<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 7, 2000
REGISTRATION NO. 333-37170
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------------
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
(AMENDMENT NO. 1)
--------------------------
COMVERSE TECHNOLOGY, INC.
(Exact name of registrant as specified in its charter)
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NEW YORK 4832 13-3238402
(State or other jurisdiction (Primary Standard (I.R.S. Employer
of Industrial Identification Number)
incorporation or organization) Classification Code Number)
</TABLE>
170 CROSSWAYS PARK DRIVE, WOODBURY, NEW YORK 11797
(516) 677-7200
(Address, including ZIP code, and telephone number, including
area code, of registrant's principal executive offices)
WILLIAM F. SORIN
GENERAL COUNSEL AND CORPORATE SECRETARY
COMVERSE TECHNOLOGY, INC.
170 CROSSWAYS PARK DRIVE
WOODBURY, NEW YORK 11797
(516) 677-7200
(Name, Address, including zip code, and telephone number, including area code,
of agent for service)
--------------------------
COPIES TO:
STEPHEN M. BESEN, ESQ.
WEIL, GOTSHAL & MANGES LLP
767 FIFTH AVENUE
NEW YORK, NY 10153-0119
(212) 310-8000
--------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement and the
effective time of the merger (the "Merger") of Comverse Acquisition Corp., a
direct-wholly owned subsidiary of Comverse Technology, Inc. ("Comverse") with
and into Loronix Information Systems, Inc. ("Loronix") pursuant to the Agreement
and Plan of Merger, dated as of March 5, 2000, attached as Annex A to the Joint
Proxy Statement/ Prospectus forming a part of this Registration Statement.
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box: / /
--------------------------
CALCULATION OF REGISTRATION FEE
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<CAPTION>
PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT TO OFFERING PRICE AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED BE REGISTERED(1) PER SHARE OFFERING PRICE(2) REGISTRATION FEE(3)
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Common Stock, par value $.10 per share...... 2,169,163 Not Applicable $147,017,093 $38,813
</TABLE>
(1) Based upon the maximum number of shares to be issued in connection with the
Merger, calculated as the product of (a) 5,634,188 the aggregate number of
shares of Loronix Common Stock, par value $.001 per share ("Loronix Common
Stock") outstanding on a fully diluted basis as of April 28, 2000 or
issuable pursuant to outstanding options prior to the consummation of the
Merger and (b) an exchange ratio of 0.385 shares of Comverse Common Stock
for each share of Loronix Common Stock.
(2) Estimated solely for purposes of calculating the registration fee required
by Section 6(b) of the Securities Act of 1933, as amended (the "Securities
Act"), and calculated pursuant to Rule 457(f) under the Securities Act.
Pursuant to Rule 457(f)(1) under the Securities Act, the proposed maximum
aggregate offering price of the Comverse Common Stock was calculated in
accordance with Rule 457(c) under the Securities Act as: (a) $26.09375, the
average of the high and low prices per share of Loronix Common Stock on
May 10, 2000 as reported in public financial sources, multiplied by
(b) 5,634,188 , the aggregate number of shares of Loronix Common Stock
outstanding as of April 28, 2000 or issuable pursuant to outstanding options
prior to the consummation of the Merger. This amount was then multiplied by
.000264.
(3) Pursuant to Rule 457(b) under the Securities Act and Rule 0-11(a)(2) under
the Securities Exchange Act of 1934, as amended (the "Exchange Act"), the
total registration fee of $38,813 (reduced in amount by $31,233.83, the
filing fee paid pursuant to Exchange Act Rule 0-11 in connection with the
filing of the preliminary proxy materials of Loronix with the Securities and
Exchange Commission on May 3, 2000) was paid on May 16, 2000, upon the
initial filing of the Registration Statement.
--------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME EFFECTIVE
ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A), MAY
DETERMINE.
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<PAGE>
PRELIMINARY PROXY STATEMENT--SUBJECT TO COMPLETION
[LORONIX LOGO]
A MERGER PROPOSAL--YOUR VOTE IS VERY IMPORTANT
TO THE STOCKHOLDERS OF LORONIX INFORMATION SYSTEMS, INC.:
On March 6, 2000, Loronix Information Systems, Inc.'s board of directors
approved a merger agreement by and among Comverse Technology, Inc., Comverse
Acquisition Corp., a direct, wholly-owned subsidiary of Comverse, and Loronix.
The merger agreement provides for the merger of Comverse Acquisition with and
into Loronix, with Loronix being the surviving corporation and a direct,
wholly-owned subsidiary of Comverse following the merger.
In the merger, each share of your Loronix common stock, and all associated
rights under the Loronix Preferred Shares Rights Agreement, will be exchanged
for 0.385 shares of Comverse common stock. Comverse common stock is listed on
the Nasdaq National Market under the trading symbol "CMVT."
The merger cannot be completed unless the holders of a majority of Loronix
common stock entitled to vote approve the merger agreement. We have picked
June 8, 2000, as the record date for voting on the merger. Only stockholders who
were holders of Loronix common stock at the close of business on June 8, 2000,
will be entitled to vote at the special meeting.
AFTER CAREFUL CONSIDERATION, YOUR BOARD OF DIRECTORS DETERMINED THE MERGER
TO BE ADVISABLE AND FAIR TO YOU AND IN YOUR BEST INTERESTS. YOUR BOARD OF
DIRECTORS ADOPTED THE MERGER AGREEMENT AND RECOMMENDS THAT YOU VOTE TO APPROVE
IT.
This proxy statement/prospectus provides you with detailed information
concerning Comverse and the proposed merger. Please give all of the information
contained in this proxy statement/prospectus your careful attention. IN
PARTICULAR, YOU SHOULD CAREFULLY CONSIDER THE DISCUSSION IN THE SECTION OF THIS
PROXY STATEMENT/PROSPECTUS ENTITLED "RISK FACTORS" BEGINNING ON PAGE 18.
Please use this opportunity to take part in the affairs of Loronix by voting
on the approval of the merger agreement. Whether or not you plan to attend the
meeting, please complete, sign, date and return the accompanying proxy in the
enclosed self-addressed, stamped envelope. Returning the proxy does NOT deprive
you of your right to attend the meeting and to vote your shares in person. YOUR
VOTE IS VERY IMPORTANT.
We appreciate your interest in Loronix and consideration of this matter.
[LOGO]
David Ledwell,
PRESIDENT, CHIEF EXECUTIVE OFFICER,
AND MEMBER OF THE BOARD OF DIRECTORS
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THE SHARES OF COMVERSE COMMON STOCK TO
BE ISSUED IN CONNECTION WITH THE MERGER OR DETERMINED WHETHER THIS PROXY
STATEMENT/PROSPECTUS IS ADEQUATE OR ACCURATE. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE. This proxy statement/prospectus is dated June 7, and was
first mailed to stockholders on or about June 12, 2000.
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Loronix Information 820 Airport Road, Telephone: (970) 259-6161
Systems, Inc. Durango, Colorado 81301 Facsimile: (970) 259-9399
</TABLE>
<PAGE>
LORONIX INFORMATION SYSTEMS, INC.
820 AIRPORT ROAD
DURANGO, CO 81301
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
Date: July 12, 2000
Time: 9:00 a.m.
Place: Strater Hotel
699 Main Avenue
Durango, Colorado 81301
At the meeting you will be asked:
1. To consider and vote upon a proposal to approve the Agreement and Plan
of Merger, dated as of March 5, 2000, by and among Comverse Technology, Inc.,
Comverse Acquisition Corp., a direct, wholly-owned subsidiary of Comverse, and
Loronix, pursuant to which Comverse Acquisition will merge with and into Loronix
and Loronix will survive the merger as a direct, wholly-owned subsidiary of
Comverse. In the merger, holders of outstanding shares of Loronix common stock,
$0.001 par value per share, will receive 0.385 shares of Comverse common stock,
$0.10 par value per share, for each share of Loronix common stock they hold,
together with all associated rights under the Loronix Preferred Shares Rights
Agreement. Approval of the merger agreement will also constitute approval of the
merger and the other transactions contemplated by the merger agreement.
2. To transact such other business as may properly come before the special
meeting or any adjournment of the special meeting.
The attached proxy statement/prospectus contains a more complete description
of these items of business. Only holders of record of Loronix common stock at
the close of business on June 8, 2000, the record date, are entitled to vote on
the matters listed in this notice of special meeting. You may vote in person at
the Loronix special meeting even if you have returned a proxy.
By Order of the board of directors of
Loronix Information Systems, Inc.
[LOGO]
Jonathan Lupia,
CHIEF OPERATING OFFICER,
CHIEF FINANCIAL OFFICER AND SECRETARY
Durango, Colorado June 7, 2000
TO ASSURE THAT YOUR SHARES ARE REPRESENTED AT THE MEETING, AND WHETHER OR
NOT YOU PLAN TO ATTEND, PLEASE COMPLETE, DATE AND SIGN THE ENCLOSED PROXY AND
MAIL IT PROMPTLY IN THE PRE-ADDRESSED, POSTAGE PREPAID ENVELOPE PROVIDED. YOU
CAN REVOKE YOUR PROXY AT ANY TIME BEFORE IT IS VOTED.
<PAGE>
TABLE OF CONTENTS
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PAGE
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WHERE YOU CAN FIND MORE INFORMATION......................... 1
QUESTIONS AND ANSWERS ABOUT THE MERGER...................... 3
SUMMARY..................................................... 5
RECENT DEVELOPMENTS......................................... 10
SELECTED HISTORICAL FINANCIAL DATA.......................... 12
COMPARATIVE PER SHARE DATA.................................. 15
COMPARATIVE PER SHARE MARKET PRICE DATA..................... 16
RISK FACTORS................................................ 18
THE SPECIAL MEETING......................................... 25
Date, Time, Place and Purpose of the Special Meeting...... 25
Stockholder Record Date for the Special Meeting and
Outstanding Shares...................................... 25
Vote of Loronix Stockholders Required for Approval of the
Merger.................................................. 25
Proxies................................................... 25
Proxy Solicitation........................................ 26
Availability of Accountants............................... 26
THE MERGER AND RELATED TRANSACTIONS......................... 27
Background of the Merger.................................. 27
Loronix's Reasons for the Merger.......................... 30
Recommendation of Loronix's Board of Directors............ 33
Opinion of Loronix's Financial Advisor.................... 33
Interests of Certain Loronix Directors, Officers and
Affiliates in the Merger................................ 41
Completion and Effectiveness of the Merger................ 43
United States Federal Income Tax Considerations of the
Merger.................................................. 43
Accounting Treatment of the Merger........................ 45
Regulatory Filings and Approvals Required to Complete the
Merger.................................................. 45
Restrictions on Sales of Shares by Affiliates of Loronix
and Comverse............................................ 46
Listing on the Nasdaq National Market of Comverse Common
Stock to be Issued in the Merger........................ 46
Dissenters' Rights of Appraisal........................... 46
De-Listing and De-Registration of Loronix Common Stock
after the Merger........................................ 47
Dividend Policy........................................... 47
THE MERGER AGREEMENT AND RELATED AGREEMENTS................. 48
The Merger................................................ 48
Merger Consideration...................................... 48
Exchange of Shares........................................ 49
Treatment of Loronix Options.............................. 49
Conditions to Completion of the Merger.................... 49
Representations and Warranties............................ 50
Covenants................................................. 51
Additional Agreements..................................... 54
No-Shop Provisions........................................ 54
Waiver and Amendment of the Merger Agreement.............. 54
Termination of the Merger Agreement....................... 55
Payment of Termination Fee and Expenses................... 56
The Stock Option Agreement................................ 56
Voting Agreements......................................... 59
Affiliate Agreements...................................... 59
</TABLE>
i
<PAGE>
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PAGE
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Amendment to the Preferred Shares Rights Agreement........ 59
Operations after the Merger............................... 60
UNAUDITED PRO FORMA FINANCIAL INFORMATION................... 61
COMPARISON OF RIGHTS OF HOLDERS OF LORONIX COMMON STOCK AND
HOLDERS OF COMVERSE COMMON STOCK.......................... 67
SHARE OWNERSHIP BY PRINCIPAL STOCKHOLDERS, MANAGEMENT AND
DIRECTORS OF LORONIX...................................... 75
LEGAL MATTERS............................................... 77
EXPERTS..................................................... 78
STOCKHOLDER PROPOSALS IF THE MERGER IS NOT COMPLETED........ 79
ADDITIONAL STATEMENTS....................................... 80
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING
INFORMATION............................................... 81
Annex A--Copy of Agreement and Plan of Merger............... A-1
Annex B--Copy of Stock Option Agreement..................... B-1
Annex C--Form of Voting Agreement........................... C-1
Annex D--Copy of Opinion of Broadview International LLC..... D-1
</TABLE>
ii
<PAGE>
WHERE YOU CAN FIND MORE INFORMATION
THIS PROXY STATEMENT/PROSPECTUS INCORPORATES DOCUMENTS BY REFERENCE WHICH
ARE NOT PRESENTED IN OR DELIVERED WITH THIS PROXY STATEMENT/PROSPECTUS.
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS DOCUMENT OR THAT
COMVERSE OR LORONIX HAVE REFERRED TO. NEITHER COMVERSE NOR LORONIX HAS
AUTHORIZED ANYONE TO PROVIDE YOU WITH INFORMATION THAT IS DIFFERENT.
All documents filed by Comverse or Loronix pursuant to Section 13(a), 13(c),
14 or 15(d) of the Securities Exchange Act of 1934, as amended, after the date
of this proxy statement/prospectus and before the date of the special meeting
are incorporated by reference into and deemed to be a part of this proxy
statement/prospectus from the date of filing of those documents.
The following documents, which were filed by Loronix with the Securities and
Exchange Commission, are incorporated by reference into this proxy
statement/prospectus:
- Loronix's Annual Report on Form 10-KSB for the fiscal year ended
December 31, 1999.
- Loronix's Quarterly Report on Form 10-QSB for the quarter ended
March 31, 2000.
The following documents, which have been filed by Comverse with the
Securities and Exchange Commission, are incorporated by reference into this
proxy statement/prospectus:
- Comverse's Description of its common stock contained in its
registration statement on Form 8-A filed with the SEC on March 17,
1987, as amended.
- Comverse's Annual Report on Form 10-K for the year ended January 31,
2000.
- Comverse's Amended Annual Report on Form 10-K/A for the year ended
January 31, 2000.
Any statement contained in a document incorporated or deemed to be
incorporated by reference into this proxy statement/prospectus will be deemed to
be modified or superseded for purposes of this proxy statement/prospectus to the
extent that a statement contained in this proxy statement/prospectus or any
other subsequently filed document that is deemed to be incorporated by reference
into this proxy statement/prospectus modifies or supersedes the statement. Any
statement so modified or superseded will not be deemed, except as so modified or
superseded, to constitute a part of this proxy statement/prospectus.
The documents incorporated by reference into this proxy statement/prospectus
are available from Comverse or Loronix upon request and copies of any and all of
the information that is incorporated by reference in this proxy
statement/prospectus, not including exhibits to the information unless those
exhibits are specifically incorporated by reference into this proxy
statement/prospectus, will be provided to any person without charge, upon
written or oral request. ANY REQUEST FOR DOCUMENTS SHOULD BE MADE BY JUNE 30,
2000, TO ENSURE TIMELY DELIVERY OF THE DOCUMENTS REQUESTED.
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Requests for documents relating to Loronix Requests for documents relating to Comverse
should be directed to: should be directed to:
Loronix Information Systems, Inc. Comverse Technology, Inc.
820 Airport Road 170 Crossways Park Drive
Durango, Colorado 81301 Woodbury, New York 11797
Attention: Investor Relations Attention: Investor Relations
(970) 259-6161 (516) 677-7200
</TABLE>
1
<PAGE>
Both Comverse and Loronix file reports, proxy statements and other
information with the Securities and Exchange Commission. Copies of those
reports, proxy statements and other information may be inspected and copied at
the public reference facilities maintained by the SEC at:
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Judiciary Plaza Citicorp Center Seven World Trade Center
Room 1024 500 West Madison Street 13th Floor
450 Fifth Street, N.W. Suite 1400 New York, New York 10048
Washington, D.C. 20549 Chicago, Illinois 60661
</TABLE>
Reports, proxy statements and other information concerning both Loronix and
Comverse may also be inspected at The National Association of Securities
Dealers, 1735 K Street, N.W., Washington, D.C. 20006.
Copies of these materials can also be obtained by mail at prescribed rates
from the Public Reference Section of the Securities and Exchange Commission,
450 Fifth Street, N.W., Washington, D.C. 20549 or by calling the SEC at
(800) SEC-0330. The SEC maintains a website that contains reports, proxy
statements and other information regarding each of Comverse and Loronix. The
address of the SEC website is "http://www.sec.gov."
Comverse has filed a registration statement on Form S-4 under the Securities
Act with the SEC with respect to Comverse's common stock to be issued to Loronix
stockholders in the merger. This proxy statement/prospectus constitutes the
prospectus of Comverse filed as part of the registration statement. This proxy
statement/prospectus does not contain all of the information set forth in the
registration statement because parts of the registration statement are omitted
in accordance with the rules and regulations of the SEC. The registration
statement and its exhibits are available for inspection and copying as set forth
above.
If you have any questions about the merger, please call Loronix Investor
Relations at (970) 259-6161. You may also call Comverse Investor Relations at
(516) 677-7200. You may call either investor relations number during normal
business hours at any time before the special meeting to obtain the prior day's
closing market quotations of Loronix common stock and Comverse common stock.
2
<PAGE>
QUESTIONS AND ANSWERS ABOUT THE MERGER
Q: WHEN AND WHERE IS THE STOCKHOLDER MEETING?
A: The meeting will take place on July 12, 2000, in Durango, Colorado. The
exact location for the meeting can be found on page 25.
Q: WHAT DO I NEED TO DO NOW?
A: After carefully reading and considering the information contained in this
document, the attachments to this documents, and the documents referred to in
this document, please fill out, sign and mail your signed proxy card in the
enclosed return envelope as soon as possible so that we may vote your shares at
the special meeting of our stockholders.
In order to assure that we obtain your vote, please give your proxy as
instructed on your proxy card, even if you currently plan to attend the meeting
in person.
Q: WHAT IF I DON'T INDICATE HOW TO VOTE MY PROXY?
A: If you do not include instructions on how to vote your properly signed
proxy, your shares will be voted FOR adoption of the merger agreement and
approval of the merger.
Q: WHAT IF I DON'T RETURN A PROXY CARD?
A: Not returning your proxy card will have the same effect as voting against
the merger.
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 to our Secretary stating that you would like to revoke your
proxy. Second, you can complete and submit a new proxy card.
Third, you can attend the special meeting, file a written notice of revocation
of your proxy with our Secretary and vote in person. Your attendance alone will
not revoke your proxy.
Q: IF MY SHARES ARE HELD IN "STREET NAME" BY MY BROKER, WILL MY BROKER VOTE MY
SHARES FOR ME?
A: No. Your broker will not be able to vote your shares without instructions
from you. If you do not provide your broker with voting instructions, your
shares will be considered present at the special meeting for purposes of
determining a quorum, but will not be considered to have been voted in favor of
adoption of the merger agreement and will have the same effect as voting against
the merger. If you have instructed a broker to vote your shares, you must follow
directions received from your broker to change those instructions.
Q: SHOULD I SEND IN MY STOCK CERTIFICATES NOW?
A: No. After the merger is completed, Comverse and/or its exchange agent will
send you written instructions for exchanging your stock certificates.
Q: WHAT WILL I RECEIVE IN THE MERGER?
A: If the merger is completed, you will receive 0.385 shares of Comverse common
stock for each share of our common stock that you own. Please note that this is
different than the ratio stated in the merger agreement, since it gives effect
to a two-for-one stock split by Comverse completed on April 3, 2000, after the
date on which Comverse and Loronix entered into the merger agreement.
Comverse will not issue fractional shares of common stock, but will pay you cash
in lieu of fractional shares.
The number of shares of Comverse common stock to be issued for each of our
shares will be fixed. However, if the value of the merger consideration, based
on the average per share closing price of Comverse common stock for the five
consecutive trading days ending on the third trading day prior to the effective
time of the merger, is less than $36 per Loronix share, we will have the right
to notify Comverse of our desire to terminate the merger agreement. Comverse
will then have the right to proceed with the merger by increasing the exchange
ratio so that the merger consideration equals $36 per
3
<PAGE>
Loronix share. If Comverse does not increase the exchange ratio, the merger
agreement would terminate and we would have no further obligation to consummate
the merger.
If the merger were to become effective on the date of this proxy
statement/prospectus, the merger consideration would be $34.70 based on the
average per share closing price of Comverse common stock for the five
consecutive trading days ending on June 2, 2000, the third trading day prior to
the date of this proxy statement/ prospectus.
We do not know whether we will exercise our right to seek to terminate the
merger agreement if the value of the merger consideration is below $36 per
Loronix share. If under these circumstances we do not exercise this right, then
you will receive Comverse common stock valued at less than $36 per Loronix
share.
If we do exercise our right to seek to terminate, we do not know if Comverse
will exercise its right to increase the exchange ratio to adjust the merger
consideration to $36 per Loronix share. If Comverse does not exercise that
right, the merger agreement will terminate.
Your approval of the merger agreement, therefore, will give us discretion in the
event that the consideration to be received is less than $36 per Loronix share,
to seek to terminate the merger and to take the risk that Comverse may or may
not elect to increase the exchange ratio to adjust the merger consideration to
$36 per Loronix share. We will also have the right not to seek to terminate the
merger, in which case you would receive less than $36 per share.
Q: WHEN CAN I EXPECT THE MERGER TO BE COMPLETE?
A: We are working toward completing the merger as quickly as possible. We hope
to complete the merger prior to July 31, 2000.
Q: WILL I RECOGNIZE A GAIN OR LOSS ON THE TRANSACTION?
A: In the opinion of our counsel and Comverse's counsel, the merger will
qualify as a tax-free reorganization for federal income tax purposes.
Accordingly, the exchange of your shares for Comverse shares generally will not
cause you to recognize any gain or loss for federal income tax purposes. You
may, however, have to recognize gain or loss in connection with any cash you
receive in lieu of fractional shares. You should consult with your independent
tax adviser concerning your particular situation, as well as with regard to
state and foreign laws that might affect you, as a result of the merger.
Q: AM I ENTITLED TO DISSENTERS' RIGHTS OF APPRAISAL?
A: You will not have the right under Nevada law to dissent from the merger,
request an appraisal of the value of your shares, and have them purchased by
Loronix.
Q: WHO CAN HELP ANSWER MY QUESTIONS?
A: You can write or call Loronix's Investor Relations at 820 Airport Road,
Durango, Colorado 81301, telephone (970) 259-6161, with any questions about the
merger or the merger agreement.
4
<PAGE>
SUMMARY
THIS SUMMARY HIGHLIGHTS SELECTED INFORMATION FROM THIS DOCUMENT AND MAY NOT
CONTAIN ALL OF THE INFORMATION THAT IS IMPORTANT TO YOU. TO UNDERSTAND THE
MERGER MORE FULLY AND FOR A MORE COMPLETE DESCRIPTION OF THE LEGAL TERMS OF THE
MERGER, YOU SHOULD READ THIS DOCUMENT AND THE DOCUMENTS WE HAVE REFERRED YOU TO
CAREFULLY, INCLUDING THE MERGER AGREEMENT, THE STOCK OPTION AGREEMENT, THE FORM
OF VOTING AGREEMENT AND THE FAIRNESS OPINION OF BROADVIEW INTERNATIONAL LLC,
COPIES OF WHICH ARE ATTACHED AS ANNEXES A, B, C AND D. PLEASE SEE THE SECTION OF
THIS PROXY STATEMENT/PROSPECTUS ENTITLED, "WHERE YOU CAN FIND MORE INFORMATION,"
ON PAGE 1.
THE COMPANIES
LORONIX INFORMATION SYSTEMS, INC.
820 Airport Road
Durango, Colorado 81301
(970) 259-6161
Headquartered in Durango, Colorado, Loronix develops, markets, sells and
supports a family of software-based digital video recording and identification
management systems. Loronix is a leading provider of networked digital video
management solutions worldwide with an extensive installed base of
network-enabled digital video recorders.
Loronix was incorporated in Nevada in 1992. Its principal executive offices
are located at 820 Airport Road, Durango, Colorado 81301, and its telephone
number is (970) 259-6161. For additional information relating to Loronix's
business, operations, properties, certain acquisitions and other matters, see
the documents referred to under "Where You Can Find More Information" and
"Incorporation of Certain Documents by Reference."
COMVERSE TECHNOLOGY, INC.
170 Crossways Park Drive
Woodbury, New York 11797
(516) 677-7200
Comverse manufactures and markets systems and software for multimedia
communications and information processing applications. Comverse's products are
used in a broad range of applications by wireless and wireline telephone network
operators, call centers, financial institutions, government agencies and other
public and commercial organizations worldwide. Comverse is a holding company and
substantially all of its operations are conducted through its subsidiaries,
including Comverse Network Systems, Inc., Comverse Infosys, Inc., and Ulticom,
Inc.
Comverse Network Systems is the leading provider of multimedia enhanced
services systems and software, which are currently used by more than 310
wireless and wireline telecommunications network operators. These products
enable its customers to provide value-added enhanced services, such as call
answering, wireless data and Internet-based information services, prepaid
wireless services, mailbox-to-mailbox messaging, Internet-based unified
messaging (voice, fax and e-mail in a single mailbox), interactive voice
response, virtual phone/fax, one-touch call return, personal number service,
call screening/caller introduction, voice-controlled Internet portal and other
speech recognition-based services, Internet messaging, Internet call waiting and
other personal communication services.
Comverse Infosys provides multiple channel, multimedia digital recording,
logging and quality monitoring systems to call centers, financial institutions
and other organizations. Comverse Infosys also provides multiple channel,
multimedia digital monitoring systems to law enforcement and intelligence
agencies.
Ulticom is a provider of network signaling software for wireless, wireline
and Internet communications services. Its call control products enable
communication service providers to offer intelligent network services, such as
voice-activated dialing, prepaid calling, caller ID and text messaging.
Comverse was incorporated in New York in October 1984. Its principal
executive offices are located at 170 Crossways Park Drive, Woodbury, New York
11797, and its telephone number is (516) 677-7200. For additional information
relating to Comverse's business, operations,
5
<PAGE>
properties, certain acquisitions and other matters, see the documents referred
to under "Where You Can Find More Information" and "Incorporation of Certain
Documents by Reference."
PRINCIPAL REASONS FOR THE MERGER (SEE PAGE 30)
We believe that the merger will represent a significant step forward in
Loronix's strategy of remaining a global leader in digital recording and video
management systems and digital identification products.
We believe that the combination of Loronix's proprietary software and open
architecture product design, together with Comverse's existing capital,
infrastructure, and access to capital, will provide opportunities to realize
significant benefits and long-term value to stockholders.
We believe that by combining with Comverse, Loronix's stockholders will be
afforded substantially increased trading liquidity for their investment.
RECOMMENDATION TO STOCKHOLDERS (SEE PAGE 33)
Our board of directors believes that the merger is advisable and fair to you
and in your best interests and recommends that you vote FOR approval of the
merger agreement.
OPINION OF FINANCIAL ADVISOR (SEE PAGE 33)
Our financial advisor, Broadview International LLC, delivered an opinion to
our board of directors that, as of the date of its opinion, subject to the
considerations described in its opinion, the exchange ratio in the merger
agreement is fair, from a financial point of view, to you. The complete
Broadview opinion is attached as ANNEX D and you are urged to read it in its
entirety.
THE MERGER (SEE PAGE 48)
Under the terms of the proposed merger, a direct, wholly-owned subsidiary of
Comverse, formed for the purpose of the merger, will merge with and into Loronix
with Loronix being the surviving corporation. As a result, we will become a
direct, wholly-owned subsidiary of Comverse. Following the merger, you will
become a shareholder of Comverse.
The merger agreement is attached as ANNEX A to this document. We encourage
you to read the merger agreement as it is the legal document that governs the
merger.
WHAT LORONIX STOCKHOLDERS WILL RECEIVE (SEE PAGE 48)
The merger agreement provides that each share of our common stock
outstanding immediately prior to the effective time of the merger will be
converted into the right to receive 0.385 shares of Comverse common stock, after
giving effect to the two-for-one stock split of Comverse common stock that was
completed on April 3, 2000.
However, if the value of the Comverse shares to be received by you will be
less than $36 per Loronix share, determined by the procedures set forth in the
merger agreement, we will have the right to seek to terminate the agreement and,
subsequently, Comverse will have the right to proceed with the merger by
adjusting the consideration to $36 per share. If Comverse elects to adjust the
consideration, we will not be able to terminate the merger agreement. If
Comverse does not elect to adjust the consideration, the merger agreement will
terminate.
If the value of the Comverse shares to be received by you will be less than
$36 per Loronix share, we may in our discretion elect not to seek to terminate
the merger, in which case you will receive less than $36 per Loronix share.
At the effective time, each outstanding option granted by us to purchase
shares of our common stock will be assumed by Comverse and converted into an
option to acquire Comverse common stock having the same terms and conditions
that the stock option had before the merger. The number of shares that the new
Comverse option will be exercisable for, and the exercise price of the new
Comverse option, will reflect the same exchange ratio applicable to you in the
merger.
6
<PAGE>
LISTING OF COMVERSE COMMON STOCK (SEE PAGE 46)
All shares of Comverse common stock to be issued to you in connection with
the merger will be listed on the Nasdaq National Market by Comverse at or before
the closing of the merger.
STOCKHOLDER VOTE REQUIRED TO APPROVE THE MERGER (SEE PAGE 25)
The affirmative vote of holders of a majority of the shares of common stock
outstanding on the record date for the special meeting and entitled to vote is
required to approve the merger agreement.
You are entitled to cast one vote per share of Loronix common stock you
owned at the close of trading on June 8, 2000, the record date.
You should mail your signed proxy card in the enclosed return envelope as
soon as possible so that your shares of Loronix common stock may be represented
at the special meeting. If you do not include instructions on how to vote your
properly executed proxy, your shares will be voted FOR adoption of the merger
agreement.
If your shares are held in street name, your broker will vote your shares
only if you provide instructions on how to vote by following the information
provided to you by your broker. IF YOU DO NOT PROVIDE YOUR BROKER WITH VOTING
INSTRUCTIONS, YOUR SHARES WILL NOT BE VOTED AT THE LORONIX SPECIAL MEETING,
WHICH WILL HAVE THE SAME EFFECT AS VOTING AGAINST THE APPROVAL OF THE MERGER.
If you should desire to change your vote, just deliver to the Secretary of
Loronix a later-dated, signed proxy card, before the special meeting, or attend
the special meeting in person, revoke your proxy there and vote in person.
DISSENTERS' RIGHTS OF APPRAISAL (SEE PAGE 46)
You will not have the right under Nevada law to dissent from the merger,
request an appraisal of the value of your shares, and have them purchased by
Loronix.
INTERESTS OF CERTAIN PERSONS (SEE PAGE 41)
When considering our board's recommendation that you vote in favor of the
merger, you should be aware that some of Loronix's directors and officers may
have interests in the merger that are different from or in addition to yours.
In connection with the merger, David Ledwell, our President and Chief
Executive Officer, Peter Jankowski, our Chief Technical Officer and Jonathan
Lupia, our Chief Operating Officer, Chief Financial Officer and Secretary,
agreed to enter into employment agreements with Loronix.
Also, following the closing, certain members of the board of directors,
namely C. Rodney Wilger, Donald W. Stevens and Louis Colonna, will continue to
be members of our board of directors through May 2003.
For a limited time following the merger, Ed Jankowski, the Chairman of the
Board, and James Price, a Vice President, will be employees of Loronix.
As of June 7, 2000, directors and executive officers of Loronix and their
affiliates held approximately 22% of the outstanding shares of Loronix common
stock.
ACCOUNTING TREATMENT (SEE PAGE 45)
Comverse and Loronix intend to account for the merger as a
pooling-of-interests business combination, which means that we will treat our
companies as if they had always been combined for accounting and financial
reporting purposes.
MATERIAL FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER (SEE PAGE 43)
In the opinion of our counsel and Comverse's counsel, the merger will
qualify as a tax-free reorganization for federal income tax purposes.
Accordingly, the exchange of your shares for Comverse shares generally will not
cause you to recognize any gain or loss for federal income tax purposes. You
may, however, have to recognize gain or loss in connection with any cash you
receive in lieu of fractional shares. It is a condition to the merger that
Comverse
7
<PAGE>
and Loronix receive legal opinions stating that the merger will be treated for
federal income tax purposes as a tax-free reorganization.
CONDITIONS TO COMPLETION OF THE MERGER (SEE PAGE 49)
The completion of the merger depends upon meeting a number of conditions,
including the following:
- approval and adoption of the merger agreement by our stockholders;
- receipt of opinions of counsel that the merger will be treated for federal
income tax purposes as a tax-free reorganization; and
- absence of any law prohibiting the merger.
REGULATORY APPROVALS (SEE PAGE 45)
The merger is subject to antitrust laws. Comverse and we have made the
required filings with the Department of Justice and the Federal Trade Commission
and have been granted early termination of the applicable waiting period, as of
April 14, 2000.
TERMINATION OF THE MERGER AGREEMENT (SEE PAGE 55)
Either Loronix or Comverse can terminate the merger agreement if any of the
following occur:
- we do not complete the merger by August 31, 2000;
- you do not approve the merger; or
- a law or court order permanently prohibits the merger.
We may terminate the merger agreement if any of the following occurs:
- we have not breached any of the covenants in the merger agreement, we
receive an offer that is superior to the merger with Comverse, and
Comverse, within a specified time period, does not make a counter offer
that is as favorable to you as a Loronix stockholder as the superior
proposal;
- Comverse breaches any condition, representation or warranty contained in
the merger agreement; or
- the value of the merger consideration is less than $36 per Loronix share,
we exercise our right to seek to terminate the merger, and Comverse does
not notify us that they intend to adjust the consideration.
Comverse may terminate the merger agreement if any of the following occurs:
- we enter into a binding agreement with a third party for a superior
proposal;
- our board breaches its obligation to recommend the merger or modifies its
recommendation in a manner adverse to Comverse;
- any person or group acquires beneficial ownership of at least 15% of our
shares; or
- we breach any condition, representation or warranty contained in the
merger agreement.
TERMINATION FEES (SEE PAGE 56)
We must pay Comverse a termination fee of $11 million if the merger is not
consummated due to certain circumstances, generally described as follows:
- we accept a superior third party proposal;
- our board fails to recommend or modifies in a manner adverse to Comverse,
its approval or recommendation of the merger;
- we allow any person or group to acquire beneficial ownership of at least
15% of our outstanding shares; or
- Comverse terminates the merger agreement because of one of the following
reasons:
- the merger has not been consummated by August 31, 2000;
8
<PAGE>
- our stockholders do not approve the merger; or
- we breach a condition of the merger agreement;
AND, in the event Comverse terminates the merger agreement for one of those
reasons, ONLY IF, on or before the termination date, an acquisition proposal
is made by a third party and within six months of termination, we have
entered into a merger agreement with a third party.
We will also pay Comverse up to $1 million for Comverse's expenses, in
addition to the termination fee that may be applicable, if Comverse terminates
the merger agreement because we breach any of the representations, warranties,
covenants or agreements contained in the merger agreement.
STOCK OPTION AGREEMENT (SEE PAGE 56)
In connection with the merger agreement, we entered into a stock option
agreement with Comverse under which we granted Comverse an option to purchase
approximately 19.9% of our outstanding common stock at a price of $43.79 per
share. Comverse also has the right under some circumstances to require us to
purchase the option or shares acquired by Comverse. The option is exercisable
under circumstances similar to those under which we are required to pay Comverse
the $11 million termination fee, generally described as follows:
- we accept a superior third party proposal;
- our board fails to recommend or modifies in a manner adverse to Comverse,
its approval or recommendation of the merger; or
- any person or group acquires beneficial ownership of at least 15% of our
outstanding shares.
The Stock Option Agreement is attached as ANNEX B. We encourage you to read
this agreement.
VOTING AGREEMENTS (SEE PAGE 59)
Certain of our directors, executive officers and management including David
Ledwell, our President and Chief Executive Officer and Jonathan Lupia, our Chief
Operating Officer, Chief Financial Officer and Secretary, Peter Jankowski, our
Chief Technical Officer, and a trust established by Edward Jankowski, our
Chairman, entered into voting agreements with Comverse. The voting agreements
require them to vote all of their shares of our common stock in favor of the
approval of the merger agreement. These stockholders collectively held
approximately 22% of our common stock as of the record date. You are urged to
read the voting agreement, the form of which is attached as ANNEX C.
CLOSING OF THE MERGER AND EXCHANGE OF SHARES (SEE PAGE 49)
The closing and effectiveness of the merger will occur after the conditions
to closing have been satisfied or waived. Comverse and Loronix are working
towards completing the merger as quickly as possible and hope to complete the
merger by July 31, 2000.
Comverse will appoint an exchange agent to handle the exchange of shares and
the payment of cash for any fractional shares. IF YOU HAVE CERTIFICATES
REPRESENTING LORONIX SHARES, PLEASE DO NOT SEND THEM TO US NOW. Shortly after
the merger is effective, you will receive written instructions concerning what
to do with your certificates.
SALES OF COMVERSE SHARES RECEIVED IN THE MERGER (SEE PAGE 46)
Your shares of Comverse that you receive in the merger will be freely
tradable, unless you are an affiliate of Loronix. Shares of Comverse received by
Loronix affiliates may only be sold pursuant to SEC Rule 145 and the terms of
applicable affiliate agreements.
9
<PAGE>
RECENT DEVELOPMENTS
On May 31, 2000 Comverse announced results for its first fiscal quarter
ended April 30, 2000. Unaudited summary financial information at and for the
three-month periods ended April 30, 2000 and 1999 are as follows:
(IN THOUSANDS, EXCEPT PER SHARE DATA)
OPERATIONS DATA (excluding one-time acquisition charges):
<TABLE>
<CAPTION>
THREE MONTHS ENDED
---------------------
APRIL 30, APRIL 30,
1999 2000
--------- ---------
<S> <C> <C>
Sales....................................................... $200,507 $261,282
Cost of sales............................................... $ 77,427 $ 97,347
Research and development, net............................... $ 38,417 $ 50,299
Selling, general and administrative......................... $ 42,845 $ 54,220
Royalties and license fees.................................. $ 4,740 $ 4,880
Income from operations...................................... $ 37,078 $ 54,536
Interest and other income, net.............................. 3,009 $ 6,511
Income before income tax provision.......................... $ 40,087 $ 61,047
Income tax provision........................................ $ 3,516 $ 4,642
Net income.................................................. $ 36,571 $ 56,405
Net income per share, diluted............................... $ 0.24 $ 0.33
Net income per share, basic................................. $ 0.26 $ 0.36
</TABLE>
Note: The above amounts for the three months ended April 30, 1999 have been
adjusted to eliminate the one-time acquisition-related charges of $934, net of
tax, or $0.01 per diluted share.
OPERATIONS DATA (including one-time acquisition charges, recognized during the
three months ended April 30, 1999, of $934, net of tax, or $0.01 per diluted
share):
<TABLE>
<CAPTION>
THREE MONTHS ENDED
---------------------
APRIL 30, APRIL 30,
1999 2000
--------- ---------
<S> <C> <C>
Sales....................................................... $200,507 $261,282
Cost of sales............................................... 77,427 $ 97,347
Research and development, net............................... $ 38,417 $ 50,299
Selling, general and administrative......................... $ 42,845 $ 54,220
Royalties and license fees.................................. $ 4,740 $ 4,880
One-time acquisition-related charges........................ $ 1,018 --
Income from operations...................................... $ 36,060 $ 54,536
Interest and other income, net.............................. $ 3,009 $ 6,511
Income before income tax provision.......................... $ 39,069 $ 61,047
Income tax provision........................................ $ 3,432 $ 4,642
Net income.................................................. $ 35,637 $ 56,405
Net income per share, diluted............................... $ 0.23 $ 0.33
Net income per share, basic................................. $ 0.26 $ 0.36
</TABLE>
10
<PAGE>
<TABLE>
<CAPTION>
JANUARY 31, APRIL 30,
2000 2000
BALANCE SHEET DATA: ----------- ----------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents................................. $ 338,638 $ 403,304
Bank time deposits and short-term investments............. 439,054 437,791
Accounts receivable, net.................................. 259,357 282,830
Inventories............................................... 97,653 120,192
Prepaid expenses and other current assets................. 40,829 47,900
TOTAL CURRENT ASSETS........................................ 1,175,531 1,292,017
PROPERTY AND EQUIPMENT, net................................. 121,897 125,867
INVESTMENTS................................................. 19,749 30,187
OTHER ASSETS................................................ 35,191 50,546
---------- ----------
TOTAL ASSETS................................................ $1,352,368 $1,498,617
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued expenses..................... $ 231,245 $ 224,126
Advance payments from customers........................... 94,171 96,806
Other current liabilities................................. 1,289 3,504
TOTAL CURRENT LIABILITIES................................... 326,705 324,436
CONVERTIBLE SUBORDINATED DEBENTURES......................... 300,000 300,000
LIABILITY FOR SEVERANCE PAY................................. 6,185 8,030
OTHER LIABILITIES........................................... 8,138 28,814
---------- ----------
TOTAL LIABILITIES........................................... 641,028 661,280
========== ==========
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common stock, $0.10 par value--authorized, 300,000,000
shares; issued and outstanding, 153,822,408 and
155,444,704 shares...................................... 15,382 15,544
Additional paid-in capital................................ 407,645 475,313
Retained earnings......................................... 285,890 342,295
Accumulated other comprehensive income.................... 2,423 4,185
TOTAL STOCKHOLDERS' EQUITY.................................. 711,340 837,337
---------- ----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY.................. $1,352,368 $1,498,617
========== ==========
</TABLE>
11
<PAGE>
SELECTED HISTORICAL FINANCIAL DATA
The following tables present (1) selected historical financial data of
Comverse, (2) selected historical financial data of Loronix and (3) selected
unaudited pro forma combined financial data of Comverse and Loronix.
SELECTED HISTORICAL FINANCIAL DATA OF COMVERSE
(IN THOUSANDS EXCEPT PER SHARE DATA)
The following selected historical financial data of Comverse as of and for
the years ended December 31, 1995, 1996 and 1997, as of and for the one month
ended January 31, 1998 and as of and for the years ended January 31, 1999 and
2000 has been derived from their respective audited historical financial
statements and should be read in conjunction with such consolidated financial
statements and notes thereto.
<TABLE>
<CAPTION>
TRANSITION
PERIOD
YEARS ENDED DECEMBER 31, ENDED YEAR ENDED JANUARY 31,
------------------------------ JANUARY 31, -----------------------
1995(1) 1996(1) 1997(2) 1998(3) 1999 2000
-------- -------- -------- ------------ ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
HISTORICAL CONSOLIDATED
STATEMENT OF OPERATIONS DATA:
Net sales.................... $242,416 $389,639 $488,940 $ 14,401 $ 696,094 $ 872,190
Income (loss) before income
tax provision.............. 4,322 52,307 43,923 (114,340) 123,310 185,838
Net income (loss)............ 2,160 42,137 34,525 (115,207) 111,527 170,261
Earnings (loss) per share--
diluted.................... $ 0.02 $ 0.34 $ 0.25 $ (0.89) $ 0.78 $ 1.07
Shares used in computing
earnings per
share--diluted............. 116,280 133,132 137,908 130,060 143,650 176,862
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, JANUARY 31,
------------------------------ -----------------------------------
1995(4) 1996(4) 1997 1998 1999 2000
-------- -------- -------- --------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital.............. $193,693 $332,660 $395,744 $ 280,793 $ 707,281 $ 848,826
Total assets................. 306,115 519,074 622,931 527,652 1,031,393 1,352,368
Long-term debt, including
current portion............ 61,361 117,605 142,075 124,257 415,247 306,774
Stockholders' equity......... 176,080 288,550 346,161 231,390 381,662 711,340
</TABLE>
------------------------
(1) Includes the results of Boston Technology, Inc., which was merged into
Comverse on January 14, 1998, and accounted for pursuant to the
pooling-of-interests method, for each of its fiscal years ended January 31.
(2) Includes the results of Boston Technology for the 11 months ended
December 31, 1997.
(3) In January 1998, Comverse changed its fiscal year end from December 31 to
January 31. Accordingly, the one month transition period ended January 31,
1998, is presented.
(4) Includes amounts for Boston Technology as of its fiscal year ended
January 31.
12
<PAGE>
SELECTED HISTORICAL FINANCIAL DATA OF LORONIX
(IN THOUSANDS EXCEPT PER SHARE DATA)
The selected data presented below under the captions "Historical
Consolidated Statement of Operations Data" and "Balance Sheet Data" for, and as
of the end of, each of the years in the five-year period ended December 31,
1999, are derived from the consolidated financial statements of Loronix
Information Systems, Inc., which financial statements have been audited by KPMG
LLP ("KPMG"), our independent certified public accountants. The consolidated
balance sheets as of December 31, 1998 and 1999 and related consolidated
statements of operations, stockholders' equity and cash flows for each of the
years in the three year period ended December 31, 1999, together with the report
thereon, are incorporated by reference into this proxy statement/prospectus.
The selected data presented below for the three month periods ended
March 31, 1999 and 2000 are derived from the unaudited consolidated financial
statements of Loronix. We have prepared this unaudited information on
substantially the same basis as the audited consolidated financial statements
and included only normal recurring adjustments that we consider necessary for
the fair presentation of the financial position and results of operations for
the period.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31, MARCH 31,
---------------------------------------------------- -------------------
1995 1996 1997 1998 1999 1999 2000
-------- -------- -------- -------- -------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
HISTORICAL CONSOLIDATED
STATEMENT OF OPERATIONS DATA:
Net sales................................. $ 6,838 $10,916 $ 9,403 $12,711 $37,477 $ 7,390 $ 7,187
Income (loss) before income tax
provision............................... (960) 1,192 (2,480) (2,162) 3,007 587 (192)
Net income (loss)......................... (854) 1,031 (2,512) (2,162) 2,886 555 (199)
Earnings (loss) per share--diluted........ $ (0.18) $ 0.22 $ (0.54) $ (0.47) $ 0.52 $ 0.11 $ (0.04)
Shares used in computing earnings per
share--diluted.......................... 4,670 4,667 4,659 4,647 5,516 5,008 5,117
BALANCE SHEET DATA:
Working capital........................... $ 9,555 $ 9,479 $ 7,157 $ 4,884 $ 9,478 $ 6,025 $ 9,603
Total assets.............................. 13,863 14,558 13,263 11,418 20,381 14,702 21,183
Long-term debt, including current
portion................................. -- -- 715 1,170 1,308 1,143 1,603
Stockholders' equity...................... 12,681 13,712 11,205 9,044 13,401 10,119 13,466
</TABLE>
13
<PAGE>
SELECTED UNAUDITED PRO FORMA COMBINED FINANCIAL DATA
OF COMVERSE AND LORONIX
(IN THOUSANDS EXCEPT PER SHARE DATA)
The following tables set forth selected unaudited pro forma combined
financial data that are presented to give effect to the merger. Comverse's
consolidated statement of operations for the years ended December 31, 1997 and
January 31, 1999 and 2000, have been combined with Loronix's consolidated
statement of operations for the years ended December 31, 1997, 1998 and 1999.
Comverse's consolidated balance sheet as of January 31, 2000 has been combined
with Loronix's consolidated balance sheet as of December 31, 1999. The unaudited
pro forma information is presented for illustrative purposes only and is not
necessarily indicative of the operating results or financial position that would
have occurred if the merger had been consummated at the beginning of the periods
indicated, nor is it necessarily indicative of future operating results or
financial position. The unaudited pro forma combined financial data should be
read together with the historical financial statements of Comverse and Loronix
incorporated by reference in this document and the unaudited pro forma condensed
combined financial information contained elsewhere in this document.
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, YEAR ENDED JANUARY 31,
------------ -----------------------
1997 1999 2000
------------ --------- -----------
<S> <C> <C> <C>
PRO FORMA COMBINED
STATEMENT OF OPERATIONS DATA:
Net sales.................................................. $498,343 $708,805 $ 909,667
Income before income tax provision......................... 41,443 121,148 188,845
Net income................................................. 32,013 109,365 173,147
Earnings per share--diluted................................ $ 0.23 $ 0.75 $ 1.08
Shares used in computing earnings per share--diluted....... 139,702 145,439 178,986
</TABLE>
<TABLE>
<CAPTION>
JANUARY 31,
2000
-----------
<S> <C> <C> <C>
BALANCE SHEET DATA:
Working capital................................................................... $ 858,304
Total assets...................................................................... 1,372,749
Long-term debt, including current portion......................................... 308,082
Stockholders' equity.............................................................. 724,741
</TABLE>
14
<PAGE>
COMPARATIVE PER SHARE DATA
The following tables set forth certain earnings, dividend and book value per
share data for Comverse and Loronix on historical and pro forma bases. For
purposes of the unaudited pro forma operating data, Comverse's consolidated
financial statements for the fiscal years ended December 31, 1997 and the fiscal
years ended January 31, 1999 and 2000, have been combined with Loronix's
consolidated financial statements for each of the three fiscal years in the
period ended December 31, 1999. Book value data for all unaudited pro forma
presentations are based upon the number of outstanding shares of Comverse common
stock, adjusted to include the shares of Comverse common stock to be issued in
the merger.
The unaudited pro forma data set forth below do not reflect any costs
associated with the integration and consolidation of the companies anticipated
by Comverse's management as a result of the merger. The pro forma data set forth
below should be read together with the historical financial statements of
Comverse and Loronix incorporated by reference in this document and the
unaudited pro forma condensed combined financial information contained elsewhere
in this document.
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, JANUARY 31,
------------ -------------------
1997(1) 1999(2) 2000(2)
------------ -------- --------
<S> <C> <C> <C>
COMVERSE HISTORICAL
Earnings per share--diluted............................... $ 0.25 $ 0.78 $1.07
Cash dividends paid per share............................. -- -- --
LORONIX HISTORICAL
Earnings (loss) per share--diluted........................ $(0.54) $(0.47) $0.52
Cash dividends paid per share............................. -- -- --
COMVERSE UNAUDITED PRO FORMA
Earnings per share--diluted............................... $ 0.23 $ 0.75 $1.08
Cash dividends paid per share............................. -- -- --
LORONIX UNAUDITED PRO FORMA EQUIVALENT (3)
Earnings per share--diluted............................... $ 0.09 $ 0.29 $0.42
Cash dividends paid per share............................. -- -- --
</TABLE>
------------------------
(1) Includes the results of Boston Technology for the 11 months ended
December 31, 1997.
(2) Information for Loronix is for its fiscal years ended December 31, 1998 and
1999, respectively.
(3) The Loronix unaudited pro forma equivalent per share amounts are calculated
by multiplying the Comverse unaudited pro forma amounts by the exchange
ratio of 0.385.
<TABLE>
<CAPTION>
JANUARY 31, 2000(1)
-------------------
<S> <C>
BOOK VALUE PER SHARE
Comverse Historical....................................... $4.62
Loronix Historical........................................ 2.64
Comverse Unaudited Pro Forma.............................. 4.65
Loronix Unaudited Pro Forma Equivalent (2)................ 1.79
</TABLE>
------------------------
(1) Information for Loronix is as of December 31, 1999.
(2) The Loronix unaudited pro forma equivalent per share amounts are calculated
by multiplying the Comverse unaudited pro forma amounts by the exchange
ratio of 0.385.
15
<PAGE>
COMPARATIVE PER SHARE MARKET PRICE DATA
Loronix common stock is traded on the Nasdaq National Market under the
symbol "LORX." Comverse common stock is traded on the Nasdaq National Market
under the symbol "CMVT." The prices of Comverse common stock in the following
table have been adjusted to reflect a three-for-two stock split on April 15,
1999, and a two-for-one stock split on April 3, 2000. Because the value of
shares of Comverse common stock that Loronix stockholders will receive in the
merger will be determined based on the market price of Comverse common stock
prior to the merger, you are urged to obtain current market quotations.
The following table sets forth, for the calendar quarters indicated, the
high and low sale prices per share of Loronix common stock and Comverse common
stock as reported on Nasdaq.
<TABLE>
<CAPTION>
LORONIX COMVERSE
COMMON STOCK COMMON STOCK
------------------- -------------------
HIGH LOW HIGH LOW
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Year Ended December 31, 1998:
First Quarter............................................ $ 2.13 $ 1.38 $ 16.34 $10.21
Second Quarter........................................... 3.38 1.53 18.36 14.09
Third Quarter............................................ 3.06 1.94 18.98 12.21
Fourth Quarter........................................... 2.94 1.75 23.67 9.98
Year Ended December 31, 1999
First Quarter............................................ $ 7.75 $ 2.31 $ 28.50 $21.81
Second Quarter........................................... 12.44 6.50 38.60 27.28
Third Quarter............................................ 11.88 7.00 47.44 33.60
Fourth Quarter........................................... 28.00 11.38 72.38 46.50
Year Ended December 31, 2000
First Quarter............................................ $43.38 $19.00 $119.69 $67.63
Second Quarter (through June 6, 2000).................... 36.50 23.00 95.75 62.00
</TABLE>
The following table sets forth the closing prices per share of Comverse
common stock and Loronix common stock as reported on Nasdaq on (i) March 3,
2000, the business day preceding the public announcement that Comverse and
Loronix had entered into the merger agreement (Comverse's stock price adjusted
to give effect to the two-for-one stock split) and (ii) June 6, 2000, the last
trading day prior to the date of this proxy statement/prospectus.
The following table also sets forth the equivalent price per share of
Loronix common stock on those dates. The equivalent price per share is equal to
0.385 multiplied by the closing sale price of a share of Comverse common stock
on March 3, 2000, and June 6, 2000, respectively.
<TABLE>
<CAPTION>
LORONIX COMVERSE EQUIVALENT
COMMON STOCK COMMON STOCK PER SHARE PRICE
------------ ------------ ---------------
<S> <C> <C> <C>
March 3, 2000....................................... $31.375 $113.75 $43.79
June 6, 2000........................................ $34.125 $90.313 $34.77
</TABLE>
Loronix stockholders are advised to obtain current market quotations for
Comverse common stock and Loronix common stock. No assurance can be given as to
the market prices of Comverse common stock or Loronix common stock at any time
before the completion of the merger or as to the market price of Comverse common
stock at any time afterwards. The value of shares of Comverse common stock to be
received in the merger in exchange for Loronix common stock will fluctuate with
the market price of Comverse common stock prior to the completion of the merger.
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Comverse and Loronix have never paid cash dividends on their respective
shares of capital stock. Pursuant to the merger agreement, Loronix has agreed
not to pay cash dividends pending the completion of the merger, without written
consent of Comverse. If the merger is not completed, the Loronix board of
directors presently intends that it would continue its policy of retaining all
earnings to finance the expansion of its business. The Comverse board of
directors presently intends to retain all earnings for use in its business and
has no present intention to pay cash dividends before or after the merger.
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RISK FACTORS
THIS PROXY STATEMENT AND DOCUMENTS INCORPORATED BY REFERENCE IN THIS PROXY
STATEMENT CONTAIN FORWARD-LOOKING STATEMENTS ABOUT US, COMVERSE AND THE
INDUSTRIES IN WHICH WE AND COMVERSE OPERATE. THESE STATEMENTS MAY BE IDENTIFIED
BY THE USE OF FORWARD-LOOKING WORDS OR PHRASES SUCH AS "PLAN," "PLANNED,"
"INTEND," "INTENDED," "WILL BE POSITIONED," "EXPECT," "ESTIMATE," IS OR ARE
"EXPECTED," "ANTICIPATE," "ANTICIPATED" AND SIMILAR EXPRESSIONS.
THESE FORWARD-LOOKING STATEMENTS REFLECT ONLY CURRENT EXPECTATIONS AND
INVOLVE RISKS AND UNCERTAINTIES. TO THE EXTENT ANY OF THE INFORMATION CONTAINED
OR INCORPORATED BY REFERENCE IN THIS PROXY STATEMENT CONSTITUTES A
"FORWARD-LOOKING STATEMENT" AS DEFINED IN SECTION 27A(i)(1) OF THE SECURITIES
ACT, THE RISK FACTORS ARE CAUTIONARY STATEMENTS IDENTIFYING IMPORTANT FACTORS
THAT COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE IN THE
FORWARD-LOOKING STATEMENT.
BY VOTING IN FAVOR OF THE MERGER, YOU WILL BE CHOOSING TO INVEST IN COMVERSE
COMMON STOCK. AN INVESTMENT IN COMVERSE COMMON STOCK INVOLVES RISKS THAT ARE
DIFFERENT FROM THE RISKS THAT ARE ASSOCIATED WITH YOUR INVESTMENT IN LORONIX.
YOU SHOULD CAREFULLY CONSIDER THE FOLLOWING IMPORTANT RISK FACTORS IN
ADDITION TO THE OTHER INFORMATION CONTAINED AND INCORPORATED BY REFERENCE IN
THIS PROXY STATEMENT IN DECIDING WHETHER TO VOTE FOR THE MERGER.
WE MAY SEEK TO TERMINATE THE MERGER IF THE VALUE OF COMVERSE COMMON STOCK TO BE
RECEIVED IN THE MERGER IS LESS THAN $36 PER LORONIX SHARE, SUBJECT TO COMVERSE'S
RIGHT "TO TOP UP," WHICH COMVERSE MAY NOT EXERCISE, AND THE MERGER COULD BE
TERMINATED.
The number of shares of Comverse common stock to be received in the merger
for each share of Loronix common stock is fixed at 0.385 Comverse shares for
each Loronix share. Because the market price of Comverse common stock
fluctuates, the value of the merger consideration to be received by the Loronix
stockholders could fluctuate. Accordingly, the value of the Comverse common
stock received by you upon completion of the merger will depend upon the market
value of the Comverse common stock at the time of the completion of the merger.
We do not know what the fair market value of the consideration to be received by
the Loronix stockholders will be at the time of the merger.
We have the right to seek to terminate the merger agreement if, based on the
average of the daily closing prices of Comverse common stock on the Nasdaq
National Market for the five consecutive trading days ending on the third
trading day prior to the merger, the merger consideration would be less than $36
per Loronix share. If the average closing price of the Comverse common stock
during that period is such that the merger consideration will be less than $36
per Loronix share and we exercise our right to seek to terminate the merger
agreement, Comverse will have the right to increase the exchange ratio to adjust
the merger consideration to $36 per Loronix share.
If the merger were to become effective on the date of this proxy
statement/prospectus, the merger consideration would be $34.70 per share based
on the average per share closing price of Comverse common stock for the five
consecutive trading days ending on June 2, the third trading day prior to the
date of this proxy statement/prospectus. We do not know whether we will exercise
our right to seek to terminate the merger agreement if the value of the merger
consideration is below $36 per Loronix share at the time of the merger. If we
exercise this right, we do not know if Comverse will exercise its right to
increase the exchange ratio to adjust the consideration to $36 per Loronix
share. If Comverse fails to do so, the merger agreement will be terminated and
you will not receive any Comverse common stock.
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WE MAY NOT SEEK TO TERMINATE THE MERGER IF THE VALUE OF COMVERSE COMMON STOCK TO
BE RECEIVED IN THE MERGER CORRESPONDS TO LESS THAN $36 PER SHARE, AND YOU MAY
RECEIVE COMVERSE COMMON STOCK VALUED AT LESS THAN $36 PER LORONIX SHARE.
If, based on the average closing price of Comverse common stock during the
five consecutive trading days ending on the third trading day prior to the
merger, the merger consideration is less than $36 per Loronix share, we may
choose not to seek to terminate the merger. We do not know whether we would or
would not seek to terminate the merger if the merger consideration was less than
$36 per share. By approving the merger agreement, you are giving us the
discretion not to seek to terminate the merger if the merger consideration is
less than $36 per share. If the merger consideration would be less than $36 per
Loronix share and we do not seek to terminate the merger, you will receive less
than $36 per Loronix share.
FAILURE TO COMPLETE THE MERGER COULD NEGATIVELY IMPACT OUR STOCK PRICE, FUTURE
BUSINESS AND OPERATIONS.
If the merger is not completed for certain reasons, we may be subject to a
number of material risks, including the following:
- We may be required to pay Comverse a termination fee of $11 million; and
- The option granted to Comverse by us may become exercisable.
If the merger is not completed for any reason, we may be subject to a number
of material risks, including the following:
- The price of our common stock may decline to the extent that the current
market price of our common stock reflects a market assumption that the
merger will be completed; and
- Certain costs related to the merger, such as legal, accounting and
financial advisor fees, must be paid even if the merger is not completed.
In addition, our customers may, in response to the announcement of the
merger, delay or defer purchasing decisions. Any delay or deferral in purchasing
decisions by our customers could have a material adverse effect on our business,
regardless of whether or not the merger is ultimately completed. Similarly, our
current and prospective employees may experience uncertainty about their future
role with Comverse until Comverse's strategies with regard to us are announced
or executed. This may adversely affect our ability to attract and retain key
management, marketing and technical personnel.
Further, if the merger is terminated and our board of directors determines
to seek another merger or business combination, we do not know if we will be
able to find a partner willing to pay an equivalent or more attractive price
than that which would be paid in the merger. In addition, while the merger
agreement is in effect and subject to certain limited exceptions described on
page 53 of this proxy statement/prospectus, we are prohibited from soliciting,
initiating or knowingly encouraging or entering into certain extraordinary
transactions, such as a merger, sale of assets or other business combination,
with any party other than Comverse. Furthermore, if the merger agreement is
terminated and Comverse exercises its option to purchase our common stock, we
may not be able to account for future transactions as a pooling-of-interests.
IF COMVERSE IS NOT ABLE TO MANAGE ITS GROWTH EFFECTIVELY, ITS BUSINESS AND
OPERATING RESULTS COULD SUFFER.
Comverse has grown rapidly over the past decade and continues to experience
rapid growth in its operations, both through internal expansion and acquisitions
of other companies. Comverse's future success will depend in part on its
continued ability to manage growth effectively. As its operations
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continue to expand worldwide, management issues are likely to become more
complex and challenging. Comverse also regularly examines opportunities to
acquire other companies or lines of business. Acquisitions present a number of
significant financial, operational and legal risks. It can also be difficult to
combine the operations of an acquired business with Comverse's operations,
without suffering the loss of key personnel, customers or distributors. If
Comverse fails to manage its growth effectively or experiences problems with its
acquisitions, its future operations and financial results will be adversely
affected.
COMVERSE'S BUSINESS IS VULNERABLE TO RISKS ASSOCIATED WITH THE SALE OF LARGE,
COMPLEX, HIGH CAPACITY SYSTEMS.
Comverse's business has, to a significant extent, been based on contracts
for large, high capacity systems. Comverse continues to emphasize these systems
in its product development and marketing plans. Users of high-capacity systems,
such as telephone companies, require systems that provide an exceptionally high
level of reliability. Such systems are typically more costly to design, build
and support. Contracts for large installations typically involve a lengthy and
complex bidding and selection process, and Comverse's ability to obtain
particular contracts is difficult to predict. In addition, the timing and scope
of these opportunities and the pricing and margins associated with any eventual
contract award are difficult to forecast, and may vary substantially from
transaction to transaction. Comverse's traditional dependence on large orders,
and the investment required to enable it to perform such orders, without
assurance of continuing order flow from the same customers and predictability of
gross margins on any future orders, increase the risk associated with its
business.
BECAUSE THE MARKET FOR COMVERSE'S PRODUCTS IS CHARACTERIZED BY RAPIDLY CHANGING
TECHNOLOGY, COMVERSE'S CONTINUED SUCCESS WILL DEPEND ON ITS ABILITY TO ENHANCE
ITS EXISTING PRODUCTS AND TO INTRODUCE NEW PRODUCTS ON A TIMELY AND
COST-EFFECTIVE BASIS.
The market for Comverse's products is characterized by rapidly changing
technology, frequent new product introductions and enhancements and evolving
industry standards. Comverse's continued success will depend to a significant
extent upon its ability to anticipate accurately the evolution of new products
and technologies and to enhance its existing products. It will also depend on
its ability to develop and introduce innovative new products that gain market
acceptance. We cannot assure you that Comverse will continue to be successful in
selecting, developing, manufacturing and marketing new products or enhancing its
existing products on a timely or cost-effective basis. In addition, Comverse's
products utilize complex hardware and software technology that performs critical
functions to highly demanding standards. The greater the complexity of
Comverse's products, the greater is the risk of future performance problems or
delays in product introductions, which could damage its business and financial
results.
COMVERSE'S BUSINESS CAN BE SERIOUSLY AFFECTED BY CHANGES IN THE COMPETITIVE OR
REGULATORY ENVIRONMENT IN COMMUNICATIONS MARKETS WORLDWIDE.
Comverse sells a majority of its products to telephone companies and other
communication services providers. The communications services industry is
undergoing significant change as a result of deregulation and privatization
worldwide. Comverse's business is extremely competitive, and Comverse expects
competition to continue to intensify. Comverse's existing competitors will
continue to present substantial competition, and other companies, many with
considerably greater financial, marketing and sales and other resources, may
enter Comverse's markets in the future. The communications industry has
experienced a continuing evolution of product offerings and alternatives for
delivery of services. These trends have affected and may be expected to have a
significant continuing influence on conditions in Comverse's markets. Rapid and
significant change makes planning decisions more difficult and increases the
risk inherent in the planning process.
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<PAGE>
BECAUSE A SIGNIFICANT AMOUNT OF COMVERSE'S SALES ARE MADE TO GOVERNMENT
ENTITIES, COMVERSE IS VULNERABLE TO RISKS ASSOCIATED WITH GOVERNMENT BUSINESS.
Many of Comverse's sales are made to customers that are owned or controlled
by governments or government agencies. Government business is, in general,
subject to special risks, such as delays in funding; termination of contracts or
subcontracts for the convenience of the government; termination, reduction or
modification of contracts or subcontracts in the event of changes in the
government's policies or as a result of budgetary constraints; obligations of
performance guarantees and restrictions on the draw-down of funds subject to
achievement of performance milestones; requirements to obtain and maintain
security clearances for operating subsidiaries and key personnel; and increased
or unexpected costs resulting in losses or reduced profits under fixed price
contracts. The special risks associated with government contracts could have a
material adverse effect on Comverse's future business and financial performance.
The market for telecommunications monitoring systems sold to government
customers is in a period of significant transition. Budgetary constraints,
uncertainties resulting from the introduction of new technologies in the
telecommunications industry and shifts in the pattern of government expenditures
resulting from geopolitical events have increased uncertainties in this
industry, resulting in certain instances in the attenuation of government
procurement programs beyond their originally expected performance periods and an
increased incidence of delay, cancellation or reduction of planned projects. The
delay and uncertainties surrounding the Communications Assistance for Law
Enforcement Act have had a significant negative impact on purchasing plans of
law enforcement agencies in North America engaged in monitoring activities.
Comverse's ability to obtain government orders in particular instances may also
be affected by decisions of potential government customers to develop their own
products or technical solutions internally, rather than through the use of
outside suppliers, and by decisions of government contractors and systems
integrators to bid on individual government procurement opportunities. The lack
of predictability in the timing and scope of government procurements has made
planning decisions more difficult and has increased the associated risks.
COMVERSE HAS SIGNIFICANT INTERNATIONAL SALES, WHICH SUBJECTS IT TO RISKS
INHERENT IN FOREIGN OPERATIONS.
A significant portion of Comverse's sales are made to customers outside of
the United States. International transactions involve particular risks,
including political decisions affecting tariffs and trade conditions, rapid and
unforeseen changes in economic conditions in individual countries, turbulence in
foreign currency and credit markets, and increased costs resulting from lack of
proximity to the customer. Comverse's products must be designed to meet the
regulatory standards of foreign markets, and any inability to obtain foreign
regulatory approvals can cause it to lose sales opportunities. In addition,
international sales frequently require special features and customization to
satisfy local market conditions, and certain international customers may require
longer payment terms than Comverse may typically provide.
Volatility in international currency exchange rates may have an impact on
Comverse's operating results. Comverse has significant contracts payable in
foreign (primarily Western European) currencies. As a result of the
unpredictable timing of purchase orders and payments under these contracts and
other factors, it is often not practicable for Comverse to effectively hedge the
risk of significant changes in currency rates during the contract period. Since
Comverse engages in currency hedging only to a limited extent, if at all, its
financial results can be affected by the impact of currency fluctuations in any
particular period, as well as the cost of such hedging activities that Comverse
does perform.
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<PAGE>
COMVERSE'S CASH MANAGEMENT AND INVESTMENT ACTIVITIES COULD ADVERSELY AFFECT ITS
BUSINESS AND OPERATING RESULTS.
Comverse has a significant portion of its assets in a variety of financial
instruments, including government obligations, commercial paper, medium-term
notes, bank term deposits, money-market accounts, common and preferred stocks
and convertible debt obligations. Decisions as to Comverse's financial holdings
are made both for purposes of cash management and, to some extent, as strategic
and portfolio investments. These activities subject Comverse to risks inherent
in the capital markets generally, and to the performance of other businesses
over which Comverse has no direct control. Comverse also engages in investment
activities, including venture capital investments in high technology firms and
funds, as well as strategic and capital management investment activities for its
own account.
Comverse believes that its investments will enable it to participate in
technology innovation opportunities in areas of interest to it without having to
dedicate the capital and management resources that would be necessary for such
participation through its own internal research and development efforts.
Comverse's objectives are also to initiate relationships that may result in
eventual expansion of its product and marketing positions and potential
acquisition opportunities, and to leverage its technological expertise and
establish relationships in the technology, business and financial communities to
identify and participate in special opportunities. Investments in early-stage
technology ventures, however, are subject to a number of risks associated with
the limited operating history of such ventures and the frequent absence of
liquidity of their securities. While Comverse does not regard its portfolio and
strategic investment activities as a primary element of its overall business
plan, it expects to continue to allocate some of its liquid assets for these
purposes and, in particular, to increase its holdings in technology companies as
part of its long-term growth strategy. Since Comverse maintains a significant
amount of liquid assets relative to its overall size, its financial results in
the future may, to a greater degree than in the past, be affected by the results
of its capital management and investment activities and the risks associated
with those activities.
THE ISRAELI GOVERNMENT PROGRAMS AND TAX BENEFITS THAT COMVERSE CURRENTLY
RECEIVES REQUIRE IT TO MEET SEVERAL CONDITIONS AND MAY BE TERMINATED OR REDUCED
IN THE FUTURE, WHICH WOULD INCREASE ITS COSTS AND TAXES.
A significant portion of Comverse's research and development and
manufacturing operations are located in Israel. Comverse's historical operating
results reflect substantial benefits it received from programs sponsored by the
Israeli government for the support of research and development, as well as tax
moratoriums and favorable tax rates associated with investments in approved
projects ("Approved Enterprises") in Israel. To be eligible for these programs
and tax benefits, Comverse must continue to meet conditions, including making
specified investments in fixed assets and financing a percentage of investments
with share capital. If Comverse fails to meet such conditions in the future, the
tax benefits would be canceled and Comverse could be required to refund the tax
benefits already received.
These programs and tax benefits may not be continued in the future at their
current levels or at any level. The Israeli government has reduced the benefits
available under some of these programs in recent years, and Israeli governmental
authorities have indicated that the government may further reduce or eliminate
some of these benefits in the future. In 1996, the Israeli government acted to
increase, from between 2% and 3% of associated product sales to between 3% and
5% (or 6% under certain circumstances) of associated product revenues (including
service and other related revenues), the annual rate of royalties to be applied
to repayment of benefits under a conditional grant program administered by the
Office of the Chief Scientist of the Ministry of Industry and Trade, a program
in which Comverse has regularly participated and under which Comverse continues
to receive significant benefits through reimbursement of up to 50% of qualified
research and development expenditures. The repayment of amounts received under
the program will be accelerated through these higher royalty rates until
repayment is completed. Repayment of any amount received under programs which
have
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been, or will be, approved by the Office of the Chief Scientist after January 1,
1999, entail repayment of the amount received (calculated in U.S. dollars), plus
interest on such amount at a rate equal to the 12-month LIBOR rate in effect at
the time of the approval of the program. In addition, permission from the
Government of Israel is required for Comverse to manufacture outside of Israel
products resulting from research and development activities funded under these
programs, or to transfer outside of Israel related technology rights. In order
to obtain such permission, Comverse may be required to increase the royalties to
the applicable funding agencies and/or repay certain amounts received as
reimbursement of research and development costs. The Israeli authorities have
also indicated that this funding program will be further reduced significantly
or eliminated in the future, particularly for larger companies such as Comverse.
The termination or reduction of these programs could adversely affect Comverse's
operating results.
The Israeli government has also shortened the period of the tax moratorium
applicable to Approved Enterprises from four years to two years. Although this
change has not affected the tax status of Comverse's projects that were eligible
for the moratorium prior to 1997, it applies to subsequent "Approved Enterprise"
projects. If further changes in the law or government policies regarding those
programs were to result in their termination or adverse modification, or if
Comverse were to become unable to participate in or take advantage of those
programs, the cost of its operations in Israel would increase and there could be
a material adverse effect on its operations and financial results. To the extent
that Comverse increases its activities outside Israel, which could result from,
among other things, future acquisitions, such increased activities will not be
eligible for programs sponsored by Israel.
BECAUSE A SIGNIFICANT PORTION OF COMVERSE'S OPERATIONS ARE LOCATED IN ISRAEL,
POLITICAL, MILITARY AND ECONOMIC CONDITIONS IN THAT COUNTRY MAY ADVERSELY AFFECT
ITS BUSINESS AND OPERATING RESULTS.
Although Comverse's operations have not been adversely affected to date by
political or military conditions in Israel, a disruption of its operations in
Israel due to political, military or other conditions could have a material
adverse effect on its operations and financial results. General inflation in
Israel and increases in the cost of attracting and retaining qualified
scientific, engineering and technical personnel in Israel, where the demand for
such personnel is growing rapidly with the expansion of high technology
industries, have increased Comverse's cost of operations in Israel. These
increases have not been offset in all periods by proportional devaluation of the
Israeli shekel relative to the U.S. dollar and, as a result, have had a negative
impact on Comverse's results of operations. Continued increases in Comverse's
shekel-denominated costs without corresponding devaluation could have a material
adverse effect on Comverse's future operating results.
COMVERSE'S FUTURE SUCCESS DEPENDS ON ITS EXISTING KEY PERSONNEL, THE LOSS OF
WHOM COULD ADVERSELY IMPACT ITS BUSINESS AND OPERATING RESULTS.
Comverse's future success will depend, to a considerable extent, on the
contributions of senior management and key employees, many of whom are not
subject to employment agreements and/or would be difficult to replace.
Comverse's future success also depends on its ability to attract and retain
qualified employees in all areas of its business. Competition for such personnel
is intense, particularly in the computer and communications industries. In order
to attract and retain talented and qualified personnel, and to provide
incentives for their performance, Comverse has emphasized the award of stock
options as an important element of its compensation program, including, in the
case of certain personnel, options to purchase shares in certain of its
subsidiaries.
COMVERSE'S BUSINESS AND OPERATING RESULTS MAY SUFFER FROM INCREASED EXPENDITURES
IN ITS OPERATIONS.
Comverse has significantly increased expenditures in all areas of its
operations during recent years, and it plans to continue to make significant
investment in the growth of its operations during future
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periods. The competitiveness of Comverse's products and its ability to take
advantage of future growth opportunities will depend upon its ability to enhance
the range of features and capabilities of its existing product lines, develop
new generations of products and expand its marketing, sales and product support
capabilities. In many instances, Comverse will have to make large expenditures
for research and development and product marketing in anticipation of future
market requirements that are uncertain and may undergo significant change prior
to product introduction. The success of Comverse's efforts will depend, to a
considerable extent, on its ability to anticipate future market requirements and
successfully implement corresponding research and development and marketing
programs on a timely basis.
THIRD PARTIES MAY INFRINGE UPON COMVERSE'S PROPRIETARY TECHNOLOGY AND COMVERSE
MAY INFRINGE ON THE INTELLECTUAL PROPERTY RIGHTS OF OTHERS.
Although Comverse uses what it believes to be customary and appropriate
measures to protect its technology, these measures may not prove to be
successful, and Comverse's competitors may be able to develop similar technology
independently. Comverse's currently holds a limited number of United States and
foreign patents and Comverse periodically files additional applications for
patents on various features of its products. Comverse cannot assure you that
claims allowed with respect to any current or future patents will prove to be
sufficiently broad to protect its technology. In addition, Comverse cannot
assure you that its patents will not be challenged, invalidated or circumvented,
or that the rights granted under the patents will provide significant benefits.
Comverse and its customers from time to time receive communications from third
parties, including some of its competitors, alleging infringement by its
products of certain of such parties' patent rights. Although these types of
communications are common in the computer and telecommunications industries, and
Comverse has in the past been able to obtain any necessary licenses on
commercially reasonable terms, Comverse cannot assure you that it would prevail
in any litigation to enjoin its sale of any products on the basis of such
alleged infringement, or that it would be able to license any valid patents on
reasonable terms.
THE TRADING PRICE OF COMVERSE COMMON STOCK MAY BE VOLATILE.
The trading price of Comverse's common stock may be affected by the risk
factors described in this proxy statement as well as prevailing economic and
financial trends and conditions in the public securities markets. Stock prices
of companies in technology businesses tend to exhibit a high degree of
volatility. Shortfalls in revenues or earnings from the levels anticipated by
the public markets could have an immediate and significant adverse effect on the
trading price of Comverse's common stock in any given period. Such shortfalls
may result from events that are beyond Comverse's immediate control, can be
unpredictable and, since a significant proportion of its sales during each
fiscal quarter often occurs in the latter stages of the quarter, may not be
discernible until the end of a financial reporting period. These factors can
contribute to the volatility of the trading price of Comverse's common stock
regardless of its long-term prospects. The trading price of Comverse's common
stock may also be affected by developments, including reported financial results
and fluctuations in trading prices of the shares of other publicly-held
companies in the computer and communications industries generally, and in
Comverse's industry in particular, which may not have any direct relationship
with its business or prospects.
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THE SPECIAL MEETING
DATE, TIME, PLACE AND PURPOSE OF THE SPECIAL MEETING
The special meeting of our stockholders will be held at 9:00 a.m., Colorado
time, on Wednesday, July 12, 2000, at the Strater Hotel, located at 699 Main
Avenue, Durango, CO 81301. At the meeting, you will be asked:
1. to consider and vote upon a proposal to approve the merger agreement,
which will also constitute approval of the merger and the other
transactions contemplated by the merger agreement; and
2. to transact any other business that properly comes before the special
meeting or any adjournment or postponement of the special meeting.
STOCKHOLDER RECORD DATE FOR THE SPECIAL MEETING AND OUTSTANDING SHARES
Only holders of record of Loronix common stock at the close of business on
the record date are entitled to notice of and to vote at the meeting. Our board
of directors has fixed the close of business on June 8, 2000, as the record date
for determination of stockholders entitled to notice of and entitled to vote at
the special meeting. As of June 7, 2000, there were 5,171,588 shares of Loronix
common stock outstanding and entitled to vote, held of record by approximately
69 holders of record, although Loronix is informed that there are approximately
2,650 beneficial owners. Each stockholder is entitled to one vote for each share
of common stock held as of the record date.
VOTE OF LORONIX STOCKHOLDERS REQUIRED FOR APPROVAL OF THE MERGER
A majority of the outstanding shares of Loronix common stock entitled to
vote at the special meeting must be represented, either in person or by proxy,
to constitute a quorum at the special meeting. The affirmative vote of the
holders of at least a majority of our outstanding common stock is required to
approve the merger agreement. You are entitled to one vote for each share held
by you on the record date on each proposal to be presented to stockholders at
the special meeting.
As of June 7, 2000, directors and executive officers of Loronix and their
affiliates held approximately 1,112,442 outstanding shares of Loronix stock,
which represented approximately 22% of all outstanding shares of Loronix common
stock entitled to vote at the special meeting.
Certain of our directors, executive officers and management are parties to
voting agreements with Comverse and have agreed to vote their outstanding shares
in favor of the approval of the merger agreement. As of June 7, 2000, they held
approximately 1,140,606 outstanding shares, which represented approximately 22%
of the outstanding shares of our common stock.
PROXIES
All shares of Loronix common stock represented by properly executed proxies
that we receive before or at the special meeting will, unless the proxies are
revoked, be voted in accordance with the instructions indicated thereon. If no
instructions are indicated on a properly executed proxy, the shares will be
voted FOR approval of the merger agreement. You are urged to mark the applicable
box on the proxy to indicate how to vote your shares.
If a properly executed proxy is returned and the stockholder has abstained
from voting on approval of the merger agreement, the Loronix common stock
represented by the proxy will be considered present at the special meeting for
purposes of determining a quorum, but will not be considered to have been voted
in favor of approving the merger agreement. Similarly, if an executed proxy is
returned by a broker holding shares of Loronix common stock in street name which
indicates that the broker does not have discretionary authority to vote on
approval of the merger agreement, the
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shares will be considered present at the meeting for purposes of determining the
presence of a quorum, but will not be considered to have been voted in favor of
approval of the merger agreement. Your broker will vote your shares only if you
provide instructions on how to vote by following the information provided to you
by your broker, so please instruct your broker.
BECAUSE APPROVAL OF THE MERGER AGREEMENT REQUIRES THE AFFIRMATIVE VOTE OF AT
LEAST A MAJORITY OF LORONIX'S COMMON STOCK OUTSTANDING AS OF THE RECORD DATE,
ABSTENTIONS, FAILURES TO VOTE AND BROKER NON-VOTES WILL HAVE THE SAME EFFECT AS
VOTES AGAINST APPROVAL.
We do not expect that any matter other than approval of the merger agreement
will be brought before the special meeting. If, however, other matters are
properly presented, the persons named as proxies will vote in accordance with
their judgment with respect to those matters, unless authority to do so is
withheld in the proxy.
You may revoke your proxy at any time before it is voted by:
- notifying in writing the Secretary of Loronix at 820 Airport Road,
Durango, Colorado 81301, Attention: Secretary;
- granting a subsequent proxy; or
- appearing in person and voting at the special meeting (attendance at the
special meeting will not in and of itself constitute revocation of a
proxy).
Comverse and Loronix will equally share the expenses incurred in connection
with the printing and mailing of this proxy statement/prospectus. Loronix and
American Stock Transfer and Trust Company will request banks, brokers and other
intermediaries holding shares beneficially owned by others to send this proxy
statement/prospectus to and obtain proxies from the beneficial owners, and will
reimburse the holders for their reasonable expenses in doing so.
YOU SHOULD NOT SEND IN ANY STOCK CERTIFICATES WITH YOUR PROXIES. A
TRANSMITTAL FORM WITH INSTRUCTIONS FOR THE SURRENDER OF ANY STOCK CERTIFICATES
HELD BY YOU WILL BE MAILED TO YOU SOON AFTER THE COMPLETION OF THE MERGER.
PROXY SOLICITATION
Following the original mailing of the proxies and other soliciting
materials, Loronix and its agents also may solicit proxies by mail, telephone,
e-mail or in person. Loronix will pay the expenses of soliciting proxies to be
voted at the meeting.
Following the original mailing of the proxies and other soliciting
materials, Loronix may request brokers, custodians, nominees and other record
holders of Loronix common stock to forward copies of the proxy and other
soliciting materials to persons for whom they hold shares of common stock and to
request authority for the exercise of proxies. In those cases, Loronix will
reimburse record holders for their reasonable expenses upon their request.
Loronix has engaged the services of Skinner & Company as proxy solicitor for
a fee of $7,500.
AVAILABILITY OF ACCOUNTANTS
KPMG LLP has acted as our independent accounting firm since 1990.
Representatives of KPMG are expected to be present at the special meeting, will
have an opportunity to make a statement if they desire to do so and are expected
to be available to respond to appropriate questions. Deloitte and Touche LLP,
Comverse's independent auditors, are not expected to appear at the meeting.
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THE MERGER AND RELATED TRANSACTIONS
THIS SECTION OF THE PROXY STATEMENT/PROSPECTUS DESCRIBES MATERIAL ASPECTS OF
THE PROPOSED MERGER. WHILE WE BELIEVE THAT THE DESCRIPTION COVERS THE MATERIAL
TERMS OF THE MERGER AND THE RELATED TRANSACTIONS, THIS SUMMARY MAY NOT CONTAIN
ALL OF THE INFORMATION THAT IS IMPORTANT TO YOU. YOU SHOULD READ THIS ENTIRE
DOCUMENT AND THE OTHER DOCUMENTS WE REFER TO CAREFULLY FOR A MORE COMPLETE
UNDERSTANDING OF THE MERGER.
BACKGROUND OF THE MERGER
In pursuing Loronix's strategy for enhancing stockholder value, Loronix has
regularly considered opportunities for acquisitions, joint ventures, and other
strategic alliances.
From mid-January to mid-June, 1999, Loronix senior management, in
consultation with the board of directors, was involved in discussions with
another company ("Company A") regarding a potential business combination.
In January, 1999, Company A inquired with Loronix senior management about
the possibility of acquiring Loronix. On January 29, 1999, at a meeting of the
Loronix board, Loronix senior management discussed Company A's inquiry and the
board authorized and directed Loronix management to engage in further
discussions with Company A about it.
Loronix senior management met with representatives of Company A on March 5,
1999, in Durango, Colorado, at which time Company A senior management presented
a corporate overview and discussed its acquisitions process and valuation
methodology. Loronix senior management presented a corporate overview and 1999
revenue projections. During the meeting, Loronix and Company A entered into a
nondisclosure and standstill agreement.
On March 16, 1999, at the headquarters of Company A, Loronix senior
management and representatives of Company A met again, and Company A
representatives made a presentation regarding Company A's understanding of
Loronix's competition, potential competition and the risks associated with
Loronix's business. Loronix representatives presented a revenue forecast for
1999, as well as estimates for year 2000. At the end of the meeting, the
participants discussed a schedule for additional review of Loronix's business by
Company A.
During Loronix's discussions with Company A, Loronix contacted its
attorneys, Wilson Sonsini Goodrich & Rosati, Professional Corporation ("WSGR"),
and asked WSGR to make recommendations for an investment banking firm that could
render a fairness opinion should the transaction with Company A be consummated.
WSGR put Loronix in touch with Warburg Dillon Read ("Warburg") and Broadview
International LLC ("Broadview").
Both Warburg and Broadview came to Durango in March, 1999, met with Loronix
senior management, and presented their corporate profile, history of
transactions and how they would approach a potential transaction with Company A.
Based on several factors, including fee structure and synergies with the
potential transaction, Loronix chose Broadview.
On April 6, 1999, Loronix engaged Broadview to act as its financial advisor
in connection with the potential transaction with Company A, or any other
potential business combination. (The amount of Broadview's fee was subsequently
revised on October 19, 1999.) On April 19, 1999, Loronix senior management,
together with Broadview, met with representatives of Company A to detail the
strategic rationale for an acquisition. Loronix representatives outlined a
detailed operating plan and Broadview presented an outline of valuation
expectations for Loronix.
On May 3, 1999, the Loronix board of directors reviewed a report setting out
valuation considerations relating to the proposed acquisition of Loronix by
Company A. The report was discussed by the board with guidance from Loronix's
senior management, and the board further authorized and directed Loronix
management to continue discussions with Company A.
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On June 24, 1999, Company A notified Loronix that Company A was terminating
further discussions and due diligence concerning a potential transaction with
Loronix due to an internal reorganization of Company A.
In July 1999, at Loronix's request, Broadview contacted the management of
several other companies that Broadview believed might be interested in engaging
in a business combination with Loronix. On July 15, 1999, Broadview received an
indication of interest from one of those companies ("Company B").
On September 1, 1999, Loronix senior management, together with Broadview,
met with representatives of Company B and its financial advisor at Broadview's
headquarters in Fort Lee, New Jersey. Loronix representatives presented a
corporate overview to Company B. The representatives of Company B and Loronix
also discussed the potential synergies and benefits of a business combination
between Loronix and Company B.
On September 28, 1999, the board discussed the possibility of an acquisition
of Loronix by Company B, and the board authorized and instructed Loronix
management, with the assistance of Broadview, to continue discussions with
Company B. On October 4, 1999, Company B and Loronix entered into a
non-disclosure and standstill agreement.
On October 20, 1999, a second meeting between representatives of Loronix and
Company B was held in Durango, Colorado, to discuss further the merits of a
possible business combination and to permit Company B to investigate Loronix
further. Loronix representatives presented another corporate overview and year
2000 projections. Company B representatives presented an overview of Company B,
and Loronix and Company B further discussed the potential benefits of a business
combination involving the companies. Loronix's board of directors was updated as
to the status of such negotiations in November, 1999.
Negotiations between Loronix, Broadview and Company B's financial advisor
stalled in mid-November. On December 21, 1999, however, representatives of
Company B invited Loronix senior management to Company B's headquarters to
continue discussions.
In early February 2000, Broadview representatives discussed with Loronix
senior management the possibility of engaging in exploratory discussions with
Comverse. On February 14, 2000, a Broadview representative contacted Kobi
Alexander, Chairman and Chief Executive Officer of Comverse, and inquired
whether Comverse was interested in discussing a potential transaction with
Loronix.
On February 17, 2000, Loronix's senior management and Broadview met with
representatives of Company B and its financial advisor at Company B's
headquarters. Company B provided Loronix representatives and Broadview
representatives with a tour of Company B's facilities and presented an overview
of Company B's operations and products. Loronix representatives provided an
update of year 2000 revenue projections and valuation methodologies were
discussed. At the end of the meeting, Company B indicated they would be
interested in acquiring Loronix in exchange for shares of Company B common stock
based on a fixed exchange ratio that represented an offer price as of that date
equal to $31.56 per Loronix share.
On February, 21, 2000, a conference call was conducted among Broadview,
Mr. Alexander of Comverse, Mr. Dan Bodner, President of Comverse Infosys, Inc.,
Mr. David Ledwell, Chief Executive Officer and Director of Loronix, and
Mr. Jonathan Lupia, Chief Operating Officer, Chief Financial Officer and
Secretary of Loronix, to discuss a possible business combination between Loronix
and Comverse. Comverse representatives provided an overview of the business of
Comverse and Loronix representatives provided an overview of the business of
Loronix, including product offerings, customers, distribution strategies,
challenges, and the potential benefits of a business combination of Comverse and
Loronix.
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On February 22, 2000, the Loronix board of directors held a telephonic board
meeting during which Broadview and Loronix management discussed the results of
their meetings with Company B. Among the topics discussed were different
possible transaction and pricing structures with Company B. The board discussed
and considered the merits of such transaction and pricing structures and
directed Loronix management to continue discussions with Company B. Loronix
management and Broadview next updated the board on the February 21, 2000,
conference call with Comverse and the board directed management to continue
discussions with Comverse.
On February 24, 2000, a meeting was held in New York City to discuss further
the merits of a possible business combination between Loronix and Comverse. This
meeting was attended by Broadview, Mr. Alexander of Comverse, Mr. Bodner of
Comverse Infosys, Mr. Igal Nissim, Vice President of Comverse Infosys, Mr. Ted
Lubowsky, Vice President of Comverse Infosys, and by Mr. Ledwell, Mr. Lupia and
Mr. Peter Jankowski, Chief Technical Officer of Loronix. Comverse and Loronix
representatives made presentations and discussed the merits of a business
combination. A confidentiality agreement was executed and delivered at the
meeting.
On February 25, 2000, Mr. Bodner and Mr. Nissim of Comverse Infosys visited
Loronix in Durango, Colorado, to conduct further investigation of Loronix. This
investigation continued through the week, and on March 1, 2000, Comverse
delivered to Loronix a draft of a definitive agreement with respect to a
business combination concerning Loronix and Comverse.
On March 2, 2000, Loronix senior management, together with Broadview, met
with Company B in New York City to discuss further the terms of a potential
strategic combination. Representatives of Loronix, Broadview and Company B
discussed the status of Company B's investigation of Loronix. At the end of the
meeting, Company B submitted a final proposal to acquire Loronix in exchange for
shares of Company B's common stock, based on a fixed exchange ratio that
represented an offer price of $38.49 per Loronix share as of March 3, 2000.
On Friday, March 3, 2000, Mr. Ledwell, Mr. Lupia and Mr. Jankowski of
Loronix, together with representatives of Broadview and WSGR, met in New York
City with Mr. Alexander and Mr. David Kreinberg, Chief Financial Officer of
Comverse, together with representatives of Weil, Gotshal & Manges LLP, legal
counsel to Comverse, to discuss further and negotiate the terms of a strategic
combination. During the negotiations, the executive team of Loronix consulted by
telephone with Mr. Edward Jankowski, Chairman of the board of directors of
Loronix. At the end of this meeting, Comverse submitted a final proposal,
offering a fixed exchange ratio of 0.1925 (or 0.385 after giving effect to the
Comverse two-for-one stock split completed on April 3, 2000), representing an
offer price, as of the trading on that day, equal to $43.79 per Loronix share
and including a "soft floor" of $36 per Loronix share (i.e., a minimum exchange
ratio below which Loronix could seek to terminate the deal, subject to
Comverse's option "to top up" to $36 per share).
From Friday, March 3, 2000, through, Sunday, March 5, 2000, Loronix's
executive team and financial and legal advisors had extended meetings with
Mr. Alexander and Mr. Kreinberg of Comverse and Comverse's legal advisors,
concerning proposed definitive terms of a business combination between Loronix
and Comverse. At the end of the meetings, the executives and representatives of
Loronix reached terms of proposed definitive documentation that they were
prepared to present to the Loronix board.
Early in the morning hours of March 6, 2000, a meeting of the Loronix board
of directors and Loronix's financial and legal advisors was held in Carefree,
Arizona. Broadview reviewed the outstanding proposals from Comverse and Company
B and the history of the negotiations, and Loronix's legal counsel reviewed the
terms of the proposed definitive documentation. After analysis, discussion and
consideration of the proposed transactions, as well as the written opinion of
Broadview that, as of the date of its opinion, the exchange ratio set forth in
the merger agreement was fair, from
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a financial point of view, to Loronix stockholders, the Loronix board determined
that the merger with Comverse was advisable and in the best interests of Loronix
and its stockholders.
At the conclusion of the board meeting, the Loronix board approved the
merger documentation, and recommended that the stockholders of Loronix vote in
favor of the merger. Loronix and Comverse then entered into the merger agreement
and the stock option agreement, and each of David Ledwell, Jonathan Lupia, Peter
Jankowski, Donald Stevens, Rodney Wilger, F. James Price, Timothy Whitehead, and
the Jankowski Family Trust entered into a voting agreement with Comverse.
Shortly thereafter, and prior to the opening of business on March 6, 2000,
Comverse and Loronix issued a press release to announce the definitive
agreement.
LORONIX'S REASONS FOR THE MERGER
Loronix's board of directors consulted with management, as well as Broadview
and WSGR, and considered a number of factors, including the factors described
below, and determined that the terms of the merger and the merger agreement are
advisable and fair to, and in the best interests of, Loronix and its
stockholders. Accordingly, Loronix's board of directors approved the merger
agreement, the stock option agreement, and the consummation of the merger, and
recommends that you vote FOR approval of the merger agreement and the merger.
In reaching its decision, the Loronix board of directors identified several
benefits it believes will result from the merger, the most important of which
included:
- the merger will represent a significant step forward in Loronix's strategy
of remaining a global leader in digital recording and video management
systems and digital identification products;
- the combination of Loronix's proprietary software and open architecture
product design, together with Comverse's existing capital, infrastructure,
and access to capital, will provide opportunities to realize significant
benefits and long-term value to stockholders;
- Comverse stock should afford Loronix stockholders with substantially
increased trading liquidity for their investment; and
- access to Comverse's greater resources including its size and standing
within the industry.
PLEASE NOTE THAT THE FOREGOING STATEMENTS REGARDING THE BUSINESS PROSPECTS
AND BENEFITS TO LORONIX AND COMVERSE ARE FORWARD LOOKING.
Among the factors considered by the Loronix board of directors in its
deliberations were the following:
- the financial condition, results of operations, cash flow, business and
prospects of Loronix, and Comverse, on both a historical and prospective
basis;
- the current economic and industry environment, including Loronix's
position within its industry;
- the complementary nature of the technology, products, services and
customer base of Loronix and Comverse, including that Comverse does not
presently have products that compete with Loronix's products;
- the merger would provide Loronix with access to technologies not presently
available to it;
- the merger would provide Loronix with a much larger potential customer
base;
- the merger would provide Loronix with significantly more potential
distribution channels;
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- the intense competition in the digital video technology industry and the
ability of larger industry participants to increase market share more
easily than smaller participants like Loronix;
- the key strengths that Comverse will provide as a merger partner;
including breadth and expertise, distribution and logistics strength, its
strong customer relationships and its reputation as a leading worldwide
technology company;
- the fairness to Loronix of the terms of the merger agreement and the stock
option agreement, which were the product of extensive arm's length
negotiations. In particular, Loronix's board of directors considered the
stock option granted to Comverse, the events triggering payment of the
termination fee and the limitations on the ability of Loronix to negotiate
with other companies regarding an alternative transaction, the potential
effect these provisions would have on Loronix receiving alternative
proposals that could be superior to the merger, the strategic
alternatives, and the requirement by Comverse of the granting of the stock
option in order for Comverse to enter into the merger agreement;
- the fact that the merger is expected to qualify as a tax-free
reorganization and to be accounted for using the pooling-of-interests
method of accounting;
- the analysis prepared by Broadview and presented to Loronix's board of
directors and the opinion of Broadview that, as of March 5, 2000, the
exchange ratio set forth in the merger agreement was fair, from a
financial point of view, to the holders of Loronix common stock, as
described more fully in the text of the entire opinion attached as Annex D
to this proxy statement/prospectus;
- the capital needs of Loronix if it were to remain a stand-alone company,
and that there could be no assurance that Loronix could satisfy those
capital requirements on acceptable terms; and
- the manpower, infrastructure and engineering needs of Loronix that would
potentially be more easily met if Loronix were to be acquired by Comverse.
In assessing the transaction, the Loronix board of directors considered a
variety of information, including the following:
- written and oral reports from Broadview on companies comparable to
Comverse and other financial analyses performed by Broadview, and
Broadview's conclusion that the proposed exchange ratio was fair from a
financial point of view to Loronix stockholders;
- historical information concerning the businesses operations, positions and
results of operations, technology and management style, competitive
position, industry trends and prospects of Loronix and Comverse;
- information contained in SEC filings of Comverse;
- current and historical market prices, volatility and trading data for the
two companies, and the premium over the closing price of Loronix common
stock on March 3, 2000, the last full trading day prior to the board
meeting at which the merger was approved, and the date on which Loronix
stock closed at the highest last-sale price in its trading history through
such date;
- information and advice based on investigations made by Mr. Ledwell,
Mr. Lupia, and Mr. P. Jankowski, and Loronix's legal and financial
advisors concerning the business, technology, services, operations,
properties, assets, financial condition, operating results and prospects
of Comverse, trends in Comverse's business and financial results and
capabilities of Comverse's management team; and
- the terms and conditions of the proposed agreement, including those
permitting the board to receive and to consider unsolicited inquiries and
proposals from, and to negotiate and give
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information to, third parties in accordance with a negotiated procedure
for doing so, that the total amount that could be paid to Comverse
pursuant to the termination fee and stock option agreement was limited to
$11 million, that the fee would not, in and of itself, preclude
alternative proposals, and that Comverse had stated that it would not
enter into a transaction that did not include a termination fee to be paid
in the event of acceptance of a superior proposal.
The Loronix board of directors compared the proposal of Comverse to an
alternative acquisition proposal made by Company B and, after an extensive
comparison, determined that the Comverse proposal was superior for various
reasons, including:
- the Comverse proposal provided a significantly higher implied price per
share for Loronix stockholders compared to the alternative acquisition
proposal made by Company B;
- unlike the Company B proposal, under the Comverse proposal we have the
right to seek to terminate the merger agreement if the value of Comverse
shares to be received by you, based on a five-day average of the daily
closing prices of Comverse common stock, measured as of the third trading
day prior to the closing of the merger, is less than $36 per Loronix
share, subject to Comverse's right to increase the exchange ratio to
adjust the merger consideration to $36 per Loronix share;
- the believed superior ability of Comverse to consummate a transaction, in
light of the demonstrated ability of Comverse to move quickly, decisively
and efficiently to complete due diligence and definitive documentation
prior to Company B;
- the larger size and resources of Comverse, compared to Company B;
- the values of the common stock of Comverse and the common stock of Company
B;
- analysts stock price targets and recommendations with respect to Comverse
shares and shares of Company B;
- historical price and volume data for Comverse shares and Company B shares;
and
- historical and pro-forma combined financial statements for each of
Comverse and Company B.
Loronix's board of directors also identified and considered a number of
uncertainties and risks in its deliberations concerning the merger, including
the following:
- the risk that the potential benefits sought in the merger might not be
fully realized, if at all;
- the risk that Comverse's stock price is volatile and might decrease
significantly between the date of the merger agreement and the closing;
- the risk that the stock option agreement, if exercisable, would diminish
the ability of a third party acquiror to account for an acquisition of
Loronix using the pooling-of-interests method of accounting, which would
reduce the number of potential acquirers; and
- the other risks associated with the businesses of Comverse, Loronix, the
merged companies and the merger, including those described in this proxy
statement/prospectus under "Risk Factors."
As a result of the foregoing considerations, Loronix's board of directors
determined that the potential advantages of the merger outweighed the benefits
of remaining an independent company. Loronix's board of directors believes that
Loronix, following its combination with Comverse, will have a far greater
opportunity than Loronix as an independent company to compete effectively in its
industry.
In view of the variety of factors considered in connection with its
evaluation of the merger, Loronix's board of directors did not find it
practicable to quantify or otherwise assign relative weights to the specific
factors considered in reaching its determination and did not do so. In addition,
many of
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the factors contained elements which may affect the fairness of the merger in
both a positive and negative way. Except as described above, Loronix's board of
directors, as a whole, did not attempt to analyze each individual factor
separately to determine how it impacted the fairness of the merger.
Consequently, individual members of Loronix's board of directors may have given
different weights to different factors and may have viewed different factors as
affecting the determination of fairness differently.
RECOMMENDATION OF LORONIX'S BOARD OF DIRECTORS
AFTER CAREFUL CONSIDERATION, LORONIX'S BOARD OF DIRECTORS DETERMINED THE
MERGER TO BE ADVISABLE AND FAIR TO YOU AND IN YOUR BEST INTERESTS. THE LORONIX
BOARD OF DIRECTORS ADOPTED THE MERGER AGREEMENT AND RECOMMENDS THAT YOU VOTE FOR
APPROVAL OF THE MERGER.
In considering the recommendation of Loronix's board of directors with
respect to the merger agreement, you should be aware that some directors and
officers of Loronix have interests in the merger that are different from, or are
in addition to, the interests of Loronix stockholders generally. Please see the
section entitled "Interests of Certain Loronix Directors, Officers and
Affiliates in the Merger" on page 41 of this proxy statement/prospectus.
OPINION OF LORONIX'S FINANCIAL ADVISOR
Pursuant to a letter agreement dated as of April 6, 1999 (the fee portion of
which was revised on October 19, 1999), Broadview was engaged to act as
financial advisor to the Loronix board and to render an opinion to the Loronix
board regarding the fairness of the exchange ratio, from a financial point of
view, to Loronix stockholders. The Loronix board selected Broadview to act as
financial advisor based on Broadview's reputation and experience in the
information technology, communication and media sector. At the meeting of the
Loronix board on March 6, 2000, Broadview rendered its opinion that, as of March
5, 2000, based upon and subject to the various factors and assumptions, the
exchange ratio was fair, from a financial point of view, to Loronix
stockholders.
BROADVIEW'S OPINION, WHICH DESCRIBES THE ASSUMPTIONS MADE, MATTERS
CONSIDERED AND LIMITATIONS ON THE REVIEW UNDERTAKEN BY BROADVIEW, IS ATTACHED AS
ANNEX D TO THIS DOCUMENT. LORONIX STOCKHOLDERS ARE URGED TO, AND SHOULD, READ
THE BROADVIEW OPINION CAREFULLY AND IN ITS ENTIRETY. THE BROADVIEW OPINION IS
DIRECTED TO THE LORONIX BOARD AND ADDRESSES ONLY THE FAIRNESS OF THE EXCHANGE
RATIO FROM A FINANCIAL POINT OF VIEW TO THE HOLDERS OF SHARES OF LORONIX COMMON
STOCK AS OF THE DATE OF THE OPINION. THE BROADVIEW OPINION DOES NOT ADDRESS ANY
OTHER ASPECT OF THE MERGER AND DOES NOT CONSTITUTE A RECOMMENDATION TO ANY
HOLDER OF LORONIX COMMON STOCK AS TO HOW TO VOTE AT THE LORONIX SPECIAL MEETING.
THE SUMMARY OF THE BROADVIEW OPINION SET FORTH IN THIS PROXY STATEMENT, ALTHOUGH
MATERIALLY COMPLETE, IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE FULL TEXT
OF SUCH OPINION.
In connection with rendering its opinion, Broadview, among other things:
- reviewed the terms of a draft of the Agreement dated March 5, 2000
furnished to Broadview by Loronix on March 5, 2000;
- reviewed certain publicly available financial statements and other
information of Loronix and Comverse, respectively;
- reviewed certain financial projections for Loronix prepared and provided
to Broadview by Loronix management;
- participated in discussions with Loronix and Comverse management
concerning the operations, business strategy, financial performance and
prospects for Loronix and Comverse, respectively;
- discussed the strategic rationale for the merger with Loronix management
and Comverse management;
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- reviewed the reported closing prices and trading activity for Loronix
common stock and Comverse common stock;
- compared certain aspects of the financial performance of Loronix and
Comverse with other comparable public companies;
- analyzed available information, both public and private, concerning other
comparable mergers and acquisitions;
- reviewed recent equity research analyst reports covering Loronix and
Comverse;
- analyzed the anticipated effect of the merger on the future financial
performance of Comverse;
- participated in discussions related to the merger among Loronix, Comverse
and their respective advisors; and
- conducted other financial studies, analyses and investigations as
Broadview deemed appropriate for purposes of its opinion.
In rendering its opinion, Broadview relied, without independent
verification, on the accuracy and completeness of all the financial and other
information (including without limitation the representations and warranties
contained in the Agreement) that was publicly available or furnished to
Broadview by Loronix or Comverse. With respect to the financial projections
examined by Broadview, Broadview assumed that they were reasonably prepared and
reflected the best available estimates and good faith judgments of the
management of Loronix as to the future performance of Loronix. For purposes of
Broadview's opinion, Broadview assumed that, as of the date of Broadview's
opinion, Loronix is not currently involved in any material transaction other
than the merger and those activities undertaken in the ordinary course of
conducting its business.
Broadview did not make or obtain an independent appraisal or valuation of
any of Loronix's assets. Broadview's opinion is necessarily based upon market,
economic, financial and other conditions as they exist and can be evaluated as
of March 5, 2000, and any change since such date may impact Broadview's opinion.
The Broadview opinion did not express any opinion as to the price at which
Comverse Common Stock will trade at any time.
The following is a brief summary of some of the sources of information and
valuation methodologies employed by Broadview in rendering the Broadview
opinion. These analyses were presented to the Loronix Board at its meeting on
March 6, 2000. This summary includes the financial analyses used by Broadview
and deemed to be material, but does not purport to be a complete description of
analyses performed by Broadview in arriving at its opinion. This summary of
financial analyses includes information presented in tabular format. In order
fully to understand the financial analyses used by Broadview, the tables must be
read together with the text of each summary. The tables alone do not constitute
a complete description of the financial analyses.
LORONIX STOCK PERFORMANCE ANALYSIS. Broadview compared the recent stock
performance of Loronix with that of the following indices:
- S&P 500
- The Loronix Comparable Index, consisting of the following companies:
- Optimal Robotics Corp.;
- NICE Systems Ltd.;
- Pinnacle Systems, Inc.;
- Digital Biometrics, Inc.;
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- Aspeon, Inc.;
- HMG Corp;
- Printrak International Inc.; and
- PAR Technology Corp.
This index is comprised of public companies Broadview deemed comparable
to Loronix's business. Broadview selected companies providing integrated
hardware and software solutions with the following financial operating
characteristics:
- revenues between $25 million and $200 million for the last twelve
months;
- revenue growth greater than 15% for the last twelve months; and
- positive net margins for the last twelve months.
PUBLIC COMPANY COMPARABLES ANALYSIS. Broadview considered ratios of share
price and market capitalization, adjusted for cash and debt when necessary, to
selected historical and projected operating results in order to derive multiples
placed on a company in a particular market segment. In order to perform this
analysis, Broadview compared financial information of Loronix with publicly
available information for the companies comprising the Loronix Comparable Index.
For this analysis, as well as other analyses, Broadview examined publicly
available information, as well as a range of estimates based on equity research
analyst reports and financial projections prepared by Loronix management.
The following table presents, as of March 5, 2000, the median multiples and
the range of multiples for the Loronix Comparable Index of Total Market
Capitalization (defined as equity market capitalization plus total debt minus
cash and cash equivalents), Equity Market Capitalization and Share Price divided
by selected operating metrics:
<TABLE>
<CAPTION>
MEDIAN MULTIPLE RANGE OF MULTIPLES
--------------- ---------------------------
<S> <C> <C> <C> <C>
Total Market Capitalization to Last
Twelve Months Revenue....................................... 3.48x 0.33x -- 11.43x
Share Price to Last Twelve Months
Earnings Per Share.......................................... 55.53x 13.96x -- 114.84x
Total Market Capitalization to
Projected Calendar Year 2000 Revenue........................ 3.89x 0.99x -- 5.68x
Share Price to Projected Calendar Year
2000 Earnings Per Share..................................... 41.82x 6.56x -- 78.03x
</TABLE>
The following table presents, as of March 5, 2000, the median implied value
and the range of implied values of Loronix's stock, calculated by using the
multiples of the index shown above and the appropriate Loronix operating metric:
<TABLE>
<CAPTION>
MEDIAN
IMPLIED RANGE OF IMPLIED
VALUE VALUES
------- ---------------------------
<S> <C> <C> <C> <C>
Total Market Capitalization to Last Twelve Months Revenue... $24.10 $ 2.68 -- $77.95
Share Price to Last Twelve Months Earnings Per Share........ $44.94 $11.30 -- $92.94
Total Market Capitalization to Projected Calendar Year 2000
Revenue................................................... $42.67 $11.19 -- $62.12
Share Price to Projected Calendar Year 2000 Earnings Per
Share..................................................... $43.91 $ 6.89 -- $81.93
</TABLE>
No company utilized in the public company comparables analysis as a
comparison is identical to Loronix. In evaluating the comparables, Broadview
made numerous assumptions with respect to integrated hardware and software
solutions industry performance and general economic conditions,
35
<PAGE>
many of which are beyond the control of Loronix. Mathematical analysis, such as
determining the median, average, or range, is not in itself a meaningful method
of using comparable company data.
TRANSACTION COMPARABLES ANALYSIS. Broadview considered ratios of equity
purchase price, adjusted for the seller's cash and debt when appropriate, to
selected historical operating results in order to indicate multiples strategic
and financial acquirers have been willing to pay for companies in a particular
market segment. In order to perform this analysis, Broadview reviewed a number
of transactions considered similar to the merger. Broadview selected these
transactions by choosing recent transactions involving sellers providing
integrated hardware and software solutions with revenues between $10 million and
$200 million in the last reported twelve months before their acquisition. For
this analysis, as well as other analyses, Broadview examined publicly available
information, as well as information from Broadview's proprietary database of
published and confidential merger and acquisition transactions in the IT,
communication and media industries.
In order of descending adjusted purchase price to seller's revenue multiple,
the eleven public and private company transactions used were the acquisitions
of:
- Meridian Data, Inc. by Quantum Corp.;
- ATL Products, Inc. by Quantum Corp.;
- Elron International, Inc. by Zebra Technologies Corp.;
- Percon, Inc. by PSC, Inc.;
- Checkmate Electronics, Inc. by International Verifact, Inc.;
- Kofax Image Products, Inc. by Dicom Group plc;
- Texas Micro Inc. by RadiSys Corp.;
- Motion Analysis Systems Division (The Eastman Kodak Co.) by Roper
Industries, Inc.;
- Artecon, Inc. by BoxHill Systems Corp.;
- EMASS Tape Storage Business (Raytheon Co.) by Advanced Digital Information
Corp.; and
- Scitex Digital Video, Inc. (Scitex, Inc.) by Accom, Inc.
The following table presents, as of March 5, 2000, the median multiple and
the range of multiples of adjusted price (defined as equity price plus total
debt minus cash and cash equivalents) divided by the seller's revenue; earnings
before interest, taxes, depreciation, and amortization; and earnings before
interest and taxes in the last reported twelve months prior to acquisition for
the transactions listed above:
<TABLE>
<CAPTION>
MEDIAN MULTIPLE RANGE OF MULTIPLES
--------------- ------------------
<S> <C> <C>
Adjusted Purchase Price to Seller's Revenue... 1.16x 0.36x--3.61x
</TABLE>
36
<PAGE>
The following table presents, as of March 5, 2000, the median implied value
and the range of implied values of Loronix's stock, calculated by using the
multiples of both indexes, considered together, shown above and the appropriate
Loronix operating metric for the trailing twelve months ended December 31, 1999.
<TABLE>
<CAPTION>
MEDIAN IMPLIED VALUE RANGE OF IMPLIED VALUES
-------------------- -----------------------
<S> <C> <C>
Adjusted Purchase Price to Seller's
Revenue............................. $8.31 $ 2.89--$24.93
</TABLE>
No transaction utilized as a comparable in the transaction comparables
analysis is identical to the merger. In evaluating the comparables, Broadview
made numerous assumptions with respect to integrated hardware and software
solutions industry performance and general economic conditions, many of which
are beyond the control of Loronix or Comverse. Mathematical analysis, such as
determining the average, median, or range, is not in itself a meaningful method
of using comparable transaction data.
TRANSACTION PREMIUMS PAID ANALYSIS. Broadview considered the premiums paid
above a seller's share price in order to determine the additional value
strategic and financial acquirers, when compared to public stockholders, are
willing to pay for companies in a particular market segment. In order to perform
this analysis, Broadview reviewed a number of transactions involving
publicly-held hardware and software vendors. Broadview selected these
transactions from its proprietary database by choosing recent transactions with
an equity purchase price between $100 million and $500 million. These
transactions consisted of the acquisitions of:
- Isocor by Critical Path, Inc.;
- Mustang.com, Inc. by Quintus Corp;
- NetMoves Corp. by Mail.com, Inc.;
- nFront, Inc. by Digital Insight Corp.;
- Edify Corp. by Security First Technologies;
- Summa Four, Inc. by Cisco Systems, Inc.;
- SEEQ Technology, Inc. by LSI Logic Corp.;
- WorldTalk Communications Corp. by Tumbleweed Communications Corp.;
- Cybermedia, Inc. by Network Associates, Inc.;
- Mylex Corp. by IBM Corp.;
- Oshap Technologies Ltd. by Sungard Data Systems Inc.;
- Teltrend Corp. by Westell Technologies, Inc.;
- Scopus Technology Inc. by Siebel Systems Inc.;
- ATL Products, Inc. by Quantum Corp.;
- Softworks, Inc. by EMC Corp.;
- Trusted Information Systems Inc. by Network Associates Inc.;
- Faroudja, Inc. by Sage, Inc.;
- Texas Micro, Inc. by Radisys Corp.;
- Integrated Systems, Inc. by Wind River Systems, Inc.;
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<PAGE>
- STB Systems, Inc. by 3DFX Interactive, Inc.;
- Trident International, Inc. by Illinois Tool Works, Inc.;
- Imnet Systems Inc. by HBO & Company;
- Transition Systems, Inc. by Eclipsys Corp.;
- Moore Products Company by Siemens AG;
- Wonderware Corp. by Siebe Plc;
- Vertex Communications Corp. by Tripoint Global Communications, Inc.;
- OrCAD Inc. by Cadence Design Systems Inc.;
- Benmarq Microelectronics, Inc. by Unitrode Corp.;
- Computer Language Research Inc. by Thomson Corp.;
- Brite Voice Systems, Inc. by Intervoice, Inc.;
- Continental Circuits Corp. by Hadco Corp.;
- Caere Corp. by Scansoft, Inc.;
- Positron Fiber Systems Corp. by Reltec Corp.;
- FDP Corp. by SunGard Data Systems Inc.;
- Logic Works, Inc. by PLATINUM technology, inc.;
- Information Advantage, Inc. by Sterling Software, Inc.;
- Plasma-Therm, Inc. by Oerlikon-Buhrle Holding AG;
- Award Software International, Inc. by Phoenix Technologies Ltd.;
- Cade Industries, Inc. by United Technologies Corp.;
- Eltron International, Inc. by Zebra Technologies Corp.;
- Walsh International, Inc. by Cognizant Corp.;
- Powerhouse Technologies, Inc. by Anchor Gaming;
- Vantive Corp. by Peoplesoft, Inc.;
- The ForeFront Group by CBT Group plc;
- Shiva Corp. by Intel Corp.;
- Memco Software Ltd. by Platinum Technology Inc.;
- Best Software, Inc. by Sage Group PLC (Sage US, Inc.);
- Integrated Circuit Systems by Investor Group;
- Zero Corp. by Applied Power, Inc.;
- Mosaix Inc. by Lucent Technologies, Inc.;
- BGS Systems Inc. by BMC Software Inc.;
- Daniel Industries, Inc. by Emerson Electric Company;
- PC DOCS Group International Inc. by Hummingbird Communications Ltd.;
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<PAGE>
- Instron Corp. by Kirtland Capital Partners;
- State Of The Art, Inc. by Sage Group plc;
- International Telecommunications Data Systems, Inc. by Amdocs Ltd.;
- Aavid Thermal Technologies, Inc. by Willis Stein & Partners LP;
- Periphonics Corp. by Nortel Networks Corp.;
- Watkins-Johnson Company by Fox Paine & Company LLC;
- Banctec, Inc. by Welsh, Carson, Anderson & Stowe;
- Premisys Communications, Inc. by Zhone Technologies, Inc.;
- Integrated Process Equipment Corp. by SpeedFam International, Inc.;
- NACT Telecommunications, Inc. by World Access, Inc.;
- Control Devices, Inc. by First Technology plc;
- Simulation Sciences, Inc. by Siebe plc;
- XcelleNet, Inc. by Sterling Commerce, Inc.;
- Interactive Pictures Corp. and Bamboo.com; and
- Diamond Multimedia Systems, Inc. by S3, Inc.
The following table presents, as of March 5, 2000, the median premium and
the range of premiums for these transactions calculated by dividing
1) the offer price per share minus the closing share price of the seller's
common stock twenty trading days or one trading day prior to the public
announcement of the transaction, by
2) the closing share price of the seller's common stock twenty trading days
or one trading day prior to the public announcement of the transaction:
<TABLE>
<CAPTION>
MEDIAN PREMIUM RANGE OF PREMIUMS
-------------- -----------------------
<S> <C> <C> <C> <C>
Premium Paid to Seller's Share Price 20 Trading Days
Prior to Announcement................................. 57.2% (2.5%) - 233.2%
Premium Paid to Seller's Share Price 1 Trading Day Prior
to Announcement....................................... 29.6% (13.7%) - 132.4%
</TABLE>
The following table presents the median implied value and the range of
implied values of Loronix's stock, calculated by using the premiums shown above
and Loronix's share price twenty trading days and one trading day prior to March
5, 2000:
<TABLE>
<CAPTION>
RANGE OF IMPLIED
MEDIAN IMPLIED VALUE VALUES
-------------------- -----------------------
<S> <C> <C> <C> <C>
Premium Paid to Seller's Share Price 20 Trading Days
Prior to Announcement................................ $39.49 $24.51 - $83.73
Premium Paid to Seller's Share Price 1 Trading Day
Prior to Announcement................................ $40.67 $27.07 - $72.93
</TABLE>
No transaction utilized as a comparable in the transaction premiums paid
analysis is identical to the merger. In evaluating the comparables, Broadview
made numerous assumptions with respect to integrated hardware and software
solutions industry performance and general economic conditions,
39
<PAGE>
many of which are beyond the control of Loronix or Comverse. Mathematical
analysis, such as determining the average, median, or range, is not in itself a
meaningful method of using comparable transaction data.
PRESENT VALUE OF PROJECTED SHARE PRICE ANALYSIS. Broadview calculated the
present value of potential future share prices of Loronix common stock on a
standalone basis using analyst estimates and management-provided projections for
the twelve months ending December 31, 2000. The implied share price, calculated
by using analyst estimates, the median price to last twelve months earnings
multiple for the Loronix Comparable Index and a discount rate determined by the
Capital Asset Pricing Model with the risk implied by the past stock performance
of the Loronix Comparable Index, was $50.93. The implied share price, calculated
by using management-provided projections, the median price to last twelve months
earnings multiple for the Loronix Comparable Index and a discount rate
determined by the Capital Asset Pricing Model with the risk implied by the past
stock performance of the Loronix Comparable Index, was $58.21.
HISTORICAL IMPLIED EXCHANGE RATIO ANALYSIS. Broadview reviewed the ratios
of the closing prices of Loronix Common Stock divided by the corresponding
prices of Comverse Common Stock over the period from March 5, 1999 to March 3,
2000, in contrast with the exchange ratio defined in the agreement. Based on
this analysis, the historical exchange ratio has ranged from 0.1408 to 0.4454
with an average of 0.2710.
COMVERSE STOCK PERFORMANCE ANALYSIS. Broadview compared the recent stock
performance of Comverse with that of the following indices:
- S&P 500
- The Comverse Comparable Index, consisting of the following companies:
- Cisco Systems, Inc.;
- Tekelec;
- Tellabs, Inc.;
- LM Ericsson Telephone Co;
- Nortel Networks Corp.;
- Lucent Technologies Inc.; and
- ADC Telecommunications, Inc.
This index is comprised of public companies Broadview deemed comparable
to Comverse. Broadview selected companies competing in the computer
telephony industry with revenue for the last twelve months greater than
$200 million and positive revenue growth.
EVALUATION OF COMVERSE EQUITY. Broadview compared financial information of
Comverse with publicly available information for companies in the Comverse
Comparable Index. For this analysis, as well as other analyses, Broadview
examined publicly available information, as well as a range of estimates based
on equity research analyst reports.
PRO FORMA COMBINATION ANALYSIS. Broadview calculated the pro forma impact
of the merger on the combined entity's projected earnings per share for the
fiscal year ending January 31, 2001, taking into consideration various financial
effects which will result from consummation of the merger. This analysis relies
upon certain financial and operating assumptions provided by equity research
analysts and publicly available data about Comverse and Loronix. Broadview
assumed that the merger would be treated as a pooling-of-interests transaction
and that no opportunities for cost savings or revenue enhancements exist. Based
on this analysis, the pro forma pooling model indicates that the merger
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<PAGE>
would not result in earnings per share dilution for shareholders of the combined
entity excluding acquisition expenses, for the fiscal year ending January 31,
2001.
In connection with the review of the merger by the Loronix Board, Broadview
performed a variety of financial and comparative analyses. The summary set forth
above does not purport to be a complete description of the analyses performed by
Broadview in connection with the merger.
The preparation of a fairness opinion is a complex process and is not
necessarily susceptible to partial analysis or summary description. In arriving
at its opinion, Broadview considered the results of all of its analyses as a
whole and did not attribute any particular weight to any analysis or factor
considered by it. Furthermore, Broadview believes that selecting any portion of
its analyses, without considering all analyses, would create an incomplete view
of the process underlying its opinion.
In performing its analyses, Broadview made numerous assumptions with respect
to industry performance and general business and economic conditions and other
matters, many of which are beyond the control of Loronix or Comverse. The
analyses performed by Broadview are not necessarily indicative of actual values
or actual future results, which may be significantly more or less favorable than
suggested by such analyses. The exchange ratio pursuant to the merger agreement
and other terms of the merger agreement were determined through arm's length
negotiations between Loronix and Comverse, and were approved by Loronix's Board.
Broadview provided advice to Loronix's Board during such negotiations; however,
Broadview did not recommend any specific consideration to Loronix's Board or
that any specific consideration constituted the only appropriate consideration
for the merger. In arriving at its opinion, Broadview was not authorized to
solicit, and did not solicit, interest from any party with respect to the
acquisition, business combination or other extraordinary transaction involving
Loronix, although, in the course of its engagement, Broadview did provide advice
to Loronix in connection with potential business combinations with parties other
than Comverse. In addition, Broadview's opinion and presentation to Loronix's
Board was one of many factors taken into consideration by Loronix's Board in
making its decision to approve the merger. Consequently, the Broadview analyses
as described above should not be viewed as determinative of the opinion of
Loronix's Board with respect to the value of Loronix or of whether Loronix's
Board would have been willing to agree to a different consideration.
Pursuant to a letter agreement dated as of April 6, 1999, (the fee portion
of which was revised on October 19, 1999), Broadview was engaged to act as
financial advisor to Loronix's Board and to render an opinion to the Loronix
Board regarding the fairness of the exchange ratio, from a financial point of
view, to Loronix stockholders in the merger. Upon consummation of the merger,
Loronix will be obligated to pay Broadview a transaction fee, dependent upon
Comverse's closing price prior to the transaction or which, by way of example,
would be approximately $2,383,000 based on the closing price of the Comverse
common stock on June 6, 2000. Loronix has already paid Broadview a fairness
opinion fee of $200,000. The fairness opinion fee will be credited against the
transaction fee payable by Loronix upon completion of the merger. In addition,
Loronix has agreed to reimburse Broadview for its reasonable expenses, including
fees and expenses of its counsel, and to indemnify Broadview and its affiliates
against certain liabilities and expenses related to their engagement, including
liabilities under the federal securities laws. The terms of the fee arrangement
with Broadview, which Loronix and Broadview believe are customary in
transactions of this nature, were negotiated at arm's length between Loronix and
Broadview, and the Loronix Board was aware of the nature of the fee arrangement,
including the fact that a significant portion of the fees payable to Broadview
is contingent upon completion of the merger.
INTERESTS OF CERTAIN LORONIX DIRECTORS, OFFICERS AND AFFILIATES IN THE MERGER
When considering the recommendation of Loronix's board of directors, you
should be aware that Loronix's directors and officers have interests in the
merger that are different from, or are in addition
41
<PAGE>
to, your interests. In particular, some of the directors and officers of Loronix
participate in arrangements and have continuing indemnification against
liabilities that provide them with interests in the merger that are different
from, or are in addition to, your interests.
Under the merger agreement, Comverse has agreed to honor Loronix's
obligations under indemnification agreements between Loronix and its directors
and officers in effect before the completion of the merger and any
indemnification provisions of Loronix's articles of incorporation and bylaws.
Comverse has also agreed to provide for indemnification provisions in the
articles of incorporation and bylaws of the surviving corporation of the merger
that are at least as favorable as Loronix's provisions and to maintain these
provisions for at least six (6) years from the completion of the merger.
In addition, Comverse has agreed to obtain and maintain directors' and
officers' liability insurance for Loronix's directors and officers, for five
(5) years from the effective time of the merger, consistent with insurance
coverage provided for Comverse's or its subsidiaries' directors and officers of
similar position.
Further, Comverse has agreed to cause certain directors of Loronix, namely
Messrs. C. Rodney Wilger, Donald W. Stevens and Louis E. Colonna, to be elected
to the board of directors of Loronix following the merger through May, 2003,
provided that such directors desire to continue to so serve. We do not expect
that they will receive any additional compensation for continuing to act as
directors.
The officers of Loronix at the effective time of the merger will continue to
be the initial officers of Loronix after the merger, to hold office until their
successors are elected or appointed or until their earlier resignation or
removal. Comverse has agreed to enter into employment agreements with certain
officers of Loronix. In connection with the merger, David Ledwell, the Chief
Executive Officer and President of Loronix, Peter Jankowski, the Chief Technical
Officer of Loronix, and Jonathan Lupia, the Chief Operating Officer, Chief
Financial Officer and Secretary of Loronix, will enter into employment
agreements with Loronix.
Under the terms of the employment agreements for Messrs. Ledwell and Lupia,
they will have minimum salaries and bonus opportunities for a term of two years
following the effective date of the merger. Their minimum salaries will be
$200,000 and $140,000 per year, respectively. Their bonus opportunities will be
$70,000 and $42,000 for fiscal year 2000, respectively. In addition,
Mr. Ledwell will receive options to purchase 24,000 shares Comverse common stock
(after giving effect to the two-for-one split completed on April 3, 2000) in
lieu of options Loronix had previously undertaken to grant to Mr. Ledwell, which
had not yet been granted as of the date of merger agreement. Mr. Lupia will
receive options to purchase 10,000 shares of the Comverse common stock (after
giving effect to the two-for-one split completed on April 3, 2000). Mr. Ledwell
will continue in his positions as Chief Executive Officer and President of
Loronix and Mr. Lupia will continue in the capacity of Chief Financial Officer
of Loronix. Under the agreements, either Loronix or the employee may, at any
time during the employment term, terminate employment on six months prior
notice.
Under the terms of the employment agreement for Mr. Jankowski, he will
receive a minimum salary of $150,000 per year for a term of three years
following the effective date of the merger. Mr. Jankowski will also receive a
bonus opportunity of $45,000 for fiscal year 2000, as well as options to
purchase 16,000 shares of Comverse common stock (after giving effect to the
two-for-one split completed on April 3, 2000). Mr. Jankowski will continue in
the capacity of Chief Technical Officer of Loronix. Under the agreement, either
Loronix or Mr. Jankowski may, at any time during the employment term, terminate
employment on one year prior notice.
The terms of the employment agreements also contain non-competition and
non-solicitation covenants. Under the non-competition and nonsolicitation
covenants, those officers will agree neither to solicit Loronix's or its
affiliate's (including Comverse's) employees, nor compete with Loronix or its
42
<PAGE>
affiliates (including Comverse), during the term of the respective employment
agreement and for two years after termination, in the design, development,
marketing, licensing and/or sale of closed circuit television recording and
video management products, digital identification products, or other products
that enable the provision of services similar to the services available on
Loronix's existing or planned systems and software known by them on the date
hereof or on the date of termination of his employment.
Following the merger, Ed Jankowski, the Chairman of the Loronix board of
directors, will be an employee of Loronix and receive an annual salary of
$150,000 through December 31, 2000 and $12,000 thereafter through January 6,
2002. F. James Price, a Vice President of Loronix, will be an employee of
Loronix and receive an annual salary of $75,000 in 2000 and $37,500 thereafter
through January 6, 2002.
As a result of these interests, these directors and officers of Loronix
could be more likely to vote to approve the merger agreement than if they did
not hold these interests. Loronix's stockholders should consider whether these
interests may have influenced these directors and officers to support or
recommend the merger.
COMPLETION AND EFFECTIVENESS OF THE MERGER
The merger will be completed when all of the conditions to completion of the
merger are satisfied or waived, including approval of the merger agreement by
the stockholders of Loronix, and the merger becomes effective. The merger will
become effective upon the filing of articles of merger with the Secretary of
State of the State of Nevada.
Comverse and Loronix are working towards completing the merger as quickly as
possible and hope to complete the merger by July 31, 2000.
UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS OF THE MERGER
The following is a discussion of the material United States federal income
tax consequences of the merger and is based on and subject to the Internal
Revenue Code of 1986, as amended, the regulations promulgated thereunder,
existing administrative interpretations and court decisions, all of which are
subject to change, possibly with retroactive effect. This discussion does not
address all aspects of United States federal income taxation that may be
important to you in light of your particular circumstances or if you are subject
to special rules, such as rules relating to:
- stockholders who are not citizens or residents of the United States;
- stockholders who do not hold their shares of Loronix common stock as
capital assets within the meaning of Section 1221 of the Internal Revenue
Code;
- stockholders subject to the alternate minimum tax provisions of the
Internal Revenue Code;
- financial institutions;
- tax-exempt organizations;
- insurance companies;
- dealers in securities;
- mutual funds;
- stockholders who acquired their shares of Loronix or Comverse common stock
pursuant to the exercise of options or similar derivative securities or
otherwise as compensation; and
43
<PAGE>
- stockholders who hold their shares of Loronix common stock as part of a
hedge, straddle or other risk reduction, constructive sale or conversion
transaction.
In addition, we do not discuss the tax consequences of the merger under
foreign, state or local tax laws, the tax consequences of transactions
effectuated prior or subsequent to, or concurrently with, the merger whether or
not any such transactions are undertaken in connection with the merger,
including, without limitation, any transactions in which Loronix shares are
acquired or shares of Comverse are disposed of, or the tax consequences to
holders of options, warrants or similar rights to acquire Loronix common stock.
Loronix has received from its counsel, WSGR, an opinion to the effect that
the merger will be treated for federal income tax purposes as a tax-free
reorganization within the meaning of Section 368(a) of the Internal Revenue
Code. Comverse has received from its counsel, Weil, Gotshal & Manges LLP, an
opinion to the effect that the merger will be treated for federal income tax
purposes as a tax-free reorganization within the meaning of Section 368(a) of
the Internal Revenue Code. In rendering their opinions, counsel of each of
Loronix and Comverse have relied upon representations made by Loronix, Comverse
and certain stockholders of Loronix. The opinions neither bind the IRS nor
preclude the IRS from adopting a contrary position and it is possible that the
IRS may successfully assert a contrary position in litigation or other
proceedings. Neither Comverse nor Loronix intends to obtain a ruling from the
IRS with respect to the tax consequences of the merger.
The merger is intended to constitute a reorganization within the meaning of
Section 368(a) of the Internal Revenue Code. In the event the merger so
qualifies, the following tax consequences will result:
TAX IMPLICATIONS TO LORONIX STOCKHOLDERS
Except as discussed below, with respect to cash received in lieu of
fractional shares, you will not recognize gain or loss for United States federal
income tax purposes when you exchange your Loronix common stock for Comverse
common stock pursuant to the merger. The aggregate tax basis of the Comverse
common stock you receive as a result of the merger will be the same as your
aggregate tax basis in the Loronix common stock you surrender in exchange for
the Comverse common stock, reduced by the tax basis of any shares of Loronix
common stock for which you receive cash instead of fractional shares of Comverse
common stock. The holding period of the Comverse common stock you receive as a
result of the exchange will include the period during which you held the Loronix
common stock you exchange in the merger.
You will recognize gain or loss for United States federal income tax
purposes with respect to the cash you receive instead of a fractional share
interest in Comverse common stock. Your gain or loss will be measured by the
difference between the amount of cash you receive and the portion of the tax
basis of your shares of Loronix common stock allocable to the shares of Loronix
common stock exchanged for such fractional share interest. This gain or loss
will be capital gain or loss and will be a long-term capital gain or loss if you
have held your shares of Loronix common stock for more than one year at the time
the merger is completed.
If the Internal Revenue Service successfully challenges the status of the
merger as a reorganization, you would generally recognize taxable gain or loss
with respect to your shares of Loronix common stock surrendered equal to the
difference between your basis in such shares and (i) the fair market value, as
of the completion of the merger, of the Comverse common stock, and (ii) cash in
lieu of a fractional share of Comverse common stock, received in exchange
therefor. In such event, your aggregate basis in the Comverse common stock so
received would equal its fair market value as of the effective time of the
merger, and your holding period for such stock would begin the day after the
merger.
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<PAGE>
TAX IMPLICATIONS TO COMVERSE, LORONIX AND COMVERSE ACQUISITION
Comverse, Loronix and Comverse Acquisition will not recognize gain or loss
for United States federal income tax purposes solely as a result of the merger.
BACKUP WITHHOLDING
Under the Internal Revenue Code, you may be subject, under certain
circumstances, to backup withholding at a rate of 31% with respect to the amount
of cash, if any, received in lieu of fractional shares, unless you provide proof
of an applicable exemption or a correct taxpayer identification number, and
otherwise comply with the applicable requirements of the backup withholding
rules. Any amount withheld under such rules is not an additional tax and may be
refunded or credited against your federal income tax liability, provided that
the required information is furnished to the IRS.
THE FOREGOING DISCUSSION IS NOT INTENDED TO BE A COMPLETE ANALYSIS OR
DESCRIPTION OF ALL POTENTIAL UNITED STATES FEDERAL TAX CONSEQUENCES OR ANY OTHER
CONSEQUENCES OF THE MERGER. IN ADDITION, THE DISCUSSION DOES NOT ADDRESS TAX
CONSEQUENCES THAT MAY VARY WITH, OR ARE CONTINGENT ON, YOUR INDIVIDUAL
CIRCUMSTANCES. MOREOVER, THE DISCUSSION DOES NOT ADDRESS ANY NON-INCOME TAX OR
ANY FOREIGN, STATE OR LOCAL TAX CONSEQUENCES OF THE MERGER. ACCORDINGLY, YOU ARE
STRONGLY URGED TO CONSULT WITH YOUR TAX ADVISOR TO DETERMINE THE PARTICULAR
UNITED STATES FEDERAL, STATE, LOCAL AND ANY APPLICABLE FOREIGN INCOME OR OTHER
TAX CONSEQUENCES TO YOU OF THE MERGER.
ACCOUNTING TREATMENT OF THE MERGER
Comverse intends to account for the merger as a pooling-of-interests
business combination. It is a condition to completion of the merger that
Comverse be advised by Deloitte & Touche LLP that the accounting of the merger
as a pooling-of-interests is appropriate if the merger is consummated as
contemplated. Further, Loronix must be advised by KPMG, that Loronix is not
precluded from entering into a merger accounted for under the
pooling-of-interests method of accounting for business combinations.
Under the pooling-of-interests method of accounting, each of Comverse's and
Loronix's historical recorded assets and liabilities will be carried forward to
the combined company at their recorded amounts. In addition, the operating
results of the combined company will include Comverse's and Loronix's operating
results for the entire fiscal year in which the merger is completed and
Comverse's and Loronix's historical reported operating results for prior periods
will be combined and restated as the operating results of the combined company.
REGULATORY FILINGS AND APPROVALS REQUIRED TO COMPLETE THE MERGER
The merger is subject to the requirements of the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended, which prevents some transactions from
being completed until required information and materials are furnished to the
Antitrust Division of the Department of Justice and the Federal Trade Commission
and related waiting periods end or expire. Comverse and Loronix have made the
required filings with the Department of Justice or the Federal Trade Commission
and have been granted early termination of the applicable waiting period, as of
April 14, 2000. The requirements of Hart-Scott-Rodino have been satisfied
provided the merger is completed within one year from the termination of the
waiting period.
However, the Antitrust Division of the Department of Justice or the Federal
Trade Commission may challenge the merger on antitrust grounds either before or
after expiration of the waiting period. Accordingly, at any time before or after
the completion of the merger, either the Antitrust Division of the Department of
Justice or the Federal Trade Commission could take action under the antitrust
laws as it deems necessary or desirable in the public interest, or another
person could take action under the
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antitrust laws, including seeking to enjoin the merger. Additionally, at any
time before or after the completion of the merger, notwithstanding that the
applicable waiting period of the Hart-Scott-Rodino requirements has been
terminated, any state could take action under the antitrust laws as it deems
necessary or desirable in the public interest. Comverse and Loronix cannot be
sure that a challenge to the merger will not be made or that, if a challenge is
made, Comverse and Loronix will prevail.
RESTRICTIONS ON SALES OF SHARES BY AFFILIATES OF LORONIX AND COMVERSE
The shares of Comverse common stock to be issued in connection with the
merger will be registered under the Securities Act of 1933, as amended, and will
be freely transferable under the Securities Act, except for shares of Comverse
common stock issued to any person who is deemed to be an affiliate of either
Comverse or Loronix at the time of the special meeting. Persons who may be
deemed to be affiliates include individuals or entities that control, are
controlled by, or are under common control with either Comverse or Loronix and
may include some of our officers and directors, as well as our principal
stockholders. Some affiliates of Loronix entered into affiliate agreements in
connection with the merger. See "The Merger--Affiliate Agreements." Affiliates
may not sell their shares of Comverse common stock acquired in connection with
the merger except:
- under an effective registration statement under the Securities Act
covering the resale of those shares, under an exemption under paragraph
(d) of Rule 145 under the Securities Act, or under any other applicable
exemption under the Securities Act; and
- otherwise in accordance with an applicable affiliate agreement.
Comverse's registration statement on Form S-4, of which this proxy
statement/prospectus forms a part, does not cover the resale of shares of
Comverse common stock to be received by affiliates in the merger.
LISTING ON THE NASDAQ NATIONAL MARKET OF COMVERSE COMMON STOCK TO BE ISSUED IN
THE MERGER
It is a condition to closing the merger that Comverse cause the shares of
Comverse common stock to be issued in the merger to be approved for listing on
the Nasdaq National Market, subject to official notice of issuance.
DISSENTERS' RIGHTS OF APPRAISAL
Under Nevada law, there is no dissenters' rights of appraisal with respect
to a plan of merger or exchange in favor of stockholders of any class or series
which, at the record date fixed to determine the stockholders entitled to
receive notice of and to vote at the meeting at which the plan of merger or
exchange is to be acted upon, were listed on the Nasdaq National Market, unless
the articles of incorporation provide otherwise, or the holders are required
under the plan of merger or exchange to accept for their shares anything other
than cash, stock or stock and cash in lieu of fractional shares of the surviving
or acquiring entity, or any other entity which, at the effective date of the
plan of merger or exchange, were listed on the Nasdaq National Market.
The articles of incorporation of Loronix do not provide appraisal rights to
Loronix stockholders. As of June 8, 2000, the record date, shares of Loronix
common stock to be exchanged in the merger will have been listed on the Nasdaq
National Market on such date. The holders of Loronix shares will be required
under the merger agreement to accept stock and cash in lieu of fractional shares
of Comverse, which stock will, at the effective date of the merger, be listed on
the Nasdaq National Market. Accordingly, stockholders of Loronix do not have
dissenters' rights of appraisal under Nevada law with respect to the merger.
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DE-LISTING AND DE-REGISTRATION OF LORONIX COMMON STOCK AFTER THE MERGER
If the merger is completed, Loronix common stock will be de-listed from the
Nasdaq National Market, and will be de-registered under the Securities Exchange
Act of 1934.
DIVIDEND POLICY
Neither Comverse nor Loronix has ever paid a cash dividend on its common
stock since its inception and neither anticipates paying any cash dividends in
the foreseeable future.
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THE MERGER AGREEMENT AND RELATED AGREEMENTS
THE FOLLOWING IS A BRIEF SUMMARY OF CERTAIN PROVISIONS OF THE MERGER
AGREEMENT, A COPY OF WHICH IS ATTACHED AS ANNEX A TO THIS PROXY
STATEMENT/PROSPECTUS AND IS INCORPORATED HEREIN BY REFERENCE, AS WELL AS CERTAIN
PROVISIONS OF THE STOCK OPTION AGREEMENT AND OTHER RELATED AGREEMENTS. THIS
SUMMARY IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE MERGER AGREEMENT, THE
STOCK OPTION AGREEMENT AND THE OTHER RELATED AGREEMENTS. YOU SHOULD READ THE
MERGER AGREEMENT, THE STOCK OPTION AGREEMENT AND THE VOTING AGREEMENT CAREFULLY
FOR A MORE COMPLETE UNDERSTANDING OF THEM.
THE MERGER
The merger agreement provides that, following the approval of the merger
agreement by the stockholders of Loronix and the satisfaction or waiver of the
other conditions to the merger, Comverse Acquisition, a direct wholly-owned
subsidiary of Comverse will merge with and into Loronix with Loronix continuing
as the surviving corporation. Upon the closing of the merger, we will file
Articles of Merger with the Secretary of State of the State of Nevada, at which
time the merger will become effective.
MERGER CONSIDERATION
Under the merger agreement, each share of Loronix common stock outstanding
immediately prior to the effective time of the merger, together with all
associated rights under the Loronix Preferred Shares Rights Agreement, will, at
the effective time, be converted into the right to receive 0.385 shares of
Comverse common stock. This is different than the ratio stated in the merger
agreement, since it gives effect to a two-for-one stock split by Comverse that
was completed on April 3, 2000, after the date on which Comverse and Loronix
entered into the merger agreement. However, if the value of the Comverse shares
of common stock to be received by you, based on a five day trading average of
closing prices measured as of the third trading day prior to the effective time,
is less than $36 per Loronix share, Loronix will have the right to seek to
terminate the agreement and, subsequently, Comverse will have the right to
provide written notice ("top-up notice") to Loronix that it will adjust the
consideration to $36 per share. If Comverse delivers the top-up notice, the
merger agreement will not terminate and you will be entitled to receive, for
each share of Loronix common stock outstanding immediately prior to the
effective time, the fraction of a share of Comverse equal to $36, based on the
same Comverse share price measurement period. Any shares of Loronix common stock
held by Loronix or owned by Comverse or any subsidiary of Loronix will be
canceled without any payment for those shares.
It is not possible to know until the date on which we calculate the average
trading price of Comverse common stock for the applicable measurement period
whether the consideration to be received by you will be less than $36 per
Loronix share. The Loronix board of directors has not decided whether it will
cause Loronix to exercise its right to seek to terminate the merger agreement if
the average trading price of Comverse common stock for the applicable
measurement period will cause the consideration to be received by you to be less
than $36 per share. Similarly, Comverse has not decided whether it would
exercise its related right to increase the merger consideration in the event
that Loronix chooses to seek to terminate the merger agreement. Accordingly, we
cannot assure you that Loronix will exercise its right to terminate the merger
agreement if the average trading price of Comverse common stock for the
applicable measurement period will cause the consideration to be received by you
to be less than $36 per share and, if Loronix does elect to terminate the merger
agreement, we cannot assure you that Comverse will elect to increase the merger
consideration.
YOUR APPROVAL OF THE MERGER AGREEMENT WILL GIVE THE LORONIX BOARD OF
DIRECTORS DISCRETION IN THE EVENT THAT THE CONSIDERATION TO BE RECEIVED BY YOU
IS LESS THAN $36 PER SHARE, TO SEEK TO TERMINATE THE MERGER AND TO TAKE THE RISK
THAT COMVERSE MAY OR MAY NOT ELECT TO INCREASE THE CONSIDERATION TO BE
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RECEIVED TO $36 PER LORONIX SHARE. THE BOARD OF DIRECTORS WILL ALSO HAVE THE
DISCRETION NOT TO SEEK TO TERMINATE THE MERGER IN WHICH CASE YOU WILL RECEIVE
LESS THAN $36 PER SHARE.
In any event, no fraction of a share of Comverse common stock will be
issued. Instead, each holder of shares of Loronix common stock who would
otherwise be entitled to a fraction of a share of Comverse common stock (after
aggregating all fractional shares of Comverse common stock to be received by the
holder) will be entitled to receive from Comverse an amount of cash equal to the
product of (i) the fraction and (ii) the closing price of one share of Comverse
common stock as reported on the Nasdaq National Market for the date of the
Effective Time.
EXCHANGE OF SHARES
Comverse will appoint an exchange agent to handle the exchange of Loronix
stock certificates in the merger for Comverse stock and the payment of cash for
any fractional shares of Loronix stock. As soon as reasonably practicable, the
exchange agent will send each holder of Loronix stock a letter of transmittal
for use in the exchange and instructions explaining how to surrender Loronix
stock certificates to the exchange agent. The holders of Loronix stock that
surrender their certificates to the exchange agent, together with a properly
completed letter of transmittal, will receive the appropriate merger
consideration.
The holders of unexchanged shares of Loronix stock will not be entitled to
receive any dividends or other distributions payable with respect to Comverse's
stock after the closing until their certificates are surrendered.
YOU SHOULD NOT FORWARD LORONIX STOCK CERTIFICATES TO THE EXCHANGE AGENT
UNTIL YOU HAVE RECEIVED TRANSMITTAL FORMS. YOU SHOULD NOT RETURN LORONIX STOCK
CERTIFICATES WITH THE ENCLOSED PROXY.
TREATMENT OF LORONIX OPTIONS
At the effective time, each outstanding option granted by Loronix to
purchase shares of Loronix common stock will be assumed by Comverse and
converted into an option to acquire Comverse common stock having the same terms
and conditions that the Loronix stock option had before the effective time of
the merger. The number of shares that the new Comverse option will be
exercisable for, and the exercise price of the new Comverse option will reflect
the same exchange ratio applicable to Loronix stockholders in the merger.
CONDITIONS TO COMPLETION OF THE MERGER
MUTUAL CLOSING CONDITIONS
The obligations of Comverse and Loronix to complete the merger are subject
to the satisfaction or, to the extent legally permissible, waiver of the
following conditions:
- approval of the merger agreement by Loronix stockholders;
- expiration or termination of the waiting period under the
Hart-Scott-Rodino Antitrust Improvements Act (early termination having
been granted as of April 14, 2000);
- receipt of written agreements from Comverse's and Loronix's affiliates,
not later than 45 days prior to the Loronix stockholder meeting;
- absence of any law of any governmental entity prohibiting the merger;
- Comverse's registration statement on Form S-4 being effective and not
subject to any stop order by the SEC;
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- approval for listing on the Nasdaq National Market of the shares of
Comverse to be issued in the merger; and
- receipt of letters from the independent public accountants of Comverse and
Loronix, respectively, stating that pooling-of-interests accounting
treatment for the merger is appropriate.
ADDITIONAL CLOSING CONDITIONS FOR COMVERSE'S AND COMVERSE ACQUISITION'S
BENEFIT
Comverse's and Comverse Acquisition's obligations to complete the merger are
subject to the following additional conditions:
- accuracy, as of the closing date, of the representations and warranties of
Loronix to the extent specified in the merger agreement;
- Loronix's performance in all material respects with the obligations
required under all agreements and conditions contained in the merger
agreement at or prior to the closing;
- receipt of a certificate, dated as of the closing, signed by the President
or Vice President of Loronix certifying the fulfillment of the two prior
conditions;
- receipt of an opinion of Comverse's counsel that the merger will qualify
as tax-free reorganization within the meaning of Section 368(a) of the
Internal Revenue Code;
- receipt of all authorizations, consents or approvals of a governmental
entity required in connection with execution of the merger agreement and
the performance of the obligations under the merger agreement; and
- execution of the employment agreements of Messrs. David Ledwell, Jonathan
Lupia and Peter Jankowski.
ADDITIONAL CLOSING CONDITIONS FOR LORONIX'S BENEFIT
Loronix's obligation to complete the merger is subject to the following
additional conditions:
- accuracy, as of the closing date, of the representations and warranties of
Comverse and Comverse Acquisition to the extent specified in the merger
agreement;
- Comverse's performance in all material respects with the obligations
required under all agreements and conditions contained in the merger
agreement at or prior to the closing;
- receipt of a certificate, dated as of the closing, signed by the President
or Vice President of Comverse certifying the fulfillment of the two prior
conditions; and
- receipt of an opinion of Loronix's counsel that the merger will qualify as
a tax-free reorganization within the meaning of Section 368(a) of the
Internal Revenue Code.
REPRESENTATIONS AND WARRANTIES
The merger agreement contains representations and warranties made by Loronix
on the one hand, and Comverse and Comverse Acquisition, on the other hand. The
most significant representations made by Loronix, Comverse and Comverse
Acquisition relate to:
- corporate existence and qualification
- capitalization of itself and subsidiaries
- authorization to enter into the contemplated transaction
- consents and approvals required in connection with the contemplated
transaction
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- absence of undisclosed liabilities
- absence of changes
- filings with the SEC
- financial statements
- information provided for inclusion in this registration statement on Form
S-4
- litigation
- accounting matters
- tax matters
In addition Loronix made additional representations and warranties. The most
significant relate to:
- absence of any breach of organizational documents, law or certain material
agreements as a result of the contemplated transaction
- real property
- compliance with laws
- employee benefit matters
- labor matters
- environmental matters
- material contracts
- insurance
- intellectual property
- products
Loronix also represents and warrants to Comverse, as to certain other
matters including the inapplicability of both the Nevada anti-takeover statute
and the Loronix Preferred Shares Rights Agreement to the merger.
COVENANTS
Each of Loronix, Comverse and Comverse Acquisition has undertaken certain
covenants in the merger agreement. The following summarizes the more significant
of these covenants:
INTERIM OPERATIONS OF LORONIX
Loronix has undertaken a covenant that places restrictions on it and its
subsidiaries until the effective time of the merger. Loronix and its
subsidiaries are required to conduct its business in the ordinary course
consistent with past practice, and to use reasonable best efforts to preserve
intact and keep available its business organization, services of its current
officers and employees and relationships with third parties. Loronix and its
subsidiaries have also agreed to some specific restrictions which are subject to
exceptions described in the merger agreement. The following summarizes the more
significant of these restrictions undertaken by Loronix and its subsidiaries:
- no amending its charter or bylaws or amending, modifying or terminating
its Preferred Shares Rights Agreement;
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- no issuing, selling, delivering or agreeing or committing to issue, sell
or deliver any stock of any class or any other securities convertible into
or exchangeable for any stock or any equity equivalents, except for the
issuing of shares pursuant to outstanding stock options;
- no splitting, combining, or reclassifying any of its capital stock,
declaring any dividend on its capital stock or redeeming any of its
securities;
- no adopting a plan of liquidation, dissolution, merger, consolidation,
restructuring, recapitalization or other reorganization;
- no altering the corporate structure or ownership of any subsidiary;
- no incurring or assuming any debt;
- no entering into, adopting, amending or terminating any bonus, profit
sharing, compensation, severance, termination, stock option, stock
appreciation right, restricted stock, performance unit, stock equivalent,
stock purchase agreement, pension, retirement, deferred compensation,
employment, severance or other employee benefit agreement, trust, plan,
fund, award or other arrangement for the benefit or welfare of any
director, officer, employee or independent contractor;
- no acquiring or disposing of any assets, except in the ordinary course of
business consistent with past practices and pursuant to existing
commitments;
- no changing in accounting principles;
- no acquiring any business organization;
- no entering into any contracts or agreements except in the ordinary course
of business consistent with past business practices or amending in any
material respect any material contract listed in the merger agreement;
- no authorizing any new capital expenditures if the amount of the
expenditure plus the sum of all previously authorized capital expenditures
exceeds $1.2 million;
- no paying, discharging or satisfying of any material claims or
obligations, other than in the ordinary course of business consistent with
past business practices; and
- no taking any action that would prevent or impede the merger from
qualifying as a pooling-of-interests.
ACCESS TO INFORMATION
Until the merger becomes effective, Comverse and Comverse Acquisition will
have reasonable access to employees, offices, warehouses and other facilities
and the books and records of Loronix and its subsidiaries. Comverse and Comverse
Acquisition will hold all information received from Loronix and its subsidiaries
in connection with the merger in confidence pursuant to the terms of a
confidentiality agreement entered into between Comverse and Loronix.
BEST EFFORTS COVENANTS
Loronix and Comverse have agreed to cooperate with each other and use their
reasonable best efforts to take all actions and to do all things necessary or
advisable under the merger agreement and under the applicable laws to complete
the merger and other transactions contemplated by the merger agreement.
Loronix has agreed to use its reasonable best efforts to obtain and maintain
any licenses or approvals required to be obtained pursuant to the Sale and
License Agreement dated February, 2000
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between Loronix and an Indian gaming entity and to use its reasonable best
efforts to cause each of its directors and officers to provide all information
to be provided by them in connection with such license or approvals. However,
Loronix will not be in breach of this covenant if Comverse does not provide the
information required by it to obtain such license or approval.
ACQUISITION PROPOSALS
Loronix has agreed that it and its subsidiaries and its officers, directors,
employees and advisors will not take any action to solicit, initiate or
encourage any proposals for any alternative acquisition proposals involving
Loronix of a nature defined in the merger agreement or participate in any
discussions or negotiations with any person to facilitate an acquisition
proposal.
However, Loronix shall not be prohibited from engaging in discussion or
furnishing information to a person who makes an unsolicited bona fide written
acquisition proposal so long as prior to doing so, all of the following are
satisfied:
- the Loronix stockholders meeting has not yet occurred or it has occurred
and the merger with Comverse was not approved;
- the Loronix board determines in good faith that it is necessary to do so
to comply with its fiduciary duty to stockholders, after receiving advice
of independent counsel;
- the Loronix board determines in good faith that such proposal, if
accepted, is reasonably likely to be consummated, and believes in good
faith and in consultation with Broadview, and considering the strategic
benefits to be derived from a merger with Comverse, that if such proposal
were consummated, it would result in a transaction more favorable to
Loronix stockholders from a financial point of view than the merger with
Comverse; and
- Loronix provides reasonable notice to Comverse that it is taking such
action and receives from such person an executed confidentiality agreement
with terms at least as stringent as those contained in the existing
confidentiality agreement between Comverse and Loronix.
Prior to providing any information or entering into discussions or
negotiations with such person, Loronix must notify Comverse within 24 hours of
receiving an offer or request for such information. The notice must indicate the
identity of the person and the terms and conditions of any offer or request.
Loronix must keep Comverse informed on a prompt basis of the status and details
of any offer or request.
The Loronix board has agreed to recommend the approval of the merger
agreement to the Loronix stockholders. However, the Loronix board is permitted
not to make this recommendation, to withdraw this recommendation or to modify
this recommendation in a manner adverse to Comverse if the Loronix board
determines, in its good faith judgment, that it is necessary to do so to comply
with its fiduciary duty to its stockholders, after receiving advice of
independent counsel. Loronix must deliver notice to Comverse of such pending
action four days prior to taking such action.
INDEMNIFICATION AND INSURANCE OF LORONIX OFFICERS AND DIRECTORS
Comverse has agreed that:
- For five years after effective time of the merger it will provide
directors' and officers' liability insurance for the benefit of those
persons who are directors and officers of Loronix following the effective
time of the merger consistent with the insurance coverage provided for
Comverse's or its subsidiaries' officers and directors of similar
position; and
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- For at least six years after the effective time of the merger Comverse
will indemnify employees, agents, directors and officers of Loronix and
its subsidiaries from their activities occurring prior to the effective
time of the merger to the extent provided under Loronix's charter and
bylaws.
EMPLOYEE MATTERS
The merger agreement provides that Comverse will honor all the obligations
under Loronix's and its subsidiary's employment, consulting, severance, change
of control and indemnification agreements, and the obligations of Loronix to
enter into employment agreements with David Ledwell, Jonathan Lupia and Peter
Jankowski.
Comverse has also agreed, following the closing, to adopt and maintain
Loronix employee benefit plans that were in effect immediately prior to the
closing for one year or to arrange for each employee of Loronix or its
subsidiaries to participate in any counterpart Comverse employee benefit plan,
receiving credit for service with Loronix for purposes of eligibility to
participate and vesting under such Comverse employee benefit plans.
LISTING OF STOCK
Comverse has agreed to use its best efforts to cause the shares of Comverse
common stock to be issued in the merger to be listed on the Nasdaq National
Market.
LORONIX STOCKHOLDER MEETING
Loronix has agreed to take all lawful actions necessary to cause a special
meeting of its stockholders to be duly called and to solicit proxies from its
stockholders for approval of the merger agreement.
ADDITIONAL AGREEMENTS
The merger agreement contains additional agreements between Loronix and
Comverse. The following summarizes the most significant of these agreements.
- Loronix and Comverse have agreed to prepare and file a proxy statement,
registration statement and all necessary filings with the SEC relating to
the merger;
- Loronix and Comverse have agreed to consult each other before issuing any
public announcements regarding the merger; and
- Loronix and Comverse have each agreed to notify the other party promptly
of certain events, including any occurrence or nonoccurrence of any event
that would be likely to cause any representation or warranty contained in
the merger agreement to be untrue or inaccurate, or of receipt of any
notice from any third party alleging that the consent of that third party
is required to complete the merger.
NO-SHOP PROVISIONS
Loronix has agreed, subject to some limited exceptions, not to initiate or
engage in discussions with any other party about a business combination with the
other party while the merger is pending.
WAIVER AND AMENDMENT OF THE MERGER AGREEMENT
Any provision of the merger agreement may be amended at any time before or
after approval of the merger by the Loronix stockholders if the amendment is in
writing and signed by all parties. After Loronix stockholders have approved the
merger agreement, no amendment that requires further approval by Loronix
stockholders may be made without the approval of Loronix stockholders. Any
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provision of the merger agreement may be waived at or prior to the effective
time of the merger if the waiver is in writing and signed by the party against
whom the waiver is to be effective.
TERMINATION OF THE MERGER AGREEMENT
RIGHT TO TERMINATE
The merger agreement may be terminated at any time prior to the effective
time of the merger, even if it was approved by the Loronix stockholders, by the
mutual written consent of Loronix and Comverse.
TERMINATION BY EITHER COMVERSE OR LORONIX
The merger agreement may be terminated at any time prior to the effective
time of the merger by either Loronix or Comverse under any of the following
circumstances:
- The merger is not consummated by August 31, 2000, whether or not such date
is before or after date of the approval by the Loronix stockholders;
- Loronix stockholders fail to approve the merger agreement at a duly held
meeting; or
- There is a permanent legal prohibition to closing the merger.
TERMINATION BY LORONIX
The merger agreement may be terminated at any time prior to the effective
time of the merger, even if it was approved previously by Loronix's
stockholders, by Loronix under any of the following circumstances:
- All of the following are true: (i) Loronix is not in material breach of
its covenants with respect to other acquisition proposals, (ii) the merger
with Comverse has not been approved by the Loronix stockholders,
(iii) the Loronix board authorizes Loronix, subject to complying with
merger agreement, to enter into a binding written agreement accepting a
proposal superior to the Comverse merger and notifies Comverse three
business days in advance, and (iv) during the three business days after
the notice, Loronix negotiates with Comverse in an attempt to make
commercially reasonable adjustments to the terms of the merger with
Comverse and the board of directors of Loronix concludes that the superior
proposal continues to be superior;
- Comverse breaches any of the representations, warranties, covenants or
agreements contained in the merger agreement; or
- The value of the merger consideration is less than $36 per Loronix share,
Loronix elects to terminate the agreement, and Comverse does not deliver
notice to Loronix that Comverse will adjust the consideration to $36 per
share.
TERMINATION BY COMVERSE
The merger agreement may be terminated at any time prior to the effective
time of the merger by Comverse if:
- Loronix enters into a binding agreement with a third party and accepts a
proposal superior to the merger with Comverse;
- The Loronix board fails to recommend approval of the merger agreement,
withdraws or modifies in a manner adverse to Comverse, its approval or
recommendation of the merger agreement or recommends any other acquiring
proposal;
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- Any person or group acquires beneficial ownership of at least 15% if the
outstanding shares of Loronix; or
- Loronix breaches any of the representations, warranties, covenants or
agreements contained in the merger agreement.
PAYMENT OF TERMINATION FEE AND EXPENSES
TERMINATION FEE
Loronix has agreed to pay Comverse a termination fee of $11 million in any
of the following circumstances:
- Loronix terminates the merger agreement under the circumstances described
in the first bullet under "Termination by Loronix" above;
- Comverse terminates the merger agreement because of any of the following:
- Loronix enters into a binding agreement with a third party for a
superior proposal;
- The Loronix board fails to recommend, or withdraws or modifies in a
manner adverse to Comverse, its approval or recommendation of the
merger agreement, or recommends any other acquiring proposal; or
- Loronix permits any person or group to acquire beneficial ownership of
at least 15% of the outstanding shares of Loronix;
- All of the following occur:
- Comverse terminates the merger agreement for any of the following
reasons:
- The merger is not consummated by August 31, 2000;
- Loronix stockholders fail to approve the merger agreement at a duly
held meeting; or
- Loronix breaches any of the representations, warranties, covenants
or agreements contained in the merger agreement;
- On or before the termination date, an acquisition proposal is made by a
third party; and
- Loronix accepts another acquisition proposal within 6 months of the
termination.
EXPENSES
Loronix will pay Comverse up to $1,000,000 for Comverse's expenses if
Comverse terminates the merger agreement because Loronix breaches any of the
representations, warranties, covenants or agreements contained in the merger
agreement, in addition to the termination fee that may apply.
THE STOCK OPTION AGREEMENT
THE FOLLOWING SUMMARY OF THE STOCK OPTION AGREEMENT IS QUALIFIED BY
REFERENCE TO THE COMPLETE TEXT OF THE AGREEMENT, WHICH IS INCORPORATED BY
REFERENCE AND ATTACHED AS ANNEX B. YOU ARE URGED TO READ THE STOCK OPTION
AGREEMENT IN ITS ENTIRETY.
GENERALLY
At the same time Comverse and Loronix entered into the merger agreement,
they also entered into a stock option agreement. Under the stock option
agreement, Loronix granted Comverse an irrevocable option to purchase up to
1,020,000 shares of Loronix common stock (or such other number of shares of
Loronix common stock as equals 19.9% of the issued and outstanding shares of
Loronix
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common stock as the time of the exercise of the option) at a price per share of
$43.79, payable at Comverse's option in cash or Comverse common stock. The
option is exercisable in the circumstances described below.
EXERCISE OF THE OPTION
Comverse can exercise the option in whole or in part at any time after the
merger agreement has been terminated under the following circumstances:
- Loronix terminates the merger and all of the following are true: (i)
Loronix is not in material breach of its covenants with respect to other
acquisition proposals, (ii) the merger with Comverse has not been approved
by the Loronix stockholders, (iii) the Loronix board authorizes Loronix,
subject to complying with merger agreement, to enter into a binding
written agreement accepting a proposal superior to the Comverse merger and
notifies Comverse three business days in advance, and (iv) during the
three business days after the notice, Loronix negotiates with Comverse in
an attempt to make commercially reasonable adjustments to the terms of the
merger with Comverse and the board of directors of Loronix concludes that
the superior proposal continues to be superior;
- Comverse terminates the merger agreement because:
- Loronix enters into a binding agreement with a third party for a
superior proposal;
- The Loronix Board fails to recommend or withdraws or modifies in a
manner adverse to Comverse, its approval or recommendation of the
merger agreement or recommends any other acquiring proposal;
- Any person or group acquires beneficial ownership of 15% or more of the
outstanding shares of Loronix.
If Comverse wishes to exercise the option, Comverse will deliver an exercise
notice to Loronix specifying the total number of shares of Loronix common stock
Comverse wishes to purchase.
The option terminates upon the earliest to occur of:
- the effective time of the merger;
- the termination of the merger agreement by the Comverse or Loronix, other
than a termination that gives rise to the right to exercise the option; or
- 180 days after any termination of the merger agreement as a result of the
occurrence of a right to exercise the option.
The option may not be exercised if Comverse is in material breach of any of
the representations, warranties, covenants or agreements contained in the merger
agreement.
The option is not currently exercisable and Comverse may exercise the option
only if the merger agreement is terminated in circumstances similar to those in
which the termination fee is payable. If the merger agreement is terminated
under any other circumstances, the option will terminate.
CONDITIONS TO CLOSING UNDER THE STOCK OPTION AGREEMENT
The obligation of Loronix to issue the option shares is subject to the
satisfaction or, to the extent legally permissible, waiver of the following
conditions:
- expiration or termination of the waiting period under the
Hart-Scott-Rodino Antitrust Improvements Act (early termination having
been granted as of April 14, 2000);
- absence of any injunction or order prohibiting the issuance of the
options; or
57
<PAGE>
- approval for listing on the Nasdaq National Market of the shares of
Comverse to be issued.
CLOSING OF THE STOCK OPTION EXERCISE
At the closing, Loronix shall deliver a single certificate for the number of
shares of Loronix common stock designated by Comverse in its exercise notice and
Comverse will deliver to Loronix the aggregate purchase price in cash, Comverse
common stock or any combination thereof.
REPRESENTATIONS AND WARRANTIES
The stock option agreement contains substantially reciprocal representations
and warranties made by Loronix and Comverse to each other. The most significant
of these relate to:
- corporate authorization to enter into the contemplated transaction and
- execution and delivery of the stock option agreement.
Loronix also represents and warrants that is has taken all necessary
corporate actions to authorize and reserve for issuance the number of shares of
Loronix common stock subject to the option.
CERTAIN REPURCHASES
Comverse has the right to request that Loronix repurchase from Comverse the
option, in whole or in part, for a price equal to the amount by which the market
price of Loronix common stock, as of the date Comverse gives notice of this
request, exceeds the exercise price multiplied by the number of shares of
Loronix common stock purchasable pursuant to the stock option agreement.
If Comverse exercises this right, Loronix will have ten business days to
purchase the stock option from Comverse.
REGISTRATION RIGHTS
Loronix has agreed to grant Comverse rights to require registration by
Loronix of the option shares for sale by Comverse under the securities laws.
PROFIT LIMITATION
The stock option agreement provides that, notwithstanding any other
provisions of that agreement, Comverse's Total Profits (as defined below) will
not exceed $11 million. If Comverse's Total Profits otherwise exceed such
amount, Comverse, at its sole election, may
- deliver to Loronix for cancellation shares of Loronix common stock
previously purchased by Comverse;
- pay cash to Loronix; or
- pay any combination of cash and stock;
so that Comverse's actual realized Total Profit does not exceed $11 million
after taking into account the foregoing actions.
For the purposes of the stock option agreement, "Total Profit" means the
aggregate amount before taxes of the following:
- the amount received by Comverse pursuant to the Loronix's repurchase of
the stock option pursuant to "Certain Repurchases" above;
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- the cash amounts received by Comverse pursuant to the sale of option
shares (or any other securities into which such shares are converted or
exchanged) to any unaffiliated party, less Comverse's purchase price for
such shares; and
- the cash amount actually received by Comverse in payment by Loronix of the
termination fee under the merger agreement.
VOTING AGREEMENTS
As a condition to Comverse's entering into the merger agreement, Comverse
and each of Peter Jankowski, David Ledwell, Jonathan Lupia, F. James Price, C.
Rodney Wilger, Timothy Whitehead, Donald W. Stevens, and a trust established by
Edward Jankowski, entered into voting agreements. By entering into the voting
agreements these Loronix stockholders have irrevocably appointed Comverse as
their lawful attorney and proxy. These proxies give Comverse the limited right
to vote the shares of Loronix common stock beneficially owned by these Loronix
stockholders, including shares of Loronix common stock acquired after the date
of the voting agreements, in favor of the approval of the merger agreement, in
favor of the merger and in favor of each other matter that could reasonably be
expected to facilitate the merger. These Loronix stockholders may vote their
shares of Loronix common stock on all other matters.
As of June 7, 2000, these individuals and entities collectively beneficially
owned 1,140,606 shares of Loronix common stock which represented approximately
22% of the outstanding Loronix common stock. None of the Loronix stockholders
who are parties to the voting agreements were paid additional consideration in
connection with them.
Under these voting agreements, and except as otherwise waived by Comverse,
the Loronix stockholders agreed not to sell their Loronix common stock and
options owned, controlled or acquired, either directly or indirectly, by them
until the earlier of the termination of the merger agreement or the completion
of the merger, unless the transfer is in accordance with an affiliate agreement
between the stockholder and Comverse and each person to which any shares or any
interest in any shares is transferred agrees to be bound by the terms and
provisions of the voting agreement.
These voting agreements will terminate upon the earlier to occur of the
termination of the merger agreement and the completion of the merger. The form
of voting agreement is attached to this proxy statement/prospectus as Annex C,
and you are urged to read it in its entirety.
AFFILIATE AGREEMENTS
As a condition to Comverse's entering into the merger agreement, each member
of Loronix's board of directors and some officers of Loronix will execute
affiliate agreements. Under the affiliate agreements, each of these persons has
agreed not to sell or otherwise dispose of, or to reduce their risk relative to,
any shares of Loronix common stock owned by them during the period beginning 30
days prior to the merger and after Comverse publicly announces financial results
covering at least 30 days of combined operations of Comverse and Loronix. Also,
under the affiliate agreements, Comverse will be entitled to place appropriate
legends on the certificates evidencing any Comverse common stock to be received
by these persons and to issue stop transfer instructions to the transfer agent
for the Comverse common stock. Further, these persons have also acknowledged the
resale restrictions imposed by Rule 145 under the Securities Act on shares of
Comverse common stock to be received by them in the merger.
AMENDMENT TO THE PREFERRED SHARES RIGHTS AGREEMENT
In connection with the execution of the merger agreement, Loronix has
amended the Preferred Shares Rights Agreement (or "poison pill"), dated as of
January 9, 1997, between Loronix and
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<PAGE>
American Stock Transfer & Trust Company, as rights agent, so that, among other
things, the execution, delivery and performance by Loronix of the merger
agreement and the stock option agreement do not cause the rights issued under
the Loronix rights agreement to become exercisable or Comverse or Comverse
Acquisition to be deemed an "acquiring person" with respect to Loronix, and to
cause the expiration of the rights agreement to occur immediately prior to the
effective time of the merger.
OPERATIONS AFTER THE MERGER
Following the merger, Loronix will continue its operations as a wholly-owned
subsidiary of Comverse for some period of time determined by Comverse. The
membership of Comverse's board of directors will remain unchanged as a result of
the merger. The stockholders of Loronix will become shareholders of Comverse,
and their rights as stockholders will be governed by the Comverse charter, the
Comverse bylaws, and the laws of the State of New York. See "Comparison of
Rights of Holders of Loronix Common Stock and Comverse Common Stock" on page 67
of this proxy statement/prospectus.
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<PAGE>
UNAUDITED PRO FORMA FINANCIAL INFORMATION
The following unaudited pro forma condensed combined balance sheet as of
January 31, 2000 combines the audited historical balance sheet of Comverse as of
January 31, 2000 and the audited historical balance sheet of Loronix as of
December 31, 1999, giving effect to the merger as though it had been consummated
as of January 31, 2000. The following unaudited pro forma condensed combined
statements of income for the years ended December 31, 1997 and January 31, 1999
and 2000 combine the audited historical consolidated statements of income of
Comverse for the years ended December 31, 1997 and January 31, 1999 and 2000 and
the audited historical consolidated statements of income of Loronix for the
three years ended December 31, 1999, giving effect to the merger as if it had
been consummated at the beginning of each period presented. The merger is being
accounted for as a pooling-of-interests.
The unaudited pro forma condensed combined financial information should be
read in conjunction with the:
- Accompanying notes to the unaudited pro forma condensed combined financial
statements; and
- Audited historical consolidated financial statements and related notes of
Comverse and Loronix, which are incorporated by reference into this proxy
statement/prospectus.
The unaudited pro forma condensed combined financial information excludes
costs associated with the integration and consolidation of the companies.
This unaudited pro forma condensed combined financial information is not
necessarily indicative of the operating results and financial position that
might have been achieved had the merger occurred as of the beginning of the
earliest period presented, nor are they necessarily indicative of operating
results and financial position which may occur in the future.
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<PAGE>
UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
JANUARY 31, 2000
(IN THOUSANDS)
<TABLE>
<CAPTION>
COMVERSE LORONIX
JANUARY 31, DECEMBER 31, PRO FORMA
2000 1999 ADJUSTMENTS COMBINED(1)
----------- ------------ ----------- -----------
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................... $ 338,638 $ 3,897 $ $ 342,535
Bank time deposits and short-term
investments............................... 439,054 -- 439,054
Accounts receivable, net.................... 259,357 6,846 266,203
Inventories................................. 97,653 4,075 101,728
Prepaid expenses and other current assets... 40,829 414 41,243
---------- ------- ----- ----------
Total current assets...................... 1,175,531 15,232 -- 1,190,763
Property and equipment, net................... 121,897 4,204 126,101
Investments................................... 19,749 -- 19,749
Other assets.................................. 35,191 945 36,136
---------- ------- ----- ----------
$1,352,368 $20,381 $ -- $1,372,749
========== ======= ===== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses....... $ 231,245 $ 4,615 $ $ 235,860
Other current liabilities................... 95,460 1,139 96,599
---------- ------- ----- ----------
Total current liabilities................. 326,705 5,754 -- 332,459
Convertible subordinated debentures........... 300,000 -- 300,000
Other liabilities............................. 14,323 1,226 15,549
---------- ------- ----- ----------
Total liabilities......................... 641,028 6,980 -- 648,008
---------- ------- ----- ----------
Stockholders' equity:
Common stock................................ 15,382 5 190 (2) 15,577
Additional paid-in capital.................. 407,645 16,620 (190)(2) 424,075
Retained earnings (accumulated deficit)..... 285,890 (3,126) 282,764
Note receivable from stockholders........... -- (98) (98)
Accumulated other comprehensive income...... 2,423 -- 2,423
---------- ------- ----- ----------
Total stockholders' equity................ 711,340 13,401 -- 724,741
---------- ------- ----- ----------
$1,352,368 $20,381 $ -- $1,372,749
========== ======= ===== ==========
</TABLE>
------------------------
See Notes to Unaudited Pro Forma Condensed Combined Financial Information.
62
<PAGE>
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENTS OF INCOME
FOR YEAR ENDED DECEMBER 31, 1997
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
COMVERSE LORONIX
YEAR ENDED YEAR ENDED
DECEMBER 31, 1997 DECEMBER 31, 1997 PRO FORMA
HISTORICAL HISTORICAL COMBINED(1)
----------------- ----------------- -----------
<S> <C> <C> <C>
Sales............................................ $488,940 $ 9,403 $498,343
Cost of sales.................................... 202,640 5,117 207,757
-------- ------- --------
Gross margin..................................... 286,300 4,286 290,586
Operating expenses:
Research and development, net.................. 96,626 1,526 98,152
Selling, general and administrative............ 138,305 5,318(3) 143,623
Royalties and license fees..................... 12,325 -- 12,325
-------- ------- --------
Income (loss) from operations.................... 39,044 (2,558) 36,486
Interest and other income, net................... 4,879 78 4,957
-------- ------- --------
Income (loss) before income tax provision........ 43,923 (2,480) 41,443
Income tax provision............................. 9,398 32 9,430
-------- ------- --------
Net income (loss)................................ $ 34,525 $(2,512) $ 32,013
======== ======= ========
Earnings (loss) per share:
Basic.......................................... $ 0.27 $ (0.54) $ 0.25
======== ======= ========
Diluted........................................ $ 0.25 $ (0.54) $ 0.23
======== ======= ========
Weighted average number of common and common
equivalent shares outstanding:
Basic.......................................... 127,240 4,659 129,034
======== ======= ========
Diluted........................................ 137,908 4,659 139,702
======== ======= ========
</TABLE>
------------------------
See Notes to Unaudited Pro Forma Condensed Combined Financial Information.
63
<PAGE>
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENTS OF INCOME
FOR YEAR ENDED JANUARY 31, 1999
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
COMVERSE LORONIX
YEAR ENDED YEAR ENDED
JANUARY 31, 1999 DECEMBER 31, 1998 PRO FORMA
HISTORICAL HISTORICAL COMBINED(1)
---------------- ----------------- -----------
<S> <C> <C> <C>
Sales............................................. $696,094 $12,711 $708,805
Cost of sales..................................... 279,690 6,817 286,507
-------- ------- --------
Gross margin...................................... 416,404 5,894 422,298
Operating expenses:
Research and development, net................... 132,820 1,381 134,201
Selling, general and administrative............. 151,985 6,727(3) 158,712
Royalties and license fees...................... 16,552 -- 16,552
-------- ------- --------
Income (loss) from operations..................... 115,047 (2,214) 112,833
Interest and other income, net.................... 8,263 52 8,315
-------- ------- --------
Income (loss) before income tax provision......... 123,310 (2,162) 121,148
Income tax provision.............................. 11,783 -- 11,783
-------- ------- --------
Net income (loss)................................. $111,527 $(2,162) $109,365
======== ======= ========
Earnings (loss) per share:
Basic........................................... $ 0.84 $ (0.47) $ 0.81
======== ======= ========
Diluted......................................... $ 0.78 $ (0.47) $ 0.75
======== ======= ========
Weighted average number of common and common
equivalent shares outstanding:
Basic........................................... 132,600 4,647 134,389
======== ======= ========
Diluted......................................... 143,650 4,647 145,439
======== ======= ========
</TABLE>
------------------------
See Notes to Unaudited Pro Forma Condensed Combined Financial Information.
64
<PAGE>
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENTS OF INCOME
FOR YEAR ENDED JANUARY 31, 2000
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
COMVERSE LORONIX
YEAR ENDED YEAR ENDED
JANUARY 31, 2000 DECEMBER 31, 1999 PRO FORMA
HISTORICAL HISTORICAL COMBINED(1)
---------------- ----------------- -----------
<S> <C> <C> <C>
Sales............................................. $872,190 $37,477 $909,667
Cost of sales..................................... 329,802 20,301 350,103
-------- ------- --------
Gross margin...................................... 542,388 17,176 559,564
Operating expenses:
Research and development, net................... 168,132 1,684 169,816
Selling, general and administrative............. 184,080 11,661(3) 195,741
Royalties and license fees...................... 18,841 -- 18,841
Non-recurring charges........................... 2,016 900 2,916
-------- ------- --------
Income from operations............................ 169,319 2,931 172,250
Interest and other income, net.................... 16,519 76 16,595
-------- ------- --------
Income before income tax provision................ 185,838 3,007 188,845
Income tax provision.............................. 15,577 121 15,698
-------- ------- --------
Net income........................................ $170,261 $ 2,886 $173,147
======== ======= ========
Earnings per share:
Basic........................................... $ 1.18 $ 0.59 $ 1.19
======== ======= ========
Diluted......................................... $ 1.07 $ 0.52 $ 1.08
======== ======= ========
Weighted average number of common and common
equivalent shares outstanding:
Basic........................................... 144,018 4,859 145,889
======== ======= ========
Diluted......................................... 176,862 5,516 178,986
======== ======= ========
</TABLE>
------------------------
See Notes to Unaudited Pro Forma Condensed Combined Financial Information.
65
<PAGE>
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION
(1) The unaudited pro forma condensed combined balance sheet combines the
audited historical consolidated balance sheet of Comverse at January 31,
2000 with the audited historical consolidated balance sheet of Loronix at
December 31, 1999. The unaudited pro forma condensed combined statements of
income combines the audited historical consolidated statements of income of
Comverse for the years ended December 31, 1997 and January 31, 1999 and 2000
with the audited historical consolidated statements of income of Loronix for
the years ended December 31, 1997, 1998 and 1999, respectively. Certain
amounts reflected in the historical financial statement presentation have
been reclassified to conform to the unaudited pro forma condensed combined
presentation.
The unaudited pro forma condensed combined financial information excludes
costs associated with the integration and consolidation of the companies.
The unaudited pro forma combined basic and diluted earnings per share for
the respective periods represented is based on the combined weighted average
number of common shares and share equivalents of Comverse and Loronix. The
number of common shares and share equivalents of Loronix is based on an
exchange ratio of 0.385 shares of Comverse Common Stock for each issued and
outstanding share of Loronix common stock.
(2) Adjustment to reflect the issuance of Comverse common stock for Loronix
common stock.
(3) Includes operations and customer support expenses of $1,568,000 in 1997,
$1,606,000 in 1998, and $2,645,000 in 1999.
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<PAGE>
COMPARISON OF RIGHTS OF HOLDERS OF LORONIX COMMON STOCK AND
HOLDERS OF COMVERSE COMMON STOCK
Upon consummation of the merger, you will become shareholders of Comverse
and your rights will be governed by the Comverse charter and the Comverse
bylaws, which differ in certain material respects from our charter and bylaws.
As shareholders of Comverse, your rights will also be governed by the New York
Business Corporation Law instead of the Nevada General Corporation Law. New York
is the jurisdiction of incorporation of Comverse and Nevada is our jurisdiction
of incorporation.
The following comparison of the New York Business Corporation Law, the
Comverse charter and the Comverse bylaws, on the one hand, and the Nevada
General Corporation Law, our charter and our bylaws, on the other hand,
summarizes the material differences but is not intended to list all differences.
BUSINESS COMBINATIONS AND TAKEOVER CONSIDERATIONS
Nevada law restricts the ability of certain corporations to engage in any
"business combinations" (defined broadly to include mergers, consolidations or
issuance of stock) with, involving or proposed by an "interested stockholder"
(defined generally as any person who, directly or indirectly, beneficially owns
10% or more of the voting shares of a Nevada corporation or any affiliate or
associate of the Nevada corporation). The corporation may not engage in a
business combination with an interested stockholder for three years after the
interested stockholder acquired 10% of the voting power, unless the business
combination or purchase of the shares that caused the stockholder to become an
interested stockholder was approved by the board of directors of the corporation
before the date of acquisition. If the combination was not previously approved,
the interested stockholder may effect a combination after the three year period
only if such stockholder receives approval from a majority of the disinterested
shares or if the consideration to be paid by the interested stockholder meets
certain fair price criteria.
New York's law regarding business combinations is similar to that of Nevada,
except that under New York law, an "interested stockholder" is defined as any
person who, directly or indirectly, beneficially owns 20% or more of the
outstanding voting stock of a New York corporation, and the restriction extends
for five years after the date on which the interested stockholder became an
interested stockholder.
In certain circumstances Nevada law prohibits an acquiror from voting shares
of a target corporation's stock unless the acquisition is approved by a majority
of the disinterested stockholders. Any person who acquires in excess of 20%, 33
1/3% or 50% of the outstanding shares of the company's stock must obtain
approval by a majority of the disinterested stockholders whenever one of the
thresholds is exceeded in order to be able to exercise voting rights with
respect to the shares. If the disinterested stockholders vote in favor of the
acquisition, the stockholders who did not vote in favor of authorizing voting
rights are entitled to demand payment for the fair value of their shares. This
statute applies only to corporations with 200 or more stockholders, of whom 100
or more must be Nevada residents of record. We have exempted ourselves from this
statute. New York does not have a similar law.
Under New York law, a plan of merger or consolidation, a plan of share
exchange or the sale, lease, exchange or other disposition of all or
substantially all of the assets of a corporation is required to be approved (1)
in the case of corporations like Comverse that were in existence on February 22,
1998, and that do not expressly provide in their certificates of incorporation
for majority approval of such transactions, by two-thirds of the votes of all
outstanding shares entitled to vote thereon, and (2) in the case of all other
corporations, by a majority of the votes of all outstanding shares entitled to
vote thereon. The Comverse charter does not contain a provision expressly
providing for majority approval of such transactions.
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<PAGE>
New York law also provides that holders of shares of a class, or series of a
class, of capital stock of a corporation shall be entitled to vote together and
to vote as a separate class on any merger or consolidation in which (1) such
shares will remain outstanding after the merger or consolidation or will be
converted into the right to receive shares of stock of the surviving or
consolidated corporation or another corporation and (2) the charter of the
surviving or consolidated corporation or such other corporation immediately
after the effectiveness of the merger or consolidation would contain any
provision that is not contained in the charter of the pre-merger corporation and
that, if contained in an amendment thereto, would entitle the holders of shares
of such class or series of a class to vote as a separate class pursuant to the
procedures under New York law for class voting on charter amendments discussed
under "Amendments to Charters."
RIGHTS OF DISSENTING STOCKHOLDERS
A stockholder of a Nevada corporation, with certain exceptions, generally
has the right to dissent from, and obtain payment of the fair value of his
shares in the event of:
- a merger or consolidation to which the corporation is a party;
- consummation of a plan of exchange to which the corporation is a party as
the corporation whose shares will be acquired, if the stockholder is
entitled to vote on the plan; and
- any corporate action taken pursuant to a vote of the stockholders to the
extent that the articles of incorporation, bylaws or a resolution of the
board of directors provides that voting or non-voting stockholders are
entitled to dissent and obtain payment for their shares.
Nevada law provides that unless a corporation's articles of incorporation
provide otherwise, a stockholder does not have dissenters' rights with respect
to a plan of merger or share exchange if the shares held by the stockholder are
either registered 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 by at least 2,000 stockholders
and if the holders are not required under the plan of merger or exchange to
accept anything in exchange for their shares other than cash, shares or shares
and cash in lieu of fractional shares of the surviving or acquiring entity or
another entity, which shares, at the effective date of the plan or exchange,
were either listed on a national securities exchange, included in the national
market system by the National Association of Securities Dealers, Inc., or held
of record by at least 2,000 stockholders.
Our charter does not modify the dissenters' rights provided by the Nevada
General Corporation Law.
A stockholder of record of a Nevada corporation that has dissenters' rights
may dissent as to less than all the shares registered in his name only if he
dissents with respect to all shares beneficially owned by any one person and
notifies the corporation in writing of the name and address of each person on
whose behalf he asserts dissenter's rights. In such event, the stockholder's
rights will be determined as if the shares to which he dissented and his other
shares were registered in the names of different stockholders.
Stockholders of a New York corporation whose shares are not listed on a
national securities exchange or designated as a national market system security
on an inter-dealer quotation system by the National Association of Securities
Dealers, Inc. have the right to dissent and receive payment of the fair value of
their shares, except as otherwise provided by the New York law, in the event of
certain amendments or changes to the certificate of incorporation adversely
affecting their shares, certain mergers or consolidations, certain sales,
leases, exchanges or other dispositions of all or substantially all the
corporation's assets and certain share exchanges.
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<PAGE>
Neither holders of Comverse common stock nor holders of our common stock
have dissenters rights because each of our shares are designated as a national
market system security.
AMENDMENTS TO CHARTERS
Under Nevada law, amendments to the charter, must be adopted by a resolution
of the board and approved by the holders of a majority of the shares entitled to
vote, as well as a majority of shares by class of each class entitled to vote.
Our charter and bylaws are silent as to amendments to the charter, except
that no amendment, adoption or repeal of provisions relating to indemnification
and personal liability of directors and officers may reduce or eliminate the
effect of these provisions regarding any actions that arose prior to the
amendment or revision.
Under New York law, amendments to a charter generally must be approved by a
vote of the board of directors followed by vote of a majority of all outstanding
shares entitled to vote thereon at a meeting of stockholders, provided that, if
a provision of the charter requires the vote of a greater number or proportion
of shares, such provision may not be altered, amended or repealed except by such
greater vote. The Comverse charter is silent as to amendments.
AMENDMENT TO BYLAWS
Under Nevada law, the board of directors create the bylaws, except to the
extent the bylaws provide otherwise. Our bylaws may be amended, added to or
repealed by our board of directors or by our stockholders at any meeting.
Under the New York law, except as otherwise provided in the certificate of
incorporation, bylaws may be amended, repealed or adopted by a majority of the
votes cast by the shares at the time entitled to vote in the election of any
directors. When so provided in the certificate of incorporation or a bylaw
adopted by the stockholders, bylaws also may be amended, repealed or adopted by
the board of directors, but any bylaw adopted by the board of directors may be
amended or repealed by the stockholders entitled to vote thereon as provided by
the New York law.
The Comverse bylaws may be amended, repealed, or new bylaws may be adopted,
by a majority vote of the Comverse stockholders or by a majority of the Comverse
board; provided, that the Comverse board may not repeal any bylaw passed by the
Comverse stockholders.
DIVIDENDS
Under Nevada Law, except as otherwise provided in the corporation's articles
of incorporation, the board of directors may make distributions to is
stockholders. However, no distribution is permitted, if after giving effect to
such declaration:
- the corporation would not be able to pay its debts as they become due in
the ordinary course of business; or
- the corporation's total assets would be less than the sum of its total
liabilities plus any amount owed if the corporation would be dissolved at
the time of the distribution, to stockholders with preferential rights
superior to those receiving the distribution.
Our charter is silent with respect to dividends, except that the Loronix
board has full authority to determine the dividend policy relating to shares of
our preferred stock.
Under the New York law dividends may be declared and paid and other
distributions may be made out of surplus only, so that the net assets of the
corporation remaining after such declaration, payment or distribution must at
least equal the amount of its stated capital. A corporation may declare and pay
69
<PAGE>
dividends or make other distributions, except when the corporation is insolvent
or would thereby be made insolvent, or when the declaration, payment or
distribution would be contrary to any restrictions contained in the
corporation's certificate of incorporation.
DURATION OF PROXIES
Under Nevada law a proxy is not valid after six months, unless it is coupled
with an interest or unless the stockholder specifies a length of time for it to
be in effect, but in no case will it be valid after seven years from the date of
execution. We expressly include this provision in our bylaws.
Under New York law, no proxy is valid for more than eleven months, unless
otherwise provided in the proxy. Irrevocable proxies may be created for:
- a pledgee;
- a person who has purchased or agreed to purchase the shares;
- a creditor of the corporation who extends credit in consideration of the
proxy;
- a person who has contracted to perform services as an officer of the
corporation if a proxy is required by the employment contract; and
- a person designated under a voting agreement.
STOCKHOLDER MEETINGS AND NOTICE PROVISIONS
Nevada law does not specifically address who may call a special meeting of
stockholders.
Our bylaws provide that a special meeting of stockholders may be called at
any time by the president, the Loronix board or by a written request by
stockholders representing at least 25% of the Loronix stock issued and
outstanding.
New York law provides that, if, one month after the date fixed by or under
the bylaws for the annual meeting of stockholders or, if no date has been so
fixed, 13 months after the last annual meeting, a corporation fails to elect a
sufficient number of directors to conduct the business of the corporation, the
board of directors of the corporation is required to call a special meeting for
the election of directors. If a special meeting is not called by the board of
directors within two weeks after the required time period or if it is called but
there is a failure to elect directors for a period of two months after the
expiration of the required period, holders of 10% of the votes of the shares
entitled to vote in an election of directors may, in writing, demand the call of
a special meeting for the election of directors. New York law also provides that
special meetings of shareholders may be called by the board of directors and by
those persons authorized in the certificate of incorporation or bylaws.
The Comverse bylaws provide that a special meeting of Comverse shareholders
may be called only by the Comverse board, the chairman of the board, the
president or the holders of at least a majority of the Comverse shares entitled
to vote at a meeting.
STOCKHOLDER ACTION
Generally under Nevada and New York law unless otherwise provided in the
articles of incorporation or bylaws, any action required or permitted to be
taken at a meeting of stockholders may be taken without a meeting if a written
consent or consents setting forth the action taken is signed by the holders of
outstanding stock having not less than the minimum number of votes that would be
necessary to authorize or take such action at a meeting at which all shares
entitled to vote upon such action were present and voted.
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New York law also provides that no written consent of stockholders shall be
effective unless, within 60 days of the earliest dated consent delivered to the
corporation, the corporation shall have received written consents from a
sufficient number of holders to take the action specified therein. Prompt notice
of the taking of corporate action without a meeting shall be given to those
stockholders who have not consented in writing.
Our bylaws permit actions by written consent. The Comverse bylaws provide
that when Comverse stockholders are permitted or required to action by a vote,
the vote may be taken without a meeting by written consent, setting forth the
action to be taken and signed by the holders of all the outstanding shares.
QUORUM AND STOCKHOLDER VOTING
Generally under both Nevada and New York law, in order for business to be
transacted at a stockholder meeting, a quorum of stockholders must be present.
Unless the articles of incorporation or bylaws provide for different
proportions, the holders of a majority in voting power of the shares entitled to
vote are necessary to constitute a quorum. New York law also provides that in
the case of a special meeting called by the stockholders for the election of
directors, the stockholders attending, in person or by proxy, and entitled to
vote in the election of directors, constitute a quorum solely for the purpose of
electing directors.
Under Nevada law generally, if the number of votes cast in favor of an
action exceeds the number of votes cast in opposition, then the action is
approved. Under our bylaws, however, as well as under New York, law a vote of
the majority of the stockholders present at a meeting will be recognized as an
act of the stockholders, except that, under both Nevada and New York law,
directors are elected by a plurality of the votes of the holders of the shares
entitled to vote for directors.
Our bylaws and the Comverse's bylaws provide that the holders of a majority
of the outstanding shares entitled to vote at such meeting, whether present in
person or by proxy, constitutes a quorum.
INSPECTION OF STOCKHOLDER LIST
Under Nevada law, any person who has been a stockholder of record of the
corporation for at least six months or any stockholder holding at least five
percent of the outstanding shares of the corporation, upon at least five days'
written demand shall have the right to inspect the stock ledger and make
extracts from it during the normal business hours of the corporation.
Under New York law, any stockholder of record of the corporation upon at
least five days' written demand shall have the right to inspect the stock ledger
and make extracts from it, during the normal business hours of the corporation.
The Comverse bylaws provide that, upon request, a list of stockholders as of the
record date shall be produced at any meeting.
NUMBER OF DIRECTORS
Generally under Nevada and New York law, a change in the number of a
directors must be approved by the stockholders. A corporation may fix the exact
number of directors within a stated range set forth in the articles of
incorporation or bylaws. At each annual meeting of stockholders, directors are
to be elected to hold office until the next annual meeting, except to the extent
the corporation has a classified board as discussed below.
Nevada law provides that a corporation's board of directors may be divided
into various classes, with the term of the office of each class of directors
expiring each year. This is known as a classified board. Under Nevada law at
least one-fourth of the directors must be elected each year. New York law
permits a corporation's board of directors to be divided into either two, three
or four classes. All
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classes must be as nearly equal in number as possible. The term of office of one
class of directors shall expire each year, with the terms of office of no two
classes expiring the same year.
Our bylaws provide that the number of directors will be as determined by our
board of directors, but may not be fewer than five directors nor more than nine
directors. Our board of directors currently consist of six directors. We do not
have a classified board.
The Comverse bylaws provide that the number of directors constituting the
Comverse board shall not be less than three nor more than eleven, as fixed from
time to time by the Comverse board. The Comverse board currently consists of
eight directors. Comverse does not have a classified board.
REMOVAL OF DIRECTORS
Under Nevada law, subject the corporation's articles of incorporation, any
director or the entire board of directors may be removed, with or without cause,
by the holders of at least two-thirds of the voting power of shares entitled to
vote; however, in the case of a corporation with cumulative voting, no director
may be removed from office except upon the vote of stockholders owning
sufficient shares to have prevented his election to office in the first
instance.
Our bylaws provide that Loronix directors may be removed by the affirmative
vote of at least two-thirds of the outstanding shares of Loronix voting stock.
New York law provides that any or all of the directors may be removed for
cause by vote of the stockholders and, if the certificate of incorporation or
the specific provisions of a bylaw adopted by the stockholders provide,
directors may be removed for cause by action of the board of directors. If the
certificate of incorporation or the bylaws so provide, any or all of the
directors may be removed without cause by vote of the stockholders. The removal
of directors, with or without cause, is subject to the following:
- in the case of a corporation having cumulative voting, no director may be
removed when the votes cast against such director's removal would be
sufficient to elect the director if voted cumulatively; and
- if a director is elected by the holders of shares of any class or series,
such director may be removed only by the applicable vote of the holders of
the shares of that class or series voting as a class.
An action to procure a judgment removing a director for cause may be brought
by the Attorney General of the State of New York or by the holders of 10% of the
outstanding shares, whether or not entitled to vote.
The Comverse bylaws provide that a director may be removed from office, with
or without cause, by a vote the stockholders at a special meeting called for
that purpose, or, with cause, by the Comverse board.
VACANCIES
Generally under Nevada law, all vacancies, including those caused by an
increase in the number of directors, may be filled by a majority of the
remaining directors, even though less than a quorum, unless the articles of
incorporation or bylaws provide otherwise.
Our bylaws provide that any vacancy on the board, shall be filled by an
affirmative vote of a majority of a quorum of directors. If there is less than a
quorum of directors, but at least two directors in office, those two directors,
by a majority may fill the vacancy. If the directors then in office do not fill
the vacancies, the Loronix stockholders at a meeting called for that purpose,
may fill the vacancies.
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Our bylaws also provide that any director elected to fill a vacancy on the board
of directors will hold office for the unexpired term.
Under New York law, newly created directorships resulting from an increase
in the number of directors and vacancies occurring on the board of directors for
any reason except the removal of directors without cause may be filled by the
vote of the board of directors. Unless the certificate of incorporation or
bylaws provide otherwise, a vacancy in a directorship elected by holders of a
particular class or series of shares shall be filled by a vote of the other
directors elected by holders of the same class or series. Unless the certificate
of incorporation or the specific provisions of a bylaw adopted by the
stockholders provide that the board of directors may fill vacancies occurring on
the board of directors by reason of the removal of directors without cause, such
vacancies may be filled only by vote of the stockholders. Notwithstanding the
foregoing, unless otherwise provided in the certificate of incorporation or
bylaws, whenever the holders of one or more classes or series of shares are
entitled to elect one or more directors by the certificate of incorporation, any
vacancy that may be filled by the board or a majority of the directors then in
office shall be filled by a majority of the directors then in office that were
elected by such classes or series.
The Comverse bylaws provide that any vacancy on the Comverse board may be
filled by a majority vote of the remaining directors, though less than a quorum,
or by election by the stockholders.
INDEMNIFICATION
Generally under Nevada and New York law, a corporation may indemnify any
director, officer, employee or agent of the corporation or an individual who was
serving at the request of the corporation as a director, officer, employee or
agent of another corporation for expenses including amounts paid in settlement
actually and reasonably incurred as a party to a suit or proceeding by reason of
his relationship with the corporation if the he acted in a manner that he
reasonably believed in good faith in, or not opposed to, the best interests of
the corporation and, in the case of any criminal proceeding, that he had no
reasonable cause to believe his conduct was unlawful.
Under Nevada law, if a determination that the officer or director met a
specified standard of conduct is required, such determination shall be made:
- by the stockholders;
- by the majority vote of a quorum of the board of directors not parties to
the proceeding; or
- by independent legal counsel when a quorum of disinterested directors so
orders or when no quorum of disinterested directors can be obtained.
Expenses incurred by such individual as deemed appropriate by the board of
directors, in defending civil or criminal proceedings may be paid by the
corporation in advance of the final disposition of such proceeding upon receipt
of an undertaking by or on behalf of such person to repay the amount if it is
ultimately determined that such person is not entitled to be indemnified by the
corporation.
Our charter provides that Loronix directors, officers, agents or employees
shall be indemnified to the fullest extent permitted by applicable law.
Under New York law, any individual who has been successful on the merits or
otherwise in the defense of a civil or criminal action or proceeding will be
entitled to indemnification. Except as provided in the preceding sentence, or
ordered by a court pursuant to New York law, any indemnification under New York
law pursuant to the above paragraph may be made only if authorized in the
specific case and after a finding that the director or officer met the
applicable standard of conduct by the disinterested directors if a quorum is
available, or, if such a quorum so directs or is unavailable (1) the board of
directors upon the written opinion of independent legal counsel or (2) the
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stockholders. A corporation may advance expenses incurred by a director or
officer in defending any action or proceeding prior to its final disposition
upon receipt of an undertaking by or on behalf of such individual to repay such
advance to the extent that it exceeds the indemnification to which such
individual is entitled.
The Comverse bylaws provide that Comverse will indemnify and advance the
expenses of each person in the corporation to the fullest extent permitted under
New York law as described above. The Comverse bylaws further provide that the
indemnification described above is not exclusive of other indemnification rights
to which a director or officer may be entitled, when authorized by:
- a resolution of stockholders;
- a resolution of directors; or
- an agreement providing for such indemnification;
provided, that no indemnification may be made to or on behalf of any director or
officer if a judgment or other final adjudication adverse to the director or
officer establishes that his or her acts were committed in bad faith or were the
result of active and deliberate dishonesty and were material to the cause of
action so adjudicated, or that he or she personally gained in fact a financial
profit or other advantage to which he or she was not legally entitled.
LIMITATIONS OF PERSONAL LIABILITY OF DIRECTORS
Generally under Nevada and New York law, a corporation's articles of
incorporation may include a provision limiting the personal liability of a
director or officer to the corporation or its stockholders for monetary damages
for breach of fiduciary duty as a director or officer. However, no protection is
available for a person adjudged by a competent court to be liable for
intentional misconduct, fraud, or knowing violation of the law, except by a
court ordering advancement of expenses or indemnification. New York law further
eliminates protection for any directors actions that violate Section 719 of the
New York Business Corporation Law (which includes declaration of dividends,
purchase of capital stock, distribution of assets to stockholders after
dissolution of the corporation and loans to directors to the extent contrary to
New York law) or for any act or omission prior to the adoption of such a
provision in the certificate of incorporation.
Our charter and the Comverse charter limit the liability of our respective
directors to the fullest extent under the applicable law.
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SHARE OWNERSHIP BY PRINCIPAL STOCKHOLDERS, MANAGEMENT AND
DIRECTORS OF LORONIX
The following table sets forth information concerning the beneficial
ownership of common stock of Loronix as of June 7, 2000, for the following:
- each person or entity who is known by Loronix to own beneficially more
than five percent of the outstanding shares of Loronix common stock;
- each of Loronix's current directors;
- the chief executive officer and other highly compensated officers of
Loronix; and
- all directors and executive officers of Loronix as a group.
The number and percentage of shares beneficially owned is determined in
accordance with Rule 13d-3 of the Securities Exchange Act and the information is
not necessarily indicative of beneficial ownership for any other purpose. Under
such rule, beneficial ownership includes any shares as to which the individual
or entity has voting power or investment power and any shares that the
individual has the right to acquire within 60 days of June 7, 2000, through the
exercise of any stock option or other right. Unless otherwise indicated in the
footnotes or table, each person or entity has sole voting and investment power,
or shares such powers with his or her spouse, with respect to the shares shown
as beneficially owned and has an address of c/o Loronix Information
Systems, Inc., 820 Airport Road, Durango, Colorado 81301.
Certain stockholders of Loronix, as indicated below, have entered into a
voting agreement with Comverse agreeing to vote their shares of Loronix common
stock in favor of the merger.
LORONIX INFORMATION SYSTEMS STOCK TABLE
As of June 7, 2000
<TABLE>
<CAPTION>
COMMON OPTIONS TOTAL
--------- --------- ---------
<S> <C> <C> <C>
Comverse Technology, Inc.
170 Crossways Park Drive
Woodbury, New York 11797.................................. 1,140,606 1,020,000 2,160,606
Edward Jankowski............................................ 735,133 25,000 760,133
Peter A. Jankowski.......................................... 222,241 116,625 338,866
Jonathan C. Lupia........................................... 17,000 90,000 107,000
David T. Ledwell............................................ 2,000 2,000
F. James Price.............................................. 24,700 54,500 79,200
C. Rodney Wilger............................................ 88,568 37,500 126,068
Donald Stevens.............................................. 22,800 5,000 27,800
Louis E. Colonna............................................ 3,750 3,750
Total....................................................... 2,253,048 1,352,375 3,605,423
</TABLE>
"Options" includes shares of Loronix common stock subject to options
currently exerciseable within 60 days of June 7, 2000.
The shares of common stock owned by Comverse includes the following: (i)
1,020,000 shares of the Loronix common stock that Comverse has the option to
purchase upon the happening of specific events, none of which has occurred as of
June 7, 2000, pursuant to the stock option agreement a description of which can
be found on page 56, and (ii) 1,140,606 shares of Loronix common stock owned by
Loronix officers, directors and an employee with whom Comverse has entered into
voting agreements (strictly in their capacities as stockholders and not as
directors or officers) descriptions of
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which can be found on page 59. Pursuant to the voting agreements referred to in
clause (ii) above, Comverse may be deemed to have shared voting power with
respect to the shares to which the voting agreements pertain. Each stockholder
has agreed to vote or cause to be voted all shares of common stock held of
record or beneficially owned by him (whether currently owned or thereafter
acquired) in favor of the merger with Comverse and the adoption of the merger
agreement, and not to sell, transfer, pledge, encumber, assign or otherwise
dispose of any of his shares of common stock. Nothing contained herein shall be
deemed to be an admission by Comverse as to the beneficial ownership of any
common stock, and Comverse disclaims beneficial ownership of the shares referred
to in clauses (i) and (ii) above. Pursuant to Rule 13d-3 under the Securities
Exchange Act of 1934, the shares referred to in clause (i) above are also deemed
to be outstanding for the purpose of computing the percentage of Comverse's
beneficial ownership of the common stock.
Outstanding shares and shares issued and issuable upon exercise of options
held by Messrs. Edward Jankowski, Peter A. Jankowski, Jonathan C. Lupia, David
T. Ledwell, F. James Price, C. Rodney Wilger and Donald Stevens are the subject
of voting agreements between each of them and Comverse with respect to the
merger.
The shares of outstanding common stock indicated for Mr. E. Jankowski are
held in the Jankowski Family Trust, established by Mr. E. Jankowski and of which
Mr. E. Jankowski is a trustee.
The shares of outstanding common stock indicated for Mr. P. Jankowski
excludes 3,250 shares held by his spouse.
The shares of outstanding common stock indicated for Mr. Wilger includes
36,476 and 45,592 shares held by Serendipity, Inc., and the Wilger Profit
Sharing Fund, respectively, each under the control of Mr. Wilger.
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LEGAL MATTERS
The validity of the shares of Comverse common stock offered by this proxy
statement/prospectus and certain legal matters with respect to the federal
income tax consequences of the merger will be passed upon for Comverse by Weil,
Gotshal & Manges LLP, New York, New York. Some legal matters with respect to
federal income tax consequences of the merger will be passed upon for Loronix by
Wilson Sonsini Goodrich & Rosati, Palo Alto, California.
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EXPERTS
The consolidated financial statements of Comverse Technology, Inc. and its
subsidiaries ("Comverse") as of January 31, 1999 and 2000 and for the years
ended December 31, 1997, and January 31, 1999 and 2000, incorporated by
reference herein from Comverse's Annual Report on Form 10-K for the year ended
January 31, 2000, have been audited by Deloitte & Touche LLP, independent
auditors, as stated in their report, which is incorporated herein by reference,
and have been so incorporated in reliance upon the report of such firm given
upon their authority as experts in accounting and auditing.
The consolidated financial statements of Loronix Information Systems, Inc.
and subsidiary as of December 31, 1999 and for each of the years in the two-year
period ended December 31, 1999 have been incorporated by reference in this proxy
statement/prospectus and in the registration statement in reliance upon the
report of KPMG LLP, independent certified public accountants, incorporated by
reference herein, and upon the authority of said firm as experts in accounting
and auditing.
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STOCKHOLDER PROPOSALS IF THE MERGER IS NOT COMPLETED
Loronix will hold a 2000 annual meeting of Loronix stockholders only if the
merger is not completed before July 31, 2000. The deadline for submission of
stockholder proposals for inclusion in Loronix's proxy materials for the 2000
annual meeting of Loronix stockholders has passed.
If the merger is not completed, Loronix stockholders may present proper
proposals for consideration at the next annual meeting of Loronix stockholders
by submitting their proposal in writing to the Secretary of Loronix in a timely
manner. However, in order for such stockholder proposals to be eligible to be
brought before Loronix's stockholders at the next annual meeting of Loronix's
stockholders, the stockholder submitting the proposal must also comply with the
procedures, including the deadlines, required by the articles of incorporation
and bylaws of Loronix. Stockholder nominations of directors are not stockholder
proposals within the meaning of Rule 14a-8 and are not eligible for inclusion in
Loronix's proxy statement.
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ADDITIONAL STATEMENTS
THIS PROXY STATEMENT/PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL, OR A
SOLICITATION OF AN OFFER TO PURCHASE, THE SECURITIES OFFERED BY THIS PROXY
STATEMENT/PROSPECTUS, OR THE SOLICITATION OF A PROXY, IN ANY JURISDICTION TO OR
FROM ANY PERSON TO WHOM OR FROM WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER,
SOLICITATION OF AN OFFER OR PROXY SOLICITATION IN SUCH JURISDICTION. NEITHER THE
DELIVERY OF THIS PROXY STATEMENT/PROSPECTUS NOR ANY DISTRIBUTION OF SECURITIES
PURSUANT TO THIS PROXY STATEMENT/PROSPECTUS SHALL, UNDER ANY CIRCUMSTANCES,
CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE INFORMATION SET
FORTH OR INCORPORATED INTO THIS PROXY STATEMENT/PROSPECTUS BY REFERENCE OR IN
OUR AFFAIRS SINCE THE DATE OF THIS PROXY STATEMENT/PROSPECTUS. THE INFORMATION
CONTAINED IN THIS PROXY STATEMENT/PROSPECTUS WITH RESPECT TO LORONIX AND ITS
SUBSIDIARIES WAS PROVIDED BY LORONIX AND THE INFORMATION CONTAINED IN THIS PROXY
STATEMENT/ PROSPECTUS WITH RESPECT TO COMVERSE WAS PROVIDED BY COMVERSE.
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CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION
This proxy statement/prospectus and the documents incorporated herein by
reference contain forward-looking statements within the "safe harbor" provisions
of the Private Securities Litigation Reform Act of 1995 with respect to our
financial condition, results of operations and business, and on the expected
impact of the merger on Loronix's financial performance. Words such as
"anticipates," "expects," "intends," "plans," "believes," "seeks," "estimates"
and similar expressions identify forward-looking statements. These
forward-looking statements are not guarantees of future performance and are
subject to certain risks and uncertainties that could cause actual results to
differ materially from the results contemplated by the forward-looking
statements.
In evaluating the merger, you should carefully consider the discussion of
the risk factors identified in the section entitled "Risk Factors" on page 18 of
this proxy statement/prospectus.
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ANNEX A
AGREEMENT AND PLAN OF MERGER
<PAGE>
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
AGREEMENT AND PLAN OF MERGER
DATED AS OF MARCH 5, 2000
AMONG
LORONIX INFORMATION SYSTEMS, INC.
COMVERSE TECHNOLOGY, INC.
AND
COMVERSE ACQUISITION CORP.
----------------------------------------------------------------------
----------------------------------------------------------------------
A-1
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
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<S> <C> <C>
Article I THE MERGER.................................................. A-8
SECTION 1.1 The Merger.................................................. A-8
SECTION 1.2 Effective Time.............................................. A-8
SECTION 1.3 Closing of the Merger....................................... A-8
SECTION 1.4 Effects of the Merger....................................... A-9
SECTION 1.5 Certificate of Incorporation and Bylaws..................... A-9
SECTION 1.6 Directors................................................... A-9
SECTION 1.7 Officers.................................................... A-9
Article II CONVERSION OF SHARES........................................ A-9
SECTION 2.1 Conversion of Shares........................................ A-9
SECTION 2.2 Stock Options............................................... A-10
SECTION 2.3 Exchange Fund............................................... A-11
SECTION 2.4 Exchange Procedures......................................... A-11
SECTION 2.5 Distributions with Respect to Unsurrendered Certificates.... A-11
SECTION 2.6 No Further Ownership Rights in Company Common Stock......... A-12
SECTION 2.7 No Fractional Shares of Parent Common Stock................. A-12
SECTION 2.8 Termination of Exchange Fund................................ A-12
SECTION 2.9 No Liability................................................ A-12
SECTION 2.10 Investment of the Exchange Fund............................. A-12
SECTION 2.11 Lost Certificates........................................... A-12
SECTION 2.12 Withholding Rights.......................................... A-13
SECTION 2.13 Stock Transfer Books........................................ A-13
SECTION 2.14 Affiliates.................................................. A-13
Article III REPRESENTATIONS AND WARRANTIES OF THE COMPANY............... A-14
SECTION 3.1 Organization and Qualification; Subsidiaries................ A-14
SECTION 3.2 Capitalization of the Company and Its Subsidiaries.......... A-14
SECTION 3.3 Authority Relative to This Agreement; Consents and A-15
Approvals.................................................
SECTION 3.4 SEC Reports; Financial Statements........................... A-15
SECTION 3.5 No Undisclosed Liabilities.................................. A-16
SECTION 3.6 Absence of Changes.......................................... A-16
SECTION 3.7 Information Supplied........................................ A-17
SECTION 3.8 Consents and Approvals; No Violations....................... A-18
SECTION 3.9 No Default.................................................. A-18
SECTION 3.10 Real Property............................................... A-19
SECTION 3.11 Litigation.................................................. A-19
SECTION 3.12 Compliance with Applicable Law.............................. A-19
SECTION 3.13 Employee Plans.............................................. A-20
SECTION 3.14 Labor Matters............................................... A-21
SECTION 3.15 Environmental Matters....................................... A-23
SECTION 3.16 Tax Matters................................................. A-24
SECTION 3.17 Material Contracts.......................................... A-26
SECTION 3.18 Insurance................................................... A-27
SECTION 3.19 Intellectual Property....................................... A-27
SECTION 3.20 Opinion of Financial Advisor................................ A-29
SECTION 3.21 Brokers..................................................... A-29
SECTION 3.22 Accounting Matters; Tax Treatment........................... A-29
SECTION 3.23 Takeover Statute; Dissenters' Rights........................ A-29
</TABLE>
A-2
<PAGE>
<TABLE>
<CAPTION>
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<S> <C> <C>
SECTION 3.24 Amendment to the Company Rights Agreement................... A-29
SECTION 3.25 Related Party Transactions.................................. A-29
SECTION 3.26 Product Warranty............................................ A-29
Article IV REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB..... A-31
SECTION 4.1 Organization................................................ A-31
SECTION 4.2 Capitalization of Parent and Its Subsidiaries............... A-31
SECTION 4.3 Authority Relative to This Agreement........................ A-31
SECTION 4.4 SEC Reports; Financial Statements........................... A-32
SECTION 4.5 Information Supplied........................................ A-32
SECTION 4.6 Consents and Approvals; No Violations....................... A-32
SECTION 4.7 No Prior Activities......................................... A-33
SECTION 4.8 No Undisclosed Liabilities.................................. A-33
SECTION 4.9 Absence of Changes.......................................... A-33
SECTION 4.10 Litigation.................................................. A-33
SECTION 4.11 Accounting Matters; Tax Treatment........................... A-33
Article V COVENANTS RELATED TO CONDUCT OF BUSINESS.................... A-34
SECTION 5.1 Conduct of Business of the Company.......................... A-34
SECTION 5.2 Access to Information....................................... A-36
Article VI ADDITIONAL AGREEMENTS....................................... A-37
SECTION 6.1 Preparation of S-4 and the Proxy Statement.................. A-37
SECTION 6.2 Meeting..................................................... A-37
SECTION 6.3 Reasonable Best Efforts..................................... A-37
SECTION 6.4 Acquisition Proposals....................................... A-38
SECTION 6.5 Public Announcements........................................ A-39
SECTION 6.6 Indemnification; Directors' and Officers' Insurance......... A-39
SECTION 6.7 Notification of Certain Matters............................. A-40
SECTION 6.8 Pooling..................................................... A-40
SECTION 6.9 Tax-Free Reorganization Treatment........................... A-41
SECTION 6.10 Employee Matters............................................ A-41
SECTION 6.11 Affiliate Letters........................................... A-41
SECTION 6.12 SEC Filings................................................. A-42
SECTION 6.13 Fees and Expenses........................................... A-42
SECTION 6.14 Obligations of Merger Sub................................... A-42
SECTION 6.15 Listing of Stock............................................ A-42
SECTION 6.16 Antitakeover Statutes....................................... A-42
Article VII CONDITIONS TO CONSUMMATION OF THE MERGER.................... A-42
SECTION 7.1 Conditions to Each Party's Obligations to Effect the A-42
Merger....................................................
SECTION 7.2 Conditions to the Obligations of the Parent and Merger A-43
Sub.......................................................
SECTION 7.3 Conditions to the Obligations of the Company................ A-44
Article VIII TERMINATION; AMENDMENT; WAIVER.............................. A-45
SECTION 8.1 Termination by Mutual Agreement............................. A-45
SECTION 8.2 Termination by Either Parent or the Company................. A-45
SECTION 8.3 Termination by the Company.................................. A-45
SECTION 8.4 Termination by Parent....................................... A-46
SECTION 8.5 Effect of Termination and Abandonment....................... A-46
SECTION 8.6 Amendment................................................... A-47
SECTION 8.7 Extension; Waiver........................................... A-47
Article IX MISCELLANEOUS............................................... A-47
SECTION 9.1 Nonsurvival of Representations and Warranties............... A-47
</TABLE>
A-3
<PAGE>
<TABLE>
<CAPTION>
PAGE
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<S> <C> <C>
SECTION 9.2 Entire Agreement; Assignment................................ A-47
SECTION 9.3 Notices..................................................... A-47
SECTION 9.4 Governing Law............................................... A-48
SECTION 9.5 Descriptive Headings........................................ A-48
SECTION 9.6 Parties in Interest......................................... A-48
SECTION 9.7 Severability................................................ A-48
SECTION 9.8 Specific Performance........................................ A-49
SECTION 9.9 Counterparts................................................ A-49
SECTION 9.10 Interpretation.............................................. A-49
SECTION 9.11 Definitions................................................. A-49
</TABLE>
A-4
<PAGE>
GLOSSARY OF DEFINED TERMS
<TABLE>
<CAPTION>
DEFINED
DEFINED TERMS IN PAGE
------------- --------
<S> <C>
ACQUIRING PERSON:........................................... A-29
ACQUISITION PROPOSAL:....................................... A-49
ANTITRUST LAW:.............................................. A-38
APB 16:..................................................... A-41
ARTICLES OF MERGER:......................................... A-8
ASSUMED STOCK OPTION:....................................... A-10
AVERAGE PARENT STOCK PRICE:................................. A-10
BALANCE SHEET DATE:......................................... A-16
BENEFICIAL OWNERSHIP:....................................... A-50
BENEFICIALLY OWN:........................................... A-50
CERCLA:..................................................... A-23
CERTIFICATES:............................................... A-11
CLOSING DATE:............................................... A-8
CLOSING:.................................................... A-8
COBRA:...................................................... A-21
CODE:....................................................... A-8
COMPANY BOARD:.............................................. A-15
COMPANY COMMON STOCK:....................................... A-9
COMPANY DISCLOSURE SCHEDULE:................................ A-14
COMPANY OPTION PLANS:....................................... A-10
COMPANY PERMITS:............................................ A-20
COMPANY REQUISITE VOTE:..................................... A-15
COMPANY RIGHTS AGREEMENT:................................... A-29
COMPANY SEC REPORTS:........................................ A-15
COMPANY SECURITIES:......................................... A-14
COMPANY STOCK OPTION:....................................... A-10
COMPANY STOCKHOLDER MEETING:................................ A-37
COMPANY:.................................................... A-8
CONFIDENTIALITY AGREEMENT:.................................. A-36
COVERED TRANSACTIONS:....................................... A-29
DOJ:........................................................ A-38
EFFECTIVE TIME:............................................. A-8
EMPLOYEE BENEFIT PLAN:...................................... A-20
EMPLOYEE BENEFIT PLANS:..................................... A-20
ENVIRONMENTAL COSTS AND LIABILITIES:........................ A-23
ENVIRONMENTAL LAW:.......................................... A-23
ERISA AFFILIATE:............................................ A-20
EXCHANGE ACT:............................................... A-15
EXCHANGE AGENT:............................................. A-11
EXCHANGE FUND:.............................................. A-11
EXCHANGE RATIO:............................................. A-9
EXPENSES:................................................... A-42
EXPIRATION DATE:............................................ A-29
FINANCIAL ADVISOR:.......................................... A-29
FTC:........................................................ A-38
GAAP:....................................................... A-16
GOVERNMENTAL ENTITY:........................................ A-18
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
DEFINED
DEFINED TERMS IN PAGE
------------- --------
<S> <C>
HAZARDOUS MATERIAL:......................................... A-23
HSR ACT:.................................................... A-18
INDEMNIFIED PARTIES:........................................ A-40
INDEMNIFIED PARTY:.......................................... A-40
IRS:........................................................ A-20
KNOW:....................................................... A-50
KNOWLEDGE:.................................................. A-50
LAW:........................................................ A-18
LICENSES:................................................... A-27
LIEN:....................................................... A-15
LIMITED USE PROPERTY:....................................... A-26
MATERIAL ADVERSE EFFECT:.................................... A-50
MATERIAL CONTRACTS:......................................... A-26
MERGER CONSIDERATION:....................................... A-9
MERGER SUB:................................................. A-8
MERGER:..................................................... A-8
MULTIEMPLOYER PLAN:......................................... A-20
MULTIPLE EMPLOYER PLANS:.................................... A-20
NRS:........................................................ A-8
OSHA:....................................................... A-23
OTHER INTELLECTUAL PROPERTY:................................ A-28
PARENT BOARD:............................................... A-32
PARENT DISCLOSURE SCHEDULE:................................. A-31
PARENT SEC REPORTS:......................................... A-32
PARENT SECURITIES:.......................................... A-31
PARENT:..................................................... A-8
PBGC:....................................................... A-21
PERSON:..................................................... A-50
PREFERRED STOCK:............................................ A-14
PROXY STATEMENT:............................................ A-17
REAL PROPERTY LEASES:....................................... A-19
RELEASE:.................................................... A-23
REMEDIAL ACTION:............................................ A-23
RIGHTS:..................................................... A-29
S-4:........................................................ A-17
SEC:........................................................ A-8
SECURITIES ACT:............................................. A-13
SHARE:...................................................... A-9
SHARES:..................................................... A-9
STOCK OPTION AGREEMENT:..................................... A-8
SUBSIDIARY:................................................. A-50
SUPERIOR PROPOSAL:.......................................... A-38
SURVIVING CORPORATION:...................................... A-8
TAKEOVER STATUTES:.......................................... A-29
TAX EXEMPT BOND FINANCED PROPERTY:.......................... A-26
TAX EXEMPT USE PROPERTY:.................................... A-26
TAX RETURNS:................................................ A-25
TAX:........................................................ A-24
TAXES:...................................................... A-24
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
DEFINED
DEFINED TERMS IN PAGE
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<S> <C>
TERMINATION DATE:........................................... A-45
TERMINATION NOTICE:......................................... A-9
TITLE IV PLANS:............................................. A-20
TOP-UP EXCHANGE RATIO....................................... A-9
TOP-UP NOTICE............................................... A-9
TRADEMARKS:................................................. A-28
UNAUDITED 1999 FINANCIAL STATEMENTS......................... A-16
</TABLE>
A-7
<PAGE>
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER, dated as of March 5, 2000, is among
Loronix Information Systems, Inc., a Nevada corporation (the "COMPANY"),
Comverse Technology, Inc., a New York corporation ("PARENT"), and Comverse
Acquisition Corp., a Nevada corporation and a direct wholly owned subsidiary (as
hereinafter defined) of Parent ("MERGER SUB").
WHEREAS, the Boards of Directors of the Company, Parent and Merger Sub each
have, in light of and subject to the terms and conditions set forth herein,
resolved to deem this Agreement and the transactions contemplated hereby,
including the Merger, taken together, advisable and fair to, and in the best
interests of, their respective stockholders;
WHEREAS, for federal income Tax purposes, it is intended that the Merger
shall qualify as a reorganization within the meaning of Section 368(a) of the
Internal Revenue Code of 1986, as amended (the "CODE");
WHEREAS, for accounting purposes, it is intended that the Merger be
accounted for as a "POOLING OF INTERESTS" under APB 16 (as hereinafter defined)
and the applicable rules and regulations of the Securities and Exchange
Commission (the "SEC"); and
WHEREAS, contemporaneously with the execution and delivery of this
Agreement, as a condition and an inducement to the willingness of Parent and
Merger Sub to enter into this Agreement, the Company is entering into a stock
option agreement with Parent (the "STOCK OPTION AGREEMENT"), pursuant to which
the Company has granted Parent an option to purchase Shares (as hereinafter
defined) under the terms and conditions set forth in the Stock Option Agreement;
NOW, THEREFORE, in consideration of the premises and the representations,
warranties, covenants and agreements herein contained, and intending to be
legally bound hereby, the Company, Parent and Merger Sub hereby agree as
follows:
ARTICLE I
THE MERGER
SECTION 1.1 THE MERGER. At the Effective Time (as hereinafter defined) and
upon the terms and subject to the conditions of this Agreement and in accordance
with the Chapter 92A of the Nevada Revised Statutes (the "NRS"), Merger Sub
shall be merged with and into the Company (the "MERGER"). Following the Merger,
the Company shall continue as the surviving corporation (the "SURVIVING
CORPORATION") and the separate corporate existence of Merger Sub shall cease.
SECTION 1.2 EFFECTIVE TIME. Subject to the provisions of this Agreement,
Parent, Merger Sub and the Company shall cause the Merger to be consummated by
filing the appropriate Articles of Merger or other appropriate documents (the
"ARTICLES OF MERGER") with the Secretary of State of the State of Nevada in such
form as required by, and executed in accordance with, the relevant provisions of
the NRS, as soon as practicable on or after the Closing Date (as hereinafter
defined). The Merger shall become effective upon such filing or at such time
thereafter as is provided in the Certificate of Merger (the "EFFECTIVE TIME").
SECTION 1.3 CLOSING OF THE MERGER. The closing of the Merger (the
"CLOSING") will take place at a time and on a date to be specified by the
parties (the "CLOSING DATE"), which shall be no later than the second business
day after satisfaction or waiver of the conditions set forth in Article VII
(other than those conditions that by their nature are to be satisfied at the
Closing, but subject to the fulfillment or waiver of those conditions), at the
offices of Weil, Gotshal & Manges LLP, 767 Fifth Avenue, New York, New York
10153, or at such other time, date or place as agreed to in writing by the
parties hereto.
A-8
<PAGE>
SECTION 1.4 EFFECTS OF THE MERGER. The Merger shall have the effects set
forth in the NRS. Without limiting the generality of the foregoing, and subject
thereto, at the Effective Time, all the properties, rights, privileges, powers
and franchises of the Company and Merger Sub shall vest in the Surviving
Corporation, and all debts, liabilities and duties of the Company and Merger Sub
shall become the debts, liabilities and duties of the Surviving Corporation.
SECTION 1.5 CERTIFICATE OF INCORPORATION AND BYLAWS. The Restated Articles
of Incorporation of the Company in effect at the Effective Time shall be the
articles of incorporation of the Surviving Corporation until amended in
accordance with applicable Law (as hereinafter defined). The bylaws of the
Company in effect at the Effective Time shall be the bylaws of the Surviving
Corporation until amended in accordance with applicable Law and as may be
required to increase the size of the Board of Directors of the Surviving
Company.
SECTION 1.6 DIRECTORS. The directors of Merger Sub at the Effective Time
shall be the initial directors of the Surviving Corporation, to hold office in
accordance with the certificate of incorporation and bylaws of the Surviving
Corporation until their successors are duly elected or appointed and qualified
or until their earlier death, resignation or removal; PROVIDED, HOWEVER, that
Parent shall cause each of Messrs. C. Rodney Wilger, Donald W. Stevens and Louis
E. Colonna to be elected to the Board of Directors of the Surviving Corporation
until May 2003; PROVIDED, FURTHER, HOWEVER, that such individuals shall then
continue to desire to be elected as directors of the Surviving Corporation.
SECTION 1.7 OFFICERS. The officers of the Company at the Effective Time
shall be the initial officers of the Surviving Corporation, to hold office in
accordance with the certificate of incorporation and bylaws of the Surviving
Corporation until their successors are duly elected or appointed and qualified
or until their earlier death, resignation or removal.
ARTICLE II
CONVERSION OF SHARES
SECTION 2.1 CONVERSION OF SHARES. (a) At the Effective Time, each
outstanding share of the common stock, par value $.01 per share, of Merger Sub
shall, by virtue of the Merger and without any action on the part of Parent,
Merger Sub or the Company, be converted into one fully paid and non-assessable
share of common stock, par value $.01 per share, of the Surviving Corporation.
(b) At the Effective Time, each share of common stock, par value $.001 per
share, of the Company including the associated Rights (as hereinafter defined)
("COMPANY COMMON STOCK") issued and outstanding immediately prior to the
Effective Time (individually, a "SHARE" and collectively, the "SHARES") (other
than (i) Shares held by the Company and (ii) Shares held by Parent or Merger
Sub) shall, by virtue of the Merger and without any action on the part of Merger
Sub, the Company or any holder thereof, be converted into and be exchangeable
for the right to receive 0.1925 fully paid and non-assessable shares (the
"EXCHANGE RATIO") of common stock, par value $.10 per share, of Parent, (all
such shares of Parent Common Stock issued, together with any cash in lieu of
fractional shares of Parent Common Stock to be paid pursuant to Section 2.7,
being referred to as the "MERGER CONSIDERATION"); PROVIDED, HOWEVER, THAT in the
event the Exchange Ratio multiplied by the Average Parent Stock Price is less
than $36 the Company shall have the right to give written notice to Parent (the
Section 2.1(b) "TERMINATION NOTICE") that the Company elects to terminate this
Agreement under this Section 2.1(b). The Section 2.1(b) Termination Notice shall
be delivered to Parent not later than 5:00 pm, New York time, on the second
trading day prior to the Effective Time. Upon delivery of a Section
2.1(b) Termination Notice, Parent shall have the option, in it sole discretion,
by written notice to the Company (the "TOP-UP NOTICE") delivered not later than
5:00 pm, New York time, on the trading day prior to the Effective Time, to
increase the Exchange Ratio to an amount equal to $36 divided by the Average
Parent Stock Price (the "TOP-UP EXCHANGE RATIO"). If Parent delivers a Top-Up
Notice, this Agreement shall not terminate and the Exchange Ratio shall be the
Top-Up Exchange
A-9
<PAGE>
Ratio for all purposes under this Agreement. As used herein, the "AVERAGE PARENT
STOCK PRICE" shall mean the average of the daily closing prices, regular way, of
one share of Parent Common Stock (rounded to the nearest thousandth) on the
Nasdaq National Market (as reported in the New York City edition of the Wall
Street Journal or, if not reported thereby, another nationally recognized
source) for the five (5) consecutive trading day period ending on the third
trading day prior to the Effective Time.
(c) At the Effective Time, each Share held by Parent, Merger Sub or the
Company immediately prior to the Effective Time shall, by virtue of the Merger
and without any action on the part of Merger Sub, the Company or Parent, be
canceled, retired and cease to exist and no payment shall be made with respect
thereto.
(d) If between the date of this Agreement and the Effective Time the
outstanding shares of Parent Common Stock shall have been changed into a
different number of shares or a different class by reason of any stock dividend,
subdivision, reclassification, recapitalization, split, combination or exchange
of shares or any similar event, the amount of shares of Parent Common Stock
constituting the Exchange Ratio shall be correspondingly adjusted to reflect
such stock dividend, subdivision, reclassification, recapitalization, split,
combination or exchange of shares or such similar event.
SECTION 2.2 STOCK OPTIONS. (a) As soon as practicable following the date
of this Agreement, Parent and Company (or, if appropriate, any committee of the
Board of Directors of Company administering Company's 1992 Stock Plan, 1995
Director Option Plan, and the 1999 Nonstatutory Stock Option Plan (collectively,
the "COMPANY OPTION PLANS") shall take such action as may be required to effect
the following provisions of this Section 2.2(a). Subject to the provisions of
Section 16 of the Exchange Act (as hereinafter defined), as of the Effective
Time each option to purchase Shares pursuant to the Company Stock Plans (a
"COMPANY STOCK OPTION") which is then outstanding shall be assumed by Parent and
converted into an option (or a new substitute option shall be granted) (an
"ASSUMED STOCK OPTION") to purchase the number of shares of Parent Common Stock
(rounded up to the nearest whole share) equal to (x) the number of Shares
subject to such option multiplied by (y) the Exchange Ratio, at an exercise
price per share of Parent Common Stock (rounded down to the nearest penny) equal
to (A) the former exercise price per share of Company Common Stock under such
option immediately prior to the Effective Time divided by (B) the Exchange
Ratio; PROVIDED, HOWEVER, that in the case of any Company Stock Option which is
an "incentive stock option" (as defined in Section 422 of the Code), the
conversion formula shall be adjusted, if necessary, in a manner consistent with
Section 424(a) of the Code. Except as provided above, the Assumed Stock Option
shall be subject to the same terms and conditions (including expiration date,
vesting and exercise provisions) as were applicable to the converted Company
Stock Option immediately prior to the Effective Time.
(b) As soon as practicable after the Effective Time, Parent shall or shall
cause the Surviving Corporation on its behalf to deliver to the holders of
Company Stock Options appropriate notices setting forth such holders' rights
pursuant to the respective Company Option Plans and the agreements evidencing
the grants of such Company Stock Options and that such Company Stock Options and
agreements have been assumed by Parent and shall continue in effect on the same
terms and conditions (subject to the adjustments required by this Section 2.2).
Parent shall comply with the terms of the Company Option Plans and ensure, to
the extent required by, and subject to the provisions of, such Company Option
Plans, that the Company Stock Options which qualified as incentive stock options
prior to the Effective Time continue to qualify as incentive stock options after
the Effective Time.
(c) Parent shall take such actions as are reasonably necessary for the
assumption of the Company Option Plans pursuant to this Section 2.2, including
the reservation, issuance and listing of Parent Common Stock as is necessary to
effectuate the transactions contemplated by this Section 2.2. Parent shall use
its reasonable best efforts to prepare and file with the SEC a registration
statement on Form
A-10
<PAGE>
S-8 or other appropriate form with respect to shares of Parent Common Stock
subject to the Assumed Stock Options within 30 days following the Effective Time
and to maintain the effectiveness of such registration statement or registration
statements covering such Assumed Stock Options (and maintain the current status
of the prospectus or prospectuses contained therein) for so long as such Assumed
Stock Options remain outstanding.
SECTION 2.3 EXCHANGE FUND. Prior to the Effective Time, Parent shall
appoint a commercial bank or trust company reasonably acceptable to the Company
to act as exchange agent hereunder for the purpose of exchanging Shares for the
Merger Consideration (the "EXCHANGE AGENT"). At or prior to the Effective Time,
Parent shall deposit with the Exchange Agent, in trust for the benefit of
holders of Shares, certificates representing the Parent Common Stock issuable
pursuant to Section 2.1 in exchange for outstanding Shares. Parent 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 2.7 and
any dividends and other distributions pursuant to Section 2.5. Any cash and
certificates of Parent Common Stock deposited with the Exchange Agent shall
hereinafter be referred to as the "EXCHANGE FUND."
SECTION 2.4 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 or certificates which immediately prior to
the Effective Time represented outstanding Shares (the "CERTIFICATES") (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 customary form
and have such other provisions as Parent 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) shares of
Parent Common Stock representing, in the aggregate, the whole number of shares
that such holder has the right to receive pursuant to Section 2.1 (after taking
into account all Shares then held by such holder) and (B) a check in the amount
equal to the cash that such holder has the right to receive pursuant to the
provisions of this Article II, including cash in lieu of any dividends and other
distributions pursuant to Section 2.5. No interest will be paid or will accrue
on any cash payable pursuant to Section 2.5 or Section 2.7. In the event of a
transfer of ownership of Company Common Stock which is not registered in the
transfer records of the Company, shares of Parent Common Stock evidencing, in
the aggregate, the proper number of shares of Parent Common Stock, a check in
the proper amount of cash in lieu of any fractional shares of Parent Common
Stock pursuant to Section 2.7 and any dividends or other distributions to which
such holder is entitled pursuant to Section 2.5, may be issued with respect to
such Shares to the a transferee if the Certificate representing such Shares are
presented to the Exchange Agent, accompanied by all documents required to
evidence and effect such transfer and to evidence that any applicable stock
transfer Taxes have been paid.
SECTION 2.5 DISTRIBUTIONS WITH RESPECT TO UNSURRENDERED CERTIFICATES. No
dividends or other distributions declared or made with respect to shares of
Parent Common Stock with a record date after the Effective Time shall be paid to
the holder of any unsurrendered Certificate with respect to the shares of Parent
Common Stock that such holder would be entitled to receive upon surrender of
such Certificate and no cash payment in lieu of fractional shares of Parent
Common Stock shall be paid to any such holder pursuant to Section 2.7 until such
holder shall surrender such Certificate in accordance with Section 2.4. Subject
to the effect of applicable Laws, following surrender of any such Certificate,
there shall be paid to such holder of shares of Parent Common Stock issuable in
exchange therefor, without interest, (a) promptly after the time of such
surrender, the amount of any cash payable in lieu of fractional shares of Parent
Common Stock to which such holder is entitled pursuant to Section 2.7 and the
amount of dividends or other distributions with a record date after the
Effective Time
A-11
<PAGE>
theretofore paid with respect to such whole shares of Parent Common Stock, and
(b) at the appropriate payment date, the amount of dividends or other
distributions with a record date after the Effective Time but prior to such
surrender and a payment date subsequent to such surrender payable with respect
to such shares of Parent Common Stock.
SECTION 2.6 NO FURTHER OWNERSHIP RIGHTS IN COMPANY COMMON STOCK. All
shares of Parent Common Stock issued and cash paid upon conversion of the Shares
in accordance with the terms of Article I and this Article II (including any
cash paid pursuant to Sections 2.5 and 2.7) shall be deemed to have been issued
or paid in full satisfaction of all rights pertaining to the Shares.
SECTION 2.7 NO FRACTIONAL SHARES OF PARENT COMMON STOCK. (a) No
certificates or scrip of shares of Parent Common Stock representing fractional
shares of Parent Common Stock or book-entry credit of the same 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 Parent or a holder of shares of Parent Common Stock.
(b) Notwithstanding any other provision of this Agreement, each holder of
Shares exchanged pursuant to the Merger who would otherwise have been entitled
to receive a fraction of a share of Parent 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 Parent Common Stock multiplied by (ii) the closing
price on the Nasdaq National Market (as reported in the New York City edition of
the Wall Street Journal or, if not reported thereby, another nationally
recognized source) for a share of Parent Common Stock on the date of the
Effective Time. As promptly as practicable after the determination of the
aggregate amount of cash to be paid to holders of fractional interests, the
Exchange Agent shall notify Parent and Parent shall cause the Surviving
Corporation to deposit such amount with the Exchange Agent and shall cause the
Exchange Agent to forward payments to such holders of fractional interests
subject to and in accordance with the terms hereof.
SECTION 2.8 TERMINATION OF EXCHANGE FUND. Any portion of the Exchange Fund
which remains undistributed to the holders of Certificates for six months after
the Effective Time shall be delivered to Parent or otherwise on the instruction
of Parent, and any holders of the Certificates who have not theretofore complied
with this Article II shall thereafter look only to the Surviving Corporation and
Parent for the Merger Consideration with respect to the Shares formerly
represented thereby to which such holders are entitled pursuant to Section 2.1
and Section 2.4, any cash in lieu of fractional shares of Parent Common Stock to
which such holders are entitled pursuant to Section 2.7 and any dividends or
distributions with respect to shares of parent Common Stock to which such
holders are entitled pursuant to Section 2.5. Any such portion of the Exchange
Fund remaining unclaimed by holders of Shares five years after the Effective
Time (or such earlier date immediately prior to such time as such amounts would
otherwise escheat to or become property of any Governmental Entity (as
hereinafter defined)) shall, to the extent permitted by law, become the property
of the Surviving Corporation free and clear of any claims or interest of any
person previously entitled thereto.
SECTION 2.9 NO LIABILITY. None of Parent, Merger Sub, the Company, the
Surviving Corporation or the Exchange Agent shall be liable to any person in
respect of any Merger Consideration from the Exchange Fund delivered to a public
official pursuant to any applicable abandoned property, escheat or similar Law.
SECTION 2.10 INVESTMENT OF THE EXCHANGE FUND. The Exchange Agent shall
invest any cash included in the Exchange Fund as directed by Parent on a daily
basis. Any interest and other income resulting from such investments shall
promptly be paid to Parent.
SECTION 2.11 LOST CERTIFICATES. If any Certificate shall have been lost,
stolen or destroyed, upon the making of an affidavit of that fact by the person
claiming such Certificate to be lost, stolen or
A-12
<PAGE>
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 formerly represented thereby, any cash in lieu of fractional
shares of Parent Common Stock and unpaid dividends and distributions on shares
of Parent Common Stock deliverable in respect thereof, pursuant to this
Agreement.
SECTION 2.12 WITHHOLDING RIGHTS. Each of the Surviving Corporation and
Parent shall be entitled to deduct and withhold from the Merger Consideration
otherwise payable pursuant to this Agreement to any holder of Shares 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 a Tax Law. To the extent that amounts are so
withheld by the Surviving Corporation or Parent, as the case may be, such
withheld amounts shall be treated for all purposes of this Agreement as having
been paid to the holder of the Shares in respect to which such deduction and
withholding was made by the Surviving Corporation or Parent, as the case may be.
SECTION 2.13 STOCK TRANSFER BOOKS. The stock transfer books of the Company
shall be closed immediately upon the Effective Time and there shall be no
further registration of transfers of Shares thereafter on the records of the
Company. On or after the Effective Time, any Certificates presented to the
Exchange Agent or Parent for any reason shall be converted into the Merger
Consideration with respect to the Shares formerly represented thereby, any cash
in lieu of fractional shares of Parent Common Stock to which the holders thereof
are entitled pursuant to Section 2.7 and any dividends or other distributions to
which the holders thereof are entitled pursuant to Section 2.5.
SECTION 2.14 AFFILIATES. Notwithstanding anything to the contrary herein,
no shares of Parent Common Stock or cash shall be delivered to a person who may
be deemed an "AFFILIATE" of the Company in accordance with Section 6.11 hereof
for purposes of Rule 145 under the Securities Act of 1933, as amended (the
"SECURITIES ACT"), or for purposes of qualifying the Merger for "POOLING OF
INTERESTS" under APB 16 and the applicable SEC rules and regulations until such
person has executed and delivered to Parent the written agreement contemplated
by Section 6.11.
A-13
<PAGE>
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
Except as set forth in the disclosure schedule delivered by the Company to
Parent prior to the execution of this Agreement (the "COMPANY DISCLOSURE
SCHEDULE") (each section of which qualifies the correspondingly numbered
representation and warranty or covenant to the extent specified therein), the
Company hereby represents and warrants to each of Parent and Merger Sub as
follows:
SECTION 3.1 ORGANIZATION AND QUALIFICATION; SUBSIDIARIES. (a) The Company
and each of its subsidiaries, is a corporation or legal entity duly organized,
validly existing and in good standing under the Laws of the jurisdiction of its
incorporation and has all requisite corporate, partnership or similar power and
authority to own, lease and operate its properties and to carry on its
businesses as now conducted and proposed by the Company to be conducted.
(b) Section 3.1(b) of the Company Disclosure Schedule sets forth a list of
all subsidiaries of the Company. Except as listed in Section 3.1(b) of the
Company Disclosure Schedule, the Company does not own, directly or indirectly,
beneficially or of record, any shares of capital stock or other security of any
other entity or any other investment in any other entity.
(c) Each of the Company and its subsidiaries 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 or licensing necessary, except where the failure to be
so duly qualified or licensed and in good standing does not and would not
reasonably be expected to have, individually or in the aggregate, a Material
Adverse Effect on the Company.
(d) The Company has heretofore delivered to Parent accurate and complete
copies of the certificate of incorporation and bylaws, as currently in effect,
of each of the Company.
SECTION 3.2 CAPITALIZATION OF THE COMPANY AND ITS SUBSIDIARIES. (a) The
authorized capital stock of the Company consists of: (i) 22,000,000 Shares, of
which 5,127,775 Shares were issued and outstanding as of the close of business
on March 3, 2000 and none of which are held in the Company's treasury, and
(ii) 2,000,000 shares of preferred stock, par value $.001 per share (the
"PREFERRED STOCK"), no shares of which are outstanding. All of the issued and
outstanding Shares have been validly issued, and are duly authorized, fully
paid, non-assessable and free of preemptive rights. As of March 3, 2000, 952,541
Shares were reserved for issuance and issuable upon or otherwise deliverable in
connection with the exercise of outstanding Company Stock Options issued
pursuant to the Company Option Plans. Since September 30, 1999, no shares of the
Company's capital stock have been issued other than pursuant to Company Stock
Options already in existence on such date. Except as set forth above, as of the
date hereof, there are outstanding (i) no shares of capital stock or other
voting securities of the Company; (ii) no securities of the Company or any of
its subsidiaries convertible into or exchangeable for shares of capital stock or
voting securities of the Company; (iii) except for the Company Rights Agreement
(as hereinafter defined) and the Stock Option Agreement, no options or other
rights to acquire from the Company or any of its subsidiaries, and no
obligations of the Company or any of its subsidiaries to issue, any capital
stock, voting securities or securities convertible into or exchangeable for
capital stock or voting securities of the Company; and (iv) no equity
equivalents, interests in the ownership or earnings of the Company or any of its
subsidiaries or other similar rights (including stock appreciation rights)
(collectively, "COMPANY SECURITIES"). There are no outstanding obligations of
the Company or any of its subsidiaries to repurchase, redeem or otherwise
acquire any Company Securities. There are no stockholder agreements (other than
the Voting Agreements dated as of the date hereof between Parent and each of
Edward Jankowski and Peter Jankowski), voting trusts or other agreements or
understandings to which the Company or any of its subsidiaries is a party or to
which it is bound relating to the voting of any shares of capital stock of the
Company. Section 3.2 of the Company Disclosure Schedule sets forth information
regarding the current exercise price, date of grant and
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number granted Company Stock Options for each holder thereof. Following the
Effective Time, no holder of Company Stock Options will have any right to
receive shares of common stock of the Surviving Corporation upon exercise of the
Company Stock Options.
(b) All of the outstanding capital stock of the Company's subsidiaries is
owned by the Company, directly or indirectly, free and clear of any Lien (as
hereinafter defined) or any other limitation or restriction (including any
restriction on the right to vote or sell the same, except as may be provided as
a matter of Law). There are no securities of the Company or its subsidiaries
convertible into or exchangeable for, no options or other rights to acquire from
the Company or its subsidiaries, and no other contract, understanding,
arrangement or obligation (whether or not contingent) providing for the issuance
or sale, directly or indirectly of, any capital stock or other ownership
interests in, or any other securities of, any subsidiary of the Company. There
are no outstanding contractual obligations of the Company or its subsidiaries to
repurchase, redeem or otherwise acquire any outstanding shares of capital stock
or other ownership interests in any subsidiary of the Company. For purposes of
this Agreement, "LIEN" means, with respect to any asset (including, without
limitation, any security) any mortgage, lien, pledge, charge, security interest
or encumbrance of any kind in respect of such asset.
SECTION 3.3 AUTHORITY RELATIVE TO THIS AGREEMENT; CONSENTS AND
APPROVALS. (a) The Company has all necessary corporate power and authority to
execute and deliver this Agreement and the Stock Option Agreement and to
consummate the transactions contemplated hereby and thereby. No other corporate
proceedings on the part of the Company are necessary to authorize this Agreement
and the Stock Option Agreement or to consummate the transactions contemplated
hereby and thereby (other than, with respect to the Merger and this Agreement,
the Company Requisite Vote (as hereinafter defined)). This Agreement and the
Stock Option Agreement have been duly and validly executed and delivered by the
Company and constitute valid, legal and binding agreements of the Company,
enforceable against the Company in accordance with their respective terms.
(b) The Board of Directors of the Company (the "COMPANY BOARD") has, by
unanimous vote of those present duly and validly authorized the execution and
delivery of this Agreement and the Stock Option Agreement and approved the
consummation of the transactions contemplated hereby and thereby, and taken all
corporate actions required to be taken by the Company Board for the consummation
of the transactions, including the Merger, contemplated hereby and has resolved
(i) to deem this Agreement and the transactions contemplated hereby, including
the Merger, taken together, advisable and fair to, and in the best interests of,
the Company and its stockholders; and (ii) to recommend that the stockholders of
the Company approve and adopt this Agreement. The Company Board has directed
that this Agreement be submitted to the stockholders of the Company for their
approval. The affirmative approval of the holders of Shares representing a
majority of the votes that may be cast by the holders of all outstanding Shares
(voting as a single class) as of the record date for the Company (the "COMPANY
REQUISITE VOTE") is the only vote of the holders of any class or series of
capital stock of the Company necessary to adopt this Agreement and approve the
transactions contemplated hereby, including the Merger.
SECTION 3.4 SEC REPORTS; FINANCIAL STATEMENTS. The Company has filed all
required forms, reports and documents with the SEC since January 1, 1997, each
of which has complied in all material respects with all applicable requirements
of the Securities Act and the Securities Exchange Act of 1934, as amended (the
"EXCHANGE ACT"), each as in effect on the dates such forms, reports and
documents were filed. The Company has heretofore made available to Parent, in
the form filed with the SEC (including any amendments thereto), (i) its Annual
Reports on Form 10-KSB for each of the fiscal years ended December 31, 1997 and
1998; (ii) all definitive proxy statements relating to the Company's meetings of
stockholders (whether annual or special) held since January 1, 1997; and (iii)
all other reports or registration statements filed by the Company with the SEC
since January 1, 1997 (the "COMPANY SEC REPORTS"). None of such forms, reports
or documents, including, without limitation, any financial statements or
schedules included or incorporated by reference therein, contained, when
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filed, any untrue statement of a material fact or omitted to state a material
fact required to be stated or incorporated by reference therein or necessary in
order to make the statements therein, in light of the circumstances under which
they were made, not misleading. The draft of the Company's Annual Report on Form
10-KSB for the year ended December 31, 1999 previously provided to Parent (which
omits the financial statements) does not contain any untrue statement of a
material fact or omit to state a material fact required to be stated or
incorporated by reference therein or necessary in order to make the statements
therein, in light of the circumstances in which they were made, not misleading.
The consolidated financial statements of the Company included in the Company SEC
Reports complied, and the unaudited consolidated financial statements of the
Company for its fiscal year ended December 31, 1999 (including the notes
thereto) previously provided to Parent (the "UNAUDITED 1999 FINANCIAL
STATEMENTS") comply, as to form in all material respects with applicable
accounting requirements and the published rules and regulations of the SEC with
respect thereto and fairly present, in conformity with generally accepted
accounting principles applied on a consistent basis ("GAAP") (except as may be
indicated in the notes thereto), the consolidated financial position of the
Company and its consolidated subsidiaries as of the dates thereof and their
consolidated results of operations and changes in financial position for the
periods then ended (subject, in the case of the unaudited interim financial
statements, to normal year-end adjustments). The audited consolidated financial
statements of the Company for the year ended December 31, 1999 (including the
notes thereto) shall not differ in any material respect from the Unaudited 1999
Financial Statements. Since January 1, 1999, there has not been any change, or
any application or request for any change, by the Company or any of its
subsidiaries in accounting principles, methods or policies for financial
accounting or Tax purposes (subject, in the case of the unaudited interim
financial statements, to normal year-end adjustments).
SECTION 3.5 NO UNDISCLOSED LIABILITIES. Except as and to the extent set
forth in the Company's unaudited balance sheet as of December 31, 1999 (the
"BALANCE SHEET DATE") and notes thereto previously provided to Parent, or as
incurred by the Company subsequent to the Balance Sheet Date in the ordinary and
usual course of business consistent with past practice, none of the Company or
its subsidiaries has any liabilities or obligations of any nature, whether or
not accrued, contingent or otherwise, and whether due or to become due or
asserted or unasserted, which would be required by GAAP to be reflected in,
reserved against or otherwise described in the consolidated balance sheet of the
Company (including the notes thereto).
SECTION 3.6 ABSENCE OF CHANGES. Except as and to the extent publicly
disclosed in the Company SEC Reports as set forth in Section 3.6 of the Company
Disclosure Schedule or as otherwise permitted pursuant to this Agreement, since
the Balance Sheet Date, the Company and its subsidiaries have conducted their
business in the ordinary and usual course consistent with past practice and
there has not been:
(a) any event, occurrence or development which does or would reasonably be
expected to have, individually or in the aggregate, a Material Adverse Effect on
the Company;
(b) any declaration, setting aside or payment of any dividend or other
distribution with respect to any shares of capital stock of the Company, or any
repurchase, redemption or other acquisition by the Company or any subsidiary of
any Company securities;
(c) any amendment of any term of any outstanding security of the Company or
any subsidiary that would materially increase the obligations of the Company or
such subsidiary under such security;
(d) (i) any incurrence or assumption by the Company or any subsidiary of any
indebtedness for borrowed money other than under existing credit facilities (or
any renewals, replacements or extensions that do not increase the aggregate
commitments thereunder) other than (A) in the ordinary and usual course of
business consistent with past practice or (B) in connection with (x) any
acquisition or capital expenditure permitted by Section 5.1 or (y) the
transactions contemplated hereby, or (ii) any guarantee,
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endorsement or other incurrence or assumption of liability (whether directly,
contingently or otherwise) by the Company or any subsidiary for the obligations
of any other person (other than any wholly owned subsidiary of the Company)
other than in the ordinary and usual course of business consistent with past
practice;
(e) any creation or assumption by the Company or any subsidiary of any Lien
which is material to the Company on any material asset of the Company or any
subsidiary other than in the ordinary and usual course of business consistent
with past practice;
(f) any making of any loan, advance or capital contribution to or investment
in any person by the Company or any subsidiary other than (i) any acquisition
permitted by Section 5.1, (ii) loans, advances or capital contributions to or
investments in wholly owned subsidiaries of the Company or (iii) loans or
advances to employees of the Company or any subsidiary made in the ordinary and
usual course of business consistent with past practice;
(g) (i) any contract or agreement entered into by the Company or any
subsidiary on or prior to the date hereof relating to any material acquisition
or disposition of any assets or business or (ii) any modification, amendment,
assignment, termination or relinquishment by the Company or any subsidiary of
any material contract, license or other material right (including any insurance
policy naming it as a beneficiary or a loss payable payee) other than, in the
case of (i) and (ii), transactions, commitments, contracts or agreements in the
ordinary and usual course of business consistent with past practice and those
contemplated by this Agreement;
(h) any material change in any method of accounting or accounting principles
or practice by the Company or any subsidiary, except for any such change
required by reason of a change in GAAP;
(i) any (i) grant of any severance or termination pay to any director,
officer or employee of the Company or any of its subsidiaries; (ii) entering
into of any employment, deferred compensation or other similar agreement (or any
amendment to any such existing agreement) with any director, officer or employee
of the Company or any of its subsidiaries; (iii) increase in benefits payable
under any existing severance or termination pay policies or employment
agreements; or (iv) increase in compensation, bonus or other benefits payable to
directors, officers or employees of the Company or any of its subsidiaries other
than, in the case of clause (iv) only, increases prior to the date hereof in
compensation, bonus or other benefits payable to employees of the Company or any
of its subsidiaries in the ordinary and usual course of business consistent with
past practice or merit increases in salaries of employees at regularly scheduled
times in customary amounts consistent with past practices; or
(j) any making or rescission of any material express or deemed election
relating to Taxes, settlement or compromise of any material claim, action, suit,
litigation, proceeding, arbitration, investigation, audit or controversy
relating to Taxes, or except as may be required by applicable law, making of any
change to any of its material methods of reporting income or deductions for
federal income tax purposes from those employed in the preparation of its most
recently filed federal income tax return.
SECTION 3.7 INFORMATION SUPPLIED. None of the information supplied or to
be supplied by the Company for inclusion or incorporation by reference in
(i) the registration statement on Form S-4 to be filed with the SEC by Parent in
connection with the issuance of Parent Common Stock as required by the terms of
this Agreement pursuant to the Merger (the "S-4"), at the time the S-4 is filed
with the SEC and at the time it becomes effective under the Securities Act, will
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
not misleading, and (ii) the proxy statement relating to the Company Stockholder
Meeting (as hereinafter defined) to be held in connection with the Merger (the
"PROXY STATEMENT") will, at the date mailed stockholders and at the times of the
meeting of stockholders to be held in connection with the Merger, contain any
untrue statement of a material fact
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or omit to state any material fact required to be stated therein or necessary in
order to make the statements therein, in light of the circumstances under which
they are made, not misleading. If at any time prior to the Effective Time any
event with respect to the Company, its officers and directors or any of its
subsidiaries should occur which is required to be described in an amendment of,
or a supplement to, the S-4 or the Proxy Statement, the Company shall promptly
so advise Parent and such event shall be so described, and such amendment or
supplement (which Parent shall have a reasonable opportunity to review) shall be
promptly filed with the SEC and, as required by Law, disseminated to the
stockholders of the Company. The Proxy Statement, insofar as it relates to the
Company Stockholder Meeting, will comply as to form in all material respects
with the provisions of the Exchange Act and the rules and regulations
thereunder.
SECTION 3.8 CONSENTS AND APPROVALS; NO VIOLATIONS. Except for filings,
permits, authorizations, consents and approvals as may be required under, and
other applicable requirements of, the Securities Act, the Exchange Act, state
securities or blue sky Laws, the Hart-Scott-Rodino Antitrust Improvements Act of
1976, as amended (the "HSR ACT"), the filing and recordation of the Articles of
Merger as required by the NRS and as otherwise set forth in Section 3.8 to the
Company Disclosure Schedule, no filing by the Company with or notice by the
Company to, and no permit, authorization, consent or approval of, any court or
tribunal or administrative, governmental or regulatory body, agency or authority
(a "GOVERNMENTAL ENTITY") is necessary for the execution and delivery by the
Company of this Agreement or the Stock Option Agreement or the consummation by
the Company of the transactions contemplated hereby or thereby. Neither the
execution, delivery and performance of this Agreement or the Stock Option
Agreement by the Company nor the consummation by the Company of the transactions
contemplated hereby or thereby will (i) conflict with or result in any breach of
any provision of the respective certificate or articles of incorporation or
bylaws (or similar governing documents) of the Company or any of its
subsidiaries, (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, amendment, cancellation or acceleration or Lien) under,
any of the terms, conditions or provisions of any note, bond, mortgage,
indenture, lease, license, contract, agreement or other instrument or obligation
to which the Company or any of its subsidiaries is a party or by which any of
them or any of their respective properties or assets may be bound, or
(iii) violate any Law applicable to the Company or any of its subsidiaries or
any of their respective properties or assets, except in the case of (ii) or
(iii) for violations, breaches or defaults which do not or would not reasonably
be expected to have, individually or in the aggregate, a Material Adverse Effect
on the Company.
SECTION 3.9 NO DEFAULT. Neither the Company nor any of its subsidiaries
are in violation of any term of (i) its certificate of incorporation, bylaws or
other organizational documents, (ii) any agreement or instrument related to
indebtedness for borrowed money or any other agreement to which it is a party or
by which it is bound, or (iii) any foreign or domestic law, order, writ,
injunction, decree, ordinance, award, stipulation, statute, judicial or
administrative doctrine, rule or regulation entered by a Governmental Entity
("LAW") applicable to the Company, its subsidiaries or any of their respective
properties or assets, the consequence of which violation does or would
reasonably be expected to (A) have, individually or in the aggregate, a Material
Adverse Effect on the Company or (B) prevent or materially delay the performance
of this Agreement and the Stock Option Agreement by the Company. Except as set
forth in Section 3.6 of the Company Disclosure Schedule, the execution, delivery
and performance of this Agreement and the Stock Option Agreement and the
consummation of the transactions contemplated hereby and thereby will not result
in any violation of or conflict with, constitute a default under, require any
consent, waiver or notice under any term of, or result in the reduction or loss
of any benefit or the creation or acceleration of any right or obligation under,
(i) the certificate of incorporation, bylaws or other organizational document of
the Company (or any of its subsidiaries), (ii) any agreement, note, bond,
mortgage, indenture, contract, lease, Company Permit (as hereinafter defined),
instrument or other obligation or right to which the Company or any of its
subsidiaries is a party or by which any of the assets or properties of the
Company or any of its
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subsidiaries is bound, (iii) any Law, or (iv) result in the creation of (or
impose any obligation on the Company or any of its subsidiaries to create) any
Lien upon any of the properties or assets of the Company or any of its
subsidiaries pursuant to any such term, except in the case of clause (ii) where
any of the foregoing do not or would not reasonably be expected to have,
individually or in the aggregate, a Material Adverse Effect on the Company.
SECTION 3.10 REAL PROPERTY. (a) Section 3.10 of the Company Disclosure
Schedule sets forth all of the real property owned in fee by the Company and its
subsidiaries. Except as set forth on Section 3.10 of the Company Disclosure
Schedule, each of the Company and its subsidiaries has good and marketable title
to each parcel of real property owned by it free and clear of all Liens, except
(i) Taxes and general and special assessments not in default and payable without
penalty and interest, and (ii) other Liens, which do not materially interfere
with the Company's or any of its subsidiaries' use and enjoyment of such real
property.
(b) Section 3.10 of the Company Disclosure Schedule sets forth all leases,
subleases and other agreements (the "REAL PROPERTY LEASES") under which the
Company or any of its subsidiaries uses or occupies or has the right to use or
occupy, now or in the future, any real property. The Company has heretofore
delivered to Parent true, correct and complete copies of all Real Property
Leases (and all modifications, amendments and supplements thereto and all side
letters to which the Company or any of its subsidiaries is a party affecting the
obligations of any party thereunder). Each Real Property Lease constitutes the
valid and legally binding obligation of the Company or its subsidiaries,
enforceable in accordance with its terms (except as enforceability may be
limited by applicable bankruptcy, insolvency, reorganization, moratorium,
fraudulent transfer and similar Laws of general applicability relating to or
affecting creditors' rights or by general equity principles), and is in full
force and effect. No termination event or condition or uncured default of a
material nature on the part of the Company or any such subsidiary or, to the
Company's knowledge, the landlord, exists under any Real Property Lease. Each of
the Company and its subsidiaries has a good and valid leasehold interest in each
parcel of real property leased by it free and clear of all Liens, except
(i) Taxes and general and special assessments not in default and payable without
penalty and interest, and (ii) other Liens, which do not materially interfere
with the Company's or any of its subsidiaries' use and enjoyment of such real
property.
(c) No party to any such Real Property Leases has given notice to the
Company or any of its subsidiaries of or made a claim against the Company or any
of its subsidiaries with respect to any breach or default thereunder, in any
such case in which such breach or default does or would reasonably be expected
to have, individually or in the aggregate, a Material Adverse Effect on the
Company.
SECTION 3.11 LITIGATION. Except as and to the extent publicly disclosed by
the Company in the Company SEC Reports, and except for litigation that may arise
as a result of the announcement, pendency or performance of this Agreement or
the transactions contemplated hereby, there is no suit, claim, action,
proceeding or investigation pending or, to the Company's knowledge, threatened
against the Company or any of its subsidiaries or any of their respective
properties or assets which (a) seeks damages in excess of $500,000, (b) seeks
equitable relief or remediation, (c) does or would reasonably be expected to
have, individually or in the aggregate, a Material Adverse Effect on the Company
or (d) questions the validity of this Agreement, the Stock Option Agreement or
any action to be taken by the Company in connection with the consummation of the
transactions contemplated hereby or could otherwise prevent or delay the
consummation of the transactions contemplated by this Agreement. Except as and
to the extent publicly disclosed by the Company in the Company SEC Reports, none
of the Company or its subsidiaries is subject to any outstanding order, writ,
injunction or decree.
SECTION 3.12 COMPLIANCE WITH APPLICABLE LAW. The Company and its
subsidiaries hold all material permits, licenses, variances, exemptions, orders
and approvals of all Governmental Entities
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necessary for the lawful conduct of their respective businesses (the "COMPANY
PERMITS"). The Company and its subsidiaries are in compliance with the terms of
the Company Permits, except where the failure to so comply does not or would not
reasonably be expected to have, individually or in the aggregate, a Material
Adverse Effect on the Company. The businesses of the Company and its
subsidiaries are being conducted in compliance in all material respects with all
Laws applicable to the Company or its subsidiaries. To the Company's knowledge,
no investigation or review by any Governmental Entity with respect to the
Company or its subsidiaries is pending or threatened, nor, to the Company's
knowledge, has any Governmental Entity indicated an intention to conduct the
same.
SECTION 3.13 EMPLOYEE PLANS. (a) Section 3.13(a) of the Company Disclosure
Schedule sets forth a list of (i) all material "EMPLOYEE BENEFIT PLANS," as
defined in Section 3(3) of ERISA, and all other employee benefit plans or other
benefit arrangements or payroll practices including, without limitation, bonus
plans, executive compensation, consulting or other compensation agreements,
incentive, equity or equity-based compensation, deferred compensation
arrangements, stock purchase, severance pay, sick leave, vacation pay, salary
continuation disability, hospitalization, medical insurance, life insurance,
scholarship programs, directors' benefit, bonus or other incentive compensation,
which the Company or any of its subsidiaries maintains, contributes to or has
any obligation to or liability for (each an "EMPLOYEE BENEFIT PLAN" and
collectively, the "EMPLOYEE BENEFIT PLANS"); and (ii) all "EMPLOYEE PENSION
PLANS", as defined in Section 3(2) of ERISA, subject to Title IV of ERISA or
Section 412 of the Code, to which the Company, any of its subsidiaries or any
trade or business (whether or not incorporated) which is or has ever been under
common control, or which is or has ever been treated as a single employer, with
the Company or any subsidiary under Section 414(b), (c), (m) or (o) of the Code
("ERISA AFFILIATE") has ever sponsored, maintained, contributed or been
obligated to contribute in the last six years (the "TITLE IV PLANS"). Except as
separately set forth on Section 3.14(a) of the Company Disclosure Schedule, none
of the Employee Benefit Plans is a multiemployer plan, as defined in Section
3(37) of ERISA ("MULTIEMPLOYER PLAN"), or is or has been subject to Sections
4063 or 4064 of ERISA ("MULTIPLE EMPLOYER PLANS"), nor has the Company, its
subsidiaries or any ERISA Affiliate ever been obligated to contribute to a
Multiemployer Plan.
(b) True, correct and complete copies of the following documents, with
respect to each of the Employee Benefit Plans and Title IV Plans (other than a
Multiemployer Plan) have been made available or delivered to Parent by the
Company (i) any plans and related trust documents, and amendments thereto;
(ii) the three most recent Forms 5500 and schedules thereto; (iii) the most
recent Internal Revenue Service ("IRS") determination letter; (iv) the three
most recent financial statements and actuarial valuations, if applicable;
(v) summary plan descriptions; (vi) written communications to employees relating
to the Employee Benefit Plans; and (vii) written descriptions of all non-written
agreements relating to the Employee Benefit Plans.
(c) As of the date hereof, (i) all material payments required to be made by
or under any Employee Benefit Plan, any related trusts, or any collective
bargaining agreement or pursuant to Law have been made by the due date thereof
(including any valid extension), and all contributions for any period ending on
or before the Closing Date which are not yet due will have been paid or accrued
on the balance sheet on or prior to the Closing Date; (ii) the Company and its
subsidiaries have performed all material obligations required to be performed by
them under any Employee Benefit Plan; (iii) the Employee Benefit Plans, have
been administered in material compliance with their terms and the requirements
of ERISA, the Code and other applicable Laws; (iv) there are no material
actions, suits, arbitrations or claims (other than routine claims for benefit)
pending or threatened with respect to any Employee Benefit Plan; and (v) the
Company and its subsidiaries have no material liability as a result of any
"PROHIBITED TRANSACTION" (as defined in Section 406 of ERISA and Section 4975 of
the Code) for any excise Tax or civil penalty.
(d) Except as set forth in Section 3.13(d) of the Company Disclosure
Schedule:
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(i) There is no "AMOUNT OF UNFUNDED BENEFIT LIABILITIES" as defined in
Section 4001(a)(18) of ERISA in any of the respective Title IV Plans. Each
of the respective Title IV Plans are fully funded in accordance with the
actuarial assumptions used by the Pension Benefit Guaranty Corporation
("PBGC") to determine the level of funding required in the event of the
termination of such Title IV Plan and the "BENEFIT LIABILITIES" as defined
in Section 4001(a)(16) of ERISA of such Title IV Plan using such PBGC
assumptions do not exceed the assets of such Title IV Plan.
(ii) There has been no "REPORTABLE EVENT" as that term is defined in
Section 4043 of ERISA and the regulations thereunder with respect to the
Title IV Plans which would require the giving of notice or any event
requiring disclosure under Section 4041(c)(3)(C) or 4063(a) of ERISA.
(iii) Neither the Company nor any ERISA Affiliate has terminated any
Title IV Plan, or incurred any outstanding liability under Section 4062 of
ERISA to the PBGC, or to a trustee appointed under Section 4042 of ERISA.
All premiums due the PBGC with respect to the Title IV Plans have been paid.
(iv) Neither the Company nor any ERISA Affiliate nor any organization to
which the Company or any ERISA Affiliate is a successor or parent
corporation, within the meaning of Section 4069(b) of ERISA, has engaged in
any transaction within the last five years which might be alleged to come
within the meaning of Section 4069 of ERISA.
(e) The Company and its subsidiaries are not subject to any unsatisfied
withdrawal liability with respect to any Multiemployer Plan.
(f) Each of the Employee Benefit Plans which is intended to be "QUALIFIED"
within the meaning of Section 401(a) of the Code has been determined by the IRS
to be so "QUALIFIED" and the trusts maintained pursuant thereto are exempt from
federal income taxation under Section 501 of the Code, and the Company knows of
no fact which would adversely affect the qualified status of any such Employee
Benefit Plans or the exemption of such trust.
(g) None of the Employee Benefit Plans provide for continuing
post-employment health or life insurance coverage for any participant or any
beneficiary of a participant except as may be required under the Consolidated
Omnibus Budget Reconciliation Act of 1985, as amended, ("COBRA"). Each of the
Company and any ERISA Affiliate which maintains a "group health plan" within the
meaning Section 5000(b)(1) of the Code has materially complied with the notice
and continuation requirements of Section 4980B of the Code, COBRA, Part 6 of
Subtitle B of Title I of ERISA and the regulations thereunder.
(h) No stock or other security issued by the Company forms or has formed a
material part of the assets of any Employee Benefit Plan.
(i) Neither the execution and delivery of this Agreement nor the
consummation of the transactions contemplated hereby will by itself or in
combination with any other event, except as expressly contemplated by this
Agreement, (i) result in any material payment becoming due, or materially
increase the amount of compensation due, to any current or former employee of
the Company or any of its subsidiaries; (ii) materially increase any benefits
otherwise payable under any Employee Benefit Plan; or (iii) result in the
acceleration of the time of payment or vesting of any such material benefits.
SECTION 3.14 LABOR MATTERS. (a) Section 3.14 of the Company Disclosure
sets forth a list of all employment, labor or collective bargaining agreements
to which the Company or any subsidiary is party and except as set forth therein,
there are no employment, labor or collective bargaining agreements which pertain
to employees of the Company or any of its subsidiaries. The Company has
heretofore made available to Parent true and complete copies of (i) the
employment agreements listed on Section 3.14 of the Company Disclosure Schedule
and (ii) the labor or collective bargaining agreements listed
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on Section 3.14 of the Company Disclosure Schedule, together with all
amendments, modifications, supplements and side letters affecting the duties,
rights and obligations of any party thereunder.
(b) No employees of the Company or any of its subsidiaries are represented
by any labor organization; no labor organization or group of employees of the
Company or any of its subsidiaries has made a pending demand for recognition or
certification; and, to the Company's knowledge, there are no representation or
certification proceedings or petitions seeking a representation proceeding
presently pending or threatened in writing to be brought or filed with the
National Labor Relations Board or any other labor relations tribunal or
authority. To the Company's knowledge, there are no organizing activities
involving the Company or any of its Subsidiaries pending with any labor
organization or group of employees of the Company or any of its subsidiaries.
(c) There are no strikes, work stoppages, slowdowns, lockouts, material
arbitrations or material grievances or other material labor disputes pending or
threatened in writing against or involving the Company. There are no unfair
labor practice charges, grievances or complaints pending or threatened in
writing by or on behalf of any employee or group of employees of the Company
which, if individually or collectively resolved against Company, as the case may
be, could result in a material liability.
(d) There are no unfair labor practice charges, grievances or complaints
pending or threatened in writing by or on behalf of any employee or group of
employees of the Company or any of its Subsidiaries.
(e) There are no complaints, charges or claims against the Company or any of
its subsidiaries pending, or threatened in writing to be brought or filed, with
any Governmental Entity or arbitrator based on, arising out of, in connection
with, or otherwise relating to the employment or termination of employment of
any individual by the Company or any of its subsidiaries.
(f) The Company and each of its subsidiaries is in compliance with all Laws
relating to the employment of labor, including all such Laws and orders relating
to wages, hours, collective bargaining, discrimination, civil rights, safety and
health workers' compensation and the collection and payment of withholding
and/or Social Security Taxes and similar Taxes other than any such
non-compliance which does not or would not reasonably be expected to have,
individually or in the aggregate, a Material Adverse Effect on the Company.
(g) There has been no "mass layoff" or "plant closing" as defined by the
Workers Adjustment Retraining Notification Act, as amended ("WARN"), with
respect to the Company within the six (6) months prior to Closing.
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SECTION 3.15 ENVIRONMENTAL MATTERS. (a) For purposes of this Agreement:
(i) "ENVIRONMENTAL COSTS AND LIABILITIES" means any and all losses,
liabilities, obligations, damages (including compensatory, punitive and
consequential damages), fines, penalties, judgments, actions, claims, costs
and expenses (including, without limitation, fees, disbursements and
expenses of legal counsel, experts, engineers and consultants and the costs
of investigation and feasibility studies and clean up, remove, treat, or in
any other way address any Hazardous Materials (as hereinafter defined))
arising from, under or pursuant to any Environmental Law (as hereinafter
defined);
(ii) "ENVIRONMENTAL LAW" means any applicable federal, state, local or
foreign Law (including common Law), statute, rule, regulation, ordinance,
decree or other legal requirement relating to the protection of natural
resources, the environment and public and employee health and safety or
pollution or the release or exposure to Hazardous Materials (as hereinafter
defined) and shall include, without limitation, the Comprehensive
Environmental Response, Compensation, and Liability Act ("CERCLA") (42
U.S.C. Section 9601 ET SEQ.), the Hazardous Materials Transportation Act (49
U.S.C. Section 1801 ET SEQ.), the Resource Conservation and Recovery Act (42
U.S.C. Section 6901 ET SEQ.), the Clean Water Act (33 U.S.C. Section 1251 ET
SEQ.), the Clean Air Act (33 U.S.C. Section 7401 ET SEQ.), the Toxic
Substances Control Act (15 U.S.C. Section 7401 ET SEQ.), the Federal
Insecticide, Fungicide, and Rodenticide Act (7 U.S.C. Section 136 ET SEQ.),
and the Occupational Safety and Health Act (29 U.S.C. Section 651 ET SEQ.)
("OSHA") and the regulations promulgated pursuant thereto, and any such
applicable state or local statutes, and the regulations promulgated pursuant
thereto, as such Laws have been and may be amended or supplemented through
the Closing Date;
(iii) "HAZARDOUS MATERIAL" means any substance, material or waste which
is regulated, classified or otherwise characterized as hazardous, toxic,
pollutant, contaminant or words of similar meaning or regulatory effect by
any Governmental Entity or the United States, and includes, without
limitation, petroleum, petroleum by-products, asbestos and polychlorinated
biphenyls;
(iv) "RELEASE" means any release, spill, effluent, emission, leaking,
pumping, injection, deposit, disposal, discharge, dispersal, leaching, or
migration into the environment, including any property owned, operated or
leased by the applicable party or its subsidiaries; and
(v) "REMEDIAL ACTION" means all actions, including, without limitation,
any capital expenditures, required by a Governmental Entity or required
under or taken pursuant to any Environmental Law, or voluntarily undertaken
to (A) clean up, remove, treat, or in any other way, ameliorate or address
any Hazardous Materials released into the environment; (B) prevent the
Release or threat of Release, or minimize the further Release of any
Hazardous Material so it does not endanger or threaten to endanger the
public health or welfare of the environment; (C) perform pre-remedial
studies and investigations or post-remedial monitoring and care pertaining
or relating to a Release; or (D) bring the applicable party into compliance
with any Environmental Law.
(b) Except as set forth in Section 3.15 of the Company Disclosure
Schedule:
(i) The operations of the Company and its subsidiaries have been and, as
of the Closing Date, will be, in compliance with all Environmental Laws
except where the failure to be in compliance would be material to the
Company, and the Company is not aware of any facts, circumstances or
conditions, which without significant capital expenditures, would prevent
material compliance in the future;
(ii) The Company and its subsidiaries have obtained all material
permits, authorizations, licenses or similar approvals required under
applicable Environmental Laws for the continued operations of their
respective businesses as currently conducted;
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(iii) The Company and its subsidiaries are not subject to any outstanding
written orders or material agreements with any Governmental Entity or other
person respecting (A) Environmental Laws, (B) Remedial Action or (C) any
Release or threatened Release of a Hazardous Material;
(iv) The Company and its subsidiaries have not received any written
communication alleging, with respect to any such party, the violation of or
liability (real or potential) under any Environmental Law;
(v) Neither the Company nor any of its subsidiaries has any contingent
liability in connection with the Release of any Hazardous Material (whether
on-site or off-site) which does or would reasonably be expected to have,
individually or in the aggregate, a Material Adverse Effect;
(vi) The operations of the Company or its subsidiaries do not involve
the generation, transportation, treatment, storage or disposal of hazardous
waste, as defined and regulated and requiring a permit under 40 C.F.R. Parts
260-270 (in effect as of the date of this Agreement) or any state
equivalent;
(vii) To the Company's knowledge, there is not now nor has there been in
the past, on or in any property of the Company or its subsidiaries any of
the following: (A) any underground storage tanks or surface impoundments,
(B) any asbestos-containing materials, or (C) any polychlorinated biphenyls;
and
(viii) No judicial or administrative proceedings are pending or, to the
Company's knowledge, threatened against the Company and its subsidiaries
alleging the violation of or seeking to impose liability pursuant to any
Environmental Law and, to the Company's knowledge, there are no
investigations pending or threatened against the Company or any of its
subsidiaries under Environmental Laws.
(c) None of the exceptions set forth on Schedule 3.15 are reasonably likely
to result in the Company and its Subsidiaries incurring Environmental Costs and
Liabilities which would exceed $500,000 in the aggregate.
(d) The Company has provided to or made available for inspection to Parent
and Purchaser copies of all environmentally related assessments, audits,
investigations, sampling or similar reports relating to the Company or its
subsidiaries or any real property currently or formerly owned, operated or
leased by or for the Company and its subsidiaries.
SECTION 3.16 TAX MATTERS. (a) The Company and each of its subsidiaries,
and each affiliated group (within the meaning of Section 1504 of the Code) of
which the Company or any of its subsidiaries is or has been a member, has timely
filed all federal income Tax Returns and all other material Tax Returns and
reports required to be filed by it. All such Tax Returns are true, complete and
correct in all material respects. The Company and each of its subsidiaries has
paid (or the Company has paid on its subsidiaries' behalf) all Taxes shown due
on such Tax Returns. The Unaudited 1999 Financial Statements reflect an adequate
reserve for all Taxes payable by the Company and its subsidiaries for all
Taxable periods and portions thereof through the date of such financial
statements. The Company has made available to Parent copies of (i) all federal,
state, local and foreign income and franchise Tax Returns filed by the Company
and each of its subsidiaries related to the Taxable years since December 31,
1996; and (ii) any audit report issued within the last three years (or otherwise
with respect to any audit or investigation in progress) relating to Taxes due
from or with respect to the Company and each of its subsidiaries. For purposes
of this Agreement, "TAX" or "TAXES" shall mean all Taxes, charges, fees,
imposts, levies, gaming or other assessments, including, without limitation, all
net income, gross receipts, capital, sales, use, ad valorem, value added,
transfer, franchise, profits, inventory, capital stock, license, withholding,
payroll, employment, social security, unemployment, excise, severance, stamp,
occupation, property and estimated Taxes, customs duties, fees, assessments and
charges of any kind whatsoever, together with any interest and any penalties,
fines, additions to Tax
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or additional amounts imposed by any taxing authority (domestic or foreign) and
shall include any transferee liability in respect of Taxes, any liability in
respect of Taxes imposed by contract, Tax sharing agreement, Tax indemnity
agreement or any similar agreement (whether oral or written). "TAX RETURNS"
shall mean any report, return, document, declaration or any other information or
filing required to be supplied to any taxing authority or jurisdiction (foreign
or domestic) with respect to Taxes, including, without limitation, information
returns, any document with respect to or accompanying payments or estimated
Taxes, or with respect to or accompanying requests for the extension of time in
which to file any such report, return document, declaration or other
information.
(b) No material deficiencies for any Taxes have been proposed, asserted or
assessed against the Company or any of its subsidiaries that have not been fully
paid or adequately provided for in the appropriate financial statements of the
Company and its subsidiaries, and no power of attorney with respect to any Taxes
has been executed or filed with any taxing authority.
(c) No liens for Taxes exist with respect to any assets or properties of the
Company or any of its subsidiaries, except for statutory liens for Taxes not yet
due.
(d) None of the Company or any of its subsidiaries is a party to or is bound
by any Tax sharing agreement, Tax indemnity obligation or similar agreement,
arrangement or practice with respect to Taxes (including any advance pricing
agreement or other agreement relating to Taxes with any taxing authority).
(e) None of the Company or any of its subsidiaries has taken or agreed to
take any action that would prevent the Merger from constituting a reorganization
qualifying under the provisions of Section 368(a) of the Code.
(f) The Company has duly and timely withheld from employee salaries, wages
and other compensation and has paid over to the appropriate taxing authorities
all amounts required to be so withheld and paid over for all periods under all
applicable laws.
(g) There are no employment, severance or termination agreements, other
compensation arrangements or Employee Benefit Plans currently in effect which
provide for the payment of any amount (whether in cash or property or the
vesting of property) as a result of any of the transactions contemplated by this
Agreement that would give rise to a payment which is nondeductable by reason of
Section 280G of the Code.
(h) No federal, state, local or foreign audits or other administrative
proceedings or court proceedings are presently pending with regard to any
federal income or material state, local or foreign Taxes or Tax Returns of the
Company or its subsidiaries and neither the Company nor any of its subsidiaries
has received a written notice of any pending audit or proceeding.
(i) Neither the Company nor any of its subsidiaries has agreed to or is
required to make any adjustment under Section 481(a) of the Code.
(j) Neither the Company nor any of its subsidiaries has (i) with regard to
any assets or property held or acquired by any of them, filed a consent to the
application of Section 341(f) of the Code or agreed to have Section
341(f)(2) of the Code apply to any disposition of a subsection (f) asset (as
such term is defined in Section 341(f)(4) of the Code) owned by the Company or
any of its subsidiaries; (ii) executed or entered into a closing agreement
pursuant to Section 7121 of the Code or any similar provision of state, local or
foreign Tax Law; (iii) received or filed any requests for rulings or
determinations in respect of any Taxes within the last five years; or
(iv) extended the time within which to file any Tax Return, which Tax Return has
since not been filed.
(k) No property owned by the Company or any of its subsidiaries (i) is
property required to be treated as being owned by another person pursuant to the
provisions of Section 168(f)(8) of the Internal Revenue Code of 1954, as amended
and in effect immediately prior to the enactment of the
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Tax Reform Act of 1986; (ii) constitutes "TAX EXEMPT USE PROPERTY" within the
meaning of Section 168(h)(1) of the Code; (iii) is "TAX EXEMPT BOND FINANCED
PROPERTY" within the meaning of Section 168(g) of the Code; or (iv) is "LIMITED
USE PROPERTY" within the meaning of Rev. Proc. 76-30.
(l) The Company and each of its subsidiaries are not currently, have not
been within the last five years, and do not anticipate becoming a "UNITED STATES
REAL PROPERTY HOLDING COMPANY" within the meaning of Section 897(c) of the Code.
(m) No subsidiary of the Company owns any Shares.
(n) No claim has been made by a taxing authority in a jurisdiction where the
Company or any of its subsidiaries does not file Tax Returns to the effect that
the Company or any of its subsidiaries is or may be subject to Taxation by that
jurisdiction.
(o) Neither the Company nor any of its subsidiaries is a party to any
contract, agreement or other arrangement which could result in the payment of
amounts that could be nondeductible by reason of Section 162(m) of the Code.
(p) Neither the Company nor any of its subsidiaries has received any private
letter rulings from the IRS or comparable rulings from other taxing authorities.
SECTION 3.17 MATERIAL CONTRACTS. (a) Section 3.17 of the Company
Disclosure Schedule sets forth a list of all Material Contracts (as hereinafter
defined). The Company has heretofore made available to Parent true, correct and
complete copies of all written or oral contracts and agreements (and all
amendments, modifications and supplements thereto and all side letters to which
the Company or any of its subsidiaries is a party affecting the obligations of
any party thereunder) to which the Company or any of its subsidiaries is a party
or by which any of its properties or assets are bound that are material to the
business, properties or assets of the Company and its subsidiaries taken as a
whole, including, without limitation, to the extent any of the following are,
individually or in the aggregate, material to the business, properties or assets
of the Company and its subsidiaries taken as a whole, all: (i) employment,
severance, product design or development, personal services, consulting, non-
competition or indemnification contracts (including, without limitation, any
contract to which the Company or any of its subsidiaries is a party involving
employees of the Company); (ii) licensing, merchandising or distribution
agreements; (iii) contracts granting a right of first refusal or first
negotiation; (iv) partnership or joint venture agreements; (v) agreements for
the acquisition, sale or lease of material properties or assets of the Company
other than real property (by merger, purchase or sale of assets or stock or
otherwise) entered into since January 1, 1997; (vi) contracts or agreements with
any Governmental Entity; (vii) loan or credit agreements, mortgages, indentures
or other agreements or instruments evidencing indebtedness for borrowed money by
the Company or any of its subsidiaries or any such agreement pursuant to which
indebtedness for borrowed money may be incurred; (viii) agreements that purport
to limit, curtail or restrict the ability of the Company or any of its
subsidiaries to compete in any geographic area or line of business;
(ix) contracts or agreements that would be required to be filed as an exhibit to
a Form 10-K filed by the Company with the SEC on the date hereof; (x) contracts
with customers (other than purchase orders) accounting for, or expected to
account for, in excess of $1.8 million and (xi) commitments and agreements to
enter into any of the foregoing (collectively, together with any such contracts
entered into in accordance with Section 5.1 hereof, the "MATERIAL CONTRACTS").
Neither the Company nor any of its subsidiaries is a party to or bound by any
severance or other agreement with any employee or consultant pursuant to which
such person would be entitled to receive any additional compensation or an
accelerated payment of compensation as a result of the consummation of the
transactions contemplated hereby.
(b) Each of the Material Contracts constitutes the valid and legally binding
obligation of the Company or its subsidiaries, enforceable in accordance with
its terms (except as enforceability may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium, fraudulent transfer and
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similar Laws of general applicability relating to or affecting creditors' rights
or by general equity principles), and is in full force and effect. There is no
default under any Material Contract so listed either by the Company or, to the
Company's knowledge, by any other party thereto, and no event has occurred that
with the lapse of time or the giving of notice or both would constitute a
default thereunder by the Company or, to the Company's knowledge, any other
party.
(c) No party to any such Material Contract has given notice to the Company
of or made a claim against the Company with respect to any breach or default
thereunder, and the Company is not aware of any basis for such claim, in any
such case in which such breach or default does or would reasonably be expected
to have, individually or in the aggregate, a Material Adverse Effect on the
Company.
SECTION 3.18 INSURANCE. The insurance coverage maintained by the Company
and any of its subsidiaries have been issued by insurers, which, to the
Company's knowledge, are reputable and financially sound and provide coverage
for the operations conducted by the Company and its subsidiaries of a scope and
coverage consistent with customary industry practice.
SECTION 3.19 INTELLECTUAL PROPERTY. (a) (i) Except as set forth on Section
3.19(a)(i) of the Company Disclosure Schedule, the Company is the sole and
exclusive owner of, or has the valid and transferable exclusive right to use and
enforce, the Trademarks (as hereinafter defined), free and clear of all Liens.
Section 3.19(a)(i) of the Company Disclosure Schedule sets forth a list of all
U.S., state and foreign (A) Trademark registrations and applications, and
(B) material unregistered Trademarks, each as owned by the Company or its
subsidiaries. The Company currently is listed in the records of the appropriate
U.S., state or foreign Governmental Entity as the sole owner of record for each
application and registration listed on Section 3.19(a)(i) of the Company
Disclosure Schedule.
(ii) Except as set forth on Section 3.19(a)(ii) of the Company
Disclosure Schedule, the Company is the sole and exclusive owner of, or has
the valid and transferable exclusive right to use and enforce any Other
Intellectual Property (as hereinafter defined) that is material to the
business of the Company, free and clear of all Liens. Section
3.19(a)(ii) of the Company Disclosure Schedule sets forth a list of all U.S.
and foreign: (A) patents and patent applications, (B) copyright registration
and applications, and (C) material unregistered copyrights. The Company
currently is listed in the records of the appropriate U.S., state or foreign
Governmental Entity as the sole owner of record for each patent, patent
application, copyright application, and copyright registration listed on
Section 3.19(a)(ii) of the Company Disclosure Schedule that is currently
owned by the Company or one of its subsidiaries.
(b) The Company does not own any patents and has no pending patent
applications. To the Company's knowledge, there is no pending, existing or
threatened, opposition, interference, cancellation proceedings or other legal or
governmental proceeding before any Governmental Entity in any jurisdiction
against any of the Trademarks or any of the material Other Intellectual Property
owned by the Company or its Subsidiaries.
(c) Section 3.19(c)(i) of the Company Disclosure Schedule sets forth a list
of all agreements granting to third parties any right to use or practice any
rights under any of the Trademarks or any of the material Other Intellectual
Property owned by the Company. Section 3.19(c)(ii) of the Company Disclosure
Schedule sets forth a list of all agreements permitting the Company or its
subsidiaries to use any third party's Trademarks or Other Intellectual Property
(such agreements, together with the agreements referenced on Section
3.19(c)(i) of the Company Disclosure Schedule are collectively referred to
herein as the "LICENSES"). The Licenses are valid and binding agreements of the
Company or one or more of its subsidiaries, as applicable, fully transferable to
Parent and Merger Sub, enforceable in accordance with their terms, and the
Company and the subsidiaries, and to the Company's knowledge, the other parties
thereto, as applicable, are not in material breach or default thereunder.
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(d) The Company has taken reasonable measures to protect the confidentiality
of its material trade secrets, including requiring employees having access
thereto to execute written non-disclosure agreements. To the Company's
knowledge, no trade secret or confidential know-how material to the business of
the Company or any of its subsidiaries as currently operated has been disclosed
or authorized to be disclosed to any third party, other than pursuant to a
non-disclosure agreement that protects the Company's or such subsidiary's
proprietary interests in and to such trade secrets and confidential know-how.
(e) To the Company's knowledge, the conduct of the business of the Company
and each of its subsidiaries does not infringe upon any intellectual property
right owned or controlled by any person. There are no claims or suits pending
or, to the Company's knowledge, threatened, and neither the Company nor any of
its subsidiaries has received any written notice of a third party claim or suit:
(i) alleging that the Company's or such subsidiary's activities or the conduct
of its business infringes upon or constitutes the unauthorized use of the
proprietary rights of any third party; or (ii) challenging the ownership, use,
validity or enforceability of the Trademarks or the Other Intellectual Property
owned or used by the Company or its subsidiaries.
(f) To the Company's knowledge, except as set forth on Section 3.19(f) of
the Company Disclosure Schedule, no third party is infringing upon any of the
Trademarks or the Other Intellectual Property owned by the Company or any of its
subsidiaries and, except as set forth on Section 3.19(f) of the Company
Disclosure Schedule, no such claims have been made against a third party by the
Company or any of its subsidiaries.
(g) Except as set forth on Section 3.19(g) of the Company Disclosure
Schedule, there are no settlements, consents, judgments or orders or other
agreements which restrict the Company's or any of its subsidiaries' rights to
use any of the Trademarks or the Other Intellectual Property, and no concurrent
use or other agreements (aside from license and other like agreements) which
restrict the Company's or any of its subsidiaries' rights to use any of the
Trademarks or the Other Intellectual Property owned by the Company or any of its
subsidiaries.
(h) The consummation of the transactions contemplated by this Agreement and
the Stock Option Agreement will not result in the loss or impairment of the
Company's or any of its subsidiaries' rights to own or use any of the Trademarks
or the material Other Intellectual Property owned by or licensed to the Company
or its subsidiaries nor will it require the consent of any Governmental Entity
or third party in respect of any such Trademarks or the Other Intellectual
Property.
1. For purposes of this Agreement, "TRADEMARKS" means all United States and
foreign trademarks (including service marks and trade names, whether
registered or at common law), registrations and applications therefor,
owned or licensed by the Company or its subsidiaries, and the goodwill of
the Company's and each of its subsidiaries' respective businesses
associated therewith, together with any and all (i) rights of renewal
thereof and (ii) rights to sue for past, present and future infringements
or misappropriation thereof; and "OTHER INTELLECTUAL PROPERTY" means all
intellectual property rights used in the business of the Company or any
of its subsidiaries as currently conducted, including but not limited to
all patents and patent applications; copyrights, copyright registrations
and applications (including copyrights in Computer Programs (as
hereinafter defined); Computer Programs; technology, trade secrets,
know-how, confidential information, proprietary processes and formulae;
semiconductor chip product" and "MASK WORKS" (as such terms are defined
in 17 U.S.C. 901); and rights of publicity and privacy relating to the
use of the names, signatures, likenesses, voices and biographical
information of real persons; together with any and all rights of renewal
thereof and the right to sue for past, present or future infringements or
misappropriations thereof.
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SECTION 3.20 OPINION OF FINANCIAL ADVISOR. Broadview International LLC
(the "FINANCIAL ADVISOR") has delivered to the Company Board its opinion, dated
the date of this Agreement, to the effect that, as of such date, the Merger
Consideration is fair to the holders of Shares from a financial point of view,
and such opinion has not been withdrawn or modified.
SECTION 3.21 BROKERS. No broker, finder or investment banker (other than
the Financial Advisor, a true and correct copy of whose engagement agreement has
been provided to Parent) is entitled to any brokerage, finder's or other fee or
commission or expense reimbursement in connection with the transactions
contemplated by this Agreement based upon arrangements made by and on behalf of
the Company or any of its affiliates.
SECTION 3.22 ACCOUNTING MATTERS; TAX TREATMENT. To the Company's
knowledge, neither the Company nor, any of its affiliates or stockholders, has
taken or agreed to take any action or is aware of any fact or circumstance that
would (i) prevent the Merger from qualifying as a "pooling of interests" under
APB 16 and the applicable SEC rules and regulations or (ii) cause any
representation contained in the certificates relating to tax-free reorganization
treatment attached hereto as Exhibit D to be untrue. The Company has not failed
to bring to the attention of Parent any actions, agreements or understandings,
whether written or oral, that to its knowledge would be reasonably likely to
prevent Parent from accounting for the Merger as a "POOLING OF INTERESTS" under
APB 16 and the applicable SEC rules and regulations.
SECTION 3.23 TAKEOVER STATUTE; DISSENTERS' RIGHTS. The Company has taken
all action required to be taken by it in order to exempt this Agreement, the
Stock Option Agreement and the transactions contemplated hereby and thereby
from, and this Agreement, the Stock Option Agreement and the transactions
contemplated hereby and thereby (the "COVERED TRANSACTIONS") are exempt from,
the requirements of any "MORATORIUM", "CONTROL SHARE", "FAIR PRICE", "AFFILIATE
TRANSACTION", "BUSINESS COMBINATION" or other antitakeover Laws and regulations
of any state (collectively, "TAKEOVER STATUTES"). The provisions of Sections
78.378 through 78.3793 of the NRS do not apply to the Covered Transactions.
Holders of Shares do not have dissenters' rights in connection with the Merger.
SECTION 3.24 AMENDMENT TO THE COMPANY RIGHTS AGREEMENT. The Company Board
has taken all necessary action (including any amendment thereof) under the
Preferred Shares Rights Agreement, dated as of January 9, 1997, between the
Company and American Stock Transfer & Trust Company, as Rights Agent (the
"COMPANY RIGHTS AGREEMENT") so that (a) none of the execution or delivery of
this Agreement or the Stock Option Agreement, the exchange of the shares of
Parent Common Stock for the Shares in accordance with Article II, or any other
transaction contemplated hereby or thereby will cause (i) the rights (the
"RIGHTS") issued pursuant to the Company Rights Agreement to become exercisable
under the Company Rights Agreement, (ii) Parent or Merger Sub to be deemed an
"ACQUIRING PERSON" (as defined in the Company Rights Agreement), or (iii) the
"SHARES ACQUISITION DATE" or "DISTRIBUTION DATE" (as defined in the Company
Rights Agreement) to occur upon any such event; and (b) the "EXPIRATION DATE"
(as defined in the Company Rights Agreement) of the Rights shall occur
immediately prior to the Effective Time.
SECTION 3.25 RELATED PARTY TRANSACTIONS. Except as set forth in the
Company SEC Reports or Section 3.25 of the Company Disclosure Schedule, no
director or officer of the Company, nor any Affiliate of the Company or of any
such director or officer (i) has borrowed any money from or has outstanding,
directly or indirectly, any indebtedness or other similar obligations to the
Company; (ii) owns any direct or indirect interest in, or controls or is a
director, officer or partner of, or consultant or lender to, or borrower from,
or has the right to participate in the profits of, any Person which is a
competitor, supplier, customer, landlord, tenant, lessor, lessee, creditor or
debtor of the Company; or (iii) is a party to any Contract with the Company.
SECTION 3.26 PRODUCT WARRANTY. To the Company's knowledge, except as set
forth in Section 3.26 of the Company Disclosure Schedule, since January 1, 1998
(i) the Company has not experienced or
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received any material claims from any person relating to the performance of the
products designed, manufactured, assembled, repaired, maintained or delivered by
the Company prior to the Closing, or relating to the repair, maintenance or
installation by the Company of such products or to services otherwise rendered
by the Company prior to the Closing, and (ii) there has been no occurrence which
would give rise to or form the basis of, any material liability for breach of
warranty (whether covered by insurance or not) on the part of the Company with
respect to products designed, manufactured, assembled, repaired, maintained,
delivered or installed by the Company or services rendered by the Company prior
to the Closing. Except as set forth in Section 3.26 of the Company Disclosure
Schedule, since January 1, 1998, the Company has not experienced any significant
delays in the release of any of the Company's products.
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ARTICLE IV
REPRESENTATIONS AND WARRANTIES
OF PARENT AND MERGER SUB
Except as set forth in the disclosure schedule delivered by Parent to the
Company prior to the execution of this Agreement (the "PARENT DISCLOSURE
SCHEDULE") (each section of which qualifies the correspondingly numbered
representation and warranty or covenant to the extent specified therein), Parent
and Merger Sub hereby represent and warrant to the Company as follows:
SECTION 4.1 ORGANIZATION. (a) Each of Parent and its subsidiaries is a
corporation duly organized, validly existing and in good standing under the Laws
of the jurisdiction of its incorporation and has all requisite corporate power
and authority to own, lease and operate its properties and to carry on its
businesses as now conducted or proposed by Parent to be conducted, except where
the failure to be duly organized, existing and in good standing or to have such
power and authority would not reasonably be expected to have, individually or in
the aggregate, a Material Adverse Effect on Parent.
(b) Each of Parent and its subsidiaries 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 or licensing necessary, except where the failure to be so
duly qualified or licensed and in good standing does not and would not
reasonably be expected to have, individually or in the aggregate, a Material
Adverse Effect on Parent.
(c) Parent has heretofore delivered to the Company accurate and complete
copies of the articles of incorporation and bylaws of Parent as currently in
effect.
SECTION 4.2 CAPITALIZATION OF PARENT AND ITS SUBSIDIARIES. (a) The
authorized capital stock of Parent consists of: (i) 300,000,000 shares of Parent
Common Stock, of which 76,911,204 shares of Parent Common Stock were issued and
outstanding as of the close of business on January 31, 2000, none of which are
held in Parent's treasury, and (ii) 2,500,000 shares of preferred stock, $.01
par value per share, none of which are outstanding. All of the shares of Parent
Common Stock have been validly issued, and are fully paid, non-assessable and
free of preemptive rights. As of January 31, 2000, 12,662,116 shares of Parent
Common Stock were reserved for issuance and issuable upon or otherwise
deliverable in connection with the exercise of outstanding options and warrants
and 6,976,744 shares of Parent Common Stock reserved for issuance upon
conversion of Parent's convertible subordinated debentures. Except as described
in the Parent SEC Reports and as set forth above, as of the date hereof, there
are outstanding (i) no shares of capital stock or other voting securities of
Parent, (ii) no securities of Parent or any of its subsidiaries convertible into
or exchangeable for shares of capital stock or voting securities of Parent,
(iii) no options or other rights to acquire from Parent or any of its
subsidiaries, and no obligations of Parent or any of its subsidiaries to issue,
any capital stock, voting securities or securities convertible into or
exchangeable for capital stock or voting securities of Parent, and (iv) no
equity equivalents, interests in the ownership or earnings of Parent or other
similar rights (including stock appreciation rights) (collectively, "PARENT
SECURITIES").
SECTION 4.3 AUTHORITY RELATIVE TO THIS AGREEMENT. (a) Each of Parent and
Merger Sub has all necessary corporate power and authority to execute and
deliver this Agreement and the Stock Option Agreement and to consummate the
transactions contemplated hereby and thereby. No other corporate proceedings on
the part of Parent or Merger Sub are necessary to authorize this Agreement and
the Stock Option Agreement or to consummate the transactions contemplated hereby
or thereby. This Agreement and the Stock Option Agreement have been duly and
validly executed and delivered by each of Parent and Merger Sub and constitute
valid, legal and binding agreements of each of Parent and Merger Sub,
enforceable against each of Parent and Merger Sub in accordance with their
respective terms.
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(b) The Boards of Directors of Parent (the "PARENT BOARD") and Merger Sub
and Parent as the sole stockholder of Merger Sub have duly and validly
authorized the execution and delivery of this Agreement and the Stock Option
Agreement and the consummation of the transactions contemplated hereby and
thereby, and taken all corporate actions required to be taken by such Boards of
Directors and Parent as the sole stockholder of Merger Sub for the consummation
of the transactions. No approval by the shareholders of Parent is necessary for
the consummation of the transactions contemplated hereby.
SECTION 4.4 SEC REPORTS; FINANCIAL STATEMENTS. (a) Parent has filed all
required forms, reports and documents with the SEC since January 1, 1997, each
of which has complied in all material respects with all applicable requirements
of the Securities Act and the Exchange Act, each as in effect on the dates such
forms, reports and documents were filed (the "PARENT SEC REPORTS"). None of such
forms, reports or documents, including, without limitation, any financial
statements or schedules included or incorporated by reference therein,
contained, when filed, any untrue statement of a material fact or omitted to
state a material fact required to be stated or incorporated by reference therein
or necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading. The consolidated
financial statements of Parent included in the Parent SEC Reports complied as to
form in all material respects with applicable accounting requirements and the
published rules and regulations of the SEC with respect thereto and fairly
present, in conformity with GAAP on a consistent basis (except as may be
indicated in the notes thereto), the consolidated financial position of Parent
and its consolidated subsidiaries as of the dates thereof and their consolidated
results of operations and changes in financial position for the periods then
ended (subject, in the case of the unaudited interim financial statements, to
normal year-end adjustments).
SECTION 4.5 INFORMATION SUPPLIED. None of the information supplied or to
be supplied by Parent or Merger Sub for inclusion or incorporation by reference
in (i) the S-4 will, at the time the S-4 is filed with the SEC and at the time
it becomes effective under the Securities Act, 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 not misleading and (ii) the Proxy
Statement will, at the date mailed to stockholders and at the times of the
Company Stockholder Meeting, contain any untrue statement of a material fact or
omit to state any material fact required to be stated therein or necessary in
order to make the statements therein, in light of the circumstances under which
they are made, not misleading. If at any time prior to the Effective Time any
event with respect to Parent, its officers and directors or any of its
subsidiaries should occur which is required to be described in an amendment of,
or a supplement to, the S-4 or the Proxy Statement, Parent shall promptly so
advise the Company and such event shall be so described, and such amendment or
supplement (which the Company shall have a reasonable opportunity to review)
shall be promptly filed with the SEC. The S-4 will comply as to form in all
material respects with the provisions of the Securities Act and the rules and
regulations thereunder.
SECTION 4.6 CONSENTS AND APPROVALS; NO VIOLATIONS. Except for filings,
permits, authorizations, consents and approvals as may be required under, and
other applicable requirements of, the Securities Act, the Exchange Act, state
securities or blue sky laws, the HSR Act, the filing and recordation of the
Articles of Merger as required by the NRS and as otherwise set forth in Section
4.6 to the Parent Disclosure Schedule, no filing with or notice to, and no
permit, authorization, consent or approval of, any Governmental Entity is
necessary for the execution and delivery by Parent or Merger Sub of this
Agreement or the Stock Option Agreement or the consummation by Parent or Merger
Sub of the transactions contemplated hereby or thereby, except where the failure
to obtain such permits, authorizations, consents or approvals or to make such
filings or give such notice do not or would not reasonably be expected to have,
individually or in the aggregate, a Material Adverse Effect on Parent. Neither
the execution, delivery and performance of this Agreement or the Stock Option
Agreement by Parent or Merger Sub nor the consummation by Parent or Merger Sub
of the transactions
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contemplated hereby or thereby will (i) conflict with or result in any breach of
any provision of the respective articles of incorporation or bylaws (or similar
governing documents) of Parent or Merger Sub or any of Parent's subsidiaries,
(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, amendment, cancellation or acceleration or Lien) under, any of the
terms, conditions or provisions of any note, bond, mortgage, indenture, lease,
license, contract, agreement or other instrument or obligation to which Parent
or Merger Sub or any of Parent's subsidiaries is a party or by which any of them
or any of their respective properties or assets may be bound or (iii) violate
any Law applicable to Parent or Merger Sub or any of Parent's subsidiaries or
any of their respective properties or assets, except in the case of (ii) or
(iii) for violations, breaches or defaults which do not or would not reasonably
be expected to have, individually or in the aggregate, a Material Adverse Effect
on Parent.
SECTION 4.7 NO PRIOR ACTIVITIES. Except for obligations incurred in
connection with its incorporation or organization or the negotiation and
consummation of this Agreement and the transactions contemplated hereby, Merger
Sub has neither incurred any obligation or liability nor engaged in any business
or activity of any type or kind whatsoever or entered into any agreement or
arrangement with any person.
SECTION 4.8 NO UNDISCLOSED LIABILITIES. Except as and to the extent
publicly disclosed by Parent in the Parent SEC Reports, as of October 31, 1999,
or as incurred by Parent or any of its subsidiaries subsequent to such date in
the ordinary and usual course of business consistent with past practice, none of
the Parent or its subsidiaries has any liabilities or obligations of any nature,
whether or not accrued, contingent or otherwise, and whether due or to become
due or asserted or unasserted, which would be required by GAAP to be reflected
in, reserved against or otherwise described in the consolidated balance sheet of
Parent (including the notes thereto).
SECTION 4.9 ABSENCE OF CHANGES. Except as and to the extent publicly
disclosed in Parent SEC Reports, since October 31, 1999, there has not been any
event, occurrence or development which does or would reasonably be expected to
have, individually or in the aggregate, a Material Adverse Effect on Parent and
its subsidiaries taken as a whole.
SECTION 4.10 LITIGATION. Except as and to the extent publicly disclosed by
Parent in the Parent SEC Reports, and except for litigation that may arise as a
result of the announcement or performance of this Agreement or the transactions
contemplated hereby, there is no suit, claim, action, proceeding or
investigation pending or, to Parent's knowledge, threatened against Parent or
any of its subsidiaries or any of their respective properties or assets which
(a) does or would reasonably be expected to have, individually or in the
aggregate, a Material Adverse Effect on Parent and its subsidiaries taken as a
whole, or (b) questions the validity of this Agreement, or any action to be
taken by Parent in connection with the consummation of the transactions
contemplated hereby or could otherwise prevent or delay the consummation of the
transactions contemplated by this Agreement.
SECTION 4.11 ACCOUNTING MATTERS; TAX TREATMENT. Neither Parent nor, to
Parent's knowledge, any of its affiliates, has taken or agreed to take any
action or is aware of any fact or circumstance that would (a) prevent the Merger
from qualifying as a "POOLING OF INTERESTS" under APB 16 and the applicable SEC
rules and regulations, or (b) cause any representation contained in the
certificates relating to tax-free reorganization treatment attached hereto as
Exhibit C to be untrue. Parent has not failed to bring to the attention of the
Company any actions, agreements or understandings, whether written or oral, that
would be reasonably likely to prevent Parent from accounting for the Merger as a
"POOLING OF INTERESTS" under APB 16 and the applicable SEC rules and
regulations.
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ARTICLE V
COVENANTS RELATED TO CONDUCT OF BUSINESS
SECTION 5.1 CONDUCT OF BUSINESS OF THE COMPANY. Except as contemplated by
this Agreement, during the period from the date hereof to the Effective Time,
the Company will, and will cause each of its subsidiaries to, conduct its
operations in the ordinary and usual course of business consistent with past
practice and, to the extent consistent therewith, with no less diligence and
effort than would be applied in the absence of this Agreement, seek to preserve
intact its current business organizations, seek to keep available the service of
its current officers and employees and seek to preserve its relationships with
customers, suppliers and others having business dealings with it to the end that
goodwill and ongoing businesses shall be unimpaired at the Effective Time.
Without limiting the generality of the foregoing, and except as otherwise
expressly provided in this Agreement or in Section 5.1 of the Company Disclosure
Schedule, prior to the Effective Time, neither the Company nor any of its
subsidiaries will, without the prior written consent of Parent:
(a) amend its articles of incorporation or bylaws (or other similar
governing instrument) or amend, modify or terminate the Company Rights
Agreement;
(b) authorize for issuance, issue, sell, deliver or agree or commit to
issue, sell or deliver (whether through the issuance or granting of options,
warrants, commitments, subscriptions, rights to purchase or otherwise) any stock
of any class or any other securities convertible into or exchangeable for any
stock or any equity equivalents (including, without limitation, any stock
options or stock appreciation rights), except for the issuance or sale of Shares
pursuant to outstanding Company Stock Options;
(c) (i) split, combine or reclassify any shares of its capital stock;
(ii) 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; (iii) make any other actual, constructive or deemed distribution in
respect of any shares of its capital stock or otherwise make any payments to
stockholders in their capacity as such; or (iv) redeem, repurchase or otherwise
acquire any of its securities or any securities of any of its subsidiaries
(including redeeming any Rights);
(d) adopt a plan of complete or partial liquidation, dissolution, merger,
consolidation, restructuring, recapitalization or other reorganization of the
Company or any of its subsidiaries (other than the Merger);
(e) alter through merger, liquidation, reorganization, restructuring or in
any other fashion the corporate structure or ownership of any subsidiary;
(f) (i) incur or assume any long-term or short-term debt or issue any debt
securities; (ii) assume, guarantee, endorse or otherwise become liable or
responsible (whether directly, contingently or otherwise) for the obligations of
any other person, except in either case in the ordinary and usual course of
business consistent with past practice and in amounts not material to the
Company and its subsidiaries, taken as a whole, and except for obligations of
the wholly owned subsidiaries of the Company; (iii) make any loans, advances or
capital contributions to, or investments in, any other person (other than to the
wholly owned subsidiaries of the Company or customary loans or advances to
employees in the ordinary and usual course of business consistent with past
practice and in amounts not material to the maker of such loan or advance);
(iv) pledge or otherwise encumber shares of capital stock of the Company or its
subsidiaries; or (v) mortgage or pledge any of its material assets, tangible or
intangible, or create or suffer to exist any material Lien thereupon;
(g) except as may be required by Law or as contemplated by this Agreement,
enter into, adopt or amend or terminate any bonus, profit sharing, compensation,
severance, termination, stock option, stock appreciation right, restricted
stock, performance unit, stock equivalent, stock purchase agreement, pension,
retirement, deferred compensation, employment, severance or other employee
benefit
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agreement, trust, plan, fund, award or other arrangement for the benefit or
welfare of any director, officer, employee or independent contractor in any
manner, or (except as set forth in Section 5.1(g) of the Company Disclosure
Schedule, and as required under existing agreements) increase in any manner the
compensation or fringe benefits of any director, officer, employee or
independent contractor or pay any benefit not required by any plan and
arrangement as in effect as of the date hereof (including, without limitation,
the granting of any equity based compensation except as in the ordinary and
usual course of business);
(h) acquire, sell, lease or dispose of any assets outside the ordinary and
usual course of business consistent with past practice or any assets which in
the aggregate are material to the Company and its subsidiaries taken as a whole,
enter into any commitment or transaction outside the ordinary and usual course
of business consistent with past practice or grant any exclusive distribution
rights;
(i) except as may be required as a result of a change in Law or in GAAP,
change any of the accounting principles or practices used by it;
(j) revalue in any material respect 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 and usual course of business consistent
with past practice or as required by GAAP;
(k) acquire (by merger, consolidation, or acquisition of stock or assets)
any corporation, partnership or other business organization or division thereof
or any equity interest therein; (ii) enter into any contract or agreement, other
than in the ordinary and usual course of business consistent with past practice
or amend in any material respect any of the Material Contracts or the agreements
referred to in Section 3.17; (iii) authorize any new capital expenditure if the
amount of such capital expenditure plus the sum all other capital expenditures
previously authorized by the Company exceeds an aggregate of $1,200,000; or
(iv) enter into or amend any contract, agreement, commitment or arrangement
providing for the taking of any action that would be prohibited hereunder;
(l) make or rescind any material express or deemed election relating to
Taxes, settle or compromise any material claim, action, suit, litigation,
proceeding, arbitration, investigation, audit or controversy relating to Taxes,
or except as may be required by applicable law, make any change to any of its
material methods of reporting income or deductions for federal income tax
purposes from those employed in the preparation of its most recently filed
federal income tax return;
(m) pay, discharge or satisfy any material claims, liabilities or
obligations (absolute, accrued, asserted or unasserted, contingent or
otherwise), other than the payment, discharge or satisfaction in the ordinary
and usual course of business consistent with past practice of liabilities
reflected or reserved against in, the consolidated financial statements of the
Company and its subsidiaries or incurred in the ordinary and usual course of
business consistent with past practice or waive the benefits of, or agree to
modify in any manner, any confidentiality, standstill or similar agreement to
which the Company or any of its subsidiaries is a party;
(n) settle or compromise any pending or threatened suit, action or claim
relating to the transactions contemplated hereby;
(o) take any action (including any action otherwise permitted by this
Section 5.1) that would prevent or impede the Merger from qualifying as a
"POOLING OF INTERESTS" under APB 16 and the applicable SEC rules and regulations
or as a reorganization under Section 368 of the Code;
(p) enter into any agreement or arrangement that limits or otherwise
restricts the Company or any of its subsidiaries or any successor thereto or
that could, after the Effective Time, limit or restrict the Surviving
Corporation and its affiliates (including Parent) or any successor thereto, from
engaging or competing in any line of business or in any geographic area;
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(q) take, propose to take, or agree in writing or otherwise to take, any of
the actions described in Sections 5.1(a) through 5.1(p) or any action which
would make any of the representations or warranties of the Company contained in
this Agreement (i) which are qualified as to materiality untrue or incorrect or
(ii) which are not so qualified untrue or incorrect in any material respect.
SECTION 5.2 ACCESS TO INFORMATION. (a) Between the date hereof and the
Effective Time, the Company will give Parent and Merger Sub and their authorized
representatives (including counsel, financial advisors and auditors) reasonable
access during normal business hours to all employees, plants, offices,
warehouses and other facilities and to all books and records of the Company and
its subsidiaries, will permit Parent and Merger Sub to make such inspections as
Parent and Merger Sub may reasonably require including investigations of the
environmental conditions of the properties and facilities of the Company and
will cause the Company's officers and those of its subsidiaries to furnish
Parent and Merger Sub with such financial and operating data and other
information with respect to the business, properties and personnel of the
Company and its subsidiaries as Parent or Merger Sub may from time to time
reasonably request, provided that no investigation pursuant to this Section
5.2(a) shall affect or be deemed to modify any of the representations or
warranties made by the Company.
(b) Between the date hereof and the Effective Time, the Company shall
furnish to Parent and Merger Sub (i) within five business days after the
delivery thereof to management, such monthly financial statements and data as
are regularly prepared for distribution to Company management, (ii) at the
earliest time they are available, such quarterly and annual financial statements
as are prepared for the Company's SEC filings, which (in the case of this clause
(ii)), shall be in accordance with the books and records of the Company, and
(iii) no later than two Business Days prior to the release thereof to the
public, any press release announcing any quarterly or annual financial results
or financial statements of the Company.
(c) Each of Parent and Merger Sub will hold and will cause its authorized
representatives to hold in confidence all documents and information concerning
the Company and its subsidiaries furnished to Parent or Merger Sub in connection
with the transactions contemplated by this Agreement pursuant to the terms of
that certain Confidentiality Agreement entered into between the Company and
Parent dated February 24, 2000 (the "CONFIDENTIALITY AGREEMENT").
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ARTICLE VI
ADDITIONAL AGREEMENTS
SECTION 6.1 PREPARATION OF S-4 AND THE PROXY STATEMENT. Parent and the
Company will, as promptly as practicable, jointly prepare and file with the SEC
the Proxy Statement in connection with the vote of the stockholders of the
Company with respect to the Merger. Parent will, as promptly as practicable,
prepare, following receipt of notification from the SEC that it has no further
comments on the Proxy Statement, and file with the SEC the S-4, containing a
proxy statement/prospectus and form of proxy, in connection with the
registration under the Securities Act of the shares of Parent Common Stock
issuable upon conversion of the Shares and the other transactions contemplated
hereby. Parent and the Company will, and will use reasonable best efforts to
cause their accountants and lawyers to, use all reasonable best efforts to have
or cause the S-4 declared effective as promptly as practicable after filing with
the SEC, including, without limitation, using reasonable best efforts to cause
their accountants to deliver necessary or required instruments such as opinions,
consents and certificates, and will take any other action required or necessary
to be taken under federal or state securities Laws or otherwise in connection
with the registration process (other than qualifying to do business in any
jurisdiction which it is not now so qualified or to file a general consent to
service of process in any jurisdiction). The Company and Parent shall, as
promptly as practicable after the receipt thereof, provide to the other party
copies of any written comments and advise the other party of any oral comments,
with respect to the Proxy Statement or the S-4 received from the staff of the
SEC. The Company will provide Parent with a reasonable opportunity to review and
comment on any amendment or supplement to the Proxy Statement prior to filing
with the SEC and will provide Parent with a copy of all such filings with the
SEC. The Company will use its reasonable best efforts to cause the Proxy
Statement to be mailed to its stockholders at the earliest practicable date.
SECTION 6.2 MEETING. The Company shall take all lawful action to
(i) cause a special meeting of its stockholders (the "COMPANY STOCKHOLDER
MEETING") to be duly called and held as soon as practicable after the date of
this Agreement for the purpose of voting on the approval and adoption of this
Agreement and (ii) solicit proxies from its stockholders to obtain the Company
Requisite Vote for the approval and adoption of this Agreement. The Company
Board shall recommend approval and adoption of this Agreement and the Merger by
the Company's stockholders and, except as permitted by Section 6.4(b), the
Company Board shall not withdraw, amend or modify in a manner adverse to Parent
such recommendation (or announce publicly its intention to do so).
SECTION 6.3 REASONABLE BEST EFFORTS. (a) Subject to the terms and
conditions of this Agreement, each party will use its reasonable best efforts to
take, or cause to be taken, all actions and to do, or cause to be done, all
things necessary, proper or advisable under applicable Laws to consummate the
Merger and the other transactions contemplated by this Agreement. In furtherance
and not in limitation of the foregoing, each party hereto agrees to make an
appropriate filing of a Notification and Report Form pursuant to the HSR Act
with respect to the transactions contemplated hereby as promptly as practicable
and in any event within ten business days of the date hereof and to supply as
promptly as practicable any additional information and documentary material that
may be requested pursuant to the HSR Act and use its reasonable best efforts to
take, or cause to be taken, all other actions consistent with this Section 6.3
necessary to cause the expiration or termination of the applicable waiting
periods under the HSR Act as soon as practicable.
(b) Each of Parent and the Company shall, in connection with the efforts
referenced in Section 6.3(a) to obtain all requisite approvals and
authorizations for the transactions contemplated by this Agreement under the HSR
Act or any other Antitrust Law, use its reasonable best efforts to
(i) cooperate in all respects with each other in connection with any filing or
submission and in connection with any investigation or other inquiry, including
any proceeding initiated by a private party; (ii) keep the other party informed
in all material respects of any material communication received by
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such party from, or given by such party to, the Federal Trade Commission (the
"FTC"), the Antitrust Division of the Department of Justice (the "DOJ") or any
other Governmental Entity and of any material communication received or given in
connection with any proceeding by a private party, in each case regarding any of
the transactions contemplated hereby; and (iii) permit the other party to review
any material communication given by it to, and consult with each other in
advance of any meeting or conference with, the FTC, the DOJ or any such other
Governmental Entity or, in connection with any proceeding by a private party,
with any other person, and to the extent permitted by the FTC, the DOJ or such
other applicable Governmental Entity or other person, give the other party the
opportunity to attend and participate in such meetings and conferences. For
purposes of this Agreement, "ANTITRUST LAW" means the Sherman Act, as amended,
the Clayton Act, as amended, the HSR Act, the Federal Trade Commission Act, as
amended, and all other Laws that are designed or intended to prohibit, restrict
or regulate actions having the purpose or effect of monopolization or restraint
of trade or lessening of competition through merger or acquisition.
(c) The Company shall use its reasonable best efforts to obtain as promptly
as practicable and maintain any licenses or approvals required to be obtained by
the Company pursuant to the Sale and Software License Agreement dated February
2000 between the Company and the Forest County Potawatomi Community of Wisconsin
and shall use reasonable best efforts to cause each of its directors and
officers to provide all information required to be provided by them in
connection with such licenses or approvals; PROVIDED that the Company shall not
be in breach of this covenant if and to the extent Parent (or its directors and
officers) fails to provide information required to be provided by them in order
to obtain such licenses or approvals.
SECTION 6.4 ACQUISITION PROPOSALS. (a) From the date hereof until the
termination hereof and except as expressly permitted by the following provisions
of this Section 6.4, the Company will not, nor will it permit any of its
subsidiaries to, nor will it authorize or permit any officer, director or
employee of or any investment banker, attorney, accountant or other advisor or
representative of, the Company or any of its subsidiaries to, directly or
indirectly, (i) solicit, initiate or encourage the submission of any Acquisition
Proposal (as hereinafter defined) or (ii) participate in any discussions or
negotiations regarding, or furnish to any person any information with respect
to, or take any other action to facilitate, any Acquisition Proposal or any
inquiries or the making of any proposal that constitutes, or may reasonably be
expected to lead to, any Acquisition Proposal; PROVIDED, HOWEVER, that nothing
contained in this Section 6.4(a) shall prohibit the Company Board from
furnishing information to, or entering into discussions or negotiations with,
any person that makes an unsolicited bona fide written Acquisition Proposal if,
and only to the extent that (A) the Company Stockholder Meeting shall not have
occurred or shall have occurred and the Merger shall not have been approved, (B)
the Company Board, after consultation with and based upon the advice of
independent legal counsel, determines in good faith that such action is
necessary for the Company Board to comply with its fiduciary duties to the
Company's stockholders under applicable Law, (C) the Company Board determines in
good faith that such Acquisition Proposal, if accepted, is reasonably likely to
be consummated taking into account all legal, financial, regulatory and other
aspects of the proposal and the person making the proposal, and believes in good
faith, after consultation with its Financial Advisor and after taking into
account the strategic benefits to be derived from the Merger, would, if
consummated, result in a transaction more favorable to the Company's
stockholders from a financial point of view than the Merger (any such more
favorable Acquisition Proposal being referred to herein as a "SUPERIOR
PROPOSAL"), and (D) prior to taking such action, the Company (x) provides
reasonable notice to Parent to the effect that it is taking such action and (y)
receives from such person an executed confidentiality/standstill agreement in
reasonably customary form and in any event containing terms at least as
stringent as those contained in the Confidentiality Agreement between Parent and
the Company. Prior to providing any information to or entering into discussions
or negotiations with any person in connection with an Acquisition Proposal by
such person, the Company shall notify Parent of any Acquisition Proposal
(including, without limitation, the material terms and conditions thereof and
the identity of the person
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making it) as promptly as practicable (but in no case later than 24 hours) after
its receipt thereof, and shall provide Parent with a copy of any written
Acquisition Proposal or amendments or supplements thereto, and shall thereafter
inform Parent on a prompt basis of the status of any discussions or negotiations
with such a third party, and any material changes to the terms and conditions of
such Acquisition Proposal, and shall promptly give Parent a copy of any
information delivered to such person which has not previously been delivered to
Parent. Immediately after the execution and delivery of this Agreement, the
Company will, and will cause its subsidiaries and affiliates, and their
respective officers, directors, employees, investment bankers, attorneys,
accountants and other agents to, cease and terminate any existing activities,
discussions or negotiations with any parties conducted heretofore with respect
to any possible Acquisition Proposal and shall notify each party that it, or any
officer, director, investment advisor, financial advisor, attorney or other
representative retained by it, has had discussions with during the 30 days prior
to the date of this Agreement that the Company Board no longer seeks the making
of any Acquisition Proposal. The Company agrees that it will take the necessary
steps to promptly inform the individuals or entities referred to in the first
sentence hereof of the obligations undertaken in this Section 6.4(a).
(b) The Company Board will not withdraw or modify, or propose to withdraw or
modify, in a manner adverse to Parent, its approval or recommendation of this
Agreement or the Merger unless the Company Board after consultation with and
based upon the advice of independent legal counsel, determines in good faith
that such action is necessary for the Company Board to comply with the fiduciary
duties to the Company's stockholders under applicable Law; PROVIDED, HOWEVER,
the Company Board may not approve or recommend (and in connection therewith,
withdraw or modify its approval or recommendation of this Agreement or the
Merger) an Acquisition Proposal unless such an Acquisition Proposal is a
Superior Proposal (and the Company shall have first complied with its
obligations set forth in Section 8.3(a) and the time period referred to in the
last sentence of Section 8.3(a) has expired) and unless it shall have first
consulted with independent legal counsel, and have determined, based upon such
advice, that such action is necessary for the Company Board to comply with its
fiduciary duties to the Company's stockholders. Nothing contained in this
Section 6.4(b) shall prohibit the Company from taking and disclosing to its
stockholders a position contemplated by Rule 14e-2(a) promulgated under the
Exchange Act or from making any disclosure to the Company's stockholders which,
in the good faith reasonable judgment of the Company Board, based on the advice
of independent legal counsel, is required under applicable Law; PROVIDED, that
except as otherwise permitted in this Section 6.4(b), the Company does not
withdraw or modify, or propose to withdraw or modify, its position with respect
to the Merger or approve or recommend, or propose to approve or recommend, an
Acquisition Proposal. Notwithstanding anything contained in this Agreement to
the contrary, any action by the Company Board permitted by, and taken in
accordance with, this Section 6.4(b) shall not constitute a breach of this
Agreement by the Company. Nothing in this Section 6.4(b) shall (i) permit the
Company to terminate this Agreement (except as provided in Article VIII hereof)
or (ii) affect any other obligations of the Company under this Agreement.
SECTION 6.5 PUBLIC ANNOUNCEMENTS. Each of Parent, Merger Sub and the
Company will consult with one another before issuing any press release or
otherwise making any public statements with respect to the transactions
contemplated by this Agreement, including, without limitation, the Merger, and
shall not issue any such press release or make any such public statement prior
to such consultation, except as may be required by applicable Law or by
obligations pursuant to any listing agreement, as determined by Parent, Merger
Sub or the Company, as the case may be. The parties agree that the initial press
release to be issued with respect to the transaction contemplated by this
Agreement shall be in the form agreed to by the parties.
SECTION 6.6 INDEMNIFICATION; DIRECTORS' AND OFFICERS' INSURANCE. (a) From
and after the Effective Time, Parent shall, to the fullest extent permitted by
applicable Law, indemnify, defend and hold harmless each person who is now, or
has been at any time prior to the date hereof, or who becomes
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prior to the Effective Time, a director, officer or employee of the parties
hereto or any subsidiary thereof (each an "INDEMNIFIED PARTY" and, collectively,
the "INDEMNIFIED PARTIES") against all losses, expenses (including reasonable
attorneys' fees and expenses), claims, damages or liabilities or, subject to the
proviso of the next succeeding sentence, amounts paid in settlement, arising out
of actions or omissions occurring at or prior to the Effective Time and whether
asserted or claimed prior to, at or after the Effective Time that are in whole
or in part (i) based on, or arising out of the fact that such person is or was a
director, officer or employee of such party or a subsidiary of such party or
(ii) based on, arising out of or pertaining to the transactions contemplated by
this Agreement.
(b) For a period of 5 years after the Effective Time, Parent shall cause to
be obtained and maintained in effect policies of directors' and officers'
liability insurance for the benefit of those persons who are directors and
officers of the Company following the Effective Time consistent with insurance
coverage provided for Parent's or its subsidiary's directors and officers of
similar position.
(c) In the event Parent or any of its successors or assigns
(i) consolidates with or merges into any other person and shall not be the
continuing or surviving corporation or entity or such consolidation or merger or
(ii) transfers all or substantially all of its properties and assets to any
person, then and in either such case, proper provision shall be made so that the
successors and assigns of Parent shall assume the obligations set for in this
Section 6.6.
(d) To the fullest extent permitted by Law, from and after the Effective
Time, all rights to indemnification now existing in favor of the employees,
agents, directors or officers of the Company and its subsidiaries with respect
to their activities as such prior to the Effective Time, as provided in the
Company's certificate of incorporation or bylaws, in effect on the date thereof
or otherwise in effect on the date hereof, shall survive the Merger and shall
continue in full force and effect for a period of not less than six years from
the Effective Time.
(e) The provisions of this Section 6.6 are intended to be for the benefit
of, and shall be enforceable by, each Indemnified Party, his or her heirs and
his or her representatives.
SECTION 6.7 NOTIFICATION OF CERTAIN MATTERS. The Company shall give prompt
notice to Parent and Merger Sub, and Parent and Merger Sub shall give prompt
notice to the Company, of (i) the occurrence or nonoccurrence of any event the
occurrence or nonoccurrence of which would be likely to cause any representation
or warranty contained in this Agreement, which is qualified as to materiality,
to be untrue or inaccurate, or any representation or warranty not so qualified,
to be untrue or inaccurate in any material respect at or prior to the Effective
Time, (ii) any material failure of the Company, Parent or Merger Sub, as the
case may be, to comply with or satisfy any covenant, condition or agreement to
be complied with or satisfied by it hereunder, (iii) 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 or any of its subsidiaries
subsequent to the date of this Agreement and prior to the Effective Time, under
any contract or agreement material to the financial condition, properties,
businesses, results of operations or prospects of it and its subsidiaries taken
as a whole to which it or any of its subsidiaries is a party or is subject,
(iv) 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, or (v) any Material Adverse Effect
in their respective financial condition, properties, businesses, results of
operations or prospects, taken as a whole, other than changes resulting from
general economic conditions; PROVIDED, HOWEVER, that the delivery of any notice
pursuant to this Section 6.7 shall not cure such breach or non-compliance or
limit or otherwise affect the remedies available hereunder to the party
receiving such notice.
SECTION 6.8 POOLING. (a) The Company shall use its reasonable best efforts
to cause to be delivered to Parent a letter from KPMG LLP dated as of the date
the S-4 is declared effective and dated as of the Closing Date, stating that the
accounting of the Merger as a "POOLING OF INTERESTS" under
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Opinion 16 of the Accounting Principles Board ("APB 16") and the applicable SEC
rules and regulations is appropriate if the Merger is consummated as
contemplated by this Agreement.
(b) Parent shall use its reasonable best efforts to cause to be delivered to
the Company a letter from Deloitte & Touche LLP dated as of the date the S-4 is
declared effective and dated as of the Closing Date, stating that the accounting
of the Merger as a "POOLING OF INTERESTS" under APB 16 and the applicable SEC
rules and regulations is appropriate if the Merger is consummated as
contemplated by this Agreement.
SECTION 6.9 TAX-FREE REORGANIZATION TREATMENT. The Company, Parent and
Merger Sub shall execute and deliver to Wilson Sonsini Goodrich & Rosati,
Professional Corporation, counsel to the Company, and Weil, Gotshal & Manges
LLP, counsel to Parent, certificates substantially in the forms attached hereto
a Exhibits C and D at such time or times as reasonably requested by such law
firms in connection with their respective deliveries of opinions with respect to
the transactions contemplated hereby. Prior to the Effective Time, none of the
Company, Parent or Merger Sub shall take or cause to be taken any action which
would cause to be untrue (or fail to take or cause not to be taken any action
which would cause to be untrue) any of the representations in such
previously-agreed certificates.
SECTION 6.10 EMPLOYEE MATTERS. (a) Parent will cause the Surviving
Corporation to honor the obligations of the Company or any of its subsidiaries
under the provisions of all employment, consulting, termination, severance,
change in control and indemnification agreements between and among the Company
or any of its subsidiaries and any current or former officer, director,
consultant or employee of the Company or any of its subsidiaries and to enter
into employment agreements (the "Employment Agreements") with the following
officers of the Company in the form of Exhibit E hereto: David Ledwell, Peter
Jankowski and Jonathan Lupia.
(b) Following the Effective Time, Parent shall either: (A) cause Surviving
Corporation to adopt and maintain Company Employee Benefit Plans in effect
immediately prior to the Effective Time and, accordingly, shall thereby continue
in full force and effect each such Company Employee Benefit Plan subject to the
terms and conditions thereof for a period of at least one (1) year, or
(B) arrange for each employee of the Company or any Company subsidiary to
participate in any counterpart Parent Employee Benefit Plan (which shall mean
all plans, programs and arrangements set forth in Section 3.14(a) that are
maintained by Parent or its subsidiaries at or after the Effective Time) in
accordance with the eligibility criteria thereof, provided that (i) such
participants shall receive full credit for years of service with the Company or
any Company subsidiary (and service otherwise credited by the Company or any
Company subsidiary) prior to the Effective Time for all purposes for which such
service was recognized under the Company Employee Benefit Plans including, but
not limited to, eligibility to participate and vesting, (ii) such participants
and their dependents (to the extent that the terms and conditions of each Parent
Employee Benefit Plan provide for coverage and/or benefits of eligible
employees' dependents) shall participate in the Parent Employee Benefit Plans on
terms no less favorable than those offered by Parent to employees of Parent, and
(iii) Parent shall cause any and all pre-existing condition limitations,
eligibility waiting periods and evidence of insurability requirements under any
group plans to be waived with respect to such participants and their eligible
dependents and shall provide each such participant with credit for any
co-payments and deductibles paid prior to the Effective Time for purposes of
satisfying any applicable deductible, out-of-pocket, or similar requirements
under all Parent Employee Benefit Plans in which such participants are eligible
to participate after the Effective Time. Notwithstanding any of the foregoing to
the contrary, none of the provisions contained herein shall operate to duplicate
any benefit provided to any employee of the Company or the funding of any such
benefit.
SECTION 6.11 AFFILIATE LETTERS. Section 6.11 of the Company Disclosure
Schedule sets forth a list of all persons who are, and all persons who to the
Company's knowledge will be at the Closing Date, "AFFILIATES" of the Company for
purposes of Rule 145 under the Securities Act or for purposes of
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qualifying the Merger for "POOLING-OF-INTERESTS" accounting treatment under APB
16 and applicable SEC rules, and Section 6.11 of the Parent Disclosure Schedule
sets forth a list of all persons who are, and all persons who to Parent's
knowledge will be at the Closing Date, "AFFILIATES" of Parent for purposes of
qualifying the Merger for "POOLING OF INTERESTS" under APB 16 and the applicable
SEC rules and regulations. The Company and Parent will each respectively cause
such lists to be updated promptly through the Closing Date. Not later than 45
days prior to the date of the Company Stockholder Meeting, the Company shall
cause its "AFFILIATES" to deliver to Parent a written agreement substantially in
the form attached as Exhibit A, and Parent shall cause its "AFFILIATES" to
deliver to the Company a written agreement substantially in the form attached as
Exhibit B.
SECTION 6.12 SEC FILINGS. Each of Parent and the Company shall promptly
provide the other party (or its counsel) with copies of all filings made by the
other party or any of its subsidiaries with the SEC or any other state or
federal Governmental Entity in connection with this Agreement and the
transactions contemplated hereby.
SECTION 6.13 FEES AND EXPENSES. Whether or not the Merger is consummated,
all Expenses (as hereinafter defined) incurred in connection with this
Agreement, the Stock Option Agreement and the transactions contemplated hereby
and thereby shall be paid by the party incurring such Expenses, except as
provided in Section 8.5. As used in this Agreement, "EXPENSES" includes all
out-of-pocket expenses (including, without limitation, all fees and expenses of
counsel, accountants, investment bankers, experts and consultants to a party
hereto and its affiliates) incurred by a party or on its behalf in connection
with, or related to, the authorization, preparation, negotiation, execution and
performance of this Agreement, the Stock Option Agreement and the transactions
contemplated hereby and thereby, including the preparation, filing, printing and
mailing of the Proxy Statement and the S-4 and the solicitation of stockholder
approvals and all other matters related to the transactions contemplated hereby.
SECTION 6.14 OBLIGATIONS OF MERGER SUB. Parent will take all action
necessary to cause Merger Sub to perform its obligations under this Agreement
and to consummate the Merger on the terms and conditions set forth in this
Agreement.
SECTION 6.15 LISTING OF STOCK. Parent shall use its best efforts to cause
the shares of Parent Common Stock to be issued in connection with the Merger to
be listed for quotation on the Nasdaq National Market on or prior to the Closing
Date, subject to official notice of issuance.
SECTION 6.16 ANTITAKEOVER STATUTES. If any Takeover Statute is or may
become applicable to the Merger, each of Parent and Company shall take such
actions as are necessary so that the transactions contemplated by this Agreement
may be consummated as promptly as practicable on the terms contemplated hereby
and otherwise act to eliminate or minimize the effects of any Takeover Statute
on the Merger.
ARTICLE VII
CONDITIONS TO CONSUMMATION OF THE MERGER
SECTION 7.1 CONDITIONS TO EACH PARTY'S OBLIGATIONS TO EFFECT THE
MERGER. The respective obligations of each party to consummate the transactions
contemplated by this Agreement are subject to the fulfillment at or prior to the
Effective Time of each of the following conditions, any or all of which may be
waived in whole or in part by the party being benefited thereby, to the extent
permitted by applicable Law:
(a) This Agreement shall have been approved and adopted by the Company
Requisite Vote;
(b) Any waiting period applicable to the Merger under the HSR Act shall have
expired or early termination thereof shall have been granted without limitation,
restriction or condition;
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(c) Not later than 45 days prior to the date of the Company Stockholder
Meeting, the Company shall have received from Parent's "AFFILIATES" a written
agreement substantially in the form attached as Exhibit B, and Parent shall have
received from the Company's "AFFILIATES" a written agreement substantially in
the form attached as Exhibit A.
(d) There shall not be in effect any Law of any Governmental Entity of
competent jurisdiction, restraining, enjoining or otherwise preventing
consummation of the transactions contemplated by this Agreement or permitting
such consummation only subject to any condition or restriction that has or would
reasonably be expected to have, individually or in the aggregate, a Material
Adverse Effect on the Company (or an effect on Parent and its subsidiaries that,
were such effect applied to the Company and its subsidiaries, has or would
reasonably be expected to have, individually or in the aggregate, a Material
Adverse Effect on the Company) and no Governmental Entity shall have instituted
any proceeding which continues to be pending seeking any such Law.
(e) The S-4 shall have been declared effective by the SEC and shall be
effective at the Effective Time, and no stop order suspending effectiveness
shall have been issued, no action, suit, proceeding or investigation by the SEC
to suspend the effectiveness thereof shall have been initiated and be
continuing, and all necessary approvals under state securities Laws or the
Securities Act or Exchange Act relating to the issuance or trading of the Parent
Common Stock shall have been received.
(f) The Parent Common Stock required to be issued hereunder shall have been
listed for quotation on the Nasdaq National Market, subject only to official
notice of issuance.
(g) The Company shall have received and delivered to Parent a letter from
KPMG LLP dated as of the date the S-4 is declared effective and dated as of the
Closing Date, stating that the accounting of the Merger as a "POOLING OF
INTERESTS" under APB 16 and the applicable SEC rules and regulations is
appropriate if the Merger is consummated as contemplated by this Agreement.
Parent shall have received and delivered to the Company a letter from
Deloitte & Touche LLP, dated as of the date the S-4 is declared effective and
dated as of the Closing Date, stating that accounting of the Merger as a
"POOLING OF INTERESTS" under APB 16 and the applicable SEC rules and regulations
is appropriate if the Merger is consummated as contemplated by this Agreement.
SECTION 7.2 CONDITIONS TO THE OBLIGATIONS OF THE PARENT AND MERGER
SUB. The respective obligations of Parent and Merger Sub to consummate the
transactions contemplated by this Agreement are subject to the fulfillment at or
prior to the Effective Time of each of the following additional conditions, any
or all of which may be waived in whole or part by Parent and Merger Sub, as the
case may be, to the extent permitted by applicable Law:
(a) The representations and warranties of the Company contained herein or
otherwise required to be made after the date hereof in a writing expressly
referred to herein by or on behalf of the Company pursuant to this Agreement, to
the extent qualified by materiality or Material Adverse Effect, shall have been
true and, to the extent not qualified by materiality or Material Adverse Effect,
shall have been true in all material respects, in each case when made and on and
as of the Closing Date as though made on and as of the Closing Date (except for
representations and warranties made as of a specified date, which need be true,
or true in all material respects, as the case may be, only as of the specified
date).
(b) The Company shall have performed or complied in all material respects
with all agreements and conditions contained herein required to be performed or
complied with by it prior to or at the time of the Closing.
(c) The Company shall have delivered to Parent a certificate, dated the date
of the Closing, signed by the President or any Vice President of the Company
(but without personal liability thereto), certifying as to the fulfillment of
the conditions specified in Sections 7.2(a) and 7.2(b).
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(d) Parent shall have received an opinion of Weil, Gotshal & Manges LLP,
dated the Effective Time, based on the representations of Parent and the Company
substantially in the forms attached hereto as Exhibits C and D, to the effect
that the Merger will be treated for federal income Tax purposes as a
reorganization within the meaning of Section 368(a) of the Code.
(e) All authorizations, consents or approvals of a Governmental Entity
(other than those specified in Section 7.1(b) hereof) required in connection
with the execution and delivery of this Agreement and the performance of the
obligations hereunder shall have been made or obtained, without any limitation,
restriction or condition that has or would reasonably be expected to have,
individually or in the aggregate, a Material Adverse Effect on the Company (or
an effect on Parent and its subsidiaries that, were such effect applied to the
Company and its subsidiaries, would have or would reasonably be expected to
have, individually or in the aggregate, a Material Adverse Effect on the
Company), except for such authorizations, consents or approvals, the failure of
which to have been made or obtained does not and would not reasonably be
expected to have, individually or in the aggregate, a Material Adverse Effect on
the Company (or an effect on Parent and its subsidiaries that, were such effect
applied to the Company and its subsidiaries, would have or would reasonably be
expected to have, individually or in the aggregate, a Material Adverse Effect on
the Company).
(f) Each of the officers of the Company named in Section 6.10(a) shall have
entered into an Employment Agreement.
SECTION 7.3 CONDITIONS TO THE OBLIGATIONS OF THE COMPANY. The obligations
of the Company to consummate the transactions contemplated by this Agreement are
subject to the fulfillment at or prior to the Effective Time of each of the
following conditions, any or all of which may be waived in whole or in part by
the Company to the extent permitted by applicable Law:
(a) The representations and warranties of Parent and Merger Sub contained
herein or otherwise required to be made after the date hereof in a writing
expressly referred to herein by or on behalf of Parent and Merger Sub pursuant
to this Agreement, to the extent qualified by materiality or Material Adverse
Effect, shall have been true and, to the extent not qualified by materiality or
Material Adverse Effect, shall have been true in all material respects, in each
case when made and on and as of the Closing Date as though made on and as of the
Closing Date (except for representations and warranties made as of a specified
date, which need be true, or true in all material respects, as the case may be,
only as of the specified date).
(b) Parent shall have performed or complied in all material respects with
all agreements and conditions contained herein required to be performed or
complied with by it prior to or at the time of the Closing.
(c) Parent shall have delivered to the Company a certificate, dated the date
of the Closing, signed by the President or any Vice President of Parent (but
without personal liability thereto), certifying as to the fulfillment of the
conditions specified in Section 7.3(a) and 7.3(b).
(d) The Company shall have received an opinion of Wilson Sonsini,
Goodrich & Rosati, Professional Corporation dated the Effective Time, based on
the representations of Parent and the Company substantially in the forms
attached hereto as Exhibits C and D , to the effect that the Merger will be
treated for federal income Tax purposes as a reorganization within the meaning
of Section 368(a) of the Code.
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ARTICLE VIII
TERMINATION; AMENDMENT; WAIVER
SECTION 8.1 TERMINATION BY MUTUAL AGREEMENT. This Agreement may be
terminated and the Merger may be abandoned at any time prior to the Effective
Time, whether before or after the approval of the Merger by the Company
Requisite Vote referred to in Section 7.1(a), by mutual written consent of the
Company and Parent by action of their respective Boards of Directors.
SECTION 8.2 TERMINATION BY EITHER PARENT OR THE COMPANY. This Agreement
may be terminated and the Merger may be abandoned at any time prior to the
Effective Time by action of the Board of Directors of either Parent or the
Company if:
(a) the Merger shall not have been consummated by August 31, 2000, whether
such date is before or after the date of approval of the Merger by the Company
Requisite Vote (the "TERMINATION DATE");
(b) the Company Requisite Vote shall not have been obtained at the Company
Stockholder Meeting or at any adjournment or postponement thereof;
(c) any Law permanently restraining, enjoining or otherwise prohibiting
consummation of the Merger shall become final and non-appealable (whether before
or after the approval of the Merger by the Company Requisite Vote; or
(d) any Governmental Entity shall have failed to issue an order, decree or
ruling or to take any other action which is necessary to fulfill the conditions
set forth in Sections 7.1(b), and 7.2(e), as applicable, and such denial of a
request to issue such order, decree, ruling or take such other action shall have
been final and nonappealable; PROVIDED, that the right to terminate this
Agreement pursuant to this Section 8.2 shall not be available to any party that
has breached in any material respect its obligations under this Agreement in any
manner that shall have proximately contributed to the occurrence of the failure
of the Merger to be consummated.
SECTION 8.3 TERMINATION BY THE COMPANY. This Agreement may be terminated
and the Merger may be abandoned at any time prior to the Effective Time, whether
before or after the approval of the Merger by the Company Requisite Vote
referred to in Section 7.1(a), by action of the Company Board:
(a) if (i) the Company is not in material breach of Section 6.4, (ii) the
Merger shall not have been approved by the Company Requisite Vote, (iii) the
Company Board authorizes the Company, subject to complying with the terms of
this Agreement, to enter into a binding written agreement concerning a
transaction that constitutes a Superior Proposal and the Company notifies Parent
in writing as soon as practicable, but in any event no later than three business
days in advance of entering into such agreement, that it intends to enter into
such an agreement, attaching the most current version of such agreement to such
notice, and (iv) during the three business day period after the Company's
notice, (A) the Company shall have negotiated with, and shall have caused its
respective financial and legal advisors to, negotiate with Parent to attempt to
make such commercially reasonable adjustments in the terms and conditions of
this Agreement as would enable the Company to proceed with the transactions
contemplated herein and (B) but only if the Board of Directors of the Company
shall have concluded, after considering the results of such negotiations, that
any Superior Proposal giving rise to the Company's notice continues to be a
Superior Proposal. The Company may not effect such termination unless
contemporaneously therewith the Company pays to Parent in immediately available
funds the fees required to be paid pursuant to Section 8.5. The Company agrees
(x) that it will not enter into a binding agreement referred to in clause
(iii) above until at least the fourth business day after it has provided the
notice to Parent required thereby and (y) to notify Parent promptly if its
intention to enter into a written agreement referred to in its notification
shall change at any time after giving such notification;
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(b) if there is a breach by Parent or Merger Subsidiary of any
representation, warranty, covenant or agreement contained in this Agreement that
cannot be cured and would cause a condition set forth in Section 7.3(a) or
7.3(b) to be incapable of being satisfied as of the Termination Date; or
(c) pursuant to, and in accordance with, Section 2.1(b) if Parent has not
delivered a Top-Up Notice.
SECTION 8.4 TERMINATION BY PARENT. This Agreement may be terminated and
the Merger may be abandoned at any time prior to the Effective Time, by action
of the Parent Board of Directors if:
(a) (i) the Company enters or shall have determined to enter into a binding
agreement for a Superior Proposal, (ii) the Company Board shall have withdrawn
or adversely modified its approval or recommendation of this Agreement or the
Merger or failed to reconfirm its recommendation of this Agreement or the Merger
within five business days after a written request by Parent to do so, (iii) the
Company shall have recommended or determined to recommend any other Acquisition
Proposal or (iv) any Person or group shall have acquired beneficial ownership of
at least 15% of the outstanding shares;
(b) there is a breach by the Company of any representation, warranty,
covenant or agreement contained in this Agreement that cannot be cured and would
cause a condition set forth in Section 7.2(a) or 7.2(b) to be incapable of being
satisfied as of the Termination Date.
SECTION 8.5 EFFECT OF TERMINATION AND ABANDONMENT. (a) In the event of
termination of this Agreement and the abandonment of the Merger pursuant to this
Article VIII, this Agreement (other than this Section 8.5 and Sections 5.2(c),
6.13 and Article IX) shall become void and of no effect with no liability on the
part of any party hereto (or of any of its directors, officers, employees,
agents, legal and financial advisors or other representatives); PROVIDED,
HOWEVER, except as otherwise provided herein, no such termination shall relieve
any party hereto of any liability or damages resulting from any willful breach
of this Agreement.
(b) In the event that (i) this Agreement is terminated by the Company
pursuant to Section 8.3(a), or (ii) this Agreement is terminated by Parent
pursuant to Section 8.4(a) (other than Section 8.4(a)(iv) unless the Company
shall have permitted the acquisition of shares pursuant thereto), or (iii) if
within 6 months of the termination of this Agreement by Parent pursuant to
Section 8.2(a), 8.2(b) or 8.4(b) and if on or before the Termination Date, prior
to the time of the Company Stockholder Meeting or prior to the Company's breach,
as applicable, an Acquisition Proposal has been made to the Company or any
person shall have announced an intention to make an Acquisition Proposal and
such Acquisition Proposal or intention shall not have been withdrawn, any
Acquisition Proposal by a third party is entered into, agreed to or consummated
by the Company, then the Company shall pay Parent a termination fee of
$11,000,000 in same-day funds, on the date of such termination, in the case of
clauses (i) or (ii), or on the earlier of the date an agreement is entered into
with respect to an Acquisition Proposal or an Acquisition Proposal is
consummated in the case of clause (iii). Any amount paid pursuant to this
Section 8.5(b) shall be net of any amount previously paid to Parent pursuant to
Section 8.5(c).
(c) In the event this Agreement is terminated pursuant to Section 8.4(b),
then the Company shall reimburse Parent for its Expenses in same day funds, on
the date of such termination, provided that in no event shall such reimbursement
exceed $1,000,000.
(d) The Company acknowledges that the agreements contained in Section
8.5(b) and 8.5(c) are an integral part of the transactions contemplated by this
Agreement, and that, without these agreements, the Company, Parent and Merger
Sub would not have entered into this Agreement; accordingly, if the Company
fails to promptly pay the amount due pursuant to Section 8.5(b) or 8.5(c), and,
in order to obtain such payment, Parent commences a suit which results in a
judgment against the Company for the fee set forth in this Section 8.5, the
Company shall pay to Parent its costs and expenses (including
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attorneys' fees) in connection with such suit, together with interest from the
date of termination of this Agreement on the amounts owed at the prime rate of
Chase Manhattan Bank in effect from time to time during such period plus two
percent.
SECTION 8.6 AMENDMENT. This Agreement may be amended by action taken by
the Company, Parent and Merger Sub at any time before or after approval of the
Merger by the Company Requisite Vote but, after any such approval, no amendment
shall be made which requires the approval of such stockholders under applicable
Law without such approval. This Agreement may not be amended except by an
instrument in writing signed on behalf of the parties hereto.
SECTION 8.7 EXTENSION; WAIVER. At any time prior to the Effective Time,
each party hereto (for these purposes, Parent and Merger Sub shall together be
deemed one party and the Company shall be deemed the other party) may
(i) extend the time for the performance of any of the obligations or other acts
of the other party, (ii) waive any inaccuracies in the representations and
warranties of the other party contained herein or in any document, certificate
or writing delivered pursuant hereto, or (iii) waive compliance by the other
party with any of the agreements or conditions contained herein. Any agreement
on the part of either party hereto to any such extension or waiver shall be
valid only if set forth in an instrument in writing signed on behalf of such
party. The failure of either party hereto to assert any of its rights hereunder
shall not constitute a waiver of such rights.
ARTICLE IX
MISCELLANEOUS
SECTION 9.1 NONSURVIVAL OF REPRESENTATIONS AND WARRANTIES. None of the
representations, warranties, covenants and agreements in this Agreement or in
any exhibit, schedule or instrument delivered pursuant to this Agreement shall
survive beyond the Effective Time, except for those covenants and agreements
contained herein and therein that by their terms apply or are to be performed in
whole or in part after the Effective Time and this Article IX. This Section 9.1
shall not limit any covenant or agreement of the parties which by its terms
contemplates performance after the Effective Time.
SECTION 9.2 ENTIRE AGREEMENT; ASSIGNMENT. (a) This Agreement constitutes
the entire agreement between the parties hereto with respect to the subject
matter hereof and supersedes all other prior agreements and understandings, both
written and oral, between the parties with respect to the subject matter hereof
other than the Confidentiality Agreement.
(b) Neither this Agreement nor any of the rights, interests or obligations
hereunder shall be assigned by operation of Law (including, but not limited to,
by merger or consolidation) or otherwise; PROVIDED, HOWEVER, that Merger Sub may
assign, in its sole discretion, any or all of its rights, interests and
obligations under this Agreement to any direct wholly owned subsidiary of
Parent, but no such assignment shall relieve Parent or Merger Sub of its
obligations hereunder if such assignee does not perform such obligations. Any
assignment in violation of the preceding sentence shall be void. Subject to the
preceding sentence, this Agreement will be binding upon, inure to the benefit
of, and be enforceable by, the parties and their respective successors and
assigns.
SECTION 9.3 NOTICES. All notices, requests, instructions or other
documents to be given under this Agreement shall be in writing and shall be
deemed given, (i) five business days following sending by registered or
certified mail, postage prepaid, (ii) when sent if sent by facsimile; PROVIDED
that the fax is promptly confirmed by telephone confirmation thereof,
(iii) when delivered, if delivered personally to
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<PAGE>
the intended recipient and (iv) one business day following sending by overnight
delivery via a national courier service, and in each case, addressed to a party
at the following address for such party:
<TABLE>
<S> <C>
if to Parent or to Merger Sub, to: Comverse Technology, Inc.
170 Crossways Park Drive
Woodbury, New York 11797
Attention: Chief Financial Officer
Facsimile: (516) 677-7323
with a copy to: Weil, Gotshal & Manges LLP
767 Fifth Avenue
New York, New York 10153
Attention: Stephen M. Besen, Esq.
Facsimile: (212) 310-8007
if to the Company, to: Loronix Information Systems, Inc.
820 Airport Road
Durango, Colorado 81301
Attention: Chief Financial Officer
Facsimile: (970) 328-3388
with a copy to: Wilson, Sonsini, Goodrich & Rosati
Professional Corporation
650 Page Mill Road
Palo Alto, California 94304
Attention: Henry P. Massey, Jr., Esq.
Facsimile: (650) 493-6811
</TABLE>
or to such other address as the person to whom notice is given may have
previously furnished to the other in writing in the manner set forth above.
SECTION 9.4 GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the Laws of the State of Nevada, without giving
effect to the choice of Law principles thereof.
SECTION 9.5 DESCRIPTIVE HEADINGS. The descriptive headings herein are
inserted for convenience of reference only and are not intended to be part of or
to affect the meaning or interpretation of this Agreement.
SECTION 9.6 PARTIES IN INTEREST. This Agreement shall be binding upon and
inure solely to the benefit of each party hereto and its successors and
permitted assigns, and, except as provided in Section 6.6, nothing in this
Agreement, express or implied, is intended to or shall confer upon any other
person any rights, benefits or remedies of any nature whatsoever under or by
reason of this Agreement.
SECTION 9.7 SEVERABILITY. The provisions of this Agreement shall be deemed
severable and the invalidity or unenforceability of any provision shall not
affect the validity or enforceability of the other provisions hereof. If any
provision of this Agreement, or the application thereof to any person or any
circumstance, is invalid or unenforceable, (a) if necessary, a suitable and
equitable provision shall be substituted therefor in order to carry out, so far
as may be valid and enforceable, the intent and purpose of such invalid or
unenforceable provision and (b) the remainder of this Agreement and the
application of such provision to other persons or circumstances shall not be
affected by such invalidity or unenforceability, nor shall such invalidity or
unenforceability affect the validity or enforceability of such provision, or the
application thereof, in any other jurisdiction.
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<PAGE>
SECTION 9.8 SPECIFIC PERFORMANCE. The parties agree that irreparable
damage would occur in the event that any of the provisions of this Agreement
were not performed in accordance with their specific terms or were otherwise
breached. It is accordingly agreed that the parties shall be entitled to an
injunction or injunctions to prevent breaches of this Agreement and to enforce
specifically the terms and provisions of this Agreement in any court of the
United States located in the State of Nevada or in Nevada state court, this
being in addition to any other remedy to which they are entitled at Law or in
equity. In addition, each of the parties hereto (a) consents to submit itself to
the personal jurisdiction of any federal court located in the State of Nevada or
any Nevada state court in the event any dispute arises out of this Agreement or
any of the transactions contemplated hereby, (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 Nevada.
SECTION 9.9 COUNTERPARTS. This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same agreement and
shall become effective when one or more counterparts have been signed by each of
the parties and delivered to the other parties.
SECTION 9.10 INTERPRETATION. (a) The words "HEREOF," "HEREIN" and
"HEREWITH" and words of similar import shall, unless otherwise stated, be
construed to refer to this Agreement as a whole and not to any particular
provision of this Agreement, and article, section, paragraph, exhibit and
schedule references are to the articles, sections, paragraphs, exhibits and
schedules of this Agreement unless otherwise specified. Whenever the words
"INCLUDE," "INCLUDES" or "INCLUDING" are used in this Agreement, they shall be
deemed to be followed by the words "WITHOUT LIMITATION." All terms defined in
this Agreement shall have the defined meanings contained herein when used in any
certificate or other document made or delivered pursuant hereto unless otherwise
defined therein. The definitions contained in this Agreement are applicable to
the singular as well as the plural forms of such terms and to the masculine as
well as to the feminine and neuter genders of such terms. Any agreement,
instrument or statute defined or referred to herein or in any agreement or
instrument that is referred to herein means such agreement, instrument or
statute as from time to time, amended, qualified or supplemented, including (in
the case of agreements and instruments) by waiver or consent and (in the case of
statutes) by succession of comparable successor statutes and all attachments
thereto and instruments incorporated therein. References to a person are also to
its permitted successors and assigns.
(b) The phrases "THE DATE OF THIS AGREEMENT," "THE DATE HEREOF" and terms of
similar import, unless the context otherwise requires, shall be deemed to refer
to March 5, 2000. The phrase "MADE AVAILABLE" in this agreement shall mean that
the information referred to has been actually delivered to the party to whom
such information is to be made available.
(c) The parties have participated jointly in the negotiation and drafting of
this Agreement. In the event an ambiguity or question of intent or
interpretation arises, this Agreement shall be construed as if drafted jointly
by the parties and no presumption or burden of proof shall arise favoring or
disfavoring any party by virtue of the authorship of any provisions of this
Agreement.
SECTION 9.11 DEFINITIONS. (a) "ACQUISITION PROPOSAL" means an offer
regarding any of the following (other than the transactions contemplated by this
Agreement) involving the Company or any of its subsidiaries: (i) any merger,
consolidation, share exchange, recapitalization, business combination or other
similar transaction; (ii) any sale, lease, exchange, mortgage, pledge, transfer
or other disposition of all or substantially all the assets of the Company and
its subsidiaries, taken as a whole, in a single transaction or series of related
transactions; (iii) any tender offer or exchange offer for 40 percent or more of
the outstanding Shares or the filing of a registration statement under the
Securities
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<PAGE>
Act in connection therewith; or (iv) any public announcement of a proposal, plan
or intention to do any of the foregoing or any agreement to engage in any of the
foregoing.
(b) "BENEFICIAL OWNERSHIP" or "BENEFICIALLY OWN" shall have the meaning
provided in Section 13(d) of the Exchange Act and the rules and regulations
thereunder.
(c) "KNOW" or "KNOWLEDGE" means, with respect to any party, the knowledge of
such party's executive officers after due inquiry, including inquiry of such
party's counsel and other officers or employees of such party responsible for
the relevant matter.
(d) "MATERIAL ADVERSE EFFECT" means with respect to any entity, any change,
circumstance or effect that, individually or in the aggregate with all other
changes, circumstances and effects, is or is reasonably likely to be materially
adverse to (i) the assets, properties, condition (financial or otherwise),
results of operations or prospects of such entity and its subsidiaries taken as
a whole or (ii) the ability of such party to consummate the transactions
contemplated by this Agreement; provided, however, that with respect to the
Company a Material Adverse Effect shall not include litigation commenced
subsequent to the public announcement of the Merger or other events resulting
from the announcement or pendancy of the transactions contemplated hereby.
(e) "PERSON" means an individual, corporation, limited liability company,
partnership, association, trust, unincorporated organization, other entity or
group (as defined in the Exchange Act).
(f) "SUBSIDIARY" means, when used with reference to any entity, any
corporation or other organization, whether incorporated or unincorporated,
(i) of which such party or any other subsidiary of such party is a general or
managing partner or (ii) the outstanding voting securities or interests of,
which having by their terms ordinary voting power to elect a majority of the
Board of Directors or others performing similar functions with respect to such
corporation or other organization, is directly or indirectly owned or controlled
by such party or by any one or more of its subsidiaries.
[signature page follows]
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<PAGE>
IN WITNESS WHEREOF, each of the parties has caused this Agreement to be duly
executed on its behalf as of the day and year first above written.
<TABLE>
<S> <C> <C>
COMVERSE TECHNOLOGY, INC.
By: /s/ KOBI ALEXANDER
-----------------------------------------
Name: Kobi Alexander
Title: President and Chief Executive
Officer
COMVERSE ACQUISITION CORP.
By: /s/ DAVID KREINBERG
-----------------------------------------
Name: David Kreinberg
Title: Treasurer
LORONIX INFORMATION SYSTEMS, INC.
By: /s/ DAVID LEDWELL
-----------------------------------------
Name: David Ledwell
Title: President and Chief Executive
Officer
</TABLE>
A-51
<PAGE>
ANNEX B
STOCK OPTION AGREEMENT
<PAGE>
STOCK OPTION AGREEMENT
STOCK OPTION AGREEMENT, dated March 5, 2000, by and between Loronix
Information Systems, Inc., a Nevada corporation (the "Company"), and Comverse
Technology, Inc., a New York corporation ("Parent").
WHEREAS, concurrently with the execution and delivery of this Agreement, the
Company, Parent and Comverse Acquisition Corp., a Nevada corporation and
wholly-owned subsidiary of Parent ("Sub"), are entering into an Agreement and
Plan of Merger, dated as of the date hereof (the "Merger Agreement"; capitalized
terms used and not otherwise defined in this Agreement shall have the meanings
set forth in the Merger Agreement), which provides that, among other things,
upon the terms and subject to the conditions thereof, Sub will be merged with
the Company; and
WHEREAS, as a condition to Parent's and Sub's willingness to enter into the
Merger Agreement, Parent has requested that the Company agree, and in order to
induce Parent to enter into the Merger Agreement, the Company has so agreed, to
grant to Parent an option with respect to certain shares of the Company's common
stock on the terms and subject to the conditions set forth herein.
NOW, THEREFORE, in consideration of the foregoing and of the mutual
covenants and agreements set forth herein and in the Merger Agreement and for
other good and valuable consideration, the receipt and adequacy of which are
hereby acknowledged, the parties hereto hereby agree as follows:
1. GRANT OF OPTION. The Company hereby grants Parent an irrevocable option
(the "Stock Option") to purchase up to 1,020,000 shares of common stock, $0.001
par value per share, of the Company (the "Company Common Stock"), or such other
number of shares of Company Common Stock as equals 19.9% of the issued and
outstanding shares of Company Common Stock at the time of exercise of the Stock
Option, in the manner set forth below, at a price of $43.79 per share (the
"Exercise Price"), payable, at Parent's option, either (a) in cash or (b) in
shares of Parent Common Stock, in each case, in accordance with Section 4
hereof.
2. EXERCISE OF OPTION. (a) The Stock Option may be exercised by Parent, in
whole or in part, at any time or from time to time after the Merger Agreement is
terminated pursuant to Section 8.3(a) or 8.4(a) ( a "Trigger Event").
In the event Parent wishes to exercise the Stock Option, Parent shall
deliver to the Company a written notice (an "Exercise Notice") specifying the
total number of shares of Company Common Stock it wishes to purchase. Each
closing of a purchase of shares of Company Common Stock (a "Closing") shall
occur at a place, on a date and at a time designated by Parent in an Exercise
Notice delivered at least two business days prior to the date of the Closing.
(b) The Stock Option shall terminate upon the earlier of: (i) the Effective
Time; (ii) the termination of the Merger Agreement pursuant to Section 8.2, 8.3
or 8.4 thereof, other than a termination as a result of the occurrence of a
Trigger Event; or (ii) 180 days following any termination of the Merger
Agreement as the result of the occurrence of a Trigger Event (or if, at the
expiration of such 180 day period the Stock Option cannot be exercised by reason
of any applicable judgment, decree, order, law or regulation, or because the
applicable waiting period under the HSR Act has not expired or been terminated,
10 business days after such impediment to exercise shall have been removed or
shall have become final and not subject to appeal, but in no event under this
clause (ii) later than 270 days after the date of termination of the Merger
Agreement).
(c) Notwithstanding the foregoing, the Stock Option may not be exercised if
Parent is in material breach of any of its representations, warranties,
covenants or agreements contained in this Agreement or in the Merger Agreement.
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<PAGE>
3. CONDITIONS TO CLOSING. The obligation of the Company to issue shares of
Company Common Stock to Parent hereunder is subject to the conditions (which,
other than the conditions described in clauses (i) and (ii) below, may be waived
by the Company in its sole discretion) that (i) all waiting periods, if any,
under the HSR Act applicable to the issuance of shares of Company Common Stock
hereunder shall have expired or have been terminated, and all consents,
approvals, orders or authorizations of, or registrations, declarations or
filings with, any federal administrative agency or commission or other federal
governmental authority or instrumentality, if any, required in connection with
the issuance of shares of Company Common Stock hereunder shall have been
obtained or made, as the case may be; (ii) no preliminary or permanent
injunction or other order by any court of competent jurisdiction prohibiting or
otherwise restraining such issuance shall be in effect; and (iii) such shares
shall have been approved for listing on the Nasdaq National Market ("Nasdaq")
upon official notice of issuance.
4. CLOSING. At any Closing, (a) the Company will deliver to Parent a
single certificate in definitive form representing the number of shares of the
Company Common Stock designated by Parent in its Exercise Notice, such
certificate to be registered in the name of Parent, Sub or such other affiliate
of Parent as Parent shall designate in the Exercise Notice and shall bear the
legend set forth in Section 11, and (b) Parent will deliver to the Company the
aggregate Exercise Price for the shares of the Company Common Stock so
designated and being purchased at such Closing by (x) wire transfer of
immediately available funds, (y) a certificate or certificates representing the
number of shares of Parent Common Stock issuable in consideration thereof or (z)
any combination of such funds and Parent Common Stock. For the purposes of this
Agreement, the number of shares of Parent Common Stock to be delivered to the
Company shall be equal to the number of shares of the Company Common Stock with
respect to which the Stock Option is being exercised multiplied by an amount
equal to (i) $43.79 divided by (ii) the average of the closing sale prices of
shares of Parent Common Stock on the Nasdaq National Market for the five trading
days immediately preceding the date the Exercise Notice is delivered to the
Company.
5. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company represents
and warrants to Parent that (a) the Company is a corporation duly organized,
validly existing and in good standing under the laws of the State of Delaware
and has the corporate power and authority to enter into this Agreement and to
carry out its obligations hereunder; (b) the execution and delivery of this
Agreement by the Company and the consummation by the Company of the transactions
contemplated hereby have been duly authorized by all necessary corporate action
on the part of the Company and no other corporate proceedings on the part of the
Company are necessary to authorize this Agreement or any of the transactions
contemplated hereby; (c) this Agreement has been duly executed and delivered by
the Company and constitutes a valid and binding obligation of the Company, and,
assuming this Agreement constitutes a valid and binding obligation of Parent, is
enforceable against the Company in accordance with its terms, subject to
bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium and
similar laws of general applicability relating to or affecting creditors' rights
and to general equity principles; (d) the Company has taken all necessary
corporate action to authorize and reserve for issuance and to permit it to
issue, upon exercise of the Stock Option, and at all times from the date hereof
through the expiration of the Stock Option will have so reserved, such number of
unissued shares of Company Common Stock equal to not less than 19.9% of the
shares of Company Common Stock then outstanding, all of which shares, upon their
issuance and delivery in accordance with the terms of this Agreement, will be
validly issued, fully paid and nonassessable; (e) upon delivery of such shares
of Company Common Stock to Parent upon exercise of the Stock Option, such shares
shall be validly issued, fully paid and non-assessable and Parent will acquire
valid title to all of such shares, free and clear of any and all Liens of any
nature whatsoever; (f) the execution and delivery of this Agreement by the
Company does not, and the performance of this Agreement by the Company will not
(1) violate the certificate of incorporation or by-laws of the Company,
(2) conflict with or violate any statute, rule, regulation, order, judgment or
decree applicable to the Company or by which it or any of
B-2
<PAGE>
its assets or properties is bound or affected, or (3) result in any breach or
violation of or constitute a default (or an event which with notice or lapse of
time or both would become a default) under, or give rise to any rights of
termination, amendment, acceleration or cancellation of, or result in the
creation of any lien or other encumbrance on any of the property or assets of
the Company pursuant to, any note, bond, mortgage, indenture, contract,
agreement, lease, license, or other instrument or obligation to which the
Company or any of its Subsidiaries is a party or by which the Company or any of
its assets or properties is bound or affected (except, in the case of clauses
(2) or (3) above, for violations, breaches or defaults which would not,
individually or in the aggregate, have a Material Adverse Effect on the
Company); (g) the execution and delivery of this Agreement by the Company does
not, and the performance of this Agreement by the Company will not, require any
consent, approval, authorization or permit of, or filing with or notification
to, any governmental or regulatory authority except for pre-merger notification
requirements of the HSR Act; and (h) any shares of Parent Common Stock acquired
by the Company pursuant to this Agreement will not be acquired by the Company
with a view toward the public distribution or resale thereof in any manner which
would be in violation of applicable securities laws.
6. REPRESENTATIONS AND WARRANTIES OF PARENT. Parent represents and warrants
to the Company that (a) Parent is a corporation duly organized, validly existing
and in good standing under the laws of the State of New York and has the
corporate power and authority to enter into this Agreement and to carry out its
obligations hereunder; (b) the execution and delivery of this Agreement by
Parent and the consummation by Parent of the transactions contemplated hereby
have been duly authorized by all necessary corporate action on the part of
Parent and no other corporate proceedings on the part of Parent are necessary to
authorize this Agreement or any of the transactions contemplated hereby;
(c) this Agreement has been duly executed and delivered by Parent and
constitutes a valid and binding obligation of Parent, and, assuming this
Agreement constitutes a valid and binding obligation of the Company, is
enforceable against Parent in accordance with its terms subject to bankruptcy,
insolvency, fraudulent conveyance, reorganization, moratorium and similar laws
of general applicability relating to or affecting creditors' rights and to
general equity principles; (d) the execution and delivery of this Agreement by
Parent does not, and the performance of this Agreement by Parent will not
(1) violate the certificate of incorporation or by-laws of Parent, (2) conflict
with or violate any statute, rule, regulation, order, judgment or decree
applicable to Parent or by which it or any of its properties or assets is bound
or affected or (3) result in any breach of or constitute a default (or an event
which with notice or lapse of time or both would become a default) under, or
give rise to any rights of termination, amendment, acceleration or cancellation
of, or result in the creation of a lien or other encumbrance on any of the
property or assets of Parent pursuant to, any note, bond, mortgage, indenture,
contract, agreement, lease, license, or other instrument or obligation to which
Parent is a party or by which Parent or any of its properties or assets is bound
or affected (except, in the case of clauses (2) and (3) above, for violations,
breaches, or defaults which would not, individually or in the aggregate, have a
Material Adverse Effect on Parent); (e) the execution and delivery of this
Agreement by Parent does not, and the performance of this Agreement by Parent
will not, require any consent, approval, authorization or permit of, or filing
with or notification to, any governmental or regulatory authority, except for
pre-merger notification requirements of the HSR Act; (f) any shares of the
Company Common Stock acquired upon exercise of the Stock Option will be, and the
Stock Option is being, acquired by Parent for its own account and not with a
view to the public distribution or resale thereof in any manner which would be
in violation of applicable United States securities laws; and (g) prior to any
delivery of shares of Parent Common Stock in consideration of the purchase of
shares of the Company Common Stock pursuant hereto, Parent will have taken all
necessary corporate action to authorize for issuance and to permit it to issue
such shares of Parent Common Stock, all of which, upon their issuance and
delivery in accordance with the terms of this Agreement, will be validly issued,
fully paid and nonassessable.
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<PAGE>
7. CERTAIN REPURCHASES. (a) PARENT PUT. At the request of Parent at any
time during which the Stock Option is exercisable pursuant to Section 2 (the
"Repurchase Period"), the Company (or any successor entity thereof) shall
repurchase from Parent the Stock Option, or any portion thereof, for a price
equal to the amount by which the "Market/Tender Offer Price" for shares of the
Company Common Stock as of the date Parent gives notice of its intent to
exercise its rights under this Section 7 (defined as the higher of (A) the
highest price per share of the Company Common Stock paid as of such date
pursuant to any tender or exchange offer or other Acquisition Proposal and
(B) the average of the closing sale prices of shares of the Company Common Stock
on the Nasdaq National Market for the five trading days immediately preceding
such date) exceeds the Exercise Price, multiplied by the number of shares of the
Company Common Stock purchasable pursuant to the Stock Option (or portion
thereof with respect to which Parent is exercising its rights under this Section
7)).
(b) PAYMENT AND REDELIVERY OF STOCK OPTION OR SHARES. In the event Parent
exercises its rights under this Section 7, the Company shall, within 10 business
days thereafter, pay the required amount to Parent in immediately available
funds and Parent shall surrender to the Company the Stock Option, and Parent
shall warrant that it owns the Stock Option free and clear of all liens or other
encumbrances of any kind or nature whatsoever.
8. REGISTRATION RIGHTS. In the event that Parent shall desire to sell any
of the shares of Company Common Stock purchased pursuant to the Stock Option
within three years after such purchase, and such sale requires, in the opinion
of counsel to Parent, which opinion shall be reasonable satisfactory to the
Company and its counsel, registration of such shares under the Securities Act,
Parent may, by written notice (the "Registration Notice") to the Company or any
successor entity of the Company (the "Registrant"), request the Registrant to
register under the Securities Act all or any part of the shares purchased
pursuant to the Stock Option ("Restricted Shares") beneficially owned by Parent
(the "Registrable Securities") pursuant to a BONA FIDE firm commitment
underwritten public offering in which the Parent and the underwriters shall
effect as wide a distribution of such Registrable Securities as is reasonably
practicable and shall use their best efforts to prevent any person (including
any Group) and its affiliates from purchasing through such offering Restricted
Shares representing more than 5% of the outstanding shares of common stock of
the Registrant on a fully diluted basis (a "Permitted Offering"). The
Registration Notice shall include a certificate executed by the Parent and its
proposed managing underwriter, which underwriter shall be an investment banking
firm of nationally recognized standing reasonably acceptable to the Registrant
(the "Manager"), stating that (i) they have a good faith intention to commence
promptly a Permitted Offering and (ii) the Manager in good faith believes that,
based on the then prevailing market conditions, it will be able to sell the
Registrable Securities at a per share price to be specified in such Registration
Notice (the "Fair Market Value"). The Registrant (and/or any person designated
by the Registrant) shall thereupon have the option exercisable by written notice
delivered to Parent within 10 business days after the receipt of the
Registration Notice, irrevocably to agree to purchase all or any part of the
Registrable Securities for cash at a price (the "Option Price") equal to the
product of (i) the number of Registrable Securities and (ii) the Fair Market
Value of such Registrable Securities. Any such purchase of Registrable
Securities by the Registrant hereunder shall take place at a closing to be held
at the principal executive offices of the Registrant or its counsel at any
reasonable date and time designated by the Registrant and its designee in such
notice within 20 business days after delivery of such notice. Any payment for
the shares to be purchased shall be made by delivery at the time of such closing
of the Option Price in immediately available funds.
If the Registrant does not elect to exercise its option pursuant to this
Section 8 with respect to all Registrable Securities designated in the
Registration Notice, it shall use its reasonable best efforts to effect, as
promptly as practicable, the registration under the Securities Act of the
unpurchased Registrable Securities; PROVIDED, HOWEVER,that (i) Parent shall not
be entitled to more than an aggregate of three effective registration statements
hereunder and (ii) the Registrant will not be required to file
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<PAGE>
any such registration statement during any period of time (not to exceed 90 days
after such request in the case of clause (B) below or 120 days in the case of
clause (A) and [150 days] in the case of clause (C) below) when (A) the
Registrant is in possession of material non-public information which it
reasonably believes would be detrimental to be disclosed at such time and, in
the judgment of the board of directors of the Registrant, such information would
have to be disclosed if a registration statement were filed at that time;
(B) the Registrant is required under the Securities Act to include audited
financial statements for any period in such registration statement and such
financial statements are not yet available for inclusion in such registration
statement; or (C) the Registrant determines, in its reasonable judgment, that
such registration would interfere with any financing, acquisition or other
material transaction involving the Registrant or any of its affiliates. If
consummation of the sale of any Registrable Securities pursuant to a
registration hereunder does not occur within 120 days after the filing with the
SEC of the initial registration statement with respect thereto, the provisions
of this Section 8 shall again be applicable to any proposed registration;
PROVIDED, HOWEVER,that Parent shall not be entitled to request more than two
registrations pursuant to this Section 8 in any 18 month period. The Registrant
shall use its reasonable best efforts to cause all Registrable Securities
registered pursuant to this Section 8 to be qualified for sale under the
securities or blue-sky laws of such jurisdictions as Parent may reasonably
request and shall continue such registration or qualification in effect in such
jurisdiction; PROVIDED, HOWEVER, that the Registrant shall not be required to
qualify to do business, subject itself to general taxation or consent to general
service of process in, any jurisdiction by reason of this provision.
The registration rights set forth in this Section 8 are subject to the
condition that Parent shall provide the Registrant with such information with
respect to Parent's Registrable Securities, the plans for the distribution
thereof, and such other information with respect to Parent as, in the reasonable
judgment of counsel for the Registrant, is necessary to enable the Registrant to
include in such registration statement all material facts required by applicable
law to be disclosed with respect to a registration thereunder.
A registration effected under this Section 8 shall be effected at the
Registrant's expense, except for underwriting discounts and commissions and the
fees and the expenses of counsel to Parent, and the Registrant shall provide to
the underwriters such documentation (including certificates, opinions of counsel
and accountants' "comfort" letters from auditors) as are customary in connection
with underwritten public offerings as such underwriters may reasonably require.
In connection with any such registration, the parties agree (i) to indemnify
each other and the underwriters in the customary manner and (ii) to enter into
an underwriting agreement in form and substance customary to transactions of
this type with the Manager and the other underwriters participating in such
offering.
The registration rights set forth in this Section 8 terminate upon the
registration of Registrable Securities becoming saleable pursuant to Rule 144 of
the Securities Act of 1933, as amended.
9. PROFIT LIMITATION. Notwithstanding any other provision of this
Agreement, in no event shall Parent's Total Profit (as hereinafter defined)
exceed $11 million and, if it otherwise would exceed such amount Parent, at its
sole election, shall either (a) deliver to the Company for cancellation shares
of Company Common Stock previously purchased by Parent, (b) pay cash or other
consideration to the Company or (c) undertake any combination thereof, so that
Parent's Total Profit shall not exceed $11 million after taking into account the
foregoing actions. As used herein, the term "Total Profit" shall mean the
aggregate amount (before taxes) of the following: (i) the amount received by
Parent pursuant to the Company's repurchase of the Stock Option pursuant to
Section 7 hereof, (ii)(A) the net cash amounts received by Parent pursuant to
the sale of Restricted Shares (or any other securities into which such shares
are converted or exchanged) to any unaffiliated party, less (B) Parent's
purchase price for such shares, and (iii) the aggregate amount received by
Parent from the Company pursuant to Sections 8.5(b) of the Merger Agreement.
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10. ADJUSTMENT UPON CHANGES IN CAPITALIZATION. In the event of any change
in Company Common Stock by reason of stock dividends, stock splits, mergers
(other than the Merger), recapitalizations, combinations, exchange of shares or
the like, the type and number of shares or securities subject to the Stock
Option, and the Exercise Price per share, shall be adjusted appropriately.
11. RESTRICTIVE LEGENDS. Each certificate representing shares of Company
Common Stock issued to Parent hereunder (and any shares of Parent Common Stock
delivered to the Company at a Closing) shall initially be endorsed with a legend
in substantially the following form:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY BE REOFFERED OR SOLD
ONLY IF SO REGISTERED OR IF AN EXEMPTION FROM SUCH REGISTRATION AND
APPLICABLE STATE SECURITIES LAWS IS AVAILABLE. SUCH SECURITIES ARE ALSO
SUBJECT TO ADDITIONAL RESTRICTIONS ON TRANSFER AS SET FORTH IN THE STOCK
OPTION AGREEMENT, DATED MARCH 5, 2000, A COPY OF WHICH MAY BE OBTAINED FROM
THE ISSUER HEREOF.
Certificates representing shares sold in a registered public offering
pursuant to Section 8 shall not be required to bear such legend.
12. BINDING EFFECT; NO ASSIGNMENT. This Agreement shall be binding upon and
inure to the benefit of the parties hereto and their respective successors, and
permitted assigns. Except as expressly provided in this Agreement, neither this
Agreement nor the rights or the obligations of either party hereto are
assignable, except by operation of law, or with the written consent of the other
party, except that Parent may assign its rights hereunder to any wholly-owned
subsidiary of Parent. Nothing contained in this Agreement, express or implied,
is intended to confer upon any person other than the parties hereto and their
respective permitted assigns any rights or remedies of any nature whatsoever by
reason of this Agreement. Any Restricted Shares sold by a party in compliance
with the provisions of Section 8 shall, upon consummation of such sale, be free
of the restrictions imposed with respect to such shares by this Agreement,
unless and until such party shall repurchase or otherwise become the beneficial
owner of such shares, and any transferee of such shares shall not be entitled to
the rights of such party. Certificates representing shares sold in a registered
public offering pursuant to Section 8 shall not be required to bear the legend
set forth in Section 11.
13. SPECIFIC PERFORMANCE. The parties recognize and agree that if for any
reason any of the provisions of this Agreement are not performed in accordance
with their specific terms or are otherwise breached, immediate and irreparable
harm or injury would be caused for which money damages would not be an adequate
remedy. Accordingly, each party agrees that, in addition to other remedies, the
other party shall be entitled to an injunction restraining any violation or
threatened violation of the provisions of this Agreement. In the event that any
action should be brought in equity to enforce the provisions of the Agreement,
neither party will allege, and each party hereby waives the defense, that there
is an adequate remedy at law.
14. ENTIRE AGREEMENT. This Agreement and the Merger Agreement (together
with the other documents and instruments referred to in the Merger Agreement,
and the exhibits and disclosure schedules thereto) constitute the entire
agreement among the parties with respect to the subject matter hereof and
supersede all other prior agreements and understandings, both written and oral,
among the parties or any of them with respect to the subject matter hereof.
15. FURTHER ASSURANCES. Each party will execute and deliver all such
further documents and instruments and take all such further action as may be
necessary in order to consummate the transactions contemplated hereby.
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16. NO REMEDY IN CERTAIN CIRCUMSTANCES. Each party agrees that, should any
court or other competent authority hold any provision of this Agreement or part
hereof to be null, void or unenforceable, or order any party to take any action
inconsistent herewith or not to take an action consistent herewith or required
hereby, the validity, legality and enforceability of the remaining provisions
and obligations contained or set forth herein shall not in any way be affected
or impaired thereby, unless the foregoing inconsistent action or the failure to
take an action constitutes a material breach of this Agreement or makes the
Agreement impossible to perform in which case this Agreement shall terminate.
Except as otherwise contemplated by this Agreement, to the extent that a party
hereto took an action inconsistent herewith or failed to take action consistent
herewith or required hereby pursuant to an order or judgment of a court or other
competent authority, such party shall incur no liability or obligation unless
such party did not in good faith seek to resist or object to the imposition or
entering of such order or judgment.
17. NOTICES. Any notice or communication required or permitted hereunder
shall be in writing and either delivered personally, telegraphed or telecopied
or sent by certified or registered mail, postage prepaid, and shall be deemed to
be given, dated and received when so delivered personally, telegraphed or
telecopied (answerback received) or, if mailed, five business days after the
date of mailing, to the following address or telecopy number, or to such other
address or addresses as such person may subsequently designate by notice given
hereunder:
(a) if to Parent, to:
Comverse Technology, Inc.
170 Crossways Park Drive
Woodbury, New York 11797
Attn: Chief Financial Officer
Telecopy: (516) 677-7323
Telephone: (516) 677-7200
with copies (which shall not constitute notice) to:
Weil, Gotshal & Manges LLP
767 Fifth Avenue
New York, New York 10153
Attn: Stephen M. Besen, Esq.
Telecopy: (212) 310-8007
Telephone: (212) 310-8000
(b) if to the Company, to:
Loronix Information Systems, Inc.
820 Airport Road
Durango, Colorado 81301
Attn: Chief Financial Officer
Telecopy: (970) 328-3383
Telephone: (970) 259-6161
with a copy (which shall not constitute notice) to:
Wilson, Sonsini, Goodrich & Rosati Professional
Corporation 650 Page Mill Road
Palo Alto, California 94304
Attn: Henry P. Massey, Jr., Esq.
Telecopy: (650) 493-6811
Telephone: (650) 493-9300
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<PAGE>
18. GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the State of Nevada applicable to agreements made
and to be performed entirely within such state.
19. DESCRIPTIVE HEADINGS. The descriptive headings herein are inserted for
convenience of reference only and are not intended to be part of or to affect
the meaning or interpretation of this Agreement.
20. COUNTERPARTS. This Agreement may be executed in multiple counterparts,
each of which shall be deemed to be an original, but all of which, taken
together, shall constitute one and the same instrument.
21. EXPENSES. Except as otherwise expressly provided herein or in the
Merger Agreement, all costs and expenses incurred in connection with the
transactions contemplated by this Agreement shall be paid by the party incurring
such expenses.
22. AMENDMENTS; WAIVER. This Agreement may be amended by the parties hereto
and the terms and conditions hereof may be waived only by an instrument in
writing signed on behalf of each of the parties hereto, or, in the case of a
waiver, by an instrument signed on behalf of the party waiving compliance.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their respective duly authorized officers as of the date first above
written.
<TABLE>
<S> <C> <C>
LORONIX INFORMATION SYSTEMS, INC.
By: /s/ DAVID LEDWELL
-----------------------------------------
Name: David Ledwell
Title: President and Chief Executive
Officer
COMVERSE TECHNOLOGY, INC.
By: /s/ KOBI ALEXANDER
-----------------------------------------
Name: Kobi Alexander
Title: President and Chief Executive
Officer
</TABLE>
B-8
<PAGE>
ANNEX C
FORM OF VOTING AGREEMENT
<PAGE>
VOTING AGREEMENT
VOTING AGREEMENT, dated as of March 5, 2000 (this "AGREEMENT"), by and among
Comverse Technology, Inc., a New York corporation ("PARENT") and
(the "STOCKHOLDER").
W I T N E S S E T H:
WHEREAS, concurrently herewith, Parent, Comverse Acquisition Corp., a Nevada
corporation and wholly-owned subsidiary of Parent ("MERGER SUB") and Loronix
Information Systems, Inc., a Nevada corporation (the "COMPANY"), are entering
into an Agreement and Plan of Merger (as such agreement may hereafter be amended
from time to time, the "MERGER AGREEMENT"; capitalized terms used and not
defined herein have the respective meanings ascribed to them in the Merger
Agreement) pursuant to which Merger Sub will be merged with and into the
Company, with the Company as the Surviving Corporation (the "MERGER");
WHEREAS, the Stockholder beneficially owns shares (the "SHARES") of
Common Stock of the Company; and
WHEREAS, as an inducement and a condition to entering into the Merger
Agreement, Parent and Merger Sub have required that the Stockholder agree, and
the Stockholder has agreed, to enter into this Agreement; and further the
Stockholder has agreed to enter into this Agreement strictly in his capacity as
a beneficial owner of the Shares and not in his capacity as a director or
officer of the Company.
NOW, THEREFORE, in consideration of the foregoing and the mutual premises,
representations, warranties, covenants and agreements contained herein, and
intending to be legally bound hereby, the parties hereto hereby agree as
follows:
1. Provisions Concerning the Shares. (a) The Stockholder hereby agrees that
during the period commencing on the date hereof and continuing until this
provision terminates pursuant to Section 5 hereof, at any meeting of the holders
of shares of Common Stock of the Company, however called, or in connection with
any written consent of the holders of shares of Common Stock of the Company, the
Stockholder shall vote, (or cause to be voted) any shares of Common Stock of the
Company held of record or Beneficially Owned (as defined below) by the
Stockholder, including the Shares, whether heretofore owned or hereafter
acquired, in favor of the Merger and the adoption of the Merger Agreement and
any actions required in furtherance thereof and hereof.
(b) The Stockholder shall not enter into any agreement or understanding with
any Person (as defined below) the effect of which would be inconsistent or
violative of the provisions of this Agreement.
(c) For purposes of this Agreement:
"BENEFICIALLY OWN" or "BENEFICIAL OWNERSHIP" with respect to any securities
shall mean having "beneficial ownership" of such securities (as determined
pursuant to Rule 13d-3 under the Securities Exchange Act of 1934, as amended
(the "EXCHANGE ACT")), including pursuant to any agreement, arrangement or
understanding, whether or not in writing; without duplicative counting of the
same securities by the same holder, securities Beneficially Owned by a Person
shall include securities Beneficially Owned by all other Persons with whom such
Person would constitute a "group" within the meaning of Section 13(d)(3) of the
Exchange Act; and
"PERSON" shall mean an individual, corporation, partnership, limited
liability company, joint venture, association, trust, unincorporated
organization or other entity.
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(d) In the event of a stock dividend or distribution, or any change in the
Common Stock of the Company by reason of any stock dividend, stock split,
recapitalization, reclassification, combination, exchange of shares, merger or
the like, the term "SHARES" as used in this Agreement shall be deemed to refer
to and include the Shares as well as all such stock dividends and distributions
and any shares or other securities into which or for which any or all of the
Shares may be converted, changed or exchanged.
2. Representations and Warranties. As of the date hereof, the
Stockholder hereby represents and warrants to Merger Sub as follows:
(a) Ownership of Shares. The Stockholder is the Beneficial Owner of all of
the Shares. On the date hereof, the Shares constitute all of the shares of
Common Stock of the Company owned of record or Beneficially Owned by the
Stockholder. The Stockholder has sole voting power and sole power to issue
instructions with respect to the matters set forth in Section 1 hereof, sole
power of disposition and sole power to agree to all of the matters set forth in
this Agreement, in each case with respect to all of the Shares, with no
limitations, qualifications or restrictions on such rights (subject to
applicable securities laws).
(b) Power; Binding Agreement. The Stockholder has the legal capacity, power
and authority to enter into and perform all of its obligations under this
Agreement. This Agreement has been duly and validly authorized, executed and
delivered by the Stockholder and constitutes a valid and binding agreement of
the Stockholder, enforceable against the Stockholder in accordance with its
terms, subject to applicable bankruptcy, insolvency, fraudulent conveyance,
reorganization, moratorium and similar laws affecting creditors' rights and
remedies generally, and subject, as to enforceability, to general principles of
equity, including principles of commercial reasonableness, good faith and fair
dealing (regardless of whether enforcement is sought in a proceeding at law or
in equity). There is no beneficiary or holder of a voting trust certificate or
other interest of any trust of which the Stockholder is settlor or trustee or
any other person whose consent is required for the execution and delivery of
this Agreement or the consummation by the Stockholder of the transactions
contemplated hereby.
(c) No Conflicts. (i) Except for filings under the HSR Act, if any, and
filings under the Exchange Act, no filing with, and no permit, authorization,
consent or approval of, any state or federal public body or authority is
necessary for the execution of this Agreement by the Stockholder and the
consummation by the Stockholder of the transactions contemplated hereby and (ii)
none of the execution and delivery of this Agreement by the Stockholder, the
consummation by the Stockholder of the transactions contemplated hereby or
compliance by the Stockholder with any of the provisions hereof will (A) result
in a violation or breach of, or constitute (with or without notice or lapse of
time or both) a default (or give rise to any third party right of termination,
cancellation, material modification or acceleration) under any of the terms,
conditions or provisions of any declaration of trust, note, bond, mortgage,
indenture, security or pledge agreement, voting agreement, stockholders'
agreement or voting trust, license, contract, commitment, arrangement,
understanding, agreement or other instrument or obligation of any kind to which
the Stockholder is a party or by which the Stockholder or any of the
Stockholder's properties or assets may be bound, or (B) violate any order, writ,
injunction, decree, judgment, order, statute, rule or regulation applicable to
the Stockholder or any of the Stockholder's properties or assets.
(d) Reliance by Parent. The Stockholder understands and acknowledges that
Parent and Merger Sub are entering into the Merger Agreement in reliance upon
execution and delivery of this Agreement by the Stockholder.
(e) Sophistication. The Stockholder acknowledges being an informed and
sophisticated investor and, together with the Stockholder's advisors, has
undertaken such investigation as they have deemed necessary, including the
review of the Merger Agreement and this Agreement, to enable the
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<PAGE>
Stockholder to make an informed and intelligent decision with respect to the
Merger Agreement and this Agreement and the transactions contemplated thereby
and hereby.
(f) No Broker. No broker, investment banker, financial adviser or other
Person is entitled to any commission, broker's fee, finder's fee, adviser's fee
or similar fee in connection with the transactions contemplated by this
Agreement based upon arrangements made by or on behalf of the Stockholder.
3. No Solicitation. (a) From and after the date hereof and continuing until
this provision terminates pursuant to Section 5 hereof, the Stockholder shall
not directly or indirectly, initiate, solicit or encourage (including by way of
furnishing non-public information or assistance), or take any other action to
facilitate, any inquiries or the making of any proposal that constitutes, or may
reasonably be expected to lead to, any Acquisition Proposal with respect to the
Company or enter into or maintain or continue discussions or negotiate with any
Person in furtherance of such inquiries or to obtain such a Acquisition Proposal
or agree to or endorse any such Acquisition Proposal, and the Stockholder shall
promptly notify Parent or Merger Sub orally (in all events within 24 hours) and
in writing (as promptly thereafter as practicable) of the material terms and
status of all inquiries and proposals which the Stockholder or any agent of the
Stockholder may receive after the date hereof relating to any of such matters
and, if such inquiry or proposal is in writing, the Stockholder shall deliver to
Parent or Merger Sub a copy of such inquiry or proposal promptly; provided,
however, that, notwithstanding any other provision of this Agreement, the
Stockholder may take any action in his capacity as a director or officer of the
Company as the board of directors of the Company directs him to take in
compliance with Section 6.4 of the Merger Agreement or in order to permit the
Board to comply with its fiduciary duties under applicable law as advised by
counsel. The Stockholder will immediately cease and cause to be terminated any
existing activities, discussions or negotiations, with any parties conducted
heretofore with respect to any of the foregoing.
(b) Parent acknowledges that this Agreement is entered into by the
Stockholder in such Stockholder's capacity as a beneficial owner of the Shares,
and that nothing in this Agreement shall in any way restrict or limit the
Stockholder from taking any action in his capacity as a director or officer of
the Company or otherwise fulfilling his fiduciary obligations as a director or
officer of the Company, notwithstanding that any such action would be
inconsistent with or violative of the Stockholder's obligations under this
Agreement if taken in his capacity as a beneficial owner of the Shares.
4. Restriction on Transfer; Proxies; Non-Interference; Stop Transfers; etc.
(a) The Stockholder shall not, directly or indirectly, during the period
commencing on the date hereof and continuing until this provision terminates
pursuant to Section 5 hereof: (i) except as contemplated by the Merger Agreement
offer for sale, sell, transfer, tender, pledge, encumber, assign or otherwise
dispose of, or grant or enter into any contract, option or other arrangement or
understanding with respect to or consent to the offer for sale, sale, transfer,
tender, pledge, encumbrance, assignment or other disposition of, any or all of
the Shares or any interest therein; (ii) except as contemplated by this
Agreement, grant any proxies or powers of attorney, deposit any Shares into a
voting trust or enter into a voting agreement with respect to any Shares; or
(iii) take any action that would make any of the Stockholder's representations
or warranties contained herein untrue or incorrect or have the effect of
preventing or disabling the Stockholder from performing his/her respective
obligations under this Agreement; provided that the foregoing shall not prevent
the Stockholder from (x) disposing of not greater than 40,000 Shares or (y)
pledging any of the Shares to a bank or other financial institution or to
prevent such bank or financial institution from selling the Shares on
foreclosure so long as the Stockholder retains the right to vote such Shares if
the pledge has not been foreclosed upon.
(b) Without limiting the generality of Section 4(a) above, the Stockholder
agrees with, and covenants to, Parent that the Stockholder shall not, during the
period set forth in Section 4(a), request
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<PAGE>
that the Company register the transfer (book-entry or otherwise) of any
certificate or uncertificated interest representing the Shares, unless such
transfer is made in compliance with this Agreement.
5. Termination. Except as otherwise provided herein, the covenants and
agreements contained in Sections 1, 3 and 4 hereof shall terminate (i) in the
event the Merger Agreement is terminated in accordance with the terms thereof,
upon such termination, and (ii) in the event the Merger is consummated, upon the
Effective Time. Notwithstanding anything to the contrary herein no termination
of this Agreement shall relieve any party of liability for a breach hereof prior
to termination.
6. Further Assurances. From time to time, at the other party's request and
without further consideration, the Stockholder and Merger Sub shall execute and
deliver such additional documents and take all such further lawful action as may
be necessary or desirable to consummate and make effective, in the most
expeditious manner practicable, the transactions contemplated by this Agreement.
7. Entire Agreement. This Agreement and the Merger Agreement constitute the
entire agreement between the parties with respect to the subject matter hereof
and supersede all other prior agreements and understandings, both written and
oral, between the parties with respect to the subject matter hereof.
8. Certain Events. The Stockholder agrees that this Agreement and the
obligations hereunder shall attach to the Shares and shall be binding upon any
Person or entity to which legal or beneficial ownership of such Shares shall
pass, whether by operation of law or otherwise, including, without limitation,
the Stockholder's heirs, executors, guardians, administrators, trustees or
successors. Notwithstanding any transfer of Shares, the transferor shall remain
liable for the performance of all obligations of the transferor under this
Agreement.
9. Assignment. This Agreement shall not be assigned by any party hereto, by
operation of law or otherwise, without the prior written consent of the other
party, and any purported assignment without such consent shall be null and void;
provided, however, that Parent may assign, in its sole discretion, its rights
and obligations hereunder to Merger Sub or any direct or indirect wholly owned
subsidiary of Parent without the consent of the Stockholder. All covenants and
agreements contained in this Agreement by or on behalf of the parties hereto
shall be binding on and inure to the benefit of the respective successors, heirs
and permitted assigns of the parties hereto.
10. Amendments, Waivers, Etc. This Agreement may not be amended, changed,
supplemented, waived or otherwise modified or terminated except upon the
execution and delivery of a written agreement executed by each of the parties
hereto.
11. Notices. All notices, requests, claims, demands and other communications
hereunder shall be in writing and shall be given (and shall be deemed to have
been duly received if so given) by hand delivery, telegram, telex or telecopy,
or by mail (registered or certified mail, postage prepaid, return receipt
requested) or by any courier service, such as Federal Express, providing proof
of delivery. All communications hereunder shall be delivered to the respective
parties at the following addresses: (i) if to Parent, to its address set forth
in the Merger Agreement; and (ii) if to the Stockholder, to the address set
forth under the Stockholder's signature on the signature page hereto; or, in
each case, to such other address as the Person to whom notice is given may have
previously furnished to the others in writing in the manner set forth above.
12. Severability. If any term or other provision of this Agreement is
invalid, illegal or incapable of being enforced by any rule of law or public
policy, all other conditions and provisions of this Agreement shall nevertheless
remain in full force and effect so long as the economic or legal substance of
the transactions contemplated hereby is not affected in any manner materially
adverse to any party. Upon such determination that any term or other provision
is invalid, illegal or incapable of being enforced, the parties hereto shall
negotiate in good faith to modify this Agreement so as to effect the
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<PAGE>
original intent of the parties as closely as possible to the fullest extent
permitted by applicable law in an acceptable manner to the end that the
transactions contemplated hereby are fulfilled to the extent possible.
13. Specific Performance. The Stockholder recognizes and acknowledges that a
breach by it of any covenants or agreements contained in this Agreement will
cause Parent to sustain damages for which it would not have an adequate remedy
at law for money damages, and therefore the Stockholder agrees that in the event
of any such breach Parent party shall be entitled to the remedy of specific
performance of such covenants and agreements and injunctive and other equitable
relief in addition to any other remedy to which Parent may be entitled, at law
or in equity.
14. Remedies Cumulative. All rights, powers and remedies provided under this
Agreement or otherwise available in respect hereof at law or in equity shall be
cumulative and not alternative, and the exercise of any thereof by any party
shall not preclude the simultaneous or later exercise of any other such right,
power or remedy by such party.
15. No Waiver. The failure of any party hereto to exercise any right, power
or remedy provided under this Agreement or otherwise available in respect hereof
at law or in equity, or to insist upon compliance by any other party hereto with
its obligations hereunder, and any custom or practice of the parties at variance
with the terms hereof, shall not constitute a waiver by such party of its right
to exercise any such or other right, power or remedy or to demand such
compliance.
16. No Third Party Beneficiaries. This Agreement is not intended to be for
the benefit of, and shall not be enforceable by, any Person who or which is not
a party hereto
17. Governing Law. This Agreement shall be governed and construed in
accordance with the laws of the State of Nevada, without giving effect to the
principles of conflicts of law thereof.
18. Waiver of Jury Trial. The parties hereto waive all right to trial by
jury in any action or proceeding to enforce or defend any rights under this
Agreement and any document executed in connection herewith.
19. Descriptive Headings. The descriptive headings used herein are inserted
for convenience of reference only and are not intended to be part of or to
affect the meaning or interpretation of this Agreement.
20. Counterparts. This Agreement may be executed in counterparts, each of
which shall be deemed to be an original, but all of which, taken together, shall
constitute one and the same Agreement.
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<PAGE>
IN WITNESS WHEREOF, Parent and the Stockholder have executed and delivered
this Agreement as of the day and year first above written.
<TABLE>
<S> <C> <C>
COMVERSE TECHNOLOGY, INC.
By:
-----------------------------------------
Name:
Title:
STOCKHOLDER
By:
-----------------------------------------
Name:
Title:
</TABLE>
C-6
<PAGE>
ANNEX D
COPY OF OPINION OF BROADVIEW INTERNATIONAL LLC
<PAGE>
March 5, 2000
CONFIDENTIAL
Board of Directors
Loronix Information Systems, Inc.
820 Airport Road
Durango, CO 81301-6790
Dear Members of the Board:
We understand that Loronix Information Systems, Inc. ("Loronix" or
"Company"), Comverse Technology, Inc.. ("Comverse" or "Parent") and Comverse
Acquisition Corp., a wholly-owned subsidiary of Parent ("Merger Sub"), propose
to enter into an Agreement and Plan of Merger and Reorganization (the
"Agreement") pursuant to which, Merger Sub will be merged with and into the
Company (the "Merger"). Pursuant to the Merger each share of Loronix common
stock ("Company Common Stock") will be converted into the right to receive (the
"Exchange Ratio") 0.1925 shares of Comverse Common Stock, provided however that
Loronix may terminate the Agreement if (i) the Average Parent Stock Price, as
defined in the Agreement, multiplied by the Exchange Ratio is less than $36.00
and (ii) Comverse does not exercise its option, in accordance with the
Agreement, to increase the Exchange Ratio to an amount equal to $36.00 divided
by the Average Parent Stock Price. The Merger is intended to qualify as a
reorganization within the meaning of Section 368(a) of the United States
Internal Revenue Code of 1986, as amended and to be accounted for as a "pooling
of interests" for accounting and financial reporting purposes. The terms and
conditions of the above described Merger are more fully detailed in the
Agreement.
You have requested our opinion as to whether the Exchange Ratio is fair,
from a financial point of view, to Loronix stockholders.
Broadview International LLC ("Broadview") focuses on providing merger and
acquisition advisory services to information technology ("IT"), communications
and media companies. In this capacity, we are continually engaged in valuing
such businesses, and we maintain an extensive database of IT, communications and
media mergers and acquisitions for comparative purposes. We are currently acting
as financial advisor to Loronix's Board of Directors and will receive a fee from
Loronix upon the successful conclusion of the Merger.
In rendering our opinion, we have, among other things:
1.) reviewed the terms of a draft of the Agreement dated March 5, 2000
furnished to us by the Company on March 5, 2000 (which, for the purposes of this
opinion, we have assumed, with your permission, to be identical in all material
respects to the Agreement to be executed);
2.) reviewed Loronix's annual report on Form 10-KSB40 for the fiscal year
ended December 31, 1998, including the audited financial statements included
therein, Loronix's quarterly report on Form 10-QSB for the period ended
September 30, 1999, including the unaudited financial statements included
therein and the press release issued by Loronix dated February 8, 1999 with
respect to Loronix's financial performance for the fiscal year ended
December 31, 1999;
3.) reviewed certain internal financial and operating information concerning
Loronix, including quarterly projections through December 31 2000, prepared and
furnished to us by Loronix management;
4.) participated in discussions with Loronix management concerning the
operations, business strategy, current financial performance and prospects for
Loronix;
5.) discussed with Loronix management its view of the strategic rationale
for the Merger;
D-1
<PAGE>
6.) reviewed the recent reported closing prices and trading activity for
Company Common Stock;
7.) compared certain aspects of the financial performance of Loronix with
public companies we deemed comparable;
8.) analyzed available information, both public and private, concerning
other mergers and acquisitions we believe to be comparable in whole or in part
to the Merger;
9.) reviewed recent equity research analyst reports covering Loronix;
10.) reviewed Comverse's annual report on Form 10-K405 for the fiscal year
ended January 31, 1999, including the audited financial statements included
therein, and Comverse's quarterly report on Form 10-Q for the period ended
October 31, 1999, including the unaudited financial statements included therein;
11.) participated in discussions with Comverse management concerning the
operations, business strategy, financial performance and prospects for Comverse;
12.) reviewed the recent reported closing prices and trading activity for
Comverse Common Stock;
13.) discussed with Comverse management its view of the strategic rationale
for the Merger;
14.) compared certain aspects of the financial performance of Comverse with
public companies we deemed comparable;
15.) reviewed recent equity analyst reports covering Comverse;
16.) analyzed the anticipated effect of the Merger on the future financial
performance of the combined entity;
17.) participated in discussions related to the Merger with Loronix,
Comverse and their respective advisors; and
18.) conducted other financial studies, analyses and investigations as we
deemed appropriate for purposes of this opinion.
In rendering our opinion, we have relied, without independent verification,
on the accuracy and completeness of all the financial and other information
(including without limitation the representations and warranties contained in
the Agreement) that was publicly available or furnished to us by Loronix or
Comverse. With respect to the financial projections examined by us, we have
assumed that they were reasonably prepared and reflected the best available
estimates and good faith judgments of the management of Loronix as to the future
performance of Loronix. We have neither made nor obtained an independent
appraisal or valuation of any of Loronix's assets.
Based upon and subject to the foregoing, we are of the opinion that the
Exchange Ratio is fair, from a financial point of view, to Loronix stockholders.
For purposes of this opinion, we have assumed that neither Loronix nor
Comverse is currently involved in any material transaction other than the
Merger, other publicly announced transactions, other preliminary discussions
confidentially disclosed to us, and those activities undertaken in the ordinary
course of conducting their respective businesses. Our opinion is necessarily
based upon market, economic, financial and other conditions as they exist and
can be evaluated as of the date of this opinion, and any change in such
conditions would require a reevaluation of this opinion. We express no opinion
as to the price at which Comverse Common Stock will trade at any time in the
future.
This opinion speaks only as of the date hereof. It is understood that this
opinion is for the information of the Board of Directors of Loronix in
connection with its consideration of the Merger and does not constitute a
recommendation to any Loronix stockholder as to how such stockholder
D-2
<PAGE>
should vote on the Merger. This opinion may not be published or referred to, in
whole or part, without our prior written permission, which shall not be
unreasonably withheld. Broadview hereby consents to references to and the
inclusion of this opinion in its entirety in the Prospectus/Proxy Statement to
be distributed to Loronix stockholders in connection with the Merger.
Sincerely,
/s/ Broadview International LLC
Broadview International LLC
D-3
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Business Corporation Law of the State of New York ("BCL") provides that
if a derivative action is brought against a director or officer, the Registrant
may indemnify him or her against amounts paid in settlement and reasonable
expenses, including attorneys' fees incurred by him or her in connection with
the defense or settlement of such action, if such director or officer acted in
good faith for a purpose which he or she reasonably believed to be in the best
interests of the Registrant, except that no indemnification shall be made
without court approval in respect of a threatened action, or a pending action
settled or otherwise disposed of, or in respect of any matter as to which such
director or officer has been found liable to the Registrant. In a nonderivative
action or threatened action, the BCL provides that the Registrant may indemnify
a director or officer against judgments, fines, amounts paid in settlement and
reasonable expenses, including attorneys' fees incurred by him or her in
defending such action if such director or officer acted in good faith for a
purpose which he or she reasonably believed to be in the best interests of the
Registrant.
Under the BCL, a director or officer who is successful, either in a
derivative or nonderivative action, is entitled to indemnification as outlined
above. Under any other circumstances, such director or officer may be
indemnified only if certain conditions specified in the BCL are met. The
indemnification provisions of the BCL are not exclusive of any other rights to
which a director or officer seeking indemnification may be entitled pursuant to
the provisions of the certificate of incorporation or the by-laws of a
corporation or, when authorized by such certificate of incorporation or by-laws,
pursuant to a shareholders' resolution, a directors' resolution or an agreement
providing for such indemnification.
The above is a general summary of certain indemnity provisions of the BCL
and is subject, in all cases, to the specific and detailed provisions of
Sections 721-725 of the BCL.
The Registrant has included in its Certificate of Incorporation, a provision
that no director of the Registrant shall be personally liable to the Registrant
or its shareholders in damages for any breach of duty as a director, provided
that such provision shall not be construed to eliminate or limit the liability
of any director if a judgment or other final adjudication adverse to him
establishes that his acts or omissions were in bad faith or involved intentional
misconduct or a knowing violation of law, that he personally gained in fact a
financial profit or other advantage to which he was not legally entitled or that
his acts violated Section 719 of the BCL.
The By-Laws of the Registrant further provide that the Registrant shall
indemnify its directors and officers, and shall advance their expenses in the
defense of any action for which indemnification is sought, to the full extent
permitted by the BCL and when authorized by resolution of the shareholders or
directors of the Registrant or any agreement providing for such indemnification
or advancement of expenses, provided that no indemnification may be made to or
on behalf of any director or officer if a judgment or other final adjudication
adverse to him established that his acts were committed in bad faith or were the
result of active and deliberate dishonesty material to the cause of action so
adjudicated, or that he personally gained in fact a financial profit or other
advantage to which he was not legally entitled. The Registrant has entered into
indemnity agreements with each of its directors and officers pursuant to the
foregoing provisions of its By-Laws. The Registrant maintains insurance policies
insuring each of its directors and officers against certain civil liabilities,
including liabilities under the Securities Act.
II-1
<PAGE>
ITEM 21. EXHIBITS AND FINANCIAL SCHEDULES.
<TABLE>
<CAPTION>
EXHIBIT
NO. EXHIBIT DESCRIPTION
--------------------- ------------------------------------------------------------
<C> <S>
2.1 Agreement and Plan of Merger, dated as of March 5, 2000, by
and among Loronix, Comverse and Comverse Acquisition
Corp., (included as Annex A to the Proxy
Statement/Prospectus).
3.1 Certificate of Incorporation (incorporated by reference to
the Registrant's Annual Report on Form 10-K for the fiscal
year ended December 31, 1987).
3.2 Certificate of Amendment of the Certificate of Incorporation
effective February 26, 1993 (incorporated by reference to
the Registrant's Annual Report on Form 10-K for the year
ended December 31, 1992).
3.3 Certificate of Amendment of the Certificate of Incorporation
effective January 12, 1995 (incorporated by reference to
the Registrant's Annual Report on Form 10-K for the year
ended December 31, 1994 ).
3.4 Certificate of Amendment of the Certificate of Incorporation
dated October 8, 1999 (incorporated by reference to the
Registrant's Annual Report of Form 10-K for the year ended
January 31, 2000).
3.5 By-laws, as amended (incorporated by reference to the
Registrant's Annual Report on From 10-K for the year ended
December 31, 1987).
+5.1 Opinion of William Sorin, General Counsel as to the legality
of the shares being registered.
+8.1 Opinion of Weil, Gotshal & Manges LLP, as to certain United
States federal income tax consequences of the merger.
+8.2 Opinion of Wison Sonsini Goodrich & Rosati PC, as to certain
United States federal income tax consequences of the
merger.
21.1 List of Subsidiaries (incorporated by reference to the
Registrant's Annual Report of Form 10-K for the year ended
January 31, 2000).
+23.1 Consent of Deloitte & Touche LLP.
+23.2 Consent of KPMG LLP.
+23.3 Consent of William Sorin (included in Exhibit 5.1 hereto).
+23.4 Consent of Weil, Gotshal & Manges LLP (included in Exhibit
8.1 hereto).
+23.5 Consent of Wison Sonsini Goodrich & Rosati PC (included in
Exhibit 8.2 hereto).
24.1 Power of Attorney (included on page II-4).
99.1 Stock Option Agreement, dated as of March 5, 2000, by and
between Loronix and Comverse (included as Annex B to the
Proxy Statement/Prospectus).
99.2 Form of Voting Agreement, dated as of March 5, 2000, among
Comverse, and the stockholders named therein (included as
Annex C to the Proxy Statement/Prospectus).
+99.3 Form of Proxy Card for Special Meeting of Loronix
Stockholders.
</TABLE>
------------------------
+ Filed herewith.
II-2
<PAGE>
ITEM 22. UNDERTAKINGS.
The undersigned Registrant hereby undertakes:
That for purposes of determining any liability under the Securities Act,
each filing of the registrant's annual report pursuant to Section 13(a) or
Section 15(d) of the Exchange Act (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to Section 15(d) of the Exchange
Act) that is incorporated by reference in this registration statement shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
That prior to any public reoffering of the securities registered hereunder
through use of a prospectus which is a part of this registration statement, by
any person or party who is deemed to be an underwriter within the meaning of
Rule 145(c), the issuer undertakes that such reoffering prospectus will contain
the information called for by the applicable registration form with respect to
reofferings by persons who may be deemed underwriters, in addition to the
information called for by the other items of the applicable form.
That every prospectus: (i) that is filed pursuant to the paragraph
immediately preceding, or (ii) that purports to meet the requirements of Section
10(a)(3) of the Securities Act and is used in connection with an offering of
securities subject to Rule 415, will be filed as part of an amendment to this
registration statement and will not be used until such amendment is effective,
and that, for purposes of determining any liability under the Securities Act,
each such post-effective amendment shall be deemed to be a new registration
statement relating to the securities offered therein, and the offering of such
securities at the time shall be deemed to be the initial BONA FIDE offering
thereof.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Commission such indemnification is
against public policy as expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the registrant of expenses incurred or
paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
To respond to requests for information that is incorporated by reference
into the prospectus pursuant to Items 4, 10(b), 11 or 13 of this form, within
one business day of receipt of such request, and to send the incorporated
documents by first class mail or other equally prompt means. This includes
information contained in documents filed subsequent to the effective date of
this Registration Statement through the date of responding to the request.
To supply by means of a post-effective amendment all information concerning
a transaction, and the company being acquired involved therein, that was not the
subject of and included in this registration statement when it became effective.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City and State of New York, on
this 7th day of June, 2000.
<TABLE>
<S> <C> <C>
COMVERSE TECHNOLOGY, INC.
By: /s/ KOBI ALEXANDER
-----------------------------------------
Kobi Alexander,
Chairman, President and Chief Executive
Officer
</TABLE>
KNOW ALL MEN BY THESE PRESENTS, that each of the undersigned constitutes and
appoints each of KOBI ALEXANDER, WILLIAM F. SORIN and DAVID KREINBERG or any of
them, each acting alone, his true and lawful attorney-in-fact and agent, with
full power of substitution and resubstitution, for such person and in his or her
name, place and stead, in any and all capacities, to sign this Registration
Statement (including all pre-effective and post-effective amendments), and to
file the same, with all exhibits thereto, and other documents in connection
therewith, with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents, each acting alone, full power and authority to do
and perform each and every act and thing requisite and necessary to be done in
and about the premises, as fully to all intents and purposes as he or she might
or could do in person, hereby ratifying and confirming that any such
attorney-in-fact and agent, or his substitute or substitutes, may lawfully do or
cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons on June 7, 2000
in the capacities indicated.
<TABLE>
<CAPTION>
SIGNATURE CAPACITY DATE
--------- -------- ----
<C> <S> <C>
/s/ KOBI ALEXANDER Chairman, President and Chief
------------------------------------------- Executive Officer and Director June 7, 2000
Kobi Alexander (Principal Executive Officer)
/s/ DAVID KREINBERG Chief Financial Officer and
------------------------------------------- Director (Principal Financial June 7, 2000
David Kreinberg and Accounting Officer)
*
------------------------------------------- Director June 7, 2000
Zvi Alexander
*
------------------------------------------- Director June 7, 2000
Itsik Danziger
</TABLE>
II-4
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE CAPACITY DATE
--------- -------- ----
<C> <S> <C>
*
------------------------------------------- Director June 7, 2000
Itsik Danziger
*
------------------------------------------- Director June 7, 2000
Francis E. Girard
*
------------------------------------------- Director June 7, 2000
Sam Oolie
/s/ WILLIAM F. SORIN
------------------------------------------- Secretary and Director June 7, 2000
William F. Sorin
*
------------------------------------------- Director June 7, 2000
Shaula A. Yemini
</TABLE>
<TABLE>
<S> <C> <C> <C>
*By: /s/ DAVID KREINBERG
--------------------------------------
David Kreinberg
(Attorney-in-fact)
</TABLE>
II-5
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NO. EXHIBIT DESCRIPTION
--------------------- ------------------------------------------------------------
<C> <S>
2.1 Agreement and Plan of Merger, dated as of March 5, 2000, by
and among Loronix, Comverse and Comverse Acquisition
Corp., (included as Annex A to the Proxy
Statement/Prospectus).
3.1 Certificate of Incorporation (incorporated by reference to
the Registrant's Annual Report on Form 10-K for the fiscal
year ended December 31, 1987).
3.2 Certificate of Amendment of the Certificate of Incorporation
effective February 26, 1993 (incorporated by reference to
the Registrant's Annual Report on Form 10-K for the year
ended December 31, 1992).
3.3 Certificate of Amendment of the Certificate of Incorporation
effective January 12, 1995 (incorporated by reference to
the Registrant's Annual Report on Form 10-K for the year
ended December 31, 1994).
3.4 Certificate of Amendment of the Certificate of Incorporation
dated October 8, 1999 (incorporated by reference to the
Registrant's Annual Report of Form 10-K for the year ended
January 31, 2000).
3.5 By-laws, as amended (incorporated by reference to the
Registrant's Annual Report on From 10-K for the year ended
December 31, 1987).
+5.1 Opinion of William Sorin as to the legality of the shares
being registered.
+8.1 Opinion of Weil, Gotshal & Manges LLP, as to certain United
States federal income tax consequences of the merger.
+8.2 Opinion of Wison Sonsini Goodrich & Rosati PC, as to certain
United States federal income tax consequences of the
merger.
21.1 List of Subsidiaries (incorporated by reference to the
Registrant's Annual Report of Form 10-K for the year ended
January 31, 2000).
+23.1 Consent of Deloitte & Touche LLP.
+23.2 Consent of KPMG LLP.
+23.3 Consent of William Sorin (included in Exhibit 5.1 hereto).
+23.4 Consent of Weil, Gotshal & Manges LLP (included in Exhibit
8.1 hereto).
+23.5 Consent of Wison Sonsini Goodrich & Rosati PC (included in
Exhibit 8.2 hereto).
24.1 Power of Attorney (included on page II-4).
99.1 Stock Option Agreement, dated as of March 5, 2000, by and
between Loronix and Comverse (included as Annex B to the
Proxy Statement/Prospectus).
99.2 Form of Voting Agreement, dated as of March 5, 2000, among
Comverse, and the stockholders named therein (included as
Annex C to the Proxy Statement/Prospectus).
+99.3 Form of Proxy Card for Special Meeting of Loronix
Stockholders.
</TABLE>
------------------------
+ Filed herewith.
