<PAGE> 1
EXHIBIT 2.01
CONFIDENTIAL TREATMENT REQUESTED
AGREEMENT AND PLAN OF REORGANIZATION
THIS AGREEMENT AND PLAN OF REORGANIZATION (this "AGREEMENT") is made and
entered into as of September 7, 2000 (the "AGREEMENT DATE") by and among HNC
SOFTWARE INC., a Delaware corporation ("HNC"), SLC MERGER CORP., a Delaware
corporation that is a wholly owned subsidiary of HNC ("SUB"), and SYSTEMS/LINK
CORPORATION, a Delaware corporation ("SLC").
RECITALS
A. The parties intend that, subject to the terms and conditions of this
Agreement, Sub will be merged with and into SLC in a reverse triangular merger,
with SLC to be the surviving corporation of such merger, all pursuant to the
terms and conditions of this Agreement and applicable law.
B. Upon the effectiveness of such merger, (a) SLC will become a wholly
owned subsidiary of HNC, (b) the common stock of SLC that is outstanding
immediately prior to the effectiveness of the merger will be converted by virtue
of the merger into the right to receive shares of the common stock of HNC and
cash, and (c) options to purchase shares of the common stock of SLC granted
under the SLC Stock Option Plan (as defined below) that are outstanding
immediately prior to the effectiveness of the merger will be converted by virtue
of the merger into options to purchase shares of HNC Common Stock, all subject
to the terms and conditions of this Agreement.
C. The parties also intend for such merger to be treated as a
"reorganization" under Sections 368(a)(1)(A) and (a)(2)(e) of the Internal
Revenue Code of 1986, as amended (the "CODE").
NOW, THEREFORE, in consideration of the above-recited facts and the
mutual promises, covenants and conditions contained herein, the parties hereby
agree as follows:
ARTICLE 1
CERTAIN DEFINITIONS
As used in this Agreement and its exhibits, the following terms will
have the respective meanings set forth below:
The "MERGER" means the statutory merger of Sub with and into SLC to be
effected pursuant to the terms and conditions of this Agreement.
The "EFFECTIVE TIME" means the time and date on which the Merger first
becomes legally effective under the law of the State of Delaware as a result of
the filing with the Delaware Secretary of State by SLC of a Certificate of
Merger (the "CERTIFICATE OF MERGER") conforming to the provisions of this
Agreement and the requirements of Section 251 of the DGCL.
1
<PAGE> 2
"DGCL" means the Delaware General Corporation Law.
"SLC COMMON STOCK" means SLC's Common Stock, $0.001 par value per share.
"SLC STOCK OPTION PLAN" means SLC's 1999 Stock Option Plan, as amended,
under which 1,000,000 shares of SLC Common Stock are reserved for issuance.
"SLC NON-PLAN GRANTS" means, collectively, SLC's grants of options to
purchase an aggregate of up to 1,200,382 shares of SLC Common Stock pursuant to
Nonstatutory Stock Option Agreements, each dated April 5, 1999, to each of the
following SLC employees for the following respective number of shares of SLC
Common Stock: (i) John G. Bowen for 244,275 shares, (ii) Steven J. Carras for
240,281 shares, (iii) David A. Pedersen for 91,093 shares, (iv) Kathleen M.
Roslasky for 274,809 shares, and (v) Warren Schad for 349,924 shares.
"SLC OPTION" means an option to purchase shares of SLC Common Stock
granted pursuant to the SLC Stock Option Plan to an individual who, at the time
of the grant of such option, was an employee or director of SLC, or a consultant
to SLC.
"SLC DERIVATIVE SECURITIES" means, collectively: (a) any warrant,
option, right or other security that entitles the holder thereof to purchase or
otherwise acquire any shares of the capital stock of SLC of any class or series,
including without limitation all outstanding SLC Options (collectively, "SLC
STOCK RIGHTS"); (b) any note, evidence of indebtedness, stock (including without
limitation convertible preferred stock) or other security of SLC that is
convertible into or exchangeable for any shares of the capital stock of SLC of
any class or series or any SLC Stock Rights ("SLC CONVERTIBLE SECURITY"); and
(c) any warrant, option, right, note, evidence of indebtedness, stock or other
security that entitles the holder thereof to purchase or otherwise acquire any
SLC Stock Right or any SLC Convertible Security.
"SLC FULLY DILUTED NUMBER" means that number of shares of the capital
stock of SLC that is equal to the sum of: (a) the total number of shares of the
capital stock of SLC that are issued and outstanding immediately prior to the
Effective Time; plus (b) the total number of shares of the capital stock of SLC
that, immediately prior to the Effective Time, are, directly or indirectly,
ultimately or potentially issuable by SLC upon the exercise, conversion or
exchange in full of all SLC Derivative Securities that are issued and
outstanding (or issuable) immediately prior to the Effective Time (determined as
if all such SLC Derivative Securities were then fully vested and exercisable in
full).
"SLC STOCKHOLDERS" means those persons (each being individually referred
to herein as a "SLC STOCKHOLDER") who, as of immediately prior to the Effective
Time, hold the shares of SLC Common Stock that are issued and outstanding
immediately prior to the Effective Time, except that holders of SLC Dissenting
Shares (as defined in Section 2.1.3) (i) shall not be deemed to be SLC
Stockholders as defined in this paragraph during any period when those holders'
shares are SLC Dissenting Shares, and (ii) shall be deemed to be SLC
Stockholders when such holders' shares cease to be SLC
2
<PAGE> 3
Dissenting Shares due to a release or forfeiture of dissenters' appraisal rights
in accordance with Section 2.1.3(b).
"HNC COMMON STOCK" means HNC's Common Stock, $0.001 par value per share.
"HNC CLOSING PRICE PER SHARE" means the average of the closing prices
per share of HNC Common Stock as quoted on the Nasdaq National Market and
reported in The Wall Street Journal for the twenty (20) trading days immediately
preceding (but not including) the Closing Date.
"CLOSING CONSIDERATION AMOUNT" means Thirty-Six Million Dollars
($36,000,000).
"CLOSING CONSIDERATION AMOUNT PER SHARE" means the quotient (rounded to
4 decimal places) obtained by dividing (a) the Closing Consideration Amount by
(b) the SLC Fully Diluted Number.
"CLOSING CASH AMOUNT PER SHARE" means an amount (not less than zero and
rounded to 4 decimal places) equal to (a) sixteen and forty-three one-hundredths
percent (16.43%) of the Closing Consideration Amount Per Share minus (b) the
Excess SLC Indebtedness Per Share.
"SLC SHARE CONVERSION NUMBER" means the quotient (rounded to 4 decimal
places) obtained by dividing (a) eighty-three and fifty-seven one-hundredths
percent (83.57%) of the Closing Consideration Amount Per Share by (b) the HNC
Closing Price Per Share.
"SLC OPTION CONVERSION NUMBER" means the quotient (rounded to 4 decimal
places) obtained by dividing (a) the Closing Consideration Amount Per Share by
(b) the HNC Closing Price Per Share.
"GAAP" means United States generally accepted accounting principles
consistently applied.
"HNC ANCILLARY AGREEMENTS" means, collectively, each agreement,
certificate or document (other than this Agreement) that HNC is to enter into as
a party thereto, or otherwise is to execute and deliver, pursuant to or in
connection with this Agreement. "SUB ANCILLARY AGREEMENTS" means, collectively,
each agreement, certificate or document (other than this Agreement) that Sub is
to enter into as a party thereto, or otherwise is to execute and deliver,
pursuant to or in connection with this Agreement. "SLC ANCILLARY AGREEMENTS"
means, collectively, the Certificate of Merger and each other agreement,
certificate or document (other than this Agreement) that SLC is to enter into as
a party thereto, or otherwise is to execute and deliver, pursuant to or in
connection with this Agreement.
3
<PAGE> 4
"KNOWLEDGE," (a) when used with reference to SLC, means the collective
actual knowledge of any persons who, at the Agreement Date, were members of the
board of directors of SLC or officers of SLC; and (b) when used with reference
to HNC, means the collective actual knowledge of HNC's President and Chief
Financial Officer.
"MATERIAL ADVERSE EFFECT" when used with reference to any entity or
group of entities, means any event, change or effect that is (or will with the
passage of time be) materially adverse to the financial condition, properties,
assets, liabilities, business, operations, or results of operations of such
entity and its subsidiaries, taken as a whole.
"MATERIAL ADVERSE CHANGE" when used with reference to any entity or
group of entities, means a material adverse change other than (a) a change
arising or resulting, directly or indirectly, from general industry, economic or
stock market conditions or (b) a change that is proximately caused by the public
announcement of, and the response or reaction of customers, vendors, licensors,
investors or employees of such entity or group of entities to, this Agreement,
the Merger or any of the transactions contemplated by this Agreement; and
provided, further, that neither a reduction in the market price of the capital
stock of HNC and/or any of its subsidiaries nor a change to HNC arising or
resulting, directly or indirectly, from the Retek Dividend or spinoff, in each
case in and of itself, shall constitute a Material Adverse Change with respect
to HNC and/or any of its subsidiaries.
"PERMITTED ENCUMBRANCE" means (i) liens for current taxes that are not
yet due and payable, (ii) statutory or common law liens to secure landlords,
lessors or renters under leases or rental agreements confined to the premises
rented, (iii) deposits or pledges made in connection with, or to secure payment
of, leases or rental agreements and worker's compensation, unemployment
insurance, old age pension or other social security programs mandated under
applicable laws, (iv) statutory or common law liens in favor of carriers,
warehousemen, mechanics and materialman, to secure claims for labor, materials
or supplies and other similar liens, and (v) restrictions on transfer of
securities imposed by applicable state and federal securities laws.
"SLC STOCKHOLDERS' VOTE" means the vote taken by the SLC stockholders on
a proposal to approve the Merger, this Agreement and the transactions
contemplated thereby, pursuant to the written consent of the SLC stockholders in
lieu of a meeting in compliance with Sections 228 and 251 of the DGCL.
"TERMINATION DATE" means September 8, 2000 or, if HNC postpones the
record date for the Retek Dividend (as defined below) beyond September 15, 2000,
the earlier of (i) the date 2 days prior to the postponed record date and (ii)
October 31, 2000.
"SLC WEBSITE" means all websites or other sites accessed via the
internet or any other electronic network (including without limitation any
cable-based network or private network), that are, in whole or in part, owned or
operated by SLC, either as of the Agreement Date, the Closing Date or anytime in
the past, including without limitation that certain website currently accessible
at the URL address "http://www.systemslink.com" (the "HOME SLC WEBSITE").
4
<PAGE> 5
"EXCESS SLC INDEBTEDNESS PER SHARE" means the quotient (rounded to 4
decimal places) obtained by dividing (a) the amount by which the SLC
Indebtedness as of the Closing Date exceeds $5,700,000 by (b) the total number
of shares of the capital stock of SLC that are issued and outstanding
immediately prior to the Effective Time.
"SLC INDEBTEDNESS" means all indebtedness, liabilities and obligations
of SLC (inclusive of principal and interest), whether matured or unmatured, that
exist at the Effective Time and arise from: (i) indebtedness for borrowed money;
(ii) obligations evidenced by bonds, debentures, notes or similar instruments;
(iii) SLC's outstanding indebtedness to Commerce Bank, N.A. ("COMMERCE BANK");
(iv) SLC's outstanding indebtedness to General Electric Capital Corporation
("GECC"); (v) all SLC's obligations as a lessee under leases of any property
(whether real, personal or mixed) that are required under GAAP to be accounted
for as capital leases on SLC's balance sheet; (vi) reimbursement obligations of
SLC in respect of letters of credit, bank guarantees or bankers' acceptances
(excluding any reimbursement obligation with respect to the Standby Letter of
Credit issued by Commerce Bank in the amount of approximately $23,000 relating
to SLC's New Jersey real property lease deposit, to the extent that such Standby
Letter of Credit is secured by cash collateral or a certificate of deposit of
SLC); (vii) that certain Settlement Agreement, dated August 31, 1998, by and
between SLC, Robert E. Bruneau, Diane E. Sammer, Dubi Silverstein and Steven J.
Carras (the "BRUNEAU SETTLEMENT AGREEMENT"); (viii) termination and severance
obligations under employment agreements between SLC and Steven Carras and
between SLC and Warren Schad in the aggregate amount of $312,370; and (ix)
obligations under direct or indirect guarantees of obligations in respect of,
indebtedness or obligations of others of the kinds referred to in clauses (i)
through (viii) above.
"RETEK DIVIDEND" means the dividend declared by HNC of shares of common
stock of Retek Inc. ("RETEK") owned by HNC and payable to holders of record of
HNC Common Stock as of the record date established by HNC with respect to such
dividend, which record date, as of the Agreement Date, was September 15, 2000.
For purposes of this Agreement, the number of shares that are "SUBJECT
TO" an option to purchase shares of stock or a warrant to purchase shares of
stock, means the total number of shares of such stock that would then be
issuable upon the exercise in full of such option or warrant if the right to
exercise such option or warrant was fully vested, and does not include any
shares of stock that have already been issued upon an exercise of such option or
warrant.
Other capitalized terms defined elsewhere in this Agreement and not
defined in this Article 1 will have the meanings assigned to such terms in this
Agreement.
5
<PAGE> 6
ARTICLE 2
PLAN OF REORGANIZATION
2.1 Conversion of Shares.
2.1.1 Conversion of Sub Common Stock. At the Effective Time, each
share of the Common Stock of Sub that is issued and outstanding immediately
prior to the Effective Time will, by virtue of the Merger and without the need
for any further action on the part of the holder thereof, be converted into and
become one (1) share of SLC Common Stock that is issued and outstanding
immediately after the Effective Time, and the shares of SLC Common Stock into
which the shares of Sub Common Stock are so converted in the Merger will be the
only shares of capital stock of SLC that are issued and outstanding immediately
after the Effective Time.
2.1.2 Conversion of SLC Common Stock. Subject to the terms and
conditions of this Agreement, at the Effective Time each share of SLC Common
Stock that is issued and outstanding immediately prior to the Effective Time
(other than any SLC Dissenting Shares as provided in Section 2.1.3) will, by
virtue of the Merger, and without the need for any further action on the part of
the holder thereof, be converted into the right to receive: (a) a number of
shares of HNC Common Stock that is equal to the SLC Share Conversion Number,
subject to the provisions of Section 2.2 regarding the elimination of fractional
shares; and (b) an amount of cash equal to the Closing Cash Amount Per Share,
subject to the provisions of Section 2.2 regarding the elimination of fractional
cents.
2.1.3 SLC Dissenting Shares.
(a) Notwithstanding anything in this Agreement to the contrary,
any shares of SLC capital stock held by any person or entity who has demanded
and perfected dissenters' appraisal rights with respect to such shares in
accordance with Section 262 of the DGCL and who, as of the Effective Time, has
not effectively released or forfeited such dissenters' appraisal rights ("SLC
DISSENTING SHARES") will not be converted into or represent the right to receive
shares of HNC Common Stock and cash pursuant to Section 2.1.2 in the Merger
(except as provided in Section 2.1.3(b)) and the holder of such shares shall
only be entitled to such appraisal rights as are granted to such holder under
the DGCL.
(b) Notwithstanding the provisions of Section 2.1.3(a) above, if
any holder of shares of SLC Common Stock who demands the purchase of such shares
pursuant to Section 262 of the DGCL shall effectively release or forfeit such
holder's dissenters' appraisal rights (whether through failure to perfect such
rights or otherwise), then, effective as of the later of (i) the Effective Time
or (ii) the occurrence of such release or loss of such rights, such holder's
shares of SLC Common Stock shall cease to be SLC Dissenting Shares and shall
automatically be converted into and represent only the right to receive shares
of HNC Common Stock and cash as provided in Section 2.1.2, without interest
thereon, upon surrender of the certificate(s) representing such shares in
accordance with Article 7 of this Agreement, at which time such holder of such
shares
6
<PAGE> 7
shall also become subject to the escrow provisions of Section 2.7 and the Escrow
Agreement.
(c) SLC shall give HNC (i) prompt written notice of its receipt
of any written demands for purchase of any shares of SLC capital stock pursuant
to the dissenters' appraisal rights provisions of Section 262 of the DGCL, any
withdrawals of such demands, and any other instruments relating to the Merger
served pursuant to the DGCL and received by SLC and (ii) the opportunity to
participate (at HNC's expense) in all negotiations and proceedings with respect
to demands for purchase of any shares of SLC's capital stock under the DGCL. SLC
shall not, except with the prior written consent of HNC, which shall not be
unreasonably withheld, or as may be required under applicable law, voluntarily
make any payment with respect to any demands for the purchase of SLC capital
stock or offer to settle or settle any such demands.
2.2 Fractional Shares and Fractional Cents.
(a) Fractional Shares. No fractional shares of HNC Common Stock will
be issued in connection with the Merger. In lieu thereof, each SLC Stockholder
who would otherwise be entitled to receive a fraction of a share of HNC Common
Stock pursuant to Section 2.1.2, determined in each case after aggregating all
shares of HNC Common Stock to be received by such holder pursuant to Section
2.1.2, will instead receive from HNC, in lieu of any fractional share otherwise
issuable to such holder under Section 2.1.2, a payment of cash in an amount
equal to the product obtained by multiplying the HNC Closing Price Per Share (as
adjusted to reflect any Capital Change (as defined in Section 2.5 below) of HNC
occurring after the Agreement Date and prior to Effective Time) by the fraction
of a share of HNC Common Stock that such holder would otherwise be entitled to
receive, which amount shall be paid within ten (10) business days after the
Effective Time.
(b) Fractional Cents. No fractional cents will be paid in connection
with the Merger. In lieu thereof, each SLC Stockholder who would otherwise be
entitled to receive payment in cash of a fractional cent pursuant to Section
2.1.2, determined after aggregating the total amount of cash payable to such SLC
Stockholder pursuant to Section 2.1.2, will have such fractional cent rounded
down to the nearest whole cent.
2.3 Limitation on Number of HNC Shares Issued.
(a) Notwithstanding anything in this Agreement (including but not
limited to this Section 2) to the contrary, in no event may the HNC Shares
Issuable (as defined below) exceed twenty percent (20%) of the number of shares
of HNC Common Stock that are issued and outstanding immediately prior to the
Effective Time. As used herein the "HNC SHARES ISSUABLE" means that number of
shares of HNC Common Stock that equals the sum of (a) the total number of shares
of HNC Common Stock that, but for the provisions of this Section 2.3, are to be
issued under the provisions of Section 2.1.2 of this Agreement, plus (b) the
total number of shares of HNC Common Stock that, but for the provisions of this
Section 2.3, are issuable upon the exercise of HNC Options to be issued under
Section 2.4 of this Agreement. If the HNC Shares Issuable shall at any time
7
<PAGE> 8
exceed twenty percent (20%) of the number of shares of HNC Common Stock that are
issued and outstanding immediately prior to the Effective Time, then each of the
SLC Share Conversion Number and the SLC Option Conversion Number shall each be
proportionally reduced by the same ratio until the HNC Shares Issuable does not
exceed twenty percent (20%) of the number of shares of HNC Common Stock that are
issued and outstanding immediately prior to the Effective Time.
(b) If, at the Closing, the SLC Share Conversion Number and the SLC
Option Conversion Number would be reduced pursuant to the provisions of
paragraph 2.3(a) above, then SLC shall have the option, by written notice to
HNC, to terminate this Agreement at any time prior to the Effective Time. If SLC
terminates this Agreement pursuant to this paragraph, the parties shall be
released from any further obligations hereunder other than obligations (such as
obligations of confidentiality) that would by their terms survive the
termination of this Agreement prior to closing.
2.4 Assumption and Conversion of SLC Options.
2.4.1 At Effective Time. At the Effective Time, each unexpired SLC
Option that is outstanding immediately prior to the Effective Time, whether or
not then exercisable, will by virtue of the Merger and this Agreement, and
without the need for any action on the part of the holder thereof, be assumed by
HNC and converted into an option to purchase shares of HNC Common Stock (an "HNC
OPTION") that (i) is exercisable (subject to the vesting conditions carried over
from such SLC Option as provided below) for that number of whole shares of HNC
Common Stock equal to the number of shares of SLC Common Stock that were subject
to such SLC Option immediately prior to the Effective Time multiplied by the SLC
Option Conversion Number, rounded down to the nearest whole number of shares of
HNC Common Stock, and (ii) has an exercise price per share of HNC Common Stock
equal to the exercise price per share of SLC Common Stock at which such SLC
Option was exercisable immediately prior to the Effective Time divided by the
SLC Option Conversion Number, rounded up to the nearest whole cent. The terms,
exercisability, vesting schedule, status as an "incentive stock option" under
Section 422 of the Code (if applicable) or as a nonqualified stock option, and
all other terms and conditions of each SLC Option (including but not limited to
the provisions of the SLC Stock Option Plan that form part of the terms and
conditions of such SLC Option) that is converted into an HNC Option pursuant to
this Section 2.4 will (except as otherwise provided in the terms of such SLC
Options, in Section 6.7 or under applicable law), to the extent permitted by law
and otherwise reasonably practicable, be unchanged and continue in effect after
the Merger with respect to such HNC Option and the shares of HNC Common Stock
issuable upon exercise thereof. Continuous employment or service with SLC prior
to the Effective Time will be credited to each holder of a SLC Option for
purposes of applying any vesting schedule contained in a SLC Option to determine
the number of shares of HNC Common Stock that are exercisable under the HNC
Option into which such SLC Option is converted in the Merger. HNC hereby accepts
at Closing the assignment of all rights of repurchase and all similar rights
under the SLC Stock Option Plan and any option grants or other agreements
entered into thereunder.
8
<PAGE> 9
2.4.2 Registration. HNC shall use its diligent good faith efforts to
cause the shares of HNC Common Stock issuable (but not yet issued) upon exercise
of the HNC Options that are issued by virtue of the conversion and assumption of
SLC Options under this Section 2.4 to be registered on a registration statement
on Form S-8 (or successor form) promulgated by the Securities and Exchange
Commission ("SEC") under the Securities Act of 1933, as amended (the "1933
ACT"), as soon as reasonably practicable after the Effective Time, and shall use
its best efforts to maintain the effectiveness of such registration statement or
registration statements for so long as such HNC Options remain outstanding and
HNC Common Stock is registered under the Securities Exchange Act of 1934, as
amended (the "1934 ACT"). Notwithstanding the foregoing, HNC shall have no
obligation to register any of such shares of HNC Common Stock with respect to
any HNC Option which is ineligible to be included in a registration statement on
Form S-8 under the 1933 Act.
2.5 Adjustments for Capital Changes. Notwithstanding the provisions of
this Article 2, if at any time after the Agreement Date and prior to the
Effective Time, HNC recapitalizes, either through a subdivision (or stock split)
of its outstanding shares of Common Stock into a greater number of shares of
Common Stock, or a combination (or reverse stock split) of its outstanding
shares of Common Stock into a lesser number of shares, or reorganizes,
reclassifies or otherwise changes its outstanding shares of Common Stock, into
the same or a different number of shares of other classes of stock, either of
HNC or of another entity (other than through a subdivision or combination of
shares provided for in the previous clause), or declares a dividend on its
outstanding shares of Common Stock payable in shares of HNC Common Stock (each,
a "CAPITAL CHANGE"), then the HNC Closing Price Per Share, the SLC Share
Conversion Number, and the SLC Option Conversion Number, will each, if and to
the extent necessary, be appropriately adjusted so as to equitably maintain the
proportionate interests of the stockholders of HNC and SLC intended by this
Agreement (but, in the case of stockholders of SLC, only with respect to their
interests in the equity of HNC represented by those shares of HNC Common Stock
and HNC Options that are issued pursuant to the Merger and this Agreement.)
Notwithstanding the foregoing, the provisions of this Section 2.5 shall not
apply to the Retek Dividend, which shall occur after the Effective Time. The
effects of the Retek Dividend are addressed in Section 6.7.
2.6 Continuation of Vesting and Repurchase Rights. If any shares of SLC
Common Stock that are outstanding immediately prior to the Effective Time (a)
are subject to a repurchase option (other than a right of first refusal), risk
of forfeiture, or other condition providing that such shares may be forfeited or
repurchased by SLC upon any termination of the stockholder's employment,
directorship, consultancy or other relationship with SLC (and/or any affiliate
of SLC) under the terms of any restricted stock purchase agreement or other
agreement with SLC that does not by its terms provide that such repurchase
option, risk of forfeiture or other condition lapses automatically upon
consummation of the Merger ("UNVESTED SLC SHARES") or (b) are subject to a
contractual restriction on the transfer of such shares, other than a right of
first refusal ("RESTRICTED SLC SHARES"), then the shares of HNC Common Stock
issued upon the conversion of such Unvested SLC Shares or Restricted SLC Shares
in the Merger will continue to be unvested and will continue to be subject to
the same repurchase options,
9
<PAGE> 10
risks of forfeiture, restrictions on transfer (other than a right of first
refusal) or other conditions, as applicable, immediately following the Effective
Time as they were subject to immediately prior to the Effective Time and the
certificates representing such shares of HNC Common Stock shall accordingly be
marked with appropriate legends noting such repurchase options, risks of
forfeiture, restrictions on transfer or other conditions. SLC shall use
reasonable efforts to take all actions that may be necessary to ensure that,
from and after the Effective Time, HNC is entitled to exercise any such
repurchase option or other right set forth in any such restricted stock purchase
agreement or other agreement and to enforce any such contractual restriction on
transfer (other than a right of first refusal).
2.7 Escrow Agreement.
2.7.1 Escrow; Escrow Shares. HNC will be entitled to withhold at the
Closing (as defined in Section 7.1), from the payments of HNC Common Stock and
cash to be made to the Escrow Stockholders (as defined below) under Section
2.1.2 and to place in escrow as provided herein: (i) (a) an amount of cash equal
to twenty percent (20%) of the total aggregate amount of cash payable to all the
holders of SLC Common Stock under Section 2.1.2(b) and (b) that aggregate number
of shares of HNC Common Stock having an aggregate value (based on the HNC
Closing Price Per Share) equal to the difference between (w) twenty percent
(20%) of the Closing Consideration Amount and (x) the amount of cash placed in
escrow under the preceding clause (a), (rounded up to the nearest whole number
of such shares of HNC Common Stock) (the cash and shares described in the
preceding clause (i) being collectively referred to herein as the "GENERAL
ESCROW"); and (ii) (c) $173,000 in cash and (d) that aggregate number of shares
of HNC Common Stock having an aggregate value (based on the HNC Closing Price
Per Share) equal to $692,000 (rounded up to the nearest whole number of shares
of HNC Common Stock) (the cash and shares described in the preceding clause (ii)
being collectively referred to herein as the "11.3 ESCROW"). The General Escrow
and the 11.3 Escrow are collectively referred to herein as the "ESCROW". The
amount of cash and the number of shares of HNC Common Stock so withheld and
placed in the Escrow for each SLC Stockholder who held outstanding shares of SLC
Common Stock as of 5:00 p.m., Eastern Daylight Time, on August 31, 2000 (each
such SLC Stockholder being individually referred to herein as an "ESCROW
STOCKHOLDER" and all such SLC Stockholders being collectively referred to herein
as the "ESCROW STOCKHOLDERS") shall be set forth in Attachment A to the Escrow
Agreement (as defined below) and be allocated among the Escrow Stockholders on a
pro rata basis according to each Escrow Stockholder's percentage ownership
interest in the outstanding shares of capital stock of SLC as of 5:00 p.m.,
Eastern Daylight Time, on August 31, 2000; provided that Steven Carras, David
Pedersen and Warren Schad (i) shall not be Escrow Stockholders, (ii) shall not
have any cash or shares of HNC Common Stock payable to them under Section 2.1.2
withheld or placed in the Escrow and (iii) shall have no interest whatsoever in
any of the Escrow Cash or Escrow Shares (as such terms are defined below) to be
withheld and placed in the Escrow as provided herein. All of the cash to be so
withheld and escrowed pursuant to this Section 2.7.1 is hereinafter collectively
referred to as the "ESCROW CASH". All of the shares of HNC Common Stock to be so
withheld and escrowed pursuant to this Section 2.7.1 are hereinafter
collectively referred to as the "ESCROW SHARES". HNC will
10
<PAGE> 11
deliver the Escrow Cash and the certificates representing the Escrow Shares (and
related stock transfer powers) to State Street Bank and Trust Co., N.A. or a
similar institution (the "ESCROW AGENT"), to be held by the Escrow Agent in
escrow as security for Escrow Stockholders' indemnification obligations under
Article 11 pursuant to the provisions of an Escrow Agreement in substantially
the form of Exhibit A to be entered into at the Closing by and among HNC, the
Escrow Agent, the Escrow Stockholders and the Representative (as defined below)
(the "ESCROW AGREEMENT"). The Escrow Shares will be represented by a certificate
or certificates issued in the name of a nominee for the Escrow Agent. Each of
the Escrow Stockholders shall have a beneficial interest in the Escrow Cash and
Escrow Shares in proportion to its percentage ownership interest in the
outstanding capital stock of SLC as of 5:00 p.m., Eastern Daylight Time, on
August 31, 2000. The Escrow Cash and Escrow Shares will be held in the Escrow by
the Escrow Agent during the Escrow Period (as defined in the Escrow Agreement)
pursuant to the provisions of the Escrow Agreement.
2.7.2 Retek Shares. Any and all shares of common stock of Retek that
are distributed pursuant to the Retek Dividend on the shares of HNC Common Stock
to be withheld and escrowed pursuant to Section 2.7.1 above in either the
General Escrow or the 11.3 Escrow shall also be escrowed with the Escrow Agent
and shall also constitute "Escrow Shares" for all purposes of this Agreement.
2.7.3 Additional Escrow and Indemnity Provisions. By their approval
of the Merger, each of the SLC Stockholders will be conclusively deemed to have
consented to, approved and agreed to be personally bound by: (i) the
indemnification provisions of Article 11; (ii) the Escrow Agreement; (iii) the
appointment of Fred Farkouh as the representative of the Escrow Stockholders
(together with each of his successor(s) appointed pursuant to this Agreement or
the Escrow Agreement the "REPRESENTATIVE") and as the attorney-in-fact and agent
for and on behalf of each Escrow Stockholder as provided in this Agreement and
the Escrow Agreement; and (iv) the taking by the Representative of any and all
actions and the making of any and all decisions required or permitted to be
taken by the Representative under this Agreement and under the Escrow Agreement,
including, without limitation, the exercise of the power to: (1) authorize
delivery to HNC of Escrow Cash and Escrow Shares in satisfaction of indemnity
claims by HNC or any other HNC Indemnified Person (as defined herein) pursuant
to Article 11 and/or the Escrow Agreement; (2) agree to, negotiate, enter into
settlements and compromises of, demand arbitration of, and comply with orders of
courts and awards of arbitrators with respect to, any matter concerning any
claim for indemnity made pursuant to Article 11; (3) arbitrate, resolve, settle
or compromise any claim regarding any claim for indemnity made pursuant to
Article 11; and (4) take all actions necessary in the judgment of the
Representative for the accomplishment of the foregoing. The Representative will
have unlimited authority and power to act on behalf of each Escrow Stockholder
with respect to the disposition, settlement or other handling of (a) indemnity
claims under Article 11 and (b) all claims governed by Article 11 of this
Agreement or the Escrow Agreement, and all rights or obligations arising under
Article 11 of this Agreement or the Escrow Agreement so long as all Escrow
Stockholders are treated in a consistent manner and/or consent in writing to
different treatment. Each Escrow
11
<PAGE> 12
Stockholder will be bound by all actions taken by the Representative in
connection with indemnity claims under Article 11 and the Escrow Agreement, and
HNC will be entitled to rely on any action or decision of the Representative in
connection therewith. In performing the functions specified in this Agreement
and the Escrow Agreement, the Representative will not be liable to any SLC
Stockholder (including but not limited to any Escrow Stockholder) in the absence
of gross negligence or willful misconduct on the part of the Representative. Any
fees charged and out-of-pocket costs and expenses reasonably incurred by the
Representative in connection with actions taken pursuant to the terms of this
Agreement or the Escrow Agreement will be paid by the Escrow Stockholders to the
Representative pro rata in proportion to their respective percentage interests
in the Escrow Cash and Escrow Shares. HNC shall have no liability or obligation
to pay any such fees, costs or expenses of the Representative.
2.8 Effects of the Merger. At and upon the Effective Time of the Merger:
(a) the separate existence of Sub will cease and Sub will be merged
with and into SLC, and SLC will be the surviving corporation of the Merger (the
"SURVIVING CORPORATION") pursuant to the terms of this Agreement and the
Certificate of Merger;
(b) the Certificate of Incorporation of SLC will be amended to read
as set forth in Exhibit B attached hereto and will be the Certificate of
Incorporation of the Surviving Corporation upon the Effective Time;
(c) the Bylaws of Sub will be the Bylaws of the Surviving
Corporation;
(d) each share of SLC Common Stock that is issued and outstanding
immediately prior to the Effective Time will be converted as provided in this
Article 2;
(e) each share of Sub Common Stock that is outstanding immediately
prior to the Effective Time will be converted into one (1) share of SLC Common
Stock as provided in Section 2.1.1;
(f) the SLC Options will be converted to HNC Options as provided in
Section 2.4;
(g) the officers of the Surviving Corporation (and their respective
offices) will be: Tony Patterson -- Chief Executive Officer; Faith Pollock --
Vice President and Treasurer; Kenneth Saunders -- Chief Financial Officer and
Secretary; and Russ Clark - Assistant Secretary;
(h) the directors of the Surviving Corporation will be John Mutch,
Kenneth Saunders and Tony Patterson; and
(i) the Merger will, from and after the Effective Time, have all of
the effects provided by applicable law.
12
<PAGE> 13
2.10 Securities Laws Compliance. HNC will issue the shares of HNC Common
Stock to be issued in the Merger pursuant to Section 2.1.2 of this Agreement
pursuant to the exemption(s) from registration under Section 4(2) and/or
Regulation D promulgated under the 1933 Act, the exemption from qualification
under Section 25120 of the California Corporations Code (the "CCC") provided by
Section 25100(o) of the CCC and applicable exemptions under applicable state
securities laws. Concurrently with execution of this Agreement, each SLC
Stockholder that is an "accredited" investor (within the meaning of Regulation D
promulgated under the 1933 Act) shall execute and deliver to HNC an Investment
Representation Letter in the form of Exhibit C-1 hereto and each SLC Stockholder
that is not an "accredited" investor (within the meaning of Regulation D
promulgated under the 1933 Act) shall execute and deliver to HNC an Investment
Representation Letter in the form of Exhibit C-2 hereto (each, an "INVESTMENT
REPRESENTATION LETTER"), which shall, among other things, evidence such SLC
Stockholder's understanding and acknowledgement that the shares of HNC Common
Stock to be issued to such SLC Stockholder pursuant to Section 2.1.2 will be
"restricted securities" within the meaning of Rule 144 under the 1933 Act ("RULE
144").
2.11 Further Assurances. If, at any time before or after the Effective
Time, HNC believes or is advised that any further instruments, deeds,
assignments or assurances are reasonably necessary or desirable to consummate
the Merger or to carry out the purposes and intent of this Agreement at or after
the Effective Time, then HNC, the Surviving Corporation and their respective
officers and directors may, execute and deliver all such proper deeds,
assignments, instruments and assurances and do all other things necessary or
desirable to consummate the Merger and to carry out the purposes of this
Agreement, in the name of SLC or otherwise.
2.12 Tax-Free Reorganization. The parties intend to adopt this Agreement
as a tax-free plan of reorganization and to consummate the Merger in accordance
with the provisions of Sections 368(a)(1)(A) and (a)(2)(E) of the Code. Each
party agrees, that provided it concludes in good faith that it has a valid legal
basis to do so under the Code and the Treasury Regulations promulgated
thereunder and applicable law, it will (i) report the Merger in a manner
consistent with the intention expressed in the first sentence of this Section,
and (ii) not take any position materially inconsistent with such intention.
Notwithstanding anything to the contrary set forth herein, HNC makes no
representation or warranty to SLC or to any stockholder of SLC regarding the tax
treatment of the Merger or whether the Merger will qualify as a tax-free plan of
reorganization under the Code. SLC hereby acknowledges and agrees that neither
SLC nor any SLC Stockholder has relied, or is relying, on HNC or HNC's legal
counsel, accountants or tax advisers, for any advice or counsel with respect to
the tax treatment of the Merger. SLC also acknowledges on behalf of the SLC
Stockholders, that any cash consideration received in the Merger will be taxable
currently.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF SLC
SLC represents and warrants to HNC that, except as set forth in the
letter signed by SLC's Chief Executive Officer and Chief Financial Officer
addressed to HNC from
13
<PAGE> 14
SLC and dated as of the Agreement Date (including all schedules thereto) that
has been delivered by SLC to HNC concurrently with the parties' execution of
this Agreement (the "SLC DISCLOSURE LETTER"), each of the representations,
warranties and statements contained in the following sections of this Article 3
is true and correct as of the Agreement Date and will be true and correct on and
as of the Closing Date. For all purposes of this Agreement (including without
limitation Articles 8 and 9 hereof), the statements contained in the SLC
Disclosure Letter and its schedules shall also be deemed to be representations
and warranties made and given by SLC under Article 3 of this Agreement.
3.1 Organization and Good Standing. SLC is a corporation duly organized,
validly existing and in good standing under the laws of the State of Delaware.
SLC has the corporate power and authority to own, operate and lease its
properties and to carry on its business as now conducted and as proposed to be
conducted, and is qualified to transact business, and is in good standing, as a
foreign corporation in each jurisdiction in which its failure to be so qualified
would have a Material Adverse Effect on SLC. SLC has delivered to HNC or its
counsel, Fenwick & West LLP, true and correct copies of SLC's currently
effective Certificate of Incorporation and Bylaws, each as amended to date. SLC
is not in violation of its Certificate of Incorporation, Bylaws or other charter
documents. All of the members of SLC's Board of Directors have been validly and
lawfully elected to SLC's Board of Directors.
3.2 Subsidiaries. SLC has no subsidiaries. SLC does not have any equity
or ownership interest, whether direct or indirect, in any corporation,
partnership, limited partnership, limited liability company, joint venture or
other business entity other than Fraudlink, LLC ("FRAUDLINK"). SLC has delivered
to HNC or its counsel true and correct copies of the currently effective written
agreements or charter documents governing Fraudlink, including without
limitation the Fraudlink Operating Agreement (as defined below). Fraudlink is a
limited liability company organized and in good standing under the laws of the
State of New Jersey. The only members of Fraudlink are SLC and National Fraud
Center, Inc. ("NFC"). SLC owns a 50% percent membership interest in Fraudlink
and NFC owns a 50% membership interest in Fraudlink. SLC has complied in all
material respects with, and is not currently in breach of, the terms and
conditions of that certain Operating Agreement of Fraudlink, LLC, dated January
26, 1999 (the "LLC OPERATING AGREEMENT"), by and between SLC and NFC, including
but not limited to the provisions thereof relating to capital contributions,
payment of royalties, and maintenance of books and records. To the knowledge of
SLC, NFC has complied in all material respects with, and is not currently in
breach of, the terms and conditions of the LLC Operating Agreement. Schedule 3.2
to the SLC Disclosure Letter lists the capital contributions made by each of SLC
and NFC to Fraudlink pursuant to the LLC Operating Agreement. Schedule 3.2 to
the SLC Disclosure Letter describes the current royalty rates payable by SLC to
Fraudlink pursuant to that certain License Agreement between SLC and Fraudlink,
dated February 2, 1999 (the "LLC LICENSE AGREEMENT") and the aggregate amount of
royalties paid thereunder to date by SLC. Schedule 3.2 to the SLC Disclosure
Letter also describes in detail the basis for any change in the royalty rates
under the LLC License Agreement and the effective date of each such change in
the royalty rate. Schedule 3.2 to the SLC Disclosure Letter also specifies the
date on which
14
<PAGE> 15
Phase I and Phase II (as defined in the LLC Operating Agreement) were completed
and lists each new version, modification or enhancement to the "Licensed
Product" (as defined in the LLC License Agreement) and the date of completion of
each such new version, modification or enhancement. No consent of Timothy Kear,
James Oviedo, Christopher Cordes or Foundation Group, Inc was required in
connection with the LLC License Agreement or is required in connection with SLC
entering into and performing this Agreement. The execution delivery and
performance of the LLC License Agreement did not, and the execution, delivery
and performance of this Agreement will not, breach, with or without notice or
passage of time, the terms and provisions of the LLC Operating Agreement or that
certain Asset Purchase Agreement dated April 30, 1998 by and between NFC and
Messrs. Kear, Oviedo and Cordes and Foundation Group, Inc. (the "ASSET PURCHASE
AGREEMENT"). To the knowledge of SLC, neither Fraudlink nor NFC has breached or
is currently in breach of the terms and conditions of the Asset Purchase
Agreement.
3.3 Power, Authorization and Validity.
3.3.1 Power and Authority. SLC has all requisite corporate power,
capacity and authority to enter into, execute, deliver and perform its
obligations under, this Agreement and each of the SLC Ancillary Agreements, and
to consummate the Merger. The execution, delivery and performance by SLC of this
Agreement and each of the SLC Ancillary Agreements have been duly and validly
approved and authorized by SLC's Board of Directors and stockholders in full
compliance with applicable law (including without limitation the DGCL) and SLC's
Certificate of Incorporation and Bylaws, each as amended. This Agreement, the
Merger, the SLC Ancillary Agreements and SLC's performance of its obligations
thereunder, have been duly and validly unanimously approved by all of SLC's
stockholders by unanimous written consent of the stockholders without a meeting
in compliance with Sections 228 and 251 of the DGCL and SLC's Certificate of
Incorporation and Bylaws, each as amended.
3.3.2 No Consents. No consent, approval, order or authorization of,
or registration, declaration or filing with, any court, administrative agency,
commission or other governmental authority (each, a "GOVERNMENTAL AUTHORITY"),
or any other person or entity, governmental or otherwise, is necessary or
required to be made or obtained by SLC or Fraudlink to enable SLC or any of its
stockholders to lawfully execute and deliver, enter into, and to perform its
obligations under, this Agreement and each of the SLC Ancillary Agreements, or
to consummate the Merger, except for the filing of the Certificate of Merger
with the Delaware Secretary of State as required under the DGCL to effect the
Merger.
3.3.3 Enforceability. This Agreement and each of the SLC Ancillary
Agreements are, or when executed by SLC will be, valid and binding obligations
of SLC, enforceable against SLC in accordance with their respective terms,
subject to the effect of (a) applicable bankruptcy and other similar laws
affecting the rights of creditors generally and (b) rules of law and equity
governing specific performance, injunctive relief and other equitable remedies.
15
<PAGE> 16
3.4 Capitalization of SLC.
3.4.1 Capital Stock.
(a) Authorized and Outstanding Shares. The authorized capital
stock of SLC consists entirely of 25,000,000 shares of Common Stock, $0.001 par
value per share, of which a total of 8,671,083 shares are issued and
outstanding. No fractional shares of SLC Common Stock are issued or outstanding.
SLC holds 3,664,122 treasury shares. No shares of any preferred stock of SLC
are, or ever have been, authorized, issued or outstanding.
(b) Status of Shares. All of the issued and outstanding shares
of SLC's capital stock have been duly authorized and validly issued, are fully
paid and nonassessable, are not subject to any claim, lien, preemptive right,
right of first refusal, right of first offer or right of rescission, and have
been offered, issued, sold and delivered by SLC in compliance with all
registration or qualification requirements (or applicable exemptions therefrom)
of all applicable federal and state securities laws. No stockholder of SLC owes
SLC any money or other consideration representing any part of the purchase price
of any outstanding shares of SLC's capital stock, including without limitation
any money due under a promissory note payable to SLC. SLC has no liability (or
potential liability) to any stockholder (or former stockholder) for any
dividends that have been declared or accrued or for any portion of any
repurchase or redemption price payable to such stockholder (or former
stockholder) to repurchase or redeem any of the stockholder's shares of SLC
capital stock.
(c) Stockholders. A list of all holders of SLC's outstanding
capital stock, and the total number of shares of (and share certificate numbers
for) SLC Common Stock owned by each such holder is set forth in Schedule 3.4.1
to the SLC Disclosure Letter (the "SLC STOCKHOLDER LIST"). No issued and
outstanding shares of SLC Common Stock are subject to an option held by SLC to
purchase any of such shares at their original issuance price upon the
termination of employment or other services with SLC of the holder of such
shares.
3.4.2 Options, Warrants and Rights.
(a) Outstanding Options, Warrants and Rights. Except for SLC
Options to purchase an aggregate total of 489,500 shares of SLC Common Stock
that are outstanding on the Agreement Date, all of which options were granted
under the SLC Stock Option Plan, all as more fully described in Schedule 3.4.2
to the SLC Disclosure Letter, there are no SLC Derivative Securities, calls,
commitments, conversion privileges, preemptive rights, rights of first refusal,
rights of first offer or other rights or agreements outstanding to purchase or
otherwise acquire from SLC (whether directly or indirectly) any shares of SLC's
authorized but unissued capital stock or any securities convertible into or
exchangeable for any shares of SLC's capital stock or obligating SLC to grant,
issue, extend, or enter into any SLC Derivative Securities, call, commitment,
conversion privilege, preemptive right, right of first refusal, right of first
offer or other such right or agreement. Except for the SLC Options described
above in
16
<PAGE> 17
this Section 3.4.2(a), no options, warrants, convertible debentures, or any
other securities of SLC or rights to acquire shares of SLC stock or any other
securities of SLC will become an option, warrant, convertible debenture,
security or other right to purchase or otherwise acquire from SLC any capital
stock or other securities of HNC, or any other obligation or liability of HNC,
by reason of the Merger or this Agreement. To SLC's knowledge, no person or
entity holds, or has any option, warrant or other right to acquire, any issued
and outstanding shares of the capital stock of SLC or SLC Derivative Securities
from any holder of shares of the capital stock of SLC.
(b) Status of SLC Stock Plans. A total of 1,000,000 shares of
SLC Common Stock are reserved for issuance under the SLC Stock Option Plan. As
of the Agreement Date: (i) no shares of SLC Common Stock have been issued under
the SLC Stock Option Plan or are outstanding under the SLC Stock Option Plan;
(ii) a total of 489,500 shares of SLC Common Stock are potentially issuable upon
the exercise of all options granted under the SLC Stock Option Plan that are
outstanding on the Agreement Date; and (iii) a total of 510,500 shares of SLC
Common Stock are reserved and available for issuance under the SLC Stock Option
Plan and are not yet outstanding nor subject to outstanding SLC Options. As of
the Agreement Date, each SLC Non-Plan Grant has been exercised in full and no
options are outstanding under any SLC Non-Plan Grant. Except as set forth on
Schedule 3.4.2 to the SLC Disclosure Letter, no SLC Options contain any
provisions accelerating the vesting of the right to exercise such SLC Options
upon or as a result of the Merger, this Agreement or any other merger or
consolidation involving SLC, any issuance or sale of SLC stock, any sale of all
or substantially all of SLC's assets or any business combination or similar
transaction involving or causing a change of control of SLC ("ACCELERATED
VESTING ON CHANGE OF CONTROL PROVISIONS"). The SLC Stock Option Plan and any
change that has been made to (i) the number of shares reserved under the SLC
Stock Option Plan or (ii) the eligible participants under the SLC Stock Option
Plan, have each been duly and validly approved by SLC's Board of Directors and
by SLC's stockholders to the extent required by applicable law, and such
stockholder approval was obtained as required by the SLC Stock Option Plan and
within one (1) year of the date on which such SLC Stock Option Plan (or such
change) was approved by SLC's Board of Directors. The provisions of Section 2.4
(regarding the assumption and conversion of SLC Options in the Merger) are, and
at the Effective Time will be, binding and enforceable against each holder of a
SLC Option that is outstanding immediately prior to the Effective Time. The
exercise price at which each SLC Option may be exercised was the fair market
value of SLC's Common Stock, as determined in good faith by SLC's Board of
Directors, on the date such SLC Option was granted. All outstanding SLC Options
that have designated by SLC as "incentive stock options" fully qualify as
incentive stock options within the meaning of Section 422 of the Code. SLC has
no outstanding stock options not granted under either an SLC Non-Plan Grant or
the SLC Stock Option Plan. SLC has no stock option, stock incentive or stock
purchase plans other than the SLC Stock Option Plan. No individual who is an
employee, consultant or other service provider to Fraudlink holds an SLC Option,
unless such individual is also an employee of SLC.
(c) Holders of Options and Warrants. Attached as Schedule 3.4.2
to the SLC Disclosure Letter is (i) a true and complete list of all SLC Options
that
17
<PAGE> 18
are outstanding on the Agreement Date, all of which have been granted under the
SLC Stock Option Plan, setting forth the holder of each such SLC Option, whether
such individual is an employee, consultant, or director of SLC, the date of
grant, the exercise price per share at which SLC Common Stock is purchasable
under such SLC Option, the vesting schedule of each such SLC Option as of
immediately following the Effective Time, the number of shares of SLC Common
Stock subject to each such SLC Option, and whether or not SLC has designated
such SLC Option as an incentive stock option within the meaning of Section 422
of the Code; and (ii) a true and complete list of all other securities or rights
to purchase or otherwise acquire any shares of the capital stock of SLC of any
class or series, identifying such rights and any conditions to the exercise
thereof, the holders thereof and the number, class and series of such shares of
SLC capital stock issuable thereunder (Schedule 3.4.2 to the SLC Disclosure
Letter is hereinafter referred to as the "SLC OPTION HOLDER LIST"). Schedule
3.4.2 also includes a true and complete list of all outstanding securities or
rights to purchase or otherwise acquire securities or equity or economic
interests in Fraudlink, identifying such rights and any conditions to the
exercise thereof, the holders thereof and the number, class and series of such
shares or equity or economic interests.
3.4.3 No Voting Arrangements, Registration Rights. There are no
voting agreements, voting trusts, proxies, preemptive rights, rights of first
refusal, rights of first offer, rights of co-sale or tag-along rights, put or
option arrangements, buy-sell agreements or redemption agreements obligating
SLC, or allowing any party, to redeem or repurchase any shares of its capital
stock under any conditions or other restrictions applicable to any shares of
SLC's outstanding stock or other securities or to the conversion of any shares
of SLC's capital stock in the Merger pursuant to any agreement or obligation to
which SLC is a party or, to SLC's knowledge, pursuant to any other agreement or
obligation. SLC has no obligation to register under the 1933 Act any of its
presently outstanding shares of stock or other securities or any stock or other
securities that may subsequently be issued by SLC. The Redemption/Cross-Purchase
Agreement, dated October 23, 1985, as amended, by and between SLC, Robert E.
Bruneau, Dubi Silverstein and Joseph R. Lagae (the "REDEMPTION AGREEMENT"), was
validly and completely terminated effective October 6, 1998 and no conditions to
such termination remain unsatisfied. No sales of securities of SLC were made in
violation of the Redemption Agreement.
3.5 No Conflict. Neither the execution and delivery of this Agreement
nor any of the SLC Ancillary Agreements by SLC, nor the consummation of the
Merger or any of the other transactions contemplated hereby or thereby, will
conflict with, or (with or without notice or lapse of time, or both) result in a
termination, breach, impairment or violation by SLC of: (i) any provision of the
Certificate of Incorporation or Bylaws or other charter documents of SLC as
currently in effect; (ii) any federal, state, local or foreign law, statute,
rule, regulation, judgment, writ, decree or order, applicable to SLC or any of
its assets or properties (including but not limited to the DGCL) or, to SLC's
knowledge, any of its officers, key employees or key consultants; or (iii) any
Material SLC Agreement (as defined in Section 3.11). Neither SLC's entering into
this Agreement nor the consummation of the Merger will give rise to, or trigger
the application of, any rights of any third party that would come into effect
upon the
18
<PAGE> 19
effectiveness of the Merger. The consummation of the Merger or any other
transaction contemplated by this Agreement by SLC will not require the consent,
release, waiver or approval of any third party other than the required approval
of SLC's stockholders under the DGCL (which consent and approval has been
obtained by a unanimous written consent of SLC's stockholders in compliance with
the DGCL, including without limitation Section 228 of the DGCL). Except as set
forth in Schedule 3.5 to the SLC Disclosure Letter, no consent or approval of
any third party is required to ensure that, following the Effective Time, any
SLC Material Agreement will continue to be in full force and effect without any
breach, default or violation thereof caused by virtue of the Merger or by any
other transaction called for by this Agreement or any SLC Ancillary Agreement.
3.6 Litigation. There is no action, claim, suit, arbitration, mediation,
proceeding or investigation pending against SLC or Fraudlink (or, to SLC's
knowledge, against any officer, director, employee, key consultant or agent of
SLC or Fraudlink in their capacity as such or relating to their employment,
services or relationship with SLC or Fraudlink) before any court, administrative
agency or arbitrator, nor, to SLC's knowledge, has any such action, suit,
proceeding, arbitration, mediation, claim or investigation been threatened.
There is no judgment, decree, injunction, rule or order of any governmental
entity or agency, court or arbitrator outstanding against SLC or Fraudlink or,
to SLC's or Fraudlink's knowledge, against any officer, director, employee, key
consultant or agent of SLC or Fraudlink in their capacity as such. There is no
basis for any person, firm, corporation or other entity to assert a claim
against SLC or Fraudlink based upon: (a) SLC's entering into this Agreement or
any SLC Ancillary Agreement or consummating the Merger or any of the
transactions contemplated by this Agreement or any SLC Ancillary Agreement
(other than claims asserting dissenters' appraisal rights under Section 262 of
the DGCL, if any are made or can be made); or (b) a disputed claim of ownership
of options, warrants or other rights to acquire ownership of, any shares of the
capital stock of SLC or any rights as a SLC stockholder, including any option,
warrant or preemptive rights, right of refusal, rights of co-sale or tag along
rights or rights to notice or to vote.
3.7 Taxes.
3.7.1 SLC and Fraudlink have each timely filed all federal, state,
local and foreign tax returns required to be filed by it, has timely paid all
taxes required to be paid by it for which payment is due, has established an
adequate accrual or reserve for the payment of all taxes payable in respect of
the periods subsequent to the periods covered by its most recent applicable tax
returns (which accrual or reserve as of the Balance Sheet Date (as defined in
Section 3.8 below) is fully reflected on the Balance Sheet (as defined in
Section 3.8 below), have each made all necessary estimated tax payments, and has
no material liability for taxes in excess of the amount so paid or accruals or
reserves so established. Neither SLC nor Fraudlink is delinquent in the payment
of any tax or in the filing of any tax return, and no deficiencies for any tax
have been threatened, claimed, proposed or assessed against SLC, Fraudlink, or
any of the officers, employees or agents of SLC or Fraudlink in their capacity
as such. Neither SLC nor Fraudlink have received any notification that any
material issues have been raised by (or are currently pending)
19
<PAGE> 20
before the Internal Revenue Service or any other taxing authority (including but
not limited to any sales or use tax authority) regarding SLC or Fraudlink and no
tax return of SLC or Fraudlink has ever been audited by the Internal Revenue
Service or any state or local taxing agency or authority. No tax liens have been
filed against any assets of SLC or Fraudlink. SLC is not, and since its
inception has not been, a "personal holding company" within the meaning of the
Code. SLC has not filed any election under Section 341(f) of the Code. SLC and
Fraudlink have each withheld with respect to each of its employees and
independent contractors all taxes, including but not limited to federal and
state income taxes, FICA, Medicare, FUTA and other taxes, required to be
withheld, and paid such withheld amounts to the appropriate tax authority within
the time prescribed by law. Without in any way limiting the generality of the
preceding sentence and the preceding provisions of this Section 3.7.1, SLC has
withheld with respect to each person who has exercised a non-qualified option to
purchase shares of SLC capital stock granted by SLC (including without
limitation each former holder of an SLC Non-Plan Grant who has exercised an
option under a SLC Non-Plan Grant, and has received payment in full from each
former holder of an SLC Non-Plan Grant) all taxes, including but not limited to
federal and state withholding taxes required to be withheld, and paid such
withheld amounts to the appropriate tax authority (except for any employer
Medicare tax obligations, which shall be paid by the Surviving Corporation).
3.7.2 Effective as of February 1, 1997, SLC made a valid election
under Section 1362 of the Code and any corresponding state or local tax
provision to be an S corporation within the meaning of Sections 1361 and 1362 of
the Code effective for all taxable periods beginning on or subsequent to
February 1, 1997. At no time on or after February 1, 1997, including up through
and including the Effective Time, has or will SLC experience any of the
following: (1) any corporate level tax event under Section 1374 or any other
provision of the Code; or (2) any type or form of voluntary, involuntary or
inadvertent termination of its S corporation status other than the termination
that will take place as a result of the Merger. SLC and the SLC Stockholders
since February 1, 1997, have at no time taken any action or tax return position
inconsistent with the treatment of SLC as an S corporation from February 1, 1997
through the Agreement Date. Similarly, neither SLC nor any of the SLC
Stockholders have, at any time on or after February 1, 1997 through the
Effective Time, failed at any time to take any action required in order to
maintain SLC's S corporation status under the Code or any other tax law.
Schedule 3.7.2 sets forth each state and locality where SLC has made a valid
election under the applicable law of such jurisdiction to be an S corporation
effective for all taxable periods beginning on or subsequent to the date of such
election, and the date of such election.
3.7.3 SLC has documentary evidence of its S corporation election
from the Internal Revenue Service (and other relevant taxing authorities), and
SLC shall deliver such documents along with the other Tax records of SLC to HNC
as part of the transactions contemplated by this Agreement.
3.7.4 For the purposes of this Section, the terms "TAX" and "TAXES"
include all federal, state, local and foreign income, alternative or add-on
minimum income, gains, franchise, excise, property, property transfer, sales,
use, employment,
20
<PAGE> 21
license, payroll, ad valorem, documentary, stamp, withholding, occupation,
recording, value added or transfer taxes, governmental charges, fees, customs
duties, levies or assessments (whether payable directly or by withholding), and,
with respect to any such taxes, any estimated tax, interest, fines and penalties
or additions to tax and interest on such fines, penalties and additions to tax.
3.8 SLC Financial Statements. SLC has delivered to HNC, as Schedule 3.8
to the SLC Disclosure Letter, (a) the audited consolidated balance sheets of SLC
as of December 31, 1997, December 31, 1998 and December 31, 1999 and SLC's
audited consolidated statements of operations, statements of cash flows and
statements of changes in stockholders' equity for each of the fiscal years ended
December 31, 1997, December 31, 1998 and December 31, 1999 and (b) the unaudited
consolidated balance sheet of SLC as of July 31, 30, 2000 and SLC's unaudited
consolidated statement of operations for its six months ended July 31, 2000 (all
such audited and unaudited financial statements of SLC and any notes thereto are
hereinafter collectively referred to as the "SLC FINANCIAL STATEMENTS"). The SLC
Financial Statements (a) are derived from and in accordance with the books and
records of SLC, (b) fairly present the financial condition of SLC at the dates
therein indicated and the results of operations for the periods therein
specified and (c) have been prepared in accordance with generally accepted
accounting principles applied on a basis consistent with prior periods (except,
solely in the case of any of such SLC Financial Statements that are unaudited,
for any absence of notes thereto and the absence of year-end audit adjustments).
SLC has no material debt, liability or obligation of any nature, whether
accrued, absolute, contingent or otherwise, and whether due or to become due,
except for (i) those shown on SLC's unaudited balance sheet as of July 31, 2000
that is included in the SLC Financial Statements (the "BALANCE SHEET"), and (ii)
those that may have been incurred after July 31, 2000 (the "BALANCE SHEET DATE")
in the ordinary course of SLC's business consistent with its past practices, and
that are not material in amount, either individually or collectively, and are
not required to be set forth in the Balance Sheet under GAAP. All reserves
established by SLC that are set forth in or reflected in the Balance Sheet are
reasonably adequate. At the Balance Sheet Date, there were no material loss
contingencies (as such term is used in Statement of Financial Accounting
Standards No. 5 issued by the Financial Accounting Standards Board in March
1975) that are not adequately provided for in the Balance Sheet as required by
said Statement No. 5. SLC's total assets (determined in accordance with GAAP) do
not, as of the Agreement Date or the last regularly prepared balance sheet of
SLC prepared prior to the Effective Time, and will not, as of the Effective
Time, equal or exceed Ten Million Dollars ($10,000,000).
3.9 Title to Properties. SLC and Fraudlink have good and marketable
title to all of their respective assets and properties (including but not
limited to those shown on the Balance Sheet), free and clear of all mortgages,
deeds of trust, security interests, pledges, liens, title retention devices,
collateral assignments, claims, charges, restrictions or other encumbrances of
any kind other than Permitted Encumbrances. All machinery, vehicles, equipment
and other tangible personal property owned or leased by SLC and Fraudlink or
used in its business are in reasonably good condition and repair, normal wear
and tear excepted. All leases of real or personal property to which SLC or
Fraudlink is a party are fully effective and afford SLC or Fraudlink, as
applicable, a valid
21
<PAGE> 22
leasehold interest in, and the right to peaceful and undisturbed leasehold
possession of, the real or personal property that is the subject of the lease.
To SLC's knowledge, neither SLC nor Fraudlink is in violation of any zoning,
building, safety or environmental ordinance, regulation or requirement or other
law or regulation applicable to the operation of its owned or leased properties,
nor has SLC received any notice of violation of law with which it has not
complied. Neither SLC nor Fraudlink owns any real property.
3.10 Absence of Certain Changes. Since the Balance Sheet Date, there has
not been with respect to SLC or Fraudlink any:
(a) Material Adverse Change in the condition (financial or
otherwise), properties, assets, liabilities, businesses, operations, results of
operations or prospects;
(b) amendment or change in the Certificate of Incorporation or
Bylaws of SLC;
(c) incurrence, creation or assumption by SLC or Fraudlink of (i)
any mortgage, deed of trust, security interest, pledge, lien, title retention
device, collateral assignment, claim, charge, restriction or other encumbrance
of any kind on any of the assets or properties of SLC or Fraudlink, or (ii) SLC
Indebtedness;
(d) acceleration or release of any vesting condition to the right to
exercise any SLC Option, the grant of any SLC Option containing any Accelerated
Vesting on Change of Control Provisions, or any acceleration or release of any
right held by SLC to repurchase any shares of SLC's capital stock upon the
stockholder's termination of employment or services with SLC or any subsidiary
of SLC or Company;
(e) payment or discharge by SLC or Fraudlink of any security
interest, lien, claim, or encumbrance of any kind on any asset or property of
SLC or Fraudlink, other than regularly scheduled payments on the SLC
Indebtedness, or the payment or discharge of any liability that was not shown on
the Balance Sheet or was not incurred in the ordinary course of SLC's business
after the Balance Sheet Date;
(f) purchase, license, sale, assignment or other disposition or
transfer, or any agreement or other arrangement binding on SLC or Fraudlink for
the purchase, license, sale, assignment or other disposition or transfer, of any
assets, properties or goodwill of SLC or Fraudlink other than in the ordinary
course of SLC's or Fraudlink's business, consistent with its past practices;
(g) damage, destruction, theft or loss of any property or asset of
SLC or Fraudlink, whether or not covered by insurance, having (or likely with
the passage of time to have) a Material Adverse Effect on SLC;
(h) declaration, setting aside or payment of any dividend on, or the
making of any other distribution in respect of, shares of the capital stock of
SLC, or any direct or indirect redemption, repurchase or other acquisition by
SLC of any shares of its
22
<PAGE> 23
capital stock or other securities or any change in any rights, preferences,
privileges or restrictions of any outstanding security of SLC;
(i) change or increase in the compensation payable or to become
payable to any of the officers, directors, employees or key consultants of SLC
or Fraudlink or any of its subsidiaries, or change in any bonus or pension,
insurance or other benefit payment or arrangement (including without limitation
stock awards, stock option grants, stock appreciation rights or stock option
grants) made to or with any of such officers, employees, key consultants or
agents except in connection with normal employee salary or performance reviews
or otherwise in the ordinary course of SLC's business, consistent with its past
practices and not in conflict with any of the provisions of this Agreement or
any of the conditions contained in Article 8 or Article 9 of this Agreement;
(j) the entering into, amendment of, relinquishment, termination or
non-renewal by SLC or Fraudlink, of any SLC Material Agreement, other than in
the ordinary course of SLC's or Fraudlink's business consistent with its past
practices or as may be expressly required by the terms of this Agreement;
(k) entering into by SLC or Fraudlink of any transaction, contract
or agreement that by its terms requires or contemplates a current and/or future
financial commitment, expense (inclusive of overhead expense) or obligation on
the part of SLC or Fraudlink involving in excess of $100,000 that is not entered
into in the ordinary course of SLC's or Fraudlink's business, or the conduct of
any business or operations other than in the ordinary course of SLC's or
Fraudlink's business; or
(l) any license, transfer or grant by SLC or Fraudlink of any SLC or
Fraudlink IP Rights (as defined in Section 3.13) or any rights thereunder, other
than any such license, transfer or grant made in the ordinary course of SLC's or
Fraudlink's business consistent with its past practices.
3.11 Contracts and Commitments/Licenses and Permits. Schedule 3.11 to
the SLC Disclosure Letter sets forth a list of each of the following (i) written
or oral contracts, agreements, commitments or other instruments to which SLC or
Fraudlink is a party or to which SLC or Fraudlink or any of their respective
assets or properties is bound and (ii) licenses and permits held by SLC or
Fraudlink:
(a) any distribution, marketing, sales representative or similar
agreement under which any third party is authorized to sell, sublicense, lease,
distribute, market or take orders for, any product, service or technology of SLC
or Fraudlink;
(b) any continuing contract for the future purchase, sale, license,
provision or manufacture of products, material, supplies, equipment or services
requiring payment to or from SLC or Fraudlink in an amount in excess of $50,000
per annum which is not terminable on ninety (90) or fewer days' notice without
cost or other liability to SLC;
23
<PAGE> 24
(c) any contract or commitment in which SLC or Fraudlink has granted
or received most favored customer pricing provisions, exclusive sales,
distribution, marketing or on-line distribution rights, rights of refusal,
rights of first negotiation or similar rights with respect to any product,
service, technology or Intellectual Property (as defined in Section 3.13) that
is now or hereafter owned by, provided to, or provided by, SLC or Fraudlink;
(d) any grant, authorization, contract or agreement between SLC or
Fraudlink and any Governmental Authority;
(e) any contract or arrangement providing for the development of any
software, content (including without limitation textual content and visual or
graphics content), technology or Intellectual Property by or for (or for the
benefit or use of) SLC and/or Fraudlink;
(f) any agreement, contract or arrangement (including without
limitation any agreement, contract or arrangement described in Section 3.13.7
hereof) providing for the purchase, lease or license of any software, content
(including without limitation textual content and visual or graphics content),
data (including but not limited to electronically stored data), technology or
Intellectual Property to (or for the benefit or use of) SLC and/or Fraudlink
(indicating under which of such agreements, contracts or arrangements SLC or
Fraudlink pays royalties or similar payments to any third party); but excluding
licenses for software that is generally available to the public at retail stores
or which is generally available on standard, non-negotiated license terms at a
per copy license fee of less than $2,000 per copy;
(g) any agreement, contract or arrangement pursuant to which SLC or
Fraudlink has sold or licensed any rights in or to any software, content
(including without limitation textual content and visual or graphics content),
data (including electronically stored data), technology or Intellectual Property
to any third party, including but not limited to any agreement, contract or
arrangement regarding SLC Source Code described in Section 3.13.8;
(h) any joint venture or partnership contract or agreement, any
agreement relating to a limited liability company (excluding Fraudlink), or any
other agreement which involves, or is reasonably expected to involve, a sharing
of revenues, profits, cash flows, expenses or losses by SLC with any other party
(where for this purpose the payment of royalties shall not be deemed to be a
sharing of revenues, profits, cash flows, expenses or losses);
(i) any contract or commitment for or relating to the employment or
hiring for services of any officer, employee, consultant or independent
contractor of SLC or Fraudlink or any other type of contract or understanding
with any director, officer, employee or consultant of SLC or Fraudlink that is
not immediately terminable by SLC or Fraudlink without cost or other liability;
24
<PAGE> 25
(j) any indenture, mortgage or trust deed encumbering any asset or
property of SLC or Fraudlink, any promissory note of SLC or Fraudlink, any
credit line, credit facility, loan agreement or other agreement or commitment
for the borrowing of money pursuant to which SLC or Fraudlink may borrow or loan
funds, any security agreement encumbering any asset or property of SLC or
Fraudlink, any security agreement encumbering any asset or property or a third
party for the benefit of SLC or Fraudlink, any guarantee by SLC or Fraudlink of
any obligation or indebtedness of another party or any guarantee of any
obligation or indebtedness of SLC or Fraudlink, any agreement or commitment for
a leasing transaction of a type required to be capitalized in accordance with
Statement of Financial Accounting Standards No. 13 of the Financial Accounting
Standards Board, and any other documents relating to SLC Indebtedness;
(k) any lease or other agreement under which SLC or Fraudlink is
lessee of or holds or operates any items of tangible personal property or real
property owned by any third party and under which payments to such third party
exceed $25,000 per annum, and any agreement for the sale, purchase or
disposition of any real property;
(l) any agreement or arrangement for the sale, licensing or leasing
by or to SLC or Fraudlink of any assets, properties, products, services or
rights having a value in excess of $100,000 per annum or material to SLC's
business;
(m) any agreement that restricts SLC or Fraudlink from engaging in
any aspect of its business, from participating or competing in any line of
business or market or that restricts SLC or Fraudlink from engaging in any
business in any market or geographic area;
(n) any SLC IP Rights Agreement (as defined in Section 3.13);
(o) any website hosting, website linking, consent or data sharing,
data feed, information exchange, advertising, fee sharing, lead or customer
referral, commerce, co-branding, framing, service, order or transaction
processing or similar agreement, in any case relating to any aspect or element
of any of the SLC Websites;
(p) any agreement or plan (including but not limited to any stock
option, stock purchase and/or stock bonus plan) relating to the sale, issuance,
grant, exercise, award, purchase, repurchase or redemption of any shares of
capital stock or other securities of SLC or Fraudlink or any options, warrants,
convertible notes or other rights to purchase or otherwise acquire any such
shares of stock, other securities or options, warrants or other rights therefor;
(q) any consulting or similar agreement under which SLC or Fraudlink
provides any advice or services to a third party for an annual compensation to
SLC of $25,000 per year or more;
(r) any contract with or commitment to any labor union or any
collective bargaining agreement or similar agreement with employees of SLC or
Fraudlink;
25
<PAGE> 26
(s) any agreement pursuant to which SLC or Fraudlink has acquired a
business or entity, whether by way of merger, consolidation, purchase of stock,
purchase of assets or otherwise;
(t) any other instrument, agreement, contract, undertaking,
understanding or commitment (whether verbal or in writing) to which SLC or
Fraudlink is a party or by which SLC or Fraudlink or any of their respective
assets or properties are bound that is (i) material to SLC's business,
operations, assets, properties, operating results or financial condition or (ii)
that involves a future financial commitment by SLC or Fraudlink in excess of
$200,000;
(u) any Governmental Permit (as defined in Section 3.14.4); and
(v) any SLC Benefit Arrangement (as defined in Section 3.16.4).
A true and complete copy of each agreement or document required by
subsections (a) through (v) of this Section to be listed on Schedule 3.11 to the
SLC Disclosure Letter (such agreements and documents being collectively referred
to in this Agreement as the "SLC MATERIAL AGREEMENTS") and a copy of each
Governmental Permit required by subparagraph (u) of this Section to be listed on
Schedule 3.11 to the SLC Disclosure Letter, has been delivered to HNC or its
counsel, Fenwick & West LLP.
3.12 No Default; No Restrictions.
(a) No Default. Neither SLC nor Fraudlink is in breach, default or
violation of any SLC Material Agreement or of any representations or warranties
made by SLC or Fraudlink thereunder. No event has occurred, and no circumstance
or condition exists, that (with or without notice or lapse of time) will, or
would reasonably be expected to: (i) result in a breach, default or violation by
SLC or Fraudlink of any of the provisions of any SLC Material Agreement; or (ii)
give any third party (A) the right to declare a default or exercise any remedy
under any SLC Material Agreement, (B) the right to a rebate, repurchase, refund,
chargeback, penalty or change in delivery schedule under any SLC Material
Agreement, (C) the right to accelerate the maturity or performance of any
obligation of SLC under any SLC Material Agreement, or (D) the right to cancel,
terminate, rescind, modify or refuse to renew any SLC Material Agreement.
Neither SLC nor Fraudlink has received any notice or other communication (i)
regarding any actual, asserted or possible breach, default or violation under
any SLC Material Agreement by SLC or Fraudlink, or by any other party to any SLC
Material Agreement, or (ii) that any party to an SLC Material Agreement that is
renewable by its terms does not intend or expect to renew any such SLC Material
Agreement.
(b) No Restrictions. Neither SLC nor Fraudlink is a party to any
contract, agreement or arrangement that has had, or could reasonably be expected
to have, a Material Adverse Effect on SLC. Neither SLC nor Fraudlink has any
material liability for renegotiation of government contracts or subcontracts, if
any. Neither SLC nor Fraudlink is a party to, and no asset or property of SLC or
Fraudlink is bound or affected by, any judgment, injunction, order, decree,
contract, covenant or agreement
26
<PAGE> 27
(non-compete or otherwise) that restricts or prohibits (or purports to restrict
or prohibit) SLC or Fraudlink from freely engaging in any business now conducted
by any of them or from competing anywhere in the world (including without
limitation any contracts, covenants or agreements restricting the geographic
area or markets in which SLC or Fraudlink may sell, license, market, distribute
or support any products or technology or provide services, or restricting the
markets, customers or industries that SLC or Fraudlink may address in operating
their respective businesses), or includes any grants by SLC of any exclusive
license or distribution rights.
(c) [*] Agreement. SLC and [*] are parties to that certain [*]
Agreement dated [*] between SLC and [*], which relates to [*]. Neither SLC nor
Fraudlink is in breach, default or violation of the [*] or of any
representations or warranties made by SLC or Fraudlink thereunder. No event has
occurred, and no circumstance or condition exists, that (with or without notice
or lapse of time) will, or would reasonably be expected to: (i) result in a
breach, default or violation by SLC or Fraudlink of any of the provisions of the
[*]; or (ii) [*].
3.13 Intellectual Property.
3.13.1 SLC IP Rights; Intellectual Property. SLC and Fraudlink own,
or have the valid right or license to use, possess, sell or license, all
Intellectual Property (as defined below) necessary or required for the conduct
of the business of SLC and Fraudlink as presently conducted and as presently
proposed to be conducted in SLC's current written business plan and product plan
titled "Wireline Expansion Plan", dated March 24, 2000, ACI/Orion CPI(TM) and
RoamEX(TM) / Orion CPI(TM) schematics dated February 9, 2000 and Orion CPI(TM)
Wireline Link Analysis schematic dated July 22, 2000, a copy of which has been
provided to HNC, (such Intellectual Property being hereinafter collectively
referred to as the "SLC IP RIGHTS"), and such rights to use, possess, sell or
license are sufficient for such conduct of such business. As used herein, the
term "INTELLECTUAL PROPERTY" means, collectively, all worldwide industrial and
intellectual property rights, including, without limitation, patents, patent
applications, patent rights, trademarks, trademark registrations and
applications therefor, trade dress rights, trade names, service marks, service
mark registrations and applications therefor, logos, Internet domain names,
Internet and World Wide Web URLs or addresses, copyrights, copyright
registrations and applications therefor, moral rights, mask work
* Confidential treatment has been requested for certain portions of this
document pursuant to an application for confidential treatment sent to the
Securities and Exchange Commission. Such portions are omitted from this filing
and have been filed separately with the Securities and Exchange Commission.
27
<PAGE> 28
rights, mask work registrations and applications therefor, franchises, licenses,
inventions, trade secrets, know-how, customer lists, supplier lists, proprietary
processes and formulae, software source code and object code, algorithms, net
lists, architectures, structures, screen displays, layouts, inventions,
development tools, designs, blueprints, specifications, technical drawings (or
similar information in electronic format) and all documentation and media
constituting, describing or relating to the foregoing, including, without
limitation, manuals, programmers' notes, memoranda and records.
3.13.2 No Default.
(a) Neither the execution, delivery and performance of this
Agreement, the Certificate of Merger, nor the consummation of the Merger and the
other agreements and transactions contemplated hereby and/or by SLC Ancillary
Agreements will: (a) constitute a material breach, violation or default of any
instrument, contract, license or other agreement governing any SLC IP Right to
which SLC or Fraudlink is a party (collectively, the "SLC IP RIGHTS
AGREEMENTS"); (b) cause the forfeiture or termination of, or give rise to a
right of forfeiture or termination of, any SLC IP Right held or owned by SLC or
Fraudlink; or (c) materially impair the right of SLC or the Surviving
Corporation or Fraudlink to use, possess, sell or license any SLC IP Right or
portion thereof. There are no royalties, honoraria, fees or other payments
payable by SLC or Fraudlink to any third person by reason of the ownership, use,
possession, license, sale, marketing, advertising or disposition of any SLC IP
Rights by SLC or Fraudlink.
(b) Without in any way limiting the generality of the foregoing
provisions of Section 3.13.2(a), there are no [*].
(c) Verizon Wireless ("VERIZON") is currently licensed to use
SLC's FraudTec product in the markets listed in Schedule 3.13.2(c) to the SLC
Disclosure Letter.
3.13.3 No Infringement. Neither the manufacture, marketing, license,
sale, furnishing or intended use of any product or service (including without
limitation any of the SLC Websites) currently licensed, utilized, sold, provided
or furnished by SLC or Fraudlink or currently under development by SLC or
Fraudlink violates any license or agreement between SLC and any third party or
any law or infringes or misappropriates any Intellectual Property Right of any
other party; and there is not pending nor, to the knowledge of SLC, threatened,
any claim or litigation contesting the validity, ownership or right of SLC or
Fraudlink to use, possess, sell, market, distribute, advertise, license, or
dispose of any SLC IP Right nor, to the knowledge of SLC, is there any basis for
any
* Confidential treatment has been requested for certain portions of this
document pursuant to an application for confidential treatment sent to the
Securities and Exchange Commission. Such portions are omitted from this filing
and have been filed separately with the Securities and Exchange Commission.
28
<PAGE> 29
such claim, nor has SLC received any notice asserting that any SLC IP Right or
the proposed use, sale, distribution, license or disposition thereof conflicts
or will conflict with the rights of any other party, nor, to the knowledge of
SLC, is there any basis for any such assertion.
3.13.4 No Breach by Employees or Consultants. No employee,
consultant or independent contractor of SLC or Fraudlink: (a) is in material
violation of any term or covenant of any employment contract, patent disclosure
agreement, invention assignment agreement, non-disclosure agreement,
non-competition agreement or any other contract or agreement with any other
party by virtue of such employee's, consultant's, or independent contractor's
being employed by, or performing services for, SLC or Fraudlink or using trade
secrets or proprietary information of others; or (b) has developed any
technology, software or other copyrightable, patentable, or otherwise
proprietary work for SLC or Fraudlink that is subject to any agreement under
which such employee, consultant or independent contractor has assigned or
otherwise granted to any third party any rights (including without limitation
Intellectual Property) in or to such technology, software or other
copyrightable, patentable or otherwise proprietary work or any Intellectual
Property related thereto. The employment of any employee of SLC or Fraudlink or
the use by SLC or Fraudlink of the services of any consultant or independent
contractor does not subject SLC or Fraudlink to any liability to any third
party.
3.13.5 Protection of Proprietary Information. SLC has taken all
necessary and appropriate steps to protect, preserve and maintain the secrecy
and confidentiality of the SLC IP Rights and all SLC's ownership interests and
proprietary rights therein. No current or former employee, officer, director,
consultant or independent contractor of SLC or Fraudlink has any right, license,
claim or interest whatsoever in or with respect to any SLC IP Rights.
3.13.6 Registered and Unregistered Intellectual Property. Schedule
3.13.6 to the SLC Disclosure Letter contains a complete list of (i) all
worldwide registrations (if any) of any patents, copyrights, mask works,
trademarks, service marks, Internet domain names or Internet or World Wide Web
URLs or addresses with any governmental or quasi-governmental authority; (ii)
all applications, registrations, filings and other formal actions made or taken
by SLC pursuant to federal, state and foreign laws to secure, perfect or protect
its interest in SLC IP Rights, including, without limitation, all patent
applications, copyright applications, and applications for registration of
trademarks and service marks; and (iii) all SLC's unregistered copyrights,
trademarks and service marks. All patents, and all registered trademarks,
service marks, Internet domain names and Internet or World Wide Web URLs or
addresses and copyrights held by SLC or Fraudlink are valid and enforceable in
the jurisdictions where registered.
3.13.7 Licenses. Schedule 3.13.7 to the SLC Disclosure Letter
contains a complete list of (i) all licenses, sublicenses and other agreements
as to which SLC or Fraudlink is a party and pursuant to which any person or
entity is authorized to use any SLC IP Rights, and (ii) all licenses,
sublicenses and other agreements as to which SLC or Fraudlink is a party and
pursuant to which SLC or Fraudlink is authorized to use any
29
<PAGE> 30
third party patents, trademarks, Internet domain names, Internet or World Wide
Web URLs or addresses, or copyrights, including but not limited to software
("THIRD PARTY IP RIGHTS") which would be infringed by, or are incorporated in,
or form a part of, any product or service sold, licensed, distributed, provided
or marketed by SLC or Fraudlink.
3.13.8 Source Code. Neither SLC nor Fraudlink, nor any other party
acting on its or their behalf, has disclosed or delivered to any party, or
permitted the disclosure or delivery to any escrow agent or other party, of any
SLC Source Code (as defined below). No event has occurred, and no circumstance
or condition exists, that (with or without notice or lapse of time) will, or
would reasonably be expected to, result in the disclosure or delivery to any
party of any SLC Source Code (as defined below). Schedule 3.13.8 of the SLC
Disclosure Letter identifies each contract, agreement and instrument (whether
written or oral) pursuant to which SLC has deposited, or is or may be required
to deposit, with an escrow holder or any other party, any SLC Source Code and
further describes whether the execution of this Agreement or the consummation of
the Merger or any of the other transactions contemplated hereby, in and of
itself, will, or would reasonably be expected to result in the release from
escrow of any SLC Source Code. As used in this Section 3.13.8, "SLC SOURCE CODE"
means, collectively, any software source code, or any material portion or aspect
of the software source code, or any material proprietary information or
algorithm contained in or relating to any software source code, of any SLC IP
Rights or any other product marketed by SLC or used by SLC to provide a service.
3.13.9 Infringement of SLC Rights. To SLC's knowledge, there is no
unauthorized use, disclosure, infringement or misappropriation of any SLC IP
Rights or any Intellectual Property Right of SLC or Fraudlink by any third
party, including any employee or former employee of SLC or Fraudlink. Neither
SLC nor Fraudlink has agreed to indemnify any person for any infringement of any
Intellectual Property of any third party by any product or service that has been
sold, licensed, leased, supplied, marketed, distributed, or provided by SLC.
3.13.10 Conformity to Warranty. All software developed by SLC or
Fraudlink and licensed by SLC or Fraudlink to customers and all other products
manufactured, sold, licensed, leased or delivered by SLC or Fraudlink to
customers and all services provided by SLC or Fraudlink to customers on or prior
to the Closing Date, conform in all material respects to applicable contractual
commitments, express and implied warranties, product specifications and product
documentation and to any representations provided to customers, such that none
of the software licensed or otherwise provided by SLC or Fraudlink to customers
contains any defect or error that would materially impair such software's
accuracy, performance or functionality assuming such software is maintained and
supported (both prior to and following any notice to SLC of a defect) by
suitably trained personnel at maintenance and support levels consistent with
those at which SLC has maintained and supported its software products under
paid-for customer maintenance and support agreements with its customers.
3.13.11 Year 2000 Compliance. The SLC Websites, and all services,
products and software developed, owned, licensed and/or marketed or distributed
by SLC
30
<PAGE> 31
or Fraudlink or utilized by SLC in connection with any of the SLC Websites or
otherwise, and all internal computer systems of SLC, each individually and when
operating in conjunction with all other systems and products with which they are
designed to work or interface, are Year 2000 Compliant (as defined below). All
internal systems of SLC and Fraudlink are, both individually an in conjunction
with all other systems with which they work or interface Year 2000 Compliant.
SLC has no material expenses or other material liabilities associated with
securing Year 2000 Compliance, or making contingency arrangements to address
Year 2000 Compliance issues, with respect to the SLC Websites, the services or
products of SLC and Fraudlink, the internal computer systems of SLC and its
subsidiaries or the computer systems or products or services of manufacturers,
suppliers, vendors or customers of SLC or Fraudlink that are not fully reflected
on the SLC Financial Statements. "YEAR 2000 COMPLIANT" or "YEAR 2000 COMPLIANCE"
means, as applied to hardware and software, that: (i) such hardware and software
will operate and correctly store, represent and process (including sort) all
dates (including single and multi-century formulas and leap year calculations),
such that errors will not occur when the date being used is in the Year 2000, or
in a year preceding or following the Year 2000; (ii) such hardware and software
has been written, developed and tested to support numeric and date transitions
from the twentieth century to the twenty-first century, and back (including
without limitation all calculations, aging, reporting, printing, displays,
reversals, disaster and vital records recoveries) without error, corruption or
impact to current and/or future operations; and (iii) such hardware and software
will function without error or interruption related to any date information,
specifically including errors or interruptions from functions which may involve
date information from more than one century.
3.14 Compliance with Laws.
3.14.1 Compliance with Applicable Law. SLC and Fraudlink have
complied, and are now and at the Closing Date will be in compliance in all
material respects with, all applicable federal, state, local or foreign laws,
statutes, ordinances, regulations, and rules, and all orders, writs,
injunctions, awards, judgments, and decrees applicable to them or to their
respective assets, properties and business (collectively, "APPLICABLE LAW"). SLC
and Fraudlink hold all valid licenses and other governmental permits that are
necessary and/or legally required to be held by them to conduct their respective
businesses as presently conducted.
3.14.2 Disclosures; Privacy. To SLC's knowledge, each of the SLC
Websites and all materials distributed or marketed by SLC have at all times made
all disclosures to users or customers required by Applicable Law and none of
such disclosures made or contained in any SLC Website or in any such materials
have been inaccurate, misleading or deceptive or in violation of Applicable Law.
SLC and Fraudlink have at all times been in compliance with Applicable Laws
relating to the privacy of users of each of the SLC Websites.
3.14.3 No Audit. Neither SLC nor Fraudlink has been the subject of
any audit by any governmental agency or authority for the purpose of determining
whether SLC or Fraudlink has complied with Applicable Law.
31
<PAGE> 32
3.14.4 Governmental Permits. SLC and Fraudlink hold all permits,
licenses and approvals from, and have made all filings with, government (and
quasi-governmental) agencies and authorities, that are necessary for SLC and
Fraudlink, respectively, to conduct their respective present businesses without
any violation of Applicable Law ("GOVERNMENTAL PERMITS") and all such
Governmental Permits are in full force and effect. Neither SLC nor Fraudlink has
received any notice or other communication from any Governmental Authority (or
quasi-governmental authority) regarding (a) any actual or possible violation of
law or any Governmental Permit or any failure to comply with any term or
requirement of any Governmental Permit, or (b) any actual or possible
revocation, withdrawal, suspension, cancellation, termination or modification of
any Governmental Permit.
3.14.5 Improper Payments. Neither SLC nor Fraudlink, nor to SLC's
knowledge any director, officer, agent or employee of SLC and/or Fraudlink, has,
for or on behalf of SLC or Fraudlink, (i) used any funds for unlawful
contributions, gifts, entertainment or other unlawful expenses relating to
political activity, (ii) made any unlawful payment to foreign or domestic
government officials or employees or to foreign or domestic political parties or
campaigns or violated any provision of the Foreign Corrupt Practices Act of
1977, as amended, or (iii) made any other unlawful payment.
3.15 Certain Transactions and Agreements. None of the officers,
directors, employees, key consultants or stockholders of SLC, nor any member of
their immediate families, has any direct or indirect ownership interest in any
firm or corporation that competes with, or does business with, or has any
contractual arrangement with, SLC or Fraudlink (except with respect to any
interest in less than one percent (1%) of the stock of any corporation whose
stock is publicly traded). None of the officers, directors, employees, key
consultants or stockholders of SLC or Fraudlink, nor any member of their
immediate families, is a party to, or otherwise directly or indirectly
interested in, any contract or informal arrangement with SLC, except for normal
compensation for services as an officer, director, employee or consultant of SLC
that have been disclosed to HNC and except for agreements related to the
purchase of the stock of SLC by, or the grant of SLC Options to, such persons.
None of said officers, directors, employees, key consultants, stockholders or
family members has any interest in any property, real or personal, tangible or
intangible (including but not limited to any SLC IP Rights or any other
Intellectual Property) that is used in, or that pertains to, the business of
SLC, except for the normal rights of a stockholder.
3.16 Employees, ERISA and Other Compliance.
3.16.1 Employment Compliance. SLC and Fraudlink are in compliance in
all material respects with all applicable laws, agreements and contracts
relating to employment, employment practices, immigration, wages, hours, and
terms and conditions of employment, including, but not limited to, employee
compensation matters. A list of all employees, officers and consultants of SLC
and Fraudlink, identified by employer, and their current title and/or job
description, compensation and classification as full-time, part-time or
temporary employee is set forth on Schedule 3.16.1 to SLC Disclosure Letter.
Each individual providing services to SLC and Fraudlink that is a common law
32
<PAGE> 33
employee has been properly classified as such and all required income tax
withholding and employment taxes have been paid on behalf of such individuals.
SLC and Fraudlink do not have any employment contracts or consulting agreements
currently in effect that are not terminable at will (other than agreements with
the sole purpose of providing for the confidentiality of proprietary information
or assignment of inventions).
3.16.2 Labor Relations. Neither SLC nor Fraudlink (i) now is, nor
has ever been, subject to a union organizing effort, (ii) is subject to any
collective bargaining agreement with respect to any of its employees, (iii) is
subject to any other contract, written or oral, with any trade or labor union,
employees' association or similar organization or (iv) has any current labor
disputes. SLC and Fraudlink have good labor relations, and have no knowledge of
any facts indicating that the consummation of the Merger or any of the other
transactions contemplated hereby will have a Material Adverse Effect on such
labor relations, and have no knowledge that any of their key employees intends
to leave their employ. All of the employees of SLC and Fraudlink are legally
permitted to be employed by SLC or Fraudlink in the United States of America in
their current job capacities.
3.16.3 ERISA. Neither SLC nor Fraudlink has any pension plan which
constitutes, or has since the enactment of the Employee Retirement Income
Security Act of 1974, as amended ("ERISA") constituted, a "multiemployer plan"
as defined in Section 3(37) of ERISA. No pension plan of SLC or Fraudlink is
subject to Title IV of ERISA.
3.16.4 Employment Benefit Arrangements.
(a) SLC Benefit Arrangements. Schedule 3.16.4 to the SLC
Disclosure Letter lists each employment, severance or other similar contract,
arrangement or policy, each "employee benefit plan" as defined in Section 3(3)
of ERISA and each plan or arrangement (written or oral) providing for insurance
coverage (including any self-insured arrangements), workers' benefits, vacation
benefits, severance benefits, disability benefits, death benefits,
hospitalization benefits, retirement benefits, deferred compensation,
profit-sharing, bonuses, stock options, stock purchase, phantom stock, stock
appreciation or other forms of incentive compensation or post-retirement
insurance, compensation or benefits for employees, consultants or directors that
is entered into, maintained or contributed to by SLC or Fraudlink and covers any
employee or former employee of SLC or Fraudlink. Such contracts, plans and
arrangements as are described in this Section 3.16.4(a) are hereinafter
collectively referred to as "SLC BENEFIT ARRANGEMENTS." SLC has delivered to HNC
or its counsel a complete and correct copy and description of each SLC Benefit
Arrangement.
(b) Compliance. Each SLC Benefit Arrangement is and has been
maintained in compliance in all material respects with its terms and with the
requirements prescribed by any and all statutes, orders, rules and regulations
that are applicable to such SLC Benefit Arrangement, and each such SLC Benefit
Arrangement that is an "employee pension benefit plan" as defined in Section
3(2) of ERISA which is intended to qualify under Section 401(a) of the Code has
received a favorable
33
<PAGE> 34
determination letter that such plan satisfied the requirements of the Tax Reform
Act of 1986 (a copy of which letter(s) have been delivered to HNC or its
counsel). Each employee of SLC and Fraudlink who are eligible to participate in
an SLC Benefit Arrangement has been given the opportunity to participate in such
SLC Benefit Arrangement. SLC has timely filed and delivered to HNC or its
counsel annual reports (Form 5500) for each SLC Benefit Arrangement that is an
"employee benefit plan" as defined under ERISA for the past three (3) years.
Neither SLC nor Fraudlink has ever been a participant in any "prohibited
transaction", within the meaning of Section 406 of ERISA with respect to any
employee pension benefit plan (as defined in Section 3(2) of ERISA) that SLC or
Fraudlink sponsors as employer or in which SLC or Fraudlink participates as an
employer, which was not otherwise exempt pursuant to Section 408 of ERISA
(including any individual exemption granted under Section 408(a) of ERISA), or
which could result in an excise tax under the Code.
(c) Contributions. All contributions due from SLC or Fraudlink
respect to any of SLC Benefit Arrangements have been made or have been accrued
on SLC's financial statements (including without limitation the SLC Financial
Statements), and no further contributions will be due or will have accrued
thereunder as of the Closing Date.
(d) Participation. All individuals who, pursuant to the terms of
any SLC Benefit Arrangement, are entitled to participate in any such SLC Benefit
Arrangement, are currently participating in such SLC Benefit Arrangement or have
been offered an opportunity to do so and have declined in writing.
3.16.5 No Increase in Expense. There has been no amendment to,
written interpretation of or announcement (whether or not written) by SLC
relating to, or change in employee participation or coverage under, any SLC
Benefit Arrangement that would materially increase the expense of maintaining
such SLC Benefit Arrangement above the level of the expense incurred in respect
thereof for SLC's fiscal year ended December 31, 1999. Each SLC Benefit
Arrangement may be terminated without liability for anything other than accrued
benefits under such SLC Benefit Arrangement and no surrender and/or liquidation
fees in excess of $5,000 in the aggregate will be payable as a result of such a
termination or due to the distribution of benefits from such SLC Benefit
Arrangement.
3.16.6 Continuation of Coverage; COBRA. The group health plans (as
defined in Section 4980B(g) of the Code) that benefit employees of SLC and
Fraudlink are in compliance, in all material respects, with the continuation
coverage requirements of Section 4980B of the Code as such requirements affect
SLC and its employees. As of the Closing Date, there will be no material
outstanding, uncorrected violations under the Consolidation Omnibus Budget
Reconciliation Act of 1985, as amended ("COBRA"), with respect to any of SLC
Benefit Arrangements, covered employees, or qualified beneficiaries that could
result in a Material Adverse Effect on SLC, or in a Material Adverse Effect on
HNC after the Effective Time.
3.16.7 Parachute Payments. No benefit payable or that may become
payable by SLC or Fraudlink pursuant to any SLC Benefit Arrangement or as a
result of
34
<PAGE> 35
or arising under this Agreement or the Merger will constitute an "excess
parachute payment" (as defined in Section 280G(b)(1) of the Code) that is
subject to the imposition of an excise Tax under Section 4999 of the Code or
that would not be deductible by reason of Section 280G of the Code. Neither SLC
nor Fraudlink is a party to any: (a) agreement with any executive officer or
other key employee thereof (i) the benefits of which are contingent, or the
terms of which are materially altered, upon the occurrence of a transaction
involving SLC or Fraudlink in the nature of the Merger or any of the other
transactions contemplated by this Agreement or any SLC Ancillary Agreement, (ii)
providing any term of employment or compensation guarantee, or (iii) providing
severance benefits or other benefits after the termination of employment of such
employee regardless of the reason for such termination of employment; or (b)
agreement or plan, including, without limitation, 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 the Merger or any of the other transactions contemplated by
this Agreement or any SLC Ancillary 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 or any SLC Ancillary Agreement. The aggregate
total gross amount payable by SLC to Steven Carras for all back wages,
severance, termination and all other compensation and benefits at the Effective
Time and a full release of all claims is $249,610 (prior to deduction of all
employee and employer payroll withholding taxes). The aggregate total gross
amount payable by SLC to Warren Schad for all back wages, severance, termination
and all other compensation and benefits at the Effective Time and a full release
of all claims is $62,760 (prior to deduction of all employer and employee
payroll withholding taxes).
3.17 Corporate Documents. SLC has made available to HNC or its counsel
for examination all documents and information listed in the SLC Disclosure
Letter or in any schedule thereto or in any other exhibit or schedule called for
by this Agreement that have been requested by HNC's legal counsel, including,
without limitation, the following: (a) copies of SLC's Certificate of
Incorporation and Bylaws as amended and currently in effect; (b) SLC's Minute
Book containing all records of all proceedings, consents, actions and meetings
of SLC's stockholders, board of directors and any committees thereof; (c) SLC's
stock ledger and journal reflecting all stock issuances and transfers; (d) all
permits, orders, and consents issued by, and filings by SLC with, any regulatory
agency with respect to SLC, or any securities of SLC, and all applications for
such permits, orders, and consents; and (e) all the SLC Material Agreements.
3.18 No Brokers. Neither SLC, Fraudlink nor any affiliate of SLC or
Fraudlink is obligated for the payment of any fees or expenses of any investment
banker, broker, finder or similar party in connection with the origin,
negotiation or execution of this Agreement or in connection with the Merger or
any other transaction contemplated by this Agreement, and HNC will not incur any
liability, either directly or indirectly, to any such investment banker, broker,
finder or similar party as a result of, this Agreement, the Merger or any act or
omission of SLC or Fraudlink, any of their respective employees, officers,
directors, stockholders, agents, subsidiaries or affiliates.
35
<PAGE> 36
3.19 Books and Records.
3.19.1 Records. The books, records and accounts of SLC (a) are in
all material respects true, complete and correct, (b) have been maintained in
accordance with good business practices on a basis consistent with prior years,
(c) are stated in reasonable detail and accurately and fairly reflect the
transactions and dispositions of the assets of SLC, and (d) accurately and
fairly reflect the basis for the SLC Financial Statements.
3.19.2 Accounting Controls. SLC has devised and maintains a system
of internal accounting controls that, to SLC's knowledge after consultation with
its auditors, is sufficient to provide reasonable assurances that: (a)
transactions are executed in accordance with management's general or specific
authorization; (b) transactions are recorded as necessary (i) to permit
preparation of financial statements in conformity with generally accepted
accounting principles or any other criteria applicable to such statements, and
(ii) to maintain accountability for assets; and (c) the amount recorded for
assets on the books and records of SLC is compared with the existing assets at
reasonable intervals and appropriate action is taken with respect to any
differences.
3.20 Insurance. During the prior two years, SLC and Fraudlink have
maintained, and now maintain, policies of insurance and bonds of the type and in
amounts customarily carried by persons conducting businesses or owning assets
similar in type and size to those of SLC and Fraudlink, including without
limitation errors and omissions, casualty, fire and general liability insurance
and all legally required workers' compensation insurance. There is no material
claim 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 timely
paid and SLC and Fraudlink are otherwise in compliance with the terms of such
policies and bonds. SLC has no knowledge of any threatened termination of, or
material premium increase with respect to, any of such policies. All policies of
insurance now held by SLC or Fraudlink are set forth in Schedule 3.20 to the SLC
Disclosure Letter, together with the name of the insurer under each policy, the
type of policy, the policy coverage amount and any applicable deductible.
3.21 Environmental Matters.
3.21.1 Compliance. SLC and Fraudlink are in compliance in all
material respects with all applicable Environmental Laws (as defined below),
which compliance includes the possession by SLC and Fraudlink of all permits and
other governmental authorizations required under applicable Environmental Laws,
and compliance with the terms and conditions thereof. Neither SLC nor Fraudlink
has received any notice or other communication (in writing or otherwise),
whether from a governmental body, citizens groups, employee or otherwise, that
alleges that SLC or Fraudlink is not in compliance with any Environmental Law,
and, to SLC's knowledge, there are no circumstances that may prevent or
interfere with the compliance by SLC or Fraudlink with any current Environmental
Law in the future. To SLC's knowledge, no current or prior owner of any property
leased, possessed or ever owned by SLC or Fraudlink has received any notice or
36
<PAGE> 37
other communication (in writing or otherwise), whether from a government body,
citizens group, employee or otherwise, that alleges that such current or prior
owner or SLC or Fraudlink is not in compliance with any Environmental Law with
respect to such property. All governmental authorizations currently held by SLC
or Fraudlink pursuant to any Environmental Law (if any) are identified in
Schedule 3.21 of SLC Disclosure Letter. To SLC's knowledge, the real estate and
improvements thereon comprising the premises on which SLC's offices, buildings
and facilities are located (the "SLC PREMISES") have not been tainted or
polluted by any Material of Environmental Concern and no Materials of
Environmental Concern are present on the SLC Premises except for such materials
used by SLC in the ordinary course of its business in compliance with all
Environmental Laws (as defined below), in quantities customary for businesses of
a size and nature comparable to SLC.
3.21.2 Defined Terms. For purposes of this Section 3.21: (i)
"ENVIRONMENTAL LAW" means any federal, state, local or foreign statute, law,
regulation or other legal requirement relating to pollution or protection of
human health or the environment (including ambient air, surface water, ground
water, land surface or subsurface strata), including any law or regulation
relating to emissions, discharges, releases or threatened releases of Materials
of Environmental Concern, or otherwise relating to the manufacture, processing,
distribution, use, treatment, storage, disposal, transport or handling of
Materials of Environmental Concern; and (ii) "MATERIALS OF ENVIRONMENTAL
CONCERN" include chemicals, pollutants, contaminants, wastes, toxic substances,
radioactive substances, petroleum and petroleum products and any other substance
that is currently regulated by an Environmental Law or that is otherwise a
danger to health, reproduction or the environment.
3.22 Board Approval. The Board of Directors of SLC has unanimously (i)
approved this Agreement and the Merger, the SLC Ancillary Agreements and all the
agreements, transactions and actions contemplated by this Agreement, (ii)
determined that the Merger is in the best interests of the stockholders of SLC
and is on terms that are fair to such stockholders and (iii) voted to submit
this Agreement, the Merger, the Merger and the transactions and agreements
contemplated by this Agreement to the vote and approval of SLC's stockholders
and to recommend approval of this Agreement and the Merger to the stockholders
of SLC.
3.23 SLC Stockholder Vote Required and Obtained. The affirmative vote of
the holders of more than 50% of the shares of SLC Common Stock that are issued
and outstanding on the Record Date (as defined below) is the only vote of the
holders of any of the shares of SLC's capital stock that is necessary to approve
this Agreement, the Merger, the Certificate of Merger, the Escrow Agreement and
the other transactions contemplated by this Agreement under applicable law
(including but not limited to the DGCL), SLC's Certificate of Incorporation,
Bylaws and other charter documents, and under any agreement or contract
regarding the voting of shares of SLC's capital stock. The holders of shares of
SLC Common Stock on the Record Date have unanimously approved this Agreement,
the Merger, the Certificate of Merger, the Escrow Agreement and the other
transactions contemplated by this Agreement by unanimous written consent without
a meeting in accordance with Sections 228 and 251 of the DGCL and otherwise
37
<PAGE> 38
in compliance with the DGCL. As used in this Section, the term "RECORD DATE"
means the record date for determining those stockholders of SLC who are entitled
to vote by written consent in connection with the SLC Stockholders' Vote.
3.24 No Existing Discussions. Neither SLC nor any director, officer,
stockholder, employee or agent of SLC is engaged, directly or indirectly, in any
discussions or negotiations with any third party relating to any transaction
that would be inconsistent with the accomplishment of the Merger, such as,
without limitation, any merger, consolidation, sale of assets or similar
business combination transaction involving SLC.
3.25 Bruneau Settlement. Robert E. Bruneau ("BRUNEAU") fully, validly,
unconditionally and irrevocably waived, released and discharged any and all
claims, causes of actions, suits, damages, losses, debts or rights of any kind
arising prior to and including August 31, 1998, against SLC and its officers,
directors, stockholders and their respective successors and assigns (the
"BRUNEAU RELEASED CLAIMS"). Except for the payment of the total sum of
$1,400,000 owing to Bruneau as of the Agreement Date and payable within 30 days
of the Closing (which $1,400,000 is the exact, correct and entire amount that
will remain payable from SLC to Bruneau as of the Effective Time), neither SLC
nor any of its officers, directors or stockholders (in their capacities as such)
shall have an obligation to pay any sum to Bruneau as of the Closing Date or
following the Closing Date in connection with the Bruneau Released Claims and
Bruneau's status as a former stockholder, director and officer of SLC or for any
other reason or cause. SLC has provided HNC with the Settlement Agreement, dated
August 31, 1998, between SLC, Bruneau, Diane E. Sammer, Dubi Silverstein and
Steven J. Carras, and all releases, instruments, agreements, dismissals and
orders required to be entered into, executed and obtained thereunder, none of
which have been amended, modified, released or cancelled.
3.26 Employee Bonuses. Except for the payment of the Permitted Bonus to
employees of SLC in accordance with Section 5.16, no bonuses or similar
compensation shall be payable to directors, officers, employees or consultants
of SLC or Fraudlink in connection with the Merger or the consummation of the
transactions contemplated by this Agreement.
3.27 Disclosure.
(a) Neither this Agreement, its exhibits and schedules and the SLC
Disclosure Letter, nor any of the certificates or documents to be delivered by
SLC to HNC under this Agreement, taken together, contains any untrue statement
of a material fact or omits to state any material fact necessary in order to
make the statements contained herein and therein, in light of the circumstances
under which such statements were made, not misleading.
(b) None of the information supplied or to be supplied by or on
behalf of SLC for inclusion in any information statement to be provided to the
stockholders of SLC in connection with the SLC Stockholders' Vote (the
"INFORMATION STATEMENT") will, as of the date such Information Statement is
first sent to the stockholders of SLC,
38
<PAGE> 39
contained any untrue statement of a material fact or omitted to state any
material fact regarding SLC or its subsidiaries that is required to be stated
therein or necessary in order to make the statements therein, in the light of
the circumstances under which they are made, not misleading.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF HNC AND SUB
HNC and Sub hereby jointly and severally represent and warrant that,
except as set forth in the letter addressed to SLC from HNC and dated as of the
Agreement Date that has been delivered by HNC to SLC concurrently herewith (the
"HNC DISCLOSURE LETTER"), each of the following representations, warranties and
statements in this Article 4 is true and correct as of the Agreement Date and
will be true and correct on and as of the Closing Date. For all purposes of this
Agreement (including without limitation Articles 8 and 9 hereof), the statements
contained in the HNC Disclosure Letter and its schedules shall also be deemed to
be representations and warranties made and given by HNC under Article 4 of this
Agreement.
4.1 Organization and Good Standing. HNC is a corporation duly organized,
validly existing and in good standing under the laws of the State of Delaware,
and has the corporate power and authority to own, operate and lease its
properties and to carry on its business as now conducted and as proposed to be
conducted. Sub is a corporation duly organized, validly existing and in good
standing under the laws of the State of Delaware, and has conducted no business
to date.
4.2 Power, Authorization and Validity.
4.2.1 HNC has all requisite corporate power and authority to enter
into, execute and perform its obligations under this Agreement and the HNC
Ancillary Agreements. The execution, delivery and performance of this Agreement
and the HNC Ancillary Agreements by HNC have been duly and validly approved and
authorized by HNC's Board of Directors. The issuance of the shares of HNC Common
Stock to be issued in the Merger does not require the approval of HNC's
stockholders, provided that the total number of shares of HNC Common Stock
issued or issuable pursuant to this Agreement (including all shares of HNC
Common Stock issued to stockholders of SLC pursuant to Section 2.1.2 and all
shares of HNC Common Stock issued or issuable upon exercise of the HNC Options
issued pursuant to Section 2.4 of this Agreement) do not exceed twenty percent
(20%) of the number of shares of HNC Common Stock that are outstanding
immediately before the Effective Time. Sub has all requisite corporate power and
authority to execute, deliver and perform its obligations under this Agreement,
and has the right, power and authority to consummate the Merger and all other
Sub Ancillary Agreements. The execution, delivery and performance of this
Agreement and all other Sub Ancillary Agreements by Sub have been duly and
validly approved and authorized by Sub's Board of Directors and by HNC in its
capacity as Sub's sole stockholder.
39
<PAGE> 40
4.2.2 No filing, authorization, consent, approval or order,
governmental or otherwise, is necessary or required to be made or obtained by
HNC or Sub to enable HNC or Sub to lawfully enter into, and to perform its
obligations under, this Agreement, the HNC Ancillary Agreements or the Sub
Ancillary Agreements, as applicable, except for (a) the filing by HNC of such
reports and information with the SEC under the 1934 Act and the rules and
regulations promulgated by the SEC thereunder, as may be required in connection
with this Agreement, the Merger and the transactions contemplated hereby; (b)
the filing with the SEC of a Form D relating to the issuance of HNC securities
in the Merger, if so elected by HNC; (c) the filing of the Certificate of Merger
with the Delaware Secretary of State and any such further documents as may be
required under the DGCL to effect the Merger; (d) such other filings as may be
required by the Nasdaq National Market System with respect to the Merger; and
(e) such other filings, if any, as may be required to comply with federal and
state securities laws.
4.2.3 This Agreement and the HNC Ancillary Agreements are, or when
executed by HNC will be, valid and binding obligations of HNC, enforceable in
accordance with their respective terms, except as to the effect, if any, of (a)
applicable bankruptcy and other similar laws affecting the rights of creditors
generally and (b) rules of law and equity governing specific performance,
injunctive relief and other equitable remedies. This Agreement and the Sub
Ancillary Agreements are, or when executed by Sub will be, valid and binding
obligations of Sub, enforceable in accordance with their respective terms,
except as to the effect, if any, of (a) applicable bankruptcy and other similar
laws affecting the rights of creditors generally and (b) rules of law and equity
governing specific performance, injunctive relief and other equitable remedies.
4.3 Capitalization of HNC.
4.3.1 Stock. The authorized capital stock of HNC consists entirely
of 120,000,000 shares of HNC Common Stock, $0.001 par value per share, and
4,000,000 shares of Preferred Stock, $0.001 par value per share (the "HNC
PREFERRED STOCK"). At the close of business on September 1, 2000, 29,210,560
shares of HNC Common Stock were issued and outstanding and 619 shares of HNC
Common Stock were issued and held in HNC's treasury. No shares of HNC Preferred
Stock are issued or outstanding. All issued and outstanding shares of HNC Common
Stock have been duly authorized and validly issued, are fully paid and
nonassessable and not subject to preemptive rights. As of the date hereof, the
authorized capital stock of Sub consists of 100 shares of Common Stock, $0.001
par value per share, of which 100 shares have been duly authorized and validly
issued, are fully paid and nonassessable, all of which are owned by HNC.
4.3.2 Options; Convertible Notes. As of July 31, 2000: (a) options
to purchase an aggregate total of 7,324,296 shares of HNC Common Stock were
outstanding (the "OUTSTANDING HNC OPTIONS"); and (b) 2,395,265 additional shares
of HNC Common Stock were reserved for issuance by HNC under its various stock
and stock option plans for future issuances of HNC Common Stock under such
plans. Except for the Outstanding HNC Options, the Convertible Notes (as defined
below) and rights to purchase HNC Common Stock under HNC's Employee Stock
Purchase Plan, as of July 31, 2000, no options warrants or other rights to
purchase shares of HNC Common Stock
40
<PAGE> 41
were outstanding. All options to purchase HNC Common Stock that are outstanding
prior to the Effective time will, upon effectiveness of the Retek Dividend, be
adjusted to reflect the Retek Dividend. As of August 31, 2000, there were
outstanding $17,167,000 in principal face amount of 4.75% Convertible
Subordinated Notes due 2003 of HNC, which, as of the Agreement Date, are
convertible into shares of HNC Common Stock at the price of $44.85 per share of
HNC Common Stock, as presently constituted (the "CONVERTIBLE NOTES") subject to
adjustment of such conversion price to reflect the Retek Dividend.
4.4 No Violation of Material Agreements. Neither the execution and
delivery of this Agreement nor any HNC Ancillary Agreement, nor the consummation
of the transactions contemplated by this Agreement or any HNC Ancillary
Agreement, will conflict with, or (with or without notice or lapse of time, or
both) result in: (a) a breach, impairment or violation of (i) any provision of
the Certificate of Incorporation or Bylaws of HNC, as currently in effect or
(ii) any federal, state, local or foreign judgment, writ, decree, order, law,
statute, rule or regulation to which HNC or its assets or properties is subject;
or (b) a termination, or a material breach, impairment or violation, of any
material instrument or contract to which HNC is a party or by which HNC or its
properties are bound that HNC has listed as a material agreement exhibit under
Part 10 of Item 601 of Regulation S-K of the SEC in the 1999 10-K (as defined
below) or any report filed by HNC with the SEC under the 1933 Act or 1934 Act
after March 15, 2000.
4.5 Disclosure. HNC has made available to SLC a disclosure package
consisting of (a) HNC's annual report on Form 10-K for HNC's fiscal year ended
December 31, 1999 (the "1999 10-K"); (b) all reports on Form 10-Q or Form 8-K
filed by HNC after March 15, 2000, the date on which the 1999 10-K was filed
with the SEC, and prior to the Agreement Date; (c) HNC's annual report to
stockholders for its fiscal year ended December 31, 1999; (d) HNC's proxy
statement for its annual meeting of stockholders held on May 25, 2000 as
adjourned to June 5, 2000; (e) a Prospectus dated February 27, 1998 forming part
of HNC's registration statement on Form S-3 relating to the offering of the
Convertible Notes; (f) Retek's annual report on Form 10-K for Retek's fiscal
year ended December 31, 1999 (the "1999 RETEK 10-K"); (g) all reports on Form
10-Q or Form 8-K filed by Retek after March 15, 2000, the date on which the 1999
Retek 10-K was filed with the SEC, and prior to the Agreement Date; (h) Retek's
annual report to stockholders for its fiscal year ended December 31, 1999; (i)
Retek's proxy statement for its annual meeting of stockholders held on May 16,
2000; and (j) a Prospectus dated November 18, 1999 forming part of Retek's
registration statement on Form S-1 relating to the initial public offering of
Retek's common stock (all such documents described in the foregoing clauses (a)
through (j) above being collectively hereinafter referred to as the "HNC
DISCLOSURE PACKAGE"). The HNC Disclosure Package, this Agreement, the exhibits
and schedules hereto, and any certificates or documents to be delivered by HNC
to SLC pursuant to this Agreement, when taken together, did not, as of their
respective filing dates, contain any untrue statement of a material fact or omit
to state any material fact necessary in order to make the statements contained
herein and therein, in light of the circumstances under which such statements
were made, not misleading in any material respect.
41
<PAGE> 42
4.6 Validity of Shares. The shares of HNC Common Stock to be issued
pursuant to the Merger will, when issued: (a) be duly authorized, validly
issued, fully paid and nonassessable and free of liens and encumbrances created
by HNC, and (b) will be subject to applicable securities law restrictions on
transfer, including those imposed by Regulation D or Section 4(2) of the 1933
Act and Rule 144 and under applicable "blue sky" state securities laws, and (c)
will be authorized for listing on the Nasdaq National Market subject to notice
of issuance.
4.7 No Brokers. HNC is not obligated for the payment of any fees or
expenses of any investment banker, broker, finder or similar party in connection
with the origin, negotiation or execution of this Agreement or in connection
with any transaction contemplated hereby or thereby for which SLC or any of the
SLC Stockholders will incur any liability.
4.8 Litigation. Except as disclosed by HNC in any filings made by HNC
with the SEC under the 1933 Act or the 1934 Act, there is no action, claim,
suit, arbitration, mediation, proceeding, claim or investigation pending (or, to
HNC's knowledge, threatened) against HNC before any court, administrative agency
or arbitrator that, if determined adversely to HNC, is likely to have a Material
Adverse Effect on HNC's financial condition or results of operation.
4.9 Retek Stock. To HNC's knowledge, as of the Agreement Date, Retek
does not presently intend to place any restrictive legends on the certificates
for the shares of Retek Common Stock that the SLC Stockholders would receive in
the Retek Dividend if they are holders of record of HNC Common Stock on the
record date for the Retek Dividend, or to impose restrictions on transfer on
such shares.
ARTICLE 5
PRE-CLOSING COVENANTS OF SLC
During the time period from the Agreement Date until the earlier to
occur of (i) the Effective Time or (ii) the termination of this Agreement in
accordance with Article 10, SLC covenants and agrees with HNC and Sub as
follows:
5.1 Advice of Changes. SLC will promptly advise HNC in writing (a) of
any event occurring subsequent to the Agreement Date of which SLC has knowledge
that would render any representation or warranty of SLC contained in Article 3
of this Agreement (as qualified by the SLC Disclosure Letter), if made on or as
of the date of such event or the Closing Date, untrue or inaccurate in any
material respect and (b) of any Material Adverse Change in SLC arising after
June 30, 2000.
5.2 Maintenance of Business. SLC will carry on and preserve its business
and its relationships with customers, suppliers, employees and others in
substantially the same manner as it has prior to the Agreement Date. If SLC
becomes aware of a material deterioration in the relationship with any key
customer, key supplier or key employee, it will promptly bring such information
to the attention of HNC in writing.
42
<PAGE> 43
5.3 Conduct of Business. SLC will continue to conduct its business and
maintain its business relationships in the ordinary and usual course and SLC
shall not, except with the prior written consent and approval (which may be
given verbally to be promptly followed by written confirmation) of the President
or Chief Financial Officer of HNC:
(a) borrow or lend any money, other than reasonable and customary
advances to employees for bona fide travel and expenses that are incurred in the
ordinary course of SLC's business consistent with SLC's past practices and other
than the Permitted Loan (as defined in Section 5.16);
(b) enter into any material transaction or agreement that is not in
the ordinary course of SLC's business;
(c) grant any lien, security interest, or other encumbrance on any
of SLC's assets or guarantee or act as a surety for any obligation of any third
party;
(d) sell, transfer or dispose of any of its assets except in the
ordinary course of SLC's business consistent with SLC's past practices;
(e) enter into any lease or contract for the purchase or sale of any
property, whether real or personal, tangible or intangible;
(f) pay any bonus, increased salary or special remuneration to any
officer, director, employee or consultant (except for normal salary increases
and bonus payments that are consistent with SLC's past practices and, in each
case, not to exceed 5% of such officer's, employee's or consultant's base annual
compensation, except pursuant to existing arrangements previously disclosed to
and approved in writing by HNC and except pursuant to the Permitted Bonus),
enter into any new employment or consulting agreement with any such person or
enter into any indemnification agreement or agreement to advance expenses of
defending any claim, suit or proceeding with any such person;
(g) declare, set aside or pay any cash or stock dividend or other
distribution in respect of its capital stock, redeem, repurchase or otherwise
acquire any of its capital stock or other securities (other than repurchases of
stock in connection with the termination of a stockholder's employment or
services with SLC where the purchase price is the price originally paid by such
stockholder for such shares), pay or distribute any cash or property to any
stockholder or security holder of SLC or make any other cash payment or bonus to
any stockholder or security holder of SLC with respect to its shares, that is
unusual, extraordinary, or not made in the ordinary course of SLC's business
consistent with its past practices;
(h) amend or terminate any contract, agreement or license to which
SLC or any of its subsidiaries is a party except for (i) those amended or
terminated in the ordinary course of SLC's business, consistent with its past
practices, (ii) those amended to enable SLC to satisfy any condition to the
consummation of the Merger set forth in
43
<PAGE> 44
Article 8 or 9 or (iii) such amendments or terminations as shall not have any
material impact on SLC's business or financial condition;
(i) waive or release any material right or claim except in the
ordinary course of SLC's business, consistent with SLC's past practice;
(j) issue, sell, create or authorize any shares of its capital stock
of any class or series or any other of its securities, or issue, grant or create
any warrants, obligations, subscriptions, options, convertible securities, or
other commitments to issue shares of its capital stock or securities ultimately
exchangeable for, or convertible into, shares of its capital stock; provided,
however, that notwithstanding the foregoing, SLC may grant stock options under
the SLC Stock Option Plan as disclosed to and approved in writing in advance by
HNC;
(k) subdivide or split or combine or reverse split the outstanding
shares of its capital stock of any class or series or enter into any
recapitalization affecting the number of outstanding shares of its capital stock
of any class or series or affecting any other of its securities;
(l) merge, consolidate or reorganize with, or acquire, or enter into
any other business combination with, any corporation, partnership, limited
liability company or any other entity or enter into any negotiations,
discussions or agreement for such purpose;
(m) amend its Certificate of Incorporation or Bylaws;
(n) license any of its technology or Intellectual Property except
for licenses of products made in the ordinary course of SLC's business, or
acquire any Intellectual Property (or any license thereto) from any third party
except for any such license obtained in the ordinary course of SLC's business;
(o) materially change any insurance coverage or issue any
certificates of insurance, except in the ordinary course of SLC's business
consistent with its past practice;
(p) agree to any audit assessment by any tax authority or file any
federal or state income or franchise tax return unless copies of such returns
have first been delivered to HNC for its review prior to filing;
(q) modify or change the terms or rights of any SLC stock options,
warrants or other SLC securities, or accelerate or otherwise modify (i) the
right to exercise any option, warrant or other right to purchase any capital
stock or other securities of SLC or (ii) the terms or conditions for the vesting
or release of any shares of capital stock or other securities of SLC from any
repurchase options or rights of refusal held by SLC or any other party or any
other restrictions unless such accelerations/modifications are expressly
required and mandated by the terms of a formal written agreement or plan that
was entered into prior to the execution of this Agreement
44
<PAGE> 45
by HNC and SLC and that has been previously disclosed and consented to by HNC in
writing; or
(r) agree to do any of the things described in the preceding clauses
5.3(a) through 5.3(q).
5.4 Approval of SLC's Stockholders. SLC shall solicit its stockholders'
unanimous approval of this Agreement and the Merger by unanimous written consent
in compliance with Section 228 of the DGCL to obtain the SLC Stockholders' Vote
at the earliest practicable date after the Agreement Date (consistent with the
requirements of Section 4(2) and/or Regulation D under the 1933 Act) and in
connection therewith SLC's Board of Directors shall recommend to SLC's
stockholders that they approve the Merger, this Agreement and the transactions
contemplated thereby. The SLC Stockholders' Vote shall be called, held and
conducted, and any proxies or written consents shall be solicited, in compliance
with SLC's Certificate of Incorporation and Bylaws, both as amended, and in
compliance with applicable law. SLC will not put any proposal up for the vote of
its stockholders (as part of the SLC Stockholders' Vote or otherwise) other than
the proposal to approve this Agreement and the Merger, without obtaining HNC's
prior written consent to do so, which consent will not be unreasonably withheld,
conditioned or delayed, consistent with the provisions, purposes and intent of
this Agreement.
5.5 Information Statement; Cooperation. SLC will be solely responsible
for any statement, information or omission in the Information Statement relating
to SLC or its affiliates that it provides to SLC's Stockholders in connection
with the SLC Stockholders' Vote. SLC will cooperate with HNC in connection with
any Information Statement and will use its good faith diligent efforts to assist
HNC in all reasonable ways in complying with the requirements of the exemptions
provided by Section 4(2) and/or Regulation D under the 1933 Act.
5.6 Regulatory Approvals. SLC will promptly execute and file, or join in
the execution and filing, of any application, notification or any other document
that may be necessary in order to obtain the authorization, approval or consent
of any Governmental Authority, whether federal, state, local or foreign, which
may be reasonably required, or that HNC may reasonably request, in connection
with the consummation of the Merger or any other transactions contemplated by
this Agreement or any SLC Ancillary Agreement. SLC will use its diligent efforts
to obtain, and to cooperate with HNC to promptly obtain, all such
authorizations, approvals and consents.
5.7 Necessary Consents. SLC will use its diligent efforts to obtain such
consents and authorizations of third parties, give notices to third parties and
take such other actions as may be necessary or appropriate in addition to those
set forth in the foregoing Sections of this Article 5 in order to effect the
consummation of the Merger and the other transactions contemplated by this
Agreement and to enable SLC to carry on its business after the Effective Time
substantially as such business was conducted by SLC prior to the Effective Time.
45
<PAGE> 46
5.8 Litigation. SLC will notify HNC in writing promptly after learning
of any claim, demand, action, suit, arbitration, mediation, proceeding or
investigation by or before any court, arbitrator or arbitration panel, tribunal,
board or governmental agency, initiated by or against it, or known by it to be
threatened against SLC, any of its officers, directors, employees or
stockholders in their capacity as such, or Fraudlink.
5.9 No Other Negotiations. During the time period commencing on the
Agreement Date and ending on the earlier to occur of (a) termination of this
Agreement in accordance with the provisions of Article 10, or (b) consummation
of the Merger at the Effective Time (such time period being hereinafter called
the "RESTRICTION PERIOD"), SLC will not, and SLC will not authorize, encourage
or permit any officer, director, employee, stockholder or agent of SLC or any
other person on SLC's or their behalf to, directly or indirectly: (i) solicit,
initiate, encourage or induce the making, submission or announcement of, any
offer or proposal from any party concerning any Alternative Transaction (as
defined below) or take any other action that could reasonably be expected to
lead to an Alternative Transaction or a proposal therefor; (ii) consider any
inquiry, offer or proposal received from any party concerning any Alternative
Transaction; (iii) furnish any information regarding SLC to any person or entity
in connection with or in response to any inquiry, offer or proposal for or
regarding any Alternative Transaction; (iv) participate in any discussions or
negotiations with any person or entity with respect to any Alternative
Transaction; (v) otherwise cooperate with, facilitate or encourage any effort or
attempt by any person or entity (other than HNC) to effect any Alternative
Transaction; or (vi) execute, enter into or become bound by any letter of
intent, agreement, commitment or understanding between SLC and any third party
that is related to, provides for or concerns any Alternative Transaction. SLC
will promptly disclose to HNC any inquiries or proposals for Alternative
Transactions that it receives from any third parties during the Restriction
Period, which disclosure shall include the identity of the party making the
inquiry or proposal and the terms of any proposal that are received. As used
herein, the term "ALTERNATIVE TRANSACTION" means (i) any commitment, agreement
or transaction involving or providing for the possible disposition of all or any
substantial portion of SLC's business, assets or capital stock, whether by way
of merger, consolidation, sale of assets, sale of stock, tender offer and/or any
other form of business combination or (ii) any initial public offering of
capital stock or other securities of SLC pursuant to a registration statement
filed under the 1933 Act.
5.10 Access to Information. During the time period commencing on the
Agreement Date and ending on the earlier to occur of (a) termination of this
Agreement in accordance with the provisions of Article 10, or (b) consummation
of the Merger at the Effective Time, SLC will allow HNC and its agents, during
normal business hours and on reasonable advance notice (which may be given
orally), access to the files, books, records, personnel and offices of SLC (and
to the files, books and records of Fraudlink that are in SLC's possession),
including, without limitation, any and all information relating to SLC's taxes,
commitments, contracts, leases, licenses, and real, personal and intangible
property and financial condition, subject to the terms of the Non-Disclosure
Agreement between SLC and HNC dated as of June 27, 2000 (the "CONFIDENTIALITY
AGREEMENT"). SLC will cause its accountants to cooperate with HNC and its agents
in making available all financial information reasonably requested by HNC,
including
46
<PAGE> 47
without limitation the right to examine all working papers pertaining to all
financial statements prepared or audited by such accountants.
5.11 Satisfaction of Conditions Precedent. SLC will use its diligent
efforts to satisfy or cause to be satisfied all the conditions precedent that
are set forth in Articles 8 and 9, and SLC will use its best efforts to cause
the Merger and the other transactions contemplated by this Agreement to be
consummated in accordance with the terms of this Agreement by the Termination
Date.
5.12 Blue Sky Laws. SLC will use diligent efforts to assist HNC to the
extent necessary to comply with the securities and Blue Sky laws of all
jurisdictions that are applicable in connection with the Merger. HNC shall bear
the expense of such compliance if the Merger is consummated.
5.13 SLC Dissenting Shares. As promptly as practicable after the date of
SLC Stockholders' Vote and prior to the Closing Date, SLC will furnish HNC with
the name and address of each holder (or potential holder) of any SLC Dissenting
Shares (if any) and the number of SLC Dissenting Shares (or potential SLC
Dissenting Shares) owned by each such holder.
5.14 SLC Employee Plans and Benefit Arrangements. SLC shall terminate
any SLC Benefit Arrangement that is governed by Section 401(k) of the Code
immediately prior to the Effective Time upon the request of HNC. SLC shall take
such steps as are necessary to ratify the termination of the Simplified Employee
Pension Individual Retirement Account Plan and the steps that were taken in
connection with such termination to ensure that there is no continuing liability
to the Surviving Corporation or HNC in connection with the termination of same.
In the event that the distribution or rollover of assets from the trust of a
Code Section 401(k) plan that is terminated will trigger liquidation, surrender
or other fees that will be imposed on the terminated plan or any participant or
beneficiary of such terminated plan, SLC shall take such actions as are
necessary to reasonably estimate the amount of such fees and provide such
reasonable estimate in writing to HNC prior to the Effective Time. SLC shall
file any delinquent Form 5500s through the Department of Labor Delinquent Filer
Voluntary Compliance Program prior to the Effective Time.
5.15 Closing of Merger. SLC will not refuse to effect the Merger if, on
or before the Closing Date, all the conditions precedent to SLC's obligations to
effect the Merger under Article 8 have been satisfied or waived by SLC and HNC
elects to consummate the Merger.
5.16 SLC's Borrowing Authority for Permitted Bonus. SLC may, at any time
prior to the Effective Time, borrow from Commerce Bank up to an aggregate
principal amount of Two Million Dollars ($2,000,000) solely for the purpose
provided herein (the "PERMITTED LOAN"), but only if and to the extent that SLC
shall use the proceeds of such Permitted Loan on the day before the Effective
Time solely to pay cash bonuses to certain of SLC's employees in the aggregate
amount not to exceed Two Million Dollars ($2,000,000) with the amount of such
bonus that is paid to each such SLC employee to be
47
<PAGE> 48
approved by HNC (the "PERMITTED BONUS"). The Permitted Loan shall have a
maturity date after the Effective Time and contain no restrictions or premiums
on prepayment or prepayment penalties and the terms and conditions of such
Permitted Loan shall have been previously approved in writing by HNC, which
shall not be unreasonably withhold, delay or place conditions on its approval.
Notwithstanding anything in this Agreement to the contrary, (i) SLC shall not be
deemed to be in default of its obligations under this Agreement by reason of the
existence of such Permitted Loan at Closing and (ii) no representation or
warranty of SLC shall be deemed to be untrue or incorrect as a result of the
existence of the loan at Closing, or as a result of SLC's failure to disclose
such loan.
ARTICLE 6
HNC COVENANTS
6.1 Advice of Changes. During the time period from the Agreement Date
until the earlier to occur of (i) the Effective Time or (ii) the termination of
this Agreement in accordance with Article 10, HNC will promptly advise SLC (a)
of any event occurring subsequent to the Agreement Date of which HNC has
knowledge that would render any representation or warranty of HNC contained in
Article 4 of this Agreement (as qualified by the HNC Disclosure Letter), if made
on or as of the date of such event or the Closing Date, untrue or inaccurate in
any material respect and (b) of any Material Adverse Change in HNC arising after
the Agreement Date and prior to the Effective Time.
6.2 Regulatory Approvals. HNC will promptly execute and file, or join in
the execution and filing, of any application, notification or any other document
that may be necessary in order to obtain the authorization, approval or consent
of any Governmental Authority, whether federal, state, local or foreign, which
may be reasonably required, in connection with the consummation of the Merger
and the other transactions contemplated by this Agreement and the HNC Ancillary
Agreements and Sub Ancillary Agreements in accordance with the terms of this
Agreement. HNC will use diligent efforts to obtain all such authorizations,
approvals and consents.
6.3 Satisfaction of Conditions Precedent. HNC will use its diligent
efforts to satisfy or cause to be satisfied all of the conditions precedent
which are set forth in Article 8, and HNC will use its diligent efforts to cause
the Merger and the other transactions contemplated by this Agreement to be
consummated in accordance with the terms of this Agreement by the Termination
Date.
6.4 Employee Benefits. HNC and/or Surviving Corporation shall, as of the
Effective Time of the Merger, adopt and maintain those SLC Benefit Arrangements
(as such term is defined in Section 3.16.4 hereof) that constitute health,
dental and vision plans, programs or arrangements (the "HEALTH, DENTAL AND
VISION PLANS") in effect immediately prior to the Effective Time of the Merger
and, accordingly, shall thereby continue in full force and effect each such
Health, Dental and Vision Plan subject to the terms and conditions thereof until
December 31, 2000. After that date, HNC may either continue those Health, Dental
and Vision Plans or provide all active employees of SLC and their dependents
coverage (the "COVERAGE") under one or more employee benefit plans of HNC and/or
Surviving Corporation (the "SUBSTITUTED PLANS"), including without
48
<PAGE> 49
limitation, health coverage, which meets the following requirements: (A) the
Coverage is substantially similar in the aggregate to the coverage provided to
HNC employees under HNC employee benefit plans, (B) service with SLC and each of
its subsidiaries prior to the Effective Time of the Merger shall be credited
against all service and waiting period requirements under the Substituted Plans,
and (C) the Coverage shall not provide any pre-existing condition exclusions to
the extent provided under such Substituted Plans. If HNC so requests, SLC shall
terminate all employee pension benefit plans, within the meaning of Section 3(2)
of ERISA prior to the Closing, provided that HNC offers employees covered by
such plans prior to the Closing the opportunity to participate in the HNC
Software Inc. Section 401(k) Plan following the Closing.
6.5 Repayment of SLC Indebtedness. HNC agrees, promptly and in all
events within two (2) business days after the Effective Time, to pay One Million
Four Hundred Thousand Dollars ($1,400,000) to Robert E. Bruneau under the
Bruneau Settlement Agreement (or such lesser sum as is then owing to Mr. Bruneau
under the Bruneau Settlement Agreement). HNC shall make that payment to Mr.
Bruneau by check. HNC also agrees, within two (2) business days after the
Effective Time, to (i) repay, in full in cash, or (ii) make effective provision
for the removal as guarantor(s) at Closing of Diane E. Sammer and Dubi
Silverstein with respect to, the SLC Indebtedness set forth in Schedule 6.5 in a
maximum aggregate amount of $4,300,000 (inclusive of all accrued interest and
other fees, costs and charges); provided that SLC shall first have satisfied the
conditions set forth in Section 9.15.
6.6 Retek Dividend.
(a) HNC shall ensure that the record date for determining the HNC
stockholders who are entitled to receive the Retek Dividend shall be a date
after the Effective Time.
(b) The treatment of HNC Options issued pursuant to the Merger in
connection with the Retek Dividend shall be as described in this Section 6.6(b).
HNC shall adjust, in accordance with GAAP, the exercise price of each HNC Option
that is outstanding immediately following the date the Retek Dividend is paid
(the "EXERCISE PRICE ADJUSTMENT DATE") using the methodology used to adjust the
exercise price of the outstanding options to purchase HNC Common Stock that are
now held by employees of HNC with respect to the Retek Dividend. Any HNC Option
that is exercised prior to the Exercise Price Adjustment Date shall not be
entitled to the exercise price adjustment described in this Section 6.6. To
maintain the intrinsic value of each HNC Option that is outstanding and unvested
on the record date of the Retek Dividend, HNC shall, in accordance with GAAP,
grant the holder thereof an additional option to purchase HNC Common Stock in
accordance with GAAP. Each such additional option shall be granted as soon as
administratively feasible following the date the Retek Dividend is paid to the
stockholders of HNC. HNC shall have no obligation to make any cash payments to
the holders of such HNC Options in connection with the Retek Dividend, or to
make loans to the holders of such HNC Options with respect to the exercise of
such HNC Options or permit the exercise of such options with promissory notes.
49
<PAGE> 50
(c) HNC has no reason to believe that the proposed Retek Dividend
(if paid) will not meet the conditions for "no sale" treatment outlined in SEC
Staff Legal Bulletin No. 4 dated September 16, 1997 regarding spin-offs. If,
however, the SEC or Retek takes action to treat the Retek common stock
distributed in the Retek Dividend as "restricted securities" within the meaning
of Rule 144, then HNC will grant certain S-3 registration rights to the SLC
Stockholders with respect to the HNC Common Stock issued under Section 2.1.2(a)
during the time period promptly following such SEC or Retek action (taking into
account that it shall take HNC time to prepare a registration statement and have
it reviewed and declared effective by the SEC) and ending on the first
anniversary of the Effective Time, provided that: (i) the terms and conditions
of such registration rights shall be set forth in a registration rights
agreement (the "SLC REGISTRATION RIGHTS AGREEMENT") substantially identical to
the Registration Rights Agreement entered into between HNC and The Center for
Adaptive Systems Applications, Inc. on March 17, 2000, except that the SLC
Registration Rights Agreement shall provide for two trading windows of 30 days
each (rather then 3 trading windows); and (ii) only SLC Stockholders who execute
and deliver such SLC Registration Rights Agreement to HNC will be entitled to
any registration rights.
6.7 Rule 144. During the 144 Period (as defined below) HNC will use good
faith efforts to satisfy the current public information requirements of
paragraph (c) of Rule 144, as such requirements are now in effect. The "144
Period" means that time period beginning on the Effective Time and ending on the
earlier to occur of: (a) the second (2nd) anniversary of the Effective Time, (b)
the first date after the Effective Time on which HNC is no longer required to
file reports with the SEC under the 1934 Act, or (c) the first date on which
shares of HNC Common Stock issued under Section 2.1.2 hereof by virtue of the
Merger can be traded under Rule 144 without compliance with the current public
information requirements of paragraph (c) of Rule 144.
6.8 Information Statement. HNC will cooperate with SLC in preparing the
Information Statement to be provided to the SLC Stockholders prior to the SLC
Stockholders' Vote. HNC shall also provide to SLC copies of all filings made in
connection with the Merger that HNC makes pursuant to the 1933 Act and any other
applicable securities and Blue Sky laws of any jurisdiction.
6.9 Closing of Merger. HNC will not refuse to effect the Merger if, on
or before the Closing Date, all the conditions precedent to HNC's obligations to
effect the Merger under Article 9 have been satisfied or waived by HNC and SLC
elects to consummate the Merger.
6.10 Tax Issues. HNC and the Surviving Corporation shall give written
notice to the SLC Stockholders after closing of any audit, claim, action, suit,
investigation or other proceedings related to SLC's or the Surviving
Corporation's taxes for any time period occurring prior to the Effective Time
that could reasonably be expected to have the effect of materially decreasing
SLC's deductions or credits or materially increasing SLC's taxable income for
any taxable year or period prior to the Closing. The SLC Stockholders shall be
entitled, at their expense, to participate in any such proceedings. The
foregoing provisions of this Section 6.11 shall not apply,
50
<PAGE> 51
however, with respect to any audit, claim, action, suit, investigation or other
proceedings with respect to or challenging the validity of SLC's status as an S
corporation for any period prior to the Effective Time.
ARTICLE 7
CLOSING MATTERS
7.1 The Closing. Subject to termination of this Agreement as provided in
Section 10 below, the closing of the transactions to consummate the Merger (the
"CLOSING") will take place at the offices of Fenwick & West LLP, Two Palo Alto
Square, Palo Alto, California 94306 at 10:00 a.m., Pacific Standard Time on the
first business day after all of the conditions to Closing set forth in Articles
8 and 9 have been satisfied and/or waived in accordance with this Agreement, or
on such later day as HNC and SLC may mutually agree on (the "CLOSING DATE"). The
Certificate of Merger will be filed with the Delaware Secretary of State on the
first business day after the Closing Date.
7.2 Surrender and Exchange of Stock Certificates.
7.2.1 Surrender by SLC Stockholders. At the Closing, each holder of
shares of SLC Common Stock will surrender the certificate(s) for all such shares
of SLC Common Stock (each a "SLC CERTIFICATE"), duly endorsed to HNC (or
accompanied by a stock power duly endorsed and executed by such holder), with
the holder's signature notarized or signature guaranteed, for cancellation as of
the Effective Time.
7.2.2 Delivery by HNC. Promptly after the Effective Time, HNC or its
transfer agent will issue and pay to each SLC Stockholder who has tendered to
HNC SLC Certificates representing all of the shares of SLC Common Stock held by
such SLC Stockholder immediately prior to the Effective Time in accordance with
the foregoing provisions of Section 7.2.1:
(i) a certificate for the number of shares of HNC Common Stock
that such holder is entitled to receive upon the conversion of such holder's
shares of SLC Common Stock pursuant to the provisions of clause (a) of Section
2.1.2 (less the number of such shares that are Escrow Shares, which shall be
withheld and placed in escrow pursuant to the provisions of Section 2.7 and the
Escrow Agreement); and
(ii) a wire transfer (provided that HNC shall have received all
necessary wire transfer instructions, and if not, a check) for the amount of
cash that such holder is entitled to receive upon the conversion of such
holder's shares of SLC Common Stock pursuant to the provisions of clause (b) of
Section 2.1.2 plus the amount of cash in lieu of fractional shares in the amount
payable to such holder in accordance with Section 2.2(a) with respect to the
shares issued under clause (a) of Section 2.1.2.
Within five (5) business days of the Closing, HNC will also deliver
the certificates representing the Escrow Shares to the Escrow Agent pursuant to
the Escrow Agreement.
51
<PAGE> 52
7.2.3 No issuance of certificates of HNC Common Stock or payments of
cash described in Section 7.2.2 and no dividends or distributions payable to
holders of record of HNC Common Stock after the Effective Time (including
without limitation the Retek Dividend), will be paid to the holder of any
unsurrendered SLC Certificate with respect to the shares of HNC Common Stock
into which the shares of SLC Common Stock represented by such SLC Certificate
have been converted in the Merger until the holder of such unsurrendered SLC
Certificate surrenders such SLC Certificate to HNC as provided above. Subject to
the effect, if any, of applicable escheat and other laws, following surrender of
any SLC Certificate, there will be delivered to the person entitled thereto,
without interest, the amount of any such dividends and distributions theretofore
paid with respect to HNC Common Stock so withheld as of any date subsequent to
the Effective Time and prior to such date of delivery (including without
limitation the Retek Dividend, if the Retek Dividend is paid prior to such date
of delivery).
7.2.4 After the Effective Time there will be no further registration
of transfers on the stock transfer books of SLC or its transfer agent of any
shares of SLC capital stock that was outstanding immediately prior to the
Effective Time. If, after the Effective Time, SLC Certificates are presented for
any reason, they will be canceled and exchanged as provided in this Section 7.2.
7.2.5 Until SLC Certificates representing shares of SLC Common Stock
outstanding immediately prior to the Effective Time are surrendered pursuant to
Section 7.2.1 above, such SLC Certificates will be deemed, for all purposes, to
evidence the right to receive the number of shares of HNC Common Stock and cash
into which such shares of SLC Common Stock will have been converted pursuant to
Article 2 and the Merger, subject to all the provisions of this Agreement,
including but not limited to the provisions of Section 2.7 regarding the escrow,
and the Escrow Agreement.
ARTICLE 8
CONDITIONS TO OBLIGATIONS OF SLC
SLC's obligations to consummate the Merger hereunder are subject to the
fulfillment or satisfaction, on and as of the Closing, of each of the following
conditions (any one or more of which may be waived by SLC, in writing):
8.1 Accuracy of Representations and Warranties. The representations and
warranties of HNC set forth in Article 4 (as qualified by the HNC Disclosure
Letter) will be true and accurate in all material respects on and as of the
Closing with the same force and effect as if they had been made at the Closing,
and SLC will have received a certificate to such effect executed by HNC's
President or Chief Financial Officer.
8.2 Compliance with Agreements and Covenants. HNC shall have performed
or complied in all material respects with all agreements and covenants required
by this Agreement to be performed or complied with it on or prior to the Closing
Date, and SLC shall have received a certificate to such effect signed by HNC's
President or Chief Financial Officer.
52
<PAGE> 53
8.3 Requisite Approvals. The principal terms of this Agreement and the
Merger will have been approved and adopted by Sub's sole stockholder in
accordance with applicable law and Sub's Certificate of Incorporation and
Bylaws.
8.4 Compliance with Law; No Legal Restraints; No Litigation. No
litigation or proceeding will be threatened or pending for the purpose or with
the probable effect of enjoining or preventing the consummation of the Merger or
any of the other material transactions contemplated by this Agreement, or which
could be reasonably expected to have a Material Adverse Effect on the present or
future operations or financial condition of HNC and its subsidiaries considered
as a whole. There will not be any outstanding or threatened, or enacted or
adopted, any order, decree, temporary, preliminary or permanent injunction,
legislative enactment, statute, regulation, action, proceeding or any judgment
or ruling by any court, arbitrator, governmental agency, authority or entity, or
any other fact or circumstance, that, directly or indirectly, challenges,
threatens, prohibits, enjoins, restrains, suspends, delays, conditions or
renders illegal or imposes limitations on (or is likely to result in a
challenge, threat to, or a prohibition, injunction, restraint, suspension, delay
or illegality of, or to impose limitations on) the Merger or any other material
transaction contemplated by this Agreement.
8.5 Government Consents. There will have been obtained at or prior to
the Closing Date such permits or authorizations, and there will have been taken
all such other actions by any regulatory authority having jurisdiction over the
parties and the actions herein proposed to be taken, as may be required to
lawfully consummate the Merger, including but not limited to requirements under
applicable federal and state securities laws.
8.6 Opinion of HNC's Counsel. SLC will have received from Fenwick & West
LLP, counsel to HNC, an opinion substantially in the form of Exhibit D .
8.7 Escrow Agreement. SLC will have received a fully executed copy of
the Escrow Agreement in the form of Exhibit A executed by HNC, the Escrow Agent
and the Representative.
8.8 Retek Dividend Record Date. The record date for determining the HNC
stockholders who are entitled to receive the Retek Dividend shall be a date
after the Effective Time.
ARTICLE 9
CONDITIONS TO OBLIGATIONS OF HNC
The obligations of HNC hereunder are subject to the fulfillment or
satisfaction on, and as of the Closing, of each of the following conditions (any
one or more of which may be waived by HNC, in writing):
9.1 Accuracy of Representations and Warranties. The representations and
warranties of SLC set forth in Article 3 (as qualified by SLC Disclosure Letter)
will be true and accurate in all material respects on and as of the Closing with
the same force and
53
<PAGE> 54
effect as if they had been made at the Closing, and HNC will have received a
certificate to such effect executed by SLC's Chief Executive Officer and Chief
Financial Officer.
9.2 Compliance with Agreements and Covenants. SLC shall have performed
or complied 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 HNC shall have received a certificate to such effect signed by
SLC's Chief Executive Officer and Chief Financial Officer.
9.3 No Material Adverse Change. There will not have been any Material
Adverse Change in the financial condition, properties, assets, liabilities,
business, results of operations or operations of SLC and its subsidiaries, taken
as a whole, since June 30, 2000 and HNC will have received a certificate to such
effect signed by SLC's Chief Executive Officer and Chief Financial Officer.
9.4 Compliance with Law; No Legal Restraints; No Litigation. No
litigation or proceeding will be threatened or pending for the purpose or with
the probable effect of enjoining or preventing the consummation of the Merger or
any of the other material transactions contemplated by this Agreement, or which
could be reasonably expected to have a Material Adverse Effect on the present or
future operations or financial condition of SLC. There will not be any
outstanding or threatened, or enacted or adopted, any order, decree, temporary,
preliminary or permanent injunction, legislative enactment, statute, regulation,
action, proceeding or any judgment or ruling by any court, arbitrator,
governmental agency, authority or entity, or any other fact or circumstance,
that, directly or indirectly, challenges, threatens, prohibits, enjoins,
restrains, suspends, delays, conditions or renders illegal or imposes
limitations on (or is likely to result in a challenge, threat to, or a
prohibition, injunction, restraint, suspension, delay or illegality of, or to
impose limitations on) the Merger or any other material transaction contemplated
by this Agreement.
9.5 Government Consents. There will have been obtained at or prior to
the Closing Date such permits or authorizations, and there will have been taken
all such other actions, as may be required to consummate the Merger by any
governmental or regulatory authority having jurisdiction over the parties and
the actions herein proposed to be taken, including but not limited to
requirements under applicable federal and state securities laws.
9.6 Opinion of SLC's Counsel. HNC will have received from Warren,
Currier & Buchanan, counsel to SLC, an opinion substantially in the form of
Exhibit E.
9.7 Consents. HNC will have received duly executed copies of all
material third-party consents, approvals, assignments, waivers, authorizations
or other certificates contemplated or required by this Agreement or the SLC
Disclosure Letter or reasonably deemed necessary by HNC's legal counsel to
provide for the continuation in full force and effect of any and all material
contracts, agreements and leases of SLC after the Merger and the preservation of
SLC IP Rights and other assets and properties of SLC
54
<PAGE> 55
after the Merger and for HNC to consummate the Merger and the other transactions
contemplated by this Agreement or the SLC Ancillary Agreements and in form and
substance reasonably satisfactory to HNC.
9.8 Requisite Approvals; No Dissenters. This Agreement, the Merger and
the SLC Ancillary Agreements will have been duly and validly approved and
adopted, as required by applicable law and SLC's Certificate of Incorporation
and Bylaws, by (a) SLC's Board of Directors and (b) the valid and affirmative
unanimous written consent of 100% of the outstanding shares of SLC Common Stock
entitled to vote thereon in full compliance with the DGCL and applicable law
(including without limitation Section 228 of the DGCL) and no holder of SLC
capital stock shall be eligible to exercise any dissenter's appraisal rights
under the DGCL with respect to the Merger.
9.9 Escrow Agreement. HNC will have received a fully executed copy of
the Escrow Agreement in the form of Exhibit A executed by the Escrow Agent, the
Representative and each of SLC Stockholders.
9.10 Non-Competition Agreements. HNC will have received from each of the
persons listed on Schedule 9.10 a fully executed copy of a Non-Competition
Agreement, as indicated in Schedule 9.10, in the form of Exhibit F-1, F-2 or
F-3, as applicable.
9.11 Resignation of Directors. The directors of SLC in office
immediately prior to the Effective Time of the Merger (other than any such
director who is designated in Section 2.8(h) to be a director of SLC immediately
after the Effective Time) will have resigned as directors of the Surviving
Corporation effective as of the Effective Time.
9.12 Escrow Shares Free of Liens. All shares of HNC Common Stock that
are Escrow Shares shall be free and clear of any and all pledges, liens,
security interests or other rights or claims of any party.
9.13 Securities Law Compliance. HNC shall have received an Investment
Representation Letter executed by each SLC Stockholder in the form attached as
Exhibit C-1 or C-2, as applicable. HNC shall be satisfied in its reasonable
discretion that the shares of HNC Common Stock to be issued in the Merger
pursuant to Section 2.1.2 of this Agreement shall be exempt from registration
under Section 4(2) and/or Regulation D promulgated under the 1933 Act.
9.14 SLC Indebtedness. HNC shall have received a certificate executed by
SLC's Chief Financial Officer setting forth and certifying the total amount of
the SLC Indebtedness as of the Closing Date, which shall be accompanied by such
supporting information and calculations as are necessary for or requested by HNC
to verify and determine the amount of SLC Indebtedness as of the Closing Date.
9.15 Satisfaction of Debt. HNC shall have received a letter from each
creditor (other than Robert E. Bruneau) that shall receive a payment from HNC
under Section 6.5 stating the entire amount payable to such creditor by SLC as
of the Closing Date
55
<PAGE> 56
(including principal, interest and other fees and charges) and instructions for
the payment thereof, and confirming that upon HNC's payment of such amount such
indebtedness will be fully satisfied, terminated and cancelled and that all
security interests, mortgages and liens securing such indebtedness will be
promptly released and terminated.
9.16 SLC Options. None of the SLC Options shall have been exercised
prior to or as of the Effective Time. All of the SLC Non-Plan Grants shall have
been exercised in full prior to the Effective Time.
9.17 SLC Inventions Assignment and Confidentiality Agreements. Diane
Sammer, Warren Schad and Dubi Silverstein shall have each executed SLC's
standard form of inventions assignment and confidentiality agreement effective
as of the first date of their respective employment by SLC.
9.18 SLC Stock Split. SLC and its Board of Directors and stockholders
shall taken all action and made all filings necessary and appropriate to
properly effect the stock split initially approved by SLC's Board of Directors
and stockholders in February 1999.
9.19 SLC Employment Matters. The employment agreements between SLC and
each of Warren Schad and Steven Carras as in effect immediately prior to the
Closing shall have been terminated effective at the Effective Time in a manner
acceptable to HNC and each such individual. Warren Schad and Steven Carras shall
have each executed a binding release of all claims against SLC, the Surviving
Corporation and HNC as a condition to receiving any payments described in
Section 3.16.7 in form and substance satisfactory to HNC.
ARTICLE 10
TERMINATION OF AGREEMENT
10.1 Prior to Closing.
10.1.1 This Agreement may be terminated at any time prior to the
Effective Time by the mutual written consent of HNC and SLC.
10.1.2 Unless otherwise agreed by the parties hereto, this Agreement
will automatically terminate at any time prior to the Effective Time without the
need for action by any party hereto, if all conditions to the parties'
respective obligations to effect the Closing set forth in Articles 8 and 9 have
not been satisfied or waived by the appropriate party on or before the
Termination Date.
10.1.3 Either party may terminate this Agreement at any time prior
to the Closing if the other party has committed a material breach of any of its
representations and warranties under Article 3 or Article 4 of this Agreement,
as applicable, or any of its obligations under this Agreement, and has not cured
such material breach prior to the earlier of (i) the Closing, (ii) the
Termination Date, or (iii) thirty (30) days after the party seeking to terminate
this Agreement has given the other party written notice of its intention to
terminate this Agreement pursuant to this Section 10.1.3.
56
<PAGE> 57
10.2 At the Closing. At the Closing, this Agreement may be terminated
and abandoned:
10.2.1 By HNC, if any of the conditions precedent to HNC's
obligations set forth in Article 9 above have not been fulfilled or waived on or
prior to the Termination Date;
10.2.2 By SLC, if any of the conditions precedent to SLC's
obligations set forth in Article 8 above have not been fulfilled or waived on or
prior to the Termination Date;
Any termination of this Agreement under this Section 10.2 will be
effective upon the delivery of written notice of termination from the
terminating party to the other parties hereto.
10.3 No Liability. Any termination of this Agreement in accordance with
this Section 10 will be without further obligation or liability by any party in
favor of any other party hereto other than the obligations provided in the
Confidentiality Agreement; provided, however, that nothing herein will limit or
modify the obligation of SLC and HNC to use their good faith diligent efforts to
cause the Merger to be consummated by the Termination Date.
ARTICLE 11
SURVIVAL OF REPRESENTATIONS, INDEMNIFICATION
AND REMEDIES, CONTINUING COVENANTS
11.1 Survival of Representations. All representations, warranties and
covenants of SLC contained in Article 3 of this Agreement, in the SLC Disclosure
Letter or elsewhere in this Agreement will remain operative and in full force
and effect, regardless of any investigation made by or on behalf of HNC, until
that date (the "ESCROW RELEASE DATE") which is the first (1st) anniversary of
the Effective Time; provided, however, that notwithstanding the foregoing, (i)
the representations and warranties of SLC contained in Sections 3.4 and 3.7 of
this Agreement (the "SPECIAL REPRESENTATIONS") will remain operative and in
effect as provided in Section 11.2(i) and (ii) the representations and
warranties of SLC contained in Section 11.3 will remain operative and in effect
as provided in Section 11.3.
11.2 Agreement to Indemnify.
(a) Indemnification; Loss. The Escrow Stockholders shall jointly and
severally indemnify and hold harmless HNC and the Surviving Corporation and
their respective officers, directors, agents, stockholders and employees, and
each person, if any, who controls or may control HNC or the Surviving
Corporation within the meaning of the 1933 Act or the 1934 Act (each hereinafter
referred to individually as an "HNC INDEMNIFIED PERSON" and collectively as "HNC
INDEMNIFIED PERSONS") from and against
57
<PAGE> 58
any and all claims, demands, suits, actions, causes of action, losses, damages,
liabilities, penalties, fines, costs and expenses including, without limitation,
reasonable attorneys' fees, accountants' fees, tax preparers' fees, other
professionals' and experts' reasonable fees and court or arbitration costs
(hereinafter collectively referred to as "LOSS") incurred with respect to and/or
arising out of:
(i) any inaccuracy, misrepresentation, breach of, or default in, any
of the representations, warranties (including, without limitation, Special
Representations) or covenants given or made by SLC in this Agreement, in the SLC
Disclosure Letter or in any certificate, document or other instrument delivered
by or on behalf of SLC to HNC pursuant to this Agreement (if such inaccuracy,
misrepresentation, breach or default existed at the Closing Date);
(ii) any matter described in Section 3.6 arising prior to the
Closing Date (whether or not disclosed in the SLC Disclosure Letter);
(iii) any obligations of SLC (A) for Taxes for any period prior to
the Effective Time arising out of the failure of SLC to have been a valid S
corporation at any time or (B) to Robert E. Bruneau under the Bruneau Settlement
Agreement for penalties as a result of any conduct by SLC in connection with
SLC's S corporation status (in each case whether or not disclosed in the SLC
Disclosure Letter);
(iv) any Excess Transaction Expenses;
(v) any fraudulent conduct or willful misconduct of SLC or any SLC
Stockholder (collectively, "FRAUD LOSS");
(vi) any failure of a SLC Stockholder to have good, valid and
marketable title to any issued and outstanding shares of SLC Common Stock held
(or asserted to have been held) by such SLC Stockholder, immediately prior to
the Effective Time, free and clear of all liens, claims and encumbrances, except
for any claims or encumbrances specifically disclosed in the SLC Disclosure
Letter, or any failure of a SLC Stockholder to be duly entitled to vote such
person's shares of SLC Common Stock in favor of the Merger and any other
transaction contemplated by this Agreement (collectively, "TITLE LOSS");
(vii) any breach by any SLC Stockholder of any provisions of any
Investment Representation Letter (collectively, "INVESTMENT LETTER LOSS");
(viii) subject to the provisions of the last paragraph of this
Section 11.2(a), (w) any breach of the representations and warranties contained
in Section 3.12(c), (x) [*]
* Confidential treatment has been requested for certain portions of this
document pursuant to an application for confidential treatment sent to the
Securities and Exchange Commission. Such portions are omitted from this filing
and have been filed separately with the Securities and Exchange Commission.
58
<PAGE> 59
[*]; and/or
(ix) in addition to the foregoing, in the event that HNC's audit of
SLC's financial statements for the fiscal year ended December 31, 1999 as
conducted by HNC's accountants, results in a reduction of $500,000 or more in
either SLC's (A) "net earnings" per SLC's audited Statement of Operations and
Retained Earnings for SLC's fiscal year ended December 31, 1999 (a copy of which
is included in Schedule 3.8 to the SLC Disclosure Letter) or (B) "stockholders'
equity" per its audited December 31, 1999 Balance Sheet (a copy of which is
included in Schedule 3.8 to the SLC Disclosure Letter), in either case as
required by GAAP, the term "Loss" for which HNC or any HNC Indemnified Person
may be indemnified under this Section 11.2 shall also include the fees and
expenses of HNC's accountants and auditors for auditing, reviewing and restating
SLC's fiscal 1999 financial statement(s) in an amount not to exceed $50,000
("AUDIT LOSS"); provided, that notwithstanding the foregoing, the provisions of
this subparagraph (ix) shall not be interpreted to restrict, limit or adversely
affect in any way any indemnification rights of HNC or any HNC Indemnified
Person as provided in this Article 11 or the Escrow Agreement.
Without limitation, any and all fees (including without limitation
reasonable attorneys' fees, accountants' fees and tax preparers' fees) relating
to the investigation, defense, remedy, settlement or satisfaction of any Loss
shall be deemed to have been incurred with respect to, or to have arisen out of,
the inaccuracy, misrepresentation, breach, default or liability giving rise to
such Loss. For purposes of this Article 11, the amount of Loss incurred by any
HNC Indemnified Person will be reduced by the amount of any insurance proceeds
actually received by such HNC Indemnified Person on account of such Loss, but
"Loss" will include any reasonable costs or expenses incurred by such HNC
Indemnified Person to recover such insurance proceeds.
Notwithstanding the foregoing provisions of clause (viii) above
regarding 3.12(c) Loss, HNC agrees that, following the Effective Time, HNC and
the Surviving Corporation shall promptly devote the time and services of
appropriate and available skilled employees of HNC and/or the Surviving
Corporation (and independent contractors as and to the extent deemed reasonably
necessary or appropriate by HNC in its sole discretion) to perform diligent
efforts to [*]; provided however that: (a) HNC and/or the Surviving Corporation
will not be obligated to incur more than [*] of Direct Personnel Costs (as
hereinafter defined) in providing the time and services of such employees or
contractors for the purpose(s) described above in this paragraph; (b) the first
[*] of such Direct Personnel Costs incurred by HNC and/or the Surviving
Corporation for such purposes shall not be recoverable by HNC or any other HNC
Indemnified Person as 3.12(c) Loss under this Article 11; and (c) all Direct
Personnel Costs incurred by HNC and/or the Surviving Corporation in providing
the time and services of such employees and other personnel for the purposes
described above in this paragraph in excess of the
* Confidential treatment has been requested for certain portions of this
document pursuant to an application for confidential treatment sent to the
Securities and Exchange Commission. Such portions are omitted from this filing
and have been filed separately with the Securities and Exchange Commission.
59
<PAGE> 60
first [*] of such Direct Personnel Costs shall be recoverable by the applicable
HNC Indemnified Person(s) as 3.12(c) Loss from the General Escrow pursuant to
the provisions of this Section 11.2(a). For purposes of this paragraph, "DIRECT
PERSONNEL COSTS" means (i) the cost of salary and benefits for the relevant
employees of HNC and/or the Surviving Corporation (prorated based on generally
accepted cost accounting principles to reflect the relative time spent by such
persons on the matters [*] described in this paragraph), plus (ii) the cost of
consulting or contractor fees and expense reimbursements paid to any independent
contractors or consultants by HNC and/or the Surviving Corporation to any
independent contractor or consultant on the matters [*] described in this
paragraph.
(b) Procedure for Making Indemnification Claims. Except as provided
in Sections 11.2(c), 11.2(i) or 11.5, any claim for indemnification made by or
on behalf of any HNC Indemnified Person under this Section 11.2 must be raised
in a writing delivered to the Representative and the Escrow Agent as provided in
the Escrow Agreement by no later than the Escrow Release Date, but any such
claim for indemnification, if so raised prior to the Escrow Release Date, may
continue to be prosecuted and resolved after the Escrow Release Date in
accordance with the provisions of this Article 11 and the terms and conditions
of the Escrow Agreement.
(c) Extraordinary Loss Definitions. As used herein, the term
"EXTRAORDINARY LOSS" means, collectively or individually, any:
(i) Fraud Loss (as defined above);
(ii) Title Loss (as defined above);
(iii) any inaccuracy, misrepresentation, breach of, or default
in any Special Representation ("SPECIAL REPRESENTATION LOSS"); and/or
(iv) Investment Letter Loss (as defined above).
(d) Percentage Interest; Merger Consideration; Value. As used
herein, "PERCENTAGE INTEREST" shall mean an Escrow Stockholder's percentage
ownership interest in the outstanding capital stock of SLC as of 5:00 p.m.,
Eastern Daylight Time, on August 31, 2000. The "MERGER CONSIDERATION" means all
of the shares of HNC Common Stock and cash payable to all SLC Stockholders
pursuant to Section 2.1.2 and any shares of Retek Common Stock issued as a
dividend on such shares of HNC Common Stock in the Retek Dividend. The "VALUE OF
AN ESCROW STOCKHOLDER'S PERCENTAGE INTEREST IN THE MERGER CONSIDERATION" means
the dollar amount equal to the product obtained by multiplying (i) such Escrow
Stockholder's Percentage Interest by (ii) the sum of (x) the total amount of all
cash payable to all SLC Stockholders in the Merger pursuant to Section 2.1.2(b)
plus (y) the product obtained by multiplying the HNC Closing Price Per Share by
the total number of shares of HNC Common Stock issuable to the SLC Stockholders
in the Merger pursuant to Section 2.1.2.
* Confidential treatment has been requested for certain portions of this
document pursuant to an application for confidential treatment sent to the
Securities and Exchange Commission. Such portions are omitted from this filing
and have been filed separately with the Securities and Exchange Commission.
60
<PAGE> 61
(e) Fraud Loss. Each SLC Stockholder shall be liable for all Fraud
Loss without limitation on such SLC Stockholder's liability to the extent that
such Fraud Loss resulted from the fraudulent conduct or willful misconduct of
such SLC Stockholder. With respect to all Fraud Loss not resulting from the
fraudulent conduct or willful misconduct of such SLC Stockholder, such SLC
Stockholder (but only if such SLC Stockholder is an Escrow Stockholder) shall be
jointly and severally liable with all Escrow Stockholders for all such Fraud
Loss, but only to the extent of an amount equal to the Value of such Escrow
Stockholder's Percentage Interest in the Merger Consideration (as defined in
Section 11.2(d) above).
(f) Special Representation Loss. Each Escrow Stockholder shall
jointly and severally liable for all Special Representation Loss, but only to
the extent of the Value of such Escrow Stockholder's Percentage Interest in the
Merger Consideration (as defined in Section 11.2(d) above).
(g) Title Loss. Each SLC Stockholder shall be liable for all Title
Loss without limitation on its liability to the extent that Title Loss arose or
resulted from such SLC Stockholder's failure to have good, valid and marketable
title to, or the right to vote, any issued and outstanding shares of SLC Common
Stock held (or asserted to have been held) by such SLC Stockholder immediately
prior to the Effective Time, free and clear of all liens, claims and
encumbrances. With respect to Title Loss not resulting from the failure of such
SLC Stockholder to have good, valid and marketable title to outstanding shares
of SLC Common Stock, such SLC Stockholder (but only if such SLC Stockholder is
an Escrow Stockholder) shall be jointly and severally liable with all other
Escrow Stockholders for all such Title Loss, but only to the extent of such
Escrow Stockholder's Percentage Interest in the General Escrow Property.
(h) Investment Letter Loss. Each SLC Stockholder shall be liable for
all Investment Letter Loss without limitation on its liability to the extent
that such Investment Letter Loss arose or resulted from such SLC Stockholder's
breach of its Investment Representation Letter. With respect to Investment
Letter Loss not resulting from the breach by such SLC Stockholder of an
Investment Representation Letter, such SLC Stockholder (but only if such SLC
Stockholder is an Escrow Stockholder) shall be jointly and severally liable with
all other Escrow Stockholders for all such Investment Letter Loss, but only to
the extent of such Escrow Stockholder's Percentage Interest in the General
Escrow Property.
(i) Claims for Extraordinary Loss. Notwithstanding anything herein
to the contrary: (a) any claim or claims for indemnification for any Special
Representation Loss, Investment Letter Loss, Title Loss or 3.12(c) Loss may be
brought by or on behalf of any HNC Indemnified Person at any time prior to the
second (2nd) anniversary of the Effective Time (or, if later, within 30 days of
the expiration of any applicable tax statute of limitation in respect to a
Special Representation Loss relating to Section 3.7 hereof), and (b) any claim
or claims for indemnification for any Fraud Loss may be brought by or on behalf
of any HNC Indemnified Person at any time prior to the fourth (4th) anniversary
of the Effective Time, in either case by giving notice of such
61
<PAGE> 62
claim (i) in the case of claim for Special Representation Loss or Fraud Loss
resulting from the fraudulent conduct of SLC, to the Representative (or to all
SLC Stockholders if such claim is made following the Escrow Release Date) and
(ii) in the case of any claim for Fraud Loss resulting from the fraudulent
conduct or willful misconduct of an SLC Stockholder or for any Investment Letter
Loss, Title Loss or 3.12(c) Loss, to Representative and the SLC Stockholder or
SLC Stockholders whose alleged fraudulent conduct or willful misconduct or whose
alleged breach of an Investment Representation Letter or alleged failure to have
good, valid and marketable title to, or the right to vote, SLC Common Stock gave
rise to or resulted in such Fraud Loss, Investment Letter Loss, Title Loss or
3.12(c) Loss, as the case may be; (b) except as set forth in this Section 11.2,
an Escrow Stockholder's liability for any Extraordinary Loss shall not be
subject to the limitations on such Escrow Stockholder's liability set forth in
Section 11.4; and (c) the Basket and any other limitations on the
indemnification obligations or liabilities of the Escrow Stockholders set forth
in Section 11.4 shall not be applicable to any claim by any HNC Indemnified
Person for indemnification for any Extraordinary Loss. Claims for Extraordinary
Loss raised by HNC or any other HNC Indemnified Person prior to the Escrow
Release Date will be prosecuted under the Escrow Agreement, to the extent that
the amount of Escrow Shares, cash and/or other property remaining in the General
Escrow under the Escrow Agreement and available to satisfy such claim of
Extraordinary Loss have a value (determined as provide in Section 4.6(e) of the
Escrow Agreement) equal to or in excess of the entire amount of Extraordinary
Loss claimed in good faith by HNC or such HNC Indemnified Person. Claims for
Extraordinary Loss not required to be prosecuted under the Escrow Agreement
under the terms of the preceding sentence, or which cannot be fully satisfied
from the property in the General Escrow, and any claims of Extraordinary Loss
first raised after the Escrow Release Date, may be prosecuted by HNC, at its
election, pursuant to the arbitration process described in Section 4 of the
Escrow Agreement (except that HNC's remedy will not be restricted to the
recovery of cash and Escrow Shares in the General Escrow) or, at HNC's election,
before any court having jurisdiction of the parties.
11.3 11.3 Loss; 11.3 Escrow. Any Loss suffered or incurred by any HNC
Indemnified Person with respect to and/or arising out of, any inaccuracy,
misrepresentation or breach of any of SLC's representations or warranties in
Section 11.3 regarding obligations for [*] arising prior to, on or after the
Effective Time, including without limitation [*] obligations arising out of any
transactions first occurring after the Effective Time and any payments made in
settlement or compromise of any claim, suit, or other demand for any such
payments (collectively, "11.3 LOSS") shall be payable solely from the 11.3
Escrow Property (as defined in the Escrow Agreement) and shall not be payable
from the General Escrow Property (as defined in the Escrow Agreement); provided,
however, that any Loss incurred by an HNC Indemnified Person [*] other than an
11.3 Loss ("11.3 OTHER LOSS") shall be payable from the General Escrow and the
General Escrow Property. 11.3 Loss shall include, without limitation, any
amounts paid or forfeited by an HNC Indemnified Person [*] in settlement or
compromise of [*] , which settlement or compromise may be entered into on terms
and conditions acceptable to HNC and/or the Surviving Corporation in its sole
discretion,
* Confidential treatment has been requested for certain portions of this
document pursuant to an application for confidential treatment sent to the
Securities and Exchange Commission. Such portions are omitted from this filing
and have been filed separately with the Securities and Exchange Commission.
62
<PAGE> 63
notwithstanding anything to the contrary in Section 2.5 of the Escrow Agreement.
If HNC and/or the Surviving Corporation shall enter into a settlement or
compromise [*] in a form acceptable to HNC, then pursuant to the Escrow
Agreement the HNC Indemnified Persons shall direct the Escrow Agent to release
any residue of the property remaining in the 11.3 Escrow after all claims for
11.3 Loss have been satisfied in full in accordance with the procedures for
Settled Claims set forth in the Escrow Agreement. The 11.3 Escrow shall not be
available to satisfy any claims by HNC Indemnified Persons for Loss other than
11.3 Loss.
11.4 Limitation. In seeking indemnification for Loss under Section 11.2
prior to the Escrow Release Date, the HNC Indemnified Persons will exercise
their remedies first with respect to the Escrow Shares, cash and other property
deposited in the General Escrow pursuant to the Escrow Agreement (to the extent
the General Escrow is still available and in effect) and, to the extent that
such Escrow Shares, cash and other property are not sufficient to satisfy the
indemnity obligations hereunder, second against the SLC Stockholders directly
and personally. Except as provided in Sections 11.2 and 11.3: (a) no Escrow
Stockholder will have any liability to an HNC Indemnified Person except to the
extent of the Value of such Escrow Stockholder's Percentage Interest in the
Merger Consideration; and (b) the remedies set forth in this Section 11.4 and
the Escrow Agreement will be the exclusive remedies of HNC and the other HNC
Indemnified Persons under Section 11.2 of this Agreement against any SLC
Stockholder for indemnification obligations under Section 11.2(a). In addition,
the indemnification provided for in Section 11.2(a) shall not apply unless and
until the aggregate Damages for which one or more HNC Indemnified Persons seeks
or has sought indemnification hereunder exceeds a cumulative aggregate of One
Hundred Thousand Fifty Dollars ($150,000) (the "BASKET"), in which event the
Escrow Stockholders shall, subject to the foregoing limitations, be liable to
indemnify the HNC Indemnified Persons for all Loss (including the amount of the
Basket); provided, however, that the Basket and the foregoing provisions of this
sentence shall not apply to any indemnification claim for Loss for Excess
Transaction Expenses (as defined below), for any Extraordinary Loss, or for any
11.3 Loss. However, notwithstanding anything herein to the contrary, none of the
limitations on the indemnification obligations set forth in this Section 11.4
shall be applicable to any claim of indemnification for any Extraordinary Loss
as set forth in Section 11.2 or for any 11.3 Loss (except that recovery for 11.3
Loss shall be limited to the 11.3 Escrow Property). The Representative and HNC
may, by mutual written agreement prior to the Escrow Release Date, extend the
time during which an HNC Indemnified Person may make any claim or claims for
indemnification for any 11.3 Loss for up to an additional six (6) months, in
which case (i) the 11.3 Escrow shall remain in existence in accordance with the
Escrow Agreement during the term of such mutually agreed-on extension of the
11.3 Escrow and (ii) the representations and warranties in Section 11.3 shall
remain operative and in effect during the term of such mutually agreed-upon
extension (if any).
11.5 Notice. Promptly after HNC becomes aware of the existence of any
potential claim by an HNC Indemnified Person for indemnity from SLC Stockholders
under Section 11.2, HNC will notify the Representative or relevant SLC
Stockholders, as
* Confidential treatment has been requested for certain portions of this
document pursuant to an application for confidential treatment sent to the
Securities and Exchange Commission. Such portions are omitted from this filing
and have been filed separately with the Securities and Exchange Commission.
63
<PAGE> 64
applicable as provided in Section 11.2(i), of such potential claim in accordance
with the Escrow Agreement. Failure of HNC to give such notice will not affect
any rights or remedies of any Indemnified Party hereunder with respect to
indemnification for Loss except to the extent that the SLC Stockholders are
materially prejudiced thereby.
ARTICLE 12
MISCELLANEOUS
12.1 Governing Law. The internal laws of the State of Delaware
(irrespective of its choice of law principles) as applied to residents of the
State of Delaware will govern the validity of this Agreement, the construction
of its terms, and the interpretation and enforcement of the rights and duties of
the parties hereto.
12.2 Assignment; Binding Upon Successors and Assigns. Neither party
hereto may assign any of its rights or obligations hereunder without the prior
written consent of the other party hereto. Subject to the foregoing, this
Agreement will be binding upon and inure to the benefit of the parties hereto
and their respective successors and permitted assigns.
12.3 Severability. If any provision of this Agreement, or the
application thereof, will for any reason and to any extent be invalid or
unenforceable, then the remainder of this Agreement and the application of such
provision to other persons or circumstances will be interpreted so as reasonably
to give effect to 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 maximum extent legally
permissible, the economic, business and other purposes of the void or
unenforceable provision.
12.4 Counterparts. This Agreement may be executed in any number of
counterparts, each of which will be an original as regards any party whose
signature appears thereon and all of which together will constitute one and the
same instrument. This Agreement will become binding when one or more
counterparts hereof, individually or taken together, will bear the signatures of
all the parties reflected hereon as signatories and have been delivered by each
party to each other party (whether in facsimile or original form).
12.5 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 on such party,
and the exercise of any one right or remedy will not preclude the exercise of
any other right or remedy.
12.6 Amendment and Waivers. This Agreement may be amended by the parties
hereto at any time but only by a writing signed by HNC and SLC. Any such
amendment may be made at any time before or after approval of the SLC
Stockholders, but, after such approval, no amendment will be made which by
applicable law requires the further approval of the SLC Stockholders without
obtaining such further approval.
64
<PAGE> 65
The observance of any term or provision of this Agreement may be waived (either
generally or in a particular instance and either retroactively or prospectively)
only by a writing signed by the party to be bound by such waiver. The waiver by
a party of any breach hereof or default in the performance hereof will not be
deemed to constitute a waiver of any other default or any succeeding breach or
default. At any time prior to the Effective Time, each of SLC and HNC, may, to
the extent legally allowed, (a) extend the time for the performance of any of
the obligations or other acts of the other; (b) waive any inaccuracies in the
representations and warranties made to it contained herein or in any document
delivered pursuant hereto; and (c) waive compliance with any of the agreements
or conditions for its benefit contained herein. No such waiver or extension will
be effective unless signed in writing by the party against whom such waiver or
extension is asserted. The failure of any party to enforce any of the provisions
hereof will not be construed to be a waiver of the right of such party
thereafter to enforce such provisions.
12.7 Expenses. HNC and Sub will each bear their own legal fees,
accounting fees, brokers' fees investment banking, financial advisors' fees and
other expenses incurred with respect to this Agreement, and the transactions
contemplated hereby (the "TRANSACTION EXPENSES"); provided, however, that if the
Merger is successfully consummated, then up to a maximum of $100,000 of SLC's
verified Transaction Expenses will be paid by HNC, and HNC shall be entitled to
indemnification from the Escrow Shares in accordance with Section 11.2 for an
amount equal to the amount (if any) by which SLC's Transaction Expenses exceed
$100,000 (such excess being hereinafter called the "EXCESS TRANSACTION
EXPENSES"), and such indemnification shall not be subject to the Basket.
12.8 Short S Year Tax Return. The SLC Stockholders shall at their sole
cost and expense prepare, or cause to be prepared, all tax returns that are
required to be filed with respect to SLC for pre-Closing tax periods; provided
that neither any SLC stockholder nor any tax preparer or other agent (acting on
behalf of any such SLC stockholder, or acting on behalf of SLC without HNC's
prior written authorization) shall sign or file any such tax return or returns
with the Internal Revenue Service or with any other taxing authority. Any such
tax return (together with all related schedules, statements and supporting
documentation) shall, prior to its filing, be submitted by the Representative to
HNC by no later than December 1, 2000 and HNC and its accountants shall have the
sole right and authority to sign and file any such tax return with the Internal
Revenue Service or any other applicable taxing authority or government
authority. HNC and its accountants shall, prior to the filing of any such tax
return, be entitled to make such corrections and changes to such tax return as
HNC determines are required in order to correctly complete such tax return in
compliance with applicable law. HNC and its accountants shall have the right to
review all work papers and procedures used by the SLC stockholders, their tax
preparer or their accountant to prepare any such tax return.
12.9 Attorneys' Fees. Should suit be brought to enforce or interpret any
part of this Agreement, the prevailing party will be entitled to recover, as an
element of the costs of suit and not as damages, reasonable attorneys' fees to
be fixed by the court (including
65
<PAGE> 66
without limitation, costs, expenses and fees on any appeal). The prevailing
party will be entitled to recover its costs of suit, regardless of whether such
suit proceeds to final judgment.
12.10 Notices. All notices and other communications required or
permitted under this Agreement will be in writing and will be either hand
delivered in person, sent by telecopier, sent by certified or registered first
class mail, postage pre-paid, or sent by a nationally recognized express courier
service. Such notices and other communications will be effective upon receipt if
hand delivered or sent by telecopier, (b) five (5) days after mailing if sent by
mail, and (c) one (l) day after dispatch if sent by express courier, to the
following addresses, or such other addresses as any party may notify the other
parties in accordance with the notice provisions of this Section:
66
<PAGE> 67
If to HNC: If to SLC:
HNC Software Inc. Systems/Link Corporation
5930 Cornerstone Court West 2450 Route 130, Suite 124
San Diego, CA 92121 Cranbury, NJ 08512
Attention: President Attention: Chief Executive Officer
Fax Number: (619) 452-3220 Fax Number: (609) 409-9089
with a copy to: with a copy to:
Fenwick & West LLP Warren, Currier & Buchanan,
Two Palo Alto Square, Suite 800 a Limited Liability Company, P.A.
Palo Alto, CA 94306 57 Exchange Street
Attention: Kenneth A. Linhares, Esq. Portland, ME 04101-5020
Fax Number: (650) 494-1417 Fax Number: (207) 772-1279
or to such other address as a party may have furnished to the other parties in
writing pursuant to this Section 12.10.
12.11 Construction of Agreement. This Agreement has been negotiated by
the respective parties hereto and their attorneys and the language hereof will
not be construed for or against either party. A reference to a Section or an
exhibit will mean a Section in, or exhibit to, this Agreement unless otherwise
explicitly set forth. The titles and headings herein are for reference purposes
only and will not in any manner limit the construction of this Agreement which
will be considered as a whole.
12.12 No Joint Venture. Nothing contained in this Agreement will be
deemed or construed as creating a joint venture or partnership between any of
the parties hereto. No party is by virtue of this Agreement authorized as an
agent, employee or legal representative of any other party. No party will have
the power to control the activities and operations of any other and their status
is, and at all times will continue to be, that of independent contractors with
respect to each other. No party will have any power or authority to bind or
commit any other. No party will hold itself out as having any authority or
relationship in contravention of this Section.
12.13 Further Assurances. Each party agrees to cooperate fully with the
other parties and to execute such further instruments, documents and agreements
and to give such further written assurances as may be reasonably requested by
any other party to evidence and reflect the transactions described herein and
contemplated hereby and to carry into effect the intents and purposes of this
Agreement.
12.14 Absence of Third Party Beneficiary Rights. No provisions of this
Agreement are intended, nor will be interpreted, to provide or create any third
party beneficiary rights or any other rights of any kind in any client,
customer, affiliate,
67
<PAGE> 68
stockholder, or partner of any party hereto or any other person or entity unless
specifically provided otherwise herein, and, except as so provided, all
provisions hereof will be personal solely between the parties to this Agreement.
12.15 Public Announcement. Upon execution of this Agreement, HNC and SLC
will issue a press release approved by both parties announcing the Merger.
Thereafter, HNC may issue such press releases, and make such other disclosures
regarding the Merger, as it determines are required under applicable securities
laws or regulatory rules. HNC will submit all such press releases and other
disclosures to be issued prior to the Effective Time to SLC for SLC's review and
approval before HNC releases or files them and SLC agrees not to unreasonably
withhold, delay or condition its approval of any such press release or
disclosure. Prior to the publication of such press release (unless this
Agreement has been terminated), neither party will make any public announcement
relating to this Agreement or the transactions contemplated hereby and SLC will
use its reasonable efforts to prevent any trading in HNC Common Stock by its
officers, directors, employees, stockholders and agents.
12.16 Confidentiality. SLC and HNC recognize that they have received
confidential information concerning the others during the course of the Merger
negotiations and preparations. Accordingly, each of the parties hereto (a)
represents that it has not permitted the unauthorized disclosure of any
confidential information concerning the other parties hereto that was disclosed
during the course of such negotiations and preparations and was clearly
designated in writing as confidential at the time of disclosure and (b) agrees
to not make use of or permit to be used any such confidential information other
than for the purpose of effectuating the Merger and related transactions. The
obligations of HNC under this Section will terminate upon the Effective Time;
otherwise, the obligations of both parties under this Section 12.16 shall
survive the termination of this Agreement without Closing. The obligations of
the parties under this Section 12.16 will not apply to information that (i) is
or becomes part of the public domain other than through the actions (directly or
indirectly) of the receiving party, (ii) is disclosed by the disclosing party to
third parties without restrictions on disclosure, (iii) is received by the
receiving party from a third party without breach of a nondisclosure obligation
to the other party, (iv) is required to be disclosed by HNC under state and
federal securities laws, or (v) is required to be disclosed by subpoena or by
law (other than securities laws), in which case the receiving party will give
prompt notice to the disclosing party prior to such required disclosure so that
the disclosing party may seek an appropriate protective order. If this Agreement
is terminated, all copies of documents containing confidential information shall
be returned by the receiving party to the disclosing party.
12.17 Entire Agreement. This Agreement and the exhibits and schedules
hereto and the SLC Disclosure Letter and HNC Disclosure Letter constitute the
entire understanding and agreement of the parties hereto with respect to the
subject matter hereof and supersede all prior and contemporaneous agreements or
understandings, inducements or conditions, express or implied, written or oral,
between the parties with respect hereto other than the Confidentiality
Agreement. The express terms hereof
68
<PAGE> 69
control and supersede any course of performance or usage of the trade
inconsistent with any of the terms hereof.
[THE REMAINDER OF THIS PAGE HAS INTENTIONALLY BEEN LEFT BLANK]
69
<PAGE> 70
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
effective as of the date first above written.
HNC SOFTWARE INC. SYSTEMS/LINK CORPORATION
By: /s/ John Mutch By: /s/Diane E. Sammer
------------------------- -----------------------------
Title: CEO Title: President
SLC MERGER CORP.
By: /s/ Kenneth J. Saunders
-------------------------
Title: CFO
[SIGNATURE PAGE TO AGREEMENT AND PLAN OF REORGANIZATION]
70
<PAGE> 71
EXHIBIT INDEX
Exhibit A: Escrow Agreement
Exhibit B: Certificate of Incorporation of Surviving Corporation
Exhibit C-1: Investment Representation Letter (Accredited Investor)
Exhibit C-2 Investment Representation Letter (Non-accredited Investor)
Exhibit D: Opinion of Fenwick & West LLP
Exhibit E: Opinion of Warren, Currier & Buchanan
Exhibit F-1: Non-Competition Agreement (Three Year Term)
Exhibit F-2: Non-Competition Agreement (One-Year Term - Stockholders)
Exhibit F-3: Non-Competition Agreement (One-Year Term - Optionholders)
Schedule 6.5: SLC Indebtedness
Schedule 9.10: Persons Entering into Non-Competition Agreements
71
