Exhibit (c)(1)
AGREEMENT AND PLAN OF MERGER
by and among
THE SAGE GROUP PLC
ROSE ACQUISITION CORP.
and
STATE OF THE ART, INC.
dated
January 27, 1998
TABLE OF CONTENTS
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Page
ARTICLE I
THE OFFER AND MERGER
Section 1.1 The Offer...................................................... 2
Section 1.2 Company Actions................................................ 6
Section 1.3 Directors...................................................... 7
Section 1.4 The Merger..................................................... 9
Section 1.5 Effective Time................................................. 9
Section 1.6 Closing........................................................ 10
Section 1.7 Directors and Officers of the Surviving Corporation............ 10
Section 1.8 Effects of the Merger.......................................... 10
Section 1.9 Subsequent Actions............................................. 10
Section 1.10 Shareholders' Meeting.......................................... 11
Section 1.11 Merger Without Meeting of Shareholders......................... 11
Section 1.12 Earliest Consummation.......................................... 12
ARTICLE II
CONVERSION OF SECURITIES
Section 2.1 Conversion of Capital Stock.................................... 12
Section 2.2 Dissenting Shares.............................................. 13
Section 2.3 Surrender of Shares; Stock Transfer Books...................... 13
Section 2.4 Company Stock Plans............................................ 15
ARTICLE III
REPRESENTATIONS AND
WARRANTIES OF THE COMPANY
Section 3.1 Organization................................................... 19
Section 3.2 Capitalization................................................. 20
Section 3.3 Authorization; Validity of Agreement; Company Action........... 22
Section 3.4 Consents and Approvals; No Violations.......................... 22
Section 3.5 SEC Reports and Financial Statements........................... 23
Section 3.6 Absence of Certain Changes..................................... 24
Section 3.7 No Undisclosed Liabilities..................................... 24
1
Section 3.8 Litigation..................................................... 25
Section 3.9 Employee Benefit Plans; ERISA.................................. 25
Section 3.10 Taxes.......................................................... 28
Section 3.11 Contracts...................................................... 29
Section 3.12 Real Property.................................................. 29
Section 3.13 Intellectual Property.......................................... 30
Section 3.14 Labor Matters.................................................. 31
Section 3.15 Compliance with Laws........................................... 32
Section 3.16 Environmental Matters.......................................... 32
Section 3.17 Product Warranties............................................. 33
Section 3.18 Information in Proxy Statement................................. 33
Section 3.19 Related Party Transactions..................................... 34
Section 3.20 Opinion of Financial Advisor................................... 34
Section 3.21 Insurance...................................................... 34
Section 3.22 State Takeover Statutes; Required Vote......................... 34
Section 3.23 Brokers........................................................ 34
Section 3.24 Full Disclosure................................................ 35
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
OF PARENT AND THE PURCHASER
Section 4.1 Organization................................................... 35
Section 4.2 Authorization; Validity of Agreement; Necessary Action......... 35
Section 4.3 Consents and Approvals; No Violations.......................... 36
Section 4.4 Information in Proxy Statement................................. 37
Section 4.5 Interim Operations of the Purchaser............................ 37
Section 4.6 Brokers........................................................ 37
Section 4.7 Financing...................................................... 37
Section 4.8 Share Ownership................................................ 38
ARTICLE V
CONDUCT OF BUSINESS PENDING THE MERGER
Section 5.1 Acquisition Proposals.......................................... 38
Section 5.2 Interim Operations of the Company.............................. 39
Section 5.3 No Solicitation................................................ 42
2
ARTICLE VI
ADDITIONAL AGREEMENTS
Section 6.1 Proxy Statement................................................ 44
Section 6.2 Meeting of Shareholders of the Company......................... 44
Section 6.3 Additional Agreements.......................................... 44
Section 6.4 Notification of Certain Matters................................ 44
Section 6.5 Access; Confidentiality........................................ 45
Section 6.6 Consents and Approvals......................................... 46
Section 6.7 Publicity...................................................... 46
Section 6.8 Directors' and Officers' Insurance and Indemnification......... 47
Section 6.9 Purchaser Compliance........................................... 48
Section 6.10 Commercially Reasonable Efforts................................ 48
Section 6.11 State Takeover Laws............................................ 49
Section 6.12 Financing Related Efforts...................................... 49
ARTICLE VII
CONDITIONS
Section 7.1 Conditions to Each Party's Obligations to Effect the Merger.... 50
ARTICLE VIII
TERMINATION
Section 8.1 Termination.................................................... 51
Section 8.2 Effect of Termination.......................................... 52
ARTICLE IX
MISCELLANEOUS
Section 9.1 Amendment and Modification..................................... 54
Section 9.2 Non-survival of Representations and Warranties................. 54
Section 9.3 Expenses....................................................... 54
Section 9.4 Notices........................................................ 54
Section 9.5 Interpretation................................................. 56
Section 9.6 Counterparts................................................... 56
Section 9.7 Entire Agreement; No Third Party Beneficiaries................. 56
Section 9.8 Severability................................................... 57
Section 9.9 Governing Law.................................................. 57
3
Section 9.10 Assignment.................................................... 57
4
Index of Defined Terms
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Defined Term Section No.
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Acquisition Proposal........................................................ 5.1
Acquisition Proposal Interest............................................... 5.1
Admission................................................................6.12(b)
Agreement...............................................................Recitals
Appointment Date.............................................................5.2
Articles of Incorporation....................................................1.4
Assumed Options.......................................................2.4(a)(ii)
Audit....................................................................3.10(b)
Average Premium...........................................................6.8(b)
Benefit Plans.............................................................3.9(a)
By-Laws......................................................................1.4
Cash-Out Options.......................................................2.4(a)(i)
Certificates..............................................................2.3(b)
Closing......................................................................1.6
Closing Date.................................................................1.6
Code......................................................................3.9(b)
Common Stock..............................................................3.2(a)
Commonly Controlled Entity................................................3.9(b)
Company.................................................................Recitals
Company Agreements...........................................................3.4
Company Board of Directors..............................................Recitals
Company Disclosure Schedule..........................................Article III
Company Material Adverse Change...........................................3.1(a)
Company Material Adverse Effect...........................................3.1(a)
Company SEC Documents........................................................3.5
Confidentiality Agreement.................................................5.3(b)
D&O Insurance.............................................................6.8(b)
December 1997 Financial Statements...........................................3.5
Dissenting Shares............................................................2.2
Effective Time...............................................................1.5
Encumbrances..............................................................3.2(b)
Environmental Claims.....................................................3.16(b)
Environmental Laws.......................................................3.16(a)
ERISA.....................................................................3.9(b)
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Exchange Act..............................................................1.1(a)
Exchange Ratio.......................................................2.4(a)(iii)
Financial Statements.........................................................3.5
Financing....................................................................4.7
Financing Documents..........................................................4.7
GAAP.........................................................................3.5
GCL.....................................................................Recitals
Governmental Entity..........................................................3.4
HSR Act......................................................................3.4
Indemnified Party.........................................................6.8(a)
Independent Directors.....................................................1.3(c)
Initial Expiration Date...................................................1.1(a)
Intellectual Property Rights................................................3.13
London Stock Exchange........................................................6.7
Materials of Environmental Concern.......................................3.16(a)
Merger.......................................................................1.4
Merger Agreement.........................................................Annex I
Merger Consideration......................................................2.1(c)
Minimum Condition........................................................Annex I
New Shares...............................................................6.12(b)
Offer...................................................................Recitals
Offer Documents...........................................................1.1(b)
Offer Price.............................................................Recitals
Offer to Purchase.........................................................1.1(a)
Option.................................................................2.4(a)(i)
Option Agreement........................................................Recitals
Parachute Gross-Up Payment................................................3.9(g)
Parent..................................................................Recitals
Parent Common Share..................................................2.4(a)(iii)
Paying Agent..............................................................2.3(a)
Pension Plans.............................................................3.9(b)
Person.......................................................................9.5
Preferred Stock...........................................................3.2(a)
Proxy Statement......................................................1.10(a)(ii)
Purchaser...............................................................Recitals
Purchaser Common Stock.......................................................2.1
Real Property............................................................3.12(a)
Revised Minimum Number....................................................1.1(d)
Schedule 14D-l............................................................1.1(b)
ii
Schedule 14D-9............................................................1.2(b)
SEC.......................................................................1.1(b)
Secretary of State...........................................................1.5
Securities Act...............................................................3.5
Shareholder.............................................................Recitals
Shareholder Agreement...................................................Recitals
Shares..................................................................Recitals
Special Meeting.......................................................1.10(a)(i)
Stock Plans...............................................................2.4(a)
Stock Purchase Plan.......................................................2.4(f)
Subsidiary................................................................3.1(a)
Substitute Financing......................................................1.1(a)
Superior Proposal.........................................................5.3(b)
Surviving Corporation........................................................1.4
Tax......................................................................3.10(b)
Tax Authority............................................................3.10(b)
Tax Returns..............................................................3.10(b)
Taxes....................................................................3.10(b)
Termination Fee...........................................................8.2(b)
Transactions..............................................................1.2(a)
Transmittal Documents.....................................................2.3(b)
Voting Debt...............................................................3.2(a)
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AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER (hereinafter referred to as this
"Agreement"), dated January 27, 1998, by and among The Sage Group plc, a company
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organized under the laws of England ("Parent"), Rose Acquisition Corp., a
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Delaware corporation and a direct and indirect wholly owned subsidiary of Parent
(the "Purchaser"), and State Of The Art, Inc., a California corporation (the
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"Company").
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WHEREAS, the Board of Directors of each of Parent, the Purchaser and
the Company has approved, and deems it advisable and in the best interests of
its respective shareholders to consummate, the acquisition of the Company by
Parent upon the terms and subject to the conditions set forth herein;
WHEREAS, in furtherance thereof, it is proposed that Purchaser make a
cash tender offer (the "Offer") to acquire all shares (the "Shares") of the
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issued and outstanding common stock, no par value, of the Company, for $22.00
per share, net to the seller in cash (such price, or any such higher price per
Share as may be paid in the Offer, being referred to herein as the "Offer
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Price");
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WHEREAS, also in furtherance of such acquisition, the Board of
Directors of each of Parent, Purchaser and the Company have each approved the
Merger (as defined below) following the Offer in accordance with the General
Corporation Law of the State of California (the "GCL") and upon the terms and
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subject to the conditions set forth herein, whereby each issued and outstanding
Share not owned directly or indirectly by Parent, the Purchaser or the Company
will be converted into the right to receive an amount equal to the Offer Price
in cash;
WHEREAS, the Board of Directors of the Company (the "Company Board of
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Directors") has determined that the consideration to be paid for each Share in
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the Offer and the Merger is fair to the holders of such Shares and has resolved
to recommend that the holders of such Shares accept the Offer and approve this
Agreement and each of the transactions contemplated hereby upon the terms and
subject to the conditions set forth herein;
WHEREAS, as a condition and further inducement to Parent and the
Purchaser to enter into this Agreement and incurring the obligations set forth
herein, certain shareholders (each a "Shareholder") concurrently herewith is
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entering into a
Shareholder Agreement (the "Shareholder Agreement"), dated as of the date
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hereof, with Parent and the Purchaser, in the form attached hereto as Exhibit A,
pursuant to which each Shareholder has agreed, among other things, to tender the
Shares held by each in the Offer and to grant Parent a proxy with respect to the
voting of such Shares in favor of the Merger upon the terms and subject to the
conditions set forth therein;
WHEREAS, as a condition and further inducement to Parent and the
Purchaser to enter into this Agreement and incurring the obligations set forth
herein, concurrently with the execution and delivery of this Agreement,
Purchaser and the Company are entering into an Option Agreement in the form of
Exhibit B hereto (the "Option Agreement"), pursuant to which among other things,
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the Company has granted the Purchaser an option to purchase certain newly-issued
shares of Common Stock (as hereinafter defined), subject to certain conditions;
WHEREAS, the Company, Parent and Purchaser desire to make certain
representations, warranties, covenants and agreements in connection with the
Offer and Merger and also to prescribe to certain various conditions to the
Offer and the Merger.
NOW, THEREFORE, in consideration of the foregoing and the mutual
representations, warranties, covenants and agreements set forth herein, the
parties hereto agree as follows:
ARTICLE I
THE OFFER AND MERGER
Section 1.1 The Offer.
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(a) Provided that this Agreement shall not have been terminated in
accordance with Section 8.1 hereof and none of the events set forth in Annex I
shall have occurred and be existing, as promptly as practicable (but in no event
later than five business days after the public announcement of the execution of
this Agreement), Purchaser shall commence (within the meaning of Rule 14d-2
under the Securities Exchange Act of 1934, as amended (the "Exchange Act")) the
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Offer at the Offer Price. The obligations of the Purchaser to accept for
payment and to pay for any Shares validly tendered on or prior to the expiration
of the Offer and not
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withdrawn shall be subject only to the conditions set forth in Annex I hereto.
The Offer shall be made by means of an offer to purchase (the "Offer to
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Purchase") subject to the conditions set forth in Annex I hereto. Except as
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provided in Section 1.1(d), Purchaser shall not, without the prior written
consent of the Company, (i) decrease the Offer Price or change the form of
consideration payable in the Offer, (ii) decrease the number of Shares sought to
be purchased in the Offer (except as otherwise set forth in Section 1.1(d)
hereof), (iii) impose conditions to the Offer in addition to those set forth in
Annex I, (iv) amend any condition of the Offer set forth in Annex I, (v) extend
the initial expiration date (the "Initial Expiration Date") of the Offer,
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except as required by law and except that in the event that any condition to the
Offer is not satisfied or waived on the Initial Expiration Date, the Purchaser
shall, and shall continue to, extend the Offer from time to time until a date
not later than March 26, 1998 (it being understood that the Purchaser may
determine the interim expiration dates of any extension of the Offer during such
extension period), or (vi) amend any other term of the Offer in any manner
adverse to any holders of the Shares; provided, however that in the event that
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any condition to the Offer is not satisfied on a date following the Initial
Expiration Date on which the Offer is scheduled to expire, (i) Purchaser may,
from time to time, in its sole discretion, extend the expiration date of the
Offer until a date not later than July 31, 1998 and (ii) at the written request
of the Company delivered no later than March 26, 1998, the Purchaser shall, and
shall continue to, extend the Offer from time to time for the period commencing
on the date of the notice referred to above until a date not later than July 31,
1998 (it being understood that the Purchaser may determine the interim
expiration dates of any extension of the Offer during such extension period);
provided, further, that in the event that the Purchaser extends the expiration
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date of the Offer in accordance with such request: (A) Annex I shall be deemed
to be amended to provide an additional condition that the Purchaser shall not be
required to accept for payment or pay for any tendered Shares unless and until
Parent and the Purchaser shall have obtained sufficient financing (the
"Substitute Financing") in replacement, if necessary, of the Financing (as
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defined below) in order to permit Parent and the Purchaser to acquire all of the
Shares in the Offer and the Merger and to pay the anticipated expenses in
connection therewith, (B) the condition set forth in paragraph (h) of Annex I
shall be amended and replaced with the condition set forth in clause (A) above,
(C) from and after such time Parent shall not be subject to Section 6.12 and (D)
Parent shall use all commercially reasonable efforts to secure the Substitute
Financing prior to July 31, 1998 and to provide funds to the Purchaser to permit
it to perform its obligations hereunder and in the Offer (provided that Parent
shall not be required to obtain Substitute Financing on economic terms
materially less favorable to it than the Financing). Purchaser shall, on the
terms and
3
subject to the prior satisfaction or waiver of the conditions of the Offer,
accept for payment and pay for Shares tendered as soon as it is legally
permitted to do so under applicable law. Parent shall provide or cause to be
provided to the Purchaser on a timely basis the funds necessary to accept for
payment, and pay for, any Shares that the Purchaser becomes obligated to accept
for payment, and pay for, pursuant to the Offer.
(b) Concurrently with the commencement of the Offer, Parent and the
Purchaser shall file with the United States Securities and Exchange Commission
(the "SEC") a Tender Offer Statement on Schedule 14D-1 with respect to the Offer
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(together with all amendments and supplements thereto and including the exhibits
thereto, the "Schedule 14D-l"). The Schedule 14D-1 will include, as exhibits,
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the Offer to Purchase and a form of letter of transmittal and summary
advertisement (collectively, together with any amendments and supplements
thereto, the "Offer Documents") Parent and Purchaser agree that the Offer
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Documents will comply in all material respects with the provisions of applicable
Federal securities laws and, on the date filed with the SEC and on the date
first published or sent to the Company's shareholders, shall not contain any
untrue statement of a material fact or omit to state any material fact required
to be stated therein or necessary in order to make the statements made therein,
in light of the circumstances under which they were made, not misleading, except
that no representation is made by Parent or the Purchaser with respect to
information furnished by the Company expressly for inclusion in the Offer
Documents. The information supplied by the Company expressly for inclusion in
the Offer Documents and by Parent or the Purchaser expressly for inclusion in
the Schedule 14D-9 (as hereinafter defined) will not contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary in order to make the statements made therein, in
light of the circumstances under which they were made, not misleading. No
representation, warranty or covenant is made or shall be made herein by the
Company with respect to information contained in the Offer Documents other than
information supplied by the Company in writing expressly for inclusion in the
Offer Documents.
(c) Each of Parent and the Purchaser will take all steps necessary to
cause the Offer Documents to be filed with the SEC and to be disseminated to
holders of the Shares, in each case as and to the extent required by applicable
federal securities laws. Each of Parent and the Purchaser, on the one hand, and
the Company, on the other hand, will promptly correct any information provided
by it for use in the Schedule 14D-1 or the Offer Documents if and to the extent
that it shall have become false or misleading in any material respect, and the
Purchaser further will
4
take all steps necessary to cause the Schedule 14D-1 or the Offer Documents as
so corrected to be filed with the SEC and to be disseminated to holders of the
Shares, in each case as and to the extent required by applicable federal
securities laws. The Company and its counsel shall be given the reasonable
opportunity to review the initial Schedule 14D-1 (as well as all amendments or
supplements thereto) before any such document is filed with the SEC. In
addition, Parent and the Purchaser will provide the Company and its counsel with
any comments or other communications, whether written or oral, Parent, the
Purchaser or their counsel may receive from time to time from the SEC or its
staff with respect to the Offer Documents promptly after the receipt of such
comments or other communications.
(d) Subject to the limitations set forth in Section 1.1(a), in the
event the Minimum Condition (as defined in Annex I) is not satisfied on the
Initial Expiration Date, the Purchaser may either (i) extend the Offer pursuant
to clause (v) of Section 1.1(a) for a period or periods not to exceed, in the
aggregate ten (10) business days, or (ii) amend the Offer to provide that, in
the event (x) the Minimum Condition is not satisfied at the next scheduled
expiration date of the Offer (without giving pro forma effect to the potential
issuance of any Shares issuable upon exercise of the Option Agreement) and (y)
the number of Shares tendered pursuant to the Offer and not withdrawn as of such
next scheduled expiration date is more than 50% of the then outstanding Shares,
the Purchaser shall waive the Minimum Condition and amend the Offer to reduce
the number of Shares subject to the Offer to a number of Shares that when added
to the Shares then owned by the Purchaser will equal 49.9999% of the Shares then
outstanding (the "Revised Minimum Number") and, if a greater number of Shares is
----------------------
tendered into the Offer and not withdrawn, purchase, on a pro rata basis, the
Revised Minimum Number of Shares (it being understood that the Purchaser may,
but shall not in any event be required to, accept for payment, or pay for any
Shares if less than the Revised Minimum Number of Shares are tendered pursuant
to the Offer and not withdrawn at the applicable expiration date); provided,
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further, that in the event the Minimum Condition is not satisfied on or before
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the ten (10) business day period referred to in paragraph (d)(i) above, the
Purchaser shall waive the Minimum Condition and amend the Offer to reduce the
number of Shares subject to the Offer to the Revised Minimum Number of Shares.
Notwithstanding any other provision of this Agreement, in the event that the
Purchaser purchases a number of Shares equal to the Revised Minimum Number,
without the prior written consent of the Purchaser prior to the termination of
this Agreement, the Company shall take no action whatsoever to increase the
number of Shares owned by the Purchaser in excess of the Revised Minimum Number.
5
Section 1.2 Company Actions.
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(a) The Company represents that the Company Board of Directors, at a
meeting duly called and held has (i) unanimously determined that each of the
Agreement, the Offer, the Merger and the Option Agreement (as hereinafter
defined) are fair to and in the best interests of the shareholders of the
Company, (ii) duly approved this Agreement, the Option Agreement and the
transactions contemplated hereby and thereby, including the Offer and the Merger
(collectively, the "Transactions"), and duly approved the Offer and the Merger
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in accordance with Section 1101 of the GCL, and (iii) resolved to recommend that
the shareholders of the Company accept the Offer and tender their shares
thereunder to the Purchaser and approve and adopt this Agreement and the Merger
(provided, however, that subject to and in accordance with the provisions of
Section 5.3, such recommendation may be withdrawn, modified or amended in
connection with a Superior Proposal (as defined in Section 5.3)).
(b) As soon as practicable on or after the date the Offer is
commenced, the Company shall file with the SEC a Solicitation/Recommendation
Statement on Schedule 14D-9 (together with all amendments or supplements thereto
and including the exhibits thereto, the "Schedule 14D-9") which shall, subject
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to the provisions of Section 5.3(c) contain the recommendation referred to in
clause (iii) of Section 1.2(a) hereof. The Schedule 14D-9 will comply in all
material respects with the provisions of applicable federal securities laws and,
on the date filed with the SEC and on the date first published or sent to the
Company's shareholders, shall not contain any untrue statement of a material
fact or omit to state any material fact required to be stated therein or
necessary in order to make the statements made therein, in light of the
circumstances under which they were made, not misleading, except that no
representation is made by the Company with respect to information furnished by
Parent or the Purchaser expressly for inclusion in the Schedule 14D-9. No
representation, warranty or covenant is made or shall be made herein by Parent
or the Purchaser with respect to information contained in the Schedule 14D-9
other than the information supplied by Parent or the Purchaser in writing
expressly for inclusion in the Schedule 14D-9. The Company further agrees to
take all steps necessary to cause the Schedule 14D-9 to be filed with the SEC
and to be disseminated to holders of the Shares, in each case, as and to the
extent required by applicable federal securities laws. The Company shall mail,
or cause to be mailed, such Schedule 14D-9 to the shareholders of the Company at
the same time the Offer Documents are first mailed to the shareholders of the
Company together with such Offer Documents. Each of the Company, on the one
hand, and Parent and the Purchaser, on the other
6
hand, agrees promptly to correct any information provided by it for use in the
Schedule 14D-9 if and to the extent that it shall have become false or
misleading in any material respect and the Company further agrees to take all
steps necessary to cause the Schedule 14D-9 as so corrected to be filed with the
SEC and to be disseminated to holders of the Shares, in each case, as and to the
extent required by applicable federal securities laws. Parent and its counsel
shall be given the opportunity to review the Schedule 14D-9 before it is filed
with the SEC. In addition, the Company agrees to provide Parent, the Purchaser
and their counsel with any comments, whether written or oral, that the Company
or its counsel may receive from time to time from the SEC or its staff with
respect to the Schedule 14D-9 promptly after the receipt of such comments or
other communications.
(c) In connection with the Offer, the Company will promptly furnish or
cause to be furnished to the Purchaser mailing labels, security position
listings and any available listing or computer file containing the names and
addresses of all record holders of Shares, each as of a recent date, and shall
promptly furnish the Purchaser with such additional information (including, but
not limited to, updated mailing labels, security position listings and available
listings or computer files containing the names and addresses of all
record holders of Shares).
Section 1.3 Directors.
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(a) Subject to compliance with applicable law, promptly upon the
purchase of and payment for any Shares by the Purchaser pursuant to the Offer,
and from time to time thereafter as Shares are acquired by the Purchaser, Parent
shall be entitled to designate such number of directors, rounded up to the next
whole number, on the Company Board of Directors as is equal to the product of
the total number of directors on such Board (determined after giving effect to
the directors designated by Parent pursuant to this sentence) multiplied by the
percentage that the aggregate number of Shares which Purchaser or any affiliate
of the Purchaser owns beneficially bears to the total number of Shares then
outstanding. In furtherance thereof, the Company shall, upon the request of
Parent, promptly secure the resignations of such number of its incumbent
directors as is necessary to enable Parent's designees to be elected to the
Company Board of Directors and shall take all actions available to the Company
to cause Parent's designees to be so elected. At such time, the Company shall,
if requested by Parent, also cause persons designated by Parent to constitute at
least the same percentage (rounded up to the next whole number) as is on the
Company Board of Directors of (i) each committee of the Company Board of
Directors, (ii) each board of directors (or similar body) of each Subsidiary (as
7
hereinafter defined) of the Company and (iii) each committee (or similar body)
of each such board.
(b) The Company shall promptly take all actions required pursuant to
Section 14(f) of the Exchange Act and Rule 14f-l promulgated thereunder in order
to fulfill its obligations under Section 1.3(a) hereof, and shall include in the
Schedule 14D-9 mailed to shareholders promptly after the commencement of the
Offer (or an amendment thereof or an information statement pursuant to Rule 14f-
1 if the Purchaser has not theretofore designated directors) such information
with respect to the Company and its officers and directors as is required under
Section 14(f) and Rule 14f-1 in order to fulfill its obligations under Section
1.3(a). Parent or the Purchaser shall supply the Company information with
respect to either of them and their nominees, officers, directors and affiliates
required by such Section 14(f) and Rule 14f-1. The provisions of this Section
1.3 are in addition to and shall not limit any rights which the Parent,
Purchaser or any of their affiliates may have as a holder or beneficial owner of
Shares as a matter of law with respect to the election of directors or
otherwise.
(c) In the event that Parent's designees are elected to the Company
Board of Directors, subject to the other terms of this Agreement and until the
Effective Time, the Company Board of Directors shall have at least two directors
who are directors on the date hereof and neither of whom is an officer of the
Company (other than the present Chief Executive Officer of the Company) nor a
designee, shareholder, affiliate or associate (within the meaning of the federal
securities laws) of Parent (one or more of such directors, the "Independent
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Directors"), provided that, in such event, if the number of Independent
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Directors shall be reduced below two for any reason whatsoever, any remaining
Independent Director shall be entitled to designate persons to fill such
vacancies who shall be deemed Independent Directors for purposes of this
Agreement or, if no Independent Director then remains, the other directors shall
designate one person to fill one of the vacancies who shall not be a
shareholder, affiliate or associate of Parent or the Purchaser and such person
shall be deemed to be an Independent Director for purposes of this Agreement.
Notwithstanding anything in this Agreement to the contrary, in the event that
Parent's designees are elected to the Company Board of Directors, after the
acceptance for payment of Shares pursuant to the Offer and prior to the
Effective Time (as hereinafter defined), the affirmative vote of a majority of
the Independent Directors shall be required to (a) amend or terminate this
Agreement on behalf of the Company, (b) exercise or waive any of the Company's
rights, benefits or remedies hereunder, (c) extend the time for performance of
the Purchaser's obligations
8
hereunder or (d) take any other action by the Company Board of Directors under
or in connection with this Agreement; provided, however, that if there shall be
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no such directors, such actions may be effected by unanimous vote of the entire
Company Board of Directors.
Section 1.4 The Merger. Upon the terms and subject to satisfaction
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or waiver of the conditions of this Agreement, and in accordance with the
applicable provisions of this Agreement and the GCL, at the Effective Time, the
Company and the Purchaser shall consummate a merger (the "Merger") pursuant to
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which (a) the Purchaser shall be merged with and into the Company and the
separate corporate existence of the Purchaser shall thereupon cease, (b) the
Company shall be the successor or surviving corporation in the Merger (sometimes
hereinafter referred to as the "Surviving Corporation") and shall continue to be
---------------------
governed by the laws of the State of California, and (c) the separate corporate
existence of the Company with all of its rights, privileges, immunities, powers
and franchises shall continue unaffected by the Merger, except as set forth in
this Section 1.4. Pursuant to the Merger, (x) the Articles of Incorporation of
the Company (the "Articles of Incorporation"), shall be amended in its entirety
-------------------------
to read as the Articles of Incorporation of the Purchaser in effect immediately
prior to the Effective Time, except that Article I thereof shall read as
follows: "The name of the Corporation is STATE OF THE ART, INC." and , as so
amended, shall be the articles of incorporation of the Surviving Corporation
until thereafter amended as provided by law and such Articles of Incorporation
and (y) the By-Laws of the Purchaser (the "By-Laws"), as in effect immediately
-------
prior to the Effective time (as hereinafter defined), shall be the By-Laws of
the Surviving Corporation until thereafter amended as provided by law, by such
Articles of Incorporation or by such By-Laws.
Section 1.5 Effective Time. As soon as practicable after the
--------------
satisfaction or waiver of the conditions set forth in Article VII hereof,
Parent, the Purchaser and the Company shall cause to be executed and filed on
the Closing Date (as hereinafter defined) (or on such other date as Parent and
the Company may agree) with the Secretary of State of the State of California
(the "Secretary of State") in the manner required by the GCL an agreement of
------------------
merger together with an officer's certificate of the Company and the Purchaser,
and the parties shall take such other and further actions as may be required by
law to make the merger effective. The time the Merger becomes effective in
accordance with applicable law is hereinafter referred to as the "Effective
---------
Time."
----
9
Section 1.6 Closing. The closing of the Merger (the "Closing") shall
------- -------
take place at 10:00 a.m. on a date to be specified by the parties, which shall
be no later than the second business day after satisfaction or waiver of all of
the conditions set forth in Article VII hereof (the "Closing Date"), at the
------------
offices of Skadden, Arps, Slate, ▇▇▇▇▇▇▇ & ▇▇▇▇ LLP, Four ▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇,
▇▇▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇, unless another date or place is agreed to
in writing by the parties hereto.
Section 1.7 Directors and Officers of the Surviving Corporation.
---------------------------------------------------
Subject to applicable law, the directors of the Purchaser and the officers of
the Company at the Effective Time shall, from and after the Effective Time, be
the directors and officers of the Surviving Corporation until their successors
shall have been duly elected or appointed or qualified or until their earlier
death, resignation or removal in accordance with the Articles of Incorporation
and the By-laws. If, at the Effective Time, a vacancy shall exist on the
Company Board of Directors or in any office of the Surviving Corporation, such
vacancy may thereafter be filled in the manner provided by law.
Section 1.8 Effects of the Merger. At the Effective Time, the Merger
---------------------
shall have the effects set forth in Section 1107 of the GCL. Without limiting
the generality of the foregoing, and subject thereto, at the Effective Time all
the property, rights, privileges, powers and franchises of the Company and the
Purchaser shall vest in the Surviving Corporation, and all debts, liabilities
and duties of the Company and the Purchaser shall become the debts, liabilities
and duties of the Surviving Corporation.
Section 1.9 Subsequent Actions. If at any time after the Effective
------------------
Time the Surviving Corporation shall consider or be advised that any deeds,
bills of sale, assignments, assurances or any other actions or things are
necessary or desirable to vest, perfect or confirm of record or otherwise in the
Surviving Corporation its right, title or interest in, to or under any of the
rights, properties or assets of either of the Company or the Purchaser acquired
or to be acquired by the Surviving Corporation as a result of, or in connection
with the Merger or otherwise to carry out this Agreement, the officers and
directors of the Surviving Corporation shall be authorized to execute and
deliver, in the name and on behalf of either the Company or the Purchaser, all
such deeds, bills of sale, assignments and assurances and to take and do, in the
name and on behalf of each of such corporations or otherwise, all such other
actions and things as may be necessary or desirable to vest, perfect or confirm
any and all rights, title and interest in, to and under such rights, properties
or assets in the Surviving Corporation or otherwise to carry out this Agreement.
10
Section 1.10 Shareholders' Meeting.
---------------------
(a) If required by the Articles of Incorporation and/or applicable law
in order to consummate the Merger, the Company, acting through its Board of
Directors, shall, in accordance with applicable law:
(i) duly call, give notice of, convene and hold a special
meeting of its shareholders (the "Special Meeting") as promptly as
---------------
practicable following the acceptance for payment and purchase of Shares by
the Purchaser pursuant to the Offer for the purpose of considering and
taking action upon the approval of the Merger and the adoption of this
Agreement;
(ii) prepare and file with the SEC a preliminary proxy or
information statement relating to the Merger and this Agreement and use its
commercially reasonable efforts (x) to obtain and furnish the information
required to be included by the SEC in the Proxy Statement (as hereinafter
defined) and, after consultation with Parent, to respond promptly to any
comments made by the SEC with respect to the preliminary proxy or
information statement and cause a definitive proxy or information
statement, including any amendment or supplement thereto (the "Proxy
-----
Statement") to be mailed to its shareholders, provided that no amendment or
---------
supplement to the Proxy Statement will be made by the Company without
consultation with Parent and its counsel and (y) to obtain the necessary
approvals of the Merger and this Agreement by its shareholders; and
(iii) subject to the fiduciary obligations of the Board of
Directors of the Company under applicable law, include in the Proxy
Statement the recommendation of the Board of Directors that shareholders of
the Company vote in favor of the approval of the Merger and the adoption of
this Agreement.
(b) Parent will provide the Company with the information concerning
Parent and the Purchaser required to be included in the Proxy Statement. Parent
shall vote, or cause to be voted, all of the Shares then owned by it, the
Purchaser or any of its other subsidiaries and affiliates in favor of the
approval of the Merger and the approval and adoption of this Agreement.
Section 1.11 Merger Without Meeting of Shareholders. Notwithstanding
--------------------------------------
Section 1.10 hereof, in the event that Parent, the Purchaser and any other
11
Subsidiaries of Parent shall have acquired in the aggregate at least 90% of the
outstanding Shares pursuant to the Offer or otherwise (including as a result of
the exercise of the Option Agreement), the parties hereto shall take all
necessary and appropriate action to cause the Merger to become effective as soon
as practicable after the acceptance for payment of and payment for Shares by the
Purchaser pursuant to the Offer, without a meeting of shareholders of the
Company, in accordance with Section 1110 of the GCL.
Section 1.12 Earliest Consummation. Each party hereto shall use its
---------------------
commercially reasonable efforts to consummate the Merger as soon as practicable.
If the conditions set forth in Annex I hereto are satisfied, or waived, the
Purchaser shall consummate the Offer and accept for payment Shares tendered
therein and thereafter effectuate the Merger as soon as practicable after the
Purchaser accepts the Shares for payment pursuant to the Offer.
ARTICLE II
CONVERSION OF SECURITIES
Section 2.1 Conversion of Capital Stock. As of the Effective Time,
---------------------------
by virtue of the Merger and without any action on the part of the holders of any
Shares or holders of any class or series of common stock, par value $.01 per
share, of the Purchaser (the "Purchaser Common Stock"):
----------------------
(a) Each issued and outstanding share of Purchaser Common Stock shall
be converted into and become one validly issued, fully paid and nonassessable
share of common stock of the Surviving Corporation.
(b) All Shares owned by Parent, the Purchaser or any other wholly
owned subsidiary of Parent shall be cancelled and retired, and shall cease to
exist other than shares in Section 2.1(d) and no consideration shall be
delivered in exchange therefor.
(c) Each issued and outstanding Share immediately before the Effective
Time (other than any Shares to be cancelled pursuant to Section 2.1(b) and any
Dissenting Shares (as hereinafter defined)) shall be cancelled and extinguished
and be converted into the right to receive the Offer Price in cash, payable to
the holder thereof, without interest (the "Merger Consideration"), upon
--------------------
surrender of the
12
certificate formerly representing such Share in the manner provided in Section
2.3 hereof.
(d) Each share of Purchaser Common Stock, issued and outstanding
immediately before the Effective Time shall thereafter represent one validly
issued, fully paid and nonassessable share of common stock, par value $.01 per
share, of the Surviving Corporation.
Section 2.2 Dissenting Shares.
-----------------
Notwithstanding anything in this Agreement to the contrary, Shares
outstanding immediately prior to the Effective Time and held by a holder who has
not voted in favor of the Merger or consented thereto in writing and who has
demanded appraisal for such shares in accordance with Section 1300 of the GCL,
if such Section 1300 provides for appraisal rights for such Shares in the Merger
("Dissenting Shares"), shall not be converted into the right to receive the
-----------------
Merger Consideration as provided in Section 2.1, unless and until such holder
fails to perfect or withdraws or otherwise loses his right to appraisal and
payment under the GCL. If, after the Effective Time, any such holder fails to
perfect or withdraws or loses his right to appraisal, then such Dissenting
Shares shall thereupon be treated as if they had been converted as of the
Effective Time into the right to receive the Merger Consideration, if any, to
which such holder is entitled, without interest or dividends thereon. The
Company shall give Parent prompt notice of any demands received by the Company
for appraisal of Shares and, prior to the Effective Time, Parent shall have the
right to participate in all negotiations and proceedings with respect to such
demands. Prior to the Effective Time, the Company shall not, except with the
prior written consent of Parent, make any payments with respect to or settle or
offer to settle, any such demands.
Section 2.3 Surrender of Shares; Stock Transfer Books.
-----------------------------------------
(a) Before the Effective Time, the Purchaser shall designate a bank or
trust company reasonably acceptable to the Company to act as agent for the
holders of Shares in connection with the Merger (the "Paying Agent") to receive
------------
the funds necessary to make the payments contemplated by Section 2.1(a). At the
Effective Time, the Purchaser shall deposit, or cause to be deposited, in trust
with the Paying Agent for the benefit of holders of Shares the aggregate
consideration to which such holders shall be entitled at the Effective Time
pursuant to Section 2.1(a). Such funds shall be invested as directed by Parent
or the Surviving Corporation
13
pending payment thereof by the paying agent to holders of the Shares. Earnings
from such investments shall be the sole and exclusive property of the Purchaser
and the Surviving Corporation and no part thereof shall accrue to the benefit of
the holders of the Shares. If for any reason (including losses) such funds are
inadequate to pay the amounts to which holders of Shares shall be entitled under
this Section 2.3, Parent shall in any event be liable for payment thereof. Such
funds deposited with the Paying Agent pursuant to this Section 2.3 shall not be
used for any purpose except as expressly provided in this Agreement. From time
to time at or after the Effective Time, Parent shall take all lawful action
necessary to make the appropriate cash payments, if any, to holders of
Dissenting Shares. Prior to the Effective Time, Parent shall enter into
appropriate commercial arrangements to ensure effectuation of the immediately
preceding sentence.
(b) As soon as reasonably practicable after the Effective Time, the
Paying Agent shall mail to each holder of record of a certificate or
certificates, which immediately prior to the Effective Time represented
outstanding Shares (the "Certificates"), whose Shares were converted pursuant to
------------
Section 2.1 into the right to receive the Merger Consideration (i) a letter of
transmittal (which shall specify that delivery shall be effected and that the
risk of loss of and title to the Certificates shall pass, only upon delivery of
the Certificates to the Paying Agent and shall be in such form and have such
other provisions not inconsistent with this Agreement as Parent may specify) and
(ii) instructions for use in effecting the surrender of Certificates in exchange
for payment of the Merger Consideration (together, the "Transmittal Documents").
---------------------
Upon surrender of a Certificate for cancellation to the Paying Agent or to such
other agent or agents as may be appointed by Parent, together with such letter
of transmittal, duly executed, the holder of such Certificate shall be entitled
to receive in exchange therefor the Merger Consideration for each Share formerly
represented by such Certificate, and the Certificate so surrendered shall
forthwith be cancelled. If payment of the Merger Consideration is to be made to
a person other than the person in whose name the surrendered Certificate is
registered, it shall be a condition of payment that the Certificate so
surrendered shall be properly endorsed or shall otherwise be in proper form for
transfer and that the person requesting such payment shall have paid any
transfer and other taxes required by reason of the payment of the Merger
Consideration to a person other than the registered holder of the Certificate
surrendered or shall have established to the satisfaction of the Surviving
Corporation that such tax either has been paid or is not applicable. Until
surrendered as contemplated by this Section 2.3, each Certificate shall be
deemed at any time after the Effective Time to represent only the right to
receive the Merger Consideration in cash as contemplated by this Section 2.3.
Upon the surrender of
14
Certificates in accordance with the terms and instructions contained in the
Transmittal Documents, the Purchaser shall cause the Paying Agent to pay the
holder of such certificates in exchange therefor cash in an amount equal to the
Merger Consideration multiplied by the number of Shares represented by such
Certificate (other than Certificates representing Dissenting Shares and
Certificates representing Shares held by the Purchaser).
(c) At the Effective Time, the stock transfer books of the Company
shall be closed and there shall not be any further registration of transfers of
shares of any shares of capital stock thereafter on the records of the Company.
From and after the Effective Time, the holders of certificates evidencing
ownership of the Shares outstanding immediately prior to the Effective Time
shall cease to have any rights with respect to such Shares, except as otherwise
provided for herein or by applicable law. If, after the Effective Time,
Certificates are presented to the Surviving Corporation, they shall be cancelled
and exchanged for cash as provided in this Article II. No interest shall accrue
or be paid on any cash payable upon the surrender of a Certificate or
Certificates which immediately before the Effective Time represented outstanding
Shares.
(d) Promptly following the date which is one year after the Effective
Time, the Surviving Corporation shall be entitled to require the Paying Agent to
deliver to it any cash (including any interest received with respect thereto),
Certificates and other documents in its possession relating to the transactions
contemplated hereby, which had been made available to the Paying Agent and which
have not been disbursed to holders of Certificates, and thereafter such holders
shall be entitled to look to the Surviving Corporation (subject to abandoned
property, escheat or similar laws) only as general creditors thereof with
respect to the Merger Consideration payable upon due surrender of their
Certificates, without any interest thereon. Notwithstanding the foregoing,
neither the Surviving Corporation nor the Paying Agent shall be liable to any
holder of a Certificate for Merger Consideration delivered to a public official
pursuant to any applicable abandoned property, escheat or similar law.
(e) The Merger Consideration paid in the Merger shall be net to the
holder of Shares in cash, subject to reduction only for any applicable Federal
withholding taxes or, as set forth in Section 2.3(b), stock transfer taxes
payable by such holder.
Section 2.4 Company Stock Plans.
-------------------
15
(a) For purposes of this Agreement, the following terms shall have the
meanings set forth below:
(i) "Cash-Out Options" shall mean each option outstanding at the
----------------
Effective Time to purchase Shares (an "Option") granted under (A) the Company's
------
1990 Stock Option Plan, 1994 Incentive Stock Option, Nonqualified Stock Option
and Restricted Stock Purchase Plan, or Stock Option Plan for Non-Employee
Directors, (B) the Manzanita Software Systems 1985 Stock Option Plan or (C) any
other stock-based incentive plan or arrangement of the Company excluding any
options granted under the Company's 1997 Employee Stock Purchase Plan (the
"Stock Plans") that is not an Assumed Option (as defined below).
------------
(ii) "Assumed Options" shall mean those Options or portions there
---------------
of as identified on Schedule 2.4(a) granted under the Company's 1990 Stock
Option Plan or 1994 Incentive Stock Option, Nonqualified Stock Option and
Restricted Stock Purchase Plan that will not have vested and become exercisable
as of the Effective Time as identified on Section 2.4(a) of the Company
Disclosure Schedule having an aggregate exercise price on the date hereof in an
amount not materially less than $5 million. To the extent any Options or
portions thereof, as identified on Schedule 2.4(a), cannot be assumed by Parent,
such Options or portions thereof shall be treated as Cash-Out Options and shall
be cancelled as of the Effective Time in consideration for a cash payment in
accordance with Section 2.4(b).
(iii) "Exchange Ratio" shall mean the quotient of (x) the Offer
--------------
Price multiplied by the average of the mid-point of the bid and ask price of the
rate of currency exchange of pounds sterling for U.S. dollars quoted in The
Financial Times for each of the business days in a consecutive twenty business
period ending two business days prior to the Effective Date and (y) the average
per Share closing price of the ordinary shares of 1 ▇▇▇▇▇ each in the capital of
Parent (a "Parent Common Share") as reported on the London Stock Exchange on
-------------------
each of the ten trading days immediately preceding the Effective Time.
(b) The Company shall take all actions necessary to provide that at
the Effective Time, (i) each Cash-Out Option shall be cancelled and (ii) in
consideration of such cancellation, each holder of a Cash-Out Option shall
receive in consideration thereof an amount (subject to any applicable
withholding tax) in cash equal to the product of (x) the excess, if any, of the
Offer Price over the per Share exercise price of such Cash-Out Option and (y)
the number of Shares subject to such Cash-Out Option. The Company shall use all
commercially reasonable efforts to
16
effectuate the foregoing, including without limitation amending the Stock Plans
and obtaining any necessary consents from holders of Cash-Out Options.
(c) At the Effective Time, each Assumed Option shall be assumed by
Parent (and Parent shall take all action necessary under applicable law, to
cause such result or equivalent result without disadvantage to the Option
holders) and shall thereupon constitute an option to acquire that number of
Parent Common Shares equal to (i) the number of Shares subject to the Assumed
Option immediately prior to the Effective Time, multiplied by (ii) the Exchange
Ratio, rounded down to the nearest whole share, at a price per Parent Common
Share equal to (x) the exercise price of the Assumed Option immediately prior to
the Effective Time, divided by (y) the Exchange Ratio, rounded up to the nearest
whole cent. Other than as described in the immediately preceding sentence, the
Assumed Options shall be subject to the same terms and conditions as applicable
immediately prior to the Effective Time; provided, however, that the terms of
-------- -------
the Stock Plans shall be amended as necessary to comply with all applicable
securities laws and laws of the jurisdiction of the Parent (but without
disadvantage to the option holder). As soon as reasonably practicable following
the Effective Time, Parent shall deliver to each holder of an Assumed Option an
appropriate notice setting forth the terms of such assumption. With respect to
any Assumed Option that is an incentive stock option (within the meaning of
Section 422 of the Code) immediately prior to the Effective Time, such
assumption shall, to the extent reasonably practicable, conform to the
requirements of Section 424(a) of the Code. Parent shall take all action
necessary for the Parent Common Shares to rank pari passu in all respects with
all other Parent Common Shares then in issue and to be listed and issuable upon
exercise of the Assumed Options so that such Assumed Options shall be freely
tradeable on the London Stock Exchange. Notwithstanding the foregoing
provisions of this Section 2.4(c), to the extent any Option or portion thereof
is not assumed pursuant to this Section 2.4(c), such Options or portion thereof
shall be treated as a Cash-Out Option.
(d) Except as may be otherwise agreed to by Parent or the Purchaser
and the Company or as otherwise contemplated or required to effectuate this
Section 2.4, the Stock Plans shall terminate as of the Effective Time and the
provisions in any other plan, program or arrangement providing for the issuance
or grant of any other interest in respect of the capital stock of the Company or
any of its Subsidiaries shall be deleted as of the Effective Time.
(e) The Company shall take all necessary actions to provide that as of
the Effective Time no holder of Options under the Stock Plans will have any
17
right to receive shares of common stock of the Surviving Corporation upon
exercise of any such Option.
(f) The Company shall take all actions necessary to provide that at or
immediately prior to the Effective Time, (i) each then outstanding option under
the Company's 1997 Employee Stock Purchase Plan (the "Stock Purchase Plan")
-------------------
shall automatically be exercised and (ii) in lieu of the issuance of
Certificates, each option holder shall receive an amount in cash (subject to any
applicable withholding tax) equal to the product of (x) the number of Shares
otherwise issuable upon such exercise and (y) the Merger Consideration. The
Company shall use all reasonable efforts to effectuate the foregoing, including
without limitation amending the Stock Purchase Plan and obtaining any necessary
consents from holders of Options. The Company (i) shall not permit the
commencement of any new offering period under the Stock Purchase Plan following
the date hereof, (ii) shall not permit any optionee to increase his or her rate
of contributions under the Stock Purchase Plan following the date hereof, (iii)
shall terminate the Stock Purchase Plan as of the Effective Time, and (iv) shall
take any other actions necessary to provide that as of the Effective Time no
holder of options under the Stock Purchase Plan will have any right to receive
shares of common stock of the Surviving Corporation upon exercise of any such
option.
(g) Notwithstanding anything in this Agreement to the contrary, a vote
of a majority of the Independent Directors shall be required to amend this
Section 2.4 in any manner adverse to the holders of Options described herein.
(h) In the event that an employee of the Company who is a holder of
Cash-Out Options is terminated by the Company without cause after the
consummation of the Offer but prior to the Effective Time, such employee shall
receive on the Effective Date with respect to all Cash-Out Options held by such
employee as of the date of such termination of employment the cash payment
determined in accordance with Section 2.4(b) that such employee would have
received had such employee been employed as of the Effective Date.
18
ARTICLE III
REPRESENTATIONS AND
WARRANTIES OF THE COMPANY
Except as set forth in the schedule delivered to Parent prior to the
execution of this Agreement (the "Company Disclosure Schedule") of exceptions to
---------------------------
the Company's representations and warranties set forth herein, the Company
represents and warrants to Parent and the Purchaser as set forth below. Each
exception set forth in the Company Disclosure Schedule is identified by
reference to, or has been grouped under a heading referring to, a specific
individual section of this Agreement.
Section 3.1 Organization.
------------
(a) Each of the Company and its Subsidiaries (as defined below) is a
corporation duly organized, validly existing and in good standing under the laws
of the jurisdiction of its incorporation or organization and has all requisite
corporate power or other and authority and all necessary governmental approvals
to own, lease and operate its properties and to carry on its business as now
being conducted, except where the failure to be so organized, existing and in
good standing or to have such power, authority, and governmental approvals would
not, individually or in the aggregate, have a Company Material Adverse Effect
(as hereinafter defined). As used in this Agreement, the term "Subsidiary"
----------
shall mean, with respect to any party, any corporation or other organization,
whether incorporated or unincorporated or domestic or foreign to the United
States of which (i) such party or any other Subsidiary of such party is a
general partner (excluding such partnerships where such party or any Subsidiary
of such party do not have a majority of the voting interest in such partnership)
or (ii) at least a majority of the securities or other interests having by their
terms ordinary voting power to elect a majority of the board of directors or
others performing similar functions with respect to such corporation or other
organization is directly or indirectly owned or controlled by such party or by
any one or more of its Subsidiaries, or by such party and one or more of its
Subsidiaries. As used in this Agreement, "Company Material Adverse Change" or
-------------------------------
"Company Material Adverse Effect" means any change or effect that is materially
-------------------------------
adverse to (i) the business, operations, properties (including intangible
properties), financial condition, results of operations or assets of the Company
and its Subsidiaries, taken as a whole, or (ii) the ability of the Company to
consummate any of the Transactions or to perform its obligations under this
Agreement or the Option Agreement, other than changes or effects which are or
result from occurrences relating to the economy
19
in general or such entity's industry in general and not specifically relating to
such entity, the delay or cancellation of orders for the Company's products
directly attributable to the announcement of this Agreement or stockholder
litigation brought or threatened against the Company or any member of its Board
of Directors in respect to this Agreement, the Offer, or the Merger, including
all costs and expenses in connection therewith and other fees and expenses
incurred by the Company in connection with the Transactions as contemplated
hereby. The Company Disclosure Schedule sets forth in Section 3.1(a) a complete
list of the Company's Subsidiaries.
(b) The Company and each of its Subsidiaries is duly qualified or
licensed to do business and in good standing in each jurisdiction in which the
property owned, leased or operated by it or the nature of the business conducted
by it makes such qualification or licensing necessary, except where the failure
to be so duly qualified or licensed and in good standing would not individually
or in the aggregate have a Company Material Adverse Effect. Except as set forth
in Section 3.1(b) of the Company Disclosure Schedule, other than its
Subsidiaries, the Company does not own any significant equity interest in any
corporation or other entity.
Section 3.2 Capitalization.
--------------
(a) The authorized capital stock of the Company consists of (i)
25,000,000 shares of common stock, no par value per share (the "Common Stock")
------------
and (ii) 1,000,000 shares of preferred stock (the "Preferred Stock"). As of
---------------
December 31, 1997, (i) 11,173,945 Shares are issued and outstanding, (ii) no
shares of Preferred Stock are issued and outstanding, (iii) pursuant to
California law no Shares are issued and held in the treasury of the Company, and
(iv) a total of 1,709,227 Shares are reserved for issuance pursuant to the Stock
Plans, of which (A) 260,550 Shares are reserved for issuance pursuant to
outstanding Options and 33,670 Shares are reserved for issuance pursuant to
future awards, in each case under the Company's 1990 Stock Option Plan, (B)
1,284,736 Shares are reserved for issuance pursuant to outstanding Options, no
Shares have been issued as shares of restricted stock that have not vested as of
the date hereof, and 408,479 Shares are reserved for issuance pursuant to future
awards, in each case under the Company's 1994 Incentive Stock Option,
Nonqualified Stock Option and Restricted Stock Purchase Plan, (C) 145,000 Shares
are reserved for issuance pursuant to outstanding Options, and 55,000 Shares are
reserved for issuance pursuant to future awards, in each case under the
Company's Stock Plan for Non-Employee Directors, and (D) 18,941 Shares are
reserved for issuance pursuant to outstanding Options, and 635 shares are
reserved for issuance pursuant to future awards, in each case under the 1985
Manzanita Stock
20
Option Plan, and (v) assuming that the Effective Date were to occur on or about
March 26, 1998, approximately 6,515 Shares would be issuable upon the exercise
of options outstanding under the Company's 1997 Employee Stock Purchase Plan at
a price of $13.8125 per Share. All the outstanding shares of the Company's
capital stock are, and all Shares which may be issued pursuant to the exercise
of outstanding Options will be, when issued in accordance with the terms
thereof, duly authorized, validly issued, fully paid and non-assessable. There
are no bonds, debentures, notes or other indebtedness having general voting
rights (or convertible into securities having such rights) ("Voting Debt")
-----------
of the Company or any of its Subsidiaries issued and outstanding. Except as
disclosed in this Section 3.2 or as set forth in Section 3.2(a) of the Company
Disclosure Schedule, other than pursuant to the Option Agreement, (i) there are
no shares of capital stock of the Company authorized, issued or outstanding,
(ii) there are no existing options, warrants, calls, pre-emptive rights,
subscriptions or other rights, agreements, arrangements or commitments of any
character, relating to the issued or unissued capital stock of the Company or
any of its Subsidiaries, obligating the Company or any of its Subsidiaries to
issue, transfer or sell or cause to be issued, transferred or sold any shares of
capital stock or Voting Debt of, or other equity interest in, the Company or any
of its Subsidiaries or securities convertible into or exchangeable for such
shares or equity interests, or obligating the Company or any of its Subsidiaries
to grant, extend or enter into any such option, warrant, call, subscription or
other right, agreement, arrangement or commitment, and (iii) except as set forth
in Section 3.2(a) of the Company Disclosure Schedule, there are no outstanding
contractual obligations of the Company or any of its Subsidiaries to repurchase,
redeem or otherwise acquire any Shares, or the capital stock of the Company or
any Subsidiary or affiliate of the Company or to provide funds to make any
investment (in the form of a loan, capital contribution or otherwise) in any
Subsidiary or any other entity.
(b) All of the outstanding shares of capital stock of each of the
Subsidiaries are beneficially owned by the Company, directly or indirectly, and
all such shares have been validly issued and are fully paid and nonassessable
and are owned by either the Company or one of its Subsidiaries free and clear of
all liens, charges, security interests, options, claims, mortgages, pledges, or
other encumbrances and restrictions of any nature whatsoever ("Encumbrances").
------------
(c) There are no voting trusts or other agreements or understandings
to which the Company or any of its Subsidiaries is a party with respect to the
voting of the capital stock of the Company or any of the Subsidiaries.
21
Section 3.3 Authorization; Validity of Agreement; Company Action.
----------------------------------------------------
(a) The Company has full corporate power and authority to execute and
deliver this Agreement, the Option Agreement and to consummate the Transactions.
The execution, delivery and performance by the Company of this Agreement and the
Option Agreement, and the consummation by it of the Transactions, have been duly
and validly authorized by its Board of Directors and, no other corporate action
on the part of the Company is necessary (other than, with respect to the Merger,
the approval and adoption of the Merger and this Agreement by holders of the
Shares to the extent required by the Company's articles of incorporation and by
applicable law) to authorize the execution and delivery by the Company of this
Agreement and the Option Agreement, and the consummation by it of the
Transactions contemplated hereby. Each of this Agreement and the Option
Agreement has been duly executed and delivered by the Company and, assuming due
and valid authorization, execution and delivery hereof by Parent and the
Purchaser, is a valid and binding obligation of the Company enforceable against
the Company in accordance with its terms except that (i) such enforcement may be
subject to applicable bankruptcy, insolvency or other similar laws, now or
hereafter in effect, affecting creditors' rights generally, and (ii) the remedy
of specific performance and injunctive and other forms of equitable relief may
be subject to equitable defenses and to the discretion of the court before which
any proceedings therefor may be brought.
Section 3.4 Consents and Approvals; No Violations. Except as set
-------------------------------------
forth in Section 3.4 of the Company Disclosure Schedule, none of the execution,
delivery or performance of this Agreement by the Company, the consummation by
the Company of the Transactions or compliance by the Company with any of the
provisions hereof will (i) conflict with or result in any breach of any
provision of the Articles of Incorporation, the By-laws or similar
organizational documents of the Company or any of its Subsidiaries, state
securities laws or blue sky laws and the GCL, (ii) require any filing by the
Company with, or permit, authorization, consent or approval of, any court,
arbitral tribunal, administrative agency or commission or other governmental or
other regulatory authority or agency, foreign or domestic (a "Governmental
------------
Entity") (except for (A) compliance with any applicable requirements of the
------
Exchange Act, (B) the filing of an agreement of merger together with an
officer's certificate of the Company and the Purchaser pursuant to the GCL, (C)
filings, permits, authorizations, consents and approvals as may be required
under the ▇▇▇▇-▇▇▇▇▇-▇▇▇▇▇▇ Antitrust Improvements Act of 1976, as amended (the
"HSR Act"), (D) the filing with the SEC and the Nasdaq Stock Market, Inc. of (1)
-------
the Schedule 14D-9, (2) a proxy statement relating to shareholder approval, if
such
22
approval is required by law and (3) such reports under Section 13(a) of the
Exchange Act as may be required in connection with this Agreement and the
transactions contemplated by this Agreement or (E) such filings and approvals as
may be required by any applicable state securities, "blue sky" or takeover
laws), (iii) result in a violation or breach of, or constitute (with or without
due notice or lapse of time or both) a default (or give rise to any right of
termination, amendment, cancellation or acceleration) under, any of the terms,
conditions or provisions of any note, bond, mortgage, indenture, lease, license,
contract, agreement or other instrument or obligation to which the Company or
any of its Subsidiaries is a party or by which any of them or any of their
properties or assets may be bound (the "Company Agreements") or (iv) violate any
------------------
order, writ, injunction, decree, statute, rule or regulation applicable to the
Company, any of its Subsidiaries or any of their properties or assets, except in
the case of clause (ii), (iii) or (iv) where failure to obtain such permits,
authorizations, consents or approvals or to make such filings, or where such
violations, breaches or defaults which would not, individually or in the
aggregate, have a Company Material Adverse Effect.
Section 3.5 SEC Reports and Financial Statements. The Company has
------------------------------------
filed with the SEC all forms, reports, schedules, statements and other documents
required to be filed by it since December 31, 1995 under the Exchange Act or the
Securities Act of 1933, as amended (the "Securities Act") (as such documents
--------------
have been amended since the time of their filing, collectively, the "Company SEC
-----------
Documents"). As of their respective dates, or if amended, as of the date of the
---------
last such amendment, the Company SEC Documents (a) did not 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 made therein, in
light of the circumstances under which they were made, not misleading and (b)
complied in all material respects with the applicable requirements of the
Exchange Act and the Securities Act, as the case may be, and the applicable
rules and regulations of the SEC thereunder. None of the Company's Subsidiaries
is required to file any forms, reports or other documents with the SEC. The
financial statements included in the Company SEC Documents and the Company's
condensed consolidated statement of income for the year ended and condensed
consolidated balance sheet at December 31, 1997 (the "December 1997 Financial
-----------------------
Statements") (other than for the absence of footnotes, in the case of the
----------
December 1997 Financial Statements and interim financial statements)
(collectively, the "Financial Statements") (i) have been prepared from and are
--------------------
in accordance with, the books and records of the Company and its consolidated
Subsidiaries, (ii) comply in all material respects with applicable accounting
requirements and with the published rules and regulations of the SEC
23
with respect thereto, (iii) have been prepared in accordance with United States
generally accepted accounting principles ("GAAP") applied on a consistent basis
----
during the periods involved (except as may be indicated in the notes thereto and
except, in the case of the unaudited interim statements, as may be permitted
under Form 10-Q of the Exchange Act) and (iv) fairly present the consolidated
financial position and the consolidated results of operations and cash flows
(subject, in the case of unaudited interim financial statements, to normal year-
end adjustments) of the Company and its consolidated Subsidiaries as of the
times and for the periods referred to therein. A true, correct and complete
(other than the absence of footnotes) copy of the December 1997 Financial
Statements has been previously provided to Parent. The audited consolidated
financial statements of the Company for the year ended December 31, 1997 will
not be inconsistent with the December 1997 Financial Statements in any material
respect which is adverse.
Section 3.6 Absence of Certain Changes. Except as contemplated by
--------------------------
this Agreement and except as set forth in Section 3.6 of the Company Disclosure
Schedule or in the Company SEC Documents filed prior to the date hereof, since
December 31, 1997, the Company and its Subsidiaries have conducted their
respective businesses only in the ordinary and usual course. From December 31,
1997 through the date of this Agreement, there has not occurred (i) any event,
change or effect (including the incurrence of any liabilities of any nature,
whether or not accrued, contingent or otherwise) having, individually or in the
aggregate, a Company Material Adverse Effect, or (ii) any declaration, setting
aside or payment of any dividend or other distribution (whether in cash, stock
or property) with respect to the equity to the equity interests of the Company
or any of its Subsidiaries in accounting principles or methods, except insofar
as may be required by a change GAAP. Since December 31, 1997 neither the
Company nor any of its Subsidiaries has taken any of the actions prohibited by
Section 5.2 hereof.
Section 3.7 No Undisclosed Liabilities. Except (a) as recognized
--------------------------
or disclosed in the Financial Statements or the Company SEC Reports and (b) for
liabilities and obligations (i) incurred in the ordinary course of business
December 31, 1997, (ii) pursuant to the terms of this Agreement or (iii) as
disclosed in Section 3.7 of the Company Disclosure Schedule, (iv) as disclosed
in Section 3.8 of the Company Disclosure Schedule, or (v) as would not have a
Company Material Adverse Effect, neither the Company nor any of its Subsidiaries
has incurred any liabilities or obligations of any nature, whether or not
accrued, contingent or otherwise required by GAAP to be recognized or disclosed
on a consolidated balance sheet of the Company and its Subsidiaries or in the
notes thereto. Section 3.7 of the
24
Company Disclosure Schedule sets forth the amount of principal and unpaid
interest outstanding under each instrument evidencing any material amount of
indebtedness for borrowed money of the Company and its Subsidiaries which will
accelerate or become due or result in a right of redemption or repurchase on the
part of the holder of such indebtedness (with or without due notice or lapse of
time) as a result of this Agreement, the Merger or the other transactions
contemplated hereby or thereby.
Section 3.8 Litigation. Except as set forth in Section 3.8 of the
----------
Company Disclosure Schedule or in the Company SEC Documents, as of the date
hereof, there is no suit, claim, action, proceeding, including, without
limitation, arbitration proceeding or alternative dispute resolution proceeding,
or investigation pending or, to the knowledge of the Company, threatened against
or affecting, the Company or any of its Subsidiaries before any Governmental
Entity as to which there is a reasonable possibility of an adverse determination
and that, either individually or in the aggregate, if adversely determined,
would have a Company Material Adverse Effect.
Section 3.9 Employee Benefit Plans; ERISA.
-----------------------------
(a) Except as disclosed in the Company SEC Documents, since the
audited financial statements for the year ended December 31, 1996 until the date
hereof, there has not been any adoption or amendment (or an agreement to adopt
or amend) in any material respect by the Company or any of its subsidiaries of
any material employment or collective bargaining agreement or any bonus,
pension, profit sharing, deferred compensation, incentive compensation, stock
ownership, stock purchase, stock option, phantom stock, stock appreciation right
or other stock-based incentive, retirement, vacation, severance, change in
control or termination pay, disability, death benefit, hospitalization, medical
or other insurance or any other plan, program, agreement, arrangement or
understanding (whether or not legally binding) providing benefits to any current
or former employee, officer or director of the Company or any Subsidiary
(collectively, the "Benefit Plans"). Except as disclosed in the Company SEC
-------------
Documents or in Section 3.9(a) of the Company Disclosure Schedule, there exist,
as of the date hereof, no material employment, severance, termination or
indemnification agreements, arrangements or understandings between the Company
or any of its Subsidiaries, and any current or former employee, officer or
director of the Company.
(b) Section 3.9(b) of the Company Disclosure Schedule contains a list
and brief description of all "employee pension benefit plans" (as defined in
25
Section 3(2) of the Employee Retirement Income Security Act of 1974, as amended
("ERISA")) (sometimes referred to herein as "Pension Plans"), "employee welfare
----- -------------
benefit plans" (as defined in Section 3(1) of ERISA) and all other material
Benefit Plans sponsored, maintained, contributed to or required to be
contributed to, by the Company or any of its Subsidiaries or any person or
entity that, together with the Company and its Subsidiaries, is treated as a
single employer under Section 414(b), (c), (m) or (o) of the Internal Revenue
Code of 1986, as amended (the "Code") (the Company and each such other person or
----
entity, a "Commonly Controlled Entity") for the benefit of any current or former
--------------------------
employees, officers or directors of the Company or any of its Subsidiaries. The
Company has made available to Parent true, complete and correct copies of (1)
each Benefit Plan (or, in the case of any unwritten Benefit Plans, descriptions
thereof), (2) the most recent annual report on Form 5500 filed with the Internal
Revenue Service with respect to each Benefit Plan (if any such report was
required), (3) the most recent summary plan description for each Benefit Plan
for which such summary plan description is required (together with all Summaries
of Material Modification issued with respect thereto), (4) each trust agreement
and group annuity contract relating to any Benefit Plan and (5) all material
contracts and employee communications relating to each Benefit Plan. Each
Benefit Plan has been administered materially in accordance with its terms. The
Company, each of its Subsidiaries and all the Benefit Plans are all in material
compliance with applicable provisions of ERISA, the Code and other applicable
laws.
(c) All Pension Plans have been the subject of determination, opinion,
notification or advisory letters from the Internal Revenue Service to the effect
that such Pension Plans are qualified and exempt from Federal income taxes under
Sections 401(a) and 501(a), respectively, of the Code, a true, complete and
correct copy of each such determination letter has been made available to
Parent, and no such determination, opinion, notification or advisory letter has
been revoked nor has any event occurred since the date of the most recent
determination letter or application therefor for each Pension Plan that would
adversely affect its qualification or materially increase its costs.
(d) Neither the Company, nor any of its Subsidiaries, nor any Commonly
Controlled Entity has at any time maintained, contributed or been obligated to
contribute to any Benefit Plan that is subject to Title IV of ERISA, including
without limitation any "multiemployer plan" (as defined in Section 4001(a)(3) of
ERISA).
26
(e) Except as set forth in Section 3.9(e) of the Company Disclosure
Schedule, no employee of the Company or any of its Subsidiaries will be entitled
to any additional compensation or benefits or any acceleration of the time of
payment or vesting or any other enhancement of any compensation or benefits
under any Benefit Plan as a result of the transactions contemplated by this
Agreement.
(f) The deduction of any amount payable pursuant to the terms of the
Benefit Plans will not be subject to disallowance under Section 162(m) of the
Code.
(g) No amount that could be received (whether in cash or property or
the vesting of property) by any employee, officer or director of the Company or
any of its Subsidiaries under any employment, severance or termination
agreement, other compensation arrangement or other Benefit Plan currently in
effect would be an "excess parachute payment" (as such term is defined in
Section 28OG(b)(1) of the Code). No such person is entitled to receive any
additional payment from the Company or any of its Subsidiaries, the Surviving
Corporation or any other person (a "Parachute Gross-Up Payment") in the event
--------------------------
that the excise tax of Section 4999(a) of the Code is imposed on such person.
The Board of Directors of the Company has not granted to any officer, director
or employee of the Company any right to receive any Parachute Gross-Up Payment.
(h) No Benefit Plan provides benefits, including without limitation
death or medical benefits (whether or not insured), with respect to current or
former employees of the Company, its Subsidiaries or any Commonly Controlled
Entity after retirement or other termination of service, other than (i) coverage
mandated by applicable law, (ii) death benefits or retirement benefits under any
Pension Plan, (iii) deferred compensation benefits accrued as liabilities on the
books of the Company, the Subsidiary or any Commonly Controlled Entity, (iv)
benefits, the full cost of which is borne by the current or former employee,
officer or director (or his beneficiary), except in the event that a separation
or severance plan program or arrangement provides otherwise, (v) life insurance
benefits for which the employee dies while in service with the Company, or (vi)
any employee stock options which may be exercised after termination of
employment.
(i) There are no pending or, to the Company's knowledge, threatened or
anticipated claims by or on behalf of any Benefit Plan, by any employee or
beneficiary under any Benefit Plan or otherwise involving any Benefit Plan
(other than routine claims for benefits).
27
(j) Neither the Company, the Subsidiary, any Commonly Controlled
Entity, any of the Benefit Plans, any trust created thereunder nor any trustee
or administrator thereof has engaged in a transaction or has taken or failed to
take any action in connection with which any such person or entity or any party
dealing with the Benefit Plans or any such trust could be subject to either a
civil penalty assessed pursuant to section 409 or 502(i) or ERISA or a tax
imposed pursuant to section 4975, 4976, or 4980B of the Code.
Section 3.10 Taxes.
-----
(a) Except as set forth in Section 3.10 of the Company Disclosure
Schedule:
(i) the Company and its Subsidiaries (x) have duly filed (or
there have been filed on their behalf) with the appropriate Tax Authorities
(as hereinafter defined) all material Tax Returns (as hereinafter defined)
required to be filed by them, and, to the knowledge and belief of the
Company, such Tax Returns are true, correct and complete in all material
respects, and (y) duly paid in full (or there has been paid on their
behalf), or have established reserves (in accordance with GAAP) as
reflected on the Financial Statements, all material Taxes (as hereinafter
defined) that are due and payable;
(ii) there are no material liens for Taxes upon any property or
assets of the Company or any Subsidiary thereof, except for liens for Taxes
not yet due or for which adequate reserves have been established in
accordance with GAAP;
(iii) as of the date hereof, no material Federal, state, local
or foreign Audits are pending with regard to any material Taxes or material
Tax Returns of the Company or its Subsidiaries and to the best knowledge of
the Company and its Subsidiaries no such Audit is threatened;
(iv) the United States federal income Tax Returns of the Company
and its Subsidiaries have been examined by the applicable Tax Authorities
(or the applicable statutes of limitation for the assessment of Taxes for
such periods have expired) for all periods through and including December
31, 1993, and as of the date hereof no material adjustments have been
asserted as a result of such examinations which have not been (I)
28
resolved and fully paid, or (II) reserved on the Financial Statements in
accordance with GAAP;
(b) "Audit" means any audit, assessment, or other examination relating
-----
to Taxes by any Tax Authority or any judicial or administrative proceedings
relating to Taxes. "Tax" or "Taxes" means all Federal, state, local, and
--- -----
foreign taxes, and other assessments of a similar nature (whether imposed
directly or through withholding), including any interest, additions to tax, or
penalties applicable thereto, imposed by any Tax Authority. "Tax Authority"
-------------
means the Internal Revenue Service and any other domestic or foreign
governmental authority responsible for the administration of any Taxes. "Tax
---
Returns" mean all Federal, state, local and foreign tax returns, declarations,
-------
statements, reports, schedules, forms, and information returns and any
amendments thereto.
Section 3.11 Contracts. Each Company Agreement is valid, binding
---------
and enforceable and in full force and effect, except where failure to be valid,
binding and enforceable and in full force and effect would not have a Company
Material Adverse Effect, and there are no defaults thereunder, except those
defaults that would not have a Company Material Adverse Effect. Section 3.11 of
the Company Disclosure Schedule sets forth a true and complete list of (i) all
material Company Agreements (defined as any agreement required to be filed as an
Exhibit to an Annual Report on Form 10-K of the Company pursuant to Item
601(b)(10) of Regulation S-K) entered into by the Company or any of its
Subsidiaries since December 31, 1996 and all amendments to any Company
Agreements included as an exhibit to the Company's Annual Report on Form 10-K
for the fiscal year ended December 31, 1996 and (ii) all non-competition
agreements imposing restrictions on the ability of the Company or any of its
Subsidiaries to conduct business in any jurisdiction or territory.
Section 3.12 Real Property.
-------------
(a) Section 3.12 of the Company Disclosure Schedule sets forth a
complete list of all real property owned by the Company or its Subsidiaries (the
"Real Property"). Except as set forth in Section 3.12 of the Company Disclosure
-------------
Schedule, the Company or its Subsidiaries has good and marketable title to the
Real Property, free and clear of all Encumbrances. Copies of (i) all deeds,
title insurance policies and surveys of the Real Property and (ii) all documents
evidencing all Encumbrances upon the Real Property have been furnished to
Parent. Except as disclosed in Section 3.12 of the Company Disclosure Schedule,
the Company is not a
29
party to any lease, assignment or similar arrangement under which the Company is
a lessor, assignor or otherwise makes available for use by any third party any
portion of the Real Property.
(b) The Company has not received any notice of or other writing
referring to any requirements or recommendations by any insurance company that
has issued a policy covering any part of the Real Property or by any board of
fire underwriters or other body exercising similar functions, requiring or
recommending any repairs or work to be done on any part of the Real Property.
The plumbing, electrical, heating, air conditioning, ventilating and all other
structural or material mechanical systems in the buildings upon the Real
Property are in good working order and working condition, so as to be adequate
for the operation of the business of the Company as heretofore conducted, and
the roof, basement and foundation walls of all buildings on the Real Property
are free of leaks and other material defects, except for any matter otherwise
covered by this sentence which does not have, individually or in the aggregate,
a Company Material Adverse Effect.
(c) The Company has obtained all appropriate licenses, permits,
easements and rights of way, including proofs of dedication, required to use and
operate the Real Property in the manner in which the Real Property is currently
being used and operated, except for such licenses, permits or rights of way the
failure of which to have obtained does not have, individually or in the
aggregate, a Company Material Adverse Effect.
(d) The Company has not received notification that the Company is in
violation of any applicable building, zoning, anti-pollution, health or other
law, ordinance or regulation in respect of the Real Property or structures or
their operations thereon and no such violation exists.
Section 3.13 Intellectual Property. Other than as would not have a
---------------------
Company Material Adverse Effect, the Company and its Subsidiaries own free and
clear of all liens and encumbrances, or are validly licensed or otherwise have
the right to use, all trademarks, trade secrets, trademark rights, trade names,
trade name rights, service marks, service ▇▇▇▇ rights, and copyrights, and to
the Company's knowledge, all patents and patent applications, and other
proprietary intellectual property rights which are used in the conduct of the
business of the Company and its Subsidiaries either individually or taken as a
whole (collectively, "Intellectual Property Rights"). Except as would not have
----------------------------
a Company Material Adverse Effect, to the knowledge of the Company, all patents,
copyrights, and trademarks, and all
30
registrations and applications relating thereto (i) have been duly maintained
(including the proper, sufficient and timely submission of all necessary filings
and fees), (ii) have not lapsed, expired or been abandoned, and (iii) are not
the subject of any opposition, interference, cancellation or other proceeding
before any governmental registration or other authority in any jurisdiction.
Except as would not have Company Material Adverse Effect, (x) the Company will
continue to own or be licensed to the Intellectual Property Rights after
consummation of the Offer and the Merger (consistent with their ownership and
license rights prior to said consummation) and (y) the consummation of the Offer
and Merger will not result in the material breach of any license, sublicense or
other agreement relating to the Intellectual Property Rights. Except as would
not have Company Material Adverse Effect, to the knowledge of the Company, no
claim, suit, action or proceeding involving any infringement of, or conflict
with, any intellectual property rights of any third party has been made or
asserted against the Company or any of its Subsidiaries in respect of the
operation of the Company's or any Subsidiary's business, nor is there any basis
for such. Except as would not have Company Material Adverse Effect, to the
knowledge of the Company, no person is infringing, or taking any action in
conflict with, the rights of the Company or any Subsidiary with respect to any
Intellectual Property Right. Except as would not have a Company Material Adverse
Effect, to the knowledge of the Company, neither the Company nor any Subsidiary
has licensed, or otherwise granted, to any third party, any rights in or to any
material Intellectual Property Rights other than in the ordinary course of the
Company's business of licensing applications software to resellers and end-
users.
Except where such disclosure would not have a Company Material Adverse
Effect, no trade secret, know-how or other confidential information relating to
the Company or its Subsidiaries has been disclosed or authorized to be disclosed
to any third party, other than pursuant to a standard non-disclosure agreement.
Section 3.14 Labor Matters. The Company and each of its
-------------
Subsidiaries has good labor relations and there are no controversies pending, or
to the knowledge of the Company, threatened between the Company and any of its
Subsidiaries and any of their respective employees, which failure to have good
labor relations or controversies would have, individually or in the aggregate, a
Company Material Adverse Effect. There are no collective bargaining or other
labor union agreements to which the Company or any of its Subsidiaries is a
party or by which the Company or any of its Subsidiaries is bound. Since
December 31, 1996, neither the Company nor any of its Subsidiaries has
encountered any labor union organizing
31
activity, nor had any actual or threatened employee strikes, work stoppages,
slowdowns or lockouts.
Section 3.15 Compliance with Laws. The Company and its Subsidiaries
--------------------
have complied in a timely manner and in all material respects with all laws,
rules and regulations, ordinances, judgments, decrees, orders, writs and
injunctions of all United States federal, state, local, foreign governments and
agencies thereof which affect the business, properties or assets of the Company
and its Subsidiaries, except for instances of possible noncompliance that
individually or in the aggregate would not have Company material Adverse Effect,
and no notice, charge, claim, action or assertion has been received by the
Company or any of its Subsidiaries or has been filed, commenced or, to the
Company's knowledge, threatened against the Company or any of its Subsidiaries
alleging any violation of any of the foregoing, except for instances of possible
noncompliance that individually or in the aggregate would not have Company
Material Adverse Effect. All licenses, permits and approvals required under such
laws, rules and regulations are in full force and effect except where the
failure to be in full force and effect would not have a Company Material Adverse
Effect.
Section 3.16 Environmental Matters. Except as set forth in Section
---------------------
3.16 of the Company Disclosure Schedule, (a) the Company and its Subsidiaries
are in compliance in all material respects with federal, state, local and
foreign laws and regulations relating to pollution or protection or preservation
of human health or the environment, including, without limitation, laws and
regulations relating to emissions, discharges, releases or threatened releases
of toxic or hazardous substances or hazardous waste, petroleum and petroleum
products, asbestos or asbestos-containing materials, polychlorinated biphenyls,
radon, or lead or lead-based paints or materials ("Materials of Environmental
--------------------------
Concern"), or otherwise relating to the generation, storage, containment
-------
(whether above ground or underground), disposal, transport or handling of
Materials of Environmental Concern, or the preservation of the environment or
mitigation of adverse effects thereon (collectively, "Environmental Laws"), and
------------------
including, but not limited to, compliance with any permits or other governmental
authorizations or the terms and conditions thereof, except where noncompliance
is not reasonably likely to have a Company Material Adverse Effect; (b) neither
the Company nor any of its Subsidiaries has received any communication or
notice, whether from a governmental authority or otherwise, alleging any
violation of or noncompliance with any Environmental Laws by any of the Company
or its Subsidiaries or for which the any of them is responsible, and there is no
pending or, to the Company's knowledge, no threatened claim, action,
investigation or notice by any
32
person or entity alleging potential liability for investigatory, cleanup or
governmental response costs, or natural resources or property damages, or
personal injuries, attorney's fees or penalties relating to (i) the presence, or
release into the environment, of any Materials of Environmental Concern at any
location owned or operated by the Company or its Subsidiaries, now or in the
past, or (ii) any violation, or alleged violation, of any Environmental Law
(collectively, "Environmental Claims"), except where such notices,
--------------------
communications or Environmental Claims would not have a Company Material Adverse
Effect; and (c) to the Company's knowledge, there are no past or present facts
or circumstances that are reasonably likely to form the basis of any
Environmental Claim against the Company or its Subsidiaries or against any
person or entity whose liability for any Environmental Claim the Company or its
Subsidiaries have retained or assumed either contractually or by operation of
law, except where such Environmental Claim, if made, would not have a Company
Material Adverse Effect.
Section 3.17 Product Warranties. Except as described in Section
------------------
3.17 of the Company Disclosure Schedule, all products are sold or licensed by
the Company pursuant to terms that provide (i) the Company's disclaimer of all
warranties, express or implied, including those of merchantability and fitness
for a particular purpose; (ii) the Company's disclaimer of all consequential
damages arising from the use or possession of the product, regardless of whether
such liability is based in tort, contract or otherwise; and (iii) language
stating that if the foregoing disclaimers are held to be unenforceable, the
Company's maximum liability shall not exceed the amount of money(ies) paid for
such product(s), except, in each case, where the failure so to provide would not
have a Company Material Adverse Effect.
Section 3.18 Information in Proxy Statement. The Proxy Statement,
------------------------------
if any (or any amendment thereof or supplement thereto), at the date mailed to
Company shareholders and at the time of the meeting of Company shareholders to
be held in connection with the Merger, will not contain any untrue statement of
a material fact or omit to state any material fact required to be stated therein
or necessary in order to make the statements therein, in light of the
circumstances under which they are made, not misleading, except that no
representation is made by the Company with respect to statements made therein
based on information supplied in writing by Parent or the Purchaser expressly
for inclusion in the Proxy Statement. The Proxy Statement will comply in all
material respects with the provisions of the Exchange Act and the rules and
regulations thereunder.
33
Section 3.19 Related Party Transactions. Except as set forth in
--------------------------
the Company SEC Documents or on Schedule 3.19 hereto, no director, officer, or
"affiliate" (as such term is defined in Rule 12b-2 under the Exchange Act) of
the Company (i) has outstanding any indebtedness or other similar obligations to
the Company or any of its Subsidiaries, other than ordinary course of business
travel advances or (ii) other than employment related benefits agreements
contemplated by or disclosed in this Agreement, is a party to any legally
binding contract, commitment or obligation to, from or with the Company or any
Subsidiary of the Company.
Section 3.20 Opinion of Financial Advisor. The Company has
----------------------------
received the written opinion of UBS, dated the date hereof, to the effect that,
as of such date, the consideration to be received in the Offer and the Merger by
the Company's shareholders is fair to the Company's shareholders from a
financial point of view, a copy of which opinion has been delivered to Parent
and the Purchaser.
Section 3.21 Insurance. The Company and each of its Subsidiaries
---------
have policies of insurance and bonds of the type and in amounts customarily
carried by persons conducting businesses or owning assets similar to those of
the Company and its Subsidiaries. Except as disclosed in Section 3.21 of the
Company Disclosure Schedule, there is no material claim pending under any of
such policies or bonds as to which coverage has been questioned, denied or
disputed by the underwriters of such policies or bonds. All premiums due and
payable under all such policies and bonds have been paid and the Company and its
Subsidiaries, to the knowledge of the Company, are otherwise in compliance in
all material respects with the terms of such policies and bonds. The Company
has no knowledge of any threatened termination of, or material premium increase
with respect to, any of such policies. This Section 3.21 shall not apply to any
insurance providing for employee benefits.
Section 3.22 State Takeover Statutes; Required Vote. Except for
--------------------------------------
Section 1101 of the GCL, no California takeover statute or similar statute
applies or purports to apply to the Offer or the Merger, or to this Agreement,
the Option Agreement or the Shareholder Agreements or the transactions
contemplated hereby or thereby. Subject to Section 1101 of GCL, in the event
the Shareholders' Meeting is required to approve the Merger and the adoption of
this Agreement the approval by the holders of a majority of the outstanding
Shares is the only vote required to approve the Merger and the adoption of this
Agreement.
Section 3.23 Brokers. No brokers, investment bankers, financial
-------
advisors or other persons, the fees and expenses of which will be paid by
Company,
34
are or will be entitled in the aggregate to any broker's, finder's, financial
advisor's or other similar fee or commission in connection with the transactions
contemplated by this Agreement based upon arrangements made by or on behalf of
the Company other than amounts not in excess of the amount contemplated by the
engagement and related fee letter between the Company and UBS, true, correct and
complete copies of which have been delivered to Parent.
Section 3.24 Full Disclosure. To the knowledge of the Company, the
---------------
representations and warranties by the Company in this Agreement and the
documents referred to herein (including the Schedules and Exhibits hereto),
taken together with all the other information provided to the Parent or its
counsel in connection with the transactions contemplated hereby, do not contain
any untrue statements of a material fact or omit to state any material fact
necessary, in order to make the statements made herein or therein, in light of
the circumstances under which they were made, not misleading.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
OF PARENT AND THE PURCHASER
Parent and the Purchaser represent and warrant to the Company as
follows:
Section 4.1 Organization. Each of Parent and the Purchaser is a
------------
corporation duly organized and validly existing under the laws of the
jurisdiction of its incorporation or organization and has all requisite
corporate power and authority and all necessary governmental approvals to own,
lease and operate its properties and to carry on its business as now being
conducted, except where the failure to be so organized and existing or to have
such power, authority, and governmental approvals would not, individually or in
the aggregate, impair in any material respect the ability of each of Parent and
the Purchaser to perform its obligations under this Agreement, as the case may
be, or prevent or materially delay the consummation of any of the Transactions.
Section 4.2 Authorization; Validity of Agreement; Necessary Action.
------------------------------------------------------
Each of Parent and the Purchaser has full corporate power and authority to
execute and deliver this Agreement and to consummate the Transactions. The
execution,
35
delivery and performance by Parent and the Purchaser of this Agreement and the
consummation of the Merger and of the Transactions have been duly authorized by
the boards of directors of the Purchaser and Parent and by Parent and a wholly
owned Subsidiary of Parent as the sole shareholders of the Purchaser, and no
other corporate authority or approval on the part of Parent or the Purchaser is
necessary to authorize the execution and delivery by Parent and the Purchaser of
this Agreement and the consummation of the Transactions. This Agreement has been
duly executed and delivered by Parent and the Purchaser and, assuming due and
valid authorization, execution and delivery hereof by the Company, is a valid
and binding obligation of each of Parent and the Purchaser enforceable against
each of them in accordance with its terms, except that (i) such enforcement may
be subject to applicable bankruptcy, insolvency or other similar laws, now or
hereafter in effect, affecting creditors' rights generally, and (ii) the remedy
of specific performance and injunctive and other forms of equitable relief may
be subject to equitable defenses and to the discretion of the court before which
any proceeding therefor may be brought.
Section 4.3 Consents and Approvals; No Violations. None of the
-------------------------------------
execution, delivery or performance of this Agreement by Parent or the Purchaser,
the consummation by Parent or the Purchaser of the Transactions or compliance by
Parent or the Purchaser with any of the provisions hereof will (i) conflict with
or result in any breach of any provision of the organizational documents of
Parent or the Certificate of Incorporation or By-Laws of the Purchaser, (ii)
require any filing by Parent or the Purchaser with, or permit, authorization,
consent or approval of, any Governmental Entity (except for (i) compliance with
any applicable requirements of the Exchange Act, (ii) the filing of an agreement
of merger together with an officer's certificate of the Company and the
Purchaser pursuant to the GCL, (iii) filings, permits, authorizations, consents
and approvals as may be required under, the HSR Act, (iv) the filing with the
SEC and the Nasdaq Stock Market, Inc. of (A) the Schedule 14D-1, (B) a proxy
statement relating to shareholder approval, if such approval is required by law
and (C) such reports under Section 13(a) as may be required in connection with
this Agreement and the transactions contemplated by this Agreement or (iv) such
filings and approvals as may be required by any applicable state securities,
"blue sky" or takeover laws), (iii) result in a violation or breach of, or
constitute (with or without due notice or lapse of time or both) a default (or
give rise to any right of termination, cancellation or acceleration) under, any
of the terms, conditions or provisions of any note, bond, mortgage, indenture,
lease, license, contract, agreement or other instrument or obligation to which
Parent, or any of its Subsidiaries or the Purchaser is a party or by which any
of them or any of their respective properties or assets may be bound, or (iv)
violate any order, writ, injunc-
36
tion, decree, statute, rule or regulation applicable to Parent, any of its
Subsidiaries or any of their properties or assets, except in the case of clause
(ii), (iii) or (iv) such violations, breaches or defaults which would not,
individually or in the aggregate, impair in any material respect the ability of
each of Parent and the Purchaser to perform its obligations under this
Agreement, as the case may be, or prevent the consummation of any the
Transactions.
Section 4.4 Information in Proxy Statement. None of the information
------------------------------
supplied by Parent or the Purchaser in writing expressly for inclusion or
incorporation by reference in the Proxy Statement (or any amendment thereof or
supplement thereto) will, at the date mailed to shareholders and at the time of
the meeting of shareholders to be held in connection with the Merger, contain
any untrue statement of a material fact or omit to state any material fact
required to be stated therein or necessary in order to make the statements made
therein, in light of the circumstances under which they are made, not
misleading.
Section 4.5 Interim Operations of the Purchaser. The Purchaser was
-----------------------------------
formed solely for the purpose of engaging in the Transactions, has engaged in no
other business activities other than in connection with the Transaction as
contemplated hereby.
Section 4.6 Brokers. No broker, investment banker, financial
-------
advisor or other person, other than BT Alex.▇▇▇▇▇ and J ▇▇▇▇▇ ▇▇▇▇▇▇▇▇ & Company
Limited, the fees and expenses of which will be paid by Parent, is entitled to
any broker's, finder's, financial advisor's or other similar fee or commission
in connection with the transactions contemplated by this Agreement based upon
arrangements made by or on behalf of Parent or Purchaser.
Section 4.7 Financing. Purchaser has, or will have available to it
---------
upon the consummation of the Offer, sufficient funds to consummate the
Transactions , including payment in full for all Shares validly tendered into
the Offer or outstanding at the Effective Time. Parent and the Purchaser have
received, and have furnished to the Company, true and complete copies of (i) the
Vendor Placing Agreement, dated January 27, 1998, between Parent and J. ▇▇▇▇▇
▇▇▇▇▇▇▇▇ & Co. Limited and (ii) the Facilities Agreement, dated January 27,
1998, among Parent, the Purchaser, the Banks and Financial Institutions named in
Schedule 1 thereto, Lloyds Bank plc Capital Markets Group, as arranger, and
Lloyds Bank plc Capital Markets Group as agent (collectively, the "Financing
---------
Documents") with respect to the financing of the acquisition of the Shares in
---------
the Offer and the Merger (the "Financ-
------
37
ing"). The aggregate proceeds of the Financing, together with internal corporate
---
funds of Parent or the Purchaser, are sufficient to acquire all of the Shares in
the Offer and the Merger and to pay anticipated expenses in connection
therewith. The Financing Documents are valid, binding and enforceable in
accordance with their terms and have not been revoked as of the date hereof.
Nothing has come to the attention of Parent or the Purchaser which would cause
either Parent or the Purchaser to believe that the proceeds of the Financing
will not be available to them by the Initial Expiration Date. Parent will not
enter into any amendments or supplements to the Financing Documents that would
materially reduce the likelihood of obtaining the Financing or any other
commitments and agreements from third parties to provide financing to Parent or
to the Purchaser without the prior written consent of the Company, which will
not be unreasonably withheld.
Section 4.8 Share Ownership. Neither Parent nor the Purchaser are
---------------
the beneficial owner of any shares of capital stock of the Company.
ARTICLE V
CONDUCT OF BUSINESS PENDING THE MERGER
Section 5.1 Acquisition Proposals. The Company will notify the
---------------------
Purchaser promptly if any proposals are received by, any information is
requested from, or any negotiations or discussions are sought to be initiated or
continued with the Company or its officers, directors, employees, investment
bankers, attorneys, accountants or other agents, in each case in connection with
any Acquisition Proposal (as hereinafter defined) or the possibility or
consideration of making an Acquisition Proposal ("Acquisition Proposal
--------------------
Interest") indicating, in connection with such notice, the name of the Person
--------
indicating such Acquisition Proposal Interest and the material terms and
conditions of any proposals or offers. The Company agrees that it will
immediately cease and cause to be terminated any existing activities,
discussions or negotiations with any parties conducted heretofore with respect
to any Acquisition Proposal Interest. The Company agrees that it shall keep
Parent informed, on a current basis, of the status and terms of any Acquisition
Proposal Interest. As used in this Agreement, "Acquisition Proposal" shall
--------------------
mean any tender or exchange offer involving the Company, any proposal for a
merger, consolidation or other business combination involving the Company, any
proposal or offer to acquire in any manner a substantial equity interest in, or
a substantial portion of the business or assets of, the Company (other than
immaterial or insubstantial assets or inventory in the ordinary course of
business or assets held for sale), any proposal or
38
offer with respect to any recapitalization or restructuring with respect to the
Company or any proposal or offer with respect to any other transaction similar
to any of the foregoing with respect to the Company other than pursuant to the
transactions to be effected pursuant to this Agreement.
Section 5.2 Interim Operations of the Company. The Company covenants
---------------------------------
and agrees that, except (i) as expressly contemplated by this Agreement or the
Option Agreement, (ii) as set forth in Section 5.2 of the Company Disclosure
Schedule, (iii) in the ordinary course of business consistent with past practice
or (iv) as agreed in writing by Parent, after the date hereof, and prior to the
earlier of (x) the termination of this Agreement in accordance with Article VIII
hereof and (y) the time the designees of Parent have been elected to, and shall
constitute a majority of, the Board of Directors of the Company pursuant to
Section 1.3 hereof (the "Appointment Date"):
----------------
(a) the business of the Company and its Subsidiaries shall be
conducted only in the ordinary course consistent with past practice and each of
the Company and its Subsidiaries shall use its commercially reasonable efforts
to preserve its present business organization intact and maintain its
satisfactory relations with customers, suppliers, employees, contractors,
distributors and others having business dealings with it;
(b) the Company will not, directly or indirectly, (i) except upon
exercise of the Options or other rights to purchase shares of Common Stock
pursuant to the Stock Plans outstanding on the date hereof, issue, sell,
transfer or pledge or agree to sell, transfer or pledge any capital stock of any
of its Subsidiaries beneficially owned by it, (ii) amend its Articles of
Incorporation or By-laws or similar organizational documents; or (iii) split,
combine or reclassify the outstanding Shares or any outstanding capital stock of
the Company;
(c) neither the Company nor any of its Subsidiaries shall: (i)
declare, set aside or pay any dividend or other distribution payable in cash,
stock or property with respect to its capital stock; (ii) issue, sell, pledge,
dispose of or encumber any additional shares of, or securities convertible into
or exchangeable for, or options, warrants, calls, commitments or rights of any
kind to acquire, any shares of capital stock of any class of the Company or its
Subsidiaries, other than Shares reserved for issuance on the date hereof
pursuant to the exercise of the Options outstanding on the date hereof and
except with respect to any sales in accordance with the Stock Purchase Plan;
(iii) transfer, lease, license, sell, mortgage, pledge,
39
dispose of, or encumber any of its material assets, or incur or modify any
material indebtedness or other liability, other than in the ordinary and usual
course of business and consistent with past practice; or (iv) redeem, purchase
or otherwise acquire any shares of any class or series of its capital stock, or
any instrument or security which consists of or includes a right to acquire such
shares except as permitted by Section 5.2(b) and other than in connection with
the exercise of options or rights under the Stock Plans and except with respect
to any sales in accordance with the Stock Purchase Plan;
(d) neither the Company nor any of its Subsidiaries shall make any
change in the compensation payable or to become payable to any of its officers,
directors, employees, agents or consultants (other than general increases in
wages to employees who are not directors or affiliates in the ordinary course
consistent with past practice), or to persons providing management services,
enter into or amend any employment, severance, consulting, termination or other
agreement or employee benefit plan or make any loans to any of its officers,
directors, employees, affiliates, agents or consultants or make any change in
its existing borrowing or lending arrangements for or on behalf of any of such
persons pursuant to an employee benefit plan or otherwise;
(e) neither the Company nor any of its Subsidiaries shall pay or make
any accrual or arrangement for payment of any pension, retirement allowance or
other employee benefit pursuant to any existing plan, agreement or arrangement
to any officer, director, employee or affiliate or pay or agree to pay or make
any accrual or arrangement for payment to any officers, directors, employees or
affiliates of the Company of any amount relating to unused vacation days, except
payments and accruals made in the ordinary course consistent with past practice;
adopt or pay, grant, issue, accelerate or accrue salary or other payments or
benefits pursuant to any pension, profit-sharing, bonus, extra compensation,
incentive, deferred compensation, stock purchase, stock option, stock
appreciation right, group insurance, severance pay, retirement or other employee
benefit plan, agreement or arrangement, or any employment or consulting
agreement with or for the benefit of any director, officer, employee, agent or
consultant, whether past or present; or amend in any material respect any such
existing plan, agreement or arrangement in a manner inconsistent with the
foregoing;
(f) the Company shall not, in any material respect, modify, amend or
terminate any of the Company Agreements, and neither the Company nor
40
any of its Subsidiaries shall waive, release or assign any material rights on
claims under any of the Company Agreements;
(g) neither the Company nor any of its Subsidiaries will (i) incur or
assume any long-term debt or any short-term indebtedness; (ii) assume,
guarantee, endorse or otherwise become liable or responsible (whether directly,
contingently or otherwise) for the obligations of any other person; (iii) make
any loans, advances or capital contributions to, or investments in, any other
person; or (iv) enter into any material commitment or transaction (including,
but not limited to, any material borrowing, capital expenditure or purchase,
sale or lease of assets or real estate);
(h) neither the Company nor any of its Subsidiaries will (i) change
any of the accounting methods used by it materially affecting its assets,
liabilities or business, except for such changes required by GAAP or (ii) make
any material Tax election or change any material Tax election already made,
enter into any closing agreement or settle any material Tax Audit;
(i) neither the Company nor any of its Subsidiaries will pay,
discharge or satisfy any claims, liabilities or obligations (whether absolute,
accrued, contingent or otherwise), other than the payment, discharge or
satisfaction of any such claims, liabilities or obligations, in the ordinary
course of business and consistent with past practice, or of claims, liabilities
or obligations reflected or reserved against in, or contemplated by, the
consolidated financial statements (or the notes thereto) of the Company;
(j) except as otherwise permitted pursuant to Section 5.3, neither the
Company nor any of its Subsidiaries will adopt a plan of complete or partial
liquidation, dissolution, merger, consolidation, restructuring, recapitalization
or other reorganization of the Company or any of its Subsidiaries (other than
the Merger);
(k) neither the Company nor any of its Subsidiaries will take, or
agree in writing or otherwise to take, any action that would or is reasonably
likely to result in any of the conditions to the Merger set forth in Article VII
or any of the conditions to the Offer set forth in Annex I not being satisfied,
or would make many representation or warranty of the Company contained herein
inaccurate in any material respect at, or as of any time prior to, the Effective
Time, or that would materially impair the ability of the Company to consummate
the Merger in accordance with the terms hereof or materially delay such
consummation; and
41
(l) subject to the exceptions and qualifications set forth above,
neither the Company nor any of its Subsidiaries will enter into any written
agreement, contract, commitment or arrangement to do any of the foregoing, or
authorize, recommend, propose, in writing or announce an intention to do any of
the foregoing.
Section 5.3 No Solicitation.
---------------
(a) Except as provided in Section 5.3(b) below, the Company, from the
date of this Agreement until the earlier of termination of this Agreement or
the Effective Time, will not nor shall it authorize or permit its officers,
directors, employees, investment bankers, attorneys, accountants and other
agents to (and, at the further request of Parent, will use reasonable efforts to
ensure that such persons do not) directly or indirectly (i) initiate, solicit or
knowingly encourage, or knowingly take any action to facilitate the making of,
any offer or proposal which constitutes or is reasonably likely to lead to any
Acquisition Proposal, (ii) enter into any agreement with respect to any
Acquisition Proposal, or (iii) in the event of an unsolicited Acquisition
Proposal for the Company engage in negotiations or discussions with, or provide
any information or data to, any Person (other than Parent, any of its affiliates
or representatives) relating to any Acquisition Proposal; provided, however,
-------- -------
that nothing contained in this Section 5.3 or any other provision hereof shall
prohibit the Company or the Company Board of Directors from (i) taking and
disclosing to the Company's shareholders its position with respect to tender or
exchange offer by a third party pursuant to Rules 14d-9 and 14e-2 promulgated
under the Exchange Act, (ii) making such disclosure to the Company's
shareholders as, in the good faith judgment of the Board of Directors, after
receipt of advice from outside legal counsel to the Company is necessary for the
Company Board of Directors to comply with its fiduciary duties to the Company's
shareholders under applicable law or (iii) otherwise complying with their
fiduciary duties to shareholders.
(b) Notwithstanding the foregoing, prior to the acceptance of Shares
pursuant to the Offer, the Company may furnish information concerning its
business, properties or assets to any Person pursuant to a confidentiality
agreement with terms no less favorable to the Company than those contained in
the Confidentiality Agreement, dated January 14, 1998 entered into between
Parent and the Company (the "Confidentiality Agreement") and may negotiate and
-------------------------
participate in discussions and negotiations with such Person concerning an
Acquisition Proposal if (x) such entity or group has on an unsolicited basis
submitted a bona fide written proposal to the Company relating to any such
transaction which the Board of Directors deter-
42
mines in good faith, after receiving advice from a nationally recognized
investment banking firm, represents a superior transaction to the Offer and the
Merger which is not conditioned upon obtaining additional financing the
certainty of closing of which is less certain than the satisfaction of condition
set forth in paragraph (h) of Annex I and in Section 1.1(a) on conditions less
favorable to the Company than the Financing and (y) in the opinion of the
Company Board of Directors, only after receipt of advice from outside legal
counsel to the Company, the failure to provide such information or access or to
engage in such discussions or negotiations would cause the Board of Directors to
violate its fiduciary duties to the Company's shareholders under applicable law
(an Acquisition Proposal which satisfies clauses (x) and (y) being referred to
herein as a "Superior Proposal"). The Company shall promptly, and in any event
-----------------
within one business day following receipt of a Superior Proposal, notify Parent
of the receipt of the same and prior to providing any such party with any
material non-public information. The Company shall promptly provide to Parent
any material non-public information regarding the Company provided to any other
party which was not previously provided to Parent.
(c) Except as set forth herein, neither the Board of Directors of the
Company nor any committee thereof shall (i) withdraw or modify, or propose to
withdraw or modify, in a manner adverse to Parent or the Purchaser, the approval
or recommendation by such Board of Directors or any such committee of the Offer,
this Agreement or the Merger, (ii) approve or recommend or propose to approve or
recommend, any Acquisition Proposal or (iii) enter into any agreement with
respect to any Acquisition Proposal. Notwithstanding the foregoing, prior to
the time of acceptance for payment of Shares in the Offer, the Board of
Directors of the Company may (subject to the terms of this and the following
sentence) withdraw or modify its approval or recommendation of the Offer, this
Agreement or the Merger, approve or recommend a Superior Proposal, or enter into
an agreement with respect to a Superior Proposal, in each case at any time after
the fifth business day following the Company's delivery to Parent of written
notice advising Parent that the Board of Directors has received a Superior
Proposal, specifying the material terms and conditions of such Superior Proposal
and identifying the person making such Superior Proposal; provided that the
Company shall not enter into an agreement with respect to a Superior Proposal
unless the Company also shall have furnished Parent with written notice that it
intends to enter into such agreement.
43
ARTICLE VI
ADDITIONAL AGREEMENTS
Section 6.1 Proxy Statement. As promptly as practicable after the
---------------
consummation of the Offer and if required by the Exchange Act, the Company shall
prepare and file with the SEC, and shall use all commercially reasonable efforts
to respond promptly to any comments made by the SEC, and promptly thereafter
shall mail to shareholders, the Proxy Statement. In such event, the Proxy
Statement shall contain the recommendation of the Board of Directors in favor of
the Merger.
Section 6.2 Meeting of Shareholders of the Company. At the Special
--------------------------------------
Meeting, if any, the Company shall use its commercially reasonable efforts to
solicit from Shareholders of the Company proxies in favor of the Merger and
shall take all other action necessary or, in the reasonable opinion of the
Purchaser, advisable to secure any vote or consent of shareholders required by
the GCL to effect the Merger. The Purchaser agrees that it shall vote, or cause
to be voted, in favor of the Merger all Shares directly or indirectly
beneficially owned by it.
Section 6.3 Additional Agreements. Subject to the terms and
---------------------
conditions as herein provided, the Company, Parent and Purchaser will each
comply in all material respects with all applicable laws and with all applicable
rules and regulations of any governmental authority to achieve the satisfaction
of the Minimum Condition and all conditions set forth in Annex I attached hereto
and Article VII hereof, and to consummate and make effective the Merger and the
other transactions contemplated hereby. Each of the parties hereto agrees to
use all commercially reasonable efforts to obtain in a timely manner all
necessary waivers, consents and approvals and to effect all necessary
registrations and filings, and to use all reasonable efforts to take, or cause
to be taken, all other actions and to do, or cause to be done, all other things
necessary, proper or advisable to consummate and make effective as promptly as
practicable the transactions contemplated by this Agreement. In case at any
time after the Effective Time any further action is necessary or desirable to
carry out the purposes of this Agreement, the proper officers and directors of
the Company, Parent and the Purchaser shall use all reasonable efforts to take,
or cause to be taken, all such necessary actions.
Section 6.4 Notification of Certain Matters. The Company shall give
-------------------------------
prompt notice to the Purchaser and the Purchaser shall give prompt notice to the
Company, of (i) the occurrence, or non-occurrence of any event whose occurrence,
or
44
non-occurrence would be likely to cause either (x) any representation or
warranty contained in this Agreement to be untrue or inaccurate in any material
respect at any time from the date hereof to the Effective Time or (y) any
condition set forth in Annex I to be unsatisfied in any material respect at any
time from the date hereof to the date the Purchaser purchases Shares pursuant to
the Offer (except to the extent it refers to a specific date) and (ii) any
material failure of the Company, the Purchaser or Parent, as the case may be, or
any officer, director, employee or agent thereof, to comply with or satisfy any
covenant, condition or agreement to be complied with or satisfied by it
hereunder; provided, however, that the delivery of any notice pursuant to this
-------- -------
Section 6.4 shall not limit or otherwise affect the remedies available hereunder
to the party receiving such notice or the representations or warranties of the
parties or the conditions to the obligations of the parties hereto.
Section 6.5 Access; Confidentiality. From the date hereof to the
-----------------------
Effective Time, upon reasonable notice and subject to the terms of the
Confidentiality Agreement, the Company shall (and shall cause each of its
Subsidiaries to) afford to the officers, employees, accountants, counsel,
financing sources and other representatives of Parent, reasonable access, during
normal business hours during the period prior to the Appointment Date, to all
its properties, books, contracts, commitments and records and, during such
period, the Company shall (and shall cause each of its Subsidiaries to), subject
to any limitations imposed by law with respect to records of employees, furnish
promptly to the Parent (a) a copy of each report, schedule, registration
statement and other document filed or received by it during such period pursuant
to the requirements of federal securities laws and (b) all other information
concerning its business, properties and personnel as Parent may reasonably
request. Access shall include the right to conduct such environmental studies
and tests as Parent, in its reasonable discretion, shall deem appropriate,
subject to any limitations of, and within the rights to the Company, under the
Company's leases. Prior to conducting any such studies and test, Parent shall
submit to Company the names of the persons conducting the evaluations, the scope
of the evaluations, and other material information concerning such studies for
the Company's approval, which shall not be unreasonably withheld or delayed.
After the Appointment Date, the Company shall provide Parent and such persons as
Parent shall designate with all such information as is in Company's possession
or control and as Parent shall reasonably request, at such time as Parent shall
reasonably request. Unless otherwise required by law or regulation (including
stock exchange rules) and until the Appointment Date, Parent and Purchaser will
hold any such information which is non-public in confidence in accordance with
the terms of the Confidentiality Agreement (except as may be required by law or
by any listing agreement with or by the listing rules of the London
45
Stock Exchange) and, in the event this Agreement is terminated for any reason,
Parent shall promptly return or destroy such information in accordance with
paragraph (6) of the Confidentiality Agreement. No investigation pursuant to
this Section 6.6 shall affect any representation or warranty made by the parties
hereunder.
Section 6.6 Consents and Approvals.
----------------------
(a) Each of Parent, the Purchaser and the Company will take all
reasonable actions necessary to comply promptly with all legal requirements
which may be imposed on it with respect to this Agreement and the Transactions
(which actions shall include, without limitation, furnishing all information
required under the HSR Act and in connection with approvals of or filings with
any other Governmental Entity) and will promptly cooperate with and, subject to
such confidentiality agreements as may be reasonably necessary or requested,
furnish information to each other or their counsel in connection with any such
requirements imposed upon any of them or any of their Subsidiaries in connection
with this Agreement and the Transactions. Each of the Company, Parent and the
Purchaser will, and will cause its Subsidiaries to, take all reasonable actions
necessary to obtain (and will cooperate with each other in obtaining) any
consent, authorization, order or approval of, or any exemption by, any
Governmental Entity or other public or private third party required to be
obtained or made by Parent, the Purchaser, the Company or any of their
Subsidiaries in connection with the Transactions or the taking of any action
contemplated thereby or by this Agreement.
(b) Each of the Company, the Purchaser and Parent shall take all
reasonable actions necessary to file as soon as practicable notifications under
the HSR Act, or under comparable merger notification laws of non-U.S.
jurisdictions and to respond as promptly as practicable to any inquiries
received from the Federal Trade Commission and the Antitrust Division of the
Department of Justice or the authorities of such other jurisdiction for
additional information or documentation and to respond as promptly as
practicable to all inquiries and requests received from any State Attorney
General or other Governmental Entity in connection with antitrust matters.
Section 6.7 Publicity. The initial press release with respect to
---------
the execution of this Agreement shall be a joint press release acceptable to
Parent and the Company. Thereafter, so long as this Agreement is in effect,
neither the Company, Parent nor any of their respective affiliates shall issue
or cause the publication of any press release or other announcement with respect
to the Merger, this Agreement or the other Transactions without the prior
consultation of the other party, except as such
46
party believes, after receiving the advice of outside counsel, may be required
by law or by any listing agreement with or listing rules of a national
securities exchange or trading market or by the listing rules of The London
Stock Exchange (the "London Stock Exchange").
---------------------
Section 6.8 Directors' and Officers' Insurance and Indemnification.
------------------------------------------------------
(a) For six years after the Effective Time, the Surviving Corporation
(or any successor to the Surviving Corporation) shall indemnify, defend and hold
harmless the present and former officers and directors of the Company and its
Subsidiaries, and persons who become any of the foregoing prior to the Effective
Time (each an "Indemnified Party") against all losses, claims, damages,
-----------------
liabilities, costs, fees and expenses (including reasonable fees and
disbursements of counsel and judgments, fines, losses, claims, liabilities and
amounts paid in settlement (provided that any such settlement is effected with
the written consent of the Parent or the Surviving Corporation which consent
shall not unreasonably be withheld)) arising out of actions or omissions
occurring at or prior to the Effective Time to the full extent permissible under
applicable provisions of the GCL, the terms of the Company's Articles of
Incorporation or the By-laws, and under any agreements as in effect at the date
hereof (true and correct copies of which have been previously provided to
Parent); provided that, in the event any claim or claims are asserted or made
-------- ----
within such six-year period, all rights to indemnification in respect of any
such claim or claims shall continue until disposition of any and all such
claims.
(b) Parent or the Surviving Corporation shall maintain the Company's
existing officers' and directors' liability insurance ("D&O Insurance") for a
-------------
period of not less than six years after the Effective Time; provided, that the
-------- ----
Parent may substitute therefor policies of substantially equivalent coverage and
amounts containing terms no less favorable to such former directors or officers;
provided, further, if the existing D&O Insurance expires, is terminated or
-------- -------
cancelled during such period, Parent or the Surviving Corporation will use all
reasonable efforts to obtain substantially similar D&O Insurance; provided,
--------
further, however, that in no event shall Parent be required to pay aggregate
------- -------
premiums for insurance under this Section 6.8(b) in excess of 150% of the
average of the aggregate premiums paid by the Company in 1996 and 1997 on an
annualized basis for such purpose, as adjusted for any increase in the Consumer
Price Index following the date of this Agreement, (the "Average Premium"), which
---------------
true and correct amounts are set forth in Section 6.8(b) of the Company
Disclosure Schedule; and provided, further, that if the Parent or the Surviving
-------- -------
Corporation is unable to obtain the amount of insurance required by this
47
Section 6.8(b) for such aggregate premium, Parent or the Surviving Corporation
shall obtain as much insurance as can be obtained for an annual premium not in
excess of 150% of the Average Premium.
Section 6.9 Purchaser Compliance. Parent shall cause the Purchaser
--------------------
to comply with all of its obligations under this Agreement.
Section 6.10 Commercially Reasonable Efforts.
-------------------------------
(a) Prior to the Closing, upon the terms and subject to the conditions
of this Agreement, the Purchaser and the Company, agree to use their respective
commercially reasonable efforts to take, or cause to be taken, all actions, and
to do, or cause to be done, all things reasonably necessary and appropriate,
under any applicable laws to consummate and make effective the transactions
contemplated by this Agreement as promptly as practicable including, but not
limited to (i) the preparation and filing of all forms, registrations and
notices required to be filed to consummate the transactions contemplated by this
Agreement and the taking of such actions as are necessary to obtain any
requisite approvals, consents, orders, exemptions or waivers by any third party
or Governmental Entity, and (ii) the satisfaction of the other parties'
conditions to Closing. In addition, no party hereto shall take any action after
the date hereof that would reasonably be expected to materially delay the
obtaining of, or result in not obtaining, any permission, approval or consent
from any Governmental Entity necessary to be obtained prior to the acceptance
for payment, and payment for, the Shares in the Offer or the Closing.
(b) Prior to the Closing, each party shall promptly consult with the
other parties hereto with respect to and subject to such confidentiality
agreements as may be reasonably necessary or requested, provide any necessary
information with respect to and provide the other (or its counsel) copies of,
all filings made by such party with any Governmental Entity or any other
information supplied by such party to a Governmental Entity in connection with
this Agreement and the transactions contemplated by this Agreement. Each party
hereto shall promptly inform the other of any communication from any
Governmental Entity regarding any of the transactions contemplated by this
Agreement unless otherwise prohibited by law. If any party hereto or affiliate
thereof receives a request for additional information or documentary material
from any such Government Entity with respect to the transactions contemplated by
this Agreement, then such party will endeavor in good faith to make, or cause to
be made, as soon as reasonably practicable and after consultation with the other
party, an appropriate response in compliance with such request. To the
48
extent that transfers of permits or Environmental Permits are required as a
result of execution of this Agreement or consummation of the transactions
contemplated hereby, the Company shall use its commercially reasonable efforts
to effect such transfers.
(c) Notwithstanding the foregoing, nothing in this Agreement shall be
deemed to require the Purchaser to defend against any litigation brought by any
Governmental Entity seeking to prevent the consummation of the transactions
contemplated hereby.
Section 6.11 State Takeover Laws. The Company shall, upon the
-------------------
request of the Purchaser, take all commercially reasonable steps to assist in
any challenge by the Purchaser to the validity or applicability to the
transactions contemplated by this Agreement and the Option Agreements, including
the Offer and the Merger and the Shareholder Agreements, of any state takeover
law.
Section 6.12 Financing Related Efforts.
-------------------------
(a) Parent shall use all commercially reasonable efforts to cause the
Financing to be consummated and to provide funds to the Purchaser to permit it
to perform its obligations hereunder and in the Offer.
(b) Parent shall use all commercially reasonable efforts to obtain the
admission of the shares of Capital Stock of Parent to be issued in connection
with the Financing (the "New Shares") to the Official List of the London Stock
----------
Exchange Limited (such admission to have become effective in accordance with the
Listing Rules of the London Stock Exchange Limited) (the "Admission") by the
---------
Initial Expiration Date, and shall take all actions as may be necessary or
desirable to obtain the Admission including, but not limited to, the following:
(i) Parent shall apply, within two days after the date hereof,
for the New Shares to be admitted to the Official List of the London
Stock Exchange Limited and shall not withdraw, or permit to be
withdrawn, such application, or do, or permit to be done (or omit, or
permit to be omitted), anything which may prejudice, preclude or
adversely affect the Admission by the Initial Expiration Date;
(ii) Parent shall, and shall cause its Subsidiaries and
affiliates and its listing agent, to supply all information, give all
undertakings,
49
execute all documents, pay all fees and do, or cause to be done, all
such things as may be necessary or desirable, or required by the
London Stock Exchange Limited, for the purpose of obtaining the
Admission by the Initial Expiration Date; and
(iii) Parent shall immediately inform the Company in writing of
any and all developments with respect to the Admission.
(c) Parent will provide the Company with true, correct and complete
copies of all amendments and supplements to the Financing Documents as well as
true, correct and complete copies of all other commitments and agreements with
respect to the transaction contemplated by this Agreement and any amendments or
supplements thereto from third parties to provide financing to the Parent or to
the Purchaser.
ARTICLE VII
CONDITIONS
Section 7.1 Conditions to Each Party's Obligations to Effect the
----------------------------------------------------
Merger. The respective obligations of each party to effect the Merger shall be
------
subject to the satisfaction on or prior to the Closing Date of each of the
following conditions, any and all of which may be waived in whole or in part by
Parent, the Purchaser and the Company, as the case may be, to the extent
permitted by applicable law:
(a) Shareholder Approval. The Merger and this Agreement shall have
--------------------
been approved and adopted by the requisite vote of the holders of the Shares, to
the extent required pursuant to the requirements of the Articles of
Incorporation and the GCL.
(b) Statutes; Court Orders. No statute, rule, regulation or order
----------------------
shall have been enacted, promulgated or issued by any United States or United
Kingdom Governmental Entity which prohibits the consummation of the Merger; and
there shall be no order or injunction of a court of competent jurisdiction in
effect preventing consummation of the Merger; and
(c) Purchase of Shares in Offer. The Purchaser shall have purchased,
---------------------------
or caused to be purchased, the Shares pursuant to the Offer; provided, that
--------
50
this condition shall be deemed to have been satisfied with respect to the
obligation of Parent and the Purchaser to effect the Merger if the Purchaser
fails to accept for payment or pay for Shares pursuant to the Offer in violation
of the terms of the Offer or of this Agreement; and
(d) HSR Approval. The applicable waiting period under the HSR Act
------------
shall have expired or been terminated.
ARTICLE VIII
TERMINATION
Section 8.1 Termination. This Agreement may be terminated and the
-----------
transactions contemplated herein may be abandoned at any time before the
Effective Time, whether before or after shareholder approval thereof (provided,
however, that if Shares are purchased pursuant to the Offer, Parent may not in
any event terminate this Agreement):
(a) By mutual written consent of Parent and the Company; or
(b) By Parent if the Offer shall have expired without any Shares being
purchased thereunder by the Purchaser and without the Purchaser having had an
obligation under Section 1.1(a) of this Agreement to extend the Offer; provided,
however, that Parent shall not be entitled to terminate this Agreement pursuant
to this Section 8.1(b) if it or the Purchaser is in material breach of its
representations and warranties, covenants or other obligations under this
Agreement; or
(c) By either Parent or the Company (i) if a court of competent
jurisdiction or other Governmental Entity shall have issued an order, decree or
ruling or taken any other action, in each case permanently restraining,
enjoining or otherwise prohibiting the transactions contemplated by this
Agreement or (ii) prior to the purchase of Shares pursuant to the Offer, if
there has been a willful breach by the other party of any representation,
warranty, covenant or agreement set forth in this Agreement, which breach shall
result in any condition set forth in Annex I (other than clause (i) thereof) not
being satisfied (and such breach is not reasonably capable of being cured and
such condition satisfied within thirty (30) days after the receipt of notice
thereof); or
51
(d) By the Company to allow the Company to enter into an agreement in
accordance with Section 5.3(b) with respect to a Superior Proposal which the
Board of Directors has determined is more favorable to the shareholders of the
Company than the transactions contemplated hereby; provided, however, that it
-------- -------
has complied with all provisions thereof, including the notice provision
therein, and that it makes simultaneous payment of the Termination Fee, plus any
amounts then due as a reimbursement of expenses; or
(e) By Parent, at any time prior to the purchase of the Shares
pursuant to the Offer, if (i) the Company Board of Directors shall have
withdrawn, modified, or changed its recommendation in respect of this Agreement
or the Offer in a manner adverse to the Purchaser, or (ii) the Company Board of
Directors shall have recommended any proposal other than by Parent or the
Purchaser in respect of an Acquisition Proposal, (iii) the Company shall have
exercised a right with respect to an Acquisition Proposal referenced in Section
5.3(b) and shall, directly or through its representatives, continue discussions
with any third party concerning an Acquisition Proposal for more than ten
business days after the date of receipt of such Acquisition Proposal, or (iv) an
Acquisition Proposal that is publicly disclosed shall have been commenced,
publicly proposed or communicated to the Company which contains a proposal as to
price (without regard to whether such proposal specifies a specific price or a
range of potential prices) and the Company shall not have rejected such proposal
within ten business days of its receipt or, if sooner, the date its existence
first becomes publicly disclosed; or
(f) By the Company, if the Offer shall have expired without any Shares
being purchased thereunder by the Purchaser and without the Company having the
right to extend the Offer pursuant to this Agreement (unless Parent shall have
timely extended the Offer in accordance with its rights under this Agreement);
provided, however, that the Company shall not be entitled to terminate this
Agreement pursuant to this Section 8.1(f) if it is in material breach of its
representations, warranties, covenants or other obligations under this
Agreement.
Section 8.2 Effect of Termination.
---------------------
(a) In the event of the termination of this Agreement as provided in
Section 8.1 hereof, written notice thereof shall forthwith be given to the other
party or parties specifying the provision hereof pursuant to which such
termination is made, and this Agreement shall forthwith become null and void and
there shall be no liability on the part of Parent, the Purchaser or the Company,
except (i) as set forth in
52
Sections 6.5(a), 8.2 and 9.3 hereof and (ii) nothing herein shall relieve any
party from liability for any breach of this Agreement.
(b) If (i) Parent shall have terminated this Agreement pursuant to
Section 8.1(e)(i) or Section 8.1(e)(ii), (ii) (x) Parent shall have terminated
this Agreement pursuant to Section 8.1(c)(ii), Section 8.1(e)(iii) or Section
8.1(e)(iv) and (y) following the date hereof but prior to such termination there
shall have been an Acquisition Proposal Interest and (z) the Company shall have
entered into a definitive agreement with respect to an Acquisition Proposal or
consummated an Acquisition Proposal with respect to the Company within one year
after the termination by Parent pursuant to Section 8.1(c)(ii), Section
8.1(e)(iii) or Section 8.1(e)(iv) or (iii) the Company shall have terminated
this Agreement pursuant to Section 8.1(d), then the Company shall pay (A)
simultaneously with such termination if pursuant to Section 8.1(d), (B)
promptly, but in no event later than two business days after the date of such
termination if pursuant to Section 8.1(e)(i) or Section 8.1(e)(ii), or (C) upon
execution of a definitive agreement with respect to a Acquisition Proposal or
upon the consummation of an Acquisition Proposal with respect to the Company if
pursuant to Section 8.1(c)(ii), Section 8.1(e)(iii) or Section 8.1(e)(iv), to
Parent a termination fee (the "Termination Fee") of $8,000,000 plus an amount,
---------------
not in excess of $1,250,000, equal to the Purchaser's reasonable actual and
documented out-of-pocket expenses incurred by Parent and the Purchaser in
connection with the Offer, the Merger, this Agreement and the consummation of
the transactions contemplated hereby, which amount shall be payable by wire
transfer to such account as Parent may designate in writing to the Company.
(c) If this Agreement is terminated, and at any time on or prior to
March 26, 1998, all of the conditions set forth on Annex I have been fulfilled
except (i) the condition set forth in paragraph (h) of Annex I and (ii) any
other conditions that are not fulfilled as a result, directly or indirectly, of
a breach by Parent or the Purchaser or any representation, warranty, covenant or
agreement set forth in this Agreement, then promptly, but in no event later than
two business days after the date of such termination, Parent shall pay to the
Company a termination fee of $8,000,000 plus an amount, not in excess of
$1,250,000, equal to the Company's reasonable actual and documented out-of-
pocket expenses incurred by the Company in connection with the Offer, the
Merger, this Agreement and the consummation of the transactions contemplated
hereby, which amount shall be payable by wire transfer to such account as the
Company may designate in writing to Parent.
53
ARTICLE IX
MISCELLANEOUS
Section 9.1 Amendment and Modification. Subject to applicable law
--------------------------
and except as otherwise provided in the Agreement, this Agreement may be
amended, modified and supplemented in any and all respects, whether before or
after any vote of the shareholders of the Company contemplated hereby, by
written agreement of the parties hereto, by action taken by their respective
Boards of Directors or equivalent governing bodies, but, after the purchase of
Shares pursuant to the Offer, no amendment shall be made which decreases the
Merger Consideration and, after the approval of this Agreement by the
shareholders, no amendment shall be made which by law requires further approval
by such shareholders without obtaining such further approval. This Agreement
may not be amended except by an instrument in writing signed on behalf of each
of the parties hereto.
Section 9.2 Non-survival of Representations and Warranties. None of
----------------------------------------------
the representations and warranties in this Agreement or in any schedule,
instrument or other document delivered pursuant to this Agreement shall survive
the acceptance for payment, and payment for, the Shares by the Purchaser
pursuant to the Offer.
Section 9.3 Expenses. Except as expressly set forth in Section
--------
8.2(b), all fees, costs and expenses incurred in connection with this Agreement
and the transactions contemplated hereby shall be paid by the party incurring
such fees, costs and expenses except any transfer, stamp or similar taxes shall
be borne by Parent.
Section 9.4 Notices. All notices and other communications hereunder
-------
shall be in writing and shall be deemed given if delivered personally,
telecopied (which is confirmed) or sent by a nationally recognized overnight
courier service, such as Federal Express (providing proof of delivery), to the
parties at the following addresses (or at such other address for a party as
shall be specified by like notice):
54
(a) if to Parent or the Purchaser, to:
The Sage Group plc
▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇ , ▇▇▇ ▇▇▇
Attention: ▇▇▇▇ ▇▇▇▇▇▇
Telephone No.: (▇▇▇) ▇▇▇-▇▇▇▇
Telecopy No.: (191) 255-0306
with a copy to:
Rose Acquisition Corp.
C/O The Sage Group plc
▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇ , ▇▇▇ ▇▇▇
Attention: ▇▇▇▇ ▇▇▇▇▇▇
Telephone No.: (▇▇▇) ▇▇▇-▇▇▇▇
Telecopy No.: (191) 255-0306
and
Skadden, Arps, Slate, ▇▇▇▇▇▇▇ & ▇▇▇▇ LLP
Four ▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇
▇▇▇ ▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇-▇▇▇▇
Attention: ▇▇▇▇▇▇ ▇. ▇▇▇▇, Esq.
Telephone No.: (▇▇▇) ▇▇▇-▇▇▇▇
Telecopy No.: (▇▇▇) ▇▇▇-▇▇▇▇
and
55
(b) if to the Company, to:
State Of The Art, Inc.
▇▇ ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇ ▇. ▇▇▇▇▇
Telephone No.: (▇▇▇) ▇▇▇-▇▇▇▇
Telecopy No.: (▇▇▇) ▇▇▇-▇▇▇▇
with a copy to:
▇▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ and ▇▇▇▇▇▇, P.C.
▇▇▇ ▇▇▇▇ ▇▇▇▇ ▇▇▇▇
▇▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇-▇▇▇▇
Attention: ▇▇▇▇ ▇. ▇▇▇▇, Esq.
Telephone No.: (▇▇▇) ▇▇▇-▇▇▇▇
Telecopy No.: (▇▇▇) ▇▇▇-▇▇▇▇
Section 9.5 Interpretation. When a reference is made in this
--------------
Agreement to Sections, such reference shall be to a Section of this Agreement
unless otherwise indicated. Whenever the words "include", "includes" or
"including" are used in this Agreement they shall be deemed to be followed by
the words "without limitation." As used in this Agreement, the term
"affiliates" shall have the meaning set forth in Rule 12b-2 of the Exchange Act.
As used in this Agreement, the term "Person" shall mean a natural person,
------
partnership, corporation, limited liability company, business trust, joint stock
company, trust, unincorporated association, joint venture, Governmental Entity
or other entity or organization.
Section 9.6 Counterparts. This Agreement may be executed in two or
------------
more counterparts, each of which shall be considered one and the same agreement
and shall become effective when two or more counterparts have been signed by
each of the parties and delivered to the other parties.
Section 9.7 Entire Agreement; No Third Party Beneficiaries. This
----------------------------------------------
Agreement and the Confidentiality Agreement:
(a) constitute the entire agreement among the parties with respect to
the subject matter hereof and thereof and supersedes all other prior agreements
and understandings, both written and oral, among the parties or any of them with
respect
56
to the subject matter hereof and thereof (provided that the provisions of this
Agreement shall supersede any conflicting provisions of the Confidentiality
Agreement), and
(b) except as provided in Sections 2.4 and 6.8 is not intended to
confer upon any person other than the parties hereto any rights or remedies
hereunder.
Section 9.8 Severability. If any term or other provision of this
------------
Agreement is invalid, illegal or incapable of being enforced by rule of law or
public policy, all other conditions and provisions of this Agreement shall
nevertheless remain in full force and effect so long as the economic or legal
substance of the transactions contemplated hereby is not affected in any manner
adverse to any party. Upon such determination that any term or other provision
is invalid, illegal or incapable of being enforced, the parties hereto shall
negotiate in good faith to modify this Agreement so as to effect the original
intent of the parties as closely as possible in an acceptable manner to the end
that transactions contemplated hereby are fulfilled to the extent possible.
Section 9.9 Governing Law. This Agreement shall be governed by and
-------------
construed in accordance with the laws of the State of California without giving
effect to the principles of conflicts of law thereof.
Section 9.10 Assignment. This Agreement shall not be assigned by
----------
any of the parties hereto (whether by operation of law or otherwise) without the
prior written content of the other parties, except that the Purchaser may
assign, in its sole discretion, any or all of its rights, interests and
obligations hereunder to Parent or to any direct or indirect wholly owned
Subsidiary of Parent. Subject to the preceding sentence, but without relieving
any party hereto of any obligation hereunder, this Agreement will be binding
upon, inure to the benefit of and be enforceable by the parties and their
respective successors and assigns.
57
IN WITNESS WHEREOF, Parent, the Purchaser and the Company have caused
this Agreement to be signed by their respective officers thereunto duly
authorized as of the date first written above.
THE SAGE GROUP PLC
By: /s/ ▇▇▇▇▇▇▇ ▇. ▇. ▇▇▇▇▇▇▇
-----------------------------
Name: ▇▇▇▇▇▇▇ ▇. ▇. ▇▇▇▇▇▇▇
Title: Chairman
ROSE ACQUISITION CORP.
By: /s/ ▇▇▇▇ ▇▇▇▇▇▇
-----------------------------
Name: ▇▇▇▇ ▇▇▇▇▇▇
Title: Chief Executive
STATE OF THE ART, INC.
By: /s/ ▇▇▇▇▇ ▇. ▇▇▇▇▇
-----------------------------
Name: ▇▇▇▇▇ ▇. ▇▇▇▇▇
Title: President, C.E.O. and
Chairman of the Board
ANNEX I
Notwithstanding any other provisions of the Offer, the Purchaser shall
not be required to accept for payment or, subject to any applicable rules and
regulations of the SEC, including Rule 14e-l(c) under the Exchange Act (relating
to the Purchaser's obligation to pay for or return tendered Shares promptly
after termination or withdrawal of the Offer), pay for, and may delay the
acceptance for payment of or, subject to the restriction referred to above, the
payment for, any tendered Shares unless there are validly tendered and not
withdrawn prior to the expiration date for the Offer that number of Shares
which, when added to the Shares owned by the Purchaser, will represent at least
90% of the outstanding Shares on a fully diluted basis (without giving pro forma
effect to the potential issuance of any Shares issuable under the Option
Agreement) on the date of purchase (the "Minimum Condition"); provided, however,
----------------- -------- -------
that the Minimum Condition must be waived by the Purchaser and the Revised
Minimum Number substituted therefor as contemplated, and to the extent required,
by Section 1.1(d) of the Merger Agreement. Furthermore, notwithstanding any
other provisions of the Offer, the Purchaser shall not be required to accept for
payment or pay for any tendered Shares if, at the scheduled expiration date, (i)
any applicable waiting period under the HSR Act has not expired or terminated
prior to termination of the Offer, or (ii) any of the following events shall
have occurred and be continuing:
(a) there shall be pending any suit, action or proceeding by any
United States or United Kingdom Governmental Entity against the Purchaser,
Parent, the Company or any Subsidiary of the Company (i) seeking to prohibit or
impose any material limitations on Parent's or the Purchaser's ownership or
operation (or that of any of their respective Subsidiaries or affiliates) of all
or a material portion of the business or assets of Parent and its Subsidiaries,
taken as a whole, or all or a material portion of the business or assets of the
Company and its Subsidiaries, taken as a whole, or to compel Parent or the
Purchaser or their respective Subsidiaries and affiliates to dispose of or hold
separate any material portion of the business or assets of the Company or Parent
and their respective Subsidiaries, in each case taken as a whole, (ii)
challenging the acquisition by Parent or the Purchaser of any Shares under the
Offer or seeking to restrain or prohibit the making or consummation of the Offer
or the Merger, (iii) seeking to impose material limitations on the ability of
the Purchaser, or render the Purchaser unable, to accept for payment, pay for or
purchase some or all of the Shares pursuant to the Offer and the Merger, or (iv)
subject to the limitations under Section 1101(e) of the California General
Corporation Law,
A-1
seeking to impose material limitations on the ability of Purchaser or Parent
effectively to exercise full rights of ownership of the Shares, including,
without limitation, the right to vote the Shares purchased by it on all matters
properly presented to the Company's shareholders;
(b) there shall be any statute, rule, regulation, judgment, order or
injunction enacted, entered, enforced, promulgated, or deemed applicable
(pursuant to an authoritative interpretation by or on behalf of a Government
Entity, to the Offer or the Merger) or any other action shall be taken by any
Governmental Entity, other than the application to the Offer or the Merger of
applicable waiting periods under HSR Act, that is likely to result in any of the
consequences referred to in clauses (i) through (iv) of paragraph (a) above;
(c) there shall have occurred (i) any general suspension of trading
in, or limitation on prices for, securities on the London Stock Exchange, the
New York Stock Exchange, the American Stock Exchange or the Nasdaq Stock Market
for a period in excess of 24 hours (excluding suspensions or limitations
resulting solely from physical damage or interference with such exchanges not
related to market conditions), (ii) a declaration of a banking moratorium or any
suspension of payments in respect of banks in the United States or the United
Kingdom (whether or not mandatory), (iii) a commencement of a war, armed
hostilities or other international or United States or United Kingdom calamity
directly or indirectly involving the United States or the United Kingdom (other
than an action involving solely U.N. personnel or support of U.N. personnel),
(iv) any limitation (whether or not mandatory) by any United States or United
Kingdom Governmental Entity on the extension of credit generally by banks or
other financial institutions, or (v) a change in general financial, bank or
capital market conditions which materially and adversely affects the ability of
financial institutions in the United States to extend credit or syndicate loans,
which, in the case any of the foregoing, in the reasonable judgment of Parent,
makes it impractical to proceed with the acceptance of Shares for payment
pursuant to the Offer or the payment therefor;
(d) the representations and warranties of the Company set forth in the
Merger Agreement that are not qualified by reference to Company Material Adverse
Effect were not true and correct in any respect, or any other such
representations or warranties were not true and correct in any respect that
(when taken together with all other such representations and warranties not true
and correct) would likely have a Company Material Adverse Effect (i) in the case
of any representation or warranty which addresses matters as of a particular
date, as of such date, or (ii) in the
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case of all other representations and warranties, as of the date of this
Agreement and as of the scheduled expiration of the Offer.
(e) since the date of this Agreement, there shall have occurred any
change that constitutes (or that would likely constitute) a Company Material
Adverse Change;
(f) the Board of Directors of the Company or any committee thereof
shall have withdrawn or materially modified in a manner adverse to Parent or the
Purchaser or its recommendation of the Offer, the Merger or the Merger
Agreement, or approved or recommended any Acquisition Proposal;
(g) the Company shall have failed to perform or to comply in any
material respect with any agreement or covenant to be performed or complied with
by it under this Agreement;
(h) The London Stock Exchange shall have failed to admit to the
Official List of the London Stock Exchange the New Shares or such admission
shall have not become effective in accordance with paragraph 7.1 of the listing
rules of the London Stock Exchange ; provided, however, that this condition to
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the Offer shall be deemed to have been met if, assuming the Purchaser had
accepted the Shares for payment in the Offer, such Admission would be
substantially certain to occur; and
(i) the Merger Agreement shall have been terminated in accordance with
its terms.
The foregoing conditions are for the sole benefit of Parent and the
Purchaser, may be asserted by Parent or the Purchaser regardless of the
circumstances giving rise to such condition and may be waived by Parent or the
Purchaser in whole or in part at any time and from time to time in the sole
discretion of Parent or the Purchaser, subject in each case to the terms of this
Agreement. The failure by Parent or the Purchaser at any time to exercise any
of the foregoing rights shall not be deemed a waiver of any such right and each
such right shall be deemed an ongoing right which may be asserted at any time
and from time to time.
The capitalized terms used in this Annex I shall have the meanings set
forth in the Agreement to which it is annexed, except that the term "Merger
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Agreement" shall be deemed to refer to the Agreement to which this Annex I is
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appended.
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