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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND
EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 1999
-----------------
or
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND
EXCHANGE ACT OF 1934
For the transition period from _________ to _____________
Commission file number 0-26074
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SPYGLASS, INC.
(Exact name of registrant as specified in its charter)
Delaware 37-1258139
- --------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1240 E. Diehl Road, 4th Floor, Naperville, IL 60563 (630) 505-1010
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(Address of principal executive offices, zip code, registrant's
telephone number, including area code)
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(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such report) and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
--- ---
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class Outstanding at February 8, 2000
- --------------------------------------- ----------------------------------
Common Stock (par value $.01 per share) 17,083,108
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SPYGLASS, INC.
FORM 10-Q
INDEX
<TABLE>
<CAPTION>
Page No.
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<S> <C> <C>
PART I. FINANCIAL INFORMATION
Item 1. Consolidated Statements of Operations
Three Months Ended December 31, 1999 and 1998 3
Consolidated Balance Sheets
December 31, 1999 and September 30, 1999 4
Consolidated Statement of Changes in Stockholders' Equity
Three Months Ended December 31, 1999 5
Consolidated Statements of Cash Flows
Three Months Ended December 31, 1999 and 1998 6
Notes to the Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 10
Item 3. Quantitative and Qualitative Disclosures about
Market Risk 15
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 17
Item 6. Exhibits and Reports on Form 8-K 18
Signatures 19
</TABLE>
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SPYGLASS, INC.
Consolidated Statements of Operations
(unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED DECEMBER 31,
(In thousands, except per share amounts) 1999 1998
- --------------------------------------------------------------------------------
<S> <C> <C>
Net revenues:
Internet technology $ 3,311 $ 1,865
Service 4,902 3,907
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Total net revenues 8,213 5,772
Cost of revenues:
Internet technology 279 311
Service 3,318 1,898
-------- --------
Total cost of revenues 3,597 2,209
-------- --------
Gross profit 4,616 3,563
Operating expenses and other:
Sales and marketing 2,135 2,174
Research and development 1,582 1,821
General and administrative 2,095 1,578
Restructuring charge 859 --
-------- --------
Total operating expenses and other 6,671 5,573
-------- --------
Loss from operations (2,055) (2,010)
Gain on sale of Surfwatch subsidiary 27,380 --
Other income, net 528 317
-------- --------
Income (loss) before income taxes 25,853 (1,693)
Income tax provision 1,041 --
-------- --------
Net Income (loss) $ 24,812 $ (1,693)
======== ========
Net income (loss) per common share - basic $ 1.49 $ (0.11)
Net income (loss) per common share - diluted $ 1.32 $ (0.11)
Weighted average number of common
shares outstanding-basic 16,598 15,714
======== ========
Weighted average number of common
shares outstanding-diluted 18,775 15,714
======== ========
</TABLE>
See accompanying Notes to the Consolidated Financial Statements
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SPYGLASS, INC.
Consolidated Balance Sheets
<TABLE>
<CAPTION>
(Unaudited)
DECEMBER 31, SEPTEMBER 30,
(In thousands, except share amounts) 1999 1999
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ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 33,960 $ 18,613
Short-term investments 14,443 10,735
Marketable securities - JSB 26,400 --
Accounts receivable, net of allowance for
doubtful accounts of $489 and $494, respectively 6,055 8,731
Unbilled accounts receivable 1,508 899
Prepaid expenses and other current assets 2,179 2,420
-------- --------
Total current assets 84,545 41,398
Properties and equipment, net 3,793 3,897
Investment in restricted securities - JSB 4,000 --
Other assets 329 478
-------- --------
TOTAL ASSETS $ 92,667 $ 45,773
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 2,059 $ 2,396
Royalties payable 308 397
Deferred revenues 906 1,477
Income taxes payable 988 --
Deferred income taxes 3,783 --
Accrued compensation and related benefits 1,302 1,680
Accrued expenses and other liabilities 1,248 249
-------- --------
Total current liabilities 10,594 6,199
Long-term deferred revenues 110 326
-------- --------
Total liabilities 10,704 6,525
-------- --------
Stockholders' equity:
Preferred stock, $.01 par value, 2,000,000 shares authorized,
none issued -- --
Common stock, $.01 par value, 50,000,000 shares authorized,
17,005,280 and 16,581,731 shares issued and 16,995,566
and 16,504,517 shares outstanding, respectively 169 165
Additional paid-in capital 66,146 62,221
Retained earnings (deficit) 2,618 (22,194)
Accumulated Other Comprehensive Income 14,617 --
Treasury stock at cost, 9,714 and 77,214 shares, respectively (55) (56)
Unamortized value of restricted stock issued (1,532) (888)
-------- --------
Total stockholders' equity 81,963 39,248
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 92,667 $ 45,773
======== ========
</TABLE>
See accompanying Notes to the Consolidated Financial Statements
4
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SPYGLASS, INC.
Consolidated Statement of Changes in Stockholders' Equity
(Unaudited)
<TABLE>
<CAPTION>
TREASURY UNREALIZED UNAMORTIZED
COMMON STOCK ADDITIONAL RETAINED COMMON STOCK GAIN ON VALUE OF
------------------ PAID-IN EARNINGS ---------------- EQUITY RESTRICTED
(In thousands, except share amounts) SHARES AMOUNT CAPITAL (DEFICIT) SHARES AMOUNT SECURITIES STOCK ISSUED
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE AT SEPTEMBER 30, 1999 16,581,731 $ 165 $ 62,221 $(22,194) 77,214 $ (56) $ 0 $ (888)
Exercise of stock options 413,049 4 3,085
Issuance of restricted stock 10,500 840 (67,500) 1 (841)
Amortization of deferred compensation
relating to issuance of restricted stock 197
Unrealized gain on equity securities 14,617
Net Income 24,812
---------- ----- -------- -------- ------- ----- -------- --------
BALANCE AT DECEMBER 31, 1999 17,005,280 $ 169 $ 66,146 $ 2,618 9,714 $ (55) $ 14,617 $ (1,532)
========== ===== ======== ======== ======= ===== ======== ========
</TABLE>
See accompanying Notes to the Consolidated Financial Statements
5
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SPYGLASS, INC.
Consolidated Statements of Cash Flows
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED DECEMBER 31,
(In thousands) 1999 1998
- -------------------------------------------------------------------------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 24,812 $ (1,693)
Adjustments to reconcile net income (loss) to net
cash used in operating activities:
Gain on sale of Surfwatch subsidiary (27,380) --
Depreciation 468 507
Amortization 67 211
Loss on disposal of fixed assets 5 30
Amortization of deferred compensation related
to issuance of restricted stock 197 32
Bad debt provision 197 175
Changes in operating assets and liabilities:
Accounts and long-term receivables 1,194 (457)
Unbilled accounts receivable (609) (43)
Prepaid expenses, other current assets and other assets 248 (232)
Accounts payable (235) 96
Royalties payable (89) (129)
Deferred revenues (212) 291
Current tax liability 988 --
Accrued compensation and related benefits (193) (456)
Accrued expenses and other liabilities 57 (32)
-------- --------
Net cash used in operating activities (485) (1,700)
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Cash received from sale of Surfwatch subsidiary 17,000 --
Short-term investments, net activity (3,708) --
Net proceeds from sale of fixed assets 5 --
Capital expenditures (554) (82)
-------- --------
Net cash used in investing activities 12,743 (82)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from exercise of stock options 3,089 1,604
Sale of common stock to General Instrument -- 7,392
-------- --------
Net cash provided by financing activities 3,089 8,996
-------- --------
Net increase in cash and cash equivalents 15,347 7,214
Cash and cash equivalents at beginning of period 18,613 22,706
-------- --------
Cash and cash equivalents at end of period $ 33,960 $ 29,920
======== ========
</TABLE>
See accompanying Notes to the Consolidated Financial Statements
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
DECEMBER 31, 1999
NOTE 1. BASIS OF PRESENTATION
The accompanying financial statements have been prepared by the Company in
accordance with generally accepted accounting principles, although certain
information and footnote disclosures normally included in the Company's audited
annual financial statements have been condensed or omitted. In the opinion of
management, the accompanying unaudited financial statements include all
adjustments (consisting only of normal recurring items) necessary for a fair
presentation of the Company's financial position, results of operations and cash
flows at the dates and for the periods indicated. It is suggested that these
interim financial statements be read in conjunction with the audited financial
statements for the fiscal years ended September 30, 1999, 1998 and 1997 which
are included in the Company's Annual Report on Form 10-K for the fiscal year
ended September 30, 1999.
The results of operations for the three months ended December 31, 1999 are not
necessarily indicative of the results of operations to be expected for the full
fiscal year.
NOTE 2. PER SHARE INFORMATION
Earnings per share-basic was calculated by dividing net income by the weighted
average number of common shares outstanding during the period. Earnings per
share-diluted was calculated by dividing net income by the sum of the weighted
average number of common shares outstanding plus all common shares that would
have been outstanding if potentially dilutive common shares had been issued.
The table below reconciles the number of shares utilized in the earnings per
share calculations for the three months ended December 31, 1999, and 1998,
respectively.
<TABLE>
<CAPTION>
For the Three Months Ended
December 31,
1999 1998
(In thousands) --------------------------
<S> <C> <C>
Weighted average number of common shares outstanding - basic 16,598 15,714
Effect of dilutive securities, stock warrants 250 --
------ ------
Effect of dilutive securities, stock options 1,927 --
------ ------
Weighted average number of common shares outstanding - diluted 18,775 15,714
====== ======
</TABLE>
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NOTE 3. COMPREHENSIVE INCOME (LOSS)
During the three months ended December 31, 1999, total comprehensive income, net
of taxes, amounted to $39,429,000 compared to a comprehensive loss of $1,693,000
for the same period in 1998. The components of comprehensive income (loss) for
the three-month period ended December 31, 1999 and 1998 are as follows:
<TABLE>
<CAPTION>
Three months ended
December 31,
------------------
(In thousands) 1999 1998
------- --------
<S> <C> <C>
Net income (loss) $24,812 $(1,693)
Unrealized gains on securities, net of tax 14,617 --
------- --------
Comprehensive income (loss) $39,429 $(1,693)
======= =======
</TABLE>
Accumulated other comprehensive income at December 31, 1999 and September 30,
1999, which consisted of unrealized gain on securities, were $14,617 and $0,
respectively.
NOTE 4. DEFERRED COMPENSATION PLAN
Effective November 1, 1999 the Company instituted a nonqualified, unfunded
deferred compensation plan which permits officers and highly compensated
employees to elect to defer receipt of up to 75% of their annual salary and up
to 100% of their bonus and/or commission. Effective January 1, 2000, the Company
began to provide a matching contribution of $.50 for each dollar deferred up to
an annual per participant maximum of $10,000. Participants are 100% vested in
their deferral account and vest in the Company's matching account based on the
number of years in which they have participated in the plan. Acceleration to
100% of the Company's matching account may occur under certain circumstances
such as retirement, disability, death, or a change in control, as defined in the
plan. Gains or losses are posted to a participant's account in accordance with
their selection in certain measurement funds specified in the plan.
The accompanying consolidated balance sheet for December 31, 1999 includes the
deferred compensation liability, including investment earnings thereon, that are
owed to the participants. The accompanying consolidated balance sheet for
December 31, 1999 also include investments held in a newly established deferred
compensation trust. The Company believes that its funding of this trust is
adequate to provide, on a present value basis, for its respective future
liabilities created with respect to the combined projected deferral amounts
through December 31, 2000. These investments remain assets of the Company and
are available to general creditors of the Company in the event of the Company's
insolvency.
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NOTE 5. TRANSACTION WITH JSB SOFTWARE TECHNOLOGIES
On September 20, 1999 the Company signed a definitive agreement to sell
Surfwatch Software Inc. ("SurfWatch"), a subsidiary of the Company, to JSB
Software Technologies, plc ("JSB"). This transaction was completed on November
4, 1999 at which time Spyglass received consideration of $17 million cash and
800,000 shares of JSB (EASDAQ: JSBS) valued at $12 million on the date of the
transaction. This transaction resulted in a pre-tax gain of $27.4 million.
Additionally, as a result of this transaction, $25.4 million of the Company's
net operating loss carryforwards was utilized to offset most of the related tax
liability.
NOTE 6. RESTRUCTURING CHARGE
In the first quarter of fiscal 2000 the Company recorded a non-recurring
restructuring charge consisting primarily of severance and related personnel
costs associated with the organizational realignment of the Company's
professional services group. This realignment was completed in November 1999 and
resulted in a restructuring charge of $859,000. Approximately $254,000 of this
restructuring charge was included in accrued expenses and other liabilities at
December 31, 1999.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
Spyglass, Inc. ("Spyglass" or the "Company") was organized as an
Illinois corporation in February 1990 and reincorporated in Delaware in May
1995. Spyglass entered the Internet market during fiscal 1994 and, from fiscal
1994 through fiscal 1996, focused its efforts on developing, marketing and
distributing Internet client and server technologies for incorporation into a
variety of Internet-based products and services. Since fiscal 1997, the Company
has been focusing on the development, marketing and distribution of its
technologies and services to the information appliance market, and, beginning
May 1999, increased its focus on the interactive television ("ITV") and mobile
data ("MD") markets.
Spyglass provides its customers with strategic Internet consulting,
software and professional services that enable them to rapidly develop and
deploy cost-effective Internet-enabled information appliances and Internet-based
services. Spyglass Professional Services include custom engineering for
defining, developing and delivering complete, end-to-end project solutions.
Spyglass solutions help customers Internet-enable a variety of devices as well
as deliver HTML-based applications to information appliances such as television
set-top boxes, televisions, gaming devices, Internet screen phones, wireless
phones, navigation devices, office equipment, medical devices and industrial
controls.
The Company licenses technology from a number of third-party vendors
for incorporation into the Company's products and pays license fees and/or
royalties for such use. These fees are reflected in cost of Internet technology
revenues.
On September 20, 1999 the Company signed a definitive agreement to sell
SurfWatch Software Inc. ("SurfWatch") to JSB Software Technologies, plc ("JSB").
The transaction was completed on November 4, 1999, and was effected through the
sale of all the issued and outstanding capital stock of SurfWatch for
consideration of $17 million cash and $12 million in JSB equity securities. This
transaction resulted in a pre-tax gain of $27.4 million. Spyglass will continue
to sell SurfWatch products in the ITV market under a reseller agreement with JSB
but will no longer market those products to other content filtering markets
including education, corporate and home markets. Spyglass has also retained
ownership of a patent received from the U.S. Patent Office for its core
filtering technology and processes and has licensed the patent to JSB.
In the first quarter of fiscal 2000 the Company recorded a
non-recurring restructuring charge consisting primarily of severance and related
personnel costs associated with the organizational realignment of the Company's
professional services group. This realignment was completed in November 1999 and
resulted in a restructuring charge of $859,000. Approximately $254,000 of this
restructuring charge was included in accrued expenses and other liabilities at
December 31, 1999.
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Management believes that its results of operations, without giving
effect to these one-time events, present a more accurate presentation of the
Company's ongoing business. Accordingly, the following analyses for the quarter
ended December 31, 1999, including amounts and percentages, exclude the
$27,380,000 gain from the sale of SurfWatch and the related state and
alternative minimum tax provisions of $988,000, as well as the $859,000
restructuring charge.
RESULTS OF OPERATIONS
QUARTER ENDED DECEMBER 31, 1999 COMPARED WITH QUARTER ENDED DECEMBER 31, 1998
Internet technology revenues for the quarter ended December 31, 1999
increased $1,446,000 or 78%, to $3,311,000 from $1,865,000 for the quarter ended
December 31, 1998. This increase was due to an increase in the number and dollar
value of licensing contracts signed during the quarter. In addition, Internet
technology revenues for the quarter ended December 31, 1998 were negatively
impacted by some licensing and distribution agreements with device manufacturers
that did not close as expected before quarter-end. Management expects fiscal
2000 Internet technology revenues to exceed fiscal 1999 Internet technology
revenues excluding SurfWatch revenues, but also expects that the Company will
continue to experience quarter to quarter variances due its reliance on the
execution of a relatively limited number of large licensing agreements, and the
associated uncertainty of the sales cycle related to those transactions. As a
result, if one or more of these significant license agreements do not close
within any quarter, the Company's revenue and earnings for that quarter would be
adversely affected.
Service revenues for the quarter ended December 31, 1999, which include
both professional services revenues and revenues from customer support
agreements, increased $995,000 or 25%, to $4,902,000 from $3,907,000 for the
quarter ended December 31, 1998. This increase was primarily due to revenues
generated in the quarter ended December 31, 1999 from the Company's fully
operational Solution Center in Lexington, Massachusetts, which services Motorola
(formerly General Instrument) with dedicated resources in a new state-of the-art
facility. This Solution Center was established in the first quarter of the prior
fiscal year and, as such, generated little revenue during that period. The
Company expects quarterly professional service revenues to increase in absolute
dollars, and as a percentage of total net revenues, during the remainder of
fiscal 2000 when compared to corresponding periods in the prior fiscal year.
Gross profit as a percentage of total net revenues was 56% for the
quarter ended December 31, 1999 compared to 62% for the quarter ended December
31, 1998. This decline was a result of a reduction in service revenue gross
margin from 51% to 32% in the quarters ended December 31, 1998 and 1999,
respectively, only partially offset by an increase in technology revenue gross
margin from 83% to 92% in the same quarters. The majority of the
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decline in service revenue gross margin was associated with a change in the
staffing of the Spyglass Professional Services organization. Beginning with
fiscal 2000, there is a dedicated professional service group, and all costs
associated with that group are reflected in cost of services revenue. In the
prior fiscal year, exclusive of Solution Centers employees, all engineers were
treated as research and development staff, and only the cost of their time spent
on customer engagements was reclassified to cost of services revenue. As a
result, time spent on activities such as training, meetings and other
administrative functions remained in research and development. Technology
revenue gross margin increased primarily due to a reduction in royalty costs
associated with third-party software.
Gross profit, as a percentage of total net revenues, is expected to be
lower for the remainder of fiscal 2000 than in fiscal 1999 as service revenues,
which typically have lower gross margins than technology revenues, will continue
to grow as a percentage of total revenues. This trend, however, could fluctuate
from quarter to quarter as the quantity and value of signed technology license
agreements may vary.
Sales and marketing expenses for the quarters ended December 31, 1999
and December 31, 1998 were virtually the same in absolute dollars, but decreased
as a percentage of total net revenues to 26% from 38%. An increase in sales
commissions due to higher revenues and increased recruiting expenses were offset
by decreases in marketing program related expenses due in part to the
divestiture of SurfWatch. Sales and marketing expenses for the remainder of
fiscal 2000 are expected to increase slightly with the hiring of new sales
personnel and with the launching of new advertising and public relations
campaigns related to the increased focus of the Company on the ITV and MD
markets.
Research and development expenses for the quarter ended December 31,
1999, decreased $239,000 or 13%, to $1,582,000 from $1,821,000 for the quarter
ended December 31, 1998, and decreased as a percentage of total net revenues to
19% from 32%. Most of this decrease was related to shifting of costs related to
the creation of a dedicated professional services staff in fiscal 2000, as
discussed above. The Company anticipates that its direct investment in research
and development will decrease in absolute dollars and as a percentage of revenue
during the remainder of fiscal 2000 as compared to the quarter ended December
31, 1999. This decrease is primarily a result of reduced engineering staff
coinciding with the sale of SurfWatch and the shifting of costs mentioned above.
The Company believes that the planned level of investment, when combined with
its retained ownership of the engineering developments of its professional
service engineers, will provide sufficient funding of its research and
development activities for the remainder of fiscal 2000.
General and administrative expenses for the quarter ended December 31,
1999 increased $517,000, or 33%, to $2,095,000 from $1,578,000 for the quarter
ended December 31, 1998 but remained virtually the same as a percentage of total
net revenues. The increase in absolute dollars is primarily due to an increase
in outside consultant expenses of $422,000 due to patent litigation and
accounting services and consulting, and an increase in facility related costs of
$48,000, due in part to new facilities in Lexington and Menlo Park. The Company
expects
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general and administrative expenses to decline for the remaining quarters in
fiscal 2000, as compared to the quarter ended December 31, 1999, in part due to
the sale of SurfWatch.
The Company recorded an income tax provision of $53,000 related to an
increase in the valuation allowance that resulted from foreign tax withholdings
for the quarter ended December 31, 1999. No income tax benefit for the quarter
ended December 31, 1998 was recorded. The Company believes that it is
appropriate to defer recognition of potential tax benefits until such time when
its return to profitability can provide assurance that these tax benefits will
be realized.
LIQUIDITY AND CAPITAL RESOURCES
As of December 31, 1999, the Company had no debt and had cash, cash
equivalents and short-term investments of $48,400,000 and working capital of
$73,900,000. The Company's operating activities used cash of $485,000 and
$1,700,000 for the three months ended December 31, 1999 and December 31, 1998,
respectively.
In November 1999, the Company received $17,000,000 in cash and equity
securities of JSB valued at $12,000,000 on the date of the transaction, for the
purchase by JSB of all the issued and outstanding capital stock of SurfWatch.
The Company's accounts receivable and unbilled accounts receivable
balance decreased to $7,563,000 at December 31, 1999 from $9,630,000 at
September 30, 1999. This decrease was primarily due to lower revenues in the
quarter ended December 31, 1999 as compared to the quarter ended September 30,
1999, as well as the transfer to JSB of SurfWatch receivables due to the sale of
that subsidiary.
The Company's capital expenditures totaled $554,000 and $82,000 for the
three months ended December 31, 1999 and 1998, respectively. The increase was
due primarily to expenditures relating to the two Solution Centers which have
required the purchases of computer hardware, office furniture and leasehold
improvements associated with office expansions. In addition, there were
expenditures on computer equipment at the Company's other locations. The Company
does not currently have any material capital expenditure commitments for the
remainder of fiscal 2000.
The Company believes that its current cash and cash equivalents,
together with funds expected to be generated from operations, will be sufficient
to finance the Company's operations through at least the twelve-month period
ending December 31, 2000.
FUTURE OPERATING RESULTS
This Quarterly Report on Form 10-Q contains a number of forward-looking
statements. Any statements contained herein (including without limitation
statements to the effect that the Company or its management "believes",
"expects", "anticipates", "plans" and similar expressions) that relate to future
events or conditions should be considered forward-looking statements. There are
a number of important factors that could cause the Company's actual
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results to differ materially from those indicated by such forward-looking
statements. These factors include, without limitation, those set forth below.
During fiscal 1997, the Company announced a new strategic focus on the
information appliance market. The Company has been focused on the development,
marketing and distribution of its technologies and services to the broader
information appliance market, and since May 1999, has increased its focus on the
ITV and MD markets. Because this is a relatively new and undeveloped market,
there can be no assurance as to the extent of the demand for the Company's
products and services or the extent to which the Company will be successful in
penetrating this market.
The Company derived approximately 63% of its revenues for the quarter
ended December 31, 1999 from four customers. As the Internet information
appliance market develops, the Company expects to continue to derive a
significant portion of its revenues from a relatively limited number of
customers. Although the Company expects that its reliance on any particular
customer will decline as the information appliance market develops and its
customer base expands, the failure of the Company to enter into a sufficient
number of licensing agreements or sustain revenues from major customers during a
particular period could have a material adverse effect on the Company's future
operating results.
The Company's future results of operations will also be largely
dependent upon a number of factors relating to the further development and
acceptance of the Internet as a commercial market. In particular, commercial use
of the Internet continues to be constrained by the need for reliable processes
such as security measures for electronic commerce as well as the need for
regularly available customer support. In addition, the market for Internet
software products is characterized by rapidly changing technology, evolving
industry standards and customer demands, and frequent product introductions and
enhancements, which make it difficult to predict whether the initial commercial
acceptance of the Company's solutions can be sustained over a period of time.
The market for Internet technologies and services is extremely
competitive, and competition is likely to increase in the future. The Company
currently faces competition from other information appliance technology vendors
and service providers such as BSQUARE, Liberate Technologies, Microsoft, OpenTV,
Oracle, Phone.com, Sun Microsystems, on-line service companies, Internet access
providers and networking software companies. Additionally, the Company considers
a significant source of competition for its Internet solutions to be the
prospect company's internal resources.
The Company has provided its solutions to content providers, service
operators and device manufacturers within the cable and satellite television,
wireless, telecommunications, office equipment, automotive and industrial
control markets who then deploy products and/or services within these markets.
The success of the Company is therefore dependent in large part on the
performance of its customers and the market acceptance of its customers'
products and services, which is outside of the Company's control.
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The Company from time to time receives notices alleging that its
products infringe third-party proprietary rights. Patent and similar litigation
frequently is complex and expensive and its outcome can be difficult to predict.
If, as a result of proprietary rights infringements by any of the Company's
products, the Company is required to discontinue sales of certain products,
eliminate certain features on its products, or pay royalties to another party,
the Company's future operating results could be materially adversely affected.
The Company's quarterly operating results have varied and they may
continue to vary significantly depending on factors such as the timing of
significant license or service agreements, the terms of the Company's licensing
and service arrangements with its customers and the timing of new product
introductions and upgrades by the Company and its competitors. The Company
typically structures its license agreements with customers to require
commitments for a minimum number of licenses, and license revenues are
recognized as the committed licenses are purchased. Additional revenues from a
customer typically will not be earned unless and until the initial committed
levels are exceeded. The Company's revenues in any quarter will depend in
significant part on its ability to license technologies to new customers and
provide services to new or existing customers in that quarter. The Company
typically structures its professional service agreements with customers to
recognize revenue based on the percentage of completion method of accounting.
The Company's expense levels are based in part on expectations of future revenue
levels and are difficult to adjust in the short term. Any shortfall in expected
revenue could therefore have a disproportionate adverse effect on the Company's
operating results in any given period.
IMPACT OF YEAR 2000
The Company has not experienced any material problems with its computer
systems relating to distinguishing twenty-first century dates from twentieth
century dates, which are generally referred to as year 2000 problems. The
Company is also not aware of any material year 2000 problems with our vendors,
business service providers, customers or distribution partners. Accordingly, the
Company does not anticipate incurring material expenses or experiencing any
material operational disruptions as a result of any year 2000 problems.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company exports products to diverse geographic areas. Substantially
all foreign sales, however, are transacted in U.S. dollars and therefore the
Company is not exposed to significant foreign currency market risk.
Additionally, except as noted below, the Company does not believe it has any
material market risk exposures with regard to foreign derivatives or other
financial instruments.
As a result of the sale of SurfWatch to JSB Technologies, plc (JSB) on
November 4,1999, Spyglass received 800,000 shares of JSB common stock
(EASDAQ:JSBS) which on the date of the transaction were valued at $12,000,000.
As of December 31, 1999, the market value
15
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of these shares has increased to approximately $39,600,000. Due to restrictions
on the sale of these shares, Spyglass has reflected a partial increase in the
value of its investment in these securities to $30,400,000 with the unrealized
gain, net of tax, reflected in the Shareholders' Equity section of the
Consolidated Balance Sheet. Spyglass' investment in these securities is subject
to volatility in economic and market conditions.
16
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PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On January 28, 1999, the Company and certain of its officers and
directors were named as defendants in a purported class action lawsuit filed in
the United States District Court for the Northern District of Illinois (Eastern
Division). Thereafter, eleven substantially similar actions were filed in the
same Court. All complaints principally claimed that the defendants violated
federal securities laws allegedly by making false and misleading statements and
by failing to disclose material information concerning the Company's financial
performance during the purported class period of October 21, 1998 through
January 4, 1999. The complaints further alleged that certain officers and/or
directors of the Company sold stock in the open market during the class period
and sought unspecified damages. On April 20, 1999 the Court granted the
plaintiff's motion to consolidate the lawsuits into a single complaint, which
plaintiffs filed on May 7, 1999. On May 21, 1999, the defendants filed a motion
to dismiss the consolidated amended complaint as against all defendants, which
the plaintiffs opposed on June 10, 1999. On July 20, 1999 the Court denied the
defendants' motion to dismiss and ordered the case to proceed to discovery. On
August 4, 1999, defendants filed their answer to the consolidated amended
complaint, denying all liability. Thereafter, although the Company and all of
the individual defendants continued to deny any wrongdoing, an agreement to
settle the matter was reached and preliminarily approved by the Court on
December 23, 1999. The entire settlement amount of $1.55 Million was paid into
escrow by the Company's Directors and Officers Liability Insurer. The settlement
will become effective upon receiving final Court approval and provides that all
claims against the Company and the individual defendants will be dismissed at
that time. The Court has scheduled a final approval hearing for March 24, 2000.
On June 25, 1999, Spyglass, Inc. filed a complaint with the U.S.
District Court for the Northern District of California. The Complaint alleges
that N2H2 Incorporated ("N2H2"), of Seattle, Washington, has infringed Spyglass'
U.S. Patent No. 5,884,033 for an Internet filtering system. The complaint asks
the Court both to enjoin further infringement by N2H2 and to award monetary
damages. On August 2, 1999 N2H2 filed its answer, alleging that the
patent-in-suit was invalid, unenforceable, and did not infringe and seeking an
award of attorneys' fees for Spyglass' filing of the complaint. On January 18,
2000, Spyglass and N2H2 entered into a settlement agreement. Under the terms of
the settlement agreement, Spyglass has granted N2H2 a non-exclusive license
under the patent-in-suit in exchange for an undisclosed amount of money. As a
result of the settlement, the lawsuit was dismissed by Court on January 26,
2000.
On December 29, 1999, Spyglass, Inc. received formal notice of an
alleged breach by Spyglass of its obligations under its Professional Services
Agreement with New GMS, Inc. dated November 13, 1998. This notice requested
Spyglass to cure the purported breach on or prior to January 31, 2000. On
January 10, 2000 Spyglass responded to the notice by indicating that it had not
breached the agreement and that it would continue to perform its obligations
under the agreement. On February 3, 2000, New GMS, Inc. informed Spyglass that
the contract was terminated as of January 31, 2000 due to Spyglass' failure to
cure its purported breach. New
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GMS, Inc. also indicated a desire to resolve the matter informally. Spyglass
responded on February 7, 2000 indicating that it was not in breach of its
agreement with New GMS, Inc. but was willing to discuss an amicable resolution.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits required by Item 601 of Regulation S-K
The exhibits are listed in the accompanying Index to Exhibits immediately
following the signature page.
(b) Reports on Form 8-K
None
18
<PAGE> 19
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Spyglass, Inc.
Registrant
Date: February 11, 2000 /s/ Gary Vilchick
----------------------------------
Gary Vilchick
Executive Vice President, Finance,
Administration and Operations and
Chief Financial Officer
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INDEX TO EXHIBITS
Exhibit No. Description
- ----------- -----------
2.1 Stock Purchase Agreement By and Among JSB Software Technologies
plc, Spyglass, Inc. and SurfWatch Software, Inc.
10.32 Spyglass, Inc. Deferred Compensation Plan*
27 Financial Data Schedule
* Management contract or compensatory plan or arrangement filed as an Exhibit to
this form pursuant to Items 14(a) and 14(c) of Form 10Q.
20
<PAGE> 1
EXHIBIT 2.1
STOCK PURCHASE AGREEMENT
BY AND AMONG
JSB SOFTWARE TECHNOLOGIES plc,
SPYGLASS, INC.
AND
SURFWATCH SOFTWARE, INC.
SEPTEMBER 20, 1999
<PAGE> 2
TABLE OF CONTENTS
Page
ARTICLE I. THE PURCHASE AND SALE OF SHARES ................................ 2
1.1. PURCHASE AND SALE OF THE SHARES .................................. 2
1.2. CLOSING .......................................................... 2
1.3. CONSIDERATION .................................................... 2
1.4. DELIVERIES AT THE CLOSING ........................................ 3
ARTICLE II. REPRESENTATIONS AND WARRANTIES OF PARENT AND TARGET ........... 3
2.1. ORGANIZATION, STANDING AND POWER ................................. 4
2.2. CAPITALIZATION; TITLE TO THE SHARES .............................. 4
2.3. AUTHORITY ........................................................ 5
2.4. SUFFICIENCY OF ASSETS ............................................ 5
2.5. FINANCIAL STATEMENTS ............................................. 6
2.6. ABSENCE OF CERTAIN CHANGES ....................................... 6
2.7. ABSENCE OF UNDISCLOSED LIABILITIES ............................... 6
2.8. LITIGATION ....................................................... 7
2.9. RESTRICTIONS ON BUSINESS ACTIVITIES .............................. 7
2.10 GOVERNMENTAL AUTHORIZATION ...................................... 7
2.11 PROPERTY ........................................................ 7
2.12 INTELLECTUAL PROPERTY ........................................... 7
2.13 ENVIRONMENTAL MATTERS ........................................... 9
2.14 TAX MATTERS ..................................................... 11
2.15 EMPLOYEE BENEFIT PLANS .......................................... 13
2.16 CERTAIN AGREEMENTS AFFECTED BY THIS AGREEMENT ................... 14
2.17 EMPLOYEE MATTERS ................................................ 14
2.18 INTERESTED PARTY TRANSACTIONS ................................... 16
2.19 COMPLIANCE WITH LAWS ............................................ 16
2.20 MINUTE BOOKS .................................................... 16
2.21 COMPLETE COPIES OF MATERIALS .................................... 16
2.22 BROKERS' AND FINDERS' FEES ...................................... 17
2.23 VOTE REQUIRED ................................................... 17
2.24 BOARD APPROVAL .................................................. 17
2.25 ACCOUNTS RECEIVABLE ............................................. 17
2.26 CUSTOMERS AND SUPPLIERS ......................................... 17
2.27 MATERIAL CONTRACTS .............................................. 17
2.28 NO BREACH OF MATERIAL CONTRACTS ................................. 18
2.29 MATERIAL THIRD PARTY CONSENTS ................................... 19
2.30 EXPORT CONTROL LAWS ............................................. 19
2.31 PRODUCT RELEASES ................................................ 19
2.32 YEAR 2000 . ..................................................... 19
2.33 SECURITIES LAW MATTERS .......................................... 19
2.34 REPRESENTATIONS COMPLETE ........................................ 19
ARTICLE III. REPRESENTATIONS AND WARRANTIES OF ACQUIROR ................... 20
3.1. ORGANIZATION, STANDING AND POWER ................................. 20
3.2. AUTHORITY ........................................................ 20
3.3. CAPITALIZATION; ACQUIROR SHARES .................................. 20
3.4. FINANCIAL STATEMENTS ............................................. 21
3.5. LITIGATION ....................................................... 21
3.6. FILINGS .......................................................... 21
3.7. BROKERS' AND FINDERS' FEES ....................................... 22
ARTICLE IV. CONDUCT PRIOR TO THE CLOSING DATE ............................. 22
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4.1. CONDUCT OF BUSINESS............................................. 22
4.2. RESTRICTION ON CONDUCT OF THE BUSINESS.......................... 23
4.3. NO SOLICITATION................................................. 25
ARTICLE V. ADDITIONAL AGREEMENTS......................................... 25
5.1. LOCK-UP AGREEMENT............................................... 25
5.2. ACCESS TO INFORMATION........................................... 25
5.3. CONFIDENTIALITY................................................. 26
5.4. PUBLIC DISCLOSURE............................................... 26
5.5. CONSENTS; COOPERATION........................................... 26
5.6. LEGAL REQUIREMENTS.............................................. 27
5.7. TRANSFERRED EMPLOYEES........................................... 28
5.8. EMPLOYEE PLANS.................................................. 28
5.9. COVENANT NOT TO COMPETE......................................... 28
5.10. COMMERCIALLY REASONABLE EFFORTS AND FURTHER ASSURANCES....... 29
5.11. SHARES LISTING............................................... 30
5.12. INTERIM SERVICES AGREEMENT................................... 30
5.13. PRICING AGREEMENT............................................ 30
5.14. WORKING CAPITAL.............................................. 30
5.15. INTER-COMPANY BALANCES....................................... 30
5.16. AUDITED FINANCIAL STATEMENTS................................. 30
ARTICLE VI. CONDITIONS TO THE CLOSING.................................... 31
6.1. CONDITIONS TO OBLIGATIONS OF EACH PARTY TO EFFECT THE CLOSING... 31
6.2. ADDITIONAL CONDITIONS TO OBLIGATIONS OF PARENT.................. 31
6.3. ADDITIONAL CONDITIONS TO THE OBLIGATIONS OF ACQUIROR............ 32
ARTICLE VII. TERMINATION, AMENDMENT AND WAIVER........................... 33
7.1. TERMINATION..................................................... 33
7.2. EFFECT OF TERMINATION........................................... 34
7.3. EXPENSES AND TERMINATION FEES................................... 34
7.4. AMENDMENT....................................................... 35
7.5. EXTENSION; WAIVER............................................... 35
ARTICLE VIII. INDEMNIFICATION............................................ 35
8.1. INDEMNIFICATION................................................. 35
ARTICLE IX. GENERAL PROVISIONS........................................... 38
9.1. SURVIVAL........................................................ 38
9.2. NOTICES......................................................... 38
9.3. INTERPRETATION.................................................. 39
9.4. COUNTERPARTS.................................................... 39
9.5. ENTIRE AGREEMENT; NONASSIGNABILITY; PARTIES IN INTEREST......... 39
9.6. SEVERABILITY.................................................... 39
9.7. REMEDIES CUMULATIVE............................................. 40
9.8. RULES OF CONSTRUCTION........................................... 40
9.9. GOVERNING LAW................................................... 40
ii
<PAGE> 4
STOCK PURCHASE AGREEMENT
This STOCK PURCHASE AGREEMENT (this "AGREEMENT") is made and
entered into as of September 20, 1999, by and between JSB Software Technologies
plc, a plc incorporated in England and Wales under the Companies Act of 1985
("ACQUIROR"), Spyglass, Inc., a Delaware corporation ("PARENT") and SurfWatch
Software, Inc., a California corporation ("TARGET").
RECITALS
A. Target is engaged in the business of developing,
marketing, distributing and selling software and services for the filtering of
content accessible via the Internet (the "BUSINESS").
B. Parent owns all of the outstanding capital stock of
Target, consisting of 1,000 shares of common stock, par value $.01 per share
(the "SHARES").
C. Parent desires to sell to Acquiror, and Acquiror desires
to acquire from Parent, the Shares, upon the terms and subject to the conditions
set forth herein.
NOW, THEREFORE, in consideration of the covenants,
representations and other agreements set forth herein, and for other good and
valuable consideration, the parties agree as follows:
ARTICLE I.
THE PURCHASE AND SALE OF SHARES
1.1. Purchase and Sale of the Shares. Upon the terms and
subject to the conditions set forth in this Agreement, Acquiror agrees to
purchase from Parent, and Parent agrees to sell and deliver to Acquiror, the
Shares.
1.2. Closing. The closing of the transactions contemplated
hereby (the "CLOSING") shall take place on October 29, 1999 or, if all of the
conditions to the obligations of the parties hereto to consummate the
transactions contemplated at the Closing have not been satisfied or waived by
such date, on the date of the satisfaction or waiver of all such conditions
(excluding the delivery of any documents to be delivered at the Closing) set
forth in Article VI (the date and time of the Closing is herein called the
"CLOSING DATE"), provided, that Acquiror shall give Parent at least three (3)
business days prior notice of the satisfaction of the closing condition set
forth in Sections 6.2(c) and 6.3(g) hereof. The Closing shall take place at the
offices of Brobeck Phleger & Harrison LLP, 1633 Broadway, 47th Floor, New York,
NY 10019, or at such other location as Acquiror and Parent may mutually agree.
1.3. Consideration. In consideration of the sale of the
Shares at Closing, Acquiror shall at the Closing:
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<PAGE> 5
(i) pay to Parent the amount of U.S. $17,000,000 in cash by
wire transfer of immediately available funds to an account
designated by Parent at least two (2) business days prior to the
Closing Date; and
(ii) issue to Parent a number of ordinary shares of Acquiror
as determined by dividing U.S. $12,000,000 (the "STOCK
CONSIDERATION") by (unless the offering price is in U.S. Dollars)
the product of (x) the initial offering price on the date of
admission to trading of the shares (whether in share form or via a
depositary receipt) on EASDAQ or the London Stock Exchange and (y)
the closing mid-point spot exchange rate for British Pounds and
U.S. Dollars for such date as reported in the Financial Times
(London edition) on the next publication date following such date
or, if the offering price is in U.S. Dollars, that number of
ordinary shares as determined by dividing U.S. $12,000,000 by the
initial offering price (the "ACQUIROR SHARES"). In the event that
the number of Acquiror Shares, together with any other ordinary
shares or other instruments convertible into or representing
ordinary shares held by Parent or its affiliates or subsidiaries,
aggregate greater than 29.9% of the outstanding ordinary shares of
Acquiror on the Closing Date, Acquiror shall pay Parent on the
Closing Date an amount in cash (and decrease the amount of the
Stock Consideration by such amount) such that the number of
ordinary shares issued to Parent pursuant to this clause (ii)
shall not cause such event to occur.
1.4. Deliveries at the Closing.
(a) Parent shall deliver to Acquiror the certificates representing
the Shares, accompanied by stock transfer forms in favor of Acquiror or, if
required by Acquiror, in favor of one of its subsidiaries, in proper form duly
executed and attested to the satisfaction of Acquiror and its counsel.
(b) Parent and Target shall deliver to Acquiror all other
documents and instruments required hereunder to be delivered by (or at the
direction of) Parent or Target to Acquiror at the Closing.
(c) Acquiror shall (i) deliver by wire transfer of immediately
available funds an amount equal to U.S. $17,000,000, plus any additional amount
payable under Section 1.3(ii), if any, to an account designated by Parent, (ii)
deliver to Parent a stock certificate representing the Acquiror Shares and (iii)
deliver to Parent all other documents and instruments required hereunder to be
delivered by Acquiror to Parent at the Closing.
ARTICLE II.
REPRESENTATIONS AND WARRANTIES OF PARENT AND TARGET
Any reference to any event, change, condition or effect being
"MATERIAL" with respect to any entity or group of entities means any event,
change, condition or effect which (i) is material to the condition (financial or
otherwise), properties, assets (including intangible assets), liabilities,
business, prospects, operations or results of operations of such entity or group
of entities and its or their subsidiaries, taken as a whole or (ii) would
prevent or materially alter or
3
<PAGE> 6
delay any of the transactions contemplated by this Agreement. Any reference to a
"MATERIAL ADVERSE EFFECT" with respect to any entity or group of entities means
any event, change or effect that (x) is materially adverse to the condition
(financial or otherwise), properties, assets (including intangible assets),
liabilities, business, prospects, operations or results of operations of such
entity or group of entities and its or their subsidiaries, taken as a whole or
(y) would prevent or materially alter or delay any of the transactions
contemplated by this Agreement.
Any reference to a party's "KNOWLEDGE" means (i) with respect to
any natural person, the actual knowledge, after reasonable inquiry, of such
person, or (ii) with respect to any corporation or entity, the actual knowledge
of such party's officers and directors provided that such persons shall have
made reasonable inquiry of those employees of such party whom such officers and
directors reasonably believe would have actual knowledge of the matters
represented.
Except as disclosed in the disclosure schedule (referencing the
appropriate section and paragraph numbers) delivered by Parent and Target to
Acquiror simultaneously with the execution and delivery of this Agreement (the
"DISCLOSURE SCHEDULE"), Parent and Target, jointly and severally, represent and
warrant to Acquiror as follows:
2.1. Organization, Standing and Power. Each of Parent and Target is
a corporation duly organized, validly existing and in good standing under the
laws of its jurisdiction of organization. Each of Parent and Target has the
corporate power to own its properties and to carry on the Business as now being
conducted and as currently proposed to be conducted and is duly qualified to do
business and is in good standing in each jurisdiction in which the failure to be
so qualified and in good standing would have a Material Adverse Effect on
Target. Target has delivered a true and correct copy of the Articles of
Incorporation and Bylaws of Target, as amended to date, to Acquiror. Target is
not in violation of any of the provisions of its Articles of Incorporation and
Bylaws or equivalent organizational documents. Target does not directly or
indirectly own any equity or similar interest in, or any interest convertible or
exchangeable or exercisable for, any equity or similar interest in, any
corporation, partnership, joint venture or other business association or entity.
2.2. Capitalization; Title to the Shares. The authorized capital
stock of Target consists of 1,000 shares of common stock, par value $.01 per
share, of which there were issued and outstanding as of the close of business on
the date hereof 1,000 shares of common stock, all of which are owned by Parent.
There are no other outstanding shares of capital stock or voting securities and
no outstanding commitments to issue any shares of capital stock or voting
securities of Target. All outstanding shares of Target capital stock are duly
authorized, validly issued, fully paid and non-assessable and are free of any
liens or encumbrances, and are not subject to preemptive rights or rights of
first refusal created by statute, the Articles of Incorporation or Bylaws of
Target or any agreement to which Parent or Target is a party or by which it is
bound. Upon the Closing, Acquiror will receive good and valid title to the
Shares, subject to no liens or encumbrances retained, granted or permitted by
Parent or Target. There are no other options, warrants, calls, rights,
commitments or agreements of any character to which Parent or Target is a party
or by which either is bound obligating Parent or Target to issue, deliver, sell,
repurchase or redeem, or cause to be issued, delivered, sold, repurchased or
redeemed, any shares of capital stock of Target or obligating Parent or Target
to grant, extend,
4
<PAGE> 7
accelerate the vesting of, change the price of, or otherwise amend or enter into
any such option, warrant, call, right, commitment or agreement. Except for the
agreements contemplated by this Agreement, there are no contracts, commitments
or agreements in effect relating to voting, purchase or sale of Target's capital
stock between or among Parent and any of its securityholders.
2.3. Authority. Parent and Target have all requisite power and
authority to enter into this Agreement and to consummate the transactions
contemplated hereby. The execution and delivery of this Agreement, and the
consummation of the transactions contemplated hereby, have been duly authorized
by all necessary corporate action on the part of Parent and Target. This
Agreement has been duly executed and delivered by Parent and Target and
constitutes the valid and binding obligation of Parent and Target enforceable
against Parent and Target in accordance with its terms, except to the extent
that enforceability may be limited by applicable bankruptcy, reorganization,
insolvency, moratorium or other laws affecting the enforcement of creditors'
rights generally and by general principles of equity, regardless of whether such
enforceability is considered in a proceeding at law or in equity. Except as set
forth in Schedule 2.3 of the Disclosure Schedule, the execution and delivery of
this Agreement by Target does not, and the consummation of the transactions
contemplated hereby will not, conflict with, or result in any violation of, or
default under (with or without notice or lapse of time, or both), or give rise
to a right of termination, cancellation or acceleration of any obligation or
loss of any benefit under (i) any provision of the Articles of Incorporation or
Bylaws of Parent or Target, or (ii) any Material Contract (as defined in Section
2.28 hereof) or any material permit, concession, franchise, license, judgment,
order, decree, statute, law, ordinance, rule or regulation applicable to Target
or any of its properties or assets. Except as set forth in Schedule 2.3 of the
Disclosure Schedule, no consent, approval, order or authorization of, or
registration, declaration or filing with, any court, administrative agency or
commission or other governmental authority or instrumentality ("GOVERNMENTAL
ENTITY") is required by or with respect to Parent or Target or any of Parent's
subsidiaries in connection with the execution and delivery this Agreement or the
consummation of the transactions contemplated hereby, except for such consents,
authorizations, filings, approvals and registrations which, if not obtained or
made, would not reasonably be expected to have a Material Adverse Effect on the
Business and would not prevent, or materially alter or delay any of the
transactions contemplated by this Agreement.
2.4. Sufficiency of Assets. Except as set forth on Schedule 2.4,
Target has good and valid title to, or, in the case of leased properties and
assets, a valid leasehold interest in, all of its tangible and intangible
properties and assets, real, personal and mixed, including, without limitation,
Intellectual Property (as defined in Section 2.12), used or held for use in the
Business, free and clear of all liens, mortgages, pledges, security interests,
restrictions, prior assignments, encumbrances, options or claims of any kind or
nature whatsoever ("LIENS"), except for Permitted Liens (as defined below). Such
properties and assets constitute the only property and assets necessary to carry
on the Business as presently conducted or as intended by Target to be conducted.
As used herein, "PERMITTED LIENS" means (i) any statutory Lien arising in the
ordinary course of business by operation of law with respect to a liability that
is not yet due or delinquent and (ii) any minor imperfection of title or similar
Lien which individually or in the aggregate with other such Liens does not
materially impair the value of the property or asset subject to such Lien or the
use of such property or asset in the conduct of the Business.
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<PAGE> 8
2.5. Financial Statements. Parent has delivered to Acquiror draft
audited consolidated financial statements of Target as at, and for the fiscal
year ended September 30, 1998 and as at and for the interim period ended July
31, 1999 (collectively, the "FINANCIAL STATEMENTS"). The Financial Statements
are true, accurate and correct in all material respects and have been prepared
in accordance with U.S. generally accepted accounting principles (except that
the draft Financial Statements do not contain footnotes) applied on a consistent
basis throughout the periods indicated and with each other. The Financial
Statements fairly present the consolidated financial condition and operating
results of the Business and Target as of the dates, and for the periods,
indicated therein. The audited consolidated financial statements of Target as
at, and for the fiscal year ended September 30, 1998 and as at and for the
interim period ended July 31, 1999, in the form delivered by Parent's
independent public accountants in their audit report to Parent, will not contain
any material changes from the Financial Statements, except for the existence of
footnotes thereto. Target maintains an adequate system of internal controls
established and administered in accordance with U.S. generally accepted
accounting principles. Neither Parent, nor any "ultimate parent entity" (within
the meaning of the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as
amended ("HSR")) of Parent has annual net sales or total assets of $100 million
or more.
2.6. Absence of Certain Changes. Since July 31, 1999 (the "TARGET
BALANCE SHEET DATE"), except as set forth in Schedule 2.6 of the Disclosure
Schedule, each of Parent and Target has conducted its business in the ordinary
course consistent with past practice and there has not occurred with respect to
the Business: (i) any change, event or condition (whether or not covered by
insurance) that has resulted in, or would reasonably be expected to result in, a
Material Adverse Effect on the Business; (ii) any acquisition, sale or transfer
of any material asset of Target; (iii) any alteration in the manner in which
Parent or Target keeps its books, accounts or records relating to the Business
or in the accounting practices therein reflected, including the recognition and
computation of accrued expenses; (iv) any material contract entered into by
Target, or any material amendment or termination of, or default under, any
material contract to which Target is a party or by which it is bound; (v) any
amendment or change to the Articles of Incorporation and Bylaws of Target; (vi)
any material increase in or modification of the compensation or benefits payable
or to become payable by Target or Parent or any of their respective subsidiaries
to any directors or employees of Target; (vii) any damage destruction or loss,
whether or not covered by insurance, which has had a Material Adverse Effect on
Target; (viii) the incurrence by Target of any indebtedness for borrowed money
or commitment to borrow money or any guaranty, direct or indirect, of
indebtedness of others, or any prepayment of long-term debt, except for
borrowings in the ordinary course of business; or (ix) any agreement by Target
to do any of the things described in the preceding clauses (i) through (viii)
(other than negotiations with Acquiror and its representatives regarding the
transactions contemplated by this Agreement).
2.7. Absence of Undisclosed Liabilities. Target has no material
obligations or liabilities of any nature (matured or unmatured, fixed or
contingent) other than (i) those set forth or adequately provided for in the
Balance Sheet included in the Financial Statements as of the Target Balance
Sheet Date (the "TARGET BALANCE SHEET"), (ii) those incurred in the ordinary
course of business and not required to be set forth in the Target Balance Sheet
under U.S. generally accepted accounting principles and (iii) those incurred in
the ordinary course of business since the Target Balance Sheet Date and
consistent with past practice.
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2.8. Litigation. There is no private or governmental action, suit,
proceeding, claim, arbitration or investigation pending before any agency, court
or tribunal, foreign or domestic, or, to the knowledge of Parent or Target,
threatened in writing against Parent or Target or any of their respective
subsidiaries or any of their properties or any of their respective officers or
directors (in their capacities as such) relating to the Business. There is no
judgment, decree or order against Target or Parent or any of their subsidiaries,
or any of their directors or officers (in their capacities as such), that could
prevent, enjoin, or materially alter or delay any of the transactions
contemplated by this Agreement, or that would reasonably be expected to have a
Material Adverse Effect on the Business. Schedule 2.8 to the Disclosure Schedule
also lists all litigation that Target or Parent or any of their respective
subsidiaries has pending against other parties relating to the Business.
2.9. Restrictions on Business Activities. There is no agreement,
judgment, injunction, order or decree binding upon Target or Parent or any of
their respective subsidiaries which has or could reasonably be expected to have
the effect of prohibiting the Business or impairing the right of Target to
conduct the Business.
2.10. Governmental Authorization. Each of Target and Parent and
their respective subsidiaries has obtained each federal, state, county, local or
foreign governmental consent, license, permit, grant, or other authorization of
a Governmental Entity (i) pursuant to which Target or Parent or any of their
respective subsidiaries currently operates or holds any interest in any of its
properties relating to the Business or (ii) that is required for the operation
of the Business or the holding of any such interest ((i) and (ii) herein
collectively called "TARGET AUTHORIZATIONS"), and all of such Target
Authorizations are in full force and effect, except where the failure to obtain
or have any such Target Authorizations would not reasonably be expected to have
a Material Adverse Effect on the Business.
2.11. Property.
(a) Schedule 2.11(a) to the Disclosure Schedule identifies
each parcel of real property owned or leased by Target or any of its
subsidiaries. All of the buildings, fixtures and other improvements
located on the real property are in good operating condition and
repair, subject to normal wear and tear, and the operation thereof
is not in violation of any applicable building code, zoning
ordinance or other law or regulation.
(b) Schedule 2.11(b) lists (i) each item of tangible personal
property owned by Target or Parent or their respective subsidiaries
related to the Business which is to be transferred to Acquiror
pursuant hereto having on the date hereof a depreciated book value
in excess of $10,000 and (ii) an identification of the owner of, and
any agreement relating to the use of, each item of material tangible
personal property the rights to which are to be transferred to
Acquiror pursuant hereto under leases or other similar agreements.
Each item of such tangible personal property is located on the real
property listed above and is in good operating condition and repair
subject to normal wear and tear. Routine maintenance has been
performed on all of the tangible personal property in the ordinary
course of business.
2.12. Intellectual Property.
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(a) Each of Target or Parent or their respective subsidiaries
owns, or is licensed or otherwise possesses legally enforceable
rights to use, all patents, trademarks, trade names and service
marks (whether or not registered), and all goodwill associated with
the foregoing, copyrights (whether or not registered), and any
applications therefor, internet domain names and any applications
therefor, maskworks, net lists, schematics, technology, know-how,
trade secrets, inventions (whether or not patented), ideas,
algorithms, processes, computer software programs or applications
(in source code and/or object code form), and tangible or intangible
information or material, in each case of a confidential or
proprietary nature, that are used or proposed by Target to be used
in the Business as currently conducted, but excluding U.S. Patent
No. 5,884,033 issued to Parent ("INTELLECTUAL PROPERTY"). Except as
disclosed in paragraph (a) of Schedule 2.12 to the Disclosure
Schedule, neither Target nor Parent nor any of their respective
subsidiaries has, directly or indirectly (i) licensed any of its
Intellectual Property in source code form to any party, (ii) entered
into any agreement requiring Parent or any of its subsidiaries to
license or otherwise provide future versions, upgrades or
enhancements of its Intellectual Property in source code form or
(iii) entered into any exclusive agreements relating to its
Intellectual Property with any party.
(b) Paragraph (b) of Schedule 2.12 to the Disclosure Schedule
lists (i) all patents and patent applications and all registered and
unregistered trademarks, trade names and service marks, registered
copyrights and maskworks, included in the Intellectual Property
owned by Target or Parent or any of their respective subsidiaries,
including the jurisdictions in which each such Intellectual Property
right has been issued or registered or in which any application for
such issuance and registration has been filed, (ii) all licenses,
sublicenses and other agreements to which Target or Parent or any of
their respective subsidiaries is a party and pursuant to which any
person other than Target or Parent and their respective subsidiaries
is authorized to use any Intellectual Property owned by Target or
Parent or any of their respective subsidiaries, and (iii) other than
Commercial Software, all licenses, sublicenses and other agreements
to which Target or Parent or any of their respective subsidiaries is
a party and pursuant to which Target or Parent or any of their
respective subsidiaries is authorized to use any third party
patents, trademarks or copyrights, including software ("THIRD PARTY
INTELLECTUAL PROPERTY RIGHTS") which are incorporated in, are, or
form a part of any product of Target or are used in the performance
of any service by Target. "COMMERCIAL SOFTWARE" means packaged
commercially available software programs generally available to the
public in computer software which have been licensed to Target or
Parent or any of their respective subsidiaries pursuant to end-user
licenses and which are used in the Business but are in no way a
component of or incorporated in or specifically required to develop
or support any of the Business' products and related trademarks,
technology and know how.
(c) To the knowledge of Target and Parent, there is no
unauthorized use, disclosure, infringement or misappropriation of
any Intellectual Property rights of Target or Parent or any of their
respective subsidiaries, or any Intellectual Property right of any
third party to the extent licensed by or through Target or Parent or
any of their respective subsidiaries, by any third party, including
any employee or former employee of Target or Parent or any of their
respective subsidiaries. Neither Target nor Parent nor any of their
respective subsidiaries has entered into any agreement to indemnify
any other person
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against any charge of infringement of any Intellectual Property,
other than indemnification provisions contained in purchase orders
or license agreements arising in the ordinary course of business.
(d) Neither Target nor Parent nor any of their respective
subsidiaries is, nor will it be as a result of the execution and
delivery of this Agreement or the performance of its obligations
under this Agreement, in breach of any license, sublicense or other
agreement relating to the Intellectual Property or Third Party
Intellectual Property Rights.
(e) All patents, registered trademarks, registered service
marks and registered copyrights held by Target or Parent or any of
their respective subsidiaries relating to the Business are valid and
subsisting. Neither Target nor Parent nor any of their respective
subsidiaries (i) is or has been the subject of any current pending
or threatened in writing suit, action or proceeding which involves a
claim of infringement of any patents, trademarks, service marks,
copyrights or violation of any trade secret or other proprietary
right of any third party relating to the Business or (ii) has
brought or threatened in writing to bring any action, suit or
proceeding for infringement of Intellectual Property or breach of
any license or agreement involving Intellectual Property against any
third party. The reproduction, manufacturing, distribution,
marketing, licensing, sublicensing, use, sale, and importation of
Intellectual Property do not infringe any patent, registered
trademark, registered service mark, registered copyright, trade
secret or other proprietary right of any third party.
(f) Each of Target and Parent and their respective
subsidiaries has secured valid written assignments from all
consultants and employees who contributed to the creation or
development of Intellectual Property owned by Target or Parent and
their respective subsidiaries of the rights to such contributions
that Target, Parent and/or their respective subsidiaries does not
already own by operation of law.
(g) Each of Target, Parent and their respective subsidiaries
has taken all reasonably necessary and appropriate steps to protect
and preserve the confidentiality of all of Target, Parent and their
respective subsidiaries' Intellectual Property not otherwise
protected by patents, patent applications or copyright
("CONFIDENTIAL INFORMATION"). All use, disclosure or appropriation
of Confidential Information owned by Target or its subsidiaries by
or to a third party has been pursuant to the terms of a written
agreement between Target and/or its subsidiaries, on the one hand,
and such third party, on the other hand, pursuant to which the third
party undertakes to protect and not disclose Target Confidential
Information. All use, disclosure or appropriation of Confidential
Information not owned by Target has been pursuant to the terms of a
written agreement between Target and the owner of such Confidential
Information, or is otherwise lawful.
(h) Except as set forth in the Disclosure Schedule, following
the Closing, neither Parent nor any of its subsidiaries or
affiliates (other than Target) will have any rights in or ownership
of any technology used for the filtering of content accessible via
the Internet.
2.13. Environmental Matters.
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(a) The following terms shall be defined as follows:
(iii) "ENVIRONMENTAL AND SAFETY LAWS" shall mean any laws,
ordinances, codes, regulations, rules, policies and orders
that are intended to assure the protection of the environment,
or that classify, regulate, call for the remediation of,
require reporting with respect to, or list or define air,
water, groundwater, solid waste, hazardous or toxic
substances, materials, wastes, pollutants or contaminants, or
which are intended to assure the safety of employees, workers
or other persons, including the public.
(iv) "HAZARDOUS MATERIALS" shall mean any toxic or
hazardous substance, material or waste or any pollutant or
contaminant, or infectious or radioactive substance or
material, including without limitation, those substances,
materials and wastes defined in or regulated under any
Environmental and Safety Laws.
(v) "PROPERTY" shall mean all real property leased or
owned by Target or any of its subsidiaries either currently or
in the past.
(vi) "FACILITIES" shall mean all buildings and
improvements on the Property of Target or any of its
subsidiaries.
(b) Parent and Target represent and warrant as follows: (i) to
the knowledge of Parent and Target, no methylene chloride or
asbestos is contained in or has been used at or released from the
Facilities; (ii) to the knowledge of Parent and Target, all
Hazardous Materials and wastes have been stored, labeled, handled,
released, treated, processed, deposited, transported, documented and
disposed of in accordance with all Environmental and Safety Laws;
(iii) neither Target nor any of its subsidiaries has received any
notice (verbal or written) of any non-compliance of the Facilities
or its past or present operations with Environmental and Safety
Laws; (iv) there have not been nor are there threatened or pending
any civil or criminal actions, notices of violations,
investigations, administrative proceedings or written communications
alleging violations from any private party, governmental body or
other regulatory authority under any Environmental and Safety Laws
against Parent or Target or any of its assets or any of the
directors, employees or officers of Parent or Target relating to the
Business; (v) none of the Properties is or has been contaminated
with any Hazardous Material or any substance regulated by
Environmental and Safety Laws; (vi) to the knowledge of Parent and
Target, neither Parent nor Target is a potentially responsible party
under the federal Comprehensive Environmental Response, Compensation
and Liability Act (CERCLA), or foreign analogous statute, arising
out of events occurring prior to the Closing Date; (vii) to the
knowledge of Parent and Target, there have not been in the past and
are not now, any Hazardous Materials on, under or migrating to or
from the Facilities or Property; (viii) to the knowledge of Parent
and Target, there have not been in the past, and are not now, any
underground tanks or underground improvements at, on or under the
Property including without limitation, treatment or storage tanks,
sumps, or water, gas or oil wells; (ix) to the knowledge of Parent
and Target, there are no polychlorinated biphenyls (PCBs) deposited,
stored, disposed of or located on the Property or Facilities or
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any equipment on the Property containing PCBs at levels in excess of
50 parts per million; (x) to the knowledge of Parent and Target,
there is no formaldehyde on the Property or in the Facilities, nor
any insulating material containing urea formaldehyde in the
Facilities; (xi) the Facilities and Parent's and Target's uses and
activities therein have at all times complied in all material
respects with all Environmental and Safety Laws; (xii) Parent and
Target and their respective subsidiaries have all the permits and
licenses required to be issued under Environmental and Safety Laws
in connection with the Business and are in compliance in all
material respects with the terms and conditions of those permits;
(xiii) Parent and Target are not required to register or meet any
obligations under the Producer Responsibility Obligations (Packaging
Waste) Regulations 1997 (as amended); and (xiv) Parent and Target
have maintained all records and information required to be
maintained under Environmental and Safety Laws.
2.14. Tax Matters.
(a) For the purposes of this Agreement, "TAX" or,
collectively, "TAXES", means (i) any and all federal, state, local
and foreign taxes, assessments and other governmental charges,
duties, impositions and liabilities, including taxes based upon or
measured by gross receipts, income, profits, sales, use and
occupation, and value added, ad valorem, transfer, franchise,
capital, withholding, payroll, recapture, employment, excise and
property taxes, together with all interest, penalties and additions
imposed with respect to such amounts; (ii) any liability for the
payment of any amounts of the type described in clause (i) as a
result of being a member of an affiliated, consolidated, combined or
unitary group for any period; and (iii) any liability for the
payment of any amounts of the type described in clause (i) or (ii)
as a result of any express or implied obligation to indemnify any
other person or as a result of any obligations under any agreements
or arrangements with any other person with respect to such amounts
and including any liability for taxes of a predecessor entity.
(b) Tax Returns and Audits.
(i) Target, and any consolidated, combined, unitary or
aggregate group for Tax purposes of which Target, Parent or
any of their subsidiaries is or has been a member, as of the
Closing will have prepared and timely filed all required
federal, state, local and foreign returns, estimates,
information statements and reports ("RETURNS") relating to any
and all Taxes concerning or attributable to Target or the
Business or such group of companies, and such Returns are true
and correct and have been completed in accordance with
applicable law.
(ii) Target as of the Closing: (A) will have paid all
Taxes it is required to pay and will have withheld with
respect to its employees all federal and state income taxes,
Federal Insurance Contribution Act ("FICA"), Federal
Unemployment Tax Act ("FUTA") and other Taxes required to be
withheld, and (B) has accrued on the Target Balance Sheet all
Taxes attributable to the periods prior to the Target Balance
Sheet and will not have incurred any liability for Taxes for
the period after the Target Balance Sheet Date and prior to
the Closing other than in the ordinary course of business.
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(iii) Target has not been delinquent in the payment of any
Tax, nor is there any Tax deficiency outstanding, assessed or,
to the knowledge of Target or Parent, proposed against Target,
nor has Target executed any waiver of any statute of
limitations on or extending the period for the assessment or
collection of any Tax.
(iv) No audit or other examination of any Return of Target
is presently in progress, nor has Target been notified of any
request for such an audit or other examination.
(v) Target has no liabilities for unpaid federal, state,
local and foreign Taxes which have not been accrued or
reserved on the Target Balance Sheet, whether asserted or
unasserted, contingent or otherwise, and Target has not
incurred any liability for Taxes since the date of the Target
Balance Sheet other than in the ordinary course of business.
(vi) Target has made available to Acquiror or its legal
counsel, copies of all foreign, federal, state and local
income and all state and local sales and use Returns for
Target filed for all periods since its inception.
(vii) There are (and immediately following the Closing
there will be) no Liens on the assets of Target relating to or
attributable to Taxes other than Liens for Taxes not yet due
and payable.
(viii) Neither Target nor Parent has knowledge of any
basis for the assertion of any claim relating or attributable
to Taxes which, if adversely determined, would result in any
Lien on the assets of Target.
(ix) None of Target's assets is treated as "tax-exempt use
property," within the meaning of Section 168(h) of the Code.
(x) Target has not filed any consent agreement under
Section 341(f) of the Code or agreed to have Section 341(f)(4)
of the Code apply to any disposition of a subsection (f) asset
(as defined in Section 341(f)(4) of the Code) owned by Target.
(xi) Target is not a party to any tax sharing,
indemnification or allocation agreement nor does Target owe
any amount under any such agreement.
(xii) Target's tax basis in its assets for purposes of
determining its future amortization, depreciation and other
federal income Tax deductions is accurately reflected on
Target's tax books and records.
(xiii) Target is not, and has not been at any time, a
"United States Real Property Holding Corporation" within the
meaning of Section 897(c)(2) of the Code or a "personal
holding company" within the meaning of Section 542 of the
Code.
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(xiv) No adjustment relating to any Return filed by Target
has been proposed to Target formally or informally by any tax
authority to Target or any representative thereof.
(xv) Target files its income Tax Returns on the accrual
basis.
(xvi) Target has not been and will not be required to
include any material adjustment in Taxable income for any Tax
period pursuant to Section 481 or 263A of the Code or any
comparable provision under state or foreign laws as a result
of transactions, events or accounting methods employed prior
to the Closing.
(xvii) Neither Target nor any of its subsidiaries has
filed any disclosure under Section 6662 of the Code or
comparable provisions of state, local or foreign law to
prevent the imposition of penalties with respect to any Tax
reporting position taken on any Tax return or report.
(c) There is no contract, agreement, plan or arrangement to
which Target is a party as of the date hereof, including but not
limited to the provisions of this Agreement, covering any employee
or former employee of Target, which, individually or collectively,
could give rise to the payment of any amount that would not be
deductible pursuant to Sections 280G, 404 or 162(m) of the Code.
(d) Parent has had an opportunity to review with its own tax
advisors the tax consequences to it of the transactions contemplated
by this Agreement. Parent understands that it must rely solely on
its advisors and not on any statements or representations by
Acquiror, Target or any of their respective agents. Parent
understands that it (and not Acquiror or Target) shall be
responsible for its own tax liability that may arise as a result of
the other transactions contemplated by this Agreement.
2.15. Employee Benefit Plans.
(a) All employee compensation, incentive, fringe or benefit
plans, programs, policies, commitments or other arrangements
covering any active or former employee, director or consultant of
Target or any trade or business (whether or not incorporated) which
is a member of a controlled group or which is under common control
with Target within the meaning of Section 414 of the Code, or with
respect to which Target has or may in the future have liability, are
listed on Section 2.15 of the Disclosure Schedule (the "PLANS").
(b) Each Plan has been maintained and administered in all
material respects in compliance with its terms and with the
requirements prescribed by any and all statutes, orders, rules and
regulations, including but not limited to the Employee Retirement
Income Security Act of 1974, as amended ("ERISA"), and the Code,
which are applicable to such Plans. No suit, action or other
litigation (excluding claims for benefits incurred in the ordinary
course of Plan activities) has been brought, or to the knowledge of
Parent and Target is threatened in writing, against or with respect
to any such Plan. All contributions, reserves or premium payments
required to be made or accrued as of the date hereof to the Plans
have been timely made or accrued. Section 2.15 of the
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Disclosure Schedule includes a listing of the accrued vacation
liability of Target as of the Target Balance Sheet Date. Any Plan
intended to be qualified under Section 401(a) of the Code and each
trust intended to qualify under Section 501(a) of the Code (i) has
either obtained a favorable determination, notification, advisory
and/or opinion letter, as applicable, as to its qualified status
from the Internal Revenue Service or still has a remaining period of
time under applicable Treasury Regulations or Internal Revenue
Service pronouncements in which to apply for such letter and to make
any amendments necessary to obtain a favorable determination, and
(ii) incorporates or has been amended to incorporate all provisions
required to comply with the Tax Reform Act of 1986 and subsequent
legislation. Target has furnished or made available to Acquiror
copies of the most recent Internal Revenue Service letters, if any,
and the most recent Form 5500 with respect to any such Plan.
(c) Neither Target nor any of its affiliates has at any time
ever maintained, established, sponsored, participated in, or
contributed to any plan subject to Title IV of ERISA or Section 412
of the Code and at no time has Target or any of its affiliates
contributed to or been requested to contribute to any "multiemployer
plan," as such term is defined in ERISA. Neither Target nor any
officer or director of Target is subject to any liability or penalty
under Section 4975 through 4980B of the Code or Title 1 of ERISA.
There are no audits, inquiries or proceedings pending or, to the
knowledge of Parent and Target, threatened by the IRS or Department
of Labor with respect to any Plan. No "prohibited transaction,"
within the meaning of Section 4975 of the Code or Sections 406 and
407 of ERISA, and not otherwise exempt under Section 408 of ERISA,
has occurred with respect to any Plan.
(d) None of the Plans promises or provides retiree medical or
other retiree welfare benefits to any person except as required by
applicable law, including but not limited to, the Consolidated
Omnibus Budget Reconciliation Act of 1985, as amended ("COBRA"), and
Target has never represented, promised or contracted (whether in
oral or written form) to provide such retiree benefits to any
employee, former employee, director, consultant or other person,
except to the extent required by statute.
2.16. Certain Agreements Affected by this Agreement. Neither the
execution and delivery of this Agreement nor the consummation of the
transactions contemplated hereby will (i) result in any payment (including,
without limitation, severance, unemployment compensation, contractual or
statutory redundancy pay, golden parachute, liquidated damages, damages for
breach of contract or wrongful dismissal, compensation in respect of unfair
dismissal, bonus or otherwise) becoming due to any present or former director or
employee or consultant of Target, (ii) materially increase or create any power
to augment or augment any benefits otherwise payable by Target in respect of any
present or former director or employee of Target or (iii) result in the
acceleration of the time of payment or vesting of any such benefits. No payment
which will or may be made by Target or any of its subsidiaries to any employee
will be characterized as an "excess parachute payment" within the meaning of
Section 280G(b)(1) of the Code.
2.17. Employee Matters.
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(a) Each of Target and Parent and their respective
subsidiaries (with respect to the Transferred Employees (as
hereinafter defined in Section 5.8) is in compliance in all material
respects with all currently applicable laws and regulations and
other requirements having the force of law (including without
limitation codes of practice, orders and awards) respecting
employment, the prevention or prohibition of unlawful harassment and
discrimination in or in connection with employment, terms and
conditions of employment, wages, hours and occupational safety and
health and employment practices, in connection with all present and
former directors, employees and consultants of Target and any of its
subsidiaries and trade unions and employee representatives and with
all collective bargaining agreements with respect to such employees
and trade unions.
(b) Each of Target and Parent and their respective
subsidiaries has, in relation to all Transferred Employees and
consultants withheld all amounts required by law or by agreement to
be withheld from the wages, salaries, and other payments to
employees; and has, in relation to such persons, discharged its
obligations in full and is not liable for any arrears in respect of
wages, salaries, fees, commission, bonus, overtime pay, holiday pay,
sick pay, employer pension contribution (and employee pension
contribution where relevant) and any other benefits and emoluments
or any taxes or national insurance contributions and is not liable
in respect of any penalty for failure to comply with any of the
foregoing.
(c) Neither Target nor Parent nor their respective
subsidiaries (with respect to the Transferred Employees) is liable
for any payment to any trust or other fund or to any governmental or
administrative authority, with respect to unemployment compensation
benefits, social security or other benefits or obligations for
employees (other than routine payments to be made in the normal
course of business and consistent with past practice).
(d) There are no material pending claims against Target or
Parent or their respective subsidiaries (with respect to the
Transferred Employees) under any workers compensation plan or policy
or for long term disability.
(e) There are no controversies or disputes (whether
industrial, trade or otherwise) pending or, to the knowledge of
Parent and Target, threatened, between Target or Parent and their
respective subsidiaries on the one hand, and any of the Transferred
Employees or former employees of Target on the other hand, which
controversies have or could reasonably be expected to result in an
action, suit, proceeding, claim, arbitration or investigation
involving Target before any agency, court or tribunal in the United
States or in any other jurisdiction.
(f) Neither Target nor Parent nor any of their respective
subsidiaries is a party to any collective bargaining agreement or
other labor union contract or any form of agreement or arrangement
(whether oral or in writing or existing by reason of custom and
practice and whether or not legally binding) with any labor union or
other employees' representatives or organization concerning or
affecting Target employees and the Transferred Employees nor does
Target or Parent know of any activities or proceedings of any labor
union or organize any such employees. Further, neither Target nor
Parent
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nor any of their respective subsidiaries, so far as they are aware,
has done any act which might be construed as recognition of a labor
union and there has been no request for recognition from any labor
union.
(g) To the knowledge of Parent and Target, no employees of
Target or the Transferred Employees are in violation of any term of
any employment contract, patent disclosure agreement, noncompetition
agreement, confidentiality agreement, or any restrictive covenant to
a former employer relating to the right of any such employee to be
employed by Target because of the nature of the Business or to the
use of trade secrets or proprietary information of others.
(h) No Transferred Employees have given notice to Target or
Parent, nor is Target or Parent otherwise aware, that any such key
employee or officer intends to terminate his or her employment.
2.18. Interested Party Transactions. Except as set forth in Schedule
2.18 of the Disclosure Schedule, neither Target nor Parent nor any of their
respective subsidiaries is indebted to any affiliate of such person, any
director, officer, employee or agent of Target or Parent or any such subsidiary
(except for amounts due as normal salaries and bonuses and in reimbursement of
ordinary expenses) in any manner relating to the Business, and no such person is
indebted to Target in any manner relating to the Business. No officer, director
or shareholder of Target (nor any ancestor, sibling, descendant or spouse of any
of such persons, or any trust, partnership or corporation in which any of such
persons has or has had an interest), has or has had, directly or indirectly, (i)
an interest in any entity which furnished or sold, or furnishes or sells,
services, products or technology that Target furnishes or sells, or proposes to
furnish or sell, or (ii) any interest in any entity that purchases from or sells
or furnishes to Target, any goods or services or (iii) a beneficial interest in
any Material Contract; provided, that ownership of no more than two percent (2%)
of the outstanding voting stock of a publicly traded corporation shall not be
deemed an "interest in any entity" for purposes of this Section 2.18.
2.19. Compliance With Laws. Each of Target and Parent and their
respective subsidiaries has complied with, are not in violation of, and have not
received any notices of violation with respect to, any federal, state, local or
foreign statute, law or regulation with respect to the conduct of the Business,
or the ownership or operation of the Business, except for such violations or
failures to comply as could not be reasonably expected to have a Material
Adverse Effect on Target.
2.20. Minute Books. The minute books of Target and its subsidiaries
made available to Acquiror contain a complete and accurate summary in all
material respects of all meetings of directors and shareholders or actions by
written consent since the time of incorporation of Target and the respective
subsidiaries through the date of this Agreement, and reflect all transactions
referred to in such minutes accurately in all material respects.
2.21. Complete Copies of Materials. Target has delivered or made
available true and complete copies of each document (to the extent applicable or
existing) which has been requested by Acquiror or its counsel in connection with
their legal and accounting review of Target and its subsidiaries.
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2.22. Brokers' and Finders' Fees. Neither Target nor Parent has
incurred, nor will it incur, directly or indirectly, any liability for brokerage
or finders' fees or agents' commissions or investment bankers' fees or any
similar charges in connection with this Agreement or any transaction
contemplated hereby which could give rise to any claim by any person against
Acquiror (including Target after the Closing) for a finders' fee, agents'
commission or investment bankers' fee or any similar charges.
2.23. Vote Required. No vote of Parent's shareholders is necessary
to approve this Agreement and the transactions contemplated hereby.
2.24. Board Approval. The Board of Directors of Parent has
unanimously (i) approved this Agreement and (ii) determined that the
transactions contemplated herein are advisable.
2.25. Accounts Receivable. Target has made available to Acquiror a
list of all material accounts receivable of Target as of August 31, 1999 along
with a range of days elapsed since invoice. All accounts receivable shown on the
Target Balance Sheet (net of reserves indicated on the Target Balance Sheet) or
thereafter acquired until the Closing Date (net of reserves accrued in the
normal course of business and consistent with past practice) arose in the
ordinary course of business and are valid receivables. The value of any account
receivable, the collection of which is doubtful or which is subject to a defense
or set-off, has been written down to an amount believed by Target to be not in
excess of net realizable value or adequate reserves or allowances therefor have
been provided. The values at which accounts receivable are carried reflect the
accounts receivable valuation policy of Target, which is consistent with its
past practice and in accordance with Target's accounting practices applied on a
consistent basis. To the knowledge of Parent and Target, none of the receivables
of Target is subject to any claim of offset, recoupment, set off, or
counterclaim, and, to the knowledge of Parent and Target, there are no facts or
circumstances (whether asserted or unasserted) that would give rise to any
claim. No receivables are contingent upon the performance by Target of any
obligation or contract (other than receivables under maintenance and support
agreements). No person or entity has any lien, charge, pledge, security
interest, or other encumbrance on any such receivables, and no agreement for
deduction or discount has been made with respect to any of such receivables.
2.26. Customers and Suppliers. No customer which individually
accounted for more than 5% of the Business' gross revenues during the 12-month
period ended June 30, 1999, and no material supplier of the Business, has
canceled or otherwise terminated, or made any written threat to Target or Parent
to cancel or otherwise terminate its relationship with Target or Parent, or has
decreased materially its services or supplies to Target or Parent in the case of
any such supplier, or its usage of the services or products of the Business in
the case of such customer, and to the knowledge of Parent and Target, no such
supplier or customer intends to cancel or otherwise terminate its relationship
with the Business or to decrease materially its services or supplies to the
Business or its usage of the services or products of the Business. Neither
Target nor Parent nor any of their respective subsidiaries has knowingly
breached, so as to provide a benefit to the Business that was not intended by
the parties, any agreement with, or engaged in any fraudulent conduct with
respect to, any customer or supplier of the Business.
2.27. Material Contracts. Except for the contracts and agreements
described in Schedule 2.27 to the Disclosure Schedule (collectively, the
"MATERIAL CONTRACTS"), neither
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Target nor Parent nor any of their respective subsidiaries is a party to or
bound by any material contract relating to the Business, including without
limitation:
(a) any distributor, sales, advertising, agency or
manufacturer's representative contract;
(b) any continuing contract for the purchase of materials,
supplies, equipment or services involving in the case of any such
contact more than $25,000 over the life of the contract;
(c) any material contract that expires or may be renewed at
the option of any person other than Target so as to expire more than
one year after the date of this Agreement;
(d) any trust indenture, mortgage, promissory note, loan
agreement or other contract for the borrowing of money, any currency
exchange, commodities or other hedging arrangement or any leasing
transaction of the type required to be capitalized in accordance
with generally accepted accounting principles;
(e) any contract for capital expenditures in excess of $10,000
in the aggregate;
(f) any contract limiting the freedom of Target or any of its
subsidiaries to engage in any line of business or to compete with
any other Person as that term is defined in the U.S. Securities
Exchange Act of 1934, as amended, or, other than those entered into
in the ordinary course of business, any confidentiality, secrecy or
non-disclosure contract;
(g) any contract pursuant to which Target is a lessor of any
machinery, equipment, motor vehicles, office furniture, fixtures or
other personal property calling for annual payments in excess of
$10,000;
(h) any contract with any affiliate of Target or any of its
subsidiaries; or
(i) any agreement of guarantee, support, indemnification,
assumption or endorsement of, or any similar commitment with respect
to, the monetary obligations, or indebtedness of any other Person.
2.28. No Breach of Material Contracts. All Material Contracts are in
written form. Each of Target and Parent and their respective subsidiaries has in
all material respects performed the obligations required to be performed by it
and is entitled to all benefits under, and is not alleged to be in default in
respect of any Material Contract. Each of the Material Contracts is in full
force and effect, and there exists no default or event of default or event,
occurrence, condition or act, with respect to Target or Parent or any of their
respective subsidiaries or, to the knowledge of Parent and Target, with respect
to the other contracting party, which, with the giving of notice, the lapse of
time or the happening of any other event or conditions, would reasonably be
expected to become a default or event of default under any Material Contract.
Except for the warranties and indemnities contained in those contracts and
agreements set forth in the Disclosure Schedule, and statutory implied
warranties, Target has not given any warranties
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or indemnities relating to products or technology sold or services rendered by
Target. True, correct and complete copies of all Material Contracts have been
delivered to Acquiror.
2.29. Material Third Party Consents. Schedule 2.29 of the Disclosure
Schedule identifies each Material Contract that would permit the other party to
the contract to terminate the contract or otherwise would require the consent of
such other party as a result of the transactions contemplated by this Agreement.
2.30. Export Control Laws. All export transactions of the Business have
been conducted in accordance with applicable provisions of export control laws
in the country of origin and the country of destination.
2.31. Product Releases. Parent has provided Acquiror a Schedule of
Product Releases related to the Business, which Schedule is attached as Schedule
2.31 to the Disclosure Schedule. Parent has a good faith reasonable belief that
the release of products on the schedule is achievable and is not currently aware
of any change in its circumstances or other fact that has occurred that would
cause it to believe that it will be unable to meet such release schedule.
2.32. Year 2000. All Target Date Sensitive Systems are and shall remain
Year 2000 Compliant. "TARGET DATE SENSITIVE SYSTEMS" means any software,
microcode or hardware system or component that processes date data and that is
installed, in development or on order by Target for its own internal use, or
which Target sells, leases, licenses, assigns or otherwise provides to its
customers, vendors, suppliers, affiliates or any other third party. "YEAR 2000
COMPLIANT" means that, (i) with respect to date data, the software products
correctly process date data before, during, and after January 1, 2000, including
any leap year dates, without any loss in functionality or performance,
including, but not limited to, accepting date data input, producing date data
output, storing date data, and performing calculations on date data or any
portion thereof; (ii) the software products will not cease to function or
function inaccurately, before, during and after January 1, 2000, including on
leap year dates, as a result of the advent of the new century, (iii) the
software products respond to two-digit year date data in a disclosed, defined
and predetermined manner; (iv) the software products store, create, process and
provide output of date data in a manner that is unambiguous as to century; and
(v) the software products recognize the year 2000 as a leap year.
Notwithstanding the foregoing, nothing herein shall be interpreted as a warranty
of Year 2000 Compliance with respect to the Internet. It is acknowledged and
agreed that interruption in the provision of services arising out of any Year
2000 issues relative to the Internet are outside the control of Target.
2.33. Securities Law Matters. Parent is aware of Acquiror's business
affairs and financial condition, and has acquired sufficient information about
Acquiror to reach an informed and knowledgeable decision to acquire the Acquiror
Shares. Parent is acquiring the Acquiror Shares for its own account for
investment purposes only and not with a view to, or for the resale in connection
with, any "distribution" thereof in violation of the Securities Act of 1933, as
amended (the "SECURITIES ACT").
2.34. Representations Complete. None of the representations or
warranties made by Target or Parent herein or in any Schedule hereto, including
the Disclosure Schedule, or certificate furnished by Target or Parent pursuant
to this Agreement, when all such documents
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are read together in their entirety, contains or will contain at the Closing
Date any untrue statement of a material fact, or omits or will omit at the
Closing Date to state any material fact necessary in order to make the
statements contained herein or therein, in the light of the circumstances under
which made, not misleading.
ARTICLE III.
REPRESENTATIONS AND WARRANTIES OF ACQUIROR
Acquiror represents and warrants to Parent as follows:
3.1. Organization, Standing and Power. Acquiror is a corporation
limited by shares duly organized and validly existing under the laws of its
jurisdiction of organization. Acquiror has the corporate power to own its
properties and to carry on its business as now being conducted and as proposed
to be conducted and is duly qualified to do business and is in good standing in
each jurisdiction in which the failure to be so qualified and in good standing
would have a Material Adverse Effect on Acquiror. Acquiror is not in violation
of any of the provisions of its Memorandum and Articles of Association.
3.2. Authority. Subject to obtaining authority and resolutions from its
shareholders to satisfy the Stock Consideration, (i) Acquiror has all requisite
corporate power and authority to enter into this Agreement and to consummate the
transactions contemplated hereby, and (ii) the execution and delivery of this
Agreement and the consummation of the transactions contemplated hereby have been
duly authorized by all necessary corporate action on the part of Acquiror. This
Agreement, when duly executed and delivered in accordance with its terms, will
constitute the valid and binding obligation of Acquiror enforceable against
Acquiror in accordance with its terms except to the extent that enforceability
may be limited by applicable bankruptcy, reorganization, insolvency, moratorium
or other laws affecting the enforcement of creditors' rights generally and
general principles of equity, regardless of whether such enforceability is
considered in a proceeding at law or in equity. The execution and delivery of
this Agreement does not, and the consummation of the transactions contemplated
hereby will not, conflict with, or result in any violation of, or default under
(with or without notice or lapse of time, or both), or give rise to a right of
termination, cancellation or acceleration of any obligation or loss of a benefit
under (i) any provision of the Memorandum and Articles of Association of
Acquiror, as amended, or (ii) any material mortgage, indenture, lease, contract
or other agreement or instrument, permit, concession, franchise, license,
judgment, order or decree applicable to Acquiror or its properties or assets.
Other than the approval of EASDAQ or the London Stock Exchange Limited to the
arrangements proposed for Acquiror's EASDAQ quotation or London Stock Exchange
listing, no consent, approval, order or authorization of, or registration,
declaration or filing with, any Governmental Entity or the London Stock
Exchange, is required by or with respect to Acquiror in connection with the
execution and delivery of this Agreement by Acquiror or the consummation by
Acquiror of the transactions contemplated hereby, except for such consents,
authorizations, filings, approvals and registrations which, if not obtained or
made, would not have a Material Adverse Effect on Acquiror and would not
prevent, materially alter or delay any of the transactions contemplated by this
Agreement.
3.3. Capitalization; Acquiror Shares. The authorized share capital of
Acquiror consists of (i) 2,500,000 British Pounds divided into 25,000,000
ordinary shares of 10 Pence
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each, of which 12,325,328 ordinary shares of 10 Pence each are issued, and (ii)
500,595 British Pounds divided into 1,001,990 deferred shares of 50 Pence each,
all of which have been issued, in each case as of the close of business on the
date hereof. On the date hereof, there are no other issued or allotted shares of
capital stock or voting securities and no outstanding commitments to issue any
shares or equity securities of Acquiror. All issued shares of Acquiror capital
stock are duly authorized, validly issued, fully paid and non-assessable and are
free of any liens or encumbrances, and are not subject to preemptive rights or
rights of first refusal created by statute, Acquiror's Memorandum or Articles of
Association or any agreement to which Acquiror is a party or by which it is
bound. The Acquiror Shares to be issued pursuant to this Agreement will, when
issued and delivered in accordance with this Agreement, be duly authorized,
validly issued, fully paid, and non-assessable and will rank pari passu in all
respects with the existing issued ordinary shares of Acquiror.
3.4. Financial Statements. Acquiror has made available to Target the
financial statements of Acquiror as at, and for the fiscal year ended most
recently prior to the date of this Agreement (the "ACQUIROR FINANCIAL
STATEMENTS"). The Acquiror Financial Statements have been prepared in accordance
with U.K. generally accepted accounting principles applied on a basis consistent
throughout the periods indicated and consistent with each other. The Acquiror
Financial Statements present a true and fair view of the consolidated financial
condition and operating results of Acquiror at the dates and during the periods
indicated therein. Acquiror maintains an adequate system of internal controls
established and administered in accordance with U.K. generally accepted
accounting principles. Since the most recent quarter end prior to the date of
this Agreement, Acquiror has conducted its business in the ordinary course
consistent with past practice and there has not occurred (i) any change, event
or condition (whether or not covered by insurance) that has resulted in, or
would reasonably be expected to result in, a Material Adverse Effect on Acquiror
or (ii) any acquisition, sale or transfer of any material asset of Acquiror.
Neither Acquiror nor any "ultimate parent entity" (within the meaning of HSR) of
Acquiror has total assets or annual net sales of $100 million or more.
3.5. Litigation. There is no private or governmental action, suit,
proceeding, claim, arbitration or investigation pending before any agency, court
or tribunal, foreign or domestic, or, to the knowledge of Acquiror, threatened
in writing against Acquiror or any of its subsidiaries or any of its properties
or any of its officers or directors (in their capacities as such). There is no
judgment, decree or order against Acquiror or any of its subsidiaries, or any of
its directors or officers (in their capacities as such), that could prevent,
enjoin, or materially alter or delay any of the transactions contemplated by
this Agreement, or that would reasonably be expected to have a Material Adverse
Effect on Acquiror. Other than (i) a claim against Clearview Software in
relation to the unauthorized distribution of components of Multi View software
and (ii) a potential claim for trademark infringement against an Indian company,
Acquiror is not engaged in any material litigation.
3.6. Filings. Acquiror has made available to Parent a correct and
complete copy of each report filed by Acquiror with the Companies Announcement
Office of the London Stock Exchange and the Registrar of Companies in England
and Wales on or after the date of Acquiror's admission to the AIM and prior to
the date of this Agreement (the "ACQUIROR REPORTS"). The Acquiror Reports (a)
were prepared in accordance with the requirements of the Companies Act of 1985
and the AIM rules and (b) did not at the time they were filed (or if
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amended or superseded by a filing prior to the date of this Agreement then on
the date of such filing) contain any untrue statement of a material fact or omit
to state a material fact required to be stated therein or necessary in order to
make the statements therein, in light of the circumstances under which they were
made, not misleading. The Acquiror Reports comprise all announcements required
to be delivered during that period by Acquiror pursuant to the AIM Admission
Rules of the London Stock Exchange.
3.7. Brokers' and Finders' Fees. Acquiror has not incurred, nor will it
incur, directly or indirectly, any liability for brokerage or finders' fees or
agents' commissions or investment bankers' fees or any similar charges in
connection with this Agreement or any transaction contemplated hereby which
could give rise to any claim by any person against Parent for a finders' fee,
agents' commission or investment bankers' fee or any similar charges.
ARTICLE IV.
CONDUCT PRIOR TO THE CLOSING DATE
4.1. Conduct of Business. During the period from the date hereof and
continuing until the earlier of the termination of this Agreement or the Closing
Date, Target and Parent and their respective subsidiaries (with respect to the
Business) shall: (i) use their reasonable best efforts to take all action and to
do all things necessary, proper or advisable in order to consummate and make
effective, as soon as reasonably practicable, the transactions contemplated by
this Agreement (including satisfaction, but not waiver of, the closing
conditions set forth in Section 6.3); (ii) use their reasonable best efforts
consistent with past practice and policies to preserve intact its and their
respective subsidiaries' present business organizations, keep available the
services of its and their respective subsidiaries' present officers and key
employees and preserve its and their respective subsidiaries' relationships with
customers, suppliers, distributors, licensors, licensees, and others having
business dealings with it, to the end that its and their respective
subsidiaries' goodwill and ongoing businesses shall be unimpaired at the Closing
Date; (iii) except to the extent expressly contemplated by this Agreement or as
consented to in writing by Acquiror, pay debts and Taxes when due subject to
good faith disputes over such debts or Taxes, and pay or perform other
obligations when due; (iv) deliver to Acquiror a copy of the audited Financial
Statements upon receipt by Parent of the audit report by Ernst & Young LLP; (v)
transfer and assign to Target (x) any Material Contract to which Parent is a
party, or otherwise provide Acquiror with the benefits of such agreements
(insofar as they relate to the Business), and (y) any Intellectual Property
owned by Parent, including, without limitation, the "SurfWatch" trademark
registration and any domain names used in the Business, in each case in form and
substance reasonably acceptable to Acquiror, but excluding intellectual property
underlying services to be provided under the Interim Services Agreement; and
(vi) cooperate with Acquiror in facilitating Acquiror's employment of the
Transferred Employees, including, without limitation, providing Acquiror with
reasonable access to the Transferred Employees. Parent shall promptly notify
Acquiror of any material event or occurrence not in the ordinary course of the
Business or in the event its representations and warranties are discovered to be
untrue as of the time made or in the event Parent determines that such
representations and warranties shall be untrue as if made at and as of the
Closing Date. No disclosure by Parent pursuant to this Section 4.1 however,
shall be deemed to amend or supplement the Disclosure Schedule or to cure any
misrepresentation or breach of warranty.
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4.2. Restriction on Conduct of the Business. During the period from the
date hereof and continuing until the earlier of the termination of this
Agreement or the Closing Date, except as set forth in the Disclosure Schedule
and as expressly contemplated by this Agreement, Target and Parent (with respect
to the Business) shall not do, cause or permit any of the following, without the
prior written consent of Acquiror:
(a) Charter Documents. Cause or permit any amendments to Target's
Articles of Incorporation or Bylaws or other charter or organizational
documents, or form any subsidiaries of Target;
(b) Dividends; Changes in Capital Stock. Declare or pay any
dividends on or make any other distributions (whether in cash, stock or
property) in respect of any of Target's capital stock, or issue or
authorize the issuance of any other securities in respect of, in lieu
of or in substitution for shares of its capital stock;
(c) Material Contracts. Enter into any contract or commitment or
violate, amend or otherwise modify or waive any of the terms of any of
its Material Contracts, other than in the ordinary course of business
consistent with past practice (it being agreed that Acquiror's consent
shall be required for the execution of a contract with WebTrends);
(d) Issuance of Securities. Issue, deliver or sell or authorize or
propose the issuance, delivery or sale of, or purchase or propose the
purchase of, any shares of Target's capital stock or securities
convertible into, or subscriptions, rights, warrants or options to
acquire, or other agreements or commitments of any character obligating
it to issue any such shares or other convertible securities;
(e) Intellectual Property. Transfer to any person or entity any
rights to its Intellectual Property other than licenses to customers in
the ordinary course of business consistent with past practice;
(f) Exclusive Rights. Enter into or amend any agreements pursuant
to which any other party is granted exclusive marketing or other
exclusive rights of any type or scope with respect to any of Target's
products or technology;
(g) Dispositions. Sell, lease, license or otherwise dispose of or
encumber any of its properties or assets which are material,
individually or in the aggregate, to the Business, except for sales or
licenses of products in the ordinary course of business consistent with
past practice;
(h) Indebtedness. Incur any indebtedness for borrowed money or
guarantee any such indebtedness or issue or sell any debt securities or
guarantee any debt securities of others;
(i) Leases. Enter into any operating lease with respect to the
Business;
(j) Payment of Obligations. Pay, discharge or satisfy any claim,
liability or obligation (absolute, accrued, asserted or unasserted,
contingent or otherwise) relating to
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the Business arising other than in the ordinary course of business
other than the payment, discharge or satisfaction of liabilities
reflected or reserved against in the Financial Statements;
(k) Capital Expenditures. Make any capital expenditures, capital
additions or capital improvements except in the ordinary course of
business and consistent with past practice;
(l) Insurance. Materially reduce the amount of any insurance
coverage provided by existing insurance policies of Target;
(m) Termination or Waiver. Terminate or waive any material right
relating to the Business;
(n) Employee Benefit Plans; New Hires; Pay Increases. Adopt or
amend any employee benefit or stock purchase or option plan, or hire
any new director level or officer or manager level employee, pay any
special bonus or special remuneration to any employee or director or,
other than in the ordinary course consistent with past practice in
connection with scheduled performance reviews, increase the salaries or
wage rates of the employees of Target or the Transferred Employees;
(o) Severance Arrangements. Grant any severance or termination pay
(i) to any director or officer or (ii) to any other employee of the
Business except payments made pursuant to written agreements
outstanding on the date hereof;
(p) Lawsuits. Commence a lawsuit other than (i) for the routine
collection of bills, (ii) in such cases where it in good faith
determines that failure to commence suit would result in the material
impairment of a valuable aspect of the Business, provided that it
consults with Acquiror prior to the filing of such a suit or (iii) for
a breach of this Agreement;
(q) Acquisitions. Acquire or agree to acquire by merging or
consolidating with, or by purchasing a substantial portion of the
assets of, or by any other manner, any business or any corporation,
partnership, association or other business organization or division
thereof, or otherwise acquire or agree to acquire any assets which are
material, individually or in the aggregate, to its and its
subsidiaries' business, taken as a whole;
(r) Taxes. Other than in the ordinary course of business, make or
change any material election in respect of Taxes, adopt or change any
accounting method in respect of Taxes, file any material Tax Return or
any amendment to a material Tax Return, enter into any closing
agreement, settle any claim or assessment in respect of Taxes, or
consent to any extension or waiver of the limitation period applicable
to any claim or assessment in respect of Taxes;
(s) Revaluation. Revalue any of its assets, including without
limitation writing down the value of inventory or writing off notes or
accounts receivable other than in the ordinary course of business;
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(t) Year 2000 Compliance. Fail to carry forward in all material
respects Target's Year 2000 assessment and compliance program; or
(u) Other. Take or agree in writing or otherwise to take, any of
the actions described in Sections 4.2(a) through (u) above, or any
action which would make any of its representations or warranties
contained in this Agreement untrue or incorrect or prevent it from
performing or cause it not to perform its covenants hereunder.
4.3. No Solicitation. Subject to Section 7.3(b) hereof, until the
earlier of the Closing Date or the termination of this Agreement, Parent and
Target and their respective directors, officers, agents or representatives will
not (other than with respect to Acquiror) (i) solicit, encourage, initiate or
participate in any negotiations or discussions with respect to any offer or
proposal to acquire all or any portion of the Business whether by purchase of
assets, merger or acquisition of all or substantially all of the capital stock
of Target or otherwise, other than with respect to inventory or non-essential or
excess assets sold in the ordinary course of business (any such negotiations or
discussions hereinafter referred to as an "ACQUISITION PROPOSAL"), (ii) disclose
any information not customarily disclosed to any person concerning the assets or
operations of the Business or afford to any person or entity access to the
properties, books or records of the Business, other than to its advisors or with
respect to inventory or non-essential or excess assets sold in the ordinary
course of business, or (iii) cooperate with any person to make any proposal to
purchase all or any part of the Business (directly or indirectly) other than
inventory or non-essential or excess assets sold in the ordinary course of
business. If Parent or Target or any of their officers, directors, employees,
affiliates or agents receives any Acquisition Proposal or inquiry, or any
request for nonpublic information in connection with any such Acquisition
Proposal or inquiry, Parent or Target will within one business day notify
Acquiror, describing in detail the identity of the person making such
Acquisition Proposal or inquiry and the terms and conditions of such Acquisition
Proposal or inquiry.
ARTICLE V.
ADDITIONAL AGREEMENTS
5.1. Lock-Up Agreement. Parent hereby agrees, for a period of eighteen
(18) months after the Closing Date (the "LOCK-UP PERIOD"), not to offer to sell,
contract to sell or otherwise sell, dispose of, loan, pledge (except as part of
the pledge of substantially all of the assets of Parent to secure indebtedness)
or grant any rights with respect to any of the Acquiror Shares; provided,
however, that (i) with respect to one-third of the Acquiror Shares, such Lock-Up
Period shall terminate six (6) months after the Closing Date and (ii) with
respect to an additional one-third of the Acquiror Shares, such Lock-Up Period
shall terminate twelve (12) months after the Closing Date. Acquiror may impose
stop-transfer instructions with respect to securities subject to the foregoing
restrictions until the end of such period of time.
5.2. Access to Information.
(a) Target and Parent shall afford Acquiror and its accountants,
counsel and other representatives, reasonable access during normal
business hours during the period prior to the Closing Date to (i) all
of Target's and its subsidiaries' properties, books, contracts,
commitments and records, and (ii) all other information concerning the
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business, properties and personnel of Target and the Business as
Acquiror may reasonably request. Parent agrees to provide to Acquiror
and its accountants, counsel and other representatives copies of
internal financial statements of Target promptly upon request.
(b) Subject to compliance with applicable law, from the date
hereof until the Closing Date, each of Acquiror, Target and Parent
shall confer on a regular and frequent basis with one or more
representatives of the other party to report operational matters of
materiality and the general status of ongoing operations.
(c) No information or knowledge obtained in any investigation
pursuant to this Section 5.3 shall affect or be deemed to modify any
representation or warranty contained herein or the conditions to the
obligations of the parties to consummate the transactions contemplated
hereby.
5.3. Confidentiality. The parties acknowledge that Acquiror and Parent
have previously executed a non-disclosure agreement dated June 3, 1999 (the
"CONFIDENTIALITY AGREEMENT"), which Confidentiality Agreement shall continue in
full force and effect in accordance with its terms. In addition, the parties
agree that the terms and conditions of the transactions contemplated hereby and
information exchanged in connection with the execution hereof shall be subject
to the same standard of confidentiality as set forth in the Confidentiality
Agreement.
5.4. Public Disclosure. Unless otherwise permitted by this Agreement,
Acquiror and Parent shall consult with each other before issuing any press
release or otherwise making any public statement or making any other public (or
non-confidential) disclosure (whether or not in response to an inquiry)
regarding the terms of this Agreement and the transactions contemplated hereby,
and neither shall issue any such press release or make any such statement or
disclosure without the prior approval of the other (which approval shall not be
unreasonably withheld), except as may be required by law or by obligations
pursuant to any listing agreement with any national securities exchange or with
the NASD. Notwithstanding the foregoing, Parent agrees that the terms of this
Agreement and the transactions contemplated hereby may be disclosed in any
materials related to the offering described in Section 5.12 hereof, provided
Parent is provided with an opportunity to review such disclosure and grants its
prior written consent to such disclosure, which consent shall not be
unreasonably withheld.
5.5. Consents; Cooperation.
(a) Each of Acquiror and Parent shall promptly apply for or
otherwise seek, and use its commercially reasonable efforts to obtain,
all consents and approvals required to be obtained by it for the
consummation of the transactions contemplated hereby, including those
required under any foreign antitrust laws. Parent and Target shall use
commercially reasonable efforts to obtain all necessary consents,
waivers and approvals under any of its material contracts for the
assignment thereof or otherwise. The parties hereto will consult and
cooperate with one another, and consider in good faith the views of one
another, in connection with any analyses, appearances, presentations,
memoranda,
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briefs, arguments, opinions and proposals made or submitted by or on
behalf of any party hereto in connection with proceedings under or
relating to any antitrust or fair trade law.
(b) Each of Acquiror and Parent shall use all commercially
reasonable efforts to resolve such objections, if any, as may be
asserted by any Governmental Entity with respect to the transactions
contemplated by this Agreement under the Sherman Act, as amended, the
Clayton Act, as amended, the Federal Trade Commission Act, as amended,
and any other Federal, state or foreign statutes, rules, regulations,
orders or decrees that are designed to prohibit, restrict or regulate
actions having the purpose or effect of monopolization or restraint of
trade (collectively, "ANTITRUST LAWS"). In connection therewith, if any
administrative or judicial action or proceeding is instituted (or
threatened to be instituted) challenging any transaction contemplated
by this Agreement as violative of any Antitrust Law, each of Acquiror
and Parent shall cooperate and use all commercially reasonable efforts
vigorously to contest and resist any such action or proceeding and to
have vacated, lifted, reversed, or overturned any decree, judgment,
injunction or other order, whether temporary, preliminary or permanent
(each an "ORDER"), that is in effect and that prohibits, prevents, or
restricts consummation of the transactions contemplated hereby, unless
by mutual agreement Acquiror and Parent decide that litigation is not
in their respective best interests. Notwithstanding the provisions of
the immediately preceding sentence, it is expressly understood and
agreed that neither Acquiror nor Parent shall have any obligation to
litigate or contest any administrative or judicial action or proceeding
or any Order beyond the earlier of (i) the three-month anniversary of
the date hereof or (ii) the date of a ruling preliminarily enjoining
the transactions contemplated hereby issued by a court of competent
jurisdiction. Each of Acquiror and Parent shall use all commercially
reasonable efforts to take such action as may be required to cause the
expiration of the notice periods under Antitrust Laws with respect to
such transactions as promptly as possible after the execution of this
Agreement.
(c) Notwithstanding anything to the contrary in this Agreement,
(i) Acquiror shall not be required to divest any of its businesses,
product lines or assets, or to take or agree to take any other action
or agree to any limitation that could reasonably be expected to have a
Material Adverse Effect on Acquiror or on the Business after the
Closing Date and (ii) Parent shall not be required to divest any of its
businesses, product lines or assets, or to take or agree to take any
other action or agree to any limitation that could reasonably be
expected to have a Material Adverse Effect on Parent.
5.6. Legal Requirements. Each of Acquiror and Parent will, and Parent
will cause Target to, take all reasonable actions necessary to comply in all
material respects promptly with all legal requirements which may be imposed on
them with respect to the consummation of the transactions contemplated by this
Agreement and will promptly cooperate with and furnish information to any party
hereto necessary in connection with any such requirements imposed upon such
other party in connection with the consummation of the transactions contemplated
by this Agreement and will take all reasonable actions necessary to obtain (and
will cooperate with the other parties hereto in obtaining) any consent,
approval, order or authorization of, or any registration, declaration or filing
with, any Governmental Entity or other person, required to be
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obtained or made by them in connection with the taking of any action
contemplated by this Agreement.
5.7. Transferred Employees. Immediately after the Closing Date,
Acquiror shall cause each employee of Target (each a "TRANSFERRED EMPLOYEE") to
continue to be employed in his or her respective positions with Target, whether
or not the Transferred Employee is subject to a written employment agreement.
Nothing herein shall require Acquiror after the Closing Date to retain any
Transferred Employee for any specified period of time.
5.8. Employee Plans. (a) As of the Closing Date, Target shall cease to
be a participating employer under the Plans and Parent shall take, or cause to
be taken, all such action as may be necessary to effect such cessation of
participation. Acquiror shall establish and maintain, or shall cause Target to
establish and maintain, as of the Closing Date, for all Transferred Employees,
such employee benefit plans, programs and policies and fringe benefits that
would provide benefits to such Transferred Employees that, in the aggregate, are
substantially equivalent to those provided to current United States employees of
Acquiror. Acquiror shall grant to each Transferred Employee credit for all
service with Target for purposes of eligibility, vesting and, except with
respect to any pension benefit plan (as defined in Section 3(2) of ERISA),
calculation of benefits (except to the extent that crediting such service would
result in the duplication of benefits) under each such employee benefit plan,
program and policy and fringe benefit. With respect to any health benefit plan
provided to the Transferred Employees, Acquiror shall waive any pre-existing
condition exclusion and, for purposes of any applicable deduction fees,
co-payments or out-of-pocket maximums, each Transferred Employee shall receive
credit for all amounts paid by such Transferred Employee under the health
benefit plans of Target and Parent. Acquiror shall not assume any assets,
liabilities or obligations (i) under any Plans for the payment of benefits
accrued, (ii) in the case of medical, dental and hospitalization plans, for
expenses actually incurred prior to the Closing Date, or (iii) for payment of
bonuses or termination or change of control payments pursuant to employment
agreements or otherwise, or similar payments payable to Transferred Employees as
a result of the sale of the Shares contemplated by this Agreement.(b) Prior to
the Closing Date, Parent will cause the vesting of fifty percent (50%) of all
unvested stock options held by Transferred Employees to be accelerated,
effective as of the Closing Date and conditioned upon the consummation of the
transactions contemplated by this Agreement. Acquiror agrees to offset any
compensation expense incurred by Parent as a result of such acceleration of
stock options up to a maximum amount of $140,000.
5.9. Covenant Not to Compete.
(a) Parent covenants and agrees that, if the Closing is
consummated and except as permitted under this Section 5.10, for a
period of five years after the Closing Date, it will not, and will
cause its subsidiaries not to, directly or indirectly, (i) engage in
the Business, (ii) render any services of a nature provided by Target
prior to the Closing to any person engaged in the Business, (iii)
become interested in any person engaged in the Business as a partner,
shareholder, member, manager, principal, agent, trustee, director,
officer, consultant or in any other similar relationship or capacity,
in each case in any location in which Acquiror or any subsidiary of
Acquiror (including Target after the Closing Date) engages in such
business as of the day before the Closing Date;
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provided, however, that nothing herein shall be construed to prevent
Parent or any of its subsidiaries from (A) holding the Acquiror Shares
or from owning, solely as an investment, securities of any person that
is publicly traded on any national securities exchange if such party
(x) is not a controlling person or a member of a group which controls
such person, and (y) does not, directly or indirectly, own in the
aggregate 2% or more of any class of securities of such person or (B)
exercising its rights under the Pricing Agreement.
(b) It is the desire and intent of the parties that the provisions
of this Section 5.9 shall be enforced to the fullest extent permitted
under the laws and public policies of each jurisdiction in which
enforcement is sought. If any court determines that any provision of
this Section 5.9 is unenforceable, such court shall have the power to
reduce the duration or scope of such provision, as the case may be, or
terminate such provision and, in reduced form, such provision shall be
enforceable; it is the intention of the parties that the foregoing
restrictions shall not be terminated, unless so terminated by a court,
but shall be deemed amended to the extent required to render them valid
and enforceable, such amendment to only apply with respect to the
operation of this Section 5.9 in the jurisdiction of the court that has
made the adjudication.
(c) Parent covenants and agrees that, if the Closing is
consummated, for a period of five years after the Closing Date, it will
not, and will cause its subsidiaries not to, directly or indirectly,
solicit for employment, either as an employee or consultant, any
employee or independent contractor of Acquiror or any of its
subsidiaries to become an employee or consultant or otherwise provide
services to Parent or any of its subsidiaries; provided, however, that
nothing in this paragraph (c) shall be construed as (i) prohibiting
Parent or any of its subsidiaries from conducting any general
solicitation (including by placing advertisements in any form or
method) not targeted at employees or independent contractors of
Acquiror and its subsidiaries or (ii) retaining the services of a
consultant or independent contractor of Acquiror for purposes unrelated
to the Business, provided that it does not impair such consultant's or
independent contractor's rendering of services to Acquiror.
(d) The parties acknowledge and agree that the restrictions
contained in this Section 5.9 are a reasonable and necessary protection
of the immediate interest of Acquiror, and any violation of these
restrictions would cause substantial injury to Acquiror and Acquiror
would not have entered into this Agreement without receiving the
additional consideration offered by Parent in binding itself to these
restrictions. In the event of a breach or a threatened breach by Parent
or any of its subsidiaries of these restrictions, Acquiror shall be
entitled to apply to any court of competent jurisdiction for an
injunction restraining such person from such breach of threatened
breach (without the necessity of providing the inadequacy of money
damages as a remedy); provided, however, that the right to apply for
injunctive relief shall not be construed as prohibiting Acquiror from
pursuing any other available remedies for such breach or threatened
breach.
5.10. Commercially Reasonable Efforts and Further Assurances. Each of
the parties to this Agreement shall use its commercially reasonable efforts to
effectuate the transactions
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contemplated hereby and to fulfill and cause to be fulfilled the conditions to
closing under this Agreement. Each party hereto, at the reasonable request of
another party hereto, shall execute and deliver such other instruments and do
and perform such other acts and things as may be necessary or desirable for
effecting completely the consummation of this Agreement and the transactions
contemplated hereby.
5.11. Shares Listing. Acquiror shall use its reasonable best efforts to
(i) consummate an underwritten offering of ordinary shares or ADRs, as the case
may be, of Acquiror to be listed for trading on EASDAQ or the London Stock
Exchange by October 29, 1999, and (ii) make all filings mandated by law or by
EASDAQ or the London Stock Exchange that are necessary for the Acquiror Shares
to be listed on such exchange. In addition, Acquiror shall use its reasonable
best efforts to ensure that the Acquiror Shares may be freely sold by Parent as
the Acquiror Shares are released from the lock-up described in Section 5.1.
5.12. Interim Services Agreement. In connection with the consummation
of the transactions contemplated by this Agreement, Parent and Acquiror covenant
and agree to negotiate in good faith and enter into an Interim Services
Agreement in form and substance reasonably acceptable to Parent and Acquiror
("INTERIM SERVICES AGREEMENT") on the Closing Date, relating to the transitional
services described on Appendix A hereto which Parent will provide to Acquiror at
cost for a four-month period following the Closing Date (or such shorter period
of time as may be specified by written notice from Acquiror to Parent delivered
at least 30 days prior to the expiration of such shorter period of time).
5.13. Pricing Agreement. In connection with the consummation of the
transactions contemplated by this Agreement, Parent and Acquiror covenant and
agree to negotiate in good faith and enter into a Pricing Agreement containing
the terms described on Appendix B hereto and otherwise in form and substance
reasonably acceptable to Parent and Acquiror ("PRICING AGREEMENT") on the
Closing Date.
5.14. Working Capital. Parent shall use commercially reasonable efforts
to ensure that the working capital of Target as of the Closing Date is
substantially equivalent to the working capital of Target as of July 31, 1999,
as calculated based on the Financial Statements (the "Target Amount"). If the
working capital of Target as of the Closing Date is less than the Target Amount,
Parent shall pay to Acquiror (in U.S. dollars) the amount of such deficiency
within 30 days following the Closing Date. If the working capital of Target as
of the Closing Date is greater than the Target Amount, Acquiror shall pay to
Parent (in U.S. dollars) the amount of such excess within 30 days following the
Closing Date. The determination of the working capital of Target as of the
Closing Date shall be done mutually by Parent and Acquiror, working in
cooperation with each other. For purposes of this Section 5.14, the working
capital of Target shall mean the current assets of Target less the current
liabilities of Target, excluding any inter-company accounts between Target and
Parent or any subsidiary or affiliate of Parent and excluding deferred revenue,
in all cases calculated in accordance with U.S. generally accepted accounting
principles.
5.15. Inter-Company Balances. Parent shall eliminate all inter-company
balances between Target and Parent or any subsidiary or affiliate of Parent,
effective as of the Closing.
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5.16 Audited Financial Statements. Parent will ensure that the audited
consolidated financial statements of Target as referred to in Section 2.5 hereof
and delivered by Parent's independent public accountants in their audit report
to Parent are delivered to Acquiror by midday (UK time) on September 25, 1999.
ARTICLE VI.
CONDITIONS TO THE CLOSING
6.1. Conditions to Obligations of Each Party to Effect the Closing. The
respective obligations of each party to this Agreement to consummate and effect
and the transactions contemplated hereby shall be subject to the satisfaction at
or prior to the Closing Date of each of the following conditions, any of which
may be waived, in writing, by agreement of all the parties hereto:
(a) No Injunctions or Restraints; Illegality. No temporary
restraining order, preliminary or permanent injunction or other order
issued by any court of competent jurisdiction or other legal or
regulatory restraint or prohibition preventing the consummation of the
transactions contemplated hereby shall be in effect, nor shall any
proceeding brought by an administrative agency or commission or other
Governmental Entity or instrumentality, domestic or foreign, seeking
any of the foregoing be pending; nor shall there be any action taken,
or any statute, rule, regulation or order enacted, entered, enforced or
deemed applicable to the transactions contemplated hereby, which makes
the consummation of the transactions contemplated hereby illegal. In
the event an injunction or other order shall have been issued, each
party agrees to use its reasonable efforts to have such injunction or
other order lifted.
(b) Governmental Approval. Acquiror, Parent and Target, their
respective subsidiaries shall have timely obtained from each
Governmental Entity all material approvals, waivers and consents, if
any, necessary for consummation of or in connection with the several
transactions contemplated hereby.
6.2. Additional Conditions to Obligations of Parent. The obligations
of Parent to consummate and effect the transactions contemplated hereby shall be
subject to the satisfaction at or prior to the Closing Date of each of the
following conditions, any of which may be waived, in writing, by Parent:
(a) Representations, Warranties and Covenants. (i) The
representations and warranties of Acquiror in this Agreement shall be
true and correct in all material respects (except for such
representations and warranties that are qualified by their terms by a
reference to materiality, which representations and warranties as so
qualified shall be true in all respects) on and as of the Closing Date
as though such representations and warranties were made on and as of
such time, except to the extent that the inaccuracy of any such
representation or warranty, individually or in the aggregate, is the
result of the conduct of Acquiror's business in the ordinary course of
business consistent with past practice and except to the extent that
the inaccuracy of the representations and warranties
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contained in Section 3.5 is the result of any litigation instituted by
Parent or any of its subsidiaries or affiliates, and (ii) Acquiror
shall have performed and complied in all material respects with all
covenants, obligations and conditions of this Agreement required to be
performed and complied with by it as of the Closing Date.
(b) Certificate of Acquiror. Parent shall have been provided with
a certificate executed on behalf of Acquiror by an officer of Acquiror
to the effect set forth in Section 6.2(a).
(c) Listing of Acquiror Shares. Acquiror shall have consummated an
underwritten offering of ordinary shares or ADRs, as the case may be,
of Acquiror to be listed on EASDAQ or the London Stock Exchange and
shall have received payment therefor, and the Acquiror Shares shall be
available to be listed on such exchange, subject only to any customary
documents and actions to be executed or taken by Parent to obtain such
listing.
(d) Pricing Agreement. Acquiror and Parent shall have entered into
the Pricing Agreement.
(e) Legal Opinion. Parent shall have received a legal opinion from
Acquiror's legal counsel in the United Kingdom in form and substance
reasonable and customary for transactions of this nature.
6.3. Additional Conditions to the Obligations of Acquiror.
The obligations of Acquiror to consummate and effect the transactions
contemplated hereby shall be subject to the satisfaction at or prior to the
Closing Date of each of the following conditions, any of which may be waived, in
writing, by Acquiror:
(a) Representations, Warranties and Covenants. Except as disclosed
in the Disclosure Schedule, (i) the representations and warranties of
Parent and Target in this Agreement shall be true and correct in all
material respects (except for such representations and warranties that
are qualified by their terms by a reference to materiality, which
representations and warranties as so qualified shall be true in all
respects) at and as of the Closing Date as though such representations
and warranties were made on and as of such time, except to the extent
that the inaccuracy of any such representation or warranty,
individually or in the aggregate, is the result of the conduct of the
Business in the ordinary course of business consistent with past
practice, and (ii) Parent and Target shall have performed and complied
in all material respects with all covenants, obligations and conditions
of this Agreement required to be performed and complied with by them as
of the Closing Date.
(b) Certificate of Target. Acquiror shall have been provided with
a certificate executed on behalf of Parent by its President to the
effect that set forth in Section 6.3(a).
(c) Third Party Consents. Acquiror shall have been furnished with
evidence satisfactory to it of the consent or approval of those persons
whose consent or approval shall be required in connection with the
transactions contemplated hereby under the contracts of Parent and
Target set forth on Schedule 2.29 hereto, except for any the
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absence of which would not have a Material Adverse Effect on the
Business or on the ability of the parties hereto to consummate the
transactions contemplated by this Agreement.
(d) Injunctions or Restraints on Conduct of Business. No temporary
restraining order, preliminary or permanent injunction or other order
issued by any court of competent jurisdiction or other legal or
regulatory restraint provision limiting or restricting Acquiror's
conduct or operation of the Business following the Closing Date shall
be in effect, nor shall any proceeding brought by an administrative
agency or commission or other Governmental Entity, domestic or foreign,
seeking the foregoing be pending.
(e) Legal Opinion. Acquiror shall have received a legal opinion
from Parent's legal counsel in the United States in form and substance
reasonable and customary for transactions of this nature.
(f) Resignation of Directors and Officers. The directors and
officers of Target in office immediately prior to the Closing Date
shall have resigned as directors and officers, as applicable, of Target
effective as of the Closing Date, and Acquiror shall have received
letters of resignation (including waivers of claims against Target)
from such persons in form and substance reasonably satisfactory to
Acquiror.
(g) Listing of Acquiror Shares. Acquiror shall have consummated an
underwritten offering of ordinary shares or ADRs, as the case may be,
of Acquiror to be listed on EASDAQ or the London Stock Exchange and
shall have received payment therefor, and the Acquiror Shares shall be
available to be listed on such exchange, subject only to any customary
documents and actions to be executed or taken by Parent to obtain such
listing.
(h) Interim Services Agreement. Acquiror and Parent shall have
entered into the Interim Services Agreement.
(i) Pricing Agreement. Acquiror and Parent shall have entered into
the Pricing Agreement.
(j) FIRPTA Compliance. Acquiror shall have received a copy of the
statement regarding the Foreign Investment and Real Property Tax Act of
1980, validly executed by a duly authorized officer of Target.
ARTICLE VII.
TERMINATION, AMENDMENT AND WAIVER
7.1. Termination. At any time prior to the Closing Date this Agreement
may be terminated:
(a) by mutual consent duly authorized by the Board of Directors of
Acquiror and Parent;
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(b) by either Acquiror or Parent, if the Closing shall not have
occurred on or before December 15, 1999 (provided, a later date may be
agreed upon in writing by the parties hereto, and provided further that
the right to terminate this Agreement under this Section 7.1(b) shall
not be available to any party whose action or failure to act has been
the cause or resulted in the failure of the transactions contemplated
hereby to occur on or before such date and such action or failure to
act constitutes a breach of this Agreement);
(c) by Acquiror, if Parent or Target shall breach any
representation, warranty, obligation or agreement hereunder in any
material respect and such breach is not cured within 15 days after
written notice thereof from Acquiror;
(d) by Parent, if Acquiror shall breach any representation,
warranty, obligation or agreement hereunder in any material respect and
such breach is not cured within 15 days after written notice thereof
from Parent;
(e) by either Acquiror or Parent if any permanent injunction or
other order of a court or other competent authority preventing the
consummation of the transactions contemplated by this Agreement shall
have become final and nonappealable.
7.2. Effect of Termination. In the event of termination of this
Agreement as provided in Section 7.1, this Agreement shall forthwith become void
and there shall be no liability or obligation on the part of Acquiror, Parent or
Target or their respective officers, directors, agents, shareholders or
affiliates, except as set forth in Section 7.3 below and to the extent that such
termination results from the breach by a party hereto of any of its
representations, warranties, obligations or agreements set forth in this
Agreement; provided that the provisions of Section 5.3 (Confidentiality),
Section 7.3 (Expenses and Termination Fees) and this Section 7.2 and of Article
IX shall remain in full force and effect and survive any termination of this
Agreement.
7.3. Expenses and Termination Fees.
(a) Subject to Section 7.3 (b), whether or not the transactions
contemplated hereby are consummated, all costs and expenses incurred in
connection with this Agreement and the transactions contemplated hereby
(including, without limitation, the fees and expenses of its advisers,
accountants and legal counsel) shall be paid by the party incurring
such expense, provided, however, that Acquiror shall reimburse Parent
for expenses incurred in connection with an audit of Target in an
amount not to exceed $25,000.
(b) In the event that this Agreement shall be terminated by
Acquiror pursuant to Section 7.1(c), Parent shall pay to Acquiror, upon
such termination, an amount equal to $2,000,000. In the event that (i)
this Agreement shall be terminated under any other provision of Section
7.1 (excluding Section 7.1(d)), (ii) Parent has received an Acquisition
Proposal prior to such termination and (iii) such Acquisition Proposal
is consummated (as defined below), Parent shall pay to Acquiror an
amount equal to $2,000,000 upon the consummation of such Acquisition
Proposal. For purposes of this Section 7.3(b) "consummation" of an
Acquisition Proposal shall mean the consummation of the acquisition or
merger contemplated by the Acquisition Proposal.
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7.4. Amendment. The parties hereto may cause this Agreement to be
amended at any time by execution of an instrument in writing signed on behalf of
each of the parties hereto.
7.5. Extension; Waiver. At any time prior to the Closing Date any party
hereto may, to the extent legally allowed, (i) extend the time for the
performance of any of the obligations or other acts of the other parties hereto,
(ii) waive any inaccuracies in the representations and warranties made to such
party contained herein or in any document delivered pursuant hereto and (iii)
waive compliance with any of the agreements or conditions for the benefit of
such party contained herein. Any agreement on the part of a party hereto to any
such extension or waiver shall be valid only if set forth in an instrument in
writing signed on behalf of such party.
ARTICLE VIII.
INDEMNIFICATION
8.1. Indemnification.(a)
(a) (i) Subject to the limitations set forth in Section 8.1(b)
below, Parent shall indemnify and hold Acquiror and its officers,
directors and affiliates (including Target after the Closing), harmless
against all claims, losses, liabilities, damages, deficiencies, costs
and expenses, including reasonable attorneys' fees and expenses of
investigation and defense (hereinafter individually, a "LOSS" and
collectively "LOSSES") incurred by Acquiror or its officers, directors
or affiliates, directly or indirectly, as a result of (x) any
inaccuracy or breach of a representation or warranty of Target or
Parent contained in this Agreement or in any instrument or certificate
executed and delivered by Target or Parent to Acquiror pursuant to the
terms of this Agreement, or (y) any failure by Target or Parent to
perform or comply with any covenant contained in this Agreement.
(ii) Subject to the limitations set forth in Section 8.1(b) below,
Acquiror shall indemnify and hold Parent and its officers, directors
and affiliates harmless against all Losses incurred by Parent or its
officers, directors or affiliates, directly or indirectly, as a result
of (x) any inaccuracy or breach of a representation or warranty of
Acquiror contained in this Agreement or in any instrument or
certificate executed and delivered by Acquiror to Parent pursuant to
the terms of this Agreement, or (y) any failure by Acquiror to perform
or comply with any covenant contained in this Agreement.
(b) Limitation on Liability.
(i) Notwithstanding the foregoing, except (A) as provided in this
Section 8.1(b)(i) and (B) for Losses resulting from breaches or
inaccuracies of representations and warranties contained in Section
2.14 of this Agreement, the aggregate maximum amount either Acquiror or
Parent may recover from the other under this Agreement shall be limited
to U.S. $17,000,000. Parent shall not have any right of contribution
from Target with respect to any Loss claimed by Acquiror, or its
officers, directors, employees and affiliates, after the Closing. In
the event of a willful or fraudulent breach of the representations,
warranties or covenants contained herein, the limitations on
indemnification provided for in this Section 8.1(b)(i) shall not apply.
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(ii) Notwithstanding the foregoing, neither Parent nor Acquiror
shall be liable for Losses under this Article VIII unless and until the
aggregate Losses for which it would otherwise be liable exceed $100,000
(at which point Parent or Acquiror shall become liable for the
aggregate amount of such Losses, and not just amounts in excess of
$100,000).
(iii) The amount of Losses recoverable under this Article VIII
shall be reduced by any proceeds which the indemnified party (or an
affiliate of the indemnified party) receives, or is legally entitled to
receive, with respect to such Losses from an insurance carrier.
(iv) Except with respect to claims based on fraud, after the
Closing the rights set forth in this Article VIII shall be the
exclusive monetary remedy of the parties to this Agreement with respect
to claims resulting from or relating to any inaccuracy or breach of a
representation or warranty contained in this Agreement or in any
certificate executed and delivered pursuant to the terms of this
Agreement and any failure to perform or comply with any covenant
contained in this Agreement.
(c) Delivery of Officer's Certificate. In the event a party shall
have incurred any Losses for which such party wishes to be indemnified
pursuant to this Article VIII, such party shall deliver to the
indemnifying party a certificate signed by any officer of such party
(an "OFFICER'S CERTIFICATE"): (i) stating that such party to be
indemnified has paid or properly accrued or reasonably anticipates that
it will have to pay or accrue Losses and (ii) specifying in reasonable
detail the individual items of Losses included in the amount so stated,
the date each such item was paid or properly accrued or the basis for
such anticipated liability, and the nature of the misrepresentation,
breach of warranty or covenant to which such item is related. The
indemnifying party may object to the claim made in the Officer's
Certificate by delivering to the party to be indemnified written notice
of such objection (which shall include a summary of the basis upon
which such objection is founded) within thirty (30) days after delivery
of the Officer's Certificate to the indemnifying party.
(d) Resolution of Conflicts; Arbitration.
(i) In the event that the indemnifying party shall, as provided
for in Section 8.1(c), object in writing to any claim or claims made in
any Officer's Certificate within thirty (30) days after delivery to the
indemnifying party of such Officer's Certificate, the parties hereto
shall attempt in good faith to agree upon the rights of the respective
parties with respect to each of such claims. If the parties hereto
should so agree, a memorandum setting forth such agreement shall be
prepared and signed by both parties.
(ii) If no such agreement can be reached after good faith
negotiation, either party may, not earlier than 30 days following
delivery of such notice of objection, demand arbitration of the matter
unless the amount of the damage or Loss is at issue in pending
litigation with a third party, in which event arbitration shall not be
commenced until such amount is ascertained or both parties agree to
arbitration; and in each such event the matter shall be settled by
arbitration conducted by one arbitrator mutually
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agreeable to Parent and Acquiror. In the event that within fifteen (15)
days after submission of any dispute to arbitration, Parent and
Acquiror cannot mutually agree on one arbitrator, Acquiror and Parent
shall each select one arbitrator, and the two arbitrators so selected
shall select a third arbitrator. The arbitrator or arbitrators, as the
case may be, shall set a limited time period and establish procedures
designed to reduce the cost and time for discovery while allowing the
parties an opportunity, adequate in the sole judgement of the
arbitrator or majority of the three arbitrators, as the case may be, to
discover relevant information from the opposing parties about the
subject matter of the dispute. The arbitrator or a majority of the
three arbitrators, as the case may be, shall rule upon motions to
compel or limit discovery and shall have the authority to impose
sanctions, including attorneys' fees and costs, to the extent as a
competent court of law or equity, should the arbitrators or a majority
of the three arbitrators, as the case may be, determine that discovery
was sought without substantial justification or that discovery was
refused or objected to without substantial justification. The decision
of the arbitrator or a majority of the three arbitrators, as the case
may be, as to the validity and amount of any claim in such Officer's
Certificate shall be binding and conclusive upon the parties to this
Agreement. Such decision shall be written and shall be supported by
written findings of fact and conclusions which shall set forth the
award, judgment, decree or order awarded by the arbitrator(s).
(iii) Judgment upon any award rendered by the arbitrator(s) may be
entered in any court having jurisdiction. Any such arbitration shall be
held in New York, New York, under the rules then in effect of the
American Arbitration Association. The arbitrator(s) shall determine how
all expenses relating to the arbitration shall be paid, including,
without limitation, the respective expenses of each party, the fees of
each arbitrator and the administrative fee of the American Arbitration
Association.
(e) Third-Party Claims. In the event any party becomes aware of a
third-party claim which it believes may result in Losses, it shall
promptly notify the other party of such claim. The indemnifying party
shall have the right at its expense to employ counsel of its choice to
assume control of the defense of such claim and the party to be
indemnified shall be entitled, at its expense, to participate in the
defense of such claim. So long as the indemnifying party is defending
such claim, the indemnifying party shall employ reasonable efforts to
inform the party to be indemnified of material developments relating to
such claim. So long as the indemnifying party is defending such claim,
in good faith, the party to be indemnified will not settle such claim
without the indemnifying party's written consent, which consent shall
not be unreasonably withheld, and the indemnifying party shall not
settle any claim on behalf of the party to be indemnified without such
party's written consent, which consent shall be not be unreasonably
withheld. In the event that the indemnifying party does not assume the
defense of such claim or fails to defend the claim in good faith, the
party to be indemnified shall have the right in its sole discretion to
defend and settle any such claim; provided, however, that except with
the consent of the indemnifying party, no settlement of any such claim
with third-party claimants shall be determinative of the amount of any
claim for indemnification pursuant to Section 8.1.
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ARTICLE IX.
GENERAL PROVISIONS
9.1. Survival. The representations and warranties of the parties
contained herein shall survive until the date occurring eighteen (18) months
after the Closing Date (or, if later, the final resolution of any indemnity
claims hereunder with respect to a particular representation or warranty made
before such date), except that the representations, warranties and covenants
contained in Section 2.2 and 2.3 shall survive indefinitely, and in Section 2.14
shall survive until the expiration of all applicable statutes of limitations, or
extensions thereof, and the provisions of Article VIII shall survive in
accordance with their terms.
9.2. Notices. All notices and other communications hereunder shall be
in writing and shall be deemed given if delivered personally or by commercial
delivery service, or mailed by registered or certified mail (return receipt
requested) or sent via facsimile (with confirmation of receipt) to the parties
at the following address (or at such other address for a party as shall be
specified by like notice):
(a) if to Acquiror, to:
JSB Software Technologies plc
Riverside
Mountbatten Way
Congleton
Cheshire
CW12 1DY
Attention: Group Chief Executive
Facsimile No: 011-44-126-029-6201
Telephone No: 011-44-126-029-6200
with a copy to:
Hammond Suddards
Trinity Court
16 John Dalton Street
Manchester M60 8HS
Attention: Patrick Jolly
Facsimile No: 011-44-161-830-5001
Telephone No: 011-44-161-830-5000
(b) if to Parent or Target, to:
Spyglass, Inc.
45 Hayden Avenue
Lexington, MA 02421
Attention: Gary Vilchick
Facsimile No: 781-372-4783
Telephone No: 781-372-4610
38
<PAGE> 41
with a copy to:
Hale and Dorr LLP
60 State Street
Boston, MA 02109
Attention: Patrick J. Rondeau, Esq.
Facsimile No: 617-526-5000
Telephone No: 617-526-6000
Any notice or other communication hereunder shall be deemed to have been given
on the date which it is received by the receiving party.
9.3. Interpretation. When a reference is made in this Agreement to
Exhibits, such reference shall be to an Exhibit to this Agreement unless
otherwise indicated. The words "include," "includes" and "including" when used
herein shall be deemed in each case to be followed by the words "without
limitation." The phrase "made available" in this Agreement shall mean that the
information referred to has been made available if requested by the party to
whom such information is to be made available.
9.4. Counterparts. This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same agreement and
shall become effective when one or more counterparts have been signed by each of
the parties and delivered to the other parties, it being understood that all
parties need not sign the same counterpart. This Agreement may be executed and
delivered by facsimile signature.
9.5. Entire Agreement; Nonassignability; Parties in Interest. This
Agreement and the documents and instruments and other agreements specifically
referred to herein or delivered pursuant hereto, including the Exhibits, the
Schedules, including the Disclosure Schedule (a) constitute the entire agreement
among the parties with respect to the subject matter hereof and supersede all
prior agreements and understandings, both written and oral, among the parties
with respect to the subject matter hereof, except for the Confidentiality
Agreement, which shall continue in full force and effect, and shall survive any
termination of this Agreement or the Closing, in accordance with its terms, (b)
are not intended to confer upon any other person any rights or remedies
hereunder, (c) shall not be assigned by operation of law or otherwise except as
otherwise specifically provided and except that Acquiror may assign its rights
hereunder to a wholly-owned subsidiary and (d) shall be binding upon and inure
to the benefit of the parties hereto and their respective successors and
permitted assigns.
9.6. Severability. In the event that any provision of this Agreement,
or the application thereof, becomes or is declared by a court of competent
jurisdiction to be illegal, void or unenforceable, the remainder of this
Agreement will continue in full force and effect and the application of such
provision to other persons or circumstances will be interpreted so as reasonably
to effect the intent of the parties hereto. The parties further agree to replace
such void or unenforceable provision of this Agreement with a valid and
enforceable provision that will achieve, to the extent possible, the economic,
business and other purposes of such void or unenforceable provision.
39
<PAGE> 42
9.7. Remedies Cumulative. Except as otherwise provided herein, any and
all remedies herein expressly conferred upon a party will be deemed cumulative
with and not exclusive of any other remedy conferred hereby, or by law or equity
upon such party, and the exercise by a party of any one remedy will not preclude
the exercise of any other remedy.
9.8. Rules of Construction. The parties hereto agree that they have
been represented by counsel during the negotiation, preparation and execution of
this Agreement and, therefore, waive the application of any law, regulation,
holding or rule of construction providing that ambiguities in an agreement or
other document will be construed against the party drafting such agreement or
document.
9.9. Governing Law. This Agreement shall be governed by and construed
in accordance with the laws of the State of New York, regardless of the laws
that might otherwise govern under applicable principles of conflicts of laws
thereof.
40
<PAGE> 43
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed and delivered by their respective officers thereunto duly authorized,
all as of the date first written above.
SPYGLASS, INC.
By: ________________________________
Name: ________________________________
Title: ________________________________
SURFWATCH SOFTWARE, INC.
By: ________________________________
Name: ________________________________
Title: ________________________________
JSB SOFTWARE TECHNOLOGIES PLC
By: ________________________________
Name: ________________________________
Title: ________________________________
41
<PAGE> 44
The following appendices and Disclosure Schedules have been omitted. They will
be supplied to the SEC upon its request:
Appendix A - Transitional Services
Appendix B - Pricing Agreement related to Spyglass as a reseller of
Surfwatch Software
Disclosure Schedule 2.4 - Sufficiency of Assets
Disclosure Schedule 2.8 - Litigation
Disclosure Schedule 2.11 - Property
Disclosure Schedule 2.12 - Intellectual Property
Disclosure Schedule 2.14 - Tax Matters
Disclosure Schedule 2.15 - Employee Benefit Plans
Disclosure Schedule 2.16 - Certain Agreements Affected by Stock Purchase
Agreement
Disclosure Schedule 2.27 - Material Contracts
Disclosure Schedule 2.28 - No Breach of Material Contracts
Disclosure Schedule 2.29 - Material Third Party Consents
Disclosure Schedule 2.31 - Product Releases
42
<PAGE> 1
SPYGLASS, INC. EXHIBIT 10.32
Deferred Compensation Plan
================================================================================
EFFECTIVE NOVEMBER 1, 1999
<PAGE> 2
SPYGLASS, INC.
Deferred Compensation Plan
================================================================================
TABLE OF CONTENTS
PAGE
PURPOSE...................................................................... 1
ARTICLE 1 DEFINITIONS...................................................... 1
ARTICLE 2 SELECTION, ENROLLMENT, ELIGIBILITY............................... 8
2.1 SELECTION BY COMMITTEE........................................... 8
2.2 ENROLLMENT REQUIREMENTS.......................................... 8
2.3 ELIGIBILITY; COMMENCEMENT OF PARTICIPATION....................... 8
2.4 TERMINATION OF PARTICIPATION AND/OR DEFERRALS.................... 8
ARTICLE 3 DEFERRAL COMMITMENTS/COMPANY MATCHING/CREDITING/TAXES............ 9
3.1 MINIMUM DEFERRALS................................................ 9
3.2 MAXIMUM DEFERRAL................................................. 9
3.3 ELECTION TO DEFER; EFFECT OF ELECTION FORM.......................10
3.4 WITHHOLDING OF ANNUAL DEFERRAL AMOUNTS...........................10
3.5 ANNUAL COMPANY CONTRIBUTION AMOUNT...............................10
3.6 ANNUAL COMPANY MATCHING AMOUNT...................................10
3.7 INVESTMENT OF TRUST ASSETS.......................................10
3.8 VESTING..........................................................11
3.9 CREDITING/DEBITING OF ACCOUNT BALANCES...........................12
3.10 FICA AND OTHER TAXES.............................................14
3.11 DISTRIBUTIONS....................................................14
ARTICLE 4 SHORT-TERM PAYOUT; UNFORESEEABLE FINANCIAL EMERGENCIES; WITHDRAWAL
ELECTION.........................................................15
4.1 SHORT-TERM PAYOUT................................................15
4.2 OTHER BENEFITS TAKE PRECEDENCE OVER SHORT-TERM...................15
4.3 WITHDRAWAL PAYOUT/SUSPENSIONS FOR UNFORESEEABLE FINANCIAL
EMERGENCIES......................................................15
4.4 WITHDRAWAL ELECTION..............................................15
ARTICLE 5 RETIREMENT BENEFIT...............................................16
5.1 RETIREMENT BENEFIT...............................................16
5.2 PAYMENT OF RETIREMENT BENEFIT....................................16
5.3 DEATH PRIOR TO COMPLETION OF RETIREMENT BENEFIT..................16
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SPYGLASS, INC.
Deferred Compensation Plan
===============================================================================
ARTICLE 6 PRE-RETIREMENT SURVIVOR BENEFIT..................................17
6.1 PRE-RETIREMENT SURVIVOR BENEFIT..................................17
ARTICLE 7 TERMINATION BENEFIT..............................................17
7.1 TERMINATION BENEFIT..............................................17
7.2 PAYMENT OF TERMINATION BENEFIT...................................17
ARTICLE 8 DISABILITY WAIVER AND BENEFIT....................................17
8.1 DISABILITY WAIVER................................................17
8.2 CONTINUED ELIGIBILITY; DISABILITY BENEFIT........................18
ARTICLE 9 BENEFICIARY DESIGNATION..........................................18
9.1 BENEFICIARY......................................................18
9.2 BENEFICIARY DESIGNATION; CHANGE; SPOUSAL CONSENT.................18
9.3 ACKNOWLEDGEMENT..................................................19
9.4 NO BENEFICIARY DESIGNATION.......................................19
9.5 DOUBT AS TO BENEFICIARY..........................................19
9.6 DISCHARGE OF OBLIGATIONS.........................................19
ARTICLE 10 LEAVE OF ABSENCE.................................................19
10.1 PAID LEAVE OF ABSENCE............................................19
10.2 UNPAID LEAVE OF ABSENCE..........................................19
ARTICLE 11 TERMINATION, AMENDMENT OR MODIFICATION...........................20
11.1 TERMINATION......................................................20
11.2 AMENDMENT........................................................20
11.3 PLAN AGREEMENT...................................................21
11.4 EFFECT OF PAYMENT................................................21
ARTICLE 12 ADMINISTRATION...................................................21
12.1 COMMITTEE DUTIES.................................................21
12.2 ADMINISTRATION UPON CHANGE IN CONTROL............................21
12.3 AGENTS...........................................................22
12.4 BINDING EFFECT OF DECISIONS......................................22
12.5 INDEMNITY OF COMMITTEE...........................................22
12.6 EMPLOYER INFORMATION.............................................22
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SPYGLASS, INC.
Deferred Compensation Plan
===============================================================================
ARTICLE 13 OTHER BENEFITS AND AGREEMENTS....................................23
13.1 COORDINATION WITH OTHER BENEFITS.................................23
ARTICLE 14 CLAIMS PROCEDURES................................................23
14.1 PRESENTATION OF CLAIM............................................23
14.2 NOTIFICATION OF DECISION.........................................23
14.3 REVIEW OF A DENIED CLAIM.........................................24
14.4 DECISION OF REVIEW...............................................24
14.5 LEGAL ACTION.....................................................24
ARTICLE 15 TRUST............................................................24
15.1 ESTABLISHMENT OF THE TRUST.......................................24
15.2 INTERRELATIONSHIP OF THE PLAN AND THE TRUST......................24
15.3 DISTRIBUTIONS FROM THE TRUST.....................................25
ARTICLE 16 MISCELLANEOUS....................................................25
16.1 STATUS OF PLAN...................................................25
16.2 UNSECURED GENERAL CREDITOR.......................................25
16.3 EMPLOYER'S LIABILITY.............................................25
16.4 NONASSIGNABILITY.................................................25
16.5 NOT A CONTRACT OF EMPLOYMENT.....................................25
16.6 FURNISHING INFORMATION...........................................26
16.7 TERMS............................................................26
16.8 CAPTIONS.........................................................26
16.9 GOVERNING LAW....................................................26
16.10 NOTICE...........................................................26
16.11 SUCCESSORS.......................................................27
16.12 VALIDITY.........................................................27
16.13 INCOMPETENT......................................................27
16.14 COURT ORDER......................................................27
16.15 DISTRIBUTION IN THE EVENT OF TAXATION............................27
16.16 INSURANCE........................................................28
16.17 LEGAL FEES TO ENFORCE RIGHTS AFTER CHANGE IN CONTROL.............28
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SPYGLASS, INC.
Deferred Compensation Plan
================================================================================
Spyglass, Inc.
DEFERRED COMPENSATION PLAN
Effective November 1, 1999
PURPOSE
The purpose of this Plan is to provide specified benefits to a select
group of management and highly compensated Employees who contribute materially
to the continued growth, development and future business success of Spyglass,
Inc., a Delaware corporation, and its subsidiaries, if any, that sponsor this
Plan. This Plan shall be unfunded for tax purposes and for purposes of Title I
of ERISA.
ARTICLE 1
DEFINITIONS
For purposes of this Plan, unless otherwise clearly apparent from the
context, the following phrases or terms shall have the following indicated
meanings:
1.1 "Account Balance" shall mean, with respect to a Participant, a credit on
the records of the Employer equal to the sum of (i) the Deferral Account
balance, (ii) the Company Contribution Account balance and (iii) the
Company Matching Account balance. The Account Balance, and each other
specified account balance, shall be a bookkeeping entry only and shall be
utilized solely as a device for the measurement and determination of the
amounts to be paid to a Participant, or his or her designated Beneficiary,
pursuant to this Plan.
1.2 "Bonus" shall mean any cash compensation, in addition to Annual Salary
relating to services performed during any calendar year, whether or not
paid in such calendar year or included on the Federal Income Tax Form W-2
for such calendar year, payable to a Participant as an Employee under any
Employer's bonus, and cash incentive plans, excluding stock options and
Commissions.
1.3 "Commissions" shall mean, cash compensation in addition to Annual Salary
and Bonus for the Participant's services related to sales production.
1.4 "Company Contribution Amount" shall mean, for any one Plan Year, the
amount determined in accordance with Section 3.5.
1.5 "Company Matching Amount" for any one Plan Year shall be the amount
determined in accordance with Section 3.6.
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SPYGLASS, INC.
Deferred Compensation Plan
================================================================================
1.6 "Annual Deferral Amount" shall mean that portion of a Participant's Annual
Salary, and Bonus that a Participant elects to have, and is deferred, in
accordance with Article 3, for any one Plan Year. In the event of a
Participant's Retirement, Disability (if deferrals cease in accordance
with Section 8.1), death or a Termination of Employment prior to the end
of a Plan Year, such year's Annual Deferral Amount shall be the actual
amount withheld prior to such event.
1.7 "Annual Installment Method" shall mean annual installments over the number
of years selected by the Participant or Committee in accordance with this
Plan, calculated as follows: The Account Balance of the Participant shall
be calculated as of the close of business on the last business day of the
year; provided, however, that for the Plan Year in which the Participant
Retires, the Account Balance of the Participant shall be calculated as of
the Retirement date. The annual installment shall be calculated by
multiplying this balance by a fraction, the numerator of which is one, and
the denominator of which is the remaining number of annual installments
due the Participant. By way of example, if the Participant elects a 10
year Annual Installment Method, the first annual installment shall be 1/10
of the Account Balance, calculated as described in this definition. The
following year, the annual installment shall be 1/9 of the Account
Balance, calculated as described in this definition. Each annual
installment shall be divided by four and distributed to the Participant in
four equal payments, one payment to be made each calendar quarter of the
Plan Year, on or as soon as practicable after the first business day of
each calendar quarter of the Plan Year; provided, however, that for the
Plan Year in which the Participant Retires, the annual installment shall
be divided by the sum of one plus the number of remaining full calendar
quarter(s) in such Plan Year. By way of example, if the annual installment
a Plan Year totals $100,000, $25,000 shall be paid to the Participant on
or as soon as practicable after January 1, April 1, July 1 and October 1.
1.8 "Annual Salary" shall mean the annual cash compensation relating to
services performed during any calendar year, whether or not paid in such
calendar year or included on the Federal Income Tax Form W-2 for such
calendar year, excluding bonuses, commissions, royalties, overtime, fringe
benefits, relocation expenses, incentive payments, non-monetary awards,
directors fees and other fees, automobile and other allowances paid to a
Participant for employment services rendered (whether or not such
allowances are included in the Employee's gross income). Annual Salary
shall be calculated before reduction for compensation voluntarily deferred
or contributed by the Participant pursuant to all qualified or
non-qualified plans of any Employer and shall be calculated to include
amounts not otherwise included in the Participant's gross income under
Code Sections 125, 402(e)(3), 402(h), or 403(b) pursuant to plans
established by any Employer; provided, however, that all such amounts will
be included in compensation only to the extent that, had there been no
such plan, the amount would have been payable in cash to the Employee.
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SPYGLASS, INC.
Deferred Compensation Plan
================================================================================
1.9 "Beneficiary" shall mean one or more persons, trusts, estates or other
entities, designated in accordance with Article 9, that are entitled to
receive benefits under this Plan upon the death of a Participant.
1.10 "Beneficiary Designation Form" shall mean the form established from time
to time by the Committee that a Participant completes, signs and returns
to the Committee to designate one or more Beneficiaries.
1.11 "Board" shall mean the board of directors of the Company.
1.12 "Change in Control" shall mean the first to occur of any of the following
events:
(a) The acquisition by any individual, entity or group (within the
meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange
Act of 1934, as amended (the "Exchange Act")) (a "Person") of
beneficial ownership (within the meaning of Rule 13d-3 promulgated
under the Exchange Act) of twenty percent (20%) or more of either
(i) the then-outstanding shares of common stock of the Company (the
"Outstanding Company Common Stock") or (ii) the combined voting
power of the then-outstanding voting securities of the Company
entitled to vote generally in the election of directors (the
"Outstanding Company Voting Securities"); provided, however, that
for purposes of this Section 1.12, the following acquisitions shall
not constitute a Change of Control: (i) any acquisition directly
from the Company other than in connection with the acquisition by
the Company or its affiliates of a business, (ii) any acquisition
by the Company, (iii) any acquisition by any employee benefit plan
(or related trust) sponsored or maintained by the Company or any
corporation controlled by the Company, (iv) any acquisition by a
lender to the Company pursuant to a debt restructuring of the
Company, or (v) any acquisition by any corporation pursuant to a
transaction which complies with clauses (i), (ii) and (iii) of
Subsection (c) of this Section 1.12;
(b) Individuals who, as of the date hereof, constitute the Board (the
"Incumbent Board") cease for any reason to constitute at least a
majority of the Board; provided, however, that any individual
becoming a director subsequent to the date hereof whose election,
or nomination for election by the Company's shareholders, was
approved by a vote of at least a majority of the directors then
comprising the Incumbent Board shall be considered as though such
individual were a member of the Incumbent Board, but excluding, for
this purpose, any such individual whose initial assumption of
office occurs as a result of an actual or threatened election
contest with respect to the election or removal of directors or
other actual or threatened solicitation of proxies or consents by
or on behalf of a Person other than the Board;
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<PAGE> 8
SPYGLASS, INC.
Deferred Compensation Plan
================================================================================
(c) Consummation of a reorganization, merger or consolidation of the
Company or any direct or indirect subsidiary of the Company or sale
or other disposition of all or substantially all of the assets of
the Company (a "Business Combination"), in each case, unless,
following such Business Combination, (i) all or substantially all
of the individuals and entities who were the beneficial owners,
respectively, of the Outstanding Company Common Stock and
Outstanding Company Voting Securities immediately prior to such
Business Combination beneficially own, directly or indirectly, more
than sixty percent (60%) of, respectively, the then-outstanding
shares of common stock and the combined voting power of the then
outstanding voting securities entitled to vote generally in the
election of directors, as the case may be, of the corporation
resulting from such Business Combination (which shall include for
these purposes, without limitation, a corporation which as a result
of such transaction owns the Company or all or substantially all of
the Company's assets either directly or through one or more
subsidiaries) in substantially the same proportions as their
ownership, immediately prior to such Business Combination of the
Outstanding Company Common Stock and Outstanding Company Voting
Securities, as the case may be, (ii) no Person (excluding any
corporation resulting from such Business Combination or any
employee benefit plan (or related trust) of the Company or such
corporation resulting from such Business Combination and any Person
beneficially owning, immediately prior to such Business
Combination, directly or indirectly, 20% or more of the Outstanding
Common Stock or Outstanding Voting Securities, as the case may be)
beneficially owns, directly or indirectly, twenty percent (20%) or
more of, respectively, the then outstanding shares of common stock
of the corporation resulting from such Business Combination, or the
combined voting power of the then outstanding voting securities of
such corporation entitled to vote generally in the election of
directors and (iii) at least a majority of the members of the Board
resulting from such Business Combination were members of the
Incumbent Board at the time of the execution of the initial
agreement, or of the action of the Board, providing for such
Business Combination; or
(d) Approval by the shareholders of the Company of a complete
liquidation or dissolution of the Company other than to a
corporation which would satisfy the requirements of clauses (i),
(ii) and (iii) of Subsection (c) of this Section 1.12, assuming for
this purpose that such liquidation or dissolution was a Business
Combination.
1.13 "Claimant" shall have the meaning set forth in Section 14.1.
1.14 "Code" shall mean the Internal Revenue Code of 1986, as it may be amended
from time to time.
1.15 "Committee" shall mean the committee described in Article 12.
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<PAGE> 9
SPYGLASS, INC.
Deferred Compensation Plan
================================================================================
1.16 "Company" shall mean Spyglass, Inc., a Delaware corporation, and any
successor to all or substantially all of the Company's assets or business.
1.17 "Company Contribution Account" shall mean (i) the sum of the Participant's
Company Contribution Amounts, plus (ii) amounts credited in accordance
with all the applicable crediting provisions of this Plan that relate to
the Participant's Company Contribution Account, less (iii) all
distributions made to the Participant or his or her Beneficiary pursuant
to this Plan that relate to the Participant's Company Contribution
Account.
1.18 "Company Matching Account" shall mean (i) the sum of all of a
Participant's Company Matching Amounts, plus (ii) amounts credited in
accordance with all the applicable crediting provisions of this Plan that
relate to the Participant's Company Matching Account, less (iii) all
distributions made to the Participant or his or her Beneficiary pursuant
to this Plan that relate to the Participant's Company Matching Account.
1.19 "Deduction Limitation" shall mean the following described limitation on a
benefit that may otherwise be distributable pursuant to the provisions of
this Plan. Except as otherwise provided, this limitation shall be applied
to all distributions that are "subject to the Deduction Limitation" under
this Plan. If an Employer determines in good faith prior to a Change in
Control that there is a reasonable likelihood that any compensation paid
to a Participant for a taxable year of the Employer would not be
deductible by the Employer solely by reason of the limitation under Code
Section 162(m), then to the extent deemed necessary by the Employer to
ensure that the entire amount of any distribution to the Participant
pursuant to this Plan prior to the Change in Control is deductible, the
Employer may defer all or any portion of a distribution under this Plan.
Any amounts deferred pursuant to this limitation shall continue to be
credited/debited with additional amounts in accordance with Section 3.9
below, even if such amount is being paid out in installments. The amounts
so deferred and amounts credited thereon shall be distributed to the
Participant or his or her Beneficiary (in the event of the Participant's
death) at the earliest possible date, as determined by the Employer in
good faith, on which the deductibility of compensation paid or payable to
the Participant for the taxable year of the Employer during which the
distribution is made will not be limited by Section 162(m), or if earlier,
the effective date of a Change in Control. Notwithstanding anything to the
contrary in this Plan, the Deduction Limitation shall not apply to any
distributions made after a Change in Control.
1.20 "Deferral Account" shall mean (i) the sum of all of a Participant's Annual
Deferral Amounts, plus (ii) amounts credited in accordance with all the
applicable crediting provisions of this Plan that relate to the
Participant's Deferral Account, less (iii) all distributions made to the
Participant or his or her Beneficiary pursuant to this Plan that relate to
his or her Deferral Account.
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SPYGLASS, INC.
Deferred Compensation Plan
================================================================================
1.21 "Disability" shall mean a period of disability during which a Participant
qualifies for permanent disability benefits under the Participant's
Employer's long-term disability plan, or, if a Participant does not
participate in such a plan, a period of disability during which the
Participant would have qualified for permanent disability benefits under
such a plan had the Participant been a participant in such a plan, as
determined in the sole discretion of the Committee. If the Participant's
Employer does not sponsor such a plan, or discontinues to sponsor such a
plan, Disability shall be determined by the Committee in its sole
discretion.
1.22 "Disability Benefit" shall mean the benefit set forth in Article 8.
1.23 "Election Form" shall mean the form established from time to time by the
Committee that a Participant completes, signs and returns to the Committee
to make an election under the Plan.
1.24 "Employee" shall mean a person who is an employee of any Employer.
1.25 "Employer(s)" shall mean the Company and/or any of its subsidiaries (now
in existence or hereafter formed or acquired) that have been selected by
the Board to participate in the Plan and have adopted the Plan as a
sponsor.
1.26 "ERISA" shall mean the Employee Retirement Income Security Act of 1974, as
it may be amended from time to time.
1.27 "First Plan Year" shall mean the period beginning November 1, 1999 and
ending December 31, 1999.
1.28 "Participant" shall mean any Employee (i) who is selected to participate
in the Plan, (ii) who elects to participate in the Plan, (iii) who signs a
Plan Agreement, an Election Form and a Beneficiary Designation Form, (iv)
whose signed Plan Agreement, Election Form and Beneficiary Designation
Form are accepted by the Committee, (v) who commences participation in the
Plan, and (vi) whose Plan Agreement has not terminated. A spouse or former
spouse of a Participant shall not be treated as a Participant in the Plan
or have an account balance under the Plan, even if he or she has an
interest in the Participant's benefits under the Plan as a result of
applicable law or property settlements resulting from legal separation or
divorce.
1.29 "Plan" shall mean Spyglass, Inc. Deferred Compensation Plan, which shall
be evidenced by this instrument and by each Plan Agreement, as they may be
amended from time to time.
1.30 "Plan Agreement" shall mean a written agreement, as may be amended from
time to time, which is entered into by and between an Employer and a
Participant. Each Plan Agreement executed by a Participant and the
Participant's Employer shall provide for the entire benefit
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<PAGE> 11
SPYGLASS, INC.
Deferred Compensation Plan
================================================================================
to which such Participant is entitled under the Plan; should there be more
than one Plan Agreement, the Plan Agreement bearing the latest date of
acceptance by the Employer shall supersede all previous Plan Agreements in
their entirety and shall govern such entitlement. The terms of any Plan
Agreement may be different for any Participant, and any Plan Agreement may
provide additional benefits not set forth in the Plan or limit the
benefits otherwise provided under the Plan; provided, however, that any
such additional benefits or benefit limitations must be agreed to by both
the Employer and the Participant.
1.31 "Plan Year" shall, except for the First Plan Year, mean a period beginning
on January 1 of each calendar year and continuing through December 31 of
such calendar year.
1.32 "Pre-Retirement Survivor Benefit" shall mean the benefit set forth in
Article 6.
1.33 "Retirement", "Retire(s)" or "Retired" shall mean, with respect to an
Employee, voluntary severance from employment from all Employers for any
reason other than a leave of absence, death or Disability on or after the
attainment of (a) age sixty-five (65) or (b) age fifty-five (55) with
three (3) Years of Service.
1.34 "Retirement Benefit" shall mean the benefit set forth in Article 5.
1.35 "Short-Term Payout" shall mean the payout set forth in Section 4.1.
1.36 "Termination Benefit" shall mean the benefit set forth in Article 7.
1.37 "Termination of Employment" shall mean the severing of employment with all
Employers, voluntarily or involuntarily, for any reason other than
Retirement, Disability, death or an authorized leave of absence.
1.38 "Trust" shall mean one or more trusts established, effective as of
November 1, 1999 between the Company and the trustee named therein, as
amended from time to time.
1.39 "Unforeseeable Financial Emergency" shall mean an unanticipated emergency
that is caused by an event beyond the control of the Participant that
would result in severe financial hardship to the Participant resulting
from (i) a sudden and unexpected illness or accident of the Participant or
a dependent of the Participant, (ii) a loss of the Participant's property
due to casualty, or (iii) such other extraordinary and unforeseeable
circumstances arising as a result of events beyond the control of the
Participant, all as determined in the sole discretion of the Committee.
1.40 "Years of Plan Participation" shall mean the total number of full Plan
Years a Participant has been a Participant in the Plan prior to his or her
Termination of Employment (determined without regard to whether deferral
elections have been made by the Participant for any Plan Year). Any
partial year shall not be counted. Notwithstanding the previous
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sentence, a Participant's first Plan Year of participation shall be
treated as a full Plan Year for purposes of this definition, even if it is
only a partial Plan Year of participation.
1.41 "Years of Service" shall mean the total number of full years in which a
Participant has been employed by one or more Employers. For purposes of
this definition, a year of employment shall be a 365 day period (or 366
day period in the case of a leap year) that, for the first year of
employment, commences on the Employee's date of hiring and that, for any
subsequent year, commences on an anniversary of that hiring date. Any
partial year of employment shall not be counted.
ARTICLE 2
SELECTION, ENROLLMENT, ELIGIBILITY
2.1 SELECTION BY COMMITTEE. Participation in the Plan shall be limited to a
select group of management and highly compensated Employees of the
Employers, as determined by the Committee in its sole discretion. From
that group, the Committee shall select, in its sole discretion, Employees
to participate in the Plan.
2.2 ENROLLMENT REQUIREMENTS. As a condition to participation, each selected
Employee shall complete, execute and return to the Committee a Plan
Agreement, an Election Form and a Beneficiary Designation Form, all within
30 days after he or she is selected to participate in the Plan. In
addition, the Committee shall establish from time to time such other
enrollment requirements as it determines in its sole discretion are
necessary.
2.3 ELIGIBILITY; COMMENCEMENT OF PARTICIPATION. Provided an Employee selected
to participate in the Plan has met all enrollment requirements set forth
in this Plan and required by the Committee, including returning all
required documents to the Committee within the specified time period, that
Employee shall commence participation in the Plan on the first day of the
month following the month in which the Employee completes all enrollment
requirements. If an Employee fails to meet all such requirements within
the period required, in accordance with Section 2.2, that Employee shall
not be eligible to participate in the Plan until the first day of the Plan
Year following the delivery to and acceptance by the Committee of the
required documents.
2.4 TERMINATION OF PARTICIPATION AND/OR DEFERRALS. If the Committee determines
in good faith that a Participant no longer qualifies as a member of a
select group of management or highly compensated employees, as membership
in such group is determined in accordance with Sections 201(2), 301(a)(3)
and 401(a)(1) of ERISA, the Committee shall have the right, in its sole
discretion, to (i) terminate any deferral election the Participant has
made for the remainder of the Plan Year in which the Participant's
membership status changes, (ii) prevent the Participant from making future
deferral elections and/or (iii) immediately distribute the Participant's
then Account Balance as a Termination Benefit and terminate the
Participant's participation in the Plan.
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ARTICLE 3
DEFERRAL COMMITMENTS/COMPANY MATCHING/CREDITING/TAXES
3.1 MINIMUM DEFERRALS.
(a) ANNUAL SALARY, BONUS AND COMMISSIONS. For each Plan Year, a
Participant may elect to defer, as his or her Annual Deferral
Amount, Annual Salary, Bonus and/or Commissions in the following
combined minimum amount.
---------------------------------------------------------
DEFERRAL MINIMUM AMOUNT
---------------------------------------------------------
Annual Salary $0
---------------------------------------------------------
Bonus, Commissions $0
---------------------------------------------------------
Annual Salary plus $2,500
Bonus,
Commissions
---------------------------------------------------------
If an election is made for less than stated minimum amount, or if
no election is made, the amount deferred shall be zero.
(b) SHORT PLAN YEAR. Notwithstanding the foregoing, if a Participant
first becomes a Participant after the first day of a Plan Year, or
in the case of the first Plan Year of the Plan itself, the minimum
Annual Salary deferral shall be an amount equal to the minimum set
forth above, multiplied by a fraction, the numerator of which is
the number of complete months remaining in the Plan Year and the
denominator of which is 12.
3.2 MAXIMUM DEFERRAL.
(a) ANNUAL SALARY, BONUS AND COMMISSIONS. For each Plan Year, a
Participant may elect to defer, as his or her Annual Deferral
Amount, Annual Salary, Bonus and/or Commissions up to the following
maximum percentages for each deferral elected:
----------------------------------------------------------
DEFERRAL MAXIMUM AMOUNT
----------------------------------------------------------
----------------------------------------------------------
Annual Salary 75%
----------------------------------------------------------
----------------------------------------------------------
Bonus, Commissions 100%
----------------------------------------------------------
(b) Notwithstanding the foregoing, if a Participant first becomes a
Participant after the first day of a Plan Year, or in the case of
the first Plan Year of the Plan itself, the maximum Annual Deferral
Amount, with respect to Annual Salary, and Bonus shall be limited
to the amount of compensation not yet earned by the Participant as
of the date the Participant submits a Plan Agreement and Election
Form to the Committee for acceptance.
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3.3 ELECTION TO DEFER; EFFECT OF ELECTION FORM.
(a) FIRST PLAN YEAR. In connection with a Participant's commencement of
participation in the Plan, the Participant shall make an
irrevocable deferral election for the Plan Year in which the
Participant commences participation in the Plan, along with such
other elections as the Committee deems necessary or desirable under
the Plan. For these elections to be valid, the Election Form must
be completed and signed by the Participant, timely delivered to the
Committee (in accordance with Section 2.2 above) and accepted by
the Committee.
(b) SUBSEQUENT PLAN YEARS. For each succeeding Plan Year, an
irrevocable deferral election for that Plan Year, and such other
elections as the Committee deems necessary or desirable under the
Plan, shall be made by timely delivering to the Committee, in
accordance with its rules and procedures, before the end of the
Plan Year preceding the Plan Year for which the election is made, a
new Election Form. If no such Election Form is timely delivered for
a Plan Year, the Annual Deferral Amount shall be zero for that Plan
Year.
3.4 WITHHOLDING OF ANNUAL DEFERRAL AMOUNTS. For each Plan Year, the Annual
Salary portion of the Annual Deferral Amount shall be withheld from each
regularly scheduled Annual Salary payroll in equal amounts, as adjusted
from time to time for increases and decreases in Annual Salary. The Bonus
portion of the Annual Deferral Amount shall be withheld at the time the
Bonus is or otherwise would be paid to the Participant, whether or not
this occurs during the Plan Year itself.
3.5 COMPANY CONTRIBUTION AMOUNT. For each Plan Year, an Employer, in its sole
discretion, may, but is not required to, credit any amount it desires to
any Participant's Company Contribution Account under this Plan, which
amount shall be for that Participant the Company Contribution Amount for
that Plan Year. The amount so credited to a Participant may be smaller or
larger than the amount credited to any other Participant, and the amount
credited to any Participant for a Plan Year may be zero, even though one
or more other Participants receive an Company Contribution Amount for that
Plan Year. If a Participant is not employed by an Employer as of the last
day of a Plan Year other than by reason of his or her Retirement or death
while employed, the Company Contribution Amount for that Plan Year shall
be zero.
3.6 COMPANY MATCHING AMOUNT. A Participant's Company Matching Amount for any
Plan Year shall be equal to 50% of the Participant's Annual Deferral
Amount for such Plan Year; provided, however, the Company Matching Amount
for a Participant for any Plan Year shall not exceed $10,000.
3.7 INVESTMENT OF TRUST ASSETS. The Trustee of the Trust shall be authorized,
upon written instructions received from the Committee or investment
manager appointed by the
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Committee, to invest and reinvest the assets of the Trust in accordance
with the applicable Trust Agreement.
3.8 VESTING.
(a) A Participant shall at all times be 100% vested in his or her
Deferral Account.
(b) A Participant shall be vested in his or her Company Contribution
Account in accordance with the schedule set forth in his or her
Plan Agreement, if any, which may be different from the schedule
contained in any other Participant's Plan Agreement.
(c) A Participant shall be vested in his or her Company Matching
Account as follows: (i) with respect to all benefits under this
Plan other than the Termination Benefit, a Participant's vested
Company Matching Account shall equal 100% of such Participant's
Company Matching Account; and (ii) with respect to the Termination
Benefit, a Participant's Company Matching Account shall vest on the
basis of the Participant's Years of Plan Participation at the time
the Participant experiences a Termination of Employment, in
accordance with the following schedule:
------------------------------------------------------------------
YEARS OF PLAN PARTICIPATION AT
DATE OF TERMINATION OF EMPLOYMENT VESTED PERCENTAGE OF
COMPANY MATCHING ACCOUNT
------------------------------------------------------------------
------------------------------------------------------------------
Less than 1 year 0%
------------------------------------------------------------------
------------------------------------------------------------------
1 year or more, but less than 2 25%
------------------------------------------------------------------
------------------------------------------------------------------
2 years or more, but less than 3 50%
------------------------------------------------------------------
------------------------------------------------------------------
3 years or more, but less than 4 75%
------------------------------------------------------------------
------------------------------------------------------------------
4 years or more 100%
------------------------------------------------------------------
(d) Notwithstanding anything to the contrary contained in this Section
3.8, a Participant's Company Contribution Account and Company
Matching Account shall immediately become 100% vested (if it is not
already vested in accordance with the above vesting schedules) in
the event of the following with respect to a Participant:
Retirement; Disability; death; or a Change in Control.
(e) Notwithstanding subsection (d), the vesting schedule for a
Participant's Company Contribution Account and Company Matching
Account shall not be accelerated to the extent that the Committee
determines that such acceleration would cause the deduction
limitations of Section 280G of the Code to become effective. In the
event that all of a Participant's Company Contribution Account
and/or Company Matching Account is not vested pursuant to such a
determination, the Participant may request independent verification
of the Committee's calculations with respect
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to the application of Section 280G. In such case, the Committee
must provide to the Participant within 15 business days of such a
request an opinion from a nationally recognized accounting firm
selected by the Participant (the "Accounting Firm"). The opinion
shall state the Accounting Firm's opinion that any limitation in
the vested percentage hereunder is necessary to avoid the limits of
Section 280G and contain supporting calculations. The cost of such
opinion shall be paid for by the Company.
3.9 CREDITING/DEBITING OF ACCOUNT BALANCES. In accordance with, and subject
to, the rules and procedures that are established from time to time by the
Committee, in its sole discretion, amounts shall be credited or debited to
a Participant's Account Balance in accordance with the following rules:
(a) ELECTION OF MEASUREMENT FUNDS. A Participant, in connection with
his or her initial deferral election in accordance with Section
3.3(a) above, shall elect, on the Election Form, one or more
Measurement Fund(s) (as described in Section 3.9(c) below) to be
used to determine the additional amounts to be credited to his or
her Account Balance for the first business day on which the
Participant commences participation in the Plan and continuing
thereafter for each subsequent business day in which the
Participant participates in the Plan, unless changed in accordance
with the next sentence. Commencing with the business day that
follows the Participant's commencement of participation in the Plan
and continuing thereafter for each subsequent business day in which
the Participant participates in the Plan, the Participant may (but
is not required to) elect, by submitting an Election Form to the
Committee that is accepted by the Committee, to reallocate among
the available Measurement Fund(s) to be used to determine the
additional amounts to be credited to his or her Account Balance, or
to change the portion of his or her Account Balance allocated to
each previously or newly elected Measurement Fund. If an election
is made in accordance with the previous sentence, it shall apply to
the next business day and continue thereafter for each subsequent
business day in which the Participant participates in the Plan,
unless changed in accordance with the previous sentence.
(b) PROPORTIONATE ALLOCATION. In making any election described in
Section 3.9(a) above, the Participant shall specify on the Election
Form, in increments of one percentage points (1%), the percentage
of his or her Account Balance to be allocated to a Measurement Fund
(as if the Participant was making an investment in that Measurement
Fund with that portion of his or her Account Balance).
(c) MEASUREMENT FUNDS. The Participant may elect one or more of the
following Measurement Funds, based on certain mutual funds (the
"Measurement Funds"), for the purpose of crediting additional
amounts to his or her Account Balance:
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(1) Vanguard Growth Index Fund;
(2) Vanguard Wellington Fund;
(3) Vanguard Explorer Fund;
(4) Vanguard Money Market Prime Fund;
(5) Vanguard STAR Fund;
(6) Vanguard Windsor II Fund;
(7) Vanguard International Growth Fund; and
(8) Vanguard Total Bond Market Index Fund;
As necessary, the Committee may, in its sole discretion,
discontinue, substitute or add a Measurement Fund.
(d) CREDITING OR DEBITING METHOD. The performance of each elected
Measurement Fund (either positive or negative) will be determined
by the Committee, in its reasonable discretion, based on the
performance of the Measurement Funds themselves. A Participant's
Account balance shall be credited or debited on a daily basis based
on the performance of each Measurement Fund selected by the
Participant for the Account Balance, as determined by the Committee
in its sole discretion, as though a Participant's Account Balance
were invested in the selected or required Measurement Fund(s), in
the percentages applicable to such business day, as of the close of
business on the business day, at the closing price on such date;
(iv) the portion of the Annual Deferral Amount that was actually
deferred as of the business day were invested in the Measurement
Fund(s) selected by the Participant, in the percentages applicable
to such business day, no later than the close of business on the
third business day after the day on which such amounts are actually
deferred from the Participant's Annual Salary, Bonus or Commissions
through reductions in his or her payroll, at the closing price on
such date; and (v) any distribution made to a Participant that
decreases such Participant's Account Balance ceased being invested
in the Measurement Fund(s), in the percentages applicable to such
business day, no earlier than three business days prior to the
distribution, at the closing price on such date. The Participant's
Company Matching Amount shall be credited to his or her Company
Matching Account for purposes of this Section 3.9(d) as of the
close of business on the first business day in February of the Plan
Year following the Plan Year to which it relates. The Participant's
Company Contribution Amount, if any, shall be credited to his or
her Company
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Contribution Account on the date selected by the Committee, in its
sole and absolute discretion.
(e) NO ACTUAL INVESTMENT. Notwithstanding any other provision of this
Plan that may be interpreted to the contrary, the Measurement Funds
are to be used for measurement purposes only, and a Participant's
election of any such Measurement Fund, the allocation to his or her
Account Balance thereto, the calculation of additional amounts and
the crediting or debiting of such amounts to a Participant's
Account Balance shall not be considered or construed in any manner
as an actual investment of his or her Account Balance --- in any
such Measurement Fund. In the event that the Company or the Trustee
(as that term is defined in the Trust), in its own discretion,
decides to invest funds in any or all of the Measurement Funds, no
Participant shall have any rights in or to such investments
themselves. Without limiting the foregoing, a Participant's Account
Balance shall at all times be a bookkeeping entry only and shall
not represent any investment made on his or her behalf by the
Company or the Trust; the Participant shall at all times remain an
unsecured creditor of the Company.
3.10 FICA AND OTHER TAXES.
(a) ANNUAL DEFERRAL AMOUNTS. For each Plan Year in which an Annual
Deferral Amount is being withheld from a Participant, the
Participant's Employer(s) shall withhold from that portion of the
Participant's Annual Salary, Bonus and Commission that is not being
deferred, in a manner determined by the Employer(s), the
Participant's share of FICA and other employment taxes on such
Annual Deferral Amount. If necessary, the Committee may reduce the
Deferral Account in order to comply with this Section 3.10.
(b) COMPANY MATCHING ACCOUNT AND COMPANY CONTRIBUTION ACCOUNT. When a
Participant becomes vested in a portion of his or her Company
Matching Account or Company Contribution Account, or both, the
Participant's Employer(s) shall withhold from the Participant's
Annual Salary, Bonus and Commission that is not deferred, in a
manner determined by the Employer(s), the Participant's share of
FICA and other employment taxes on such vested portions of his or
her Company Matching Account and/or Company Contribution Account.
If necessary, the Committee may reduce the vested portion of the
Participant's Company Matching Account or Company Contribution
Account, or both, as the case may be, in order to comply with this
Section 3.10.
3.11 DISTRIBUTIONS. The Participant's Employer(s), or the trustee of the Trust,
shall withhold from any distributions made to a Participant under this
Plan all federal, state and local income, employment and other taxes
required to be withheld by the Employer(s), or the
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trustee of the Trust, in connection with such distributions, in amounts
and in a manner to be determined in the sole discretion of the Employer(s)
and the trustee of the Trust.
ARTICLE 4
SHORT-TERM PAYOUT; UNFORESEEABLE FINANCIAL EMERGENCIES;
WITHDRAWAL ELECTION
4.1 SHORT-TERM PAYOUT. In connection with each election to defer an Annual
Deferral Amount, a Participant may irrevocably elect to receive a future
"Short-Term Payout" from the Plan with respect to such Annual Deferral
Amount. Subject to the Deduction Limitation, the Short-Term Payout shall
be a lump sum payment in an amount that is equal to the Annual Deferral
Amount plus amounts credited or debited in the manner provided in Section
3.9 above on that amount, determined at the time that the Short-Term
Payout becomes payable (rather than the date of a Termination of
Employment). Subject to the Deduction Limitation and the other terms and
conditions of this Plan, each Short-Term Payout elected shall be paid out
during a 60 day period commencing immediately after the last day of any
Plan Year designated by the Participant that is at least three Plan Years
after the Plan Year in which the Annual Deferral Amount is actually
deferred. By way of example, if a three year Short-Term Payout is elected
for Annual Deferral Amounts that are deferred in the Plan Year commencing
January 1, 2000, the three year Short-Term Payout would become payable
during a 60 day period commencing January 1, 2004.
4.2 OTHER BENEFITS TAKE PRECEDENCE OVER SHORT-TERM. Should an event occur that
triggers a benefit under Article 5, 6, 7 or 8, any Annual Deferral Amount,
plus amounts credited or debited thereon, that is subject to a Short-Term
Payout election under Section 4.1 shall not be paid in accordance with
Section 4.1 but shall be paid in accordance with the other applicable
Article.
4.3 WITHDRAWAL PAYOUT/SUSPENSIONS FOR UNFORESEEABLE FINANCIAL EMERGENCIES. If
the Participant experiences an Unforeseeable Financial Emergency, the
Participant may petition the Committee to (i) suspend any deferrals
required to be made by a Participant and/or (ii) receive a partial or full
payout from the Plan. The payout shall not exceed the lesser of the
Participant's Account Balance, calculated as if such Participant were
receiving a Termination Benefit, or the amount reasonably needed to
satisfy the Unforeseeable Financial Emergency. If, subject to the sole
discretion of the Committee, the petition for a suspension and/or payout
is approved, suspension shall take effect upon the date of approval and
any payout shall be made within 60 days of the date of approval. The
payment of any amount under this Section 4.3 shall not be subject to the
Deduction Limitation.
4.4 WITHDRAWAL ELECTION. A Participant (or, after a Participant's death, his
or her Beneficiary) may elect, at any time, to withdraw all of his or her
Account Balance, calculated as if there had occurred a Termination of
Employment as of the day of the election, less a withdrawal
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penalty equal to 10% of such amount (the net amount shall be referred to
as the "Withdrawal Amount"). This election can be made at any time, before
or after Retirement, Disability, death or Termination of Employment, and
whether or not the Participant (or Beneficiary) is in the process of being
paid pursuant to an installment payment schedule. If made before
Retirement, Disability or death, a Participant's Withdrawal Amount shall
be his or her Account Balance calculated as if there had occurred a
Termination of Employment as of the day of the election. No partial
withdrawals of the Withdrawal Amount shall be allowed. The Participant (or
his or her Beneficiary) shall make this election by giving the Committee
advance written notice of the election in a form determined from time to
time by the Committee. The Participant (or his or her Beneficiary) shall
be paid the Withdrawal Amount within 60 days of his or her election. Once
the Withdrawal Amount is paid, the Participant's participation in the Plan
shall terminate and the Participant shall not be eligible to participate
in the Plan during the remainder of the current Plan Year and for the next
two Plan Years. The payment of this Withdrawal Amount shall not be subject
to the Deduction Limitation.
ARTICLE 5
RETIREMENT BENEFIT
5.1 RETIREMENT BENEFIT. Subject to the Deduction Limitation, a Participant who
Retires shall receive, as a Retirement Benefit, his or her vested Account
Balance.
5.2 PAYMENT OF RETIREMENT BENEFIT. A Participant, in connection with his or
her commencement of participation in the Plan, shall elect on an Election
Form to receive the Retirement Benefit pursuant to a lump sum or a
Quarterly Installment Method paid over 5, 10 or 15 years. The Participant
may annually change his or her election to an allowable alternative payout
period by submitting a new Election Form to the Committee, provided that
any such Election Form is submitted at least 2 years prior to the
Participant's Retirement and is accepted by the Committee in its sole
discretion. The Election Form most recently accepted by the Committee
shall govern the payout of the Retirement Benefit. If a Participant does
not make any election with respect to the payment of the Retirement
Benefit, then such benefit shall be payable in a Lump sum. The lump sum
payment shall be made, or installments shall commence, no later than 60
days after the last day of the quarter in the Participant Retires. Any
payment made shall be subject to the Deduction Limitation.
5.3 DEATH PRIOR TO COMPLETION OF RETIREMENT BENEFIT. If a Participant dies
after Retirement but before the Retirement Benefit is paid in full, the
Participant's unpaid Retirement Benefit payments shall continue and shall
be paid to the Participant's Beneficiary over the remaining period of time
and in the same amounts as that benefit would have been paid to the
Participant had the Participant survived.
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ARTICLE 6
PRE-RETIREMENT SURVIVOR BENEFIT
6.1 PRE-RETIREMENT SURVIVOR BENEFIT. Subject to the Deduction Limitation, the
Participant's Beneficiary shall receive a Pre-Retirement Survivor Benefit
equal to the Participant's vested Account Balance if the Participant dies
before he or she Retires, experiences a Termination of Employment or
suffers a Disability.
6.2 PAYMENT OF PRE-RETIREMENT SURVIVOR BENEFIT. The Participant's Beneficiary
shall receive the Pre-Retirement Survivor Benefit in a lump sum; provided,
however, that upon request by the Beneficiary, the Committee may, in its
sole discretion, direct that the Pre-Retirement Survivor Benefit be paid
to the Beneficiary pursuant to an Annual Installment Method of 5, 10 or 15
years. The lump-sum payment shall be made, or installment payments shall
commence, no later than 60 days after the last day of the Plan Year in
which the Committee is provided with proof that is satisfactory to the
Committee of the Participant's death. Any payment made shall be subject to
the Deduction Limitation.
ARTICLE 7
TERMINATION BENEFIT
7.1 TERMINATION BENEFIT. Subject to the Deduction Limitation, the Participant
shall receive a Termination Benefit, which shall be equal to the
Participant's vested Account Balance if a Participant experiences a
Termination of Employment prior to his or her Retirement, death or
Disability.
7.2 PAYMENT OF TERMINATION BENEFIT. If the Participant's vested Account
Balance at the time of his or her Termination of Employment is less than
$50,000, payment of his or her Termination Benefit shall be paid in a lump
sum. If his or her vested Account Balance at such time is equal to or
greater than that amount, the Committee, in its sole discretion, may cause
the Termination Benefit to be paid in a lump sum or pursuant to an Annual
Installment Method of 5, 10, or 15 years. The lump sum payment shall be
made, or installment payments shall commence, no later than 60 days after
the last day of the Plan Year in which the Participant experiences the
Termination of Employment. Any payment made shall be subject to the
Deduction Limitation.
ARTICLE 8
DISABILITY WAIVER AND BENEFIT
8.1 DISABILITY WAIVER.
(a) WAIVER OF DEFERRAL. A Participant who is determined by the
Committee to be suffering from a Disability shall be excused from
fulfilling that portion of the Annual Deferral Amount commitment
that would otherwise have been withheld
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from a Participant's Annual Salary and/or Bonus for the Plan Year
during which the Participant first suffers a Disability. During the
period of Disability, the Participant shall not be allowed to make
any additional deferral elections, but will continue to be
considered a Participant for all other purposes of this Plan.
(b) RETURN TO WORK. If a Participant returns to employment with an
Employer, after a Disability ceases, the Participant may elect to
defer an Annual Deferral Amount for the Plan Year following his or
her return to employment or service and for every Plan Year
thereafter while a Participant in the Plan; provided such deferral
elections are otherwise allowed and an Election Form is delivered
to and accepted by the Committee for each such election in
accordance with Section 3.3 above.
8.2 CONTINUED ELIGIBILITY; DISABILITY BENEFIT. A Participant suffering a
Disability shall, for benefit purposes under this Plan, continue to be
considered to be employed, and shall be eligible for the benefits provided
for in Articles 4, 5, 6 or 7 in accordance with the provisions of those
Articles. Notwithstanding the above, the Committee shall have the right
to, in its sole and absolute discretion and for purposes of this Plan
only, and must in the case of a Participant who is otherwise eligible to
Retire, deem the Participant to have experienced a Termination of
Employment, or in the case of a Participant who is eligible to Retire, to
have Retired, at any time (or in the case of a Participant who is eligible
to Retire, as soon as practicable) after such Participant is determined to
be suffering a Disability, in which case the Participant shall receive a
Disability Benefit equal to his or her Account Balance at the time of the
Committee's determination; provided, however, that should the Participant
otherwise have been eligible to Retire, he or she shall be paid in
accordance with Article 5. The Disability Benefit shall be paid in a lump
sum within 60 days of the Committee's exercise of such right. Any payment
made shall be subject to the Deduction Limitation.
ARTICLE 9
BENEFICIARY DESIGNATION
9.1 BENEFICIARY. Each Participant shall have the right, at any time, to
designate his or her Beneficiary(ies) (both primary as well as contingent)
to receive any benefits payable under the Plan to a beneficiary upon the
death of a Participant. The Beneficiary designated under this Plan may be
the same as or different from the Beneficiary designation under any other
plan of an Employer in which the Participant participates.
9.2 BENEFICIARY DESIGNATION AND CHANGE OF BENEFICIARY . A Participant shall
designate his or her Beneficiary by completing and signing the Beneficiary
Designation Form, and returning it to the Committee or its designated
agent. A Participant shall have the right to change a Beneficiary by
completing, signing and otherwise complying with the terms of the
Beneficiary Designation Form and the Committee's rules and procedures, as
in effect from time to time. Upon the acceptance by the Committee of a new
Beneficiary Designation
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Form, all Beneficiary designations previously filed shall be canceled. The
Committee shall be entitled to rely on the last Beneficiary Designation
Form filed by the Participant and accepted by the Committee prior to his
or her death.
9.3 ACKNOWLEDGMENT. No designation or change in designation of a Beneficiary
shall be effective until received and acknowledged in writing by the
Committee or its designated agent.
9.4 NO BENEFICIARY DESIGNATION. If a Participant fails to designate a
Beneficiary as provided in Sections 9.1, 9.2 and 9.3 above or, if all
designated Beneficiaries predecease the Participant or die prior to
complete distribution of the Participant's benefits, then the
Participant's designated Beneficiary shall be deemed to be his or her
estate.
9.5 DOUBT AS TO BENEFICIARY. If the Committee has any doubt as to the proper
Beneficiary to receive payments pursuant to this Plan, the Committee shall
have the right, exercisable in its discretion, to cause the Participant's
Employer to withhold such payments until this matter is resolved to the
Committee's satisfaction.
9.6 DISCHARGE OF OBLIGATIONS. The payment of benefits under the Plan to a
Beneficiary shall fully and completely discharge all Employers and the
Committee from all further obligations under this Plan with respect to the
Participant, and that Participant's Plan Agreement shall terminate upon
such full payment of benefits.
ARTICLE 10
LEAVE OF ABSENCE
10.1 PAID LEAVE OF ABSENCE. If a Participant is authorized by the Participant's
Employer for any reason to take a paid leave of absence from the
employment of the Employer, the Participant shall continue to be
considered employed by the Employer and the Annual Deferral Amount shall
continue to be withheld during such paid leave of absence in accordance
with Section 3.3.
10.2 UNPAID LEAVE OF ABSENCE. If a Participant is authorized by the
Participant's Employer for any reason to take an unpaid leave of absence
from the employment of the Employer, the Participant shall continue to be
considered employed by the Employer and the Participant shall be excused
from making deferrals until the earlier of the date the leave of absence
expires or the Participant returns to a paid employment status. Upon such
expiration or return, deferrals shall resume for the remaining portion of
the Plan Year in which the expiration or return occurs, based on the
deferral election, if any, made for that Plan Year. If no election was
made for that Plan Year, no deferral shall be withheld.
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<PAGE> 24
SPYGLASS, INC.
Deferred Compensation Plan
================================================================================
ARTICLE 11
TERMINATION, AMENDMENT OR MODIFICATION
11.1 TERMINATION. Although each Employer anticipates that it will continue the
Plan for an indefinite period of time, there is no guarantee that any
Employer will continue the Plan or will not terminate the Plan at any time
in the future. Accordingly, each Employer reserves the right to
discontinue its sponsorship of the Plan and/or to terminate the Plan at
any time with respect to any or all of its participating Employees, by
action of its board of directors. Upon the termination of the Plan with
respect to any Employer, the Plan Agreements of the affected Participants
who are employed by that Employer shall terminate and their Account
Balances, determined as if they had experienced a Termination of
Employment on the date of Plan termination or, if Plan termination occurs
after the date upon which a Participant was eligible to Retire, then with
respect to that Participant as if he or she had Retired on the date of
Plan termination, shall be paid to the Participants as follows: Prior to a
Change in Control, if the Plan is terminated with respect to all of its
Participants, an Employer shall have the right, in its sole discretion,
and notwithstanding any elections made by the Participant, to pay such
benefits in a lump sum or pursuant to an Annual Installment Method of up
to 15 years, with amounts credited and debited during the installment
period as provided herein. If the Plan is terminated with respect to less
than all of its Participants, an Employer shall be required to pay such
benefits in a lump sum. After a Change in Control, the Employer shall be
required to pay such benefits in a lump sum. The termination of the Plan
shall not adversely affect any Participant or Beneficiary who has become
entitled to the payment of any benefits under the Plan as of the date of
termination; provided however, that the Employer shall have the right to
accelerate installment payments without a premium or prepayment penalty by
paying the Account Balance in a lump sum or pursuant to an Annual
Installment Method using fewer years (provided that the present value of
all payments that will have been received by a Participant at any given
point of time under the different payment schedule shall equal or exceed
the present value of all payments that would have been received at that
point in time under the original payment schedule).
11.2 AMENDMENT. Any Employer may, at any time, amend or modify the Plan in
whole or in part with respect to that Employer by the action of its board
of directors; provided, however, that: (i) no amendment or modification
shall be effective to decrease or restrict the value of a Participant's
Account Balance in existence at the time the amendment or modification is
made, calculated as if the Participant had experienced a Termination of
Employment as of the effective date of the amendment or modification or,
if the amendment or modification occurs after the date upon which the
Participant was eligible to Retire, the Participant had Retired as of the
effective date of the amendment or modification, and (ii) no amendment or
modification of this Section 11.2 or Section 12.2 of the Plan shall be
effective. The amendment or modification of the Plan shall not affect any
Participant or Beneficiary who has become entitled to the payment of
benefits under the
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<PAGE> 25
SPYGLASS, INC.
Deferred Compensation Plan
================================================================================
Plan as of the date of the amendment or modification; provided, however,
that the Employer shall have the right to accelerate installment payments
by paying the Account Balance in a lump sum or pursuant to an Annual
Installment Method using fewer years (provided that the present value of
all payments that will have been received by a Participant at any given
point of time under the different payment schedule shall equal or exceed
the present value of all payments that would have been received at that
point in time under the original payment schedule).
11.3 PLAN AGREEMENT. Despite the provisions of Sections 11.1 and 11.2 above, if
a Participant's Plan Agreement contains benefits or limitations that are
not in this Plan document, the Employer may only amend or terminate such
provisions with the consent of the Participant.
11.4 EFFECT OF PAYMENT. The full payment of the applicable benefit under
Articles 4, 5, 6, 7 or 8 of the Plan shall completely discharge all
obligations to a Participant and his or her designated Beneficiaries under
this Plan and the Participant's Plan Agreement shall terminate.
ARTICLE 12
ADMINISTRATION
12.1 COMMITTEE DUTIES. Except as otherwise provided in this Article 12, this
Plan shall be administered by a Committee which shall consist of the
Board, or such committee as the Board shall appoint. Members of the
Committee may be Participants in this Plan. The Committee shall also have
the discretion and authority to (i) make, amend, interpret, and enforce
all appropriate rules and regulations for the administration of this Plan
and (ii) decide or resolve any and all questions including interpretations
of this Plan, as may arise in connection with the Plan. Any individual
serving on the Committee who is a Participant shall not vote or act on any
matter relating solely to himself or herself. When making a determination
or calculation, the Committee shall be entitled to rely on information
furnished by a Participant or the Company.
12.2 ADMINISTRATION UPON CHANGE IN CONTROL. For purposes of this Plan, the
Company shall be the "Administrator" at all times prior to the occurrence
of a Change in Control. Upon and after the occurrence of a Change in
Control, the "Administrator" shall be an independent third party selected
by the Trustee and approved by the individual who, immediately prior to
such event, was the Company's Chief Executive Officer or, if not so
identified, the Company's highest ranking officer (the "Ex-CEO"). The
Administrator shall have the discretionary power to determine all
questions arising in connection with the administration of the Plan and
the interpretation of the Plan and Trust including, but not limited to
benefit entitlement determinations; provided, however, upon and after the
occurrence of a Change in Control, the Administrator shall have no power
to direct the investment of Plan or Trust assets or select any investment
manager or custodial firm for the Plan or Trust. Upon and after the
occurrence of a Change in Control, the Company
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SPYGLASS, INC.
Deferred Compensation Plan
================================================================================
must: (1) pay all reasonable administrative expenses and fees of the
Administrator; (2) indemnify the Administrator against any costs, expenses
and liabilities including, without limitation, attorney's fees and
expenses arising in connection with the performance of the Administrator
hereunder, except with respect to matters resulting from the gross
negligence or willful misconduct of the Administrator or its employees or
agents; and (3) supply full and timely information to the Administrator or
all matters relating to the Plan, the Trust, the Participants and their
Beneficiaries, the Account Balances of the Participants, the date of
circumstances of the Retirement, Disability, death or Termination of
Employment of the Participants, and such other pertinent information as
the Administrator may reasonably require.
Upon and after a Change in Control, the Administrator may be terminated
(and a replacement appointed) by the Trustee only with the approval of the
Ex-CEO. Upon and after a Change in Control, the Administrator may not be
terminated by the Company.
12.3 AGENTS. In the administration of this Plan, the Committee may, from time
to time, employ agents and delegate to them such administrative duties as
it sees fit (including acting through a duly appointed representative) and
may from time to time consult with counsel who may be counsel to any
Employer.
12.4 BINDING EFFECT OF DECISIONS. The decision or action of the Administrator
with respect to any question arising out of or in connection with the
administration, interpretation and application of the Plan and the rules
and regulations promulgated hereunder shall be final and conclusive and
binding upon all persons having any interest in the Plan.
12.5 INDEMNITY OF COMMITTEE. All Employers shall indemnify and hold harmless
the members of the Committee, and any Employee to whom the duties of the
Committee may be delegated, and the Administrator against any and all
claims, losses, damages, expenses or liabilities arising from any action
or failure to act with respect to this Plan, except in the case of willful
misconduct by the Committee, any of its members, any such Employee or the
Administrator.
12.6 EMPLOYER INFORMATION. To enable the Committee and/or Administrator to
perform its functions, the Company and each Employer shall supply full and
timely information to the Committee and/or Administrator, as the case may
be, on all matters relating to the compensation of its Participants, the
date and circumstances of the Retirement, Disability, death or Termination
of Employment of its Participants, and such other pertinent information as
the Committee or Administrator may reasonably require.
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<PAGE> 27
SPYGLASS, INC.
Deferred Compensation Plan
================================================================================
ARTICLE 13
OTHER BENEFITS AND AGREEMENTS
13.1 COORDINATION WITH OTHER BENEFITS. The benefits provided for a Participant
and Participant's Beneficiary under the Plan are in addition to any other
benefits available to such Participant under any other plan or program for
employees of the Participant's Employer. The Plan shall supplement and
shall not supersede, modify or amend any other such plan or program except
as may otherwise be expressly provided.
ARTICLE 14
CLAIMS PROCEDURES
14.1 PRESENTATION OF CLAIM. Any Participant or Beneficiary of a deceased
Participant (such Participant or Beneficiary being referred to below as a
"Claimant") may deliver to the Committee a written claim for a
determination with respect to the amounts distributable to such Claimant
from the Plan. If such a claim relates to the contents of a notice
received by the Claimant, the claim must be made within 60 days after such
notice was received by the Claimant. All other claims must be made within
180 days of the date on which the event that caused the claim to arise
occurred. The claim must state with particularity the determination
desired by the Claimant.
14.2 NOTIFICATION OF DECISION. The Committee shall consider a Claimant's claim
within a reasonable time, and shall notify the Claimant in writing:
(a) that the Claimant's requested determination has been made, and that
the claim has been allowed in full; or
(b) that the Committee has reached a conclusion contrary, in whole or
in part, to the Claimant's requested determination, and such notice
must set forth in a manner calculated to be understood by the
Claimant:
(i) the specific reason(s) for the denial of the claim, or any
part of it;
(ii) specific reference(s) to pertinent provisions of the Plan
upon which such denial was based;
(iii) a description of any additional material or information
necessary for the Claimant to perfect the claim, and an
explanation of why such material or information is necessary;
and
(iv) an explanation of the claim review procedure set forth in
Section 14.3 below.
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SPYGLASS, INC.
Deferred Compensation Plan
================================================================================
14.3 REVIEW OF A DENIED CLAIM. Within 60 days after receiving a notice from the
Committee that a claim has been denied, in whole or in part, a Claimant
(or the Claimant's duly authorized representative) may file with the
Committee a written request for a review of the denial of the claim.
Thereafter, but not later than 30 days after the review procedure began,
the Claimant (or the Claimant's duly authorized representative):
(a) may review pertinent documents;
(b) may submit written comments or other documents; and/or
(c) may request a hearing, which the Committee, in its sole discretion,
may grant.
14.4 DECISION ON REVIEW. The Committee shall render its decision on review
promptly, and not later than 60 days after the filing of a written request
for review of the denial, unless a hearing is held or other special
circumstances require additional time, in which case the Committee's
decision must be rendered within 120 days after such date. Such decision
must be written in a manner calculated to be understood by the Claimant,
and it must contain:
(a) specific reasons for the decision;
(b) specific reference(s) to the pertinent Plan provisions upon which
the decision was based; and
(c) such other matters as the Committee deems relevant.
14.5 LEGAL ACTION. A Claimant's compliance with the foregoing provisions of
this Article 14 is a mandatory prerequisite to a Claimant's right to
commence any legal action with respect to any claim for benefits under
this Plan.
ARTICLE 15
TRUST
15.1 ESTABLISHMENT OF THE TRUST. The Company shall establish the Trust, and
each Employer shall at least annually transfer over to the Trust such
assets as the Employer determines, in its sole discretion, are necessary
to provide, on a present value basis, for its respective future
liabilities created with respect to the Annual Deferral Amounts, Company
Contribution Amounts and Company Matching Amounts for such Employer's
Participants for all periods prior to the transfer, as well as any debits
and credits to the Participants' Account Balances for all periods prior to
the transfer, taking into consideration the value of the assets in the
trust at the time of the transfer.
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SPYGLASS, INC.
Deferred Compensation Plan
================================================================================
15.2 INTERRELATIONSHIP OF THE PLAN AND THE TRUST. The provisions of the Plan
and the Plan Agreement shall govern the rights of a Participant to receive
distributions pursuant to the Plan. The provisions of the Trust shall
govern the rights of the Employers, Participants and the creditors of the
Employers to the assets transferred to the Trust. Each Employer shall at
all times remain liable to carry out its obligations under the Plan.
15.3 DISTRIBUTIONS FROM THE TRUST. Each Employer's obligations under the Plan
may be satisfied with Trust assets distributed pursuant to the terms of
the Trust, and any such distribution shall reduce the Employer's
obligations under this Plan.
ARTICLE 16
MISCELLANEOUS
16.1 STATUS OF PLAN.. The Plan is intended to be a plan that is not qualified
within the meaning of Code Section 401(a) and that "is unfunded and is
maintained by an employer primarily for the purpose of providing deferred
compensation for a select group of management or highly compensated
employee" within the meaning of ERISA Sections 201(2), 301(a)(3) and
401(a)(1). The Plan shall be administered and interpreted to the extent
possible in a manner consistent with that intent.
16.2 UNSECURED GENERAL CREDITOR. Participants and their Beneficiaries, heirs,
successors and assigns shall have no legal or equitable rights, interests
or claims in any property or assets of an Employer. For purposes of the
payment of benefits under this Plan, any and all of an Employer's assets
shall be, and remain, the general, unpledged unrestricted assets of the
Employer. An Employer's obligation under the Plan shall be merely that of
an unfunded and unsecured promise to pay money in the future.
16.3 EMPLOYER'S LIABILITY. An Employer's liability for the payment of benefits
shall be defined only by the Plan and the Plan Agreement, as entered into
between the Employer and a Participant. An Employer shall have no
obligation to a Participant under the Plan except as expressly provided in
the Plan and his or her Plan Agreement.
16.4 NONASSIGNABILITY. Neither a Participant nor any other person shall have
any right to commute, sell, assign, transfer, pledge, anticipate, mortgage
or otherwise encumber, transfer, hypothecate, alienate or convey in
advance of actual receipt, the amounts, if any, payable hereunder, or any
part thereof, which are, and all rights to which are expressly declared to
be, unassignable and non-transferable. No part of the amounts payable
shall, prior to actual payment, be subject to seizure, attachment,
garnishment or sequestration for the payment of any debts, judgments,
alimony or separate maintenance owed by a Participant or any other person,
be transferable by operation of law in the event of a Participant's or any
other person's bankruptcy or insolvency or be transferable to a spouse as
a result of a property settlement or otherwise.
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<PAGE> 30
SPYGLASS, INC.
Deferred Compensation Plan
================================================================================
16.5 NOT A CONTRACT OF EMPLOYMENT. The terms and conditions of this Plan shall
not be deemed to constitute a contract of employment between any Employer
and the Participant. Such employment is hereby acknowledged to be an "at
will" employment relationship that can be terminated at any time for any
reason, or no reason, with or without cause, and with or without notice,
unless expressly provided in a written employment agreement. Nothing in
this Plan shall be deemed to give a Participant the right to be retained
in the service of any Employer, either as an Employee or a director, or to
interfere with the right of any Employer to discipline or discharge the
Participant at any time.
16.6 FURNISHING INFORMATION. A Participant or his or her Beneficiary will
cooperate with the Committee by furnishing any and all information
requested by the Committee and take such other actions as may be requested
in order to facilitate the administration of the Plan and the payments of
benefits hereunder, including but not limited to taking such physical
examinations as the Committee may deem necessary.
16.7 TERMS. Whenever any words are used herein in the masculine, they shall be
construed as though they were in the feminine in all cases where they
would so apply; and whenever any words are used herein in the singular or
in the plural, they shall be construed as though they were used in the
plural or the singular, as the case may be, in all cases where they would
so apply.
16.8 CAPTIONS. The captions of the articles, sections and paragraphs of this
Plan are for convenience only and shall not control or affect the meaning
or construction of any of its provisions.
16.9 GOVERNING LAW. Subject to ERISA, the provisions of this Plan shall be
construed and interpreted according to the internal laws of the State of
Illinois without regard to its conflicts of laws principles.
16.10 NOTICE. Any notice or filing required or permitted to be given to the
Committee under this Plan shall be sufficient if in writing and
hand-delivered, or sent by registered or certified mail, to the address
below:
Spyglass, Inc.
1815 South Meyers Road
Oakbrook Terrace, IL 60181-5241
Attention: Vice President, Compensation & Benefits
Such notice shall be deemed given as of the date of delivery or, if
delivery is made by mail, as of the date shown on the postmark on the
receipt for registration or certification.
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<PAGE> 31
SPYGLASS, INC.
Deferred Compensation Plan
================================================================================
Any notice or filing required or permitted to be given to a Participant
under this Plan shall be sufficient if in writing and hand-delivered, or
sent by mail, to the last known address of the Participant.
16.11 SUCCESSORS. The provisions of this Plan shall bind and inure to the
benefit of the Participant's Employer and its successors and assigns and
the Participant and the Participant's designated Beneficiaries.
16.12 VALIDITY. In case any provision of this Plan shall be illegal or invalid
for any reason, said illegality or invalidity shall not affect the
remaining parts hereof, but this Plan shall be construed and enforced as
if such illegal or invalid provision had never been inserted herein.
16.13 INCOMPETENT. If the Committee determines in its discretion that a benefit
under this Plan is to be paid to a minor, a person declared incompetent or
to a person incapable of handling the disposition of that person's
property, the Committee may direct payment of such benefit to the
guardian, legal representative or person having the care and custody of
such minor, incompetent or incapable person. The Committee may require
proof of minority, incompetence, incapacity or guardianship, as it may
deem appropriate prior to distribution of the benefit. Any payment of a
benefit shall be a payment for the account of the Participant and the
Participant's Beneficiary, as the case may be, and shall be a complete
discharge of any liability under the Plan for such payment amount.
16.14 COURT ORDER. The Committee is authorized to make any payments directed by
court order in any action in which the Plan or the Committee has been
named as a party. In addition, if a court determines that a spouse or
former spouse of a Participant has an interest in the Participant's
benefits under the Plan in connection with a property settlement or
otherwise, the Committee, in its sole discretion, shall have the right,
notwithstanding any election made by a Participant, to immediately
distribute the spouse's or former spouse's interest in the Participant's
benefits under the Plan to that spouse or former spouse.
16.15 DISTRIBUTION IN THE EVENT OF TAXATION.
(a) IN GENERAL. If, for any reason, all or any portion of a
Participant's benefits under this Plan becomes taxable to the
Participant prior to receipt, a Participant may petition the
Committee before a Change in Control, or the trustee of the Trust
after a Change in Control, for a distribution of that portion of
his or her benefit that has become taxable. Upon the grant of such
a petition, which grant shall not be unreasonably withheld (and,
after a Change in Control, shall be granted), a Participant's
Employer shall distribute to the Participant immediately available
funds in an amount equal to the taxable portion of his or her
benefit (which amount shall not exceed a Participant's unpaid
Account Balance under the Plan). If the petition is granted, the
tax liability distribution shall be made within 90 days of the
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SPYGLASS, INC.
Deferred Compensation Plan
================================================================================
date when the Participant's petition is granted. Such a distribution shall
affect and reduce the benefits to be paid under this Plan.
(b) TRUST. If the Trust terminates and benefits are distributed from the Trust
to a Participant, the Participant's benefits under this Plan shall be
reduced to the extent of such distributions.
16.16 INSURANCE. The Employers, on their own behalf or on behalf of the trustee
of the Trust, and, in their sole discretion, may apply for and procure
insurance on the life of the Participant, in such amounts and in such
forms as the Trust may choose. The Employers or the trustee of the Trust,
as the case may be, shall be the sole owner and beneficiary of any such
insurance. The Participant shall have no interest whatsoever in any such
policy or policies, and at the request of the Employers shall submit to
medical examinations and supply such information and execute such
documents as may be required by the insurance company or companies to whom
the Employers have applied for insurance.
16.17 LEGAL FEES TO ENFORCE RIGHTS AFTER CHANGE IN CONTROL. The Company and each
Employer is aware that upon the occurrence of a Change in Control, the
Board or the board of directors of a Participant's Employer (which might
then be composed of new members) or a shareholder of the Company or the
Participant's Employer, or of any successor corporation might then cause
or attempt to cause the Company, the Participant's Employer or such
successor to refuse to comply with its obligations under the Plan and
might cause or attempt to cause the Company or the Participant's Employer
to institute, or may institute, litigation seeking to deny Participants
the benefits intended under the Plan. In these circumstances, the purpose
of the Plan could be frustrated. Accordingly, if, following a Change in
Control, it should appear to any Participant that the Company, the
Participant's Employer or any successor corporation has failed to comply
with any of its obligations under the Plan or any agreement thereunder or,
if the Company, such Employer or any other person takes any action to
declare the Plan void or unenforceable or institutes any litigation or
other legal action designed to deny, diminish or to recover from any
Participant the benefits intended to be provided, then the Company and the
Participant's Employer irrevocably authorize such Participant to retain
counsel of his or her choice at the expense of the Company and the
Participant's Employer (who shall be jointly and severally liable) to
represent such Participant in connection with the initiation or defense of
any litigation or other legal action, whether by or against the Company,
the Participant's Employer or any director, officer, shareholder or other
person affiliated with the Company, the Participant's Employer or any
successor thereto in any jurisdiction.
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<PAGE> 33
SPYGLASS, INC.
Deferred Compensation Plan
================================================================================
IN WITNESS WHEREOF, the Company has signed this Plan document effective as
of November 1, 1999.
Spyglass, Inc., a Delaware corporation
By:
---------------------------------
Title:
---------------------------------
-29-
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FINANCIAL
STATEMENTS FOR THE PERIOD ENDED DECEMBER 31, 1999 AND SEPTEMBER 30, 1999 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C> <C>
<PERIOD-TYPE> 3-MOS YEAR
<FISCAL-YEAR-END> SEP-30-2000 SEP-30-1999
<PERIOD-END> DEC-31-1999 SEP-30-1999
<CASH> 33,960 18,613
<SECURITIES> 26,400<F1> 0<F1>
<RECEIVABLES> 6,544<F2> 9,225<F2>
<ALLOWANCES> 489<F2> 494<F2>
<INVENTORY> 0<F1> 0<F1>
<CURRENT-ASSETS> 84,545 41,398
<PP&E> 3,793 3,897
<DEPRECIATION> 0<F1> 0<F1>
<TOTAL-ASSETS> 92,667 45,773
<CURRENT-LIABILITIES> 10,594 6,199
<BONDS> 0<F1> 0<F1>
0<F1> 0<F1>
0<F1> 0<F1>
<COMMON> 169 165
<OTHER-SE> 81,794 39,083
<TOTAL-LIABILITY-AND-EQUITY> 92,667 45,773
<SALES> 3,311 13,493
<TOTAL-REVENUES> 8,213 29,610
<CGS> 279 1,220
<TOTAL-COSTS> 2,597 10,129
<OTHER-EXPENSES> 6,671 22,760
<LOSS-PROVISION> 0<F1> 0<F1>
<INTEREST-EXPENSE> 0<F1> 0<F1>
<INCOME-PRETAX> (2,055) (3,279)
<INCOME-TAX> 1,041<F1> 0<F1>
<INCOME-CONTINUING> 24,812 (1,897)
<DISCONTINUED> 0<F1> 0
<EXTRAORDINARY> 0<F1> 0<F1>
<CHANGES> 0<F1> 0<F1>
<NET-INCOME> 24,812 (1,897)
<EPS-BASIC> 1.49<F1> (0.12)<F1>
<EPS-DILUTED> 1.32<F1> (0.12)<F1>
<FN>
<F1>Amounts inapplicable or not disclosed as a separate line on the Consolidated
Balance Sheets or Consolidated Statement of Operations are reported as 0 herein.
<F2>*Notes and accounts receivable-trade are reported net of allowances for
doubtful accounts in the Consolidated Balance Sheets.
</FN>
</TABLE>
