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AGREEMENT AND PLAN OF MERGER
among
INTERNATIONAL BUSINESS MACHINES CORPORATION,
HOOSIER ACQUISITION CORP.
and
SOFTWARE ARTISTRY, INC.
Dated as of December 18, 1997
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TABLE OF CONTENTS
Page
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ARTICLE I
The Offer
SECTION 1.01. The Offer.................................................... 2
SECTION 1.02 Company Actions.............................................. 4
ARTICLE II
The Merger
SECTION 2.01. The Merger................................................... 5
SECTION 2.02. Closing...................................................... 6
SECTION 2.03. Effective Time............................................... 6
SECTION 2.04. Effects of the Merger........................................ 6
SECTION 2.05. Articles of Incorporation and By-laws........................ 6
SECTION 2.06. Directors.................................................... 7
SECTION 2.07 Officers..................................................... 7
ARTICLE III
Effect of the Merger on the Capital Stock of the
Constituent Corporations; Exchange of Certificates
SECTION 3.01. Effect on Capital Stock................................... 7
(a) Capital Stock of Sub.................................. 7
(b) Cancelation of Parent Owned Stock..................... 7
(c) Conversion of Shares.................................. 7
(d) Shares of Dissenting Shareholders..................... 8
(e) Withholding Tax....................................... 8
SECTION 3.02. Exchange of Certificates.................................. 8
(a) Paying Agent.......................................... 8
(b) Exchange Procedure.................................... 9
(c) No Further Ownership Rights in Shares................. 9
(d) No Liability.......................................... 10
Contents, p. 2
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ARTICLE IV
Representations and Warranties of the Company
SECTION 4.01. Organization.............................................. 10
SECTION 4.02. Subsidiaries.............................................. 11
SECTION 4.03. Capitalization............................................ 11
SECTION 4.04. Authority................................................. 12
SECTION 4.05. Consents and Approvals; No Violations..................... 12
SECTION 4.06. SEC Reports and Financial Statements...................... 13
SECTION 4.07. Absence of Certain Changes or Events...................... 14
SECTION 4.08. No Undisclosed Liabilities................................ 15
SECTION 4.09. Information Supplied...................................... 15
SECTION 4.10. Benefit Plans; Employees and Employment Practices......... 15
SECTION 4.11. Contracts................................................. 17
SECTION 4.12. Litigation................................................ 18
SECTION 4.13. Compliance with Applicable Law............................ 18
SECTION 4.14. Tax Matters............................................... 19
SECTION 4.15. State Takeover Statutes................................... 21
SECTION 4.16. Brokers; Schedule of Fees and Expenses.................... 21
SECTION 4.17. Opinion of Financial Advisor.............................. 21
SECTION 4.18. Intellectual Property..................................... 22
ARTICLE V
Representations and Warranties
of Parent and Sub
SECTION 5.01. Organization.............................................. 24
SECTION 5.02. Authority................................................. 24
SECTION 5.03. Consents and Approvals; No Violations..................... 25
SECTION 5.04. Information Supplied...................................... 25
SECTION 5.05. Interim Operations of Sub................................. 26
SECTION 5.06. Brokers................................................... 26
SECTION 5.07. Financing................................................. 26
Contents, p. 3
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ARTICLE VI
Covenants
SECTION 6.01. Covenants of the Company.................................. 26
(a) Ordinary Course....................................... 27
(b) Dividends; Changes in Stock........................... 27
(c) Issuance of Securities................................ 27
(d) Governing Documents................................... 27
(e) No Acquisitions....................................... 27
(f) No Dispositions....................................... 28
(g) Indebtedness.......................................... 28
(h) Advice of Changes; Filings............................ 28
(i) Tax Matters........................................... 28
(j) Capital Expenditures.................................. 29
(k) Discharge of Liabilities.............................. 29
(l) Material Contracts.................................... 29
(m) Benefits Changes...................................... 29
(n) General............................................... 29
SECTION 6.02. No Solicitation........................................... 30
SECTION 6.03. Other Actions............................................. 32
ARTICLE VII
Additional Agreements
SECTION 7.01. Shareholder Approval; Preparation of
Proxy Statement.......................................... 32
SECTION 7.02. Access to Information..................................... 33
SECTION 7.03. Reasonable Efforts........................................ 34
SECTION 7.04. Company Stock Options..................................... 34
SECTION 7.05. Directors................................................. 36
SECTION 7.06. Fees and Expenses......................................... 37
SECTION 7.07. Indemnification........................................... 37
SECTION 7.08. Certain Litigation........................................ 38
ARTICLE VIII
Conditions
SECTION 8.01. Conditions to Each Party's Obligation To
Effect the Merger....................................... 39
(a) Company Shareholder Approval.......................... 39
(b) No Injunctions or Restraints.......................... 39
(c) Purchase of Shares.................................... 39
Contents, p. 4
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ARTICLE IX
Termination and Amendment
SECTION 9.01. Termination............................................... 39
SECTION 9.02. Effect of Termination..................................... 41
SECTION 9.03. Amendment................................................. 41
SECTION 9.04. Extension; Waiver......................................... 41
ARTICLE X
Miscellaneous
SECTION 10.01. Nonsurvival of Representations, Warranties
and Agreements........................................ 42
SECTION 10.02. Notices.................................................. 42
SECTION 10.03. Interpretation........................................... 43
SECTION 10.04. Counterparts............................................. 44
SECTION 10.05. Entire Agreement; No Third Party Beneficiaries........... 44
SECTION 10.06. Governing Law............................................ 44
SECTION 10.07. Publicity................................................ 44
SECTION 10.08. Assignment............................................... 44
SECTION 10.09. Enforcement.............................................. 45
EXHIBIT A - Conditions of the Offer
AGREEMENT AND PLAN OF MERGER dated as of December 18, 1997,
among INTERNATIONAL BUSINESS MACHINES CORPORATION, a New York
corporation ("Parent"), HOOSIER ACQUISITION CORP., an Indiana
corporation and a wholly owned subsidiary of Parent ("Sub"), and
SOFTWARE ARTISTRY, INC., an Indiana corporation (the "Company").
WHEREAS, Parent proposes to cause Sub to make a tender offer (as it
may be amended from time to time as permitted under this Agreement, the "Offer")
to purchase all the outstanding shares of Common Stock, no par value, of the
Company (the "Company Common Stock"; the outstanding shares of Company Common
Stock being hereinafter collectively referred to as the "Shares"), at a purchase
price (the "Offer Price") of $24.50 per Share, net to the seller in cash,
without interest thereon, upon the terms and subject to the conditions set forth
in this Agreement; and the Board of Directors of the Company has adopted
resolutions approving the Offer and recommending that holders of Shares accept
the Offer;
WHEREAS, the merger of Sub with the Company (the "Merger") upon the
terms and subject to the conditions set forth in this Agreement, whereby each
issued and outstanding Share, other than Shares owned directly or indirectly by
Parent and, if applicable, Dissenting Shares (as defined in Section 3.01(d)),
will be converted into the right to receive in cash the price per share paid in
the Offer, has been authorized by all necessary corporate action on behalf of
Parent and Sub and has been adopted by the Board of Directors of the Company;
WHEREAS, concurrently with the execution of this Agreement and as an
inducement to Parent to enter into this Agreement, Parent, Sub and certain
shareholders of the Company are entering into a Shareholder Agreement (the
"Shareholder Agreement") pursuant to which such shareholders have, among other
things, agreed to sell all such shareholders' Shares to Sub at the price per
Share paid in the Offer, upon the terms and subject to the conditions set forth
in the Shareholder Agreement; and the Shareholder Agreement has been approved by
the Board of Directors of the Company;
WHEREAS, concurrently with the execution of this Agreement and as an
inducement to Parent to enter into this Agreement, Parent and certain
shareholders of the Company who are employed by the Company are entering into
Noncompetition Agreements (the "Noncompetition Agreements") pursuant to which
such shareholders have, among other things, agreed to not have any Relationship
(as defined in the Noncompetition Agreements) with certain third parties during
the Noncompetition Period (as defined in the Noncompetition Agreements); and
WHEREAS, Parent, Sub and the Company desire to make certain
representations, warranties, covenants and agreements in connection with the
Offer and the Merger and also to prescribe various conditions to the Offer and
the Merger.
NOW, THEREFORE, in consideration of the foregoing and the mutual
covenants and agreements herein contained, and intending to be legally bound
hereby, Parent, Sub and the Company hereby agree as follows:
ARTICLE I
The Offer
SECTION 1.01. The Offer. (a) Subject to the provisions of this
Agreement, as promptly as practicable but in no event later than five business
days after the date of the public announcement by Parent and the Company of this
Agreement, Sub shall, and Parent shall cause Sub to, commence the Offer. The
obligation of Sub to, and of Parent to cause Sub to, commence the Offer and
accept for payment, and pay for, any Shares tendered pursuant to the Offer shall
be subject only to the conditions set forth in Exhibit A (the "Offer
Conditions") (any of which may be waived in whole or in part by Sub in its
reasonable discretion, except that Sub shall not waive the Minimum Condition (as
defined in Exhibit A) without the consent of the Company) and to the terms and
conditions of this Agreement. Sub expressly reserves the right to modify the
terms of the Offer, except that, without the consent of the Company, Sub shall
not (i) reduce the number of Shares subject to the Offer, (ii) reduce the Offer
Price, (iii) amend or add to the Offer Conditions, (iv) except as provided in
the next sentence, extend the Offer, (v) change the form of consideration
payable in the Offer or (vi) amend any other term of the Offer in any manner
adverse to the holders of the Shares. Notwithstanding the foregoing, Sub may,
without the consent of the Company, (i) extend the Offer, if at the scheduled or
extended expiration date of the Offer any of the Offer Conditions shall not be
satisfied or waived, until such time as such conditions are satisfied or waived,
(ii) extend the
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Offer for any period required by any rule, regulation, interpretation or
position of the Securities and Exchange Commission (the "SEC") or the staff
thereof applicable to the Offer and (iii) extend the Offer for any reason on one
or more occasions for an aggregate period of not more than 10 business days
beyond the latest expiration date that would otherwise be permitted under
clause (i) or (ii) of this sentence. Subject to the terms and conditions of the
Offer and this Agreement, Sub shall, and Parent shall cause Sub to, accept for
payment, and pay for, all Shares validly tendered and not withdrawn pursuant to
the Offer that Sub becomes obligated to accept for payment, and pay for,
pursuant to the Offer as promptly as practicable after the expiration of the
Offer.
(b) On the date of commencement of the Offer, Parent and Sub shall
file with the SEC a Tender Offer Statement on Schedule 14D-1 (the
"Schedule 14D-1") with respect to the Offer, which shall contain an offer to
purchase and a related letter of transmittal and summary advertisement (such
Schedule 14D-1 and the documents included therein pursuant to which the Offer
will be made, together with any supplements or amendments thereto, the "Offer
Documents"). Parent and Sub agree that the Offer Documents shall comply as to
form in all material respects with the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), and the rules and regulations promulgated
thereunder and the Offer Documents, on the date first published, sent or given
to the Company's shareholders, shall not contain any untrue statement of a
material fact or omit to state any material fact required to be stated therein
or necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading, except that no
covenant is made by Parent or Sub with respect to information supplied by the
Company or any of its shareholders specifically for inclusion or incorporation
by reference in the Offer Documents. Each of Parent, Sub and the Company agree
promptly to correct any information provided by it for use in the Offer
Documents if and to the extent that such information shall have become false or
misleading in any material respect, and Parent and Sub further agree to take all
steps necessary to cause the Schedule 14D-1 as so corrected to be filed with the
SEC and the other Offer Documents as so corrected to be disseminated to the
Company's shareholders, in each case as and to the extent required by applicable
federal securities laws. The Company and its counsel shall be given reasonable
opportunity to review and comment upon the Offer Documents prior to their filing
with the SEC or dissemination to the shareholders of the Company. Parent and
Sub agree to provide the Company
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and its counsel any comments Parent, Sub or their counsel may receive from the
SEC or its staff with respect to the Offer Documents promptly after the receipt
of such comments.
(c) Parent shall provide or cause to be provided to Sub on a timely
basis the funds necessary to accept for payment, and pay for, any Shares that
Sub becomes obligated to accept for payment, and pay for, pursuant to the Offer.
SECTION 1.02. Company Actions. (a) The Company hereby approves of
and consents to the Offer and represents that the Board of Directors of the
Company, at a meeting duly called and held, duly and unanimously adopted
resolutions adopting this Agreement and authorizing the Company to execute and
deliver the Shareholder Agreement, approving the Offer and the Merger (and
effecting the other actions referred to in Section 4.15), determining that the
terms of the Offer and the Merger are fair to, and in the best interests of, the
Company's shareholders, recommending that the Company's shareholders accept the
Offer, tender their shares pursuant to the Offer and approve this Agreement (if
required) and approving the acquisition of Shares by Sub pursuant to the Offer
and the Shareholder Agreement and the other transactions contemplated by this
Agreement and the Shareholder Agreement. The Company has been advised by each
of its directors and executive officers that each such person intends to tender
all Shares owned by such person pursuant to the Offer.
(b) On the date the Offer Documents are filed with the SEC, the
Company shall file with the SEC a Solicitation/Recommendation Statement on
Schedule 14D-9 with respect to the Offer (such Schedule 14D-9, as amended from
time to time, the "Schedule 14D-9") containing the recommendation described in
paragraph (a) and shall mail the Schedule 14D-9 to the shareholders of the
Company. The Company agrees that the Schedule 14D-9 shall comply as to form in
all material respects with the requirements of the Exchange Act and the rules
and regulations promulgated thereunder and, on the date filed with the SEC and
on the date first published, sent or given to the Company's shareholders, shall
not contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they were made,
not misleading, except that no covenant is made by the Company with respect to
information supplied by Parent or Sub specifically for inclusion in the
Schedule 14D-9. Each of the Company, Parent and Sub agrees promptly to correct
any information provided by it for use in the Schedule 14D-9 if and to the
extent that such
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information shall have become false or misleading in any material respect, and
the Company further agrees to take all steps necessary to amend or supplement
the Schedule 14D-9 and to cause the Schedule 14D-9 as so amended or supplemented
to be filed with the SEC and disseminated to the Company's shareholders, in each
case as and to the extent required by applicable federal securities laws.
Parent and its counsel shall be given reasonable opportunity to review and
comment upon the Schedule 14D-9 prior to its filing with the SEC or
dissemination to shareholders of the Company. The Company agrees to provide
Parent and its counsel any comments the Company or its counsel may receive from
the SEC or its staff with respect to the Schedule 14D-9 promptly after the
receipt of such comments.
(c) In connection with the Offer and the Merger, the Company shall
cause its transfer agent to furnish Sub promptly with mailing labels containing
the names and addresses of the record holders of Shares as of a recent date and
of those persons becoming record holders subsequent to such date, together with
copies of all lists of shareholders, security position listings and computer
files and all other information in the Company's possession or control regarding
the beneficial owners of Shares, and shall furnish to Sub such information and
assistance (including updated lists of shareholders, security position listings
and computer files) as Parent may reasonably request in communicating the Offer
to the Company's shareholders. Subject to the requirements of applicable law,
and except for such steps as are necessary to disseminate the Offer Documents
and any other documents necessary to consummate the Merger, Parent and Sub and
their agents shall hold in confidence the information contained in any such
labels, listings and files, will use such information only in connection with
the Offer and the Merger and, if this Agreement shall be terminated, will, upon
request, deliver, and will use their reasonable efforts to cause their agents to
deliver, to the Company all copies and any extracts or summaries from such
information then in their possession or control.
ARTICLE II
The Merger
SECTION 2.01. The Merger. Subject to the last two sentences of this
Section 2.01, upon the terms and subject to the conditions set forth in this
Agreement, and in accordance with the Indiana Business Corporation Law (the
"IBCL"), Sub shall be merged with and into the Company at
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the Effective Time (as defined in Section 2.03). Following the Effective Time,
the separate corporate existence of Sub shall cease and the Company shall
continue as the surviving corporation (the "Surviving Corporation") and shall
succeed to and assume all the rights and obligations of Sub in accordance with
the IBCL. At the election of Parent, any direct or indirect wholly owned
subsidiary (as defined in Section 10.03) of Parent may be substituted for and
assume all of the rights and obligations of Sub as a constituent corporation in
the Merger. In such event, the parties agree to execute an appropriate
amendment to this Agreement in order to reflect the foregoing.
SECTION 2.02. Closing. The closing of the Merger will take place at
10:00 a.m. (New York City time) on a date to be specified by Parent or Sub,
which shall be no later than the second business day after satisfaction or
waiver of the conditions set forth in Article VIII (the "Closing Date"), at the
offices of Cravath, Swaine & Xxxxx, Worldwide Plaza, 000 Xxxxxx Xxxxxx,
Xxx Xxxx, Xxx Xxxx 00000, unless another date, time or place is agreed to in
writing by the parties hereto.
SECTION 2.03. Effective Time. Subject to the provisions of this
Agreement, as soon as practicable on or after the Closing Date, the parties
shall file articles of merger or other appropriate documents (in any such
case, the "Articles of Merger") executed in accordance with the relevant
provisions of the IBCL and shall make all other filings or recordings
required under the IBCL. The Merger shall become effective at such time as
the Articles of Merger are duly filed with the Indiana Secretary of State, or
at such other time as Sub and the Company shall agree and shall be specified
in the Articles of Merger (the time the Merger becomes effective being
hereinafter referred to as the "Effective Time").
SECTION 2.04. Effects of the Merger. The Merger shall have the
effects set forth in Section 23-1-40-6 of the IBCL.
SECTION 2.05. Articles of Incorporation and By-laws. (a) The Third
Amended and Restated Articles of Incorporation of the Company as in effect
immediately prior to the Effective Time shall be the articles of incorporation
of the Surviving Corporation,
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until thereafter changed or amended as provided therein or by applicable law.
(b) The By-laws of the Company, as amended and restated and as in
effect immediately prior to the Effective Time, shall be the By-laws of the
Surviving Corporation, until thereafter changed or amended as provided therein
or by applicable law.
SECTION 2.06. Directors. The directors of Sub immediately prior to
the Effective Time shall be the directors of the Surviving Corporation, until
the earlier of their resignation or removal or until their respective successors
are duly elected and qualified, as the case may be.
SECTION 2.07. Officers. The officers of the Company immediately
prior to the Effective Time shall be the officers of the Surviving Corporation,
until the earlier of their resignation or removal or until their respective
successors are duly elected and qualified, as the case may be.
ARTICLE III
Effect of the Merger on the Capital Stock of the
Constituent Corporations; Exchange of Certificates
SECTION 3.01. Effect on Capital Stock. As of the Effective Time, by
virtue of the Merger and without any action on the part of the holder of any
Shares or any shares of capital stock of Sub:
(a) Capital Stock of Sub. Each issued and outstanding share of
capital stock of Sub shall be converted into and become one fully paid and
nonassessable share of Common Stock, no par value, of the Surviving
Corporation.
(b) Cancelation of Treasury Stock and Parent Owned Stock. Each Share
that is owned by the Company and each Share that is owned by Parent or Sub
shall automatically be canceled and retired and shall cease to exist, and
no consideration shall be delivered in exchange therefor.
(c) Conversion of Shares. Subject to Section 3.01(d), each issued
and outstanding Share (other than Shares to be canceled in accordance with
Section 3.01(b) and Shares owned by any subsidiary of the Company, Parent
(other than Sub) or Sub) shall be converted into the right to receive from
the Surviving Corporation in cash, without interest, the price per share
paid in the Offer (the "Merger Consideration"). As of the Effective Time,
all such Shares shall no longer be outstanding and shall automatically be
canceled and retired and shall cease to exist, and each
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holder of a certificate representing any such Shares shall cease to have
any rights with respect thereto, except the right to receive the Merger
Consideration, without interest.
(d) Shares of Dissenting Shareholders. Notwithstanding anything in
this Agreement to the contrary, if the Merger is not effected pursuant to
Section 23-1-40-4 of the IBCL, any issued and outstanding Shares held by a
person (a "Dissenting Shareholder") who does not vote to approve the Merger
and complies with all the provisions of the IBCL concerning the right of
holders of Shares to dissent from the Merger and require payment of fair
value (as defined in the IBCL) for their Shares ("Dissenting Shares") shall
not be converted as described in Section 3.01(c), but shall be converted
into the right to receive such consideration as may be determined to be due
to such Dissenting Shareholder pursuant to the IBCL. If, after the
Effective Time, such Dissenting Shareholder withdraws his demand or fails
to perfect or otherwise loses his rights as a Dissenting Shareholder to
payment of fair value, in any case pursuant to the IBCL, his Shares shall
be deemed to be converted as of the Effective Time into the right to
receive the Merger Consideration. The Company shall give Parent (i) prompt
notice of any demands for fair value for Shares received by the Company and
(ii) the opportunity to participate in and direct all negotiations and
proceedings with respect to any such demands. The Company shall not,
without the prior written consent of Parent, make any payment with respect
to, or settle, offer to settle or otherwise negotiate, any such demands.
(e) Withholding Tax. The right of any shareholder to receive the
Merger Consideration shall be subject to and reduced by the amount of any
required tax withholding obligation.
SECTION 3.02. Exchange of Certificates. (a) Paying Agent. Prior to
the Effective Time, Parent shall designate a bank or trust company to act as
paying agent in the Merger (the "Paying Agent"), and, from time to time on,
prior to or after the Effective Time, Parent shall make available, or cause the
Surviving Corporation to make available, to the Paying Agent cash in amounts and
at the times necessary for the prompt payment of the Merger Consideration upon
surrender of certificates formerly representing Shares as part of the Merger
pursuant to Section 3.01 (it being understood that any and all interest
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earned on funds made available to the Paying Agent pursuant to this Agreement
shall be turned over to Parent).
(b) Exchange Procedure. As soon as reasonably practicable after the
Effective Time, the Paying Agent shall mail to each holder of record of a
certificate or certificates that immediately prior to the Effective Time
represented Shares (the "Certificates"), (i) a letter of transmittal (which
shall specify that delivery shall be effected, and risk of loss and title to the
Certificates shall pass, only upon delivery of the Certificates to the Paying
Agent and shall be in a form and have such other provisions as Parent may
reasonably specify) and (ii) instructions for use in effecting the surrender of
the Certificates in exchange for the Merger Consideration. Upon surrender of a
Certificate to the Paying Agent or to such other agent or agents as may be
appointed by Parent, together with such letter of transmittal, duly executed,
and such other documents as may reasonably be required by the Paying Agent, the
holder of such Certificate shall be entitled to receive in exchange therefor the
amount of cash into which the Shares theretofore represented by such Certificate
shall have been converted pursuant to Section 3.01, and the Certificate so
surrendered shall forthwith be canceled. In the event of a transfer of
ownership of Shares that is not registered in the transfer records of the
Company, payment may be made to a person other than the person in whose name the
Certificate so surrendered is registered, if such Certificate shall be properly
endorsed or otherwise be in proper form for transfer and the person requesting
such payment shall pay any transfer or other taxes required by reason of the
payment to a person other than the registered holder of such Certificate or
establish to the satisfaction of the Surviving Corporation that such tax has
been paid or is not applicable. Until surrendered as contemplated by this
Section 3.02, each Certificate shall be deemed at any time after the Effective
Time to represent only the right to receive upon such surrender the amount of
cash, without interest, into which the Shares theretofore represented by such
Certificate shall have been converted pursuant to Section 3.01. No interest
will be paid or will accrue on the cash payable upon the surrender of any
Certificate.
(c) No Further Ownership Rights in Shares. All cash paid upon the
surrender of Certificates in accordance with the terms of this Article III shall
be deemed to have been paid in full satisfaction of all rights pertaining to the
Shares theretofore represented by such Certificates. At the Effective Time, the
stock transfer books of the Company shall be closed, and there shall be no
further registration
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of transfers on the stock transfer books of the Surviving Corporation of the
Shares that were outstanding immediately prior to the Effective Time. If, after
the Effective Time, Certificates are presented to the Surviving Corporation or
the Paying Agent for any reason, they shall be canceled and exchanged as
provided in this Article III.
(d) No Liability. None of Parent, Sub, the Company or the Paying
Agent shall be liable to any person in respect of any cash delivered to a public
official pursuant to any applicable abandoned property, escheat or similar law.
If any Certificates shall not have been surrendered prior to seven years after
the Effective Time (or immediately prior to such earlier date on which any
payment pursuant to this Article III would otherwise escheat to or become the
property of any Governmental Entity (as defined in Section 4.05)), the cash
payment in respect of such Certificate shall, to the extent permitted by
applicable law, become the property of the Surviving Corporation, free and clear
of all claims or interests of any person previously entitled thereto.
ARTICLE IV
Representations and Warranties of the Company
Except as set forth in the disclosure schedule delivered by the
Company to Parent prior to the execution of this Agreement (the "Company
Disclosure Schedule"), the Company represents and warrants to Parent and Sub as
follows:
SECTION 4.01. Organization. The Company and each of its Significant
Subsidiaries (as defined in Section 10.03) is a corporation duly organized,
validly existing and in good standing (to the extent the jurisdiction recognizes
such concept) under the laws of the jurisdiction of its organization and has all
requisite corporate power and authority to carry on its business as now being
conducted. The Company and each of its Significant Subsidiaries is duly
qualified or licensed to do business and in good standing in each jurisdiction
in which the property owned, leased or operated by it or the nature of the
business conducted by it makes such qualification or licensing necessary, except
in such jurisdictions where the failure to be so duly qualified or licensed and
in good standing would not have a material adverse effect (as defined in
Section 10.03) on the Company or prevent or materially delay the consummation of
the Offer and/or the Merger. The Company has delivered to Parent complete and
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correct copies of its Third Amended and Restated Articles of Incorporation and
By-laws, as amended and restated and the articles of incorporation and by-laws
(or similar organizational documents) of its Significant Subsidiaries.
SECTION 4.02. Subsidiaries. Schedule 4.02 lists each subsidiary of
the Company. All the outstanding shares of capital stock of each such
subsidiary are owned by the Company, by another wholly owned subsidiary of the
Company or by the Company and another wholly owned subsidiary of the Company,
free and clear of all pledges, claims, liens, charges, encumbrances and security
interests of any kind or nature whatsoever (collectively, "Liens"), and are duly
authorized, validly issued, fully paid and nonassessable. Except for the
capital stock of its subsidiaries, the Company does not own, directly or
indirectly, any capital stock or other ownership interest in any corporation,
partnership, joint venture or other entity.
SECTION 4.03. Capitalization. The authorized capital stock of the
Company consists of 10,000,000 Shares. At the close of business on December 17,
1997, (i) 7,085,433 Shares were issued and outstanding and (ii) 1,726,205 Shares
were reserved for issuance upon exercise of options to purchase Shares ("Company
Stock Options"). Except as set forth above, as of the close of business on
December 17, 1997, no shares of capital stock or other voting securities of the
Company were issued, reserved for issuance or outstanding. All outstanding
shares of capital stock of the Company are, and all shares which may be issued
will be, when issued, duly authorized, validly issued, fully paid and
nonassessable and not subject to preemptive rights. There are no bonds,
debentures, notes or other indebtedness of the Company having the right to vote
(or convertible into, or exchangeable for, securities having the right to vote)
on any matters on which shareholders of the Company may vote. Except as set
forth above, as of the date of this Agreement, there are no securities, options,
warrants, calls, rights, commitments, agreements, arrangements or undertakings
of any kind to which the Company or any of its subsidiaries is a party or by
which the Company or any of its subsidiaries is bound obligating the Company or
any of its subsidiaries to issue, deliver or sell, or cause to be issued,
delivered or sold, additional shares of capital stock or other voting securities
of the Company or any of its subsidiaries. As of the date of this Agreement,
there are no outstanding contractual obligations of the Company or any of its
subsidiaries to repurchase, redeem or otherwise acquire any shares of capital
stock of the Company or to vote or to dispose of any shares of the capital stock
of any of the Company's subsidiaries.
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SECTION 4.04. Authority. The Company has the requisite corporate
power and authority to execute and deliver this Agreement and to consummate the
transactions contemplated hereby (subject to, with respect to the Merger, if the
Merger is not effected pursuant to Section 23-1-40-4 of the IBCL, the approval
of this Agreement by the holders of a majority of the Shares (the "Company
Shareholder Approval")). The execution, delivery and performance of this
Agreement and the consummation by the Company of the Merger and of the other
transactions contemplated hereby have been duly authorized by all necessary
corporate action on the part of the Company and no other corporate proceedings
on the part of the Company are necessary to authorize this Agreement or to
consummate the transactions so contemplated (in each case, other than, with
respect to the Merger, the Company Shareholder Approval (if required)). This
Agreement has been duly executed and delivered by the Company and, assuming this
Agreement constitutes a valid and binding obligation of Parent and Sub,
constitutes a valid and binding obligation of the Company enforceable against
the Company in accordance with its terms.
SECTION 4.05. Consents and Approvals; No Violations. Except for
filings, permits, authorizations, consents and approvals as may be required
under, and other applicable requirements of, the Exchange Act (including the
filing with the SEC of the Schedule 14D-9 and a proxy statement relating to the
Company Shareholder Approval, if required (the "Proxy Statement")), the
Xxxx-Xxxxx-Xxxxxx Antitrust Improvements Act of 1976, as amended (the "HSR
Act"), the IBCL, Section 23-2-3.1 et seq. of the Indiana Code or the laws of
other states in which the Company is qualified to do or is doing business,
neither the execution, delivery or performance of this Agreement by the Company
nor the consummation by the Company of the transactions contemplated hereby will
(i) conflict with or result in any breach of any provision of the Third Amended
and Restated Articles of Incorporation or By-laws, as amended and restated, of
the Company or any of the similar organizational documents of any of its
Significant Subsidiaries, (ii) require any filing with, or permit,
authorization, consent or approval of, any federal, state or local government or
any court, tribunal, administrative agency or commission or other governmental
or regulatory authority or agency, domestic, foreign or supranational (a
"Governmental Entity") (except where the failure to make such filings or to
obtain such permits, authorizations, consents or approvals would not have a
material adverse effect on the Company or prevent or materially delay the
consummation of the Offer and/or the Merger), (iii) result in a violation or
breach of, or constitute (with or without
12
due notice or lapse of time or both) a default under, or give rise to any right
of termination, amendment, cancelation or acceleration under, or result in the
creation of any Lien upon any of the properties or assets of the Company or any
of its subsidiaries under, any of the terms, conditions or provisions of any
note, bond, mortgage, indenture, lease, license, permit, concession, franchise,
contract, agreement or other instrument or obligation (a "Contract") to which
the Company or any of its subsidiaries is a party or by which any of its
properties or assets may be bound or (iv) violate any judgment, order, writ,
preliminary or permanent injunction or decree (an "Order") or any statute, law,
ordinance, rule or regulation of any Governmental Entity (a "Law") applicable to
the Company, any of its subsidiaries or any of their properties or assets,
except in the case of clauses (iii) or (iv) for violations, breaches or defaults
that could not reasonably be expected to have a material adverse effect on the
Company or prevent or materially delay the consummation of the Offer and/or the
Merger.
SECTION 4.06. SEC Reports and Financial Statements. The Company
and each of its subsidiaries has filed with the SEC, and has heretofore made
available to Parent, true and complete copies of, all forms, reports,
schedules, statements and other documents required to be filed by it since
January 1, 1996 under the Exchange Act or the Securities Act of 1933 (the
"Securities Act") (such forms, reports, schedules, statements and other
documents, including any financial statements or schedules included therein,
are referred to as the "Company SEC Documents"). The Company SEC Documents,
at the time filed, (a) did not contain any untrue statement of a material
fact or omit to state a material fact required to be stated therein or
necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading and (b) complied in
all material respects with the applicable requirements of the Exchange Act
and the Securities Act, as the case may be, and the applicable rules and
regulations of the SEC thereunder. Except to the extent that information
contained in any Company SEC Document has been revised or superseded by a
subsequently filed Company Filed SEC Document (as defined in Section 4.07) (a
copy of which has been made available to Parent prior to the date hereof),
none of the Company SEC Documents contains an untrue statement of a material
fact or omits to state a material fact required to be stated or incorporated
by reference therein or necessary in order to make the statements therein, in
light of the circumstances under which they were made, not misleading. The
financial statements of the Company included in the Company SEC
13
Documents comply as to form in all material respects with applicable accounting
requirements and with the published rules and regulations of the SEC with
respect thereto, have been prepared in accordance with generally accepted
accounting principles applied on a consistent basis during the periods involved
(except as may be indicated in the notes thereto or, in the case of the
unaudited statements, as permitted by Form 10-Q of the SEC) and fairly present
(subject, in the case of the unaudited statements, to normal, recurring audit
adjustments) the consolidated financial position of the Company and its
consolidated subsidiaries as at the dates thereof and the consolidated results
of their operations and cash flows for the periods then ended.
SECTION 4.07. Absence of Certain Changes or Events. Except as
disclosed in the Company SEC Documents filed and publicly available prior to the
date of this Agreement (the "Company Filed SEC Documents"), since December 31,
1996, the Company and its subsidiaries have conducted their respective business
only in the ordinary course, and there has not been (i) any material adverse
change (as defined in Section 10.03) with respect to the Company, (ii) any
declaration, setting aside or payment of any dividend or other distribution with
respect to its capital stock or any redemption, repurchase or other acquisition
of any of its capital stock, (iii) any split, combination or reclassification of
any of its capital stock or any issuance or the authorization of any issuance of
any other securities in respect of, in lieu of or in substitution for shares of
its capital stock, (iv) (x) any granting by the Company or any of its
subsidiaries to any officer of the Company or any of its subsidiaries of
any increase in compensation (including in connection with promotions), except
in the ordinary course of business consistent with past practice or as was
required under employment agreements in effect as of December 31, 1996, (y) any
granting by the Company or any of its subsidiaries to any such officer of any
increase in severance or termination pay, except as required under employment,
severance or termination agreements in effect as of December 31, 1996, or
(z) except employment or consulting agreements in the ordinary course of
business consistent with past practice with employees other than any executive
officer of the Company, any entry by the Company or any of its subsidiaries into
any employment or consulting agreement, with any such employee or executive
officer, (v) any damage, destruction or loss, whether or not covered by
insurance, that has or reasonably could be expected to have a material adverse
effect on the Company, (vi) any revaluation by the Company of any of its
material assets,
14
(vii) any material change in accounting methods, principles or practices by the
Company or (viii) (A) any licensing or other agreement with regard to the
acquisition or disposition of any material Intellectual Property (as defined in
Section 4.18) or rights thereto other than sales or licenses of its products to
customers in the ordinary course of business consistent with past practice or
(B) any amendment or consent with respect to any licensing or other agreement
described in clause (A) above.
SECTION 4.08. No Undisclosed Liabilities. Except as and to the
extent set forth in the Company Filed SEC Documents, neither the Company nor any
of its subsidiaries has any liabilities of any nature, whether or not accrued,
contingent or otherwise, that would be reasonably expected to have a material
adverse effect on the Company.
SECTION 4.09. Information Supplied. None of the information supplied
or to be supplied by the Company specifically for inclusion or incorporation by
reference in (i) the Offer Documents, (ii) the Schedule 14D-9, (iii) the
information to be filed by the Company in connection with the Offer pursuant to
Rule 14f-1 promulgated under the Exchange Act (the "Information Statement") or
(iv) the Proxy Statement, will, in the case of the Offer Documents, the
Schedule 14D-9 and the Information Statement, at the respective times the Offer
Documents, the Schedule 14D-9 and the Information Statement are filed with the
SEC or first published, sent or given to the Company's shareholders, or, in the
case of the Proxy Statement, at the time the Proxy Statement is first mailed to
the Company's shareholders or at the time of the Shareholders Meeting (as
defined in Section 7.01), contain any untrue statement of a material fact or
omit to state any material fact required to be stated therein or necessary in
order to make the statements therein, in light of the circumstances under which
they are made, not misleading. The Schedule 14D-9, the Information Statement
and the Proxy Statement will comply as to form in all material respects with the
requirements of the Exchange Act and the rules and regulations thereunder,
except that no representation or warranty is made by the Company with respect to
statements made or incorporated by reference therein based on information
supplied by Parent or Sub specifically for inclusion or incorporation by
reference therein.
SECTION 4.10. Benefit Plans; Employees and Employment Practices.
(a) Except as disclosed in the Company Filed SEC Documents, since December 31,
1996, there has not been any adoption or amendment in any material respect
(including any increase or improvements in benefits
15
or coverage) by the Company or any of its subsidiaries of any Benefit Plan (as
defined in Section 4.10(b)). Except as disclosed in the Company Filed SEC
Documents, there exist no employment or consulting agreements, or any other
similar arrangements or understandings (whether or not in writing), between the
Company or any of its subsidiaries and any current or former employee, officer
or director of the Company or any of its subsidiaries.
(b) Schedule 4.10(b) lists each "employee pension benefit plan" (as
defined in Section 3(2) of the Employee Retirement Income Security Act of 1974,
as amended ("ERISA") (sometimes referred to herein as "Pension Plans"),
"employee welfare benefit plan" (as defined in Section 3(1) of ERISA), bonus,
deferred compensation, incentive compensation, stock ownership, stock purchase,
stock option, phantom stock, retirement, vacation, severance, change of control,
disability, death benefit, hospitalization, medical, fringe benefit, excess
benefit, supplemental executive compensation, stock appreciation, restricted
stock, indemnification, collective bargaining agreement or other material
employee benefit plan, policy, agreement, arrangement or understanding (whether
or not in writing) providing benefits to any current or former employee,
officer, director or independent contractor of the Company or any of its
subsidiaries or any entity that is or required under Section 414 of the Code to
be treated with the Company as a single employer (an "ERISA Affiliate") or with
respect to which the Company or any ERISA Affiliate could have any liability
(collectively, the "Benefit Plans"). The Company has made available to Parent
true, complete and correct copies of (i) each Benefit Plan (or, in the case of
any unwritten Benefit Plans, descriptions thereof) and each employment and
consulting agreement, arrangement or understanding between the Company or any of
its subsidiaries and any current or former employee, officer or director of the
Company or any of its subsidiaries, (ii) the most recent annual report on
Form 5500 (and related schedules and financial statements or opinions required
in connection therewith) filed with the Internal Revenue Service with respect to
each Benefit Plan (if any such report was required), (iii) the most recent
actuarial report with respect to each Benefit Plan, as applicable, (iv) the most
recent summary plan description (and a summary of material modifications, if
applicable) for each Benefit Plan, (v) each trust agreement and group annuity
contract relating to any Benefit Plan, and (vi) the most recent determination
letter, if any, issued with respect to such Benefit Plan.
(c) Each Benefit Plan has been administered in all material respects
in accordance with its terms and the
16
applicable requirements of ERISA, the Internal Revenue Code of 1986, as amended
(the "Code") and all other applicable laws. No event has occurred and to the
knowledge of the Company there exists no condition or set of conditions in
connection with the Benefit Plans that, individually or in the aggregate, could
have a material adverse effect on, or give rise to material liability to, the
Company or any ERISA Affiliate under ERISA, the Code or any other applicable
law.
(d) Each Pension Plan intended to be qualified under Section 401(a)
of the Code has been the subject of a determination letter from the Internal
Revenue Service to the effect that such Pension Plan is so qualified under all
currently applicable provisions of Section 401(a) of the Code and, to the
knowledge of the Company, no circumstances exist that would adversely affect the
qualification of any such Pension Plan.
(e) No Benefit Plan is subject to Title IV of ERISA.
(f) Each Benefit Plan may be amended or terminated without material
liability to the Company or any ERISA Affiliate.
(g) The Company has previously delivered to Parent a list which sets
forth the names of all current officers, directors and employees of the Company
and each of its subsidiaries, together with each employee's current salary and
date of employment.
(h) (i) There are no material controversies, strikes, work stoppages
or disputes pending or threatened between the Company or any of its subsidiaries
and any current or former employees, (ii) no labor union or other collective
bargaining unit represents or has ever represented any employee of the Company
or any of its subsidiaries with respect to employment by the Company or such
subsidiary and (iii) no organizational effort by any labor union or other
collective bargaining unit currently is under way or threatened with respect to
any employee.
SECTION 4.11. Contracts. Except as disclosed in the Company Filed
SEC Documents and except for Contracts that have previously been delivered to
Parent, there are no Contracts that are material to the business, properties,
financial condition or results of operations of the Company and its subsidiaries
taken as a whole. Neither the Company nor any of its subsidiaries is in
violation or breach of or in default under (nor does there exist any condition
which upon the passage of time or the giving of notice would cause
17
such a violation or breach of or default under) any Contract to which it is a
party or by which it or any of its properties or assets is bound, except for
violations, breaches or defaults that could not reasonably be expected to have a
material adverse effect on the Company.
SECTION 4.12. Litigation. Except as disclosed in the Company Filed
SEC Documents, there is no suit, claim, action, proceeding or investigation
pending before any Governmental Entity or, to the best knowledge of the Company,
threatened against the Company or any of its subsidiaries that could reasonably
be expected to have a material adverse effect on the Company or prevent or
materially delay the consummation of the Offer and/or the Merger. Except as
disclosed in the Company Filed SEC Documents, neither the Company nor any of its
subsidiaries is subject to any outstanding Order that could reasonably be
expected to have a material adverse effect on the Company or prevent or
materially delay the consummation of the Offer and/or the Merger.
SECTION 4.13. Compliance with Applicable Law. The Company and its
subsidiaries hold all permits, licenses, variances, exemptions, orders and
approvals of all Governmental Entities necessary for the lawful conduct of their
respective businesses (the "Company Permits"), except for failures to hold such
Company Permits that would not have a material adverse effect on the Company or
prevent or materially delay the consummation of the Offer and/or the Merger.
The Company and its subsidiaries are in compliance with the terms of the Company
Permits, except where the failure so to comply would not have a material adverse
effect on the Company or prevent or materially delay the consummation of the
Offer and/or the Merger. Except as disclosed in the Company Filed SEC
Documents, to the best knowledge of the Company, the businesses of the Company
and its subsidiaries are not being conducted in violation of any Law, except for
possible violations that would not have a material adverse effect on the Company
or prevent or materially delay the consummation of the Offer and/or the Merger.
As of the date of this Agreement, no investigation or review by any Governmental
Entity with respect to the Company or any of its subsidiaries is pending or, to
the best knowledge of the Company, threatened, nor has any Governmental Entity
indicated an intention to conduct any such investigation or review, other than,
in each case, those the outcome of which would not be reasonably expected to
have a material adverse effect on the Company or prevent or materially delay the
consummation of the Offer and/or the Merger.
18
SECTION 4.14. Tax Matters.
(a) The Company and each of its subsidiaries has timely filed all
federal, state and local, domestic and foreign, income and franchise tax returns
and reports and all other material tax returns and reports required to be filed
by it. All such returns and reports are complete and correct in all material
respects. The Company and each of its subsidiaries has timely paid (or the
Company has paid on its subsidiaries' behalf) all taxes due with respect to the
taxable periods covered by such returns and reports and all other material taxes
(as defined below), and the most recent financial statements contained in the
Company Filed SEC Documents reflect an adequate reserve for all taxes payable by
the Company and its subsidiaries for all taxable periods and portions thereof
through the date of such financial statements.
(b) No federal, state or local, domestic or foreign, income or
franchise tax return or report or any other material tax return or report of the
Company or any of its subsidiaries is under audit or examination by any taxing
authority, and no written or unwritten notice of such an audit or examination
has been received by the Company. Each material deficiency resulting from any
audit or examination relating to taxes by any taxing authority has been timely
paid. No material issues relating to taxes were raised by the relevant taxing
authority during any presently pending audit or examination, and no material
issues relating to taxes were raised by the relevant taxing authority in any
completed audit or examination that can reasonably be expected to recur in a
later taxable period. No federal, state or local, domestic or foreign, tax
return or report of the Company or any of its subsidiaries has ever been under
audit or examination by the Internal Revenue Service or other relevant taxing
authority, except for federal income tax examinations for 1994 and 1995 and
Indiana tax examinations for 1993, 1994 and 1995. The relevant statute of
limitations is closed with respect to the U.S. federal tax returns of the
Company and its subsidiaries for all years through 1993.
(c) There is no agreement or other document extending, or having the
effect of extending, the period of assessment or collection of any taxes and no
power of attorney with respect to any taxes has been executed or filed with any
taxing authority.
(d) No material liens for taxes exist with respect to any assets or
properties of the Company or any of
19
its subsidiaries, except for statutory liens for taxes not yet due.
(e) Neither the Company nor any of its subsidiaries is a party to or
bound by any tax sharing agreement, tax indemnity obligation or similar
agreement, arrangement or practice with respect to taxes (including any advance
pricing agreement, closing agreement or other agreement relating to taxes with
any taxing authority).
(f) Neither the Company nor any of its subsidiaries will be required
to include in a taxable period ending after the Effective Time taxable income
attributable to income that accrued in a prior taxable period but was not
recognized in any prior taxable period as a result of the installment method of
accounting, the completed contract method of accounting, the long-term contract
method of accounting, the cash method of accounting or Section 481 of the Code
or comparable provisions of state or local tax law, domestic or foreign, or for
any other reason.
(g) The disallowance of a deduction under Section 162(m) of the Code
for employee remuneration will not apply to any amount paid or payable by the
Company or any of its subsidiaries under any Benefit Plan or other compensation
arrangement currently in effect.
(h) Any amount or other entitlement that could be received (whether
in cash or property or the vesting of property) as a result of any of the
transactions contemplated by this Agreement by any employee, officer or director
of the Company or any of its affiliates who is a "disqualified individual" (as
such term is defined in proposed Treasury Regulation Section 1.280G-1) under any
Benefit Plan or other compensation arrangement currently in effect would not be
characterized as an "excess parachute payment" or a "parachute payment" (as such
terms are defined in Section 280G(b)(1) of the Code).
(i) The Company has complied in all respects with all applicable
laws, rules and regulations relating to the payment and withholding of taxes
(including, without limitation, withholding of taxes pursuant to Sections 1441,
1442, 3121 and 3402 of the Code or similar provisions under any foreign federal
laws or any state or local laws, domestic and foreign) and has, within the time
and the manner prescribed by law, withheld from and paid over to the proper
governmental authorities all amounts required to be so withheld and paid over
under applicable laws.
20
(j) As used in this Agreement, "taxes" shall include all federal,
state and local, domestic and foreign, income, franchise, property, sales,
excise, employment, payroll, social security, value-added, ad valorem,
transfer, withholding and other taxes, including taxes based on or measured
by gross receipts, profits, sales, use or occupation, tariffs, levies,
impositions, assessments or governmental charges of any nature whatsoever,
including any interest penalties or additions with respect thereto.
SECTION 4.15. State Takeover Statutes. The Board of Directors of the
Company has (i) adopted a by-law providing that Chapter 42 of the IBCL does not
apply to control share acquisitions of Shares and (ii) adopted this Agreement
and approved the Offer, the Shareholder Agreement, the acquisition of Shares by
Sub pursuant to the Offer and the Shareholder Agreement and the other
transactions contemplated by this Agreement and the Shareholder Agreement, and
such adoptions and approvals are sufficient to render inapplicable to the Offer,
the Merger, this Agreement, the Shareholder Agreement, the acquisition of Shares
by Sub pursuant to the Offer and the Shareholder Agreement and the other
transactions contemplated by this Agreement and the Shareholder Agreement the
provisions of Chapters 42 and 43 of the IBCL. To the best knowledge of the
Company, no other state takeover statute (other than Section 23-2-3.1 et seq. of
the IBCL) or similar Law applies or purports to apply to the Offer, the Merger,
this Agreement, the Shareholder Agreement, the acquisition of Shares by Sub
pursuant to the Offer and the Shareholder Agreement or any of the transactions
contemplated by this Agreement or the Shareholder Agreement.
SECTION 4.16. Brokers; Schedule of Fees and Expenses. No broker,
investment banker, financial advisor or other person, other than Broadview
Associates, the fees and expenses of which will be paid by the Company (as
reflected in an agreement between such firm and the Company, a copy of which has
been delivered to Parent), is entitled to any broker's, finder's, financial
advisor's or other similar fee or commission in connection with the transactions
contemplated by this Agreement based upon arrangements made by or on behalf of
the Company.
SECTION 4.17. Opinion of Financial Advisor. The Company has received
the opinion of Broadview Associates, dated the date of this Agreement, to the
effect that, as of the date of this Agreement, the consideration to be received
in the Offer and the Merger by the Company's shareholders is fair to the
Company's shareholders from a financial point of view, and a complete and
correct signed copy of such opinion
21
has been, or promptly upon receipt thereof will be, delivered to Parent.
SECTION 4.18. Intellectual Property. (a) The Company has provided
Parent with true and correct copies of all Contracts relating to Intellectual
Property to which the Company or any of its subsidiaries is a party except that,
with respect to employee confidentiality agreements, the Company has provided
Parent with a specimen of the form of agreement signed by all former and current
employees, agents, consultants and contractors who have contributed to or
participated in the conception and development of computer software or other
Intellectual Property of the Company or any of its subsidiaries.
(b) Except to the extent that the inaccuracy of any of the following
(or the circumstances giving rise to such inaccuracy) would not have a material
adverse effect on the Company:
(1) the Company and each of its subsidiaries owns, or is licensed or
otherwise has the right to use (in each case, clear of any Liens), all
Intellectual Property used in or necessary for the conduct of its business
as currently conducted;
(2) there is no suit, claim, action, investigation or proceeding
pending or, to the best knowledge of the Company, threatened that the
Company or any of its subsidiaries is infringing on or otherwise violating
the rights of any person with regard to any Intellectual Property owned by,
licensed to and/or otherwise used by the Company or any of its
subsidiaries;
(3) to the best knowledge of the Company, no person is infringing on
or otherwise violating any right of the Company or any of its subsidiaries
with respect to any Intellectual Property owned by, licensed to and/or
otherwise used by the Company or any of its subsidiaries;
(4) none of the former or current members of management or key
personnel of the Company or any of its subsidiaries, including all former
and current employees, agents, consultants and contractors who have
contributed to or participated in the conception and development of
computer software or other Intellectual Property of the Company or any of
its subsidiaries, has asserted or threatened in writing any claim against
the Company or any of its subsidiaries in connection with
22
the involvement of such persons in the conception and development of any
computer software or other Intellectual Property of the Company or any of
its subsidiaries and to the best knowledge of the Company no basis exists
for any such claim;
(5) the execution and delivery of this Agreement, compliance with its
terms and the consummation of the transactions contemplated hereby do not
and will not conflict with or result in any violation, breach or default
(with or without notice or lapse of time or both) under, or give rise to
any right, license or Lien relating to, Intellectual Property owned by the
Company or any of its subsidiaries or with respect to which the Company or
any of its subsidiaries now has or has had any Contract with any third
party, or any right of termination, cancelation or acceleration of any
material Intellectual Property right or obligation set forth in any
agreement to which the Company or any of its subsidiaries is a party, or
the loss or encumbrance of any Intellectual Property or material benefit
related thereto, or result in or require the creation, imposition or
extension of any Lien upon any Intellectual Property or right;
(6) no licenses or rights have been granted to distribute the source
code of, or to use the source code to create Derivative Works (as
hereinafter defined) of, any product currently marketed by, commercially
available from or under development by the Company or any of its
subsidiaries other than applications source code written in SA-Script
(formerly known as KML); and
(7) the Company and each of its subsidiaries has taken reasonable and
necessary steps to protect its Intellectual Property and their rights
thereunder, and to the best knowledge of the Company, no such rights to
Intellectual Property have been lost or are in jeopardy of being lost
through failure to act by the Company or any of its subsidiaries.
As used herein, "Derivative Work" shall mean a work that is based upon
one or more preexisting works, such as a revision, enhancement, modification,
abridgement, condensation, expansion or any other form in which such preexisting
works may be recast, transformed or adapted, and which, if prepared without
authorization of the owner of the copyright in such preexisting work, would
constitute a copyright infringement. For purposes hereof, a Derivative Work
shall also include any compilation that incorporates
23
such a preexisting work as well as translations from one human language to
another and from one type of code to another.
(c) For purposes of this Agreement, "Intellectual Property" shall
mean trademarks (registered or unregistered), service marks, brand names,
certification marks, trade dress, assumed names, trade names and other
indications of origin, the goodwill associated with the foregoing and
registrations in any jurisdiction of, and applications in any jurisdiction to
register, the foregoing, including any extension, modification or renewal of any
such registration or application; inventions, discoveries and ideas, whether
patented, patentable or not in any jurisdiction; nonpublic information, trade
secrets and confidential information and rights in any jurisdiction to limit the
use or disclosure thereof by any person; writings and other works, whether
copyrighted, copyrightable or not in any jurisdiction; registration or
applications for registration of copyrights in any jurisdiction, and any
renewals or extensions thereof; any similar intellectual property or proprietary
rights and computer programs and software (including source code, object code
and data); licenses, immunities, covenants not to xxx and the like relating to
the foregoing; and any claims or causes of action arising out of or related to
any infringement or misappropriation of any of the foregoing.
ARTICLE V
Representations and Warranties
of Parent and Sub
Parent and Sub jointly and severally represent and warrant to the
Company as follows:
SECTION 5.01. Organization. Each of Parent and Sub is a corporation
duly organized, validly existing and in good standing under the laws of the
jurisdiction of its incorporation and has all requisite corporate power and
authority to carry on its business as now being conducted, except where the
failure to be so organized, existing and in good standing or to have such power
and authority would not be reasonably expected to prevent or materially delay
the consummation of the Offer and/or the Merger.
SECTION 5.02. Authority. Parent and Sub have the requisite corporate
power and authority to execute and deliver this Agreement and to consummate the
transactions contemplated hereby. The execution, delivery and
24
performance of this Agreement and the consummation of the transactions
contemplated hereby have been duly authorized by all necessary corporate action
on the part of Parent and Sub and no other corporate proceedings on the part of
Parent and Sub are necessary to authorize this Agreement or to consummate such
transactions. No vote of Parent shareholders is required to approve this
Agreement or the transactions contemplated hereby. This Agreement has been duly
executed and delivered by Parent and Sub, as the case may be, and, assuming this
Agreement constitutes a valid and binding obligation of the Company, constitutes
a valid and binding obligation of each of Parent and Sub enforceable against
them in accordance with its terms.
SECTION 5.03. Consents and Approvals; No Violations. Except for
filings, permits, authorizations, consents and approvals as may be required
under, and other applicable requirements of, the Exchange Act (including the
filing with the SEC of the Offer Documents), the HSR Act, the IBCL or the laws
of other states in which Parent is qualified to do or is doing business, neither
the execution, delivery or performance of this Agreement by Parent and Sub nor
the consummation by Parent and Sub of the transactions contemplated hereby will
(i) conflict with or result in any breach of any provision of the respective
certificate or articles of incorporation or By-laws of Parent and Sub,
(ii) require any filing with, or permit, authorization, consent or approval of,
any Governmental Entity (except where the failure to make such filings or to
obtain such permits, authorizations, consents or approvals would not be
reasonably expected to prevent or materially delay the consummation of the Offer
and/or the Merger), (iii) result in a violation or breach of, or constitute
(with or without due notice or lapse of time or both) a default (or give rise to
any right of termination, amendment, cancelation or acceleration) under, any of
the terms, conditions or provisions of any Contract to which Parent or any of
its subsidiaries is a party or by which any of them or any of their properties
or assets may be bound or (iv) violate any Order or Law applicable to Parent,
any of its subsidiaries or any of their properties or assets, except in the case
of clauses (iii) and (iv) for violations, breaches or defaults that could not,
individually or in the aggregate, reasonably be expected to prevent or
materially delay the consummation of the Offer and/or the Merger.
SECTION 5.04. Information Supplied. None of the information supplied
or to be supplied by Parent or Sub specifically for inclusion or incorporation
by reference in (i) the Offer Documents, (ii) the Schedule 14D-9, (iii) the
Information Statement or (iv) the Proxy Statement will, in
25
the case of the Offer Documents, the Schedule 14D-9 and the Information
Statement, at the respective times the Offer Documents, the Schedule 14D-9 and
the Information Statement are filed with the SEC or first published, sent or
given to the Company's shareholders, or, in the case of the Proxy Statement, at
the time the Proxy Statement is first mailed to the Company's shareholders or at
the time of the Shareholders Meeting, contain any untrue statement of a material
fact or omit to state any material fact required to be stated therein or
necessary in order to make the statements therein, in light of the circumstances
under which they are made, not misleading. The Offer Documents will comply as
to form in all material respects with the requirements of the Exchange Act and
the rules and regulations thereunder, except that no representation or warranty
is made by Parent or Sub with respect to statements made or incorporated by
reference therein based on information supplied by the Company specifically for
inclusion or incorporation by reference therein.
SECTION 5.05. Interim Operations of Sub. Sub was formed solely for
the purpose of engaging in the transactions contemplated hereby, has engaged in
no other business activities and has conducted its operations only as
contemplated hereby.
SECTION 5.06. Brokers. No broker, investment banker, financial
advisor or other person is entitled to any broker's, finder's, financial
advisor's or other similar fee or commission in connection with the transactions
contemplated by this Agreement based upon arrangements made by or on behalf of
Parent or Sub.
SECTION 5.07. Financing. Parent has sufficient funds available to
purchase, or to cause Sub to purchase, all the Shares pursuant to the Offer and
the Merger and to pay all fees and expenses related to the transactions
contemplated by this Agreement.
ARTICLE VI
Covenants
SECTION 6.01. Covenants of the Company. Until such time as Parent's
designees shall constitute a majority of the members of the Board of Directors
of the Company, the Company agrees as to itself and its subsidiaries that
(except as expressly contemplated or permitted by this Agreement or except to
the extent that Parent shall otherwise consent in writing):
26
(a) Ordinary Course. The Company shall, and shall cause its
subsidiaries to, carry on their respective businesses in the usual, regular and
ordinary course in substantially the same manner as heretofore conducted and in
compliance in all material respects with all applicable laws and regulations and
shall use all reasonable efforts to preserve intact their present business
organizations, keep available the services of their present officers and
employees and preserve their relationships with customers, suppliers and others
having business dealings with the Company and its subsidiaries.
(b) Dividends; Changes in Stock. The Company shall not, and shall
not permit any of its subsidiaries to, (i) declare or pay any dividends on or
make other distributions in respect of any of its capital stock (except for
dividends by a direct or indirect wholly owned subsidiary of the Company to its
parent), (ii) split, combine or reclassify any of its capital stock or issue or
authorize or propose the issuance of any other securities in respect of, in lieu
of or in substitution for shares of its capital stock or (iii) repurchase,
redeem or otherwise acquire any shares of capital stock of the Company or any of
its subsidiaries or any other securities thereof or any rights, warrants or
options to acquire any such shares or other securities.
(c) Issuance of Securities. The Company shall not, and shall not
permit any of its subsidiaries to, issue, deliver, sell, pledge or encumber, or
authorize or propose the issuance, delivery, sale, pledge or encumbrance of, any
shares of its capital stock of any class or any securities convertible into, or
any rights, warrants, calls, subscriptions or options to acquire, any such
shares or convertible securities, or any other ownership interest (including
stock appreciation rights or phantom stock) other than the issuance of Shares
(i) upon the exercise of Company Stock Options outstanding on the date of this
Agreement and in accordance with the terms of such Company Stock Options and
(ii) in accordance with the terms of the Software Artistry, Inc. 1996 Employee
Stock Purchase Plan as in effect on the date of this Agreement.
(d) Governing Documents. The Company shall not, and shall not permit
any of its subsidiaries to, amend or propose to amend its articles of
incorporation or by-laws (or similar organizational documents).
(e) No Acquisitions. The Company shall not, and shall not permit any
of its subsidiaries to, acquire or agree to acquire (i) by merging or
consolidating with, or by
27
purchasing a substantial equity interest in or substantial portion of the assets
of, or by any other manner, any business or any corporation, partnership, joint
venture, association or other business organization or division thereof or
(ii) any assets that are material, individually or in the aggregate, to the
Company and its subsidiaries taken as a whole, except purchases of inventory in
the ordinary course of business consistent with past practice.
(f) No Dispositions. Other than sales or licenses of its products in
the ordinary course of business consistent with past practice, the Company shall
not, and shall not permit any of its subsidiaries to, sell, lease, license,
encumber or otherwise dispose of, or agree to sell, lease, license, encumber or
otherwise dispose of, any of its assets.
(g) Indebtedness. The Company shall not, and shall not permit any of
its subsidiaries to, (i) incur or suffer to exist any indebtedness for borrowed
money or guarantee any such indebtedness or issue or sell any debt securities or
warrants or rights to acquire any debt securities of the Company or any of its
subsidiaries, guarantee any debt securities of others, enter into any
"keep-well" or other agreement to maintain any financial statement condition of
another person or enter into any arrangement having the economic effect of any
of the foregoing, except for working capital borrowings incurred in the ordinary
course of business consistent with past practice, or (ii) make any loans,
advances or capital contributions to, or investments in, any other person, other
than to the Company or any direct or indirect wholly owned subsidiary of the
Company.
(h) Advice of Changes; Filings. The Company shall confer on a
regular and frequent basis with Parent, as reasonably requested by Parent,
report on operational matters and promptly advise Parent orally and in writing
of any material adverse change with respect to the Company. The Company shall
promptly provide to Parent (or its counsel) copies of all filings made by the
Company with any Governmental Entity in connection with this Agreement and the
transactions contemplated hereby.
(i) Tax Matters. The Company shall not make any tax election that
would have a material adverse effect on the tax liability or tax attributes of
the Company or any of its subsidiaries or settle or compromise any tax liability
of the Company or any of its subsidiaries. The Company shall, before filing or
causing to be filed any tax return of the Company or any of its subsidiaries or
settling any
28
tax liability not described in the preceding sentence, consult with Parent and
its advisors as to the positions and elections that may be taken or made with
respect to such return, and shall take such positions or make such elections as
the Company and Parent shall jointly agree.
(j) Capital Expenditures. Except as set forth on Schedule 6.01(j),
neither the Company nor any of its subsidiaries shall make or agree to make any
new capital expenditure or expenditures which capital expenditures would exceed
$100,000 in the aggregate.
(k) Discharge of Liabilities. The Company shall not, and shall not
permit any of its subsidiaries to, pay, discharge, settle or satisfy any claims,
liabilities or obligations (absolute, accrued, asserted or unasserted,
contingent or otherwise), other than the payment, discharge, settlement or
satisfaction, in the ordinary course of business consistent with past practice
or in accordance with their terms, of claims, liabilities or obligations
recognized or disclosed in the most recent financial statements (or the notes
thereto) of the Company included in the Company Filed SEC Documents or incurred
since the date of such financial statements in the ordinary course of business
consistent with past practice.
(l) Material Contracts. Except in the ordinary course of business,
neither the Company nor any of its subsidiaries shall (i) modify, amend or
terminate any material Contract to which the Company or such subsidiary is a
party, (ii) waive, release or assign any material rights or claims or
(iii) waive the benefits of, or agree to modify in any manner, any
confidentiality, standstill or similar agreement to which the Company or such
subsidiary is a party.
(m) Benefits Changes. The Company shall not, and shall not permit
any of its subsidiaries to, (i) increase the compensation or benefits of any
director, officer or employee, except for increases in the ordinary course that
are consistent with past practice, (ii) adopt any amendment to a Benefit Plan
that materially increases the cost thereof, (iii) enter into any employment or
consulting agreement with any director, officer or employee or (iv) accelerate
the payment of compensation or benefits to any director, officer or employee.
(n) General. The Company shall not, and shall not permit any of its
subsidiaries to, authorize any of, or commit or agree to take any of, the
foregoing actions otherwise prohibited by this Section 6.01.
29
SECTION 6.02. No Solicitation. (a) The Company shall, and shall
cause its officers, directors, employees, representatives and agents to,
immediately cease any discussions or negotiations with any parties that may be
ongoing with respect to a Takeover Proposal (as hereinafter defined). The
Company shall not, nor shall it permit any of its subsidiaries to, nor shall it
authorize or permit any of its directors, officers, or employees or any
investment banker, financial advisor, attorney, accountant or other
representative or agent retained by it to, directly or indirectly, (i) solicit,
initiate or encourage (including by way of furnishing information), or take any
other action designed or reasonably likely to facilitate, any inquiries or the
making of any proposal which constitutes, or may reasonably be expected to lead
to, any Takeover Proposal or (ii) participate in any discussions or negotiations
regarding any Takeover Proposal; provided, however, that if, at any time prior
to the acceptance for payment of Shares pursuant to the Offer, the Board of
Directors of the Company determines in good faith, after consultation with
outside counsel, that it is necessary to do so in order to comply with its
fiduciary duties to the Company's shareholders under applicable law, the Company
may, in response to a Takeover Proposal that was not solicited subsequent to the
date hereof, and subject to compliance with Section 6.02(c), (x) furnish
information with respect to the Company to any person pursuant to a
confidentiality agreement in a form approved by Parent (such approval not to be
unreasonably withheld) and (y) participate in negotiations regarding such
Takeover Proposal. Without limiting the foregoing, it is understood that any
violation of the restrictions set forth in the preceding sentence by any
director, officer or employee of the Company or any of its subsidiaries or any
investment banker, financial advisor, attorney, accountant or other
representative or agent of the Company or any of its subsidiaries, whether or
not such person is purporting to act on behalf of the Company or any of its
subsidiaries or otherwise, shall be deemed to be a breach of this
Section 6.02(a) by the Company. For purposes of this Agreement, "Takeover
Proposal" means any inquiry, proposal or offer, or any expression of interest by
any third party relating to the Company's willingness or ability to receive or
discuss a proposal or offer, other than a proposal or offer by Parent or any of
its subsidiaries, for a merger, consolidation or other business combination
involving, or any purchase of, more than 10% of the consolidated assets of the
Company or more than 10% of the Shares.
(b) Except as set forth in this Section 6.02, neither the Board of
Directors of the Company nor any committee thereof shall (i) withdraw or modify,
or propose
30
to withdraw or modify, in a manner adverse to Parent, the approval or
recommendation by such Board of Directors or such committee of the Offer, the
Merger or this Agreement, (ii) approve or recommend, or propose to approve or
recommend, any Takeover Proposal or (iii) cause the Company to enter into any
letter of intent, agreement in principle, acquisition agreement or other
similar agreement (each, an "Acquisition Agreement") related to any Takeover
Proposal. Notwithstanding the foregoing, in the event that prior to the
acceptance for payment of Shares pursuant to the Offer the Board of Directors
of the Company determines in good faith, after consultation with outside
counsel, that it is necessary to do so in order to comply with its fiduciary
duties to the Company's shareholders under applicable law, the Board of
Directors of the Company may, in response to a Superior Proposal (as defined
below) that was not solicited subsequent to the date hereof (subject to this
and the following sentences), (x) withdraw or modify its approval or
recommendation of the Offer, the Merger or this Agreement or (y) approve or
recommend such Superior Proposal or terminate this Agreement (and
concurrently with or after such termination, if it so chooses, cause the
Company to enter into any Acquisition Agreement with respect to such Superior
Proposal), but in each of the cases set forth above, only at a time that is
after the second business day following Parent's receipt of written notice
advising Parent that the Board of Directors of the Company has received a
Superior Proposal, specifying the material terms and conditions of such
Superior Proposal and identifying the person making such Superior Proposal.
For purposes of this Agreement, a "Superior Proposal" means any bona fide
Takeover Proposal (except that references to "10%" in the definition of
Takeover Proposal shall be deemed to be "50%") made by a third party on terms
which the Board of Directors of the Company determines in its good faith
judgment (based on the advice of a financial advisor of nationally recognized
reputation) to be more favorable to the Company's shareholders than the Offer
and the Merger and for which financing, to the extent required, is then
committed or which, in the good faith judgment of the Board of Directors of
the Company, is reasonably capable of being financed by such third party.
(c) In addition to the obligations of the Company set forth in
paragraphs (a) and (b) of this Section 6.02, the Company shall immediately
advise Parent orally and in writing of any request for information or of any
Takeover Proposal, the material terms and conditions of such request or Takeover
Proposal and the identity of the person making such request or Takeover
Proposal. The Company will immediately inform Parent of any material change in
the
31
details (including amendments or proposed amendments) of any such request or
Takeover Proposal.
(d) Nothing contained in this Section 6.02 shall prohibit the Company
from taking and disclosing to its shareholders a position contemplated by
Rule 14e-2(a) promulgated under the Exchange Act or from making any disclosure
to the Company's shareholders if, in the good faith judgment of the Board of
Directors of the Company, after consultation with outside counsel, failure so to
disclose would be inconsistent with applicable law; provided, however, neither
the Company nor its Board of Directors nor any committee thereof shall, except
as specifically permitted by Section 6.02(b), withdraw or modify, or propose to
withdraw or modify, its position with respect to the Offer, the Merger or this
Agreement or approve or recommend, or propose to approve or recommend, a
Takeover Proposal.
SECTION 6.03. Other Actions. The Company shall not, and shall not
permit any of its subsidiaries to, take any action that would, or that could
reasonably be expected to, result in (i) any of the representations and
warranties of the Company set forth in this Agreement that are qualified as to
materiality becoming untrue, (ii) any of such representations and warranties
that are not so qualified becoming untrue in any material respect or (iii) any
of the Offer Conditions not being satisfied (subject to the Company's right to
take actions specifically permitted by Section 6.02).
ARTICLE VII
Additional Agreements
SECTION 7.01. Shareholder Approval; Preparation of Proxy Statement.
(a) If the Company Shareholder Approval is required by law, the Company shall,
as soon as practicable following the expiration of the Offer, duly call, give
notice of, convene and hold a meeting of its shareholders (the "Shareholders
Meeting") for the purpose of obtaining the Company Shareholder Approval. The
Company shall, through its Board of Directors, recommend to its shareholders
that the Company Shareholder Approval be given. Notwithstanding the foregoing,
if Sub or any other subsidiary of Parent shall acquire at least 90% of the
outstanding Shares, the parties shall, at the option and request of Parent, take
all necessary and appropriate action to cause the Merger to become effective as
soon as practicable after the expiration of the Offer without a
32
Shareholders Meeting in accordance with Section 23-1-40-4 of the IBCL. Without
limiting the generality of the foregoing, except as specifically permitted by
Section 6.02(b) the Company agrees that its obligations pursuant to the first
sentence of this Section 7.01(a) shall not be affected by (i) the commencement,
public proposal, public disclosure or communication to the Company of any
Takeover Proposal or (ii) the withdrawal or modification by the Board of
Directors of the Company of its approval or recommendation of the Offer, this
Agreement or the Merger.
(b) If the Company Shareholder Approval is required by law, the
Company shall, as soon as practicable following the expiration of the Offer,
prepare and file a preliminary Proxy Statement with the SEC and shall use its
best efforts to respond to any comments of the SEC or its staff and to cause the
Proxy Statement to be mailed to the Company's shareholders as promptly as
practicable after responding to all such comments to the satisfaction of the
staff. The Company shall notify Parent promptly of the receipt of any comments
from the SEC or its staff and of any request by the SEC or its staff for
amendments or supplements to the Proxy Statement or for additional information
and will supply Parent with copies of all correspondence between the Company or
any of its representatives, on the one hand, and the SEC or its staff, on the
other hand, with respect to the Proxy Statement or the Merger. If at any time
prior to the Shareholders Meeting there shall occur any event that should be set
forth in an amendment or supplement to the Proxy Statement, the Company shall
promptly prepare and mail to its shareholders such an amendment or supplement.
The Company shall not mail any Proxy Statement, or any amendment or supplement
thereto, to which Parent reasonably objects.
(c) Parent agrees to cause all Shares purchased pursuant to the Offer
and all other Shares owned by Parent or any subsidiary of Parent to be voted in
favor of the Company Shareholder Approval.
SECTION 7.02. Access to Information. Upon reasonable notice and
subject to restrictions contained in confidentiality agreements to which the
Company is subject (from which it shall use reasonable efforts to be released),
the Company shall, and shall cause each of its subsidiaries to, afford to Parent
and to the officers, employees, accountants, counsel and other representatives
of Parent access, during normal business hours during the period prior to the
Effective Time, to all its properties, books, contracts, commitments and records
and, during such period, the Company shall, and shall cause each of its
subsidiaries
33
to, furnish promptly to Parent (a) a copy of each report, schedule, registration
statement and other document filed or received by it during such period pursuant
to the requirements of the federal or state securities laws or the federal tax
laws, or state, local or foreign tax laws and (b) all other information
concerning its business, properties and personnel as Parent may reasonably
request (including the Company's outside accountants' work papers). Except as
otherwise agreed to by the Company, unless and until Parent and Sub shall have
purchased a majority of the outstanding Shares pursuant to the Offer or
otherwise, and notwithstanding termination of this Agreement, the terms of the
Confidential Disclosure Agreement dated October 13, 1997 between an affiliate of
Parent and the Company shall apply to all information about the Company which
has been furnished under this Agreement by the Company to Parent or Sub.
SECTION 7.03. Reasonable Efforts. Each of the Company, Parent and
Sub agree to use its reasonable efforts to take, or cause to be taken, all
actions necessary to comply promptly with all legal requirements that may be
imposed on itself with respect to the Offer and the Merger (which actions shall
include furnishing all information required under the HSR Act and in connection
with approvals of or filings with any other Governmental Entity) and shall
promptly cooperate with and furnish information to each other in connection with
any such requirements imposed upon any of them or any of their subsidiaries in
connection with the Offer and the Merger. Each of the Company, Parent and Sub
shall, and shall cause its subsidiaries to, use its reasonable efforts to take
all reasonable actions necessary to obtain (and shall cooperate with each other
in obtaining) any consent, authorization, order or approval of, or any exemption
by, any Governmental Entity or other public or private third party required to
be obtained or made by the Company, Parent, Sub or any of their subsidiaries in
connection with the Offer and the Merger or the taking of any action
contemplated thereby or by this Agreement, except that no party need waive any
substantial rights or agree to any substantial limitation on its operations or
to dispose of any assets. Parent shall cause Sub to comply with its obligations
under this Agreement.
SECTION 7.04. Company Stock Options.
(a) As soon as practicable following the date of this Agreement, the
Board of Directors of the Company (or, if appropriate, any committee
administering the Software Artistry, Inc. Amended and Restated Incentive Stock
Option Plan (the "Company Stock Plans")) shall adopt such
34
resolutions or take other actions as may be required to effect the following:
(i) adjust the terms of all outstanding Company Stock Options granted
under the Company Stock Plans as necessary to provide that, at the
Effective Time, each Company Stock Option outstanding immediately after the
Effective Time shall be converted into an option to acquire, on the same
terms and conditions as were applicable under the Company Stock Option, the
number of shares of Parent common stock, par value $.50 per share ("Parent
Common Stock") (rounded down to the nearest whole share) determined by
multiplying the number of shares of Company Common Stock subject to such
Company Stock Option by a fraction, the numerator of which is the Offer
Price and the denominator of which is the average closing price of Parent
Common Stock on the New York Stock Exchange Composite Transactions Tape on
the 10 trading days immediately preceding the date on which the Effective
Time occurs (the "Exchange Ratio"), at a price per share of Parent Common
Stock (rounded up to the nearest tenth of a cent) equal to (A) the
aggregate exercise price for the shares of Company Common Stock otherwise
purchasable pursuant to such Company Stock Option divided by (B) the
Exchange Ratio (each, as so adjusted, a "Substitute Option"); and
(ii) amend the Incentive Stock Option Plan to eliminate the final
sentence of Section 4(c) thereof and make such other changes to the Company
Stock Plans as Parent and the Company may agree are appropriate to give
effect to the Merger.
(b) By virtue of the Merger and without the need of any further corporate
action, Parent shall assume all obligations of the Company under the Company
Stock Plans, including with respect to the Company Stock Options outstanding
immediately after the Effective Time.
(c) No later than the Effective Time, Parent shall prepare and file with
the SEC a registration statement on Form S-8 (or another appropriate form)
registering a number of shares of Parent Common Stock equal to the number of
shares subject to the Substitute Options. Such registration statement shall be
kept effective (and the current status of the initial offering prospectus or
prospectuses required thereby shall be maintained) at least for so long as any
Substitute Options may remain outstanding.
35
(d) Except as otherwise contemplated by this Section 7.04 and except to the
extent required under the respective terms of the Company Stock Options or other
applicable agreements, all restrictions or limitations on transfer and vesting
with respect to Company Stock Options awarded under the Company Stock Plans or
any other plan, program or arrangement of the Company, to the extent that such
restrictions or limitations shall not have already lapsed, shall remain in full
force and effect with respect to such options after giving effect to the Merger
and the assumption by Parent as set forth above. Notwithstanding the foregoing,
the Substitute Options shall not be subject to the provision of the Company
Stock Plan providing for the lapse of Company Stock Options upon the
consummation of the transactions contemplated by this Agreement.
(e) The Company shall amend the Stock Purchase Plan to terminate the
commencement of any Offering (as defined therein) that is scheduled to commence
after the date hereof.
SECTION 7.05. Directors. Promptly upon the acceptance for payment
of, and payment for, Shares by Sub pursuant to the Offer, Sub shall be entitled
to designate such number of directors on the Board of Directors of the Company
as will give Sub, subject to compliance with Section 14(f) of the Exchange Act,
a majority of such directors, and the Company shall, at such time, cause Sub's
designees to be so elected by its existing Board of Directors; provided,
however, that in the event that Sub's designees are elected to the Board of
Directors of the Company, until the Effective Time such Board of Directors shall
have at least two directors who are directors on the date of this Agreement and
who are not officers of the Company (the "Independent Directors"); and provided
further that, in such event, if the number of Independent Directors shall be
reduced below two for any reason whatsoever, the remaining Independent Director
shall designate a person to fill such vacancy who shall be deemed to be an
Independent Director for purposes of this Agreement or, if no Independent
Directors then remain, the other directors shall designate two persons to fill
such vacancies who shall not be officers or affiliates of the Company, or
officers or affiliates of Parent or any of its subsidiaries, and such persons
shall be deemed to be Independent Directors for purposes of this Agreement.
Subject to applicable law, the Company shall take all action requested by Parent
necessary to effect any such election, including mailing to its shareholders the
Information Statement containing the information required by Section 14(f) of
the Exchange Act and Rule 14f-1 promulgated thereunder, and the Company
36
agrees to make such mailing with the mailing of the Schedule 14D-9 (provided
that Sub shall have provided to the Company on a timely basis all information
required to be included in the Information Statement with respect to Sub's
designees). In connection with the foregoing, the Company will promptly, at the
option of Parent, either increase the size of the Company's Board of Directors
and/or obtain the resignation of such number of its current directors as is
necessary to enable Sub's designees to be elected or appointed to, and to
constitute a majority of the Company's Board of Directors as provided above.
SECTION 7.06. Fees and Expenses. (a) Except as provided below in
this Section 7.06, all fees and expenses incurred in connection with the Offer,
the Merger, this Agreement and the transactions contemplated by this Agreement
shall be paid by the party incurring such fees or expenses, whether or not the
Offer or the Merger is consummated.
(b) The Company shall pay, or cause to be paid, in same day funds to
Parent $6,000,000 (the "Termination Fee") under the circumstances and at the
times set forth as follows:
(i) if the Company terminates this Agreement under Section 9.01(e), or
if Parent or Sub terminates this Agreement under Section 9.01(d), the
Company shall pay the Termination Fee upon demand; and
(ii) if, at the time of any other termination of this Agreement (other
than pursuant to Section 9.01(a) or Section 9.01(b)(ii) or by the Company
pursuant to Section 9.01(f)), a Takeover Proposal shall have been made
(other than a Takeover Proposal made prior to the date hereof), and within
12 months of such termination, the Company shall enter into an Acquisition
Agreement providing for a Takeover Proposal or a transaction resulting from
a Takeover Proposal shall be consummated, the Company shall pay the
Termination Fee concurrently with the earlier of the entering into of such
Acquisition Agreement or the consummation of such transaction.
SECTION 7.07. Indemnification; Insurance. (a) Parent and Sub agree
that all rights to indemnification for acts or omissions occurring prior to the
Effective Time now existing in favor of the current or former directors or
officers (the "Indemnified Parties") of the Company and its subsidiaries as
provided in their respective articles of incorporation or by-laws (or similar
37
organizational documents), shall survive the Merger and shall continue in full
force and effect in accordance with their terms.
(b) For six years from the Effective Time, Parent shall, unless
Parent agrees in writing to guarantee the indemnification obligations set forth
in Section 7.07(a), maintain in effect the Company's current directors' and
officers' liability insurance covering those persons who are currently covered
by the Company's directors' and officers' liability insurance policy (a copy of
which has been heretofore delivered to Parent) (or, in lieu of maintaining such
insurance, cause coverage to be provided under any policy maintained for the
benefit of Parent or any of its subsidiaries or otherwise obtained by Parent, so
long as the terms thereof are no less advantageous to the intended beneficiaries
thereof than those of the Company's policy); provided, however, that in no event
shall Parent be required to expend in any one year an amount in excess of 200%
of the annual premiums currently paid by the Company for such insurance, which
the Company represents is $70,000; and, provided further, that if the annual
premiums of such insurance coverage exceed such amount, Parent shall be
obligated to obtain a policy with the greatest coverage available for a cost not
exceeding such amount.
(c) This Section 7.07 shall survive the consummation of the Merger at
the Effective Time, is intended to benefit the Company, Parent, the Surviving
Corporation and the Indemnified Parties, and shall be binding on all successors
and assigns of Parent and the Surviving Corporation.
SECTION 7.08. Certain Litigation. The Company agrees that it shall
not settle any litigation commenced after the date hereof against the Company or
any of its directors by any shareholder of the Company relating to the Offer,
the Merger, this Agreement, the Shareholder Agreement or the Noncompetition
Agreements, without the prior written consent of Parent. In addition, the
Company shall not voluntarily cooperate with any third party that may hereafter
seek to restrain or prohibit or otherwise oppose the Offer or the Merger and
shall cooperate with Parent and Sub to resist any such effort to restrain or
prohibit or otherwise oppose the Offer or the Merger.
38
ARTICLE VIII
Conditions
SECTION 8.01. Conditions to Each Party's Obligation To Effect the
Merger. The respective obligation of each party to effect the Merger shall be
subject to the satisfaction or waiver prior to the Closing Date of the following
conditions:
(a) Company Shareholder Approval. If required by applicable law, the
Company Shareholder Approval shall have been obtained.
(b) No Injunctions or Restraints. No Law or Order issued by any
court of competent jurisdiction or other Governmental Entity or other legal
restraint or prohibition preventing the consummation of the Merger shall be
in effect; provided, however, that each of the parties shall have used
reasonable efforts to prevent the entry of any such Order and to appeal as
promptly as possible any Order that may be entered.
(c) Purchase of Shares. Sub shall have previously accepted for
payment and paid for Shares pursuant to the Offer.
ARTICLE IX
Termination and Amendment
SECTION 9.01. Termination. This Agreement may be terminated at any
time prior to the Effective Time, whether before or after approval of the terms
of this Agreement by the shareholders of the Company:
(a) by mutual written consent of Parent and the Company;
(b) by either Parent or the Company:
(i) if (x) as a result of the failure of any of the Offer
Conditions the Offer shall have terminated or expired in accordance
with its terms without Sub having accepted for payment any Shares
pursuant to the Offer or (y) Sub shall not have accepted for payment
any Shares pursuant to the Offer prior to June 30, 1998; provided,
however, that the right to terminate this Agreement pursuant to this
Section 9.01(b)(i) shall not be
39
available to any party whose failure to perform any of its obligations
under this Agreement results in the failure of any such condition or
if the failure of such condition results from facts or circumstances
that constitute a breach of representation or warranty under this
Agreement by such party; or
(ii) if any Governmental Entity shall have issued an Order or
taken any other action permanently enjoining, restraining or otherwise
prohibiting the acceptance for payment of, or payment for, Shares
pursuant to the Offer or the Merger and such Order or other action
shall have become final and nonappealable;
(c) by Parent or Sub prior to the purchase of Shares pursuant to the
Offer in the event of a breach or failure to perform by the Company of any
representation, warranty, covenant or other agreement contained in this
Agreement that (i) would give rise to the failure of a condition set forth
in paragraph (e) or (f) of Exhibit A and (ii) cannot be or has not been
cured within 20 days after the giving of written notice to the Company;
(d) by Parent or Sub if either Parent or Sub is entitled to terminate
the Offer as a result of the occurrence of any event set forth in
paragraph (d) of Exhibit A to this Agreement;
(e) by the Company in accordance with Section 6.02(b), provided that
it has complied with all provisions thereof, including the notice
provisions therein, and that it complies with applicable requirements
relating to the payment (including the timing of any payment) of the
Termination Fee; or
(f) by the Company, if Parent or Sub shall have breached or failed to
perform in any material respect any of their respective representations,
warranties, covenants or other agreements contained in this Agreement,
which breach or failure to perform is incapable of being cured or has not
been cured within 20 days after the giving of written notice to Parent or
Sub, as applicable, except, in any case, such breaches and failures which
are not reasonably likely to affect adversely Parent's or Sub's ability to
consummate the Offer or the Merger.
40
SECTION 9.02. Effect of Termination. In the event of a termination
of this Agreement by either the Company or Parent as provided in Section 9.01,
this Agreement shall forthwith become void and there shall be no liability or
obligation on the part of Parent, Sub or the Company or their respective
officers or directors, except with respect to the last sentence of
Section 1.02(c), Section 4.16, Section 5.06, the last sentence of Section 7.02,
Section 7.06, this Section 9.02 and Article X; provided, however, that nothing
herein shall relieve any party for liability for any wilful breach hereof.
SECTION 9.03. Amendment. This Agreement may be amended by the
parties hereto, by duly authorized action taken, at any time before or after
obtaining the Company Shareholder Approval, but, after the purchase of Shares
pursuant to the Offer, no amendment shall be made which decreases the Merger
Consideration and, after the Company Shareholder Approval, no amendment shall be
made which by law requires further approval by such shareholders without
obtaining such further approval. This Agreement may not be amended except by an
instrument in writing signed on behalf of each of the parties hereto. Following
the election or appointment of the Sub's designees pursuant to Section 7.05 and
prior to the Effective Time, the affirmative vote of a majority of the
Independent Directors then in office shall be required by the Company to
(i) amend or terminate this Agreement by the Company, (ii) exercise or waive any
of the Company's rights or remedies under this Agreement or (iii) extend the
time for performance of Parent and Sub's respective obligations under this
Agreement.
SECTION 9.04. Extension; Waiver. At any time prior to the Effective
Time, the parties hereto, by action taken or authorized by their respective
Boards of Directors, may, to the extent legally allowed, subject to
Section 9.03, (i) extend the time for the performance of any of the obligations
or other acts of the other parties hereto, (ii) waive any inaccuracies in the
representations and warranties contained herein or in any document delivered
pursuant hereto or (iii) waive compliance with any of the agreements or
conditions contained herein. Any agreement on the part of a party hereto to any
such extension or waiver shall be valid only if set forth in a written
instrument signed on behalf of such party. The failure of any party to this
Agreement to assert any of its rights under this Agreement or otherwise shall
not constitute a waiver of those rights.
41
ARTICLE X
Miscellaneous
SECTION 10.01. Nonsurvival of Representations, Warranties and
Agreements. None of the representations and warranties in this Agreement or in
any instrument delivered pursuant to this Agreement shall survive the Effective
Time or, in the case of the Company, shall survive the acceptance for payment
of, and payment for, Shares by Sub pursuant to the Offer. This Section 10.01
shall not limit any covenant or agreement of the parties which by its terms
contemplates performance after the Effective Time of the Merger, including
Section 7.07.
SECTION 10.02. Notices. All notices and other communications
hereunder shall be in writing and shall be deemed given if delivered personally,
telecopied (which is confirmed), sent by overnight courier (providing proof of
delivery) or mailed by registered or certified mail (return receipt requested)
to the parties at the following addresses (or at such other address for a party
as shall be specified by like notice):
(a) if to Parent or Sub, to
International Business Machines Corporation
Xxx Xxxxxxx Xxxx
Xxxxxx, XX 00000
Attention: Xx. Xxx X. Xxxxxx
Telecopy No.: (000) 000-0000
with a copy to:
Cravath, Swaine & Xxxxx
Worldwide Plaza
000 Xxxxxx Xxxxxx
Xxx Xxxx, XX 00000-0000
Attention: Xxxxx Xxxxxxxxx, Esq.
Telecopy No.: (000) 000-0000
and
42
(b) if to the Company, to
Software Artistry, Inc.
0000 Xxxxxxxx Xxx Xxxx Xxxxx
Xxxxxxxxxxxx, XX 00000
Attention: W. Xxxxx Xxxxxx
Telecopy No.: (000) 000-0000
with a copy to:
Xxxxxxxx, Xxxxx & Xxxxxx
00 Xxxxx Xxxxxx
Xxxxxx, XX 00000
Attention: Xxxx Xxxx, Esq.
Telecopy No.: (000) 000-0000
SECTION 10.03. Interpretation. When a reference is made in this
Agreement to an Article or a Section, such reference shall be to an Article or a
Section of this Agreement unless otherwise indicated. The table of contents and
headings contained in this Agreement are for reference purposes only and shall
not affect in any way the meaning or interpretation of this Agreement. Whenever
the words "include", "includes" or "including" are used in this Agreement, they
shall be deemed to be followed by the words "without limitation". The phrase
"made available" in this Agreement shall mean that the information referred to
has been made available if requested by the party to whom such information is to
be made available. As used in this Agreement, "material adverse change" or
"material adverse effect" means, when used in connection with the Company, any
change or effect (or any development that, insofar as can reasonably be
foreseen, is likely to result in any change or effect) that, individually or in
the aggregate with any such other changes or effects, is materially adverse to
the business, properties, financial condition or results of operations of the
Company and its subsidiaries taken as a whole. As used in this Agreement, the
term "subsidiary" of any person means another person, an amount of the voting
securities, other voting ownership or voting partnership interests of which is
sufficient to elect at least a majority of its Board of Directors or other
governing body (or, if there are no such voting interests, 50% or more of the
equity interests of which) is owned directly or indirectly by such first person,
and the term "Significant Subsidiary" of any person means ]any Significant
Subsidiary
43
of such person within the meaning of Rule 1-02 of Regulation S-X of the SEC.
SECTION 10.04. Counterparts. This Agreement may be executed in two
or more counterparts, all of which shall be considered one and the same
agreement and shall become effective when two or more counterparts have been
signed by each of the parties and delivered to the other parties, it being
understood that all parties need not sign the same counterpart.
SECTION 10.05. Entire Agreement; No Third Party Beneficiaries. This
Agreement (including the documents and the instruments referred to herein)
(a) constitutes the entire agreement and supersede all prior agreements and
understandings, both written and oral, among the parties with respect to the
subject matter hereof, and (b) except as provided in Section 7.07, is not
intended to confer upon any person other than the parties hereto any rights or
remedies hereunder.
SECTION 10.06. Governing Law. This Agreement shall be governed and
construed in accordance with the laws of the State of New York without regard to
any applicable conflicts of law, except to the extent the IBCL shall be held to
govern the terms of the Merger.
SECTION 10.07. Publicity. Except as otherwise required by law, court
process or the rules of the NYSE or the Nasdaq National Market or as
contemplated or provided elsewhere herein, for so long as this Agreement is in
effect, neither the Company nor Parent shall, or shall permit any of its
subsidiaries to, issue or cause the publication of any press release or other
public announcement with respect to the transactions contemplated by this
Agreement, the Shareholder Agreement or the Noncompetition Agreements without
the consent of the other party, which consent shall not be unreasonably
withheld.
SECTION 10.08. Assignment. Neither this Agreement nor any of the
rights, interests or obligations hereunder shall be assigned by any of the
parties hereto (whether by operation of law or otherwise) without the prior
written consent of the other parties, except that Sub may assign, in its sole
discretion, any or all of its rights, interests and obligations hereunder to
Parent or to any direct or indirect wholly owned subsidiary of Parent. Subject
to the preceding sentence, this Agreement will be binding upon, inure to the
benefit of and be enforceable by the parties and their respective successors and
assigns.
44
SECTION 10.09. Enforcement. The parties agree that irreparable
damage would occur in the event that any of the provisions of this Agreement
were not performed in accordance with their specific terms or were otherwise
breached. It is accordingly agreed that the parties shall be entitled to an
injunction or injunctions to prevent breaches of this Agreement and to enforce
specifically the terms and provisions of this Agreement in any court of the
United States located in the State of New York or any New York state court, this
being in addition to any other remedy to which they are entitled at law or in
equity. In addition, each of the parties hereto waives any right to trial by
jury with respect to any claim
45
or proceeding related to or arising out of this Agreement or any of the
transactions contemplated hereby.
IN WITNESS WHEREOF, Parent, Sub and the Company have caused this
Agreement to be signed by their respective officers thereunto duly authorized as
of the date first written above.
INTERNATIONAL BUSINESS MACHINES
CORPORATION,
by /s/ Xxx X. Xxxxxx
----------------------------------
Name: Xxx X. Xxxxxx
Title: Vice President, Corporate
Development and Real
Estate
HOOSIER ACQUISITION CORP.,
by /s/ Xxx X. Xxxxxx
----------------------------------
Name: Xxx X. Xxxxxx
Title: President
SOFTWARE ARTISTRY, INC.
by /s/ W. Xxxxx Xxxxxx
----------------------------------
Name: W. Xxxxx Xxxxxx
Title:
46
EXHIBIT A
Conditions of the Offer
Notwithstanding any other term of the Offer or this Agreement, Sub
shall not be required to accept for payment or, subject to any applicable rules
and regulations of the SEC, including Rule 14e-1(c) under the Exchange Act
(relating to Sub's obligation to pay for or return tendered Shares after the
termination or withdrawal of the Offer), to pay for any Shares tendered pursuant
to the Offer unless prior to the Expiration Date (as defined in the Offer)
(i) there shall have been validly tendered and not withdrawn prior to the
expiration of the Offer such number of Shares that would constitute a majority
of the outstanding Shares (determined on a fully diluted basis for all
outstanding stock options and any other rights to acquire Shares) (the "Minimum
Condition") and (ii) any waiting period under the HSR Act applicable to the
purchase of Shares pursuant to the Offer shall have expired or been terminated.
Furthermore, notwithstanding any other term of the Offer or this Agreement, Sub
shall not be required to accept for payment or, subject as aforesaid, to pay for
any Shares not theretofore accepted for payment or paid for, and may terminate
the Offer if, at any time on or after the date of this Agreement and prior to
the Expiration Date, any of the following conditions exists (other than as a
result of any action or inaction of Parent or any of its subsidiaries that
constitutes a breach of this Agreement):
(a) there shall be threatened, instituted or pending by any
Governmental Entity any suit, action or proceeding (i) challenging the
acquisition by Parent or Sub of any Shares under the Offer, seeking to
restrain or prohibit the making or consummation of the Offer or the Merger
or seeking to obtain from the Company, Parent or Sub any damages that are
material in relation to the Company and its subsidiaries taken as a whole,
(ii) seeking to prohibit or materially limit the ownership or operation by
the Company, Parent or any of their respective subsidiaries of a material
portion of the business or assets of the Company and its subsidiaries,
taken as a whole, or Parent and its subsidiaries, taken as a whole, or to
compel the Company and its subsidiaries, taken as a whole or Parent to
dispose of or hold separate any material portion of the business or assets
of the Company or Parent and its subsidiaries, taken as a whole, in each
case as a result of the Offer or any of the other transactions contemplated
by this Agreement, (iii) seeking to impose material limitations on the
ability of Parent or Sub to acquire or hold, or
exercise full rights of ownership of, any Shares to be accepted for payment
pursuant to the Offer including, without limitation, the right to vote such
Shares on all matters properly presented to the shareholders of the
Company, (iv) seeking to prohibit Parent or any of its subsidiaries from
effectively controlling in any material respect any material portion of the
business or operations of the Company or its subsidiaries or (v) which
otherwise is reasonably likely to have a material adverse effect on the
Company;
(b) there shall be any Law or Order enacted, entered, enforced,
promulgated or deemed applicable to the Offer or the Merger, by any
Governmental Entity, other than the application to the Offer or the Merger
of applicable waiting periods under the HSR Act, that is reasonably likely
to result, directly or indirectly, in any of the consequences referred to
in clauses (i) through (v) of paragraph (a) above;
(c) there shall have occurred any material adverse change with respect
to the Company;
(d) (i) the Board of Directors of the Company or any committee thereof
shall have withdrawn or modified in a manner adverse to Parent or Sub its
approval or recommendation of the Offer or the Merger or its adoption of
this Agreement, or approved or recommended any Takeover Proposal, (ii) the
Company shall have entered into any agreement with respect to any Superior
Proposal or (iii) the Board of Directors of the Company or any committee
thereof shall have resolved to take any of the foregoing actions;
(e) any of the representations and warranties of the Company set forth
in this Agreement that are qualified as to materiality shall not be true
and correct or any such representations and warranties that are not so
qualified shall not be true and correct in any material respect, in each
case at the date of this Agreement and at the scheduled or extended
expiration of the Offer;
(f) the Company shall have failed to perform in any material respect
any material obligation or to comply in any material respect with any
material agreement or material covenant of the Company to be performed or
complied with by it under this Agreement, which failure to perform or
comply has not been cured within 5 business days after the giving of
written notice to the Company; or
2
(g) this Agreement shall have been terminated in accordance with its
terms.
The foregoing conditions are for the sole benefit of Parent and Sub
and may, subject to the terms of this Agreement, be waived by Parent and Sub in
whole or in part at any time and from time to time in their reasonable
discretion. The failure by Parent or Sub at any time to exercise any of the
foregoing rights shall not be deemed a waiver of any such right, the waiver of
any such right with respect to particular facts and circumstances shall not be
deemed a waiver with respect to any other facts and circumstances and each such
right shall be deemed an ongoing right that may be asserted at any time and from
time to time. Terms used but not defined herein shall have the meanings
assigned to such terms in the Agreement to which this Exhibit A is a part.
3
