<PAGE>
SCHEDULE 14A
(RULE 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
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 Under Rule 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, 16,129,171 $1.4375(a) $23,185,683.31 $4,637.14
par value $0.01 per
share, of CTI Group
(Holdings), Inc.
---------------------------------------------------------------------------------------------------
Class B common stock, 2,833,334 $2.00(b) $5,666,668.00 $1,133.34
par value $0.01 per
share, of CTI Group
(Holdings), Inc.
---------------------------------------------------------------------------------------------------
TOTAL 18,962,505 $28,852,351.31 $5,770.48
========== ============== =========
===================================================================================================
</TABLE>
<PAGE>
(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 average of the bid
and asked price on April 28, 2000.
(b) Assumes that the price per share of CTI Group (Holdings), Inc.'s Class
B common stock (which will not be publicly traded) is based on a one to
one conversion ratio with CTIG's Class A Common Stock, and is therefore
valued at the same price as the Class A Common Stock. The price per
share of CTI Group (Holdings) Inc.'s Common Stock, which is listed on
the OTC Bulletin Board, is based on the average of the bid and asked
price on July 25, 2000.
2. Aggregate number of securities to which transaction applies: 18,962,505
3. Calculation of the underlying value of the transaction: The total
underlying transaction value: $28,852,351.31
4. Proposed maximum aggregate value of transaction: $28,852,351.31.
5. Total fee paid: $5,770.48
/X/ Fee paid previously with preliminary materials.
/X/ 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.
/x/ Amount Previously Paid: $5,497.60
/x/ Form, Schedule or Registration Statement No.: Schedule 14A
/x/ Filing Party: CTI Group (Holdings) Inc.
/x/ Date Filed: May 4, 2000, July 27, 2000 and September 6, 2000
<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. and Centillion
Data Systems, Inc. have agreed on a 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., which would have the effect of
merging Celltech with and into a subsidiary of CTIG. The company resulting from
the merger, which will continue under the name of CTIG Group (Holdings) Inc., is
referred to throughout this document as CTIG.
If the Centillion merger is completed, Centillion's stockholders will
receive 13,295,837 shares of 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 have an option to acquire additional
shares of common stock after closing, as described more fully herein.
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 Class A
common stock.
Neither the Centillion merger nor the Celltech merger may be completed
unless each is approved by a majority of the holders of CTIG common 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. YOUR VOTE IS VERY
IMPORTANT. At the 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 special 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 proxy card, the effect will be a vote against
the mergers, the amendments to the certificate of incorporation and the
amendment to the CTIG stock option and restricted stock plan. This solicitation
is being made by CTIG. The costs of the solicitation are being borne by CTIG.
The special meeting will be held at 10:00 a.m., local time, on
[Friday, February 9, 2001 at 10:00a.m., Eastern Standard Time].
1
<PAGE>
This proxy statement provides you with detailed information about the
proposed mergers and related transactions. In addition, you may obtain
information about the business of CTIG from our latest Annual Report on Form
10-KSB and Quarterly Report on Form 10-QSB which accompany this proxy statement,
as well as other documents we have filed with the Securities and Exchange
Commission. We encourage you to read these documents carefully.
We are mailing this proxy statement and accompanying form of proxy to
the stockholders of CTIG on or about [January 18], 2001.
Anthony P. Johns
Chairman of the Board
CTI Group (Holdings) Inc.
Proxy statement dated [January 18], 2001.
2
<PAGE>
CTI GROUP (HOLDINGS) INC.
2550 Eisenhower Avenue
Norristown, Pennsylvania 19403
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
To Be Held on [February 9], 2001
To the stockholders of CTI Group (Holdings) Inc.:
A special meeting of our stockholders will be held on [February 9],
2001, at 10:00 a.m., Eastern Standard Time, for the following purposes:
o to approve and adopt the Centillion merger agreement dated as of
February 3, 2000, as amended, by and between CTIG and Centillion,
pursuant to which (i) Centillion will be merged with and into
CTIG, with CTIG being the surviving entity, (ii) holders of
Centillion common stock will receive 13,295,837 shares of Class A
common stock and 2,833,334 shares of Class B common stock, and
(iii) holders of Centillion common stock also will have an option
to acquire additional shares of Common A common stock within the
next five years-
o to 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, which we will refer to as CTIB,
Celltech and all of Celltech's stockholders, pursuant to which
Celltech will be merged with and into CTIB, with CTIB being the
surviving entity and Celltech shareholders receiving $262,599 in
cash and between 1,330,501 and 2,217,501 shares of Class A Common
Stock, depending upon the average or price of CTIG's common stock
prior to the mergers;
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 any other matters as may properly come before the
special meeting or any adjournment or postponement.
The CTIG board of directors has unanimously approved the merger agreements, the
amendments to the certificate of incorporation, the amendment to the stock
option and restricted stock plan, and the transactions 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
our common stock in connection with the Centillion merger. For stockholders to
exercise their appraisal rights, they must follow the procedures prescribed by
Delaware law. These procedures are summarized under "The Centillion Merger --
Appraisal Rights" beginning on page [42] of this proxy statement. Appraisal
rights are not available to holders of our common stock in connection with the
Celltech merger.
3
<PAGE>
The merger agreements, the amendments to the certificate of
incorporation, and the authorization of additional options, and other important
matters are explained in the accompanying proxy statement, which you are urged
to read carefully. A copy of the Centillion merger agreement is attached as
Annex A to the proxy statement, and a copy of the Celltech merger agreement is
attached as Annex H.
The CTIG board of directors has fixed the close of business on
[January 12, 2001] as the record date for determining the stockholders entitled
to receive notice of and to vote at the special meeting and at any and all
adjournments or postponements thereof.
Management welcomes your attendance at the special meeting. Whether or
not you expect to attend the special meeting in person, 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 special meeting.
By:___________________________
Mary Ann Davis
Corporate Secretary
Norristown, Pennsylvania
[January 18, 2001]
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.
4
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
<S> <C>
Page
SUMMARY TERM SHEET...............................................................................................10
QUESTIONS AND ANSWERS ABOUT THE PROPOSED MERGERS.................................................................12
SELECTED HISTORICAL FINANCIAL DATA OF CTIG.......................................................................17
SELECTED HISTORICAL FINANCIAL DATA OF CENTILLION.................................................................18
SELECTED HISTORICAL FINANCIAL DATA OF CELLTECH...................................................................20
SELECTED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL DATA ........................................................21
COMPARATIVE PER SHARE DATA.......................................................................................22
SPECIAL CONSIDERATIONS...........................................................................................23
Risks Relating to the Mergers...........................................................................23
Risks Relating to the Business of the Resulting Company.................................................25
SPECIAL MEETING OF STOCKHOLDERS..................................................................................27
PROPOSAL I
THE CENTILLION MERGER PROPOSAL...................................................................................29
Background of the Centillion Merger.....................................................................29
Recommendation of the Board of Directors of CTIG; Reasons for the Centillion Merger.....................31
Opinion of Financial Advisor to CTIG....................................................................34
Interest of Certain Persons in the Centillion Merger....................................................39
Accounting Treatment of the Centillion Merger...........................................................40
Federal Income Tax Consequences.........................................................................41
Listing of Class A Common Stock.........................................................................42
Resales of CTIG Common Stock Issued in Connection with the Merger; Affiliate Agreements.................42
Regulatory Approvals....................................................................................42
Appraisal Rights........................................................................................42
THE CENTILLION MERGER AGREEMENT..................................................................................46
Conversion and Issuance of Shares.......................................................................46
Exchange of Stock Certificate...........................................................................48
Representations and Warranties..........................................................................49
Covenants...............................................................................................50
Conditions to Obligations to Effect the Centillion Merger...............................................52
Termination; Termination Fees and Expenses..............................................................52
Amendment and Waiver....................................................................................54
THE BUSINESS OF CENTILLION.......................................................................................55
Overview ...............................................................................................55
Smart Bill(R)...........................................................................................55
Traditional Billing.....................................................................................55
Customers...............................................................................................55
Patent and Patent Litigation............................................................................55
</TABLE>
5
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
Employees...............................................................................................56
Competitors.............................................................................................56
Properties..............................................................................................56
Contracts with Related Entities ........................................................................56
CENTILLION MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS OF CENTILLION................................................................57
COMBINED MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE COMBINED FINANCIAL
CONDITIONS AND RESULTS OF OPERATIONS FOR CENTILLION DIGITAL SYSTEMS, INC. AND ITS
SUBSIDIARIES, E.NOVA, LLC AND SUBSIDIARY, AND CHS, LLC FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 2000 COMPARED TO THE NINE MONTHS ENDED SEPTEMBER 30, 1999..........................................61
COMBINED MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE COMBINED FINANCIAL
CONDITIONS AND RESULTS OF OPERATIONS FOR CENTILLION DIGITAL SYSTEMS, INC.
AND ITS SUBSIDIARIES, E.NOVA, LLC AND SUBSIDIARY, AND CHS, LLC FOR THE YEAR
ENDED DECEMBER 31, 1999 COMPARED TO THE YEAR ENDED DECEMBER 31, 1998.............................................63
PROPOSAL II
THE CELLTECH MERGER PROPOSAL.....................................................................................65
Background of the Celltech Merger.......................................................................65
Recommendation of the Board; Reasons for the Merger.....................................................66
Interests of Certain Persons in the Celltech Merger.....................................................68
Accounting Treatment of the Celltech Merger.............................................................68
Federal Income Tax Consequences.........................................................................68
Regulatory Approvals....................................................................................69
THE CELLTECH MERGER AGREEMENT....................................................................................70
Conversion and Issuance of Shares.......................................................................70
Exchange of Stock Certificates..........................................................................71
Representations and Warranties..........................................................................72
Covenants...............................................................................................73
Conditions to Obligations to Effect the Celltech Merger.................................................75
Termination; Termination Fees and Expenses..............................................................75
Amendment and Waiver....................................................................................76
THE BUSINESS OF CELLTECH.........................................................................................77
Overview ...............................................................................................77
Competition.............................................................................................77
Celltech Service Capabilities and Product Offerings.....................................................77
Customers...............................................................................................78
Employees...............................................................................................78
Properties..............................................................................................78
CELLTECH'S MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS..............................................................................79
Results From Operations for the Period Ended September 30, 2000 Compared to the Period
Ended September 30, 1999................................................................................79
Results From Operations for the Year Ended December 31, 1999 Compared to the Year Ended
December 31, 1998.......................................................................................81
</TABLE>
6
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
THE RESULTING COMPANY............................................................................................85
Business and Strategy...................................................................................85
Directors and Executive Officers........................................................................85
Executive Compensation .................................................................................87
AGGREGATED OPTIONS/SAR EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION/SAR VALUES............................................................................89
SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT OF CTIG.........................................................................90
Certain Relationships and Related Transactions..........................................................93
Section 16(a) Beneficial Ownership Reporting Compliance.................................................94
DESCRIPTION OF CTIG COMMON STOCK.................................................................................95
CTIG Common Stock.......................................................................................95
Voting ...............................................................................................95
Conversion of Class B Common Stock......................................................................96
Dividends...............................................................................................96
Prohibited Business Transactions........................................................................96
Registrar and Transfer Agent............................................................................96
CTIG MARKET PRICES AND DIVIDENDS.................................................................................97
PROPOSAL III
APPROVAL OF AMENDMENTS TO CTIG's
CERTIFICATE OF INCORPORATION.....................................................................................98
Purposes and Effects of the Amendment...................................................................98
Restructure of the Board of Directors...................................................................98
Redesignation of Existing Common Stock as Class A Common Stock and Class B Common Stock.................99
Effective Date of Proposed Amendment...................................................................100
Vote Required for Approval.............................................................................100
PROPOSAL IV
PROPOSAL TO AMEND STOCK OPTION AND RESTRICTED STOCK PLAN........................................................101
Purposes and Effects of the Amendment..................................................................101
Benefits Under the Plan................................................................................101
Summary of Stock Option and Restricted Stock Plan......................................................101
General ..............................................................................................101
Administration of the Plan.............................................................................102
Stock Option Grants....................................................................................102
Restricted Stock.......................................................................................103
Federal Income Tax Consequences........................................................................104
Effective Date of Proposed Amendment...................................................................104
Vote Required for Approval.............................................................................104
Market Price of Shares.................................................................................104
CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS......................................................105
OTHER MATTERS...................................................................................................106
</TABLE>
7
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
WHERE YOU CAN FIND MORE INFORMATION.............................................................................106
INCORPORATION OF DOCUMENTS BY REFERENCE.........................................................................106
CENTILLION DATA SYSTEMS, INC. AND SUBSIDIARIES:
Financial Statements as of and for the Years Ended December 31, 1999 and 1998:.........................F-4
Unaudited Condensed Consolidated Financial Statements as of
September 30, 2000 and for the Periods Ended September 30, 2000 and 1999:.............................F-23
CELLTECH INFORMATION SYSTEMS, INC.:
Financial Statements as of and for the Years Ended December 31, 1999 and 1998:........................F-31
Unaudited Condensed Financial Statements as of September 30, 2000 and for
the periods Ended September 30, 2000 and 1999:........................................................F-46
CENTILLION DIGITAL SYSTEMS, INC. AND SUBSIDIARIES, e.NOVA, LLC
AND SUBSIDIARY, AND CHS, LLC:
Combined Financial Statements as of and for the Years Ended December 31, 1999 and
1998 (Compiled):......................................................................................F-51
Unaudited Combined Financial Statements as of September 30, 2000 and December 31, 1999
and for the Nine Months Ended September 30, 2000 and 1999:............................................F-65
CDS HOLDINGS, LLC:
Unaudited Financial Statements as of September 30, 2000 and the Two Months Ended
September 30, 2000:...................................................................................F-72
Unaudited Condensed Consolidated Pro Forma Financial Data of CDS Holdings, LLC:.......................F-79
CTI GROUP (HOLDINGS) INC:
Unaudited Condensed Consolidated Pro Forma Financial Data of CTIG:....................................F-84
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, INCLUDING AMENDMENTS THERETO]........................................A-1
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
</TABLE>
8
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
ANNEX G - SECTION 262 OF THE DELAWARE GENERAL CORPORATION LAW................................................G-1
ANNEX H - 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 INCLUDING AMENDMENT THERETO..............................................H-1
ANNEX I - COMMUNICATIONS GROUP INC. STOCK OPTION AND
RESTRICTED STOCK PLAN..............................................................................I-1
ANNEX J - AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT,
DATED AS OF OCTOBER 26, 2000, BY AND AMONG CTI DATA
SOLUTIONS, INC., CTI DATA SOLUTIONS, LTD, CTI GROUP
(HOLDINGS) INC., AND CENTILLION DATA SYSTEMS, INC..................................................J-1
ANNEX K - AMENDED AND RESTATED PROMISSORY NOTE, DATED AS
OF OCTOBER 26, 2000................................................................................K-1
</TABLE>
9
<PAGE>
SUMMARY TERM SHEET
This summary highlights selected information from this document and
contains information concerning the most material terms of the mergers that may
be important to you. To more fully understand the mergers, the proposed
amendments to the certificate of incorporation and proposed amendments to the
stock option and restricted stock plan, our stockholders are urged to read this
entire document carefully, including the annexes, and the documents we have
referred you to. See "Where You Can Find More Information" on page [106].
The Companies
CTIG is a publicly-held company which designs and develops data
processing software for managing telecommunications systems. Its headquarters is
located at 2550 Eisenhower Avenue, Norristown, Pennsylvania 19403, Telephone:
(800) 355-5353, Facsimile: (610) 666-7707.
Centillion is a privately-held company which designs and develops data
processing software for managing telecommunications services. Its headquarters
is located at 333 North Alabama Street, Suite 240, Indianapolis, IN 46204,
Telephone: (317) 262-4666, Facsimile: (317) 262-4849.
Celltech is a privately-held company which provides billing, rating,
printing and mailing services for the telecommunications industry. Celltech
focuses on the wireless marketplace. Its headquarters is located at 15425 I45
North, Suite 200, Houston, TX 77090, Telephone: (281) 873-2300, Facsimile: (281)
873-3018.
Summary Description of the Mergers
The Merger between CTIG and Centillion
Centillion's stockholders will receive:
o 13,295,837 shares of Class A common stock;
o additional shares of Class A common stock based on net settlement
proceeds that may be received prior to closing from defendants in
Centillion patent litigation and from parties who have received a
letter from Centillion alleging patent infringement; and
o 2,833,334 shares of Class B common stock, which have conversion
rights into Class A common stock.
The assets of Centillion businesses that are not related to its billing
business and specified cash balances are being transferred to a limited
liability company that will be owned by all of the Centillion stockholders (the
"Holding LLC") in exchange for a promissory note which will be acquired by CTIG
in the Centillion merger (the "Shareholder LLC Promissory Note"). The
Shareholder LLC Promissory Note will be secured by the Holding LLC's assets. The
Centillion stockholders will have options to purchase additional shares of Class
A common stock which will be exercised upon receipt by CTIG of principal
payments received under the promissory note. If the promissory note is not fully
paid in five years, it is to be appraised, based upon the remaining Holding LLC
assets serving as collateral for the note, and the option to purchase shall be
deemed exercised based upon the appraised value. The shares which are issued
based on the appraised value of the assets serving as collateral are in addition
to shares issued in connection with any payments previously made on the note. No
cash will be received for those shares issued based on the appraisal until the
outstanding principal holder of the promissory note is paid in full, upon
maturity which is seven and one-half years after its issue date.
As of [January 11, 2001], CTIG had 7,521,255 shares of common stock
issued and outstanding. Each share will entitle the holder to one vote per
share.
10
<PAGE>
Ownership of CTIG Following the Centillion Merger (see pages [90 to 93])
Current CTIG stockholders will own approximately 37.3% of Class A
common stock after the Centillion merger. Centillion stockholders will own
approximately 62.7% of the Class A common stock and 100% of the Class B common
stock of CTIG. The percentage ownership of CTIG upon conversion of the Class B
common stock is not determinable at the present time. The number of Class A
shares to be issued in exchange for Class B shares depends on three variables
which will not be known at the time of closing:
o The value, if any, of the patent claims held by the Tracking LLC;
o The costs associated with pursuing those claims; and
o The then current market price of CTIG Class A common stock.
Of the Class A and Class B common stock that will be owned by former
Centillion stockholders, an aggregate of 52.5% of the Class A common stock and
83.7% of the Class B common stock will be owned by two corporations which are
controlled by Mr. Salah Osseiran, resulting in a majority ownership stake and
effective control of CTIG by Mr. Osseiran. 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. Additionally,4.6% and 7.3%
of outstanding shares of Class A and Class B common stock will be beneficially
owned by Harold Garrison, who is currently the Chairman of Centillion and will
be Chairman of the board of CTIG after the Centillion merger.
Board of Directors and Management of CTIG Following the Centillion Merger
(see pages [85 to 86])
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 after the closing of the Centillion merger 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 Merger between CTIG and Celltech
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. In the Celltech merger, Celltech stockholders will receive:
o a pro rata distribution of an aggregate of $262,599 in cash; and
o 1,663,126 shares of Class A common stock, subject to possible
adjustment, as follows: in the event that the average market price
per share (based on the previous twenty (20) trading days) of the
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 Class A common stock to be issued in the
Celltech merger will be determined by dividing $4,989,378 by this
average market price per share; provided that in no event will the
number of shares issued be less than 1,330,501 shares nor more
than 2,217,501 shares.
Ownership of CTIG Following the Celltech Merger (see pages [90 to 93])
Current CTIG stockholders will own approximately 33.7% of Class A
common stock after the Centillion and Celltech mergers. Celltech stockholders
will own approximately 9.5% of the Class A common stock and none of the Class B
common stock. Of the Class A common stock that will be owned by former Celltech
stockholders, an aggregate of 80% will be owned by David A. Warren, Celltech's
president and sole director, and the present owner of 85% of Celltech's
outstanding common stock.
Our stockholders may call 800-355-5353 to obtain more information about
the mergers, including updates on the number of shares issued in the mergers.
11
<PAGE>
QUESTIONS AND ANSWERS
ABOUT THE PROPOSED MERGERS
Q: Why is CTIG proposing to merge with Centillion?
A: Because we believe the Centillion merger will provide our 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 businesses. 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 our customer base, and lay the foundation for
CTIG's convergent billing strategy which would allow 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 divested itself of all businesses
other than its telecommunications industry billing business. Centillion's
stockholders will receive 13,295,837 shares of newly-authorized Class A common
stock and 2,833,334 shares of newly-authorized Class B common stock. Centillion
will be required to have cash reflected on its balance sheet at the closing of
the merger of not less than $8,000,000 (minus expenditures made by Centillion
for software in its billing business in fiscal year 2000, not to exceed
$2,000,000). Centillion stockholders will also be able to receive additional
shares of Class A common stock based on net settlement proceeds that may be
received by Centillion prior to closing from defendants in patent infringement
actions brought by Centillion. Additionally, over the next five years, current
Centillion stockholders will receive additional shares of CTIG Class A common
stock as a result of the exercise of an option to purchase shares as principal
payments are received under the Shareholders LLC Promissory Note, or after an
appraisal of that note which was acquired by CTIG in the merger. This appraisal
will be based on the assets serving as collateral for the note, which assets are
set forth on Exhibit "A" to the promissory note, attached to this proxy
statement as Annex D. If the Holding LLC defaults on the promissory note,
recovery will be limited to the value of the assets listed on Exhibit "A" to the
note. The shares to be issued based on the appraisal are in addition to any
shares issued in connection with payments previously made on the note.
Q: What will happen to the non-billing businesses of Centillion?
A: The Centillion businesses that are not related to the billing business have
been transferred to the Holding LLC in exchange for a promissory note issued to
Centillion in the principal amount of approximately $10 million, which CTIG will
acquire in the Centillion merger. 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 promissory note is not fully paid in five years, it is to be
appraised, and shares of 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 its
stock. Financial statements for the Holding LLC are attached to this proxy
statement beginning at page [F-72].
Q: What will happen to the current patent claims being pursued by Centillion?
A: Centillion's patents, its right to enforce those patents, and its current and
future patent infringement litigation, are being transferred to the Tracking
LLC. As noted above, in connection with the transfer, 2,833,334 newly-authorized
shares of Class B common stock will be issued to the Centillion stockholders
(the current outstanding common stock will be re-designated as Class A). CTIG
12
<PAGE>
and the holders of Class B common stock have the right 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 (excluding the value of the patents) at a Class
A common stock value in accordance with the following:
o if issued within 25 months of closing, the lower of $1.50 per
share or 88% of the then current market value, for the first
1,000,000 additional shares (minus shares issued prior to closing
based upon any net proceeds received from settlement of patent
claims) and 88% of fair market value for shares issued in excess
of 1,000,000; or
o after 25 months, 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 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 CTIG 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 Class A common stock based upon the closing
price of the 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 receipt of target revenue derived from Celltech/CTIB's 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.
Q: Why are additional options being authorized under the 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, current CTIG employees, individuals who will become directors of CTIG
after the mergers, and 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 Class B common stock, 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.
13
<PAGE>
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 special meeting. The
special meeting will take place on [February 9], 2001. 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
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. Your submissions must be mailed to CTIG at the address on
page [16].
Third, you can attend the 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. Our stockholders 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.
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 the special
meeting.
Q: What are the tax consequences of the mergers?
A: CTIG management believes that the mergers should be tax-free to CTIG and our
stockholders for Federal income tax purposes. To review the tax consequences to
CTIG and our stockholders in greater detail, see pages [40 to 41 and 68 to 69].
Q. How can I get more information about the merger?
A. You can call Mary Ann Davis, Corporate Secretary of CTIG at (800) 355-5353
to obtain more information about the mergers and updates on the number of
shares to be issued in the mergers.
14
<PAGE>
Structure of CTI Group (Holdings) Inc.
Following the Centillion and Celltech Mergers
<TABLE>
<CAPTION>
<S> <C> <C>
------------------------------------ ---------------------------------- ------------------------------
| Centillion | | Current CTIG | | Celltech |
| Stockholders | | Stockholders | | Stockholders |
| ------------ | | ------------ | | ------------ |
| 56.8% (approximate) of post-merger | | 33.7% (approximate) of post- | | 9.5% (approximate) of post- |
| Class A common stock of CTIG | | merger Class A common stock | | merger Class A common |
| and 100% of post-merger Class B | | of CTIG and 0% of post- | | stock of CTIG and 0% of |
| Common Stock | | merger Class B common stock | | post-merger Class B |
---------------------------------- ---------------------------------- | common stock |
| | | -----------------------------
| | | |
| | | |
| | | |
| -------------------------- | --------------------------------
| | | |
| | | |
| | | |
| | | |
------------------- | | |
| | | | |
| Holding LLC+ | | | |
| | --------------------------------
------------------- | |
| $10 million Promissory | |
| Note -------------- | | ------------------
| | | | CTI Group | | |
--------------------|Centillion |-- | (Holdings) |---------| CTI Billing |
|Data Systems, | | Inc. | | Solutions Inc.** |
-------------------- |Inc. | | | | |
| | -------------- | | ------------------
| Tracking | | |
| LLC |--------------------------- | |
| | | |
-------------------- --------------------------------
|
|
|
|
-------------------------------------------------------------------------------------------
| | | | | |
-------------- -------------- ----------- ------------ ------------- --------------
| | | | | | | | | Telephone | | Plymouth |
| CTI Data | | | | CTI Data | |CTI Soft-Com| | Budgeting | |Communications|
|Solution, Ltd.| | CTI Delaware | | Solutions | | Inc. | |Systems, Inc.| | Inc. |
| (UK) | |Holdings, Inc.| |(USA) Inc.*| | (Dormant) | | (Dormant) | | (Dormant) |
-------------- -------------- ----------- ------------- ------------- --------------
</TABLE>
* Will contain the operations of Centillion after the Centillion merger.
** Will contain the operations of Celltech after the Celltech merger.
+ Will contain the former non-billing businesses of Centillion. The promissory
note indicated was issued to Centillion and will be acquired by CTIG upon
consummation of the Centillion merger.
15
<PAGE>
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: (800) 355-5353
Facsimile: (610) 666-7707
Attention: Fred Hanuschek
e-mail: [email protected]
If you would like additional copies of the proxy statement or if you
would like to receive updated information about the number of CTIG shares to be
issued in the mergers, you can also contact Mary Ann Davis, Corporate Secretary
of CTIG at the above address.
16
<PAGE>
SELECTED HISTORICAL FINANCIAL DATA OF CTIG
The selected financial data presented below for the years ended March
31, 2000 and 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 from information delivered with this
proxy statement. The selected financial data presented below for the years ended
March 31, 1998, 1997 and 1996 are derived from the audited consolidated
financial statements of CTIG which are not incorporated by reference herein. The
financial data as of September 30, 2000 and for the six and three months ended
September 30, 2000 and 1999 are derived from the Company's unaudited financial
statements incorporated herein by reference. 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 operations for these periods, and are not necessarily indicative of
CTIG's results of operations for the full year. 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 AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF CTIG" incorporated by reference
from information delivered with this proxy statement.
<TABLE>
<CAPTION>
Fiscal Years Three Months Six Months
Ended March 31, Ended September 30 Ended September 30
------------------------------------------------------------------------------------------------------------
1996 1997 1998 1999 2000 2000 1999 2000 1999
------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Statement of Operations
Data:
Net Sales 4,134,830 3,223,290 3,598,720 7,043,026 7,230,336 879,955 1,962,604 2,145,097 3,965,721
Gross Profit 2,310,790 1,839,220 1,569,770 2,664,458 3,027,407 228,341 927,451 732,959 1,987,673
Operating Income (loss) 172,440 (193,750) (1,756,441) (308,646) (514,482) (1,090,958) 338,565 (1,489,892) 475,746
Income (loss) before 227,510 (192,710) (1,804,321) (338,343) (521,291) (1,092,484 337,432 (1,490,055) 472,889
Income Taxes
Net Income (loss) 223,850 (197,510) (1,727,821) (414,843) (521,291) (1,092,484) 337,432 (1,490,055) 472,889
Income (loss) per common 0.04 (0.04) (0.27) (0.06) (0.07) (0.15) 0.05 (0.20) 0.07
Share - basic and diluted
Weighted Average Number
of common shares
outstanding:
Basic 5,340,089 5,641,765 6,479,341 6,898,946 7,007,295 7,491,255 7,000,467 7,460,422 6,972,301
Diluted 5,340,089 5,641,765 6,479,341 6,898,946 7,007,295 7,491,255 7,196,992 7,460,422 7,159,679
Balance Sheet Data (at
period end):
Working Capital 177,970 (1,250,617) (1,340,890) (1,369,928) (944,635) (1,885,275) (1,885,275)
(Deficiency)
Total Assets 2,107,260 2,755,770 4,420,057 2,583,073 1,721,402 850,728 850,278
Short-term debt 28,710 57,360 293,820 218,424 50,398 290,000 290,000
Long-term debt 34,720 25,280 1,267,743 0 0 0 0
Stockholders' equity 1,113,190 1,479,000 8,530 (305,604) (354,700) (1,541,499) (1,541,499)
(deficiency)
Other Data:
Gross Profit Margin 55.9% 57.1% 43.6% 37.8% 41.9% 25.9% 47.3% 34.2% 50.1%
Operating Margin 4.2% (6.0%) (48.8%) (4.4%) (7.1%) (124.0%) 17.3% (69.5%) 12.0%
Current Ratio (at Period 118.6% 69.8% 57.3% 52.6% 54.5% 21.2% 21.2%
end)
Cash Flows(Uses of
Cash):
Operating Activities 282,280 396,000 (15,632) 396,679 (466,155) (373,179) (11,583)
Investing Activities (588,860) (569,240) 324,651 (184,978) (149,395) (34,480) (54,149)
Financing Activities 29,900 (8,710) 213,084 (94,838) (25,401) 261,752 (118,429)
</TABLE>
17
<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 which have been audited by Olive LLP, independent
auditors, and which are included elsewhere within this proxy statement. The
selected financial data presented below for the years ended December 31, 1997,
1996, and 1995 are derived from the audited consolidated financial statements of
Centillion which are not included herein. 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 three month and nine month periods ended September 30, 2000 and 1999 are
derived from unaudited financial statements included elsewhere in this proxy
statement. 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, and are not necessarily indicative of Centillion's
results of operations for the full year. 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 AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF CENTILLION" included
elsewhere in this proxy statement.
18
<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 11,023,498 12,655,662 12,753,950 10,573,501 10,734,642
Patent License Revenue 25,000,000
Cost of Revenues:
Service 5,461,739 5,673,621 5,183,078 3,874,610 3,973,282
Patent Licenses 112,494 454,683 2,629,913 4,091,290 549,503
Gross Profit 5,449,265 6,527,358 4,940,959 27,607,601 6,211,857
Operating Income 4,960,339 5,665,540 4,305,129 25,575,928 4,253,272
Income from Continuing Operations before
Income Taxes & Minority Interests
4,813,603 5,566,345 4,394,795 26,172,272 4,353,047
Net Income 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 (2,180,725)
Basic Earnings Per Share
Income from Continuing Operations
Per Share 0.81 1.01 0.67 4.28 0.74
Weighted Average Shares Outstanding 3,629,087 3,565,942 3,971,127 3,683,143 3,559,018
Balance Sheet Data (at period end):
Working Capital 1,561,519 509,941 1,385,803 12,840,041 15,737,783
Total assets of discontinued operations 1,026,691 9,449,863 7,253,142 5,597,738 5,082,961
Total Assets 5,488,957 15,046,635 12,328,028 21,311,346 22,465,058
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 2,788,762
Redeemable Common Stock 510,125 653,108 799,986 397,969 490,711
Minority Interest 0 0 0 1,145,165 1,399,441
Stockholders' equity 3,890,291 10,503,800 8,755,823 16,721,536 16,322,743
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% 470.1%
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)
</TABLE>
<PAGE>
[RESTUB TABLE]
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
-------------------------------------------------------
2000 1999 2000 1999
-------------------------------------------------------
<S> <C> <C> <C> <C>
Statement of Operations Data:
Net Sales 2,738,984 2,722,332 8,096,903 8,043,056
Patent License Revenue 7,500,000
Cost of Revenues:
Service 1,014,072 1,088,402 3,254,992 2,989,296
Patent Licenses 194,796 111,855 2,551,345 327,052
Gross Profit 1,530,116 1,522,075 9,790,566 4,746,708
Operating Income 914,485 1,154,393 8,108,736 3,409,721
Income from Continuing Operations before
Income Taxes & Minority Interests
1,330,692 1,217,572 9,767,327 3,558,762
Net Income from Continuing Operations Before 647,669 731,761 5,789,664 2,138,816
Minority Interests
Net Income (Loss) 647,669 (287,623) 5,789,664 (583,148)
Basic Earnings Per Share
Income from Continuing Operations
Per Share 0.18 0.20 1.60 0.61
Weighted Average Shares Outstanding 3,628,087 3,632,487 3,629,843 3,534,528
Balance Sheet Data (at period end):
Working Capital 13,446,640
Total assets of discontinued operations 938,265
Total Assets 18,720,296
Short-term debt 0
Long-term debt 0
Total liabilities of discontinued operations 487,909
Redeemable Common Stock 487,498
Minority Interest 0
Stockholders' equity 16,969,672
Other Data:
Gross Profit Margin 55.9% 55.9% 62.8% 59.0%
Operating Margin 33.4% 42.4% 52.0% 42.4%
Current Ratio (at Period end) 1164.6%
Cash Flows(Uses of Cash):
Operating Activities 4,136,142 94,179
Investing Activities 3,913,401 (6,930,842)
Financing Activities (3,170,128) 880,271
</TABLE>
19
<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
which have been audited by Arthur Andersen LLP, independent auditors, and which
are included elsewhere within this proxy statement. 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 three and nine
month periods ended September 30, 2000 and 1999 are derived from unaudited
financial statements included elsewhere in this proxy statement. 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 AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS OF CELLTECH" included elsewhere in this proxy statement.
<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 (5,410) 15,383 (37,010) 595,800 (860,386)
Taxes
Net Income (loss) (5,410) 17,928 (34,501) 386,584 (577,411)
Income (loss) per share - basic
and diluted (2.30) 7.62 (14.66) 164.29 (245.39)
Weighted average shares outstanding 2,353 2,353 2,353 2,353 2,353
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 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
</TABLE>
<PAGE>
[RESTUB TABLE]
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
---------------------------------------------
2000 1999 2000 1999
---------------------------------------------
<S> <C> <C> <C> <C>
Statement of Operations Data:
Net Sales 1,515,520 1,911,985 5,125,853 6,236,214
Gross Profit 886,460 910,256 2,783,255 3,370,595
Operating Income (loss) 240,853 (33,628) 406,713 (39,152)
Income (loss) before Income 244,941 (29,551) 421,039 (32,345)
Taxes
Net Income (loss) 189,882 (29,551) 315,779 (32,345)
Income (loss) per share - basic
and diluted 80.70 (12.56) 134.20 (13.75)
Weighted average shares outstanding 2,353 2,353 2,353 2,353
Balance Sheet Data (at period end):
Working Capital (Deficiency) 638,481
Total Assets 1,693,647
Short-term debt 88,812
Long-term debt 108,991
Stockholders' equity 778,050
Other Data:
Gross Profit Margin 58.5% 47.6% 54.3% 54.0%
Operating Margin 15.9% (1.8%) 7.9% (0.6%)
Current Ratio (at Period end) 180.37
Cash Flows (Uses of Cash):
Operating Activities 428,918 (247,064)
Investing Activities 2,665 (41,536)
Financing Activities (107,162) (12,199)
</TABLE>
20
<PAGE>
SELECTED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL DATA
The following table summarizes specified 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
September 30, 2000 assumes that the Centillion and Celltech mergers had both
occurred on that date and was prepared utilizing the unaudited balance sheets of
CTIG, Centillion and Celltech as of September 30, 2000. The unaudited selected
pro forma operations data for the year ended March 31, 2000 has been prepared on
the basis of the results of operations for the year ended March 31, 2000 for
CTIG. The operating results for Centillion and Celltech were developed by adding
the results for the quarter ended March 31, 2000 and subtracting the results for
the quarter ended March 31, 1999 from the historical results for the year ended
December 31, 1999. These quarterly results were derived from schedules prepared
by Centillion and Celltech's management. The unaudited selected pro forma
operations data for the six months ended September 30, 2000 has been prepared
using the unaudited financial statements of CTIG, Centillion and Celltech,
incorporated by reference into or included with this proxy statement. The
unaudited selected pro forma operating data give effect to the Centillion and
Celltech mergers as if they occurred on April 1, 1999.
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
proxy statement. See "Where You Can Find More Information," "Incorporation of
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.
<TABLE>
<CAPTION>
Pro Forma
Year ended Six Months Ended
March 31, September 30,
2000 2000
---------- --------------
<S> <C> <C>
Statement of Operations Data:
Net Sales 25,395,403 10,883,345
License Fee Settlement Revenue 7,500,000
Cost of Revenues:
Service 12,409,489 4,726,396
Patent Licenses 1,954,000 460,758
Gross Profit 18,531,914 5,696,191
Depreciation and Amortization 3,426,549 1,684,299
Operating Income (loss) 6,092,129 (571,191)
Income before Income Taxes 5,996,776 (516,041)
Net loss from Continuing Operations 2,726,543 (846,785)
Primary Income (loss) from Continuing Operations per common Share 0.13 (0.04)
Primary Diluted loss from Continuing Operations per common Share 0.12 (0.04)
Weighted Average Number of common shares outstanding:
Basic 21,468,876 21,918,752
Diluted 22,885,764 21,918,752
</TABLE>
<TABLE>
<CAPTION>
Pro Forma as of
September 30,
2000
---------------
<S> <C>
Balance Sheet Data:
Cash and Short Term Investments 6,944,524
Working Capital 6,947,211
Goodwill 15,493,879
Total Assets 29,992,614
Short-term debt 378,812
Long-term debt 108,991
Stockholders' equity (deficiency) 25,909,573
</TABLE>
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<PAGE>
COMPARATIVE PER SHARE DATA
The following table presents CTIG's historical and pro forma per share
data, and historical and equivalent pro forma per share data of Centillion and
Celltech, as of September 30, 2000 and March 31, 2000 and for the six months
ended September 30, 2000 and the year ended March 31, 2000. The information in
the following table is based upon the historical financial statements of CTIG,
Centillion and Celltech included within, or incorporated by reference from
information delivered with, this proxy statement. The income (loss) per share to
Centillion and Celltech is based on the results of operations for the year ended
December 31, 1999. The pro forma per share data is not necessarily indicative of
the results that would have been achieved had the mergers been consummated on
the dates or prior to the periods presented. The following per share data should
be read in conjunction with the consolidated financial statements and related
notes thereto of CTIG, Centillion and Celltech, and the unaudited pro forma
condensed consolidated financial data, including the notes thereto, included
elsewhere in this proxy statement, or incorporated by reference from information
delivered with this proxy statement.
<TABLE>
<CAPTION>
CTIG CENTILLION CELLTECH
------------------------- ----------------------------- -------------------------------
Historical Equivalent Historical Equivalent
Historical Pro Forma (1)(2) Pro Forma (3) (1)(2) Pro Forma (4)
---------- --------- ---------- ------------- ---------- --------------
<S> <C> <C> <C> <C> <C> <C>
Book Value per Share (5)
September 30, 2000 (0.21) 1.18 4.68 2.45 330.66 439.74
March 31, 2000 (0.05) 4.77 2.58 230.72 463.30
Cash Dividends Declared per
Share:
Six Months Ended
September 30, 2000 N/A N/A N/A N/A N/A N/A
Year Ended March 31, 2000 N/A N/A N/A N/A N/A N/A
Income (loss) from Continuing
Operations per Share:
Six Months Ended
September 30, 2000: (0.20) (0.04) 0.43 (0.08) 99.94 (14.37)
Basic (0.20) (0.04) 0.43 (0.08) 99.94 (14.37)
Diluted
Year Ended March 31, 2000
Basic (0.07) 0.13 0.74 0.26 (245.39) 47.24
Diluted (0.07) 0.12 0.73 0.26 (245.39) 47.24
</TABLE>
(1) The historical Income (loss) from Continuing Operations per Share is based
on information for the six months ended September 30, 2000.
(2) The historical Income (loss) from Continuing Operations per Share is based
on information for the year ended December 31, 2000.
(3) The equivalent pro forma per share data for Centillion is computed by
multiplying CTIG's pro forma per share information by the Centillion
exchange ratio of 2.069.
(4) The equivalent pro forma per share data for Celltech is computed by
multiplying CTIG's pro forma per share information by the Celltech exchange
ratio of 372.01.
(5) Book value per share is computed by dividing total stockholders' equity by
the aggregate number of common shares outstanding as of the balance sheet
date.
22
<PAGE>
SPECIAL CONSIDERATIONS
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
issues should be considered by stockholders of CTIG in deciding whether to
approve and adopt the Centillion merger agreement and Celltech merger agreement.
Risks Relating to the Mergers
We face 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, and
have interests which are different than the interests of present CTIG
stockholders.
We may have difficulty integrating three companies which could reduce our
anticipated revenues or cost savings.
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.
These 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 to CTIG 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.
We are greatly dependent on some personnel, and the loss of these personnel
could have a material adverse effect on the operations of CTIG.
CTIG's, Centillion's and Celltech's senior executive officers have
substantial experience and expertise and make significant contributions to
CTIG's, Centillion's and Celltech's growth and success. In particular, CTIG is
highly dependent on some of its employees who are responsible for programming
software. Further, the ultimate success of the combination of CTIG, Centillion
and Celltech 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, Centillion's or Celltech's senior executive officers,
or employees responsible for programming software, may have a material adverse
effect on the operations of CTIG.
Amortization of goodwill created by the mergers will have a significant
negative impact on the net income of CTIG.
Based upon the average price of CTIG Common Stock being $1.37 at the time
of signing the fourth amendment to the Centillion merger agreement on October
26, 2000, and $3.00 at the time of the signing of the Celltech merger agreement,
it is anticipated that, on a pro forma basis, the mergers will result in the
creation of approximately $15,494,000 of goodwill. On a pro forma basis,
amortization of goodwill will reduce net income by approximately $2,213,000 per
year over the next seven years, based upon an assumed seven-year amortization
period (which period may be shorter or longer depending on a number of factors).
The amount of goodwill created will be determined by the stock price at the
effective time of the mergers and the higher price of CTIG stock at that time,
the greater will be
23
<PAGE>
the amount of the goodwill. Any change in the price of CTIG common stock prior
to the mergers may have a substantial impact on the amount of goodwill that is
created.
If we complete the mergers, our use of our NOL's will be limited which
could increase our current tax obligations.
At March 31, 2000, CTIG had federal net operating loss carry forwards in
excess of $3.7 million. These NOL's are due to expire in the years 2006 through
2020. These NOL's may be used to offset future taxable income through 2020 and
thereby reduce or eliminate federal income taxes otherwise payable. The Internal
Revenue Code 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. This 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 limitation that is
not used in one year will increase the limitation for the following year. The
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 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.
Our existing stockholders may experience additional dilution of their
ownership interests due to the issuance of shares of our Class A common stock in
connection with payments of principal on the Shareholder LLC Promissory Note,
conversion of the Class B common stock, additional shares issued in the Celltech
merger, and other stock issuances upon exercise of or in connection with future
acquisitions.
If the Shareholder LLC Promissory Note, which is currently valued at
approximately $10 million, was paid on [January 11, 2001], CTIG would issue
16,161,616 shares of its Class A common stock based upon the Class A common
stock being issued at 88% of its average market value calculated as of that
date, pursuant to the formula in the merger agreement, which would dilute our
current stockholders' holdings of the post-merger entity from 33.7% to 20.0%.
Dilution from the conversion of the Class B common stock is not presently
determinable, as this conversion is based on several currently unknown variables
including the value of patent claims held by the Tracking LLC (if any), the
costs of pursuing these claims and the market price of CTIG Class A common stock
on the date of conversion. Additional dilution may result from the Celltech
merger. The number of shares to be issued in the Celltech merger is based upon a
CTIG stock price of $3.00 per share. If the price of CTIG Stock is below $3.00
on the closing date down to a minimum of $2.25 per share, a maximum of 554,375
additional shares of CTIG Class A common stock will be issued, further diluting
current CTIG stockholders.
In the future, we may also issue additional securities upon the exercise of
outstanding stock options or for future acquisitions. These issuances would
result in the dilution of the ownership interests of our present stockholders.
Currently, we have 50,000,000 shares of common stock that are authorized for
issuance. After the mergers, we will have issued a total of approximately
[23,554,844] of those shares, including treasury stock, assuming that all
currently outstanding stock options are exercised and assuming that the maximum
number of shares are issued under the mergers (but not including conversion of
the Class B stock).
As a result of our merger with Centillion and the amendments to the
certificate of incorporation, our existing stockholders will not be able to
elect directors until July, 2003 and will not have majority representation on
our board of directors.
The amendments to our certificate of incorporation will have the effect of
designating a new board of directors which will be classified. The initial two
directors in Class I and the initial two directors in Class II have been
designated by Centillion. Prior to July 2003, directors in Class I and II will
be elected only by holders of Class B common stock,
24
<PAGE>
and those holders will be the current Centillion stockholders. The initial three
directors in Class III have been designated by CTIG, and their term expires in
July 2003. After July 2003, the holders of shares of Class A and Class B common
stock will each have one vote for each share held, in the election of all
directors. Until that date, however, our existing stockholders will not be able
to vote in an election of directors.
Risks Relating to the Business of the Resulting Company
We have incurred losses and been plagued by poor cash flow.
CTIG has suffered operating losses in the last three of its fiscal years,
including net losses of $1,727,821 in fiscal 1998, $414,843 in fiscal 1999 and
$521,291 in fiscal 2000. Based upon the deterioration which occurred in CTIG's
financial condition during fiscal 1999 and 2000 and the presence of other
conditions, as of March 31, 1999 and 2000, 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, including consummation of the mergers with
Centillion and Celltech, there can be no assurance that our business plan
adequately addresses the circumstances and situations which resulted in CTIG's
poor financial performance in the periods referred to above.
We will derive a substantial percentage of our revenue from contracts with
a few customers.
In 1999, the billing business of Centillion derived approximately 83% of
its revenue from a single customer, Sprint Communications, L.P. Centillion's
contract with Sprint will expire in March 2001. 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. Also, in 1999 Celltech derived
approximately 47% of its revenue from its largest customer and 65% of its
revenue from its three largest customers. In May, 2000, Celltech signed an
agreement with its largest customer to extend the term of the previous agreement
from February 28, 2000 to February 28, 2001, however, this customer has
expressed its intent not to renew the contract beyond this date. In May, 1999,
Celltech entered into a five year contract extension with its second largest
customer. However, later in 1999, the customer filed for Chapter 11
reorganization under the United States Bankruptcy Code. That customer expects to
file and seek approval for a plan of reorganization. At the present time,
Celltech does not know what impact the bankruptcy will have on its business
relationship with this customer. Celltech currently does not have a written
contract with its third largest customer. The loss by any of CTIG, Centillion or
Celltech of the business of one of these customers could have a substantial
negative impact on the resulting company.
We may not be able to compete successfully in our industry which would have
a negative impact on our results of operations.
CTIG competes with a number of companies in both the United States and
United Kingdom 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 Corp., Daleen Technologies, Veramark Technologies and
Billing Concepts in the United States and BTS, FDS, Softech, Oak and Tiger in
the United Kingdom provide products and services comparable to 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 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. Centillion competes with many of the same companies
as CTIG and Celltech mentioned above. Additionally, new high profile entrants
into the market such as Lucent Technologies have created the potential for
CTIG's loss of market share, which would have a negative impact on CTIG's
business.
CTIG is also subject to many risks associated with doing business abroad,
including:
o adverse fluctuations in currency exchange rates;
o political and economic disruptions;
o the imposition of tariffs and import and export controls; and
o increased customs or local regulations.
25
<PAGE>
The occurrence of any one or more of the foregoing could have a material
negative effect on our results of operations.
We may not be successful when we enter new markets and that lack of success
could limit our growth.
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 our best efforts, our likelihood of success in each new market which we
enter is unpredictable for reasons particular to each new market. For example,
our success in any new market is based primarily on strong acceptance of our
products and services in the new market. It is also possible that, despite our
apparently successful entrance into a new market, such as the United Kingdom,
some unforeseen circumstances could arise which would limit our ability to
continue to do business or to expand in that new market. This would limit our
ability to expand and grow.
The telecommunications billing services industry is subject to continually
evolving industry standards and rapid technological changes to which we may not
be able to respond.
The markets for our software products and services are characterized by
rapidly changing technology, evolving industry standards and frequent new
product introductions. Our business success will depend in part upon our
continued ability to enhance our 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. We may
not be able to respond effectively to technological changes or new industry
standards. Moreover, there can be no assurance that our competitors will not
develop competitive products, or that any new competitive products will not have
an adverse effect on our operating results.
We intend further to refine, enhance and develop some of our existing
software and billing systems and to change all of our billing and accounts
receivable management services operations over to the most proven software
systems and technology to reduce the number of systems and technologies that
must be maintained and supported. There can be no assurances that:
o We will be successful in refining, enhancing and developing our software
and billing systems in the future;
o The costs associated with refining, enhancing and developing these
software products and billing systems will not increase significantly in
future periods;
o We will be able to successfully migrate our billing and accounts
receivable management services operations to the most proven software
systems and technology; or
o Our existing software and technology will not become obsolete as a
result of ongoing technological developments in the marketplace.
CTIG's business may suffer as a result of the settlement of Centillion's
patent claims.
Centillion has written letters and filed lawsuits claiming the possible
infringement of its patents in connection with the Smart Bill(R) technology. Two
settlements in those actions have been entered into and additional settlements
may be negotiated in the future. These settlements have provided substantial
cash payments to Centillion and, in return, Centillion has waived its claims for
past patent violations and granted ongoing licenses to use the technology to the
parties involved in those actions. Since these parties are potential customers
of CTIG, the effect of granting these licenses as well as the fact that
Centillion has brought legal claims against those parties could reduce the
ability of CTIG, after the Centillion merger, to find new customers for its
products.
26
<PAGE>
SPECIAL MEETING OF STOCKHOLDERS
The Special Meeting
General
This proxy statement is being furnished to our stockholders as part of the
solicitation of proxies by the CTIG board of directors for use at a special
meeting of stockholders of CTIG to be held on [February 8], 2001 at 10:00 a.m.
local time, at [the offices of Klehr, Harrison, Harvey, Branzburg & Ellers,
LLP.] This proxy statement and the enclosed form of proxy are first being mailed
to stockholders of CTIG on or about [January 18], 2001.
The purpose of the 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 any other business that may properly come before the special
meeting.
Each copy of this proxy statement mailed to our stockholders is accompanied
by a form of proxy for use at the special meeting.
The CTIG board of directors recommends that our 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 [January 12, 2001] as the record
date for the determination of the CTIG stockholders entitled to notice of and to
vote at the 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
special meeting. As of [January 11, 2001,] there were outstanding and entitled
to vote [7,521,255] shares of CTIG common stock (constituting all of the voting
stock of CTIG), which shares were held by approximately 500 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 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 special meeting is necessary to constitute
a quorum at the 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 amendment to 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 special meeting.
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
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 special
meeting for purposes of determining whether a quorum exists, but will not be
counted as votes cast on that matter. Because CTIG's Certificate of
Incorporation and Bylaws are silent with respect to this issue, if a broker or
nominee holding stock in "street name" indicates on a proxy that it does
27
<PAGE>
not have discretionary authority to vote as to a particular matter, which are
referred to as "broker non-votes," those shares will be treated as present and
entitled to vote at the special meeting for purposes of determining whether a
quorum exists, but will not be counted as votes cast on that matter.
Accordingly, abstentions and broker non-votes will have the same effect as votes
against approval of the merger agreements and the amendments to CTIG's
certificate because they will not be counted for purposes of achieving a
majority vote in favor of those proposals.
As of January 11, 2001 directors and executive officers of CTIG and their
affiliates are beneficial owners of approximately 36% 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 special meeting by properly executed proxies received prior
to or at this meeting, and not revoked, will be voted at this meeting in
accordance with the instructions indicated on those proxies. If no instructions
are indicated (other than in the case of broker non-votes), those 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 special meeting that are to come before the
meeting. If any other matters are properly presented at the special meeting for
consideration, including, among other things, consideration of a motion to
adjourn the 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 those 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 that
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
o filing with the corporate secretary of CTIG, at or before the taking of
the vote at the special meeting, a written notice of revocation bearing
a later date than the proxy,
o 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 special meeting, or
o attending the special meeting and voting in person (although attendance
at the 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 special meeting.
All expenses of CTIG's solicitation of proxies for the 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. These
directors, officers and employees will not be additionally compensated, but may
be reimbursed for reasonable out-of-pocket expenses in connection with this
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 these brokerage houses,
custodians, nominees and fiduciaries, and CTIG will reimburse those brokerage
houses, custodians, nominees and fiduciaries for their reasonable expenses
incurred in connection with this solicitation.
28
<PAGE>
PROPOSAL I
THE CENTILLION MERGER PROPOSAL
Background of the Centillion Merger
In July 1998, the board of directors of CTIG decided to evaluate various
alternatives to increase stockholder value. In connection with evaluating its
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 initiated contact with members of the management of Centillion to discuss a
possible strategic alliance. Centillion had originally contacted CTIG in 1996 to
consider the potential of a licensing agreement in respect of CTIG's Neptune
billing software. The project did not develop any further at that time due to
Centillion's alternative internal development plans. No further contact was made
until CTIG re-initiated contact in June, 1999 with William Miller, Vice
President of Centillion. Sokoloff & Co., arranged for Mr. Miller to meet with
Mr. Johns and Mr. Sokoloff in Dallas, Texas to explore potential possibilities
with Centillion.
At that meeting the parties discussed the fact that 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 would complement and
expand the functionality and capabilities of CTIG's Neptune - billing software
and would significantly enhance CTIG's billing analysis capabilities. The
parties believed that 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.
An initial exploratory discussion was held among Mr. Johns and Mr. Garrison
and Mr. Leeds of Centillion in the middle of October, 1999. In this discussion,
those individuals conveyed to Mr. Johns that any transaction negotiated between
the parties could not include an arrangement that would provide a 5% profit
share to the resulting company's president, noting that Mr. Johns' then current
employment agreement held this type of provision. Mr. Johns reported this to a
regularly convened board meeting of CTIG held on November 3, 1999, and excused
himself from the meeting while the board deliberated on this issue. Upon his
return to the meeting it was proposed by the board and accepted by Mr. Johns,
that in lieu of the 5% profit share, Mr. Johns be issued 300,000 options at the
then current prevailing stock price of $1.09, which would vest equally over 3
years, and be conditioned upon a successful conclusion of the negotiations with
Centillion.
In early November 1999, representatives of CTIG, Centillion, Sokoloff &
Co., Klehr, Harrison, Harvey, Branzburg & Ellers LLP (outside counsel for CTIG)
and Blank Rome Comisky & McCauley (outside counsel for Centillion) met at CTIG's
headquarters to discuss a possible business combination. At that meeting,
representatives of Centillion suggested a transaction with CTIG in which
Centillion placed a value of $40 million on their company and a value of $10
million on CTIG's business. Mr. Johns countered by proposing the negotiation be
split into two separate parts. In the first instance, he proposed that CTIG
would likely accept a valuation placed upon it of $12 million for the purpose of
attracting new investment capital into its business. However, in the second
instance, he argued, while Centillion was financially far stronger than CTIG,
that this was because CTIG had already invested its resources into the
establishment of a European presence and the development of its marketable
products. CTIG therefore benefitted from the "time value" it had achieved. He
therefore advised Centillion that CTIG would strongly disagree with the 80% /
20% relative values that Centillion had placed on the two businesses.
29
<PAGE>
Centillion responded by accepting the "investment capital" valuation and
agreed to invest $5 million into the common stock of the combined businesses
provided that relative values could be agreed upon. It was further agreed that
CTIG would appoint a neutral entity to carry out an independent relative
valuation of the two businesses.
Following this review, in mid-November 1999, the same representatives of
CTIG, Sokoloff & Co., and Klehr, Harrison met with the representatives of
Centillion and Blank Rome in Philadelphia, Pennsylvania. Messrs. Johns and
Sokoloff proposed that the operations of the two businesses be valued on a 50% /
50% basis and, therefore, the total number of CTIG outstanding shares and
options (approximately eight million) would be the number of shares issued to
the Centillion stockholders. However, Mr. Johns believed that Centillion's
future revenue stream could be at risk, being largely dependent on one customer.
Therefore, it was agreed that approximately 3,250,000 of the 8,000,000 shares
proposed to be issued to Centillion shareholders would be held in escrow pending
the receipt of future revenues from that or specific substitute customers over a
three-year period.
It was further agreed that Centillion would provide additional working
capital to the combined business by contributing $5 million in cash as part of
the transaction, which cash CTIG had been attempting to raise independently of
the merger. For this $5 million, Centillion would receive an additional
3,333,333 shares of CTIG common stock in the transaction. It was later
negotiated that Centillion would contribute an additional $3 million in cash to
the combined entity, which funds it had recently received from the settlement of
a patent infringement claim it had brought against another company. In exchange
for this additional $3 million in cash, CTIG agreed to issue additional shares
of CTIG to Centillion stockholders. The final exchange negotiated would be a
total of five million shares of CTIG for $8 million cash, in addition to the
approximately eight million shares referred to above.
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 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 of
directors authorized management to continue to pursue a possible merger with
Centillion and to appoint First Colonial Securities Group to act as its
financial advisor.
In mid-to-late December 1999, the parties began a review of definitive
documentation and commenced a comprehensive due diligence review. This process
lasted through most of January 2000.
On February 3, 2000, the board of directors of CTIG, after reviewing all
documentation relating to the proposed merger, and after receiving a preliminary
opinion issued by First Colonial Securities Corporation, that the transaction
was fair, from a financial point of view, to the holders of CTIG common stock,
authorized the execution and delivery of the Centillion merger agreement.
The merger agreement originally provided that the merger must be
consummated by June 30, 2000. Because of various delays, the transaction could
not close on that date, and the parties agreed several times to extend the
closing date ultimately until January 31, 2001. These changes as well as several
others are memorialized in Amendments 1-4 of the merger agreement, attached
hereto as Annex A.
Because the closing had been delayed, in September of 2000, Messrs. Leeds,
Garrison and Johns discussed the general terms of changes to the merger
agreement, during a conference call, to reflect changes in the relative
valuations of CTIG and Centillion and changes in general business conditions
from when the merger agreement was first negotiated. The proposed changes were
subsequently presented to Rupert Armitage who is a member of CTIG's board. The
aforementioned parties agreed upon the changes subject to the approval of the
CTIG board of directors. On October 18, 2000, the board of directors, after
receiving a revised opinion issued by First Colonial that the transaction as
proposed to be amended was fair, from a financial point of view, to the holders
of CTIG common stock, approved the proposed terms. On October 26, 2000, the
parties executed a fourth amendment to the merger agreement which amendment is
attached to the merger agreement as part of Annex A hereto.
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The principal changes to the business terms of the Centillion transaction
are as follows:
(1) The $8 million cash contributed to the transaction by Centillion will
be exchanged for 5,333,333 shares of CTIG Class A common stock instead
of the previously agreed 5 million shares, representing an increase of
333,333 shares, thereby increasing the total number of Class A shares
to be initially issued from 12,962,504 to 13,295,837.
(2) Up to $2 million of this cash may be reduced by Centillion for
capitalized costs associated with product development. Centillion has
used and will continue to use this available cash to continue its
development of software.
(3) 3,215,100 shares of Class A common stock, originally planned to be held
in escrow pending receipt of revenues from Sprint and others, will be
released at closing. This is in recognition of progress on business
activity in this area.
(4) The original transaction had a rate for voluntary conversions of shares
of Class B Common Stock into shares of Class A Common Stock of $2.25
per share, for a maximum of 333,334 shares if issued within one year
after closing, and otherwise at 88% of the average market price at the
time. This voluntary conversion price has been changed to the lower of
$1.50 per share or 88% of the average market price for a maximum of
1,000,000 shares if issued within 25 months after closing, and
otherwise at 88% of the average market price. As in the original
agreement, CTIG has the right to voluntarily convert the shares for a
period of two years after closing, and the holders of the Class B
Common Stock have the right for three years after that period. This
conversion price was changed due to a gradual decline in the market
price for CTIG's common stock and the parties had agreed that this
change more accurately reflected the market price for CTIG's stock.
(5) To the extent that net proceeds from Centillion's patent claims are
received between October 1, 2000 and the closing date, that additional
cash will remain in Centillion as part of the merger and the Centillion
stockholders will be issued additional shares of CTIG Class A common
stock at closing in accordance with the formula outlined in 4 above.
The maximum aggregate number of shares that may be issued based upon
the formula of the lower of $1.50 or 88%, whether as a conversion of
Class B common stock or for net proceeds from patent claims, is
1,000,000 shares.
(6) The original agreement made closing contingent upon CTIG's stock price
being at least $1.26 per share at the closing date. The parties agreed
to lower that floor price by $.46 to $.80 per share.
In addition, at Mr. Johns' request, the CTIG board of directors cancelled
200,000 of a total of 300,000 unvested options previously granted to him in
connection with the Centillion merger in light of the large non-cash
compensation charge associated with those options. Also, loans amounting to
$550,000 have been made to CTIG by Centillion. The purpose of these loans is to
help with the short-term working capital requirements of CTIG.
On January 12, 2001, the parties executed a fifth amendment to the merger
agreement which extended the deadline for closing of the merger to February 28,
2001, a copy of which is attached to the merger agreement as part of Annex A
hereto.
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.
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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 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) Favorable Considerations:
(a) 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 similar
alternatives to a successful conclusion. The board determined
that the Centillion merger was the most favorable alternative.
(b) Centillion's 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. This 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.
(c) 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 February 2, 2000, and
finalized as of April 5, 2000 and the updated opinion
delivered on October 18, 2000, that as of those dates, the
transaction was fair, from a financial point of view, to the
holders of CTIG common stock. A copy of the October 18, 2000
written opinion, which sets forth the assumptions made,
matters considered and limitations on the review undertaken is
attached as Annex F to this proxy statement.
(d) Strategic Merits of the Centillion Merger. The CTIG board of
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:
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;
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o Centillion would provide greater management depth to
CTIG, with substantial experience
in the telecommunications billing industry; and
o CTIG's President and CEO would continue to preside
over the operations of the combined business.
(e) 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. Because the Centillion merger will be tax
neutral to CTIG and our stockholders, this factor weighed in
favor of approving the Centillion merger.
(ii) Countervailing Considerations. The CTIG board of directors also
seriously considered 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 approximately 62.7% of the
outstanding shares of CTIG, including the fact that after the
Centillion merger, one stockholder, Mr. Salah Osseiran, will
control approximately 52.5% 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 remain with CTIG
pending the consummation of the Centillion merger and,
therefore, may leave CTIG; and
(e) Approximately 83% of the gross revenues of Centillion's
billing business are derived from a single customer. The
contract between Centillion and this customer initially
expired on September 20, 2000. and was subsequently extended
by the parties until March 2001. If this customer chooses not
to renew its contract, these revenues would be difficult to
replace.
(f) The size of the termination fee payable, in some
circumstances, by CTIG under the Centillion merger agreement.
(g) The number of shares of CTIG common stock which would be
exchanged for the number of shares of Centillion Common Stock
and which would result in a transfer of control to Centillion
stockholders; and
(h) The expectation that the Centillion merger would be accounted
for as a purchase of CTIG by Centillion resulting in the
creation of an amount of goodwill which, based on CTIG's net
assets, could have been equivalent to the value of the
Centillion transaction.
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,
however, take into account, and placed reliance upon, the analyses performed by,
and the opinion rendered
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by, First Colonial Securities Corporation 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 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.
Opinion of Financial Advisor to CTIG
On December 15, 1999, CTIG engaged First Colonial Securities Group, Inc.,
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 of the Centillion
merger to the holders of outstanding shares of CTIG common stock. First Colonial
Securities Group, Inc. is a 12-year old regional investment-banking firm that,
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 other corporate purposes. 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 October 18, 2000, to the CTIG
board of directors that, as of such date, the consideration to be received by
CTIG stockholders in the merger is fair from a financial point of view to the
holders of outstanding shares of CTIG common stock. The opinion issued to the
CTIG board and delivered on October 18, 2000 is an updated version of an opinion
issued earlier by First Colonial on April 5, 2000 and updated to take into
account all of the amendments, including the Fourth Amendment, which have been
executed and agreed to by the CTIG Board subsequent to the original opinion
being issued.
The full text of the opinion delivered by First Colonial to the CTIG board
of directors dated October 18, 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 proxy statement. First Colonial's opinion is directed only to
the fairness, from a financial point of view, of the Centillion merger 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 such fairness opinion attached to this proxy
statement as Annex F. 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
other relevant financial and operating data of Centillion made
available to First Colonial from Centillion and CTIG;
o discussed the business, financial condition and prospects of
Centillion with members of its senior management;
o reviewed the publicly available consolidated financial
statements of CTIG for recent years and interim periods to
date and other relevant financial and operating data of
CTIG made available to First Colonial from published sources;
o reviewed 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 members of its senior management;
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o reviewed the recent reported prices and trading activity for
the common stock of CTIG and compared this information and
financial information for CTIG and Centillion with
similar information for other companies engaged in the
businesses that First Colonial considered comparable;
o reviewed the financial terms, to the extent publicly available,
of merger and acquisition transactions that First Colonial
considered comparable;
o reviewed the merger agreement as amended, employment agreement
and promissory note;
o performed such other analysis and examinations and considered
such other information, financial studies, analyses and
investigations and financial, economic and market
data as First Colonial deemed relevant.
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 all material financial analyses
performed by First Colonial in connection with providing its opinion to the CTIG
board of directors on October 18, 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 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 be permitted to use
no more than $1 million of its NOL in any one year should the combined company's
earnings enable such offset, (ii) Centillion stockholders have exercised rights
to acquire a total of 4,215,099 shares under rights granted to them in the
Agreement and Plan of Merger; which when combined with the initial 9,080,738
shares, a total of 13,295,837 shares of Class A common stock is issued to
Centillion stockholders at closing (the additional 333,333 shares have been
granted in consideration for changes in general business conditions).
Accordingly, the Class B common stock to be issued has been reduced to 2,833,334
shares to reflect the exercise of the rights acquired by Centillion stockholders
to acquire additional Class A common stock, (iii) cash of not less than
$8,000,000, (less all expenditures made by Centillion relating to the
development of Billing Business software not to exceed $2,000,000) is on
Centillion's balance sheet, (iv) no
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accounting for potential recoverable patent infringement claims, and (v)
goodwill of $13,383,000 is assumed and amortized over a proposed seven year
schedule.
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 merger would result in a
theoretical implied equity per share price of $0.9125 to $1.62875. Therefore,
when compared to the theoretical implied equity value of a share of CTIG common
stock prior to the merger of $0.725 to $1.30, the merger should result in per
share value accretion for current holders of CTIG common stock of between 13.6%
and 25%.
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 $20,140,00 to $45,580,000 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
October 16, 2000, the proposed transaction values Centillion at $22,177,610, or
2.09x projected 2000 revenues, within the stated range of industry standards for
comparable companies.
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 earnings before interest and taxes ("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 2.7x to 4.6x revenue. Using this range, the implied equity value of
Centillion using this method of analysis yielded a range of $29,160,000 to
$49,680,000. As of October 16, 2000, the proposed transaction values Centillion
at $22,177,610, or 2.05x trailing 12-month revenues, below the stated range of
industry standards for comparable companies.
First Colonial's analysis found that for these transactions the
multiples of offer prices to projected 2000 EBIT yielded a range of 11x to 18.7x
projected 2000 EBIT. Using this range, the implied equity value of Centillion
using this method of analysis yielded a range of $20,497,048 to $34,844,982. As
of October 16, 2000, the proposed transaction values Centillion at $22,177,610,
or 11.9x projected 2000 EBIT, within the stated range of industry standards for
comparable companies.
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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 assessed future growth and acquisition opportunities for each
of the companies.
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 proxy statement.
Interests of First Colonial in the 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, and amended
October 20, 2000, CTIG agreed to pay First Colonial a fee of $67,500 upon
consummation of the merger, of which $20,000 has been paid to date. The balance
of $47,500 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.
Projected Financial Data
Internal management forecasts, projections and estimates were furnished
to First Colonial in January, 2000, in connection with its analysis of the
Centillion merger. As a matter of policy, neither CTIG nor Centillion publicly
disclose forecasts, projections and estimates of this type and such forecasts,
projections and estimates were not prepared with a view towards public
disclosure or with a view toward complying with the guidelines established by
the American Institute of Certified Public Accountants with respect to
prospective financial information, but, in the view of CTIG's and Centillion's
management, was prepared on a reasonable basis, reflects the best available
estimates and judgments and presents, to the best of management's knowledge and
belief, the expected course of action and the expected future financial
performance of CTIG and Centillion at the time it was provided to First
Colonial. However, this information is not fact and should not be relied upon as
necessarily indicative of future results, and readers of this proxy statement
are cautioned not to place reliance on the prospective financial information.
These forecasts, projections and estimates were based on numerous variables and
assumptions which are inherently uncertain and which may not be within the
control of management, including, without limitation,
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general economic, financial market, regulatory and competitive conditions.
Additionally, these projections were prepared independently of the Centillion
merger and will be affected by the outcome of the Centillion merger.
Accordingly, actual results could vary materially from those set forth in those
forecasts, projects and estimates.
Neither CTIG's nor Centillion's independent auditors, nor any other
independent accountants, have compiled, examined, or performed any procedures
with respect to the prospective financial information contained herein, nor have
they expressed any opinion or any other form of assurance on such information or
its achievability, and assume no responsibility for, and disclaim any
association with, the prospective financial information.
The assumptions and estimates underlying the prospective financial
information are inherently uncertain and, though considered reasonable by the
management of CTIG and Centillion as of the date provided to First Colonial, are
subject to a wide variety of significant business, economic, and competitive
risks and uncertainties that could cause actual results to differ materially
from those contained in the prospective financial information, including, among
others, those enumerated in the section of this proxy statement entitled
"Special Considerations." Actual results for CTIG and Centillion through
September 30, 2000, exclusive of non-recurring licensing revenues to Centillion
resulting from the settlement of patent litigation, were significantly lower
than the projections provided to First Colonial and presented below.
Accordingly, there can be no assurance that the prospective results are
indicative of the future performance of CTIG or Centillion or that actual
results will not differ materially from those presented in the prospective
financial information. Inclusion of the prospective financial information in
this proxy statement should not be regarded as a representation by any person
that the results contained in the prospective financial information will be
achieved.
Neither CTIG nor Centillion generally publish their business plans and
strategies or make external disclosures of their anticipated financial position
or results of operations. Accordingly, neither CTIG nor Centillion intend to
update or otherwise revise the prospective financial information to reflect
circumstances existing since their preparation or to reflect the occurrence of
unanticipated events, even in the event that any or all of the underlying
assumptions are shown to be in error. Furthermore, neither CTIG nor Centillion
intend to update or revise the prospective financial information to reflect
changes in general economic or industry conditions.
Centillion Projections. The following projections assumed that (i)
Centillion was a stand-alone company with $5 million dollars of cash and (ii)
Centillion's new product would be available for delivery to the market on or
about June, 2000. As a result of the Centillion merger, Centillion has committed
its available cash to this merger, and delivery of Centillion's new product was
delayed until November 2000. Therefore, at the time of the First Colonial
analysis, Centillion's projections were as follows:
Centillion projected revenues relating to its traditional billing
business as follows: $402,000 for Fiscal Year 2000; $3,367,000 for Fiscal Year
2001; $6,742,000 for Fiscal Year 2002; $14,533,000 for Fiscal Year 2003; and
$28,093,000 for Fiscal Year 2004; with corresponding net income before taxes of
$(1,082,000) for Fiscal Year 2000; $(814,000) for Fiscal Year 2001; $(413,000)
for Fiscal Year 2002; $3,064,000 for Fiscal Year 2003; and $9,269,000 for Fiscal
Year 2004.
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Centillion projected revenues relating to its electronic billing
business as follows: $10,307,000 for Fiscal Year 2000; $10,731,000 for Fiscal
Year 2001; $15,254,000 for Fiscal Year 2002; $ 28,836,000 for Fiscal Year 2003;
and $41,058,000 for Fiscal Year 2004; with corresponding net income before taxes
of $3,377,000 for Fiscal Year 2000; $(1,036,000) for Fiscal Year 2001;
$(319,000) for Fiscal Year 2002; $9,367,000 for Fiscal Year 2003; and
$17,905,000 for Fiscal Year 2004.
Centillion projected cash flow relating to its combined traditional and
electronic billing businesses as follows: $(1,129,000) for Fiscal Year 2000;
$(4,275,000) for Fiscal Year 2001; $(2,437,000) for Fiscal Year 2002;
$10,762,000 for Fiscal Year 2003; and $25,312,000 for Fiscal Year 2004.
CTIG Projections. The CTIG projections provided by CTIG to First
Colonial were part of a business plan that originally involved the proposed
investment of $5 million in cash which was to be applied to CTIG's working
capital in order to further develop, support and market is new software. CTIG
provided two sets of projections, one showing the result with the investment of
the $5 million dollars and one without that investment. Because that $5 million
will be obtained from Centillion upon consummation of the Centillion merger,
only the set of projections involving the $5 million are included in this proxy
statement.
CTIG's projections assumed that $5 million would be invested into its
business by September 30, 1999. Therefore the revenue projections were as
follows: $8,648,000 for Fiscal Year 2000; $10,902,000 for Fiscal Year 2001;
$14,494,000 for Fiscal Year 2002; and $19,497,000 for Fiscal Year 2003; with
corresponding net income before taxes of $678,000 for Fiscal Year 2000;
$1,221,000 for Fiscal Year 2001; $3,483,000 for Fiscal Year 2002; and $7,264,000
for Fiscal Year 2003. Actual results for Fiscal Year 2000 were less than the
projected amounts.
Interest 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 common stock should
be aware that some 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 common stock generally. The
board of directors of CTIG was aware of these 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
compensation in the form of options to acquire shares of Class A common stock
and cash as more fully described in The Resulting Company -- Executive
Compensation" beginning on page [85].
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 director
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 this 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. This agreement will supersede an employment
agreement between CTIG and Mr. Johns which was originally scheduled to terminate
on March 31, 2001. Pursuant to the new employment agreement, Mr. Johns will
serve as President and Chief Executive Officer of CTIG for a period of 36 months
following the completion of the Centillion merger at an annual minimum salary of
$250,000. Mr. Johns' prior employment agreement provided for Mr. Johns to
receive an annual salary of $175,000. Under his new agreement, 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. In his prior employment agreement, Mr. Johns was
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was entitled to a 5% share of CTIG's pre-tax profit. Under his new agreement,
Mr. Johns will further be entitled to reimbursement of specified expenses
relating to accommodations and transportation, as well as medical insurance,
401(k), and other similar plans in which the company may participate as in his
prior agreement. Additionally, the new employment agreement provides for
severance payments under certain circumstances in the event of termination of
Mr. Johns' employment, of 24 months salary, at his current salary at the time of
the termination. Under his prior agreement, Mr. Johns was not entitled to any
severance pay except for salary accrued through the termination of the
agreement.
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 arrangement which was part of the employment agreement
entered into with CTIG during fiscal year 1998. Of those 300,000 options, Mr.
Johns subsequently agreed unilaterally and without any additional compensation
to forfeit 200,000 unvested options in light of the large non-cash compensation
charge associated with those options. The remaining 100,000 options vested on
November 3, 2000.
Stock Options. The CTIG Stock Option and Restricted Stock 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 100,000 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 eliminated 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 [150,000] 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
The Centillion merger will be accounted for as a reverse acquisition of
CTIG by Centillion. Under this 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.
Federal Income Tax Consequences
The following discussion summarizes the material federal income tax
consequences of the Centillion merger that are generally applicable to CTIG and
our stockholders. This discussion is based on currently existing provisions of
the Internal Revenue 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 or our stockholders.
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.
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ACCORDINGLY, OUR 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 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 common stock is not to be below $.80 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.
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."
CTIG will report to stockholders of CTIG and to the IRS the amount of
"reportable payments" and any amount withheld with respect to Class A common
stock and Class B common stock during each calendar year.
Exercise of Dissenters' Rights. Holders of CTIG common 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 OF OUR STOCKHOLDERS IS URGED TO CONSULT HIS OR HER 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 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 or SmallCap Market. There
can be no assurance that CTIG's application for NASDAQ listing will be
successful.
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Resales of CTIG Common Stock Issued in Connection with the Merger; Affiliate
Agreements
Upon registration of the Class A common stock issued in connection with
the mergers for resale, such shares will be freely transferable.
Regulatory Approvals
No federal or state regulatory approvals or consents are required in
connection with the Centillion merger.
Appraisal Rights
Holders of CTIG common stock who do not vote for the approval and
adoption of the Centillion merger agreement and who otherwise comply with the
applicable statutory procedures of Section 262 of the Delaware General
Corporation Law 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
proxy statement. Failure to comply strictly with the procedures set forth in
Section 262 of the DGCL will result in the loss of appraisal rights. Set forth
below are all material provisions relating to appraisal rights under Section
262.
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 and to receive payment in cash of the "fair value" of
those 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 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
proxy statement constitutes such notice to the holders of CTIG common stock and
Section 262 of the DGCL is attached to this proxy statement 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.
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
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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 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 Chancery Court demanding a determination of the
fair value of the shares held by the 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.
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 Chancery
Court, the Delaware Chancery Court is empowered to conduct a hearing on such
petition to determine
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those holders of CTIG common stock who have complied with Section 262 and who
have become entitled to appraisal rights thereunder. The Delaware Chancery 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 Chancery Court may dismiss the
proceedings as to such holder.
After determining which holders are entitled to appraisal, the Delaware
Chancery 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 Chancery Court shall take into account all relevant factors. In
Weinberger v. UOP, Inc., the Delaware Supreme Court has stated that these
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 Chancery Court has decided that the statutory appraisal
remedy, depending on factual circumstances, may or may not be a dissenter's
exclusive remedy.
The Delaware Chancery 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 Chancery Court and taxed upon the parties as the Delaware Chancery
Court deems equitable. The Delaware Chancery 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 Chancery 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 Chancery Court demanding appraisal will be dismissed as to any holder
without the approval of the Delaware Chancery Court, and this approval may be
conditioned on such terms as the Delaware Chancery 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 THESE RIGHTS.
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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 proxy statement
and is incorporated herein by reference. Holders of CTIG common stock are urged
to read the Centillion merger agreement in its entirety.
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 Class A common stock and 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 within two business days following the date on which the last of the
conditions is satisfied or waived, or at any other time and date to which CTIG
and Centillion mutually agree. As soon as practicable, 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 Indiana Business Corporation Law. The
Centillion merger will become effective upon the filing of the certificate of
merger and articles of merger or at a later time as is specified in those
documents. 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 first
calendar quarter of 2001. 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 the 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) 13,295,837 shares of Class A common stock (subject to adjustment
as described below);
(2) 2,833,334 shares of Class B common stock which may be converted
to Class A common stock, as described below;
(3) an option to purchase additional shares of Class A common
stock (the "Option for Additional Shares") attributable to
specified Centillion assets that will be transferred to a new
limited liability company prior to the merger, as described
below; and
(4) Class A common stock equal to the amount of net after tax
proceeds that may be received from patent infringement actions
received by Centillion prior to consummation of the merger,
valued at the lower of $1.50 per share or 88% of the average
market value of Class A common stock at the time, for the
first 1,000,000 shares so issued, and thereafter at 88% of the
average market price.
Option for Additional Shares. 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 be a part of CTIG at all. Prior
to the closing, the Other Entities will be sold to the Holding LLC which will be
owned by the present stockholders of Centillion. Along with the Other Entities,
Centillion is transferring cash in the approximate amount of $6.9 million and
certain employees, together with assets and liabilities related to such
employees, as well as other miscellaneous assets. The sale price for the Other
Entities
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and the other assets being transferred will be approximately $10 million, which
represents their fair market value. The value of the $10 million will be
satisfied by the Holding LLC giving Centillion a promissory note, which will be
subsequently acquired by CTIG as a result of the Centillion merger. For
additional information on the Other Entities See Combined Management's
Discussion and Analysis of the Combined Financial Conditions and Results of
Operations of Centillion Digital Systems, Inc. and its Subsidiaries, e.Nova, LLC
and Subsidiary, and CHS, LLC for the Nine Months Ended September 30, 2000
Compared to the Nine Months Ended September 30, 1999 beginning on page [61] of
this proxy statement and Combined Management's Discussion and Analysis of the
Combined Financial Conditions and Results of Operations of Centillion Digital
Systems, Inc. and its Subsidiaries, e.Nova, LLC and Subsidiary, and CHS, LLC for
the Year Ended December 31, 1999 Compared to the year Ended December 31, 1998
beginning on page [63] of this proxy statement. Financial statements of the
Holding LLC and the entities in which it holds a substantial equity ownership
interest are attached hereto, beginning at page [F-72].
The basic terms of the promissory note are:
o Interest will be at the minimum rate set by the Internal Revenue
Service.
o The promissory note will be secured by the assets listed in
Exhibit "A" to the promissory note, which is attached to this
proxy statement as Annex D. If the Holding LLC defaults on the
promissory note, recovery by CTIG will be limited to the value
of those assets.
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 seven and a half years. Principal payments will
consist of 52% of the sale price of assets serving as
collateral for the note, after interest and related fees are
paid.
o The promissory note contains an option for the present Centillion
stockholders to acquire additional shares of Class A common stock.
That option will be exercised when principal payments on the
promissory note are made. Additional shares of Class A common stock
will be issued by the Company to the present stockholders of
Centillion in an amount equal to the value of the principal paid.
The shares of Class A common stock will be valued at 88 percent of
the market value of the Class A common stock at time of issuance.
The 12% discount from market reflected what the parties believed was
an appropriate discount for shares sold in a privately negotiated
transaction and was a negotiated part of this transaction. 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 promissory note has not been paid in full five years after
the effective time, an appraisal of its value will be obtained. That
appraisal will be based upon the remaining Holding LLC assets
serving as collateral for the promissory note. The option to
purchase additional shares of Class A common stock will be
automatically exercised at that time, and shares will be issued to
the pre-merger Centillion stockholders based on this appraisal, at
the same value of Class A common stock described above. No cash will
be received for those shares until the outstanding principal balance
of the promissory note is paid in full at maturity. Shares issued
based on the appraisal will be in addition to any shares previously
issued in connection with payments previously made on the promissory
note.
The procedure described above is intended to provide Centillion
stockholders with proper payment in Class A common stock for the promissory
note. Rather than just relying on a current appraisal, this method allows for
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. The appraisal and final
issuance of Class A common stock can occur no later than five years after
closing of the merger, in order to comply with requirements under Internal
Revenue Service Regulations
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for the merger to be a tax-free transaction for Centillion's stockholders.
However, since there may not be sufficient cash in the Holding LLC at the time
of issuance, the parties agreed to defer CTIG's receipt of cash for those shares
until the maturity date of the Shareholder LLC Promissory Note two and one-half
years later, in order to allow additional time for the Holding LLC to liquidate
its assets. There is a risk that CTIG stock will be issued at the end of five
years and that the Holding LLC will default on the promissory note when it is
due two and one-half years later, resulting in the issuance of shares of CTIG
common stock essentially for no consideration.
The Holding LLC will be lending up to $2 million to the Tracking LLC to
fund the patent litigation. This loan will be on a non-recourse basis and will
be secured by the assets of the Tracking LLC. The remainder of the approximate
$6.9 million cash to be received by the Holding LLC will be available to be used
for business purposes as the Holding LLC may determine, which may include
funding operating losses, in which case it would not be available to repay the
note. It presently intends to invest $2 million in its subsidiaries' operations.
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 some
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 of these claims, it was agreed that CTIG would issue a class of
stock (that being the Class B common stock) the value of which would be tied to
the economic performance of the patent rights claims. Prior to the effective
time of the Centillion merger, these patent claims, the underlying patents and
the right to make future claims will be contributed by Centillion to the
Tracking LLC and the Class B common stock will be issued to Centillion
stockholders as part of the consideration for their Centillion shares. As a
result, the Tracking LLC and the assets it owns will remain a part of, and under
the control of CTIG. Class B stockholders have no direct or exclusive financial
interests in the assets of the Tracking LLC. The assets of the Tracking LLC are
available to all creditors of CTIG. CTIG's board of directors does not have the
power to move the assets or liabilities of the Tracking LLC without shareholder
approval.
The 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 Class A common stock, CTIG
can convert the 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 Class B common stock shall convert, on a mandatory basis, if the Tracking
LLC transfers 50% or more of its equity interests, 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. All conversions of Class
B common stock shall be based upon the value of the Tracking LLC at the time of
conversion (excluding the value of the patents owned by the LLC). Any conversion
of Class B common stock during the first 25 months after the closing shall be at
a Class A common stock value per share of the lower of $1.50 per share or 88% of
the then current market value of CTIG Class A common stock for the first
1,000,000 shares of Class A common stock issued in the 25 month period after
closing (less the number of shares issued at closing for proceeds from
settlement of patent actions received by Centillion prior to closing), and at
88% of the average market price of Class A common stock at the time for shares
beyond 1,000,000 or after 25 months. All other conversions, other than a
mandatory conversion, shall be at 88% of the average market price of 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.
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 Class A common
stock and Class B common stock will be sent to holders of Centillion common
stock only upon delivery of
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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 Class A common stock 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 Class A common stock and Class B common stock that the
holder has the right to receive, and 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
Class A common stock 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 Class A common stock or
Class B common stock (after taking into account all certificates representing
shares of Centillion common stock delivered by the holder) will receive, in lieu
thereof, cash (without interest) in an amount equal to this fractional part of a
share of CTIG common stock multiplied by the per share average market price for
Class A common stock or $1.50 per share for Class B common stock. The term
"Average Market Price of 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 Class A common stock 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
Class A common stock or Class B common stock that the holder would be entitled
to receive upon surrender of that 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 that certificate, the exchange agent will issue in
exchange for the lost, stolen or destroyed certificate the shares of Class A
common stock 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.
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 some
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
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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 Class A common stock and this proxy statement; (r)
insurance; and (s) conflicts of interest. In addition, Centillion has made
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.
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 these debts or taxes, 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 were 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 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
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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. The board of directors may
only modify its recommendation with respect to the Centillion merger, if it does
so in response to a superior proposal. In addition, the CTIG board of directors
may, in the exercise of its fiduciary duties and subject to the terms of the
Centillion merger agreement, terminate the Centillion merger agreement and
accept the superior proposal.
CTIG has agreed to file a registration statement to register the resale
of the shares of Class A common stock to be issued in the merger.
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 -- 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 these matters, to coordinate and cooperate with respect to the timing of its
special meeting and to use its best efforts to hold the 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 of the directors of CTIG, as determined by the
directors in good faith after consultation with outside legal counsel, each
party agreed to use all reasonable efforts to solicit from its stockholders
proxies in favor of the Centillion merger.
Post-Merger Corporate Governance; Employment Arrangement. The
Centillion merger agreement provides that some 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 an executive
employment agreement and have executive officers as described under "The
Centillion Merger -- Interests of Certain Person in the Merger -- Employment
Agreement" 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
that would otherwise be issued either as a result of a distribution of the
escrowed stock, issued pursuant to the terms governing the Shareholder LLC
Promissory Note or conversion of shares of Class B Common Stock. 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 those damages, adjusted for dilution to these stockholders.
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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 Corporation 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 Option for Additional Shares,
which is attached to this proxy statement 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 specified assets to the
Tracking LLC, as described in "The Centillion Merger Agreement -- Conversion and
Issuance of Shares -- Option for Additional Shares" 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., current assets
less current liabilities) of not less than $1.00; (2) cash of not less than
$8,000,000 (minus expenditures made by Centillion for software in its billing
business in fiscal year 2000, to a maximum deduction of $2,000,000)- (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 this net worth
(x) $8,000,000 of cash, (y) the Shareholder LLC Promissory Note and (z) the
legal claims of Centillion which are being transferred to the Tracking LLC, in
connection with the issuance of the Class B common stock; (5) all earnings of
Centillion's billing business for the period from January 1, 2000 to the
effective time; and (6) any proceeds received between October 1, 2000 and the
effective time from defendants in Centillion's patent infringement litigation
(less expenses and taxes related to that litigation); (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 Code; (m) the price of Class A
common stock must not be below $.80 per share; and (n) the Tracking LLC must
execute an exclusive, irrevocable, perpetual, royalty-free license authorizing
CTIG to use the patents that the LLC acquired from Centillion in the merger.
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 CTIG and Centillion;
(b) By either CTIG or Centillion if the effective time does not
occur on or before January 31, 2001. 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;
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(c) By either CTIG or Centillion 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 CTIG or Centillion 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 superior proposal (See "The
Centillion Merger Agreement -- Covenants -- No Solicitation)
from a third party. If CTIG claims the benefit of this
section, it must comply with 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; 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.
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 some 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
this termination. This fee is non-refundable, and is Centillion's sole remedy
for 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
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approval by the Centillion stockholders, no amendment may be made by Centillion
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. In addition, after any approval by the CTIG
stockholders, no amendment may be made by CTIG which increases the amount of
consideration that Centillion stockholders will be receiving under the
Centillion merger, or adversely affects the rights of CTIG stockholders without
the approval of a majority of the holders of common stock of CTIG. The 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's primary service is based on its Smart Bill system which is
an electronic billing analysis tool. This service is currently sold via
distributor relationships with telecommunications providers who make it
available to their business customers.
Telecommunications companies provide Centillion complete billing
information for their Smart Bill customers. 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 telecommunications 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 software. 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
accounted for approximately 83% of its billing division revenue in 1999.
Centillion has a three year contract with Sprint that expires in March 2001.
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 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.
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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 merger. 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, Indiana 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 of directors after the completion of the Centillion merger.
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 Netisun, LLC.
Approximately 51% of Netisun is controlled by Centillion stockholders. The other
49% is owned by third parties.
XILA is one of Centillion's current customers that utilize Centillion's
billing systems. For the years ended 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. For the nine months ended September 30, 2000 XILA
paid Centillion $5,605 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 Ameritech 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 telecommunications 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 $8,000 per month.
A number 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. XILA paid Centillion $24,776 for the nine months ended
September 30, 2000.
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CENTILLION MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS OF CENTILLION
Cautionary Statements Regarding Forward-Looking Statements
This report contains "forward-looking" statements. Examples of forward-looking
statements include, but are not limited to: (a) projections of revenues, capital
expenditures, growth, prospects, dividends, capital structure and other
financial matters; (b) statements of plans and objectives of Centillion or its
management or Board of Directors; (c) statements of future economic performance;
(d) statements of assumptions underlying other statements and statements about
Centillion and its business relating to the future; and (e) any statements using
the words "anticipate", "expect", "may", "project", "intend" or similar
expressions.
Centillion's ability to predict projected results or the effect of events on
Centillion's operating results is inherently uncertain. Forward-looking
statements involve a number of risks, uncertainties and other factors that could
cause actual results to differ materially from those discussed in this document.
In addition to information provided elsewhere in this document, shareholders
should consider the following: the risk that Centillion will not be able to
attract and retain customers to purchase its products, the risk that Centillion
will not be able to commercialize and market products; results of research and
development; technological advances by third parties; competition; future
capital needs of Centillion; history of operating losses; dependence upon key
personnel and general economic and business conditions.
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(R) 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(R) product and
data preparation process.
Centillion currently produces Smart Bill(R) software and Smart Bill(R) 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
Three Months Ended September 30, 2000 Compared to Three Months Ended
September 30, 1999
Revenues from continuing operations for the three months ended September 30,
2000 were $2,738,984 compared to $2,722,332 for the three months ended September
30,1999, an increase of 1% in the three months ended September 30, 2000. Of the
recurring continuing operations revenues, 84% in the three months ended
September 30, 2000 and 83% of the three months ended September 30, 1999 were
from a single customer.
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Cost of revenues were $1,208,868 in the three months ended September 30, 2000
and $1,200,257 in the three months ended September 30,1999. The cost of revenues
were 44% of revenue in the three months ended September 30, 2000 and 44% in the
three months ended September 30,1999.
Operating expenses were 22% of revenues in the three months ended September 30,
2000 and 14% of revenues in the three months ended September 30,1999. The
increase was attributable to additional corporate marketing staffing and
non-capitalizable merger expenses.
Other income increased to $416,207 in the three months ended September 30, 2000
from $63,179 in the three months ended September 30,1999. This increase is the
result of liquidating a portion of the company's equity investments during the
three months ended September 30, 2000 and realizing the gain. The liquidation of
the investments was in anticipation of the merger of Centillion with CTIG.
The tax rate, which reflects both federal and state taxes, was 51% for the three
months ended September 30, 2000 and 40% for the three months ended September
30,1999. The difference is due to an adjustment in state income taxes. After
this adjustment, the nine months ended September 30, 2000 cumulative tax rate is
41%.
Non-telecommunications software activities for the three months ended September
30, 1999 are classified as Discontinuing Operations in anticipation of their
sale prior to the merger of Centillion with CTIG. In the three months ended
September 30, 2000 the losses from these activities were offset against the
accrued liability established at December 31, 1999.
Nine months Ended September 30, 2000 Compared to Nine months Ended September 30,
1999
Revenues from continuing operations for the nine months ended September 30, 2000
were $15,596,903 compared to $8,043,056 in the nine months ended September 30,
1999. However, eliminating $7,500,000 in one-time 2000 revenues derived from
licenses resulting from patent litigation settlements, the nine months ended
September 30, 2000 revenues were $8,096,903, an increase of 1% over the nine
months ended September 30, 1999. Of the recurring continuing operations
revenues, 84% in the nine months ended September 30, 2000 and 83% of the nine
months ended September 30, 1999 were from a single customer.
Eliminating $2,551,345 of pre-tax patent litigation costs in the nine months
ended September 30, 2000, cost of revenues were $3,254,992 in the nine months
ended September 30, 2000 and $2,969,296 in the nine months ended September
30,1999 eliminating the $327,053 of patent litigation costs. The cost of
revenues after eliminating the patent license cost were 40% of revenue in the
nine months ended September 30, 2000 and 37% in the nine months ended September
30,1999. The difference resulted from an increase in development costs of
$19,139, and an increase in production costs of $266,557.
Without one-time license revenues, operating expenses were 21% of revenues in
the nine months ended September 30, 2000 and 17% of revenues in the nine months
ended September 30,1999. The increase was attributable to additional corporate
marketing staffing and non-capitalizable merger expenses.
Other income increased to $1,658,591 in the nine months ended September 30, 2000
from $149,041 in the nine months ended September 30,1999. This increase is the
result of liquidating a portion of the company's equity investments during the
nine months ended September 30, 2000 and realizing the gain. The liquidation of
the investments was in anticipation of the merger of Centillion with CTIG.
The tax rate, which reflects both federal and state taxes, was 41% for the nine
months ended September 30, 2000 and 40% for the nine months ended September
30,1999. The difference of 1% was the effect of an adjustment made in the third
quarter for state income taxes.
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Non-telecommunications software activities for the nine months ended September
30, 1999 are classified as Discontinuing Operations in anticipation of their
sale prior to the merger of Centillion with CTIG. In the nine months ended
September 30, 2000 the losses from these activities were offset against the
accrued liability established at December 31, 1999.
Liquidity and Capital Resources
Centillion is currently financing operations through cash generated from
operations. On September 30, 2000 it had $11,577,965 in cash, cash equivalents,
and securities available for sale and on September 30, 1999 the corresponding
amount was $11,120,038. The increase is the result of the one-time revenues
realized in the three months ended March 31, 2000; investment income from
September 30, 1999 to September 30, 2000; a distribution of $3,000,000 to
Holdings, LLC as part of the transferring of ownership by Centillion of the
entities that make up the Discontinued Operations; and a loan made to CTIG in
the amount of $250,000 in September, 2000.
During the three months ended September 30, 2000, Centillion invested $651,865
in telecommunications software development. In the three months ended September
30, 2000 Centillion capitalized $80,021 of expenses incurred in the development
of version 7.0 of its Smart Bill(R) product. In the three months ended September
30, 2000 Centillion capitalized $345,248 of expenses incurred in the continued
development of Magnaflex, its new client server, convergent, traditional billing
system.
During the nine months ended September 30,2000, Centillion invested $2,055,250
in telecommunications software development. In the nine months ended September
30, 2000 Centillion capitalized $226,896 of expenses incurred in the development
of version 7.0 of its Smart Bill(R) product. In the nine months ended September
30, 2000 Centillion capitalized $1,062,871 of expenses incurred in the continued
development of Magnaflex, its new client server, convergent, traditional billing
system.
On September 30, 2000 Centillion had no investment in marketable securities. On
September 30, 1999 Centillion had approximately $5,164,815 invested in
marketable securities. The difference is the result of Centillion selling its
marketable securities in preparation for its merger with CTIG. 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 September 30, 2000 Centillion had $8,587,852
invested in these bonds which are considered a cash equivalent.
Results of Operations
Year ended December 31, 1999 Compared to year ended December 31, 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(R). 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, 83%
in 1999 and 84% 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,
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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 the Holding LLC, which will be owned by
the shareholders of Centillion 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 a change
in the investment portfolio. During 1998 there were significant funds in cash
equivalents, which was earning interest income. This income was recorded as
earned. During 1999, Centillion used some of these funds to purchase equity
investments. These equity investments are classified as "available-for-sale
securities" and the unrealized holding gains and losses are excluded from
earnings. Therefore, the unrealized earnings on these investments are not
included in the 1999 other income.
The tax rate reflects both federal and state taxes and remained constant at 40%
in both years.
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(R) 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.
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COMBINED MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE COMBINED FINANCIAL
CONDITIONS AND RESULTS OF OPERATIONS FOR CENTILLION DIGITAL SYSTEMS, INC. AND
ITS SUBSIDIARIES, E.NOVA, LLC AND SUBSIDIARY, AND CHS, LLC FOR THE NINE MONTHS
ENDED SEPTEMBER 30, 2000 COMPARED TO THE NINE MONTHS ENDED SEPTEMBER 30, 1999
Background
Centillion Digital Systems, Inc. is a global provider of digital file storage
and retrieval services to corporations and major publishing companies. Based on
net revenue, this is its most significant service. The Company's software
applications allow users to share, retrieve, and distribute files using
web-based technology. The Company has operations in Sweden and Germany. At
September 30, 2000, net assets in Sweden and Germany are approximately $131,875
and $7,844, respectively.
e.Nova, LLC along with its wholly owned subsidiary, Xila Communications, LLC, is
an information solutions provider. As an outsource information technology (IT)
department, e.Nova helps businesses, primarily in Indiana, optimize the cost of
hardware, software, Internet connections, telecommunications and network
strategy. Some of the services provided include Application Service Provider
(ASP) software access, data management, Internet access, hardware and software
integration, Web hosting and maintenance, long distance, telephone hardware,
local telephone dial tone, bandwidth services, PBX installation and switch
management and Local Area Network cabling. Telecommunication services provided
are the most significant based on net revenue.
CHS, LLC was established to hold small investments unrelated to other business
lines that already exist. Currently, there is only one investment in a start-up
technology company being held in this company. CHS, LLC has less than a 20%
equity interest and therefore this investment is accounted for using the cost
method.
On July 31, 2000, Centillion Data Systems, Inc. sold its ownership interests in
e.Nova, LLC, CHS, LLC, and Lockerbie, LLC together with $3,261,500 in cash and
notes to Holdings, LLC for a $5,051,036 note.
The assets and liabilities (except cash) of e.Nova, LLC, (47% owned by Holdings
and the members of Holdings owning 45%) including XILA Communications, LLC, were
then contributed to Netisun, LLC in exchange for a 26% ownership of Netisun. At
the same time Holdings contributed cash of $1,000,000 and a note receivable in
the amount of $216,500 to Netisun and issued a note payable to Netisun of
$738,500 for 27% of its membership units. This gave Holdings directly and
indirectly a 39% ownership interest in Netisun. An unrelated company also
contributed assets to Netisun for 47% of its membership units. Due to the
creation of Netisun, Holdings no longer had effective control of e.Nova and
began accounting for it on the equity method on that date. Holdings is also
accounting for its investment in Netisun on the equity method.
Netisun, LLC is a full service provider for IT services for businesses. Its
several services are categorized as access solutions, voice solutions, internet
solutions, application solutions, and managed solutions.
The entities combined in these financial statements are all commonly owned by
Centillion Data Systems, Inc (Data). The entities included and the ownership
percentage of Data for 1999 are Centillion Digital Systems, Inc. (Digital) (100%
owned) and its two wholly-owned subsidiaries, Centillion Digital GmbH (Germany)
and Centillion Digital Systems, Inc.'s Branch Office in Sweden (Sweden); e.Nova,
LLC (e.Nova) (47% owned by Data and Data's stockholders owning 45%) and its
wholly owned subsidiary, Xila Communications, LLC; CHS, LLC (CHS) (50% owned).
CHS was formed as a new entity during 1999.
The transfer of these investments in e.Nova, LLC, CHS, LLC, and Lockerbie
Vermont, LLC and the selling of net assets of Centillion Digital Systems, Inc.
and subsidiaries to Holdings will be accounted for as a spin-off at historical
cost to the stockholders of Data. The presentation below provides an historical
presentation of Results of Operations and Liquidity and Capital Resources for
these companies as if they were owned by LLC for the periods presented.
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Results of Operations
Nine Months Ended September 30, 2000 Compared to Nine Months Ended September 30,
1999.
The net revenues for the nine months ending September 30, 2000 were $987,447 a
14% decrease over the $1,145,900 for the same period in 1999. The decrease was
attributable to the fact that e.Nova's revenues for August and September of 2000
became a part of Netisun, LLC and were accounted for by Holdings under the
equity method of accounting.
The cost of revenues decreased 11% from $1,409,357 for the nine months ending
September 30, 1999 to $1,254,864 for the nine months ending September 30, 2000.
The accounting for e.Nova under the equity method was responsible for this
decrease.
Operating expenses decreased from $3,518,530 in the nine months ended September
30, 1999 to $1,617,736 in the nine months ended September 30, 2000. This 54%
decrease was the combination of the change in accounting for e.Nova's expenses;
the sale of Centillion Digital Systems, Inc.'s Swedish branch office in the
third quarter of 1999; and a reduction in Centillion Digital Systems, Inc.'s
administrative staff.
Other Income and Expense increased from a net expense of $9,383 in the nine
months ended September 30, 1999, to net income of $19,261 in the nine months
ending September 30, 2000. This resulted from a net decrease of $13,537 in
investment income, a decrease in interest expense of $17,572, and no loss on the
sale of equipment in 2000 compared to a $24,609 loss in 1999.
The losses from these start-up investments produced tax benefits of $1,020,752
in the nine months ending September 30, 1999 and $380,000 in the nine months
ending September 30, 2000. These tax benefits result from the inclusion of
Digital in Data's consolidated federal income tax return.
Liquidity and Capital Resources
In the nine months ended September 30, 2000 Centillion Data Systems, Inc. funded
Centillion Digital Systems, Inc. in the amount of $1,801,333 and increased its
membership interests in LLCs by a net amount of $358,732. Centillion Data
Systems, Inc. considered its subsidiaries as start-ups and the investments as
costs required to establish the subsidiaries as ongoing businesses.
During the nine months ended September 30, 2000, the Centillion Data Systems,
Inc. subsidiaries acquired $8,603 in capital assets required for the delivery of
services and capitalized $414,555 in the development of software.
The companies included in the combined financial statements have incurred
significant losses in recent years. They have negative working capital and
significant negative cash flows from operating activities. The negative cash
flows have been funded by additional capital contributions primarily from Data.
Data will continue to provide additional capital in 2000 through the date of
sale to Holdings. A substantial part of the other assets transferred to Holdings
by Data in exchange for the promissory note will be approximately $6,900,00 in
cash. The combination of the additional Data capital contributions and the cash
transferred to Holdings is expected to allow the combined companies to continue
to operate through December 31, 2001.
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COMBINED MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE COMBINED FINANCIAL
CONDITIONS AND RESULTS OF OPERATIONS FOR
CENTILLION DIGITAL SYSTEMS, INC. AND ITS SUBSIDIARIES, E.NOVA, LLC AND
SUBSIDIARY, AND CHS, LLC FOR THE YEAR ENDED DECEMBER 31, 1999
COMPARED TO THE YEAR ENDED DECEMBER 31, 1998
Background
Centillion Digital Systems, Inc. is a global provider of digital file storage
and retrieval services to corporations and major publishing companies throughout
the world. Based on net revenue, this is its most significant service. The
Company's software applications allow users to share, retrieve, and distribute
files using web-based technology. The Company has operations in Sweden and
Germany. At December 31, 1999, net assets in Sweden and Germany are
approximately $145,000 and $101,000, respectively.
e.Nova, LLC along with its wholly owned subsidiary, Xila Communications, LLC, is
an information solutions provider. As an outsource information technology (IT)
department, e.Nova helps businesses, primarily in Indiana, optimize the cost of
hardware, software, Internet connections, telecommunications and network
strategy. Some of the services provided include Application Service Provider
(ASP) software access, data management, Internet access, hardware and software
integration, Web hosting and maintenance, long distance, telephone hardware,
local telephone dial tone, bandwidth services, PBX installation and switch
management and Local Area Network cabling. Telecommunication services provided
are the most significant based on net revenue.
CHS, LLC was established to hold small investments unrelated to other business
lines that already exist. Currently, there is only one investment in a start-up
technology company being held in this company. CHS, LLC has less than a 20%
equity interest and therefore this investment is accounted for using the cost
method.
The entities combined in these financial statements are all commonly owned by
Centillion Data Systems, Inc (Data). The entities included and the ownership
percentage of Data for 1999 are Centillion Digital Systems, Inc. (Digital) (100%
owned) and its two wholly owned subsidiaries, Centillion Digital GmbH (Germany)
and Centillion Digital Systems, Inc.'s Branch Office in Sweden (Sweden); e.Nova,
LLC (e.Nova) (47% owned by Data and Data's stockholders owning 45%) and its
wholly owned subsidiary, Xila Communications, LLC; CHS, LLC (CHS) (50% owned).
CHS was formed as a new entity during 1999.
The transfer of these investments in e. Nova, LLC, CHS, LLC and Lockerbie
Vermont, LLC and the selling of net assets of Centillion Digital Systems, Inc.
and subsidiaries to Holdings will be accounted for as a spin-off at historical
cost to the stockholders of Data.
Results of Operations
Fiscal year ending December 31, 1999 compared to fiscal year ending December 31,
1998.
The net revenues for the fiscal year ending December 31, 1999 were $1,566,279 a
30% increase over the $1,204,904 for the same period in 1998. The increase was
attributable to the start-up revenues of e.Nova, LLC and the acquired revenues
of e.Nova, LLC's subsidiary, XILA Communications, LLC.
The cost of revenues rose 8% from $2,007,993 for the fiscal year ending December
31, 1998 to $2,168,420 for the fiscal ending December 31, 1999. This was the net
result of decreased costs for Centillion Digital Systems, Inc. and new costs in
1999 for start-up e.Nova, LLC, acquisition of XILA, LLC and start-up of CHS,
LLC.
Operating Expenses decreased from $6,587,453 in the fiscal year ending December
31, 1998 to $4,575,904 in the fiscal year ending December 31, 1999. This 31%
decrease was the combination of a $146,632 decrease in general and
administrative expenses resulting from smaller overseas overhead; a $274,296
decrease in selling expenses resulting from
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the net effect of new sales expenses for e.Nova, LLC and XILA, LLC and lower
sales expenses for Centillion Digital Systems, Inc. after the sale of its
Swedish sales activities to a Swedish value added reseller; and a $1,590,621
decrease in the write down of intangibles, which write-off was completed in
1998.
Other Income improved from a negative $47,177 in the fiscal year ending December
31, 1998, to a positive $294,271 in the fiscal year ending December 31, 1999.
The improvement came from lower interest expenses and from a gain on the sale of
assets in the Swedish branch office to a Swedish value added reseller. An
investment loss of $42,025 was incurred in 1999 from the write down of an
investment in Searchsoft Technologies, Inc.
The losses from these start-up investments produced tax benefits of $1,796,154
in the fiscal year ending December 31, 1998 and $1,260,801 in the fiscal year
ending December 31, 1999. These tax benefits result from the inclusion of
Digital in Data's consolidated federal income tax return.
Liquidity and Capital Resources
In the fiscal year ending December 31, 1999 Centillion Data Systems, Inc. funded
its subsidiaries in the amount of $3,260,786, including acquisition costs of
$1,080,000 for XILA Communications, LLC. Centillion Data Systems, Inc.
considered its subsidiaries as start-ups and the investments as costs required
to establish the subsidiaries as ongoing businesses.
During the fiscal year ending December 31, 1999, the Centillion Data Systems,
Inc. subsidiaries acquired $505,608 in capital assets required for the delivery
of services and capitalized $266,651 in the development of software.
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PROPOSAL II
THE CELLTECH MERGER PROPOSAL
Background of the Celltech Merger
In mid-January 2000, during the final stages of the negotiations of the
Centillion merger agreement, CTIG was informed that Sokoloff & Co. 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
this type of 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, Mr. Johns, representing CTIG, accompanied by Mr.
Garrison and Mr. Leeds representing Centillion, visited the Houston, Texas
offices of Celltech and met with its President, Mr. Warren, and Celltech's
investment banker/advisor, Mr. Sokoloff. Over dinner the previous evening,
Messrs. Johns, Garrison and Leeds met to discuss and agree upon: (1) the
strategic approach that CTIG/Centillion would adopt for their combined
negotiation with Celltech, (2) the value range of the Celltech business to the
CTIG/Centillion business, and (3) the consideration to be used utilizing various
cash and stock formulae. During these deliberations it was agreed that Mr. Johns
would lead with an initial proposal to Celltech in accordance with the
understanding reached between the parties. Based upon earlier discussions
between Mr. Sokoloff and Mr. Johns, Mr. Sokoloff had indicated that Celltech was
seeking a valuation of 1.25 to 1.5 times current annual gross revenues of $8
million. Mr. Johns' initial proposal was for approximately .75 times Celltech's
estimated annual revenues, but based upon a six-month trailing average. The next
day, following a presentation of the Celltech business by its management to the
parties, Mr. Johns led the negotiations on behalf of CTIG/Centillion. After the
submission of the above offer, Mr. Warren adjourned for a separate meeting with
Mr. Sokoloff. Upon their return Mr. Sokoloff, on behalf of Celltech, put forward
a counter proposal to the parties, offering a valuation of .75 times the prior
annual revenue. The parties reviewed the counter proposal and, following further
negotiations, agreed on a valuation of .75 times the prior year's actual
revenue, rather than the trailing average which had been previously employed.
Agreeing in principle to these figures, the 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 the subsequent
finalization of valuation and negotiation of a definitive merger agreement.
The principal terms of the acquisition of Celltech negotiated among the
parties at that time provided for a price of $6,000,000, the cash component of
which was $300,000 and the stock component of which was CTIG Class A Common
Stock in the amount of $5,700,000 based upon an assumed "average price per
share" on the date of closing of $3.00 per share. It was agreed that the stock
component would be adjusted at closing to address fluctuations in the value of
CTIG Class A stock. In addition, it was agreed that the stock component of the
purchase price would be subject to further adjustment through a mechanism
whereby 47.37% of the stock would be delivered in escrow at closing and released
to the Celltech shareholders in specified increments upon the achievement of
earn-out thresholds measured against future revenues generated by Celltech's
largest customer.
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.
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On March 22, 2000, Mr. Johns met with Messrs. Warren and Sokoloff at
the Centillion offices in Indianapolis, Indiana where Centillion and its Smart
Bill product was presented to Celltech. Following the presentation, Mr. Johns
proceeded with further negotiations on the Celltech valuation following his
receipt of an initial due diligence report received from Deloitte & Touche which
report indicated, among other things, that a portion of Celltech's revenues
consisted of pass-through postage charges which it received from its customers,
a fact that was not known during the initial negotiations.
Following this new information, the parties reduced the purchase price
and agreed upon the final terms on which Celltech would be merged with, and into
CTIB, a wholly-owned subsidiary of CTIG. Under these terms, Celltech
stockholders, who collectively own 100% of the outstanding stock of Celltech,
would receive an aggregate of $262,599 in cash to be distributed pro rata on a
per share equivalent basis. The cash to be received would be used to pay fees
due Celltech's broker in this transaction. Additionally, Celltech stockholders
would receive 1,663,126 shares of Class A common stock subject to adjustment if
any, as follows: in the event that the average market price per share based on
the 20 preceding trading days of the CTIG 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 would be determined by
dividing $4,989,378 by the average market price per share; provided that in no
event would 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 common
stock. Of the shares of Class A common stock to be issued to the Celltech
stockholders, 52.63% would be delivered at closing, and 47.37% of the stock
would be placed in escrow. This escrowed stock would 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 Class A common
stock which were not issued to Celltech stockholders would be returned to CTIG
and cancelled. It was further understood that the Celltech merger would only
occur if the Centillion merger was approved by CTIG and Centillion stockholders,
and was ultimately consummated. The parties agreed to begin the process of
incorporating these terms into a definitive agreement. Subsequent to this
meeting, Mr. Johns reported the outcome of these final negotiations to Mr.
Garrison, Mr. Leeds and Mr. Armitage.
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
reviewing 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.
On October 26, 2000 the parties amended the Celltech merger agreement
in the form attached hereto as Annex H to clarify the provision regarding the
release of the escrowed stock to provide that if the contract with Celltech's
largest customer expired, but that customers continued to use Celltech's and,
after the merger, CTIG's services and the revenue requirements to release the
stock were met, even if there is no written contract, then appropriate stock
will be released from escrow.
Recommendation of the Board; Reasons for the Merger
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 would
enhance CTIG's ability to pursue its convergent billing strategy. See "The
Resulting Company."
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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) Favorable Considerations.
(a) 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. This 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.
(b) 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 and enhanced specialized mobile radio.
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.
(c) 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 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 would be held in escrow and released over the course of three
years, depending upon CTIG continuing to realize revenue from Celltech's largest
customer that accounts for approximately 47% of its business.
(ii) Countervailing Considerations. The CTIG board of directors
also seriously considered factors which may be characterized as countervailing
considerations, including, but not limited to:
(a) The risks inherent in attempting to successfully integrate
the management of CTIG, Centillion, 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;
(c) Approximately 47% of Celltech's gross revenues are derived
from a single customer. In May, 2000, Celltech signed an agreement with its
largest customer to extend the term of the previous agreement which ended
February 28, 2000, to February 28, 2001, however, this customer has expressed
its intent not to renew its contract with Celltech; and
(d) The Celltech merger would be accounted for as a purchase
of Celltech by CTIG and would result in the creation of a substantial amount of
goodwill.
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
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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.
Interests of Certain Persons in the Celltech Merger
No officers or directors of CTIG had any additional interests in the
Celltech merger.
Accounting Treatment of the Celltech Merger
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.
Federal Income Tax Consequences
The following discussion summarizes the material income tax
consequences of the Celltech merger that are generally applicable to CTIG and
our stockholders. 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 our stockholders.
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).
In addition, the discussion does not consider the effect of any applicable
state, local or foreign tax laws. ACCORDINGLY, OUR 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 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.
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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.
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."
CTIG will report to stockholders of CTIG and to the IRS the amount of
"reportable payments" and any amount withheld with respect to Class A common
stock.
EACH OF OUR STOCKHOLDERS IS URGED TO CONSULT THEIR OWN TAX ADVISOR WITH
RESPECT TO THE TAX CONSEQUENCES OF THE CELLTECH MERGER, INCLUDING THE
APPLICABILITY AND EFFECT OF STATE, LOCAL OR FOREIGN TAX LAWS.
Regulatory Approvals
No federal or state regulatory approvals or consents are required in
connection with the Celltech merger.
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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 H to this proxy statement and is
incorporated by reference. Our stockholders are urged to read the Celltech
merger agreement in its entirety.
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 another time and date to which CTIG and Celltech
agree. As soon as practical after the closing date, CTIG and Celltech will file
a certificate of merger 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 this certificate. 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 first calendar quarter of 2001. 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 in cash; and
(2) 1,663,126 shares of CTIG Class A common stock, subject to
adjustment if any, as follows: in the event that the average
market price per share (based on the 20 preceding trading
days) of the CTIG 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 the average
market price per share; provided that in no event will the
number of shares of Class A common stock to be received by
Celltech stockholders in the Celltech merger be less than
1,330,501 shares nor more than 2,217,501 shares regardless of
the average market price per share of CTIG 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
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.
The Celltech stockholders have assigned their right to receive the cash
portion of the merger consideration to PASCO Business Trust, on behalf of
Sokoloff & Co., the broker retained by Celltech in connection with the Celltech
merger, to pay the broker fee.
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No shares of Class B common stock will be issued in the Celltech
merger.
Escrowed Class A Common Stock. The release of the escrowed stock
depends upon revenues received from Celltech's largest customer as follows:
Fifty percent of the 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 that
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 that actual Revenue
to $645,652) of the full number that would potentially be subject to release in
that escrow quarter shall be released. If at the end of the third escrow year
the proportion that all escrowed stock previously released from escrow bears to
the total 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 that difference to a maximum of the total escrowed stock remaining in
escrow; provided that CTIG shall not issue any shares of Class A common stock in
excess of the number originally placed in escrow as 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 CTIB/Celltech from this customer,
resulting in a reduction or elimination of that customer's revenue, then any
shares of 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 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 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 33.7%, 56.8% and 9.5% respectively, of
CTIG's issued and outstanding Class A common stock after the Celltech merger.
These figures assume the release of all escrowed stock under the Centillion
merger agreement, the maximum number of shares issued under the Celltech merger
agreement, and the exercise of all CTIG stock options currently outstanding
which vest upon the consummation of the Centillion merger.
Exchange of Stock Certificates
As soon as reasonably practicable after the Celltech merger, CTIG will
have its appointed exchange agent mail to each holder of Celltech common stock
(i) a transmittal letter stating that certificates representing 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 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 Class A that the
holder has the right to receive, and a check in the amount equal to the cash
that the holder has the right to receive in lieu of any
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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
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 Class A 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 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 common stock.
Dividends and Distributions. No dividends or other distributions
declared or made with respect to 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 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 Class A common stock (or cash in
lieu of fractional shares of 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 Class A
common stock, and any cash in lieu of fractional shares and unpaid dividends and
distributions on shares of Class A common stock otherwise deliverable in respect
thereof.
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 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 certificates of incorporation 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
specified 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
of information supplied by Celltech in connection with the registration
statement to be filed by CTIG in connection with the issuance of the Class A
common stock and this proxy statement; (r) insurance; (s) conflicts of interest;
(t) broker's fees; (u) principal
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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 Class A
common stock and this proxy statement; (f) broker's fees; (g) capitalization of
CTIB; (h) SEC filings and reports of CTIG; and (i) authorization and issuance of
the Celltech merger Stock.
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
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,
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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.
CTIG has agreed to file a registration statement to register the resale
of the shares of Class A common stock to be issued in the mergers.
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 CTIB after the Celltech
merger.
Indemnifications. For a period of one year after the effective time,
subject to some specified 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.
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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
Celltech and CTIG; (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 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 less 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
CTIG and Celltech;
(b) by either CTIG or Celltech if, without a material breach of
the Celltech agreement by the 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 (the parties have agreed in writing to
extend the date to January 31, 2001); or
(c) by either CTIG or Celltech, if any court of competent
jurisdiction in the United States or other governmental entity
issues 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 has become final and
nonappealable; provided that the party seeking to terminate
this agreement has used reasonable efforts to remove or lift
such order, decree or ruling; or
(d) by CTIG if the approval of CTIG's stockholders required for the
consummation has not 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.
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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 approval by the Celltech stockholders,
no amendment may be made by Celltech 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
a majority of the holders of common stock of Celltech. Additionally, after any
approval by the CTIG stockholders, no amendment may be made by CTIG which
increases the amount of consideration that Celltech will be receiving under the
Celltech merger, or adversely affects the rights of CTIG stockholders without
the approval of all of the holders of CTIG common stock. The Celltech merger
agreement may only be amended by an instrument in writing signed on behalf of
all the parties to that agreement.
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THE BUSINESS OF CELLTECH
Overview
Celltech, a Houston, Texas, based company, provides 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 1990's the cellular market underwent a period of consolidation. 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 through charges based on multiple criteria. In addition to
the management of these billing issues a complete billing system needs to be
able to integrate usage information from multiple sources, long distance
providers, cellular operators, other billing vendors and corresponding clearing
houses.
Celltech has transferred its competency in managing the time and usage
sensitive billing of the facilities-based cellular operator 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 recently implemented 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.
The complete, Win Command product suite consists of two key components
having a common client database interface:
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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. In May, 2000, Celltech signed an
agreement with this customer to extend the term of its previous agreement, which
ended February 28, 2000, to February 28, 2001.
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
Overview
Celltech Information Systems, Inc, 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 nine months ended September 30, 2000 and 1999.
STATEMENTS OF OPERATIONS
CELLTECH INFORMATION SYSTEMS, INC.
<TABLE>
<CAPTION>
For the Three Months Ended For the Nine Months Ended
September 30, September 30,
2000 1999 2000 1999
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
REVENUES $1,515,520 $1,911,985 $5,125,853 $6,236,214
EXPENSES:
Cost of revenues (excluding depreciation
and amortization) 629,060 1,001,729 2,342,598 2,865,619
Research and development 34,304 90,261 77,184 391,566
Selling, general and administrative 576,781 826,721 2,196,179 2,938,163
Depreciation and amortization 34,522 26,902 103,178 80,018
---------- ---------- ---------- ----------
Total Expenses 1,274,667 1,945,613 4,719,140 6,275,366
---------- ---------- ---------- ----------
Operating (loss) income 240,853 (33,628) 406,713 (39,152)
---------- ---------- ---------- ----------
OTHER (EXPENSE) INCOME:
Interest income (expense) 1,838 4,077 281 6,807
Other (expense) income 2,251 0 14,045 0
---------- ---------- ---------- ----------
Income (loss) before provision
for income taxes 244,941 (29,551) 421,039 (32,345)
INCOME TAX BENEFIT (PROVISION) (55,059) 0 (105,260) 0
---------- ---------- ---------- ----------
NET (LOSS) INCOME $189,882 ($29,551) $315,779 ($32,345)
========== ========== ========== ==========
NET (LOSS) INCOME PER COMMON SHARE $80.70 ($12.56) $134.20 ($13.75)
========== ========== ========== ==========
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING 2,353 2,353 2,353 2,353
========== ========== ========== ==========
</TABLE>
Results From Operations for the Period Ended September 30, 2000 Compared to the
Period Ended September 30, 1999
Celltech typically enters into contracts to provide 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 programming, generation of special
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reports and transmission of data. Revenues decreased $1,110,361 to $5,125,853
for the nine months and $396,465 to $1,515,520 for the quarter ended September
30, 2000 as compared to the prior year period. This reflects a decrease of 17.8%
and 20.7% respectively 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. Cost of revenues decreased 18.3%
for the nine months and 37.2% for the quarter ended September 30, 2000 primarily
related to the reduction of revenues.
Celltech incurred significant research and development charges in
1999 for the development of its new billing product. These costs include those
expenses incurred for contractors and consultants outside of the Company. With
the roll-out of the new billing product to the market, research and development
cost decreased 80.3% for nine months and 62.0% for the quarter ended September
30, 2000 as compared to the prior year period.
Selling, general and administrative expenses decreased $741,984 to
$2,196,179 for the nine months and $249,940 to $576,781 for the quarter ended
September 30, 2000 primarily as a result of reduced operating expenses as a
result of completing its Y2K compliance testing.
Depreciation and amortization expense increased $23,160 to $103,178
for the nine months and $7,620 to $34,522 for the quarter ended September 30,
2000 as compared to 1999 due to an increase of $83,475 in Property and Equipment
during 1999. The Property and Equipment cost increase was due primarily to the
acquisition of equipment for an in-house system acquired in 1999.
Other Income for the nine months ended September 30, 2000 was
$14,045 and for the Quarter was $2,251 primarily derived from payments on a
legal settlement against a former customer for an early termination claim
brought by Celltech.
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STATEMENTS OF OPERATIONS
CELLTECH INFORMATION SYSTEMS, INC.
<TABLE>
<CAPTION>
% Chg
For the Year Ended December 31 1999 % 1998 % '98 to '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 ($245.39) $164.29
SHARE
========== ==========
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING 2,353 2,353
========== ==========
</TABLE>
Results From Operations for the Year Ended December 31, 1999 Compared to the
Year Ended December 31, 1998
Celltech typically enters into contracts to provide 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 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
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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
$29,604, or 6.6% less than 1998 charges for research and 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 September
30, 2000 Celltech's cash and cash equivalents increased $324,421 from December
31, 1999 as compared to a decrease of $300,799 for the same period in 1999. This
was related to the cumulative effect of Celltech completing its Y2K compliance
program, the roll-out of its new WinCommand product and receipt of an Income Tax
Receivable in the amount of $161,786.
Net accounts receivable at September 30, 2000 were $564,995 which
reflects a 51.2% decrease compared to September 30, 1999. The accounts
receivable decrease is due in part to an increase allowance for doubtful
accounts from $13,708 at December 31, 1998 to $410,072 at December 31, 1999
primarily due to a one-time reserve for one client. Inventory of forms decreased
$22,400 at September 30, 2000 compared to 1999 due to implementation of an
as-need basis of inventory supply. Net Property and Equipment increased $31,658
from $221,783 in 1999 to $253,441 in 2000 due primarily to the acquisition of
equipment for an in-house system acquired in 1999.
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 $42,978 at September 30, 2000 as compared to $135,023 at September 30,
1999. The working capital line, personally guaranteed by the principal
shareholder, has a current balance of $0 at September 30, 2000.
The financial statements attached to this proxy statement 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
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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 Celltech'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, Celltech increased its allowance for doubtful accounts by approximately
$400,000 to provide for the client's outstanding accounts receivable at
12/31/99.
Subsequent Events
On April 6, 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
specified business goals to be accomplished by Celltech.
Celltech was involved in a lawsuit with minority shareholders, filed
in January, 2000. The suit was settled in March 2000, resulting in a payment to
minority shareholders in the amount of $152,353. The settlement was 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, Celltech has not experienced any adverse
effects associated with the Year 2000 issues.
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.
In December 1999, the Securities and Exchange Commission (the "SEC")
issued Staff Accounting Bulletin No. 101, Revenue Recognition in Financial
Statements ("SAB No. 101"). SAB No. 101 provides guidance on the
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recognition, presentation, and disclosure of revenue in financial statements
filed with the SEC, and is required to be adopted in the fourth quarter of
fiscal years beginning after December 15, 1999. Celltech has not yet determined
the impact SAB No. 101 will have on its 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 and 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 members 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, Internet service provider, xDSL, VolP) arising from the
combination of customer demand, technology evolution, increasing competition and
market deregulation. Whether established incumbents or new market entrants,
telecommunications 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
Currently, CTIG has a compensation committee, but no audit or
nominating committee. The purpose of the compensation committee is to determine
the compensation of directors and executive officers of CTIG. This committee is
currently comprised of Anthony P. Johns, Rupert D. Armitage and Francis O.
Hunnewell. Members of the compensation committee following the mergers have not
yet been determined.
In fiscal year 1999, the CTIG board of directors held four meetings,
and the compensation committee held one meeting. No director failed to attend
fewer than 75% of either the four full board meetings or the compensation
meeting. There are no material proceedings to which any director, officer,
affiliate of CTIG or five percent holder of CTIG common stock is a party adverse
to CTIG or has a material interest adverse to CTIG.
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
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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.
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.
<TABLE>
<CAPTION>
Name and Age Occupation During Past Five (5) Years
------------ -------------------------------------
<S> <C>
Anthony P. Johns (51) Mr. Johns, a citizen of the United Kingdom, has served as chairman of the board of
President, Chief Executive CTIG since October, 1996, and president, chief executive officer and director of
Officer and Director 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
Director November, 1995. He is a 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
Director 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 United Kingdom, since 1997, and
had been a director of that company since 1992.
Michael H. Leeds (54) Mr. Leeds has served as a member of the executive committee of the board of
Director and Vice Chairman 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 a legal
advisor to Centillion.
Salah N. Osseiran (45) Mr. Osseiran, a Lebanese citizen, has been a director of Centillion since 1987. He
Director is the President and CEO of Business Projects Company (BPC), a Lebanese company
located in Beirut. BPC owns a bottled water company operating in Lebanon and interests in
the other business activities in Lebanon which include a department store, a supermarket, an
investment bank and a commercial bank, a satellite television station and FM radio
station, a hotel and an electronics manufacturing company, as well as a
polystyrene manufacturing company in the United Arab Emirates.
</TABLE>
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<PAGE>
<TABLE>
<S> <C>
Thomas W. Grein (48) Mr. Grein has served as a director of Centillion since October, 1999, and is currently
Director 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.
Harold D. Garrison (51) Mr. Garrison has served as chairman of Centillion since 1988. He is also serving as
Chairman of the Board the chairman and chief executive officer of Mansur Group since 1982 and served as
of Directors chairman of XILA Communications, Inc. from 1983 to 1999. Mr. Garrison currently
serves as a chairman of XILA Communications, LLC and e.Nova, LLC.
Mary Ann Davis (61) Ms. Davis has been corporate secretary of CTIG since May 1989. Prior to that, Ms.
Corporate Secretary Davis was an Administrative Assistant to a Judge of the Common Pleas Court of
Montgomery County, Pennsylvania.
</TABLE>
Executive Compensation
The following table sets forth the compensation paid or accrued for
our highest paid officer and our subsidiaries. We had only one officer for the
year ended March 31, 2000 who received in excess of $100,000.
<TABLE>
<CAPTION>
Annual Compensation
---------------------------------------
Name and Principal Other Annual
Position Salary Bonus Compensation
--------------------------- ------ ----- -------------
<S> <C> <C> <C> <C>
Anthony P. Johns, President 2000 $175,000 -- $32,434 (1)
and Chief Executive Officer 1999 $175,000 -- $32,762 (1)
1998 $175,000 -- $32,651 (1)
</TABLE>
(1) Includes an $11,100 annual automobile allowance, $15,600 of living expense
payments and automobile, life and medical 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
would be increased to $200,000 for the remaining term of the employment
agreement. In addition to the 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 our pretax profit. CTIG 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 United Kingdom,
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 agreement. Mr. Johns' proposed
employment agreement (to become
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<PAGE>
effective upon consummation of the Centillion merger) and options granted to him
in lieu of his 5% profit share arrangement in his current employment agreement
are described on Page [39] of this proxy statement.
Director Compensation
Our current practice is that the members of the board of directors
who are not our employees, 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 our employee, 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 United Kingdom pursuant to an agreement upon
his election to the board in November 1995. During the fiscal year ended March
31, 2000, Messrs. Armitage, Hunnewell, Rohn and Bevington earned fees for their
services on the board of directors of approximately $10,000, $6,000, $6,000 and
$5,000, respectively, plus expenses. In addition, in fiscal year 1999, Mr.
Armitage earned fees of approximately $23,000 for consulting and advisory
services rendered to CTI Data Solutions Ltd. These services were to assist the
new managing director of CTI Data Solutions Ltd. The fees were earned over the
course of the year and were determined by CTIG management to be the fair market
value of the services rendered by Mr. Armitage. During the fiscal year ended
March 31, 2000, Mr. Bevington received 30,000 stock options pursuant to the
stock option and restricted stock plan upon his appointment to the board of
directors, and Mr. Hunnewell received 10,000 shares of CTIG in recognition of
advisory services that he provided to CTIG in connection with the Centillion
merger.
After the mergers, the compensation paid to the board of directors
will be as follows: non-employee board members will receive:
o $5,000, plus reasonable expenses for attendance at annual
meetings,
o $3,000 plus reasonable expenses for attendance at quarterly
meetings,
o $1,500, plus reasonable expenses for attendance at special
meetings, and
o $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 $4,000 per month
plus reasonable expenses.
After the mergers, it is contemplated that some non-employee
individuals will also receive options to purchase shares of Class A common stock
in accordance with the following:
o the chairman of the board will receive options to purchase
20,000 shares of Class A common stock per year;
o the vice-chairman of the board will receive options to purchase
15,000 shares of Class A common stock per year,
o each executive committee member will receive options to purchase
10,000 shares of Class A common stock per year, and
o each board member will receive options to purchase 10,000 shares
of Class A common stock per year.
If any individual serves in more than one of the above capacities he
or she will receive options for each position, and these options will be
cumulative.
The following table sets forth option and stock appreciation rights,
exercises in last fiscal year and year end values for all employees who are
required to disclose such options and rights.
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<PAGE>
AGGREGATED OPTIONS/SAR EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION/SAR VALUES
<TABLE>
<CAPTION>
Number of Securities Value of Unexercised
Name Shares Acquired Value Received Underlying Unexercised in-the-Money
on Exercise (#) ($) Options/SARS at Options/SARS at
FY-End (#) FY-End ($)
Exercisable/ Exercisable/
Unexercisable Unexercisable
------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Anthony P. Johns, 50,000 $140,000(1) 0 /300,000 $0.00/$498,000(2)
President and Chief
Executive Officer
</TABLE>
(1) Options were granted at an exercise price of $.20 per share. As of
December 13, 1999, the date of exercise of the options, the market value
of CTIG's stock was $3.00 per share.
(2) Options were granted at an exercise price of $1.09 per share. As of
March 31, 2000, the market value of CTIG's stock was $2.75 per share.
In October 2000, 200,000 of the unexercised options were cancelled.
OPTION/SAR GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
Name Number of Securities Percent of Total Exercise or Expiration
Underlying Unexercised Options/SARS Base Price Date
Options/SARS Granted to
Granted Employees in
Fiscal Year
-----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Anthony P. Johns, 300,000(1) 57% $1.09 November 3, 2009
President and Chief
Executive Officer
</TABLE>
(1) In October 2000, 200,000 of the unexercised options were cancelled.
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<PAGE>
SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT OF CTIG
The following table sets forth current and pro forma information
as to the number of shares of CTIG common stock that is, or will be beneficially
owned by:
(i) each person currently known by us or expected to be the
beneficial owner of more than 5% of any of our voting
securities after the Centillion merger and the Celltech
merger,
(ii) each person who will be a director after the Centillion
merger and the Celltech merger,
(iii) our chief executive officer and the other highly
compensated executive officers, and
(iv) our 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.
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<PAGE>
<TABLE>
<CAPTION>
Pro Forma
Beneficial Ownership Beneficial Ownership
Prior to Both Mergers After the Centillion Merger
------------------------ ---------------------------
Common Class A Class B
Name and Address of Stock Percent Shares Percent Shares Percent
------------------- --------- ------- -------- ------- --------- -------
Beneficial Owner
----------------
<S> <C> <C> <C> <C> <C> <C>
Anthony P. Johns 1,963,456(1) 24.8 1,963,456(1) 9.3 0 0
c/o CTI Group (Holdings) Inc.
2550 Eisenhower Avenue
Norristown, PA 19403
Rupert D. Armitage 396,219(2) 5.0 396,219(2) 1.9 0 0
c/o Ambit Research
100 New Kings Road
London SW64LX United
Kingdom
Graham Bevington 32,938(3) 0.4 32,938(3) 0.2 0 0
c/o Mitel Telecom Ltd.
Portskewett, Monmouthshire
NP 26 5YR United Kingdom
Harold D. Garrison 0 0 976,263(4)(5) 4.6 208,041(6) 7.3
c/o Centillion Data Systems, Inc.
333 North Alabama Street
Suite 240
Indianapolis, IN 46204
Salah N. Osseiran 0 0 11,127,414(4)(7) 52.5 2,371,244(8) 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
c/o Centillion Data Systems, Inc.
333 North Alabama Street
Suite 240
Indianapolis, IN 46204
Thomas W. Grein 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 0 0
Celltech Information Systems,
Inc.
15425 I45 North, Suite 200
Houston, TX 77090
All directors and executive 2,446,223 31.0 14,549,900 68.6 2,579,284 91.0
officers as a group
(9 individuals (10))
</TABLE>
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<PAGE>
[RESTUB TABLE]
<TABLE>
<CAPTION>
Pro Forma
Beneficial Ownership
After the Centillion
and Celltech Mergers
----------------------
Class A Class B
Name and Address of Shares Percent Shares Percent
------------------- ---------- ------- ------- -------
Beneficial Owner
----------------
<S> <C> <C> <C> <C>
Anthony P. Johns 1,963,456(1) 8.4 0 0
c/o CTI Group (Holdings) Inc.
2550 Eisenhower Avenue
Norristown, PA 19403
Rupert D. Armitage 396,219(2) 1.7 0 0
c/o Ambit Research
100 New Kings Road
London SW64LX United
Kingdom
Graham Bevington 32,938(3) 0.1 0 0
c/o Mitel Telecom Ltd.
Portskewett, Monmouthshire
NP 26 5YR United Kingdom
Harold D. Garrison 976,263(4)(5) 4.2 208,041(6) 7.3
c/o Centillion Data Systems, Inc.
333 North Alabama Street
Suite 240
Indianapolis, IN 46204
Salah N. Osseiran 11,127,414(4)(7) 47.5 2,371,244(8) 83.7
c/o Centillion Data Systems, Inc.
333 North Alabama Street
Suite 240
Indianapolis, IN 46204
Michael H. Leeds 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
c/o Centillion Data Systems, Inc.
333 North Alabama Street
Suite 240
Indianapolis, IN 46204
David A. Warren 1,884,876(9) 8.1 0 0
Celltech Information Systems,
Inc.
15425 I45 North, Suite 200
Houston, TX 77090
All directors and executive 16,434,776 70.0 2,579,284 91.0
officers as a group
(9 individuals (10))
</TABLE>
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<PAGE>
Notes to pro forma security ownership of some of our beneficial owners and
management:
(1) Includes options to purchase 100,000 shares of common stock of CTIG.
(2) 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.
(3) Includes options to purchase 15,000 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) Includes 444,686 shares which will be owned by Sunset LLC, of which Mr.
Garrison is the Managing Member, and 289,656 shares which will be owned
by XCI Holdings, Inc., of which Mr. Garrison is Chairman and Chief
Executive Officer.
(6) Includes 94,762 shares which will be owned by Sunset LLC, of which Mr.
Garrison is the Managing Member, and 61,725 shares which will be owned by
XCI Holdings, Inc., of which Mr. Garrison is Chairman and Chief
Executive Officer.
(7) Includes 9,919,798 shares which will be owned by Hawazen, BVI of which Mr.
Osseiran the sole shareholder and 1,207,615 shares which will be owned by
Fairford Holdings, Ltd., of which Mr. Osseiran is also the sole
shareholder.
(8) Includes 2,113,902 shares which will be owned by Hawazen, BVI of which
Mr. Osseiran is the sole shareholder and 257,342 shares which will be
owned by Fairford Holdings, Ltd., of which Mr. Osseiran is also
the sole shareholder.
(9) Assumes that the maximum number of shares of Class A common stock
authorized under the Celltech merger agreement will be issued, and that
all stock placed into escrow pursuant to the Celltech merger agreement
will be released.
(10) 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.
Certain Relationships and Related Transactions
In fiscal year 1999, Rupert Armitage, a director of CTIG, provided
consulting and advisory services to CTI Data Solutions, Ltd., the U.K.
subsidiary of CTIG. For services rendered, Mr. Armitage earned fees of
approximately $23,000, which was determined by CTIG management to be the fair
market value of services rendered. During the fiscal year ended March 31, 2000,
Mr. Bevington received 30,000 stock options pursuant to the stock option and
restricted stock plan upon his appointment to the board of directors, and Mr.
Hunnewell received 10,000 shares of CTIG in recognition of advisory services
that he provided to CTIG in connection with the Centillion merger.
Also, as part of the Centillion merger, 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 (200,000 of which Mr. Johns
subsequently agreed to have cancelled). The remaining 100,000 options vested and
became exercisable in November 2000. These options were issued to compensate Mr.
Johns for his forfeiture of funds under a profit-sharing agreement with CTIG.
For more information regarding Mr. Johns' employment agreement and stock
options, please see "Proposal I - Interests of Certain Persons in the Centillion
Merger - Employment Agreement -
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<PAGE>
Anthony P. Johns." In addition, a number of CTIG officers and directors also
have options to purchase an aggregate of 200,000 shares of CTIG common 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 and Salah Osseiran,
both of whom are Centillion stockholders who will become stockholders of CTIG
after the Centillion merger. In Centillion's opinion, the terms of the lease are
at least as favorable as terms available from a non-affiliated landlord.
In an agreement dated as of September 13, 2000, and amended as of
October 26, 2000, Centillion loaned to CTI Data Solutions Inc., a subsidiary of
CTIG, $550,000 in cash. Interest accrues on the outstanding balance at a rate of
10% per annum. Principal and interest are payable at the earlier of the
following: upon demand at the consummation of the Centillion merger or, if no
demand is made, September 12, 2001. The loan is secured by the trade receivables
of CTI Data Solutions Inc. and CTI Data Solutions Ltd.
If the loan is repaid at the consummation of the Centillion merger, it
will be accomplished by reducing the amount of cash required to be reflected on
Centillion's balance sheet (pursuant to the Centillion merger agreement) by the
amount of principal and accrued interest outstanding on the loan.
The proceeds of the loan will be applied by CTIG toward its working
capital.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Exchange Act requires CTIG's directors and some of
its officers and persons who own more than 10% of CTIG Common Stock
(collectively, "Insiders"), to file reports of ownership and changes in their
ownership of CTIG Common Stock with the SEC. Insiders are required by SEC
regulations to furnish CTIG with copies of all Section 16(a) forms they file.
Based solely on its review of the copies of such forms received by it,
CTIG believes that its Insiders complied with all applicable Section 16(a)
filing requirements for fiscal 2000, with the exception of Messrs. Rohn,
Bevington, Hunnewell and Ms. Davis, each of whom filed a late Form 4 reporting
one transaction per person. Each of the above Forms 4 was due on January 10,
2000, and all were filed with the SEC on March 9, 2000.
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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 PROXY STATEMENT AS
ANNEXES B AND C, RESPECTIVELY.
CTIG Common Stock
Our authorized capital stock currently consists of 50,000,000 shares of common
stock, par value $.01 per share. Upon completion of the mergers, 47,166,666
shares shall be designated Class A common stock, and 2,833,334 shares shall be
designated Class B common stock. Based upon the number of shares of our common
stock and Centillion common stock outstanding as of [January 11, 2001], it is
anticipated that 21,197,093 shares of Class A common stock and 2,833,334 shares
of Class B common stock will be issued and outstanding immediately after the
completion of the Centillion merger, and 23,414,594 shares of Class A common
stock, and 2,833,334 shares of Class B common stock will be issued and
outstanding immediately after the Celltech merger, assuming that the maximum
number of shares of CTIG common stock are issued under the Celltech merger
agreement. All of the above figures assume the exercise of all CTIG options
currently outstanding which will vest upon the closing of the Centillion merger.
Voting
Except with respect to the election of directors occurring prior to
July 1, 2003, as described below, each share of 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 the proposed amended certificate of incorporation, the
board of directors will be classified into three classes consisting of two, two
and three directors, respectively. The holders of 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' meeting
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
Thomas 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 elect the
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<PAGE>
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 Centillion 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 two-thirds 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 some types of
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 an interested
stockholder, the board approves either the business combination or the
transaction by which the person became an interested stockholder;
(ii) upon consummation of the transaction, the interested stockholder
owns at least 85% of the voting stock outstanding at the time the transaction
commenced, excluding shares owned by certain employee stock plans and persons
who are both directors and officers, or
(iii) at or subsequent to the time an interested stockholder becomes an
interested stockholder, the business combination is both approved by the board
of directors and authorized at an annual or special meeting of our stockholders
by the affirmative vote of at least two-thirds of the outstanding voting stock
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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<PAGE>
CTIG MARKET PRICES AND DIVIDENDS
Our common stock is listed on the OTC Bulletin Board. The table below
sets forth, for the fiscal quarters indicated, the reported high and low sales
prices of our 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. Our
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 2001
4th Quarter (through [January 11, 2001]) $[0.75] $[0.69]
3rd Quarter 1.94 0.66
2nd Quarter 2.31 1.56
1st Quarter 3.44 1.38
Fiscal Year ended 2000
4th Quarter 5.75 1.91
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
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 our 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 our common stock.
On October 26, 2000, the last trading on the date in which the fourth
amendment to the Centillion merger agreement was signed, the high and low prices
of the OTCBB were $1.625 and $1.4375 per share, respectively, for our common
stock.
We have not paid any dividends in the past two fiscal years.
OUR STOCKHOLDERS ARE URGED TO OBTAIN CURRENT MARKET QUOTATIONS FOR OUR
COMMON STOCK.
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PROPOSAL III
APPROVAL OF AMENDMENTS TO CTIG's
CERTIFICATE OF INCORPORATION
The Centillion merger agreement requires amendments to our certificate
of incorporation. By unanimously approving the Centillion merger and the
Centillion merger agreement at a board meeting held on February 3, 2000, the
board of directors also unanimously authorized an amendment to our certificate
of incorporation. The board of directors determined that such an amendment is
advisable and directed that the proposed amendment be considered by our
stockholders at the special meeting.
The full text of the proposed amendments to the certificate of
incorporation 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 47,166,666 shares of 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 redesignate 2,833,334 shares of currently authorized common
stock as 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 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 the certificate of incorporation, a copy of which is attached as
Annex B to this proxy statement, and is incorporated herein by reference. This
summary is qualified in its entirety by reference to the proposed amendments.
Our stockholders are urged to read the proposed amendments in their entirety for
a more complete description of their terms and conditions.
Restructure of the 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, our 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 it 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 common stock 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 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.
Any director appointed
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to fill a vacancy will serve until the end of the term of the director's class.
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 one director from each of 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 Tracking LLC
are to be made by the executive committee. All decisions with respect to this
limited liability company will be made by the majority vote of the members of
the executive committee present at a meeting at which a quorum is present. A
majority of the total number of members of the executive committee will
constitute a quorum. The executive committee will have the same fiduciary duties
to all CTIG stockholders that the full board has, and will have no separate duty
solely to the holders of Class B common stock.
Initial Board of Directors After Merger
The amendment of the certificate of incorporation includes 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 chief executive officer, 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 Class B
Common Stock
Our 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 47,166,666 shares of Class A common stock, par value
$0.01 per share, and 2,833,334 shares of Class B common stock, par value $0.01
per share. Except as specifically set forth in the amended certificate, 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 any 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 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, we 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 two-thirds majority of the board of directors.
Liquidation
In the event of a liquidation, dissolution or winding up of CTIG,
whether voluntary or involuntary, after payment or provision for payment of its
debts and other liabilities, the holders of the shares of Class A common stock
and the
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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 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 CTIG's 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 our current 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 the 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 is adopted by the
required vote of our stockholders, such amendment will become effective at the
effective time of the Centillion merger, pursuant to the filing by us of a
certificate of amendment to the certificate of incorporation with the secretary
of the State of Delaware.
Vote Required for Approval
The proposal to approve the amendment to the certificate of
incorporation as described above requires the affirmative vote of a majority of
our outstanding shares for its approval. Abstentions may be specified on the
proxy and will be considered present at the 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 our outstanding shares is required to approve the proposal.
The board of directors 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 special meeting, the board of directors will adopt and
approve the amendment to our stock option and restricted stock plan and reserve
an additional 2,000,000 shares of 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 have been issued and
250,000 of which remain unexercised. If this amendment is adopted, there will be
an additional 2,000,000 options authorized. The principal purpose of the plan is
to provide incentives for our officers, employees and consultants and those of
our subsidiaries through the granting of options and restricted stock, thereby
stimulating their personal and active interest in our development and financial
success, and inducing them to remain in our company's employ. In addition to
awards made to officers, directors, employees or consultants, the plan will
continue to permit the granting of stock options to our non-employee directors.
Benefits Under the Plan
If this proposal to amend the stock option and restricted stock plan is
approved, along with the mergers, CTIG management intends to grant some of the
additional authorized options to some non-employee individuals in accordance
with the following:
o the chairman of the board will receive 20,000 options per year;
o the vice-chairman of the board will receive 15,000 options per year;
o each executive committee member will receive 10,000 options per
year; and
o 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.
Assuming both the Centillion and Celltech mergers are consummated,
approximately 11 CTIG directors and/or executive officers and 180 CTIG employees
will be eligible to participate in the CTIG stock option plan. Assuming only the
Centillion merger is consummated, approximately 10 CTIG directors and/or
executive officers and 120 CTIG employees will be eligible to participate in the
CTIG stock option plan. Assuming neither the Centillion nor the Celltech mergers
are consummated, approximately seven CTIG directors and/or executive officers
and approximately 60 CTIG employees will be eligible to participate in the CTIG
stock option plan.
The material features of the plan are summarized below. The plan is
attached as Annex I to this proxy statement.
Summary of Stock Option and Restricted Stock Plan
General
Pursuant to the plan, we afford eligible participants the opportunity
to receive three types of grants. Eligible participants of the plan may include:
(i) designated key employees (including employees who also serve as
members of the board of directors)-
(ii) non-employee members of the board of directors; and
(iii) 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"), and (3) Restricted Stock.
ISO's and NQSO's are collectively referred to as "stock options". A director's
grant is a special type of grant of NQSO's made only to particular members of
the board of directors who are not
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employees of CTIG and who serve on the compensation committee of the board of
directors. 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. 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.
Administration of the Plan
Generally, the committee administers and interprets the plan. The
committee consists of at least two persons, both 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, 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 ISO's and NQSO's. As to ISO's, only
employees of CTIG are eligible to receive ISO's; non-employee directors and
independent contractors and consultants are not eligible to receive ISO's. As to
NQSO's, all eligible participants may receive this type of option. 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 ISO's and NQSO's 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 the
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
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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 ISO's. 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 Section 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.
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 Internal Revenue 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 NQSO's with respect to 30,000 shares of common stock at the
commencement of and in consideration for their service to CTIG as a committee
member. 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 grantee has the right to exercise in full any installment of 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 the event. If upon a merger or consolidation where CTIG does survive,
the committee in its sole discretion, may elect to give grantees notice of the
event; if notice is given, the grantee has the right to exercise the grant
within ten (10) days after the required 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.
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Federal Income Tax Consequences
The current federal income tax consequence of grants under the stock
option plan are described below.
Tax Deductibility under Section 162(m)
Section 162(m) of the Internal Revenue Code disallows a public
company's deductions for employee compensation exceeding $1,000,000 per year for
the chief executive officer and the four other most highly compensated executive
officers. Section 162(m) contains an exception for performance-based
compensation that meets specific requirements. The Compensation Committee may
grant stock awards that are based on the attainment of objective performance
goals and are intended to qualify as performance-based compensation.
Tax Treatment of Options
An optionee will not be subject to federal income tax upon the grant of
non-qualified stock option. Upon the exercise of a non-qualified stock option,
the optionee will recognize ordinary compensation income in an amount equal to
the excess, if any, of the then fair market value of the shares acquired over
the exercise price. CTIG will generally be able to take a deduction with respect
to this compensation income for federal income tax purposes. The optionee's tax
basis in the shares acquired will equal the exercise price plus the amount
taxable as compensation to the optionee. Upon a sale of the shares acquired upon
exercise, any gain or loss is generally long term or short-term capital gain or
loss, depending on how long the shares are held. The required holding period for
long-term capital gain is presently more than one year. The optionee's holding
period for shares acquired upon exercise will begin on the date of exercise.
An employee who receives incentive stock options generally incurs no
federal tax liability at the time of grant or upon exercise of the options.
However, the spread will be an item of tax preference which may give rise to
alternative minimum tax liability at the time of exercise. If the optionee does
not dispose of the shares before the date that is two years from the date of
grant and one year from the date of exercise, the difference between the
exercise price and the amount realized upon disposition of the shares will
constitute long-term capital gain or loss, as the case may be. Assuming both
holding periods are satisfied, no deduction will be allowable to CTIG for
federal income tax purposes in connection with the option. If, within two years
of the date of grant or within one year from the date of exercise, the optionee
disposes of the shares, the optionee will generally realize ordinary
compensation income at the time of the disposition equal to the difference
between the exercise price and the lesser of the fair market value of the stock
on the date of exercise or the amount realized on the disposition. The amount
realized upon such a disposition will generally be deductible by CTIG for
federal income tax purposes.
Effective Date of Proposed Amendment
If the amendment to the stock option and restricted stock plan is
adopted by the required vote of the stockholders, the amendment will become
effective at the effective time of the Centillion merger.
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 special meeting for its approval. Abstentions may be
specified on the proxy and will be considered present at the 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 special meeting, in person or by
proxy, is required to approve the proposal. Broker non-votes are considered not
present at the 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.
Market Price of Shares
The closing price of CTIG's common stock, as reported on the OTCBB for
[January 11, 2001, was $0.70].
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CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS
We 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 mergers set forth: (i)
under "Summary," "Special Considerations," "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
"Selected Pro Forma Condensed Consolidation Financial Information," (ii) under
"Business" and "Management's Discussion and Analysis" in CTIG's Annual Report on
Form 10-KSB 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, or the negotiations of those words.
Forward-looking statements are not guarantees of performance. They
involve risks, uncertainties and assumptions. Our future results and stockholder
values 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 our ability to control or predict. Our
stockholders are cautioned not to put undue reliance on any forward-looking
statements. In addition, we have no intention or obligation to update
forward-looking statements after we distribute this proxy statement, even if new
information, future events or other circumstances have made them incorrect or
misleading. For those statements, we claim the protection of the safe harbor for
forward-looking statements contained in the Private Securities Litigation Reform
Act of 1995.
Our stockholders should understand that the following important
factors, in addition to those discussed elsewhere in the documents which are
incorporated by reference into this proxy statement, 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 and market conditions,
(ii) our ability to successfully integrate Centillion's and
Celltech's operations with our operations,
(iii) the impact of competition; and
(iv) customer demand.
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OTHER MATTERS
As of the date of this proxy statement, the board of directors know of
no matters that will be presented for consideration at the special meeting other
than as described in this proxy statement. If any other matters shall properly
come before the special meeting or any adjournments or postponements of the
meeting and be voted upon, the enclosed proxies will be deemed to confer
discretionary authority on the individuals named as proxies on the proxy to vote
the shares represented by the proxies as to any other matters. The persons named
as proxies intend to vote or not to vote in accordance with the recommendation
of the management of CTIG.
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. Our 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."
INCORPORATION OF DOCUMENTS BY REFERENCE
The SEC allows CTIG to "incorporate by reference" information into this
proxy statement, which means that we can disclose important information to you
by referring you to another document filed separately with the SEC. We are
providing each of these documents to you along with this proxy statement. The
information incorporated by reference is deemed to be part of this proxy
statement, except for any information superseded by information in this proxy
statement. This proxy statement incorporates by reference CTIG's Annual Report
on Form 10-KSB for the year ended March 31, 2000 and Quarterly Reports on Form
10-QSB for the quarters ended June 30, 2000 and September 30, 2000 (SEC File No.
000-10560), that we have previously filed with the SEC. These documents contain
important information about CTIG and its finances.
You may obtain additional copies of documents incorporated by reference
in this proxy statement, without charge, by requesting them in writing or by
telephone from:
Mary Ann Davis, Corporate Secretary
CTI Group (Holdings) Inc.
2550 Eisenhower Avenue
Norristown, PA 19403
(800) 355-5353
If you would like to request documents from us, please do so by
[February 1, 2001] to receive them before the special meeting.
You should rely only on the information contained or incorporated by
reference in this proxy statement to vote on the mergers. We have not authorized
anyone to provide you with information that is different from what is contained
in this proxy statement. This proxy statement is dated [January 18, 2001].
106
<PAGE>
Index
<TABLE>
<CAPTION>
Page
CENTILLION DATA SYSTEMS, INC. AND SUBSIDIARIES: ----
<S> <C>
Financial Statements as of and for the Years Ended December 31, 1999 and 1998:
Independent Auditor's Report F-4
Consolidated Statements of Income for the Years Ended December 31, 1999 and 1998 F-5
Consolidated Balance Sheets as of December 31, 1999 and 1998 F-6
Consolidated Statements of Stockholders' Equity for the Years Ended December 31, 1999 and 1998 F-7
Consolidated Statements of Cash Flows for the Years Ended December 31, 1999 and 1998 F-8
Notes to the Consolidated Financial Statements F-9
Unaudited Condensed Consolidated Financial Statements as of September 30, 2000
and for the Periods Ended September 30, 2000 and 1999:
Unaudited Condensed Consolidated Statements of Income for the Three and Nine Months Ended
September 30, 2000 and 1999 F-23
Unaudited Condensed Consolidated Balance Sheets as of September 30, 2000 and December 31, 1999 F-24
Unaudited Condensed Consolidated Statements of Stockholders' Equity for the Nine Months Ended
September 30, 2000 F-25
Unaudited Condensed Consolidated Statements of Cash Flows for the Nine Months Ended
September 30, 2000 and 1999 F-26
Notes to the Unaudited Condensed Consolidated Financial Statements F-27
CELLTECH INFORMATION SYSTEMS, INC.:
Financial Statements as of and for the Years Ended December 31, 1999 and 1998:
Report of Independent Public Accountants F-31
Balance Sheets as of December 31, 1999 and 1998 F-32
Statements of Operations for the Years Ended December 31, 1999 and 1998 F-33
Statements of Shareholders' Equity for the Years Ended December 31, 1999 and 1998 F-34
Statements of Cash Flows for the Years Ended December 31, 1999 and 1998 F-35
Notes to the Financial Statements F-36
Unaudited Condensed Financial Statements as of
September 30, 2000 and for The periods Ended September 30, 2000 and 1999:
Unaudited Condensed Balance Sheets as of September 30, 2000 and December 31, 1999 F-46
Unaudited Condensed Statements of Operations for the Three and Nine Months
Ended September 30, 2000 and 1999 F-47
Unaudited Condensed Statements of Cash Flows for the Nine Months Ended September 30, 2000 and 1999 F-48
Notes to the Unaudited Condensed Financial Statements F-49
CENTILLION DIGITAL SYSTEMS, INC. AND SUBSIDIARIES, e.NOVA, LLC AND
SUBSIDIARY, AND CHS, LLC:
Combined Financial Statements as of and for the Years Ended December 31, 1999
and 1998 (Unaudited):
Independent Auditor's Report F-51
Combined Statements of Income for the Years Ended December 31, 1999 and 1998 (Unaudited) F-52
Combined Balance Sheets as of December 31, 1999 and 1998 (Unaudited) F-53
Combined Statements of Stockholders' and Members' Equity for the Years
Ended December 31, 1999 and 1998 (Unaudited) F-54
Combined Statements of Cash Flows for the Years Ended December 31, 1999 and 1998 (Unaudited) F-55
Notes to the Combined Financial Statements F-56
</TABLE>
<PAGE>
<TABLE>
<S> <C>
Unaudited Combined Financial Statements as of September 30, 2000 and December
31, 1999 and for the Nine Months Ended September 30, 2000 and 1999:
Unaudited Condensed Combined Statements of Income for the Nine Months Ended
September 30, 2000 and 1999 F-65
Unaudited Condensed Combined Balance Sheets as of September 30, 2000 and December 31, 1999 F-66
Unaudited Condensed Combined Statements of Stockholders' Equity for the Nine Months Ended
September 30, 2000 F-67
Unaudited Condensed Combined Statements of Cash Flows for the Nine Months Ended
September 30, 2000 and 1999 F-68
Notes to the Unaudited Condensed Combined Financial Statements F-69
CDS HOLDINGS, LLC:
Unaudited Financial Statements as of September 30, 2000 and the Two Months Ended
September 30, 2000:
Unaudited Condensed Statement of Income for the Two Months Ended September 30, 2000 F-72
Unaudited Condensed Balance Sheet as of September 30, 2000 F-73
Unaudited Condensed Statement of Members' Equity for the Two Months Ended September 30, 2000 F-74
Unaudited Condensed Statement of Cash Flows for the Two Months Ended
September 30, 2000 and 1999 F-75
Notes to the Unaudited Condensed Financial Statements F-76
Unaudited Condensed Consolidated Pro Forma Financial Data of CDS Holdings, LLC:
Unaudited Condensed Combined Pro Forma Balance Sheet Data as of September 30, 2000 F-79
Unaudited Condensed Combined Pro Forma Statement of Loss Data for the Nine
Months Ended September 30, 2000 F-80
Unaudited Condensed Consolidated Pro Forma Statement of Loss Data for the Year Ended
December 31, 1999 F-81
Notes to the Unaudited Condensed Combined Pro Forma Financial Statement Data F-82
CTI GROUP (HOLDINGS), INC.:
Unaudited Condensed Consolidated Pro Forma Financial Data of CTIG:
Introduction F-84
Unaudited Condensed Consolidated Pro Forma Balance Sheet Data as of September 30, 2000 F-85
Notes to the Unaudited Condensed Consolidated Pro Forma Balance Sheet Data F-86
Unaudited Condensed Consolidated Pro Forma Statement of Operations Data for the Year
Ended March 31, 2000 F-89
Unaudited Condensed Consolidated Pro Forma Statement of Operations Data for the Six
Months Ended September 30, 2000 F-90
Notes to the Unaudited Condensed Consolidated Pro Forma Statement of Operations Data F-91
</TABLE>
F-2
<PAGE>
Centillion Data Systems, Inc. and Subsidiaries
Financial Statements as of December 31, 1999 and 1998
and for the Years Ended December 31, 1999 and 1998
F-3
<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-4
<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 fees $10,375,914 $10,179,217
Patent licenses 25,000,000
Reimbursed expense 303,828 308,595
Other 54,900 85,689
---------------------------------------
10,734,642 35,573,501
---------------------------------------
Cost of Revenues
Service 3,973,282 3,874,610
Patent licenses 549,503 4,091,290
---------------------------------------
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 (1,334,700)
$865,300
Minority Interest in Net Loss of Discontinuing Operations 157,279
---------------------------------------
Net Income (Loss) $ (2,180,725) $10,282,092
=======================================
Earnings Per Common Share
Income From Continuing Operations Before Minority Interest $0.74 $4.28
Discontinuing Operations
Loss from discontinuing operations (1.02) (1.49)
Loss on disposal of discontinuing operations (0.38)
Minority interest in discontinuing operations 0.04
---------------------------------------
Net Income (Loss) $(0.62) $2.79
=======================================
Earnings Per Common Share--Assuming Dilution
Income From Continuing Operations Before Minority Interest $0.73 $4.26
Discontinuing Operations
Loss from discontinuing operations (1.01) (1.48)
Loss on disposal of discontinuing operations (0.37)
Minority interest in discontinuing operations 0.04
---------------------------------------
Net Income (Loss) $(0.61) $2.78
=======================================
</TABLE>
See notes to consolidated financial statements.
F-5
<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 865,300 58,669
Assets of discontinuing operations 5,082,961 1,907,992
---------------------------------------
Total current assets 19,989,946 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
---------------------------------------
$22,465,058 $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 2,788,762 455,805
---------------------------------------
Total current liabilities 4,252,163 3,046,676
---------------------------------------
Minority Interest In Discontinuing Operations 1,399,441 1,145,165
---------------------------------------
Redeemable Common Stock 490,711 397,969
---------------------------------------
Stockholders' Equity
Common stock--no-par value
Authorized--10,000,000 shares
Issued and outstanding--3,632,487 and 3,485,548 shares, respectively, at stated
value of $.0001 per share 363 348
Additional paid-in capital 8,396,220 7,321,475
Accumulated other comprehensive income 795,657 88,485
Retained earnings 7,130,503 9,311,228
---------------------------------------
16,322,743 16,721,536
---------------------------------------
$22,465,058 $21,311,346
=======================================
</TABLE>
See notes to consolidated financial statements.
F-6
<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, as
originally reported $404 $10,475,763 $ (970,864) $ 50,506 $ 9,555,809
Reclassification of
redeemable common stock (7) (799,979) (799,986)
---------------------------------- ---------------------------------------------------
Balances, January 1, 1998, as
restated 397 9,675,784 (970,864) 50,506 8,755,823
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 3,578 3,578 3,578
adjustments
------------------
Comprehensive Income $10,320,071
==================
Stock redemption (49) (2,731,886) (2,731,935)
Issuance of common stock 13,243 13,243
Revaluation of redeemable
common stock 364,334 364,334
---------------------------------- ---------------------------------------------------
Balances, December 31, 1998 348 7,321,475 9,311,228 88,485 16,721,536
Comprehensive Income
Net loss $(2,180,725) (2,180,725) (2,180,725)
Unrealized gains on
securities 625,589 625,589 625,589
Foreign currency
translation 81,583 81,583 81,583
adjustments
------------------
Comprehensive loss $(1,473,553)
==================
Issuance of common stock 15 1,079,989 1,080,004
Revaluation of redeemable
common stock (5,244) (5,244)
---------------------------------- ---------------------------------------------------
Balances, December 31, 1999 $363 $ 8,396,220 $7,130,503 $795,657 $16,322,743
================================== ===================================================
</TABLE>
See notes to consolidated financial statements.
F-7
<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) $(2,180,725) $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 1,334,700
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) (1,512,709)
------------------------------------
Cash and Cash Equivalents, End of Year $6,097,338 $11,669,606
====================================
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-8
<PAGE>
CENTILLION DATA SYSTEMS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Note 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 processes data using this software for 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.
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.
F-9
<PAGE>
CENTILLION DATA SYSTEMS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
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 that is to be marketed has been established, development costs are
capitalized. For software products that will be used by the Company to provide
service to its customers, development costs are capitalized when the preliminary
project stage is completed and the project has been authorized and funds
committed.
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.
Earnings Per Share
Earnings per share have been computed based upon the weighted average common
shares outstanding during each year.
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. One time license
revenue has resulted from settlements of patent infringement litigation.
Pursuant to these settlements, the Company has no further obligations related to
these licenses. The revenue is recorded when received and related expenses are
recorded as incurred.
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 and Restatement
Certain amounts in prior year financial statements have been reclassified to
conform to the current year presentation.
Redeemable common stock was not separately reported prior to 1999. Beginning
common stock and additional paid-in capital for 1998 were restated to reflect
the reclassification of the redeemable common stock.
F-10
<PAGE>
CENTILLION DATA SYSTEMS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Note 2 - Discontinuing Operations
The Company's management having the authority to approve the action determined
on February 3, 2000 to dispose of its interests in Centillion Digital Systems,
Inc., Centillion Digital GmbH, and e.Nova, LLC and subsidiary. These entities
provide technology and telecommunication services different than those of the
Company and have distinct operations and customers and therefore represent a
separate major line of business from the core telecommunication billing 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. Under the proposed merger
discussed in Note 18, these entities will be sold to Holdings LLC, which will be
owned by the present stockholders of the Company on the same percentage basis as
their ownership in the Company. The sale will be for $3,100,000 with the Company
receiving a promissory note for the purchase amount. In addition, cash and other
assets will be transferred to Holdings LLC in the amount of approximately
$6,900,000. The Company will receive a total promissory note of approximately
$10,000,000.
The transfer of the ownership of the Company's ownership interest in these
entities will be accounted for as a spin-off at historical cost, which is less
than the fair market value of $3,100,000. Therefore, the disposition will be
accounted for as a distribution to the stockholders. Proceeds received on the
note receivable will be recognized as capital transactions as cash is received.
At December 31, 1999 and 1998, the assets of these entities consisted primarily
of cash, accounts receivable, property and equipment, capitalized software
costs, goodwill, and other intangible assets. The liabilities consisted of
accounts payable and short-term bank financing.
<TABLE>
<CAPTION>
December 31 1999 1998
----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Assets $5,082,961 $5,597,738
Liabilities 2,788,762 455,805
</TABLE>
Revenues, losses from operations and loss on disposal of these entities follows:
<TABLE>
<CAPTION>
Year Ended December 31 1999 1998
----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Revenues $1,570,000 $1,200,000
Loss from operations, net of tax benefit of $1,834,204 in 1999 and
$1,796,154 in 1998 3,622,867 5,467,777
Loss on disposal, net of tax benefit of $865,300 1,334,700
</TABLE>
Note 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>
F-11
<PAGE>
CENTILLION DATA SYSTEMS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
<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.
Note 4 - Intangible Assets
Intangible assets of continuing operations consist of the following:
<TABLE>
<CAPTION>
December 31 1999 1998
----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Patents $344,850 $344,850
Goodwill 211,781
------------------------------------
Total cost 556,631 344,850
Accumulated amortization (123,748) (100,758)
------------------------------------
$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.
Note 5 - Property and Equipment
Property and equipment of continuing operations consists of the following:
<TABLE>
<CAPTION>
December 31 1999 1998
----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Data processing equipment $1,578,754 $1,546,176
Furniture and equipment 473,597 444,784
Automobiles 12,105 12,105
Software 2,439,144 1,634,109
Leasehold improvements 318,449 360,450
--------------------------------------
Total cost 4,822,049 3,997,624
Accumulated depreciation and amortization (2,809,298) (2,553,055)
--------------------------------------
$2,012,751 $1,444,569
======================================
</TABLE>
F-12
<PAGE>
CENTILLION DATA SYSTEMS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
At December 31, 1999 and 1998, software of continuing operations was comprised
of the following:
<TABLE>
<CAPTION>
1999 1998
----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Developed internally $2,028,566 $1,344,062
Purchased for internal use 410,578 290,047
--------------------------------------
Total 2,439,144 1,634,109
Accumulated amortization (1,103,078) (957,659)
--------------------------------------
Software--net $1,336,066 $ 676,450
======================================
</TABLE>
Software purchased and developed internally is being amortized using the
straight-line method over three years. Amortization expense for continuing
operations was $145,419 and $146,063 for the years ended December 31, 1999 and
1998.
Note 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. This control arises from Data having a large minority
interest of 47%, Data funding the operations of e.Nova, and the same board
members that control 92.9% of Data also separately controlling 41.2% of e.Nova.
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. As discussed in Note 2, e.Nova, LLC is
included as part of discontinuing operations for all periods presented.
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 XMS Corp. 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.
Note 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.
F-13
<PAGE>
CENTILLION DATA SYSTEMS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Note 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>
Note 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>
Note 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.
F-14
<PAGE>
CENTILLION DATA SYSTEMS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Note 11 - Redeemable Common Stock
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 and 1998, there were
64,145 and 54,145 shares and 45,655 and 45,655 options subject to repurchase
only if the above conditions are met. The Company's Board annually determines a
share value for its options. This value for December 31, 1999 and 1998 was $7.65
and $7.35 per share. Using these values, the value of the redeemable shares at
December 31, 1999 and 1998 was $490,711 and $397,969.
Changes in redeemable common stock are as follows:
<TABLE>
<CAPTION>
Shares Amount
----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Balance at December 31, 1997 71,300 $799,986
Stock redeemed (35,655) (198,598)
Stock issued 18,500 160,915
Adjust value to Board determined value of $7.35 per share (364,334)
-----------------------------------
Balance at December 31, 1998 54,145 397,969
Stock issued 10,000 87,498
Adjust value to Board determined value of $7.65 per share 5,244
-----------------------------------
64,145 $490,711
===================================
</TABLE>
Note 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-15
<PAGE>
CENTILLION DATA SYSTEMS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Note 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 (2,699,504) (1,796,154)
Item charged directly to stockholders' equity (444,303) (25,952)
----------------------------------------
Total income tax expense (benefit) $ (966,020) $ 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-16
<PAGE>
CENTILLION DATA SYSTEMS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
The components of the net deferred tax asset related to continuing operations
are as follows:
<TABLE>
<CAPTION>
December 31 1999 1998
----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Assets
Depreciation and amortization $ 9,679 $26,424
Basis of discontinuing operations 865,300
Allowance for bad debts 10,463 45,657
Vacation and bonus compensation 40,938 42,393
Property tax 4,299 3,792
State income tax 25,545
------------------------------------
Total assets 956,224 118,266
------------------------------------
Liabilities
Unrealized gain on securities available for sale (470,255) (25,952)
State income tax (7,223)
------------------------------------
Total liabilities (470,255) (33,175)
------------------------------------
$485,969 $85,091
====================================
</TABLE>
Note 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.
Note 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.
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.
F-17
<PAGE>
CENTILLION DATA SYSTEMS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
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 $(2,180,725) $10,282,092
Pro forma (2,240,425) 10,115,092
Earnings per common share As reported (0.61) 2.79
Pro forma (0.63) 2.75
Earnings per common share--assuming dilution As reported (0.61) 2.78
Pro forma (0.63) 2.74
</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
Options Shares Exercise Price Shares Exercise Price
----------------------------------------------------------------------------------------------------------------------------
<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-18
<PAGE>
CENTILLION DATA SYSTEMS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Note 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-19
<PAGE>
CENTILLION DATA SYSTEMS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Note 17 - Earnings Per Share
Earnings per share (EPS) were computed as follows:
<TABLE>
<CAPTION>
Year Ended December 31, 1999
-----------------------------------------------------
Weighted
Average Per-Share
Income Shares Amount
----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Basic Earnings Per Share
Income available to common stockholders $2,619,563 3,559,018 $.74
==================
Effect of Dilutive Securities
Stock options 12,844
------------------------------------
Diluted Earnings Per Share
Income available to common stockholders and assumed conversions
$2,619,563 3,571,862 $.73
=====================================================
</TABLE>
Options to purchase 36,300 shares of common stock from $7.79 to $9.54 per share
were outstanding at December 31, 1999, but were not included in the computation
of diluted EPS because the options' exercise price was greater than the average
market price of the common shares.
<TABLE>
<CAPTION>
Year Ended December 31, 1998
-----------------------------------------------------
Weighted
Average Per-Share
Income Shares Amount
----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Basic Earnings Per Share
Income available to common stockholders $15,749,869 3,683,143 $4.28
==================
Effect of Dilutive Securities
Stock options 10,194
------------------------------------
Diluted Earnings Per Share
Income available to common stockholders and assumed conversions $15,749,869 3,693,337 $4.26
=====================================================
</TABLE>
Options to purchase 46,300 shares of common stock from $7.79 to $9.54 per share
were outstanding at December 31, 1998, but were not included in the computation
of diluted EPS because the options' exercise price was greater than the average
market price of the common shares.
F-20
<PAGE>
CENTILLION DATA SYSTEMS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Note 18 - 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 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-21
<PAGE>
Centillion Data Systems, Inc. and Subsidiaries
Unaudited Condensed Consolidated Financial Statements
As of September 30, 2000 and December 31, 1999
and the Three and Nine Months Ended September 30, 2000
and 1999
F-22
<PAGE>
CENTILLION DATA SYSTEMS, INC. AND SUBSIDIARIES
Unaudited Consolidated Statement of Income
<TABLE>
<CAPTION>
The Three Months The Three Months The Nine Months The Nine Months
Ended Sept Ended Sept Ended Sept Ended Sept
30, 2000 30, 1999 30, 2000 30, 1999
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net Revenues
Service Fees $2,610,132 $2,659,165 $7,760,230 $7,803,656
Patent Licenses 0 0 7,500,000 0
Reimbursed expense 58,733 35,507 196,020 239,017
Other 70,119 27,660 140,653 383
-------------------------------------------------------------------------------
2,738,984 2,722,332 15,596,903 8,043,056
Cost of Revenues
Services 1,014,072 1,088,402 3,254,992 2,969,296
Patent Licenses 194,796 111,855 2,551,345 327,052
-------------------------------------------------------------------------------
1,208,868 1,200,257 5,806,337 3,296,348
Gross Profit 1,530,116 1,522,075 9,790,566 4,746,708
Operating Expenses 615,631 367,682 1,681,830 1,336,987
-------------------------------------------------------------------------------
Operating income 914,485 1,154,393 8,108,736 3,409,721
Other Income 416,207 63,179 1,658,591 149,041
-------------------------------------------------------------------------------
Income From Continuing Operations
Before Income Taxes and Minority Interest 1,330,692 1,217,572 9,767,327 3,558,762
Income Tax 683,023 485,811 3,977,663 1,419,946
Income From Continuing Operations 647,669 731,761 5,789,664 2,138,816
Loss from discontinuing operations net of tax
benefit of $501,502 and $1,386,221 (1,066,075) (2,814,449)
Minority Interest in Net Loss of Discontinuing
Operations 46,691 92,485
-------------------------------------------------------------------------------
Net Income (Loss) $647,669 $(287,623) $5,789,664 $(583,148)
===============================================================================
</TABLE>
See notes to consolidated financial statements
F-23
<PAGE>
CENTILLION DATA SYSTEMS, INC. AND SUBSIDIARIES
Unaudited Consolidated Balance Sheet
<TABLE>
<CAPTION>
December 31, Sept 30, Pro Forma Pro Forma
1999 2000 Adjustments Balance Sheet
---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Assets
Current Assets
Cash and cash equivalents $ 6,097,338 $ 11,577,965 $(5,036,439)(1) $6,541,526
Securities available for sale 6,116,112 0 0
Accounts receivable (net of allowance of $70,510) 1,136,502 1,579,428 (338,426)(2) 1,241,002
Other receivables 53,904 351,972 (50,024)(3) 301,948
Prepaid assets 129,917 130,248 (45,646)(4) 84,602
Income taxes refundable 507,912 930,855 (1) 930,855
Deferred income tax benefit 865,300 131,888 131,888
Assets of discontinuing operations 5,082,961 938,265 (938,265)(5) 0
-----------------------------------------------------------------------
Total current assets 19,989,946 14,709,766 (5,477,945) 9,231,821
-----------------------------------------------------------------------
Property and Equipment 2,012,751 3,009,089 (227,811)(6) 2,781,278
-----------------------------------------------------------------------
Other Assets
Intangible assets 221,102 203,860 203,860
Deferred Costs 211,781 797,581 797,581
Investments 19,800 0 0
Deferred income tax benefit 9,678 0 0
-----------------------------------------------------------------------
462,361 1,001,441 0 1,001,441
-----------------------------------------------------------------------
$ 22,465,058 $ 18,720,296 $(5,705,756) $13,014,540
=======================================================================
Liabilities and Stockholders' Equity
Current Liabilities
Notes payable - banks $118,285
Accounts payable 261,941 $224,346 $224,346
Income taxes payable 10,869 10,869
Deferred income tax liability 389,009 5,970 5,970
Accrued liabilities 694,166 534,032 534,032
Liabilities of discontinuing operations 2,788,762 487,909 $(487,909)(7) 0
-----------------------------------------------------------------------
Total current liabilities 4,252,163 1,263,126 (487,909) 775,217
-----------------------------------------------------------------------
Minority Interest In Discontinuing Operations 1,399,441 0 0 0
-----------------------------------------------------------------------
Redeemable Common Stock 490,711 487,498 487,498
Stockholders' Equity
Common stock--no-par value 363 363 363
Additional paid-in capital 8,396,220 8,346,554 8,346,554
Accumulated other comprehensive income(Loss) 795,657 (107,172) (107,172)
Retained Earnings 7,130,503 8,729,927 (5,217,847)(8) 3,512,080
-----------------------------------------------------------------------
16,322,743 16,969,672 (5,217,847) 11,751,825
-----------------------------------------------------------------------
$ 22,465,058 $ 18,720,296 $(5,705,756) $13,014,540
=======================================================================
</TABLE>
See notes to consolidated financial statements
F-24
<PAGE>
CENTILLION DATA SYSTEMS, INC. AND SUBSIDIARIES
Unaudited Consolidated Statement of Stockholders' Equity
<TABLE>
<CAPTION>
Accumulated
Additional Other
Common Paid-In Comprehensive Retained Comprehensive
Stock Capital Income Earnings Income (Loss) Total
--------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balances, January 1, 2000 $363 $8,396,220 $7,130,503 $795,657 $16,322,743
Comprehensive Income
Net income 5,789,664 5,789,664 5,789,664
Unrealized gains on
securities, net of
reclassification
adjustment (758,920) (758,920) (758,920)
Foreign currency
translation
adjustments (143,909) (143,909) (143,909)
-------------------
Comprehensive Income 4,886,835
Distribution of
Investment in
related entities and
other assets (4,190,240) (4,190,240)
Stock redemption (52,879) (52,879)
Revaluation of
redeemable
common stock 3,213 3,213
---------------------------------- ---------------------------------------------------
Balances, September 30,
2000 $363 $8,346,554 $8,729,927 $(107,172) $16,969,672
================================== ===================================================
</TABLE>
See notes to consolidated financial statements.
F-25
<PAGE>
CENTILLION DATA SYSTEMS, INC. AND SUBSIDIARIES
Unaudited Consolidated Statement of Cash Flows
<TABLE>
<CAPTION>
Nine Months Ended September 30 2000 1999
----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Net Cash Provided (used) by Operating Activities $ 4,136,142 $94,179
----------------------------------------
Net Cash Provided (Used) by Investing Activities 3,913,401 (5,850,840)
----------------------------------------
Net Cash (Used) by Financing Activities (3,170,125) (199,731)
----------------------------------------
Effect of Foreign Currency Exchange Rate Changes on Cash and Cash Equivalents (143,909) (15,736)
----------------------------------------
Increase (Decrease) in Cash and Cash Equivalents 4,735,509 (5,972,128)
Cash and Cash Equivalents, Beginning of Period 6,865,542 13,182,315
----------------------------------------
11,601,051 7,210,187
Cash and Cash Equivalents Included in Assets of Discontinued Operations (23,086) (1,248,617)
----------------------------------------
Cash and Cash Equivalents, End of Period $11,577,965 $5,961,570
========================================
Supplemental Cash Flows Information
Cash paid for interest $2,202 $19,592
Cash paid for income taxes $2,320,000 $1,812,305
Assets Distributed to Shareholders and Transferred to Holdings, LLC $1,191,277
</TABLE>
See notes to consolidated financial statements.
F-26
<PAGE>
CENTILLION DATA SYSTEMS, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements
Note 1 - Business and Basis of Presentation
Founded in 1987, Centillion Data Systems, Inc. pioneered and patented an
electronic billing analysis system for the telecommunications industry. Today,
Centillion processes data using this software for 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.
The accompanying consolidated financial statements have been prepared by
Centillion Data Systems, Inc. and Subsidiaries without audit, and reflect all
adjustments (consisting only of normal and recurring adjustments) which, in the
opinion of management, are necessary to state fairly the financial information
set forth therein in accordance with generally accepted accounting principles.
The interim results may not be indicative of the results that may be expected
for the year. These financial statements should be read in conjunction with the
audited consolidated financial statements for the year ended December 31, 1999
included elsewhere in this proxy statement.
Certain information in footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
has been condensed or omitted, although the Company believes the disclosures are
adequate to make the information presented not misleading. These financial
statements should be read in conjunction with the financial statements and notes
thereto included in the Company's financial statements for the year ended
December 31, 1999.
Note 2 - Discontinuing Operations
The Company's management having the authority to approve the action, determined
on February 3, 2000 to dispose of its interests in Centillion Digital Systems,
Inc., Centillion Digital GmbH, and e.Nova, LLC and subsidiary. These entities
provide technology and telecommunication services different than those of the
Company and have distinct operations and customers and therefore represent
separate major lines 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. Under the proposed merger discussed in Note 6 these
entities will be sold to a limited liability company, Holdings, LLC, which will
be owned by the present stockholders of the Company on the same percentage basis
as their ownership in the Company. The sale will be for $2,689,536 with the
Company receiving a promissory note for the purchase amount. In addition, cash
and other assets will be transferred to Holdings, LLC. The actual amount of the
Note will be determined immediately prior to closing. The total amount of the
promissory note the Company will receive is expected to be approximately
$10,000,000
The transfer of the ownership of the Company's ownership interest in these
entities will be accounted for as a spin-off at historical cost, which is less
than the fair market value of $2,689,536. Therefore, the disposition will be
accounted for as a distribution to the stockholders and the note receivable will
not be recognized. The Company had established a loss on disposal of
discontinuing operations reserve based on the estimated losses from operations
through the expected date of disposal. This reserve has been reduced for actual
losses incurred in 2000. This is why there is no loss from discontinuing
operations recognized in the current year. Proceeds received on the note will be
treated as an equity contribution when received.
At September 30, 2000 and 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,
F-27
<PAGE>
CENTILLION DATA SYSTEMS, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements
accounts payable and short-term bank financing. Revenues from these entities for
the nine months ended, 2000 and the nine months ended September 30, 1999 amount
to approximately $987,447 and $1,146,000 respectively.
Note 3 - Major Customer
Contract revenue from one major customer (defined as a customer who provided in
excess of 10% of total revenue) approximated 84% of total revenues from
continuing operations, net of one-time license fees, during the first nine
months of 2000 and 1999. Accounts receivable from this major customer
approximated 55% of accounts receivable from continuing operations at September
30, 2000. In September 2000 the Company signed an amendment to the contract with
this customer which will expire in March 2001.
Note 4 - Investments
During the nine months ended September 30, 2000, the Company liquidated
approximately $6,100,000 at cost of its securities available for sale. The
Company realized a gain of approximately $1,260,000 on the sale of these
securities during the nine months ended September 30, 2000.
Note 5 - Patent Litigation
During the nine months ended September 30, 2000, the Company received a one-time
license fee of $7,500,000 due to a settlement of patent litigation. Costs
related to patent litigation were $2,551,345 during this period. This one-time
license fee was all recognized as income during this period as the Company has
no further obligation under the settlement agreement.
Note 6 - Pending Acquisition
On February 3, 2000, the Company entered into an Agreement and Plan of Merger
with CTI Group Holdings, Inc. (CTIG). This agreement was most recently amended
on October 26, 2000. 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 of September 30, 2000, these conditions have not yet been met. 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.
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, on July 31, 2000 the shareholders of the Company
established CDS Holdings, LLC and distributed its ownership interest in e.Nova
LLC, for $859,977, CHS, LLC for $50,000 and Lockerbie Vermont, LLC $19,800.
These distributions were at historical value, which is less than fair value.
Along with these ownership interests the Company also distributed $3,000,000 in
cash. The Company will also sell its net assets in Centillion Digital Systems,
Inc. and Centillion Digital GmbH to CDS Holdings LLC. Both of these transactions
are accounted for at historical value, which is less than fair market value, in
exchange for a promissory note (based on fair market value) due and payable in
seven and half years with interest at the applicable federal rate. These
entities are accounted for as discontinued operations at December 31, 1999 (see
Note 2).
F-28
<PAGE>
CENTILLION DATA SYSTEMS, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements
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. The amounts are included as Deferred Costs on the balance sheet
and totaled $797,581 and $211,781 at September 30, 2000 and December 31, 1999,
respectively.
Note 7 - Pro Forma Adjustments
The Pro Forma Adjustments represent the effects of the distribution of the
spin-off businesses and related cash accounts receivable, fixed assets and other
assets to the Company's shareholders as of September 30, 2000.
(1) It is estimated that $3,903,878 of Cash will be transferred to CDS
Holdings, LLC. The balance of cash $1,132,561 is the cost associated with
employee severance and related costs to be paid by the Company prior to the
transaction. The income tax benefit of these costs and other non cash items
is estimated to be $930,855 and has been accounted for as Income Taxes
Refundable on the balance sheet
(2) Accounts Receivable balances to be transferred to CDS Holdings, LLC
(3) Note Receivable to be transferred to CDS Holdings, LLC
(4) Deposits to be transferred to CDS Holdings, LLC
(5) Assets of Discontinued Operations to be transferred to CDS Holdings, LLC
(6) Office equipment and furniture to be transferred to CDS Holdings, LLC
(7) Liabilities of Discontinued Operations to be transferred to CDS Holdings,
LLC
(8) Net effect on equity of these transactions.
F-29
<PAGE>
Celltech Information Systems, Inc.
Audited Financial Statements
As of and for the Years Ended December 31, 1999 and 1998
F-30
<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.
Philadelphia, Pa.,
April 17, 2000, except for Note 1, as to
which the date is November 8, 2000.
F-31
<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-32
<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-33
<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>
Thee accompanying notes are an integral part of these financial statements.
F-34
<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 (loss) income
to net cash (used in) provided by operating activities-
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)
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-35
<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.
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 obtained a waiver through
December 31, 1999 for this covenant violation. This waiver does not extend
beyond December 31, 1999. These conditions raised substantial doubt about the
Company's ability to continue as a going concern. Consequently, the original
report of the Company's independent public accountants included a paragraph
stating that there was a substantial doubt as to the ability of the Company to
continue as a going concern. As a result of management's actions to reduce costs
in 2000, the Company's independent public accountants have removed the paragraph
discussed above from their report.
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-36
<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 internal and external direct costs incurred during
the preliminary project stage of a computer software application as research and
development costs and charges those costs to expense when incurred. During the
application development stage, direct costs of producing an application system
are capitalized and amortized over the estimated life of the system. 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. 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.
F-37
<PAGE>
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.
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 and the reported amounts of revenues and expenses during the
reporting period. 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-38
<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 30, 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.
F-39
<PAGE>
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.
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
---------------
265,451
Less: Imputed interest (55,617)
---------------
$ 209,834
===============
F-40
<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%, respectively, 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-41
<PAGE>
<TABLE>
<CAPTION>
REVENUES ACCOUNTS RECEIVABLE, net
---------------------------------- ----------------------------------
1999 1998 1999 1998
-------------- -------------- -------------- -----------------
<S> <C> <C> <C> <C>
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
</TABLE>
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. 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.
F-42
<PAGE>
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, 2000, 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.
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
============== ===============
F-43
<PAGE>
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 $2,888,587. The estimated purchase
price is based on: (1) a $262,599 cash payment to the Company shareholders; (2)
934,515 shares of CTIG Class A common stock; valued at $2.81 per share based on
the average trading price preceding the most recent 20 consecutive business days
through April 7, 2000 and (3) 841,064 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 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-44
<PAGE>
Celltech Information Systems, Inc.
Unaudited Financial Statements
As of September 30, 2000 and December 31,
1999 and the Nine and Three Months
Ended September 30, 2000 and 1999
F-45
<PAGE>
CELLTECH INFORMATION SYSTEMS, INC.
BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
September 30, December 31,
2000 1999
------------- ------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 650,047 $ 325,627
Accounts receivable, net of allowance for doubtful accounts of
$410,072 at both September 30, 2000 and December 31, 1999 564,995 666,408
Inventory 6,886 6,886
Prepaid expenses 19,727 83,118
Income tax receivable 0 161,786
Deferred income taxes 191,230 191,230
---------- ----------
Total current assets 1,432,885 1,435,055
---------- ----------
PROPERTY AND EQUIPMENT, net of accumulated depreciation of $366,251 and
$278,617 at September 30, 2000 and December 31, 1999, respectively
253,441 343,740
OTHER ASSETS 7,321 4,670
---------- ----------
$1,693,647 $1,783,465
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 333,430 $ 449,186
Accrued expenses 266,902 554,842
Promissory notes payable 42,978 95,130
Current portion of capital leases 45,834 45,833
Federal Income Tax Payable 105,260 0
---------- ----------
Total current liabilities 794,404 1,144,991
CAPITAL LEASES, LESS CURRENT PORTION 108,991 164,001
DEFERRED INCOME TAXES 12,202 12,202
---------- ----------
915,597 1,321,194
---------- ----------
COMMITMENTS AND CONTINGENCIES
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 774,697 458,918
---------- ----------
Total shareholders' equity 778,050 462,271
---------- ----------
$1,693,647 $1,783,465
========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-46
<PAGE>
CELLTECH INFORMATION SYSTEMS, INC.
STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
For the Three Months Ended For the Nine Months Ended
September 30, September 30,
------------------------------ ------------------------------
2000 1999 2000 1999
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
REVENUES $1,515,520 $1,911,985 $5,125,853 $6,236,214
EXPENSES:
Cost of revenues (excluding depreciation and amortization) 629,060 1,001,729 2,342,598 2,865,619
Research and development 34,304 90,261 77,184 391,566
Selling, general and administrative 576,781 826,721 2,196,179 2,938,163
Depreciation and amortization 34,522 26,902 103,178 80,018
---------- ---------- ---------- ----------
1,274,667 1,945,613 4,719,140 6,275,366
---------- ---------- ---------- ----------
Operating (loss) income 240,853 (33,628) 406,713 (39,152)
---------- ---------- ---------- ----------
OTHER (EXPENSE) INCOME:
Interest income (expense) 1,838 4,077 281 6,807
Other (expense) income 2,251 0 14,045 0
---------- ---------- ---------- ----------
(Loss) income before provision
for income taxes 244,941 (29,551) 421,039 (32,345)
INCOME TAX BENEFIT (PROVISION) (55,059) 0 (105,260) 0
---------- ---------- ---------- ----------
NET (LOSS) INCOME $ 189,882 $ (29,551) $ 315,779 $ (32,345)
========== ========== ========== ==========
NET (LOSS) INCOME PER COMMON SHARE $ 80.70 $ (12.56) $ 134.20 $ (13.75)
========== ========== ========== ==========
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING 2,353 2,353 2,353 2,353
========== ========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-47
<PAGE>
CELLTECH INFORMATION SYSTEMS, INC.
STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
For the Nine Months Ended
September 30,
--------------------------
2000 1999
--------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) income $ 315,779 $ (32,345)
Adjustments to reconcile net income from operations
to cash (used in) provided by operations-
Depreciation and amortization 87,634 80,018
Changes in operating assets and liabilities-
Accounts receivable 101,413 (119,441)
Prepaid expenses 63,391 1,844
Income tax receivable 161,786 --
Accounts payable (115,756) (92,282)
Other assets (2,651) 2
Accrued expenses (287,939) (84,860)
Federal income tax payable 105,260 0
--------- ---------
Net cash (used in) provided by operating activities 428,918 (247,064)
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and equipment 2,665 (41,536)
--------- ---------
Net cash used in investment activities 2,665 (41,536)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of debt (107,162) (12,199)
--------- ---------
Net cash provided by financing activities (107,162) (12,199)
--------- ---------
Net (decrease) increase in cash and cash equivalents 324,421 (300,799)
CASH AND CASH EQUIVALENTS, beginning of year 325,627 719,709
--------- ---------
CASH AND CASH EQUIVALENTS, end of quarter $ 650,047 $ 418,910
========= =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest $ 5,338 $ 8,147
========= =========
Cash paid for taxes $ -- $ --
========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-48
<PAGE>
CELLTECH INFORMATION SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1: Business and Basis of Presentation
Celltech provides data processing services for the telecommunications industry.
These services include processing and rating of call records, statement
fulfillment and consulting services.
The accompanying financial statements have been prepared by Celltech Information
Systems, Inc. without audit, and pursuant to the rules and regulations of the
Securities and Exchange Commission ("SEC"), and reflect all adjustments which,
in the opinion of management, are necessary for a fair statement of the results
for the interim periods presented. All such adjustments are of a normal
recurring nature.
Certain information in footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
has been condensed or omitted pursuant to the rules and regulations of the SEC,
although the Company believes the disclosures are adequate to make the
information presented not misleading. These financial statements should be read
in conjunction with financial statements and the notes thereto included in the
Company's December 31, 1999 audited financial statements.
NOTE 2: 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
first quarter of 2001, subject to CTIG shareholder approval. The total estimated
purchase price for the Company is $2,888,587. The estimated purchase price is
based on: (1) a $262,599 cash payment to the Company shareholders; (2) 934,515
shares of CTIG Class A common stock; valued at $2.81 per share based on the
average trading price preceding the most recent 20 consecutive business days
through April 7, 2000 and (3) 841,064 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 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-49
<PAGE>
Centillion Digital Systems, Inc. and Subsidiaries, e.Nova, LLC
and Subsidiary, and CHS, LLC
Combined Financial Statements
As of December 31, 1999 and 1998 (Unaudited)
and for the Years Ended December 31, 1999 and 1998
(Unaudited)
F-50
<PAGE>
Independent Auditor's Report
To Stockholders and Members of
Centillion Digital Systems, Inc. and Subsidiaries,
e.Nova, LLC and Subsidiary, and CHS, LLC
Indianapolis, Indiana
We have audited the accompanying combined balance sheet of Centillion Digital
Systems, Inc. and Subsidiaries, e.Nova, LLC and Subsidiary, and CHS, LLC (which
are under common ownership) as of December 31, 1999, and the related combined
statements of income, stockholders' and members' equity and cash flows for the
year then ended. These combined financial statements are the responsibility of
the Companies' management. Our responsibility is to express an opinion on these
combined financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the combined financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the combined 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 audit provides a reasonable basis for our
opinion.
In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
Centillion Digital Systems, Inc. and Subsidiaries, e.Nova, LLC and Subsidiary,
and CHS, LLC as of December 31, 1999, and the results of their operations and
their cash flows for the year then ended in conformity with generally accepted
accounting principles.
/s/ Olive LLP
---------------------
Indianapolis, Indiana
November 6, 2000
F-51
<PAGE>
CENTILLION DIGITAL SYSTEMS, INC. AND SUBSIDIARIES,
e.NOVA, LLC AND SUBSIDIARY, AND CHS, LLC
Combined Statement of Income
<TABLE>
<CAPTION>
Year Ended December 31 1999 1998
---------------------------------------------------------------------------------------
(Audited) (Unaudited)
<S> <C> <C>
Net Revenues $1,566,279 $1,204,904
Cost of Revenues 2,168,420 2,007,993
-----------------------------
Gross Loss (602,141) (803,089)
-----------------------------
Operating Income (Expenses)
General and administrative (4,041,913) (4,188,545)
Selling (533,991) (808,287)
Write down of intangibles (1,590,621)
Gain (loss) on sale of assets 359,969 (2,010)
-----------------------------
(4,215,935) (6,589,463)
-----------------------------
Operating loss (4,818,076) (7,392,552)
-----------------------------
Other Income (Expense)
Investment loss (42,025)
Interest expense (23,673) (45,167)
-----------------------------
(65,698) (45,167)
-----------------------------
Loss Before Income Taxes (4,883,774) (7,437,719)
Income Tax Benefit 1,260,801 1,796,154
-----------------------------
Net Loss $(3,622,973) $(5,641,565)
=============================
</TABLE>
See notes to combined financial statements.
F-52
<PAGE>
CENTILLION DIGITAL SYSTEMS, INC. AND SUBSIDIARIES,
e.NOVA, LLC AND SUBSIDIARY, AND CHS, LLC
Combined Balance Sheet
<TABLE>
<CAPTION>
December 31 1999 1998
--------------------------------------------------------------------------------------------------------------
(Audited) (Unaudited)
<S> <C> <C>
Assets
Current Assets
Cash and cash equivalents $ 768,204 $1,512,709
Accounts receivable (net of allowance of $45,447 and $6,000) 268,031 129,416
Other receivables 407,971 175,383
Prepaid assets 66,766 48,222
-----------------------------
Total current assets 1,510,972 1,865,730
-----------------------------
Property and Equipment, net 1,130,685 1,932,212
-----------------------------
Other Assets
Intangible assets, net 816,289 475,276
Investments, at cost 140,000
-----------------------------
956,289 475,276
-----------------------------
$3,597,946 $4,273,218
=============================
Liabilities and Stockholders' and Members' Equity
Current Liabilities
Notes payable $ 94,390 $ 16,031
Accounts payable 113,464 118,862
Accounts payable, related party 1,186,970 462,920
Unearned revenue 46,821 10,690
Accrued liabilities 334,252 302,582
-----------------------------
Total current liabilities 1,775,897 911,085
-----------------------------
Stockholders' and Members' Equity
Common stock--no-par value
Authorized--1,000 shares
Issued and outstanding--100 shares 100 100
Additional paid-in capital 19,146,816 17,262,894
Accumulated other comprehensive income 135,667 54,084
Members' equity 1,663,254 1,612,908
Retained deficit (19,123,788) (15,567,853)
-----------------------------
1,822,049 3,362,133
-----------------------------
$3,597,946 $4,273,218
=============================
</TABLE>
See notes to combined financial statements.
F-53
<PAGE>
CENTILLION DIGITAL SYSTEMS, INC. AND SUBSIDIARIES,
e.NOVA, LLC AND SUBSIDIARY, AND CHS, LLC
Combined Statement of Stockholders' and Members' Equity
<TABLE>
<CAPTION>
Accumulated
Additional Other Members'
Common Paid-in Comprehensive Retained Comprehensive Equity
Stock Capital Loss Deficit Income (Deficit) Total
-----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balances, January 1, 1998 $100 $14,539,866 $ (8,303,922) $ 50,506 $6,286,550
(unaudited)
Comprehensive loss
Net loss $(5,641,565) (5,467,777) $ (173,788) (5,641,565)
Foreign currency translation
adjustments 3,578 3,578 3,578
-----------
Comprehensive loss $(5,637,987)
===========
Distribution of tax benefits (1,796,154) (1,796,154)
Capital contribution 2,723,028 2,723,028
Member units issued 1,786,696 1,786,696
------------------- ----------------------------------------------------
Balances, December 31, 1998
(unaudited) 100 17,262,894 (15,567,853) 54,084 1,612,908 3,362,133
Comprehensive loss
Net loss $(3,622,973) (2,295,134) (1,327,839) (3,622,973)
Foreign currency translation
adjustments 81,583 81,583 81,583
-----------
Comprehensive loss $(3,541,390)
===========
Distribution of tax benefits (1,260,801) (1,260,801)
Capital contribution 1,883,922 1,883,922
Member units issued 1,378,185 1,378,185
------------------- ----------------------------------------------------
Balances, December 31, 1999
(audited) $100 $19,146,816 $(19,123,788) $135,667 $1,663,254 $1,822,049
=================== ====================================================
</TABLE>
See notes to combined financial statements.
F-54
<PAGE>
CENTILLION DIGITAL SYSTEMS, INC. AND SUBSIDIARIES,
e.NOVA, LLC AND SUBSIDIARY, AND CHS, LLC
Combined Statement of Cash Flows
<TABLE>
<CAPTION>
Year Ended December 31 1999 1998
------------------------------------------------------------------------------------------------------------------
(Audited) (Unaudited)
<S> <C> <C>
Operating Activities
Net loss $(3,622,973) $(5,641,565)
Adjustments to reconcile net loss to net cash used by operating activities
Depreciation 1,491,798 1,544,132
Amortization 552,061 1,608,335
Distribution of tax benefit (1,260,801) (1,796,154)
(Gain) loss on disposal of assets (359,969) 2,010
Write down of intangible assets 1,590,621
Deferred revenue 36,131 8,422
Changes in
Receivables 63,112 169,816
Prepaid assets (18,064) 45,601
Accounts payable 710,764 322,301
Accrued expenses and other liabilities 16,658 (21,531)
-----------------------------
Net cash used by operating activities (2,391,283) (2,168,012)
-----------------------------
Investing Activities
Purchase of equipment (784,444) (514,517)
Proceeds from sale of assets 211,344 3,009
Purchase of business interests (164,674)
-----------------------------
Net cash used by investing activities (737,774) (511,508)
-----------------------------
Financing Activities
Net advances (repayments) on line of credit 94,390 (355,741)
Repayment of debt (16,031) (4,110)
Issuance of member units 340,688 1,786,696
Receipt of capital contribution 1,883,922 2,723,028
-----------------------------
Net cash provided by financing activities 2,302,969 4,149,873
-----------------------------
Effect of Foreign Currency Exchange Rate Changes on Cash and Cash Equivalents 81,583 3,578
-----------------------------
Increase (Decrease) in Cash and Cash Equivalents (744,505) 1,473,931
Cash and Cash Equivalents, Beginning of Year 1,512,709 38,778
-----------------------------
Cash and Cash Equivalents, End of Year $ 768,204 $1,512,709
=============================
Supplemental Cash Flows Information
Cash paid for interest $23,673 $45,167
Assets (noncash) and liabilities contributed in exchange for member units
Receivables 122,176
Prepaid 480
Property and equipment 69,341
Intangibles 868,400
Payables 7,888
Accrual expenses 15,012
Proceeds receivable, asset sale 312,139
</TABLE>
See notes to combined financial statements.
F-55
<PAGE>
CENTILLION DIGITAL SYSTEMS, INC. AND SUBSIDIARIES,
e.NOVA, LLC AND SUBSIDIARY, AND CHS, LLC
Notes to Combined Financial Statements
Note 1 - Nature of Operations and Summary of Significant Accounting Policies
Nature of Operations
Centillion Digital Systems, Inc. is global provider of digital file storage and
retrieval services to corporations and major publishing companies throughout the
world. Based on net revenue, this is its most significant service. The Company's
software applications allow users to share, retrieve, and distribute files using
web-based technology. The Company has operations in Sweden and Germany. At
December 31, 1999, net assets in Sweden and Germany are approximately $145,000
and $101,000, respectively.
e.Nova, LLC along with its wholly owned subsidiary, Xila Communications, LLC, is
an information solutions provider. As an outsource information technology (IT)
department, e.Nova helps businesses, primarily in Indiana, optimize the cost of
hardware, software, Internet connections, telecommunications and network
strategy. Some of the services provided include Application Service Provider
(ASP) software access, data management, Internet access, hardware and software
integration, Web hosting and maintenance, long distance, telephone hardware,
local telephone dial tone, bandwith services, PBX installation and switch
management and Local Area Network cabling. Telecommunication services provided
are the most significant based on net revenue.
CHS, LLC was established to hold small investments unrelated to other business
lines that already exist. Currently, there is only one investment in a start-up
technology company being held in this company. CHS, LLC has less than a 20%
equity interest and therefore this investment is accounted for using the cost
method.
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 Combination
The entities combined in these financial statements are all commonly owned by
Centillion Data Systems, Inc. (Data). The entities included and the ownership
percentage of Data are Centillion Digital systems, Inc. (Digital) (100% owned)
and its two wholly owned subsidiaries, Centillion Digital GmbH (Germany) and
Centillion Digital Systems, Inc.'s Branch Office in Sweden (Sweden); e.Nova, LLC
(e.Nova) (47% and 29% owned at December 31, 1999 and 1998) and its wholly owned
subsidiary, Xila, LLC; CHS, LLC (CHS) (50% owned). Data acquired its ownership
in e.Nova on December 30, 1998. (Data consolidates e.Nova in its consolidated
financial statements as it effectively controls e.Nova. This control arises from
Data having a large minority interest of 47%, Data funding the operations of
e.Nova, and the same board members that control 92.9% of Data also separately
controlling 41.2% of e.Nova. CHS was formed as a new entity during 1999. These
entities collectively may be referred to as the Company. All intercompany
accounts and transactions have been eliminated in combination.
F-56
<PAGE>
CENTILLION DIGITAL SYSTEMS, INC. AND SUBSIDIARIES,
e.NOVA, LLC AND SUBSIDIARY, CHS, LLC
Notes to Combined Financial Statements
The above entities will be sold to CDS Holdings, LLC (Holdings), which is owned
by Data's stockholders. The sales price for these businesses along with cash and
other assets will be in exchange for a promissory note due and payable in seven
and one half years. One of these other assets will be Data's ownership of less
than 1% of Lockerbie Vermont, LLC. The transfer of Data's ownership interest in
these entities will be accounted for as a spin-off at historical cost, which is
less than the fair market value of $3,100,000. Therefore, the disposition will
be accounted for by Data as a distribution to Data's stockholders and proceeds
received on the note receivable will be recognized as capital transactions as
cash is received.
Foreign Currency Translation
The combined statements include the accounts of the Swedish entity and the
German entity. The accounts of the Swedish entity have been translated from
Swedish Kroner to U. S. dollars and the accounts of the German entity 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 $570,000 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.
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 that is to be marketed has been established, development costs are
capitalized. For software products that will be used by the Company to provide
service to its customers, development costs are capitalized when the preliminary
project stage is completed and the project has been authorized and funds
committed.
Intangible Assets
The Company amortizes its acquired contracts using the straight-line method over
three years. These contracts are periodically evaluated as to their
recoverability. Goodwill, which represents the excess of purchase price over
fair value of net assets acquired, is amortized on a straight-line basis over
three to five years. The Company periodically assesses the recoverability of
goodwill by comparing the carrying amount to estimated undiscounted future
operating cash flows of the acquired operation. If the carrying amount exceeds
the expected future net cash flows of the acquired operation, the excess amount
is written off as a current impairment charge.
Bad Debt
The Company uses the reserve method of accounting for bad debts on receivables.
F-57
<PAGE>
CENTILLION DIGITAL SYSTEMS, INC. AND SUBSIDIARIES,
e.NOVA, LLC AND SUBSIDIARY, CHS, LLC
Notes to Combined Financial Statements
Income Taxes
Income tax in the combined 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 for Digital.
Digital is included in the consolidated return of Data.
For e.Nova and CHS, income taxes have not been provided because the members
elected to be treated as a partnership for income tax purposes. As such, the net
losses are passed to the members and combined with their personal income and
deductions to determine taxable income on their individual tax returns.
Revenue Recognition
Revenue from product sales is recognized upon shipment of the product when the
Company has no significant obligations remaining and collection of the resulting
receivable is probable. Services revenue is recognized as services are
performed. Maintenance revenue is recognized on a pro rata basis over the term
of the maintenance agreements.
Advanced billings for services and maintenance contracts are recorded as
deferred revenue in the accompanying balance sheet.
Research and Development
Research and development costs are expensed as incurred. Total research and
development costs were approximately $178,000 for 1999 and $80,000 for 1998.
Note 2 - Operating Concerns and Management Plans
The companies included in the combined financial statements have incurred
significant losses in recent years. They have negative working capital and
significant negative cash flows from operating activities. The negative cash
flows have been funded by additional capital contributions primarily from Data.
Data will continue to provide additional capital in 2000 through the date of
sale to Holdings. A substantial part of the other assets transferred to Holdings
by Data in exchange for the promissory note is approximately $6,900,000 in cash.
The combination of the additional Data capital contributions and the cash
transferred to Holdings is expected to allow the combined companies to continue
to operate through December 31, 2000.
F-58
<PAGE>
CENTILLION DIGITAL SYSTEMS, INC. AND SUBSIDIARIES,
e.NOVA, LLC AND SUBSIDIARY, CHS, LLC
Notes to Combined Financial Statements
Note 3 - Intangible Assets
Intangible assets consist of the following:
December 31 1999 1998
-------------------------------------------------------------------------------
(Audited) (Unaudited)
Acquired contracts $2,299,256 $2,299,256
Goodwill 1,319,478 426,404
----------------------------
3,618,734 2,725,660
Accumulated amortization (2,802,445) (2,250,384)
-----------------------------
$ 816,289 $ 475,276
============================
During 1998, certain intangibles were written down to their estimated net
realizable value due to accelerated technological obsolescence. The write down
of $1,590,621 is included in the results of operations for 1998. The acquired
contracts are fully amortized at December 31, 1999.
Note 4 - Property and Equipment
Property and equipment consists of the following:
December 31 1999 1998
-------------------------------------------------------------------------------
(Audited) (Unaudited)
Data processing equipment $ 381,183 $ 162,584
Furniture and equipment 274,965 506,418
Automobiles 22,140
Software 4,626,901 4,227,012
Leasehold improvements 63,020
-------------------------------
Total cost 5,346,069 4,918,154
Accumulated depreciation and amortization (4,215,384) (2,985,942)
-------------------------------
$1,130,685 $1,932,212
===============================
F-59
<PAGE>
CENTILLION DIGITAL SYSTEMS, INC. AND SUBSIDIARIES,
e.NOVA, LLC AND SUBSIDIARY, CHS, LLC
Notes to Combined Financial Statements
At December 31, 1999 and 1998, software was comprised of the following:
1999 1998
-------------------------------------------------------------------------------
(Audited) (Unaudited)
Acquired in purchase of foreign company assets $3,338,362 $3,338,362
Developed internally 1,092,360 825,709
Purchased for internal use 196,179 62,941
------------------------------
Total 4,626,901 4,227,012
Accumulated amortization (3,941,319) (2,562,418)
------------------------------
Software--net $ 685,582 $1,664,594
==============================
Software purchased and developed internally is being amortized using the
straight-line method over three years. Amortization expense was $1,378,220 and
$1,320,002 for the years ended December 31, 1999 and 1998, and these amounts are
included in depreciation expense.
Note 5 - Notes Payable
e.Nova 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. The line is
collateralized by substantially all of the assets of e.Nova. Interest varies
with the bank's prime rate. At December 31, 1998, Digital had a note payable
with a bank in the amount of $16,031 bearing interest at 9%. It was repaid in
1999.
In connection with the line of credit, e.Nova has agreed to loan covenants,
which require that certain criteria be met, including the limiting of annual
fixed asset acquisitions and minimum equity levels.
Note 6 - Leases
The Company leases office space on a month-to-month basis from a related party.
Rental expense for this lease totaled $145,954 and $84,175 for the years ended
December 31, 1999 and 1998.
F-60
<PAGE>
CENTILLION DIGITAL SYSTEMS, INC. AND SUBSIDIARIES,
e.NOVA, LLC AND SUBSIDIARY, CHS, LLC
Notes to Combined Financial Statements
Note 7 - Income Taxes
<TABLE>
<CAPTION>
Year Ended December 31 1999 1998
----------------------------------------------------------------------------------------------
(Audited) (Unaudited)
<S> <C> <C>
Income tax benefit
Federal $(1,007,190) $(1,219,731)
State (253,611) (576,423)
--------------------------------
Income tax benefit $(1,260,801) $(1,796,159)
================================
Reconciliation of federal statutory to actual tax benefit
Federal statutory income tax at 34% $(1,660,483) $(2,528,824)
Effect of limited liability company loss exclusion 451,465 59,088
Effect of state income taxes (167,383) (380,439)
Effect of nondeductible amortization 115,600 1,058,644
Other (4,628)
--------------------------------
Actual income tax benefit $(1,260,801) $(1,796,159)
================================
</TABLE>
Note 8 - Stockholders' and Members' Equity
During 1999 and 1998, Digital received additional equity contributions from Data
that were in the form of cash and added to additional paid-in capital.
e.Nova, LLC has Class A and Class B members and has a perpetual term. All
members have limited liability to third parties and equal voting rights. The
allocation of profits and losses as well as cash distributions is different
based on the class of membership. At December 31, 1999 and 1998, the Class A
members ownership interest was 49.8% and 38.5%, respectively. The balance of the
ownership percentage in each year belonged to the Class B members.
Xila Communications, LLC has only one class of member which has limited
liability and is 100% owned by e.Nova, LLC. This LLC has a perpetual term. Xila
Communications, LLC was formed on April 9, 1999 when Data acquired the operating
assets of Xila Communications, Inc. and then contributed them to e.Nova, LLC in
exchange for additional membership units in that LLC. e.Nova then contributed
these operating assets to Xila Communications, LLC in exchange for 100% of the
membership units.
CHS, LLC has Class A and Class B members and has a perpetual term. All members
have limited liability to third parties and equal voting rights. The allocation
of profits and losses as well as cash distributions is different based on the
class of membership. Data is the only Class A member and has 50% of the
outstanding ownership interests. The Class B members own the other 50% of the
outstanding ownership interest.
F-61
<PAGE>
CENTILLION DIGITAL SYSTEMS, INC. AND SUBSIDIARIES,
e.NOVA, LLC AND SUBSIDIARY, CHS, LLC
Notes to Combined Financial Statements
Note 9 - Major Customer
Net revenue from two major customers (defined as a customer who provided in
excess of 10% of combined revenue) approximated 23% of total net revenue during
1999.
Note 10 - Other Comprehensive Income
The components of other comprehensive income are as follows:
Foreign Accumulated
Currency Other
Translation Comprehensive
Adjustment Income
-----------------------------------------------------------------------------
Balance, January 1, 1998 (unaudited) $ 50,506 $ 50,506
Net change, 1998 3,578 3,578
---------------------------
Balance, December 31, 1998 (unaudited) 54,084 54,084
Net change, 1999 81,583 81,583
---------------------------
Balance, December 31, 1999 $135,667 $135,667
===========================
Note 11 - Sale of Assets
During 1999, Digital sold certain assets of its Sweden subsidiary to a third
party. The Company sold the assets for approximately $398,000, of which
approximately $312,000 was unpaid at December 31, 1999, and was included in
other receivables. As a result of the above transaction, Digital recognized a
gain of approximately $373,000 for the year ended December 31, 1999.
Note 12 - Related Party Transactions
The Companies are charged for administrative services provided by Data, and Data
provides services to Xila, LLC. Total administrative charges and services from
Data were $683,186 for 1999 and $462,920 for 1998.
Accounts payable to Data at December 31, 1999 and 1998 were $1,186,980 and
$462,920, respectively.
F-62
<PAGE>
CENTILLION DIGITAL SYSTEMS, INC. AND SUBSIDIARIES,
e.NOVA, LLC AND SUBSIDIARY, CHS, LLC
Notes to Combined Financial Statements
Note 13 - Subsequent Event
On July 31, 2000, Data distributed its ownership interests in e.Nova, CHS and
Lockerbie Vermont, LLC to CDS Holdings, LLC (Holdings). On the same date e.Nova
(47% owned by Holdings) contributed all of its net assets to a new entity called
Netisun, LLC (Netisun) in exchange for 26% of its membership units. At the same
time, Holdings contributed cash of $1,000,000 and a note receivable in the
amount of $261,500 to Netisun and issued a note payable to Netisun of $738,500
for 27% of its membership units. This gave Holdings directly and indirectly a
39% ownership interest in Netisun. An unrelated company also contributed assets
to Netisun for 47% of its membership units.
F-63
<PAGE>
Centillion Digital Systems, Inc. and Subsidiaries, e.Nova, LLC
and Subsidiary, and CHS, LLC
Unaudited Combined Financial Statements
As of September 30, 2000 and December 31, 1999 and for the
Nine Months Ended September 30, 2000 and 1999
F-64
<PAGE>
CENTILLION DIGITAL SYSTEMS, INC. AND SUBSIDIARIES,
E.NOVA,LLC AND SUBSIDIARY, AND CHS,LLC
Unaudited Combined Statement of Income
<TABLE>
<CAPTION>
The Nine Months The Nine Months
Ended Ended
September 30, 2000 September 30, 1999
-----------------------------------------------------
<S> <C> <C>
Net Revenues $987,447 $1,145,900
Cost of Revenues 1,254,864 1,409,357
-----------------------------------------------------
Gross Loss (267,417) (263,457)
-----------------------------------------------------
Operating Expenses
General And administrative 1,326,388 3,146,457
Selling 291,348 372,073
Loss on sale of assets 24,609
-----------------------------------------------------
1,617,736 3,543,139
Operating loss (1,885,153) (3,806,596)
Other Income (Expense)
Investment Income (loss) 21,281 34,818
Interest expense (2,020) (19,592)
-----------------------------------------------------
19,261 15,226
-----------------------------------------------------
(1,865,892) (3,791,370)
Loss Before Income Taxes
Income Tax Benefit 380,000 1,020,752
-----------------------------------------------------
Net Loss $(1,485,892) $(2,770,618)
=====================================================
</TABLE>
See notes to combined financial statements
F-65
<PAGE>
CENTILLION DIGITAL SYSTEMS, INC. AND SUBSIDIARIES
e.Nova,LLC And Subsidiary, And CHS,LLC
Unaudited Combined Balance Sheet
<TABLE>
<CAPTION>
September 30, December 31,
2000 1999
--------------------------------------------------------------------------------------------------------------------
Assets
<S> <C> <C>
Current Assets
Cash and cash equivalents $23,086 $768,204
Accounts receivable (net of allowance of $45,447) 169,377 268,031
Other receivables 48,540 407,971
Prepaid assets 37,053 66,766
--------------------------------
Total current assets 278,056 1,510,972
--------------------------------
Property and Equipment 660,209 1,130,685
--------------------------------
Other Assets
Intangible assets 816,289
Investments 0 140,000
--------------------------------
0 956,289
--------------------------------
$938,265 $3,597,946
================================
Liabilities and Stockholders' Equity
Current Liabilities
Notes payable - banks $94,390
Accounts payable $47,763 113,464
Accounts payable, related party 42,261 1,186,970
Unearned revenue 36,241 46,821
Accrued liabilities 74,084 334,252
--------------------------------
Total current liabilities 200,349 1,775,897
--------------------------------
Stockholders' and Members' Equity
Common stock--no-par value
Authorized - 1,000 shares
Issued and outstanding - 100 shares 100 100
Additional paid-in capital 20,948,149 19,146,816
Accumulated other comprehensive income (8,242) 135,667
Members' equity 0 1,663,254
Retained Earnings (20,202,091) (19,123,788)
--------------------------------
737,916 1,822,049
--------------------------------
$938,265 $3,597,946
================================
</TABLE>
See notes to combined financial statements
F-66
<PAGE>
CENTILLION DIGITAL SYSTEMS, INC. AND SUBSIDIARIES
e.Nova,LLC And Subsidiary, And CHS,LLC
Unaudited Combined Statement of Members' Equity
<TABLE>
<CAPTION>
Accumulated
Additional Other Members'
Common Paid-in Comprehensive Retained Comprehensive Equity
Stock Capital Loss Deficit Income (Deficit) Total
-----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balances, December 31, 1999 100 19,146,816 (19,123,788) 135,667 1,663,254 1,822,049
Comprehensive loss
Net loss $(1,485,892) (698,303) (787,589) (1,485,892)
Foreign currency translation
adjustments (143,909) (143,909) (143,909)
----------------
Comprehensive loss $(1,629,801)
================
Distribution of tax benefits (380,000) (380,000)
Capital Contribution 1,801,333 1,801,333
Member units of e.Nova &
CHS,LLC contributed to CDS
Holdings,LLC (875,665) (875,665)
------------------------------------------------------------------------------------------------
Balances, September 30, 2000 $100 $20,948,149 $(20,202,091) $(8,242) $0 $737,916
=========================== =======================================================
</TABLE>
See notes to combined financial statements.
F-67
<PAGE>
CENTILLION DIGITAL SYSTEMS, INC. AND SUBSIDIARIES
e.Nova,LLC And Subsidiaries, And CHS,LLC
Unaudited Combined Statement of Cash Flows
<TABLE>
<CAPTION>
Nine Months Ended Nine Months Ended
For the Period Ended Sept 30,2000 September 30, 1999
---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Net Cash Provided (used) by Operating Activities $(1,979,384) $(1,720,951)
------------------------------------------------------
Net Cash Provided (Used) by Investing Activities (423,158) (676,744)
------------------------------------------------------
Net Cash Provided by Financing Activities 1,801,333 2,149,339
------------------------------------------------------
Effect of Foreign Currency Exchange Rate Changes on Cash and Cash
Equivalents (143,909) (15,736)
------------------------------------------------------
Increase (Decrease) in Cash and Cash Equivalents (745,118) (264,092)
Cash and Cash Equivalents, Beginning of Period 768,204 1,512,709
------------------------------------------------------
Cash and Cash Equivalents, End of Period $23,086 $1,248,617
======================================================
Supplemental Cash Flows Information
Cash paid for interest $2,020 $19,592
</TABLE>
See notes to combined financial statements.
F-68
<PAGE>
CENTILLION DIGITAL SYSTEMS, INC. AND SUBSIDIARIES
e.Nova,LLC And Subsidiaries And CHS,LLC
Notes to Unaudited Combined Financial Statements
Business and Basis of Presentation
Centillion Digital Systems, Inc. is a global provider of digital file storage
and retrieval services to corporations and major publishing companies throughout
the world. Based on net revenue, this is its most significant service. The
Company's software applications allow users to share, retrieve, and distribute
files using web-based technology. The Company has operations in Sweden and
Germany. At September 30, 2000 net assets in Sweden and Germany are
approximately $132,000 and $8,000, respectively.
e.Nova, LLC along with its wholly owned subsidiary, Xila Communications, LLC, is
an information solutions provider. As an outsource information technology (IT)
department, e.Nova helps businesses, primarily in Indiana, optimize the cost of
hardware, software, Internet connections, telecommunications and network
strategy. Some of the services provided include Application Service Provider
(ASP) software access, data management, Internet access, hardware and software
integration, Web hosting and maintenance, long distance, telephone hardware,
local telephone dial tone, bandwith services, PBX installation and switch
management and Local Area Network cabling. Telecommunication services provided
are the most significant based on net revenue.
CHS, LLC was established to hold small investments unrelated to other business
lines that already exist. Currently, there is only one investment in a start-up
technology company being held in this company. CHS, LLC has less than a 20%
equity interest and therefore this investment is accounted for using the cost
method.
The accompanying combined financial statements have been prepared by Centillion
Digital Systems, Inc. and Subsidiaries, e.Nova,LLC and Subsidiary, and CHS,LLC
without audit, and reflect all adjustments (consisting only of normal and
recurring adjustments) which, in the opinion of management, are necessary to
state fairly the financial information set forth therein in accordance with
generally accepted accounting principles. The interim results may not be
indicative of the results that may be expected for the year. These financial
statements should be read in conjunction with the audited combined financial
statements for the year ended December 31, 1999 included elsewhere in this proxy
statement.
Certain information in footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
has been condensed or omitted, although the Companies believe the disclosures
are adequate to make the information presented not misleading. These financial
statements should be read in conjunction with the financial statements and notes
thereto included in the Companies combined financial statements for the year
ended December 31, 1999.
These entitles combined in these financial statements are all commonly owned by
Centillion Data Systems, Inc. (Data). The entities included and the ownership
percentage of Data for 1999 are Centillion Digital Systems, Inc. (Digital) (100%
owned) and its two wholly owned subsidiaries, Centillion Digital GmbH (Germany)
and Centillion Digital Systems, Inc.'s Branch Office in Sweden (Sweden); e.Nova,
LLC (e.Nova) (47% owned by Data and 45% owned by the stockholders of Data) and
its wholly owned subsidiary, Xila, LLC; CHS, LLC (CHS) (50% owned). CHS was
formed as a new entity during 1999. All intercompany accounts and transactions
have been eliminated in combination.
F-69
<PAGE>
CENTILLION DIGITAL SYSTEMS, INC. AND SUBSIDIARIES
e.Nova,LLC And Subsidiaries And CHS,LLC
Notes to Unaudited Combined Financial Statements
On July 31, 2000 Data distributed its ownership interests in e.Nova, CHS and
Lockerbie Vermont, LLC (less than 1% owned by Data and accounted for on the cost
method) to CDS Holdings, LLC (Holdings). On the same date e.Nova contributed all
of its net assets to a new entity called Netisun, LLC (Netisun) in exchange for
26% of its membership units. At the same time Holdings contributed cash of
$1,000,000 and a note receivable in the amount of $261,500 to Netisun and issued
a note payable to Netisun of $738,500 for 27% of its membership units. This gave
Holdings directly and indirectly a 39% ownership interest in Netisun. The
shareholders of Holdings control approximately 12% of Netisun through direct
ownership of e.Nova. An unrelated company also contributed assets to Netisun for
47% of its membership units. Holdings does not control e.Nova or Netisun so,
effective July 31, 2000, Holdings accounted for these entities using the equity
method of accounting.
For the 2000 combined statements, the combined results of operations for Digital
is for the entire 9 month period and its September 30, 2000 balance sheet is
included. For e.Nova and CHS the results of their operations are combined for
the seven months through July 31, 2000, but their balance sheets are not
included at September 30, 2000. All intercompany accounts and transactions have
been eliminated in combination.
These entities will be sold to Holdings for their fair market value. The sales
price for these businesses along with cash and other assets will be in exchange
for a promissory note due and payable in seven and one half years. The transfer
of the Data's ownership interest in these entities will be accounted for as a
spin-off at historical cost, which is less than the fair market value of the
entities. Therefore, the disposition will be accounted for as a distribution to
the stockholders of Data and the note receivable will not be recognized.
Certain information in footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
has been condensed or omitted, although the companies believe the disclosures
are adequate to make the information presented not misleading. These financial
statements should be read in conjunction with the financial statements and notes
thereto included in combined financial statements for the year ended December
31, 1999.
Operating Concerns and Management Plans
The companies included in the combined financial statements have incurred
significant losses in recent years. They have negative working capital and
significant negative cash flows from operating activities. The negative cash
flows have been funded by additional capital contributions primarily from Data.
Data will continue to provide additional capital in 2000 through the date of
sale to Holdings. A substantial part of the other assets transferred to Holdings
by Data in exchange for the promissory note will be approximately $6,900,000 in
cash ($3,000,000 of this cash has already been transferred). The combination of
the additional Data capital contributions and the cash transferred to Holdings
is expected to allow the combined companies to continue to operate through
December 31, 2001.
F-70
<PAGE>
CDS Holdings, LLC
Unaudited Financial Statements
As of September 30, 2000 and for the
Two Months Ended September 30, 2000
F-71
<PAGE>
CDS HOLDINGS, LLC
Statement of Income
(Unaudited)
Two Months Ended September 30, 2000
----------------------------------------------------------------------------
Net Revenues $ 0
Cost of Revenues 0
Gross Profit 0
Operating Expenses 23,323
-----------
Operating loss (23,323)
Other Income (Expense)
Investment income 18,706
Interest expense (7,754)
Loss from equity investees (260,288)
-----------
(249,336)
-----------
Net Loss $(272,659)
===========
See notes to the financial statements.
F-72
<PAGE>
CDS HOLDINGS, LLC
Balance Sheet
(Unaudited)
<TABLE>
<CAPTION>
September 30, 2000
-----------------------------------------------------------------------------------------------
Assets
<S> <C>
Current Assets
Cash and cash equivalents $1,893,445
Other receivables 108,434
-------------------
Total current assets 2,001,879
-------------------
Property and Equipment 0
-------------------
Other Assets
Investments 2,669,489
-------------------
2,669,489
-------------------
$4,671,368
===================
Liabilities and Members' Equity
Current Liabilities
Notes payable $738,500
Accounts payable 5,496
Accrued liabilities 7,754
-------------------
Total current liabilities 751,750
-------------------
Members' Equity
Members' Equity 3,919,618
-------------------
3,919,618
-------------------
$4,671,368
===================
</TABLE>
See notes to the financial statements.
F-73
<PAGE>
CDS HOLDINGS, LLC
Statement of Members' Equity
(Unaudited)
Balance, January 1, 2000 $ 0
Net Loss (272,659)
Member units issued 4,192,277
---------
Balance, September 30, 2000 $3,919,618
=========
See notes to the financial statements.
F-74
<PAGE>
CDS HOLDINGS, LLC
Statement of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
Two Months Ended September 30, 2000
-------------------------------------------------------------------------------------------------------------
<S> <C>
Net Cash Used by Operating Activities $ (107,555)
--------------
Net Cash Used by Investing Activities (1,000,000)
--------------
Net Cash Provided by Financing Activities 3,001,000
--------------
Increase in Cash and Cash Equivalents 1,893,445
Cash and Cash Equivalents, Beginning of Period 0
--------------
Cash and Cash Equivalents, End of Period $1,893,445
==============
Supplemental Cash Flows Information
Note payable for investment in equity method investee 738,500
Contribution of Investment 1,191,277
</TABLE>
See notes to the financial statements.
F-75
<PAGE>
CDS HOLDINGS, LLC
Notes to Financial Statements
Note 1 - Nature of Operations and Summary of Significant Accounting Policies
Nature of Operations
CDS Holdings, LLC (Holdings) was formed on May 12, 2000. The purpose of forming
this LLC was to hold the entities that were to be distributed from Centillion
Data Systems. Other than a small capital investment by the members, there was no
activity in this company until July 31, 2000, when Data distributed several of
its holdings to the LLC. These holdings included Data's ownership interest in
e.Nova,LLC, CHS,LLC, Lockerbie Vermont, LLC (less than 1% ownership) and
$3,000,000 in cash. The nature of e.Nova,LLC and CHS,LLC operations are as
follows.
e.Nova, LLC (e.Nova) along with its wholly owned subsidiary, Xila
Communications, LLC, is an information solutions provider. As an outsource
information technology (IT) department, e.Nova helps businesses, primarily in
Indiana, optimize the cost of hardware, software, Internet connections,
telecommunications and network strategy. Some of the services provided include
Application Service Provider (ASP) software access, data management, Internet
access, hardware and software integration, Web hosting and maintenance, long
distance, telephone hardware, local telephone dial tone, bandwidth services, PBX
installation and switch management and Local Area Network cabling.
Telecommunication services provided are the most significant based on net
revenue.
CHS, LLC (CHS) was established to hold small investments unrelated to other
business lines that already exist. Currently, there is only one investment in a
start-up technology company being held in this company. CHS has less than a 20%
equity interest and therefore this investment is accounted for using the cost
method.
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 liablilities at the date of the financial statements and
the reported amounts of revenues and expense during the reporting period. Actual
results could differ from those estimates.
The accompanying financial statements have been prepared by CDS Holdings,LLC
without audit, and reflect adjustments (consisting only of normal and recurring
adjustments) which, in the opinion of management are necessary to state fairly
the financial information set forth therein in accordance with generally
accepted accounting principles.
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 $1,790,000 at September 30, 2000.
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.
Investments
Data entered into a merger agreement with CTI Group Holdings, Inc. (CTIG) on
February 3, 2000. CTIG did not wish to acquire these operations and the merger
agreement required that these businesses be disposed of prior to the effective
F-76
<PAGE>
date of the merger. Under the merger agreement these entities are to be sold to
Holdings for their fair market value. The sales price for these businesses along
with cash and other assets will be in exchange for a promissory note due and
payable in seven and one half years. The transfer of Data's ownership interest
in these entities will be accounted for as a spin-off at historical cost, which
is less than the fair market value of the entities. Therefore, the disposition
will be accounted for as a distribution to the stockholders of Data. Proceeds on
the note receivable will be recognized as capital transactions as cash is
received by CTIG.
On July 31, 2000 Data distributed its ownership interests in e.Nova, CHS and
Lockerbie Vermont, LLC (Lockerbie) (less than 1% owned by Data and accounted for
on the cost method) to Holdings along with $3,000,000 of cash. On the same date,
e.Nova contributed all of its net assets to a new entity called Netisun, LLC
(Netisun) in exchange for 26% of its membership units. At the same time Holdings
contributed cash of $1,000,000 and a note receivable in the amount of $261,500
to Netisun and issued a note payable to Netisun of $738,500 for 27% of its
membership units. This gave Holdings directly and indirectly a 39% ownership
interest in Netisun. The shareholders of Holdings control approximately 12% of
Netisun through direct ownership of e.Nova. An unrelated company also
contributed assets to Netisun for 47% of its membership units. Holdings does not
control e.Nova or Netisun so it is therefore accounting for them using the
equity method of accounting. As the investment by Holdings exceeds its
proportionate equity in e.Nova, this difference is considered to be goodwill and
is being amortized on the straight-line basis over three years. As of September
30, 2000, Digital has not been transferred to Holdings.
Income Taxes
Income taxes have not been provided because the members elected to be treated as
a partnership for income tax purposes. As such, the net losses are passed to the
members and combined with their personal income and deductions to determine
taxable income on their individual tax returns.
Note 2 - Note Payable
On July 31, 2000 Holdings issued a note payable in the amount of $738,500 to
Netisun, LLC as part of the purchase agreement. The terms of the note include a
6.9% interest rate with two (2) installments. The first installment of $369,250
plus accrued interest was paid on October 31, 2000 and the second and final
installment for the balance of the unpaid principal and interest is due on
January 31, 2001.
F-77
<PAGE>
Unaudited Pro Forma Condensed Consolidated Financial Data of Holdings, LLC
As of September 30, 2000
And for the Year Ended December 31, 1999 and the
Nine Months Ended September 30, 2000
F-78
<PAGE>
CDS Holdings, LLC And Subsidiaries
Pro Forma Balance Sheet
(Unaudited)
<TABLE>
<CAPTION>
Combined Entities Holdings, LLC Pro Forma Pro Forma
September 30, 2000 September 30, 2000 Adjustments September 30, 2000
<S> <C> <C> <C> <C>
Assets
Current Assets
Cash and cash equivalents $ 23,086 1,893,445 3,900,000 (A) 5,816,531
Accounts receivable (net of allowance of $6,000) 169,377 169,377
Other receivables 48,540 108,434 156,974
Prepaid assets 37,053 37,053
-------------------------------------------------------- --------------------
Total current assets 278,056 2,001,879 3,900,000 6,179,935
-------------------------------------------------------- --------------------
Property and Equipment 660,209 - 660,209
-------------------------------------------------------- --------------------
Other Assets
Intangible assets - -
Investments - 2,669,489 2,669,489
-------------------------------------------------------- --------------------
- 2,669,489 - 2,669,489
-------------------------------------------------------- --------------------
$ 938,265 $ 4,671,368 $ 3,900,000 $ 9,509,633
======================================================== ====================
Liabilities and Members' Equity
Current Liabilities
Notes payable - 738,500 738,500
Accounts payable 47,763 5,496 53,259
Accounts payable, related party 42,261 42,261
Unearned revenue 36,241 36,241
Accrued liabilities 74,084 7,754 81,838
-------------------------------------------------------- --------------------
Total current liabilities 200,349 751,750 - 952,099
-------------------------------------------------------- --------------------
Minority Interest -
Members' Equity
Common stock 100 (100) (B) -
Additional paid in capital 20,948,149 (20,948,149) (B) -
Members' equity - 3,919,618 4,646,158 (A), (B) 8,565,776
Retained earnings (20,202,091) 20,202,091 (B) -
Accumulated other comprehensive income (8,242) (8,242)
-------------------------------------------------------- --------------------
737,916 3,919,618 3,900,000 8,557,534
-------------------------------------------------------- --------------------
$ 938,265 $ 4,671,368 $ 3,900,000 $ 9,509,633
======================================================== ====================
</TABLE>
F-79
<PAGE>
CDS Holdings, LLC And Subsidiaries
Pro Forma Statement of Loss
(Unaudited)
<TABLE>
<CAPTION>
Historical Combined Historical Holdings LLC Pro Forma
Nine Months Ended Nine Months Ended Pro Forma Nine Months Ended
September 30, 2000 September 30, 2000 Adjustments September 30, 2000
---------------------------------------------------------- ------------------
<S> <C> <C> <C> <C>
Net Revenues $ 987,447 (730,772)(2) $ 256,675
Cost of Revenues 1,254,864 (702,806)(2) 1,254,864
------------------------------------------------------- ----------------
Gross Loss (267,417) - (27,966) (295,383)
------------------------------------------------------- ----------------
Operating Expenses
General and administrative 1,326,388 23,323 (745,211)(2) 604,500
Selling 291,348 (70,773)(2) 220,575
------------------------------------------------------- ----------------
1,617,736 23,323 (815,984) 825,075
------------------------------------------------------- ----------------
Operating Loss (1,885,153) (23,323) 788,018 (1,120,458)
Other Income (Expense)
Investment income (loss) 21,281 18,706 (9,781)(2) 30,206
Interest expense (2,020) (7,754) (9,774)
Loss from equity investees (260,288) (952,181)(3) (1,212,469)
------------------------------------------------------- ----------------
19,261 (249,336) (961,962) (1,192,037)
------------------------------------------------------- ----------------
Loss Before Income Taxes (1,865,892) (272,659) (173,944) (2,312,495)
Income Taxes (380,000) 380,000 (1) -
------------------------------------------------------- ----------------
Net Loss $ (1,485,892) $ (272,659) $ (553,944) $ (2,312,495)
============================================================================
</TABLE>
F-80
<PAGE>
CDS Holdings, LLC And Subsidiaries
Pro Forma Statement of Loss
(Unaudited)
<TABLE>
<CAPTION>
Historical Combined Pro Forma
Year Ended Pro Forma Year Ended
December 31, 1999 Adjustments December 31, 1999
----------------------------------------------------------------------------------------- -----------------------
<S> <C> <C> <C>
Net Revenues $ 1,566,279 (575,534)(2) $ 990,745
Cost of Revenues 2,168,420 (794,916)(2) 1,373,504
---------------------------------- ------------------
Gross Loss (602,141) 219,382 (382,759)
Operating Income (Expense)
General and administrative (4,041,913) 937,087 (2) (3,104,826)
Selling (533,991) 123,452 (2) (410,539)
Gain on sale of assets 359,969 359,969
-----------------------------------------------------------------
(4,215,935) 1,060,539 (3,155,396)
-----------------------------------------------------------------
Operating Loss (4,818,076) 1,279,921 (3,538,155)
Other Income (Expense)
Investment loss (42,025) 47,320 (2) 5,295
Interest expense (23,673) (23,673)
Loss from equity investees (1,126,957)(3) (1,126,957)
---------------------------------- -------------------
(65,698) (1,079,637) (1,145,335)
---------------------------------- -------------------
Loss Before Income Taxes (4,883,774) 200,284 (4,683,490)
Income Taxes (1,260,801) 1,260,801 (1) -
---------------------------------- -------------------
Net Loss $ (3,622,973) $ (1,060,517) $ (4,683,490)
================================== ===================
</TABLE>
F-81
<PAGE>
CDS HOLDINGS, LLC AND SUBSIDIARIES
Notes to Pro Forma Financial Statements
Note 1 - Business and Basis of Presentation
CDS Holdings, LLC (Holdings) is a holding company formed to hold certain
business entities distributed from Centillion Data Systems, Inc. (Data). These
companies and the nature of their operations are as follows.
Centillion Digital Systems, Inc. (Digital) is a global provider of digital file
storage and retrieval services to corporations and major publishing companies
throughout the world. Based on net revenue, this is its most significant
service. The Company's software applications allow users to share, retrieve, and
distribute files using web-based technology. The Company has operations in
Sweden and Germany. At September 30, 2000, net assets in Sweden and Germany are
approximately $132,000 and $8,000, respectively.
e.Nova, LLC (e.Nova) along with its wholly owned subsidiary, Xila
Communications, LLC, is an information solutions provider. As an outsource
information technology (IT) department, e.Nova helps businesses, primarily in
Indiana, optimize the cost of hardware, software, Internet connections,
telecommunications and network strategy. Some of the services provided include
Application Service Provider (ASP) software access, data management, Internet
access, hardware and software integration, Web hosting and maintenance, long
distance, telephone hardware, local telephone dial tone, bandwidth services, PBX
installation and switch management and Local Area Network cabling.
Telecommunication services provided are the most significant based on net
revenue.
CHS, LLC (CHS) was established to hold small investments unrelated to other
business lines that already exist. Currently, there is only one investment in a
start-up technology company being held in this company. CHS has less than a 20%
equity interest and therefore this investment is accounted for using the cost
method.
Data entered into a merger agreement with CTI Group Holdings, Inc. (CTIG) on
February 3, 2000. CTIG did not wish to acquire these operations and the merger
agreement required that these businesses be disposed of prior to the effective
date of the merger. Under the merger agreement these entities are to be sold to
Holdings for their fair market value. The sales price for these businesses along
with cash and other assets will be in exchange for a promissory note due and
payable in seven and one half years. The transfer of Data's ownership interest
in these entities will be accounted for as a spin-off at historical cost, which
is less than the fair market value of the entities. Therefore, the disposition
will be accounted for as a distribution to the stockholders of Data. Proceeds on
the note receivable will be recognized as capital transactions as cash is
received by CTIG.
On July 31, 2000 Data distributed its ownership interests in e.Nova, CHS and
Lockerbie Vermont, LLC (Lockerbie) (less than 1% owned by Data and accounted for
on the cost method) to Holdings along with $3,000,000 of cash. On the same date,
e.Nova contributed all of its net assets to a new entity called Netisun, LLC
(Netisun) in exchange for 26% of its membership units. At the same time Holdings
contributed cash of $1,000,000 and a note receivable in the amount of $261,500
to Netisun and issued a note payable to Netisun of $738,500 for 27% of its
membership units. This gave Holdings directly and indirectly a 39% ownership
interest in Netisun. The shareholders of Holdings also control approximately 12%
of Netisun through ownership of e.Nova. An unrelated company, Indiana
Communications and Systems, Inc., also contributed assets to Netisun for 47% of
its membership units. Holdings does not control e.Nova or Netisun so it is
therefore accounting for them using the equity method of accounting. As of
September 30, 2000, the net assets of Digital had not been sold to Holdings.
The financial information is taken from the audited Centillion Data Systems,
Inc. 1999 financial statements and the 1999 audited and unaudited for the nine
months ended September 30, 2000 combined financial statements for Centillion
Digital Systems, Inc. and Subsidiaries, e.Nova, LLC and Subsidiary and CHS, LLC.
These financial statements should be read in conjunction with those financial
statements and notes thereto. This pro forma information is not necessarily
indicative of the results of operations and financial position and cash flows
that would have been attained if the transfer of these entities to Holdings
would have taken place on January 1, 1999.
F-82
<PAGE>
CDS HOLDINGS, LLC AND SUBSIDIARIES,
Notes to Pro Forma Financial Statements
Note 2 - Pro Forma Adjustments
For purposes of these pro forma financial statements it has been assumed that
Holdings was formed on January 1, 1999 and that net assets of Digital and the
ownership interests of e.Nova, CHS and Lockerbie were all transferred on that
day. It was also assumed on that same day Netisun was created and e.Nova and
Indiana Communications and Systems, Inc. completed the transfer of their net
assets to Netisun.
Due to the creation of Netisun, Holdings no longer had effective control of
e.Nova and began accounting for it on the equity method. Holdings is also
accounting for its investment in Netisun on the equity method. For the purposes
of this pro forma, the effective date to start accounting for e.Nova and Netisun
on the equity method is January 1, 1999. As the investment by Holdings exceeds
its proportionate equity in e.Nova, this difference is considered to be goodwill
and is being amortized on the straight-line basis over three years.
It is assumed that Holdings will account for the remaining entities in the same
manner as Data had since they are stepping into the shoes of Data as the
transaction is being accounted for as a spin-off at historical cost. The
entities included and the ownership percentage of Holdings (formerly the
ownership of Data) are Centillion Digital Systems, Inc. (100% owned) and its two
wholly owned subsidiaries, Centillion Digital GmbH (Germany) and Centillion
Digital Systems, Inc.'s branch office in Sweden (Sweden) which are consolidated.
e.Nova, LLC (47% owned directly and the members of Holdings owning 45%) and its
wholly owned subsidiary, Xila, LLC. CHS (50% owned) was formed as a new entity
during 1999 and is accounted for on the equity method.
It is assumed that sufficient cash was transferred to Holdings on January 1,
1999 to provide the additional funding to the other entities that was provided
by Data during 1999 and 2000 for operations. Additionally, it is assumed that
additional cash of approximately $3.9 million was transferred to Holdings on
January 1, 1999.
(A) Transfer of $3.9 million cash from Data to Holdings.
(B) Elimination of common stock, additional paid in capital and retained earning
to members' equity.
(1)Elimination of tax benefit due to LLC structure.
(2)Elimination of e.Nova,LLC from the Historical Combined information.
(3) Recording the interest in losses of Netisun on the equity method. The losses
of Netisun consist of e.Nova,LLC, Xila,LLC and Indiana Communications and
Systems, Inc.
F-83
<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 September 30, 2000 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, 2000 and the six
months ended September 30, 2000 give effect to the Merger and Acquisition as if
they had occurred on April 1, 1999. In the preparation of the pro forma
condensed consolidated statement of operations for the year ended March 31,
2000, the columns pertaining to Centillion and Celltech were developed by adding
the results of the quarter ended March 31, 2000 and subtracting the results of
the quarter ended March 31, 1999 from the audited results for the year ended
December 31, 1999. Certain amounts in the Centillion and Celltech historical
financial statements have been reclassified to conform to CTIG's financial
statement presentation.
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 allocation of the purchase price of each transaction,
including the revaluation of CTIG's and Celltech's tangible and intangible
assets and liabilities, the value of goodwill and the goodwill amortization
period, will be dependent on the results of final appraisal, which has not yet
been received. The allocation of fair value is preliminary and is subject to
change. The Company believes the allocation of fair value is reasonable based on
existing conditions; however, such allocation is subject to change dependent
upon completion of the final appraisal.
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 or 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-84
<PAGE>
UNAUDITED CONDENSED CONSOLIDATED PRO FORMA BALANCE SHEET DATA
SEPTEMBER 30, 2000
<TABLE>
<CAPTION>
Historical
-----------------------------------------------------------
CTI Group Centillion Celltech Information
(Holdings) Inc. Data Systems, Inc. Systems, Inc.
----------------- ------------------ ------------------
<S> <C> <C> <C>
Current Assets:
Cash & cash equivalents 15,550 11,577,965 650,047
Trade Accounts Receivable, net 419,381 1,579,428 564,995
Other Receivables 351,972
Inventories 6,909 6,886
Prepaid expenses 65,112 130,248 19,727
Income Taxes Receivable and Deferred Income Taxes 131,888 191,230
Assets of discontinuing operations 938,265 -
----------------- ------------------ ------------------
Total Current Assets 506,952 14,709,766 1,432,885
----------------- ------------------ ------------------
PP&E 165,510 549,744 253,441
Computer Software 168,643 2,459,345
Intangible Assets 1,001,441
Goodwill
Other Assets 9,623 - 7,321
----------------- ------------------ ------------------
TOTAL ASSETS 850,728 18,720,296 1,693,647
================= ================== ==================
LIABILITIES
Current Liabilities:
Current portion of long-term debt 290,000 - 88,812
Accounts payable 317,722 224,346 333,430
Income taxes payable 141,900 10,869 105,260
Deferred income tax liability 5,970
Other accrued expenses 1,125,271 534,032 266,902
Deferred revenues 517,334
Liabilities of discontinuing operations 487,909
----------------- ------------------ ------------------
Total current liabilities 2,392,227 1,263,126 794,404
----------------- ------------------ ------------------
Long Term Debt 108,991
Deferred Income Taxes 12,202
Commitments and contingencies
Redeemable Common Stock 487,498
Stockholders' Equity:
Common Stock - Class A 76,515 363 2,353
Common Stock - Class B
Common Stock in Escrow
Capital in excess of par value 8,814,070 8,346,554 1,000
Retained Earnings (accumulated deficit) (10,097,030) 8,729,927 774,697
Accumulated other Comprehensive income 71,346 (107,172)
Deferred Compensation Expense
Tresury Stock (406,400)
----------------- ------------------ ------------------
Total Stockholders' Equity (1,541,499) 16,969,672 778,050
----------------- ------------------ ------------------
TOTAL LIABILITIES & STOCKHOLDERS' EQUITY 850,728 18,720,296 1,693,647
================= ================== ==================
</TABLE>
<PAGE>
[RESTUBBED TABLE]
<TABLE>
<CAPTION>
Pro Forma Adjustments
-------------------------------------------
Centillion Celltech Information Pro Forma
Data Systems, Inc. Systems, Inc. Balance
------------------ ------------------- -----------------
<S> <C> <C> <C>
Current Assets:
Cash & cash equivalents (3,903,878)(2.4) (262,599)(3) 6,944,524
(1,207,561) (6)
75,000 (5)
Trade Accounts Receivable, net (338,426) (1) 2,225,378
Other Receivables (50,024) (1) 301,948
Inventories 13,795
Prepaid expenses (45,646) (1) 169,441
Income Taxes Receivable and Deferred Income Taxes 102,565 (5) 1,253,973
828,290 (6)
Assets of discontinuing operations (938,265) (1) 0
------------------ ---------------- -----------------
Total Current Assets (5,477,945) (262,599) 10,909,059
------------------ ---------------- -----------------
PP&E (227,811) (1) 740,884
Computer Software 2,627,988
Intangible Assets (797,581)(2.3) 203,860
Goodwill 13,383,342 (2.3) 2,110,537 (4) 15,493,879
Other Assets 16,944
------------------ ---------------- -----------------
TOTAL ASSETS 6,880,005 1,847,938 29,992,614
================== ================ =================
LIABILITIES
Current Liabilities:
Current portion of long-term debt 378,812
Accounts payable 875,498
Income taxes payable 258,029
Deferred income tax liability 5,970
Other accrued expenses 1,926,205
Deferred revenues 517,334
Liabilities of discontinuing operations (487,909) (1) 0
------------------ ---------------- -----------------
Total current liabilities (487,909) 0 3,961,848
------------------ ---------------- -----------------
Long Term Debt 108,991
Deferred Income Taxes 12,202
Commitments and contingencies
Redeemable Common Stock (487,498)(2.5) 0
Stockholders' Equity:
Common Stock - Class A 132,958 (2.2) 22,087 (3) 231,561
7 (5)
(370)(2.5) (2,353)(3)
Common Stock - Class B 28,333 (2.2) 28,333
Common Stock in Escrow 0 (2.2) (2,363,390)(3) (2,363,390)
Capital in excess of par value 10,924,972 (2.2) 4,967,291 (3) 25,387,975
(8,484,185)(2.1) (1,000)(3)
370 (2.5)
331,405 (5)
487,498 (2.5)
Retained Earnings (accumulated deficit) (1,112,263) (1) (774,697)(3) 3,073,496
(3,903,878)(2.4)
10,097,030 (2.1)
(107,172)(2.4)
(153,847) (5)
(379,271) (6)
Accumulated other Comprehensive income (71,346)(2.1) 0
107,172 (2.4)
Deferred Compensation Expense (42,002)(2.3) (42,002)
Tresury Stock (406,400)
------------------ ---------------- -----------------
Total Stockholders' Equity 7,855,412 1,847,938 25,909,573
------------------ ---------------- -----------------
TOTAL LIABILITIES & STOCKHOLDERS' EQUITY 6,880,005 1,847,938 2,992,614
================== ================ =================
</TABLE>
See Notes to the Unaudited Condensed Consolidated Pro Forma Balance Sheet Data
F-85
<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 be transferred to
Holdings, LLC and will not be part of the merged entity (see Note 7
below).
(2) To record the Centillion reverse acquisition entries based on the total
consideration of $11,044,262 computed as follows:
<TABLE>
<S> <C>
Total number of shares of CTIG common stock outstanding prior to Merger (A) 7,661,505
Total number of CTIG vested options outstanding upon consummation of the
Merger (A) (B) 400,000
--------------
Total shares to be held by CTIG shareholders after the Merger (A) 8,061,505
Market value of CTIG Stock on Measurement Date (C) 1.37
--------------
Value of consideration given by Centillion 11,044,262
==============
</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 3 day period before and
after the signing of amendment No.4 to the Merger Agreement on October
26, 2000.
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 13,295,837 shares of $0.01 par Class A Common Stock and 2,833,334
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 adding the book value of the net
liabilities of CTIG ($1,541,499) and Centillion's capitalized merger
costs ($797,581) to the total value of the consideration of $11.0
million. The allocation of the purchase price, including the
revaluation of CTIG's tangible and intangible assets and liabilities,
the value of goodwill and the goodwill amortization period, is
preliminary and is subject to change. The Company believes the
allocation of fair value is reasonable based on existing conditions;
however, such allocation is subject to change dependent upon completion
of the final appraisal, which has not yet been received. Additionally,
the remaining value of the options held by the CEO ($42,000), which
will be fully vested by the time the transaction actually closes, have
been recorded as deferred compensation cost within Stockholders' Equity
to be recognized over the remaining vesting period.
F-86
<PAGE>
(2.4) To record the payment of excess cash and investments held by
Centillion to the former shareholders of Centillion, as the Merger
Agreement only requires Centillion to contribute net cash or
investments of $8.0 million, less the amount of capitalized software
costs from January 2000 through closing ($1,290,000 through September
30, 2000) and total net assets of $2.0 million, excluding the cash and
investments and the net earnings of the billing business through
Closing ($1,752,000 through September 30, 2000). The adjustment assumes
the liquidation of all short-term investments into the required cash to
be contributed. See Note 7.
(2.5) To eliminate Centillion's historical redeemable common stock and
common stock which will be cancelled in connection with the Merger. As
a result of the Merger, Centillion's redeemable common stock will not
be convertible into Common Stock of CTIG. Accordingly, it has been
reclassified into common stock prior to elimination.
(3) To record the acquisition of Celltech Information Systems, Inc. through
the issuance of a total of 2,208,737 shares, at an assumed value of
$2.26 per common share, of which 1,046,244 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 is based on a formula whereby the numerator is
$4,989,378 and the denominator is the market price of CTIG's stock on
the measurement date (the ceiling and floor of which are to be $3.75
and $2.25, respectively). The measurement date used herein is August
21, 2000, the last date on which the price of CTIG's Common Stock
exceeded the floor. Such measurement date could change based on future
movements of the price of CTIG's Common Stock. The ultimate value of
such shares will be dependent on the average price of CTIG's common
stock for a period of three days before and after the measurement date.
(4) To record value of software and goodwill obtained 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. The Company believes the
allocation of fair value is reasonable based on existing conditions;
however, such allocation is subject to change dependent upon completion
of the final appraisal.
(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. This transaction will give rise to
compensation expense of approximately $256,000 and a tax benefit of
approximately $103,000. Such amounts have not been reflected in the
historical or pro forma statements of operations for the year ended
March 31, 2000 or the six months ended September 30, 2000.
F-87
<PAGE>
(6) To record the estimated closing costs, consisting of various severance
and employee costs, by Centillion upon consummation of the transaction
as well as the related income tax benefit associated with such costs.
The tax benefit has been determined based on the nature of the related
costs. Such costs have not been reflected in the historical or pro
forma statements of operations for the year ended March 31, 2000 or the
six months ended September 30, 2000. See note 8 to the Pro Forma
Statement of Operations Data.
(7) The net assets of Holdings, LLC are to be used to buy additional shares
of CTIG Common Stock in the future (see Note 6 to the Pro Forma
Statement of Operations Data). See CDS Holdings, LLC Pro Forma Balance
Sheet Data elsewhere within this proxy statement.
From the perspective of CTIG, the $10 million note receivable from
Holdings LLC has not been recorded as an asset on the pro forma balance
sheet since its value and recoverability is uncertain. Although the
face value of the note is $10 million, the amount to be repaid to the
combined company is dependent upon Holdings LLC's ability to sell off
the collateral assets or repay the Note at the end of 7.5 years. The
Note will be recorded on the balance sheet as a contra equity account
only after it is appraised in five years and shares are issued to
Holdings, LLC. Until that time, the note and the potential dilutive
shares that could be issued upon its repayment will be disclosed in the
notes to the financial statements. See Note 6 to the Pro Forma
Statement of Operations Data..
From Holdings, LLC's perspective, a note payable will be recognized
upon appraisal and receipt of shares of CTIG Common Stock as discussed
above.
It should be noted that the actual amount of the Note from Holdings LLC
will be determined immediately prior to closing based upon the cash and
other assets transferred at that time. All of the assets of Holdings
LLC will serve as collateral for its obligation under the Note.
Holdings LLC will be lending up to $2 million to Tracking LLC to fund
patent litigation. Such loan will be on a non-recourse basis and will
be secured by the assets of Tracking LLC. The remainder of the
approximate $6.1 million in cash to be received by Holdings LLC will be
available to be used for business purposes as Holdings LLC may
determine, which may include funding losses, in which case it would not
be available to repay the Note. Holdings LLC presently intends to
invest $2 million in its subsidiaries' operations. Repayment of the $10
million Note will be dependent upon the performance of Holdings LLC and
its subsidiaries during the next 7.5 years.
F-88
<PAGE>
UNAUDITED CONDENSED CONSOLIDATED PRO FORMA STATEMENT OF OPERATIONS DATA
FOR THE YEAR ENDED MARCH 31, 2000
<TABLE>
<CAPTION>
Historical Results
------------------------------------------------------
CTI Group Centillion Data Celltech Information
(Holdings) Inc. Systems, Inc (A) Systems, Inc (A)
---------------- --------------- ----------------
<S> <C> <C> <C>
Net Sales (B) 7,230,336 10,741,827 7,423,240
License Fee Settlement Revenue 7,500,000
---------------- --------------- ----------------
Total Revenues 7,230,336 18,241,827 7,423,240
Costs & Expenses:
Cost of Sales (B) 4,202,929 4,278,815 3,927,745
Cost of License Fee Settlements 1,954,000
Selling & Administrative expenses 2,948,925 1,898,982 4,165,329
Depreciation and amortization 592,964 486,733 133,441
---------------- --------------- ----------------
Total Costs & Expenses 7,744,818 8,618,530 8,226,515
---------------- --------------- ----------------
Income (loss) from Operations (514,482) 9,623,297 (803,275)
---------------- --------------- ----------------
Other expenses (income):
Investment income (580,800)
Other income 141,683
Loss on disposal of assets 56,320 0
Minority interest in Earnings of Sub 0
Interest expense 6,809 0 (6,679)
---------------- --------------- ----------------
Income (loss) from continuing operations before
income taxes and nonrecurring charges (521,291) 10,147,777 (938,279)
---------------- --------------- ----------------
Provision for income taxes (3,981,859) 311,902
---------------- --------------- ----------------
Income (Loss) from continuing operations before
nonrecurring charges(8) (521,291) 6,165,918 (626,377)
================ =============== ================
EPS from continuing operations:
Basic (0.07)
Diluted (0.07)
Wtd Avg Shares O/S:
Basic 7,010,546
Diluted 7,010,546
</TABLE>
<PAGE>
[RESTUBBED TABLE]
<TABLE>
<CAPTION>
Pro Forma Adjustments
-------------------------------------
Centillion Data Celltech Information Pro Forma
Systems, Inc Systems, Inc Balance
------------- -------------------- ----------------
<S> <C> <C> <C>
Net Sales (B) 25,395,403
License Fee Settlement Revenue 7,500,000
------------- ---------------- ---------------
Total Revenues 0 0 32,895,403
Costs & Expenses:
Cost of Sales (B) 12,409,489
Cost of License Fee Settlements 1,954,000
Selling & Administrative expenses 9,013,236
Depreciation and amortization 1,911,906 (1) 301,505 (6) 3,426,549
------------- ---------------- ----------------
Total Costs & Expenses 1,911,906 301,505 26,803,274
------------- ---------------- ----------------
Income (loss) from Operations (1,911,906) (301,505) 6,092,129
------------- ---------------- ----------------
Other expenses (income):
Investment income 478,020 (2) (102,780)
Other income 141,683
Loss on disposal of assets 56,320
Minority interest in Earnings of Sub 0 0
Interest expense 130
------------- ---------------- ----------------
Income (loss) from continuing operations before
income taxes and nonrecurring charges (2,389,926) (301,505) 5,996,776
------------- ---------------- ----------------
Provision for income taxes 191,208 (2) (3,270,233)
208,516 (3)
------------- ---------------- ----------------
Income (Loss) from continuing operations before
nonrecurring charges(8) (1,990,201) (301,505) 2,726,543
============= ================ ================
EPS from continuing operations:
Basic 0.13
Diluted 0.12
Wtd Avg Shares O/S:
Basic 13,295,837 (5) 1,162,493 (7) 21,468,876
Diluted 14,712,725 (5) 1,162,493 (7) 22,885,764
</TABLE>
(A) The historical statements of operations for Centillion and Celltech were
developed by adding the results for the quarter ended March 31, 2000 and
subtracting the results for the quarter ended March 31, 1999 from the results
for the year ended December 31, 1999.
(B) Net Sales and Cost of Sales in Celltech's historical statement of operations
for the year ended March 31, 2000 includes $1,694,696 and $1,520,779 related
to postage revenues and costs, respectively.
(C) Net Sales and Cost of Sales in Centillion's historical statement of
operations for the year ended March 31, 2000 includes $7,500,000 and
$1,954,000, respectively related to a one-time license fee due to settlement
of patent litigation.
F-89
<PAGE>
UNAUDITED CONDENSED CONSOLIDATED PRO FORMA STATEMENT OF OPERATIONS DATA
FOR THE SIX MONTHS ENDED SEPTEMBER 30, 2000
<TABLE>
<CAPTION>
Historical Results
--------------------------------------------------------------
CTI Group Centillion Data Celltech Information
(Holdings) Inc. Systems, Inc Systems, Inc
----------------- ------------------ --------------------
<S> <C> <C> <C>
Net Sales (a) 2,145,097 5,468,924 3,269,324
Costs & Expenses:
Cost of Sales (a) 1,412,138 2,362,725 1,412,291
Selling & Administrative expenses 1,942,213 1,162,359 1,478,511
Depreciation and amortization 280,638 228,056 68,899
----------------- ------------------ --------------------
Total Costs & Expenses 3,634,989 3,753,140 2,959,701
----------------- ------------------ --------------------
Income (loss) from Operations (1,489,892) 1,715,784 309,623
----------------- ------------------ --------------------
Other expenses (income):
Interest expense 163 0 (547)
Investment Income (1,141,009) 0
Other expenses (3,375)
----------------- ------------------ --------------------
Income (loss) from continuing operations before
income taxes and nonrecurring charges (1,490,055) 2,856,793 313,545
----------------- ------------------ --------------------
Provision for income taxes 0 (1,284,227) (78,386)
----------------- ------------------ --------------------
Income (Loss) from continuing operations before
nonrecurring charges (8) 1,490,055) 1,572,566 235,159
================= ================== ====================
EPS (Basic and diluted) (0.20)
Wtd Avg Shares O/S (basic and diluted) 7,460,422
</TABLE>
<PAGE>
[RESTUBBED TABLE]
<TABLE>
<CAPTION>
Pro Forma Adjustments
----------------------------------------
Centillion Data Celltech Information Pro Forma
Systems, Inc Systems, Inc Balance
--------------- -------------------- ----------------
<S> <C> <C> <C>
Net Sales (a) 10,883,345
Costs & Expenses:
Cost of Sales (a) 5,187,154
Selling & Administrative expenses 4,583,083
Depreciation and amortization 955,953 (1) 150,753 (6) 1,684,299
--------------- ---------------- -------------------
Total Costs & Expenses 955,953 150,753 11,454,536
--------------- ---------------- -------------------
Income (loss) from Operations (955,953) (150,753) (571,191)
--------------- ---------------- -------------------
Other expenses (income):
Interest expense (384)
Investment Income 1,089,619 (2) (51,390)
Other expenses (3,375)
--------------- ---------------- -------------------
Income (loss) from continuing operations before
income taxes and nonrecurring charges (2,045,572) (150,753) (516,041)
--------------- ---------------- -------------------
Provision for income taxes 435,848 (2) (330,743)
596,022 (4)
--------------- ---------------- -------------------
Income (Loss) from continuing operations before
nonrecurring charges (8) (1,013,702) (150,753) (846,785)
=============== ================ ===================
EPS (Basic and diluted) (0.04)
Wtd Avg Shares O/S (basic and diluted) 13,295,837 (5) 1,162,493 (7) 21,918,752
</TABLE>
(a) Net Sales and Cost of Sales in Celltech's historical statement of operations
for the six months ended September 30, 2000 includes $736,209 and $662,790
related to postage revenues and costs, respectively.
F-90
<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
adjustment, the life of such goodwill has been assumed to be seven
years. The assumed amortization period is subject to change based upon
the results of the final appraisal which has not yet been received and
management's evaluation of the recoverability of such costs. The
amortization period related to value ascribed to other identifiable
assets, such as computer software, could be significantly shorter than
the seven years used herein.
(2) To reduce investment income and related tax benefit 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. The tax benefit was calculated based
on 40% of the recorded pro forma adjustment.
(3) The adjustment included in the statement of operations for the year
ended March 31, 2000 is to record a full year's compensation expense
related to the value of options granted to CTIG's President and Chief
Executive Officer, that were contingent on CTIG entering into a
definitive merger agreement with Centillion. These options vest over a
one year period and are not immediately vested upon consummation of the
Merger.
The adjustment included in the statement of operations for the six
months ended September 30, 2000 is to eliminate the amount of such
compensation expense included within the historical results since the
entire expense is presumed to be recorded in the year ended March 31,
2000.
(4) To record an income tax benefit related to the historical CTIG net
loss. Such benefit had not been recorded in the historical financial
statements since recoverability was not determined to be more likely
than not. The amount was calculated using a tax rate of 40%.
F-91
<PAGE>
(5) To record stock issued and to be issued in connection with the
Centillion transaction. The adjustment includes 13,295,837 shares of
common stock issued upon closing of the transaction. Basic and diluted
weighted average shares outstanding and loss per share for the six
months ended September 30, 2000 are the same since the Company has
reported a pro forma net loss. Potential dilutive securities at
Septemer 30, 2000 include the following: (a) 400,000 vested options to
purchase CTIG Class A Stock, the exercise of which would yield proceeds
of approximately $227,000; (b) potential shares issuable in connection
with exercise of the additional stock rights, the ultimate number of
which is dependent on the total proceeds to be received from the sale
of the Holdings LLC assets, estimated to be $10 million, and the market
value of the Class A Stock on the exercise dates; and (c) potential
shares issuable in connection with the conversion of the Class B Stock,
the ultimate number of which is dependent on the total net proceeds to
be received from various patent litigation pending, and the market
value of the Class A Stock on the exercise dates.
For the year ended March 31, 2000, dilutive earnings per share is
calculated by adding all potentially dilutive securities to the
13,295,837 basic shares issued in connection with the transaction. Such
dilutive securities were determined using the treasury stock method and
consist of the following:
<TABLE>
<CAPTION>
Shares
Repurchased Net
Total Dilutive Under Treasury Dilutive
Shares Stock Method Shares
------------------- ------------------- --------------
<S> <C> <C> <C>
Options 365,000 (61,690) 303,310
Stock Rights in connection with Note 3,058,352 (2,674,065) 384,287
Class B Stock 6,077,420 (5,348,130) 729,290
------------------- ------------------- --------------
9,500,772 (8,083,885) 1,416,887
=================== =================== ==============
</TABLE>
In determining the number of dilutive shares issuable the following
assumptions were made: (1) the Company received proceeds of $10.0
million in connection with the Promissory Note; (2) the Company
received net proceeds of $5.0 million in connection with the patent
litigation settlements and the conversion of the Class B stock; and (3)
the weighted average market price for the Company's Class A Stock
during the year ended March 31, 2000, which was used for the conversion
of the Class B and the Stock Rights as well as the repurchase of shares
under the treasury stock method, was $1.87.
The exercise price of the additional stock rights is based on 88% of
the market value of the Class A Stock on the exercise dates. Assuming
proceeds of $10 million, which is the face value of the promissory
note, and a Class A market price of $1.87, the stock rights would
result in the issuance of an additional 6,077,420 shares of Class A
Stock. Using the assumptions noted above, a $0.50 increase and decrease
in the price of CTIG's Class A Stock would result in the issuance of
4,795,163 and 8,295,760, respectively, related to the additional stock
rights. The $10 million note receivable related to these stock rights
has not been recorded as an asset on the pro forma balance sheet since
its value is uncertain. Such value will be dependent on the proceeds
received by Holdings LLC from the ultimate sale of these businesses to
third parties or, alternatively, it will be fixed based on an appraisal
of the underlying businesses after a five-year period. Once valued, the
note receivable will be recorded, net of any potential impairment, with
a corresponding increase to additional paid in capital, representing
the value of the stock to be issued. See Note 7 to the unaudited pro
forma balance sheet data
The conversion price per share of the first 333,334 shares exercised in
the first year after consummation of the Merger of Class B Stock is the
lower of $1.50 and 88% of the market value of the Class A Stock and 88%
of the market value of the Class A Stock for subsequent conversions.
The total proceeds to be received in connection with the Class B
conversions is wholly dependent on the net proceeds ultimately received
by CTIG from the settlement of pending patent infringement litigation.
Assuming net proceeds of $5.0 million, which is based on the current
best estimate of Centillion's management, and a Class A Stock market
value of $1.87, the conversion of Class B Stock would result in the
F-92
<PAGE>
issuance of an additional 3,058,352 shares of Class A Stock. Using the
assumptions noted above, a $0.50 increase and decrease in the price of
CTIG's Class A Stock would result in the issuance of 2,459,965 and
4,147,880, respectively, related to the conversion of the Class B
Stock.
(6) To provide for amortization of the goodwill and software costs recorded
in connection with the Celltech transaction. For the purpose of this
pro forma adjustment, the life of such goodwill has been assumed to be
seven years. The final allocation of the purchase price, including the
valuation of the assets acquired and the amortization periods used,
will be dependent upon the results of the appraisal not yet received.
(7) 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.
(8) Income (loss) from continuing operations before nonrecurring charges
for the year ended March 31, 2000 and the six months ended September
30, 2000, exclude estimated closing costs, consisting of various
severance and employee costs, which will be paid by Centillion upon
consummation of the transaction as well as the related income tax
benefit associated with such costs. Such costs and related tax benefit
amount to approximately $1,208,000 and $828,000, respectively. See Note
6 to the Unaudited Pro Forma Balance Sheet Data.
F-93
<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 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.....................................................H-1
I Communications Group Inc. Stock Option and
Restricted Stock Plan.............................................I-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> <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>
<TABLE>
<CAPTION>
<S> <C> <C>
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
</TABLE>
A-3
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
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
</TABLE>
A-4
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
9.6 Governing Law..................................................................................53
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
</TABLE>
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
A-5
<PAGE>
INDEX OF DEFINED TERMS
<TABLE>
<CAPTION>
Term Section
---- -------
<S> <C>
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
</TABLE>
A-6
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
Escrow Distribution Date .....................................................................................1.14
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
</TABLE>
A-7
<PAGE>
AGREEMENT AND PLAN OF MERGER, dated as of February 3, 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:
A-8
<PAGE>
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:
A-9
<PAGE>
(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
A-10
<PAGE>
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) 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 Group agrees to
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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 account all Certificates delivered by
such holder) shall receive, in lieu thereof, cash (without interest) in an
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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 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
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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 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
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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 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
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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 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 required
approvals by Centillion's stockholders in connection with the consummation of
the Merger, constitutes a valid
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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
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to result in a Material Adverse 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:
(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;
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(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 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.
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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
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
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(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.
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
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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 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
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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.
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,
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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 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
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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 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
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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 enforce ability
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.
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.
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(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
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.
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
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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 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
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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 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.
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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;
(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
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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.
(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;
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(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.
(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
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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 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
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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.
(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
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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
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;
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(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.
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,
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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 shall affect the
representations or warranties of any party or the conditions to the obligations
of any party hereunder.
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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 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
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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):
(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
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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.
(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.
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(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 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
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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.
(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
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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.
(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.
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(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
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,
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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 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
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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
correct would not
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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 LLC (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.
(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.
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(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.
(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.
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(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 Article 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.
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:
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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
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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:____________________________
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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.
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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:____________________________
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THIRD AMENDMENT TO AGREEMENT AND PLAN OF MERGER
This THIRD AMENDMENT TO AGREEMENT AND PLAN OF MERGER ("Amendment") is
made this 26th day of July, 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 that
certain Agreement and Plan of Merger ("Agreement") dated as of February 3, 2000.
B. The Securities and Exchange Commission ("SEC") has reviewed a proxy
statement to be delivered to the CTI Group shareholders in connection with the
shareholder vote to approve the Agreement.
C. The SEC has requested modifications to the proxy statement, which
will require that clarification be made in certain provisions of Exhibit A to
the Agreement.
D. The parties have mutually agreed to revise Exhibit A of the
Agreement and other provisions of the Agreement in accordance with the
provisions set forth in this Amendment.
NOW, THEREFORE, in consideration of the foregoing and intending to be
legally bound hereby, the parties hereto agree as follows:
1. Section 1.5(b)(ii) shall be modified by deleting the second sentence
in its entirety and replacing it as follows:
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 less all expenditures made by
Centillion for research and development in fiscal year 2000 in
lieu of the $6,500,000 provided for in Section 6.2(d).
2. Section 6.2(d)(ii) shall be deleted in its entirety and replaced as
follows:
cash of not less than $6,500,000 (or $8,000,000 less all
expenditures made by Centillion for research and development
in fiscal year 2000 in the event that Centillion exercises the
option provided for in Section 1.5(b)(ii));
3. Section 6.2(d)(iv)(x) of the Agreement shall be deleted in its
entirety and replaced as follows:
$8,000,000 of cash.
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4. Section 5 of Exhibit A to the Agreement shall be deleted in its
entirety and replaced as follows:
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 as
follows:
Class A Common Stock shall receive the proportion represented
by (1) the net assets of the corporation without regard to the net assets of
Centillion LLC divided by (2) the net assets of the corporation.
Class B Common Stock shall receive the proportion represented
by (1) the net assets of Centillion LLC divided by (2) the net assets of the
corporation.
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 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.
5. The definition of "Covered Disposition" contained in Section 8 of
Exhibit A to the Agreement shall be deleted in its entirety and replaced as
follows:
"Covered Disposition" shall mean: (a) any direct or indirect
sale, transfer or conveyance by the Corporation of fifty percent (50%) or more
of its equity interest in the LLC; or (b) any grant of any pledge or other
security interest in fifty percent (50%) or more of the equity interest of the
Corporation in Centillion LLC; or
IN WITNESS WHEREOF, the parties have executed this Third Amendment the
day and year first written above.
CENTILLION DATA SYSTEMS, INC. CTI GROUP HOLDINGS, INC.
By:______________________________ By:_______________________________
Name:____________________________ Name:_____________________________
Title:___________________________ Title:____________________________
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FOURTH AMENDMENT TO AGREEMENT AND PLAN OF MERGER
This FOURTH AMENDMENT TO AGREEMENT AND PLAN OF MERGER is made this 26th
day of October, 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. In accordance with that First Amendment to Agreement and Plan of
Merger ("First Amendment") dated May 1, 2000, Centillion and CTI Group agreed to
amend the Termination Date to September 30, 2000.
C. Section 7.1(b) of the Agreement as amended by the First Amendment
provides that either Centillion or CTI Group may terminate the Agreement if the
Effective Time (as defined therein) does not occur on or before September 30,
2000 (the "Termination Date").
D. Exhibit "D" to the Agreement contains a promissory note to be
executed in favor of Centillion in an amount not to exceed $11,500,000 (the
"Note"). The Note includes a reference to an Exhibit "A" that contains a listing
of the collateral which secures repayment of the Note. Exhibit "A" was not
attached to the Note.
E. The parties hereto have mutually agreed to amend the Agreement to
reflect a new Termination Date and modify certain other terms of the Agreement,
subject to the conditions set forth herein.
NOW, THEREFORE, in consideration of the foregoing and intending to be
legally bound hereby, the parties hereto agree as follows:
1. Section 1.5(b) of the Agreement shall be deleted in its entirety and
replaced as follows:
(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) The shares of capital stock of Centillion issued
and outstanding immediately prior to the Effective
Time (the
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"Centillion Capital Stock"), shall be converted into
the following (the "Merger Consideration") pro rata,
on a per share equivalent basis:
(A) 13,295,837 shares of Class A Common Stock;
(B) 2,833,334 shares 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"); and
(D) Class A Common Stock equal in value to the
amount of Patent Proceeds (as defined in
Section 6.2(d)) reflected on Centillion's
balance sheet at the Effective Time, with
the number of shares to be issued to be the
number of shares with Class A Common Stock
valued at (i) the lower of $1.50 per share
or 88% of the Current Market Value of Class
A Common Stock at the Effective Time (for
the first 1 million shares of Class A Common
Stock so issued) and (ii) 88% of the Current
Market Value of the Class A Common Stock at
the Effective Time (beyond the first 1
million shares).
2. Section 1.14 of the Agreement shall be deleted in its entirety and
replaced as follows:
1.14 Intentionally Deleted.
3. Section 6.2 of the Agreement shall be amended as follows:
6.2(c)(i) shall be deleted in its entirety and replaced as
follows:
(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 (a) all
of its rights, title and interests to and arising
from U.S. Patent No. 5287270 and U.S. Patent No.
5325290 and all foreign patents listed on Exhibit "H"
attached hereto (the "Related Patents") plus, (b) all
of its causes of action, claims and counterclaims
relating to any
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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, (c) the SBC
Settlement Proceeds (less the cost of litigation
expenses, taxes and $3,000,000) (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".
6.2(d) shall be deleted in its entirety and replaced as follows:
(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 $8,000,000 less all expenditures made by
Centillion relating to the development of Billing
Business software (not to exceed $2,000,000) in
fiscal year 2000; (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) $8,000,000 of cash,
(y) the Shareholder LLC Promissory Note, and (z) the
Tracked Assets except that the book value at the
Effective Time of U.S. Patent No. 5289270, U.S.
Patent No. 5325290 and the Related Patents shall be
included as an asset in the calculation of net worth,
(v) all earnings of Centillion's Billing Business for
the period from January 1, 2000 to the Effective Time
and (vi) any proceeds received between October 1,
2000 and the Effective Time from parties who are
defendants under any patent litigation relating to
U.S. Patent No. 5287270 and U.S. Patent No. 5325290
(less the cost of litigation expenses and taxes
whether paid or reserved against )(the "Patent
Proceeds").
4. A new Section 6.2(h) shall be added to the Agreement, to read as
follows:
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(h) License Agreement. The LLC shall have executed an
irrevocable, perpetual, exclusive (except for
licenses that have been issued prior to the Effective
Time and/or licenses issued pursuant to any
settlement agreements relating to any patent
litigation), royalty-free license agreement
authorizing CTI Group to use U.S. Patent No. 5287270
and U.S. Patent No. 5325290 and Related Patents, in
form and substance satisfactory to CTI Group.
5. Section 6.3(f) shall be modified by replacing the reference to "not
below $1.26 per share" to "not below $.80 per share."
6. 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
January 31, 2001 (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;
7. Exhibit A of the Agreement shall be modified as follows:
Section 1 of Exhibit A shall be deleted in its entirety and
replaced as follows:
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) 47,166,666 common shares shall be
designated Class A Common Stock having a par
value of $0.01 per share (the "Class A
Common Stock"); and
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(ii) 2,833,334 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".
Section 3(a) of Exhibit A 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
(excluding the value attributed to U.S.
Patent No. 5287270, U.S. Patent No. 5325290
and the Related Patents), with the number of
shares into which the Class B Common Stock
will be converted to be determined as
follows: Class A Common Stock valued at the
lower of (i) $1.50 per share or 88% of then
Current Market Value of Class A Common Stock
(for the first 1 million shares of Class A
common Stock so issued less the number of
shares issued at the Effective Time pursuant
to Section 1.5(b)(i)(D) of the Merger
Agreement) or (B) 88% of the then Current
Market Value of the Class A Common Stock
(for any additional shares).
Section 3(b) of Exhibit "A" shall be deleted in its entirety
and replaced as follows:
(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 (i) in the first 31 days of the Interim
Conversion Period in the manner set forth in Section
3(a) above and (ii) during the remainder of the
Interim Conversion Period, the Class A Common Stock
shall be valued at 88% of
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the then Current Market Value of the Class A Common
Stock.
8. Exhibit "D" of the Agreement shall be deleted in its entirety and
replaced by the Exhibit "A" attached hereto.
9. Exhibit "H" attached hereto shall be added to the Agreement.
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:_________________________
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FIFTH AMENDMENT TO AGREEMENT AND PLAN OF MERGER
This FIFTH AMENDMENT TO AGREEMENT AND PLAN OF MERGER is made this 12th
day of January, 2001 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 January 31, 2001 (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 February 28, 2001 (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:_______________________________
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EXHIBIT "A"
SHAREHOLDER LLC PROMISSORY NOTE
not to exceed $10,000,000 Dated: ____ __, 200_
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 Ten
Million Dollars ($10,000,000), 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. Seven and One-half 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 included as part of the Collateral.
The Rate shall mean ____ percent (___%) per annum.**
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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.
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
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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.
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EXHIBIT "A"
(To Promissory Note)
o Six Hundred (600) Class A Units of CHS LLC, an Indiana limited liability
company for the sum of Fifty Thousand Dollars ($50,000).
o Three Thousand Three Hundred Forty-Two and 713/1,000 (3,342.713) Class A
Unit and One Hundred Thirty-Four and 670/1,000 (136.670) Class B Units of
e.Nova, LLC, an Indiana limited liability company for the sum of One
Million Seven Hundred Nineteen Thousand Seven Hundred Thirty Six Dollars
($1,719,736).
o Seventy Six and 268/1,000 (76.268) Class B Units of Lockerbie Vermont, LLC,
an Indiana limited liability company for Nineteen Thousand Eight Hundred
Dollar ($19,800).
o A note receivable to Clarity for the principle and accrued interest sum of
Two Hundred Sixty One Thousand Five Hundred Dollar ($261,500)
o One hundred percent (100%) of Centillion Digital Systems, Inc., an Indiana
corporation, for the sum of Nine Hundred Thousand Dollars ($900,000).
o A note receivable to Lavelle Engineering for the principle and accrued
interest sum of Fifty Thousand Twenty Four Dollars ($50,024).
o Accounts receivable from e.Nova, LLC and XILA, LLC in the amount of Three
Hundred Three Thousand Seven Hundred Seventy Three Dollars ($303,773).
o Fixed Assets in the from of furniture, leaseholder improvements, equipment,
supplies, etc. for the sum of Two Hundred Nine Thousand Six Hundred Thirty
Seven Dollars ($209,637).
o Prepaid expenses such as equipment maintenance, sporting tickets, etc, fo
the sum of Six Thousand Four Hundred Sixty Two Dollars ($6,462).
o Membership interest in the Hawthorne Golf and Country Club for Thirty Seven
Thousand Dollars ($37,000).
o Cash in the approximate amount of Six Million Five Hundred Thousand Dollar
(approximately $6,500,000).
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EXHIBIT "H"
FOREIGN PATENTS
1.1 European Pat. No. 541535 for BILLING SYSTEM WITH DATA INDEXING
1.2 French Pat. No. 541535 for BILLING SYSTEM WITH DAT INDEXING
1.3 German Pat. No. 69031044.7 for BILLING SYSTEM WITH DATA INDEXING
1.4 Italian Pat. No. 541535 for BILLING SYSTEM WITH DATA INDEXING
1.5 Netherlands Pat. No. 541535 for BILLING SYSTEM WIT DATA INDEXING
1.6 Spanish Pat. No. 541535 for BILLING SYSTEM WITH DATA INDEXING
1.7 British Pat. No. 541535 for BILLING SYSTEM WITH DATA INDEXING
1.8 Switzerland Pat. No. 541535 for BILLING SYSTEM WIT DATA INDEXING
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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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(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:
(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
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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 appraisa 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,
(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
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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 as follows:
Class A Common Stock shall receive the proportion represented by
(1) the net assets of the corporation without regard to the net assets
of Centillion LLC divided by (2) the net assets of the corporation.
Class B Common Stock shall receive the proportion represented by
(1) the net assets of Centillion LLC divided by (2) the net assets of
the corporation.
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 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.
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7. Relationship Between the Centillion Group and the Corporation.
The Directors of the Corporation shall require Centillio 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 its equity interest in the LLC; or (b) any grant of any pledge
or other security interest in fifty percent (50%) or more of the equity
interest of the Corporation in Centillion LLC.
"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-commencing 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 filled 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 committee, 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
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<PAGE>
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, LLC 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.
C-2
<PAGE>
ANNEX D
SHAREHOLDER LLC PROMISSORY NOTE
not to exceed $10,000,000 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 Ten
Million Dollars ($10,000,000), 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
D-1
<PAGE>
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.
D-1
<PAGE>
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-2
<PAGE>
Exhibit "A"
1. Six Hundred (600) Class A Units of CHS, LLC, an Indiana limited
liability company for the sum of Fifty Thousand Dollars ($50,000).
2. Three Thousand Three Hundred Forty-Two and 713/1,000 (3,342.713)
Class A Units and One Hundred Thirty-Four and 670/1,000 (136.670) Class B Units
of e.Nova, LLC, an Indiana limited liability company for the sum of One Million
Seven Hundred Nineteen Thousand Seven Hundred Thirty Six Dollars ($1,719,736).
3. Seventy Six and 268/1,000 (76.268) Class B Units of Lockerbie
Vermont, LLC, an Indiana limited liability company for Nineteen Thousand Eight
Hundred Dollars ($19,800).
4. A note receivable to Clarity for the principle and accrued interest
sum of Two Hundred Sixty One Thousand Five Hundred Dollars ($261,500)
5. One hundred percent (100%) of Centillion Digital Systems, Inc., an
Indiana corporation, for the sum of Nine Hundred Thousand Dollars ($900,000).
6. A note receivable to Lavelle Engineering for the principle and
accrued interest sum of Fifty Thousand Twenty Four Dollars ($50,024).
7. Accounts receivable from e.Nova, LLC and XILA, LLC in the amount of
Three Hundred Three Thousand Seven Hundred Seventy Three Dollars ($303,773).
8. Fixed Assets in the from of furniture, leaseholder improvements,
equipment, supplies, etc. for the sum of Two Hundred Nine Thousand Six Hundred
Thirty Seven Dollars ($209,637).
9. Prepaid expenses such as equipment maintenance, sporting tickets,
etc, for the sum of Six Thousand Four Hundred Sixty Two Dollars ($6,462).
10. Membership interest in the Hawthorne Golf and Country Club for
Thirty Seven Thousand Dollars ($37,000).
11. Cash in the approximate amount of Six Million Five Hundred Thousand
Dollars (approximately $6,500,000).
D-3
<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.
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
E-1
<PAGE>
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.
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.
E-2
<PAGE>
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 LLC
By:
------------------------------------
Manager
** The then applicable federal rate will be inserted at the time this
Note is executed.
E-3
<PAGE>
ANNEX F
October 18, 2000
CTI Group (Holdings) Inc.
2550 Eisenhower Avenue
Norristown, PA 19403
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. and reflective of all amendments issued,
executed and terms agreed to by the Board dated up to October 18, 2000.
We understand that holders of Centillion Data Systems Inc. common stock
will be entitled to exchange shares of Centillion Data Systems Inc. common stock
for 13,295,837 shares of CTI Group (Holdings) Inc. common stock for the
non-tracked assets of Centillion Data Systems Inc. and 2,833,334 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 three years ended March 31, 2000 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 fiscal quarters
ended September 30, 2000 and the unaudited financial information
provided by Centillion Data Systems Inc. for the three months ended
June 30, 2000;
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 services
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<PAGE>
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 as amended, employment agreements, promissory
notes and related documents dated February 4, 2000 as well as all
amendments issued, executed and terms agreed to by the Board up to
October 18, 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,
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;
c. Cash in lieu of fractional shares or fractional
depository receipts described in the foregoing subparagraphs
a. and b. of this paragraph; or
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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 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
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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
constituent 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 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
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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.
(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.
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(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
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
<TABLE>
<CAPTION>
Page
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<S> <C> <C> <C>
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
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
</TABLE>
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<TABLE>
<S> <C> <C> <C>
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
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
</TABLE>
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<TABLE>
<S> <C> <C> <C>
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
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
</TABLE>
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<TABLE>
<S> <C> <C> <C>
11.8 Counterparts..........................................................38
11.9 Severability..........................................................38
11.10 Interpretation........................................................38
11.11 Entire Agreement......................................................39
11.12 Jurisdiction..........................................................39
11.13 WAIVER OF JURY TRIAL..................................................39
11.14 Class A Common Stock..................................................39
</TABLE>
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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.
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
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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:
(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
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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.
(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
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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.
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
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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 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.
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
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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 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.
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(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.
(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.
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ARTICLE II
REPRESENTATIONS AND WARRANTIES OF COMPANY
Celltech and Principal Stockholder, jointly and severally, represent
and warrant to CTIG and Merger Sub as follows:
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.
(b) The provisions of Section 203 of the DGCL do not apply to
the transactions contemplated by this Agreement.
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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 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
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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;
(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;
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(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 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
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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.
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, 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.
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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.
(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
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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.
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
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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.
(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.
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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; (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
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ordinary course of business. All 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.
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
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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.
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.
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ARTICLE III
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 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.
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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
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 which they have received or, prior to the
Closing Date shall have received, appropriate consents or warranties.
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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:
(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.
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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.
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
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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 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;
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(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;
(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 an
Acquisition Transaction is received by Celltech and communicate to CTIG the
terms of any such proposal or offer.
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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 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.
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(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
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
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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 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.
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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:
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 true and correct on the date of this Agreement and at and on
the Closing Date as though such representations and warranties were
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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
(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.
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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.
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
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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.
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
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by the stockholders of Celltech, by action of 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)
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.
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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.
(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
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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
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
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Escrowed Stock 1.7
Exchange Act 1.18
Exchange Agent 1.9
Financial Statements 2.5
Form S-4 4.5
GAAP 2.5
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 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
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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 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
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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
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
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Valerie Hart
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
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, 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.
H-44
<PAGE>
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.
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.
H-45
<PAGE>
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:
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
---------------------------------------------------------
Richard J. Donnelly
Number of Shares of Celltech Common Stock Owned: 117.647
H-46
<PAGE>
EXHIBIT "A"
DAVID WARREN EMPLOYMENT AGREEMENT
Intentionally Omitted
H-47
<PAGE>
AMENDMENT TO AGREEMENT AND PLAN OF MERGER
THIS AMENDMENT TO AGREEMENT AND PLAN OF MERGER, dated as of October 26,
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 parties to this Amendment are parties to an Agreement and Plan of
Merger, dated as of April 5, 2000, pursuant to which Celltech will merger with
and into Merger Sub, a wholly- owned subsidiary of CTIG (the "Merger
Agreement").
The parties have mutually agreed to amend the Merger Agreement, as set
forth in this Amendment.
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:
1. Amendment. Section 1.17(b) is hereby deleted in its entirety and
replaced as follows:
(b) All releases of Escrowed Stock from escrow to 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.
2. Miscellaneous
(a) 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, 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.
H-48
<PAGE>
(b) 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.
(c) 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.
(d) Entire Agreement. All of the terms, conditions and
provisions of the Merger Agreement remain in full force and effect
without change as of the date of this Amendment, except as
expressly modified and amended by this Amendment. This Amendment
embodies the entire agreement and understanding of the parties
hereto in respect of the subject matter contained herein. There
are no representations, promises, warranties, covenants, or
undertakings, other than those expressly set forth or referred to
herein.
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:
CTI BILLING SOLUTIONS INC.
By:
--------------------------------------
Name:
Title:
[SIGNATURES CONTINUED ON NEXT PAGE]
H-49
<PAGE>
[SIGNATURES CONTINUED FROM PREVIOUS PAGE]
CELLTECH INFORMATION SYSTEMS, INC.
By:
--------------------------------------
David A. Warren
President
------------------------------------------
David A. Warren
------------------------------------------
Frank S. Scarpa
------------------------------------------
Valerie S. Hart
------------------------------------------
Richard J. Donnelly
H-50
<PAGE>
ANNEX I
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.
i. 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 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.
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<PAGE>
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.
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
I-2
<PAGE>
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 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.
I-3
<PAGE>
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 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-the-counter 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.
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<PAGE>
(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.
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 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
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<PAGE>
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:
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.
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<PAGE>
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, 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
I-7
<PAGE>
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 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.
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<PAGE>
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.
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 With 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.
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.
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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.
I-10
<PAGE>
ANNEX J
AMENDED AND RESTATED
LOAN AND SECURITY AGREEMENT
THIS AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT made this 26th
day of October, 2000 (the "Agreement"), is among CTI DATA SOLUTIONS, INC., a
corporation formed and existing under the laws of Delaware, with its principal
place of business at 2550 Eisenhower Avenue, Norristown, Pennsylvania 19403
("Data") and CTI DATA SOLUTIONS, LTD., a corporation formed under the laws of
the State of Delaware, with its Principal place of business at Nordic House, 120
High Street, Purley, Surrey CR8 2AD, United Kingdom ("Data UK") and CTI GROUP
(HOLDINGS) INC., a corporation formed and existing under the laws of the State
of Delaware, with its principal place of business at 2550 Eisenhower Avenue,
Norristown, PA 19403 ("Group" and together with Data and Data UK hereinafter
collectively referred to as, the "Borrowers"), and CENTILLION DATA SYSTEMS, INC.
(hereinafter referred to as, the "Lender"), a corporation formed and existing
under the laws of the State of Indiana, with its principal place of business at
333 North Alabama Street, Suite 240, Indianapolis, Indiana 46204 ("Lender's
Address") the address at which information concerning Lender's security
interests hereunder may be obtained.
Lender hereby agrees to lend Borrowers the principal sum of Five
Hundred Fifty Thousand Dollars ($550,000) (the "Loan"), the proceeds of which
shall be used for working capital and for general operating purposes. Each
Borrower hereby agrees to repay the proceeds of the Loan in accordance with the
terms of that certain Amended and Restated Promissory Note (the "Note") by and
among Borrowers and Lender dated the date hereof.
As security for the repayment of the Liabilities (as defined below),
each Borrower hereby grants to Lender a first prior perfected security interest
in and to all accounts (except for Data UK, which is granting to Lender a second
lien on accounts subordinate only to the first priority security interest
granted to National Westminster Bank (the "National Westminster Lien"))(as
defined in Article 9 of the Uniform Commercial Code), whether now existing or
hereafter arising in the future, including without limitation, all accounts
receivable of each Borrower created by or arising from the sale of goods or the
performing of services made under such Borrower's corporate name or any of such
Borrower's trade names (collectively, the "Collateral").
As used in this agreement, "Liability or Liabilities" means all present
and future obligations of the Borrowers to Lender, whether direct or indirect,
joint or several, otherwise secured or unsecured under the Loan and Note.
Each Borrower represents that its chief executive office, the
Collateral, and its books and records relating to the Collateral, are located at
the address set out in the first paragraph of this agreement.
The Borrowers covenants and agrees that Borrowers, or any of them, as
the case may be, will promptly notify Lender in writing of any changes in the
above location or locations. The Borrowers further represent that they do not
operate nor issue invoices under any trade name or other name.
The Borrowers covenants and agrees that they will promptly notify
Lender in writing if in the future any of them operate under any other trade
name.
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<PAGE>
Each Borrower represents and warrants that, except as specifically set
forth in Schedule A: (a) it is the sole owner of the Collateral, free from any
lien, security interest, charge or encumbrance other than the National
Westminster Lien; (b) it has not purchased any of the Collateral in a bulk
transfer; (c) it has the right to grant the security interest created by this
agreement; (d) no financing statements, or other instrument of similar effect,
covering all or any part of the Collateral is on file in any recording office
other than that in favor of Lender; (e) such Borrower is and will continue to be
eligible to do business and is otherwise in good standing in all jurisdictions
where it owns property or transacts business; (f) such Borrower is and will
continue to be in material compliance with all applicable laws, statutes, rules
and regulations, including without limitation, those concerning the environment,
employee pension and benefit plans and the payment of taxes, assessments and
other governmental charges; (g) it is not a party to any contracts to supply
items to the United States of America or any of its departments, agencies,
subdivisions or instrumentalities and (h) all statements, representations and
warranties made in this agreement or any other document delivered by such
Borrower to Lender are true, correct, complete and not misleading in all
material respects.
Each Borrower covenants and agrees that: (a) it will defend the
Collateral against the claims and demands of all persons; (b) it will not sell,
lease, encumber, remove, conceal, grant or permit any further security interest
in the Collateral, nor part with possession of any thereof, nor permit the same
to be used for hire, nor in violation of any law or ordinance; (c) it will pay
all taxes levied on the Collateral (unless contested in good faith), and will
make due and timely payment or deposit of all federal, state and local taxes,
assessments or contributions required by law and will execute and deliver to
Lender, on demand, appropriate certificates attesting to such payment or
deposit; (d) Lender is authorized, at Borrowers' expense, to conduct searches
and execute and file such financing statements and other instruments or
documents as may be necessary to perfect and protect Lender's security interest,
including without limitation, any documents necessary to perfect a subordinated
security interest in England against the Collateral of Data UK equivalent to a
security interest under Article 9 of the Uniform Commercial Code; (e) it will
join with Lender in doing whatever may be necessary under applicable law to
perfect Lender's security interest; and (f) it will immediately notify Lender,
in writing, of (1) the discovery, discharge or release of any hazardous
substance for which the Borrower is in any way responsible under the Spill
Compensation and Control Act or any similar federal or state statute, (2) the
existence of any event or condition which presents a risk of incurring a
material liability under ERISA (Public Law 93-406, as amended), (3) any change
of name by which such Borrower is registered, known by or conducting business
under, and (4) the occurrence or existence of any event, condition or fact which
may materially affect the financial condition of such Borrower.
The failure to make any payment due under the Note within thirty (30)
days of its due date or a breach of any of the representations, warranties or
covenants made herein or in the Note shall constitute an event of default.
Upon the occurrence of any event of default, Lender will provide
Borrower notice by certified mail, return receipt requested, to the address
above and Borrower shall have Ten (10) days from receipt thereof to cure such
default. In the event Borrower fails to cure such default, all Liabilities of
Borrowers shall immediately be due and payable and Lender may: (a) proceed, with
or without judicial process, to take possession of all or any part of the
Collateral; (b) assign, transfer and deliver at any time any portion of the
Collateral, including without limitation, by sale of the Collateral in such
manner, at such price and on such terms as Lender may deem best; (c) upon proper
notice, elect to retain the Collateral in satisfaction of all Liabilities; (d)
add to the Liabilities reasonable attorney's fees directly related to the
documentation and administration of this Loan Security Agreement and underlying
Note; and (e) pursue any remedy available to it by law or equity, including
without limitation, all rights and remedies granted to a secured party under the
Uniform Commercial Code, or under any other agreement between Borrowers and
Lender. Each Borrower agrees that upon receipt of notice from Lender demanding
J-2
<PAGE>
possession of the Collateral, such Borrower will do everything necessary to
assemble the Collateral and make it available to Lender at the place designated
by Lender. Each Borrower waives any and all rights it may have to notice or a
hearing (by court proceedings or otherwise) to determine Lender's right to
obtain possession of the Collateral. Any sale of the Collateral may be public or
private and at such price or prices as Lender may deem best. To the extent
permitted by law, each Borrower waives any right to notice of any sale or other
disposition of the Collateral. Each Borrower's rights under all licenses and
franchise agreements shall inure to Lender's benefit. Each Borrower agrees that
a reasonable means of disposition of Accounts shall be for Lender to hold and
liquidate any and all Accounts. In the event of a sale or other disposition of
the Collateral, the Lender shall apply all proceeds first to all costs and
expenses of disposition, including reasonable attorney's fees, and then to the
Liabilities. Any required notification of a sale or other disposition of the
Collateral or of any action by Lender will be sufficient and reasonable if given
personally or mailed not less than five (5) days prior to the day on which the
action is to be taken.
Borrowers acknowledge and confirm that as of October 26, 2000, they are
indebted to Lender, without defense, set-off or counter-claim under the Loan and
Security Agreement and Promissory Note each dated September 13, 2000 (the
"Existing Loan Documents") in the principal amount of Two Hundred and Fifty
Thousand Dollars ($250,000) ("Existing Indebtedness"). This Agreement amends and
restates the agreements or documents heretofore securing the Existing
Indebtedness. The Existing Indebtedness shall be deemed to constitute a loan
hereunder and Borrowers shall be jointly and severally, absolutely and
unconditionally liable for the repayment of such loan in accordance with the
terms hereof. The execution and delivery of this Agreement, however, does not
evidence or represent a refinancing, repayment, accord and/or satisfaction or
novation of the Existing Indebtedness. All liens and security interests
previously granted for the benefit of Lender, pursuant to the Existing Loan
Documents are acknowledged and reconfirmed and remain in full force and effect
and are not intended to be released, replaced or impaired.
Lender shall not be deemed to waive, by any act, delay, omissions or
otherwise, any of its rights or remedies hereunder unless such waiver is in
writing and signed by Lender and then only to the extent specifically set forth
therein. A waiver in one event shall not be continuing or a bar to or waiver of
such right or remedy on a subsequent event. Any waiver by Lender of any
provision of this agreement shall not discharge any Obligor. Any rights and
remedies provided for in this agreement may be exercised singly or concurrently.
Each Borrower waives presentment for payment, demand, notice of
nonpayment, notice of protest, and protest of all commercial paper at any time
held by Lender on which such Borrower is in any way liable. Each Borrower
consents to any and all extensions of time, renewals, waivers, or modifications
that may be granted by Lender with respect to the payment or other provisions of
any such commercial paper, and to the release of any Collateral, with or without
substitution, and to the release of any party against which such Borrower has a
right of recourse. Each Borrower agrees (a) that a breach of any covenants
contained in this agreement will cause irreparable injury to Lender, (b) that
Lender has no adequate remedy at law, and (c) that every covenant shall be
specifically enforceable.
Each Borrower acknowledges that this is a continuing security agreement
which shall remain effective until all obligations under the Loan and Note are
paid in full. Lender shall execute any reasonable documents requested by
Borrower to evidence the termination of this Agreement upon such payment in
full.
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<PAGE>
This agreement shall be governed, construed and interpreted in
accordance with the laws of Pennsylvania without giving effect to principles of
conflicts of laws. The exclusive forum for any legal proceeding arising out of
or related to this agreement shall be the Courts of the Commonwealth of
Pennsylvania or the United States District Court, Eastern District of
Pennsylvania. The Borrowers and Lender each hereby irrevocably consent to the
jurisdiction of said courts and waive any right to a jury trial on any issue on
which the Borrowers and Lender are in an adverse position. In the event any
provision of this agreement shall be held invalid or unenforceable, such holding
shall not invalidate or render unenforceable any other provision. This
agreement, including its covenants and warranties, shall be binding upon and
inure to the benefit of the Borrowers and Lender and their respective successors
and assigns; it shall be in addition to, and not in substitution of, any
evidence of liability or any other agreement between the Borrowers and Lender,
all of which shall be construed as one instrument.
CTI GROUP (HOLDINGS) INC.
By:
-------------------------------------
Anthony P. Johns
Title:
----------------------------------
CTI DATA SOLUTIONS, INC.
By:
-------------------------------------
Anthony P. Johns
Title:
----------------------------------
CTI DATA SOLUTIONS, LTD.
By:
-------------------------------------
Anthony P. Johns
Title:
---------------------------------
CENTILLION DATA SYSTEMS, INC.
By:
-------------------------------------
John M. Cauffman, President
J-4
<PAGE>
ANNEX K
AMENDED AND RESTATED
PROMISSORY NOTE
$550,000 Dated: October 26, 2000
FOR VALUE RECEIVED and intending to be legally bound hereby, CTI GROUP
(HOLDINGS) INC., a Delaware corporation ("Group"), CTI DATA SOLUTIONS, LTD., a
Delaware corporation ("Data UK") and CTI DATA SOLUTIONS, INC., a Delaware
corporation ("Data", and together with Group and Data UK collectively referred
to as, the "Maker"), hereby, jointly and severally, promises to pay to the order
of CENTILLION DATA SYSTEMS, INC. (the "Payee") the maximum Principal Sum of Five
Hundred Fifty Thousand Dollars ($550,000), together with interest and reasonable
attorneys' fees thereon on the unpaid portion at the Rate.
Principal and Interest and reasonable attorneys' fees shall be paid
upon the earlier to occur of the following:
1. Upon demand at the closing of the merger between Maker and
Payee (the "Closing") pursuant to that certain Agreement and
Plan of Merger executed by and between Maker and Payee (the
"Merger Agreement") dated February 3, 2000; or
2. September 12, 2001 (the "Maturity Date").
In the event that this Note is paid contemporaneously with or as a
result of the Closing as provided for above, this Note shall be marked
discharged and satisfied and the outstanding principal and accrued interest due
hereunder shall be applied towards the requirement that Centillion have
$8,000,000 in cash less all expenditures made by Centillion relating to the
development of Billing Software on its books at the time of the Closing as
provided for in Sections 6.2(d)(ii) and 6.2(d)(iv)(x) of the Merger Agreement.
All sums realized by the Maker on account of this Note, from whatever
source received, shall be applied first to any reasonable and substantiated
fees, costs and expenses (including reasonable attorney's fees) incurred by the
Maker directly related to the documentation and administration of this Note,
second to accrued and unpaid interest, and then to principal.
As security for this Note, each Maker hereby grants, conveys, and
assigns to the Payee a security interest in and to all accounts (as defined in
Article 9 of the Uniform Commercial Code), whether now existing or hereafter
arising in the future, including without limitation all accounts receivable of
such Maker created by or arising from the sale of goods or the performing of
services made under such Makers's corporate name or any of such Maker's trade
names (collectively, the "Collateral").
The nonpayment when due of any amount payable under this Note within
thirty (30) days after the date due or the material breach of any
representations, warranties or covenants contained herein or in the Amended and
Restated Loan and Security Agreement by and among Maker and Payee (the "Loan
Agreement") dated the date hereof 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, in addition to those rights granted under
the Loan Agreement, have the right to sell all or
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<PAGE>
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 included as part of the
Collateral.
The Rate shall mean Ten percent (10%) 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, Maker will provide Payee notice by certified
mail return receipt requested to the below address and Maker shall have Ten (10)
days from the receipt thereof to cure any such default. In the event Maker fails
to cure said 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 Maker 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 Maker on demand for all reasonable attorneys' fees, costs
and expenses incurred by the Maker in connection with any of the foregoing. The
Maker shall also be liable and shall also reimburse the Maker on demand for all
other reasonable, substantiated costs and expenses (including reasonable
attorney's fees) incurred by the Maker in connection with the enforcement of the
Obligations.
No extension of time for payment granted by the Maker 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 Maker 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 Maker under this Note. No delay by the Maker
in exercising any power or right shall operate as a waiver of any power or right
held by the Maker. 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 Maker shall not operate as a waiver of any subsequent
default, or grounds for acceleration of any power or right that the Maker 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 Maker, and appended hereto.
This Note amends and restates, but does not extinguish the indebtedness
evidenced by that certain Promissory Note given by Data to Payee dated September
13, 2000 in the original amount of Two Hundred Fifty Thousand Dollars
($250,000), as same may have been amended, supplemented or replaced from time to
time. Upon receipt of an executed copy of this Note, Payee shall mark the
aforementioned note canceled and return it to Maker.
This Note and all questions relating to its validity, interpretation,
performance, remediation and enforcement (including, without limitation,
provisions concerning limitations of actions) shall be
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<PAGE>
governed by and construed in accordance with the domestic laws of the
Commonwealth of Pennsylvania, 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. EACH 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 MAKER. EACH 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, each Maker has caused this instrument to be
executed on its behalf by its duly authorized officer, on the date first set
forth above.
CTI GROUP (HOLDINGS) INC.
By:
-------------------------------------
Anthony P. Johns
Title:
----------------------------------
CTI DATA SOLUTIONS, INC.
By:
-------------------------------------
Anthony P. Johns
Title:
----------------------------------
CTI DATA SOLUTIONS, LTD.
By:
-------------------------------------
Anthony P. Johns
Title:
----------------------------------
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<PAGE>
CTI Group (Holdings) Inc.
PROXY
Solicited on Behalf of the Board of Directors for the
Special Meeting of Stockholders to be held on
February 9, 2001, 10:00 a.m., local time.
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 on February 9, 2001, 10:00 a.m., 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 either Class A Common
Stock or 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 to the 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 CTI 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 vote 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 January 18, 2000, relating to the
special meeting.
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Signature
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Signature
Dated , 2001
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.
