EXHIBIT 2.1
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AGREEMENT AND PLAN
OF MERGER
DATED AS OF
MAY 1, 2002
BY AND AMONG
LEVEL 3 COMMUNICATIONS, INC.,
ELDORADO ACQUISITION THREE, INC.
AND
SOFTWARE SPECTRUM, INC.
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TABLE OF CONTENTS
ARTICLE I. THE MERGER............................................................................................2
Section 1.1. The Merger.............................................................................2
Section 1.2. Effective Time of the Merger...........................................................2
Section 1.3. Articles of Incorporation..............................................................2
Section 1.4. By-Laws................................................................................2
Section 1.5. Board of Directors; Officers...........................................................2
Section 1.6. Effects of Merger......................................................................2
Section 1.7. Closing................................................................................2
ARTICLE II. CONVERSION OF COMMON STOCK...........................................................................3
Section 2.1. Conversion of Common Stock.............................................................3
Section 2.2. Stock Options..........................................................................3
Section 2.3. Closing of Company Transfer Books......................................................4
Section 2.4. Exchange of Certificates...............................................................5
Section 2.5. Funding of Paying Agent................................................................6
Section 2.6. No Further Ownership Rights in Common Stock............................................6
Section 2.7. Dissenting Shareholders................................................................6
Section 2.8. Assistance in Consummation of the Transactions.........................................7
ARTICLE III. COMPANY ACTION WITH RESPECT TO THE MERGER...........................................................7
Section 3.1. Company and Board Approval; Fairness Opinion...........................................7
Section 3.2. Proxy Statement........................................................................8
Section 3.3. Meeting of Shareholders of the Company................................................10
ARTICLE IV. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.......................................................10
Section 4.1. Organization of the Company...........................................................10
Section 4.2. Authority and Binding Effect..........................................................11
Section 4.3. No Conflict or Violation; Consents....................................................12
Section 4.4. SEC Filings; Financial Statements; Undisclosed Liabilities............................12
Section 4.5. Capital Structure.....................................................................13
Section 4.6. Subsidiaries..........................................................................14
Section 4.7. Accounts Receivable...................................................................14
Section 4.8. Absence of Certain Changes or Events..................................................14
Section 4.9. Properties............................................................................15
Section 4.10. Compliance with Legal Requirements....................................................16
Section 4.11. Affiliate Agreements and Liabilities..................................................17
Section 4.12. Material Contracts....................................................................17
Section 4.13. Intellectual Property.................................................................19
Section 4.14. Labor Relations.......................................................................21
Section 4.15. Employee Benefits.....................................................................21
Section 4.16. Litigation............................................................................23
Section 4.17. Environmental Matters.................................................................23
Section 4.18. Tax Matters...........................................................................24
Section 4.19. Brokers...............................................................................26
Section 4.20. Books and Records of the Company......................................................26
Section 4.21. Customers and Suppliers...............................................................26
Section 4.22. Certain Payments......................................................................26
Section 4.23. Proxy Statement.......................................................................27
Section 4.24. State Takeover Statutes Inapplicable..................................................27
Section 4.25. Statements True and Correct...........................................................27
ARTICLE V. REPRESENTATIONS AND WARRANTIES OF PARENT AND PURCHASER...............................................28
Section 5.1. Organization, Standing and Power......................................................28
Section 5.2. Authority; No Violations; Consents and Approvals......................................28
Section 5.3. Litigation............................................................................29
Section 5.4. Proxy Statement.......................................................................29
Section 5.5. Ownership of Company Shares...........................................................29
Section 5.6. No Prior Activities; Assets of Purchaser..............................................29
Section 5.7. Statements True and Correct...........................................................30
Section 5.8. Brokers...............................................................................30
Section 5.9. Financing.............................................................................30
ARTICLE VI. CONDUCT OF BUSINESS PENDING THE MERGER..............................................................30
Section 6.1. Conduct of Business by the Company Pending the Merger.................................30
Section 6.2. No Solicitation.......................................................................33
Section 6.3. Rights Agreement......................................................................36
Section 6.4. Access and Information................................................................36
Section 6.5. Notification of Certain Matters.......................................................37
Section 6.6. Employee Stock Purchase Plan..........................................................37
ARTICLE VII. ADDITIONAL AGREEMENTS..............................................................................37
Section 7.1. Indemnification of Company Officers and Directors.....................................37
Section 7.2. HSR Act; Foreign Filings..............................................................39
Section 7.3. Additional Agreements Regarding Consents and Approvals................................40
Section 7.4. Efforts; Further Assurances...........................................................40
Section 7.5. Takeover Statutes.....................................................................41
Section 7.6. Initial Transactions..................................................................41
Section 7.7. Employee Matters......................................................................42
ARTICLE VIII. CONDITIONS PRECEDENT..............................................................................44
Section 8.1. Conditions to Each Party's Obligation to Effect the Merger............................44
Section 8.2. Conditions for the Obligation of Parent and Purchaser.................................44
ARTICLE IX. TERMINATION AND FEES................................................................................45
Section 9.1. Termination...........................................................................45
Section 9.2. Effect of Termination.................................................................47
Section 9.3. Fees and Expenses.....................................................................47
ARTICLE X. GENERAL PROVISIONS...................................................................................48
Section 10.1. Non-Survival of Representations, Warranties and Agreements............................48
Section 10.2. Amendment.............................................................................48
Section 10.3. Notices...............................................................................49
Section 10.4. Specific Performance..................................................................50
Section 10.5. Publicity.............................................................................50
Section 10.6. Interpretation........................................................................50
Section 10.7. Counterparts..........................................................................50
Section 10.8. Entire Agreement; No Third Party Beneficiaries........................................50
Section 10.9. Severability..........................................................................51
Section 10.10. Governing Law.........................................................................51
Section 10.11. Assignment............................................................................51
Section 10.12. Descriptive Headings..................................................................51
ii
EXHIBITS
A Form of Voting Agreement
B Form of Promissory Note
SCHEDULES
Schedule 4.1 Organization of the Company
Schedule 4.3 No Conflict or Violation; Consents
Schedule 4.4 SEC Filings; Financial Statements
Schedule 4.5 Capital Structure
Schedule 4.6 Subsidiaries
Schedule 4.8 Absence of Certain Changes or Events
Schedule 4.9 Properties
Schedule 4.10(a) Violation of Legal Requirements
Schedule 4.10(b) Necessary Permits
Schedule 4.11 Affiliate Agreements and Liabilities
Schedule 4.12 Material Contracts
Schedule 4.13 Intellectual Property
Schedule 4.14 Labor Relations
Schedule 4.15 Employee Benefit Plans
Schedule 4.16 Litigation
Schedule 4.17 Compliance with Environmental Laws
Schedule 4.18 Tax Matters
Schedule 4.19 Brokers
Schedule 4.21 Suppliers
Schedule 6.1 Conduct of Business by Company Pending the Merger
Schedule 7.6 Foreign Subsidiaries
DEFINED TERM LOCATION
Accounts Receivable Section 4.7
Adverse Recommendation Section 9.1
Affiliate Section 3.1
Agreement Preamble
Alternative Transaction Section 6.2
Articles of Incorporation Section 1.3
Balance Sheet Section 4.7
Board of Directors Recitals
Business Day Section 1.7
By-Laws Section 4.3
Certificates of Merger Section 1.2
Closing Section 1.7
Closing Date Section 1.7
Code Section 4.18
Commission Section 3.2
Common Stock Recitals
Company Preamble
Company Representatives Section 6.2
Competing Agreement Section 6.2
Confidentiality Agreement Section 6.2
Contract Section 4.12
D&O Insurance Section 7.1
DGCL Recitals
Dissenting Shares Section 2.7
Effective Time Section 1.2
Employees Section 4.14
Employee Stock Purchase Plan Section 6.6
Environmental Laws Section 4.17
ERISA Section 4.15
ERISA Affiliate Section 4.15
Escrow Procedures Section 6.2
Exchange Act Section 2.2
Expense Reimbursement Section 9.3
Foreign Plans Section 4.15
Foreign Subsidiary Sale Section 7.6
Foreign Subsidiary Stock Section 7.6
Former Employees Section 4.15
GAAP Section 4.4
Governmental Agency Section 4.25
Hazardous Materials Section 4.17
HSR Act Section 5.2
Indebtedness Section 4.12
ii
Indemnified Parties Section 7.1
Initial Transaction Time Section 7.6
Initial Transactions Section 7.6
Intellectual Property Section 4.13
Knowledge Section 10.6
Leases Section 4.9
Legal Requirement Section 2.6
Liability Section 4.4
Lien Section 4.9
LTIP Section 7.7
Major Supplier Section 4.21
Material Contracts Section 4.12
Merger Recitals
New LLC Section 7.6
New LLC Purchase Price Section 7.6
Option Plans Section 2.2
Options Section 2.2
Order Section 2.6
Parent Preamble
Paying Agent Section 2.4
Per Share Amount Section 2.1
Permit Section 4.3
Permitted Lien Section 4.9
Person Section 2.4
Plan Section 4.15
Prohibited Effect Section 4.1
Prohibited Result Section 8.2
Proxy Statement Section 3.2
Purchaser Preamble
Release Section 4.17
Rights Section 3.1
Rights Agreement Section 3.1
Salaried Employee Section 6.1
SEC Reports Section 4.4
Securities Act Section 2.1
Shareholders Recitals
Special Meeting Section 3.3
Subsequent Transactions Section 4.2
Subsidiary Section 2.1
Superfund Section 4.17
Superior Proposal Section 6.2
Surviving Corporation Section 1.1
Takeover Proposal Section 6.2
Tax Section 4.18
Tax Return Section 4.18
Taxes Section 4.18
iii
Taxing Authority Section 4.18
TBCA Recitals
Telecom Employees Section 7.7
Termination Fee Section 9.3
Third Party Section 6.2
Trade Secrets Section 4.13
Transaction Documents Section 4.2
Transactions Section 4.2
Vendor Excluded Indebtedness Section 7.6
Voting Agreement Recitals
iv
AGREEMENT AND PLAN OF MERGER
This AGREEMENT AND PLAN OF MERGER (the "Agreement"), dated as of May 1,
2002, by and among ▇▇▇▇▇ ▇ ▇▇▇▇▇▇▇▇▇▇▇▇▇▇, ▇▇▇., a Delaware corporation
("Parent"), Eldorado Acquisition Three, Inc., a Delaware corporation and an
indirect wholly owned subsidiary of Parent ("Purchaser"), and Software Spectrum,
Inc., a Texas corporation (the "Company"):
WITNESSETH:
WHEREAS, the board of directors of the Company (the "Board of
Directors") has determined that it is in the best interests of the Company and
the holders (the "Shareholders") of the shares of common stock, $0.01 par value,
of the Company (the "Common Stock") for Purchaser to merge with and into the
Company (the "Merger") in accordance with the General Corporation Law of the
State of Delaware ("DGCL") and the Texas Business Corporation Act ("TBCA") upon
the terms and subject to the conditions set forth herein;
WHEREAS, the board of directors of each of Parent and Purchaser has
determined that the Merger is in the best interests of Parent and Purchaser, and
the Merger has been approved by the sole stockholder of Purchaser;
WHEREAS, immediately prior to the consummation of the Merger, the
parties desire to effect the Initial Transactions (as defined in Section 7.6);
WHEREAS, concurrently with the execution and delivery of this
Agreement, as a condition and inducement to Parent's and Purchaser's willingness
to enter into this Agreement, certain Shareholders have entered into Voting
Agreements, dated as of the date of this Agreement, in the form attached hereto
as Exhibit A (the "Voting Agreement") pursuant to which each such Shareholder
has, among other things, agreed to grant to Parent a proxy with respect to the
voting of such shares, in each case upon the terms and subject to the conditions
set forth in the Voting Agreement; and
WHEREAS, the Board of Directors has approved this Agreement and the
Voting Agreement and has determined that the consideration to be paid for each
share of Common Stock (excluding the Dissenting Shares (as defined in Section
2.7)) upon consummation of the Merger is fair to the holders of such shares and
has resolved to recommend that the holders of Common Stock approve this
Agreement and the transactions contemplated hereby.
NOW, THEREFORE, in consideration of the foregoing premises, and for
other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the parties hereto, intending to be legally bound, agree as
follows:
ARTICLE I.
THE MERGER
SECTION 1.1. THE MERGER. Upon the terms and subject to the conditions
hereof, and in accordance with the DGCL and the TBCA, at the Effective Time,
Purchaser shall be merged into the Company and the separate existence of
Purchaser shall thereupon cease, and the Company shall be the surviving
corporation in the Merger (the "Surviving Corporation") and an indirect
wholly-owned subsidiary of Parent, and shall continue its corporate existence
under the laws of the State of Texas.
SECTION 1.2. EFFECTIVE TIME OF THE MERGER. On the Closing Date, the
Company and Purchaser shall file a certificate of merger with the Secretary of
State of the State of Delaware and deliver articles of merger to the Secretary
of State of the State of Texas in accordance with the DGCL and TBCA and make all
other filings or recordings required by applicable law in connection with the
Merger. The Merger shall become effective at the date and time (the "Effective
Time") when a properly executed certificate of merger is filed with the
Secretary of State of the State of Delaware and a certificate of merger is
issued to the Surviving Corporation by the Secretary of State of the State of
Texas or at such later time as is specified in the respective certificates of
merger. The certificates and articles of merger filed with the Secretary of
States of the States of Delaware and Texas are referred to throughout the
remainder of this Agreement as the "Certificates of Merger."
SECTION 1.3. ARTICLES OF INCORPORATION. At the Effective Time the
Second Restated Articles of Incorporation ("Articles of Incorporation") of the
Company, as in effect immediately before the Effective Time, shall be the
Articles of Incorporation of the Surviving Corporation upon and after the
Effective Time until thereafter amended as provided by law and such Articles of
Incorporation.
SECTION 1.4. BY-LAWS. The By-laws of Purchaser as in effect immediately
before the Effective Time shall be the By-laws of the Surviving Corporation
until thereafter amended as provided by law, the Articles of Incorporation of
the Surviving Corporation and such By-laws.
SECTION 1.5. BOARD OF DIRECTORS; OFFICERS. The directors of Purchaser
immediately prior to the Effective Time shall be the directors of the Surviving
Corporation and the officers of the Company immediately prior to the Effective
Time shall be the officers of the Surviving Corporation, in each case until
their respective successors are duly elected and qualified.
SECTION 1.6. EFFECTS OF MERGER. At the Effective Time, the effect of
the Merger shall be as provided in the applicable provisions of DGCL and TBCA.
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 Purchaser shall vest in the Surviving Corporation, and all
debts, liabilities and duties of the Company and Purchaser shall become the
debts, liabilities and duties of the Surviving Corporation.
SECTION 1.7. CLOSING. The closing of the transactions contemplated
hereby (the "Closing") shall take place at the offices of ▇▇▇▇▇▇▇ ▇▇▇▇ &
▇▇▇▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇
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▇▇▇▇, ▇▇ ▇▇▇▇▇ no later than 10:00 a.m. on the second business day (as such term
is defined in Rule 14d-1 under the Exchange Act (a "Business Day")) after the
conditions set forth in Article VIII have been satisfied (or, to the extent
permitted by law, waived by the parties entitled to the benefits thereof), or at
such other place, time and date as shall be agreed between Parent and the
Company (the "Closing Date").
ARTICLE II.
CONVERSION OF COMMON STOCK
SECTION 2.1. CONVERSION OF COMMON STOCK. At the Effective Time, by
virtue of the Merger and without any action on the part of any Shareholder:
(a) All shares of Common Stock issued and outstanding
immediately prior to the Effective Time which are held by the Company
or any Subsidiary of the Company, and any shares of Common Stock issued
and outstanding immediately prior to the Effective Time owned by
Parent, Purchaser or any other Subsidiary of Parent, shall be cancelled
and extinguished and no payment or other consideration shall be made
with respect thereto. As used in this Agreement, "Subsidiary" means any
"subsidiary" as defined in Rule 405 promulgated under the Securities
Act of 1933, as amended (the "Securities Act").
(b) Each remaining share of Common Stock issued and
outstanding immediately prior to the Effective Time (other than
Dissenting Shares) shall automatically be cancelled and extinguished
and be converted into and become solely a right to receive $37.00 per
share (the "Per Share Amount") in cash payable to the holder thereof,
without interest, upon surrender of the certificate representing such
share. From and after the Effective Time, each holder of a certificate
or certificates representing any such shares of Common Stock shall
cease to have any rights with respect thereto, except the right to
receive the Per Share Amount, without interest, upon the surrender of
such certificate in accordance with Section 2.4 hereof.
(c) Each share of capital stock of Purchaser issued and
outstanding immediately prior to the Effective Time shall be converted
and exchanged into one validly issued, fully paid and nonassessable
share of common stock of the Surviving Corporation.
SECTION 2.2. STOCK OPTIONS
(a) Prior to the consummation of the Merger, the Company shall
take all actions necessary, and obtain any required consents, to
provide that, (i) effective as of the Effective Time each then
outstanding option to purchase Common Stock granted under any of the
Company's stock option plans referred to in Section 4.5 (collectively,
the "Option Plans"), and (ii) any and all other outstanding options,
stock warrants and rights to acquire Common Stock, whether or not
granted pursuant to such Option Plans, whether or not then exercisable
or vested (the "Options") shall be cancelled by virtue of the Merger,
shall cease to exist and shall be of no further force or effect;
provided,
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however, that each holder of an Option, whether vested or unvested,
shall be entitled to receive, for each share of Common Stock issuable
on exercise of such Option, an amount in cash equal to the excess of
(x) the Per Share Amount over (y) the per share exercise price of the
Option as in effect immediately prior to the Effective Time. Such
amount shall be subject to reduction by any applicable tax withholding.
The Company and Parent agree that such amounts are the sole payments
that will be made with respect to or in relation to the Options. No
consideration shall be payable with respect to any Option which has an
exercise price that exceeds the Per Share Amount.
(b) The consideration due under this Section 2.2 shall be
payable as soon as practicable after the Effective Time without
interest after (x) verification by the Paying Agent of the ownership
and terms of the particular Option by reference to the Company's
records, and (y) delivery in the manner provided in Section 2.4 of a
written instrument duly executed by the owner of the applicable Option,
in a form provided by the Paying Agent and setting forth (i) the
aggregate number of Options owned by that person and their respective
issue dates and exercise prices, (ii) a representation by the person
that he or she is the owner of all Options described pursuant to clause
(x), that none of those Options has expired or ceased to be exercisable
prior to the Effective Time, and (iii) a consent to the treatment of
such Options pursuant to this Section 2.2 in full satisfaction of all
rights relating to such Options.
(c) Except as provided herein or as otherwise agreed to by the
parties, the Company shall cause the Option Plans to terminate
effective not later than the Effective Time, and the provisions in any
other plan, program or arrangement, providing for the issuance or grant
by the Company or any of its Subsidiaries of any interest in respect of
the capital stock of the Company or any of its Subsidiaries shall be
terminated effective not later than the Effective Time.
(d) The Company represents and warrants that all of the Option
Plans provide that the Company can take the actions described in this
Section 2.2 without obtaining the consent of any holders of Options.
(e) The Company shall take any reasonable action required to
cause the disposition of the Options in accordance with this Section
2.2 to be exempt from the provisions of 16(b) of the Securities
Exchange Act of 1934, as amended, including the rules and regulations
promulgated thereunder (the "Exchange Act").
(f) Pursuant to the terms of the Company's Non-Employee
Directors' Retainer Stock Plan, all share equivalents credited to
participant deferral accounts shall be cancelled in exchange for an
amount in cash equal to the Per Share Amount multiplied by the
equivalents so cancelled. The Company shall pay such amount as soon as
practicable after the Effective Time.
SECTION 2.3. CLOSING OF COMPANY TRANSFER BOOKS. At the Effective Time,
the stock transfer books of the Company shall be closed with respect to Common
Stock issued and outstanding immediately prior to the Effective Time and no
further transfer of such Common Stock shall thereafter be made on such stock
transfer books. If, after the Effective Time, valid
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certificates previously representing such Common Stock are presented to the
Surviving Corporation or the Paying Agent, they shall be exchanged as provided
in Section 2.4.
SECTION 2.4. EXCHANGE OF CERTIFICATES. Prior to the Effective Time,
Purchaser shall designate a bank or trust company with capital exceeding $500
million to act as agent (the "Paying Agent") for the Shareholders to receive the
funds necessary to effect the exchange for cash of certificates which,
immediately prior to the Effective Time, represented Common Stock entitled to
payment pursuant to Section 2.1(b). As soon as practicable after the Effective
Time, the Paying Agent shall mail a transmittal form to each holder of record of
certificates theretofore representing such Common Stock advising such holder of
the procedure for surrendering to the Paying Agent such certificates. If a check
or wire transfer for the Per Share Amount is to be issued in the name of any
individual, partnership, corporation, trust, association, limited liability
company, Governmental Agency or any other entity (each, a "Person") other than
the Person in whose name the certificates for Common Stock surrendered for
exchange are registered on the books of the Company, it shall be a condition of
the exchange that the Person requesting such exchange shall pay to the Paying
Agent all transfer or other taxes, if any, required by reason of the issuance of
such check or wire transfer in the name of a Person other than the registered
owner of the certificates surrendered, or shall establish to the satisfaction of
the Paying Agent that such taxes have been paid or are not applicable. Upon the
surrender and exchange of a certificate theretofore representing Common Stock,
the holder shall be paid by check or wire transfer, without interest thereon,
the Per Share Amount to which such holder is entitled hereunder, less only such
amount, if any, required to be withheld under applicable backup withholding
federal income tax regulations, and such certificate shall forthwith be
cancelled. Until so surrendered and exchanged, each such certificate shall
represent solely the right to receive the Per Share Amount into which the Common
Stock it theretofore represented shall have been converted pursuant to Section
2.1, without interest, and the Surviving Corporation shall not be required to
pay the holder thereof the Per Share Amount to which such holder otherwise would
be entitled. If any certificates representing any Common Stock shall not have
been surrendered prior to five years after the Effective Time (or immediately
prior to such earlier date on which any payment in respect thereof would
otherwise escheat to or become the property of any Governmental Agency), the
payment in respect of such certificates shall, to the extent permitted by
applicable law, become the property of the Surviving Corporation, free and clear
of all claims or interest of any Person previously entitled thereto.
Notwithstanding the foregoing, neither the Paying Agent nor any party hereto
shall be liable to a holder of certificates theretofore representing Common
Stock for any amount paid to a public official pursuant to any applicable
abandoned property, escheat or similar laws. In the event that any holder is
unable to deliver the certificate which formerly represented such holder's
Common Stock, then Parent or Purchaser, in the absence of actual notice that any
Common Stock represented by any such certificate has been acquired by a bona
fide purchaser, shall deliver to such holder the Per Share Amount to which
Shareholder is entitled in accordance with the provisions of this Agreement upon
the presentation of the following: (i) an affidavit or other evidence that the
certificate has been lost, wrongfully taken or destroyed; (ii) evidence that
such Person is the beneficial owner of the certificate claimed by such Person to
be lost, wrongfully taken or destroyed and that such Person is the person who
would be entitled to present such certificate for exchange pursuant to this
Agreement and (iii) reasonable indemnity against the claims of any third party
claiming to be the beneficial owner of such lost, wrongfully taken or destroyed
certificate.
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SECTION 2.5. FUNDING OF PAYING AGENT.
(a) Parent shall provide or cause to be provided to Purchaser,
and Purchaser shall transmit by wire transfer, or other acceptable
means to the Paying Agent, at or prior to the Effective Time funds
required for the exchange of all Common Stock and cancellation of all
Options in accordance with this Agreement. The Paying Agent shall agree
to hold such funds in trust and deliver such funds (in the form of
checks of the Paying Agent or wire transfers) in accordance with this
Section 2.5 and Sections 2.2 and 2.4. Any portion of such funds which
has not been paid to holders of the Common Stock or Options pursuant to
Section 2.2 or 2.4 within six months after the Effective Time shall
promptly be paid to the party which provided such funds, and thereafter
holders of certificates representing the right to receive the cash into
which Common Stock or Options formerly represented by such certificates
shall have been converted pursuant to Section 2.1(b) or 2.2 who have
not theretofore complied with Section 2.2 or 2.4 shall look solely to
the Surviving Corporation for payment of the amount of cash to which
they are entitled pursuant to this Agreement.
(b) The Paying Agent shall invest the funds, as directed by
Purchaser, prior to the Effective Time, and as directed by the
Surviving Corporation, on or after the Effective Time, in (i) direct
obligations of the United States of America, (ii) obligations for which
the full faith and credit of the United States of America is pledged to
provide for the payment of principal and interest, (iii) commercial
paper rated the highest quality by either ▇▇▇▇▇'▇ Investors Services,
Inc. or Standard & Poor's Corporation or (iv) certificates of deposit,
bank repurchase agreements or bankers' acceptances of commercial banks
with capital exceeding $500 million. Any net earnings with respect to
the funds shall be the property of and paid over to the Surviving
Corporation as and when requested by the Surviving Corporation;
provided, however, that any such investment or any such payment of
earnings may not delay the receipt by holders of certificates of any
Per Share Amount.
SECTION 2.6. NO FURTHER OWNERSHIP RIGHTS IN COMMON STOCK. From and
after the Effective Time, the Shareholders shall cease to have any rights with
respect to the Common Stock except as otherwise provided in this Agreement or by
any federal, state, local, municipal, foreign, international, multinational, or
other Order, constitution, law, rule, ordinance, permit, principle of common
law, regulation, statute, or treaty (each, a "Legal Requirement"). All cash paid
upon the surrender of certificates in accordance with the terms hereof shall be
deemed to have been issued in full satisfaction of all rights pertaining to
Common Stock. For purposes of this Agreement, the term "Order" means any award,
decision, injunction, judgment, order, ruling, subpoena, or verdict entered,
issued, made, or rendered by any Governmental Agency.
SECTION 2.7. DISSENTING SHAREHOLDERS. Notwithstanding anything in this
Agreement to the contrary, shares of Common Stock that are issued and
outstanding immediately prior to the Effective Time and that are held by
Shareholders who (i) have not voted such shares in favor of the Merger, (ii)
have otherwise complied with the relevant provisions of Section 5.13 of the TBCA
and (iii) as of the Effective Time, shall not have effectively withdrawn or lost
such right to relief as a dissenting Shareholder ("Dissenting Shares") shall not
be converted into a right to
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receive the Per Share Amount described in Section 2.1(b). The holders thereof
shall be entitled only to such rights as are granted by Section 5.13 of the
TBCA. Each holder of Dissenting Shares who becomes entitled to payment for such
Dissenting Shares pursuant to Section 5.13 of the TBCA shall receive payment
therefor from the Surviving Corporation in accordance with the TBCA; provided,
however, that if any such holder of Dissenting Shares (i) shall have failed to
establish his entitlement to relief as a dissenting Shareholder as provided in
Section 5.13 of the TBCA, (ii) shall have withdrawn his demand for relief as a
dissenting Shareholder with respect to such Dissenting Shares or lost his right
to relief as a dissenting Shareholder and payment for his Dissenting Shares
under Section 5.13 of the TBCA or (iii) shall have failed to file a complaint
with the appropriate court seeking relief as to determination of the value of
all Dissenting Shares within the time provided in Section 5.13 of the TBCA, such
holder shall forfeit the right to relief as a dissenting Shareholder with
respect to such Dissenting Shares and each such Dissenting Share shall be
converted into the right to receive the Per Share Amount from the Surviving
Corporation as provided in Section 2.4. The Company shall give Parent prompt
notice of any demands received by the Company prior to the Effective Time, any
attempted withdrawals of such demands and any other instruments served pursuant
to the TBCA and received by the Company relating to Shareholders' rights of
appraisal, and Parent shall have the right to direct all negotiations and
proceedings with respect to such demands. The Company shall not, except with the
prior written consent of Parent, make any payment with respect to, or settle or
offer to settle, any such demands.
SECTION 2.8. ASSISTANCE IN CONSUMMATION OF THE TRANSACTIONS. Each of
Parent, Purchaser and the Company shall provide all reasonable assistance to,
and shall cooperate with, each other to bring about the consummation of the
Merger and the other Transactions as soon as possible in accordance with the
terms and conditions of this Agreement. Parent shall cause Purchaser to perform
all of its obligations in connection with this Agreement required to be
performed by it on or prior to the Effective Time.
ARTICLE III.
COMPANY ACTION WITH RESPECT TO THE MERGER
SECTION 3.1. COMPANY AND BOARD APPROVAL; FAIRNESS OPINION.
(a) The Company hereby approves of and consents to the Merger
and represents and warrants that the Board of Directors, at a meeting
duly called and held on May 1, 2002, at which all the Directors were
present duly and unanimously: (i) approved and adopted this Agreement
and the Transactions, including the Merger, (ii) resolved to recommend
that the Shareholders approve this Agreement and the Transactions,
including the Merger, provided that such recommendation may be
withdrawn, modified or amended to the extent that the Board of
Directors determines in good faith following consultation with outside
legal counsel that failure to take such action would constitute a
breach of the Board of Directors' fiduciary obligations under
applicable law, (iii) determined that this Agreement and the
transactions contemplated hereby, including the Merger, are fair to and
in the best interests of the Shareholders, (iv) took all action
necessary to render Section 13.03 of the TBCA and the Rights
inapplicable to the
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Merger, the Voting Agreement, this Agreement, and any of the
Transactions and Subsequent Transactions, (v) elected, to the extent
permitted by law, not to be subject to any "moratorium," "control share
acquisition," "business combination," "fair price" or other form of
corporate anti-takeover laws and regulations of any jurisdiction that
may purport to be applicable to this Agreement, and (vi) approved the
execution, delivery and performance of this Agreement, such approval
constituting approval of the foregoing for purposes of Section 5.03 of
the TBCA.
(b) The Company further represents and warrants that SunTrust
▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇, as financial advisor to the Board of Directors has
delivered to the Board of Directors a written opinion, dated as of the
date of this Agreement (or an oral opinion which will be promptly
confirmed in writing), to the effect that the Per Share Amount to be
received by Shareholders (other than Parent or any "affiliate" as
defined in Rule 405 promulgated under the Securities Act ("Affiliate"))
pursuant to the Merger is fair to such holders from a financial point
of view. The Company hereby represents and warrants that it has been
authorized by its financial advisor to permit the inclusion in its
entirety of the fairness opinion (and, subject to prior review and
consent by the financial advisor, references thereto) in the Proxy
Statement. The Company has been advised by each of its directors who
owns shares of Common Stock that such person intends to vote all shares
of Common Stock owned by such person in favor of the Merger.
(c) The Company has irrevocably taken all necessary action,
including, without limitation, amending the Rights Agreement, dated as
of December 13, 1996, as amended, between the Company and Mellon
Investor Services, LLC, as rights agent (the "Rights Agreement"), with
respect to all of the outstanding rights issued pursuant to the Rights
Agreement (the "Rights") to ensure that (i) Parent and Purchaser, or
either of them, are not deemed to be an Acquiring Person (as defined in
the Rights Agreement) and (ii) the Rights will not become exercisable,
in any such case, by reason of the execution and delivery of the Voting
Agreement, this Agreement or the consummation of the Merger and the
Subsequent Transactions. The Rights Agreement, as so amended, has not
been further amended or modified. Copies of all such amendments to the
Rights Agreement have been previously provided or made available to
Purchaser.
SECTION 3.2. PROXY STATEMENT.
(a) As promptly as practicable following the date of this
Agreement, the Company shall prepare a preliminary proxy statement (the
"Proxy Statement") relating to the Special Meeting and a form of proxy
for use at the Special Meeting relating to the vote of the Shareholders
with respect to the Merger. Parent shall be afforded a reasonable
opportunity to comment on the Proxy Statement. The Proxy Statement
shall comply in all material respects with the provisions of the
Exchange Act, and shall be in form and substance reasonably
satisfactory to Parent.
(b) The Company shall cause the preliminary Proxy Statement to
be filed with the Securities and Exchange Commission (the "Commission")
at the earliest practicable date after the date of this Agreement, and
in any event not more than 14 days after the date hereof.
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(c) The Company shall promptly notify Parent of the receipt of
any comments of the Commission with respect to the preliminary Proxy
Statement and of any requests by the Commission for any amendment or
supplement thereto or for additional information and shall provide to
Parent promptly copies of all correspondence between the Company or any
representative of the Company and the Commission. As promptly as
practicable after comments are received from the Commission with
respect to the preliminary Proxy Statement, the Company shall use its
commercially reasonable efforts to respond to the comments of the
Commission and, to the extent comments of the Commission relate to
Parent or Purchaser, Parent and Purchaser shall use their commercially
reasonable efforts to respond to the comments of the Commission. The
Company shall give Parent and its counsel the reasonable opportunity to
review all amendments and supplements to the Proxy Statement and all
responses to requests for additional information and replies to
comments of the Commission prior to their being filed with or sent to
the Commission, and Parent and Purchaser shall provide the Company with
such information about them as may be required to be included in the
Proxy Statement or as may be reasonably required to respond to any
comment of the Commission.
(d) After all the comments received from the Commission have
been cleared by the Commission staff and all information required to be
contained in the Proxy Statement has been included therein by the
Company, the Company shall file with the Commission the definitive
Proxy Statement and the Company shall use its commercially reasonable
efforts to have the Proxy Statement cleared by the Commission as soon
thereafter as practicable. The definitive Proxy Statement shall contain
the fairness opinion of the financial advisor for the Company pursuant
to Section 3.1(b). The Company shall cause the Proxy Statement to be
mailed to record holders of the Common Stock as promptly as practicable
after clearance by the Commission.
(e) The Proxy Statement shall contain the determination and
recommendation of the Board of Directors referred to in and subject to
Section 3.1; provided, however, that any withdrawal or change in its
recommendation must be made in compliance with Section 6.2(c), if
applicable, and subject to the requirement that the Board of Directors
submit this Agreement and the Transactions, including the Merger, to a
shareholder vote in accordance with Section 3.3(c).
(f) The Company shall prepare and revise the Proxy Statement
so that, at the date mailed to the Shareholders, at the time of the
Special Meeting, and at the Closing Date the Proxy Statement shall (x)
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
that the statements made therein, in light of the circumstances under
which they are made, not misleading (except that the Company shall not
be responsible under this paragraph with respect to statements made
therein based on information supplied by Parent or Purchaser expressly
for inclusion in the Proxy Statement), and (y) comply in all material
respects with the provisions of the Exchange Act and the rules and
regulations thereunder.
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SECTION 3.3. MEETING OF SHAREHOLDERS OF THE COMPANY.
(a) The Company shall promptly take all action necessary in
accordance with the TBCA and its Articles of Incorporation and By-Laws
to duly call, give notice of, convene and hold a special meeting of its
shareholders for the purpose of considering and taking action upon the
approval of the Merger and the authorization and adoption of this
Agreement (the "Special Meeting") as promptly as practicable following
the date hereof, and in no event more than 21 Business Days following
the clearance of the Proxy Statement by the Commission.
(b) The vote required for approval of the Merger will be
two-thirds or more of the outstanding Common Stock. Subject to the
right of the Board of Directors to withdraw, modify or amend its
recommendation of the Merger in accordance with Section 3.1(a), the
Company shall use its reasonable best efforts to solicit from
Shareholders proxies in favor of the Merger and shall take all other
action necessary or, in the reasonable opinion of Purchaser, advisable
to secure any vote of Shareholders required by the TBCA and the
Articles of Incorporation to effect the Merger.
(c) The Company shall call and hold the Special Meeting
whether or not the Board of Directors at any time subsequent to the
date hereof determines that this Agreement or the Transactions,
including the Merger, is no longer advisable, recommends the rejection
thereof by the Shareholders, or otherwise makes an Adverse
Recommendation.
(d) At the Special Meeting, Parent and Purchaser shall vote or
cause to be voted all of the Common Stock then owned or as to which
they have voting control by Parent, Purchaser or their Subsidiaries in
favor of adoption of this Agreement and the Company shall vote or cause
to be voted all shares of Common Stock with respect to which proxies in
the form distributed by the Company have been given, and not voted
against the adoption of this Agreement, in favor of adoption of this
Agreement.
ARTICLE IV.
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to Parent and Purchaser as
of the date of this Agreement as follows:
SECTION 4.1. ORGANIZATION OF THE COMPANY.
(a) Each of the Company and its Subsidiaries is a corporation
duly organized, validly existing, and except as set forth on Schedule
4.1 in good standing under the laws of the jurisdiction of its
organization. Each of the Company and its Subsidiaries is duly
qualified to do business and is in good standing in the states in which
the ownership of its properties or the conduct of its business requires
such qualification, except where the failure to so qualify,
individually or in the aggregate, would not reasonably be expected to
have a Prohibited Effect.
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(b) For the purposes of this Agreement, a "Prohibited Effect"
means: (i) a material adverse change in or effect with respect to the
business, revenues, results of operations, properties, or financial
condition of the Company and its Subsidiaries, taken as a whole, other
than any change or effect resulting from or attributable to (A) the
announcement or pendency of this Agreement or the Transactions, (B) any
decrease in the market price of the Common Stock (but not any change or
effect underlying such decrease to the extent that it would otherwise
constitute a Prohibited Effect), (C) changes, effects, conditions,
events or circumstances that generally affect the industries in which
the Company or its Subsidiaries operate (including legal and regulatory
changes), or (D) general economic conditions or changes, effects,
conditions or circumstances affecting the securities markets generally,
including any change in general economic conditions due to any act or
war, terrorism, or threat of war or terrorism; or (ii) notice from a
Major Supplier after the date of this Agreement that it intends to
materially alter its relationship with the Company or any of its
Subsidiaries in a manner that would be materially adverse to the
Company's business taken as a whole other than any such notice arising
directly from a request to amend or delete provisions of Contracts
designated as Vendor Excluded Indebtedness pursuant to Section 7.6.
SECTION 4.2. AUTHORITY AND BINDING EFFECT.
(a) The Company has the requisite corporate power to execute
and deliver this Agreement and all other agreements and documents
contemplated hereby or executed in connection herewith to which it is a
party (the "Transaction Documents") and subject, with respect to the
consummation of the Merger, to the approval of Shareholders holding at
least two-thirds of the outstanding Common Stock, to consummate the
Initial Transactions, the Merger and the other transactions
contemplated hereby and thereby (collectively, the "Transactions"), and
to consummate the subsequent merger of Parent's wholly owned subsidiary
engaged in the same line of business with and into the Surviving
Corporation (the "Subsequent Transactions").
(b) The execution and delivery of the Transaction Documents by
the Company and the consummation by the Company of the Transactions
have been duly and validly authorized by the Board of Directors, and no
other corporate proceedings on the part of the Company are necessary to
authorize Transaction Documents or to consummate the Transactions
(other than with respect to the consummation of the Merger, the
adoption of this Agreement by Shareholders holding at least two-thirds
of the outstanding Common Stock).
(c) This Agreement has been, and each other Transaction
Document at the time of its execution will have been, duly and validly
executed and delivered by the Company, and (assuming this Agreement and
such Transaction Documents each constitute a valid and binding
obligation of Parent and Purchaser) this Agreement constitutes, and
each such other Transaction Document at the time of execution will
constitute, the valid and binding obligations of the Company,
enforceable in accordance with its terms, subject to bankruptcy,
insolvency, fraudulent transfer, reorganization,
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moratorium and similar laws of general applicability relating to or
affecting the rights of creditors and to general principles of equity.
SECTION 4.3. NO CONFLICT OR VIOLATION; CONSENTS. Except as set forth on
Schedule 4.3, neither the execution and delivery of the Transaction Documents
nor the consummation or performance of the Transactions will, directly or
indirectly (with or without notice or lapse of time):
(a) contravene, conflict with, or result in a violation of (i)
any provision of the Articles of Incorporation or the Second Amended
and Restated By-Laws (the "By-Laws") of the Company or the equivalent
organizational documents of any of its Subsidiaries, or (ii) any
resolution adopted by the Board of Directors or the Shareholders;
(b) contravene, or conflict with, or result in a violation of
any material Legal Requirement to which the Company or any of the
assets owned or used by the Company, may be subject;
(c) contravene, or conflict with, or result in a violation of
any of the terms or requirements of, or give any Governmental Agency
the right to revoke, withdraw, suspend, cancel, terminate, or
materially modify any permit, approval, consent, authorization,
license, variance, or permission required by a Governmental Agency
under any Legal Requirement (each, a "Permit") that is material and is
held by the Company or any of its Subsidiaries;
(d) contravene, conflict with, or result in a violation or
breach of any provision of, or give any Person the right to declare a
default or exercise any remedy under, or to accelerate the maturity or
performance of, or to cancel, terminate, or modify, or to receive any
additional consideration under any Material Contract or material
Permit;
(e) result in the imposition or creation of any material Lien
upon or with respect to any of the material assets owned or used by the
Company; or
(f) require any material consent, approval, or authorization
of, or material registration or filing with, any Governmental Agency or
any other Person.
SECTION 4.4. SEC FILINGS; FINANCIAL STATEMENTS; UNDISCLOSED
LIABILITIES.
(a) The Company has filed all forms, reports and documents
(including all exhibits thereto) required to be filed with the
Commission since April 30, 1999, and has heretofore made available to
Parent, in the form filed with the Commission, its (i) Annual Report on
Form 10-K for the fiscal year ended April 30, 2001, (ii) Quarterly
Reports on Form 10-Q for the fiscal quarters ended July 31, 2001,
October 31, 2001 and January 31, 2002, (iii) all proxy statements
relating to the Company's meetings of Shareholders (whether annual or
special) held since April 30, 1999 and (iv) all other reports or
registration statements filed by the Company with the Commission since
April 30, 1999 (collectively, the "SEC Reports"). Except as set forth
in Schedule 4.4, the SEC Reports (i) at the time filed complied as to
form in all material respects with the
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requirements of the Securities Act or the Exchange Act, as the case may
be, and (ii) did not at the time they were filed contain any untrue
statement of a material fact or omit to state a material fact required
to be stated therein or necessary in order to make the statements
therein, in the light of the circumstances under which they were made,
not misleading. None of the Subsidiaries of the Company is required to
file any statements or reports with the Commission pursuant to Sections
13(a) or 15(d) of the Exchange Act.
(b) The consolidated financial statements contained in the SEC
Reports were prepared in accordance with generally accepted accounting
principles applied on a consistent basis ("GAAP") throughout the
periods involved (except as may be indicated in the notes thereto) and
fairly presented the consolidated financial position of the Company and
its Subsidiaries as at the respective dates thereof and the
consolidated results of operations and cash flows of the Company and
its Subsidiaries for the periods indicated, except that the unaudited
interim financial statements were or are subject to normal and
recurring year-end adjustments (which in the aggregate are not material
in amount).
(c) Except as (i) set forth on Schedule 4.4, (ii) incurred in
the ordinary course of business consistent with past practice since
April 30, 2001, (iii) set forth in the financial statements or notes
thereto or in the Management's Discussion and Analysis of Financial
Condition and Results of Operations, in each case, included in the SEC
Reports filed after April 30, 2001 and prior to the date of this
Agreement, (iv) relating to performance obligations under Contracts in
accordance with the terms and conditions thereof which are not required
by GAAP to be reflected on a consolidated balance sheet of the Company
and its Subsidiaries, or (v) liabilities or obligations contained in
this Agreement, the Company and its Subsidiaries have no material
liabilities or obligations (whether asserted or unasserted, whether
absolute or contingent, whether accrued or unaccrued, whether
liquidated or unliquidated and whether due or to become due) (each, a
"Liability") of any nature (whether accrued, absolute, contingent or
otherwise).
SECTION 4.5. CAPITAL STRUCTURE. The authorized capital stock of the
Company consists of 20,000,000 shares of Common Stock and 1,000,000 shares of
Series A Junior Participating Preferred Stock, par value $.01 per share. As of
the date of this Agreement: (a) no shares of Series A Junior Participating
Preferred Stock are issued and outstanding; (b) 3,170,912 shares of Common Stock
are issued and outstanding; and (c) 691,240 shares of Common Stock are reserved
for issuance pursuant to outstanding Options. Schedule 4.5 sets forth a list of
all Option Plans, together with all Options outstanding as of the date of this
Agreement and the number of shares of Common Stock issuable upon exercise of
such Options, and the exercise price thereof. Each outstanding share of capital
stock of the Company is duly authorized and validly issued, fully paid and
nonassessable and free of any preemptive rights and was not issued in violation
of any preemptive rights or federal or state securities laws. Except for the
Options and the periodic options granted prior to the date of this Agreement
under the Employee Stock Purchase Plan, there are no, and at Closing there will
be no, outstanding subscriptions, options, warrants, puts, calls, agreements,
understandings, claims or other commitments or rights of any type granted or
issued by the Company relating to the issuance, sale or transfer by the Company
of any securities of the Company, nor will there be outstanding any voting
securities of the Company or any
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securities of the Company which are convertible into or exchangeable for any
shares of capital stock of the Company, and the Company will have no obligation
of any kind to issue any additional capital stock or voting securities.
SECTION 4.6. SUBSIDIARIES.
(a) Except as set forth on Schedule 4.6, the Company does not
own any stock of, or any equity participation in, any Person (other
than those held by Plans, or acquired in connection with the settlement
of outstanding accounts receivable subsequent to the date of this
Agreement).
(b) Schedule 4.6 sets forth a correct and complete list of all
Subsidiaries of the Company. The Company has made available to Parent
and Purchaser, true and correct copies of the certificates of
incorporation and by-laws or similar organizational documents of each
Subsidiary as amended to date.
(c) All of the outstanding shares of capital stock of each
Subsidiary of the Company are duly authorized, validly issued, fully
paid, and non-assessable, and except as set forth on Schedule 4.6 are
owned by the Company or a Subsidiary of the Company as set forth on
Schedule 4.6, free and clear of any Lien.
(d) Except as set forth on Schedule 4.6, operations of the
Company and its Subsidiaries conducted outside of the United States are
conducted by the Subsidiaries listed on Schedule 4.6.
(e) There are no outstanding or authorized options, warrants,
calls, subscriptions, rights, commitments or any other agreements of
any character (i) evidencing the right to purchase or subscribe for any
shares of capital stock of a Subsidiary of the Company and set forth on
Schedule 4.6 or (ii) obligating any Subsidiary of the Company to issue
any additional shares of its capital stock.
SECTION 4.7. ACCOUNTS RECEIVABLE. The accounts receivable of the
Company and its Subsidiaries reflected on the consolidated balance sheet of the
Company dated as of January 31, 2002 which is included in the SEC Reports filed
prior to the date of this Agreement ("Balance Sheet") or on the accounting
records of the Company as of the Closing Date (collectively, the "Accounts
Receivable") represent or will represent valid obligations arising from sales
actually made or services actually performed in the ordinary course of business.
The Account Receivable reserves are adequate and calculated in accordance with
GAAP.
SECTION 4.8. ABSENCE OF CERTAIN CHANGES OR EVENTS. Except as expressly
permitted by this Agreement or as set forth in Schedule 4.8 hereto, (i) since
April 30, 2001, the Company and its Subsidiaries have conducted their business
only in the ordinary course consistent with past practice, (ii) since April 30,
2001, there have not occurred any events or changes or developments having, or
which would reasonably be expected to have, individually or in the aggregate, a
Prohibited Effect, and (iii) since January 31, 2002, neither the Company nor any
of its Subsidiaries has taken, or committed to take any action which would have
been prohibited under Section 6.1 if such section applied to the period since
January 31, 2002.
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SECTION 4.9. PROPERTIES.
(a) Neither the Company nor any of its Subsidiaries own any
real property.
(b) Except as would not, individually or in the aggregate,
reasonably be expected to have a Prohibited Effect, each of the Company
and its Subsidiaries has good and marketable title to all the
properties and assets owned by the Company or any of its Subsidiaries
or, in the case of property held under Lease or other Contract, each of
the Company and its Subsidiaries have a valid and subsisting leasehold
interest in or a legal, valid and enforceable right to use, free and
clear of all Liens except Permitted Liens.
(c) All material leases, subleases, licenses and other
occupancy agreements together with any amendments thereto, any option
agreements and any subordination, nondisturbance and attornment
agreements (the "Leases"), with respect to all real property leased or
subleased by the Company or any of its Subsidiaries are in full force
and effect. Neither the Company or any of its Subsidiaries nor, to the
Company's Knowledge, any other party thereto is in default under any of
the Leases (and no event has occurred which, with due notice or lapse
of time or both, would constitute such a default), except for such
defaults which, individually or in the aggregate, would not reasonably
be expected to have a Prohibited Effect. The Company has made available
to Parent true correct and complete copies of each Lease required to be
listed on Schedule 4.12.
(d) The assets of the Company and its Subsidiaries in the
aggregate are adequate to conduct the operations of the Company and its
Subsidiaries in substantially the manner currently conducted.
(e) The tangible personal property of the Company and its
Subsidiaries is in good condition and repair (ordinary wear and tear
excepted) and is adequate for the uses to which it is being put and for
the conduct of the business of the Company and its Subsidiaries as
currently conducted.
(f) For purposes of this Agreement, the term "Lien" means any
charge, claim, community property interest, condition, equitable
interest, lien, option, pledge, security interest, right of first
refusal, or restriction of any kind, including any restriction on use,
voting, transfer, receipt of income, or exercise of any other attribute
of ownership. In addition, the term "Permitted Liens" means, with
respect to any asset, (i) covenants, conditions, restrictions,
encroachments, encumbrances, easements, rights of way, licenses,
grants, building or use restrictions, exceptions, reservations,
limitations or other imperfections of title (other than a Lien securing
any Indebtedness) with respect to such asset which, individually or in
the aggregate, does not materially detract from the value of, or
materially interfere with the present occupancy or use of, such asset
and the continuation of the present occupancy or use of such asset;
(ii) the matters set forth on Schedule 4.9; (iii) unfiled mechanic's,
materialmen's and similar liens with respect to amounts not yet due and
payable or which are being contested in good faith through appropriate
proceedings; (iv) liens for Taxes not yet delinquent or which are being
contested in good faith through appropriate proceedings and, for those
existing on the
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date of the Balance Sheet, for which adequate reserves in accordance
with GAAP are reflected on the Balance Sheet, or arose subsequent to
the date of the date of the Balance Sheet in the ordinary course of
business; and (v) liens securing rental payments under operating leases
and capital lease arrangements, which capital lease arrangements if
existing on the date of the Balance Sheet were reflected on the Balance
Sheet, or arose subsequent to the date of the Balance Sheet in the
ordinary course of business.
SECTION 4.10. COMPLIANCE WITH LEGAL REQUIREMENTS.
(a) Except as set forth on Schedule 4.10(a), the Company and
its Subsidiaries have complied in all material respects with all
material Legal Requirements, and, to the Company's Knowledge, no event
has occurred which with or without notice could reasonably be expected
to constitute a material violation of any material Legal Requirements.
Since April 30, 2001, except as set forth on Schedule 4.10(a), neither
the Company nor any of its Subsidiaries has received any notice or
other communication (whether oral or written) from any Governmental
Agency or any other Person regarding (i) any actual, alleged, possible,
or potential violation of, or failure to comply with, any material
Legal Requirement, or (ii) any actual, alleged, possible, or potential
obligation on the part of the Company to undertake, or to bear all or
any portion of the cost of, any material remedial action of any nature,
nor to the Company's Knowledge is there any basis for any such notice
or other communication.
(b) All material Permits, except as noted on Schedule 4.10(b),
are in full force and effect and no proceeding is pending or, to the
Company's Knowledge, threatened, to revoke or materially limit any such
Permit, nor is there a basis for any such revocation. Except as set
forth on Schedule 4.10(b):
(i) the Company and its Subsidiaries are, and at all
times since April 30, 2001 have been, in material compliance
with all of the terms and requirements of each material
Permit;
(ii) since April 30, 2001, neither Company nor any of
its Subsidiaries has received any notice or other
communication (whether oral or written) from any Governmental
Agency or any other Person regarding (A) any actual, alleged,
possible, or potential violation of or failure to comply with
any material term or requirement of any material Permit, or
(B) any actual, proposed, possible, or potential revocation,
withdrawal, suspension, cancellation, termination of, or
material modification to any such material Permit, nor is
there any basis for such notice or other communication; and
(iii) all applications required to have been filed
for the renewal of the material Permits have been duly filed
on a timely basis with the appropriate Governmental Agencies,
and all other filings required to have been made with respect
to such Permits have been duly made on a timely basis with the
appropriate Governmental Agencies.
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SECTION 4.11. AFFILIATE AGREEMENTS AND LIABILITIES. Except as set forth
on Schedule 4.11 or those solely among the Company and its wholly owned
Subsidiaries:
(a) there are no written or oral Contracts between the Company
and any Affiliate of the Company including, without limitation, any
such Contracts relating to the provision of any services by the Company
to any such Affiliate, or by any such Affiliate to the Company; and
(b) (i) since the date of the Balance Sheet, there have been
and (ii) from the date of this Agreement to the Closing Date there will
be no material transactions, agreements or arrangements made upon or
containing terms and provisions less favorable to the Company than
could have been obtained on an arm's length basis from a Third Party
between the Company and (x) any Affiliate of the Company, (y) any
director or officer of the Company or of any Affiliate of the Company
or (z) any member of the immediate family of any individual described
in clause (x) or (y) of this sentence.
SECTION 4.12. MATERIAL CONTRACTS.
(a) The Company has made available to Parent true, correct and
complete copies of all of, the following written Contracts (and all
amendments thereto) (or a summary of the material terms of any oral
Contracts) to which the Company or any of its Subsidiaries is a party
or by which any of their properties or assets are bound as of the date
of this Agreement:
(i) mortgage, indenture, note, letter of credit,
reimbursement or installment obligation, or other instrument
for or relating to Indebtedness in excess of $250,000;
(ii) (x) guaranty of any obligation in excess of
$250,000 for borrowings or performance, or (y) guaranty or
warranty of products or services, excluding endorsements or
guaranties of instruments made in the ordinary course of
business, including in connection with the deposit of items
for collection, and statutory warranties;
(iii) Contract for the sale or lease of any of its
assets in excess of $250,000 other than in the ordinary course
of business;
(iv) Contract for the purchase of any real estate,
machinery, equipment, or other capital assets in excess of
$250,000;
(v) Contract for the future purchase of materials,
supplies, services, merchandise, or equipment parts in excess
of $250,000;
(vi) Contract pursuant to which it is or may be
obligated to make payments, contingent or otherwise, on
account of or arising out of prior acquisitions or sales of
businesses, assets, or stock of other companies;
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(vii) distribution, dealership, representative,
broker, sales agency, advertising or consulting Contract
pursuant to which in excess of $5,000,000 in annual gross
revenues are recognized by the Company, in the case of any
such Contract with a Person primarily engaged in the software
publishing, distribution or resale business, and $250,000, in
the case of any other such Contract; excepting in each case
any such Contract that is terminable at will, or by giving
notice of 30 days or less, without Liability;
(viii) Lease for the use of real or personal property
with rent in excess of $250,000 per year;
(ix) Contract imposing non-competition or exclusive
dealing obligations on it;
(x) Contract in excess of $250,000 providing for
payments to or by any Person based on sales, purchases, or
profits, other than direct payments for goods;
(xi) Contract for the employment of any Shareholder,
director, officer, consultant or key employee not terminable
without penalty or Liability arising from such termination or
any severance or change-in-control contract or arrangement;
(xii) Contract relating to cleanup, abatement or
other actions in connection with environmental liabilities; or
(xiii) Contract which (A) involves future payment by
or to the Company or the applicable Subsidiary in excess of
$250,000 or (B) is otherwise material to the extent relating
to the conduct of the business of the Company and its
Subsidiaries ((i) through (xiii) collectively, the "Material
Contracts").
(b) Schedule 4.12 sets forth a list of all (i) Material
Contracts, excluding customer contracts entered into in the ordinary
course of business and (ii) all Contracts described in Section
4.12(a)(i) relating to Indebtedness for borrowed money regardless of
whether the amount thereof is in excess of or less than $250,000. Each
Material Contract is valid, binding and enforceable against the Company
or the applicable Subsidiary, and to the Company's Knowledge the other
parties thereto in accordance with its terms (subject to bankruptcy,
insolvency, fraudulent transfer, reorganization, moratorium and similar
laws of general applicability relating to or affecting the rights of
creditors and to general principles of equity), and is in full force
and effect. The Company or the applicable Subsidiary has performed all
material obligations required to be performed by it to date under each
of the Material Contracts. Except as set forth in Schedule 4.12,
neither the Company nor any of its Subsidiaries nor, to the Company's
Knowledge, any other party thereto is in material breach of or default
under any Material Contract (and no event has occurred which, with due
notice or lapse of time or both, would constitute such a lapse or
default).
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(c) For the purposes of this Agreement, the term "Contract"
means, collectively, all contracts, agreements, commitments,
instruments and guaranties to which the Company or any Subsidiary is a
party. For the purposes of this Agreement, the term "Indebtedness"
means (without duplication), with respect to any Person, whether
recourse is to all or a portion of the assets of such Person, (i) the
principal of and premium, if any, in respect of any indebtedness of
such Person for money borrowed, (ii) the principal, premium, if any,
and interest of such Person with respect to obligations evidenced by
bonds, debentures, notes or, except for accrued liabilities arising in
the ordinary course of business, other similar instruments, including
obligations incurred in connection with the acquisition of property,
assets or businesses (other than trade payables which are not overdue
or in default), (iii) all obligations of such Person in respect of
letters of credit or other similar instruments (including reimbursement
obligations with respect thereto) but only to the extent of drawings
thereunder, (iv) every obligation of such Person issued or assumed as
the deferred purchase price of property or services (excluding trade
accounts payable or accrued liabilities arising in the ordinary course
of business which are not overdue or in default), (v) every capital
lease obligation (determined in accordance with GAAP) of such Person,
(vi) all Indebtedness of other Persons secured by a Lien on any asset
of such Person, whether or not such Indebtedness is assumed by such
Person; provided, however, that the amount of such Indebtedness shall
be the lesser of (A) the fair market value of such asset at such date
of determination and (B) the amount of such Indebtedness of such other
Persons, (vii) every obligation to pay rent or other payment amounts of
such Person with respect to any sale-leaseback transaction to which
such Person is a party, payable through the stated maturity of such
sale-leaseback transaction, (viii) factoring arrangements of such
Person, whether or not such arrangements appear on the balance sheet of
such Person; and (ix) every obligation of the type referred to in
clauses (i) through (viii) of another Person the payment of which, in
any case, such Person has guaranteed or is responsible or liable,
directly or indirectly, as obligor, guarantor or otherwise.
SECTION 4.13. INTELLECTUAL PROPERTY.
(a) Except as would not reasonably be expected to have,
individually or in the aggregate, a Prohibited Effect, the Company and
its Subsidiaries own all right, title and interest in and to, or
possess adequate licenses or other valid rights to use (in each case,
free and clear of any Liens), all Intellectual Property used or held
for use in connection with the business of the Company and its
Subsidiaries as currently conducted or as contemplated to be conducted.
(b) Except as would not reasonably be expected to have,
individually or in the aggregate, a Prohibited Effect, the use of any
Intellectual Property by the Company or its Subsidiaries does not
infringe or otherwise violate the rights of any Person and is in
accordance with any applicable license pursuant to which the Company or
any of its Subsidiaries acquired the right to use any Intellectual
Property.
(c) Except as would not reasonably be expected to have,
individually or in the aggregate, a Prohibited Effect, no Person or
Intellectual Property of any Person is
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challenging, infringing or otherwise violating any right of the Company
or any of its Subsidiaries with respect to any Intellectual Property
owned by and/or licensed to the Company or any of its Subsidiaries.
(d) Neither the Company nor any of its Subsidiaries has
received any written notice or, to the Knowledge of the Company, other
notice of any assertion or claim with respect to any Intellectual
Property owned or used by the Company or any of its Subsidiaries other
than as would not reasonably be expected to have, individually or in
the aggregate, a Prohibited Effect.
(e) No Intellectual Property owned or licensed by the Company
or any of its Subsidiaries is being used by the Company or any of its
Subsidiaries in a manner that would result in the cancellation or
unenforceability of such Intellectual Property, nor is the Company or
any of its Subsidiaries failing to use any Intellectual Property in a
manner that would result in the abandonment of such Intellectual
Property, in each case other than as would not reasonably be expected
to have, individually or in the aggregate, a Prohibited Effect. For
purposes of this Agreement, "Intellectual Property" means (i) all
trademarks, trademark rights, trade names, trade name rights, trade
dress and other indications of origin, corporate names, brand names,
logos, certification rights, service marks, applications for trademarks
and for service marks, know-how and other proprietary rights and
information, the goodwill associated with the foregoing and
registration in any jurisdiction of, and applications in any
jurisdictions to register, the foregoing, including any extension,
modification or renewal of any such registration or application; (ii)
all inventions, discoveries and ideas (whether patentable or
unpatentable and whether or not reduced to practice), in any
jurisdiction, all improvements thereto, and all patents, patent rights,
applications for patents (including, without limitation, divisions,
continuations, continuations in part and renewal applications), and any
renewals, extensions or reissues thereof, in any jurisdiction; (iii)
trade secrets, customer lists, know-how, including confidential and
other non-public information, and the right in any jurisdiction to
limit the use or disclosure thereof by any Person (collectively "Trade
Secrets"), (iv) writings and other works, whether copyrightable or not,
in any jurisdiction, and all registrations or applications for
registration of copyrights in any jurisdiction, and any renewals or
extensions thereof; (v) all mask works and all applications,
registrations and renewals in connection therewith, in any
jurisdiction; (vi) all computer software (including data and related
documentation); (vii) Internet Web sites, Web pages, domain names and
applications and registrations pertaining thereto; (viii) any similar
intellectual property or proprietary rights; and (ix) all copies and
tangible documentation thereof and any claims or causes of action
arising out of or relating to any infringement or misappropriation of
any of the foregoing. Schedule 4.13 contains a list of all of the
Company's patent and patent applications and all trademark, copyright
and domain name applications and registrations, including patent
registrations, and the application number (except with respect to
domain names), record owner and jurisdiction as to each.
(f) Except as would not reasonably be expected to have,
individually or in the aggregate, a Prohibited Effect, the Company and
its Subsidiaries have taken all
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reasonable precautions to protect the secrecy, confidentiality, and
value of the Trade Secrets.
(g) No Former Employee or Employee, officer or director of the
Company or any of its Subsidiaries holds any right, title or interest,
directly or indirectly, in whole or in part, in or to any material
Intellectual Property.
(h) The Intellectual Property is sufficient, in all material
respects for the Company and its Subsidiaries to carry on their
business as presently conducted.
SECTION 4.14. LABOR RELATIONS. Except as set forth on Schedule 4.14,
neither the Company nor its Subsidiaries is party to any collective bargaining
agreement covering any individual who performs services as an employee primarily
for the Company or any of its Subsidiaries (including such persons who are on an
approved leave of absence, vacation, short-term disability or otherwise treated
as an active employee of the Company or any of its Subsidiaries, "Employees"),
and there are no controversies or unfair labor practice proceedings pending or,
to the Company's Knowledge, threatened between the Company or any of its
Subsidiaries and any of their current or former Employees or any labor or other
collective bargaining unit representing any current or former Employee of the
Company or any of its Subsidiaries that would reasonably be expected to result
in a labor strike, dispute, slow-down or work stoppage or otherwise have a
Prohibited Effect. To the Company's Knowledge, except as set forth on Schedule
4.14, no organizational effort is presently being made or to the Company's
Knowledge, threatened by or on behalf of any labor union.
SECTION 4.15. EMPLOYEE BENEFITS.
(a) Schedule 4.15 lists all employee benefit plans as defined
in Section 3(3) of the Employee Retirement Income Security Act of 1974,
as amended ("ERISA") and all other employee benefit practices or
arrangements, including, without limitation, any such practices or
arrangements providing severance pay, sick leave, vacation pay, salary
continuation for disability, retirement benefits, deferred
compensation, bonus pay, incentive pay, stock options or other
stock-based compensation, hospitalization insurance, medical insurance,
life insurance, scholarships or tuition reimbursements, maintained by
the Company or any of its Subsidiaries or to which the Company or any
of its Subsidiaries is obligated to contribute for Employees or
individuals other than Employees who at any time prior to the date of
this Agreement performed services as an Employee primarily for the
Company ("Former Employees"). Each of the employee benefit plans,
practices and arrangements set forth on Schedule 4.15 (with the
exception of Foreign Plans, as defined in subsection (j) below) shall
hereafter be referred to as a "Plan" (or "Plans" as the context may
require).
(b) Copies of the following documents, with respect to each of
the Plans, as applicable, have been made available to Parent by the
Company: (i) all plan and related trust documents, and amendments
thereto; (ii) the most recent IRS Form 5500; (iii) the most recent IRS
determination letter; (iv) summary plan descriptions; and (v) the most
recent actuarial report.
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(c) Neither the Company nor any trade or business (whether or
not incorporated) which has been under common control or treated as a
single employer with the Company under Section 414(b), (c) or (m) of
the Code (an "ERISA Affiliate") has incurred, or is reasonably likely
to incur, any Liability under Title IV of ERISA or Section 412 of the
Code and none of the Plans is a Multiemployer Plan, as defined in
Section 3(37) of ERISA. Neither the Company nor any ERISA Affiliate has
incurred any Liability resulting from a complete or partial withdrawal
from any Multiemployer Plan, and none of them has incurred, or is
reasonably likely to incur, any Liability due to the termination or
reorganization of a Multiemployer Plan which has not been satisfied in
full, and to the Company's Knowledge, no event has occurred that would
subject the Company or any ERISA Affiliate to any such liability.
(d) Each Plan has been administered in material compliance
with its terms, and other Legal Requirements including, without
limitation, the provisions of ERISA and the Code, and there are no
material pending or, to Company's Knowledge, threatened claims by, on
behalf of or involving any plan administrator or any plan trustee
(other than routine claims for benefits).
(e) Neither the Company nor any ERISA Affiliate has incurred
any liability for any tax or penalty imposed by Section 4975 of the
Code or Section 502(i) of ERISA with respect to any Plan that has not
been satisfied in full.
(f) Each Plan which is intended to qualify under Section
401(a) of the Code has received an IRS determination letter concluding
that such Plan so qualifies in form, and to the Company's Knowledge, no
event has occurred and no condition exists that could cause such letter
to be revoked.
(g) Except as set forth on Schedule 4.15 or as may be required
under Section 4980B of the Code, or Section 601 of ERISA, neither the
Company nor any of its Subsidiaries has any Liability for
post-retirement medical or life insurance benefits or coverage for any
Employee or Former Employee or any dependent of any such Employee or
Former Employee.
(h) Except as provided in Section 2.2 of this Agreement or as
set forth on Schedule 4.15, the consummation of the Transactions will
not result in any increase in the amount of compensation or benefits or
accelerate the vesting or timing of payment of any compensation or
benefits payable by the Company to or in respect of any Employee or
Former Employee or the beneficiary or dependent of any such Employee or
Former Employee under any Plan or Contract.
(i) Except as set forth on Schedule 4.15, no amount payable by
the Company or any of its Subsidiaries to any Employee or Former
Employee will fail to be deductible for Federal income tax purposes by
reason of Section 162(m) or 280G of the Code.
(j) All employee benefits practices or arrangements which are
maintained by the Company or any of its Subsidiaries for the benefit of
their non-United States Employees or United States Employees located in
a foreign jurisdiction (collectively, the
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"Foreign Plans") have been maintained in all material respects in
accordance with the applicable laws of such foreign jurisdiction, and
all Foreign Plans required to be registered with any Governmental
Agency have been registered and have been maintained in good standing
with such Governmental Agency.
SECTION 4.16. LITIGATION. Except as set forth on Schedule 4.16 there
are no claims, actions, suits, proceedings, labor disputes or investigations
pending or, to the Company's Knowledge threatened, before any Governmental
Agency against the Company or any of its Subsidiaries that (i) challenges the
validity of this Agreement or any action taken or to be taken by the Company or
any of its Subsidiaries pursuant to this Agreement or in connection with the
Transactions, or (ii) individually or in the aggregate, are or would be expected
to be material. There is no material Order or material judgment outstanding
against the Company or any of its Subsidiaries.
SECTION 4.17. ENVIRONMENTAL MATTERS.
(a) For purposes of this Agreement, the term "Environmental
Laws" shall mean all Legal Requirements with respect to the protection
of the public health, safety or the environment, including, without
limitation, with respect to any Hazardous Materials, drinking water,
groundwater, wetlands, landfills, open dumps, storage tanks, solid
waste, or waste water, water, soil, air, pollution, the protection,
preservation or restoration of natural resources, plant and animal life
or human health or the environment, or waste management, regulation or
control, including without limitation the following Legal Requirements:
(i) The Resource Conservation and Recovery Act, 42
U.S.C. Section 6901
(ii) The Comprehensive Environmental Response,
Compensation and Liability Act of 1980, 26 U.S.C. Section
4611; 42 U.S.C. Section 9601 ("Superfund").
(iii) The Superfund Amendments and Reauthorization
Act of 1986.
(iv) The Clean Air Act, 42 U.S.C. Section 7401.
(v) The Clean Water Act, 33 U.S.C. Section 1251.
(vi) The Safe Drinking Water Act, 42 U.S.C. Section
300f.
(vii) The Toxic Substances Control Act, 15 U.S.C.
Section 2601.
(viii) The Hazardous Materials Transportation Act, 49
U.S.C. Section 1801 et seq.
(ix) Applicable state mining laws.
(b) Except as set forth on Schedule 4.17:
-23-
(i) Except for matters which, individually or in the
aggregate, would not reasonably be expected to have a
Prohibited Effect, the Company and its Subsidiaries are and
since April 30, 2001 have been, in compliance with all
Environmental Laws;
(ii) Except for matters which, individually or in the
aggregate, would not reasonably be expected to have a
Prohibited Effect, the Company and its Subsidiaries have no
Liability under any Environmental Law; and
(iii) no written notice, notification, demand,
request for information, Governmental Agency inquiry, demand
letter, notice of violation or alleged violation of,
non-compliance or alleged non-compliance with or any Liability
under, any Environmental Law by or relating to operations or
properties of the Company or any of its Subsidiaries has been
received by or threatened in writing against the Company or
any of its Subsidiaries which has not been resolved or which
is or would be reasonably likely to be material to the Company
and its Subsidiaries, taken a whole.
(c) For purposes of this Agreement, the following terms shall
have the meanings specified below:
(i) "Hazardous Materials" means each and every
element, compound, chemical mixture, pollutant, contaminant,
material, waste or other substance which is defined,
designated, regulated, determined, classified or identified as
hazardous, radioactive, harmful or toxic under any
Environmental Law, or the Release of which is prohibited or
regulated under any Environmental Law, or which to the
Knowledge of the Company could reasonably be expected to
cause, whether now or with the passage of time, damage to
Persons, property, flora, fauna or the environment. Without
limiting the generality of the foregoing, the term shall
include any "toxic substance," "hazardous substance,"
"hazardous waste," or "hazardous material" as defined in any
Environmental Law, and any explosive or radioactive material,
asbestos, asbestos-containing material, waste water, sludge,
untreated dye, other effluent, coal ash, polychlorinated
biphenyls, special waste, petroleum or any derivative or
byproduct thereof, and toxic waste.
(ii) "Release" means any spilling, leaking, pumping,
releasing, depositing, pouring, emitting, emptying, migrating,
discharging, injecting, storing, escaping, leaching, dumping,
burying, abandoning, disposing or moving into the environment.
SECTION 4.18. TAX MATTERS.
(a) Except as set forth in Schedule 4.18, (i) the Company and
its Subsidiaries have timely filed with the appropriate Taxing
Authority all material Tax Returns required to be filed by or with
respect to the Company, its Subsidiaries or their operations or assets,
and such Tax Returns are true, correct and complete in all material
respects; (ii) all material Taxes due with respect to taxable years for
which the Company's and its
-24-
Subsidiaries' Tax Returns were filed, all material Taxes required to be
paid on an estimated or installment basis, and all material Taxes
required to be withheld with respect to the Company or any of its
Subsidiaries or their Employees, operations or assets have been timely
paid or, if applicable, withheld and paid to the appropriate Taxing
Authority in the manner provided by Legal Requirements; (iii) the
reserve for Taxes set forth on the balance sheet of the Company as of
January 31, 2002 is adequate for the payment of all material Taxes
through the date thereof and no material Taxes have been incurred after
January 31, 2002 which were not incurred in the ordinary course of
business; (iv) there are no Liens (other than Permitted Liens) for
Taxes upon the assets of the Company or any of its Subsidiaries; (v) no
federal, state, local or foreign audits, administrative proceedings or
court proceedings are pending with regard to any material Taxes or
material Tax Returns of the Company or any of its Subsidiaries and
there are no outstanding deficiencies or assessments asserted or
proposed, and any such proceedings, deficiencies or assessments shown
in Schedule 4.18 are being contested in good faith through appropriate
proceedings diligently conducted and the Company has made or will make
available to Purchaser copies of all revenue agent reports (or similar
reports) and related schedules relating to pending income tax audits of
the Company or any of its Subsidiaries; (vi) there are no outstanding
agreements, consents or waivers extending the statutory periods of
limitation applicable to the assessment of any material Taxes or
deficiencies against the Company or any of its Subsidiaries, or with
respect to their operations or assets; (vii) the federal income Tax
Returns of the Company and its Subsidiaries have been examined by the
Internal Revenue Service (or the applicable statutes of limitation for
the assessment of federal income Taxes for such periods have expired)
for all periods through and including April 30, 1999; (viii) the
Company and its Subsidiaries will not be required to include any
material item of income in, or exclude any material item of deduction
from, taxable income for any taxable period (or portion thereof) ending
after the Closing Date as a result of any (x) change in method of
accounting for a taxable period ending on or prior to the Closing Date,
or (y) "closing agreement," as described in Section 7121 of the Code
(or any corresponding provision of state, local or foreign income Tax
law), entered into on or prior to the Closing Date, or (z) any ruling
received from the Internal Revenue Service; (ix) neither the Company or
any of its Subsidiaries has filed a consent to the application of
Section 341(f) of the Code; and (x) the Company is not and has not been
a United States real property holding company (as defined in Section
897(c)(2) of the Code) during the applicable period specified in
Section 897(c)(1)(A)(ii) of the Code.
(b) "Code" means the Internal Revenue Code of 1986, as
amended.
(c) "Taxes" means all federal, state, local and foreign taxes,
including, without limitation, income, gross income, gross receipts,
unincorporated business, production, excise, employment, sales, use,
transfer, ad valorem, profits, license, capital stock, franchise,
severance, stamp, withholding, social security, employment,
unemployment, disability, worker's compensation, payroll, utility,
windfall profit, custom duties, personal property, real property,
registration, alternative or add-on minimum, estimated and other taxes,
governmental fees or like charges of any kind whatsoever, including any
interest, penalties or additions thereto, imposed by any Governmental
-25-
Agency ("Taxing Authority") whether disputed or not; and "Tax" shall
mean any one of them.
(d) "Tax Return" means any report, return, information return,
filing, claim for refund or other information, including any schedules,
exhibits or attachments thereto, and any amendments to any of the
foregoing required to be filed or maintained in connection with the
calculation, determination, assessment or collection of any Taxes
(including estimated Taxes).
SECTION 4.19. BROKERS. Except for the financial advisory fees set forth
on Schedule 4.19, neither the Company nor any of its Subsidiaries nor any of
their respective officers or directors on behalf of the Company or any such
Subsidiary has employed any financial advisor, broker or finder or incurred any
liability for any financial advisory fee, broker's fees, commissions or finder's
fees in connection with any of the Transactions.
SECTION 4.20. BOOKS AND RECORDS OF THE COMPANY. The books of account,
minute books, stock record books, and other records of the Company and each of
its Subsidiaries, all of which have been made available to Parent, are complete
and correct in all material respects, accurately reflect in all material
respects the transactions to which the Company or such Subsidiary is a party or
by which its properties are bound in accordance with GAAP and have been
maintained in all material respects in accordance with sound business practices
(and, with respect to the books and records of the Company, the requirements of
Section 13(b)(2) of the Exchange Act), including the maintenance of an adequate
system of internal controls. The minute books of the Company and each of its
Subsidiaries contain accurate and materially complete records of meetings held
of, and corporate action taken by, their respective shareholders, boards of
directors, and committees of such boards of directors.
SECTION 4.21. CUSTOMERS AND SUPPLIERS. For the twelve calendar months
ended March 31, 2002, there were no customers of the Company or any of its
Subsidiaries whose purchases from the Company and its Subsidiaries together
constituted greater than 5% of the Company's consolidated revenue (or in the
case of customers with respect to which the Company receives a commission from
the publisher, greater than 5% of the Company's consolidated gross profit for
such twelve-month period). Schedule 4.21 lists each of the Company's vendors,
suppliers and publishers, the sale of whose product constituted greater than 7%
of the Company's consolidated revenue for the twelve calendar months ended March
31, 2002 (or in the case of customers with respect to which the Company receives
a commission from the publisher, the consolidated gross profit for such twelve
month period) (each a "Major Supplier") and the amount of consolidated revenue
(or consolidated gross profit, as applicable) attributable to each Major
Supplier during such twelve-month period. As of the date of this Agreement,
neither the Company nor any of its Subsidiaries is engaged in any material
dispute with any Major Supplier or since January 31, 2002, has received notice
from a Major Supplier that it intends to materially alter its relationship with
the Company or any of its Subsidiaries in a manner that would be materially
adverse to the Company and its Subsidiaries taken as a whole.
SECTION 4.22. CERTAIN PAYMENTS. Since April 30, 2001, neither the
Company nor any of its Subsidiaries nor any of their respective directors,
officers or, to the Company's Knowledge, agents, Employees, Former Employees or,
any other Person associated with or
-26-
acting for or on behalf of the Company or any such Subsidiary, has directly or
indirectly (a) made any contribution, gift, bribe, rebate, payoff, influence
payment, kickback, or other payment to any Person, private or public, regardless
of form, whether in money, property, or services (i) to obtain favorable
treatment in securing business, (ii) to pay for favorable treatment for business
secured, (iii) to obtain special concessions or for special concessions already
obtained, for or in respect of the Company or any of its Subsidiaries, or (iv)
in violation of any Legal Requirement, provided that the foregoing clauses
(a)(i), (ii) and (iii) shall not be deemed to include any ordinary course
activities customarily engaged in by sales personnel in the applicable
jurisdictions in which the Company or the applicable Subsidiary operates that
comply with all applicable Legal Requirements, or (b) established or maintained
any fund or asset that has not been recorded in the books and records of the
Company.
SECTION 4.23. PROXY STATEMENT. The Proxy Statement to be sent to the
Shareholders in connection with the Special Meeting, and any other schedule or
document required to be filed by the Company in connection with the Merger, will
comply as to form in all material respects with the applicable requirements of
the Exchange Act and the rules and regulations thereunder, except that no
representation or warranty is being made by the Company with respect to
statements made therein based on information supplied by Parent or Purchaser
specifically for inclusion therein. The Proxy Statement will not, at the time
the Proxy Statement (or any amendment or supplement thereto) is filed with the
Commission or first sent to Shareholders, at the time of the Special Meeting or
at the Effective Time, 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
were made, not misleading. Notwithstanding the foregoing, the Company does not
make any representation or warranty with respect to any information that has
been supplied by Parent, Purchaser or their accountants, counsel or other
authorized representatives specifically for use in any of the foregoing
documents.
SECTION 4.24. STATE TAKEOVER STATUTES INAPPLICABLE. The Board of
Directors has approved the transactions to be effected in accordance with this
Agreement pursuant to Article 13.03A(1) of the TBCA, and determined that such
approval satisfies the requirements of Article 13.03A(1) of the TBCA and, as a
result, renders the other provisions of Article 13.03 of the TBCA inapplicable
to the Transactions and to the Subsequent Transactions.
SECTION 4.25. STATEMENTS TRUE AND CORRECT. None of the information
supplied or to be supplied by the Company or any of its Subsidiaries to any
Governmental Agency in connection with the transactions contemplated hereby
will, at the respective time such documents are supplied, be false or misleading
with respect to any material fact, or omit to state any material fact necessary
to make the statements therein, in light of the circumstances under which they
were made, not misleading, or omit to state any material fact necessary to
correct any statement in any earlier communication to any Governmental Agency.
For purposes of this Agreement, "Governmental Agency" means (a) any
international, foreign, federal, state, county, local or municipal government or
administrative agency or political subdivision thereof, (b) any governmental
agency, authority, board, bureau, commission, department or instrumentality, (c)
any court or administrative tribunal, (d) any non-governmental agency, tribunal
or entity that is
-27-
vested by a governmental agency with applicable jurisdiction, or (e) any
arbitration tribunal or other non-governmental authority with applicable
jurisdiction.
ARTICLE V.
REPRESENTATIONS AND WARRANTIES OF PARENT AND PURCHASER
Parent and Purchaser, jointly and severally, represent and warrant to
the Company as of the date of this Agreement as follows:
SECTION 5.1. ORGANIZATION, STANDING AND POWER. Each of Parent and
Purchaser is a corporation duly organized, validly existing and in good standing
under the laws of its respective jurisdiction of incorporation, has all
requisite power and authority to own, lease and operate its properties and to
carry on its business as now being conducted, and is duly qualified to do
business as a foreign corporation and in good standing to conduct business in
each jurisdiction in which the business it is conducting, or the operation,
ownership or leasing of its properties, makes such qualification necessary,
other than in such jurisdictions where the failure so to qualify would not
reasonably be expected to have a material adverse effect on Parent and its
subsidiaries taken as a whole.
SECTION 5.2. AUTHORITY; NO VIOLATIONS; CONSENTS AND APPROVALS.
(a) Each of Parent and Purchaser has the requisite corporate
power and authority to execute and deliver the Transaction Documents
and consummate the Transactions.
(b) The execution and delivery of the Transaction Documents by
each of Parent and Purchaser and the consummation by the each of Parent
and Purchaser of the Transactions have been duly and validly authorized
by their respective board of directors, and by the sole stockholder of
Purchaser, and no other corporate proceedings on the part of each of
Parent and Purchaser are necessary to authorize the Transaction
Documents or to consummate the Transactions.
(c) This Agreement has been, and any other Transaction
Document at the time of its execution will have been, duly and validly
executed and delivered by each of Parent and Purchaser, and (assuming
this Agreement and such Transaction Documents each constitute a valid
and binding obligation of the Company) this Agreement constitutes, and
each such other Transaction Document at the time of execution will
constitute, the valid and binding obligations of each of Parent and
Purchaser, enforceable in accordance with their respective terms,
subject to bankruptcy, insolvency, fraudulent transfer, reorganization,
moratorium and similar laws of general applicability relating to or
affecting the rights of creditors and to general principles of equity.
(d) The execution and delivery of the Transaction Documents
and the consummation of the Transactions by each of Parent and
Purchaser will not (i) violate, conflict with or result in any breach
of any provision of the Certificate or Certificates of Incorporation or
Bylaws of Parent or Purchaser, (ii) conflict with or result in a
violation
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or breach of, or constitute a default (with or without due notice or
lapse of time or both) under the terms, conditions or provisions of any
note, bond, mortgage, indenture or deed of trust, or any license, lease
or agreement to which Parent or Purchaser is a party or to which any of
their assets is subject, or (iii) violate any Order or Legal
Requirements applicable to Parent or Purchaser, except with respect to
clauses (ii) or (iii) such defaults and violations which, individually
or in the aggregate, would not reasonably be expected to have a
material adverse effect on the ability of Parent or Purchaser to
consummate the Transactions.
(e) No consent, approval, order or authorization of, or
registration, declaration or filing with, notice to, or permit from any
Governmental Agency, is required by or with respect to Parent, or
Purchaser in connection with the execution and delivery of this
Agreement by each of Parent and Purchaser or the consummation by each
of Parent or Purchaser of any of the Transactions, except for: (A)
filings under the ▇▇▇▇-▇▇▇▇▇-▇▇▇▇▇▇ Antitrust Improvements Act of 1976,
as amended (the "HSR Act") and any filings required to be made with any
foreign antitrust authorities; (B) the filing of the Certificates of
Merger with the Secretary of State of the States of Delaware and Texas;
(C) such filings and approvals as may be required by any applicable
federal or state securities laws; and (D) such other consents,
approvals, orders, authorizations, registrations, declarations,
filings, notices or permits the failure of which to be obtained or made
would not reasonably be expected to have a material adverse effect on
the ability of Parent and Purchaser to consummate the Transactions.
SECTION 5.3. LITIGATION. There are no actions, causes of action,
claims, suits, proceedings or Orders pending or, to the Knowledge of Parent,
threatened against Parent at law, in equity, in admiralty or otherwise, or
before or by any Governmental Agency, which (i) seeks to restrain or enjoin the
consummation of the Transactions or (ii) would reasonably be expected to have a
material adverse effect on Parent and its Subsidiaries, taken as a whole, or the
ability of Parent or Purchaser to consummate the Transactions.
SECTION 5.4. PROXY STATEMENT. None of the information supplied by
Parent, Purchaser or any Affiliate of Parent or Purchaser specifically for
inclusion in the Proxy Statement, or in any amendments thereof or supplements
thereto, will, on the date the Proxy Statement is first mailed to Shareholders,
at the time of the Special Meeting or at the Effective Time, contain any
statement which, at such time and in light of the circumstances under which it
will be made, will be false or misleading with respect to any material fact, or
will omit to state any material fact necessary in order to make the statements
therein not false or misleading or necessary to correct any statement in any
earlier communication with respect to the solicitation of proxies for the
Special Meeting which has become false or misleading.
SECTION 5.5. OWNERSHIP OF COMPANY SHARES. To the Knowledge of Parent,
none of Parent, Purchaser or any of their respective controlled Affiliates
beneficially owns more than 100 shares of Common Stock in the aggregate.
SECTION 5.6. NO PRIOR ACTIVITIES; ASSETS OF PURCHASER. Purchaser was
formed solely for the purpose of the Merger and engaging in the other
Transactions. As of the date of this Agreement and the Effective Time, except
for (A) obligations or liabilities incurred in
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connection with its incorporation or organization, (B) the Transactions and
activities, agreements or arrangements in connection with the Transactions, and
(C) activities, agreements, arrangements, obligations and liabilities in
connection with Purchaser being a guarantor under Parent's senior credit
facility, Purchaser has not and will not have (i) incurred, directly or
indirectly through any of its Subsidiaries or Affiliates, any material
obligations or liabilities, (ii) engaged in any business or activities of any
type or kind whatsoever or (iii) entered into any material agreements or
arrangements with any Person.
SECTION 5.7. STATEMENTS TRUE AND CORRECT. None of the information
(including this Agreement) supplied or to be supplied by Parent or Purchaser to
any Governmental Agency connection with the Transactions will, at the respective
time such documents are supplied, be false or misleading with respect to any
material fact, or omit to state any material fact necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading, or omit to state any material fact necessary to correct any
statement in any earlier communication to any Governmental Agency.
SECTION 5.8. BROKERS. Neither Parent nor Purchaser nor any of their
respective officers or directors on behalf of Parent or Purchaser has employed
any financial advisor, broker or finder in a manner that would result in any
liability of the Company for any broker's fees, commissions or finder's fees in
connection with any of the Transactions or that would result in any reduction of
the consideration payable to the Shareholders.
SECTION 5.9. FINANCING. Parent has or has available to it and, subject
to the terms and conditions herein, will make available to Purchaser, all funds
necessary to consummate all of the Transactions and pay the related fees and
expenses of Parent and Purchaser.
ARTICLE VI.
CONDUCT OF BUSINESS PENDING THE MERGER
SECTION 6.1. CONDUCT OF BUSINESS BY THE COMPANY PENDING THE MERGER.
Except as set forth in Schedule 6.1 or as provided for in this Agreement, during
the period from the date of this Agreement to the earliest to occur of the date
of termination of this Agreement, or the Effective Time, unless Parent shall
otherwise agree in writing:
(a) the Company shall, and shall cause each of its
Subsidiaries to, conduct its business in all material respects in the
ordinary and usual course in substantially the same manner as
previously conducted and in compliance with all applicable Legal
Requirements and, to the extent consistent therewith, shall use its
reasonable best efforts to preserve its business organization intact in
all material respects, to keep available generally the services of its
present officers and employees and to maintain in all material respects
its existing relations with customers, suppliers, creditors and
business partners and other Persons having business dealings with it;
(b) the Company shall not, directly or indirectly, amend or
propose to amend its or any of its Subsidiaries' certificate of
incorporation or bylaws or similar organizational documents;
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(c) the Company shall not, and it shall not permit its
Subsidiaries to: (i) (A) declare, set aside or pay any dividend or
other distribution payable in cash, stock or property with respect to
the Company's capital stock or that of its Subsidiaries, other than
dividends and distributions by a direct or indirect wholly owned
Subsidiary to its parent, or (B) redeem, purchase or otherwise acquire
directly or indirectly any of the Company's capital stock (or options,
warrants, calls, commitments or rights of any kind to acquire any
shares of capital stock) or that of its Subsidiaries; (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
Common Stock issued upon the exercise of Options listed on Schedule
4.5; (iii) split, combine or reclassify the outstanding capital stock
of the Company or of its Subsidiaries; (iv) make any loan or advance
to, or payment (including with respect to outstanding Indebtedness) for
the benefit of, any direct or indirect beneficial owner of any Common
Stock or Options, other than payment of salary and benefits to
Employees, in the ordinary course of business, consistent with past
practice, and advances permitted under Section 6.1(e)), or (v) enter
into or effect any transaction with any Affiliate of or advisor to the
Company in which the cash value (measured on a transaction by
transaction basis) of the goods or services received by the Company or
such Subsidiary is less than the greater of (x) the amount which the
Company or the applicable Subsidiary would have had to pay in a
comparable transaction with a Third Party entered into on an
arm's-length basis, or (y) the cash value of the goods and services
paid by the Company or such Subsidiary in such transaction.
(d) the Company shall not, and it shall not permit its
Subsidiaries to, acquire or agree to acquire, or dispose of or agree to
dispose of, any material assets, either by purchase, merger,
consolidation, sale of shares in any of its Subsidiaries or otherwise,
except for (v) the acquisition of furniture, equipment and other
property in the ordinary course of business in an aggregate amount not
to exceed $500,000, (w) purchases of software for resale in the
ordinary course of business, consistent with past practice, (x)
purchases and sales of inventory in the ordinary course of business,
consistent with past practice, (y) sales of obsolete equipment in the
ordinary course of business, in an aggregate amount not to exceed
$50,000, and (z) sales of excess equipment in an amount in any single
transaction or series of related transactions, not to exceed $100,000;
(e) neither the Company nor its Subsidiaries shall: (i) grant
any bonuses or special compensation or any increase in the compensation
payable or to become payable by the Company or any of its Subsidiaries
to any of its officers, directors or key employees, except (x) in the
case of key employees who are not officers or directors, increases in
the ordinary course of business, or (y) pursuant to contracts or plans
in effect as of the date of this Agreement; or (ii) make or agree to
make any accrual or arrangement for or payment of bonuses or special
compensation of any kind to any Employee whose compensation is
determined other than by multiplying the number of hours worked by an
hourly rate (a "Salaried Employee"), or general increase in the salary
or bonus payable or to become payable by the Company or any of its
Subsidiaries to any Employee other than Salaried Employees (other than
increases granted to individual
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employees for merit, length of service, change in position or
responsibility or other reasons applicable to specific Employees and
not generally to a class or group thereof); or (iii) (A) adopt any new,
(B) except as may be required by applicable Legal Requirements or the
terms of any Plan, grant any award under, or (C) except as required by
applicable Legal Requirements or the terms of any Plan as in effect on
the date of this Agreement, amend or otherwise increase, or accelerate
the payment or vesting of the amounts payable or to become payable
under, any existing Plan; or (iv) enter into or modify or amend any
employment or severance agreement with or, except as required by
applicable Legal Requirements or the terms of any Plan as in effect on
the date of this Agreement and listed on Schedule 6.1, grant any
severance or termination rights to any officer, director or employee of
the Company or any of its Subsidiaries; or (v) enter into any
collective bargaining agreement, or (vi) except as may be required by
applicable Legal Requirements or the terms of any Plan as in effect on
the date of this Agreement, make any loan to, any director, executive
officer or employee of the Company other than advances permitted under
Section 6.1(g)(D)(2);
(f) neither the Company nor any of its Subsidiaries shall
modify, amend or terminate in any material respect, any Material
Contract or waive, release or assign any material rights or claims
thereunder, except for modifications, amendments, terminations,
waivers, releases or assignments that do not materially increase the
financial commitment of or burden on the Company or any of its
Subsidiaries under such Material Contract or the duration of the
obligations of the Company or any of its Subsidiaries thereunder;
(g) neither the Company nor any of its Subsidiaries shall: (A)
incur, become subject to or assume or agree to incur, become subject to
or assume any material Liability (other than as expressly permitted by
Section 6.1(f)) or Indebtedness other than Indebtedness with respect to
working capital in amounts consistent with past practice; (B)
materially modify any Indebtedness or other material Liability (other
than as expressly permitted by Section 6.1(f)); (C) assume, guarantee,
endorse or otherwise become liable or responsible (whether directly,
contingently or otherwise) for the obligations of any other Person
(other than a Subsidiary of the Company), other than immaterial amounts
in the ordinary course of business, and other than the endorsement of
negotiable instruments for collection in the ordinary course of
business; or (D) make any loans, advances or capital contributions to,
or investments in, any other Person (other than to (1) wholly owned
Subsidiaries of the Company or (2) customary advances to Employees in
accordance with past practice and in an individual amount not in excess
of $2,500 for any individual or $25,000 in the aggregate);
(h) neither the Company nor any of its Subsidiaries shall
change any of the accounting methods, practices or policies used by it,
unless required by generally accepted accounting principles or rules
and regulations of the Commission;
(i) the Company and its Subsidiaries shall not make or agree
to make any single capital expenditure in excess of $150,000 or capital
expenditures in excess of $500,000 in the aggregate;
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(j) the Company shall not, and it shall not permit its
Subsidiaries to, make or change any material election related to Taxes
(unless required by law) or settle or compromise any material Liability
related to Taxes;
(k) the Company shall not, and it shall not permit its
Subsidiaries to, (i) waive the benefits of, or agree to modify in any
material manner, any confidentiality, standstill or similar agreement
to which the Company or any of its Subsidiaries is a party, or (ii)
pay, discharge or satisfy any proceeding, other than a payment,
discharge or satisfaction (A) involving payments by the Company or its
Subsidiaries of less than $100,000, or (B) for which liabilities are
reflected on or are reserved against in the Balance Sheet, but not to
exceed the reserve therefor, in each case in complete satisfaction, and
with a complete release, of such matter with respect to all parties to
such matter, of actions, suits, proceedings or claims;
(l) the Company shall not, and it shall not permit its
Subsidiaries to, make any payments or incur any Liability or obligation
for the purpose of obtaining any consent from any third party to the
Transactions, other than (i) filing fees paid to Governmental Agencies
in connection with the Transactions and (ii) payments not in excess of
$10,000 in the aggregate;
(m) the Company shall keep in full force and effect insurance
comparable in amount and scope to coverage maintained by it (or on
behalf of it) on the date of this Agreement;
(n) the Company shall not incur, and shall not permit any of
its Subsidiaries to incur any Lien on any of their assets other than
Permitted Liens;
(o) the Company shall not take any action that would
reasonably be expected to cause any of the representations and
warranties made by the Company in this Agreement not to remain
materially true and materially correct; and
(p) neither the Company nor any of its Subsidiaries shall
enter into an agreement, contract, commitment or arrangement to do any
of the foregoing, or to authorize, recommend, propose or announce an
intention to do any of the foregoing.
SECTION 6.2. NO SOLICITATION.
(a) The Company shall, and shall cause its Subsidiaries,
officers, directors, employees, counsel, investment bankers, financial
advisers, accountants, other representatives and agents (collectively,
the "Company Representatives") to immediately as of the date of this
Agreement cease any discussions or negotiations with any Persons that
may be ongoing with respect to a Takeover Proposal. The Company shall
not, and shall not authorize or permit any Company Representative to,
(i) solicit, initiate or encourage, directly or indirectly (including
by way of furnishing information), or take any other action to
facilitate, any inquiries or the making of any proposal which
constitutes, or may reasonably be expected to lead to, any Takeover
Proposal; (ii) participate in any discussions or negotiations regarding
any Takeover Proposal; or (iii)
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enter into any agreement with respect to any Takeover Proposal;
provided, however, that, if at any time prior to the Effective Time,
the Board of Directors determines in good faith, after consultation
with its outside legal counsel, that it is necessary to do so in order
to comply with its fiduciary duties under applicable Legal
Requirements, the Company may, in response to an unsolicited bona fide
Superior Proposal, and subject to compliance with Section 6.2(b), (x)
furnish information concerning its business, properties or assets to
any Person pursuant to a confidentiality agreement with terms and
conditions similar to the Confidentiality Agreement, dated April 9,
2002 (the "Confidentiality Agreement") between the Company and Parent
(provided that such confidentiality agreement may not include any
provision granting any such Person an exclusive right to negotiate with
the Company) and (y) participate in negotiations regarding such
Superior Proposal. Without limiting the foregoing, it is understood
that any violation of the restrictions set forth in the preceding
sentence by any Company Representative shall be deemed to be a breach
of this Section 6.2(a) by the Company. The Company shall not release
any Third Party from, or waive any provision of, any such
confidentiality agreement or any other similar confidentiality or
standstill agreement to which the Company is a party. "Third Party"
means any Person or group other than Parent, Purchaser or any Affiliate
thereof.
(b) In addition to the obligations of the Company set forth in
paragraph (a) of this Section 6.2, the Company shall promptly advise
Parent orally and in writing of any request for information, proposal,
discussion, negotiation or inquiry received after the date of this
Agreement in connection with any Takeover Proposal and the Company will
promptly (but in any event within one Business Day) communicate to
Parent the material terms and conditions of any such proposal,
discussion, negotiation or inquiry which it may receive (and will
promptly provide to Parent copies of any written materials received by
the Company in connection with such proposal, discussion, negotiation
or inquiry) and the identity of the Person making such proposal or
inquiry or engaging in such discussions or negotiation. The Company
will promptly provide to Parent any non-public information concerning
the Company or any of its Subsidiaries provided to any other Person
which was not previously provided to Parent. The Company will keep
Parent informed of the status and material details (including
amendments or proposed amendments) of any such Takeover Proposal.
(c) If the Board of Directors or any committee thereof
intends: (i) to approve or recommend, or propose to approve or
recommend, any Superior Proposal; or (ii) to cause the Company to enter
into any agreement with respect to any Superior Proposal (other than
any confidentiality agreement as contemplated by Section 6.2(a)), (a
"Competing Agreement"), then at least five Business Days prior to
taking such action: (A) the Company shall provide Parent with written
notice advising Parent that the Board of Directors has received a
Superior Proposal that it intends to accept, specifying the material
terms and conditions of such Superior Proposal and identifying the
Person or Persons making such Superior Proposal, and (B) the Company
shall, and shall cause its financial and legal advisors to, negotiate
in good faith with Parent to make such adjustments in the terms and
conditions of this Agreement as would enable the Company to proceed
with the Transactions on such adjusted terms. If following the
completion of such five Business Day period the Company and Parent have
been unable to agree upon
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such adjustment in the terms and conditions of this Agreement as would
enable the Company to proceed with the Transactions, then, after
compliance with the Escrow Procedures, the Board of Directors or any
committee thereof may: (i) approve or recommend, or propose to approve
or recommend, such Superior Proposal; or (ii) cause the Company to
enter into a Competing Agreement with respect to such Superior
Proposal. So long as any Competing Agreement expressly provides that
the existence of this Agreement, the performance by the Company of its
obligations hereunder and the consummation of the Transactions shall
not constitute a breach or default under the Competing Agreement, then
the existence of the Competing Agreement and the performance by the
Company of its obligations thereunder relating to the Superior
Proposal, the consummation of the Superior Proposal and the amendment
of the Rights Plan in connection with the Competing Agreement shall not
be deemed to be a breach or default under this Agreement. Subject to
compliance with the Escrow Procedures, if required by the second
preceding sentence, nothing contained in this Section 6.2 shall
prohibit the Company or the Board of Directors from taking and
disclosing to the Shareholders a position contemplated by Rule 14e-2(a)
promulgated under the Exchange Act.
(d) "Takeover Proposal" means any inquiry, proposal or offer
from any Third Party, whether in writing or otherwise, relating to any
"Alternative Transaction", which is defined as any one of the following
transactions with or by a Third Party: (A) merger, consolidation or
similar transaction involving the Company, (B) sale, lease or other
disposition directly or indirectly by merger, consolidation, tender
offer, share exchange or otherwise of assets of the Company or its
Subsidiaries representing 10% or more of the consolidated assets of the
Company and its Subsidiaries, (C) issue, sale, or other disposition of
(including by way of merger, consolidation, tender offer, share
exchange or any similar transaction) securities (or options, rights or
warrants to purchase, or securities convertible into, such securities)
representing 10% or more of the voting power of the Company or (D)
transaction in which any Person shall acquire beneficial ownership (as
such term is defined in Rule 13d-3 under the Exchange Act), or the
right to acquire beneficial ownership or any "group" (as such term is
defined under the Exchange Act) shall have been formed which
beneficially owns or has the right to acquire beneficial ownership of
15% or more of the outstanding Common Stock, in each case for avoidance
of doubt, other than the transactions with Parent contemplated by this
Agreement, and except for any Person that beneficially owns more than
15% of the outstanding Common Stock as of the date of this Agreement,
unless such Person's beneficial ownership increases by more than 1% of
the outstanding Common Stock; provided that the term "Alternative
Transaction" shall not include sales of products and services in the
ordinary course of business, and following termination of this
Agreement, shall not include any acquisition of securities by an
underwriter or broker-dealer in connection with a bona fide public
offering of such securities.
(e) "Superior Proposal" means any bona fide written offer for
an Alternative Transaction (i) by a Third Party that the Board of
Directors determines in its good faith judgment has the good faith
intent to proceed with negotiations, (ii) for all outstanding shares of
Common Stock, (iii) that would provide the Shareholders the right to
receive a
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higher per share consideration than the Per Share Amount, payable in
cash or marketable securities, (iv) on terms which the Board of
Directors determines in its good faith judgment (after consultation
with a financial advisor of nationally recognized reputation) are more
favorable to the Shareholders than the Merger from a financial point of
view and (v) that the Board of Directors determines in good faith
judgment is reasonably capable of being completed, taking into account
all financial, regulatory, legal and other aspects of such proposal.
(f) "Escrow Procedures" means that the Company shall have
performed the following:
(i) the Company shall have entered into an escrow
agreement, in form and substance reasonably satisfactory to
Parent, with an escrow agent reasonably satisfactory to
Parent, providing for among other things: (A) the deposit into
the escrow account by the Company of $6 million, (B) the
release of such escrowed funds to Parent, to the extent Parent
is entitled thereto pursuant to Section 9.3, upon notice from
Parent to the escrow agent that Parent has terminated this
Agreement pursuant to Section 9.1(e)(ii)(A) or (B)(x), and (C)
the release of such funds to the Company (or its designee) or
Parent to the extent Parent is entitled thereto pursuant to
Section 9.3, upon evidence reasonably satisfactory to the
escrow agent of the termination of this Agreement pursuant to
any other provision of this Agreement.
(ii) the Company shall have deposited $6 million with
the escrow agent.
SECTION 6.3. RIGHTS AGREEMENT. Except for the amendments contemplated
by Section 3.1(c) hereof or amendments approved in writing by Parent or
Purchaser, the Company shall not, from and after the date of this Agreement,
amend the Rights Agreement in any manner. In addition the Company covenants and
agrees that it shall not redeem the Rights unless such redemption is consented
to in writing by Parent prior to such redemption or unless it is ordered to do
so by a court of competent jurisdiction.
SECTION 6.4. ACCESS AND INFORMATION. From the date of this Agreement to
the Effective Time, the Company and its Subsidiaries shall (a) afford to Parent
and Purchaser and their accountants, counsel and other representatives
reasonable access at all reasonable times (and at such other times as the
parties may mutually agree) and upon reasonable notice to all of their
properties, books, contracts, commitments, records and personnel, and (b) during
such period, furnish promptly to Parent and Purchaser (i) a copy of each report,
schedule and other document filed or received by it or any of its Subsidiaries
pursuant to the requirements of federal or state securities laws, and (ii) all
other information concerning its business, properties and personnel as Parent
may reasonably request. Nothing in this Section 6.4 shall require the Company to
provide access to or disclose information where such access or disclosure would
conflict with applicable laws or result in the loss of any attorney-client
privilege; provided that, with respect to any such information subject to
attorney-client privilege, the Company shall use all reasonable efforts to
disclose or provide access to such information or to substantively equivalent or
similar information in a manner that will not result in the loss of such
privilege.
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Parent shall hold, and shall cause its employees and agents to hold, in
confidence all such information in accordance with the terms of the
Confidentiality Agreement.
SECTION 6.5. NOTIFICATION OF CERTAIN MATTERS.
(a) The Company shall give prompt notice to Parent of (i) the
occurrence, or non-occurrence of any event whose occurrence, or
non-occurrence would be likely to cause either (A) any representation
or warranty of the Company contained in this Agreement to be materially
untrue or inaccurate at any time from the date of this Agreement to the
Effective Time or (B) any condition set forth in Article VIII to be
unsatisfied in any material respect at any time from the date of this
Agreement to the Closing Date and (ii) any failure of the Company, or
any of its officers, directors, employees or agents, 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 6.5(a) shall not limit or otherwise
affect the remedies available hereunder to Parent.
(b) Parent shall give prompt notice to the Company of (i) the
occurrence, or non-occurrence of any event whose occurrence, or
non-occurrence would be likely to cause any representation or warranty
of Parent and Purchaser contained in this Agreement to be materially
untrue or inaccurate at any time from the date of this Agreement to the
Effective Time or (ii) any action, proceeding, injunction or other
order, decree, judgment or ruling by a court of competent jurisdiction
or by a governmental, regulatory or administrative agency or commission
of competent jurisdiction applicable to Purchaser, but not to the
Company, in connection with the Merger and the Transactions and (iii)
any failure of Parent or Purchaser, or any of their respective
officers, directors, employees or agents, 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 6.5(b) shall not limit or otherwise affect the remedies
available hereunder to the Company.
SECTION 6.6. EMPLOYEE STOCK PURCHASE PLAN. From and after the date of
this Agreement, no further purchases of Common Stock shall occur under the
Company's Second Amended and Restated Employee Stock Purchase Plan (the
"Employee Stock Purchase Plan") nor shall any issuances of rights to purchase
shares of Common Stock be granted thereunder, except for purchases made with
payroll deductions taken prior to the date of this Agreement.
ARTICLE VII.
ADDITIONAL AGREEMENTS
SECTION 7.1. INDEMNIFICATION OF COMPANY OFFICERS AND DIRECTORS.
(a) The Company shall, to the fullest extent permitted under
applicable law and regardless of whether the Merger is consummated,
indemnify, defend and hold harmless, and after the Effective Time, the
Surviving Corporation shall, to the fullest extent permitted under
applicable law, indemnify, defend and hold harmless, the present
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and former officers and directors of the Company or any of its
Subsidiaries (collectively, the "Indemnified Parties"), from and
against, and pay or reimburse the Indemnified Parties for, all losses,
obligations, expenses, claims (and involving claims by or in the right
of the Company), damages or liabilities resulting from third-party
claims and including interest, penalties, out-of-pocket expenses and
attorneys' fees incurred in the investigation or defense of any of the
same or in asserting any of their rights hereunder resulting from or
arising out of actions or omissions of such Indemnified Parties as
officers or directors of the Company or any of its Subsidiaries
occurring on or prior to the Effective Time (including, without
limitation, the Transactions) to the fullest extent permitted or
required under (i)(A) the Articles of Incorporation or By-Laws of the
Company in effect on the date of this Agreement, including, without
limitation, provisions relating to advances of expenses incurred in the
defense of any action or suit, or (B) any indemnification agreement
between the Indemnified Party and the Company in effect immediately
prior to the date of this Agreement; and (ii) advance to any
Indemnified Parties expenses incurred in defending any action or suit
with respect to such matters, in each case to the extent such
Indemnified Parties are entitled to indemnification or advancement of
expenses under the Company's Articles of Incorporation and By-Laws in
effect on the date of this Agreement and subject to the terms of such
Articles of Incorporation and By-Laws.
(b) Any Indemnified Party wishing to claim indemnification
under Section 7.1(a) shall provide notice to the Surviving Corporation
promptly after such Indemnified Party has actual knowledge of any claim
as to which indemnity may be sought, and the Indemnified Party shall
permit the Surviving Corporation (at its expense) to assume the defense
of any claim or any litigation resulting therefrom; provided, however,
that (i) counsel for the Surviving Corporation who shall conduct the
defense of such claim or litigation shall be reasonably satisfactory to
the Indemnified Party and the Indemnified Party may participate in such
defense at such Indemnified Party's expense, and (ii) the omission by
any Indemnified Party to give notice as provided herein shall not
relieve the Surviving Corporation of its indemnification obligation
under this Agreement, except to the extent that such omission results
in a failure of actual notice to the Surviving Corporation, and the
Surviving Corporation is actually prejudiced as a result of such
failure to give notice. In the event that the Surviving Corporation
does not accept the defense of any matter as above provided, the
Indemnified Parties may retain counsel satisfactory to them, and the
Surviving Corporation shall pay all reasonable fees and expenses of one
such counsel for all the Indemnified Parties promptly as statements
therefor are received; provided, however, that the Surviving
Corporation shall not be liable for any settlement effected without its
prior written consent (which consent shall not be unreasonably
withheld); provided, further, however, that the Surviving Corporation
shall not be responsible for the fees and expenses of more than one
counsel for all of the Indemnified Parties unless there is, under
applicable standards of professional conduct, a conflict between the
positions of any two or more Indemnified Parties, in which case each
Indemnified Party with respect to whom such a conflict exists (or group
of such Indemnified Parties who among them have no such conflict) may
retain one separate law firm in each applicable jurisdiction and the
Surviving Corporation shall be responsible for the fees and expenses of
each such counsel. In any event, the
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Surviving Corporation and the Indemnified Parties shall cooperate in
the defense of any action or claim. The Surviving Corporation shall
not, in the defense of any such claim or litigation, except with the
consent of the Indemnified Party, consent to entry of any judgment or
enter into any settlement that provides for injunctive or other
nonmonetary relief affecting the Indemnified Party or that does not
include as an unconditional term thereof the giving by the claimant or
plaintiff to such Indemnified Party of a release from all liability
with respect to such claim or litigation.
(c) The articles of incorporation and by-laws of the Surviving
Corporation shall contain the provisions with respect to
indemnification set forth in the Company's Articles of Incorporation
and By-Laws, which provisions shall not be amended, modified or
otherwise repealed for a period of six years from the Effective Time in
any manner that would adversely affect the rights thereunder as of the
Effective Time of individuals who at the Effective Time were directors
or officers of the Company, unless such modification is required after
the Effective Time by law and then only to the minimum extent required
by such law.
(d) This Section 7.1 is intended for the benefit of, and to
grant third party rights to, persons entitled to indemnification under
this Section 7.1 whether or not parties to this Agreement, and each of
such persons shall be entitled to enforce the covenants contained in
this Section 7.1.
(e) The Surviving Corporation shall honor and fulfill in all
respects the obligations of the Company pursuant to indemnification
agreements and employment agreements with the Company's directors and
officers existing at or immediately prior to the Effective Time.
(f) In addition, Parent will provide, or cause the Surviving
Corporation to provide, for a period of not less than three years after
the Effective Time, the Company's current directors and officers (as
defined to mean those person insured under such policy) with an
insurance and indemnification policy that provides coverage for events
occurring at or prior to the Effective Time (the "D&O Insurance") in an
aggregate amount of at least $15,000,000, and that is in the aggregate
not materially less favorable than the existing policy or, if
substantially equivalent insurance coverage is unavailable, the best
available coverage; provided, however, that Parent and the Surviving
Corporation shall not be required to pay an annual premium for the D&O
Insurance in excess of 200% of the annual premium currently paid by the
Company for such insurance, but in such case shall purchase as much of
such coverage as possible for such amount.
SECTION 7.2. HSR ACT; FOREIGN FILINGS. The Company and Parent shall use
their best efforts to file as soon as practicable notifications under the HSR
Act and under any applicable foreign antitrust laws in connection with the
Merger and the transactions contemplated thereby, 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 any applicable foreign
governmental antitrust authority 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 Agency in connection with
antitrust matters.
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SECTION 7.3. ADDITIONAL AGREEMENTS REGARDING CONSENTS AND APPROVALS.
(a) Subject to the terms and conditions herein provided, each
of the parties hereto agrees to use all reasonable best efforts to
take, or cause to be taken, all actions and to do, or cause to be done,
all things necessary, proper or advisable under applicable Legal
Requirements to consummate and make effective the transactions
contemplated by this Agreement, including using all reasonable best
efforts to obtain all necessary waivers, consents and approvals, to
effect all necessary registrations and filings (including, but not
limited to, filings under the HSR Act and with all applicable
Governmental Agencies, including foreign antitrust authorities) and to
lift any injunction or other legal bar to the Merger (and, in such
case, to proceed with the Merger as expeditiously as possible) subject
to the appropriate vote of the Shareholders. Notwithstanding the
foregoing, (i) without Parent's prior written consent, the Company
shall not obtain any consent that will affect Parent or the Company or
any of their respective Subsidiaries to the economic detriment of any
of them in any material way (other than payments permitted pursuant to
Section 6.1(l)), including any material modification of any Material
Contract or material Permit and (ii) neither Parent nor Purchaser shall
be obligated to dispose of or forfeit material incidents of control of
all or any material portion of the business or assets of the Company or
any of its Subsidiaries, or to divest, hold separate, or place in trust
all or any portion of its assets or businesses or those of any of its
Subsidiaries or those of the Company or any of its Subsidiaries, or to
incur a Prohibited Result. Each party shall promptly inform the other
party of any communication with, and any proposed understanding,
undertaking, or agreement with, any Governmental Agency regarding any
such filings or any such transaction. Neither party shall participate
in any meeting with any Governmental Agency in respect of any such
filings, investigation, or other inquiry without giving the other party
notice of the meeting and, to the extent permitted by such Governmental
Agency, the opportunity to attend and participate.
(b) Parent and the Company shall cooperate in the preparation,
execution and filing of all returns, applications or other documents
regarding any real property transfer, stamp, recording, documentary or
other Taxes and any other fees and similar Taxes which become payable
in connection with the Merger.
SECTION 7.4. EFFORTS; FURTHER ASSURANCES.
(a) Parent and Purchaser on the one hand, and the Company, on
the other (i) shall not take any action that would reasonably be
expected to cause any of their respective representations and
warranties in this Agreement not to remain materially true and
materially correct and (ii) shall use their respective reasonable best
efforts to cause each of their respective representations and
warranties in this Agreement to be materially true and materially
correct as of the Closing Date.
(b) 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/or directors of Parent and the
Surviving Corporation shall take all such necessary action.
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SECTION 7.5. TAKEOVER STATUTES. If any "moratorium," "control share
acquisition," "business combination," or "fair price" statute or other form of
anti-takeover statute or regulation shall become applicable to the transactions
contemplated hereby, each party hereto and the members of the Board of Directors
shall, to the extent consistent with applicable Legal Requirements, grant such
approvals and take such actions as are reasonably necessary so that the
transactions contemplated hereby and thereby may be consummated as promptly as
practicable on the terms contemplated hereby and thereby and otherwise act to
minimize the effects of such statute or regulations on the transactions
contemplated hereby.
SECTION 7.6. INITIAL TRANSACTIONS.
(a) Upon the request of Parent, the Company shall furnish to
Parent its reasonable, good faith estimate of the amount that the
Company will be required to pay pursuant to Section 7.6(b)(i) and (ii)
and of cash on hand of the Company and its Subsidiaries on the Closing
Date.
(b) At such time as all of the conditions set forth in Article
VIII, other than Section 8.2(f), shall have been satisfied or
irrevocably waived by Parent (the "Initial Transaction Time"), the
Company shall:
(i) repay all Indebtedness for borrowed money of the
Company and its Subsidiaries (other than Vendor Excluded
Indebtedness), including such Indebtedness under Contracts set
forth on Schedule 4.12, and terminate all of its obligations
under the Contracts governing such Indebtedness which if not
terminated would cause a default under Parent's senior credit
facility upon the occurrence of the Effective Time;
(ii) cash collateralize all outstanding letters of
credit on terms and conditions reasonably satisfactory to
Parent;
(iii) contribute to a newly formed entity, formed in
a non-U.S. jurisdiction reasonably acceptable to Parent, for
which a "check the box" election has been made for U.S. income
tax purposes, and that is wholly owned by the Company ("New
LLC") all of the outstanding capital stock of each of the
Company's Subsidiaries listed in Schedule 7.6(b)(iii) (the
"Foreign Subsidiary Stock"), such that immediately following
such contribution all of the Company's Subsidiaries that are
organized in a jurisdiction outside of the United States shall
be wholly owned, directly or indirectly, by New LLC.
(iv) sell to Purchaser all of the membership
interests in New LLC for their book value (the "New LLC
Purchase Price"), subject to the requirement that the
Surviving Corporation purchase all of the Foreign Subsidiary
Stock from New LLC immediately following the Effective Time
for a purchase price equal to the New LLC Purchase Price, plus
interest thereon from and after the Foreign Subsidiary Sale at
the rate of eight percent (8%) per annum. The Company shall
deliver to Purchaser such documents as Purchaser shall
reasonably request relating to the contribution of the
Subsidiaries referenced in clause (iii) of this
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paragraph (b), and such instruments of transfer of all of the
membership interests in New LLC as Purchaser shall reasonably
request.
(c) Prior to the Initial Transaction Time, Parent may
designate one or more Contracts related to Indebtedness for borrowed
money extended by publishers who supply the Company as "Vendor Excluded
Indebtedness." The Company shall use its reasonable best efforts to
have the Vendor Excluded Indebtedness amended to delete any provisions
contained therein that would, if not so amended or deleted, cause a
default under Parent's senior credit facility upon the occurrence of
the Effective Time. Parent shall cooperate with the Company in seeking
such amendments or deletions. If, notwithstanding the Company's
reasonable best efforts, the provisions are not so amended or deleted
as of the Initial Transaction Time, such Contracts shall no longer be
deemed to be Vendor Excluded Indebtedness, and shall be repaid as
provided in Section 7.6(b)(i).
(d) At the Initial Transaction Time, Parent shall extend a
loan to the Company in an amount equal to (i) the amount necessary to
make the payments required by Section 7.6(b)(i) and (ii), plus (ii) $10
million, minus (iii) the Company's estimate of the cash on hand at the
Closing Date provided pursuant to paragraph (a) above. In exchange
therefor, the Company shall execute and deliver to Parent a promissory
note in the form of Exhibit B hereto.
(e) The transactions described in Section 7.6(b)(iii) and (iv)
are referred to collectively herein as the "Foreign Subsidiary Sale."
To the extent requested by Parent, the parties to this Agreement shall
either (i) abandon and not undertake the Foreign Subsidiary Sale, or
(ii) restructure the Foreign Subsidiary Sale in a manner not materially
adverse to the Shareholders and which will not reduce the Per Share
Amount or delay the consummation of the Merger.
(f) The transactions described in this Section 7.6 are
referred to collectively herein as the "Initial Transactions".
SECTION 7.7. EMPLOYEE MATTERS.
(a) Any Employee whose employment is terminated by the Company
or any of its Subsidiaries without cause during the period beginning on
the Closing Date and ending three months thereafter, shall be entitled
to severance benefits on a basis no less favorable than those described
on Schedule 6.1(e); and shall be entitled to participate on a fair and
equitable basis in the job opportunity and employment placement
programs offered by Parent or any of its Subsidiaries (including the
Surviving Corporation, as applicable) for which they are eligible.
(b) For a period beginning on the Closing Date through
December 31, 2002, Parent shall cause each Salaried Employee whose
employment is not terminated in accordance with subsection (a) above,
to be provided with benefits no less favorable, taken as a whole, than
those provided from time to time to employees of Parent's Subsidiaries
engaged in the telecommunications business ("Telecom Employees"),
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provided that any employee benefit plan may be amended prior to
December 31, 2002, in accordance with its terms in such a way that does
not cause the benefits extended to the Employees to be less favorable,
taken as a whole, than those provided to Telecom Employees. With
respect to any Foreign Plans, the principles set forth above shall
apply to the extent the application of such principles does not violate
applicable Legal Requirements. This paragraph (b) shall not apply with
respect to Employees who are paid by the hour.
(c) Parent shall cause each Employee to be given full credit
for all service with the Company and its Subsidiaries before the
Closing Date for all purposes under any employee benefit plan, practice
or arrangement in which the Employee participates on or after the
Closing Date (except to the extent necessary to avoid the duplication
of benefits or for the purpose of benefit accrual under any defined
benefit pension plan).
(d) For purposes of determining the terms and conditions of an
Employee's participation on and after the Closing Date in any employee
benefit plan, practice or arrangement that is an employee welfare
benefit plan, Parent shall, and shall cause its Subsidiaries to, (i)
waive all limitations as to pre-existing condition exclusions and
waiting periods with respect to the Employee or his or her dependents
under such plans, other than to the extent limitations or waiting
periods that are already in effect with respect to the Employee or his
or her dependents have not been satisfied as of the Closing Date, and
(ii) provide each Employee with full credit for any copayments and
deductibles paid in any plan year under a predecessor plan in
satisfying any deductible or out-of-pocket requirements under any
successor plan (on a pro-rata basis in the event of a difference in
plan years).
(e) The Company shall take all actions necessary to terminate
its long-term incentive program (the "LTIP") effective as of April 30,
2002, subject to the consummation of the Merger, provided that the
Company will be permitted to make payments for the award cycle ending
April 30, 2003, on a pro-rated basis equal to amounts previously
accrued for performance achieved under the LTIP through April 30, 2002,
and the Company may pay such awards as soon as practicable after April
30, 2002.
(f) All management continuity agreements between the Company
and Employees in effect immediately before the Closing Date set forth
on Schedule 4.15, shall be honored after the Closing Date, in
accordance with their terms, until such time as amended or terminated,
in accordance with their terms.
(g) Nothing contained in this Section 7.7 shall be deemed to
create any legally enforceable rights in favor of any Person not a
party to this Agreement.
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ARTICLE VIII.
CONDITIONS PRECEDENT
SECTION 8.1. CONDITIONS TO EACH PARTY'S OBLIGATION TO EFFECT THE
MERGER. The respective obligations of each party to effect the Merger shall be
subject to the fulfillment at or prior to the Effective Time of the following
conditions:
(a) The waiting period under the HSR Act and under any
applicable foreign antitrust law shall have expired or been terminated
with respect to the Transactions.
(b) No preliminary or permanent injunction or other Order by,
or Legal Requirement of, any federal or state court in the United
States which prevents the consummation of the Merger shall have been
issued and remain in effect (each party agreeing to use its reasonable
best efforts to have any such injunction lifted).
(c) The Merger shall have been approved and adopted by the
affirmative vote of Shareholders owning at least two-thirds of the
outstanding Common Stock.
SECTION 8.2. CONDITIONS FOR THE OBLIGATION OF PARENT AND PURCHASER. The
obligations of Parent and Purchaser to effect the Merger shall be subject to the
fulfillment at or prior to the Effective Time of the following additional
conditions:
(a) The representations and warranties of the Company
contained in the Agreement which are qualified as to Prohibited Effect
are true and correct, and the other representations and warranties of
the Company contained in the Agreement are true and correct in all
material respects, in either case, on and as of the Closing Date, with
the same force and effect as if made on and as of the Closing Date.
Parent and Purchaser shall have received a certificate of the President
or Chief Executive Officer or a Vice President of the Company to the
foregoing effects.
(b) The Company shall have performed all material obligations
and complied with all material agreements and material covenants to be
performed or complied with by it under the Agreement (without giving
effect to any materiality qualification or standard contained in any
such agreements or covenants). Parent and Purchaser shall have received
a certificate of the President or Chief Executive Officer or a Vice
President of the Company to the foregoing effects.
(c) There shall not be in effect an Order or Legal Requirement
by a Governmental Agency nor shall a Legal Requirement have been
promulgated or enacted by a Governmental Agency which in any such case
(i) restrains or prohibits the consummation of the Merger, (ii) either
(x) prohibits or materially restricts the ownership or operation by
Parent (or any of its Affiliates or Subsidiaries) of any portion of its
or the Company's (or any of their respective Subsidiaries) business or
assets which is material to the business of the Company and its
Subsidiaries taken as a whole (and which injunction, order, decree,
judgment or ruling in the case of Parent was entered or granted in
connection with this Agreement or the Transactions), or (y) compels
Parent (or any of
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its Affiliates or Subsidiaries) to dispose of or hold separate any
portion of its business that is in the same line of business as the
Company or the Company's (or any of its Subsidiaries) business or
assets which is material to such line of business of Parent or to the
business of the Company and its Subsidiaries taken as a whole, or (iii)
imposes any material limitations on the ability of Parent or any of its
affiliates or Subsidiaries effectively to control in any material
respect the business and operations of the Company and its Subsidiaries
(each of clauses (i) through (iii) being referred to as a "Prohibited
Result").
(d) No action or a proceeding shall have been commenced under
federal or state antitrust laws or any other applicable Legal
Requirement before any Governmental Agency which would reasonably be
expected to result in a Prohibited Result.
(e) There shall not have occurred (i) a declaration of a
banking moratorium or any suspension of payments in respect of banks in
the United States (whether or not mandatory), or (ii) any limitation
(whether or not mandatory) by any United States governmental authority
on the extension of credit generally by banks or other financial
institutions.
(f) The Initial Transactions shall have been consummated in
accordance with Section 7.6 other than those set forth in Section
7.6(d) which shall not be a condition.
ARTICLE IX.
TERMINATION AND FEES
SECTION 9.1. TERMINATION. This Agreement may be terminated at any time
prior to the Effective Time, whether before or after approval by the
Shareholders of the Company:
(a) by mutual written consent of Parent and the Company;
(b) by either Parent or the Company if any Governmental Agency
shall have issued an Order or taken any other action (which Order or
other action each party hereto shall use its reasonable best efforts to
have vacated or reversed), in each case permanently restraining,
enjoining or otherwise prohibiting the Transactions, and such Order or
other action shall have become final and non-appealable.
(c) by either Parent or the Company if the Shareholders fail
to approve the Merger upon the taking of a vote at a duly held meeting
of the Shareholders or any adjournment thereof.
(d) after September 3, 2002, by either Parent or the Company
if the Merger shall not have been consummated by such date for any
reason; provided that in such case the terminating party is not in
material breach of its representations, warranties, covenants or
agreements under this Agreement; and provided further, if the Company
enters into a Competing Agreement, such date shall be extended (but not
shortened) to the earlier of (x) one (or if the requisite Shareholder
vote in favor of the Merger is
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obtained at the Special Meeting, five) Business Day following the
Special Meeting, or (y) unless the requisite Shareholder vote in favor
of the Merger shall have been obtained, the termination of the
Competing Agreement.
(e) by Parent, if any of the following shall have occurred:
(i) any Person (other than Parent or any Subsidiary
of Parent) shall have commenced (as such term is defined in
Rule 14d-2 under the Exchange Act), a tender offer or exchange
offer to purchase any Common Stock or securities convertible
into such shares such that, upon consummation of such offer,
such person would own or control thirty-three percent (33%) or
more of the then outstanding Common Stock, and the Board of
Directors within ten Business Days after such tender or
exchange offer shall have been so commenced, fails to
recommend against acceptance of such tender or exchange offer
by its Shareholders; or
(ii) (A) the Company shall have entered into an
agreement with respect to an Alternative Transaction (other
than a confidentiality agreement permitted by Section 6.2), or
(B) the Board of Directors shall have (x) authorized,
recommended or publicly announced an intention to authorize or
recommend an Alternative Transaction, including pursuant to
the last sentence of Section 6.2(c), or (y) withdrawn or
modified in a manner adverse to Parent the recommendation of
the Board of Directors that the Shareholders approve this
Agreement and the Merger (an "Adverse Recommendation"), it
being understood and agreed that any communication by the
Company or the Board of Directors to the Shareholders that the
Board of Directors had determined not to withdraw or modify
such recommendation, in whole or in part, because such action
would or might give rise to a right on the part of Parent to
terminate this Agreement and/or obligate the Company to pay
the Termination Fee and/or the Expense Reimbursement shall
nevertheless be deemed to be an Adverse Recommendation.
(f) by Parent if: (i) any of the representations and
warranties of the Company contained in this Agreement which are
qualified as to Prohibited Effect shall not be true and correct, (ii)
any of the other representations and warranties of the Company
contained in this Agreement shall not be true and correct in all
material respects, (iii) the Company shall have failed to comply with
the provisions of Section 6.2 hereof, or (iv) the Company shall have
failed to perform any material obligation or to comply with any
material agreement or material covenant to be performed or complied
with by it under this Agreement (without giving effect to any
materiality qualification or standard contained in any such agreements
or covenants), subject to (A) in the case of clauses (i), (ii) or (iv)
which breach is not cured by the earlier of (x) the day prior to the
Special Meeting, and (y) five (5) Business Days following written
notice to the Company and (B) in the case of clause (iii), only with
respect to breaches arising from isolated, discrete actions taken by
non-executive employees of the Company or its Subsidiaries without the
actual Knowledge of the Company which breach is not cured within one
(1) Business Day following the Company obtaining actual Knowledge of
such breach; or
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(g) by the Company if (i) any of the representations and
warranties of Parent or Purchaser contained in this Agreement which are
qualified as to material adverse effect shall not be true and correct,
(ii) any of the other representations and warranties of Parent or
Purchaser contained in this Agreement shall not be true and correct in
all material respects, or (iii) Parent or Purchaser shall have failed
to perform any material obligation or to comply with any material
agreement or material covenant to be performed or complied with by it
under this Agreement (without giving effect to any materiality
qualification or standard contained in any such agreements or
covenants), and in any case which breach is not cured following written
notice to Parent by the earlier of (x) the day prior to the Special
Meeting, and (y) within five (5) Business Days following written notice
to Parent, except for such breaches which, individually or in the
aggregate, would not reasonably be expected to have a material adverse
effect on the ability of Parent and Purchaser to consummate the
Transactions.
SECTION 9.2. EFFECT OF TERMINATION. In the event of termination of this
Agreement by either Parent or the Company, as provided in Section 9.1, this
Agreement shall forthwith become void and of no further force and effect;
provided, however, that (a) each of the parties shall be entitled to pursue,
exercise and enforce any and all remedies, rights, powers and privileges
available to it at law or in equity for any breach of any covenant, agreement or
other obligation under this Agreement which occurred prior to such termination
(but not for breach of any representation or warranty), provided that if the
Company pays to Parent the Termination Fee and Expense Reimbursement pursuant to
Section 9.3(c)(ii)(A)(y) or 9.3(c)(ii)(B), including any subsequent payment due
pursuant to Section 9.3(d), such amounts shall be deemed satisfaction in full
for any and all damages incurred by Parent or Purchaser in connection with any
breaches of the Company giving rise to such termination, and (b) Sections 9.2,
9.3, 10.3, 10.4, 10.6, 10.8, 10.10 and 10.12 shall survive the termination.
SECTION 9.3. FEES AND EXPENSES.
(a) Except as provided in paragraphs (b), (c) and (d) below,
whether or not the Merger is consummated, all costs and expenses
incurred in connection with this Agreement and the transactions
contemplated by this Agreement shall be paid by the party incurring
such expenses (including broker's or finders fees and the expenses of
its representatives). Notwithstanding the preceding sentence, Parent
shall pay one-half and the Company shall pay one-half of the HSR Act
filing fee.
(b) If any of the conditions set forth in paragraphs (c) or
(d) below are satisfied, then the Company shall, subject to and in
accordance with such paragraphs (c) and (d), pay to Parent, by wire
transfer of immediate available funds to an account specified by
Parent, (i) an amount equal to $5,000,000 (the "Termination Fee") plus
(ii) all of Parent's reasonable documented out-of-pocket expenses
incurred in connection with the Transactions and the Transaction
Documents, up to a maximum aggregate amount of $1,000,000 (the "Expense
Reimbursement").
(c) The Company shall be obligated to pay the Termination Fee
(or the portion thereof described below) and the Expense Reimbursement
as follows:
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(i) if Parent terminates this Agreement pursuant to
the provisions of Section 9.1(e)(ii)(A) or (B)(x), or if
either party terminates this Agreement at a time when Parent
had the right to terminate pursuant to Section 9.1(e)(ii)(A)
or (B)(x) the Company shall, within 2 (two) Business Days
following such termination, pay the Termination Fee and the
Expense Reimbursement; or
(ii) if (A) Parent has terminated this Agreement
pursuant to (x) any of the other provisions of Section 9.1(e)
or (y) Section 9.1(f) or (B) the Company terminates this
Agreement other than pursuant to Section 9.1(g) and, at the
time of such termination, Parent had the right to terminate
pursuant to Section 9.1(f) (without giving effect to any
notice and cure right in favor of the Company) but not
pursuant to Section 9.1(e)(ii)(A) or (B)(x) (which shall be
governed by Section 9.3(c)(i)), the Company shall, within 2
(two) Business Days following such termination, pay (A) one
half of the Termination Fee (i.e., an amount equal to
$2,500,000) and (B) the Expense Reimbursement; or
(iii) if a Takeover Proposal is publicly disclosed
after the date of this Agreement, and thereafter Parent or the
Company terminates this Agreement pursuant to Section 9.1(c)
or (d), the Company shall, within 2 (two) Business Days
following such termination, pay (A) one half of the
Termination Fee (i.e., an amount equal to $2,500,000) and (B)
the Expense Reimbursement.
(d) In the event of a termination to which clauses (ii) or
(iii) of paragraph (c) above is applicable, and, within nine (9) months
following such termination, the Company enters into a definitive
agreement providing for, or consummates, an Alternative Transaction,
the Company shall, upon consummation of such Alternative Transaction,
pay the remaining portion of the Termination Fee not previously paid
pursuant to such clauses (ii) or (iii), as applicable. For the purpose
of this Section 9.3(d), "Alternative Transaction" shall have the
meaning assigned to such term in Section 6.2, except that references to
"10%" or "15%" in such definition shall be deemed to be references to
33%.
(e) The Company shall be discharged from its obligation to pay
the Termination Fee and Expense Reimbursement to the extent that Parent
actually receives such amounts pursuant to the escrow agreement
established pursuant to the Escrow Procedures.
ARTICLE X.
GENERAL PROVISIONS
SECTION 10.1. NON-SURVIVAL OF REPRESENTATIONS, WARRANTIES AND
AGREEMENTS. All representations and warranties set forth in this Agreement shall
terminate at the Effective Time. All covenants and agreements set forth in this
Agreement shall survive in accordance with their terms.
SECTION 10.2. AMENDMENT. This Agreement may be amended by the parties
hereto, by or pursuant to action taken by their respective boards of directors,
at any time before or after
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approval hereof by the Shareholders of the Company, but, after such approval, no
amendment shall be made which changes the Per Share Amount or which in any way
materially adversely affects the rights of such Shareholders or which by
applicable law requires the approval of such Shareholders, without the further
approval of such Shareholders. Notwithstanding any other provision of this
Agreement, this Agreement may not be amended except by an instrument in writing
signed on behalf of each of the parties hereto.
SECTION 10.3. NOTICES. All notices, demands or other communications to
be given or delivered under or by reason of the provisions of this Agreement
shall be in writing and shall be deemed to have been given (a) when delivered
personally to the recipient, (b) when sent to the recipient by telecopy (receipt
electronically confirmed by sender's telecopy machine) if during normal business
hours of the recipient, otherwise on the next Business Day, or (c) one Business
Day after the date when sent to the recipient by reputable same or next day
courier service (charges prepaid). Such notices, demands and other
communications shall be sent to the parties at the following addresses (or at
such other address for a party as shall be specified by like notice):
If to the Company:
Software Spectrum, Inc.
▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇ ▇. ▇▇▇▇
Chairman of Board and Chief Executive
Officer
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
Vice President of Strategic
Relationships and General Counsel
Telecopy No.: (▇▇▇) ▇▇▇-▇▇▇▇
With a copy to:
Skadden, Arps, Slate, ▇▇▇▇▇▇▇ & ▇▇▇▇ LLP
▇▇▇▇ ▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇, ▇.▇.
▇▇▇▇▇▇▇▇▇▇, ▇.▇. ▇▇▇▇▇-▇▇▇▇
Attention: C. ▇▇▇▇▇ ▇▇▇▇▇▇▇▇
Telecopy No.: (▇▇▇) ▇▇▇-▇▇▇▇
If to Parent or Purchaser:
▇▇▇▇▇ ▇ Communications, Inc.
▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇
▇▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: General Counsel
Telecopy No.: (▇▇▇) ▇▇▇-▇▇▇▇
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With a copy to:
▇▇▇▇▇▇▇ ▇▇▇▇ & ▇▇▇▇▇▇▇▇▇
▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇ ▇. ▇'▇▇▇▇▇▇▇▇, Esq.
Telecopy No.: (▇▇▇) ▇▇▇-▇▇▇▇
SECTION 10.4. SPECIFIC PERFORMANCE. The parties hereto agree that
irreparable damage would occur in the event that any of the provisions of this
Agreement were not performed in accordance with their specific terms or were
otherwise breached. It is accordingly agreed that the parties shall be entitled
to an injunction or injunctions to prevent breaches of this Agreement and to
enforce specifically the terms and provisions hereof in any court of the United
States or any state having jurisdiction without the necessity of posting a bond,
this being in addition to any other remedy to which they are entitled at law or
in equity.
SECTION 10.5. PUBLICITY. Each party's initial press release with
respect to the execution of this Agreement has been previously approved by the
other parties. Following such initial press releases, 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 public
announcement with respect to the Merger, this Agreement or the other
transactions between the parties contemplated hereby without the prior
consultation of the other parties, except as may be required by Legal
Requirement or by any listing agreement with a national securities exchange or
trading market.
SECTION 10.6. INTERPRETATION. The language used in this Agreement shall
be deemed to be the language chosen by the parties to express their mutual
intent, and no rule of strict construction will be applied against any party.
Any references to any federal, state, local or foreign statute or law shall also
refer to all rules and regulations promulgated thereunder, unless the context
requires otherwise. Unless the context otherwise requires: (a) a term has the
meaning assigned to it by this Agreement; (b) including means "including but not
limited to"; (c) "or" is disjunctive but not exclusive; (d) words in the
singular include the plural, and in the plural include the singular; (e)
provisions apply to successive events and transactions; (f) "$" means the
currency of the United States of America; and (g) "Knowledge" of any Person that
is an entity means the actual knowledge of its executive officers after
reasonable inquiry of the subordinates for the relevant matter. When a reference
is made in this Agreement to Sections, such reference shall be to a Section of
this Agreement unless otherwise indicated.
SECTION 10.7. COUNTERPARTS. This Agreement may be executed in two or
more counterparts, all 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 10.8. ENTIRE AGREEMENT; NO THIRD PARTY BENEFICIARIES. This
Agreement and the Confidentiality Agreement (including the documents and the
instruments referred to herein
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and therein): (a) constitute the entire agreement and supersede all prior
agreements and understandings, both written and oral, among the parties with
respect to the subject matter hereof, and (b) other than the provisions of
Section 7.1 hereof, nothing expressed or implied in this Agreement is intended
or will be construed to confer upon or give to any Person other than the parties
hereto any rights or remedies under or by reason of this Agreement or any
Transaction.
SECTION 10.9. SEVERABILITY. In the event that any one or more of the
provisions contained in this Agreement or in any other instrument referred to
herein, shall, for any reason, be held to be invalid, illegal or unenforceable
in any respect, then to the maximum extent permitted by law, such invalidity,
illegality or unenforceability shall not affect any other provision of this
Agreement or any other such instrument. Furthermore, in lieu of any such invalid
or unenforceable term or provision, the parties hereto intend that there shall
be added as a part of this Agreement a provision as similar in terms and intent
to such invalid or unenforceable provision as may be possible and be valid and
enforceable.
SECTION 10.10. GOVERNING LAW. This Agreement and the legal relations
between the parties hereto will be governed by and construed in accordance with
the laws of the State of
New York, without giving effect to the choice of law
principles thereof.
SECTION 10.11. ASSIGNMENT. Neither this Agreement nor any of the
rights, interests or obligations hereunder shall be assigned by any of the
parties hereto (whether by operation of law or otherwise) without the prior
written consent of the other parties, except Purchaser may assign, in its sole
discretion, any or all of its rights, interests and obligations hereunder to any
direct or indirect wholly owned Subsidiary of Parent, but no such assignment
shall relieve Purchaser of any of its obligations under this Agreement. Subject
to the preceding sentence, this Agreement will be binding upon, inure to the
benefit of and be enforceable by the parties and their respective successors and
assigns.
SECTION 10.12. DESCRIPTIVE HEADINGS. The descriptive headings of the
several sections of this Agreement are inserted for convenience only and shall
not control or affect the meaning or construction of any of the provisions
hereof.
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IN WITNESS WHEREOF, Parent, Purchaser and the Company have
caused this Agreement to be signed by their respective officers thereunder duly
authorized all as of the date first written above.
LEVEL 3 COMMUNICATIONS, INC.
/s/ ▇▇▇▇▇ ▇▇▇▇▇
-----------------------------------------
By:
Title:
ELDORADO ACQUISITION THREE, INC.
/s/ ▇▇▇▇▇▇ ▇▇▇▇▇▇
-----------------------------------------
By:
Title:
SOFTWARE SPECTRUM, INC.
/s/ ▇▇▇▇ ▇. ▇▇▇▇
-----------------------------------------
By: ▇▇▇▇ ▇. ▇▇▇▇
Title: Chief Executive Officer
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EXHIBIT A
EXECUTION COPY
VOTING AGREEMENT
VOTING AGREEMENT, dated as of May __, 2002 (the "Agreement"),
by and among Level 3 Communications, Inc., a Delaware corporation ("Parent"),
Eldorado Acquisition Three, Inc., a Delaware corporation and an indirect wholly
owned subsidiary of Parent ("Purchaser"), Software Spectrum, Inc., a Texas
corporation (the "Company"), Private Capital Management, L.P., a Delaware
limited partnership ("PCM") and ▇▇▇▇ ▇. ▇▇▇▇, an individual ("JO" and, together
with PCM, the "Shareholders").
WITNESSETH:
WHEREAS, contemporaneously with the execution and delivery of
this Agreement, Parent, Purchaser and the Company are entering into an Agreement
and Plan of Merger, dated as of the date hereof (the "
Merger Agreement"), which
provides for, upon the terms and subject to the conditions set forth therein,
the merger of Purchaser with and into the Company (the "Merger");
WHEREAS, as of the date hereof, each Shareholder owns
(beneficially and of record) or has dispositive and voting control with respect
to the number of shares of the Company's common stock, par value $.01 per share
(the "Company Common Stock"), set forth opposite such Shareholder's name on
Schedule I hereto (all such shares so owned or from time to time controlled and
which may hereafter be acquired or from time to time controlled by such
Shareholder prior to the termination of this Agreement, whether upon the
exercise of options or by means of purchase, dividend, distribution or
otherwise, being referred to herein as such Shareholder's "Shares");
WHEREAS, as a condition to their willingness to enter into the
Merger Agreement, Parent and Purchaser have required that the Shareholders enter
into this Agreement; and
WHEREAS, in order to induce Parent and Purchaser to enter into
the
Merger Agreement, the Shareholders are willing to enter into this Agreement.
NOW, THEREFORE, in consideration of the foregoing premises and
for other good and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, the parties hereto, intending to be legally bound,
agree as follows:
ARTICLE I.
TRANSFER AND VOTING OF SHARES; AND
OTHER COVENANTS OF THE SHAREHOLDERS
SECTION 1.1. VOTING OF SHARES. From the date hereof until the
occurrence of a Termination Event (as defined in Section 4.2) (the "Term"), at
any meeting of the shareholders of the Company, however called, and in any
action by consent of the shareholders of the Company,
each Shareholder shall vote (or cause to be voted) its Shares (a) in favor of
approval of the Merger and the
Merger Agreement (as amended from time to time),
(b) against (i) any Takeover Proposal (as defined in the
Merger Agreement), (ii)
any proposal for action or agreement that would result in a breach of any
covenant, representation or warranty or any other obligation or agreement of the
Company under the
Merger Agreement or which is reasonably likely to result in
any of the conditions to the Parent's and Purchaser's obligations under the
Merger Agreement not being fulfilled, (iii) any change in the directors of the
Company, (iv) any change in the present capitalization of the Company, (v) any
amendment to the Company's Second Restated Articles of Incorporation or the
Second Amended and Restated By-Laws, (vi) any other material change in the
Company's corporate structure or business, or (vii) any other action which could
reasonably be expected to impede, interfere with, delay, postpone or materially
adversely affect the transactions contemplated by the
Merger Agreement or the
likelihood of such transactions being consummated and (c) in favor of any other
matter necessary for consummation of the transactions contemplated by the
Merger
Agreement which is considered at any such meeting of shareholders or in such
consent, and in connection therewith to execute any documents which are
necessary or appropriate in order to effectuate the foregoing, including the
ability of Purchaser or its nominees to vote such Shares directly.
SECTION 1.2. NO INCONSISTENT ARRANGEMENTS. Except as
contemplated by this Agreement and the
Merger Agreement, and, with respect to
PCM, except to the extent PCM's dispositive and voting power over its Shares is
revoked after the date hereof by the ultimate beneficial owner of such Shares,
each Shareholder shall not during the Term (a) transfer (which term shall
include, without limitation, any sale, assignment, gift, pledge, hypothecation
or other disposition), or consent to any transfer of, any or all of such
Shareholder's Shares or any interest therein, or create or permit to exist any
Encumbrance (as defined below) on such Shares, (b) enter into any contract,
option or other agreement or understanding with respect to any transfer of any
or all of such shares or any interest therein, (c) grant any proxy,
power-of-attorney or other authorization in or with respect to such Shares, (d)
deposit such Shares into a voting trust or enter into a voting agreement or
arrangement with respect to such Shares, or (e) take any other action that would
in any way restrict, limit or interfere with the performance of its obligations
hereunder or the transactions contemplated hereby or by the Merger Agreement.
Notwithstanding the foregoing, in the case of an individual Shareholder, such
Shareholder may transfer any or all of its Shares to a charitable trust or
foundation; provided, however, that in any such case, prior to and as a
condition to the effectiveness of such transfer, each Person to which any of
such Shares or any interest in any of such Shares is or may be transferred shall
have executed and delivered to Parent and Purchaser a counterpart to this
Agreement pursuant to which such Person shall be bound by all of the terms and
provisions of this Agreement.
SECTION 1.3. PROXY. Each Shareholder hereby revokes any and
all prior proxies or powers of attorney in respect of any of such Shareholder's
Shares and constitutes and appoints Purchaser and Parent, or any nominee of
Purchaser and Parent, with full power of substitution and resubstitution, at any
time during the Term, as its true and lawful attorney and proxy (its "Proxy"),
for and in its name, place and stead, to demand that the Secretary of the
Company call a special meeting of the shareholders of the Company for the
purpose of considering any matter referred to in Section 1.1 and to vote each of
such Shares as its Proxy, as provided in Section 1.1, at every annual, special,
adjourned or postponed meeting of the shareholders of the Company, including the
right to sign its name (as shareholder) to any consent, certificate or other
document
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relating to the Company that Texas law may permit. Each Shareholder represents
and warrants that (a) it has not granted power of attorney to any other Person
with respect to the Shares and (b) any proxies heretofore given in respect of
the Shares are not irrevocable, and that any such proxies have been revoked.
THE FOREGOING PROXY AND POWER OF ATTORNEY ARE IRREVOCABLE AND
COUPLED WITH AN INTEREST THROUGHOUT THE TERM, PROVIDED THAT PCM MAY REVOKE SUCH
PROXY AND POWER SOLELY TO THE EXTENT THAT ONE OR MORE ULTIMATE BENEFICIAL
HOLDERS OF PCM'S SHARES REVOKES PCM'S AUTHORITY WITH RESPECT TO SUCH SHARES.
SECTION 1.4. DISCLOSURE. Each Shareholder hereby authorizes
Parent, Purchaser and the Company to publish and disclose in any Form 8-K,
Schedule 13D and the Proxy Statement (including all documents and schedules
filed with the Commission), its identity and ownership of the Company Common
Stock and the nature of its commitments, arrangements and understandings under
this Agreement. Parent and Purchaser shall permit each Shareholder to disclose
the terms of this Agreement in such Shareholder's Schedule 13D with respect to
the Shares.
SECTION 1.5. WAIVER OF APPRAISAL RIGHTS. Each Shareholder
hereby waives with respect to its Shares any rights of appraisal or rights to
dissent from the Merger.
SECTION 1.6. SPOUSAL CONSENT. If a Shareholder is or may be
subject to the community property laws of any state or other jurisdiction, such
Shareholder shall use its reasonable best efforts to cause his/her spouse to
execute an acknowledgment and consent consenting to and agreeing to the
transactions contemplated by this Agreement. Such consent shall survive until
the occurrence of a Termination Event.
SECTION 1.7. STOP TRANSFER. Prior to a Termination Event, each
Shareholder shall not request that the Company register, and the Company shall
not register, the transfer (book-entry or otherwise) of any certificate or
uncertificated interest representing any of such Shareholder's Shares, unless
such transfer is made in compliance with this Agreement.
SECTION 1.8. NO SOLICITATION.
(a) During the Term, each Shareholder shall not, and it shall
cause its subsidiaries, officers, directors, employees, counsel,
investment bankers, financial advisers, accountants, other
representatives and agents (collectively, the "Representatives") not
to, (i) solicit, initiate, or encourage, directly or indirectly
(including by way of furnishing information), or take any other action
to facilitate, any inquiries or the making of any proposal which
constitutes, or may reasonably be expected to lead to, any Takeover
Proposal, (ii) participate in any discussions or negotiations regarding
any Takeover Proposal or (iii) enter into any agreement with respect to
any Takeover Proposal. Upon execution of this Agreement, each
Shareholder shall, and it shall cause its Representatives to,
immediately cease any existing activities, discussions or negotiations
with any parties conducted heretofore with respect to any of the
foregoing.
-3-
(b) Each Shareholder shall promptly advise Parent orally and
in writing of any request for information, proposal, discussion,
negotiation or inquiry received by such Shareholder after the date of
this Agreement, and each Shareholder shall promptly (but in any event
within one Business Day) communicate to Parent the material terms and
conditions of any such proposal, discussion, negotiation or inquiry
which it may receive (and will promptly provide to Parent copies of any
written materials received by it in connection with such proposal,
discussion, negotiation or inquiry) and the identity of the Person
making such proposal or inquiry or engaging in such discussion or
negotiation. Notwithstanding any provision of this Section 1.8 to the
contrary, if any Shareholder or any of its Representatives is a member
of the Board of Directors of the Company (the "Board of Directors"),
such member of the Board of Directors may take actions in such
capacity.
ARTICLE II.
REPRESENTATIONS AND WARRANTIES OF THE SHAREHOLDERS
Each Shareholder hereby represents and warrants to Parent and
Purchaser as follows:
SECTION 2.1. DUE AUTHORIZATION, ETC. Such Shareholder has all
requisite power and authority to execute, deliver and perform this Agreement, to
appoint Purchaser and Parent as its Proxy and to consummate the transactions
contemplated hereby. The execution, delivery and performance of this Agreement,
the appointment of Purchaser and Parent as such Shareholder's Proxy and the
consummation of the transactions contemplated hereby have been duly authorized
by all necessary action on the part of such Shareholder. This Agreement has been
duly executed and delivered by or on behalf of such Shareholder and constitutes
a legal, valid and binding obligation of such Shareholder, enforceable against
such Shareholder in accordance with its terms, except as enforcement may be
limited by bankruptcy, insolvency, fraudulent transfer, reorganization,
moratorium or other similar laws of general applicability relating to or
affecting the rights of creditors and to general principles of equity and except
that the availability of equitable remedies, including specific performance, is
subject to the discretion of the court before which any proceeding for such
remedy may be brought. There is no beneficiary or holder of a voting trust
certificate or other interest of any trust of which such Shareholder is trustee
whose consent is required for the execution and delivery of this Agreement or
the consummation by such Shareholder of the transactions contemplated hereby.
SECTION 2.2. NO CONFLICTS; REQUIRED FILINGS AND CONSENTS.
(a) The execution and delivery of this Agreement by such
Shareholder does not, and the performance of this Agreement by such
Shareholder will not, (i) contravene, conflict with or violate any law
applicable to such Shareholder or by which such Shareholder or any of
such Shareholder's properties is bound or affected or (ii) result in
any breach of or constitute a default (or an event that with notice or
lapse of time or both would become a default) under, or give to others
any rights of termination, acceleration or cancellation of, or result
in the creation of a lien or encumbrance on any assets of such
Shareholder, including, without limitation, such Shareholder's Shares,
pursuant to, any
-4-
note, bond, mortgage, indenture, contract, agreement, lease, license,
permit, franchise or other instrument or obligation to which such
Shareholder is a party or by which such Shareholder or any of such
Shareholder's assets is bound or affected, except for any such
breaches, defaults or other occurrences that would not prevent or delay
the performance by such Shareholder of such Shareholder's obligations
under this Agreement.
(b) The execution and delivery of this Agreement by such
Shareholder does not, and the performance of this Agreement by such
Shareholder will not, require any consent, approval, authorization or
permit of, or filing with or notification to, any governmental or
regulatory authority, domestic or foreign, except where the failure to
obtain such consents, approvals, authorizations or permits, or to make
such filings or notifications, would not prevent or delay the
performance by such Shareholder of such Shareholder's obligations under
this Agreement.
SECTION 2.3. TITLE TO SHARES. JO is the sole record and
beneficial owner of her Shares, free and clear of any pledge, lien, security
interest, mortgage, charge, claim, equity, option, proxy, voting restriction,
voting trust or agreement, understanding, arrangement, right of first refusal,
limitation on disposition, adverse claim of ownership or use or encumbrance of
any kind ("Encumbrances"), other than restrictions imposed by the securities
laws or pursuant to this Agreement and the Merger Agreement, or has voting and
dispositive control with respect to its Shares. PCM has voting and dispositive
control with respect to its Shares, which control may be revoked at any time by
the ultimate beneficial owner of such Shares.
SECTION 2.4. NO FINDER'S FEES. No broker, investment banker,
financial advisor or other person is entitled to any broker's, finder's,
financial advisor's or other similar fee or commission from the Company, Parent,
or any of their respective Subsidiaries, in connection with the transactions
contemplated hereby based upon arrangements made by or on behalf of such
Shareholder. Such Shareholder, on behalf of itself and its affiliates, hereby
acknowledges that it is not entitled to receive any broker's, finder's,
financial advisor's or other similar fee or commission from the Company, Parent,
or any of their respective Subsidiaries in connection with the transactions
contemplated hereby or by the Merger Agreement.
SECTION 2.5. RELIANCE BY PARENT AND PURCHASER. Shareholder
understands and acknowledges that Parent and Purchaser are entering into the
Merger Agreement in reliance upon Shareholder's execution and delivery of this
Agreement.
ARTICLE III.
REPRESENTATIONS AND WARRANTIES OF
PARENT AND PURCHASER
Parent and Purchaser hereby, jointly and severally, represent
and warrant to the Shareholders as follows:
SECTION 3.1. DUE ORGANIZATION, AUTHORIZATION, ETC. Purchaser
and Parent are duly organized, validly existing and in good standing under the
laws of their jurisdiction of incorporation. Purchaser and Parent have all
requisite corporate power and authority to execute
-5-
and deliver this Agreement and to consummate the transactions contemplated
hereby. The execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby by each of Purchaser and Parent have been duly
authorized by all necessary corporate action on the part of Purchaser and
Parent, respectively. This Agreement has been duly executed and delivered by
each of Purchaser and Parent and constitutes a legal, valid and binding
obligation of each of Purchaser and Parent, enforceable against Purchaser and
Parent in accordance with its terms, except as enforcement may be limited by
bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium or other
similar laws of general applicability relating to or affecting the rights of
creditors and to general principles of equity and except that the availability
of equitable remedies, including specific performance, is subject to the
discretion of the court before which any proceeding for such remedy may be
brought.
SECTION 3.2. NO CONFLICTS; REQUIRED FILINGS AND CONSENTS.
(a) The execution and delivery of this Agreement by each of
Parent and Purchaser does not, and the performance of this Agreement by
Parent and Purchaser will not, (i) contravene, conflict with or violate
any law applicable to Parent or Purchaser or by which Parent or
Purchaser or any of their respective properties is bound or affected or
(ii) result in any breach of or constitute a default (or an event that
with notice or lapse of time or both would become a default) under, or
give to others any rights of termination, acceleration or cancellation
of, or result in the creation of a lien or encumbrance on any assets of
Parent or Purchaser, pursuant to, any note, bond, mortgage, indenture,
contract, agreement, lease, license, permit, franchise or other
instrument or obligation to which Parent or Purchaser is a party or by
which Parent or Purchaser or any of their respective assets is bound or
affected, except for any such breaches, defaults or other occurrences
that would not prevent or delay the performance by Parent or Purchaser
of their respective obligations under this Agreement.
(b) The execution and delivery of this Agreement by Parent and
Purchaser does not, and the performance of this Agreement by Parent and
Purchaser will not, require any consent, approval, authorization or
permit of, or filing with or notification to, any governmental or
regulatory authority, domestic or foreign, except for those that will
be made within the required time period or where the failure to obtain
such consents, approvals, authorizations or permits, or to make such
filings or notifications, would not prevent or delay the performance by
Parent or Purchaser of their respective obligations under this
Agreement.
ARTICLE IV.
MISCELLANEOUS
SECTION 4.1. DEFINITIONS. Terms used but not otherwise defined
in this Agreement have the meanings ascribed to such terms in the Merger
Agreement.
SECTION 4.2. TERMINATION. This Agreement shall terminate and
be of no further force and effect upon the first to occur of (i) the completion
of a valid vote of the Shareholders on the Merger and the Merger Agreement at
the Special Meeting; (ii) the termination of the
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Merger Agreement by any party thereto in accordance with its terms; or (iii) the
amendment of the Merger Agreement without the written consent of the
Shareholders that (x) provides for a reduction in the Per Share Amount below
$37.00 or (y) changes the form of the payment of the Per Share Amount to other
than cash (each a "Termination Event"). No such termination of this Agreement
shall relieve any party hereto from any liability for any breach of this
Agreement prior to termination.
SECTION 4.3. FURTHER ASSURANCE. From time to time, at another
party's request and without consideration, each party hereto shall execute and
deliver such additional documents and take all such further action as may be
reasonably necessary or desirable to consummate and make effective, in the most
expeditious manner practicable, the transaction contemplated by this Agreement.
SECTION 4.4. CERTAIN EVENTS. JO agrees that this Agreement and
JO's obligations hereunder shall attach to her Shares and shall be binding upon
any person or entity to which legal or beneficial ownership of such Shares shall
pass, whether by operation of law or otherwise, including, without limitation,
JO's heirs, guardians, administrators, or successors. Notwithstanding any
transfer of Shares, the transferor shall remain liable for the performance of
all its obligations under this Agreement.
SECTION 4.5. SPECIFIC PERFORMANCE. Each Shareholder
acknowledges that if such Shareholder fails to perform any of its obligations
under this Agreement immediate and irreparable harm or injury would be caused to
Parent and Purchaser for which money damages would not be an adequate remedy. In
such event, each Shareholder agrees that each of Parent and Purchaser shall have
the right, in addition to any other rights it may have, to specific performance
of this Agreement. Accordingly, if Parent or Purchaser should institute an
action or proceeding seeking specific enforcement of the provisions hereof, each
Shareholder hereby waives the claim or defense that Parent or Purchaser, as the
case may be, has an adequate remedy at law and hereby agrees not to assert in
any such action or proceeding the claim or defense that such a remedy at law
exists. Each Shareholder further agrees to waive any requirements for the
securing or posting of any bond in connection with obtaining any such equitable
relief.
SECTION 4.6. NOTICE. All notices and other communications
given or made pursuant hereto shall be in writing and shall be deemed to have
been duly given or made (i) as of the date delivered or sent by facsimile if
delivered personally or by facsimile, confirmation received, and (ii) on the
third Business Day after deposit in the U.S. mail, if mailed by registered or
certified mail (postage prepaid, return receipt requested), in each case to the
parties at the following addresses (or at such other address for a party as
shall be specified by like notice, except that notices of changes of address
shall be effective upon receipt):
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(a) If to Parent or Purchaser:
▇▇▇▇▇ ▇ Communications, Inc.
▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇.
▇▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
With a copy to:
▇▇▇▇▇▇▇ ▇▇▇▇ & ▇▇▇▇▇▇▇▇▇
▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇ ▇. ▇'▇▇▇▇▇▇▇▇, Esq.
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
(b) If to a Shareholder, at the address set forth below
such Shareholder's name on Schedule I hereto.
With a copy to:
Software Spectrum, Inc.
▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇ ▇. ▇▇▇▇
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
and
Skadden, Arps, Slate, ▇▇▇▇▇▇▇ & ▇▇▇▇ LLP
▇▇▇▇ ▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇, ▇.▇.
▇▇▇▇▇▇▇▇▇▇, ▇.▇. ▇▇▇▇▇-▇▇▇▇
Attention: C. ▇▇▇▇▇ ▇▇▇▇▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
SECTION 4.7. EXPENSES. 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.
SECTION 4.8. HEADINGS. The headings contained in this
Agreement are for reference purposes only and shall not affect in any way the
meaning or interpretation of this Agreement.
SECTION 4.9. SEVERABILITY. If any term or other provision of
this Agreement is invalid, illegal or incapable of being enforced by any rule of
law, or public policy, all other conditions and provisions of this Agreement
shall nevertheless remain in full force and effect so
-8-
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 maximum extent possible.
SECTION 4.10. ENTIRE AGREEMENT; NO THIRD-PARTY BENEFICIARIES.
This Agreement constitutes the entire agreement and supersedes any and all other
prior agreements and undertakings, both written and oral, among the parties, or
any of them, with respect to the subject matter hereof, and this Agreement is
not intended to confer upon any other person any rights or remedies hereunder.
SECTION 4.11. ASSIGNMENT. This Agreement shall not be assigned
by operation or law or otherwise, by any of the parties hereto without the prior
written consent of the other parties, except that Parent or Purchaser may assign
all or any of its rights hereunder to any wholly owned Subsidiary of Parent
provided that no such assignment shall relieve such assigning party of its
obligations hereunder. Subject to the preceding sentence, this Agreement shall
be binding upon and inure to the benefit of the parties named herein and their
respective successors and permitted assigns.
SECTION 4.12. GOVERNING LAW. This Agreement and the legal
relations between the parties hereto shall be governed by and construed in
accordance with the laws of the State of
New York, without giving effect to the
choice of law principles thereof.
SECTION 4.13. JURISDICTION: SERVICE OF PROCESS. Any action or
proceeding seeking to enforce any provision of, or based on any right arising
out of, this Agreement may only be brought against any of the parties in the
courts of the State of
New York located in the City of
New York, or if it has
subject matter jurisdiction, the U.S. federal district court for the Southern
District of
New York, and each of the parties consents to the jurisdiction of
such courts (and of the appropriate appellate courts) in any such action or
proceeding and waives any objection to venue laid therein. Process in any action
or proceeding referred to in the preceding sentence may be served on any party
anywhere in the world.
SECTION 4.14. AMENDMENT. This Agreement may not be amended
except by an instrument in writing signed by the parties hereto.
SECTION 4.15. WAIVER. Any party hereto may (a) extend the time
for the performance of any of the obligations or other acts of the other parties
hereto, (b) waive any inaccuracies in the representations and warranties of the
other parties hereto contained herein or in any document delivered pursuant
hereto and (c) waive compliance by the other parties hereto with any of their
agreements or conditions contained herein. Any agreement on the part of a party
hereto to any such extension or waiver shall be valid only as against such party
and only if set forth in an instrument in writing signed by such party. The
failure of any party hereto to assert any of its rights under this Agreement or
otherwise shall not constitute a waiver of those rights.
-9-
SECTION 4.16. EFFECTIVENESS. This Agreement shall become
effective only upon the execution and delivery of the Merger Agreement by the
Company, Parent and Purchaser.
SECTION 4.17. COUNTERPARTS. This Agreement may be executed in
one or more counterparts, and by the different parties hereto in separate
counterparts, each of which when executed shall be deemed to be an original but
all of which shall constitute one and the same agreement.
-10-
IN WITNESS WHEREOF, Parent, Purchaser, the Company and the
Shareholders have caused this Agreement to be executed as of the date first
written above.
▇▇▇▇▇ ▇ COMMUNICATIONS, INC.
By:
--------------------------------------
Name:
Title:
ELDORADO ACQUISITION THREE, INC.
By:
--------------------------------------
Name:
Title:
SOFTWARE SPECTRUM, INC.
By:
--------------------------------------
Name:
Title:
--------------------------------------
▇▇▇▇ ▇. ▇▇▇▇
PRIVATE CAPITAL MANAGEMENT, L.P.
By: PCM Holdings, Inc., its general
partner
By:
--------------------------------------
Name: ▇▇▇▇▇ ▇. ▇▇▇▇▇▇
Title: President
-11-
Schedule I
Number of Shares for which
Name and Address Shareholder has Dispositive and
of Shareholder Voting Control
---------------- -------------------------------
▇▇▇▇ ▇. ▇▇▇▇ 166,114
▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
Private Capital Management, L.P. 796,542
▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇ ▇▇▇▇., ▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇ ▇▇▇▇▇▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
(▇▇▇) ▇▇▇-▇▇▇▇
EXHIBIT B
to Agreement and Plan
of Merger
PROMISSORY NOTE
$________________
New York,
New York ________ __, 2002
FOR VALUE RECEIVED, the sufficiency of which is hereby acknowledged,
Software Spectrum, Inc., a Texas corporation ("Maker"), hereby unconditionally
promises to pay to Level 3 Communications, Inc., a Delaware corporation, or its
assigns ("Holder"), upon demand by Holder and at such place as may be designated
by Holder, the principal sum of ______________________ Dollars
($___________________), together with interest thereon at a rate per annum equal
to ___ percent (___%) (computed on the basis of a 360-day year) from and after
________ __, 2002. Maker may prepay all or any portion of this Note at any time
without penalty. All payments received from Maker hereunder shall be applied
first, to the payment of any expenses due to Holder pursuant to the terms of
this Note, second, to the payment of interest accrued and unpaid on this Note,
and third, to reduce the principal balance hereunder.
Any payments of expenses, principal or interest shall be made in U.S.
dollars.
Maker agrees to pay to Holder all expenses incurred by Holder,
including reasonable attorneys' fees, in enforcing and collecting this Note.
This Note is binding on Maker and its respective successors and
assigns, and Maker hereby waives presentment, demand, notice and protest and any
defense by reason of an extension of time for payment or other indulgences.
Failure of Holder to assert any right herein shall not be deemed to be a waiver
thereof.
This Note is being executed and delivered by Maker in connection with
the transactions described in Section 7.6 of that certain Agreement and Plan of
Merger dated as of May ___, 2002, by and among Parent, Eldorado Acquisition
Three, Inc., a Delaware corporation, and Maker.
This Note shall be paid without deduction by reason of any set-off,
defense or counterclaim of Maker.
This Note shall be governed by and construed and enforced in accordance
with the laws of the State of
New York, without giving effect to principles of
conflicts of law thereof.
SOFTWARE SPECTRUM, INC.
By:
-----------------------------------------
Name:
Title:
----------
SOFTWARE SPECTRUM, INC.
DISCLOSURE SCHEDULE
FOR
AGREEMENT AND PLAN OF MERGER
DATED AS OF MAY 1, 2002
AMONG
LEVEL 3 COMMUNICATIONS, INC.,
ELDORADO ACQUISITION THREE, INC.
AND
SOFTWARE SPECTRUM, INC.
----------
INTRODUCTION
Reference is made in this Software Spectrum, Inc. Disclosure Schedule
(this "Software Spectrum Disclosure Schedule") to the Agreement and Plan of
Merger, dated as of May 1, 2002 (the "Agreement"), among Level 3 Communications,
Inc., a Delaware corporation ("Parent"), Eldorado Acquisition Three, Inc., a
Delaware corporation and a wholly owned subsidiary of Parent ("Purchaser"), and
Software Spectrum, Inc., a Delaware corporation (the "Company"). Capitalized
terms not otherwise defined herein are used as defined in the Agreement.
This Software Spectrum Disclosure Schedule is qualified in its entirety
by reference to specific provisions of the Agreement and is not intended to
constitute, and shall not be construed as constituting, any representation or
warranty of Software Spectrum except as and to the extent expressly provided in
the Agreement.
The fact that any item of information is contained herein shall not be
construed to mean that such information is required to be disclosed in or by the
Agreement. Such information shall not be used as a basis for interpreting the
term "material," "materially," "materiality" or "Prohibited Effect" in the
Agreement.
To the extent there is any inconsistency between information set forth
in this Software Spectrum Disclosure Schedule and any information, disclosure,
document or schedule heretofore delivered to Parent or Purchaser, this Software
Spectrum Disclosure Schedule supersedes and replaces such other information,
disclosure, document and schedule previously provided.
Any matter disclosed in any particular section of this Software
Spectrum Disclosure Schedule shall be deemed to have been disclosed in this
Software Spectrum Disclosure Schedule with respect to other sections of Article
4 or 6 of the Agreement that specifically request disclosure of such matter.
The section headings in this Software Spectrum Disclosure Schedule are
for convenience of reference only and shall not be deemed to alter or affect the
express description of the sections of this Software Spectrum Disclosure
Schedule as set forth in the Agreement.
1
SCHEDULE 4.1
ORGANIZATION OF THE COMPANY
1. The annual statutory return has not been filed for Software Spectrum
GmbH, a dormant Subsidiary organized under the laws of Germany and previously
engaged in the Company's former professional services business. This Subsidiary
has no operations or material assets. The Company plans to liquidate this
Subsidiary. No material Liability will arise by virtue of such failure to file
such annual statutory return or such liquidation.
2
SCHEDULE 4.3
CONFLICTS & CONSENTS
SUB-SECTION (a)
o None
SUB-SECTION (b)
o None
SUB-SECTION (c)
o None
SUB-SECTION (d)
1. The Merger transaction is not permitted by the Company's Amended and
Restated Credit Agreement, dated March 11, 1998, among Software Spectrum, Inc.,
▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇ Bank as Administrative Agreement, ▇▇ ▇▇▇▇▇▇ as Collateral Agent
and the Lenders Named Therein. The banks' consent would be required, or in the
alternative, the Company has the right to early termination of the banks'
obligations for an early termination fee of $750,000.
2. The consummation of the Transactions would conflict with the
following Material Contracts:
o Guaranty, dated September 20, 2000 by Software Spectrum, Inc. in favor
of Microsoft Corporation.
o Adobe License Center Agreement dated December 8, 2001, by and among
Adobe Systems Incorporated, Adobe Systems Software Ireland Limited and
Software Spectrum, Inc.
3. Consent is required under the terms of the following real estate
leases:
o Commercial Lease Agreement by and between Kancro LP and Software
Spectrum, Inc., dated April 19, 1993, as amended (2240 and ▇▇▇▇ ▇▇▇▇▇▇▇
▇▇▇▇▇, ▇▇▇▇▇▇▇, ▇▇▇▇▇). Lessee thereunder is required to reimburse
lessor for reasonable attorney's fees in connection with processing and
documenting any assignment.
4. Notice, and in some cases an assignment agreement by Purchaser, is
required under the terms of the following real estate leases:
o Net Lease between Pretty M.T., L.P. and Spectrum Integrated Services,
Inc., d/b/a Spectrum Contact Services (formerly d/b/a Software
Spectrum), dated April 28, 2000, as amended.
3
o Office Lease between Highwoods/Florida Holdings, LP, by Highwoods
Properties, Inc., as agent, and Spectrum Integrated Services, Inc.,
dated October 19, 1998, as amended. Lessee thereunder is required to
reimburse lessor's reasonable out-of-pocket costs and expenses in
connection with an assignment or sublease transaction, including
reasonable attorney's fees not to exceed $750.00.
o Lease Agreement between Spokane Teachers Credit Union and Spectrum
Integrated Services, Inc., d/b/a Spectrum Contact Services (formerly
d/b/a Software Spectrum), dated March 10, 2000, as amended.
o Lease between SDS Properties Liberty Lake LLC and Spectrum Integrated
Services, Inc., d/b/a Spectrum Contact Services (formerly d/b/a
Software Spectrum), dated February 28, 2000.
SUB-SECTION (e)
o None
SUB-SECTION (f)
1. Approval of the Transaction will be required from the Federal Trade
Commission and/or the Anti-Trust Division of the Department of Justice and
equivalent agencies of Brazil, Sweden, Germany and Finland.
4
SCHEDULE 4.4
SEC FILINGS; FINANCIAL STATEMENTS; UNDISCLOSED LIABILITIES
SUB-SECTION (a)
o None
SUB-SECTION (c)
o None
5
SCHEDULE 4.5
CAPITAL STRUCTURE
1. List of Option Plans:
o Software Spectrum, Inc. 1998 Long-Term Incentive Plan, as amended.
o Software Spectrum, Inc. Amended and Restated 1993 Long-Term Incentive
Plan.
2. List of outstanding Options:
o See attached Software Spectrum Stock Option Summary.
6
SCHEDULE 4.6
SUBSIDIARIES
SUB-SECTION (a)
1. The Company owns stock in the Subsidiaries listed below. In
addition, the Company owns 43.45% of the outstanding equity in Uchida Spectrum,
Inc., a Japanese corporation.
2. The Company owns 137,600 shares of Common Stock of Pivotal
Corporation acquired in connection with the disposition of the Company's CRM
business in December 2000.
3. The Company owns stock in the amounts set forth in Column B below of
the Subsidiaries listed under Column A below:
COLUMN A COLUMN B COLUMN C
SUBSIDIARY STOCK OWNER(S) LIENS
---------- -------------- --------
Spectrum Integrated Services, Software Spectrum, Inc. - 518,000 shares 518,000 Shares(2)
Inc.
Software Spectrum (Hong Kong) Software Spectrum Pty Limited - 1 share
Software Spectrum Holdings Pty Limited - 99 shares
Software Spectrum B.V. Software Spectrum, Inc. - 40 Shares 26 Shares(2)
(Netherlands)
Software Spectrum Canada, Ltd. Software Spectrum, Inc. - 1,001 Shares 666 Shares(2)
Software Spectrum Holdings Software Spectrum, Inc. - 113,503 Shares 75,668 Shares(2)
Pty Limited (Australia)
Software Spectrum GmbH(1) Software Spectrum, Inc. - 50,000 Shares
(Germany)
Software Spectrum Pty Limited Software Spectrum Holdings Pty Limited - 3 Shares
(Australia)
Software Spectrum Limited Software Spectrum, Inc. - 840,000 Shares 93,333 Shares(2)
(Ireland)
----------
(1) This entity is currently dormant, owns no material assets and has no
employees.
(2) Pledge of shares in favour of bank group under Company's Amended and
Restated Credit Agreement with respect to the indicated number of shares.
7
COLUMN A COLUMN B COLUMN C
SUBSIDIARY STOCK OWNER(S) LIENS
---------- -------------- --------
Software Spectrum Software Spectrum Holdings Pty Limited - 100 Shares
(NZ) Limited
Software Spectrum Pty Limited - 1 Share
Software Spectrum (2)Software Spectrum Holdings Pty. Ltd. - 99 Shares
Professional ▇▇▇▇▇▇▇▇.▇▇▇ Pte
Ltd (Singapore) Software Spectrum Pty. Ltd. - 1 Share
Software Spectrum (U.K.) Software Spectrum, Inc. - 2 Shares
Limited(1)
Software Spectrum Services Software Spectrum, Inc. - 40 Shares
B.V.(1) (Netherlands)
SUB-SECTION (b)
See Column A in table above.
SUB-SECTION (c)
See Column C above.
SUB-SECTION (d)
1. Uchida Spectrum, Inc.
SUB-SECTION (e)
o None
----------
(1) This entity is currently dormant, owns no material assets and has no
employees.
8
SCHEDULE 4.8
ABSENCE OF CERTAIN CHANGES OR EVENTS
SUB-SECTION (i)
o The January 31, 2002 quarter was the first full fiscal quarter in which
new enterprise-wide licensing arrangements, designated Microsoft
Enterprise Agreement 6.0s ("EA 6.0" agreements), were sold. Virtually
all Microsoft Enterprise Agreements are now priced, billed and
collected directly by the publisher. The Company does not record
software sales revenue for these agreements, but continues to provide
sales and related customer services associated with these transactions,
and earns a software advisory fee directly from Microsoft for these
activities.
SUB-SECTION (ii)
o None
SUB-SECTION (iii)
As used under this Sub-Section (iii), the term "the Company" refers to
the Company and its subsidiaries collectively, unless otherwise indicated or
unless the context otherwise requires. The Sub-Sections referenced below in this
Sub-Section (iii) correspond to the Sub-Sections listed in Section 6.1 of the
Agreement.
SUB-SECTION (a)
o See Sub-Section (i) above
o The employment of ▇▇▇▇ ▇▇▇▇▇▇▇, President of Contact Services, was
separated effective April 12, 2002.
o As provided in the lease, the Company has received notice from the
landlord under the Lease between ▇▇▇▇▇▇ Engineering Inc. and Software
Spectrum Limited, commencing March 18, 1997 and under the Lease between
Combined Insurance Company of Ireland Limited and Software Spectrum
Limited, dated August 5, 1997 that the landlord is undertaking the rent
review process provided for therein.
SUB-SECTION (b)
o None
SUB-SECTION (c) (i) (A)
o None
9
SUB-SECTION (c) (i) (B)
o In 1997, the Company implemented a stock repurchase program that allows
for the purchase of the Company's common stock from time to time in the
open market or through privately negotiated transactions. Since January
31, 2002, however, the Company has not repurchased any shares of common
stock.
o Since January 31, 2002, the Company has purchased shares of its common
stock on the open market on behalf of its employees under the Software
Spectrum, Inc. Amended and Restated Employee Stock Purchase Plan.
SUB-SECTION (c) (ii)
o Since January 31, 2002, the Company has issued shares in the ordinary
course of business pursuant to stock option exercises under the
Software Spectrum, Inc. 1993 and 1998 Long-Term Incentive Plans.
o See also the disclosure under Sub-Section (c)(i)(B) above regarding the
Employee Stock Purchase Plan.
SUB-SECTION (c) (iii)
o None
SUB-SECTION (c) (iv)
o The Company made a loan of $14,909.00 to an employee on March 29, 2002.
The loan is evidenced by a promissory note, dated the same date, which
matures on October 18, 2002. This employee is not a shareholder of
record as of April 10, 2002, and the Company is not aware of whether or
not such employee is a beneficial owner of its stock.
SUB-SECTION (c) (v)
o The Company engaged Sheffield Merchant Banking Group in connection with
the Transactions. Under the terms of its arrangement with Sheffield,
the Company will pay Sheffield $1,250,000 plus expenses upon the
consummation of the Transactions. ▇▇▇▇▇▇ ▇. ▇▇▇, a member of the
Company's Board of Directors, is a Managing Member of Sheffield
Merchant Banking Group. The Company believes that the terms reflect an
arms-length transaction and are customary for the nature of the
services rendered.
SUB-SECTION (d)
o Since January 31, 2002, the Company has spent approximately $1.1
million in aggregate capital expenditures. The following two single
capital expenditures exceed $150,000: (1) purchase of E-Gain software
licenses (approximately $172,500) and (2) purchase of Compaq desktop
computers (approximately $225,000).
10
SUB-SECTION (e) (i)
o The Company has granted bonuses and raises, some of which may be
considered special compensation, to its employees (which may have
included officers, directors and/or key employees) in the ordinary
course of its business since January 31, 2002.
SUB-SECTION (e) (ii)
o The Company has accrued amounts under its standard bonus plans and
salary and commission arrangements for employees (which have included
accruals for Salaried Employees and other employees) in the ordinary
course of its business since January 31, 2002.
SUB-SECTION (e) (iii)
o None
SUB-SECTION (e) (iv)
o Since January 31, 2002, the Company has entered into employment and/or
severance agreements with employees (which do not include any director
or officer of the Company or any of its Subsidiaries with the exception
of ▇▇▇▇▇▇▇ Charter) in the ordinary course in accordance with its past
practices. With respect to ▇▇▇▇▇▇▇ Charter, the Company has
memorialized the terms of its Employment Agreement with ▇▇▇▇▇▇▇ Charter
dated July 7, 2000, which is referenced in Schedule 4.12, Sub-Section
(a) (xi) below, in a formal employment agreement based on the Company's
form of employment agreement. The terms of such formal agreement, which
is unsigned as of the date hereof, are not materially different from
the Employment Agreement dated July 7, 2000.
SUB-SECTION (e) (v)
o None
SUB-SECTION (e) (vi)
o See disclosure above under Sub-Section (c)(iv).
SUB-SECTION (f)
o The Company filed an action against its insurer, St. ▇▇▇▇ Property and
Casualty, seeking coverage under its property and casualty insurance
policy for shrink-wrap software lost in 1997/1998 due to fraudulent
orders by a third party. The gross amount of the software lost was
approximately $270,000, and the net claim was approximately $190,000
following application of deductibles. The Company recently settled the
claim for $42,500.
11
o The Company was involved in a dispute with the subtenant of its Atlanta
real property lease, Telseon IP Services, Inc. Telseon vacated the
premises without advising Software Spectrum, Inc. in November 2001,
failing to pay November rent, and did not pay rent again after
vacating. After sending a demand letter and receiving a request to
delay collection efforts without an indication of payment, Software
Spectrum, Inc. filed suit in Georgia. Prior to Telseon filing an answer
in the matter, the parties entered into a settlement agreement,
pursuant to which it agreed to the entry of a consent judgment in
favour of Software Spectrum, Inc. and paid Software Spectrum, Inc.
$100,000.00.
o The Company has received notice from IBM of its intent to move all Tier
I Business Partners in the software resale channel to Tier II status
effective July 1, 2002 with the result that the current IBM Business
Partner Agreement will be terminated with an effective date of July 1,
2002.
o The Company has received an extension under the Line of Credit, dated
March 19, 2001, by and between Software Spectrum B.V. and Bank of
America NA, Dublin Branch.
o See the disclosure above in Sub-Section (a) regarding the Dublin real
estate rent review process.
SUB-SECTION (g) (A) AND (B)
o The Company is in discussions with IBM Global Financing to extend the
term of the Remarketer Finance Agreement, dated December 31, 2001
between Software Spectrum Canada, Ltd. and IBM Global Financing and the
Financing Letter, dated December 31, 2001 - Offer by IBM Global
Financing, a division of IBM Canada Limited to provide financing of
purchases to Software Spectrum Canada, Ltd., issued in connection
therewith. The Company expects to issue a Letter of Credit in the
approximate amount of CAN$3,000,000 to secure its obligations under the
new financing arrangements.
o See the disclosure above in Sub-Section (a) regarding the Dublin real
estate rent review process.
SUB-SECTION (g) (C)
o None
SUB-SECTION (g) (D)
o See the disclosure above in Sub-Section (c)(iv).
o Since January 31, 2002, the Company has occasionally provided extended
payment terms to customers of its Product Services business in the
ordinary course of business.
12
SUB-SECTION (h)
o None
SUB-SECTION (i)
o See the disclosure above in Sub-Section (d).
SUB-SECTION (j)
o None
SUB-SECTION (k)
o None
SUB-SECTION (l)
o The Merger transaction is not permitted by the Company's Amended and
Restated Credit Agreement, dated March 11, 1998, among Software
Spectrum, Inc., ▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇ Bank as Administrative Agreement, ▇▇
▇▇▇▇▇▇ as Collateral Agent and the Lenders Named Therein. The banks'
consent would be required, or in the alternative, the Company has the
right to early termination of the banks' obligations for an early
termination fee of $750,000.
SUB-SECTION (m)
o None
SUB-SECTION (n)
o None
SUB-SECTION (o)
o None
SUB-SECTION (p)
o None
13
SCHEDULE 4.9
PROPERTIES
SUB-SECTION (f)
o Liens granted by the Company to the bank group under the Amended and
Restated Credit Agreement, dated March 11, 1998 among Software
Spectrum, Inc. ▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇ Bank as Administrative Agent, ▇▇ ▇▇▇▇▇▇
Chase Bank as Collateral Agent and the Lenders Named Therein with
respect to the following assets of the Company:
o all Accounts;
o all Inventory;
o all Cash and Cash Equivalent Collateral;
o all instruments, documents, chattel paper and General
Intangibles evidencing or otherwise relating to the Accounts
and Inventory, Cash and Cash Equivalent Collateral;
o all of Debtor's right, title and interest in and to the
capital stock or other ownership interests specifically
described on Schedule 4.7 hereto (the issuers of such stock or
other interests herein the "Foreign Subsidiaries") and so much
of Debtor's right, title and interest in any other capital
stock or other ownership interests in the Foreign
Subsidiaries, whether now owned or hereafter acquired, as is
necessary so that not more than and not less than sixty-six
and two-thirds percent (66 2/3%) of the capital stock or other
ownership interest in each such Foreign Subsidiary is pledged
in total hereunder;
o all of Debtor's right, title and interest in all shares of
capital stock of Spectrum Integrated Services, Inc. a Texas
corporation, whether now owned or hereafter acquired,
including without limitation, the shares of capital stock of
Spectrum Integrated Services, Inc. described on Schedule 4.7
hereof; and
o all products, proceeds, revenue, distributions, dividends,
stock dividends, securities and other property, rights and
interests that Debtor receives or is at any time entitled to
receive an account of any or all of the foregoing.
all as defined and set forth in the Amended and Restated Credit
Agreement and the documents executed in connection therewith.
o Liens granted by Spectrum Integrated Services, Inc. to the
bank group under the Amended and Restated Credit Agreement,
dated March 11, 1998 among Software Spectrum, Inc. ▇▇ ▇▇▇▇▇▇
Chase Bank as Administrative Agent, ▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇ Bank as
Collateral Agent and the Lenders Named Therein with respect to
the following assets of Spectrum Integrated Services, Inc.:
o all Accounts;
o all Inventory;
o all instruments, documents, chattel paper and General
Intangibles evidencing or otherwise relating to the Accounts
and Inventory;
o all Proceeds and products of any of the foregoing
all as defined and set forth in the Amended and Restated Credit
Agreement and the documents executed in connection therewith.
14
SCHEDULE 4.10(a)
COMPLIANCE WITH LEGAL REQUIREMENTS
1. In March 2000, the Company received notice from the IRS alleging a
tax deficiency for the year ended March 31, 1996. The income adjustments
asserted in the notice, approximately $1.3 million, relate to certain payments
made by the Company to its foreign subsidiaries. Similar payments, approximating
$7.7 million, were deducted in subsequent tax returns. The Company settled the
matter with the IRS for the year ended March 31, 1996 and all other applicable
tax years for approximately $1.5 million in tax/interest. See SEC Filings for
the quarter ended July 31, 2001 and October 31, 2001.
2. In March 2002, the Securities and Exchange Commission submitted
comments to the Company related to the Company's disclosure contained in its
Form 10-K for the year ended April 30, 2001. The Company responded fully to the
SEC's comments and has received oral notification from the SEC that the
Company's written response, dated March 25, 2002, satisfactorily addresses the
comments raised by the SEC with the additional requirement that in future
filings the Company must also disclose in a footnote to its financial statements
the Company's basis for its revenue recognition on a gross basis.
15
SCHEDULE 4.10(b)
COMPLIANCE WITH LEGAL REQUIREMENTS
o None
16
SCHEDULE 4.11
AFFILIATE AGREEMENTS & LIABILITIES
SUB-SECTION (a)
o None
SUB-SECTION (b)
Engagement letter dated April 4, 2002, by and between the Company and
Sheffield Merchant Banking Group. ▇▇. ▇▇▇▇▇▇ ▇. ▇▇▇, a member of the Company's
Board of Directors, is a Managing Member of Sheffield Merchant Banking Group.
The Company believes that the terms of the engagement reflect an arm's length
transaction and are customary for the nature of the services rendered.
17
SCHEDULE 4.12
MATERIAL CONTRACTS
SUB-SECTION (a) (i)
o Amended and Restated Credit Agreement, dated March 11, 1998, among
Software Spectrum, Inc., ▇▇ ▇▇▇▇▇▇ Chase Bank as Administrative Agent,
▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇ Bank as Collateral Agent and the Lenders Named Therein.
o Agreement for Wholesale Financing dated March 28, 2002, by and between
IBM Credit Corporation and Software Spectrum, Inc.
o Remarketer Financing Agreement dated December 31, 2001, by and between
Software Spectrum Canada Ltd. and IBM Global Financing.
o Financing Letter, dated December 31, 2001 - Offer by IBM Global
Financing, a division of IBM Canada Limited to provide financing of
purchases to Software Spectrum Canada, Ltd.
o Line of Credit, dated March 19, 2001, by and between Software Spectrum
B.V. and Bank of America NA, Dublin Branch.
o See items listed under Sub-Section (a) (ii) below.
o Foreign Exchange (forward) Contract No. 329433 between the Company and
▇▇▇▇▇ Fargo Bank whereby on 5/24/02 the Company will remit
USD$5,319,000 in exchange for AUD$10,000,000.
o Chase Commercial Credit Card Program Master Agreement dated April 5,
2001 between Software Spectrum, Inc. and Chase Manhattan Bank USA.
o Agreement between Corporate Cardmember and American Express Travel
Related Services Company, Inc.
o Software Spectrum Standby Letters of Credit:
LETTER OF CREDIT IN FAVOUR OF: AMOUNT US$ EXPIRATION DATE
------------------------------ ---------- ---------------
Bank of America Dublin $ 3,000,000 10/31/2004
Bank of America Dublin $ 280,000 10/31/2004
Westpac Banking Corp $ 1,027,293 10/31/2004
IBM Global Financing $ 5,000,000 04/09/2003
SUB-SECTION (a) (ii)
o Continuing Corporate Guaranty dated December 1, 2001 by Software
Spectrum, Inc. in favour of Adobe Systems Software Ireland Limited.
18
o Unconditional and Irrevocable Guaranty dated April 10, 2002 by Software
Spectrum, Inc. in favour of IBM Canada, Limited.
o Trade Indemnity dated May 31 2001, by Software Spectrum, Inc. in favour
of QBE Trade Indemnity.
o Guaranty dated September 20, 2000 by Software Spectrum, Inc. in favour
of Microsoft Corporation.
o Unconditional Performance Guaranty, undated, by Software Spectrum, Inc.
in favour of the Commonwealth of Australia.
o Guaranty dated January 23, 2002, by Software Spectrum, Inc. in favour
of ▇▇▇▇▇▇ Micro, Inc.
o Guarantee Agreement dated September 26, 2001 by Software Spectrum, Inc.
in favour of Computer 2000 AG.
o Guaranty Agreement dated May 3, 1996, by Spectrum Integrated Services,
Inc. in favour of Texas Commerce Bank National Association and such
other banks named under the Amended and Restated Credit Agreement.
SUB-SECTION (a) (iii)
o Stock Purchase Agreement dated November 21, 2000, among Pivotal
Corporation and Software Spectrum, Inc. and ▇▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇▇
▇▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇▇▇ and ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇.
o Asset Purchase Agreement dated August 28, 2000, among CSSI: The Support
Group, Inc. (d/b/a ▇▇▇▇▇▇▇▇ Associates) and ▇▇▇▇▇▇▇▇ Associates
Computer Consulting Limited, Spectrum Integrated Services, Inc. (d/b/a
Software Spectrum) and Software Spectrum Canada, Ltd. and Software
Spectrum, Inc.
o Asset Sale Agreement dated July 31, 2000, between Software Spectrum Pty
Limited and Software Spectrum (NZ) Limited and Naratis Pty Ltd.
SUB-SECTION (a) (iv)
o Enterprise Customer Agreement, dated November 2, 2001 by and between
Software Spectrum, Inc. and Compaq Computer Corporation.
SUB-SECTION (a) (v)
o Engagement letter dated April 15, 2002, by and between the Company and
SunTrust ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇.
o Engagement letter dated April 4, 2002, by and between the Company and
Sheffield Merchant Banking Group.
19
o Management Liability and Company Reimbursement Insurance Policy with XL
Specialty Insurance Company for policy period 01/01/02 through
04/01/03.
o Worker's Compensation and Employee Liability Insurance Policy for the
policy period 04/30/2000 to 04/20/2001.
o Chase Commercial Credit Card Program Master Agreement dated April 5,
2001 between Software Spectrum, Inc. and Chase Manhattan Bank USA.
o Group Term Insurance Policy, dated January 1, 2001, between Software
Spectrum, Inc. and Sun Life Insurance Company of Canada.
o Customer Agreement, dated March 26, 2001, between Aspect Communications
Corporation and Software Spectrum, Inc.
o Customer Service Agreement, dated December 22, 1999 between Software
Spectrum, Inc. and Sprint Communications Company L.P.
o AT&T Master Agreement, dated February 9, 2001 between Software
Spectrum, Inc. and AT&T Corp.
o Customer Agreement, dated August 1, 1998 by and between Software
Spectrum, Inc. and the TPA, Inc. and Addendum to Customer Agreement
dated January 1, 2002.
o Agreement between Corporate Cardmember and American Express Travel
Related Services Company, Inc.
o Agreement, undated, between Software Spectrum, Inc. and United Parcel
Services, Inc.
o Federal Express Custom Pricing Program Agreement, dated February 12,
2002, between Software Spectrum, Inc. and Federal Express Corporation.
o Agreement for temporary staffing with Pro Visional Staffing Services.
SUB-SECTION (a) (vi)
o See list under Sub-Section (a)(iii) above.
SUB-SECTION (a) (vii)
o 2000/2001 Large Account Reseller Agreement (Australian) dated June 23,
2000, by and between Microsoft Regional Sales Corporation and Software
Spectrum Pty Limited.
20
o Adobe License Center Agreement dated December 8, 2001, by and among
Adobe Systems Incorporated, Adobe Systems Software Ireland Limited and
Software Spectrum, Inc.
o Ingram Micro Inc. Outsourcing Services Agreement, undated, by and
between ▇▇▇▇▇▇ Micro Inc. and Software Spectrum, Inc.
o IBM Business Partner Agreement dated January 1, 2002, between
International Business Machines Corporation and Software Spectrum, Inc.
o IBM Business Partner Agreement dated February 28, 2002, between
Software Spectrum Canada, Ltd. and IBM Canada Ltd.
o Microsoft EMEA Large Account Reseller Agreement dated July 1, 2001,
between Software Spectrum B.V. and Microsoft Ireland Operations Ltd.
o Ingram Micro Inc. Outsourcing Services Agreement, undated, by and
between Software Spectrum, Inc. and Software Spectrum Canada, Ltd. and
▇▇▇▇▇▇ Micro, Inc.
SUB-SECTION (a) (viii)
o Commercial Lease Agreement by and between CIIF Associates II Limited
Partnership and Software Spectrum, Inc., f/k/a The Software Store,
dated May 1, 1990, as amended.
o Commercial Lease Agreement by and between Kancro LP and Software
Spectrum, Inc., dated April 19, 1993, as amended.
o Net Lease between Pretty M.T., L.P. and Spectrum Integrated Services,
Inc., d/b/a Spectrum Contact Services (formerly d/b/a Software
Spectrum), dated April 28, 2000, as amended.
o Office Lease between Highwoods/Florida Holdings, LP, by Highwoods
Properties, Inc., as agent, and Spectrum Integrated Services, Inc.,
dated October 19, 1998, as amended.
o Lease Agreement between Spokane Teachers Credit Union and Spectrum
Integrated Services, Inc., d/b/a Spectrum Contact Services (formerly
d/b/a Software Spectrum), dated March 10, 2000, as amended.
o Lease between SDS Properties Liberty Lake LLC and Spectrum Integrated
Services, Inc., d/b/a Spectrum Contact Services (formerly d/b/a
Software Spectrum), dated February 28, 2000.
o Deed and Agreement for Lease between Perpetual Trust Company Limited
and Software Spectrum Pty Limited, dated June 20, 2000.
21
o Lease between ▇▇▇▇▇▇ Engineering Inc. and Software Spectrum Limited,
commencing March 18, 1997. (Rent review pending.)
o Lease between Combined Insurance Company of Ireland Limited and
Software Spectrum Limited, dated August 5, 1997. (Rent review pending.)
SUB-SECTION (a) (ix)
o None
SUB-SECTION (a) (x)
o Rebate Programs sponsored by software publishers pursuant to which the
Company receives certain funds if it meets specific goals or targets in
the sale of such publishers' software products.
SUB-SECTION (a) (xi)
o Management Continuity Agreements by and between Software Spectrum, Inc.
and each of the executive officers of the Company, who are listed
below:
PARTY TITLE
----- -----
▇▇▇▇▇▇ ▇. ▇▇▇▇▇ Vice President, Human Resources
▇▇▇▇▇ ▇. ▇▇▇▇▇ Vice President and Chief Financial Officer
▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇ Vice President, North American Sales
▇▇▇▇▇ ▇. ▇▇▇▇▇▇ President and Chief Operating Officer
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇ Vice President Strategic Relationships and General Counsel
▇▇▇▇ ▇. ▇▇▇▇▇▇ Vice President, Marketing
▇▇▇▇▇ ▇. ▇▇▇▇ Executive Vice President and President of Product Services
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇ Vice President and Chief Information Officer
▇▇▇▇ ▇. ▇▇▇▇ Chairman and Chief Executive Officer
▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇ Vice President, Sales and Marketing, Spectrum Contact Services
▇▇▇▇ ▇. ▇▇▇▇▇▇▇ Vice President, Customer Services, Spectrum Contact Services
▇▇▇▇▇▇▇ ▇▇▇▇▇▇ Vice President, Business Development
o Employment Agreement dated July 7, 2000, between ▇▇▇▇▇▇▇ Charter and
Software Spectrum B.V.
o Employment Agreement dated February 28, 2001, between ▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇ and Software Spectrum Pty Ltd.
SUB-SECTION (a) (xii)
o None
SUB-SECTION (a) (xiii)
o None
SUB-SECTION (b)
o None
22
SCHEDULE 4.13
INTELLECTUAL PROPERTY
SUB-SECTION (e)
1. The Company is the owner of and has registered the following trade
marks/service marks in the following countries.
JURISDICTION OF REGISTRATION/
▇▇▇▇ REGISTRATION NO. TYPE OF REGISTRATION
---- ----------------------------- --------------------
Software Spectrum United States Service ▇▇▇▇
Reg. No. 2,286,903
Australia Service ▇▇▇▇
Reg. No. A732418
European Community Trade ▇▇▇▇
Reg. No. 515205
Hong Kong Trade ▇▇▇▇
Reg. No. 560799
New Zealand Trade ▇▇▇▇
Reg. No. 275278
Software Spectrum Smart Solutions United States Service ▇▇▇▇
for Smart Companies Reg. No. 2,402,002
Global Guy Logo United States Service ▇▇▇▇
Reg. No. 2,387,897
2. Software Spectrum Pty Limited has applied for the registration of
the trademark "Software Spectrum and Device" in Singapore, application number
T96/08130C.
3. The Company owns the following domain names.
COUNTRY DOMAIN NAME
------- -----------
United States ▇▇▇▇▇▇▇▇▇▇▇▇▇▇▇▇.▇▇▇
▇▇▇▇▇▇▇▇▇▇▇▇▇▇▇▇.▇▇▇
▇▇▇▇▇▇▇▇▇▇▇▇▇▇▇▇.▇▇▇
▇▇▇▇▇▇▇▇▇▇▇▇▇▇▇▇.▇▇
▇▇▇▇▇▇▇▇▇▇▇▇▇▇▇▇.▇▇
▇▇▇▇▇▇▇▇-▇▇▇▇▇▇▇▇.▇▇▇
▇▇▇▇▇▇▇▇-▇▇▇▇▇▇▇▇.▇▇▇
▇▇▇▇▇▇▇▇-▇▇▇▇▇▇▇▇.▇▇▇
▇▇▇▇▇-▇▇▇▇▇▇.▇▇▇
▇▇▇▇▇▇▇▇▇▇.▇▇▇
▇▇▇-▇▇▇▇▇▇▇▇.▇▇▇*
▇▇▇▇▇▇▇▇▇▇▇▇▇▇▇▇▇▇▇▇▇▇▇.▇▇▇
▇▇▇▇▇▇▇▇▇▇▇▇▇▇▇▇▇▇▇▇▇▇▇.▇▇▇
▇▇▇▇▇▇▇▇▇▇▇▇▇▇▇▇▇▇▇▇▇▇▇.▇▇▇
23
COUNTRY DOMAIN NAME
------- -----------
▇▇▇▇▇▇▇▇▇▇▇▇▇▇▇▇▇▇▇▇▇▇▇.▇▇
▇▇▇▇▇▇▇▇▇▇▇▇▇▇▇▇▇▇▇▇▇▇▇.▇▇
▇▇▇▇▇▇▇▇▇▇▇▇▇▇▇▇▇▇▇▇▇▇▇.▇▇
▇▇▇▇▇▇▇▇-▇▇▇▇▇▇▇-▇▇▇▇▇▇▇▇.▇▇▇
▇▇▇▇▇▇▇▇-▇▇▇▇▇▇▇-▇▇▇▇▇▇▇▇.▇▇▇
▇▇▇▇▇▇▇▇-▇▇▇▇▇▇▇-▇▇▇▇▇▇▇▇.▇▇▇
▇▇▇▇▇▇▇▇▇▇▇▇▇▇▇▇▇▇.▇▇▇
Switzerland ▇▇▇▇▇▇▇▇▇▇▇▇▇▇▇▇.▇▇
Luxemburg ▇▇▇▇▇▇▇▇▇▇▇▇▇▇▇▇.▇▇
Austria ▇▇▇▇▇▇▇▇▇▇▇▇▇▇▇▇.▇▇
Austria commercial ▇▇▇▇▇▇▇▇▇▇▇▇▇▇▇▇.▇▇.▇▇
United Kingdom ▇▇▇▇▇▇▇▇▇▇▇▇▇▇▇▇.▇▇.▇▇
Singapore ▇▇▇▇▇▇▇▇▇▇▇▇▇▇▇▇.▇▇
Singapore commercial ▇▇▇▇▇▇▇▇▇▇▇▇▇▇▇▇.▇▇▇.▇▇
Germany ▇▇▇▇▇▇▇▇▇▇▇▇▇▇▇▇.▇▇
▇▇▇▇▇▇▇▇▇▇.▇▇
Australia softwarespectrum.au
Hong Kong commercial ▇▇▇▇▇▇▇▇▇▇▇▇▇▇▇▇.▇▇▇.▇▇
New Zealand ▇▇▇▇▇▇▇▇▇▇▇▇▇▇▇▇.▇▇.▇▇
▇▇▇▇▇▇▇▇▇▇.▇▇.▇▇
* The Company is allowing this domain name to expire.
4. The Company has applied for the following domain names.
COUNTRY DOMAIN NAME
------- -----------
United States ▇▇▇▇▇▇▇▇▇▇▇▇▇▇▇▇.▇▇▇
▇▇▇▇▇▇▇▇▇▇▇▇▇▇▇▇.▇▇▇▇
▇▇▇▇▇▇▇▇-▇▇▇▇▇▇▇▇.▇▇▇
▇▇▇▇▇▇▇▇-▇▇▇▇▇▇▇▇.▇▇▇▇
▇▇▇▇▇▇▇▇▇▇▇▇▇▇▇▇▇▇▇▇▇▇▇.▇▇▇
▇▇▇▇▇▇▇▇▇▇▇▇▇▇▇▇▇▇▇▇▇▇▇.▇▇▇▇
▇▇▇▇▇▇▇▇-▇▇▇▇▇▇▇-▇▇▇▇▇▇▇▇.▇▇▇
▇▇▇▇▇▇▇▇-▇▇▇▇▇▇▇-▇▇▇▇▇▇▇▇.▇▇▇▇
▇▇▇▇▇▇▇▇▇▇▇▇▇▇▇.▇▇▇
▇▇▇▇▇▇▇▇▇▇▇▇▇▇▇.▇▇▇▇
Ireland ▇▇▇▇▇▇▇▇▇▇▇▇▇▇▇▇.▇▇
The Netherlands ▇▇▇▇▇▇▇▇▇▇▇▇▇▇▇▇.▇▇
24
SCHEDULE 4.14
LABOR RELATIONS
o None.
25
SCHEDULE 4.15
EMPLOYEE BENEFITS
SUB-SECTION (a)
A. Plans:
o Software Spectrum, Inc. Health Care Benefits Plan (POS) (Medical
Benefits, Organ/Tissue Transplant Benefits, Prescription Drug Benefits)
o Software Spectrum, Inc. Health Care Benefits Plan (PPO) (Medical
Benefits, Organ/Tissue Transplant Benefits, Prescription Drug Benefits)
o Software Spectrum, Inc. Dental Care Benefits Plan (Dental Benefits)
o Software Spectrum, Inc. Health Care Benefits Plan (Executive PPO)
(Medical Benefits, Organ/Tissue Transplant Benefits, Prescription Drug
Benefits)
o Software Spectrum, Inc. Health Care Benefits Plan (Executive POS)
(Medical Benefits, Organ/Tissue Transplant Benefits, Prescription Drug
Benefits)
o Software Spectrum, Inc. Employee's Profit Sharing Plan (401(k) Profit
Sharing Plan)
o Flexible Spending Plan for Software Spectrum, Inc. (Health Care
Spending Accounts and Dependent Care Spending Accounts)
o Dental Insurance
o Life Insurance
o Dependent Life Insurance
o Accidental Death and Dismemberment Insurance
o Short-Term Disability
o Long-Term Disability
o Supplemental Employee Life Insurance
o Supplemental Employee Accidental Death and Dismemberment (AD&D)
Insurance
o Supplemental Dependent Life Insurance
o Supplemental Dependent AD&D Insurance
o Hyatt Legal Services
o AFLAC (voluntary benefits)
o Employee Assistance Program
o Floating Holidays
o Company Paid Holidays
o Vacation Time
o Sick Leave
o Software Spectrum, Inc. Amended and Restated Employee Stock Purchase
Plan
o Software Spectrum, Inc. 1998 Long-Term Incentive Plan, as Amended
o Software Spectrum, Inc. Amended and Restated 1993 Long-Term Incentive
Plan
o Severance Guidelines
o Executive Disability Program (Officers and Directors)
o Executive Physical Program (Officers)
o Annual Bonus Program (Managers, Directors, Officers)
o Performance Incentive Program (Managers, Directors, Officers)
o Long-Term Incentive Program (Officers)
26
o Management Continuity Agreements with each of the Company's executive
officers listed under Sub-Section (a)(xi) of Schedule 4.12.
o Operating Income or Adjusted Gross Profit Bonus (as specified for
Managers and Directors)
o Commission Plans (as specified for Sales Professionals)
o Executive Assistant Bonus Program
B. Foreign Plans(3):
COUNTRY COVERAGE TYPE
------- -------------
IRELAND o Pension
o Life Insurance
o Disability Insurance
o Private Health Insurance
o Sick Pay Scheme
o Annual Leave Policy
U.K. o Pension
o Life Insurance
o Disability Insurance
o Sick Pay Scheme
o Annual Leave Policy
THE NETHERLANDS o Pension
o Life Insurance
o Disability Insurance
o Sick Pay Scheme
o Annual Leave Policy
GERMANY o Life Insurance
o Disability Insurance
o Sick Pay Scheme
o Annual Leave Policy
ITALY o Life Insurance
o Disability Insurance
o Sick Pay Scheme
o Annual Leave Policy
----------
(3) Additional benefits such as vacation and car allowances may be provided
according to country practice. In addition, statutory benefits and practices,
such as severance and notice periods and leave for family and medical reasons,
are in place as required by local law.
27
COUNTRY COVERAGE TYPE
------- -------------
SWEDEN o Pension
o Life Insurance
o Disability Insurance
o Sick Pay Scheme
o Annual Leave Policy
o Stock Options
FRANCE o Life Insurance
o Disability Insurance
o Sick Pay Scheme
o Annual Leave Policy
FINLAND o Sick Pay Scheme
o Annual Leave Policy
o No Other Company-Sponsored Benefits Provided
AUSTRALIA o Superannuation Plan
o Sick Leave
o Annual Leave
o Long Service Leave
HONG KONG o Annual Leave
o No Other Company Sponsored Benefits Provided
SINGAPORE o Sick Pay Scheme
o Annual Leave Policy
o No Other Company Sponsored Benefits Provided
NEW ZEALAND o Sick Pay Scheme
o Annual Leave Policy
o No Other Company Sponsored Benefits Provided
CANADA o Supplemental Medical and Dental Coverage
o Life and AD& D Insurance
o Long Term Disability Coverage
o Retirement Savings Plan
o Sick Time
o Vacation Time
28
BENEFITS PROVIDED TO ELIGIBLE EMPLOYEES LOCATED OUTSIDE OF THE UNITED STATES
The following benefits, which are contained in the Company's Plans, are made
available to eligible employees located outside of the United States:
o Annual Bonus Program (Selected Managers, Directors)
o Performance Incentive Program (Managers, Directors)
o Operating Income or Adjusted Gross Profit Bonus (as specified for
Managers and Directors)
o Commission Plan (as specified for Sales Professionals)
o Stock Option Program
SUB-SECTION (g)
o None
SUB-SECTION (h)
1. As soon as practical following consummation of the Merger, the
Company will be required to pay to each participant in the Company's
Non-Employee Directors' Stock Retainer Plan, in a single lump-sum cash payment,
an amount (if any) equal to the fair market value of the stock equivalents
credited to the participant's deferral account under such plan as of the date of
the consummation of the Merger.
2. The Company has entered into Management Continuity Agreements with
each of its executive officers as listed in Sub-Section (a)(xi) of Schedule
4.12. Depending on the extent to which an executive officer remains employed by
the Company or its successor after consummation of the Merger and the
circumstances under which an executive officer's employment with the Company or
its successor terminates after consummation of the Merger, certain payments and
the provision of other benefits to the executive officer may be required under
such agreements.
3. See Section 7.7(e) of the Agreement.
SUB-SECTION (i)
The following payments and benefits may be treated as "parachute
payments" within the meaning of Section 280G of the Code: (i) accelerated
vesting of stock options in accordance with Section 2.2 of the Agreement; (ii)
the payment under the LTIP in accordance with Section 7.7(e) of the Agreement;
and (iii) payments and benefits provided pursuant the Management Continuity
Agreements between the Company and each of its executive officers, as described
in Paragraph 2 of Sub-Section (h), above. Depending on the extent to which an
executive officer remains employed by the Company or its successor after
consummation of the Merger and the circumstances under which an executive
officer's employment with the Company or its successor terminates after
consummation of the Merger, some part or all of the foregoing payments and
benefits may fail to be deductible for Federal income tax purposes by reason of
Section 280G of the Code.
29
SCHEDULE 4.16
LITIGATION
The following actions are pending; however, the Company does not
believe that an adverse judgement would individually or in the aggregate be
material to the Company:
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇ V. SOFTWARE SPECTRUM, INC. AND ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇
Former mail room employee, employed for five months from December 1997
to May 1998 before resigning from the Company, filed a lawsuit in District Court
in Dallas County alleging sexual harassment, sex discrimination, retaliation,
negligent retention, training and supervision, assault and battery and
wrongful/constructive discharge. ▇▇. ▇▇▇▇▇▇▇ seeks unspecific monetary damages.
Software Spectrum denies her claims. Software Spectrum's amended motion for
summary judgment was granted by the trial court. ▇▇. ▇▇▇▇▇▇▇ appealed the trial
court's decision, and the El Paso Court of Appeals rendered a reversal of the
decision of the trial court with respect to ▇▇. ▇▇▇▇▇▇▇'▇ claims of sexual
harassment, sex discrimination, retaliation, assault and battery and
wrongful/constructive discharge. The Appeals Court affirmed the trial court's
decision on negligent retention, training and supervision. No insurance carriers
have been notified with respect to this claim, as the claim does not fall within
coverage provided by the Company's existing insurance policies.
▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ V. SOFTWARE SPECTRUM PTY LIMITED
The former Managing Director of Software Spectrum's APAC operations,
who was employed by Software Spectrum for approximately two and one half months,
was separated from Software Spectrum in December 2000. Upon separation, ▇▇.
▇▇▇▇▇▇▇▇ was paid all sums due to him under his employment agreement. ▇▇.
▇▇▇▇▇▇▇▇ subsequently filed an action with the Industrial Relations Commission
of New South Wales, Australia seeking a determination by the Commission that the
employment agreement between Software Spectrum and ▇▇. ▇▇▇▇▇▇▇▇ is unfair, harsh
and unconscionable and against the public interest. Software Spectrum denies his
claims. ▇▇. ▇▇▇▇▇▇▇▇ seeks monetary damages in the approximate amount of
A$1,400,000 plus a grant of 5,000 stock options to replace options that expired
upon his separation from the Company. At mediation, ▇▇. ▇▇▇▇▇▇▇▇'▇ last offer of
settlement was A$860,000. The action should proceed to a hearing before the
Industrial Relations Commission in Summer/Fall 2002. No insurance carriers have
been notified with respect to this claim, as the claim does not fall within
coverage provided by the Company's existing insurance policies.
▇▇▇▇ ▇▇▇▇▇▇▇
▇▇▇▇ ▇▇▇▇▇▇▇, the former President of Contact Services, has made a
claim in connection with his separation from the Company, which was effective
April 12, 2002. ▇▇. ▇▇▇▇▇▇▇ asserts that he is owed payments under his
Management Continuity Agreement as a result of the Company's hiring Omni
International LLC, an investment bank hired to identify and evaluate potential
Contact Services acquisitions on behalf of the Company. The Company disagrees
with ▇▇. ▇▇▇▇▇▇▇'▇ claim and his interpretation of the Management Continuity
Agreement. ▇▇. ▇▇▇▇▇▇▇'▇ claim falls under his Arbitration Agreement with the
Company.
30
SCHEDULE 4.17
ENVIRONMENTAL MATTERS
o None
31
SCHEDULE 4.18
TAX MATTERS
SUB-SECTION (a) (i)
1. Amended state income tax returns have not been filed for the
following jurisdictions to reflect the results of the Company's audited federal
income tax returns: California, Florida, Georgia, Illinois, Kentucky Michigan,
Minnesota, North Carolina,
New York,
New York City, Ohio, and Pennsylvania. The
resulting state and local income tax liability is expected to be approximately
$65,000.
2. The Company recently identified five states in which the activity of
its sales force could create income tax nexus. The resulting potential income
tax liability in these five states is expected to be under $25,000.
3. Beginning in mid-2000, the Company inadvertently collected Canadian
sales taxes with respect to certain Canadian transactions. As of April 30, 2002,
all such taxes collected have been remitted to the appropriate authorities in
all material respects.
SUB-SECTION (a) (ii)
o See Sub-Section (a) (i) above.
SUB-SECTION (a) (iii)
o None
SUB-SECTION (a) (iv)
o None
SUB-SECTION (a) (v)
1. Presently, the Company is under audit or has audits scheduled for
the following jurisdictions: Missouri (sales), Louisiana (sales) Greenwood
Village & Lakewood Colorado (sales), New Orleans (sales) Minnesota (sales & use)
Illinois (sales & use), Texas (sales & use) Washington (sales, business &
occupations), and North Carolina (income, sales & use).
2. Software Spectrum Canada, Ltd. is under a British Columbia sales tax
audit.
SUB-SECTION (a) (vi)
1. The Company has entered into an agreement with the City of New
Orleans Bureau of Revenue in which it agreed to waive the statute of limitations
period through December 31, 2002, with respect to a sales tax audit associated
with calendar year 1998.
32
SUB-SECTION (a) (vii)
1. Software Spectrum US consolidated federal returns have been audited
for the year ended March 30, 1997 through the year ended April 30, 1999. These
years are closed for federal purposes.
SUB-SECTION (a) (viii)
o None
SUB-SECTION (a) (ix)
o None
SUB-SECTION (a) (x)
o None
33
SCHEDULE 4.19
BROKERS
1. The Company engaged Sheffield Merchant Banking Group in connection
with the Transactions. Under the terms of its arrangement with Sheffield, the
Company will pay Sheffield $1,250,000 plus expenses upon the consummation of the
Transactions.
2. The Company engaged SunTrust ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ in connection with
the Transactions to render to the Board of Directors a fairness opinion. Under
the terms of its arrangement with SunTrust, the Company will pay SunTrust
$300,000 for its preparation and delivery of a fairness opinion.
34
SCHEDULE 4.21
CUSTOMERS AND SUPPLIERS
Software Spectrum, Inc.
Top Publisher Sales
Trailing 12 Months Ended March 31, 2002
(dollar amounts in thousands)
Total Consolidated Sales $1,308,027
TOTAL %
----- ---
MICROSOFT $ 863,736 66%
IBM/LOTUS $ 159,062 12%
35
SCHEDULE 6.1
CONDUCT OF BUSINESS
As used on this Schedule, the term "the Company" refers to the Company and its
subsidiaries collectively, unless otherwise indicated or unless the context
otherwise requires.
SUB-SECTION (a)
o As provided in the lease, the Company has received notice from the
landlord under the Lease between ▇▇▇▇▇▇ Engineering Inc. and Software
Spectrum Limited, commencing March 18, 1997 and under the Lease between
Combined Insurance Company of Ireland Limited and Software Spectrum
Limited, dated August 5, 1997 that the landlord is undertaking the rent
review process provided for therein.
SUB-SECTION (b)
o None
SUB-SECTION (c) (i) (A)
o None
SUB-SECTION (c) (i) (B)
o Under the Software Spectrum, Inc. Amended and Restated Employee Stock
Purchase Plan, prior to the suspension or termination of this plan
pursuant to Section 6.6 of the Agreement the Company is obligated to
make one final open market purchase of the Company's shares on May 15,
2002 on behalf of the participants in the plan.
SUB-SECTION (c) (ii)
o The Company may issue shares in the ordinary course of business
pursuant to stock option exercises under the Software Spectrum, Inc.
1993 and 1998 Long-Term Incentive Plans.
o See also the disclosure under Sub-Section (c)(i)(B) above regarding the
Employee Stock Purchase Plan.
SUB-SECTION (c) (iii)
o None
SUB-SECTION (c) (iv)
o None
36
SUB-SECTION (c) (v)
o The Company has engaged Sheffield Merchant Banking Group in connection
with the Transactions. Under the terms of its arrangement with
Sheffield, the Company will pay Sheffield $1,250,000 plus expenses upon
the consummation of the Transactions. ▇▇▇▇▇▇ ▇. ▇▇▇, a member of the
Company's Board of Directors, is a Managing Member of Sheffield
Merchant Banking Group. The Company believes that the terms reflect an
arms-length transaction and are customary for the nature of the
services rendered. The fees and expenses payable under this arrangement
will be paid following the date of the Agreement.
SUB-SECTION (d)
o The Company has recently been advised by a third party publisher that
it has been selected to provide outsourced technical support for such
publisher. The parties are currently negotiating the terms of the
Outsourcing Services Agreement and related agreements. In connection
with this relationship, the Company has been requested by such
publisher to sublease facilities from such publisher. The Company
anticipates that it will require approximately $2.25 million of capital
expenditures in connection with its sublease of and provision of
services from this new facility.
o The Company anticipates spending approximately $500,000 in planned
information technology capital expenditures for the period ending July
31, 2002.
SUB-SECTION (e) (i)
o None
SUB-SECTION (e) (ii)
o The Company will continue to accrue amounts under its standard bonus
plans and salary and commission arrangements for employees (which will
include accruals for Salaried Employees and other employees) in the
ordinary course of its business pursuant to contracts or plans in
effect as of the date of the Agreement.
SUB-SECTION (e) (iii)
o Pursuant to Section 6.6 of the Agreement, the Company will either (i)
amend the terms of the Employee Stock Purchase Plan to suspend activity
thereunder or (ii) terminate such plan.
SUB-SECTION (e) (iv)
o The Company may enter into employment agreements in the ordinary course
of business consistent with past practices solely with employees of its
APAC and EMEA regions. The Company also may enter into severance
agreements in the
37
ordinary course of business consistent with its severance practices as
set forth in the Severance Guidelines referenced in Schedule 4.15 to
the Agreement.
SUB-SECTION (e) (v)
o None
SUB-SECTION (E) (VI)
o None
SUB-SECTION (f)
o The Company has received notice from IBM of its intent to move all Tier
I Business Partners in the software resale channel to Tier II status
effective July 1, 2002 with the result that the current IBM Business
Partner Agreement will be terminated with an effective date of July 1,
2002.
o See the disclosure above in Sub-Section (a) regarding the Dublin real
estate rent review process.
SUB-SECTION 6.1 (g) (A) AND (B)
o The Company is in discussions with IBM Global Financing to extend the
term of the Remarketer Finance Agreement, dated December 31, 2001
between Software Spectrum Canada, Ltd. and IBM Global Financing and the
Financing Letter, dated December 31, 2001 - Offer by IBM Global
Financing, a division of IBM Canada Limited to provide financing of
purchases to Software Spectrum Canada, Ltd., issued in connection
therewith. The Company expects to issue a Letter of Credit in the
approximate amount of CAN$3,000,000 to secure its obligations under the
new financing arrangements.
o The Company is attempting to sublease its Contact Center facility
located in North Richland Hills, Texas. Given the prevailing real
estate market for this type of space in the DFW area, in any sublease
transaction, the Company expects to incur a one-time expense for the
difference between the Company's rental rates under its lease and the
prevailing rental rates in the DFW market.
o See the disclosure above in Sub-Section (a) regarding the Dublin real
estate rent review process.
SUB-SECTION (g) (C)
o None
SUB-SECTION (g) (D)
o The Company may occasionally provide extended payment terms to
customers of its Product Services business in the ordinary course of
business.
38
SUB-SECTION (h)
o Effective May 1, 2002, the Company will adopt FAS 142, which is
required by GAAP.
SUB-SECTION (i)
o See the disclosure above in Sub-Section (d).
SUB-SECTION (j)
o None
SUB-SECTION (k)
o None
SUB-SECTION (l)
o The Merger transaction is not permitted by the Company's Amended and
Restated Credit Agreement, dated March 11, 1998, among Software
Spectrum, Inc., ▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇ Bank as Administrative Agreement, ▇▇
▇▇▇▇▇▇ as Collateral Agent and the Lenders Named Therein. The banks'
consent would be required, or in the alternative, the Company has the
right to early termination of the banks' obligations for an early
termination fee of $750,000.
SUB-SECTION (m)
o Effective with the renewal of its comprehensive insurance polices for
the fiscal year beginning May 1, 2002 the Company has determined to
reduce its umbrella insurance coverage from $40 million to $25 million.
SUB-SECTION (n)
o None
SUB-SECTION (o)
o None
SUB-SECTION (p)
o None
39
SCHEDULE 7.6
SUBSIDIARIES
Spectrum Integrated Services, Inc.
Software Spectrum B.V. (Netherlands)
Software Spectrum Canada, Ltd.
Software Spectrum GmbH (Germany)
Software Spectrum Holdings Pty Limited (Australia)
Software Spectrum Limited (Ireland)
Software Spectrum Services B.V. (Netherlands)
Software Spectrum (U.K.) Limited
40