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As filed with the Securities and Exchange Commission on August 27, 1999.
Registration No. 333-__________
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM S-3
REGISTRATION STATEMENT
under
THE SECURITIES ACT OF 1933
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PEOPLESOFT, INC.
(Exact name of Registrant as specified in its charter)
DELAWARE 68-0137069
(State of Incorporation) (I.R.S. Employee Identification No.)
4460 Hacienda Drive, Pleasanton, CA 94588,
(925)694-3000
(Address and telephone number of registrant's principal executive offices)
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David A. Duffield, Chairman and Chief Executive Officer
PEOPLESOFT, INC.
4460 Hacienda Drive, Pleasanton, CA 94588, (925) 694-3000
(Name, address and telephone number of agent for service)
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Copies to:
Kenneth R. Lamb
Peter T. Heilmann
Gibson, Dunn & Crutcher LLP
One Montgomery Street, 26th Floor
San Francisco, California 94104
Approximate date of commencement of proposed sale to the public: From time to
time after this registration statement becomes effective.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. [ ]
If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. [X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act of 1933, check the following
box and list the Securities Act of 1933 registration statement number of the
earlier effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act of 1933, check the following box and list the
Securities Act of 1933 registration statement number of the earlier effective
registration statement for the same offering. [ ]
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If delivery of the prospectus is expected to be made pursuant to Rule 434,
check the following box. [ ]
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CALCULATION OF REGISTRATION FEE
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PROPOSED PROPOSED
TITLE OF MAXIMUM MAXIMUM MAXIMUM
SECURITIES AMOUNT OFFERING AGGREGATE AMOUNT OF
TO BE TO BE PRICE PER OFFERING REGISTRATION
REGISTERED(1) REGISTERED(2) SHARE(3) PRICE(3) FEE(3)
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<S> <C> <C> <C> <C>
Common Stock, $.01 par value per share..... 821,853 shares $14.22 $11,685,722.34 $3,248.63
==============================================================================================================
</TABLE>
(1) Also includes associated Rights to purchase shares of the Registrant's
common stock, which Rights are not currently separable from the shares of
common stock and not currently exercisable.
(2) The number of shares registered pursuant to this Registration Statement
represents the maximum consideration paid by PeopleSoft in accordance with
that certain Agreement and Plan of Reorganization, dated as of November 19,
1998, by and among PeopleSoft, Certain Principal Shareholders and
Distinction Software, Inc. ("the Merger Agreement").
(3) Estimated solely for the purpose of computing the registration fee required
by Section 6(b) of the Securities Act and computed pursuant to Rule 457(c)
under the Securities Act based upon the average of the high and low prices
of the Common Stock on August 20, 1999 as reported on the Nasdaq National
Market.
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant shall
file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933, as amended, or until the Registration Statement
shall become effective on such date as the Securities and Exchange Commission,
acting pursuant to such Section 8(a), may determine.
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PROSPECTUS August 27, 1999
PEOPLESOFT INC.
821,853 SHARES
COMMON STOCK
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This is an offering of shares of common stock of PeopleSoft, Inc. Only the
selling stockholders identified in this prospectus are offering shares to be
sold in the offering. PeopleSoft is not selling any shares in the offering.
PeopleSoft's common stock is quoted on the Nasdaq National Market under the
symbol "PSFT." On August 26, 1999, the last reported sale price of the common
stock on the Nasdaq National Market was $14.56 per share.
PeopleSoft will not receive any of the proceeds from the sale of the common
stock. The selling stockholders may sell their shares from time to time
throughout the offering through any legally available means, including brokers
in public sales at market prices, directly or through agents in private sales at
negotiated prices. They may also sell shares in open market transactions in
reliance upon Rule 144 under the Securities Act, provided they comply with the
requirements of Rule 144.
PeopleSoft originally issued the common stock offered in connection with its
acquisition of Distinction Software, Inc. Shares of common stock were issued to
former Distinction shareholders under an agreement and plan of reorganization,
in which Distinction was merged into and with PeopleSoft. The common stock
offered under this prospectus is less than 1% of PeopleSoft's outstanding common
stock as of the date of this prospectus.
You may contact PeopleSoft at PeopleSoft's principal executive offices
located at 4460 Hacienda Drive, Pleasanton, CA 94588 or by phone at
(925)694-3000.
Neither the Securities and Exchange Commission nor any other regulatory body
has approved or disapproved of these securities or passed upon the accuracy or
adequacy of this prospectus. Any representation to the contrary is a criminal
offense.
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THIS INVESTMENT INVOLVES CERTAIN HIGH RISKS. SEE "RISK
FACTORS" BEGINNING ON PAGE 4.
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The date of this prospectus is August 27, 1999
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TABLE OF CONTENTS
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PAGE
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INFORMATION ABOUT PEOPLESOFT......................................... 3
RISK FACTORS......................................................... 4
USE OF PROCEEDS...................................................... 16
SELLING STOCKHOLDERS................................................. 16
PLAN OF DISTRIBUTION................................................. 17
LEGAL MATTERS........................................................ 17
EXPERTS.............................................................. 17
WHERE YOU CAN FIND MORE INFORMATION.................................. 17
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INFORMATION ABOUT PEOPLESOFT
PeopleSoft designs, develops, markets and supports a family of business
application software products for use throughout large and medium sized
organizations. These organizations include corporations worldwide, higher
education institutions, and federal, state, provincial and local government
agencies. PeopleSoft products can be used with personal computers connected to a
computer network, as well over the Internet. PeopleSoft believes that its
architecture is among the most flexible available for all aspects of an
organization's business computing needs.
PeopleSoft's strategy is to offer a comprehensive business portal. This
portal may be thought of as a "window" into the business applications a person
may need to access on a daily basis, all from a common Internet site. The portal
will be geared to the person's role as a company employee, business application
user, line manager, company executive, or combination of these roles. This
common access point, tailored to the person using it, will help the person
become more efficient and effective in executing day-to-day business activities
and analyzing the information required to make business decisions.
PeopleSoft's portal consists of a currently available eBusiness Backbone
integrated with upcoming eWorkplace self service communities and eEnterprise
Performance Management Analytical Applications. The eBusiness Backbone consists
of software applications that all companies require to run their businesses,
such as human resource management, financial management, and procurement. This
includes industry specific versions of these base applications, such as
manufacturing, higher education, public sector, financial services, and others.
The eWorkplace communities will consist of Internet self service applications.
These applications will integrate third party content with the eBusiness
Backbone and Analytical Applications, providing users with an easy-to-use
environment that helps them to become more productive. These self service
communities will include procurement, expenses, benefits, travel booking and
processing, recruitment, and others, the first of which PeopleSoft eProcurement,
is available now. Analytical Applications allow users to analyze information
from the eBusiness Backbone applications to support management decision making.
These Analytical Applications include Activity Based Management, Risk Weighted
Capital, and Funds Transfer Pricing which we began shipping in the first quarter
of 1999. Other Analytical Applications are planned for release later in 1999 and
during 2000.
PeopleSoft was incorporated in Delaware in August 1987 and initially shipped
its first software product, a Human Resource Management System, which we also
refer to as HRMS, in December 1988. In 1992, PeopleSoft introduced the first of
a series of Financial Management and Accounting System software products, and in
1994, it introduced the first of a series of Distribution and Materials
Management products. Since that time, PeopleSoft has introduced several
additions to its existing product lines, plus industry specific software
products. These industry solutions include Manufacturing products, Public Sector
Financial Management products, Public Sector HRMS products, Student
Administration products for the higher education market, and HRMS products for
the U.S. Federal Government market. In the first quarter of 1999, PeopleSoft
released its first Analytical Applications products to support management
decision making.
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RISK FACTORS
You should carefully consider the risks described below when evaluating your
ownership of the PeopleSoft common stock. The risks and uncertainties described
below are not the only ones PeopleSoft faces. Additional risks and uncertainties
we are presently not aware of or that we currently consider immaterial may also
impair PeopleSoft's business operations.
If any of the following risks actually occurs, PeopleSoft's business,
financial condition or results of operations could be materially adversely
affected. In such case, the trading price of the PeopleSoft common stock could
decline significantly.
This prospectus also contains forward-looking statements. These statements
include words such as "may", "will", "expect", "believe", "intend",
"anticipate", "estimate", or similar words. These statements are based on
PeopleSoft's current beliefs, expectations and assumptions. PeopleSoft's actual
results could differ materially from those anticipated in these forward-looking
statements due to factors, including the risks described below and elsewhere in
this prospectus. PeopleSoft undertakes no obligation to update or revise any
forward-looking statements, whether as a result of new information, future
events or otherwise.
Future Operating Results are Uncertain and the Business is Seasonal
Segments of the software industry have in the past, and are expected in the
future, to experience significant economic downturns characterized by decreased
product demand, price erosion, technological shifts, work slowdowns and layoffs.
PeopleSoft's operations may, in the future, fluctuate substantially from period
to period because of these industry patterns, general economic conditions
affecting the timing of orders from customers and other factors affecting
capital spending.
PeopleSoft Could Experience Fluctuations in Quarterly Operating Results
PeopleSoft's revenues and results of operations are difficult to predict and
may fluctuate substantially from quarter to quarter. License fee revenues in any
quarter depend substantially upon PeopleSoft's total contracting activity and
its ability to recognize revenue in that quarter in accordance with its revenue
recognition policies. PeopleSoft's contracting activity is difficult to forecast
for a variety of reasons, including the following:
o a significant portion of PeopleSoft's license agreements are completed
within the last few weeks of each quarter;
o PeopleSoft's sales cycle is relatively long and increasingly variable
since PeopleSoft has broadened its marketing emphasis to include
software product solutions for each customer's overall business, thus
increasing the financial value of individual transactions and the
complexity of the customer selection, negotiation and approval process;
o the size of license transactions can vary significantly;
o customers may postpone or cancel system replacement or new system
evaluations due to changes in their strategic priorities, project
objectives, budgetary constraints or company management;
o customer evaluations and purchasing processes vary significantly from
company to company, and a customer's internal approval and expenditure
authorization process can be difficult, even after selection of a
vendor; and
o the number, timing and significance of software product enhancements and
new software product announcements by PeopleSoft and its competitors may
affect purchase decisions.
In addition, each customer's evaluation of its need to achieve Year 2000
compliance may affect their purchase decisions. PeopleSoft believes that many
customers and potential customers are heavily engaged in testing and correcting
system Year 2000 problems, and therefore such customers may choose to defer
system investments during 1999, negatively impacting PeopleSoft's revenues. In
addition, prior year sales may have been increased due to customers' urgent need
to address Year 2000 issues. Such Year 2000 related demand should be eliminated
in 1999 due to the lead time required to implement new systems, negatively
impacting
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PeopleSoft's revenues. In addition, PeopleSoft's sales cycles may lengthen in
1999 and future years due to lessened urgency of customers' system investment
decisions. Because Year 2000 related impacts on customer purchasing decisions
are unprecedented, PeopleSoft has a limited ability to forecast accurately the
impact of the Year 2000 issue on its quarter-to-quarter revenues.
In addition, changes in PeopleSoft's sales incentive plans have had and may
continue to have an unpredictable impact on seasonal business patterns. Finally,
changes in economic, political and market conditions may adversely impact
PeopleSoft's business opportunities at any time.
Several factors may require PeopleSoft to defer recognition of license fee
revenue for a significant period of time after entering into a license
agreement, including:
o whether the license agreement relates entirely to then currently
undeliverable software products;
o whether enterprise transactions include both software products that are
then currently deliverable and software products that are still under
development or other undeliverable elements. If PeopleSoft enters into a
license agreement to provide both software product categories, then, in
order to recognize revenue on currently delivered products under the
license agreement, it must be able to establish separate values for all
elements under the license agreement, and the license agreement and
supporting schedules must contain precise contractual provisions
consistent with generally accepted accounting principles, or GAAP;
o whether the customer demands services that include significant
modifications, customizations or complex interfaces;
o whether the license agreement includes non-standard acceptance criteria
that may preclude revenue recognition prior to customer acceptance or if
there are identified product related issues; and
o whether the license agreement includes fees with extended payment terms
or fees that depend upon acceptance of services or other contingencies.
Because of the factors listed above and other specific requirements under
published GAAP standards for software revenue recognition, PeopleSoft must have
very precise terms in its license agreements in order to recognize revenue when
it initially delivers software. Although PeopleSoft has a standard form of
license agreement that meets the criteria under GAAP for current revenue
recognition on delivered elements, it must often negotiate and revise certain
terms and conditions in large enterprise transactions. Negotiation of mutually
acceptable terms and conditions can extend the sales cycle and, sometimes
PeopleSoft does not obtain terms and conditions that permit revenue recognition
at the time of delivery or even as work on the project is completed. In
addition, PeopleSoft deferred approximately $10 million of license fees in the
second quarter of 1999 due to uncertainty arising from certain product related
issues. There is no assurance that such deferrals will not recur in future
quarters including the third and fourth quarters of 1999, and such deferrals may
have a significant impact on earnings for future quarters and years.
Variances or slowdowns in PeopleSoft's prior quarter contracting activity may
impact its current and future service revenues since service revenues typically
lag license fee revenues. PeopleSoft's ability to maintain or increase service
revenue primarily depends on its ability to increase the number of its licensing
agreements. Service revenue consists of fees derived from consulting, training
and maintenance services. In particular, the significant decrease in license
revenues in 1999 versus the prior year may have a significant impact on service
revenues and earnings in the second half of 1999 and in fiscal 2000.
PeopleSoft Depends on Third Party Technology
PeopleSoft licenses numerous critical third-party software products that it
incorporates into its own software products. The termination of any of
PeopleSoft's licenses to this third-party software could have a material adverse
effect on PeopleSoft's business, financial condition and results of operations.
These adverse effects include, for example, PeopleSoft's products becoming
inoperable or their performance being materially reduced. If any of the
third-party software vendors change their product offerings, PeopleSoft may need
to incur additional development costs to ensure continued performance of its
products. In addition, if the cost of licensing any of these third-party
software products materially increases, PeopleSoft's gross margin levels could
materially decrease.
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PeopleSoft relies on existing partnerships with certain other software
vendors who are also competitors. For example, PeopleSoft partners with Oracle
when PeopleSoft customers select an Oracle database to run in conjunction with
PeopleSoft's financial package. However, Oracle competes with PeopleSoft in the
enterprise software area. If these partners/competitors change their business
practices in the future, PeopleSoft may be compelled to find alternative vendors
of complementary software, which may not be as popular or provide the same
functionality as the software provided by PeopleSoft's existing
partners/competitors.
There are Risks Associated with Creation of Momentum Business Applications
PeopleSoft faces a number of risks as of a result of the creation of Momentum
Business Applications and the distribution of the Momentum Business Applications
Class A Common Stock to PeopleSoft stockholders. These include:
o PeopleSoft has less control over important research and development
projects. PeopleSoft and Momentum must agree on project selection,
budgets, timetables and specifications for each project and Momentum
will be responsible for overseeing the actual product development.
o PeopleSoft contributed a substantial portion of its cash reserves to
Momentum. As a result, PeopleSoft's credit rating may be adversely
affected and its ability to raise additional funds may be impaired. In
addition, PeopleSoft has increased risk of having insufficient cash
resources to address adverse conditions that may impact its business
results.
o PeopleSoft may lose the tax benefits associated with the research and
development expenditures on the projects pursued by Momentum. Though
PeopleSoft may be able to recapture these benefits if it chooses to
acquire Momentum, it will likely face restrictions on the amount and
timing of its utilization of these tax benefits.
o If PeopleSoft chooses to acquire Momentum, it will likely be required to
record significant accounting charges relating to acquisition of
in-process research and development and amortization of goodwill.
Recent Accounting Pronouncements Could Adversely Impact PeopleSoft
The American Institute of Certified Public Accountants issued Statement of
Position, or SOP, 97-2, "Software Revenue Recognition", SOP 98-4, "Deferral of
the Effective Date of a Provision of SOP 97-2, Software Revenue Recognition",
and SOP 98-9, "Modification of SOP 97-2, Software Revenue Recognition, With
Respect to Certain Transactions" in October 1997, March 1998, and December 1998,
respectively. These standards address software revenue recognition matters
primarily from a conceptual level and do not include specific implementation
guidance. These standards supersede an earlier Statement of Position and, in
part, are effective for transactions entered into for fiscal years beginning
after December 15, 1997. Based on its reading and interpretation of SOPs 97-2
and 98-4, PeopleSoft believes that it is currently in compliance with these
standards. However, the American Institute of Certified Public Accountants has
only issued some implementation guidelines for these standards and the
accounting profession is discussing a wide range of potential interpretations.
Once available, these implementation guidelines could lead to unanticipated
changes in PeopleSoft's current revenue accounting practices that could have a
material adverse effect on PeopleSoft's business, financial condition and
results of operations.
PeopleSoft has not fully assessed its ability to comply with SOP 98-9 using
current contracting and business practices. However, PeopleSoft believes that
SOP 98-9 may require significantly more revenue to be deferred for certain types
of transactions. Although this new standard is not effective until the year
2000, PeopleSoft. In accordance with its historical practice of complying with
new revenue recognition standards as soon as issued, may choose to adopt the
standard in 1999, if PeopleSoft chooses to adopt the standard in 1999 it will
require either changes in revenue recognition practices or changes in
PeopleSoft's sales and contracting practices in order to comply. Such changes
may have a significant adverse impact on revenues and margins in the quarter and
year they are implemented.
The implementation guidelines for these standards, when issued, may also
require PeopleSoft to change significantly its business practices in order to
continue to recognize a substantial portion of its license fee revenue when it
delivers its software products. These changes may reduce demand, extend sales
cycles, increase administrative costs and otherwise adversely affect
PeopleSoft's business, financial condition and results of operations.
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PeopleSoft May Change Pricing Practices
We may choose in 1999, or a future year, to make changes to our pricing
practices, including additional discounts to customers, reduction of
transactions that involve a perpetual use license to our software products,
changes in maintenance pricing, or other changes which may negatively impact
revenues in the quarter and year implemented, and for succeeding quarters and
years. Such changes may have a material adverse impact on our revenues, income,
and financial condition.
There is a High Degree of Operating Leverage
Like many of its competitors, PeopleSoft's business model is characterized
by a very high degree of operating leverage. A substantial portion of
PeopleSoft's operating costs and expenses consist of employee and facility
related costs, which are relatively fixed over the short term. In addition,
PeopleSoft's expense levels and hiring plans are based substantially on
PeopleSoft's projections of future revenue. If PeopleSoft's actual revenues fall
below expectations, its net income is likely to be disproportionately adversely
affected. PeopleSoft may be unable to increase or even maintain its current
level of profitability on a quarterly or annual basis in the future.
There is Intense Competition in the Industry
The market for business application software has been intensely competitive
for the past 18 months and is currently intensifying. PeopleSoft competes with a
variety of software vendors. Although PeopleSoft believes its success has been
due in part to its early emphasis on the client/server architecture, virtually
all of PeopleSoft's competitors now offer software products based on a
client/server architecture. Consequently, PeopleSoft must differentiate itself
through different or more subtle architectural and technological factors,
including:
o internet focused application development;
o enterprise software product breadth and individual product features;
o service reputation;
o product flexibility;
o ease of implementation;
o international software product version availability and support; and
o price.
Price competition has significantly increased over the past year and this
trend may continue in the future.
PeopleSoft faces significant competition in the enterprise application
software market from SAP and Oracle and, to a lesser degree, J.D. Edwards, Dun &
Bradstreet Software, operating as two separate divisions of Geac Computer
Systems, Inc., Computer Associates International, Inc. and other companies such
as System Software Associates who previously focused primarily on the AS/400
marketplace. In addition, PeopleSoft faces increasing competition from internet
focused application vendors. In this market, the chief competitive factors
include:
o the breadth and completeness of the enterprise solution offered by each
vendor, and the competitive advantages the solution offers to its
customers;
o the extent of software product integration across the enterprise
solution; and
o the availability of localized software products and technical support in
key markets outside the United States.
Both SAP and Oracle have certain competitive advantages over PeopleSoft in
these areas primarily due to their significant worldwide presence and longer
operating and product development history. Both SAP and Oracle have
substantially greater financial, technical and marketing resources than
PeopleSoft. In addition, SAP has a larger installed base than PeopleSoft.
Furthermore, Oracle's RDBMS, or relational database management system, underlies
a significant portion of PeopleSoft's installed applications.
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PeopleSoft entered the manufacturing software application markets in 1996.
In these markets, PeopleSoft's existing competitors include those listed
immediately above, and others such as Baan, QAD, Ross Systems and a large number
of niche competitors already in the manufacturing market.
In addition, since it acquired Red Pepper Software in the fourth quarter of
1996, PeopleSoft has competed in the emerging enterprise resource optimization
software solutions market. PeopleSoft's current and potential competitors in
this market include:
o companies such as i2 Technologies, Manugistics and Numetrix Software,
which have developed or are attempting to develop advanced planning and
scheduling software products that complement or compete with MRP, or
material requirements planning, solutions;
o other companies that provide specialized planning and scheduling
software for niche markets, including Chesapeake Systems, Waterloo
Manufacturing Software, MAPICS, Inc., and Marcam Solutions, Inc.;
o other business application software vendors that may broaden their
product offerings by internally developing, such as SAP's initiatives
in this area, acquiring, such as Baan's acquisitions of Berclain Group,
Inc. and Antalys, Inc., or partnering with independent developers of
advanced planning and scheduling software;
o internal development efforts by potential customers' corporate
information technology departments; and
o companies offering standardized or customized products on mainframe
and/or mid-range computer systems.
PeopleSoft also competes with: providers of HRMS software products,
including Cyborg Systems, Lawson Associates, Integral Systems, Inc., InPower,
Inc. and Ceridian; and providers of financial management systems software
products, including Computron Software, Inc., Flexiware International, Hyperion
Software, Lawson Associates and other smaller companies.
In addition, PeopleSoft competes with numerous small firms who offer
products across its product lines with either new or advanced features than may
not yet be available from PeopleSoft.
In addition, as the year 2000 approaches, potential customers may consider
outsourcing options, including data center outsourcing and service bureaus, as
viable alternatives to purchasing PeopleSoft's software products. This may
result in increased competition from outsource services such as Computer Science
Corporation, Electronic Data Systems Corporation, IBM, ADP, Ceridian and other
smaller companies. During the third quarter of 1998, PeopleSoft signed
agreements with IT service providers CIBER, Inc., Computer Science Corporation,
Corio, KPMG Peat Marwick, reSOURCE PARTNER, and USinternetworking to provide
industry-specific outsourcing solutions encompassing software implementation and
management services. Although PeopleSoft is pursuing an outsourcing partner
program that it believes will address the needs of the marketplace, this program
may not be successful.
Intense competition could lead to increased price competition in the market,
forcing PeopleSoft to reduce prices. As a result, PeopleSoft's gross margins may
decline and it may lose market share which, in turn, could have a material
adverse effect on PeopleSoft's business, financial condition and results of
operations. During 1998 and continuing into 1999, certain competitors became
more aggressive with their product pricing reductions, payment terms and/or
issuance of contractual implementation terms or guarantees. PeopleSoft may be
unable to continue to compete successfully with its existing competitors or to
compete successfully with new competitors.
There are Risks Associated with Business Combinations
As part of its overall strategy, PeopleSoft plans to continue to acquire or
invest in complementary companies, products, and technologies and to enter into
joint ventures and strategic alliances with other companies. Risks commonly
encountered in such transactions include:
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o the difficulty of assimilating the operations and personnel of the
combined companies;
o the risk that PeopleSoft may not be able to integrate the acquired
technologies or products with its current products and technologies;
o the potential disruption of PeopleSoft's ongoing business;
o the inability to retain key technical and managerial personnel;
o the inability of management to maximize the financial and strategic
position of PeopleSoft through the successful integration of acquired
businesses;
o decreases in reported earnings as a result of charges for in-process
research and development and amortization of acquired intangible assets;
o adverse impact on PeopleSoft's annual effective tax rate;
o dilution of existing equity holders;
o difficulty in maintaining controls, procedures, and policies;
o potential adverse impact on the PeopleSoft's relationships with partner
companies or third party providers of technology or products;
o the impairment of relationships with employees and customers as a result
of any integration of new personnel; and
o issues with product quality architecture, legal contingencies, product
development issues, or other significant issues that may not be detected
through PeopleSoft's due diligence process.
In addition, PeopleSoft may not qualify for pooling of interests accounting
for acquisitions of companies, and thus may need to account for acquisitions of
other companies using the purchase method. The purchase method of accounting for
acquisitions would require large write-offs of any in process research and
development costs related to companies acquired, as well as ongoing amortization
costs for goodwill and other intangible assets valued in the acquisition of
companies. Such write-offs and ongoing amortization charges may have a material
adverse impact on operating margins and net income in the quarter of the
acquisition and for several subsequent years. PeopleSoft may not be successful
in overcoming these risks or any other problems encountered in connection with
such transactions.
PeopleSoft Relies on Proprietary Software Development Tools
Our software products include a suite of proprietary software development
tools, known as PeopleTools, which are fundamental to the effective use of our
software products. While no industry standard exists for software development
tools, several companies have focused on providing software development tools
and each of them is attempting to establish its software development tools as
the accepted industry standard. In addition, Microsoft is attempting to
establish several standards in the marketplace. If a software product other than
PeopleTools becomes the clearly established and widely accepted industry
standard, PeopleSoft may not be able to respond appropriately or sufficiently
rapidly to the emergence of an industry standard and may: be compelled to
abandon or modify PeopleTools in favor of such an established standard; be
forced to redesign its software products to operate with such third party's
software development tools; or face the potential sales obstacle of marketing a
proprietary software product against other vendors' software products that
incorporate a standardized software development toolset.
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There are Risks Associated with International Operations
PeopleSoft continues to invest resources and funding to enhance the
international operations. Operating costs in many countries in which PeopleSoft
operates are higher than in the United States. As conditions in these
international markets continue to change, PeopleSoft may either increase or
decrease spending as appropriate. For those international markets where
expansion is warranted, PeopleSoft will consider the following investments:
o globalizing its software product lines;
o expanding existing and establishing additional foreign operations;
o hiring additional personnel;
o identifying suitable locations for sales, marketing, customer service
and development; and
o recruiting international distributors and resellers in selected
territories.
If PeopleSoft's international expansion and/or product globalization efforts are
not successful, its operating results will likely be negatively affected.
Generally, PeopleSoft's foreign sales are denominated in its foreign
subsidiaries' currencies. If these foreign currency exchange rates change
unexpectedly, PeopleSoft's could have significant gains or losses. PeopleSoft
has a hedging program designed to mitigate the potential impact of exchange rate
fluctuations. Under this foreign exchange management policy, PeopleSoft may
hedge existing transaction exposures, anticipated transactions and exposure
resulting from the translation of foreign financial results into U.S. Dollars.
PeopleSoft can hedge anticipated transactions and translation exposures only if
they are highly certain, reasonably estimable and significant in amount.
PeopleSoft's inability to hedge potential significant exposures due to
uncertainty or inability to estimate reasonably its foreign exchange exposure
could materially adversely affect its operating results.
We Rely on Third Parties for Sales and Marketing
A key aspect of PeopleSoft's sales and marketing strategy is to build and
maintain strong working relationships with businesses that PeopleSoft believes
play an important role in the successful marketing of its software products.
PeopleSoft's customers and potential customers often rely on third-party system
integrators to develop, deploy and manage client/server applications. PeopleSoft
believes that its marketing and sales efforts are enhanced by the worldwide
presence of these companies. However, these companies, most of which have
significantly greater financial and marketing resources than PeopleSoft, may
start, or in some cases increase, the marketing of business application software
in competition with PeopleSoft, or may otherwise discontinue their relationships
with or support of PeopleSoft. If PeopleSoft or its partners are unable to
recruit and adequately train a sufficient number of consulting personnel to
support the implementation of PeopleSoft's software products, demand for these
software products could be materially adversely affected. In addition,
integrators who generate consulting fees from customers by providing
implementation services may be less likely to recommend PeopleSoft's software
application architecture, including PeopleTools, if these products facilitate
less implementation effort than competitors' similar product offerings.
Our Software Products and Product Development Are Complex
The market for PeopleSoft's software products is characterized by rapid
technological change, evolving industry standards, changes in customer
requirements and frequent new product introductions and enhancements.
PeopleSoft's future success will depend in part upon its ability to:
o continue to enhance and expand its core applications;
o continue to provide enterprise solutions;
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<PAGE> 13
o enter new markets; and
o develop and introduce new products that keep pace with technological
developments, including developments related to the internet, satisfy
increasingly sophisticated customer requirements and achieve market
acceptance.
PeopleSoft may not be able to enhance existing products or develop and
introduce new products in a timely manner.
PeopleSoft's software products can be licensed for use with a variety of
popular industry standard RDBMSs. There may be future or existing RDBMS
platforms that achieve popularity within the business application marketplace
and on which PeopleSoft may desire to offer its applications. These future or
existing RDBMS products may or may not be architecturally compatible with
PeopleSoft's software product design. PeopleSoft may not be able to develop
software products on additional platforms with the specifications and within the
time frame necessary for market success.
Beginning with Release 6, PeopleSoft integrated certain features of BEA's
Tuxedo product into its applications. Over the next several releases, PeopleSoft
will continue to integrate Tuxedo features to allow applications to run on a
distributed basis using a multi-tiered client/server architecture. PeopleSoft
also will continue to bundle Cognos' Powerplay product and Arbor's Essbase
product to incorporate desktop OLAP capabilities, and will continue to bundle
products from Informatica and Information Advantage into its Enterprise
Performance Management products. These third party products may be critical to
the competitiveness of PeopleSoft's software products in the future. Integration
of these and other products is complex and PeopleSoft's efforts may not be
successful or may not result in significant software product enhancements.
Despite testing by PeopleSoft and by third-parties, software programs as
complex as those offered by PeopleSoft are likely to contain a number of
undetected errors or "bugs" when they are first introduced or as new releases
are subsequently released. This may result in reduced acceptance of PeopleSoft's
software products in the marketplace. The effort and expense of developing,
testing and maintaining software product lines will increase with the increasing
number of possible combinations of:
o vendor hardware platforms;
o operating systems and updated versions;
o PeopleSoft application software products and updated versions; and
o RDBMS platforms and updated versions.
Developing consistent software product performance characteristics across all of
these combinations could place a significant strain on PeopleSoft's development
resources and software product release schedules.
PeopleSoft Relies on Client Interfaces
Currently, PeopleSoft supports client platforms using browsers certified to
run its Java-based Web client, or Microsoft's Windows family of software
products, including Windows 3.1 for PeopleSoft releases prior to Release 6 only,
Windows NT and Windows 95. If Microsoft fundamentally changes the architecture
of its software product so that users of PeopleSoft's software applications
experience significant performance degradation or become incompatible with
future versions of Microsoft's Windows operating system, it could have a
material adverse effect on PeopleSoft's business, financial condition and
results of operations. The use of a Web client as a primary user interface is
emerging as an alternative to the traditional desktop access through Microsoft
Windows based personal computers. This client access via the Internet or
intranet involves numerous risks inherent in using the Internet, including
security, availability and reliability. PeopleSoft may wish to offer its
applications on future or existing client platforms that achieve popularity
within the business application marketplace. These future or existing client
platforms may or may not be architecturally compatible with PeopleSoft's current
software product design. PeopleSoft may not be able to support new client
interfaces and achieve market acceptance of new client interfaces which it does
support.
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PeopleSoft Relies on Joint Business Arrangements
PeopleSoft has in the past entered into, and may in the future enter into,
various development or joint business arrangements to develop new software
products or extensions to its existing software products. Under these
arrangements, PeopleSoft has been in the past and expects in the future to be,
the exclusive remarketer of the developed software products and pays a royalty
to the business partner based on end user license fees for the developed
products. Under these joint business arrangements, PeopleSoft may distribute or
jointly sell with its business partner an integrated software product. While
PeopleSoft intends to develop business applications that are integrated with its
software products, these software products may not in fact be integrated or the
market may not accept an integrated enterprise solution. Also, these
arrangements may require additional investments from third parties or business
partners to complete development or to enhance the software product. These
investments may not be available on terms mutually acceptable to PeopleSoft and
its business partner or the existing or other potential third-party funding
source(s).
If PeopleSoft acquires title to the software products or technology from its
business partner, it may account for this acquisition using the purchase method,
which is likely to result in either or both of the following accounting
treatments, which could cause PeopleSoft's results of operations in one or more
future periods to be materially adversely affected:
o a charge to earnings for in-process research and development which
PeopleSoft would record in its statement of income in the period it
completed the acquisition; or
o allocation of a substantial portion of the purchase price to acquired
technology or other intangible assets, creating significant intangible
assets. These intangible assets would be amortized in future periods as
a cost of operations
Potential Security Breaches Are Possible
PeopleSoft's application software products incorporate extensive security
features designed to prevent unauthorized retrieval or modification of sensitive
data. PeopleSoft has developed a security architecture using:
o the capabilities of its own applications;
o the client operating system software;
o some of the security features contained in the RDBMS platforms on which
the applications run; and
o certain third party security products.
To date, PeopleSoft is not aware of any violations of its application security
architecture within its installed base. Although these security features are
subject to constant review and enhancement, they may not be successfully
implemented or may not be effective within a particular customer's operating
environment. If a breach of security or a suspected breach of security occurs,
the accompanying publicity or any subsequent claims against PeopleSoft could
adversely impact the demand for PeopleSoft's software products and/or could
cause a decline in the market price of PeopleSoft's stock and/or could adversely
impact PeopleSoft's financial results due to lost or delayed closing of software
licensing opportunities.
PeopleSoft Has Limited Protection of Intellectual Property and Proprietary
Rights and May Potentially Infringe Third Party Intellectual Property Rights
PeopleSoft considers certain aspects of its internal operations, software
and documentation to be proprietary, and relies on a combination of contract,
patent, copyright, trademark and trade secret laws and other measures to protect
this information. Outstanding applications may not result in issued patents and,
even if issued, the patents may not provide any meaningful competitive
advantage. Existing copyright laws afford only limited protection. PeopleSoft
believes that the rapid pace of technological change in the computer software
industry has made patent, trade secret and copyright protection less significant
than factors such as:
o knowledge, ability and experience of PeopleSoft's employees;
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<PAGE> 15
o frequent software product enhancements; and
o timeliness and quality of support services.
Patent, trade secret and copyright protections may be inadequate, and
PeopleSoft's competitors may independently develop technologies that are
substantially equivalent or superior to PeopleSoft's technology. Through an
escrow arrangement, PeopleSoft has granted many of its customers a future right
to use PeopleSoft's source code solely for internal maintenance services. This
possible access to PeopleSoft's source code may increase the likelihood of
misappropriation or other misuse of PeopleSoft's intellectual property. Finally,
the laws of some countries in which PeopleSoft's software products are or may be
licensed do not protect PeopleSoft's software products and intellectual property
rights to the same extent as the laws of the United States.
PeopleSoft does not believe that its software products, software products
acquired from previous acquisitions, third party software products PeopleSoft
offers under sublicense agreements, PeopleSoft trademarks or other PeopleSoft
proprietary rights infringe the property rights of any third parties. However,
third parties may assert infringement claims against PeopleSoft and its
products. These assertions could require PeopleSoft to enter into royalty
arrangements or could result in costly litigation.
PeopleSoft May Experience Product Liability Claims
PeopleSoft's license agreements contain provisions designed to limit its
exposure to potential product liability claims. However, these provisions could
be invalidated by unfavorable judicial decisions or by federal, state or local
laws or ordinances. Although PeopleSoft has not experienced any product
liability claims to date, use of its software in mission critical applications
creates the risk that a third party may pursue a claim against PeopleSoft. If a
product liability claim against PeopleSoft were successful, the resulting
damages or injunctive relief could have a material adverse affect on
PeopleSoft's business, financial condition and results of operations. In
addition, as PeopleSoft begins to compete in the manufacturing software
application market, the mission critical nature of these products may increase
PeopleSoft's exposure to product liability claims.
There are Risks Associated with Managing Growth
PeopleSoft has experienced an extended period of growth in the following
areas: revenue; customer base; software product lines and supported platforms;
employees; and international operations. In addition, we have experienced
increased pressure on the viability and scope of our operating and financial
systems. This growth has resulted in new and increased responsibilities for
management personnel and has placed a significant strain upon PeopleSoft's
management, operating and financial controls and resources, including its
services and development organizations. To accommodate recent growth, compete
effectively and manage potential future growth, PeopleSoft must continue to
implement and improve the speed and quality of its information decision support
systems, management decisions, reporting systems, procedures and controls.
PeopleSoft's personnel, procedures, systems and controls may not be adequate to
support its future operations.
PeopleSoft May Be Dependent on Key Personnel
PeopleSoft believes that its future prospects will depend in large part upon
its ability to attract, train and retain highly-skilled technical, managerial,
sales and marketing personnel. However, competition for personnel in the
software industry is intense, and, at times, PeopleSoft has had difficulty
locating candidates with appropriate qualifications within various desired
geographic locations, or with certain industry-specific domain expertise. If
PeopleSoft's competitors increase their use of non-compete agreements, the pool
of available technical personnel may further narrow in certain jurisdictions,
even if the non-compete agreements are ultimately unenforceable. The failure to
attract, train, retain and manage productive sales and sales support personnel
would have a material adverse effect on PeopleSoft's business, financial
condition and results of operations.
If PeopleSoft loses the services of one or more of its key employees, its
business, operating results, financial condition or business prospects could be
materially adversely affected. PeopleSoft has several programs in place to
retain key personnel, including granting of stock options that vest annually
over four or five years. A number of key employees have vested stock options
with exercise prices lower than PeopleSoft's current stock price. These
potential gains provide these employees the economic freedom to explore personal
objectives both within and outside PeopleSoft, which may result in the loss of
one or more key employees during the coming years.
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<PAGE> 16
It is widely recognized that the software industry in which PeopleSoft
competes is at or beyond a condition of full employment. PeopleSoft may not be
able to attract, train and retain the personnel it requires to develop, market,
sell and support new or existing software or to continue to grow. Also, to
penetrate successfully key vertical markets, PeopleSoft must attract, train and
retain personnel with industry-specific domain expertise.
Since the fourth quarter of 1998, PeopleSoft has experienced turnover of
several senior executives. PeopleSoft has hired or promoted qualified candidates
to fill these positions. However, since the employees are new to the positions,
it is possible that the newly hired or promoted employees will not easily
transition into these leadership roles or be able to successfully lead
PeopleSoft as it continues to grow.
Certain Third Party Products May Not Be Year 2000 Compliant
PeopleSoft's internal business information systems are comprised primarily
of the same commercial application software products it generally offers for
license to customers. These applications have been tested for Year 2000
compliance and are certified by the Information Technology Association of
America as Year 2000 compliant. Therefore, PeopleSoft does not expect any Year
2000 compliance issues to arise related to its primary internal business
information systems. Costs directly attributable to PeopleSoft's internal year
2000 initiative are currently estimated to be approximately $4.0 million. The
amount spent to date is approximately $2.8 million. This estimate is comprised
primarily of hardware and software required to complete Year 2000 testing within
the enterprise and consulting fees.
However, PeopleSoft uses other third party vendor network equipment,
telecommunication products, and software products that may or may not be Year
2000 compliant. PeopleSoft currently is taking steps to address the impact, if
any, of the Year 2000 issue surrounding these third party products. The failure
of any critical technology components to operate properly in the Year 2000 could
have a material adverse effect on PeopleSoft's business, financial condition and
results of operations, and PeopleSoft may incur unanticipated expenses to remedy
any problems.
There are Risks Associated with the European Monetary Union, or EMU
Our internal business information systems are primarily comprised of the
same commercial application software products generally offered for license by
PeopleSoft to end user customers. PeopleSoft's latest software release contains
EMU functionality that allows for dual currency reporting and information
management. We are not aware of any material operational issues or costs that
were incurred in preparing internal systems in advance of the EMU. However,
since the Euro is not the sole legally required currency in any of the member
nations until the year 2002, it is possible that all issues related to
conversion to EMU have not surfaced yet, and may not have been adequately
addressed. In addition, we utilize third party vendor network equipment and
software products that may or may not yet be EMU compliant. Although PeopleSoft
continues to take steps to address the impact, if any, of EMU compliance for
such third party products, failure of any critical technology components to
operate properly under EMU may adversely affect business operations or require
us to incur unanticipated expenses to remedy any problems.
Our foreign exchange exposures to legacy sovereign currencies of the
participating countries in the EMU became foreign exchange exposures to the Euro
upon its introduction. Therefore, hedging transactions entered into for
exposures after January 1, 1999, are denominated in Euros and hedges to legacy
currencies which were entered prior to December 31, 1998 were converted to Euros
as applicable. Although we are not aware of any material adverse financial risk
consequences of the change from legacy sovereign currencies to the Euro, since
complete conversion with the elimination of legacy currencies will not occur
until 2002, it is possible conversion may yet result in problems, which may have
an adverse impact on our business since we may be required to incur
unanticipated expenses to remedy these problems.
Our Stock Price is Volatile and There is a Risk of Litigation
The trading price of PeopleSoft common stock has in the past and may in the
future be subject to wide fluctuations in response to factors such as the
following:
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<PAGE> 17
o revenue or results of operations in any quarter failing to meet the
expectations, published or otherwise, of the investment community;
o announcements of technological innovations by PeopleSoft or our
competitors;
o new products or the acquisition of significant customers by PeopleSoft
or our competitors;
o developments with respect to patents, copyrights or other proprietary
rights of PeopleSoft or our competitors;
o changes in recommendations or financial estimates by securities
analysts;
o conditions and trends in the software industry generally;
o adoption of new accounting standards affecting the software industry;
and
o general market conditions and other factors.
Further, the stock market has experienced in recent months and may continue
in the future to experience extreme price and volume fluctuations that
particularly affect the market prices of equity securities of high technology
companies that often are not related to or are disproportionate to the operating
performance of such companies. These broad market fluctuations, as well as
general economic, political and market conditions have, and may continue to
have, a material adverse effect on the trading price of PeopleSoft common stock.
Fluctuations in the price of our common stock may expose PeopleSoft to the risk
of securities class action lawsuits. As a result of the significant declines in
the price of our common stock during the second half of fiscal 1998 and the
first half of fiscal 1999, several such lawsuits were filed against PeopleSoft.
Though PeopleSoft believes that these lawsuits are without merit, defending
against them could result in substantial costs and a diversion of management's
attention and resources. In addition, any settlement or adverse determination of
these lawsuits could subject PeopleSoft to significant liabilities. We cannot
assure you that there will not be additional lawsuits in the future or that
current or future lawsuits will not have a material adverse effect on our
business, financial condition and results of operations.
There Could Be Adverse Effects of Potential Securities Issuances
If holders of warrants and/or options to purchase our common stock exercise
any significant number of these securities and resell the underlying shares, the
market price of our common stock could be materially adversely affected. At
August 10, 1999, warrants to purchase 3,200,000 shares of our common stock were
outstanding. As of August 10, 1999, these warrants had exercise prices above the
current market price of PeopleSoft common stock. In addition, at June 30, 1999,
there were outstanding exercisable options to purchase 11,647,535 shares of
PeopleSoft common stock issued under employee stock plans, of which 9,115,663
had exercise prices below the current market price of PeopleSoft common stock.
PeopleSoft May Need Additional Financing
PeopleSoft's short-term and long-term investments in marketable securities
consist primarily of high quality municipal bonds, U.S. government securities,
corporate debt securities and tax-advantaged money market funds. Although these
investments have favorable credit ratings, it is possible that the issuers will
default on their obligations, and PeopleSoft may lose principal and accrued
interest. In times of growth, PeopleSoft's operating and investing activities
may use more cash than they provide, thus requiring PeopleSoft to obtain
additional sources of financing. In addition, PeopleSoft may need additional
sources of financing for capital expenditures and material acquisitions of
complementary businesses, products or technologies. PeopleSoft may be unable to
obtain additional sources of financing on favorable terms, if at all.
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USE OF PROCEEDS
The selling stockholders will receive the net proceeds from the sale of
common stock. PeopleSoft will not receive any of the proceeds from any sale of
the shares by the selling stockholders.
SELLING STOCKHOLDERS
All of the common stock offered were issued to former Distinction
shareholders in compliance with the Distinction merger agreement, under which
PeopleSoft acquired all of the outstanding capital stock of Distinction and
Distinction merged into PeopleSoft. PeopleSoft may from time to time supplement
or amend this prospectus, as required, to provide other information with respect
to the selling stockholders.
The following table sets forth certain information regarding ownership of
PeopleSoft's common stock by the selling stockholders as of August 27, 1999,
including their names, their positions with Distinction prior to the merger,
where applicable, and the number of shares of common stock owned by them and
offered pursuant to this prospectus. The selling stockholders listed in the
table do not necessarily intend to sell any of their shares. PeopleSoft filed
the registration statement, which includes this prospectus partly due to
registration rights granted to the selling stockholders, not because the
stockholders had expressed an intent to immediately sell their shares.
<TABLE>
<CAPTION>
NUMBER OF SHARES
OF COMMON STOCK PERCENTAGE NUMBER OF SHARES
SELLING SHAREHOLDER BENEFICIALLY OWNED OF CLASS OFFERED HEREBY
- ------------------- ------------------- -------- --------------
<S> <C> <C> <C>
Thomas P. McKaskill 168,306 * 168,306
Anne C. McKaskill 161,833 * 161,833
Datastream Systems, Inc. 161,767 * 161,767
Walter M. Romijn 96,662 * 96,662
McKaskill Family Trust 53,390 * 53,390
The Aotearoa Trust 32,804 * 32,804
Hazelwood Trust 32,366 * 32,366
Debra J. Smith 20,724 * 20,724
Therese B. Gorman 20,724 * 20,724
Rick Marquardt 18,137 * 18,137
Russell Strachan 15,862 * 15,862
Finova Mezzanine Capital, Inc. 12,761 * 12,761
John L. Rutherfurd 9,068 * 9,068
Laconda L. Horn 5,831 * 5,831
Former Distinction employees holding less than 11,618 * 11,618
5,000 shares (6 employees)
</TABLE>
* Less than 1%.
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PLAN OF DISTRIBUTION
The selling stockholders may sell some or all of their shares at any time
and in any of the following ways. They may sell their shares:
o To underwriters who buy the shares for their own account and resell them
in one or more transactions, including negotiated transactions, at a
fixed public offering price or at varying prices determined at the time
of sale. Any public offering price and any discount or concessions
allowed or reallowed or paid to dealers may be changed from time to
time;
o Through brokers, acting as principal or agent, in transactions, which
may involve block transactions, on the Nasdaq Stock Market or on other
exchanges on which the shares are then listed, in special offerings,
exchange distributions pursuant to the rules of the applicable exchanges
or in the over-the-counter market, or otherwise, at market prices
prevailing at the time of sale, at prices related to such prevailing
market prices, at negotiated prices or at fixed prices;
o Directly or through brokers or agents in private sales at negotiated
prices; or
o By any other legally available means.
Selling stockholders may pay part of the proceeds from the sale of shares in
commissions and other compensation to underwriters, dealers, brokers or agents
who participate in the sales.
Certain states may require shares to be sold only through registered or
licensed brokers or dealers. In addition, certain states may require the shares
to be registered or qualified for sale unless an exemption from registration or
qualification is available and complied with.
PeopleSoft has agreed to indemnify certain of the selling stockholders
against certain liabilities, including liabilities under the Securities Act, or
to contribute to payments the selling stockholders may be required to make under
the Securities Act.
LEGAL MATTERS
The law firm of Gibson, Dunn & Crutcher LLP, San Francisco, California, will
render an opinion on the validity of the shares offered under this prospectus.
EXPERTS
Ernst & Young LLP, independent auditors, have audited our consolidated
financial statements included in our Annual Report on Form 10-K for the year
ended December 31, 1998, as set forth in their report, which is incorporated by
reference in this prospectus and elsewhere in the registration statement. Our
financial statements are incorporated by reference in reliance on Ernst & Young
LLP's report, given on their authority as experts in accounting and auditing.
WHERE YOU CAN FIND MORE INFORMATION
We file annual, quarterly and special reports, proxy statements and other
information with the Securities and Exchange Commission. Our Securities and
Exchange Commission filings are available to the public over the Internet at the
Securities and Exchange Commission's web site at http://www.sec.gov. You may
also read and copy any document we file at the Securities and Exchange
Commission's public reference rooms located at 450 Fifth Street, N.W.,
Washington, DC 20549, and its public reference facilities in New York, New York
and Chicago, Illinois. Please call the Securities and Exchange Commission at
1-800-SEC-0330 for further information on the public reference rooms and their
copy charges.
Our common stock is quoted on the Nasdaq National Market. Accordingly, you
may inspect the information we file with the Securities and Exchange Commission
at the offices of The Nasdaq Stock Market, Inc., 1735 K Street, N.W.,
Washington, DC 20006.
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This prospectus is part of a Form S-3 registration statement that we filed
with the SEC. This prospectus provides you with a general description of the
securities that may be offered for sale, but does not contain all of the
information that is in the registration statement. To see more detail, you
should read the entire registration statement and the exhibits filed with the
registration statement. Copies of the registration statement and the exhibits
are on file at the offices of the Commission and may be obtained upon payment of
the fees prescribed by the Commission, or examined without charge at the public
reference facilities of the Commission described above.
You should rely only on the information incorporated by reference or
provided in this prospectus or any prospectus supplement. We have not authorized
anyone to provide you with different information.
Neither PeopleSoft nor any selling stockholder is making an offer of the
securities covered by this prospectus in any state where the offer is not
permitted. You should not assume that the information in this prospectus or any
prospectus supplement or in any other document incorporated by reference in this
prospectus is accurate as of any date other than the date on the front of those
documents.
The Securities and Exchange Commission allows us to "incorporate by
reference" the information we file with them, which means that we can disclose
important information to you by referring you to those documents. The
information incorporated by reference is an important part of this prospectus,
and information that we file later with the Securities and Exchange Commission
will automatically update and supersede this information. We incorporate by
reference the documents listed below and any future filings made with the
Securities and Exchange Commission under Sections 13(a), 13(c), 14 and 15(d) of
the Securities Exchange Act of 1934 until the selling stockholders sell all of
the securities:
(a) Our Annual Report on Form 10-K for the fiscal year ended December 31,
1998;
(b) Our Quarterly Reports on Form 10-Q for the quarters ended March 31, 1999
and June 30, 1999;
(c) Our Registration Statement on Form 8-A filed on October 7, 1992, in
which we describe the terms, rights and provisions applicable to our
outstanding common stock;
(d) The description of the Registrant's Preferred Share Purchase Rights
contained in the Registration Statement on Form 8-A/A filed with the
Commission on March 25, 1998 including any amendment or report filed for
the purpose of updating such description;
(e) Current report on Form 8-K dated June 28, 1999; and
(f) Registrant's Proxy Statement on schedule 14A dated April 15, 1999.
All reports and definitive proxy or information statements filed under
Section 13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of 1934, after
the date of this registration statement and prior to the filing of a
post-effective amendment which indicates that all securities offered by this
prospectus have been sold or which deregisters all securities then remaining
unsold shall be deemed to be incorporated by reference into this Registration
Statement and to be a part of this registration statement from the date of
filing of such documents.
You may also request a copy of these filings, excluding exhibits, at no cost
by writing or telephoning PeopleSoft Inc., 4460 Hacienda Drive, Pleasanton,
California 94588, Attention: Investor Relations, or by calling (925) 694-3000.
Information contained in PeopleSoft's web site is not a part of this
prospectus.
---------------
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED OR INCORPORATED BY REFERENCE IN THIS
PROSPECTUS OR IN ANY PROSPECTUS SUPPLEMENT. IF GIVEN OR MADE, SUCH INFORMATION
OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY
PEOPLESOFT, ANY UNDERWRITER OR THEIR RESPECTIVE AFFILIATES. NEITHER THE DELIVERY
OF THIS PROSPECTUS OR ANY PROSPECTUS SUPPLEMENT NOR ANY SALE MADE HEREUNDER OR
THEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE AN IMPLICATION THAT THERE HAS
BEEN NO CHANGE IN THE FACTS SET FORTH HEREIN OR THEREIN OR IN THE AFFAIRS OF
PEOPLESOFT SINCE THE DATE HEREOF. THIS PROSPECTUS AND ANY PROSPECTUS SUPPLEMENT
DO NOT CONSTITUTE AN OFFER TO SELL OR SOLICITATION OF AN OFFER TO BUY ANY OF THE
SECURITIES OFFERED HEREBY IN ANY JURISDICTION WHERE, OR TO ANY PERSON TO WHOM,
IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION.
---------------
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PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
PeopleSoft will pay all expenses incident to the offering and sale to the
public of the shares being registered other than any commissions and discounts
of underwriters, dealers or agents and any transfer taxes. Such expenses are set
forth in the following table. All of the amounts shown are estimates except the
Securities and Exchange Commission ("SEC") registration fee and the Nasdaq
listing fee.
SEC registration fee 3,248.63
Nasdaq National Market listing fee 16,437.06
Legal fees and expenses 15,000.00
Accounting fees and expenses 10,000.00
Miscellaneous expenses 10,000.00
Total 54,685.69
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
As permitted by the Delaware General Corporation Law, PeopleSoft has included
in its Certificate of Incorporation a provision to eliminate the personal
liability of it's directors for monetary damages for breach or alleged breach of
their fiduciary duties as directors, subject to certain exceptions. In addition,
the Bylaws of PeopleSoft require the Company to (i) indemnify the officers and
directors under certain circumstances, including those circumstances in which
indemnification would otherwise be discretionary, and (ii) advance expenses to
the officers and directors as incurred in connection with proceedings against
them for which they may be indemnified. PeopleSoft has entered into
indemnification agreements with the officers and directors containing provisions
that are in some respects broader than the specific indemnification provisions
contained in the Delaware General Corporation Law. The indemnification
agreements may require the companies, among other things, to indemnify such
officers and directors against certain liabilities that may arise by reason of
their status or service as directors or officers (other than liabilities arising
from willful misconduct of a culpable nature), to advance expenses incurred as a
result of any proceeding against them as to which they may be indemnified, and
to obtain directors' and officers' insurance if available on reasonable terms.
PeopleSoft believes that these charter provisions and indemnification agreements
are necessary to attract and retain qualified persons as directors and officers.
PeopleSoft understands that the staff of the Securities and Exchange
Commission is of the opinion that statutory, charter and contractual provisions
as are described above have no effect on claims arising under the federal
securities laws.
ITEM 16. EXHIBITS
2.1 Agreement and Plan of Reorganization, dated November 19, 1998, by and
among PeopleSoft, Inc., Certain Principal Shareholders and Distinction
Software, Inc. and amendment dated May 17, 1999
5.1 Opinion and consent of Gibson Dunn & Crutcher LLP
23.1 Consent of Ernst & Young LLP, Independent Auditors
23.2 Consent of Counsel (included in Exhibit 5.1)
24.1 Power of Attorney (see page II-3)
ITEM 17. UNDERTAKINGS
A. UNDERTAKING PURSUANT TO RULE 415
The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this Registration Statement:
II-1
<PAGE> 22
(i) to include any prospectus required by Section 10(a)(3) Securities Act of
1933 (the "Securities Act");
(ii) to reflect in the prospectus any facts or events arising after the
effective date of the Registration Statement (or the most recent post-effective
amendment thereof) which, individually or in the aggregate, represent a
fundamental change in the information set forth in the Registration Statement.
Notwithstanding the foregoing, any increase or decrease in volume of securities
offered (if the total dollar value of securities offered would not exceed that
which was registered) and any deviation from the low or high end of the
estimated maximum offering range may be reflected in the form of prospectus
filed with the SEC pursuant to Rule 424(b) if, in the aggregate, the changes in
volume and price represent no more than a 20% change in the maximum aggregate
offering price set forth in the "Calculation of Registration Fee" table in the
effective Registration Statement;
(iii) to include any material information with respect to the plan of
distribution not previously disclosed in the Registration Statement or any
material change to such information in the Registration Statement;
(2) That, for the purpose of determining any liability under the Securities
Act, each such post-effective amendment shall be deemed to be a new registration
statement relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide offering
thereof;
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered that remain unsold at the termination of this
offering.
B. UNDERTAKING REGARDING FILINGS INCORPORATING SUBSEQUENT EXCHANGE ACT
DOCUMENTS BY REFERENCE
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 the 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.
C. UNDERTAKING IN RESPECT OF INDEMNIFICATION
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 SEC 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.
D. UNDERTAKING PURSUANT TO RULE 430A
The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act, the
information omitted from the form of the prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or 497(h)
under the Securities Act shall be deemed to be part of this Registration
Statement as of the time it was declared effective.
(2) For the purposes of determining any liability under the Securities Act,
each post-effective amendment that contains a form of prospectus 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.
II-2
<PAGE> 23
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant,
PeopleSoft, Inc., a corporation organized and existing under the laws of the
State of Delaware, certifies that it has reasonable grounds to believe that it
meets all of the requirements for filing on Form S-3 and has duly caused this
Registration Statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of Pleasanton, State of California, on August 27,
1999.
PEOPLESOFT, INC.
By: /s/ Stephen F. Hill
---------------------------------------
Stephen F. Hill,
Vice President and Acting Chief
Financial Officer(Principal Financial
Officer)
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints David A. Duffield and Stephen F. Hill, jointly
and severally, his attorneys-in-fact, each with the power of substitution, for
him in any and all capacities, to sign any amendments to this Registration
Statement on Form S-3, and to file the same, with exhibits thereto and other
documents in connection therewith, with the Securities and Exchange Commission,
hereby ratifying and confirming all that each of said attorneys-in-fact, or his
substitute or substitutes, may 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 in the capacities and on the
dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
<S> <C> <C>
/s/ David A. Duffield Chief Executive Officer August 27, 1999
- ------------------------------------------- (Principal Executive Officer) and Director
(David A. Duffield)
/s/ Craig Conway President, Chief Operating Officer, and August 27, 1999
- ------------------------------------------- Director
(Craig Conway)
/s/ Stephen F. Hill Vice President and Acting Chief Financial August 27, 1999
- ------------------------------------------- Officer (Principal Financial Officer)
(Stephen F. Hill)
/s/ Bill Elson Vice President and Corporate Controller August 27, 1999
- ------------------------------------------- (Principal Accounting Officer)
(Bill Elson)
/s/ Aneel Bhusri Director and Vice Chairman August 27, 1999
- -------------------------------------------
(Aneel Bhusri)
Director
- -------------------------------------------
(A. George Battle)
/s/ George J. Still Jr. Director August 27, 1999
- -------------------------------------------
(George J. Still, Jr.)
/s/ Cyril J. Yansouni Director August 27, 1999
- -------------------------------------------
(Cyril J. Yansouni)
</TABLE>
II-3
<PAGE> 24
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------ -----------
<S> <C>
2.1 Agreement and Plan of Reorganization, dated November 19, 1998, by
and among PeopleSoft, Inc., Certain Principal Shareholders and
Distinction Software, Inc. and amendment dated May 17, 1999
5.1 Opinion and consent of Gibson Dunn & Crutcher LLP.
23.1 Consent of Ernst & Young LLP, Independent Auditors.
23.2 Consent of Counsel (included in Exhibit 5.1).
24.1 Power of Attorney (see page II-3)
</TABLE>
<PAGE> 1
EXHIBIT 2.1
99021839
AGREEMENT AND PLAN OF REORGANIZATION
DATED AS OF NOVEMBER 19, 1998
BY AND AMONG
PEOPLESOFT, INC.,
CERTAIN PRINCIPAL SHAREHOLDERS
AND
DISTINCTION SOFTWARE, INC.,
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
ARTICLE I THE MERGER........................................................................1
1.1. The Merger.....................................................................1
1.2. Effective Time and Closing.....................................................2
1.3. Effect of the Merger...........................................................2
1.4. Number of Shares to Be Issued; Effect on Capital Stock; Treatment of
Stock Options.................................................................3
1.5. Accounting Treatment...........................................................4
1.6. Dissenting Shares..............................................................5
1.7. Surrender of Certificates and Issuance of New Certificates.....................5
1.8. No Further Ownership Rights in Company Capital Stock...........................6
1.9. Lost, Stolen or Destroyed Certificates.........................................6
1.10. Tax Consequences..............................................................6
1.11. Taking of Necessary Action; Further Action....................................6
ARTICLE II REPRESENTATIONS AND WARRANTIES OF THE COMPANY....................................6
2.1. Organization of the Company....................................................7
2.2. Company Capital Structure......................................................7
2.3. Subsidiaries...................................................................7
2.4. Authority......................................................................7
2.5. Company Financial Statements...................................................8
2.6. No Undisclosed Liabilities.....................................................9
2.7. No Changes.....................................................................9
2.8. Tax and Other Returns and Reports.............................................11
2.9. Restrictions on Business Activities...........................................15
</TABLE>
i
<PAGE> 3
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
2.10. Title to Properties; Absence of Liens and Encumbrances.......................15
2.11. Intellectual Property........................................................16
2.12. Agreements, Scheduled Contracts and Commitments..............................20
2.13. Interested Party Transactions................................................21
2.14. Compliance with Laws.........................................................22
2.15. Litigation...................................................................22
2.16. Insurance....................................................................22
2.17. Minute Books.................................................................22
2.18. Environmental Matters........................................................23
2.19. Brokers' and Finders' Fees; Third Party Expenses.............................23
2.20. Employee Matters and Benefit Plans...........................................23
2.21. Company Affiliates...........................................................27
2.22. Non-competition, Non-solicitation and Non-hire Agreements...................27
2.23. Voting Agreement and Proxies.................................................28
2.24. Pooling of Interests.........................................................28
2.25. Representations Complete.....................................................28
2.26. Subsequent Events............................................................29
ARTICLE IIA REPRESENTATIONS AND WARRANTIES OF PRINCIPAL SHAREHOLDERS.......................29
2A.1 Organization, Standing and Power..............................................29
2A.2 Authority.....................................................................29
2A.3 Enforceability................................................................29
2A.4 Litigation....................................................................29
2A.5 Ownership of Shares...........................................................30
ARTICLE III REPRESENTATIONS AND WARRANTIES OF ACQUIROR.....................................30
</TABLE>
ii
<PAGE> 4
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
3.1. Organization, Standing and Power..............................................30
3.2. Authority.....................................................................30
3.3. Capital Structure.............................................................30
3.4. SEC Documents; Acquiror Financial Statements..................................31
3.5. Litigation....................................................................31
3.6. Representations Complete......................................................31
ARTICLE IV CONDUCT PRIOR TO THE EFFECTIVE TIME.............................................32
4.1. Conduct of Business of the Company............................................32
4.2. No Solicitation...............................................................36
ARTICLE V ADDITIONAL AGREEMENTS............................................................37
5.1. Employee Matters..............................................................37
5.2. Access to Information.........................................................38
5.3. Expenses......................................................................38
5.4. Public Disclosure.............................................................39
5.5. Consents......................................................................39
5.6. Reasonable Efforts............................................................39
5.7. Notification of Certain Matters...............................................39
5.8. Pooling Accounting and Tax Treatment..........................................40
5.9. Affiliate Agreements..........................................................40
5.10. Additional Documents and Further Assurances..................................40
5.11. Blue Sky Laws................................................................40
5.12. Indemnification..............................................................40
5.13. Company Shareholder Approval.................................................41
5.14. Registration Rights..........................................................41
5.15. Confidentiality..............................................................43
</TABLE>
iii
<PAGE> 5
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
5.16. Registration Statement on Form S-8...........................................44
5.17. Effectiveness of Certain Agreements..........................................44
ARTICLE VI CONDITIONS TO THE MERGER........................................................44
6.1. Conditions to Obligations of Each Party to Effect the Merger..................44
6.2. Additional Conditions to Obligations of the Company...........................45
6.3. Additional Conditions to the Obligations of Acquiror..........................46
ARTICLE VII SURVIVAL OF REPRESENTATIONS AND WARRANTIES.....................................48
7.1. Indemnification/Survival of Representations and Warranties....................48
7.2. Notice and Determination of Claims......................................49
7.3. Third Party Claims......................................................50
7.4. Limitations Damages.....................................................51
7.5. Acquiror Exclusive Remedy.....................................................51
7.6. Company Exclusive Remedy......................................................52
ARTICLE VIII PRODUCT PLAN..................................................................52
8.1. Product Development Integration Plan..........................................52
8.2. Timing of Closing.............................................................52
8.3. Remaining Estimated Costs.....................................................53
ARTICLE IX TERMINATION, AMENDMENT AND WAIVER...............................................53
9.1. Termination...................................................................53
9.2. Effect of Termination.........................................................54
9.3. Amendment.....................................................................55
9.4. Extension; Waiver.............................................................55
ARTICLE X GENERAL PROVISIONS...............................................................55
10.1. Notices......................................................................55
10.2. Interpretation...............................................................56
</TABLE>
iv
<PAGE> 6
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
10.3. Counterparts.................................................................56
10.4. Entire Agreement; Assignment.................................................56
10.5. Severability.................................................................57
10.6. Other Remedies...............................................................57
10.7. Governing Law................................................................57
10.8. Rules of Construction........................................................57
10.9. Specific Performance.........................................................57
</TABLE>
v
<PAGE> 7
EXHIBITS
EXHIBIT DESCRIPTION
Exhibit A Form of Company Affiliate Agreement
Exhibit B Form of Legal Opinion of Counsel to Acquiror
Exhibit C Form of Legal Opinion of Counsel to the Company
Exhibit D-1 Form of Noncompete Agreement for Tom McKaskill
Exhibit D-2 Form of Noncompete Agreement for Anne McKaskill
Exhibit D-3 Form of Noncompete for Walter Romijn
Exhibit D-4 Form of Noncompete for Datastream
Exhibit E Form of Voting Agreement and Proxy
Exhibit F Form of Employee Release
Exhibit G Porting Deliverables and Acceptance Criteria
vi
<PAGE> 8
SCHEDULES
<TABLE>
<CAPTION>
SCHEDULE DESCRIPTION
- -------- -----------
<S> <C>
2.2(a) Shareholder List
2.2(b) Options, Warrants, Rights
2.4 Conflicts/Other Filings and Consents
2.5 Company Financials
2.6 Undisclosed Liabilities
2.7 Certain Transactions
2.8(b) Certain Tax Matters
2.8(c) Tax Elections and Returns
2.8(c)(xix) Tax Basis of Assets, NOLs and Unused Tax Credit Carryforwards
2.9 Restrictions on Business Activities
2.10(a) Leased Real Property
2.10(b) Title to Property and Liens
2.11(b) Ownership of Software
2.11(c) Marks
2.11(d) Patents
2.11(e) Copyrights
2.11(g) Intellectual Property Scheduled Contracts
2.11(n) Year 2000
2.12(a) Scheduled Contracts
2.12(b) Contract Breach/Default
2.12(c) Ownership Interest of Intellectual Property Assets
2.13 Interested Party Transactions
2.15 Litigation
2.16 Insurance
2.20(b) Employee Benefit Plans and Employees
2.20(d) Employee Plan Compliance
2.20(g) Post-Employment Obligations
2.20(j) Employees with Visas
2.20(k) Labor Matters
2.20(l) Employment at Will
2.21 Company Affiliates
2.23 Voting Agreement and Proxy Signatories
4.1 Disclosed Actions
A Third Party Consents Required of Company
</TABLE>
vii
<PAGE> 9
INDEX OF DEFINED TERMS
<TABLE>
<CAPTION>
Defined Term Section Defined
- ------------ ---------------
<S> <C>
"Acquiror" Introduction
"Acquiror Common Stock" Recitals
"Acquiror Employee Plans" Section 5.1(b)
"Acquiror Financial Statements" Section 3.4
"Acquiror Indemnitees" Section 7.1(a)(1) & (2)
"Affiliate" Appendix A & Section 2.20(a)(i)
"Applicable Law" Appendix A
"Agreement" Introduction
"Average Stock Price" Appendix A
"Balance Sheet" Section 2.5
"Balance Sheet Date" Section 2.5
"Basket" Section 7.4
"Business Day" Appendix A
"Certificate of Merger" Section 1.2
"Certificates" Section 1.7(a)
"Closing" Section 1.2
"Closing Date" Section 1.2
"Closing Notice" Section 8.2
"Code" Section 1.4(b)(1)
"Company" Appendix A & Introduction
"Company Affiliate Agreements" Section 5.9
</TABLE>
viii
<PAGE> 10
<TABLE>
<CAPTION>
Defined Term Section Defined
- ------------ ---------------
<S> <C>
"Company Capital Stock" Appendix A
"Company Common Stock" Appendix A
"Company Preferred Stock" Appendix A
"Company Closing Date" Section 8.2
"Company Employee Plan" Section 2.20(a)(iii)
"Company Financials" Section 2.5
"Company Indemnitees" Section 7.1(b)
"Company Option" Section 1.4(b)(1)
"Company Warrants" Appendix A
"Continuing Employee" Section 5.1(b)
"Copyrights" Section 2.11(a)(i)(3)
"Datastream" Appendix A
"Damages" Appendix A
"Delaware Law" Section 1.1
"Demand" Section 7.2(f)(ii)
"Development Environments" Section 2.11(l)
"Disclosure Schedules" Section 2
"Dissenting Shares" Section 1.6(a)
"Distribution Agreement" Recitals & Appendix A
"Distribution Agreement Contracts" Appendix A
"Distribution Agreement Fees" Appendix A
"DOL" Section 2.20(c)
"Effective Time" Section 1.2
"Employee" Section 2.20(a)(iv)
"Employee Agreement" Section 2.20(a)(v)
</TABLE>
ix
<PAGE> 11
<TABLE>
<CAPTION>
Defined Term Section Defined
- ------------ ---------------
<S> <C>
"Environmental Laws" Appendix A
"Environmental Liabilities" Appendix A
"ERISA" Section 2.20(a)(ii)
"Exchange Act" Section 3.4
"Exchange Ratio" Section 1.4(a)(3)(i)
"Expiration Date" Section 7.1(c)
"GAAP" Appendix A
"Governmental Authority" Appendix A
"Georgia Articles" Section 1.2
"Georgia Law" Section 1.1
"Hazardous Substance" Appendix A
"Holder" Section 5.14(a)
"Incentive Plan" Section 5.1(c)
"Intellectual Property Assets" Section 2.11(a)(ii)
"Intellectual Property Rights" Section 2.11(a)(i)
"IRS" Section 2.20(a)(vi)
"ISOs" Section 2.8(c)(xxiii)
"Key Employees" Appendix A
"Knowledge" or "knowledge" Appendix A
"Liability" Appendix A
"Lien" Appendix A
"Marks" Section 2.11(a)(i)(1)
"Material Adverse Change" Appendix A
"Materials" Section 2.11(e)
"Merger" Recitals
</TABLE>
x
<PAGE> 12
<TABLE>
<CAPTION>
Defined Term Section Defined
- ------------ ---------------
<S> <C>
"Merger Price" Appendix A
"Merger Share Amount" Appendix A
"Multiemployer Plan" Section 2.20(a)(vii)
"New Shares" Section 7.2(c)(ii)
"New Zealand Subsidiary" Appendix A
"Noncompete Agreements" Section 2.22 & Appendix A
"Option Plan" Section 1.4(b)
"Outstanding Balance" Appendix A
"Patents" Section 2.11(a)(i)(2)
"Pension Plan" Section 2.20(a)(viii)
"Person" Appendix A
"Phase I Adjustment" Appendix A
"Phase II Adjustment" Appendix A
"Phase I Deliverables" Appendix A
"Phase II Deliverables" Appendix A
"Principal Shareholders" Appendix A
"Proceeding" Appendix A
"Project" Section 8.1(a)
"Registrable Securities" Section 5.14(a)
"Related Agreements" Appendix A
"Return" Section 2.8(a)(ii)
"Rule 145" Section 2.21 & Section 5.9
"Scheduled Contract" Section 2.12(b)
"Securities Act" Section 3.4
"Shareholders" Section 2.23
</TABLE>
xi
<PAGE> 13
<TABLE>
<CAPTION>
Defined Term Section Defined
- ------------ ---------------
<S> <C>
"SEC" Section 3.4
"SEC Documents" Section 3.4
"Software" Section 2.11(b)
"Subsidiary" Appendix A
"Tax" Section 2.8(a)(i)
"Taxes" Section 2.8(a)(i)
"Technology" Section 2.11(a)(i)(5)
"Third Party Expenses" Section 5.3
"Trade Secrets" Section 2.11(a)(i)(4)
"Transfer Agent" Section 1.7(b)
"Unaudited Company Financials Section 2.5
"Voting Agreement and Proxy" Section 2.23
"Welfare Plan" Section 2.20(a)(ix)
</TABLE>
xii
<PAGE> 14
AGREEMENT AND PLAN OF REORGANIZATION
This AGREEMENT AND PLAN OF REORGANIZATION (this "Agreement") is made and
entered into as of November 19, 1998, by and among PeopleSoft, Inc., a Delaware
corporation ("Acquiror") Distinction Software, Inc., a Georgia corporation, (the
"Company") and the Principal Shareholders of the Company listed on the signature
pages to this Agreement. All capitalized terms not otherwise defined herein
shall have the meanings ascribed to such terms in Appendix A hereto, which is
incorporated herein by this reference.
RECITALS
A. The Boards of Directors of the Company and Acquiror believe it
is in the best interests of each company and their respective shareholders that
Acquiror acquire the Company through the statutory merger of the Company with
and into Acquiror (the "Merger") and, in furtherance thereof, have approved the
Merger.
B. Pursuant to the Merger, among other things, and subject to the
terms and conditions of this Agreement, all of the issued and outstanding shares
of Company Capital Stock shall be converted into the right to receive shares of
Common Stock of Acquiror ("Acquiror Common Stock"), and all outstanding Company
Options shall be assumed by Acquiror and converted into options to acquire
Acquiror Common Stock.
C. The Company and Acquiror desire to make certain representations
and warranties and other agreements in connection with the Merger.
D. Certain shareholders of the Company are concurrently herewith
delivering to Acquiror a Voting Agreement and Proxy, in the form of Exhibit E,
with respect to this Agreement, the Merger and the other transactions
contemplated hereby.
E. Concurrently herewith, Acquiror and the Company have entered
into a Distribution Agreement (the "Distribution Agreement").
NOW, THEREFORE, in consideration of the foregoing recitals, the
covenants, promises and representations set forth herein, and for other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, intending to be legally bound hereby, the parties agree as
follows:
ARTICLE I
THE MERGER
1.1. The Merger. At the Effective Time and subject to and upon the
terms and conditions of this Agreement and the applicable provisions of the
Delaware General Corporation Law ("Delaware Law") and the Georgia Business
Corporation Code ("Georgia Law"), the
1
<PAGE> 15
Company shall be merged with and into Acquiror, the separate corporate existence
of the Company shall cease, and Acquiror shall continue as the surviving
corporation.
1.2. Effective Time and Closing.
(a) Unless this Agreement is earlier terminated pursuant to
Section 9.1, the closing of the Merger (the "Closing") will take place, subject
to the satisfaction of all conditions set forth in Article VI, on October 15,
1999 (or as provided in Sections 8.2 and 8.3 hereof), or on such other date as
shall be agreed to between the Company and Acquiror, at the offices of Gibson,
Dunn & Crutcher LLP, One Montgomery Street, Suite 2600, San Francisco,
California, unless another place or time is agreed to by Acquiror and the
Company. The date upon which the Closing actually occurs is herein referred to
as the "Closing Date." On the Closing Date, the parties hereto shall cause the
Merger to be consummated by (i) executing and filing a Certificate of Merger (or
like instrument) with the Secretary of State of the State of Delaware (the
"Certificate of Merger"), in accordance with the relevant provisions of Delaware
Law (the time of acceptance by the Secretary of State of the State of Delaware
of such filing being referred to herein as the "Effective Time"), (ii) executing
and filing with the Secretary of State of the State of Georgia the articles of
merger required by Section 14-2-1105 of Georgia Law (the "Georgia Articles"),
and (iii) executing and filing such other documents, and taking such other
actions (including the publication of notice contemplated by Section 14-2-1105.1
of the Georgia Law) as shall be necessary or appropriate to effect the Merger.
(b) At the Closing, the parties shall cause to be delivered
to one another the following documents and shall take the following actions:
(1) The Company and Acquiror shall, as appropriate,
execute the Certificate of Merger and the Georgia Articles, and cause such
documents to filed with the appropriate Governmental Authorities to effectuate
the Merger;
(2) Acquiror shall cause to be executed and
delivered to the Company the certificates contemplated by Section 6.2(a) and
(b), the opinion contemplated by Section 6.2(c), and the agreements contemplated
by Section 6.2(e);
(3) The Company shall cause to be executed and
delivered to Acquiror the certificates contemplated by Section 6.3(a), (b), (e)
and (h), the consents contemplated by Section 6.3(c), the opinion contemplated
by Section 6.3(c), the agreements contemplated by Section 6.3(d), and the
releases contemplated by Section 6.3(i);
(4) Each party shall take all other actions,
including the execution of such agreements and instruments, as may be reasonably
requested by the other party in connection with the Merger and consummation of
the transactions contemplated by this Agreement.
1.3. Effect of the Merger. At the Effective Time, the effect of the
Merger shall be as provided in the applicable provisions of Delaware Law and
Georgia Law. Without limiting the generality of the foregoing, and subject
thereto, at the Effective Time, all the property, rights,
2
<PAGE> 16
privileges, powers and franchises of the Company shall vest in Acquiror, and all
debts, liabilities and duties of the Company shall become the debts, liabilities
and duties of Acquiror.
1.4. Maximum Number of Shares to Be Issued; Effect on Capital Stock;
Treatment of Stock Options.
(a) Maximum Number of Shares to Be Issued; Effect on Capital
Stock. The number of shares of Acquiror Common Stock to be issued in connection
with the Merger, including Acquiror Common Stock to be reserved for issuance
upon exercise of any of the Company Options to be assumed by Acquiror pursuant
to Section 1.4(b), shall equal the Merger Share Amount. Subject to the terms and
conditions of this Agreement, as of the Effective Time, by virtue of the Merger
and without any action on the part of Acquiror, the Company or the holder of any
shares of Company Capital Stock, the following shall occur:
(1) Conversion of Company Capital Stock.
(i) Each share of Company Common Stock issued and
outstanding immediately prior to the Effective Time (other than Dissenting
Shares ) will be canceled and extinguished and be converted automatically into
the right to receive that number of shares of Acquiror Common Stock equal to the
Exchange Ratio.
(ii) Each share of Company Preferred Stock issued and
outstanding immediately prior to the Effective Time (other than Dissenting
Shares ) will be canceled and extinguished and be converted automatically into
the right to receive that number of shares of Acquiror Common Stock equal to the
sum of (a) the Exchange Ratio plus (b) the Preferred Stock Preference Amount.
(2) Fractional Shares. No fraction of a share of
Acquiror Common Stock will be issued, but in lieu thereof, each holder of shares
of Company Capital Stock who would otherwise be entitled to a fraction of a
share of Acquiror Common Stock (after aggregating all fractional shares of
Acquiror Common Stock to be received by such holder) shall be entitled to
receive from Acquiror an amount of cash (rounded to the nearest whole cent)
equal to the product of (i) such fraction, multiplied by (ii) the Average Stock
Price.
(3) Definitions.
(i) Exchange Ratio. Means the quotient obtained by
dividing (x) the Merger Share Amount minus the Aggregate Preferred Stock
Preference Amount by (y) the Total Company Shares.
(ii) Total Company Shares. Means the aggregate number
of shares of the Company Capital Stock outstanding immediately prior to the
Effective Time (including all shares of Company Capital Stock issued upon
exercise of the Company Warrants, plus the aggregate number of shares of Company
Capital Stock issuable upon the exercise of all outstanding vested Company
Options immediately prior to the Effective Time).
3
<PAGE> 17
(b) Treatment of Options. At the Effective Time, all options
to purchase shares of the Company Common Stock then outstanding under the
Company's Distinction Software, Inc. Stock Option Plan (the "Option Plan") shall
be assumed by Acquiror in accordance with the provisions described below.
(1) At the Effective Time, each outstanding option
to purchase shares of Company Common Stock (a "Company Option") under the Option
Plan or otherwise, whether vested or unvested, shall be, as a consequence of the
Merger, assumed by Acquiror. Each Company Option so assumed under this Agreement
shall continue to have, and be subject to, the same terms and conditions set
forth in the Option Plan and/or as provided in the respective option agreement
governing such Company Option immediately prior to the Effective Time, except
that (i) such Company Option shall be exercisable for that number of whole
shares of Acquiror Common Stock equal to the number of shares of Company Common
Stock underlying such Company Option immediately prior to the Effective Time
multiplied by the Exchange Ratio, rounded down to the nearest whole number of
shares of Acquiror Common Stock, and (ii) the per share exercise price for the
shares of Acquiror Common Stock issuable upon exercise of such assumed Company
Option shall be equal to the quotient determined by dividing the exercise price
per share of Company Common Stock at which such Company Option was exercisable
immediately prior to the Effective Time by the Exchange Ratio, rounded to the
nearest whole cent; provided, however, that Acquiror may make but is not
required to make such adjustments to the number of shares of Acquiror Common
Stock or the exercise price of such assumed Company Option, as Acquiror
reasonably deems necessary, in order to prevent any such Company Option that is
characterized by the Company as an "incentive stock option" immediately prior to
Closing from failing to so qualify solely by reason of Sections 424(a)(1) or
424(a)(2) of the Internal Revenue Code of 1986, as amended (the "Code").
(2) Promptly following the Effective Time, Acquiror
shall issue to each holder of an outstanding Company Option a document
evidencing the foregoing assumption of such Company Option.
(c) Treatment of Treasury Stock. Each share held by the
Company as treasury stock immediately prior to the Effective Time shall be
canceled and returned to the Company's authorized but unissued capital stock,
and no Acquiror share issuance shall be made with respect thereto.
(d) Adjustments. The Average Stock Price and all other
similar and related items shall be adjusted to reflect fully the effect of any
stock split, reverse stock split, stock dividend (including any dividend or
distribution of securities convertible into Acquiror Common Stock or Company
Capital Stock), or other distribution in respect of Acquiror Common Stock or
Company Capital Stock, reorganization, recapitalization or other like change
with respect to Acquiror Common Stock or Company Capital Stock occurring after
the date hereof and prior to the Effective Time.
1.5. Accounting Treatment. Notwithstanding any provision of this
Agreement to the contrary, it is the intention of the parties that the Merger
qualify for treatment as, and be
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accounted for as, a pooling-of-interests under Accounting Principles Board
Opinion No. 16. In connection therewith, the Company shall not take any action,
or omit to take action, the reasonably expected result of which action or
omission would be for the Merger to fail to qualify for "pooling-of-interests"
accounting treatment.
1.6. Dissenting Shares.
(a) Notwithstanding any provision of this Agreement to the
contrary, any shares of Company Capital Stock held by a holder who has demanded
and perfected appraisal or dissenters' rights for such shares in accordance with
the applicable requirements of Georgia Law and who, as of the Effective Time,
has not effectively withdrawn or lost such appraisal or dissenters' rights
("Dissenting Shares"), shall not be converted into or represent a right to
receive Acquiror Common Stock, but the holder thereof shall only be entitled to
such rights as are granted by Georgia Law.
(b) Notwithstanding the provisions of subsection (a), if any
holder of shares of Company Capital Stock who demands appraisal of such shares
under Georgia Law shall at any time effectively withdraw or lose (through
failure to perfect or otherwise) the right to appraisal, then, as of the later
of the Effective Time and the occurrence of such event, such holder's shares
shall automatically be converted into and represent only the right to receive
Acquiror Common Stock as provided in Section 1.4, without interest thereon, upon
surrender of the certificate representing such shares.
(c) The Company shall give Acquiror (i) prompt notice of any
written demands for appraisal of any shares of Company Capital Stock,
withdrawals of such demands, and any other instruments served pursuant to
Georgia Law and received by the Company and (ii) the opportunity to participate
in all negotiations and proceedings with respect to demands for appraisal under
Georgia Law. The Company shall not, except with the prior written consent of
Acquiror, voluntarily make any payment with respect to any demands for appraisal
of Company Capital Stock or offer to settle or settle any such demands.
1.7 Surrender of Certificates and Issuance of New Certificates.
(a) Surrender of Certificates. At the Closing, the Company
shall deliver to Acquiror original stock certificates ("Certificates")
representing all of the issued and outstanding Company Capital Stock that have
been surrendered by the holders thereof as of the Closing other than any
Dissenting Shares. All Certificates shall be duly endorsed in blank or
accompanied by a stock power in a form acceptable to Acquiror.
(b) Instructions to Issue New Certificates. Immediately upon
the Effective Time, Acquiror shall instruct the transfer agent for its Common
Stock (the "Transfer Agent") to issue and deliver to each shareholder of the
Company who has surrendered Certificates pursuant hereto, at an address
designated by such shareholder, a stock certificate representing a number of
shares of Acquiror Common Stock equal to the number of shares of Company Capital
Stock so surrendered by such shareholder, multiplied by the Exchange Ratio. At
the Closing, Acquiror shall provide the Company with a copy of its written
instructions to the Transfer Agent.
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(c) Transfers of Ownership. If any certificate for shares of
Acquiror Common Stock is to be issued in a name other than that in which the
Certificate surrendered in exchange therefor is registered, it will be a
condition of the issuance thereof that the Certificate so surrendered will be
properly endorsed and otherwise in proper form for transfer and that the person
requesting such exchange will have paid to Acquiror or any agent designated by
it any transfer or other taxes required by reason of the issuance of a
certificate for shares of Acquiror Common Stock in any name other than that of
the registered holder of the Certificate surrendered, or established to the
satisfaction of Acquiror or any agent designated by it that such tax has been
paid or is not payable.
1.8. No Further Ownership Rights in Company Capital Stock. The shares
of Acquiror Common Stock into which Company Capital Stock is converted in
accordance with the terms hereof (including any cash paid in respect thereof)
shall be deemed to have been issued in full satisfaction of all rights
pertaining to such Company Capital Stock, and there shall be no further
registration of transfers on the records of Acquiror or the Company of shares of
Company Capital Stock that were outstanding immediately prior to the Effective
Time. If, after the Effective Time, Certificates are presented to Acquiror for
any reason, they shall be canceled and exchanged as provided in this Article I.
1.9. Lost, Stolen or Destroyed Certificates. In the event any
Certificates are lost, stolen or destroyed, the Transfer Agent shall issue in
exchange for such lost, stolen or destroyed Certificates, upon the making of an
affidavit of that fact by the holder thereof, such shares of Acquiror Common
Stock and cash for fractional shares, if any, as may be required pursuant to
Section 1.4; provided that, as a condition precedent to the issuance thereof,
the owner of such lost, stolen or destroyed Certificates shall enter into an
indemnification agreement satisfactory to Acquiror as indemnity against any
claim that may be made against Acquiror or the Transfer Agent with respect to
the Certificates alleged to have been lost, stolen or destroyed.
1.10. Tax Consequences. The parties to this Agreement hereby adopt
this Agreement as a "plan of reorganization" within the meaning of sections
1.368-2(g) and 1.368-3(a) of the United States Treasury Regulations. No party to
this Agreement shall take any action inconsistent with such treatment.
1.11. Taking of Necessary Action; Further Action. If, at any time
after the Effective Time, any further action is necessary or desirable to carry
out the purposes of this Agreement and to vest in Acquiror full right and title
to and possession of all assets, property, rights, privileges, powers and
franchises of the Company, the officers and directors of Acquiror are hereby
fully authorized in the name of Acquiror, the Company and otherwise to take all
such lawful action.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company hereby represents and warrants to Acquiror, subject to such
exceptions as are disclosed in the separate Disclosure Schedule of even date
herewith (collectively the "Disclosure Schedules"), as follows:
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<PAGE> 20
2.1. Organization of the Company. The Company is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Georgia. The Company has the corporate power to own its properties and to carry
on its business as now being conducted and is duly qualified to do business and
is in good standing as a foreign corporation in each jurisdiction in which the
failure to be so qualified, individually or in the aggregate, would result in a
Material Adverse Change on the Company. The Company has delivered a true and
correct copy of its Articles of Incorporation and Bylaws, each as amended to
date, to Acquiror.
2.2. Company Capital Structure.
(a) The authorized capital stock of the Company consists
solely of (i) 1,500,000 shares of authorized Company Common Stock, of which
880,000 shares are outstanding on the date hereof and (ii) 222,000 shares of
Company Preferred Stock, of which 221,910 shares are issued and outstanding. No
other shares have been authorized or designated as a series or are issued and
outstanding as of the date hereof. On the date hereof, the Company Common Stock
and the Company Preferred Stock is held of record and beneficially by the
persons, with the addresses of record and in the amounts with the corresponding
certificate numbers set forth on Schedule 2.2(a). Except as set forth on
Schedule 2.2(a), all outstanding shares of Company Capital Stock are duly
authorized, validly issued, fully paid and non-assessable and not subject to
preemptive rights created by statute, the Articles of Incorporation or Bylaws of
the Company, any agreement to which the Company is a party or by which it is
bound or otherwise. None of the shares of Company Capital Stock is subject to
any right of repurchase by the Company.
(b) Except as set forth on Schedule 2.2(b) and except as
otherwise permitted by the terms of this Agreement, on the date hereof there are
not outstanding, and on the Closing Date there will not be outstanding, (i) any
options, warrants or other rights to purchase from the Company any capital stock
or other securities of the Company, (ii) any securities convertible into or
exchangeable for shares of such capital stock or securities or (iii) any other
commitments or rights of any kind for the Company to issue additional shares of
capital stock, options, warrants or other securities. Such schedule sets forth a
correct and complete list of each of the foregoing as of the date hereof,
including the record and beneficial holder thereof, a description of the nature
of such security, the amount of securities held, the exercise, conversion or
exchange rights relating thereto, including a schedule of vesting, and the type
and amount of securities into which such securities are exercisable, convertible
or exchangeable. No Company Option will accelerate solely as a consequence of
the Company's entering into this Agreement, the Merger or the other transactions
contemplated by this Agreement.
2.3. Subsidiaries. Other than the New Zealand Subsidiary, the Company
has no Subsidiaries and does not have any ownership interest in any securities
of any kind in any Person.
2.4. Authority. The Company has all requisite corporate power and
authority to enter into this Agreement and to consummate the transactions
contemplated hereby. The vote required of the Company's shareholders to duly
approve the Merger and this Agreement is that number of
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<PAGE> 21
shares as would constitute a majority of the outstanding shares of Company
Common Stock and Company Preferred Stock, voting together as a single class.
Other than obtaining the requisite shareholder vote, the execution and delivery
of this Agreement and the consummation of the transactions contemplated hereby
have been duly authorized by all necessary corporate action on the part of the
Company. The Company's Board of Directors has unanimously approved the Merger,
this Agreement and the transactions contemplated hereby. This Agreement has been
duly executed and delivered by the Company and, assuming due execution and
delivery by the other parties hereto, constitutes the valid and binding
obligation of the Company, enforceable in accordance with its terms, except as
such enforceability may be limited by principles of public policy and subject to
laws relating to bankruptcy, insolvency and the relief of debtors and to rules
of law governing specific performance, injunctive relief and other equitable
remedies. Except as set forth on Schedule 2.4, the execution and delivery of
this Agreement by the Company does not, and, as of the Effective Time, the
consummation of the transactions contemplated hereby will not conflict with, or
result in any violation of, or default under (with or without notice or lapse of
time, or both), or give rise to a right of termination, cancellation or
acceleration of any obligation or loss of any benefit under (i) any provision of
the Articles of Incorporation or Bylaws of the Company or (ii) any material
mortgage, indenture, lease, contract or other agreement or instrument, permit,
concession, franchise, license, judgment, order, decree or Applicable Law
applicable to the Company or its properties or assets. No consent, waiver,
approval, order or authorization of, or registration, declaration or filing
with, or notice to, any court, administrative agency or commission or other
Governmental Authority or any third party is required by or with respect to the
Company in connection with the execution and delivery of this Agreement or the
consummation of the transactions contemplated hereby, except for (i) the filing
of the Certificate of Merger with the Delaware Secretary of State, (ii) the
filing with the Secretary of State of the State of Georgia of the Georgia
Articles, (iii) such consents, waivers, approvals, orders, authorizations,
registrations, declarations and filings as may be required under applicable
federal and state securities laws, and (iv) such other consents, waivers,
authorizations, filings, approvals and registrations that are set forth on
Schedule 2.4.
2.5. Company Financial Statements. Schedule 2.5 sets forth the
Company's audited balance sheet as of December 31, 1997 and the related audited
statements of operations and cash flows for the year then ended and the
Company's unaudited balance sheet (the "Balance Sheet") as of September 30, 1998
(the "Balance Sheet Date") and the related unaudited statements of operations
and cash flows for the 9-month period then ended (the "Unaudited Company
Financials") (collectively, all such financial statements are referred to as the
"Company Financials"). The Company Financials are correct in all material
respects and have been prepared in accordance with GAAP applied on a basis
consistent throughout the periods indicated and consistent with each other,
subject, in the case of the Balance Sheet and the Unaudited Company Financials,
to the absence of footnotes and normal year-end adjustments, which will not be
material in amount or significance for such period. The Company Financials
present fairly the financial condition and operating results of the Company as
of the dates and during the periods indicated therein, subject, in the case of
the Balance Sheet and Unaudited Company Financials, to the absence of footnotes
and to normal year-end adjustments, which will not be material in amount or
significance for such period. Without limiting the foregoing, for any period
after December 31, 1997, the Company has or will comply in all material respects
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<PAGE> 22
with Statement of Position 97-2 (Software Revenue Recognition) as amended by
Statement of Position 98-4.
2.6. No Undisclosed Liabilities. Except as set forth in Schedule 2.6,
the Company does not have any Liability in excess of Five Thousand Dollars
($5,000) that (i) has not been reflected in the Balance Sheet or (ii) has not
arisen in the ordinary course of the Company's business since September 30,
1998, consistent with past practices, and does not exceed Twenty-Five Thousand
Dollars ($25,000). Except as disclosed in Schedule 2.6, no customer of the
Company has a right of refund or set off from the Company.
2.7. No Changes. Except as set forth in Schedule 2.2(b), Schedule 2.7
and Schedule 2.12(a), since the Balance Sheet Date, there has not been, occurred
or arisen any:
(a) material transaction (other than the transactions
contemplated by this Agreement) by the Company except in the ordinary course of
business as conducted on that date and consistent with past practices;
(b) amendments or changes to the Articles of Incorporation
or Bylaws of the Company;
(c) capital expenditure or commitment by the Company of Ten
Thousand Dollars ($10,000) in any individual case or Twenty-Five Thousand
Dollars ($25,000) in the aggregate;
(d) destruction of, damage to or loss of any asset, business
or customer of the Company (whether or not covered by insurance) that resulted
or could reasonably be expected to result in losses to the Company of more than
Ten Thousand Dollars ($10,000);
(e) claim of wrongful discharge or other unlawful labor
practice or action or other labor dispute (i) for which the amount involved
would reasonably be expected to exceed $25,000 in the aggregate, or (ii) for
which the non monetary damages are reasonably expected to be materially adverse
to the Company;
(f) change in accounting methods or practices (including any
change in depreciation or amortization policies or rates) by the Company other
than as required by GAAP;
(g) revaluation by the Company of any of its assets in the
amount of Ten Thousand Dollars ($10,000) in any individual case or Twenty-Five
Thousand Dollars ($25,000) in the aggregate;
(h) declaration, setting aside or payment of a dividend or
other distribution with respect to the capital stock of the Company, or any
direct or indirect redemption, purchase or other acquisition by the Company of
any of its capital stock other than pursuant to the exercise of repurchase
rights under stock option exercise agreements;
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(i) increase in the salary or other compensation payable or
to become payable by the Company to any of its officers, directors, employees or
advisors, or the declaration, payment or commitment or obligation of any kind
for the payment, by the Company, of a bonus or other additional salary or
compensation to any such person;
(j) sale, lease, license or other disposition of any of the
assets or properties of the Company, except in the ordinary course of business
as conducted on that date and consistent with past practices;
(k) amendment or termination (other than expiration by its
terms) of any Scheduled Contract (as defined in Section 2.12);
(l) loan by the Company to any person or entity, incurring
by the Company of any indebtedness, guaranteeing by the Company of any
indebtedness, issuance or sale of any debt securities of the Company or
guaranteeing of any debt securities of others except for (1) advances to
employees for travel and business expenses, (2) loans from Acquiror to the
Company, and (3) advances under the Company's existing line of credit, any of
which occur in the ordinary course of business, consistent with past practices;
(m) waiver or release of any right or claim of the Company,
including any write-off or other compromise of any account receivable of the
Company, where such waiver, release, write-off or compromise involves an amount
in excess of Ten Thousand Dollars ($10,000);
(n) commencement or notice or, to the Company's knowledge,
threat of commencement of any Proceeding against or investigation of the Company
or its affairs;
(o) notice of any claim of ownership by a third party of the
Company's Intellectual Property Rights (as defined in Section 2.11 below) or of
infringement by the Company of any third party's Intellectual Property Rights;
(p) issuance or sale by the Company of, or the commitment
(whether conditional or unconditional) by the Company to issue or sell, any of
shares of its capital stock, or securities exchangeable, convertible or
exercisable therefor, or any other securities;
(q) change in pricing or royalties set or charged by the
Company to its customers or licensees or in pricing or royalties set or charged
by persons who have licensed Intellectual Property to the Company;
(r) event or condition of any character, or group of the
foregoing, that has or is reasonably likely to have a Material Adverse Change on
the Company;
(s) material mortgage, pledge, Lien, charge, security
interest or any other encumbrance or restriction relating to any of the
Company's property, business or assets, tangible or intangible;
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(t) agreement to enter into a strategic alliance, including
marketing or distribution arrangements or other similar arrangements, or grant
of third party royalty rights or development agreements, or sub-licensing of any
rights;
(u) adoption of or amendment to any employee benefit plan or
arrangement, whether written or oral, which would accelerate or increase
benefits due thereunder; or
(v) agreement by the Company to do any of the things
described in the preceding clauses (a) through (u) (other than negotiations with
Acquiror and its representatives regarding the transactions contemplated by this
Agreement).
2.8. Tax and Other Returns and Reports.
(a) For purposes of this Agreement:
(i) the term "Taxes" means (A) all federal, state,
local, foreign and other net income, gross income, gross receipts, sales, use,
ad valorem, value added, intangible, unitary, capital gain, transfer, franchise,
profits, withholding, backup withholding, payroll, employment, estimated,
alternative minimum, excise, severance, stamp, occupation, premium, property,
environmental, self-dealing, prohibited transactions, windfall or excess
profits, customs duties or other taxes, fees, assessments or charges of any kind
whatsoever, together with any interest and any penalties, additions to tax or
additional amounts with respect thereto, (B) any Liability for payment of
amounts described in clause (A) whether as a result of transferee Liability, of
being a member of an affiliated, consolidated, combined or unitary or other
similar group for any period, or otherwise through operation of Applicable Law
and (C) any Liability for the payment of amounts described in clauses (A) or (B)
as a result of any tax sharing, tax indemnity or tax allocation agreement or any
other express or implied agreement to indemnify any other person; and the term
"Tax" means any one of the foregoing Taxes; and
(ii) the term "Returns" means all returns,
declarations, reports, statements and other documents filed or required to be
filed in respect of Taxes; and the term "Return" means any one of the foregoing
Returns.
(b) Schedule 2.8(b) sets forth a list of the taxable years
of the Company for which examinations of income or franchise tax returns by the
IRS and any applicable state, local or foreign taxing authority have been
completed, those years for which examinations by such agencies are presently
being conducted, and those years for which notice of pending or threatened
examination or adjustment has been received. Except to the extent indicated in
Schedule 2.8(b), all deficiencies asserted or assessments made as a result of
any examinations by the IRS or any state, local or foreign Tax authority have
been fully paid, or are fully described in Schedule 2.8(b), are being contested
in good faith and an adequate reserve therefor has been established and are
fully reflected in the Balance Sheet. Except as described in Schedule 2.8(b),
there are no Returns that are presently under examination with respect to Taxes,
there are no proposed (whether oral or written) or final adjustments,
assessments or deficiencies with respect to Taxes currently pending, and there
are no outstanding notices of proposed or actual audit, examination or
investigation with respect to Taxes.
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(c) Except as described in Schedule 2.8(c):
(i) The Company has properly filed, or has had
properly filed on its behalf, on a timely basis, all Returns required to have
been filed and all Taxes required to be shown thereon as due have been paid on a
timely basis or an adequate reserve therefor has been established in accordance
with GAAP. All such Returns were, when filed, and continue to be, true, complete
and correct in all material respects. No Liability for Taxes has been incurred,
and no taxable income has been realized, by the Company since January 1, 1998
other than in the ordinary course of business. No director, officer or employee
of the Company or any Affiliate having responsibility for Tax matters is in
discussions with Tax authorities or has reason to believe that any Tax authority
has valid grounds to claim or assess any additional Tax with respect to the
Company materially in excess of the amounts shown on the Balance Sheet for the
period ending on such date and amounts incurred in the ordinary course of
business since that date;
(ii) The Company is not, and has not been at any
time, a member of an affiliated group as defined in Section 1504 of the Code.
The Company has no Liability for Taxes of any other Person;
(iii) With respect to all amounts in respect of Taxes
and with respect to all taxable periods or portions of periods ending on or
before the Closing, all applicable Tax laws and agreements have been fully
complied with, and all amounts required to be paid by the Company to Tax
authorities or others have been paid;
(iv) None of the Returns contains, or was required to
contain (in order to avoid the imposition of a penalty), a disclosure statement
under Section 6662 (or any predecessor provision) of the Code, or any similar
provision of state, local or foreign law, with respect to the income, gain,
loss, deduction or credit of the Company;
(v) All amounts in excess of $10,000 (in the
aggregate) that were required to be collected or withheld by or in respect of
the Company in connection with amounts paid or owing to any employee,
independent contractor, creditor, stockholder or other third party have been
duly collected or withheld, and all amounts in excess of $10,000 (in the
aggregate) that were required to be remitted to any Governmental Authority by or
in respect of the Company have been duly remitted;
(vi) The Company has not requested an extension of
time to file any Return not yet filed, and has not granted any waiver of any
statute of limitations with respect to, or any extension of a period for the
assessment of, any Tax. No power of attorney with respect to Taxes is in force;
(vii) The Company has not taken any action not in
accordance with past practice that would have the effect of deferring any
material Tax Liability of the Company from any taxable period or portion thereof
ending on or before Closing to any subsequent taxable period or portion thereof;
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(viii) There are no actual or deemed elections under
Section 338 of the Code, protective carryover basis elections, offset
prohibition elections or similar elections applicable to the Company;
(ix) The Company is not required to include in its
income any adjustment pursuant to Sections 481 or 263A of the Code (or similar
provisions of other Applicable Law) by reason of a change in accounting method
or otherwise, following the Closing, and to Company's knowledge the IRS (or
other Governmental Authority) has not proposed, and is not considering
proposing, any such change in accounting method or other adjustment;
(x) There are no Liens for Taxes (other than for
current Taxes not yet due and payable) upon the assets of the Company;
(xi) The Company is not a party to any agreement,
contract, arrangement or plan that has resulted or would result, separately or
in the aggregate, in the payment of any "excess parachute payments" within the
meaning of Section 280G of the Code, whether by reason of the Closing or
otherwise;
(xii) The Company does not have and has not had a
permanent establishment in any foreign country, as defined in any applicable Tax
treaty or convention between the United States of America and such foreign
country; the Company has not engaged in a trade or business within any foreign
country;
(xiii) The Company is not party to any joint venture,
partnership, or other arrangement or contract that could be treated as a
partnership for federal income Tax purposes;
(xiv) The Company has never filed an election pursuant
to Section 1361 of the Code (or any similar provision for state or local tax
purposes). The Company has not filed a consent pursuant to the collapsible
corporation provisions of Section 341(f) of the Code (or any corresponding
provision of state, local or foreign income Tax law) or agreed to have Section
341(f)(2) of the Code (or any corresponding provision of state, local or foreign
income Tax law) apply to any disposition of any asset owned by the Company;
(xv) The Company has not participated in an
international boycott within the meaning of Section 999 of the Code;
(xvi) The Company is not, and has not been, a party to
a Tax sharing agreement. The Company has no current or contingent contractual
obligation to indemnify any Person with respect to Taxes, other than obligations
to indemnify a lessor for property taxes, sales/use taxes or gross receipts
taxes (but not income or franchise Taxes) imposed on lease payments arising from
terms that are customary for leases of similar property;
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(xvii) The Company is not a party to or bound by any
closing agreement, offer in compromise or other contractual or similar
arrangement with any Tax Governmental Authority;
(xviii) No material election with respect to Taxes
incurred by the Company has been made from and after the filing of the most
recently filed Return with respect to such Taxes;
(xix) Schedule 2.8(c)(xix) sets forth, with respect to
the Company, as of December 31, 1997, the tax basis in its assets (by type), and
the amount of any net operating loss, net capital loss, and unused tax credit
carryovers (and type thereof), for federal (both regular and alternative minimum
tax) and applicable state income tax purposes. The Company shall have delivered
a schedule with similar information, determined as of December 31, 1998, no
later than July 31, 1999;
(xx) The Company currently uses the accrual method of
accounting for United States federal and state income Tax purposes (and for any
other Tax purposes where use of the accrual method of accounting is required)
and has not changed to or from such method of accounting during the preceding
five years;
(xxi) The Company has provided to representatives of
Acquiror copies of all federal and state income and franchise Returns for all
taxable years beginning with the taxable year ended December 31, 1995, and other
written correspondence, filed or submitted by the Company with or to the
relevant Tax authorities in connection with any audit, examination or accounting
method or tax year change, and has produced for Acquiror's inspection all other
Returns by the Company;
(xxii) The Company is not, and has not been at any
time, a "United States real property holding corporation" within the meaning of
Section 897(c)(2) of the Code;
(xxiii) All outstanding options to acquire equity of the
Company that purport to be or were otherwise intended (when issued) to be
treated as "incentive stock options" ("ISOs") within the meaning of Section 422
of the Code (and any predecessor provision and any similar provision applicable
under state, local or other Tax law) were issued in compliance with such
section. All such outstanding options currently qualify and immediately prior to
the Effective Time will qualify for treatment as ISOs, and are held by persons
who are employees of the Company;
(xxiv) None of the assets of the Company is property
that the Company is required to treat as being owned by any other person
pursuant to the so-called "safe harbor lease" provisions of former Section
168(f)(8) of the Internal Revenue Code of 1954, as amended; none of the assets
of the Company directly or indirectly secures any debt the interest on which is
tax exempt under Section 103(a) of the Code; none of the assets of the Company
is "tax-exempt use property" within the meaning of Section 168(h) of the Code;
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(xxv) The Company has not redeemed Company Capital
Stock (except as set forth in Schedule 2.8(c)) or made an "extraordinary
distribution" within the meaning of Treasury Regulation Section
1.368-1T(e)(1)(ii) and has not agreed or reached an understanding to make any
such redemption or distribution; and
(xxvi) The Company is not liable for fines or penalties
in excess of $5,000 with respect to, or as a result of, the Company's failure to
comply with its SARSEP scheme.
2.9. Restrictions on Business Activities. Except as set forth on
Schedule 2.9, there is no agreement (noncompete or otherwise), judgment,
injunction, order or decree to which the Company is a party or otherwise binding
upon the Company that has or is reasonably likely to have the effect of
prohibiting or impairing any business practice of the Company, any acquisition
of property (tangible or intangible) by the Company or the conduct of business
by the Company. Without limiting the foregoing, the Company has not entered into
any agreement under which the Company is restricted from selling, licensing or
otherwise distributing any of its products or providing services to any class of
customers, in any geographic area, during any period of time or in any segment
of the market.
2.10. Title to Properties; Absence of Liens and Encumbrances.
(a) The Company owns no real property, nor has it ever owned
any real property. Schedule 2.10(a) sets forth a list of all real property
currently leased by the Company, the name of the lessor and the date of the
lease and each amendment thereto. All such current leases are in full force and
effect, are valid and effective in accordance with their respective terms, and
there is not, under any of such leases, any existing material default or event
of default (or event which with notice or lapse of time, or both, would
constitute a default) on the part of the Company, or to the Company's knowledge,
on the part of any other party thereto. Complete and correct copies of such
leases have been delivered to Acquiror.
(b) The Company has good and valid title to, or, in the case
of leased properties and assets, valid leasehold interests in, all of its
properties and assets, tangible and intangible (including Intellectual Property
Assets), real, personal and mixed, used or held for use in its business, free
and clear of any Liens, except as reflected in the Company Financials except for
Liens for Taxes not yet due and payable and such imperfections of title, if any,
that do not materially interfere with the present value of the subject property
or as may be reflected in Schedule 2.10(b).
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2.11. Intellectual Property.
(a) Certain Definitions.
(i) The term "Intellectual Property Rights" means
all United States and foreign:
(1) fictional business names, trade names,
registered and unregistered trademarks
and service marks, and applications
therefor (collectively, "Marks");
(2) patents, patent rights and all
applications therefor (collectively,
"Patents");
(3) copyrights in both published works and
unpublished works and all registrations
and applications therefor (collectively,
"Copyrights");
(4) know-how, trade secrets, confidential
information and other proprietary
information, including customer lists
(collectively, "Trade Secrets"); and
(5) rights in and to any and all inventions,
discoveries, concepts, ideas, drawings,
designs, refinements, extensions,
improvements, software (including object
and source code), computer software
programs or applications (in both source
code and object code form), data,
databases, mask works, know-how,
research and development, techniques,
modifications, and other proprietary and
intellectual property rights (whether or
not patentable or subject to copyright,
mask work or trade secret protection)
not included in the foregoing
subparagraphs (2), (3) or (4)
(collectively, "Technology").
(ii) The term "Intellectual Property Assets" means
all Intellectual Property Rights owned or licensed by the Company and used in or
necessary to the conduct of the Company's business and all further uses of the
terms Marks, Patents, Copyrights, Trade Secrets and Technology in this Section
shall mean Marks, Patents, Copyrights, Trade Secrets and Technology that are
Intellectual Property Assets.
(b) Ownership of Software. The term "Software" means all
software, modules, design documents, flow charts and other related development
documents developed or licensed by the Company, or used in or necessary for the
conduct of the Company's business, and all patents and copyrights to each of
those items and specifically excluding those items prepared for customers in the
operation of the Company's business for which the customer contractually has
vested title. Schedule 2.11(b) sets forth a complete and correct list of all of
the Company's Software (excluding software that is available through commercial
distributors or in consumer retail stores and subject to "shrink-wrap"
agreements). The Company has not assigned, transferred or encumbered any of its
rights to the Software.
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(c) Marks.
(i) Schedule 2.11(c) contains a complete and correct
list and summary description of all Marks. Seller is the owner of all right,
title and interest in and to each of the Marks, free and clear of all Liens.
(ii) Except as set forth on Schedule 2.11(c), all
Marks have been registered with the United States Patent and Trademark Office
or, if foreign, with the appropriate foreign Governmental Authority, and are
currently in material compliance with all legal requirements (including the
timely post-registration filing of affidavits of use and incontestability and
renewal applications), are valid and enforceable, and are not subject to any
maintenance fees or actions falling due on or prior to the date of this
Agreement.
(iii) No Mark has been or is now involved in any
opposition or cancellation and, to the Company's knowledge, no such action is
threatened with the respect to any of the Marks.
(iv) To the Company's knowledge, there is no
potentially conflicting trademark or trademark application of any third party.
(v) No Mark is infringed or, to the Company's
knowledge, has been challenged or threatened in any way. None of the Marks used
by the Company infringes or is alleged to infringe any trade name, trademark or
service mark of any third party.
(d) Patents.
(i) Schedule 2.11(d) contains a complete and correct
list and summary description of all Patents. The Company is the owner of all
right, title, and interest in and to each of the Patents, free and clear of all
Liens.
(ii) Except as set forth in Schedule 2.11(d), all of
the Patents are currently in material compliance with legal requirements
(including payment of filing, examination, and maintenance fees and proofs of
working or use), are valid and enforceable, and are not subject to any
maintenance fees or taxes or actions falling due on or prior to the date of this
Agreement.
(iii) No Patent has been or is now involved in any
interference, reissue, reexamination or opposing proceeding. To the Company's
knowledge, there is no potentially interfering patent or patent application of
any third party.
(iv) No Patent is infringed or, to the Company's
knowledge, has been challenged or threatened in any way. None of the products
used, manufactured, marketed, sold or licensed, nor any process or know-how
used, by the Company in the Business infringes or is alleged to infringe any
patent or other proprietary right of any other Person.
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(e) Copyrights.
(i) Schedule 2.11(e) contains a complete and correct
list and summary description of all Copyrights. The Company is the owner of all
right, title and interest in and to each of the Copyrights, free and clear of
all Liens and other adverse claims.
(ii) Except as specified in Schedule 2.11(e), all of
the Copyrights have been registered with the U.S. Copyright Office or, if
foreign, with the appropriate foreign governmental authority, and are currently
in material compliance with all formal legal requirements, are valid and
enforceable, and are not subject to any maintenance fees or actions falling due
prior to the date of this Agreement.
(iii) No Copyright is infringed or, to the Company's
knowledge, has been challenged or threatened in any way. None of the subject
matter of any of the Copyrights infringes or is alleged to infringe any
copyright of any third party.
(f) Trade Secrets. The Company has taken all reasonable
precautions to protect the secrecy, confidentiality and value of all Trade
Secrets relating to the Company's business.
(g) Intellectual Property Scheduled Contracts. Schedule
2.11(g) contains a complete and correct list of all material contracts and their
expiration dates (if any) relating to the Intellectual Property Assets to which
the Company is a party or by which the Company is bound, except for any license
for common publicly retailed software programs that are currently distributed
with a value of less than Five Thousand Dollars ($5,000). There are no
outstanding and, to the Company's knowledge, no threatened disputes or
disagreements with respect to any such contract. The expiration dates of all
Scheduled Contracts are sufficiently distant from the date hereof that no
potential material impairment of the value of any of the Company's products
could reasonably be imputed by virtue of an inability of the Company to respond
to a non-extension notice.
(h) Ownership of Intellectual Property Assets. The Company
has the right to use, or is the owner of all right, title, and interest in and
to, each of the Intellectual Property Assets, free and clear of all Liens, and
has the right to use without payment to a third party all of the Intellectual
Property Assets.
(i) Employee Agreements. All employees and independent
contractors of the Company involved with the development of products or the
Software for the Company have executed written agreements with the Company that
appropriately protect the Intellectual Property Assets. To the knowledge of the
Company, no employee of the Company has entered into any contract or other
agreement with any Person (other than the Company) that restricts or limits in
any material respect the scope or type of work in which the employee may be
engaged for the Company or requires the employee to transfer, assign, or
disclose information concerning the employee's work with the Company to anyone
other than the Company.
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(j) Infringement Generally. The Company is not, nor has it
during the period preceding the date of this Agreement been, a party to any
Proceeding, nor, to the Company's knowledge, is any Proceeding threatened, that
involves or involved a claim of infringement by the Company or any other Person
of any Intellectual Property Asset. No Intellectual Property Asset of the
Company is subject to any outstanding order, judgment, decree, stipulation or
agreement restricting the use thereof by the Company or, in the case of any
Intellectual Property Asset licensed to others, restricting the sale, transfer,
assignment or licensing thereof by the Company to any Person. To the Company's
knowledge, its use of any Intellectual Property Assets does not conflict with,
infringe upon or violate any Intellectual Property Right or other right of any
Person.
(k) Use of Intellectual Property. The Company owns, or is
licensed or otherwise possesses legally enforceable rights to use, all
Intellectual Property Assets that are used in the business of the Company as
currently conducted.
(l) Software. The portion of the Software developed by the
Company does not contain any Materials or Development Environments (each as
defined below) that embody Intellectual Property Rights of any Person other than
the Company, except for such Materials or Development Environments obtained by
the Company from other Persons who make such Materials or Development
Environments generally available to all interested purchasers or end-users on
standard commercial terms. For purposes of this Agreement, (i) the term
"Materials" means computer programming code (including both object code and
source code versions thereof), databases, documentation (including user manuals
and other written materials that relate to particular code or databases), and
other materials useful for design (for example, logic manuals, flow charts, and
principles of operation), and (ii) the term "Development Environments" means any
device, programming, documentation, media and other objects, including
compilers, "workbenches," tools, and higher-level or "proprietary" languages,
used by the Company for the development, maintenance and implementation of the
Materials, to the extent such objects may be necessary for any subsequent
maintenance or enhancement of the same, similar or related Materials by Acquiror
after the Closing or the comprehension by reasonably competent programmers of
the operation of such Materials in their business context.
(m) Software Documentation. The Company has taken all
actions customary in the software industry to document the Software and its
operation, such that the Materials comprising the Software, including the source
code and documentation, have been written in a clear and professional manner so
that they may be understood, modified and maintained in an efficient manner by
reasonably competent programmers.
(n) Year 2000. Except as set forth on Schedule 2.11(n), the
current versions of the Software and all other Intellectual Property Assets that
have been and will be licensed to the Company's or Acquiror's customers may be
used prior to, during and after the calendar year 2000 A.D., such that such
Software and Intellectual Property Assets will operate prior to, during and
after such time period without error caused by date data that represents or
references different centuries or more than one century.
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2.12. Agreements, Scheduled Contracts and Commitments.
(a) Except as set forth on Schedule 2.12(a), the Company
does not have, is not a party to nor is it bound by:
(i) any collective bargaining agreements;
(ii) any agreements or arrangements that contain any
severance pay or post-employment liabilities or obligations;
(iii) any bonus, deferred compensation, sales
compensation plan, pension, profit sharing or retirement plans, or any other
employee benefit plans or arrangements or agreements to change any such plans
whether written or oral;
(iv) any employment or consulting agreement with an
employee or individual consultant, or any consulting or sales agreement under
which a firm or other organization provides services to the Company in any case
involving aggregate payments in excess of Ten Thousand Dollars ($10,000) in one
year;
(v) any agreement or plan, including any stock
option plan, stock appreciation rights plan or stock purchase plan, any of the
benefits of which will be increased, or the vesting of benefits of which will be
accelerated, by the occurrence of any of the transactions contemplated by this
Agreement or the value of any of the benefits of which will be calculated on the
basis of any of the transactions contemplated by this Agreement;
(vi) any fidelity or surety bond or completion bond;
(vii) any lease of personal property having a value
individually in excess of Ten Thousand Dollars ($10,000);
(viii) any agreement of indemnification or guaranty
other than in Scheduled Contracts or customary intellectual property
indemnifications made in the ordinary course of business;
(ix) any agreement pursuant to which the Company has
granted or may grant in the future, to any party a source-code license or option
or other right to use or acquire source-code;
(x) any agreement relating to capital expenditures
and involving future payments in excess of Fifteen Thousand Dollars ($15,000);
(xi) any agreement relating to the disposition or
acquisition of assets or any interest in any business enterprise outside the
ordinary course of the Company's business;
(xii) any mortgages, indentures, loans or credit
agreements, security agreements or other agreements or instruments relating to
the borrowing of money or extension of credit, including guaranties referred to
in clause (viii) of this Section 2.12;
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(xiii) any purchase order or contract for the purchase
of raw materials or services involving Fifteen Thousand Dollars ($15,000) or
more;
(xiv) any construction contracts;
(xv) any distribution, joint marketing or development
agreement;
(xvi) any other agreement that involves Twenty-Five
Thousand Dollars ($25,000) or more or is not cancelable without penalty upon
notice of thirty (30) days or less; and
(xvii) each other material agreement or commitment,
whether written or oral; without in any way limiting the foregoing, Schedule
2.12(a) lists all material agreements, amendments, supplements, addenda,
modifications and side letters.
The Company shall not be deemed to be in breach of the representations and
warranties of this Section 2.12(a) for any matters arising after the date hereof
so long as such matters are permitted by Section 4.1, and the Company provides
Acquiror with written notice of all such matters promptly after the Company's
becoming aware thereof and, in any event, at least five (5) Business Days prior
to the Closing.
(b) Except for such alleged breaches, violations and
defaults, and events that would constitute a breach, violation or default with
the lapse of time, giving of notice, or both, as are all noted in Schedule
2.12(b), the Company has not in any material respect breached, violated or
defaulted under, or received notice that it has materially breached, violated or
defaulted under, any of the terms or conditions of any agreement, contract or
commitment required to be set forth on Schedule 2.9, Schedule 2.12(a) or
Schedule 2.11(f) (any such agreement, contract or commitment, regardless of
whether it is set forth on such schedule, a "Scheduled Contract"). Each
Scheduled Contract is in full force and effect and, except as otherwise
disclosed in Schedule 2.12(b), is not subject to any default thereunder of which
the Company has knowledge by any party obligated to the Company pursuant
thereto.
(c) With respect to the consulting agreements of the Company
listed on Schedule 2.12(a), (i) all of the agreements and understandings of the
Company and each of the respective third parties are set forth in the copies of
such agreements provided to Acquiror, (ii) there are no other agreements,
written or oral, changing the rights or obligations of Acquiror thereunder and
(iii) except as set forth in Schedule 2.12(c), the Company has retained all
rights to its Intellectual Property Assets related to such agreements and the
third parties do not have any ownership interest, jointly or otherwise, in the
Intellectual Property Assets. Except as set forth in Schedule 2.12(c), there are
no consulting or other agreements with customers, the cost to perform of which
is expected, or is already in excess of, the total receipts expected to be
generated from said customer under such agreement.
2.13. Interested Party Transactions. Except as set forth on Schedule
2.13, no officer, director or Affiliate of the Company (nor any ancestor,
sibling, descendant or spouse of any of such persons, or any trust, partnership
or corporation in which any of such persons has or has had an economic
interest), has or has had, directly or indirectly, (i) an economic interest in
any entity
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which furnished or sold, or furnishes or sells, services or products that the
Company furnishes or sells, or proposes to furnish or sell, or (ii) an economic
interest in any entity that purchases from or sells or furnishes to, the
Company, any goods or services, or (iii) a beneficial interest in any Scheduled
Contract or (iv) any contractual or other arrangement with the Company;
provided, that ownership of no more than one percent (1%) of the outstanding
voting stock of a publicly traded corporation shall not be deemed an "economic
interest in any entity" for purposes of this Section 2.13.
2.14. Compliance with Laws. The Company has complied with in all
material respects, is not in material violation of, and has not received any
notices of a material violation with respect to, any Applicable Law.
2.15. Litigation. As of the date hereof, except as set forth in
Schedule 2.15, there is no Proceeding of any nature pending or, to the Company's
knowledge, threatened against the Company, its properties or any of its
officers, directors or employees, in their respective capacities as such. As of
the date hereof, except as set forth in Schedule 2.15, to the Company's
knowledge, there is no investigation pending or threatened against the Company,
its properties or any of its officers, directors or employees by or before any
Governmental Authority. Schedule 2.15 sets forth, with respect to any such
pending or threatened Proceeding or investigation, the forum, the parties
thereto, the subject matter thereof and the amount of damages claimed or other
remedy requested. No Governmental Authority has at any time challenged or
questioned the legal right of the Company to manufacture, offer or sell any of
its products in the present manner or style thereof. As of the date hereof,
there is no Proceeding pending, or as to which the Company has received any
notice of assertion against the Company, that in any manner challenges or seeks,
or reasonably could be expected, to prevent, enjoin, alter or materially delay
any of the transactions contemplated by this Agreement.
2.16. Insurance. Schedule 2.16 sets forth a list and description of
each insurance policy currently in effect where the Company is the beneficiary.
Such schedule lists the name of the insurer, policy coverage, coverage amounts
and premiums payable. With respect to the insurance policies and fidelity bonds
covering the assets, business, equipment, properties, operations, employees,
officers and directors of the Company, there is no claim by the Company pending
under any of such policies or bonds as to which coverage has been questioned,
denied or disputed by the underwriters of such policies or bonds. All premiums
due and payable under all such policies and bonds have been paid and the Company
is otherwise in material compliance with the terms of such policies and bonds
(or other policies and bonds providing substantially similar insurance
coverage). The Company has no knowledge of any threatened termination of, or
premium increase with respect to, any of such policies. The Company does not
have any key-man life insurance policies or any other policies under which the
Shareholders are beneficiaries, other than any policies set forth on Schedule
2.16 under which the Shareholders may be beneficiaries in their capacities as
employees of the Company.
2.17. Minute Books. The minute books of the Company made available to
counsel for Acquiror are the only minute books of the Company and contain a
reasonably accurate summary
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of all actions taken at meetings of directors (or committees thereof) and
shareholders or actions by written consent since the time of incorporation of
the Company.
2.18. Environmental Matters.
(a) No approval, authorization, certificate, consent,
license, order, permit and any other similar authorization of any Governmental
Authority, or from any other Person, is required under any Environmental Laws
applicable to the Company or any of its assets or operations. The Company has
complied and is in compliance in all material respects with all limitations,
restrictions, conditions, standards, requirements, schedules and time tables
required or imposed under all Environmental Laws.
(b) There is no Proceeding, citation or notice of violation
under any Environmental Law actually pending or, to the Company's knowledge,
threatened, relating to the Company or any of its assets or operations.
(c) To the Company's knowledge, there are no past or present
events, conditions, circumstances, activities, practices, incidents, actions,
omissions or plans that are reasonably likely to interfere with or prevent
continued compliance with any Environmental Law by the Company, or that are
reasonably likely to give rise to any Environmental Liability to the Company or
that otherwise may form the basis of any Proceeding, hearing, study or
investigation relating to the Company or any of its assets or operations (1)
under any Environmental Law, (2) based on or related to the manufacture,
processing, distribution, use, treatment, storage, disposal, transport or
handling, or the emission, discharge, release or threatened release, of any
Hazardous Substance by the Company or any other Person, or (3) resulting from
exposure to work place hazards. No survey, analysis or review relating to the
Company and any of its assets or operations has been performed or prepared at
any time by or for the Company, or of which the Company has a copy, that discuss
or relate to any existing or potential Environmental Liability.
(d) To the Company's knowledge, the Company is not required
or obligated to make any capital or other expenditure in excess of Ten Thousand
Dollars ($10,000) to comply with any Environmental Law nor is there any
reasonable basis on which any Governmental Authority would take any action that
would require any such capital or other expenditure.
2.19. Brokers' and Finders' Fees; Third Party Expenses. The Company
has not incurred, nor will it incur, directly or indirectly, any Liability for
brokerage or finders' fees or agents' commissions or any similar charges in
connection with this Agreement or any transaction contemplated hereby.
2.20. Employee Matters and Benefit Plans.
(a) Definitions. With the exception of the definition of
"Affiliate" set forth in Section 2.20(a)(i) below (such definition shall only
apply to this Section 2.20), for purposes of this Agreement, the following terms
shall have the meanings set forth below:
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(i) "Affiliate" shall mean any other person or
entity under common control with the Company within the meaning of Section
414(b), (c), (m) or (o) of the Code and the regulations thereunder;
(ii) "ERISA" shall mean the Employee Retirement
Income Security Act of 1974, as amended;
(iii) "Company Employee Plan" shall refer to any plan,
program, policy, practice, contract, agreement or other arrangement providing
for compensation, severance, termination pay, performance awards, stock or
stock-related awards, fringe benefits or other employee benefits or remuneration
of any kind, whether formal or informal, funded or unfunded, written or
unwritten, including each "employee benefit plan," within the meaning of Section
3(3) of ERISA that is or has been maintained, contributed to, or required to be
contributed to, by the Company or any Affiliate for the benefit of any
"Employee" (as defined below), and pursuant to which the Company or any
Affiliate has or may have any Liability contingent or otherwise;
(iv) "Employee" shall mean any current, former, or
retired employee, officer, or director of the Company or any Affiliate;
(v) "Employee Agreement" shall refer to each
management, employment, severance, consulting, relocation, repatriation,
expatriation, visa, work permit or similar agreement or contract between the
Company or any Affiliate and any Employee or consultant;
(vi) "IRS" shall mean the Internal Revenue Service;
(vii) "Multiemployer Plan" shall mean any "Pension
Plan" (as defined below) which is a "multiemployer plan," as defined in Section
3(37) of ERISA; and
(viii) "Pension Plan" shall refer to each Company
Employee Plan which is an "employee pension benefit plan," within the meaning of
Section 3(2) of ERISA.
(ix) "Welfare Plan" shall refer to each Company
Employee Plan which is a welfare plan as defined in ERISA Section 3(1).
(b) Schedule. Schedule 2.20(b) contains an accurate and
complete list of each Company Employee Plan and each Employee Agreement,
together with a schedule of all liabilities, whether or not accrued, under each
such Company Employee Plan or Employee Agreement. The Company does not have any
stated plan or commitment to establish any new Company Employee Plan or Employee
Agreement, to modify any Company Employee Plan or Employee Agreement (except to
the extent required by Applicable Law or to conform any such Company Employee
Plan or Employee Agreement to the requirements of any Applicable Law or as
required by this Agreement), or to enter into any additional Company Employee
Plan or Employee Agreement.
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(c) Documents. The Company has made available to Acquiror
(i) correct and complete copies of all documents embodying or relating to each
Company Employee Plan (including a written description of each Company Employee
Plan which is not otherwise set forth in writing) and each Employee Agreement
(or standard forms thereof which do not differ in any material respect from the
final versions of such Employment Agreements) including all amendments thereto
and any written communications provided to Employees in connection therewith;
(ii) the most recent annual actuarial valuations, if any, prepared for each
Company Employee Plan; (iii) the three most recent annual reports (Series 5500
and all schedules thereto), if any, required under ERISA or the Code in
connection with each Company Employee Plan or related trust; (iv) if Company
Employee Plan is funded, the most recent annual and periodic accounting of
Company Employee Plan assets; (v) the most recent summary plan description
together with the most recent summary of material modifications, if any,
required under ERISA with respect to each Company Employee Plan; (vi) all IRS
determination letters and rulings received by the Company relating to Company
Employee Plans and copies of all applications and correspondence to or from the
IRS or the Department of Labor ("DOL") with respect to any Company Employee
Plan; (vii) all communications material to any Employee or Employees relating to
any Company Employee Plan and any proposed Company Employee Plan, in each case,
relating to any amendments, terminations, establishments, increases or decreases
in benefits, acceleration of payments or vesting schedules or other events which
would result in any Liability to the Company; and (viii) all registration
statements and prospectuses prepared in connection with each Company Employee
Plan.
(d) Employee Plan Compliance. Except as set forth on
Schedule 2.20(d), (i) the Company and its Affiliates have performed in all
material respects all obligations required to be performed by it under each
Company Employee Plan and each Company Employee Plan has been established and
maintained in all material respects in accordance with its terms and in
compliance with all Applicable Laws, including ERISA and the Code; (ii) no
"prohibited transaction," within the meaning of Section 4975 of the Code or
Section 406 of ERISA, has occurred with respect to any Company Employee Plan;
(iii) there are no Proceedings pending, or, to the Knowledge of the Company or
its Affiliates, threatened or anticipated (other than routine claims for
benefits) against any Company Employee Plan or against the assets of any Company
Employee Plan; (iv) each Company Employee Plan can be amended, terminated or
otherwise discontinued after the Effective Time in accordance with its terms,
without Liability to the Company, Acquiror or any of its Affiliates (other than
amounts accrued to be paid to the plan in the Company Financials and ordinary
administration expenses incurred in a termination event); (v) there are no
inquiries or Proceedings pending or, to the Knowledge of the Company or any
Affiliates, threatened by the IRS or DOL with respect to any Company Employee
Plan; (vi) neither the Company nor any Affiliate is subject to any penalty or
tax with respect to any Company Employee Plan under Section 4975 through 4980 of
the Code; (vii) each Company Employee Plan that is intended to be qualified
under Section 401(a) of the Code is and has always been so qualified and has
received a favorable determination letter with respect to such status from the
IRS, and no act or omission has occurred since the date of the most recent
favorable determination issued with respect to a Company Employee Plan which
resulted or is likely to result in the revocation of the Company Employee Plan's
qualified status; and (viii)
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there is no material violation of any reporting or disclosure requirements
imposed by ERISA or the Code with respect to any Company Employee Plan.
(e) Pension Plans. The Company and its Affiliates do not
now, nor have they ever, maintained, established, sponsored, participated in, or
contributed to, any Pension Plan that is subject to Part 3 of Subtitle B of
Title I of ERISA, Title IV of ERISA or Section 412 of the Code.
(f) Multiemployer Plans. At no time have the Company or its
Affiliates contributed to or been requested to contribute to any Multiemployer
Plan.
(g) Post-Employment Obligations. Except as set forth in
Schedule 2.20(g), no Company Employee Plan provides, or has any Liability to
provide, life insurance, medical or other employee welfare benefits to any
Employee upon his or her retirement or termination of employment for any reason,
except as may be required by statute, benefits the full cost of which are borne
by Employees of the Company (or such Employees' beneficiaries or dependents),
death or disability benefits under any of the Company Employee Plans, and life
insurance benefits for any Employee who dies while in service with the Company.
The Company has never represented, promised or contracted (whether in oral or
written form) to any Employee (either individually or to Employees as a group)
that such Employee(s) would be provided with life insurance, medical or other
employee welfare benefits upon their retirement or termination of employment,
except to the extent required by statute.
(h) Welfare Plans With respect to any Welfare Plans
maintained by the Company or its Affiliates, whether or not for the benefit of
the Company's employees, the Company and its Affiliates have complied in all
material respects with the provisions of Sections 4980B, 9801 and 9802 of the
Code.
(i) Effect of Transaction.
(i) The execution of this Agreement and the
consummation of the transactions contemplated hereby will not (either alone or
upon the occurrence of any additional or subsequent events) constitute an event
under any Company Employee Plan, Employee Agreement, trust or loan that will or
may result in any payment (whether of severance pay or otherwise), acceleration,
forgiveness of indebtedness, vesting, distribution, increase in benefits or
obligation to fund benefits with respect to any Employee.
(ii) No payment or benefit which will or may be made
by the Company or Acquiror or any of their respective affiliates with respect to
any Employee will be characterized as an "excess parachute payment," within the
meaning of Section 280G(b)(1) of the Code.
(j) Employment Matters. The Company (i) is in compliance in
all material respects with all Applicable Laws respecting employment, employment
practices, terms and conditions of employment and wages and hours, in each case,
with respect to Employees; (ii) has withheld all material amounts required by
Applicable Law or by agreement to be withheld from
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the wages, salaries and other payments to Employees; (iii) is not liable for any
arrears of wages, commissions, bonuses or any other type of compensation or any
taxes or any penalty for failure to comply with any of the foregoing; (iv) is
not liable for any payment to any trust or other fund or to any Governmental
Authority, with respect to unemployment compensation benefits, social security
or other benefits or obligations for Employees (other than routine payments to
be made in the normal course of business and consistent with past practice) and
(v) to the Company's knowledge, is not liable for nor has been threatened with
any claim for discrimination or sexual harassment. Schedule 2.20(j) sets forth a
complete and correct list of all employees holding visas issued by the United
States, listing each such employee by name and type of visa. Except as set forth
on Schedule 2.20(j), all other employees of the Company are citizens of the
United States. With respect to the two immediately preceding sentences, the
Company shall not be deemed to be in breach of such representations and
warranties for any matters arising after the date hereof so long as such matters
are permitted by Section 4.1, and the Company provides Acquiror with written
notice of all such matters at least three (3) Business Days prior to the
Closing.
(k) Labor Matters. No work stoppage or labor strike against
the Company is pending or, to the Knowledge of the Company, threatened. Except
as set forth in Schedule 2.20(k), the Company is not involved in or, to the
Knowledge of the Company, threatened with, any labor dispute, grievance, or
litigation relating to labor, safety or discrimination matters involving any
Employee, including, without limitation, charges of unfair labor practices or
discrimination complaints, which, if adversely determined, would, individually
or in the aggregate, result in Liability to the Company. Neither the Company nor
any of its subsidiaries has engaged in any unfair labor practices within the
meaning of the National Labor Relations Act which would, individually or in the
aggregate, directly or indirectly result in a Liability to the Company. Except
as set forth in Schedule 2.20(k), the Company is not presently, nor has it been
in the past, a party to, or bound by, any collective bargaining agreement or
union contract with respect to Employees and no collective bargaining agreement
is being negotiated by the Company.
(l) Employment at Will. Except as set forth in Schedule
2.20(l), the Company is not bound by any agreement, nor has it taken or omitted
to take any action, that restricts its ability to terminate the employment of
any of its employees at any time without payment or other Liability.
2.21. Company Affiliates. Schedule 2.21 sets forth those persons who,
in the Company's reasonable judgment, are "affiliates" of the Company as such
term is used in Rule 145 promulgated under the Securities Act ("Rule 145") and
such other persons who Acquiror has requested. Each person who is an "affiliate"
of the Company has delivered an executed Affiliate Agreement in the form of
Exhibit A that, to the Company's knowledge (without any independent inquiry), is
in full force and effect and is enforceable in accordance with its terms against
each such person.
2.22. Non-competition, Non-solicitation and Non-hire Agreements. Each
Principal Shareholder has executed and delivered to Acquiror a Non-competition,
Non-solicitation and
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Non-hire Agreement in substantially the form of Exhibit D-1 through D-4 (the
"Noncompete Agreements") and, to the Company's knowledge (without any
independent inquiry), all of the Noncompete Agreements are in full force and
effect and are enforceable in accordance with their terms against each Principal
Shareholder, except as such enforceability may be limited by principles of
public policy and subject to laws relating to bankruptcy, insolvency and the
relief of debtors and to rules of law governing specific performance, injunctive
relief and other equitable remedies.
2.23. Voting Agreement and Proxies. Each of the persons listed on
Schedule 2.23, all of whom are shareholders of the Company (the "Shareholders"),
has executed and delivered to Acquiror a Voting Agreement and Proxy in
substantially the form of Exhibit E (the "Voting Agreement and Proxy"), and, to
the Company's knowledge (without any independent inquiry), each Voting Agreement
and Proxy is in full force and effect and is enforceable in accordance with its
terms against each such Shareholder, except as such enforceability may be
limited by principles of public policy and subject to laws relating to
bankruptcy, insolvency and the relief of debtors and to rules of law governing
specific performance, injunctive relief and other equitable remedies.
2.24. Pooling of Interests. Neither the Company, nor to its knowledge,
any of its officers, directors, affiliates or stockholders, has taken any action
that the Company believes would render the Company ineligible to participate in
a transaction accounted for as a pooling-of-interests.
2.25. Representations Complete. To the Company's Knowledge, none of
the representations or warranties made by the Company nor any statement made in
any Schedule or certificate furnished by the Company pursuant to this Agreement,
or furnished in or in connection with documents mailed or delivered to the
shareholders in connection with soliciting their consent to this Agreement and
the Merger, contains or will contain at the Effective Time, any untrue statement
of a material fact, or omits or will omit at the Effective Time to state any
material fact necessary in order to make the statements contained herein or
therein, in the light of the circumstances under which made, not misleading;
provided however, that the financial projections delivered by the Company
represent only the Company's good faith estimate of what it reasonably believes
to be true and are based on assumptions that appeared reasonable at the time
such projections were made. The Company further believes that such assumptions
are reasonable as of the date hereof.
2.26. Subsequent Events. Notwithstanding anything contained herein to
the contrary, the Company shall not be deemed to be in breach of the
representations and warranties contained in Sections 2.2, 2.6, 2.7, 2.8, 2.9,
2.10, 2.11, 2.12, 2.13, 2.14, 2.15, 2.16, 2.18 and 2.20 of this Article II for
any matters arising after the date hereof so long as such matters are either (i)
permitted by Section 4.1, or (ii) arise primarily as a result of Acquiror's
actions or written directions to the Company.
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ARTICLE IIA
REPRESENTATIONS AND WARRANTIES OF PRINCIPAL SHAREHOLDERS
Each Principal Shareholder represents and warrants to Acquiror as
follows:
2A.1 Organization, Standing and Power. If such Principal Shareholder
is a corporation, it is a corporation duly organized, validly existing and in
good standing under the laws of the State of Delaware; such corporation has the
corporate power to own its properties and to carry on its business.
2A.2 Authority. If such Principal Shareholder is a corporation, (i)
it has all requisite corporate power and authority to enter into this Agreement
and consummate the transactions contemplated hereby; and (ii) the execution and
delivery of this Agreement and the consummation of the transactions contemplated
hereby have been duly authorized by all necessary corporate action on the part
of such Principal Shareholder.
2A.3 Enforceability. This Agreement has been duly executed and
delivered by the Principal Shareholder and, assuming due execution and delivery
by the Company and Acquiror, constitutes the valid and binding obligation of
such Principal Shareholder, enforceable in accordance with its terms, except as
such enforceability may be limited by principles of public policy and subject to
laws relating to bankruptcy, insolvency and the relief of debtors and to rules
of law governing specific performance, injunctive relief and other equitable
remedies. The execution and delivery of this Agreement by such Principal
Shareholder does not, and, as of the Effective Time, the consummation of the
transactions contemplated hereby will not, conflict with, or result in any
violation of, or default under (with or without notice or lapse of time, or
both), or give rise to a right of termination, cancellation or acceleration of
any obligation or loss of any material benefit under (i) if such Principal
Shareholder is a corporation, any provision of the Certificate of Incorporation
or Bylaws of such Principal Shareholder or (ii) any mortgage, indenture, lease,
contract or other agreement or instrument, permit, concession, franchise,
license, judgment, order, decree or Applicable Law applicable to such Principal
Shareholder or its properties or assets that could reasonably be expected to
have a Material Adverse Change on such Principal Shareholder. No consent,
waiver, approval, order or authorization of, or registration, declaration or
filing with, any court, administrative agency or commission or other
Governmental Authority or any third party is required by or with respect to such
Principal Shareholder in connection with the execution and delivery of this
Agreement or the consummation of the transactions contemplated hereby, except
for such consents, waivers, approvals, orders, authorizations, registrations,
declarations and filings as may be required under applicable federal and state
securities laws.
2A.4 Litigation. There is no Proceeding pending or, to such Principal
Shareholder's knowledge, threatened that in any manner challenges or seeks, or
reasonably could be expected, to prevent, enjoin, alter or materially delay any
of the transactions contemplated by this Agreement.
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2A.5 Ownership of Shares. Such Principal Shareholder has good and
valid title to the shares of Company Capital Stock set forth opposite such
Principal Shareholder's name in Schedule 2.2(a), free and clear of any Liens.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF ACQUIROR
Acquiror represents and warrants to the Company as follows:
3.1. Organization, Standing and Power. Acquiror is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware. Acquiror has the corporate power to own its properties and to carry on
its business as now being conducted and is duly qualified to do business and is
in good standing in each jurisdiction in which the failure to be so qualified
would result in a Material Adverse Change on Acquiror.
3.2. Authority. Acquiror has all requisite corporate power and
authority to enter into this Agreement and consummate the transactions
contemplated hereby. The execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby have been duly authorized
by all necessary corporate action on the part of Acquiror. This Agreement has
been duly executed and delivered by Acquiror and, assuming due execution and
delivery by the Company, constitutes the valid and binding obligation of
Acquiror, enforceable in accordance with its terms, except as such
enforceability may be limited by principles of public policy and subject to laws
relating to bankruptcy, insolvency and the relief of debtors and to rules of law
governing specific performance, injunctive relief and other equitable remedies.
The execution and delivery of this Agreement by Acquiror does not, and, as of
the Effective Time, the consummation of the transactions contemplated hereby
will not, conflict with, or result in any violation of, or default under (with
or without notice or lapse of time, or both), or give rise to a right of
termination, cancellation or acceleration of any obligation or loss of any
material benefit under (i) any provision of the Certificate of Incorporation or
Bylaws of Acquiror or (ii) any mortgage, indenture, lease, contract or other
agreement or instrument, permit, concession, franchise, license, judgment,
order, decree or Applicable Law applicable to Acquiror or its properties or
assets that could reasonably be expected to have a Material Adverse Change on
Acquiror. No consent, waiver, approval, order or authorization of, or
registration, declaration or filing with, any court, administrative agency or
commission or other Governmental Authority or any third party is required by or
with respect to Acquiror in connection with the execution and delivery of this
Agreement or the consummation of the transactions contemplated hereby, except
for (i) the filing of the Certificate of Merger with the Delaware Secretary of
State, (ii) the filing with the Secretary of State of the State of Georgia of
the Georgia Articles, and (iii) such consents, waivers, approvals, orders,
authorizations, registrations, declarations and filings as may be required under
applicable federal and state securities laws.
3.3. Capital Structure.
(a) As of the date hereof, the authorized stock of Acquiror
consists of seven hundred million (700,000,000) shares of Common Stock, of which
Two Hundred Thirty-Three
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Million Seventeen Thousand Two Hundred Sixty-Three (233,017,263) shares were
issued and outstanding as of October 31, 1998, and Two Million (2,000,000)
shares of Preferred Stock, none of which is issued or outstanding. As of the
date hereof, all outstanding shares of Acquiror are duly authorized, validly
issued, fully paid and nonassessable.
(b) The shares of Acquiror Common Stock to be issued
pursuant to the Merger will be, upon issuance in accordance with this Agreement,
duly authorized, validly issued, fully paid and non-assessable.
3.4. SEC Documents; Acquiror Financial Statements. Acquiror has
furnished or made available to the Company true and complete copies of all
reports, definitive proxy materials or registration statements filed by it with
the U.S. Securities and Exchange Commission (the "SEC") under the Securities
Exchange Act of 1934 (the "Exchange Act") for all periods ending on or
subsequent to December 31, 1997 and on or prior to the date hereof, all in the
form so filed (all of the foregoing and any other reports, definitive proxy
materials or registration statements filed by Acquiror with the SEC under the
Exchange Act for all periods ending on or subsequent to the date hereof and on
or prior to the Closing Date being collectively referred to as the "SEC
Documents"), which are all such documents (other than preliminary proxy
materials) that Acquiror was required to file with the SEC since that date. As
of their respective filing dates, the SEC Documents complied in all material
respects with the requirements of the Exchange Act, and none of the SEC
Documents contained any untrue statement of a material fact or omitted to state
a material fact required to be stated therein or necessary to make the
statements made therein, in light of the circumstances in which they were made,
not misleading, except to the extent corrected by a subsequently filed document
with the SEC. The financial statements of Acquiror, including the notes thereto,
included in the SEC Documents (the "Acquiror Financial Statements") comply as to
form in all material respects with applicable accounting requirements and with
the published rules and regulations of the SEC with respect thereto, have been
prepared in accordance with generally accepted accounting principles
consistently applied (except as may be indicated in the notes thereto) and
present fairly the consolidated financial position of Acquiror at the dates
thereof and of its operations and cash flows for the periods then ended
(subject, in the case of unaudited statements, to normal audit adjustments,
which are not expected to be material in amount). There has been no change in
Acquiror accounting policies except as described in the notes to the Acquiror
Financial Statements. Acquiror represents and warrants that it is eligible as of
the date hereof to use Form S-3 under the Securities Act of 1933, as amended
(the "Securities Act"), and will use commercially reasonable efforts to maintain
such eligibility.
3.5. Litigation. There is no Proceeding pending or, to Acquiror's
knowledge, threatened that in any manner challenges or seeks, or reasonably
could be expected, to prevent, enjoin, alter or materially delay any of the
transactions contemplated by this Agreement.
3.6. Representations Complete. To the Acquiror's Knowledge, none of
the representations or warranties made by the Acquiror nor any statement made in
any Schedule or certificate furnished by the Acquiror pursuant to this
Agreement, or furnished in or in connection with documents mailed or delivered
to the shareholders of the Company in connection with
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soliciting their consent to this Agreement and the Merger, contains or will
contain at the Effective Time, any untrue statement of a material fact, or omits
or will omit at the Effective Time to state any material fact necessary in order
to make the statements contained herein or therein, in the light of the
circumstances under which made, not misleading.
ARTICLE IV
CONDUCT PRIOR TO THE EFFECTIVE TIME
4.1. Conduct of Business of the Company.
(a) During the period from the date of this Agreement and
continuing until the earlier of the termination of this Agreement and the
Effective Time, except as expressly contemplated by this Agreement, contemplated
by the budget for the period from the date of this Agreement until the Closing
Date agreed upon by Acquiror and the Company on or prior to the date hereof or
disclosed in Schedule 4.1, the Company shall not, without the prior written
consent of Acquiror:
(i) Enter into any material commitment or
transaction except under the Distribution Agreement or Distribution Agreement
Contracts, including any capital expenditures or capital lease obligations;
(ii) Convey, transfer or assign to any Person any
rights to any Intellectual Property Rights except under the Distribution
Agreement and the Distribution Agreement Contracts;
(iii) Enter into or amend any agreements pursuant to
which any Person is granted marketing, distribution or similar rights of any
type or scope or any third party royalty rights with respect to any products of
the Company, or enter into or amend any strategic alliance, license or
sub-license agreement, joint marketing agreement or joint development agreement,
except for agreements that are terminable for convenience by the Company upon
sixty (60) days notice or less (which notice may be given any time within sixty
(60) days of the Closing Date), provided that the Company shall have no further
obligation under any of such contracts following their termination other than
obligations to maintain confidential information;
(iv) Terminate, amend or otherwise modify in any
material respect any contract, agreement or commitment that is not a Scheduled
Contract except in the ordinary course of business consistent with past
practice, or terminate, amend or otherwise modify in any material respect any of
the Scheduled Contracts;
(v) Violate the terms of any of the Scheduled
Contracts in any material manner;
(vi) Commence any litigation or any binding dispute
resolution process (other than in respect of any breach of or claim arising
under this Agreement);
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(vii) Declare, set aside or pay any dividends on or
make any other distributions (whether in cash, stock or property) in respect of
any of its capital stock, or split, combine or reclassify any of its capital
stock or issue or authorize the issuance of any other securities in respect of,
in lieu of or in substitution for, shares of its capital stock, or repurchase,
redeem or otherwise acquire, directly or indirectly, any shares of its capital
stock, except repurchases of shares in connection with terminations of
employment in the ordinary course of business consistent with past practice;
(viii) Issue, grant, deliver or sell or authorize or
propose the issuance, grant, delivery or sale of, or purchase or propose the
purchase of, any shares of its capital stock or securities convertible into, or
subscriptions, rights, warrants or options to acquire (including Company
Options), or other agreements or commitments of any character obligating it to
issue any such shares or other convertible securities, except the issuance of
Company Common Stock upon the exercise of Company Options;
(ix) Make any payment to any shareholder (except as
permitted by clause (vii) above), officer, director or employee of the Company
or any Affiliate or relative of any of them except payment for services rendered
by any such person as an employee or independent contractor of the Company in
the ordinary course of business consistent with past practices;
(x) Amend its Articles of Incorporation or Bylaws in
any way;
(xi) Permit the corporate existence of the Company or
the rights or franchises or any license, permit or authorization under which its
business operates to be suspended, lapsed, revoked or modified;
(xii) Acquire or agree to acquire by merging or
consolidating with, or by purchasing any assets (other than assets, immaterial
in amount, in the ordinary course of business consistent with past practice) or
equity securities of, or by any other manner, any business or any corporation,
partnership, association or other business organization or division thereof, or
otherwise acquire or agree to acquire any assets in an amount in excess of Ten
Thousand Dollars ($10,000) in the case of a single transaction or in excess of
Twenty-Five Thousand Dollars ($25,000) in the aggregate in any 90 day period;
(xiii) Sell, lease, license or otherwise dispose of any
of its properties or assets, except in the ordinary course of business
consistent with past practice, cancel any debts or claims involving any Person,
or pledge, assign or otherwise convey, or cause or allow any Lien to be placed
or exist upon any such property or asset (other than liens for Taxes or
governmental assessments, charges or claims the payment of which is not yet due,
or for taxes the validity of which are being contested in good faith by
appropriate proceedings; or statutory liens of landlords and liens of carriers,
warehousemen, mechanics, materialmen and other similar persons and other liens
imposed by Applicable Law incurred in the ordinary course of business consistent
with past practice for sums not yet delinquent or being contested in good
faith);
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(xiv) Enter into any transaction not described in
clause (xiii) above with respect to any of its assets and properties outside of
the ordinary course of business consistent with past practice, where the
expenditure is likely to occur, in whole or in part, after the Closing Date;
(xv) Incur any indebtedness or guarantee any
indebtedness or issue or sell any debt securities of the Company or guarantee
any debt securities of others other than (1) for borrowed money from Acquiror,
(2) accounts payable in the ordinary course of business consistent with past
practice, and (3) amounts payable pursuant to Section 5.3;
(xvi) Enter into or amend any employment agreements,
oral or written, increase the compensation payable or to become payable by it to
any of its officers, directors, employees or consultants over the amount payable
as of September 30, 1998, or adopt or amend any employee benefit plan or
arrangement (oral or written) (including any amendment to the Option Plan or the
agreements thereunder), or increase the salaries or wage rates of its officers,
directors, employees or consultants;
(xvii) Terminate the employment of any executive
officer or vice president (including any Key Employee) (except terminations
effected to facilitate such person becoming an employee of Acquiror) or grant
any severance or termination pay to any director, officer or any other employee,
except payments made pursuant to written agreements or other legally binding
commitments disclosed to Acquiror in writing outstanding on the date hereof;
(xviii) Make any representation or commitment to
employees of the Company with respect to the Company's or Acquiror's intention
to continue employment of any such employee after the Closing Date or that would
create a legally enforceable obligation on the part of the Company or Acquiror
to continue employment of any such employees after the Closing;
(xix) Revalue any of its assets, including writing
down the value of inventory or writing off notes or accounts receivable, other
than in the ordinary course of business consistent with past practice;
(xx) Pay, discharge or satisfy any Liability, other
than the payment, discharge or satisfaction in the ordinary course of business
consistent with past practice of Liabilities (1) reflected or reserved against
in the Company Financials (or the notes thereto) or (2) that arise in the
ordinary course of business consistent with past practice subsequent to the
Balance Sheet Date and that are expenses incurred in a manner permitted by the
provisions of this Agreement;
(xxi) Lend any money;
(xxii) Allow any insurance policy relating to the
Company's business to be amended or terminated without replacing such policy
with a policy providing at least equal coverage, insuring comparable risks and
issued by an insurance company financially comparable to the prior insurance
company;
(xxiii) Make or change any material election in respect
of Taxes, adopt or change any accounting method in respect of Taxes, except as
required by GAAP or Applicable Law,
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enter into any closing agreement, offer in compromise or other contractual or
similar arrangement, settle any material claim or assessment in respect of
Taxes, grant any power of attorney with respect to Taxes, or consent to any
extension or waiver of the limitation period applicable to any claim or
assessment in respect of Taxes;
(xxiv) Make or change any of its methods of accounting
as the same were in effect as of the Balance Sheet Date, except as required by
changes in generally accepting accounting principles, as concurred by the
independent auditors of the Company, or as required by regulatory accounting
principles or other regulatory requirements;
(xxv) Amend or otherwise take any action that would
permit or cause any Company Option to accelerate in contemplation of or as a
consequence of the Merger or the other transactions contemplated by this
Agreement;
(xxvi) Enter into or modify any new or existing
agreements for the lease or purchase of personal property where the aggregate
scheduled payments thereunder would exceed Ten Thousand Dollars ($10,000), or
enter into or modify any new or existing agreements for the lease or purchase of
real property; or
(xxvii) Take, or agree in writing or otherwise to take,
any of the actions described in Sections 4.1(a)(i) through (xxvi) above, or any
other action that would prevent the Company from performing or cause the Company
not to perform its covenants hereunder.
(b) During the period from the date of this Agreement and
continuing until the earlier of the termination of this Agreement and the
Effective Time, the Company shall (except as contemplated by this Agreement and
except to the extent that Acquiror shall otherwise consent in writing):
(i) Carry on its business in the usual, regular and
ordinary course in all material respects in the same manner as heretofore
conducted and maintain its assets and properties in the ordinary course of
business in the manner historically maintained by the Company, reasonable wear
and tear, damage by fire and other casualty excepted;
(ii) Promptly repair, restore or replace any of its
material assets and properties in the ordinary course of business consistent
with past practice;
(iii) Upon any damage, destruction or loss to any of
the assets or properties of the Company, apply any and all insurance proceeds
received with respect thereto to the prompt repair, replacement and restoration
thereof;
(iv) Comply in all material respects with all
Applicable Laws;
(v) Pay its debts and Taxes when due and pursue
collection of its accounts receivable in the ordinary course of business,
consistent with past practices;
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(vi) Completely and accurately in all material
respects file all Returns when due;
(vii) Pay and perform all of its obligations when due;
(viii) To the extent consistent with its business, use
all reasonable efforts consistent with past practice and policies to preserve
intact its present business organization;
(ix) Use all reasonable efforts consistent with past
practice and policies to keep available the services of its present officers and
Key Employees;
(x) Use all reasonable efforts consistent with past
practice and policies to preserve relationships with customers, suppliers,
distributors, licensors, licensees and others having business dealings with it;
(xi) The Company shall promptly notify Acquiror of
any Material Adverse Change, any materially negative event related to the
Company or its business, and any other event or circumstance that does or may
reasonably constitute a breach of any representation, warranty or covenant of
the Company in this Agreement;
(xii) The Company shall promptly notify Acquiror of
the commencement of any Proceeding by or against the Company or any threatened
Proceeding of which the Company becomes aware that relates to the Company, or
the transactions contemplated by this Agreement;
(xiii) Take all actions necessary to be in material
compliance with all agreements, contracts and commitments of the Company;
(xiv) Use all reasonable efforts to consummate the
transactions contemplated by this Agreement;
(xv) The Company shall undertake its obligations and
duties under this Section 4.1(b) with the goal of preserving unimpaired its
goodwill and ongoing businesses at the Effective Time.
4.2. No Solicitation. Until the earlier of the Effective Time or the
date of termination of this Agreement pursuant to the provisions of Section 9.1
hereof, the Company will not (and the Company will use its best efforts to
ensure that none of the Company's officers, directors, employees, agents,
representatives or Affiliates), directly or indirectly, take any of the
following actions with any party other than Acquiror and its designees (and,
effective on or prior to the date hereof, has ceased engaging in any of the
following activities with any Person other than Acquiror): (a) solicit, conduct
discussions with or engage in negotiations with any Person, relating to the
possible acquisition of the Company or any of its subsidiaries (whether by way
of merger, purchase of capital stock, purchase of assets or otherwise) or any
portion of its or their capital
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stock or assets, (b) provide information with respect to it to any Person, other
than Acquiror, relating to the possible acquisition of the Company (whether by
way of merger, purchase of capital stock, purchase of assets or otherwise) or
any portion of its or their capital stock or assets, (c) enter into an agreement
with any Person, other than Acquiror, providing for the acquisition of the
Company (whether by way of merger, purchase of capital stock, purchase of assets
or otherwise) or any portion of its or their capital stock or assets or (d) make
or authorize any statement, recommendation or solicitation in support of any
possible acquisition of the Company or any of its subsidiaries (whether by way
of merger, purchase of capital stock, purchase of assets or otherwise) or any
portion of its or their capital stock or assets by any Person, other than by
Acquiror. In addition to the foregoing, if the Company receives prior to the
Effective Time or the termination of this Agreement any offer or proposal
relating to any of the above, the Company shall promptly notify Acquiror
thereof, including information as to the identity of the offeror or the party
making any such offer or proposal and the specific terms of such offer or
proposal, as the case may be, and such other information related thereto as
Acquiror may request.
ARTICLE V
ADDITIONAL AGREEMENTS
5.1. Employee Matters.
(a) Employees. As soon as practical after the date hereof
and, in any event, prior to August 31, 1999, Acquiror will evaluate the
Company's employees and the existing operations of the Company to determine
which of the Company's employees will be offered employment with Acquiror on
terms to be proposed by Acquiror, subject to execution of Acquiror's standard
forms of offer letters and non-disclosure agreements. As soon as practical after
the date hereof and, in any event, prior to August 31, 1999, Acquiror shall
identify to the Company those employees of the Company to whom Acquiror desires
to offer employment as of and after the Effective Time. All such employees of
the Company desirous of becoming employees of Acquiror will be subject to
employment at the will of Acquiror. Employees who do not receive an offer of
employment from Acquiror shall be eligible for such severance benefits as may be
agreed upon in writing by Acquiror and the Company; provided, however, that in
order to be eligible for receipt of such severance benefits, each such employee
must first execute a written release, in form and substance reasonably
acceptable to Acquiror, releasing Acquiror and the Company from all claims
arising out of their employment with the Company or with Acquiror.
Notwithstanding the foregoing, nothing contained herein shall be interpreted or
construed to create a contract of employment between such employee and Acquiror.
(b) Eligibility for Acquiror Employee Plans. Upon the
Closing, each of the employees of the Company who becomes an employee of
Acquiror upon the Effective Time of the Merger ("Continuing Employee") shall
cease to participate in or accrue benefits under the Company Employee Plans and,
except as provided herein, shall be eligible to participate in Acquiror employee
benefit plans generally applicable to employees of Acquiror (the "Acquiror
Employee Plans") in accordance with the terms of each such plan. For purposes of
the Acquiror Employee Plans (with the exception of the Acquiror vision plan),
the years of service of each Continuing Employee that were recognized by the
Company as of the Effective Time of the Merger for a Company Employee Plan shall
be recognized by Acquiror for purposes of each
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Acquiror Employee Plan that Acquiror reasonably determines to be a corresponding
plan, in each case to the extent allowed under the provisions of each of the
applicable Acquiror Employee Plans. Pursuant to the terms of Acquiror's 401(k)
plan, any matching contributions by Acquiror under the 401(k) plan for any
Continuing Employee shall be only with respect to such Continuing Employee's
contributions after the Effective Time and not with respect to contributions
made by the Continuing Employee to the Company's 401(k) plan prior to the
Effective Time.
(c) Eligibility for Acquiror Incentive Compensation Plans.
Acquiror shall use all reasonable efforts to cause all Continuing Employees
whose date of hire by the Company is on or before October 1, 1999 to become
eligible to participate in Acquiror's Employee Incentive Bonus Plan (the
"Incentive Plan") commencing on the later of January 1, 2000 or the Closing
Date, and to cause all Continuing Employees whose date of hire by the Company is
after October 1, 1999 to become eligible to participate in Acquiror's incentive
compensation plan commencing on April 1, 2000. This Section 5.1(c) shall not
apply with respect to any Continuing Employee who participates in any variable
compensation plan of Acquiror other than the Incentive Plan.
(d) Company Employee Plans. At Acquiror's request, the
Company shall take all necessary actions so that the Company Employee Plans are
frozen or terminated immediately prior to the Closing Date.
5.2. Access to Information. The Company shall afford to Acquiror and
its accountants, counsel and other representatives, reasonable access during
normal business hours during the period prior to the Effective Time to (a) all
of the Company's properties, books, contracts, agreements and records, and (b)
all other information concerning the business, properties and personnel (subject
to restrictions imposed by Applicable Law) of it as Acquiror may reasonably
request. No information or knowledge obtained in any investigation pursuant to
this Section 5.2 shall affect or be deemed to modify any representation or
warranty contained herein or the conditions to the obligations of the parties to
consummate the Merger. Acquiror shall provide the Company copies of such
publicly available information about Acquiror as the Company may reasonably
request and shall provide the Company with reasonable access to appropriate
members of management in this regard. Between the date hereof and the Closing
Date, the Company shall also provide Acquiror with updated Company financial
statements within ten (10) Business Days of the end of each month.
5.3. Expenses. Whether or not the Merger is consummated, all fees and
expenses incurred in connection with the Merger, including all legal,
accounting, financial advisory, consulting and all other fees and expenses of
third parties incurred by a party in connection with the negotiation and
effectuation of the terms and conditions of this Agreement and the transactions
contemplated hereby ("Third Party Expenses"), shall be the obligation of the
respective party incurring such fees and expenses; provided, however, that if
the Merger is consummated, all Third Party Expenses of the Company up to Fifty
Thousand Dollars ($50,000) shall be paid or reimbursed by Acquiror and all Third
Party Expenses of the Company in excess of Fifty Thousand Dollars ($50,000)
shall be paid by the Principal Shareholders.
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5.4. Public Disclosure. Unless otherwise required by Applicable Law
(including securities laws) or, as to Acquiror, by the rules and regulations of
the Nasdaq National Market, prior to the Effective Time, Acquiror and the
Company shall consult with each other before making any disclosure (whether or
not in response to an inquiry) of the subject matter of this Agreement or the
transactions contemplated hereby, and no public announcement or press release
regarding the subject matter of this Agreement or the transactions contemplated
thereby shall be made by any party hereto unless approved by Acquiror and the
Company prior to release, provided that such approval shall not be unreasonably
withheld. Acquiror and the Company shall cooperate in good faith to prepare and
agree upon any press release or other public announcement that either of them
may determine is necessary or in its best interests.
5.5. Consents. The Company and Acquiror shall cooperate with one
another in determining whether any action by or in respect of, or filing with,
or notice, to any Governmental Authority is required or reasonably appropriate,
or any action, consent, approval or waiver from any party to any Contract is
required or reasonably appropriate, in connection with the consummation of the
transactions contemplated by this Agreement, and shall take all actions
necessary or requested by the Company or Acquiror, as the case may be, in
connection therewith. Subject to the terms and conditions of this Agreement, in
taking such actions or making any such filings, the parties hereto shall furnish
all information required in connection therewith and seek timely to obtain any
such actions, consents, approvals or waivers; provided, however, that the
parties hereto shall cooperate with each other in connection with the making of
all such filings, including, to the extent the following is permitted under
Applicable Law, by (a) providing copies of all such documents to the non-filing
parties and their advisors prior to filing and, if requested, to accept
reasonable additions, deletions or changes suggested in connection therewith and
(b) providing to each other party copies of all correspondence from and to any
Governmental Authority in connection with any such filing.
5.6. Reasonable Efforts. Subject to the terms and conditions provided
in this Agreement, each of the parties hereto shall use its reasonable efforts
to take promptly, or cause to be taken, all actions, and to do promptly, or
cause to be done, all things necessary, proper or advisable to consummate and
make effective the transactions contemplated hereby, to obtain all necessary
waivers, consents and approvals, to effect all necessary registrations and
filings and to remove any injunctions or other impediments or delays, legal or
otherwise, in order to consummate and make effective the transactions
contemplated by this Agreement for the purpose of securing to the parties hereto
the benefits contemplated by this Agreement and the satisfaction of the
conditions herein; provided that Acquiror shall not be required to agree to any
divestiture by Acquiror or the Company or any of Acquiror's Affiliates of shares
of capital stock or of any business, assets or property of Acquiror or its
Affiliates or the Company or its Affiliates, or the imposition of any material
limitation on the ability of any of them to conduct their businesses or to own
or exercise control of such assets, properties and stock.
5.7. Notification of Certain Matters. The Company shall give prompt
notice to Acquiror, and Acquiror shall give prompt notice to the Company, of (i)
the occurrence or non-occurrence of any event, the occurrence or non-occurrence
of which is likely to cause any representation or warranty of the Company and
Acquiror, respectively, contained in this
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Agreement to be untrue or inaccurate in any material respect at or prior to the
Effective Time except as contemplated by this Agreement (including the
Disclosure Schedules) and (ii) any failure of the Company or Acquiror, as the
case may be, to comply with or satisfy in any material respect any covenant,
condition or agreement to be complied with or satisfied by it hereunder;
provided, however, that the delivery of any notice pursuant to this Section 5.7
shall not limit or otherwise affect any remedies available to the party
receiving such notice.
5.8. Pooling Accounting and Tax Treatment. Acquiror and the Company
shall each use their reasonable efforts to cause the business combination to be
effected by the Merger to be accounted for as a pooling of interests. Each of
Acquiror and the Company shall use its reasonable efforts to cause its
respective employees, directors, shareholders and Affiliates not to take any
action that would adversely affect the ability of Acquiror to account for the
business combination to be effected by the Merger as a pooling of interests.
Neither Acquiror nor the Company shall take any action, including the
acceleration of vesting of any options, warrants, restricted stock or other
rights to acquire shares of the capital stock of the Company, which reasonably
would be expected to (i) interfere with Acquiror's ability to account for the
Merger as a pooling of interests or (ii) jeopardize the nature of the Merger as
a reorganization within the meaning of Section 368 of the Code.
5.9. Affiliate Agreements. Schedule 2.21 sets forth those persons
who, in the Company's reasonable judgment, are "affiliates" of the Company
within the meaning of Rule 145 promulgated under the Securities Act ("Rule
145"). The Company has delivered or shall cause to be delivered to Acquiror,
concurrently with the execution of this Agreement, from such affiliates an
executed Affiliate Agreement in the form attached hereto as Exhibit A (the
"Company Affiliate Agreements"). The Company shall provide to Acquiror such
information and documents as Acquiror shall reasonably request for purposes of
reviewing Schedule 2.21. Acquiror shall be entitled to place appropriate legends
on the certificates evidencing any Acquiror Common Stock to be received by
Affiliates of the Company pursuant to the terms of this Agreement, and to issue
appropriate stop transfer instructions to the transfer agent for Acquiror Common
Stock, consistent with the terms of the Affiliate Agreements.
5.10. Additional Documents and Further Assurances. Each party hereto,
at the request of any other party hereto, shall execute and deliver such other
instruments and do and perform such other acts and things as may be necessary or
reasonably requested for effecting completely the consummation of this Agreement
and the transactions contemplated hereby.
5.11. Blue Sky Laws. Acquiror shall take such steps as may be
necessary to comply with the securities and blue sky laws of all jurisdictions
which are applicable to the issuance of Acquiror Common Stock pursuant hereto.
The Company shall use its reasonable efforts to assist Acquiror as may be
necessary to comply with the securities and blue sky laws of all jurisdictions
which are applicable in connection with the issuance of Acquiror Common Stock
pursuant hereto.
5.12. Indemnification. Upon the consummation of the Merger, Acquiror
shall indemnify the officers and directors of the Company on the date hereof on
the same terms as
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provided in the Articles of Incorporation and Bylaws of the Company as they are
currently in effect for action or inaction by any such person prior to the
Merger.
5.13. Company Shareholder Approval. As promptly as practicable after
the execution of this Agreement, the Company shall submit this Agreement and the
transactions contemplated hereby to its shareholders for approval and adoption
in accordance with the provisions of Georgia Law and its Articles of
Incorporation and Bylaws. The Company shall solicit and obtain the unanimous
consent of its shareholders to this Agreement and the transactions contemplated
hereby. The materials submitted to the Company's shareholders shall be subject
to review and approval by Acquiror and include information regarding the
Company, the terms of the Merger and this Agreement and the unanimous
recommendation of the Board of Directors of the Company in favor of the Merger
and this Agreement.
5.14. Registration Rights.
(a) Acquiror shall use all reasonable commercial efforts to
cause to be registered under the Securities Act so as to permit the resale
thereof, and in connection therewith shall use all reasonable commercial efforts
to prepare and file with the SEC within sixty (60) days following the Closing
and shall use all reasonable commercial efforts to cause to become effective as
soon as practicable thereafter, a registration statement on Form S-3 or on such
other form as is then available under the Securities Act covering the shares of
Acquiror Common Stock issued pursuant to this Agreement (the "Registrable
Securities"); provided, however, that each holder of Registrable Securities
("Holder") shall provide all such information and materials to Acquiror and take
all such action as may be required in order to permit Acquiror to comply with
all applicable requirements of the SEC and to obtain any desired acceleration of
the effective date of such registration statement. Such provision of information
and materials is a condition precedent to the obligations of Acquiror pursuant
to this Section. Acquiror shall not be required to effect more than one (1)
registration under this Section. The offering made pursuant to such registration
shall not be underwritten.
(b) Notwithstanding Section 5.14(a), Acquiror shall be
entitled to postpone the declaration of effectiveness of the registration
statement prepared and filed pursuant to Section 5.14(a) for a reasonable period
of time, but not in excess of forty-five (45) calendar days after the applicable
deadline, if the Board of Directors of Acquiror, acting in good faith,
determines that there exists material nonpublic information about Acquiror which
the Board does not wish to disclose in a registration statement which
information would otherwise be required by the Securities Act to be disclosed in
the registration statement to be filed pursuant to Section 5.14(a) above.
(c) Subject to the limitations of Section 5.14(a) above,
Acquiror shall (i) prepare and file with the SEC the registration statement in
accordance with Section 5.14(a) hereof with respect to the shares of Registrable
Securities and shall use all reasonable commercial efforts to cause such
registration statement to become effective as promptly as practicable after
filing and to keep such registration statement effective until one (1) year
after the Closing Date (provided that Acquiror's obligation to keep the
registration statement effective
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shall be extended by such period of time, if any, that Acquiror elects to delay
declaration of effectiveness under Section 5.14(b) or suspend the use of a
prospectus under Section 5.14(d)); (ii) prepare and file with the SEC such
amendments and supplements to such registration statement and the prospectus
used in connection therewith as may be necessary, and to comply with the
provisions of the Securities Act with respect to the sale or other disposition
of all securities proposed to be registered in such registration statement until
one (1) year after the Closing Date (provided that such period shall be extended
by the period of time, if any, that Acquiror elects to delay declaration of
effectiveness under Section 5.14(b) or suspend the use of a prospectus under
Section 5.14(d)); (iii) furnish to each Holder such number of copies of any
prospectus (including any preliminary prospectus and any amended or supplemented
prospectus) in conformity with the requirements of the Securities Act, and such
other documents, as each Holder may reasonably request in order to effect the
offering and sale of the shares of the Registrable Securities to be offered and
sold, but only while Acquiror shall be required under the provisions hereof to
cause the registration statement to remain effective; and (iv) use its
commercially reasonable efforts to register or qualify the shares of the
Registrable Securities covered by such registration statement under the
securities or blue sky laws of such jurisdictions as each Holder shall
reasonably request (provided that Acquiror shall not be required in connection
therewith or as a condition thereto to qualify to do business or to file a
general consent to service of process in any such jurisdiction where it has not
been qualified).
(d) Acquiror shall notify each Holder, (i) when a prospectus
or any prospectus supplement or post-effective amendment has been filed, and,
with respect to the registration statement or any post-effective amendment, when
the same has become effective; (ii) of any request by the SEC or any other
federal or state governmental authority during the period of effectiveness of
the registration statement for amendments or supplements to the registration
statement or related prospectus or for additional information relating to the
registration statement, (iii) of the issuance by the SEC or any other federal or
state governmental authority of any stop order suspending the effectiveness of
the registration statement or the initiation of any proceedings for that
purpose, (iv) of the receipt by Acquiror of any notification with respect to the
suspension of the qualification or exemption from qualification of any of the
Registrable Securities for sale in any jurisdiction or the initiation or
threatening of any proceeding for such purpose; or (v) of the happening of any
event which makes any statement made in the registration statement or related
prospectus or any document incorporated or deemed to be incorporated therein by
reference untrue in any material respect or which requires the making of any
changes in the registration statement or prospectus so that, in the case of the
registration statement, it will not contain any untrue statement of a material
fact or omit to state any material fact required to be stated therein or
necessary to make the statements therein not misleading, and that in the case of
the prospectus, it will not contain any untrue statement of a material fact or
omit to state any material fact or omit to state any material fact required to
be stated therein or necessary to make the statements therein, in the light of
the circumstances under which they were made, not misleading. Acquiror may, upon
the happening of any event of the kind described in clauses (ii), (iii), (iv),
or (v) hereof or, that, in the judgment of Acquiror's Board of Directors,
renders it advisable to suspend use of the prospectus for no more than
forty-five (45) days in the aggregate in any twelve (12) month period of time
due to pending corporate developments, public filings with the SEC or similar
events, suspend use of the prospectus on written notice to
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each Holder, in which case each Holder shall discontinue disposition of
Registrable Securities covered by the registration statement or prospectus until
copies of a supplemented or amended prospectus are distributed to the Holders or
until the Holders are advised in writing by the Company that the use of the
applicable prospectus may be resumed. Acquiror shall use its reasonable efforts
to ensure that the use of the prospectus may be resumed as soon as practicable.
Acquiror shall use every reasonable effort to obtain the withdrawal of any order
suspending the effectiveness of the registration statement, or the lifting of
any suspension of the qualification (or exemption from qualification) of any of
the securities for sale in any jurisdiction, at the earliest practicable moment.
Acquiror shall, upon the occurrence of any event contemplated by clause (v)
above, prepare a supplement or post-effective amendment to the registration
statement or a supplement to the related prospectus or any document incorporated
therein by reference or file any other required document so that, as thereafter
delivered to the purchasers of the Registrable Securities being sold thereunder,
such prospectus will not contain an untrue statement of a material fact or omit
to state a material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading.
(e) Prior to the filing of a registration statement,
Acquiror and any Holder wishing to sell Registrable Securities pursuant to the
registration statement shall enter into an agreement containing customary
indemnification provisions with respect to misstatements or omissions of
material fact contained in the registration statement.
(f) Acquiror shall pay all of the out-of-pocket expenses
incurred, other than underwriting discounts and commissions, in connection with
any registration of Registrable Securities pursuant to this Section 5.14,
including, without limitation, all SEC, NASD and blue sky registration and
filing fees, printing expenses, transfer agents' and registrars' fees, and the
reasonable fees and disbursements of Acquiror's outside counsel and independent
accountants.
(g) Upon the filing of the registration statement, the
shares of Acquiror Common Stock issuable to shareholders of the Company pursuant
to this Agreement and such other shares required to be reserved for issuance in
connection with the Acquisition shall have been authorized for listing on the
Nasdaq Stock Market upon official notice of issuance.
5.15. Confidentiality. Each party hereto shall maintain the
confidential nature of, and shall not use in any way detrimental to any other
party, including directly or indirectly in the conduct of such party's business,
all confidential financial, technical, marketing, research, commercial or other
information concerning the other parties hereto. In the event of the termination
of this Agreement for any reason, upon written request of any party, each party
receiving such request agrees to return to the requesting party any and all
materials containing any such confidential information relating to such
requesting party. The restrictions contained herein and in any Schedules and
Exhibits hereto shall not apply to any information that (a) is or becomes
generally available to the public other than as a result of a disclosure in
violation of the provisions hereof, (b) is or becomes available to such party
that has received such request on a non-confidential basis from a source other
than the requesting party, (c) is independently derived by the party to whom
such information was disclosed, or (d) is derived from information that is
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not confidential and does not contain any confidential information. In the event
that any party hereto receives a request to disclose all or any part of any
confidential information under the terms of a subpoena, order, civil
investigative demand or similar process issued by a court of competent
jurisdiction or by another Governmental Authority, such party agrees to: (i)
immediately notify the party to whom such confidential information relates of
the existence, terms and circumstances surrounding such request, (ii) consult
with such party to whom the information relates on the advisability of taking
legally available steps to resist or narrow such request and (iii) if disclosure
of such information is required, furnish only that portion of the confidential
information that, in the opinion of counsel to the party who has received the
request, such party is legally compelled to disclose and advise the party to
whom such confidential information relates as far in advance of such disclosure
as possible so that such party to whom the confidential information relates may
seek an appropriate protective order or other reliable assurance that
confidential treatment will be accorded such confidential information. In any
event, the party who receives the request shall not oppose actions by the party
to whom the confidential information relates to obtain an appropriate protective
order or other reliable assurance that confidential treatment will be accorded
such confidential information.
5.16. Registration Statement on Form S-8. Acquiror shall file a
registration statement on Form S-8 for the shares of Acquiror Common Stock
issuable with respect to assumed Company Options promptly after the Effective
Time, if such shares are not otherwise covered by an effective registration
statement on Form S-8.
5.17. Effectiveness of Certain Agreements. The Company and Acquiror
shall comply in all material respects with their respective obligations under
all Related Agreements to which they are a party. The Company shall use its best
efforts to cause each officer, employee and shareholder of the Company that is a
party to any Related Agreement to comply in all material respects with such
person's obligations under such Related Agreement. The Company acknowledges and
agrees that any failure by it to so comply with its obligations under any
Related Agreement, or by it to use its best efforts to cause each such other
person to so comply with such person's obligations under any Related Agreement,
shall constitute a material breach of this Agreement by the Company. Acquiror
acknowledges and agrees that any failure by it to so comply with its obligations
under any Related Agreement shall constitute a material breach of this Agreement
by Acquiror.
ARTICLE VI
CONDITIONS TO THE MERGER
6.1. Conditions to Obligations of Each Party to Effect the Merger.
The respective obligations of each party to this Agreement to effect the Merger
shall be subject to the satisfaction at or prior to the Closing of the following
conditions:
(a) Closing Date. The Closing Date may not take place
earlier than August 15, 1999, unless Acquiror and the Company shall specifically
approve an earlier date in writing. The Closing Date may not take place later
than October 15, 1999; provided, however,
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that such date shall be extended for such period of time as may be necessary for
the Remaining Estimated Costs to be determined pursuant to Section 8.3, if such
costs have not been determined in accordance with such section by October 15,
1999.
(b) No Injunctions or Restraints; Illegality. No temporary
restraining order, preliminary or permanent injunction or other order issued by
any court of competent jurisdiction or other legal or regulatory restraint or
prohibition preventing the consummation of the Merger shall be in effect. There
shall be no Proceeding pending, or as to which the Acquiror or the Company has
received any notice of assertion against the Acquiror or the Company, that in
any manner challenges or seeks, or reasonably could be expected, to prevent,
enjoin, alter or materially delay any of the transactions contemplated by this
Agreement.
(c) Shareholder Approval. This Agreement and the Merger
shall have been approved by all of the shareholders of the Company.
(d) Other Government Approvals. All government and third
party approvals for the acquisition shall have been received.
(e) Merger Filings. The Certificate of Merger shall have
been accepted for filing by the Secretary of State of the State of Delaware and
the Georgia Articles shall have been accepted for filing by the Secretary of
State of the State of Georgia. The Merger shall be effective under the laws of
the States of Georgia and Delaware.
6.2. Additional Conditions to Obligations of the Company. The
obligations of the Company to consummate the Merger and the transactions
contemplated by this Agreement shall be subject to the satisfaction at or prior
to the Closing of each of the following conditions, any of which may be waived,
in writing, exclusively by the Company:
(a) Representations and Warranties. The representations and
warranties of Acquiror contained in this Agreement shall be true and correct in
all material respects as of the date hereof. Except for changes contemplated by
this Agreement and except for those representations and warranties that address
matters only as of a particular date (which shall remain true and correct in all
material respects as of such date), Acquiror shall have used its reasonable best
efforts to cause the representations and warranties of Acquiror contained in
this Agreement to be true and correct as of the Closing Date with the same force
and effect as if made on and as of the Closing Date. The Company shall have
received a certificate signed on behalf of Acquiror by the Chief Financial
Officer and General Counsel of Acquiror certifying that the condition in this
Section 6.2(a) has been satisfied.
(b) Agreements and Covenants. Acquiror shall have used its
reasonable best efforts to perform and comply in all material respects with all
agreements and covenants required by this Agreement to be performed or complied
with by it on or prior to the Closing Date, and the Company shall have received
a certificate signed on behalf of Acquiror by the President and Chief Financial
Officer certifying that the condition in this Section 6.2(b) has been satisfied.
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(c) Legal Opinion. The Company shall have received a legal
opinion from Gibson Dunn & Crutcher LLP, counsel to Acquiror, in substantially
the form attached hereto as Exhibit B.
(d) Nasdaq Listing. The shares of Acquiror Common Stock
issuable to the Company pursuant to this Agreement and such other shares
required to be reserved for issuance in connection with the Merger shall have
been authorized for listing on the Nasdaq National Market upon official notice
of issuance.
(e) Additional Actions. Acquiror shall take such additional
actions, including the execution of such additional documents, as shall be
reasonably requested by the Company in connection with the consummation of the
transactions contemplated by this Agreement.
6.3. Additional Conditions to the Obligations of Acquiror. The
obligations of Acquiror to consummate the Merger and the transactions
contemplated by this Agreement shall be subject to the satisfaction at or prior
to the Closing of each of the following conditions, any of which may be waived,
in writing, exclusively by Acquiror:
(a) Representations and Warranties. The representations and
warranties of the Company contained in this Agreement shall be true and correct
in all material respects as of the date hereof. Except for changes contemplated
by this Agreement and except for those representations and warranties that
address matters only as of a particular date (which shall remain true and
correct in all material respects as of such date), the Company shall have used
its reasonable best efforts to cause the representations and warranties of the
Company contained in this Agreement to be true and correct as of the Closing
Date with the same force and effect as if made on and as of the Closing Date.
Acquiror shall have received a certificate signed on behalf of the Company by
the President and Chief Financial Officer of the Company certifying that the
condition in this Section 6.3(a) has been satisfied.
(b) Agreements and Covenants. The Company shall have used
its reasonable best efforts to perform and comply in all material respects with
all agreements and covenants required by this Agreement to be performed or
complied with by it on or prior to the Closing Date, and Acquiror shall have
received a certificate signed on behalf of the Company by the President and
Chief Financial Officer of the Company certifying that the condition in this
Section 6.3(b) has been satisfied.
(c) Legal Opinion. Acquiror shall have received a legal
opinion from Morris, Manning & Martin, L.L.P., counsel to the Company, in
substantially the form attached hereto as Exhibit C.
(d) Noncompete Agreements. Each Key Employee shall have
executed and delivered to Acquiror a Noncompete Agreement in substantially the
form of Exhibits D-1, D-2 or D-3, as applicable, and Datastream shall have
executed and delivered to Acquiror a Noncompete Agreement in substantially the
form of Exhibit D-4, and all of such Noncompete Agreements shall be in full
force and effect.
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(e) Secretary's Certificate. The Company shall have
delivered to Acquiror a duly executed Certificate of the Secretary of the
Company certifying and attaching (i) the Articles of Incorporation of the
Company as in effect as of the Closing Date, (ii) the Bylaws of the Company as
in effect as of the Closing Date, (iii) the resolutions of the Board of
Directors and shareholders of the Company approving the transactions
contemplated hereby, and (iv) such other matters as shall reasonably be
requested by Acquiror.
(f) Company Shareholder Approval. This Agreement and the
Acquisition shall have been approved and adopted by all of the shareholders of
the Company within sixty (60) days after the date hereof, and such approval
shall remain in full force and effect.
(g) Dissenters' Rights. No holder of Company Capital Stock
shall have exercised, nor shall they have any continued right to exercise, any
appraisal, dissenters' or similar rights under Applicable Law with respect to
their shares by virtue of the Merger.
(h) Tax Certifications. Acquiror shall have received from
the Company (A) a certification of non-foreign status described in Treasury
Regulation Section 1.1445-2(b)(2)(i), (B) a certification pursuant to Treasury
Regulation Section 1.1445-2(c)(3)(i) that the Company Capital Stock is not a
U.S. real property interest, in each case in form and substance reasonably
satisfactory to Acquiror, and (C) such certifications as are reasonably
requested by Acquiror for purposes of ensuring that the Merger qualifies as a
"pooling-of-interests" under Accounting Principles Board Opinion No. 16 and as a
"reorganization" within the meaning of Section 368(a) of the Code.
(i) Employee Releases. The Company shall have delivered to
Acquiror Employees Release, in the form attached hereto as Exhibit F, from at
least ninety percent (90%) of the employees of the Company on the Closing Date,
and shall have used all reasonable efforts to obtain such releases from all of
the employees of the Company on the Closing Date.
(j) Exercise of Company Warrants. All of the Company
Warrants shall have been exercised for shares of Company Capital Stock and no
Company Warrants shall be outstanding.
(k) New Zealand Subsidiary. The Company shall have acquired
100% of the outstanding equity interests of the New Zealand Subsidiary on the
terms and conditions contained in the Distinction Software Agreement, dated as
of October 1, 1997, by and among the Company, Lindsay Rewcastle, Jamie Wilkes
and the New Zealand Subsidiary, and the Company shall be subject to no
liabilities or debt obligations as of the Closing Date in connection with such
acquisition.
(l) Additional Actions. The Company shall take such
additional actions, including the execution of such additional documents, as
shall be reasonably requested by Acquiror in connection with the consummation of
the transactions contemplated by this Agreement.
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ARTICLE VII
SURVIVAL OF REPRESENTATIONS AND WARRANTIES
7.1. Indemnification/Survival of Representations and Warranties.
(a) (1) In the event this Agreement is terminated for
any reason, Acquiror and each of its Affiliates, officers, employees, directors
and representatives (collectively, the "Acquiror Indemnitees") shall be
indemnified and held harmless by the Company, in accordance with this Article
VII, in respect of any and all Damages incurred by any Acquiror Indemnitee as a
result of any misrepresentation and/or breach of any representation, warranty,
covenant or agreement made by the Company in this Agreement. Upon the Closing,
the Company shall cease to have any Liability under this Section 7.1(a)(1). To
the extent that the Company shall incur any Liability to any Acquiror Indemnitee
under this Section 7.1(a)(1) arising out of any such misrepresentation or
breach, the Merger Price shall be reduced by the amount of Damages incurred by
the Acquiror Indemnitee as a result thereof.
(2) Effective upon the Closing, each Acquiror
Indemnitee shall be indemnified and held harmless severally, but not jointly, by
the Principal Shareholders, in accordance with this Article VII, in respect of
its "pro-rata share" of any and all Damages incurred by any Acquiror Indemnitee
as a result of any misrepresentation and/or breach of any representation,
warranty, covenant or agreement made by the Company in this Agreement; provided,
however, each Principal Shareholder shall be fully liable (and no such
proportionate basis limitation shall apply) with respect to the representations
and warranties in Section 2A to the extent such representations or warranties
relate to such Principal Shareholder or the Company Capital Stock held by such
Shareholder (provided that no Shareholder shall be liable for the
representations and warranties of any other Shareholder in such Section). For
purposes of this Section 7.1(a)(2), a Principal Shareholder's "pro-rata share"
of Damages shall be a fraction, expressed as a percentage, where the numerator
is equal to the number of shares of Company Capital Stock owned by such
Principal Shareholder and the denominator is equal to the number of shares of
Company Capital Stock owned by all Principal Shareholders. From and after the
Effective Time, the Principal Shareholders shall have no rights of contribution
or otherwise from the Company (or Acquiror as the successor to the Company) with
respect to any indemnification obligations such shareholders may have.
(b) From and after the Effective Time, the Company's
shareholders and each of their Affiliates, officers, employees, directors and
representatives (collectively, the "Company Indemnitees") shall be indemnified
and held harmless by Acquiror in respect of any and all Damages incurred by any
Company Indemnitee as a result of any misrepresentation and/or breach of any
representation, warranty, covenant or agreement made by Acquiror in this
Agreement.
(c) All of the covenants, representations and warranties in
this Agreement shall survive the Merger and continue until 5:00 p.m., Georgia
time, on the earlier of the date that is six months following the Closing Date
(the "Expiration Date"), or for matters specifically
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resolved by the audit, sixty (60) days after the date of completion of the audit
of the combined financial statements for Acquiror and the Company for the fiscal
year most recently ended after the Closing Date, provided that any Damages or
Liabilities for Taxes shall survive the Merger and continue until the close of
any statute of limitations period relating to such Taxes.
(d) The amount of any indemnification payment required to be
made pursuant to Section 7.1(a) of this Agreement with respect to a particular
claim for indemnification shall be reduced by: the after-tax amount of insurance
proceeds or recoveries from third parties actually received as a result of the
events giving rise to such claim; provided that if such proceeds or recoveries
will be (or are) received after the date on which such indemnification payment
is due, such indemnification payment shall be paid when due from each such
Principal Shareholder.
7.2. Notice and Determination of Claims.
(a) If any Acquiror Indemnitee or Company Indemnitee (each,
an "Indemnitee") shall believe that such Indemnitee is entitled to
indemnification pursuant to Section 7.1 any Principal Shareholder (or prior to
the Closing, the Company), with respect to an Acquiror Indemnitee, or from
Acquiror, with respect to a Company Indemnitee, as the case may be (the
"Indemnitors"), in respect of any Damages, such Indemnitee shall give all
potential Indemnitors prompt written notice thereof. Any such notice shall set
forth in reasonable detail and, if and to the extent then known, the amount of
Damages (or an estimate thereof) arising from such claim and the basis for such
claim for indemnification. The failure of such Indemnitee to give notice of any
claim for indemnification promptly shall not adversely affect such Indemnitee's
right to indemnity hereunder except to the extent that such failure adversely
affects the rights of the Indemnitor to assert any reasonable defense to such
claim. The Indemnitors shall have fifteen (15) Business Days following their
receipt of such notice either (i) to acquiesce in such claim by giving such
Indemnitee written notice of such acquiescence or (ii) to object to the claim by
giving such Indemnitee written notice of the objection. If any Indemnitor
acquiesces in such claim, such Indemnitee shall be entitled to be indemnified by
the acquiescing Indemnitor for such Damages incurred by such Indemnitee in
respect of such claim. If no such agreement can be reached after good faith
negotiation, either Indemnitee or the Indemnitor may, by written notice to the
other demand arbitration (the "Demand") of the matter unless the amount of the
Damages is at issue in pending litigation with a third party, in which event
arbitration shall not be commenced until such amount is ascertained or both
parties agree to arbitration; and in either such event the matter shall be
settled by arbitration conducted by three arbitrators. Indemnitee and the
Indemnitor shall each select one arbitrator within fifteen (15) Business Days
following the Demand, and the two arbitrators so selected shall select a third
arbitrator within fifteen (15) Business Days thereafter, each of which
arbitrators shall be independent. In the event that either Indemnitee or the
Indemnitor fails to appoint an arbitrator within the period prescribed, or such
appointed arbitrators fail to appoint the third arbitrator within the period
prescribed, any such arbitrators that have not been so appointed shall be
appointed by the American Arbitration Association following written request of
either Indemnitee or the Indemnitor. The arbitrators shall set a limited time
period (not to exceed 90 days) and establish procedures designed to reduce the
cost and time for discovery while allowing the parties an opportunity, adequate
in the sole judgment of the arbitrators, to discover relevant information
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from the opposing parties about the subject matter of the dispute. The
arbitrators shall rule upon motions to compel or limit discovery and shall have
the authority to impose sanctions, including attorneys fees and costs, to the
same extent as a competent court of law or equity, should the arbitrators
determine that discovery was sought without substantial justification or that
discovery was refused or objected to without substantial justification. The
decision of a majority of the three arbitrators as to the validity and amount of
any claim shall be binding and conclusive upon the parties to this Agreement.
Such decision shall be written and shall be supported by written findings of
fact and conclusions which shall set forth the award, judgment, decree or order
awarded by the arbitrators.
(iii) Judgment upon any award rendered by the
arbitrators may be entered in any court having jurisdiction. Any such
arbitration shall be held in Contra Costa County, California under the rules
then in effect of the Judicial Arbitration and Mediation Services, Inc. For
purposes of this Section 7.2(b), in any arbitration hereunder in which any claim
or the amount thereof is at issue, Indemnitee shall be deemed to be the
Non-Prevailing Party in the event that the arbitrators award Indemnitee less
than the sum of one-half (1/2) of the disputed amount; otherwise, the Indemnitor
shall be deemed to be the "Non-Prevailing Party." The "Non-Prevailing Party" to
an arbitration shall pay its own expenses, the fees of each arbitrator, the
administrative costs of the arbitration, and the expenses, including reasonable
attorneys' fees and costs, incurred by the other party to the arbitration.
(c) Payment of any amounts owed by a Principal Shareholder
shall be satisfied by either (i) delivery to Acquiror, as promptly as
practicable, shares of Acquiror Common Stock having a value, determined in
accordance with Section 7.2(d) hereof, equal to the amount of such Damages or
(ii) payment of immediately available funds in an amount equal to such Damages.
If such Principal Shareholder does not own sufficient shares of Acquiror Common
Stock to satisfy its obligations, payment of the deficient amount will be made
by wire transfer to such Acquiror Indemnitee of immediately available funds.
(d) For the purposes of determining the number of shares of
Acquiror Common Stock to be delivered to Acquiror pursuant to Section 7.2(c)
hereof, the shares of Acquiror Common Stock shall be valued at the Average Stock
Price. Acquiror shall certify such value in an officer's certificate and shall
deliver such officer's certificate to such indemnifying Principal Shareholder.
7.3. Third Party Claims. In connection with any claim that may give
rise to indemnity under this Article VII resulting from or arising out of any
claim or Proceeding against an Indemnitee by a person that is not a party
hereto, the Indemnitors may, upon notice to the relevant Indemnitee, assume the
defense of any such claim or Proceeding if the Indemnitors jointly acknowledge
in writing to the relevant Indemnitee the right of such Indemnitee to indemnity
pursuant hereto in respect of the entirety of such claim and provide written
evidence reasonably satisfactory to such Indemnitee that such Indemnitors have
the financial wherewithal to defend and pay such claim in full. If the
Indemnitors assume the defense of any such claim or Proceeding, the Indemnitors
shall select counsel reasonably acceptable to such Indemnitee to conduct the
defense of such claim or Proceeding, shall take all steps necessary in the
defense or
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settlement thereof and shall at all times diligently and promptly pursue the
resolution thereof. If the Indemnitors shall have assumed the defense of any
claim or Proceeding in accordance with this Section 7.3, the Indemnitors shall
be authorized to consent to a settlement of, or the entry of any judgment
arising from, any such claim or Proceeding, without the prior written consent of
such Indemnitee; provided, however, that the Indemnitors shall have paid or
caused to be paid all amounts arising out of such settlement or judgment
concurrently with the effectiveness thereof; provided further, that the
Indemnitors shall not be authorized to encumber any of the assets of any
Indemnitee or to agree to any restriction that would apply to any Indemnitee or
to the conduct of such Indemnitee's business; and provided further, that a
condition to any such settlement shall be a complete release of such Indemnitee
with respect to such claim. Such Indemnitee shall be entitled to participate in
(but not control) the defense of any such action, with its own counsel and at
its own expense, but such Indemnitee shall not be authorized to consent to a
settlement of, or the entry of any judgment arising from, any such claim or
Proceeding. Each Indemnitee shall, and shall cause each of its Affiliates and
representatives to, cooperate fully with the Indemnitors in the defense of any
claim or Proceeding being defended by the Indemnitors pursuant to this Section
7.3. If the Indemnitors do not assume the defense of any claim or Proceeding
resulting therefrom in accordance with the terms of this Section 7.3, such
Indemnitee may defend against such claim or Proceeding in such manner as it may
deem reasonably appropriate, including settling such claim or Proceeding after
giving notice of the same to the Indemnitors, on such terms as such Indemnitee
may deem reasonably appropriate. In such an instance, Indemnitor shall be
entitled to participate in (but not control) the defense of any such action,
with its own counsel and at its own expense, but such Indemnitor shall not be
authorized to consent to a settlement of, or the entry of any judgment arising
from, any such claim or Proceeding.
7.4. Limitations on Damages. Nothing herein shall limit the Liability
of the Company to any Acquiror Indemnitee for any breach of any representation,
warranty or covenant if the Merger does not close. After the Effective Time, the
Acquiror Indemnities may not recover amounts from any Indemnitor until the
aggregate amount of Damages by all such Parent Indemnities shall exceed One
Hundred Thousand Dollars ($100,000) (the "Basket"). If the aggregate amount of
Damages for which indemnification is sought by the Parent Indemnities exceeds
the Basket, such Acquiror Indemnities may recover from the Indemnitors all of
their Damages, including the amount of the Basket. The aggregate amount of all
Damages pursuant to, or arising out of, this Agreement and the transactions
contemplated hereby, including any breach of the covenants, representations,
warranties and other provisions set forth in this Agreement, for which any
Principal Shareholder shall be obligated to indemnify all Acquiror Indemnitees
shall not exceed an amount equal to the number of shares of Acquiror Common
Stock such Principal Shareholder is entitled to receive under Section 1.4(a)
multiplied by the Average Stock Price.
7.5. Acquiror Exclusive Remedy. Subject to Section 10.9, this Article
VII sets forth the sole and exclusive remedy of the Acquiror Indemnitees from
and after the Effective Time for claims of breach of any representation,
warranty or covenant in this Agreement, other than claims arising out of actual
fraud or intentional misrepresentation.
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7.6. Company Exclusive Remedy. Subject to Section 10.9, this Article
VII sets forth the sole and exclusive remedy of the Company Indemnitees from and
after the Effective Time for claims of breach of any representation, warranty or
covenant in this Agreement by Acquiror, other than claims arising out of actual
fraud or intentional misrepresentation. Such remedy shall in no case be greater
than the Merger Price, subject to such Company Indemnitees obligation to
mitigate damages.
ARTICLE VIII
PRODUCT PLAN
8.1. Product Development and Integration Plan.
(a) Immediately upon the execution of this Agreement, the
Company shall commence the following (the "Project"): (i) a port of the
Company's products specified in Section I of Exhibit G to Visual Basic 6
supporting both the Microsoft SQL Server and Oracle databases; (ii) the
integration of the Company's and Acquiror's Demand Planning Products (as defined
in Exhibit G); and (iii) the development of interfaces between the Company's and
Acquiror's products as described on Exhibit G. This effort would continue
throughout the period between the date hereof and the Closing Date (as more
completely described in Exhibit G).
(b) It is the intent of the parties to this Agreement that
all Phase I Deliverables be made available to Acquiror for acceptance testing in
accordance with Exhibit G no later than March 31, 1999, and that all Phase I and
Phase II Deliverables be completed and submitted to Acquiror for acceptance
testing in accordance with Exhibit G no later than August 15, 1999.
(c) If the Company fails to complete and submit for approval
all Phase I and Phase II Deliverables by August 15, 1999, it shall be obligated
to submit all work completed to that date to Acquiror along with a description
of the remaining work required to complete the deliverables.
(d) This Agreement shall not affect in any manner the
ownership of any rights to intellectual property included within the Project
unless and until such rights are transferred to Acquiror in the Merger.
8.2. Timing of Closing. Assuming all other conditions set forth in
this Agreement have been satisfied, the Company may, in its sole discretion,
require the Merger to close by delivering to Acquiror an irrevocable notice
("Closing Notice") which notice shall state that: (i) either the Company (1) has
delivered and Acquiror shall have accepted the Phase I Deliverables and the
Phase II Deliverables, in accordance with the requirements of Exhibit G, or (2)
is unable to satisfy such requirements by October 15, 1999; and (ii) specify a
date for the Closing of the Merger (the "Company Closing Date"); provided, that
the Company Closing Date shall be a Business Day falling after August 15, 1999
and prior to October 15, 1999 (unless otherwise extended in accordance with this
Agreement); and provided, further, that the Company Closing Date shall be a date
at least fifteen (15) Business Days from the date the Closing Notice is
delivered to Acquiror. If the Company elects to deliver a Closing Notice
pursuant to this Section
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8.2, Acquiror shall be required to close the Merger and the other transactions
contemplated hereby on the Company Closing Date (subject to extension pursuant
to Section 8.3 hereof), in the manner specified in Section 1.2 and subject to
the satisfaction of the conditions set forth in Article VI.
8.3. Remaining Estimated Costs. In the event that the Company shall
deliver a Closing Notice pursuant to Clause (i)(2) of Section 8.2, the Company
and Acquiror shall meet and use all reasonable efforts to determine the
remaining costs necessary to complete the Project in accordance with Exhibit G.
If the parties are unable to agree in writing on the amount of such costs within
fifteen (15) days following delivery of the Closing Notice the Company Closing
Date shall be extended until the date which is two Business Days after the
determination of such costs in accordance with the Section and the Company and
Acquiror shall, within five (5) days following expiration of such 15-day period,
agree on a third party to determine such costs. In the event that the parties
are unable to agree on a third party within such five-day period, either party
may submit a request to the American Arbitration Association to designate a
third party to settle such dispute, and the third party so designated by the
American Arbitration Association shall settle the dispute. The third party shall
render its decision as soon as practicable but, in any event, within thirty (30)
days after being agreed upon by the parties or designated by the American
Arbitration Association. The third party shall establish such procedures as it
shall determine to be appropriate for purposes of resolving such dispute. The
decision of the third party shall be rendered by the end of such 30-day period
and shall be final and binding on the Company (including its shareholders) and
Acquiror, and not subject to challenge in court or otherwise. The costs of such
arbitration shall be borne equally by the Company and Acquiror. The amount of
the remaining costs to finish the Project as of the Company Closing Date, as
agreed to in writing by the Company and Acquiror or as determined by such third
party, as the case may be, is referred to herein as the "Remaining Estimated
Costs."
ARTICLE IX
TERMINATION, AMENDMENT AND WAIVER
9.1. Termination. Except as provided in Section 9.2 below, this
Agreement may be terminated and the Merger abandoned at any time prior to the
Effective Time:
(a) by mutual written consent of the Company and Acquiror;
(b) by Acquiror or the Company if: (i) the Closing has not
occurred by October 15, 1999 (as such date may be extended in accordance with
Article VIII); provided that the right to terminate this Agreement under this
clause 9.1(b)(i) shall not be available to any party whose failure to fulfill
any obligation hereunder has been the cause of, or resulted in, the failure of
the Closing to occur on or before such date; (ii) there shall be a final
nonappealable order of a federal or state court in effect preventing
consummation of the Merger; or (iii) there shall be any statute, rule,
regulation or order enacted, promulgated or issued or deemed applicable to the
Merger by any Governmental Authority that would make consummation of the Merger
illegal;
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(c) by Acquiror if there shall be any action taken, or any
statute, rule, regulation or order enacted, promulgated or issued or deemed
applicable to the Merger, by any Governmental Authority that would: (i) prohibit
Acquiror's or the Company's ownership or operation of any material portion of
the business of the Company or (ii) compel Acquiror or the Company to dispose of
or hold separate, as a result of the Merger, any material portion of the
business or assets of the Company or Acquiror;
(d) by Acquiror if it is not in material breach of its
obligations under this Agreement and there has been a material breach of any
representation, warranty, covenant or agreement contained in this Agreement on
the part of the Company and as a result of such breach the conditions set forth
in Section 6.3(a) or 6.3(b), as the case may be, would not then be satisfied;
provided, however, that if such breach is curable by the Company within thirty
(30) days through the exercise of its commercially reasonable efforts, then for
so long as the Company continues to exercise such commercially reasonable
efforts Acquiror may not terminate this Agreement under this Section 9.1(d)
unless such breach is not cured within thirty (30) days (but no cure period
shall be required for a breach which by its nature cannot be cured);
(e) by the Company if it is not in material breach of its
obligations under this Agreement and there has been a material breach of any
representation, warranty, covenant or agreement contained in this Agreement on
the part of Acquiror and as a result of such breach the conditions set forth in
Section 6.2(a) or 6.2(b), as the case may be, would not then be satisfied;
provided, however, that if such breach is curable by Acquiror within thirty (30)
days through the exercise of its commercially reasonable efforts, then for so
long as Acquiror continues to exercise such commercially reasonable efforts the
Company may not terminate this Agreement under this Section 8.1(e) unless such
breach is not cured within thirty (30) days (but no cure period shall be
required for a breach which by its nature cannot be cured);
(f) by Acquiror, in its sole and absolute discretion, if any
holders of Company Capital Stock have exercised appraisal, dissenters' or
similar rights under Applicable Law with respect to their shares in connection
with the Merger; and
(g) by Acquiror if a Material Adverse Change shall have
occurred to the Company since the Balance Sheet Date and prior to the Closing
Date.
9.2. Effect of Termination. In the event of termination of this
Agreement as provided in Section 9.1, this Agreement shall forthwith become void
and there shall be no Liability or obligation on the part of Acquiror or the
Company, or their respective officers, directors or shareholders under this
Agreement, provided that each party hereto shall remain liable for any Damages
arising out of any breaches of this Agreement prior to such termination or for
the wrongful termination of this Agreement. Without limiting the generality of
the foregoing, to the extent that any such termination results from the breach
by any party hereto of any of its representations, warranties, or covenants set
forth in this Agreement, the non-breaching party shall be entitled to receive
from the breaching party all of its Third Party Expenses, any expenses incurred
in connection with any dispute arising from such willful breach and any other
Damages
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incurred as a result of such breach. Notwithstanding the foregoing, the
provisions of Section 5.3, 5.4, and 5.15 and Articles IX and X of this Agreement
shall remain in full force and effect and survive any termination of this
Agreement.
9.3. Amendment. This Agreement may be amended by the parties hereto
at any time prior to the Effective Time by execution of an instrument in writing
signed on behalf of each of the parties hereto. Notwithstanding any provision of
this Agreement to the contrary, no party to this Agreement shall be required to
enter into any amendment, consent, waiver or modification of this Agreement in
order to preserve the pooling of interests accounting treatment, or the tax free
nature, of the Merger, and each party reserves the right to approve or
disapprove any proposed amendment, consent, waiver or modification of this
Agreement in its sole and absolute discretion.
9.4. Extension; Waiver. At any time prior to the Effective Time,
Acquiror, on the one hand, and the Company, on the other, may, to the extent
legally allowed, (i) extend the time for the performance of any of the
obligations of the other party hereto, (ii) waive any inaccuracies in the
representations and warranties made to such party contained herein or in any
document delivered pursuant hereto, and (iii) waive compliance with any of the
agreements or conditions for the benefit of such party contained herein. Any
agreement on the part of a party hereto to any such extension or waiver shall be
valid only if set forth in an instrument in writing signed on behalf of such
party.
ARTICLE X
GENERAL PROVISIONS
10.1. Notices. All notices and other communications pursuant to this
Agreement shall be in writing and shall be deemed given if delivered personally,
telecopied, sent by nationally-recognized overnight courier or mailed by
registered or certified mail (return receipt requested), postage prepaid, to the
parties at the addresses set forth below or to such other address as the party
to whom notice is to be given may have furnished to the other parties hereto in
writing in accordance herewith. Any such notice or communication shall be deemed
to have been delivered and received (A) in the case of personal delivery or
delivery by telecopier, on the date of such delivery, (B) in the case of a
nationally-recognized overnight courier, on the next Business Day after the date
when sent and (C) in the case of mailing, on the third Business Day following
that on which the piece of mail containing such communication is posted:
(a) IF TO ACQUIROR OR, AFTER THE EFFECTIVE TIME, TO THE
COMPANY, TO:
PeopleSoft, Inc.
4305 Hacienda Drive
Pleasanton, California 94588
Attention: Robert Finnell
Telephone No.: (925) 694-7180
Facsimile No.: (925) 694-7184
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with a copy to:
Gibson, Dunn & Crutcher LLP
One Montgomery Street
Suite 2600
San Francisco, California 94104
Attention: Kenneth R. Lamb
Telephone No.: (415) 393-8382
Facsimile No.: (415) 986-5309
(B) IF TO THE COMPANY PRIOR TO THE EFFECTIVE TIME, TO:
Distinction Software, Inc.
1117 Perimeter Center West
Suite E-105
Atlanta, Georgia 30338
Attention: Dr. Tom McKaskill, President & CEO
Telephone No.: (707) 390-9339 x 207
Facsimile No.: (707) 390-9757
with a copy to:
Morris, Manning & Martin, L.L.P.
1600 Atlanta Financial Center
3343 Peachtree Street, NE
Atlanta, Georgia 30326
Attention: Grant W. Collingsworth, Esq.
Telephone No.: (404) 233-7000
Facsimile No.: (404) 365-9532
10.2. Interpretation. The words "include," "includes" and "including"
when used herein shall be deemed in each case to be followed by the words
"without limitation." The word "agreement" when used herein shall be deemed in
each case to mean any contract, commitment or other agreement, whether oral or
written, that is legally binding. The table of contents and headings contained
in this Agreement are for reference purposes only and shall not affect in any
way the meaning or interpretation of this Agreement.
10.3. 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 each of the other parties, it being understood that
all parties need not sign the same counterpart.
10.4. Entire Agreement; Assignment. This Agreement, the schedules and
exhibits hereto, and the documents and instruments and other agreements among
the parties hereto referenced herein and the existing confidentiality agreement
between Acquiror and the Company: (a) constitute the entire agreement among the
parties with respect to the subject matter hereof and supersede all prior
agreements and understandings, both written and oral, among the parties with
respect to the subject matter hereof; (b) are not intended to confer upon any
other Person any rights or remedies hereunder; and (c) shall not be assigned by
operation of law or otherwise
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except as otherwise specifically provided, except that Acquiror may assign its
rights but not delegate its obligations hereunder to a wholly-owned subsidiary
of Acquiror.
10.5. Severability. In the event that any provision of this Agreement,
or the application thereof, becomes or is declared by a court of competent
jurisdiction to be illegal, void or unenforceable, the remainder of this
Agreement will continue in full force and effect and the application of such
provision to other Persons or circumstances will be interpreted so as reasonably
to effect the intent of the parties hereto. The parties further agree to replace
such void or unenforceable provision of this Agreement with a valid and
enforceable provision that will achieve, to the extent possible, the economic,
business and other purposes of such void or unenforceable provision.
10.6. Other Remedies. Except as otherwise provided herein, any and all
remedies herein expressly conferred upon a party will be deemed cumulative with
and not exclusive of any other remedy conferred hereby, or by law or equity upon
such party, and the exercise by a party of any one remedy will not preclude the
exercise of any other remedy.
10.7. Governing Law. This Agreement shall be governed by and construed
in accordance with the laws of the State of California regardless of the laws
that might otherwise govern under applicable principles of conflicts of laws
thereof. Each of the parties hereto agrees that process may be served upon them
in any manner authorized by the laws of the State of California for such Persons
and waives and covenants not to assert or plead any objection that they might
otherwise have to such jurisdiction and such process.
10.8. Rules of Construction. The parties hereto agree that they have
been represented by counsel during the negotiation and execution of this
Agreement and, therefore, waive the application of any law, regulation, holding
or rule of construction providing that ambiguities in an agreement or other
document will be construed against the party drafting such agreement or
document.
10.9. Specific Performance. The parties hereto agree that irreparable
damage would occur in the event that any of the provisions of this Agreement
were not performed in accordance with their specific terms or were otherwise
breached. It is accordingly agreed that the parties shall be entitled to an
injunction or injunctions to prevent breaches of this Agreement and to enforce
specifically the terms and provisions hereof in any court of the United States
or any state having jurisdiction, this being in addition to any other remedy to
which they are entitled at law or in equity.
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<PAGE> 71
IN WITNESS WHEREOF, Acquiror, the Company and Datastream have caused
this Agreement to be duly executed or signed by their duly authorized respective
officers, and the remaining Principal Shareholders have caused this Agreement to
be duly executed all as of the date first written above.
PEOPLESOFT, INC. DISTINCTION SOFTWARE, INC.
BY: BY:
---------------------------------- -------------------------------------
NAME: RONALD E.F. CODD NAME: DR. TOM MCKASKILL
TITLE: SENIOR VICE PRESIDENT AND TITLE: PRESIDENT & CEO
CHIEF FINANCIAL OFFICER
BY: BY:
---------------------------------- -------------------------------------
NAME: ROBERT D. FINNELL NAME:________________________________
TITLE: ASSISTANT SECRETARY TITLE: SECRETARY
PRINCIPAL SHAREHOLDERS:
BY: BY:
---------------------------------- -------------------------------------
NAME: DR. TOM MCKASKILL
BY:
----------------------------------
NAME: ANNE MCKASKILL
BY:
----------------------------------
NAME: WALTER ROMIJN
DATASTREAM SYSTEMS, INC.
BY:
----------------------------------
NAME:
-------------------------------
TITLE:
BY:
----------------------------------
NAME:
-------------------------------
TITLE: SECRETARY
58
<PAGE> 72
APPENDIX A
DEFINITIONS
The following terms, as used in the Agreement, have the following
meanings:
"Affiliate" means, with respect to any Person, any Person directly or
indirectly controlling, controlled by or under direct or indirect common control
with such other Person.
"Aggregate Preferred Stock Preference Amount" means the number of shares
obtained by multiplying Preferred Stock Preference Amount by the total number of
shares of Company Preferred Stock outstanding immediately prior to the Effective
Time.
"Applicable Law" means, with respect to any Person, any domestic or
foreign, federal, state or local statute, law, ordinance, rule, regulation,
order, writ, injunction, judgment, decree or other requirement of any
Governmental Authority existing as of the date hereof through the Closing Date
applicable to such Person or any of its respective properties, assets, officers,
directors, employees, consultants or agents.
"Average Stock Price" means the arithmetic average of the closing prices
of Acquiror Common Stock on the Nasdaq National Market for the ten trading days
ending on the second trading day immediately prior to the Closing Date.
"Business Day" means a day other than a Saturday, Sunday or other day on
which commercial banks in Atlanta, Georgia or San Francisco, California are
authorized or required by law to close.
"Company" means Distinction Software, Inc.
"Company Capital Stock" means, collectively, the Company Common Stock
and the Company Preferred Stock.
"Company Common Stock" means the class of the Company's capital stock
designated as its Common Stock, $.01 par value.
"Company Preferred Stock" means the class of the Company's capital stock
designated as its Series A Convertible Preferred Stock, $.01 par value.
"Company Warrants" means the Stock Purchase Warrant, dated as of June
10, 1998, by and between the Company and Sirrom Capital Corporation, a Tennessee
corporation, exercisable for Company Common Stock.
"Damages" means all demands, claims, actions or causes of action,
assessments, losses, damages, costs, expenses, liabilities, judgments, awards,
fines, sanctions, penalties, charges and amounts paid in settlement, including
(y) interest on cash disbursements in respect of any of the foregoing at a rate
per annum equal to the prime rate as published by Bank of America, NT&SA,
compounded quarterly, from the later to occur of (i) ninety (90) days from the
date of demand for
59
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payment hereunder, or (ii) the date each such cash disbursement is made until
the Person incurring the same shall have been indemnified in respect thereof and
(z) reasonable costs, fees and expenses of attorneys (including allocation costs
of in house counsel), experts, accountants, appraisers, consultants, witnesses,
investigators and any other agents of such Person.
"Datastream" means Datastream Systems, Inc.
"Distribution Agreement" has the meaning set forth in the Recitals.
"Distribution Agreement Contracts" means the agreements listed in
Schedule 2.12(a)(xv).
"Distribution Agreement Fees" means all amounts that become due and
payable on or prior to the Closing Date by Acquiror to the Company under the
Distribution Agreement that remain unpaid on the Closing Date.
"Environmental Laws" means all Applicable Laws relating to the
protection of human health, safety or the environment from Hazardous Substances
including: (i) all requirements pertaining to reporting, licensing, permitting,
controlling, investigating or remediating emissions, discharges, releases or
threatened releases of Hazardous Substances, chemical substances, pollutants,
contaminants or toxic substances, materials or wastes, whether solid, liquid or
gaseous in nature, into the air, surface water, groundwater or land, or relating
to the manufacture, processing, distribution, use, treatment, storage, disposal,
transport or handling of Hazardous Substances, chemical substances, pollutants,
contaminants or toxic substances, materials or wastes, whether solid, liquid or
gaseous in nature; and (ii) all requirements pertaining to the protection of the
health and safety of employees or the public from exposure to Hazardous
Substances.
"Environmental Liabilities" means all Liabilities of a Person, whether
such Liabilities are owed by such Person to Governmental Authorities, third
parties or otherwise, whether presently in existence or arising hereafter, that
arise under or relate to any Environmental Law.
"GAAP" means the United States generally accepted accounting principles.
"Governmental Authority" means any foreign, domestic, federal,
territorial, state or local governmental authority, quasi-governmental
authority, instrumentality, court, government or self-regulatory organization,
commission, tribunal or organization or any regulatory, administrative or other
agency, or any political or other subdivision, department or branch of any of
the foregoing.
"Hazardous Substance" means any chemical substance: (i) the presence of
which requires investigation or remediation under any Environmental Law; (ii)
which is defined as a "hazardous waste" or "hazardous substance" under any
Environmental Law; (iii) that is toxic, explosive, corrosive, flammable,
infectious, radioactive, carcinogenic or mutagenic or otherwise hazardous and is
regulated by any Governmental Authority having or asserting jurisdiction over
the business or any assets of the Company; or (iv) without limitation, that
contains gasoline, diesel fuel or other petroleum hydrocarbons, polychlorinated
biphenols (PCBs) or asbestos.
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"Key Employees" means Dr. Tom McKaskill, Anne McKaskill and Walter
Romijn.
"Knowledge" or "knowledge" means (i) with respect to the Company, at any
given date of determination, the knowledge of all officers, the controller (or
principal accounting officer) and members of the Board of Directors of the
Company, and (ii) with respect to Acquiror, at any given date of determination,
the knowledge of any executive officer, or director of Acquiror. For purposes
hereof, a Person shall be deemed to have knowledge of the contents of all books
and records with respect to which such Person has reasonable access and all
facts and circumstances to which such Person reasonably should have been aware
or was aware in the performance of such Person's duties as an officer, employee
or director.
"Liability" means, with respect to any Person, any liability or
obligation of, or claims against, such Person of any kind, character or
description, absolute or contingent, known or unknown, accrued or unaccrued,
liquidated or unliquidated, secured or unsecured, joint or several, due or to
become due, vested or unvested, executory, determined, determinable or otherwise
and whether or not the same is required to be accrued on the financial
statements of such Person.
"Lien" means, with respect to any asset, any mortgage, title defect or
objection, lien, pledge, charge, easement, security interest, hypothecation,
encumbrance, adverse claim or charge of any kind in respect of such asset.
"Material Adverse Change" means any circumstance, change in, or effect
on (or circumstance, change in, or effect involving a prospective change on) the
business of the Company, or any group of the foregoing circumstances, changes or
effects, which (a) is or are, or is or are reasonably likely in the future to
be, materially adverse to the operations, assets or liabilities (including
contingent liabilities), earnings or results of operations, or the business
(financial or otherwise) of the Company, excluding from the foregoing the
effect, if any, of an overall decline in the economy in the United States or (b)
could reasonably be expected to prevent or materially delay or impair the
ability of the Company to consummate the transactions contemplated by this
Agreement or the Asset Purchase Agreement; provided, that for the purpose of the
definition of "Material Adverse Change" no consideration shall be given to any
licensing or sales under the Distribution Agreement.
"Merger Price" means an amount equal to: (1) Seven Million Dollars
($7,000,000), plus (2) the Phase I Adjustment, plus (3) the Phase II Adjustment,
plus (4) the Distribution Agreement Fees, minus (5) the Outstanding Balance,
minus (6) Two Million Five Hundred Thousand Dollars ($2,500,000) if any one or
more of the following shall be true on the Closing Date: (a) the Company shall
have failed to furnish to Acquiror, in a form reasonably acceptable to Acquiror,
the consents, approvals and waivers on Schedule A, (b) the Company shall not
have terminated each of the Distribution Agreement Contracts in a manner such
that the Company shall be subject to no liability or obligation as a result of,
or following, any such termination; provided, however, nothing set forth herein
shall prohibit the Company from paying a fee to the other party to such
Distribution Agreement Contract to obtain such termination (provided that, with
respect to Proasis Ltd., the Company shall not make any payment of any kind in
connection
61
<PAGE> 75
with its obtaining such termination if Tom McKaskill would receive any benefit,
either directly or indirectly, from such payment) so long as the maximum amount
that the Company shall pay in the aggregate to all such other parties to the
Distribution Agreement Contracts to obtain such terminations shall not exceed
Five Hundred Thousand Dollars ($500,000) and (c) any Material Adverse Change
shall have occurred to the Company between September 30, 1998 and the Closing
Date.
"Merger Share Amount" means the number of shares obtained by dividing
the Merger Price by the Average Stock Price.
"New Zealand Subsidiary" means Distinction Software Limited, a
corporation organized under the laws of New Zealand, 51% of the equity interests
of which are owned by the Company.
"Noncompete Agreements" means the Noncompete Agreements entered into
today in favor of Acquiror and the Company by Tom McKaskill, Anne McKaskill,
Walter Romijn and Datastream.
"Outstanding Balance" means, as of the Closing Date, the outstanding
principal balance of, and all accrued and unpaid interest with respect to, and
other fees or amounts owed in connection with, any outstanding indebtedness of
the Company to Acquiror.
"Person" means an individual, corporation, partnership, association,
trust, limited liability company, limited liability partnership, estate or other
entity or organization, including a Governmental Authority.
"Phase I Adjustment" means (1) Three Million Dollars ($3,000,000) if (a)
the Company has delivered the Phase I Deliverables to Acquiror in accordance
with Section 8.1 hereof by August 15, 1999, and (b) the requirements for the
acceptance of the Phase I Deliverables set forth in Exhibit G have been
satisfied within sixty (60) days of the date of such delivery, or (2) in all
other cases, Three Million Dollars ($3,000,000) less the Remaining Estimated
Costs with respect to Phase I Deliverables, but in no event less than zero
dollars.
"Phase II Adjustment" means (1) One Million Dollars ($1,000,000) if (a)
the Company has delivered the Phase II Deliverables to Acquiror in accordance
with Section 8.1 hereof by August 15, 1999, and (b) the requirements for the
acceptance of the Phase II Deliverables set forth in Exhibit G have been
satisfied within sixty (60) days of the date of such delivery, or (2) in all
other cases, One Million Dollars ($1,000,000) less the Remaining Estimated Costs
with respect to Phase II Deliverables, but in no event less than zero dollars.
"Phase I Deliverables" has the meaning set forth on Exhibit G hereto.
"Phase II Deliverables" has the meaning set forth on Exhibit G hereto.
"Preferred Stock Preference Amount" means the number equal to the
liquidation preference per share of Company Preferred Stock on the Closing Date
(currently $9.01266 per such share) divided by the Average Stock Price.
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"Principal Shareholders" means Dr. Tom McKaskill, Anne McKaskill, Walter
Romijn and Datastream.
"Proceeding" means any action, suit, hearing or arbitration,
investigation or other proceeding (whether public or private).
"Related Agreements" means the Distribution Agreement, the Noncompete
Agreements the Company Affiliate Agreements and all other agreements between the
Company and the Acquiror.
"Subsidiary" means a corporation, partnership, joint venture, limited
liability company or other Person the majority of the shares of the capital
stock or other equivalent ownership interests of which are directly or
indirectly owned of record or beneficially by the Company, or any corporation,
partnership, joint venture, limited liability company or other Person for which
the Company has the ability to direct or control voting with respect to fifty
percent (50%) or more of the capital stock or other equivalent ownership
interests.
63
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AMENDMENT NO. 1 TO THE
AGREEMENT AND PLAN OF REORGANIZATION
DATED AS OF NOVEMBER 19, 1998
BY AND AMONG
PEOPLESOFT, INC. AND DISTINCTION SOFTWARE, INC.
Whereas, PeopleSoft, Inc. ("PeopleSoft") and Distinction Software, Inc.
("Distinction") have previously executed an Agreement and Plan of Reorganization
dated November 19, 1998 (the "Agreement"), as amended;
Whereas, Phase I as defined in Exhibit G has been delivered to PeopleSoft for
acceptance testing and both parties agree that completing the testing and
acceptance of the Phase I products shall be the highest priority and primary
focus for Distinction's development team until Phase I is accepted by
PeopleSoft;
Whereas, PeopleSoft no longer desires Distinction to undertake the work
originally intended in Phase II which was an upgrade of the CDP, FCP and
Purchase Planning products to support Visual Basic 6 and the Microsoft SQL
Server and Oracle database platforms, the parties have agreed to delete all
references with respect to the term "Phase II" from the Agreement;
Whereas, both parties desire to release Distinction from its obligations
pursuant to Phase II and remove the financial contingencies tied to Phase II, in
exchange for which the Distinction development resources shall undertake other
development work as directed by Peoplesoft through to the Closing Date, subject
to the Distinction development resources obtaining acceptance of Phase I;
Whereas both parties desire to amend the Agreement to define how the change in
scope for Phase II will be treated under the Product Development and Integration
Plan, definition of Merger Price and Exhibit G;
Whereas, in connection with this Amendment No. 1 to the Agreement, both parties
have amended the Marketing and Distribution Agreement to remove the royalty and
support service payment obligations of PeopleSoft under the Marketing and
Distribution Agreement; and
Whereas, Section 9.3 of the Agreement permits the Agreement to be amended by
execution of an instrument signed in writing by all the parties thereto,
consisting of PeopleSoft, Distinction, Dr. Tom McKaskill, Anne McKaskill, Walter
Romjin and Datastream Systems, Inc.
Accordingly, for good and valuable consideration, the receipt and sufficiency of
which is hereby acknowledged, the parties hereby agree to modify the Agreement
as follows:
1. Section 5.1(a) of the Agreement is hereby amended and restated to read in its
entirety as follows:
(a) Employees. As soon as practical after the date hereof and, in any event,
prior to August 31, 1999 or the Closing Date, whichever occurs first,
Acquiror shall identify to the Company those employees of the Company to
whom Acquiror desires to offer employment subject to execution of
Acquiror's standard forms of offer letters and non-disclosure
agreements. All such employees of the Company desirous of becoming
employees of Acquiror will be subject to employment at the will of
Acquiror. Employees who do not receive an offer of employment from
Acquiror shall receive a severance payment, net of taxes, equal to that
individual's salary for the period from their termination of employment
with the Company through October 15, 1999; provided, however, that in
order to be eligible for receipt of such severance payment, each such
employee must first execute a written release, in form and substance
reasonably acceptable to Acquiror, releasing Acquiror and the Company
from all claims arising out of their employment with the Company or with
Acquiror. Notwithstanding the foregoing, nothing contained
<PAGE> 78
herein shall be interpreted or construed to create a contract of
employment between such employee and Acquiror. In addition,
notwithstanding anything to the contrary contained in Section 4.1 of
this Agreement, the Company may award up to $240,000 in aggregate
bonuses to the Company's employees prior to the Closing Date.
2. Section 8.1 of the Agreement is hereby amended and restated to read in its
entirety as follows:
Section 8.1. Product Development and Integration Plan.
(a) Immediately upon the execution of this Agreement, the
Company shall commence the following (the "Project"): (i) a port of the
Company's products specified in Section 1 of Exhibit G to Visual Basic 6
supporting both the Microsoft SQL Server and Oracle databases; (ii) the
integration of the Company's and Acquiror's Demand Planning Products (as
defined in Exhibit G); and (iii) the development of interfaces between
the Company's and Acquiror's products as described on Exhibit G. This
effort would continue throughout the period between the date hereof and
the Closing Date (as more completely described in Exhibit G).
(b) It is the intent of the parties to this Agreement that all
Phase I Deliverables be made available to Acquiror for acceptance
testing in accordance with Exhibit H no later than March 31, 1999, and
that all Phase I Deliverables be completed and submitted to Acquiror for
acceptance testing in accordance with Exhibit H.
(c) If the Company fails to complete and submit for approval all
Phase I Deliverables by August 15, 1999, it shall be obligated to submit
all work completed to that date to Acquiror along with a description of
the remaining work required to complete the deliverables.
(d) This Agreement shall not affect in any manner the ownership
of any rights to intellectual property included within the Project
unless and until such rights are transferred to Acquiror in the Merger.
3. Section 8.2 of the Agreement is hereby amended and restated to read in its
entirety as follows:
8.2. Timing of Closing. Assuming all other conditions set forth
in this Agreement have been satisfied, the Company may, in its sole
discretion, require the Merger to close by delivering to Acquiror an
irrevocable notice ("Closing Notice") which notice shall state that: (i)
either the Company (1) has delivered and Acquiror shall have accepted
the Phase I Deliverables, in accordance with the requirements of Exhibit
H, or (2) is unable to satisfy such requirements by August 15, 1999; and
(ii) specify a date for the Closing of the Merger (the "Company Closing
Date"); provided, that the Company Closing Date shall be a Business Day
falling after [June] 15, 1999 and prior to October 15, 1999 (unless
otherwise extended in accordance with this Agreement); and provided,
further, that the Company Closing Date shall be a date at least fifteen
(15) Business Days from the date the Closing Notice is delivered to
Acquiror. If the Company elects to deliver a Closing Notice pursuant to
this Section 8.2, Acquiror shall be required to close the Merger and the
other transactions contemplated hereby on the Company Closing Date
(subject to extension pursuant to Section 8.3 hereof), in the manner
specified in Section 1.2 and subject to the satisfaction of the
conditions set forth in Article VI.
4. The definition of "Merger Price" contained in Appendix A of the Agreement is
hereby amended and restated to read in its entirety as follows:
"Merger Price" means an amount equal to: (1) Nine Million
Dollars ($9,000,000), plus (2) the Phase I Adjustment, minus (3) the
amount by which the aggregate payments to terminate the agreement with
Proasis and acquire all of the outstanding shares of Distinction NZ
exceeds $100,000 and minus (4) Two Million Five Hundred Thousand Dollars
($2,500,000) if any one or more of the following shall be true on the
Closing Date: (a) the Company shall have failed to furnish to Acquiror,
in a form reasonably acceptable to Acquiror, the consents, approvals and
waivers on Schedule A, (b) the Company shall not have terminated each of
the Distribution Agreement Contracts in a manner such that the Company
shall, unless otherwise approved by
2
<PAGE> 79
PeopleSoft, be subject to no liability or obligation as a result of, or
following, any such termination; provided, however, nothing set forth
herein shall prohibit the Company from paying a fee to the other party
to such Distribution Agreement Contract to obtain such termination
(provided that, with respect to Proasis Ltd., the Company shall not make
any payment of any kind in connection with its obtaining such
termination if Tom McKaskill would receive any benefit, either directly
or indirectly, from such payment) so long as the maximum amount that the
Company shall pay in the aggregate to all such other parties to the
Distribution Agreement Contracts to obtain such terminations shall not
exceed Five Hundred Thousand Dollars ($500,000), and (c) any Material
Adverse Change shall have occurred to the Company between September 30,
1998 and the Closing Date.
5. The definition of "Phase II Adjustment" contained in Appendix A of the
Agreement and all references in the Agreement shall be deleted in its entirety.
6. The definition of "Phase II Deliverables" contained in Appendix A of the
Agreement and all references in the Agreement shall be deleted in its entirety.
7. The definition of "Outstanding Balance" contained in Appendix A to the
Agreement and all references in the Agreement shall be deleted in its entirety.
8. Exhibit G of the Agreement shall be modified as follows:
All references to the term "Phase 2" shall be deleted in its entirety.
9. The Agreement is hereby amended to add Exhibit H, in the form attached
hereto.
10. In all other respects, all other terms and provisions of the Agreement shall
remain unmodified and in full force and effect.
11. This Amendment No. 1 may be executed in several counterparts, each of which
shall be deemed an original, and all of which together shall constitute one and
the same instrument. This Amendment No. 1 to the Agreement shall be effective
May 17, 1999 (the "Effective Date").
3
<PAGE> 80
IN WITNESS WHEREOF, the parties hereby execute this Amendment No. 1 to the
Agreement and Plan of Reorganization as of the Effective Date detailed above.
DISTINCTION SOFTWARE, INC. PEOPLESOFT, INC.
- ---------------------------------- -------------------------------------
By: Dr. Tom McKaskill By: Stephen Hill
PRINCIPAL STOCKHOLDERS:
- ----------------------------------
Dr. Tom McKaskill, individually
- ----------------------------------
Anne McKaskill, individually
- ----------------------------------
Walter Romjin, individually
DATASTREAM SYSTEMS, INC.
By:
-------------------------------
Name:
-----------------------------
Title:
----------------------------
4
<PAGE> 1
Exhibit 5.1
August 27, 1999
(415) 393-8200
C 72711-00012
PeopleSoft, Inc.
4460 Hacienda Drive
Pleasanton, CA 94588
Re: Registration Statement on Form S-3 of PeopleSoft, Inc.
Ladies and Gentlemen:
We refer to the registration statement on Form S-3 (the "Registration
Statement") filed under the Securities Act of 1933, as amended (the "Securities
Act"), by PeopleSoft, Inc., a Delaware corporation (the "Company"), with respect
to the proposed offering by certain selling stockholders of the Company of up to
821,853 shares (the "Shares") of the common stock of the Company, $.01 par value
per share. The Shares are to be sold from time to time in the public market at
prevailing prices or as otherwise described in the Registration Statement.
As legal counsel for the Company, we have examined the proceedings taken
and are familiar with the proceedings proposed to be taken by you in connection
with the sale of the Shares. We have examined the originals or certified copies
of such corporate records, certificates of officers of the Company and/or public
officials and such other documents and have made such other factual and legal
investigations as we have deemed relevant and necessary as the basis for the
opinions set forth below. In such examination, we have assumed the genuineness
of all signatures, the authenticity of all documents submitted to us as
originals, the conformity to original documents of all documents submitted to us
as conformed or photostatic copies and the authenticity of the originals of such
copies.
<PAGE> 2
PeopleSoft, Inc.
August 27, 1999
Page 2
Based on our examination mentioned above, subject to the assumptions
stated above and relying on the statements of fact contained in the documents
that we have examined, we are of the opinion that the Shares are duly and
validly issued, fully paid and non-assessable.
We are admitted to practice in the State of California and are not
admitted to practice in the State of Delaware. However, for the limited purposes
of our opinion set forth above, we are generally familiar with the General
Corporation Law of the State of Delaware (the "DGCL") as presently in effect and
have made such inquiries as we consider necessary to render this opinion with
respect to a Delaware corporation. This opinion letter is limited to the laws of
the State of California and, to the limited extent set forth above, the DGCL, as
such laws presently exist and to the facts as they presently exist. We express
no opinion with respect to the effect or applicability of the laws of any other
jurisdiction. We assume no obligation to revise or supplement this opinion
letter should the laws of such jurisdictions be changed after the date hereof by
legislative action, judicial decision or otherwise.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement. In giving this consent, we do not admit that we are
within the category of persons whose consent is required under Section 7 of the
Securities Act or the General Rules and Regulations of the Securities and
Exchange Commission.
Very truly yours,
/s/ GIBSON, DUNN & CRUTCHER LLP
GIBSON, DUNN & CRUTCHER LLP
KRL/pth
<PAGE> 1
Exhibit 23.1
CONSENT OF ERNST & YOUNG INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" in the
Registration Statement (Form S-3) and related Prospectus of PeopleSoft Inc. for
the registration of 821,853 shares of its common stock and to the incorporation
by reference therein of our report dated January 26, 1999, with respect to the
consolidated financial statements of PeopleSoft Inc. included in its Annual
Report (Form 10-K) for the year ended December 31, 1998, filed with the
Securities and Exchange Commission.
/s/ ERNST & YOUNG LLP
Walnut Creek, California
August 27, 1999
