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AGREEMENT AND PLAN OF MERGER
Among
THE THOMSON CORPORATION,
SABRE ACQUISITION, INC.
and
COMPUTER LANGUAGE RESEARCH, INC.
Dated as of January 12, 1998
================================================================================
<PAGE> 2
Glossary of Defined Terms
(Not Part of This Agreement)
Defined Term Location of Definition
------------ ----------------------
affiliate............................................ ss. 9.03(a)
Agreement............................................ Preamble
beneficial owner..................................... ss. 9.03(b)
Blue Sky Laws........................................ ss. 3.05(b)
Board................................................ Recitals
business day......................................... ss. 9.03(c)
Certificate of Merger................................ ss. 2.02
Certificates......................................... ss. 2.09(b)
Code................................................. ss. 3.10(a)
Company.............................................. Preamble
Company Common Stock................................. Recitals
Company Preferred Stock.............................. ss. 3.03
Conditional Optionees................................ ss. 2.07(e)
Conditional Options.................................. ss. 2.07(e)
Confidentiality Agreement............................ ss. 6.04(b)
control.............................................. ss. 9.03(d)
Delaware Law......................................... Recitals
Disclosure Schedule.................................. ss. 3.01(a)
Dissenting Shares.................................... ss. 2.08(a)
Effective Time....................................... ss. 2.02
Environmental Laws................................... ss. 3.16(a)
Environmental Permits................................ ss. 3.16(b)
ERISA................................................ ss. 3.10(a)
ERISA Affiliate...................................... ss. 3.10(a)
Exchange Act......................................... ss. 1.02(b)
Hazardous Substances................................. ss. 3.16(a)
HSR Act.............................................. ss. 3.05(b)
Indemnified Parties.................................. ss. 6.07(b)
Intellectual Property................................ ss. 9.03(f)
IRS.................................................. ss. 3.10(a)
Licensed Intellectual Property....................... ss. 9.03(f) and (g)
Liens................................................ ss. 3.13(b)
Majority Shareholders................................ Recitals
Material Adverse Effect.............................. ss. 3.01(a)
Material Licensed Intellectual Property.............. ss. 3.14(a)
Material Subsidiary.................................. ss. 3.01(b)
Merger............................................... Recitals
Merger Consideration................................. ss. 2.06(a)
<PAGE> 3
Defined Term Location of Definition
------------ ----------------------
Minimum Condition.................................... ss. 1.01(a)
Multiemployer Plan................................... ss. 3.10(b)
Multiple Employer Plan............................... ss. 3.10(b)
1982 Options......................................... ss. 2.07(a)
1982 Plan............................................ ss. 2.07(a)
1994 Options......................................... ss. 2.07(c)
1994 Plan............................................ ss. 2.07(c)
1996 Balance Sheet................................... ss. 3.07(c)
1997 Incentive Plan.................................. ss. 2.07(j)
1997 Options......................................... ss. 2.07(b)
1997 Plan............................................ ss. 2.07(b)
Offer................................................ Recitals
Offer Conditions..................................... ss.1.01(a)
Offer Documents...................................... ss. 1.01(b)
Offer to Purchase.................................... ss. 1.01(b)
Officers' Incentive Plan............................. ss. 2.07(j)
Optionees............................................ ss. 2.07(a)
Owned Intellectual Property.......................... ss. 3.14(a)
Parent............................................... Preamble
Paying Agent......................................... ss. 2.09(a)
Per Share Amount..................................... Recitals
Permits.............................................. ss. 3.06
Permitted Liens...................................... ss. 3.13(b)
person............................................... ss. 9.03(e)
Plans................................................ ss. 3.10(a)
Proxy Statement...................................... ss. 3.12
Retention Bonus Plan................................. ss. 2.07(i)
Purchaser............................................ Preamble
Schedule 14D-1....................................... ss. 1.01(b)
Schedule 14D-9....................................... ss. 1.02(b)
Scheduled Intellectual Property...................... ss. 3.14(a)
SEC.................................................. ss. 1.01(a)
SEC Reports.......................................... ss. 3.07(a)
Securities Act....................................... ss. 3.07(a)
Shares............................................... Recitals
Software............................................. ss. 9.03(h)
Stock Purchase Agreement............................. Recitals
Stockholders' Meeting................................ ss. 6.01(a)
Subsidiary........................................... ss. 3.01(a)
subsidiary........................................... ss. 9.03(i)
ii
<PAGE> 4
Defined Term Location of Definition
------------ ----------------------
Surviving Corporation................................ ss. 2.01
Taxes or taxes....................................... ss. 3.15
Texas Law............................................ Recitals
Transactions......................................... ss. 3.04
Vested Options....................................... ss. 2.07(d)
Vested Percentage.................................... ss. 2.07(a)
WARN................................................. ss. 3.10(f)
Year 2000 Compliant.................................. ss. 9.03(j)
iii
<PAGE> 5
TABLE OF CONTENTS
ARTICLE I
THE OFFER
SECTION 1.01. The Offer............................................. 2
SECTION 1.02. Company Action........................................ 3
ARTICLE II
THE MERGER
SECTION 2.01. The Merger............................................ 5
SECTION 2.02. Effective Time; Closing............................... 5
SECTION 2.03. Effect of the Merger.................................. 5
SECTION 2.04. Articles of Incorporation; By-laws.................... 5
SECTION 2.05. Directors and Officers................................ 6
SECTION 2.06. Conversion of Securities.............................. 6
SECTION 2.07. Stock Options; Equity Compensation and Bonus
Arrangements.......................................... 6
SECTION 2.08. Dissenting Shares..................................... 9
SECTION 2.09. Surrender of Shares; Stock Transfer Books............. 10
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
SECTION 3.01. Organization and Qualification; Subsidiaries.......... 11
SECTION 3.02. Articles of Incorporation and By-laws................. 12
SECTION 3.03. Capitalization........................................ 12
SECTION 3.04. Authority Relative to This Agreement.................. 13
SECTION 3.05. No Conflict; Required Filings and Consents............ 13
SECTION 3.06. Compliance............................................ 14
SECTION 3.07. SEC Filings; Financial Statements..................... 15
SECTION 3.08. Absence of Certain Changes or Events.................. 16
SECTION 3.09. Absence of Litigation................................. 16
SECTION 3.10. Employee Benefit Plans................................ 17
SECTION 3.11. Labor Matters......................................... 19
SECTION 3.12. Offer Documents; Schedule 14D-9; Proxy Statement...... 19
SECTION 3.13. Real Property and Leases; Personal Property........... 20
SECTION 3.14. Intellectual Property................................. 21
SECTION 3.15. Taxes................................................. 24
SECTION 3.16. Environmental Matters................................. 25
iv
<PAGE> 6
Page
SECTION 3.17. Brokers............................................... 26
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF PARENT AND PURCHASER
SECTION 4.01. Corporate Organization................................ 26
SECTION 4.02. Authority Relative to This Agreement.................. 27
SECTION 4.03. No Conflict; Required Filings and Consents............ 27
SECTION 4.04. Financing............................................. 28
SECTION 4.05. Offer Documents; Proxy Statement...................... 28
SECTION 4.06. Brokers............................................... 28
SECTION 4.07. Absence of Litigation................................. 28
SECTION 4.08. No Prior Activities................................... 29
SECTION 4.09. Parent Not an Affiliated Shareholder.................. 29
ARTICLE V
CONDUCT OF BUSINESS PENDING THE MERGER
SECTION 5.01. Conduct of Business by the Company Pending the Merger. 29
ARTICLE VI
ADDITIONAL AGREEMENTS
SECTION 6.01. Stockholders' Meeting................................. 31
SECTION 6.02. Proxy Statement....................................... 32
SECTION 6.03. Company Board Representation; Section 14(f)........... 32
SECTION 6.04. Access to Information; Confidentiality................ 33
SECTION 6.05. No Solicitation of Transactions....................... 34
SECTION 6.06. Employee Benefits Matters............................. 34
SECTION 6.07. Directors' and Officers' Indemnification and
Insurance............................................. 35
SECTION 6.08. Notification of Certain Matters....................... 37
SECTION 6.09. Further Action; Reasonable Best Efforts............... 37
SECTION 6.10. Public Announcements.................................. 37
SECTION 6.11. Confidentiality Agreement............................. 37
v
<PAGE> 7
Page
ARTICLE VII
CONDITIONS TO THE MERGER
SECTION 7.01. Conditions to the Merger.............................. 38
ARTICLE VIII
TERMINATION, AMENDMENT AND WAIVER
SECTION 8.01. Termination........................................... 38
SECTION 8.02. Effect of Termination................................. 40
SECTION 8.03. Fees and Expenses..................................... 40
SECTION 8.04. Amendment............................................. 40
SECTION 8.05. Waiver................................................ 40
ARTICLE IX
GENERAL PROVISIONS
SECTION 9.01. Non-Survival of Representations, Warranties and
Agreements............................................ 40
SECTION 9.02. Notices............................................... 40
SECTION 9.03. Certain Definitions................................... 42
SECTION 9.04. Severability.......................................... 44
SECTION 9.05. Entire Agreement; Assignment.......................... 44
SECTION 9.06. Parties in Interest................................... 44
SECTION 9.07. Specific Performance.................................. 44
SECTION 9.08. Governing Law......................................... 45
SECTION 9.09. Headings.............................................. 45
SECTION 9.10. Counterparts.......................................... 45
SECTION 9.11. Waiver of Jury Trial.................................. 45
ANNEX A - Conditions to the Offer
vi
<PAGE> 8
AGREEMENT AND PLAN OF MERGER, dated as of January 12, 1998 (this
"Agreement"), among THE THOMSON CORPORATION, a corporation incorporated under
the laws of Ontario, Canada ("Parent"), SABRE ACQUISITION, INC., a Delaware
corporation and a wholly owned subsidiary of Parent ("Purchaser"), and COMPUTER
LANGUAGE RESEARCH, INC., a Texas corporation (the "Company").
WHEREAS, the Boards of Directors of Parent, Purchaser and the
Company have each determined that it is in the best interests of their
respective stockholders for Parent to acquire the Company upon the terms and
subject to the conditions set forth herein; and
WHEREAS, in furtherance of such acquisition, it is proposed that
Purchaser shall make a cash tender offer (the "Offer") to acquire all the issued
and outstanding shares of Common Stock, par value $.01 per share, of the Company
("Company Common Stock") (shares of Company Common Stock being hereinafter
collectively referred to as "Shares") for $22.50 per Share (such amount, or any
greater amount per Share paid pursuant to the Offer, being hereinafter referred
to as the "Per Share Amount") net to the seller in cash, upon the terms and
subject to the conditions of this Agreement and the Offer; and
WHEREAS, the Board of Directors of the Company (the "Board") has
unanimously approved the making of the Offer and resolved and agreed, upon the
terms and subject to the conditions set forth herein, to recommend that holders
of Shares tender their Shares pursuant to the Offer; and
WHEREAS, also in furtherance of such acquisition, the Boards of
Directors of Parent, Purchaser and the Company have each approved the merger
(the "Merger") of Purchaser with and into the Company in accordance with the
General Corporation Law of the State of Delaware ("Delaware Law") and the Texas
Business Corporation Act ("Texas Law") following the consummation of the Offer
and upon the terms and subject to the conditions set forth herein; and
WHEREAS, Parent, Purchaser and certain stockholders of the Company
(the "Majority Shareholders") have entered into a Stock Purchase Agreement,
dated as of the date hereof (the "Stock Purchase Agreement"), providing for,
among other things, each Majority Shareholder to sell to Purchaser, and
Purchaser to purchase from each Majority Shareholder, all of his, her or its
Shares at the Per Share Amount, subject to the conditions set forth therein, and
an agreement by each Majority Shareholder to tender all of his, her or its
Shares pursuant to the Offer;
NOW, THEREFORE, in consideration of the foregoing and the mutual
covenants and agreements herein contained, and intending to be legally bound
hereby, Parent, Purchaser and the Company hereby agree as follows:
<PAGE> 9
ARTICLE I
THE OFFER
SECTION 1.01. The Offer. (a) Provided that this Agreement shall not
have been terminated in accordance with Section 8.01 and none of the events set
forth in paragraphs (a) through (g) in Annex A hereto shall have occurred or be
existing, Purchaser shall commence the Offer as promptly as reasonably
practicable after the date hereof, but in no event later than five business days
after the initial public announcement of this Agreement. The obligation of
Purchaser to accept for payment and pay for Shares tendered pursuant to the
Offer shall be subject to the condition (the "Minimum Condition") that at least
two-thirds of the then outstanding Shares on a fully diluted basis (including,
without limitation, all Shares issuable upon the conversion of any convertible
securities or upon the exercise of any options, warrants or rights) shall have
been validly tendered and not withdrawn prior to the expiration of the Offer and
also shall be subject to the satisfaction of the other conditions set forth in
Annex A hereto (collectively with the Minimum Condition, the "Offer
Conditions"). Purchaser expressly reserves the right to waive any of the Offer
Conditions, to increase the price per Share payable in the Offer and to modify
other terms of the Offer; provided, however, without the prior consent of the
Company, Purchaser shall not (i) waive the Minimum Condition or reduce the
number of Shares subject to the Offer, (ii) reduce the price per Share payable
in the Offer, (iii) extend the Offer or amend or add to the Offer Conditions,
(iv) change the form of consideration payable in the Offer, or (v) amend, add or
waive any other term of the Offer in any manner that would adversely affect the
Company or its stockholders. Notwithstanding the foregoing, Purchaser (i) shall
not terminate and shall extend the Offer, up to February 28, 1998 if, at the
initial scheduled expiration of the Offer (which shall be 20 business days
following commencement of the Offer), or any extension thereof, any of the Offer
Conditions shall not be satisfied or waived by Purchaser (provided, that if the
only unsatisfied Offer Condition shall be the failure of the waiting period
under the HSR Act to have expired or been terminated, then Purchaser shall
extend the Offer, for one or more periods of not more than 10 business days,
pursuant to this clause (i) up to May 15, 1998), (ii) shall extend the Offer for
any period required by any rule, regulation or interpretation of the Securities
and Exchange Commission (the "SEC") or the staff thereof applicable to the
Offer, and (iii) may, without the consent of the Company, extend the Offer for
an aggregate period of not more than 10 business days beyond the latest
applicable date that would otherwise be permitted under clause (i) or (ii) of
this sentence if, as of such date, all of the Offer Conditions are satisfied or
waived by Purchaser, but the number of Shares validly tendered and not withdrawn
pursuant to the Offer equals 80% or more, but less than 90%, of the then
outstanding Shares on a fully diluted basis. The Per Share Amount shall, subject
to applicable withholding of taxes, be net to the seller in cash, upon the terms
and subject to the conditions of the Offer. Subject to the terms and conditions
of the Offer (including, without limitation, the Minimum Condition), Purchaser
shall accept Shares for payment and shall pay for all Shares validly tendered
and not withdrawn as soon as it is permitted to do so under applicable law.
2
<PAGE> 10
(b) As promptly as reasonably practicable on the date of
commencement of the Offer, Purchaser shall file with the SEC a Tender Offer
Statement on Schedule 14D-1 (together with all amendments and supplements
thereto, the "Schedule 14D-1") with respect to the Offer. The Schedule 14D-1
shall contain or shall incorporate by reference an offer to purchase (the "Offer
to Purchase") and forms of the related letter of transmittal and any related
summary advertisement (the Schedule 14D-1, the Offer to Purchase and such other
documents, together with all supplements and amendments thereto, being referred
to herein collectively as the "Offer Documents"). The Company and its counsel
shall be given a reasonable opportunity to review and comment upon the Offer
Documents prior to the filing thereof with the SEC. Parent, Purchaser and the
Company agree to correct promptly any information provided by any of them for
use in the Offer Documents which shall have become false or misleading, and
Parent and Purchaser further agree to take all steps necessary to cause the
Schedule 14D-1 as so corrected to be filed with the SEC and the other Offer
Documents as so corrected to be disseminated to holders of Shares, in each case
as and to the extent required by applicable federal securities laws. Parent and
Purchaser agree to provide the Company and its counsel with any comments Parent,
Purchaser or their counsel may receive from the SEC or its staff with respect to
the Offer Documents promptly after receipt of such comments.
(c) Parent shall provide or cause to be provided to Purchaser on a
timely basis the funds necessary to accept for payment, and pay for, any Shares
that Purchaser becomes obligated to accept for payment, and pay for, pursuant to
the Offer.
SECTION 1.02. Company Action. (a) The Company hereby approves of and
consents to the Offer and represents that (i) the Board, at a meeting duly
called and held on January 12, 1998, unanimously adopted resolutions (A)
determining that this Agreement and the transactions contemplated hereby,
including each of the Offer and the Merger, are fair to and in the best
interests of the holders of Shares, (B) approving and adopting this Agreement
and the transactions contemplated hereby and (C) recommending that the
stockholders of the Company accept the Offer and, if required, approve and adopt
this Agreement and the transactions contemplated hereby, and (ii) Goldman, Sachs
& Co. has delivered to the Board its opinion (which will be confirmed in
writing) to the effect that the consideration to be received by the holders of
Shares pursuant to each of the Offer and the Merger is fair to the holders of
Shares from a financial point of view. The Company hereby consents to the
inclusion in the Offer Documents of the recommendation of the Board described in
the immediately preceding sentence. The Company has been advised by each of its
directors and executive officers that they intend either to tender all Shares
beneficially owned by them to Purchaser pursuant to the Offer or to vote such
Shares in favor of the approval and adoption by the stockholders of the Company
of this Agreement and the transactions contemplated hereby.
(b) As promptly as reasonably practicable on the date of
commencement of the Offer, the Company shall file with the SEC a
Solicitation/Recommendation Statement on Schedule 14D-9 (together with all
amendments and supplements thereto, the
3
<PAGE> 11
"Schedule 14D-9") containing, subject to the following sentence, the
recommendation of the Board described in Section 1.02(a) and shall disseminate
the Schedule 14D-9 to the extent required by Rule 14d-9 promulgated under the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and any other
applicable federal securities laws. Subject to the fiduciary duties of the Board
under applicable law as determined by the Board in good faith after consultation
with the Company's outside counsel, and subject to the terms of this Agreement,
the Schedule 14D-9 shall contain the recommendation of the Board described in
Section 1.02(a) above. The Company hereby agrees that no failure of the Schedule
14D-9 to contain the recommendation of the Board described in Section 1.02(a)
above, nor any withdrawal of such recommendation by the Board, shall render
invalid or otherwise vacate the approval of the Board for purposes of Article
13.03 of Texas Law and the Company shall not otherwise take any action that
would result in a breach of the Company's representation and warranty, as of the
date of such action, set forth in the last sentence of Section 3.04 of this
Agreement. Parent and its counsel shall be given an opportunity to review and
comment upon the Schedule 14D-9 prior to the filing thereof with the SEC. The
Company, Parent and Purchaser agree to correct promptly any information provided
by any of them for use in the Schedule 14D-9 which shall have become false or
misleading, and the Company further agrees to take all steps necessary to cause
the Schedule 14D-9 as so corrected to be filed with the SEC and disseminated to
holders of Shares, in each case as and to the extent required by applicable
federal securities laws. The Company agrees to provide Parent and Purchaser and
their counsel with any comments the Company or its counsel may receive from the
SEC or its staff with respect to the Schedule 14D-9 promptly after the receipt
of such comments.
(c) The Company shall promptly furnish Purchaser with mailing labels
containing the names and addresses of all record holders of Shares and with
security position listings of Shares held in stock depositories, each as of a
recent date, together with all other available listings and computer files
containing names, addresses and security position listings of record holders and
beneficial owners of Shares. The Company shall furnish Purchaser with such
additional information, including, without limitation, updated listings and
computer files of stockholders, mailing labels and security position listings,
and such other assistance as Parent, Purchaser or their agents may reasonably
request in communicating the Offer to the Company's stockholders. Subject to the
requirements of applicable law, and except for such steps as are necessary to
disseminate the Offer Documents and any other documents necessary to consummate
the Offer or the Merger, Parent and Purchaser and their agents shall hold in
confidence the information contained in such labels, listings and files, shall
use such information only in connection with the Offer and the Merger, and, if
this Agreement shall be terminated in accordance with Section 8.01, shall
deliver to the Company all copies of such information then in their possession
or control.
4
<PAGE> 12
ARTICLE II
THE MERGER
SECTION 2.01. The Merger. Upon the terms and subject to the
conditions set forth in Article VII, and in accordance with Delaware Law and
Texas Law, at the Effective Time (as hereinafter defined) Purchaser shall be
merged with and into the Company. As a result of the Merger, the separate
corporate existence of Purchaser shall cease and the Company shall continue as
the surviving corporation of the Merger (the "Surviving Corporation").
Notwithstanding anything to the contrary contained in this Section 2.01, Parent
may elect instead, at any time after consummation of the Offer and prior to the
date on which the Proxy Statement (as hereinafter defined) is mailed initially
to the Company's stockholders, to merge the Company into Purchaser or another
direct or indirect wholly owned subsidiary of Parent. In such event, the parties
agree to execute an appropriate amendment to this Agreement in order to reflect
the foregoing and to provide, as the case may be, that Purchaser or such other
wholly owned subsidiary of Parent shall be the Surviving Corporation.
SECTION 2.02. Effective Time; Closing. As promptly as practicable
after the satisfaction or, if permissible, waiver of the conditions set forth in
Article VII, the parties hereto shall cause the Merger to be consummated by
filing this Agreement or a certificate of merger or certificate of ownership and
merger with the Secretary of State of the State of Delaware and articles of
merger with the Secretary of State of the State of Texas (collectively, the
"Certificate of Merger"), in such forms as are required by, and executed in
accordance with the relevant provisions of, Delaware Law and Texas Law (the date
and time of such filing being the "Effective Time"). Prior to such filing, a
closing shall be held at the offices of Shearman & Sterling, 599 Lexington
Avenue, New York, New York 10022, or such other place as the parties shall
agree, for the purpose of confirming the satisfaction or waiver, as the case may
be, of the conditions set forth in Article VII.
SECTION 2.03. Effect of the Merger. The effect of the Merger shall
be as provided in the applicable provisions of Delaware Law and Texas Law.
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, obligations, restrictions, disabilities and duties of the
Company and Purchaser shall become the debts, liabilities, obligations,
restrictions, disabilities and duties of the Surviving Corporation.
SECTION 2.04. Articles of Incorporation; By-laws. (a) Unless
otherwise determined by Parent prior to the Effective Time, at the Effective
Time the Articles of Incorporation of the Company, as in effect immediately
prior to the Effective Time, shall be the Articles of Incorporation of the
Surviving Corporation until thereafter amended as provided by law and such
Articles of Incorporation; provided, however, that, at the Effective Time,
subject to Section 6.07 hereof, the Articles of Incorporation of the Surviving
5
<PAGE> 13
Corporation shall be amended in their entirety to be substantially identical to
Purchaser's Certificate of Incorporation.
(b) Unless otherwise determined by Parent prior to the Effective
Time, but subject to Section 6.07 hereof, the By-laws of the Company, as in
effect immediately prior to 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 2.05. Directors and Officers. The directors of Purchaser
immediately prior to the Effective Time shall be the initial directors of the
Surviving Corporation, each to hold office in accordance with the Articles of
Incorporation and By-laws of the Surviving Corporation, and the officers of the
Company immediately prior to the Effective Time shall be the initial officers of
the Surviving Corporation, in each case until their respective successors are
duly elected or appointed and qualified.
SECTION 2.06. Conversion of Securities. At the Effective Time, by
virtue of the Merger and without any action on the part of Purchaser, the
Company or the holders of any of the following securities:
(a) Each Share issued and outstanding immediately prior to the
Effective Time (other than any Shares to be cancelled pursuant to Section
2.06(b) and any Dissenting Shares (as hereinafter defined)) shall be
cancelled and shall be converted automatically into the right to receive
an amount equal to the Per Share Amount in cash (the "Merger
Consideration") payable, without interest, to the holder of such Share,
upon surrender, in the manner provided in Section 2.09, of the certificate
that formerly evidenced such Share;
(b) Each Share held in the treasury of the Company and each
Share owned by Purchaser, Parent or any direct or indirect wholly owned
subsidiary of Parent or of the Company immediately prior to the Effective
Time shall be cancelled without any conversion thereof and no payment or
distribution shall be made with respect thereto; and
(c) Each share of Common Stock, par value $.01 per share, of
Purchaser issued and outstanding immediately prior to the Effective Time
shall be converted into and exchanged for one validly issued, fully paid
and nonassessable share of Common Stock, par value $.01 per share, of the
Surviving Corporation.
SECTION 2.07. Stock Options; Equity Compensation and Bonus
Arrangements. (a) With respect to those individuals whose names appear in the
list referred to in Section 2.07(f) who were awarded stock options (the
"Optionees") that were granted by the Company under the 1982 Stock Option Plan
of the Company (the "1982 Plan") prior to the Effective Time (the "1982
Options"), each such Optionee, as of the Effective Time, shall
6
<PAGE> 14
be vested in the aggregate 1982 Options awarded to such Optionee in accordance
with the following table:
Date 1982 Option Awarded Vested Percentage (the "Vested Percentage")
------------------------ -------------------------------------------
Prior to March 1, 1995 100%
On or after March 1, 1995 but
prior to March 1, 1996 80%
On or after March 1, 1996 60%
(b) With respect to Optionees who were granted stock options under
the Company's 1997 Stock Incentive Plan (the "1997 Plan") prior to the Effective
Time (the "1997 Options"), each such Optionee, as of the Effective Time, shall
be vested in 60% of the 1997 Options awarded to such Optionee.
(c) With respect to the stock options that were granted by the
Company under the 1994 Non-Employee Director Company Plan (the "1994 Plan")
prior to the Effective Time (the "1994 Options"), as of the Effective Time, all
1994 Options shall be fully vested.
(d) Subject to the next two sentences, each Optionee who holds any
vested and unexercised 1982 Options, 1994 Options or 1997 Options as of the
Effective Time (the "Vested Options") shall receive from the Company,
immediately after the Effective Time, in settlement and cancellation of each
Vested Option, a lump sum amount in cash equal to the product of (i) the
difference between the Per Share Amount and the per share exercise price of a
Vested Option and (ii) the number of shares of Company Common Stock subject to
such Vested Option. In the event that the amount provided to any individual
pursuant to this Section 2.07(d) (without giving effect to any other payments or
benefits to such individual, and assuming the allocation of such individual's
"base amount" in its entirety to the payment provided in this paragraph (d))
constitutes a "parachute payment" within the meaning of Section 280G of the
Code, and, but for this sentence, would be subject to the excise tax imposed by
Section 4999 of the Code, the Company shall reduce the aggregate number of
Vested Options of such individual (such reduction, the "Excess Options") (in
such manner as the Company, in its reasonable discretion, shall deem
appropriate) such that the present value thereof (as determined by the Code and
the applicable regulations) is equal to 2.99 times such individual's "base
amount" as defined in Section 280G(b)(3) of the Code. The Excess Options shall
immediately lapse and become void.
(e) With respect to the individuals who shall be identified by the
Company to Parent in writing prior to the Effective Time (the "Conditional
Optionees"), to whom the Company had granted stock options that were conditional
upon the approval by the Board and the shareholders of the Company of an
amendment to the 1997 Plan (the "Conditional
7
<PAGE> 15
Options"), the Company agrees to pay each holder of a Conditional Option,
immediately after the Effective Time, a lump sum amount in cash equal to 60% of
the product of (i) the Per Share Amount minus the exercise price per share of
Company Common Stock subject to a Conditional Option and (ii) the number of
shares of Company Common Stock subject to such Conditional Option.
(f) The Company has provided to Parent in writing a full and
complete list of (i) the name of each Optionee and Conditional Optionee, (ii)
the number of the 1982 Options, 1994 Options, 1997 Options and Conditional
Options held by each Optionee and Conditional Optionee, the number of shares of
Company Common Stock subject to each stock option and Conditional Option as of
the date of this Agreement and the portion of such stock options that will
become Vested Options with respect to each Optionee as of the Effective Time,
(iii) the exercise price of each 1982 Option, 1994 Option, 1997 Option and
Conditional Option held by each Optionee and Conditional Optionee as of the date
of this Agreement and (iv) the lump-sum amount that each Optionee and
Conditional Optionee will receive pursuant to the formula set forth in Sections
2.07(d) and (e) above. A list of additional stock options, if any, that the
Company may award prior to the Effective Time (which shall not be exercisable
for more than 25,000 shares of Company Common Stock and which shall be awarded
according to terms and conditions that are identical to those applicable to the
Conditional Options) shall be provided in writing by the Company to the Parent
prior to the Effective Time (the "Additional Awards"). Except for the Additional
Awards, the Company agrees that no additional stock options will be awarded
under any of the Plans prior to the Effective Time. The Company further agrees
to update the information provided to Parent concerning Optionees and
Conditional Optionees contemplated by paragraphs (e) and (f) in the event any of
the information included therein changes during the period between the date of
this Agreement and the Effective Time.
(g) As of the Effective Time, the Company shall have taken all
necessary actions to terminate the 1982 Plan, the 1997 Plan, the 1994 Plan and
such plans shall be terminated as of the Effective Time.
(h) The Company agrees that all unvested 1997 Options and 1982
Options shall lapse and become void as of the Effective Time and any obligation
express or implied that the Company shall have incurred with respect to the
Conditional Options shall lapse and become void as of the Effective Time. The
Company agrees to take all actions that may be necessary pursuant to this
Section 2.07(h). After the Effective Time, the Rent Roll, Inc. 1997 Stock
Incentive Plan and any awards thereunder shall continue in effect according to
the terms of such plan and awards.
(i) On or before the Effective Time, the Company shall adopt a
Retention Bonus Plan (the "Retention Bonus Plan") for employees of the Company
substantially in the form set forth on Section 2.07(i) of the Disclosure
Schedule. The Company shall provide Parent in writing a list of the employees
who shall participate in the Retention Bonus Plan,
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and the retention bonus for which each such employee shall be eligible. Parent
agrees that the Retention Bonus Plan will offer the selected participants an
aggregate of $7,785,389 in benefits thereunder.
(j) As soon as practicable after the Effective Time, Parent shall
adopt a 1998 incentive bonus program, which shall replace the 1997 Annual
Incentive Plan of the Company (the "1997 Incentive Plan") and the 1997 Officers'
Annual Incentive Plan of the Company (the "Officers' Incentive Plan"), pursuant
to which annual bonuses will be calculated according to certain measures of the
performance of the Company, including, without limitation, annual increases in
profit and revenue compared with the preceding year. As of the Effective Time,
the Company shall have taken all necessary actions to terminate the 1997
Incentive Plan and the Officers' Incentive Plan and such plans shall be
terminated as of the Effective Time.
(k) On or before the Effective Time, the Company shall adopt a
severance plan for those of its employees who are at grade level E-16 or above
as of the date hereof that shall become effective as of the Effective Time. Such
plan will provide for payment of severance to any of such employees terminated
other than for Cause (as defined in the Retention Bonus Plan) prior to the
second anniversary of the Effective Time and to any of such employees who resign
for Good Reason (as defined in the Retention Bonus Plan) prior to the second
anniversary of the Effective Time equal to a minimum of six months' base salary,
plus an additional two weeks' base salary per full year of tenure with the
Company. The maximum severance benefit pursuant to such plan shall equal 12
months' salary. On or before the Effective Time, the Company shall offer written
agreements (substantially in the forms set forth in Section 2.07(k) of the
Disclosure Schedule) to certain employees of the Company identified to the
Purchaser in writing providing for severance benefits in lieu of participating
in the severance plan. On or before the Effective Time, the Company shall offer
written agreements to its officers providing that, in the event it is determined
that any payment by the Company or any affilitate to or for the benefit of such
officers (a "Payment") would be subject to the excise tax imposed by Section
4999 of the Code or any interest or penalties are incurred by such officers with
respect to such excise tax (collectively, the "Excise Tax"), then the officers
shall be entitled to receive an additional payment (a "Gross-up Payment") in an
amount such that after payment by such officer of all taxes, interest and
penalties, including, without limitation, any income taxes and Excise Tax
imposed upon the Gross-up Payment, the officer retains an amount of the Gross-up
Payment equal to the Excise Tax imposed upon the Payment; provided, however,
that each such agreement will require each officer who is entitled to a Gross-up
Payment to cooperate with a tax advisor of the Company's choice in the
determination of such Gross-up Payment.
SECTION 2.08. Dissenting Shares. (a) Notwithstanding any provision
of this Agreement to the contrary, Shares that are outstanding immediately prior
to the Effective Time and which are held by stockholders who shall have not
voted in favor of the Merger or consented thereto in writing and who shall have
demanded properly in writing appraisal for such Shares in accordance with
Article 5.11 of Texas Law (collectively, the "Dissenting
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<PAGE> 17
Shares") shall not be converted into or represent the right to receive the
Merger Consideration. Such stockholders shall be entitled to receive payment of
the appraised value of such Shares held by them in accordance with the
provisions of such Article 5.11, except that all Dissenting Shares held by
stockholders who shall have failed to perfect or who effectively shall have
withdrawn or lost their rights to appraisal of such Shares under such Article
5.11 shall thereupon be deemed to have been converted into and to have become
exchangeable for, as of the Effective Time, the right to receive the Merger
Consideration, without any interest thereon, upon surrender, in the manner
provided in Section 2.09, of the certificate or certificates that formerly
evidenced such Shares.
(b) The Company shall give Parent (i) prompt notice of any demands
for appraisal received by the Company, withdrawals of such demands, and any
other instruments served pursuant to Texas Law and received by the Company and
(ii) the opportunity to direct all negotiations and proceedings with respect to
demands for appraisal under Texas Law. The Company shall not, except with the
prior written consent of Parent, make any payment with respect to any demands
for appraisal or offer to settle or settle any such demands.
SECTION 2.09. Surrender of Shares; Stock Transfer Books. (a) Prior
to the Effective Time, Purchaser shall designate a bank or trust company (which
shall be reasonably acceptable to the Company) to act as agent (the "Paying
Agent") for the holders of Shares in connection with the Merger to receive the
funds to which holders of Shares shall become entitled pursuant to Section
2.06(a). Such funds shall be invested by the Paying Agent as directed by the
Surviving Corporation with interest and earnings thereon accruing for the
benefit of the Surviving Corporation.
(b) Promptly after the Effective Time, the Surviving Corporation
shall cause to be mailed to each person who was, at the Effective Time, a holder
of record of Shares entitled to receive the Merger Consideration pursuant to
Section 2.06(a) a form of letter of transmittal (which shall specify that
delivery shall be effected, and risk of loss and title to the certificates
evidencing such Shares (the "Certificates") shall pass, only upon proper
delivery of the Certificates to the Paying Agent) and instructions for use in
effecting the surrender of the Certificates pursuant to such letter of
transmittal. Upon surrender to the Paying Agent of a Certificate, together with
such letter of transmittal, duly completed and validly executed in accordance
with the instructions thereto, and such other documents as may be required
pursuant to such instructions, the holder of such Certificate shall be entitled
to receive in exchange therefor the Merger Consideration for each Share formerly
evidenced by such Certificate, and such Certificate shall then be cancelled. No
interest shall accrue or be paid on the Merger Consideration payable upon the
surrender of any Certificate for the benefit of the holder of such Certificate.
If payment of the Merger Consideration is to be made to a person other than the
person in whose name the surrendered Certificate is registered on the stock
transfer books of the Company, it shall be a condition of payment that the
Certificate so surrendered shall be endorsed properly or otherwise be in proper
form for transfer and that the person requesting such payment shall have paid
all transfer and other taxes required by reason of the payment of the Merger
Consideration to a person other than
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<PAGE> 18
the registered holder of the Certificate surrendered or shall have established
to the satisfaction of the Surviving Corporation that such taxes either have
been paid or are not applicable.
(c) At any time following the sixth month after the Effective Time,
the Surviving Corporation shall be entitled to require the Paying Agent to
deliver to it any funds which had been made available to the Paying Agent and
not disbursed to holders of Shares (including, without limitation, all interest
and other income received by the Paying Agent in respect of all funds made
available to it), and thereafter such holders shall be entitled to look to the
Surviving Corporation (subject to abandoned property, escheat and other similar
laws) only as general creditors thereof with respect to any Merger Consideration
that may be payable upon due surrender of the Certificates held by them.
Notwithstanding the foregoing, neither the Surviving Corporation nor the Paying
Agent shall be liable to any holder of a Share for any Merger Consideration
delivered in respect of such Share to a public official pursuant to any
abandoned property, escheat or other similar law.
(d) At the close of business on the day of the Effective Time, the
stock transfer books of the Company shall be closed and thereafter there shall
be no further registration of transfers of Shares on the records of the Company.
From and after the Effective Time, the holders of Shares outstanding immediately
prior to the Effective Time shall cease to have any rights with respect to such
Shares except as otherwise provided herein or by applicable law.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company hereby represents and warrants to Parent and Purchaser
that:
SECTION 3.01. Organization and Qualification; Subsidiaries. (a) Each
of the Company and each subsidiary of the Company (a "Subsidiary") is a
corporation duly organized, validly existing and in good standing under the laws
of the jurisdiction of its incorporation and has the requisite power and
authority and all necessary governmental approvals to own, lease and operate its
properties and to carry on its business as it is now being conducted, except
where the failure to be so organized, existing or in good standing or to have
such power, authority and governmental approvals would not, individually or in
the aggregate, have a Material Adverse Effect (as defined below). The Company
and each Subsidiary is duly qualified or licensed as a foreign corporation to do
business, and is in good standing, in each jurisdiction where the character of
the properties owned, leased or operated by it or the nature of its business
makes such qualification or licensing necessary, except for such failures to be
so qualified or licensed and in good standing that would not, individually or in
the aggregate, have a Material Adverse Effect. When used in connection with the
Company or any Subsidiary, the term "Material Adverse Effect" means any change
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<PAGE> 19
or effect that, when taken together with all other adverse changes and effects,
is or is reasonably likely to be materially adverse to the business, results of
operations (on an annualized basis), financial condition or assets of the
Company and the Subsidiaries taken as a whole. A true and complete list of all
the Subsidiaries, together with the jurisdiction of incorporation of each
Subsidiary and the percentage of the outstanding capital stock of each
Subsidiary owned by the Company and each other Subsidiary, is set forth in
Section 3.01 of the Disclosure Schedule delivered in connection with this
Agreement by the Company to Parent and Purchaser (the "Disclosure Schedule").
Except as disclosed in such Section 3.01, the Company does not directly or
indirectly own any equity or similar interest in, or any interest convertible
into or exchangeable or exercisable for, any equity or similar interest in, any
corporation, partnership, joint venture or other business association or other
entity.
(b) Each Subsidiary that is material to the business, results of
operations (on an annualized basis), financial condition or assets of the
Company and the Subsidiaries taken as a whole is so identified in Section 3.01
of the Disclosure Schedule and is referred to herein as a "Material Subsidiary".
SECTION 3.02. Articles of Incorporation and By-laws. The Company has
heretofore furnished to Parent a complete and correct copy of the Articles of
Incorporation and the By-laws or equivalent organizational documents, each as
amended to date, of the Company and each Material Subsidiary. Such Articles of
Incorporation, By-laws and equivalent organizational documents are in full force
and effect. Neither the Company nor any Material Subsidiary is in violation of
any of the provisions of their respective Certificate of Incorporation, Articles
of Incorporation, By-laws or equivalent organizational documents in any material
respect.
SECTION 3.03. Capitalization. The authorized capital stock of the
Company consists of 40,000,000 Shares and 10,000,000 shares of Preferred Stock,
par value $1.00 per share ("Company Preferred Stock"). As of the date hereof,
(i) 14,463,844 Shares are issued and outstanding, all of which are validly
issued, fully paid and nonassessable, (ii) 810,019 Shares are held in the
treasury of the Company, (iii) no Shares are held by the Subsidiaries, and (iv)
1,646,150 Shares are reserved for future issuance pursuant to employee stock
options or stock incentive rights granted (or permitted to be granted in
accordance with the terms of this Agreement) pursuant to the Company's stock
option Plans. As of the date hereof, no shares of Company Preferred Stock are
issued and outstanding. Except as set forth in this Section 3.03 or in Section
3.03 of the Disclosure Schedule, there are no options, warrants or other rights,
agreements, arrangements or commitments to which the Company or any Subsidiary
is a party of any character relating to the issued or unissued capital stock of
the Company or any Subsidiary or obligating the Company or any Subsidiary to
issue or sell any shares of capital stock of, or other equity interests in, the
Company or any Subsidiary. All Shares subject to issuance as aforesaid, upon
issuance on the terms and conditions specified in the instruments or resolutions
pursuant to which they are issuable, will be duly authorized, validly issued,
fully paid and nonassessable. Except as set forth in Section 3.03 of the
Disclosure Schedule, there are no outstanding contractual obligations of
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the Company or any Subsidiary to repurchase, redeem or otherwise acquire any
Shares or any capital stock of any Subsidiary or to provide funds to, or make
any investment (in the form of a loan, capital contribution or otherwise) in,
any Subsidiary or any other person, other than guarantees by the Company or any
of its Subsidiaries of the obligations of one another in the ordinary course of
business, none of which is material to the Company and its Subsidiaries, taken
as a whole. Each outstanding share of capital stock of each Subsidiary is duly
authorized, validly issued, fully paid and nonassessable and each such share
owned by the Company or another Subsidiary is free and clear of all security
interests, liens, claims, pledges, options, rights of first refusal, agreements,
limitations on the Company's or such other Subsidiary's voting rights, charges
and other encumbrances of any nature whatsoever.
SECTION 3.04. Authority Relative to This Agreement. The Company has
all necessary power and authority to execute and deliver this Agreement, to
perform its obligations hereunder and to consummate the transactions
contemplated hereby (such transactions, together with the transactions
contemplated by the Stock Purchase Agreement, being the "Transactions"). The
execution and delivery of this Agreement by the Company and the consummation by
the Company of the Transactions have been duly and validly authorized by all
necessary corporate action and no other corporate proceedings on the part of the
Company are necessary to authorize this Agreement or to consummate the
Transactions (other than, with respect to the Merger, the approval and adoption
of this Agreement by the holders of two-thirds of the then outstanding Shares if
and to the extent required by applicable law, and the filing and recordation of
appropriate merger documents as required by Delaware Law and Texas Law). This
Agreement has been duly and validly executed and delivered by the Company and,
assuming the due authorization, execution and delivery by Parent and Purchaser,
constitutes the legal, valid and binding obligation of the Company. The Company
has taken all actions necessary to satisfy or render inapplicable the
restrictions on business combinations contained in Article 13.03 of Texas Law
with respect to the Transactions and with respect to a merger or other business
combination of Parent, Purchaser or any affiliate thereof with the Company after
the acquisition by Purchaser of Shares pursuant to the Offer or the Stock
Purchase Agreement.
SECTION 3.05. No Conflict; Required Filings and Consents. (a) The
execution and delivery of this Agreement by the Company do not, and the
performance of this Agreement by the Company will not, (i) conflict with or
violate the Articles of Incorporation or By-laws or equivalent organizational
documents of the Company or any Subsidiary, (ii) conflict with or violate any
law, rule, regulation, order, judgment or decree applicable to the Company or
any Subsidiary or by which any property or asset of the Company or any
Subsidiary is bound or affected, or (iii) result in any breach of or constitute
a default (or an event which with notice or lapse of time or both would become a
default) under, or give to others any right of termination, amendment,
acceleration or cancellation of, or result in the creation of a lien or other
encumbrance on any property or asset of the Company or any Subsidiary pursuant
to, any note, bond, mortgage, indenture, contract, agreement, lease, license,
permit, franchise or other instrument or obligation to which the Company or any
Subsidiary is a party or by which the Company or any Subsidiary or any
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<PAGE> 21
asset or property of any of them is bound or affected, except as set forth in
Section 3.05 of the Disclosure Schedule and except, with respect to clauses (ii)
and (iii), for any such conflicts, violations, breaches, defaults or other
occurrences which would not, individually or in the aggregate, have a Material
Adverse Effect.
(b) The execution and delivery of this Agreement by the Company do
not, and the performance of this Agreement by the Company 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 (i)
for applicable requirements, if any, of the Exchange Act, state securities or
"blue sky" laws ("Blue Sky Laws") and state takeover laws, the pre-merger
notification requirements of the Hart-Scott-Rodino Antitrust Improvements Act of
1976, as amended, and the rules and regulations thereunder (the "HSR Act"), and
filing and recordation of appropriate merger documents as required by Delaware
Law and Texas Law and (ii) where failure to obtain such consents, approvals,
authorizations or permits, or to make such filings or notifications, would not
prevent or materially delay consummation of the Offer or the Merger, or
otherwise prevent the Company from performing its obligations under this
Agreement in all material respects, and would not, individually or in the
aggregate, have a Material Adverse Effect. Section 3.05(b) of the Disclosure
Schedule sets forth a list of all notes, bonds, mortgages, indentures,
contracts, agreements, leases, licenses, permits, franchises and other material
instruments material to the Company and the Subsidiaries, taken as a whole,
which contain restrictions or prohibitions on or are, pursuant to the provisions
thereof, adversely affected by a change of control of the Company or any
Subsidiary.
SECTION 3.06. Compliance. Each of the Company and the Subsidiaries
is in possession of all franchises, grants, authorizations, licenses, permits,
easements, variances, exceptions, consents, certificates, approvals and orders
of any governmental or regulatory authority necessary for the Company or the
Subsidiaries to own, lease and operate its properties or to carry on its
business as it is now being conducted, except where the failure to have, or the
suspension or cancellation of, any of the Permits would not, individually or in
the aggregate, have a Material Adverse Effect (the "Permits"). As of the date
hereof, no suspension or cancellation of any of the Permits is pending or, to
the knowledge of the Company, threatened, except where the failure to have, or
the suspension or cancellation of, any of the Permits would not, individually or
in the aggregate, have a Material Adverse Effect. A list of the material Permits
is set forth in Section 3.06 of the Disclosure Schedule. Neither the Company nor
any Subsidiary is in conflict with, or in default, breach or violation of, (i)
any law, rule, regulation, order, judgment or decree applicable to the Company
or any Subsidiary or by which any property or asset of the Company or any
Subsidiary is bound or affected, or (ii) any note, bond, mortgage, indenture,
contract, agreement, lease, license, Permit, franchise or other instrument or
obligation to which the Company or any Subsidiary is a party or by which the
Company or any Subsidiary or any property or asset of the Company or any
Subsidiary is bound or affected, except for any such conflicts, defaults,
breaches or violations that would not, individually or in the aggregate, have a
Material Adverse Effect. To the Company's
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knowledge, no other party is in material breach or material violation of, or
material default under, any contract or agreement that is material to the
Company and its Subsidiaries, taken as a whole. The Company has made available
or furnished to Parent complete and accurate copies of all contracts and
agreements material to the Company and its Subsidiaries, taken as a whole,
including, without limitation, all loan agreements.
SECTION 3.07. SEC Filings; Financial Statements. (a) The Company has
filed all forms, reports and documents required to be filed by it with the SEC
since December 31, 1993, and has heretofore delivered or made available to
Parent, in the form filed with the SEC, (i) its Annual Reports on Form 10-K for
the fiscal years ended December 31, 1994, 1995 and 1996, respectively, (ii) its
Quarterly Reports on Form 10-Q for the periods ended March 31, 1997, June 30,
1997 and September 30, 1997, (iii) all proxy statements relating to the
Company's meetings of stockholders (whether annual or special) held since
December 31, 1993 and (iv) all other forms, reports and other registration
statements filed by the Company with the SEC since December 31, 1996 (the forms,
reports and other documents referred to in clauses (i), (ii), (iii) and (iv)
above being referred to herein, collectively, as the "SEC Reports"). The SEC
Reports (i) were prepared, in all material respects, in accordance with the
requirements of the Securities Act of 1933, as amended (the "Securities Act"),
and the Exchange Act, as the case may be, and the rules and regulations
thereunder 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 made therein, in the
light of the circumstances under which they were made, not misleading. No
Subsidiary is required to file any form, report or other document with the SEC.
(b) Each of the consolidated financial statements (including, in
each case, any notes thereto) contained in the SEC Reports was prepared in
accordance with generally accepted accounting principles applied on a consistent
basis throughout the periods indicated (except as may be indicated in the notes
thereto) and each fairly presented the consolidated financial position, results
of operations and changes in financial position of the Company and the
consolidated Subsidiaries as at the respective dates thereof and for the
respective periods indicated therein except as otherwise noted therein (subject,
in the case of unaudited statements, to normal and recurring year-end
adjustments which were not and are not expected, individually or in the
aggregate, to have a Material Adverse Effect).
(c) Except as and to the extent set forth on the consolidated
balance sheet of the Company and the consolidated Subsidiaries as at December
31, 1996, including the notes thereto (the "1996 Balance Sheet"), neither the
Company nor any Subsidiary has any liability or obligation of any nature
(whether accrued, absolute, contingent or otherwise) which would be required to
be reflected on a balance sheet, or in the notes thereto, prepared in accordance
with generally accepted accounting principles, except (i) for liabilities and
obligations incurred in the ordinary course of business consistent with past
practice since December 31, 1996 which would not, individually or in the
aggregate, have a Material
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Adverse Effect, (ii) as contemplated by, or disclosed pursuant to, this
Agreement or (iii) as disclosed in SEC Reports filed prior to the date of this
Agreement.
SECTION 3.08. Absence of Certain Changes or Events. Since December
31, 1996, except as contemplated by, or disclosed pursuant to, this Agreement or
disclosed in any SEC Report filed since December 31, 1996 and prior to the date
of this Agreement, the Company and the Subsidiaries have conducted their
businesses only in the ordinary course and in a manner consistent with past
practice and there has not been (i) any Material Adverse Effect, (ii) any
damage, destruction or loss (whether or not covered by insurance) with respect
to any property or asset of the Company or any Subsidiary and having,
individually or in the aggregate, a Material Adverse Effect, (iii) any change by
the Company in its accounting methods, principles or policies, (iv) any material
revaluation by the Company of any asset (including, without limitation, any
writing down of the value of inventory or writing off of notes or accounts
receivable), other than in the ordinary course of business consistent with past
practice, (v) any entry by the Company or any Subsidiary into any commitment or
transaction material to the Company and the Subsidiaries taken as a whole, (vi)
any declaration, setting aside or payment of any dividend or distribution in
respect of any capital stock of the Company or any redemption, purchase or other
acquisition of any of its securities other than regular quarterly dividends on
the Shares not in excess of $.10 per Share, (vii) any increase in or
establishment of any bonus, insurance, severance, deferred compensation,
pension, retirement, profit sharing, stock option (including, without
limitation, the granting of stock options, stock appreciation rights,
performance awards, or restricted stock awards), stock purchase or other
employee benefit plan, or any other increase in the compensation payable or to
become payable to any officers or key employees of the Company or any
Subsidiary, except in the ordinary course of business consistent with past
practice, or (viii) any disclosure by the Company or the Subsidiaries of any
secret or confidential Intellectual Property material to the Company and the
Subsidiaries, taken as a whole, except pursuant to appropriate, valid and
enforceable confidentiality agreements or any lapse or abandonment of any
Intellectual Property material to the Company and Subsidiaries, taken as a
whole.
SECTION 3.09. Absence of Litigation. Except as disclosed in the SEC
Reports filed prior to the date of this Agreement, there is no litigation, suit,
claim, action, proceeding or investigation pending or, to the knowledge of the
Company, threatened against the Company or any Subsidiary, or any property or
asset of the Company or any Subsidiary, before any court, arbitrator or
administrative, governmental or regulatory authority or body, domestic or
foreign, which (i) individually or in the aggregate, is reasonably likely to
have a Material Adverse Effect or (ii) seeks to materially delay or prevent the
consummation of any Transaction. Except as disclosed in SEC Reports filed prior
to the date of this Agreement, neither the Company nor any Subsidiary nor any
property or asset of the Company or any Subsidiary is subject to any continuing
order of, consent decree, settlement agreement or similar written agreement
with, or, to the knowledge of the Company, continuing investigation by, any
governmental or regulatory authority, domestic or foreign, or any order, writ,
judgment, injunction, decree, determination or award of any governmental or
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regulatory authority or any arbitrator having, individually or in the aggregate,
a Material Adverse Effect.
SECTION 3.10. Employee Benefit Plans. (a) Section 3.10 of the
Disclosure Schedule contains a true and complete list of all employee benefit
plans (within the meaning of Section 3(3) of the Employee Retirement Income
Security Act of 1974, as amended ("ERISA")) and all bonus, stock option, stock
purchase, restricted stock, incentive, deferred compensation, retiree medical or
life insurance, supplemental retirement, severance or other benefit plans,
programs or arrangements, and all employment, termination, severance or other
contracts or agreements to which the Company, any Subsidiary or any entity that
is a member of a controlled group of the Company for purposes of Section
4001(a)(14) of ERISA (an "ERISA Affiliate") is a party, with respect to which
the Company, any Subsidiary or any ERISA Affiliate has any obligation or which
are maintained, contributed to or sponsored by the Company, any Subsidiary or
any ERISA Affiliate for the benefit of any current or former employee, officer
or director of the Company, any Subsidiary or any ERISA Affiliate (collectively,
the "Plans"). Except as set forth in Section 3.10 of the Disclosure Schedule,
each Plan is in writing and the Company has previously made available to or
furnished Parent with a true and complete copy of (i) each trust or other
funding arrangement, (ii) each summary plan description and summary of material
modifications, (iii) the most recently filed Internal Revenue Service ("IRS")
Form 5500, (iv) the most recently received IRS determination letter for each
such Plan, and (v) the most recently prepared financial statement in connection
with each such Plan. Except for sales incentives and employment arrangements
entered into in the ordinary course of business consistent with past practice,
neither the Company nor any Subsidiary has any express or implied commitment (i)
to create, incur liability with respect to or cause to exist any other employee
benefit plan, program or arrangement, (ii) to enter into any contract or
agreement to provide compensation or benefits to any individual or (iii) to
modify, change or terminate any Plan, other than with respect to a modification,
change or termination required by ERISA or the Internal Revenue Code of 1986, as
amended (the "Code").
(b) None of the Company, any Subsidiary or any ERISA Affiliate is or
has been within the last six years, obligated to contribute, on behalf of any
current or former employee, to a multiemployer plan (as defined in Section 3(37)
or 4001(a)(3) of ERISA or Section 412 of the Code (a "Multiemployer Plan")) and
no such ERISA Affiliate is liable or reasonably expected to be liable for any
withdrawal liability under Section 4201 of ERISA. None of the Plans is a
Multiemployer Plan or a single employer pension plan, within the meaning of
Section 4001(a)(15) of ERISA, for which the Company or any Subsidiary could
incur liability under Section 4063 or 4064 of ERISA (a "Multiple Employer
Plan"). None of the Company, any Subsidiary or any ERISA Affiliate has had any
obligation under, nor has maintained, contributed to or sponsored for the
benefit of any current or former employee, officer or director of the Company,
any Subsidiary or any ERISA Affiliate, any single employer pension plan within
the meaning of Section 4001(a)(15) of ERISA or any plan subject to the minimum
funding requirements of Section 412 of the Code. Except as disclosed in Section
3.10 of the Disclosure Schedule, none of the Plans (i) provides for the
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payment of separation, severance, termination or similar-type benefits to any
person, (ii) obligates the Company or any Subsidiary to pay separation,
severance, termination or other benefits as a result of any Transaction or (iii)
obligates the Company or any Subsidiary to make any payment or provide any
benefit that could be subject to a tax under Section 4999 of the Code. None of
the Plans provides for or promises retiree or postemployment medical, disability
or life insurance benefits to any current or former employee, officer or
director of the Company or any Subsidiary, except as required under Section
4980B of the Code.
(c) Each Plan which is intended to be qualified under Section 401(a)
of the Code has received a favorable determination letter from the IRS that such
Plan is so qualified, and each trust established in connection with any Plan
which is intended to be exempt from federal income taxation under Section 501(a)
of the Code has received a determination letter from the IRS that such trust is
so exempt. No fact or event has occurred since the date of any such
determination letter from the IRS that could adversely affect the qualified
status of any such Plan or the exempt status of any such trust. Neither the
Company nor any Subsidiary has, within the past six years, maintained or
contributed to a trust which is intended to be qualified as a voluntary
employees' beneficiary association exempt from federal income taxation under
Sections 501(a) and 501(c)(9) of the Code.
(d) There has been no prohibited transaction (within the meaning of
Section 406 of ERISA or Section 4975 of the Code) with respect to any Plan.
Neither the Company nor any Subsidiary is currently liable or has previously
incurred any liability for any tax or penalty arising under Section 4971, 4972,
4979, 4980 or 4980B of the Code or Section 502(c) of ERISA, and no fact or event
exists which could give rise to any such liability.
(e) Except as set forth on Section 3.10(e) of the Disclosure
Schedule, each Plan is now and has been operated (i) in all respects in
accordance with the requirements of ERISA and the Code and (ii) in all material
respects in accordance with the requirements of all other applicable laws, and
the Company and each Subsidiary have performed all obligations required to be
performed by them under any Plan. Except as set forth in Section 3.10(e) of the
Disclosure Schedule, all contributions, premiums or payments required to be made
with respect to any Plan are fully deductible for income tax purposes and no
such deduction previously claimed has been challenged by any government entity.
The 1996 Balance Sheet reflects an accrual of all material amounts of employer
contributions and premiums accrued but unpaid with respect to the Plans as of
its date.
(f) The Company and the Subsidiaries have not incurred any liability
under, and have complied in all respects with, the Worker Adjustment Retraining
Notification Act and the regulations promulgated thereunder ("WARN") and do not
reasonably expect to incur any such liability as a result of actions taken or
not taken prior to the Effective Time. Section 3.10(f) of the Disclosure
Schedule lists (i) all the employees terminated or laid off by the Company or
any Subsidiary during the 90 days prior to the date hereof and (ii) all the
employees of the Company or any Subsidiary who have experienced a
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reduction in hours of work of more than 50% during any month during the 90 days
prior to the date hereof and describes all notices given by the Company and the
Subsidiaries in connection with WARN. The Company will, by written notice to
Parent and Purchaser, update Section 3.10(f) of the Disclosure Schedule to
include any such terminations, layoffs and reductions in hours from the date
hereof through the Effective Time and will provide Parent and Purchaser with any
related information which they may reasonably request.
(g) With respect to the Rent Roll, Inc. Stock Incentive Plan (the
"Rent Roll Plan"), the only awards that have been granted under the Rent Roll
Plan have been in the form of stock options and the terms of each such grant
have been reflected in stock option agreements. Each of such stock option
agreements are identical to the form of such stock option agreement provided to
Parent by the Company and are all identitical to each other, except, in each
case, with respect to the number of shares subject to the stock option granted
thereunder and the exercise price thereof.
SECTION 3.11. Labor Matters. Except as set forth in Section 3.11 of
the Disclosure Schedule, (i) there are no legal actions pending or, to the best
knowledge of the Company, threatened between the Company or any Subsidiary and
any of their respective employees, which legal actions have or could reasonably
be expected to have a Material Adverse Effect; (ii) neither the Company nor any
Subsidiary is or has ever been a party to any collective bargaining agreement or
other labor union contract applicable to persons employed by the Company or any
Subsidiary, nor, to the best knowledge of the Company, are there any activities
or proceedings of any labor union to organize any such employees; (iii) there
are no unfair labor practice complaints pending against the Company or any
Subsidiary before the National Labor Relations Board or any current union
representation questions involving employees of the Company or any Subsidiary;
and (iv) there is no strike, slowdown, work stoppage or lockout, or, to the best
knowledge of the Company, threat thereof, by or with respect to any employees of
the Company or any Subsidiary.
SECTION 3.12. Offer Documents; Schedule 14D-9; Proxy Statement.
Neither the Schedule 14D-9 nor any information supplied by the Company for
inclusion in the Offer Documents shall, at the respective times the Schedule
14D-9, the Offer Documents or any amendments or supplements thereto are filed
with the SEC or are first published, sent or given to stockholders of the
Company, as the case may be, contain any untrue statement of a material fact or
omit to state any material fact required to be stated therein or necessary in
order to make the statements made therein, in the light of the circumstances
under which they are made, not misleading. Neither the proxy statement to be
sent to the stockholders of the Company in connection with the Stockholders'
Meeting (as hereinafter defined) or the information statement to be sent to such
stockholders, as appropriate (such proxy statement or information statement, as
amended or supplemented, being referred to herein as the "Proxy Statement"),
shall, at the date the Proxy Statement (or any amendment or supplement thereto)
is first mailed to stockholders of the Company, at the time of the Stockholders'
Meeting and at the Effective Time, be false or misleading with respect to any
material fact, or omit to state any material fact required to be stated therein
or necessary in order to make
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the statements made therein, in the light of the circumstances under which they
are made, not misleading or necessary to correct any statement in any earlier
communication with respect to the solicitation of proxies for the Stockholders'
Meeting which shall have become false or misleading. The Schedule 14D-9 and the
Proxy Statement shall comply in all material respects as to form with the
requirements of the Exchange Act and the rules and regulations thereunder.
SECTION 3.13. Real Property and Leases; Personal Property. (a) The
Company and the Subsidiaries have sufficient title to all their properties and
assets to conduct their respective businesses as currently conducted or as
contemplated to be conducted, with only such exceptions as, individually or in
the aggregate, would not have a Material Adverse Effect.
(b) Each parcel of real property owned or leased by the Company or
any Subsidiary which is material to the Company and the Subsidiaries, taken as a
whole, (i) is listed in Section 3.13(b) of the Disclosure Schedule, (ii) is
owned or leased free and clear of all mortgages, pledges, liens, security
interests, conditional and installment sale agreements, encumbrances, charges or
other claims of third parties of any kind (collectively, "Liens"), other than
(A) Liens for current taxes and assessments not yet past due, (B) inchoate
mechanics' and materialmen's Liens for construction in progress, (C) workmen's,
repairmen's, warehousemen's and carriers' Liens arising in the ordinary course
of business of the Company or such Subsidiary consistent with past practice, and
(D) all matters of record, Liens and other imperfections of title and
encumbrances which, individually or in the aggregate, would not have a Material
Adverse Effect (collectively, "Permitted Liens"), and (iii) is neither subject
to any governmental decree or order to be sold nor is being condemned,
expropriated or otherwise taken by any public authority with or without payment
of compensation therefor, nor, to the best knowledge of the Company, has any
such condemnation, expropriation or taking been proposed.
(c) All leases of real property leased for the use or benefit of the
Company or any Subsidiary to which the Company or any Subsidiary is a party
which are material to the Company and the Subsidiaries, taken as a whole, and
all material amendments and modifications thereto (i) are described in Section
3.13(c) of the Disclosure Schedule (and true, complete and correct copies of all
of such leases, amendments and modifications have been provided or made
available by the Company to Parent) and (ii) are in full force and effect and
have not been modified or amended in any material respect. There exists no
default under any such lease by the Company or any Subsidiary, nor any event
which with notice or lapse of time or both would constitute a default thereunder
by the Company or any Subsidiary, except for such defaults as would not,
individually or in the aggregate, have a Material Adverse Effect, and, to the
Company's knowledge, there exists no default under any such lease by any other
party to such lease, nor, to the Company's knowledge, any event which with
notice or lapse of time or both would constitute a default thereunder by such
other party.
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(d) All tangible personal property and equipment which is material
to the operations or business of the Company and its Subsidiaries, taken as a
whole, is in good working order, ordinary and reasonable wear and tear (and
obsolescence) excepted, and has been maintained in accordance with good and
reasonable business practices.
SECTION 3.14. Intellectual Property. (a) Section 3.14 of the
Disclosure Schedule sets forth a true and complete list of all registered
patents and patent applications, registered trademarks and trademark
applications, registered copyrights and copyright applications, and Software
owned by the Company or a Subsidiary and material to the business or operation
of the Company or a Material Subsidiary (the "Scheduled Intellectual Property")
(the Scheduled Intellectual Property together with any other Intellectual
Property owned by the Company or a Subsidiary and material to the business or
operation of the Company or a Material Subsidiary, hereinafter the "Owned
Intellectual Property"). Section 3.14 of the Disclosure Schedule also sets forth
a true and complete list of all Licensed Intellectual Property which is material
to the business or operation of the Company or a Material Subsidiary (the
"Material Licensed Intellectual Property"). The Owned Intellectual Property and
the Material Licensed Intellectual Property collectively constitute all of the
Intellectual Property material to the continued operation of the Company and
each Material Subsidiary in a manner consistent with past practice.
(b) For any registered or registration pending Scheduled
Intellectual Property held by assignment, such assignment has been duly recorded
with the governmental or regulatory authority from which such Scheduled
Intellectual Property issued or before which such Scheduled Intellectual
Property is pending.
(c) The rights of the Company or any Subsidiary in or to the
Intellectual Property do not conflict with or infringe upon the rights of any
third party, and no claim has been asserted to the Company or a Subsidiary that
the use of such Intellectual Property does or may infringe upon the rights of
any third party, except for such infringements as would not, individually or in
the aggregate, have a Material Adverse Effect.
(d) The Company or a Subsidiary is the exclusive owner of the entire
and unencumbered right, title and interest in and to all Owned Intellectual
Property and is entitled to use all such Owned Intellectual Property in the
continued operation of the Company or any Subsidiary in a manner consistent with
past practice.
(e) The Company or a Subsidiary has the right to use all Material
Licensed Intellectual Property in the continued operation of the Company in
accordance with the terms of the respective license agreement.
(f) Except as would not, individually or in the aggregate, have a
Material Adverse Effect, the Owned Intellectual Property is valid and
enforceable, and has not been adjudged invalid or unenforceable in whole or in
part.
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(g) Except as would not, individually or in the aggregate, have a
Material Adverse Effect, the Company and the Subsidiaries have performed all
acts and have paid all required fees and taxes to (i) maintain all registered
Owned Intellectual Property in full force and effect in its country of issuance
or registration, and (ii) to maintain all applications for registration of Owned
Intellectual Property in full force and effect in the country in which such
application has been filed.
(h) Except as would not, individually or in the aggregate, have a
Material Adverse Effect, and except as disclosed in the SEC Reports filed prior
to the date of this Agreement, to the Company's best knowledge, no litigation,
claims, actions, suits or proceedings have been asserted, are pending or
threatened against the Company or any Subsidiary (i) based upon or challenging
or seeking to deny or restrict the use by the Company or any Subsidiary of any
Owned Intellectual Property, or of any Material Licensed Intellectual Property,
or (ii) alleging that any services provided, or products manufactured or sold by
the Company or any Subsidiary, infringe any patent, trademark, or any other
right of any third party. Except as would not, individually or in the aggregate,
have a Material Adverse Effect, to the best knowledge of the Company, no person
is engaging in any activity that infringes upon the Intellectual Property or
upon the rights of the Company or any Subsidiary therein. Except as disclosed in
Section 3.14 of the Disclosure Schedule, and except with respect to licenses
directly or indirectly to end users in the ordinary course of business, neither
the Company nor any Subsidiary has granted any license or other right to any
third party with respect to Owned Intellectual Property, or with respect to any
Material Licensed Intellectual Property. Except as would not, individually or in
the aggregate, have a Material Adverse Effect, the consummation of the
Transactions will not result in the termination or impairment of any of the
Intellectual Property material to the business or operation of the Company or
any Material Subsidiary.
(i) The Company and its Subsidiaries have delivered or made
available to Purchaser correct and complete copies of all the licenses and
sublicenses, and any amendments thereto, for the Material Licensed Intellectual
Property. With respect to each such license and sublicense (except as would not,
individually or in the aggregate, have a Material Adverse Effect):
(1) such license or sublicense, together with any associated
agreements related to the subject matter thereof, if applicable, is valid
and binding and in full force and effect and represents the entire
agreement between the respective licensor and licensee with respect to the
subject matter of such license or sublicense;
(2) except as set forth in Section 3.05(b) of the Disclosure
Schedule, such license or sublicense will not cease to be valid and
binding and in full force and effect on terms identical to those currently
in effect as a result of the consummation of the Transactions, nor will
the consummation of the Transactions constitute a breach or default under
such license or sublicense or otherwise give the licensor or sublicensor a
right to terminate such license or sublicense;
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(3) with respect to each such license and sublicense: (A) neither
the Company nor any Subsidiary has received any notice of termination or
cancellation under such license or sublicense which has not been cured or
waived, (B) neither the Company nor any Subsidiary has received any notice
of a breach or default under such license or sublicense, which breach has
not been cured, and (C) neither the Company nor any Subsidiary has granted
to any other third party any rights, adverse or otherwise, under such
license or sublicense that would constitute a breach of such license or
sublicense;
(4) to the Company's best knowledge, neither the Company, any
Subsidiary, nor any other party to such license or sublicense is in breach
or default in any material respect, and, to the Company's best knowledge,
no event has occurred that, with notice or lapse of time would constitute
such a breach or default or permit termination, modification or
acceleration under such license or sublicense; and
(5) to the Company's best knowledge, no claim, action, suit or
proceeding before any governmental or regulatory authority has been
asserted, is pending, or threatened against the Company or any Subsidiary
(A) challenging or seeking to deny or restrict the use by the Company or
any Subsidiary of any such Material Licensed Intellectual Property, or (B)
alleging that such Material Licensed Intellectual Property is being
licensed, sublicensed or used in violation of any patent, trademark, or
any other right of any third party.
(j) Except as would not, individually or in the aggregate, have a
Material Adverse Effect, solely with respect to Software that is material to the
business or operation of the Company or any Material Subsidiary: (i) to the best
knowledge of the Company, such Software, including Third Party Software
contained in such Software, is free of all viruses, worms, trojan horses and
other known contaminants, except for such trojan horses and other contaminants
in such Software by design of the Company or a Subsidiary, and such Software,
including Third Party Software contained in such Software, does not contain a
feature to disable the operation of all or any part of such Software that arises
automatically, through passage of time, or through any act of a user of such
Software, except for such disabling features in such Software by design of the
Company or a Subsidiary; (ii) the final release of such Software for any given
product year substantially conforms to the published specifications and user
documentation for such Software, and does not contain any bugs, errors, or
problems that materially disrupt its operation or have a material adverse impact
on the operation of other software programs or operating systems; (iii) the
source code of such Software contains comments regarding operation and revision
history in accordance with standard industry practices; (iv) such Software,
including Third Party Software contained in such Software, to the best knowledge
of the Company, does not contain any bugs, errors, or problems that materially
disrupt its operation or have a material adverse impact on the operation of
other software programs or operating systems that would not be curable within
the cure period of any license agreement pertaining to such Software; (v) the
Company has not received notice by telephone, writing, e-mail or other means
that such Software, including Third Party Software contained in such Software,
contains any bugs, errors, or
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problems that materially disrupt its operation or have a material adverse impact
on the operation of other software programs or operating systems, except for
such bugs, errors, or problems that the Company has provided a fix, patch, or
revision in or to the Software, or that would be curable within the cure period
of any license agreement pertaining to such Software; (vi) to the extent
currently contractually required, the Software is Year 2000 Compliant; (vii) the
Company and each Subsidiary are making commercially reasonable efforts to make
Year 2000 Compliant that Software that the Company, in the exercise of
reasonable judgment, believes requires Year 2000 Compliance, and are aware of
no facts or circumstances that would prevent the Company or a Subsidiary from
making such Software Year 2000 Compliant; and (viii) the Company has obtained
all approvals necessary for exporting such Software outside the United States
and importing such Software into any country in which such Software is now sold
or licensed for use by the Company or its Subsidiaries, directly or indirectly,
and to the knowledge of the Company, all such export and import approvals in the
United States and throughout the world are valid, current, outstanding and in
full force and effect.
(k) Except as would not, individually or in the aggregate, have a
Material Adverse Effect, no rights in any Software that is material to the
business or operation of the Company or any Material Subsidiary have been
transferred to any customer or other third party by the Company or its
Subsidiaries except to the customers of the Company or the Subsidiaries to whom
the Company or its Subsidiaries have licensed such Software in the ordinary
course of business. To the best knowledge of the Company, all source code,
software tools, library functions, and other Software developed by the Company
or any Subsidiary, or by any third party on behalf of the Company or a
Subsidiary, that is or was utilized by the Company or a Subsidiary within the
past five (5) years in the development of any Software that is material to the
business or operation of the Company or any Material Subsidiary, or that is
required to operate or modify the Software, is in the possession of the Company
or a Subsidiary. To the best knowledge of the Company, the Company or a
Subsidiary has the right to use such source code, software tools, library
functions, and other Software to the extent necessary to conduct and to continue
to conduct the business and operations of the Company and the Subsidiaries
consistent with past practice.
SECTION 3.15. Taxes. Except for such matters as would not,
individually or in the aggregate, have a Material Adverse Effect or as set forth
in Section 3.15 of the Disclosure Schedule, (i) the Company and the Subsidiaries
have timely filed or will timely file all returns and reports required to be
filed by them with any taxing authority with respect to Taxes, taking into
account any extension of time to file granted to or obtained on behalf of the
Company and the Subsidiaries, (ii) all Taxes that are due have been paid or will
be paid (other than Taxes which (1) are not yet delinquent or (2) are being
contested in good faith and have not been finally determined), (iii) no
deficiency for any Tax has been asserted or assessed by a taxing authority
against the Company or any of the Subsidiaries (or against any consolidated,
combined, unitary or other group for Tax purposes of which the Company or any
Subsidiary is or has been a member and for which deficiency the Company or any
Subsidiary could have liability) which deficiency has not been paid other than
any deficiency being contested in good faith, (iv) the Company and the
Subsidiaries have provided adequate
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reserves (in accordance with generally accepted accounting principles) in their
financial statements for any Taxes that have not been paid, whether or not shown
as being due on any returns, (v) the Company and the Subsidiaries have complied
with all withholding obligations and reporting requirements in respect thereof,
(vi) there are no Tax Liens upon any property or assets of the Company or any of
the Subsidiaries except Liens for current Taxes not yet due, (vii) neither the
Company nor any of its Subsidiaries has been required to include in income any
adjustment pursuant to section 481 of the Code by reason of a voluntary change
in accounting method initiated by the Company or any of its Subsidiaries, and
the IRS has not initiated or proposed any such adjustment or change in
accounting method, (viii) except as set forth in the financial statements
described in Section 3.07, neither the Company nor any Subsidiary has entered
into a transaction which is being accounted for under the installment method of
section 453 of the Code, and (ix) neither the Company nor any Subsidiary has
filed a consent pursuant to section 341(f) of the Code or agreed to have section
341(f)(2) of the Code apply. Neither the Company nor any Subsidiary has been
requested in writing to give any currently effective waivers extending the
statutory period of limitation applicable to any federal or state income tax
return for any period which disputes, claims, assessments or waivers are
reasonably likely to have a Material Adverse Effect. The consolidated federal
income tax returns of Company and the Subsidiaries for each taxable year through
December 31, 1992 have been examined by the IRS, and either no material
deficiencies were asserted as a result of such examination for which the Company
does not have adequate reserves (in accordance with generally accepted
accounting principles) or all such deficiencies were satisfied. As used in this
Agreement, "Taxes" or "taxes" shall mean any and all taxes, fees, levies,
duties, tariffs, imposts and other charges of any kind (together with any and
all interest, penalties, additions to tax and additional amounts imposed with
respect thereto) imposed by any governmental or regulatory authority or body,
domestic or foreign, or taxing authority, including, without limitation: taxes
or other charges on or with respect to income, franchise, windfall or other
profits, gross receipts, property, sales, use, capital stock, payroll,
employment, social security, workers' compensation, unemployment compensation or
net worth; taxes or other charges in the nature of excise, withholding, ad
valorem, stamp, transfer, value-added or gains taxes; license, registration and
documentation fees; and customers' duties, tariffs and similar charges.
SECTION 3.16. Environmental Matters. (a) For purposes of this
Agreement, the following terms shall have the following meanings: (i) "Hazardous
Substances" means (A) those substances defined in or regulated under the
following federal statutes and their state counterparts, as each may be amended
from time to time, and all regulations thereunder: the Hazardous Materials
Transportation Act, the Resource Conservation and Recovery Act, the
Comprehensive Environmental Response, Compensation and Liability Act, the Clean
Water Act, the Safe Drinking Water Act, the Atomic Energy Act, the Federal
Insecticide, Fungicide, and Rodenticide Act and the Clean Air Act; (B) petroleum
and petroleum products including crude oil and any fractions thereof; (C)
natural gas, synthetic gas, and any mixtures thereof; (D) radon; (E) any other
contaminant; and (F) any substance with respect to which a federal, state or
local agency requires environmental investigation, monitoring, reporting or
remediation; and (ii) "Environmental Laws" means any federal, state or local law
relating to (A) releases or
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threatened releases of Hazardous Substances or materials containing Hazardous
Substances; (B) the manufacture, handling, transport, use, treatment, storage or
disposal of Hazardous Substances or materials containing Hazardous Substances;
or (C) otherwise relating to pollution of the environment or the protection of
human health.
(b) Except as described in Section 3.16 of the Disclosure Schedule
or as would not, individually or in the aggregate, have a Material Adverse
Effect: (i) neither the Company nor any Subsidiary has violated and neither is
in violation of any Environmental Law; (ii) to the best knowledge of the
Company, none of the properties (including, without limitation, soils and
surface and ground waters) currently owned or leased by the Company or any
Subsidiary are contaminated with any Hazardous Substance; (iii) to the best
knowledge of the Company, none of the properties (including, without limitation,
soils and surface and ground waters) formerly owned or leased by the Company or
any Subsidiary, as of the date of the transfer of conveyance of any such
property, were contaminated with any Hazardous Substance; (iv) to the best
knowledge of the Company, neither the Company nor any Subsidiary is actually,
potentially or allegedly liable for any off-site contamination; (v) to the best
knowledge of the Company, neither the Company nor any Subsidiary is actually,
potentially or allegedly liable under any Environmental Law (including, without
limitation, pending or threatened Liens); (vi) the Company and the Subsidiaries
have all permits, licenses and other authorizations required under any
Environmental Law ("Environmental Permits"); and (vii) the Company and each
Subsidiary has always been and is in compliance with its Environmental Permits.
SECTION 3.17. Brokers. No broker, finder or investment banker (other
than Goldman, Sachs & Co.) is entitled to any brokerage, finder's or other fee
or commission in connection with the Transactions based upon arrangements made
by or on behalf of the Company. The Company has heretofore furnished to Parent a
complete and correct copy of all agreements between the Company and Goldman,
Sachs & Co. pursuant to which such firm would be entitled to any payment
relating to the Transactions.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF PARENT AND PURCHASER
Parent and Purchaser hereby, jointly and severally, represent and
warrant to the Company that:
SECTION 4.01. Corporate Organization. Each of Parent and Purchaser
is a corporation duly organized, validly existing and in good standing under the
laws of the jurisdiction of its incorporation and has the requisite power and
authority and all necessary governmental approvals to own, lease and operate its
properties and to carry on its business as it is now being conducted, except
where the failure to be so organized, existing or in good standing or to have
such power, authority and governmental approvals would not,
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individually or in the aggregate, have a material adverse effect on the business
or operations of Parent and Purchaser and their respective subsidiaries taken as
a whole.
SECTION 4.02. Authority Relative to This Agreement. Each of Parent
and Purchaser has all necessary corporate power and authority to execute and
deliver this Agreement, to perform its obligations hereunder and to consummate
the Transactions. The execution and delivery of this Agreement by Parent and
Purchaser and the consummation by Parent and Purchaser of the Transactions have
been duly and validly authorized by all necessary corporate action and no other
corporate proceedings on the part of Parent or Purchaser are necessary to
authorize this Agreement or to consummate the Transactions (other than, with
respect to the Merger, the filing and recordation of appropriate merger
documents as required by Delaware Law and Texas Law). This Agreement has been
duly and validly executed and delivered by Parent and Purchaser and, assuming
the due authorization, execution and delivery by the Company, constitutes a
legal, valid and binding obligation of each of Parent and Purchaser enforceable
against each of Parent and Purchaser in accordance with its terms.
SECTION 4.03. No Conflict; Required Filings and Consents. (a) The
execution and delivery of this Agreement by Parent and Purchaser do not, and the
performance of this Agreement by Parent and Purchaser will not, (i) conflict
with or violate the Certificate of Incorporation or By-laws of either Parent or
Purchaser, (ii) conflict with or violate any law, rule, regulation, order,
judgment or decree applicable to Parent or Purchaser or by which any property or
asset of either of them is bound or affected, or (iii) result in any breach of
or constitute a default (or an event which with notice or lapse of time or both
would become a default) under, or give to others any rights of termination,
amendment, acceleration or cancellation of, or result in the creation of a lien
or other encumbrance on any property or asset 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 property or asset of either of
them is bound or affected, except, with respect to clauses (ii) and (iii), for
any such conflicts, violations, breaches, defaults or other occurrences which
would not, individually or in the aggregate, have a material adverse effect on
the ability of Parent and Purchaser to perform their obligations under this
Agreement and to consummate the Transactions.
(b) The execution and delivery of this Agreement by Parent and
Purchaser do 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 (i) for applicable requirements, if any, of the Exchange Act,
Blue Sky Laws and state takeover laws, the HSR Act and filing and recordation of
appropriate merger documents as required by Delaware Law and Texas Law and (ii)
where failure to obtain such consents, approvals, authorizations or permits, or
to make such filings or notifications, would not prevent or materially delay
consummation of the Offer or the Merger, or otherwise prevent Parent or
Purchaser from
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performing their respective obligations under this Agreement and consummating
the Transactions.
SECTION 4.04. Financing. Parent has, or will have, immediately prior
to the expiration of the Offer, sufficient funds to permit Purchaser to acquire
all the outstanding Shares in the Offer and the Merger.
SECTION 4.05. Offer Documents; Proxy Statement. The Offer Documents
will not, at the time the Offer Documents are filed with the SEC or are first
published, sent or given to stockholders of the Company, as the case may be,
contain any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary in order to make the statements
made therein, in the light of the circumstances under which they are made, not
misleading. The information supplied by Parent or its affiliates for inclusion
in the Proxy Statement will not, on the date the Proxy Statement (or any
amendment or supplement thereto) is first mailed to stockholders of the Company,
at the time of the Stockholders' Meeting and at the Effective Time, contain any
statement which, at such time and in light of the circumstances under which it
is made, is false or misleading with respect to any material fact, or omit to
state any material fact required to be stated therein or 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 Stockholders' Meeting which shall have become false or
misleading. Notwithstanding the foregoing, Parent and Purchaser make no
representation or warranty with respect to any information supplied by the
Company or any of its representatives which is contained in any of the foregoing
documents or the Offer Documents. The Offer Documents shall comply in all
material respects as to form with the requirements of the Exchange Act and the
rules and regulations thereunder.
SECTION 4.06. Brokers. No broker, finder or investment banker is
entitled to any brokerage, finder's or other fee or commission in connection
with the Transactions based upon arrangements made by or on behalf of Parent or
Purchaser.
SECTION 4.07. Absence of Litigation. As of the date of this
Agreement, there is no litigation, suit, claim, action, proceeding or
investigation pending or, to the best knowledge of Parent and Purchaser,
threatened against, Parent or Purchaser or any of their respective properties or
assets before any court, arbitrator or administrator, governmental or regulatory
authority or body, domestic or foreign, which seeks to delay or prevent or would
result in the material delay of or would prevent the consummation of any
Transaction. Neither Parent nor Purchaser or any property or asset of Parent or
Purchaser is subject to any continuing order of, consent decree, settlement
agreement or similar written agreement with, or, to the knowledge of Parent and
Purchaser, continuing investigation by, any governmental or regulatory
authority, domestic or foreign, or any order, writ, judgment, injunction,
decree, determination or award of any governmental or regulatory authority or
any arbitrator which would prevent Parent or Purchaser from performing their
respective material obligations under this Agreement or prevent or materially
delay the consummation of any Transaction.
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SECTION 4.08. No Prior Activities. Since the date of its
incorporation, Purchaser has not engaged and will not engage prior to the
Effective Time or termination of this Agreement in any activities other than in
connection with or as contemplated by this Agreement or the Stock Purchase
Agreement or in connection with arranging any financing required to consummate
any of the Transactions.
SECTION 4.09. Parent Not an Affiliated Shareholder. As of the date
hereof, (i) neither Parent nor any of its affiliates is, with respect to the
Company, an "Affiliated shareholder" as such term is defined in Part 13 of Texas
Law and (ii) except to the extent that Parent or its affiliates may be deemed to
beneficially own Shares as a result of this Agreement or the Stock Purchase
Agreement, Parent and its affiliates collectively do not hold directly or
indirectly five percent (5%) or more of the outstanding voting shares of the
Company.
ARTICLE V
CONDUCT OF BUSINESS PENDING THE MERGER
SECTION 5.01. Conduct of Business by the Company Pending the Merger.
The Company covenants and agrees that, between the date of this Agreement and
the time at which Purchaser's designees to the Board represent at least a
majority of the number of directors on the Board (including all vacancies), the
businesses of the Company and the Subsidiaries shall be conducted only in, and
the Company and the Subsidiaries shall not take any action except in, the
ordinary course of business and in a manner consistent with past practice; and
the Company shall use its reasonable best efforts to preserve substantially
intact the business organization of the Company and the Subsidiaries, to keep
available the services of the current officers, employees and consultants of the
Company and the Subsidiaries and to preserve the current relationships of the
Company and the Subsidiaries with customers, suppliers and other persons with
which the Company or any Subsidiary has significant business relations. By way
of amplification and not limitation, except as contemplated by, or disclosed
pursuant to, this Agreement, neither the Company nor any Subsidiary shall,
between the date of this Agreement and the time at which Purchaser's designees
to the Board represent at least a majority of the number of directors on the
Board (including all vacancies), directly or indirectly do any of the following
without the prior written consent of Parent:
(a) amend or otherwise change its Articles of Incorporation or
By-laws or equivalent organizational documents;
(b) issue, sell, pledge, dispose of, grant, encumber, or
authorize the issuance, sale, pledge, disposition, grant or encumbrance of
(i) any shares of capital stock of any class of the Company or any
Subsidiary, or any options, warrants, convertible securities or other
rights of any kind to acquire any shares of such capital stock, or any
other ownership interest (including, without limitation, any phantom
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interest), of the Company or any Subsidiary (except for the issuance of a
maximum of 1,646,150 Shares issuable upon exercise of employee stock
options outstanding on the date hereof or as disclosed in the Disclosure
Schedule or otherwise in writing to Parent prior to the date hereof) or
(ii) any assets of the Company or any Subsidiary, except for transactions
in the ordinary course of business and in a manner consistent with past
practice;
(c) declare, set aside, make or pay any dividend or other
distribution, payable in cash, stock, property or otherwise, with respect
to any of its capital stock, except for regular quarterly dividends on the
Shares declared and paid at times consistent with past practice in an
aggregate amount not in excess of $.10 per Share per quarter;
(d) reclassify, combine, split, subdivide or redeem, purchase
or otherwise acquire, directly or indirectly, any of its capital stock;
(e) (i) acquire (including, without limitation, by merger,
consolidation, or acquisition of stock or assets) any corporation,
partnership, other business organization or any division thereof or any
material amount of assets, except for such acquisitions which do not
exceed $3,000,000 in the aggregate for all such acquisitions; (ii) incur
any indebtedness for borrowed money or issue any debt securities or
assume, guarantee or endorse, or otherwise as an accommodation become
responsible for, the obligations of any person, or make any loans or
advances, except in the ordinary course of business and consistent with
past practice; (iii) enter into any contract or agreement other than in
the ordinary course of business, consistent with past practice; (iv)
authorize any single capital expenditure which is in excess of $1,000,000
or capital expenditures which are, in the aggregate, in excess of
$5,000,000 for the Company and the Subsidiaries taken as a whole; or (v)
enter into or amend any contract, agreement, commitment or arrangement
with respect to any matter prohibited by this Section 5.01(e);
(f) increase the compensation payable or to become payable to
its directors, officers or employees, except for increases in accordance
with past practices in salaries or wages of employees of the Company or
any Subsidiary who are not officers or directors of the Company, or grant
any severance or termination pay to, or enter into any employment or
severance agreement with any director, officer or other employee of the
Company or any Subsidiary, or establish, adopt, enter into or amend any
collective bargaining, bonus, profit sharing, thrift, compensation, stock
option, restricted stock, pension, retirement, deferred compensation,
employment, termination, severance or other plan, agreement, trust, fund,
policy or arrangement for the benefit of any director, officer or
employee, except for payments under the 1997 Incentive Plan and the
Officers' Incentive Plan up to a maximum of $1.8 million and except in the
ordinary course of business consistent with past practices;
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(g) except as may be required by a change in the rules
relating to generally accepted accounting principles or if the Company
elects early adoption of AICPA Statement of Position No. 97-2, Software
Revenue Recognition, take any action, other than reasonable and usual
actions in the ordinary course of business and consistent with past
practice, with respect to accounting policies or procedures (including,
without limitation, procedures with respect to the payment of accounts
payable and collection of accounts receivable);
(h) make any Tax election or settle or compromise any material
federal, state, local or foreign income Tax liability except in the
ordinary course of business consistent with past practices;
(i) pay, discharge or satisfy any claim, liability or
obligation (absolute, accrued, asserted or unasserted, contingent or
otherwise), other than the payment, discharge or satisfaction, in the
ordinary course of business and consistent with past practice, of
liabilities reflected or reserved against in the 1996 Balance Sheet or in
SEC Reports filed prior to the date hereof or subsequently incurred in the
ordinary course of business and consistent with past practice;
(j) amend, modify or consent to the termination of any lease,
license, contract or agreement which is material to the Company and its
Subsidiaries, taken as a whole, or amend, modify or consent to the
termination of the Company's or the Subsidiary's rights thereunder, other
than in the ordinary course of business consistent with past practice; or
(k) enter into any lease, license, contract or agreement that
would be material to the Company and its Subsidiaries taken as a whole,
other than in the ordinary course of business consistent with past
practice or as otherwise permitted by this Section 5.01.
ARTICLE VI
ADDITIONAL AGREEMENTS
SECTION 6.01. Stockholders' Meeting. (a) If required by applicable
law in order to consummate the Merger, the Company, acting through the Board,
shall, in accordance with applicable law and the Company's Articles of
Incorporation and By-laws, (i) duly call, give notice of, convene and hold an
annual or special meeting of its stockholders as soon as practicable following
either consummation of the Offer or the purchase by Purchaser of the Shares held
by the Majority Shareholders pursuant to the Stock Purchase Agreement, whichever
occurs first, for the purpose of considering and taking action on this Agreement
and the Transactions (the "Stockholders' Meeting") and (ii) subject to the
fiduciary duties of the Board under applicable law, (A) include in the Proxy
Statement the unanimous recommendation of the Board that the stockholders of the
Company approve and
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adopt this Agreement and the Transactions and (B) use its reasonable best
efforts to obtain such approval and adoption. At the Stockholders' Meeting,
Parent and Purchaser shall cause all Shares then owned by them and their
subsidiaries to be voted in favor of the approval and adoption of this Agreement
and the Transactions.
(b) Notwithstanding the foregoing, in the event that Purchaser shall
acquire at least 90% of the then outstanding Shares, the parties hereto agree,
at the request of Purchaser, subject to Article VII, to take all necessary and
appropriate action to cause the Merger to become effective, in accordance with
Article 5.16 of Texas Law, as soon as reasonably practicable after such
acquisition, without a meeting of the stockholders of the Company.
SECTION 6.02. Proxy Statement. If required by applicable law, as
soon as practicable following either consummation of the Offer or the purchase
by Purchaser of the Shares held by the Majority Shareholders pursuant to the
Stock Purchase Agreement, whichever occurs first, the Company shall file the
Proxy Statement with the SEC under the Exchange Act, and shall use its
reasonable best efforts to have the Proxy Statement cleared by the SEC. Parent,
Purchaser and the Company shall cooperate with each other in the preparation of
the Proxy Statement, and the Company shall notify Parent of the receipt of any
comments of the SEC with respect to the Proxy Statement and of any requests by
the SEC 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 SEC. The Company shall give
Parent and its counsel the opportunity to review the Proxy Statement prior to
its being filed with the SEC and shall give Parent and its counsel the
opportunity to review all amendments and supplements to the Proxy Statement and
all responses to requests for additional information and replies to comments
prior to their being filed with, or sent to, the SEC. Each of the Company,
Parent and Purchaser agrees to use its reasonable best efforts, after
consultation with the other parties hereto, to respond promptly to all such
comments of and requests by the SEC and to cause the Proxy Statement and all
required amendments and supplements thereto to be mailed to the holders of
Shares entitled to vote at the Stockholders' Meeting at the earliest practicable
time.
SECTION 6.03. Company Board Representation; Section 14(f). (a)
Promptly upon the purchase by Purchaser of Shares pursuant to the Offer, and
from time to time thereafter, Purchaser shall be entitled to designate up to
such number of directors, rounded up to the next whole number, on the Board as
shall give Purchaser representation on the Board equal to the product of the
total number of directors on the Board (giving