<PAGE>
SCHEDULE 14A
(RULE 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange
Act of 1934
Filed by the Registrant |X|
Filed by a Party other than the Registrant |_|
Check the appropriate box:
|X| Preliminary Proxy Statement
|_| Confidential, for Use of the Commission Only
(as permitted by Rule 14a-6(e)(2))
|_| Definitive Proxy Statement
|_| Definitive Additional Materials
|_| Soliciting Material Pursuant to ss.240.14a-11(c) or ss.240.14a-12
CTI Group (Holdings) Inc.
- - --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- - --------------------------------------------------------------------------------
(Name of person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
|_| No fee required
|X| Fee computed on table below per Exchange Act Rules 14a-6(i) (1) and 0-11.
(1) Title and number of each class of securities to which this transaction
applies:
<TABLE>
<CAPTION>
================================================================================================================
Issuer and Number of Price Proposed Maximum Filing Fee
Title of Class Securities Per Share Aggregate Value Payable
================================================================================================================
<S> <C> <C> <C> <C>
Class A common stock, 15,180,005 $1.4375(a) $21,821,257 $4,364.26
par value $0.01 per
share, of CTI Group
(Holdings), Inc.
- - ----------------------------------------------------------------------------------------------------------------
TOTAL 15,180,005 $1.4375 $21,821,257 $4,364.26
================================================================================================================
</TABLE>
(a) The price per share of CTI Group (Holdings) Inc.'s common stock, which is
listed on the OTC Bulletin Board, is based on the last sale reported on
April 28, 2000.
<PAGE>
2. Aggregate number of securities to which transaction applies: 15,180,005.
3. Calculation of the underlying value of the transaction: The total underlying
transaction value: $21,821,257.
4. Proposed maximum aggregate value of transaction: $21,821,257.
5. Total fee paid: $4,364.26.
|_| Fee paid previously with preliminary materials.
|_| Check box if any part of the fee is offset as provided by Exchange Act Rule
0- 11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the form or schedule and the date of its filing.
(1) Amount Previously Paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
<PAGE>
CTI GROUP (HOLDINGS) INC.
- - --------------------------------------------------------------------------------
Anthony P. Johns 2550 Eisenhower Avenue
Chairman of the Board Norristown, PA 19403
MERGERS PROPOSED -- YOUR VOTE IS VERY IMPORTANT
The Boards of Directors of CTI Group (Holdings) Inc. ("CTIG") and
Centillion Data Systems, Inc. ("Centillion") have agreed on a Merger (the
"Centillion Merger") designed to create a premier worldwide provider of software
and services for managing billing and billing analysis for telecommunications
systems. In addition, the Board of Directors of CTIG, contingent upon the
approval of the Centillion Merger, has approved a merger with Celltech
Information Systems, Inc. ("Celltech"), which would have the effect of merging
Celltech with and into a subsidiary of CTIG (the "Celltech Merger" and together
with the Centillion Merger, collectively referred to as the "Mergers"). The
resulting company, which will continue under the name of CTIG Group (Holdings)
Inc., is referred to throughout this document as CTIG. The following document
serves as a proxy statement for holders of CTIG stock, a proxy statement and
prospectus for holders of Centillion stock, and a prospectus for holders of
Celltech stock.
If the Centillion Merger is completed, Centillion's stockholders will
receive 9,747,404 shares of CTIG Class A Common Stock in exchange for all of the
issued and outstanding capital stock of Centillion. In addition, Centillion's
stockholders will receive 2,833,334 shares of newly created Class B Common
Stock. Centillion stockholders will also be entitled to acquire additional
shares of CTIG stock after closing, details of which are described more fully
below.
If the Celltech Merger is completed, Celltech stockholders will
receive $262,599 in cash and between 1,330,501 and 2,217,501 shares of CTIG
Class A Common Stock.
Neither the Centillion Merger nor the Celltech Merger may be completed
unless they each separately are approved by a majority of the holders of CTIG
stock, and the Celltech Merger is contingent upon the consummation of the
Centillion Merger.
We have scheduled a special meeting for CTIG stockholders to vote on
each of the Centillion Merger and the Celltech Merger (the "CTIG Special
Meeting"). YOUR VOTES ARE VERY IMPORTANT. At the CTIG Special Meeting, you also
will vote on (1) amendments to CTIG's Certificate of Incorporation, which will
be contingent upon the consummation of the Centillion Merger, to redesignate its
current common stock as Class A Common Stock, create a new Class B Common Stock
and restructure and designate CTIG's post-Merger Board of Directors all for
purposes of the Centillion Merger, and (2) an amendment to CTIG's Stock Option
and Restricted Stock Plan to enable CTIG to issue additional options. CTIG
stockholders should note that adoption of the amendment of CTIG's Certificate of
Incorporation will have the effect of electing a new Board of Directors, the
members of which have already been determined in accordance with the Centillion
Merger Agreement.
Whether or not you plan to attend the meeting, please take the time to
vote by completing and mailing the enclosed proxy card to us. If you sign, date
and mail your proxy card without indicating how you want to vote, your proxy
will be counted as a vote in favor of the Mergers, the amendments to the CTIG
Certificate of Incorporation, and the authorization to increase the number of
options available under the CTIG Stock Option and Restricted Stock Plan. If you
fail to return your card, the effect will be a vote against the Mergers, the
amendments to the Certificate of Incorporation and the increase in CTIG options.
This solicitation is being made by CTIG. The costs of the solicitation are being
borne by CTIG.
The date, time and place of the meeting is as follows:__________, 2000
10:00 a.m. local time
1
<PAGE>
This Joint Proxy Statement/Prospectus provides you with detailed
information about the proposed Mergers and related transactions. In addition,
you may obtain information about the business of CTIG from its latest Form
10-KSB and Form 10-QSB, which accompany this Joint Proxy Statement/Prospectus,
as well as other documents that it has filed with the Securities and Exchange
Commission. We encourage you to read this entire document carefully.
We are mailing this Joint Proxy Statement/Prospectus and accompanying
form of proxy to the stockholders of CTIG on or about [____________], 2000.
Anthony P. Johns
Chairman of the Board
CTI Group (Holdings) Inc.
Neither the Securities and Exchange Commission nor any state securities
regulators have approved the CTIG Stock to be issued under this Joint Proxy
Statement/Prospectus or determined if this Joint Proxy Statement/Prospectus is
accurate or adequate. Any representation to the contrary is a criminal offense.
Joint Proxy Statement/Prospectus dated __________, 2000.
2
<PAGE>
CENTILLION DATA SYSTEMS, INC.
333 North Alabama Street, Suite 240
Indianapolis, Indiana 46204
_______________, 2000
Dear Stockholder:
You are cordially invited to attend the special meeting for
stockholders (the "Centillion Special Meeting") of Centillion Data Systems,
Inc., an Indiana corporation ("Centillion") to be held on _______________ 2000,
at ________ .m. (eastern standard saving time) at _________________________.
At the Centillion Special Meeting you will be asked to consider and
vote upon a proposal (the "Centillion Merger Proposal") to approve and adopt a
Merger Agreement (the "Centillion Merger Agreement") dated as of February 3,
2000, by and between CTI Group Holdings, Inc. ("CTIG") and Centillion Data
Systems, Inc. ("Centillion"), pursuant to which, among other things, (i)
Centillion will be merged with and into CTIG, with CTIG being the surviving
entity, and (ii) holders of Centillion Common Stock will receive 9,747,404
shares of CTIG Class A Common Stock and 2,833,334 shares of CTIG Class B Common
Stock, with the right to acquire an additional 3,215,100 shares of CTIG Class A
Stock after the Centillion Merger ("the Centillion Merger").
The Board of Directors of Centillion has carefully reviewed and
considered the terms and conditions of the proposed Centillion Merger and has
determined that the Centillion Merger is in the best interests of Centillion and
its stockholders. Accordingly, the Centillion Board of Directors has approved
the Centillion Merger Agreement and the Centillion Merger and recommends that
you vote for the approval of the Centillion Merger Proposal.
I urge you to carefully review and consider the accompanying Notice of
Special Meeting of Stockholders, Joint Proxy Statement/Prospectus, including the
Annexes thereto, and Proxy, which contain information about Centillion and CTIG
and describe the proposed Centillion Merger and certain related matters. Please
give this material your careful attention.
All stockholders are invited to attend the Centillion Special Meeting
in person. Under Indiana law, the affirmative vote of a majority of the issued
and outstanding shares of Centillion Common Stock will be necessary for the
approval and adoption of the Centillion Merger Proposal. Holders of shares of
Centillion Common Stock will be entitled to one vote for each share of
Centillion Common Stock they hold.
Whether or not you plan to attend the Centillion Meeting, holders of
Centillion Common Stock are asked to please complete, date and sign the enclosed
proxy which is solicited by the Board of Directors of Centillion and return it
promptly in the accompanying envelope. If you later find that you may be present
at the Centillion Special Meeting or for any reason desire to revoke your proxy,
you may do so at any time prior to its exercise in the manner provided in the
accompanying Joint Proxy Statement/Prospectus.
Sincerely,
JOHN M. CAUFFMAN
President
3
<PAGE>
CTI GROUP (HOLDINGS) INC.
2550 Eisenhower Avenue
Norristown, Pennsylvania 19403
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
To Be Held on ____________, 2000
To the Stockholders of CTI Group (Holdings) Inc. ("CTIG"):
A special meeting of stockholders of CTIG will be held on
__________________, at 10:00 a.m.,________, for the following purposes:
o to approve and adopt a Merger Agreement (the "Centillion Merger
Agreement") dated as of February 3, 2000, by and between CTIG and
Centillion, pursuant to which, among other things, (i) Centillion
will be merged with and into CTIG, with CTIG being the surviving
entity (the "Centillion Merger"), and (ii) holders of Centillion
Common Stock will receive 9,747,404 shares of CTIG Class A Common
Stock and 2,833,334 shares of CTIG Class B Common Stock, with the
right to acquire up to an additional 3,215,100 shares of CTIG
Class A Common Stock after closing;
o to approve and adopt a Merger Agreement (the "Celltech Merger
Agreement") dated as of April 5, 2000, by and among CTIG, CTI
Billing Solutions Inc., a wholly-owned subsidiary of CTIG
("CTIB"), Celltech Information Systems, Inc. ("Celltech") and all
of Celltech's stockholders, pursuant to which Celltech will be
merged with, and into CTIB, with CTIB remaining as the surviving
entity (the "Celltech Merger"). Celltech stockholders, who
collectively own 100% of the outstanding stock of Celltech, have
committed in writing to voting all of their shares in favor of the
Celltech Merger. They will receive $262,599 in cash to be
distributed pro rata on a per share equivalent basis and between
1,330,501 and 2,217,501 shares of CTIG Class A Common Stock, par
value .01 per share, based upon the average price of CTIG Class A
Common Stock over the 20 trading days preceding the closing date
of the Celltech Merger. Approximately 47% of the shares of this
stock will be placed in escrow and may be released to the Celltech
stockholders over the course of three years upon certain
conditions described more fully in this Joint Proxy
Statement/Prospectus. The Celltech Merger will occur only if the
Centillion Merger is approved by CTIG and Centillion stockholders,
and is ultimately consummated;
o to approve and adopt amendments to CTIG's Certificate of
Incorporation to redesignate its current common stock as Class A
Common Stock, create a new Class B Common Stock and restructure
and designate CTIG's post-merger Board of Directors all for
purposes of the Centillion Merger;
o to approve and adopt an amendment to the CTIG Stock Option and
Restricted Stock Plan to enable CTIG to authorize additional
options; and
o to act upon such other matters as may properly come before the
CTIG Special Meeting or any adjournment or postponement.
The CTIG Board of Directors has unanimously approved the Merger Agreements, the
amendments to the CTIG Certificate of Incorporation, the amendment to the Stock
Option and Restricted Stock Plan, and the transactions
4
<PAGE>
that these actions concern and recommends that stockholders vote FOR approval
and adoption of the above proposals.
Under Delaware law, appraisal rights will be available to holders of
CTIG Common Stock in connection with the Centillion and Celltech Mergers. For
CTIG stockholders to exercise their appraisal rights, they must follow the
procedures prescribed by Delaware law. These procedures are summarized under
"The Mergers--Appraisal Rights" beginning on page ___ of this Joint Proxy
Statement/Prospectus.
The Merger Agreements, the amendments to CTIG's Certificate of
Incorporation, and the authorization of additional options, and other important
matters are explained in the accompanying Joint Proxy Statement/Prospectus,
which you are urged to read carefully. A copy of the Centillion Merger Agreement
is attached as Annex A to the Proxy Statement/Prospectus, and a copy of the
Celltech Merger Agreement is attached as Annex I.
The CTIG Board of Directors has fixed the close of business on
_____________, 2000 as the record date for determining the stockholders entitled
to receive notice of and to vote at the CTIG Special Meeting and at any and all
adjournments or postponements thereof.
Management welcomes your attendance at the CTIG Special Meeting.
Whether or not you expect to attend the CTIG Special Meeting in person, however,
you are requested to complete, sign, date and promptly return the enclosed proxy
in the accompanying postage-paid envelope. The prompt return of your proxy will
save expenses involved in further communication. Your proxy will not affect your
right to vote in person if you attend the CTIG Special Meeting.
By:___________________________
Mary Ann Davis
Corporate Secretary
Norristown, Pennsylvania
____________, 2000
YOUR VOTE IS IMPORTANT.
TO VOTE YOUR SHARES, PLEASE SIGN, DATE AND COMPLETE THE ENCLOSED PROXY AND
MAIL IT PROMPTLY IN THE ENCLOSED RETURN ENVELOPE.
5
<PAGE>
CENTILLION DATA SYSTEMS, INC.
333 North Alabama Street, Suite 240
Indianapolis, Indiana 46204
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
To Be Held on ____________, 2000
NOTICE IS HEREBY GIVEN that a special meeting of stockholders (the
"Centillion Special Meeting") of Centillion Data Systems, Inc., an Indiana
corporation ("Centillion"), will be held on _______________, 2000, at _____ .m.
(eastern standard time), at ____________________________________, for the
following purpose:
To approve and adopt a Merger Agreement (the "Centillion
Merger Agreement") dated as of February 3, 2000, by and
between CTIG Group Holdings, Inc. ("CTIG") and Centillion Data
Systems, Inc. ("Centillion"), pursuant to which, among other
things, (i) Centillion will be merged with and into CTIG, with
CTIG being the surviving entity (the "Centillion Merger"), and
(ii) holders of Centillion Common Stock will receive 9,747,404
shares of CTIG Class A Common Stock and 2,833,334 shares of
CTIG Class B Common Stock, with the right to acquire an
additional 3,215,100 shares of CTIG Class A Common Stock after
closing.
A copy of the Centillion Merger Agreement is set forth as Annex A to
the accompanying Joint Proxy Statement/Prospectus.
Only holders of record of Centillion Common Stock as of the close of
business on _______________, 2000, are entitled to notice of, and to vote at,
the Centillion Special Meeting and any adjournments or postponements thereof.
If you object to the Centillion Merger, you can demand to be paid the
fair value for your Centillion shares if you file a written objection with
Centillion before the Centillion Special Meeting and comply with other
applicable provisions of Indiana law. Those provisions are set forth in Annex H.
The Board of Directors of Centillion has unanimously approved the
Centillion Merger Agreement and the Centillion Merger and recommends that you
vote "FOR" approval of the Centillion Merger Proposal.
By order of the Board of
Director of Centillion Data Systems, Inc.
John M. Cauffman
President
_________________, 2000
Whether or not you plan to attend the Centillion Special Meeting in
person, please complete, date, sign and return promptly the enclosed proxy in
the accompanying envelope. You may revoke your proxy at any time prior to its
exercise in the manner provided in the accompanying Joint Proxy
Statement/Prospectus.
6
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
QUESTIONS AND ANSWERS
ABOUT THE PROPOSED MERGERS.......................................................................................12
SUMMARY..........................................................................................................17
SELECTED HISTORICAL FINANCIAL DATA OF CTIG.......................................................................30
SELECTED HISTORICAL FINANCIAL DATA OF CENTILLION.................................................................32
SELECTED HISTORICAL FINANCIAL DATA OF CELLTECH...................................................................34
SELECTED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL DATA ........................................................36
RISK FACTORS.....................................................................................................38
Risks Relating to the Mergers...........................................................................38
Risks Relating to the Business of the Resulting Company.................................................39
Risks Associated with Settlement of Patent Litigation...................................................40
SPECIAL MEETINGS OF STOCKHOLDERS.................................................................................41
PROPOSAL I
THE CENTILLION MERGER PROPOSAL...................................................................................45
Background of the Centillion Merger.....................................................................45
Recommendation of the Board of Directors of CTIG; Reasons for the Centillion Merger.....................46
Recommendation of the Board of Directors of Centillion..................................................48
Opinion of Financial Advisor to CTIG....................................................................50
Pro Forma Ownership.....................................................................................51
Analysis of Publicly Traded Companies Comparable to Centillion..........................................51
Analysis of Selected Mergers and Acquisitions Transactions..............................................52
Other Analyses..........................................................................................52
Interests of First Colonial in the Centillion Merger....................................................53
Interests of Certain Persons in The Centillion Merger...................................................53
Accounting Treatment of the Centillion Merger...........................................................54
Certain Federal Income Tax Consequences.................................................................54
Listing of CTIG Class A Common Stock....................................................................56
Resales of CTIG Common Stock Issued in Connection with the Merger; Affiliate Agreements.................56
Appraisal Rights........................................................................................57
THE CENTILLION MERGER AGREEMENT..................................................................................62
The Centillion Merger...................................................................................62
Conversion and Issuance of Shares.......................................................................62
Exchange Of Stock Certificate...........................................................................64
Representations and Warranties..........................................................................65
Certain Covenants.......................................................................................65
Conditions to Obligations to Effect the Centillion Merger...............................................67
Termination; Termination Fees and Expenses..............................................................68
Amendment and Waiver....................................................................................69
</TABLE>
7
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
THE BUSINESS OF CENTILLION.......................................................................................70
Overview ...............................................................................................70
Smart Bill(R)...........................................................................................70
Traditional Billing.....................................................................................70
Customers...............................................................................................70
Patent and Patent Litigation............................................................................70
Employees...............................................................................................71
Competitors.............................................................................................71
Properties..............................................................................................71
Contracts with Related Entities.........................................................................71
CENTILLION MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS OF CENTILLION................................................................72
Background..............................................................................................72
Results of Operations - 1999 Compared to 1998...........................................................72
Liquidity and Capital Resources.........................................................................73
Year 2000 Compliance....................................................................................73
COMPARISON OF RIGHTS OF HOLDERS OF CENTILLION COMMON STOCK PRIOR TO THE
CENTILLION MERGER AND COMMON STOCK OF CTIG AFTER THE CENTILLION MERGER...........................................74
Authorized Capital......................................................................................74
Number of Directors.....................................................................................74
Committees of the Board.................................................................................74
Removal of Directors....................................................................................75
Amendment to Bylaws.....................................................................................75
Amendments to Certificate or Articles...................................................................75
Action by Written Consent of Holders of Common Stock....................................................76
Indemnification.........................................................................................76
Liability of Directors..................................................................................76
Stockholder Meetings....................................................................................77
Mergers and Consolidations..............................................................................77
Business Combinations and Anti-Takeover Provisions......................................................77
Dissenters' Rights......................................................................................78
PROPOSAL II
THE CELLTECH MERGER PROPOSAL.....................................................................................79
Background of the Celltech Merger.......................................................................79
Recommendation of the Board; Reasons for the Merger.....................................................79
Accounting Treatment of the Celltech Merger.............................................................81
Certain Federal Income Tax Consequences.................................................................81
Appraisal Rights........................................................................................83
THE CELLTECH MERGER AGREEMENT....................................................................................84
The Merger..............................................................................................84
Conversion and Issuance of Shares.......................................................................84
Exchange Of Stock Certificates..........................................................................85
Representations and Warranties..........................................................................86
Certain Covenants.......................................................................................87
Conditions to Obligations to Effect the Celltech Merger.................................................89
Termination; Termination Fees and Expenses..............................................................90
Amendment and Waiver....................................................................................90
Comparison of Shareholder Rights........................................................................91
</TABLE>
8
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
COMPARISON OF RIGHTS OF HOLDERS OF CELLTECH STOCK PRIOR TO THE MERGER
AND CTIG CLASS A COMMON STOCK AFTER THE MERGER...................................................................92
Authorized Capital......................................................................................92
Number of Directors.....................................................................................92
Committees of the Board.................................................................................92
Removal of Directors....................................................................................93
Amendment to Bylaws.....................................................................................93
Amendments to Certificates of Incorporation.............................................................93
Action by Written Consent of Holders of Common Stock....................................................94
Indemnification.........................................................................................94
Liability of Directors..................................................................................94
Stockholder Meetings....................................................................................94
Mergers and Consolidations..............................................................................95
Business Combinations...................................................................................95
Dissenters' Rights......................................................................................95
THE BUSINESS OF CELLTECH.........................................................................................96
Overview................................................................................................96
Competition.............................................................................................96
Celltech Service Capabilities and Product Offerings.....................................................96
Customers...............................................................................................97
Employees...............................................................................................98
Properties..............................................................................................98
CELLTECH MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS OF CELLTECH..................................................................99
Overview ...............................................................................................99
Results From Operations.................................................................................99
Liquidity and Capital Resources........................................................................100
Significant and Recent Events..........................................................................101
Year 2000..............................................................................................101
New Accounting Pronouncements..........................................................................102
THE RESULTING COMPANY...........................................................................................103
Business and Strategy..................................................................................103
Directors and Executive Officers.......................................................................103
Executive Compensation.................................................................................105
Aggregated Options/SAR Exercises In Last Fiscal Year
And Fiscal Year-End Option/SAR Values.........................................................106
</TABLE>
9
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT OF CTIG........................................................................108
DESCRIPTION OF CTIG COMMON STOCK................................................................................110
CTIG Common Stock......................................................................................110
Voting ..............................................................................................110
Conversion of Class B Common Stock.....................................................................111
Dividends..............................................................................................111
Prohibited Business Transactions.......................................................................111
Registrar and Transfer Agent...........................................................................111
CTIG MARKET PRICES AND DIVIDENDS................................................................................112
CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS......................................................113
PROPOSAL III
APPROVAL OF AMENDMENTS TO CTIG's
CERTIFICATE OF INCORPORATION....................................................................................114
Purposes and Effects of the Amendment..................................................................114
Restructure of Board of Directors......................................................................114
Redesignation of Existing Common Stock as Class A Common Stock and Authorization of Class B Common
Stock.........................................................................................115
Effective Date of Proposed Amendment...................................................................116
Vote Required for Approval.............................................................................116
PROPOSAL IV
PROPOSAL TO AMEND STOCK OPTION AND RESTRICTED STOCK PLAN........................................................117
Purposes and Effects of the Amendment..................................................................117
Summary of Stock Option and Restricted Stock Plan......................................................117
General ..............................................................................................117
Administration of the Plan.............................................................................117
Stock Option Grants....................................................................................118
Restricted Stock.......................................................................................119
Effective Date of Proposed Amendment...................................................................119
Vote Required for Approval.............................................................................119
STOCKHOLDER PROPOSALS...........................................................................................120
LEGAL MATTERS...................................................................................................120
EXPERTS.........................................................................................................120
OTHER MATTERS...................................................................................................120
WHERE YOU CAN FIND MORE INFORMATION.............................................................................120
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE.................................................................121
ANNEX A - AGREEMENT AND PLAN OF MERGER BY AND BETWEEN CTI
GROUP (HOLDINGS) INC. AND CENTILLION DATA SYSTEMS, INC.,
DATED AS OF FEBRUARY 3, 2000..................................................................A-1
</TABLE>
10
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
ANNEX B - SURVIVING CORPORATION ARTICLES OF INCORPORATION...............................................B-1
ANNEX C - SURVIVING CORPORATION BYLAWS..................................................................C-1
ANNEX D - SHAREHOLDER LLC PROMISSORY NOTE...............................................................D-1
ANNEX E - FORM OF PROMISSORY NOTE.......................................................................E-1
ANNEX F - OPINION OF FIRST COLONIAL SECURITIES GROUP, INC...............................................F-1
ANNEX G - SECTION 262 OF THE DELAWARE GENERAL CORPORATION LAW...........................................G-1
ANNEX H - SECTION 23-1-44 OF THE INDIANA BUSINESS CORPORATION LAW.......................................H-1
ANNEX I - AGREEMENT AND PLAN OF MERGER BY AND AMONG CTI GROUP
(HOLDINGS) INC., CTI BILLING SOLUTIONS, INC., DAVID A. WARREN,
FRANK S. SCARPA, VALERIE S. HART AND RICHARD J. DONNELLY,
DATED AS OF APRIL 5, 2000.....................................................................I-1
ANNEX J - COMMUNICATIONS GROUP INC. STOCK OPTION AND
RESTRICTED STOCK PLAN.........................................................................J-1
</TABLE>
11
<PAGE>
QUESTIONS AND ANSWERS
ABOUT THE PROPOSED MERGERS
Q: Who are CTIG, Centillion and Celltech?
A: CTIG is a publicly-held company which designs, develops, markets and supports
data processing software and services for managing telecommunications systems.
Its telemanagement products and services are used by organizations to optimize
the usage of their telecommunication services and equipment and to control
telephone expenses and uses. Its Billing and Customer Care (BACC) software
products are used by small to mid-range telephone and wireless network operators
to manage customer accounts, generate bills, track payments and customer service
operations.
Centillion is a privately-held company which also designs, develops, markets and
supports data processing software and services for managing telecommunications
services. It has under development a fully convergent BACC product that will
support convergent multi-service operations, including voice and IP services in
wireline and wireless environments. Centillion also markets its patented Smart
Bill(R), Electronic Bill Presentation and Analysis Product (EBPP) that
complements BACC products in supporting customer acquisition and retention
endeavours.
Celltech is a privately-held company which provides custom software development,
customer management systems, billing, rating, printing and mailing services for
the telecommunications industry. Celltech focuses on the wireless markeplace
including cellular, personal communications services (PCS) and enhanced
specialized mobile radio (ESMR).
Q: Why is CTIG proposing to merge with Centillion?
A: Because we believe the Centillion Merger will provide the CTIG stockholders
with substantial benefits and enable us to better serve our customers. The
Centillion Merger will allow CTIG to improve its capital position, increase
liquidity and expand the functionality of its products. CTIG and Centillion are
two very complementary business entities. CTIG has a history in front end call
tracking and accounting as well as general billing. Centillion has a 10-year
history in billing analysis. The combination of these product offerings will
present a more complete billing solution to the customer base, and lay the
foundation for CTIG's convergent billing strategy which would allow its
customers to receive a single bill for their usage of local and long distance
telephone service, cable television, internet content, wireless service, and
other media, to track and analyze these various forms of communications media in
conjunction with one another, and to view this bill in near-real time via the
Internet
Q: What will the stockholders of CTIG and Centillion receive from the Centillion
Merger?
A: Prior to the Centillion Merger, Centillion will divest itself of all
businesses other than its telecommunications industry billing business, and
under the Centillion Merger Agreement, this will occur prior to the closing of
the Centillion Merger. Centillion's stockholders will receive 9,747,404 shares
of newly-authorized CTIG Class A Common Stock and 2,833,334 shares of
newly-authorized CTIG Class B Common Stock. Centillion will be required to have
cash reflected on its balance sheet at the closing of the Merger of $8,000,000.
Centillion stockholders will also be able to receive up to an additional
3,215,100 shares of CTIG Class A Common Stock over a three-year period based
upon revenues received by CTIG from Centillion's current largest customer and
from any business that CTIG may derive from defendants in certain patent
infringement actions brought by Centillion. If these revenue targets are not
met, Centillion's stockholders will be entitled to purchase any shares not
issued, at $1.50 per share, at the end of the three year period.
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Q: What will happen to the non-billing businesses of Centillion?
A: The Centillion businesses that are not related to the billing business will
be transferred to a limited liability company that will be owned by current
Centillion stockholders (the "Holding LLC") in exchange for a promissory note
that will be approximately $10 million, which CTIG will acquire in the
Centillion Merger (the "Shareholder LLC Promissory Note"). Principal and
interest will be paid as those businesses are sold. CTIG will issue additional
shares of Class A Common Stock to the Centillion stockholders for the amount of
principal payments received, at a per share value of 88% of the average market
value of the Class A Common Stock at the time. If the Stockholder LLC Promissory
Note is not fully paid in five years, it is to be appraised, and shares of CTIG
Class A Common Stock are to be issued for the appraised value at 88% of the
average market price at the time. In effect, this will permit CTIG over time to
raise additional capital by selling its shares of Class A Common Stock at a 12%
discount from the then average market value of such stock.
Q: What will happen to the current patent claims being pursued by Centillion?
A: Centillion's right to enforce its patents, and its current and future patent
infringement litigation, are being transferred to a limited liability company
that will be wholly-owned by CTIG (the "Tracking LLC"). As noted above, in
connection with the transfer, 2,833,334 newly-authorized shares of CTIG Class B
Common Stock will be issued to the Centillion stockholders (the current CTIG
Common Stock will be re-designated as Class A). CTIG and the holders of Class B
Common Stock have certain rights to convert the Class B Common Stock into Class
A Common Stock at various times after the Merger based on the value of the
Tracking LLC at a Class A Common Stock value of $2.25 per share, for a maximum
of 333,334 additional shares if issued within one year of closing, and
thereafter at either 88% of the average market value at the time or 100% of the
average market value at the time, depending upon the type and amount of the
conversion. Affiliates of Centillion's current stockholders have committed to
loan, on a non-recourse basis, up to $2,000,000 to the Tracking LLC to pursue
its patent infringement litigation.
Q: Why does CTIG need to create the Class B Common Stock and pursue the patent
litigation through a separately owned company?
A: This is being done so that the value of the Centillion patent claims can be
easily tracked and valued, and so that under certain circumstances these shares
may be converted into shares of Class A Common Stock of CTIG based upon the
value to CTIG as those claims are resolved.
Q: Why is CTI proposing to merge with Celltech?
A: Celltech focuses on the wireless marketplace including cellular, personal
communication services (PCS) and enhanced specialized mobile radio (ESMR). Its
domain knowledge skill, source code and industry expertise are considered
complementary to both CTIG and Centillion and should enhance CTIG's deployment
of its convergent billing strategy. Furthermore, the combination should assist
each company in attracting new and retaining existing clients by being able to
offer immediate "cross market" complementary billing solutions and a clearly
defined product road map to true convergent billing solutions.
Q: What will Celltech stockholders receive from the Celltech Merger?
A: Under the Celltech Merger Agreement, Celltech stockholders will receive
$262,599 to be distributed pro rata on a per share equivalent basis and between
1,330,501 and 2,217,501 shares of CTIG Class A Common Stock based upon the
closing price of the CTIG Class A Common Stock over the 20 trading days
preceding the Celltech Merger. Approximately 47% of the shares of stock will be
placed in escrow and may be released to the Celltech stockholders over the
course of three years based upon Celltech's receipt of target revenue from its
largest customer. The cash to be received by the Celltech stockholders in the
Celltech Merger will be used by them to pay fees due Celltech's broker in this
transaction.
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Q: Why are additional options being authorized under the CTIG Stock Option and
Restricted Stock Plan?
A: Up to 2,000,000 new options would be available at the Board's discretion to
compensate employees of Centillion and Celltech who will now become employees of
CTIG as well as current CTIG employees and individuals who will become Directors
of CTIG after the Mergers, as well as new individuals that the company will need
to hire after the Mergers.
Q: Why does CTIG need to amend its Certificate of Incorporation?
A: The amendments to CTIG's Certificate of Incorporation change the capital
structure of CTIG, resulting in the conversion of all outstanding Common Stock
to Class A Common Stock and the authorization of the Class B Common Stock
(mentioned above), and provide a mechanism for converting Class B Common Stock
into Class A Common Stock. Additionally, the new Certificate of Incorporation
changes the structure and the membership of the Board of Directors. All of these
changes were negotiated as part of the Centillion Merger Agreement. The
Certificate of Incorporation will only be amended if the Centillion Merger is
consummated.
Q: What do I need to do now?
A: Just mail your signed proxy card in the enclosed return envelope as soon as
possible, so that your shares may be represented at the appropriate Special
Meetings. The CTIG Special Meeting will take place on __________, 2000. The
Centillion Special Meeting will take place on ____________, 2000. The Board of
Directors of CTIG unanimously recommends voting in favor of the proposed
Mergers, the amendments to the Certificate of Incorporation of CTIG, and
increasing the number of options available under the CTIG Stock Option and
Restricted Stock Plan.
Q: If my shares are held in "street name" by my broker, will my broker vote my
shares for me?
A: Your broker will vote your shares only if you provide instructions on how to
vote. You should follow the directions provided by your broker regarding how to
instruct your broker to vote your shares.
Q: Can I change my vote after I have mailed my signed proxy card?
A: Yes. You can change your vote at any time before your proxy is voted at the
appropriate Special Meeting. You can do this in one of three ways:
First, you can send a written notice stating that you would like to revoke your
proxy.
Second, you can complete and submit a new proxy card. If you choose either of
these first two methods, you must submit your notice of revocation or your new
proxy card to CTIG or Centillion, respectively. Your submissions must be mailed
to CTIG or Centillion at the addresses on page ___.
Third, you can attend the respective Special Meeting and vote in person. Simply
attending the meeting, however, will not revoke your proxy.
If you have instructed a broker to vote your shares, you must follow directions
received from your broker to change your vote.
Q: Should I send in my stock certificates now?
A: No. Holders of CTIG Common Stock will not need to exchange their current
certificates of CTIG Common Stock for new certificates as a result of the
redesignation of those shares as Class A Common Stock. After the Merger is
completed, we will send Centillion's stockholders written instructions for
exchanging their stock certificates.
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Q: When do you expect the Mergers to be completed?
A: We are working towards completing the Mergers as quickly as possible. We
expect to complete the Mergers within two business days following receipt of all
stockholder approvals which we expect to receive during the second calendar
quarter of 2000.
Q: What are the tax consequences of the Mergers?
A: Management believes that the Mergers should be tax-free to CTIG and the
holders of CTIG Common Stock for Federal income tax purposes. Management
believes that the Merger should be tax-free to the holders of Celltech and
Centillion Common Stock for Federal income tax purposes, except to the extent
those holders receive cash instead of fractional shares. To review the tax
consequences to CTIG, the holders of CTIG Common Stock, Centillion and the
holders of Centillion Common Stock, and Celltech and holders of Celltech Common
Stock in greater detail, see pages __.
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WHO CAN HELP ANSWER YOUR QUESTIONS?
If you have more questions about the Mergers, you should contact:
CTI Group (Holdings) Inc.
2550 Eisenhower Avenue
Norristown, Pennsylvania 19403
Telephone: (610) 666-1700
Facsimile: (610) 666-7707
Attention: Anthony P. Johns, Chairman and Chief Executive Officer
e-mail: [email protected]
-------------------
Centillion Data Systems, Inc.
333 North Alabama Street
Indianapolis, Indiana 46204
Telephone: (317) 262-4666
Facsimile (317) 262-4898
Attention: John M. Cauffman, President and Chief Executive Officer
email: [email protected]
----------------------
Celltech Information Systems, Inc.
15425 I45 North, Suite 200
Houston, TX 77090
Telephone: (281) 873-2300
Facsimile: (281) 873-3018
Attention: David A. Warren, President
e-mail: [email protected]
------------------------
If you would like additional copies of the Joint Proxy
Statement/Prospectus or if you have questions about the Mergers, you can also
contact:
Mary Ann Davis, Corporate Secretary
CTI Group (Holdings) Inc.
2550 Eisenhower Avenue
Norristown, Pennsylvania 19403
Telephone: (610) 666-1700
Facsimile: (610) 666-7707
e-mail: [email protected]
-------------------
Carol Gentry, Assistant Corporate Secretary
Centillion Data Systems, Inc.
333 North Alabama Street
Indianapolis, Indiana 46204
Telephone: (317) 262-4666
Facsimile (317) 262-4898
e-mail: [email protected]
--------------------------
David A. Warren, President
Celltech Information Systems, Inc.
15425 I45 North, Suite 200
Houston, TX 77090
Telephone: (281) 873-2300
Facsimile: (281) 873-3018
[email protected]
------------------------
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SUMMARY
This summary highlights selected information from this document and may
not contain all of the information that is important to you. To fully understand
the Mergers, the amendments to the Certificate of Incorporation and proposed
amendments to the Stock Option and Restricted Stock Plan, and for a more
complete description of the legal terms of the Mergers and these amendments, you
should read this entire document carefully and the documents we have referred
you to. See "Where You Can Find More Information" on page ___.
The Companies
CTI Group (Holdings) Inc.
2550 Eisenhower Avenue
Norristown, Pennsylvania 19403
Telephone: (610) 666-1700
Facsimile: (610) 666-7707
Centillion Data Systems, Inc.
333 North Alabama Street, Suite 240
Indianapolis, IN 46204
Telephone: (317) 266-4666
Facsimile: (317) 262-4849
Celltech Information Systems, Inc.
15425 I45 North, Suite 200
Houston, TX 77090
Telephone: (281) 873-2300
Facsimile: (281) 873-3018
The Special Meetings (Pages ______)
The CTIG Special Meeting will be held at [________________________].
The Centillion special meeting will be at [_______________________].
CTIG's Recommendations to CTIG Stockholders:
The CTIG board of directors believes that the Mergers are in its
stockholders' best interests and recommends that you vote FOR the proposals to:
(a) approve and adopt the Centillion Merger Agreement dated as of
February 3, 2000, by and between CTIG and Centillion, pursuant to which, among
other things, (i) Centillion will be merged with and into CTIG, with CTIG being
the surviving entity, and (ii) holders of Centillion Common Stock will receive
9,747,404 shares of CTIG Class A Common Stock and 2,833,334 shares of CTIG Class
B Common Stock, with the right to acquire up to an additional 3,215,100 shares
of CTIG Class A Common Stock;
(b) approve and adopt the Celltech Merger Agreement dated as of April
5, 2000, by and among CTIG, CTI Billing Solutions Inc., a wholly-owned
subsidiary of CTIG, Celltech and all of Celltech's stockholders, pursuant to
which, among other things, (i) Celltech will be merged with and into CTIB, a
subsidiary of CTIG, with CTIB being the surviving entity, and (ii) holders of
Celltech Common Stock will receive $262,599 in cash (to be used to pay
Celltech's broker in this transaction) and up to 2,217,501 shares of CTIG Class
A Common Stock;
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(c) approve and adopt amendments to CTIG's Certificate of
Incorporation, contingent upon the consummation of the Celltech Merger, to
redesignate its current common stock as Class A Common Stock, create a new Class
B Common Stock and restructure and designate CTIG's post-Centillion Merger Board
of Directors all for purposes of the Centillion Merger; and
(d) approve and adopt an amendment to the CTIG Stock Option and
Restricted Stock Plan to enable CTIG to authorize additional options.
To review the reasons for the Mergers in greater detail, see pages ____
through ____.
Centillion's Recommendation to Centillion stockholders:
The Centillion Board of Directors believes that the Centillion Merger
is in its stockholders' best interests and recommends that you vote for the
proposal to approve and adopt the Centillion Merger Agreement dated as of
February 3, 2000, by and between CTIG and Centillion, pursuant to which, among
other things, (i) Centillion will be merged with and into CTIG, with CTIG being
the surviving entity, and (ii) holders in Centillion Common Stock will receive
9,747,404 shares of CTIG Class A Common Stock and 2,833,334 shares of CTIG Class
B Common Stock, with the right to acquire an additional 3,215,100 shares of CTIG
Class A Common Stock after closing.
To review the reasons for the Centillion Merger in greater detail, see
pages ___ through ____.
Votes Required
In order to approve the Centillion Merger, the holders of a majority of
the issued and outstanding shares of CTIG Common Stock must vote in favor of
approving and adopting the Centillion Merger Agreement and the Centillion
Merger, as well as the amendment to the CTIG Certificate of Incorporation.
Additionally, the holders of a majority of the issued and outstanding shares of
Centillion Common Stock must vote in favor of approving and adopting the
Centillion Merger Agreement and Centillion Merger. Stockholders of Centillion
Common Stock who collectively control approximately 91% of the outstanding
shares of Centillion have already acknowledged, pursuant to a written agreement,
that they will vote all of their shares in favor of the Centillion Merger.
In order to approve the Celltech Merger, the holders of a majority of
the issued and outstanding shares of CTIG Common Stock must vote in favor of
approving and adopting the Celltech Merger Agreement and the Celltech Merger.
Additionally, the holders of a majority of the issued and outstanding shares of
a Celltech Common Stock must vote in favor of the Celltech Merger and Celltech
Merger Agreement. Stockholders of Celltech Common Stock who collectively control
100% of the outstanding shares of Celltech are parties to the Celltech Merger
Agreement and have agreed that they will vote all of their shares in favor of
the Celltech Merger. In addition, to the above requirements, holders of a
majority of the issued and outstanding shares of CTIG and Centillion must vote
in favor of the Centillion Merger, as the consummation of the Celltech Merger is
contingent upon the approval (and consummation) of the Centillion Merger.
Authorization of the proposed amendments to the CTIG Certificate of
Incorporation will require the affirmative vote of a majority of the outstanding
shares of CTIG, while authorization of additional options under the CTIG Stock
Option and Restricted Stock Plan will require the affirmative vote of a majority
of the shares of CTIG stock present, either in person or by proxy, at the CTIG
Special Meeting.
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Proposal I - The Centillion Merger Proposal
The Centillion Merger Agreement is attached as Annex A to this Joint
Proxy Statement/ Prospectus. We encourage you to read the Centillion Merger
Agreement as it is the legal document that governs the Centillion Merger.
Terms of the Merger (See Pages ___ to ___)
Prior to the Centillion Merger, Centillion will divest itself of all
businesses, other than its telecommunications industry billing business, and
under the Centillion Merger Agreement, this will take place prior to the closing
of the Centillion Merger. Centillion's stockholders will receive 9,747,404
shares of CTIG Class A Common Stock. Centillion stockholders will also be able
to receive up to an additional 3,215,100 shares of CTIG Class A Common Stock
over a three year period based upon revenues received by CTIG from Centillion's
largest current customer and from any business that CTIG may derive from
defendants in certain patent infringement litigation brought by Centillion. If
these revenue targets are not met, Centillion's stockholders will be entitled to
purchase any shares not issued, at $1.50 per share, at the end of the three year
period. In addition, Centillion stockholders will receive 2,833,334 shares of
Class B Common Stock of CTIG (as further described below).
The assets of Centillion businesses that are not related to the billing
business and certain cash balances are being transferred to the Holding LLC in
exchange for the Shareholder LLC Promissory Note. CTIG will acquire the
Shareholder LLC Promissory Note in the Centillion Merger. Principal and interest
will be paid as those businesses are sold. CTIG will issue additional shares of
CTIG Class A Common Stock to the Centillion stockholders for the amount of
principal payments received, at a per share value of 88% of the average market
value of the CTIG Class A Common Stock at the time. If the Shareholder LLC
Promissory Note is not fully paid in five years, it is to be appraised, and
shares of CTIG Class A Common Stock are to be issued for the appraised value at
88% of the average market price at the time. This will permit CTIG to raise
additional capital by selling its shares of Class A Common Stock at a 12%
discount from the then average market value of such stock.
Centillion's right to enforce its patents, and its current and future
patent infringement litigation, are being transferred to the Tracking LLC. In
connection with the transfer and the Centillion Merger, a new Class B Common
Stock will be authorized and 2,833,334 shares of CTIG Class B Common Stock
issued to the Centillion stockholders (the current CTIG Common Stock will be
re-designated as Class A). Under certain circumstances, the CTIG Class B Common
Stock may be converted into CTIG Class A Common Stock by the holders or CTIG, as
the case may be. Upon the occurrence of certain events (e.g., a sale of more
than 50% of the assets in the Tracking LLC (the "Tracked Assets") or the sale of
more than 50% of its ownership interests in the Tracking LLC), the CTIG Class B
Common Stock is subject to mandatory conversion into CTIG Class A Common Stock.
In that event, the actual amount of CTIG Class A Common Stock which Centillion's
stockholders will receive will depend upon how much consideration from the sale
is actually received by CTIG, or by an appraisal four years from now. No
mandatory conversion/appraisal may be consummated prior to the fourth
anniversary of Closing. Any voluntary conversion of Class B Common Stock during
the first year after the closing of the Centillion Merger will be at a Class A
Common Stock value per share of $2.25 for the first 333,334 shares of Class A
Common Stock issued, and at 88% of the average market price of Class A Common
Stock at the time, for shares beyond 333,334. All other conversions, other than
a mandatory conversion, will be at 88% of the average market price of CTIG Class
A Common Stock. Any mandatory conversion shall be at 100% of the average market
price. Affiliates of Centillion's current stockholders have committed to loan up
to $2,000,000 on a non-recourse basis to the Tracking LLC to pursue its patent
infringement litigation.
On the date the Centillion Merger is closed, Centillion has committed
to have (i) net current assets (i.e., assets over current liabilities) of not
less than $1.00; (ii) cash of not less than $8,000,000; (iii) no long term
liabilities other than deferred taxes, (iv) net worth of not less than
$2,000,000 without considering (x) $6,500,000 of cash, (y) the Shareholder LLC
Promissory Note, and (z) the patent claims and litigation assets transferred to
the Tracking LLC, and (v) all earnings of Centillion's Billing Business for the
period from January 1, 2000 to the Closing. Any excess cash will be transferred
to the Holding LLC.
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As of January 6, 2000, CTIG will have 7,437,505 shares of Common Stock
issued and outstanding. Each share will entitle the holder to one vote per
share.
Dividends on the Class A and Class B Common Stock may be paid on one
Class and not the other, or unequally between Classes at the discretion of the
Board. However, approval by 2/3 of the Board of Directors is required to pay
dividends on the Class B Common Stock if an equal or greater dividend is not to
the paid on the Class A Common Stock.
Accounting Treatment (See Page __)
It is anticipated that the Centillion Merger will be accounted for as a
reverse acquisition of CTIG by Centillion. Under such method of accounting, the
legal acquirer, CTIG, will continue in existence as the legal entity whose
shares represent the outstanding common stock of the combined company. In
applying purchase accounting to a reverse acquisition, the assets and
liabilities of the legal acquirer are revalued and the purchase price allocated
to those assets and liabilities assumed. On a pro forma basis, amortization of
goodwill will substantially reduce the net income of the resulting company.
In addition to the customary conditions to closing a transaction of
this nature, consummation of the Centillion Merger is conditioned upon there
being no change in law that would negatively impact the Centillion Merger as a
tax-free reorganization under Section 368(a) of the Internal Revenue Code, and
upon the per share price of CTIG's Common Stock being at least $1.26 on the
closing date.
Ownership of CTIG Following the Centillion Merger (See Page __)
Assuming that the escrowed stock is fully released, current CTIG
stockholders will own approximately 36% of CTIG Class A Common Stock after the
Centillion Merger. Centillion stockholders will own approximately 64% of the
Class A Common Stock and 100% of the Class B Common Stock of CTIG. Of the CTIG
Class A and Class B Common Stock that will be owned by former Centillion
stockholders, an aggregate of 53.2% will be owned by two corporations which are
controlled by Mr. Salah Osseiran, thereby resulting in a majority ownership
stake and effective control of CTIG by Mr. Osseiran. Additionally, 1.2% and 1.8%
of outstanding shares of CTIG Class A and Class B Common Stock will be owned by
Harold Garrison, who is currently the Chairman of Centillion and will be
Chairman of the Board of CTIG after the Centillion Merger. Mr. Osseiran is
currently a member of the Board of Directors of Centillion, and will be an
initial member of the Board of Directors of CTIG following the Centillion
Merger.
Board of Directors and Management of CTIG Following the Centillion Merger (See
Page __)
If the Centillion Merger is completed, the Board of Directors will
consist of seven members. Pursuant to the Centillion Merger Agreement and the
proposed amendments to CTIG's Certificate of Incorporation, for a period of
three years the current Centillion stockholders have the right to designate four
of those Directors, and the current CTIG stockholders have the right to
designate three. The initial Directors designated by Centillion are Harold
Garrison, Salah Osseiran, Michael Leeds and Thomas Grein. The initial Directors
designated by CTIG are Graham Bevington, Rupert Armitage and Anthony Johns.
Pursuant to the Centillion Merger Agreement and the proposed amendments to
CTIG's Certificate of Incorporation, for three years after the closing of the
Centillion Merger, the Board will have an Executive Committee consisting of two
of the Centillion-designated Directors and one of the CTIG- designated
Directors. The initial Executive Committee will be Michael Leeds, Harold
Garrison and Rupert Armitage. Among other responsibilities, the Executive
Committee will manage the limited liability company that will own and prosecute
the patent litigation and will function as the Board of Directors between formal
actions taken by the full Board of Directors.
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Other Interests of Officers and Directors in the Centillion Merger (See Page __)
A number of officers and directors of CTIG and Centillion have
interests in the Centillion Merger that are different from or in addition to
your interests. For example, Anthony Johns, Chairman and Chief Executive Officer
of CTIG, will receive an employment agreement that entitles him to a base salary
of $250,000 per year for a period of three years, as well as additional
compensation and benefits. Mr. Johns has also been granted 300,000 options at an
exercise price of $1.09 each which will not vest and become exercisable upon the
consummation of the Centillion Merger, but will vest over a three-year period
commencing in November, 1999, conditioned upon the consummation of the
Centillion Merger. These options were issued to compensate Mr. Johns for his
forfeiture of certain funds under a profit- sharing agreement with CTIG. In
addition, a number of CTIG officers and directors also have an aggregate 405,000
options to purchase CTIG stock which will accelerate and vest as a result of the
Centillion Merger. Centillion is currently leasing 38,758 square feet of office
space at 333 North Alabama Street, Indianapolis, Indiana at a cost of $16.27 per
rentable square foot. The landlord is an affiliate of Harold Garrison, Cornelius
Alig, Salah Osseiran, all of whom are Centillion stockholders. In Centillion's
opinion, the terms of the lease are at least as favorable as terms available
from a non-affiliated landlord.
Please refer to pages ___ through ___ generally for more information
concerning employment arrangements, acceleration of stock options and restricted
stock and other arrangements benefitting the post-Merger officers and directors.
Conditions to the Centillion Merger (See Page __)
Before the Centillion Merger can be completed, a number of conditions
must be met, including the following:
(a) all representations and warranties of the parties are to be true
and correct in all material respects, and all agreements required
to be performed prior to the Closing are to be performed in all
material respects;
(b) there is to be no material adverse change in CTIG's and
Centillion's respective businesses;
(c) the holders of (1) a majority of CTIG Common Stock and (2) a
majority of Centillion Common Stock must approve the Centillion
Merger. Stockholders of Centillion Common Stock who collectively
control approximately 91% of the outstanding shares of Centillion
Common Stock have agreed, pursuant to a written agreement, that
they will vote all of their shares in favor of the Centillion
Merger;
(d) the holders of no more than 5% of CTIG's issued and outstanding
shares of common stock can have asserted the dissenter's appraisal
rights available under Delaware law;
(e) no governmental entity can have passed a law that prohibits the
Centillion Merger; nor any court entered an injunction that
prohibits the Centillion Merger;
(f) CTIG must have received the written opinion of First Colonial
Securities Group, Inc., stating that the consideration received in
the Centillion Merger is fair from a financial point of view to
the stockholders of CTIG (this condition has been met, see Annex
F);
(g) the employment agreement with Anthony Johns must be executed;
(h) Centillion must enter into a security agreement with certain
stockholders with respect to the Shareholder LLC Promissory Note
issued in contemplation of the Centillion Merger;
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(i) Centillion must create a wholly-owned limited liability company,
into which Centillion will have transferred its patent
infringement claims and litigation rights and certain additional
assets ( see "The Centillion Merger Agreement-Additional Stock
Rights");
(j) Centillion must sell, in exchange for a promissory note all of its
ownership interests in its subsidiaries not related to its billing
business (see "The Centillion Merger Agreement-Additional Stock
Rights");
(k) Centillion must meet certain minimum balance sheet requirements;
(l) There shall have been no change in the law which could negatively
impact the treatment of the Centillion Merger as a tax-free
exchange under Section 368(a) of the Internal Revenue Code, and at
the Effective Time the price of CTIG's Common Stock shall not be
below $1.26 per share.
The conditions to the Centillion Merger which are not met may be waived
by the company entitled to assert the condition.
Termination of the Centillion Merger Agreement (See Page __)
CTIG and Centillion can agree to terminate the Centillion Merger
Agreement before the Centillion Merger is completed, and either CTIG or
Centillion can terminate the Centillion Merger Agreement if any of the following
occurs:
(a) The Centillion Merger is not consummated on or before September
30, 2000;
(b) Any governmental entity prevents the Centillion Merger from
occurring;
(c) Approval by the stockholders of either CTIG or Centillion is not
obtained;
(d) If one of the parties to the Centillion Merger Agreement has
materially breached the Centillion Merger Agreement, the
non-breaching party may terminate the Agreement.
In addition, CTIG may terminate the Centillion Merger Agreement if it
receives a proposal by a third party relating to the acquisition or purchase of
50% or more of the assets or voting stock of CTIG, or a transaction which would
result in another entity owning 50% or more of the combined voting power of CTIG
("CTIG Superior Proposal").
Termination Fee (See Page __)
If the Centillion Merger Agreement is terminated by CTIG upon receiving
a CTIG Superior Proposal, CTIG will be required to pay to Centillion a
non-refundable fee in the amount of $1,500,000.
Opinion of Financial Advisor (See Page __)
In deciding to approve the Centillion Merger, the CTIG Board of
Directors considered the opinion of its financial advisor, First Colonial
Securities Group, Inc., as to the fairness of the proposed Centillion Merger
from a financial point of view. This opinion is attached as Annex F to this
Joint Proxy Statement/Prospectus and we encourage you to read it.
The financial advisor performed several analyses in connection with
delivering its opinion. These analyses included reviewing CTIG historical stock
prices, comparing CTIG and Centillion to other companies in similar industries,
and comparing the net asset values of CTIG and Centillion. The opinion makes
assumptions regarding outstanding litigation of Centillion. First Colonial was
not requested to, and did not consider the Celltech Merger in performing its
analysis or issuing its opinion. See "The Centillion Merger -- Opinion of
Financial Advisor to CTIG."
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Certain Federal Income Tax Consequences (See Page __)
The Centillion Merger has been structured so that no gain or loss
should be recognized for Federal income tax purposes on the issuance of Class A
Common Stock and Class B Common Stock of CTIG to the holders of Centillion
Common Stock in exchange for all of the issued and outstanding Common Stock of
Centillion, except to the extent holders of Centillion Common Stock receive cash
instead of fractional shares. We will not complete the Centillion Merger unless:
(i) there has been no Change in Law (as defined below) on or prior to the
Effective Time which could negatively impact the treatment of the Merger as a
tax-free reorganization within the meaning of Section 368(a) of the Internal
Revenue Code of 1986, as amended, and the Treasury Regulations promulgated
thereunder (the "Code") and (ii) at the Closing, the price of CTIG's Class A
Common Stock is $1.26 per share or more. For purposes of the Centillion Merger
Agreement and this Joint Proxy Statement/Prospectus, a "Change in Law" shall
include any statutory amendment to the Code, the promulgation of any Treasury
Regulation, or the issuance of any judicial or administrative guidance
(including without limitation, the issuance of any official interpretation of
existing law by the Internal Revenue Service).
Tax matters are very complicated, and the tax consequences of the
Centillion Merger to you will depend on the facts of your own situation. You
should consult your tax advisor for a full understanding of the tax consequences
of the Centillion Merger to you.
Appraisal Rights (See Page __)
Under Delaware law, holders of CTIG Common Stock have a right to an
appraisal of the value of their shares in connection with the Centillion Merger
if they assert dissenter's rights. A discussion of these rights is included on
pages __ through __. We encourage CTIG stockholders to read it.
Under Indiana law, Centillion stockholders have the right to an
appraisal of the value of their shares in connection with the Centillion Merger
if they assert dissenter's rights. A discussion of these rights is included on
pages __ through __. We encourage Centillion stockholders to read it.
Comparison of Stockholder Rights (See Page __)
Upon completion of the Centillion Merger, Centillion stockholders will
become CTIG stockholders. As a result, the rights of the holders of CTIG Class A
and Class B Common Stock will be governed by the amended CTIG Certificate of
Incorporation, the Bylaws of CTIG and Delaware law. See "Comparison of Rights of
Holders of Centillion Common Stock and CTIG Common Stock" for a summary of the
material differences between the rights of holders of Centillion Common Stock
and CTIG Common Stock.
Forward-Looking Statements May Prove Inaccurate (See Page __)
CTIG and Centillion have made forward-looking statements in this
document and in documents that are incorporated by reference to this Joint Proxy
Statement/Prospectus that are subject to risks and uncertainties. Forward-
looking statements include the information concerning possible or assumed future
results of operations of CTIG or Centillion. Also, when we use words such as
"believes," "expects," "anticipates" or similar expressions, we are making
forward-looking statements. CTIG stockholders and Centillion stockholders should
note that many factors could affect the future financial results of CTIG and
Centillion, and could cause these results to differ materially from those
expressed in our forward-looking statements. These factors include the
following:
o operating and legal risks;
o economic, political and competitive forces affecting our
businesses;
23
<PAGE>
o the risk that we are unable to achieve the revenue growth and
synergies in the amounts and in the time frames contemplated; and
o the risk that our analyses of these risks and forces could be
incorrect and/or that the strategies developed to address them
could be unsuccessful.
Listing of CTIG Stock (See Page __)
CTIG intends to file an application to list its shares of CTIG Class A
common stock on the NASDAQ National Market.
24
<PAGE>
Proposal II - The Celltech Merger Proposal
The Celltech Merger Agreement is attached as Annex I to this Joint
Proxy Statement/Prospectus. We encourage you to read it as it is the legal
document that governs the Celltech Merger.
Terms of the Celltech Merger
If the Celltech Merger is completed, Celltech will be merged with and
into CTIB, a wholly-owned subsidiary of CTIG, with CTIB remaining as the
surviving entity. Celltech stockholders, who collectively own 100% of the
outstanding stock of Celltech, will receive an aggregate of $262,599 in cash to
be distributed pro rata on a per share equivalent basis. The cash to be received
will be used to pay fees due Celltech's broker in this transaction.
Additionally, Celltech stockholders will receive 1,663,126 shares of CTIG Class
A Common Stock, subject to adjustment ("Celltech Merger Stock"), if any, as
follows: in the event that the average market price per share (based on the
twenty (20) trading days) of the CTIG Class A Common Stock on the closing date
is greater than $3.00, to a maximum of $3.75, or below $3.00 to a minimum of
$2.25, then the number of shares of Celltech Merger Stock will be determined by
dividing $4,989,378 by such average market price per share; provided that in no
event will the Celltech Merger Stock be less than 1,330,501 shares nor more than
2,217,501 shares regardless of the average market price per share of CTIG Class
A Common Stock.
Of the Celltech Merger Stock, 52.63% will be delivered at Closing, and
47.37% will be placed in escrow. This escrowed stock may be released to current
Celltech stockholders in varying amounts based upon future revenues received
over three years from Celltech's largest customer, beginning March 1, 2000. Any
shares of Celltech Merger Stock which are not issued to Celltech stockholders
will be returned to CTIG and cancelled. The Celltech Merger will only occur if
the Centillion Merger is approved by CTIG and Centillion stockholders, and is
ultimately consummated.
On the date the Celltech Merger is closed, Celltech has committed to
have its adjusted balance sheet reflect (i) net current assets (i.e., current
assets over current liabilities) of not less than $1.00; (ii) no long term
liabilities other than deferred taxes, and (iii) all earnings for the period
from January 1, 2000 to the Effective Time. The Celltech Merger Agreement is
subject to other customary conditions in transactions of this type.
As of January 6, 2000, CTIG will have 7,437,505 shares of Common Stock
issued and outstanding. Each share will entitle the holder to one vote per
share.
Accounting Treatment (See Page __)
It is anticipated that the Celltech Merger will be accounted for as an
acquisition of Celltech by CTIG under the purchase method of accounting. Under
such method of accounting the acquirer, CTIG, will continue in existence as the
legal entity whose shares represent the outstanding common stock of the combined
company. In applying purchase accounting to an acquisition, the assets and
liabilities of the acquired company are revalued and the purchase price
allocated to those assets and liabilities assumed.
Ownership of CTIG Following the Celltech Merger (See Page __)
Current CTIG stockholders will own approximately 34.4% of CTIG Class A
Common Stock after the Centillion and Celltech Mergers. Celltech stockholders
will own approximately 9.6% of the CTIG Class A Common Stock and none of the
CTIG Class B Common Stock. Of the CTIG Class A Common Stock that will be owned
by former Celltech stockholders, an aggregate of 85% will be owned by Mr. David
A. Warren. Mr. Warren owns 85% of the Celltech Common Stock, and as part of the
Celltech Merger Agreement, he will enter into a three year Employment Agreement
to be the Chief Operating Officer of CTIB.
25
<PAGE>
Other Interests of Officers and Directors in the Celltech Merger (See Page __)
David A. Warren, the President and sole Director of Celltech who also
owns 85% of the Celltech Common Stock will receive an employment agreement as
Chief Operating Officer of CTIB that entitles him to a base salary of $200,000
per year for a period of three years, as well as additional compensation and
benefits.
Please refer to pages ___ through ___ generally for more information
concerning employment arrangements, acceleration of stock options and restricted
stock and other arrangements benefitting the post-Merger officers and directors.
Conditions to the Merger (See Page __)
Before the Celltech Merger can be completed, a number of conditions
must be met, including the following:
(a) all representations and warranties of the parties are to be true
and correct in all material respects, and all agreements required
to be performed prior to the closing are to be performed in all
material respects;
(b) there is to be no material adverse change in Celltech's business;
(c) the holders of (1) a majority of CTIG Common Stock and (2) a
majority of Centillion Common Stock must approve the Merger;
(d) the Centillion Merger shall have occurred;
(e) Celltech shall have delivered to CTIG all required third party
consents;
(f) Celltech shall have delivered to CTIG general releases from all
Celltech stockholders and all Celltech directors;
(g) no governmental entity can have passed a law that prohibits the
Celltech Merger; nor any court entered an injunction that
prohibits the Celltech Merger;
(h) the employment agreement with David A. Warren must be executed;
and
(i) Celltech must meet certain minimum balance sheet requirements.
The conditions to the Celltech Merger which are not met may be waived
by the company entitled to assert the condition.
Termination of the Celltech Merger Agreement (See Page __)
CTIG and Celltech can agree to terminate the Celltech Merger Agreement
before the Celltech Merger is completed, and either CTIG or Celltech can
terminate the Celltech Merger Agreement if any of the following occurs:
(a) The Celltech Merger is not consummated on or before September 30,
2000;
(b) Any governmental entity prevents the Celltech Merger from
occurring;
(c) Approval by the stockholders of CTIG is not obtained;
(d) If one of the parties to the Celltech Merger Agreement has
materially breached the Celltech Merger Agreement, the
non-breaching party may terminate the Celltech Merger Agreement.
26
<PAGE>
Certain Federal Income Tax Consequences (See Page __)
The Celltech Merger has been structured so that no gain or loss will be
recognized for Federal income tax purposes on the issuance of Class A Common
Stock of CTIG to the holders of Celltech Common Stock in exchange for all of the
issued and outstanding Common Stock of Celltech, except to the extent holders of
Celltech Common Stock receive cash instead of fractional shares.
Tax matters are very complicated, and the tax consequences of the
Celltech Merger to you will depend on the facts of your own situation. You
should consult your tax advisor for a full understanding of the tax consequences
of the Celltech Merger to you.
Appraisal Rights (See Page __)
Under Delaware law, holders of CTIG Common Stock have a right to an
appraisal of the value of their shares in connection with the Celltech Merger if
they assert dissenter's rights. A discussion of these rights is included on
pages __ through __. We encourage CTIG stockholders to read it.
Comparison of Stockholder Rights (See Page __)
Upon completion of the Celltech Merger, Celltech stockholders will
become CTIG stockholders. As a result, the rights of the holders of CTIG Class A
Common Stock will be governed by the amended CTIG Certificate of Incorporation,
the Bylaws of CTIG and by Delaware law. See "Comparison of Rights of Holders of
Celltech Common Stock and CTIG Common Stock" for a summary of the material
differences between the rights of holders of Celltech Common Stock and CTIG
Common Stock.
Forward-Looking Statements May Prove Inaccurate (See Page __)
CTIG and Celltech have made forward-looking statements in this document
and in documents that are incorporated by reference to this Joint Proxy
Statement/Prospectus that are subject to risks and uncertainties. Forward-
looking statements include the information concerning possible or assumed future
results of operations of CTIG or Celltech. Also, when we use words such as
"believes," "expects," "anticipates" or similar expressions, we are making
forward-looking statements. CTIG stockholders and Celltech stockholders should
note that many factors could affect the future financial results of CTIG and
Celltech, and could cause these results to differ materially from those
expressed in our forward-looking statements. These factors include the
following:
o operating and legal risks;
o economic, political and competitive forces affecting our
businesses;
o the risk that we are unable to achieve the revenue growth and
synergies in the amounts and in the time frames contemplated; and
o the risk that our analyses of these risks and forces could be
incorrect and/or that the strategies developed to address them
could be unsuccessful.
Listing of CTIG Stock (See Page __)
CTIG intends to file an application to list its shares of CTIG Class A
common stock on the NASDAQ National Market.
27
<PAGE>
Proposal III - Approval of Amendments to CTIG's Certificate of Incorporation
CTIG proposes to amend its Certificate of Incorporation to re-designate
its currently authorized shares of Common Stock, par value $0.01 per share, as
Class A Common Stock, par value $0.01, and to create a new Class B Common Stock,
par value $0.01. The amended Certificate of Incorporation will also restructure
the Board of Directors, increasing the number of Directors from five to seven.
The amendments are contingent upon the consummation of the Centillion Merger.
The amended Certificate of Incorporation will also result in the
appointment of a new Board of Directors of CTIG which will contain three
classes. Class I Directors will serve for an initial term of one year. Class II
Directors will serve for an initial term of two years. Each of these two Classes
will be composed of two Directors, and will initially be designated by
Centillion. Class III, which will contain three Directors, each serving for an
initial term of three years, will initially be designated by CTIG. The purpose
of this structure is to ensure that the interests of current CTIG stockholders
are represented for at least three years. The amendment to the Certificate of
Incorporation also provides for an Executive Committee, which will consist of
one director from each of the three Classes.
The Class B Stock is being created as a 'tracking stock,' which will
allow certain patent claims currently being held by Centillion to be easily
valued upon their resolution. The Executive Committee will have exclusive
control of the prosecution of the patent claims. The Class B Common Stock will
be convertible into Class A Common Stock under certain specified conditions and
at certain ratios as described in the Merger Agreement. (See "The Merger
Agreement- Conversion and Issuance of Shares- Class B Common Stock" on Page __).
The CTIG Board of Directors may pay dividends to holders of either
Class A or Class B stock in the same, or unequal amounts, or to not pay
dividends to holders of one or both Classes. However, approval by 2/3 of the
Board of Directors is required to pay dividends on the Class B Common Stock if
an equal or greater dividend is not paid on the Class A Common Stock. In the
event of a liquidation, dissolution or winding up of CTIG, whether voluntary or
involuntary, the holders of shares of Class A Common Stock and the Class B
Common Stock will be entitled to their respective share of the remaining assets
after payment of all applicable liabilities. The respective share of the assets
distributed to the holders of Class B Common Stock will be based on the relative
fair market value of the net assets of the Tracking LLC which will hold the
patent claims to the total assets of CTIG at the time of the liquidation. The
respective share of the assets distributed to the holders of Class A Common
Stock will be based on the relative fair market value of the CTIG assets without
regard to the net assets of the Tracking LLC to the total assets of CTIG at the
time of the liquidation.
Upon consummation of the Centillion Merger, the CTIG Board of
Directors, in conjunction with the amendments to CTIG's Certificate of
Incorporation, will amend CTIG's Bylaws so that they are consistent with the
proposed amendments to the Certificate of Incorporation.
Proposal IV - Approval of an Increase of the Number of Options Available
Under the CTIG Stock Option and Restricted Stock Plan
CTIG also proposes to increase the number of stock options available
under the Stock Option and Restricted Stock Plan (the "Plan"). The Plan
currently authorizes CTIG to issue options to purchase 600,000 shares to certain
employees, non-employee directors, and independent contractors and consultants
who perform services for CTIG. As of March 31, 2000, 390,000 options have been
issued under the Plan, 250,000 of which were outstanding. If the current
proposal is adopted, CTIG would be authorized to issue up to an additional
2,000,000 options to purchase shares of CTIG Common Stock.
28
<PAGE>
CTIG's management believes that additional options are required under
the plan to provide incentive-based compensation to employees of Centillion and
Celltech who will become employees of CTIG after the Mergers and current
employees of CTIG who will be continuing with CTIG after the Mergers.
The issuance of additional shares may result in a dilution of
outstanding shares of CTIG when those options are exercised.
29
<PAGE>
SELECTED HISTORICAL FINANCIAL DATA OF CTIG
The selected financial data presented below for the year ended March
31, 1999 are derived from the consolidated financial statements of CTI (Group)
Holdings, Inc. which have been audited by Deloitte & Touche LLP, independent
auditors (whose report included an explanatory paragraph indicating substantial
doubt exists as to CTIG's ability to continue as a going concern), and which are
incorporated by reference into this Joint Proxy Statement/Prospectus. The
selected financial data presented below for the year ended March 31, 1998 are
derived from the consolidated financial statements of CTIG which have been
audited by Zelenkofske, Axelrod & Co, CPA's, Inc. and which are incorporated by
reference into this Joint Proxy Statement/Prospectus. The selected financial
data presented below for the years ended March 31, 1997, 1996, and 1995 are
derived from the consolidated financial statements of CTIG which are not
incorporated by reference herein. The balance sheet data as of December 31, 1999
and the statement of operations and cash flows data for the nine and three month
periods ended December 31, 1999 and 1998 are derived from unaudited financial
statements. The unaudited financial statements include all adjustments,
consisting of normal recurring accruals, which CTIG considers necessary for a
fair presentation of the financial position and the results of its operations
for these periods. Operating results for the nine and three month periods ended
December 31, 1999 are not necessarily indicative of the results that may be
expected for the entire year ending March 31, 2000. The selected financial data
should be read in conjunction with the consolidated financial statements of CTIG
and the related notes thereto and "MANAGEMENT'S DISCUSSION OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS OF CTIG" incorporated by reference into this
Joint Proxy Statement/Prospectus.
30
<PAGE>
<TABLE>
<CAPTION>
Fiscal Years
Ended March
31,
------------------------------------------------------------------
1995 1996 1997 1998 1999
------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Statement of Operations Data:
Net Sales 3,233,600 4,134,830 3,223,290 3,598,720 7,043,026
Gross Profit 1,894,100 2,310,790 1,839,220 1,569,770 2,664,458
Operating Income (loss) (388,640) 172,440 (193,750) (1,756,441) (308,646)
Income (loss) before Income Taxes (477,100) 227,510 (192,710) (1,804,321) (338,343)
Net Income (loss) (477,100) 223,850 (197,510) (1,727,821) (414,843)
Primary Income (loss) per Common Share (0.09) 0.04 (0.04) (0.27) (0.06)
Diluted Income (loss) per Common Share (0.09) 0.04 (0.04) (0.27) (0.06)
Weighted Average Number of Common shares
outstanding:
Basic 5,125,923 5,340,089 5,641,765 6,479,341 6,898,946
Diluted 5,125,923 5,340,089 5,641,765 6,479,341 6,898,946
Balance Sheet Data (at period end):
Working Capital (Deficiency) 236,120 177,970 (1,250,617) (1,340,890) (1,369,928)
Total Assets 1,952,220 2,107,260 2,755,770 4,420,057 2,583,073
Short-term debt 16,080 28,710 57,360 293,820 218,424
Long-term debt 17,360 34,720 25,280 1,267,743 0
Stockholders' equity (deficiency) 850,440 1,113,190 1,479,000 8,530 (305,604)
Other Data:
Gross Profit Margin 58.6% 55.9% 57.1% 43.6% 37.8%
Operating Margin (12.0%) 4.2% (6.0%) (48.8%) (4.4%)
Current Ratio (at Period end) 121.8% 118.6% 69.8% 57.3% 52.6%
Cash Flows(Uses of Cash):
Operating Activities 26,190 282,280 396,000 (15,632) 396,679
Investing Activities 200,810 (588,860) (569,240) 324,651 (184,978)
Financing Activities (2,190) 29,900 (8,710) 213,084 (94,838)
Nine Months Three Months
Ended Ended
December 31, December 31,
------------------------------------------------------------
1999 1998 1999 1998
------------------------------------------------------------
Statement of Operations Data:
Net Sales 5,586,800 5,133,040 1,621,079 1,677,050
Gross Profit 2,556,927 2,407,720 569,254 784,290
Operating Income (loss) 307,514 (701,309) (168,232) (128,419)
Income (loss) before Income Taxes 304,984 (816,040) (167,905) (177,590)
Net Income (loss) 304,984 (816,040) (167,905) (177,590)
Primary Income (loss) per Common Share 0.04 (0.11) (0.02) (0.02)
Diluted Income (loss) per Common Share 0.04 (0.11) (0.02) (0.02)
Weighted Average Number of Common shares
outstanding:
Basic 6,996,768 6,898,229 7,142,036 6,901,098
Diluted 7,296,839 6,898,229 7,142,036 6,901,098
Balance Sheet Data (at period end):
Working Capital (Deficiency) (533,077) (1,369,928)
Total Assets 2,151,643 2,583,073
Short-term debt 75,015 218,424
Long-term debt 0 0
Stockholders' equity (deficiency) 199,069 (305,604)
Other Data:
Gross Profit Margin 45.8% 46.9% (35.1%) 46.8%
Operating Margin 5.5% (13.7%) (10.4%) (7.7%)
Current Ratio (at Period end) 72.7% 52.6%
Cash Flows(Uses of Cash):
Operating Activities (265,955) (46,250) (254,372) 115,236
Investing Activities (115,719) (230,756) (61,570) (3,746)
Financing Activities (143,414) (99,337) (24,985) (2,399)
</TABLE>
31
<PAGE>
SELECTED HISTORICAL FINANCIAL DATA OF CENTILLION
The selected financial data presented below for the years ended
December 31, 1999 and 1998 are derived from the consolidated financial
statements of Centillion Data Systems, Inc. which have been audited by Olive
LLP, independent auditors, and which are included elsewhere within this Joint
Proxy Statement/Prospectus. The selected financial data presented below for the
years ended December 31, 1997, 1996, and 1995 are derived from the consolidated
financial statements of Centillion which are not included herein. Certain
reclassifications were made to the 1997, 1996, and 1995 financial statements in
order for them to conform to the 1999 and 1998 presentation. The statement of
operations and cash flows data for the nine and three month periods ended
December 31, 1999 and 1998 are derived from unaudited financial statements. The
unaudited financial statements include all adjustments, consisting of normal
recurring accruals, which Centillion considers necessary for a fair presentation
of the financial position and the results of its operations for these periods.
The selected financial data should be read in conjunction with the consolidated
financial statements of Centillion and the related notes thereto and "CENTILLION
MANAGEMENT'S DISCUSSION OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF
CENTILLION" included elsewhere in this Joint Proxy Statement/Prospectus.
32
<PAGE>
<TABLE>
<CAPTION>
Fiscal Years
Ended December 31,
--------------------------------------------------------------
1995 1996 1997 1998 1999
--------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Statement of Operations Data:
Net Sales 11,033,809 12,655,662 12,753,950 35,573,501 10,734,642
Gross Profit 5,449,265 6,527,358 4,940,959 27,607,601 6,211,857
Operating Income (loss) 4,960,339 5,665,540 4,305,129 25,575,928 4,253,272
Income (loss) from Continuing operations before 4,813,603 5,566,345 4,394,795 26,172,272 4,353,047
Income Taxes & Minority Interests
Net Income (loss) from Continuing Operations Before 2,846,149 3,604,716 2,645,667 15,749,869 2,619,563
Minority Interests
Net Income (loss) 2,155,728 2,271,910 (1,683,671) 10,282,092 (2,127,731)
Balance Sheet Data (at period end):
Working Capital 1,561,519 509,941 1,385,803 12,840,041 15,790,777
Total assets of discontinued operations 1,026,691 9,449,863 7,253,142 5,597,738 4,379,631
Total Assets 5,488,957 15,046,635 12,328,028 21,311,346 21,418,052
Short-term debt 136,106 746,759 616,285 367,285 118,285
Long-term debt 0 0 0 0 0
Total liabilities of discontinued operations 47,309 2,095,330 961,742 455,805 1,688,762
Minority Interest 0 0 0 1,145,165 1,399,441
Stockholders' equity 4,400,416 11,156,908 9,555,809 17,119,505 16,866,448
Other Data:
Gross Profit Margin 49.4% 51.6% 38.7% 77.6% 57.9%
Operating Margin 45.0% 44.8% 33.8% 71.9% 39.6%
Current Ratio (at Period end) 243.5% 115.0% 150.2% 521.4% 601.0%
Cash Flows(Uses of Cash):
Operating Activities 2,609,989 3,576,637 1,274,199 17,227,257 112,694
Investing Activities (2,546,878) (2,040,164) (1,081,975) (2,401,429) (6,427,909)
Financing Activities (691,397) 235,020 (620,197) (3,365,226) (83,141)
<CAPTION>
Nine Months Ended Three Months Ended
December 31, December 31,
--------------------------------------------------
1999 1998 1999 1998
--------------------------------------------------
<S> <C> <C> <C> <C>
Statement of Operations Data:
Net Sales 8,113,848 7,953,017 2,691,587 2,660,001
Gross Profit 4,757,001 4,674,247 1,530,722 1,794,637
Operating Income 3,230,345 3,066,709 798,017 1,343,402
Income from Continuing operations before 3,237,243 3,587,961 804,889 1,520,277
Income Taxes & Minority Interests
Net Income from Continuing Operations Before 1,948,820 2,159,953 484,543 915,207
Minority Interests
Net Loss (679,751) (1,540,263) (315,334) (1,338,705)
Other Data:
Gross Profit Margin 58.6% 58.8% 56.9% 67.5%
Operating Margin 39.8% 38.6% 29.6% 50.5%
Current Ratio (at Period end)
Cash Flows(Uses of Cash):
Operating Activities (40,813) (4,369,201) 698,359 (684,137)
Investing Activities (6,631,127) (5,423,520) (1,162,142) (4,312,050)
Financing Activities 3,710,510 382,724 26,836 2,536,039
</TABLE>
33
<PAGE>
SELECTED HISTORICAL FINANCIAL DATA OF CELLTECH
The selected financial data presented below for the years ended
December 31, 1999 and 1998 are derived from the financial statements of Celltech
Information Systems, Inc. which have been audited by Arthur Andersen LLP,
independent auditors, and which are included elsewhere within this Joint Proxy
Statement/Prospectus. The selected financial data presented below for the years
ended December 31, 1997, 1996, and 1995 are derived from unaudited financial
statements of Celltech which are not included herein. The statement of
operations and cash flows data for the nine and three month periods ended
December 31, 1999 and 1998 are derived from unaudited financial statements. The
unaudited financial statements include all adjustments, consisting of normal
recurring accruals, which Celltech considers necessary for a fair presentation
of the financial position and the results of its operations for these periods.
The selected financial data should be read in conjunction with the consolidated
financial statements of Celltech and the related notes thereto and "CELLTECH
MANAGEMENT'S DISCUSSION OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF
CELLTECH" included elsewhere in this Joint Proxy Statement/Prospectus.
34
<PAGE>
<TABLE>
<CAPTION>
Fiscal Years
Ended December 31,
--------------------------------------------------------------
1995 1996 1997 1998 1999
--------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Statement of Operations Data:
Net Sales 4,565,489 3,896,796 5,600,381 8,991,445 7,952,798
Gross Profit 2,490,219 1,903,284 3,121,637 4,761,268 3,968,862
Operating Income (loss) (17,495) (444,349) (48,007) 553,288 (714,580)
Income (loss) before Income Taxes (5,410) 15,383 (37,010) 595,800 (860,386)
Net Income (loss) (5,410) 17,928 (34,501) 386,584 (577,411)
Balance Sheet Data (at period end):
Working Capital (Deficiency) 541,430 518,417 484,382 777,388 290,064
Total Assets 1,283,042 1,224,899 1,397,623 2,124,902 1,783,465
Short-term debt 31,392 0 0 147,222 140,963
Long-term debt 0 0 0 0 164,001
Stockholders' equity (deficiency) 702,740 720,668 686,167 1,039,682 462,271
Other Data:
Gross Profit Margin 54.5% 48.8% 55.7% 53.0% 49.9%
Operating Margin (0.4%) (11.4%) (0.9%) 6.2% (9.0%)
Current Ratio (at Period end) 193.3% 202.8% 168.1% 171.8% 125.3%
Cash Flows(Uses of Cash):
Operating Activities 533,970 84,336 (134,722) 475,164 (342,927)
Investing Activities (65,856) (110,798) (70,830) (165,634) (208,897)
Financing Activities (94,072) (31,392) 0 147,222 157,742
<CAPTION>
Nine Months Ended Three Months Ended
December 31, December 31,
--------------------------------------------------
1999 1998 1999 1998
--------------------------------------------------
<S> <C> <C> <C> <C>
Statement of Operations Data:
Net Sales 5,566,711 6,891,228 1,716,583 2,191,390
Gross Profit 2,569,273 3,543,280 598,266 919,563
Operating Income (loss) (900,366) 106,763 (675,429) (171,042)
Income (loss) before Income Taxes (893,421) 149,275 (675,688) (173,530)
Net Income (loss) (554,645) (59,941) (392,713) (121,174)
Other Data:
Gross Profit Margin 46.2% 51.4% 34.9% 42.0%
Operating Margin (16.2%) 1.5% (39.3%) (7.8%)
Current Ratio (at Period end)
Cash Flows(Uses of Cash):
Operating Activities (425,922) 423,062 (96,387) (110,876)
Investing Activities (175,308) (48,165) (167,361) (61,200)
Financing Activities 186,075 147,222 169,941 62,473
</TABLE>
35
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SELECTED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL DATA
The following table summarizes certain unaudited selected pro forma
condensed consolidated data for CTIG, giving effect to the Centillion Merger and
the Celltech Merger. The unaudited selected pro forma balance sheet data as of
December 31, 1999 assumes that the Centillion Merger and the Celltech Merger had
both occurred on that date and was prepared utilizing the unaudited balance
sheet of CTIG and the audited balance sheets of Centillion and Celltech as of
December 31, 1999. The unaudited selected pro forma operating data for the year
ended March 31, 1999 has been prepared on the basis of the results of operations
for the year ended March 31, 1999 for CTIG and the year ended December 31, 1998
for Celltech. The results for Centillion were developed by adding the results
for the quarter ended March 31, 1999 and subtracting the results for the quarter
ended March 31, 1998 from the historical results for the year ended December 31,
1998. Such quarterly results were derived from schedules prepared by
Centillion's management. The unaudited selected pro forma operating data for the
nine months ended December 31, 1999 has been prepared on the basis of the
results of operations for the nine months ended December 31, 1999 for CTIG,
Centillion and Celltech. The unaudited selected pro forma operating data give
effect to the Centillion Merger and Celltech Merger as if they occurred on April
1, 1998.
The unaudited selected pro forma condensed consolidated financial data
set forth in the following table is derived from, and should be read in
conjunction with, the historical consolidated financial statements of CTIG,
Centillion and Celltech, including the respective notes thereto, and the
unaudited pro forma condensed consolidated financial data, including the
respective notes thereto, incorporated by reference into or included in this
Joint Proxy Statement/Prospectus. See "Where You Can Find More Information",
"Incorporation of Certain Documents by Reference" and "Unaudited Pro Forma
Condensed Consolidated Financial Data". The following selected unaudited pro
forma condensed consolidated financial data is presented for informational
purposes only and is not necessarily indicative of the results that would have
been achieved had the Centillion Merger and Celltech Merger been consummated on
the dates or prior to the periods presented.
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CTI Group (Holdings) Inc.
Pro Forma for Merger (includes CTIG, Centillion and Celltech)
Selected Financial Data
Pro Forma
------------------------------------
Year ended Nine Months Ended
March 31, December 31,
1999 1999
---------------- -----------------
Statement of Operations Data:
Net Sales 26,608,282 19,267,358
Gross Profit 13,904,871 10,170,634
Operating Income (loss) (90,112) (314,080)
Income (loss) before Income Taxes 21,024 (302,766)
Net loss from continuing operations (1,942,177) (1,252,413)
Primary and Diluted loss from continuing
operations per Common Share (0.11) (0.07)
Weighted Average Number of Common shares
outstanding:
Basic and Diluted 17,521,679 17,619,501
Pro Forma as of
December 31,
1999
----------------
Balance Sheet Data:
Cash and Short Term Investments 8,327,841
Working Capital 5,519,276
Total Assets 44,241,077
Short-term debt 334,263
Long-term debt 164,001
Stockholders' equity 36,446,754
37
<PAGE>
RISK FACTORS
In addition to general investment risks and those factors set forth
throughout this document (including those set forth under the caption
"Cautionary Statement Concerning Forward-Looking Statements"), the following
risks should be considered by stockholders of CTIG and Centillion in deciding
whether to approve and adopt the Centillion Merger Agreement and Celltech Merger
Agreement, and by Celltech stockholders in connection with the CTIG stock they
will be receiving.
Risks Relating to the Mergers
Risks Associated With a New Control Group. Upon completion of the
Centillion Merger, the former management of CTIG will no longer have control
over CTIG. Rather, directors of Centillion will initially constitute a majority
of the members of the Board of Directors and the Executive Committee of CTIG,
and the majority of outstanding shares of CTIG Common Stock will be owned by
Centillion stockholders. This new control group may implement policies which are
different than those currently in place.
Risks Associated With the Integration of the Three Companies. The
Mergers involve the integration of three companies that have previously operated
independently. We cannot assure that the respective operations of CTIG,
Centillion and Celltech will be integrated without encountering difficulties.
Such difficulties could arise from integrating different business strategies and
integrating personnel with disparate business backgrounds and corporate
cultures. The resulting corporations may also lose key CTIG, Centillion or
Celltech personnel due to the Mergers. One-time costs related to the Mergers
(consisting primarily of financial advisors' fees and expenses, legal and
accounting fees and expenses and severance and other exit costs) and integration
of operations are anticipated to be approximately $1 million. We cannot assure
whether and to what extent the integration and consolidation will achieve
increased revenues or operating synergies or that the costs of the Mergers and
integration of operations will not be greater than anticipated.
Risks Associated With Exchange of Shares in the Mergers. Upon
completion of the Centillion Merger, all of the issued and outstanding shares of
Centillion Common Stock will effectively be converted into the right to receive
9,747,404 shares of CTIG Class A Common Stock and 2,833,334 shares of Class B
Common Stock. The share conversion is based upon fixed numbers and will not be
adjusted, even in the event of any increase or decrease in the market price of
CTIG Common Stock (although either party has the right to terminate the
Centillion Merger Agreement if the price is below $1.26 per share on the closing
date). As a result, the perceived and/or actual value of the shares of CTIG
Class A Common Stock received by holders of Centillion Common Stock in the
Centillion Merger could vary up or down depending on fluctuations in the market
prices of CTIG Common Stock.
Upon completion of the Celltech merger, all of the issued and
outstanding shares of Celltech Common Stock will effectively be converted into
the right to receive $262,599 in cash and between 1,330,501 and 2,217,501 in
CTIG Class A Common Stock, based upon the average price per share of CTIG common
stock over the preceding 20 trading days to a maximum average price of $3.75 per
share and a premium average price of $2.25 per share. The perceived and/or
actual value of the shares of CTIG Class A Common Stock received by holders of
Celltech Common Stock could vary up or down if the market price of CTIG Common
Stock is above that maximum or below that minimum average price. Such
fluctuations may be the result of changes in the business, operations or
prospects of CTIG, market assessments of the likelihood that the Centillion
Merger will be consummated and the timing thereof, the prospects of CTIG or
Centillion, general market and economic conditions and other factors.
Accordingly, there can be no assurance that the perceived and/or actual value of
the merger consideration on the date of this Joint Proxy Statement/Prospectus
will be the same as on the date of the Special Meeting of the holders of the
CTIG Common Stock or the effective time of the Centillion Merger.
Dependence On Key Personnel. CTIG's and Centillion's senior executive
officers have substantial experience and expertise and make significant
contributions to CTIG's and Centillion's growth and success. In particular, CTIG
is highly dependent on certain of its employees responsible for programming
software. Further, the ultimate success of the combination of CTIG and
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Centillion after the Merger will be largely dependent on the leadership of the
Chief Executive Officer, Anthony P. Johns. The unexpected loss of the services
of one or more of CTIG's or Centillion's senior executive officers, or employees
responsible for programming software may have a material adverse effect on CTIG.
In addition, Celltech's business has been highly dependent upon its President,
David A. Warren, who will continue as Chief Operating Officer of CTIB after the
Celltech Merger. The unexpected loss of Mr. Warren's services may have a
material adverse effect on CTIB.
Creation of Goodwill. It is anticipated that, on a pro forma basis, the
Mergers will result in the creation of approximately $27,399,000 of goodwill. On
a pro forma basis, amortization of goodwill will reduce net income by
approximately $3,914,145 per year over the next seven years. Amortization of
goodwill will have a significant effect on CTIG's net income over the seven year
amortization period.
Limitation on Utilization of Net Operating Losses. At December 31,
1999, CTIG had Federal net operating loss carryovers in excess of $1.7 million,
which NOL's are due to expire in the years 2006 through 2013. These NOL's may be
used to offset future taxable income through 2013 and thereby reduce or
eliminate federal income taxes otherwise payable. The Internal Revenue Code of
1986, as amended, imposes significant limitations on the utilization of NOL's in
the event of an "ownership change" as defined in section 382 of the Code. In
general, NOL's may be utilized to offset income in the 20 year period following
the tax year in which the losses are generated. The Section 382 Limitation is an
annual limitation on the amount of pre-ownership change NOL's that a corporation
generally may use to offset its post-ownership change income. Any portion of the
Section 382 Limitation that is not used in one year will increase the Section
382 Limitation for the following year. The Section 382 Limitation is calculated
by multiplying the value of a corporation's stock immediately before an
ownership change by the Federal long-term tax exempt rate, which rate is
currently 5.10%. The Centillion Merger will cause an "ownership change" of CTIG
and will, as a result, limit the amount of NOL's that CTIG may use to offset its
separately generated future taxable income following the Centillion Merger. CTIG
estimates that the annual Section 382 Limitation would be approximately $1
million as a result of the Centillion Merger. Consequently, there can be no
assurance that CTIG will fully utilize the tax benefits associated with its
NOL's before their expiration. (See page ___.)
Risks Relating to the Business of the Resulting Company
Recent Losses ("Inability to continue as a going concern"); Cash Flow.
CTIG has suffered operating losses in the last three of its fiscal years,
including net losses of $197,510 in fiscal 1997, $1,727,821 in fiscal 1998 and
$414,843 in fiscal 1999. CTIG also reported a net loss of $167,905, and an
operating loss of $168,232 for the third quarter of fiscal 2000. Based upon the
deterioration which occurred in CTIG's financial condition during fiscal 1998
and the presence of certain other conditions, as of March 31, 1999, in
connection with their audit of CTIG's financial statements, CTIG's independent
auditors opined that substantial doubt existed as to CTIG's ability to continue
as a going concern. While CTIG has developed a business plan and implemented a
number of programs designed to return CTIG to profitability, there can be no
assurance that such business plan adequately addresses the circumstances and
situations which resulted in CTIG's performance in the periods referred to
above.
Substantial Percentage of Revenue from Contracts with certain
customers. CTIG derived approximately 5% of its revenue from a single customer,
and the billing business of Centillion derived approximately 82% of its revenue
from a single customer. In 1999 Celltech derived approximately 47% of its
revenue from its largest customer and 65% from its three largest customers. The
loss by either of CTIG, Centillion, or Celltech of the business of one of these
customers could have a substantial negative impact on the resulting company.
Competition. CTIG competes with a number of companies in both the
United States and U.K. that provide products and services that serve the same
function as those provided by CTIG. Although CTIG operates in a highly
fragmented market, competitors such as Amdocs Ltd., Daleen Technologies,
Veramark Technologies and Billing Concepts in the U.S., and BTS, FDS, Softech,
Oak and Tiger in the U.K., provide comparable products and services as those of
CTIG which have the potential to acquire some or all of CTIG's market share in
their respective geographic markets. In addition, there are competitors serving
39
<PAGE>
the same market niche as Celltech, including Baja Systems, Cbill, PSA, Infotech
Solutions Corp. and Ito Systems, as well as public companies such as ITDS
(recently acquired by Amdocs Corp.) and Convergys Corp. that provide similar
services to larger accounts. Additionally, new high profile entrants into the
market such as Lucent Technologies have created the potential for CTIG's loss of
market share.
Dependence On Foreign Sales. CTIG generates approximately 71% of its
revenues from foreign sales. CTIG had no sales outside the United States prior
to February, 1998. CTIG now markets products and services to consumers in seven
countries outside the United States. In fiscal 1998 and 1999, approximately 25%
and 63%, respectively, of CTIG's net revenues were derived from sales to
customers outside the United States. After the Centillion Merger, CTIG plans to
increase further its business in Europe and expand into Asia and South America.
Competition in CTIG's international marketplace is increasing rapidly.
In addition, CTIG is subject to many risks associated with doing business
abroad, including: adverse fluctuations in currency exchange rates;
transportation delays and interruptions; political and economic disruptions; the
imposition of tariffs and import and export controls; and increased customs or
local regulations. The occurrence of any one or more of the foregoing could have
a material adverse effect on its results of operations.
Entering Into New Markets. As CTIG enters into new markets, including
countries in Asia, Europe and South America, it is faced with the uncertainty of
not having previously done business in those commercial, political and social
settings. Accordingly, despite CTIG's best efforts, its likelihood of success in
each new market which it enters is unpredictable for reasons particular to each
such market. It is also possible that, despite CTIG's apparently successful
entrance into a new market (the United Kingdom) , some unforeseen circumstance
could arise which would limit CTIG's ability to continue to do business or to
expand in that new market.
Evolving industry standards; rapid technological changes. The markets
for CTIG's software products and services are characterized by rapidly changing
technology, evolving industry standards and frequent new product introductions.
CTIG's success in its business will depend in part upon its continued ability to
enhance its existing products and services, to introduce new products and
services quickly and cost-effectively to meet evolving customer needs, to
achieve market acceptance for new product and service offerings and to respond
to emerging industry standards and other technological changes. There can be no
assurance that CTIG will be able to respond effectively to technological changes
or new industry standards. Moreover, there can be no assurance that competitors
of CTIG will not develop competitive products, or that any such competitive
products will not have an adverse effect upon its operating results.
CTIG intends further to refine, enhance and develop certain of its
existing software and billing systems and to change all of its billing and
accounts receivable management services operations over to its most proven
software systems and technology to reduce the number of systems and technologies
that must be maintained and supported. There can be no assurance that CTIG will
be successful in refining, enhancing and developing its software and billing
systems in the future, that the costs associated with refining, enhancing and
developing such software and systems will not increase significantly in future
periods, that it will be able to successfully to migrate its billing and
accounts receivable management services operations to its most proven software
systems and technology or that its existing software and technology will not
become obsolete as a result of ongoing technological developments in the
marketplace.
Risks Associated with Settlement of Patent Litigation.
Centillion has written letters and filed lawsuits claiming the possible
patent infringement of its patents in connection with the Smart Bill(R)
technology. Two settlements in these actions have been entered into and
additional settlements may be negotiated in the future. These settlements have
provided a substantial cash payment to Centillion and, in return, Centillion has
waived its claims for past violations and granted ongoing licenses to use the
technology to the parties involved in these actions. The effect of granting such
licenses could reduce the ability of CTIG, after the Centillion Merger, to find
new customers for the Smart Bill technology.
40
<PAGE>
SPECIAL MEETINGS OF STOCKHOLDERS
THE CTIG SPECIAL MEETING
General
This Joint Proxy Statement/Prospectus is being furnished to
stockholders of CTIG as part of the solicitation of proxies by the CTIG Board of
Directors for use at a Special Meeting of Stockholders of CTIG (the "CTIG
Special Meeting") to be held on ________, 2000 at _______ a.m. local time, at
______________. This Joint Proxy Statement/Prospectus and the enclosed form of
proxy are first being mailed to stockholders of CTIG on or about ____________,
2000.
The purpose of the CTIG Special Meeting is to:
(a) approve and adopt the Centillion Merger Agreement;
(b) approve and adopt the Celltech Merger Agreement;
(c) approve and adopt amendments to CTIG's Certificate of
Incorporation;
(d) approve and adopt an amendment to the CTIG Stock Option and
Restricted Stock Plan; and
(e) transact such other business that may properly come before the
CTIG Special Meeting.
Each copy of this Joint Proxy Statement/Prospectus mailed to holders of
CTIG Common Stock is accompanied by a form of proxy for use at the CTIG Special
Meeting.
The CTIG Board of Directors recommends that stockholders vote FOR the
approval and adoption of the Centillion Merger Agreement, the Celltech Merger
Agreement, the amendments to the Certificate of Incorporation, and the amendment
to the CTIG Stock Option and Restricted Stock Plan.
Record Date and Voting
CTIG has fixed the close of business on __________, 2000 as the record
date for the determination of the CTIG stockholders entitled to notice of and to
vote at the CTIG Special Meeting. Accordingly, only holders of record of CTIG
Common Stock on the record date will be entitled to notice of and to vote at the
CTIG Special Meeting. As of January 6, 2000, there were outstanding and entitled
to vote 7,437,505 shares of CTIG Common Stock (constituting all of the voting
stock of CTIG), which shares were held by approximately 512 holders of record.
Each holder of record of shares of CTIG Common Stock on the record date is
entitled to one vote per share which may be cast either in person or by properly
executed proxy, at the CTIG Special Meeting. The presence, in person or by
properly executed proxy, of the holders of a majority of the outstanding shares
of CTIG Common Stock entitled to vote at the CTIG Special Meeting is necessary
to constitute a quorum at the CTIG Special Meeting.
The approval of the Centillion and Celltech Merger Agreements and the
amendments to the CTIG Certificate of Incorporation will require the affirmative
vote of the holders of a majority of the shares of CTIG Common Stock outstanding
on the record date. The authorization of additional options under the CTIG Stock
Option and Restricted Stock Plan will require the affirmative vote of the
holders of a majority of the shares of CTIG Common Stock represented at the CTIG
Special Meeting, either in person or by proxy.
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<PAGE>
Shares of CTIG Common Stock represented in person or by proxy will be
counted for the purposes of determining whether a quorum is present at the CTIG
Special Meeting. Shares which abstain from voting as to a particular matter will
be treated as shares that are present and entitled to vote at the CTIG Special
Meeting for purposes of determining whether a quorum exists, but will not be
counted as votes cast on such matter. If a broker or nominee holding stock in
"street name" indicates on a proxy that it does not have discretionary authority
to vote as to a particular matter ("broker non-votes"), those shares will be
treated as present and entitled to vote at the CTIG Special Meeting for purposes
of determining whether a quorum exists, but will not be counted as votes cast on
such matter. Accordingly, abstentions and broker non-votes will have the same
effect as votes against approval of the Merger Agreement and CTIG's Certificate
of Incorporation if they result in a failure of the total votes cast on the
matter to represent over 50% in interest of all shares of CTIG capital stock
entitled to vote on the matter.
As of March 31, 1999, directors and executive officers of CTIG and
their affiliates may be deemed to be beneficial owners of approximately 43.5% of
the outstanding shares of CTIG Common Stock and have expressed their intent to
vote their shares in favor of the Merger Agreements.
Voting and Revocation of Proxies
All shares of CTIG Common Stock which are entitled to vote and are
represented at the CTIG Special Meeting by properly executed proxies received
prior to or at such Meeting, and not revoked, will be voted at such Meeting in
accordance with the instructions indicated on such proxies. If no instructions
are indicated (other than in the case of broker non-votes), such proxies will be
voted for approval and adoption of the Merger Agreements, the amendments to
CTIG's Certificate of Incorporation, and the authorization of additional options
under the CTIG Stock Option and Restricted Stock Plan.
The CTIG Board of Directors does not know of any matters other than
those described in the notice of the CTIG Special Meeting that are to come
before such meeting. If any other matters are properly presented at the CTIG
Special Meeting for consideration, including, among other things, consideration
of a motion to adjourn such meeting to another time and/or place (including,
without limitation, for the purposes of soliciting additional proxies or
allowing additional time for the satisfaction of conditions to the Mergers), the
persons named in the enclosed forms of proxy and acting thereunder generally
will have discretion to vote on such matters in accordance with their best
judgment. Notwithstanding the foregoing, proxies voting against a specific
proposal may not be used by the persons named in the proxies to vote for
adjournment of the meeting for the purpose of giving management additional time
to solicit votes to approve such proposal.
Any proxy given pursuant to this solicitation may be revoked by the
person giving it at any time before it is voted. Proxies may be revoked by (i)
filing with the Corporate Secretary of CTIG, at or before the taking of the vote
at the CTIG Special Meeting, a written notice of revocation bearing a later date
than the proxy, (ii) duly executing a later dated proxy relating to the same
shares and delivering it to the Secretary of CTIG before the taking of the vote
at the CTIG Special Meeting or (iii) attending the CTIG Special Meeting and
voting in person (although attendance at the CTIG Special Meeting will not in
and of itself constitute a revocation of a proxy). Any written notice of
revocation or subsequent proxy should be sent to CTI Group (Holdings) Inc., 2550
Eisenhower Avenue, Norristown, Pennsylvania 19403, Attention: Mary Ann Davis, or
hand delivered to the Secretary of CTIG at or before the taking of the vote at
the CTIG Special Meeting.
All expenses of CTIG's solicitation of proxies for the CTIG Special
Meeting will be borne by CTIG. In addition to solicitation by use of the mails,
proxies may be solicited from CTIG stockholders by directors, officers and
employees of CTIG in person or by telephone, telegram or other means of
communication. Such directors, officers and employees will not be additionally
compensated, but may be reimbursed for reasonable out-of-pocket expenses in
connection with such solicitation. Arrangements will also be made with brokerage
houses, custodians, nominees and fiduciaries for forwarding of proxy
solicitation materials to beneficial owners of shares held of record by such
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<PAGE>
brokerage houses, custodians, nominees and fiduciaries, and CTIG will reimburse
such brokerage houses, custodians, nominees and fiduciaries for their reasonable
expenses incurred in connection therewith.
THE CENTILLION SPECIAL MEETING
This Joint Proxy Statement/Prospectus is being furnished to
stockholders of Centillion as part of the solicitation of proxies by the
Centillion Board of Directors for use at a special meeting of stockholders of
Centillion (the "Centillion Special Meeting") to be held on ____________, 2000
at ________ a.m. local time at _______________________. This Joint Proxy
Statement/Prospectus and the enclosed form of proxy are first being mailed to
stockholders of Centillion on or about _____________, 2000. The purpose of the
Centillion Special Meeting is to
(a) approve and adopt the Centillion Merger Agreement dated as of
February 3, 2000, by and between CTIG and Centillion, pursuant to which, among
other things, (i) Centillion will be merged with and into CTIG, with CTIG being
the surviving entity, and (ii) holders of Centillion Common Stock will receive
9,747,404 shares of CTIG Class A Common Stock and 2,833,334 shares of CTIG Class
B Common Stock, with the right to acquire an additional 3,215,100 shares of CTIG
Class A Common Stock after closing; and
(b) to transact such other business that may properly come before the
Centillion Special Meeting.
Each copy of this Joint Proxy Statement/Prospectus mailed to holders of
Centillion Common Stock is accompanied by a form of proxy for use at the
Centillion Special Meeting.
The Centillion Board of Directors recommends that stockholders vote FOR
the approval and adoption of the Merger Agreement.
Record Date and Voting.
Centillion has fixed the close of business on _________________, 2000,
as the record date for the determination of Centillion stockholders entitled to
notice of and to vote at the Centillion Special Meeting. Accordingly, only
holders of record of Centillion Common Stock on the record date will be entitled
to notice of and to vote at the Centillion Special Meeting. As of March 31,
2000, there were 3,693,232 shares of Centillion Common Stock (constituting all
of the voting stock of Centillion) outstanding and entitled to vote, which
shares were held by approximately 15 holders of record. Each holder of record of
shares of Centillion Common Stock on the record date is entitled to one vote per
share, which may be cast either in person or by properly executed proxy at the
Centillion Special Meeting. The presence, in person or by properly executed
proxy, of the holders of a majority of the outstanding shares of Centillion
Common Stock is necessary to constitute a quorum at the Centillion Special
Meeting.
The approval of the Centillion Merger Agreement will require the
affirmative vote of the holders of a majority of the shares of Centillion Common
Stock issued and outstanding on the record date. As of March 31, 2000, directors
and executive officers of Centillion and their affiliates may be deemed to be
the beneficial owners of approximately 98.5 percent of outstanding shares of
Centillion Common Stock and Stockholders beneficially owning approximately 91%
of Centillion Common Stock have expressed their intent to vote their shares in
favor of the Centillion Merger Agreement.
Voting and Revocation of Proxies
All shares of Centillion Common Stock represented by a proxy properly
signed and received at or prior to the Centillion Special Meeting, unless
subsequently revoked, will be voted in accordance with the instructions thereon.
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If you sign and return your proxy without indicating any voting instructions,
the shares for Centillion Common Stock represented by the proxy will be voted
for "IN FAVOR OF THE MERGER AGREEMENT". If you provide a proxy, you may revoke
your proxy and reclaim your right to vote at any time by giving written notice
of revocation to the Secretary of Centillion at any time before it is voted, by
submitting to Centillion a duly executed, later-dated proxy or by such proxy by
written ballot at the Centillion Special Meeting. All written notices of
revocation and other communications with respect to revocation of Centillion
proxies should be addressed to: Centillion Data Systems, Inc., 333 North
Alabama Street, Suite 240, Indianapolis, Indiana 46204, Attention: Carol Gentry
(Assistant Corporate Secretary). Attendance at the Centillion Special Meeting
will not in and of itself constitute a revocation of a proxy.
Abstentions and "broker non-votes" will be counted as shares present
for purposes of determining whether a quorum is present but will not be voted
for or against the Merger Agreement. Abstentions and broker non-votes also will
not be counted as votes cast for purposes of determining whether sufficient
votes have been received to approve a proposal. Accordingly, abstentions and
broker non-votes will have the same effect as votes against approval of the
Centillion Merger Agreement. Broker non-votes are shares held in the name of a
broker or nominee for which an executed proxy is received, but are not voted on
the proposal because the voting instructions have not been received from the
beneficial owner or persons entitled to vote and the broker or nominee does not
have the discretionary power to vote.
The Centillion Board of Directors is not aware of any business to be
acted upon at the Centillion Special Meeting other than as described in this
joint proxy statement/prospectus. If, however, other matters are brought before
the Centillion Board of Directors at the Centillion Special Meeting, including,
among other things, a motion to adjourn or postpone the Centillion Special
Meeting to another time or place for the purpose of soliciting additional
proxies or otherwise, the persons appointed as proxies will have discretion to
vote or act on such matters according to their best judgment. However, no proxy
which is voted against the Centillion Merger Agreement will be voted in favor of
any such adjournment or postponement. The grant of a proxy will also confer
discretionary authority on the persons named in the proxy to vote on matters
incident to the conduct of the Centillion Special Meeting.
Centillion stockholders will be entitled to dissenters' rights under
Indiana law. See "The Centillion Merger - Centillion Common Stock" page __.
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PROPOSAL I
THE CENTILLION MERGER PROPOSAL
Background of the Centillion Merger
In July of 1998, the Board of Directors of CTIG decided to evaluate
various alternatives to increase stockholder value. In connection with
evaluating such alternatives, the Board of Directors engaged Sokoloff & Co. as
financial advisors. Sokoloff & Co., in turn, solicited various parties which it
thought might be interested in either making an investment in CTIG or forming a
strategic alliance. Management of CTIG met with management of several
competitors to discuss the possibility of a merger, acquisition, sale or
investment. This search continued for a period of approximately 12 months.
However, in the opinion of CTIG management, none of the companies provided the
right strategic fit or offered stockholders adequate value.
After developing a new business plan, and conducting further
negotiations with several potential investors and strategic partners, senior
management of CTIG met with members of the management of Centillion, whom they
had initially met several years earlier, to discuss a possible strategic
alliance. Centillion had significant capital reserves and would be able to
provide at least $5 million in cash to CTIG in connection with a possible
business combination. In addition, Centillion's patented Smart Bill billing
analysis software provided a "bridge" to CTIG's Neptune(TM) billing software and
billing analysis core competencies. The combination of the companies' respective
competencies would enable the merged company to provide a complete billing and
billing analysis solution to customers and pursue a "convergent billing"
strategy. Because of Centillion's ability to provide cash to CTIG, and because
of the perceived synergistic fit between the two businesses, CTIG management
decided that a potential merger with Centillion was the best strategic
alternative to be pursued.
In November, 1999, representatives of CTIG, Sokoloff & Co., and Klehr,
Harrison, Harvey, Branzburg & Ellers LLP (outside counsel for CTIG) met with
representatives of Centillion and its outside counsel, Blank Rome Comisky &
McCauley LLP. After substantial discussion, these parties reached a basis of
understanding for a proposed merger of CTIG and Centillion, subject to
satisfactory due diligence, finalization of certain economic terms and
negotiation of a definitive merger agreement.
On December 6, 1999, CTIG management reviewed the terms of the proposed
merger with its Board of Directors. Following this review, the Board authorized
management to continue to pursue a possible merger with Centillion.
In mid-to-late December, 1999, the parties began a review of definitive
documentation and commenced a comprehensive due diligence review, which process
lasted through most of January, 2000.
On February 3, 2000, the Board of Directors of CTIG, after receiving
all documentation relating to the proposed merger, and after receiving a
preliminary fairness opinion issued by First Colonial Securities Group, Inc.,
authorized the execution and delivery of the Centillion Merger Agreement.
Recommendation of the Board of Directors of CTIG; Reasons for the Centillion
Merger
The CTIG Board of Directors believes that the terms of the Centillion
Merger are fair to, and in the best interests of, CTIG and its stockholders.
Accordingly, the CTIG Board of Directors has approved and adopted the Centillion
Merger Agreement and the transactions contemplated thereby and recommends its
approval and adoption by the stockholders of CTIG.
The CTIG Board of Directors believes that the Centillion Merger
represents the best available strategic alternative for CTIG. It believes that
by combining CTIG's strengths in front-end call tracking, accounting and general
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billing, with Centillion's strengths in billing analysis and its favorable
financial position, a new company will be created which will have a better, more
competitive position. The CTIG Board of Directors believes that the resulting
company will be able to offer a more complete billing solution to its customers,
and lay the foundation for a convergent billing strategy, which would allow its
customers to receive a single bill for their usage of local and long distance
telephone service, internet, cellular phone, and other media, to track and
analyze these various forms of communications media in conjunction with one
another, and to view this bill in near-real time via the Internet. See "The
Resulting Company."
In reaching its determination to approve the Centillion Merger
Agreement and recommend approval of the Centillion Merger to the CTIG
stockholders, the CTIG Board of Directors considered the information presented
to it by CTIG's management, as well as CTIG's professional advisors, and weighed
the positive and countervailing factors associated with the Centillion Merger.
The factors considered by the CTIG Board of Directors included, without
limitation:
(i) CTIG's Business. The CTIG Board of Directors considered
historical and prospective information concerning the
financial condition, results of operations and business of
CTIG, including in particular, the cash flow needs of the
business and its cash position. The CTIG Board of Directors
also considered the current state (and its perception of the
future state) of the domestic and international
telecommunications billing and billing analysis industry and
the economic and market conditions relating to this industry.
CTIG's management and professional advisors made several
presentations to the CTIG Board of Directors providing it with
operational, financial and legal information concerning CTIG
and its future prospects. The CTIG Board of Directors
considered the strategic theoretical alternatives available to
CTIG in lieu of the Centillion Merger, including maintaining
the status quo, seeking to remain independent through
alternative financing or partnership transactions, seeking to
sell CTIG for cash, or to another third party for stock, as
well as the likelihood of being able to pursue any such
alternatives to a successful conclusion.
(ii) Centillion Business. The CTIG Board of Directors considered
the operational, financial and legal due diligence materials
provided to it by CTIG's management and professional advisors
concerning Centillion. Such due diligence included historical
and prospective information regarding the results of
operations, financial condition and business of Centillion and
the current state (and its perception of the future state) of
the telecommunications billing and billing analysis industry.
Factors included in evaluating Centillion included, among
other things: its strong balance sheet position, its patented
Smart Bill technology, and the expertise of its management in
the telecommunications billing industry.
(iii) Opinion of First Colonial Securities Corporation. The CTIG
Board of Directors considered the presentation of First
Colonial Securities Corporation, and First Colonial's
preliminary opinion, delivered on December 6, 1999, and
finalized as of April 5, 2000, that as of such dates, the
transaction was fair, from a financial point of view, to the
holders of CTIG Common Stock. See "Fairness Opinion of First
Colonial Securities Group," attached as Annex F to this Joint
Proxy Statement/Prospectus. A copy of such written opinion,
which sets forth the assumptions made, matters considered and
limitations on the review undertaken is attached as Annex F to
this Joint Proxy Statement/Prospectus and is incorporated
herein by reference.
(iv) Strategic Merits of the Centillion Merger. The CTIG Board of
Directors approved the Centillion Merger based upon its
assessment of the strategic merits of the Centillion Merger as
well as its assessment of the likelihood that other strategic
and financing alternatives, which had been pursued by CTIG
over the course of the 1999 calendar year, would come to
fruition. The strategic merits of the Centillion Merger, as
assessed by the CTIG Board of Directors, include, but are not
limited to, that:
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o Centillion would provide CTIG with substantial
working capital to enable CTIG to increase its
marketing, product development and customer support
activities;
o Centillion's strengths in billing analysis would
complement CTIG's strengths in front-end call
tracking and accounting, as well as general billing;
and
o Centillion would provide greater management depth to
CTIG, with substantial experience in the
telecommunications billing industry.
(v) Structure of Centillion Merger; Terms of the Centillion Merger
Agreement. The CTIG Board of Directors considered the terms of
the Centillion Merger Agreement and its legal and tax
implications. The CTIG Board of Directors considered the size
of the termination fee payable, in certain circumstances, by
CTIG under the Centillion Merger Agreement and also considered
the number of shares of CTIG Stock which would be exchanged
for the number of shares of Centillion Stock. The CTIG Board
of Directors considered that the Centillion Merger is expected
to be accounted for as a purchase of CTIG by Centillion and is
expected to be a tax free exchange by Centillion's
stockholders for federal income tax purposes. The Board also
considered that 3,215,100 shares of Class A Common Stock will
be held in escrow for three years and released depending upon
CTIG continuing to realize revenue from Centillion's largest
customers or from any business that CTIG may derive from
defendants in certain patent infringement actions brought by
Centillion.
(vi) Countervailing Considerations. The CTIG Board of Directors
also seriously considered certain factors which may be
characterized as countervailing considerations, including, but
not limited to:
(a) The change in control that will result from current
stockholders of Centillion owning 66% of the
outstanding shares of CTIG, including the fact that
after the Centillion Merger, one stockholder, Mr.
Salah Osseiran, will control approximately 56% of the
outstanding shares of CTIG;
(b) The change in the composition of the Board of
Directors of CTIG, which will result in former
Centillion directors constituting a majority of the
Directors of CTIG;
(c) The risks inherent in attempting to successfully
integrate the management of CTIG and Centillion into
an effective organization;
(d) The possibility that key employees and members of the
management of CTIG may not be willing to stay on
pending the consummation of the Centillion Merger
and, therefore, may leave CTIG; and
(e) Approximately 82% of the gross revenues of
Centillion's billing business are derived from a
single customer. The contract between Centillion and
this customer expires on September 20, 2000. If this
customer chooses not to renew its contract, such
revenues would be difficult to replace.
The foregoing discussion of the information and factors considered and
given weight by the CTIG Board of Directors is not intended to be exhaustive but
is believed to include the material factors considered by the CTIG Board of
Directors. In addition, in reaching the determination to approve and recommend
approval and adoption of the Centillion Merger Agreement, in view of the wide
variety of factors considered in connection with its evaluation of the
Centillion Merger, the CTIG Board of Directors did not assign any relative or
specific weights to the foregoing factors. The CTIG Board of Directors did not
attempt to analyze the fairness of the number of shares being issued to
Centillion
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stockholders in isolation from the considerations as to the businesses of CTIG
and Centillion, the strategic merits of the Centillion Merger or the other
considerations referred to above. The CTIG Board of Directors did, however, take
into account, and placed reliance upon, the analyses performed by, and the
opinion rendered by, First Colonial Securities Group, Inc. as to the fairness,
from a financial point of view, of the number of shares being issued to
Centillion stockholders. The CTIG Board of Directors also did not distinguish
between factors that support a determination that the Centillion Merger is
"fair" and factors that support a determination that the Centillion Merger is in
the "best interests" of CTIG's stockholders.
THE CTIG BOARD OF DIRECTORS HAS UNANIMOUSLY APPROVED THE CENTILLION
MERGER AGREEMENT AND THE TRANSACTIONS CONTEMPLATED THEREBY AND BELIEVES THAT THE
TERMS OF THE CENTILLION MERGER ARE FAIR TO, AND IN THE BEST INTERESTS OF, CTIG
AND ITS STOCKHOLDERS. THE CTIG BOARD OF DIRECTORS RECOMMENDS A VOTE FOR APPROVAL
AND ADOPTION OF THE CENTILLION MERGER AGREEMENT.
Recommendation of the Board of Directors of Centillion
Centillion. The Centillion Board of Directors has determined and
believes that the terms of the Centillion Merger are fair to, and in the best
interests of, Centillion and its stockholders. Accordingly, the Centillion Board
of Directors has approved and adopted the Centillion Merger Agreement and the
transactions contemplated thereby and recommends its approval and adoption by
the stockholders of Centillion.
In reaching its determination, the Centillion Board of Directors
consulted with Centillion management, as well as its legal counsel and financial
advisor, and considered a number of positive and countervailing factors,
including:
(i) International Growth. The Centillion Board of Directors
realized that the telecommunications billing and billing
services is increasingly global in nature. A merger with CTIG
would allow Centillion, through CTIG's European subsidiary, to
provide products and services internationally.
(ii) Strategic Combination. The Centillion Board of Directors
considered that the Centillion Merger would combine CTIG's
strengths in front-end call tracking, accounting and general
billing, with Centillion's strengths in billing analysis and
its strong balance sheet position. The Centillion Board of
Directors believes that the resulting company will be able to
offer a more complete billing solution to its customers, and
lay the foundation for a convergent billing strategy, which
would potentially allow customers to track all of their
telecommunications billing data on a single bill, and in
near-real time.
(iii) Liquidity of Shares. Because CTIG is a public company and its
shares are publicly traded, the Centillion Merger will provide
liquidity to Centillion Stockholders, who will own shares of
CTIG after the Centillion Merger.
(iv) Terms of the Merger. Pursuant to the Centillion Merger
Agreement, Centillion stockholders will be receiving a
controlling number of shares of CTIG, and representation by a
majority of directors on the Board of Directors and Executive
Committee of CTIG after the Centillion Merger. In addition,
Centillion stockholders will receive Class B Common Stock of
CTIG, which will serve as a tracking stock to ensure that
Centillion stockholders get full value for patent claims which
Centillion currently has against several telecommunications
companies.
(v) Management and Ownership of CTIG. After the Centillion Merger,
Centillion stockholders will be receiving shares of CTIG, and
the resulting company will be controlled by Centillion.
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(vi) Integration of Operations. As described above, the Centillion
Board of Directors considered the extent to which the
Centillion Merger would provide opportunities for revenue
growth that might not otherwise be available. However, the
Centillion Board of Directors also took into account that the
Centillion Merger involves the integration of two companies
that have previously operated independently. The Centillion
Board of Directors considered as a negative factor the
possibility that the resulting company will not be able to
integrate the respective operations of Centillion and CTIG
without encountering difficulties or experiencing the loss of
key Centillion or CTIG personnel and the possibility that the
benefits expected from such integration will not be realized.
In addition, the Centillion Board of Directors considered the
possibility that the resulting company will not be able to
realize anticipated operating synergies and certain strategic
advantages from the Centillion Merger.
(vii) Certain Risks. The Centillion Board also considered various
risks of the transaction, including those set forth herein
under "Risk Factors", and determined that the potential
benefit outweighed such risks.
(viii) Reduction in Overhead. The Centillion Board believes that the
combined companies should be able to reduce corporate overhead
costs by combining accounting, financial, legal, human
resources and other corporate overhead.
(ix) Due Diligence. The Centillion Board considered the results of
the due diligence review of CTIG.
(x) Countervailing Considerations. The Centillion Board of
Directors also seriously considered certain factors which
could negatively impact CTIG in the future. These factors
include (i) the fact that CTIG generates approximately 5% of
its revenue from a single customer, the loss of which would
have an impact on its business, (ii) CTIG's historical
operating losses, (iii) the fact that CTIG is a public
company, which involves certain risks and responsibilities
which are not inherent in a privately-held company such as
Centillion, and (iv) the fact that a substantial percentage of
CTIG's revenues are generated from international operations,
involving certain risks such as currency fluctuations, global
economic conditions, and political risks. These factors were
considered in the context of the overall transaction and the
Centillion Board of Directors, while acknowledging the risks,
still believed that the overall transaction is fair to
Centillion stockholders and provides Centillion stockholders
with the greatest opportunity for increasing value.
The foregoing discussion of the information and factors considered and
given weight by the Centillion Board of Directors is not intended to be
exhaustive but is believed to include all material factors considered by the
Centillion Board of Directors. In addition, in reaching the determination to
approve and recommend approval and adoption of the Centillion Merger Agreement,
in view of the wide variety of factors considered in connection with its
evaluation thereof, the Centillion Board of Directors did not assign any
relative or specific weights to the foregoing factors, and individual directors
may have given differing weights to the different factors. In determining that
the terms of the Centillion Merger are fair to, and in the best interests of,
Centillion and its stockholders, the Centillion Board of Directors considered
all of the foregoing factors, including, with respect to its analysis of the
fairness of the number of shares of CTIG being received by Centillion
stockholders in exchange for their shares of stock of Centillion, from a
financial point of view, the oral presentations by Centillion's executive
management regarding its independent financial analysis of Centillion and CTIG.
However, the Centillion Board of Directors did not distinguish between factors
that support a determination that the Centillion Merger is "fair" and factors
that support a determination that the Centillion Merger is in the "best
interests" of Centillion's stockholders.
THE CENTILLION BOARD OF DIRECTORS HAS UNANIMOUSLY APPROVED THE
CENTILLION MERGER AGREEMENT AND THE TRANSACTIONS CONTEMPLATED THEREBY AND
BELIEVES THAT THE TERMS OF THE CENTILLION MERGER ARE FAIR TO, AND IN THE BEST
INTERESTS OF, CENTILLION AND ITS STOCKHOLDERS. THE CENTILLION BOARD OF DIRECTORS
RECOMMENDS A VOTE FOR APPROVAL AND ADOPTION OF THE CENTILLION MERGER AGREEMENT.
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Opinion of Financial Advisor to CTIG
In February, 2000, CTIG engaged First Colonial Securities Group, Inc.
("First Colonial"), an investment banking firm, to act as its exclusive
financial advisor in connection with the proposed merger of CTIG and Centillion
and to render an opinion as to the fairness from a financial point of view to
the holders of outstanding shares of CTIG common stock of the consideration to
be received by such stockholders. First Colonial was selected by the CTIG Board
of Directors based on First Colonial's qualifications, expertise and reputation.
First Colonial rendered its oral opinion, subsequently confirmed in writing on
April 5, 2000, to the CTIG Board of Directors that, as of such date, the
consideration to be received by CTIG shareholders in the Centillion Merger is
fair from a financial point of view to the holders of outstanding shares of CTIG
common stock.
The full text of the opinion delivered by First Colonial to the CTIG
Board of Directors, dated April 5, 2000, which sets forth the assumptions made,
general procedures followed, matters considered, and limitations on the scope of
the review undertaken by First Colonial in rendering its opinion, is attached as
Annex F to this Joint Proxy Statement/Prospectus. First Colonial's opinion is
directed only to the fairness, from a financial point of view, of the
consideration to be received by the holders of CTIG Common Stock and does not
constitute a recommendation to any CTIG stockholder as to how such stockholder
should vote with respect to the proposed transaction. The summary of First
Colonial's fairness opinion set forth below is qualified in its entirety by
reference to the full text of the fairness opinion. CTIG stockholders are urged
to read the opinion carefully in its entirety.
In reviewing the proposed transaction, and in arriving at its opinion,
First Colonial, among other things:
o reviewed the available consolidated financial statements of
Centillion for recent years and interim periods to date and
certain other relevant financial and operating data of Centillion
made available to First Colonial by Centillion and CTIG;
o discussed the business, financial condition and prospects of
Centillion with certain members of its senior management;
o reviewed the publicly available consolidated financial statements
of CTIG for recent years and interim periods to date and certain
other relevant financial and operating data of CTIG made available
to First Colonial from published sources;
o reviewed certain internal financial and operating information
relating to CTIG prepared by senior management of CTIG;
o discussed the business, financial condition and prospects of CTIG
with certain members of its senior management;
o reviewed the recent reported prices and trading activity for the
common stock of CTIG and compared such information and certain
financial information for CTIG and Centillion with similar
information for certain other companies engaged in the businesses
that First Colonial considered comparable;
o reviewed the financial terms, to the extent publicly available, of
certain merger and acquisition transactions that First Colonial
considered comparable;
o reviewed the Centillion Merger Agreement and related employment
agreement and Promissory Notes;
o performed such other analyses and examinations and considered such
other information, financial studies, analyses and investigations
and financial, economic and market data as First Colonial deemed
relevant.
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First Colonial did not independently verify any of the information
concerning CTIG or Centillion in connection with its review of the proposed
transaction and for purposes of its opinion. First Colonial assumed and relied
upon the accuracy and completeness of all such information. In connection with
its opinion, First Colonial did not prepare or obtain any independent valuation
or appraisal of any of the assets or liabilities of CTIG or Centillion. With
respect to the financial forecasts and projections used in its analyses, First
Colonial assumed that they reflected the best currently available estimates and
judgments of the expected future financial performance of CTIG and Centillion.
For the purposes of its opinion, First Colonial also assumed that neither CTIG
nor Centillion was a party to any pending transactions, including external
financings, recapitalizations or material merger discussions, other than the
proposed transaction and those activities undertaken in the ordinary course of
conducting their respective businesses. For purposes of its opinion, First
Colonial assumed that the proposed transaction would qualify as a tax-free
reorganization under the Internal Revenue Code of 1986, as amended, for the CTIG
stockholders and that the proposed transaction will be accounted for as a
purchase.
First Colonial's opinion is necessarily based upon market, economic,
financial and other conditions as they existed and can be evaluated as of the
date of the opinion and any subsequent change in conditions would require a
reevaluation of the opinion.
The following is a brief summary of certain financial analyses
performed by First Colonial in connection with providing its opinion to the CTIG
Board of Directors on April 5, 2000. The summary of the First Colonial analyses
set forth below does not purport to be a complete description of the
presentation by First Colonial to the CTIG Board of Directors.
Pro Forma Ownership
Based on the projections for CTIG for the period January 1, 1999
through December 31, 2002 provided by the management of CTIG the projections for
Centillion for the period January 1, 2000 through December 31, 2004, each
company's relative contribution to the combined entity's balance sheet and the
estimates by the management of both companies as to the potential cost savings
anticipated to result from the Centillion Merger, First Colonial compared the
estimated implied equity value of a share of CTIG with the theoretical implied
equity value of a share of CTIG common stock in the combined company. In its
analysis, First Colonial made the following assumptions: (i) CTIG will maintain
its roughly $2 million of net operating loss carry forward (ii) Centillion
achieves its revenue threshold to receive the full 3,215,100 escrowed shares
(iii) no accounting for potential recoverable patent infringement claims and
(iv) Centillion achieving $3.7 million in 1999 operating income and contributing
at least $8 million in cash to the combined entity's balance sheet. Based upon
such assumptions and estimates, including all potential cost savings, synergies
and strategic benefits expected by the management of both companies, First
Colonial noted that the Centillion Merger would result in a theoretical implied
equity per share price of $2.91 to $4.85. Therefore, when compared to the
theoretical implied equity value of a share of CTIG common stock prior to the
Centillion Merger of $1.35 to $2.25, the Centillion Merger should result in per
share value accretion for current holders of CTIG common stock of between 5.8%
and 76%.
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Analysis of Publicly Traded Companies Comparable to Centillion
Using published Wall Street estimates and First Colonial research,
First Colonial compared, among other things, certain financial, trading and
valuation statistics and projected revenues for calendar year 2000 as well as
resulting multiples for Centillion to corresponding measures for publicly traded
companies that First Colonial considered comparable to Centillion. The companies
that First Colonial considered comparable to Centillion were:
Billing Concepts Telespectrum Worldwide Teletech Holdings
TCSI Group Boston Communication Objective Systems
Clarify Convergys Amdocs Ltd.
Remedy Siebel Systems Management Network Group
First Colonial determined the implied equity value of Centillion, not
taking into consideration potential recoverable payments for the tracked assets'
patent infringement claims, to be in the range of $26.75 million to $48.15
million by applying revenue multiples of Centillion and such comparable
companies to projected calendar year 2000. Using First Colonial research, First
Colonial calculated the multiples of market value to projected 2000 revenues.
With respect to all companies deemed comparable, this analysis yielded the
following multiples: a range of 2.5x to 4.5x projected calendar year 2000
revenues. As of March 31, 2000, the proposed transaction values Centillion at
$39 million, or 3.64x the projected 2000 revenues, within the stated range of
industry standards for comparables.
Analysis of Selected Mergers and Acquisitions Transactions
First Colonial compared the proposed transaction with selected mergers
and acquisitions of comparable companies within the industry. This analysis
included seven transactions involving companies in the industry announced since
September 1999. No company or transaction used in the above analyses is
identical to the proposed transaction and participants. In examining these
transactions, First Colonial analyzed, among other things, the multiples of
offer prices to revenues for the last 12-month period and the multiples of offer
prices to projected EBIT for the years 2000 and 2001.
First Colonial's analysis found that for these transactions the
multiples of offer prices to revenues for the last 12-month period yielded a
range of 3x to 5x revenue. Using this range, the implied equity value of
Centillion using this method of analysis yielded a range of $32.4 million to $54
million. As of March 31, 2000, the proposed transaction values Centillion at $39
million, or 3.61x trailing 12-month revenues, within the stated range of
industry standards for comparables.
First Colonial's analysis found that for these transactions the
multiples of offer prices to projected 2000 EBIT yielded a range of 12x to 20x
projected 2000 EBIT. Using this range, the implied equity value of Centillion
using this method of analysis yielded a range of $27.6 million to $46 million.
As of March 10, 2000, the proposed transaction values Centillion at $39 million,
or 16.9x projected 2000 EBIT, within the stated range of industry standards for
comparables.
In addition, it should be noted that this analysis does not take into
consideration the considerable amount of goodwill that CTIG will assume in the
proposed transaction. It is currently anticipated that CTIG will assume
$25,121,697 of goodwill which will be amortized over a seven year period, or
approximately $3.58 million per year. If additional analyses were performed to
incorporate this data, the resulting analyses might result in implied equity per
share prices that are significantly different from those found using different
analyses. For more information, please see "Rick Factors - Risk Relating to the
Mergers - Creation of Goodwill."
Other Analyses
First Colonial conducted other analyses as it deemed necessary,
including reviewing historical and projected financial and operating data for
CTIG and Centillion as well as trading data for CTIG. In addition, First
Colonial analyzed information pertaining to the estimated revenues for each of
the entities and assessing future growth and acquisition opportunities for each
of the companies.
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The preparation of a fairness opinion is a complex process and involves
various judgments and determinations as to the most appropriate and relevant
assumptions and financial analyses and the application of these methods to the
particular circumstances involved. Such an opinion is therefore not readily
susceptible to partial analysis or summary description. Taking portions of the
analyses set out above, without considering the analysis as a whole, would, in
the view of First Colonial, create an incomplete and misleading picture of the
processes underlying the analyses considered in rendering the First Colonial
opinion. First Colonial did not form an opinion as to whether any individual
analysis or factor, positive or negative, considered in isolation, supported or
failed to support the First Colonial opinion. In arriving at this opinion, First
Colonial considered the results of its separate analyses and did not attribute
particular weight to any one analysis or factor considered by it, but rather
made qualitative judgments as to the significance and relevance of each
analysis and factor. The analyses performed by First Colonial, particularly
those based on estimates and projections, are not necessarily indicative of
actual values or actual future results, which may be significantly more or less
favorable than suggested by such analyses. Such analyses were prepared solely as
part of the First Colonial analysis of the fairness to CTIG shareholders, from a
financial point of view, of the financial terms of the transaction.
The foregoing description of First Colonial's opinion is qualified in
its entirety by reference to the full text of the opinion that is attached as
Annex F to this Joint Proxy Statement/Prospectus.
Interests of First Colonial in the Centillion Merger
First Colonial, as part of its investment banking services, is
regularly engaged in the valuation of businesses and their securities in
connection with mergers and acquisitions, strategic transactions, corporate
restructurings, negotiated underwritings, secondary distributions of listed and
unlisted securities, private placements and valuations for corporate and other
purposes. First Colonial was engaged by CTIG in February 2000 to render a
fairness opinion to the Board of CTIG, as to the fairness from a financial
standpoint to the shareholders of CTIG, the proposed transaction
Pursuant to the engagement letter dated February 2, 2000, CTIG agreed
to pay First Colonial a fee of $60,000 upon consummation of the Centillion
Merger, of which $20,000 has been paid to date. The balance of $40,000 is due
upon closing of the proposed transaction as well as reimbursement to First
Colonial for its reasonable out of pocket expenses. CTIG has agreed to indemnify
First Colonial against certain liabilities under the federal securities laws or
relating to or arising out of First Colonial's engagement.
Interests of Certain Persons in The Centillion Merger
In considering the recommendations of the Board of Directors of CTIG
with respect to the Centillion Merger, the holders of CTIG Stock should be aware
that certain members of management of CTIG and of the CTIG Board of Directors
have interests in the Centillion Merger that are different from, or in addition
to, the interests of the holders of CTIG stock generally. The Boards of
Directors of each of CTIG and Centillion were aware of such interests and
considered them, among other matters, in approving the Centillion Merger
Agreement and the transactions contemplated thereby.
Board Of Directors, Committees and Management of CTIG after the
Centillion Merger. As provided in the Centillion Merger Agreement, upon the
Centillion Merger, the CTIG Board of Directors will initially consist of seven
directors, three of which will be designated by CTIG and four of which will be
designated by Centillion. The CTIG Board will be divided into three classes for
purposes of their initial terms (See "Approval of an Amendment to CTIG's
Articles of Incorporation- Restructure of Board of Directors"). All seven of the
individuals served previously on the Board of Directors of either CTIG or
Centillion, and are receiving their appointments as a result of the Centillion
Merger Agreement. As Board members, these individuals, other than CTIG's Chief
Executive Officer, will receive directors' fees, and they will be eligible to
participate in the CTIG Stock Option and Restricted Stock Plan. After the
Centillion Merger, members of CTIG's Board of Directors will receive certain
compensation in the form of options to acquire shares of CTIG Class A Common
Stock and cash as more fully described in "The Resulting Company-Executive
Compensation" on page __.
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Indemnification of Directors and Officers of CTIG and Centillion. The
Centillion Merger Agreement provides that upon consummation of the Centillion
Merger, CTIG will indemnify and hold harmless each present and former directors
and officers of CTIG and Centillion and its subsidiaries to the extent permitted
under the organizational documents of those companies with respect to matters
existing or occurring at or prior to the Centillion Merger, whether asserted or
claimed prior to, at or after the Centillion Merger. The Centillion Merger
Agreement also provides that if CTIG is a party to any business combination
where it is not the surviving entity, it will make reasonable efforts to ensure
that the surviving entity assumes such indemnification of Centillion officers
and directors.
Employment Agreement - Anthony P. Johns. Pursuant to the terms of the
Centillion Merger Agreement, Mr. Johns and CTIG will execute an employment
agreement to become effective upon consummation of the transactions contemplated
by the Centillion Merger Agreement. Pursuant to this employment agreement, Mr.
Johns will serve as President and Chief Executive Officer of CTIG for a period
of 36 months following the Effective Time at an annual minimum salary of
$250,000. Mr. Johns may also receive an annual cash bonus in the sole discretion
of the Board of Directors of CTIG, which will be based on performance,
profitability, or other factors. Mr. Johns will further be entitled to
reimbursement of certain expenses relating to accommodations and transportation,
as well as medical insurance, 401(k), and other such plans in which the company
may participate. Additionally, the employment agreement provides for severance
payments under certain circumstances of termination of Mr. Johns' employment, of
24 months salary, at his current salary at the time of the termination.
In addition, the CTIG Board of Directors, in November, 1999, granted
Mr. Johns options to purchase 300,000 shares of CTIG Common Stock at an exercise
price of $1.09 per share in the event that CTIG enters into a merger agreement
with Centillion. These options were granted to Mr. Johns in lieu of proceeds
from a 5% profit share agreement entered into with CTIG during fiscal year 1998.
Stock Options. The CTIG Stock Option and Restricted Stock Plan (the
"Plan") provides for vesting of all issued CTIG stock options and a lifting of
all restrictions on transfer of CTIG restricted stock upon a "change in
control." The Centillion Merger will constitute a change in control under the
Plan. As a result, all of the currently unvested options outstanding under the
Plan, with the exception of the 300,000 options granted to Mr. Johns as
described above, will become fully vested and immediately exercisable, and all
restrictions on transfer of CTIG restricted stock issued under the Plan will be
lifted upon consummation of the Centillion Merger. The treatment in the
Centillion Merger of outstanding options and restricted stock under the Plan is
described under "Proposal to Amend Stock Option and Restricted Stock Plan."
Additionally, there are 155,000 options to purchase CTIG Common Stock
which have been issued outside of the Plan. All of these options will vest and
become immediately exercisable upon consummation of the Centillion Merger.
Accounting Treatment of the Centillion Merger
It is anticipated that the Centillion Merger will be accounted for as a
reverse acquisition of CTIG by Centillion. Under such method of accounting the
legal acquirer, CTIG, will continue in existence as the legal entity whose
shares represent the outstanding common stock of the combined company. In
applying purchase accounting to a reverse acquisition, the assets and
liabilities of the legal acquirer are revalued and the purchase price allocated
to those assets and liabilities assumed.
Certain Federal Income Tax Consequences
The following discussion summarizes the material Federal income tax
consequences of the Centillion Merger that are generally applicable to CTIG,
holders of CTIG Common Stock, Centillion and the holders of Centillion Common
Stock. This discussion is based on currently existing provisions of the Internal
Revenue Code (the "Code"), existing and proposed Treasury Regulations thereunder
and the current administrative rulings and court decisions, all of which are
subject to change. Any such change, which may or may not be retroactive, could
alter the tax consequences to CTIG, CTIG's stockholders, Centillion or
Centillion's stockholders, as described herein.
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The following does not purport to deal with all aspects of Federal
income taxation that may affect particular stockholders in light of their
individual circumstances, and is not intended for stockholders subject to
special treatment under the Federal income tax law (including insurance
companies, tax-exempt organizations, financial institutions, broker-dealers,
foreign persons, stockholders who hold their stock as part of a hedge,
appreciated financial position, straddle or conversion transaction, stockholders
who do not hold their stock as capital assets and stockholders who have acquired
their stock upon the exercise of employee options or otherwise as compensation).
In addition, the discussion below does not consider the effect of any applicable
state, local or foreign tax laws. ACCORDINGLY, CTIG AND CENTILLION STOCKHOLDERS
ARE URGED TO CONSULT THEIR OWN TAX ADVISORS AS TO THE SPECIFIC CONSEQUENCES OF
THE MERGER TO THEM, INCLUDING THE APPLICABLE FEDERAL, STATE, LOCAL AND FOREIGN
TAX CONSEQUENCES OF THE MERGER IN THEIR PARTICULAR CIRCUMSTANCES. THE DISCUSSION
SET FORTH BELOW IS INCLUDED FOR GENERAL INFORMATION ONLY AND IS NOT INTENDED AND
SHOULD NOT BE CONSIDERED TAX ADVICE.
Neither CTIG nor Centillion has requested or will request, a ruling
from the IRS with regard to any of the Federal income tax consequences of the
Centillion Merger. As a condition to CTIG's and Centillion's obligation to
consummate the Centillion Merger, since the date of the Centillion Merger
Agreement, there is not to have been any changes in the facts, circumstances or
applicable federal tax laws that would negatively impact the treatment of the
Centillion Merger for Federal income tax purposes as a tax-free reorganization
within the meaning of Section 368(a) of the Code, and at the Effective Time, the
price of CTIG's Common Stock is not to be below $1.26 per share.
Treatment Of CTIG. No income, gain or loss should be recognized by CTIG
upon the consummation of the Centillion Merger. Accordingly, no income, gain or
loss should be recognized for federal income tax purposes by CTIG upon the
issuance of the Class A Common Stock to the Centillion stockholders in exchange
for all of the issued and outstanding Common Stock of Centillion. In addition,
no income, gain, or loss should be recognized for Federal income tax purposes by
CTIG upon the issuance of the Class B Common Stock to the Centillion
stockholders in exchange for all of the issued and outstanding Common Stock of
Centillion or upon the conversion of the Class B Common Stock to Class A Common
Stock.
Treatment Of Holders of CTIG Common Stock. No income, gain or loss will
be recognized by the holders of CTIG Common Stock upon the consummation of the
Centillion Merger. Accordingly, no income, gain or loss will be recognized for
Federal income tax purposes by the holders of CTIG Common Stock upon CTIG's
issuance of the Class A Common Stock to the Centillion stockholders in exchange
for all of the issued and outstanding Common Stock of Centillion. In addition,
no income, gain, or loss will be recognized for Federal income tax purposes by
the holders of CTIG Common Stock upon CTIG's issuance of the Class B Common
Stock to the Centillion stockholders in exchange for all of the issued and
outstanding Common Stock of Centillion or upon the conversion of the Class B
Common Stock to Class A Common Stock.
Treatment Of Holders Of Centillion Common Stock. Centillion
stockholders should not recognize any gain or loss upon the receipt of CTIG
Class A Common Stock or CTIG Class B Common Stock in exchange for Centillion
Common Stock (except as otherwise discussed below with respect to cash received
in lieu of fractional shares). Centillion stockholders should have a tax basis
in the CTIG stock received in the exchange equal to the tax basis of the
Centillion Common Stock exchanged therefor. The holding period of the CTIG stock
received in the exchange in the hands of the Centillion stockholders should
include the period during which such stockholders held the Centillion Common
Stock exchanged therefor to the extent that such Centillion Common Stock was
held as a capital asset by the Centillion stockholder.
Cash In Lieu Of Fractional Shares. Any cash received in lieu of the
fractional shares will generally be treated as having been paid to a Centillion
stockholder as a distribution in redemption of such fractional share interest in
accordance with the provisions of Section 302(a) of the Code. In that event, a
Centillion stockholder will generally recognize taxable gain to the extent that
the amount paid in exchange for such fractional share interest exceeds the
Centillion stockholder's tax basis in the fractional shares treated as having
been redeemed by CTIG.
Net Operating Loss Limitations. For a discussion of limitations on the
use of CTIG's net operating losses, see "Risk Factors-- Risks Relating to the
Centillion Merger."
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Reporting Requirements and Backup Withholding. Each holder of
Centillion Common Stock receiving CTIG Class A Common Stock or CTIG Class B
Common Stock, as the case may be, as a result of the Centillion Merger will be
required to retain certain records and file with its Federal income tax return a
statement setting forth certain facts relating to the Centillion Merger.
Backup withholding at the rate of 31% may apply with respect to certain
payments unless the recipient (i) is a corporation or comes within certain other
exempt categories and, when required, demonstrates this fact or (ii) provides a
correct taxpayer identification number, certifies as to no loss of exemption
from backup withholding and otherwise complies with applicable requirements of
the backup withholding rules. A stockholder who does not provide CTIG with its
correct taxpayer identification number may be subject to penalties imposed by
the IRS. Any amounts withheld under the backup withholding rules may be allowed
as a refund or a credit against the stockholder's federal income tax liability
provided that certain required information is furnished to the IRS.
CTIG will report to stockholders of CTIG and to the IRS the amount of
"reportable payments" and any amount withheld with respect to CTIG Class A
Common Stock and CTIG Class B Common Stock during each calendar year.
Exercise of CTIG and Centillion Dissenters' Rights. Holders of both
CTIG and Centillion Stock who exercise their statutory dissenters' rights will
recognize gain or loss equal to the difference between their tax basis in their
stock and the amount of cash they receive in exchange for that stock. See "The
Centillion Merger-- Appraisal Rights."
EACH HOLDER OF CTIG COMMON STOCK AND CENTILLION COMMON STOCK IS URGED
TO CONSULT THEIR OWN TAX ADVISOR WITH RESPECT TO THE TAX CONSEQUENCES OF THE
CENTILLION MERGER, INCLUDING THE APPLICABILITY AND EFFECT OF STATE, LOCAL OR
FOREIGN TAX LAWS.
Listing of CTIG Class A Common Stock
CTIG Common Stock currently is listed on the Over-the-Counter Bulletin
Board. At the time of the Centillion Merger, CTIG will attempt to have its Class
A Common Stock listed on the NASDAQ National Market.
HOLDERS OF CENTILLION COMMON STOCK SHOULD NOT SEND IN THEIR
CERTIFICATES UNTIL THEY RECEIVE A TRANSMITTAL FORM FROM AMERICAN STOCK TRANSFER,
THE EXCHANGE AGENT THEREFOR.
Resales of CTIG Common Stock Issued in Connection with the Merger; Affiliate
Agreements
CTIG Class A Common Stock issued in connection with the Mergers will be
freely transferable, except that shares of CTIG Common Stock received by persons
who are deemed to be "affiliates" (as such term is defined by Rule 144 under the
Securities Act of 1933, as amended (the "Securities Act")) of CTIG or Centillion
at the Effective Time may be resold by them only in transactions permitted by
the resale provisions of Rule 145 under the Securities Act or as otherwise
permitted under the Securities Act.
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Appraisal Rights
CTIG Common Stock. Holders of CTIG Common Stock who do not vote for the
approval and adoption of the Centillion Merger Agreement at the CTIG Special
Meeting and who otherwise comply with the applicable statutory procedures of
Section 262 of the Delaware General Corporation Law ("DGCL") summarized herein
may be entitled to appraisal rights under Section 262. In order to exercise and
perfect appraisal rights, the record holder of CTIG Common Stock must follow the
steps summarized below properly and in a timely manner. A person having a
beneficial interest in shares of CTIG Common Stock held of record in the name of
another person, such as a broker or nominee, must act promptly to cause the
record holder to follow the steps summarized below properly and in a timely
manner to perfect appraisal rights.
Section 262 of the DGCL is reprinted in its entirety as Annex G to this
Joint Proxy Statement/ Prospectus. Set forth below is a summary description of
Section 262. The following summary is not a complete statement of the law
relating to appraisal rights and is qualified in its entirety by reference to
Annex G. All references in Section 262 and this summary to "Holder" are to the
record holder of the shares of CTIG Common Stock immediately prior to the
Effective Time as to which appraisal rights are asserted. Failure to comply
strictly with the procedures set forth in Section 262 of the DGCL will result in
the loss of appraisal rights.
Under the DGCL, holders of CTIG Common Stock who follow the procedures
set forth in Section 262 will be entitled to have their shares appraised by the
Delaware Court of Chancery (the "Delaware Court") and to receive payment in cash
of the "fair value" of such shares, exclusive of any element of value arising
from the accomplishment or expectation of the Merger, together with a fair rate
of interest, if any, as determined by such court.
Under Section 262, where a proposed Merger is to be submitted for
approval at a meeting of stockholders, as in the case of the CTIG Special
Meeting, the corporation, not less than 20 days prior to such meeting, must
notify each of its stockholders who was a stockholder on the record date with
respect to such shares for which appraisal rights are available, that appraisal
rights are so available, and must include in each such notice a copy of Section
262. This Joint Proxy Statement/Prospectus constitutes such notice to the
holders of CTIG Common Stock and Section 262 of the DGCL is attached to this
Joint Proxy Statement/Prospectus as Annex G. Any Holder who wishes to exercise
such appraisal rights or who wishes to preserve his right to do so should review
the following discussion and Annex G carefully, because failure to timely and
properly comply with the procedures specified will result in the loss of
appraisal rights under the DGCL.
A Holder wishing to exercise appraisal rights (a) must not vote for the
approval and adoption of the Merger Agreement and (b) must deliver to CTIG,
before the vote or the proposal to approve and adopt the Merger Agreement, a
written demand for appraisal of such holder's shares of CTIG Common Stock. A
Holder who signs and returns a proxy card without expressly directing that his
or her shares of CTIG Common Stock be voted against the Merger Agreement will
effectively waive his, her or its appraisal rights because such shares
represented by the proxy card will be voted for the approval and adoption of the
Merger Agreement. Accordingly, a Holder who desires to exercise and perfect
appraisal rights with respect to any of his or her shares of CTIG Common Stock
must either (i) refrain from executing and returning the enclosed proxy card and
from voting in person in favor of the proposal to approve the Merger Agreement,
or (ii) check either the "Against" or the "Abstain" box next to the proposal on
such card or affirmatively vote in person against the proposal or register in
person an abstention with respect thereto. A vote or proxy against the Merger
Agreement shall not, in and of itself, constitute a demand for appraisal.
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A demand for appraisal will be sufficient if it reasonably informs CTIG
of the identity of the Holder and that such Holder intends thereby to demand
appraisal of such holder's shares of CTIG Common Stock. This written demand for
appraisal must be separate from any proxy or vote abstaining from or voting
against the approval and adoption of the Merger Agreement. A Holder wishing to
exercise appraisal rights must be the record Holder of such shares of CTIG
Common Stock on the date the written demand for appraisal is made and must
continue to hold such shares through the Effective Time. Accordingly, a holder
who is the record holder of shares of CTIG Common Stock on the date the written
demand for appraisal is made, but who thereafter transfers such shares prior to
the Effective Time, will lose any right to appraisal in respect of such shares.
Only a Holder of record of shares of CTIG Common Stock is entitled to
assert appraisal rights for the shares of CTIG Common Stock registered in that
Holder's name. A demand for appraisal should be executed by or on behalf of the
Holder of record, fully and correctly, as the Holder's name appears on the stock
certificates and must state that such person intends thereby to demand appraisal
of his, her or its shares of CTIG Common Stock. If the shares are owned of
record in a fiduciary capacity, such as by a trustee, guardian or custodian,
execution of the demand for appraisal should be made in that capacity, and if
the shares are owned of record by more than one person, as in a joint tenancy or
tenancy in common, the demand should be executed by or on behalf of all joint
owners. An authorized agent, including one for two or more joint owners, may
execute the demand for appraisal on behalf of a Holder of record; however, the
agent must identify the record owner or owners and expressly disclose the fact
that, in executing the demand, he or she is acting as agent for such owner or
owners.
A record holder such as a broker who holds shares as nominee for
several beneficial owners may exercise appraisal rights with respect to the
shares of CTIG Common Stock held for one or more beneficial owners while not
exercising such rights with respect to the shares held for other beneficial
owners; in such case, the written demand should set forth the number of shares
as to which appraisal is sought. Where the number of shares of CTIG Common Stock
is not expressly stated, the demand will be presumed to cover all shares held in
the name of the record owner. Holders of CTIG Common Stock who hold their shares
in brokerage accounts or other nominee form and who wish to exercise appraisal
rights are urged to consult with their brokers to determine the appropriate
procedures for the making of a demand for appraisal by such nominee.
All written demands for appraisal of shares must be mailed or delivered
to: CTI Group (Holdings) Inc., 2550 Eisenhower Avenue, Norristown, Pennsylvania
19403, or should be delivered to the Secretary at the CTIG Special Meeting,
prior to the vote on the Merger Agreements.
Within ten days after the Effective Time, CTIG will notify each Holder
who properly asserted appraisal rights under Section 262 and has not voted for
the approval and adoption of the Merger Agreement as of the Effective Time.
Within 120 days after the Effective Time, but not thereafter, CTIG or
any Holder who has complied with the statutory requirements summarized above may
file a petition in the Delaware Court demanding a determination of the fair
value of the shares held by such Holder. If no such petition is filed, appraisal
rights will be lost for all Holders who had previously demanded appraisal of
their shares. CTIG is not under any obligation, and has no present intention, to
file a petition with respect to appraisal of the value of the shares.
Accordingly, Holders who wish to exercise their appraisal rights should regard
it as their obligation to take all steps necessary to perfect their appraisal
rights in the manner prescribed in Section 262.
Within 120 days after the Effective Time, any Holder who has complied
with the provisions of Section 262 will be entitled, upon written request, to
receive from CTIG a statement setting forth the aggregate number of shares of
CTIG Common Stock not voted in favor of the approval and adoption of the Merger
Agreement and with respect to which demands for appraisal were received by CTIG,
and the number of holders of such shares. Such statement must be mailed within
ten days after the written request therefore has been received by CTIG.
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If a petition for an appraisal is timely filed and a copy thereof
served upon CTIG, CTIG will then be obligated within 20 days to file with the
Delaware Register in Chancery a duly verified list containing the names and
addresses of the Holders who have demanded appraisal of their shares and with
whom agreements as to the value of their shares have not been reached. After
notice to the holders of CTIG Common Stock as required by the Delaware Court,
the Delaware Court is empowered to conduct a hearing on such petition to
determine those holders of CTIG Common Stock who have complied with Section 262
and who have become entitled to appraisal rights thereunder. The Delaware Court
may require the holders who demanded appraisal rights of their shares of CTIG
Common Stock to submit their stock certificates to the Register in Chancery for
notation thereon of the pendency of the appraisal proceeding; and if any Holder
fails to comply with such direction, the Delaware Court may dismiss the
proceedings as to such Holder.
After determining which Holders are entitled to appraisal, the Delaware
Court will appraise the "fair value" of their shares of CTIG Common Stock,
exclusive of any element of value arising from the accomplishment or expectation
of the Merger, together with a fair rate of interest, if any, to be paid upon
the amount determined to be the fair value. Holders considering seeking
appraisal should be aware that the fair value of their shares as determined
under Section 262 could be more than, the same as or less than the consideration
they are entitled to receive pursuant to the Merger Agreement if they did not
seek appraisal of their shares and that investment banking opinions as to
fairness from a financial point of view are not necessarily opinions as to fair
value under Section 262. In determining "fair value" of shares, the Delaware
Court shall take into account all relevant factors. In Weinberger v. UOP, Inc.,
the Delaware Supreme Court has stated that such factors include "market value,
asset value, dividends, earnings prospects, the nature of the enterprise and any
other facts which were known or which could be ascertained as of the date of the
Merger which throw any light on future prospects of the merged corporation." In
Weinberger, the Delaware Supreme Court stated, among other things, that "proof
of value by any techniques or methods generally considered acceptable in the
financial community and otherwise admissible in court" should be considered in
an appraisal proceeding. In addition, the Delaware Court has decided that the
statutory appraisal remedy, depending on factual circumstances, may or may not
be a dissenter's exclusive remedy.
The Delaware Court will also determine the amount of interest, if any,
to be paid on the amounts to be received by persons whose shares of CTIG Common
Stock have been appraised. The costs of the action may be determined by the
Delaware Court and taxed upon the parties as the Delaware Court deems equitable.
The Delaware Court may also order that all or a portion of the expenses incurred
by any Holder in connection with an appraisal, including without limitation,
reasonable attorneys' fees and the fees and expenses of experts utilized in the
appraisal proceeding, be charged pro rata against the value of all of the shares
entitled to appraisal. In the absence of such determination or assessment, each
party bears its own expenses.
Any Holder who has duly demanded and perfected an appraisal in
compliance with Section 262 will not, after the Effective Time, be entitled to
vote his or her shares for any purpose or be entitled to the payment of
dividends or other distributions thereon, except dividends or other
distributions payable to holders of record of shares of CTIG Common Stock as of
a date prior to the Effective Time.
At any time within 60 days after the Effective Time, any Holder will
have the right to withdraw his or her demand for appraisal and to accept the
Merger consideration. After this period, a Holder may withdraw his or her demand
for appraisal only with the written consent of CTIG. If no petition for
appraisal is filed with the Delaware Court within 120 days after the Effective
Time, a Holder's right to appraisal will cease and he or she will be entitled to
receive the Merger consideration, without interest, as if he or she had not
demanded appraisal of his or her shares. No petition timely filed in the
Delaware Court demanding appraisal will be dismissed as to any Holder without
the approval of the Delaware Court, and such approval may be conditioned on such
terms as the Delaware Court deems just.
If any Holder who properly demands appraisal of his or her shares of
CTIG Common Stock under Section 262 fails to perfect, or effectively withdraws
or loses, his right to appraisal, as provided in the DGCL, the shares of such
Holder will be converted into the right to receive the consideration receivable
with respect to such shares in accordance with the Merger Agreement. A Holder
will fail to perfect, or effectively lose or withdraw, his right to appraisal
if, among other things, no petition for appraisal is filed within 120 days after
the Effective Time, or if the Holder delivers to CTIG a written withdrawal of
his demand for appraisal. Any such attempt to withdraw an appraisal demand more
than 60 days after the Effective Time will require the written approval of CTIG.
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HOLDERS OF CTIG COMMON STOCK DESIRING TO EXERCISE THEIR APPRAISAL
RIGHTS MUST NOT VOTE IN FAVOR OF THE APPROVAL AND ADOPTION OF THE MERGER
AGREEMENT AND MUST STRICTLY COMPLY WITH THE PROCEDURES SET FORTH IN SECTION 262
OF THE DGCL.
FAILURE TO TAKE ANY REQUIRED STEP IN CONNECTION WITH THE EXERCISE OF
APPRAISAL RIGHTS WILL RESULT IN THE TERMINATION OR WAIVER OF SUCH RIGHTS.
Centillion Common Stock. Holders of shares of Centillion common stock
are entitled to dissent and dissenter's rights under Indiana Code Section
23-1-44-1 through 23-1-44-20 of the Indiana Business Corporation Law (the
"Indiana Dissenters Statute"). The following summary of the applicable
provisions of the Indiana Dissenters Statute is not intended to be a complete
statement of such provisions and is modified in its entirety by reference to the
full text of the Indiana Dissenters Statute, which is attached as Annex H to
this Joint Proxy Statement/Prospectus. A person having a beneficial interest in
shares of Centillion Common Stock that are held of record in the name of another
person, such as a bank, broker or other nominee, must act promptly to cause the
record holder to follow the steps summarized below properly and in a timely
manner if such person wishes to perfect any dissenters' rights such person may
have. This discussion and Annex H should be reviewed carefully by any
Stockholder of Centillion who wishes to exercise statutory dissenters' rights or
who wishes to preserve the right to do so, because failure to strictly comply
with any of the procedural requirements of the Indiana Dissenters' Statute may
result in a termination or waiver of dissenters' rights under the Indiana
Dissenters' Statute.
Stockholders desiring to assert their dissenters' rights must deliver
written notice to Centillion of their intent to demand payment in exchange for
their shares in the event that the proposed action is effectuated prior to the
vote on the proposed transaction, and such stockholders may not vote in favor of
the action. Any stockholders who either vote in favor of the merger or do not
satisfy this notice requirement will not be entitled to payment in return for
their shares.
If the merger is authorized at the Centillion Special Meeting,
Centillion must give written notice to all dissenters who do not vote in favor
of the transaction and have satisfied the written notification requirements.
Such notice must be sent no later than ten (10) days after the proposed
transaction is approved by the stockholders. Within thirty (30) days after the
mailing of such notice, the dissenting Stockholder may make written demand on
Centillion for payment of the fair value of his or her shares, certify that the
Stockholder acquired beneficial ownership of the shares before the date of
Centillion's notice to stockholders and submit any certificate(s) representing
their shares to Centillion.
As soon as the merger is finalized, Centillion will pay each dissenting
Stockholder who has complied with the procedures set forth above the amount
Centillion estimates to be the fair value of the dissenter's shares. The payment
will be accompanied by (1) Centillion's balance sheet as of December 31, 1999,
an income statement for that year, a statement of changes in stockholders equity
for that year and the latest interim financial statements, if any, (2) a
statement of Centillion's estimate of the fair value of the shares, and (3) a
statement of the dissenter's right to demand payment under Section 18 of the
Indiana Dissenters Statute.
A dissenter may notify Centillion in writing of the dissenter's own
estimate of the fair value of the dissenter's shares and demand payment of the
dissenter's estimate (less any payment previously made by Centillion) if the
dissenter believes that the amount paid by Centillion is less than the fair
value of the dissenter's shares. This demand by the dissenter must be made
within thirty (30) days after payment by Centillion of its estimated fair value
of the shares, or the dissenter can no longer contest the amount paid.
If Centillion and the dissenting Stockholder cannot then agree on the
fair value of the shares, Centillion must commence an action in the Circuit or
Superior Court of Marion County, Indiana requesting the court to determine the
fair value of the shares. All dissenting stockholders must be made parties to
the action and the court shall render judgment for value of the shares.
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If Centillion fails to commence the above action within the sixty (60)
day period following the payment demand, it is required to pay each dissenter
whose demand remains unsettled the amount demanded. The judgment of the court
shall be for the fair value of the dissenter's shares plus interest to the
extent such amount exceeds that previously paid. The court shall assess all
costs of the proceeding including reasonable compensation expenses of appraisers
appointed by the court against such parties as the court finds equitable. It may
also assess costs of counsel and experts of a party against another party that
the court finds acted arbitrarily, vexatiously or not in good faith.
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THE CENTILLION MERGER AGREEMENT
The following is a summary of the material terms of the Centillion
Merger Agreement, a copy of which is attached as Annex A to this Joint Proxy
Statement/Prospectus and is incorporated herein by reference. Such summary is
qualified in its entirety by reference to the Centillion Merger Agreement.
Holders of CTIG Common Stock and Centillion Common Stock are urged to read the
Centillion Merger Agreement in its entirety for a more complete description of
the terms and conditions of the Centillion Merger.
The Centillion Merger
The Centillion Merger Agreement provides that, following the approval
of the Centillion Merger by the holders of CTIG Common Stock and the holders of
Centillion Common Stock and the satisfaction or waiver of the other conditions
to the Centillion Merger, Centillion will merge with, and into, CTIG, with CTIG
becoming the surviving corporation. The holders of Centillion Common Stock will
become holders of CTIG Class A Common Stock and CTIG Class B Common Stock.
If the Centillion Merger Agreement is approved by a majority of the
holders of CTIG Common Stock and Centillion Common Stock, and the other
conditions to the Centillion Merger are satisfied or waived, the closing will
take place no later than two business days (the "Closing Date") following the
date on which the last of the conditions is satisfied or waived, or at such
other time and date to which CTIG and Centillion mutually agree. As soon as
practical after the Closing Date, CTIG will cause a Certificate of Merger to be
filed with the Secretary of State of the State of Delaware as provided in
Section 251 of the DGCL and Centillion will cause Articles of Merger to be filed
with the Secretary of State of Indiana as provided in Section 23-1-40-5 of the
IBCL. The Centillion Merger will become effective upon the filing of such
certificate of merger and articles of merger or at such later time as is
specified in those documents (the "Effective Time"). Subject to the satisfaction
(or waiver) of the other conditions to the obligations of CTIG and Centillion to
consummate the Merger, it is presently expected that the Centillion Merger will
be consummated during the second calendar quarter of 2000. See "The Centillion
Merger Agreement -- Conditions to Obligations to Effect the Merger."
Conversion and Issuance of Shares
Shares Issued at Effective Time. The Centillion Merger Agreement
provides that the Centillion Merger will be effected by merger of Centillion
with and into CTIG, with CTIG being the Surviving Corporation.
At the Effective Time, all issued and outstanding Centillion Common
Stock will be converted pro rata, into
(1) 9,080,738 shares of CTIG Class A Common Stock.
(2) 3,500,000 shares of CTIG Class B Common Stock which may be
converted to Class A Common Stock, as described below.
(3) the right to receive up to an additional 3,215,100 shares of
CTIG Class A Common Stock (the "Escrowed Stock") which will be
placed in escrow at the Effective Time, as described below.
(4) the right to receive additional shares of CTIG Class A Common
Stock (the "Additional Stock Rights") attributable to certain
Centillion assets that will be transferred to a new limited
liability company prior to the Merger, as described below.
Under the Centillion Merger Agreement, Centillion has the option to
increase the number of shares of CTIG Class A Common Stock issued at the
Effective Time from 9,080,738 to 9,747,404, and decrease the number of shares of
CTIG Class B Common Stock from 3,500,000 to 2,833,334. This option may be
exercised by increasing the cash Centillion is required to have reflected on its
balance sheet at the Effective Time to $8,000,000. Centillion has committed to
exercise this option.
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Escrowed Class A Common Stock. The release of the Escrowed Stock
depends upon revenues received from (1) Centillion's largest customer (Sprint
Communications Company LP ("Sprint")) over a three year period commencing on
September 20, 2000, which is the date Centillion's current contract with Sprint
expires, and (2) business obtained during that three year period from companies
that are defendants in Centillion's patent infringement actions, or who have
been or may be sent letters indicating that they may be infringing Centillion's
patents. If the total revenue from these sources over the three year period
equals or exceeds $12,000,000, then all of the Escrowed Stock will be issued at
the end of the period. If the revenues are less than $12,000,000, a
proportionate number of shares of the Escrowed Stock will be forfeited. However,
the pre-Merger Centillion stockholders will be entitled to purchase the
forfeited shares at a purchase price of $1.50 per share.
The purpose of the Escrowed Stock is to insure that a portion of the
consideration provided to Centillion stockholders in the Merger is dependent
upon CTIG continuing to realize revenue from Centillion's largest customer.
Additional Stock Rights. In addition to its Billing Division,
Centillion owns portions of four companies (the "Other Entities"). While the
Billing Division will be an integral part of CTIG's operations after the
Centillion Merger, the Other Entities will not. Prior to the closing, the Other
Entities will be sold to the Holding LLC which will be owned by the present
stockholders of Centillion. The sale price for the Other Entities will be
approximately $10 million, which represents their fair market value. However,
the purchase price will be paid by the LLC giving Centillion the Shareholder LLC
Promissory Note, which will be owned by CTIG as a result of the Centillion
Merger.
The basic terms of the Shareholder LLC Promissory Note are:
o Interest will be at the minimum rate set by the Internal
Revenue Service.
o Payments of principal and interest will be made only when the
Holding LLC sells all or a portion of the Other Entities, or
at the end of ten years.
o When principal payments on the Shareholder LLC Promissory Note
are made, additional shares of CTIG Class A Common Stock will
be issued by the Company to the present stockholders of
Centillion equal to the value of the principal paid. The
shares of CTIG Class A Common Stock will be valued at 88
percent of the market value of the CTIG Class A Common Stock
at time of issuance. A formula is used to determine the market
value by using the average of the market price over the
preceding 20 business days.
o If the Shareholder LLC Promissory Note has not been paid in
full five years after the Effective Time, an appraisal of its
value will be obtained. Shares of CTIG Class A Common Stock
will be issued to the pre-Merger Centillion stockholders based
on this appraisal, at the same value of Class A Common Stock
described above.
The procedure described above is intended to provide Centillion
stockholders with proper payment in CTIG Class A Common Stock for the
Shareholder LLC Promissory Note. Rather than just relying on a current
appraisal, this method allows for CTIG Class A Common Stock to be issued during
the first five years only when actual payments are received. If an appraisal is
needed later (i.e., five years after the Closing Date), there will be five more
years of operations to consider for purposes of accurately valuing the
Shareholder LLC Promissory Note transferred by Centillion to CTIG pursuant to
the Centillion Merger.
Class B Common Stock. Centillion's assets include two registered
patents. Centillion has various claims against other companies for violating
these patents. Centillion has already reached successful settlements on certain
patent infringement lawsuits, has additional pending lawsuits and may make
additional patent claims in the future. The value of these current and potential
claims is difficult to determine. To fairly compensate Centillion stockholders
for the value
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of these claims, it was agreed that CTIG would issue a class of stock (that
being the CTIG Class B Common Stock) the value of which would be tied to the
economic performance of the patent rights claims (the "Patent Claims"). Prior to
the Effective Time, these patent claims and the right to make future claims will
be contributed by Centillion to the Tracking LLC, the ownership interests in the
Tracking LLC will be transferred to CTIG pursuant to the Centillion Merger, and
the CTIG Class B Common Stock will be issued to Centillion stockholders as part
of the consideration for their Centillion shares.
The CTIG Class B Common Stock is a mechanism through which the
pre-Merger stockholders of Centillion can possess an ownership interest in CTIG
which reflects an ownership interest in the patent claims held by the Tracking
LLC. At any time within an initial conversion period commencing at the Effective
Time and ending on the earlier of two years after the Effective Time or the date
Centillion stockholders cease to own at least 51% of CTIG Class A Common Stock,
CTIG can convert the CTIG Class B Common Stock into Class A Common Stock. For a
three year period after the initial conversion period, the holders of the Class
B Common Stock can convert the Class B Common Stock into shares of Class A
Common Stock. All CTIG Class B Common Stock shall convert, on a mandatory basis,
if the Second LLC transfers 50% or more of its equity interests or assets, or
any such transfer results in receipt of more than $7,500,000. A mandatory
conversion may not be effected prior to the fourth anniversary of the Effective
Time. Any conversion of CTIG Class B Common Stock during the first year after
the closing shall be at CTIG Class A Common Stock value per share of $2.25 for
the first 333,334 shares of CTIG Class A Common Stock issued, and at 88% of the
average market price of Class A Common Stock at the time for shares beyond
333,334. All other conversions, other than a mandatory conversion, shall be at
88% of the average market price of CTIG Class A Common Stock. Any mandatory
conversion shall be at 100% of the average market price. Affiliates of
Centillion's current stockholders have committed to loan up to $2,000,000 on a
non-recourse basis to the Tracking LLC to pursue its patent infringement
litigation.
Based upon the number of shares of CTIG Common Stock outstanding on the
record date for the CTIG Special Meeting and the record date for the Centillion
Special Meeting, respectively, and the conversion described above, at the
Effective Time CTIG's current stockholders will own approximately 36% and
Centillion's current stockholders will own approximately 64% of CTIG's issued
and outstanding Common Stock.
Exchange Of Stock Certificate
As soon as reasonably practicable after the Effective Time, CTIG will
have its appointed exchange agent mail to each holder of Centillion Common Stock
(i) a transmittal letter stating that certificates representing CTIG Class A and
Class B Common Stock will be sent to holders of Centillion Common Stock only
upon delivery of Centillion stockholder's stock certificates to the exchange
agent, and (ii) instructions for holders of shares of Centillion Common Stock to
exchange their certificates for the applicable shares of CTIG Class A and Class
B Common Stock. Upon surrender of Centillion Common Stock to the Exchange Agent
together with the transmittal letter completed and executed by a Centillion
stockholder, the Centillion certificates, a stockholder will receive the whole
number of the shares of CTIG Class A and Class B Common Stock that the holder
has the right to receive, and (B) a check in the amount equal to the cash that
the holder has the right to receive in lieu of any fractional shares. The
Centillion share certificates surrendered will be canceled. No interest will be
paid or will accrue on any cash payable for fractional shares.
No Further Ownership Rights In Centillion Common Stock. All shares of
CTIG Class A and Class B Common Stock (and cash in lieu of fractional shares)
issued upon the surrender for exchange of certificates which immediately prior
to the Effective Time represented shares of Centillion Common Stock will be
deemed to have been issued (and paid) in full satisfaction of all rights
pertaining to the shares of Centillion Common Stock represented by those
certificates.
Fractional Shares. No fractional shares of CTIG Common Stock will be
issued in the Centillion Merger. In lieu of any fractional shares, each holder
of shares of Centillion Common Stock outstanding immediately prior to the
Effective Time exchanged pursuant to the Centillion Merger who would otherwise
have been entitled to receive a fraction of a share of CTIG Class A or Class B
Common Stock (after taking into account all certificates representing
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shares of Centillion Common Stock delivered by the holder) will receive, in lieu
thereof, cash (without interest) in an amount equal to such fractional part of a
share of CTIG Common Stock multiplied by the per share average market price for
CTIG Class A Common Stock or $1.50 per share for CTIG Class B Common Stock. The
term "Average Market Price of CTIG Class A Common Stock" is based on a 20
business day market price average.
Dividends and Distributions. No dividends or other distributions
declared or made with respect to CTIG Class A or Class B Common Stock with a
record date after the Effective Time will be paid to the holder of any
unsurrendered Centillion Common Stock certificate with respect to the shares of
CTIG Class A or Class B Common Stock that the holder would be entitled to
receive upon surrender of such certificate, and no cash payment in lieu of
fractional shares will be paid to any such holder until the holder of record of
such certificate surrenders such certificate to CTIG.
No Liability. None of CTIG, Centillion, or the Exchange Agent will be
liable to any third party for any shares of CTIG Common Stock (or cash in lieu
of fractional shares of CTIG Common Stock or any dividends or distributions with
respect thereto) delivered to a public official pursuant to any applicable
abandoned property, escheat or similar law.
Lost Certificates. If any certificate which prior to the Effective Time
represented shares of Centillion Common Stock shall have been lost, stolen or
destroyed, then upon the making of an affidavit of that fact by the person
claiming the certificate to be lost, stolen or destroyed and, if required by
CTIG, the posting of a bond as indemnity against any claim that may be made
against it with respect to such certificate, the Exchange Agent will issue in
exchange for the lost, stolen or destroyed certificate the shares of CTIG Class
A and Class B Common Stock, and any cash in lieu of fractional shares and unpaid
dividends and distributions on shares of CTIG Common Stock otherwise deliverable
in respect thereof.
HOLDERS OF CENTILLION COMMON STOCK SHOULD NOT SEND IN THEIR CERTIFICATES UNTIL
THEY RECEIVE A TRANSMITTAL FORM FROM AMERICAN STOCK TRANSFER, THE EXCHANGE
AGENT.
Representations and Warranties
The Centillion Merger Agreement contains various customary
representations and warranties, subject to identified exceptions, relating to,
among other things, (a) due organization, valid existence and good standing of
each of CTIG, Centillion and their respective material subsidiaries and certain
similar corporate matters; (b) the capital structure of each of CTIG and
Centillion; (c) the authorization, execution, delivery and enforceability of the
Centillion Merger Agreement and related documents, the consummation of the
transactions contemplated by the Centillion Merger Agreement and documents and
related matters; (d) conflicts under Certificate of Incorporations or by-laws,
required consents or approvals and violations of any instruments or law; (e)
documents and financial statements of CTIG and Centillion and the accuracy of
information contained therein; (f) the absence of undisclosed liabilities; (g)
the absence of certain material adverse events, changes or events; (h) taxes and
tax returns; (i) properties; (j) intellectual property; (k) agreements,
contracts and commitments; (l) litigation; (m) environmental matters and
hazardous materials; (n) employees, independent contractors and labor matters;
(o) employee benefit plans; (p) compliance with laws and permits; (q) the
accuracy of information supplied by each of CTIG and Centillion in connection
with the registration statement to be filed by CTIG in connection with the
issuance of the CTIG Class A Common Stock and this Joint Proxy
Statement/Prospectus; (r) insurance; and (s) conflicts of interest. In addition,
Centillion has made certain representations and warranties concerning the
transfer of the Other Entities to the Holding LLC and the assets of the Billing
Division that will remain in Centillion.
Certain Covenants
Conduct of Business. The Centillion Merger Agreement provides that each
of CTIG and Centillion has agreed that, during the period from the date of the
signing of the Centillion Merger Agreement until the Effective Time, except as
contemplated by the Centillion Merger Agreement, it and each of its respective
subsidiaries will: (a) carry on its business in the usual, regular and ordinary
course in substantially the same manner as previously conducted, and not enter
into any new line of business; (b) pay its debts and taxes when due subject to
good faith disputes over such debts or taxes,
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and pay or perform other obligations when due; (c) use reasonable efforts
consistent with past practices to preserve intact its present business
organization, management team and business relationships; (d) not accelerate,
amend or change the period of exercisability of options or restricted stock
granted under any employee stock plan or authorize cash payments in exchange for
any options granted under any employee stock plan, except as required pursuant
to the plan or any related agreement; (e) not declare or pay any dividends on or
make other distributions in respect of any of its capital stock, not effect
certain other changes in its capitalization; (f) not issue or sell, or authorize
or propose the issuance or sale of, any shares of its capital stock or
securities convertible into or exchangeable for shares of its capital stock, or
any subscriptions, rights, warrants or options to acquire or other agreements or
commitments of any character obligating it to issue any such shares or other
convertible securities, other than the issuance of shares upon the exercise of
outstanding stock options, but only if these options are outstanding on February
3, 2000; (g) not make any material acquisitions; (h) not sell, lease, license or
otherwise dispose of material properties or assets outside the ordinary course
of business; (i) not increase the compensation payable to its directors,
officers or employees (except for increases to non-officer employees consistent
with past practices), grant additional severance or termination pay or enter
into employment or severance agreements with any consultants, employees,
officers or directors, enter into any collective bargaining agreement (other
than as required by law) or establish, adopt, enter into or amend any plan for
the benefit of its directors, officers, employees or consultants; (j) not amend
its certificate of incorporation or Certificate of Incorporation, as the case
may be, or bylaws, except as provided for in the Centillion Merger Agreement;
(k) not incur indebtedness for money borrowed other than in the ordinary course
of business; (l) not take any action that would or is reasonably likely to
result in a material breach of any provision of the Centillion Merger Agreement
to which it is a party or in any of its representations or warranties set forth
in the Centillion Merger Agreement to which it is a party being untrue as of and
on the Closing Date; (m) not make or rescind any material tax elections,
including any actions which would prevent the Centillion Merger from qualifying
for tax-free treatment under the Internal Revenue Code, settle any tax claims or
make any material change in its accounting methods; (n) make its reasonable best
efforts to carry out the terms of the Centillion Merger Agreement; (o) make its
reasonable best efforts to obtain all consents, waivers, approvals or permits of
any governmental entity; (p) develop a joint communications plan and obtain the
other party's consent before issuing any press releases or public statements;
(q) notify the other party of any fact which would result in the breach of any
of the above warranties or covenants; (r) provide access to all corporate
records and other information to the other party; (s) hold, as promptly as
possible, a stockholders' meeting to vote on approval of the merger.
No Solicitation. The Centillion Merger Agreement provides that neither
CTIG nor any of its subsidiaries will authorize or permit any of its, directors,
officers or employees or representatives to solicit, initiate, or encourage or
take any other action to facilitate, the making of any proposal or offer for the
acquisition of 20% or more of the assets or voting equity of CTIG or engage in
any discussion with respect to such a proposal. However, prior to the CTIG
Special Meeting, CTIG's Board of Directors, in the exercise of its fiduciary
duty may furnish information and engage in discussions on negotiations if it
receives a proposal for the acquisition of 50% or more of the assets or voting
securities of CTIG which is more favorable to CTIG's stockholders than the
Centillion Merger, is reasonably capable of being completed and for which
financing is reasonably capable of being obtained (a "CTIG Superior Proposal").
The Board of Directors may only modify its recommendation with respect to the
Centillion Merger, if it does so in response to a CTIG Superior Proposal. In
addition, the CTIG Board of Directors may, in the exercise of its fiduciary
duties and subject to the Centillion Merger Agreement, terminate the Centillion
Merger Agreement and accept the CTIG Superior Proposal.
Special Meetings. The Centillion Merger Agreement provides that each of
CTIG and Centillion will call a meeting of its respective stockholders to be
held as promptly as practicable for the purpose of voting upon the Centillion
Merger Agreement and the Centillion Merger. Subject to the discussion above
under "The Centillion Merger Agreement - Certain Covenants - No Solicitation,"
the Board of Directors of each of CTIG and Centillion agreed to recommend to its
respective stockholders adoption of the Centillion Merger Agreement and approval
of such matters, to coordinate and cooperate with respect to the timing of its
Special Meeting and to use their best efforts to hold such meeting on the same
day as the other party's Special Meeting and as soon as practicable after the
date of the Centillion Merger Agreement. Unless otherwise required to comply
with the applicable fiduciary duties the directors of CTIG, as determined by
such directors in good faith after consultation with outside legal counsel, each
party agreed to use all reasonable efforts to solicit from stockholders of such
party proxies in favor of the Centillion Merger.
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Post-Merger Corporate Governance; Employment Arrangements. The
Centillion Merger Agreement provides that certain corporate governance matters
relating to CTIG will be as described above under "The Centillion Merger --
Interests of Certain Persons in the Merger -- Board of Directors and Committees
of CTIG" and "The Resulting Company -- Directors and Executive Officers." The
Centillion Merger Agreement also provides that CTIG will enter into certain
executive employment agreements and have certain executive officers as described
under "The Centillion Merger -- Interests of Certain Person in the Merger --
Employment Agreements" and "The Resulting Company -- Directors and Executive
Officers". The Centillion Merger Agreement provides that CTIG will have an
Executive Committee which initially will be comprised of the following: Michael
Leeds, Harold Garrison and Rupert Armitage. See "The Resulting Company.
Stock Option and Benefit Plans. At the Effective Time, the CTIG Stock
Option and Restricted Stock Plan and any benefit plans in effect at the time
will cover employees of Centillion who become employees of CTIG after the
Centillion Merger.
Indemnifications. For a period of one year after the Effective Time,
CTIG and Centillion shall indemnify each other and their stockholders against
damages resulting from a breach of their respective representations, warranties
or agreements under the Centillion Merger Agreement. Claims for indemnification
damages on behalf of CTIG or its stockholders shall be made by the Class III
Directors to the Board of Directors and a decision is to be made by the
affirmative vote of a majority of the Class I and II Directors. Claims for
indemnification damages on behalf of Centillion or its stockholders shall be
made by the Class I and II Directors to the Board of Directors and a decision is
to be made by the affirmative vote of a majority of the Class III directors. If
an affirmative vote is not obtained, the decision can be submitted to
arbitration by the Directors asserting the claim. The remedy for damages found
to be due CTIG or its stockholders shall be a reduction in the number of shares
of Escrowed Stock that would otherwise be issued in the amount of such damages.
The remedy for damages found to be due Centillion or its stockholders shall be
an increase in shares of Class A Common Stock issued to the pre-Merger
Centillion Stockholders in the amount of such damages, adjusted for dilution to
such stockholders.
The Centillion Merger Agreement provides that CTIG, after the
Centillion Merger, will indemnify and hold harmless former directors or officers
of Centillion and its Subsidiaries as provided in their respective Certificate
of Incorporation or by-laws and indemnification agreements for acts or omissions
occurring at or prior to the Effective Time. The Merger Agreement also provides
that if CTIG is a party to a further consolidation or merger, and is not the
surviving party in that transaction, it will make a reasonable effort to require
the surviving corporation to continue the indemnification of prior Centillion
officers and directors.
Conditions to Obligations to Effect the Centillion Merger
The respective obligations of CTIG and Centillion to effect the
Centillion Merger are subject to the satisfaction (or waiver) of the following
conditions: (a) the Centillion Merger Agreement and the Centillion Merger shall
have been approved in the manner required under the Delaware General Corporation
Law and the Indiana Business Corporation Law, as the case may be, by the
respective holders of the issued and outstanding shares of capital stock of CTIG
and Centillion; (b) the Merger will not be prohibited by any order, judgment or
ruling of any court or other governmental entity; (c) CTIG must receive the
written opinion of First Colonial Securities Group that the Centillion Merger is
fair, from a financial point of view, to CTIG's stockholders; (d) the employment
agreement with Anthony P. Johns must be executed; (e) Centillion must enter into
a security agreement with certain stockholders regarding the promissory note
issued in connection with the Additional Stock Rights, which is attached to this
Joint Proxy Statement/Prospectus at Annex D; (f) the representations and
warranties made by each of Centillion and CTIG are true and correct as of the
Effective Time; (g) Centillion must transfer certain assets to the Tracking LLC,
as described in "The Centillion Merger Agreement- Conversion and Issuance of
Shares - Additional Stock Rights" and in section 6.2(c) of the Centillion Merger
Agreement; (h) the adjusted balance sheet of Centillion, on and as of the
Effective Time (which shall be certified by Centillion's Chief Financial
Officer) must reflect: (1) net current assets (i.e., over current liabilities)
of not less than $1.00; (2) cash of not less than $8,000,000; (3) no long term
liabilities other than deferred taxes, (4) net worth of not less than
$2,000,000, after eliminating from consideration in determining such net worth
(x) $6,500,000 of cash, (y) the Shareholder LLC Promissory Note referred to
above, and (z) the legal claims of Centillion which are being transferred
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to the Tracking LLC, in connection with the issuance of the CTIG Class B Common
Stock, and (5) all earnings of Centillion's billing business for the period from
January 1, 2000 to the Effective Time; (i) there must not have been any event
that has occurred to either Centillion or CTIG which has caused a Material
Adverse Effect (as that term is defined in the Merger Agreement) to their
respective businesses; (j) holders of no more than 5% of the issued and
outstanding shares of CTIG Common Stock shall have made the demands and given
the notices required under Delaware law to assert dissenters' appraisal rights;
(k) any severance obligations as a result of a change of control or termination
of employment which are owed by Centillion must be paid prior to closing; (l)
there must be no change in the law which would prevent the Merger from being
treated as a tax-free reorganization under the Internal Revenue Code; and (m)
the price of CTIG's Class A Common Stock must not be below $1.26 per share.
Termination; Termination Fees and Expenses
The Centillion Merger Agreement may be terminated at any time prior to
the Effective Time by CTIG or Centillion:
(a) by the mutual written consent of Centillion and CTIG;
(b) By either Centillion or CTIG if the Effective Time does
not occur on or before September 30, 2000. However, this
right to terminate shall not be available to any party
whose intentional failure to fulfill any material
obligation under the Centillion Merger Agreement has
caused, or resulted in, the failure of the Effective Time
to occur on or before that date;
(c) By either Centillion or CTIG if any governmental entity
(i) has issued an order, decree or ruling or taken any
other action permanently restraining, enjoining or
otherwise prohibiting the transactions contemplated by
the Centillion Merger Agreement, and such order, decree,
ruling or other action has become final and
non-appealable or (ii) shall have failed to issue an
order, decree or ruling or to take any other action
(which order, decree, ruling or other action the parties
shall have used their reasonable best efforts to obtain,
in accordance with the Centillion Merger Agreement);
(d) By either Centillion or CTIG if either (i) the approval
by the stockholders of Centillion required for the
consummation of the Centillion Merger has not been
obtained or (ii) the approval by the stockholders of CTIG
required for the consummation of the Centillion Merger
has not have been obtained;
(e) By CTIG, if it obtains a CTIG Superior Proposal (See "The
Centillion Merger Agreement - Certain Covenants - No
Solicitation) from a third party. If CTIG claims the
benefit of this section, it must comply with certain
notice provisions and pay the termination fee described
below;
(f) By Centillion, if CTIG has breached or failed to perform
any of its representations, warranties, covenants or
other agreements contained in the Centillion Merger
Agreement, which breach or failure to perform (A) would
give rise to the failure of a condition of the Centillion
Merger Agreement and (B) has not been or is incapable of
being cured by CTIG within 14 calendar days after receipt
of written notice of that breach from Centillion;
(g) By CTIG, if Centillion has breached or failed to perform
any of its representations, warranties, covenants or
other agreements contained in the Centillion Merger
Agreement, which breach or failure to perform (A) would
give rise to the failure of a condition of the Centillion
Merger Agreement and (B) has not been or is incapable of
being cured by Centillion within 14 calendar days after
its receipt of written notice thereof from CTIG Group; or
(h) By Centillion, in the event that CTIG takes any action
relating to the modification or a public proposal to
modify the terms of the Centillion Merger or the
Centillion Merger Agreement in response to a CTIG
Superior Proposal.
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In the event of any termination of the Centillion Merger Agreement by
either CTIG or Centillion as provided above, the Merger Agreement will become
void and there will be no liability or obligation (with limited exceptions) on
the part of CTIG, Centillion, or their respective officers, directors,
stockholders or affiliates, except as provided below with respect to termination
fees in certain circumstances and except that such termination will not limit
liability for a willful and material breach of the Centillion Merger Agreement;
provided that, the indemnification provisions described above under
"--Indemnifications" and the termination fee provisions described below will
remain in full force and effect and survive any termination of the Centillion
Merger Agreement.
Except as discussed in the following paragraph, if the Centillion
Merger is not consummated, all fees, costs and expenses incurred in connection
with the Centillion Merger Agreement and the transactions contemplated thereby
will be paid by the party incurring such expenses.
If CTIG terminates the Centillion Merger Agreement because it has
received and accepted a CTIG Superior Proposal CTIG is required to pay to
Centillion a termination fee of $1.5 million within five business days after
such termination. This fee is non-refundable, and is Centillion's sole remedy
for such a termination by CTIG.
Amendment and Waiver
The Centillion Merger Agreement may be amended by CTIG and Centillion
at any time before or after any approval of the Centillion Merger Agreement by
the stockholders of CTIG and/or Centillion. However, after any such approval, no
amendment may be made which decreases the amount of consideration that
Centillion stockholders will be receiving under the Centillion Merger, or
adversely affects the rights of Centillion's stockholders without the approval
of a majority of the holders of common stock of Centillion. This Agreement may
only be amended by an instrument in writing signed on behalf of all the parties.
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THE BUSINESS OF CENTILLION
Overview
Centillion provides traditional paper billing and electronic billing and
analysis services to the telecommunications industry. It was established in 1983
and is headquartered in Indianapolis, Indiana.
Smart Bill(R)
Centillion' primary product is Smart Bill which is an electronic billing
analysis tool. This product is currently sold via distributor relationships with
telecommunications providers who make it available to their business customers.
Telephone companies provide complete billing for their Smart Bill
customers to Centillion. This data is first processed by Centillion's main frame
computers using Centillion's patented technology. The processed data is then
made available to the telephone company's Smart Bill customers on diskette, CD
Rom or via the internet. These customers utilize the Smart Bill end user
application to access over 200 standard reports or they can utilize the ad hoc
system to create customized reports. Smart Bill also allows customers to access
a flat rate or percentage mark- up for rebilling telecom charges to internal or
external clients.
Processing of more than 600 million calls for more than 7,000 end users is
normally accomplished in less than two days although contracts allow five day
turnaround.
Traditional Billing
Centillion also provides billing and customer care services to clients
using the company's traditional billing product. On a limited basis, this
service can combine long distance, local call, wireless and data charges.
Traditional billing only represents a small component of Centillion's business
at the present time (7% in 1999). Centillion has been developing a new product
which will enable it to more aggressively enter this convergent segment of the
market. Centillion believes that traditional billing represents the largest
component of its telecommunications billing opportunity and, therefore, future
growth is most likely to come from this area.
Customers
Centillion currently has eight customers for Smart Bill. Sprint
Communications accounted for approximately 82% of its billing division revenue
in 1999. Centillion has a three year contract with Sprint that expires in
September 2000. Presently Sprint is re-evaluating many of its long-term
contracts because of its pending merger with WorldCom and, therefore, is not
presently discussing the contract extension. Centillion is hopeful this contract
will be renewed but cannot predict whether that will occur or, if it occurs, the
terms of any new contract.
Patent and Patent Litigation
Centillion has two patents on its Smart Bill process. These patents enable
customer data to be sorted in a manner so that the customer's generation of
reports is much faster than using a non-patented method. Several
telecommunications companies have developed programs to replicate Centillion's
patented process which the company believes violates its patents. Centillion has
instituted several legal actions alleging that the telecommunications companies
being sued have improperly copied Centillion's patents. As a matter of course,
the defense of these lawsuits attack the validity of Centillion's patents.
Centillion does not anticipate that these attacks will be successful but the
results of litigation are difficult to predict. Centillion's suits against AT&T
and Ameritech Corporation were settled resulting in their purchasing licenses
for Centillion's patents. Ameritech's settlement
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included its affiliates SBC Communications, Inc., Pacific Bell, Inc. and
Southwestern Bell Telecommunications. Inc. As a result of this purchase, AT&T
and SBC and its subsidiaries can provide their customers a product similar to
Smart Bill.
Employees
Centillion has approximately 98 employees most of whom are located in
Indianapolis, Indiana, approximately 62 of whom will be continuing with CTIG
after the Mergers. None of Centillion's employees is represented by a labor
union. Centillion considers its relations with its employees to be good.
Competitors
There are numerous competitors in the traditional billing area. Many
companies perform these services in- house while others outsource. There are
only a few competitors selling a product which directly competes with Smart
Bill. However, several telecommunications companies offer a similar product
using in-house resources. Centillion is suing several of these
telecommunications companies alleging patent infringement.
Properties
Centillion leases 38,758 square feet in Indianapolis at a cost of $16.27
per rentable square foot. The lease expires on November 30, 2003. The landlord
is an affiliate of Centillion stockholders, Harold Garrison, Cornelius Alig and
Salah Osseiran. In Centillion's opinion, the terms of the lease are at least as
favorable as terms available from a non-affiliated landlord. Messrs. Garrison
and Osseiran serve on Centillion's Board of Directors and will serve on CTIG's
Board after the Mergers.
Contracts with Related Entities
XILA, LLC provides local and long distance telephone and data services to
local businesses. XILA operates in Indianapolis, Indiana and is organized under
the laws of Indiana. XILA is a wholly-owned subsidiary of eNova, LLC.
Approximately 47% of eNova is owned by Centillion with another 45% owned by the
current Centillion stockholders.
XILA is one of Centillion's current customers that distributes and
utilizes the Smart Bill system. For the years ending December 31, 1997, 1998 and
1999, XILA paid Centillion $8,083, $10,547 and $7,685 pursuant to the terms of
the contract between Centillion and XILA.
Centillion also has a month-to-month contract with XILA whereby XILA
provides to Centillion telecommunication services including the arrangement of
Centillion's use of local exchange services and facilities from Indiana Bell
Telephone as well as the arrangement of joint and shared usage of facilities
leased from other common carriers. In addition to the services provided under
the contract, XILA leases to Centillion telecommunication equipment, which
includes telephones, switchboards, data lines and other computer related
equipment. Throughout the initial term of the lease and all renewal terms, the
equipment continues to be the sole and exclusive property of XILA. Monthly
charges fluctuate depending upon usage, and average $12,000 per month.
Certain of Centillion's employees provide management and clerical services
for XILA from Centillion's office. XILA paid Centillion $19,145, $21,203 and
$28,966 for the calendar year ended December 31, 1997, 1998 and 1999 for their
services.
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CENTILLION MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS OF CENTILLION
Background
Centillion provides traditional paper billing and electronic billing and
analysis services to the telecommunications industry. It was established in 1983
and is headquartered in Indianapolis, Indiana, where it has approximately 62
employees.
Its primary product is Smart Bill which is an electronic billing analysis
tool. This product is currently sold via distributor relationships with
telecommunications providers who make it available to their business customers.
Centillion holds two patents which are embodied in the Smart Bill product and
data preparation process.
Centillion currently produces Smart Bill software and Smart Bill monthly
data for eight telecommunications providers, the largest of which is Sprint.
Additionally, it has also licensed its patents to AT&T and SBC.
The merger with CTIG and Celltech brings strength to Centillion in its
other product area, traditional paper billing. Centillion and CTIG have
experience in the long distance side of traditional billing which is
complemented by Celltech's experience in wireless billing. CTIG's UK operation
gives Centillion a potential launching pad in Europe for both of its product
lines.
Results of Operations - 1999 Compared to 1998
Revenues from continuing operations for 1999 were $10,734,642 compared to
$35,573,501 in 1998. However, eliminating $25,000,000 in one-time 1998 revenues
derived from licenses resulting from patent litigation settlements, 1999
revenues increased 1.5% over 1998's comparable revenue of $10,573,501. Of this
revenue, 92% in 1999 and 93% in 1998 came from Centillion's flagship product,
Smart Bill. Most of the remainder came from Centillion's traditional paper
billing product. The current traditional paper billing service is mainframe
based and is being phased out until a new client server version, currently in
development, is completed. Of the recurring continuing operations revenues, 82%
in 1999 and 83% in 1998 were from a single customer.
Eliminating patent litigation expenses of $549,503 in 1999 and $4,091,290
in 1998, the cost of revenues were 37% of revenue in 1999 and 37% in 1998. This
level performance was achieved despite increased spending of $205,000 on product
development. The increased development expense was offset by overall increases
in operational efficiencies.
Selling, general and administrative expenses were 18% of revenues in 1999
and 19% of revenues in 1998 without one-time patent licenses. The increased
efficiency was achieved despite increased staffing in the accounting, corporate
marketing, human resource, and training areas. These staffing increases are part
of the preparation for an expected expansion of business as the software
development activity reaches the market in year 2000.
Non-telecommunications software activities are classified as Discontinuing
Operations in anticipation of their sale prior to the merger of Centillion with
CTIG These activities are in the development stage and lost $3,622,867 in 1999
and $5,467,777 in 1998, net of applicable taxes. It is anticipated that the
Discontinuing Operations will be sold to CDS Holdings, LLC, which will be owned
by the shareholders of Centillion Data Systems, Inc. at their fair values,
resulting in a loss of $1,281,706.
Other income declined $496,569 in 1999 compared to 1998 as a result of
moving income producing investments in 1998 to equity investments in 1999.
Unrealized gain or loss on the equity investments are not recognized as income
until they are liquidated.
The tax rate reflects both federal and state taxes and remained constant
at 40% in both years.
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Liquidity and Capital Resources
Centillion is currently financing operations through cash generated from
operations. On December 31, 1999 it had $12,213,450 in cash, cash equivalents,
and securities available for sale. On December 31, 1998 the corresponding amount
was $12,721,601.
During 1999, Centillion invested $3,540,683 in the Discontinuing
Operations and $1,031,366 in telecommunications software development. In 1999
Centillion capitalized $415,346 of expenses incurred in the development of
version 7.0 of its Smart Bill product. In 1999 Centillion capitalized $616,020
of expenses incurred in the continued development of Magnaflex, its new client
server, convergent, traditional billing system.
In 1998 Centillion invested approximately $1,000,000 in marketable
securities and added approximately $4,000,000 in 1999. On December 31, 1999 this
investment's approximate market value was $6,100,000. The investment manager has
been instructed to liquidate this investment prior to the merger with CTIG The
final return is subject to the risks associated with the stock market.
Centillion has also invested in tax exempt industrial rate bonds, with a rate
that varies weekly. The bonds include a weekly put back option at face value so
there is no risk to changes in the market. On December 31, 1999 Centillion had
$4,383,377 invested in these bonds which are considered a cash equivalent.
Year 2000 Compliance
In 1997, Centillion appointed a Year 2000 Task Force to assess the scope
of Centillion's risks and to bring its applications, both internal and external,
into compliance. Through 1999 Centillion spent approximately $150,000 getting
compliance statements from external vendors and examining and testing its own
internal systems. The few problems that were identified were fixed prior to
December 31, 1999 and no problems have been experienced since then.
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COMPARISON OF RIGHTS OF HOLDERS OF CENTILLION COMMON STOCK
PRIOR TO THE CENTILLION MERGER AND COMMON STOCK OF CTIG AFTER THE
CENTILLION MERGER
The following is a summary of the material differences between the rights
of holders of Centillion Common Stock before the Centillion Merger and the
rights of holders of CTIG Class A and Class B Common Stock after the Centillion
Merger. Because Centillion is organized under the laws of the State of Indiana
and CTIG is organized under the laws of the State of Delaware, the differences
arise both from differences between various provisions of their respective
Certificate of Incorporation and Bylaws and Indiana and Delaware law.
The discussion of the comparative rights of the stockholders of CTIG and
stockholders of Centillion set forth below does not purport to be complete and
is subject to and qualified in its entirety by reference to the Certificate of
Incorporation and Bylaws of CTIG, the Certificate of Incorporation and Bylaws of
Centillion, the Delaware General Corporation Law and the Indiana Business
Corporation Law ("IBCL").
Authorized Capital
CTIG's authorized capital prior to the Centillion Merger consists of
50,000,000 shares of common stock with a par value of $0.01 per share.
Centillion's authorized capital consists of 10,000,000 shares of common stock
with no par value. After the Centillion Merger CTIG's authorized capital will
consist of 50,000,000 shares of common stock of which 46,500,000 will be
designated Class A Common Stock, having a par value of $0.01 per share, and
3,500,000 shares of Class B Common Stock, having a par value of $0.01 per share.
Shares of Class B Common Stock are convertible into shares of Class A
Common Stock under certain conditions as described in "The Centillion Merger
Agreement- Conversion and Issuance of Shares- Class B Common Stock."
Centillion stockholders currently have "pre-emptive rights," which allow
them to have the first right to purchase shares which, from time to time, may be
issued by Centillion. Additionally, Centillion stockholders currently are
entitled to cumulate their votes for election of Centillion's Directors. Neither
pre-emptive rights nor cumulative voting rights are available to holders of CTIG
Common Stock.
After the Centillion Merger, shares of CTIG Class A and Class B Common
Stock will have liquidation and voting rights as outlined in "Approval of
Amendment's to CTIG's Certificate of Incorporation."
Number of Directors
CTIG's Bylaws provide that the Board of Directors shall consist of that
number of Directors as determined by standing resolution of the Board, but may
not be less than three. Centillion's Bylaws provide that the Board of Directors
of Centillion shall consist of seven directors, which number may be increased or
decreased by the standing Board, so long as a decrease would not result in the
removal of a Director. Currently, there are six members of the Board of
Directors of Centillion, and five members of the Board of Directors of CTIG.
CTIG's Bylaws after the Centillion Merger provide for seven directors,
four of whom will initially be designated by Centillion, and three of whom
initially will be designated by CTIG. For more information on the structure of
the Board of Directors of CTIG after the Centillion Merger, see "Approval of
Amendments to CTIG's Certificate of Incorporation - Restructure of Board of
Directors."
Committees of the Board
Both Centillion's and CTIG's Bylaws provide for the respective Board of
Directors to designate committees as they deem necessary or desirable. The
provisions of Centillion's Bylaws are substantially similar to those of CTIG's
Bylaws, except that Centillion's Bylaws do not permit its Board of Directors to
designate a committee to: authorize distributions, approve or propose to
stockholders action that the IBCL requires to be approved by stockholders, fill
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vacancies on the Board of Directors or any of its Committees, amend the Articles
of Incorporation, adopt, amend or repeal Bylaws, approve a plan of merger not
requiring Stockholder approval, authorize or approve the issuance or sale of a
contract for sale of shares, or determine the designation of a class of shares,
or take any other action precluded by the IBCL or Centillion's Articles of
Incorporation or Bylaws.
CTIG's Bylaws do not provide for any of the above restrictions, and state
that the Board of CTIG, in designating committees, is limited only to the extent
provided for under the DGCL.
Removal of Directors
The DGCL provides that a director or the entire board of directors may be
removed, with or without cause, by the holders of a majority of the shares then
entitled to vote at an election of directors, except (i) in the case of a
corporation whose board is classified, directors may be removed only for cause
unless the certificate of incorporation provides otherwise, or (ii) if the
corporation has cumulative voting, in which event if less than the entire board
is to be removed, no director may be removed without cause if the votes cast
against the director's removal would be sufficient to elect that director if
voted cumulatively either at an election of the entire board of directors or for
classes of the board. CTIG's Certificate of Incorporation provides that any
Director or the entire Board of Directors may be removed, with or without cause,
by the holders of a majority of the stock then entitled to vote at an election
of directors, at any annual or special meeting of the stockholders of the
corporation.
The IBCL provides that directors may be removed by stockholders or
directors with or without cause. Removal of a director by stockholders must be
done only at a meeting called for the purpose of removing the director with the
notice of the meeting stating that the purpose (or one of the purposes) of the
meeting is the removal of the director.
Because the Board of CTIG following the Centillion Merger will be
classified, its directors may only be removed for cause.
Amendment to Bylaws
Under the DGCL, bylaws may be altered, amended, supplemented or repealed,
or new bylaws adopted, by the stockholders entitled to vote, by the board of
directors, or by any other manner as may be authorized by the certificate of
incorporation. CTIG's Bylaws provide that, except with regard to the provision
regarding removal of directors (described above), CTIG's Bylaws may be amended
by a majority of the vote of the Board of Directors, either at a regular or
special meeting of the Board, or by written consent. The Bylaws also provide
that the Bylaws may be amended by a majority vote of outstanding shares of the
corporation.
Under the IBCL, unless the articles of incorporation provide otherwise,
only the board of directors may amend or repeal bylaws. Centillion's Bylaws
provide that the Bylaws may be amended by a majority vote of the whole Board of
Directors at any meeting of the Board of Directors, or by written consent.
Amendments to Certificate or Articles
Under the DGCL, amendment of the certificate of incorporation will be made
by a resolution of the board of directors setting forth the amendment, declaring
its advisability, and either calling a special meeting of the stockholders
entitled to vote or directing that the amendment proposed be considered at the
next annual meeting of the stockholders. At such stockholder's meeting, a
majority of the outstanding shares entitled to vote is required to approve the
amendment. If an amendment would increase or decrease the number of authorized
shares of such class, increase or decrease the par value of the shares of such
class or alter or change the powers, preferences or other special rights of a
class of outstanding shares so as to affect the class adversely, then a majority
of shares of that class must approve the amendment as well. The DGCL also
permits a corporation to make provision in its certificate requiring a greater
proportion of voting power to approve a specified amendment. CTIG's current
Certificate of Incorporation states that the corporation reserves the right to
amend the provisions of its Certificate of Incorporation by any means permitted
under the DGCL.
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After the Merger, CTIG's Amended Certificate of Incorporation will provide
that CTIG may amend its Certificate of Incorporation in any manner provided for
under the DGCL. However, the amended Certificate also states that, except for
amendments which are made as a result of acquisitions or capital raising, all
amendments to the Certificate of Incorporation shall require, prior to
submission, the affirmative vote of the Board of Directors, which vote must
contain the affirmative vote of at least one Class III Director.
Amendments to the Articles of Incorporation must be approved by the Board
of Directors and by, under most circumstances, a majority of the stockholder
votes entitled to vote on the amendment, by voting group or otherwise.
Action by Written Consent of Holders of Common Stock
The DGCL and IBCL both contain provisions permitting actions by holders of
common stock without providing notice and convening a meeting of such holders.
Centillion's Bylaws expressly permit any actions to be taken by stockholders
without a meeting, by written consent, provided such written consent sets forth
the actions taken and is signed by the holders of the minimum number of shares
required to take such actions at a meeting at which all shares entitled to vote
are present and voted. CTIG's Bylaws are silent with respect to consent of
Stockholders. Therefore, such action by consent is permitted by holders of CTIG
Common Stock.
Indemnification
The DGCL and IBCL both contain provisions setting forth conditions under
which a corporation may indemnify its directors, officers and employees. While
indemnification is permitted only if certain statutory standards of conduct are
met, the DGCL and the IBCL are substantially similar in providing for
indemnification if the person acted in good faith and in a manner the person
reasonably believed to be in or not opposed to the best interests of the
corporation and, with respect to any criminal action or proceeding, had no
reasonable cause to believe the conduct was unlawful. The statutes differ,
however, with respect to whether indemnification is permissive or mandatory.
Under the DGCL the indemnification of officers, directors and employees is
permissive. The one exception to the DGCL's permissive indemnification rule is
that a corporation must indemnify a person who is successful on the merits or
otherwise in the defense of certain specified actions, suits or proceedings for
expenses and attorneys' fees actually and reasonably incurred in connection
therewith. Although indemnification is permissive in Delaware, the DGCL allows a
corporation, through its certificate of incorporation, bylaws, or other
intracorporate agreements, to make indemnification mandatory. Pursuant to this
authority, CTIG's Certificate of Incorporation and Bylaws provide that CTIG will
indemnify its directors and officers to the fullest extent permitted by law.
Such indemnification will continue after the Merger.
Indemnification under the IBCL is also permissive. Centillion's
Certificate of Incorporation provides that the corporation shall indemnify a
director, officer, employee who is a party to a proceeding if the person's
conduct met certain standards. The person's reasonable expenses may be paid in
advance of a final disposition if the person gives a written undertaking to
repay the advance if so required under the IBCL. Under the IBCL the corporation
is required to indemnify a director, officer or employee who was wholly
successful in the defense of a proceeding.
Liability of Directors
Under the DGCL, a corporation's certificate of incorporation may contain a
provision limiting or eliminating a director's personal liability to the
corporation or its stockholders for monetary damages for a director's breach of
fiduciary duty subject to certain limitations. CTIG's Certificate of
Incorporation includes such a provision. Accordingly, under the DGCL and CTIG's
Certificate of Incorporation, a director shall not be personally liable to the
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corporation or its stockholders for monetary damages for breach of his or her
fiduciary duty as a director, provided that this indemnification shall not
eliminate or limit the liability of a director for any breach of the director's
duty of loyalty to the corporation or its stockholders, for acts or omissions
not in good faith or which involve intentional misconduct or a knowing violation
of law, under Section 174 of the DGCL, or for any transaction from which the
director derived an improper benefit.
Under the IBCL, a director is not liable for any actions taken as a
director, or any failure to take any actions unless the director has breached or
failed to perform the duties of the director's office and the breach or failure
to perform constitute wilful misconduct or recklessness. The director's duties
are to be performed (a) in good faith, (b) with the care an ordinarily prudent
person in a like position would exercise under similar circumstances, and (c) in
a manner the director reasonably believes to be in the best interests of the
corporation.
In considering the best interests of the corporation, directors may take
into account the effects of any action on stockholders, employees, suppliers,
and customers of the corporation and communities in which its offices or
facilities are located.
Stockholder Meetings
In accordance with CTIG's Bylaws, annual meetings of stockholders will be
held on such date as may be fixed by CTIG's Board of Directors, and special
meetings of stockholders may be called only by a majority of CTIG's Board of
Directors, by the Chairman of the Board, President, or stockholders representing
10% of the outstanding shares. Pursuant to Centillion's Bylaws, annual meetings
of stockholders will be held on such date as may be fixed by Centillion's Board
of Directors, and special meetings of stockholders may be called by the Board of
Directors, the Chairman of the Board, the Vice Chairman of the Board, the
President, the Chief Executive Officer, any member of the Board, or one or more
stockholders holding 25% or more of the votes entitled to be cast. The DGCL,
CTIG's Bylaws and Centillion's Bylaws require that whenever stockholders are
required or permitted to take action at a meeting, a notice stating the place,
time and date of the meeting and, in the case of a special meeting, the purpose
or purposes for which the meeting is called, must be sent to all stockholders of
record entitled to vote thereon not less than 10 nor more than 60 days before
the meeting. Under the DGCL, notice of a meeting to consider an agreement of
merger must be sent at least 20 days prior to the date of the meeting.
Mergers and Consolidations
In order to effect a merger under the DGCL, a corporation's board of
directors must adopt an agreement of merger and recommend it to the
stockholders. The agreement must be adopted by holders of a majority of the
outstanding shares of the corporation entitled to vote on such agreement.
Mergers under the IBCL require that a plan of merger be approved by the
directors and the stockholders. A majority of all Stockholder votes entitled to
vote is required to approve the plan of merger unless the Board of Directors
requires a greater vote or a vote by voting groups.
Business Combinations and Anti-Takeover Provisions
The DGCL bars a corporation which has securities traded on an exchange,
designated on the Nasdaq National Market or held of record by more than 2,000
stockholders from engaging in certain business combinations, including a merger,
sale of substantial assets, loan or substantial issuance of stock, with an
interested stockholder, or an interested stockholder's affiliates and
associates, for a three-year period beginning on the date the interested
stockholder acquires 15% or more of the outstanding voting stock of the
corporation. The restrictions on business combinations do not apply if (a) the
board of directors gives prior approval to the transaction in which the 15%
ownership level is exceeded, (b) the interested stockholder acquires at one time
at least 85% of the corporation's stock (excluding those shares owned by persons
who are directors and also officers as well as employee stock plans in which
employees do not have a confidential right to vote), or (c) the business
combination is approved by the board of directors and authorized at a meeting of
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stockholders by the holders of at least two-thirds of the outstanding voting
stock, excluding shares owned by the interested stockholder.
The IBCL contains certain provisions applicable to Indiana corporations
that may be deemed to have anti- takeover effect. The Indiana "Business
Combinations" provision protects "resident domestic corporations" against
hostile takeovers by prohibiting certain transactions once an acquirer has
gained control. The IBCL also contains a "Control Share Acquisitions" section
that provides for certain Stockholder approvals in connection with certain
acquisitions. However, because Centillion currently does not have more than one
hundred (100) stockholders of record, the "Business Combination" and "Control
Share Acquisitions" provisions of the IBCL do not currently apply to Centillion.
Dissenters' Rights
Under both the DGCL and the IBCL, stockholders may exercise a right of
dissent from certain corporate actions and obtain payment of the fair value of
their shares. This remedy is an exclusive remedy, except where the corporate
action involves fraud or illegality. Under the DGCL, dissenters' rights are
limited. Appraisal rights are available only in connection with certain
statutory mergers or consolidations, amendments to the certificate of
incorporation (if so provided in the certificate of incorporation), any merger
or consolidation in which the corporation is a constituent corporation, or sales
of all or substantially all of the assets of a corporation.
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PROPOSAL II
THE CELLTECH MERGER PROPOSAL
Background of the Celltech Merger
In mid-January of this year, during the final stages of the negotiations
of the Centillion Merger Agreement, CTIG was informed that its investment
bankers had been retained by a Houston, Texas-based company that specializes in
wireless telephone billing. Being familiar with CTIG's plans to develop a
convergent billing solution, the investment banker suggested that CTIG could
benefit from such an additional strategic acquisition.
In late January, prior to the signing of the Centillion Merger Agreement,
CTIG disclosed to Centillion the existence of this potential acquisition
opportunity. It was agreed between the parties that a representative from each
of CTIG and Centillion would visit Celltech in Houston on February 16, 2000,
conduct an evaluation of the suitability of this potential acquisition and
report their findings to the individuals who will comprise the Executive
Committee of the CTIG Board of Directors after the Centillion Merger.
On March 2, 2000, the Chairman and CEO of CTIG, accompanied by the two
Executive Committee Member Directors of Centillion, met with representatives of
Celltech. After substantial discussion, these parties reached a basis of
understanding for the acquisition of Celltech by the combined CTIG/Centillion
merged business entity subject to satisfactory due diligence and finalization of
certain economic terms and negotiations of a definitive merger agreement.
On March 7, 2000, CTIG received the necessary written consent from
Centillion under the Centillion Merger Agreement to conclude a merger agreement
with Celltech in accordance with the terms of a term sheet between CTIG and
Celltech dated March 6, 2000. Through March, 2000, the parties began a review of
definitive documentation and commenced a comprehensive due diligence review,
which process lasted until early April, 2000.
On April 5, 2000, Centillion reviewed the final draft of the proposed
merger agreement between CTIG and Celltech, and notified CTIG of its acceptance
of the final terms negotiated therein.
On April 5, 2000, CTIG management reviewed the terms of the Celltech
Merger and the Celltech Merger Agreement with its Board of Directors. After
receiving all documentation relating to the proposed merger, including the
assurances of acceptance from Centillion, the Board of Directors of CTIG
authorized the execution and delivery of the Celltech Merger Agreement.
Recommendation of the Board; Reasons for the Merger
The Celltech Merger Agreement provides that Celltech will be merged with,
and into CTIB, a wholly-owned subsidiary of CTIG, with CTIB remaining as the
surviving entity. Celltech stockholders, who collectively own 100% of the
outstanding stock of Celltech, will receive an aggregate of $262,599 in cash to
be distributed pro rata on a per share equivalent basis. The cash to be received
will be used to pay fees due Celltech's broker in this transaction.
Additionally, Celltech stockholders will receive 1,663,126 shares of CTIG Class
A Common Stock subject to adjustment ("Celltech Merger Stock") if any, as
follows: in the event that the average market price per share based on the 20
preceding trading days of the CTIG Class A Common Stock on the closing date is
greater than $3.00, to a maximum of $3.75, or below $3.00 to a minimum of $2.25,
then the number of shares of Celltech Merger Stock will be determined by
dividing $4,989,378 by such average market price per share; provided that in no
event will the Celltech Merger Stock be less than 1,330,501 shares nor more than
2,217,501 shares regardless of the average market price per share of CTIG Class
A Common Stock. Of the shares of CTIG Class A Stock to be issued to the Celltech
stockholders, 52.63% will be delivered at Closing, and 47.37% of the stock will
be placed in escrow. This escrowed stock may be released to current Celltech
stockholders in varying amounts based upon future revenues received over three
years from Celltech's largest customer. Any shares of CTIG Class A Stock which
are not issued to Celltech stockholders will be returned to CTIG and cancelled.
The Celltech Merger will only occur if the Centillion Merger is approved by CTIG
and Centillion stockholders, and is ultimately consummated.
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The CTIG Board of Directors believes that the terms of the Celltech Merger
are fair to, and in the best interests of, CTIG and its stockholders.
Accordingly, the CTIG Board of Directors has approved and adopted the Celltech
Merger Agreement and the transactions contemplated thereby and recommends its
approval and adoption by the stockholders of CTIG.
The CTIG Board of Directors believes that the Celltech Merger will enhance
CTIG's ability to pursue its convergent billing strategy. See "The Resulting
Company."
In reaching its determination to approve the Celltech Merger Agreement and
recommend approval of the Celltech Merger to the CTIG stockholders, the CTIG
Board of Directors considered the information presented to it by CTIG's
management, as well as CTIG's professional advisors, and weighed the positive
and countervailing factors associated with the Celltech Merger. The factors
considered by the CTIG Board of Directors included, without limitation:
(i) CTIG's Business. The CTIG Board of Directors considered historical
and prospective information concerning the financial condition,
results of operations and business of CTIG, including in
particular, the cash flow needs of the business and its current
cash position. The CTIG Board of Directors also considered the
current state (and its perception of the future state) of the
domestic and international telecommunications billing and billing
analysis industry and the economic and market conditions relating
to this industry.
(ii) Celltech Business. The CTIG Board of Directors considered the
operational, financial and legal due diligence materials provided
to it by CTIG's management and professional advisors concerning
Celltech. Such due diligence included historical and prospective
information regarding the results of operations, financial
condition and business of Celltech and the current state (and its
perception of the future state) of the telecommunications billing
and billing analysis industry, particularly in the wireless
segment.
(iii) Strategic Merits of the Celltech Merger. The CTIG Board of
Directors approved the Celltech Merger based upon its assessment of
the strategic merits of the Celltech Merger. The strategic merits
of the Celltech Merger, as assessed by the CTIG Board of Directors,
include, but are not limited to the fact that Celltech focuses on
the wireless marketplace including cellular, personal communication
services (PCS) and enhanced specialized mobile radio (ESMR). Its
domain knowledge skill, source code and industry expertise are
considered complementary to both CTIG and Centillion and should
enhance CTIG's deployment of its convergent billing strategy.
Furthermore, the combination should assist each company in
attracting new and retaining existing clients by being able to
offer immediate "cross market" complementary billing solutions and
a clearly defined product road map to true convergent billing
solutions.
(v) Structure of Merger; Terms of the Celltech Merger Agreement. The
CTIG Board of Directors considered the terms of the Celltech Merger
Agreement and its legal and tax implications. The CTIG Board of
Directors considered the number of shares of CTIG Class A Common
Stock which would be exchanged for the number of shares of Celltech
Stock. The CTIG Board of Directors considered that the Celltech
Merger is expected to be a tax free exchange by Celltech's
stockholders for federal income tax purposes. The Board also
considered that approximately 47% of Class A Common Stock to be
issued in the Celltech Merger will be held in escrow for three
years and released depending upon CTIG continuing to realize
revenue from Celltech's largest customer that accounts for
approximately 47% of its business.
(vi) Countervailing Considerations. The CTIG Board of Directors also
seriously considered certain factors which may be characterized as
countervailing considerations, including, but not limited to:
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(a) The risks inherent in attempting to successfully integrate the
management of CTIG and Celltech into an effective
organization;
(b) The possibility that key employees and members of the
management of CTIG may not be willing to stay on pending the
consummation of the Celltech Merger and, therefore, may leave
CTIG; and
(c) Approximately 47% of Celltech's gross revenues are derived
from a single customer. The contract between Celltech and this
customer expired on February 29, 2000 and is currently
continuing on a month-to-month basis. Celltech is seeking to
have this customer sign a new contract. Should this customer
terminate its relationship with Celltech, such revenues would
be difficult to replace.
The foregoing discussion of the information and factors considered and
given weight by the CTIG Board of Directors is not intended to be exhaustive but
is believed to include the material factors considered by the CTIG Board of
Directors. In addition, in reaching the determination to approve and recommend
approval and adoption of the Celltech Merger Agreement, in view of the wide
variety of factors considered in connection with its evaluation of the Celltech
Merger, the CTIG Board of Directors did not assign any relative or specific
weights to the foregoing factors. The CTIG Board of Directors did not attempt to
analyze the fairness of the number of shares being issued to Celltech
stockholders in isolation from the considerations as to the businesses of CTIG
and Celltech, the strategic merits of the Celltech Merger or the other
considerations referred to above.
THE CTIG BOARD OF DIRECTORS HAS UNANIMOUSLY APPROVED THE CELLTECH MERGER
AGREEMENT AND THE TRANSACTIONS CONTEMPLATED THEREBY AND BELIEVES THAT THE TERMS
OF THE CELLTECH MERGER ARE FAIR TO, AND IN THE BEST INTERESTS OF, CTIG AND ITS
STOCKHOLDERS. THE CTIG BOARD OF DIRECTORS RECOMMENDS A VOTE FOR APPROVAL AND
ADOPTION OF THE CELLTECH MERGER AGREEMENT.
Accounting Treatment of the Celltech Merger
It is anticipated that the Celltech Merger will be accounted for as a
purchase for accounting purposes. Under this method of accounting, the assets
and liabilities of Celltech will be recorded by CTIG at their estimated fair
market value and the remaining purchase price will be recorded as goodwill. For
more information, see the notes to the Unaudited Pro Forma Combined Condensed
Financial Information beginning on page ___.
Certain Federal Income Tax Consequences
The following discussion summarizes the material income tax consequences
of the Celltech Merger that are generally applicable to CTIG, holders of CTIG
Common Stock, Celltech and the holders of Celltech Common Stock. This discussion
is based on currently existing provisions of the Code, existing and proposed
Treasury Regulations thereunder and the current administrative rulings and court
decisions, all of which are subject to change. Any such change, which may or may
not be retroactive, could alter the tax consequences to CTIG, CTIG's
stockholders, Celltech or Celltech's stockholders, as described herein.
The following discussions do not purport to deal with all aspects of
Federal income taxation that may affect particular stockholders in light of
their individual circumstances, and is not intended for stockholders subject to
special treatment under the Federal income tax law (including insurance
companies, tax-exempt organizations, financial institutions, broker-dealers,
foreign persons, stockholders who hold their stock as part of a hedge,
appreciated financial position, straddle or conversion transaction, stockholders
who do not hold their stock as capital assets and stockholders who have acquired
their stock upon the exercise of employee options or otherwise as compensation).
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In addition, the discussion does not consider the effect of any applicable
state, local or foreign tax laws. ACCORDINGLY, CTIG AND CELLTECH STOCKHOLDERS
ARE URGED TO CONSULT THEIR OWN TAX ADVISORS AS TO THE SPECIFIC CONSEQUENCES OF
THE CELLTECH MERGER TO THEM, INCLUDING THE APPLICABLE FEDERAL, STATE, LOCAL AND
FOREIGN TAX CONSEQUENCES OF THE CELLTECH MERGER IN THEIR PARTICULAR
CIRCUMSTANCES. THE DISCUSSION SET FORTH BELOW IS INCLUDED FOR GENERAL
INFORMATION ONLY AND IS NOT INTENDED AND SHOULD NOT BE CONSIDERED TAX ADVICE.
Neither CTIG nor Celltech has requested , or will request, a ruling from
the IRS with regard to any of the federal income tax consequences of the
Celltech Merger. As a condition to CTIG's and Celltech's obligation to
consummate the Celltech Merger, since the date of the Celltech Merger Agreement,
there shall not have been any changes in the facts, circumstances or applicable
federal tax laws that would negatively impact the treatment of the Celltech
Merger for federal income tax purposes as a tax-free reorganization within the
meaning of Section 368(a) of the Code.
Treatment Of CTIG. No income, gain or loss will be recognized by CTIG upon
the consummation of the Celltech Merger. Accordingly, no income, gain or loss
will be recognized for federal income tax purposes by CTIG upon the issuance of
the Class A Common Stock to the Celltech shareholders in exchange for all of the
issued and outstanding Common Stock of Celltech.
Treatment Of Holders of CTIG Common Stock. No income, gain or loss will be
recognized by the holders of CTIG Common Stock upon the consummation of the
Celltech Merger. Accordingly, no income, gain or loss will be recognized for
federal income tax purposes by the holders of CTIG Common Stock upon CTIG's
issuance of the Class A Common Stock to the Celltech shareholders in exchange
for all of the issued and outstanding Common Stock of Celltech.
Treatment Of Holders Of Celltech Common Stock. A shareholder of Celltech
who exchanges Celltech common shares for CTIG common shares will have a holding
period and tax basis in his CTIG common shares equal to his holding period and
tax basis in his exchanged Celltech shares.
Cash In Lieu Of Fractional Shares. Gain or loss will be recognized with
respect to cash received in lieu of fractional shares.
Net Operating Loss Limitations. For a discussion of limitations on the use
of CTIG's net operating losses, see "Risk Factors-- Risks Relating to the
Celltech Merger."
Reporting Requirements and Backup Withholding. Each holder of Celltech
Common Stock receiving CTIG Class A Common Stock as a result of the Celltech
Merger will be required to retain certain records and file with its Federal
income tax return a statement setting forth certain facts relating to the
Celltech Merger.
Backup withholding at the rate of 31% may apply with respect to certain
payments unless the recipient (i) is a corporation or comes within certain other
exempt categories and, when required, demonstrates this fact or (ii) provides a
correct taxpayer identification number, certifies as to no loss of exemption
from backup withholding and otherwise complies with applicable requirements of
the backup withholding rules. A stockholder who does not provide CTIG with its
correct taxpayer identification number may be subject to penalties imposed by
the IRS. Any amounts withheld under the backup withholding rules may be allowed
as a refund or a credit against the stockholder's federal income tax liability
provided that certain required information is furnished to the IRS.
CTIG will report to stockholders of CTIG and to the IRS the amount of
"reportable payments" and any amount withheld with respect to CTIG Class A
Common Stock.
EACH HOLDER OF CTIG COMMON STOCK AND CELLTECH COMMON STOCK IS URGED TO
CONSULT ITS OWN TAX ADVISOR WITH RESPECT TO THE TAX CONSEQUENCES OF THE
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CELLTECH MERGER, INCLUDING THE APPLICABILITY AND EFFECT OF STATE, LOCAL OR
FOREIGN TAX LAWS.
Appraisal Rights
CTIG Common Stock. Holders of CTIG Common Stock who do not vote for the
approval and adoption of the Celltech Merger Agreement at the CTIG Special
Meeting and who otherwise comply with the applicable statutory procedures of
Section 262 of the Delaware General Corporation Law ("DGCL") summarized herein
may be entitled to appraisal rights under Section 262. In order to exercise and
perfect appraisal rights, the record holder of CTIG Common Stock must follow the
steps summarized below properly and in a timely manner. A person having a
beneficial interest in shares of CTIG Common Stock held of record in the name of
another person, such as a broker or nominee, must act promptly to cause the
record holder to follow the steps summarized below properly and in a timely
manner to perfect appraisal rights. For a summary of these appraisal rights, see
Proposal I - The Centillion Merger - Appraisal Rights.
Section 262 of the DGCL is reprinted in its entirety as Annex G to this
Joint Proxy Statement/ Prospectus. Set forth below is a summary description of
Section 262. The following summary is not a complete statement of the law
relating to appraisal rights and is qualified in its entirety by reference to
Annex G. All references in Section 262 and this summary to "Holder" are to the
record holder of the shares of CTIG Common Stock immediately prior to the
Effective Time as to which appraisal rights are asserted. Failure to comply
strictly with the procedures set forth in Section 262 of the DGCL will result in
the loss of appraisal rights.
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THE CELLTECH MERGER AGREEMENT
The following is a summary of the material terms of the Celltech Merger
Agreement, a copy of which is attached as Annex I to this Joint Proxy
Statement/Prospectus and is incorporated herein by reference. Such summary is
qualified in its entirety by reference to the Celltech Merger Agreement. Holders
of CTIG Common Stock, Centillion Common Stock and Celltech Common Stock are
urged to read the Celltech Merger Agreement in its entirety for a more complete
description of the terms and conditions of the Celltech Merger.
The Merger
The Celltech Merger Agreement provides that, following the approval of the
Celltech Merger by the holders of CTIG Common Stock and the holders of Celltech
Common Stock and the satisfaction or waiver of the other conditions to the
Celltech Merger, Celltech will merge with, and into, CTIB, a subsidiary of CTIG,
with CTIB becoming the surviving corporation. The holders of Celltech Common
Stock will become holders of CTIG Class A Common Stock.
If the Merger Agreement is approved by a majority of the holders of CTIG
Common Stock and Celltech Common Stock, and the other conditions to the Merger
are satisfied or waived, the Closing will take place no later than two business
days following the date on which the last of the conditions is satisfied or
waived, or at such other time and date to which CTIG and Celltech mutually
agree. As soon as practical after the closing date, CTIG and Celltech will cause
a Certificate of Merger to be filed with the Secretary of State of the State of
Delaware as provided in Section 251of the DGCL. The Celltech Merger will become
effective upon the filing of such Certificate of Merger (the "Celltech Effective
Time"). Subject to the satisfaction (or waiver) of the other conditions to the
obligations of CTIG and Celltech to consummate the Merger, it is presently
expected that the Celltech Merger will be consummated during the second calendar
quarter of 2000. See "The Celltech Merger Agreement -- Conditions to Obligations
to Effect the Merger."
All Celltech stockholders are parties to the Celltech Merger Agreement and
have agreed to vote their shares of Celltech Common Stock in favor of the
Celltech Merger.
Conversion and Issuance of Shares
Shares Issued at Effective Time. The Celltech Merger Agreement provides
that the Celltech Merger will be effected by the merger of Celltech with and
into CTIB, with CTIB being the Surviving Corporation.
At the Effective Time, all issued and outstanding Celltech Common Stock
will be converted pro rata, into
(1) the right to receive an aggregate $262,599
(2) 1,663,126 shares of CTIG Class A Common Stock, subject to adjustment
if any ("Celltech Merger Stock"), as follows: in the event that the
average market price per share (based on the 20 preceding trading
days) of the CTIG Class A Common stock on the closing date is greater
than $3.00, to a maximum of $3.75, or below $3.00 to a minimum of
$2.25, then the number of shares of Celltech Merger Stock will be
determined by dividing $4,989,378 by such average market price per
share; provided that in no event will the Celltech Merger Stock be
less than 1,330,501 shares nor more than 2,217,501 shares regardless
of the average market price per share of CTIG Class A Common stock.
Of the shares of Celltech Merger Stock, 52.63% will be delivered to
Celltech stockholders at Closing, and 47.37% will be placed in escrow (the
"Celltech Escrowed Stock"). The Celltech Escrowed Stock may be released to
current Celltech stockholders in varying amounts based upon future revenues
received over a three year period from Celltech's largest customer. Any shares
of Celltech Escrowed Stock which are not issued to Celltech stockholders will be
returned to CTIG and cancelled.
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The Celltech stockholders have assigned their right to receive the cash
portion of the merger consideration to PASCO Business Trust, the broker retained
by Celltech in connection with the Celltech Merger, to pay the broker fee.
No shares of CTIG Class B Common Stock will be issued in the Celltech
Merger.
Escrowed Class A Common Stock. The release of the Celltech Escrowed Stock
depends upon revenues received from Celltech's largest customer as follows:
Fifty percent of the Celltech Escrowed Stock will be subject to release during
the first Escrow Year, 35% during the second Escrow Year and the final 15%
during the third Escrow Year. For purposes of the Celltech Merger Agreement, an
"Escrow Year" means each of the first three consecutive 12 calendar month
periods commencing on March 1, 2000 and ending on February 28, 2003, and an
"Escrow Quarter" means each of the three consecutive calendar month periods
within a respective Escrow Year. In the event gross revenues received from the
customer, less a portion of the revenue attributed to postage ("Celltech Target
Revenue"), equals or exceeds $645,652 in any Escrow Quarter, then 25% of the
Celltech Escrowed Stock that is subject to release in the Escrow Year in which
such Escrow Quarter occurs shall be released from escrow to the Celltech
stockholders. If the Celltech Target Revenue in an Escrow Quarter is less than
$645,652, then a pro rata portion (based upon the ratio of such actual Revenue
to $645,652) of the full number that would potentially be subject to release in
such Escrow Quarter shall be released. If at the end of the third Escrow Year
the proportion that all Celltech Escrowed Stock previously released from escrow
bears to the total Celltech Escrowed Stock placed in escrow is less than the
proportion that the aggregate Celltech Target Revenue received during all three
Celltech Escrow Years bears to $7,747,821, then an additional number of shares
of Celltech Escrowed Stock shall be released to the Celltech stockholders in
order to eliminate such difference to a maximum of the total Escrowed Stock
remaining in escrow; provided that CTIG shall not issue any shares of CTIG Class
A Common Stock in excess of the number originally placed in escrow as Celltech
Escrowed Stock, regardless of the amount of such aggregate Celltech Target
Revenue.
If at any time prior to the end of the third Escrow Year, CTIG sells or
licenses software to this target customer that replaces the software that has
produced the gross revenue received by Celltech from this customer, resulting in
a reduction or elimination of that customer's revenue, then any shares of
Celltech Escrowed Stock then remaining in escrow shall be released to the
Celltech stockholders.
All releases of Celltech Escrowed Stock from escrow to the Celltech
stockholders shall be made in the same proportions to Celltech stockholders as
the Closing Stock was distributed. No fractional shares or scrip representing
shares of the Celltech Escrowed Stock shall be issued. If at anytime during any
Escrow Year, the customer discontinues its relationship with the Surviving
Corporation, then all Celltech Escrowed Stock then in escrow shall be returned
to CTIG and cancelled, and no additional shares of CTIG Class A Common Stock
shall be subject to issue to the Celltech stockholders.
Based upon the number of shares of CTIG Common Stock outstanding on the
record date for the CTIG Special Meeting, the number of shares of Celltech
Common Stock outstanding, and the conversion described above, at the Celltech
effective time CTIG's current stockholders, Centillion's stockholders and
Celltech's stockholders will own approximately 31.4%, 60.1% and 8.4%
respectively, of CTIG's issued and outstanding Common Stock after the Celltech
Merger.
Exchange Of Stock Certificates
As soon as reasonably practicable after the Celltech Merger effective
time, CTIG will have its appointed exchange agent mail to each holder of
Celltech Common Stock (i) a transmittal letter stating that certificates
representing CTIG Class A Common Stock will be sent to holders of Celltech
Common Stock only upon delivery of Celltech stockholder's stock certificates to
the exchange agent, and (ii) instructions for holders of shares of Celltech
Common Stock to exchange their certificates for the applicable shares of CTIG
Class A Common Stock. Upon surrender of Celltech Common Stock certificates to
the exchange agent together with the transmittal letter completed and executed
by a Celltech stockholder, a Celltech stockholder will receive the whole number
of the shares of CTIG Class A that the holder has the right to receive, and (B)
a check in the amount equal to the cash that the holder has the right to receive
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in lieu of any fractional shares. The Celltech share certificates surrendered
will be canceled. No interest will be paid or will accrue on any cash payable
for fractional shares.
No Further Ownership Rights In Celltech Common Stock. All shares of CTIG
Class A Common Stock (and cash in lieu of fractional shares) issued upon the
surrender for exchange of certificates which immediately prior to the Celltech
Merger effective time represented shares of Celltech Common Stock will be deemed
to have been issued (and paid) in full satisfaction of all rights pertaining to
the shares of Celltech Common Stock represented by those certificates.
Fractional Shares. No fractional shares of CTIG Common Stock will be
issued in the Celltech Merger. In lieu of any fractional shares, each holder of
shares of Celltech Common Stock outstanding immediately prior to the Celltech
Merger effective time exchanged pursuant to the Celltech Merger who would
otherwise have been entitled to receive a fraction of a share of CTIG Class A
(after taking into account all certificates representing shares of Celltech
Common Stock delivered by the holder) will receive, in lieu thereof, cash
(without interest) in an amount equal to such fractional part of a share of CTIG
Common Stock multiplied by the per share average market price (based on a 20
business day market price average) for CTIG Class A Common Stock.
Dividends and Distributions. No dividends or other distributions declared
or made with respect to CTIG Class A Common Stock with a record date after the
Effective Time will be paid to the holder of any unsurrendered Celltech Common
Stock certificate with respect to the shares of CTIG Class A Common Stock that
the holder would be entitled to receive upon surrender of such certificate, and
no cash payment in lieu of fractional shares will be paid to any such holder
until the holder of record of such certificate surrenders such certificate to
CTIG.
No Liability. None of CTIG, Celltech, or the Exchange Agent will be liable
to any third party for any shares of CTIG Class A Common Stock (or cash in lieu
of fractional shares of CTIG Class A Common Stock or any dividends or
distributions with respect thereto) delivered to a public official pursuant to
any applicable abandoned property, escheat or similar law.
Lost Certificates. If any certificate which prior to the Effective Time
represented shares of Celltech Common Stock shall have been lost, stolen or
destroyed, then upon the making of an affidavit of that fact by the person
claiming the certificate to be lost, stolen or destroyed and, if required by
CTIG, the posting of a bond as indemnity against any claim that may be made
against it with respect to such certificate, the Exchange Agent will issue in
exchange for the lost, stolen or destroyed certificate the shares of CTIG Class
A Common Stock, and any cash in lieu of fractional shares and unpaid dividends
and distributions on shares of CTIG Class A Common Stock otherwise deliverable
in respect thereof.
HOLDERS OF CELLTECH COMMON STOCK SHOULD NOT SEND IN THEIR CERTIFICATES
UNTIL THEY RECEIVE A TRANSMITTAL FORM FROM AMERICAN STOCK TRANSFER, THE EXCHANGE
AGENT.
Representations and Warranties
The Celltech Merger Agreement contains various customary representations
and warranties by Celltech, subject to identified exceptions, relating to, among
other things, (a) due organization, valid existence and good standing and
certain similar corporate matters; (b) the capital structure of Celltech; (c)
the authorization, execution, delivery and enforceability of the Celltech Merger
Agreement and related documents, and the consummation of the transactions
contemplated by the Celltech Merger Agreement and related documents and matters;
(d) conflicts under Certificate of Incorporations or by-laws, required consents
or approvals and violations of any instruments or law; (e) documents and
financial statements of Celltech and the accuracy of information contained
therein; (f) the absence of undisclosed liabilities; (g) the absence of certain
material adverse events, changes or events; (h) taxes and tax returns; (i)
properties; (j) intellectual property; (k) agreements, contracts and
commitments; (l) legal proceedings; (m) environmental matters and hazardous
materials; (n) employees, independent contractors and labor matters; (o)
employee benefit plans; (p) compliance with laws and permits; (q) the accuracy
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of information supplied by Celltech in connection with the registration
statement to be filed by CTIG in connection with the issuance of the CTIG Class
A Common Stock and this Joint Proxy Statement/Prospectus; (r) insurance; (s)
conflicts of interest; (t) broker's fees; (u) principal customers and suppliers;
(v) accounts receivable; and (w) amount of revenue previously received from
Celltech's largest customer.
The Celltech Merger Agreement also contains various customary
representations and warranties by the Celltech stockholders relating to, among
other things, (a) their ownership of Celltech Common Stock; (b) the execution,
delivery and enforceability of the Celltech Merger Agreement against them, the
consummation of the transactions contemplated by the Celltech Merger Agreement,
and violations of any agreements, instruments or law; (c) the absence of any
claims by them against Celltech as of the date of the Celltech Merger Agreement;
and (d) their agreement to vote in favor of the Celltech Merger at a
stockholders' meeting.
Finally, the Celltech Merger Agreement contains various customary
representations and warranties by CTIG and CTIB relating to, among other things
(a) due organization, valid existence and good standing; (b) the authorization,
execution, delivery and enforceability of the Celltech Merger Agreement and
related documents, and the consummation of the transactions contemplated by the
Celltech Merger Agreement and related documents and matters; (c) conflicts under
their respective Certificates of Incorporation or bylaws, required consents or
approvals and violations of any instruments of law; (d) legal proceedings; (e)
the accuracy of information supplied in connection with the registration
statement to be filed by CTIG in connection with the issuance of the CTIG Class
A Common Stock and this Joint Proxy Statement/Prospectus; (f) broker's fees; (g)
capitalization of CTIB; (g) SEC filings and reports of CTIG; and (h)
authorization and issuance of the Celltech Merger Stock.
Certain Covenants
Conduct of Business. The Celltech Merger Agreement provides that Celltech
has agreed that, during the period from the date of the signing of the Celltech
Merger Agreement until the Effective Time, except as contemplated by the
Celltech Merger Agreement, it will not: (a) amend its certificate of
incorporation or by-laws; authorize for issuance, issue, sell, deliver, grant
any options for, or otherwise agree or commit to issue, sell or deliver any
shares of any class of its capital stock or any securities convertible into
shares of any class of its capital stock; (b) split, combine or reclassify any
shares of its capital stock, declare, set aside or pay any dividend or other
distribution (whether in cash, stock or property or any combination thereof) in
respect of its capital stock or purchase, redeem or otherwise acquire any shares
of its capital stock; (c) create, incur, assume, maintain or permit to exist any
long-term debt or any short-term debt for borrowed money other than under
existing lines of credit or replacements thereof, or the negotiation of a
capital lease or buy-out agreement with Pitney Bowes at the expiration of the
current lease for a mail-inserter machine; (d) assume, guarantee, endorse or
otherwise become liable or responsible (whether directly, contingently or
otherwise) for the obligations of any third party, or (e) make any loans,
advances or capital contributions to, or investments in, any third party; (f)
increase in any manner the compensation of any of its directors, officers or
other employees (other than regularly scheduled raises for employees other than
David A. Warren, Celltech's principal stockholder), or pay any bonuses to any
director or officer or to Mr. Warren; (g) pay or agree to pay any pension,
retirement allowance or other employee benefit not required, or enter into or
agree to enter into any agreement or arrangement with such director, officer or
employee, whether past or present, relating to any such pension, retirement
allowance or other employee benefit except as required under currently existing
agreements, plans or arrangements; (h) grant any severance or termination pay
to, or enter into any employment or severance agreement with, any of its
directors, officers or other employees; or (i) except as may be required to
comply with applicable law, become obligated under any new pension plan, welfare
plan, multi-employer plan, employee benefit plan, benefit arrangement, or
similar plan or arrangement, which was not in existence on the date hereof,
including any bonus, incentive, deferred compensation, stock purchase, stock
option, stock appreciation right, group insurance, severance pay, retirement or
other benefit plan, agreement or arrangement, or employment or consulting
agreement with or for the benefit of any third party, or amend any of such plans
or any of such agreements in existence on the date hereof; (j) except as
otherwise expressly contemplated by the Celltech Merger Agreement, enter into
any material agreements, commitments or contracts, except agreements,
commitments or contracts for the purchase, sale or lease of goods or services in
the ordinary course of business, consistent with past practices; provided that
Celltech shall not enter into any agreement, commitment or contract that
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requires payments by Celltech in excess of $50,000 without the prior written
consent of CTIG, which shall not be unreasonably withheld; (k) authorize,
recommend, propose or announce an intention to authorize, recommend or propose,
or enter into, any agreement in principle or any agreement with respect to any
plan of liquidation or dissolution, any sale, transfer, lease, license, pledge,
mortgage, or other disposition or encumbrance of a material amount of assets or
securities or any change in its capitalization, or any entry into a material
contract or any amendment or modification of any material contract or any
release or relinquishment of any material contract rights; (l) acquire or agree
to acquire by merging or consolidating with, or by purchasing a substantial
equity interest in or all or a substantial portion of the assets of, or by any
other manner, any business or any corporation, partnership, association or other
business organization or division thereof, or enter into any new material line
of business outside its existing core businesses; (m) knowingly undertake any
act, or suffer to exist any condition, causing any insurance policy naming it as
a beneficiary or a loss payee to be canceled or terminated; (n) take any action
that would, or could reasonably be expected to, result in any of the conditions
to the Celltech Merger Agreement (other than those exclusively in CTIG's
control) not being satisfied or a material delay in the satisfaction of such
conditions; (o) make any material change in its methods of accounting in effect
at December 31, 1999, except as required by changes in GAAP as concurred in by
its independent auditors, or change its fiscal year; (p) take any action that
would cause its representations and warranties to no longer be true and correct;
(q) commit to any capital expenditures, other than those incurred or committed
in the ordinary course of business and which are not in excess of $15,000,
individually or $50,000 in the aggregate; or (o) agree to do or authorize any of
the foregoing.
No Solicitation. The Celltech Merger Agreement provides that Celltech and
Mr. Warren, jointly and severally represent and warrant to, and covenant and
agree with, CTIG and CTIB that Celltech does not have any agreement, arrangement
or understanding with any other potential acquiror. Celltech and each Celltech
stockholder further represent and warrant that from and after the date of the
Celltech Merger Agreement and until the earlier of the consummation of the
Celltech Merger or the termination of the Celltech Merger Agreement, they shall,
and Celltech and Mr. Warren shall cause Celltech's officers, directors,
advisors, investment bankers, agents and attorneys to (a) not solicit (or
authorize any third party to solicit), directly or indirectly, any inquiries,
proposals or offers from any third party relating to any acquisition or purchase
of all or substantially all the assets of, or any equity interest in, or any
merger, consolidation or business combination with Celltech, (b) not enter into
any agreement with respect to any such transaction, and (c) not elicit any
discussions of, participate in any negotiations regarding, cooperate with,
facilitate or encourage such a transaction or furnish to any other third party
any information concerning Celltech in connection with any such transaction.
Celltech shall immediately notify CTIG if any unsolicited proposal or offer with
respect to such transaction is received by Celltech and communicate to CTIG the
terms of any such proposal or offer.
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Preparation of Form S-4; Stockholders Meeting. As promptly as practicable
following the date of the Celltech Merger Agreement, CTIG agrees to prepare and
file with the SEC a Registration Statement on Form S-4 with respect to the
issuance of the Celltech Merger Stock (the "Form S-4"). The Form S-4 shall also
register the Escrowed Stock on a "shelf" basis until the first of the following
to occur: (a) April 30, 2003, (b) the release to Celltech and/or return to CTIG
of all Escrowed Stock pursuant as provided in the Celltech Merger Agreement, or
(c) the longest period allowed by law, regulation or the SEC. The Form S-4 and
Prospectus contained within it is to comply as to form in all material respects
with the applicable provisions of the Securities Act and the Exchange Act. CTIG
shall use all reasonable efforts to have the Form S-4 declared effective under
the Securities Act as promptly as practicable after filing with the SEC and to
keep the Form S-4 effective as long as is necessary to consummate the Merger.
The parties shall promptly provide copies to and consult with each other and
prepare written responses with respect to any written comments received from the
SEC with respect to the Form S-4 and the Prospectus and promptly advise the
other party of any oral comments received from the SEC. CTIG agrees that none of
the information supplied or to be supplied by CTIG for inclusion or
incorporation by reference in the Prospectus and each amendment or supplement
thereto, at the time of mailing thereof and at the time of CTIG Special Meeting,
will contain an untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary to make the statements therein,
in light of the circumstances under which they were made, not misleading.
Celltech agrees that none of the information supplied or to be supplied by
Celltech for inclusion or incorporation by reference in the Prospectus and each
amendment or supplement thereto, at the time of mailing thereof and at the time
of the CTIG Special Meeting will contain an untrue statement of a material fact
or omit to state a material fact required to be stated therein or necessary to
make the statements therein, in light of the circumstances under which they were
made, not misleading.
Merger with Centillion Data Systems, Inc. The Celltech Merger Agreement
requires that the Centillion Merger must occur prior to the Celltech Merger.
Stock Option and Benefit Plans. At the Effective Time, the CTIG Stock
Option and Restricted Stock Plan and any benefit plans in effect at the time
will cover employees of Celltech who become employees of CTIG after the Celltech
Merger.
Indemnifications. For a period of one year after the Effective Time,
subject to certain conditions contained in the Celltech Merger Agreement, David
A. Warren will indemnify and hold harmless CTIG and CTIB against all losses,
claims, damages, liabilities and expenses resulting from a material breach of
the Celltech Merger Agreement or any related documents, any material error
contained in any statement or document delivered to CTIG or CTIB in connection
with the Merger, any claim, debt or obligation of Celltech or Mr. Warren
incurred prior to the Effective Time (with certain limited exceptions specified
in the Celltech Merger Agreement), any claims made by current or former
stockholders of Celltech, and claims made by any governmental entity.
Damages due CTIG or CTIB as a result of this indemnification shall first
be paid by Mr. Warren by reducing the number of shares of Celltech Escrowed
Stock he would have otherwise received. In the event that the amount of damages
exceeds the value of such Celltech Escrowed Stock, such excess shall be paid in
cash. Any cash payment is not to exceed $500,000 in the aggregate (unless it is
caused by a claim made by Celltech stockholders), and the total indemnification
liability of Mr. Warren shall not exceed the value of the Celltech merger
consideration to be received by Mr. Warren.
Conditions to Obligations to Effect the Celltech Merger
The respective obligations of CTIG and Celltech to effect the Celltech
Merger are subject to the satisfaction (or waiver) of the following conditions:
(a) the Celltech Merger Agreement and the Celltech Merger shall have been
approved in the manner required under the Delaware General Corporation Law by
the respective holders of the issued and outstanding shares of capital stock of
CTIG and Celltech; (b) the Merger will not be prohibited by any order, judgment
or ruling of any court or other governmental entity; (c) the Centillion Merger
shall have occurred; (d) the employment agreement with David A. Warren must be
executed; (e) Celltech shall have delivered to CTIG all required third party
consents; (f) Celltech shall have delivered to CTIG general releases from the
Celltech stockholders, all
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Celltech directors and a third party with which it had been engaged in
litigation that was settled prior to the date of the Celltech Merger Agreement;
(g) the representations and warranties made by each of Celltech and CTIG are
true and correct as of the Effective Time and each party shall have performed
their respective obligations under the Celltech Merger Agreement; (h) the
adjusted balance sheet of Celltech, on and as of the Effective Time (which shall
be certified by Celltech's President) must reflect: (1) net current assets
(i.e., current assets over current liabilities) of not less than $1.00; (2) no
long term liabilities other than deferred taxes; (3) all earnings of Celltech
for the period from January 1, 2000 to the Effective Time; and (i) there must
not have been any material adverse change in Celltech's business operations,
assets, financial condition or results of operation.
Termination; Termination Fees and Expenses
The Merger Agreement may be terminated at any time prior to the Effective
Time by CTIG or Celltech:
(a) by the mutual written consent of the Boards of Directors of Celltech
and CTIG;
(b) by either CTIG or Celltech if, without a material breach of the
Celltech Agreement by such terminating party, the Celltech Merger
shall not have been consummated on or before September 30, 2000,
which date may be extended by mutual written consent of CTIG and
Celltech; or
(c) by either CTIG or Celltech, if any court of competent jurisdiction in
the United States or other Governmental Entity shall have issued an
order (other than a temporary restraining order), decree or ruling or
taken any other action restraining, enjoining or otherwise
prohibiting the Merger, and such order, decree, ruling or other
action shall have become final and nonappealable; provided that the
party seeking to terminate this Agreement shall have used all
commercially reasonable efforts to remove or lift such order, decree
or ruling; or
(d) if a Special Meeting is required by applicable law, by either CTIG if
the approval of CTIG's stockholders required for the consummation
shall not have been obtained.
The Celltech Merger Agreement may be terminated at any time prior to the
Effective Time by CTIG if Celltech or David A. Warren fail to comply in any
material respect with their respective obligations under the Celltech Merger
Agreement, there is a material breach of a representation or warranty made by
Celltech or a Celltech Stockholder in the Celltech Merger Agreement or Celltech
fails to deliver audited financial statements for its last two fiscal years to
CTIG.
The Celltech Merger Agreement may be terminated at any time prior to the
Effective Time by Celltech if CTIG or CTIB fails to comply in any material
respect with their respective obligations under the Celltech Merger Agreement,
or if there is a material breach of a representation or warranty made by CTIG or
CTIB in the Celltech Merger Agreement.
Amendment and Waiver
The Celltech Merger Agreement may be amended by CTIG and Celltech at any
time before or after any approval of the Agreement by the stockholders of CTIG
and/or Celltech. However, after any such approval, no amendment may be made
which decreases the amount of consideration that Celltech stockholders will be
receiving under the Celltech Merger, or adversely affects the rights of
Celltech's stockholders without the approval of all of the holders of common
stock of Celltech. The Celltech Merger Agreement may only be amended by an
instrument in writing signed on behalf of all the parties.
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Comparison of Shareholder Rights
Upon completion of the Celltech Merger, Celltech stockholders will become
holders of CTIG Class A Stock. As a result, the rights of the holders of CTIG
Class A Stock will be governed by the CTIG Certificate of Incorporation, and the
Amended and Restated Bylaws of CTIG and by Delaware law. See "Comparison of
Rights of Holders of Celltech Common Stock and CTIG Common Stock" for a summary
of the material differences between the rights of holders of Celltech Common
Stock and CTIG Common Stock.
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COMPARISON OF RIGHTS OF HOLDERS OF CELLTECH STOCK PRIOR TO THE MERGER
AND CTIG CLASS A COMMON STOCK AFTER THE MERGER
The following is a summary of the material differences between the rights
of holders of Celltech Common Stock before the Celltech Merger and the rights of
holders of CTIG Class A Common Stock after the Celltech Merger. Because Celltech
and CTIG are both organized under the laws of the State of Delaware, the
differences arise solely from differences between various provisions of their
respective Certificates of Incorporation and Bylaws.
The discussion of the comparative rights of the stockholders of Celltech
and CTIG set forth below does not purport to be complete and is subject to and
qualified in its entirety by reference to the Certificates of Incorporation and
Bylaws of Celltech and CTIG.
Authorized Capital
CTIG's authorized capital prior to the Celltech Merger consists of
50,000,000 shares of common stock with a par value of $0.01 per share.
Celltech's authorized capital consists of 3,000 shares of common stock with no
par value . After the Celltech Merger CTIG's authorized capital will consist of
50,000,000 shares of common stock of which 46,500,000 will be designated Class A
Common Stock, having a par value of $0.01 per share, and 3,500,000 shares of
Class B Common Stock, having a par value of $0.01 per share.
Shares of Class B Common Stock are convertible into shares of Class A
Common Stock under certain conditions as described in "The Centillion Merger
Agreement- Conversion and Issuance of Shares- Class B Common Stock."
After the Merger, shares of CTIG Class A Common Stock will have
liquidation and voting rights as outlined in "Description of CTIG Common Stock."
Only shares of CTIG Class A Common Stock will be issued to Celltech stockholders
in the Celltech Merger.
Number of Directors
The DGCL provides that the board of directors of a Delaware corporation
will consist of one or more directors as fixed by the certificate of
incorporation or bylaws. CTIG's Bylaws provide that the Board of Directors shall
consist of that number of Directors as determined by standing resolution of the
Board, but may not be less than three. Celltech's Bylaws provide that the Board
of Directors of Celltech shall consist of one director, which number may be
increased by the standing Board of Directors. Currently, there is one member of
the Board of Directors of Celltech, and five members of the Board of Directors
of CTIG.
CTIG's Bylaws after the Centillion Merger provide for seven directors,
four of whom will initially be designated by Centillion, and three of whom will
be designated by CTIG. For more information on the structure of the Board of
Directors of CTIG after the Centillion Merger, see "Approval of Amendments to
CTIG's Certificate of Incorporation - Restructure of Board of Directors."
Committees of the Board
Both Celltech's and CTIG's Bylaws provide for the respective Board of
Directors to designate committees as they deem necessary or desirable. The
provisions of Celltech's Bylaws are substantially similar to those of CTIG's
Bylaws, except that Celltech's Bylaws require any committee to consist of at
least three members of the standing Board of Directors.
CTIG's Bylaws do not provide for such restriction, and state that the
Board of CTIG, in designating committees, is limited only to the extent provided
for under the DGCL.
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Removal of Directors
The DGCL provides that a director or the entire board of directors may be
removed, with or without cause, by the holders of a majority of the shares then
entitled to vote at an election of directors, except (i) in the case of a
corporation whose board is classified, directors may be removed only for cause
unless the certificate of incorporation provides otherwise, or (ii) if the
corporation has cumulative voting, in which event if less than the entire board
is to be removed, no director may be removed without cause if the votes cast
against the director's removal would be sufficient to elect that director if
voted cumulatively either at an election of the entire board of directors or for
classes of the board.
Celltech's Bylaws provide that a director may be removed with or without
cause at any time by the affirmative vote of shareholders holding of record at
least a majority of the outstanding shares of Celltech at a special meeting of
the shareholders called for the purpose of removing a director.
CTIG's Certificate of Incorporation currently provides that any Director
or the entire Board of Directors may be removed, with or without cause, by the
holders of a majority of the stock then entitled to vote at an election of
directors, at any annual or special meeting of the stockholders of the
corporation. However, if the Centillion Merger is consummated, CTIG's
Certificate of Incorporation will be amended, which will have the effect of
classifying the CTIG Board of Directors. Because the Board of CTIG following the
Centillion Merger will be classified, its directors may only be removed for
cause.
Amendment to Bylaws
Under the DGCL, bylaws may be altered, amended, supplemented or repealed,
or new bylaws adopted, by the stockholders entitled to vote, by the board of
directors, or by any other manner as may be authorized by the certificate of
incorporation. CTIG's Bylaws provide that, except with regard to the provision
regarding removal of directors (described above), CTIG's Bylaws may be amended
by a majority of the vote of the Board of Directors, either at a regular or
special meeting of the Board, or by written consent. The Bylaws also provide
that the Bylaws may be amended by a majority vote of outstanding shares of the
corporation.
The Celltech Bylaws provide that the Bylaws may be amended by a majority
vote of the outstanding shares of Celltech. The Bylaws also may be amended by
the Directors of Celltech, except that the Directors may not amend the quorum
required for meetings of shareholders or of the Board of Directors, and may not
change any provision with regard to removal of directors or filling of vacancies
in the Board resulting from removal by the stockholders.
Amendments to Certificates of Incorporation
Under the DGCL, amendment of the certificate of incorporation will be made
by a resolution of the board of directors setting forth the amendment, declaring
its advisability, and either calling a special meeting of the stockholders
entitled to vote or directing that the amendment proposed be considered at the
next annual meeting of the stockholders. At such stockholder's meeting, a
majority of the outstanding shares entitled to vote is required to approve the
amendment. If an amendment would increase or decrease the number of authorized
shares of such class, increase or decrease the par value of the shares of such
class or alter or change the powers, preferences or other special rights of a
class of outstanding shares so as to affect the class adversely, then a majority
of shares of that class must approve the amendment as well. The DGCL also
permits a corporation to make provision in its certificate requiring a greater
proportion of voting power to approve a specified amendment. CTIG's current
Certificate of Incorporation states that the corporation reserves the right to
amend the provisions of its Certificate of Incorporation by any means permitted
under the DGCL.
Celltech's Certificate of Incorporation is silent with regard to
amendment. As such, the Certificate may be amended by any means permitted under
the DGCL.
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After the Centillion Merger, CTIG's Amended Certificate of Incorporation
will provide that CTIG may amend its Certificate of Incorporation in any manner
provided for under the DGCL. However, the amended Certificate also states that,
except for amendments which are made as a result of acquisitions or capital
raising, all amendments to the Certificate of Incorporation shall require, prior
to submission, the affirmative vote of the Board of Directors, which vote must
contain the affirmative vote of at least one Class III Director.
Action by Written Consent of Holders of Common Stock
The DGCL contains provisions permitting actions by holders of common stock
without providing notice and convening a meeting of such holders. Both
Celltech's and CTIG's Bylaws are silent with respect to Consent of Stockholders.
Therefore, such action by written consent is permitted.
Indemnification
Under the DGCL the indemnification of officers, directors and employees is
permissive. The one exception to the DGCL's permissive indemnification rule is
that a corporation must indemnify a person who is successful on the merits or
otherwise in the defense of certain specified actions, suits or proceedings for
expenses and attorneys' fees actually and reasonably incurred in connection
therewith. Although indemnification is permissive in Delaware, the DGCL allows a
corporation, through its certificate of incorporation, bylaws, or other
intracorporate agreements, to make indemnification mandatory. Pursuant to this
authority, CTIG's Certificate of Incorporation and Bylaws provide that CTIG will
indemnify its directors and officers to the fullest extent permitted by law.
Such indemnification will continue after the Merger.
Celltech's Bylaws provide that officers, directors and employees of the
company will be indemnified except in the case of negligence or misconduct.
Additionally, the amount of indemnification to which an officer or director is
entitled is to be determined by a disinterested majority of the Board of
Directors. Therefore the indemnification of Celltech is slightly narrower than
that of CTIG.
Liability of Directors
Under the DGCL, a corporation's certificate of incorporation may contain a
provision limiting or eliminating a director's personal liability to the
corporation or its stockholders for monetary damages for a director's breach of
fiduciary duty subject to certain limitations. CTIG's Certificate of
Incorporation includes such a provision. Accordingly, under the DGCL and CTIG's
Certificate of Incorporation, a director shall not be personally liable to the
corporation or its stockholders for monetary damages for breach of his or her
fiduciary duty as a director, provided that this indemnification shall not
eliminate or limit the liability of a director for any breach of the director's
duty of loyalty to the corporation or its stockholders, for acts or omissions
not in good faith or which involve intentional misconduct or a knowing violation
of law, under Section 174 of the DGCL, or for any transaction from which the
director derived an improper benefit.
In contrast to CTIG's indemnification of its directors' liability,
Celltech's Certificate of Incorporation contains no provision regarding the
limitation of its directors' liability.
Stockholder Meetings
In accordance with CTIG's Bylaws, annual meetings of stockholders will be
held on such date as may be fixed by CTIG's Board of Directors, and special
meetings of stockholders may be called only by a majority of CTIG's Board of
Directors, by the Chairman of the Board, President, or stockholders representing
10% of the outstanding shares. Pursuant to Celltech's Bylaws, annual meetings of
stockholders will be held within five months after the close of Celltech's
fiscal year, and special meetings of stockholders may be called by the Board of
Directors or the President. A special meeting shall also be called by the
President and the Secretary of Celltech at the written request of holders of 10%
of the Celltech shares then outstanding and entitled to vote. The DGCL, CTIG's
Bylaws and
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Celltech's Bylaws require that whenever stockholders are required or permitted
to take action at a meeting, a notice stating the place, time and date of the
meeting and, in the case of a special meeting, the purpose or purposes for which
the meeting is called, must be sent to all stockholders of record entitled to
vote thereon. Such notice must be sent not less than 10 nor more than 50 days
for Celltech, and not less than 10 nor more than 60 days before the meeting for
CTIG. Under the DGCL, notice of a meeting to consider an agreement of merger
must be sent at least 20 days prior to the date of the meeting.
Mergers and Consolidations
In order to effect a merger under the DGCL, a corporation's board of
directors must adopt an agreement of merger and recommend it to the
stockholders. The agreement must be adopted by holders of a majority of the
outstanding shares of the corporation entitled to vote on such agreement.
Business Combinations
The DGCL bars a corporation which has securities traded on an exchange,
designated on the Nasdaq National Market or held of record by more than 2,000
stockholders from engaging in certain business combinations, including a merger,
sale of substantial assets, loan or substantial issuance of stock, with an
interested stockholder, or an interested stockholder's affiliates and
associates, for a three-year period beginning on the date the interested
stockholder acquires 15% or more of the outstanding voting stock of the
corporation. The restrictions on business combinations do not apply if (a) the
board of directors gives prior approval to the transaction in which the 15%
ownership level is exceeded, (b) the interested stockholder acquires at one time
at least 85% of the corporation's stock (excluding those shares owned by persons
who are directors and also officers as well as employee stock plans in which
employees do not have a confidential right to vote), or (c) the business
combination is approved by the board of directors and authorized at a meeting of
stockholders by the holders of at least two-thirds of the outstanding voting
stock, excluding shares owned by the interested stockholder. Although a Delaware
corporation may elect, pursuant to its certificate or bylaws, not to be governed
by this provision, neither CTIG's Amended Certificate of Incorporation and
Amended and Restated Bylaws nor Celltech's Certificate of Incorporation and
Bylaws contain such an election or other limitation on the applicability of this
provision. The rights of Celltech and CTIG Stockholders, therefore, are
identical with respect to this issue.
Dissenters' Rights
Under both the DGCL, stockholders may exercise a right of dissent from
certain corporate actions and obtain payment of the fair value of their shares.
This remedy is an exclusive remedy, except where the corporate action involves
fraud or illegality. Under the DGCL, dissenters' rights are limited. Appraisal
rights are available only in connection with certain statutory mergers or
consolidations, amendments to the certificate of incorporation (if so provided
in the certificate of incorporation), any merger or consolidation in which the
corporation is a constituent corporation, or sales of all or substantially all
of the assets of a corporation. Rights of holders of Celltech Common Stock and
CTIG Class A Stock are identical with respect to dissenters' rights, however,
all four holders of Celltech Common Stock have agreed pursuant to the Celltech
Merger Agreement to vote their respective shares in favor of the Celltech
Merger.
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THE BUSINESS OF CELLTECH
Overview
Celltech, a Houston, Texas based company, provides custom software
development, customer management systems, billing, rating, printing and mailing
services to the telecommunications industry, focusing on the wireless segment.
Founded in 1983 by individuals from the private telephone industry,
Celltech developed software solutions for facilities-based cellular telephone
companies. The Company's primary focus was on the small to medium sized cellular
telephone company that would benefit from Celltech's experience and expertise.
In the early 90's the cellular market underwent a period of consolidation and
acquisition. A large number of Celltech's clients were acquired by cellular
companies intent on developing a national or regional presence. As a result of
this consolidation, the Company downsized and reviewed market strategy. The
result of this market strategy review was a shift away from facilities-based
cellular operators to resellers of cellular and other telecommunications
services. In addition, deregulation of telecommunications services provided
Celltech's target client base with an opportunity to deliver multiple
telecommunications products to their customer base. In response to this market
shift, Celltech started development on a Windows based product that would meet
the needs of the emerging multi-service telecommunications provider.
Celltech has extensive skills in managing complex, time/usage sensitive
billing issues that require proper calculation of usage charges and discounting
based on variable pricing schemes, such as time-of-day, group cumulative usage,
individual cumulative usage, originating point of call, receipt point of call
and re-rating of pass thru charges based on multiple criteria. In addition to
the management of these billing issues a complete billing system must be able to
integrate usage information from multiple sources, long distance providers,
cellular operators, other billing vendors and corresponding clearing houses.
Celltech's experience and skill required to manage the time and usage
sensitive billing of the facilities-based cellular operator has been easily
transferrable to the needs and demands of other providers of telecommunications
services such as paging, long distance, 1-800, Personal Communications Services
"PCS," Internet and local exchange services.
Competition
Competitors serving the same market as Celltech include Baja Systems,
Cbill, PSA, Infotech Solutions Corp. and HO Systems. Public companies that
target similar, but larger accounts, are ITDS (recently acquired by Amdocs Corp)
and Convergys Corp.
Celltech Service Capabilities and Product Offerings
With a corporate mission to provide services and products that are
scalable, flexible and competitive, Celltech has just recently released a
Windows-based Customer Care and Management System to support the needs of the
Multi-Service Telecommunications provider. Celltech's comprehensive services
solution, Win Command, is a fully- integrated Windows-based, GUI (graphical user
interface) technology. Win Command is designed to work in an operating
environment using Windows 95, Windows 98, Windows NT network or client, Novell
network and Citrix. The Win Command product suite consists of billing as well as
work flow management modules such as Customer Care, Inventory Management,
Collections/Credit with an interface for credit reporting agencies, and Order
Entry. Unlike a majority of its competitors, Celltech allows clients to have
on-site access to their database--enabling clients to analyze their underlying
usage/customer information more effectively and to provide superior customer
service.
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The complete , Win Command product suite consists of two key components
having a common client database interface:
o The Business Information System (BIS), is located at the client's
site. Win Command performs all the routine daily functions of the
telecommunications business office. This includes sophisticated
database management capabilities which enable clients to analyze
underlying subscriber information. It also includes several
integrated work flow management modules to support ongoing
operations. These modules include Customer Care, Inventory
Management, Collections/Credits, New Order Entry, Remote Order Entry,
Service Center Scheduling and Switch Management.
o The Billing Engine, is located at Celltech in Houston, Texas on a
DEC/VAX computer utilizing the ALPHA/VMS operating system. It
performs the highly complex recurring billing, rating, taxing and
fulfillment functions. This process leverages the company's extensive
expertise in bill production with the need for timely completion of
the billing cycle. The processing done by the Billing Engine includes
weekly roaming processing, sorting, rating, taxing and tabulation of
all call and usage records made by telecommunications subscribers.
Customers
Celltech currently has 13 customers. Its largest customer accounted for
approximately 47% of its revenue in 1999. The contract with this customer has
expired, and service is now being provided on a month-to-month basis. Celltech
is hopeful that it will enter a new contract with this customer, but cannot
predict whether that will occur or, if it occurs, the terms of any new contract.
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Employees
Celltech has approximately 58 employees all located in Houston, Texas.
None of Celltech's employees are represented by a labor union. Celltech
considers its relations with its employees to be good, and expects all 58
employees to continue with CTIG after the Celltech Merger.
Properties
Celltech leases 18,005 square feet in Houston, Texas at an average cost of
$14.65 per square foot. The lease expires in October, 2004.
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CELLTECH'S MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS OF CELLTECH
Overview
Celltech, a Houston, Texas based company, provides customer management
systems for billing, rating, printing and mailing services to the
telecommunications industry. The following discussion compares Celltech's actual
results for the years ended December 31, 1999 and 1998.
STATEMENTS OF OPERATIONS
CELLTECH INFORMATION SYSTEMS, INC.
<TABLE>
<CAPTION>
% Chg
'98 to
For the Year Ended December 31 1999 % 1998 % '99
--------------- ---------- -------------- --------- -----------
<S> <C> <C> <C> <C> <C>
REVENUES $7,952,798 100.0% $8,991,445 100.0 -11.6%
%
EXPENSES:
Cost of revenues (excluding
depreciation and amortization) 3,983,936 50.1% 4,230,177 47.0% -5.8%
Research and development 422,252 5.3% 451,856 5.0% -6.6%
Selling, general and administrative 4,135,768 52.0% 3,658,694 40.7% 13.0%
Depreciation and amortization 125,422 1.6% 97,430 1.1% 28.7%
---------- ----------
Total Expenses 8,667,378 109.0% 8,438,157 93.8% 2.7%
---------- ----------
Operating (loss) income (714,580) -9.0% 553,288 6.2% -229.2%
---------- ----------
OTHER (EXPENSE) INCOME:
Interest income (expense) 6,547 0.1% (2,488) -0.0% -363.1%
Other (expense) income (152,353) -1.9% 45,000 0.5% -438.6%
---------- ----------
Income (loss) before provision
for income taxes (860,386) -10.8% 595,800 6.6% -244.4%
INCOME TAX BENEFIT (PROVISION) 282,975 3.6% (209,216) -2.3% -235.3%
---------- ----------
NET (LOSS) INCOME ($577,411) -7.3% $386,584 4.3% -249.4%
========== ==========
NET (LOSS) INCOME PER COMMON SHARE ($245.39) $164.29
========== ==========
WEIGHTED AVERAGE COMMON
SHARES OUTSTANDING 2,353 2,353
========== ==========
</TABLE>
Results From Operations
Celltech typically enters into contracts to provide software products
and billing services at its Houston based service bureau. Approximately 96% of
Celltech's revenue result from the recurring, monthly processing and printing of
telecommunications bills for its clients. The rate structure is based on a price
per bill plus charges for additional services such as second telephone, pager,
etc. The revenue per bill will tier downward based on the volume of bills
produced. Additional sources of revenue may be earned through services such as
custom
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programming, generation of special reports and transmission of data. Revenues
for the year ended December 31, 1999 were $7,952,798 as compared to $8,991,445
in 1998. This reflects a decrease of 11.6% due primarily to the reduction in
business of one customer.
Cost of revenues primarily includes the costs associated with bill
production. To manage its variable processing needs Celltech utilizes
state-of-the-art Alpha/Vax processors at its data center operation, to provide
data processing and data storage capability. While Cost of revenues decreased
5.8% primarily related to the reduction of revenues, Celltech incurred one-time
charges associated with the migration of its core rater processing from an
outsource provider to an in-house system, including a $75,000 contract
termination fee, and incurred increased postage expense due to a U.S.P.S. rate
increase. Celltech projects annual savings in excess of $250,000 associated with
the in-house migration of its rater processing.
Celltech incurred significant Research and development charges of
$422,252 in 1999 for the development of its new billing product which was 6.6%
less then 1998 Research & Development. These costs include those expenses
incurred for contractors and consultants outside of the Company.
Selling, general and administrative expenses increased $477,074 in 1999
from $3,658,694 in 1998 primarily as a result of on-going new production
development and implementation of Celltech's Y2K compliance testing and due to a
one-time charge off of $150,000 from accounts receivable and a bad debt reserve
of an additional $410,072 primarily for one client (see Significant and Recent
Events).
Depreciation and amortization expense increased $27,992, to $125,422 as
compared to 1998, reflecting a 28.7% increase due to an increase of $83,475 in
Property and Equipment. The Property and Equipment cost increase was due
primarily to the acquisition of equipment for the in-house system discussed
under Cost of revenues.
Interest Income in 1999 increased 41.8% from $15,417 in 1998 to $21,862
in 1999 due primarily to cash management strategies. Interest Expense increased
from $2,844 in 1998 to $15,315 in 1999 primarily to Celltech's strategy of
establishing bank lending relationships. Celltech established lending facilities
in lieu of establishing lease facilities. Net Interest Income increased from
($2,488) in 1998 to $6,547 in 1999.
Other Income in 1998 of $45,000 was a legal settlement against a former
customer for an early termination claim brought by Celltech. Other Expense in
1999 was a settlement of a lawsuit brought by the minority shareholders of
Celltech, filed in January 2000. The suit was settled in March 2000, resulting
in a payment to the minority shareholders in the amount of $152,353.
An Income tax provision of $209,216 in 1998 was replaced by an Income
tax benefit of $282,975 in 1999 primarily due to 1999 losses.
Liquidity and Capital Resources
Historically, Celltech has financed its activities primarily from
customer revenues and use of its lease and bank credit facilities. At December
31, 1999 Celltech's cash and cash equivalents decreased $394,082 from 1998. This
was related to the cumulative effect of expenses exceeding revenues.
Accounts receivable at December 31, 1999 were $666,408 which reflects a
$317,556 decrease compared to December 31, 1998. The accounts receivable
decrease is due in part to an increase allowance for doubtful accounts from
$11,700 in 1998 to $410,072 in 1999 primarily due to a one-time reserve for one
client. Inventory of forms decreased $22,400 at December 31, 1999 compared to
1998 due to implementation of an as- need basis of inventory supply. Prepaid
Expenses increased by $16,589 from $66,529 in 1998 to $83,118 in 1999. This is
mainly due to the Company's renewal of its taxing tables used the rating of
bills. Net Property and Equipment increased $83,475 from $260,265 in 1998 to
$343,740 in 1999 due primarily to the acquisition of equipment for the in-house
system discussed under Cost of revenues.
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Celltech maintains two credit facility arrangements with a bank for
equipment loans that are secured by the equipment, and maintains one $400,000
line-of-credit facility for a working capital line. The balance of the equipment
loans is $95,130 at December 31, 1999 as compared to $97,222 at December 31,
1998. The working capital line, personally guaranteed by the Principal
Shareholder, has a current balance of $0 at December 31, 1999 as compared to
$50,000 at December 31, 1998.
Over the past two years, management's objectives have been to reinvest
much of the working capital resources and profits of Celltech into developing
its products, services and facilities.
The accompanying financial statements have been prepared assuming that
Celltech will continue as a going concern. Celltech incurred an operating loss
of $714,580 and an operating cash flow deficit of $342,927 during 1999. In
addition, during 1999, Celltech was not in compliance with the financial
covenants of a Promissory Note, as discussed in Note 5, for which there was no
balance outstanding at December 31, 1999. Celltech has obtained a waiver through
the period ended December 31, 1999 for this covenant violation. This waiver does
not extend beyond December 31, 1999. Management's operating plan for 2000
indicates positive cash flow from operations. To the extent necessary,
management intends to reduce its costs during 2000 to fund its obligations.
These conditions raise substantial doubt about Celltech's ability to continue as
a going concern. The accompanying financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
Significant and Recent Events
Throughout 1999 one of Celltech's largest clients materially decreased
its operations, which substantially reduced the Company's revenues. In May 1999
Celltech agreed to forgive $150,000 in accounts receivable from this client in
exchange for a five-year contract commitment. In October 1999 this client filed
for Chapter 11 bankruptcy protection from its creditors. As a result, the
company increased its allowance for doubtful accounts by approximately $400,000
to provide for the client's outstanding accounts receivable at 12/31/99.
On April 5, 2000 Celltech entered into a definitive merger agreement
with CTIG, a leading provider of software and services for the management of
telecommunications systems, to acquire 100% of the outstanding shares of
Celltech stock for total consideration valued at $5,251,977. The purchase will
include $262,599 in cash: the balance of $4,989,378 will be satisfied by the
issuance of 1,663,126 newly registered shares of CTIG Class A Common Stock at an
assumed value of $3.00 per share. The shares, to be issued at closing, may be
adjusted by the effect of a maximum 25% ceiling and floor collar dependent on
the average stock price during the twenty-day trading period prior to the
closing. In no event will Celltech's shareholders receive fewer than 1,330,501
or more than 2,217,501 shares. Approximately 47% of these common shares will be
held in escrow for up to three years pending the attainment of certain business
goals to be accomplished by Celltech.
Celltech was involved in a lawsuit with minority shareholders, filed in
December 1999. The suit was settled in March 2000, resulting in a payment to
minority shareholders in the amount of $152,353 and the discharge and release of
an account receivable from an entity controlled by the minority shareholders in
the amount of $180,000. The settlement has been reflected in the 1999 financial
statements.
Year 2000
Many computer programs have been written using two digits rather than
four to define the applicable year. Any computer programs with time-sensitive
software or embedded chips may recognize a date using "00" as the year 1900
rather than the year 2000. This could result in a system failure or
miscalculations causing disruptions of operations. During 1999 and 1998,
Management of the Company and their staff completed their assessment of the
various computer software and hardware used in connection with the ongoing
operations of the Registrant. In some cases software modifications were made. In
all cases programs were tested for Y2K compliance.
During this two year period Celltech allocated $288,619 of its
operating costs to the review, modification and testing of its compliance
program. Since December 31, 1999, the Company has not experienced any adverse
effects associated with the Year 2000 issues.
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New Accounting Pronouncements
In June 1998, the FASB issued SFAS No. 133, as amended by SFAS No. 137,
"Accounting for Derivative Instruments and Hedging Activity, is required to be
adopted by the Company on January 1, 2001. Management is currently assessing the
effect of this statement on the financial disclosures of the Company, however
management does not expect adoption of this statement to have a material effect
on the Company's financial position or results of operations.
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THE RESULTING COMPANY
As a result of the Centillion Merger, the telecommunications industry
billing division of Centillion will be merged into CTIG. As a result of the
Celltech Merger, Celltech will be merged into CTIB, a subsidiary of CTIG. The
executive management of CTIG will be comprised of members of the existing
executive management of CTIG and Centillion, with Anthony Johns serving as
President and Chief Executive Officer, Harold Garrison serving as Chairman of
the Board of CTIG. The CTIG Board of Directors will initially consist of seven
persons (with CTIG designating three and Centillion designating four members)
and will have an Executive Committee (with CTIG designating one member and
Centillion designating two members)]. See "The Resulting Company-- Directors and
Executive Officers."
Management of CTIG, Centillion and Celltech are jointly reviewing the
companies' operations in order to develop plans and proposals regarding the
integration and combination of all functional areas of the resulting business.
The goal of management of CTIG, Centillion and Celltech is to complete its
transition plan prior to the consummation of the Mergers, so that the plan may
be implemented as soon thereafter as possible.
CTIG and Centillion will consummate the Centillion Merger (subject to
stockholder approval and satisfaction or waiver of all conditions to closing in
the Centillion Merger Agreement) even if the Celltech Merger is not approved by
CTIG stockholders or, if approved, is not consummated. If the Centillion Merger
is not consummated, the Celltech Merger will not be consummated, even if
approved by CTIG stockholders.
Business and Strategy
As the global telecommunications market continues to evolve, end
customers will be drawn to service providers who can offer a broad array of
services and single point of contact for support. 'Convergent billing' refers to
the need for telecom firms to integrate the many different service inputs
(voice, data, wireless, ISP, xDSL, VolP) arising from the combination of
customer demand, technology evolution, increasing competition and market
deregulation. Whether established incumbents or new market entrants, telecoms
providers must have systems that allow all services to be combined on a single
bill. Furthermore, these providers will require customer management systems that
enable increasingly complex customer relationships to be managed through a
unified, user-friendly interface into the customer database. CTIG intends to
pursue such a convergent billing strategy after the Mergers, leveraging its
experience in front-end call tracking and accounting, with Centillion's
expertise in billing analysis. Additionally, Celltech's expertise in the area of
billing services for wireless communications will further enable CTIG to pursue
a convergent billing strategy. Additionally, the funds provided by Centillion
will enable CTIG to repair its working capital deficit, thereby increasing the
marketing, product development and support efforts behind its core billing
products and services.
Directors and Executive Officers
After the Centillion Merger, and as provided for in the Centillion
Merger Agreement and CTIG's proposed amended Certificate of Incorporation, the
CTIG Board of Directors will be divided into three classes. Class I and Class II
will initially consist of two directors each, whose initial terms will be one
year and two years, respectively. Both Class I Directors and Class II Directors
will initially be designated by Centillion. Class III will initially consist of
three directors, each of whose initial term will be three years, and initially
will be designated by CTIG. After the initial terms all directors in each Class
will serve for three year terms. The Board of Directors will also have an
Executive Committee, of which one member will be designated by CTIG and two
members will be designated by Centillion.
In the event of vacancies during the first three years following the
Centillion Merger, Class I and Class II Directors will designate a Director to
occupy any vacancy, while Class III Directors will designate a Director to
occupy any vacancy to a Class III Director position.
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For the initial Board, Centillion will designate: Harold D. Garrison (who
will serve as Chairman of the Board of CTIG and an Executive Committee
member) and Salah N. Osseiran as the Class I Directors; and Michael H. Leeds
(who will serve as Vice Chairman and an Executive Committee member) and
Thomas W. Grein as the Class II Directors. CTIG will appoint Anthony P.
Johns (who will also serve as President and Chief Executive Officer), Rupert
D. Armitage (who will also serve as an Executive Committee member), and
Graham Bevington as the Class III Directors. Neither the Celltech Merger nor
the Celltech Merger Agreement will have any effect on CTIG's Board of
Directors.
The following table sets forth information regarding individuals who will
be either directors, officers or significant employees of the Resulting
Company following the Mergers.
Name and Age Occupation during past five (5) years
- - ------------ -------------------------------------
Anthony P. Johns (50) Mr. Johns, a citizen of the United Kingdom, has
served as Chairman of the Board of CTIG since
October, 1996, and President, Chief Executive
Officer and Director of CTIG since March, 1990.
He was Chairman of the Board of Directors of
Britannic Group Holdings Ltd., Britannic
Telecom Company Ltd. and Britannic Telecare
Ltd. from December 1989 to May 1995.
Rupert D. Armitage (52) Mr. Armitage, a citizen of the United Kingdom,
has been a Director of CTIG since November
1995. He is founding member, Chairman and
Managing Director of three software-related
companies in the United Kingdom: Ambit Research
Ltd. formed in 1987; Information from Data Ltd.
formed in 1993; and Personal and Corporate
Training Systems Ltd. formed in 1995.
Graham Bevington (40) Mr. Bevington, a citizen of the United Kingdom,
has been a Director of CTIG since July, 1999.
He is presently the Managing Director of Mitel
Telecommunications Ltd. (EMEAAP), a business
telecommunications company. He has served as
Managing Director of DeTeWe Ltd., a
telecommunications distributor based in the
U.K., since 1997, and had been a director of
that company since 1992.
Michael H. Leeds (53) Mr. Leeds has served as a member of the
Executive Committee of the Board of Directors
of Centillion since 1987. He is the Managing
Partner of the Boca Raton, Florida office of
the law firm of Blank Rome Comisky & McCauley
LLP, which is legal advisor to Centillion.
Salah N. Osserian (45) Mr. Osserian, a Lebanese citizen, has been a
Director of Centillion since 1987. He is the
Chairman of Business Projects Corp., which
conducts widespread business operation in the
Middle East.
Thomas W. Grein (48) Mr. Grein has served as a Director of
Centillion since October, 1999, and is
currently Vice President and Treasurer of Eli
Lilly and Company. He has served as Director of
Investor Relations from 1994 to 1997, Assistant
Treasurer and Executive Director of Investor
Relations from 1997 to 1998 and Executive
Director of Finance from 1998 to 2000. Mr.
Grein is also a member of the Board of
Directors of the Walther Cancer Foundation.
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<PAGE>
Harold D. Garrison (51) Mr. Garrison has served as Chairman of
Centillion since 1988. He is also serving as
the Chairman and Chief Executive Officer of
Mansur Group since 1982 and Chairman of XILA
Communications, Inc. from 1983-1999.
Mary Ann Davis (61) Ms. Davis has been Corporate Secretary of CTIG
since May 1989. Prior to that, Ms. Davis was an
Administrative Assistant to a Judge of the
Common Pleas Court of Montgomery County,
Pennsylvania.
Executive Compensation
The following table sets forth the compensation paid or accrued for the
highest paid officer of CTIG and its subsidiaries. The Company had only one
officer for the year ended March 31, 1999 who received in excess of $100,000.
Annual Compensation
------------------------------------------------
Name and Principal Other Annual
Position Year Salary Bonus Compensation
- - ------------------ ---- ------ ----- ------------
Anthony P. Johns, Chairman 1999 $175,000 -- $29,972 (2)
& Chief Executive Officer 1998 $175,000 -- $29,635 (2)
1997 $140,000 (1) -- $26,700 (2)
(1) Mr. Johns agreed to a 40% salary reduction for the period from October
1, 1996 to March 31, 1997 as part of CTIG implementing a six-month plan
to assist in maintaining a neutral cash position. The plan was required
due to the loss of a major customer in the quarter ended September 30,
1996.
(2) Includes an $11,100 annual automobile allowance, $15,600 of living
expense payments and automobile insurance premiums paid by CTIG.
On April 1, 1998, CTIG entered into an employment agreement with
Anthony P. Johns. Pursuant to this agreement, Mr. Johns is employed as President
and Chief Executive Officer of CTIG for a three-year term at an annual base
salary of $175,000. Should CTIG regain its listing on NASDAQ, Mr. Johns' salary
will be increased to $200,000 for the remaining term of the Employment
Agreement. In addition to such annual base salary, Mr. Johns is entitled to
receive as additional compensation in the form of an annual bonus, an amount
equal to five percent (5%) of the Company's pretax profit. The Company has also
agreed to (i) provide Mr. Johns with a monthly automobile allowance, (ii) an
accommodation allowance in recognition of his need to maintain a residence both
here and in the UK; and (iii) pay the premiums on life insurance and health
insurance policies for the benefit of Mr. Johns. Mr. Johns is also reimbursed by
the Company for all expenses reasonably incurred by him in the performance of
his duties. Upon consummation of the Centillion Merger, Mr. Johns and CTIG will
enter a new employment agreement that will replace the current one.
The current practice of CTIG is that the members of the Board of
Directors who are not employees of the Company, are paid fees of $1,000 per
quarter and $500 per Board of Director meeting attended, plus reasonable travel
expenses. The Chairman of the Board, if not an employee of the Company, receives
an additional $2,000 per year as compensation for his duties as Chairman. Mr.
Armitage receives an additional $1,000 per board meeting attended due to the two
additional days needed for travel to and from the UK pursuant to an agreement
upon his election to the Board in November 1995. During the fiscal year ended
March 31, 1999, Messrs. Armitage, Hunnewell and Rohn earned fees for their
services on the Board of Directors of approximately $10,000, $6,000 and $6,000,
respectively, plus expenses; in addition, Mr. Armitage earned fees of
approximately $23,000 in connection
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with oversight of management activities related to CTI Data Solutions Ltd.
During the fiscal year ended March 31, 1999, Mr. Rohn received 30,000 stock
options pursuant to the Company's stock option and restricted stock plan upon
his appointment to the Board of Directors.
After the Mergers, the compensation paid to the Board of Directors will
be as follows: Non-employee board members will receive $5,000, plus reasonable
expenses for attendance at annual meetings, $3,000 plus reasonable expenses for
attendance at quarterly meetings, $1,500, plus reasonable expenses for
attendance at special meetings, and $2,500 plus reasonable expenses for
attendance at Executive Committee meetings. In addition, the Chairman of the
Board will receive $5,000 per month plus reasonable expenses and the
Vice-Chairman will receive $4,000 per month plus reasonable expenses.
After the Mergers, certain non-employee individuals will also receive
options to purchase shares of CTIG Class A Stock in accordance with the
following: The Chairman of the Board will receive 20,000 options per year; the
Vice-Chairman of the Board will receive 15,000 options per year; each Executive
Committee Member will receive 10,000 options per year; and each Board Member
will receive 10,000 options per year. If any individual serves in more than one
of the above capacities he or she will receive options for each position, and
such shares shall be cumulative. In addition, if CTIG enters into any additional
mergers or acquisitions, the Chairman, Vice-Chairman, Executive Committee and
Board Members will participate in certain bonus and/or stock option programs.
The following table sets forth option and stock appreciation rights,
exercises in last fiscal year and year end values for all employees who are
required to disclose such options and rights.
Aggregated Options/SAR Exercises In Last Fiscal Year
And Fiscal Year-End Option/SAR Values
<TABLE>
<CAPTION>
Number of Securities Value of Unexercised
Underlying Unexercised in-the-Money
Options/SARs at Options/SARs at
Shares Acquired Value Received FY-End (#) FY-End ($) (1)
Name on Exercise (#) ($) Exercisable/Unexercisable Exercisable/Unexercisable
- - -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Anthony P. Johns, 300,000 $498,000(1) 0/300,000 $0/$498,000
President / Chief
Executive Officer
</TABLE>
(1) All options were granted at an exercise price of $1.09 per share. As of
March 31, 2000 the market value of the Company's stock was $2.75 per share.
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<PAGE>
SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT OF CTIG
The following table sets forth certain pro forma information as to the
number of shares of CTIG Class A and Class B Common Stock that will be
beneficially owned by (i) each person known by CTIG expected to be the
beneficial owner of more than 5% of any of CTIG's voting securities after the
Centillion Merger and the Celltech Merger, (ii) each person who will be a
director of CTIG after the Centillion Merger and the Celltech Merger, (iii) the
Chief Executive Officer and the other highly compensated executive officers of
CTIG and (iv) CTIG's executive officers and directors as a group assuming the
Mergers had been consummated on March 31, 2000. Except as indicated by the notes
to the following table (a) the holders listed below will have sole voting power
and investment power over the shares beneficially held by them and (b) the
beneficial ownership is direct, as determined in accordance with Rule 13d-3 of
the Securities Exchange Act of 1934.
<TABLE>
<CAPTION>
Pro Forma
Pro Forma Beneficial Ownership
Beneficial Ownership after the Centillion
after the Centillion Merger and Celltech Mergers
--------------------------- --------------------
Class A Class B Class A Class B
Name and Address of Beneficial Owner Shares Percent Shares Percent Shares Percent Shares Percent
- - ------------------------------------ ------ ------- ------ ------- ------ ------- ------ -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Anthony P. Johns
c/o CTI Group (Holdings) Inc. 1,883,456(1) 9.0 0 0 1,883,456(1) 8.1 0 0
2550 Eisenhower Avenue
Norristown, PA 19403
Rupert D. Armitage 396,219(2) 1.9 0 0 396,219(2) 1.7 0 0
c/o Ambit Research
100 New Kings Road
London SW64LX
Graham Bevington 32,986(3) * 0 0 32,986(3) * 0 0
c/o Mitel Telecom Ltd.
Portskewett
Monmouthshire
NP 26 5YR
Harold D. Garrison 235,857(4) 1.1 51,553 2 235,857(4) 1.0 51,553 2
c/o Centillion Data Systems, Inc.
333 North Alabama Street, Suite 240
Indianapolis, IN 46204
Salah N. Osseiran(FN) 10,848,444(4) 51.8 2,371,244 83.7 10,848,444(4) 46.9 2,371,244 83.7
c/o Centillion Data Systems, Inc.
333 North Alabama Street, Suite 240
Indianapolis, IN 46204
Michael H. Leeds 0 0 0 0 0 0 0 0
c/o Centillion Data Systems, Inc.
333 North Alabama Street, Suite 240
Indianapolis, IN 46204
Thomas W. Grein 0 0 0 0 0 0 0 0
c/o Centillion Data Systems, Inc.
333 North Alabama Street, Suite 240
Indianapolis, IN 46204
David A. Warren 0 0 0 0 1,884,875(5) 8.1 0 0
Celltech Information Systems, Inc.
15425 I45 North, Suite 200
Houston, TX 77090
All Directors and Executive Officers
as a group (8 individuals(6)) 13,346,962 63.8 2,422,797 85.5 15,231,837 65.8 2,422,797 85.5
</TABLE>
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<PAGE>
- - ----------
* Less than 1%
Notes to pro forma security ownership of certain beneficial owners and
management of CTIG:
(1) Does not include options to purchase 300,000 shares of Common Stock of
CTIG, which vest more than 60 days after the consummation of the Centillion
Merger.
(2) Includes options to purchase 60,000 shares of Common Stock of CTIG, all
of which will vest and become immediately exercisable upon consummation of
the Centillion Merger.
(3) Includes options to purchase 30,000 shares of Common Stock of CTIG, all
of which will vest and become immediately exercisable upon consummation of
the Centillion Merger.
(4) Assumes the release of all Escrowed Stock pursuant to the Centillion
Merger Agreement.
(5) Assumes that the maximum number of shares of CTIG Class A Common stock
authorized under the Celltech Merger Agreement will be issued, and that all
stock placed into escrow pursuant that the Celltech Merger Agreement will be
released.
(6) If the Centillion Merger is consummated, but the Celltech Merger is not
consummated, David A. Warren will not serve as an Executive Officer of CTIG,
and would not be counted for purposes of this table.
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<PAGE>
DESCRIPTION OF CTIG COMMON STOCK
THE FOLLOWING IS A SUMMARY DESCRIPTION OF THE MATERIAL ASPECTS OF THE
CAPITAL STOCK OF CTIG AND IS QUALIFIED IN ITS ENTIRETY BY THE COMPLETE TEXT OF
CTIG's AMENDED CERTIFICATE OF INCORPORATION, AMENDED AND RESTATED BYLAWS WHICH
ARE INCORPORATED HEREIN BY REFERENCE AND ARE ATTACHED TO THIS JOINT PROXY
STATEMENT/PROSPECTUS AS ANNEXES B AND C, RESPECTIVELY.
CTIG Common Stock
The authorized capital stock of CTIG upon completion of the Mergers
will consist of 50,000,000 shares of CTIG Common Stock, par value $.01per share,
of which 46,500,000 shares shall be designated Class A Common Stock, and
3,500,000 shares shall be designated Class B Common Stock. Based upon the number
of shares of CTIG Common Stock and Centillion Common Stock outstanding as of
March 31, 2000, it is anticipated that 20,925,009 shares of CTIG Class A Common
Stock and 2,833,334 shares of CTIG Class B Common Stock will be issued and
outstanding immediately after the completion of the Centillion Merger, and
23,142,510 shares of CTIG Class A Common Stock, and 2,833,334 shares of CTIG
Class B Common Stock will be issued and outstanding immediately after the
Celltech Merger.
Voting
Except with respect to the election of Directors occurring prior to
July 1, 2003 (as described below), each share of CTIG Class A Common Stock and
Class B Common Stock entitles the holder to one vote on matters submitted to a
vote of the stockholders. Under CTIG's proposed Amended and Restated Certificate
of Incorporation, the CTIG Board of Directors will be classified into three
classes consisting of two, two and three directors, respectively. The holders of
CTIG Common Stock will not be entitled to cumulate votes for the election of
directors.
Assuming the adoption of the amended Certificate of Incorporation set
forth in Proposal III, and the filing of the Certificate of Merger with the
Delaware Secretary of State, the existing Board of Directors shall be
reclassified. The Board of Directors shall be divided into three classes, which
shall be as nearly equal in number as possible. After their initial terms,
Directors of each class shall serve for a term of three years, and until their
successors shall have been elected and qualified. Each Director of the
reclassified Board of Directors shall be placed in one of the three classes, and
the initial term of office of each such class shall expire (except in the event
of his earlier resignation or removal) at the annual stockholders' taking place
in the year set forth opposite such Director's name (or, if later, upon the
election and qualification of his successor), as follows:
Name Class Term Expires
---- ----- ------------
Harold Garrison I 2001
Salah Osseiran
Michael Leeds II 2002
Tom Grein
Graham Bevington III 2003
Rupert Armitage
Anthony Johns
For any meeting of Stockholders held prior to July 1, 2003, the holders
of Class B Common Stock, voting together as a single class, shall have the right
to elect the Class I Directors. For any meeting of Stockholders held prior to
July 1, 2003, the holders of Class B Common Stock, voting together as a single
class, shall have the right to
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<PAGE>
elect the Class II Directors. For any meeting of Stockholders held prior to July
1, 2003, any vacancies with respect to Class I or Class II Directors shall be
filled by the remaining Class I and Class II Directors voting as a group, or
with respect to a Class III Director by the remaining Class III Directors.
If, prior to July 1, 2003, there is any increase or decrease in the
number of Directors, such Directors shall be assigned as Class I, II or III so
that the holders of Class B Common Stock, voting togther as a single class,
maintain a majority of the Board of Directors.
Conversion of Class B Common Stock
For a description of the provisions in the proposed amendments to the
Certificate of Incorporation regarding conversion of shares of Class B Common
Stock into Class A Common Stock, see "The Merger Agreement- Conversion and
Issuance of Shares."
Dividends
The Board of Directors may declare and pay dividends on the Class A
Common Stock and the Class B Common Stock, in equal or unequal amounts
(including declaring and paying dividends on one class of shares while not
declaring or paying dividends, or paying a different dividend on the other
classes of shares. However, whenever a dividend is paid to the holders of the
Class B Common Stock, CTIG will also pay to the holders of Class A Common Stock
a dividend per share equal to or greater than the dividend per share paid to the
holders of Class B Common Stock unless a different dividend amount (or no
dividend) has been authorized by a 2/3's majority of the Board of Directors.
Prohibited Business Transactions
As a corporation organized under the laws of the State of Delaware,
CTIG is subject to Section 203 of the DGCL, which restricts certain business
combinations between CTIG and an "interested stockholder" (in general, a
stockholder owning 15% or more of the outstanding voting stock of CTIG) or such
stockholder's affiliates or associates for a period of three years following the
date on which the stockholder becomes an "interested stockholder." The
restrictions do not apply if: (i) prior to an interested stockholder becoming
such, the CTIG Board approves either the business combination or the transaction
by which such person became an interested stockholder; (ii) upon consummation of
the transaction, the interested stockholder owns at least 85% of the voting
stock of CTIG outstanding at the time the transaction commenced (excluding
shares owned by certain employee stock plans and persons who are both directors
and officers of CTIG); or (iii) at or subsequent to the time an interested
stockholder becomes such, the business combination is both approved by the CTIG
Board of Directors and authorized at an annual or special meeting of CTIG's
stockholder by the affirmative vote of at least two-thirds of the outstanding
voting stock of CTIG not owned by the interested stockholder.
Registrar and Transfer Agent
The Registrar and Transfer Agent of CTIG will be American Stock
Transfer.
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CTIG MARKET PRICES AND DIVIDENDS
CTIG Common Stock is listed on the OTC Bulletin Board ("OTCBB"). The
table below sets forth, for the fiscal quarters indicated, the reported high and
low sales prices of CTIG Common Stock as reported by the OTCBB, based on
published financial sources. These quotations reflect inter-dealer prices,
without retail mark-up, mark- down or commission, and may not represent actual
transactions. CTIG's fiscal year ends on March 31 of each year. Centillion and
Celltech are both privately-held corporations, and therefore no stock quotations
are available.
CTIG
Common Stock
High Low
---- ---
Fiscal Year ended 2000
3rd Quarter 4.88 0.45
2nd Quarter 0.75 0.31
1st Quarter 0.56 0.35
Fiscal Year Ended 1999
4th Quarter 0.69 0.12
3rd Quarter 0.15 0.10
2nd Quarter 0.33 0.27
1st Quarter 0.31 0.22
Fiscal Year Ended 1998
4th Quarter 0.47 0.19
3rd Quarter 0.53 0.19
2nd Quarter 0.59 0.19
1st Quarter 0.31 0.22
On February 2, 2000, the last trading date prior to the date on which
CTIG and Centillion publicly announced the signing of the Centillion Merger
Agreement, the high and low sales prices on the OTCBB were $4.6875 and $4.00 per
share, respectively, for CTIG Common Stock.
On April 5, 2000, the last trading date prior to the date on which CTIG
and Celltech publicly announced the signing of the Celltech Merger Agreement,
the high and low sales prices on the OTCBB were $2.6875 and $2.34375 per share,
respectively, for CTIG Common Stock.
CTIG currently has a policy not to pay dividends, and does not intend
to pay dividends in the future.
HOLDERS OF CTIG, CENTILLION AND CELLTECH COMMON STOCK ARE URGED TO
OBTAIN CURRENT MARKET QUOTATIONS FOR CTIG COMMON STOCK
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CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS
CTIG, Centillion and Celltech have made forward-looking statements in
this document and the documents incorporated by reference herein that are
subject to risks and uncertainties. These statements are based on management's
beliefs and assumptions, based on information currently available to management.
Forward-looking statements include the information concerning possible or
assumed future results of operations of CTIG after the Merger set forth: (i)
under "Summary," "Risk Factors," "The Centillion Merger Proposal -- Background
of the Merger," "The Celltech Merger Proposal -- Background of the Merger," "--
Recommendations of the Boards of Directors of CTIG and Centillion; Reasons for
the Merger," "-- Opinion of Financial Advisor to CTIG (including without
limitation the projections of Centillion and CTIG included therein)" and
"Unaudited Pro Forma Financial Information," (ii) under "Business" and
"Management's Discussion and Analysis" in CTIG's Annual Report on Form 10-KSB
and Quarterly Reports on Form 10-QSB incorporated by reference into this
document, (iii) under "The Resulting Company -- Business and Strategy" and (iv)
in this document and the documents incorporated herein by reference preceded by,
followed by or that include the words "believes," "expects," "anticipates,"
"intends," "plans," "estimates" or similar expressions.
Forward-looking statements are not guarantees of performance. They
involve risks, uncertainties and assumptions. The future results and stockholder
values of CTIG after the Mergers may differ materially from those expressed in
these forward-looking statements. Many of the factors that will determine these
results and values are beyond CTIG's, Centillion's and Celltech's ability to
control or predict. Holders of CTIG, Centillion and Celltech Common Stock are
cautioned not to put undue reliance on any forward-looking statements. In
addition, neither Centillion, Celltech nor CTIG have any intention or obligation
to update forward-looking statements after it distributes this Joint Proxy
Statement/Prospectus, even if new information, future events or other
circumstances have made them incorrect or misleading. For those statements,
CTIG, Centillion and Celltech claim the protection of the safe harbor for
forward-looking statements contained in the Private Securities Litigation Reform
Act of 1995.
Holders of CTIG, Centillion and Celltech Common Stock should understand
that the following important factors, in addition to those discussed elsewhere
in the documents which are incorporated by reference into this Joint Proxy
Statement/Prospectus, could affect the future results of CTIG and could cause
results to differ materially from those expressed in such forward-looking
statements: (i) the effect of economic conditions; (ii) the ability of CTIG,
Centillion and Celltech to successfully integrate their operations; (iii) the
impact of competition; and (iv) customer demand.
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PROPOSAL III
APPROVAL OF AMENDMENTS TO CTIG's
CERTIFICATE OF INCORPORATION
The Centillion Merger Agreement requires certain amendments to CTIG's
Certificate of Incorporation. By unanimously approving the Centillion Merger and
the Centillion Merger Agreement at its CTIG Special Meeting held on February 3,
2000, the CTIG Board of Directors also unanimously authorized an amendment to
CTIG's Certificate of Incorporation. The Board of Directors determined that such
an amendment is advisable and directed that the proposed amendment be considered
by CTIG's stockholders at the CTIG Special Meeting.
The full text of the proposed Amendments to the Certificate of
Incorporation of CTIG is set out in Annex B, and will have the following
effects:
o Restructure the Board of Directors to provide for a larger
classified Board with representatives of Centillion and CTIG,
and designate the initial CTIG Board of Directors after the
Centillion Merger,
o Redesignate the currently authorized common stock of CTIG as
Class A Common Stock, and describe the voting, dividend and
other rights of Class A stockholders,
o Authorize the new Class B Common Stock which will be issued to
Centillion stockholders, and describe the voting, dividend,
and conversion rights of Class B stockholders.
Holders of CTIG Common Stock should note that the approval of the
amendments to the Certificate of Incorporation will have the practical result of
electing a new Board of Directors. The members of this Board of Directors have
been predetermined in accordance with the Centillion Merger Agreement.
Purposes and Effects of the Amendment
The following is a summary of the material terms of the proposed
amendments to CTIG's Certificate of Incorporation, a copy of which is attached
as Annex B to this Joint Proxy Statement/Prospectus, and is incorporated herein
by reference. This summary is qualified in its entirety by reference to the
proposed amendments. Holders of CTIG Common Stock and Centillion Common Stock
are urged to read the proposed amendments in their entirety for a more complete
description of their terms and conditions.
Restructure of Board of Directors
CTIG's current Certificate of Incorporation provides for a Board of
five Directors, of a single class, each elected for a one year term. Under the
Centillion Merger Agreement, CTIG's Board of Directors is to increase from five
to seven members at the Effective Time, and CTIG has the right to designate
three of the members for three years after the Centillion Merger. To accomplish
this, the proposed amendments to the Certificate of Incorporation increase the
Board to seven members and divide them into three classes. Class I Directors
have an initial term of one year, Class II Directors have an initial term of two
years and Class III Directors have an initial term of three years. After the
respective initial terms, each class of Directors will serve for a three year
term. There are two Directors in each of Class I and Class II, and three
Directors in Class III. The initial Class I and Class II Directors have been
designated by Centillion and the initial Class III Directors have been
designated by CTIG. All of the initial Directors are named in the proposed
amendments to the Certificate of Incorporation, and information about each of
them is set forth in "The Resulting Company- Directors and Executive Officers."
Except with respect to elections of Directors prior to July 1, 2003,
the holders of Class A and Class B Common Stock shall each be entitled to one
vote for each share of stock of either class owned for the election of
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Directors of each class. For any meeting of stockholders held prior to July 1,
2003 the holders of Class B Common Stock shall have the right to elect the Class
I and Class II Directors. Prior to July 1, 2003, any vacancies with respect to
Class I or Class II Directors are to be filled by the remaining Class I and
Class II Directors voting as a group, and any vacancies with respect to Class
III Directors are to be filled by the remaining Class III Directors. This
structure will assure that the three Directors designated initially by CTIG as
Class III Directors prior to the Centillion Merger (or their proper successors)
will serve for at least a three year term.
Pursuant to the Centillion Merger Agreement, the amendments to the
Certificate of Incorporation require the Board of Directors to establish a three
member Executive Committee to be composed of one Class III Director (initially,
Rupert Armitage), and two Directors from Class I and Class II (initially,
Michael Leeds and Harold Garrison). In addition to its other powers to act for
the full Board between meetings, all decisions with respect to the limited
liability company that will hold the patent claims being transferred in the
Merger (see "The Centillion Merger Agreement- Conversion and Issuance of
Shares") are to be made by the Executive Committee.
Initial Board of Directors After Merger
The amendment of CTIG's Certificate of Incorporation includes in the
designation of the new Board of Directors of CTIG. This Board will consist of:
Harold D. Garrison (who will serve as Chairman of the Board of CTIG and an
Executive Committee member) and Salah Osseiran as Class I Directors, and Michael
H. Leeds (who will serve as Vice Chairman and an Executive Committee member),
and Thomas W. Grein as the Class II Directors. CTIG will appoint Anthony P.
Johns (who will also serve as President and CEO), Rupert D. Armitage (who will
also serve as an Executive Committee member), and Graham Bevington as Class III
Directors. Biographical information on these individuals may be found in "The
Resulting Company- Directors and Executive Officers."
Redesignation of Existing Common Stock as Class A Common Stock and Authorization
of Class B Common Stock
CTIG's current Certificate of Incorporation authorizes 50,000,000
shares of a single class of Common Stock. In order to create the Class B Common
Stock required by the Merger Agreement (see "The Centillion Merger Agreement-
Conversion and Issuance of Shares), the proposed amendments redesignate the
current Common Stock as 46,500,000 shares of Class A Common, par value $0.01 per
share, and authorized 3,500,000 shares of Class B Common Stock, par value $0.01
per share. Except as specifically set forth in the amended Certificate, and,
except for the fact that CTIG Class A Common Stock will be registered and traded
on a national exchange, each share of Class A and Class B Common Stock have
identical rights. The Class B Common Stock may only be issued (a) pursuant to
the Merger Agreement, (b) in a stock split or after subdivision of outstanding
shares of Class B Common Stock, or (c) as a stock dividend or share distribution
with respect to shares of Class B Common Stock.
Voting Rights
Except with respect to election of Directors prior to July 1, 2003, as
described above, the holders of shares of Class A Common Stock and Class B
Common Stock will have one vote for each share held and shall vote as a single
class with no separate votes or consents required for any matter.
Dividends
The CTIG Board of Directors may declare and pay dividends on the Class
A Common Stock and the Class B Common Stock, in equal or unequal amounts
(including declaring and paying dividends on one class while not declaring or
paying a dividend, or paying a different dividend, on the other class of
shares). However, whenever a dividend is paid to the holders of the Class B
Common Stock, CTIG shall also pay to the holders of Class A Common Stock a
dividend per share equal to or greater than the dividend per share paid to the
holders of Class B Common Stock unless a different dividend amount (or no
dividend) has been authorized by a 2/3's majority of the Board of Directors.
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Liquidation
In the event of a liquidation, dissolution or winding up of CTIG,
whether voluntary or involuntary, after payment or provision for payment of the
debts and other liabilities of CTIG, the holders of the shares of Class A Common
Stock and the holders of the shares of Class B Common Stock will be entitled to
their respective share of the remaining assets after payment of all applicable
liabilities. The respective share of the assets distributed to the holders of
Class B Common Stock will be based on the relative fair market value of the net
assets of the wholly- owned limited liability company which will hold the patent
claims to the total assets of CTIG at the time of the liquidation. The
respective share of the assets distributed to the holders of Class A Common
Stock will be based on the relative fair market value of the CTIG assets without
regard to the net assets of the limited liability company to the total assets of
CTIG at the time of the liquidation. Neither the consolidation or merger of CTIG
with or into any other corporation or corporations nor the sale, transfer or
lease of all or substantially all of CTIG's assets shall itself be deemed to be
a liquidation, dissolution or winding up of CTIG. The holders of the Class B
Common Stock shall have no rights to the specific assets owned by the limited
liability company at the time of liquidation, dissolution or winding up of CTIG.
Conversion of Class B Common Stock
For a summary of the provisions in the proposed amendments to the
Certificate of Incorporation regarding conversion of shares of Class B Common
Stock into Class A Common Stock, see "The Centillion Merger Agreement-
Conversion and Issuance of Shares."
Further Amendments to Certificate of Incorporation
In order to protect the rights of the current CTIG stockholders for the
initial three years after the Effective Time, the proposed amendments to the
Certificate of Incorporation provide that until July 1, 2003, except for
amendments as a result of acquisitions or raising capital, further amendments
will require, prior to submission to CTIG stockholders, the affirmative vote of
a majority of the Board of Directors, which vote must contain the affirmative
vote of at least one Class III Director.
Effective Date of Proposed Amendment
If the Amendment to the Certificate of Incorporation of CTIG is adopted
by the required vote of the Company's stockholders, such amendment will become
effective at the Effective Time of the Centillion Merger, pursuant to the filing
by CTIG of a Certificate of Amendment to the Corporation's Certificate of
Incorporation with the Secretary of the State of Delaware.
Vote Required for Approval
The proposal to approve the amendment to the Company's Certificate of
Incorporation as described above requires the affirmative vote of a majority of
outstanding shares of CTIG for its approval. Abstentions may be specified on the
proxy and will be considered present at the CTIG Special Meeting, but will not
be counted as affirmative votes. Abstentions, therefore, will have the practical
effect of voting against the proposal because the affirmative vote of a majority
of the outstanding shares of CTIG is required to approve the proposal.
The Board of Directors of CTIG unanimously recommends a vote FOR the
proposed amendment.
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PROPOSAL IV
PROPOSAL TO AMEND STOCK OPTION AND RESTRICTED STOCK PLAN
Purposes and Effects of the Amendment
Prior to the CTIG Special Meetings, the CTIG Board of Directors will
adopt and approve the amendment to the Stock Option and Restricted Stock Plan of
CTIG (the "Plan") and reserve an additional 2,000,000 shares of CTIG Class A
Common Stock for stock options and other stock awards to employees and officers
of CTIG and its subsidiaries and other eligible participants after the Mergers.
There are currently 600,000 option shares authorized under the Plan, of which
390,000,000 have been issued and 250,000 of which are outstanding. If this
amendment is adopted, there will be an additional 2,000,000 options authorized
at the Effective Time. The principal purposes of the Plan is to provide
incentives for officers, employees and consultants of CTIG and its subsidiaries
through granting of options and restricted stock, thereby stimulating their
personal and active interest in CTIG's development and financial success, and
inducing them to remain in CTIG's employ. In addition to awards made to
officers, directors, employees or consultants, the Plan will continue to permit
the granting of stock options ("Director's Grants") to CTIG's non-employee
directors ("Independent Directors").
If this Proposal to Amend CTIG's Stock Option and Restricted Stock Plan
is approved, along with the Mergers, CTIG management intends to grant some of
the additional authorized options to certain non-employee individuals in
accordance with the following: The Chairman of the Board will receive 20,000
options per year; the Vice-Chairman of the Board will receive 15,000 options per
year; each Executive Committee Member will receive 10,000 options per year; and
each Board Member will receive 10,000 options per year. If any individual serves
in more than one of the above capacities he or she will receive options for each
position, and such shares shall be cumulative. In addition, if CTIG enters into
any additional mergers or acquisitions, the Chairman, Vice-Chairman, Executive
Committee and Board Members will participate in certain bonus and/or stock
option programs.
The material features of the Plan are summarized below, but the summary
is qualified in its entirety by reference to the Plan which is attached as Annex
J to this Joint Proxy Statement/Prospectus.
Summary of Stock Option and Restricted Stock Plan
General
Pursuant to the Plan, CTIG affords eligible participants the
opportunity to receive three types of grants. Eligible participants of the Plan
may include: (1) designated key employees (including employees who also serve as
members of the Board of Directors); (2) non-employee members of the Board of
Directors; and (3) independent contractors and consultants who perform services
for CTIG.
Grants under the Plan include: (1) Incentive Stock Options ("ISO's"),
(2) Nonqualified Stock Options ("NQSO's"); (3) and Restricted Stock ("Restricted
Stock"). ISOs and NQSOs are collectively referred to as "stock options". A
Director's Grant ("Director's Grant") is a special type of grant of NQSOs made
only to particular members of the Board of Directors who are not employees of
CTIG and who serve on the Compensation Committee of the Board of Directors (the
"Committee"). Prior to the adoption of the proposal to increase the number of
options authorized under the Plan, CTIG has been able to issue or transfer stock
options to purchase up to 600,000 shares of CTIG common stock pursuant to the
provisions of the Plan.
A stock option gives a holder the right to purchase stock in the future
within a specified exercise period at a price fixed in advance. An ISO is an
option granted to an employee of a corporation, and the ISO qualifies for
special tax treatment under the Internal Revenue Code (the "Code"). An NQSO,
however, may be granted to both employees and non-employees, and NQSOs do not
qualify for special tax treatment under the Code.
Restricted stock is common stock issued to eligible participants in
consideration for cash or services. Such stock is made subject to restrictions
as may be determined by the Committee. Generally, restricted stock may not be
sold or otherwise transferred until restrictions are removed or expire. Unlike
recipients of stock options, holders of restricted stock will have voting rights
and will receive dividends prior to the time when the restrictions lapse.
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Administration of the Plan
Generally, the Committee administers and interprets the Plan. The
Committee consists of at least two persons, all of whom are "outside directors"
(as defined in the Code), and each of whom is a "disinterested person" (as
defined in the Securities Exchange Act of 1934). Except with respect to
Director's Grants, the Committee has full authority to determine the persons to
whom grants are to be made, the type, size, and terms of each grant, the time
when each grant will be made, the duration of any exercise or restriction
period, any restrictions on resale, and the number of shares to be subject to
the Plan. Notably, the provisions of the Plan relating to Director's Grants
operate automatically, without any administration of the Committee.
The Board of Directors has full authority to amend the Plan.
Stockholder approval, however, is required (a) to materially increase the
benefits accruing to eligible participants, (b) to increase the number of shares
available for the Plan, (c) to materially modify the eligibility requirements
for participation in the Plan, or (d) to modify the provisions for determining
fair market value under the Plan. The Board may not amend more than once every
six months those provisions of the Plan relating to Director's Grants. The Board
may amend such provisions more than once every six months only if the amendments
are necessary to conform the Plan to changes in the provisions of the Code or
Employee Retirement Income Security Act of 1974 ("ERISA"), or to conform to the
rules promulgated under the Code or ERISA.
The Plan offers Stock Option Grants and Restricted Stock Grants. The
two types of Stock Option Grants include ISOs and NQSOs. As to ISOs, only
employees of CTIG are eligible to receive ISOs; non-employee Directors and
independent contractors and consultants are not eligible to receive ISOs. As to
NQSO's, however, all Eligible Participants may receive NQSOs. As to Restricted
Stock, all Eligible Participants may hold Restricted Stock. Each stock option
grant and each Restricted Stock grant is evidenced by a grant letter containing
terms and conditions that the Committee approves.
Stock Option Grants
Exercise Price. The exercise price of all ISOs and NQSOs granted is the
higher of the fair market value, as defined in the Plan, and the book value of
the common stock on the date of the grant. If a grantee owns common stock
representing more than 10% of the total combined voting power of all classes of
stock of CTIG, the option price per share in the case of an ISO shall not be
less than 110% of the fair market value of a share of Common Stock on the date
of the grant and such option is not exercisable after the expiration of five (5)
years from the date of the Grant. The exercise price of a stock option is
payable in cash, shares of common stock already owned by the grantee, or a
combination of cash and shares. If the Grantee pays the exercise price, in any
part, with shares of common stock already owned, the optionee must obtain
consent of the Committee.
Exercise Period. The Committee determines the option exercise period of
each stock option. The holder of stock options may exercise such options at a
date no later than ten (10) years from the date of the grant. An exercise period
may terminate earlier because the grantee dies, the grantee becomes disabled, or
because CTIG terminates the grantee's employment or relationship with CTIG.
In the event of a change of control, as defined in the Plan, grantees
may immediately exercise all Stock Options. Upon a sale or exchange of assets or
upon a dissolution, liquidation, merger or consolidation of CTIG where CTIG is
not the surviving corporation, each such grantee has the right to exercise in
full any such Grants not previously exercised, within ten (10) days after the
grantee receives the required written notice of such event. If upon a merger or
consolidation where CTIG does survive, the Committee, in its sole discretion,
may elect to give grantees notice of such event. If notice is given, the grantee
has the right to exercise the grant within ten (10) days after such written
notice is sent.
Special Limits on ISOs. In the case of ISO's, when the grantee
exercises an ISO for the first time, the aggregate fair market value of such
common stock, determined as of the date of the Grant, shall not exceed $100,000.
Also, unless a Grantee of an ISO could otherwise transfer common stock issued
pursuant to the stock option without incurring liability under Sec. 16 (b) of
the Securities and Exchange Act of 1934, at least six months must elapse from
the date of acquisition of the ISO Grant until the date of disposition of the
common stock issued upon exercise.
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Assignability. A grantee may not assign or otherwise transfer the ISO
except by will, or the laws of descent and distribution. However, an eligible
participant may assign an NQSO if he or she is permitted under Rule 16b-3 of the
Exchange Act, by the Committee, pursuant to a qualified domestic relations order
as defined under the Code or Title I of ERISA, and to a trust for the benefit of
a member of the grantee's immediate family.
Director's Grants: A Special Type of NQSO Grant for Non-Employee
Directors. All non-employee directors who serve on the Committee each receive an
automatic grant of NQSOs with respect to 30,000 shares of Common Stock at the
commencement of and in consideration for their service to CTIG as a director.
One-half (50%) or 15,000 shares of Common Stock of each Director's Grant vests
on the first anniversary of the date of such grant , and one-quarter (25%) or
7,500 shares of Common Stock vests on each of the second and third anniversaries
of the date of such Director's Grant, provided such non-employee director is
then serving as a director. After this initial vesting period, at the end of
each successive three-year period, such non-employee director receives an
additional grant of options to purchase 30,000 shares of common stock, which are
classified as NQSOs. This additional Director's Grant is subject to the same
vesting schedule, provided the non-employee director is continuously reelected
to the Board and provided the non-employee director has continuously served as a
director during each such three-year period. Upon a change of control, all
restrictions imposed on any Restricted Stock immediately lapse. Such
non-employee directors may exercise the NQSOs at a date no later than ten (10)
years from the date of the director's grant.
Upon a sale or exchange of assets or upon a dissolution, liquidation,
merger or consolidation of CTIG where CTIG is not the surviving corporation,
each such grantee has the right to exercise in full any installment of such
grants not previously exercised (whether or not the right to exercise such
installments has accrued), within ten (10) days after the grantee receives the
required written notice of such event. If upon a merger or consolidation where
CTIG does survive, the Committee in its sole discretion, may elect to give such
Grantees notice of such event; if notice is given, the Grantee has the right to
exercise the grant within ten (10) days after such written notice is sent.
Restricted Stock
The Committee may issue Restricted Stock to eligible participants,
subject to terms set by the Committee. The Committee may issue such shares of
common stock in consideration for cash or services rendered having a value, as
determined by the Board, at least equal to the par value of the common stock.
The Committee determines the number of shares of common stock that will be
granted in each restricted stock grant. In general, any recipient (including
non-employee directors) of Restricted Stock is not permitted to sell, transfer,
pledge or otherwise dispose of the Restricted Stock until the restrictions,
established by the Committee, lapse. Each certificate representing a share of
such Common Stock issued or transferred must contain a legend giving appropriate
notice of the restrictions in the Grant.
In the event of a change of control, as defined in the Plan, all
restrictions on any Restricted Stock will immediately lapse. If CTIG terminates
the recipient's relationship with CTIG before the restrictions lapse, all shares
issued pursuant to a director's grant immediately revert to CTIG, unless the
Committee determines otherwise.
Effective Date of Proposed Amendment
If the Amendment to the Stock Option and Restricted Stock Plan of CTIG
is adopted by the required vote of the Company's stockholders, such amendment
will become effective at the Effective Time of the Merger.
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Vote Required for Approval
The proposal to approve the amendment to the Plan as described above
requires the affirmative vote of a majority of shares present in person or
represented by proxy at the CTIG Special Meeting for its approval. Abstentions
may be specified on the proxy and will be considered present at the CTIG Special
Meeting, but will not be counted as affirmative votes. Abstentions, therefore,
will have the practical effect of voting against the proposal because the
affirmative vote of a majority of the shares present at the CTIG Special
Meeting, in person or by proxy, is required to approve the proposal. Broker
non-votes are considered not present at the CTIG Special Meeting and, therefore,
will not be voted or have any effect on the proposal.
The Board of Directors unanimously recommends a vote FOR the proposed
amendment.
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STOCKHOLDER PROPOSALS
If any CTIG stockholder intends to present a proposal at CTIG's Special
Meeting and wishes to have such proposal considered for inclusion in the proxy
materials for such meeting, such holder must submit the proposal to the
Secretary of CTIG in writing so as to be received at the executive offices of
CTIG no sooner than _______, 2000 and no later than _______, 2000. Such
proposals must also meet the other requirements of the rules of the SEC relating
to stockholders' proposals.
In the event the Mergers are not consummated, the only stockholder
proposals eligible to be considered for inclusion in the proxy materials for the
next annual meetings of CTIG will be those which were duly submitted to the
Secretary of CTIG by _________, 2000, as provided in the next respective annual
meeting proxy statement of CTIG.
LEGAL MATTERS
The validity of the shares of CTIG Common Stock to be issued in
connection with the Mergers will be passed upon by Klehr, Harrison, Harvey,
Branzburg & Ellers, LLP.
OTHER MATTERS
As of the date of this Joint Proxy Statement/Prospectus, the CTIG Board
of Directors Board of Directors know of no matters that will be presented for
consideration at the CTIG Special Meeting other than as described in this Joint
Proxy Statement/Prospectus. If any other matters shall properly come before the
CTIG stockholder meeting or any adjournments or postponements thereof and be
voted upon, the enclosed proxies will be deemed to confer discretionary
authority on the individuals named as proxies therein to vote the shares
represented by such proxies as to any such matters. The persons named as proxies
intend to vote or not to vote in accordance with the recommendation of the
management of CTIG.
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WHERE YOU CAN FIND MORE INFORMATION
CTIG is subject to the Exchange Act and files annual, quarterly and
special reports, proxy statements and other information with the SEC. You may
read and copy any reports, statements or other information we file at the SEC's
public reference rooms in Washington, D.C., New York, New York and Chicago,
Illinois. Please call the SEC at 1-800-SEC-0330 for further information on the
public reference rooms. CTIG's SEC filings are also available to the public from
commercial document retrieval services and at the web site maintained by the SEC
at "http://www.sec.gov."
CTIG filed a Registration Statement on Form S-4 to register with the
SEC the CTIG Common Stock to be issued to holders of Centillion Common Stock in
the Mergers. This Joint Proxy Statement/Prospectus is a part of that
Registration Statement and constitutes a prospectus of CTIG in addition to being
a proxy statement of CTIG for the CTIG Special Meeting. As allowed by SEC rules,
this Joint Proxy Statement/Prospectus does not contain all the information you
can find in the Registration Statement or the exhibits to the Registration
Statement.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The SEC allows CTIG to "incorporate by reference" information into this
Joint Proxy Statement/Prospectus, which means that we can disclose important
information to you by referring you to another document filed separately with
the SEC. The information incorporated by reference is deemed to be part of this
Joint Proxy Statement/Prospectus, except for any information superseded by
information in this Joint Proxy Statement/Prospectus. This Joint Proxy
Statement/Prospectus incorporates by reference the documents set forth below
that CTIG has previously filed with the SEC. These documents contain important
information about CTIG and its finances.
<TABLE>
<CAPTION>
- - --------------------------------------------------------------------------------------------
CTIG SEC FILINGS (FILE NO. (000-10560) PERIOD
- - --------------------------------------------------------------------------------------------
<S> <C>
Annual Report on Form 10-K, as amended Year ended March 31, 1999
- - --------------------------------------------------------------------------------------------
Quarterly Reports on Form 10-Q Quarters ended June 30, 1999, September
30, 1999, and December 31, 1999
- - --------------------------------------------------------------------------------------------
Quarterly Reports on Form 10-Q/A Quarter ended September 30, 1999
- - --------------------------------------------------------------------------------------------
Current Reports on Form 8-K Filed on March 30, 1999, June 29, 1999,
and February 22, 2000
- - --------------------------------------------------------------------------------------------
Current Report on Form 8-K/A Filed on July 14, 1999 and April 13, 2000
- - --------------------------------------------------------------------------------------------
</TABLE>
We are also incorporating by reference additional documents that CTIG
may file with the SEC between the date of this Joint Proxy Statement/Prospectus
and the date of the CTIG Special Meeting.
CTIG has supplied all information contained or incorporated by
reference in this Joint Proxy Statement/Prospectus relating to CTIG. If you are
a holder of CTIG Common Stock or Centillion Common Stock, we may have sent you
some of the documents incorporated by reference, but you can obtain any of them
through us or the SEC. Documents incorporated by reference are available from us
without charge, excluding all exhibits unless we have specifically incorporated
by reference an exhibit in this Joint Proxy Statement/Prospectus. Holders of
CTIG Common Stock, Centillion Common Stock, and Celltech Common Stock may obtain
documents incorporated by reference in this Joint Proxy Statement/Prospectus by
requesting them in writing or by telephone from the appropriate party at the
following addresses:
Mary Ann Davis, Corporate Secretary
CTI Group (Holdings) Inc.
2550 Eisenhower Avenue
Norristown, PA 19403
(610) 666-1700
If you would like to request documents from us, please do so by _____,
2000 to receive them before the CTIG Special Meetings.
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You should rely only on the information contained or incorporated by
reference in this Joint Proxy Statement/Prospectus to vote on the Mergers. We
have not authorized anyone to provide you with information that is different
from what is contained in this Joint Proxy Statement/Prospectus. This Joint
Proxy Statement/Prospectus is dated ______, ____. You should not assume that the
information contained in this Joint Proxy Statement/Prospectus is accurate as of
any date other than ______, 2000, and neither the mailing of the Joint Proxy
Statement/Prospectus to holders of CTIG Common Stock, nor the issuance of CTIG
Common Stock in the Mergers shall create any implication to the contrary.
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Index
<TABLE>
<CAPTION>
Page
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<S> <C>
Centillion Data Systems, Inc. and Subsidiaries:
Independent Auditor's Report F-2
Consolidated Statements of Income for the Years Ended December 31, 1999 and 1998 F-3
Consolidated Balance Sheets as of December 31, 1999 and 1998 F-4
Consolidated Statements of Stockholders' Equity for the Years Ended December 31, 1999 and 1998 F-5
Consolidated Statements of Cash Flows for the Years Ended December 31, 1999 and 1998 F-6
Notes to the Consolidated Financial Statements F-7
Celltech Information Systems, Inc.:
Report of Independent Accountants F-19
Balance Sheets as of December 31, 1999 and 1998 F-20
Statements of Operations for the Years Ended December 31, 1999 and 1998 F-21
Statements of Shareholders' Equity for the Years Ended December 31, 1999 and 1998 F-22
Statements of Cash Flows for the Years Ended December 31, 1999 and 1998 F-23
Notes to the Financial Statements F-24
Unaudited Condensed Consolidated Pro Forma Financial Data:
Introduction F-32
Unaudited Condensed Consolidated Pro Forma Balance Sheet Data as of December 31, 1999 F-33
Notes to the Unaudited Condensed Consolidated Pro Forma Balance Sheet Data F-34
Unaudited Condensed Consolidated Pro Forma Statement of Operations Data for the Nine
Months Ended December 31, 1999 F-36
Unaudited Condensed Consolidated Pro Forma Statement of Operations Data
for the year ended March 31, 1999 F-37
Notes to the Unaudited Condensed Consolidated Pro Forma Statement of Operations Data F-38
</TABLE>
F-1
<PAGE>
Independent Auditor's Report
To Stockholders of
Centillion Data Systems, Inc. and Subsidiaries
Indianapolis, Indiana
We have audited the accompanying consolidated balance sheet of Centillion Data
Systems, Inc. and Subsidiaries as of December 31, 1999 and 1998, and the related
consolidated statements of income, stockholders' equity and cash flows for the
years then ended. These consolidated financial statements are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these consolidated financial statements based on our audits.
We conducted our audits in accordance with 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.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
Centillion Data Systems, Inc. and Subsidiaries as of December 31, 1999 and 1998,
and the results of their operations and their cash flows for the years then
ended in conformity with generally accepted accounting principles.
/s/ Olive LLP
Indianapolis, Indiana
January 21, 2000, except for Notes 2 and 17,
which are as of February 3, 2000
F-2
<PAGE>
CENTILLION DATA SYSTEMS, INC. AND SUBSIDIARIES
Consolidated Statement of Income
<TABLE>
<CAPTION>
Year Ended December 31 1999 1998
- - ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Net Revenues
Service/Products/License Fees $10,375,914 $35,179,217
Reimbursed expense 303,828 308,595
Other 54,900 85,689
---------------------------------
10,734,642 35,573,501
Cost of Revenues 4,522,785 7,965,900
---------------------------------
Gross Profit 6,211,857 27,607,601
---------------------------------
Operating Expenses
General and administrative 1,782,832 1,695,412
Selling 175,753 336,261
---------------------------------
1,958,585 2,031,673
---------------------------------
Operating income 4,253,272 25,575,928
---------------------------------
Other Income (Expense)
Investment income 156,095 598,184
Loss on disposal of assets (56,320) (1,840)
---------------------------------
99,775 596,344
---------------------------------
Income From Continuing Operations Before Income Taxes and Minority Interest 4,353,047 26,172,272
Income Tax 1,733,484 10,422,403
---------------------------------
Income From Continuing Operations Before Minority Interest 2,619,563 15,749,869
Discontinuing Operations
Loss from discontinuing operations--net of applicable tax benefit of $1,834,204
and $1,796,154 (3,622,867) (5,467,777)
Loss on disposal of discontinuing operations--net of applicable tax benefit of
$521,624 (1,281,706)
Minority Interest in Net Loss of Discontinuing Operations 157,279
---------------------------------
Net Income (Loss) $ (2,127,731) $10,282,092
=================================
</TABLE>
See notes to consolidated financial statements.
F-3
<PAGE>
CENTILLION DATA SYSTEMS, INC. AND SUBSIDIARIES
Consolidated Balance Sheet
<TABLE>
<CAPTION>
December 31 1999 1998
- - --------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Assets
Current Assets
Cash and cash equivalents $ 6,097,338 $11,669,606
Securities available for sale 6,116,112 1,051,995
Accounts receivable (net of allowance of $70,510 and $115,366) 1,136,502 1,077,715
Other receivables 53,904 2,833
Prepaid assets 129,917 117,907
Income taxes refundable 507,912
Deferred income tax benefit 521,624 58,669
Assets of discontinuing operations 4,379,631 1,907,992
--------------------------------
Total current assets 18,942,940 15,886,717
--------------------------------
Property and Equipment 2,012,751 1,444,569
--------------------------------
Assets of Discontinuing Operations 3,689,746
--------------------------------
Other Assets
Intangible assets 432,883 244,092
Investments 19,800 19,800
Deferred income tax benefit 9,678 26,422
--------------------------------
462,361 290,314
--------------------------------
$21,418,052 $21,311,346
================================
Liabilities and Stockholders' Equity
Current Liabilities
Notes payable--banks $ 118,285 $ 367,285
Accounts payable 261,941 177,738
Income taxes payable 1,507,148
Deferred income tax liability 389,009
Accrued liabilities 694,166 538,700
Liabilities of discontinuing operations 1,688,762 455,805
--------------------------------
Total current liabilities 3,152,163 3,046,676
--------------------------------
Minority Interest In Discontinuing Operations 1,399,441 1,145,165
--------------------------------
Stockholders' Equity
Common stock--no-par value
Authorized--10,000,000 shares
Issued and outstanding--3,696,632 and 3,539,693 shares, respectively,
at stated value of $.0001 per share 370 354
Additional paid-in capital 8,886,924 7,719,438
Accumulated other comprehensive income 795,657 88,485
Retained earnings 7,183,497 9,311,228
--------------------------------
16,866,448 17,119,505
--------------------------------
$21,418,052 $21,311,346
================================
</TABLE>
See notes to consolidated financial statements.
F-4
<PAGE>
CENTILLION DATA SYSTEMS, INC. AND SUBSIDIARIES
Consolidated Statement of Stockholders' Equity
<TABLE>
<CAPTION>
Accumulated
Additional Retained Other
Common Paid-In Comprehensive Earnings Comprehensive
Stock Capital Income (Deficit) Income Total
- - --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balances, January 1, 1998 $404 $10,475,763 $ (970,864) $ 50,506 $ 9,555,809
Comprehensive Income
Net income $10,282,092 10,282,092 10,282,092
Unrealized gains on 34,401 34,401 34,401
securities
Foreign currency
translation
adjustments 3,578 3,578 3,578
------------------
Comprehensive Income $10,320,071
==================
Stock redemption (52) (2,930,480) (2,930,532)
Issuance of stock 2 174,155 174,157
---------------------------------- ------------------------------------------------
Balances, December 31, 1998 354 7,719,438 9,311,228 88,485 17,119,505
Comprehensive Income
Net loss $(2,127,731) (2,127,731) (2,127,731)
Unrealized gains on 625,589 625,589 625,589
securities
Foreign currency
translation
adjustments 81,583 81,583 81,583
------------------
Comprehensive loss $(1,420,559)
==================
Issuance of stock 16 1,167,486 1,167,502
---------------------------------- ------------------------------------------------
Balances, December 31, 1999 $370 $ 8,886,924 $7,183,497 $795,657 $16,866,448
================================== ================================================
</TABLE>
See notes to consolidated financial statements.
F-5
<PAGE>
CENTILLION DATA SYSTEMS, INC. AND SUBSIDIARIES
Consolidated Statement of Cash Flows
<TABLE>
<CAPTION>
Year Ended December 31 1999 1998
- - --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Operating Activities
Net income (loss) $(2,127,731) $10,282,092
Adjustments to reconcile net income (loss) to net cash provided by operating
activities
Depreciation 1,943,709 2,014,920
Amortization 1,157,008 1,631,325
Provision for bad debts (44,856) (24,691)
Deferred income tax (27,965) (19,603)
(Gain) loss on disposal of assets (135,904) 3,850
Loss on disposal of discontinuing operations 1,281,706
Write down of intangible assets 1,590,621
Deferred revenue 36,130 8,422
Minority interest 254,276
Changes in
Receivables (436,204) 424,045
Prepaid assets (30,553) (5,300)
Income tax (refundable) payable (2,015,060) 1,945,851
Accounts payable 76,691 (482,286)
Accrued expenses and other liabilities 181,447 (141,989)
----------------------------------
Net cash provided by operating activities 112,694 17,227,257
----------------------------------
Investing Activities
Purchase of equipment (1,915,499) (1,137,126)
Proceeds from asset disposals 1,275,260 3,434
Purchase of available-for-sale securities (4,914,002) (991,642)
Purchase of business interests (873,668) (1,750,000)
Cash of business acquired 1,473,905
----------------------------------
Net cash used by investing activities (6,427,909) (2,401,429)
----------------------------------
Financing Activities
Net advances (repayments) on line of credit 94,390 (355,741)
Repayment of debt (265,031) (253,110)
Issuance of stock 87,500 174,157
Redemption of stock (2,930,532)
----------------------------------
Net cash used by financing activities (83,141) (3,365,226)
----------------------------------
Effect of Foreign Currency Exchange Rate Changes on Cash and Cash Equivalents 81,583 3,578
----------------------------------
Increase (Decrease) in Cash and Cash Equivalents (6,316,773) 11,464,180
Cash and Cash Equivalents, Beginning of Year 13,182,315 1,718,135
----------------------------------
6,865,542 13,182,315
Cash and Cash Equivalents Included in Assets of Discontinued Operations (768,204)
----------------------------------
Cash and Cash Equivalents, End of Year $6,097,338 $13,182,315
==================================
Supplemental Cash Flows Information
Cash paid for interest $24,000 $45,167
Cash paid for income taxes 1,942,000 6,700,000
Assets and liabilities acquired in purchase of business
Cash 1,473,905
Receivables 105,534
Prepaid expenses 729
Property and equipment 38,860
Accounts payable (1,170)
Accrued expenses (4,950)
</TABLE>
See notes to consolidated financial statements.
F-6
<PAGE>
CENTILLION DATA SYSTEMS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
1. Nature of Operations and Summary of Significant Accounting Policies
Nature of Operations
Founded in 1987, Centillion Data Systems, Inc. pioneered and patented an
electronic billing analysis system for the telecommunications industry. Today,
Centillion supports this software and provides services to customers throughout
the United States, which based on net revenue, is its most significant service.
In addition, Centillion subsidiaries market an internationally recognized
digital asset management software application and launched one of the first ASP
(Application Service Provider) initiatives in the Indianapolis area. At December
31, 1999, net assets of the Company located in Sweden and Germany are
approximately $145,000 and $101,000, respectively.
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. Significant estimates are used
when accounting for the allowance for doubtful accounts, depreciation and
amortization and capitalization of computer software development costs.
Principles of Consolidation
The consolidated financial statements include the accounts of the Company and
its wholly owned subsidiaries, Centillion Digital Systems, Inc. (formerly
PhotoImaging North America, Inc.), Centillion Digital GmbH (Germany), and an
entity controlled by the Company, e.Nova, LLC (formerly Computer Bank Services
LLC) and its wholly owned subsidiary, Xila Communications, LLC. The Company
purchased its interest in e.Nova, LLC on December 30, 1998. Xila Communications,
LLC was formed during 1999. All intercompany accounts and transactions have been
eliminated in consolidation.
Foreign Currency Translation
The consolidated statements include the accounts of the Swedish branch office
and the German subsidiary. The accounts of the Swedish branch have been
translated from Swedish Kroner to U. S. dollars and the accounts of the German
subsidiary have been translated from German DM to U. S. dollars at the average
of the monthly exchange rates for income and expense accounts and at the rates
existing at the respective year ends for assets and liabilities. The effects of
these translation adjustments have been recorded as a separate component of
accumulated other comprehensive income.
Cash and Cash Equivalents
Cash and cash equivalents consist of bank deposits in federally insured
accounts. The Company's cash accounts exceeded federally insured limits by
approximately $6,000,000 at December 31, 1999.
For purposes of the statement of cash flows, the Company considers all highly
liquid debt instruments, if any, purchased with an original maturity of three
months or less to be cash equivalents.
F-7
<PAGE>
Property and Equipment
Property and equipment are recorded at cost. Provisions for depreciation and
amortization are computed using straight-line and accelerated methods over the
estimated useful lives of the assets.
Capitalized Software Development Costs
Amortization of capitalized software costs is based upon straight-line
amortization over three years. When the technological feasibility of a software
product has been established, development costs are capitalized.
F-8
<PAGE>
CENTILLION DATA SYSTEMS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Intangible Assets
The Company amortizes its intangible assets using the straight-line method over
their respective lives, which range from 3 to 15 years.
Investments
Marketable equity securities are classified as available for sale. Securities
available for sale are carried at fair value with unrealized gains and losses
reported in accumulated other comprehensive income. Realized gains and losses
are recorded as gains (losses) on disposal of assets. Gains and losses on sales
of securities are determined on the specific-identification method.
Bad Debt
The Company uses the reserve method of accounting for bad debts on receivables.
Income Taxes
Income tax in the consolidated statement of income includes deferred income tax
provisions or benefits for all significant temporary differences in recognizing
income and expenses for financial reporting and income tax purposes. The Company
files consolidated income tax returns with its subsidiaries, except for e.Nova,
LLC.
Revenue Recognition
The Company recognizes revenue, net of discounts, for services by work order in
the period in which the information is processed and billed. Revenue from the
granting of software licenses is recognized upon the completion of installation.
Research and Development
Research and development costs are expensed as incurred. Total research and
development costs were approximately $700,000 for 1999 and $800,000 for 1998.
Reclassifications
Certain amounts in prior year financial statements have been reclassified to
conform to the current year presentation.
2. Discontinuing Operations
The Company's management has determined to dispose of its interests in
Centillion Digital Systems, Inc., Centillion Digital GmbH, and e.Nova, LLC and
subsidiary. These entities represent a separate major line of business from the
core business of Centillion Data Systems, Inc. Accordingly, the operations of
these subsidiaries and investees have been reported separately as discontinued
operations in the accompanying financial statements. These entities will be sold
to the stockholders of the Company.
At December 31, 1999, the assets and liabilities of these entities consist
primarily of cash, accounts receivable, property and equipment, capitalized
software costs, goodwill, other intangible assets, accounts payable and
short-term bank financing. Revenues from these entities for 1999 and 1998 amount
to approximately $1,570,000 and $1,200,000, respectively.
F-9
<PAGE>
CENTILLION DATA SYSTEMS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
3. Investments
<TABLE>
<CAPTION>
1999
-------------------------------------------------------------------------
Gross Gross Approximate
Unrealized Unrealized Market
December 31 Cost Gains Losses Value
- - ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Available for sale
Marketable equity securities $4,985,867 $1,370,841 $(240,596) $6,116,112
=========================================================================
</TABLE>
<TABLE>
<CAPTION>
1998
-------------------------------------------------------------------------
Gross Gross Approximate
Unrealized Unrealized Market
December 31 Cost Gains Losses Value
- - ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Available for sale
Marketable equity securities $991,642 $75,018 $(14,665) $1,051,995
=========================================================================
</TABLE>
Proceeds from sales of securities available for sale during 1999 were $751,777.
The net loss realized was approximately $168,000.
4. Intangible Assets
Intangible assets consist of the following:
<TABLE>
<CAPTION>
December 31 1999 1998
- - ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Patents $344,850 $344,850
Franchise fees and legal fees 332,000 332,000
Acquired contracts 23,105 2,299,256
Acquired intellectual property 1,967,967 1,282,257
Goodwill 1,104,855
Other 94,404 94,404
---------------------------------------
Total cost 3,867,181 4,352,767
Accumulated amortization (1,208,898) (2,351,142)
---------------------------------------
2,658,283 2,001,625
Intangible assets included in assets of discontinued operations (2,225,400) (1,757,533)
---------------------------------------
$432,883 $244,092
=======================================
</TABLE>
During 1998, certain intangibles relating to discontinuing operations were
written down to their estimated net realizable value due to accelerated
technological obsolescence. The write down of $1,590,621 is included in loss
from discontinuing operations.
F-10
<PAGE>
CENTILLION DATA SYSTEMS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
5. Property and Equipment
Property and equipment consists of the following:
<TABLE>
<CAPTION>
December 31 1999 1998
- - ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Data processing equipment $1,936,836 $1,708,760
Furniture and equipment 748,562 951,201
Automobiles 12,105 34,247
Software 7,066,045 5,861,120
Leasehold improvements 381,469 360,450
---------------------------------------
Total cost 10,145,017 8,915,778
Accumulated depreciation and amortization (7,016,021) (5,538,997)
---------------------------------------
3,128,996 3,376,781
Net assets of discontinuing operations (1,116,245) (1,932,212)
---------------------------------------
$2,012,751 $1,444,569
=======================================
</TABLE>
At December 31, 1999 and 1998, software was comprised of the following:
<TABLE>
<CAPTION>
1999 1998
- - ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Acquired in purchase of foreign company assets $3,338,362 $3,338,362
Developed internally 3,234,530 2,283,374
Purchased for internal use 493,153 239,384
---------------------------------------
Total 7,066,045 5,861,120
Accumulated amortization (5,044,397) (3,520,077)
---------------------------------------
Software--net $2,021,648 $2,341,043
=======================================
</TABLE>
Software purchased and developed internally is being amortized using the
straight-line method over three years. Amortization expense was $1,524,320 and
$1,320,002 for the years ended December 31, 1999 and 1998.
6. Investment
On December 30, 1998, the Company acquired a 29% membership interest in e.Nova,
LLC for $1,750,000. Although the Company owns less than a 50% interest at
December 31, 1998, e.Nova, LLC has been consolidated because the Company has
effective control as it has a large minority interest and is funding the
operations. This transaction was accounted for using the purchase method of
accounting. The purchase price was allocated to various tangible and intangible
assets based upon their estimated fair values at December 30, 1998. During 1999,
the Company acquired additional membership interest in e.Nova, LLC through
various transactions. At December 31, 1999, the Company owns 46.9% of the
membership interest of e.Nova. Profits and losses are allocated to the members
based upon the terms of the LLC operating agreement.
During 1999, the Company acquired substantially all of the assets of XMS Corp.
for 146,939 shares of Centillion Data Systems stock, valued at $1,080,002. The
transaction has been accounted for using the purchase method of accounting. The
operations of Xila Communications have been included in the results of
operations from the date of acquisition. Goodwill resulting from the transaction
is being amortized using the straight-line method over three years.
F-11
<PAGE>
CENTILLION DATA SYSTEMS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
7. Line of Credit
The Company has a $250,000 revolving line of credit expiring on November 1,
2000. At December 31, 1999, there was $94,390 borrowed against this line. This
line relates to the discontinuing operations. The line is collateralized by
substantially all of the Company's assets. Interest varies with the bank's prime
rate.
In connection with the line of credit and other notes payable, the Company has
agreed to loan covenants, which require that certain criteria be met, including
the limiting of annual fixed asset acquisitions and minimum equity levels.
8. Notes Payable
Notes payable consist of the following:
<TABLE>
<CAPTION>
1999 1998
- - ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Note payable--bank--8.9%; payable in monthly payments of $20,750 plus interest,
final payment due July 1, 2000, collateralized by substantially all of the
Company's assets $118,285 $367,285
Note payable--bank--9.0%; principal and interest payable monthly; paid off in 1999 16,031
-------------------------------
118,285 383,316
Note payable of discontinuing operations (16,031)
-------------------------------
$118,285 $367,285
===============================
</TABLE>
9. Leases
The Company has a noncancellable operating lease with a related party for office
space that expires in 2003. On January 1, 1999, the lease agreement was amended
to include additional office space. Rental expense for this lease totaled
$630,593 and $478,712 for the years ended December 31, 1999 and 1998.
Minimum annual rental payments required under this operating lease as of
December 31, 1999 are as follows:
<TABLE>
<CAPTION>
Years Ending December 31
- - ----------------------------------------------------------------------------------------------------------------------------
<S> <C>
2000 $ 630,593
2001 630,593
2002 630,593
2003 578,044
--------------------
$2,469,823
====================
</TABLE>
F-12
<PAGE>
CENTILLION DATA SYSTEMS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
10. Common Stock
During 1999, the Company issued 10,000 shares for the exercise of a stock
option. The Company also issued 146,939 shares for the acquisition of the net
assets of XMS Corp. These net assets were then contributed to e.Nova, LLC in
exchange for additional membership units. The net effect of these transactions
increased additional paid-in capital by $1,167,486.
During 1998, the Company bought back 526,128 shares of its common stock through
a stock redemption and issued 20,200 shares for the exercise of stock options.
The net effect of these transactions decreased additional paid-in capital by
$2,756,325.
11. Stockholder Agreement
The Company and its stockholders are party to a stockholders agreement. The
agreement provides that upon the termination of a management stockholder
(specified as two individuals) such stockholder will sell, and the Company will
purchase, all outstanding shares held by the management stockholder. In the case
of one management stockholder, the Company will purchase all shares into which
options then held by such stockholder may be exercised. Additionally, upon a
change in control of the Company, all options of the one management shareholder
will become immediately exercisable. The purchase price per share shall be
determined by mutual agreement between the Company and the management
stockholder. If no agreement can be reached, the purchase price will be
determined by independent appraisal. At December 31, 1999, there are 64,145
shares and 45,655 options subject to repurchase.
12. Employee Benefit Plans
The Company maintains a profit-sharing plan that covers certain eligible
employees. Contributions to the Plan are discretionary. The Company elected to
contribute $165,000 to the plan in both 1999 and 1998.
The Company maintains a wage-deferral plan qualified under Section 401(k) of the
Internal Revenue Code that covers certain eligible full-time employees.
Effective January 1, 1999, the Company matches 50% of participant contributions
up to 2% of participant compensation. During 1999, the Company made
contributions of approximately $20,000.
F-13
<PAGE>
CENTILLION DATA SYSTEMS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
13. Income Taxes
<TABLE>
<CAPTION>
Year Ended December 31 1999 1998
- - ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Income tax expense
Currently payable
Federal $1,555,148 $ 8,412,364
State 158,217 2,033,724
Deferred
Federal 11,304 (18,817)
State 8,815 (4,868)
----------------------------------------
Income tax expense from continuing operations $1,733,484 $10,422,403
========================================
Income taxes (benefit) were reported as follows:
From continuing operations $2,177,787 $10,448,355
Discontinued operations (2,355,828) (1,796,154)
Item charged directly to stockholders' equity (444,303) (25,952)
----------------------------------------
Total income tax expense (benefit) $ (622,344) $ 8,626,249
========================================
Reconciliation of federal statutory to actual tax expense
Federal statutory income tax at 34% $1,480,036 $ 8,898,572
Effect of state income taxes 110,241 1,339,045
Excess tax rate 199,597
Effect of nondeductible expenses and other 143,207 (14,811)
----------------------------------------
Actual income tax expense from continuing operations $1,733,484 $10,422,403
========================================
</TABLE>
F-14
<PAGE>
CENTILLION DATA SYSTEMS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
The components of the net deferred tax asset are as follows:
<TABLE>
<CAPTION>
December 31 1999 1998
- - ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Assets
Depreciation and amortization $279,561 $202,857
Basis of discontinuing operations 521,624
Allowance for bad debts 13,876 48,162
Vacation and bonus compensation 50,802 95,370
Property tax 4,843 4,228
State income tax 19,461
------------------------------------
Total assets 890,167 350,617
------------------------------------
Liabilities
Basis of assets purchased (187,273) (187,273)
Unrealized gain on securities available for sale (470,255) (25,952)
State income tax (10,039)
------------------------------------
Total liabilities (657,528) (223,264)
------------------------------------
232,639 127,353
(Assets) liabilities of discontinuing operations (90,346) (42,262)
------------------------------------
$142,293 $ 85,091
====================================
</TABLE>
14. Major Customer
Contract revenue from one major customer (defined as a customer who provided in
excess of 10% of total revenue) approximated 71% and 77% of total contract
revenues during 1999 and 1998. Accounts receivable from this major customer
approximated 64% and 68% of total accounts receivable at December 31, 1999 and
1998, respectively. The Company has a three year contract with this customer
which expires September 2000.
15. Stock Options
Under the Company's various stock option plans, which are accounted for in
accordance with Accounting Principles Board Opinion (APB) No. 25, Accounting for
Stock Issued to Employees, and related interpretations, the Company grants
selected executives and other employees stock option awards. Some of the options
vest immediately while others vest over a period of several years. The options
have lives ranging from 3 to 15 years. During 1997, the Company granted options
for the purchase of 20,200 shares of common stock at 85% of the fair market
value of the stock at the date of grant. During 1999 and 1998, the Company
granted options for the purchase of 10,000 and 9,000 shares, respectively, of
common stock at 85% of the fair market value of the stock at the date of grant.
In 1998, the Company also granted options for 35,655 shares of common stock with
an exercise price of $5.57 per share.
F-15
<PAGE>
CENTILLION DATA SYSTEMS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
The Company has entered into a stock option agreement with one of its officers
which (as adjusted for the 1996 10,000 for 1 stock split and as amended in 1997
to grant an additional 10,000 shares) grants to the officer the option to
purchase 95,000 shares of common stock. When an option is exercised, the
employee receives a cash bonus in the amount of the exercise price plus all
related income taxes. No options were exercised in 1997. The employee exercised
17,500 shares for $153,125 during 1998. The employee exercised 10,000 shares for
$87,500 during 1999. These amounts and the related tax amounts are included as
compensation expense for 1999 and 1998. The balance of the remaining options
will expire at a rate of 10,000 shares per year through March 31, 2002.
Although the Company has elected to follow APB No. 25, SFAS No. 123 requires pro
forma disclosures of net income as if the Company had accounted for its employee
stock options under that Statement. The fair value of each option grant was
estimated on the grant date using a present value calculation with the following
assumptions:
<TABLE>
<CAPTION>
1999 1998
------------------------------------
<S> <C> <C>
Risk-free interest rates 5.75% 5.75%
Dividend yields 1.31% 1.36%
Weighted-average expected life of the options 15 years 7 years
</TABLE>
Under SFAS No. 123, compensation cost is recognized in the amount of the
estimated fair value of the options and amortized to expense over the options'
vesting period. The pro forma effect on net income and earnings per share of
this statement are as follows:
<TABLE>
<CAPTION>
1999 1998
-------------------------------------
<S> <C> <C> <C>
Net income (loss) As reported $(2,127,731) $10,282,092
Pro forma (2,187,431) 10,115,092
</TABLE>
The following is a summary of the status of the Company's stock option plans and
changes in those plans as of and for the years ended December 31, 1999 and 1998.
<TABLE>
<CAPTION>
Year Ended December 31 1999 1998
- - ----------------------------------------------------------------------------------------------------------------------------
Weighted-Average Weighted-Average
Exercise Price Exercise Price
Options Shares Shares
- - ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Outstanding, beginning of year 90,955 $7.20 66,500 $8.63
Granted 10,000 6.50 44,655 5.71
Exercised (10,000) 8.75 (20,200) 8.62
Forfeited/expired
-------------- --------------
Outstanding, end of year 90,955 $6.95 90,955 $7.20
============== ==============
Options exercisable at year end 70,955 57,555
Weighted-average fair value of options granted during the year $4.83 $3.49
</TABLE>
As of December 31, 1999, the 90,955 options outstanding have exercise prices
ranging from $5.57 to $9.54 and a weighted-average remaining contractual life of
5.82 years.
F-16
<PAGE>
CENTILLION DATA SYSTEMS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
16. Other Comprehensive Income
<TABLE>
<CAPTION>
1999
--------------------------------------------------------
Tax
Before-Tax (Expense) Net-of-Tax
Year Ended December 31 Amount Benefit Amount
- - ------------------------------------------------------------------- ------------------- ------------------ -----------------
<S> <C> <C> <C>
Unrealized holding gains arising during the year $ 901,892 $(374,536) $527,356
Less: reclassification adjustment for gains (losses) realized in
net income (168,000) 69,767 (237,767)
------------------- ------------------ -----------------
Net unrealized gains 1,069,892 (444,303) 625,589
Foreign currency translation adjustment 196,443 (114,860) 81,583
------------------- ------------------ -----------------
$1,266,335 $(559,163) $707,172
=================== ================== =================
</TABLE>
<TABLE>
<CAPTION>
1998
--------------------------------------------------------
Tax
Before-Tax (Expense) Net-of-Tax
Year Ended December 31 Amount Benefit Amount
- - ------------------------------------------------------------------- ------------------- ------------------ -----------------
<S> <C> <C> <C>
Unrealized holding gains arising during the year $60,353 $(25,952) $34,401
Foreign currency translation adjustment 6,277 (2,699) 3,578
------------------- ------------------ -----------------
$66,630 $(28,651) $37,979
=================== ================== =================
</TABLE>
The components of other comprehensive income are as follows:
<TABLE>
<CAPTION>
Foreign Accumulated
Unrealized Currency Other
Gains Translation Comprehensive
on Securities Adjustment Income
- - ------------------------------------------------------------ -------------------- -------------------- ---------------------
<S> <C> <C> <C>
Balance, January 1, 1998 $ 50,506 $ 50,506
Net change, 1998 $ 34,401 3,578 37,979
-------------------- -------------------- ---------------------
Balance, December 31, 1998 34,401 54,084 88,485
Net change, 1999 625,589 81,583 707,172
-------------------- -------------------- ---------------------
Balance, December 31, 1999 $659,990 $135,667 $795,657
==================== ==================== =====================
</TABLE>
F-17
<PAGE>
CENTILLION DATA SYSTEMS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
17. Subsequent Acquisition
On February 3, 2000, the Company entered into an Agreement and Plan of Merger
with CTI Group Holdings, Inc.(CTIG). This merger is to be effective as soon as
each company receives stockholder approval and articles of merger are filed in
the respective states. As a result of this Plan of Merger, the shares of the
Company's issued and outstanding common stock prior to the merger will be
converted into shares of Class A Common Stock and Class B Common Stock of CTIG.
In addition, the Company's stockholders will receive the right to additional
shares of CTIG Class A Common Stock if certain conditions are met.
Certain of the shares of CTIG Class A Common Stock will be placed in escrow at
the merger date and will be transferred to the Company's stockholders if a
targeted revenue amount is met during the three-year period following the merger
date. If the goal is not met, then the number of shares released from escrow to
the Company's stockholders is reduced on a pro rata basis based on the actual
target revenue received compared to the goal. If the number of shares from
escrow is reduced due to the Company not meeting the target revenue, then its
stockholders will have the right to purchase the remaining escrow shares at the
price of $1.50 per share.
Prior to the merger date, the Company will create a single member LLC, owned by
the Company, to which it will transfer all of its patent rights and patent
claims. In addition, the Company will sell its ownership interests in Centillion
Digital Systems, Inc., Centillion Digital GmbH, and e.Nova, LLC to a group of
its stockholders in exchange for a promissory note due and payable in ten years
with interest at the applicable federal rate. These entities are accounted for
as discontinued operations at December 31, 1999 (see note 2).
As payments are received by CTIG on the above promissory note, the Company's
stockholders will be entitled to receive additional shares of CTIG Class A
Common Stock equal in value to the payment received (the CTIG stock to be issued
would be valued at 88% of its average market value on the date of distribution).
If all or any portion of the promissory note remains outstanding more than five
years after the merger, then the Company's stockholders shall receive CTIG Class
A Common Stock (on the same basis as if payments were received) based on the
fair market value of the promissory note.
As a result of the exchange of CTIG stock for the Company's stock, the
stockholders of the Company will hold a majority of the outstanding voting stock
of CTIG. Therefore, this transaction will be treated as a recapitalization of
the Company with the Company as the acquirer (reverse acquisition). As the
acquirer, the Company has capitalized all direct legal and other fees related to
the acquisition.
F-18
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Celltech Information Systems, Inc.:
We have audited the accompanying balance sheets of Celltech Information Systems,
Inc. (a Delaware Corporation) as of December 31, 1999 and 1998, and the related
statements of operations, shareholders' equity and cash flows for the years then
ended. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Celltech Information Systems,
Inc. 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 accounting principles
generally accepted in the United States.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 1 to the
financial statements, the Company has suffered a loss from operations and an
operating cash flow deficit in 1999 that raises substantial doubt about its
ability to continue as a going concern. Management's plans in regard to these
matters are also described in Note 1. The financial statements do not include
any adjustments that might result from the outcome of this uncertainty.
/s/ Arthur Andersen LLP
Philadelphia, Pa.,
April 17, 2000
F-19
<PAGE>
CELLTECH INFORMATION SYSTEMS, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
December 31
--------------------------------
1999 1998
--------------- ---------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 325,627 $ 719,709
Accounts receivable, net of allowance for doubtful accounts of $410,072
and $13,708 at December 31, 1999 and 1998, respectively 666,408 983,964
Inventory 6,886 29,286
Prepaid expenses 83,118 66,529
Income tax receivable 161,786 60,479
Deferred income taxes 191,230 --
--------------- ---------------
Total current assets 1,435,055 1,859,967
--------------- ---------------
PROPERTY AND EQUIPMENT, net of accumulated depreciation of $278,617 and
$591,244 at December 31, 1999 and 1998, respectively
343,740 260,265
OTHER ASSETS 4,670 4,670
--------------- ---------------
$ 1,783,465 $ 2,124,902
=============== ===============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 449,186 $ 349,268
Accrued expenses 554,842 586,089
Promissory notes payable 95,130 147,222
Current portion of capital leases 45,833 --
--------------- ---------------
Total current liabilities 1,144,991 1,082,579
CAPITAL LEASES, LESS CURRENT PORTION 164,001 --
DEFERRED INCOME TAXES 12,202 2,641
--------------- ---------------
1,321,194 1,085,220
--------------- ---------------
COMMITMENTS AND CONTINGENCIES (Notes 1 and 11)
SHAREHOLDERS' EQUITY:
Common stock, par value of $1.00,
2,353 shares authorized and issued 2,353 2,353
Additional paid-in capital 1,000 1,000
Retained earnings 458,918 1,036,329
--------------- ---------------
Total shareholders' equity 462,271 1,039,682
--------------- ---------------
$ 1,783,465 $ 2,124,902
=============== ===============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-20
<PAGE>
CELLTECH INFORMATION SYSTEMS, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
For the Years Ended
December 31
-----------------------------------
1999 1998
---------------- ----------------
<S> <C> <C>
REVENUES $ 7,952,798 $ 8,991,445
EXPENSES:
Cost of revenues (excluding depreciation and amortization) 3,983,936 4,230,177
Research and development 422,252 451,856
Selling, general and administrative 4,135,768 3,658,694
Depreciation and amortization 125,422 97,430
---------------- ----------------
8,667,378 8,438,157
---------------- ----------------
Operating (loss) income (714,580) 553,288
---------------- ----------------
OTHER (EXPENSE) INCOME:
Interest income (expense) 6,547 (2,488)
Other (expense) income (152,353) 45,000
---------------- ----------------
(Loss) income before provision
for income taxes (860,386) 595,800
INCOME TAX BENEFIT (PROVISION) 282,975 (209,216)
---------------- ----------------
NET (LOSS) INCOME $ (577,411) $ 386,584
================ ================
NET (LOSS) INCOME PER COMMON SHARE $ (245.39) $ 164.29
================ ================
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING 2,353 2,353
================ ================
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-21
<PAGE>
CELLTECH INFORMATION SYSTEMS, INC.
STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
<TABLE>
<CAPTION>
Additional Total
Common Paid-In Retained Shareholders'
Stock Capital Earnings Equity
--------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1997 $ 2,353 $ 1,000 $ 649,745 $ 653,098
Net income -- -- 386,584 386,584
--------------- --------------- --------------- ---------------
BALANCE, DECEMBER 31, 1998 2,353 1,000 1,036,329 1,039,682
Net loss -- -- (577,411) (577,411)
--------------- --------------- --------------- ---------------
BALANCE, DECEMBER 31, 1999 $ 2,353 $ 1,000 $ 458,918 $ 462,271
=============== =============== =============== ===============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-22
<PAGE>
CELLTECH INFORMATION SYSTEMS, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For the Years Ended
December 31
--------------------------------
1999 1998
--------------- ---------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) income $ (577,411) $ 386,584
Adjustments to reconcile net income from operations
to cash (used in) provided by operations-
Depreciation and amortization 125,422 97,430
Deferred tax (benefit) provision (181,669) 2,738
Changes in operating assets and liabilities-
Accounts receivable 317,556 (331,532)
Accounts receivable from related parties -- 180,000
Inventory 22,400 2,523
Prepaid expenses (16,589) 2,111
Income tax receivable (101,307) (58,163)
Accounts payable 99,918 (71,917)
Other assets -- --
Accrued expenses (31,247) 265,390
--------------- ---------------
Net cash (used in) provided by operating activities (342,927) 475,164
--------------- ---------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and equipment (208,897) (165,634)
--------------- ---------------
Net cash used in investment activities (208,897) (165,634)
--------------- ---------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of debt (52,092) (2,778)
Proceeds from borrowings 209,834 150,000
--------------- ---------------
Net cash provided by financing activities 157,742 147,222
--------------- ---------------
Net (decrease) increase in cash and cash equivalents (394,082) 456,752
CASH AND CASH EQUIVALENTS, beginning of year 719,709 262,957
--------------- ---------------
CASH AND CASH EQUIVALENTS, end of year $ 325,627 $ 719,709
=============== ===============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest $ 15,313 $ 2,488
=============== ===============
Cash paid for taxes $ -- $ 262,000
=============== ===============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-23
<PAGE>
CELLTECH INFORMATION SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998
1. DESCRIPTION OF BUSINESS:
Celltech Information Systems, Inc. (the "Company") (formerly Celltech Cellular
Information Systems, Inc. and Radio Telephone Billing Service Company, Inc.) was
incorporated under the laws of the State of Delaware on March 3, 1988.
The Company provides data processing services for the telecommunications
industry. These services include processing and rating of call records,
statement fulfillment and consulting services, and software development.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. The Company incurred an operating loss
of $714,580 and an operating cash flow deficit of $342,927 during 1999. In
addition, during 1999 the Company was not in compliance with the financial
covenants of a Promissory Note, as discussed in Note 5, for which there was no
balance outstanding at December 31, 1999. The Company has obtained a waiver
through the period ended December 31, 1999 for this covenant violation. This
waiver does not extend beyond December 31, 1999. Management's operating plan for
2000 indicates positive cash flow from operations. To the extent necessary,
management intends to reduce its costs during 2000 to fund its obligations.
These conditions raise substantial doubt about the Company's ability to continue
as a going concern. The accompanying financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Cash and Cash Equivalents
The Company considers all highly liquid investments purchased with an original
maturity of three months or less to be cash equivalents.
Inventory
Inventory is stated at the lower of cost or market, with cost determined by the
specific identification method.
F-24
<PAGE>
Property and Equipment
Property and equipment are stated at cost. Major additions are capitalized while
minor improvements, which do not extend the useful life of the asset, are
expensed in the period incurred. The cost and accumulated depreciation of assets
retired, sold or otherwise disposed of are eliminated from the accounts and
resulting gains or losses, if any, are reflected in the statements of
operations. Depreciation is computed on the straight-line method over the
estimated useful lives of the assets, primarily three to seven years. Leasehold
improvements are depreciated over the shorter of their useful lives or the
remaining lease terms. Capital leases are depreciated over the shorter of their
useful lives or lease term.
Computer Software Costs
The Company classifies the costs of planning, designing and establishing the
technological feasibility of a computer software product as research and
development costs and charges those costs to expense when incurred. After
technological feasibility has been established, costs of producing a marketable
product and product masters are capitalized and amortized over the estimated
life of the product. Costs of maintenance and customer support are charged to
expense when costs are incurred. Capitalized software development costs, net,
which are amortized over a three-year life, amounted to $0 and $41,940 at
December 31, 1999 and 1998, respectively. Research and development costs
expensed during 1999 and 1998 were $422,252 and $451,856, respectively.
Revenue Recognition
The Company recognizes revenues from processing and rating of call records and
billing fulfillment when the related services are complete. Software license
fees are recognized after both acceptance by the client and delivery of the
product. Software maintenance and customer support revenues, which are bundled
with service revenues, are recognized ratably over the related customer
agreement periods. During 1999 and 1998, revenues included $1,714,033 and
$1,511,026 related to postage revenues, respectively. The related postage costs
during 1999 and 1998 were $1,528,302 and $1,374,512, respectively.
Income Taxes
The Company records deferred income taxes for the estimated future tax effects
of temporary differences between financial statement carrying amounts and the
tax bases of existing assets and liabilities. A valuation allowance is recorded
against deferred tax assets when it is concluded that it is more likely than not
the related tax benefit will not be realized.
Fair Value of Financial Instruments
The fair value of financial instruments is determined by reference to various
market data and other valuation techniques, as appropriate. The Company's
financial instruments include accounts receivable and debt. The fair value of
these financial instruments approximate their recorded book value as of December
31, 1999 and 1998.
New Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activity." SFAS No. 133, as
amended by SFAS No. 137, is required to be adopted by the Company on January 1,
2001. Management is currently assessing the effect of this pronouncement;
however, management does not expect adoption of this statement to have a
material effect on the Company's financial position or results of operations.
F-25
<PAGE>
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make reasonable 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. Actual results could differ from those estimates.
3. INVENTORY:
As of December 31, 1999 and 1998, inventory consists of the following:
1999 1998
-------------- ---------------
Forms and envelopes $ 6,886 $ 29,286
============== ===============
4. PROPERTY AND EQUIPMENT:
As of December 31, 1999 and 1998, the major classifications of property and
equipment are as follows:
1999 1998
--------------- ---------------
Furniture and office equipment $ 39,288 $ 113,815
Computer equipment 405,292 350,326
Leasehold improvements 30,879 222,111
Software 146,898 165,257
-------------- ---------------
622,357 851,509
Accumulated depreciation (278,617) (591,244)
-------------- ---------------
Property and equipment, net $ 343,740 $ 260,265
============== ===============
F-26
<PAGE>
5. DEBT:
Debt consists of the following:
1999 1998
-------------- --------------
Facility A $ -- $ 50,000
Facility B 63,886 97,222
Facility C 31,244 --
-------------- --------------
Total debt $ 95,130 $ 147,222
============== ==============
On August 26, 1997, the Company entered into a promissory note ("Facility A").
Facility A provided for borrowings up to $200,000. Subsequently, on August 26,
1999, the Company and the bank modified the terms of Facility A. The modified
terms provided for the following: (1) borrowing availability up to $400,000 and
(2) an interest rate of Prime plus 0.50%. Amounts outstanding under Facility A,
which were $0 and $50,000 at December 31, 1999 and 1998, respectively, are
personally guaranteed by the President of the Company. Facility A is due upon
demand by the bank. If no demand is made, all outstanding principal and interest
are due on August 26, 2000. Management intends to renew the facility at that
time. In addition, the Company is subject to certain financial covenants,
including (1) tangible minimum net worth, as defined by the promissory note, of
$900,000, and (2) a minimum net worth ratio, as defined by the promissory note,
of 1.7 to 1.0. During 1999, the Company was not in compliance with the tangible
net worth requirement. The Company has obtained a waiver through the period
ended December 31, 1999 for this covenant violation This waiver does not extend
beyond December 31, 1999.
On July 16, 1998, the Company entered into a second promissory note ("Facility
B"). Facility B provides for borrowings up to $100,000 at an interest rate of
Prime plus 1.00%. In addition, the bank is not obligated to advance funds
requested by the Company after November 13, 1998. The borrowings are due upon
demand by the bank. Monthly principal payments began on December 13, 1998, and
will continue, in the absence of demand by the bank, until November 13, 2001, at
which time all remaining amounts due will be satisfied.
On May 3, 1999, the Company entered into a third promissory note ("Facility C").
Facility C provided for borrowings up to $100,000 at an interest rate of 8.25%.
In addition, the bank is not obligated to advance funds requested by the Company
after August 31, 1999. The borrowings are due upon demand by the bank. Monthly
principal payments began on September 31, 1999, and will continue, in the
absence of demand by the bank, until August 31, 2002, at which time all
remaining amounts due will be satisfied.
Total interest expense during 1999 and 1998 was $15,315 and $2,488,
respectively. The weighted-average interest rate at December 31, 1999 and 1998
was 8.83% and 9.50%, respectively. Weighted-average borrowings outstanding
during 1999 and 1998 were $121,735 and $42,013, respectively. During 1999,
borrowings ranged from $95,129 to $147,222. During 1998, borrowings ranged from
$0 to $147,222.
6. CAPITAL LEASE OBLIGATIONS:
Property under capital lease obligations at December 31, 1999 consist of the
following:
Leased property - capital leases $ 142,945
Less: Accumulated depreciation (14,295)
---------------
$ 128,650
===============
Depreciation of leased property under capital leases amounted to $14,295 and $0
during 1999 and 1998, respectively.
F-27
<PAGE>
Capital lease obligations at December 31, 1999 consist of the following:
Green Tree Vendor Service Corporation due $3,380
per month including interest through November 2003 with a $1
buyout. Secured by related computer equipment. $ 129,033
Conseco Finance Vendor Service Corporation due $264 per
month including interest through December 2003
with a $1 buyout. Secured by the related voice mail system. 9,047
Conseco Finance Vendor Service Corporation due $2,057 per month
including interest through December 2003. Secured by related
computer equipment. 71,754
Less: Amounts due within one year (45,833)
-----------
$ 164,001
Future lease payments under capital lease obligations are as follows:
2000 $ 68,412
2001 68,412
2002 68,412
2003 60,215
2004 --
------------
265,451
Less: Imputed interest (55,617)
------------
$ 209,834
F-28
<PAGE>
7. EARNINGS PER SHARE:
Basic earnings per share are computed by dividing net loss or net income
applicable to common shareholders by the weighted average number of shares
outstanding during the period. There are no potentially dilutive securities
which would have a dilutive effect on earnings per share outstanding during 1999
or 1998.
8. INCOME TAXES:
Summaries of the benefit (provisions) for income taxes are as follows for
December 31:
1999 1998
----------- ------------
Current $ 101,306 $ (206,478)
Deferred 181,669 (2,738)
----------- ------------
Benefit (provision) for income taxes $ 282,975 $ (209,216)
=========== ============
The significant components of deferred tax assets and liabilities are as
follows:
Year Ended December 31
--------------------------
1999 1998
----------- ------------
Deferred tax assets:
Receivables reserve $ 139,430 $ --
Accruals 51,800 --
----------- ------------
191,230 --
Deferred tax liabilities:
Plant and equipment (12,202) (2,641)
----------- ------------
Net deferred income tax asset (liability) $ 179,028 $ (2,641)
=========== ============
9. CONCENTRATION OF CREDIT RISK:
In 1999 and 1998, approximately 84% and 65.2%of the Company's revenues were
derived from three customers. The revenues during 1999 and 1998 and the accounts
receivable balances at December 31, 1999 and 1998 related to these three
customers are as follows:
F-29
<PAGE>
REVENUES ACCOUNTS RECEIVABLE
---------------------------- --------------------------
1999 1998 1999 1998
------------ ------------ ---------- ------------
Customer A $ 3,700,330 $ 2,188,217 $ 331,675 $ 185,871
Customer B 1,443,268 2,295,318 0 380,105
Customer C $ 1,453,487 $ 1,390,266 $ 245,543 $ 298,299
During 1999, Customer B filed for Chapter 11 reorganization under the United
States Bankruptcy Code. During 1999, the Company recorded a charge of
approximately $407,000 to reduce Customer B's receivable to its net realizable
value. There is no accounts receivable, net of related reserves, due from this
customer at December 31, 1999. The contract with Customer A expired in February
2000 and an extension is currently being negotiated. The loss of any major
customer could have a material effect on the Company.
10. PROFIT-SHARING PLAN:
The Company maintains a profit-sharing plan (the "Plan") under the provisions of
Section 401(k) of the Internal Revenue Code. The plan covers all eligible
employees. Contributions to the plan by the Company are equal to 50% of the
employee's contribution, up to a maximum of 6% of the employee's salary. As of
December 31, 1999 and 1998, the Company made $51,265 and $32,108, respectively,
of contributions to the Plan.
11. COMMITMENTS AND CONTINGENCIES:
The Company leases office facilities, computer and office equipment under
cancelable and noncancellable leases expiring at various times through October
2004. The following is a schedule by year of the future minimum rental payments
required under operating leases that have initial or remaining noncancellable
lease terms in excess of one year.
2000 $ 473,819
2001 449,494
2002 459,973
2003 461,896
2004 231,854
---------------
$ 2,077,036
===============
Total rental expense for all operating leases was $479,036 and $309,780 for 1999
and 1998, respectively.
12. RELATED PARTY TRANSACTIONS:
On December 29, 1999, three individual minority shareholders of the Company
filed a complaint (the "Complaint") against the Company and the majority
shareholder of the Company. On March 29, the minority shareholders and the
majority shareholder entered into a Compromise, Settlement and Indemnity
Agreement whereby the Company paid $152,353. The court subsequently dismissed
the Complaint. The payment is reflected in other expense (income) and accrued
expenses in the 1999 financial statements.
F-30
<PAGE>
During 1998, the Company recorded a charge of $180,000 to reflect the write-off
of a related party receivable from Symphony Management Associates, Inc.
("Symphony"). Symphony is majority owned by the minority shareholders of the
Company. This charge was recorded in the selling, general and administrative
expenses in the accompanying 1998 statement of operations. No receivable balance
exists from Symphony at December 31, 1999 or 1998.
13. SUPPLEMENTARY DATA:
Components of accrued expenses:
Year Ended December 31
---------------------------------
1999 1998
-------------- ---------------
Accrued vacation and sick pay $ 197,006 $ 203,328
Accrued incentives -- 240,000
Accrued settlement 152,353 --
Accrued rent 12,424 17,679
Accrued other 64,837 37,299
Customer deposits 128,222 87,783
-------------- ---------------
Total accrued expenses $ 554,842 $ 586,089
============== ===============
14. SUBSEQUENT EVENT:
On April 6, 2000, the Company and CTI (Holding) Group, Inc. ("CTIG") entered
into a definitive merger agreement (the "Agreement") for the sale of 100% of the
common stock of the Company. The merger is expected to be consummated during the
second quarter of 2000, subject to CTIG shareholder approval. The total
estimated purchase price for the Company is $2,806,305. The estimated purchase
price is based on: (1) a $262,599 cash payment to the Company shareholders; (2)
875,329 shares of CTIG Class A common stock; valued at $2.91 based on the April
7, 2000 trading price and (3) 787,797 shares of CTIG Class A common stock to be
delivered to an escrow agent upon closing. The shares delivered to the escrow
agent are considered contingent consideration, payable to Company shareholders
upon attainment of certain performance criteria over three years. This
contingent consideration will be recorded as additional purchase price when the
contingency is resolved and consideration is issued or becomes issuable.
In the event that the average market price per share, as defined by the
Agreement, of the CTIG Class A common stock on the closing date is greater than
$3.00, to a maximum of $3.75, or below $3.00 to a minimum of $2.25, then the
total number of shares (1,663,126 shares) shall be determined by dividing
$4,989,378 by such average market price per share; provided that in no event
will the stock be less than 1,330,501 shares nor more than 2,217,501 shares
regardless of the average market price per share of CTIG Class A common stock.
F-31
<PAGE>
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL DATA
The following unaudited pro forma condensed consolidated financial data (the
"Pro Forma Data") of CTIG is based on the historical consolidated financial
statements of CTIG, Centillion and Celltech, which are incorporated by reference
into or presented elsewhere within this Proxy Statement/Prospectus, as adjusted
to give effect to the Merger and the Celltech acquisition (the "Acquisition"),
as described elsewhere within this Proxy Statement/Prospectus. The unaudited
condensed consolidated balance sheet as of December 31, 1999 gives effect to the
Merger and Acquisition as if they had occurred on that date. The unaudited pro
forma statements of operations for the year ended March 31, 1999 and the nine
months ended December 31, 1999 give effect to the Merger and Acquisition as if
they had occurred on April 1, 1998. In the preparation of the pro forma
condensed consolidated statement of operations for the year ended March 31,
1999, the column pertaining to Celltech contains historical financial statements
for the year ended December 31, 1998 and the column pertaining to Centillion was
developed by adding the results of the quarter ended March 31, 1999 and
subtracting the results of the quarter ended March 31, 1998 from the audited
results for the year ended December 31, 1998. Certain amounts in the Centillion
and Celltech historical financial statements have been reclassified to conform
to CTIG's financial statement presentation.
It is anticipated that the Centillion Merger will be accounted for as a reverse
acquisition of CTIG by Centillion. Under such method of accounting the legal
acquirer, CTIG, will continue in existence as the legal entity whose shares
represent the outstanding common stock of the combined company. In applying
purchase accounting to a reverse acquisition, the assets and liabilities of the
legal acquirer are revalued and the purchase price allocated to those assets and
liabilities assumed. The Celltech Acquisition will be accounted for under the
purchase method of accounting.
The pro forma adjustments are based upon available information and upon certain
assumptions that management believes are reasonable under the circumstances. The
Pro Forma Data and accompanying notes should be read in conjunction with the
annual and interim consolidated financial statements and notes thereto of CTIG,
Centillion and Celltech appearing elsewhere herein and incorporated by reference
into this Proxy Statement/Prospectus. The Pro Forma Data do not purport to
represent what CTIG's actual results of operations or actual financial position
would have been if the Merger and Acquisition had, in fact, occurred on such
dates or to project CTIG's results of operations or financial position for any
future period or date. The Pro Forma Data do not give effect to any transactions
other than the Merger and Acquisition, discussed in the notes to the Pro Forma
Data below.
F-32
<PAGE>
UNAUDITED CONDENSED CONSOLIDATED PRO FORM BALANCE SHEET DATA
December 31, 1999
<TABLE>
<CAPTION>
Historical
----------------------------------------------------------------------
CTI Group Centillion Celltech Information
(Holdings) Inc. Data Systems, Inc. Systems, Inc.
----------------- -------------------- ---------------------
<S> <C> <C> <C>
ASSETS
Current Assets:
Cash & cash equivalents 264,813 6,097,338 325,627
Securities Available for Sale 6,116,112 -
Trade Accounts Receivable, net 1,073,912 1,136,502 666,408
Other Receivables 53,904 -
Inventories 16,183 6,886
Prepaid expenses 64,589 129,917 83,118
Income Taxes Receivable and Deferred Income Taxes 1,029,536 353,016
Assets of discontinuing assets 4,379,631 -
---------- ----------- ----------
Total Current Assets 1,419,497 18,942,940 1,435,055
---------- ----------- ----------
PP&E 169,298 676,685 299,316
Computer Software 510,872 1,336,066 44,424
Intangible Assets 432,883 -
Goodwill 30,114 - -
Other Assets 21,862 29,478 4,670
---------- ----------- ----------
TOTAL ASSETS 2,151,643 21,418,052 1,783,465
========== =========== ==========
LIABILITIES
Current Liabilities:
Current portion of long-term debt 75,015 118,285 140,963
Accounts payable 273,547 261,941 449,186
Income taxes payable -
Deferred income tax liability 389,009 -
Other accrued expenses 1,036,600 694,166 554,842
Deferred revenues 567,412
Amount due to former Centillion Shareholders
Liabilities of discontinuing operations 1,688,762 -
---------- ----------- ----------
Total current liabilities 1,952,574 3,152,163 1,144,991
---------- ----------- ----------
Long Term Debt 164,001
Deferred Income Taxes 12,202
Minority interest in Consolidated Subsidiary 1,399,441
Commitments and contingencies
Stockholders' Equity:
Common Stock - Class A 74,106 370 2,353
Common Stock - Class B
Common Stock in Escrow
Capital in excess of par value 8,267,656 8,886,924 1,000
Retained Earnings (accumulated deficit) (7,780,700) 7,183,497 458,918
Accumulated other Comprehensive income 44,407 795,657
-
Tresury Stock (406,400) -
---------- ----------- ----------
Total Stockholders' Equity 199,069 16,866,448 462,271
---------- ----------- ----------
TOTAL LIABILITIES & STOCKHOLDERS' EQUITY 2,151,643 21,418,052 1,783,465
========== =========== ==========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Pro Forma Adjustments
-----------------------------------------------
Centillion Celltech Information Pro Forma
Data Systems, Inc. Systems, Inc. Balance
------------------- --------------------- ---------
<S> <C> <C> <C>
ASSETS
Current Assets:
Cash & cash equivalents 1,827,662 (2.4) (262,599)(3) 8,327,841
75,000 (5)
Securities Available for Sale (6,116,112)(2.4) 0
Trade Accounts Receivable, net 2,876,822
Other Receivables 53,904
Inventories 23,069
Prepaid expenses 277,624
Income Taxes Receivable and Deferred Income Taxes 195,584 (5) 1,578,136
Assets of discontinuing assets (4,379,631) (1) 0
------------ ----------- -----------
Total Current Assets (8,397,497) (262,599) 13,137,396
------------ ----------- -----------
PP&E 1,145,299
Computer Software 1,891,362
Intangible Assets 432,883
Goodwill 25,121,697 (2.3) 2,426,317 (4) 27,578,127
Other Assets 56,010
------------ ----------- -----------
TOTAL ASSETS 16,724,200 2,163,718 44,241,077
============ =========== ===========
LIABILITIES
Current Liabilities:
Current portion of long-term debt 334,263
Accounts payable 984,674
Income taxes payable 0
Deferred income tax liability 389,009
Other accrued expenses 2,285,608
Deferred revenues 567,412
Amount due to former Centillion Shareholders 3,057,154 (2.4) 3,057,154
Liabilities of discontinuing operations (1,688,762) (1) 0
------------ ----------- -----------
Total current liabilities 1,368,392 0 7,618,120
------------ ----------- -----------
Long Term Debt 164,001
Deferred Income Taxes 12,202
Minority interest in Consolidated Subsidiary (1,399,441) (1) 0
Commitments and contingencies
Stockholders' Equity:
Common Stock - Class A 129,625 (2.2) 16,631 (3) 220,362
7 (5)
(377)(2.5) (2,353)(3)
Common Stock - Class B 28,333 (2.2) 28,333
Common Stock in Escrow (10,224,018)(2.2) (2,363,390)(3) (12,587,408)
Capital in excess of par value 35,386,826 (2.2) 4,972,747 (3) 50,143,120
(7,935,362)(2.1) (1,000)(3)
377 (2.5)
563,953 (5)
Retained Earnings (accumulated deficit) (1,291,428) (1) (458,918)(3) (951,254)
(7,345,604)(2.4)
7,780,700 (2.1)
795,657 (2.4)
(293,376) (5)
Accumulated other Comprehensive income (44,407)(2.1) 0
(795,657)(2.4)
Tresury Stock (406,400)
------------ ----------- -----------
Total Stockholders' Equity 16,755,249 2,163,718 36,446,754
------------ ----------- -----------
TOTAL LIABILITIES & STOCKHOLDERS' EQUITY 16,724,200 2,163,718 44,241,077
============ =========== ===========
</TABLE>
See Notes to the Unaudited Condensed Consolidated Pro Forma Balance Sheet Data.
F-33
<PAGE>
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED PRO FORMA BALANCE SHEET DATA
(1) To remove the assets and liabilities related to Centillion's divested
operations. Such assets and liabilities will not be part of the merged
entity.
(2) To record the Centillion reverse acquisition entries based on the total
consideration of $25,320,766 computed as follows:
<TABLE>
<CAPTION>
<S> <C>
Total number of shares of CTIG common stock outstanding prior to Merger (A) 7,437,505
Total number of CTIG options outstanding prior to Merger (A)(B) 525,000
----------
Total shares to be held by CTIG shareholders after the Merger (A) 7,962,505
Market value of CTIG Stock on Transaction Date (C) 3.18
----------
Value of consideration given by Centillion 25,320,766
==========
</TABLE>
(A) As the Centillion Merger is being accounted for as a reverse acquisition
of CTIG by Centillion, the consideration paid represents the value of the
shares that will remain held by the CTIG shareholders after the transaction.
(B) Assumes that all CTIG options outstanding prior to the Merger will be
100% vested upon closing of the transaction.
(C) The market price was determined based on a normalized average closing
price of CTIG's common stock during the 20 day period before and after the
signing of the definitive agreement and the issuance of the press release
related to the transaction.
The entries recorded to effect the reverse merger were as follows:
(2.1) To eliminate CTIG's historical equity accounts with a related
adjustment to Additional Paid-In Capital.
(2.2) To record the issuance of 12,962,504 shares of $0.01 par Class A
Common Stock, of which 3,215,100 shares valued at $10,224,018 are to be held
in escrow pending the meeting of pre-defined revenue levels, and 2,833,333
shares of $0.01 par Class B Common Stock.
(2.3) To record the goodwill as a result of the Centillion transaction. As
the transaction will be accounted for as a reverse acquisition, the goodwill
recorded is calculated by subtracting the book value of the net assets of
CTIG ($199,069) from the total consideration of $25.3 million. The
allocation of the purchase price as well as the goodwill amortization period
used are preliminary and are subject to adjustment based on the stock price
at closing and the final appraisal of the assets acquired.
(2.4) To eliminate the excess investments held by Centillion as it is
required only to contribute net cash or investments of $8.0 million and
total net assets of $2.0 million (excluding such cash and investments).
Adjustment assumes the liquidation of all short-term investments into the
required cash to be contributed.
(2.5) To eliminate Centillion's historical common stock which will be
cancelled in connection with the Merger.
(3) To record the acquisition of Celltech Information Systems, Inc. through the
issuance of a total of 1,663,126 shares, at an assumed value of $3.00 per
common share, which was based on the average stock price during the 20 days
prior to signing the definitive agreement, of which 787,797 shares are to be
held in escrow pending the meeting of certain pre-defined revenue targets,
and cash of $262,599. The number of shares to be issued in connection with
the Celltech acquisition may be adjusted by the effect of a maximum of 25%
ceiling and floor collar depending on the average stock price during the
twenty-day trading period prior to closing.
F-34
<PAGE>
(4) To record goodwill in connection with the acquisition of Celltech
Information Systems, Inc. under the purchase method of accounting. The
allocation of purchase price to net assets acquired is preliminary and is
subject to change based on the completion of the appraisal of such assets.
(5) To record the value of the 20,000 additional shares of Centillion common
stock and 50,000 options to purchase Centillion shares issued to the
Chairman of Centillion in connection with the Merger transaction. The value
was determined based on the assumed market value of the CTIG stock the
shares and options are convertible into and the exchange ratio of Centillion
to CTIG common stock of approximately 2.5 to 1. This transaction will result
in a tax benefit of approximately 40% of the recorded adjustment. The
deferred tax asset to be created in this transaction has been removed as
such asset is remain with the former Centillion shareholders.
F-35
<PAGE>
UNAUDITED CONDENSED CONSOLIDATED PRO FORMA STATEMENT OF OPERATIONS DATA
FOR THE NINE MONTHS ENDED DECEMBER 31, 1999
<TABLE>
<CAPTION>
Historical Results
----------------------------------------------------------------------
CTI Group Centillion Data Celltech Information
(Holdings) Inc. Systems, Inc. Systems, Inc.
----------------- ----------------- --------------------
<S> <C> <C> <C>
Net Sales (a) 5,586,800 8,113,848 5,566,710
Costs & Expenses:
Cost of Sales (a) 3,029,873 3,069,413 2,997,438
Selling & Administrative expenses 1,840,690 1,448,797 3,370,477
Depreciation and amortization 408,723 365,293 99,161
---------- ---------- ----------
Total Costs & Expenses 5,279,286 4,883,503 6,467,076
---------- ---------- ----------
Income (loss) from Operations 307,514 3,230,345 (900,366)
---------- ---------- ----------
Other expenses (income):
Interest expense 2,530 (63,218) (6,946)
Gain on Sale of Assets 56,320 0
0
---------- ---------- ----------
Income (loss) before Income taxes 304,984 3,237,243 (893,420)
---------- ---------- ----------
Provision for income taxes 0 (1,288,423) 338,776
---------- ---------- ----------
Income (Loss) from continuing operations 304,984 1,948,820 (554,644)
========== ========== ==========
EPS:
Basic 0.04
Diluted 0.04
Wtd Avg Shares O/S:
Basic 6,996,768
Diluted 7,296,839
Pro Forma Adjustments
-----------------------------------------------
Centillion Data Celltech Information Pro Forma
Systems, Inc. Systems, Inc. Balance
------------------- --------------------- ---------
Net Sales (a) 19,267,358
Costs & Expenses:
Cost of Sales (a) 9,096,724
Selling & Administrative expenses 6,659,964
Depreciation and amortization 2,691,610 (1) 259,962 (5) 3,824,750
----------- -------- -----------
Total Costs & Expenses 2,691,610 259,962 19,581,438
----------- -------- -----------
Income (loss) from Operations (2,691,610) (259,962) (314,080)
----------- -------- -----------
Other expenses (income):
Interest expense (67,634)
Gain on Sale of Assets 56,320
0
----------- -------- -----------
Income (loss) before Income taxes (2,691,610) (259,962) (302,766)
----------- -------- -----------
Provision for income taxes (949,647)
----------- -------- -----------
Income (Loss) from continuing operations (2,691,610) (259,962) (1,252,413)
=========== ======== ===========
EPS:
Basic (0.07)
Diluted (0.07)
Wtd Avg Shares O/S:
Basic 9,747,404 (4) 875,329 (6) 17,619,501
Diluted 10,578,205 (4) 875,329 (6) 18,750,373
</TABLE>
(a) Net Sales and Cost of Sales in Celltech's historical statement of operations
for the nine months ended December 31, 1999 includes $1,280,787and
$1,137,142 related to postage revenues and costs, respectively.
See Notes to the Unaudited Condensed Consolidated Pro Forma Statement of
Operations Data.
F-36
<PAGE>
UNAUDITED CONDENSED CONSOLIDATED PRO FORMA STATEMENT OF OPERATIONS DATA
FOR THE YEAR ENDED MARCH 31, 1999
<TABLE>
<CAPTION>
Historical Results
----------------------------------------------------------------------
CTI Group Centillion Data Celltech Information
(Holdings) Inc. Systems, Inc.(b) Systems, Inc.
----------------- ----------------- --------------------
<S> <C> <C> <C>
Net Sales/License Fees (a) 7,043,026 10,573,811 8,991,445
Costs & Expenses:
Cost of Sales (a) 4,378,568 4,094,666 4,230,177
Selling & Administrative expenses 2,386,671 1,913,906 4,110,550
Depreciation and amortization 586,433 475,603 97,430
Amortization of Goodwill
---------- ----------- ----------
Total Costs & Expenses 7,351,672 6,484,175 8,438,157
---------- ----------- ----------
Income (loss) from Operations (308,646) 4,089,636 553,288
---------- ----------- ----------
Other expenses (income):
Investment income (615,969)
Other income (45,000)
Loss on disposal of assets 1,840 0
Minority interest in Earnings of Sub 0
Interest expense 29,697 0 2,488
---------- ----------- ----------
Income (loss) before Income taxes (338,343) 4,703,765 595,800
---------- ----------- ----------
Provision for income taxes (76,500) (1,873,069) (209,216)
---------- ----------- ----------
Income (Loss) from continuing operations (414,843) 2,830,696 386,584
========== =========== ==========
EPS:
Basic and Diluted (0.06)
Wtd Avg Shares O/S:
Basic and Diluted 6,898,946
Pro Forma Adjustments
-----------------------------------------------
Centillion Data Celltech Information Pro Forma
Systems, Inc. Systems, Inc. Balance
------------------- --------------------- ---------
Net Sales/License Fees (a) 26,608,282
Costs & Expenses:
Cost of Sales (a) 12,703,411
Selling & Administrative expenses 488,960 (3) 8,900,087
Depreciation and amortization 3,588,814 (1) 346,617 (5) 5,094,896
Amortization of Goodwill 0
---------- -------- ----------
Total Costs & Expenses 4,077,774 346,617 26,698,394
---------- -------- ----------
Income (loss) from Operations (4,077,774) (346,617) (90,112)
---------- -------- ----------
Other expenses (income):
Investment income 515,808 (2) (100,161)
Other income (45,000)
Loss on disposal of assets 1,840
Minority interest in Earnings of Sub 0 0
Interest expense 32,185
---------- -------- ----------
Income (loss) before Income taxes (4,593,582) (346,617) 21,024
---------- -------- ----------
Provision for income taxes 195,584 (3) (1,963,201)
---------- -------- ----------
Income (Loss) from continuing operations (4,397,998) (346,617) (1,942,177)
========== ======== ==========
EPS:
Basic and Diluted (0.11)
Wtd Avg Shares O/S:
Basic and Diluted 9,747,404 (4) 875,329 (6) 17,521,679
</TABLE>
(a) Net Sales and Cost of Sales in Celltech's historical statement of operations
for the year ended December 31, 1998 includes $1,714,033 and $1,528,301
related to postage revenues and costs, respectively.
(b) Centillion's historical statement of operations was developed by adding the
results for the quarter ended March 31, 1999 and subtracting the results for
the quarter ended March 31, 1998 from the results for the year ended
December 31, 1998.
See Notes to the Unaudited Condensed Consolidated Pro Forma Statement of
Operations Data.
F-37
<PAGE>
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED PRO FORMA STATEMENT
OF OPERATIONS DATA
(1) To provide for amortization of the goodwill recorded in connection with the
Centillion transaction. For the purpose of this pro forma, the life of such
goodwill has been assumed to be seven years.
(2) To reduce investment income as a result of the lower investment and cash
balance to be held after the transaction. The amount was determined based on
the average investment return earned during the period applied to the pro
forma cash balance upon consummation of the transaction.
(3) To record the value of the 20,000 additional shares of Centillion common
stock and 50,000 options to purchase Centillion shares issued to the
Chairman of Centillion in connection with the Merger transaction. The value
was determined based on the assumed market value of the CTIG stock the
shares and options are convertible into and the exchange ratio of Centillion
to CTIG common stock of approximately 2.5 to 1. This transaction will result
in a tax benefit of approximately 40% of the recorded adjustment.
(4) To record stock issued and issuable in connection with the Centillion
transaction. The adjustment includes 9,747,404 shares of common stock issued
upon closing of the transaction as well as dilutive shares, where
appropriate, including (a) an additional 2,833,334 shares that are
potentially issuable due to conversion of the Class B Common Stock and are
convertible only upon receipt of cash from litigation proceeds in excess of
legal fees and accordingly, the Company will receive cash equal to the
conversion price on the conversion dates; and (b) an additional 4,109,491
shares that are potentially issuable due to the exercise of the additional
stock rights. The 4,109,491 shares are potentially issuable at an exercise
price based on a discount to the then current market price of CTIG's common
stock. The number of shares used in the adjustment assumes the current
market price of CTIG's common stock. The actual number of shares to be
issued will fluctuate based on the market value of the stock price on the
exercise dates. Regardless of the conversion price used, if all of the stock
rights are exercised, the Company will receive an additional $10.0 million
in cash. The diluted weighted average shares outstanding adjustment assumes
the proceeds received for the Class B Stock and additional stock rights
(approximately $17.75 million) will be used to buy back common stock at the
market price of the stock, under the treasury stock method.
(5) To provide for amortization of the goodwill recorded in connection with the
Celltech transaction. For the purpose of this pro forma, the life of such
goodwill has been assumed to be seven years.
(6) To record stock issued and issuable in connection with the Celltech
transaction. The number of shares excludes the 787,797 shares held in escrow
pending the resolution of certain contingencies.
F-38
<PAGE>
ANNEX LISTING
Annex Title Page
----- ----- ----
A Agreement and Plan of Merger by and between
CTI Group (Holdings) Inc. and Centillion Data Systems, Inc.,
dated as of February 3, 2000 ...............................A-1
B Surviving Corporation - Articles of Incorporation.................B-1
C Surviving Corporation Bylaws......................................C-1
D Shareholder LLC Promissory Note...................................D-1
E Form of Promissory Note...........................................E-1
F Opinion of First Colonial Securities Group, Inc...................F-1
G ss.262 of the Delaware Corporation Law............................G-1
H ss.23-1-44 of the Indiana Business Corporation Law................H-1
I Agreement and Plan of Merger by and among
CTI Group (Holdings) Inc., CTI Billing Solutions, Inc., Celltech
Information Systems, Inc., David A. Warren, Frank S. Scarpa,
Valerie S. Hart and Richard J. Donnelly, dated as of
April 5, 2000.....................................................I-1
J Communications Group Inc. Stock Option and
Restricted Stock Plan.............................................J-1
<PAGE>
ANNEX A
================================================================================
AGREEMENT AND PLAN OF MERGER
by and between
CTI GROUP (HOLDINGS) INC.
and
CENTILLION DATA SYSTEMS, INC.
------------------------------------
Dated as of February 3, 2000
------------------------------------
================================================================================
A-1
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE I. THE MERGER.......................................................2
1.1 The Merger.......................................................2
1.2 Closing..........................................................2
1.3 Effective Time...................................................2
1.4 Effects of the Merger............................................2
1.5 Effect on Capital Stock..........................................2
1.6 Exchange Agent...................................................4
1.7 Exchange Procedures..............................................4
1.8 Distributions with Respect to Unexchanged Shares.................5
1.9 No Fractional Shares of CTI Group Capital Stock..................5
1.10 No Liability.....................................................6
1.11 Lost Certificates................................................6
1.12 Stock Transfer Books.............................................6
1.13 Dissenting Shares................................................7
1.14 Escrow...........................................................7
1.15 Additional Stock Rights..........................................9
ARTICLE II. THE SURVIVING CORPORATION.......................................10
2.1 Certificate of Incorporation....................................10
2.2 Bylaws..........................................................10
2.3 Directors.......................................................10
2.4 Officers........................................................10
ARTICLE III. REPRESENTATIONS AND WARRANTIES OF CTI GROUP.....................11
3.1 Corporate Existence and Power...................................11
3.2 Corporate Authorization.........................................11
3.3 Governmental Authorization......................................12
3.4 Non-contravention...............................................12
3.5 Capitalization..................................................13
3.6 Subsidiaries....................................................13
3.7 SEC Filings; Financial Statements...............................13
3.8 No Undisclosed Material Liabilities.............................14
3.9 Absence of Certain Changes......................................15
3.10 Litigation......................................................16
3.11 Compliance with Applicable Laws.................................16
3.12 Permits.........................................................16
3.13 Insurance.......................................................16
3.14 Contracts.......................................................16
3.15 Properties......................................................17
</TABLE>
A-2
<PAGE>
3.16 Employees and Independent Contractors...........................18
3.17 Employee Benefit Plans..........................................18
3.18 Taxes...........................................................19
3.19 Environmental Matters...........................................20
3.20 Patents and Other Proprietary Rights............................20
3.21 Year 2000.......................................................22
3.22 Brokers.........................................................22
3.23 Intentional Left Blank..........................................22
3.24 No Other Representations........................................22
3.25 Certain Interests...............................................22
ARTICLE IV. REPRESENTATIONS AND WARRANTIES OF CENTILLION....................23
4.1 Corporate Existence and Power...................................23
4.2 Corporate Authorization.........................................23
4.3 Governmental Authorization......................................23
4.4 Non-contravention...............................................24
4.5 Capitalization..................................................24
4.6 Subsidiaries....................................................24
4.7 SEC Filing Information; Financial Statements....................25
4.8 No Undisclosed Material Liabilities.............................25
4.9 Absence of Certain Changes......................................26
4.10 Litigation......................................................27
4.11 Compliance with Laws............................................27
4.12 Permits.........................................................27
4.13 Insurance.......................................................27
4.14 Contracts.......................................................27
4.15 Properties......................................................28
4.16 Employees and Independent Contractors...........................29
4.17 Employee Benefit Plans..........................................29
4.18 Taxes...........................................................30
4.19 Environmental Matters...........................................30
4.20 Patents and Other Proprietary Rights............................31
4.21 Year 2000.......................................................32
4.22 Brokers.........................................................32
4.23 No Other Representations........................................32
4.24 Certain Interests...............................................32
4.25 Reorganization..................................................33
A-3
<PAGE>
ARTICLE V. COVENANTS OF CENTILLION AND CTI GROUP...........................34
5.1 Reasonable Best Efforts.........................................34
5.2 Consents........................................................34
5.3 Public Announcements............................................34
5.4 Notification of Certain Matters.................................34
5.5 Access to Information...........................................35
5.6 Preparation of the Form S-4 and the Proxy Statement/Prospectus;
Stockholders Meetings...........................................35
5.7 Additional Covenants of Centillion..............................36
5.8 Additional Covenants of CTI Group...............................38
5.9 Indemnification, Exculpation and Insurance......................40
5.10 No Solicitation by CTI Group....................................41
5.11 Employee Stock Option and Benefit Plans.........................43
ARTICLE VI. CONDITIONS TO THE MERGER........................................44
6.1 Conditions......................................................44
6.2 Additional Conditions to Obligations of CTI Group...............44
6.3 Additional Conditions to Obligations of Centillion..............46
ARTICLE VII. TERMINATION......................................................48
7.1 Termination.....................................................48
7.2 Effect of Termination...........................................49
7.3 Fees and Expenses...............................................49
ARTICLE VIII. INDEMNIFICATION.................................................50
8.1 Indemnification.................................................50
8.2 Conditions of Indemnification...................................50
8.3 Remedies........................................................51
ARTICLE IX. MISCELLANEOUS...................................................52
9.1 Notices.........................................................52
9.2 Survival of Representations and Warranties and Agreements.......53
9.3 Amendment.......................................................53
9.4 Extension; Waiver...............................................53
9.5 Successors and Assigns..........................................53
9.6 Governing Law...................................................53
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9.7 Jurisdiction....................................................53
9.8 Counterparts; Effectiveness.....................................54
9.9 Entire Agreement; No Third-Party Beneficiaries..................54
9.10 Headings........................................................54
9.11 Schedules.......................................................54
9.12 Waiver of Jury Trial............................................54
9.13 Severability....................................................54
9.14 Disclosure Schedules............................................54
EXHIBITS
EXHIBIT A SURVIVING CORPORATION - ARTICLES OF INCORPORATION
CAPITAL STOCK PROVISIONS
EXHIBIT B SURVIVING CORPORATION BYLAWS
EXHIBIT C DIRECTORS AND EXECUTIVE EMPLOYMENT
EXHIBIT D SHAREHOLDER LLC PROMISSORY NOTE
EXHIBIT E ANTHONY JOHNS EMPLOYMENT AGREEMENT
EXHIBIT F FORM OF PROMISSORY NOTE
EXHIBIT G DIVESTED CENTILLION SUBSIDIARIES
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INDEX OF DEFINED TERMS
Term Section
- - ---- -------
Additional Stock Rights .....................................................1.5
Affiliate ..................................................................1.14
Average Market Price ........................................................1.9
Billing Business ...........................................................4.25
Business Day ...............................................................5.10
Centillion Capital Stock ...................................................1.5
Centillion Dissenting Shares ..............................................1.13
Centillion Disclosure Schedule .......................................Article IV
Centillion Financial Statements .............................................4.7
Centillion Required Vote ...................................................4.2
Centillion Stockholders ...................................................1.14
Centillion Stockholders Meeting .............................................5.6
Certificate .................................................................1.5
Change in Law................................................................6.3
Class A Common Stock .......................................................1.5
Class B Common Stock ........................................................1.5
Closing .....................................................................1.2
Closing Date ................................................................1.2
Code ...................................................................Preamble
Confidentiality Agreement ...................................................5.5
Contingent Stock Warrant ...................................................1.5
CTI Group Acquisition Agreement ...........................................5.10
CTI Group Applicable Period ................................................5.10
CTI Group Capital Stock ....................................................1.5
CTI Group Competing Proposal ..............................................5.10
CTI Group Disclosure Schedule ......................................Article III
CTI Group Dissenting Shares ................................................1.13
CTI Group Required Vote ....................................................3.2
CTI Group Shareholders Meeting .............................................5.6
CTI Group Superior Proposal ...............................................5.10
Covered Disposition .................................................Exhibit "A"
Delaware Certificate of Merger ..............................................1.3
DGCL .......................................................................1.1
Dissenting Shares ..........................................................1.13
Effective Time ..............................................................1.3
Employee Plan ..............................................................3.17
Environmental Law ..........................................................3.19
ERISA ......................................................................3.17
Escrow Conversion Ratio . ..................................................1.14
Escrow Distribution Date ..................................................1.14
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Term Section
- - ---- -------
Escrowed Stock ..............................................................1.5
Exchange Act ................................................................3.3
Exchange Agent ..............................................................1.6
Form S-4 ...................................................................5.6
GAAP .......................................................................3.8
Governmental Entity .........................................................3.3
Hazardous Substance ........................................................3.19
IBCL .......................................................................1.1
Indiana Articles of Merger ..................................................1.3
Intellectual Property .....................................................3.20
Lien ........................................................................3.4
LLC ........................................................................6.2
Material Adverse Effect .....................................................3.1
Merger .................................................................Preamble
Merger Consideration ........................................................1.5
Other Filings ...............................................................3.7
Person .....................................................................1.10
Proxy Statement/Prospectus ..................................................5.6
SEC Reports .................................................................3.7
Shareholder Promissory Note ................................................1.15
Specified Contracts .......................................................3.14
Subsidiary ..................................................................3.1
Subsidiary Securities .......................................................3.6
Surviving Corporation .......................................................1.1
Target Revenue ............................................................1.14
Taxes ......................................................................3.18
Termination Date ...........................................................7.1
Tracked Assets .............................................................6.2
Violation ...................................................................3.4
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AGREEMENT AND PLAN OF MERGER, dated as of February___, 2000 (this
"Agreement"), between CTI GROUP (HOLDINGS) INC., a Delaware corporation ("CTI
Group"), and CENTILLION DATA SYSTEMS, INC., an Indiana corporation
("Centillion").
W I T N E S S E T H:
-------------------
WHEREAS, the respective Boards of Directors of CTI Group and Centillion
have each determined that the merger of Centillion with and into CTI Group (the
"Merger") is in the best interests of their respective stockholders, such Boards
of Directors have adopted resolutions approving the Merger and recommending that
their respective stockholders adopt and approve this Agreement, and the Board of
Directors of Centillion has also determined that the terms of the Merger are
fair to holders of the issued and outstanding shares of capital stock of
Centillion, upon the terms and subject to the conditions set forth in this
Agreement, pursuant to which each share of capital stock of Centillion issued
and outstanding immediately prior to the Effective Time, other than shares owned
or held by CTI Group or Centillion and other than Dissenting Shares, will be
converted into the right to receive the applicable Merger Consideration as set
forth in Section 1.5;
WHEREAS, CTI Group and Centillion desire to make certain
representations, warranties, covenants and agreements in connection with the
transactions contemplated hereby and also to prescribe various conditions to the
transactions contemplated hereby; and
WHEREAS, CTI Group and Centillion intend, by approving resolutions
authorizing this Agreement, to adopt this Agreement as a plan of reorganization
within the meaning of Section 368(a) of the Internal Revenue Code of 1986, as
amended (the "Code"), and the regulations promulgated thereunder.
NOW, THEREFORE, in consideration of the foregoing and the respective
representations, warranties, covenants and agreements set forth herein and
intending to be legally bound hereby, the parties hereto agree as follows:
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ARTICLE I
THE MERGER
1.1 The Merger. Upon the terms and subject to the conditions set forth in this
Agreement, and in accordance with the Delaware General Corporation Law (the
"DGCL") and the Indiana Business Corporation Law (the "IBCL"), Centillion shall
be merged with and into CTI Group at the Effective Time. Following the Merger,
the separate corporate existence of Centillion shall cease and CTI Group shall
continue as the surviving corporation (the "Surviving Corporation").
1.2 Closing. The closing of the Merger (the "Closing") will take place at 10:00
a.m., Eastern Standard time, on the second Business Day after the satisfaction
or (subject to applicable law) waiver of the conditions (excluding conditions
that, by their terms, cannot be satisfied until the Closing Date) set forth in
Article VI (the "Closing Date"), unless another time or date is agreed to in
writing by the parties hereto. The Closing shall be held at the offices of Blank
Rome Comisky & McCauley LLP, One Logan Square, Philadelphia, Pennsylvania 19103,
unless another place is agreed to in writing by the parties hereto.
1.3 Effective Time. As soon as practicable following the Closing, the parties
shall:
(a) (i) file a certificate of merger (the "Delaware Certificate of
Merger") in such form as is required by and executed in accordance with the
relevant provisions of the DGCL and (ii) make all other filings or recordings
required under the DGCL; and
(b) (i) file articles of merger (the "Indiana Articles of Merger") in
such form as is required by and executed in accordance with the relevant
provisions of the IBCL and (ii) make all other filings or recordings required
under the IBCL. The Merger shall become effective upon the later to occur of the
filing of (i) the Delaware Certificate of Merger with the Delaware Secretary of
State and (ii) the Indiana Articles of Merger with the Indiana Secretary of
State, or at such subsequent time as CTI Group and Centillion shall agree and
set forth in the Delaware Certificate of Merger and the Indiana Articles of
Merger (the date and time the Merger becomes effective being the "Effective
Time").
1.4 Effects of the Merger. At and after the Effective Time, the Merger will have
the effects set forth in the DGCL and the IBCL. Without limiting the generality
of the foregoing, and subject thereto, at the Effective Time, all the property,
rights, privileges, powers and franchises of Centillion shall be vested in the
Surviving Corporation, and all debts, liabilities and duties of Centillion shall
become the debts, liabilities and duties of the Surviving Corporation.
1.5 Effect on Capital Stock.
(a) As contemplated in Section 2.1, at the Effective Time, the
certificate of incorporation of CTI Group will be amended to provide for the
following classes of capital stock of CTI Group:
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(i) Class A Common Stock; par value $0.01 per share;
46,500,000 shares ("Class A Common Stock"); and
(ii) Class B Common Stock; par value $0.01 per share;
3,500,000 shares ("Class B Common Stock").
The foregoing classes of capital stock, including the capital stock of CTI Group
outstanding (and included in the Class A Common Stock as of the date hereof) are
herein collectively referred to as "CTI Group Capital Stock".
(b) At the Effective Time by virtue of the Merger and without any
action on the part of the holders thereof (in each of the following cases other
than such shares owned or held by CTI Group or Centillion, which shall
automatically be retired and shall cease to exist, and no consideration shall be
delivered in exchange therefor, and other than Dissenting Shares):
(i) Except to the extent that subparagraph (b)(ii) below
applies, the shares of capital stock of Centillion issued and outstanding
immediately prior to the Effective Time (the "Centillion Capital Stock"), shall
be converted into the following (the "Merger Consideration") pro rata, on a per
share equivalent basis:
(A) 12,295,838 shares of Class A Common Stock, of
which 9,080,738 shares shall be distributed at Closing, and 3,215,100 shares
(the "Escrowed Stock") shall be delivered at Closing into the escrow established
in Section 1.14 hereof for the benefit of the holders of Centillion Capital
Stock, to be held, distributed and/or canceled in accordance with the terms of
such escrow.
(B) 3,500,000 of Class B Common Stock.
(C) The right to receive additional shares of Class A
Common Stock on the terms and conditions set forth in Section 1.15 hereof (the
"Additional Stock Rights").
(D) The right to purchase some or all of the Escrowed
Stock under Section 1.14(d).
(ii) Centillion shall have the option to have the Merger
Consideration to be as set forth below instead of as set forth in 1.5(b)(i)
above. The option shall be exercised by Centillion having, at the Effective
Time, the balance sheet of Centillion reflecting cash of not less than
$8,000,000 in lieu of the $6,500,000 provided for in Section 6.2(d). In such
event, the Centillion Capital Stock shall be converted pro rata, on a per share
equivalent basis as follows:
(A) 12,962,504 shares of Class A Common Stock, of
which 9,747,404 shares shall be distributed at Closing, and 3,215,100 of
Escrowed Stock shall be delivered at Closing into the escrow established in
Section 1.14 hereof for the benefit of the holders of
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Centillion Capital Stock, to be held, distributed and/or canceled in accordance
with the terms of such escrow.
(B) 2,833,334 of Class B Common Stock.
(C) The right to receive Additional Stock Rights on
the terms and conditions set forth in Section 1.15 hereof.
(D) The right to purchase some or all of the Escrowed
Stock under Section 1.14(d).
(c) As a result of the Merger and without any action on the part of the
holders thereof, at the Effective Time, all shares of Centillion Capital Stock
shall cease to be outstanding and shall be canceled and retired and shall cease
to exist, and each holder of a certificate which immediately prior to the
Effective Time represented any such shares of Centillion Capital Stock (a
"Certificate") shall thereafter cease to have any rights with respect to such
shares of Centillion Capital Stock, except the right to receive the applicable
Merger Consideration and any cash in lieu of fractional shares of applicable CTI
Group Capital Stock to be issued in consideration therefor and any dividends or
other distributions to which holders of Centillion Capital Stock become entitled
all in accordance with this Article I upon the surrender of such certificate.
(d) Each share of Centillion Capital Stock issued and owned or held by
CTI Group or Centillion at the Effective Time shall, by virtue of the Merger,
cease to be outstanding and shall be canceled and retired and no stock of CTI
Group or other consideration shall be delivered in exchange therefor.
(e) The Surviving Corporation shall be entitled to deduct and withhold
from the consideration otherwise payable pursuant to this Agreement to any
holder of shares of Centillion Capital Stock such amounts as it is required to
deduct and withhold with respect to the making of such payment under the Code
and the rules and regulations promulgated thereunder, or any provision of state,
local or foreign tax law. To the extent that amounts are so withheld by the
Surviving Corporation such withheld amounts shall be treated for all purposes of
this Agreement as having been paid to the holder of the shares of Centillion
Capital Stock in respect of which such deduction and withholding was made by the
Surviving Corporation.
1.6 Exchange Agent. Prior to the Effective Time, CTI Group shall appoint
American Stock Transfer or another commercial bank or trust company reasonably
satisfactory to Centillion to act as exchange agent hereunder for the purpose of
exchanging Certificates for the applicable Merger Consideration (the "Exchange
Agent"). At or prior to the Effective Time, CTI Group shall deposit with the
Exchange Agent, in trust for the benefit of holders of shares of Centillion
Capital Stock, certificates representing the applicable CTI Group Capital Stock
issuable pursuant to Section 1.5 in exchange for outstanding shares of
Centillion Capital Stock in the Merger. CTI
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Group agrees to make available to the Exchange Agent from time to time as
needed, cash sufficient to pay cash in lieu of fractional shares pursuant to
Section 1.9.
1.7 Exchange Procedures. As soon as reasonably practicable after the Effective
Time, the Surviving Corporation shall cause the Exchange Agent to mail to each
holder of a Certificate (i) a letter of transmittal which shall specify that
delivery shall be effected, and risk of loss and title to the Certificates shall
pass, only upon delivery of the Certificates to the Exchange Agent, and which
letter shall be in such form and have such other provisions as CTI Group may
reasonably specify and (ii) instructions for effecting the surrender of such
Certificates in exchange for the applicable Merger Consideration. Upon surrender
of a Certificate to the Exchange Agent together with such letter of transmittal,
duly executed and completed in accordance with the instructions thereto, and
such other documents as may reasonably be required by the Exchange Agent, the
holder of such Certificate shall be entitled to receive in exchange therefor (A)
one or more shares of applicable CTI Group Capital Stock representing, in the
aggregate, the whole number of shares that such holder has the right to receive
pursuant to Section 1.5, and (B) a check in the amount equal to the cash that
such holder has the right to receive in lieu of any fractional shares of
applicable CTI Group Capital Stock pursuant to Section 1.9 and in each case the
Certificate so surrendered shall forthwith be canceled. No interest will be paid
or will accrue on any cash so payable.
1.8 Distributions with Respect to Unexchanged Shares. No dividends or other
distributions declared or made with respect to shares of CTI Group Capital Stock
with a record date after the Effective Time shall be paid to the holder of any
un-surrendered Certificate with respect to the shares of CTI Group Capital Stock
that such holder would be entitled to receive upon surrender of such Certificate
and no cash payment in lieu of fractional shares of CTI Group Capital Stock
shall be paid to any such holder until such holder shall surrender such
Certificate. Subject to the effect of applicable laws, following surrender of
any such Certificate, there shall be paid to such holder of shares of CTI Group
Capital Stock issuable in exchange therefor, without interest, promptly after
the time of such surrender, the amount of any cash payable in lieu of fractional
shares of CTI Group Capital Stock to which such holder is entitled pursuant to
Section 1.9 and the amount of dividends or other distributions with a record
date after the Effective Time theretofore paid with respect to such whole shares
of CTI Group Capital Stock.
1.9 No Fractional Shares of CTI Group Capital Stock.
(a) No certificates or scrip or shares of CTI Group Capital Stock
representing fractional shares of CTI Group Capital Stock shall be issued upon
the surrender for exchange of Certificates and such fractional share interests
will not entitle the owner thereof to vote or to have any rights of a
shareholder of CTI Group or a holder of shares of CTI Group Capital Stock.
(b) Notwithstanding any other provision of this Agreement, each holder
of shares of Centillion Capital Stock exchanged pursuant to the Merger who would
otherwise have been entitled to receive a fraction of a share of applicable CTI
Group Capital Stock (after taking into
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account all Certificates delivered by such holder) shall receive, in lieu
thereof, cash (without interest) in an amount equal to the product of (i) such
fractional part of a share of applicable CTI Group Capital Stock multiplied by
(ii) the per share Average Market Price (as hereinafter defined) for Class A
Common Stock or $1.50 per share for Class B Common Stock. The fractional share
interests of CTI Group Capital Stock will be aggregated, and no recordholder of
Centillion Capital Stock will receive cash in an amount equal to or greater than
the value of one full share of CTI Group Capital Stock determined as of the
Effective Time.
(c) For purposes of this Agreement, the "Average Market Price" of the
Class A Common Stock at any date shall mean the average of the daily last
reported sale price per share of the Class A Common Stock on the NASDAQ National
Market System (or if such stock is then listed on the New York Stock Exchange,
on such Exchange) during the most recent twenty (20) consecutive full Business
Days before such date, provided that if there was no reported sale on any such
day or days, there shall be substituted the average of the closing bid and asked
quotations on that Market or Exchange on that day or days, and provided further
that, if the Class A Common Stock is not listed on that Market or Exchange on
any such day or days, there shall be substituted the comparable sale price or
average of bid and asked quotations on the principal national securities
exchange on which such Class A Common Stock is so listed, or if not so listed on
any national securities exchange, the average of the highest bid and the lowest
asked quotations in the over-the-counter market that day or days.
1.10 No Liability. None of Centillion, CTI Group or the Exchange Agent shall be
liable to any Person (as defined below) in respect of any Merger Consideration,
any dividends or distributions with respect thereto or any cash in lieu of
fractional shares of applicable CTI Group Capital Stock, in each case delivered
to a public official pursuant to any applicable abandoned property, escheat or
similar law. For purposes of this Agreement, "Person" shall mean any individual,
corporation, partnership, limited liability company, association, trust or other
entity or organization, including a government or political subdivision or an
agency or instrumentality thereof. If any Certificate shall not have been
surrendered prior to eight (8) years after the Effective Time (or immediately
prior to such earlier date on which any Merger Consideration, any dividends or
distributions payable to the holder of such Certificate or any cash payable in
lieu of fractional shares of CTI Group Capital Stock pursuant to this Article I,
would otherwise escheat to or become the property of any Governmental Entity(as
defined below)), any such Merger Consideration, dividends or distributions in
respect thereof or such cash shall, to the extent permitted by applicable law,
be delivered to CTI Group, upon demand, and any holders of Centillion Capital
Stock who have not theretofore complied with the provisions of this Article I
shall thereafter look only to CTI Group for satisfaction of their claims for
such Merger Consideration, dividends or distributions in respect thereof or such
cash.
1.11 Lost Certificates. If any Certificate shall have been lost, stolen or
destroyed, upon the making of an affidavit of that fact by the Person, in a form
and substance satisfactory to CTI Group and containing an appropriate indemnity
against claims, claiming such Certificate to be lost, stolen or destroyed and,
if required by the Surviving Corporation, the posting by such
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Person of a bond in such reasonable amount as the Surviving Corporation may
direct as indemnity against any claim that may be made against it with respect
to such Certificate, the Exchange Agent will deliver in exchange for such lost,
stolen or destroyed Certificate the applicable Merger Consideration with respect
to the shares of Centillion Capital Stock formerly represented thereby, any cash
in lieu of fractional shares of CTI Group Capital Stock, and unpaid dividends
and distributions on shares of CTI Group Capital Stock deliverable in respect
thereof, pursuant to this Agreement.
1.12 Stock Transfer Books. At the close of business, Eastern Standard Time, on
the day the Effective Time occurs, the stock transfer books of Centillion shall
be closed and there shall be no further registration of transfers of shares of
Centillion Capital Stock thereafter on the records of Centillion. From and after
the Effective Time, the holders of Certificates shall cease to have any rights
with respect to such shares of Centillion Capital Stock formerly represented
thereby, except as otherwise provided herein or by law.
1.13 Dissenting Shares.
(a) Notwithstanding anything in this Agreement to the contrary and
unless provided for by applicable law, shares of Centillion Capital Stock that
are issued and outstanding immediately prior to the Effective Time and that are
owned by stockholders who have properly perfected their rights of appraisal
within the meaning of Sections 23-1-44-1 et seq. of the IBCL (the "Centillion
Dissenting Shares") shall not be converted into the right to receive the Merger
Consideration unless and until such stockholders shall have failed to perfect
their right of payment under applicable law, but, instead, the holders thereof
shall be entitled to payment of the fair value of such Centillion Dissenting
Shares in accordance with the IBCL. If any such holder shall have failed to
perfect or shall have effectively withdrawn or lost such right of appraisal,
each share of such Centillion Capital Stock held by such stockholder shall
thereupon be deemed to have been converted into the right to receive and become
exchangeable for, at the Effective Time, the applicable Merger Consideration, in
the manner provided for in Section 1.5(b). Centillion shall give CTI Group
prompt notice of any notice or demand filed pursuant to Sections 23-1-44-1 et
seq. of the IBCL received by Centillion, withdrawals of such notice or demand
and any other instruments served in connection therewith pursuant to the IBCL
and received by Centillion. Centillion shall not, except with the prior written
consent of CTI Group, (x) make any payment with respect to any such objection,
(y) offer to settle or settle any such objection or (z) waive any failure to
timely deliver a written objection in accordance with the IBCL.
(b) Notwithstanding anything in this Agreement to the contrary and
unless provided for by applicable law, holders of shares of CTI Group Capital
Stock that are issued and outstanding immediately prior to the Effective Time
and that are owned by stockholders who have properly perfected their rights of
appraisal within the meaning of Section 262 of the DGCL (the "CTI Group
Dissenting Shares") shall be entitled to payment of the fair value of such CTI
Group Dissenting Shares determined in accordance with Section 262 of the DGCL.
If any such stockholder shall have failed to perfect or shall have effectively
withdrawn or lost such right of
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appraisal, each such share of CTI Group Capital Stock held by such stockholder
shall thereupon be deemed to remain issued and outstanding and unchanged as a
validly issued, fully paid and non-assessable share of capital stock of the
Surviving Corporation. CTI Group shall give Centillion prompt notice of CTI
Group's receipt of any notice or demand for appraisal or payment pursuant to
Section 262 of the DGCL, withdrawals thereof and any other instruments served in
connection therewith pursuant to the DGCL and received by CTI Group. CTI Group
shall not, except with the prior written consent of Centillion, (x) make any
payment with respect to such objection, (y) settle or offer to settle any such
objection or (z) waive any failure to timely deliver a written objection in
accordance with the DGCL.
1.14 Escrow. The Escrowed Stock shall be delivered to the holders of Centillion
Capital Stock who received Class A Common Stock in the Merger (the "Centillion
Stockholders"), in the manner set forth below on (or within thirty (30) days
following) the Escrow Distribution Date.
(a) If the Target Revenue is equal to or greater than $12 million,
then, all of the Escrowed Stock shall be delivered by the Escrow Agent to the
Centillion Stockholders who received Class A Common Stock under Section
1.5(b)(i), on the same per share basis; and
(b) If the Target Revenue is less than $12 million, then, only such
number of shares of the Escrowed Stock (rounded down to the nearest whole
number) as is equal to the number of shares of Escrowed Stock originally
delivered into escrow, multiplied by the Escrow Conversion Ratio shall be
distributed; and any shares of the Escrowed Stock which are not so distributed,
after giving effect to the provisions of Subsection (d) below, shall be canceled
and/or returned to treasury. For purposes of this provision the "Escrow
Conversion Ratio" shall be the fraction obtained by subtracting from 1.000, the
number determined by dividing: (A) the result obtained by subtracting the amount
of Target Revenue from $12 million; by (B) $12 million.
(c) For purposes of this provision, the term "Target Revenue" shall
mean the sum of the gross revenues received by CTI Group during, and properly
attributable thereto under GAAP (as hereinafter defined), the period beginning
on September 20, 2000 and ending on the third anniversary following such date
(such third anniversary being the "Escrow Distribution Date"), from (i) a
contract with Sprint Communications Company, L.P. dated August 8, 1997 or any
successor or affiliate of such company and (ii) revenues, other than the
proceeds of any settlements or judgments, received from parties which are either
defendants in any patent infringement action relating to U.S. Patent No. 5287270
or U.S. Patent No. 5325290 or who have been or may be sent letters in the future
indicating that CTI Group believes are infringing such patents. Section 4.20(d)
of Centillion's Disclosure Schedule contains a list of defendants or parties
that have been notified that Centillion believes may be infringing on such
patents.
(d) No fractional shares or scrip representing fractional shares of the
Escrowed Stock shall be issued pursuant to this Section 1.14; provided, however,
that if as the result of the operation of Subsection (b) above, a recipient of
Merger Consideration under Section 1.5 is to
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receive a number of shares of Escrowed Stock which is less than the number of
shares of Escrowed Stock such holder would have received had the distribution
been made under Subsection (a) above, then, and in such event, such holder shall
have the right (exercisable in whole or in part, but not later than ten (10)
days after the date on which the Escrowed Stock was or would have been
distributed as the case may be) to purchase from CTI Group (at a per share
equivalent purchase price of $1.50 per share) such number of shares (or partial
shares) of the Escrowed Stock as will result in such holder receiving, in the
aggregate under subsections (b) and (d), the same number of shares of Escrowed
Stock as such holder would have received if the distribution of Escrowed Stock
had been made under Subsection (a) above.
(e) An executive committee described in Exhibit "C" shall, by unanimous
vote, determine the Escrow Stock to be distributed pursuant to this Section
1.14. Any controversy or claim arising out of or relating to this Section 1.14,
shall be settled by a binding arbitration in Philadelphia, Pennsylvania in
accordance with the Commercial Arbitration Rules of the American Arbitration
Association.
1.15 Additional Stock Rights.
(a) Subject to Subsection (b) below, on the last day of the fiscal
quarter in which payments of any kind are received by CTI Group with respect to
the outstanding principal balance of the Promissory Note issued to Centillion
attached as Exhibit "D" (the "Shareholder LLC Promissory Note"), the Centillion
Stockholders shall be entitled to receive, and CTI Group shall distribute, pro
rata on a per share basis, additional shares of Class A Common Stock equal in
value to the payment received. The number of additional shares of Class A Common
Stock to be so distributed shall be determined by dividing (x) the dollar amount
of payment(s) received by CTI Group with respect to the outstanding principal
balance of the Shareholder LLC Promissory Note (subject to Subsection (b)
below), by (y) an amount equal to eighty-eight percent (88%) of the Average
Market Value of a single share of Class A Common Stock on the date of
distribution.
(b) CTI Group shall not be required to distribute additional shares of
Class A Common Stock under Subsection (a) above unless and until the aggregate
amount of principal payments received equals or exceeds $1,000,000 in a fiscal
quarter, with distribution to be made on the last day of such fiscal quarter.
For purposes of this Subparagraph (b), if the aggregate payments received in any
fiscal quarter do not equal or exceed $1,000,000, then such payments shall be
carried over to subsequent quarters until the aggregate amount of payments
received equals or exceeds $1,000,000.
(c) If all or any portion of the Shareholder LLC Promissory Note
remains outstanding more than five (5) years after the Effective Time, the value
of the Shareholder LLC Promissory Note at such time (after giving effect to
payments already made with respect to the Shareholder LLC Promissory Note and
the Class A Common Stock issued in connection therewith under
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Subsection (a) above) shall be determined by appraisal in accordance with
Section 3(d) of the Articles of Incorporation attached hereto as Exhibit "A",
and the appraised value of the Shareholder LLC Promissory Note shall be
distributed to the Centillion Stockholders in the form of additional shares of
Class A Common Stock, pro rata on a per share basis, with the number of
additional shares of Class A Common Stock to be so distributed, determined by
dividing (x) the appraised value of the Shareholder LLC Promissory Note, by (y)
an amount equal to eighty-eight percent (88%) of the then Average Market Value
of a single share of Class A Common Stock on the date of distribution.
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ARTICLE II
THE SURVIVING CORPORATION
2.1 Certificate of Incorporation. The certificate of incorporation of the CTI
Group in effect at the Effective Time shall be amended to read as set forth in
Exhibit "A" hereto.
2.2 Bylaws. The bylaws of CTI Group in effect at the Effective Time shall be the
bylaws of the Surviving Corporation until amended in accordance with applicable
law; provided, however, that at and as of the Effective Time, the bylaws of CTI
Group shall be amended to read as set forth in Exhibit "B" hereto.
2.3 Directors. From and after the Effective Time, until successors are duly
elected or appointed and qualified in accordance with applicable law, the
directors of the Surviving Corporation shall be determined in the manner set
forth in Exhibit "C" hereto.
2.4 Officers. From and after the Effective Time, until successors are duly
elected or appointed and qualified in accordance with applicable law, the
officers of the Surviving Corporation shall be determined in the manner set
forth in Exhibit "C" hereto.
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ARTICLE III
REPRESENTATIONS AND WARRANTIES OF CTI GROUP
CTI Group represents and warrants to Centillion that except as set
forth in the Disclosure Statement delivered to Centillion prior to the execution
of this Agreement (the "CTI Group Disclosure Schedule"):
3.1 Corporate Existence and Power. CTI Group is a corporation duly incorporated,
validly existing and in good standing under the laws of the State of Delaware,
and has all corporate powers and authority and all governmental licenses,
authorizations, permits, consents and approvals required to own, operate or
lease the properties that it purports to own, operate or lease and to carry on
its business as now conducted, except for those licenses, authorizations,
permits, consents and approvals the absence of which would not have,
individually or in the aggregate, a material adverse effect on the condition
(financial or otherwise), business assets or results of operations of CTI Group
and its Subsidiaries (as defined below), taken as a whole, or upon the ability
of CTI Group to consummate the transactions contemplated by this Agreement or
perform its obligations hereunder (a "Material Adverse Effect"). CTI Group is
duly qualified to do business as a foreign corporation and is in good standing
in each jurisdiction where the character of the property owned or leased by it
or the nature of its activities makes such qualification necessary, except for
those jurisdictions where the failure to be so qualified would not have a
Material Adverse Effect. CTI Group has heretofore delivered to Centillion
complete and correct copies of CTI Group's and each Subsidiary's certificate of
incorporation and bylaws or equivalent organizational documents as currently in
effect. Such certificate of incorporation, bylaws and equivalent organizational
documents are in full force and effect. A true and complete list of all of CTI
Group's Subsidiaries, together with the jurisdiction of incorporation of each
Subsidiary is set forth in Section 3.1 of the CTI Group Disclosure Schedule. For
purposes of this Agreement, a "subsidiary" of any Person means any other Person
of which securities or other ownership interests having ordinary voting power to
elect a majority of the board of directors or other Persons performing similar
functions are directly or indirectly owned or controlled by such Person, or any
Person otherwise consolidated or aggregated in accordance with GAAP, and unless
otherwise specified, "Subsidiary" means a subsidiary of CTI Group or Centillion,
as the context requires.
3.2 Corporate Authorization. The execution, delivery and performance by CTI
Group of this Agreement and the consummation by CTI Group of the transactions
contemplated hereby are within CTI Group's corporate powers and except for any
required approvals by CTI Group's stockholders in connection with the
consummation of the Merger, have been duly authorized by all necessary corporate
action. The affirmative vote of the holders of a majority of the outstanding
shares (if required by law) is the only vote of the holders of any of CTI
Group's capital stock necessary in connection with the consummation of the
Merger (the "CTI Group Required Vote"). This Agreement has been duly and validly
authorized (assuming receipt of the CTI Group Required Vote), executed and
delivered by CTI Group and, assuming the due and valid authorization, execution
and delivery of this Agreement by Centillion and receipt of all
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required approvals by Centillion's stockholders in connection with the
consummation of the Merger, constitutes a valid and binding agreement of CTI
Group, enforceable against it in accordance with its terms, except as may be
limited by bankruptcy, insolvency, reorganization, moratorium, fraudulent
transfer and other similar laws affecting creditors' rights generally and by
equitable principles of general applicability.
3.3 Governmental Authorization. The execution, delivery and performance by CTI
Group of this Agreement and the consummation by CTI Group of the Merger and the
other transactions contemplated hereby require no consent, waiver, approval,
authorization or permit by or from, or action by or in respect of, or filing
with, any Governmental Entity (as defined below), other than (i) the filing of a
certificate of merger and articles of merger in accordance with the DGCL and the
IBCL, respectively, (ii) compliance with any applicable requirements of state
takeover laws, (iii) compliance with any applicable requirements of the
Securities Exchange Act of 1934 (the "Exchange Act"), and (iv) any action,
filing, consent, waiver, approval, authorization or permit that would not in the
aggregate prevent or delay consummation of the Merger in any material respect,
or otherwise prevent CTI Group from performing its obligations under this
Agreement in any material respect or would not in the aggregate have a Material
Adverse Effect. For purposes of this Agreement, "Governmental Entity" shall mean
any nation or government, any state or other political subdivision thereof, any
entity exercising executive, legislative, judicial, regulatory or administrative
functions of or pertaining to government, including, but not limited to, any
government authority, agency, department, board, commission or instrumentality
of the United States, any State of the United States, or any political
subdivision thereof, and any tribunal or arbitrator(s) of competent
jurisdiction, and any self-regulatory organization.
3.4 Non-contravention. Assuming compliance with the matters referred to in
Section 3.2 and Section 3.3, the execution, delivery and performance by CTI
Group of this Agreement and the consummation by CTI Group of the transactions
contemplated hereby do not and will not (i) assuming receipt of the approval of
stockholders referred to in Section 3.2, contravene or conflict with the
certificate of incorporation or bylaws of CTI Group, (ii) contravene or conflict
with or constitute a violation of any provision of any law, regulation,
judgment, injunction, order or decree binding upon or applicable to CTI Group or
any Subsidiary, (iii) result in a breach or violation of or constitute a default
under (or an event which with the giving of notice or the lapse of time or both
would constitute a default under) or give rise to a right of termination,
amendment, cancellation or acceleration of any right or obligation of CTI Group
or any Subsidiary or to a loss of any benefit to which CTI Group or any
Subsidiary is entitled or require any consent, approval or authorization under
any provision of any material agreement, contract or other instrument binding
upon CTI Group or any Subsidiary or any of their respective assets (including
any material license, franchise, permit or other similar authorization held by
CTI Group or any Subsidiary) or (iv) result in the creation or imposition of any
Lien on any asset of CTI Group or any Subsidiary, except for such
contraventions, conflicts or violations referred to in clause (ii) and breaches,
violations, defaults, rights of termination, cancellation or acceleration,
losses, Liens or other occurrences referred to in clauses (iii) and (iv) (each,
a "Violation") that individually or in the aggregate would not reasonably be
expected to result in a Material Adverse
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Effect. For purposes of this Agreement, "Lien" means, with respect to any asset,
any mortgage, lien, pledge, charge, security interest or encumbrance of any kind
in respect of such asset.
3.5 Capitalization. The authorized capital stock of CTI Group consists of
50,000,000 shares of Common Stock. Section 3.5 of the CTI Group's Disclosure
Schedule accurately lists all outstanding shares, warrants and options of CTI
Group's stock outstanding (including for any options and warrants the identity
of the holder, the exercise price and the expiration date) as of the date of
this Agreement.
3.6 Subsidiaries.
(a) Each Subsidiary is an entity duly organized, validly existing and
in good standing under the laws of its jurisdiction of organization, has all
corporate or partnership powers and authority and all governmental licenses,
authorizations, permits, consents and approvals required to own, operate or
lease the properties that it purports to own, operate or lease and to carry on
its business as now conducted, except for those licenses, authorizations,
permits, consents and approvals, the absence of which would not have
individually or in the aggregate a Material Adverse Effect. Each Subsidiary is
duly qualified to do business as a foreign corporation and is in good standing
in each jurisdiction where the character of the property owned or leased by it
or the nature of its activities makes such qualification necessary, except for
such qualifications the failure of which to obtain would not, individually or in
the aggregate, have a Material Adverse Effect.
(b) All of the outstanding capital stock of, or other ownership
interests in, each Subsidiary of CTI Group, is owned by CTI Group, directly or
indirectly, free and clear of any Lien and free of any other limitation or
restriction (including any restriction on the right to vote, sell or otherwise
dispose of such capital stock or other ownership interests). There are no
outstanding (i) securities of CTI Group or any Subsidiary convertible into or
exchangeable for shares of capital stock or other voting securities or ownership
interests in any Subsidiary or (ii) options or other rights to acquire from CTI
Group or any Subsidiary, and no other obligation of CTI Group or any Subsidiary
to issue, any capital stock, voting securities or other ownership interests in,
or any securities convertible into or exchangeable for any capital stock, voting
securities or ownership interests in, any Subsidiary (the items in clauses
3.6(b)(i) and 3.6(b)(ii) being referred to collectively as the "Subsidiary
Securities"). There are no outstanding obligations of CTI Group or any
Subsidiary to repurchase, redeem or otherwise acquire any outstanding Subsidiary
Securities.
3.7 SEC Filings; Financial Statements.
(a) SEC Filings:
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(i) CTI Group has filed with the SEC all forms, reports,
definitive proxy statements, schedules and registration statements (the "SEC
Reports") required to be filed with the SEC since October 25, 1999;
(ii) As of their respective filing dates, none of the SEC
Reports as amended or supplemented contained any untrue statement of a material
fact or omitted to state any material fact required to be stated therein or
necessary to make the statements made therein, in the light of the circumstances
under which they were made, not misleading;
(iii) The SEC Reports when filed complied in all material
respects with applicable substantive requirements of the Exchange Act;
(iv) None of the information (i) supplied by CTI Group in
writing specifically for inclusion or incorporation by reference in the Proxy
Statement (ii) in any document to be filed with the SEC in connection with the
transactions contemplated by this Agreement (the "Other Filings") or (iii)
provided to Centillion in connection with or in contemplation of the
transactions set forth in this Agreement will, at the respective times filed
with the SEC or at the Effective Time, respectively, 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 made therein, in light of the
circumstances under which they were made, not misleading; and
(v) Each document required to be filed by CTI Group with the
SEC or required to be distributed or otherwise disseminated to CTI Group's
stockholders in connection with the transactions contemplated by this Agreement,
when filed, distributed or disseminated, as applicable, will comply as to form
in all material respects with the applicable requirements of the Exchange Act.
(b) Except as set forth in Section 3.7 of the CTI Group Disclosure
Schedule, the audited consolidated financial statements of CTI Group dated March
31, 1999 and unaudited consolidated interim financial statements of CTI Group
included in the SEC Reports filed prior to and including October 25, 1999 fairly
present, in conformity with GAAP applied on a consistent basis (except as may be
indicated in the notes thereto or in the case of unaudited interim financial
statements as permitted by Form 10-Q of the SEC), the consolidated financial
position of CTI Group and its consolidated Subsidiaries as of the dates thereof
and its consolidated statements of operations, stockholders' equity and cash
flows for the periods then ended (subject to normal year-end adjustments in the
case of any unaudited interim financial statements). Notwithstanding any
provision contained herein, no representation is made in this Agreement with
respect to any financial statement contained in an SEC Report that has been
restated or amended in a subsequent SEC Report.
3.8 No Undisclosed Material Liabilities. Except as set forth in Section 3.8 of
CTI Group's Disclosure Schedule and as disclosed in the SEC Reports, or to the
extent the existence of such liability would not have a Material Adverse Effect,
neither CTI Group nor any of its Subsidiaries
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has any liabilities of the type that are required to be disclosed in financial
statements, including the notes thereto, prepared in accordance with generally
accepted accounting principles ("GAAP") which are, either individually or in the
aggregate, material to the business, operations or financial condition of CTI
Group and its subsidiaries taken as a whole, except liabilities adequately
provided for or referred to in CTI Group's balance sheet and the related notes
attached thereto as of September 30, 1999.
3.9 Absence of Certain Changes. Since September 30, 1999, the business of CTI
Group and its Subsidiaries has been conducted in the ordinary course consistent
with past practices and, except as disclosed in the SEC Reports or in the CTI
Group Disclosure Schedule, there has not been:
(a) any change, event or development having, or that could be
reasonably expected to have, individually or in the aggregate, a Material
Adverse Effect on CTI Group;
(b) any amendments or changes in the Certificate of Incorporation or
bylaws of CTI Group;
(c) any damage to, destruction or loss of any assets of CTI Group
(whether or not covered by insurance) that would have a Material Adverse Effect;
(d) any change by CTI Group in its accounting methods, principles or
practices;
(e) any revaluation by CTI Group of any of its assets, including,
without limitation, writing down the value of inventory or writing off notes or
accounts receivable other than in the ordinary course of business;
(f) any sale of a material amount of assets of CTI Group, except for
the sale of inventory in the ordinary course of business;
(g) any declaration, setting aside or payment of any dividend or
distribution in respect of any capital stock of CTI Group or any redemption,
purchase or other acquisition of any of its securities;
(h) any entry by CTI Group into any commitment or transaction material
to CTI Group, including, without limitation, any long-term supply agreements or
partnership, joint venture or other similar arrangements;
(i) any increase in or establishment of any bonus, insurance,
severance, deferred compensation, pension, 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 increase in the compensation payable to any
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officers or key employees of CTI Group except in the ordinary course of business
consistent with past practice;
(j) any issuance, delivery, or sale of, or authorization of the
issuance, delivery or sale of, any share of capital stock or any option or
rights with respect thereto, other than the issuance of common stock pursuant to
Plans outstanding on the date of this Agreement, or modification or amendment of
any right of any holder of outstanding shares of capital stock or Options with
respect thereto; or
(k) any incurring of (which shall be deemed to include entering into
credit agreements, lines of credit or similar arrangements until borrowings are
made under such arrangements) any indebtedness for borrowed money or guarantee
of any such indebtedness other than in the ordinary course of business
consistent with past practice.
3.10 Litigation. Except as set forth in CTI Group's SEC Reports filed prior to
the date hereof or in Section 3.10 of CTI Group's Disclosure Schedule, as of the
date hereof there is no action, suit investigation or proceeding pending, or to
the knowledge of CTI Group, threatened, against CTI Group or any of its
Subsidiaries, or any of their respective properties, before any court,
arbitrator or other Governmental Entity which would reasonably be expected to
have individually or in the aggregate a Material Adverse Effect.
3.11 Compliance with Applicable Laws. CTI Group and its Subsidiaries are in
substantial compliance with all laws, regulations and orders of any Governmental
Entity applicable to it or such Subsidiaries, except for such failures so to
comply which would not have a Material Adverse Effect.
3.12 Permits. CTI Group and its Subsidiaries hold all material licenses, permits
and other authorizations issued by Governmental Entities for the operation of
their respective businesses, except those licenses, permits and authorizations
the absence of which would not have a Material Adverse Effect.
3.13 Insurance. Schedule 3.13 is an accurate and complete list and description
of all Insurance Policies currently owned or maintained by CTI Group and its
Subsidiaries (except Insurance Policies that constitute Employee Benefit Plans)
in connection with or for the benefit of its business and all liability and
errors and omissions Insurance Policies owned or maintained by it or any of its
predecessors at any time during the five (5) years prior to the date of this
Agreement. Except as described in Schedule 3.13, all such Insurance Policies are
or were on an "occurrence" rather than a "claims made" basis. CTI Group has not
received notice of cancellation with respect to any such current Insurance
Policy, and there is no basis for the insurer thereunder to terminate any such
current Insurance Policy. Each such Insurance Policy is or was in full force and
effect during the period(s) of coverage indicated on Schedule 3.13. Except as
described on Schedule 3.13, there are no claims that are pending under any of
the Insurance Policies described on Schedule 3.13.
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3.14 Contracts.
(a) Schedule 3.14 is an accurate and complete list of all of the
following types of Contracts to which CTI Group is a party or by which CTI Group
is bound (collectively, the "Specified Contracts"), grouped into the following
categories and, where applicable, subdivided by product line: (a) each customer
Contract that is in excess of $25,000 and to the extent that the total number of
such Contracts is less than 20, then the 20 largest Contracts; (b) each supplier
Contract, each Contract for the purchase, lease or maintenance of computer
equipment and other equipment and each Contract for the purchase, license, lease
or maintenance of software under which CTI Group is the purchaser, licensee,
lessee or user that is in excess of $25,000 and to the extent that the total
number of such Contracts over $25,000 is less than 20, then the 20 largest
Contracts; (c) Contracts for the purchase or lease of Real Property or otherwise
concerning Real Property owned or used by CTI Group including a description of
the Real Property; (d) loan agreements, mortgages, notes, guarantees and other
financing Contracts; (e) employment, consulting and sales representative
Contracts other than those for "at will" employment; (f) Contracts under which
any rights in or ownership of CTI Group's business, any predecessor thereof, or
any part of the customer base or business of CTI Group's business was acquired;
(g) other Contracts (excluding Contracts which constitute Insurance Policies
listed on Schedule 3.13, excluding this Agreement and all other Contracts
entered into between CTI Group and Centillion, or among CTI Group, Centillion
and other parties in connection herewith); and (h) each Contract listed as an
exhibit to CTI Group's 10-KSB or any SEC Report filed thereafter. A description
of each oral Specified Contract is included on Schedule 3.14, and copies of each
written Specified Contract have been delivered to Centillion. Except as
described in Schedule 3.14, with respect to each of the Specified Contracts,
neither the CTI Group nor any of its Subsidiaries nor, to the knowledge of CTI
Group, any other party thereto, is in breach, default or violation of any term,
condition or provision of any Specified Contract, except for any breaches,
defaults or violations that would not reasonably be expected to have,
individually or in the aggregate, a Material Adverse Effect. Except as described
in Schedule 3.14, neither CTI Group nor any of its Subsidiaries has given or
received any notice of default or notice of termination with respect to any
Specified Contract where such default would result in a Material Adverse Effect.
(b) Each Specified Contract is a valid, binding and enforceable
obligation of CTI Group or its Subsidiary, as the case may be, and, to the
knowledge of CTI Group, of each party thereto, and is in full force and effect,
except where the failure to be valid, binding and enforceable and in full force
and effect would not reasonably be expected to have, individually or in the
aggregate, a Material Adverse Effect.
3.15 Properties.
(a) Except as set forth in Section 3.15 of CTI Group's Disclosure
Schedule, CTI Group and its Subsidiaries have good and marketable title, or
valid leasehold rights in the case of
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leased property, to all real property and all personal property purported to be
owned or leased by them, free and clear of all liens, security interests,
claims, encumbrances and charges, excluding (i) immaterial liens for fees,
taxes, levies, imposts, duties or governmental charges of any kind which are not
yet delinquent or are being contested in good faith by appropriate proceedings
which suspend the collection thereof, (ii) immaterial liens for mechanics,
materialmen, laborers, employees, suppliers or other liens arising by operation
of law for sums which are not yet delinquent or are being contested in good
faith by appropriate proceedings, (iii) purchase money liens on office, computer
and related equipment and supplies incurred in the ordinary course of business,
and (iv) liens or defects in title on leasehold rights. All buildings, and all
fixtures, equipment and other property and assets held under leases or
sub-leases by CTI Group or any of its Subsidiaries are held under valid
instruments enforceable in accordance with their respective terms against CTI
Group and, to CTI Group's knowledge, against the other parties thereto. The
tangible personal property of CTI Group has no material defects and is in good
operating condition and repair (ordinary wear and tear excepted) and is adequate
for its current uses. None of such tangible personal property is in need of
maintenance or repairs except for ordinary routine maintenance and repairs that
are not material in nature or cost.
(b) Except as set forth in Section 3.15 of CTI Group's Disclosure
Schedule, Consummation of the Merger will not result in any breach of or
constitute a default (or an event with which notice or lapse of time or both
would constitute a default) under, or give to others any rights of termination
or cancellation or, or require the consent of others under, any lease in which
CTI Group or any of its Subsidiaries is a lessee.
3.16 Employees and Independent Contractors. Schedule 3.16 is a list of all of
CTI Group's employees and (a) their titles or responsibilities; (b) their
current salaries or wages; (c) their last compensation changes and the dates on
which such changes were made; (d) any specific bonus, commission or incentive
plans or agreements for or with them; and (e) any outstanding loans or advances
made to them. CTI Group has delivered to Centillion an accurate and complete
list of all bonuses, commissions and incentives paid to the employees listed on
Schedule 3.16 at any time during the past twelve months. Schedule 3.16 includes
a list of all sales representatives and independent contractors engaged in CTI
Group's business, their payment arrangements, and a brief description of their
jobs or projects currently in progress. CTI Group is in substantial compliance
with all Laws respecting employment practices, except where such non-compliance
will not result in a Material Adverse Effect. CTI Group has never been a party
to or bound by any union or collective bargaining Contract, nor is any such
Contract currently in effect or being negotiated by or on behalf of CTI Group.
CTI Group has not experienced any labor problem that was or would have a
Material Adverse Effect on CTI Group's business. CTI Group's relations with its
employees are currently on a good and normal basis, and no employee of CTI
Group, to its actual knowledge, has indicated an intention to terminate his or
her employment where such termination shall have a Material Adverse Effect. CTI
Group does not have any actual knowledge or belief that the transactions
contemplated by this Agreement will adversely affect relations with CTI Group's
employees in a manner that would have a Material Adverse Effect.
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3.17 Employee Benefit Plans.
(a) Section 3.17 of the CTI Group Disclosure Schedule identifies each
employment, severance or similar contract or arrangement (whether or not
written) or any plan, policy, fund, program or contract or arrangement (whether
or not written) providing for compensation, bonus, profit-sharing, stock option,
or other stock related rights or other forms of incentive or deferred
compensation, vacation benefits, insurance coverage (including any self-insured
arrangements), health or medical benefits, disability benefits, workers'
compensation, supplemental unemployment benefits, severance benefits and
post-employment or retirement benefits (including compensation, pension, health,
medical or life insurance or other benefits) that (i) has been entered into,
maintained, administered or contributed to, as the case may be, by CTI Group or
any Subsidiary and (ii) covers any employee or former employee (each, an
"Employee Plan").
(b) CTI Group has furnished or made available to Centillion copies of
the Employee Plans (and, if applicable, related trust agreements) and all
amendments thereto and written interpretations thereof, together with the most
recent annual report (Form 5500 including, if applicable, Schedule B thereto)
and the most recent actuarial valuation report prepared in connection with any
Employee Plan.
(c) Each Employee Plan that is intended to be qualified under Section
401(a) of the Code has been determined by the Internal Revenue Service to be
qualified under Section 401(a) of the Code and each trust related thereto has
been determined to be exempt from tax pursuant to Section 501(a) of the Code,
and CTI Group is not aware of any event that has occurred since the date of such
determinations that would adversely affect such qualification or tax exempt
status. CTI Group has provided Centillion with the most recent determination
letter of the Internal Revenue Service relating to each such Employee Plan. Each
Employee Plan has been maintained in compliance in all material respects with
its terms and with the requirements prescribed by any and all applicable
statutes, orders, rules and regulations, including but not limited to the
Employee Retirement Income Security Act of 1974, as amended ("ERISA"), and the
Code.
(d) No Employee Plan is a multi-employer plan as defined in Section
3(37) of ERISA or is a plan subject to Title IV of ERISA.
(e) Neither CTI Group nor any Subsidiaries has any current or projected
liability in respect of post-employment or post-retirement health or medical or
life insurance benefits for retired, former or current employees of CTI Group,
except as required to avoid excise tax under Section 4980B of the Code.
(f) Except as set forth in Section 3.17 of CTI Group's Disclosure
Schedule, there has been no amendment to, written interpretation of or
announcement (whether or not written) by CTI Group or any Subsidiary relating
to, or change in employee participation or coverage under, any Employee Plan
that would increase materially the expense of maintaining such Employee
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Plan above the level of the expense incurred in respect thereof for the most
recent fiscal year ended prior to the date hereof.
(g) Other than as described in Section 3.17 of CTI Group's Disclosure
Schedule, no employee or former employee of CTI Group or any Subsidiary will
become entitled to any bonus, retirement, severance, job security or similar
benefit or an enhancement of such benefit (including acceleration of vesting or
exercise of an incentive award) under any Employee Plan as a result of the
transactions contemplated hereby.
3.18 Taxes. Each of CTI Group and its Subsidiaries has filed all material Tax
returns and reports required to be filed by it and has paid, or established
adequate reserves for, all Taxes required to be paid by it. No deficiencies for
any Taxes have been proposed, asserted or assessed against CTI Group, and no
requests for waivers of the time to assess any such Taxes are pending. As used
in this Agreement, "Taxes" shall include all federal, state, local and foreign
income, property, sales, excise and other taxes, tariffs or governmental charges
of any nature whatsoever.
3.19 Environmental Matters. Except as set forth in Section 3.19 of the CTI Group
Disclosure Schedule or as would not reasonably be expected to have, individually
or in the aggregate, a Material Adverse Effect, (i) to CTI Group's knowledge no
real property or any part thereof currently or formerly owned or operated by CTI
Group or any current or former Subsidiary is contaminated with any Hazardous
Substance (as defined herein) to an extent or in a manner or condition which may
reasonably be expected to require investigation or remediation under any
Environmental Law (as defined herein), (ii) no judicial or administrative
action, suit or other proceeding is pending or to the knowledge of CTI Group or
its Subsidiaries, threatened relating to or arising out of any Environmental
Law, including, but not limited to, claims with respect to off-site disposal,
off-site contamination, personal injury, property damage or natural resources
damages, (iii) CTI Group and its Subsidiaries have not received in writing any
claims, orders, citations, demands, requests for information or other notices
alleging or concerning liability or assessing a penalty under any Environmental
Law; and neither CTI Group nor any Subsidiary nor any of their operations is or
has been in violation of or has any liability under an applicable Environmental
Law and no condition or event has occurred with respect to CTI Group or any
Subsidiary that would constitute a violation of or create liability under such
Environmental Law, whether accrued, contingent, absolute, determined,
determinable or otherwise, except for any condition(s) or violation(s) that
would not reasonably be expected to have, individually or in the aggregate, a
Material Adverse Effect, and (iv) no expenditures by CTI Group or its
Subsidiaries to maintain or achieve compliance with applicable Environmental
Laws during the three (3) year period following the date hereof are anticipated
except where such expenditures, individually or in the aggregate would not
reasonably be expected to have a Material Adverse Effect. "Environmental Law"
means any applicable federal, state or local law, including common law,
regulation, permit, license, certificate or other authorization, agreement,
standard, directive, order, decree, judicial opinion or any other enforceable
governmental authority requirement relating to noise, odor, Hazardous
Substances, public and worker health and safety or the protection of the
environment. "Hazardous Substance" means
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any toxic, hazardous or dangerous material, substance, chemical, waste,
pollutant or contaminant, including, but not limited to petroleum and petroleum
containing products, asbestos containing materials, PCBs and radioactive
substances that is regulated by or under authority of any Environmental Law.
3.20 Patents and Other Proprietary Rights.
(a) CTI Group and its Subsidiaries have not granted or promised to
grant any exclusive licenses, or any material non-exclusive licenses other than
those that have been previously granted or as may be granted in the normal
course of business or granted as a result of any patent litigation, or covenants
not to sue thereunder to any third party in respect of any Intellectual Property
(as defined below) used in or necessary for the conduct of its business as
currently conducted or as proposed to be conducted as reflected in CTI Group's
existing business plans. The patents owned by CTI Group and its Subsidiaries are
valid and enforceable to the best of CTI Group's and its Subsidiaries knowledge
and any patent issuing from patent applications of CTI Group and its
Subsidiaries will be valid and enforceable to the best of CTI Group's and its
Subsidiaries knowledge for the duration of its term other than any such lack of
validity or enforceabililty which, individually or in the aggregate, would not
reasonably be expected to have a Material Adverse Effect.
(b) Except as would not have a Material Adverse Effect:
(i) To the best of CTI Group's and its Subsidiaries knowledge,
CTI Group and each of its Subsidiaries owns, or is licensed to use or to CTI
Group's knowledge otherwise possesses the legal right to use (in each case, free
and clear of any Liens (other than Liens arising out of payment obligations in
respect of such Intellectual Property) in respect of CTI Group's or any of its
Subsidiaries' interests therein) all Intellectual Property used in or necessary
for the conduct of its business as currently conducted;
(ii) to the best of CTI Group's and its Subsidiaries
knowledge, the use of any Intellectual Property by CTI Group and its
Subsidiaries does not infringe on or otherwise violate the rights of any Person;
(iii) to the best of CTI Group's and its Subsidiaries
knowledge, no product (or component thereof or process) used, sold or
manufactured by CTI Group or any of its Subsidiaries infringes or otherwise
violates the Intellectual Property of any other Person; and
(iv) to the best of CTI Group's and its Subsidiaries current
knowledge, CTI Group or its Subsidiaries does not have any present knowledge of
any Person that is challenging, infringing on or otherwise violating any right
of CTI Group or any of its Subsidiaries with respect to any Intellectual
Property owned by and/or licensed to CTI Group and its Subsidiaries. CTI Group
and its Subsidiaries continue to diligently inform themselves of any actions by
any other Person.
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For purposes of this Agreement "Intellectual Property" shall mean trademarks,
service marks, brand names, certification marks, trade dress, assumed names,
trade names and other indications of origin, the goodwill associated with the
foregoing and registrations in any jurisdiction of, and applications in any
jurisdiction to register the foregoing, including any extension, modification or
renewal of any such registration or application; inventions, discoveries and
ideas, whether patentable or not in any jurisdiction; manufacturing know-how;
patents, applications for patents (including, without limitation, divisions,
continuations, continuations in part, reissuances, reexaminations, extensions
and renewal applications), and any renewals, extensions of reissues thereof, in
any jurisdiction; nonpublic information, trade secrets and confidential
information and rights in any jurisdiction to limit the use or disclosure
thereof by any person; writings and other works, whether copyrightable or not in
any jurisdiction; registration or applications for registration of copyrights in
any jurisdiction, and any renewals or extensions thereof; or any similar
intellectual property or proprietary rights.
(c) Except as set forth in Section 3.20 of CTI Group's Disclosure
Schedule, none of the processes, techniques and formulae, research and
development results and other know-how relating to the business of CTI Group and
its Subsidiaries, the value of which to CTI Group is contingent upon maintenance
of the confidentiality thereof has been disclosed by CTI Group or any affiliate
thereof to any Person other than Persons who are bound to hold such information
in confidence pursuant to confidentiality agreements or by operation of law,
other than any such disclosure which, individually or in the aggregate, would
not reasonably be expected to have a Material Adverse Effect.
(d) Section 3.20 of CTI Group's Disclosure Schedule sets forth all CTI
Group Intellectual Property used in or necessary for the conduct of its business
as currently conducted.
3.21 Year 2000. CTI Group and its Subsidiaries have put into effect practices
and programs which CTI Group believes will enable all material software,
hardware and equipment (including microprocessors) that are owned or utilized by
CTI Group or any of its Subsidiaries in the operations of its or their
respective business to be capable, by December 31, 1999, of accounting for all
calculations using a century and date sensitive algorithm for the year 2000 and
the fact that the year 2000 is a leap year and to otherwise continue to function
without any interruption caused by the occurrence of the year 2000, except for
those failures that would not reasonably be expected to have a Material Adverse
Effect.
3.22 Brokers. Except for Pasco Business Trust, neither CTI Group or any of its
Subsidiaries, or any of their respective officers, directors or employees has
employed any investment banker, broker, finder or other intermediary or incurred
any liability for any brokerage fees, commissions or finder's fees in connection
with the transactions contemplated by this Agreement for which Centillion or any
Subsidiary is or might be liable. The compensation payable to Pasco Business
Trust shall not exceed $283,125.14.
3.23 Intentionally left blank
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3.24 No Other Representations. Except as specifically set forth in this Article
III, CTI Group has not made, and the Centillion has not relied upon, any other
representations or warranties, whether express or implied.
3.25 Certain Interests. Except as set forth in Section 3.25 of the CTI Group
Disclosure Schedule, neither CTI Group nor any Subsidiary, nor any of their
respective officers, directors or affiliates, has (a) any direct or indirect
interest (other than the ownership of less than 1% of the outstanding securities
of a publicly held company) in any corporation or business that is involved in
or competes with CTI Group, or (b) any direct or indirect interest in any
property or assets used by, or relating to, CTI Group or its business, except
for the ownership of CTI Group's capital stock.
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ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF CENTILLION
Centillion represents and warrants to CTI Group that except as set
forth in the Disclosure Schedule delivered to CTI Group prior to the execution
of this Agreement (the "Centillion Disclosure Schedule"):
4.1 Corporate Existence and Power. Centillion is a corporation duly
incorporated, validly existing and in good standing under the laws of the State
of Indiana, and has all corporate powers and authority and all governmental
licenses, authorizations, permits, consents and approvals required to own,
operate or lease the properties that it purports to own, operate or lease and to
carry on its business as now conducted, except for those licenses,
authorizations, permits, consents and approvals the absence of which would not
have, individually or in the aggregate, a Material Adverse Effect. Centillion is
duly qualified to do business as a foreign corporation and is in good standing
in each jurisdiction where the character of the property owned or leased by it
or the nature of its activities makes such qualification necessary, except for
those jurisdictions where the failure to be so qualified would not have a
Material Adverse Effect. Centillion has heretofore delivered to CTI Group
complete and correct copies of Centillion's and each Subsidiary's articles of
incorporation and bylaws or equivalent organizational documents as currently in
effect. Such articles of incorporation, bylaws and equivalent organizational
documents are in full force and effect. A true and complete list of all of
Centillion's Subsidiaries, together with the jurisdiction of incorporation of
each Subsidiary is set forth in Section 4.1 of the Centillion Disclosure
Schedule.
4.2 Corporate Authorization. The execution, delivery and performance by
Centillion of this Agreement and the consummation by Centillion of the
transactions contemplated hereby are within Centillion's corporate powers and
except for any required approvals by Centillion's stockholders in connection
with the consummation of the Merger, have been duly authorized by all necessary
corporate action. The affirmative vote of the holders of a majority of the
outstanding shares (if required by law) is the only vote of the holders of any
of Centillion's capital stock necessary in connection with the consummation of
the Merger (the "Centillion Required Vote"). This Agreement has been duly and
validly authorized (assuming receipt of the Centillion Required Vote), executed
and delivered by Centillion and, assuming the due and valid authorization,
execution and delivery of this Agreement by CTI Group and receipt of all
required approvals by CTI Group's stockholders in connection with the
consummation of the Merger, constitutes a valid and binding agreement of
Centillion, enforceable against it in accordance with its terms, except as may
be limited by bankruptcy, insolvency, reorganization, moratorium, fraudulent
transfer and other similar laws affecting creditors' rights generally and by
equitable principles of general applicability. Certain shareholders of
Centillion have executed agreements pursuant to which they have agreed to vote
their shares or shares within their control in favor of approving this Merger.
Such agreements accurately set forth the number of shares held by each
shareholder.
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4.3 Governmental Authorization. The execution, delivery and performance by
Centillion of this Agreement and the consummation by Centillion of the Merger
and the other transactions contemplated hereby require no consent, waiver,
approval, authorization or permit by or from, or action by or in respect of, or
filing with, any Governmental Entity, other than (i) the filing of a certificate
of merger and articles of merger in accordance with the DGCL and the IBCL,
respectively, (ii) compliance with any applicable requirements of state takeover
laws, and (iii) any action, filing, consent, waiver, approval, authorization or
permit that would not in the aggregate prevent or delay consummation of the
Merger in any material respect, or otherwise prevent Centillion from performing
its obligations under this Agreement in any material respect or would not in the
aggregate have a Material Adverse Effect.
4.4 Non-contravention. Assuming compliance with matters in Section 4.2 and 4.3,
the execution, delivery and performance by Centillion of this Agreement and the
consummation by Centillion of the transactions contemplated hereby do not and
will not (i) assuming receipt of the approval of stockholders referred to in
Section 4.2, contravene or conflict with the certificate of incorporation or
bylaws of Centillion, (ii) contravene or conflict with or constitute a violation
of any provision of any law, regulation, judgment, injunction, order or decree
binding upon or applicable to Centillion or any Subsidiary, (iii) result in a
breach or violation of or constitute a default under (or an event which with the
giving of notice or the lapse of time or both would constitute a default under)
or give rise to a right of termination, amendment, cancellation or acceleration
of any right or obligation of Centillion or any Subsidiary or to a loss of any
benefit to which Centillion or any Subsidiary is entitled or require any
consent, approval or authorization under any provision of any material
agreement, contract or other instrument binding upon Centillion or any
Subsidiary or any of their respective assets (including any material license,
franchise, permit or other similar authorization held by Centillion or any
Subsidiary) or (iv) result in the creation or imposition of any Lien on any
asset of Centillion or any Subsidiary, except for such contraventions, conflicts
or violations referred to in clause (ii) and breaches, violations, defaults,
rights of termination, cancellation or acceleration, losses, Liens or other
occurrences referred to in clauses (iii) and (iv) that individually or in the
aggregate would not reasonably be expected to result in a Material Adverse
Effect.
4.5 Capitalization. The authorized capital stock of Centillion consists of
10,000,000 shares of Common Stock of which 3,696,632 are outstanding on a
diluted basis or 3,787,587 are outstanding on an undiluted basis. By the
Effective Time Centillion shall deliver a list of all outstanding shares and
shareholders of such stock. As of the Effective Time there will be no options or
warrants outstanding.
4.6 Subsidiaries.
(a) Each Subsidiary is an entity duly organized, validly existing and
in good standing under the laws of its jurisdiction of organization, has all
corporate or partnership powers and authority and all governmental licenses,
authorizations, permits, consents and approvals required
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to own, operate or lease the properties that it purports to own, operate or
lease and to carry on its business as now conducted, except for those licenses,
authorizations, permits, consents and approvals, the absence of which would not
have individually or in the aggregate a Material Adverse Effect. Each Subsidiary
is duly qualified to do business as a foreign corporation and is in good
standing in each jurisdiction where the character of the property owned or
leased by it or the nature of its activities makes such qualification necessary,
except for such qualifications the failure of which to obtain would not,
individually or in the aggregate, have a Material Adverse Effect. All
Subsidiaries and their respective jurisdictions of organization are identified
in Section 4.6(a) of the Centillion Disclosure Schedule.
(b) Except as set forth in Section 4.6 of the Centillion Disclosure
Schedule, all of the outstanding capital stock of, or other ownership interests
in, each Subsidiary of Centillion, is owned by Centillion, directly or
indirectly, free and clear of any Lien and free of any other limitation or
restriction (including any restriction on the right to vote, sell or otherwise
dispose of such capital stock or other ownership interests). There are no
outstanding Subsidiary Securities. There are no outstanding obligations of
Centillion or any Subsidiary to repurchase, redeem or otherwise acquire any
outstanding Subsidiary Securities.
4.7 SEC Filing Information; Financial Statements.
(a) None of the information (i) supplied or to be supplied by
Centillion in writing specifically for inclusion in the Proxy Statement or (ii)
provided to CTI Group in connection with or in contemplation of the transactions
set forth in this Agreement will, at the respective times filed with the SEC or
at the Effective Time, respectively, 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 made therein, in light of the circumstances
under which they were made, not misleading.
(b) Except as set forth in Section 4.7 of the Centillion Disclosure
Schedule, the audited consolidated financial statements of Centillion dated
December 31, 1998 and unaudited consolidated interim financial statements of
Centillion dated October 31, 1999 (the "Centillion Financial Statements") fairly
present, in conformity with GAAP applied on a consistent basis (except as may be
indicated in the notes thereto or in the case of unaudited interim financial
statements), the consolidated financial position of Centillion and its
consolidated Subsidiaries as of the dates thereof and its consolidated
statements of operations, stockholders' equity and cash flows for the periods
then ended (subject to normal year-end adjustments in the case of any unaudited
interim financial statements). Notwithstanding any provision contained herein,
no representation is made in this Agreement with respect to any financial
statement that has been restated or amended.
4.8 No Undisclosed Material Liabilities. Except as is disclosed in the
Centillion Financial Statements, or to the extent the existence of such
liability would not have a Material Adverse Effect, neither Centillion nor any
of its Subsidiaries has any liabilities of the type that are
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required to be disclosed in financial statements, including the notes thereto,
prepared in accordance with GAAP which are, either individually or in the
aggregate, material to the business, operations or financial condition of
Centillion and its Subsidiaries taken as a whole, except liabilities, adequately
provided for or referred to in Centillion's balance sheet and the related notes
thereto as of October 31, 1999.
4.9 Absence of Certain Changes. Since October 31, 1999, the business of
Centillion and its Subsidiaries has been conducted in the ordinary course
consistent with past practices and, except as disclosed in the Centillion
Disclosure Schedule, there has not been:
(a) any change, event or development having, or that could be
reasonably expected to have, individually or in the aggregate, a Material
Adverse Effect on Centillion;
(b) any amendments or changes in the Certificate of Incorporation or
bylaws of Centillion;
(c) any material damage to, destruction or loss of any assets of
Centillion (whether or not covered by insurance);
(d) any change by Centillion in its accounting methods, principles or
practices;
(e) any revaluation by Centillion of any of its assets, including,
without limitation, writing down the value of inventory or writing off notes or
accounts receivable other than in the ordinary course of business;
(f) any sale of a material amount of assets of Centillion, except for
the sale of inventory in the ordinary course of business and the transactions
contemplated by Section 6.2(c) of this Agreement;
(g) any declaration, setting aside or payment of any dividend or
distribution in respect of any capital stock of Centillion or any redemption,
purchase or other acquisition of any of its securities;
(h) any entry by Centillion into any commitment or transaction material
to Centillion, including, without limitation, any long-term supply agreements or
partnership, joint venture or other similar arrangements;
(i) any increase in or establishment of any bonus, insurance,
severance, deferred compensation, pension, 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 increase in the compensation payable to any
officers or key employees of Centillion except in the ordinary course of
business consistent with past practice;
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(j) any issuance, delivery, or sale of, or authorization of the
issuance, delivery or sale of, any share of capital stock or any options or
rights with respect thereto, other than the issuance of common stock pursuant to
Plans outstanding on the date of this Agreement, or modification or amendment of
any right of any holder of outstanding shares of capital stock or options with
respect thereto except that Lars Danielsson has agreed to sell his outstanding
shares and options back to Centillion and certain other transactions may take
place between present shareholders, which transactions shall be completed prior
to Effective Time; or
(k) any incurring of (which shall be deemed to include entering into
credit agreements, lines of credit or similar arrangements until borrowings are
made under such arrangements) any indebtedness for borrowed money or guarantee
of any such indebtedness other than in the ordinary course of business
consistent with past practice.
4.10 Litigation. Except as set forth in the Centillion Disclosure Schedule as of
the date hereof, there is no action, suit, investigation or proceeding pending
or, to the knowledge of the Centillion, threatened, against Centillion or any of
its Subsidiaries or any of their respective properties before any court,
arbitrator or other Governmental Entity which would reasonably be expected to
have, individually or in the aggregate, a Material Adverse Effect.
4.11 Compliance with Laws. Centillion and its Subsidiaries are in substantial
compliance with all laws, regulations and orders of any Governmental Entity
applicable to it or such Subsidiaries, except for such failures to comply which
would not have a Material Adverse Effect.
4.12 Permits. Centillion and its Subsidiaries hold all material licenses,
permits and other authorizations issued by Governmental Entities for the
operation of their respective businesses, except those licenses, permits and
authorizations the absence of which would not have a Material Adverse Effect.
4.13 Insurance. Schedule 4.13 is an accurate and complete list and description
of all Insurance Policies currently owned or maintained by Centillion and its
Subsidiaries (excluding Insurance Policies that constitute Employee Benefit
Plans) in connection with or for the benefit of its business and all liability
and errors and omissions Insurance Policies owned or maintained by it or any of
its predecessors at any time during the five (5) years prior to the date of this
Agreement. Except as described in Schedule 4.13, all such Insurance Policies are
or were on an "occurrence" rather than a "claims made" basis. Centillion has not
received notice of cancellation with respect to any such current Insurance
Policy, and there is no basis for the insurer thereunder to terminate any such
current Insurance Policy. Each such Insurance Policy is or was in full force and
effect during the period(s) of coverage indicated on Schedule 4.13. Except as
described on Schedule 4.13, there are no claims that are pending under any of
the Insurance Policies described on Schedule 4.13.
4.14 Contracts.
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(a) Schedule 4.14 is an accurate and complete list of all of the
following types of Contracts to which Centillion is a party or by which
Centillion is bound, excluding, however, any Contracts that Centillion will not
be a party to as of the Effective Time as a result of the Reorganization
(collectively, the "Specified Contracts"), grouped into the following categories
and, where applicable, subdivided by product line: (a) each customer Contract
that is in excess of $25,000 and to the extent that the total number of such
Contracts is less than 20, then the 20 largest Contracts; (b) each supplier
Contract, each Contract for the purchase, lease or maintenance of computer
equipment and other equipment and each Contract for the purchase, license, lease
or maintenance of software under which Centillion is the purchaser, licensee,
lessee or user that is in excess of $25,000 and to the extent that the total
number of such Contracts over $25,000 is less than 20, then the 20 largest
Contracts; (c) Contracts for the purchase or lease of Real Property or otherwise
concerning Real Property owned or used by Centillion including a description of
the Real Property; (d) loan agreements, mortgages, notes, guarantees and other
financing Contracts; (e) employment, consulting and sales representative
Contracts other than those for "at will" employment; (f) Contracts under which
any rights in or ownership of Centillion's business, any predecessor thereof, or
any part of the customer base or business of Centillion's business was acquired;
and (g) other Contracts (excluding Contracts which constitute Insurance Policies
listed on Schedule 4.13, excluding this Agreement and all other Contracts
entered into between Centillion and CTI Group, or among Centillion, CTI Group
and other parties in connection herewith). A description of each oral Specified
Contract is included on Schedule 4.14, and copies of each written Specified
Contract have been delivered to CTI Group. Except as described in Schedule 4.14,
with respect to each of the Specified Contracts, neither Centillion nor any of
its Subsidiaries nor, to the knowledge of Centillion, any other party thereto,
is in breach, default or violation of any term, condition or provision of any
Specified Contract, except for any breaches, defaults or violations that would
not reasonably be expected to have, individually or in the aggregate, a Material
Adverse Effect. Except as described in Schedule 4.14, neither Centillion nor any
of its Subsidiaries has given or received any notice of default or notice of
termination with respect to any Specified Contract where such default would
result in a Material Adverse Effect.
(b) Each Specified Contract is a valid, binding and enforceable
obligation of Centillion or its Subsidiary, as the case may be, and, to the
knowledge of Centillion, of each party thereto, and is in full force and effect,
except where the failure to be valid, binding and enforceable and in full force
and effect would not reasonably be expected to have, individually or in the
aggregate, a Material Adverse Effect. None of Centillion nor any of its
Subsidiaries nor, to the knowledge of Centillion, any party thereto, is in
breach, default or violation of any term, condition or provision of any
Specified Contract, except for any breaches, defaults or violations that would
not reasonably be expected to have, individually or in the aggregate, a Material
Adverse Effect.
4.15 Properties.
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(a) Except as set forth in Section 4.15 of the Centillion Disclosure
Schedule, Centillion and its Subsidiaries have good and marketable title, or
valid leasehold rights in the case of leased property, to all real property and
all personal property (excluding, however, any real or personal property which
will not be owned by Centillion as of the Effective Time as a result of the
Reorganization) purported to be owned or leased by them, free and clear of all
liens, security interests, claims, encumbrances and charges, excluding (i)
immaterial liens for fees, taxes, levies, imposts, duties or governmental
charges of any kind which are not yet delinquent or are being contested in good
faith by appropriate proceedings which suspend the collection thereof, (ii)
immaterial liens for mechanics, materialmen, laborers, employees, suppliers or
other liens arising by operation of law for sums which are not yet delinquent or
are being contested in good faith by appropriate proceedings, (iii) purchase
money liens on office, computer and related equipment and supplies incurred in
the ordinary course of business, and (iv) liens or defects in title on leasehold
rights. All buildings, and all fixtures, equipment and other property and assets
held under leases or sub-leases by Centillion or any of its Subsidiaries are
held under valid instruments enforceable in accordance with their respective
terms. The tangible personal property of Centillion has no material defects and
is in good operating condition and repair (ordinary wear and tear excepted) and
is adequate for its current uses. None of such tangible personal property is in
need of maintenance or repairs except for ordinary routine maintenance and
repairs that are not material in nature or cost.
(b) Except as set forth in Section 4.15 of the Centillion Disclosure
Schedule, consummation of the Merger will not result in any breach of or
constitute a default (or an event with which notice or lapse of time or both
would constitute a default) under, or give to others any rights of termination
or cancellation or, or require the consent of others under, any lease in which
Centillion or any of its subsidiaries is a lessee.
4.16 Employees and Independent Contractors. Schedule 4.16 is a list of all of
Centillion's employees (excluding, however, employees no longer employed as of
the Effective Time as a result of the Reorganization) and (a) their titles or
responsibilities; (b) their current salaries or wages; (c) their last
compensation changes and the dates on which such changes were made; (d) any
specific bonus, commission or incentive plans or agreements for or with them;
and (e) any outstanding loans or advances made to them. Centillion has delivered
to CTI Group an accurate and complete list of all bonuses, commissions and
incentives paid to the employees listed on Schedule 4.16 at any time during the
past twelve months. Schedule 4.16 includes a list of all sales representatives
and independent contractors engaged in Centillion's business, their payment
arrangements, and a brief description of their jobs or projects currently in
progress. Centillion is in full compliance with all Laws respecting employment
practices. Centillion has never been a party to or bound by any union or
collective bargaining Contract, nor is any such Contract currently in effect or
being negotiated by or on behalf of Centillion. Centillion has not experienced
any labor problem that was or is material to its business. Centillion's
relations with its employees are currently on a good and normal basis, and no
employee of Centillion has indicated an intention to terminate his or her
employment. Centillion does not have any
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knowledge or belief that the transactions contemplated by this Agreement will
adversely affect relations with Centillion's employees.
4.17 Employee Benefit Plans.
(a) Section 4.17 of the Centillion Disclosure Schedule identifies each
Employee Plan (whether or not written) that (i) has been entered into,
maintained, administered or contributed to, as the case may be, by Centillion or
any Subsidiary and (ii) covers any employee or former employee.
(b) Centillion has furnished or made available to CTI Group copies of
the Employee Plans (and, if applicable, related trust agreements) and all
amendments thereto and written interpretations thereof, together with the most
recent annual report (Form 5500 including, if applicable, Schedule B thereto)
and the most recent actuarial valuation report prepared in connection with any
Employee Plan.
(c) Each Employee Plan that is intended to be qualified under Section
401(a) of the Code has been determined by the Internal Revenue Service to be
qualified under Section 401(a) of the Code and each trust related thereto has
been determined to be exempt from tax pursuant to Section 501(a) of the Code,
and Centillion is not aware of any event that has occurred since the date of
such determinations that would adversely affect such qualification or tax exempt
status. Centillion has provided CTI Group with the most recent determination
letter of the Internal Revenue Service relating to each such Employee Plan. Each
Employee Plan has been maintained in compliance in all material respects with
its terms and with the requirements prescribed by any and all applicable
statutes, orders, rules and regulations, including but not limited to ERISA, and
the Code.
(d) No Employee Plan is a multi-employer plan as defined in Section
3(37) of ERISA or is a plan subject to Title IV of ERISA.
(e) Neither Centillion nor any Subsidiaries has any current or
projected liability in respect of post-employment or post-retirement health or
medical or life insurance benefits for retired, former or current employees of
Centillion, except as required to avoid excise tax under Section 4980B of the
Code.
(f) Except as set forth in Centillion's Disclosure Schedule, there has
been no amendment to, written interpretation of or announcement (whether or not
written) by Centillion or any Subsidiary relating to, or change in employee
participation or coverage under, any Employee Plan that would increase
materially the expense of maintaining such Employee Plan above the level of the
expense incurred in respect thereof for the most recent fiscal year ended prior
to the date hereof.
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(g) Other than as described in Section 4.17 of Centillion's Disclosure
Schedule, no employee or former employee of Centillion or any Subsidiary will
become entitled to any bonus, retirement, severance, job security or similar
benefit or an enhancement of such benefit (including acceleration of vesting or
exercise of an incentive award) under any Employee Plan as a result of the
transactions contemplated hereby.
4.18 Taxes. Each of Centillion and its Subsidiaries has filed all material Tax
returns and reports required to be filed by it and has paid, or established
adequate reserves for, all Taxes required to be paid by it. No deficiencies for
any Taxes have been proposed, asserted or assessed against Centillion, and no
requests for waivers of the time to assess any such Taxes are pending.
4.19 Environmental Matters. Except as set forth in Section 4.19 of the
Centillion Disclosure Schedule or as would not reasonably be expected to have,
individually or in the aggregate, a Material Adverse Effect, (i) no real
property or any part thereof currently or formerly owned or operated by
Centillion or any current or former Subsidiary is contaminated with any
Hazardous Substance to an extent or in a manner or condition which may
reasonably be expected to require investigation or remediation under any
Environmental Law, (ii) no judicial or administrative action, suit or other
proceeding is pending or to the knowledge of Centillion or its Subsidiaries,
threatened relating to or arising out of any Environmental Law, including, but
not limited to, claims with respect to off-site disposal, off-site
contamination, personal injury, property damage or natural resources damages,
(iii) Centillion and its Subsidiaries have not received in writing any claims,
orders, citations, demands, requests for information or other notices alleging
or concerning liability or assessing a penalty under any Environmental Law.
Neither Centillion nor any Subsidiary nor any of their operations is or has been
in violation of or has any liability under an applicable Environmental Law and
no condition or event has occurred with respect to Centillion or any Subsidiary
that would constitute a violation of or create liability under such
Environmental Law, whether accrued, contingent, absolute, determined,
determinable or otherwise, and (iv) no expenditures by Centillion or its
Subsidiaries to maintain or achieve compliance with applicable Environmental
Laws during the three (3) year period following the date hereof are anticipated
except where such expenditures, individually or in the aggregate would not
reasonably be expected to have a Material Adverse Effect.
4.20 Patents and Other Proprietary Rights.
(a) Centillion and its Subsidiaries have not granted or promised to
grant any exclusive licenses, or any material non-exclusive licenses other than
those that have been previously granted or as may be granted in the normal
course of business or granted as a result of any patent litigation, or covenants
not to sue thereunder to any third party in respect of any Intellectual Property
used in or necessary for the conduct of its Billing Business as currently
conducted or as proposed to be conducted as reflected in Centillion's existing
business plans. The patents owned by Centillion and its Subsidiaries are valid
and enforceable to the best of Centillion's and its Subsidiaries knowledge and
any patent issuing from patent applications of Centillion and its Subsidiaries
will be valid and enforceable to the best of Centillion's and its Subsidiaries
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knowledge for the duration of its term other than any such lack of validity or
enforceabililty which, individually or in the aggregate, would not reasonably be
expected to have a Material Adverse Effect.
(b) Except as would not have a Material Adverse Effect:
(i) To the best of Centillion's and its Subsidiaries
knowledge, Centillion and each of its Subsidiaries owns, or is licensed to use
or otherwise possesses the legal right to use (in each case, free and clear of
any Liens (other than Liens arising out of payment obligations in respect of
such Intellectual Property) in respect of Centillion's or any of its
Subsidiaries' interests therein) all Intellectual Property used in or necessary
for the conduct of its Billing Business as currently conducted;
(ii) to the best of Centillion's and its Subsidiaries
knowledge, the use of any Intellectual Property by Centillion and its
Subsidiaries in the Billing Business does not infringe on or otherwise violate
the rights of any Person;
(iii) to the best of Centillion's and its Subsidiaries
knowledge, no product (or component thereof or process) used, sold or
manufactured by Centillion or any of its Subsidiaries infringes or otherwise
violates the Intellectual Property of any other Person; and
(iv) to the best of Centillion's and its Subsidiaries current
knowledge, other than those defendants or parties identified in Section 4.20 of
Centillion's Disclosure Schedule, Centillion or its Subsidiaries does not have
any present knowledge of any Person that is challenging, infringing on or
otherwise violating any right of Centillion or any of its Subsidiaries with
respect to any Intellectual Property owned by and/or licensed to Centillion and
its Subsidiaries. Centillion and its Subsidiaries continue to diligently inform
themselves of any actions by any other Person.
(c) Except as set forth in the Centillion Disclosure Schedule, none of
the processes, techniques and formulae, research and development results and
other know-how relating to the business of Centillion and its Subsidiaries, the
value of which to Centillion is contingent upon maintenance of the
confidentiality thereof has been disclosed by Centillion or any affiliate
thereof to any Person other than Persons who are bound to hold such information
in confidence pursuant to confidentiality agreements or by operation of law,
other than any such disclosure which, individually or in the aggregate, would
not reasonably be expected to have a Material Adverse Effect.
(d) Section 4.20 of Centillion's Disclosure Schedule sets forth all
Centillion Intellectual Property used in or necessary for the conduct of its
Billing Business as currently conducted.
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4.21 Year 2000. Centillion and its Subsidiaries have put into effect practices
and programs which Centillion believes will enable all material software,
hardware and equipment (including microprocessors) that are owned or utilized by
Centillion or any of its Subsidiaries in the operations of its or their
respective business to be capable, by December 31, 1999, of accounting for all
calculations using a century and date sensitive algorithm for the year 2000 and
the fact that the year 2000 is a leap year and to otherwise continue to function
without any interruption caused by the occurrence of the year 2000, except for
those failures that would not reasonably be expected to have a Material Adverse
Effect.
4.22 Brokers. Neither Centillion, nor any of its Subsidiaries nor any of their
respective, officers, directors or employees, has employed any investment
banker, broker, finder or other intermediary or incurred any liability for any
brokerage fees, commissions or finder's fees in connection with the transactions
contemplated by this Agreement for or with respect to which Centillion or any
Subsidiary is or might be liable.
4.23 No Other Representations. Except as specifically set forth in this Article
IV, Centillion has not made, and the CTI Group has not relied upon, any other
representations or warranties, whether express or implied.
4.24 Certain Interests. Except as set forth in Section 4.24 of the Centillion
Disclosure Schedule, neither Centillion nor any Subsidiary of Centillion, nor
any of their respective officers, directors, shareholders of affiliates, has (a)
any direct or indirect interest (other than the ownership of less than 1% of the
outstanding securities of a publicly held company) in any corporation or
business that is involved in or competes with Centillion, or (b) any direct or
indirect interest in any property or assets used by, or relating to, Centillion
or its business, except for the ownership of Centillion's capital stock.
4.25 Reorganization. The parties acknowledge that Centillion and certain of its
Subsidiaries will execute a reorganization (the "Reorganization") prior to the
Effective Time pursuant to which certain businesses and Subsidiaries will be
divested by Centillion. After the Reorganization, Centillion will continue to
own all assets necessary, appropriate, used or useful in the ownership and
continued operation (in the same manner as operated prior to the Reorganization)
of its Billing Business (the "Billing Business"), including, without limitation,
(a) the items of tangible personal property set forth in Section 4.25 of the
Centillion Disclosure Schedule, (b) Centillion's Specified Contracts, (c)
Centillion's Intellectual Property applicable to the Billing Business, (d) the
Accounts Receivable, and (e) all other rights, interests and property applicable
to the Billing Business. At the Effective Time, Centillion's business will be
limited to the Billing Business. The Reorganization will not result in or create
any rights of, or any liabilities, obligations or claims by any third parties
against the Surviving Corporation and will not result in a breach or violation
of, or default under, any contract or other agreements to which Centillion or
any of its Subsidiaries is a party.
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ARTICLE V
COVENANTS OF CENTILLION AND CTI GROUP
Each of the parties hereto agrees that from the date hereof and, unless
otherwise provided herein, until the Effective Time:
5.1 Reasonable Best Efforts.
(a) Subject to the terms and conditions herein provided, each of the
parties hereto agrees to use its reasonable best efforts to take, or cause to be
taken, all action, and to do, or cause to be done consistent with the fiduciary
duties of their respective Boards of Directors, and to assist and cooperate with
the other parties hereto in doing, as promptly as practicable, all things
necessary or advisable under applicable laws and regulations to ensure that the
conditions set forth in Article VI are satisfied and to consummate and make
effective the transactions contemplated by this Agreement.
(b) If at any time after the Effective Time any further action is
necessary or desirable to carry out the purposes of this Agreement, including
the execution of additional instruments, the proper officers and directors of
each party to this Agreement shall take all such necessary action.
5.2 Consents. Each of the parties will use its reasonable best efforts to obtain
as promptly as practicable all consents, waivers, approvals, authorizations or
permits of any Governmental Entity or any other Person required in connection
with, and waivers of any Violations that may be caused by, the consummation of
the transactions contemplated by this Agreement.
5.3 Public Announcements. Centillion and CTI Group shall use all reasonable best
efforts to develop a joint communications plan and each party shall use all
reasonable best efforts (i) to ensure that all press releases and other public
statements with respect to the transactions contemplated hereby shall be
consistent with such joint communications plan, and (ii) unless otherwise
required by applicable law or by obligations pursuant to any listing agreement
with or rules of any securities exchange, to consult with each other before
issuing any press release or otherwise making any public statement with respect
to this Agreement or the transactions contemplated hereby.
5.4 Notification of Certain Matters. Centillion and CTI Group shall promptly
notify each other of (i) the occurrence or non-occurrence of any fact or event
which would be reasonably likely (x) to cause any representation or warranty
contained in this Agreement to be untrue or inaccurate in any material respect
at any time from the date hereof to the Effective Time or (y) to cause any
material covenant, condition or agreement hereunder not to be complied with or
satisfied in all material respects and (ii) any failure of CTI Group or
Centillion, as the case may be, to comply with or satisfy any covenant,
condition or agreement to be complied with or satisfied by it hereunder in any
material respect; provided, however, that no such notification
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shall affect the representations or warranties of any party or the conditions to
the obligations of any party hereunder.
5.5 Access to Information. Upon reasonable notice, each of CTI Group and
Centillion shall, and shall cause its Subsidiaries to, afford to the other party
and to the officers, employees, accountants, counsel, financial advisors and
other representatives of such other party reasonable access during normal
business hours, during the period prior to the Effective Time, to all its
properties, books, contracts, commitments and records and, during such period,
each of CTI Group and Centillion shall, and shall cause its Subsidiaries to,
furnish promptly to the other party consistent with its legal obligations, all
other information concerning its business, properties and personnel as such
other party may reasonably request; provided, however, that each of CTI Group
and Centillion may restrict the foregoing access to the extent that (i) a
Governmental Entity requires either party or any of its Subsidiaries to restrict
access to any properties or information reasonably related to any such contract
on the basis of applicable laws and regulations with respect to national
security matters, (ii) in the reasonable judgment of such party, any law,
treaty, rule or regulation of any Governmental Entity applicable to such party
requires it or its Subsidiaries to restrict access to any properties or
information, or (iii) such restriction is pursuant to a confidentiality
agreement described in the respective Disclosure Schedule. The parties will hold
any such information in confidence to the extent required by, and in accordance
with, the provisions of the letter signed July 19 and 20, 1999, between
Centillion and CTI Group (the "Confidentiality Agreement"). Any investigation by
CTI Group or Centillion shall not affect the representations and warranties of
Centillion or CTI Group, as the case may be.
5.6 Preparation of the Form S-4 and the Proxy Statement/Prospectus; Stockholders
Meetings.
(a) As promptly as practicable following the date hereof, CTI Group
shall prepare and file with the SEC preliminary proxy materials and any
amendments or supplements thereto which shall constitute the proxy
statement/prospectus (such proxy statement/prospectus, and any amendments or
supplements thereto, the "Proxy Statement/Prospectus") and CTI Group shall
prepare and file with the SEC the Registration Statement on Form S-4 with
respect to the issuance of CTI Group Capital Stock in the Merger (the "Form
S-4") in which the Proxy Statement/Prospectus will be included. The Form S-4 and
the Proxy Statement/Prospectus shall comply as to form in all material respects
with the applicable provisions of the Securities Act and the Exchange Act. CTI
Group shall use all reasonable efforts to have the Form S-4 declared effective
under the Securities Act as promptly as practicable after filing with the SEC
and to keep the Form S-4 effective as long as is necessary to consummate the
Merger. The parties shall promptly provide copies to and consult with each other
and prepare written responses with respect to any written comments received from
the SEC with respect to the Form S-4 and the Proxy Statement/Prospectus and
promptly advise the other party of any oral comments received from the SEC. CTI
Group agrees that none of the information supplied or to be supplied by CTI
Group for inclusion or incorporation by reference in the Proxy
Statement/Prospectus and each
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amendment or supplement thereto, at the time of mailing thereof and at the time
of the Centillion Stockholders Meeting or the CTI Group Shareholders Meeting,
will contain an untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary to make the statements therein,
in light of the circumstances under which they were made, not misleading.
Centillion agrees that none of the information supplied or to be supplied by
Centillion for inclusion or incorporation by reference in the Proxy
Statement/Prospectus and each amendment or supplement thereto, at the time of
mailing thereof and at the time of the meetings will contain an untrue statement
of a material fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading. For purposes of the
foregoing, it is understood and agreed that information concerning or related to
CTI Group and the CTI Group Shareholders Meeting will be deemed to have been
supplied by CTI Group and information concerning or related to Centillion and
the Centillion Stockholders Meeting shall be deemed to have been supplied by
Centillion. No amendment or supplement to the information supplied by Centillion
for inclusion in the Proxy Statement/Prospectus shall be made without the
approval of Centillion, which approval shall not be unreasonably withheld or
delayed.
(b) Centillion shall, as promptly as practicable following the
execution of this Agreement, duly call, give notice of, convene and hold a
meeting of its stockholders (the "Centillion Stockholders Meeting") for the
purpose of obtaining the Required Centillion Vote with respect to the
transactions contemplated by this Agreement, shall use its reasonable best
efforts to solicit the adoption of this Agreement by the Required Centillion
Vote and the Board of Directors of Centillion shall recommend adoption of this
Agreement by the stockholders of Centillion.
(c) CTI Group shall, as promptly as practicable following the execution
of this Agreement, duly call, give notice of, convene and hold a meeting of its
shareholders (the "CTI Group Shareholders Meeting") for the purpose of obtaining
the Required CTI Group Vote with respect to the transactions contemplated by
this Agreement, shall use its reasonable best efforts to solicit the approval of
this Agreement by the Required CTI Group Vote and the Board of Directors of CTI
Group shall recommend the approval of this Agreement by the shareholders of CTI
Group.
(d) The Centillion Stockholders Meeting and the CTI Group Shareholders
Meeting shall take place on the same date, to the extent practicable.
5.7 Additional Covenants of Centillion. During the period from the date of this
Agreement and continuing until the Effective Time, Centillion agrees as to
itself and its Subsidiaries that (except as expressly contemplated, permitted or
required by this Agreement or as otherwise indicated on the Centillion
Disclosure Schedule or to the extent that CTI Group shall otherwise consent in
writing, which consent shall not be unreasonably withheld or delayed):
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(a) Ordinary Course. Except to the extent not reasonably practicable in
light of the announcement or existence of this Agreement and the transactions
contemplated hereby, Centillion shall, and shall cause its Subsidiaries taken as
a whole to, carry on its business in the usual, regular and ordinary course in
all material respects, in substantially the same manner as heretofore conducted,
and shall use all reasonable efforts to maintain its rights and franchises and
preserve its relationships with customers, suppliers and others having business
dealings with it with the objective to minimize the impairment of its ongoing
business; provided, however, that no action by Centillion or its Subsidiaries
with respect to matters specifically addressed by any other provisions of this
Agreement or the Centillion Disclosure Schedule shall be deemed a breach of this
Section 5.7(a) unless such action would constitute a breach of one or more of
such other provisions.
(b) Issuance of Securities. Centillion shall not, and shall not permit
any of its Subsidiaries to, issue, deliver or sell, or authorize or propose the
issuance, delivery or sale of, any shares of its capital stock of any class, any
Centillion Voting Debt or any securities convertible into or exercisable for, or
any rights, warrants or options to acquire, any such shares or Centillion Voting
Debt, or enter into any agreement with respect to any of the foregoing, other
than the issuance of Centillion Common Stock upon the exercise of stock options
or in connection with rights under other stock-based benefits plans, to the
extent such options or rights are outstanding on the date hereof in accordance
with their present terms.
(c) Governing Documents. Except to the extent required to comply with
its obligations hereunder or required by law, Centillion shall not amend its
articles of incorporation or by-laws.
(d) No Acquisitions. Centillion shall not, and shall not permit any of
its Subsidiaries to, acquire or agree to acquire by merging or consolidating
with, or by purchasing a substantial equity interest in or a substantial portion
of the assets of, or by any other manner, any business or any corporation,
partnership, association or other business organization or division thereof that
relates in any way to the Billing Business or otherwise acquire or agree to
acquire any assets with respect to the Billing Business; provided, however, that
the foregoing shall not prohibit either (i) acquisitions of assets used in the
operations of the business of Centillion and its Subsidiaries in the ordinary
course of business consistent with past practice, or (ii) acquisitions to be
made by the Subsidiaries to be divested, as described in Section 6.2(c)(ii)
prior to the Effective Time.
(e) No Dispositions. Other than (i) in the ordinary course of business
consistent with past practice and, in any event, which are not material,
individually or in the aggregate, to Centillion and its Subsidiaries taken as a
whole or (ii) internal reorganizations or consolidations involving existing
Subsidiaries of Centillion, or (iii) the transfer of the Tracked Assets and the
businesses described in Section 6.2(c), Centillion shall not, and shall not
permit any of its Subsidiaries to, sell, lease, encumber or otherwise dispose
of, or agree to sell, lease, encumber or otherwise dispose of (including by way
of a spin-off or similar transaction), any of its assets.
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(f) Indebtedness; Investments. Centillion shall not, and shall not
permit any of its Subsidiaries to, (i) incur any indebtedness for borrowed money
or guarantee any such indebtedness of another Person, issue or sell any debt
securities or warrants or other rights to acquire any debt securities of
Centillion or any of its Subsidiaries, guarantee any debt securities of another
Person, enter into any "keep well" or other agreement to maintain any financial
statement condition of another Person (other than any wholly owned Subsidiary)
or enter into any arrangement having the economic effect of any of the
foregoing, (ii) make any loans or advances to any other Person, or (iii)
investments in any Person other than investments in the ordinary course of
business consistent with past practice and, in any event, which are not
material, individually or in the aggregate, to Centillion.
(g) New Line of Business; Capital Expenditures. Centillion shall not,
and shall not permit any of its Subsidiaries to incur or commit to any capital
expenditures with respect to the Billing Business other than capital
expenditures incurred or committed to in the ordinary course of business and
which are not in excess of $25,000.
(h) Tax-Free Qualification. Centillion shall not, and shall not permit
any of its Subsidiaries to, take any action that would prevent or impede the
Merger from qualifying as a reorganization under Section 368 of the Code, and
tax free under Section 354 of the Code.
(i) Other Actions. Centillion shall not, and shall not permit any of
its Subsidiaries to, take any action that would, or that could reasonably be
expected to, result in (i) any of the conditions to the Merger set forth in
Article VI not being satisfied or (ii) a material delay in the satisfaction of
any such conditions.
(j) Accounting Methods. Centillion shall not make any material change
in its methods of accounting in effect at October 31, 1999, except as required
by changes in GAAP as concurred in by Centillion's independent auditors.
Centillion shall not change its fiscal year.
(k) Representations and Warranties. Centillion shall not take any
action that would cause the representations and warranties set forth in Article
III to no longer be true and correct.
(l) Authorization of the Foregoing. Centillion shall not, and shall not
permit any of its Subsidiaries to, authorize, commit or agree to take any of the
foregoing actions.
5.8 Additional Covenants of CTI Group. During the period from the date of this
Agreement and continuing until the Effective Time, CTI Group agrees as to itself
and its Subsidiaries that (except as expressly contemplated, permitted or
required by this Agreement or as otherwise indicated on the CTI Group Disclosure
Schedule or to the extent that Centillion shall otherwise consent in writing,
which consent shall not be unreasonably withheld or delayed):
(a) Ordinary Course. Except to the extent not reasonably practicable in
light of the announcement or existence of this Agreement and the transactions
contemplated hereby, CTI
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Group shall, and shall cause its Subsidiaries taken as a whole to, carry on its
business in the usual, regular and ordinary course in all material respects, in
substantially the same manner as heretofore conducted, and shall use all
reasonable efforts to maintain its rights and franchises and preserve its
relationships with customers, suppliers and others having business dealings with
it with the objective to minimize the impairment of its ongoing business;
provided, however, that no action by CTI Group or its Subsidiaries with respect
to matters specifically addressed by any other provisions of this Agreement or
the CTI Group Disclosure Schedule shall be deemed a breach of this Section
5.8(a) unless such action would constitute a breach of one or more of such other
provisions.
(b) Dividends; Changes in Share Capital. CTI Group shall not, and shall
not permit any of its Subsidiaries to, and shall not propose to, (i) declare or
pay any dividends on or make any other distributions in respect of any of its
capital stock, (ii) split, combine or reclassify any of its capital stock or
issue or authorize or propose the issuance of any other securities in respect
of, in lieu of, or in substitution for, shares of its capital stock, except for
any such transaction by a wholly owned Subsidiary of CTI Group which remains a
wholly owned Subsidiary after consummation of such transaction, or (iii)
repurchase, redeem or otherwise acquire any shares of its capital stock or any
securities convertible into or exercisable for any shares of its capital stock.
(c) Issuance of Securities. CTI Group shall not, and shall not permit
any of its Subsidiaries to, issue, deliver or sell, or authorize or propose the
issuance, delivery or sale of, any shares of its capital stock of any class, any
CTI Group Voting Debt or any securities convertible into or exercisable for, or
any rights, warrants or options to acquire, any such shares or CTI Group Voting
Debt, or enter into any agreement with respect to any of the foregoing, other
than the issuance of CTI Group Common Stock upon the exercise of stock options
or in connection with rights under other stock-based benefits plans, to the
extent such options or rights are outstanding on the date hereof in accordance
with their present terms.
(d) Governing Documents. Except to the extent required to comply with
its obligations hereunder, or required by law, CTI Group shall not amend its
certificate of incorporation or by-laws.
(e) No Acquisitions. Without the prior written consent of Centillion
(which consent shall not be unreasonably withheld), CTI Group shall not, and
shall not permit any of its Subsidiaries to, acquire or agree to acquire by
merging or consolidating with, or by purchasing a substantial equity interest in
or all or a substantial portion of the assets of, or by any other manner, any
business or any corporation, partnership, association or other business
organization or division thereof; provided, however, that the foregoing shall
not prohibit either the (i) acquisitions of assets used in the operations of the
business of CTI Group or any of its Subsidiaries in the ordinary course of
business consistent with past practice. CTI Group shall not, and shall not
permit any of its Subsidiaries to, enter into any new material line of business
outside its existing core businesses.
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(f) No Dispositions. CTI Group shall not, and shall not permit any of
its Subsidiaries to, sell, lease, encumber or otherwise dispose of all or
substantially all of any material line of business for CTI Group and its
Subsidiaries taken as a whole or any material portion of its assets, other than
(i) in the ordinary course of business consistent with past practice and, in any
event, which are not material, individually or in the aggregate, to CTI Group
and its Subsidiaries taken as a whole or (ii) internal reorganizations or
consolidations involving existing Subsidiaries of CTI Group.
(g) Indebtedness; Investments. Unless in the ordinary course of
business and in accordance with past practices, the CTI Group shall not, and
shall not permit any of its Subsidiaries to, (i) incur any indebtedness for
borrowed money or guarantee any such indebtedness of another Person, issue or
sell any debt securities or warrants or other rights to acquire any debt
securities of CTI Group or any of its Subsidiaries, guarantee any debt
securities of another Person, enter into any "keep well" or other agreement to
maintain any financial statement condition of another Person (other than any
wholly owned Subsidiary) or enter into any arrangement having the economic
effect of any of the foregoing, (ii) make any loans or advances to any other
Person, or (iii) investments in any Person other than investments in the
ordinary course of business consistent with past practice and, in any event,
which are not material, individually or in the aggregate, to CTI Group.
(h) New Line of Business; Capital Expenditures. Except for the expenses
related to the relocation of the U.K. office, CTI Group shall not, and shall not
permit any of its Subsidiaries to, (i) enter into any new material line of
business outside its present, principal lines of business or (ii) incur or
commit to any capital expenditures other than capital expenditures incurred or
committed to in the ordinary course of business and which are not in excess of
$25,000.
(i) Tax-Free Qualification. CTI Group shall not and shall not permit
any of its Subsidiaries to, take any action that would prevent or impede the
Merger from qualifying as a reorganization under Section 368 of the Code, and
tax free under Section 354 of the Code.
(j) Other Actions. CTI Group shall not, and shall not permit any of its
Subsidiaries to, take any action that would, or could reasonably be expected to,
result in (i) any of the conditions to the Merger set forth in Article VI not
being satisfied or (ii) a material delay in the satisfaction of such conditions.
(k) Accounting Methods. Except as set forth in Section 5.8 of CTI
Group's Disclosure Schedule, CTI Group shall not make any material change in its
methods of accounting in effect at September 30, 1999, except as required by
changes in GAAP as concurred in by its independent auditors. CTI Group shall not
change its fiscal year.
(l) Representations and Warranties. CTI Group shall not take any action
that would cause the representations and warranties set forth in Article IV to
no longer be true and correct.
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(m) Authorization of the Foregoing. CTI Group shall not, and shall not
permit any of its Subsidiaries to, authorize, commit or agree to take, any of
the foregoing actions.
5.9 Indemnification, Exculpation and Insurance.
(a) CTI Group agrees that all rights to indemnification and exculpation
from liabilities for acts or omissions occurring at or prior to the Effective
Time now existing in favor of the current or former directors or officers of
Centillion and its Subsidiaries as provided in their respective articles of
incorporation or by-laws (or comparable organizational documents) and
indemnification agreements of Centillion set forth on Schedule 5.9 of
Centillion's Disclosure Schedule (copies of which agreements have been provided
to CTI Group), the existence of which does not constitute a breach of this
Agreement, shall be assumed by CTI Group, as the Surviving Corporation in the
Merger, without further action, as of the Effective Time and shall survive the
Merger and shall continue in full force and effect in accordance with their
terms.
(b) In the event that CTI Group or any of its successors or assigns (i)
consolidates with or merges into any other Person and is not the continuing or
surviving corporation or entity of such consolidation or merger or (ii)
transfers or conveys all or substantially all of its properties and assets to
any Person, then, and in each such case, reasonable efforts shall be made for
proper provisions to be made so that the successors and assigns of CTI Group
assume the obligations set forth in this Section 5.9.
5.10 No Solicitation by CTI Group.
(a) CTI Group shall not, nor shall it permit any of its Subsidiaries
to, nor shall it authorize or permit any of its directors, officers or employees
or any investment banker, financial advisor, attorney, accountant or other
representative retained by it or any of its Subsidiaries to, directly or
indirectly through another Person, (i) solicit, initiate or knowingly encourage
(including by way of furnishing information), or knowingly take any other action
to facilitate, the making of any proposal that constitutes an CTI Group
Competing Proposal or (ii) participate in any discussions or negotiations
regarding any CTI Group Competing Proposal; provided, however, that if, at any
time during the period commencing on the 10th day after the date hereof and
ending on the date Required CTI Group Vote is obtained (the "CTI Group
Applicable Period"), the Board of Directors of CTI Group, in the exercise of its
fiduciary duties, determines in good faith, after consultation with outside
counsel, that to do otherwise would not be in the best interests of CTI Group's
shareholders, CTI Group and its representatives may, in response to an CTI Group
Superior Proposal which did not result from a breach of this Section 5.10(a),
and subject to providing prior or contemporaneous notice of its decision to take
such action to Centillion, (x) furnish information with respect to CTI Group and
its Subsidiaries to any Person making a CTI Group Superior Proposal pursuant to
a customary confidentiality agreement (as determined by CTI Group after
consultation with its outside counsel) and (y) participate in discussions or
negotiations regarding such CTI Group Superior Proposal. For purposes of this
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Agreement, "CTI Group Competing Proposal" means any bona fide proposal or offer
from any Person relating to any direct or indirect acquisition or purchase of
20% or more of the assets of CTI Group and its Subsidiaries, taken as a whole,
or 20% or more of the combined voting power of the shares of CTI Group Capital
Stock, any tender offer or exchange offer that if consummated would result in
any Person beneficially owning 20% or more of the combined voting power of the
shares of CTI Group Capital Stock, or any merger, consolidation, business
combination, recapitalization, liquidation, dissolution or similar transaction
involving CTI Group or any of its Subsidiaries in which the other party thereto
or its shareholders will own 20% or more of the combined voting power of the
shares of the parent entity resulting from any such transaction, other than the
transactions contemplated by this Agreement. For purposes of this Agreement, a
"CTI Group Superior Proposal" means (i) (A) any proposal made by a third party
relating to any direct or indirect acquisition or purchase of 50% or more of the
assets of CTI Group and its Subsidiaries, taken as a whole, or 50% or more of
the combined voting power of the shares of CTI Group Capital Stock, any tender
offer or exchange offer that if consummated would result in any Person
beneficially owning 50% or more of the combined voting power of the shares of
CTI Group Capital Stock, or (B) any merger, consolidation, business combination,
recapitalization, liquidation, dissolution or similar transaction involving CTI
Group or any of its Subsidiaries in which (1) the other party thereto or its
shareholders will own 50% or more of the combined voting power of the shares of
the parent entity resulting from any such transaction and (2) representatives of
such other party shall represent a majority of the Board of Directors of such
parent entity, and (ii) otherwise on terms which the Board of Directors of CTI
Group determines in its good faith judgment (based on the advice of a financial
advisor of nationally recognized reputation), taking into account the Person
making the proposal and the legal, financial, regulatory and other aspects of
the proposal deemed appropriate by the Board of Directors of CTI Group, (x)
would be more favorable than the Merger to CTI Group's shareholders taken as a
whole, (y) is reasonably capable of being completed and (z) for which financing,
to the extent required, is then committed or is reasonably capable of being
obtained by such third party.
(b) Neither the Board of Directors of CTI Group nor any committee
thereof shall (i) withdraw, or propose publicly to withdraw, in a manner adverse
to Centillion, the approval or recommendation by such Board of Directors or such
committee of the Merger or this Agreement, (ii) subject to Section 5.10(d),
modify, or propose publicly to modify, in a manner adverse to Centillion, the
approval or recommendation by such Board of Directors or such committee of the
Merger or this Agreement, (iii) approve or recommend, or propose publicly to
approve or recommend, any CTI Group Competing Proposal or (iv) approve or
recommend, or propose to approve or recommend, or execute or enter into, any
letter of intent, agreement in principle, merger agreement, acquisition
agreement, option agreement or other similar agreement or propose publicly or
agree to do any of the foregoing (each, an "CTI Group Acquisition Agreement")
related to any CTI Group Competing Proposal. Notwithstanding the foregoing,
during the CTI Group Applicable Period, in response to an CTI Group Superior
Proposal which did not result from a breach of Section 5.10(a), if the Board of
Directors of CTI Group, in the exercise of its fiduciary duties, determines in
good faith, after consultation with outside counsel, that to do otherwise would
not be in the best interests of CTI Group's shareholders, the Board of
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Directors of CTI Group may (x) modify or propose publicly to modify, in a manner
adverse to Centillion, the approval or recommendation of the Merger or this
Agreement by the Board of Directors of CTI Group and/or (y) terminate this
Agreement (and concurrently with or after such termination, if it so chooses,
cause CTI Group to enter into any CTI Group Acquisition Agreement with respect
to any CTI Group Superior Proposal), but, in the case of clause (y), only at a
time that is during the CTI Group Applicable Period and is after the fourth
Business Day (or the second calendar day in the case of a material amendment to
a CTI Group Superior Proposal) following Centillion's receipt of written notice
advising Centillion that the Board of Directors of CTI Group is prepared to
accept a CTI Group Superior Proposal (or any material amendment thereto),
specifying the material terms and conditions of such CTI Group Superior Proposal
(or any material amendment thereto) and identifying the Person making such CTI
Group Superior Proposal (or any material amendment thereto). "Business Day"
shall mean every day of the week excluding Saturdays, Sundays and Federal
holidays.
(c) In addition to the obligations of CTI Group set forth in paragraphs
(a) and (b) of this Section 5.10, CTI Group shall promptly advise Centillion of
any CTI Group Competing Proposal or any inquiry or request for information
relating thereto, the material terms and conditions of such request or CTI Group
Competing Proposal and the identity of the Person making such request or CTI
Group Competing Proposal. CTI Group will promptly keep Centillion reasonably
informed of the status (including amendments) of any such request or CTI Group
Competing Proposal.
(d) Nothing contained in this Section 5.10 shall prohibit CTI Group
from making any disclosure to CTI Group's shareholders if, in the good faith
judgment of the Board of Directors of CTI Group, after consultation with outside
counsel, failure so to disclose would be inconsistent with its obligations under
applicable law; provided, however, that, subject to Section 5.10(b), neither CTI
Group nor its Board of Directors nor any committee thereof shall withdraw, or
propose publicly to withdraw, its position with respect to this Agreement or the
Merger or approve or recommend, or propose publicly to approve or recommend, a
CTI Group Competing Proposal.
5.11 Employee Stock Option and Benefit Plans. The parties agree that any
employee stock option and benefit plans adopted by the Surviving Corporation
shall cover employees thereof regardless of whether they (a) were previously
employed by CTI Group or Centillion or (b) previously had been issued shares of
stock, or options to acquire shares of stock of either CTI Group or Centillion.
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ARTICLE VI
CONDITIONS TO THE MERGER
6.1 Conditions. The respective obligations of Centillion and CTI Group to
consummate the Merger are subject to the satisfaction, at or before the
Effective Time, of each of the following conditions; any and all of which may be
waived in whole or in part by Centillion or CTI Group, as the case may be, to
the extent permitted by applicable law:
(a) Stockholder Approval. The stockholders of CTI Group and Centillion,
respectively, shall have duly approved the transactions contemplated by this
Agreement, pursuant to the requirements of their respective certificates of
incorporation and applicable law to the extent required thereby.
(b) Injunctions; Illegality. The consummation of the Merger shall not
be restrained, enjoined or prohibited by any order, judgment, decree, injunction
or ruling of a court of competent jurisdiction or any Governmental Entity
entered after the parties have used reasonable best efforts to prevent such
entry and there shall not have been any statute, rule or regulation enacted,
promulgated or deemed applicable to the Merger by any Governmental Entity which
prevents the consummation of the Merger.
(c) Opinion of Financial Advisor. CTI Group shall have received the
written opinion of First Colonial Securities Group to the effect that the Merger
Consideration is fair from a financial point of view to the stockholders of CTI
Group. A true and correct copy of such opinion shall have been delivered to
Centillion. Fees payable to First Colonial Securities Group shall not exceed
$70,000.
(d) Employment Agreement. The employment agreement with Anthony Johns
attached hereto as Exhibit "E" shall be executed.
(e) Security Agreement. Centillion shall enter into a security
agreement with certain shareholders with respect to the Shareholder LLC
Promissory Note issued in contemplation of this Merger. Such security agreement
shall be in a form and substance reasonably satisfactory to CTI Group and
Centillion.
6.2 Additional Conditions to Obligations of CTI Group. The obligation of CTI
Group to effect the Merger is also subject to the fulfillment of the following
conditions:
(a) Representations and Warranties. The representations and warranties
of Centillion contained in this Agreement shall be true and correct on and as of
the Effective Time (except where such representation and warranty speaks by its
terms as of a different date, in which case it shall be true and correct as of
such date), with the same force and effect as if made on and as of the Effective
Time, unless the failure of such representations and warranties to be true and
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correct would not reasonably be expected to result in a Material Adverse Effect.
CTI Group shall have received a certificate of the President of Centillion to
this effect.
(b) Agreements, Conditions and Covenants. Centillion shall have
performed or complied in all material respects with all agreements, conditions
and covenants required by this Agreement to be performed or complied with by it
on or before the Effective Time. CTI Group shall have received a certificate of
the President of Centillion to this effect.
(c) Transfer of Assets. Prior to the Effective Time:
(i) Centillion shall have created a single member,
member-managed limited liability company under the laws of the state of Delaware
where Centillion is the member to be called Centillion L.L.C. (the "LLC") into
which Centillion shall have transferred (x) all of its causes of action, claims
and counterclaims relating to any patent owned by Centillion and its
Subsidiaries as of the Effective Time or to any patent issuing after the
Effective Time from patent applications owned by Centillion and its Subsidiaries
(ownership of such patents and patent applications shall be retained by the
Surviving Corporation) plus, (y) the SBC Settlement Proceeds (less the cost of
litigation expenses, taxes and $1,500,000 (or $3,000,000 in the event Centillion
exercises the option provided for in 1.5(b)(ii))(collectively, the "Tracked
Assets"), and the LLC shall have obtained, from an affiliate of the Centillion
Stockholders, a commitment to lend to the LLC on a non-recourse basis up to
$2,000,000 to finance the LLC's patent enforcement action. The $2,000,000 loan
shall be secured by the Tracked Assets and evidenced by a $2,000,000 promissory
note attached as Exhibit "F".
(ii) Centillion shall have sold, in exchange for the
Shareholder LLC Promissory Note all of its ownership interests in the
subsidiaries identified in Exhibit "G" hereto. The Shareholder LLC Promissory
Note will be due and payable in ten (10) years and will bear interest at the
applicable federal rate in effect at the time it is executed. Prior to the
stated maturity date of the Shareholder LLC Promissory Note, principal and
interest will be payable only upon the occurrence of a Covered Disposition.
(d) Minimum Balance Sheet Requirements. The adjusted balance sheet of
Centillion, on and as of the Effective Time (which shall be certified by
Centillion's Chief Financial Officer) must reflect: (i) Net current assets
(i.e., over current liabilities) of not less than $1.00; (ii) cash of not less
than $6,500,000 (or $8,000,000 in the event that Centillion exercises the option
provided for in Section 1.5(b)(ii)); (iii) no long term liabilities other than
deferred taxes, (iv) net worth of not less than $2,000,000, after eliminating
from consideration in determining such net worth (x) $6,500,000 of cash, (y) the
Shareholder LLC Promissory Note, and (z) the Tracked Assets, and (v) all
earnings of Centillion's Billing Business for the period from January 1, 2000 to
the Effective Time.
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(e) No Adverse Change. Since October 31, 1999, no event or events shall
have occurred which resulted in or which would reasonably be expected to result
in a Material Adverse Effect with respect to Centillion.
(f) Severance. Any severance obligations of Centillion as a result of
termination of employment or a change in control of Centillion shall be paid by
Centillion prior to Closing.
(g) Reorganization. (i) There has been no Change in Law (as defined
below) on or prior to the Effective Time which could negatively impact the
treatment of the Merger as a tax- free reorganization within the meaning of
Section 368(a) of the Code, and (ii) that, at the Effective Time, the price of
the Class A Common Stock is not below $1.26 per share. For purposes of this
Agreement, a "Change in Law" shall include any statutory amendment to the Code,
the promulgation of any Treasury Regulation, or the issuance of any judicial or
administrative guidance (including, without limitation, the issuance of any
official interpretation of existing law by the Internal Revenue Service).
6.3 Additional Conditions to Obligations of Centillion. The obligations of
Centillion to effect the Merger are also subject to the following conditions:
(a) Representations and Warranties. The representations and warranties
of CTI Group contained in the this Agreement shall be true and correct in all
respects on and as of the Effective Time (except where such representation and
warranty speaks by its terms as of a different date, in which case it shall be
true and correct as of such date), with the same force and effect as if made on
and as of the Effective Time, unless the failure of such representations and
warranties to be true and correct would not reasonably be expected to result in,
individually or in the aggregate, a Material Adverse Effect. Centillion shall
have received a certificate of the President of CTI Group to this effect.
(b) Agreements, Conditions and Covenants. CTI Group shall have
performed or complied in all material respects with all agreements, conditions
and covenants required by this Agreement to be performed or complied with by it
on or before the Effective Time. Centillion shall have received a certificate of
the President of CTI Group to this effect.
(c) No Adverse Change. Since September 30, 1999, no event or events
shall have occurred which resulted in or would reasonably be expected to result
in a Material Adverse Effect with respect to CTI Group.
(d) Dissenting Shares. The aggregate number of shares of stock held by
stockholders of CTI Group who exercise their appraisal or dissenting rights
under the DGCL shall not exceed 5% of the number of shares of stock outstanding
on a fully diluted basis immediately prior to the Effective Time.
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(e) Effectiveness of the Form S-4. The Form S-4 shall have been
declared effective by the SEC under the Securities Act. No stop order suspending
the effectiveness of the Form S-4 shall have been issued by the SEC and no
proceedings for that purpose shall have been initiated or threatened by the SEC.
(f) Reorganization. (i) There has been no Change in Law (as defined
below) on or prior to the Effective Time which could negatively impact the
treatment of the Merger as a tax- free reorganization within the meaning of
Section 368(a) of the Code, and (ii) that, at the Effective Time, the price of
the Class A Common Stock is not below $1.26 per share. For purposes of this
Agreement, a "Change in Law" shall include any statutory amendment to the Code,
the promulgation of any Treasury Regulation, or the issuance of any judicial or
administrative guidance (including, without limitation, the issuance of any
official interpretation of existing law by the Internal Revenue Service).
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ARTICLE VII
TERMINATION
7.1 Termination. This Agreement may be terminated and the Merger contemplated
hereby may be abandoned at any time prior to the Effective Time, notwithstanding
approval thereof by the stockholders of CTI Group and/or Centillion:
(a) by the mutual written consent of Centillion and CTI Group;
(b) By either Centillion or CTI Group if the Effective Time shall not
have occurred on or before June 30, 2000 (the "Termination Date"); provided,
however, that the right to terminate this Agreement under this Section 7.1(b)
shall not be available to any party whose intentional failure to fulfill any
material obligation under this Agreement has caused, or resulted in, the failure
of the Effective Time to occur on or before the Termination Date;
(c) By either Centillion or CTI Group if any Governmental Entity (i)
shall have issued an order, decree or ruling or taken any other action
permanently restraining, enjoining or otherwise prohibiting the transactions
contemplated by this Agreement, and such order, decree, ruling or other action
shall have become final and non-appealable or (ii) shall have failed to issue an
order, decree or ruling or to take any other action (which order, decree, ruling
or other action the parties shall have used their reasonable best efforts to
obtain, in accordance with Section 5.2, in each case (i) and (ii) which is
necessary to fulfill the conditions set forth in Sections 6.1(c) and 6.3(g), as
applicable, and such denial of a request to issue such order, decree, ruling or
take such other action shall have become final and non-appealable; provided,
however, that the right to terminate this Agreement under this Section 7.1(c)
shall not be available to any party whose failure to comply with Section 5.2 has
caused or resulted in such action or inaction;
(d) By either Centillion or CTI Group if either (i) the approval by the
stockholders of Centillion required for the consummation of the Merger shall not
have been obtained or (ii) the approval by the shareholders of CTI Group
required for the consummation of the Merger shall not have been obtained;
(e) By CTI Group in accordance with Section 5.10(b); provided that, in
order for the termination of this Agreement pursuant to this paragraph (e) to be
deemed effective, CTI Group shall have complied with the notice provisions of
Section 5.10 and shall have paid the Termination Fee in accordance with Section
7.3(b).
(f) By Centillion, if CTI Group shall have breached or failed to
perform any of its representations, warranties, covenants or other agreements
contained in this Agreement, which breach or failure to perform (A) would give
rise to the failure of a condition set forth in Section 6.3 and (B) has not been
or is incapable of being cured by CTI Group within fourteen (14) calendar days
after receipt of written notice thereof from Centillion;
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(g) By CTI Group, if Centillion shall have breached or failed to
perform any of its representations, warranties, covenants or other agreements
contained in this Agreement, which breach or failure to perform (A) would give
rise to the failure of a condition set forth in Section 6.2 and (B) has not been
or is incapable of being cured by Centillion within fourteen (14) calendar days
after its receipt of written notice thereof from CTI Group; or
(h) By Centillion, in the event that CTI Group takes any action set
forth in Section 5.10(b)(x).
Notwithstanding anything else contained in this Agreement, the right to
terminate this Agreement under this Section 7.1 shall not be available to any
party (a) that is in material breach of its obligations hereunder or (b) whose
failure to fulfill its obligations or to comply with its covenants under this
Agreement has been the cause of, or resulted in, the failure to satisfy any
condition to the obligations of either party hereunder.
7.2 Effect of Termination. In the event of termination of this Agreement by
either Centillion or CTI Group as provided in Section 7.1, this Agreement shall
forthwith become void and there shall be no liability or obligation on the part
of CTI Group or Centillion or their respective directors or officers except with
respect to Section 5.3, the second sentence of Section 5.6, Section 7.3, this
Section 7.2 and Article VIII. Termination of this Agreement will not relieve a
breaching party from liability for any willful and material breach by such party
of any of its representations, warranties, covenants or agreements set forth in
this Agreement.
7.3 Fees and Expenses.
(a) Except as otherwise provided herein, whether or not the Merger is
consummated, all costs and expenses incurred in connection with this Agreement
and the transactions contemplated by this Agreement shall be paid by the party
incurring such expenses.
(b) Termination Fee. If this Agreement is terminated by CTI Group
pursuant to Section 5.10(b), then CTI Group shall pay to Centillion, in cash,
within five Business Days after the termination of this Agreement a
non-refundable fee in the amount of $1,500,000, which fee shall be Centillion's
sole and exclusive remedy for such termination.
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ARTICLE VIII
INDEMNIFICATION
8.1 Indemnification
(a) Subject to the terms and conditions of this Article VIII,
Centillion shall indemnify, defend and hold harmless CTI Group and its
shareholders as they exist immediately prior to the Effective Time (the "CTI
Shareholders") for a period of one year after the Effective Time, from and
against all losses, claims, damages, liabilities and expenses, including
interest, penalties and reasonable attorney's fees and expenses (collectively
"Damages"), resulting or arising, directly or indirectly, from a breach of any
representation, warranty or agreement of Centillion contained in or made part of
this Agreement.
(b) Subject to the terms and conditions of this Article VIII, CTI Group
shall indemnify, defend and hold harmless Centillion and its shareholder as they
existed prior to the Effective Time (the "CDS Shareholders") for a period of one
year after the Effective Time, from and against all Damages resulting or
arising, directly or indirectly, from a breach of any representation, warranty
or agreement of CTI Group contained in or made pursuant to this Agreement.
8.2 Conditions of Indemnification
The obligations and liabilities of Centillion and CTI Group as
indemnifying parties (each, an "Indemnified Party") to indemnify CTI Group and
Centillion, respectively (each, an "Indemnified Party"), under Section 8.1 shall
be subject to the following terms and conditions:
(a) In the event that CTI Group or the CTI Shareholders is the
Indemnified Party, its claims for Damages shall be made by the Class III (as
defined in the Surviving Corporation's Articles of Incorporation) to the Board
of Directors. In the event that Centillion or the CDS Shareholders is the
Indemnified Party, its claim for Damages shall be made by the Class I and Class
II Directors (as defined in the Surviving Corporation's Articles of
Incorporation) to the Board of Directors. The Indemnified Party shall give the
Board of Directors prompt notice of any such claim and all claims for Damages
must be made within one year after the Effective Time. In the event the claim is
the result of an action or threatened action by a third party, the Indemnifying
Party shall have the right to undertake the defense thereof by representatives
chosen by it. If the Indemnifying Party, within a reasonable time after notice
of any such claim by a third party, fails to defend an Indemnified Party against
which such claim has been asserted, such Indemnified Party shall (upon further
notice to the Board of Directors) have the right to undertake the defense,
compromise or settlement of such claim on behalf of and for the account and risk
of Indemnifying Party, subject to the right of the Indemnifying Party to assume
the defense of such claim at any time prior to settlement, compromise or final
determination thereof.
(b) Any decision made by the Board with respect to claims for Damages
asserted by Centillion or CDS Shareholders as Indemnifying Party, shall require
the affirmative vote of majority
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of the Class III Directors. Any vote by the Board of Directors with respect to
claims for Damages asserted by CTI Group or CTI Shareholders shall require the
affirmative vote of a majority of the Class I and Class II Directors. In the
event that an Indemnified Party is unable to obtain the foregoing affirmative
vote, it shall be entitled to submit the claim for Damages to final and binding
arbitration in Philadelphia, Pennsylvania, before a panel of three arbitrators
in accordance with the Commercial Arbitration Rules of the American Arbitration
Association.
8.3 Remedies
(a) In the event that pursuant to this Article VIII Damages are found
to be due CTI Group or CTI Shareholders then all amounts of Class A Common Stock
that would otherwise be issued either as a result of the distribution of Escrow
Stock, conversion of amounts under the Promissory Note or conversion of shares
of Class B Common Stock, shall be reduced by an amount equal in value to such
Damages. The number of shares by which such distribution or conversion shall be
reduced, (i) shall be valued at $1.50 per share for the Escrow Stock, and (ii)
shall be based upon the valuation per share to be used in connection with the
conversion under the Promissory Note or for Class B Common Stock, as of the date
that such distribution or conversion is to occur, as the case may be.
(b) In the event that pursuant to this Article VIII Damages are found
to be due Centillion or CDS Shareholders, then such Damages shall be satisfied
solely and exclusively by the Surviving Corporation issuing an additional number
of shares of Class A Common Stock to the Persons who received Merger
Consideration, such number to be calculated by dividing the amount of the
Damages by the Average Market Price on the date of determination by the Board of
Directors or the arbitrators that such Damages are due (the "Determination
Date") and multiplying that number by a fraction, the numerator of which is
100%, and the denominator of which is the percentage of the issued and
outstanding Class A Common Stock on the Determination Date that is then owned by
Persons who did not receive Merger Consideration, or by transferees of Merger
Consideration.
(c) The remedies set forth in Section 8.3(a) and (b) shall be the
exclusive remedies for damages pursuant to this Article VIII.
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ARTICLE IX
MISCELLANEOUS
9.1 Notices. All notices, requests and other communications to any party
hereunder shall be in writing and shall be deemed to have been duly given when
delivered in person, by overnight courier or by facsimile to the respective
parties as follows:
If to Centillion, to:
Centillion Data Systems, Inc.
333 North Alabama Street, Suite 240
Indianapolis, Indiana 46204
Attn: John Cauffman, President
with a copy to:
Blank Rome Comisky & McCauley LLP
One Logan Square
Philadelphia, PA 19103
Facsimile: (215) 569-5628
Attn: A. Fred Ruttenberg, Esq.
If to CTI Group, to:
CTI Group (Holdings) Inc.
2550 Eisenhower Avenue
Norristown, PA 19403
Attn: Anthony Johns
with a copy to:
Klehr, Harrison, Harvey, Brandzburg & Ellers LLP
260 S. Broad Street
Philadelphia, PA 19102
Facsimile: (215) 568-6060
Attn: Donald M. Millinger, Esq.
or such other address or facsimile number as such party may hereafter specify
for the purpose by written notice to the other parties hereto. Each such notice,
request or other communication shall be effective (i) if delivered in person,
when such delivery is made at the address specified in this Section 9.1; (ii) if
delivered by overnight courier, the next Business Day after such delivery is
sent to the address specified in this Section 9.1; or (iii) if delivered by
facsimile, when such facsimile
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is transmitted to the facsimile number specified in this Section 9.1 and the
appropriate confirmation of receipt is received.
9.2 Survival of Representations and Warranties and Agreements. The
representations and warranties and agreements contained herein and in any
certificate or other writing delivered pursuant hereto shall not survive beyond
the Effective Time except for the agreements set forth in Aticle III, Article
IV, Sections 5.1(b), 5.3, 5.4, 5.6, 5.10, 7.3(a), 7.3(b) and Article VIII which
shall survive the Effective Time for one year, and Section 5.11 and this Article
IX, which shall survive the termination of this Agreement.
9.3 Amendment. This Agreement may be amended by CTI Group and Centillion at any
time before or after any approval of this Agreement by the stockholders of CTI
Group and/or Centillion, but, after any such approval, no amendment shall be
made which decreases the Merger Consideration or which adversely affects the
rights of Centillion's stockholders hereunder without the approval of a majority
of the holders of common stock of Centillion. This Agreement may not be amended
except by an instrument in writing signed on behalf of all the parties.
9.4 Extension; Waiver. At any time prior to the Effective Time, the parties
hereto may (i) extend the time for the performance of any of the obligations or
other acts of any other party hereto, (ii) waive any inaccuracies in the
representations and warranties contained herein by any other party or in any
document, certificate or writing delivered pursuant hereto by any other party or
(iii) waive compliance with any of the agreements of any other party or with any
conditions to its own obligations. Any agreement on the part of any party to any
such extension or waiver shall be valid only if set forth in an instrument in
writing signed on behalf of such party. No failure or delay by any party in
exercising any right, power or privilege hereunder shall operate as a waiver
thereof nor shall any single or partial exercise preclude any other or further
exercise thereof or the exercise of any other right, power or privilege. The
rights and remedies herein provided shall be cumulative and not exclusive of any
rights or remedies provided by law.
9.5 Successors and Assigns. The provisions of this Agreement shall be binding
upon and inure to the benefit of the parties hereto and their respective
successors and assigns, provided that no party may assign, delegate or otherwise
transfer any of its rights or obligations under this Agreement without the prior
written consent of the other parties hereto.
9.6 Governing Law. This Agreement shall be construed in accordance with and
governed by the law of the State of Delaware applicable to agreements entered
into and to be performed wholly within such State.
9.7 Jurisdiction. Each of the parties hereto (a) consents to submit itself to
the personal jurisdiction of any federal court located in the State of Delaware
or any Delaware state court in the event any dispute arises out of this
Agreement or any of the transactions contemplated by this Agreement, (b) agrees
that it will not attempt to deny or defeat such personal jurisdiction by motion
or other request for leave from any such court and (c) agrees that it will not
bring any action relating
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to this Agreement or any of the transactions contemplated hereby in any court
other than a federal or state court sitting in the State of Delaware.
9.8 Counterparts; Effectiveness. This Agreement may be signed in any number of
counterparts, each of which shall be an original, with the same effect as if the
signatures thereto and hereto were upon the same instrument. This Agreement
shall become effective when each party hereto shall have received counterparts
hereof signed by all of the other parties hereto.
9.9 Entire Agreement; No Third-Party Beneficiaries. This Agreement and the other
agreements referred to herein or executed contemporaneously herewith constitute
the entire agreement, and supersede all prior agreements and understandings,
both written and oral, among the parties with respect to the subject matter of
this Agreement, including the letter, dated November 18, 1999, among the parties
hereto, which is of no further force and effect. No representation, inducement,
promise, understanding, condition or warranty not set forth herein has been made
or relied upon by any party hereto. Except as set forth in Article VIII, this
Agreement is not intended to confer upon any Person other than the parties
hereto and their respective successors and assigns any rights or remedies.
9.10 Headings. The headings contained in this Agreement are for reference
purposes only and shall not affect in any way the meaning or interpretation of
this Agreement.
9.11 Schedules. Schedule references contained in Article III and Article IV of
this Agreement are for convenience only and matters disclosed pursuant to one
section, subsection or other provision of Article III or Article IV are deemed
disclosed for all purposes of Article III and Article IV to the extent this
Agreement requires such disclosure.
9.12 WAIVER OF JURY TRIAL. EACH OF CTI GROUP AND CENTILLION HEREBY IRREVOCABLY
WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, ALL RIGHTS TO TRIAL BY JURY IN
ANY ACTION, PROCEEDING OR COUNTERCLAIM (WHETHER BASED ON CONTRACT, TORT OR
OTHERWISE) ARISING OUT OF OR RELATING TO THIS AGREEMENT OR ANY OF THE
TRANSACTIONS CONTEMPLATED HEREBY.
9.13 Severability. If any term, provision, covenant or restriction of this
Agreement is held by a court of competent jurisdiction or other authority to be
invalid, void or unenforceable, the remainder of the terms, provisions,
covenants and restrictions of this Agreement shall remain in full force and
effect and shall in no way be affected, impaired or invalidated so long as
economic or legal substance of the transactions contemplated hereby are not
effected in any manner materially adverse to any party. Upon such a
determination, the parties shall negotiate in good faith to modify this
Agreement so as to effect the original interest of the parties as closely as
possible in an acceptable manner in order that the transactions contemplated
hereby be consummated as originally contemplated to the fullest extent possible.
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9.14 Disclosure Schedules. Any item disclosed in a Section of a party's
Disclosure Schedule shall be deemed disclosed in other relevant Sections,
regardless of whether specifically set forth therein.
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<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has caused this
Agreement to be duly executed by its respective authorized officer as of the day
and year first above written.
CTI GROUP (HOLDINGS) INC.
By:
------------------------------
Name:
Title:
CENTILLION DATA SYSTEMS, INC.
By:
------------------------------
Name:
Title:
A-65
<PAGE>
EXHIBITS
EXHIBIT A SURVIVING CORPORATION - ARTICLES OF INCORPORATION
CAPITAL STOCK PROVISIONS
See Annex B, attached hereto
EXHIBIT B SURVIVING CORPORATION BYLAWS
See Annex C, attached hereto
EXHIBIT C DIRECTORS AND EXECUTIVE EMPLOYMENT
Intentionally omitted
EXHIBIT D SHAREHOLDER LLC PROMISSORY NOTE
See Annex D, attached hereto
EXHIBIT E ANTHONY JOHNS EMPLOYMENT AGREEMENT
Intentionally omitted
EXHIBIT F FORM OF PROMISSORY NOTE
See Annex E, attached hereto
EXHIBIT G DIVESTED CENTILLION SUBSIDIARIES
See Annex F, attached hereto
A-66
<PAGE>
FIRST AMENDMENT TO AGREEMENT AND PLAN OF MERGER
This FIRST AMENDMENT TO AGREEMENT AND PLAN OF MERGER is made this 1st
day of May, 2000 by and between Centillion Data Systems, Inc. ("Centillion") and
CTI Group Holdings, Inc. ("CTI Group").
BACKGROUND
A. Centillion agreed to merge with and into CTI Group pursuant to the
Agreement and Plan of Merger ("Agreement") dated as of February 3, 2000.
B. Section 7.1(b) of the Agreement provides that either Centillion or
CTI Group may terminate the Agreement if the Effective Time (as defined therein)
does not occur on or before June 30, 2000 (the "Termination Date").
C. The parties hereto have mutually agreed to amend the Agreement to
reflect a new Termination Date.
NOW, THEREFORE, in consideration of the foregoing and intending to be
legally bound hereby, the parties hereto agree as follows:
Section 7.1(b) of the Agreement shall be deleted in its entirety and
replaced as follows:
(b) by either Centillion or CTI Group if the Effective Time
shall not have occurred on or before September 30, 2000 (the
"Termination Date"); provided, however, that the right to
terminate this Agreement and under this Section 7.1(b) shall
not be available to any party whose intentional failure to
fulfill any material obligation under this Agreement has
caused, or resulted in, the failure of the Effective Time to
occur on or before the Termination Date;
IN WITNESS WHEREOF, the parties have executed this Amendment the day
and year first written above.
CENTILLION DATA SYSTEMS, INC. CTI GROUP HOLDINGS, INC.
By:_______________________________ By:_________________________________
Name:_____________________________ Name:_______________________________
Title:____________________________ Title:______________________________
A-67
<PAGE>
SECOND AMENDMENT TO AGREEMENT AND PLAN OF MERGER
This SECOND AMENDMENT TO AGREEMENT AND PLAN OF MERGER is made this 1st
day of May, 2000 by and between Centillion Data Systems, Inc. ("Centillion") and
CTI Group Holdings, Inc. ("CTI Group").
BACKGROUND
A. Centillion agreed to merge with and into CTI Group pursuant to the
Agreement and Plan of Merger ("Agreement") dated as of February 3, 2000.
B. Section 3(a) of Exhibit A to the Agreement provides that the shares
of Class CTIG B Common Stock may be converted into CTIG Class A Common Stock at
a conversion rate equal to $2.25 per share for the first one (1) million shares
and 88% of the then Current Market Value of CTIG Class A Common Stock for those
shares converted in excess of one (1) million.
C. The parties have mutually agreed that only the first 333,334 and not
the first one (1) million shares of CTIG Class B Common Stock converted into
CTIG Class A Common Stock shall be converted at $2.25 per share as currently
reflected in the Agreement.
NOW, THEREFORE, in consideration of the foregoing and intending to be
legally bound hereby, the parties hereto agree as follows:
Section 3(a) of the Agreement shall be deleted in its entirety and
replaced as follows:
(a) Conversion at the Corporation's Election. During the
Initial Conversion Period the shares of Class B Common Stock
shall be subject, in the sole discretion of the Board of
Directors, to conversion into a number of shares of Class A
Common Stock equal in value, on a per share equivalent basis,
to the value of Centillion LLC, with the number of shares into
which the Class B Common Stock will be converted to be
determined as follows: during the first twelve (12) months of
the Initial Conversion Period, the conversion would be based
on the Class A Common Stock valued at (A) $2.25 per share (for
the first 333,334 shares of Class A Common Stock so issued)
and (B) an amount equal to 88% of the then Current Market
Value of the Class A Common Stock, for any additional shares
of Class A Common Stock (beyond 333,334 shares) so issued.
During the remainder of the Initial Conversion Period all of
the Class A Common Stock to be issued upon conversion of the
Class B Common Stock under this Section 3(a) would be valued
at an amount equal to 88% of the then current market value of
the Class A Common Stock.
IN WITNESS WHEREOF, the parties have executed this Second Amendment the
day and year first written above.
CENTILLION DATA SYSTEMS, INC. CTI GROUP HOLDINGS, INC.
By:_______________________________ By:_________________________________
Name:_____________________________ Name:_______________________________
Title:____________________________ Title:______________________________
A-68
<PAGE>
ANNEX B
SURVIVING CORPORATION - ARTICLES OF INCORPORATION
1. Total Authorized Shares.
(a) Common Stock. The aggregate number of shares which the Corporation
is authorized to issue is 50,000,000 common shares (collectively, the "Common
Stock"), of which:
(i) 46,500,000 common shares shall be designated Class A
Common Stock having a par value of $0.01 per share (the "Class A Common Stock");
and
(ii) 3,500,000 common shares shall be designated Class B
Common Stock having a par value of $0.01 per share ("Class B Common Stock"). The
Class A Common Stock and the Class B Common Stock are collectively referred to
herein as the "Common Stock".
(b) Rights and Preferences. Each share of Class A Common Stock and each
share of Class B Common Stock shall, except as otherwise expressly provided in
this Article, be identical in all respects and shall have equal rights, powers
and privileges.
(c) Issuance. The authorized shares of Class B Common Stock will be
issued only (i) pursuant to the Agreement and Plan of Merger, dated __________
__, 2000 (the "Merger Agreement"), among Centillion Data Systems, Inc. and the
Corporation, (ii) in a subdivision (by stock split or otherwise) of outstanding
shares of Class B Common Stock, or (iii) as a stock dividend or share
distribution (with respect to such shares of Class B Common Stock).
2. Voting Rights.
(a) General. Except with respect to the election of directors of the
Corporation occurring prior to July 1, 2003 which shall be governed by the
provisions of Section 2(b) below, and except as may otherwise be required by
laws of the State of Delaware, the holders of shares of Class A Common Stock and
the holders of shares of Class B Common Stock shall be entitled to one (1) vote
for each share of such stock held, shall vote as one class with respect to all
matters to be voted on by shareholders of the Corporation, and no separate vote
or consent of the holders of shares of Class A Common Stock, the holders of
share of Class B Common Stock (or the holders of shares of any other class or
series of stock of Corporation) shall be required for the approval of any such
matter.
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<PAGE>
(b) Board of Directors. The Board of Directors shall be divided into
three classes, which shall be as nearly equal in number as possible. Directors
of each class shall serve for a term of three years, and until their successors
shall have been elected and qualified. Upon the adoption of these Articles and
the filing of the Certificate of Merger with the Delaware Secretary of State,
the existing Board of Directors shall be reclassified. Each Director of the
reclassified Board of Directors shall be placed in one of the three classes, and
the initial term of office of each such class shall (except in the event of his
earlier resignation or removal) expire at the annual shareholders' taking place
in the year set forth opposite such Director's name (or, if later, upon the
election and qualification of his successor), as follows:
Name Class Term Expires
- - --------------------------- ------------- -----------------
Harold Garrison I 2001
Salah Osseiran
Michael H. Leeds II 2002
Tom Grein
Graham Bevington III 2003
Rupert Armitage
Anthony P. Johns
(i) For any meeting of Shareholders held prior to July 1,
2003, the holders of Class B Common Stock, voting together as a single class,
shall have the right to elect the Class I Directors;
(ii) For any meeting of Shareholders held prior to July 1,
2003, the holders of Class B Common Stock, voting together as a single class,
shall have the right to elect the Class II Directors;
(iii) For any meeting of Shareholders held prior to July 1,
2003, any vacancies with respect to Class I or Class II Directors shall be
filled by the remaining Class I and Class II Directors voting as a group, or
with respect to a Class III Director by the remaining Class III Directors; and
(iv) If, prior to July 1, 2003, there is any increase or
decrease in the number of Directors, such Directors shall be assigned as Class
I, II or II so that the holders of Class B Common Stock, voting togther as a
single class, maintain a majority of the Board of Directors.
3. Conversion of Class B Common Stock.
The Class B Common Stock shall be subject to conversion as follows:
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<PAGE>
(a) Conversion at the Corporation's Election. During the Initial
Conversion Period the shares of Class B Common Stock shall be subject, in the
sole discretion of the Board of Directors, to conversion into a number of shares
of Class A Common Stock equal in value, on a per share equivalent basis, to the
value of Centillion LLC, with the number of shares into which the Class B Common
Stock will be converted to be determined as follows: during the first twelve
(12) months of the Initial Conversion Period, the conversion would be based on
the Class A Common Stock valued at (A) $2.25 per share (for the first 333,334
shares of Class A Common Stock so issued) and (B) an amount equal to 88% of the
then Current Market Value of the Class A Common Stock, for any additional shares
of Class A Common Stock (beyond 333,334 shares) so issued. During the remainder
of the Initial Conversion Period all of the Class A Common Stock to be issued
upon conversion of the Class B Common Stock under this Section 3(a) would be
valued at an amount equal to 88% of the then current market value of the Class A
Common Stock.
(b) Conversion at the election of the holders of Class B Common Stock.
During the Interim Conversion Period, the shares of Class B Common Stock, at the
election of the holders of more than 50% of the outstanding shares of such Class
B Common Stock, shall be converted into shares of Class A Common Stock in the
manner set forth in Section 3(a) above but using the valuation applicable to
conversions occurring subsequent to the first twelve (12) months of the Initial
Conversion Period.
(c) Mandatory Conversion. Upon the occurrence of a Covered Disposition,
all of the issued and outstanding shares of Class B Common Stock shall be
converted into shares of Class A Common Stock equal in value, on a per share
equivalent basis, to the value of Centillion LLC, with the conversion based on
100% of the then current market value of the Class A Common Stock to be issued
upon such conversion; provided, however, that in no event shall a mandatory
conversion under this Section 3(c) occur earlier than the fourth anniversary of
the Effective Time under the Merger Agreement.
(d) Valuation Procedures. In the event an appraisal is required under
these Articles of Incorporation with respect to the market value of Centillion
LLC or the Class B Common Stock, the Class III Directors will appoint a
qualified appraiser to determine such value. If the appraiser so appointed by
the Class III Directors is not acceptable to the Class I and Class II Directors,
then the Class I and Class II Directors shall appoint a qualified appraiser to
determine such value. If the appraiser appointed by the Class I and Class II
Directors is not acceptable to the Class III Directors, the two appraisers so
selected shall appoint a third appraiser who shall perform such appraisal and
the results thereof shall be binding upon all of the parties, with the cost of
the appraisal to be paid by the Corporation.
(e) Definitions. For purposes of this Section 3,
B-3
<PAGE>
(i) The term "Initial Conversion Period" shall mean the period
beginning on the Effective Time under the Merger Agreement and ending on the
earlier to occur of (x) the second anniversary of such date, or (y) the date on
which those persons who were the original recipients of the Merger Consideration
cease to own, collectively fifty-one percent (51%) or more of the issued and
outstanding shares of Common Stock of the Corporation received pursuant to the
Merger; and
(ii) The term "Interim Conversion Period" shall mean the three
(3) year period commencing immediately upon the expiration of the Initial
Conversion Period and ending on the third anniversary of such commencement date.
(f) Conversion Procedures. Any such conversion may be effected by
surrendering such holder's certificate or certificates for the stock to be
converted, duly endorsed, at the office of the Corporation or any transfer
agent. If so required by the Corporation, any certificate for shares surrendered
for conversion shall be accompanied by instruments of transfer, in form
satisfactory to the Corporation, duly executed by the holder of such shares or
the duly authorized representative of such holder. Promptly thereafter, the
Corporation shall issue and deliver to such holder or such holder's nominee or
nominees, a certificate or certificates for the number of shares of Class A
Common Stock to which such holder shall be entitled as herein provided. All
conversions are to be effective, and valued, as of the last day of the calendar
quarter in which the election or event giving rise to mandatory conversion
occurs.
4. Dividends; Discrimination Between or Among Classes of Common Shares.
The Board of Directors shall have the sole authority and discretion to
declare and pay dividends on (i) the Class A Common Stock and (iii) the Class B
Common Stock, in equal or unequal amounts (including declaring and paying
dividends on one or more class of shares while declaring and paying no
dividends, or a different dividend, on one or more other classes of shares);
provided, however, that whenever a dividend is paid to the holders of the Class
B Common Stock, the Corporation shall also pay to the holders of Class A Common
Stock a dividend per share equal to or greater than the dividend per share paid
to the holders of Class B Common Stock unless a different dividend amount (or no
dividend) has been authorized by a 2/3's majority of the Board of Directors.
5. Liquidation.
In the event of a liquidation, dissolution or winding up of the
corporation, whether voluntary or involuntary, after payment or provision for
payment of the debts and other liabilities of the corporation the holders of the
shares of Class A Common Stock and the holders of the shares of Class B Common
Stock shall share in the aggregate in the funds of the Corporation remaining for
distribution to its common shareholders in the same proportions as (i) the net
assets of Centillion LLC bear to (ii) the net assets of the corporation without
regard to the net assets of Centillion LLC. Neither the consolidation or merger
of the corporation with or into any other corporation or corporations nor the
sale, transfer or lease of all or substantially all of the assets of the
corporation
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<PAGE>
shall itself be deemed to be a liquidation, dissolution or winding up of the
corporation within the meaning of this Paragraph 5 of this Article.
Notwithstanding anything to the contrary herein, the holders of the Class B
Common Stock shall have no rights to the specific assets owned by Centillion LLC
at the time of liquidation, dissolution or winding up of the Corporation.
6. Determinations by the Board of Directors.
Any determinations made by the Board of Directors under any provision
in this Article shall be final and binding on all shareholders of the
corporation, except as may otherwise be required by law. The Corporation shall
prepare a statement of any such determination by the Board of Directors
respecting the fair market value of any properties, assets or securities and
shall file such statement with the Secretary of the corporation. The Board of
Directors shall establish an Executive Committee to be composed of one Class III
Director and two Directors from Class I And Class II selected by each class of
Directors. All decisions of the Corporation or by the Directors required (i) by
these Articles, (ii) by any other Agreement, or (iii) otherwise, with respect to
Centillion LLC shall be made by the Executive Committee.
7. Relationship Between the Centillion Group and the Corporation.
The Directors of the Corporation shall require Centillion LLC to
preserve, maintain and maximize the value of its assets, and any contracts with
respect to, utilization of, or transfer of any of Centillion LLC's assets
between and among Centillion LLC and any other party (including the Corporation
and its other affiliates) shall be pursuant to transactions entered into at
arm's-length.
8. Certain Definitions.
Unless the context otherwise requires, the terms defined in this
Section shall have, for all purposes of this Article, the meanings herein
specified:
"Centillion LLC" shall mean the Delaware limited liability company
included in the assets of Centillion Data Systems, Inc. immediately prior to the
Effective Time specified in the Merger Agreement.
"Common Stock Group" shall mean, as of any date, the interest of the
Corporation or any subsidiary in all of the businesses in which the Corporation
or any subsidiary is or has been engaged, directly or indirectly, and the
respective assets and liabilities of the Corporation or any subsidiary, other
than any businesses, assets or liabilities of Centillion LLC.
"Covered Disposition" shall mean: (a) any direct or indirect sale,
transfer or conveyance by the Corporation of fifty percent (50%) or more of
either its equity interest in the LLC or the assets of the LLC; or (b) any grant
of any pledge or other security interest in fifty percent (50%) or more of
either the equity interest of the Corporation in Centillion LLC or the assets of
Centillion LLC; or
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(c) any of the occurrences described in (a) or (b) which results in the
Corporation's receipt of more than $7,500,000.
"Current Market Value of the Class A Common Stock" shall mean the
average of the daily last reported sale price per share of the Class A Common
Stock on the NASDAQ National Market System (or if such stock is then listed on
the New York Stock Exchange, on such Exchange) during the most recent twenty
(20) consecutive full Business Days before such date, provided that if there was
no reported sale on any such day or days, there shall be substituted the average
of the closing bid and asked quotations on that Market or Exchange on that day
or days, and provided further that, if the Class A Common Stock is not listed on
that Market or Exchange on any such day or days, there shall be substituted the
comparable sale price or average of bid and asked quotations on the principal
national securities exchange on which such Class A Common Stock is so listed, or
if not so listed on any national securities exchange, the average of the highest
bid and the lowest asked quotations in the over-the-counter market that day or
days.
9. Amendments.
(a) Except as provided for in subparagraph (b) below, this Certificate
of Incorporation shall be amended in the manner provided for in the Delaware
General Corporation Law.
(b) Until July 1, 2003, except for amendments as a result of
acquisitions or capital raising, which amendments shall not be governed by this
subparagraph (b), all amendments to this Certificate of Incorporation shall
require, prior to submission to shareholders, the affirmative vote of a majority
of the Board of Directors, which vote must contain the affirmative vote of at
least one (1) Class III Director.
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<PAGE>
ANNEX C
SURVIVING CORPORATION BYLAWS
Section 5.2. Term of Office.
The Board of Directors shall be divided into three classes with each
class serving three-year terms. As a result of an Amendment to the Certificate
of Incorporation filed in 2000, the Board was re-classified and each director
placed in one of three classes. The directors in Class I shall hold office for a
term expiring at the next annual meeting (to be held in 2001), the directors in
Class Il shall hold office for a term expiring at the second succeeding annual
meeting, and the directors in Class III shall hold office for a term expiring at
the third succeeding annual meeting.
At each annual shareholders meeting con-imencing at the annual meeting
to be held in 2001, the number of directors equal to the number of directors in
the class whose term expires at the time of such meeting shall be elected to
hold office until the third succeeding annual meeting of shareholders following
such meeting. Each director so elected shall hold office until his term expires
and his successor is elected and qualified, or until his earlier resignation or
removal.
Section 5.5. Vacancies. Except as otherwise provided in the Certificate
of Incorporation, vacancies in the Board of Directors, including vacancies
resulting from an increase in the number of directors, shall be filled by the
vote of a majority of the remaining members of the Board though less than a
quorum; provided, that whenever the holders of any class or classes of stock or
series thereof are entitled to elect one or more directors by the provisions of
the certificate of incorporation, vacancies and newly created directorships of
such class or classes or series may be fffled by a majority of the directors
elected by such class or classes or series thereof then in office or by the sole
remaining director so elected, and each person so elected shall be a director
until his or her successor is elected by the stockholders, or until his or her
earlier resignation or removal.
Section 5.8. Committees.
Section 1. (a) The Board of Directors may, by resolution adopted by a
majority of the votes entitled to be cast by the entire board, alter or
eliminate the committees of the board described in Section 2 below or designate
one or more other committees, each committee to consist of one or more
directors. Any such committee, to the extent provided in such resolution or
these bylaws, shall have and exercise all of the authority of the Board of
Directors in the management of the corporation, except as otherwise required by
law. Such committee or committees shall have such name or names as may be
determined from time to time by resolution adopted by the Board of Directors.
The Board of Directors may, by resolution adopted by a majority of the votes
entitled to be cast by the entire board, fill any vacancy in any such committee,
appoint one or more directors to serve as alternate members of any such
committee, to act in the absence or disability of members of any such comittee.
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<PAGE>
with all the powers of such absent or disabled members, abolish any such
committee at its pleasure, and remove any director from membership on such
committee at any time, with or without cause.
(b) Each committee of the Board of Directors formed
pursuant to this section shall keep regular minutes of its meetings and actions
taken at a meeting of any such committee shall be reported to the board at its
next meeting following such committee meeting; except that, when the meting of
the board is held within two days after the committee meeting, such report
shall, if not made at the first meeting, be made to the board at its second
meeting following such committee meeting unless otherwise required by law to be
earlier reported.
Section 2. The present standing committees of the board are as follows:
Executive Committee. An Executive Committee shall be composed of one
Class I, one Class II and one Class III director. All decisions of the
corporation with respect to Centillion, L.L.C. shall be made by the Executive
Committee. The Executive Committee shall have such other duties and powers as
are established by resolution of the Board of Directors.
Audit Committee. The Audit Committee shall be composed of two members
of the board as may from time to time be chosen by the Board of Directors, none
of whom shall be an employee of the corporation. The Audit Committee shall have
the authority and responsibility to (a) hire one or more firms of independent
public accountants to audit the corporation's books, records and financial
statements and to review the corporation's systems of accounting (including its
system of internal controls); (b) discuss with such independent public
accountants the results of such audit and review; (c) periodically conduct
independent reviews of the corporation's systems of accounting (including its
system of internal control); and (d) periodically make reports to the board with
respect to its findings.
Nominating Committee. The Nominating Committee shall be composed of
three members of the board as may from time to time be chosen by the Board of
Directors. The Nominating Committee shall (a) make recommendations to the board
with respect to management nominees to the board, (b) review such shareholder
nominees to the board as may be submitted to the corporation, and (c)
periodically report to the board with respect to its findings.
Section 11.1 These By-Laws may be amended or repealed at any regular or
special meeting of the Board of Directors by the majority vote of the Board of
Directors, or an any regular or special meeting of the stockholders (or by
written consent as provided in Section 228 of the Delaware Corporation Law, as
amended), by the majority vote of the total outstanding shares of the
corporation, as provided by law. These By-Laws may be amended without a meeting
of the Board of Directors by a resolution adopted and signed by all members of
the Board of Directors.
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<PAGE>
ANNEX D
SHAREHOLDER LLC PROMISSORY NOTE
not to exceed $11,500,000 Dated: February __, 2000
FOR VALUE RECEIVED and intending to be legally bound, the undersigned,
a Delaware Limited Liability Company ("Maker"), promises to pay to the order of
Centillion Data Systems, Inc. (the "Payee") the maximum Principal Sum of Eleven
Million Five Hundred Thousand Dollars ($11,500,000), together with interest
thereon on the unpaid portion at the Rate.
Principal and Interest shall be paid upon the earlier to occur of the
following:
1. A "Liquidity Event" to the extent of such Liquidity Event, or
2. Ten years from the date of this Note (the "Maturity Date").
A "Liquidity Event" shall mean the actual receipt of cash by Maker upon
the sale of all or part of the Collateral after the making of a Permitted
Distribution. A "Permitted Distribution" shall be Maker's right to distribute to
its members forty-two percent (42%) of any cash received upon the sale of all or
part of any Collateral. Maker shall send Payee written notification within five
(5) days of a Liquidity Event.
All sums realized by the Holder on account of this Note, from whatever
source received, shall be applied first to any substantiated fees, costs and
expenses (including reasonable attorney's fees) incurred by the Holder, second
to accrued and unpaid interest, and then to principal.
As security for this Note, Maker hereby grants, conveys, and assigns to
the Payee a security interest in the property described in Exhibit "A" to this
Note ("Collateral"). Maker shall have the absolute right to sell all or part of
the Collateral for a price equal to or greater than the value set forth on
Exhibit "A," without the consent of Payee, provided that fifty-eight percent
(58%) of the proceeds of such sale are paid to Payee as a Liquidity Event as
provided above.
The nonpayment when due of any amount payable under this Note within
fifteen (15) days after the date due and written demand shall be an "Event of
Default".
Upon the Event of Default or in the event this Note remains unpaid
after the Maturity Date, Payee shall have the right to sell all or part of the
Collateral in any commercially reasonable manner to satisfy the balance due
under this Note. Such rights with respect to the Collateral shall be Payee's
exclusive remedy. Payee shall not have the right to collect any balance due
under this Note from any assets of Maker not
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included as part of the Collateral.
The Rate shall mean ____ percent (___%) per annum.**
Maker shall have the privilege, without premium or penalty, of
prepaying this Note, at any time, in whole or in part, provided that each
prepayment shall be accompanied by accrued interest on the amount prepaid.
Upon an Event of Default, this Note shall, at Payee's option, become
immediately due and payable in full without further notice to or demand on Maker
of any kind and without presentment, demand or protest, notice of dishonor and
notice of protest, all of which are hereby waived.
In the event that the Holder engages an attorney to represent it in
connection with (a) any Event of Default, (b) any potential and/or actual
bankruptcy or other insolvency proceedings commenced by or against the Maker
and/or (c) any actual litigation arising out of or related to any of the
foregoing, or any of the Obligations, then the Maker shall be liable to and
shall reimburse the Holder on demand for all reasonable attorneys' fees, costs
and expenses incurred by the Holder in connection with any of the foregoing. The
Maker shall also be liable and shall also reimburse the Holder on demand for all
other reasonable, substantiated costs and expenses (including reasonable
attorney's fees) incurred by the Holder in connection with the enforcement of
the Obligations.
No extension of time for payment granted by the Holder of all or any
part of the amount owing on this Note at any time shall affect the liability of
the Maker hereunder.
Acceptance by the Holder of any payment after any Event of Default
shall not operate to extend the time of payment of any amount then remaining
unpaid and shall not constitute a waiver of any future installments, such Event
of Default or any other rights of the Holder under this Note. No delay by the
Holder in exercising any power or right shall operate as a waiver of any power
or right held by the Holder. The Maker hereby waives presentment for payment,
demand, protest, or notice of protest. No single or partial exercise of any
power or right shall preclude other or future exercise of the power or right, or
the exercise of any other power or right. The waiver of any default or grounds
for acceleration by the Holder shall not operate as a waiver of any subsequent
default, or grounds for acceleration of any power or right that the Holder may
have under the terms of this Note.
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No waiver or modification of the terms of this Note shall be valid
unless in writing, signed by the Maker and the Holder, and appended hereto.
This Note and all questions relating to its validity, interpretation,
performance, remediation and enforcement (including, without limitation,
provisions concerning limitations of actions) shall be governed by and construed
in accordance with the domestic laws of the State of Delaware, notwithstanding
any choice-of-laws doctrines of such jurisdiction or any other jurisdiction
which ordinarily would cause the substantive law of another jurisdiction to
apply, without the aid of any canon, custom or rule of law requiring
construction against the draftsman.
If any provision of this Note or the application thereof is held by a
court of competent jurisdiction to be invalid or unenforceable, the remaining
provisions hereof shall not be affected thereby, and each provision of this Note
shall be valid and enforceable to the fullest extent permitted by law.
Waiver of Jury Trial. THE MAKER HEREBY KNOWINGLY, VOLUNTARILY AND
INTENTIONALLY WAIVES ANY RIGHTS IT MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY
LITIGATION BASED HEREON OR ARISING OUT OF , UNDER, OR IN CONNECTION WITH THIS
NOTE OR ANY COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER VERBAL OR
WRITTEN) OR ACTIONS OF THE HOLDER. THE MAKER HEREBY WAIVES THE RIGHT TO
INTERPOSE ANY COUNTERCLAIM OR OFFSET OF ANY NATURE OR DESCRIPTION IN ANY
LITIGATION RELATING TO THE PURCHASE DOCUMENTS OR THIS NOTE OR ANY LIABILITY
THEREUNDER OR HEREUNDER, OR ENFORCEMENT OF REMEDIES THEREUNDER OR HEREUNDER.
IN WITNESS WHEREOF, Maker has caused this instrument to be executed on
its behalf by its duly authorized officer, on the date first set forth above.
DELAWARE LIMITED LIABILITY
COMPANY
By: _____________________________
Manager
**The then applicable federal rate will be inserted at the time this note is
executed.
D-3
<PAGE>
Exhibit "A" to Promissory Note
Intentionally Omitted
D-4
<PAGE>
ANNEX E
(Patent LLC Note)
FORM OF PROMISSORY NOTE
$2,000,000 Dated: __________, 2000
FOR VALUE RECEIVED and intending to be legally bound, the undersigned,
a Delaware Limited Liability Company ("Maker"), promises to pay to the order of
______________ (the "Payee") the Principal Sum of Two Million Dollars
($2,000,000), together with interest thereon on the unpaid portion at the Rate.
Maker shall, from time to time, request from Payee advances up to the
aggregate face amount of this Note ("Advance"). The proceeds of Advances shall
be used to cover the costs associated with any Enforcement Action. Once an
Advance has been repaid from the proceeds of a Recovery Event or a prepayment,
in accordance with the terms hereof, the amount of Advances that Maker may
request under this Note shall be reduced by the amount of such Recovery Event or
prepayment.
Principal and Interest shall be paid upon the earlier to occur of the
following:
1. A "Recovery Event " to the extent of such Recovery Event, or
2. Five years from the date of this Note (the "Maturity Date").
A "Recovery Event" shall mean the Net Cash Received from any
settlements or judgments from parties which are either defendants or who may be
defendants in any action for the enforcement or infringement of any patent
rights under U.S. Patent Nos. 5287270 and 5325290 ("Enforcement Action") after
the making of a Permitted Distribution. A "Permitted Distribution" shall be
Maker's right to distribute to its member a percentage, equal to that member's
Applicable Tax Rate, of any Net Cash Received upon the recovery under any
Enforcement Action. "Applicable Tax Rate" shall mean the tax rate that applies
to Maker's member based upon the net income reported in the member's latest
annual financial statement filed with the Securities and Exchange Commission.
"Net Cash Received" shall mean the actual receipt of cash by Maker after payment
of legal fees and other expenses related to the Enforcement Action. Maker shall
send Payee written notification within five (5) days of a Recovery Event.
All sums realized by the Holder on account of this Note, from whatever
source received, shall be applied first to any substantiated fees, costs and
expenses (including reasonable attorney's fees) incurred by the Holder, second
to accrued and unpaid interest, and then to principal.
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<PAGE>
As security for this Note, Maker hereby grants, conveys, and assigns to
the Payee a security interest in the property described in Exhibit "A" to this
Note ("Collateral").
The nonpayment when due of any amount payable under this Note within
fifteen (15) days of the date due and written notice thereof shall be an "Event
of Default".
Upon an Event of Default, this Note shall, at Payee's option, become
immediately due and payable in full without further notice to or demand on Maker
of any kind and without presentment, demand or protest, notice of dishonor and
notice of protest, all of which are hereby waived.
In the Event of Default, Payee shall have the right to sell all or part
of the Collateral in any commercially reasonable manner to satisfy the balance
due under this Note. Such rights with respect to the Collateral shall be Payee's
exclusive remedy. Payee shall not have the right to collect any balance due
under this Note or for expenses, fees or other charges provided for in the next
paragraph from any assets of Maker not included as part of the Collateral.
In the event that the Holder engages an attorney to represent it in
connection with (a) an Event of Default, (b) any potential and/or actual
bankruptcy or other insolvency proceedings commenced by or against the Maker
and/or (c) any actual litigation arising out of or related to any of the
foregoing, or any of the Obligations, then the Maker shall be liable to and
shall reimburse the Holder on demand for all reasonable attorneys' fees, costs
and expenses incurred by the Holder in connection with any of the foregoing. The
Maker shall also be liable and shall also reimburse the Holder on demand for all
other reasonable, substantiated costs and expenses (including reasonable
attorney's fees) incurred by the Holder in connection with the enforcement of
the Obligations.
No extension of time for payment granted by the Holder of all or any
part of the amount owing on this Note at any time shall affect the liability of
the Maker hereunder.
Acceptance by the Holder of any payment after any Event of Default
shall not operate to extend the time of payment of any amount then remaining
unpaid and shall not constitute a waiver of any future installments, such Event
of Default or any other rights of the Holder under this Note. No delay by the
Holder in exercising any power or right shall operate as a waiver of any power
or right held by the Holder. The Maker hereby waives presentment for payment,
demand, protest, or notice of protest. No single or partial exercise of any
power or right shall preclude other or future exercise of the power or right, or
the exercise of any other power or right. The waiver of any default or grounds
for acceleration by the Holder shall not operate as a waiver of any subsequent
default, or grounds for acceleration of any power or right that the Holder may
have under the terms of this Note.
No waiver or modification of the terms of this Note shall be valid
unless in writing, signed by the Maker and the Holder, and appended hereto.
This Note and all questions relating to its validity, interpretation,
performance, remediation and enforcement (including, without limitation,
provisions concerning limitations of actions) shall be governed by and construed
in accordance with the domestic laws of the State of Delaware, notwithstanding
any choice-of-laws doctrines of such jurisdiction or any other jurisdiction
which ordinarily would cause the substantive law of another jurisdiction to
apply, without the aid of any canon, custom or rule of law requiring
construction against the draftsman.
E-2
<PAGE>
If any provision of this Note or the application thereof is held by a
court of competent jurisdiction to be invalid or unenforceable, the remaining
provisions hereof shall not be affected thereby, and each provision of this Note
shall be valid and enforceable to the fullest extent permitted by law.
The Rate shall mean ____ percent (___%) per annum.**
Maker shall have the privilege, without premium or penalty, of
prepaying this Note, at any time, in whole or in part, provided that each
prepayment shall be accompanied by accrued interest on the amount prepaid.
Waiver of Jury Trial. THE MAKER HEREBY KNOWINGLY, VOLUNTARILY
AND INTENTIONALLY WAIVES ANY RIGHTS IT MAY HAVE TO A TRIAL BY JURY IN RESPECT OF
ANY LITIGATION BASED HEREON OR ARISING OUT OF , UNDER, OR IN CONNECTION WITH
THIS NOTE OR ANY COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER
VERBAL OR WRITTEN) OR ACTIONS OF THE HOLDER. THE MAKER HEREBY WAIVES THE RIGHT
TO INTERPOSE ANY COUNTERCLAIM OR OFFSET OF ANY NATURE OR DESCRIPTION IN ANY
LITIGATION RELATING TO THE PURCHASE DOCUMENTS OR THIS NOTE OR ANY LIABILITY
THEREUNDER OR HEREUNDER, OR ENFORCEMENT OF REMEDIES THEREUNDER OR HEREUNDER.
IN WITNESS WHEREOF, Maker has caused this instrument to be
executed on its behalf by its duly authorized officer, on the date first set
forth above.
Centillion L.L.C.
By: _________________________
Manager
** The then applicable federal rate will be inserted at the time this
Note is executed.
E-3
<PAGE>
ANNEX F
OPINION OF FIRST COLONIAL SECURITIES GROUP, INC.
April 5, 2000
Directors:
You have asked us to render our opinion as to the fairness as
of the date hereof, from a financial point of view, to the shareholders of CTI
Group (Holdings) Inc. ("CTIG") of the consideration to be paid to the
shareholders of CTI Group (Holdings) Inc. in a proposed business combination of
CTI Group (Holdings) Inc. and Centillion Data Systems Inc. ("CDS") pursuant to
the Agreement and Plan of Merger dated February 4, 2000 between CTI Group
(Holdings) Inc. and Centillion Data Systems Inc.
We understand that each holder of Centillion Data Systems Inc. common
stock will be entitled to exchange each share of Centillion Data Systems Inc.
common stock for 9,747,404 shares of CTI Group (Holdings) Inc. common stock for
the non-tracked assets of Centillion Data Systems Inc. and 3,500,000 shares of a
special class of voting tracking stock of CTI Group (Holdings) Inc. common stock
for the tracked assets of Centillion Data Systems Inc. subject to certain
conditions and provisions of the Agreement.
In developing our opinion as to the fairness of the amount of shares to
be issued and price to be paid by the shareholders of CTI Group (Holdings) Inc.,
we have, among other things:
o Reviewed the Annual Reports to Shareholders and Annual Reports on Form
10-K and related financial information of CTI Group (Holdings) Inc. for
the two years ended March 31, 1999 and the audited financial
information provided by Centillion Data Systems Inc. for the two year
period ended December 31, 1999;
o Reviewed the Quarterly Reports to Shareholders and Quarterly Reports on
Form 10-Q of CTI Group (Holdings) Inc. for the fisca quarters ended
September 30, 1999 and the audited financial information provided by
Centillion Data Systems Inc. for the three months ended December 31,
1999;
o Discussed with CTI Group (Holdings) Inc. management and Centillion Data
Systems Inc. management the operations, financial condition and future
prospects of their respective companies, including historical and
projected financial performance, trends and business opportunities;
o Reviewed the historical market prices and trading activity of CTI Group
(Holdings) Inc. common stock;
o Compared the results of operations of CTI Group (Holdings) Inc. and
Centillion Data Systems Inc. with those of certain companies designing,
developing, marketing and supporting data processing software and
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services for managing telecommunications systems which we deemed to be
reasonably similar to CTI Group (Holdings) Inc. and Centillion Data
Systems Inc.;
o Compared the combination of CTI Group (Holdings Inc. and Centillion
Data Systems Inc. with certain other mergers and acquisitions of
companies supporting data processing software and services for the
telecommunications industry which we deemed to be reasonably similar to
the proposed transaction;
o Read the Agreement, employment agreements, promissory notes and related
documents dated February 4, 2000;
o Such other information, financial studies and analyses, and financial,
economic and market data that we considered relevant to our opinion.
In arriving at our opinion, we also have considered the relative
contributions of each company to, and resulting share in, the pro forma
combined balance sheet and income statement of the combined entity,
including revenues, net income, and net worth, as well as the pro forma per
share earnings, dividends, and book value.
In preparing our opinion, we have relied upon CTI Group (Holdings)
Inc. and Centillion Data Systems Inc. with respect to the accuracy and
completeness of the financial and other information provided by each
company. We have neither independently verified such information, including
financial information, nor made any independent evaluation of any of the
assets of CTI Group (Holdings) Inc. and Centillion Data Systems Inc.
On the basis of our review and analysis as discussed above, it is
our opinion that as of the date hereof, the consideration to be paid by the
shareholders of CTI Group (Holdings) Inc. pursuant to the proposed business
combination is fair from a financial point of view to the shareholders of
CTI Group (Holdings) Inc.
Very truly yours,
/s/
First Colonial Securities Group, Inc.
F-2
<PAGE>
ANNEX G
ss.262 OF THE DELAWARE GENERAL CORPORATION LAW
(a) Any stockholder of a corporation of this State who holds shares
of stock on the date of the making of a demand pursuant to subsection (d) of
this section with respect to such shares, who continuously holds such shares
through the effective date of the merger or consolidation, who has otherwise
complied with subsection (d) of this section and who has neither voted in
favor of the merger or consolidation nor consented thereto in writing
pursuant to ss.ss. 228 of this title shall be entitled to an appraisal by
the Court of Chancery of the fair value of the stockholder's shares of stock
under the circumstances described in subsections (b) and (c) of this
section. As used in this section, the word "stockholder" means a holder of
record of stock in a stock corporation and also a member of record of a
nonstock corporation; the words "stock" and "share" mean and include what is
ordinarily meant by those words and also membership or membership interest
of a member of a nonstock corporation; and the words "depository receipt"
mean a receipt or other instrument issued by a depository representing an
interest in one or more shares, or fractions thereof, solely of stock of a
corporation, which stock is deposited with the depository.
(b) Appraisal rights shall be available for the shares of any class
or series of stock of a constituent corporation in a merger or consolidation
to be effected pursuant to ss.ss. 251 (other than a merger effected pursuant
to ss.ss. 251(g) of this title), ss.ss. 252, ss.ss. 254, ss.ss. 257, ss.ss.
258, ss.ss. 263 or ss.ss. 264 of this title:
(1) Provided, however, that no appraisal rights under this
section shall be available for the shares of any class or series of stock,
which stock, or depository receipts in respect thereof, at the record date
fixed to determine the stockholders entitled to receive notice of and to
vote at the meeting of stockholders to act upon the agreement of merger or
consolidation, were either (i) listed on a national securities exchange or
designated as a national market system security on an interdealer quotation
system by the National Association of Securities Dealers, Inc. or (ii) held
of record by more than 2,000 holders; and further provided that no appraisal
rights shall be available for any shares of stock of the constituent
corporation surviving a merger if the merger did not require for its
approval the vote of the stockholders of the surviving corporation as
provided in subsection (f) of ss.ss. 251 of this title.
(2) Notwithstanding paragraph (1) of this subsection,
appraisal rights under this section shall be available for the shares of any
class or series of stock of a constituent corporation if the holders thereof
are required by the terms of an agreement of merger or consolidation
pursuant to ss.ss.ss.ss. 251, 252, 254, 257, 258, 263 and 264 of this title
to accept for such stock anything except:
a. Shares of stock of the corporation surviving or
resulting from such merger or consolidation, or depository receipts in
respect thereof;
b. Shares of stock of any other corporation, or
depository receipts in respect thereof, which shares of stock (or depository
receipts in respect thereof) or depository receipts at the effective date of
the merger or consolidation will be either listed on a national securities
exchange or designated as a national market system security on an
interdealer quotation system by the National Association of Securities
Dealers, Inc. or held of record by more than 2,000 holders;
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c. Cash in lieu of fractional shares or fractional
depository receipts described in the foregoing subparagraphs a. and b. of
this paragraph; or
d. Any combination of the shares of stock, depository
receipts and cash in lieu of fractional shares or fractional depository
receipts described in the foregoing subparagraphs a., b. and c. of this
paragraph.
(3) In the event all of the stock of a subsidiary Delaware
corporation party to a merger effected under ss.ss. 253 of this title is not
owned by the parent corporation immediately prior to the merger, appraisal
rights shall be available for the shares of the subsidiary Delaware
corporation.
(c) Any corporation may provide in its certificate of incorporation
that appraisal rights under this section shall be available for the shares
of any class or series of its stock as a result of an amendment to its
certificate of incorporation, any merger or consolidation in which the
corporation is a constituent corporation or the sale of all or substantially
all of the assets of the corporation. If the certificate of incorporation
contains such a provision, the procedures of this section, including those
set forth in subsections (d) and (e) of this section, shall apply as nearly
as is practicable.
(d) Appraisal rights shall be perfected as follows:
(1) If a proposed merger or consolidation for which appraisal
rights are provided under this section is to be submitted for approval at a
meeting of stockholders, the corporation, not less than 20 days prior to the
meeting, shall notify each of its stockholders who was such on the record
date for such meeting with respect to shares for which appraisal rights are
available pursuant to subsection (b) or (c) hereof that appraisal rights are
available for any or all of the shares of the constituent corporations, and
shall include in such notice a copy of this section. Each stockholder
electing to demand the appraisal of such stockholder's shares shall deliver
to the corporation, before the taking of the vote on the merger or
consolidation, a written demand for appraisal of such stockholder's shares.
Such demand will be sufficient if it reasonably informs the corporation of
the identity of the stockholder and that the stockholder intends thereby to
demand the appraisal of such stockholder's shares. A proxy or vote against
the merger or consolidation shall not constitute such a demand. A
stockholder electing to take such action must do so by a separate written
demand as herein provided. Within 10 days after the effective date of such
merger or consolidation, the surviving or resulting corporation shall notify
each stockholder of each constituent corporation who has complied with this
subsection and has not voted in favor of or consented to the merger or
consolidation of the date that the merger or consolidation has become
effective; or
(2) If the merger or consolidation was approved pursuant to
ss.ss. 228 or ss.ss. 253 of this title, each constituent corporation, either
before the effective date of the merger or consolidation or within ten days
thereafter, shall notify each of the holders of any class or series of stock
of such constituent corporation who are entitled to appraisal rights of the
approval of the merger or consolidation and that appraisal rights are
available for any or all shares of such class or series of stock of such
constituent corporation, and shall include in such notice a copy of this
section; provided that, if the notice is given on or after the effective
date of the merger or consolidation, such notice shall be given by the
surviving or resulting corporation to all such holders of any class or
series of stock of a constituent corporation that are
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entitled to appraisal rights. Such notice may, and, if given on or after the
effective date of the merger or consolidation, shall, also notify such
stockholders of the effective date of the merger or consolidation. Any
stockholder entitled to appraisal rights may, within 20 days after the date
of mailing of such notice, demand in writing from the surviving or resulting
corporation the appraisal of such holder's shares. Such demand will be
sufficient if it reasonably informs the corporation of the identity of the
stockholder and that the stockholder intends thereby to demand the appraisal
of such holder's shares. If such notice did not notify stockholders of the
effective date of the merger or consolidation, either (i) each such
constituent corporation shall send a second notice before the effective date
of the merger or consolidation notifying each of the holders of any class or
series of stock of such constituent corporation that are entitled to
appraisal rights of the effective date of the merger or consolidation or
(ii) the surviving or resulting corporation shall send such a second notice
to all such holders on or within 10 days after such effective date;
provided, however, that if such second notice is sent more than 20 days
following the sending of the first notice, such second notice need only be
sent to each stockholder who is entitled to appraisal rights and who has
demanded appraisal of such holder's shares in accordance with this
subsection. An affidavit of the secretary or assistant secretary or of the
transfer agent of the corporation that is required to give either notice
that such notice has been given shall, in the absence of fraud, be prima
facie evidence of the facts stated therein. For purposes of determining the
stockholders entitled to receive either notice, each constitutent
corporation may fix, in advance, a record date that shall be not more than
10 days prior to the date the notice is given, provided, that if the notice
is given on or after the effective date of the merger or consolidation, the
record date shall be such effective date. If no record date is fixed and the
notice is given prior to the effective date, the record date shall be the
close of business on the day next preceding the day on which the notice is
given.
(e) Within 120 days after the effective date of the merger or
consolidation, the surviving or resulting corporation or any stockholder who
has complied with subsections (a) and (d) hereof and who is otherwise
entitled to appraisal rights, may file a petition in the Court of Chancery
demanding a determination of the value of the stock of all such
stockholders. Notwithstanding the foregoing, at any time within 60 days
after the effective date of the merger or consolidation, any stockholder
shall have the right to withdraw such stockholder's demand for appraisal and
to accept the terms offered upon the merger or consolidation. Within 120
days after the effective date of the merger or consolidation, any
stockholder who has complied with the requirements of subsections (a) and
(d) hereof, upon written request, shall be entitled to receive from the
corporation surviving the merger or resulting from the consolidation a
statement setting forth the aggregate number of shares not voted in favor of
the merger or consolidation and with respect to which demands for appraisal
have been received and the aggregate number of holders of such shares. Such
written statement shall be mailed to the stockholder within 10 days after
such stockholder's written request for such a statement is received by the
surviving or resulting corporation or within 10 days after expiration of the
period for delivery of demands for appraisal under subsection (d) hereof,
whichever is later.
(f) Upon the filing of any such petition by a stockholder, service
of a copy thereof shall be made upon the surviving or resulting corporation,
which shall within 20 days after such service file in the office of the
Register in Chancery in which the petition was filed a duly verified list
containing the names and addresses of all stockholders who have demanded
payment for their shares and with whom agreements as to the value of their
shares have not been reached by the surviving or resulting corporation. If
the petition shall be filed by the surviving or resulting
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corporation, the petition shall be accompanied by such a duly verified list.
The Register in Chancery, if so ordered by the Court, shall give notice of
the time and place fixed for the hearing of such petition by registered or
certified mail to the surviving or resulting corporation and to the
stockholders shown on the list at the addresses therein stated. Such notice
shall also be given by 1 or more publications at least 1 week before the day
of the hearing, in a newspaper of general circulation published in the City
of Wilmington, Delaware or such publication as the Court deems advisable.
The forms of the notices by mail and by publication shall be approved by the
Court, and the costs thereof shall be borne by the surviving or resulting
corporation.
(g) At the hearing on such petition, the Court shall determine the
stockholders who have complied with this section and who have become
entitled to appraisal rights. The Court may require the stockholders who
have demanded an appraisal for their shares and who hold stock represented
by certificates to submit their certificates of stock to the Register in
Chancery for notation thereon of the pendency of the appraisal proceedings;
and if any stockholder fails to comply with such direction, the Court may
dismiss the proceedings as to such stockholder.
(h) After determining the stockholders entitled to an appraisal, the
Court shall appraise the shares, determining their fair value exclusive of
any element of value arising from the accomplishment or expectation of the
merger or consolidation, together with a fair rate of interest, if any, to
be paid upon the amount determined to be the fair value. In determining such
fair value, the Court shall take into account all relevant factors. In
determining the fair rate of interest, the Court may consider all relevant
factors, including the rate of interest which the surviving or resulting
corporation would have had to pay to borrow money during the pendency of the
proceeding. Upon application by the surviving or resulting corporation or by
any stockholder entitled to participate in the appraisal proceeding, the
Court may, in its discretion, permit discovery or other pretrial proceedings
and may proceed to trial upon the appraisal prior to the final determination
of the stockholder entitled to an appraisal. Any stockholder whose name
appears on the list filed by the surviving or resulting corporation pursuant
to subsection (f) of this section and who has submitted such stockholder's
certificates of stock to the Register in Chancery, if such is required, may
participate fully in all proceedings until it is finally determined that
such stockholder is not entitled to appraisal rights under this section.
(i) The Court shall direct the payment of the fair value of the
shares, together with interest, if any, by the surviving or resulting
corporation to the stockholders entitled thereto. Interest may be simple or
compound, as the Court may direct. Payment shall be so made to each such
stockholder, in the case of holders of uncertificated stock forthwith, and
the case of holders of shares represented by certificates upon the surrender
to the corporation of the certificates representing such stock. The Court's
decree may be enforced as other decrees in the Court of Chancery may be
enforced, whether such surviving or resulting corporation be a corporation
of this State or of any state.
(j) The costs of the proceeding may be determined by the Court and
taxed upon the parties as the Court deems equitable in the circumstances.
Upon application of a stockholder, the Court may order all or a portion of
the expenses incurred by any stockholder in connection with the appraisal
proceeding, including, without limitation, reasonable attorney's fees and
the fees and expenses of experts, to be charged pro rata against the value
of all the shares entitled to an appraisal.
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(k) From and after the effective date of the merger or
consolidation, no stockholder who has demanded appraisal rights as provided
in subsection (d) of this section shall be entitled to vote such stock for
any purpose or to receive payment of dividends or other distributions on the
stock (except dividends or other distributions payable to stockholders of
record at a date which is prior to the effective date of the merger or
consolidation); provided, however, that if no petition for an appraisal
shall be filed within the time provided in subsection (e) of this section,
or if such stockholder shall deliver to the surviving or resulting
corporation a written withdrawal of such stockholder's demand for an
appraisal and an acceptance of the merger or consolidation, either within 60
days after the effective date of the merger or consolidation as provided in
subsection (e) of this section or thereafter with the written approval of
the corporation, then the right of such stockholder to an appraisal shall
cease. Notwithstanding the foregoing, no appraisal proceeding in the Court
of Chancery shall be dismissed as to any stockholder without the approval of
the Court, and such approval may be conditioned upon such terms as the Court
deems just.
(l) The shares of the surviving or resulting corporation to which
the shares of such objecting stockholders would have been converted had they
assented to the merger or consolidation shall have the status of authorized
and unissued shares of the surviving or resulting corporation.
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ANNEX H
ss. 23-1-44 OF THE INDIANA BUSINESS CORPORATION ACT
IC 23-1-44-1
Sec. 1. As used in this chapter, "corporation" means the issuer of the
shares held by a dissenter before the corporate action, or the surviving or
acquiring corporation by merger or share exchange of that issuer. As added
by P.L.149-1986, SEC.28.
IC 23-1-44-2
Sec. 2. As used in this chapter, "dissenter" means a shareholder who is
entitled to dissent from corporate action under section 8 of this chapter
and who exercises that right when and in the manner required by sections 10
through 18 of this chapter. As added by P.L.149-1986, SEC.28.
IC 23-1-44-3
Sec. 3. As used in this chapter, "fair value", with respect to a
dissenter's shares, means the value of the shares immediately before the
effectuation of the corporate action to which the dissenter objects,
excluding any appreciation or depreciation in anticipation of the corporate
action unless exclusion would be inequitable. As added by P.L.149-1986,
SEC.28.
IC 23-1-44-4
Sec. 4. As used in this chapter, "interest" means interest from the
effective date of the corporate action until the date of payment, at the
average rate currently paid by the corporation on its principal bank loans
or, if none, at a rate that is fair and equitable under all the
circumstances. As added by P.L.149-1986, SEC.28.
IC 23-1-44-5
Sec. 5. As used in this chapter, "record shareholder" means the person in
whose name shares are registered in the records of a corporation or the
beneficial owner of shares to the extent that treatment as a record
shareholder is provided under a recognition procedure or a disclosure
procedure established under IC 23-1-30-4. As added by P.L.149-1986, SEC.28.
IC 23-1-44-6
Sec. 6. As used in this chapter, "beneficial shareholder" means the person
who is a beneficial owner of shares held by a nominee as the record
shareholder. As added by P.L.149-1986, SEC.28.
IC 23-1-44-7
Sec. 7. As used in this chapter, "shareholder" means the record shareholder
or the beneficial shareholder. As added by P.L.149-1986, SEC.28.
IC 23-1-44-8
Sec. 8. (a) A shareholder is entitled to dissent from, and obtain payment
of the fair value of the shareholder's shares in the event of, any of the
following corporate actions:
(1) Consummation of a plan of merger to which the corporation is a party
if:
(A) shareholder approval is required for the merger by IC 23-1-40-3 or the
articles of incorporation; and
(B) the shareholder is entitled to vote on the merger.
(2) Consummation of a plan of share exchange to which the corporation is a
party as the corporation whose shares will be acquired, if the shareholder
is entitled to vote on the plan.
(3) Consummation of a sale or exchange of all, or substantially all, of the
property of the corporation other than in the usual and regular course of
business, if the shareholder is entitled to vote on the sale or exchange,
including a sale in dissolution, but not including a sale pursuant to court
order or a sale for cash pursuant to a plan by which all or substantially
all of the net proceeds of the sale will be distributed to the shareholders
within one (1) year after the date of sale.
(4) The approval of a control share acquisition under IC 23-1-42.
(5) Any corporate action taken pursuant to a shareholder vote to the extent
the articles of incorporation, bylaws, or a resolution of the board of
directors provides that voting or nonvoting shareholders are entitled to
dissent and obtain payment for their shares.
(b) This section does not apply to the holders of shares of any class or
series if, on the date fixed to determine the shareholders entitled to
receive notice of and vote at the meeting of shareholders at which the
merger, plan of share exchange, or sale or exchange of property is to be
acted on, the shares of that class or series were:
(1) registered on a United States securities exchange registered under the
Exchange Act (as defined in IC 23-1-43-9); or
(2) traded on the National Association of Securities Dealers, Inc.
Automated Quotations System Over-the-Counter Markets _ National Market
Issues or a similar market.
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(c) A shareholder:
(1) who is entitled to dissent and obtain payment for the shareholder's
shares under this chapter; or
(2) who would be so entitled to dissent and obtain payment but for the
provisions of subsection (b);
may not challenge the corporate action creating (or that, but for the
provisions of subsection (b), would have created) the shareholder's
entitlement. As added by P.L.149-1986, SEC.28. Amended by P.L.107-1987,
SEC.19.
IC 23-1-44-9
Sec. 9. (a) A record shareholder may assert dissenters' rights as to fewer
than all the shares registered in the shareholder's name only if the
shareholder dissents with respect to all shares beneficially owned by
any one (1) person and notifies the corporation in writing of the name and
address of each person on whose behalf the shareholder asserts dissenters'
rights. The rights of a partial dissenter under this subsection are
determined as if the shares as to which the shareholder dissents and the
shareholder's other shares were registered in the names of different
shareholders.
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(b) A beneficial shareholder may assert dissenters' rights as to shares
held on the shareholder's behalf only if:
(1) the beneficial shareholder submits to the corporation the record
shareholder's written consent to the dissent not later than the time the
beneficial shareholder asserts dissenters' rights; and
(2) the beneficial shareholder does so with respect to all the beneficial
shareholder's shares or those shares over which the beneficial shareholder
has power to direct the vote. As added by P.L.149-1986, SEC.28.
IC 23-1-44-10
Sec. 10. (a) If proposed corporate action creating dissenters' rights under
section 8 of this chapter is submitted to a vote at a shareholders'
meeting, the meeting notice must state that shareholders are or may be
entitled to assert dissenters' rights under this chapter.
(b) If corporate action creating dissenters' rights under section 8 of this
chapter is taken without a vote of shareholders, the corporation shall
notify in writing all shareholders entitled to assert dissenters' rights
that the action was taken and send them the dissenters' notice described in
section 12 of this chapter. As added by P.L.149-1986, SEC.28. Amended by
P.L.107-1987, SEC.20.
IC 23-1-44-11
Sec. 11. (a) If proposed corporate action creating dissenters' rights under
section 8 of this chapter is submitted to a vote at a shareholders'
meeting, a shareholder who wishes to assert dissenters' rights:
(1) must deliver to the corporation before the vote is taken written notice
of the shareholder's intent to demand payment for the shareholder's shares
if the proposed action is effectuated; and
(2) must not vote the shareholder's shares in favor of the proposed action.
(b) A shareholder who does not satisfy the requirements of subsection (a)
is not entitled to payment for the shareholder's shares under this chapter.
As added by P.L.149-1986, SEC.28.
IC 23-1-44-12
Sec. 12. (a) If proposed corporate action creating dissenters' rights under
section 8 of this chapter is authorized at a shareholders' meeting, the
corporation shall deliver a written dissenters' notice to all shareholders
who satisfied the requirements of section 11 of this chapter.
(b) The dissenters' notice must be sent no later than ten (10) days after
approval by the shareholders, or if corporate action is taken
without approval by the shareholders, then ten (10) days after the
corporate action was taken. The dissenters' notice must:
(1) state where the payment demand must be sent and where and when
certificates for certificated shares must be deposited;
(2) inform holders of uncertificated shares to what extent transfer of the
shares will be restricted after the payment demand is received;
(3) supply a form for demanding payment that includes the date of the first
announcement to news media or to shareholders of the terms of the proposed
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corporate action and requires that the person asserting dissenters' rights
certify whether or not the person acquired beneficial ownership of the
shares before that date;
(4) set a date by which the corporation must receive the payment demand,
which date may not be fewer than thirty (30) nor more than sixty (60) days
after the date the subsection (a) notice is delivered; and
(5) be accompanied by a copy of this chapter. As added by P.L.149-1986,
SEC.28.
IC 23-1-44-13
Sec. 13. (a) A shareholder sent a dissenters' notice described in IC
23-1-42-11 or in section 12 of this chapter must demand payment, certify
whether the shareholder acquired beneficial ownership of the shares before
the date required to be set forth in the dissenter's notice under section
12(b)(3) of this chapter, and deposit the shareholder's certificates in
accordance with the terms of the notice.
(b) The shareholder who demands payment and deposits the shareholder's
shares under subsection (a) retains all other rights of a shareholder until
these rights are cancelled or modified by the taking of the proposed
corporate action.
(c) A shareholder who does not demand payment or deposit the shareholder's
share certificates where required, each by the date set in the dissenters'
notice, is not entitled to payment for the shareholder's shares under this
chapter and is considered, for purposes of this article, to have voted the
shareholder's shares in favor of the proposed corporate action. As added by
P.L.149-1986, SEC.28.
IC 23-1-44-14
Sec. 14. (a) The corporation may restrict the transfer of uncertificated
shares from the date the demand for their payment is received until the
proposed corporate action is taken or the restrictions released under
section 16 of this chapter.
(b) The person for whom dissenters' rights are asserted as to
uncertificated shares retains all other rights of a shareholder until these
rights are cancelled or modified by the taking of the proposed corporate
action. As added by P.L.149-1986, SEC.28.
IC 23-1-44-15
Sec. 15. (a) Except as provided in section 17 of this chapter, as soon as
the proposed corporate action is taken, or, if the transaction did not need
shareholder approval and has been completed, upon receipt of a payment
demand, the corporation shall pay each dissenter who complied with section
13 of this chapter the amount the corporation estimates to be the fair
value of the dissenter's shares.
(b) The payment must be accompanied by:
(1) the corporation's balance sheet as of the end of a fiscal year ending
not more than sixteen (16) months before the date of payment, an income
statement for that year, a statement of changes in shareholders' equity for
that year, and the latest available interim financial statements, if any;
(2) a statement of the corporation's estimate of the fair value of the
shares; and
(3) a statement of the dissenter's right to demand payment under section 18
of this chapter. As added by P.L.149-1986, SEC.28. Amended by P.L.107-1987,
SEC.21.
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IC 23-1-44-16
Sec. 16. (a) If the corporation does not take the proposed action within
sixty (60) days after the date set for demanding payment and depositing
share certificates, the corporation shall return the deposited certificates
and release the transfer restrictions imposed on uncertificated shares.
(b) If after returning deposited certificates and releasing transfer
restrictions, the corporation takes the proposed action, it must send a new
dissenters' notice under section 12 of this chapter and repeat the payment
demand procedure. As added by P.L.149-1986, SEC.28.
IC 23-1-44-17
Sec. 17. (a) A corporation may elect to withhold payment required by
section 15 of this chapter from a dissenter unless the dissenter was the
beneficial owner of the shares before the date set forth in the dissenters'
notice as the date of the first announcement to news media or to
shareholders of the terms of the proposed corporate action.
(b) To the extent the corporation elects to withhold payment under
subsection (a), after taking the proposed corporate action, it shall
estimate the fair value of the shares and shall pay this amount to each
dissenter who agrees to accept it in full satisfaction of the dissenter's
demand. The corporation shall send with its offer a statement of its
estimate of the fair value of the shares and a statement of the dissenter's
right to demand payment under section 18 of this chapter. As added by
P.L.149-1986, SEC.28.
IC 23-1-44-18
Sec. 18. (a) A dissenter may notify the corporation in writing of the
dissenter's own estimate of the fair value of the dissenter's shares and
demand payment of the dissenter's estimate (less any payment under section
15 of this chapter), or reject the corporation's offer under section 17 of
this chapter and demand payment of the fair value of the dissenter's
shares, if:
(1) the dissenter believes that the amount paid under section 15 of this
chapter or offered under section 17 of this chapter is less than the fair
value of the dissenter's shares;
(2) the corporation fails to make payment under section 15 of this chapter
within sixty (60) days after the date set for demanding payment; or
(3) the corporation, having failed to take the proposed action, does not
return the deposited certificates or release the transfer restrictions
imposed on uncertificated shares within sixty (60) days after the date set
for demanding payment.
(b) A dissenter waives the right to demand payment under this section
unless the dissenter notifies the corporation of the dissenter's demand in
writing under subsection (a) within thirty (30) days after the corporation
made or offered payment for the dissenter's shares. As added by
P.L.149-1986, SEC.28.
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IC 23-1-44-19
Sec. 19. (a) If a demand for payment under IC 23-1-42-11 or under section
18 of this chapter remains unsettled, the corporation shall commence a
proceeding within sixty (60) days after receiving the payment demand and
petition the court to determine the fair value of the shares. If the
corporation does not commence the proceeding within the sixty (60) day
period, it shall pay each dissenter whose demand remains unsettled the
amount demanded. (b) The corporation shall commence the proceeding in the
circuit or superior court of the county where a corporation's principal
office (or, if none in Indiana, its registered office) is located. If the
corporation is a foreign corporation without a registered office in
Indiana, it shall commence the proceeding in the county in Indiana where
the registered office of the domestic corporation merged with or whose
shares were acquired by the foreign corporation was located. (c) The
corporation shall make all dissenters (whether or not residents of this
state) whose demands remain unsettled parties to the proceeding as in an
action against their shares and all parties must be served with a copy of
the petition. Nonresidents may be served by registered or certified mail or
by publication as provided by law. (d) The jurisdiction of the court in
which the proceeding is commenced under subsection (b) is plenary and
exclusive. The court may appoint one (1) or more persons as appraisers to
receive evidence and recommend decision on the question of fair value. The
appraisers have the powers described in the order appointing them or in any
amendment to it. The dissenters are entitled to the same discovery rights
as parties in other civil proceedings. (e) Each dissenter made a party to
the proceeding is entitled to judgment: (1) for the amount, if any, by
which the court finds the fair value of the dissenter's shares, plus
interest, exceeds the amount paid by the corporation; or
(2) for the fair value, plus accrued interest, of the dissenter's
after-acquired shares for which the corporation elected to withhold payment
under section 17 of this chapter. As added by P.L.149-1986, SEC.28.
IC 23-1-44-20
Sec. 20. (a) The court in an appraisal proceeding commenced under section
19 of this chapter shall determine all costs of the proceeding, including
the reasonable compensation and expenses of appraisers appointed by the
court. The court shall assess the costs against such parties and in such
amounts as the court finds equitable.
(b) The court may also assess the fees and expenses of counsel and experts
for the respective parties, in amounts the court finds equitable:
(1) against the corporation and in favor of any or all dissenters if the
court finds the corporation did not substantially comply with the
requirements of sections 10 through 18 of this chapter; or
(2) against either the corporation or a dissenter, in favor of any other
party, if the court finds that the party against whom the fees and expenses
are assessed acted arbitrarily, vexatiously, or not in good faith with
respect to the rights provided by this chapter.
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(c) If the court finds that the services of counsel for any dissenter were
of substantial benefit to other dissenters similarly situated and that the
fees for those services should not be assessed against the corporation, the
court may award to these counsel reasonable fees to be paid out of the
amounts awarded the dissenters who were benefited. As added by
P.L.149-1986, SEC.28.
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ANNEX I
AGREEMENT AND PLAN OF MERGER
by and among
CTI GROUP (HOLDINGS) INC.,
CTI BILLING SOLUTIONS INC.,
CELLTECH INFORMATION SYSTEMS, INC.,
DAVID A. WARREN,
FRANK S. SCARPA,
VALERIE S. HART
and
RICHARD J. DONNELLY
Dated as of April 5, 2000
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TABLE OF CONTENTS
Page
----
ARTICLE I - MERGER.............................................................1
1.1 The Merger.........................................................1
1.2 Effective Time.....................................................2
1.3 Closing............................................................2
1.4 Certificate of Incorporation and By-Laws of Surviving
Corporation........................................................2
1.5 Directors and Officers of Surviving Corporation....................2
1.6 Further Assurances.................................................2
1.7 Effect on Shares of Merger Sub and Company.........................3
1.8 ...................................................................4
1.9 Exchange Agent.....................................................4
1.10 Exchange Procedures................................................4
1.11 Distributions with Respect to Unexchanged Shares...................4
1.12 No Fractional Shares of CTIG Stock.................................5
1.13 No Liability.......................................................5
1.14 Lost Certificates..................................................5
1.15 Stock Transfer Books...............................................6
1.16 CTIG Dissenting Shares.............................................6
1.17 Escrowed Stock.....................................................6
1.18 Special Meeting....................................................7
ARTICLE II - REPRESENTATIONS AND WARRANTIES OF COMPANY.........................8
2.1 Organization.......................................................8
2.2 Capitalization.....................................................8
2.3 Authority..........................................................9
2.4 No Violations; Consents and Approvals..............................9
2.5 Financial Statements..............................................10
2.6 Absence of Certain Changes........................................10
2.7 Legal Proceedings.................................................11
2.8 Compliance with Laws and Agreements...............................11
2.9 SEC Filing Information............................................12
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2.10 State Antitakeover Statutes.......................................12
2.11 Broker's Fees.....................................................12
2.12 Environmental Matters.............................................12
2.13 Intellectual Property Rights......................................13
2.14 Taxes.............................................................14
2.15 Employee Benefit Plans............................................14
2.16 Insurance.........................................................15
2.17 Contracts.........................................................16
2.18 Properties........................................................17
2.19 Employees and Independent Contractors.............................17
2.20 Year 2000.........................................................18
2.21 Certain Interests.................................................18
2.22 Customers and Suppliers...........................................18
2.23 Accounts Receivable...............................................18
2.24 America One Revenue...............................................18
2.25 Reorganization Treatment..........................................18
2.26 Disclosure........................................................19
ARTICLE IIA - REPRESENTATIONS AND WARRANTIES OF CELLTECH STOCKHOLDERS.........19
2A.1 Ownership of Celltech Common Stock................................19
2A.2 Agreement Not in Breach of Other Instruments Affecting Celltech
Stockholders......................................................19
2A.3 Valid and Binding Agreement. .....................................19
2A.4 No Claims Against Celltech........................................19
2A.5 Further Assurances................................................19
2A.6 Shareholder Meeting...............................................19
2A.7 Reorganization Treatment..........................................20
ARTICLE III - REPRESENTATIONS AND WARRANTIES OF CTIG AND MERGER SUB...........20
3.1 Organization......................................................20
3.2 Authority.........................................................20
3.3 No Violations; Consents and Approvals.............................20
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3.4 Legal Proceedings.................................................21
3.5 Proxy Statement...................................................21
3.6 Broker's Fees.....................................................21
3.7 Capitalization of Merger Sub......................................21
3.8 CTIG Disclosures..................................................21
3.9 Merger Stock......................................................22
3.10 Reorganization Treatment..........................................22
ARTICLE IV - COVENANTS .......................................................22
4.1 Conduct of Business of Celltech...................................22
4.2 No Solicitation by Celltech.......................................24
4.3 Access to Information.............................................25
4.4 CTIG Proxy Statement and Special Meeting..........................25
4.5 Preparation of Form S-4; Stockholders Meeting.....................26
4.6 Reasonable Best Efforts; Other Actions............................26
4.7 Public Announcements..............................................27
4.8 Notification of Certain Matters...................................27
4.9 Expenses..........................................................27
ARTICLE V - CONDITIONS TO THE OBLIGATIONS OF THE PARTIES ....................28
5.1 Stockholder Approval..............................................28
5.2 Consents and Approvals............................................28
5.3 Opinion of Financial Advisor......................................28
5.4 Employment Agreement..............................................28
ARTICLE VI - CONDITIONS TO THE OBLIGATIONS OF CTIG AND MERGER SUB ............28
6.1 Representations and Warranties True...............................28
6.2 Performance.......................................................29
6.3 Additional Documents..............................................29
6.4 Certain Proceedings...............................................29
6.5 Minimum Balance Sheet Requirements................................29
6.6 Material Adverse Change...........................................30
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ARTICLE VII - CONDITIONS TO THE OBLIGATIONS OF CELLTECH ......................30
7.1 Representations and Warranties True...............................30
7.2 Performance.......................................................30
7.3 Certificates......................................................30
7.4 Certain Proceedings...............................................30
7.5 Effectiveness of the Form S-4.....................................31
ARTICLE VIII - TERMINATION AND ABANDONMENT....................................31
8.1 Termination by CTIG or Celltech...................................31
8.2 Termination by CTIG...............................................31
8.3 Termination by Celltech...........................................31
8.4 Procedure for Termination.........................................32
8.5 Effect of Termination and Abandonment.............................32
ARTICLE IX - INDEMNIFICATION BY PRINCIPAL STOCKHOLDER.........................32
9.1 Indemnification...................................................32
9.2 Conditions of Indemnification.....................................32
9.3 Remedies..........................................................33
ARTICLE X - DEFINITIONS ......................................................33
10.1 Terms Defined in the Agreement....................................33
ARTICLE XI - MISCELLANEOUS....................................................35
11.1 Amendment and Modification........................................35
11.2 Waiver of Compliance; Consents....................................35
11.3 Survivability; Investigations.....................................35
11.4 Reasonable Efforts................................................36
11.5 Notices...........................................................36
11.6 Successor and Assigns.............................................38
11.7 Governing Law.....................................................38
11.8 Counterparts......................................................38
11.9 Severability......................................................38
11.10 Interpretation....................................................38
11.11 Entire Agreement..................................................39
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11.12 Jurisdiction......................................................39
11.13 WAIVER OF JURY TRIAL..............................................39
11.14 Class A Common Stock..............................................39
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AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER, dated as of April 5, 2000, is by and
among CTI GROUP (HOLDINGS) INC., a Delaware corporation ("CTIG"), CTI
BILLING SOLUTIONS INC., a Delaware corporation ("Merger Sub"), CELLTECH
INFORMATION SYSTEMS, INC., a Delaware corporation ("Celltech"), DAVID A.
WARREN, an individual ("Principal Stockholder"), FRANK S. SCARPA
("Scarpa"), VALERIE S. HART ("Hart") and RICHARD J. DONNELLY ("Donnelly",
and together with Scarpa and Hart, the "Minority Stockholders"). Celltech
and Merger Sub are sometimes collectively referred to as the "Constituent
Corporations." Principal Stockholder and the Minority Stockholders are
sometimes collectively referred to as the "Celltech Stockholders".
BACKGROUND
The Boards of Directors of CTIG, Merger Sub and Celltech, respectively,
deem it advisable and in their respective best interests and the best
interests of their respective stockholders that CTIG and Celltech combine
in order to advance the long-term business interests of CTIG and Celltech.
The combination of CTIG and Celltech shall be effected by the terms of
this Agreement through the merger (the "Merger") of Celltech with and into
Merger Sub, a wholly-owned subsidiary of CTIG.
The Boards of Directors of CTIG, Merger Sub and Celltech have approved
this Agreement and each of the documents required to be executed in
connection with this Agreement to which it is a party.
The Celltech Stockholders own 100% of the issued and outstanding shares
of Celltech Common Stock, no par value (the "Celltech Common Stock"), and
believe the Merger to be in Celltech's and their own best interests.
NOW, THEREFORE, in consideration of the foregoing, the mutual
covenants, representations, warranties and agreements herein contained, and
other good and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, the parties hereto, intending to be legally bound
hereby, agree as follows:
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ARTICLE I
MERGER
1.1 The Merger.
(a) In accordance with the provisions of this Agreement and
the General Corporation Law of the State of Delaware (the "DGCL"), at the
Effective Time (as defined in Section 1.2 hereof), Celltech shall be merged
with and into Merger Sub, and Merger Sub shall be the surviving corporation
(sometimes called the "Surviving Corporation") and shall continue its
corporate existence under the laws of the State of Delaware. At the
Effective Time the separate existence of Celltech shall cease.
(b) The Merger shall have the effects on Celltech and Merger
Sub as the constituent corporations of the Merger as provided under the
DGCL.
1.2 Effective Time. The Merger shall become effective at the time
of filing of, or at such later time as may be specified in, a
Certificate of Merger, in the form required by and executed in
accordance with the DGCL, with the Secretary of State of the
State of Delaware in accordance with the provisions of Section
251 of the DGCL (the "Certificate of Merger"). The date and
time when the Merger shall become effective is referred to as
the "Effective Time."
1.3 Closing. The closing of the Merger (the "Closing") will take
place at 10:00 a.m., Eastern Standard Time, on the second
Business Day (as defined below) after the satisfaction or
(subject to applicable law) waiver of the conditions
(excluding conditions that, by their terms, cannot be
satisfied until the Closing Date) set forth in Articles V, VI
and VII (the "Closing Date"), unless another time or date is
agreed to in writing by the parties hereto. The Closing shall
be held at the offices of Klehr, Harrison, Harvey, Branzburg &
Ellers LLP, 260 South Broad Street, Philadelphia, Pennsylvania
19102, unless another place is agreed to in writing by the
parties hereto. "Business Day" shall mean every day of the
week excluding Saturdays, Sundays and Federal holidays.
1.4 Certificate of Incorporation and By-Laws of Surviving
Corporation. The Certificate of Incorporation and By-Laws of
Merger Sub shall be the Certificate of Incorporation and
By-Laws of the Surviving Corporation until thereafter amended
as provided by law.
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1.5 Directors and Officers of Surviving Corporation.
(a) The number of directors of the Surviving Corporation shall
be as determined pursuant to the By-Laws of the Surviving Corporation. The
directors of Merger Sub shall be the directors of the Surviving Corporation
and will hold office from and after the Effective Time until their
respective successors are duly elected or appointed and qualify in the
manner provided in the Certificate of Incorporation and By-Laws of the
Surviving Corporation or as otherwise provided by law or their earlier
resignation or removal.
(b) The officers of the Surviving Corporation shall be
determined by the Board of Directors of the Surviving Corporation
immediately after the Effective Time, and will hold office from and after
the Effective Time until their respective successors are duly appointed and
qualify in the manner provided in the By-Laws of the Surviving Corporation
or as otherwise provided by law or their earlier resignation or removal.
1.6 Further Assurances. If, at any time after the Effective Time,
the Surviving Corporation shall consider or be advised that
any deeds, bills of sale, assignments, assurances, or any
other actions or things are necessary or desirable to vest,
perfect or confirm of record or otherwise in the Surviving
Corporation its right, title or interest in, to or under any
of the rights, properties or assets of either of the
Constituent Corporations acquired or to be acquired by the
Surviving Corporation as a result of, or in connection with,
the Merger or otherwise to carry out this Agreement, the
officers and directors of the Surviving Corporation shall be
authorized to execute and deliver, in the name and on behalf
of each of the Constituent Corporations or otherwise, all such
deeds, bills of sale, assignments and assurances and to take
and do, in the name and on behalf of each of the Constituent
Corporations or otherwise, all such other actions and things
as may be necessary or desirable to vest, perfect or confirm
any and all right, title and interest in, to and under such
rights, properties or assets in the Surviving Corporation or
otherwise to carry out this Agreement and the transactions
contemplated hereby.
1.7 Effect on Shares of Merger Sub and Company. At the Effective
Time, by virtue of the Merger, and without any action on the
part of the Celltech Stockholders, all issued and outstanding
shares of Celltech Common Stock (other than shares owned by
Celltech) shall be converted into the following (the "Merger
Consideration") to be distributed among the Celltech
Stockholders, pro rata on a per share equivalent basis:
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(a) the right to receive an aggregate $262,599 (the "Merger
Cash");
(b) 1,663,126 shares of CTIG Class A Common Stock, par value
.01 per share ("Class A Common Stock") subject to adjustment (the "Merger
Stock"), if any, as follows:
(i) in the event that the Average Market Price Per
Share (as defined below) of the CTIG Class A Common Stock on the Closing
Date is greater than $3.00, to a maximum of $3.75, or below $3.00 to a
minimum of $2.25, then the number of shares of Merger Stock shall be
determined by dividing $4,989,378 by such Average Market Price per Share;
provided that in no event will the Merger Stock be less than 1,330,501
shares nor more than 2,217,501 shares regardless of the Average Market
Price per Share of CTIG Class A Common Stock.
(ii) 52.63158% of the Merger Stock will be delivered
at Closing (the "Closing Stock") to be distributed pursuant to Sections 1.9
through 1.15, and 47.36842% of the Merger Stock (the "Escrowed Stock") will
be delivered to escrow to be held, delivered and/or cancelled in accordance
with Section 1.17.
(iii) For purposes of this Agreement, the "Average
Market Price per Share" of the Class A Common Stock at any date shall mean
the average of the daily last reported sale price per share of the Class A
Common Stock on the NASDAQ National Market System (or if such stock is then
listed on the New York Stock Exchange, on such Exchange) during the most
recent 20 consecutive full Business Days before such date, provided that if
there was no reported sale on any such day or days, there shall be
substituted the average of the closing bid and asked quotations on that
Market System or Exchange on that day or days, and provided further that,
if the Class A Common Stock is not listed on that Market System or Exchange
on any such day or days, there shall be substituted the comparable sale
price or average of bid and asked quotations on the principal national
securities exchange on which such Class A Common Stock is so listed, or if
not so listed on any national securities exchange, the average of the
highest bid and the lowest asked quotations in the over-the-counter market
that day or days.
(c) Each share of Celltech Common Stock owned by Celltech as
treasury stock shall be cancelled.
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(d) All shares of Celltech Common Stock shall be cancelled and
retired, and each certificate representing any such shares of Celltech
Common Stock shall thereafter represent only the right to receive the
Merger Consideration, and any cash in lieu of fractional shares of Merger
Stock, payable in exchange for such shares of Celltech Common Stock upon
the surrender of such certificate for payment in accordance with Sections
1.9 and 1.15.
1.8 [Intentionally left blank]
1.9 Exchange Agent. Prior to the Effective Time, CTIG shall
appoint American Stock Transfer or another commercial bank or
trust company to act as exchange agent for the purpose of
exchanging certificates representing Celltech Common Stock
("Certificates") for the applicable Merger Consideration (the
"Exchange Agent"). At or prior to the Effective Time, CTIG
shall deposit with the Exchange Agent, in trust for the
benefit of holders of shares of Celltech, sufficient funds and
certificates representing the applicable Merger Stock issuable
at Closing pursuant to Section 1.7 in exchange for outstanding
shares of Celltech Common Stock in the Merger. CTIG agrees to
make available to the Exchange Agent from time to time as
needed, cash sufficient to pay cash in lieu of fractional
shares pursuant to Section 1.12.
1.10 Exchange Procedures. As soon as reasonably practicable after
the Effective Time, the Surviving Corporation shall cause the
Exchange Agent to mail to each holder of a Certificate (i) a
transmittal letter which shall specify that delivery shall be
effected, and risk of loss and title to the Certificates shall
pass, only upon delivery of the Certificates to the Exchange
Agent, and (ii) instructions for effecting the surrender of
Certificates in exchange for the applicable Merger
Consideration. Upon surrender of a Certificate to the Exchange
Agent together with the transmittal letter, duly executed and
completed in accordance with its instructions, and such other
documents as may reasonably be required by the Exchange Agent,
the Certificate holder shall be entitled to receive in
exchange therefor (A) a pro rata portion of the Merger Cash,
(B) one or more shares of Class A Common Stock representing,
in the aggregate, the whole number of shares that such holder
has the right to receive pursuant to Section 1.7, and (C) a
check in the amount equal to the cash that such holder has the
right to receive in lieu of any fractional shares of Class A
Common Stock pursuant to Section 1.12. All Certificates so
surrendered shall be canceled. No interest will be paid or
will accrue on any cash so payable.
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1.11 Distributions with Respect to Unexchanged Shares. No dividends
or other distributions declared or made with respect to shares
of Class A Common Stock with a record date after the Effective
Time shall be paid to the holder of any un-surrendered
Certificate with respect to the shares of Class A Common Stock
that such holder would be entitled to receive upon surrender
of such Certificate, and no cash payment in lieu of fractional
shares of Class A Common Stock shall be paid to any such
holder until such holder shall surrender such Certificate.
Subject to the effect of applicable laws, following surrender
of any such Certificate, there shall be paid to such holder of
shares of Class A Common Stock issuable in exchange therefor,
without interest, promptly after the time of such surrender,
the amount of any cash payable in lieu of fractional shares of
Class A Common Stock to which such holder is entitled pursuant
to Section 1.12 and the amount of dividends or other
distributions with a record date after the Effective Time
theretofore paid with respect to such whole shares of Class A
Common Stock.
1.12 No Fractional Shares of CTIG Stock. No fractional shares of
Class A Common Stock shall be issued upon the surrender for
exchange of Certificates and such fractional share interests
will not entitle the owner thereof to vote or to have any
rights of a shareholder of CTIG or a holder of shares of CTIG
Class A Common Stock. Each holder of shares of Celltech Common
Stock exchanged pursuant to the Merger who would otherwise
have been entitled to receive a fraction of a share of CTIG
Class A Common Stock (after taking into account all
Certificates delivered by such holder) shall receive, in lieu
thereof, cash (without interest) in an amount equal to the
product of (i) such fractional part of a share of CTIG Class A
Common Stock multiplied by (ii) the Average Market Price per
Share of CTIG Class A Common Stock. The fractional share
interests of CTIG Class A Common Stock will be aggregated, and
no recordholder of Celltech Capital Stock will receive cash in
an amount equal to or greater than the value of one full share
of CTIG Class A Common Stock determined as of the Effective
Time.
1.13 No Liability. None of Celltech, Merger Sub or the Exchange
Agent shall be liable to any Person (as defined below) in
respect of any Merger Consideration, any dividends or
distributions with respect thereto or any cash in lieu of
fractional shares of applicable Class A Common Stock, in each
case delivered to a public official pursuant to any applicable
abandoned property, escheat or similar law. For purposes of
this Agreement, "Person" shall mean any individual,
corporation, partnership, limited liability company,
association, trust, joint venture, unincorporated association
or other entity or organization, including a government or
political subdivision or an agency or instrumentality thereof.
If any Certificate shall not have been surrendered prior to
six (6) months after the Effective Time (or immediately prior
to such
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earlier date on which any Merger Consideration, any dividends
or distributions payable to the holder of such Certificate or
any cash payable in lieu of fractional shares of Class A
Common Stock pursuant to this Article I, would otherwise
escheat to or become the property of any Governmental
Entity (as defined below)), any such Merger Consideration,
dividends or distributions in respect thereof or such cash
shall, to the extent permitted by applicable law, be delivered
to CTIG, upon demand, and any holders of Celltech Common Stock
who have not theretofore complied with the provisions of this
Article I shall thereafter look only to CTIG for satisfaction
of their claims for such Merger Consideration, dividends or
distributions in respect thereof or such cash. For purposes of
this Agreement, "Governmental Entity" shall mean any nation or
government, any state or other political subdivision thereof,
any entity exercising executive, legislative, judicial,
regulatory or administrative functions of or pertaining to
government, including, but not limited to, any government
authority, agency, department, board, commission or
instrumentality of the United States, any State of the United
States, or any political subdivision thereof, and any tribunal
or arbitrator(s) of competent jurisdiction, and any
self-regulatory organization.
1.14 Lost Certificates. If any Certificate shall have been lost,
stolen or destroyed, upon the making of an affidavit of that
fact by the Person (such affidavit to be in a form and
substance satisfactory to CTIG and containing an appropriate
indemnity against claims) claiming such Certificate to be
lost, stolen or destroyed and, if required by the Surviving
Corporation, the posting by such Person of a bond in such
reasonable amount as the Surviving Corporation may direct as
indemnity against any claim that may be made against it with
respect to such Certificate, the Exchange Agent will deliver
in exchange for such lost, stolen or destroyed Certificate the
applicable Merger Consideration with respect to the shares of
Celltech Capital Stock formerly represented thereby, any cash
in lieu of fractional shares of Class A Common Stock, and
unpaid dividends and distributions on shares of Class A Common
Stock deliverable in respect thereof, pursuant to this
Agreement.
1.15 Stock Transfer Books. At the close of business, Eastern
Standard Time, on the day the Effective Time occurs, the stock
transfer books of Celltech shall be closed and there shall be
no further registration of transfers of shares of Celltech
Common Stock thereafter on the records of Celltech. From and
after the Effective Time, the holders of Certificates shall
cease to have any rights with respect to such shares of
Celltech Common Stock formerly represented thereby, except as
otherwise provided herein or by law.
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1.16 CTIG Dissenting Shares. Notwithstanding anything in this
Agreement to the contrary and unless provided for by
applicable law, holders of shares of CTIG Class A Common Stock
that are issued and outstanding immediately prior to the
Effective Time and that are owned by stockholders who have
properly perfected their rights of appraisal within the
meaning of Section 262 of the DGCL (the "CTIG Dissenting
Shares") shall be entitled to payment of the fair value of
such CTIG Dissenting Shares determined in accordance with
Section 262 of the DGCL. If any such stockholder shall have
failed to perfect or shall have effectively withdrawn or lost
such right of appraisal, each such share of CTIG Class A
Common Stock held by such stockholder shall thereupon be
deemed to remain issued and outstanding and unchanged as a
validly issued, fully paid and non-assessable share of capital
stock of the Surviving Corporation. CTIG shall give Celltech
prompt notice of CTIG's receipt of any notice or demand for
appraisal or payment pursuant to Section 262 of the DGCL,
withdrawals thereof and any other instruments served in
connection therewith pursuant to the DGCL and received by
CTIG.
1.17 Escrowed Stock.
(a) The Escrowed Stock shall be delivered to Celltech
Stockholders who received Merger Consideration at Closing only as follows:
(i) 50% of the Escrowed Stock will be subject to
release during the first Escrow Year (as defined below), 35% during the
second Escrow Year and the final 15% during the third Escrow Year.
(ii) At the end of each Escrow Quarter (as defined
below) a fraction (the "Quarter Fraction") shall be determined, the
numerator of which will be the actual gross revenue received from America
One Communications, Inc. ("America One") minus that portion of such gross
revenue attributed to postage ("America One Revenue") and the denominator
of which will be $645,652. If the Quarter Fraction is 1 or greater than 1,
then no later than 10 Business Days after the end of such Escrow Quarter,
25% of the Escrowed Stock that is subject to release pursuant to Section
1.17(a)(i) for the Escrow Year in which such Escrow Quarter occurs shall be
released from escrow to the Celltech Stockholders. If the Quarter Fraction
is less than 1, then no later than 10 Business Days after the end of such
Escrow Quarter, said fraction shall be multiplied by 25% of the Escrowed
Stock that is subject to release pursuant to Section 1.17(a)(i) for the
Escrow Year in which such Escrow Quarter occurs, the product thereof shall
be rounded to the nearest whole number, and that number of shares of the
Escrowed Stock shall, no later than 10
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Business Days after the end of such Escrow Quarter, be released from escrow
to the Celltech Stockholders.
(iii) If at the end of the third Escrow Year the
proportion that all Escrowed Stock released from escrow pursuant to Section
1.17(a)(ii) bears to the total Escrowed Stock placed in escrow pursuant to
Section 1.7(b)(ii) is less than the proportion that the aggregate America
One Revenue produced during all three Escrow Years bears to $7,747,821,
then no later then April 30, 2003 an additional number of shares of
Escrowed Stock shall be released to the Celltech Stockholders in order to
eliminate such difference up to a maximum of the total Escrowed Stock
remaining in escrow; provided that CTIG shall not issue any shares of CTIG
Class A Common Stock in excess of the number originally placed in escrow as
Escrowed Stock, regardless of the amount of such aggregate America One
Revenue.
(iv) Notwithstanding the foregoing, if at any time
prior to the end of the third Escrow Year, CTIG sells or licenses software
to America One that replaces the software that has produced the gross
revenue from America One referred to in Section 2.24, resulting in a
reduction or elimination of America One Revenue, then within 10 Business
Days after the end of the Escrow Quarter in which such reduction or
elimination first occurs, any shares of Escrowed Stock then remaining in
escrow shall be released to the Celltech Stockholders.
(b) All releases of Escrowed Stock from escrow to the Celltech
Stockholders shall be made in the same proportions to Celltech Stockholders
as the Closing Stock was distributed. No fractional shares or scrip
representing shares of the Escrowed Stock shall be issued pursuant to this
Section 1.17. If at any time during any Escrow Year, America One
discontinues its relationship with the Surviving Corporation, then all
Escrowed Stock then in escrow shall be returned to CTIG and cancelled, and
no additional shares of CTIG Class A Common Stock shall be subject to issue
to the Celltech Stockholders.
(c) For purposes of this Agreement, an "Escrow Year" shall
mean each of the first three consecutive 12 calendar month periods
commencing on March 1, 2000 and ending on February 28, 2003, and an "Escrow
Quarter" shall mean each of the three consecutive calendar month periods
within a respective Escrow Year.
1.18 Special Meeting.
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<PAGE>
(a) If required by applicable law in order to consummate the
Merger, CTIG, acting through its Board of Directors, shall, in accordance
with applicable law and subject to the applicable provisions of this
Agreement:
(i) duly call, give notice of, convene and hold a
special meeting (the "Special Meeting") of its stockholders as soon as
practicable following the execution of this Agreement for the purpose of
considering and taking action upon the Merger and this Agreement;
(ii) file with the Securities and Exchange Commission
(the "SEC") under the Securities Exchange Act of 1934 as amended (the
"Exchange Act"), a Proxy Statement (as defined below) and use its best
efforts to obtain and furnish the information required to be included by it
in the Proxy Statement and, after consultation with Celltech, to respond
promptly to any comments made by the SEC with respect to the Proxy
Statement and any preliminary version thereof and cause the Proxy Statement
to be mailed to its stockholders at the earliest practicable time following
the execution of this Agreement;
(iii) include in the Proxy Statement the
recommendation of its Board of Directors that CTIG stockholders vote in
favor of the approval of this Agreement and the Merger and use its best
efforts to obtain the necessary approval of this Agreement and the Merger
by its stockholders.
(b) As used in this Agreement, the term "Proxy Statement"
means the letter to CTIG stockholders, notice of meeting, proxy statement
and form of proxy, or the information statement, as the case may be, to be
distributed to CTIG stockholders in connection with the Merger, including
any schedules required to be filed with the SEC in connection therewith.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF COMPANY
Celltech and Principal Stockholder, jointly and severally, represent
and warrant to CTIG and Merger Sub as follows:
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<PAGE>
2.1 Organization. Celltech is a corporation duly organized,
validly existing and in good standing under the laws of the
State of Delaware and has all requisite corporate power and
authority to own, lease and operate its properties and to
carry on its business as now being conducted. It is duly
qualified or licensed and in good standing to do business in
each jurisdiction in which the property owned, leased or
operated by it or the nature of the business conducted by it
makes such qualification necessary, except in such
jurisdictions where the failure to be so duly qualified or
licensed and in good standing would not, individually or in
the aggregate, have a material adverse effect on the business,
operations, assets, financial condition or results of
operations of Celltech or on the ability of Celltech to
consummate the transactions contemplated by this Agreement or
perform its obligations hereunder (a "Material Adverse
Effect"). Celltech has delivered to CTIG complete and correct
copies of its certificate of incorporation and bylaws as
currently in effect. It does not own any equity interests in
any corporation, partnership, limited liability company or
other entity.
2.2 Capitalization. Celltech's authorized capital stock consists
of 2,352.941 shares of Celltech Common Stock. Schedule 2.2 of
the Celltech Disclosure Schedules delivered to CTIG and Merger
Sub together with this Agreement (the "Celltech Disclosure
Schedules") sets forth all stockholders of Celltech and the
issued and outstanding shares of Celltech Common Stock issued
to each stockholder. There are not now, and at the Effective
Time there will not be, any existing options, warrants, calls,
subscriptions, or other rights, agreements or commitments
obligating Celltech to issue, transfer or sell any shares of
capital stock of or any other securities convertible into or
evidencing the right to subscribe for any such shares. All
issued and outstanding shares of Celltech Common Stock are
duly authorized and validly issued, fully paid, non-assessable
and free of preemptive rights with respect thereto.
2.3 Authority.
(a) Celltech has full corporate power and authority to execute
and deliver this Agreement and to consummate the transactions contemplated
hereby. The execution and delivery of this Agreement and the consummation
of the transactions contemplated hereby have been duly and validly
authorized and approved by its Board of Directors, and no corporate
proceedings are necessary to authorize this Agreement or the consummation
of the transactions contemplated hereby. This Agreement has been duly and
validly executed and delivered by Celltech, and it constitutes a legal,
valid and binding agreement of Celltech, enforceable against Celltech in
accordance with its terms.
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<PAGE>
(b) The provisions of Section 203 of the DGCL do not apply to
the transactions contemplated by this Agreement.
2.4 No Violations; Consents and Approvals.
(a) Neither the execution and delivery of this Agreement or
the consummation of the transactions contemplated hereby nor compliance by
Celltech with any of the provisions hereof will (i) violate any provision
of its certificate of incorporation or by-laws, (ii) result in a violation
or breach of, or constitute (with or without due notice or lapse of time or
both) a default, or give rise to any right of termination, cancellation or
acceleration or any right which becomes effective upon the occurrence of a
merger, consolidation or change in control, under, any of the terms,
conditions or provisions of any note, bond, mortgage, indenture or other
instrument of indebtedness for money borrowed to which it is a party, or by
which it or any of its properties is bound, or (iii) result in a violation
or breach of, or constitute (with or without due notice or lapse of time or
both) a default, or except as set forth in Schedule 2.4 of the Celltech
Disclosure Schedules give rise to any right of termination, cancellation or
acceleration or any right which becomes effective upon the occurrence of a
merger, consolidation or change in control, under, any of the terms,
conditions or provisions of any license, franchise, permit or agreement to
which it is a party, or by which it or any of its properties is bound, or
(iv) violate any statute, rule, regulation, order or decree of any public
body or authority by which it or any of its properties is bound, excluding
from the foregoing clauses (iii) and (iv) violations, breaches, defaults or
rights which, either individually or in the aggregate, would not have a
Material Adverse Effect on Celltech or materially impair its ability to
consummate the transactions contemplated hereby or for which it has
received or, prior to the Closing Date, shall have received appropriate
consents or waivers.
(b) No filing or registration with, notification to, or
authorization, consent or approval of, any Governmental Entity is required
by Celltech in connection with the execution and delivery of this Agreement
or the consummation by it of the transactions contemplated hereby, except
the filing of the Certificate of Merger with the Secretary of State of the
State of Delaware.
2.5 Financial Statements.
(a) Celltech has provided CTIG the following financial
statements: (i) balance sheets as of December 31, 1998 and December 31,
1999 which have been reviewed by John Massanova, C.P.A., and (ii)
statements of income for the years ended December 31, 1998 and December 31,
1999 which have been reviewed by John Massanova, C.P.A. As of their
respective dates, the Financial Statements were
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prepared in accordance with generally accepted accounting principles
("GAAP") applied on a consistent basis during the periods involved (except
as may be indicated therein or in the notes thereto) and fairly presented
its financial position as at the dates thereof and the results of its
operations and statements of cash flows for the periods then ended
(subject, in the case of unaudited statements, to the lack of footnotes
thereto, to normal year-end audit adjustments and to any other adjustments
described therein).
(b) As soon as practicable after the date hereof, Celltech
shall provide CTIG the following financial statements (the "Financial
Statements"): (i) balance sheets as of December 31, 1998 and December 31,
1999 audited by Arthur Andersen LLP, and (ii) statements of income for the
years ended December 31, 1998 and December 31, 1999 audited by Arthur
Andersen LLP. As of their respective dates, the Financial Statements will
be prepared in accordance with GAAP applied on a consistent basis during
the periods involved (except as may be indicated therein or in the notes
thereto) and will fairly present Celltech's financial position as at the
dates thereof and the results of its operations and statements of cash
flows for the periods then ended. The December 31, 1999 audited balance
sheet is referred to as the "Balance Sheet" and the date thereof as the
"Balance Sheet Date."
(c) There are no liabilities or obligations of Celltech
accrued, absolute, or contingent and whether due or to become due, other
than liabilities and obligations (i) reflected, or adequately reserved
against, in the Balance Sheet, (ii) arising in the ordinary course of
business subsequent to the date of the Balance Sheet, or (iii) which,
individually or in the aggregate, would not have a Material Adverse Effect.
2.6 Absence of Certain Changes. Since the Balance Sheet Date,
Celltech's business has been conducted in the ordinary course
consistent with past practices and, except as disclosed in
Schedule 2.6 to the Celltech Disclosure Schedules, there has
not been:
(a) any change, event or development having, or that could be
reasonably expected to have, individually or in the aggregate, a Material
Adverse Effect on Celltech;
(b) any amendments or changes in its Certificate of
Incorporation or bylaws;
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<PAGE>
(c) any material damage to, destruction or loss of any of its
assets (whether or not covered by insurance);
(d) any change by Celltech in its accounting methods,
principles or practices;
(e) any revaluation by Celltech of any of its assets,
including, without limitation, writing down the value of inventory or
writing off notes or accounts receivable other than in the ordinary course
of business;
(f) any sale of a material amount of assets of Celltech,
except for the sale of inventory in the ordinary course of business;
(g) any declaration, setting aside or payment of any dividend
or distribution in respect of any of its capital stock or any redemption,
purchase or other acquisition of any of its securities;
(h) any entry by Celltech into any commitment or transaction
material to it, including, without limitation, any long-term supply
agreements or partnership, joint venture or other similar arrangements;
(i) any increase in or establishment of any bonus, insurance,
severance, deferred compensation, pension, 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 increase in the
compensation payable to any officers or key employees of Celltech except in
the ordinary course of business consistent with past practice;
(j) any issuance, delivery, or sale of, or authorization of
the issuance, delivery or sale of, any share of capital stock or any
options or rights with respect thereto, or modification or amendment of any
right of any holder of outstanding shares of capital stock or options with
respect thereto; or
(k) any incurring of (which shall be deemed to include
entering into credit agreements, lines of credit or similar arrangements
until borrowings are made under such arrangements) any indebtedness for
borrowed money or guarantee of
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any such indebtedness other than in the ordinary course of business
consistent with past practice.
2.7 Legal Proceedings. Except as disclosed in Schedule 2.7 of the
Celltech Disclosure Schedules there is no (a) claim, action,
suit or proceeding pending or, to its best knowledge,
threatened, against or relating to it or any of its assets
before any court or Governmental Entity, or (b) outstanding
judgment, order, writ, injunction or decree, or application,
request or motion therefor, of any court or Governmental
Entity in a proceeding to which Celltech is a party.
2.8 Compliance with Laws and Agreements. Celltech is not (a) in
violation of or noncompliance with any statute, law,
ordinance, regulation, rule or order of any Governmental
Entity, or any judgment, decree or order of any court,
applicable to its business or operations or (b) in violation,
breach or default (with or without due notice or lapse of time
or both) under any of the terms, conditions or provisions of
any agreement to which it is a party, or by which its
properties are bound, except where any such violations or
failures to comply or breaches or defaults would not,
individually or in the aggregate, have a Material Adverse
Effect. Celltech has all permits, licenses, authorizations and
franchises from Governmental Entities required to conduct its
business as now being conducted, except for such permits,
licenses and franchises the absence of which would not,
individually or in the aggregate, have a Material Adverse
Effect.
2.9 SEC Filing Information. If a Proxy Statement is required for
the consummation of the Merger under applicable law, the
information supplied or to be supplied by Celltech for
inclusion in the Proxy Statement will 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 circumstances under which they
were made, not misleading.
2.10 State Antitakeover Statutes. No "business combination,"
"moratorium," "control share" or other state antitakeover
statute or regulation (a) prohibits or restricts Celltech's
ability to perform its obligations under this Agreement or its
ability to consummate the transactions contemplated hereby,
(b) would have the effect of invalidating or voiding this
Agreement, or any material provision hereof, or (c) would
subject CTIG or Merger Sub to any material impediment or
condition in connection with the exercise of any of their
respective rights under this Agreement or with respect to
Celltech or the Surviving Corporation.
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2.11 Broker's Fees. Except for the engagement of PASCO Business
Trust ("PASCO") by Celltech, neither Celltech, any of its
directors or officers nor Principal Stockholder has employed
any broker, finder or financial advisor or incurred any
liability for any broker's fees, commissions, or financial
advisory or finder's fees in connection with any of the
transactions contemplated by this Agreement. The Celltech
Stockholders hereby assign to PASCO, effective as of the
Closing Date, their right to receive the Merger Cash, on a pro
rata basis, to pay all fees and expenses due PASCO, to an
amount not to exceed $262,599.
2.12 Environmental Matters. Except as set forth in Schedule 2.12 of
the Celltech Disclosure Schedules or as would not reasonably
be expected to have, individually or in the aggregate, a
Material Adverse Effect, (a) to Celltech's knowledge no real
property or any part thereof currently or formerly owned or
operated by Celltech is contaminated with any Hazardous
Substance (as defined herein) to an extent or in a manner or
condition which may reasonably be expected to require
investigation or remediation under any Environmental Law (as
defined herein), (b) no judicial or administrative action,
suit or other proceeding is pending or to the knowledge of
Celltech, threatened relating to or arising out of any
Environmental Law, including, but not limited to, claims with
respect to off-site disposal, off-site contamination, personal
injury, property damage or natural resources damages, (c)
Celltech has not received any claims, orders, citations,
demands, requests for information or other notices alleging or
concerning liability or assessing a penalty under any
Environmental Law; and neither Celltech nor any of its
operations is or has been in violation of or has any liability
under an applicable Environmental Law and no condition or
event has occurred with respect to Celltech that would
constitute a violation of or create liability under such
Environmental Law, whether accrued, contingent, absolute,
determined, determinable or otherwise, except for any
conditions or violations that would not reasonably be expected
to have, individually or in the aggregate, a Material Adverse
Effect, and (d) no expenditures by Celltech to maintain or
achieve compliance with applicable Environmental Laws during
the three (3) year period following the date hereof are
anticipated except where such expenditures, individually or in
the aggregate would not reasonably be expected to have a
Material Adverse Effect. "Environmental Law" means any
applicable federal, state or local law, including common law,
regulation, permit, license, certificate or other
authorization, agreement, standard, directive, order, decree,
judicial opinion or any other enforceable governmental
authority requirement relating to noise, odor, Hazardous
Substances, public and worker health and safety or the
protection of the environment. "Hazardous Substance" means any
toxic, hazardous or dangerous material, substance, chemical,
waste,
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pollutant or contaminant, including, but not limited to
petroleum and petroleum containing products, asbestos
containing materials, PCBs and radioactive substances that is
regulated by or under authority of any Environmental Law.
2.13 Intellectual Property Rights.
(a) Celltech owns or has the right to use all Intellectual
Property Rights (as defined below) necessary to the conduct of its
business. Schedule 2.13 of the Celltech Disclosure Statement contains a
list of all patents, trademarks, trade names, service marks, and registered
copyrights and any application for the foregoing owned by Celltech.
Celltech has clear and unencumbered title to the Intellectual Property
Rights set forth in Schedule 2.13 of the Celltech Disclosure Schedules and
such title has not been challenged (pending or, to its best knowledge,
threatened) by others except for the encumbrances listed in Schedule 2.13
of the Celltech Disclosure Schedules. Schedule 2.13 of the Celltech
Disclosure Schedules also contains a list of invention disclosures for
which applications for patent are in progress. No material rights or
licenses to use the Intellectual Property Rights have been granted or
acquired by Celltech except those listed in Schedule 2.13 of the Celltech
Disclosure Schedules. Except as listed in Schedule 2.13 of the Celltech
Disclosure Schedules, there have been no claims or assertions made or, to
Celltech's best knowledge, threatened by others that Celltech does not own
or have the right to use all Intellectual Property Rights or that Celltech
has infringed or will infringe any Intellectual Property Rights of others
and, to the knowledge of Celltech, there has been no such infringement by
the Celltech. Except as listed in Schedule 2.13 of the Celltech Disclosure
Schedules, Celltech has no knowledge of any infringement of Intellectual
Property Rights of Celltech by others. All such registered patents,
trademarks, service marks, and copyrights owned by Celltech are in good
standing, and are recorded in the name of Celltech. True and complete
copies of all material listed in Schedule 2.13 of the Celltech Disclosure
Statement have been delivered to CTIG.
(b) Except as set forth in Schedule 2.13 of the Celltech
Disclosure Schedules, none of the processes, techniques and formulae,
research and development results and other know-how relating to the
business of Celltech, the value of which to Celltech is contingent upon
maintenance of the confidentiality thereof has been disclosed by Celltech
or any affiliate to any third party other than third parties who are bound
to hold such information in confidence pursuant to confidentiality
agreements or by operation of law, other than any such disclosure which,
individually or in the aggregate, would not reasonably be expected to have
a Material Adverse Effect.
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(c) "Intellectual Property Rights" shall mean and include
rights relating to patents, trademarks, service marks, trade names,
copyrights, mask works, inventions, processes, trade secrets, know-how,
confidentiality agreements, consulting agreements, software and
documentation.
2.14 Taxes. Except as set forth in Schedule 2.14 of the Celltech
Disclosure Schedules (a) Celltech has prepared and timely
filed or will timely file with the appropriate governmental
agencies all franchise, income and all other Tax (as defined
below) returns and reports (Tax returns and reports are
hereinafter collectively referred to as "Tax Returns")
required to be filed for any period on or before the Effective
Time, taking into account any extension of time to file
granted to or obtained on behalf of the Celltech (Schedules
for which the past three fiscal years have been delivered to
CTIG to be followed by delivery of returns to CTIG as
requested); (b) all Taxes of Celltech due (whether or not
reported) in respect of the pre-Merger period have been paid
in full to the proper authorities or fully accrued, other than
such Taxes as are being contested in good faith by appropriate
proceedings and are adequately reserved for in accordance with
GAAP; (c) all deficiencies resulting from Tax examinations of
federal, state and foreign income, sales and franchise and all
other Tax Returns filed by the Celltech have either been paid
or adequately reserved for in accordance with GAAP; (d) no
deficiency has been asserted or assessed against Celltech and
is pending, and no examination of Celltech is pending or, to
Celltech's best knowledge, threatened for any amount of Tax by
any taxing authority (with respect to any such action,
Schedule 2.14 of the Disclosure Statement sets forth the
periods at issue and the category of Tax, and the examining
authority's and any corresponding revenue agents' reports
relating to the issue have been delivered to CTIG); (e) no
extension of the period for assessment or collection of any
Tax is currently in effect and no extension of time within
which to file any Tax Return has been requested, which Tax
Return has not since been filed; (f) no Tax liens have been
filed with respect to any Taxes; (g) Celltech has made timely
payments of the Taxes required to be deducted and withheld
from the wages paid to its employees; and (h) Celltech is not
obligated to make any payments that would constitute excess
parachute payments within the meaning of Section 280G of the
Internal Revenue Code of 1986, as amended (the "Code.")
"Tax" or "Taxes" shall mean all federal, state, local and foreign
taxes, duties, levies, charges and assessments of any nature, including
social security payments and deductibles relating to wages, salaries and
benefits and payments to sub-contractors (to the extent required under
applicable Tax law), and also including all interest, penalties and
additions imposed with respect to such amounts.
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2.15 Employee Benefit Plans.
(a) Schedule 2.15 of the Celltech Disclosure Schedules
identifies each employment, severance or similar contract or arrangement
(whether or not written) or any plan, policy, fund, program or contract or
arrangement (whether or not written) providing for compensation, bonus,
profit-sharing, stock option, or other stock related rights or other forms
of incentive or deferred compensation, vacation benefits, insurance
coverage (including any self-insured arrangements), health or medical
benefits, disability benefits, workers' compensation, supplemental
unemployment benefits, severance benefits and post-employment or retirement
benefits (including compensation, pension, health, medical or life
insurance or other benefits) that (i) has been entered into, maintained,
administered or contributed to, as the case may be, by Celltech and (ii)
covers any employee or former employee (each, an "Employee Plan").
(b) Celltech has furnished or made available to CTIG copies of
the Employee Plans (and, if applicable, related trust agreements) and all
amendments thereto and written interpretations thereof, together with the
most recent annual report (Form 5500 including, if applicable, Schedule B
thereto) and the most recent actuarial valuation report prepared in
connection with any Employee Plan.
(c) Each Employee Plan that is intended to be qualified under
Section 401(a) of the Code has been determined by the Internal Revenue
Service to be qualified under Section 401(a) of the Code and each trust
related thereto has been determined to be exempt from tax pursuant to
Section 501(a) of the Code, and Celltech is not aware of any event that has
occurred since the date of such determinations that would adversely affect
such qualification or tax exempt status. Celltech has provided CTIG with
the most recent determination letter of the Internal Revenue Service
relating to each such Employee Plan. Each Employee Plan has been maintained
in compliance in all material respects with its terms and with the
requirements prescribed by any and all applicable statutes, orders, rules
and regulations, including but not limited to the Employee Retirement
Income Security Act of 1974, as amended ("ERISA"), and the Code.
(d) No Employee Plan is a multi-employer plan as defined in
Section 3(37) of ERISA or is a plan subject to Title IV of ERISA.
(e) Celltech does not have any current or projected liability
in respect of post-employment or post-retirement health or medical or life
insurance benefits for retired, former or current employees of Celltech,
except as required to avoid excise tax under Section 4980B of the Code.
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(f) Except as set forth in Schedule 2.15 of the Celltech
Disclosure Schedules, there has been no amendment to, written
interpretation of or announcement (whether or not written) by Celltech
relating to, or change in employee participation or coverage under, any
Employee Plan that would increase materially the expense of maintaining
such Employee Plan above the level of the expense incurred in respect
thereof for the most recent fiscal year ended prior to the date hereof.
(g) Other than as described in Schedule 2.15 of the Celltech
Disclosure Schedules, no employee or former employee of Celltech will
become entitled to any bonus, retirement, severance, job security or
similar benefit or an enhancement of such benefit (including acceleration
of vesting or exercise of an incentive award) under any Employee Plan as a
result of the transactions contemplated hereby.
2.16 Insurance. Schedule 2.16 to the Celltech Disclosure Schedules
is an accurate and complete list and description of all
insurance policies currently owned or maintained by Celltech
(excluding insurance policies that constitute Employee Benefit
Plans) in connection with or for the benefit of its business
and all liability and errors and omissions insurance policies
owned or maintained by it or any of its predecessors at any
time during the five years prior to the date of this
Agreement. Except as described in Schedule 2.16, all such
insurance policies are or were on an "occurrence" rather than
a "claims made" basis. Celltech has not received notice of
cancellation with respect to any such current insurance
policy, and there is no basis for the insurer thereunder to
terminate any such current insurance policy. Each such
insurance policy is or was in full force and effect during the
period(s) of coverage indicated on Schedule 2.16. Except as
described on Schedule 2.16, there are no claims that are
pending under any of the Insurance Policies described on
Schedule 2.16.
2.17 Contracts.
(a) Schedule 2.17 is an accurate and complete list of all of
the following types of Contracts to which Celltech is a party or by which
Celltech is bound (collectively, the "Contracts"), grouped into the
following categories and, where applicable, subdivided by product line: (a)
each customer Contract; (b) each supplier Contract, each Contract for the
purchase, lease or maintenance of computer equipment and other equipment
and each Contract for the purchase, license, lease or maintenance of
software under which Celltech is the purchaser, licensee, lessee or user;
(c) Contracts for the purchase or lease of real property or otherwise
concerning real property owned or used by Celltech including a description
of the real property;
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(d) loan agreements, mortgages, notes, guarantees and other financing
Contracts; (e) employment, consulting and sales representative Contracts
other than those for "at will" employment; (f) Contracts under which any
rights in or ownership of Celltech's business, any predecessor thereof, or
any part of the customer base or business of Celltech's business was
acquired; and (g) other Contracts (excluding Contracts which constitute
insurance policies listed on Schedule 2.16, this Agreement and all other
Contracts entered into between Celltech and CTIG, or among Celltech, CTIG
and other parties in connection herewith). A description of each oral
Contract is included on Schedule 2.17, and copies of each written Contract
have been delivered to CTIG. Except as described in Schedule 2.17, with
respect to each of the Contracts, neither Celltech nor, to the knowledge of
Celltech, any other party thereto, is in breach, default or violation of
any term, condition or provision of any Contract, except for any breaches,
defaults or violations that would not reasonably be expected to have,
individually or in the aggregate, a Material Adverse Effect. Except as
described in Schedule 2.17, Celltech has not given or received any notice
of default or notice of termination with respect to any Contract.
(b) Each Contract is a valid, binding and enforceable
obligation of Celltech and, to the knowledge of Celltech, of each party
thereto, and is in full force and effect, except where the failure to be
valid, binding and enforceable and in full force and effect would not
reasonably be expected to have, individually or in the aggregate, a
Material Adverse Effect. Neither Celltech nor, to the knowledge of
Celltech, any party thereto, is in breach, default or violation of any
term, condition or provision of any Contract, except for any breaches,
defaults or violations that would not reasonably be expected to have,
individually or in the aggregate, a Material Adverse Effect.
2.18 Properties.
(a) Schedule 2.18 to the Celltech Disclosure Schedules sets
forth all tangible personal property owned by Celltech and all real
property owned or leased by Celltech, as of the date of this Agreement.
Except as set forth in Schedule 2.18, Celltech has good and marketable
title, or valid leasehold rights in the case of leased property, to all
real property and all personal property purported to be owned or leased by
it, free and clear of all liens, security interests, claims, encumbrances
and charges, excluding (i) liens for fees, taxes, levies, imposts, duties
or governmental charges of any kind which are not yet delinquent or are
being contested in good faith by appropriate proceedings which suspend the
collection thereof, (ii) liens for mechanics, materialmen, laborers,
employees, suppliers or other liens arising by operation of law for sums
which are not yet delinquent or are being contested in good faith by
appropriate proceedings, and (iii) purchase money liens on office, computer
and related equipment and supplies incurred in the ordinary course of
business. All
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buildings, and all fixtures, equipment and other property and assets held
under leases or sub-leases by Celltech are held under valid instruments
enforceable in accordance with their respective terms, except to the extent
that certain leases for equipment set forth on Schedule 2.18 to the
Celltech Disclosure Schedule prohibit an assignment, merger or change of
control of Celltech, and the violation of which prohibition or loss of such
lease, alone or in the aggregate, would not have a Material Adverse Effect
on Celltech or the Surviving Corporation . The tangible personal property
of Celltech has no material defects and is in good operating condition and
repair (ordinary wear and tear excepted) and is adequate for its current
uses. None of such tangible personal property is in need of maintenance or
repairs except for ordinary routine maintenance and repairs that are not
material in nature or cost.
(b) Except as set forth on Schedule 2.18, consummation of the
Merger will not result in any breach of or constitute a default (or an
event with which notice or lapse of time or both would constitute a
default) under, or give to others any rights of termination or cancellation
or, or require the consent of others under, any lease in which Celltech is
a lessee.
2.19 Employees and Independent Contractors. Schedule 2.19 to the
Celltech Disclosure Schedules is a list of all of Celltech's
employees and (a) their titles or responsibilities; (b) their
current salaries or wages; (c) their last compensation changes
and the dates on which such changes were made; (d) any
specific bonus, commission or incentive plans or agreements
for or with them; and (e) any outstanding loans or advances
made to them. Celltech has delivered to CTIG an accurate and
complete list of all bonuses, commissions and incentives paid
to the employees listed on Schedule 2.19 at any time during
the past twelve months. Schedule 2.19 includes a list of all
sales representatives and independent contractors engaged in
Celltech's business, their payment arrangements, and a brief
description of their jobs or projects currently in progress.
Celltech is in full compliance with all applicable statutes,
laws, ordinances, rules and regulations of any Governmental
Entity respecting employment practices. Celltech has never
been a party to or bound by any union or collective bargaining
contract, nor is any such contract currently in effect or
being negotiated by or on behalf of Celltech. Celltech has not
experienced any labor problem that was or is material to its
business. Celltech's relations with its employees are
currently on a good and normal basis, and no employee of
Celltech has indicated an intention to terminate his or her
employment. Celltech does not have any knowledge or belief
that the transactions contemplated by this Agreement will
adversely affect relations with Celltech's employees.
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2.20 Year 2000. Celltech has put into effect practices and programs
which Celltech believes will enable all material software,
hardware and equipment (including microprocessors) that are
owned or utilized by Celltech in the operations of its
business to be capable of accounting for all calculations
using a century and date sensitive algorithm for the year 2000
and the fact that the year 2000 is a leap year and to
otherwise continue to function without any interruption caused
by the occurrence of the year 2000.
2.21 Certain Interests. Except as set forth in Schedule 2.21 of the
Celltech Disclosure Schedules, none of Celltech, or any of its
officers, directors, or affiliates or Principal Stockholder,
has (a) any direct or indirect interest (other than the
ownership of less than 1% of the outstanding securities of a
publicly held company) in any corporation or business that is
involved in or competes with Celltech, or (b) any direct or
indirect interest in any property or assets used by, or
relating to, Celltech or its business, except for the
ownership of Celltech's capital stock.
2.22 Customers and Suppliers. Schedule 2.22 of the Celltech
Disclosure Schedules sets forth a list of Celltech's ten
largest customers and ten largest suppliers in terms of sales
and purchases, respectively, during the fiscal year ended
December 31, 1999, showing the approximate total of sales by
Celltech to each such customer and the approximate total
purchases by Celltech from each such supplier during such
year. Except as set forth on Schedule 2.22 of the Celltech
Disclosure Schedules, no material adverse change has occurred
in the business relationship or contracts of Celltech with any
such customer or any such supplier and, to Celltech's
knowledge, no facts exist and no events have occurred that
could reasonably be expected to result in a material adverse
change to any such relationship.
2.23 Accounts Receivable. Schedule 2.23 of the Celltech Disclosure
Schedules sets forth a true and complete list of all accounts
receivable of Celltech as of the date hereof and the aging
thereof. All accounts receivable of Celltech reflected on such
Schedule or subsequently created through the Effective Time
(the "Accounts Receivable"), represent sales actually made or
services actually performed in the ordinary course of business
and are current and either have been collected in full or will
be collectable in full without any setoff. Notwithstanding the
foregoing, no representation or warranty is made with respect
to the ability to collect an account receivable of Ameritel
Communications in the amount of $406,999.09.
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2.24 America One Revenue. The gross revenue received by Celltech
from America One from March 1, 1999 to February 29, 2000 was
$3,758,691, with $1,176,084 of such revenue attributed to
postage.
2.25 Reorganization Treatment. Except as required by this
Agreement, Celltech has not taken or agreed to take, and does
not intend to take, any action that would cause the Merger to
fail to qualify as a reorganization within the meaning of
Section 368 of the Code.
2.26 Disclosure. No representation or warranty by Celltech or
Principal Stockholder and no statement or information relating
to Celltech contained herein, or in any certificate furnished
by or on behalf of Celltech to CTIG or Merger Sub in
connection herewith, contains or will contain any untrue
statement of a material fact or omits or will omit to state a
material fact necessary in order to make the statements herein
or therein, in light of the circumstances under which they
were made, not misleading.
ARTICLE IIA
REPRESENTATIONS AND WARRANTIES
OF CELLTECH STOCKHOLDERS
Each Celltech Stockholder severally makes the following
representations, warranties and agreements to and with CTIG and Merger Sub:
2A.1 Ownership of Celltech Common Stock. He or she owns the number of
shares of Celltech Common Stock set forth under his or her name on the
signature page to this Agreement. He or she has good, marketable and
unencumbered title to such shares, free and clear of all liens, security
interests, pledges, claims, encumbrances, options and rights of others.
There are no restrictions on his or her right to transfer such shares
pursuant to this Agreement. No transfer of record ownership of, or
beneficial interest in, any of such shares will be made between the date
hereof and the Effective Time.
2A.2 Agreement Not in Breach of Other Instruments Affecting Celltech
Stockholders. The execution and delivery of this Agreement, the
consummation of the transactions provided for herein, and the fulfillment
of the terms hereof by the Celltech Stockholder, will not result in the
breach of any of the terms and provisions of, or constitute a default
under, or conflict with, any agreement or other instrument
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by which he or she is bound, any judgment, decree, order, or award of any
court, Governmental Entity, or arbitrator, or any applicable law, rule or
regulation.
2A.3 Valid and Binding Agreement. This Agreement constitutes the valid
and binding obligation of the Celltech Stockholder, and is enforceable
against him or her in accordance with its terms.
2A.4 No Claims Against Celltech. The Celltech Stockholder, as of the
date of this Agreement, has no claims, no intent to assert any claims and
no basis to make any claims, against Celltech, for any reason.
2A.5 Further Assurances. The Celltech Stockholder will take such
actions, and shall execute such additional documents, as shall be necessary
or appropriate, to effectuate the Merger and the transactions contemplated
by this Agreement.
2A.6 Shareholder Meeting. The Celltech Stockholder agrees to vote all
of his or her shares of Celltech Common Stock in favor of the Merger and
this Agreement at any meeting called for the authorization and approval
thereof, or to execute any consents in writing in lieu of such meeting.
2A.7 Reorganization Treatment. Except as required by this Agreement,
the Celltech Stockholder has not taken or agreed to take, and does not
intend to take, any action that would cause the Merger to fail to qualify
as a reorganization within the meaning of Section 368 of the Code.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF CTIG AND MERGER SUB
CTIG and Merger Sub hereby jointly and severally represent and warrant
to Celltech and the Celltech Stockholders as follows:
3.1 Organization. Each is a corporation duly organized, validly
existing and in good standing under the laws of the State of
Delaware and each has all requisite corporate power and
authority to own, lease and operate its respective properties
and to carry on its respective businesses as now being
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conducted. Each is duly qualified or licensed and in good
standing to do business in each jurisdiction in which the
property owned, licensed or operated by it or the nature of
the business conducted by it makes such qualification
necessary, except where failure to be so duly certified or
licensed and in good standing would not, individually and or
in the aggregate, have a Material Adverse Effect.
3.2 Authority. Each has full corporate power and authority to
execute and deliver this Agreement and, subject to approval of
CTIG's stockholders, to consummate the transactions
contemplated hereby. The execution and delivery of this
Agreement and the consummation of the transactions
contemplated hereby have been duly and validly authorized and
approved by their respective Boards of Directors and by CTIG
as the sole stockholder of Merger Sub, and no other corporate
proceedings are necessary to authorize this Agreement or the
consummation of the transactions contemplated hereby. This
Agreement has been duly and validly executed and delivered by
CTIG and Merger Sub and, it constitutes a legal, valid and
binding agreement of CTIG and Merger Sub, enforceable against
each of them in accordance with its terms.
3.3 No Violations; Consents and Approvals.
(a) Neither the execution and delivery of this Agreement or
the consummation of the transactions contemplated hereby nor compliance by
CTIG and Merger Sub with any of the provisions hereof will violate any
provision of their respective certificates of incorporation or by-laws.
(b) No filing or registration with, notification to, or
authorization, consent or approval of, any Governmental Entity is required
by CTIG or Merger Sub in connection with the execution and delivery of this
Agreement or the consummation by either of the transactions contemplated
hereby, except (i) in connection, or in compliance, with the provisions of
the Exchange Act, (ii) the Proxy Statement, if required (iii) the Form S-4
(as defined in Section 4.5), (iv) the filing of the Certificate of Merger
with the Secretary of State of the State of Delaware, (v) such consents,
approvals, orders, authorizations, notifications, approvals, registrations,
declarations and filings as may be required under the corporation, takeover
or blue sky laws of various states and (vi) such other consents, orders,
authorizations, registrations, declarations and filings not obtained prior
to the Effective Time the failure of which to be obtained or made would
not, individually or in the aggregate, materially impair the ability of
CTIG or Merger Sub to perform their respective obligations hereunder or
prevent the consummation of any of the transactions contemplated hereby or
for
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which they have received or, prior to the Closing Date shall have received,
appropriate consents or warranties.
3.4 Legal Proceedings. There is no (a) claim, action, suit or
proceeding pending or, to CTIG's best knowledge, threatened,
against or relating to it or any of its subsidiaries or any of
their respective assets before any court or Governmental
Entity or (b) outstanding judgment, order, writ, injunction or
decree, or application, request or motion therefor, of any
court or arbitration tribunal or Governmental Entity in a
proceeding to which CTIG or any of its subsidiaries is a
party, except any such claim, action, suit or proceeding or
judgment, order, writ, injunction, decree, application,
request or motion which would not, individually or in the
aggregate, materially impair the ability of CTIG or Merger Sub
to perform their respective obligations hereunder or prevent
the consummation of any of the transactions contemplated
hereby.
3.5 Proxy Statement. If a Proxy Statement is required for
consummation of the Merger under applicable law, none of the
information to be supplied by CTIG or Merger Sub for inclusion
or incorporation by reference in such Proxy Statement at the
time of its mailing to its stockholders and at the time of the
Special Meeting, will contain any untrue statement of a
material fact or omit to state any material fact required to
be stated therein or necessary in order to make the statements
therein not misleading.
3.6 Broker's Fees. Neither CTIG nor Merger Sub or any of their
respective directors or officers has employed any broker,
finder or financial advisor or incurred any liability for any
broker's fees, commissions, or financial advisory or finder's
fees in connection with any of the transactions contemplated
by this Agreement.
3.7 Capitalization of Merger Sub. The authorized capital stock of
Merger Sub consists of 1,000 shares of its common stock, $.01
par value per share. 500 such shares are outstanding and owned
beneficially and of record by CTIG. All such outstanding
shares were duly authorized and validly issued and are fully
paid and nonassessable. There are no outstanding options,
warrants or other rights to acquire any capital stock of
Merger Sub.
3.8 CTIG Disclosures. (a) CTIG has made available to the Celltech
Stockholders the following documents:
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(a) CTIG's Annual Report on Form 10-K for the fiscal year
ended March 31, 1999
(b) CTIG 's Proxy Statement for its 1999 annual meeting
of stockholders;
(c) CTIG's Current Report on Form 8-K dated February 22,
2000; and
(d) CTIG's Form 10-Q for the quarterly period ended
December 31, 1999.
CTIG will provide the Celltech Stockholders with a copy of the
Prospectus (as defined in Section 4.5) at the same time it is provided to
stockholders of Centillion Data System, Inc.
Since December 31, 1999, CTIG has filed with the SEC all forms, reports
and documents required to be filed by it pursuant to the federal securities
laws and the rules and regulations promulgated by the SEC thereunder, and
each such form, report and document complied in all material respects with
the applicable substantive requirements of the Securities Act and the
Exchange Act as in effect at the time of the filing of such form, report or
document.
3.9 Merger Stock. The Merger Stock (i) prior to Closing will be
duly authorized, (ii) upon issuance, delivery and payment
therefor in the manner described herein, will be validly
issued, fully paid and nonassessable, (iii) prior to Closing
will be registered under the Securities Act as set forth in
Section 4.5 and upon issuance will not be listed and will be
traded in the over the counter market, (iv) will conform to
the description thereof contained in the Form S-4, (v) will be
evidenced by certificates bearing no restrictive legends
relating to the securities laws, and (vi) subject to the
foregoing, the escrow of the Escrowed Stock and any
restrictions on Principal Stockholder as the result of any
"affiliate" status under the securities laws, may be resold by
the holders thereof without further registration under the
Securities Act, except to the extent set forth in Section 4.5.
3.10 Reorganization Treatment. Except as required by this
Agreement, neither CTIG nor Merger Sub has taken, agreed to
take, or intends to take any action that would cause the
Merger to fail to qualify as a reorganization within the
meaning of Section 368 of the Code.
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ARTICLE IV
COVENANTS
4.1 Conduct of Business of Celltech. Except as contemplated by
this Agreement or as expressly agreed to in writing by CTIG,
during the period from the date of this Agreement to the
Effective Time, Celltech will conduct its operations according
to its ordinary course of business consistent with past
practice, and will use all commercially reasonable efforts to
preserve intact its business organization, to keep available
the services of its officers and employees and to maintain
satisfactory relationships with suppliers, distributors,
customers and others having business relationships with it and
will take no action which would materially adversely affect
the ability of the parties to consummate the transactions
contemplated by this Agreement. Without limiting the
generality of the foregoing, and except as otherwise expressly
provided in this Agreement, prior to the Effective Time,
Celltech will not, without the prior written consent of CTIG:
(a) amend its certificate of incorporation or by-laws;
(b) authorize for issuance, issue, sell, deliver, grant any
options for, or otherwise agree or commit to issue, sell or deliver any
shares of any class of its capital stock or any securities convertible into
shares of any class of its capital stock;
(c) split, combine or reclassify any shares of its capital
stock, declare, set aside or pay any dividend or other distribution
(whether in cash, stock or property or any combination thereof) in respect
of its capital stock or purchase, redeem or otherwise acquire any shares of
its capital stock;
(d) (i) create, incur, assume, maintain or permit to exist any
long- term debt or any short-term debt for borrowed money other than under
existing lines of credit or replacements thereof, or the negotiation of a
capital lease or buy-out agreement with Pitney Bowes at the expiration of
the current lease for a mail-inserter machine (ii) assume, guarantee,
endorse or otherwise become liable or responsible (whether directly,
contingently or otherwise) for the obligations of any Person, or (iii) make
any loans, advances or capital contributions to, or investments in, any
Person;
(e) except as otherwise expressly contemplated by this
Agreement or as set forth in Schedule 4.1 of the Celltech Disclosure
Statement, (i) increase in any manner the compensation of any of its
directors, officers or other employees (other
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than regularly scheduled raises for employees other than Principal
Stockholder), or pay any bonuses to any director or officer or to Principal
Stockholder; (ii) pay or agree to pay any pension, retirement allowance or
other employee benefit not required, or enter into or agree to enter into
any agreement or arrangement with such director, officer or employee,
whether past or present, relating to any such pension, retirement allowance
or other employee benefit except as required under currently existing
agreements, plans or arrangements; (iii) grant any severance or termination
pay to, or enter into any employment or severance agreement with, any of
its directors, officers or other employees; or (iv) except as may be
required to comply with applicable law, become obligated under any new
pension plan, welfare plan, multi-employer plan, employee benefit plan,
benefit arrangement, or similar plan or arrangement, which was not in
existence on the date hereof, including any bonus, incentive, deferred
compensation, stock purchase, stock option, stock appreciation right, group
insurance, severance pay, retirement or other benefit plan, agreement or
arrangement, or employment or consulting agreement with or for the benefit
of any Person, or amend any of such plans or any of such agreements in
existence on the date hereof;
(f) except as otherwise expressly contemplated by this
Agreement, enter into any material agreements, commitments or contracts,
except agreements, commitments or contracts for the purchase, sale or lease
of goods or services in the ordinary course of business, consistent with
past practices; provided that Celltech shall not enter into any agreement,
commitment or contract that requires payments by Celltech in excess of
$50,000 without the prior written consent of CTIG, which shall not be
unreasonably withheld;
(g) authorize, recommend, propose or announce an intention to
authorize, recommend or propose, or enter into, any agreement in principle
or any agreement with respect to any plan of liquidation or dissolution,
any sale, transfer, lease, license, pledge, mortgage, or other disposition
or encumbrance of a material amount of assets or securities or any change
in its capitalization, or any entry into a material contract or any
amendment or modification of any material contract or any release or
relinquishment of any material contract rights;
(h) acquire or agree to acquire by merging or consolidating
with, or by purchasing a substantial equity interest in or all or a
substantial portion of the assets of, or by any other manner, any business
or any corporation, partnership, association or other business organization
or division thereof, or enter into any new material line of business
outside its existing core businesses;
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(i) knowingly undertake any act, or suffer to exist any
condition, causing any insurance policy naming it as a beneficiary or a
loss payee to be canceled or terminated;
(j) take any action that would, or could reasonably be
expected to, result in (i) any of the conditions to the Merger set forth in
Article V and VI not being satisfied or (ii) a material delay in the
satisfaction of such conditions;
(k) make any material change in its methods of accounting in
effect at the Balance Sheet Date, except as required by changes in GAAP as
concurred in by its independent auditors, or change its fiscal year;
(l) take any action that would cause the representations and
warranties set forth in Article II to no longer be true and correct;
(m) commit to any capital expenditures, other than those
incurred or committed in the ordinary course of business and which are not
in excess of $15,000, individually or $50,000 in the aggregate; or
(n) agree to do or authorize any of the foregoing.
4.2 No Solicitation by Celltech. Celltech and Principal
Stockholder, jointly and severally, represent and warrant to,
and covenant and agree with, CTIG and Merger Sub that Celltech
does not have any agreement, arrangement or understanding with
any other potential acquiror. Celltech and each Celltech
Stockholder agrees that from and after the date hereof and
until the earlier of the consummation of the Merger or the
termination of this Agreement, they shall, and Celltech and
Principal Stockholder shall cause Celltech's officers,
directors, advisors, investment bankers, agents and attorneys
to (a) not solicit (or authorize any Person to solicit),
directly or indirectly, any inquiries, proposals or offers
from any Person relating to any acquisition or purchase of all
or substantially all the assets of, or any equity interest in,
or any merger, consolidation or business combination with
Celltech (the foregoing being referred to as an "Acquisition
Transaction"), (b) not enter into any agreement with respect
to any Acquisition Transaction, and (c) not elicit any
discussions of, participate in any negotiations regarding,
cooperate with, facilitate or encourage an Acquisition
Transaction or furnish to any other Person any information
concerning Celltech in connection therewith. Celltech shall
immediately notify CTIG if any unsolicited proposal or offer
with respect to
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an Acquisition Transaction is received by Celltech and
communicate to CTIG the terms of any such proposal or offer.
4.3 Access to Information.
(a) From the date of this Agreement until the Effective Time,
Celltech will continue to give CTIG and its authorized representatives
(including counsel, consultants, financial advisors, accountants and
auditors) reasonable access during normal business hours to all of its
facilities, personnel and operations and to all of its books and records,
will continue to permit CTIG to make such inspections as it may reasonably
require and will continue to cause its officers to furnish CTIG with such
financial and operating data and other information with respect to its
business and properties as CTIG may from time to time reasonably request.
(b) Each of the parties will hold, and CTIG, Merger Sub and
Celltech will cause all of their respective employees and representatives
to hold, in strict confidence all documents and information furnished to
the other in connection with the transactions contemplated by this
Agreement.
4.4 CTIG Proxy Statement and Special Meeting.
(a) If required by applicable law, CTIG shall file the Proxy
Statement with the SEC as soon as practicable after the execution of this
Agreement. Celltech shall promptly furnish to CTIG all information, and
take such other actions, as may reasonably be requested by CTIG in
connection with the Proxy Statement. The Proxy Statement shall state that
the Board of Directors of CTIG has, subject to the applicable provisions of
this Agreement, (i) approved the Merger and (ii) determined that the Merger
is fair and in the best interest of the stockholders of CTIG.
(b) CTIG agrees that the Proxy Statement and each amendment or
supplement thereto, at the time of mailing thereof and at the time of the
Special Meeting, will not include any untrue statement of a material fact
or omit to state a material fact required to be stated therein or necessary
to make the statements therein, in light of the circumstances under which
they were made, not misleading; provided, however, that the foregoing shall
not apply to the extent that any such untrue statement of a material fact
or omission to state a material fact was made by CTIG in reliance upon and
in conformity with information concerning Celltech to be furnished by it
for use in the Proxy Statement. Celltech agrees that none of the
information to be furnished in writing to CTIG for use in the Proxy
Statement and each amendment or supplement thereto, at the time of mailing
thereof and at the time of the Special
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Meeting, will include any untrue statement of material fact or omit to
state a material fact required to be stated therein or necessary to make
the statements therein, in light of the circumstances under which they were
made, not misleading. If at any time prior to the Effective Time any event
shall occur which is required to be described in the Proxy Statement, the
party that becomes aware of such event shall immediately notify the other
parties and such event shall be so described, and an amendment or
supplement shall be promptly filed with the SEC and, as required by law,
disseminated to the stockholders of CTIG. CTIG will advise Celltech
promptly after it receives notice thereof, of any comments by the SEC on
the Proxy Statement and the responses thereto and of any requests by the
SEC for additional information.
(c) If required by applicable law, CTIG shall call the Special
Meeting, to be held as promptly as practicable in accordance with
applicable law for the purpose of voting upon the adoption of this
Agreement and the approval of the Merger.
4.5 Preparation of Form S-4; Stockholders Meeting. As promptly as
practicable following the date hereof, CTIG shall prepare and
file with the SEC a Registration Statement on Form S-4 with
respect to the issuance of the Closing Stock (the "Form S-4")
in which a Proxy Statement (which may be a Proxy
Statement/Prospectus if the Special Meeting and Proxy
Statement is required by applicable law) will be included (the
"Prospectus"). The Form S-4 shall also register the Escrowed
Stock on a "shelf" basis to be valid until the first of the
following to occur: (a) April 30, 2003, (b) the release to the
Celltech Stockholders and/or return to CTIG of all Escrowed
Stock pursuant to Section 1.17, or (c) the longest period
allowed by law, regulation or the SEC. The Form S-4 and
Prospectus shall comply as to form in all material respects
with the applicable provisions of the Securities Act and the
Exchange Act. CTIG shall use all reasonable efforts to have
the Form S-4 declared effective under the Securities Act as
promptly as practicable after filing with the SEC and to keep
the Form S-4 effective as long as is necessary to consummate
the Merger. The parties shall promptly provide copies to and
consult with each other and prepare written responses with
respect to any written comments received from the SEC with
respect to the Form S-4 and the Prospectus and promptly advise
the other party of any oral comments received from the SEC.
CTIG agrees that none of the information supplied or to be
supplied by CTIG for inclusion or incorporation by reference
in the Prospectus and each amendment or supplement thereto, at
the time of mailing thereof and at the time of the Special
Meeting, will contain an untrue statement of a material fact
or omit to state a material fact required to be stated therein
or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading.
Celltech agrees that none of the information supplied or to be
supplied by Celltech for inclusion or
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incorporation by reference in the Prospectus and each
amendment or supplement thereto, at the time of mailing
thereof and at the time of the Special Meeting will contain an
untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to
make the statements therein, in light of the circumstances
under which they were made, not misleading. CTIG agrees that
upon release of any of the Escrowed Stock to the Celltech
Stockholders pursuant to Section 1.17 (i) CTIG shall file,
from time to time, as applicable, such supplemental prospectus
for each such "shelf takedown" as may be required by the SEC
in respect thereof, and otherwise comply in all material
respects with the applicable provisions of the Securities Act
and the Exchange Act, and (ii) such released shares will be
evidenced by certificates bearing no restrictive legends
relating to the securities laws, and, subject to any
restrictions on Principal Stockholder as the result of any
"affiliate" status under the securities laws, may be resold by
the holders thereof without further registration under the
Securities Act.
4.6 Reasonable Best Efforts; Other Actions. Subject to the terms
and conditions of this Agreement and applicable law, the
parties shall use all commercially reasonable best efforts
promptly to take, or cause to be taken, all other actions and
do, or cause to be done, consistent with the fiduciary
obligations of the respective Board of Directors, all other
things necessary, proper or appropriate under applicable laws
and regulations to consummate and make effective the
transactions contemplated by this Agreement, including,
without limitation, (a) the obtaining of all necessary
consents, approvals or waivers from third parties that are
required in connection with the Merger, and (b) the lifting of
any legal bar to the Merger.
4.7 Public Announcements. Before issuing any press release or
otherwise making any public statements with respect to
transactions contemplated by this Agreement, CTIG and Celltech
will consult with each other as to its form and substance and
shall not issue any such press release or make any such public
statement prior to such consultation, except as may be
required by law.
4.8 Notification of Certain Matters. Each of Celltech and CTIG
shall give prompt notice to the other of (a) any notice of, or
other communication relating to, a default or event which,
with notice or lapse of time or both, would become a default,
received by it subsequent to the date of this Agreement and
prior to the Effective Time, under any contract material to
the financial condition, properties, businesses or results of
operations of Celltech or to which Celltech is a party or is
subject, (b) any notice or other communication from any third
party alleging that the consent of such third party is or may
be required in connection with the transactions contemplated
by this Agreement, (c) the
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occurrence or non-occurrence of any fact or event which would
be reasonably likely (i) to cause any representation or
warranty contained in this Agreement to be untrue or
inaccurate in any material respect at any time from the date
hereof to the Effective Time or (ii) to cause any material
covenant, condition or agreement hereunder not to be complied
with or satisfied in all material respects and (d) any failure
of CTIG or Celltech, as the case may be, to comply with or
satisfy any covenant, condition or agreement to be complied
with or satisfied by it hereunder in any material respect;
provided, however, that no such notification shall affect the
representations or warranties of any party or the conditions
to the obligations of any party hereunder.
4.9 Expenses. Except as set forth in Section 2.11, the parties
shall bear their respective expenses incurred in connection
with the transactions contemplated by this Agreement,
including, without limitation, the preparation, execution and
performance of this Agreement and the transactions
contemplated hereby, and all fees and expenses of their
respective investment bankers, finders, brokers, agents,
representatives, counsel and accountants; provided that CTIG
shall reimburse Celltech for fees it pays to Arthur Andersen
LLP to prepare the Financial Statements unless CTIG terminates
this Agreement pursuant to Section 8.2.
4.10 Line of Credit. As soon as practicable after the Effective
Time, the Surviving Corporation will exert reasonable
commercial efforts to cause Southwest Bank of Texas N.A. to
remove Principal Stockholder as a guarantor of that certain
revolving line of credit promissory note, dated August 26,
1999, in the original principal amount of $400,000, executed
by Celltech, and payable to the order of Southwest Bank of
Texas N.A. If Surviving Corporation is unable to remove
Principal Stockholder as a guarantor, it will terminate the
foregoing line of credit facility.
ARTICLE V
CONDITIONS TO THE OBLIGATIONS OF THE PARTIES
The respective obligations of each party to effect the transactions
contemplated by this Agreement shall be subject to the fulfillment at or
prior to the Closing of each of the following conditions, any all of which
may be waived in whole or in part by CTIG or Celltech, as the case may be,
to the extent permitted by applicable law:
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5.1 Stockholder Approval. If required by applicable law, the
requisite vote of the stockholders of CTIG necessary to
consummate the Merger shall have been obtained. The requisite
vote of the Celltech Stockholders shall have been obtained.
5.2 Consents and Approvals. All necessary consents and approvals
of any Governmental Entity or any other third party required
for the consummation of the transactions contemplated by this
Agreement shall have been obtained, except for such consents
and approvals the failure to obtain which individually or in
the aggregate would not have a Material Adverse Effect.
5.3 Opinion of Financial Advisor. If CTIG determines that a
"fairness opinion" is required or appropriate for the Merger,
CTIG shall have received the written opinion of First Colonial
Securities Group to the effect that the Merger Consideration
is fair from a financial point of view to the stockholders of
CTIG. A true and correct copy of such opinion shall have been
delivered to Celltech.
5.4 Employment Agreement. The employment agreement with David
Warren, in the form attached hereto as Exhibit "A," shall be
executed.
5.5 Merger with Centillion Data Systems, Inc. The merger of CTIG
and Centillion Data Systems pursuant to an Agreement and Plan
of Merger between them, dated as of February 3, 2000 (the
"Centillion Merger"), shall have closed.
ARTICLE VI
CONDITIONS TO THE OBLIGATIONS OF CTIG AND MERGER SUB
The obligations of CTIG and Merger Sub to effect the transactions
contemplated by this Agreement and to perform their other obligations to be
performed at or subsequent to the Closing shall be subject to the
fulfillment at or prior to the Closing of the following additional
conditions, any one or more of which may be waived by CTIG to the extent
permitted by applicable law:
6.1 Representations and Warranties True. The representations and
warranties of Celltech and the Celltech Stockholders,
contained in this Agreement shall be
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true and correct on the date of this Agreement and at and on
the Closing Date as though such representations and warranties
were made at and on such dates (except where such
representation and warranty speaks by its terms as of a
different date, in which case it shall be true and correct as
of such date), except for such untruths or inaccuracies which
would not, individually or in the aggregate, have a Material
Adverse Effect on Celltech.
6.2 Performance. Celltech and the Celltech Stockholders shall have
performed and complied in all material respects with all
agreements, obligations and conditions required by this
Agreement to be performed or complied with by it on or prior
to the Closing Date.
6.3 Additional Documents. Celltech shall furnish the following:
(a) such certificates of Celltech's President and of each of
the Celltech Stockholders to evidence compliance with the conditions set
forth in Sections 6.1 and 6.2 as may be reasonably requested by CTIG,
(b) resolutions of Celltech's Board of Directors and the
Celltech Stockholders authorizing and approving the Merger, this Agreement
and all transactions contemplated hereby, certified by Celltech's
Secretary,
(c) a "good standing" certificate for Celltech and a certified
copy of its Certificate of Incorporation, and all amendments thereto,
issued by the Delaware Secretary of State and dated as of a date within
five days prior to the Closing Date,
(d) general releases in favor of Celltech executed by each
Celltech Stockholder and each director, in the form previously approved by
CTIG, releasing Celltech from all liability to such person,
(e) a general release, in the form previously approved by
CTIG, executed by Symphony Management Associates, Inc., releasing Celltech
from all liability,
(f) all consents and approvals by third parties that may be
required for Celltech to perform its obligations under this Agreement, and
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(g) any documents of transfer reasonably requested by CTIG
including, without limitation, documents to be filed with the United States
Patent and Trademark Office with respect to Celltech's registered
trademarks.
6.4 Certain Proceedings. No writ, order, decree or injunction of a
court of competent jurisdiction or Governmental Entity shall
be in effect against any of the parties, and no proceedings
therefor shall have been threatened or commenced by any
Governmental Entity, which prohibits or restricts the
consummation of the Merger or would otherwise restrict the
Surviving Corporation's exercise of full rights to own and
operate its business in a manner which would have a Material
Adverse Effect on Celltech or the Surviving Corporation.
6.5 Minimum Balance Sheet Requirements. The adjusted balance sheet
of Celltech, on and as of the Closing Date (which shall be
certified by Celltech's President) must reflect: (i) net
current assets (i.e., over current liabilities) of not less
than $1.00, (ii) no long term liabilities other than deferred
taxes, and (iii) all earnings for the period from January 1,
2000 to the Effective Time.
6.6 Material Adverse Change. There shall not have occurred any
material adverse change in the business, operations, assets,
financial condition or results of operations of Celltech since
the Balance Sheet Date.
ARTICLE VII
CONDITIONS TO THE OBLIGATIONS OF CELLTECH
The obligation of Company under this Agreement to effect the
transactions contemplated by this Agreement shall be subject to the
fulfillment on or before the Closing Date of each of the following
additional conditions, any one or more or which may be waived by Company:
7.1 Representations and Warranties True. The representations and
warranties of CTIG and Merger Sub contained in this Agreement
shall be true and correct on the date of this Agreement and at
and on the Closing Date as though such representations and
warranties were made at and on such dates (except when such
representation and warranty speaks by its terms of a different
date, in which case it shall be true and correct as of such
date), except for such untruths or inaccuracies which would
not, individually or in the aggregate, have a Material Adverse
Effect on CTIG and Merger Sub.
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7.2 Performance. CTIG and Merger Sub shall have each performed and
complied in all material respects with all agreements,
obligations and conditions required by this Agreement to be
performed or complied with by either of them on or prior to
the Closing Date.
7.3 Certificates.
(a) CTIG and Merger Sub shall furnish such certificates of
their respective Presidents to evidence compliance with the conditions set
forth in Sections 7.1 and 7.2 as may be reasonably requested by Celltech;
(b) evidence that the CTIG Board of Directors and/or CTIG
stockholders, as appropriate, have taken all appropriate corporate action
authorizing and approving the Merger, this Agreement and all transactions
contemplated thereby, certified by CTIG's Secretary; and
(c) a "good standing" certificate for Celltech issued by the
Delaware Secretary of State and dated as of a date within five days prior
to the Closing Date.
7.4 Certain Proceedings. No writ, order, decree or injunction of a
court of competent jurisdiction or Governmental Entity shall
be in effect against any of the parties, and no proceedings
therefor shall have been threatened or commenced by any
governmental entity, which prohibits or restricts the
consummation of the Merger.
7.5 Effectiveness of the Form S-4. The Form S-4 shall have been
declared effective by the SEC under the Securities Act. No
stop order suspending the effectiveness of the Form S-4 shall
have been issued by the SEC and no proceedings for that
purpose shall have been initiated or threatened by the SEC.
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ARTICLE VIII
TERMINATION AND ABANDONMENT
8.1 Termination by CTIG or Celltech. This Agreement may be
terminated at any time prior to the Effective Time, whether
before or after approval by the stockholders of CTIG and/or
Celltech:
(a) by mutual consent of the Boards of Directors of CTIG and
Celltech;
(b) by either CTIG or Celltech if, without a material breach
of this Agreement by such terminating party, the Merger shall not have been
consummated on or before June 30, 2000, which date may be extended by
mutual written consent of CTIG and Celltech; or
(c) by either CTIG or Celltech, if any court of competent
jurisdiction in the United States or other Governmental Entity shall have
issued an order (other than a temporary restraining order) , decree or
ruling or taken any other action restraining, enjoining or otherwise
prohibiting the Merger, and such order, decree, ruling or other action
shall have become final and nonappealable; provided that the party seeking
to terminate this Agreement shall have used all commercially reasonable
efforts to remove or lift such order, decree or ruling; or
(d) if a Special Meeting is required by applicable law, by
either CTIG if the approval of CTIG's stockholders required for the
consummation shall not have been obtained.
8.2 Termination by CTIG. This Agreement may be terminated and the
transactions contemplated hereby abandoned by action of the
Board of Directors of CTIG, at any time prior to the Effective
Time, before or after the approval by the stockholders of
CTIG, if (a) Celltech or Principal Stockholder shall have
failed to comply in any material respect with any of their
respective covenants or agreements contained in this Agreement
to be complied with or performed by Celltech or Principal
Stockholder at or prior to such date of termination or (b)
there exists a material breach or breaches of any
representation or warranty of Celltech or a Celltech
Stockholder contained in this Agreement such that the closing
condition set forth in Section 6.1 would not be satisfied as
of the Closing Date, or (c) if Celltech fails to deliver the
Financial Statements as required by Section 2.5(b).
8.3 Termination by Celltech. This Agreement may be terminated and
the transactions contemplated hereby abandoned at any time
prior to the Effective Time, before or after the approval by
the stockholders of Celltech, by action of
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the Board of the Directors of Celltech, if (a) CTIG or Merger
Sub shall have failed to comply in any material respect with
any of their respective covenants or agreements contained in
this Agreement to be complied with or performed by CTIG or
Merger Sub at or prior to such date of termination, or (b)
there exists a material breach or breaches of any
representation or warranty of CTIG or Merger Sub contained in
this Agreement such that the closing condition set forth in
Section 7.1 would not be satisfied as of the Closing Date.
8.4 Procedure for Termination. In the event of termination of this
Agreement and abandonment of the transactions contemplated
hereby by CTIG or Celltech pursuant to this Article VIII,
written notice thereof shall forthwith be given to the other.
8.5 Effect of Termination and Abandonment. In the event of
termination of this Agreement and abandonment of the
transactions contemplated hereby pursuant to this Article
VIII, no party (or any of its respective directors or
officers) shall have any liability or further obligation to
any other party to this Agreement; provided that nothing
herein shall relieve any party from liability for any breach
of its representations, warrants, covenants and agreements
under this Agreement.
ARTICLE IX
INDEMNIFICATION BY PRINCIPAL STOCKHOLDER
9.1 Indemnification. Subject to the terms and conditions of this
Article IX, Principal Stockholder does hereby indemnify,
defend and hold harmless CTIG and Merger Sub (each an
"Indemnified Party") for a period of one year after the
Effective Time, from and against all losses, claims, damages,
liabilities and expenses, including interest, penalties and
reasonable attorney's fees and expenses (collectively
"Damages"), resulting or arising, directly or indirectly, from
(a) a material breach of any representation, warranty or
agreement of Celltech or Principal Stockholder contained in or
made part of this Agreement or any document executed in
connection herewith, (b) any material error contained in any
statement, report, certificate or other document or instrument
delivered to CTIG or Merger Sub pursuant to this Agreement or
contained in any Schedule, (c) any claim, debt, liability or
obligation of Celltech or Principal Stockholder to any party,
incurred prior to the Effective Time or arising from any
matter or thing occurring prior to the Effective Time,
including but not limited to claims made by current or former
stockholders of Celltech and claims made by Governmental
Entities for Taxes, except for (i)
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liabilities expressly disclosed in this Agreement, the
Celltech Disclosure Schedules or the Celltech Financial
Statements, and (ii) liabilities incurred between the date of
this Agreement and the Effective Time, the incurrence of which
is not in violation of the provisions of this Agreement, and
(d) the cause of action filed by the Minority Stockholders
styled Frank S. Scarpa, Valerie S. Hart and Richard J.
Donnelly, Plaintiffs v. David A. Warren and Celltech
Information Systems, Inc., Defendants in the Delaware Chancery
Court, New Castle Delaware, C.A. No. 17704 NC, including,
without limitation, the settlement thereof.
9.2 Conditions of Indemnification. The obligations and liabilities
of Principal Stockholder to indemnify the Indemnified Parties
under Section 9.1 shall be subject to the following terms and
conditions:
(a) An Indemnified Party shall give Principal Stockholder
prompt notice of any claim for Damages. Failure to provide, or a delay in
providing, the foregoing notice shall not relieve Principal Stockholder of
his obligations under this Article IX unless, and only to the extent that,
his rights to defend a third party claim are materially prejudiced thereby.
In the event the claim is the result of an action or threatened action by a
third party, Principal Stockholder shall have the right to undertake the
defense thereof by representatives chosen by it. If Principal Stockholder,
within a reasonable time after notice of any such claim by a third party,
fails to defend an Indemnified Party against which such claim has been
asserted, such Indemnified Party shall upon further notice to Principal
Stockholder have the right to undertake the defense, compromise or
settlement of such claim on behalf of and for the account and risk of
Principal Stockholder, subject to the right of the Principal Stockholder to
assume the defense of such claim at any time prior to settlement,
compromise or final determination thereof.
(b) Principal Stockholder still have the right to contest a claim for
Damages by providing written notice to the Indemnified Party that is making
the claim within 10 days after receiving notice of the claim. All such
contests shall be resolved by final and binding arbitration before a panel
of three arbitrators in Wilmington, DE in accordance with the Commercial
Arbitration Rules of the American Arbitration Association.
9.3 Remedies.
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(a) No shares of Principal Stockholder's Escrowed Stock then
in escrow shall be released pursuant to Section 1.17 after a claim for
Damages has been made, until all such claims have been resolved.
(b) Any Damages due an Indemnified Party shall first be paid
by reducing the number of shares of Principal Stockholder's Escrowed Stock
that would otherwise have been issued to Principal Stockholder by an amount
equal in value to such Damages. The number of shares by which such
distribution shall be reduced, shall be valued at the Average Market Price
per Share of the Class A Common Stock on the date notice of the claim for
Damages was provided to Principal Stockholder.
(c) In the event that the amount of Damages exceeds the value
of Principal Stockholder's Escrowed Stock then in escrow that would
otherwise have been issued to Principal Stockholder, then within 30 days
after the final determination of such number of shares Principal
Stockholder shall pay the balance due (the "Cash Indemnity Payment") by
certified or bank check or by wire transfer. Notwithstanding the foregoing,
the parties agree that the Cash Indemnity Payment shall not exceed $500,000
except to the extent such excess is caused by a claim by a Minority
Stockholder or former stockholders, if any, or pursuant to Section 9.1(d)
but in all cases the total amount of Principal Stockholder's liability
pursuant to this Article IX shall not exceed the value of the Merger
Consideration otherwise to be received by him.
ARTICLE X
DEFINITIONS
10.1 Terms Defined in the Agreement. The following capitalized
terms used herein shall have the meanings ascribed in the
indicated sections.
Accounts Receivable 2.23
Acquisition Transaction 4.2
America One 1.17
America One Revenue 1.17
Average Market Price Per Share 1.7
Balance Sheet 2.5
Balance Sheet Date 2.5
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Business Day 1.3
CTIG Preamble
CTIG Dissenting Shares 1.16
Cash Indemnity Payment 9.3
Celltech Preamble
Celltech Common Stock Recitals
Celltech Disclosure Schedules 2.2
Celltech Stockholders Preamble
Celltech Common Stock 1.7
Centillion Merger 6.7
Certificate of Merger 1.2
Certificates 1.9
Class A Common Stock 1.7
Closing 1.3
Closing Date 1.3
Closing Stock 1.7
Code 2.14
Constituent Corporations Preamble
Contracts 2.17
DGCL 1.1
Damages 9.1
Effective Time 1.2
Employee Plans 2.15
Environmental Law 2.12
ERISA 2.15
Escrow Quarter 1.17
Escrow Year 1.17
Escrowed Stock 1.7
Exchange Act 1.18
Exchange Agent 1.9
Financial Statements 2.5
Form S-4 4.5
GAAP 2.5
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Governmental Entity 1.13
Hazardous Substance 2.12
Indemnified Party 9.1
Intellectual Property Rights 2.13
Material Adverse Effect 2.1
Merger Recitals
Merger Cash 1.7
Merger Stock 1.7
Merger Consideration 1.7
Merger Sub Preamble
Minority Stockholders Preamble
PASCO 2.11
Person 1.13
Principal Stockholder Preamble
Prospectus 4.5
Proxy Statement 1.18
SEC 1.18
SEC Reports 3.6
Securities Act 3.6
Special Meeting 1.18
Surviving Corporation 1.1
Target Revenue 1.17
Tax 2.14
Tax Returns 2.14
ARTICLE XI
MISCELLANEOUS
11.1 Amendment and Modification. Subject to applicable law, this
Agreement may be amended, modified or supplemented only by
written agreement of the parties at any time prior to the
Effective Time with respect to any of the terms contained
herein; provided, however, that, after this Agreement is
adopted by the Celltech Stockholders, no such amendment or
modification shall reduce
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the amount or change the form of the Merger Consideration or
in any way adversely affect the rights of the Celltech
Stockholders without their further approval.
11.2 Waiver of Compliance; Consents. Any failure of CTIG and Merger
Sub or Celltech to comply with any obligation, covenant,
agreement or condition herein may be waived only by a written
instrument signed by the party granting such waiver, but such
waiver or failure to insist upon strict compliance with such
obligation, covenant, agreement or condition shall not operate
as a waiver of, or estoppel with respect to, any subsequent or
other failure. Whenever this Agreement requires or permits
consent by or on behalf of any party hereto, such consent
shall be given in writing in a manner consistent with the
requirements for a waiver of compliance as set forth in this
Section 11.2.
11.3 Survivability; Investigations. The respective representations
and warranties of the parties contained in this Agreement or
in any certificates or other documents delivered prior to or
at the Closing (a) shall not be deemed waived or otherwise
affected by any investigation made by any party hereto and (b)
subject to the time limitation on Principal Stockholder's
indemnity set forth in Section 9.1 shall not survive beyond
the Effective Time except for the representations, warranties
and agreements set forth in Articles II, IIA and III, which
shall survive the Effective Time for a period of three years,
and Sections 1.6, 1.9, 1.10, 1.11, 1.12, 1.13, 1.14, 1.17,
4.7, 4.8 and 4.9 and Articles IX and XI, which shall survive
the Effective Time and a termination of this Agreement. This
Section 11.3 shall have no effect upon any other obligation of
any of the parties hereto, whether to be performed before or
after the Closing Date.
11.4 Reasonable Efforts. Subject to the terms and conditions herein
provided, and applicable law, the parties each agree to use
all commercially reasonable best efforts to take, or cause to
be taken, all action, and to do, or cause to be done, all
things necessary, proper and advisable under applicable laws
and regulations to consummate and make effective the
transactions contemplated by this Agreement.
11.5 Notices. All notices and other communications hereunder shall
be in writing and shall be delivered personally, by next-day
courier or mailed by registered or certified mail (return
receipt requested), first class postage prepaid, or
telecopied with confirmation of receipt, to the Parties at the
addresses specified below (or at such other address for a
party as shall be specified by like notice; provided that
notices of a change of address shall be effective only
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upon receipt thereof). Any such notice shall be effective upon
receipt, if personally delivered or telecopied, one day after
delivery to a courier for next- day delivery, or three days
after mailing, if deposited in the U.S. mail, first class
postage prepaid.
(a) if to Company, to
Celltech Information Systems, Inc.
152 Cloverly Road
Grosse Pointe Farms, MI
Telecopy: (313) 886-2466
Attention: David A. Warren, President
with a copy to:
Fouts & Moore, L.L.P
1300 Post Oak Boulevard
20th Floor
Houston, TX 77056-8000
Telecopy: (713) 986-7299
Attention: Robbie Morris, Esquire
(b) if to CTIG or Merger Sub, to
CTI Group (Holdings) Inc.
2550 Eisenhower Avenue
Norristown, PA 19403
Telecopy: (610) 666-7707
Attention: Anthony Johns
with a copy to:
Klehr, Harrison, Harvey, Branzburg & Ellers LLP
260 S. Broad Street
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<PAGE>
Philadelphia, PA 19102
Telecopy: (215) 568-6603
Attention: Donald M. Millinger, Esquire
(c) if to Principal Stockholder:
David A. Warren
152 Cloverly Road
Grosse Pointe Farms, MI 48236
Telecopy: (313) 886-2466
with a copy to:
Fouts & Moore, L.L.P
1300 Post Oak Boulevard
20th Floor
Houston, TX 77056-8000
Telecopy: (713) 986-7299
Attention: Robbie Morris, Esquire
(d) if to a Minority Stockholder:
Frank Scarpa
c/o Daller Greenberg & Dietrich
Valley Green Corporate Center
7111 Valley Green Road
Fort Washington, PA 19034
Telecopy: (215) 836-2845
Attention: Edward A. Greenberg, Esquire
Valerie Hart
c/o Daller Greenberg & Dietrich
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<PAGE>
Valley Green Corporate Center
7111 Valley Green Road
Fort Washington, PA 19034
Telecopy: (215) 836-2845
Attention: Edward A. Greenberg, Esquire
Richard Donnelly
c/o Daller Greenberg & Dietrich
Valley Green Corporate Center
7111 Valley Green Road
Fort Washington, PA 19034
Telecopy: (215) 836-2845
Attention: Edward A. Greenberg, Esquire
with a copy to:
Daller Greenberg & Dietrich
Valley Green Corporate Center
7111 Valley Green Road
Fort Washington, PA 19034
Telecopy: (215) 836-2845
Attention: Edward A. Greenberg, Esquire
11.6 Successor and Assigns. This Agreement and all of the
provisions hereof shall be binding upon and inure to the
benefit of the parties and their respective successors and
permitted assigns. However neither this Agreement nor any of
the rights, interests or obligations hereunder shall be
assigned by any of the parties without the prior written
consent of the other parties, nor is this Agreement intended
to confer any rights or remedies hereunder upon any other
Person.
11.7 Governing Law. This Agreement shall be governed by the laws of
the State of Delaware as to all matters, including but not
limited to matters of validity,
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construction, effect, performance and remedies,
notwithstanding any conflict of laws, doctrines of such state
or any other jurisdiction, and without the aid of any cannon,
custom or rule of law requiring construction against the
draftsman.
11.8 Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but
all of which together shall constitute one and the same
instrument. This Agreement shall become effective when each
party has received counterparts signed by all of the other
parties.
11.9 Severability. In case any one or more of the provisions
contained in this Agreement should be invalid, illegal or
unenforceable in any respect against a party, the validity,
legality and enforceability of the remaining provisions
contained herein shall not in any way be affected or impaired
thereby. Such invalidity, illegality or unenforceability shall
only apply as to such party in the specific jurisdiction where
such judgment shall be made.
11.10 Interpretation. The article and section headings contained in
this Agreement are solely for the purpose of reference, are
not part of the agreement of the parties and shall not in any
way affect the meaning or interpretation of this Agreement.
11.11 Entire Agreement. This Agreement, including the schedules and
exhibits hereto and the documents and instruments referred to
herein and therein, embodies the entire agreement and
understanding of the parties hereto in respect of the subject
matter contained herein and supersedes all prior agreements
and the understandings between the parties with respect to
such subject matter. There are no representations, promises,
warranties, covenants, or undertakings, other than those
expressly set forth or referred to herein and therein.
11.12 Jurisdiction. Each of the parties hereto (a) consents to
submit itself to the personal jurisdiction of any federal
court located in the State of Delaware or any Delaware state
court in the event any dispute arises out of this Agreement or
any of the transactions contemplated by this Agreement, (b)
agrees that it will not attempt to deny or defeat such
personal jurisdiction by motion or other request for leave
from any such court and (c) agrees that it will not bring any
action relating to this Agreement or any of the transactions
contemplated hereby in any court other than a federal or state
court sitting in the State of Delaware.
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11.13 WAIVER OF JURY TRIAL. EACH OF CTIG, MERGER SUB, CELLTECH AND
THE CELLTECH STOCKHOLDERS HEREBY IRREVOCABLY WAIVES, TO THE
FULLEST EXTENT PERMITTED BY LAW, ALL RIGHTS TO TRIAL BY JURY
IN ANY ACTION, PROCEEDING OR COUNTERCLAIM (WHETHER BASED ON
CONTRACT, TORT OR OTHERWISE) ARISING OUT OF OR RELATING TO
THIS AGREEMENT OR ANY OF THE TRANSACTIONS CONTEMPLATED HEREBY.
11.14 Class A Common Stock. Celltech and the Celltech Stockholders
acknowledge that (a) as of the date hereof, CTIG has a single
class of Common Stock, and (b) the Class A Common Stock to be
issued to them will be created by a redesignation of such
Common Stock as Class A Common Stock pursuant to amendments to
CTIG's Certificate of Incorporation which will be effected in
connection with the Centillion Merger.
IN WITNESS WHEREOF, CTIG, MERGER SUB and CELLTECH have caused this
Agreement to be signed by their respective duly authorized officers, and
the CELLTECH STOCKHOLDERS have signed this Agreement, as of the date first
above written.
CTI GROUP (HOLDINGS) INC.
By: _____________________________
---------
Name:
Title:
[SIGNATURES CONTINUED ON NEXT PAGE]
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<PAGE>
[SIGNATURES CONTINUED FROM PREVIOUS PAGE]
CTI BILLING SOLUTIONS INC.
By: ______________________________
Name:
Title:
CELLTECH INFORMATION SYSTEMS, INC.
By: ___________________________________
David A. Warren
President
------------------------------------------------
David A. Warren
Number of Shares of Celltech Common Stock Owned:2000
------------------------------------------------
Frank S. Scarpa
Number of Shares of Celltech Common Stock Owned:117.647
------------------------------------------------
Valerie S. Hart
Number of Shares of Celltech Common Stock Owned:117.647
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------------------------------------------------
Richard J. Donnelly
Number of Shares of Celltech Common Stock Owned:117.647
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<PAGE>
EXHIBIT "A"
DAVID WARREN EMPLOYMENT AGREEMENT
Intentionally Omitted
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ANNEX J
COMMUNICATIONS GROUP INC.
STOCK OPTION AND RESTRICTED STOCK PLAN
The purpose of the Stock Option and Restricted Stock Plan (the "Plan")
of Communications Group Inc. (the "Company") is to promote the interests of
the Company by providing incentives to (i) designated officers and other
employees of the Company or a Subsidiary Corporation (as defined herein),
(ii) members of the Company's Board of Directors (the "Board") and (iii)
independent contractors and consultants (who may be individuals or
entities) who perform services for the Company to enable the Company to
attract and retain them and to encourage them to acquire a proprietary
interest, or to increase their proprietary interest, in the Company. The
Company believes that the Plan will cause participants to contribute
materially to the growth of the Company, thereby benefitting the Company's
shareholders. For purposes of the Plan, the terms "Parent Corporation" and
"Subsidiary Corporation" shall have the meanings set forth in subsections
(e) and (f) of Section 424 of the Internal Revenue Code of 1986, as amended
(the "Code").
1. Administration
a. Except with respect to a Director's Grant (as hereinafter defined)
granted pursuant to Section 2(b) hereof, the Plan shall be administered and
interpreted by a committee of the Board (the "Committee") consisting of not
less than two persons, all of whom shall be "outside directors" within the
meaning of Section 162(m) of the Code and each of whom shall be a
"disinterested person" as defined under Rule 16b-3 promulgated under the
Securities Exchange Act of 1934, as amended. With respect to Eligible
Participants (as hereinafter defined), the Committee shall have the sole
authority to determine (i) who is eligible to receive Grants (as defined in
Section 2 below) under the Plan, (ii) the type, size and terms of each
Grant under the Plan (subject to Section 4 below), (iii) the time when each
Grant will be made and the duration of any exercise or restriction period;
(iv) any restrictions on resale applicable to the shares to be issued or
transferred pursuant to the Grant; and (v) any other matters arising under
the Plan. The Committee may, if it so desires, base any of the foregoing
determinations upon the recommendations of management of the Company. The
Committee shall have full power and authority to administer and interpret
the Plan with respect to Eligible Participants and to adopt or amend such
rules, regulations, agreements and instruments as it may deem appropriate
for the proper administration of the Plan. The Committee's interpretations
of the Plan and all determinations made by the Committee pursuant to the
powers vested in it hereunder shall be conclusive and binding on all
Eligible Participants having any interests in the Plan or in any Grants
under the Plan. No person acting under this subsection shall be held liable
for any action or determination made in good faith with respect to the Plan
or any Grant under the Plan.
b. Each member of the Committee shall be indemnified and held harmless
by the Company against any cost or expense (including counsel fees)
reasonably incurred by
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him or her, or liability (including any sum paid in settlement of a claim
with the approval of the Company) arising out of any act or omission to act
in connection with the Plan, unless arising out of such member's own fraud
or bad faith, to the extent permitted by applicable law. Such
indemnification shall be in addition to any rights of indemnification the
members may have as directors or otherwise under the Articles of
Incorporation or By-Laws of the Company, any agreement of shareholders or
disinterested directors or otherwise.
2. Grants
a. Grants to Eligible Participants. With respect to Eligible
Participants, Incentives under the Plan shall consist of Incentive Stock
Options (as defined in Section 5(b) below), Nonqualified Stock Options (as
defined in Section 5(b) below) and Restricted Stock Grants (as defined in
Section 6 below), (hereinafter sometimes collectively referred to as
"Grants"). All Grants, except with respect to Director's Grants (as
hereinafter defined) as specifically provided in Section 2(b) hereof, shall
be subject to the terms and conditions set forth herein and to such other
terms and conditions of any nature as long as they are not inconsistent
with the Plan as the Committee deems appropriate and specifies in writing
to the participant (the "Grant Letter"). The Committee shall approve the
form and provisions of each Grant Letter. Grants under any section of the
Plan need not be uniform as among the participants receiving the same type
of Grant, and Grants under two or more sections of the Plan may be combined
in one Grant Letter.
b. Director's Grants. A member of the Board of the Company who is not
an --- employee of the Company or a Subsidiary Corporation and who serves
as a member of the Committee (a "Committee Member") shall be entitled to
receive a Director's Grant in accordance with this Section 2(b).
i. Committee Members shall receive a Nonqualified Stock Option
to purchase Thirty Thousand (30,000) shares of Common Stock (as hereinafter
defined) of the Company at an exercise price equal to the higher of the
fair market value (as defined herein) or the book value of a share of
Common Stock on the date of grant, subject to adjustment as provided in
Section 3(b) of this Plan, at the commencement of and in consideration for
their service to the Company as a director (a "Director's Grant"). One-half
of such Director's Grant shall vest on the first anniversary of the date of
grant and one-quarter shall vest on each of the second and third
anniversaries of the date of grant, provided such Committee Member is then
serving as a director (the "Initial Vesting Period"). If a Committee Member
is not serving as a director on the first, second or third anniversary of
the date of such grant, then any such Director's Grant shall terminate as
to all shares covered by the Director's Grant which have not vested.
Director's Grants shall be exercisable for a period of ten years from the
date of grant.
ii. Upon the expiration of the Initial Vesting Period, and at
the commencement of each succeeding three year period, Committee Members
shall be eligible to receive an additional Director's Grant, which grants
shall vest in accordance with the schedule set forth in Section 2(b)(i)
hereof.
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iii. Upon the occurrence of (a) a Change In Control (as
defined in Section 7 hereof or (b) a sale or exchange of assets of the
Company or (c) dissolution, liquidation, merger or consolidation of the
Company (in which the Company is not the surviving corporation), all
restrictions imposed under any Director's Grant shall immediately lapse.
iv. Each Committee Member who receives a Director's Grant
pursuant to this Section 2(b) shall receive a written agreement setting
forth the terms and conditions of such grant including, but not limited to,
the restrictions set forth in this Section 2(b) (the "Director's Grant
Letter").
v. Except as otherwise provided in this Section 2(b), Director
Grants shall be subject to the provisions of this Plan applicable to
Non-Qualified Stock Options granted to other persons.
vi. Notwithstanding any other provision of the Plan, this
Section 2(b) may not be amended more than once every six months, except for
amendments necessary to conform the plan to changes in the provisions of
the Code or the Employee Retirement Income Security Act of 1974 ("ERISA"),
or the rules promulgated thereunder.
vii. The provisions of this Section 2(b) are intended to
operate automatically and not require administration. To the extent that
any administrative determinations may be required, such determination shall
be made by a member or members of the Board of Directors who is/are not
eligible to be granted Options under this Section 2(b), but in no event
shall such determinations affect the eligibility of Committee Members, the
timing of the grants or the number of shares of Common Stock subject to
Restricted Stock Grants hereunder.
3. Shares Subject to the Plan
a. The aggregate number of shares of the Common Stock, par value $.01
("Common Stock"), of the Company that may be issued or transferred under
the Plan is 600,000, subject to adjustment pursuant to Section 3(b) below.
Such shares may be authorized but unissued shares or reacquired shares. If
and to the extent that options granted under the Plan terminate, expire or
are canceled without having been exercised (including shares cancelled as
part of an exchange of Grants), or if any shares of restricted stock are
forfeited, the shares subject to such Grant or of such restricted stock
shall again be available for subsequent Grants under the Plan.
b. If any change is made to the Common Stock (whether by reason of
merger, consolidation, reorganization, recapitalization, stock dividend,
stock split, combination of shares, or exchange of shares or any other
change in capital structure made without receipt of consideration), then
unless such event or change results in the termination of all outstanding
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Grants and Director's Grants under the Plan, the Committee shall preserve
the value of the outstanding Grants and Director's Grants by adjusting the
maximum number and class of shares issuable under the Plan to reflect the
effect of such event or change in the Company's capital structure, and by
making appropriate adjustments to the number and class of shares, the
exercise price of each outstanding option and otherwise, except that any
fractional shares resulting from such adjustments shall be eliminated by
rounding any portion of a share equal to .500 or greater up, and any
portion of a share equal to less than .500 down, in each case to the
nearest whole number.
4. Eligibility for Participation
Committee Members, Officers and other employees of the Company or a
Subsidiary Corporation and independent contractors and consultants who
perform services for the Company (hereinafter referred to individually as
an "Eligible Participant" and collectively as "Eligible Participants")
shall be eligible to participate in the Plan. Only Eligible Participants
who are officers or other employees of the Company or a Subsidiary
Corporation shall be eligible to receive Incentive Stock Options. All
Eligible Participants shall be eligible to receive Nonqualified Stock
Options and Restricted Stock Grants. The Committee shall select from among
the Eligible Participants those who will receive Grants (such Eligible
Participants and Committee Members who receive Director's Grants pursuant
to Section 2(b) hereof are hereinafter sometimes collectively referred to
as the "Grantees") and, except in the case of a Director's Grant made
pursuant to Section 2(b) hereof, the Committee shall determine the number
of shares of Common Stock subject to each Grant; provided, however, that
the maximum number of shares of Common Stock which may be subject to Grants
awarded to any Grantee shall not exceed 600,000. The Committee may, if it
so desires, base any such selections or determinations upon the
recommendations of management of the Company. Nothing contained in the Plan
shall be construed to limit in any manner whatsoever the right of the
Company to grant rights or options to acquire Common Stock or awards of
Common Stock otherwise than pursuant to the Plan.
5. Stock Options to Eligible Participants
a. Number of Shares. The Committee, in its sole discretion, shall
determine the number of shares of Common Stock that will be subject to each
option.
b. Type of Option and Option Price.
(1) The Committee may grant options qualifying as incentive
stock options within the meaning of Section 422 of the Code ("Incentive
Stock Options") and other stock options ("Nonqualified Stock Options"), in
accordance with the terms and conditions set forth herein, or may grant any
combination of Incentive Stock Options and Nonqualified Stock Options
(hereinafter referred to collectively as "Stock Options"). The option price
per share of an Incentive Stock Option shall be the higher of the Fair
Market Value or the book value of a share of Common Stock on the date: of
grant. If the Grantee of an Incentive Stock
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Option owns Common Stock (as determined under section 424(d) of the Code)
possessing more than 10% of the total combined voting power of all classes
of stock of the Company or a Parent Corporation or Subsidiary Corporation,
the option price per share in the case of an Incentive Stock Option shall
not be less than 110% of the fair market value of a share of Common Stock
on the date of grant and such option by its terms is not exercisable after
the expiration of five (5) years from the date of grant.
(2) For all valuation purposes under the Plan, the fair market
value of a share of Common Stock shall be determined in accordance with the
following provisions:
(a) If the Common Stock is not at the time listed or
admitted to trading on any stock exchange but is traded in the
over-the-counter market (but not on the Nasdaq National Market
segment of The Nasdaq Stock Market), the fair market value
shall be the mean between the last reported bid and asked
prices of one share of Common Stock on the date in question in
the over-the-counter market, as such prices are reported by
the National Association of Securities Dealers through its
Nasdaq system or any successor system. If there are no
reported bid and asked prices on the date in question, then
the mean between the last reported bid and asked prices on the
next preceding date for which such quotations exist shall be
determinative of fair market value. If the Common Stock is
traded over-thecounter on the Nasdaq National Market segment
of The Nasdaq Stock Market, the fair market value shall be the
closing selling price of one share of Common Stock on the date
in question as such price is reported by the National
Association of Securities Dealers, Inc. through such system or
any successor system. If there is no reported closing selling
price for the Common Stock on the date in question, then the
closing selling price on the next preceding date for which
such quotation exists shall be determinative of fair market
value.
(b) If the Common Stock is at the time listed or
admitted to trading on any stock exchange, then the fair
market value shall be the closing selling price of one share
of Common Stock on the date in question on the stock exchange
determined by the Committee to be the primary market for the
Common Stock, as such prices are officially quoted on such
exchange. If there is no reported closing selling price of
Common Stock on such exchange on the date in question, then
the fair market value shall be the closing selling price on
the next preceding date for which such quotation exists.
(c) If the Common Stock is at the time neither listed
nor admitted to trading on any stock exchange nor traded in
the over-the-counter market (or, the Committee determines that
the value as determined pursuant to Section 5(b)(2)(A) or (B)
above does not reflect fair market value), then the Committee
shall determine fair market value after taking into account
such factors as it deems appropriate.
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c. Exercise Period. The Committee shall determine the option exercise
period of each Stock Option. The exercise period shall not exceed ten years
from the date of grant. Notwithstanding any determinations by the Committee
regarding the exercise period of any Stock Option, all outstanding Stock
Options shall be immediately exercisable upon a Change of Control of the
Company (as defined in Section 7 below).
d. Vesting of Options and Restrictions on Shares. The vesting period
for Stock Options shall commence on the date of grant and shall end on the
date or dates, determined by the Committee, that shall be specified in the
Grant Letter. The Committee may impose upon the shares of Common Stock
issuable upon the exercise of a Stock Option such restrictions as it deems
appropriate and specifies in the Grant Letter. During any period in which
such restrictions apply a Grantee may not sell, assign, transfer, pledge or
otherwise dispose of the shares of Common Stock issued upon exercise of
such stock options except to a successor Grantee pursuant to Section 7
hereof and the Committee, in such circumstances as it deems equitable, may
determine that all such restrictions shall lapse. Notwithstanding any other
provision of the Plan, all outstanding Stock Options shall become
immediately exercisable upon a Change of Control of the Company (as,
defined in Section 7 below).
e. Manner of Exercise. A Grantee may exercise a Stock Option by
delivering a duly completed notice of exercise to the Committee, together
with payment of the option price. Such notice may include instructions
authorizing the Company to deliver the certificates representing the shares
of Common Stock issuable upon the exercise of such Stock Option to any
designated registered broker or dealer ("Designated Broker"). Such
instructions shall designate the account into which the shares are to be
deposited. The Grantee may tender such notice of exercise, which has been
properly executed by the Grantee, and the aforementioned delivery
instructions to any Designated Broker.
f. Termination of Employment, Disability or Death.
(1) If a Grantee who is an employee ceases to be an employee
(in the case of an Incentive Stock Option) or ceases to be an Eligible
Participant (in the case of a Nonqualified Stock Option) for any reason
(other than, in the case of an individual, the death of such individual)
any Stock Option which is otherwise exercisable by the Grantee shall
terminate unless exercised within three months after the date on which the
Grantee ceases to be an employee or an Eligible Participant, as the case
may be (or in the case of Non- Qualified Stock Options within such other
period of time, which may be longer or shorter than three months, as may be
specified in the Grant Letter), but in any event no later than the date of
expiration of the option exercise period, except that in the case of an
individual Grantee who is disabled within the meaning of Section 22(e)(3)
of the Code, such period shall be one year rather than three months (or in
the case of Non-Qualified Stock Options within such other period of time,
which may be longer or shorter than three months, as may be specified in
the Grant Letter).
(2) In the event of the death of an individual Grantee while
he or she is an Eligible Participant or within not more than three months
after the date on which the
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Grantee ceases to be an Eligible Participant (or within such other period
of time, which may be longer or shorter than three months, as may be
specified in the Grant Letter), any Stock Option which was otherwise
exercisable by the Grantee at the date of death may be exercised by the
Grantee's personal representative at any time prior to the expiration of
one year from the date of death, but in any event no later than the date of
expiration of the option exercise period.
g. Satisfaction of Option Price. The Grantee shall pay the option price
in full at the time of exercise in cash, or, with the consent of the
Committee in its sole discretion, by delivering shares of Common Stock
already owned by the Grantee and having a fair market value on the date of
exercise equal to the option price or a combination of cash and shares of
Common Stock. The Grantee shall also pay the amount of withholding tax due,
if any, at the time of exercise. Shares of Common Stock shall not be issued
or transferred upon any purported exercise of a Stock Option until the
option price and the withholding obligation are fully paid.
h. Limits on Incentive Stock Options. Each Option Grant of an Incentive
Stock Option shall provide that:
(1) the Stock Option is not transferable by the Grantee,
except, in the case of an individual Grantee, by will or the laws of
descent and distribution;
(2) the Stock Option is exercisable only by the Grantee,
except as otherwise provided herein or in the Grant Letter in the event of
the death of an individual Grantee;
(3) the aggregate fair market value of the Common Stock
determined as of the date of the Grant with respect to which Incentive
Stock Options are exercisable for the first time by a Grantee during any
calendar year under the Plan and under any other stock option plan of the
Company shall not exceed $100,000; and
(4) unless the Grantee could otherwise transfer Common Stock
issued pursuant to the Stock Option without incurring liability under
Section 16(b) of the Securities and Exchange Act of 1934, as amended (the
"Exchange Act"), at least six months must elapse from the date of
acquisition of the Stock Option until the date of disposition of the Common
Stock issued upon exercise thereof.
6. Restricted Stock Grants
The Committee may issue shares of Common Stock to an Eligible
Participant pursuant to an incentive or long range compensation plan,
program or contract approved by the Committee (a "Restricted Stock Grant").
The following provisions are applicable to Restricted Stock Grants:
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a. General Requirements. Shares of Common Stock issued pursuant to
Restricted Stock Grants will be issued in consideration for cash or
services rendered having a value, as determined by the Board, at least
equal to the par value thereof. All conditions and restrictions imposed
under each Restricted Stock Grant, and the period of years during which the
Restricted Stock Grant will remain subject to such restrictions, shall be
set forth in the Grant Letter and designated therein as the "Restriction
Period." All restrictions imposed under any Restricted Stock Grant shall
lapse on such date or dates as the Committee may approve until the
restrictions have lapsed as to 100% of the shares, except that upon a
Change of Control of the Company, all restrictions on the transfer of the
shares which have not been forfeited prior to such date shall lapse. In
addition, the Committee, in circumstances that it deems equitable, may
determine as to any or all Restricted Stock Grants, that all the
restrictions shall lapse, notwithstanding any Restriction Period.
b. Number of Shares. The Committee, in its sole discretion, shall
determine the number of shares of Common Stock that will be granted in each
Restricted Stock Grant.
c. Requirement of Relationship with Company. If the Grantee's
relationship with the Company (as an employee, independent contractor or
consultant, as the case may be) terminates during the period designated in
the Grant Letter as the Restriction Period, the Restricted Stock Grant
shall terminate as to all shares covered by the Grant as to which
restrictions on transfer have not lapsed, and such shares shall be
immediately returned to the Company. The Committee may, in its sole
discretion, provide for complete or partial exceptions to the provisions of
this Section 6(c).
d. Restrictions on Transfer and Legend on Stock Certificate. During the
Restriction Period, a Grantee may not sell, assign, transfer, pledge or
otherwise dispose of the shares of Common Stock to which such Restriction
Period applies except to a Successor Grantee pursuant to Section 7 below.
Each certificate representing a share of Common Stock issued or transferred
under a Restricted Stock Grant shall contain a legend giving appropriate
notice of the restrictions in the Grant. The Grantee shall be entitled to
have the legend removed from the stock certificate or certificates
representing any such shares as to which all restrictions have lapsed.
7. Transferability of Options and Grants
Only a Grantee or Committee Member (or, in the case of an individual
Grantee and a Committee Member, his or her authorized legal representative
on behalf of Grantee or Committee Member) may exercise rights under a Grant
or a Director's Grant. No individual Grantee or Committee Member may
transfer those rights except by will or by the laws of descent and
distribution or, in the case of a Grant other than an Incentive Stock
Option and to the extent permitted under Rule 16b-3 of the Exchange Act and
by the Committee in its sole discretion, (a) pursuant to a qualified
domestic relations order as defined under the Code or Title I of ERISA or
the rules thereunder and (b) to a trust for the benefit of a member of the
Grantee's immediate family. Upon the death of an individual Grantee or
Committee Member,
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the personal representative or other person entitled to succeed to the
rights of the Grantee or Committee Member ("Successor Grantee") may
exercise such rights. A Successor Grantee shall furnish proof satisfactory
to the Company of such person's right to receive the Grant or the
Director's Grant under the Grantee's will or under the applicable laws of
descent and distribution.
8. Change of Control of the Company
As used herein, a "Change of Control" shall be deemed to have occurred
when (a) any "person" (as such term is used in Section 13(d) and 14(d) of
the Exchange Act) becomes the "beneficial owner", directly or indirectly,
of securities of the Company representing thirty (30%) percent or more of
the combined voting power of the Company's then outstanding securities or
(b) the Company becomes a subsidiary of another corporation or is merged or
consolidated into another corporation or if substantially all of its assets
shall have been sold to an unaffiliated party or parties unless thereafter
(1) directors of the Company immediately prior thereto continue to
constitute at least fifty (50%) percent of the directors of the surviving
entity or purchaser or (2) the Company's securities continue to represent,
or are converted into securities which represent, more than seventy (70%)
percent of the combined voting power of the surviving entity or purchaser,
or (c) fifty (50%) percent or more of the Board is comprised of persons who
were not nominated by the Board for election as directors, or (d) the Board
adopts a plan of complete liquidation of the Company.
9. Certain Corporate Changes
a. Sale or Exchange of Assets, Dissolution or Liquidation or Merger or
Consolidation Where the Company Does Not Survive. If all or substantially
all of the assets of the Company are to be sold or exchanged, the Company
is to be dissolved or liquidated, or the Company is a party to a merger or
consolidation with another corporation in which the Company will not be the
surviving corporation, then, at least ten days prior to the effective date
of such event, the Company shall give each Grantee with any outstanding
Grants (including Director's Grants) written notice of such event. Each
such Grantee shall thereupon have the right to exercise in full any
installments of such Grants (including Director's Grants) not previously
exercised (whether or not the right to exercise such installments has
accrued pursuant to such Grants (including Director's Grants), within ten
days after such written notice is sent by the Company. Any installments of
such Grants (including Director's Grants) not so exercised shall thereafter
lapse and be of no further force or effect.
b. Merger or Consolidation Where the Company Survives. If the Company
is a party to a merger or consolidation in which the Company will be the
surviving corporation, then the Committee may, in its sole discretion,
elect to give each Grantee with any outstanding Grants (including
Director's Grants) written notice of such event. If such notice is given,
each such Grantee shall thereupon have the right to exercise in full any
installments of such Grants (including Director's Grants) not previously
exercised (whether or not the right to exercise such installments has
accrued pursuant to such Grants (including Director's
J-9
<PAGE>
Grants), within ten days after such written notice is sent by the Company.
Any installments of such Grants (including Director's Grants) not so
exercised shall thereafter lapse and be of no further force or effect.
10. Shareholder Approval
This Plan is subject to and no Options shall be exercisable hereunder
until after approval by holders of a majority of the shares of the stock of
the Company present or represented by a proxy in a separate vote at a duly
held meeting of the shareholders of the Company within twelve months after
the date of the adoption of the Plan by the Board. If the Plan is not so
approved by shareholders, the Plan and all Stock Options and Restricted
Stock Grants, including Director's Grants, hereunder shall terminate and be
of no force or effect.
11. Amendment and Termination of the Plan
a. Amendment. Subject to the provisions of Section 2(b)(ii) hereof, the
Board may amend or terminate the Plan at any time; provided that the
approval of the shareholders of the Company shall be required in respect of
any amendment that (A) materially increases the benefits accruing to
Eligible Participants under the Plan, (B) increases the aggregate number of
shares of Common Stock that may be issued or transferred under the Plan
(other than by operation of Section 3(b) above), (C) materially modifies
the requirements as to eligibility for participation in the Plan; or (D)
modifies the provisions for determining the fair market value of a share of
Common Stock.
b. Termination of Plan. The Plan shall terminate on January 11, 2005
(as set forth in Section 19 below) unless earlier terminated by the Board
or unless extended by the Board with the approval of the shareholders.
c. Termination and Amendment of Outstanding Grants. A termination or
amendment of the Plan that occurs after a Grant (including Director's
Grant) is made shall not result in the termination or amendment of such
Grant (including Director's Grant) unless the Grantee or the Committee
Member, as the case may be, consents or unless the Committee acts under
Section 17(b) below. The termination of the Plan shall not impair the power
and authority of the Committee with respect to an outstanding Grant.
Whether or not the Plan has terminated, an outstanding Grant may be
terminated or amended under Section 17(b) below or may be amended by
agreement of the Company and the Grantee which is consistent with the Plan.
d. Employees in Foreign Countries. The Board shall have the authority
to adopt such modifications, procedures and subplans as may be necessary or
desirable to comply with provisions of the laws of foreign countries in
which the Company or its Subsidiaries may operate to assure the viability
of benefits from Grants made to participants employed in such countries and
to meet the objectives of the Plan.
J-10
<PAGE>
12. Rights of Eligible Participants
Nothing in the Plan shall entitle any Eligible Participant or other
person to any claim or right to any Grant under the Plan. Neither the Plan
nor any action taken hereunder shall be construed as giving any Eligible
Participant, Committee Member or Grantee any rights to be retained by the
Company in any capacity, whether as an employee, member of the Board,
independent contractor, consultant or otherwise.
13. Withholding of Taxes
The Company shall have the right to require a Grantee or Committee
Member to pay to the Company the amount of any taxes which the Company is
required to withhold in respect of an Option Grant or Restricted Stock
Grant or to take whatever action it deems necessary to protect the
interests of the Company in respect of such tax liabilities, including,
without limitation, withholding a portion of the shares of Common Stock
otherwise deliverable pursuant to the Plan. The Company's obligation to
issue or transfer shares of Common Stock upon the exercise of a Stock
Option or the acceptance of a Restricted Stock Grant shall be conditioned
upon the Grantee's or Committee Member's compliance with the requirements
of this section to the satisfaction of the Committee.
14. Agreements vAth Grantees and Committee Members
Each Option Grant made under the Plan shall be evidenced by a Grant
Letter containing such terms and conditions as the Committee shall approve.
Each Restricted Stock Grant shall be evidenced by a Grant Letter containing
the restrictions imposed upon such grant, including but not limited to,
restrictions imposed by federal and state securities laws.
15. Requirements for Issuance of Shares
No Common Stock shall be issued or transferred under the Plan unless
and until all applicable legal requirements have been complied with to the
satisfaction of the Committee. The Committee shall have the right to
condition any Stock Option or Restricted Stock Grant on the Grantee's
undertaking in writing to comply with such restrictions on any subsequent
disposition of the shares of Common Stock issued or transferred thereunder
as the Committee shall deem necessary or advisable as a result of any
applicable law, regulation or official interpretation thereof, and
certificates representing such shares may be legended to reflect any such
restrictions.
J-11
<PAGE>
16. Headings
The section headings of the Plan are for reference only. In the event
of a conflict between a section heading and the content of a section of the
Plan, the content of the section shall control.
17. Effective Date of the Plan
The Plan shall be effective as of January 11, 1995, subject to the
approval of the Company's shareholders within 12 months after such
effective date.
18. Miscellaneous
a. Substitute Grants. The Committee may make a Grant to an employee, or
an independent contractor or consultant of another corporation, if such
person shall become an Eligible Participant by reason of a corporate
merger, consolidation, acquisition of stock or property, reorganization or
liquidation involving the Company or a Subsidiary Corporation and such
other corporation. Any such Grant shall be made in substitution for a stock
option or restricted stock grant granted by the other corporation
("Substituted Stock Incentives"), but the terms and conditions of the
substitute Grant may vary from the terms and conditions required by the
Plan and from those of the Substituted Stock Incentives. The Committee
shall prescribe the provisions of the substitute Grants.
b. Compliance with Law. The Plan, the exercise of Grants and the
obligations of the Company to issue or transfer shares of Common Stock
under Grants shall be subject to all applicable laws and required approvals
by any governmental or regulatory agencies. The Committee (or in the case
of Director's Grants, the Board of Directors) may revoke any Grant if it is
contrary to law or modify any Grant to bring it into compliance with any
valid and mandatory government regulations. The Committee may also adopt
rules regarding the withholding of taxes on payments to Grantees. The
Committee may, in its sole discretion, agree to limit its authority under
this section.
c. Ownership of Stock. A Grantee or Successor Grantee shall have no
rights as a shareholder with respect to any shares of Common Stock covered
by a Grant or Director's Grant until the shares are issued or transferred
to the Grantee or Successor Grantee on the stock transfer records of the
Company.
J-12
<PAGE>
CTI Group (Holdings) Inc.
PROXY
Solicited on Behalf of the Board of Directors for the
Special Meeting of Stockholders to be held on
________________, 2000, ________________,
local time at ________________.
The undersigned hereby appoints Mary Ann Davis and Bonnie Yost, and
each of them, with full power of substitution, proxies to represent the
undersigned at the special meeting of stockholders of CTI Group (Holdings)
Inc.("CTIG") to be held ____________________, 2000, _______, local time, and at
any adjournments or postponements thereof and thereat to vote all of the shares
of stock which the undersigned would be entitled to vote, with all powers the
undersigned would possess if personally present, as follows. The Board of
Directors recommends that you vote FOR the following proposals:
1. To approve and adopt a Merger Agreement by and between CTIG and
Centillion Data Systems, Inc.
|_| FOR |_| AGAINST |_| ABSTAIN
2. To approve and adopt a Merger Agreement whereby Celltech Information
Systems, Inc. will be merged with, and into CTI Billing Solutions Inc., a
wholly-owned subsidiary of CTIG.
|_| FOR |_| AGAINST |_| ABSTAIN
3. To approve and adopt amendments to CTIG's Certificate of
Incorporation to redesignate its current common stock as Class A Common Stock,
create a new Class B Common Stock and restructure and designate CTIG's
post-merger Board of Directors.
|_| FOR |_| AGAINST |_| ABSTAIN
4. To approve and adopt an amendment tot he CTIG Stock Option and
Restricted Stock Plan to enable CTIG to authorize additional options.
|_| FOR |_| AGAINST |_| ABSTAIN
5. In their discretion to act upon such other business as may properly
come before the meeting and any adjournments or postponements of the meeting.
The Board of Directors of CTIG Group (Holdings) Inc. recommends a vote for the
approval of each proposal.
<PAGE>
The proxy holders will vote the shares represented by this proxy in the
manner indicated on the reverse side hereof. Unless a contrary direction is
indicated, the proxy holders will FOR approval of each of the stated proposals
and at the discretion of the proxy holders as to any other matter related to the
proposals that may properly come before the special meeting.
The undersigned hereby acknowledges notification of the special meeting
and receipt of the proxy statement dated ______________, 2000, relating to the
special meeting.
______________________________________
Signature
______________________________________
Signature
Dated , 2000
In case of joint owners, each joint
owner must sign, if signing for a
corporation or partnership or as agent,
attorney or fiduciary, indicate the
capacity in which you are signing.
PLEASE MARK, DATE, AND SIGN YOUR NAME AS IT APPEARS ON
THIS CARD AND RETURN IN THE ENCLOSED ENVELOPE.
<PAGE>
Centillion Data Systems, Inc.
PROXY
Solicited on Behalf of the Board of Directors for the
Special Meeting of Stockholders to be held on
________________, 2000, ________________,
local time at ________________.
The undersigned hereby appoints Cornelius M. Alig with full power of
substitution, proxy to represent the undersigned at the special meeting of
stockholders of Centillion Data Systems, Inc. to be held , 2000 and at any
adjournments or postponements thereof and thereat to vote all of the shares of
stock which the undersigned would be entitled to vote, with all powers the
undersigned would possess if personally present, as follows. The Board of
Directors recommends that you vote FOR the following proposal:
1. To approve and adopt the Agreement and Plan Merger by and between
CTIG and Centillion Data Systems, Inc., dated February 3, 2000, whereby
Centillion will be merged with, and into CTI Group (Holdings) Inc.
|_| FOR |_| AGAINST |_| ABSTAIN
2. In their discretion to act upon such other business as may properly
come before the meeting and any adjournments or postponements of the meeting.
The Board of Directors of Centillion Data Systems, Inc. recommends a vote for
the approval of the proposal.
The proxy holders will vote the shares represented by this proxy in the
manner indicated on the reverse side hereof. Unless a contrary direction is
indicated, the proxy holders will vote FOR approval of the stated proposal, and
at the discretion of the proxy holder as to any other matter related to the
proposal that may properly come before the special meeting.
The undersigned hereby acknowledges notification of the special meeting
and receipt of the proxy statement dated 2000, relating to the special meeting.
______________________________________
Signature
______________________________________
Signature
<PAGE>
Dated , 2000
In case of joint owners, each joint
owner must sign, if signing for a
corporation or partnership or as agent,
attorney or fiduciary, indicate the
capacity in which you are signing.
PLEASE MARK, DATE, AND SIGN YOUR NAME AS IT APPEARS ON
THIS CARD AND RETURN IN THE ENCLOSED ENVELOPE.
