferred D.................. 2,384,497 1,849,202 73,367.260 535,295 2,384,497
Preferred E.................. 8,222,343 6,376,513 252,988.777 1,845,830 8,222,343
----------- ----------- ----------- ---------- -----------
Total Step 1................. $15,754,105 $12,217,472 484,729.558 $3,536,633 $15,754,105
=========== =========== =========== ========== ===========
ALLOCATION OF TOTAL MERGER
CONSIDERATION STEP 2:
Common Stock................. $ 3,798,030 $ 2,945,411 116,859.635 $ 852,619 $ 3,798,030
----------- ----------- ----------- ---------- -----------
Total Step 2................. $ 3,798,030 $ 2,945,411 116,859.635 $ 852,619 $ 3,798,030
=========== =========== =========== ========== ===========
</TABLE>
A-58
<PAGE>
EXHIBIT 3.1(a) TO AMENDMENT
AT 5.525 POUNDS
(ALL AMOUNTS IN US DOLLARS UNLESS NOTED OTHERWISE)
<TABLE>
<CAPTION>
TOTAL MERGER CONSIDERATION ALLOCATION
ORIGINAL ----------------------------------------------------------
COST BASIS CASH PARENT STOCK PARENT STOCK TOTAL $'S
----------- ----------- ------------ --------------- -----------
(IN SHARES) (IN US DOLLARS)
<S> <C> <C> <C> <C> <C>
ALLOCATION OF TOTAL MERGER
CONSIDERATION STEP 1:
Preferred A.................. $ 1,000,000 $ 775,510 24,614.772 $ 224,490 $ 1,000,000
Preferred B.................. 1,287,653 998,588 31,695.266 289,065 1,287,653
Preferred C.................. 2,859,613 2,217,659 70,388.775 641,954 2,859,613
Preferred D.................. 2,384,497 1,849,202 58,693.807 535,295 2,384,497
Preferred E.................. 8,222,343 6,376,513 202,391.016 1,845,830 8,222,343
----------- ----------- ----------- ---------- -----------
Total Step 1................. $15,754,105 $12,217,472 387,783.636 $3,536,633 $15,754,105
=========== =========== =========== ========== ===========
ALLOCATION OF TOTAL MERGER
CONSIDERATION STEP 2:
Common Stock................. $ 3,798,030 $ 2,945,411 93,487.706 $ 852,619 $ 3,798,030
----------- ----------- ----------- ---------- -----------
Total Step 2................. $ 3,798,030 $ 2,945,411 93,487.706 $ 852,619 $ 3,798,030
=========== =========== =========== ========== ===========
</TABLE>
A-59
<PAGE>
EXHIBIT 3.1(a) TO AMENDMENT
AT 7.00 POUNDS
(ALL AMOUNTS IN US DOLLARS UNLESS NOTED OTHERWISE)
<TABLE>
<CAPTION>
TOTAL MERGER CONSIDERATION ALLOCATION
ORIGINAL ----------------------------------------------------------
COST BASIS CASH PARENT STOCK PARENT STOCK TOTAL $'S
----------- ----------- ------------ --------------- -----------
(IN SHARES) (IN US DOLLARS)
<S> <C> <C> <C> <C> <C>
ALLOCATION OF TOTAL MERGER
CONSIDERATION STEP 1:
Preferred A.................. $ 1,000,000 $ 775,510 19,428.090 $ 224,490 $ 1,000,000
Preferred B.................. 1,287,653 998,588 25,016.623 289,065 1,287,653
Preferred C.................. 2,859,613 2,217,659 55,556.859 641,954 2,859,613
Preferred D.................. 2,384,497 1,849,202 46,326.187 535,295 2,384,497
Preferred E.................. 8,222,343 6,376,513 159,744.350 1,845,830 8,222,343
----------- ----------- ----------- ---------- -----------
Total Step 1................. $15,754,105 $12,217,472 306,072.108 $3,536,633 $15,754,105
=========== =========== =========== ========== ===========
ALLOCATION OF TOTAL MERGER
CONSIDERATION STEP 2:
Common Stock................. $ 3,798,030 $ 2,945,411 73,788.516 $ 852,619 $ 3,798,030
----------- ----------- ----------- ---------- -----------
Total Step 2................. $ 3,798,030 $ 2,945,411 73,788.516 $ 852,619 $ 3,798,030
=========== =========== =========== ========== ===========
</TABLE>
A-60
<PAGE>
EXHIBIT 3.1(b), (d) & (e) TO AMENDMENT
AT 4.42 POUNDS
<TABLE>
<CAPTION>
SHARES ALLOCATED FROM TOTAL MERGER SHARES
----------------------------------------------------------
PER SHARE NET
COMPANY EXERCISE NET TOTAL NET DISTRIBUTION
COMMON STOCK EXERCISE PRICE DISTRIBUTION DISTRIBUTION WEIGHTED AVG. PARENT
OPTIONS PRICE OBLIGATION IN USD IN USD FACTOR(5) SHARES
--------------------- -------- ------------ ------------ ------------ ------------- ------------
(A) (B) (C) (D)-(B)=(E) (A)*(E)=(F) (G) (G)*(H)=(I)
<S> <C> <C> <C> <C> <C> <C>
50,000
$2.75 137,500.00 $0.23 11,564.35 0.333% 1,585.00
152,800
$2.00 305,600.00 $0.98 149,940.65 4.311% 20,550.80
175,176
$1.75 306,558.00 $1.23 215,691.93 6.202% 29,562.65
33,500
$1.50 50,250.00 $1.48 49,623.11 1.427% 6,801.32
56,000
$1.40 78,400.00 $1.58 88,552.07 2.546% 12,136.91
159,873
$1.25 199,841.25 $1.73 276,786.05 7.958% 37,936.18
1,355,567
$1.00 1,355,567.00 $1.98 2,685,767.27 77.223% 368,110.13
--------------------- ------------ ------------ ------- ----------
1,982,916 2,433,716.25 3,477,925.44 100.000% 476,683.00
===================== ============ ============ ======= ==========
<CAPTION>
ADDITIONAL SHARES
---------------------------
COMPANY ADDITIONAL
COMMON STOCK WEIGHTED AVG. PARENT TOTAL PARENT NEW EXERCISE PRICE
OPTIONS FACTOR(6) SHARES SHARES PER PARENT SHARE
--------------------- ------------- ----------- ------------ ------------------
(A) (J) (J)*(K)=(L) (I)+(L)=(M) SEE (4) BELOW
<S> <C> <C> <C> <C>
50,000 4.0770 pounds per
5.650% 18,845.69 20,431 share
152,800 2.9652 pounds per
12.557% 41,885.39 62,436 share
175,176 2.5945 pounds per
12.596% 42,016.69 71,579 share
33,500 2.2238 pounds per
2.065% 6,887.24 13,689 share
56,000 2.0756 pounds per
3.221% 10,745.47 22,882 share
159,873 1.8532 pounds per
8.211% 27,390.15 65,326 share
1,355,567 1.4826 pounds per
55.699% 185,793.37 553,904 share
--------------------- ------- ---------- -------
1,982,916 100.000% 333,564.00 810,247
===================== ======= ========== =======
</TABLE>
<TABLE>
<S> <C> <C>
Per Share Option Distribution (see (1) below)............... $ 2.9813(D)
Parent Common Stock Allocated to Holders of Company Stock
Options(2)................................................ 476,683(H)
Additional Options Granted to Holders of Company Stock
Options(3)................................................ 333,564(K)
</TABLE>
------------------------
(1) Amount is equal in value to the aggregate dollar value which would be
payable to holders of Company Stock Options if they had exercised their
options less the aggregate exercise price payable upon exercise of the
Company Stock Options.
(2) Calculated by dividing the total of column (F) by the exchange rate of
1.6507 and dividing the result by 4.42 pounds.
(3) Calculated by dividing the total of column (C) by the exchange rate of
1.6507 and dividing the result by 4.42 pounds.
(4) Calculated by dividing column (C) by the exchange rate of 1.6507 and then
dividing the result by column (M).
(5) Calculated by dividing column (F) by the total of column (F).
(6) Calculated by dividing column (D) by the total of column (D).
A-61
<PAGE>
EXHIBIT 3.1(b), (d) & (e) TO AMENDMENT
AT 5.525 POUNDS
<TABLE>
<CAPTION>
SHARES ALLOCATED FROM TOTAL MERGER SHARES
----------------------------------------------------------
PER SHARE NET
COMPANY EXERCISE NET TOTAL NET DISTRIBUTION
COMMON STOCK EXERCISE PRICE DISTRIBUTION DISTRIBUTION WEIGHTED AVG. PARENT
OPTIONS PRICE OBLIGATION IN USD IN USD FACTOR(5) SHARES
--------------------- -------- ------------ ------------ ------------ ------------- ------------
(A) (B) (C) (D)-(B)=(E) (A)*(E)=(F) (G) (G)*(H)=(I)
<S> <C> <C> <C> <C> <C> <C>
50,000
$2.75 137,500.00 $0.23 11,564.35 0.333% 1,268.01
152,800
$2.00 305,600.00 $0.98 149,940.65 4.311% 16,440.67
175,176
$1.75 306,558.00 $1.23 215,691.93 6.202% 23,650.15
33,500
$1.50 50,250.00 $1.48 49,623.11 1.427% 5,441.07
56,000
$1.40 78,400.00 $1.58 88,552.07 2.546% 9,709.54
159,873
$1.25 199,841.25 $1.73 276,786.05 7.958% 30,348.99
1,355,567
$1.00 1,355,567.00 $1.98 2,685,767.27 77.223% 294,488.57
--------- ------------ ------------ ------- ----------
1,982,916 2,433,716.25 3,477,925.44 100.000% 381,347.00
========= ============ ============ ======= ==========
<CAPTION>
ADDITIONAL SHARES
---------------------------
COMPANY ADDITIONAL
COMMON STOCK WEIGHTED AVG. PARENT TOTAL PARENT NEW EXERCISE PRICE
OPTIONS FACTOR(6) SHARES SHARES PER PARENT SHARE
--------------------- ------------- ----------- ------------ ------------------
(A) (J) (J)*(K)=(L) (I)+(L)=(M) SEE (4) BELOW
<S> <C> <C> <C> <C>
50,000 5.0962 pounds per
5.650% 15,076.54 16,345 share
152,800 3.7065 pounds per
12.557% 33,508.29 49,949 share
175,176 3.2432 pounds per
12.596% 33,613.33 57,263 share
33,500 2.7798 pounds per
2.065% 5,509.79 10,951 share
56,000 2.5945 pounds per
3.221% 8,596.37 18,306 share
159,873 2.3165 pounds per
8.211% 21,912.10 52,261 share
1,355,567 1.8532 pounds per
55.699% 148,634.59 443,123 share
--------- ------- ---------- -------
1,982,916 100.000% 266,851.00 648,198
========= ======= ========== =======
</TABLE>
<TABLE>
<S> <C>
Per Share Option Distribution (see (1) below)............... $ 2.9813(D)
Parent Common Stock Allocated to Holders of Company Stock
Options(2)................................................ 381,347(H)
Additional Options Granted to Holders of Company Stock
Options(3)................................................ 266,851(K)
</TABLE>
------------------------
(1) Amount is equal in value to the aggregate dollar value which would be
payable to holders of Company Stock Options if they had exercised their
options less the aggregate exercise price payable upon exercise of the
Company Stock Options.
(2) Calculated by dividing the total of column (F) by the exchange rate of
1.6507 and dividing the result by 5.525 pounds.
(3) Calculated by dividing the total of column (C) by the exchange rate of
1.6507 and dividing the result by 5.525 pounds.
(4) Calculated by dividing column (C) by the exchange rate of 1.6507 and then
dividing the result by column (M).
(5) Calculated by dividing column (F) by the total of column (F).
(6) Calculated by dividing column (D) by the total of column (D).
A-62
<PAGE>
EXHIBIT 3.1(b), (d) & (e) TO AMENDMENT
AT 7.00 POUNDS
<TABLE>
<CAPTION>
SHARES ALLOCATED FROM TOTAL MERGER SHARES
----------------------------------------------------------
PER SHARE NET
COMPANY EXERCISE NET TOTAL NET DISTRIBUTION
COMMON STOCK EXERCISE PRICE DISTRIBUTION DISTRIBUTION WEIGHTED AVG. PARENT
OPTIONS PRICE OBLIGATION IN USD IN USD FACTOR(5) SHARES
--------------------- -------- ------------ ------------ ------------ ------------- ------------
(A) (B) (C) (D)-(B)=(E) (A)*(E)=(F) (G) (G)*(H)=(I)
<S> <C> <C> <C> <C> <C> <C>
50,000
$2.75 137,500.00 $0.80 40,114.95 0.870% 3,471.69
152,800
$2.00 305,600.00 $1.55 237,191.29 5.145% 20,527.35
175,176
$1.75 306,558.00 $1.80 315,719.53 6.848% 27,323.45
33,500
$1.50 50,250.00 $2.05 68,752.02 1.491% 5,950.03
56,000
$1.40 78,400.00 $2.15 120,528.74 2.614% 10,430.97
159,873
$1.25 199,841.25 $2.30 368,075.45 7.984% 31,854.51
1,355,567
$1.00 1,355,567.00 $2.55 3,459,812.30 75.047% 299,424.00
--------- ------------ ------------ ------- ----------
1,982,916 2,433,716.25 4,610,194.27 100.000% 398,982.00
========= ============ ============ ======= ==========
<CAPTION>
ADDITIONAL SHARES
---------------------------
COMPANY ADDITIONAL
COMMON STOCK WEIGHTED AVG. PARENT TOTAL PARENT NEW EXERCISE PRICE
OPTIONS FACTOR(6) SHARES SHARES PER PARENT SHARE
--------------------- ------------- ----------- ------------ ------------------
(A) (J) (J)*(K)=(L) (I)+(L)=(M) SEE (4) BELOW
<S> <C> <C> <C> <C>
50,000 5.4192 pounds per
5.650% 11,899.71 15,371 share
152,800 3.9411 pounds per
12.557% 26,447.65 46,975 share
175,176 3.4485 pounds per
12.596% 26,530.56 53,854 share
33,500 2.9558 pounds per
2.065% 4,348.80 10,299 share
56,000 2.7588 pounds per
3.221% 6,785.00 17,216 share
159,873 2.4632 pounds per
8.211% 17,294.93 49,149 share
1,355,567 1.9706 pounds per
55.699% 117,315.33 416,739 share
--------- ------- ---------- -------
1,982,916 100.000% 210,622.00 609,603
========= ======= ========== =======
</TABLE>
<TABLE>
<S> <C>
Per Share Option Distribution (see (1) below)............... $ 3.5523(D)
Parent Common Stock Allocated to Holders of Company Stock
Options(2)................................................ 398,982(H)
Additional Options Granted to Holders of Company Stock
Options(3)................................................ 210,622(K)
</TABLE>
------------------------
(1) Amount is equal in value to the aggregate dollar value which would be
payable to holders of Company Stock Options if they had exercised their
options less the aggregate exercise price payable upon exercise of the
Company Stock Options.
(2) Calculated by dividing the total of column (F) by the exchange rate of
1.6507 and dividing the result by 7.00 pounds.
(3) Calculated by dividing the total of column (C) by the exchange rate of
1.6507 and dividing the result by 7.00 pounds.
(4) Calculated by dividing column (C) by the exchange rate of 1.6507 and then
dividing the result by column (M).
(5) Calculated by dividing column (F) by the total of column (F).
(6) Calculated by dividing column (D) by the total of column (D).
A-63
<PAGE>
EXHIBIT 3.1(c) TO AMENDMENT
AT 4.42 POUNDS
(ALL AMOUNTS IN US DOLLARS UNLESS NOTED OTHERWISE)
<TABLE>
<CAPTION>
TOTAL MERGER CONSIDERATION ALLOCATION
AS CONVERTED --------------------------------------------------------
SHARES CASH PARENT STOCK PARENT STOCK TOTAL $'S
------------ -------- ------------- --------------- -----------
(IN SHARES) (IN US DOLLARS)
<S> <C> <C> <C> <C> <C>
ALLOCATION OF TOTAL MERGER
CONSIDERATION STEP 3:
Preferred A.................... 724,333 $ -- 165,739.673 $ 1,209,252 $ 1,209,252
Preferred B.................... 495,251 -- 113,321.827 826,807 826,807
Preferred C.................... 635,010 -- 145,301.056 1,060,130 1,060,130
Preferred D.................... 429,498 -- 98,276.426 717,034 717,034
Preferred E.................... 2,316,153 -- 529,975.082 3,866,749 3,866,749
Common Stock................... 2,767,556 -- 610,305.743 4,452,849 4,452,849
--------- -------- ------------- ----------- -----------
Total Step 3................... 7,367,801 $ -- 1,662,919.807 $12,132,821 $12,132,821
========= ======== ============= =========== ===========
</TABLE>
A-64
<PAGE>
EXHIBIT 3.1(c) TO AMENDMENT
AT 5.525 POUNDS
(ALL AMOUNTS IN US DOLLARS UNLESS NOTED OTHERWISE)
<TABLE>
<CAPTION>
TOTAL MERGER CONSIDERATION ALLOCATION
AS CONVERTED --------------------------------------------------------
SHARES CASH PARENT STOCK PARENT STOCK TOTAL $'S
------------ -------- ------------- --------------- -----------
(IN SHARES) (IN US DOLLARS)
<S> <C> <C> <C> <C> <C>
ALLOCATION OF TOTAL MERGER
CONSIDERATION STEP 3:
Preferred A.................... 724,333 $ -- 132,591.779 $ 1,209,253 $ 1,209,253
Preferred B.................... 495,251 -- 90,657.489 826,807 826,807
Preferred C.................... 635,010 -- 116,240.880 1,060,131 1,060,131
Preferred D.................... 429,498 -- 78,621.165 717,034 717,034
Preferred E.................... 2,316,153 -- 423,980.196 3,866,750 3,866,750
Common Stock................... 2,767,556 -- 488,244.150 4,452,845 4,452,845
--------- -------- ------------- ----------- -----------
Total Step 3................... 7,367,801 $ -- 1,330,335.659 $12,132,820 $12,132,820
========= ======== ============= =========== ===========
</TABLE>
A-65
<PAGE>
EXHIBIT 3.1(c) TO AMENDMENT
AT 7.00 POUNDS
(ALL AMOUNTS IN US DOLLARS UNLESS NOTED OTHERWISE)
<TABLE>
<CAPTION>
TOTAL MERGER CONSIDERATION ALLOCATION
AS CONVERTED --------------------------------------------------------
SHARES CASH PARENT STOCK PARENT STOCK TOTAL $'S
------------ -------- ------------- --------------- -----------
(IN SHARES) (IN US DOLLARS)
<S> <C> <C> <C> <C> <C>
ALLOCATION OF TOTAL MERGER
CONSIDERATION STEP 3:
Preferred A.................... 724,333 $ -- 140,447.359 $ 1,622,855 $ 1,622,855
Preferred B.................... 495,251 -- 96,028.615 1,109,601 1,109,601
Preferred C.................... 635,010 -- 123,127.729 1,422,729 1,422,729
Preferred D.................... 429,498 -- 83,279.182 962,283 962,283
Preferred E.................... 2,316,153 -- 449,099.477 5,189,300 5,189,300
Common Stock................... 2,767,556 -- 522,129.014 6,033,149 6,033,149
--------- -------- ------------- ----------- -----------
Total Step 3................... 7,367,801 $ -- 1,414,111.376 $16,339,917 $16,339,917
========= ======== ============= =========== ===========
</TABLE>
A-66
<PAGE>
AMENDMENT NO. 2
THIS AMENDMENT NO. 2 to Agreement and Plan of Merger and Reorganization is
dated as of July 31, 2000, among SOPHEON PLC, a United Kingdom public company,
limited by shares ("PARENT"), TELTECH RESOURCE NETWORK CORPORATION, a Minnesota
corporation ("COMPANY") and SOPHEON CORPORATION, a Minnesota corporation and a
wholly-owned subsidiary of Parent ("MERGER SUB").
RECITALS
A. Parent, Merger Sub and Company are parties to an Agreement and Plan of
Merger and Reorganization dated as of January 21, 2000, as amended by Amendment
No. 1 on April 28, 2000 (the "Merger Agreement") whereby Company will be merged
with and into Merger Sub. Capitalized terms used but not defined herein shall
have the same meaning as in the Merger Agreement.
B. The Merger Agreement currently provides for the termination date of
July 31, 2000, which date shall be extended by this Amendment.
C. Warrants of the Company held by certain individuals will expire on
July 31, 2000. The parties have agreed that the exercise date of the Warrants
will be extended by the Company prior to the Warrant expiration, whereby such
Warrants can be exercised at any time up to and including September 30, 2000,
unless the Effective Time of the Merger occurs earlier.
D. The parties have agreed that additional clarifying language shall be set
forth in Section 8.3(i) of the Merger Agreement concerning the use and
consultation of the Parent recommended broker in connection with the sale of
Parent stock after the lock-up period to ensure an orderly market in Parent
stock.
E. The parties desire to effect and reflect the foregoing through this
Amendment to the Merger Agreement as hereinafter set forth.
NOW, THEREFORE, the parties hereto agree as follows:
1. Section 3.4 of the Merger Agreement is hereby amended to add the
following to the existing text:
"Parent acknowledges and agrees that the Warrants which remain unexercised
after July 31, 2000 will expire and shall automatically terminate. Pursuant to
the provisions of Section 6.1 and 6.1(g) of this Agreement, Parent and Merger
Sub have consented to an amendment of the Warrants by the Board of Directors of
the Company to extend the expiration date of the Warrants to allow exercise of
such Warrants at any time on or after July 31, 2000 through September 30, 2000;
PROVIDED, HOWEVER, in the event that the Effective Time of the Merger occurs on
a date prior to October 1, 2000, any Warrants which remain unexercised
immediately prior to the Effective Time of the Merger shall be automatically
terminated and cancelled."
2. Section 6.1(g) of the Merger Agreement is hereby amended to add the
following to the existing text:
"PROVIDED, HOWEVER, that Parent and Merger Sub hereby consent to an
amendment of the Warrants by the Board of Directors of the Company to extend the
expiration date of the Warrants to September 30, 2000."
3. Section 8.3(i) shall be amended in its entirety to read as follows:
"(i) Parent shall have received shareholder agreements from all holders of
five thousand (5,000) or more shares of Company Common Stock, as set forth in
Annex A hereto, as applicable to their individual status, not to sell, transfer
or otherwise dispose of their Parent stock for a period of six (6)
A-67
<PAGE>
months after the Closing in the case of non-employees and twelve (12) months in
the case of employees. Notwithstanding such agreement by the applicable
shareholders, Parent may in certain limited circumstances allow sales of its
stock prior to the expiration of the aforesaid lock-up periods but there is no
requirement that it do so. The holders of five thousand (5,000) or more shares
of Company Common Stock shall also agree after expiration of the lock-up
agreement not to dispose of their Parent stock other than through a broker
specified by Parent or after full consultation with such broker to ensure an
orderly market in Parent stock"
4. Section 9.1(c) shall be amended in its entirety to read as follows:
"(c) by either Parent or Company, if the Closing shall not have occurred on
or before September 30, 2000; PROVIDED, HOWEVER, that the right to terminate
this Agreement under this Section 9.1(c) shall not be available to any party
whose failure to fulfill any obligation under this Agreement shall have caused,
or resulted in, the failure of the Effective Time to occur on or before such
date."
5. All other terms and conditions of the Merger Agreement shall remain in
full force and effect, unamended. Except as set forth herein, all capitalized
terms that are undefined shall have the meanings ascribed to them as set forth
in the Merger Agreement.
[SIGNATURE PAGE FOLLOWS]
A-68
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
executed as of the date first written above by the respective officers thereunto
duly authorized.
<TABLE>
<S> <C> <C>
SOPHEON PLC
By: /s/ ARIF KARIMJEE
-----------------------------------------
Arif Karimjee
CHIEF FINANCIAL OFFICER
SOPHEON CORPORATION
By: /s/ ARIF KARIMJEE
-----------------------------------------
Arif Karimjee
TREASURER
TELETECH RESOURCE NETWORK CORPORATION
By: /s/ ANDREW MICHUDA
-----------------------------------------
Andrew Michuda
PRESIDENT AND CHIEF EXECUTIVE OFFICER
</TABLE>
A-69
<PAGE>
APPENDIX B--SECTIONS 302A.471 AND 302A.473 OF THE MINNESOTA BUSINESS
CORPORATION ACT
DISSENTERS' RIGHTS
302A.471. RIGHTS OF DISSENTING SHAREHOLDERS
Subdivision 1. ACTIONS CREATING RIGHTS. A shareholder of a corporation may
dissent from, and obtain payment for the fair value of the shareholder's shares
in the event of, any of the following corporate actions:
(a) An amendment of the articles that materially and adversely affects the
rights or preferences of the shares of the dissenting shareholder in that it:
(1) alters or abolishes a preferential right of the shares;
(2) creates, alters, or abolishes a right in respect of the redemption
of the shares, including a provision respecting a sinking fund for the
redemption or repurchase of the shares;
(3) alters or abolishes a preemptive right of the holder of the shares
to acquire shares, securities other than shares, or rights to purchase
shares or securities other than shares;
(4) excludes or limits the right of a shareholder to vote on a matter,
or to cumulate votes, except as the right may be excluded or limited through
the authorization or issuance of securities of an existing or new class or
series with similar or different voting rights; except that an amendment to
the articles of an issuing public corporation that provides that section
302A.671 does not apply to a control share acquisition does not give rise to
the right to obtain payment under this section;
(b) A sale, lease, transfer, or other disposition of all or substantially
all of the property and assets of the corporation, but not including a
transaction permitted without shareholder approval in section 302A.661,
subdivision 1, or a disposition in dissolution described in section 302A.725,
subdivision 2, or a disposition pursuant to an order of a court, or a
disposition for cash on terms requiring that all or substantially all of the net
proceeds of disposition be distributed to the shareholders in accordance with
their respective interests within one year after the date of disposition;
(c) A plan of merger, whether under this chapter or under chapter 322B, to
which the corporation is a party, except as provided in subdivision 3;
(d) A plan of exchange, whether under this chapter or under chapter 322B, to
which the corporation is a party as the corporation whose shares will be
acquired by the acquiring corporation, if the shares of the shareholder are
entitled to be voted on the plan; or
(e) Any other corporate action taken pursuant to a shareholder vote with
respect to which the articles, the bylaws, or a resolution approved by the board
directs that dissenting shareholders may obtain payment for their shares.
Subd. 2. BENEFICIAL OWNERS. (a) A shareholder shall not assert dissenters'
rights as to less than all of the shares registered in the name of the
shareholder, unless the shareholder dissents with respect to all the shares that
are beneficially owned by another person but registered in the name of the
shareholder and discloses the name and address of each beneficial owner on whose
behalf the shareholder dissents. In that event, the rights of the dissenter
shall be determined as if the shares as to which the shareholder has dissented
and the other shares were registered in the names of different shareholders.
(b) The beneficial owner of shares who is not the shareholder may assert
dissenters' rights with respect to shares held on behalf of the beneficial
owner, and shall be treated as a dissenting
B-1
<PAGE>
shareholder under the terms of this section and section 302A.473, if the
beneficial owner submits to the corporation at the time of or before the
assertion of the rights a written consent of the shareholder.
Subd. 3. RIGHTS NOT TO APPLY. (a) Unless the articles, the bylaws, or a
resolution approved by the board otherwise provide, the right to obtain payment
under this section does not apply to a shareholder of the surviving corporation
in a merger, if the shares of the shareholder are not entitled to be voted on
the merger.
(b) If a date is fixed according to section 302A.445, subdivision 1, for the
determination of shareholders entitled to receive notice of and to vote on an
action described in subdivision 1, only shareholders as of the date fixed, and
beneficial owners as of the date fixed who hold through shareholders, as
provided in subdivision 2, may exercise dissenters' rights.
Subd. 4. OTHER RIGHTS. The shareholders of a corporation who have a right
under this section to obtain payment for their shares do not have a right at law
or in equity to have a corporate action described in subdivision 1 set aside or
rescinded, except when the corporate action is fraudulent with regard to the
complaining shareholder or the corporation.
302A.473. PROCEDURES FOR ASSERTING DISSENTERS' RIGHTS
Subdivision 1. DEFINITIONS. (a) For purposes of this section, the terms
defined in this subdivision have the meanings given them.
(b) "Corporation" means the issuer of the shares held by a dissenter before
the corporate action referred to in section 302A.471, subdivision 1 or the
successor by merger of that issuer.
(c) "Fair value of the shares" means the value of the shares of a
corporation immediately before the effective date of the corporate action
referred to in section 302A.471, subdivision 1.
(d) "Interest" means interest commencing five days after the effective date
of the corporate action referred to in section 302A.471, subdivision 1, up to
and including the date of payment, calculated at the rate provided in section
549.09 for interest on verdicts and judgments.
Subd. 2. NOTICE OF ACTION. If a corporation calls a shareholder meeting at
which any action described in section 302A.471, subdivision 1 is to be voted
upon, the notice of the meeting shall inform each shareholder of the right to
dissent and shall include a copy of section 302A.471 and this section and a
brief description of the procedure to be followed under these sections.
Subd. 3. NOTICE OF DISSENT. If the proposed action must be approved by the
shareholders, a shareholder who is entitled to dissent under section 302A.471
and who wishes to exercise dissenters' rights must file with the corporation
before the vote on the proposed action a written notice of intent to demand the
fair value of the shares owned by the shareholder and must not vote the shares
in favor of the proposed action.
Subd. 4. NOTICE OF PROCEDURE; DEPOSIT OF SHARES. (a) After the proposed
action has been approved by the board and, if necessary, the shareholders, the
corporation shall send to all shareholders who have complied with subdivision 3
and to all shareholders entitled to dissent if no shareholder vote was required,
a notice that contains:
(1) The address to which a demand for payment and certificates of
certificated shares must be sent in order to obtain payment and the date by
which they must be received;
(2) Any restrictions on transfer of uncertificated shares that will
apply after the demand for payment is received;
B-2
<PAGE>
(3) A form to be used to certify the date on which the shareholder, or
the beneficial owner on whose behalf the shareholder dissents, acquired the
shares or an interest in them and to demand payment; and
(4) A copy of section 302A.471 and this section and a brief description
of the procedures to be followed under these sections.
(b) In order to receive the fair value of the shares, a dissenting
shareholder must demand payment and deposit certificated shares or comply with
any restrictions on transfer of uncertificated shares within 30 days after the
notice required by paragraph (a) was given, but the dissenter retains all other
rights of a shareholder until the proposed action takes effect.
Subd. 5. PAYMENT; RETURN OF SHARES. (a) After the corporate action takes
effect, or after the corporation receives a valid demand for payment, whichever
is later, the corporation shall remit to each dissenting shareholder who has
complied with subdivisions 3 and 4 the amount the corporation estimates to be
the fair value of the shares, plus interest, accompanied by:
(1) the corporation's closing balance sheet and statement of income for
a fiscal year ending not more than 16 months before the effective date of
the corporate action, together with the latest available interim financial
statements;
(2) an estimate by the corporation of the fair value of the shares and a
brief description of the method used to reach the estimate; and
(3) a copy of section 302A.471 and this section, and a brief description
of the procedure to be followed in demanding supplemental payment.
(b) The corporation may withhold the remittance described in paragraph (a)
from a person who was not a shareholder on the date the action dissented from
was first announced to the public or who is dissenting on behalf of a person who
was not a beneficial owner on that date. If the dissenter has complied with
subdivisions 3 and 4, the corporation shall forward to the dissenter the
materials described in paragraph (a), a statement of the reason for withholding
the remittance, and an offer to pay to the dissenter the amount listed in the
materials if the dissenter agrees to accept that amount in full satisfaction.
The dissenter may decline the offer and demand payment under subdivision 6.
Failure to do so entitles the dissenter only to the amount offered. If the
dissenter makes demand, subdivisions 7 and 8 apply.
(c) If the corporation fails to remit payment within 60 days of the deposit
of certificates or the imposition of transfer restrictions on uncertificated
shares, it shall return all deposited certificates and cancel all transfer
restrictions. However, the corporation may again give notice under subdivision 4
and require deposit or restrict transfer at a later time.
Subd. 6. SUPPLEMENTAL PAYMENT; DEMAND. If a dissenter believes that the
amount remitted under subdivision 5 is less than the fair value of the shares
plus interest, the dissenter may give written notice to the corporation of the
dissenter's own estimate of the fair value of the shares, plus interest, within
30 days after the corporation mails the remittance under subdivision 5, and
demand payment of the difference. Otherwise, a dissenter is entitled only to the
amount remitted by the corporation.
Subd. 7. PETITION; DETERMINATION. If the corporation receives a demand
under subdivision 6, it shall, within 60 days after receiving the demand, either
pay to the dissenter the amount demanded or agreed to by the dissenter after
discussion with the corporation or file in court a petition requesting that the
court determine the fair value of the shares, plus interest. The petition shall
be filed in the county in which the registered office of the corporation is
located, except that a surviving foreign corporation that receives a demand
relating to the shares of a constituent domestic corporation shall file the
petition in the county in this state in which the last registered office of the
constituent corporation was located. The petition shall name as parties all
dissenters who have demanded payment
B-3
<PAGE>
under subdivision 6 and who have not reached agreement with the corporation. The
corporation shall, after filing the petition, serve all parties with a summons
and copy of the petition under the rules of civil procedure. Nonresidents of
this state may be served by registered or certified mail or by publication as
provided by law. Except as otherwise provided, the rules of civil procedure
apply to this proceeding. The jurisdiction of the court is plenary and
exclusive. The court may appoint appraisers, with powers and authorities the
court deems proper, to receive evidence on and recommend the amount of the fair
value of the shares. The court shall determine whether the shareholder or
shareholders in question have fully complied with the requirements of this
section, and shall determine the fair value of the shares, taking into account
any and all factors the court finds relevant, computed by any method or
combination of methods that the court, in its discretion, sees fit to use,
whether or not used by the corporation or by a dissenter. The fair value of the
shares as determined by the court is binding on all shareholders, wherever
located. A dissenter is entitled to judgment in cash for the amount by which the
fair value of the shares as determined by the court, plus interest, exceeds the
amount, if any, remitted under subdivision 5, but shall not be liable to the
corporation for the amount, if any, by which the amount, if any, remitted to the
dissenter under subdivision 5 exceeds the fair value of the shares as determined
by the court, plus interest.
Subd. 8. COSTS; FEES; EXPENSES. (a) The court shall determine the costs
and expenses of a proceeding under subdivision 7, including the reasonable
expenses and compensation of any appraisers appointed by the court, and shall
assess those costs and expenses against the corporation, except that the court
may assess part or all of those costs and expenses against a dissenter whose
action in demanding payment under subdivision 6 is found to be arbitrary,
vexatious, or not in good faith.
(b) If the court finds that the corporation has failed to comply
substantially with this section, the court may assess all fees and expenses of
any experts or attorneys as the court deems equitable. These fees and expenses
may also be assessed against a person who has acted arbitrarily, vexatiously, or
not in good faith in bringing the proceeding, and may be awarded to a party
injured by those actions.
(c) The court may award, in its discretion, fees and expenses to an attorney
for the dissenters out of the amount awarded to the dissenters, if any.
B-4
<PAGE>
PART II--INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Article 175 of Sopheon's Articles of Association provides:
"175. Every Director or other officer or auditor of the Company shall be
entitled to be indemnified out of the assets of the Company against all losses
or liabilities (including any such liability as is mentioned in section 310 of
the Act), which he may sustain or incur in the execution of the duties of his
office or otherwise in relation thereto, and no Director or other officer or
auditor shall be liable for any loss, damage or misfortune which may happen to
or be incurred by the Company in the execution of the duties of his office or in
relation thereto; provided that this Article shall only have effect in so far as
its provisions are not avoided by the said section."
Section 310 of the Companies Act 1985 (as amended by Section 137 of the
Companies Act 1989) provides as follows:
310. PROVISIONS EXEMPTING OFFICERS AND AUDITORS FROM LIABILITY
(1) This section applies to any provision, whether contained in a company's
articles or in any contract with the company or otherwise, for exempting any
officer of the company or any person (whether an officer or not) employed by the
company as auditor from, or indemnifying him against, any liability which by
virtue of any rule of law would otherwise attach to him in respect of any
negligence, default, breach of duty or breach of trust of which he may be guilty
in relation to the company.
(2) Except as provided by the following subsection, any such provision is
void.
(3) This section does not prevent a company
(a) from purchasing and maintaining for any such officer or insurance
against any such liability, or
(b) from indemnifying any such officer or auditor against any liability
incurred by him
(i) in defending any proceedings (whether civil or criminal) in which
judgment is given in his favor or he is acquitted, or
(ii) in connection with any application under section 144(3) or (4)
(acquisition of shares by innocent nominee) or section 727 (general
power to grant relief in case of honest and reasonable conduct) in
which relief is granted to him by the court.
Section 727 of the Companies Act 1985 provides as follows:
727. POWER OF COURT TO GRANT RELIEF IN CERTAIN CASES:
(1) If in any proceedings for negligence, default, breach of duty or breach
of trust against an officer of a company or a person employed by a company as
auditor (whether he is or is not an officer of the company) it appears to the
court hearing the case that that officer or person is or may be liable in
respect of the negligence, default, breach of duty or breach of trust, but that
he has acted honestly and reasonably, and that having regard to all the
circumstances of the case (including those connected with his appointment) he
ought fairly to be excused for the negligence, default, breach of duty or breach
of trust, that court may relieve him, either wholly or partly, from his
liability on such terms as it thinks fit.
(2) If any such officer or person as above-mentioned has reason to apprehend
that any claim will or might be made against him in respect of any negligence,
default, breach of duty or breach of trust, he may apply to the court for
relief; and the court on the application has the same power to relieve him as
under this section it would have had if it had been a court before which
proceedings against that person for negligence, default, breach of duty or
breach of trust had been brought.
II-1
<PAGE>
(3) Where a case to which subsection (1) applies is being tried by a judge
with a jury, the judge, after hearing the evidence, may, if he is satisfied that
the defendant or defender ought in pursuance of that subsection to be relieved
either in whole or in part from the liability sought to be enforced against him,
withdraw the case in whole or in part from the jury and forthwith direct
judgment to be entered for the defendant or defender on such terms as to costs
or otherwise as the judge may think proper.
Sopheon intends to obtain directors' and officers' insurance coverage,
which, subject to policy terms and limitations will include coverage to
reimburse Sopheon for amounts that it may be required or permitted by law to pay
directors or officers of Sopheon, Teltech or the combined company.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
--------------------- -----------
<C> <S>
2.1 Agreement and Plan of Merger and Reorganization, dated as of
January 21, 2000, among Sopheon plc, Sopheon Corporation, a
wholly owned subsidiary of Sopheon plc, and Teltech Resource
Network Corporation (included as Appendix A to the proxy
statement/prospectus which is part of this Registration
Statement)
2.2 Amendment No. 1 to the Agreement and Plan of Merger and
Reorganization, dated as of April 28, 2000, among Sopheon
plc, Sopheon Corporation, a wholly owned subsidiary of
Sopheon plc, and Teltech Resource Network Corporation
2.3 Amendment No. 2 to the Agreement and Plan of Merger and
Reorganization, dated as of July 31, 2000, among Sopheon
plc, Sopheon Corporation, a wholly owned subsidiary of
Sopheon plc, and Teltech Resource Network Corporation
(included herein)
3.1 Memorandum of Association of Sopheon plc as amended by
Special Resolutions passed on August 18, 1996 and November
22, 1999
3.2 New Articles of Association of Sopheon plc as adopted
pursuant to a Special Resolution passed on August 28, 1996
and amended by a Special Resolution passed on November 22,
1999
4 Form of Specimen Stock Certificate representing Sopheon
ordinary shares
5.1 Opinion of Hammond Suddards Edge dated August 23, 2000
5.2 Form of tax opinion of Fredrikson & Byron, P.A.
10.1 Convertible Loan Agreement dated June 22, 1998 by and
between PolyDoc plc and Barry Mence, Nederlandse
Participatie Maatschappij NV and Brandon Limited
10.2 Rules of the PolyDoc Unapproved Share Option Scheme, adopted
August 1996
10.3 Rules of the PolyDoc Executive Share Option Scheme, adopted
August 1996
10.4 AppliedNet Unapproved Share Option Scheme, adopted by the
Company on September 25, 1998 and amended by a Resolution of
the Company in General Meeting on March 4, 1999
10.5 Form of Lockup Agreement with Teltech employee shareholders
10.6 Form of Lockup Agreement with Teltech non-employee
shareholders
10.7 Secured Promissory Note in the amount of $1,900,000 issued
by Teltech Resource Network Corporation to Sopheon plc,
dated June 27, 2000
10.8 Collateral Assignment, Patent Mortgage and Security
Agreement dated June 27, 2000 by and between Teltech
Resource Network Corporation and Sopheon plc
16 Letter of PricewaterhouseCoopers regarding change in
certifying accountant
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
--------------------- -----------
<C> <S>
21 Subsidiaries of the Registrant
23.1 Consent of Ernst & Young, dated August 23, 2000
23.2 Consent of Ernst & Young, dated August 23, 2000
23.3 Consent of KPMG LLP, dated August 21, 2000
23.4 Consent of PricewaterhouseCoopers, LLP, dated August 21,
2000
23.5 Consent of Hammond Suddards Edge, dated August 23, 2000
(included in Exhibit 5.1)
23.6 Consent of Fredrikson & Byron, P.A. (included in Exhibit
5.2)
24 Powers of Attorney
99.1 Form of Proxy Card of Teltech
99.2 Form of Teltech Resource Network Corporation 1987
Nonqualified Stock Option Agreement
99.3 Form of Teltech Resource Network Corporation 1995 Key
Employee Nonqualified Stock Option Agreement
</TABLE>
ITEM 22. UNDERTAKINGS
(a) The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made,
a post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933.
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth in
the registration statement. Notwithstanding the foregoing, any increase
or decrease in volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered) and any
deviation from the low or high end of the estimated maximum offering
range may be reflected in the form of prospectus filed with the
Commission pursuant to Rule 424(b) if, in the aggregate, the changes in
volume and price represent no more than a 20% change in the maximum
aggregate offering price set forth in the "Calculation of Registration
Fee" table in the effective registration statement.
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or
any material change to such information in the registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to
be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
(b) The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to Section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
registration statement shall be deemed to be a new
II-3
<PAGE>
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
The undersigned Registrant hereby undertakes as follows: that prior to any
public reoffering of the securities registered hereunder through use of a
prospectus which is a part of this registration statement, by any person or
party who is deemed to be an underwriter within the meaning of Rule 145(c), the
issuer undertakes that such reoffering prospectus will contain the information
called for by the applicable registration form with respect to reofferings by
persons who may be deemed underwriters, in addition to the information called
for by the other items of the applicable form.
The Registrant undertakes that every prospectus: (i) that is filed pursuant
to the paragraph immediately preceding, or (ii) that purports to meet the
requirements of Section 10(a)(3) of the Act and is used in connection with an
offering of securities subject to Rule 415, will be filed as a part of an
amendment to the registration statement and will not be used until such
amendment is effective, and that, for purposes of determining any liability
under the Securities Act of 1933, each such post-effective amendment shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the provisions referred to in Item 20 of this
registration statement, or otherwise, the registrant has been advised that in
the opinion of the Securities and Exchange commission such indemnification is
against public policy as expressed in the Act and is, therefore, unenforceable.
In the event that a claim for indemnification against such liabilities (other
than the payment by the registrant of expenses incurred or paid by a director,
officer or controlling person of the registrant in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or controlling
person in connection with the securities being registered, the registrant will,
unless in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.
The undersigned Registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Item 4, 10(b), 11, or 13 of this form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the registration statement through the
date of responding to the request.
The undersigned Registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized, on this 23rd day of August 2000.
<TABLE>
<S> <C> <C>
SOPHEON PLC
BY: /S/ BARRY K. MENCE
-----------------------------------------
Barry K. Mence
CHAIRMAN AND CHIEF EXECUTIVE OFFICER
</TABLE>
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons on the dates and
in the capacities indicated.
<TABLE>
<CAPTION>
SIGNATURES TITLE DATE
---------- ----- ----
<C> <S> <C>
Chairman and Chief
/s/ BARRY K. MENCE Executive Officer
------------------------------------------- (Principal Executive August 23, 2000
Barry K. Mence Officer)
/s/ RICHARD V. MADDOCKS*
------------------------------------------- Managing Director August 23,, 2000
Richard V. Maddocks
/s/ JAMES M. MACFARLANE*
------------------------------------------- Global Business Development August 23, 2000
James M. Macfarlane Director
/s/ HUUB J.M. RUTTEN*
------------------------------------------- Research Director August 23, 2000
Huub J.M. Rutten
/s/ ARIF KARIMJEE Group Finance Director
------------------------------------------- (Principal Accounting August 23, 2000
Arif Karimjee Officer)
/s/ MICHAEL J. BROOKE*
------------------------------------------- Director August 23, 2000
Michael J. Brooke
/s/ STUART A. SILCOCK*
------------------------------------------- Director August 23, 2000
Stuart A. Silcock
/s/ HANS COLTOF*
------------------------------------------- Director August 23, 2000
Hans Coltof
</TABLE>
II-5
<PAGE>
<TABLE>
<S> <C> <C> <C>
*By: /s/ BARRY K. MENCE
--------------------------------------
Barry K. Mence
ATTORNEY-IN-FACT
</TABLE>
II-6
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
--------------------- -----------
<C> <S>
2.1 Agreement and Plan of Merger and Reorganization, dated as of
January 21, 2000, among Sopheon plc, Sopheon Corporation, a
wholly owned subsidiary of Sopheon plc, and Teltech Resource
Network Corporation (included as Appendix A to the proxy
statement/prospectus which is part of this Registration
Statement)
2.2 Amendment No. 1 to the Agreement and Plan of Merger and
Reorganization, dated as of April 28, 2000, among Sopheon
plc, Sopheon Corporation, a wholly owned subsidiary of
Sopheon plc, and Teltech Resource Network Corporation
2.3 Amendment No. 2 to the Agreement and Plan of Merger and
Reorganization, dated as of July 31, 2000, among Sopheon
plc, Sopheon Corporation, a wholly owned subsidiary of
Sopheon plc, and Teltech Resource Network Corporation
3.1 Memorandum of Association of Sopheon plc as amended by
Special Resolutions passed on August 18, 1996 and November
22, 1999
3.2 New Articles of Association of Sopheon plc as adopted
pursuant to a Special Resolution passed on August 28, 1996
and amended by a Special Resolution passed on November 22,
1999
4 Form of Specimen Stock Certificate representing Sopheon
ordinary shares
5.1 Opinion of Hammond Suddards Edge dated August 23, 2000
5.2 Form of tax opinion of Fredrikson & Byron, P.A.
10.1 Convertible Loan Agreement dated June 22, 1998 by and
between PolyDoc plc and Barry Mence, Nederlandse
Participatie Maatschappij NV and Brandon Limited
10.2 Rules of the PolyDoc Unapproved Share Option Scheme, adopted
August 1996
10.3 Rules of the PolyDoc Executive Share Option Scheme, adopted
August 1996
10.4 AppliedNet Unapproved Share Option Scheme, adopted by the
Company on September 25, 1998 and amended by a Resolution of
the Company in General Meeting on March 4, 1999
10.5 Form of Lockup Agreement with Teltech employee shareholders
10.6 Form of Lockup Agreement with Teltech non-employee
shareholders
10.7 Secured Promissory Note in the amount of $1,900,000 issued
by Teltech Resource Network Corporation to Sopheon plc,
dated June 27, 2000
10.8 Collateral Assignment, Patent Mortgage and Security
Agreement dated June 27, 2000 by and between Teltech
Resource Network Corporation and Sopheon plc
16 Letter of PricewaterhouseCoopers regarding change in
certifying accountant
21 Subsidiaries of the Registrant
23.1 Consent of Ernst & Young, dated August 23, 2000
23.2 Consent of Ernst & Young, dated August 23, 2000
23.3 Consent of KPMG LLP, dated August 21, 2000
23.4 Consent of PricewaterhouseCoopers, LLP, dated August 21,
2000
23.5 Consent of Hammond Suddards Edge, dated August 23, 2000
(included in Exhibit 5.1)
23.6 Consent of Fredrikson & Byron, P.A. (included in Exhibit
5.2)
24 Powers of Attorney
99.1 Form of Proxy Card of Teltech
99.2 Form of Teltech Resource Network Corporation 1987
Nonqualified Stock Option Agreement
99.3 Form of Teltech Resource Network Corporation 1995 Key
Employee Nonqualified Stock Option Agreement
</TABLE>
