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EXHIBIT 2.01
AGREEMENT AND PLAN OF REORGANIZATION
THIS AGREEMENT AND PLAN OF REORGANIZATION (this "AGREEMENT") is made and
entered into as of April 6, 1998 (the "AGREEMENT DATE") by and among HNC
SOFTWARE INC., a Delaware corporation ("HNC"), FW2 Merger Corp., a Delaware
corporation that is a wholly-owned subsidiary of HNC ("Sub"), FINANCIAL
TECHNOLOGY, INC., an Illinois corporation ("FTI") and, for purposes of Section
3, Section 6 and Section 11 only, J. Xxxxxxx Xxxxxxxx (the "FOUNDER"), Xxxx X.
Xxxxxxx ("XXXXXXX") and Xxxxxx X. Xxxx ("SNOW"). Founder, Xxxxxxx and Snow are
all of the shareholders of FTI as of the Agreement Date.
RECITALS
A. The parties intend that, subject to the terms and conditions of this
Agreement, Sub will be merged with and into FTI in a reverse triangular merger,
with FTI to be the surviving corporation of such merger, all pursuant to the
terms and conditions of this Agreement and applicable law.
B. Upon the effectiveness of such merger, the capital stock of FTI that
is outstanding immediately prior to the effectiveness of the merger will be
converted, at HNC's sole option and election, into either: (a) shares of the
common stock of HNC, cash and contingent rights to receive certain additional
shares of HNC common stock (plus cash for any eliminated fractional shares); or
(b) cash and contingent rights to receive additional cash; in each case as
provided in this Agreement.
C. If HNC elects to have the capital stock of FTI that is outstanding
immediately prior to the effectiveness of the merger convert in the merger into
shares of HNC Common Stock, cash and contingent rights to receive certain
additional shares of HNC Common Stock as described above in part (a) of Recital
B, then, in that event, the parties also intend for such merger to be treated as
a "reorganization" under Section 368(a)(1)(A) of the Internal Revenue Code of
1986, as amended (the "CODE"), by virtue of the provisions of Section
368(a)(2)(E) of the Code.
NOW, THEREFORE, in consideration of the above-recited facts and the
mutual promises, covenants and conditions contained herein, the parties hereby
agree as follows:
ARTICLE 1
CERTAIN DEFINITIONS
As used in this Agreement, the following terms will have the meanings
set forth below:
1.1 The "MERGER" means the statutory merger of Sub with and into FTI to
be effected pursuant to the terms and conditions of this Agreement.
1.2 The "EFFECTIVE TIME" means the time and date on which the Merger
first becomes legally effective under the laws of the States of Illinois and
Delaware as a result of: (a) the filing with the Illinois Secretary of State of
Articles of Merger by Sub and FTI (the "ILLINOIS ARTICLES OF
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MERGER") conforming to the applicable requirements of the Illinois Business
Corporation Act including a Plan of Merger in the form attached hereto as
Exhibit A (the "PLAN OF MERGER"); and (b) the filing with the Delaware Secretary
of State of a Certificate of Merger (the "DELAWARE CERTIFICATE OF MERGER")
conforming to the requirements of Section 252 of the Delaware General
Corporation Law (such documents being hereinafter collectively referred to as
the "MERGER CERTIFICATES").
1.3 "HNC COMMON STOCK" means HNC's Common Stock, $0.001 par value per
share.
1.4 "HNC AVERAGE PRICE PER SHARE" means $37.1251, which is the average
of the closing prices per share of HNC Common Stock as quoted on the Nasdaq
National Market and reported in The Wall Street Journal for the twenty (20)
trading days immediately preceding (but not including) the Agreement Date.
1.5 "HNC 1998 EARN-OUT AVERAGE PRICE PER SHARE" means the average of the
closing prices per share of HNC Common Stock as quoted on the Nasdaq National
Market (or the New York Stock Exchange or the American Stock Exchange if HNC
Common Stock is then traded on either such exchange) and reported in The Wall
Street Journal for the twenty (20) trading days immediately preceding (but not
including) January 1, 1999.
1.6 "FTI COMMON STOCK" means FTI's Class A Common Stock, no par value.
1.7 "FTI DERIVATIVE SECURITIES" means, collectively: (a) any warrant,
option, right or other security that entitles the holder thereof to purchase or
otherwise acquire any shares of the capital stock of FTI (collectively, "FTI
STOCK RIGHTS"); (b) any note, evidence of indebtedness, stock (including without
limitation convertible preferred stock) or other security of FTI that is
convertible into or exchangeable for any shares of the capital stock of FTI or
any FTI Stock Rights ("FTI CONVERTIBLE SECURITY"); and (c) any warrant, option,
right, note, evidence of indebtedness, stock or other security that entitles the
holder thereof to purchase or otherwise acquire any FTI Stock Rights or any FTI
Convertible Security.
1.8 "NUMBER OF FTI FULLY DILUTED SHARES" means that number of shares of
FTI Common Stock that is equal to the sum of: (a) the total number of shares of
FTI Common Stock that are issued and outstanding immediately prior to the
Effective Time; plus (b) the total number of shares of FTI Common Stock that,
immediately prior to the Effective Time, are, directly or indirectly, ultimately
or potentially issuable by FTI upon the exercise, conversion or exchange of all
FTI Derivative Securities (if any) that are issued and outstanding (or issuable)
immediately prior to the Effective Time.
1.9 "FTI SHAREHOLDERS" means those persons (each being individually
referred to herein as an "FTI SHAREHOLDER") who, immediately prior to the
Effective Time, hold the shares of FTI Common Stock that are outstanding
immediately prior to the Effective Time; provided, however, that the terms "FTI
Shareholders" and "FTI Shareholder" does not include any holders or holder of
FTI Dissenting Shares (as defined below).
1.10 "FTI DISSENTING SHARES" means any shares of any capital stock of
FTI that (a) are outstanding immediately prior to the Effective Time and qualify
for "dissenters' rights" within the
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meaning of Sections 5/11.65 and 5/11.70 of the Illinois Business Corporation Act
and (b) with respect to which dissenter's rights to require the purchase of such
shares for cash at their fair market value in accordance with Section 5/11.70 of
the Illinois Business Corporation Act have been duly and properly exercised and
perfected in connection with the Merger. For purposes of this Agreement, shares
of FTI capital stock that may potentially become FTI Dissenting Shares because
the holder(s) of such shares did not vote in favor of the Merger, will be
considered to be FTI Dissenting Shares until the earlier to occur of the
following: (a) the time at which the holder of such shares agrees in writing
with HNC or FTI not to exercise any dissenting shareholders' appraisal rights;
or (b) any dissenting shareholders' appraisal rights under the Illinois Business
Corporation Act can no longer be exercised with respect to such shares due to
any failure of the holder of such shares to properly or timely perfect or
exercise such appraisal rights; at which time such shares shall be treated as
provided in the last sentence of Section 2.1.3.
1.11 "CLOSING HNC MERGER SHARES" means 396,618 shares of HNC Common
Stock, (as now constituted) which is the number of shares of HNC Common Stock
obtained by dividing (a) Fifteen Million Three Hundred Thousand Dollars
($15,300,000) minus the Founder Note Amount by (b) the HNC Average Price Per
Share.
1.12 "CLOSING HNC MERGER SHARES CONVERSION RATIO" means the number of
shares of HNC Common Stock obtained by dividing (a) the number of shares of HNC
Common Stock constituting the Closing HNC Merger Shares by (b) the Number of FTI
Fully Diluted Shares.
1.13 "GAAP" means United States generally accepted accounting principles
consistently applied.
1.14 "FTI GROSS REVENUES" means the total gross revenues recognized by
FTI from the sale, lease, license or other provision of FTI Products (as defined
below) or the HNC Marksman Product (as defined below) in a specified full (i.e.,
twelve month) calendar year on the accrual method of accounting in accordance
with GAAP; provided however, that, notwithstanding the foregoing, for purposes
of this Agreement, the FTI Gross Revenues for the twelve-month period ended
December 31, 1997 ("CALENDAR YEAR 1997") shall be determined in accordance with
FTI's accounting practices, consistently applied, and shall be the amount of
gross revenues recognized by FTI for calendar year 1997 as reflected on "FTI's
1997 Statement of Operations" (as defined in Sections 1.21 and 3.8). "FTI
ADJUSTED GROSS REVENUES" for the twelve-month period ending December 31, 1998
("CALENDAR YEAR 1998") shall mean the amount of FTI Gross Revenues recognized
during calendar year 1998 as determined by HNC in accordance with GAAP and HNC's
accounting practices, consistently applied, and, if HNC at its sole option so
elects, as audited, reviewed or otherwise assessed or evaluated by HNC's
independent public accountants, adjusted as follows: (i) FTI Adjusted Gross
Revenues for calendar year 1998 shall not include fifty percent (50%) of the
gross revenues that would be recognized by FTI in accordance with GAAP during
calendar year 1998 from any sales, leases or licenses of FTI Products by HNC or
any of HNC's affiliates or subsidiaries other than FTI (such excluded gross
revenues being hereinafter referred to as the "EXCLUDED HNC SALES REVENUE"); and
(ii) FTI Adjusted Gross Revenues for calendar year 1998 shall not include any
Shifted FTI Revenues (as defined below). As used herein, the term "SHIFTED FTI
REVENUES" means any revenues that are recognized by FTI in FTI's 1997 Statement
of Operations or in any FTI financial statements for any period prior to January
1, 1997 that HNC's
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independent public accountants determine should, in accordance with GAAP and
HNC's accounting practices, instead be recognized as revenue by FTI or HNC
during calendar year 1998. For purposes of this Section 1.14, "FTI PRODUCTS"
shall mean those products and services listed in Exhibit B hereto. "HNC MARKSMAN
PRODUCT" shall mean HNC's Marksman database mining product.
1.15 "FTI'S EBIT" means FTI's earnings before interest income and
expense, other non-operating income and expense, and taxes for a specified full
(i.e., twelve month) calendar year on the accrual method of accounting
determined by HNC in accordance with GAAP and HNC's accounting practices,
consistently applied and, if HNC at its sole option so elects, as audited,
reviewed, or otherwise assessed or evaluated by HNC's independent public
accountants. For purposes of determining FTI's EBIT for calendar year 1998, the
parties will use FTI Gross Revenues for calendar year 1998, determined as
provided in Section 1.14, except that, solely for the purposes of determining
FTI's EBIT for calendar year 1998: (a) Shifted FTI Revenues will be deemed to be
included in the FTI Gross Revenues for calendar year 1998 and (b) revenues from
the sale, lease, license or other provision of the HNC Marksman Product shall
not be included in FTI Gross Revenues for calendar year 1998. The parties
further recognize and agree that, for purposes of determining FTI's EBIT, FTI's
expenses will include corporate general and administrative and corporate
marketing costs and expenses allocated to FTI's operations by HNC in accordance
with HNC's internal cost accounting practices, as consistently applied by HNC to
its wholly-owned subsidiaries, and will include, without limitation, FTI's costs
and expenses incurred to comply with the HNC operating policies, procedures,
programs, practices and systems described in Section 6.4.
1.16 "FTI 1998 GROWTH RATE" means the ratio (expressed as a decimal)
obtained by dividing (a) the difference of (i) the FTI Adjusted Gross Revenues
for calendar year 1998 minus (ii) the FTI Gross Revenues for calendar year 1997,
determined as provided in Section 1.14 (such difference being called the "1998
REVENUE GROWTH AMOUNT") by (b) the FTI Gross Revenues for calendar year 1997,
determined as provided in Section 1.14. The FTI 1998 Growth Rate shall be
rounded to the nearest hundredth, with remainders of 0.005 or greater being
rounded up and remainders less than 0.005 being rounded down. If the 1998
Revenue Growth Amount is zero (0) or negative, then the FTI 1998 Growth Rate
will be deemed to be zero (0).
1.17 "FTI 1998 NET GROWTH PERCENTAGE" means the product obtained by
multiplying (a) the difference of (i) the FTI 1998 Growth Rate minus (ii) 0.45,
times (b) one hundred (100). Notwithstanding the foregoing, if this calculation
results in a negative number, then the FTI 1998 Net Growth Percentage will be
deemed to be zero (0).
1.18 "EARN-OUT AMOUNT" means the dollar amount obtained by multiplying
(i) the FTI 1998 Net Growth Percentage times (ii) Forty-Three Thousand Dollars
($43,000); provided, however, that if the FTI 1998 Net Growth Percentage is
greater than zero (0), then the Earn-Out Amount shall be increased by a dollar
amount equal to the Founder Note Amount; and provided further, that,
notwithstanding the foregoing, the Earn-Out Amount shall in no event exceed (A)
Five Million Five Hundred Ninety Thousand Dollars ($5,590,000) or (B) if the
Earn-Out Amount is increased by the amount of the Founder Note Amount in
accordance with the first proviso of this Section, then the Earn-Out Amount
shall in no event exceed the sum of Five Million Five Hundred Ninety Thousand
Dollars ($5,590,000) plus the Founder Note Amount.
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1.19 "EARN-OUT SHARES" means the number of shares of HNC Common Stock
obtained by dividing (a) the Earn-Out Amount by (b) the HNC 1998 Earn-Out
Average Price Per Share.
1.20 "1998 EARN-OUT CONVERSION RATIO" means a number of shares of HNC
Common Stock obtained by dividing (a) the number of Earn-Out Shares, by (b) the
Number of FTI Fully Diluted Shares.
1.21 "FTI'S 1997 STATEMENT OF OPERATIONS" shall have the meaning defined
for such term in Section 3.8.
1.22 "FTI'S 1998 STATEMENT OF OPERATIONS" means FTI's unaudited
statement of operations for the full (i.e., twelve month) calendar year ended
December 31, 1998, which shall be prepared by HNC's independent public
accountants pursuant to Section 2.2 on the accrual method of accounting in
accordance with GAAP and HNC's accounting practices consistently applied.
1.23 "HNC ANCILLARY AGREEMENTS" means, collectively, each agreement,
certificate or document (other than this Agreement) which HNC is to enter into
as a party thereto, or otherwise is to execute and deliver, pursuant to or in
connection with this Agreement. "SUB ANCILLARY AGREEMENTS" means, collectively,
the Merger Certificates and each other agreement, certificate or document (other
than this Agreement) which Sub is to enter into as a party thereto, or otherwise
is to execute and deliver, pursuant to or in connection with this Agreement.
"FTI ANCILLARY AGREEMENTS" means, collectively, the Merger Certificates and each
other agreement, certificate or document (other than this Agreement) which FTI
is to enter into as a party thereto, or otherwise is to execute and deliver,
pursuant to or in connection with this Agreement. "FTI SHAREHOLDER ANCILLARY
AGREEMENTS" means, collectively, each agreement, certificate or document (other
than this Agreement) that any FTI Shareholder is to enter into as a party
thereto, or otherwise is to execute and deliver, pursuant to or in connection
with this Agreement, and includes, without limitation, each of the following
agreements to be entered into and executed by each FTI Shareholder pursuant to
this Agreement: the Escrow Agreement, the Investment Representation Letter, the
Registration Rights Agreement, the Non-Competition Agreement, the Employment
Agreement (each as hereafter defined).
1.24 "KNOWLEDGE," (a) when used with reference to FTI, means the
collective actual knowledge of the Founder, Xxxxxxx, Snow and/or any other
officer of FTI; and (b) when used with reference to HNC, means the collective
actual knowledge of HNC's President and Chief Financial Officer.
1.25 "RELATED PARTY" means any corporation, partnership, limited
liability company, firm, association, business, trust or entity in which any
Related Person (as defined below) owns or holds, whether beneficially or of
record, any equity, stock, ownership or management interest of any kind;
provided, however, that the term "Related Party" does not include any
corporation, partnership, limited liability company or business trust whose
securities are publicly traded and in which a Related Party holds an equity,
stock or ownership interest representing less than one percent (1%) of all of
the outstanding equity, stock or other ownership or management interests in such
corporation, partnership, limited liability company or business trust.
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1.26 "RELATED PERSON" means and includes (i) any officer, director or
affiliate of FTI, (ii) any person who is a parent, stepparent, parent-in-law,
spouse, child, stepchild, child-in-law, or other relative of any person
described in clause (i) of this sentence (including without limitation any
person who is a relative or other relation described above by blood relation or
adoption); or (iii) any person who shares the same household with any person
described in clause (i) of this sentence.
1.27 "YEAR 2000 COMPLIANT" means, as applied to a software product, that
(i) such software product has been written and tested to support numeric and
date transitions from the twentieth century to the twenty-first century, and
back (including without limitation all calculations, aging, reporting, printing,
displays, reversals, disaster and vital records recoveries) without corruption
or impact to current and/or future operations; (ii) such software will function
without error or interruption related to any date information, specifically
including errors or interruptions from functions which may involve date
information from more than one century.
1.28 "FOUNDER NOTE AMOUNT" shall mean $575,500, which represents, as of
December 31, 1997, the aggregate unpaid principal amount under the Promissory
Note dated December 31, 1997 given by Founder to FTI (the "1997 FOUNDER NOTE").
1.29 "FTI RECEIVABLES AMOUNT" shall mean $1,095,627.56, which is equal
to the amount of all of FTI's accounts receivable reflected on the Closing
Balance Sheet (as defined in Section 3.8) that have been outstanding for six (6)
months or more as of the Closing Date.
1.30 "FOUNDER DEBT" means the repayment by Founder to the Company of (i)
all interest accrued and unpaid under the 1997 Founder Note through the Closing
Date, (ii) all principal amounts loaned or advanced by FTI to Founder after
December 31, 1997 and all interest accrued thereon through the Closing Date,
(iii) the principal amount of the Loan to Officer identified on FTI's balance
sheet as of December 31, 1997 plus all interest accrued thereon through the
Closing Date, and (iv) all other indebtedness of Founder to FTI (other than the
indebtedness represented by the Founder Note Amount).
Other capitalized terms defined elsewhere in this Agreement and not
defined in this Article 1 will have the meanings assigned to such terms in this
Agreement.
ARTICLE 2
PLAN OF REORGANIZATION
2.1 Conversion of Shares.
2.1.1 Conversion of Sub Stock. At the Effective Time, each share
of the Common Stock of Sub that is issued and outstanding immediately prior to
the Effective Time will, by virtue of the Merger and without the need for any
further action on the part of the holder thereof, be converted into and become
one (1) share of FTI Common Stock that is issued and outstanding immediately
after the Effective Time, and the shares of FTI Common Stock into which the
shares of Sub Common Stock are so converted in the Merger will be the only
shares of capital stock of FTI that are issued and outstanding immediately after
the Effective Time.
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2.1.2 Conversion of FTI Stock. On or before the Closing (as
defined in Section 7.1), HNC shall deliver to FTI a written notice (the
"ELECTION NOTICE") stating that HNC has elected to have the shares of FTI Common
Stock that are issued and outstanding immediately prior to the Effective Time be
converted in the Merger into either: (a) shares of HNC Common Stock, cash and
contingent rights to receive additional shares of HNC Common Stock, as provided
in Section 2.1.2(a) and Section 2.2.2(a) (a "STOCK CONVERSION"); or (b) cash and
contingent rights to receive additional cash as provided in Section 2.1.2(b) and
Section 2.2.2(b) (a "CASH CONVERSION"). HNC shall have the sole and absolute
right, in its discretion, to elect either a Stock Conversion or a Cash
Conversion as provided above. If HNC fails to deliver an Election Notice to FTI
on or before the Closing, then for all purposes of this Agreement, HNC will
conclusively be deemed to have delivered to FTI, on or before the Closing, an
Election Notice in which HNC has elected a Stock Conversion and such deemed
election will be binding on the parties hereto.
(a) Stock Conversion. If on or before the Closing HNC has
delivered to FTI (or been deemed by the foregoing provisions of this Section
2.1.2 to have delivered) an Election Notice electing a Stock Conversion, then
this Section 2.1.2(a) and Section 2.2.2(a) shall apply to the Merger and Section
2.1.2(b) and Section 2.2.2(b) shall not apply to the Merger and, subject to the
provisions of Sections 2.3, 2.4, 2.6 and 2.8, at the Effective Time, each share
of FTI Common Stock that is issued and outstanding immediately prior to the
Effective Time (other than any FTI Dissenting Shares as provided in Section
2.1.3) will, by virtue of the Merger, and without the need for any further
action on the part of the holder thereof, be converted into: (i) a number of
shares of HNC Common Stock that is equal to the Closing HNC Merger Shares
Conversion Ratio, subject to the provisions of Section 2.3 regarding the
elimination of fractional shares; (ii) the right to receive an amount of cash
equal to the amount obtained by dividing (A) One Million Five Hundred Thousand
Dollars ($1,500,000) by (B) the Number of FTI Fully Diluted Shares; and (iii)
the contingent non-transferable right to receive additional shares of HNC Common
Stock in accordance with the provisions of Section 2.2.
(b) Cash Conversion. If on or before the Closing, HNC has
delivered to FTI an Election Notice electing a Cash Conversion, then this
Section 2.1.2(b) and Section 2.2.2(b) shall apply to the Merger and Section
2.1.2(a) and Section 2.2.2(a) shall not apply to the Merger, and, subject to the
provisions of Sections 2.6 and 2.8, at the Effective Time each share of FTI
Common Stock that is issued and outstanding immediately prior to the Effective
Time (other than any FTI Dissenting Shares as provided in Section 2.1.3) will,
by virtue of the Merger, and without the need for any further action on the part
of the holder thereof, be converted into: (i) an amount of cash equal to the
amount obtained by dividing (A) Sixteen Million Eight Hundred Thousand Dollars
($16,800,000) minus the Founder Note Amount by (B) the Number of FTI Fully
Diluted Shares; and (ii) the contingent, non-transferable right to receive
additional cash in accordance with the provisions of Section 2.2.2(b).
2.1.3 FTI Dissenting Shares. Holders of FTI Dissenting Shares (if
any) will be entitled to their appraisal rights under Section 5/11.70 of the
Illinois Business Corporation Act with respect to such FTI Dissenting Shares and
such FTI Dissenting Shares will not be converted into shares of HNC Common
Stock, cash, or any contingent rights to receive additional shares of HNC Common
Stock or additional cash as provided in Sections 2.1.2 and 2.2 in the Merger.
Shares of the capital stock of FTI that are outstanding immediately prior to the
Effective Time of the Merger
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and with respect to which dissenting shareholders' rights of appraisal under the
Illinois Business Corporation Act have not been properly perfected will, when
such dissenting shareholders' rights can no longer be legally exercised under
the Illinois Business Corporation Act, be converted as provided in Section
2.1.2.
2.2 Contingent Issuance of Earn-Out Consideration.
2.2.1 Computation. After December 31, 1998, FTI and HNC will
cooperate to cause HNC's independent public accountants to promptly prepare,
complete and release FTI's 1998 Statement of Operations (as defined above), with
the objective of completing and releasing FTI's 1998 Statement of Operations by
no later than March 31, 1999. Within ten (10) business days after the completion
and release of both FTI's 1997 Statement of Operations and FTI's 1998 Statement
of Operations, HNC's independent public accountants will, based on FTI's 1997
Statement of Operations and FTI's 1998 Statement of Operations, and the
definitions contained in this Agreement, compute the FTI Gross Revenues for
calendar year 1997 (which shall be derived from FTI's 1997 Statement of
Operations as provided in Section 1.14), the FTI Gross Revenues for calendar
year 1998, the FTI Adjusted Gross Revenues for calendar year 1998, the FTI
Growth Rate, the FTI 1998 Net Growth Percentage, the Earn-Out Amount, FTI's EBIT
(as defined above) for calendar year 1998 and, if HNC elected the Stock
Conversion pursuant to Section 2.1.2(a), the HNC 1998 Earn-Out Average Price Per
Share, and the 1998 Earn-Out Conversion Ratio, and will deliver a written
computation of each such item (the "EARN-OUT COMPUTATION NOTICE") to HNC and
each of the FTI Shareholders, and the foregoing items and their amounts, as so
computed by HNC's independent public accountants in the Earn-Out Computation
Notice, will be conclusive and binding on the parties and on all FTI
Shareholders, absent manifest error.
2.2.2 Issuance.
(a) Stock Conversion. If on or before the Closing, HNC has
delivered to FTI (or pursuant to the provisions of Section 2.1.2 was deemed to
have delivered to FTI) an Election Notice electing a Stock Conversion, then this
Section 2.2.2(a) shall apply to the Merger, Section 2.2.2(b) shall not apply to
the Merger and, subject to the provisions of Sections 2.3, 2.4, 2.6 and 2.8, in
addition to the shares of HNC Common Stock to be issued upon the conversion of
the shares of FTI Common Stock pursuant to the provisions of Section 2.1.2(a),
if, and only if, the amount of FTI's EBIT for calendar year 1998 equals or
exceeds twenty percent (20%) of the FTI Gross Revenues for the full (i.e.,
twelve month) calendar year ended December 31, 1998, then, within five (5)
business days after the delivery of the Earn-Out Computation Notice, HNC will
issue to each FTI Shareholder a number of shares of HNC Common Stock equal to
the product obtained by multiplying (a) the number of shares of FTI Common Stock
that were issued and outstanding and owned of record by such FTI Shareholder
immediately prior to the Effective Time, by (b) the 1998 Earn-Out Conversion
Ratio, subject to the provisions of Section 2.3 regarding the elimination of
fractional shares.
(b) Cash Conversion. If on or before the Closing, HNC has
delivered to FTI an Election Notice electing a Cash Conversion, then this
Section 2.2.2(b) shall apply to the Merger, Section 2.2.2(a) shall not apply to
the Merger; and subject to the provisions of Sections 2.6 and 2.8, within five
(5) business days after the delivery of the Earn-Out Computation Notice, HNC
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will, in addition to the cash to be paid pursuant to the provisions of Section
2.1.2(b) if, and only if, FTI's EBIT for calendar year 1998 equals or exceeds
twenty percent (20%) of the FTI Gross Revenues for the full (i.e., twelve month)
calendar year ended December 31, 1998 pay to each FTI Shareholder an amount of
cash equal to the product obtained by multiplying (x) the number of shares of
FTI Common Stock that were issued and outstanding and owned of record by such
FTI Shareholder immediately prior to the Effective Time, by (y) the quotient
obtained by dividing the Earn-Out Amount by the Number of FTI Fully Diluted
Shares.
2.2.3 Non-Transferable Right. Neither the contingent right to
receive shares of HNC Common Stock under Section 2.2.2(a) nor the alternative
contingent right to receive cash under Section 2.2.2(b) may be assigned or
transferred by any FTI Shareholder except by a transfer by operation of law or
upon such FTI Shareholder's death pursuant to applicable laws of descent and
distribution.
2.3 Fractional Shares. No fractional shares of HNC Common Stock will be
issued in connection with the Merger. In lieu thereof, each FTI Shareholder who
would otherwise be entitled to receive a fraction of a share of HNC Common Stock
pursuant to Sections 2.1.2(a) and/or 2.2.2(a) after aggregating all shares of
HNC Common Stock to be received by such holder pursuant to each of Section
2.1.2(a) or Section 2.2.2(a) (considered separately) will instead receive from
HNC, within three (3) business days after the Effective Time (in the case of
shares issued under Section 2.1.2) or three (3) business days after the date on
which such shares are required to be issued under Section 2.2.2(a) (with respect
to shares issued under Section 2.2.2(a)), an amount of cash equal to product
obtained by multiplying (a) (i) the HNC Average Price Per Share, as adjusted to
reflect any Capital Change (as defined below) of HNC (in the case of shares
issued under Section 2.2.2(a)); or (ii) the HNC 1998 Earn-Out Average Price Per
Share, as adjusted to reflect any Capital Change of HNC (in the case of shares
issued under Section 2.2.2(a)) by (b) the fraction of a share of HNC Common
Stock that such holder would otherwise be entitled to receive.
2.4 Limitation on Number of HNC Shares Issued. Notwithstanding anything
in this Agreement (including but not limited to this Section 2) to the contrary,
if HNC has delivered (or, pursuant to the provisions of Section 2.1.2, is deemed
to have delivered) an Exercise Notice electing a Stock Conversion, then in no
event may the total number of shares of HNC Common Stock issued under this
Agreement exceed the lowest of: (i) 1,000,000 shares of HNC Common Stock, (ii) a
number of shares of HNC Common Stock that would equal or exceed twenty percent
(20%) of the number of shares of HNC Common Stock that are outstanding
immediately prior to the Effective Time or (iii) any number of shares of HNC
Common Stock, such that the issuance of such shares pursuant to this Agreement
would require the vote or approval of the stockholders of HNC under any
applicable law or regulation, the Certificate of Incorporation or Bylaws of HNC
or any rule, bylaw or regulation of the Nasdaq Stock Market, the New York Stock
Exchange or any other securities exchange on which the HNC Common Stock is then
traded. If the number of shares of HNC Common Stock that are to be issued under
this Agreement is reduced by the foregoing provisions of this
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Section 2.4, then in lieu of issuing such shares of HNC Common Stock HNC shall
pay to the FTI Shareholders within ten (10) business days following the
Effective Time, or within ten (10) business days following delivery of the
Earn-Out Computation Notice, as applicable, an amount of cash equal to the value
of the number of shares of HNC Common Stock whose issuance to the FTI
Shareholders pursuant to this Agreement is prohibited by the foregoing
provisions of this Section 2.4, where for this purpose, the value per share of
such shares will conclusively be deemed to be the HNC Average Price Per Share or
the HNC 1998 Earn-Out Average Price Per Share, as applicable, (subject to
adjustments to reflect a Capital Change, as defined in Section 2.6).
2.5 [SECTION 2.5 HAS BEEN INTENTIONALLY OMITTED]
2.6 Adjustments for Capital Changes. Notwithstanding the provisions of
Section 2.1 or Section 2.2, if at any time after the Agreement Date and prior to
the Effective Time or prior to the issuance of the Earn-Out Shares (if HNC
elects (or is deemed by the provisions of Section 2.1.2 to have elected) a Stock
Conversion), HNC recapitalizes, either through a subdivision (or stock split) of
its outstanding shares of Common Stock into a greater number of shares of Common
Stock, or a combination (or reverse stock split) of its outstanding shares of
Common Stock into a lesser number of shares, or reorganizes, reclassifies or
otherwise changes its outstanding shares of Common Stock into the same or a
different number of shares of other classes of stock (other than through a
subdivision or combination of shares provided for in the previous clause), or
declares a dividend on its outstanding shares of Common Stock payable in shares
of HNC Common Stock or in shares or securities convertible into shares of HNC
Common Stock (each, a "CAPITAL CHANGE"), then the HNC Average Price Per Share,
the HNC 1998 Earn-Out Average Price Per Share, the number of shares of HNC
Common Stock constituting the HNC Merger Shares, the 1998 Earn-Out Shares, the
Merger Shares Conversion Ratio and the 1998 Earn-Out Conversion Ratio will each
be appropriately adjusted so as to equitably maintain the proportionate
interests of the stockholders of HNC and FTI (but, in the case of stockholders
of FTI, only with respect to their interests in the equity of HNC represented by
those shares of HNC Common Stock that are issued pursuant to the Merger and this
Agreement in the outstanding equity of HNC as contemplated by this Agreement.)
2.7 Cash Payments to FTI Shareholders.
(a) Stock Conversion. If HNC elects (or is deemed by the
provisions of Section 2.1.2 to have elected) a Stock Conversion, then within
five (5) business days after the Effective Time, HNC will pay to each FTI
Shareholder, by check or wire transfer, that portion of the amount of cash
payable under Section 2.1.2(a) into which the shares of FTI Common Stock that
were issued and outstanding and owned of record by such FTI Shareholder
immediately prior to the Effective Time were converted pursuant to Section
2.1.2(a), and each such cash payment to an FTI Shareholder will be rounded to
the nearest whole dollar.
(b) Cash Conversion. If HNC elects a Cash Conversion, then (i)
within five (5) business days after the Effective Time, (in the case of the cash
payable to the FTI Shareholders under Section 2.1.2(b)), and (ii) within ten
(10) business days after the delivery of the Earn-Out Computation Notice
pursuant to Section 2.2.2 (in the case of any cash payable to the FTI
Shareholders under Section 2.2.2(b)), HNC will pay to each FTI Shareholder, by
check or wire transfer, that portion of the amount of any such cash payable
under Section 2.1.2(b) or Section 2.2.2(b), as applicable, into which the shares
of FTI Common Stock that were issued and outstanding and owned of record by such
FTI Shareholder immediately prior to the Effective Time were converted pursuant
to Section 2.1.2(b) or Section 2.2.2(b), as applicable, and each such cash
payment to an FTI Shareholder will be rounded to the nearest whole dollar.
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2.8 Escrow Agreement.
(a) Stock Conversion. If HNC elects (or is deemed by the
provisions of Section 2.1.2 to have elected) a Stock Conversion, then HNC will
be entitled to withhold from the FTI Shareholders: (i) at the Closing (as
defined in Section 7.1) that number of the shares of HNC Common Stock that are
issuable to the FTI Shareholders upon the conversion of their shares of FTI
Common Stock under Section 2.1.2(a) that equals the number obtained by dividing
(A) Two Million Five Hundred Twenty Thousand Dollars ($2,520,000) plus the FTI
Receivables Amount by (B) the HNC Average Price Per Share (as such may be
adjusted to reflect a Capital Change in HNC Common Stock); plus (ii) when and if
they become issuable under Section 2.2.2(a), fifteen percent (15%) of the total
number of shares of HNC Common Stock (if any) that are issuable to the FTI
Shareholders under Section 2.2.2(a), in each case rounded up to the nearest
whole number of shares to be issued to each FTI Shareholder (all such withheld
shares of HNC Common Stock being hereinafter collectively referred to as the
"ESCROW SHARES"). The number of Escrow Shares withheld from each FTI Shareholder
shall be that number of such Escrow Shares that equals the product obtained by
multiplying the total number of Escrow Shares by a fraction (i) whose numerator
is the total number of issued and outstanding shares of FTI Common Stock that
were owned of record by such FTI Shareholder immediately prior to the Effective
Time and (ii) whose denominator is the total number of shares of FTI Common
Stock that were issued and outstanding and held of record by all FTI
Shareholders immediately prior to the Effective Time minus all FTI Dissenting
Shares. If HNC elects (or is deemed by the provisions of Section 2.1.2 to have
elected) a Stock Conversion, then HNC will deliver certificates representing the
Escrow Shares to State Street Bank and Trust or a similar institution, as escrow
agent (the "ESCROW AGENT"), together with related stock transfer powers, to be
held by the Escrow Agent in escrow as security for FTI Shareholders'
indemnification obligations under Article 11 pursuant to the provisions of an
escrow agreement in substantially the form of Exhibit C-1 to be entered into at
the Closing by HNC, the Escrow Agent, the FTI Shareholders and the
Representative (as defined below) (the "STOCK ESCROW AGREEMENT"). The Escrow
Shares will be represented by a certificate or certificates issued in the
respective names of each of the FTI Shareholders in proportion to their
respective interests in the Escrow Shares and will be held in escrow by the
Escrow Agent during the Escrow Period (as defined below) pursuant to the Stock
Escrow Agreement.
(b) Cash Conversion. If HNC elects a Cash Conversion, then HNC
will be entitled to withhold from the FTI Shareholders: (i) at the Closing, a
sum of cash equal to Two Million Five Hundred Twenty Thousand Dollars
($2,520,000) plus the FTI Receivables Amount from the amount of cash that is
payable to the FTI Shareholders upon the conversion of their shares of FTI
Common Stock under Section 2.1.2(b); plus (ii) when and if it becomes payable
under Section 2.2.2(b), fifteen percent (15%) of the total amount of cash (if
any) payable to the FTI Shareholders under Section 2.2.2(b) (all such withheld
cash being hereinafter referred to as the "ESCROW FUNDS"). The amount of Escrow
Funds withheld from each FTI Shareholder shall be that amount of the Escrow
Funds that equals the product obtained by multiplying the total amount of the
Escrow Funds by a fraction (i) whose numerator is the total number of issued and
outstanding shares of FTI Common Stock that were owned of record by such FTI
Shareholder immediately prior to the Effective Time and (ii) whose denominator
is the total number of shares of FTI Common Stock that were issued and
outstanding and held of record by all FTI Shareholders immediately prior to the
Effective Time minus all FTI Dissenting Shares. If HNC elects a Cash Conversion,
then HNC will
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deliver the Escrow Funds to the Escrow Agent (as defined above), to be held by
the Escrow Agent in escrow as security for the FTI Shareholders' indemnification
obligations under Article 11 pursuant to the terms of an Escrow Agreement in
substantially the form of Exhibit C-2, to be entered into at the Closing by HNC,
the Escrow Agent and the Representative (the "CASH ESCROW AGREEMENT"). The
Escrow Funds will be held in Escrow by the Escrow Agent during the Escrow Period
(as defined below) pursuant to the Cash Escrow Agreement.
(c) Common Terms. Any references herein to the "ESCROW AGREEMENT"
will mean the "Stock Escrow Agreement" or the "Cash Escrow Agreement," as
applicable, and any references to the "ESCROW PROPERTY" will mean the "Escrow
Shares" or the "Escrow Funds", as applicable. The Escrow Shares or the Escrow
Funds, as applicable, will be held by the Escrow Agent in escrow pursuant to the
Escrow Agreement during that period of time specified in the Escrow Agreement
(the "ESCROW PERIOD").
(d) Other Escrow Terms. By their approval of the Merger, each of
the FTI Shareholders (which specifically include Founder, Xxxxxxx and Snow) will
be conclusively deemed to have consented to, approved and agreed to be
personally bound by: (i) the indemnification provisions of Article 11; (ii) the
Escrow Agreement; (iii) the appointment of J. Xxxxxxx Xxxxxxxx as the
representative of the FTI Shareholders, together with his successor(s), as
representative of the FTI Shareholders: (the "REPRESENTATIVE") under the Escrow
Agreement and as the attorney-in-fact and agent for and on behalf of each FTI
Shareholder as provided in the Escrow Agreement; and (iv) the taking by the
Representative of any and all actions and the making of any decisions required
or permitted to be taken by the Representative under the Escrow Agreement,
including, without limitation, the exercise of the power to: (1) authorize
delivery to HNC of Escrow Property in satisfaction of indemnity claims by HNC or
any other Indemnified Person (as defined herein) pursuant to Article 11 hereof
and/or the Escrow Agreement; (2) agree to, negotiate, enter into settlements and
compromises of, demand arbitration of, and comply with orders of courts and
awards of arbitrators with respect to, such claims; (3) arbitrate, resolve,
settle or compromise any claim for indemnity made pursuant to Article 11; and
(4) take all actions necessary in the judgment of the Representative for the
accomplishment of the foregoing. The Representative will have unlimited
authority and power to act on behalf of each FTI Shareholder with respect to the
Escrow Agreement and the disposition, settlement or other handling of all claims
governed by the Escrow Agreement, and all rights or obligations arising under
the Escrow Agreement so long as all FTI Shareholders are treated in the same
manner. Each FTI Shareholder will be bound by all actions taken by the
Representative in connection with the Escrow Agreement, and HNC will be entitled
to rely on any action or decision of the Representative. In performing the
functions specified in this Agreement and the Escrow Agreement, the
Representative will not be liable to any FTI Shareholder in the absence of gross
negligence or willful misconduct on the part of the Representative. Any
out-of-pocket costs and expenses reasonably incurred by the Representative in
connection with actions taken pursuant to the terms of the Escrow Agreement will
be paid by the FTI Shareholders to the Representative pro rata in proportion to
their respective percentage interests in the Escrow Property.
2.9 Effects of the Merger. At and upon the Effective Time of the Merger:
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(a) the separate existence of Sub will cease and Sub will be
merged with and into FTI, and FTI will be the surviving corporation of the
Merger (the "SURVIVING CORPORATION") pursuant to the terms of this Agreement and
the Merger Certificates;
(b) the Articles of Incorporation of FTI will be amended to read
as set forth in Exhibit D attached hereto and will be the Articles of
Incorporation of the Surviving Corporation;
(c) the Bylaws of FTI attached as Exhibit E hereto will be the
Bylaws of the Surviving Corporation;
(d) each share of FTI Common Stock that is issued and outstanding
immediately prior to the Effective Time will be converted as provided in this
Article 2 and the Merger Certificates;
(e) each share of Sub Common Stock that is outstanding
immediately prior to the Effective Time will be converted into one (1) share of
FTI Common Stock as provided in Section 2.1.1 and in the Merger Certificates;
(f) the officers of the Surviving Corporation (and their
respective offices) will be: J. Xxxxxxx Xxxxxxxx -- Chief Executive Officer;
Xxxx X. Xxxxxxx -- President; Xxxxxx X. Xxxx -- Senior Vice President; Xxxxxx X.
Xxxxxxxxx -- Vice President and Controller; Xxxxxx X. Xxxxxxx -- Assistant Vice
President; Xxxxx Xxxxxx -- Assistant Vice President; and Xxxxxxx X. Xxxxxx --
Chief Financial Officer and Secretary.
(g) the directors of the Surviving Corporation will be J. Xxxxxxx
Xxxxxxxx, Xxxxxx X. North and Xxxxxxx X. Xxxxxx; and
(h) the Merger will, from and after the Effective Time, have all
of the effects provided by applicable law.
2.10 Further Assurances. FTI and the Founder agree that if, at any time
before or after the Effective Time, HNC believes or is advised that any further
instruments, deeds, assignments or assurances are reasonably necessary or
desirable to consummate the Merger or to carry out the purposes and intent of
this Agreement at or after the Effective Time, then HNC, the Surviving
Corporation and their respective officers and directors may, and the Founder
will, execute and deliver all such proper deeds, assignments, instruments and
assurances and do all other things necessary or desirable to consummate the
Merger and to carry out the purposes of this Agreement, in the name of FTI or
otherwise.
2.11 Securities Laws Issues. HNC shall issue any shares of HNC Common
Stock to be issued to FTI Shareholders in the Merger pursuant to Section 2.1.2
and Section 2.2 of this Agreement pursuant to an exemption from registration
under Section 4(2) and/or Regulation D promulgated under the Securities Act of
1933, as amended (the "1933 ACT") and the exemption from
qualification/registration under Section 4.I of the Illinois Securities Law of
1953. Concurrently with execution of this Agreement each FTI Shareholder shall
execute and deliver to HNC an Investment Representation Letter in the form of
Exhibit F hereto (the "INVESTMENT REPRESENTATION LETTER").
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2.12 Registration Rights. If HNC has (or pursuant to the provisions of
Section 2.1.2 is deemed to have) elected a Stock Conversion, then effective at
the Closing, HNC and each FTI Shareholder who receives shares of HNC Common
Stock in the Merger pursuant to Section 2.1.2 will enter into a Registration
Rights Agreement with HNC in substantially the form of Exhibit G hereto (the
"REGISTRATION RIGHTS AGREEMENT"), under which each FTI Shareholder who executes
and delivers such Registration Rights Agreement will be granted certain Form S-3
registration rights under the 1933 Act, solely with respect to shares of HNC
Common Stock issued under Section 2.1.2(a), on the terms, and subject to the
conditions and limitations, of such Registration Rights Agreement.
2.13 Tax-Free Reorganization.
(a) Stock Conversion. If HNC has (or pursuant to the provision of
Section 2.1.2 is deemed to have) elected a Stock Conversion, then the parties
intend to adopt this Agreement as a tax-free plan of reorganization and to
consummate the Merger in accordance with the provisions of Section 368(a)(1)(A)
of the Internal Revenue Code of 1986, as amended (the "CODE") by virtue of the
provisions of Section 368(a)(2)(E) of the Code. If a Stock Conversion is
elected, then the parties believe that the value of the shares of HNC Common
Stock to be issued to FTI Shareholders in the Merger is equal to the value of
the shares of FTI Common Stock to be surrendered in exchange therefor, and
except for the $1,500,000 cash to be paid pursuant to Section 2.1.2(a) and cash
to be paid in lieu of fractional shares, no consideration that could constitute
"other property" within the meaning of Section 356 of the Code is to be paid by
HNC for the outstanding shares of FTI Common Stock in the Merger. In addition,
HNC represents that it presently intends to continue FTI's historic business or
use a significant portion of FTI's business assets in a business. If a Stock
Conversion is elected, then at the Closing (as that term is defined in Section
7.1), officers of FTI will execute and deliver an officers' tax representation
certificate in the form of Exhibit H. NOTWITHSTANDING ANYTHING TO THE CONTRARY
SET FORTH HEREIN, HNC MAKES NO REPRESENTATIONS OR WARRANTY TO FTI OR TO ANY
STOCKHOLDER OF FTI REGARDING THE TAX TREATMENT OF THE MERGER OR WHETHER THE
MERGER WILL QUALIFY AS A TAX-FREE PLAN OF REORGANIZATION UNDER THE CODE. FTI AND
FOUNDER HEREBY ACKNOWLEDGE AND AGREE THAT NEITHER THEY NOR ANY OTHER FTI
SHAREHOLDER HAS RELIED, OR IS RELYING, ON HNC OR HNC'S LEGAL COUNSEL OR
ACCOUNTANTS, FOR ANY ADVISE OR COUNSEL WITH RESPECT TO THE TAX TREATMENT OF THE
MERGER.
(b) Cash Conversion. The parties acknowledge, understand
and agree, that if HNC elects a Cash Conversion pursuant to Section 2.1.2, then
the Merger will not qualify as a tax-free plan of reorganization under the Code.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF FTI AND
FTI SHAREHOLDERS
FTI, the Founder, Xxxxxxx and Snow hereby jointly and severally
represent and warrant to HNC that, except as specifically set forth in the
letter from FTI addressed to HNC and dated as of
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the Agreement Date (including all schedules thereto) which has been delivered to
HNC by FTI concurrently herewith (the "FTI DISCLOSURE LETTER"), each of the
following representations, warranties and statements in this Article 3 are true
and correct.
3.1 Organization and Good Standing. FTI is a corporation duly organized,
validly existing and in good standing under the laws of the State of Illinois,
has the corporate power and authority to own, operate and lease its properties
and to carry on its business as now conducted and as proposed to be conducted,
and is duly qualified to transact business as a foreign corporation in each
jurisdiction in which its failure to be so qualified would have a Material
Adverse Effect. As used in this Agreement, the term "MATERIAL ADVERSE EFFECT"
when used with reference to FTI, means any event, change or effect that is (or
will with the passage of time be) materially adverse to FTI's condition
(financial or otherwise), properties, assets, liabilities, business, operations,
results of operations or prospects.
3.2 Power, Authorization and Validity.
3.2.1 FTI has the right power, legal capacity and authority to
enter into, execute, deliver and perform its obligations under, this Agreement,
the Merger Certificates and all FTI Ancillary Agreements, and to consummate the
Merger, whether HNC elects to consummate the Merger through a Stock Conversion
or through a Cash Conversion. The execution, delivery and performance by FTI of
this Agreement, and each of the FTI Ancillary Agreements, the Merger and FTI's
consummation of the Merger as contemplated by this Agreement (whether HNC elects
to consummate the Merger through a Stock Conversion or through a Cash
Conversion) have each been duly and validly approved and authorized by all
necessary corporate action on the part of FTI's Board of Directors and
shareholders in compliance with all applicable laws (including without
limitation the Illinois Business Corporation Act) and the Articles of
Incorporation and Bylaws of FTI, each as amended to date. Each FTI Shareholder
has the right, power, legal capacity and authority to enter into, execute,
deliver, and perform their respective obligations under, this Agreement and each
of the FTI Shareholder Ancillary Agreements to be executed and delivered by the
Founder and such other FTI Shareholders pursuant to this Agreement.
3.2.2 No filing, authorization, consent, approval or order,
governmental or otherwise, is necessary or required to be made or obtained by
FTI, the Founder or any other FTI Shareholder to enable FTI, the Founder or any
other FTI Shareholder to lawfully enter into, and to perform its or his
respective obligations under, this Agreement, each of FTI Ancillary Agreements
and each of the FTI Shareholder Ancillary Agreements to which FTI the Founder or
any such other FTI Shareholder is to be a party pursuant to this Agreement,
except for: (a) the filing of the Delaware Certificate of Merger with the
Delaware Secretary of State and any such further documents as may be required
under the Delaware General Corporation Law to effect the Merger; (b) the filing
of the Illinois Articles of Merger with the Illinois Secretary of State and any
such further documents as may be required under the Illinois Business
Corporation Act to effect the Merger.
3.2.3 This Agreement and each of FTI Ancillary Agreements are, or
when executed by FTI will be, valid and binding obligations of FTI, enforceable
against FTI in accordance with their respective terms, subject only to the
effect of (a) applicable bankruptcy and other similar laws
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affecting the rights of creditors generally and (b) rules of law and equity
governing the availability of specific performance, injunctive relief and other
equitable remedies. This Agreement and each of the FTI Shareholder Ancillary
Agreements are, or when executed by the Founder or by any other FTI Shareholder
who is a party thereto will be, a valid and binding obligation of the Founder or
such other FTI Shareholder, enforceable against the Founder or such other FTI
Shareholder in accordance with their respective terms, subject only to the
effect of (a) applicable bankruptcy and other similar laws affecting the rights
of creditors generally and (b) rules of law and equity governing the
availability of specific performance, injunctive relief and other equitable
remedies.
3.2.4 FTI Shareholder Approval. FTI has obtained the written
approval and consent of FTI Shareholders who hold 100% of FTI's outstanding
shares of capital stock, in compliance with applicable law and FTI's Articles of
Incorporation and Bylaws, both as currently in effect, approving this Agreement,
the Merger Certificates, the Merger, and related matters (such FTI Shareholders'
written approval and consent is hereinafter referred to as the "FTI Shareholder
Vote"). Prior to obtaining the FTI Shareholder Vote, FTI furnished to each FTI
Shareholder the HNC Disclosure Package. FTI's Board of Directors and the FTI
Shareholders have not taken any action whatsoever to revoke, modify, invalidate,
or withdraw the FTI Shareholder Vote. In connection with the FTI Shareholder
Vote, there are no shares that qualify as Dissenting Shares.
3.3 Capitalization of FTI.
3.3.1 Outstanding Stock. The authorized capital stock of FTI
consists entirely of (i) 1,000 shares of Class A Common Stock, without par
value, of which a total of 1,000 shares are issued and outstanding, and no other
shares of any capital stock of FTI are authorized, issued or outstanding. No
fractional shares of Common Stock of FTI are issued or outstanding. All issued
and outstanding shares of FTI capital stock have been duly authorized and
validly issued, are fully paid and nonassessable, are not subject to any claim,
lien, encumbrance, preemptive right, right of first refusal, right of first
offer or right of rescission, and have been offered, issued, sold and delivered
by FTI in compliance with all registration or qualification requirements (or
applicable exemptions therefrom) of all applicable federal and state securities
laws. A list of all holders of FTI's outstanding capital stock, and the total
number of shares of FTI Common Stock owned by each such holder is set forth in
Schedule 3.3.1 to the FTI Disclosure Letter. FTI has no stockholders other than
the FTI Shareholders. During the two (2) year period immediately prior to the
Agreement Date, FTI has not redeemed, repurchased or otherwise reacquired any
shares of its capital stock from any stockholder of FTI.
3.3.2 No Options, Warrants or Rights. There are no options,
warrants, convertible securities or other securities, calls, commitments,
conversion privileges, "phantom" stock rights, stock appreciation rights,
preemptive rights, rights of first refusal, rights of first offer or other
rights or agreements outstanding to purchase or otherwise acquire (whether
directly or indirectly) any shares of FTI's authorized but unissued capital
stock or any securities convertible into or exchangeable for any shares of FTI's
capital stock or obligating FTI to grant, issue, extend, or enter into any such
option, warrant, convertible security or other security, call, commitment,
conversion privilege, "phantom" stock right, stock appreciation right,
preemptive right, right of first refusal, right of first offer or other right or
agreement, and FTI has no liability for any accrued but unpaid dividends. No
person or entity holds or has any option, warrant or other right to acquire any
issued
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and outstanding shares of the capital stock of FTI from any holder of shares of
the capital stock of FTI. To the knowledge of FTI and Founder, no shares of FTI
capital stock have been transferred in violation of any right of first refusal
or any similar right. FTI does not have outstanding any "phantom" stock rights,
stock appreciation rights or any similar rights or commitments.
3.3.3 No Voting Arrangements or Registration Rights. There are no
voting agreements, voting trusts, preemptive rights, rights of first refusal,
rights of first offer or other restrictions (other than normal restrictions on
transfer under applicable federal and state securities laws) applicable to any
of FTI's outstanding securities or to the conversion of any shares of FTI's
capital stock in the Merger. FTI is not under any obligation to register under
the 1933 Act any of its presently outstanding shares of stock or other
securities or any shares of stock or other securities that may be subsequently
issued by FTI.
3.3.4 No Claims or Encumbrances. To the knowledge of FTI and
Founder, no shares of the outstanding stock of FTI are subject to any pledge,
lien, security interest, claim or encumbrance whatsoever. To the knowledge of
FTI and Founder, (a) no person listed as a FTI Shareholder on Schedule 3.3.1 to
the FTI Disclosure Letter has claimed any interest in any additional shares of
FTI capital stock, or any options, warrants or other securities of FTI, except
for the number of shares of FTI capital stock which such person is shown to be
the owner of on Schedule 3.3.1 to the FTI Disclosure Letter, and (b) no third
party who is not listed on Schedule 3.3.1 to the FTI Disclosure Letter has made,
or has, any claim of entitlement to receive any shares of the capital stock of
FTI, any warrants or other rights to acquire any capital stock of FTI or any
other securities of FTI.
3.4 Subsidiaries. FTI does not have any subsidiaries or any interest,
direct or indirect, in any corporation, partnership, limited liability company,
joint venture or other business entity.
3.5 No Violation of Existing Agreements. Neither the execution and
delivery of this Agreement nor any FTI Ancillary Agreement, nor the consummation
of the transactions contemplated hereby or thereby, will conflict with, or (with
or without notice or lapse of time, or both) result in a termination, breach,
impairment or violation of: (a) any provision of the Articles of Incorporation
or Bylaws of FTI as currently in effect; (b) any federal, state, local or
foreign judgment, writ, decree, order, statute, rule or regulation applicable to
FTI or any of its assets or properties; or (c) any material instrument,
agreement, contract, undertaking, understanding, letter of intent, memorandum of
understanding or commitment (whether verbal or in writing) to which FTI is a
party or by which FTI or any of its assets or properties are bound that is
required to be set forth in Schedule 3.11 to the FTI Disclosure Letter. The
consummation of the Merger by FTI will not require the consent of any third
party.
3.6 Litigation. There is no action, claim, suit, arbitration, mediation,
proceeding or investigation pending against FTI (or against any officer,
director, employee or agent of FTI in his or her capacity as such or relating to
his or her employment, services or relationship with FTI) before any court,
administrative agency or arbitrator nor, to FTI's knowledge, has any such claim,
suit, action, arbitration, mediation, proceeding or investigation been
threatened. There is no basis for any person, firm, corporation or other entity
to assert a claim against FTI, any of FTI's directors, officers, shareholders,
employees or agents in their capacity as such, or against HNC based upon:
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(a) FTI's entering into this Agreement or any FTI Ancillary Agreement or
consummating the Merger or any of the transactions contemplated by this
Agreement or any FTI Ancillary Agreement; (b) an assertion of ownership, rights
to ownership, or options, warrants or other rights to acquire ownership, of any
shares of the capital stock of FTI; or (c) an assertion by any party that such
party is entitled to any rights as a shareholder of FTI, including any option,
warrant or preemptive rights or rights to notice or to vote. There is no
judgment, decree, injunction, rule or order of any governmental entity or
agency, court or arbitrator outstanding against FTI.
3.7 Taxes.
(a) FTI has timely filed all federal, state, local and foreign
tax and information returns required to be filed by it, has timely paid all
taxes required to be paid by it in respect of all periods for which such tax
returns have been filed, has established an adequate accrual or reserve of cash
(and an adequate reserve for financial accounting purposes) for the payment of
all taxes payable by FTI in respect of the periods subsequent to the periods
covered by FTI's most recent applicable tax returns, has made all necessary
estimated tax payments, and has no material liability for taxes in excess of the
amount so paid or accruals or reserves so established. FTI is not delinquent in
the payment of any tax or in the filing of any tax returns, and no deficiencies
for any tax have been threatened, claimed, proposed or assessed against FTI or
any of its officers, employees or agents. FTI has not received any notification
that any material issues have been raised by (or are currently pending) before
the Internal Revenue Service or any other taxing authority (including but not
limited to any sales or use tax authority) regarding FTI and no tax return of
FTI has ever been audited by the Internal Revenue Service or any state or local
taxing agency or authority. No tax liens have been filed against, and no tax
liens are outstanding against, any assets or properties of FTI.
(b) FTI is, and since October 1, 1982 has been, a subchapter "C"
corporation within the meaning of the Code and the regulations promulgated
thereunder. FTI was a subchapter "S" corporation within the meaning of the Code
and the regulations promulgated thereunder at all times from FTI's incorporation
until October 1, 1982. FTI and/or its stockholders have timely filed with the
Internal Revenue Service all elections or other documents, and have timely taken
all other actions, necessary in order for FTI to validly be treated as a
subchapter "S" corporation within the meaning of the Code for all tax periods
during which FTI has filed tax or information returns as a subchapter "S"
corporation within the meaning of the Code and the regulations promulgated
thereunder. FTI and/or its stockholders have timely filed with the tax
authorities of all states and other jurisdictions with respect to which FTI (i)
is subject to income tax and (ii) has filed tax or information returns claiming
a tax status similar to that of a subchapter "S" corporation under the Code (a
"STATE S CORPORATION"), all elections or other documents, and have timely taken
all other actions, necessary in order for FTI to validly be treated as a State S
Corporation in each such state or jurisdiction. FTI has timely filed with the
Internal Revenue Service and with all taxing authorities of any other applicable
state or jurisdiction, any and all returns, filings and other documents required
in connection with the change of its status from a subchapter "S" to a
subchapter "C" corporation.
(c) For the purposes of this Section, the terms "TAX" and "TAXES"
include without limitation all federal, state, local and foreign income,
alternative or add-on minimum income, gains, franchise, excise, property,
property transfer, sales, use, gross receipts, employment, license, payroll,
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ad valorem, documentary, stamp, inventory, occupation, recording, value added or
transfer taxes, governmental charges, fees, customs duties, levies or
assessments (whether payable directly or by withholding), and, with respect to
any such taxes, any estimated tax, interest, fines and penalties or additions to
tax and interest on such fines, penalties and /or additions to tax.
3.8 Financial Statements.
(a) FTI. FTI has delivered to HNC the following FTI financial
statements which are attached as Schedule 3.8 to the FTI Disclosure Letter: (a)
FTI's unaudited consolidated balance sheets as of September 30, 1994, 1995 and
1996 and FTI's unaudited consolidated statements of operations, statements of
cash flows and statements of stockholders' equity for each of the three years
ended September 30, 1994, 1995 and 1996, (b) FTI's unaudited consolidated
balance sheet as of December 31, 1997 (the "BALANCE SHEET"), and FTI's unaudited
consolidated statement of operations for the twelve (12) month period ended
December 31, 1997 ("FTI'S 1997 STATEMENT OF OPERATIONS"), (c) FTI's unaudited
consolidated balance sheet as of the Closing Date (the "CLOSING BALANCE SHEET"),
(d) a schedule for the period from January 1, 1997 to the Closing Date setting
forth with particularity all revenues for that period classified by product and
by customer and (e) a detailed schedule of all accounts receivable by customer
as of the Closing Date, including without limitation all accounts receivable
that have been outstanding for six (6) months or more as of the Closing Date
(all such financial statements of FTI and the notes thereto are hereinafter
collectively referred to as the "FTI FINANCIAL STATEMENTS"). The FTI Financial
Statements (a) are derived from and are in accordance with the books and records
of FTI, (b) fairly present the financial condition of FTI at the dates therein
indicated and the results of operations for the periods therein specified and
(c) have been prepared in accordance with GAAP applied on a basis consistent
with prior periods. FTI has no material debt, liability or obligation of any
nature, whether accrued, absolute, contingent or otherwise, and whether due or
to become due, except for (i) those shown on the Closing Balance Sheet. All
reserves established by FTI (including but not limited to reserves for unpaid
taxes, reserves for any penalties, fines or interest associated with unpaid
taxes, reserves for refund claims of any type, and reserves for warranty,
product liability or product defect claims) and reflected in the FTI Financial
Statements are adequate. At the Closing Date, there were no material loss
contingencies (as such term is used in Statement of Financial Accounting
Standards No. 5 issued by the Financial Accounting Standards Board in March
1975) which are not adequately provided for in the Closing Balance Sheet as
required by said Statement No. 5. FTI has no liability for any employee bonuses
that have been authorized but remain unpaid. Schedule 3.8 to the FTI Disclosure
Letter includes a complete list of all outstanding indebtedness of FTI to
Related Parties and Related Persons, including the nature and amount of such
indebtedness and the date or dates on which such indebtedness is payable by FTI.
All accounts receivable shown on the Closing Balance Sheet (equal to
$1,994,120.39, inclusive of the $1,095,627.56 shown in the Reserve Doubtful
Accounts entry) are collectible in full without offset, defense or claim on or
before December 31, 1998.
(b) Founder. The Founder has previously delivered to HNC a
representation letter dated as of the Agreement Date that is attached a Schedule
3.8(b) to the FTI Disclosure Letter (the "FOUNDER REPRESENTATION LETTER") and
which makes certain representations concerning the value and amount of the
Founder's personal assets and the amount of the Founder's net worth statements
contained in the Founder
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Financial Letter are, and at the Closing Date will continue to be, true and
correct. The Founder acknowledges that HNC is relying on the accuracy of the
Founder Financial Letter in determining that it is not necessary for HNC to make
any filings under the Xxxx-Xxxxx Xxxxxx Antitrust Improvements Act of 1976, as
amended (the "HSR ACT") in connection with the Merger.
(c) Closing Balance Sheet. The Closing Balance Sheet reflects the
following adjustments: (i) the write-off and cancellation of notes receivable
from the Founder under the 1997 Founder Note equal to the Founder Note Amount
(which write-off and cancellation shall have occurred prior to the Closing),
which represents, as of December 31, 1997, the aggregate unpaid principal amount
under the 1997 Founder Note and (ii) the establishment of a reserve equal to
100% of the FTI Receivables Amount.
3.9 Title to Properties. FTI has good and marketable title to all of its
assets and properties (including but not limited to those shown on the Balance
Sheet), free and clear of all mortgages, deeds of trust, security interests,
pledges, liens, title retention devices, collateral assignments, claims,
charges, restrictions or other encumbrances of any kind. All machinery,
vehicles, equipment and other tangible personal property owned by FTI or used in
its business are in good condition and repair, normal wear and tear excepted,
and all leases of real or personal property to which FTI is a party are fully
effective and afford FTI peaceful and undisturbed leasehold possession of the
real or personal property that is the subject of such leases. FTI is not in
violation of any zoning, building, safety or environmental ordinance, regulation
or requirement or other law or regulation applicable to the operation of its
owned or leased properties (the violation of which would result in a Material
Adverse Effect on FTI), nor has FTI received any notice of a violation of law by
FTI with which FTI has not complied and cured. FTI does not own any real
property.
3.10 Absence of Certain Changes. Since December 31, 1997, there has not
been with respect to FTI any:
(a) material adverse change in the condition (financial or
otherwise), properties, assets, liabilities, business, operations, results of
operations or prospects of FTI;
(b) amendment or change in the Articles of Incorporation or
Bylaws of FTI;
(c) incurrence, creation or assumption by FTI of (i) any
mortgage, deed of trust, security interest, pledge, lien, title retention
device, collateral assignment, claim, charge, restriction or other encumbrance
of any kind on any of the assets or properties of FTI; or (ii) any material
obligation or liability or any indebtedness for borrowed money (including
without limitation any liability under any guarantee);
(d) issuance or sale of any debt or equity securities (including
but not limited to stock) of FTI or of any options or other rights to acquire
from FTI, directly or indirectly, any debt or equity securities (including but
not limited to stock) of FTI;
(e) payment or discharge of any mortgage, deed of trust, security
interest, pledge, lien, title retention device, collateral assignment, claim,
charge, restriction or other encumbrance of any kind or any loan or other
liability, which was not either (i) shown on the Balance Sheet or (ii) incurred
in the ordinary course of FTI's business after the Balance Sheet Date;
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(f) purchase, license, sale, assignment or other disposition or
transfer, or any agreement or other arrangement for the purchase, license, sale,
assignment or other disposition or transfer, of any of the assets, properties or
goodwill of FTI other than in the ordinary course of FTI's business;
(g) damage, destruction or loss, whether or not covered by
insurance, having (or likely with the passage of time to have) a Material
Adverse Effect on FTI;
(h) declaration, setting aside or payment of any dividend on, or
the making of any other distribution in respect of, any shares of the capital
stock of FTI, any split, combination or recapitalization of the capital stock of
FTI or any direct or indirect redemption, purchase or other acquisition of the
capital stock of FTI or any change in any rights, preferences, privileges or
restrictions of any outstanding security of FTI;
(i) change or increase in the compensation payable or to become
payable to any of the officers or employees of FTI, or any bonus or pension,
insurance or other benefit payment or arrangement (including without limitation
stock awards, stock appreciation rights or stock option grants) made to or with
any of such officers, employees or agents except in connection with normal
employee salary or performance reviews or otherwise in the ordinary course of
business consistent with FTI's past practice;
(j) change with respect to the management, supervisory or other
key personnel of FTI;
(k) obligation or liability incurred by FTI to any of its
officers, directors or stockholders, except normal compensation and expense
allowances payable to officers in the ordinary course of business consistent
with FTI's past practice;
(l) making of any loan, advance or capital contribution to, or
any investment in, or any borrowing of funds from, any officer, director or
stockholder of FTI or any firm or business enterprise in which any such person
had a direct or indirect material interest at the time of such loan, advance,
capital contribution or investment;
(m) entering into, amendment of, relinquishment, termination or
non-renewal by FTI of, any contract, lease, transaction, commitment or other
right or obligation other than in the ordinary course of FTI's business, or any
written or oral indication or assertion by the other party thereto of problems
with FTI's products or services or performance under such contract, lease,
transaction, commitment or other right or obligation or of such other party's
desire to amend, relinquish, terminate or not renew any such contract, lease,
transaction, commitment or other right or obligation;
(n) material change in the manner in which FTI extends discounts
or credits to customers or otherwise deals with its customers;
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(o) entering into by FTI of any transaction, contract or
agreement or the conduct of business or operations other than in the ordinary
course of its business consistent with its past practices;
(p) any transfer or grant of a right under any FTI IP Rights (as
defined in Section 3.13 below), other than those transferred or granted in the
ordinary course of FTI's business consistent with FTI's past practice; or
(q) any agreement or arrangement made by FTI to take any action
which, if taken prior to the Agreement Date, would have made any representation
or warranty of FTI set forth in this Agreement untrue or incorrect as of the
date when made.
3.11 Contracts and Commitments. Schedule 3.11 to the FTI Disclosure
Letter sets forth a list (including title, date and the names of the parties) of
each of the following written or oral contracts, agreements, commitments or
other instruments to which FTI is a party or to which FTI or any of its assets
or properties is bound:
(a) any consulting or similar agreement under which FTI provides
any advice or services to a customer of FTI for an annual compensation to FTI of
$10,000 per year or more;
(b) any continuing contract for the purchase, sale, license,
provision or manufacture of products, material, supplies, equipment or services
requiring payment to or from FTI in an amount in excess of $10,000 per annum
which is not terminable on ninety (90) or fewer days' notice without cost or
other liability to FTI or in which FTI has granted or received manufacturing
rights, most favored customer pricing provisions or exclusive marketing rights
relating to any product or service, any group of products or services or any
territory;
(c) contract providing for the development of software by or for
FTI, or the license of software to FTI, which software is used or incorporated
in any product currently marketed or distributed by FTI or used to provide any
service currently provided by FTI or is contemplated to be used or incorporated
in any product to be distributed or service to be provided by FTI (other than a
license to FTI to use software generally available to the public at a per copy
license fee of less than $5,000 per copy);
(d) any joint venture, partnership, joint development, joint
marketing or similar contract or any other agreement which has involved or is
reasonably expected to involve a sharing of profits or losses in excess of
$25,000 per annum with any other party;
(e) any contract or commitment for the employment of any officer,
employee or consultant of FTI or any other type of contract or understanding
with any officer, employee or consultant of FTI that is not immediately
terminable by FTI without cost or other liability;
(f) any indenture, mortgage, trust deed, promissory note, loan
agreement, guarantee or other agreement or commitment for the borrowing or
lending of money, for a line of credit or for a leasing transaction of a type
required to be capitalized in accordance with Statement of Financial Accounting
Standards No. 13 of the Financial Accounting Standards Board;
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(g) any lease or other agreement under which FTI is lessee of or
holds or operates any items of tangible personal property or real property owned
by any third party and under which payments to such third party exceed $10,000
per annum;
(h) any agreement or arrangement for the sale of any assets,
properties, services or rights having a value in excess of $25,000, other than
in the ordinary course of FTI's business consistent with its past practice;
(i) any agreement that restricts FTI from engaging in any aspect
of its business, from participating or competing in any line of business market
or industry or that restricts FTI from engaging in any business in any
geographic area;
(j) any FTI IP Rights Agreement (as defined in Section 3.13);
(k) any agreement relating to the sale, issuance, grant,
exercise, award, purchase, repurchase or redemption of any shares of capital
stock or other equity or debt securities of FTI, any options, warrants or other
rights to purchase or otherwise acquire any such shares of stock, other equity
or debt securities or options, warrants or other rights therefor or any stock
appreciation rights or similar agreements;
(l) any contract with or commitment to any labor union;
(m) any agreement, contract, purchase order or other commitment
with or to any Related Party or any Related Person; or
(n) any other agreement, contract, commitment or instrument that
is material to the business of FTI or that involves a commitment by FTI in
excess of $25,000.
A copy of each agreement or document required to be listed
on Schedule 3.11 to the FTI Disclosure Letter pursuant to the provisions of this
Section (collectively, the "FTI MATERIAL AGREEMENTS") has been delivered to
HNC's counsel. No consent or approval of any third party is required to ensure
that, following the Effective Time, any FTI Material Agreement will continue to
be in full force and effect without any breach or violation thereof caused by
virtue of the Merger or by any other transaction called for by this Agreement,
any FTI Ancillary Agreement, or any FTI Shareholder Ancillary Agreement.
3.12 No Default. FTI is not in breach of or default under any FTI
Material Agreement. FTI is not a party to any contract, agreement or arrangement
which has had, or could reasonably be expected to have, a Material Adverse
Effect on FTI. FTI does not have any material liability for renegotiation of
government contracts or subcontracts, if any.
3.13 Intellectual Property.
3.13.1 FTI owns, or has the right to use, sell, lease or license
all Intellectual Property Rights (as defined in Section 3.13.6 below) by
whomever owned that are necessary or
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reasonably required for the conduct of its business as presently conducted and
as presently proposed to be conducted (such Intellectual Property Rights being
hereinafter collectively referred to as the "FTI IP RIGHTS"), and such rights to
use, sell, lease or license are sufficient for such conduct of FTI's business.
3.13.2 The execution, delivery and performance of this Agreement,
the Merger Certificates and the consummation of the Merger and the other
transactions contemplated by this Agreement and/or by any of the FTI Ancillary
Agreements and/or FTI Shareholder Ancillary Agreements will not constitute a
material breach of or default under any instrument, contract, license or other
agreement governing, relating to or affecting any FTI IP Right (such
instruments, contracts, licenses or other agreements being collectively referred
to as the "FTI IP RIGHTS AGREEMENTS"), will not cause the forfeiture or
termination, or give rise to a right of forfeiture or termination, of any FTI IP
Right or materially impair the right of FTI or the Surviving Corporation to use,
sell, lease or license any FTI IP Right or portion thereof. There are no
royalties, honoraria, fees or other payments payable by FTI to any person by
reason of the ownership, use, license, sale, lease or other disposition of any
FTI IP Rights. FTI has not granted to any third party: (a) any exclusive right
to market, distribute or manufacture any product developed, marketed, owned by
FTI or (b) any license or right that would preclude FTI from marketing,
distributing, licensing, reproducing, manufacturing or otherwise commercially
exploiting any such product or any services in any geographic territory,
industry or market. Except as set forth in Schedule 3.13.2 to the FTI Disclosure
Letter, FTI has not licensed any third party to have access to or use of any of
the source code to any software developed, marketed or owned by FTI nor has FTI
granted any third party any right to market, distribute or sublicense any source
code of such software. Schedule 3.13.2 to the FTI Disclosure Letter contains a
complete and accurate list of all source code escrows (if any) pursuant to which
any source code of any software developed or owned by FTI is currently subject.
3.13.3 Neither the manufacture, marketing, license, sale, lease,
furnishing or intended use of any product or service currently licensed,
utilized, sold, leased, provided, marketed, distributed or furnished by FTI or
currently under development by FTI violates any license or other agreement
between FTI and any third party or infringes any Intellectual Property Right of
any other party; and there is no pending or, to FTI's knowledge, threatened
claim, dispute or litigation contesting the validity, ownership or right to use,
sell, lease, license or dispose of any FTI IP Right nor, to the knowledge of
FTI, is there any basis for any such claim, nor has FTI received any notice
asserting that any FTI IP Right or the proposed use, sale, license or
disposition thereof conflicts or will conflict with the rights of any other
party, nor, to FTI's knowledge, is there any basis for the assertion of any such
claim. To FTI's knowledge, no employee of FTI is or has been in connection with
such employee's employment with FTI, in violation of any provision of any
employment contract, nondisclosure agreement, invention assignment agreement,
patent disclosure agreement, noncompetition agreement, non-solicitation
agreement or any other contract or agreement, or any restrictive covenant
relating to the right of any such employee to be employed by FTI, or to use
trade secrets or proprietary information of others, and the employment of such
employees does not subject FTI or any of such employees to any liability.
3.13.4 FTI has taken reasonable and practicable steps designed to
protect, preserve and maintain the secrecy and confidentiality of all FTI IP
Rights and all FTI's proprietary rights and Intellectual Property Rights
therein. FTI has obtained from (i) each employee of FTI, and (ii) each
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consultant of FTI who has had access to any software, technology or
copyrightable, patentable or other proprietary works owned or developed by FTI,
or to any other confidential or proprietary information of FTI or its clients,
an invention assignment and confidentiality agreement in a form reasonably
acceptable to HNC, duly executed by such employee or consultant and delivered to
FTI; and copies of the form of all such agreements have been delivered to HNC's
counsel.
3.13.5 Schedule 3.13 to the FTI Disclosure Letter contains a list
of: (a) all FTI IP Rights (whether or not recorded or registered with any
governmental authority) and (b) all worldwide applications, registrations,
filings and other formal actions made or taken pursuant to any federal, state
and foreign laws by FTI to secure, perfect or protect its interest in FTI IP
Rights, including, without limitation, all patents, patent applications,
copyrights, copyright applications, trademarks and service marks and trademark
and service xxxx applications.
3.13.6 As used herein, the term "INTELLECTUAL PROPERTY RIGHTS"
means, collectively, all worldwide industrial and intellectual property rights,
including, without limitation, patents, patent applications, patent rights,
trademarks, trademark registrations and applications therefor, trade dress
rights, trade names, service marks, service xxxx registrations and applications
therefor, copyrights, copyright registrations and applications therefor, mask
work rights, mask work registrations and applications therefor, franchises,
licenses, inventions, trade secrets, know-how, customer lists, supplier lists,
proprietary processes and formulae, software source and object code, algorithms,
architectures, structures, screen displays, layouts, development tools, designs,
blueprints, specifications, technical drawings and all documentation and media
constituting, describing or relating to the above, including, without
limitation, manuals, programmers' notes, memoranda and other records.
3.13.7 FTI has not agreed to indemnify any person for any
infringement of any Intellectual Property Rights of any third party by any
product or service that has been sold, licensed, leased, supplied or provided by
FTI.
3.13.8 FTI has no material liability under any warranty or
warranties given with respect to any of its products or services and FTI is in
compliance, in all material respects, with all warranties it has provided to its
customers regarding any of its products or services.
3.13.9 Except as set forth in Schedule 3.13.9 to the FTI
Disclosure Letter, all of the software products developed, owned, sold, licensed
and/or marketed by FTI have been, are, and at all times will be, Year 2000
Compliant (as defined below).
3.14 Compliance with Laws. FTI has complied, and is now and at the
Closing Date will be in compliance, in all material respects, with all
applicable federal, state, local or foreign laws, ordinances, regulations, and
rules, and all orders, writs, injunctions, awards, judgments, and decrees
applicable to it or to its assets, properties, and business. Without in any way
limiting the foregoing provisions of this Section, FTI is, and at all times has
been, in full compliance with all export control laws and regulations of the
United States of America, and FTI has not declared or paid any dividend or other
distribution to any of its stockholders, or repurchased or redeemed any shares
of its capital stock or other securities, in any manner that was not in full
compliance with all applicable laws. FTI holds all permits, licenses and
approvals from, and has made all filings with, third parties,
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including without limitation, government agencies and authorities, that are
necessary in connection with its present business. FTI holds all necessary
export licenses required for the conduct of its business in compliance with
applicable law.
3.15 Certain Transactions and Agreements. None of the officers,
directors, employees or stockholders of FTI, nor any member of their immediate
families, has any direct or indirect ownership interest in any firm or
corporation that competes with, or does business with, or has any contractual
arrangement with, FTI (except with respect to any interest in less than one
percent (1%) of the stock of any corporation whose stock is publicly traded).
None of said officers, directors, employees or stockholders or any member of
their immediate families, is directly or indirectly interested in any contract
or informal arrangement with FTI, (including but not limited to any loan
arrangement) except for normal compensation for services as an officer, director
or employee thereof that have been disclosed to HNC and except for agreements
related to the purchase of the stock of FTI by such persons. None of said
officers, directors, employees, stockholders or family members has any interest
in any property, real or personal, tangible or intangible (including but not
limited to any FTI IP Rights or any other Intellectual Property Rights) that is
used in, or that pertains to, the business of FTI, except for the rights of a
stockholder under applicable law. FTI has not entered into any agreement or
other arrangement for the purpose of guaranteeing the repayment of any loan or
other indebtedness by any third party, including without limitation any Related
Party or Related Person. Schedule 3.15 to the FTI Disclosure Letter sets forth a
complete list of all amounts currently payable (a) by FTI to any Related Party
or any Related Person and (b) by any Related Party or any Related Person to FTI.
3.16 Employees, ERISA and Other Compliance.
3.16.1 FTI is in compliance in all material respects with all
applicable laws, agreements and contracts relating to employment, employment
practices, wages, hours, and terms and conditions of employment, including, but
not limited to, employee compensation matters. A list of all employees, officers
and consultants of FTI and their current compensation is set forth on Schedule
3.16.1 to the FTI Disclosure Letter. FTI does not have any employment contracts
or consulting agreements currently in effect that are not terminable at will
(other than agreements with the sole purpose of providing for the
confidentiality of proprietary information or assignment of inventions that do
not provide any agreement to employ).
3.16.2 FTI (a) has never been and is not now subject to a union
organizing effort, (b) is not subject to any collective bargaining agreement
with respect to any of its employees, (c) is not subject to any other contract,
written or oral, with any trade or labor union, employees' association or
similar organization and (d) does not have any current labor disputes. FTI has
good labor relations, and has no knowledge of any facts indicating that the
consummation of the transactions contemplated hereby will have a material
adverse effect on such labor relations, and has no knowledge that any of its key
employees intends to leave its employ. FTI has no present plan or intention to
initiate any reduction of its workforce.
3.16.3 FTI has no pension plan which constitutes, or has since
the enactment of the Employee Retirement Income Security Act of 1974, as amended
("ERISA") constituted, a
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"multiemployer plan" as defined in Section 3(37) of ERISA. No FTI pension plans
are subject to Title IV of ERISA. FTI has no unfunded benefit liability under
Section 412 of the Code.
3.16.4 Schedule 3.16.4 to the FTI Disclosure Letter lists each
employment, severance or other similar contract, arrangement or policy, each
"employee benefit plan" as defined in Section 3(3) of ERISA and each plan or
arrangement (written or oral) providing for insurance coverage (including any
self-insured arrangements), workers' benefits, vacation benefits, severance
benefits, disability benefits, death benefits, hospitalization benefits,
retirement benefits, deferred compensation, profit-sharing, bonuses, stock
options, stock purchase, phantom stock, stock appreciation rights or other forms
of incentive compensation or post-retirement insurance, compensation or benefits
for employees, consultants or directors which is entered into, maintained or
contributed to by FTI or any trade or business under common control with FTI
within the meaning of Section 414 of the Code (each an "ERISA Affiliate") and
covers any employee or former employee of FTI or of an ERISA Affiliate. The
contracts, plans and arrangements described in the preceding sentence are
hereinafter collectively referred to as "FTI BENEFIT ARRANGEMENTS." Each FTI
Benefit Arrangement has been maintained in compliance in all material respects
with its terms and with the requirements prescribed by any and all statutes,
orders, rules and regulations that are applicable to such FTI Benefit
Arrangement. FTI has never been a participant in a "prohibited transaction"
within the meaning of Section 406 of ERISA with respect to any FTI Benefit
Arrangement. FTI has delivered to HNC or its counsel a complete and correct copy
or description of each FTI Benefit Arrangement. With respect to each FTI Benefit
Arrangement, where applicable, FTI has made available to HNC or its counsel a
true and complete copy of (a) such FTI Benefit Arrangement, (b) the most recent
Form 5500 Annual Report for such FTI Benefit Arrangement, (c) each trust
agreement related to such FTI Benefit Arrangement, (d) the most recent summary
plan description for each FTI Benefit Arrangement for which such a description
is required, (e) the most recent authorized report relating to each FTI Benefit
Arrangement subject to Title IV of ERISA and (f) the most recent Internal
Revenue Service ("IRS") determination letter issued with respect to any FTI
Benefit Arrangement. Except as set forth in Schedule 3.16.4 to the FTI
Disclosure Letter, FTI has received a favorable IRS determination letter with
respect to each FTI Benefit Arrangement.
3.16.5 There has been no amendment to, written interpretation or
announcement (whether or not written) by FTI relating to, or change in employee
participation or coverage under, any FTI Benefit Arrangement that would increase
materially the expense of maintaining such FTI Benefit Arrangement above the
level of the expense incurred in respect thereof for the calendar year ended
December 31, 1997.
3.16.6 All group health plans (as defined in Section 4980B(g) of
the Code) that benefit employees of FTI are in compliance, in all material
respects, with the continuation coverage requirements of Section 4980B of the
Code as such requirements affect FTI and its employees. As of the Closing Date,
there will be no material outstanding, uncorrected violations under the
Consolidation Omnibus Budget Reconciliation Act of 1985, as amended ("COBRA"),
with respect to any of FTI Benefit Arrangements, covered employees, or qualified
beneficiaries that could result in a Material Adverse Effect on FTI, or in a
material adverse effect on the business, operations or financial condition of
HNC.
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3.16.7 No benefit payable or which may become payable by FTI
pursuant to any FTI Benefit Arrangement or as a result of or arising under this
Agreement or the Merger Certificates will constitute an "excess parachute
payment" (as defined in Section 280G(b)(1) of the Code) which is subject to the
imposition of an excise Tax under Section 4999 of the Code or which would not be
deductible by reason of Section 280G of the Code. FTI is not a party to any: (a)
agreement (other than as described in (b) below) with any executive officer or
other key employee of FTI (i) the benefits of which are contingent, or the terms
of which will be materially altered, upon the occurrence of a transaction
involving FTI in the nature of the Merger, any of the transactions contemplated
by this Agreement, the Merger Certificates or any FTI Ancillary Agreement, (ii)
providing any term of employment or compensation guarantee, or (iii) providing
severance benefits or other benefits after the termination of employment of such
employee regardless of the reason for such termination of employment; or (b)
agreement or plan, including, without limitation, any stock option plan, stock
appreciation rights plan or stock purchase plan, any of the benefits of which
will be materially increased, or the vesting of benefits of which will be
materially accelerated, by the occurrence of any of the transactions
contemplated by this Agreement, the Merger Certificates or any FTI Ancillary
Agreement, or the value of any of the benefits of which will be calculated on
the basis of any of the transactions contemplated by this Agreement, the Merger
Certificates or any FTI Ancillary Agreement.
3.17 Corporate Documents; Directors and Officers. FTI has made available
to HNC for examination all documents and information listed in the FTI
Disclosure Letter or the schedules thereto or required by this Agreement to be
listed in any schedule thereto or in any other exhibit or schedule called for by
this Agreement, or which have been requested by HNC's legal counsel, including,
without limitation, the following: (a) copies of FTI's Articles of Incorporation
and Bylaws as currently in effect; (b) FTI's Minute Book containing all records
of all proceedings, consents, actions, and meetings of FTI's stockholders, board
of directors and any committees thereof; (c) FTI's stock ledger and journal
reflecting all stock issuances and transfers; (d) all permits, orders, and
consents issued by any regulatory agency with respect to FTI, or any securities
of FTI, and all applications for such permits, orders, and consents; and (e) all
agreements of FTI required to be listed in Schedule 3.11 to FTI Disclosure
Letter. Schedule 3.17 to the FTI Disclosure Letter contains a complete and
accurate list of all the current incumbent members of the Board of Directors and
officers of FTI. The currently authorized number of members of the Board of
Directors of FTI is one director.
3.18 No Brokers. Neither FTI nor any affiliate of FTI is obligated for
the payment of any fees or expenses of any investment banker, broker, finder or
similar party in connection with the origin, negotiation or execution of this
Agreement or the Merger Certificates or in connection with the Merger or any
transaction contemplated hereby or thereby, and HNC will incur no liability to
any such investment banker, broker, finder or similar party as a result of any
act or omission of FTI, any of its employees, officers, directors, stockholders,
agents or affiliates.
3.19 Books and Records.
3.19.1 The books, records and accounts of FTI: (a) are in all
material respects true, complete and correct; (b) have been maintained in
accordance with good business practices on a basis consistent with prior years;
(c) are stated in reasonable detail and accurately and fairly reflect
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the transactions and dispositions of the assets of FTI; and (d) accurately and
fairly reflect the basis for the FTI Financial Statements.
3.19.2 FTI has devised and maintains a system of internal
accounting controls sufficient to provide reasonable assurances that: (a)
transactions are executed in accordance with management's general or specific
authorization; (b) transactions are recorded as necessary (i) to permit
preparation of financial statements in conformity with GAAP or any other
criteria applicable to such statements, and (ii) to maintain accountability for
assets; and (c) the amount recorded for assets on the books and records of FTI
is compared with the existing assets at reasonable intervals and appropriate
action is taken with respect to any differences and to reflect impairment of the
value of such assets.
3.20 Insurance. FTI currently maintains and has in effect, fire and
casualty, general liability, business interruption, product liability, errors
and omissions, and sprinkler and water damage insurance with the respective
insurers, and in the respective amounts, set forth in Schedule 3.20 to FTI
Disclosure Letter. FTI has had similar insurance coverage in effect during the
three year period ending on the Agreement Date.
3.21 Environmental Matters.
3.21.1 Definitions. The following capitalized terms shall have
the meanings set forth below:
(a) "ENVIRONMENTAL LAWS" means all federal, state, local
and foreign laws, rules and regulations relating to pollution or the protection
of human health or the environment (including without limitation ambient air,
surface water, ground water, land surface or subsurface strata), including
without limitation laws and regulations relating to emissions, discharges,
releases or threatened releases of any Hazardous Materials (as defined below),
or otherwise relating to the manufacture, processing, distribution, use,
treatment, storage, disposal, transport or handling of any Hazardous Materials.
(b) "HAZARDOUS MATERIALS" means (i) any pollutant,
contaminant, chemical, industrial, toxic, hazardous or noxious substance or
waste which is regulated by the laws of any state, local, federal or other
governmental authority or jurisdiction, including but not limited to the State
of Illinois and the United States Government, and includes but is not limited to
(a) any oil or petroleum compounds, flammable substances, explosives,
radioactive materials, or any other materials or pollutants which pose a hazard
to persons or cause any real property to be in violation of any Environmental
Laws, (b) to the extent so regulated, asbestos or any asbestos-containing
material of any kind or character, (c) polychlorinated biphenyls, as regulated
by the Toxic Substances Control Act, 15 U.S.C. Section 2601 et seq., (d) any
materials or substances designated as "hazardous substances" pursuant to Section
311 of the Clean Water Act, 33 U.S.C. Section 1251 et seq., (e) "economic
poison," as defined in the Federal Insecticide, Fungicide and Rodenticide Act, 7
U.S.C. Section 135 et seq., (f) "chemical substance," "new chemical substance,"
or "hazardous chemical substance or mixture" pursuant to Sections 3, 6 and 7 of
the Toxic Substances Control Act, 15 U.S.C. Section 2601 et seq., (g) "hazardous
substances" pursuant to Section 101 of the Comprehensive Environmental Response,
Compensation, and Liability Act, 42 U.S.C. Section 9601 et seq., and
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(h) "hazardous waste" pursuant to Section 1004 of the Resource Conservation and
Recovery Act, 42 U.S.C. Section 6901 et seq., and (ii) as of any date of
determination, any additional substances or materials which now or hereafter may
be incorporated in or added to the definition of "economic poison," "chemical
substance," "new chemical substance," "hazardous chemical substance or mixture,"
"hazardous waste," "hazardous substance" or "toxic substance" or similar
substance for purposes of any Environmental Law.
3.21.2 Environmental Obligations. Each facility or site at which
FTI or any of its predecessors-in-interest conducts any business or previously
conducted any business (each a "FACILITY", collectively, the "FACILITIES") is
not (and with respect to each such previously owned, used or operated Facility
was not, when FTI or its predecessors left such Facility) in violation of any
Environmental Laws, including any laws or regulations relating to industrial
hygiene, disposal of Hazardous Materials or the environmental conditions on or
under such properties or facilities, including but not limited to, soil and
groundwater conditions. During the time that FTI or any of its
predecessors-in-interest have owned, leased or occupied any Facility, FTI and
its predecessors have not used, generated, manufactured or stored on or under
any part of any such Facility, or transported to or from any part of any
Facility, any Hazardous Materials in violation of any Environmental Laws. There
has been no presence, disposal, release or threatened release of any Hazardous
Materials on, from or under any part of any Facility and no Hazardous Materials
are currently present in, on, under or about any of the Facilities or their
groundwater or soil.
3.21.3 Environmental Obligations. FTI is conducting, and at all
times has conducted, its business and operations, and has occupied and used the
Facilities in compliance with all Environmental Laws so as not to give rise to
liability under any Environmental Laws. To FTI's knowledge (including without
limitation the knowledge of any officer or manager of FTI responsible for
environmental compliance), there is no reasonable basis to believe or suspect
that FTI's business has been conducted or is being conducted in violation of any
Environmental Laws.
3.21.4 Compliance, Disclosure of Environmental Conditions. No
conditions, circumstances or activities have existed or currently exist with
respect to the Facilities or the business or property of FTI, which could
reasonably be expected to result in recovery by any governmental authority or
other person of any remedial or removal costs, response costs, natural resource
damages or other costs, expenses or damages arising from or relating to any
alleged injury or threat of injury or harm to public health, safety or the
environment. No conditions, circumstances or activities have existed or
currently exist with respect to FTI's business or property (including without
limitation the Facilities) that could reasonably be expected to subject FTI or
HNC to any administrative, civil or criminal liability, injunctive relief,
penalty or obligation, whether under common law, equitable theory, or pursuant
to Environmental Laws, or which in the future could reasonably be expected to
result in or may have in the past resulted in actual or threatened damage, harm,
or impairment of, or a threat to, public health, safety or the environment.
3.21.5 No Outstanding Orders or Actions. There are no outstanding
orders, injunctions or decrees against FTI, nor are there any pending or
threatened investigations of any kind against FTI, concerning any environmental,
public health, safety or land use matters or other Environmental Laws,
including, but not limited to, the emission, discharge or release of hazardous
or toxic substances or wastes, pollutants, or contaminants into the environment
or work place, or the management of hazardous or toxic substances or wastes,
pollutants or contaminants. There are no
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actions, suits or administrative, arbitral or other proceedings alleged,
claimed, pending, affecting or, to FTI's knowledge, threatened against FTI at
law or in equity with respect to any environmental, public health, safety or
land use matters or other Environmental Laws, and to FTI's knowledge, there are
no existing grounds on which any such action, suit or proceedings might be
commenced.
3.21.6 No Waste Disposal. All Hazardous Materials and waste
materials (if any) generated, used, transported, treated, stored or disposed of
in connection with FTI's business have been handled, stored, treated and
disposed of in accordance with applicable Environmental Laws. Schedule 3.21 of
the FTI Disclosure Letter describes all Hazardous Materials present on
properties leased or owned by FTI or which have been treated, stored or disposed
of in connection with the business of FTI on such properties. At no time has any
radioactive waste been treated on any properties leased or owned by FTI.
3.22 Disclosure. Neither this Agreement, its exhibits and schedules, nor
any of the certificates or documents to be delivered by FTI to HNC under this
Agreement, or any other documents delivered by FTI to HNC regarding FTI
business, taken together, contains any untrue statement of a material fact or
omits to state any material fact necessary in order to make the statements
contained herein and therein, in light of the circumstances under which such
statements were made, not misleading.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF HNC AND SUB
HNC and Sub hereby represent and warrant that, except as set forth in
the letter addressed to FTI from HNC and dated as of the Agreement Date which
has been delivered by HNC to FTI concurrently herewith (the "HNC DISCLOSURE
LETTER"), each of the following representations, warranties and statements in
this Article 4 are true and correct:
4.1 Organization and Good Standing. HNC is a corporation duly organized,
validly existing and in good standing under the laws of the State of Delaware,
and has the corporate power and authority to own, operate and lease its
properties and to carry on its business as now conducted and as proposed to be
conducted. Sub is a corporation duly organized, validly existing and in good
standing under the laws of the State of Delaware, and has the corporate power
and authority to own, operate and lease its properties and to carry on its
business as proposed to be conducted.
4.2 Power, Authorization and Validity.
4.2.1 HNC has the right, power and authority to enter into,
execute and perform its obligations under this Agreement and the HNC Ancillary
Agreements. The execution, delivery and performance of this Agreement and the
HNC Ancillary Agreements by HNC have been duly and validly approved and
authorized by HNC's Board of Directors. The issuance of the shares of HNC Common
Stock to be issued in the Merger does not require the approval of HNC's
stockholders. Sub has the right, power and authority to execute, deliver and
perform its obligations under this Agreement, and upon approval of the Merger
and the Merger Certificates by Sub's sole stockholder, Sub will have the right,
power and authority to execute, deliver and perform the Merger Certificates and
all other Sub Ancillary Agreements. The execution, delivery and performance of
this
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Agreement, the Merger Certificates and all other Sub Ancillary Agreements by Sub
have been duly and validly approved and authorized by Sub's Board of Directors.
4.2.2 Assuming the current and continuing accuracy of the Founder
Representation Letter, no filing, authorization, consent, approval or order,
governmental or otherwise, is necessary or required to be made or obtained by
HNC or Sub to enable HNC or Sub to lawfully enter into, and to perform its
obligations under, this Agreement, the HNC Ancillary Agreements or the Sub
Ancillary Agreements, as applicable, except for (a) the filing by FTI of such
reports and information with the U.S. Securities and Exchange Commission (the
"SEC") under the Securities Exchange Act of 1934, as amended (the "1934 ACT")
and the rules and regulations promulgated by the SEC thereunder, as may be
required in connection with this Agreement, the Merger and the transactions
contemplated hereby; (b) the filing with the SEC of a Form D relating to the
issuance of HNC securities in the Merger, if so elected by HNC; (c) the filing
of the Delaware Certificate of Merger with the Delaware Secretary of State and
any such further documents as may be required under the Delaware General
Corporation Law to effect the Merger; (d) the filing of the Illinois Articles of
Merger with the Illinois Secretary of State and any such further documents as
may be required under the Illinois Business Corporation Act to effect the
Merger; (e) such filings and notifications as may be necessary under the HSR Act
and the expiration of applicable waiting periods under the HSR Act; (f) such
other filings as may be required by the Nasdaq National Market System with
respect to the HNC Merger Shares to be issued in the Merger; (g) the filing with
the SEC, and the effectiveness of, any registration statement to be filed by HNC
under the 1933 Act following the Effective Time pursuant to Section 2.12 hereof;
and (h) such other filings, if any, as may be required to comply with federal
and state securities laws.
4.2.3 This Agreement and the HNC Ancillary Agreements are, or
when executed by HNC will be, valid and binding obligations of HNC, enforceable
in accordance with their respective terms, except as to the effect, if any, of
(a) applicable bankruptcy and other similar laws affecting the rights of
creditors generally and (b) rules of law and equity governing specific
performance, injunctive relief and other equitable remedies. This Agreement and
the Sub Ancillary Agreements are, or when executed by Sub will be, valid and
binding obligations of Sub, enforceable in accordance with their respective
terms, except as to the effect, if any, of (a) applicable bankruptcy and other
similar laws affecting the rights of creditors generally and (b) rules of law
and equity governing specific performance, injunctive relief and other equitable
remedies.
4.3 Capitalization of HNC.
4.3.1 Stock. The authorized capital stock of HNC consists
entirely of 50,000,000 shares of HNC Common Stock, $0.001 par value per share,
and 4,000,000 shares of Preferred Stock, $0.001 par value per share (the "HNC
PREFERRED STOCK"). At the close of business on March 30, 1998, 24,728,776 shares
of HNC Common Stock were issued and outstanding and 100 shares of HNC Common
Stock were issued and held in HNC's treasury. No shares of HNC Preferred Stock
are issued or outstanding. All issued and outstanding shares of HNC Common Stock
have been duly authorized and validly issued, are fully paid and nonassessable
and not subject to preemptive rights. As of the date hereof, the authorized
capital stock of Sub consists of 100 shares of Common Stock, $0.001 par value
per share, of which 100 shares have been duly authorized and validly issued, are
fully paid and nonassessable, all of which are owned by HNC.
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4.3.2 Options. As of April 2, 1998: (a) options to purchase an
aggregate total of 4,963,847 shares of HNC Common Stock were outstanding (the
"OUTSTANDING HNC OPTIONS"); and (b) the number of shares of HNC Common Stock
reserved for issuance under HNC's 1987 Stock Option Plan, HNC's 1995 Equity
Incentive Plan, HNC's 1995 Directors Stock Option Plan, HNC's 1998 Stock Option
Plan and the Practical Control Systems Technologies, Inc. 1998 Stock Option Plan
(collectively, the "HNC PLANS") that (i) were not then issued and outstanding
and (ii) were not issuable upon the exercise of the Outstanding HNC Options, was
947,076 shares. As of April 2, 1998, there were outstanding $100,000,000 in
principal face amount of 4.75% Convertible Subordinated Notes due 2003 of HNC,
which are convertible into shares of HNC Common Stock at the price of $44.85 per
share of HNC Common Stock, as presently constituted (the "CONVERTIBLE NOTES").
4.3.3 No Other Options, Etc. Except for the Outstanding HNC
Options described in Section 4.3.2 above, options granted after December 31,
1997, the Convertible Notes, and rights of HNC employees to subscribe for shares
of HNC Common Stock under the HNC 1995 Employee Stock Purchase Plan, as of the
Agreement Date, there are no outstanding options, warrants, convertible or other
securities of HNC entitling any party to purchase or acquire shares of HNC
Common Stock.
4.4 No Violation of Material Agreements. Neither the execution and
delivery of this Agreement nor any HNC Ancillary Agreement, nor the consummation
of the transactions contemplated by this Agreement or any HNC Ancillary
Agreement, will conflict with, or (with or without notice or lapse of time, or
both) result in: (a) a breach, impairment or violation of (i) any provision of
the Certificate of Incorporation or Bylaws of HNC, as currently in effect or
(ii) any federal, state, local or foreign judgment, writ, decree, order,
statute, rule or regulation to which HNC or its assets or properties is subject;
or (b) a termination, or a material breach, impairment or violation, of any
material instrument or contract to which HNC is a party or by which HNC or its
properties are bound.
4.5 Disclosure. HNC has made available to FTI a disclosure package
consisting of (a) HNC's annual report on Form 10-K for HNC's fiscal year ended
December 31, 1997, as amended by a report on Form 10-K/A filed with the SEC on
February 26, 1998; (b) HNC's annual report to stockholders for its fiscal year
ended December 31,1996; (c) HNC's proxy statements for (i) its annual meeting of
stockholders held on May 22, 1997 and (ii) its special meeting of stockholders
held on November 25, 1997; and (d) Prospectuses dated February 27, 1998 forming
part of HNC's registration statement on Form S-3 relating to (i) the offering of
2,100,000 shares of HNC Common Stock and (ii) the offering of $90,000,000 in
principal amount of 4.75% Convertible Subordinated Notes Due 2003 (all such
documents described in the foregoing clauses (a) through (d) above being
collectively hereinafter referred to as the "HNC DISCLOSURE Package"). The HNC
Disclosure Package, this Agreement, the exhibits and schedules hereto, and any
certificates or documents to be delivered by HNC to FTI pursuant to this
Agreement, when taken together, do not contain any untrue statement of a
material fact or omit to state any material fact necessary in order to make the
statements contained herein and therein, in light of the circumstances under
which such statements were made, not misleading in any material respect.
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4.6 Validity of Shares. The shares of HNC Common Stock to be issued
pursuant to the Merger will, when issued: (a) be duly authorized, validly
issued, fully paid and nonassessable and free of liens and encumbrances created
by HNC, and (b) will be subject to applicable securities law restrictions on
transfer, including those imposed by Regulation D or Section 4(2) of the 1933
Act and Rule 144 promulgated under the 1933 Act, under applicable "blue sky"
state securities laws.
4.7 No Brokers. HNC is not obligated for the payment of any fees or
expenses of any investment banker, broker, finder or similar party in connection
with the origin, negotiation or execution of this Agreement or the Merger
Certificates or in connection with any transaction contemplated hereby or
thereby for which FTI or either of the FTI Shareholders will incur any
liability.
4.8 No Material Adverse Change. Since the date of HNC's report on Form
10-K/A filed on February 26, 1998, there has been no material adverse change in
the business, operations or financial condition of HNC and its subsidiaries,
taken as a whole.
4.9 Litigation. There is no action, claim, suit, arbitration,
proceeding, claim or investigation pending (or, to HNC's knowledge, threatened)
against HNC before any court, administrative agency or arbitrator that, if
determined adversely to HNC, is likely to have a material adverse effect on
HNC's financial condition or results of operation.
4.10 Listing of Additional Shares. HNC will file with the Nasdaq
National Market a Notification Form for Listing of Additional Shares with
respect to the shares of HNC Common Stock issuable upon conversion of FTI Common
Stock in the Merger.
ARTICLE 5
[ARTICLE 5 HAS BEEN INTENTIONALLY OMITTED]
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ARTICLE 6
CERTAIN COVENANTS
6.1 Withholding of Certain Amounts from Payment to Founder. Founder
hereby instructs and authorizes HNC to withhold from any amount of cash that
would otherwise be payable by HNC to Founder pursuant to Section 7.2.1(a)(ii)
(in the case of a Stock Conversion) or Section 7.2.1(b) (in the case of a Cash
Conversion) an amount of cash equal to: (a) the full amount of the Founder Debt,
as set forth in a letter agreement attached hereto as Exhibit I (the "FOUNDER
LETTER AGREEMENT") plus (b) any withholding taxes and any other legally required
payroll withholding items or amounts related to or arising from the write-off of
the Founder Note Amount, also as set forth in the Founder Letter Agreement.
6.2 Repayment of Loans to LaSalle Bank. Promptly following the receipt
by HNC of confirmation of the filing of the Illinois Articles of Merger with the
Illinois Secretary of State, HNC will repay the amounts due under the Loan and
Security Agreement dated January 15, 1992 (the "LOAN AGREEMENT") between FTI and
LaSalle National Bank ("LASALLE BANK"), provided that HNC shall have received a
statement from LaSalle Bank, dated as of the Closing Date and certified by a
duly authorized officer of LaSalle Bank, specifying the total paydown amount
under the Loan Agreement, which amount shall not exceed $800,000, and provided,
further, that HNC shall be required to pay no more than $800,000 under this
Section.
6.3 Continuation of FTI Business. HNC agrees that, until January 1,
1999, it shall not, without the consent of Founder, cause or permit (i) the
dissolution, liquidation or other termination of the existence of FTI, the
merger or consolidation of FTI with any other entity, the sale of substantially
all the assets of FTI, or the sale or other transfer of a majority in voting
power of the stock of FTI; or (ii) any material change in the nature or conduct
of the business of FTI; except that: (i) nothing in this Section 6.3 shall
prohibit the merger of HNC with or into another entity or the sale or other
disposition of any other subsidiary of HNC; and (ii) notwithstanding the
foregoing provisions of this Section 6.3, the parties anticipate that FTI and
HNC (and/or any one or more of HNC's subsidiaries and affiliates) may
participate in joint sales, marketing and distribution of each other's products
and services during calendar year 1998 and thereafter.
6.4 Implementation of HNC Operating Policies and Procedures. Each FTI
Shareholder agrees to cooperate with HNC to implement within FTI the same
operational policies and procedures that are applied to other subsidiaries of
HNC, including without limitation HNC's accounting and financial policies and
cash management systems, legal and contracting procedures, human resource and
employment practices, and insurance and risk management policies and programs.
Nothing in Section 6.3 above shall inhibit or prevent HNC from applying and
implementing such policies, procedures, programs, practices and systems to FTI.
6.5 Termination of Shares Purchase Agreement. FTI and Founder hereby
agree that, effective upon the Closing, the Shares Purchase Agreement dated
January 11, 1983 between FTI and Founder is terminated and is of no further
force of effect.
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ARTICLE 7
CLOSING MATTERS
7.1 The Closing. Subject to termination of this Agreement as provided in
Section 10 below, the closing of the transactions to consummate the Merger (the
"CLOSING") will take place at the offices of Fenwick & West LLP, Two Xxxx Xxxx
Xxxxxx, Xxxx Xxxx, Xxxxxxxxxx 00000 at 10:00 a.m., Pacific Standard Time on the
first business day after all of the conditions to Closing set forth in Sections
8 and 9 hereof have been satisfied and/or waived in accordance with this
Agreement, or on such later day as HNC and FTI may mutually agree on (the
"CLOSING DATE"). Concurrently with the Closing, the Delaware Certificate of
Merger will be filed with the Delaware Secretary of State, and the Illinois
Articles of Merger will be filed with the Illinois Secretary of State.
7.2 Surrender and Exchange of Certificates.
7.2.1 At the Closing, each holder of shares of FTI Stock will
surrender the certificate(s) for all such shares of FTI Stock (each an "FTI
CERTIFICATE"), duly endorsed to HNC for cancellation as of the Effective Time.
(a) Stock Conversion. If on or before the Closing HNC has
elected (or been deemed by Section 2.1.2 to have elected) a Stock Conversion,
then, promptly after the Effective Time and receipt of such FTI Certificates,
(i) HNC or its transfer agent will issue to each tendering holder of an FTI
Certificate a certificate for the number of shares of HNC Common Stock to which
such holder is entitled pursuant to Section 2.1.2(a)(i) (less the Escrow Shares
to be placed in escrow pursuant to Section 2.8 and the Escrow Agreement) and HNC
or its transfer agent will pay by check to each tendering holder cash in lieu of
fractional shares in the amount payable to such holder in accordance with
Section 2.3; and (ii) HNC will pay to each tendering holder of an FTI
Certificate, by check or wire transfer, the amount of cash to which such holder
is entitled pursuant to Section 2.1.2(a)(ii). In the event of a Stock
Conversion, at the Closing HNC will also deliver the certificates representing
the Escrow Shares to the Escrow Agent pursuant to the Escrow Agreement.
(b) Cash Conversion. If on or before the Closing HNC has
elected a Cash Conversion, then, promptly after the Effective Time and receipt
of the FTI Certificates, HNC will pay to each tendering holder of an FTI
Certificate, by check or wire transfer, the amount of cash to which such holder
is entitled pursuant to Section 2.1.2(b) (less the Escrow Funds to be placed in
escrow pursuant to Section 2.8 and the Escrow Agreement). In the event of a Cash
Conversion, at the Closing HNC will also deliver the Escrow Funds to the Escrow
Agent pursuant to the Escrow Agreement.
7.2.2 In the event of a Stock Conversion, no dividends or
distributions payable to holders of record of HNC Common Stock after the
Effective Time, or cash payable in lieu of fractional shares, will be paid to
the holder of any unsurrendered FTI Certificate with respect to the shares of
HNC Common Stock into which the shares of FTI Common Stock represented by such
FTI certificate have been converted in the Merger until the holder of such
unsurrendered FTI Certificate surrenders such FTI Certificate to HNC as provided
above. Subject to the effect, if any, of applicable escheat and other laws,
following surrender of any FTI Certificate, there will be delivered to the
person entitled thereto, without interest, the amount of any dividends and
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distributions theretofore paid with respect to HNC Common Stock so withheld as
of any date subsequent to the Effective Time and prior to such date of delivery.
7.2.3 After the Effective Time there will be no further
registration of transfers on the stock transfer books of FTI or its transfer
agent of any FTI stock that was outstanding immediately prior to the Effective
Time. If, after the Effective Time, FTI Certificates are presented for any
reason, they will be canceled and exchanged as provided in this Section 7.2.
7.2.4 In the event of a Stock Conversion, until FTI Certificates
representing shares of FTI Common Stock outstanding immediately prior to the
Effective Time are surrendered pursuant to Section 7.2.1 above, such FTI
Certificates will be deemed, for all purposes, to evidence ownership of the
number of shares of HNC Common Stock into which such shares of FTI Common Stock
will have been converted pursuant to Section 2 and the Merger Certificates.
ARTICLE 8
CONDITIONS TO OBLIGATIONS OF FTI
FTI's obligations to consummate the Merger hereunder are subject to the
fulfillment or satisfaction, on and as of the Closing, of each of the following
conditions (any one or more of which may be waived by FTI, but only in a writing
signed by FTI):
8.1 Accuracy of Representations and Warranties. The representations and
warranties of HNC set forth in Section 4 (as qualified by the HNC Disclosure
Letter) will be true and accurate in all material respects on and as of the
Closing with the same force and effect as if they had been made at the Closing,
and FTI will have received a certificate to such effect executed by HNC's
President or Chief Financial Officer.
8.2 Covenants. HNC will have performed and complied in all material
respects with all of its covenants contained in Section 6 on or before the
Closing, and FTI will have received a certificate to such effect signed by HNC's
President or Chief Financial Officer.
8.3 Requisite Approvals. The principal terms of this Agreement and the
Merger will have been duly and validly approved and adopted by HNC's Board of
Directors in accordance with applicable law and HNC's Certificate of
Incorporation and Bylaws. The principal terms of this Agreement and the Merger
will have been approved and adopted by Sub's Board of Directors and sole
stockholder in accordance with applicable law and Sub's Certificate of
Incorporation and Bylaws.
8.4 Compliance with Law; No Legal Restraints; No Litigation. No
litigation or proceeding will be threatened or pending for the purpose or with
the probable effect of enjoining or preventing the consummation of the Merger or
any of the other material transactions contemplated by this Agreement, or which
could be reasonably expected to have a material adverse effect on the present or
future operations or financial condition of HNC. There will not be any
outstanding or threatened, or enacted or adopted, any order, decree, temporary,
preliminary or permanent injunction, legislative enactment, statute, regulation,
action, proceeding or any judgment or ruling by any court, arbitrator,
governmental agency, authority or entity, or any other fact or circumstance,
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that, directly or indirectly, challenges, threatens, prohibits, enjoins,
restrains, suspends, delays, conditions or renders illegal or imposes
limitations on (or is likely to result in a challenge, threat to, or a
prohibition, injunction, restraint, suspension, delay or illegality of, or to
impose limitations on) the Merger or any other material transaction contemplated
by this Agreement.
8.5 Government Consents. There will have been obtained at or prior to
the Closing Date such permits or authorizations, and there will have been taken
all such other actions by any regulatory authority having jurisdiction over the
parties and the actions herein proposed to be taken, as may be required to
lawfully consummate the Merger, including but not limited to requirements under
applicable federal and state securities laws
8.6 Opinion of HNC's Counsel. FTI will have received from Fenwick & West
LLP, counsel to HNC, an opinion substantially in the form of Exhibit J.
8.7 Registration Rights Agreement. In the event that HNC elects a Stock
Conversion pursuant to Section 2.1 hereof, HNC shall have executed and delivered
the Registration Rights Agreement to the FTI Shareholders.
8.8 Employment Agreement. Founder, Xxxxxxx and Snow shall each have
received from HNC a fully executed copy of an Employment Agreement between such
individual and FTI in the form of Exhibits K-1, K-2 and K-3 attached hereto,
respectively, (each, an "EMPLOYMENT AGREEMENT").
8.9 Material Adverse Change. Solely in the event that HNC elects a Stock
Conversion pursuant to Section 2.1 hereof, there will not have been any material
adverse change in the financial condition of HNC and its subsidiaries, taken as
a whole, since February 26, 1998 the date upon which HNC filed its report on
Form 10-K/A with the SEC.
ARTICLE 9
CONDITIONS TO OBLIGATIONS OF HNC
The obligations of HNC hereunder are subject to the fulfillment or
satisfaction on, and as of the Closing, of each of the following conditions (any
one or more of which may be waived by HNC, but only in a writing signed by HNC):
9.1 Accuracy of Representations and Warranties. The representations and
warranties of FTI set forth in Section 3 (as qualified by FTI Disclosure Letter)
will be true and accurate in all material respects on and as of the Closing with
the same force and effect as if they had been made at the Closing, and HNC will
have received a certificate to such effect executed by FTI's Chief Executive
Officer.
9.2 Covenants. FTI will have performed and complied in all material
respects with all of its covenants contained in this Agreement on or before the
Closing, and HNC will have received a certificate to such effect signed by FTI's
Chief Executive Officer.
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9.3 No Material Adverse Change. There will not have been any material
adverse change in the financial condition, properties, assets, liabilities,
business, results of operations or operations of FTI and its subsidiaries, taken
as a whole, and HNC will have received a certificate to such effect signed by
FTI's Chief Executive Officer.
9.4 Compliance with Law; No Legal Restraints; No Litigation. There will
not be any outstanding or threatened, or enacted or adopted, any order, decree,
temporary, preliminary or permanent injunction, legislative enactment, statute,
regulation, action, proceeding or any judgment or ruling by any court,
arbitrator, governmental agency, authority or entity, or any other fact or
circumstance, that, directly or indirectly, challenges, threatens, prohibits,
enjoins, restrains, suspends, delays, conditions, or renders illegal or imposes
limitations on (or is likely to result in a challenge, threat to, or a
prohibition, injunction, restraint, suspension, delay or illegality of, or to
impose limitations on): (a) the Merger or any other material transaction
contemplated by this Agreement or any FTI Ancillary Agreement; (b) HNC's payment
for, or acquisition or purchase of, some or all of the shares of FTI Common
Stock or any material part of the assets of FTI; (c) HNC's direct or indirect
ownership or operation of all or any material portion of the business or assets
of FTI or that calls for HNC to divest itself of (i) any asset that it owns
prior to the Effective Time or (ii) any asset owned by FTI prior to the
Effective Time; or (d) HNC's ability to exercise full rights of ownership with
respect to the Surviving Corporation or its shares, including but not limited to
any restrictions on HNC's ability to vote the shares of the Surviving
Corporation. No litigation or proceeding will be threatened or pending for the
purpose or with the probable effect of enjoining or preventing the consummation
of any of the transactions contemplated by this Agreement, or which could be
reasonably expected to have a material adverse effect on the present or future
operations or financial condition of FTI or which asserts that FTI's or HNC's
negotiations regarding this Agreement, HNC's or FTI's entering into this
Agreement or FTI's or HNC's consummation of the Merger or any other material
transaction contemplated by this Agreement or any FTI Ancillary Agreement or any
FTI Shareholder Ancillary Agreement, breaches or violates any agreement or
commitment of FTI or constitutes tortious conduct on the part of HNC or FTI.
9.5 Government Consents; HSR Act Compliance. There will have been
obtained at or prior to the Closing Date such permits or authorizations, and
there will have been taken all such other actions, as may be required to
consummate the Merger by any governmental or regulatory authority having
jurisdiction over the parties and the actions herein proposed to be taken,
including but not limited to requirements under applicable federal and state
securities laws. All applicable waiting periods under the HSR Act shall have
expired or early termination of such waiting periods shall have been granted by
appropriate governmental bodies without any condition or requirement requiring
or calling for the disposition or divestiture of any product or other asset of
HNC or FTI by HNC or FTI.
9.6 Opinion of FTI's Counsel. HNC will have received from XxXxxxx, Xxxxx
& Xxxxx, counsel to FTI, an opinion substantially in the form of Exhibit L.
9.7 Consents. HNC will have received duly executed copies of all
material third-party consents, approvals, assignments, waivers, authorizations
or other certificates contemplated or required by this Agreement or the FTI
Disclosure Letter or reasonably deemed necessary by HNC's legal counsel to
provide for the continuation in full force and effect of any and all material
contracts,
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agreements and leases of FTI after the Merger and the preservation of FTI IP
Rights and other assets and properties of FTI after the Merger and for HNC to
consummate the Merger and the other transactions contemplated by this Agreement,
the FTI Ancillary Agreements and the FTI Shareholder Ancillary Agreements and in
form and substance reasonably satisfactory to HNC.
9.8 Requisite Approvals; No Dissenters. The principal terms of this
Agreement, the Merger and the FTI Ancillary Agreements will have been duly and
validly approved and adopted, as required by applicable law and FTI's Articles
of Incorporation and Bylaws, by (a) FTI's Board of Directors and (b) the valid
and affirmative vote of all the outstanding shares of FTI Common Stock (and all
other FTI securities (if any) entitled to vote thereon) representing all of the
voting power of all issued and outstanding FTI Common Stock and all other FTI
voting securities (if any).
9.9 Non-Competition Agreement. HNC will have received from each of
Founder, Xxxxxxx and Snow a fully executed copy of a Non-Competition Agreement
in the form of Exhibits X-0, X-0 xxx X-0 attached hereto, respectively.
9.10 Employment Agreements. HNC will have received from each of Founder,
Xxxxxxx and Snow a fully executed copy of an Employment Agreement in the form of
Exhibits K-1, K-2 and K-3 attached hereto, respectively.
9.11 Escrow Agreement. HNC will have received a fully executed copy of
the Escrow Agreement in the form of Exhibit C-1 in the event of a Stock
Conversion or Exhibit C-2 in the event of a Cash Conversion executed by the
Escrow Agent, the Representative and each of FTI Shareholders, and the
Representative and HNC shall have received all consents from LaSalle Bank
described in Section 9.15 so that the number of shares, or amount of cash, as
applicable, specified in Section 2.8 and otherwise deliverable to any FTI
Shareholder may be delivered into escrow without violation of any rights of
LaSalle Bank.
9.12 Registration Rights Agreement. In the event that HNC has elected a
Stock Conversion, each of the FTI Shareholders shall have executed and delivered
the Registration Rights Agreement to HNC.
9.13 Resignation of Directors. The directors of FTI in office
immediately prior to the Effective Time of the Merger (other than any such
director who is designated in Section 2.9(g) to be a director of FTI immediately
after the Effective Time) will have resigned as directors of the Surviving
Corporation effective as of the Effective Time.
9.14 No Derivative Securities. All FTI Derivative Securities, if any
will have been exercised in full and thereby converted into shares of FTI Common
Stock in accordance with their current terms and conditions, so that no FTI
Derivative Securities will be outstanding immediately prior to the Effective
Time.
9.15 Escrow Property Free of Liens. All shares of HNC Common Stock that
are Escrow Shares or all Escrow Funds, as applicable under Section 2.8, shall be
free and clear of any and all pledges, liens, security interests or other rights
or claims of any party, including LaSalle Bank (other than the ownership
interest of the FTI Shareholder who owns such Escrow Shares or Escrow Funds,
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as applicable). LaSalle Bank shall have granted all written consents, waivers or
approvals, in form and substance reasonably satisfactory to HNC, that are
necessary to enable FTI and each FTI Shareholder to consummate the Merger and to
perform their respective obligations under this Agreement, each of the FTI
Ancillary Agreements and each of the FTI Shareholder Ancillary Agreements
without any breach or violation of any obligation of FTI or any FTI Shareholder
(or such FTI Shareholder's spouse) to LaSalle Bank. LaSalle Bank shall also have
represented and agreed in writing with HNC that, upon the Effective Time of the
Merger, LaSalle Bank shall have no pledge, lien, security interest or other
right or claim with respect to any of the outstanding shares of FTI's capital
stock.
9.16 Founder Debt Repaid. Concurrent with the Closing, Founder shall
have repaid to FTI in full, in cash, the entire Founder Debt and Founder shall
have provided HNC with reasonably satisfactory evidence of such repayment.
9.17 Founder Agreement. Founder shall have executed and delivered to HNC
the Founder Letter Agreement in the form of Exhibit I.
ARTICLE 10
TERMINATION OF AGREEMENT
10.1 Prior to Closing.
10.1.1 This Agreement may be terminated at any time prior to the
Effective Time by the mutual written consent of HNC and FTI.
10.1.2 Unless otherwise agreed by the parties hereto, this
Agreement will automatically terminate at any time prior to the Effective Time
without the need for action by any party hereto, if all conditions to the
parties' respective obligations to effect the Closing set forth in Sections 8
and 9 have not been satisfied or waived by the appropriate party on or before
April 15, 1998 (the "TERMINATION DATE").
10.1.3 Either party may terminate this Agreement at any time
prior to the Closing if the other party has committed a material breach of (a)
any of its representations and warranties under Section 3 or 4 of this
Agreement, as applicable; or (b) any of its covenants under this Agreement and
has not cured such material breach prior to the earlier of (i) the Closing, (ii)
the Termination Date, or (iii) thirty (30) days after the party seeking to
terminate this Agreement has given the other party written notice of its
intention to terminate this Agreement pursuant to this Section 10.1.3.
10.2 At the Closing. At the Closing, this Agreement may be terminated
and abandoned:
10.2.1 By HNC, if any of the conditions precedent to HNC's
obligations set forth in Article 9 above have not been fulfilled or waived on or
prior to the Termination Date;
10.2.2 By FTI, if any of the conditions precedent to FTI's
obligations set forth in Article 8 above have not been fulfilled or waived on or
prior to the Termination Date;
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Any termination of this Agreement under this Section 10.2 will be
effective upon the delivery of written notice of termination from the
terminating party to the other parties hereto.
10.3 No Liability. Any termination of this Agreement in accordance with
this Section 10 will be without further obligation or liability any party in
favor of any other party hereto other than the obligations provided in the
Confidentiality Agreement; provided, however, that nothing herein will limit or
modify the obligation of FTI, the Founder and HNC to use their best efforts to
cause the Merger to be consummated by the Termination Date, as set forth in
Sections 5.10 and 6.3 hereof, respectively.
ARTICLE 11
SURVIVAL OF REPRESENTATIONS, INDEMNIFICATION
AND REMEDIES, CONTINUING COVENANTS
11.1 Survival of Representations. All representations, warranties and
covenants of FTI and the Founder, Xxxxxxx and Snow contained in this Agreement
will remain operative and in full force and effect, regardless of any
investigation made by or on behalf of HNC, until that date (the "ESCROW RELEASE
DATE") which is the first (1st) anniversary of the Closing Date; provided,
however, that notwithstanding the foregoing, the representations and warranties
of FTI, Founder, Xxxxxxx and Snow contained in Sections 3.3 and 3.7 of this
Agreement (the "SPECIAL REPRESENTATIONS") will remain operative and in effect
until the fourth (4th) anniversary of the Closing Date.
11.2 Agreement to Indemnify.
(a) Indemnification; Loss. The FTI Shareholders shall jointly and
severally indemnify and hold harmless HNC and the Surviving Corporation and
their respective officers, directors, agents, stockholders and employees, and
each person, if any, who controls or may control HNC or the Surviving
Corporation within the meaning of the 1933 Act or the 1934 Act (each hereinafter
referred to individually as an "INDEMNIFIED PERSON" and collectively as
"INDEMNIFIED PERSONS") from and against any and all claims, demands, suits,
actions, causes of action, losses, damages, liabilities, costs and expenses
including, without limitation, reasonable attorneys' fees, accountants' fees,
tax preparers' fees, other professionals' and experts' reasonable fees and court
or arbitration costs (hereinafter collectively referred to as "LOSS") incurred
with respect to and/or arising out of (i) any inaccuracy, misrepresentation,
breach of, or default in, any of the representations, warranties or covenants
given or made by FTI in this Agreement, in the FTI Disclosure Letter or in any
certificate, document or other instrument delivered by or on behalf of FTI
pursuant hereto (if such inaccuracy, misrepresentation, breach or default
existed at the Closing Date); (ii) any liability of FTI to the State of
California arising in connection with any tax or judgment liens on assets of FTI
related to debts or claims that arise prior to the Effective Time, including but
not limited to those tax or judgment liens disclosed in Section 3.7 (or
elsewhere) of the FTI Disclosure Letter; (iii) any liability for any taxes
(including without limitation GST taxes) and/or associated fines, penalties or
interest owed to any Canadian taxing authority by, or with respect to the
operations of, Financial Technology International Ltd., a wholly owned
subsidiary of FTI ("FTI CANADA"); (iv) any liability of FTI or FTI Canada for
any penalties, fines, interest or similar amounts incurred with respect to any
tax liability of FTI or FTI Canada to any other tax authority of any
jurisdiction; and (v) any liability of FTI arising in connection with the
pending
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review of FTI's 401(k) Plan by the U.S. Department of Labor (any such Loss
arising in connection with items (ii), (iii), (iv) or (v) of this sentence being
referred to herein as "PREVIOUSLY DISCLOSED LOSS"). Without limitation, any and
all fees (including without limitation reasonable attorneys' fees, accountants'
fees and tax preparers' fees) relating to the investigation, defense, remedy,
settlement or satisfaction of any Loss shall be deemed to have been incurred
with respect to, or to have arisen out of, the inaccuracy, misrepresentation,
breach, default or liability (as set forth in clauses (i) through (v) of the
immediately preceding sentence) giving rise to such Loss.
(b) Procedure for Indemnification Claims. Except as provided in
Sections 11.2(c), 11.2(d) or 11.5, any claim for indemnification made by or on
behalf of any Indemnified Person under this Section 11.2 must be raised in a
writing delivered to the Escrow Agent by no later than the Escrow Release Date,
but any such claim for indemnification, if so raised prior to the Escrow Release
Date, may continue to be prosecuted and resolved after the Escrow Release Date
in accordance with the provisions of this Article 11 and the terms and
conditions of the Escrow Agreement. As used herein, the term "Loss" will not
include any overhead costs of HNC personnel, and the amount of Loss incurred by
any Indemnified Person will be reduced by the amount of any insurance proceeds
actually received by such Indemnified Person on account of such Loss, but "Loss"
will include any reasonable costs or expenses incurred by such Indemnified
Person to recover such insurance proceeds.
(c) Misconduct Loss. As used herein, the term "MISCONDUCT LOSS"
means any Loss resulting from (i) any fraudulent conduct or willful misconduct
of FTI, any FTI Shareholder or Founder, (ii) any inaccuracy, misrepresentation,
breach of, or default in any Special Representation and/or (iii) any material
breach by any FTI Shareholder of any provisions of any Investment Representation
Letter. Notwithstanding anything herein to the contrary: (a) any claim or claims
for indemnification for any Misconduct Loss may be brought by or on behalf of
any Indemnified Person at any time prior to the fourth (4th) anniversary of the
Closing Date by giving notice of such claim to the Representative (or, at HNC's
option, to all FTI Shareholders); (b) an FTI Shareholder's liability for
Misconduct Loss shall not be subject to the limitations on such FTI
Shareholder's liability set forth in Section 11.3 and shall not be limited to
such FTI Shareholder's Escrow Property; and (c) the Basket and any other
limitations on the indemnification obligations or liabilities of the FTI
Shareholders set forth in Section 11.3 shall not be applicable to any claim by
any Indemnified Person for indemnification for any Misconduct Loss. Claims for
Misconduct Loss raised by HNC or any other Indemnified Person prior to the
Escrow Release Date will be prosecuted under the Escrow Agreement, but only if
and to the extent that the amount of Escrow Shares or Escrow Funds remaining in
escrow under the Escrow Agreement and available to satisfy such claim of
Misconduct Loss have a value (determined as provided in Section 4(e) of the
Stock Escrow Agreement if a Stock Conversion is elected) equal to or in excess
of the entire amount of Misconduct Loss claimed in good faith by HNC or such
Indemnified Person. Claims for Misconduct Loss not required to be prosecuted
under the Escrow Agreement under the terms of the preceding sentence, and any
claims of Misconduct Loss raised after the Escrow Release Date, may be
prosecuted by HNC, at its election, pursuant to the arbitration process
described in Section 4 of the Escrow Agreement (except that HNC's remedy will
not be restricted to the forfeiture of Escrow Shares or Escrow Funds) or before
any court having jurisdiction of the parties.
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(d) Previously Disclosed Loss. Notwithstanding anything herein to
the contrary: (a) any claim or claims for indemnification for any Previously
Disclosed Loss may be brought by or on behalf of any Indemnified Person at any
time prior to the sixth (6th) anniversary of the Closing Date by giving written
notice of such claim to the Representative (or, at HNC's option, to all FTI
Shareholders); (b) an FTI Shareholder's liability for Previously Disclosed Loss
shall not be subject to the limitations on such FTI Shareholder's liability set
forth in Section 11.3 and shall not be limited to such FTI Shareholder's Escrow
Property; and (c) the Basket and any other limitations on the indemnification
obligations or liabilities of the FTI Shareholders set forth in Section 11.3
shall not be applicable to any claim by any Indemnified Person for
indemnification for any Previously Disclosed Loss. Claims for Previously
Disclosed Loss raised by HNC or any other Indemnified Person prior to the Escrow
Release Date will be prosecuted under the Escrow Agreement, but only if and to
the extent that the amount of Escrow Shares or Escrow Funds remaining in escrow
under the Escrow Agreement and available to satisfy such claim of Previously
Disclosed Loss have a value (determined as provided in Section 4(e) of the Stock
Escrow Agreement if a Stock Conversion is elected) equal to or in excess of the
entire amount of Previously Disclosed Loss claimed in good faith by HNC or such
Indemnified Person. Claims for Previously Disclosed Loss not required to be
prosecuted under the Escrow Agreement under the terms of the preceding sentence,
and any claims for Previously Disclosed Loss raised after the Escrow Release
Date, may be prosecuted by HNC, at its election, pursuant to the arbitration
process described in Section 4 of the Escrow Agreement (except that HNC's remedy
will not be restricted to the forfeiture of Escrow Shares or Escrow Funds) or
before any court having jurisdiction of the parties.
11.3 Limitation. Notwithstanding anything herein to the contrary, in
seeking indemnification for Loss under Section 11.2, the Indemnified Persons
will exercise their remedies with respect to the Escrow Property and any other
assets deposited in escrow pursuant to the Escrow Agreement. Except for claims
of indemnification for Misconduct Loss, Previously Disclosed Loss or Loss
described in Section 11.5: (a) no FTI Shareholder will have any liability to an
Indemnified Person under Section 11.2 of this Agreement except to the extent of
such FTI Shareholder's pro rata portion of the Escrow Property and of any other
assets deposited under the Escrow Agreement and (b) the remedies set forth in
this Section 11.3 and the Escrow Agreement will be the exclusive remedies of HNC
and the other Indemnified Persons under Section 11.2 of this Agreement against
any FTI Shareholder for indemnification obligations under Section 11.2. In
addition, the indemnification provided for in Section 11.2 shall not apply
unless and until the aggregate Damages for which one or more Indemnified Persons
seeks or has sought indemnification hereunder exceeds a cumulative aggregate of
Fifty Thousand Dollars ($50,000) (the "BASKET"), in which event the FTI
Shareholders shall, subject to the foregoing limitations, be liable to indemnify
the Indemnified Persons for all Loss. However, notwithstanding anything herein
to the contrary, none of the limitations on the indemnification obligations set
forth in this Section 11.3 shall be applicable to any claim of indemnification
for any Misconduct Loss or any Previously Disclosed Loss or any claim for
indemnification under Section 11.5.
11.4 Notice. Promptly after HNC becomes aware of the existence of any
potential claim by an Indemnified Person for indemnity from FTI Shareholders
under Section 11.2, HNC will notify the Representative of such potential claim
in accordance with the Escrow Agreement. Failure of HNC to give such notice will
not affect any rights or remedies of any Indemnified Party hereunder with
respect to indemnification for Loss except to the extent that the FTI
Shareholders are materially
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prejudiced thereby. Prior to the settlement of any claim for which HNC seeks
indemnity from an FTI Shareholder under Section 11.2 (other than any claim for
Misconduct Loss or Previously Disclosed Loss, which, under the terms of Section
11.2, need not be prosecuted under the Escrow Agreement), HNC will provide FTI
Shareholders with the terms of the proposed settlement and a reasonable
opportunity to comment on such terms in accordance with the Escrow Agreement.
11.5 Title Indemnity. In addition to, and separate from, the foregoing
agreement to indemnify set forth in Section 11.2, each FTI Shareholder agrees,
severally and not jointly, to defend and indemnify HNC and each other
Indemnified Person from and against any and all claims, demands, suits, actions,
causes of action, losses, costs, damages, liabilities and expenses including,
without limitation, reasonable attorneys' fees, other professionals' and
experts' reasonable fees and court or arbitration costs incurred and arising out
of any failure of such FTI Shareholder to have good, valid and marketable title
to any issued and outstanding shares of FTI Common Stock held (or asserted to
have been held) by such FTI Shareholder, immediately prior to the Effective
Time, free and clear of all liens, claims and encumbrances, except for any
claims or encumbrances specifically disclosed in Section 3.3.4 of the FTI
Disclosure Letter, or to have the full right, capacity and authority to enter
into this Agreement (in the case of an FTI Shareholder who is a party hereto)
and to vote such person's shares of FTI Stock in favor of the Merger and any
other transaction contemplated by this Agreement. Any claim or claims for
indemnification for any Loss pursuant to this Section 11.5 may be brought by or
on behalf of any Indemnified Person at any time prior to the fourth (4th)
anniversary of the Closing Date by giving notice of such claim to the
Representative (or, at HNC's option, to all FTI Shareholders). An FTI
Shareholder's liability under the indemnification provided for in this Section
11.5 shall be in addition to any liability of such FTI Shareholder under Section
11.2 and shall not be subject to the limitations on such FTI Shareholder's
liability set forth in Section 11.3 and shall not be limited to such FTI
Shareholder's Escrow Property.
ARTICLE 12
MISCELLANEOUS
12.1 Governing Law. The internal laws of the State of California
(irrespective of its choice of law principles) will govern the validity of this
Agreement, the construction of its terms, and the interpretation and enforcement
of the rights and duties of the parties hereto.
12.2 Assignment; Binding Upon Successors and Assigns. Neither party
hereto may assign any of its rights or obligations hereunder without the prior
written consent of the other party hereto. This Agreement will be binding upon
and inure to the benefit of the parties hereto and their respective successors
and permitted assigns.
12.3 Severability. If any provision of this Agreement, or the
application thereof, will for any reason and to any extent be invalid or
unenforceable, then the remainder of this Agreement and the application of such
provision to other persons or circumstances will be interpreted so as reasonably
to give effect to the intent of the parties hereto. The parties further agree to
replace such void or unenforceable provision of this Agreement with a valid and
enforceable provision that will achieve, to the maximum extent legally
permisssible, the economic, business and other purposes of the void or
unenforceable provision.
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12.4 Counterparts. This Agreement may be executed in any number of
counterparts, each of which will be an original as regards any party whose
signature appears thereon and all of which together will constitute one and the
same instrument. This Agreement will become binding when one or more
counterparts hereof, individually or taken together, will bear the signatures of
all the parties reflected hereon as signatories and have been delivered by each
party to each other party (whether in facsimile or original form).
12.5 Other Remedies. Except as otherwise provided herein, any and all
remedies herein expressly conferred upon a party will be deemed cumulative with
and not exclusive of any other remedy conferred hereby or by law on such party,
and the exercise of any one right or remedy will not preclude the exercise of
any other right or remedy.
12.6 Amendment and Waivers. This Agreement may be amended by the parties
hereto at any time but only by a writing signed by HNC and FTI and, if such
amendment adversely affects the rights of the Founder under this Agreement
(other than rights held in his capacity as an FTI Shareholder), the Founder. Any
such amendment may be made at any time before or after approval of the
shareholders of FTI, but, after such approval, no amendment will be made which
by applicable law requires the further approval of the shareholders of FTI
without obtaining such further approval. The observance of any term or provision
of this Agreement may be waived (either generally or in a particular instance
and either retroactively or prospectively) only by a writing signed by the party
to be bound by such waiver. The waiver by a party of any breach hereof or
default in the performance hereof will not be deemed to constitute a waiver of
any other default or any succeeding breach or default. At any time prior to the
Effective Time, each of FTI and HNC, by action taken by its Board of Directors,
may, to the extent legally allowed, (a) extend the time for the performance of
any of the obligations or other acts of the other; (b) waive any inaccuracies in
the representations and warranties made to it contained herein or in any
document delivered pursuant hereto; and (c) waive compliance with any of the
agreements or conditions for its benefit contained herein. No such waiver or
extension will be effective unless signed in writing by the party against whom
such waiver or extension is asserted. The failure of any party to enforce any of
the provisions hereof will not be construed to be a waiver of the right of such
party thereafter to enforce such provisions.
12.7 Expenses. HNC and Sub will bear their own expenses and legal fees
incurred with respect to this Agreement, and the transactions contemplated
hereby. All legal fees and other expenses, including without limitation
accounting fees, brokers' fees, investment banking or financial advisors' fees
(including but not limited to any fees owed to Xxxxxxxx Advisory Services),
incurred by FTI or any FTI Shareholder prior to the Effective Time with respect
to this Agreement and the transactions contemplated hereby shall be paid by
Founder.
12.8 Attorneys' Fees. Should suit be brought to enforce or interpret any
part of this Agreement, the prevailing party will be entitled to recover, as an
element of the costs of suit and not as damages, reasonable attorneys' fees to
be fixed by the court (including without limitation, costs, expenses and fees on
any appeal). The prevailing party will be entitled to recover its costs of suit,
regardless of whether such suit proceeds to final judgment.
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12.9 Notices. All notices and other communications required or permitted
under this Agreement will be in writing and will be either hand delivered in
person, sent by telecopier, sent by certified or registered first class mail,
postage pre-paid, or sent by a nationally recognized express courier service.
Such notices and other communications will be effective upon receipt if hand
delivered or sent by telecopier, (b) five (5) days after mailing if sent by
mail, and (c) one (l) day after dispatch if sent by express courier, to the
following addresses, or such other addresses as any party may notify the other
parties in accordance with the notice provisions of this Section:
If to HNC: If to FTI or the Founder:
HNC Software Inc. Financial Technology, Inc.
0000 Xxxxxxxxxxx Xxxxx Xxxx 00 Xxxx Xxxx Xxxxxx, Xxxxx 0000
Xxx Xxxxx, XX 00000 Xxxxxxx, XX 00000
Attention: President Attention: Chief Executive Officer
Fax Number: (000) 000-0000 Fax Number: (000) 000-0000
with a copy to: with a copy to:
Fenwick & West, LLP XxXxxxx, Xxxxx & Xxxxx
Two Palo Alto Square, Suite 800 One Xxx Xxxxxxx Xxxxx, Xxxxx 0000
Xxxx Xxxx, XX 00000 Xxxxxxxx Xxxxxxx, XX 00000
Attention: Xxxxxxx X. Xxxxxxxx Attention: Xxxxx Xxxxx, Esq.
Fax Number: (000) 000-0000 Fax Number: (000) 000-0000
If to Xxxxxxx: If to Snow:
Xxxx X. Xxxxxxx Xxxxxx X. Xxxx
0000 Xxxxxxxx Xx. 0000 X. Xxxxxxx Xx.
Xxxxxxx Xxxxxxx, XX 00000 Xxxxxxx, XX 00000
Fax Number: (000) 000-0000 Fax Number: (000) 000-0000
or to such other address as a party may have furnished to the other
parties in writing pursuant to this Section 12.9.
12.10 Construction of Agreement. This Agreement has been negotiated by
the respective parties hereto and their attorneys and the language hereof will
not be construed for or against either party. A reference to a Section or an
exhibit will mean a Section in, or exhibit to, this Agreement unless otherwise
explicitly set forth. The titles and headings herein are for reference purposes
only and will not in any manner limit the construction of this Agreement which
will be considered as a whole.
12.11 No Joint Venture. Nothing contained in this Agreement will be
deemed or construed as creating a joint venture or partnership between any of
the parties hereto. No party is by virtue of this Agreement authorized as an
agent, employee or legal representative of any other party. No party will have
the power to control the activities and operations of any other and their status
is, and at all times will continue to be, that of independent contractors with
respect to each other. No party
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will have any power or authority to bind or commit any other. No party will hold
itself out as having any authority or relationship in contravention of this
Section.
12.12 Further Assurances. Each party agrees to cooperate fully with the
other parties and to execute such further instruments, documents and agreements
and to give such further written assurances as may be reasonably requested by
any other party to evidence and reflect the transactions described herein and
contemplated hereby and to carry into effect the intents and purposes of this
Agreement.
12.13 Absence of Third Party Beneficiary Rights. No provisions of this
Agreement are intended, nor will be interpreted, to provide or create any third
party beneficiary rights or any other rights of any kind in any client,
customer, affiliate, shareholder, or partner of any party hereto or any other
person or entity unless specifically provided otherwise herein, and, except as
so provided, all provisions hereof will be personal solely between the parties
to this Agreement.
12.14 Public Announcement. Upon execution of this Agreement, HNC and FTI
will issue a press release approved by both parties announcing the Merger.
Thereafter, HNC may issue such press releases, and make such other disclosures
regarding the Merger, as it determines are required under applicable securities
laws or regulatory rules. Prior to the publication of such press release (unless
this Agreement has been terminated), neither party will make any public
announcement relating to this Agreement or the transactions contemplated hereby
and FTI will use its reasonable efforts to prevent any trading in HNC Common
Stock by its officers, directors, employees, stockholders and agents.
12.15 Confidentiality. FTI, HNC, Founder, Xxxxxxx and Snow each
recognize that they have received confidential information concerning the others
during the course of the Merger negotiations and preparations. Accordingly, each
of the parties hereto (a) represents that it has not permitted the unauthorized
disclosure of any confidential information concerning the other parties hereto
that was disclosed during the course of such negotiations and preparations and
was clearly designated in writing as confidential at the time of disclosure and
(b) agrees to not make use of or permit to be used any such confidential
information other than for the purpose of effectuating the Merger and related
transactions. The obligations of HNC under this Section will terminate upon the
Effective Time. Otherwise, the obligations under this Section will not apply to
information that (i) is or becomes part of the public domain, (ii) is disclosed
by the disclosing party to third parties without restrictions on disclosure,
(iii) is received by the receiving party from a third party without breach of a
nondisclosure obligation to the other party, or (iv) is required to be disclosed
by subpoena or by law. If this Agreement is terminated, all copies of documents
containing confidential information shall be returned by the receiving party to
the disclosing party.
12.16 Entire Agreement. This Agreement and the exhibits hereto
constitute the entire understanding and agreement of the parties hereto with
respect to the subject matter hereof and supersede all prior and contemporaneous
agreements or understandings, inducements or conditions, express or implied,
written or oral, between the parties with respect hereto other than the
Confidentiality Agreement. The express terms hereof control and supersede any
course of performance or usage of the trade inconsistent with any of the terms
hereof.
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IN WITNESS WHEREOF, the parties hereto have executed this
Agreement effective as of the date first above written.
HNC SOFTWARE INC. FINANCIAL TECHNOLOGY, INC.
By: By:
------------------------------- -------------------------------
Xxxxxx X. North, President J. Xxxxxxx Xxxxxxxx,
Chief Executive Officer
FW2 MERGER CORP. FOUNDER
By: By:
------------------------------- -------------------------------
Xxxxxx X. North, President J. Xxxxxxx Xxxxxxxx, an individual
XXXXXXX
By:
-------------------------------
Xxxx X. Xxxxxxx
SNOW
By:
-------------------------------
Xxxxxx X. Xxxx
[SIGNATURE PAGE TO AGREEMENT AND PLAN OF REORGANIZATION]
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EXHIBIT INDEX
Exhibit A: Plan of Merger
Exhibit B: FTI Products
Exhibit C-1: Stock Escrow Agreement
Exhibit C-2: Cash Escrow Agreement
Exhibit D: Articles of Incorporation of Surviving Corporation
Exhibit E: Bylaws of Surviving Corporation
Exhibit F: Investment Representation Letter
Exhibit G: Registration Rights Agreement
Exhibit H: Officers' Tax Representation Certificate
Exhibit I: Founder Letter Agreement
Exhibit J: Opinion of Fenwick & West LLP
Exhibit K-1: Employment Agreement (Founder)
Exhibit K-2: Employment Agreement (Xxxxxxx)
Exhibit K-3: Employment Agreement (Snow)
Exhibit L: Opinion of XxXxxxx, Xxxxx & Xxxxx
Exhibit M-1: Non-Competition Agreement (Founder)
Exhibit M-2: Non-Competition Agreement (Xxxxxxx)
Exhibit M-3: Non-Competition Agreement (Snow)
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