Filed Pursuant to Rule 424(b)(2)
File No. 333-71097
The Flagship Group Inc. Intuit Inc.
1385 S. Colorado Boulevard, Suite 400 2535 Garcia Avenue
Denver, Colorado 80222 Mountain View, California 94043
Consent Solicitation and Prospectus Supplement to
Information Statement Prospectus dated January 31, 2001
TO THE STOCKHOLDERS OF THE FLAGSHIP GROUP INC.
The board of directors of The Flagship Group Inc., a Delaware
corporation, is asking the stockholders of Flagship to consider and approve the
following proposals by written consent:
MERGER PROPOSAL: (1) to approve and adopt the form of Agreement and Plan
of Merger dated as of May 6, 2002 among Intuit Inc., Ardent Acquisition
Corporation ("Merger Sub"), Credence Acquisition Corporation ("Merger
Sub II"), Flagship, American Fundware, Inc. ("American Fundware"),
certain management stockholders of Flagship and each of Michael Potts
and Scott Wylie, as representatives; and (2) to approve the appointment
of each of Michael Potts and Scott Wylie to act as the representatives
of the stockholders of Flagship with the powers, rights and duties set
forth in the merger agreement and escrow agreement.
COMPENSATION PROPOSAL: to ratify the payment of a special bonus to Scott
Wylie, the Chairman of the board of directors of Flagship, and the
acceleration of vesting of stock options of Flagship held by Mr. Wylie
and by Nathaniel P. Turner, Stephen O. James and Michael Faherty, also
members of the board of directors of Flagship.
Under the merger agreement, Flagship will merge with Merger Sub, a
wholly owned subsidiary of Intuit, after which Flagship will be the surviving
corporation and a wholly owned subsidiary of Intuit. Immediately following the
merger, Flagship will be merged into and with Merger Sub II, another wholly
owned subsidiary of Intuit, with Merger Sub II being the surviving corporation.
The consideration issuable to the Flagship stockholders in connection with the
merger will consist of $26,000,000 in cash and shares of Intuit common stock,
subject to adjustment. Approximately 85% of the merger consideration will be
payable in registered shares of Intuit stock on the closing date and
approximately 15% of the merger consideration will be payable in cash. Based on
a number of assumptions set forth in greater detail in the information
statement, including (1) that Flagship has at least $1,000,000 in working
capital at closing, and (2) that the Intuit average share price is $41.392, at
the effective time each share of Flagship common stock will be automatically
converted into the right to receive $0.6685770 in cash and 0.0944745 of a share
of Intuit common stock. In addition, all options not exercised on or prior to
the closing of the merger will be assumed by Intuit as set forth in the merger
agreement. The cash consideration payable to the Flagship stockholders will be
placed into escrow for a period of eighteen months following the closing
pursuant to the terms of the escrow agreement to secure the indemnification
obligations of the Flagship stockholders as set forth in the merger agreement.
You will find enclosed, and are being asked to execute and return, (1)
written consents for the proposals described above, (2) either the investment
representation letter for accredited Flagship stockholders or the investment
representation letter for unaccredited Flagship stockholders, and (3) a Form
W-9. As promptly as practicable, but no later than May 24, 2002, please send
executed signature pages of the above documents to the attention of Ms. Lisa Van
der Veer, Chief Financial Officer of Flagship, via facsimile at (303) 758-6325;
and return via UPS in the enclosed pre-addressed envelope
original signatures pages and original stock certificate(s) representing shares
of Flagship common stock (signed in the endorsement for transfer section on the
reverse side of such certificates) or a properly completed lost share
certificate affidavit to the attention of Morrison & Foerster LLP, 5200 Republic
Plaza, 370 17th Street, Denver, Colorado 80202-5638.
YOUR CONSENT IS VERY IMPORTANT. FAILURE TO RETURN A PROPERLY EXECUTED
WRITTEN CONSENT WILL GENERALLY HAVE THE SAME EFFECT AS A VOTE AGAINST THE
ADOPTION OF THE MERGER AGREEMENT.
THE SECURITIES TO BE ISSUED IN THE MERGER INVOLVE A HIGH DEGREE OF RISK.
SEE "CERTAIN FACTORS - HIGH DEGREE OF RISK" COMMENCING ON PAGE 10.
Intuit common stock is traded on the Nasdaq National Market under the
symbol "INTU."
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of the securities to be issued in the
merger or determined if this information statement is truthful or complete. Any
representation to the contrary is a criminal offense.
This information statement, including the annexes and exhibits attached
hereto and the accompanying forms of Written Consent of Stockholders, was first
mailed or delivered to the Flagship stockholders on or about May 17, 2002. This
information statement is dated May 17, 2002.
This Consent Solicitation and Information Statement of Flagship and
Prospectus Supplement of Intuit (this "information statement") is being
furnished in connection with the transactions contemplated pursuant to that
certain Agreement and Plan of Merger (the "merger agreement") dated as of May 6,
2002 among Intuit, Merger Sub, Merger Sub II, Flagship, American Fundware,
certain management stockholders of Flagship (the "significant stockholders"),
and each of Michael Potts and Scott Wylie, as representatives (such transactions
being collectively referred to in this information statement as the "merger").
This information statement supplements the Intuit prospectus dated January 31,
2001, a copy of which is attached to this information statement as Exhibit F.
This information statement does not constitute an offer to sell or the
solicitation of an offer to buy, nor shall there be any sale, issuance or
transfer of the securities referred to in this information statement, in any
state in which such offer, solicitation or sale would be unlawful prior to
registration or qualification under the securities laws of such state,
All information contained in this information statement with respect to
Flagship or American Fundware has been furnished by Flagship, and all
information contained in this information statement with respect to Intuit,
Merger Sub and Merger Sub II has been furnished by Intuit. No person has been
authorized to give any information or to make any representations not contained
or incorporated by reference in this information statement in connection with
the matters referred to herein, and, if given or made, such information or
representations must not be relied upon as having been so authorized by
Flagship, Intuit or any of their respective subsidiaries, affiliates, officers,
directors or agents. The delivery of this information statement will not, under
any circumstances, create any implication that the information in this
information statement is correct as of any time subsequent to the date of this
information statement.
TABLE OF CONTENTS
Page
----
SUMMARY ...........................................................................1
Purpose of Consent Solicitation and Information Statement ................1
Documents to be Executed and Returned by the Flagship Stockholders........2
Record Date...............................................................2
Required Vote.............................................................3
Dissenters' Rights........................................................3
Summary of Merger Proposal ...............................................3
Recommendation of Flagship's Board of Directors...........................5
The Companies.............................................................5
SELECTED FINANCIAL DATA OF FLAGSHIP................................................6
SELECTED FINANCIAL DATA OF INTUIT..................................................7
MARKET PRICE AND DIVIDEND INFORMATION..............................................8
COMPARATIVE PER SHARE MARKET PRICES................................................9
CERTAIN FACTORS -- HIGH DEGREE OF RISK ...........................................10
Risks of the Merger .....................................................10
Risks Related to Intuit's Business.......................................11
Company-Wide Risk Factors................................................11
Factors Relating to Competition..........................................16
Specific Factors Affecting Intuit's Small Business Division..............17
Specific Factors Affecting Intuit's Tax Division.........................18
Specific Factors Affecting Intuit's Personal Finance Division............19
Specific Factors Affecting Intuit's Quicken Loans Division...............20
Specific Factors Affecting Intuit's Global Business Division.............20
THE MERGER PROPOSAL ..............................................................21
General..................................................................21
Intuit's Reasons for the Merger..........................................21
Flagship's Reasons for the Merger........................................21
Merger Consideration.....................................................22
Conversion of Shares of Flagship Common Stock............................23
Fractional Shares .......................................................23
Exchange of Stock Certificates...........................................23
Treatment of Flagship Stock Options .....................................24
Escrow of Cash Consideration; Indemnification by the Flagship
Stockholders...........................................................24
Indemnification by Intuit ...............................................25
The Merger Agreement.....................................................26
Related Agreements.......................................................28
Interests of Certain Persons in the Merger...............................29
Other Matters Related to the Merger......................................29
Material Federal Income Tax Consequences.................................31
THE COMPENSATION PROPOSAL.........................................................35
The Golden Parachute Rules...............................................35
Special Bonus............................................................36
Acceleration of Vesting..................................................36
Proposed Stockholder Ratification........................................39
Vote Required............................................................39
APPRAISAL RIGHTS OF DISSENTING FLAGSHIP STOCKHOLDERS .............................40
Background...............................................................40
Appraisal Rights Under Delaware Law .....................................40
i
Written Demands .........................................................42
INFORMATION REGARDING FLAGSHIP....................................................43
Business -- General .....................................................43
Management ..............................................................43
Beneficial Ownership Table...............................................44
INFORMATION REGARDING INTUIT......................................................46
Business ................................................................46
Additional Information...................................................46
Further Information......................................................47
DESCRIPTION OF INTUIT CAPITAL STOCK...............................................48
Common Stock.............................................................48
Preferred Stock..........................................................49
DESCRIPTION OF FLAGSHIP CAPITAL STOCK.............................................51
In General...............................................................51
Common Stock.............................................................51
Preferred Stock..........................................................51
COMPARISON OF RIGHTS OF INTUIT AND FLAGSHIP CAPITAL STOCK.........................52
Number of Directors .....................................................52
Removal of Directors; Filling Vacancies .................................52
Stockholder Meetings and Written Consents................................52
Power to Call Special Meeting of Stockholders ...........................52
Percentage of Voting Stock; Influence Over Affairs ......................53
Authorized Capital Stock.................................................53
Undesignated Preferred Stock.............................................53
Stockholder Rights Plan..................................................53
ANNEXES
Annex A -- Agreement and Plan of Merger dated as of May 6, 2002
Annex B -- Written Consent of Flagship Stockholders (Merger Proposal)
Annex C -- Written Consent of Flagship Stockholders (Compensation
Proposal)
Annex D -- Investment Representation Letter (Accredited Flagship
Stockholders)
Annex E -- Investment Representation Letter (Unaccredited Flagship
Stockholders)
Annex F -- Form W-9
Annex G -- Form of Voting Agreement
Annex H -- Escrow Agreement
Annex I -- Section 262 of the Delaware General Corporation Law
EXHIBITS
Exhibit A -- Intuit's Annual Report to Stockholders for the fiscal year
ended July 31, 2001, which includes Intuit's Annual Report
on Form 10-K for the fiscal year ended July 31, 2001
Exhibit B -- Intuit's Quarterly Report on Form 10-Q for the three months
ended October 31, 2001
Exhibit C -- Intuit's Quarterly Report on Form 10-Q for the six months
ended January 31, 2002
Exhibit D -- Intuit's Proxy Statement for the January 18, 2002 Annual
Stockholders Meeting
Exhibit E -- Intuit's Current Reports on Form 8-K dated August 24, 2001,
September 27, 2001, November 8, 2001, November 16, 2001,
January 24, 2002, February 14, 2002 and May 13, 2002
Exhibit F -- Intuit's prospectus dated January 31, 2001
ii
SUMMARY
PURPOSE OF CONSENT SOLICITATION AND INFORMATION STATEMENT
Merger Proposal.
This Consent Solicitation and Information Statement of Flagship and
Prospectus Supplement of Intuit (this "information statement") is being
furnished to the stockholders of The Flagship Group Inc., a Delaware corporation
("Flagship"), by the board of directors of Flagship in connection with the
solicitation by Flagship of the written consent of the Flagship stockholders to
approve and adopt:
1. the Agreement and Plan of Merger dated as of May 6, 2002 attached
to this information statement as Annex A (the "merger agreement")
by and among Flagship, Intuit Inc., a Delaware corporation
("Intuit"), Ardent Acquisition Corporation, a Delaware
corporation and a wholly owned subsidiary of Intuit ("Merger
Sub"), Credence Acquisition Corporation, a Delaware corporation
and a wholly owned subsidiary of Intuit ("Merger Sub II"),
American Fundware, Inc., a Colorado corporation and a wholly
owned subsidiary of Flagship ("American Fundware"), each of
Michael Potts and Janice Groth in their capacities as management
stockholders of Flagship (the "significant stockholders"), and
each of Michael Potts and Scott Wylie, as representatives of the
Flagship stockholders, whereby Merger Sub will merge (the
"merger") with Flagship and become a wholly owned subsidiary of
Intuit (the "merger proposal"); and
2. the appointment of each of Michael Potts and Scott Wylie to act
as the representatives of the stockholders of Flagship (the
"representatives") with the powers, rights and duties set forth
in the merger agreement and escrow agreement attached as Annex H
to this information statement.
Compensation Proposal.
This information statement also is being furnished to solicit the
written consent of Flagship stockholders to a proposal to ratify the payment of
a special bonus to Scott Wylie, the Chairman of the board of directors of
Flagship, and the acceleration of vesting of stock options of Flagship held by
Mr. Wylie and by Nathaniel P. Turner, Stephen O. James and Michael Faherty, also
members of the board of directors of Flagship (the "compensation proposal").
Upon the closing of the merger, Mr. Wylie will be entitled to receive a special
bonus in an aggregate amount of approximately $125,000 in consideration of
services performed by him on behalf of Flagship in connection with the merger.
In addition, the terms of the stock option grants to Messrs. Wylie, Turner,
James and Faherty provide for full vesting of such options, in certain
circumstances, in connection with a change in control such as will result from
the proposed merger. Mr. Wylie has agreed to subject his right to the special
bonus and to accelerated vesting, and each of Messrs. Turner, James and Faherty
has agreed to subject his right to accelerated vesting, to this stockholder
ratification so that such benefits will not be treated as "parachute payments"
under Section 280G of the Internal Revenue Code of 1986, as amended (the
"Code").
It is a condition to Intuit's obligation to consummate the merger that
Flagship not be obligated to make payments that could be treated as "parachute
payments" under Section 280G of the Code. Absent the waivers agreed to by
Messrs. Wylie, Turner, James and Faherty, Flagship would not satisfy that
closing condition. Accordingly, in order to permit the closing condition to be
satisfied and the merger to go forward, each of Messrs. Wylie, Turner, James and
Faherty has agreed to waive his entitlement to his respective payment unless the
payment is ratified by the Flagship stockholders. Approval of the
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compensation proposal would enable Flagship to satisfy the closing condition and
also allow Messrs. Wylie, Turner, James and Faherty to receive their payments
without being subject to the excise tax.
Upon receipt of the required separate affirmative written consents of
the Flagship stockholders necessary to approve each of the merger proposal and
the compensation proposal, Flagship will take all action necessary to effect the
transactions contemplated by the merger proposal and the compensation proposal.
See "Required Vote" below.
DOCUMENTS TO BE EXECUTED AND RETURNED BY THE FLAGSHIP STOCKHOLDERS
Each Flagship stockholder should complete and return (1) the Written
Consent of the Stockholders which is attached hereto as Annex B (regarding the
merger proposal), (2) the Written Consent of the Stockholders which is attached
hereto as Annex C (regarding the compensation proposal), (3) either the
investment representation letter for accredited Flagship stockholders attached
hereto as Annex D or the investment representation letter for unaccredited
Flagship stockholders attached hereto as Annex E (each, an "investment
representation letter" and, collectively, the "investment representation
letters"), and (4) a Form W-9 which is attached to this information statement as
Annex F, in the following manner:
- As promptly as practicable, but no later than May 24, 2002,
executed signature pages of the above documents to the attention
of Ms. Lisa Van der Veer, Chief Financial Officer of Flagship,
via facsimile at (303) 758-6325;
- As promptly as practicable, but no later than May 27, 2002,
original signature pages to the above referenced documents to the
attention of Morrison & Foerster LLP, 5200 Republic Plaza, 370
17th Street, Denver, Colorado 80202-5638 via UPS in the enclosed
pre-addressed envelope; and
- As promptly as practicable, but no later than May 27, 2002, the
original stock certificate(s) representing shares of Flagship
common stock (signed in the endorsement for transfer section on
the reverse side of such certificates) or a properly completed
lost share certificate affidavit to the attention of Morrison &
Foerster LLP, 5200 Republic Plaza, 370 17th Street, Denver,
Colorado 80202-5638 via UPS in the enclosed pre-addressed
envelope.
Questions regarding these documents may be directed to Ms. Van der Veer
via telephone at (303) 756-3030. YOU ARE URGED TO GIVE YOUR PROMPT AND IMMEDIATE
ATTENTION TO THE COMPLETION AND RETURN OF THESE DOCUMENTS TO AVOID A DELAY IN
THE CLOSING OF THE MERGER.
RECORD DATE
The board of directors of Flagship has not set a record date for
determining the Flagship stockholders entitled to consent to the corporate
actions set forth in this information statement. Consequently, in accordance
with Section 213 of the Delaware General Corporation Law (the "DGCL"), the date
the board of directors approved the merger agreement, May 5, 2002, is deemed the
record date. On the record date, there were 4,877,493 shares of common stock of
Flagship issued and outstanding, and no shares of preferred stock of Flagship
were issued and outstanding. Each share of common stock is entitled to one vote
on all matters submitted to a vote of the Flagship stockholders.
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REQUIRED VOTE
Merger Proposal. Each of the boards of directors of Intuit, Merger Sub
and Merger Sub II has approved the merger proposal. Intuit, as the sole
stockholder of Merger Sub and Merger Sub II, has also approved the merger
proposal. No approval of the stockholders of Intuit is required in connection
with the merger proposal.
Under the terms of the merger agreement, approval of the merger proposal
requires the affirmative vote of the holders of at least 50% of the voting power
represented by the outstanding shares of common stock of Flagship.
Contemporaneously with the execution of the merger agreement and as a condition
to the execution of the merger agreement by Intuit, Flagship stockholders
holding approximately 71% of the outstanding shares of common stock executed
voting agreements substantially in the form of Annex G attached to this
information statement pursuant to which they have agreed to vote all of their
shares of common stock in favor of the merger proposal. Such vote is sufficient
under the merger agreement, the DGCL and Flagship's certificate of incorporation
and bylaws to approve the merger proposal.
Compensation Proposal. Payment of the amounts described in the
compensation proposal is subject to ratification by persons who own more than
75% of the voting power represented by the outstanding shares of common stock of
Flagship, excluding shares owned, directly or indirectly, by Messrs. Wylie,
Turner, James and Faherty, or by persons related to such individuals. No payment
subject to stockholder ratification will be made in the absence of stockholder
ratification.
It is a condition to Intuit's obligation to consummate the merger that
Flagship not be obligated to make payments that could be treated as "parachute
payments" under Section 280G of the Code. Absent the waivers agreed to by
Messrs. Wylie, Turner, James and Faherty, Flagship would not satisfy that
closing condition. Accordingly, in order to permit the closing condition to be
satisfied and the merger to go forward, each of Messrs. Wylie, Turner, James and
Faherty has agreed to waive his entitlement to his respective payment unless the
payment is ratified by the Flagship stockholders. Approval of the compensation
proposal would enable Flagship to satisfy the closing condition and also allow
Messrs. Wylie, Turner, James and Faherty to receive their payments without being
subject to the excise tax.
DISSENTERS' RIGHTS
Flagship stockholders who do not consent to the proposed Merger and who
otherwise fully comply with all of the provisions of Section 262 of the DGCL
will be entitled to demand and receive payment in cash of an amount equal to the
"fair value" of their shares of Flagship common stock if the proposed merger is
consummated. A vote in favor of the merger will constitute a waiver of your
appraisal rights under the DGCL. If any stockholder who demands payment for his
or her shares under Section 262 of the DGCL fails to perfect appraisal rights in
accordance with such section, or withdraws or otherwise loses the right to
demand such appraisal rights, each share of Flagship common stock held by such
stockholder will be converted into the right to receive the consideration
otherwise payable to such stockholder under Article II of the merger agreement.
SUMMARY OF MERGER PROPOSAL
In General. On May 5, 2002, the board of directors of Flagship and
American Fundware approved the acquisition of Flagship by Intuit pursuant to the
terms of the merger agreement, subject to stockholder approval. Under the merger
agreement, the acquisition will be effected pursuant to a merger of Flagship
with Merger Sub, a wholly owned subsidiary of Intuit, whereby upon consummation
of the merger, Flagship will be the surviving corporation and a wholly owned
subsidiary of Intuit. Immediately
3
following the merger, Flagship will be merged into and with Merger Sub II,
another wholly owned subsidiary of Intuit, pursuant to which Merger Sub II will
be the surviving corporation. The merger is expected to close on or before May
31, 2002, assuming all conditions to closing set forth in the merger agreement
are satisfied or waived as of such date (such time and date as of which the
merger and the transactions contemplated by the merger agreement are
consummated, the "closing date").
Merger Consideration. The consideration issuable to the Flagship
stockholders in connection with the merger will consist of $26,000,000 in cash
and shares of Intuit common stock. The $26,000,000 will be reduced by (1) the
amount by which the closing working capital (determined by subtracting the
current liabilities of Flagship (other than the current portion of any long term
debt or obligation) from the current assets of Flagship, in each case on the
closing date) is less than $1,000,000; and (2) the aggregate amount of fees and
expenses incurred in connection with the merger by Flagship, American Fundware
and the significant stockholders that are not paid or accrued on the balance
sheet of Flagship delivered at the closing. The $26,000,000 will be increased by
(A) the amount by which the closing working capital is greater than $1,000,000;
and (B) the aggregate exercise price of all outstanding Flagship options that
are vested immediately prior to the closing date. The resulting amount is
referred to as the "merger consideration." Approximately 85% of the merger
consideration will be payable in registered shares of Intuit stock on the
closing date (the "stock consideration") and approximately 15% of the merger
consideration will be payable in cash (the "cash consideration"). See "The
Merger Proposal -- Merger Consideration."
Conversion of Shares of Flagship Common Stock. Subject to the terms and
conditions of the merger agreement, at the effective time, each share of
Flagship common stock that is issued and outstanding immediately prior to the
effective time and then held by a Flagship stockholder will be converted into
and represent the right to receive:
- an amount of cash (rounded to the nearest cent), without
interest, equal to a fraction, the numerator of which is the cash
consideration, and the denominator of which is the number of
shares of Flagship common stock and vested Flagship options
outstanding immediately prior to the closing date; and
- a number of shares of Intuit common stock equal to a fraction
(the "stock exchange ratio"), the numerator of which is the
result of dividing the stock consideration by the number of
shares of Flagship common stock and vested Flagship options
outstanding immediately prior to the closing date and the
denominator of which is the average of the closing price per
share of Intuit common stock as quoted on the Nasdaq National
Market for the five consecutive trading days ending on and
including the last trading day immediately prior to the closing
date.
Assuming (1) the closing working capital is $1,000,000; (2) the
aggregate amount of transaction expenses of Flagship, American Fundware and the
significant stockholders that are not paid or accrued on the closing balance
sheet is $0; (3) the aggregate exercise price of all outstanding Flagship
options that are vested immediately prior to the closing date is $711,000; (4)
there are 4,877,493 shares of Flagship common stock outstanding; (5) there are
955,792 Flagship options outstanding that are vested immediately prior to the
closing date; and (6) the Intuit average share price is $41.392 (which is the
average of the closing sale price per share of Intuit common stock on the Nasdaq
National Market over the five-trading day period ending on and including May 15,
2002), then at the effective time each share of Flagship common stock will be
automatically converted into the right to receive $0.6685770 in cash and
0.0944745 of a share of Intuit common stock. NOTE THAT THE FOREGOING COMPUTATION
IS BASED SOLELY ON THE ASSUMPTIONS SET FORTH ABOVE INCLUDING A HYPOTHETICAL
WORKING CAPITAL AMOUNT; THE ACTUAL
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NUMBERS TO BE USED IN COMPUTING THE ACTUAL CASH AND STOCK CONSIDERATION PER
SHARE WILL NOT BE DETERMINABLE UNTIL THE CLOSING OF THE MERGER AND MAY VARY
MATERIALLY FROM THOSE SET FORTH HEREIN.
Treatment of Outstanding Flagship Options. All vested and unvested
Flagship options issued and outstanding as of the closing date will be assumed
by Intuit in exchange for Intuit options. The number of shares of Intuit stock
into which each Flagship option will be exercisable and the exercise price of
each Flagship option so assumed will be adjusted so that the economic value of
the Flagship options will be preserved. See "The Merger Proposal -- Treatment of
Flagship Options."
Escrow of Cash Consideration. The cash consideration payable to the
Flagship stockholders will be placed into escrow for a period of eighteen months
following the closing pursuant to the terms of the escrow agreement attached to
this information statement as Annex H to secure the indemnification obligations
of the Flagship stockholders as set forth in the merger agreement. See "The
Merger Proposal -- Escrow of Merger Consideration; Indemnification by the
Flagship Stockholders."
Interests of Certain Persons. Certain directors and officers of Flagship
have interests in the merger and the transactions contemplated thereby that are
other than those interests shared by all stockholders of Flagship. See "The
Merger Proposal -- Interests of Certain Persons in the Merger."
Tax Treatment. The Merger is intended to qualify as a "reorganization"
for United States federal tax purposes. It is a condition to Flagship's
obligation to consummate the merger that Flagship have received an opinion of
its special tax counsel that the merger will qualify as a "reorganization" for
United States federal income tax purposes. Assuming the merger qualifies as a
"reorganization," in general a Flagship stockholder who does not dissent from
the merger will not be taxed with respect to the receipt of Intuit common stock,
but may be taxed upon the cash received in the merger. See "Material Federal
Income Tax Consequences."
RECOMMENDATION OF FLAGSHIP'S BOARD OF DIRECTORS
The board of directors of Flagship, after careful consideration and
review, has approved the merger proposal and has determined that such proposal
is in the best interest of Flagship and its stockholders. SUCH DIRECTOR
RECOMMENDS THAT THE FLAGSHIP STOCKHOLDERS APPROVE THE MERGER PROPOSAL
The sole director of Flagship that does not have an interest in the
compensation proposal, Mr. Potts, after careful consideration and review, has
approved the merger proposal and has determined that such proposal is in the
best interest of Flagship and its stockholders. SUCH DIRECTOR RECOMMENDS THAT
THE FLAGSHIP STOCKHOLDERS APPROVE THE MERGER PROPOSAL.
THE COMPANIES
Intuit. Intuit is the leading provider of small business, tax
preparation and personal finance software products and Web-based services that
simplify complex financial tasks for consumers, small businesses and accounting
professionals. Intuit's principal products and services include Quicken(R),
QuickBooks(R), Quicken TurboTax(R), ProSeries(R), Lacerte(R) and Quicken
Loans(TM).
Flagship. Flagship's sole operating subsidiary is American Fundware, a
leading provider of accounting software solutions for public sector
organizations in North America. Founded in 1976, American Fundware has twenty
five years of experience in helping mission-based organizations manage highly
specialized accounting requirements. Today, American Fundware offers the
FundWare(TM) family of software products, including a suite of over twenty
software modules, designed for the specific needs of public sector
organizations.
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SELECTED FINANCIAL DATA OF FLAGSHIP
The following selected historical financial data of Flagship for the
fiscal years ended June 30, 2001, 2000, and 1999 has been derived from its
historical financial statements. The unaudited historical financial data for the
nine months ended March 31, 2002 has been prepared on the same basis as the
historical information in the audited financial data. Operating results for the
nine months ended March 31, 2002 are not necessarily indicative of the results
that may be expected for the entire year ending June 30, 2002 or any future
period.
(AUDITED) (UNAUDITED)
YEAR ENDED JUNE 30, NINE MONTHS
----------------------------------------------- ENDED
1999 2000 2001 MARCH 31, 2002
----------- ----------- ----------- --------------
Revenues:
Support, update and training ......... $ 6,850,115 $ 7,002,208 $ 7,410,627 $ 6,142,866
Software products .................... 3,100,215 2,555,371 2,647,087 2,205,944
Other income ......................... 142,870 146,861 60,614 56,720
----------- ----------- ----------- -----------
Total revenues ......................... 10,093,200 9,704,440 10,118,328 8,405,530
----------- ----------- ----------- -----------
Costs and expenses:
Selling, general and administrative .. 4,834,586 4,267,035 3,502,056 3,007,918
Settlement expense ................... -- 3,381,449 -- --
Support, update and training ......... 6,954,112 7,180,518 4,489,877 3,298,658
Depreciation and amortization ........ 260,313 436,518 529,122 406,033
Interest, net ........................ 131,378 430,990 510,444 355,778
Legal expenses ....................... 26,138 41,126 14,397 15,447
----------- ----------- ----------- -----------
Total costs and expenses ............... 12,206,527 15,737,776 9,045,896 7,083,834
----------- ----------- ----------- -----------
Income (loss) before taxes on income ... (2,113,327) (6,033,336) 1,072,432 1,321,696
Taxes (benefit) on income .............. -- (127,794) 16,000 19,000
----------- ----------- ----------- -----------
Net income (loss) ...................... $(2,113,327) $(5,905,542) $ 1,056,432 $ 1,302,696
=========== =========== =========== ===========
JUNE 30, MARCH 31,
------------------------------- ------------
CONSOLIDATED BALANCE SHEET DATA: 2000 2001 2002
------------ ------------ ------------
Cash and cash equivalents ................. $ 462,449 $ 387,198 $ 244,804
Total assets .............................. 4,326,778 5,005,127 4,580,365
Long-term debt, less current maturities ... 5,260,684 4,742,914 4,455,617
Accumulated deficit ....................... (11,819,755) (10,763,323) (9,385,767)
Total stockholders' equity ................ (9,182,574) (8,053,272) (6,659,717)
6
SELECTED FINANCIAL DATA OF INTUIT
The following selected historical financial data of Intuit for the
fiscal years ended July 31, 2001, 2000, and 1999 has been derived from its
historical financial statements and should be read in conjunction with those
financial statements and related notes, which are incorporated by reference into
this information statement. The unaudited historical financial data for the six
months ended January 31, 2002 has been prepared on the same basis as the
historical information in the audited financial data. Operating results for the
six months ended January 31, 2002 are not necessarily indicative of the results
that may be expected for the entire year ending July 31, 2002 or any future
period.
SIX MONTHS ENDED
FISCAL JANUARY 31,
---------------------------------------------- ----------------------------
(In thousands) 1999 2000 2001 2001 2002
----------- ----------- ----------- ----------- -----------
CONSOLIDATED STATEMENT (Unaudited)
OF OPERATIONS
Net revenue:
Products .................. $ 738,431 $ 803,759 $ 883,512 $ 492,075 $ 537,410
Services .................. 156,379 198,655 304,910 111,993 183,417
Other ..................... 45,625 91,411 73,039 41,014 35,184
----------- ----------- ----------- ----------- -----------
Total net revenue ...... 940,435 1,093,825 1,261,461 645,082 756,011
----------- ----------- ----------- ----------- -----------
Costs and expenses:
Cost of revenue:
Cost of products sold ..... 143,675 158,755 143,289 89,410 106,244
Cost of services .......... 49,104 92,969 142,799 68,698 74,273
Cost of other revenue ..... 24,684 30,661 25,952 12,605 12,899
Customer service and
technical support ......... 135,172 139,550 149,353 78,530 92,092
Selling and marketing ...... 222,450 264,367 270,216 146,667 166,826
Research and development ... 143,437 169,083 207,085 102,477 103,203
----------- ----------- ----------- ----------- -----------
Total costs and
expenses ............... 905,869 1,110,688 1,305,001 641,682 755,316
----------- ----------- ----------- ----------- -----------
Net income (loss) from
operations ............... $ 34,556 $ (16,863) $ (43,540) $ 3,400 $ 695
=========== =========== =========== =========== ===========
JULY 31, JANUARY 31,
---------------------------- -----------
CONSOLIDATED BALANCE SHEET DATA: 2000 2001 2002
----------- ----------- -----------
(UNAUDITED)
Cash and cash equivalents ............. $ 416,953 $ 450,104 $ 488,555
Short-term investments ................ 1,050,220 1,119,305 1,004,829
Marketable securities, at fair value .. 225,878 85,307 42,729
Total assets .......................... 2,824,968 2,961,736 3,150,878
Long-term obligations ................. 538 12,413 12,249
Retained earnings ..................... 520,666 437,873 465,314
Total stockholders' equity ............ 2,071,289 2,161,326 2,213,095
7
MARKET PRICE AND DIVIDEND INFORMATION
There is no established public trading market for Flagship common stock.
Intuit common stock is traded on the Nasdaq National Market under the symbol
"INTU." Intuit's fiscal year ends on July 31. The high and low sale prices by
quarter for Intuit common stock for each fiscal quarter for the periods
indicated are as set forth below.
HIGH LOW
---- ---
YEAR ENDING JULY 31, 2002
Fourth Quarter (through May 15, 2002) $ 44.90 $ 36.85
Third Quarter 41.81 34.52
Second Quarter 47.05 39.25
First Quarter 43.73 28.54
YEAR ENDING JULY 31, 2001
Fourth Quarter $ 40.75 $ 29.85
Third Quarter 47.38 22.63
Second Quarter 69.31 31.06
First Quarter 61.88 34.25
YEAR ENDING JULY 31, 2000
Fourth Quarter $ 46.19 $ 25.75
Third Quarter 72.75 30.00
Second Quarter 90.00 27.69
First Quarter 35.75 22.50
The closing sale price per share of Intuit common stock on the Nasdaq
National Market on May 15, 2002 was $43.49.
Intuit has never declared or paid any cash dividends on its common
stock. However, Intuit's financial statements reflect dividends previously paid
by Rock Financial Corporation and Title Source Inc. because Intuit accounted for
those acquisitions as a pooling of interests. Intuit currently intends to retain
any earnings for use in its business and does not anticipate paying any cash
dividends in the foreseeable future.
Flagship has never paid cash dividends to its stockholders.
8
COMPARATIVE PER SHARE MARKET PRICES
The following table has been included to help you in your analysis of
the proposed merger. The following table sets forth the closing prices per share
of Intuit common stock on the Nasdaq National Market on May 7, 2002, which was
the last trading day before the announcement of the proposed merger, and on May
15, 2002, the last practicable date preceding the mailing of this information
statement. Also set forth is the equivalent per share price for Flagship common
stock, based on the following assumptions:
- the closing working capital is $1,000,000;
- the aggregate amount of transaction expenses of Flagship,
American Fundware and the significant stockholders that are not
paid or accrued on the closing balance sheet is $0;
- the aggregate exercise price of all outstanding Flagship options
that are vested immediately prior to the closing date is
$711,000;
- there are 4,877,493 shares of Flagship common stock outstanding
immediately prior to the closing date;
- there are 955,792 Flagship options outstanding that are vested
immediately prior to the closing date; and
- based on the foregoing assumptions, the merger consideration
would equal $26,711,000, and each share of Flagship common stock
will be automatically converted into the right to receive
$0.6685770 in cash and a fraction of a share of Intuit common
stock determined by the stock exchange ratio, which will vary as
illustrated in the following table:
5-DAY INTUIT HYPOTHETICAL EQUIVALENT
INTUIT AVERAGE PRICE STOCK FLAGSHIP PER
COMMON STOCK PER SHARE EXCHANGE RATIO SHARE PRICE
----------- ----------- ----------- -----------
May 7, 2002 $ 37.15 $ 37.79 .1034795 $ 4.58
May 15, 2002 $ 43.49 $ 41.39 .0944745 $ 4.58
PLEASE REMEMBER, HOWEVER, THAT INTUIT'S STOCK PRICE CAN FLUCTUATE
SIGNIFICANTLY AND THERE CAN BE NO ASSURANCES AS TO WHAT THE STOCK PRICES WILL BE
AT OR AFTER THE EFFECTIVE TIME OF THE MERGER AND THAT THE TOTAL CASH
CONSIDERATION AND THE PER SHARE CASH CONSIDERATION TO BE RECEIVED BY THE
FLAGSHIP STOCKHOLDERS IF THE MERGER IS COMPLETED DEPENDS ON A NUMBER OF
VARIABLES.
Because the market price of Intuit common stock is subject to
fluctuation, the market value of the shares of Intuit common stock that the
holders of shares of Flagship common stock will receive in the merger may
increase or decrease prior to the merger. You should obtain current market
quotations for Intuit common stock before making any decision with respect to
the merger. The current market information for shares of Intuit can be obtained
on the World Wide Web at http://www.nasdaq-amex.com.
9
CERTAIN FACTORS -- HIGH DEGREE OF RISK
Except for historical information in this information statement, this
information statement contains forward-looking statements that involve risks and
uncertainties. Intuit's actual results may differ materially from historical
results or any future results anticipated by this information statement. Factors
that cause or contribute to such differences include, but are not limited to,
those discussed below. If any of the following risks actually occurs, the
business and prospects of Intuit may be seriously harmed. In that case, the
trading price of Intuit common stock would likely decline and holders of Intuit
stock may lose all or part of their investment. You should consider carefully
the following factors, in addition to the other information provided elsewhere
in this information statement or incorporated by reference in this information
statement, in evaluating whether to vote for the merger proposal or whether to
exercise dissenters' appraisal rights.
RISKS OF THE MERGER
The market price of Intuit common stock can be volatile.
If the merger is consummated, Intuit will issue shares of its common
stock to the Flagship stockholders. The total value of these shares will
fluctuate with the market price of Intuit common stock. The stock market, in
general, and the securities of technology companies (including Intuit) in
particular, have experienced extreme price and volume fluctuations. These market
fluctuations may adversely affect the market price of Intuit common stock. In
addition, a portion of Intuit's business involves the provision of
Internet-based products and services through Intuit's Quicken.com website. The
market value of securities of many Internet-related companies has fallen
substantially since the first quarter of calendar 2000 and it is possible that
this market trend could adversely affect the market value of Intuit stock in the
future. The market price of Intuit common stock, upon and after the consummation
of the merger, could be lower than the current market price of such stock on the
date of the execution of the merger agreement. Flagship stockholders should
obtain recent market quotations of Intuit common stock before they vote on the
merger proposal.
There can be no assurance that the merger will qualify as a tax-deferred
reorganization.
The parties intend for the merger to qualify as a tax-deferred
"reorganization" described in Section 368 of the Internal Revenue Code of 1986,
as amended. However, no ruling as to the status of the merger as a
"reorganization" will be sought from the Internal Revenue Service. There can be
no assurance that the merger will qualify as a "reorganization" or that the
Internal Revenue Service will not challenge such status. If the merger does not
qualify as a "reorganization" under the Code, you generally will recognize
taxable gain or loss as a result of the merger. The amount and timing of such
gain or loss recognition is not clear under current law because of the cash
consideration held in the escrow account. Each Flagship stockholder should
consult such stockholder's own personal tax advisor with respect to the federal
and state tax consequences of the merger.
Flagship's officers have conflicts of interest arising with respect to the
merger that may influence them to support or approve the merger proposal.
Certain officers of Flagship will enter into employment agreements with
Intuit as part of the merger and will have the vesting on certain unvested stock
options accelerated. See "The Merger Proposal -- Interests of Certain Persons in
the Merger." These employment agreements and/or accelerated option vesting may
provide such persons with interests in the merger that are different from, or in
addition to, your interests in these transactions. The interests of these
officers include the potential grant by Intuit to them of Intuit stock options
and the potential right to receive cash bonuses from Intuit
10
after the closing of the merger as part of their employment compensation. These
interests could make these officers more likely to vote to approve the merger
proposal than if they did not hold these interests. Flagship stockholders should
consider whether these interests may have influenced these officers to support
or recommend the merger proposal.
The cash issuable in connection with the merger is subject to future forfeiture
in order to satisfy the indemnification obligations of the Flagship stockholders
to Intuit under the merger agreement.
Under Article VIII of the merger agreement, the Flagship stockholders
have obligations to indemnify Intuit for certain liabilities or damages relating
to Flagship (such as breaches of representations and warranties of Flagship and
the significant stockholders under the merger agreement). To provide Intuit with
security for the performance of these indemnification obligations, the merger
agreement provides that Intuit will withhold all of the cash issuable to the
Flagship stockholders in connection with the merger (the "escrow cash"). If some
or all of the escrow cash is forfeited in satisfaction of a claim made against
the Flagship stockholders under these indemnification obligations, the Flagship
stockholders will not receive all of the escrow cash. See "The Merger Proposal
-- Escrow of Merger Consideration; Indemnification by the Flagship
Stockholders."
If the merger is consummated and you receive shares of Intuit common stock, your
rights as a stockholder of Intuit will be different under Intuit's bylaws and
certificate of incorporation than your rights as a Flagship stockholder.
There are differences in the charter documents of Intuit and Flagship.
As a result, the Flagship stockholders will have different rights as Intuit
stockholders after the merger than they had as Flagship stockholders. In
addition, the Flagship stockholders as a group will own a relatively small
minority of the outstanding shares of Intuit common stock immediately after the
merger.
The merger may adversely affect employment relationships with Flagship.
Following the announcement of the merger, employees of Flagship may
decide to terminate their employment with Flagship or may decide not to become
employees of Intuit. Some of these employees may be very important to the
development of Flagship's technology or to the continued success of Flagship.
Failure to complete the merger will subject Flagship to a number of material
risks and obligations.
In the event that the merger is not consummated, Flagship will be
subject to a number of material risks and obligations, including, among others,
the obligation to pay significant legal, accounting, financial, advisory and
other fees and costs incurred in connection with the merger, all of which must
be paid even if they are not completed.
RISKS RELATED TO INTUIT'S BUSINESS
COMPANY-WIDE RISK FACTORS
Intuit's revenue and earnings are highly seasonal, which causes significant
quarterly fluctuations in its revenue and net income.
Several of Intuit's businesses are highly seasonal -- particularly its
tax business, but also small business and personal finance to a lesser extent.
This causes significant quarterly fluctuations in Intuit's financial results.
Revenue and operating results are usually strongest during the second and third
fiscal
11
quarters ending January 31 and April 30. Intuit experiences lower revenues, and
often significant operating losses, in the first and fourth quarters ending
October 31 and July 31.
Acquisition-related costs can cause significant fluctuations in Intuit's net
income.
Intuit's recent acquisitions have resulted in significant expenses,
including amortization of purchased software (which is reflected in cost of
revenue), as well as charges for in-process research and development and
amortization of goodwill, purchased intangibles and deferred compensation (which
are reflected in operating expenses). Total acquisition-related costs in the
categories identified above were $100.7 million in fiscal 1999, $168.1 million
in fiscal 2000, $263.4 million in fiscal 2001 (including charges of $78.7
million to write down the long-lived intangible assets related to three
acquisitions), $69.3 million in the second quarter of fiscal 2002 and $112.1
million in the first six months of fiscal 2002. Additional acquisitions, and any
additional impairment of the value of purchased assets, could have a significant
negative impact on future operating results.
Gains and losses related to marketable securities and other investments can
cause significant fluctuations in Intuit's net income.
Intuit's investment activities have had a significant impact on its net
income. Intuit recorded pre-tax net gains from marketable securities and other
investments of $579.2 million in fiscal 1999 and $481.1 million in fiscal 2000
and pre-tax net losses of $98.1 million in fiscal 2001. Intuit recorded a
pre-tax gain of $1.6 million in the second quarter of fiscal 2002 and a pre-tax
loss of $10.6 million in the first six months of fiscal 2002. Any additional
significant long-term declines in value of these securities could reduce
Intuit's net income in future periods.
Recent changes to Financial Accounting Standards Board guidelines relating to
accounting for goodwill could make Intuit's acquisition-related charges less
predictable in any given reporting period.
The FASB recently adopted a new standard for accounting for goodwill
acquired in a business combination. It continues to require recognition of
goodwill as an asset but does not permit amortization of goodwill as previously
required. Under the new statement, goodwill is separately tested for impairment
using a fair-value-based approach when an event occurs indicating the potential
for impairment. The shift from an amortization approach to an impairment
approach applies to all acquisitions completed after June 30, 2001. When Intuit
adopts the new standard, which it expects will be in the first quarter of fiscal
2003, it will also apply to previously recorded goodwill and Intuit's goodwill
amortization charges will cease as a result. However, it is possible that in the
future, Intuit would incur less frequent, but larger, impairment charges related
to the goodwill already recorded and to goodwill arising out of future
acquisitions as it continues to expand its business.
A general decline in economic conditions could lead to reduced demand for
Intuit's products and services.
The recent downturn in general economic conditions has led to reduced
demand for a variety of goods and services, including many technology products,
and Intuit believes the economic decline was partially responsible for slower
than expected growth in its Small Business Division since the beginning of
fiscal 2001. If conditions continue to decline, or fail to improve, in
geographic areas that are significant to Intuit, such as the United States,
Canada and Japan, Intuit could see a significant decrease in the overall demand
for its products and services that could harm its operating results.
12
If Intuit does not continue to successfully develop new products and services in
a timely manner, its future financial results will suffer.
Intuit believes that it is necessary to continually develop new products
and services and to improve existing products and services to remain competitive
in the markets Intuit serves. Failure to do so may give competitors
opportunities to improve their competitive position at Intuit's expense and
result in declines in Intuit's revenue and earnings. However, development and
improvement of products and services is a complex process involving several
risks. Hiring and retaining highly qualified technical employees is critical to
the success of Intuit's development efforts, and Intuit faces intense
competition for these employees. Launches of products and services can be
delayed for a variety of reasons. New or improved products and services may also
have "bugs" that hinder performance. Third party products Intuit incorporates
in, or uses to build and support, its products and services, may also contain
defects that impair performance. These problems can be expensive to fix and can
also result in higher technical support costs and lost customers. New products
or features are sometimes built on top of older architectures or
infrastructures, which can take longer to get to market, make quality assurance
and support more difficult, and lead to complexity in supporting future
functionality.
If Intuit does not continue to successfully refine and update the business and
operating models for its expanding range of products and services, including
Internet-based and other emerging service businesses, and continue to improve
the operational support for these businesses, the businesses will not achieve
sustainable financial viability or broad customer acceptance.
Intuit's business models for its expanding range of products and
services, including Internet-based businesses and other emerging service
businesses, rely on more complex and varied revenue streams than its traditional
desktop software businesses. For these businesses to become and remain
economically viable, Intuit must continually refine their business and operating
models to reflect evolving economic circumstances. These businesses also depend
on a different operational infrastructure than Intuit's desktop software
businesses, and Intuit must continually develop, expand and modify its internal
systems and procedures to support these businesses, including call center,
customer management, order management, billing and other systems. In particular,
Intuit's Web-based tax preparation and electronic filing services must
effectively handle extremely heavy customer demand during the peak tax season.
If Intuit is unable to meet customer expectations in a cost-effective manner,
Intuit could lose customers, receive negative publicity, and incur increased
operating costs, which could have a significant negative impact on the financial
and market success of these businesses. Despite Intuit's efforts to maintain
continuous and reliable operations at its data center, like all providers of
Internet-based products and services, Intuit occasionally experiences unplanned
outages or technical difficulties. Lengthy and/or frequent service outages --
particularly for services that customers consider time sensitive -- can result
in negative publicity, damage to Intuit's reputation and loss of customers.
Despite Intuit's efforts to adequately staff and equip its customer service and
technical support operations, Intuit cannot always respond promptly to customer
requests for assistance.
Intuit occasionally experiences customer service and support problems,
including longer than expected "hold" times when its staffing is inadequate to
handle higher than anticipated call volume, and a large number of inquiries from
customers checking on the status of product orders when the timing of shipments
fails to meet customer expectations. This can adversely affect customer
relationships and Intuit's financial performance. In order to improve customer
service and technical support, Intuit must continue to focus on eliminating
underlying causes of service and support calls (through product improvements and
better order fulfillment processes), and on more accurately anticipating demand
for customer service and technical support.
13
Intuit faces risks relating to customer privacy and security and increasing
regulation, which could hinder the growth of its businesses.
Despite Intuit's efforts to address customer concerns about privacy and
security, these issues still pose a significant risk, and Intuit has experienced
lawsuits and negative publicity relating to privacy issues. For example, during
fiscal 2000 and fiscal 2001, there were press articles criticizing Intuit's
privacy and security practices as they relate to the connectivity of its desktop
software to its Web sites. Intuit has faced lawsuits and negative press alleging
that it improperly shared information about customers with third party "ad
servers" for its Web sites. A major breach of customer privacy or security by
Intuit, or even by another company, could have serious consequences for Intuit's
businesses -- particularly its Internet businesses - including reduced customer
interest and/or additional regulation by federal or state agencies. In addition,
mandatory privacy and security standards and protocols have been developed by
the federal government, and Intuit has incurred significant expenses to comply
with these requirements. Additional similar federal and state laws may be passed
in the future, and the cost of complying with additional legislation could have
a negative impact on Intuit's operating results. If Internet use does not grow
as a result of privacy or security concerns, increasing regulation or for other
reasons, the growth of Intuit's Internet-based businesses would be hindered.
Intuit faces challenges in maintaining adequate access to retail distribution
channels.
Intuit faces ongoing challenges in negotiating financially favorable
terms with retailers. Any termination or significant disruption of Intuit's
relationship with any of its major distributors or retailers, or a significant
unanticipated reduction in sales volume attributable to any of its principal
resellers, could result in a significant decline in Intuit's net revenue. Also,
any financial difficulties of Intuit's retailers or distributors could have an
adverse effect on Intuit's operating expenses if uncollectable amounts from them
exceed the bad debt reserves Intuit has established.
Intuit relies on two third-party vendors to handle all outsourced aspects of its
primary retail desktop software product launches and to replenish product in the
retail channel after the primary launch.
To manufacture and distribute Intuit's primary retail products at the
time of product launches and to replenish products in the retail channel after
the primary launch, Intuit has an exclusive manufacturing relationship with
Modus Media, and an exclusive distribution arrangement with Ingram Micro
Logistics. While Intuit believes that relying on only two outsourcers for
product launches and replenishment improves the efficiency and reliability of
these activities, relying on any vendor for a significant aspect of Intuit's
business can have severe negative consequences if the vendor fails to perform at
acceptable service levels for any reason.
Actual product returns may exceed return reserves, particularly for Intuit's tax
preparation software.
Intuit ships more desktop products to its distributors and retailers
than it expects them to sell, in order to reduce the risk that distributors or
retailers will run out of products. This is particularly true for Intuit's tax
products, which have a short selling season. Like most software companies,
Intuit has a liberal product return policy and Intuit has historically accepted
significant product returns. Intuit establishes reserves for product returns in
its financial statements, based on estimated future returns of products. Intuit
closely monitors levels of product sales and inventory in the retail channel in
an effort to maintain reserves that are adequate to cover expected returns. In
the past, returns have not generally exceeded these reserves. However, if Intuit
does experience actual returns that significantly exceed reserves, it would
result in lower revenue.
14
Intuit's recent acquisitions have resulted in business integration challenges.
Intuit's recent acquisitions have expanded its product and service
offerings, personnel and geographic locations. Integrating acquired businesses
creates challenges for Intuit's operational, financial and management
information systems, as well as for its product development processes. If Intuit
is unable to adequately address these and other issues presented by growth
through acquisitions, it may not fully realize the intended benefits (including
financial benefits) of Intuit's acquisitions.
Intuit faces existing and potential government regulation in many of its
businesses, which can increase its costs and hinder the growth of its
businesses.
Intuit's Internet-based products and services are available in many
states and foreign countries. As a result, Intuit may be subject to regulation
and/or taxation in many additional jurisdictions, which could substantially slow
commercial use of the Internet and growth of Intuit's Internet-based businesses.
Intuit offers several regulated products and services through separate
subsidiary corporations. Establishing and maintaining regulated subsidiaries
requires significant financial, legal and management resources. If the
subsidiaries fail to comply with applicable regulations, they could face
liability to customers and/or penalties and sanctions by government regulators.
Legal protection for Intuit's intellectual property is not always effective to
prevent unauthorized use.
Intuit relies on a combination of copyright, patent, trademark and trade
secret laws, and employee and third-party nondisclosure and license agreements,
to protect its software products and other proprietary technology. Current U.S.
laws that prohibit copying give Intuit only limited practical protection from
software "pirates," and the laws of many other countries provide very little
protection. Policing unauthorized use of Intuit's products is difficult,
expensive and time-consuming and anti-copy protections may decrease product ease
of use and performance. Intuit expects that software piracy will be a persistent
problem for its desktop software products. In addition, the Internet may tend to
increase, and provide new methods for, illegal copying of the technology used in
Intuit's desktop and Internet-based products and services.
Intuit does not own all of the software and other technologies used in its
products and services.
Intuit has the licenses from third parties that it believes are
necessary for using technology that it does not own in its current products and
services. From time to time it may be necessary to renegotiate with these third
parties for inclusion of their technology in existing products, in new versions
of Intuit's current products or in new products. Third party licenses may not be
available on reasonable terms, or at all. Other parties occasionally claim that
features or content of Intuit's products, or Intuit's use of trademarks, may
infringe their proprietary rights. Past claims have not resulted in any
significant litigation, settlement or licensing expenses, but future claims
could. Third parties may assert infringement claims against Intuit in the
future, and claims could result in costly litigation, require Intuit to redesign
one or more of its products or services, require Intuit to obtain a license to
intellectual property rights of third parties or perhaps to cease marketing
affected products and services. Third party licenses may not be available on
reasonable terms, or at all.
The stock market has experienced price volatility that has particularly affected
technology companies.
Market fluctuations have adversely affected Intuit's stock price in the
past and may do so in the future. Some of the volatility has resulted from
factors such as the seasonality and quarterly fluctuations in Intuit's revenue
and operating results, announcements of technical innovations, acquisitions or
strategic relationships by Intuit or its competitors, changes in earnings
estimates by analysts and changes in market
15
conditions in the computer hardware and software industries. However, volatility
may also be unrelated to Intuit's operating performance or the business
environment in which it operates.
Intuit's ability to conduct business could be impacted by a variety of factors
such as electrical power interruptions, earthquakes, fires, terrorist activities
and other similar events.
Intuit's business operations depend on the efficient and uninterrupted
operation of a large number of computer and communications hardware and software
systems. These systems are vulnerable to damage or interruption from electrical
power interruptions, telecommunication failures, earthquakes, fires, floods,
terrorist activities and their aftermath, and other similar events. Other
unpredictable events could also impact Intuit's ability to continue its business
operations. For Intuit's Internet-based services, system failures of Intuit's
internal server operations or those of various third-party service providers
could result in interruption in Intuit's services to its customers. Any
significant interruptions in Intuit's ability to conduct its business operations
could reduce its revenue and operating income. Intuit's business interruption
insurance may not adequately compensate it for the impact of interruptions to
its business operations.
FACTORS RELATING TO COMPETITION
Intuit faces competitive pressures in all of its businesses, which can have a
negative impact on its revenue, profitability and market position.
There are formidable current and potential competitors in the private
sector, and Intuit also faces potential competition from publicly-funded
government entities seeking to enter private markets in the United States for
consumer electronic financial services. Accordingly, Intuit expects competition
to remain intense during fiscal 2002 and beyond. In all its businesses, Intuit
faces continual risks that competitors will introduce better products and
services, reduce prices, gain better access to distribution channels, increase
advertising (including advertising targeted at Intuit customers), and release
new products and services before Intuit does. Any of these competitive actions
(particularly any prolonged price competition) could result in lower total net
revenue and/or lower profitability for Intuit. They could also affect Intuit's
ability to keep existing customers and acquire new customers, which is
particularly important for Intuit's Internet-based products and services.
In the small business area, Intuit faces a wide range of competitive risks that
could impact its financial results.
Intuit's desktop and Web-based accounting software products and services
face current competition from other desktop software, as well as other Web-based
accounting products. Microsoft Great Plains recently announced that it will be
launching a new accounting and payroll product for small businesses that is
targeted at similar size customers as QuickBooks and QuickBooks for the Web.
Other competitors and potential competitors have begun providing, or have
expressed significant interest in providing, accounting and business management
products and services to small businesses. For example, Microsoft's bCentral
offers a variety of Web-enabled small business services. In online payroll, the
competitive landscape is changing quickly and Intuit could lose some competitive
advantage if other companies begin offering online payroll services that
integrate with desktop and/or Web-based accounting software. Intuit's financial
supplies business continues to experience pricing pressures from many of its
competitors. While Intuit has been able to offset some of the impact of price
competition by improving operational efficiencies and customer service, ongoing
price pressures could result in lower revenue and profitability for Intuit's
supplies business.
16
Intuit faces competitive pressures in all of its businesses, particularly its
consumer tax preparation software business, which can have a negative impact on
its revenue, profitability and market position.
There are formidable current and potential competitors in the private
sector. For example, Intuit's primary competitor in the consumer tax preparation
market has offered its products during part of this tax year at a price of $0
after a rebate. Intuit also faces potential competition from publicly-funded
government entities seeking to competitively enter private markets in the United
States for consumer electronic financial services. If federal and/or state
governmental agencies are ultimately successful in their efforts to provide tax
preparation and filing services to consumers, it could have a significant
negative impact on Intuit's financial results in future years. Intuit expects
competition to remain intense during fiscal 2002 and beyond.
Intuit's personal finance products face aggressive competition that could limit
future growth.
Intuit's Quicken products compete directly with Microsoft Money, which
is aggressively promoted and priced. Intuit expects competitive pressures for
Quicken to continue, both from Microsoft Money, and from Web-based personal
finance tracking and management tools that are becoming increasingly available
at no cost to consumers. Intuit expects these pressures will result in reduced
revenue and could result in lower profitability for Intuit's Quicken product
line. There are many competitors for Intuit's Internet-based personal finance
products and services. The number of competitors has increased in recent years
as more companies expand their businesses onto the Internet. However, the
general downturn in Internet and technology stocks since March 2000 has resulted
in significant consolidation, with fewer, but more financially sound,
competitors surviving. This could make it more difficult for Intuit to compete
effectively.
Products and services offered to consumers by government agencies may
increasingly overlap with products and services offered by Intuit and others in
the private sector, and could have a significant negative impact on Intuit's
future financial results.
Government agencies are increasingly using public funds to offer
commercial products and services to consumers that are duplicative of those
provided by private sector companies, including Intuit. For example, some
federal and state tax agencies have begun to expand their mission by offering
individual taxpayers electronic tax preparation and filing services similar to
those currently offered by Intuit and others at a low cost. In addition, a
growing number of firms are providing Web-based tax filing services at no cost
to lower income taxpayers through public service initiatives, such as Quicken
Tax Freedom Project (a project of the Intuit Financial Freedom Foundation),
offering additional competition. Although some governmental agencies have begun
taking steps to reverse this trend by abandoning previous plans to provide
electronic commerce products and services, future administrative, regulatory or
legislative activity in this area could adversely impact Intuit and other
companies that provide software and electronic financial services. Intuit is
actively working with others in the private sector, as well as with federal and
state government officials, to help clarify the appropriate role for government
agencies in the electronic commerce marketplace.
SPECIFIC FACTORS AFFECTING INTUIT'S SMALL BUSINESS DIVISION
It is too early to provide any assurance that Intuit's "Right for My Business"
strategy will generate substantial and sustained revenue growth in the small
business accounting and business management segments.
Sales to both existing customers and new customers of Intuit's
QuickBooks software during fiscal 2001 and early in fiscal 2002 were lower than
expected. Intuit cannot rely solely on this source of
17
revenue to provide sustainable future growth for its Small Business Division. In
September 2001, Intuit announced its "Right for My Business" strategy to better
address the broader small business management opportunity beyond accounting for
companies with fewer than 25 employees. However, it is too early to provide any
assurance that this strategy will generate substantial and sustained revenue
growth in the small business accounting and management segments.
It is unlikely that the revenue and profit growth rates experienced by Intuit's
Payroll businesses during the past two years will be sustainable long-term,
either on a year-over-year basis or on a sequential quarter basis.
Intuit had strong revenue and profit growth during fiscal 2001,
especially during the second half of that year, due to significant price
increases, a shift toward a mix of higher-priced products and a large number of
new payroll customers as a result of last year's tax law changes. In the first
quarter of fiscal 2002, Intuit again increased prices. Intuit does not expect
that future price increases will contribute as significantly to revenue growth
as they have in recent past.
Intuit relies on one third-party vendor to handle all outsourced aspects of its
financial supplies business.
Intuit has an exclusive contract with John H. Harland Company to print
and fulfill supplies orders for all of its checks and most other products for
its financial supplies business. Harland fulfilled orders for about 75% to 80%
of Intuit's supplies revenue in fiscal 2000 and 2001, and more than 80% of
Intuit's supplies revenue for both the second quarter and the first six months
of fiscal 2002. Intuit believes that relying on one supplies vendor improves
customer service and maximizes operational efficiencies for its supplies
business. However, if there are significant problems with Harland's performance,
it could have a material negative impact on sales of supplies and on Intuit's
business as a whole.
Intuit's employer services business faces a number of risks that could limit
future growth.
For Intuit's employer services, Intuit must be able to process employee
data accurately, reliably and in a timely manner in order to attract and retain
customers and avoid the costs associated with errors. For example, if Intuit
makes errors in providing accurate and timely payroll information, cash deposits
or tax return filings, Intuit faces potential liability to customers, additional
expense to correct product errors and loss of customers. For its Internet-based
offerings (including Intuit's Deluxe and online Basic payroll), Intuit must also
continue to improve its operations to provide reliable connectivity to its data
centers to enable customers to transmit and receive data. In order to expand the
customer base for its Deluxe and Premier payroll services, Intuit must continue
to focus on streamlining the service activation process for new customers. For
employer services currently under development, Intuit faces a risk of potential
delays in technology development. Intuit also faces the risk that it may not be
able to successfully cross-sell employee administration products and services to
the existing base of QuickBooks customers.
SPECIFIC FACTORS AFFECTING INTUIT'S TAX DIVISION
Significant problems or delays in the development of Intuit's tax products would
result in lost revenue and customers.
The development of tax preparation software presents a unique challenge
because of the demanding annual development cycle required to incorporate
unpredictable tax law changes each year. The rigid development timetable
increases the risk of errors in the products and the risk of launch delays. Any
major defects could lead to negative publicity, customer dissatisfaction and
incremental operating expenses - including expenses resulting from Intuit's
commitment to reimburse penalties and interest paid by consumer customers due
solely to calculation errors in its products. A late product launch could cause
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Intuit's current and prospective customers to choose a competitor's product for
that year's tax season or to choose not to purchase tax preparation software.
This would result in lost revenue in the current year and would make it more
difficult for Intuit to sell its products to those customers in future tax
seasons.
If Intuit fails to maintain reliable and responsive service levels for its
electronic tax offerings, Intuit could lose revenue and customers.
Intuit's online tax preparation and electronic tax filing services face
significant challenges in maintaining high service levels, particularly during
peak volume service times. For example, Intuit has experienced relatively brief
unscheduled interruptions in its electronic filing/and or tax preparation
services during fiscal 2000 and 2001, and during fiscal 2002 Intuit reached
maximum capacity for a short period. Intuit does not believe any prior service
outages or unavailability had a material financial impact, prevented customers
from completing and filing their returns in a timely manner, or posed a risk
that customer data would be lost or corrupted. However, Intuit did experience
negative publicity in some instances. The exact level of demand for Quicken
TurboTax for the Web and electronic filing is impossible to predict, and Intuit
could experience adverse financial and public relations consequences if these
services are unavailable for an extended period of time, or late in the tax
season, due to technical difficulties or other reasons.
SPECIFIC FACTORS AFFECTING INTUIT'S PERSONAL FINANCE DIVISION
The long-term viability of Intuit's Quicken.com Web site will depend on its
ability to provide products and services that attract customers and advertisers,
develop alternative revenue sources, and ensure reliable operation of the site.
Growth in customers and traffic is important for Intuit's Quicken.com
site and its ability to generate advertising revenue, but traffic can vary
significantly from month to month due to seasonal trends, site performance,
performance of the major stock market indices, economic trends and other
factors. Monthly Quicken.com page views have varied dramatically over the past
two years, from approximately 150 million in September 1999, to a peak of over
300 million in March 2000, back down to about 140 million in July 2001. In
addition, the demand for Internet advertising has declined significantly during
the past 18 months. Intuit must identify and capitalize on additional sources of
revenue to provide sustainable future growth. In addition, due to the constantly
evolving business environment in which Intuit operates, and the changing
priorities and economic circumstances of Intuit and its business allies, Intuit
has been, and may continue to be, required to adapt some of its other third
party relationships in ways that are less attractive to Intuit (financially or
otherwise) and/or establish new relationships.
Intuit cannot provide any assurance that its alliance with Siebert Financial
Corp. will lead to significantly increased revenue.
In May 2002, Intuit announced an alliance with Siebert Financial Corp.
to offer a full range of online and telephone-based brokerage services to its
Quicken and Quicken.com customers. The services will be available later in
calendar 2002. However, Intuit cannot give any assurances that this alliance
will lead to significantly increased revenue.
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SPECIFIC FACTORS AFFECTING INTUIT'S QUICKEN LOANS DIVISION
It is unlikely that the revenue and profit growth rates experienced by Intuit's
Quicken Loans Division during the past two years will be sustainable long-term,
either on a year-over-year basis or on a sequential quarter basis.
Mortgage rate increases, the impact of the economic climate on the
housing market, business operation risks and other factors could result in
significantly lower revenue and profit growth for Intuit's mortgage business.
Increases in mortgage interest rates and other interest rates adversely affected
Intuit's mortgage business during fiscal 2000, contributing to a significant
revenue decline from fiscal 1999 to fiscal 2000. Conversely, declines in
mortgage interest rates during fiscal 2001 and the first half of fiscal 2002 had
a positive impact on revenue. If mortgage rates rise again, this could
negatively impact the volume of applications and closed loans, particularly
Intuit's most mortgage-rate sensitive products such as conventional refinancing
loans. Fluctuations in non-mortgage rates also create risks with respect to the
loans on Intuit's balance sheet and impact Intuit's cost of funds to provide
loans. In addition, Intuit's ability to successfully streamline the online
application, approval, and closing process will have a significant impact on its
ability to attract customers to its mortgage service, and on its ability to
continue increasing the percentage of its mortgage revenue generated through the
online channel compared to branch offices. Intuit must also maintain
relationships with certain banks and other third parties who it relies on to
provide access to capital, and later, purchase and service the loans. If Intuit
is unable to maintain key relationships, or if the terms of key relationships
change to be less favorable to Intuit, it could have a negative impact on
Intuit's mortgage business and on Intuit's financial results.
SPECIFIC FACTORS AFFECTING INTUIT'S GLOBAL BUSINESS DIVISION
Business conditions in international markets, other risks inherent in global
operations, and changes in Intuit's business model in Europe, may negatively
impact Intuit's financial performance.
Conducting business globally involves many risks, including potential
volatility in the political and economic conditions of foreign countries;
difficulties in managing operations in different locations (including hiring and
retaining management personnel); a product development process that is often
more time-consuming and costly than in the U.S. due in part to "localization"
requirements; fluctuations in foreign currency exchange rates; and unanticipated
changes in foreign regulatory requirements. For example, the economic situation
in Japan had a negative impact on global revenue and profits during recent
fiscal years. In addition, the shift in Intuit's business model in Germany has
led to declining revenues for Intuit in the markets Intuit serves through a
distribution arrangement.
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THE MERGER PROPOSAL
Set forth below is a summary of the principal terms and conditions of
the merger agreement, the merger and the material transactions contemplated
thereby. The following summary does not purport to be complete and is qualified
in its entirety by reference to the merger agreement and related agreements,
copies of each of which are attached as annexes to this information statement.
GENERAL
The board of directors of Flagship has considered and approved the
merger proposal. Upon the consummation of the merger, Merger Sub will cease to
exist, Flagship will continue as the surviving corporation and become a wholly
owned subsidiary of Intuit. The merger will become effective upon the filing of
a certificate of merger with the Secretary of State of the State of Delaware
(the "effective time"), which is expected to occur promptly after the conditions
to the closing of the merger have been satisfied, including the conditions
described in "The Merger Agreement - Conditions to Closing." Flagship
anticipates that the closing of the merger (the "closing") will occur on or
about May 31, 2002.
INTUIT'S REASONS FOR THE MERGER
Intuit's principal reasons for the merger under the merger agreement are
(1) to acquire Flagship's technology and the skills of Flagship's engineering
workforce in order to expand the depth of Intuit's small business product line
in new vertical markets and (2) to acquire products that will augment Intuit's
recently announced strategy of developing products and services for somewhat
larger businesses than Intuit's small business products have historically
targeted and for businesses (such as the public sector business) that require
more specialized solutions.
FLAGSHIP'S REASONS FOR THE MERGER
At the January 28, 2002 meeting of the board of directors, the board
determined that it would be prudent to consider a variety of strategic
alternatives regarding Flagship and American Fundware, including a possible sale
of Flagship. In early February 2002, the board of directors retained The Wallach
Company, a division of McDonald Investments Inc. ("McDonald"), to act as
Flagship's financial advisor and authorized McDonald to explore a possible
business combination with Intuit as well as other financial and strategic
alternatives for Flagship.
In March 2002, Flagship commenced negotiations with Intuit regarding a
potential business combination of the two companies. Flagship and Intuit had
extensive negotiations regarding the valuation of Flagship and the merger
consideration. In negotiating these issues, Flagship and Intuit considered such
factors as the valuations of companies comparable to Flagship in recent
acquisition transactions, the public market valuations of comparable companies,
Flagship's projections of future revenues and earnings and the assumptions
underlying such projections.
McDonald and the executive management of Flagship reviewed in detail the
principal terms and conditions of the merger with key members of the board of
directors and principal stockholders prior to the execution of a non-binding
letter of intent containing the principal terms and conditions of the merger. On
April 3, 2002, the board of directors of Flagship held meetings in which the
board discussed in detail the terms and conditions of the proposed Merger as set
forth in the non-binding letter of intent and authorized the management of
Flagship to enter into the non-binding letter of intent with Intuit. On April 8,
2002 the management of Flagship entered into a non-binding letter of intent with
Intuit.
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Since April 8, 2002, Intuit has conducted extensive due diligence on
Flagship. Following the execution of the letter of intent, Flagship and Intuit
engaged in extensive negotiations of the definitive merger agreement and related
agreements, including the scope of the representations and warranties and the
escrow provisions. On May 1, 2002, Intuit's board of directors reviewed in
detail the principal terms of the merger agreement and related agreements.
Following extensive discussion, Intuit's board of directors determined that the
merger was in the best interest of Intuit and its stockholders and authorized
the execution and delivery of the merger agreement, and approved the merger.
On May 5, 2002, the board of directors of Flagship met to consider
approval of the principal terms and conditions of the merger as set forth in the
definitive merger agreement. Following extensive discussions of the terms of the
merger, the board of directors determined that the merger was in the best
interest of Flagship and its stockholders and authorized the execution and
delivery of the merger agreement, and, subject to the approval of the Flagship
stockholders, approved the merger. The merger agreement was executed as of May
6, 2002.
In approving the merger, the board considered, among other factors, (1)
Flagship's prospects as a stand-alone company as well as the likelihood of more
favorable offers from other potential acquirors, (2) Intuit's market
capitalization and access to capital relative to Flagship's current and
potential access to capital, (3) the historic liquidity of Intuit common stock
and the future liquidity of the Intuit common stock to be issued in the merger,
and (4) the current lack of liquidity of Flagship common stock. The board of
directors did not assign relative weights to these factors or apply any formula
to reach its subjective judgment, based upon such considerations, that the
merger proposal is in the best interests of Flagship and the stockholders.
MERGER CONSIDERATION
The consideration issuable to the Flagship stockholders in connection
with the merger will consist of $26,000,000 in cash and shares of Intuit common
stock. The $26,000,000 will be reduced by:
- the amount by which the closing working capital is less than
$1,000,000; and
- the aggregate amount of fees and expenses incurred in connection
with the merger by Flagship, American Fundware and the
significant stockholders that are not paid or not accrued on the
balance sheet of Flagship delivered at the closing, and
the $26,000,000 will be increased by:
- the amount by which the closing working capital is greater than
$1,000,000; and
- the aggregate exercise price of all outstanding Flagship options
that are vested immediately prior to the closing date.
Cash Consideration. The aggregate cash consideration payable to the
Flagship stockholders will be equal to 15% multiplied by the difference between
(1) the merger consideration, less (2) the aggregate exercise price of all
Flagship options that are vested immediately prior to the closing date. The cash
consideration will be held in escrow as described below under "Escrow of Merger
Consideration; Indemnification."
Stock Consideration. The aggregate stock consideration issuable to the
Flagship stockholders will be equal to the difference between the merger
consideration and the cash consideration (or approximately 85% of the merger
consideration) payable in registered and freely tradable shares of Intuit
22
common stock on the closing date. The number of shares of Intuit common stock to
be issued to the Flagship stockholders in payment of the stock consideration
will be based on the average of the closing price per share of Intuit common
stock as quoted on the Nasdaq National Market for the five consecutive trading
days ending on and including the last trading day immediately prior to the
closing date (the "Intuit average share price").
CONVERSION OF SHARES OF FLAGSHIP COMMON STOCK
Subject to the terms and conditions of the merger agreement, at the
effective time, each share of Flagship common stock that is issued and
outstanding immediately prior to the effective time and then held by a Flagship
stockholder will be converted into and represent the right to receive:
- an amount of cash (rounded to the nearest cent), without
interest, equal to a fraction, the numerator of which is the cash
consideration, and the denominator of which is the number of
shares of Flagship common stock and vested Flagship options
outstanding immediately prior to the closing date; and
- a number of shares of Intuit common stock equal to a fraction,
the numerator of which is the result of dividing the stock
consideration by the number of shares of Flagship common stock
and vested Flagship options outstanding immediately prior to the
closing date and the denominator of which is the Intuit average
share price.
Assuming (1) the closing working capital is $1,000,000; (2) the
aggregate amount of transaction expenses of Flagship, American Fundware and the
significant stockholders that are not paid or accrued or accrued on the closing
balance sheet is $0; (3) the aggregate exercise price of all outstanding
Flagship options that are vested immediately prior to the closing date is
$711,000; (4) there are 4,877,493 shares of Flagship common stock outstanding;
(5) there are 955,792 Flagship options outstanding that are vested immediately
prior to the closing date; and (6) the Intuit average share price is $41.392
(which is the average of the closing sale price per share of Intuit common stock
on the Nasdaq National Market over the five-trading day period ending on and
including May 15, 2002), then at the effective time each share of Flagship
common stock will be automatically converted into the right to receive
$0.6685770 in cash and 0.0944745 of a share of Intuit common stock. Note that
the foregoing computation is based solely on the assumptions set forth above
including a hypothetical working capital amount; the actual numbers to be used
in computing the actual cash and stock consideration per share will not be
determinable until the closing of the merger and may vary materially from those
set forth herein.
FRACTIONAL SHARES
No fractional shares of Intuit common stock (and no certificates
therefor) will be issued in connection with the merger. In lieu of such
fractional shares, any Flagship stockholder who would otherwise be entitled to
receive a fraction of a share of Intuit common stock (after aggregating all
fractional shares of Intuit common stock issuable to such Stockholder) will, on
the latter to occur of the effective time or upon surrender of such
Stockholder's certificate representing Flagship common stock, be paid in cash
the dollar amount (rounded to the nearest whole cent), without interest,
determined by multiplying such fraction by the Intuit average share price.
EXCHANGE OF STOCK CERTIFICATES
Immediately after the closing, holders of certificates representing
shares of Flagship common stock that were outstanding immediately prior to the
closing will cease to have any rights as stockholders of Flagship. Flagship
stockholders who have delivered their Flagship stock certificates as instructed
in
23
this information statement will receive cash (which will be deposited into the
escrow account) and shares of Intuit common stock following the effective time
without further action on the part of such stockholders.
Flagship stockholders who have not delivered their Flagship stock
certificates or a properly completed lost share certificate affidavit as
instructed in this information statement will receive from Intuit, following the
effective time, a letter of transmittal setting forth instructions for use in
effecting the surrender of certificates representing shares of Flagship common
stock held by such stockholder in exchange for cash (which will be deposited
into the escrow account) and certificates representing shares of Intuit common
stock. Following surrender of a certificate representing Flagship common stock
for cancellation to Intuit, the holder of such certificate will receive in
exchange therefore, a certificate or certificates representing the number of
shares of Intuit common stock to which such holder is entitled along with a
check representing the value of any fractional shares. Until surrendered to
Intuit's exchange agent, from and after the effective time, outstanding Flagship
stock certificates will be deemed to evidence (1) only the right to receive the
applicable share of the stock consideration and the cash consideration into
which such shares were converted pursuant to the merger agreement and (2) the
right to receive any dividends or distributions payable under the merger
agreement. Until each Flagship stockholder surrenders his or her Flagship stock
certificate in exchange for Intuit common stock, that stockholder will not
receive any dividends or other distributions declared or made by Intuit after
the effective time of the merger. However, once that stockholder surrenders his
or her Flagship stock certificate to the exchange agent, he or she will receive
(1) an Intuit stock certificate, and (2) cash, without interest, as payment for
any dividends or other distributions previously made by Intuit after the
effective time of the merger.
TREATMENT OF FLAGSHIP STOCK OPTIONS
Each Flagship option outstanding immediately prior to the effective time
will be substituted for an option to purchase shares of common stock of Intuit
(the "Intuit options"). The total number of shares of Intuit common stock into
which each Intuit option will be convertible will be equal to the number of
shares of Flagship common stock subject to such option, multiplied by a
fraction, the numerator of which is (1) the merger consideration divided by the
number of shares of Flagship common stock and vested Flagship options
outstanding immediately prior to the closing date, and (2) the denominator of
which is the Intuit average share price. The per share exercise price of each
Intuit option will equal the exercise price per share of Flagship common stock
under each Flagship option divided by the same fraction. To the extent permitted
by applicable law, the Intuit options will be subject to the same terms and
conditions, including vesting, as the Flagship options for which they will be
substituted.
ESCROW OF CASH CONSIDERATION; INDEMNIFICATION BY THE FLAGSHIP STOCKHOLDERS
Indemnification and Escrow Agreement. Under the terms of the merger
agreement, Intuit will withhold the cash consideration in the merger and will
place the cash consideration into an escrow account, the terms of which will be
governed by the escrow agreement attached to this information statement as Annex
H. Michael Potts and Scott Wylie will serve as representatives of the Flagship
stockholders in connection with matters arising under the escrow agreement and
the indemnification provisions of the merger agreement. The cash consideration
in the escrow account will be invested in the Chase Money Markets and the
earnings thereon will accrue to the benefit of the Flagship stockholders. All
fees, costs and expenses incurred by the representatives in connection with
matters arising under the escrow agreement or the indemnification provisions of
the merger agreement will be borne by the Flagship stockholders up to a maximum
of the cash consideration held in the escrow account. The costs of the escrow
account, including the fees and expenses of the escrow agent, will be borne
equally between
24
Intuit and the Flagship stockholders, with the share of such costs allocable to
the Flagship stockholders payable out of any proceeds they would otherwise be
entitled to receive from the escrow account.
General Scope of Indemnity. The merger agreement provides that the
Flagship stockholders will be liable to Intuit and its affiliates in the event
Intuit or its affiliates suffers damages as the result of:
- any inaccuracy, misrepresentation, breach of or default in a
representation, warranty or covenant made by Flagship, American
Fundware or the significant stockholders in the merger agreement,
the disclosure schedules of Flagship to the merger agreement or
any related agreement, or by the Flagship stockholders in the
investment representation letters; and
- any payments paid to dissenting Flagship stockholders, to the
extent that such payments exceeds the merger consideration that
such stockholders would have received under the merger agreement.
All of the representations, warranties and covenants made by Flagship,
American Fundware and the significant stockholders in connection with the merger
survive the closing and expire on the eighteen months anniversary of the
closing. In addition, the representations and warranties made by Flagship,
American Fundware and the significant stockholders in the merger agreement (1)
relating to intellectual property matters survive until the third anniversary of
the closing, (2) relating to title, due authorization and capitalization survive
until the fourth anniversary of the closing and (3) relating to fraud survive
until the expiration of the applicable statute of limitations for making claims
with respect to such matters.
Limitations on Indemnity. The maximum indemnification obligation of the
Flagship stockholders other than the significant stockholders to Intuit and its
affiliates for indemnification claims under the merger agreement (other than in
connection with fraud in connection with the merger agreement or a
misrepresentation by a Flagship stockholder on their own investment
representation letter) is limited to the cash consideration in the escrow
account. The Flagship stockholders will not be obligated to indemnify Intuit or
its affiliates for damages until the aggregate amount of such damages exceeds
$50,000, at which time Intuit and its affiliates will be entitled to recover all
damages actually suffered or incurred. With respect to claims related to
representations and warranties that survive beyond the eighteen-month escrow
release date, the significant stockholders will be liable to Intuit and its
affiliates for breaches of those representations and warranties up to the
aggregate amount of the total proceeds received from the merger by those
significant stockholders.
Release of Cash Escrow. On the eighteen-month anniversary of the
closing, the cash consideration in the escrow account plus any earnings thereon
and less the share of the escrow expenses allocated to the Flagship stockholders
will be released from escrow and will be paid to the Flagship stockholders on a
pro rata basis based on the shares of Flagship common stock owned by them as of
the closing date. However, in the event Intuit or its affiliates have made a
claim for indemnification, an amount equal to 100% of the amount of such claim
will be withheld until final resolution of the claim for indemnification, at
which time any amounts remaining after the resolution of the claim will be
released from escrow.
INDEMNIFICATION BY INTUIT
General Scope of Indemnity. The merger agreement provides that Intuit
will be liable to the Flagship stockholders in the event the Flagship
stockholders suffer damages as the result of any inaccuracy, misrepresentation,
breach of or default in a representation, warranty or covenant made by Intuit,
Merger Sub or Merger Sub II in the merger agreement. All of the representations,
warranties and
25
covenants made by Intuit, Merger Sub and Merger Sub II in connection with the
merger survive the closing and expire on the eighteen months anniversary of the
closing.
Limitations on Indemnity. The maximum indemnification obligation of
Intuit to the Flagship stockholders for indemnification claims under the merger
agreement (other than in connection with fraud in connection with the merger
agreement) is limited to the merger consideration multiplied by 0.38, except
that such obligation is limited to the entire amount of the merger consideration
for indemnification claims relating to the valid issuance of the shares of
Intuit common stock in the merger pursuant to the registration statement. Intuit
will not be obligated to indemnify the Flagship stockholders for damages until
the aggregate amount of such damages exceeds $50,000, at which time the Flagship
stockholders will be entitled to recover all damages actually suffered or
incurred.
THE MERGER AGREEMENT
In General. The merger agreement sets forth the terms and conditions of
the merger, including those related to consideration and indemnity, summarized
above, as well as the representations, warranties and covenants of the parties
and other terms, summarized below. The merger is a complicated transaction and
the Flagship stockholders are urged to read completely the merger agreement and
related agreements included herewith as annexes to understand their respective
rights, obligations and liabilities in connection with the merger.
Representations and Warranties. In the merger agreement, Flagship,
American Fundware and the significant stockholders have made a number of
representations and warranties regarding Flagship, American Fundware and its
business. Such representations and warranties include, among others, those
related to (1) the organization and capital structure of Flagship and American
Fundware, (2) the completeness and accuracy of Flagship's financial statements,
(3) product liability, (4) Flagship's intellectual property and other assets,
(5) taxes, (6) matters concerning employee benefit plans and ERISA and (7) the
accuracy and completeness of our representations and warranties. Our
representations and warranties are set forth in full in Article III to the
merger agreement.
Intuit has also made a number of representations and warranties to
Flagship in connection with the merger. These include, among others,
representations and warranties related to the completeness and accuracy of
Intuit's filings with the Securities and Exchange Commission (the "SEC") and the
effectiveness of the S-4 shelf registration statement pursuant to which the
stock consideration will be issued to the Flagship stockholders (the
"registration statement") in order for the stock consideration to be registered
and freely tradable. Intuit's representations and warranties are set forth in
full in Article IV to the merger agreement.
In addition, each of the Flagship stockholders is required to make
certain representations in the Investment regarding their own ownership of
Flagship equity securities as well as their status as an "accredited" or
"unaccredited" investor upon which Intuit will rely for an applicable securities
law registration exemption in issuing the stock consideration in the merger. The
Flagship stockholders' representations and warranties are set forth in full in
the investment representation letters.
Such representations and warranties are important because they serve as
the basis for indemnification for any damages suffered by the parties as set
forth under "Escrow of Merger Consideration; Indemnification," above.
Pre-Closing Covenants. The merger agreement contains covenants pursuant
to which the parties have agreed, among other things, that (1) Flagship or
Intuit, as the case may be, will notify the other party of the occurrence or
non-occurrence of events likely to cause such party's representations and
warranties
26
to be untrue or inaccurate in any material respect or any failure to comply with
or satisfy in any material respect any covenant, condition or agreement to be
complied with under the merger agreement; (2) Flagship will conduct its business
and maintain its business relationships in the ordinary course; (3) Flagship
will take all reasonable actions necessary to obtain all consents and approvals
required for consummation of the merger, including those required under its
material contracts; (4) Flagship will not solicit, initiate, encourage or induce
the making, submission or announcement of an alternative transaction; (5)
Flagship will afford Intuit and its representatives reasonable access to all of
its properties, books, contracts, commitments and records and other information
concerning its business, properties and personnel as may be reasonably
requested; and (6) Flagship and Intuit will use all reasonable efforts to comply
promptly with all legal requirements which may be imposed with respect to the
consummation of the merger and the other transactions contemplated by the merger
agreement. The pre-closing covenants of Flagship, the significant stockholders
and Intuit are set forth in Article V of the merger agreement.
Conditions to Closing. Flagship's obligation to effect the merger is
further subject to the fulfillment or waiver by us, at or prior to the effective
time, of certain conditions, including (1) the accuracy in all material respects
of the representations and warranties of Intuit, Merger Sub and Merger Sub II in
the merger agreement; (2) the performance and compliance in all material
respects of the covenants of Intuit; (3) the absence of any temporary
restraining order, preliminary or permanent injunction or other order issued by
any court of competent jurisdiction or other legal or regulatory restraint or
prohibition preventing the consummation of the merger; (4) the effectiveness of
the registration statement; and (5) the receipt by Flagship of a tax opinion
from its special tax counsel that the merger will qualify as a reorganization
for U.S. federal income tax purposes. All closing conditions of Flagship are set
forth in full in Section 7.1 to the merger agreement.
The obligation of Intuit to effect the merger is further subject to the
fulfillment or waiver by Intuit, on or prior to the effective time, of certain
conditions, including (1) the accuracy in all material respects of the
representations and warranties of Flagship, American Fundware and the
significant stockholders in the merger agreement; (2) the performance and
compliance in all material respects of the covenants of Flagship; (3) the
absence of a material adverse change in Flagship; (4) the absence of any
temporary restraining order, preliminary or permanent injunction or other order
issued by any court of competent jurisdiction or other legal or regulatory
restraint or prohibition preventing the consummation of the merger; (5) the
receipt by Flagship of sufficient investment representation letters from
Flagship stockholders to satisfy Intuit as to the availability of an appropriate
securities law exemption for the issuance of the stock consideration; (6) the
absence of any arrangement to which Flagship or American Fundware is a party
that would give rise to the payment of any amount that would not be deductible
pursuant to Section 280G of the Code; and (7) the approval of the merger
agreement and the merger by holders of at least 50% of Flagship's outstanding
shares of common stock. All closing conditions of Intuit are set forth in full
in Section 7.2 to the merger agreement.
Expenses. Intuit and Flagship will each bear their respective costs
incurred in connection with the merger. The merger consideration will be reduced
by the amount of such fees and expenses of Flagship, American Fundware and the
significant stockholders that are not paid or accrued on the balance sheet of
Flagship delivered at the closing. In addition, for any such amount that does
not reduce the merger consideration and that is not paid or accrued, Intuit will
be entitled to reduce the cash consideration payable out of the escrow account
to the Flagship stockholders.
Powers of the Representatives; Stockholder Indemnification Obligations
to Representatives. Each of Michael Potts and Scott Wylie have been designed as
representatives of the Flagship stockholders and as the attorneys-in-fact and
agents for and on behalf of each Flagship stockholder with respect to claims for
indemnification under the merger agreement and the taking of any and all actions
and the
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making of any decisions required or permitted to be taken by the representatives
under the merger agreement and the escrow agreement, including the exercise of
the power to:
- authorize the release or delivery to Intuit of the cash
consideration in satisfaction of any indemnification claims;
- agree to, negotiate, enter into settlements and compromises of,
demand arbitration of and comply with orders of courts and awards
of arbitrators with respect to, any indemnification claims; and
- take all actions necessary in their judgment for the
accomplishment of the foregoing.
The representatives will have authority and power to act on behalf of
each Flagship stockholder with respect to the disposition, settlement or other
handling of all indemnification claims and other matters on behalf of the
Flagship stockholders arising under the merger agreement and the escrow
agreement. The Flagship stockholders will be bound by all actions taken and
documents executed by the representatives in connection with these duties, and
Intuit will be entitled to rely on any action or decision of the
representatives. In performing their duties, the representatives will not be
liable to any Flagship stockholder in the absence of intentional misconduct or
fraud, and the Flagship stockholders are required to indemnify the
representatives against any liabilities, costs, expenses or damages they incur
in the absence of fraud or willful misconduct on their part. Any out-of-pocket
costs and expenses reasonably incurred by the representatives in connection with
the administration of their duties (including the hiring of legal counsel and
the incurring of legal fees and costs) will be paid by the Flagship stockholders
on a pro rata basis based on each Flagship stockholder's pro rata share of the
cash consideration in escrow.
Termination. The merger agreement will automatically terminate if the
closing has not occurred on or before June 15, 2002.
RELATED AGREEMENTS
Employment Offers. As a condition to the merger, each of the officers of
American Fundware will enter into an employment offer with Intuit. See
"Interests of Certain Persons in the Merger."
Non-Competition Agreements. As a condition to the merger, each of the
significant stockholders will enter into a non-competition agreement with Intuit
to be effective at the effective time. The non-competition agreements generally
provide that for a period of the earlier of (1) the first anniversary of the
termination of such stockholder's employment with Intuit, and (2) the second
anniversary of the effective time (the "non-competition period), such
stockholders will not engage in certain defined competitive activities. In
addition, the non-competition agreement provides that during the non-competition
period, such stockholders will not induce any other employees of Flagship or of
Intuit to perform work or services for any person or entity other than Flagship
or Intuit and will not solicit customers of Flagship or Intuit.
Voting Agreement. Flagship stockholders, who collectively hold
approximately 71% of Flagship's outstanding common stock, have entered into a
voting agreement. Each of the parties to the voting agreement has agreed to vote
all shares of Flagship common stock held by such party in favor of the merger
proposal and the other transactions contemplated by the merger agreement. The
vote of such shareholders is sufficient under the DGCL, the merger agreement and
Flagship's certificate of incorporation and bylaws to approve and adopt the
merger proposal.
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INTERESTS OF CERTAIN PERSONS IN THE MERGER
Holders of Certain Flagship Stock Options. As discussed above, all
outstanding Flagship options will be assumed on the closing date and converted
into Intuit options. All unvested Flagship options held by the members of the
board of directors of Flagship will automatically vest as of the closing date.
As of May 17, 2002, the members of the board of directors held 308,750 unvested
options that will vest in full as of the closing date. In addition, three
officers of American Fundware, Brian Pawling, Lisa Van der Veer, and Diana
Rudolph, hold 50,000, 15,000, and 15,000 Flagship options, respectively, that
will automatically vest as of the closing date.
Employment Offers. In connection with the merger, Intuit has required
that each of the executive officers of American Fundware accept employment
offers with Intuit as a condition of Closing. Each of these employment offers
will be on terms no less favorable to such officers than their prior
compensation arrangements with Flagship, and are in certain cases more
favorable. The significant stockholders are also required to enter into
Noncompetition Agreements with Intuit which prohibit them from competing
directly or indirectly with Intuit for a period of two years following the
closing, subject to certain agreed upon exceptions. No separate compensation
other than the merger consideration is being provided to the significant
stockholders in return for their execution of the Noncompetition Agreements.
Special Bonus. Effective upon the closing, Mr. Wylie, the Chairman of
the board of directors of Flagship, will be entitled to receive a special bonus
in an aggregate amount of approximately $125,000 in consideration for services
performed by him on behalf of Flagship in connection with the merger. The
special bonus will be included in the Flagship Transaction Expenses.
Stock Ownership. Flagship's directors and officers have an interest in
the merger to the extent of their stock ownership (or the stock ownership of the
entities they represent) in Flagship. Flagship's directors and officers
beneficially own an aggregate of approximately 49% of its outstanding shares of
common stock.
OTHER MATTERS RELATED TO THE MERGER
Appraisal Rights. Flagship stockholders who do not consent to the merger
and who fully comply with all of the provisions of Section 262 of the DGCL will
be entitled to demand and receive payment in cash of an amount equal to the
"fair value" of their shares of Flagship common stock if the merger is
consummated. If any stockholder who demands payment for his or her shares under
Section 262 of the DGCL fails to perfect appraisal rights in accordance with
such section, or withdraws or otherwise loses the right to demand such appraisal
rights, each share of Flagship common stock held by such stockholder will be
converted into the right to receive the consideration otherwise payable to such
stockholder under Article II of the merger agreement. For a description of
appraisal rights under the DGCL, see "Appraisal Rights of Dissenting Flagship
Stockholders." A copy of Section 262 of the DGCL is attached as Annex I to this
information statement. FLAGSHIP STOCKHOLDERS WHO ARE CONSIDERING DISSENTING AND
EXERCISING APPRAISAL RIGHTS SHOULD CAREFULLY READ SECTION 262 OF THE DGCL AND
CONSULT WITH THEIR LEGAL COUNSEL, AS FAILURE TO PROPERLY PERFECT SUCH APPRAISAL
RIGHTS WILL RESULT IN THE LOSS OF SUCH RIGHTS.
Regulatory Matters. No federal or state regulatory requirements must be
complied with nor are federal or state regulatory approvals required in
connection with the merger, other than obtaining the required approval of the
merger from the Flagship stockholders and compliance with the federal securities
laws.
Securities Law Considerations. The shares of common stock of Intuit to
be issued to the Flagship stockholders in the merger will be issued pursuant to
the registration statement. In connection with the
29
distribution of this information statement, each Flagship stockholder will
receive, and must complete and return, an investment representation letter in
the form attached to this information statement as Annex D or Annex E. The
definition of "accredited" under the Securities Act of 1933, as amended (the
"Securities Act") is set forth in the investment representation letter attached
to this information statement as Annex D. To the extent you do not meet the
accredited standards set forth in Annex D, you will need to retain a "purchaser
representative" within the meaning of the Securities Act to assist you in
evaluating this information statement and the investment decision represented by
the merger agreement and the transactions contemplated thereby. Peter Feer of
McDonald has agreed to act as the purchaser representative for any Flagship
stockholders who fail to meet the definition of an accredited investor under the
Securities Act so that you may complete and return the investment representation
letter for unaccredited Flagship stockholders attached to this information
statement as Annex E. Notwithstanding the foregoing, neither Mr. Feer, McDonald
nor any of their affiliates makes any representations or warranties to any
Flagship stockholder regarding the merger and, if made, may not be relied upon
by any Flagship stockholder. Mr. Feer and McDonald will not be liable to any
Flagship stockholder in connection with his and their capacity as purchaser
representative other than for intentional misconduct or fraud.
Registration of Intuit Shares; Certain Restrictions on Resale. The
shares of Intuit common stock to be issued in the merger will be registered
under the Securities Act pursuant to the registration statement. These shares
will be freely transferable by the Flagship stockholders to which they are
issued under the Securities Act, except for shares of Intuit common stock issued
to any Flagship stockholder who is an affiliate of Flagship. Persons who may be
deemed to be affiliates generally include officers, directors, and greater than
10% stockholders. Affiliates may not sell their shares of Intuit common stock
acquired in the merger except pursuant to an exemption under paragraph (d) of
Rule 145 under the Securities Act.
Rule 145(d)(1) permits such resales only:
- if the issuer of the securities has been a public corporation for
at least ninety days and meets the public information
requirements of Rule 144(c) under the Securities Act;
- the shares are sold in brokers' transactions or in transactions
with a market maker; and
- where the aggregate number of shares sold for an affiliate's
account at any time together with all sales of restricted common
stock of the issuer sold by or for an affiliate's account (and/or
attributed to the affiliate by the provisions of Rule 144 under
the Securities Act) during the preceding three-month period does
not exceed the greater of: (1) 1% of the shares of the issuer's
common stock outstanding as shown by the most recent report or
statement published by the issuer; or (2) the average weekly
volume of trading in the issuer's common stock on all national
securities exchanges and/or reported through the automated
quotation system of a registered securities association, during
the four calendar weeks preceding the date of receipt of the
order to execute the sale.
Because Intuit currently meets the requirements set forth in the first
bullet point above and the total number of Intuit shares issued to all of the
Flagship stockholders will be less than the limitations set forth in the third
bullet point above, Flagship currently anticipates that all Flagship affiliates
should be able to immediately resell all of the Intuit shares they receive at
closing without restriction pursuant to Rule 145(d)(1) provided that such shares
are resold in brokers' transactions. All Flagship stockholders who may be deemed
to be Flagship affiliates at Closing will be contacted by Flagship prior to
Closing regarding the procedures they must observe to enable their Intuit shares
to be immediately resold following the closing pursuant to Rule 145(d)(1).
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Registration of Intuit Shares Underlying Intuit Options. In addition to
the foregoing registration rights, Intuit has agreed to register the Intuit
shares issuable upon exercise of the Intuit options to be exchanged for the
Flagship options at closing within two business days following the closing date,
so that any shares acquired upon exercise of such options following the closing
will be freely tradable.
MATERIAL FEDERAL INCOME TAX CONSEQUENCES
The following are certain United States federal income tax
considerations of the merger generally applicable to Flagship stockholders. The
following discussion is based upon the Internal Revenue Code of 1986, as amended
(the "Code"), the regulations promulgated under the Code, and existing
administrative interpretations and court decisions, all of which are subject to
change, possibly with retroactive effect. Any such change could affect the
continuing validity of the following discussion. This discussion does not
address all aspects of United States federal income taxation that may be
important to you in light of your particular circumstances or if you are subject
to special rules, such as rules relating to:
- stockholders who are neither citizens nor residents of the United
States or that are foreign corporations, foreign partnerships or
foreign estates or trusts;
- financial institutions;
- tax-exempt organizations;
- insurance companies;
- dealers in securities;
- traders in securities that elect to use a mark-to-market method
of accounting;
- stockholders who acquired their shares of Flagship common stock
pursuant to the exercise of options or similar derivative
securities, through a tax-qualified retirement plan or otherwise
as compensation; and
- stockholders who hold their shares of Flagship common stock as
part of a hedge, straddle or other risk reduction, constructive
sale or conversion transaction.
This discussion assumes you hold your shares of Flagship common stock as
capital assets within the meaning of Section 1221 of the Code. In addition, the
following discussion does not address the tax consequences of the merger under
foreign, state or local tax laws or the tax consequences of transactions
effectuated prior or subsequent to, or concurrently with, the merger (whether or
not any such transactions are undertaken in connection with the merger).
ACCORDINGLY, FLAGSHIP STOCKHOLDERS ARE URGED TO CONSULT THEIR OWN TAX ADVISORS
AS TO THE SPECIFIC TAX CONSEQUENCES OF THE MERGER, INCLUDING THE APPLICABLE
FEDERAL, STATE, LOCAL AND FOREIGN TAX CONSEQUENCES TO THEM OF THE MERGER.
Tax Opinion. It is intended that the merger will be treated as a
"reorganization" within the meaning of Section 368(a) of the Code. Flagship's
obligation to complete the merger is conditioned on, among other things,
Flagship's receipt of an opinion dated as of the closing date from Morrison &
Foerster LLP, special tax counsel to Flagship, to the effect that the merger
will be treated for federal income tax purposes as a "reorganization" within the
meaning of Section 368(a) of the Code, and that each of Intuit, Merger Sub II
and Flagship will be a "party to a reorganization" within the meaning of Section
368(b) of the Code, with respect to the merger.
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The opinion of Morrison & Foerster LLP will be based on then-existing
law, will assume the absence of changes in existing facts and will rely on
customary assumptions and representations contained in certificates executed by
officers of Flagship and Intuit, dated on or before the completion of the
merger, which will not have been withdrawn or modified in any material respect
as of the effective time of the merger. The opinion will neither bind the
Internal Revenue Service (the "IRS") nor preclude the IRS from adopting a
contrary position, and it is possible that the IRS may successfully assert a
contrary position in litigation or other proceedings. Neither Flagship nor
Intuit intends to obtain a ruling from the IRS with respect to the tax
consequences of the merger.
If the merger does not qualify as a "reorganization" under the Code, the
merger will be treated as a sale or exchange of your Flagship stock for tax
purposes. In such case, you will recognize either a gain or loss depending on
your tax basis in your Flagship stock. The amount, character and timing of such
gain or loss recognition is not clear under current law because of the cash
consideration held in the escrow account. You should consult your own tax
advisor regarding the tax consequences to you if the merger does not qualify as
a "reorganization."
General Consequences of a "Reorganization." Assuming the merger
constitutes a "reorganization" within the meaning of Section 368(a) of the Code
and you do not dissent from the merger, the tax consequences of the merger to
you will be as follows:
- You will not recognize any gain solely as a result of your receipt of
Intuit common stock in the merger.
- You will recognize gain, if any, with respect to your receipt of cash in
the merger. In general, the amount of gain that you recognize will equal
the lesser of (1) the gain that you realize in the merger and (2) the
amount of cash you receive.
- For this purpose, your realized gain is equal to the amount by
which the aggregate consideration you receive in the merger
exceeds your aggregate tax basis in the Flagship common stock you
surrender.
- The amount and timing of any gain that you recognize with respect
to your receipt of cash in the merger could differ depending upon
whether or not you report your share of the cash consideration
held in the escrow account under the "installment method" of tax
reporting. The availability and application of the installment
method is not clear on the facts of the merger. YOU SHOULD
CONSULT YOUR OWN TAX ADVISOR REGARDING THE POSSIBLE AVAILABILITY
OF THE INSTALLMENT METHOD AND DETERMINING THE AMOUNT AND TIMING
OF YOUR GAIN RECOGNITION.
- In general, any gain you recognize pursuant to the merger will be
treated as capital gain, and will be long-term capital gain if
the holding period for your shares was greater than one year at
the time of the consummation of the merger. However, certain
exceptions may apply to treat all or a portion of any gain
recognized upon the receipt of cash in the merger as ordinary
income. The exceptions are discussed below at "Imputed Interest"
and "Possibility of Dividend Treatment."
- Except with respect to cash received in lieu of fractional shares of
Intuit common stock, you will not be permitted to recognize any loss as
a result of the merger.
- You will be taxable upon your receipt of cash in lieu of fractional
shares of Intuit common stock. See discussion below at "Cash in Lieu of
Fractional Shares."
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Possibility of Dividend Treatment. If you receive cash in connection
with the merger, it is possible that some or all of any gain you recognize will
be treated as a dividend if your receipt of such cash has the effect of a
dividend. If your receipt of cash has the effect of the distribution of a
dividend, the amount of cash you receive in connection with the merger will be
treated first, as a dividend to the extent of your allocable portion of
accumulated earnings and profits, and thereafter as a capital gain. Any amount
taxable as a dividend will be includable in your gross income as ordinary income
in its entirety, without reduction for the tax basis of the shares deemed
exchanged for cash, and no loss will be recognized. For purposes of determining
whether the receipt of cash in connection with the merger has the effect of the
distribution of a dividend, you should be treated for United States federal
income tax purposes as if you exchanged all of your Flagship common stock solely
for Intuit common stock and Intuit then immediately redeemed (the "Deemed Intuit
Redemption") a portion of such Intuit common stock in exchange for the cash you
actually received in connection with the merger. Generally, under that analysis,
the receipt of cash in connection with the Deemed Intuit Redemption will not be
treated as a dividend if such Deemed Intuit Redemption (i) results in a
"complete termination" of your equity interest in Intuit, (ii) results in a
"substantially disproportionate" redemption with respect to you or (iii) is "not
essentially equivalent to a dividend" with respect to you. BECAUSE THE
APPLICATION OF THE ABOVE-DESCRIBED TESTS, WHICH ARE CONTAINED IN SECTION 302 OF
THE CODE, DEPENDS UPON EACH STOCKHOLDER'S PARTICULAR CIRCUMSTANCES, YOU ARE
URGED TO CONSULT YOUR OWN TAX ADVISOR REGARDING THE TAX CONSEQUENCES OF THE
DEEMED INTUIT REDEMPTION.
Holding Period. The holding period of a share of Intuit common stock you
receive in the merger (including any fractional share interest) will include
your holding period in the Flagship common stock surrendered in exchange
therefore.
Tax Basis. In general, the aggregate tax basis of the Intuit common
stock you receive (including any fractional share interest) will be the same as
the aggregate tax basis of the Flagship common stock exchanged therefore,
increased by any gain you recognize and decreased by the amount of cash
consideration you receive, other than cash received in lieu of fractional
shares. However, it is possible that your tax basis may differ if you report the
merger on the installment method for tax purposes. You should consult your tax
advisor regarding the basis in your Intuit common stock if you report the merger
on the installment method for tax purposes.
Cash in Lieu of Fractional Shares. If you receive cash in the merger
instead of a fractional share interest in Intuit common stock, you will be
treated as having received the cash in redemption of the fractional share
interest. Subject to the discussion above in "Possibility of Dividend
Treatment," you will recognize capital gain or loss on the deemed redemption in
an amount equal to the difference between the amount of cash received and your
adjusted tax basis allocable to such fractional share. Any capital gain or loss
will be long-term capital gain or loss if you have held your shares of Flagship
common stock for more than one year at the time the merger is completed.
Dissenters. Subject to the discussion above in "Possibility of Dividend
Treatment," if you dissent from the merger and receive cash payment for all of
your shares of Flagship common stock, you generally will recognize capital gain
or loss, which will be long-term capital gain or loss if you have held your
shares of Flagship common stock for more than one year at the time of payment.
The amount of such gain or loss will be equal to the difference between the cash
you receive and your tax basis in the shares of Flagship common stock
surrendered.
Holders of Separate Blocks of Flagship Stock. Special rules apply to a
stockholder who or that owns Flagship common stock that was acquired on
different dates or otherwise comprises separate blocks for federal income tax
purposes. YOU SHOULD CONSULT YOUR TAX ADVISOR REGARDING THE SPECIAL RULES THAT
MAY APPLY IN SUCH CIRCUMSTANCES.
33
The Escrow Account. The proper tax reporting of the escrow account is
not clear under existing law. Intuit has agreed to cooperate with any
stockholder who intends to defer recognition of gain with respect to the escrow
account under the installment method in Section 453(a) of the Code. Reporting
the sale on the installment method could alter the usual rule for determining
tax basis in the Intuit common stock and could give rise to imputed interest
income (described further below) or otherwise alter the U.S. federal income tax
consequences of the merger described above. YOU SHOULD CONSULT YOUR TAX ADVISOR
REGARDING THE TAX CONSEQUENCES TO YOU OF THE ESCROW ACCOUNT, INCLUDING THE TAX
CONSEQUENCES OF SATISFACTION OF AN INDEMNIFICATION OR OTHER CLAIM WITH FUNDS
FROM THE ESCROW ACCOUNT.
Imputed Interest. Depending upon the manner in which you report the cash
escrow consideration for tax purposes, a portion of any payments you receive out
of the cash escrow consideration may be treated as imputed interest, and you
must include that portion as taxable ordinary income in the year of receipt. You
should consult your tax advisor regarding reporting the cash escrow
consideration and the possibility of imputed interest.
Earnings on the Cash Escrow. To the extent there are earnings on the
cash escrow, the portion of any payments you are entitled to receive out of the
cash escrow that is attributable to such earnings will be treated as ordinary
income, and you must include that portion as taxable ordinary income in the year
it is earned. YOU SHOULD CONSULT YOUR TAX ADVISOR REGARDING REPORTING THE CASH
ESCROW AND THE POSSIBILITY OF ESCROW EARNINGS.
Additional Consequences of the Merger. Irrespective of the merger's
status as a "reorganization," a stockholder will recognize income to the extent
Intuit common stock received in the merger is treated as received in exchange
for services or property other than solely Flagship common stock. All or a
portion of any such income could be taxable as ordinary income. Gain also could
be recognized to the extent that the Flagship common stock surrendered in the
merger is not equal in value to the Intuit common stock and other property,
including cash, you receive in exchange therefor.
Backup Withholding. Unless you complete the Form W-9 attached to this
information statement as Annex F or otherwise comply with certain reporting
and/or certification procedures or are an exempt recipient under applicable
provisions of the Code and Treasury regulations, you may be subject to a backup
withholding tax (currently at a 30% rate) with respect to any cash payments you
receive pursuant to the merger.
THE FOREGOING DISCUSSION IS NOT INTENDED TO BE A COMPLETE ANALYSIS OR
DESCRIPTION OF ALL POTENTIAL UNITED STATES FEDERAL INCOME TAX CONSEQUENCES OF
THE MERGER. IN ADDITION, THE DISCUSSION DOES NOT ADDRESS TAX CONSEQUENCES WHICH
MAY VARY WITH, OR ARE CONTINGENT ON, YOUR INDIVIDUAL CIRCUMSTANCES. MOREOVER,
THE DISCUSSION DOES NOT ADDRESS ANY NON-INCOME TAX OR ANY FOREIGN, STATE OR
LOCAL TAX CONSEQUENCES OF THE MERGER. ACCORDINGLY, YOU ARE STRONGLY URGED TO
CONSULT WITH YOUR TAX ADVISOR TO DETERMINE THE PARTICULAR UNITED STATES FEDERAL,
STATE, LOCAL OR FOREIGN INCOME OR OTHER TAX CONSEQUENCES TO YOU OF THE MERGER.
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THE COMPENSATION PROPOSAL
The stockholders of Flagship are being asked to ratify the payment of a
special bonus to Mr. Wylie and accelerated vesting of stock options of Messrs.
Wylie, Turner, James and Faherty (the "parachute payment"), in connection with
the proposed merger. This ratification of the parachute payment is being
solicited because such payment might otherwise result in adverse tax
consequences to the individual and Flagship under the golden parachute
provisions of Sections 280G and 4999 of the Code.
THE GOLDEN PARACHUTE RULES
Section 280G of the Code provides that a corporation will not be allowed
a deduction for compensation paid to certain officers, shareholders and
highly-compensated individuals ("disqualified persons") if such compensation
constitutes an "excess parachute payment." Section 4999 of the Code imposes on
the disqualified person a non-deductible 20% excise tax on receipt of an excess
parachute payment.
In general, the Code defines a "parachute payment" as any payments in
the nature of compensation to (or for the benefit of) a disqualified individual
if (1) such payments are contingent on a change in the ownership or effective
control of the corporation and (2) the present value of the payments which are
contingent on such change equals or exceeds an amount equal to three times the
"base amount" of such individual. An individual's "base amount" generally is the
individual's average annual compensation payable by the corporation for the five
taxable years ending before the date on which the change in ownership or control
of the corporation occurs.
Amounts treated as "parachute payments" do not include the portion of
any payment which the taxpayer establishes by clear and convincing evidence is
reasonable compensation for personal services to be rendered on or after the
date of the change in control. In addition, the amount treated as an "excess
parachute payment" (generally, all amounts in excess of the individual's base
amount) is reduced by the portion of the payment which the taxpayer establishes
by clear and convincing evidence is reasonable compensation for personal
services rendered before the change in control. In general, all payments by a
corporation in cash or property are included in compensation for purposes of
determining whether the disqualified individual has received a parachute
payment, except payments from a qualified retirement plan.
Although the so-called "golden parachute" provisions of the Code were
generally enacted to limit deductible payments to disqualified persons in
connection with the acquisition of publicly-traded corporations, the rules
generally apply to a corporation that has more than 75 shareholders or has a
shareholder that is not a natural person, an estate or certain limited types of
trusts. However, in the case of corporations the stock of which is not readily
tradable (on an established securities market or otherwise) immediately before
the change in control, the provisions will not apply to a payment to a
disqualified individual if (1) the payment is approved by a vote of persons who
own, immediately prior to the change in control, more than 75% of the voting
power of all outstanding stock of the corporation (excluding stock owned by the
disqualified individual), (2) there was adequate disclosure to stockholders of
all material facts concerning all payments which (but for the vote) would be
parachute payments with respect to the disqualified individual, and (3) as
provided in Proposed Regulations (as defined below), payment of the amount
subject to shareholder vote will not be made in the absence of shareholder
ratification.
The proposed acquisition of Flagship by Intuit through the merger will
constitute a "change in control" of Flagship for purposes of the golden
parachute provisions of the Code. In connection with the
35
merger, pursuant to pre-existing agreements with Flagship, Mr. Wylie will become
entitled to the payment of a special bonus and Messrs. Wylie, Turner, James and
Faherty will become entitled to accelerated vesting of stock options of
Flagship. The Code provisions defining "parachute payments" and "base amount"
are complex, and no final regulations have been issued by the Treasury
Department providing guidance, although proposed regulations were issued in 1989
and again, with modifications, on February 19, 2002 (the "Proposed
Regulations"). Accordingly, it is not certain if the payment described herein
would, in fact, constitute a "parachute payment." However, under the Code, the
payments or benefit described below is presumed by the Code to be contingent on
the change in control of Flagship and potentially is a "parachute payment." In
order to permit Flagship to provide this benefit without loss of tax deduction
and without the imposition of the penalty excise tax on Messrs. Wylie, Turner,
James and Faherty, the board of directors of Flagship hereby submits this
payment to the stockholders for advance approval, as permitted by the Code.
MR. WYLIE HAS EXECUTED A WAIVER AGREEMENT WAIVING THE RIGHT TO THE SPECIAL
BONUS, AND EACH OF MESSRS. WYLIE, TURNER, JAMES AND FAHERTY HAS EXECUTED A
WAIVER AGREEMENT WAIVING THE RIGHT TO THE ACCELERATED VESTING OF HIS STOCK
OPTIONS, SUBJECT TO STOCKHOLDER APPROVAL AS DESCRIBED HEREIN. THUS, UNLESS THIS
BENEFIT IS RATIFIED BY THE STOCKHOLDERS PURSUANT TO THE COMPENSATION PROPOSAL AS
DESCRIBED HEREIN, MESSRS. WYLIE, TURNER, JAMES AND FAHERTY WILL NOT RECEIVE THIS
BENEFIT. IN ADDITION, IT IS A CONDITION TO INTUIT'S OBLIGATION TO CONSUMMATE THE
MERGER THAT FLAGSHIP NOT BE OBLIGATED TO MAKE PAYMENTS THAT COULD BE TREATED AS
"PARACHUTE PAYMENTS" UNDER SECTION 280G OF THE CODE. ABSENT THE WAIVERS AGREED
TO BY MESSRS. WYLIE, TURNER, JAMES AND FAHERTY, FLAGSHIP WOULD NOT SATISFY THAT
CLOSING CONDITION. ACCORDINGLY, IN ORDER TO PERMIT THE CLOSING CONDITION TO BE
SATISFIED AND THE MERGER TO GO FORWARD, EACH OF MESSRS. WYLIE, TURNER, JAMES AND
FAHERTY HAS AGREED TO WAIVE HIS ENTITLEMENT TO HIS RESPECTIVE PAYMENT UNLESS THE
PAYMENT IS RATIFIED BY THE FLAGSHIP STOCKHOLDERS. APPROVAL OF THE COMPENSATION
PROPOSAL WOULD ENABLE FLAGSHIP TO SATISFY THE CLOSING CONDITION AND ALSO ALLOW
MESSRS. WYLIE, TURNER, JAMES AND FAHERTY TO RECEIVE THEIR PAYMENTS WITHOUT BEING
SUBJECT TO THE EXCISE TAX.
SPECIAL BONUS
Effective upon the closing, Mr. Wylie will be entitled to receive a
special bonus in an aggregate amount of approximately $125,000 in consideration
for services performed by him on behalf of Flagship in connection with the
merger. Flagship and Mr. Wylie agreed to the special bonus pursuant to a
negotiated letter agreement dated March 5, 2002. If paid, the special bonus will
be included in the transaction expenses of Flagship.
A payment made pursuant to an agreement entered into within one year
prior to a change in control is presumed to be contingent on a change in
control, and therefore may be treated as a parachute payment, unless proven
otherwise by clear and convincing evidence. If it were determined that the
special bonus payable to Mr. Wylie produced a "parachute payment," the bonus
could result in an excise tax liability to Mr. Wylie of approximately $21,600,
if received by him without being subject to stockholder approval. Mr. Wylie has
agreed to waive his right to the special bonus payment unless it is approved by
the stockholders.
The IRS could take the position that the payment of the special bonus
results in a parachute payment.
ACCELERATION OF VESTING
Scott C. Wylie. Mr. Wylie joined Flagship as a member of the board of
directors by election in January 1999 and on April 26, 1999, the board approved
an option grant to Mr. Wylie under the Flagship
36
Group 1999 Stock Option/Stock Issuance Plan (the "Flagship Plan"). Mr. Wylie was
elected as Chairman in August 2001, and in connection therewith the board
approved an additional option grant on August 27, 2001. As part of his
arrangement and inducement to join the board, the board of directors agreed
that, in the event of a change of control of Flagship, Mr. Wylie would be
provided with full vesting of his stock options.
Pursuant to the terms of his stock option grants, Mr. Wylie has the
right to purchase shares of common stock of Flagship over time, as the stock
options "vest." However, if the merger is consummated then, pursuant to the
terms of the stock option grants, Mr. Wylie shall become entitled to vest in his
Flagship stock on an accelerated basis. Specifically, Mr. Wylie's stock options
will automatically vest as to 148,750 total shares subject to the option. In the
absence of the acceleration, the options to acquire those shares would vest
gradually over a period of years.
If it were determined that the accelerated vesting produced a "parachute
payment," the acceleration could result in an excise tax liability to Mr. Wylie,
if received by him without being subject to stockholder approval. Mr. Wylie has
agreed to waive his right to accelerated vesting with respect to all of the
148,750 shares as to which he would become entitled to accelerated vesting upon
closing. Based on the consideration to be received in the merger, these shares
have a total "spread" (that is, the excess of their value over the amount Mr.
Wylie must pay for them) of approximately $557,812.
Nathaniel P. Turner. Mr. Turner joined Flagship as a member of the board
of directors in January 1985. On April 26, 1999, the board approved an option
grant to Mr. Turner under the Flagship Plan, and approved an additional option
grant to Mr. Turner on August 27, 2001. As part of his arrangement and
inducement to join the board, the board of directors agreed that, in the event
of a change of control of Flagship, Mr. Turner would be provided with full
vesting of his stock options.
Pursuant to the terms of his stock option grants, Mr. Turner has the
right to purchase shares of common stock of Flagship over time, as the stock
options "vest." However, if the merger is consummated then, pursuant to the
terms of the stock option grants, Mr. Turner shall become entitled to vest in
his Flagship stock on an accelerated basis. Specifically, Mr. Turner's stock
options will automatically vest as to 62,500 total shares subject to the
options. In the absence of the acceleration, the options to acquire those shares
would vest gradually over a period of years.
If it were determined that the accelerated vesting produced a "parachute
payment," the acceleration could result in an excise tax liability to Mr.
Turner, if received by him without being subject to stockholder approval. Mr.
Turner has agreed to waive his right to accelerated vesting with respect to all
of the 62,500 shares as to which he would become entitled to accelerated vesting
upon closing. Based on the consideration to be received in the merger, these
shares have a total "spread" (that is, the excess of their value over the amount
Mr. Turner must pay for them) of approximately $234,375.
Stephen O. James. Mr. James joined Flagship as a member of the board of
directors by election in January 1999. On April 26, 1999, the board approved an
option grant to Mr. James under the Flagship Plan. As part of his arrangement
and inducement to join the board, the board of directors agreed that, in the
event of a change of control of Flagship, Mr. James would be provided with full
vesting of his stock options.
Pursuant to the terms of his stock option grants, Mr. James has the
right to purchase shares of common stock of Flagship over time, as the stock
options "vest." However, if the merger is consummated then, pursuant to the
terms of the stock option grants, Mr. James shall become entitled to vest in his
Flagship stock on an accelerated basis. Specifically, Mr. James's stock options
will
37
automatically vest as to 48,750 total shares subject to the options. In the
absence of the acceleration, the options to acquire those shares would vest
gradually over a period of years.
If it were determined that the accelerated vesting produced a "parachute
payment," the acceleration could result in an excise tax liability to Mr. James,
if received by him without being subject to stockholder approval. Mr. James has
agreed to waive his right to accelerated vesting with respect to all of the
48,750 shares as to which he would become entitled to accelerated vesting upon
closing. Based on the consideration to be received in the merger, these shares
have a total "spread" (that is, the excess of their value over the amount Mr.
James must pay for them) of approximately $182,813.
Michael Faherty. Mr. Faherty joined Flagship as a member of the board of
directors by election in January 1999. On April 26, 1999, the board approved an
option grant to Mr. Faherty under the Flagship Plan. As part of his arrangement
and inducement to join the board, the board of directors agreed that, in the
event of a change of control of Flagship, Mr. Faherty would be provided with
full vesting of his stock options.
Pursuant to the terms of his stock option grants, Mr. Faherty has the
right to purchase shares of common stock of Flagship over time, as the stock
options "vest." However, if the merger is consummated then, pursuant to the
terms of the stock option grants, Mr. Faherty shall become entitled to vest in
his Flagship stock on an accelerated basis. Specifically, Mr. Faherty's stock
options will automatically vest as to 48,750 total shares subject to the
options. In the absence of the acceleration, the options to acquire those shares
would vest gradually over a period of years.
If it were determined that the accelerated vesting produced a "parachute
payment," the acceleration could result in an excise tax liability to Mr.
Faherty, if received by him without being subject to stockholder approval. Mr.
Faherty has agreed to waive his right to accelerated vesting with respect to all
of the 48,750 shares as to which he would become entitled to accelerated vesting
upon closing. Based on the consideration to be received in the proposed merger,
these shares have a total "spread" (that is, the excess of their value over the
amount Mr. Faherty must pay for them) of approximately $182,813.
The IRS could take the position that the acceleration of vesting under
the above described stock option grants results in a parachute payment.
Under the Proposed Regulations, a portion of the value of the stock
option subject to vesting based on the performance of future services is
included in the calculation of parachute payments. The amount included consists
of two elements: (1) the difference between (a) the value of the stock option
for which vesting is accelerated as of the date of accelerated vesting and (b)
the present value of such amount as of the date(s) vesting would have occurred
in the absence of a change in control if the individual continued to perform
services; and (2) an amount determined as the value of the elimination of the
obligation to perform future services.
Flagship believes that each of Messrs. Wylie, Turner, James and Faherty
is or may be considered (1) an officer, shareholder or highly-compensated
employee of Flagship for purposes of the golden parachute rules of the Code, (2)
a holder of an unvested stock option which Flagship proposes to vest in
connection with the Merger, and (3) entitled to receive amounts as a result of
such acceleration which could constitute three times or more of the individual's
"base amount."
Messrs. Wylie, Turner, James and Faherty have not received any
compensation, other than the issuance of the stock options that are the subject
of this stockholder ratification and 26,000 shares each (104,000 shares in the
aggregate), for their services as members of the board of directors of Flagship.
The fact that they have not previously received any compensation for such
services potentially increases the
38
likelihood that the accelerated vesting would be treated as a "parachute
payment" subject to the excise tax or that, in certain circumstances, could
result in disallowance of a deduction to Flagship, if received by them in the
absence of stockholder ratification.
PROPOSED STOCKHOLDER RATIFICATION
It is possible that the benefits described above would constitute a
"parachute payment" for purposes of Section 280G of the Code and result in
Messrs. Wylie, Turner, James and Faherty receiving an "excess parachute
payment." It is a condition to Intuit's obligation to consummate the merger that
Flagship not be obligated to make payments that could be treated as "parachute
payments" under Section 280G of the Code. Absent the waivers agreed to by
Messrs. Wylie, Turner, James and Faherty, Flagship would not satisfy that
closing condition. Accordingly, in order to permit the closing condition to be
satisfied and the merger to go forward, each of Messrs. Wylie, Turner, James and
Faherty has agreed to waive his entitlement to his respective payment unless the
payment is ratified by the Flagship stockholders. Approval of the compensation
proposal would enable Flagship to satisfy the closing condition and also allow
Messrs. Wylie, Turner, James and Faherty to receive their payments without being
subject to the excise tax.
VOTE REQUIRED
Payment of the amount described above is subject to ratification by
persons who own more than 75% of the voting power represented by the outstanding
shares of common stock of Flagship, excluding shares owned, directly or
indirectly, by Messrs. Wylie, Turner, James and Faherty, or by persons related
to such individuals. No payment subject to stockholder ratification will be made
in the absence of stockholder ratification.
39
APPRAISAL RIGHTS OF DISSENTING FLAGSHIP STOCKHOLDERS
BACKGROUND
If the merger occurs, then under applicable state laws regarding
dissenting stockholders' appraisal rights, Flagship stockholders who do not vote
their Flagship shares in favor of the merger may, under certain conditions
become entitled to be paid cash for their Flagship shares in lieu of receiving
Intuit common in the merger.
The merger agreement provides that shares of Flagship common stock that
are outstanding immediately prior to the effectiveness of the merger and have
not been voted in favor of the merger will not be converted into Intuit common
stock if the holder of the shares validly exercises and perfects statutory
appraisal rights with respect to the shares, although the shares will be
automatically converted into shares of Intuit common on the same basis as all
other Flagship shares are converted in the merger when and if the holder of
those shares withdraws his or her demand for appraisal or otherwise becomes
legally ineligible to exercise appraisal rights.
Because Flagship is a Delaware corporation, the availability of
dissenting stockholders' appraisal rights for Flagship stockholders is
determined by Delaware law, which is summarized below.
APPRAISAL RIGHTS UNDER DELAWARE LAW
When the merger becomes effective, Flagship stockholders who comply with
the procedures prescribed in Section 262 of the DGCL, or Section 262, will
potentially be entitled to a judicial appraisal of the fair value of their
shares, exclusive of any element of value arising from the accomplishment or
expectation of the merger, and to receive from Intuit payment of the fair value
of their shares in cash.
The following is a brief summary of the statutory procedures that must
be followed by a stockholder of Flagship in order to perfect appraisal rights
under the DGCL. This summary is not intended to be complete and is qualified in
its entirety by reference to Section 262, the text of which is included as Annex
I to this information statement. Flagship advises any Flagship stockholder
considering demanding appraisal to consult legal counsel.
In order to exercise dissenters' appraisal rights under Delaware law, a
stockholder must be the stockholder of record of the shares of Flagship stock as
to which Flagship appraisal rights are to be exercised on the date that the
written demand for appraisal described in the next paragraph is made, and the
stockholder must continuously hold such shares through the effective time of the
merger.
Flagship stockholders electing to exercise their appraisal rights under
Section 262 must not vote in favor of approval of the merger. A vote by a
Flagship stockholder against approval of the merger is not required in order for
that stockholder to exercise appraisal rights.
A record owner who holds Flagship common stock as a nominee for other
beneficial owners of the shares may exercise appraisal rights with respect to
the Flagship common stock held for all or less than all beneficial owners of the
Flagship common stock for which the holder is the record owner. In that case,
the written demand must state the number of shares of Flagship common stock
covered by the demand. Where the number of shares of Flagship common stock is
not expressly stated, the demand will be presumed to cover all shares of
Flagship common stock outstanding in the name of that record owner. Beneficial
owners who are not record owners and who intend to exercise appraisal rights
should instruct the record owner to comply strictly with the statutory
requirements with respect to the delivery of written demand prior to the taking
of the vote on the merger.
40
Within ten days after the effective time of the merger, Intuit must
provide notice of the date of effectiveness of the merger to all Flagship
stockholders who have not voted for approval of the merger agreement. Each
Flagship stockholder of record who is eligible to exercise appraisal rights
under Delaware law and who has timely delivered a written demand for appraisal
to Flagship and not voted for approval of the merger will be referred to in this
section as a dissenting stockholder.
A Flagship stockholder who elects to exercise appraisal rights must mail
or deliver the written demand for appraisal to:
The Flagship Group Inc.
1385 S. Colorado Boulevard, Suite 400
Denver, Colorado 80222
Attn: Secretary
The written demand for appraisal should specify the stockholder's name
and mailing address and the number of shares of Flagship common stock covered by
the demand, and should state that the stockholder is thereby demanding appraisal
of such stockholder's Flagship shares in accordance with Section 262.
Within 120 days after the effective time of the merger, any dissenting
stockholder will be entitled, upon written request, to receive from Intuit a
statement of the aggregate number of Flagship shares not voted in favor of
approval of the merger and with respect to which demands for appraisal have been
received by Intuit, and the aggregate number of holders of those shares. This
statement must be mailed to the dissenting stockholder within ten days after the
dissenting stockholder's written request has been received by Intuit or within
ten days after the date of the effective time of the merger, whichever is later.
Within 120 days after the effective time of the merger, either Intuit or
any dissenting stockholder may file a petition in the Delaware Court of Chancery
demanding a determination of the fair value of each share of Flagship common
stock of all dissenting stockholders. If a petition for an appraisal is timely
filed, then after a hearing on the petition, the Delaware Court of Chancery will
determine which of the Flagship stockholders are entitled to appraisal rights
and will then appraise the shares of Flagship common stock owned by those
stockholders, by determining the fair value of the shares, exclusive of any
element of value arising from the accomplishment or expectation of the merger,
together with the fair rate of interest to be paid, if any, on the amount
determined to be the fair value. If no petition for appraisal is filed with the
Delaware Court of Chancery by Intuit or any dissenting stockholder within 120
days after the effective time of the merger, then dissenting stockholders'
rights to appraisal will cease and they will be entitled only to receive shares
of Intuit common stock in the merger. Inasmuch as Intuit has no obligation to
file a petition, any Flagship stockholder who desires a petition to be filed is
advised to file it on a timely basis. However, no petition timely filed in the
Delaware Court of Chancery demanding appraisal will be dismissed as to any
Flagship stockholder without the approval of the Delaware Court of Chancery, and
this approval may be conditioned on any terms the Delaware Court of Chancery
deems just.
The cost of the appraisal proceeding may be determined by the Delaware
Court of Chancery and taxed upon the parties as the court deems equitable under
the circumstances. Upon application of a dissenting stockholder, the court may
order that all or a portion of the expenses incurred by any dissenting
stockholder in connection with the appraisal proceeding, including, without
limitation, reasonable attorney's fees, and the fees and expenses of experts, be
charged pro rata against the value of all shares entitled to appraisal. In the
absence of this determination or assessment, each party bears its own expenses.
A dissenting stockholder who has timely demanded appraisal in compliance with
Section 262 will not, after the effective time of the merger, be entitled to
vote the Flagship stock subject to such
41
demand for any purpose or to receive payment of dividends or other distributions
on the Flagship stock, except for dividends or other distributions payable to
stockholders of record at a date prior to the effective time of the merger.
At any time within sixty days after the effective time of the merger,
any dissenting stockholder will have the right to withdraw the stockholder's
demand for appraisal and to accept the right to receive cash and shares of
Intuit common stock in the merger on the same basis on which Flagship stock is
converted into Intuit common stock in the merger. After this sixty-day period, a
dissenting stockholder may withdraw his or her demand for appraisal only with
the consent of Intuit.
WRITTEN DEMANDS
When submitting a written demand for appraisal under Delaware law, a
written demand for appraisal must reasonably inform Flagship of the identity of
the stockholder of record making the demand and that the stockholder intends to
demand appraisal of the stockholder's shares. A demand for appraisal should be
executed by or for the Flagship stockholder of record, fully and correctly, as
that stockholder's name appears on the stockholder's stock certificate. If
Flagship common stock is owned of record in a fiduciary capacity, such as by a
trustee, guardian or custodian, the demand should be executed by the fiduciary.
If Flagship common stock is owned of record by more than one person, as in a
joint tenancy or tenancy in common, the demand should be executed by or for all
joint owners. An authorized agent, including an agent for two or more joint
owners, should execute the demand for appraisal for a stockholder of record;
however, the agent must identify the record owner and expressly disclose the
fact that, in exercising the demand, he or she is acting as agent for the record
owner.
42
INFORMATION REGARDING FLAGSHIP
Flagship commenced operations as a Delaware corporation on May 10, 1984.
The principal executive offices of Flagship are located at 1385 S. Colorado
Boulevard, Suite 400, Denver, Colorado 80222.
BUSINESS -- GENERAL
Flagship's sole operating subsidiary is American Fundware, a leading
provider of accounting software solutions for public sector organizations in
North America. Founded in 1976, American Fundware has twenty five years of
experience in helping mission-based organizations manage highly specialized
accounting requirements. Today, American Fundware offers the FundWare(TM) family
of software products, including a suite of over twenty software modules,
designed for the specific needs of public sector organizations.
American Fundware focuses on providing industry standard accounting
software for public sector clients. American Fundware has sold to approximately
3,900 customers including the Aspen Institute, the United Negro College Fund,
the United Way, the John Wayne Cancer Institute, University of Colorado
Foundation, Ball State University Foundation, Texas A&M University Foundation,
and various other nonprofit foundations and government organizations. A majority
of the customers to whom American Fundware has sold software over the past
twenty five years still maintain annual support contracts.
American Fundware's core software capabilities include the management of
multiple funding sources, control of budgetary requirements, and highly
customized reporting options. The functionality of the software ensures that
clients maintain regulatory compliance and provide accounting controls
consistent with public sector practices and policies. The most recent software
release, FundWare 7.16 Second Edition is priced between $2,000 - $3,000 per
module plus applicable concurrent user license fees. The software supports
computing platforms running the Windows(R) 2000 operating system.
American Fundware's accounting software is complemented by a staff of
experts who design, implement, and support the product suite in a manner that is
intended to offer customers the lowest total cost of ownership. American
Fundware's Enterprise Services include the implementation of FundWare software
and integration of a customer's accounting software with that customer's
non-accounting systems. Consulting services are available on an hourly basis for
specific tasks related to configuring solutions for more customized needs.
American Fundware also offers training classes at a regional location or on-site
for users at all levels.
As of May 17, 2002, Flagship had 79 employees.
MANAGEMENT
The American Fundware management team is led by Michael Potts, Chief
Executive Officer, and Jan Groth, President. Mr. Potts joined American Fundware
as Chief Executive Officer in March 1997 and became Chief Executive Officer of
Flagship in January 1999. Previously, he managed domestic and international
subsidiaries of Recognition International in Dallas, Texas, and also spent 11
years at BancTec, Inc. Ms. Groth joined American Fundware in 1984 to initiate
the training and documentation departments. In 1989 she became President.
The directors of Flagship are Scott Wylie, Michael Potts, Michael
Faherty, Stephen James and Nathaniel Turner.
43
BENEFICIAL OWNERSHIP TABLE
The following table sets forth certain information with respect to the
beneficial ownership of Flagship common stock as of the date of the closing by
(1) each person known to Flagship to beneficially own more than 5% of the
outstanding shares of Flagship common stock, (2) each director of Flagship, (3)
each executive officer of Flagship, and (4) all directors and executive officers
of Flagship as a group. The calculations in the following table were based on
4,877,493 shares of Flagship common stock outstanding as of May 17, 2002.
Beneficial ownership is determined under the rules of the Securities and
Exchange Commission and generally includes voting or investment power with
respect to securities. Unless indicated below, to Flagship's knowledge, the
persons and entities named in the table have sole voting and sole investment
power with respect to all shares beneficially owned, subject to community
property laws where applicable. Shares of Flagship common stock subject to
options and warrants that are currently exercisable or exercisable within sixty
days of May 17, 2002 are deemed to be outstanding and to be beneficially owned
by the person holding the options for the purpose of computing the percentage
ownership of that person but are not treated as outstanding for the purpose of
computing the percentage ownership of any other person.
SHARES
BENEFICIALLY PERCENT OF
NAME OWNED OUTSTANDING
----------------------------------- ------------ ------------
Michael Potts(6) ............ 1,035,760(1) 17.8%
Nathaniel P. Turner(6) ...... 613,365(2) 10.5%
Janice Groth(6) ............. 464,800(3) 8.0%
Steven Grandchamp ........... 443,400(4) 7.6%
5825 S. BellFlower Drive
Littleton, Colorado 80123
Jerome T. Paul .............. 399,353 6.9%
16 Cypress Point Court
Frisco, Texas 75037
Stephen O. James(6) ......... 291,000(5) 5.0%
Scott C. Wylie .............. 283,000(7) 4.9%
Michael Faherty ............. 176,000(8) 3.0%
All executive officers and
directors as a group (6) .... 2,863,925(9) 49.1%
----------------
(1) Includes 100,000 shares of common stock that are currently exercisable or
exercisable within sixty days of May 17, 2002.
(2) Includes 80,000 shares of common stock that are currently exercisable or
exercisable within sixty days of May 17, 2002.
(3) Includes 90,000 shares of common stock that are currently exercisable or
exercisable within sixty days of May 17, 2002.
(4) Includes 22,500 shares of common stock that are currently exercisable or
exercisable within sixty days of May 17, 2002.
(5) Includes 100,000 shares of common stock that are currently exercisable or
exercisable within sixty days of May 17, 2002.
44
(6) This stockholder's principal business address is c/o The Flagship Group
Inc., 1385 S. Colorado Blvd., Suite 400, Denver, Colorado 80222.
(7) Includes 200,000 shares of common stock that are currently exercisable or
exercisable within sixty days of May 17, 2002.
(8) Includes 100,000 shares of common stock that are currently exercisable or
exercisable within sixty days of May 17, 2002.
(9) Includes 670,000 shares of common stock that are currently exercisable or
exercisable within sixty days of May 17, 2002.
45
INFORMATION REGARDING INTUIT
BUSINESS
Intuit is a Delaware corporation having its principal offices at 2535
Garcia Avenue, Mountain View, California. Intuit develops, sells and supports a
variety of small business, tax preparation and personal finance software
products and related products and services. Its products and services are
designed to automate commonly performed financial tasks and to simplify the way
individuals, small businesses and accounting professionals manage their finances
and businesses. Intuit's products and services include Quicken, QuickBooks,
Quicken TurboTax, ProSeries and Lacerte desktop software products, as well as
Internet-based products and services, including QuickBooks Deluxe Payroll
service, QuickBooks Internet Gateway services, Site Builder website tool,
Quicken TurboTax for the Web, Quicken.com and Quicken Loans. Intuit commenced
operations in March 1983 and was incorporated in California in March 1984. In
March 1993, Intuit was reincorporated in Delaware and completed its initial
public offering. Intuit common stock is traded on the Nasdaq Stock Market under
the symbol "INTU."
ADDITIONAL INFORMATION
Intuit is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files reports, proxy statements and other information with the SEC.
These materials can be inspected and copied at the public reference facilities
maintained by the SEC at Room 1024, 450 Fifth Street, N.W., Judiciary Plaza,
Washington, D.C. 20549 Copies of these materials can also be obtained from the
SEC at prescribed rates by writing to the Public Reference Section of the SEC,
450 Fifth Street, N.W., Washington, D.C. 20549. In addition, Intuit common stock
is listed on the Nasdaq Stock Market, and, as a result, these materials may also
be inspected and copied at the offices of the National Association of Securities
Dealers, Inc., 9513 Key West Avenue, Rockville, Maryland 20850.
The SEC also makes reports, proxy and information statements and other
information filed electronically available on the Internet generally within 24
hours of acceptance. The SEC's Internet address is http://www.sec.gov.
For detailed information about Intuit and its subsidiaries, all
stockholders should review the following documents, copies of which are provided
as exhibits to this information statement, and are incorporated herein by
reference. Please carefully review these documents for information regarding the
business, management, capitalization and financial condition of Intuit.
1. Intuit's Annual Report to Stockholders for the fiscal year ended
July 31, 2001, which includes Intuit's Annual Report on Form 10-K
for the fiscal year ended July 31, 2001, as filed with the SEC
(excluding the exhibits thereto) (Exhibit A);
2. Intuit's Quarterly Report on Form 10-Q for the three months ended
October 31, 2001, as filed with the SEC (Exhibit B);
3. Intuit's Quarterly Report on Form 10-Q for the six months ended
January 31, 2002, as filed with the SEC (Exhibit C);
4. Intuit's Proxy Statement for the January 18, 2002 Annual
Stockholders Meeting as filed with the SEC (Exhibit D); and
46
5. Intuit's Current Reports on Form 8-K dated August 24, 2001,
September 27, 2001, November 8, 2001, November 16, 2001, January
24, 2002, February 14, 2002 and May 13, 2002 (Exhibit E).
In addition, each document Intuit files with the Securities and Exchange
Commission after the date of this information statement and before the closing
date will be deemed to be incorporated by this reference into this information
statement and to be a part of this information statement from the date of filing
of such documents. Any statement contained in this information statement or in a
document incorporated by reference in this information statement shall be deemed
to be modified or superseded for the purposes of this information statement to
the extent that a statement contained in this information statement or in any
other subsequently filed document which also is or is deemed to be incorporated
by reference in this information statement modifies or supersedes such
statement. Any statement modified or superseded shall not be deemed, except as
so modified or superseded, to constitute a part of this information statement.
FURTHER INFORMATION
There will be provided without charge to each person to whom an
information statement is delivered, upon oral or written request of any such
person, a copy of any or all documents incorporated by reference herein and not
delivered herewith. Requests should be directed to Virginia R. Coles, Assistant
General Counsel, Intuit Inc., P.O. Box 7850, 2700 Coast Avenue, M.S. 7-1145
Mountain View, California 94039-7850, telephone number (650) 944-5682. In
addition, Intuit may provide the stockholders with reports and other information
filed by Intuit pursuant to Sections 13(a), 13(c), 14 or 15(d) of the Exchange
Act subsequent to the date of this information statement and prior to the
closing date, which reports and other information will be deemed to be
incorporated by reference into this information statement.
47
DESCRIPTION OF INTUIT CAPITAL STOCK
COMMON STOCK
The following description of Intuit common stock summarizes the material
terms and provisions of Intuit common stock, but is not complete. For the
complete terms of Intuit common stock, please refer to Intuit's restated
certificate of incorporation, bylaws and the Second Amended and Restated Rights
Agreement dated October 15, 1999 between Intuit and American Stock Transfer and
Trust Company, as rights agent.
Intuit's certificate of incorporation authorizes Intuit to issue up to
750,000,000 shares of common stock. As of January 31, 2002, there were
212,690,599 shares of common stock outstanding.
The holders of Intuit common stock are entitled to one vote for each
share held of record on all matters submitted to a vote of the stockholders.
Subject to preferences that may apply to any preferred stock outstanding,
holders of common stock are entitled to receive dividends out of assets legally
available at the times and in the amounts that the board of directors may
determine. The common stock has no preemptive rights and is not subject to
conversion or redemption. Upon liquidation, dissolution or winding-up of Intuit,
the holders of common stock are entitled to share in all assets legally
available for distribution to stockholders after payment of all liabilities and
the liquidation preferences, if any, of any outstanding preferred stock. Each
outstanding share of common stock is fully paid and nonassessable.
Intuit's bylaws provide that special meetings of stockholders can be
called only by the chairman of the board, the chief executive officer, the
president or a majority of the board of directors. Intuit's bylaws also specify
an advance notice procedure for the nomination, other than by or at the
direction of the board of directors, of candidates for election as directors and
for business to be brought before a meeting of stockholders. These provisions
may have the effect of delaying, deferring or preventing a change in control of
Intuit without further action by the stockholders.
Rights Plan. Intuit adopted a stockholder rights plan on April 29, 1998
and amended it on October 5, 1998 and October 15, 1999. Intuit's board of
directors implemented the plan by declaring a dividend, distributable to
stockholders of record on May 11, 1998, of one preferred share purchase right
for each share of common stock outstanding. The rights plan provides that each
share of common stock outstanding will have attached to it the right to purchase
one three-thousandths of a share of Series B Junior Participating Preferred
Stock. The purchase price per one three-thousandths of a preferred share is
$83.33, subject to adjustment. The rights, preferences and privileges of the
preferred shares are summarized below under "Preferred Stock."
The rights will be exercisable only if a person or group acquires 20% or
more of Intuit common stock or announces a tender offer or exchange offer that
would result in the acquisition of 20% or more of Intuit common stock. Once they
are exercisable, and in some circumstances if additional conditions are met, the
plan allows stockholders, other than the acquiror, to purchase Intuit common
stock or securities of the acquiror with a then current market value of two
times the exercise price of the right. Until a right is exercised, the holder of
the right, as such, has no rights as a stockholder of Intuit. The rights are
redeemable for $0.001 per right, subject to adjustment, at the option of the
board of directors. The rights will expire on May 1, 2008, unless they are
redeemed or exchanged by Intuit before that date.
The rights plan is designed to protect and maximize the value of the
outstanding equity interests in Intuit in the event of an unsolicited attempt by
an acquiror to take over Intuit, in a manner or on terms not approved by the
board of directors. Takeover attempts frequently include coercive tactics to
deprive the board of directors and stockholders of any real opportunity to
determine Intuit's destiny. The board
48
adopted the rights plan to deter coercive tactics, including a gradual
accumulation of shares in the open market of a 15% or greater position to be
followed by a asset purchase or a partial or two-tier tender offer that does not
treat all stockholders equally. These tactics unfairly pressure stockholders,
squeeze them out of their investment without giving them any real choice and
deprive them of the full value of their shares. The rights plan is not intended
to prevent a takeover of Intuit and will not do so. Because Intuit may redeem
the rights, they should not interfere with any asset purchase or business
combination approved by the board of directors.
Issuance of the rights does not weaken Intuit's financial strength or
interfere with its business plans. The issuance of the rights themselves has no
dilutive effect, will not affect reported earnings per share, should not be
taxable to Intuit or to its stockholders and will not change the way in which
Intuit's shares are traded. Intuit's board of directors believes that the rights
represent a sound and reasonable means of addressing the complex issues of
corporate policy created by the current takeover environment. However, the
rights may have the effect of rendering more difficult or discouraging an
acquisition of Intuit deemed undesirable by the board of directors. The rights
may cause substantial dilution to a person or group that attempts to acquire
Intuit on terms or in a manner not approved by Intuit's board of directors,
unless the offer is conditioned upon the purchase or redemption of the rights.
Delaware Anti-Takeover Law. Intuit is subject to Section 203 of the
Delaware General Corporation Law regulating corporate takeovers. In general,
this law prohibits a publicly-held Delaware corporation from engaging in a
"business combination" with an "interested stockholder" for three years after
the person became an interested stockholder unless, subject to specified
exceptions, the business combination or the transaction in which the person
became an interested stockholder is approved in a prescribed manner. Generally,
a "business combination" includes an asset purchase, asset sale, stock sale or
other transaction that results in a financial benefit to the interested
stockholder. Generally, an "interested stockholder" is a person who, together
with affiliates and associates, owns, or within three years prior, did own, 15%
or more of the corporation's voting stock. These provisions may have the effect
of delaying, deferring or preventing a change in control of Intuit without
further action by the stockholders.
Transfer Agent and Registrar. The transfer agent and registrar for
Intuit common stock is American Stock Transfer & Trust Company.
PREFERRED STOCK
Intuit's certificate of incorporation authorizes the board of directors
to direct the issuance of up to 1,344,918 shares of preferred stock without any
further vote or action by Intuit's stockholders. The shares of preferred stock
may be issued in one or more series and with rights, preferences, privileges and
restrictions, including dividend rights, voting rights, conversion rights, terms
of redemption and liquidation preferences that the board of directors may fix or
designate.
A total of 144,918 shares of preferred stock have been designated as
Series A Preferred Stock, $0.01 par value per share, and a total of 200,000
shares of preferred stock have been designated as Series B Junior Participating
Preferred Stock, $0.01 par value per share. No shares of preferred stock are
issued or outstanding. The shares of Series B Preferred Stock are reserved for
issuance upon exercise of the preferred stock purchase rights issued under the
rights plan discussed above. The shares of Series B Preferred Stock will not be
redeemable. The holders of the Series B Preferred Stock will be entitled to a
quarterly per share dividend of 1,000 times the dividend declared per share of
common stock. In the event of liquidation, the holders of the Series B Preferred
Stock will be entitled to a liquidation preference of $10.00 per share, plus an
aggregate payment of 1,000 times the aggregate payment made per share of
49
common stock. Each share of Series B Preferred Stock will have 1,000 votes,
voting together with the common stock. Finally, in any asset purchase,
consolidation or other transaction in which shares of common stock are
exchanged, each share of Series B Preferred Stock will be entitled to receive
1,000 times the amount received per share of common stock. These rights are
protected by customary antidilution provisions. Because of the nature of these
dividend, liquidation and voting rights, the value of the one three-thousandths
interest in a share of Series B Preferred Stock purchasable upon exercise of
each right should approximate the value of one share of common stock.
Additional Series of Preferred Stock. The board of directors may
authorize and issue the remaining authorized but undesignated shares of
preferred stock with voting or conversion rights that could adversely affect the
voting power or other rights of the holders of common stock. The terms of the
preferred stock that might be issued could prohibit Intuit from completing any
asset purchase, reorganization, sale of substantially all its assets,
liquidation or other extraordinary corporate transaction without approval of the
outstanding shares of preferred stock. As a result, the issuance of preferred
stock may have the effect of delaying, deferring or preventing a change in
control of Intuit.
50
DESCRIPTION OF FLAGSHIP CAPITAL STOCK
IN GENERAL
The authorized capital stock of Flagship consists of 20,000,000 shares
of common stock, $.01 par value, and 5,000,000 shares of preferred stock, $.01
par value. As of May 17, 2002, there were issued and outstanding 4,877,493
shares of common stock held by 47 holders of record. No shares of preferred
stock were issued and outstanding as of such date.
COMMON STOCK
Holders of common stock are entitled to one vote for each share held of
record on all matters submitted to a vote of the stockholders. Subject to
preferences that may be applicable to any outstanding shares of preferred stock,
holders of common stock are entitled to receive ratably such dividends, if any,
as may be declared by the board of directors of Flagship out of funds legally
available for the payment of dividends. In the event of a liquidation,
dissolution or winding up of Flagship, holders of common stock are entitled to
share ratably in all assets remaining after the payment of liabilities and
liquidation preferences of any outstanding shares of preferred stock. Holders of
common stock have no preemptive rights or rights to convert their common stock
into any other securities. There are no redemption or sinking fund provisions
applicable to the common stock. There is no established trading market for any
of the shares of Flagship common stock.
PREFERRED STOCK
The board of directors has the authority, without further action by the
stockholders of Flagship, to issue up to 5,000,000 shares of preferred stock in
one or more series and to fix the designations, powers, preferences, privileges
and relative participating, optional or special rights and the qualifications,
limitations or restrictions thereof, including dividend rights, conversion
rights, voting rights, terms of redemption and liquidation preferences, any or
all of which may be greater than the rights of the common stock. As of May 17,
2002, no shares of preferred stock were issued and outstanding and 5,000,000
shares remained available for issuance.
51
COMPARISON OF RIGHTS OF INTUIT AND FLAGSHIP CAPITAL STOCK
Flagship and Intuit are both incorporated in the State of Delaware.
Intuit will continue to be governed by the DGCL following the merger. The rights
of Intuit's stockholders are governed by its certificate of incorporation, as
amended, its bylaws and the DGCL. The rights of Flagship's stockholders are
governed by Flagship's certificate of incorporation, Flagship's bylaws and the
DGCL. Upon consummation of the merger, the rights of the stockholders in respect
of the shares of Intuit common stock to be issued in the merger will be governed
by the Intuit certificate of incorporation and Intuit's bylaws. The following
summary, which does not purport to be a complete statement of the general
differences between the rights of the stockholders of Intuit and of Flagship
stockholders, sets forth certain differences between (1) Intuit's certificate of
incorporation and Intuit's bylaws, and (2) Flagship's certificate of
incorporation and Flagship's bylaws. This summary is qualified in its entirety
by reference to the full text of each of those documents.
NUMBER OF DIRECTORS
Intuit's bylaws provide that the number of directors is to be
established from time to time by the board of directors. Currently, the
authorized number of directors for the Intuit board of directors is eight.
The Flagship bylaws provide that the initial number of directors is
five, with the exact number that constitutes a whole board to be determined by
resolution of the stockholders or the board of directors. Currently, the
authorized number of directors for the Flagship board of directors is five.
REMOVAL OF DIRECTORS; FILLING VACANCIES
Intuit's bylaws provide that any director on the Intuit board of
directors may be removed with or without cause by the affirmative vote of the
holders of a majority of the shares then entitled to vote at an election of
directors. Intuit's bylaws provide that any vacancy occurring in the Intuit
board of directors for any cause, and any newly created directorship resulting
from any increase in the authorized number of directors, will be filled only by
the affirmative vote of a majority of the directors then in office.
Under Flagship's bylaws, any director on the Flagship board of directors
may be removed with or without cause by the affirmative vote of a majority of
the shares then entitled to vote at an election of directors, except that the
directors elected by holders of a particular class or series of stock may be
removed without cause only by the affirmative vote of a majority of the
outstanding shares of such class or series. Flagship's bylaws provide that any
vacancy occurring in the Flagship board of directors may be filled by a majority
of the directors then in office, even if less than a quorum, or by a sole
remaining director.
STOCKHOLDER MEETINGS AND WRITTEN CONSENTS
The Intuit bylaws and Flagship bylaws provide that any action required
to be taken at any annual or special meeting of stockholders may be taken by
written consent without a meeting.
POWER TO CALL SPECIAL MEETING OF STOCKHOLDERS
Under Intuit's bylaws, special meetings may be called at any time by the
chairman of the board of directors, the president, or a majority of the board of
directors.
Under Flagship's bylaws, a special meeting of the stockholders may be
called at any time by the board of directors or the president.
52
PERCENTAGE OF VOTING STOCK; INFLUENCE OVER AFFAIRS
Upon completion of the merger, the percentage ownership of Intuit by
each former Flagship stockholder will be substantially less than the
stockholder's current percentage ownership of Flagship. Accordingly, former
Flagship stockholders will have a significantly smaller voting influence over
the affairs of Intuit than they currently enjoy over the affairs of Flagship.
AUTHORIZED CAPITAL STOCK
The authorized capital stock of Intuit consists of 750,000,000 shares of
Intuit common stock, par value $0.01 per share and 1,344,918 shares of Intuit
preferred stock, par value $0.01 per share. The authorized capital stock of
Flagship consists of 20,000,000 shares of Flagship common stock, and 5,000,000
shares of preferred stock, of which 2,126,667 shares have been designated Series
A Preferred Stock.
UNDESIGNATED PREFERRED STOCK
Under Intuit's certificate of incorporation, Intuit's board of
directors, subject to limitations prescribed by law and Intuit's certificate of
incorporation, is authorized to provide for the issuance of Intuit undesignated
preferred stock in one or more series. The authorized undesignated preferred
stock is available for issuance without further action by Intuit stockholders,
unless this action is required by applicable law or the rules of any stock
exchange or automated quotation system on which Intuit securities may be listed
or traded.
Under Flagship's certificate of incorporation, Flagship's board of
directors, subject to limitations prescribed by law, is authorized to provide
for the issuance of Flagship undesignated preferred stock in one or more series.
The authorized undesignated preferred stock is available for issuance without
further action by Flagship stockholders, unless this action is required by
applicable law.
STOCKHOLDER RIGHTS PLAN
Intuit adopted a stockholder rights plan on April 29, 1998. The rights
plan is designed to protect and maximize the value of the outstanding equity
interests in Intuit in the event of an unsolicited attempt by an acquiror to
take over Intuit, in a manner or on terms not approved by the board of
directors. See "Description of Intuit Capital Stock." Flagship does not have a
stockholder rights plan in place.
BY ORDER OF THE BOARD OF DIRECTORS
May 17, 2002
53
ANNEX A
================================================================================
--------------------------------------------------
AGREEMENT AND PLAN OF MERGER
--------------------------------------------------
INTUIT INC.,
ARDENT ACQUISITION CORPORATION,
CREDENCE ACQUISITION CORPORATION,
THE FLAGSHIP GROUP INC. ("COMPANY"),
AMERICAN FUNDWARE, INC.,
CERTAIN STOCKHOLDERS OF COMPANY
AND
MICHAEL POTTS AND SCOTT WYLIE, AS REPRESENTATIVES
MAY 6, 2002
================================================================================
AGREEMENT AND PLAN OF MERGER
This AGREEMENT AND PLAN OF MERGER (this "AGREEMENT") is made and entered
into as of May 6, 2002 (the "AGREEMENT DATE") by and among Intuit Inc., a
Delaware corporation ("Parent"), Ardent Acquisition Corporation, a Delaware
corporation and a wholly owned subsidiary of Parent ("MERGER SUB"), Credence
Acquisition Corporation, a Delaware corporation and a wholly owned subsidiary of
Parent ("MERGER SUB II"), The Flagship Group Inc., a Delaware corporation
("COMPANY"), American Fundware, Inc., a Colorado corporation and a wholly owned
subsidiary of Company ("SUB"), certain management stockholders of Company listed
on Exhibit A (the "SIGNIFICANT STOCKHOLDERS"), and each of Michael Potts and
Scott Wylie, as Representatives (as defined in Section 8.4).
RECITALS
A. Sub is engaged in the business of developing, marketing, licensing,
distributing and selling accounting and financial software and related products
and services primarily targeted for use by non-profit organizations,
universities and governmental agencies (the "BUSINESS").
B. The Boards of Directors of Parent, Merger Sub, Merger Sub II, Company
and Sub have determined that the Merger (as defined in Section 2.1(b)) is in the
best interests of their respective companies and stockholders, have approved and
declared advisable this Agreement and, accordingly, have agreed to effect the
Merger provided for herein upon the terms and conditions set forth in this
Agreement.
C. Concurrently with the execution and delivery of this Agreement, and
as a condition and inducement for Parent's willingness to enter into this
Agreement, Parent, Company and the Company Stockholders listed on Exhibit B are
entering into a voting agreement in the form attached hereto as Exhibit C (the
"VOTING AGREEMENT") under which such Company Stockholders will agree to vote all
shares of Company's capital stock owned by such Company Stockholders in favor of
this Agreement, the Merger and the transactions contemplated by this Agreement.
D. The parties to this Agreement intend that the Merger qualify as a
"reorganization" within the meaning of the Internal Revenue Code (as defined in
Section 1.1), and that Parent, Company, Merger Sub and Merger Sub II will each
be a "party to a reorganization," within the meaning of Section 368(b) of the
Internal Revenue Code with respect to the Merger.
E. Parent, Merger Sub II, Company, Sub and the Significant Stockholders
desire to make certain representations, warranties, covenants and agreements in
connection with the Merger and to prescribe various conditions to the Merger.
NOW, THEREFORE, in consideration of the facts recited above and the
mutual agreements set forth herein, the parties hereby agree as follows:
ARTICLE I
CERTAIN DEFINITIONS
1.1 Certain Defined Terms. As used in this Agreement, the following
terms will have the following meanings:
"AFFILIATE" means, with respect to any specified Person, any other
Person that directly or indirectly controls, is controlled by, or is under
common control with, such specified Person (where, for purposes of this
definition, "CONTROL" (including the terms "CONTROLLED BY" and "UNDER COMMON
CONTROL WITH") means the possession, directly or indirectly, of the power to
direct or cause the direction of the management policies of a Person, whether
through the ownership of stock, as an officer, director, trustee or executor, by
contract or otherwise).
"APPLICABLE LAWS" means all foreign, federal, state, local, municipal or
other laws, ordinances, regulations, rules and other provisions having the force
or effect of law, and all judicial and administrative orders, writs,
injunctions, awards, judgments, decrees and determinations, applicable to a
specified Person or to such Person's assets, properties and business.
"CLOSING" AND "CLOSING DATE" will have the respective meanings specified
for such terms in Section 6.1.
"CLOSING BALANCE SHEET" means Company's balance sheet at the Closing
Date.
"CLOSING CAPITALIZATION CERTIFICATE" means a certificate dated as of the
Closing Date executed on behalf of Company by its Chief Executive Officer
setting forth the same information as is set forth on Schedule 3.6(a)-1,
Schedule 3.6(a)-2 and Schedule 3.6(b) but updated to be true and correct as of
the Closing Date.
"CLOSING CERTIFICATE" means a certificate dated as of the Closing Date
executed on behalf of Company by its Chief Executive Officer setting forth (a)
the Closing Balance Sheet, and (b) the Closing Working Capital.
"CLOSING WORKING CAPITAL" means the difference obtained by subtracting
the current liabilities of Company (other than the current portion of any long
term debt or obligation), as listed on the Closing Balance Sheet, from the
current assets of Company, as listed on the Closing Balance Sheet.
"COMPANY CASH CONSIDERATION" means the product obtained by multiplying
15% by the difference between (a) the Merger Consideration, less (b) the
aggregate exercise price of all Company Options that are vested immediately
prior to the Closing Date.
"COMPANY CASH CONVERSION NUMBER" means the quotient (calculated to the
seventh decimal place) obtained by dividing (a) the Company Cash Consideration
by (b) the Company Share Number.
"COMPANY COMMON STOCK" means Company's common stock, $0.01 par value per
share.
2
"COMPANY DOLLAR AMOUNT" means the difference between the Merger
Consideration and the Company Cash Consideration.
"COMPANY OPTION" means each outstanding option to purchase shares of
Company Common Stock.
"COMPANY OPTION CONVERSION NUMBER" means the quotient (calculated to the
seventh decimal place) obtained by dividing (a) the quotient obtained by
dividing (i) the Merger Consideration, by (ii) the Company Share Number, by (b)
the Parent Average Price Per Share.
"COMPANY OPTION PLANS" means Company's 1999 Stock Option/Stock Issuance
Plan and Company's 1993 Incentive Stock Option Plan.
"COMPANY PREFERRED STOCK" means Company's preferred stock, $0.01 par
value per share.
"COMPANY SHARE NUMBER" means the sum obtained by adding (a) the
aggregate number of shares of Company Common Stock that are issued outstanding
immediately prior to the Closing Date and (b) the aggregate number of shares of
Company Common Stock underlying Company Options that are vested immediately
prior to the Closing Date.
"COMPANY STOCK CONSIDERATION" means the quotient obtained by dividing
(a) the Company Dollar Amount, by (b) the Company Share Number.
"COMPANY STOCK CONVERSION NUMBER" means the quotient (calculated to the
seventh decimal place) obtained by dividing (a) the Company Stock Consideration
by (b) the Parent Average Price Per Share.
"COMPANY STOCKHOLDER" means a record holder of issued and outstanding
shares of Company Common Stock on the Agreement Date, the Record Date or the
Closing Date, as applicable.
"DELAWARE LAW" means the Delaware General Corporation Law.
"EFFECTIVE TIME" means the date and time on which the Merger first
becomes legally effective under Delaware Law as a result of the filing with the
Delaware Secretary of State of the First-Step Certificate of Merger pursuant to,
and in conformity with, the requirements of Section 251 of Delaware Law.
"ENCUMBRANCE" means any pledge, lien (including liens for Taxes) other
than a Permitted Lien, collateral assignment, security interest, mortgage, title
retention, conditional sale or other security arrangement, or any charge,
adverse claim of title, ownership or right to use, or any other encumbrance of
any kind whatsoever, including any restriction on (a) the voting of any
security, (b) the transfer of any security or other asset, (c) the receipt of
any income derived from any asset, (d) the use of any asset, and (e) the
possession, exercise or transfer of any other attribute of ownership of any
asset.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
3
"ERISA AFFILIATE" means any entity which is a member of any of the
following which includes Company or Sub: (a) a "controlled group of
corporations," as defined in Section 414(b) of the Internal Revenue Code; (b) a
group of entities under "common control," as defined in Section 414(c) of the
Internal Revenue Code; or (c) an "affiliated service group," as defined in
Section 414(m) of the Internal Revenue Code or any treasury regulations
promulgated under Section 414(o) of the Internal Revenue Code.
"ESCROW EARNINGS" means earnings on Escrow Cash invested in accordance
with the Escrow Agreement.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended.
"FIRST-STEP CERTIFICATE OF MERGER" means the certificate of merger in
the form attached hereto as Exhibit D.
"GAAP" means United States generally accepted accounting principles,
consistently applied.
"GOVERNMENTAL AUTHORITY" means any court, administrative agency,
commission or other governmental authority.
"INTELLECTUAL PROPERTY RIGHTS" means, collectively, all worldwide
industrial and intellectual property rights, including patents, patent
applications, patent rights, trademarks, trademark registrations and
applications therefor, trade dress rights, trade names, service marks, service
mark registrations and applications therefor, Internet domain names, Internet
and World Wide Web URLs or addresses, copyrights, copyright registrations and
applications therefor, franchises, licenses, inventions, trade secrets,
know-how, customer lists, supplier lists, proprietary processes and formulae,
software source code and object code, algorithms, net lists, architectures,
structures, technology, screen displays, photographs, images, layouts,
inventions, development tools, designs, blueprints, specifications, technical
drawings (or similar information in electronic format) and all documentation and
media constituting, describing or relating to the foregoing, including manuals,
programmers' notes, memoranda and records.
"INTERNAL REVENUE CODE" means the Internal Revenue Code of 1986, as
amended, and the rulings and regulations promulgated thereunder.
"KNOWLEDGE" means, with respect to any fact, circumstance, event or
other matter in question, (a) the knowledge of such fact, circumstance, event or
other matter after reasonable inquiry of (i) an individual, if used in reference
to an individual, or (ii) as applicable, any officer or inside director of such
party, if used in reference to a Person that is not an individual, and (b) the
actual knowledge of such fact, circumstance, event or other matter of any
outside director of such party, if used in reference to a Person that is not an
individual. Any such individual, officer or inside director will be deemed to
have knowledge of a particular fact, circumstance, event or other matter if (a)
such fact, circumstance, event or other matter is reflected in a manner that
would be obvious to a reasonable person in one or more documents (whether
written or electronic, including electronic mails sent to or by such individual,
officer, director, partner, member, executor, trustee or other similar
representative) in, or that have been in, the possession of such individual,
officer, director, partner, member, executor, trustee or other similar
representative, including his or its personal files, or (b) such knowledge could
be obtained from
4
reasonable inquiry of the persons employed by such party charged with
administrative or operational responsibility for such matters for such party and
such fact, circumstance, event or other matter is of such a nature that would
prompt such an inquiry.
"LIABILITIES" means debts, liabilities and obligations, whether accrued
or fixed, absolute or contingent, matured or unmatured, determined or
determinable, known or unknown, including those arising under any law, action or
governmental order and those arising under any contract, agreement, arrangement,
commitment or undertaking.
"MATERIAL ADVERSE CHANGE" or "MATERIAL ADVERSE EFFECT," when used with
reference to any entity or group of related entities, means any event, change,
violation, inaccuracy, circumstance or effect (regardless of whether such events
or changes are inconsistent with the representations or warranties made by such
party in this Agreement) that is or is reasonably likely to be, individually or
in the aggregate, materially adverse to the condition (financial or otherwise),
properties, assets (including intangible assets), business, operations or
results of operations of such entity and its Subsidiaries, taken as a whole;
provided, however, that in no event will a change in the price of the publicly
traded stock of Parent constitute, in and of itself, a Material Adverse Change
or a Material Adverse Effect in Parent; and provided further, that any such
event, change, violation, inaccuracy, circumstance or effect that primarily
results from a change in general economic conditions or a change affecting the
industry in which an entity operates will not constitute, in and of itself, a
Material Adverse Effect.
"MERGER CONSIDERATION" means $26,000,000 less (a) the sum of (i) the
amount by which the Closing Working Capital is less than $1,000,000, and (ii)
the aggregate amount of Transaction Expenses (as defined in Section 10.1) of
Company, Sub or the Significant Stockholders that are not paid by such parties
by the Closing Date or not accrued on the Closing Balance Sheet, plus (b) the
sum of (i) the amount by which the Closing Working Capital is greater than
$1,000,000, and (ii) the aggregate exercise price of all Company Options that
are vested immediately prior to the Closing Date.
"PARENT AVERAGE PRICE PER SHARE" means the average of the closing price
per share of Parent Common Stock as quoted on the Nasdaq National Market (or
such other exchange or quotation system on which shares of Parent Common Stock
are then traded or quoted) and reported in The Wall Street Journal for the five
consecutive trading days ending on (and inclusive of) the last trading day
immediately prior to the Closing Date.
"PARENT COMMON STOCK" means Parent's common stock, $0.01 par value per
share.
"PERMITTED LIENS" means (a) liens for current taxes not yet due and
payable or delinquent or (b) imperfections or irregularities in title, if any,
that (i) have arisen in the ordinary course of business, consistent with past
practice, (ii) individually or in the aggregate are not material, and (iii) do
not adversely affect the ownership or use of the asset subject to such lien.
"PERSON" means any individual, partnership, firm, corporation,
association, trust, unincorporated organization or other entity.
"PROPRIETARY ASSETS" means, collectively, software in any form
(including software programs, objects, modules, routines, algorithms and code,
in both source code and object code form), copyrightable works, inventions,
whether or not patentable, trade secrets, know-how,
5
processes, designs, techniques, confidential business information and other
proprietary information (including customer lists) and all other technologies of
any kind.
"RELEASE DATE" means the eighteen-month anniversary of the Effective
Time.
"SEC" means the Securities and Exchange Commission.
"SECOND-STEP CERTIFICATE OF MERGER" means the certificate of merger in
the form attached hereto as Exhibit E.
"SECURITIES ACT" means the Securities Act of 1933, as amended.
"SUB COMMON STOCK" means Sub's common stock, $0.01 par value per share.
"SUBSIDIARY" of a specified entity means any corporation, partnership,
limited liability company, joint venture or other entity of which the specified
entity (either alone or through or together with any other subsidiary) owns,
directly or indirectly, 50% or more of the stock or other equity or partnership
interests the holders of which are generally entitled to vote for the election
of the Board of Directors or other governing body of such corporation or other
legal entity.
"TAX" or "TAXES" means foreign, federal, state and local taxes of any
kind whatsoever (whether payable directly or by withholding), including sales,
use, excise, franchise, ad valorem, property, inventory, value added,
withholding and payroll taxes (including all taxes or other payments required to
be withheld by an employer and paid over to any governmental authority), and
duties together with any interest and penalties, additions to tax or additional
amounts with respect thereto, imposed by any taxing authority.
ARTICLE II
THE MERGER
2.1 The Merger.
(a) At the Effective Time and subject to and upon the terms and
conditions of this Agreement, Merger Sub will be merged with and into Company
(the "REVERSE MERGER"), the separate existence of Merger Sub will cease and
Company will continue as the surviving corporation. Subject to Section 2.1(b),
Company as the surviving corporation after the Reverse Merger is hereinafter
sometimes referred to as the "SURVIVING CORPORATION."
(b) Immediately following the consummation of the Reverse Merger,
Parent will cause Company as the surviving corporation in the Reverse Merger, to
be merged (the "SECOND-STEP MERGER") with and into Merger Sub II pursuant to the
Agreement of Merger entered into concurrently with this Agreement between
Company and Merger Sub II attached hereto as Exhibit F. There will be no
conditions to the closing of the Second-Step Merger other than the closing of
the Reverse Merger. Following the Second-Step Merger, the separate existence of
Company will cease and Merger Sub II will continue as the Surviving Corporation.
The term "MERGER" will refer to the Reverse Merger and the Second-Step Merger,
collectively or seriatim, as appropriate.
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2.2 Conversion of Shares.
(a) Conversion of Merger Sub Stock. At the Effective Time, each
share of Merger Sub common stock that is issued and outstanding immediately
prior to the Effective Time will be converted into one validly issued, fully
paid and nonassessable share of common stock, $0.001 par value per share, of the
Surviving Corporation.
(b) Conversion of Company Common Stock. Subject to the terms and
conditions of this Agreement, at the Effective Time, each share of Company
Common Stock that is issued and outstanding immediately prior to the Effective
Time and then held by a Company Stockholder will, by virtue of the Merger and
without the need for any further action on the part of such Company Stockholder
(except as expressly provided herein), be converted into and represent the right
to receive (i) the number of shares of Parent Common Stock that is equal to the
Company Stock Conversion Number and (ii) an amount of cash (rounded to the
nearest cent), without interest, equal to the Company Cash Conversion Number.
The shares of Parent Common Stock referenced in subsection (i) of this Section
2.2(b) are referred to herein as the "MERGER SHARES." The aggregate cash amounts
referenced in subsection (ii) of this Section 2.2(b) are referred to herein as
the "CASH AMOUNTS." The number of Merger Shares and the Cash Amounts to be
issued to each Company Stockholder pursuant to this Section 2.2(b) will be
computed after aggregating all Merger Shares and all Cash Amounts to be received
by such Company Stockholder. The preceding provisions of this Section 2.2(b) are
subject to the provisions of Section 2.2(c) (regarding rights of holders of
Dissenting Shares, as defined in Section 6.3), Section 2.2(d) (regarding
fractional shares), Section 2.2(f) (regarding the continuation of vesting and
repurchase rights), Section 2.4 (regarding the withholding of the Escrow Cash,
as defined in Section 2.4) and Section 2.10 (regarding the Cash Election, as
defined in Section 2.10).
(c) Dissenting Shares. As more fully set forth in Section 6.3,
holders of shares of Company Common Stock who have complied with all
requirements for perfecting stockholder dissenters' rights, as set forth in
Section 262 of Delaware Law, will be entitled to such rights under Delaware Law
with respect to such shares. Except as set forth in Section 6.3, notwithstanding
any other provision of this Agreement to the contrary, any shares of Company
Common Stock that, as of the Effective Time, are or may become Dissenting Shares
will not be converted into, or represent the right to receive, shares of Parent
Common Stock (or cash in lieu of fractional shares thereof) or Cash Amounts
pursuant to Section 2.2(b), but instead the holders of those shares will be
entitled only to payment in cash for those shares as Dissenting Shares in
accordance with Section 262 of Delaware Law.
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(d) Fractional Shares. No fractional shares of Parent Common Stock
will be issued in connection with the Merger. In lieu thereof, each holder of
Company Common Stock who would otherwise be entitled to receive a fraction of a
share of Parent Common Stock pursuant to Section 2.2(b)(i), computed after
aggregating all shares of Parent Common Stock to be received by such holder
pursuant to Section 2.2(b)(i), will instead receive from Parent, upon surrender
of such holder's Certificates (as defined in Section 6.2(b)) pursuant to Article
VII, an amount of cash (rounded to the nearest cent) equal to the product
obtained by multiplying (i) the Parent Average Price Per Share by (ii) the
fraction of a share of Parent Common Stock that such holder would otherwise have
been entitled to receive.
(e) Cancellation of Company-Owned Stock. Notwithstanding Section
2.2(b), each share of Company Common Stock held by Company or Sub immediately
prior to the Effective Time will be canceled and extinguished without any
conversion thereof.
(f) Continuation of Vesting and Repurchase Rights. If any shares of
Company Common Stock outstanding immediately prior to the Effective Time are
unvested or subject to a repurchase option, vesting schedule or any other
condition providing that such shares may be forfeited to or repurchased by
Company or any Affiliate thereof, as the case may be, upon any termination of
the relevant relationship (including employment or directorship) of Company
(and/or any Affiliate of Company) with the holder (or prior holder) thereof
under the terms of any restricted stock purchase agreement, stock option
agreement or other agreement with Company (such shares being referred to herein
as "UNVESTED COMPANY SHARES"), then such repurchase option, vesting schedule or
other condition will be assigned to Parent and the shares of Parent Common Stock
(such shares being referred to herein as "UNVESTED PARENT SHARES") and Cash
Amounts issued upon the conversion of such Unvested Company Shares in the Merger
will be unvested and will continue to be subject to the same repurchase options,
vesting schedules, escrows or other conditions, as applicable, immediately
following the Effective Time as the Unvested Company Shares for which such
shares of Parent Common Stock and Cash Amounts were exchanged were subject to
immediately prior to the Effective Time. The certificates representing Unvested
Parent Shares will accordingly be marked with appropriate legends noting such
repurchase options, vesting schedules, escrows or other conditions. Company will
take all actions that may be necessary to ensure that, from and after the
Effective Time, Parent (or its assignee) is entitled to exercise any such
repurchase option, vesting schedule, escrow or other right set forth in any such
restricted stock purchase agreement, stock option agreement or other agreement.
2.3 Termination of Other Company Capital Stock and Company Rights.
Effective immediately prior to the Effective Time, all Company Capital Stock
(excluding shares of Company Common Stock) and all Company Rights (excluding
Company Options), in each case outstanding immediately prior to the Effective
Time, will be canceled or terminated, as the case may be.
2.4 Escrow. At the Effective Time, Parent will withhold from the
consideration issuable to the Company Stockholders in the Merger upon conversion
of shares of Company Common Stock pursuant to Section 2.2(b), the Cash Amounts
issued to each Company Stockholder pursuant to Section 2.2(b)(ii) (such withheld
Cash Amounts, the "ESCROW CASH") and will deliver the Escrow Cash to American
Stock Transfer & Trust Company as escrow agent (the "ESCROW AGENT"). If a
Company Stockholder holds Unvested Company Shares, then Cash Amounts issuable
upon conversion hereunder of shares of Company Common Stock held by
8
such Company Stockholder which are not Unvested Company Shares will be withheld
and placed in escrow in accordance with the provisions of the preceding
sentence. The Escrow Agent will hold the Escrow Cash as security for the Company
Stockholders' indemnification obligations for Damages (as defined in Section
8.1(d)) under Article VIII pursuant to the provisions of an escrow agreement in
substantially the form attached hereto as Exhibit G (the "ESCROW AGREEMENT") to
be entered into at the Closing by Parent, the Escrow Agent and the
Representatives. All costs and expenses related to the Escrow Agreement will be
divided equally between Parent, on the one hand, and the Company Stockholders on
the other hand (with each Company Stockholder responsible on a pro rata basis
based on each Company Stockholder's pro rata share of the Escrow Cash).
2.5 Effects of the Merger.
(a) General. At the Effective Time, the effect of the Merger will be
as provided in this Agreement and the applicable provisions of Delaware Law.
Without limiting the generality of the foregoing, at the Effective Time all of
the property, rights, privileges, powers and franchises of Company and Merger
Sub will vest in the Surviving Corporation, and all Liabilities and duties of
Company and Merger Sub will become the Liabilities and duties of the Surviving
Corporation. Without limiting the generality of the foregoing, at the effective
time of the Second-Step Merger, all of the property, rights, privileges, powers
and franchises of Company and Merger Sub II will vest in the Surviving
Corporation, and all Liabilities and duties of Company and Merger Sub II will
become the Liabilities and duties of the Surviving Corporation.
(b) Certificate of Incorporation and Bylaws. At the Effective Time,
the Certificate of Incorporation and Bylaws of Merger Sub will continue
unchanged and be the Certificate of Incorporation and Bylaws of the Surviving
Corporation immediately after the Effective Time, and at the effective time of
the Second-Step Merger, the Certificate of Incorporation and Bylaws of Merger
Sub II will continue unchanged and be the Certificate of Incorporation and
Bylaws of the Surviving Corporation.
(c) Directors and Officers. At the Effective Time, the initial
directors of the Surviving Corporation will be the directors of Merger Sub
immediately prior to the Effective Time, and at the effective time of the
Second-Step Merger, the initial directors of the Surviving Corporation will be
the directors of Merger Sub II immediately prior to the effective time of the
Second-Step Merger, until their respective successors are duly elected or
appointed and qualified. At the Effective Time, the initial officers of the
Surviving Corporation will be the officers of Merger Sub immediately prior to
the Effective Time, and at the effective time of the Second-Step Merger, the
initial officers of the Surviving Corporation will be the officers of Merger Sub
II immediately prior to the effective time of the Second-Step Merger, until
their respective successors are duly appointed.
2.6 Certain Closing Deliveries by Company. At the Closing, in addition
to Company's delivery of the items, documents and certificates to be delivered
by Company at the Closing pursuant to Section 7.2, Company will deliver or cause
to be delivered to Parent the following items, against delivery to Company of
the items, documents and certificates to be delivered to Company by Parent at
the Closing pursuant to Section 7.1:
9
(a) copies of minutes of meetings of, and resolutions duly and
validly adopted and approved by, the Board of Directors and the stockholders of
Company approving and authorizing the execution, delivery and performance by
Company of this Agreement, the Company Ancillary Agreements (as defined in
Section 3.1(a)) and the consummation of the Merger hereunder and all other
transactions contemplated hereby and thereby, certified as true and correct on
the Closing Date by Company's Secretary;
(b) copies of minutes of meetings of, and resolutions duly and
validly adopted and approved by, the Board of Directors and the stockholders of
Sub approving and authorizing the execution, delivery and performance by Sub of
this Agreement, the Sub Ancillary Agreements (as defined in Section 3.1(b)) and
all other transactions contemplated hereby and thereby, certified as true and
correct on the Closing Date by Sub's Secretary; and
(c) a certificate from the Delaware Secretary of State dated as of
the date that is one business day prior to the Closing Date regarding the
corporate and tax good standing of Company with that agency as of such date, and
a certificate from the Colorado Secretary of State dated as of the date that is
one business day prior to the Closing Date regarding the corporate and tax good
standing of Sub with that agency as of such date.
2.7 Securities Law Issues. The Merger Shares will be registered by
Parent under the Securities Act on Parent's currently effective Form S-4 shelf
registration statement (the "REGISTRATION STATEMENT") for issuance as
contemplated by this Agreement. Company will promptly furnish to Parent all
information concerning Company, its directors, officers and stockholders as may
be reasonably requested in connection with any action contemplated by this
Section 2.7.
2.8 Company Options.
(a) At the Effective Time, the Company Option Plans and all Company
Options outstanding immediately prior to the Effective Time will be assumed by
Parent. Each Company Option so assumed by Parent will be converted into an
option (a "PARENT OPTION") to purchase, after the Effective Time, that number of
shares of Parent Common Stock determined by multiplying (i) the number of shares
of Company Common Stock subject to such Company Option immediately prior to the
Effective Time by (ii) the Company Option Conversion Number. If the foregoing
calculation results in a Parent Option being exercisable for a fraction of a
share of Parent Common Stock, then the number of shares of Parent Common Stock
subject to such option will be rounded down to the nearest whole number of
shares. After the Effective Time, the exercise price per share of each Parent
Option will equal the exercise price per share of the Company Option immediately
prior to the Effective Time divided by the Company Option Conversion Number. If
the foregoing calculation results in a Parent Option being exercisable for a
fraction of a cent, then the exercise price of such option will be rounded up to
the nearest cent; provided that if such calculation would result in the exercise
price per share of any Parent Option being less than the par value of a share of
Parent Common Stock, such exercise price will be the par value of such share of
Parent Common Stock. Company will take, or cause to be taken, all actions that
are necessary, proper or advisable under the Company Option Plans to make
effective the transactions contemplated by this Section 2.8(a).
(b) Parent will take all corporate action necessary to reserve for
issuance a sufficient number of shares of Parent Common Stock for delivery
pursuant to the terms set forth
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in Section 2.8(a). Not later than two business days following the Effective
Time, Parent will cause the shares of Parent Common Stock issuable upon exercise
of the Parent Options to be registered or to be issued pursuant to an effective
registration statement on Form S-8 (or successor form) promulgated by the SEC
under the Securities Act, and will use reasonable efforts to maintain the
effectiveness of such registration statement or registration statements for so
long as such Parent Options remain outstanding and shares of Parent Common Stock
are registered under the Exchange Act. Notwithstanding the foregoing, Parent
will not be obligated to register or maintain the registration under the
Securities Act of the issuance of any shares of Parent Common Stock that are
subject to a Parent Option held by a person who is ineligible to have such
person's securities registered on Form S-8 (or successor form).
2.9 Intent to Qualify as Reorganization; No Representations by Parent.
The parties intend to adopt this Agreement and the Merger as a plan of
reorganization under Section 368(a) of the Internal Revenue Code. However,
except as expressly provided herein or in the Representation Letters (as defined
in Section 5.21), neither Parent nor any attorney, accountant or other advisor
of Parent (including Fenwick & West LLP) has made, nor makes any representations
or warranties to Company, the Significant Stockholders or to any Company
Stockholder or other holder of Company securities regarding the Tax treatment of
the Merger and any other transactions contemplated by this Agreement or the
Merger, whether the Merger will qualify as a plan of reorganization under
Section 368(a) of the Internal Revenue Code, or any of the Tax consequences to
any Company Stockholder of this Agreement, the Merger or any of the transactions
contemplated hereby or thereby, and Company and the Significant Stockholders
acknowledge that Company and the Significant Stockholders are relying solely on
their own tax advisors in connection with this Agreement and the transactions
contemplated by this Agreement. The Merger Shares and the Cash Amounts will be
issued solely for the shares of Company Common Stock in connection with this
Agreement, and no other transaction other than the one contemplated hereby
represents, provides for or is intended to be an adjustment or addition to the
consideration paid by such shares of Company Common Stock. No consideration that
would constitute "other property" within the meaning of Section 356(b) of the
Internal Revenue Code is being transferred by Company or any of its Affiliates
for the Merger Shares and the Cash Amounts. Notwithstanding anything herein to
the contrary, (a) Parent, Merger Sub, Merger Sub II, Company and Sub will not
take a position on any Return (as defined in Section 3.11) inconsistent with
this Section 2.9 and (b) Parent, Merger Sub and Merger Sub II will cooperate
with any Company Stockholders who or that defers or intends to defer recognition
of gain with respect to its portion of the Escrow Cash pursuant to Section
453(a) of the Internal Revenue Code.
2.10 Cash Election. In the event that the conditions to Closing set
forth in Sections 7.1(f), 7.1(g), 7.1(h), 7.2 (i) and 7.2(l) are not fulfilled
or waived at or prior to the Closing, Parent may elect, in its sole discretion,
to pay the Merger Consideration solely in cash (the "CASH ELECTION").
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF COMPANY, SUB AND
THE SIGNIFICANT STOCKHOLDERS
Company, Sub and the Significant Stockholders represent and warrant to
Parent that, except as set forth in the letter addressed to Parent by Company
dated as of the Agreement Date,
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including all schedules thereto (which, subject to Section 10.13, will
specifically reference the Sections of this Agreement to which the specific
items of disclosure therein constitute an exception) (the "COMPANY DISCLOSURE
LETTER"), each of the representations, warranties and statements contained in
the following Sections of this Article III is true and correct as of the
Agreement Date and will be true and correct on and as of the Closing Date. For
all purposes of this Agreement, the statements contained in the Company
Disclosure Letter will also be deemed to be representations and warranties made
and given by Company, Sub and the Significant Stockholders to Parent under this
Article III.
3.1 Corporate Organization.
(a) Company. Company is a corporation duly incorporated, validly
existing and in good standing under the laws of the State of Delaware. Company
has the power and authority to own, operate and lease its properties and to
carry on the Business and is duly qualified or licensed to do business and is in
good standing in each jurisdiction where the character of its properties owned
or leased or the nature of its activities make such qualification or licensing
necessary (each such jurisdiction being listed on Schedule 3.1(a) of the Company
Disclosure Letter), except jurisdictions in which the failure by Company to be
qualified or licensed can be corrected without significant cost or expense to
Company and does not adversely affect the ability of Company to enter into this
Agreement and the Company Ancillary Agreements and to consummate the Merger and
the other transactions contemplated hereby and thereby. Company has all
necessary corporate power and authority to enter into this Agreement and each of
the Company Ancillary Agreements, to carry out and perform its obligations
hereunder and thereunder and to consummate the transactions contemplated hereby
and thereby. "COMPANY ANCILLARY AGREEMENTS" means, collectively, the Voting
Agreement and all certificates and documents that Company is to execute and
deliver pursuant to this Agreement. There is no Liability arising out of or
relating to the voiding, and the subsequent restoration, renewal and revival, of
Company's Certificate of Incorporation. Company is not in violation of its
Certificate of Incorporation or Bylaws, each as amended to date.
(b) Sub. Sub is a corporation duly organized, validly existing and
in good standing under the laws of the State of Colorado. Sub has the power and
authority to own, operate and lease its properties and to carry on the Business
and is duly qualified or licensed to do business and is in good standing in each
jurisdiction where the character of its properties owned or leased or the nature
of its activities make such qualification or licensing necessary (each such
jurisdiction being listed on Schedule 3.1(b) of the Company Disclosure Letter),
except jurisdictions in which the failure by Sub to be qualified or licensed can
be corrected without significant cost or expense to Sub and does not adversely
affect the ability of Sub to enter into this Agreement and the Sub Ancillary
Agreements and to consummate the Merger and the other transactions contemplated
hereby and thereby. Sub has all necessary corporate power and authority to enter
into this Agreement and each of the Sub Ancillary Agreements, to carry out and
perform its obligations hereunder and thereunder and to consummate the
transactions contemplated hereby and thereby. "SUB ANCILLARY AGREEMENTS" means,
collectively, all certificates and documents that Sub is to execute and deliver
pursuant to this Agreement. There is no Liability arising out of or relating to
the dissolution, and the subsequent reinstatement, of Sub in Colorado. Sub is
not in violation of its Articles of Incorporation or Bylaws, each as amended to
date.
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3.2 No Subsidiaries. Other than Sub, Company does not have any
Subsidiary or any equity or ownership interest, whether direct or indirect, in
any corporation, partnership, limited liability company, joint venture or other
entity. Sub does not have any Subsidiary or any equity or ownership interest,
whether direct or indirect, in any corporation, partnership, limited liability
company, joint venture or other entity.
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3.3 Power and Authority.
(a) Company. The execution, delivery, carrying out and performance
by Company of this Agreement and each of the Company Ancillary Agreements, the
Merger and the consummation of all the transactions contemplated hereby and
thereby on the terms and conditions set forth herein and therein (i) have been
duly and validly authorized by Company by all necessary corporate action and
approvals of Company's Board of Directors (which action and approvals have been
obtained and carried out in compliance with Applicable Laws, Company's
Certificate of Incorporation and Bylaws, each as amended to date, and all
contracts, agreements, arrangements, commitments and undertakings binding on
Company); and (ii) prior to consummation of the Closing, will have been duly and
validly authorized and approved by the Company Stockholders at the Company
Stockholders Meeting (as defined in Section 5.7(a)) or by the Company
Stockholders Vote (as defined in Section 5.7(a)) (which authorization and
approval by Company Stockholders will have been obtained and carried out in
compliance with, and with the requisite votes required by, Applicable Laws,
Company's Certificate of Incorporation and Bylaws, each as amended to date, and
all contracts, agreements, arrangements, commitments and undertakings binding on
Company). This Agreement has been, and at the Closing all of the Company
Ancillary Agreements will be, duly and validly executed and delivered by
Company, and (assuming due authorization, execution and delivery by Parent) this
Agreement constitutes and, upon the execution of each of the Company Ancillary
Agreements by the parties thereto, each of the Company Ancillary Agreements will
constitute, legal, valid and binding obligations of Company enforceable against
Company in accordance with their respective terms, subject to the effect, if
any, of (i) applicable bankruptcy and other similar laws affecting the rights of
creditors generally and (ii) rules of law and equity governing specific
performance, injunctive relief and other equitable remedies.
(b) Sub. The execution, delivery, carrying out and performance by
Sub of this Agreement and each of the Sub Ancillary Agreements and the
consummation of all the transactions contemplated hereby and thereby on the
terms and conditions set forth herein and therein have been duly and validly
authorized by Sub by all necessary corporate actions and approvals of (i) the
Board of Directors of Sub and (ii) Company, as Sub's sole stockholder (which
actions and approvals have been obtained and carried out in compliance with
Applicable Laws, Sub's Articles of Incorporation and Bylaws, each as amended to
date, and all contracts, agreements, arrangements, commitments and undertakings
binding on Sub). This Agreement has been, and at the Closing all of the Sub
Ancillary Agreements will be, duly and validly executed and delivered by Sub,
and (assuming due authorization, execution and delivery by Parent) this
Agreement constitutes and, upon the execution of each of the Sub Ancillary
Agreements by the parties thereto, each of the Sub Ancillary Agreements will
constitute, legal, valid and binding obligations of Sub enforceable against Sub
in accordance with their respective terms, subject to the effect, if any, of (i)
applicable bankruptcy and other similar laws affecting the rights of creditors
generally and (ii) rules of law and equity governing specific performance,
injunctive relief and other equitable remedies.
(c) Significant Stockholders. Each Significant Stockholder has the
legal capacity to execute, deliver and perform this Agreement and each of the
Significant Stockholders Ancillary Agreements (as defined below). This Agreement
has been, and at the Closing all of the Significant Stockholders Ancillary
Agreements will be, duly and validly executed and delivered by the Significant
Stockholders, and (assuming due authorization, execution and delivery by Parent)
this Agreement constitutes and, upon the execution of each of the Significant
14
Stockholders Ancillary Agreements by the parties thereto, each of the
Significant Stockholders Ancillary Agreements will constitute, legal, valid and
binding obligations of the Significant Stockholders enforceable against the
Significant Stockholders in accordance with their respective terms, subject to
the effect, if any, of (i) applicable bankruptcy and other similar laws
affecting the rights of creditors generally and (ii) rules of law and equity
governing specific performance, injunctive relief and other equitable remedies.
The "SIGNIFICANT STOCKHOLDERS ANCILLARY AGREEMENTS" means, collectively, the
Employment Offer (as defined in Section 7.2(k)) and the Non-Competition
Agreement (as defined in Section 7.2(k)), if applicable, the Voting Agreement,
the Investment Representation Letter (as defined in Section 7.2(l)) and all
certificates and documents that the Significant Stockholders are to execute and
deliver pursuant to this Agreement.
3.4 No Conflict. The execution, delivery and performance of this
Agreement, the Company Ancillary Agreements, the Sub Ancillary Agreements and
the Significant Stockholders Ancillary Agreements by Company, Sub and the
Significant Stockholders, as applicable, do not and will not: (a) conflict with
or violate the Certificate of Incorporation or Bylaws of Company, each as
amended to date; (b) conflict with or violate the Articles of Incorporation or
Bylaws of Sub, each as amended to date; (c) conflict with or violate any
Applicable Laws applicable to Company, Sub or the Significant Stockholders; (d)
result in any material breach of, or constitute a default by Company, Sub or the
Significant Stockholders (or any event which with the giving of notice or lapse
of time, or both, would become a material breach or default) under, or give to
any Person any rights of termination, rescission, amendment, acceleration or
cancellation of, any contract, agreement, arrangement, commitment or undertaking
to which Company, Sub or any Significant Stockholder is a party or by which it
or its assets are bound or affected, including each Material Agreement (as
defined in Section 3.14); (e) conflict with or violate, or result in any
material breach of, or constitute a default under, any of Sub's contracts,
agreements, arrangements or undertakings with or commitments to its customers or
any privacy policy of Sub; or (f) give rise to, or trigger the application of,
any rights of any third party that would come into effect upon the consummation
of the transactions contemplated hereby or thereby.
3.5 Consents and Approvals. The execution, delivery and performance of
this Agreement by Company, Sub and the Significant Stockholders do not, and the
execution, delivery and performance of the Company Ancillary Agreements, the Sub
Ancillary Agreements and the Significant Stockholders Ancillary Agreements by
Company, Sub and the Significant Stockholders, as applicable, will not require
any consent, approval, authorization or other action by, or filing with or
notification to, any third party (other than the approvals discussed in Section
3.24), including any Governmental Authority, except the filing of the First-Step
Certificate of Merger with the Delaware Secretary of State.
3.6 Capitalization.
(a) Outstanding Capital Stock of Company. The authorized capital
stock of Company consists entirely of 20,000,000 shares of Company Common Stock,
of which a total of 4,874,843 shares are issued and outstanding, and 5,000,000
shares of Company Preferred Stock, none of which are issued and outstanding. All
shares of Company Preferred Stock that were previously issued and outstanding
have been redeemed by Company or have been converted into shares of Company
Common Stock by the holder thereof, in either case in accordance with Company's
Certificate of Incorporation in effect at the time of such redemption or
conversion. The number of issued and outstanding shares of Company Common Stock
held by each
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Company Stockholder is set forth in Schedule 3.6(a)-1 of the Company Disclosure
Letter. Except as expressly set forth in Schedule 3.6(a)-1 of the Company
Disclosure Letter, no shares of Company's capital stock are issued or
outstanding. Company holds no treasury shares. As of the Closing Date, there
will have been no change in the authorized or outstanding capital stock of
Company as represented in this Section 3.6(a) other than issuances of Company
Common Stock pursuant to the exercise of currently vested and Company Options.
Schedule 3.6(a)-2 of the Company Disclosure Letter sets forth all holders of
Unvested Company Shares, and for each such holder, the number of Unvested
Company Shares held, the terms of Company's rights to repurchase such Unvested
Company Shares, the schedule on which such rights lapse and whether such
repurchase rights lapse in full or in part as a result of the Merger or upon any
other event. The information set forth on the Closing Capitalization Certificate
with respect to the information set forth on Schedule 3.6(a)-1 and Schedule
3.6(a)-2 of the Company Disclosure Letter will be, as of the Closing Date, true
and correct.
(b) Options, Warrants and Rights. An aggregate of 1,500,000 shares
of Company Common Stock are reserved and authorized for issuance pursuant to the
Company Option Plans, of which options to purchase a total of 1,251,500 shares
of Company Common Stock are outstanding as of the Agreement Date and will be
subject to Company Options as of the Closing Date, except for Company Options
that are exercised in accordance with their terms and Company Options granted
pursuant to Section 5.14. No Company Options have been granted or are
outstanding except for those Company Options that have been granted under and
pursuant to the Company Option Plans as of the Agreement Date. Schedule 3.6(b)
of the Company Disclosure Letter sets forth (in an Excel spreadsheet) (the
"COMPANY OPTION Schedule") the following information for each Company Option and
the holder thereof (one line for each Company Option) as of the Agreement Date:
(i) the holder's last name; (ii) the holder's first name; (iii) the holder's
social security number; (iv) the total number of shares of Company Common Stock
originally subject to the Company Option; (v) the date of grant of the Company
Option; (vi) the base date that the Company Option's vesting is tied to; (vii)
the Company Option's vesting schedule; (viii) the exercise price per underlying
the shares of Company Common Stock; (ix) the type of grant (i.e., non-qualified
or incentive stock option); (x) the number of shares of Company Common Stock
issued to date upon prior exercises of the Company Option; (xi) the number of
shares of Company Common Stock remaining subject to the Company Option (without
regard to vesting); (xii) the number of shares of Company Common Stock for which
the Company Option is then exercisable (i.e., vested); (xiii) the expiration
date of the Company Common Option; (xiv) whether or not the holder is an
employee of Company (indicate with a "Y" or an "N"); and (xv) whether the
exercisability of such Company Option will be accelerated in any manner by any
of the transactions contemplated by this Agreement, any Company Ancillary
Agreement, any Sub Ancillary Agreement or any Significant Stockholders Ancillary
Agreement or upon any other event or condition and the extent of acceleration,
if any. True and complete copies of the Company Option Plans, the standard form
of option agreement and option exercise agreement under the Company Option Plans
and each agreement for each Company Option that does not conform to the standard
form of option agreement under or option exercise agreement under the Company
Option Plans have been delivered by Company to Parent. The information set forth
on the Closing Capitalization Certificate with respect to the information set
forth on Schedule 3.6(b) of the Company Disclosure Letter and the Closing
Company Option Schedule (as defined in Section 5.15) will be, as of the Closing
Date, true and correct.
16
(c) Outstanding Securities of Sub. The authorized capital stock of
Sub consists entirely of 10,000 shares of Sub Common Stock, all of which are
issued and outstanding and are held by Company. Other than the shares of Sub
Common Stock held by Company, no shares of Sub's capital stock are issued or
outstanding. Sub holds no treasury shares. As of the Closing Date, there will
have been no change in the authorized or outstanding capital stock of Sub as
represented in this Section 3.6(c).
(d) Valid Issuance. All issued and outstanding shares of Company
Common Stock, Company Preferred Stock and Sub Common Stock have been duly
authorized and validly issued, are fully paid and nonassessable, are not subject
to any preemptive right, right of first refusal, right of first offer or right
of rescission, and have been offered, issued, sold and delivered by Company or
Sub, as applicable, in compliance with (i) all registration or qualification
requirements (or applicable exemptions therefrom) of all applicable securities
laws (including the Securities Act and any state "blue sky" securities law),
(ii) all other Applicable Laws, and (iii) all requirements set forth in
applicable agreements or instruments binding on Company or Sub, as applicable.
All shares of Company Common Stock subject to issuance under Company Options,
upon issuance of such shares on the terms and conditions specified in the
instruments pursuant to which they are issuable, will be duly authorized,
validly issued, fully paid and nonassessable. All Company Options have been
issued and granted in compliance with (i) all registration or qualification
requirements (or applicable exemptions therefrom) of all applicable securities
laws (including the Securities Act or any other state "blue sky" securities law)
and any other applicable legal requirements and (ii) all requirements set forth
in applicable agreements or instruments binding on Company.
(e) No Other Options, Warrants or Rights. Other than is set forth in
Section 3.6(a), (b) and (c), there are no options, warrants, convertible
securities or other securities, calls, commitments, conversion privileges,
preemptive rights, rights of first refusal, rights of first offer or other
rights or agreements outstanding to purchase or otherwise acquire from Company
or Sub (whether directly or indirectly) any shares of Company's or Sub's
authorized but unissued capital stock or any securities convertible into or
exchangeable for any shares of Company's or Sub's capital stock or obligating
Company or Sub to grant, issue, extend, or enter into any such option, warrant,
convertible security or other security, call, commitment, conversion privilege,
preemptive right, right of first refusal, right of first offer or other right or
agreement, and neither Company nor Sub has Liability for dividends accrued but
unpaid.
(f) No Voting Arrangements or Registration Rights. Except as
contemplated by this Agreement, there are no voting agreements, voting trusts or
proxies applicable to any shares of Company's or Sub's outstanding capital stock
or any Company Options (i) to which Company, Sub or any Significant Stockholders
is a party or, (ii) to Company's, Sub's and the Significant Stockholders'
Knowledge, to which any other Person is a party. Neither Company nor Sub is
under any obligation to register under the Securities Act any of its presently
outstanding shares of stock or other securities or any stock or other securities
that may be subsequently issued.
3.7 Title to and Condition of Assets. Company and Sub have good and
marketable title to all of their respective assets and properties used in the
Business or as shown on the Balance Sheet included in the Financial Statements,
free and clear of any Encumbrance (other than Permitted Liens). Such assets and
properties are sufficient for the continued operation of the Business as
currently conducted and presently proposed to be conducted, consistent with
17
Company's and Sub's current practice, and no other Person has any right, title
or interest in any assets or properties that would interfere with Parent's
ability to conduct the Business or Parent's use of the Business. All leases of
real or personal property to which Company or Sub is a party are fully effective
and afford Company or Sub peaceful and undisturbed possession of the subject
matter of the lease. Neither Company nor Sub owns any real property.
3.8 No Litigation. There is no action, suit, arbitration, mediation,
proceeding, claim or investigation pending against Company or Sub (or against
any officer, director, employee, agent or other similar representative of
Company or Sub in their capacity as such or relating to their employment,
services or relationship with Company or Sub) before any Governmental Authority
or arbitrator, nor, to Company's, Sub's or the Significant Stockholders'
Knowledge, has any such action, suit, arbitration, mediation, proceeding, claim
or investigation been threatened. There is no judgment, decree, injunction, rule
or order of any Governmental Authority or arbitrator outstanding against Company
or Sub. To Company's, Sub's and the Significant Stockholders' Knowledge, there
is no reasonable basis for any person to assert a claim against Company, Sub or
any of the Significant Stockholders based upon: (a) Company's, Sub's or the
Significant Stockholders' entering into this Agreement, any Company Ancillary
Agreement, any Sub Ancillary Agreement or any Significant Stockholder Ancillary
Agreement or consummating the Merger or any of the transactions contemplated by
this Agreement, any Company Ancillary Agreement, any Sub Ancillary Agreement or
any Significant Stockholder Ancillary Agreement; (b) a claim of ownership of, or
options, warrants, convertible securities or other securities, calls,
commitments, conversion privileges, preemptive rights, rights of first refusal,
rights of first offer or other rights to acquire ownership of, any shares of
capital stock of Company or Sub or any rights as a stockholder of Company or
Sub, including any option, warrant or preemptive rights or rights to notice or
to vote, other than the rights of Company as the sole stockholder of Sub and of
the Company Stockholders with respect to the Company Common Stock shown as being
owned by such persons on Schedule 3.6(a)-1 of the Company Disclosure Letter and
the rights of holders of Company Options shown as being held by such persons on
Schedule 3.6(b) of the Company Disclosure Letter; or (c) any rights under any
agreement between Company or Sub and any securities holder or former securities
holder in such holder's capacity as such.
3.9 Compliance with Laws. Company and Sub have materially complied, and
are now and at the Closing Date will be in material compliance with all
Applicable Laws applicable to Company, Sub or the Business, including securities
laws and franchise and business opportunity or business investment laws. Company
and Sub have received all material permits and approvals from, and have made all
filings with, third parties, including Governmental Authorities, that are
necessary to the conduct of the Business, and there exists no current default
under or violation of any such permit or approval. Schedule 3.9 of the Company
Disclosure Letter includes a summary of all violations of, or conflicts with,
any Applicable Law and all allegations of any such violations of which Company
or Sub has received notice from any third party, including any Governmental
Authority, since January 1, 1997. There are no ongoing contracts, agreements,
arrangements, commitments or undertakings relating to any violation of, or
conflicts with, any Applicable Law by Company or Sub.
3.10 Intellectual Property.
(a) Sub (i) owns and has independently developed, or (ii) has the
valid right or license to, all Intellectual Property Rights used in the conduct
of the Business (such Intellectual Property Rights being hereinafter
collectively referred to as the "SUB IP RIGHTS"). The Sub IP
18
Rights are sufficient in all material respects for the conduct of the Business
as now conducted and as proposed to be conducted, and the consummation of the
transactions contemplated hereby will not result in any termination or other
material restriction being imposed on any such rights. As used in this
Agreement, "SUB-OWNED IP RIGHTS" means Sub IP Rights which are owned or
exclusively licensed to Sub, and "SUB-LICENSED IP RIGHTS" means Sub IP Rights
which are not Sub-Owned IP Rights.
(b) Neither the execution, delivery and performance of this
Agreement, the Company Ancillary Agreements, the Sub Ancillary Agreements and
the Significant Stockholders Ancillary Agreements nor the consummation of the
Merger and the other transactions contemplated by herein or therein will, in
accordance with their terms: (i) constitute a material breach of or default
under any instrument, license or other contract, agreement, arrangement,
commitment or undertaking governing any Sub IP Right (collectively, the "SUB IP
RIGHTS AGREEMENTS"); (ii) cause the forfeiture or termination of, or give rise
to a right of forfeiture or termination of, any Sub IP Right; or (iii)
materially impair the right of Sub to use, possess, sell or license any Sub IP
Right or portion thereof. There are no royalties, honoraria, fees or other
payments payable by Sub to any Person (other than salaries payable to employees,
consultants and independent contractors not contingent on or related to use of
their work product) as a result of the ownership, use, possession, license-in,
sale, marketing, advertising or disposition of any Sub IP Rights by Sub and none
will become payable as a result of the consummation of the transactions
contemplated by this Agreement, the Company Ancillary Agreements, the Sub
Ancillary Agreements and/or the Significant Stockholders Ancillary Agreements.
(c) Neither the use, development, manufacture, marketing, license,
sale, furnishing or intended use of any product or service currently licensed,
utilized, sold, provided or furnished by Sub or currently under development by
Sub violates any contract, agreement, arrangement, commitment or undertaking
(including any license) between Sub and any other Person or infringes or
misappropriates any Intellectual Property Right of any other Person. There is no
pending or threatened claim or litigation contesting the validity, ownership or
right of Sub to exercise any Sub IP Right nor, to Company's, Sub's or the
Significant Stockholders' Knowledge, is there any legitimate basis for any such
claim. Neither Company nor Sub has received any notice asserting that any Sub IP
Right or the proposed use, sale, license or disposition thereof conflicts or
will conflict with the rights of any other Person, nor, to Company's, Sub's or
the Significant Stockholders' Knowledge, is there any legitimate basis for any
such assertion.
(d) To the Knowledge of Company, Sub and the Significant
Stockholders, no current or former employee, consultant or independent
contractor of Company or Sub: (i) is in material violation of any term or
covenant of any employment contract, patent disclosure agreement, invention
assignment agreement, non-disclosure agreement, non-competition agreement or any
other contract, agreement, arrangement, commitment or undertaking with any other
party by virtue of such employee's, consultant's or independent contractor's
being employed by, or performing services for, Sub or using trade secrets or
proprietary information of others without permission; or (ii) has developed any
technology, software or other copyrightable, patentable or otherwise proprietary
work for Sub that is subject to any agreement under which such employee,
consultant or independent contractor has assigned or otherwise granted to any
Person any rights (including Intellectual Property Rights) in or to such
technology, software or other copyrightable, patentable or other proprietary
work. The employment of any employee of Sub or the use by Sub of the services of
any consultant or independent contractor does not
19
subject Sub to any Liability to any other Person for improperly soliciting such
employee, consultant or independent contractor to work for Sub, whether such
Liability is based on contractual or other legal obligations of Company or Sub
to such other Person.
(e) Company and Sub have taken all commercially reasonable and
appropriate steps to protect, preserve and maintain the secrecy and
confidentiality of Sub's confidential information and to preserve and maintain
all Sub's interests and proprietary rights in Sub IP Rights. All current and
former officers, employees, consultants and independent contractors of Sub
having access to proprietary information of Sub, its customers or business
partners and inventions owned by Sub have executed and delivered to Sub an
agreement regarding the protection of such proprietary information and the
assignment of inventions to Sub (in the case of proprietary information of Sub's
customers and business partners, to the extent required by such customers and
business partners); and true, correct and complete copies of all such agreements
have been delivered to Parent. Sub has secured valid written assignments from
all of Sub's current and former employees, consultants and independent
contractors who were involved in, or who contributed to, the creation or
development of any Sub-Owned IP Rights, of the rights to such contributions that
may be owned by such Persons or that Sub do not already own by operation of law.
No current or former employee, officer, director, consultant or independent
contractor of Sub has any right, license, claim or interest whatsoever in or
with respect to any Sub IP Rights.
(f) Schedule 3.10(f) of the Company Disclosure Letter contains a
true and complete list of (i) all worldwide registrations made by or on behalf
of Sub of any patents, copyrights, mask works, trademarks, service marks, rights
in Internet or World Wide Web domain names or URLs with any governmental or
quasi-governmental authority, including Internet domain name registrars, and
(ii) all applications, registrations, filings and other formal written
governmental actions made or taken pursuant to Applicable Laws by Sub to secure,
perfect or protect its interest in Sub IP Rights, including all patent
applications, copyright applications, and applications for registration of
trademarks and service marks. All registered patents, trademarks, service marks,
rights in Internet or World Wide Web domain names or URLs, and copyrights held
by Sub are valid, enforceable and subsisting.
(g) Sub owns all right, title and interest in and to all Sub-Owned
IP Rights free and clear of all Encumbrances and licenses (other than licenses
and rights listed on Schedule 3.10(h)(i) of the Company Disclosure Letter). The
right, license and interest of Sub in and to all Sub-Licensed IP Rights are free
and clear of all Encumbrances and licenses (other than licenses and rights
listed on Schedule 3.10(h)(ii) of the Company Disclosure Letter).
(h) Schedule 3.10(h) of the Company Disclosure Letter contains a
true and complete list of (i) all licenses, sublicenses and other contracts,
agreements, arrangements, commitments and undertakings as to which Sub is a
party and pursuant to which any Person is authorized to use any Sub IP Rights
and a notation indicating whether such license, sublicense or such other
contract, agreement, arrangement, commitment or undertaking is in the form of
Sub's standard end user license without material modification, and (ii) all
licenses, sublicenses and other contracts, agreements, arrangements, commitments
and undertakings as to which Sub is a party and pursuant to which Sub is
authorized to use any Intellectual Property Rights owned by any Person other
than Sub (other than non-exclusive object code licenses of software generally
available to the public at a per copy license fee of less than $1,000). Sub's
standard form(s) of end user license are attached as Schedule 3.10(h) of the
Company Disclosure Letter.
20
(i) Neither Sub nor any other Person acting on its behalf has
disclosed or delivered to any Person, or permitted the disclosure or delivery to
any escrow agent or other Person of, any Sub Source Code (as defined below). No
event has occurred, and no circumstance or condition exists, that (with or
without notice or lapse of time, or both) will, or would reasonably be expected
to, result in the disclosure or delivery by Sub or any Person acting on its
behalf to any Person of any Sub Source Code. Schedule 3.10(i) of the Company
Disclosure Letter identifies each contract, agreement, arrangement, commitment
or undertaking (whether written or oral) pursuant to which Sub has deposited, or
is or may be required to deposit, with an escrowholder or any other Person, any
Sub Source Code, and describes whether the execution of this Agreement, the
consummation of the Merger or any of the other transactions contemplated by this
Agreement, in and of itself, would reasonably be expected to result in the
release from escrow of any Sub Source Code. As used in this Section 3.10(i),
"SUB SOURCE CODE" means, collectively, any software source code, any material
portion or aspect of the software source code, or any material proprietary
information or algorithm contained in or relating to any software source code,
of any Sub IP Rights.
(j) To the Knowledge of Company, Sub and the Significant
Stockholders, there is no unauthorized use, disclosure, infringement or
misappropriation of any Sub IP Rights by any Person, including any employee or
former employee of Sub. Sub has not agreed to indemnify any Person for any
infringement of any Intellectual Property Rights of any Person by any product or
service that has been (i) sold, supplied, marketed, distributed or provided by
Sub; or (ii) licensed or leased to any Person.
(k) All software developed by Sub and licensed by Sub to customers,
and all services provided by or through Sub to customers on or prior to the
Closing Date (i) conform in all material respects (to the extent required in
contracts, agreements, arrangements, commitments and undertakings with such
customers) to applicable contractual commitments, express and implied
warranties, product specifications and product documentation and to any
representations provided to customers, and (ii) allow each such customer to use
such software and services for an unlimited number of its employees and other
similar applicants without any degradation of performance, and neither Sub nor
any of its Subsidiaries has any material Liability (and, to Company's, Sub's or
the Significant Stockholders' Knowledge, there is no legitimate basis for any
present or future action, suit, proceeding, hearing, investigation, charge,
complaint, claim or demand against Sub giving rise to any material Liability
relating to the foregoing contracts, agreements, arrangements, commitments and
undertakings) for replacement or repair thereof or other damages in connection
therewith in excess of any reserves therefor reflected on the Balance Sheet. Sub
has provided Parent with all documentation and notes relating to the testing of
Sub's software products and plans and specifications for software products
currently under development by Sub.
(l) No government funding; facilities of a university, college,
other educational institution or research center; or funding from any Person was
used in the development of the computer software programs or applications owned
by Sub. To the Knowledge of Company, Sub and the Significant Stockholders, no
current or former employee, consultant or independent contractor of Sub who was
involved in, or who contributed to, the creation or development of any Sub IP
Rights, has performed services for the government, university, college or other
educational institution or research center during a period of time during which
such employee, consultant or independent contractor was also performing services
for Sub.
21
(m) No Public Software (as defined below) forms part of the Sub IP
Rights or was or is used in connection with the development of any Sub IP Right,
incorporated in whole or in part, or has been distributed, in whole or in part,
in conjunction with any Sub IP Right. As used in this Section 3.10(m), "PUBLIC
SOFTWARE" means any software that contains, or is derived in any manner (in
whole or in part) from, any software that is distributed as free software, open
source software (e.g., Linux) or similar licensing or distribution models,
including software licensed or distributed under any of the following licenses
or distribution models, or licenses or distribution models similar to any of the
following: (i) GNU's General Public License (GPL) or Lesser/Library GPL (LGPL);
(ii) the Artistic License (e.g., PERL); (iii) the Mozilla Public License; (iv)
the Netscape Public License; (v) the Sun Community Source License (SCSL); (vi)
the Sun Industry Standards License (SISL); (vii) the BSD License; and (viii) the
Apache License.
3.11 Taxes.
(a) Company and Sub have timely filed all returns, reports,
estimates and information statements relating to Taxes (the "RETURNS") required
to be filed by Company or Sub. All such Returns are true, complete and correct
in all material respects. Except to the extent adequate reserves have been
established in the Financial Statements, Company and Sub have paid when due all
Taxes required to be paid in respect of all periods for which Returns have been
filed, have made all necessary estimated Tax payments, and have no Liability for
Taxes in excess of the amount so paid. No deficiencies for any Tax have been
threatened, claimed, proposed or assessed in writing against Company or Sub
which have not been settled or paid. Since December 31, 1998, no Return of
Company or Sub has ever been audited by the Internal Revenue Service or any
other taxing agency or authority, no such audit is in progress and neither
Company nor Sub has been notified of any request for such an audit or other
examination. There are no contracts, agreements, arrangements, commitments or
undertakings relating to any prior audit of Company or Sub, and there are no
contracts, agreements, arrangements, commitments or undertakings with the
Internal Revenue Service or any other taxing agency or authority that have or
are reasonably likely to have a material and adverse impact on Company's and
Sub's current Taxes that are not reflected in the Financial Statements. Neither
Company nor Sub has any current or deferred Tax Liabilities and will not as a
result of the transactions contemplated herein become liable for any Tax not
adequately reserved against on the Financial Statements. Neither Company nor Sub
has any current or deferred Tax Liabilities and will not as a result of the
transactions contemplated herein become liable for any Tax not adequately
reserved against on the Financial Statements. There is not in effect any waiver
by Company or Sub of any statute of limitations with respect to any Taxes or
agreement to any extension of time for filing any Return which has not been
filed, and neither Company nor Sub has consented to extend to a date later than
the Agreement Date the period in which any Tax may be assessed or collected by
any taxing authority. Neither Company nor Sub has been a member of an affiliated
group filing a consolidated federal income tax Return (other than a group the
common parent of which is Company) and neither Company nor Sub has any Liability
for the Taxes of any Person (other than Company) under Section 1.1502-6 of the
Treasury Regulations issued under the Internal Revenue Code (the "REGULATIONS")
(or any similar provision of state, local or foreign law) as a transferee or
successor, by contract or otherwise. As of the Agreement Date, there are no
items of income, gain, loss, or deduction that are required to be taken into
account under the matching and acceleration rules of Sections 1.1502-13 or
1.1502-14 of the Regulations. Neither Company nor Sub has been a party to a
transaction intending to qualify as a transaction described in Section 355 of
the Internal Revenue Code within the last two years. Neither Company nor Sub
22
has elected to be treated as an S corporation or a collapsible corporation
within the meaning of Section 1362 or Section 341 of the Internal Revenue Code.
(b) Except to the extent adequate reserves have been established in
the Financial Statements, Company and Sub have (i) complied with all Applicable
Laws relating to the payment and withholding of Taxes (including withholding of
Taxes pursuant to Sections 1441, 1442, 1445 and 1446 of the Internal Revenue
Code or similar provisions under any foreign law), (ii) within the time and in
the manner prescribed by law, withheld from employee wages and paid over to the
proper governmental authorities all amounts required to be so withheld and paid
over under all Applicable Laws, including federal and state income taxes, FICA,
Medicare and FUTA, and (iii) timely filed all withholding tax Returns.
(c) No benefit payable or which may become payable by Company or Sub
pursuant to any Employee Plan (as defined in Section 3.22(b)) or as a result of
or arising under this Agreement or the Merger will constitute an "excess
parachute payment" (as defined in Section 280G(b)(1) of the Internal Revenue
Code) which is subject to the imposition of an excise tax under Section 4999 of
the Internal Revenue Code or which would not be deductible by reason of Section
280G of the Internal Revenue Code.
3.12 No Brokers. Neither Company or Sub nor any of their respective
Affiliates is obligated for the payment of any fees or expenses of any
investment banker, broker, finder or similar party in connection with the
origin, negotiation or execution of this Agreement or in connection with the
Merger or any other transaction contemplated by this Agreement, and Parent will
not incur any Liability, either directly or indirectly, to any such investment
banker, broker, finder or similar party as a result of this Agreement, the
Merger or any act or omission of Company, Sub, any of their respective
Affiliates or any of their respective employees, officers, directors,
stockholders or agents.
3.13 Privacy. Company and Sub have not collected any personally
identifiable information from any third parties except as described in Schedule
3.13 of the Company Disclosure Letter. Company and Sub have complied with all
Applicable Laws and Sub's internal privacy policies relating to (a) the privacy
of users of Sub's products and services and all Internet websites owned,
maintained or operated by Sub (the "SUB Websites"), and (b) the collection,
storage and transfer of any personally identifiable information collected by
Company, Sub or by third parties having authorized access to Company's or Sub's
records. The Merger complies with all Applicable Laws relating to privacy and
with Sub's privacy policy. Copies of all current and prior privacy policies of
Sub, including the privacy policies included in the Sub Websites, are attached
as Schedule 3.13 of the Company Disclosure Letter. Each of the Sub Websites and
all materials distributed or marketed by Company or Sub have at all times made
all disclosures to users or customers required by Applicable Laws and none of
such disclosures made or contained in any Sub Website or in any such materials
have been inaccurate, misleading or deceptive or in violation of any Applicable
Laws.
3.14 Contracts, Agreements, Arrangements, Commitments and Undertakings.
Schedule 3.14 of the Company Disclosure Letter sets forth a list of each of the
following written or oral contracts, agreements, arrangements, commitments or
undertakings, including leases, licenses, permits, assignments, mortgages,
transactions, obligations, commitments or other instruments, to which Company or
Sub is a party or to which Company, Sub or any of their respective assets or
properties are bound:
23
(a) any contract, agreement, arrangement, commitment or undertaking
providing for payments (whether fixed, contingent or otherwise) by or to it in
an aggregate amount of $50,000 or more;
(b) any dealer, distributor, OEM (Original Equipment Manufacturer),
VAR (Value Added Reseller), sales representative or similar agreement under
which any third party is authorized to sell, sublicense, lease, distribute,
market or take orders for, any product, service or technology of Sub or to
provide training or other services to Sub's customers;
(c) any contract, agreement, arrangement, commitment or undertaking
providing for the development of any software, content (including textual
content and visual, photographic or graphics content), technology or
intellectual property for (or for the benefit or use of) Sub, or providing for
the purchase or license of any software, content (including textual content and
visual or graphics content), technology or intellectual property to (or for the
benefit or use of) Sub, which software, content, technology or intellectual
property is in any manner used or incorporated (or is contemplated by Sub to be
used or incorporated) in connection with any aspect or element of any product,
service or technology of Company (other than software generally available to the
public under a "shrink-wrap" license at a per copy license fee of less than
$1,000 per copy);
(d) any joint venture or partnership contract, agreement,
arrangement, commitment or undertaking which has involved, or is reasonably
expected to involve, a sharing of profits, expenses or losses with any other
party or the joint development of any product, service, software or other
technology with any third party;
(e) any contract, agreement, arrangement, commitment or undertaking
for or relating to the employment of any officer, employee or consultant of
Company or Sub or any other type of contract, agreement, arrangement, commitment
or undertaking with any officer, employee or consultant of Company or Sub that
is not immediately terminable by Company or Sub without cost or other liability;
(f) any contract, agreement, arrangement, commitment or undertaking,
including any indenture, mortgage, trust deed, promissory note, loan agreement,
security agreement or guarantee, for the borrowing of money, for a line of
credit or for a leasing transaction of a type required to be capitalized in
accordance with Statement of Financial Accounting Standards No. 13 of the
Financial Accounting Standards Board;
(g) any contract, agreement, arrangement, commitment or undertaking,
including any lease, under which Company or Sub is lessee of or holds or
operates any items of tangible personal property or real property owned by any
third party;
(h) any contract, agreement, arrangement, commitment or undertaking
that restricts Company or Sub from: (i) engaging in any aspect of the Business;
(ii) participating or competing in any line of business or in any market; (iii)
freely setting prices for Sub's products, services or technologies (including
most favored customer pricing provisions); (iv) engaging in any business in any
market or geographic area; or (v) soliciting potential employees, consultants,
contractors or other suppliers or customers;
24
(i) any contract, agreement, arrangement, commitment or undertaking
relating to Intellectual Property Rights, any Sub IP Rights or the license of
any software, technology, Intellectual Property Rights or Proprietary Assets;
(j) any contract, agreement, arrangement, commitment or undertaking
relating to the sale, issuance, grant, exercise, award, purchase, repurchase or
redemption of any shares of capital stock or other securities of Company or Sub
or any options, warrants or other rights to purchase or otherwise acquire any
such shares of capital stock, other securities or options, warrants or other
rights therefor, except for those contracts, agreements, arrangements,
commitments or undertakings conforming to the standard option agreement under
the Company Option Plans;
(k) any consulting or similar agreement under which Sub provides any
advice or services to a third party for an annual compensation to Sub of $50,000
per year or more;
(l) any contract, agreement, arrangement or undertaking with, or
commitment to, any labor union or collective bargaining unit; and
(m) any other contract, agreement, arrangement, commitment or
undertaking that involves a current or future commitment by Company or Sub in
excess of $50,000.
A true and complete copy of each any contract, agreement, arrangement,
commitment or undertaking required by these subsections (a) through (m) of this
Section to be listed on Schedule 3.14 of the Company Disclosure Letter (such
contracts, agreements, arrangements, commitments and undertakings being
hereinafter collectively referred to as the "MATERIAL AGREEMENTS") has been
delivered to Parent.
3.15 No Default; No Restrictions.
(a) Company and Sub are not, nor to Company's, Sub's or any
Significant Stockholder's Knowledge is any other party, in material breach or
default under any Material Agreement. No event has occurred, and no circumstance
or condition exists, that (with or without notice or lapse of time) will, or
would reasonably be expected to, (i) result in a violation or breach of any of
the provisions of any Material Agreement, or (ii) to Company's, Sub's or any
Significant Stockholder's Knowledge, give any third party (A) the right to
declare a default or exercise any remedy under any Material Agreement, (B) the
right to a rebate, chargeback, penalty or change in delivery schedule under any
Material Agreement, (C) the right to accelerate the maturity or performance of
any obligation of Company or Sub under any Material Agreement, or (D) the right
to cancel, terminate or modify any Material Agreement. Neither Company nor Sub
has received any notice or other communication regarding any actual or possible
violation or breach of, or default under, any Material Agreement. Neither
Company nor Sub has any material Liability for renegotiation of government
contracts or subcontracts, if any.
(b) Neither Company nor Sub is a party to, and no asset or property
of Company or Sub is bound or affected by, any judgment, injunction, order,
decree, contract, agreement, arrangement, commitment or undertaking (noncompete
or otherwise) that restricts or prohibits, or purports to restrict or prohibit,
Company or Sub or, following the Effective Time, Parent, from freely engaging in
the Business, from competing anywhere in the world (including any judgments,
injunctions, orders, decrees, contracts, agreements, arrangements, commitments
25
or undertakings restricting the geographic area in which Company or Sub may
sell, license, market, distribute or support any products or technology or
provide services or restricting the markets, customers or industries that
Company or Sub may address in operating the Business or restricting the prices
which Company or Sub may charge for its products, technology or services), or
includes any grants by Company or Sub of exclusive rights or licenses.
3.16 Financial Statements. Company and Sub have delivered to Parent, as
Schedule 3.16 of the Company Disclosure Letter, (a) the audited consolidated
balance sheets of Company as of June 30, 1999, 2000 and 2001 and Company's
audited consolidated statements of operations, statements of cash flows and
statements of changes in stockholders' equity for each of the fiscal years then
ended, and (b) the unaudited consolidated balance sheet of Company as of March
31, 2002 and Company's unaudited consolidated statement of operations for the
nine months ended March 31, 2002 (all such audited and unaudited financial
statements of Company and Sub and any notes thereto are hereinafter collectively
referred to as the "FINANCIAL STATEMENTS"). The Financial Statements (a) are
derived from and in accordance with the books and records of Company and Sub,
(b) fairly present the consolidated financial condition of Company and Sub at
the dates therein indicated and the results of operations for the periods
therein specified, and (c) have been prepared in accordance with GAAP applied on
a basis consistent with prior periods (except, solely in the case of any of such
Financial Statements that are unaudited, for any absence of notes thereto and
the absence of year-end audit adjustments). Company and Sub have no material
debt, liability or obligation of any nature, whether accrued, absolute,
contingent or otherwise, and whether due or to become due, except for (i) those
shown on Company's unaudited consolidated balance sheet as of March 31, 2002
that are included in the Financial Statements (the "BALANCE SHEET"), and (ii)
those that may have been incurred by Company or Sub after March 31, 2002 (the
"BALANCE SHEET DATE") in the ordinary course of Company's and Sub's business
consistent with their past practices, that are not in excess of $50,000, either
individually or collectively, and are not required to be set forth in the
Balance Sheet under GAAP. All reserves established by Company and Sub that are
set forth in or reflected in the Balance Sheet are reasonably adequate. At the
Balance Sheet Date, there were no material loss contingencies (as such term is
used in Statement of Financial Accounting Standards No. 5 issued by the
Financial Accounting Standards Board in March 1975) that are not adequately
provided for in the Balance Sheet as required by said Statement No. 5.
3.17 Financial Projections. Company and Sub have delivered to Parent
financial projections for the fiscal quarter in the period from March 31, 2002
to June 30, 2002 (the "FINANCIAL PROJECTIONS"), a copy of which is included as
Schedule 3.17 of the Company Disclosure Letter. The Financial Projections have
been prepared in good faith by Company and Sub based upon reasonable assumptions
and represent Company's and Sub's best good faith estimates as to their
respective future results of operations. Notwithstanding the foregoing, neither
Company, Sub nor the Significant Stockholders makes any representation or
warranty regarding the accuracy or achievability of the Financial Projections
following the Effective Time.
3.18 Absence of Certain Changes. Since the Balance Sheet Date, Sub has
operated the Business in the ordinary course, consistent with its past practice,
and since the Balance Sheet Date there has not been with respect to Company or
Sub any:
(a) Material Adverse Change or any event or change which could
prevent or materially delay its ability to consummate the Merger;
26
(b) amendment or change in its Certificate of Incorporation or
Articles of Incorporation, as applicable, or Bylaws;
(c) incurrence, creation or assumption of (i) any Encumbrance on any
of its assets or properties, (ii) any Liability for borrowed money, or (iii) any
Liability as a guarantor or surety with respect to the obligations of others;
(d) grant or issuance of any options, warrants or other rights to
acquire from it, directly or indirectly, except as described in Section 3.6, or
any offer, issuance or sale by it of, any of its debt or equity securities;
(e) acceleration or release of any vesting condition to the right to
exercise any option, warrant or other right to purchase or otherwise acquire any
shares of its capital stock, or any acceleration or release of any right to
repurchase shares of its capital stock upon the stockholder's termination of
employment or services with it or pursuant to any right of first refusal;
(f) payment or discharge of any Liability or Encumbrance on any of
its assets or properties that was incurred not in the ordinary course of
business or in an amount in excess of $50,000 for any Liability or Encumbrance;
(g) purchase, license, sale, assignment or other disposition or
transfer, or any agreement or other arrangement for the purchase, license, sale,
assignment or other disposition or transfer, of any of its assets, properties or
goodwill (other than licenses granted in the ordinary course of business,
consistent with past practice);
(h) damage, destruction or loss affecting business or any material
property or asset, whether or not covered by insurance;
(i) declaration, setting aside or payment of any dividend on, or the
making of any other distribution in respect of, its capital stock, or any split,
stock dividend, combination or recapitalization of its capital stock or any
direct or indirect redemption, purchase or other acquisition of its capital
stock or any change in any rights, preferences, privileges or restrictions of
any of its outstanding securities;
(j) change or increase in the compensation, including severance
compensation, payable or to become payable to any of its officers, directors,
employees or consultants or in any bonus or pension, insurance or other Employee
Plan (including stock awards, stock option grants, stock appreciation rights or
stock option grants) made to or with any of such officers, employees or agents,
except for increases of less than 10% to employees who are not officers or
directors in connection with normal employee salary or performance reviews in
the ordinary course of business, consistent with past practice;
(k) change with respect to its management, supervisory or other key
personnel, or termination of employment of a material number of its employees;
(l) Liability incurred by it to any of its officers, directors or
stockholders, except for normal and customary compensation and expense
allowances payable to officers in the ordinary course of business, consistent
with its past practice;
27
(m) making by it of any loan, advance or capital contribution to, or
any investment in, any Person;
(n) entering into, amendment of, relinquishment, termination or
non-renewal by it of any contract, agreement, arrangement, commitment or
undertaking other than in the ordinary course of business, consistent with its
past practice, or any written or, to Company's, Sub's or the Significant
Stockholders' Knowledge, oral indication or assertion by the other party thereto
of any material problems with its services or performance under such contract,
agreement, arrangement, commitment or undertaking or its desire to so amend or
modify, relinquish, terminate or not renew any such contract, agreement,
arrangement, commitment or undertaking;
(o) written or, to Company's, Sub's or the Significant Stockholders'
Knowledge, oral assertion by any of its customers of any complaint regarding its
services or products which, if substantiated, would be reasonably likely to have
a Material Adverse Effect on it;
(p) agreement made by it to provide exclusive services to any Person
or not to engage in any type of business activity;
(q) material change in the manner in which it extends discounts,
credits or warranties to customers or otherwise deals with its customers;
(r) entering into by it of any transaction, contract, agreement,
arrangement, commitment or undertaking that by its terms requires or
contemplates a current and/or future financial commitment, expense (inclusive of
overhead expense) or obligation on the part of it that involves in excess of
$50,000 or that is not entered into in the ordinary course of business,
consistent with its past practice, or the conduct of any business or operations
other than in the ordinary course of business, consistent with its past
practice;
(s) license, transfer or grant of a right under any Sub IP Rights
(as defined in Section 3.10(a)), other than those licensed, transferred or
granted in the ordinary course of business, consistent with its past practice;
(t) material change in accounting methods or practices (including
any change in depreciation or amortization policies or rates) by it or any
material revaluation by it of any of its material assets;
(u) labor dispute or claim of unfair labor practices;
(v) deferral of the payment of any accounts payable outside the
ordinary course of business or in an amount which is material or any discount,
accommodation or other concession made outside the ordinary course of business
in order to accelerate or induce the collection of any receivable; or
(w) any contract, agreement, arrangement, commitment or undertaking
made by it to do any of the foregoing or to take any action which, if taken
before the Agreement Date, would have made any representation or warranty set
forth in this Article III untrue or incorrect as of the date when made.
28
3.19 Closing Certificate. The Closing Balance Sheet set forth on the
Closing Certificate will, as of the Closing Date, (a) be derived from and be in
accordance with the books and records of Company and Sub; (b) fairly and
accurately represent the financial condition of Company and Sub at the Closing
Date in conformity with GAAP; and (c) have been prepared in accordance with GAAP
applied on a basis consistent with prior periods except for any absence of notes
thereto. The classification of Company's current assets and current liabilities
set forth on the Closing Balance Sheet will, as of the Closing Date, be
consistent with the classification of Company's current assets and current
liabilities set forth on the balance sheet of Company as of March 31, 2002
included in the Financial Statements. The deferred revenue accounts set forth on
the Closing Balance Sheet represent (a) amounts which have been duly contracted
for and have been or will be fully collectible in the book amounts thereof, and
(b) revenues which will be fully recognizable as such in the future upon the
satisfaction of any applicable contractual commitments.
3.20 Debt and Accounts Payable. Schedule 3.20 of the Company Disclosure
Letter lists all of Company's and Sub's indebtedness for money borrowed
("DEBT"), including, for each item of Debt, the interest rate, maturity date and
any assets securing such Debt. All Debt may be prepaid at the Closing without
penalty under the terms of agreements governing the Debt. Schedule 3.20 of the
Company Disclosure Letter also lists all accounts payable of Company and Sub as
of the Agreement Date.
3.21 Accounts Receivable. The accounts receivable of Company and Sub
shown on the Balance Sheet arose in the ordinary course of business consistent
with past practice, and have been collected or are collectible in the book
amounts thereof, less an amount not in excess of the allowance for doubtful
accounts provided for in the Balance Sheet. Allowances for doubtful accounts are
adequate and have been prepared in accordance with GAAP and in accordance with
the past practices of Company and Sub. The accounts receivable of Company and
Sub arising after the Balance Sheet Date and prior to the Closing Date arose or
will arise in the ordinary course of business, consistent with past practice,
and have been collected or are collectible in the book amounts thereof, less
allowances for doubtful accounts determined in accordance with GAAP and the past
practices of Company and Sub. None of the accounts receivable of Company and Sub
is subject to any material claim of offset, recoupment, setoff or counter-claim
and Company, Sub and the Significant Stockholders have no Knowledge of any
specific facts or circumstances (whether asserted or unasserted) that could give
rise to any such claim. No material amount of accounts receivable are contingent
upon the performance by Company or Sub of any contract, agreement, arrangement,
commitment or undertaking other than (a) normal warranty repair and replacement,
or (b) pursuant to Sub's standard form of service agreement, a copy of which is
attached as Schedule 3.21 of the Company Disclosure Letter. No Person has any
lien on any of such accounts receivable and no agreement for deduction or
discount has been made with respect to any of such accounts receivable. Schedule
3.21 of the Company Disclosure Letter sets forth an aging of accounts receivable
of Company and Sub in the aggregate and by customer, and indicates the amounts
of allowances for doubtful accounts.
3.22 Employee Matters.
(a) Generally. Company and Sub: (i) have never been and are not now
subject to a union organizing effort; (ii) are not subject to any collective
bargaining agreement with respect to any of their respective employees; (iii)
are not subject to any other contract, agreement, arrangement, commitment or
undertaking with any trade or labor union, employees'
29
association or similar organization; and (iv) have no current labor disputes and
have had no material labor disputes or claims of unfair labor practices. Company
and Sub have good labor relations, and Company, Sub and the Significant
Stockholders have no Knowledge of any facts indicating that the consummation of
the transactions provided for herein will have a material adverse effect on its
labor relations, and Company, Sub and the Significant Stockholders have no
Knowledge that any Key Employee (as defined in Section 7.2(k)), or any
significant number of other employees, intends to leave Sub's employ or to
decline to accept employment with Parent following the Closing. No Key Employee
or significant number of other employees of Sub has given notice that such
employee intends to terminate his or her employment with Sub. There are no
strikes, slowdowns, work stoppages or lockouts, or threats thereof by or with
respect to any employees of Sub. Company and Sub are in compliance with all
Applicable Laws regarding employment practices, terms and conditions of
employment, and wages and hours (including ERISA), the Worker Adjustment
Retraining and Notification Act, as amended, or any similar state or local law)
and have correctly classified employees as exempt employees and non-exempt
employees under the Fair Labor Standards Act. Except as set forth in Schedule
3.22(a) of the Company Disclosure Letter, neither Company nor Sub has any
contracts, agreements, arrangements, commitments or undertakings with employees
or consultants of Sub currently in effect that are not terminable at will (other
than agreements with the sole purpose of providing for the confidentiality of
proprietary information or assignment of inventions). All independent
contractors have been properly classified as independent contractors for the
purposes of federal and applicable state tax laws, laws applicable to employee
benefits and other Applicable Laws. All Sub's employees are legally permitted to
be employed by Sub in the jurisdiction in which such employee is employed.
Company and Sub will have no liability to any employee or to any organization or
any other entity as a result of the termination of any employee leasing
arrangement.
(b) Employee Plans. Schedule 3.22(b) of the Company Disclosure
Letter contains a list of all employment and consulting agreements, pension,
retirement, disability, medical, dental or other health plans, life insurance or
other death benefit plans, profit sharing, deferred compensation agreements,
stock, option, bonus or other incentive plans, vacation, sick, holiday or other
paid leave plans, severance plans or other similar employee benefit plans
maintained or contributed to by Company or any ERISA Affiliate (the "EMPLOYEE
PLANS"), including all "employee benefit plans" as defined in Section 3(3) of
ERISA. Company has delivered true and complete copies or descriptions of all the
Employee Plans to Parent. Each of the Employee Plans and its operation and
administration are in compliance with all Applicable Laws and ordinances,
orders, rules and regulations, including the requirements of ERISA and the
Internal Revenue Code. In addition, within the past five years, neither Company
nor Sub has never been a participant in any "prohibited transaction," within the
meaning of Section 406 of ERISA with respect to any employee pension benefit
plan (as defined in Section 3(2) of ERISA) which it sponsors as employer or in
which it participates as an employer, which was not otherwise exempt pursuant to
Section 408 of ERISA (including any individual exemption granted under Section
408(a) of ERISA), or which could result in an excise tax under the Internal
Revenue Code. No Employee Plans will be subject to any surrender fees or service
fees upon termination other than the normal and reasonable administrative fees
associated with the termination of benefit plans. Neither Company nor Sub has
ever contributed to or been required to contribute to any multi-employer pension
plan as defined in Section 3(37) of ERISA, and will not have any contingent
withdrawal liability under ERISA. All Employee Plans, to the extent applicable,
are in compliance with (a) the continuation coverage requirements of Section
4980B of the Internal Revenue Code and Sections 601 through 608 of ERISA, (b)
the Americans with
30
Disabilities Act of 1990, as amended, and the regulations thereunder, and (c)
the Family Medical Leave Act of 1993, as amended, and the regulations
thereunder. All individuals who, pursuant to the terms of any Employee Plans,
are entitled to participate in the Employee Plans, currently are participating
in such Employee Plans or have been offered an opportunity to do so. Company and
Sub have timely filed and delivered to Parent annual reports (Form 5500) for
each Employee Plan that is an "employee benefit plan" as defined under ERISA for
the past three years.
(c) No Employment Agreements. To the Knowledge of Company, Sub and
the Significant Stockholders, no employee of Sub is in violation of any term of
any employment contract or any other contract, agreement, arrangement,
commitment or undertaking, or any restrictive covenant, relating to the right of
any such employee to be employed by Sub or to use trade secrets or proprietary
information of others, and, to the Knowledge of Company, Sub and the Significant
Stockholders, the employment of any employee of Sub does not subject it to any
Liability to any third party.
(d) No Representations to Employees or Consultants of Sub. Neither
Company nor Sub has made any representations to any employee or consultant of
Sub concerning the length of time that the employee's or consultant's work or
employment with Parent may continue or the compensation or benefits or other
terms or conditions of employment with Parent to be offered to employees or
consultants of Sub by Parent.
(e) Immigration Law Compliance. No employee of Sub holds any visa
from the United States Government and Sub is not sponsoring any of its employees
with respect to any visa or other authorization. All employees of Sub were hired
in compliance with all laws, statutes, regulations and requirements for the
lawful hiring of employees who are not citizens of the United States of America.
(f) Certain Agreements. Neither Company nor Sub is a party to any
(i) agreement with any of its executive officer or other key employee of (A) the
benefits of which are contingent, or the terms of which are materially altered,
upon the occurrence of a transaction involving Company or Sub in the nature of
any of the transactions contemplated by this Agreement, (B) providing any term
of employment or compensation guarantee, or (C) providing severance benefits or
other benefits after the termination of employment of such employee regardless
of the reason for such termination of employment, or (ii) agreement or plan,
including any stock option plan, stock appreciation rights plan or stock
purchase plan, any of the benefits of which will be materially increased, or the
vesting of benefits of which will be accelerated, by the occurrence of any of
the transactions contemplated by this Agreement or the value of any of the
benefits of which will be calculated on the basis of any of the transactions
contemplated by this Agreement. Neither Company nor Sub has obligations to pay
any amounts, or provide any benefits, to any former employees or officers, other
than obligations for which Company and Sub have established a reserve on the
Balance Sheet, which reserve is in an amount equal to the amount of such
obligations, and other than obligations pursuant to agreements entered into
after the Balance Sheet Date and disclosed on Schedule 3.22(f) of the Company
Disclosure Letter.
(g) Employee List. A list of all employees, officers and consultants
of Sub and their current compensation and benefits as of the date of this
Agreement is set forth on Schedule 3.22(g) of the Company Disclosure Letter.
31
(h) Contributions. All contributions due from Sub with respect to
any of the Employee Plans and all employee social security contributions have
been made or accrued on the Financial Statements, and no further contributions
will be due or will have accrued thereunder as of the Closing Date, other than
contributions accrued in the ordinary course of business, consistent with past
practice after the Balance Sheet Date as a result of operations of Sub after the
Balance Sheet Date, all of which have been paid.
(i) Continuation of Coverage; COBRA. The group health plans (as
defined in Section 4980B(g) of the Internal Revenue Code) that benefit employees
are in compliance with the continuation coverage requirements of Section 4980B
of the Internal Revenue Code as such requirements affect Sub and its employees.
As of the Closing Date, there will be no outstanding, uncorrected violations
under the Consolidation Omnibus Budget Reconciliation Act of 1985, as amended
("COBRA"), with respect to any of Sub's Employee Plans, covered employees, or
qualified beneficiaries that could result in a material adverse effect on Sub
after the Closing Date.
(j) International Employee Plan. Each plan that has been adopted or
maintained by Company or Sub, whether informally or formally, for the benefit of
employees outside the United States (each, an "INTERNATIONAL EMPLOYEE PLAN") has
been established, maintained and administered in compliance with its terms and
conditions and with the requirements prescribed by Applicable Laws. No
International Employee Plan has unfunded Liabilities that, as of the Closing
Date, will not be offset by insurance or that are not fully accrued on the
Financial Statements. Except as required by law, no condition exists that would
prevent Company or Sub from terminating or amending any International Employee
Plan at any time for any reason in accordance with the terms of each such
International Employee Plan (other than normal and reasonable expenses typically
incurred in a termination event).
3.23 No Right to Purchase the Business. There are no options, rights of
first refusal, rights of first offer or other rights or agreements outstanding
to purchase or otherwise acquire (whether directly or indirectly) all or any
portion of the Business.
3.24 Required Vote of the Company Stockholders. The affirmative vote of
the holders of at least a majority of the shares of Company Common Stock that
are issued and outstanding on the Record Date (as defined below) is the only
vote of the holders of any of the shares of Company's capital stock that is
necessary to approve this Agreement, the Merger and any other transactions
contemplated by this Agreement under Applicable Laws, Company's Certificate of
Incorporation and Bylaws, each as amended, and under any contract, agreement,
arrangement, commitment or undertaking regarding the voting of shares of
Company's capital stock. As used in this Section 3.24, the term "RECORD DATE"
means the record date for determining those Company Stockholders who are
entitled to vote in connection with the approval of the Merger pursuant to this
Agreement and the Merger.
3.25 No Existing Discussions. Neither Company or Sub nor any director,
officer, stockholder, employee or agent of Company or Sub is engaged, directly
or indirectly, in any discussions or negotiations with any third party relating
to any transaction that would be inconsistent with the accomplishment of the
Merger hereunder or the Merger, such as any merger, consolidation, sale of
assets or similar business combination transaction involving Company.
32
3.26 Corporate Documents. Company has provided to Parent complete and
correct copies of all documents identified in Company Disclosure Letter and each
of the following: (a) copies of Company's Certificate of Incorporation and
Bylaws, each as amended to date; (b) copies of Sub's Articles of Incorporation
and Bylaws, each as amended to date; (c) copies of the minute books of Company
and Sub containing records of all proceedings, consents, actions and meetings of
Company's and Sub's directors, committees of the Board of Directors and
stockholders since January 1, 1997; (d) copies of Company's and Sub's stock
ledger, journal and other records reflecting all stock issuances and transfers
and all stock option grants and agreements; and (e) all permits, orders and
consents issued by any regulatory agency since January 1, 1997 with respect to
Company or Sub, or any securities of Company or Sub, and all applications for
such permits, orders and consents.
3.27 Environmental Matters.
(a) Company, Sub and their predecessors and Affiliates have complied
in all material respects, and are in material compliance, with all applicable
Environmental, Health and Safety Requirements (as defined below), which
compliance includes the possession by Company and Sub of all permits and other
governmental authorizations required under applicable Environmental, Health and
Safety Requirements, and compliance with the terms and conditions thereof. All
permits and other governmental authorizations currently held by Company or Sub
pursuant to any Environmental, Health and Safety Requirements are identified on
Schedule 3.27(a) of the Company Disclosure Letter. Company, Sub and their
predecessors and Affiliates have not treated, stored, disposed of, arranged for
or permitted the disposal of, transported, handled or released any substance,
including any hazardous substance, or owned or operated any property or facility
(and no such property or facility is contaminated by any such substance) in a
manner that has given or would give rise to Liabilities, including any Liability
for response costs, corrective action costs, personal injury, property damage,
natural resources damages or attorney fees, pursuant to any Environmental,
Health and Safety Requirements. Company, Sub and their predecessors and
Affiliates have not, either expressly or by operation of law, assumed or
undertaken any Liability, including any obligation for corrective or remedial
action, of any other Person relating to Environmental, Health and Safety
Requirements.
(b) For purposes of this Section 3.27, "ENVIRONMENTAL, HEALTH AND
SAFETY REQUIREMENTS" means (i) all foreign, federal, state, local, municipal or
other laws, ordinances, regulations, rules and other provisions having the force
or effect of law, and judicial and administrative orders, writs, injunctions,
awards, judgments, decrees and determinations, and (ii) all contractual
obligations concerning public health and safety, worker health and safety, and
pollution or protection of the environment, including all those relating to the
presence, use, production, generation, handling, transportation, treatment,
storage, disposal, distribution, labeling, testing, processing, discharge,
release, threatened release, control or cleanup of any hazardous materials,
substances or wastes, chemical substances or mixtures, pesticides, pollutants,
contaminants, toxic chemicals, petroleum products or byproducts, asbestos,
polychlorinated biphenyls, noise or radiation, each as amended and as now or
hereafter in effect.
3.28 Books and Records. The books, records and accounts of Company and
Sub (a) are in all material respects true and complete, (b) have been maintained
in accordance with reasonable business practices on a basis consistent with
prior years, (c) are stated in reasonable detail and accurately and fairly
reflect the transactions and dispositions of the assets and properties of
Company and Sub, and (d) accurately and fairly reflect the basis for the
Financial
33
Statements. Company and Sub have devised and maintain a system of internal
accounting controls sufficient to provide reasonable assurances that (a)
transactions are executed in accordance with management's general or specific
authorization, (b) transactions are recorded as necessary (i) to permit
preparation of financial statements in conformity with GAAP, and (ii) to
maintain accountability for assets, and (c) the amount recorded for assets on
the books and records of Company and Sub is compared with the existing assets at
reasonable intervals and appropriate action is taken with respect to any
differences.
3.29 Insurance. Company and Sub maintain policies of insurance and bonds
(the "INSURANCE POLICIES") of the type and in amounts customarily carried by
Persons conducting businesses or owning assets similar in type and size to those
of Company or Sub, including all legally required workers' compensation
insurance and errors and omissions, casualty, fire and general liability
insurance. All Insurance Policies now held by Company and Sub are set forth in
Schedule 3.29 of the Company Disclosure Letter, together with the name of the
insurer under each Insurance Policy, the type of policy or bond, the coverage
amount and any applicable deductible of the Insurance Policy, and other
applicable provisions, as of the Agreement Date. All premiums due and payable
under all Insurance Policies have been timely paid. Company and Sub are in
compliance with the terms of the Insurance Policies, and all Insurance Policies
are in full force and effect. Company, Sub and the Significant Stockholders have
no Knowledge of any threatened termination of, or material premium increase with
respect to, any Insurance Policy. Schedule 3.29 of the Company Disclosure Letter
sets forth all material claims made under the Insurance Policies since December
31, 2000. There is no claim pending under any the Insurance Policies as to which
coverage has been questioned, denied or disputed by the underwriters of the
Insurance Policies.
3.30 Customers. Sub has no outstanding material disputes concerning its
goods and/or services with any customer who, in the year ended December 31, 2001
or the three months ended March 31, 2002 was one of the twenty largest sources
of revenues for Sub, based on amounts paid (each, a "SIGNIFICANT CUSTOMER"), and
Company, Sub and the Significant Stockholders have not received any written
notice by any Significant Customer relating to such Significant Customer's
dissatisfaction with the performance of Company's or Sub's products or services.
Company, Sub and the Significant Stockholders have not received notice from any
Significant Customer that such customer will not continue as a customer of Sub
after the Closing or that any such customer intends to terminate or materially
modify existing contracts, agreements, arrangements, commitments or undertakings
with Sub or reduce the amount paid to Sub for products and services.
3.31 Directors and Officers. Schedule 3.31 of the Company Disclosure
Letter accurately identifies all of the directors and officers of Company and
Sub.
3.32 Certain Payments. Since January 1, 1997, neither Company nor Sub,
nor any officer, director, Affiliates or employees thereof, has offered, paid,
promised to pay or authorized payment of, or given any money, gift or anything
of value, with the purpose of influencing any act or decision of the recipient
in his or her official capacity or inducing the recipient to use his or her
influence to affect an act or decision of a government official or employee, to
any (a) governmental official or employee, (b) political party or candidate
thereof, or (c) Person while knowing that all or a portion of such money or
thing of value will be given or offered to any governmental official or employee
or political party or candidate thereof.
34
3.33 Bank Accounts. Schedule 3.33 of the Company Disclosure Letter sets
forth the names and locations of all banks, trust companies, savings and loan
associations and other financial institutions at which Sub maintains accounts of
any nature and the names of all persons authorized to draw thereon or make
withdrawals therefrom.
3.34 Certain Transactions and Agreements. No Person who is an officer,
director or stockholder of Company or Sub, or a member of any such officer's,
director's or stockholder's immediate family, (a) has or ever had any direct or
indirect ownership interest in, or any employment or consulting agreement with,
any firm or corporation that competes with Company, Sub or Parent (except with
respect to any interest of less than 1% of the outstanding voting shares of any
corporation whose stock is publicly traded), (b) is or ever has been directly or
indirectly interested in any contract, agreement, arrangement, commitment or
undertaking with Company or Sub, except for compensation for services as an
officer, director or employee of Company or Sub as listed in Schedule 3.34 of
the Company Disclosure Letter, (c) has or ever had any interest in any property,
real or personal, tangible or intangible, used in the Business, except for the
normal rights of a stockholder, or (d) has had, either directly or indirectly, a
material interest in (i) any Person which purchases from or sells, licenses or
furnishes to Sub any goods, property, technology or intellectual or other
property rights or services; or (ii) any contract, agreement, arrangement,
commitment or undertaking to which Company or Sub is a party or by which Company
or Sub may be bound or affected.
3.35 Material Misstatements or Omissions. No representation or warranty
by Company, Sub or the Significant Stockholders in this Agreement or in any
Company Ancillary Agreement, any Sub Ancillary Agreement or any the Significant
Stockholders Ancillary Agreement, as applicable, contains, or will when
furnished contain, any untrue statement of a material fact, or omits, or will
then omit, to state a material fact necessary to make any statement of facts
contained herein or therein not materially misleading. There have been no events
or transactions, or information that has come to the attention of Company, Sub
or the Significant Stockholders which could reasonably be expected to have a
Material Adverse Effect on Sub.
3.36 Information Supplied. None of the information supplied or to be
supplied by Company or Sub for inclusion in the Information Statement (as
defined in Section 5.8), at the date such information is supplied and at the
time of the Company Stockholders Meeting or the Company Stockholders Vote
contains or will contain any untrue statement of a material fact or omits or
will 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.
3.37 Tax Matters. None of Company, Sub or, to the Knowledge of Company,
Sub or the Significant Stockholders, any of their respective Affiliates, has
taken or agreed to take any action, or knows of any circumstances, that (without
regard to any action taken or agreed to be taken by Parent or any of its
Affiliates) would prevent the Merger from qualifying as a "reorganization"
within the meaning of Section 368(a) of the Internal Revenue Code.
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ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF PARENT, MERGER SUB AND MERGER SUB II
Parent, Merger Sub and Merger Sub II represent and warrant to Company
that each of the representations, warranties and statements contained in the
following Sections of this Article IV is true and correct as of the Agreement
Date and will be true and correct on and as of the Closing Date.
4.1 Corporate Organization.
(a) Parent. Parent is a corporation duly incorporated, validly
existing and in good standing under the laws of the State of Delaware and has
all necessary corporate power and authority to enter into this Agreement and the
Parent Ancillary Agreements, to carry out and perform its obligations hereunder
and thereunder and to consummate the transactions contemplated hereby and
thereby. "PARENT ANCILLARY AGREEMENTS" means all certificates and documents that
Parent is to execute and deliver pursuant to this Agreement.
(b) Merger Sub. Merger Sub is a corporation duly incorporated,
validly existing and in good standing under the laws of the State of Delaware
and has all necessary corporate power and authority to enter into this Agreement
and the Merger Sub Ancillary Agreements, to carry out and perform its
obligations hereunder and thereunder and to consummate the transactions
contemplated hereby and thereby. "MERGER SUB ANCILLARY Agreements" means all
certificates and documents that Merger Sub is to execute and deliver pursuant to
this Agreement.
(c) Merger Sub II. Merger Sub II is a corporation duly incorporated,
validly existing and in good standing under the laws of the State of Delaware
and has all necessary corporate power and authority to enter into this Agreement
and the Merger Sub II Ancillary Agreements, to carry out and perform its
obligations hereunder and thereunder and to consummate the transactions
contemplated hereby and thereby. "MERGER SUB II ANCILLARY AGREEMENTS" means all
certificates and documents that Merger Sub II is to execute and deliver pursuant
to this Agreement.
4.2 Power and Authority.
(a) Parent. The execution, delivery, carrying out and performance by
Parent of this Agreement and each of the Parent Ancillary Agreements, the Merger
and the consummation of all the transactions contemplated hereby and thereby on
the terms and conditions set forth herein and therein, have been duly and
validly authorized by Parent by all necessary corporate action on the part of
Parent. This Agreement has been, and at the Closing each of the Parent Ancillary
Agreements will be, duly and validly executed and delivered by Parent, and
(assuming due authorization, execution and delivery by Company, Sub and the
Significant Stockholders) this Agreement constitutes and, upon the execution of
each of the Parent Ancillary Agreements by the parties thereto, each of the
Parent Ancillary Agreements will constitute, legal, valid and binding
obligations of Parent enforceable against Parent in accordance with their
respective terms, subject to the effect, if any, of (i) applicable bankruptcy
and other similar laws affecting the rights of creditors generally and (ii)
rules of law and equity governing specific performance, injunctive relief and
other equitable remedies.
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(b) Merger Sub. The execution, delivery, carrying out and
performance by Merger Sub of this Agreement and each of the Merger Sub Ancillary
Agreements, the Merger and the consummation of all the transactions contemplated
hereby and thereby on the terms and conditions set forth herein and therein,
have been duly and validly authorized by Merger Sub by all necessary corporate
action on the part of Merger Sub. This Agreement has been, and at the Closing
each of the Merger Sub Ancillary Agreements will be, duly and validly executed
and delivered by Merger Sub, and (assuming due authorization, execution and
delivery by Company, Sub and the Significant Stockholders) this Agreement
constitutes and, upon the execution of each of the Merger Sub Ancillary
Agreements by the parties thereto, each of the Merger Sub Ancillary Agreements
will constitute, legal, valid and binding obligations of Merger Sub enforceable
against Merger Sub in accordance with their respective terms, subject to the
effect, if any, of (i) applicable bankruptcy and other similar laws affecting
the rights of creditors generally and (ii) rules of law and equity governing
specific performance, injunctive relief and other equitable remedies.
(c) Merger Sub II. The execution, delivery, carrying out and
performance by Merger Sub II of this Agreement and each of the Merger Sub II
Ancillary Agreements, the Merger and the consummation of all the transactions
contemplated hereby and thereby on the terms and conditions set forth herein and
therein, have been duly and validly authorized by Merger Sub II by all necessary
corporate action on the part of Merger Sub II. This Agreement has been, and at
the Closing each of the Merger Sub II Ancillary Agreements will be, duly and
validly executed and delivered by Merger Sub II, and (assuming due
authorization, execution and delivery by Company, Sub and the Significant
Stockholders) this Agreement constitutes and, upon the execution of each of the
Merger Sub II Ancillary Agreements by the parties thereto, each of the Merger
Sub II Ancillary Agreements will constitute, legal, valid and binding
obligations of Merger Sub II enforceable against Merger Sub II in accordance
with their respective terms, subject to the effect, if any, of (i) applicable
bankruptcy and other similar laws affecting the rights of creditors generally
and (ii) rules of law and equity governing specific performance, injunctive
relief and other equitable remedies.
4.3 No Conflict. The execution, delivery and performance of this
Agreement, the Parent Ancillary Agreements, the Merger Sub Ancillary Agreements
and the Merger Sub II Ancillary Agreements by Parent, Merger Sub and Merger Sub
II, as applicable, do not and will not conflict with or violate: (a) the
Certificate of Incorporation or Bylaws of Parent, Merger Sub and Merger Sub II,
each as amended to date; (b) any Applicable Laws applicable to Parent, Merger
Sub, Merger Sub II or their respective assets or properties, except as would not
have a Material Adverse Effect on Parent; or (c) any contract, agreement,
arrangement, commitment or undertaking by which Parent is bound, except, with
respect to subparagraph (c), as would not have a Material Adverse Effect on
Parent.
4.4 Consents and Approvals. The execution, delivery and performance of
this Agreement, the Parent Ancillary Agreements, the Merger Sub Ancillary
Agreements and the Merger Sub II Ancillary Agreements by Parent, Merger Sub and
Merger Sub II, as applicable, do not, and the performance of this Agreement and
the Parent Ancillary Agreements by Parent will not, require any consent,
approval, authorization or other action by, or filing with or notification to,
any Governmental Authority except for (a) the filing of the Second-Step
Certificate of Merger with the Delaware Secretary of State; (b) the filing with
the SEC and the effectiveness of the registration statement on Form S-8 that is
required to be filed by Parent after the Closing Date pursuant to Section 2.8(b)
of this Agreement; (c) the filing by Parent of such reports and
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information with the SEC under the Exchange Act and the rules and regulations
promulgated by the SEC thereunder as may be required in connection with this
Agreement, the Merger and the other transactions contemplated by this Agreement;
and (d) such other consents, approvals and authorizations, if any, that if not
made or obtained by Parent would not be material to Parent's ability to
consummate the Merger or to perform its obligations under this Agreement and the
Parent Ancillary Agreements.
4.5 Valid Issuance of Stock. The Merger Shares, when issued and paid for
as provided in this Agreement, will be duly authorized and validly issued, fully
paid and nonassessable. The Registration Statement is effective under the
Securities Act and no stop order suspending the effectiveness of the
Registration Statement has been issued by the SEC and, to the Knowledge of
Parent, there is no basis for any suspension of the effectiveness of the
Registration Statement.
4.6 SEC Filings; Financial Statements.
(a) Parent has made or will make available to Company a true and
complete copy of Parent's annual report on Form 10-K for the fiscal year ended
July 31, 2001, all quarterly reports on Form 10-Q and current reports on Form
8-K filed with the SEC since July 31, 2001, and any proxy materials distributed
to Parent's stockholders since July 31, 2001, in each case without exhibits
thereto (collectively, as supplemented and amended since the time of filing, the
"PARENT SEC REPORTS"). The Parent SEC Reports (i) were prepared in all material
respects with all applicable requirements of the Securities Act and the Exchange
Act, as the case may be, and (ii) when taken together, do 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.
(b) The audited consolidated financial statements and unaudited
consolidated interim financial statements of Parent and its Subsidiaries
included or incorporated by reference in the Parent SEC Reports (i) present
fairly, in all material respects, the financial position of Parent and its
Subsidiaries on a consolidated basis at the respective dates and for the
respective periods indicated and (ii) have been prepared in accordance with GAAP
applied on a basis consistent with prior periods (except, solely in the case of
any of such financial statements that are unaudited financial statements, for
the absence of notes thereto and the absence of year-end audit adjustments) .
4.7 No Material Adverse Changes or Events. Since the date of the last
Parent SEC Report filed with the SEC, there has been no Material Adverse Effect
on the Parent or any event or change which could prevent or materially delay
Parent's ability to consummate the Merger.
4.8 Tax Matters. None of Parent, Merger Sub and Merger Sub II or, to
their Knowledge, any of their Affiliates, has taken or agreed to take any
action, or knows of any circumstances that (without regard to any action taken
or agreed to be taken by the Company or any of its Affiliates) would prevent the
Merger from qualifying as a "reorganization" within the meaning of Section
368(a) of the Internal Revenue Code.
4.9 Registration Statement; Other Information. The Registration
Statement (including the shelf prospectus deemed a part thereto), does 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
38
to make the statements therein, in light of the circumstances under which they
were made, not misleading. Neither this Agreement, nor any of the Parent
Ancillary Agreements, the Merger Sub Ancillary Agreements and the Merger Sub II
Ancillary Agreements or any certificate delivered pursuant hereto or thereto,
contains, or will when furnished contain, any untrue statement of a material
fact, or omits, or will then omit, to state a material fact necessary to make
any statement of fact contained herein or therein not materially misleading.
ARTICLE V
COVENANTS
5.1 Conduct of Business Prior to the Closing. As used herein, the term
"PRE-CLOSING PERIOD" means that time period beginning on the Agreement Date and
ending upon the earlier to occur of (a) the Closing Date and (b) the termination
of this Agreement in accordance with the provisions of Article IX. Company and
Sub hereby covenant and agree with Parent that, during the Pre-Closing Period,
Company and Sub will not enter into any transaction or agreement, make any
payment, or take any action, that is not within the ordinary course of Company's
and Sub's business, consistent with their respective past practices, without the
prior written consent of an officer of Parent. Without limiting the foregoing,
each of Company and Sub covenant and agree that, during the Pre-Closing Period
each of Company and Sub will:
(a) not take any action that would be inconsistent in any material
respects with any of its representations or warranties set forth in Article III
or which would cause a breach of any such representation or warranty;
(b) not sell, transfer, assign, convey, lease, license, encumber,
move, relocate or otherwise dispose of any of its assets or grant any lien,
security interest or Encumbrance on any of its assets;
(c) not borrow or lend any money, or guarantee or act as a surety
for any obligation or indebtedness of any third party;
(d) not materially increase or decrease its operating expenses;
(e) not alter, amend or terminate any Material Agreement or any
other contract, agreement, arrangement, commitment or undertaking to which
Company or Sub is a party and which is material to the Business;
(f) not enter into any contract, agreement, arrangement, commitment
or undertaking which could be characterized as a Material Agreement except for
Sub's standard form(s) of end user license attached as Schedule 3.10(h) of the
Company Disclosure Letter or Sub's standard form of service agreement attached
as Schedule 3.21 of the Company Disclosure Letter;
(g) not license any Sub IP Rights or any Intellectual Property
Rights related thereto to any third party, except for end-user licenses of Sub's
products to end-user customers entered into in the ordinary course of Sub's
business consistent with its past practices on the terms of Sub's standard
end-user license (which is attached as Schedule 3.10(h) of the Company
Disclosure Letter), or enter into any other agreement that is not entered into
in the ordinary course of Sub's business, consistent with its past practices;
39
(h) not enter into any contract, agreement, arrangement, commitment
or undertaking for the purchase or sale of any property, real or personal,
tangible or intangible;
(i) not initiate or file any lawsuit, action, arbitration or other
litigation proceeding;
(j) not terminate the employment of any of its Key Employees;
(k) not declare, set aside or pay any cash or stock dividend or
other distribution in respect of any shares of its capital stock, not redeem or
otherwise repurchase or acquire any shares of its capital stock or other
securities, not pay or distribute any cash or property to any of its
stockholders or security holders or make any other cash payment to any of its
stockholders or security holders that is not made in the ordinary course of its
business consistent with its past practices;
(l) not pay, or enter into any agreement to pay, any bonus, royalty,
increased salary or special remuneration to any officer, director, employee,
consultant or stockholder, modify the salary or other compensation payable by it
to any such Person or enter into any employment or consulting agreement with any
such Person enter into any indemnification agreement or agreement to advance
expenses of defending any claim, suit or proceeding with any such Person;
(m) not issue or sell any shares of Company's or Sub's capital stock
or any other securities (except pursuant to the exercise of Company Options that
are outstanding on the Agreement Date in accordance with their terms as in
effect on the Agreement Date), and not issue, grant or create any warrants,
obligations, subscriptions, options, convertible securities, stock appreciation
rights or other commitments to issue shares of Company's or Sub's capital stock
(except pursuant to Section 5.14);
(n) other than the Merger, not merge, consolidate or reorganize
with, or acquire, or enter into any other business combination with, or sell or
transfer any of its assets or properties to, any Person or enter into any
negotiations, discussions or agreement for such purpose;
(o) not make any material payments outside the ordinary course of
its business, consistent with its past practice;
(p) not alter or amend the terms of any of Company's or Sub's
capital stock or other securities or amend its Certificate of Incorporation or
Articles of Incorporation, as applicable, or Bylaws;
(q) not waive or release any material right;
(r) not agree to any audit assessment by any Tax authority or file
any income tax Return unless a copy of such Return has first been delivered to
Parent for its review at a reasonable time prior to filing or file any claim for
any tax refund from any Tax authority;
(s) not change any insurance coverage or issue any certificates of
insurance (except for the planned renewal of existing policies on terms not
materially different from those in effect on the Agreement Date);
40
(t) not commence a lawsuit other than (i) for the routine collection
of bills, or (ii) in such cases where it in good faith determines that the
failure to commence suit would result in the material impairment of a valuable
aspect of the Business; provided that it consults with Parent before the filing
of such suit; and
(u) not agree to do any of the things described in the preceding
clauses (a) through (t).
5.2 Consent of Third Parties. During the Pre-Closing Period, Company and
Sub will use their reasonable best efforts to obtain such written consents from
third parties listed in Schedule 3.4 and Schedule 3.5 of the Company Disclosure
Letter and take such other actions as may be necessary or appropriate, in
addition to those set forth in this Article V, to facilitate and allow the
consummation of the transactions provided for herein and to facilitate and allow
Parent and Merger Sub to carry on the Business after the Closing Date and to
keep in effect and avoid the breach, violation of, termination of, or adverse
change to any Material Agreement.
5.3 Advice of Changes. Company, Sub and the Significant Stockholders
will promptly advise Parent in writing (a) of any event occurring subsequent to
the Agreement Date that would render any representation or warranty of Company,
Sub or the Significant Stockholders contained in Article III of this Agreement,
if made on or as of the date of such event or the Closing Date, untrue or
inaccurate in any material respect, and (b) of any Material Adverse Change in
Company or Sub. Parent will promptly advise Company in writing (a) of any event
occurring subsequent to the Agreement Date that would render any representation
or warranty of Parent or Merger Sub contained in Article IV of this Agreement,
if made on or as of the date of such event or the Closing Date, untrue or
inaccurate in any material respect, and (b) of any Material Adverse Change in
Parent.
5.4 Litigation. Company, Sub and the Significant Stockholders will
notify Parent in writing promptly after learning of any claim, action, suit,
arbitration, mediation, proceeding or investigation by or before any
Governmental Authority, arbitrator or arbitration panel initiated by or against
Company or Sub, or known by Company, Sub or any Significant Stockholder to be
threatened against Company, Sub or any of their respective officers, directors,
employees or stockholders in their capacity as such.
5.5 Notices to Company's Security Holders. Prior to the Closing, Company
will timely deliver to each Company Stockholder and each holder of any Company
Option (collectively "COMPANY SECURITY HOLDERS"), all advance written notices
required to be given to such Persons in connection with this Agreement, the
Merger or any transaction contemplated hereby or thereby under Company's
Certificate of Incorporation, the Company Option Plans or other agreement.
5.6 No Alternative Transactions.
(a) During the Pre-Closing Period, Company, Sub and the Significant
Stockholders will not, and Company and Sub will not authorize any of their
respective officers, directors, employees, stockholders, agents or other
representatives to, directly or indirectly: (i) take any actions to initiate,
solicit, induce or encourage (including by way of furnishing evaluation material
or other information regarding the Business), or that may reasonably be expected
to lead to, any inquiries or proposals from a third party or parties for an
Alternative
41
Transaction (as defined below); (ii) furnish any information regarding Company,
Sub or their respective assets or business to any Person in connection with or
in response to any inquiry, offer or proposal for or regarding any Alternative
Transaction; (iii) participate or engage in any discussions or negotiations with
any Person with respect to an Alternative Transaction; (iv) execute, enter into
or become bound by any letter of intent, contract, agreement, arrangement,
commitment or undertaking between Company, Sub or the Significant Stockholders
and any third party that is related to, provides for or concerns any Alternative
Transaction; or (v) consummate or effect any Alternative Transaction.
(b) In addition to the obligations of Company, Sub and the
Significant Stockholders set forth in Section 5.6(a), Company, Sub or the
Significant Stockholders as soon as reasonably practicable (and in no event more
than one business day thereafter) will advise Parent orally and in writing of
any Alternative Transaction or of any request for nonpublic information which
Company, Sub or any Significant Stockholder reasonably believes would lead to an
Alternative Transaction, or any inquiry with respect to or which Company, Sub or
any Significant Stockholder reasonably would believe would lead to any
Alternative Transaction, the material terms and conditions of such Alternative
Transaction, request or inquiry, and the identity of the Person or group making
any such request, Alternative Transaction or inquiry. Company, Sub or the
Significant Stockholders will keep Parent informed as promptly as reasonably
practicable in all material respects of the status and details (including
material amendments or proposed amendments) of any such Alternative Transaction,
request or inquiry.
(c) As used herein, the term "ALTERNATIVE TRANSACTION" means (i) any
contract, agreement, arrangement, commitment, undertaking or transaction
involving or providing for the possible disposition of all or any substantial
portion of Company's or Sub's business, assets or capital stock, whether by way
of merger, consolidation, sale of assets, sale of stock, tender offer and/or any
other form of business combination; (ii) any sale, lease, exchange, transfer,
license, acquisition or disposition of more than 50% of the assets of Company or
Sub; (iii) any sale, lease, exchange, transfer, license or disposition to a
Person of the Business; or (iv) any initial public offering of capital stock or
other securities of Company or Sub pursuant to a registration statement filed
under the Securities Act.
5.7 Approval and Vote of the Company Stockholders.
(a) Company will take all action necessary in accordance with
Applicable Laws and its Certificate of Incorporation and Bylaws to call, notice,
convene, hold and conduct a meeting of the Company Stockholders (the "COMPANY
STOCKHOLDERS MEETING") to be held as soon as practicable, and in no event after
May 31, 2002 for the purpose of voting upon approval of this Agreement and the
Merger. Company will solicit from the Company Stockholders proxies in favor of
the approval of this Agreement and the Merger, and will use all reasonable
efforts to take all other action necessary or advisable to secure the vote of
the Company Stockholders required by Delaware Law to obtain such approvals.
Company will use all reasonable efforts to ensure that all proxies solicited by
Company in connection with the Company Stockholders Meeting are solicited in
compliance with Applicable Laws, its Certificate of Incorporation and Bylaws,
each as amended to date. Company's obligation to call, give notice of, convene,
hold and conduct the Company Stockholders Meeting in accordance with this
Section 5.7 will not be limited to or otherwise affected by the commencement,
disclosure, announcement or submission to Company of any Alternative
Transaction. In lieu of the Company Stockholders Meeting, the approval by the
Company Stockholders with respect to this
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Agreement and the Merger may be obtained by written consent of the Company
Stockholders (the "COMPANY STOCKHOLDERS VOTE") where authorized by Delaware Law
and the Certificate of Incorporation and Bylaws of Company.
(b) Company's Board of Directors will recommend that the Company
Stockholders vote in favor of and approve and adopt this Agreement, the Company
Ancillary Agreements and the Merger at the Company Stockholders Meeting or the
Company Stockholders Vote. The Information Statement will include a statement to
the effect that Company's Board of Directors has recommended that the Company
Stockholders vote in favor of and approve and adopt this Agreement and the
First-Step Certificate of Merger and approve the Merger at the Company
Stockholders Meeting or the Company Stockholders Vote.
5.8 Information Statement. Promptly following the Agreement Date,
Company will deliver to Parent's counsel a draft of an information statement
(the "INFORMATION STATEMENT") prepared for the purpose of considering and
approving this Agreement, the Merger and the transactions contemplated hereby.
5.9 Access to Information. During the Pre-Closing Period, Company and
Sub will allow Parent and its agents, during normal business hours and on
reasonable advance notice (which may be given orally), access to the files,
books, records, personnel (only after obtaining specific consent from Company's
representatives, which consent will not be unreasonably withheld) and offices of
Company and Sub, including any and all information relating to Company's Taxes,
contracts, agreements, arrangements, commitments or undertakings, and real,
personal and intangible property and financial condition, subject to the terms
of the Mutual Nondisclosure and Nonuse Agreement between Company and Parent.
Company will cause its accountants to cooperate with Parent and its agents in
making available all financial information relating to Company or Sub reasonably
requested by Parent, including the right to examine all working papers
pertaining to all financial statements prepared or audited by such accountants.
If, in order to properly prepare documents required to be filed with
governmental authorities (including taxing authorities) or its financial
statements, it is necessary that Parent be furnished with additional information
regarding Company, Sub, the Business or the Assumed Liabilities, whether before
or after the Closing, and such information is in the possession of Company, Sub
or any Significant Stockholder, Company, Sub and the Significant Stockholders
agree to use all reasonable efforts to promptly furnish such information to
Parent.
5.10 Invention Assignment and Confidentiality Agreements. Company and
Sub will use reasonable best efforts to obtain from each employee, contractor
and consultant of Sub who has had access to any software, technology or
copyrightable, patentable or other proprietary works owned or developed by Sub,
or to any other confidential or proprietary information of Sub or its clients,
an invention assignment and confidentiality agreement in a form reasonably
acceptable to Parent, duly executed by such employee, contractor or consultant
and delivered to Company and Sub, as may be reasonably requested by Parent prior
to the execution of this Agreement.
5.11 Satisfaction of Conditions Precedent. Company, Sub, the Significant
Stockholders and Parent will use all reasonable efforts to satisfy or cause to
be satisfied all the conditions precedent to the Closing which are set forth in
Article VII.
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5.12 Securities Laws. Company and Sub will use all reasonable efforts to
assist Parent to comply with the securities laws of all jurisdictions applicable
in connection with this Agreement.
5.13 Employee Plans. Upon Parent's request, Company and Sub will
terminate, as of immediately prior to the Closing Date, any and all (a) Employee
Plans, (b) leased employee arrangements, and (c) group severance, separation,
retention and salary continuation plans, programs or arrangements.
5.14 Company Option Plans. Upon Parent's request, Company will make such
amendments to the Company Option Plans and the form option agreement and option
exercise agreement under the Company Option Plans as is reasonably requested by
Parent, including an amendment to increase the number of shares of Company
Common Stock reserved under the Company Option Plans; provided, however, that
none of such changes will apply to Company Options listed on Schedule 3.6(b). In
addition, upon Parent's request, Company will grant Company Options with an
exercise price equal to the fair market value of Company Common Stock on the
date of grant to such employees of Sub, in such amounts and with such vesting
schedules as requested by Parent.
5.15 Company Option Schedule. Prior to the Closing, Company will update
and provide to Parent the Company Option Schedule as of the Closing Date (the
"CLOSING COMPANY OPTION SCHEDULE").
5.16 Retention of Employees. Company and Sub will use all reasonable
efforts to retain the employment of the employees of Sub and to secure their
continued employment after the Closing, and Company and Sub will promptly notify
Parent if Company or Sub becomes aware that any such employee intends to leave
the employ of Sub.
5.17 Closing Certificate. At least two days prior to the Closing Date,
Sub will deliver to Parent a draft of the Closing Certificate.
5.18 Further Actions. Company and the Significant Stockholders agree
that if, at any time after the Effective Time, Parent considers or is advised
that any further deeds, assignments or assurances are reasonably necessary or
desirable to vest, perfect, confirm or continue in Sub or Parent title to any
property or rights of Company as provided herein, Parent and any of its officers
are hereby authorized by Company and the Significant Stockholders to execute and
deliver all such proper deeds, assignments and assurances and do all other
things necessary or desirable to vest, perfect, confirm or continue title to
such property or rights in Parent or Sub, and otherwise to carry out the
purposes of this Agreement, in the name of Company and the Significant
Stockholders or otherwise.
5.19 Registration Statement. Parent will advise Company promptly after
it receives notice of the issuance of any stop order, the suspension of the
qualification of the Merger Shares for offering or sale in any jurisdiction or
any request by the SEC for amendment to the Registration Statement. If at any
time prior to the Closing Date any event or circumstance relating to Parent or
any of its Subsidiaries, or their respective officers or directors, should be
discovered by Parent which should be set forth in an amendment or a supplement
to the Registration Statement, Parent will promptly inform Company.
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5.20 Tax-Free Reorganization. During the Pre-Closing Period, Company and
Sub will not take any action and will not fail to take any action that could
prevent the Merger from qualifying as a "reorganization" within the meaning of
Section 368(a) of the Internal Revenue Code. None of Parent, Merger Sub or
Merger Sub II, either before or after the completion of the Reverse Merger or
the Second-Step Merger, directly or on behalf of the Surviving Corporation, will
take any action or fail to take any action that would prevent the Reverse Merger
or the Second-Step Merger from treatment for federal income tax purposes as a
unified transaction which is intended to qualify as a "reorganization" within
the meaning of Section 368(a) of the Internal Revenue Code. Following the
Merger, Parent will comply with the record-keeping and information filing
requirements of Section 1.368-3 of the Regulations.
5.21 Representation Letters. Each of Parent, Company and their
respective Affiliates will cooperate with each other in obtaining the opinion of
Morrison & Foerster LLP described in Section 7.1(f). In connection therewith,
each of Parent and Company will deliver to Morrison & Foerster LLP customary
representation letters (the "REPRESENTATION LETTERS"), which will include
representations upon which Morrison & Foerster LLP and the other parties
hereunder can rely.
5.22 Section 382 Analysis. Company will assist Parent in completing any
analysis of ownership changes under Section 382 of the Internal Revenue Code
following the Effective Time.
5.23 Completion of Second-Step Merger. The Second-Step Merger described
in Section 2.1(b) will be completed immediately following the Effective Time.
ARTICLE VI
CLOSING MATTERS
6.1 The Closing. Subject to termination of this Agreement as provided in
Article IX, the closing of the transactions to consummate the Merger (the
"CLOSING") will take place at the offices of Fenwick & West LLP, Two Palo Alto
Square, Palo Alto, California at 10:00 a.m., Pacific Time on the first business
day after all of the conditions to Closing set forth in Article VII have been
satisfied and/or waived in accordance with this Agreement, or at such other
place, time or date as Parent and Company may mutually agree (the "CLOSING
DATE"). Concurrently with the Closing or at such later date and time as may be
mutually agreed by Parent and Company, the First-Step Certificate of Merger will
be filed with the Delaware Secretary of State. Immediately following the
consummation of the Reverse Merger, the Second-Step Certificate of Merger will
be filed with the Delaware Secretary of State.
6.2 Exchange.
(a) As of the Effective Time, all shares of Company Common Stock
that are outstanding immediately prior thereto will, by virtue of the Merger and
without further action, cease to exist, and all such shares will be
automatically converted into the right to receive from Parent, and will be
exchangeable for, the number of shares of Parent Common Stock and the Cash
Amounts determined as set forth in Section 2.2(b), subject to Sections 2.2(c),
2.2(d), 2.2(f), 2.4 and 2.10. Prior to the Effective Time, Parent will deliver
the Escrow Cash to the Escrow Agent pursuant to the Escrow Agreement.
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(b) At and after the Effective Time, each certificate representing
outstanding shares of Company Common Stock will represent the right to receive
share certificates covering the number of shares of Parent Common Stock and the
Cash Amounts as determined pursuant to Section 2.2(b), subject to Sections
2.2(c), 2.2(d), 2.2(f), 2.4 and 2.10, for which such shares of Company Common
Stock have been or will be exchanged, and such shares of Parent Common Stock
will be registered in the name of the holder of such certificate. Parent will
make available to American Stock Transfer & Trust Company (the "EXCHANGE AGENT")
certificates representing shares of Parent Common Stock to be issued in exchange
for outstanding shares of Company Common Stock and cash in an amount sufficient
to permit the payment of cash in lieu of fractional shares pursuant to Section
2.2(d). Parent will cooperate with Company prior to the Effective Time to permit
Company to complete the requirements provided in this Section 6.2(b) prior to
the Effective Time, subject to the Closing. As soon as practicable after the
Effective Time, the Surviving Corporation will cause to be mailed to each holder
of record of a certificate or certificates which immediately before the
Effective Time represented outstanding shares of Company Common Stock (the
"CERTIFICATES") and which shares were converted into the right to receive shares
of Parent Common Stock and the Cash Amounts pursuant to Section 2.2(b), (i) a
letter of transmittal in customary form (which will specify that delivery will
be effected, and risk of loss and title to the Certificates will pass, only upon
delivery of the Certificates to the Exchange Agent and will be in form and have
such other provisions as Parent may reasonably specify and contain an agreement
to be bound by the indemnification provisions hereof), and (ii) instructions for
use in effecting the surrender of the Certificates in exchange for certificates
representing shares of Parent Common Stock and cash in lieu of fractional
shares. Upon surrender of a Certificate for cancellation or upon delivery of an
affidavit of lost certificate and an indemnity in form and substance
satisfactory to Parent (the "AFFIDAVIT") (together with any required Form W-9 or
Form W-8) to the Exchange Agent or to such other agent or agents as may be
appointed by Parent, together with such letter of transmittal, duly completed
and validly executed in accordance with the instructions thereto, the Exchange
Agent will (i) issue to each tendering holder of a Certificate or an Affidavit
(each, a "TENDERING COMPANY HOLDER"), a certificate for the number of shares of
Parent Common Stock to which such holder is entitled pursuant to Section 2.2(b),
subject to the provisions of Section 2.2(d), and (ii) pay by check to each
Tendering Company Holder cash in the amount payable in accordance with Section
2.2(d). Parent will give to Parent's transfer agent stop transfer instructions
with respect to certificates evidencing shares of Parent Common Stock issued to
an Affiliate of Company, and there will be placed on all such certificates a
legend stating in substance that such shares of Parent Common Stock may not be
sold or transferred without compliance with Rule 145 promulgated under the
Securities Act. Within five business days following the Agreement Date, Parent
will provide written instructions to such Affiliates specifying the process by
which such Affiliates can have such legends removed effective immediately
following the Effective Time.
(c) Subject to the Escrow Agreement, all stock certificates covering
the number of shares of Parent Common Stock and Cash Amounts as determined
pursuant to Section 2.2(b), subject to Sections 2.2(c), 2.2(d), 2.2(f), 2.4 and
and 2.10 to be delivered upon the surrender of Certificates in accordance with
the terms hereof will be delivered to the registered holders of such
Certificates. After the Effective Time, there will be no further registration of
transfers of shares of Company Common Stock on the stock transfer books of
Company.
(d) Subject to Section 6.2(c), until Certificates representing
shares of Company Common Stock outstanding before the Merger are surrendered
pursuant to Section 6.2(b), such Certificates will be deemed, for all purposes,
to evidence only ownership of
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(i) the right to receive stock certificates covering the number of shares of
Parent Common Stock and the Cash Amounts for which the shares of Company Common
Stock are to be exchanged, and (ii) if applicable, cash in lieu of fractional
shares.
(e) No dividends or distributions payable to holders of record of
shares of Parent Common Stock after the Effective Time will be paid to the
holder of any unsurrendered Certificate unless and until the holder of such
unsurrendered Certificate surrenders such Certificate or an Affidavit to Parent
as provided above. Subject to the effect, if any, of applicable escheat and
other laws, following surrender of any Certificate or Affidavit, there will be
delivered to the Person entitled thereto, without interest, the amount of any
dividends and distributions theretofore paid with respect to shares of Parent
Common Stock so withheld as of any date after the Effective Time and before such
date of delivery.
6.3 Dissenting Shares. If holders of shares of Company Common Stock are
entitled to appraisal rights with respect to such shares ("DISSENTING SHARES")
pursuant to Delaware Law in connection with the Merger, any Dissenting Shares
will not be converted into the right to receive shares of Parent Common Stock
and the Cash Amounts, but will be converted into the right to receive such
consideration as may be determined to be due with respect to such Dissenting
Shares pursuant to Delaware Law. Company will give Parent prompt notice (and in
any case, within one business day) of any demand received by Company for
appraisal of shares of Company Common Stock, and Parent will have the right to
control all negotiations and proceedings with respect to such demand. Company
agrees that, except with the prior written consent of Parent, it will not
voluntarily make any payment with respect to, or settle or offer to settle, any
such demand for appraisal. If any Company Stockholder fails to make an effective
demand for payment or otherwise loses his status as a holder of Dissenting
Shares (a "DISSENTING STOCKHOLDER"), Parent will, as of the later of the
Effective Time or ten business days after the occurrence of such event, issue
and deliver, upon surrender by such Dissenting Stockholder of its
Certificate(s), the shares of Parent Common Stock and any cash payment in lieu
of fractional shares, in each case without interest thereon, to which such
Dissenting Stockholder would have been entitled to under Section 2.2.
ARTICLE VII
CONDITIONS TO THE CLOSING
7.1 Conditions to Obligations of Company. The obligations of Company
hereunder will be subject to the fulfillment (or waiver by Company), at or prior
to the Closing, of each of the following conditions:
(a) Accuracy of Representations and Warranties. The representations
and warranties of Parent set forth in Article IV (i) that are qualified by
materiality will be true and correct and (ii) that are not qualified by
materiality will be true and correct in all material respects, in each case on
and as of the Closing with the same force and effect as if they had been made on
the Closing Date (except for any such representations and warranties that, by
their terms, speak only as of a specific date or dates, in which case such
representations and warranties that are qualified by materiality will be true
and correct, and such representations and warranties that are not qualified by
materiality will be true and correct in all material respects, on and as of such
specified date or dates), and Company will have received a certificate dated the
Closing Date to such effect executed on behalf of Parent by a duly authorized
officer.
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(b) Compliance with Covenants. All the covenants contained in this
Agreement to be complied with by Parent on or before the Closing will have been
complied with in all material respects, and Company will have received a
certificate dated the Closing Date to such effect executed on behalf of Parent
by a duly authorized officer.
(c) No Adverse Order. No Governmental Authority will have enacted,
issued, promulgated, enforced or entered any statute, rule, regulation,
injunction, judgment, decree or other order (whether temporary, preliminary or
permanent) which is in effect and has the effect of making the transactions
contemplated by this Agreement or the Merger illegal or otherwise restraining or
prohibiting the consummation of such transactions.
(d) No Litigation. No suit, claim, cause of action, arbitration,
investigation or other proceeding contesting, challenging or seeking to alter or
enjoin or adversely affect the Merger, the Merger or any other transaction
contemplated hereby will be pending or threatened.
(e) Issuance of Merger Shares and Escrow Cash. Parent will have
issued and delivered to Company a copy of an irrevocable instruction letter of
Parent addressed to Parent's transfer agent instructing such transfer agent to
prepare and deliver (subject to Section 6.2) Parent Common Stock certificates
representing all of the Merger Shares, duly registered in the name of each
Company Stockholder. Parent will have issued and delivered to the Escrow Agent
the Escrow Cash.
(f) Tax Opinion. Company will have received an opinion of Morrison &
Foerster LLP, special tax counsel to Company, in form and substance reasonably
satisfactory to Company and upon which Company and the Company Stockholders may
rely, on the basis of certain facts, representations and assumptions set forth
in such opinion, dated as of the Closing Date, substantially to the effect that
the Merger will be treated as a "reorganization," within the meaning of Section
368(a) of the Internal Revenue Code, and that each of Parent, Company and Merger
Sub II will be a "party to a reorganization," within the meaning of Section
368(b) of the Internal Revenue Code, with respect to the Merger. Notwithstanding
the foregoing, the condition set forth in this Section 7.1(f) will not be deemed
to be required to be fulfilled if Parent makes, in its sole discretion, the Cash
Election.
(g) Registration Statement. The Registration Statement will be
effective under the Securities Act and no stop order suspending the
effectiveness of the Registration Statement will have been issued by the SEC and
no proceeding for that purpose will have been initiated by the SEC.
Notwithstanding the foregoing, the condition set forth in this Section 7.1(g)
will not be deemed to be required to be fulfilled if Parent makes, in its sole
discretion, the Cash Election.
(h) No Material Adverse Change. From the Agreement Date to the
Closing Date, there will have been no Material Adverse Change in Parent, whether
or not resulting from a breach in any representation, warranty or covenant
contained herein, and Company will have received a certificate dated the Closing
Date to such effect executed by an officer of Parent. Notwithstanding the
foregoing, the condition set forth in this Section 7.1(h) will not be deemed to
be required to be fulfilled if Parent makes, in its sole discretion, the Cash
Election.
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7.2 Conditions to Obligations of Parent. The obligations of Parent to
consummate the transactions contemplated by this Agreement will be subject to
the fulfillment (or waiver by Parent), at or prior to the Closing, of each of
the following conditions:
(a) Accuracy of Representations and Warranties. The representations
and warranties of Company, Sub and each Significant Stockholder set forth in
Article III (i) that are qualified by materiality will be true and correct and
(ii) that are not qualified by materiality will be true and correct in all
material respects, in each case on and as of the Closing with the same force and
effect as if they had been made on the Closing Date (except for any such
representations or warranties that, by their terms, speak only as of a specific
date or dates, in which case such representations and warranties that are
qualified by materiality will be true and correct, and such representations and
warranties that are not qualified by materiality will be true and correct in all
material respects, on and as of such specified date or dates), and Parent will
have received a certificate dated the Closing Date to such effect executed by
Company's and Sub's Chief Executive Officer and each Significant Stockholder.
The representations and warranties of each Company Stockholder set forth in such
Company Stockholder's Investment Representation Letter will be true and correct.
(b) Compliance with Covenants. All the covenants contained in this
Agreement to be complied with by Company, Sub or the Significant Stockholders on
or before the Closing will have been complied with in all material respects, and
Parent will have received a certificate dated the Closing Date to such effect
executed by Company's and Sub's Chief Executive Officer and each Significant
Stockholder.
(c) No Adverse Order. No Governmental Authority will have enacted,
issued, promulgated, enforced or entered any statute, rule, regulation,
injunction, judgment, decree or other order (whether temporary, preliminary or
permanent) which is in effect and has the effect of (i) making the transactions
contemplated by this Agreement or the Merger illegal or otherwise restraining or
prohibiting the consummation of such transactions, or (ii) that imposes
limitations on Parent's right (or the right of any Subsidiary of Parent) to own,
retain, use or operate any of its products, properties or assets (including
equity, properties or assets of Company and Sub) on or after consummation of the
Merger or seeking a disposition or divestiture of any such properties or assets.
(d) No Litigation. No suit, claim, cause of action, arbitration,
investigation or other proceeding with be pending or threatened which contests,
challenges or seeks to alter, enjoin or adversely affect the Merger, the Merger
or any other transaction contemplated hereby, or threatens to impose material
limitations on Parent's right (or the right of any Subsidiary of Parent) to own,
retain, use or operate any of its products, properties or assets (including
equity, properties or assets of Company and Sub) on or after consummation of the
Merger or seeking a material disposition or divestiture of any such properties
or assets. In addition, no suit, claim, cause of action, arbitration,
investigation or other proceeding will be pending or threatened which in any
manner seeks to hold Parent liable for any actions, omissions or Liabilities of
Company (other than Assumed Liabilities).
(e) No Material Adverse Change. From the Agreement Date to the
Closing Date, there will have been no Material Adverse Change in Company or Sub,
whether or not resulting from a breach in any representation, warranty or
covenant contained herein, and Parent
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will have received a certificate dated the Closing Date to such effect executed
by Company's and Sub's Chief Executive Officer.
(f) Requisite Corporate Approvals. This Agreement and the Merger
will each have been duly and validly approved and adopted by the Company
Stockholders by the vote described in Section 3.24 and in accordance with
Applicable Laws and Company's Certificate of Incorporation and Bylaws, each as
amended to date.
(g) Third Party Consents Obtained. Parent will have received duly
executed copies of all consents, approvals, assignments, waivers, authorizations
or other certificates from third parties and Governmental Authorities (including
those set forth in Schedule 3.4 and Schedule 3.5 of the Company Disclosure
Letter) reasonably deemed necessary by Parent to provide for the continuation in
full force and effect of any and all Material Agreements without any breach,
violation or default of any of such Material Agreements so that such Material
Agreements will continue in full force and effect following the Closing.
(h) Resignations of Directors and Officers of Company and Sub. The
persons holding the position of a director or officer of Company or Sub in
office immediately before the Closing Date will have resigned from such position
in writing effective as of the Closing Date.
(i) Exemptions Available. Parent must be reasonably satisfied that
there are not more than thirty-five Company Stockholders who are not "accredited
investors" within the meaning of Regulation D promulgated under the Securities
Act and that the issuance of the Merger Shares and the Escrow Cash is otherwise
exempt from registration under the Securities Act pursuant to Section 4(2) and
Regulation D thereof and applicable state securities laws. Notwithstanding the
foregoing, the condition set forth in this Section 7.2(i) will not be deemed to
be required to be fulfilled if Parent makes, in its sole discretion, the Cash
Election.
(j) Stock Certificates. Company will have delivered to Parent any
and all of Company's stock certificates representing all of the outstanding
shares of capital stock of Sub or an affidavit of lost certificate in form and
substance reasonably acceptable to Parent.
(k) Non-Competition Agreements; Acceptance of Employment Offers by
Key Employees and Other Sub Employees. Each of the employees of Company listed
on Exhibit H (the "KEY EMPLOYEES") will have executed and delivered to Parent a
non-competition agreement in the form attached hereto as Exhibit I (the
"NON-COMPETITION AGREEMENT") and an offer of employment from Parent in the form
attached hereto as Exhibit J (the "EMPLOYMENT OFFER"). The Employment Offer of
each Key Employee will continue to be in full force and effect, and no Key
Employee will have revoked or rescinded his or her acceptance of such Employment
Offer. In addition, at least 75% of the employees of Sub on the Agreement Date
who are not Key Employees will have accepted Parent's offer of employment in a
writing signed by such employees and delivered to Parent, and will not have
revoked or rescinded their acceptances of Parent's offer of employment.
(l) Investment Representation Letters. Parent will hall have
received executed counterparts of investment representation letters in the forms
attached hereto as Exhibit K-1, Exhibit K-2 or Exhibit K-3 (the "INVESTMENT
REPRESENTATION LETTERS") executed by (i) Company Stockholders holding at least a
majority of the outstanding shares of Company Common Stock and (ii) a sufficient
number of Company Stockholders who are "accredited
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investors" within the meaning of Regulation D promulgated under the Securities
Act such that the number of (A) Company Stockholders who are not "accredited
investors" and have executed Investment Representation Letters and (B) Company
Stockholders who have not executed an Investment Representation Letter does not
exceed thirty-five. Notwithstanding the foregoing, the condition set forth in
this Section 7.2(l) will not be deemed to be required to be fulfilled if Parent
makes, in its sole discretion, the Cash Election.
(m) Delivery of Company and Sub Documents. Company and Sub will have
delivered to Parent (i) the Certificate of Incorporation or Articles of
Incorporation, as the case may be, and Bylaws of Company and Sub, each as
amended to date, (ii) the minute books of Company and Sub containing records of
all proceedings, consents, actions and meetings of the Board of Directors,
committees of the Board of Directors and stockholders of Company and Sub, and
(iii) the stock ledger, journal and other records reflecting all stock issuances
and transfers with respect to the capital stock or other equity interests of
Company and Sub.
(n) Opinion of Company's Counsel. Parent will have received from
E*Law Group, special corporate counsel to Company, an opinion substantially in
the form of Exhibit L.
(o) Due Diligence. Parent will have conducted an all-inclusive due
diligence investigation of Company, Sub and the Business, and will not have
discovered information from such investigation that is material and adverse to
the Business or the valuation of the Business. If Parent does not provide
written notice to Company of a failure of the condition set forth in this
Section 7.2(n) on or before 5:00 P.M. Mountain Daylight Time on May 8, 2002, the
condition set forth in this Section 7.2(n) will be deemed to have been satisfied
or waived by Parent.
(p) Closing Certificate. Parent will have received the Closing
Certificate; provided, however, that such receipt will not be deemed to be an
agreement by Parent that the amounts set forth in the Closing Certificate are
accurate and will not be deemed to be an acknowledgement or agreement by Parent
that the representations set forth in Section 3.19 are true and correct or
diminish Parent's remedies under this Agreement if the representations set forth
in Section 3.19 are not true and correct.
(q) Section 280G Approval. There will be no contract, agreement,
arrangement, commitment or undertaking to which Company or Sub is a party that
would give rise to the payment of any amount that would not be deductible
pursuant to Section 280G of the Internal Revenue Code.
(r) Computer Associates Note. Parent will be reasonably satisfied
that the Secured Promissory Note dated as of October 1, 1999 between Sub and
Computer Associates (the "COMPUTER ASSOCIATES NOTE") may be paid in full without
penalty as of or immediately following the Closing, and that upon such payment
in full, all liens held by Computer Associates on the assets of the Sub will be
released.
(s) Other Deliveries. Company will have made each of the other
deliveries required by Section 2.7.
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ARTICLE VIII
INDEMNIFICATION
8.1 Survival of Representations.
(a) All representations and warranties of Company, Sub and the
Significant Stockholders contained in this Agreement and the other agreements,
certificates and documents contemplated hereby will remain operative and in full
force and effect, regardless of any investigation or disclosure made by or on
behalf of any of the parties to this Agreement, until the earlier of (i) the
termination of this Agreement in accordance with its terms and (ii) the Release
Date; provided, however, that the representations and warranties of Company, Sub
and the Significant Stockholders contained in Section 3.10 (Intellectual
Property) will remain operative and in full force and effect until the
expiration of the three-year anniversary of the Effective Time; and provided,
further, that the representations and warranties of Company, Sub and the
Significant Stockholders contained in Sections 3.1 (Corporate Organization), 3.6
(Capitalization) and 3.7 (Title and Condition) and the representations and
warranties of the Company Stockholders contained in their Investment
Representation Letters will remain operative and in full force and effect until
the expiration of the four-year anniversary of the Effective Time; and provided,
further, that Parent and any Parent Indemnitees (as defined below) will be
entitled to seek recovery for fraud, willful misrepresentation or willful
misconduct until the expiration of the applicable statute of limitations for any
claim which seeks recovery of Damages.
(b) All representations and warranties of Parent contained in this
Agreement and the other agreements, certificates and documents contemplated
hereby will remain operative and in full force and effect, regardless of any
investigation or disclosure made by or on behalf of any of the parties to this
Agreement, until the earlier of (i) the termination of this Agreement in
accordance with its terms and (ii) the Release Date; provided that the Company
Stockholders will be entitled to seek recovery for fraud, willful
misrepresentation or willful misconduct until the expiration of the applicable
statute of limitations for any claim which seeks recovery of Damages.
(c) All covenants of the parties will survive according to their
respective terms.
(d) For purposes of this Article VIII, the term "DAMAGES" means any
and all Liabilities, losses, damages, claims, expenses, costs, fines, fees,
penalties, obligations or injuries, including those resulting from claims,
actions, suits, demands, assessments, investigations, judgments, awards,
arbitrations or other proceedings, together with reasonable costs and expenses,
including the reasonable attorneys' fees and other reasonable costs and expenses
relating thereto, such as court or arbitration costs or expert witnesses fees.
For purposes of this Article VIII, the term "PARENT INDEMNITEES" means Parent
and any present or future officer, director, employee, Affiliate, Subsidiary,
stockholder or agent of Parent, and each Person, if any, who controls or may
control Parent within the meaning of the Securities Act or the Exchange Act.
8.2 Indemnification by the Company Stockholders. Subject to Section
8.3(a)(ii), each Company Stockholder will severally and not jointly indemnify
and hold harmless the Parent Indemnitees from and against any and all Damages
directly or indirectly incurred, paid or accrued in connection with or resulting
from or and arising out of (i) any inaccuracy,
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misrepresentation, breach of, or default in, any of the representations,
warranties or covenants given or made by Company or the Significant Stockholders
in this Agreement, the Company Disclosure Letter or any Company Ancillary
Agreement, (ii) any inaccuracy, misrepresentation, breach of, or default in, any
of the representations and warranties given or made by the Company Stockholders
in their Investment Representation Letters (provided that each Company
Stockholder will be solely liable for Damages relating to his or her respective
Investment Representation Letter), (iii) any payments for Transaction Expenses
of Company, Sub and the Significant Stockholders paid pursuant to Section 10.1,
or (iv) any payments paid pursuant to Section 6.3 to the extent that such
payments for any Dissenting Share exceeds that value of the Merger Shares
(valued at the Parent Average Price Per Share) and the Cash Amounts that the
holder of such Dissenting Share is entitled to pursuant to Section 2.2(b);
provided, however, that nothing in this Section 8.2 will impede Parent's right
to proceed after the full amount of the Escrow Cash in accordance with this
Agreement and the Escrow Agreement.
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8.3 Limitations on Indemnification Liability of the Company
Stockholders.
(a) Limitation of Amount of Liability.
(i) Company Stockholders Other than Significant Stockholders.
Except with respect to Claims for Damages arising from or relating to (i)
Company's, Sub's or the Company Stockholders' fraud, willful misrepresentation
or willful misconduct, and (ii) the representations and warranties of each
Company Stockholder contained in his or her Investment Representation Letter, in
no event will the total cumulative amount of Damages for which the Company
Stockholders (other than the Significant Stockholders) may be liable to Parent
Indemnitees under this Article VIII exceed the Escrow Cash.
(ii) Significant Stockholders. Except with respect to Claims for
Damages arising from or relating to (i) Company's, Sub's or the Company
Stockholders' fraud, willful misrepresentation or willful misconduct, and (ii)
the representations and warranties of the Significant Stockholders contained in
their Investment Representation Letters, in no event will the total cumulative
amount of Damages for which the Significant Stockholders may be liable to Parent
Indemnitees under this Article VIII exceed the Escrow Cash; except that Michael
Potts will be jointly and severally liable up to the value of the consideration
received by Michael Potts pursuant to Section 2.2(b) (with each share of Parent
Common Stock valued at the Parent Average Price Per Share) for Damages arising
from or relating to Sections 3.1 (Corporate Organization), 3.6 (Capitalization),
3.7 (Title and Condition) and 3.10 (Intellectual Property), which will be
limited to four years in the cases of Sections 3.1, 3.6 and 3.7 and three years
in the case of Section 3.10; and except, further, that Janice Groth will be
severally and not jointly liable (based on the Groth Pro Rata Share) up to the
value of the consideration received by Janice Groth pursuant to Section 2.2(b)
(with each share of Parent Common Stock valued at the Parent Average Price Per
Share) for Damages arising from or relating to Sections 3.1 (Corporate
Organization), 3.6 (Capitalization), 3.7 (Title and Condition) and 3.10
(Intellectual Property), which will be limited to four years in the cases of
Sections 3.1, 3.6 and 3.7 and three years in the case of Section 3.10. The
"GROTH PRO RATA SHARE" means the quotient (calculated to the seventh decimal
place) obtained by dividing (a) the number of shares of Company Common Stock
held by Janice Groth immediately prior to the Effective Time, by (b) the
aggregate number of shares of Company Common Stock held by Michael Potts and
Janice Groth immediately prior to the Effective Time.
(b) Time Limit for Claims. Except with respect to Claims for Damages
arising from or relating to (i) Company's, Sub's or the Company Stockholders'
fraud, willful misrepresentation or willful misconduct, or (ii) the
representations and warranties of the Company Stockholders contained in their
Investment Representation Letters, which may be brought at any time within the
applicable statute of limitations, no Claim may be asserted or brought by Parent
against the Company Stockholders after the Release Date; provided that any Claim
for Damages arising from or relating to Sections 3.1 (Corporate Organization),
3.6 (Capitalization) and 3.7 (Title and Condition) may be brought at time prior
to the fourth anniversary of the Effective Time; and provided further that any
Claim for Damages arising from or relating to Section 3.10 (Intellectual
Property) may be brought at time prior to the third anniversary of the Effective
Time; and provided further that any Claim asserted by Parent against the Company
Stockholders prior to the Release Date may thereafter be prosecuted and
arbitrated as provided in this Article VIII and recovery on such Claim may be
had by Parent as provided herein.
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(c) Basket. Except with respect to Claims for Damages arising from
or relating to (i) Company's, Sub's or the Company Stockholders' fraud, willful
misrepresentation or willful misconduct, (ii) Section 3.19 (Closing
Certificate), or (iii) the representations and warranties of the Company
Stockholders contained in their Investment Representation Letters, the
indemnification by the Company Stockholders provided for in this Article VIII
will not apply unless and until the aggregate Damages for which Parent or one or
more Parent Indemnitees seeks or has sought indemnification hereunder exceeds a
cumulative aggregate of $50,000 (the "BASKET"), in which event the Company
Stockholders will be liable to indemnify the Parent and all other Parent
Indemnitees for all Damages, subject to the limitations set forth in this
Section 8.3.
8.4 Appointment of Representatives. Each Company Stockholder approves
the designation of and designates each of Michael Potts and Scott Wylie as
representatives of the Company Stockholders and as the attorneys-in-fact and
agents for and on behalf of each Company Stockholder (the "REPRESENTATIVES")
with respect to Claims under this Article VIII and the taking by the
Representatives of any and all actions and the making of any decisions required
or permitted to be taken by the Representatives under this Agreement and the
Escrow Agreement, including the exercise of the power to: (a) authorize the
release or delivery to Parent of the Escrow Cash in satisfaction of Claims of
any Parent Indemnitee pursuant to this Article VIII and the Escrow Agent; (b)
agree to, negotiate, enter into settlements and compromises of, demand
arbitration of and comply with orders of courts and awards of arbitrators with
respect to, such Claims; (c) arbitrate, resolve, settle or compromise any Claim
made pursuant to this Article VIII and the Escrow Agreement; and (d) take all
actions necessary in the judgment of the Representatives for the accomplishment
of the foregoing. The Representatives will have authority and power to act on
behalf of each Company Stockholder with respect to the disposition, settlement
or other handling of all Claims under this Article VIII and the Escrow Agreement
and all rights or obligations arising under this Article VIII and the Escrow
Agreement. The Company Stockholders will be bound by all actions taken and
documents executed by the Representatives in connection with this Article VIII
and the Escrow Agreement, and Parent will be entitled to rely on any action or
decision of the Representatives. In performing the functions specified in this
Agreement, the Representatives will not be liable to any Company Stockholder in
the absence of intentional misconduct or fraud on the part of the
Representatives. The Company Stockholders will severally indemnify the
Representatives and hold them harmless against any Liability incurred without
gross negligence or willful misconduct on the part of the Representatives and
arising out of or in connection with the acceptance or administration of their
duties hereunder. Any out-of-pocket costs and expenses reasonably incurred by
the Representatives in connection with actions taken by the Representatives
pursuant to the terms of this Article VIII and the Escrow Agreement (including
the hiring of legal counsel and the incurring of legal fees and costs) will be
paid by the Company Stockholders to the Representatives on a pro rata basis
based on each Company Stockholder's pro rata share of the Escrow Cash.
8.5 Indemnification by Parent. Parent will indemnify and hold harmless
the Company Stockholders from and against any and all Damages directly or
indirectly incurred, paid or accrued in connection with or resulting from or and
arising out of the failure of any representation or warranty of Parent or Merger
Sub contained in Article IV of this Agreement to be true and correct as of the
Closing Date.
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8.6 Limitations on Indemnification Liability of Parent.
(a) Limitation of Amount of Liability. Except with respect to Claims
for Damages arising from or relating to Parent's fraud, willful
misrepresentation or willful misconduct, in no event will the total cumulative
amount of Damages for which Parent may be liable to the Company Stockholders
under this Article VIII exceed the quotient obtained by multiplying .38 by the
Merger Consideration, except that Parent will be liable up to the entire amount
of the Merger Consideration for Damages arising from or relating to Section 4.5.
(b) Time Limit for Claims. Except with respect to Claims for Damages
arising from or relating to Parent's fraud, willful misrepresentation or willful
misconduct, which may be brought at any time within the applicable statute of
limitations, no Claim may be asserted or brought by the Representatives against
Parent after the Release Date; provided that any Claim asserted by the
Representatives against Parent prior to the Release Date may thereafter be
prosecuted and arbitrated as provided in this Article VIII and recovery on such
Claim may be had by the Representatives as provided herein.
(c) Basket. Except with respect to Claims for Damages arising from
or relating to Parent's fraud, willful misrepresentation or willful misconduct,
the indemnification by Parent provided for in this Article VIII will not apply
unless and until the aggregate Damages for which the Representatives seeks or
has sought indemnification hereunder exceeds the Basket, in which event Parent
will be liable to indemnify the Company Stockholders for all Damages, subject to
the limitations set forth in this Section 8.6.
(d) No Transfer or Assignment. The indemnification obligations of
Parent to the Company Stockholders under this Agreement are personal to the
Company Stockholders as of the Closing Date and are not transferable or
assignable.
8.7 Notice of Claim. As used herein, the term "CLAIM" means a claim for
indemnification for Damages made against (a) the Company Stockholders by Parent
(on its own behalf and/or on behalf of any other Parent Indemnitee) or (b)
Parent by the Representatives, in each case pursuant to this Article VIII. As
used herein, the term "NOTIFYING PARTY" means Parent or the Representatives, as
the case may be, when such party delivers a Notice of Claim, and the term
"NOTIFIED PARTY" means Parent or the Representatives, as the case may be, when
such party receives a Notice of Claim. Parent (and only Parent) may give notice
of a Claim under this Agreement, whether for its own Damages or for Damages
incurred by any other Parent Indemnitee and only Parent may prosecute and
arbitrate a Claim under this Article VIII, and the Representatives (and only the
Representatives) may give notice of a Claim under this Agreement for Damages
incurred by the Company Stockholders and only the Representatives may prosecute
and arbitrate a Claim under this Article VIII. A written notice of a Claim will
be provided to the Notified Party by the Notifying Party (a "NOTICE OF CLAIM")
after the Notifying Party becomes aware of the existence of any potential claim
of the Notifying Party for indemnification under this Article VIII arising from
or relating to:
(a) any item listed in Section 8.2 or Section 8.5, as the case may
be; or
(b) the assertion, whether orally or in writing, against any Parent
Indemnitee or the Company Stockholders, as the case may be, of a claim, demand,
suit, action, arbitration, investigation, inquiry or proceeding brought by a
third party against such party that is based
56
upon, or includes assertions relating to (in each such case, a "THIRD-PARTY
CLAIM") any item listed in Section 8.2 or Section 8.5, as the case may be.
No delay on the part of the Notifying Party in giving the Notified
Party a Notice of Claim will relieve Parent or the Company Stockholders, as the
case may be, from any of its obligations under this Article VIII unless (and
then only to the extent) that such party is materially prejudiced thereby.
8.8 Defense of Third-Party Claims.
(a) Parent will defend any Third-Party Claim, and the costs and
expenses incurred by Parent in connection with such defense (including
reasonable attorneys' fees, other professionals' and experts' fees and court or
arbitration costs) will be included in the Damages for which Parent may seek
indemnity pursuant to a Claim made by any Parent Indemnitee hereunder. Parent
will use commercially reasonable efforts to defend and settle any Third-Party
Claim. Notwithstanding the foregoing, within ten days of delivery of the written
notice regarding any Third-Party Claim relating solely to Section 3.11 to the
Representatives, the Representatives may, at the expense of the Company
Stockholders, elect to prosecute such Claim to conclusion or settlement
satisfactory to the Representatives using counsel reasonably acceptable to
Parent; provided, that the Representatives may not elect to prosecute or settle
any such Claim involving third parties if (i) such Claim seeks injunctive relief
against Parent or the Surviving Corporation or (ii) Damages sought under such
Claim, together with Damages sought under any other Claims then in dispute or
pending, can reasonably be expected to exceed the Escrow Cash available at that
time.
(b) The Representatives or Parent, as the case may be, will have the
right to receive copies of all pleadings, notices and communications with
respect to the Third-Party Claim to the extent that receipt of such documents by
such party does not affect any privilege relating to the Representatives or the
Parent Indemnitee, as the case may be, and may participate (at such party's
expense) in settlement negotiations with respect to the Third-Party Claim.
Neither the Representatives nor Parent, as the case may be, will enter into any
settlement of a Third-Party Claim without the prior written consent of the other
party (which consent will not be unreasonably withheld or delayed); provided,
that if such party consents in writing to any such settlement, then such party
will have no power or authority to object to any Claim by the other party for
indemnity under Section 8.2 or Section 8.5, as the case may be, for the amount
of such settlement; and the Company Stockholders will remain responsible to
indemnify the Parent Indemnitees and Parent will remain responsible to indemnify
the Company Stockholders, as the case may be, for all Damages they may incur
arising out of, resulting from or caused by the Third-Party Claim to the fullest
extent provided in Article VIII, subject to the limitations on such party's
liability set forth in Section 8.3 and Section 8.6.
8.9 Contents of Notice of Claim. Each Notice of Claim by the Notifying
Party given pursuant to Section 8.7 will contain the following information:
(a) the Notifying Party's good faith estimate of the reasonably
foreseeable maximum amount of the alleged Damages arising from or relating to
such Claim (which amount may be the amount of damages claimed by a third party
in a Third-Party Claim brought against any Parent Indemnitee or the Company
Stockholders, as the case may be, based on alleged facts, which if true, would
give rise to Liability for Damages to such party under Article VIII); and
57
(b) a brief description, in reasonable detail (to the extent
reasonably available to the Notifying Party), of the facts, circumstances or
events giving rise to the alleged Damages based on the Notifying Party's good
faith belief thereof, including the identity and address of any third-party
claimant (to the extent reasonably available to the Notifying Party) and copies
of any formal demand or complaint.
8.10 Resolution of Claims. Any Notice of Claim received by the Notified
Party pursuant to Section 8.7 and Section 8.9 will be resolved as follows:
(a) Uncontested Claims. In the event that, within forty-five
calendar days after a Notice of Claim is received by the Notified Party pursuant
to Section 8.7 and Section 8.9, the Notified Party does not contest such Notice
of Claim in writing to the Notifying Party as provided in Section 8.10(b) (an
"UNCONTESTED CLAIM"), the Notified Party will be conclusively deemed to have
consented to the recovery by the Notifying Party of the full amount of Damages
specified in the Notice of Claim in accordance with this Article VIII (subject
to the limitations on the Company Stockholders' and Parent's liability set forth
in Section 8.3 and Section 8.6, respectively), including the forfeiture of the
Escrow Cash withheld and retained by the Escrow Agent pursuant to the terms of
Section 2.5(b), Section 8.10(e) and the Escrow Agreement and, without further
notice, to have stipulated to the entry of a final judgment for damages against
the Company Stockholders or Parent, as the case may be, for such amount in the
Superior Court for the County of Santa Clara, the United States District Court
for the Northern District of California or any other court having jurisdiction
over the matter where venue is proper.
(b) Contested Claims. In the event that the Notified Party gives the
Notifying Party written notice contesting all or any portion of a Notice of
Claim (a "CONTESTED CLAIM") within the forty-five-day period specified in
Section 8.10(a), then such Contested Claim will be resolved by either (i) a
written settlement agreement executed by the Notified Party and the Notifying
Party or (ii) in the absence of such a written settlement agreement, by binding
arbitration between the Notified Party and the Notifying Party in accordance
with the terms and provisions of Section 8.10(c).
(c) Arbitration of Contested Claims. Each of Parent and the
Representatives agrees that any Contested Claim that is not resolved in
accordance with Section 8.10(b)(i) will be submitted to mandatory, final and
binding arbitration before J.A.M.S./ENDISPUTE or its successor ("J.A.M.S."),
pursuant to the United States Arbitration Act, 9 U.S.C., Section 1 et seq. and
that any such arbitration will be conducted in Santa Clara County, California.
In the event J.A.M.S. ceases to provide arbitration service, then the term
"J.A.M.S" will thereafter mean and refer to the American Arbitration Association
("AAA"). Either Parent or the Representatives may commence the arbitration
process called for by this Agreement by filing a written demand for arbitration
with J.A.M.S. and giving a copy of such demand to each of the other parties to
this Agreement. The arbitration will be conducted in accordance with the
provisions of J.A.M.S' Streamlined Arbitration Rules and Procedures in effect at
the time of filing of the demand for arbitration (or, if J.A.M.S. then means the
AAA, the commercial arbitration rules of the AAA then in effect), subject to the
provisions of Section 8.10(c) of this Agreement. The parties will cooperate with
J.A.M.S. and with each other in promptly selecting a single arbitrator from
J.A.M.S.' panel of neutrals, and in scheduling the arbitration proceedings in
order to fulfill the provisions, purposes and intent of this Agreement. The
parties covenant that they will participate in the arbitration in good faith,
and that they will share in its costs in accordance with subparagraph (i) below.
The provisions of this Section 8.10(c) may be enforced by any court of
58
competent jurisdiction. Subject to the provisions of subparagraph (vii) below,
judgment upon the Final Award or any other final finding rendered by the
arbitrator in the arbitration may be entered in any court having competent
jurisdiction.
(i) Payment of Costs. The Notifying Party will bear all of the
expense of deposits and advances required by the arbitrator, but either party
may advance such amounts, subject to recovery as an addition or offset to any
award. The arbitrator will determine in the Final Award (as defined below) the
party who is the prevailing party (the "PREVAILING PARTY") and the party who is
not the Prevailing Party (the "NON-PREVAILING PARTY"). The Non-Prevailing Party
will pay all reasonable costs, fees and expenses related to the arbitration,
including reasonable fees and expenses of attorneys, accountants and other
professionals incurred by the Prevailing Party, the fees of each arbitrator and
the administrative fee of the arbitration proceedings. If such an award would
result in manifest injustice, however, the arbitrator may apportion such costs,
fees and expenses between the parties in such a manner as the arbitrator deems
just and equitable.
(ii) Burden of Proof. Except as may be otherwise expressly
provided herein, for any Contested Claim submitted to arbitration, the burden of
proof will be as it would be if the claim were litigated in a judicial
proceeding governed exclusively by the internal laws of the State of California
applicable to contracts executed and entered into within the State of
California, without regard to the principles of choice of law or conflicts of
law of any jurisdiction.
(iii) Award. Upon the conclusion of any arbitration proceedings
hereunder, the arbitrator will render findings of fact and conclusions of law
and a final written arbitration award setting forth the basis and reasons for
any decision reached (the "FINAL AWARD") and will deliver such documents to the
Representatives and Parent, together with a signed copy of the Final Award.
Subject to the provisions of subparagraph (vii) below, the Final Award will
constitute a conclusive determination of all issues in question, binding upon
the Representatives and Parent, and will include an affirmative statement to
such effect. To the extent that the Final Award determines that Parent or any
other Parent Indemnitee, or the Company Stockholders, as the case may be, has
actually incurred Damages in connection with the Contested Claim through the
date of the Final Award ("INCURRED DAMAGES"), the Final Award will set forth and
award to Parent or the Company Stockholders, as the case may be, the amount of
such Incurred Damages. In addition, the Final Award will set forth and award to
Parent or the Company Stockholders, as the case may be, an additional amount of
Damages equal to the reasonably foreseeable amount of alleged Damages that the
arbitrator determines (based on the evidence submitted by the parties in the
arbitration) are reasonably likely to be incurred by Parent and any other Parent
Indemnitee or the Company Stockholders, as the case may be, as a result of the
facts giving rise to the Contested Claim ("ESTIMATED DAMAGES"), which amount of
Estimated Damages may include the amount of damages claimed by a third party in
an action brought against any Parent Indemnitee or the Company Stockholders, as
the case may be, based on alleged facts which, if true, would give rise to
Damages.
(iv) Timing. The Representatives, Parent and the arbitrator will
conclude each arbitration pursuant to this Section 8.10 as promptly as possible
for the Contested Claim being arbitrated.
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(v) Terms of Arbitration. The arbitrator chosen in accordance
with these provisions will not have the power to alter, amend or otherwise
affect the terms of these arbitration provisions or any other provision of this
Agreement.
(vi) Exclusive Remedy. Following the Effective Time, except as
specifically otherwise provided in this Agreement, arbitration conducted in
accordance with this Agreement will be the sole and exclusive remedy of the
parties for any Claim made pursuant to Article VIII, other than any Claim
arising from or relating to the fraud, willful misrepresentation or willful
misconduct of Parent, Company, Sub or the Company Stockholders.
(vii) Treatment of Damages. Upon issuance and delivery of the
Final Award as provided in subparagraph 8.8(c)(iii) above, Parent or the Company
Stockholders, as the case may be, will immediately be entitled to recover as
provided in subparagraph 8.8(e) below the amount of any Incurred Damages
determined and awarded to Parent or the Company Stockholders, as the case may
be, under such Final Award and the amount of Estimated Damages determined and
awarded under such Final Award, and such Incurred Damages and such Estimated
Damages will be deemed to be owed to Parent or the Company Stockholders, as the
case may be, for purposes of this Agreement. Both Incurred Damages and Estimated
Damages owed to Parent Indemnitees or the Company Stockholders, as the case may
be, are deemed to be Damages for purposes of this Agreement.
(d) Settled Claims. If a Claim (including a Contested Claim) is
settled by a written settlement agreement executed by the Representatives and
Parent (a "SETTLED CLAIM"), then the parties will resolve such Settled Claim as
provided in such settlement agreement.
(e) Payment of Damages. Any Incurred Damages and Estimated Damages
that (i) the parties have agreed are to be awarded to Parent and/or any other
Parent Indemnitee or to the Company Stockholders, as the case may be, pursuant
to a Settled Claim or (ii) has been awarded to Parent and/or any other Parent
Indemnitee or to the Company Stockholders, as the case may be, pursuant to a
Final Award of an arbitration conducted pursuant to this Section 8.10 (all such
Incurred Damages, Estimated Damages, Uncontested Claims and Claims settled
between Parent and the Representatives are hereinafter referred to as "AWARDED
DAMAGES") will be paid as follows:
(i) Payment to Parent. Parent will be entitled to, and will
recover, such Awarded Damages from the Escrow Cash and the Company Stockholders
will forfeit the amount of such Escrow Cash. To the extent (and only to the
extent) that the cumulative total amount of all Awarded Damages exceeds the
Escrow Cash (such excess amount of Awarded Damages being hereinafter referred to
as "EXCESS DAMAGES"), Parent will be entitled to recover such Excess Damages in
cash from the Company Stockholders, all subject to the limits on the Company
Stockholders' liability under Section 8.3.
(i) Payment to the Company Stockholders. The Company
Stockholders will be entitled to, and will recover, such Awarded Damages in cash
from Parent, subject to the limits on Parent's liability under Section 8.3.
(f) Additional Provisions. The Company Stockholders agree that
Claims against the Company Stockholders under this Article VIII will first be
satisfied by the Company Stockholders' forfeiture of the Escrow Cash as provided
for above, and that Parent will have no
60
right to exercise its remedies against any other assets of the Company
Stockholders prior to exercising such remedies against the Escrow Cash.
8.11 Release of Remaining Escrow Cash. On the Release Date, the Escrow
Agent (in accordance with the Escrow Agreement) will deliver to the Company
Stockholders (a) all of the Escrow Cash (if any) in excess of any amount of
Escrow Cash that is necessary to satisfy all unsatisfied or disputed claims for
Damages specified in any Notice of Claim delivered to the Representatives before
the Release Date, and (b) their pro rata share of the Escrow Earnings to which
the Company Stockholders would be entitled. If any Claims are pending but not
resolved on the Release Date, then the Escrow Agent will retain possession and
custody of that amount of Escrow Cash that equals the total maximum amount of
Damages then being claimed by Parent in all such pending Claims, and as soon as
all such Claims have been resolved, Parent will direct the Escrow Agent (in
accordance with the Escrow Agreement) to deliver to the Company Stockholders all
remaining Escrow Cash not required to satisfy such Claims.
ARTICLE IX
TERMINATION
9.1 Termination. This Agreement may be terminated at any time prior to
the Closing:
(a) by the mutual written consent of Company and Parent;
(b) by either Company or Parent, if the Closing will not have
occurred prior to June 15, 2002 (the "TERMINATION DATE"); provided, however,
that the right to terminate this Agreement pursuant to the provisions of this
Section 9.1(b) will not be available to any party whose failure to fulfill any
obligation under this Agreement will have been the primary cause of, or will
have resulted in, the failure of the Closing to occur prior to the Termination
Date;
(c) by Parent if there will have been instituted, pending or
threatened (and not withdrawn) any action or proceeding by any Governmental
Authority, or there will be in effect any judgment, decree or order of any
Governmental Authority, in either case, seeking to make illegal or otherwise
restrain or prohibit the consummation of the Merger, or seeking to compel Parent
or any of its Subsidiaries to dispose of or hold separate all or any material
portion of the Business;
(d) by Parent, if there has been a breach by Company, Sub or any
Significant Stockholder of any representation, warranty or covenant contained
herein on the part of Company, Sub or such Significant Stockholder, or if any
representation or warranty of Company, Sub or any Significant Stockholder will
have become untrue, in either case which has or can reasonably be expected to
have a Material Adverse Effect on Company or Sub and which Company, Sub or such
Significant Stockholder fails to cure within a reasonable time, not to exceed
ten days, after written notice thereof has been given to Company, Sub or such
Significant Stockholder by Parent (except that no cure period will be provided
for a breach by Company, Sub or any Significant Stockholder which by its nature
cannot be cured); or
(e) by Company, if there has been a breach by Parent of any
representation, warranty or covenant contained herein on the part of Parent, or
if any representation or warranty of Parent will have become untrue, in either
case which has or can reasonably be expected to have a Material Adverse Effect
on Parent and which Parent fails to cure within a reasonable time,
61
not to exceed ten days, after written notice thereof has been given to Parent by
Company (except that no cure period will be provided for a breach by Parent
which by its nature cannot be cured); provided that Company will have no right
to terminate this Agreement pursuant to this Section 9.1(e) if Parent agrees to
amend this Agreement to provide that the Merger Consideration will be payable
solely in cash.
9.2 Effect of Termination. In the event of termination of this Agreement
in accordance with Section 9.1, this Agreement will forthwith become void and
there will be no Liability on the part of any party hereto except as set forth
in Section 10.1, provided, however, that nothing herein will relieve either
party from Liability for any willful breach of this Agreement.
ARTICLE X
GENERAL PROVISIONS
10.1 Expenses. Each party will bear its respective legal, auditors',
investment bankers' and financial advisors' fees and other expenses incurred
with respect to this Agreement, the Merger and the transactions contemplated
hereby (the "TRANSACTION EXPENSES"). Notwithstanding the foregoing, if the
Merger is successfully consummated, then any Transaction Expenses of Company,
Sub and the Significant Stockholders (a) not paid on or prior to the Closing or
not accrued on the Closing Balance Sheet or (b) excluded from the Parent Dollar
Amount may be paid by Parent and Parent will thereafter be entitled to
indemnification from the Escrow Cash in accordance with Article VIII for an
amount equal to the such Transaction Expenses (without giving effect to the
Basket).
10.2 Notices. All notices and other communications required or permitted
under this Agreement will be in writing and will be either hand delivered in
person, sent by facsimile, sent by certified or registered first class mail,
postage pre-paid, or sent by nationally recognized express courier service. Such
notices and other communications will be effective upon receipt if hand
delivered or sent by facsimile, three days after mailing if sent by mail, and
one day after dispatch if sent by express courier, to the following addresses,
or such other addresses as any party may notify the other parties in accordance
with this Section 10.2:
(a) If to Parent:
Intuit Inc.
M/S 2700C
2632 Marine Way
Mountain View, CA 94043
Attention: General Counsel, Legal Dept.
Phone:
Fax: (650) 944-6622
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with a copy to:
Fenwick & West LLP
275 Battery, Suite 1500
San Francisco, CA 94111
Attention: Douglas N. Cogen, Esq.
Phone: (415) 875-2300
Fax: (415) 281-1350
(b) If to Company or Sub:
The Flagship Group Inc.
1385 S. Colorado Boulevard, Suite 400
Denver, Colorado 80222
Attention: President
Phone: (303) 756-3030
Fax: (303) 756-3514
with a copy to:
E*Law Group
3555 W. 110th Place
Westminster, Colorado 80031
Attention: Jeremy W. Makarechian, Esq.
Phone: (303) 410-8988
Fax: (303) 410-0468
(c) If to the Representatives or the Significant Stockholders:
Michael Potts
c/o The Flagship Group Inc.
1385 S. Colorado Boulevard, Suite 400
Denver, Colorado 80222
Phone: (303) 756-3030
Fax: (303) 756-3514
Scott Wylie
c/o The Flagship Group Inc.
1385 S. Colorado Boulevard, Suite 400
Denver, Colorado 80222
Phone: (303) 756-3030
Fax: (303) 756-3514
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with a copy to:
E*Law Group
3555 W. 110th Place
Westminster, Colorado 80031
Attention: Jeremy W. Makarechian, Esq.
Phone: (303) 410-8988
Fax: (303) 410-0468
or to such other address as the party in question may have furnished to the
other parties by written notice given in accordance with this Section 10.2.
10.3 Public Announcements. Except as may otherwise be required by law,
no party to this Agreement will make any public announcements in respect of this
Agreement or the transactions contemplated herein or otherwise communicate with
any news media without the prior consent of the other party, and, to the maximum
extent practicable, the parties will cooperate as to the timing and contents of
any such announcement; provided that Parent reserves the right to make any
disclosure regarding this Agreement or the transactions contemplated hereby that
it in good faith determines is required to be made by it under Applicable Laws,
including securities laws.
10.4 Headings. The headings contained in this Agreement are for
reference purposes only and will not affect in any way the meaning or
interpretation of this Agreement.
10.5 Severability. If any term or other provision of this Agreement is
invalid, illegal or incapable of being enforced by any rule of law or public
policy, all other conditions and provisions of this Agreement will nevertheless
remain in full force and effect so long as the economic or legal substance of
the transactions contemplated hereby is not affected in any manner materially
adverse to any party. Upon such determination that any term or other provision
is invalid, illegal or incapable of being enforced, the parties hereto will
negotiate in good faith to modify this Agreement so as to effect the original
intent of the parties as closely as possible in a mutually acceptable manner in
order that the transactions contemplated hereby be consummated as originally
contemplated to the greatest extent possible.
10.6 Entire Agreement. This Agreement, the Company Ancillary Agreements,
the Sub Ancillary Agreements, the Significant Stockholders Ancillary Agreements
and the Parent Ancillary Agreements, the Exhibits hereto and the Company
Disclosure Letter constitute the entire agreement of the parties hereto with
respect to the subject matter hereof and supersede all prior agreements and
undertakings with respect to the subject matter hereof, both written and oral.
10.7 Assignment. This Agreement may not be assigned by any party hereto
without the prior written consent of each other party and any purported
assignment without such consent will be void; except that Parent may, without
Company's consent, assign this Agreement (and the Parent Ancillary Agreements)
(a) to any of its majority-owned subsidiaries, (b) by operation of law, or (c)
in connection with any merger, consolidation or sale of all or substantially
Business Assets or in connection with any similar transaction.
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10.8 No Third-Party Beneficiaries. This Agreement is for the sole
benefit of the parties hereto and their permitted assigns and nothing herein,
express or implied, is intended to or will confer upon any other Person any
legal or equitable right, benefit or remedy of any nature whatsoever under or by
reason of this Agreement, except for the indemnification rights of the Parent
Indemnitees under Article VIII.
10.9 Amendment; Waiver. This Agreement may not be amended or modified
except by an instrument in writing signed by Company, Sub and Parent (and also
by the Significant Stockholders if such provision amends or modifies any
provisions of this Agreement applicable to or binding upon the Significant
Stockholders); provided, however, that no consent of any party to this Agreement
(other than Parent) will be required to amend or modify this Agreement, in the
event that Parent makes the Cash Election, to conform this Agreement to such
Cash Election. At any time prior to the Closing, any party hereto may (a) extend
the time for the performance of any of the obligations or other acts of the
other parties hereto, (b) waive any inaccuracies in the representations and
warranties contained herein or in any document delivered pursuant hereto, or (c)
waive compliance with any of the agreements or conditions contained herein.
Waiver of any term or condition of this Agreement will only be effective if and
to the extent documented in a writing signed by the party making or granting
such waiver and will not be construed as a waiver of any subsequent breach or
waiver of the same term or condition, or a waiver of any other term or condition
of this Agreement.
10.10 Governing Law; Venue. This Agreement will be governed by, and
construed in accordance with, the internal laws of the State of California
applicable to contracts executed and performed entirely within the State of
California, without regard to the principles of choice of law or conflicts or
law of any jurisdiction. Any dispute hereunder will be resolved by arbitration
in accordance with Section 8.8. Any judgment upon the award rendered by the
arbitrator may be entered in any court having jurisdiction over the subject
matter thereof. The arbitrator will have the authority to grant any equitable
and legal remedies that would be available in any judicial proceeding instituted
to resolve a dispute.
10.11 Counterparts. This Agreement may be executed in one or more
counterparts, and by the different parties hereto in separate counterparts, each
of which when executed will be deemed to be an original but all of which taken
together will constitute one and the same agreement.
10.12 Construction of Agreement. This Agreement, the Company Ancillary
Agreements, the Sub Ancillary Agreements, the Significant Stockholders Ancillary
Agreements and the Parent Ancillary Agreements have been negotiated by Parent,
Company, Sub and the Significant Stockholders and their respective attorneys,
and the parties hereto waive the application of any law, regulation, holding or
rule of construction providing that ambiguities in an agreement, certificate or
document will be construed against the party drafting such agreement,
certificate or document. Unless otherwise indicated, the words "include,"
"includes," "including" and "such as" when used herein will be deemed in each
case to be followed by the words "without limitation." Each reference herein to
a law, statute, regulation, document or agreement will be deemed in each case to
include all amendments thereto.
10.13 Effect of Schedules. The Company Disclosure Letter will be
arranged in separate parts corresponding to the numbered and lettered Sections
contained in Article III. Notwithstanding anything to the contrary contained
herein or in any of the Schedules, any
65
information disclosed in one of such Schedules will be deemed to be disclosed in
any other Schedules to which such information is relevant to the extent it is
readily apparent from the actual text of such disclosure that it is relevant to
such other Schedules.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK.]
66
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first above written.
THE FLAGSHIP GROUP INC. INTUIT INC.
By: ___________________________ By: ___________________________
Name: _________________________ Name: _________________________
Title: ________________________ Title: ________________________
AMERICAN FUNDWARE, INC. ARDENT ACQUISITION CORPORATION
By: ___________________________ By: ___________________________
Name: _________________________ Name: _________________________
Title: ________________________ Title: ________________________
CREDENCE ACQUISITION CORPORATION
By: ___________________________
Name: _________________________
Title: ________________________
SIGNIFICANT STOCKHOLDERS
______________________________ ____________________________
Michael Potts Janice Groth
REPRESENTATIVES
______________________________ ____________________________
Michael Potts Scott Wylie
[SIGNATURE PAGE TO AGREEMENT AND PLAN OF MERGER]
67
LIST OF EXHIBITS
Exhibit A List of Significant Stockholders
Exhibit B List of Signatories to the Voting Agreement
Exhibit C Voting Agreement
Exhibit D First-Step Certificate of Merger
Exhibit E Second-Step Certificate of Merger
Exhibit F Agreement of Merger between Company and Merger Sub II
Exhibit G Escrow Agreement
Exhibit H List of Key Employees
Exhibit I Non-Competition Agreement
Exhibit J Employment Offer
Exhibit K-1 Investment Representation Letter (Significant Stockholders)
Exhibit K-2 Investment Representation Letter (Accredited Company Stockholders)
Exhibit K-3 Investment Representation Letter (Unaccredited Company Stockholders)
Exhibit L Matters to be Covered in the Opinion of E*Law Group
ANNEX B
ACTION BY WRITTEN CONSENT OF STOCKHOLDERS
OF THE FLAGSHIP GROUP INC.
Each of the undersigned stockholders of The Flagship Group Inc., a
Delaware corporation ("Flagship"), hereby authorizes the taking of the following
actions and adoption of the following resolutions in lieu of and without a
meeting:
APPROVAL AND ADOPTION OF MERGER AGREEMENT AND RELATED TRANSACTIONS:
RESOLVED, that the Merger Agreement (including the indemnification
obligations of the Stockholders pursuant to Article VIII of the Merger
Agreement), and all of the agreements, instruments and other documents related
thereto or referred to therein, including, without limitation, the Voting
Agreement, the Escrow Agreement, the Investment Representation Letters, and all
other documents and instruments contemplated by the Purchase Merger to be
executed and delivered by Flagship, Fundware, the Significant Stockholders and
the Representatives (collectively, the "Merger Documents"), all in substantially
the forms previously submitted to and reviewed by the Board of Directors of
Flagship, are hereby authorized and approved, and each of the Chief Executive
Officer and Chairman of the Board of Directors (each a "Proper Officer") of
Flagship, either one of whom may act without the joinder of the other, is hereby
authorized to execute and deliver, in the name and on behalf of Flagship acting
on its own behalf, the Merger Agreement, Merger Documents and related
instruments, with such changes thereto as the Proper Officer executing any of
such agreements, notes, certificates, instruments or other documents shall
approve, the execution thereof with any changes thereto by such Proper Officer
to be conclusive evidence of such approval;
RESOLVED FURTHER, that the Proper Officers of Flagship be, and each of
them hereby is, authorized and directed in the name and on behalf of Flagship,
to cause Flagship to perform each such agreement, note or other document or
instrument in accordance with its terms which may be required in connection with
the foregoing resolution; and
RESOLVED FURTHER, that all actions heretofore taken by a Proper Officer
of Flagship in respect of the Merger Agreement and the Merger Documents,
including but not limited to the negotiation thereof, are hereby confirmed,
ratified and adopted as the valid and subsisting actions of Flagship.
The undersigned hereby votes as follows with respect to the above
resolution:
---------------- ------------------ -----------------
FOR [ ] AGAINST [ ] ABSTAIN [ ]
---------------- ------------------ -----------------
APPOINTMENT AND APPROVAL OF STOCKHOLDERS' REPRESENTATIVES:
WHEREAS, the Board of the Flagship has approved a resolution pursuant to
which each of Michael Potts and Scott Wylie to act as the representatives of the
stockholders of Flagship (the "Representatives") with the powers, rights and
duties set forth in the Merger Agreement and the Escrow Agreement (collectively,
the "Agreements");
WHEREAS, in performing the functions specified in the Agreements, the
Representatives will not be liable to any Stockholder in the absence of
intentional misconduct or fraud (the "Limitation on Liability") and the
Stockholders hereby agree to severally indemnify the Representatives and hold
them harmless against any liability, cost, expense or damage incurred by them
arising out of or in connection with the acceptance or administration of their
duties hereunder and that any out-of-pocket costs and expenses reasonably
incurred by the Representatives in connection with actions taken by the
Representatives pursuant to the terms of the Agreements (including the hiring of
legal counsel and the incurring of legal fees and costs) will be paid by the
Stockholders to the Representatives on a pro rata basis based on each
Stockholder's pro rata share of the cash held in escrow upon the closing of the
Merger (the "Indemnification Obligation"); and
WHEREAS, the approval of the Limitation on Liability and the
Indemnification Obligation by the Stockholders is an express condition precedent
to the acceptance by Mr. Potts and Mr. Wylie of the duties and obligations of
the Representatives; and
WHEREAS, the Board of Flagship has recommended that the Stockholders of
Flagship approve the appointment of Mr. Potts and Mr. Wylie as the
Representatives, as well as the Limitation on Liability and the Indemnification
Obligations specified in the Agreements.
RESOLVED, that the appointment of Mr. Potts and Mr. Wylie as the
Representatives is hereby approved and adopted in all respects; and
RESOLVED FURTHER, that the Limitation on Liability and the
Indemnification Obligations are hereby approved and adopted in all respects.
The undersigned hereby votes as follows with respect to the above
resolution:
---------------- ------------------ -----------------
FOR [ ] AGAINST [ ] ABSTAIN [ ]
---------------- ------------------ -----------------
NUMBER OF SHARES HELD
___________________________________________
______ shares of Common Stock SIGNATURE
Please sign exactly as name appears on the
certificate(s). Joint owners should each
sign. Trustees and others acting in a
representative capacity should indicate the
capacity in which they sign and give their
full title. If a corporation, please have
an authorized officer sign and indicate the
full corporate name. If a partnership,
please sign in partnership name by an
authorized person.
___________________________________________
PRINTED NAME OF STOCKHOLDER
Dated: ____________________________________
EXHIBIT C
ACTION BY WRITTEN CONSENT OF STOCKHOLDERS
OF THE FLAGSHIP GROUP INC.
Each of the undersigned stockholders of The Flagship Group Inc., a
Delaware corporation ("Flagship"), hereby authorizes the taking of the following
actions and adoption of the following resolutions in lieu of and without a
meeting:
RATIFICATION OF SCOTT C. WYLIE COMPENSATION PROPOSAL:
RESOLVED, that payment of amounts payable to Scott C. Wylie as a result
of the payment of a special bonus and acceleration of vesting of stock options,
in each case in connection with the merger is hereby ratified by the
stockholders of Flagship and such amounts shall not constitute "parachute
payments" for purposes of Sections 280G and 4999 of the Internal Revenue Code of
1986, as amended.
The undersigned hereby votes as follows with respect to the above
resolution:
MESSRS. WYLIE, TURNER, JAMES AND FAHERTY MAY NOT VOTE WITH RESPECT TO
THIS RESOLUTION, AND NO PERSON RELATED TO SUCH INDIVIDUALS MAY VOTE WITH RESPECT
TO THIS RESOLUTION.
---------------------------- -------------- ----------------- ------------------
SCOTT C. WYLIE FOR [ ] AGAINST [ ] ABSTAIN [ ]
---------------------------- -------------- ----------------- ------------------
Ratification of the foregoing will constitute ratification of the
Compensation Proposal described herein.
RATIFICATION OF NATHANIEL P. TURNER COMPENSATION PROPOSAL:
RESOLVED, that payment of amounts payable to Nathaniel P. Turner as a
result of the acceleration of vesting of stock options in connection with the
merger is hereby ratified by the stockholders of Flagship and such amounts shall
not constitute "parachute payments" for purposes of Sections 280G and 4999 of
the Internal Revenue Code of 1986, as amended.
The undersigned hereby votes as follows with respect to the above
resolution:
MESSRS. WYLIE, TURNER, JAMES AND FAHERTY MAY NOT VOTE WITH RESPECT TO
THIS RESOLUTION, AND NO PERSON RELATED TO SUCH INDIVIDUALS MAY VOTE WITH RESPECT
TO THIS RESOLUTION.
---------------------------- -------------- ----------------- ------------------
NATHANIEL P. TURNER FOR [ ] AGAINST [ ] ABSTAIN [ ]
---------------------------- -------------- ----------------- ------------------
Ratification of the foregoing will constitute ratification of the
Compensation Proposal described herein.
RATIFICATION OF STEPHEN O. JAMES COMPENSATION PROPOSAL:
RESOLVED, that payment of amounts payable to Stephen O. James as a
result of the acceleration of vesting of stock options in connection with the
merger is hereby ratified by the stockholders of Flagship and such amounts shall
not constitute "parachute payments" for purposes of Sections 280G and 4999 of
the Internal Revenue Code of 1986, as amended.
The undersigned hereby votes as follows with respect to the above
resolution:
MESSRS. WYLIE, TURNER, JAMES AND FAHERTY MAY NOT VOTE WITH RESPECT TO
THIS RESOLUTION, AND NO PERSON RELATED TO SUCH INDIVIDUALS MAY VOTE WITH RESPECT
TO THIS RESOLUTION.
---------------------------- -------------- ----------------- ------------------
STEPHEN O. JAMES FOR [ ] AGAINST [ ] ABSTAIN [ ]
---------------------------- -------------- ----------------- ------------------
Ratification of the foregoing will constitute ratification of the
Compensation Proposal described herein.
RATIFICATION OF MICHAEL FAHERTY COMPENSATION PROPOSAL:
RESOLVED, that payment of amounts payable to Michael Faherty as a result
of the acceleration of vesting of stock options in connection with the merger is
hereby ratified by the stockholders of Flagship and such amounts shall not
constitute "parachute payments" for purposes of Sections 280G and 4999 of the
Internal Revenue Code of 1986, as amended.
The undersigned hereby votes as follows with respect to the above
resolution:
MESSRS. WYLIE, TURNER, JAMES AND FAHERTY MAY NOT VOTE WITH RESPECT TO
THIS RESOLUTION, AND NO PERSON RELATED TO SUCH INDIVIDUALS MAY VOTE WITH RESPECT
TO THIS RESOLUTION.
---------------------------- -------------- ----------------- ------------------
MICHAEL FAHERTY FOR [ ] AGAINST [ ] ABSTAIN [ ]
---------------------------- -------------- ----------------- ------------------
Ratification of the foregoing will constitute ratification of the
Compensation Proposal described herein.
NUMBER OF SHARES HELD
___________________________________________
______ shares of Common Stock SIGNATURE
Please sign exactly as name appears on the
certificate(s). Joint owners should each
sign. Trustees and others acting in a
representative capacity should indicate the
capacity in which they sign and give their
full title. If a corporation, please have
an authorized officer sign and indicate the
full corporate name. If a partnership,
please sign in partnership name by an
authorized person.
___________________________________________
PRINTED NAME OF STOCKHOLDER
Dated: ____________________________________
ANNNEX D
May __, 2002
Intuit Inc.
2632 Marine Way, Bldg. 7
Mountain View, CA 94043
RE: INVESTMENT REPRESENTATION LETTER
Ladies and Gentlemen:
The undersigned ("STOCKHOLDER") holds shares of common stock of The
Flagship Group Inc., a Delaware corporation ("COMPANY"). Intuit Inc., a Delaware
corporation ("PARENT"), Ardent Acquisition Corporation, a Delaware corporation
and a wholly owned subsidiary of Parent, Company, Credence Acquisition
Corporation, a Delaware corporation and a wholly owned subsidiary of Parent,
American Fundware, Inc., a Colorado corporation and a wholly owned subsidiary of
Company ("SUB"), certain stockholders of Company and each of Michael Potts and
Scott Wylie, as representatives have entered into an Agreement and Plan of
Merger (the "MERGER AGREEMENT"). The Merger Agreement provides (subject to the
conditions set forth therein) for the merger of Merger Sub with and into Company
(the "MERGER"), with Company to survive the Merger. At the Effective Time, among
other things, outstanding shares of Company Common Stock will be converted into
the right to receive cash and shares of Parent Common Stock as more particularly
set forth in the Merger Agreement. The Merger Shares will be registered by
Parent under the Securities Act on Parent's currently effective Form S-4 shelf
registration statement for issuance as contemplated by the Merger Agreement.
Stockholder acknowledges and agrees that Parent is relying on the truth and
accuracy of the representations and warranties made by Stockholder in this
Investment Representation Letter to rely on the use of such shelf registration
statement described above. Capitalized terms used but not defined in this
Investment Representation Letter will have the meanings given to such terms in
the Merger Agreement.
Stockholder hereby makes the following representations, warranties and
agreements to Parent, each of which representations, warranties and agreements
contained in the following Sections of this Investment Representation Letter are
true and correct as to Stockholder as of the date hereof and will be true and
correct on and as of the Closing Date.
1. Binding Agreement; Authority. This Investment Representation Letter
constitutes Stockholder's valid and legally binding obligation, enforceable in
accordance with its terms, except as may be limited by (a) applicable
bankruptcy, insolvency, reorganization, moratorium or other similar laws now or
hereafter in effect relating to creditors' rights generally, and (b) rules of
law and equity governing specific performance, injunctive relief and other
equitable remedies. Stockholder has executed, delivered and performed
his/her/its obligations under, and has all requisite legal power, authority and
capacity to execute, deliver and perform his/her/its obligations under, this
Investment Representation Letter. The execution, delivery and performance by
Stockholder of this Investment Representation Letter have been duly and validly
approved and authorized by all necessary corporate, trust, partnership or
custodial action required by Applicable Law.
2. Title; No Other Securities. Stockholder has good and marketable title
to that number of shares of Company Common Stock and Company Options as set
forth beside his name on Schedule 3.6(a) and Schedule 3.6(b) of the Company
Disclosure Letter, free and clear of all Encumbrances. Except as set forth in
the preceding sentence, Stockholder has no interest in, or right of any kind to,
any securities of Company, including, without limitation, any options, warrants,
convertible securities or other securities, calls, commitments, conversion
privileges, preemptive rights, rights of first refusal, rights of first offer or
other rights or agreements outstanding to purchase or otherwise acquire (whether
directly or indirectly) any shares of Company capital stock or any securities
convertible into or exchangeable for any shares of Company capital stock or
obligating Company to grant, issue, extend or enter into any such option,
warrant, convertible security or other security, call, commitment, conversion
privilege, preemptive right, right of first refusal, right of first offer or
other right or agreement.
3. Approval of the Merger Agreement and the Merger. Stockholder hereby
approves the terms of the Merger Agreement and the Merger, and agrees to be
bound by the Escrow Agreement. Stockholder further approves the designation of
and designates each of Michael Potts and Scott Wylie as the representatives of
Stockholder (collectively, the "REPRESENTATIVES") and as the attorneys-in-fact
and agents for and on behalf of Stockholder with respect to claims for
indemnification under Article VIII and the taking by the Representatives of any
and all actions and the making of any decisions required or permitted to be
taken by the Representatives under the Escrow Agreement and the Merger Agreement
in accordance with Article VIII thereof. In performing the functions specified
in the Merger Agreement, the Representatives will not be liable to Stockholder
in the absence of intentional misconduct or fraud on the part of the
Representatives. Stockholder will severally indemnify the Representatives and
hold them harmless against any Liability incurred without fraud or willful
misconduct on the part of the Representatives and arising out of or in
connection with the acceptance or administration of their duties hereunder. Any
out-of-pocket costs and expenses reasonably incurred by the Representatives in
connection with actions taken by the Representatives pursuant to the terms of
Article VIII of the Merger Agreement (including the hiring of legal counsel and
the incurring of legal fees and costs) will be paid by the Stockholder to the
Representatives on a pro rata basis based on each Stockholder's pro rata share
of the Escrow Cash. Notwithstanding anything herein to the contrary,
Stockholder's indemnification obligation to the Representatives hereunder will
in no event exceed Stockholder's pro rata share of the Escrow Cash.
4. Purchase for Own Account. The Merger Shares to be issued to
Stockholder in the Dissolution will be acquired for investment for Stockholder's
own account, not as a nominee or agent, and not with a view to the public resale
or distribution thereof within the meaning of the Securities Act, and
Stockholder has no present intention of selling, granting any participation in,
or otherwise distributing the same.
5. Disclosure of Information. Stockholder has received or has had full
access to all the information Stockholder considers necessary or appropriate to
make an informed investment decision with respect to the Merger Shares to be
issued to Stockholder under the Merger Agreement. Stockholder has had an
opportunity to ask questions and receive answers from Parent and Company
regarding the terms and conditions of the offering of the Merger Shares pursuant
to the Merger Agreement and to obtain additional information (to the extent
Parent possessed such information or could acquire it without unreasonable
effort or expense) necessary to verify any information furnished to Stockholder
or to which Stockholder had access.
2
6. Investment Experience. Stockholder understands that the acquisition
of the Merger Shares pursuant to the Merger Agreement involves substantial risk.
Stockholder acknowledges that Stockholder can bear the economic risk of
Stockholder's investment in the Merger Shares, and has such knowledge and
experience in financial or business matters that Stockholder is capable of
evaluating the merits and risks of this investment in the Merger Shares and
protecting his/her/its own interests in connection with this investment.
Stockholder hereby represents that he/she/it is an "accredited investor," as
such term is defined under Section 501(a) of Regulation D promulgated under the
Securities Act, by virtue of the following:
(If you are an individual, please check the appropriate box.)
Stockholder's individual net worth or joint net worth with Stockholder's
spouse (including the fair market value of Stockholder's shares of
Company Common Stock) exceeds $1,000,000.
Stockholder personally has had an individual income in excess of
$200,000 in each of the two most recent years and Stockholder reasonably
expects an income in excess of $200,000 in the current year.
Stockholder's joint income with Stockholder's spouse is in excess of
$300,000 in each of the two most recent years and Stockholder reasonably
expects a joint income in excess of $300,000 in the current year.
(If you are an entity, please check the appropriate box.)
Stockholder is an organization described in Section 501(c)(3) of the
Internal Revenue Code with total assets in excess of $5,000,000 not
formed for the purpose of investing in Parent.
Stockholder is a corporation with total assets in excess of $5,000,000,
not formed for the purpose of investing in Parent.
Stockholder is a partnership with total assets in excess of $5,000,000,
not formed for the purpose of investing in Parent.
Stockholder is a Massachusetts or similar business trust with total
assets in excess of $5,000,000, not formed for the purpose of investing
in Parent.
Stockholder is any other trust with total assets in excess of
$5,000,000, not formed for the purpose of investing in Parent.
7. Compliance With Laws and Regulations. The issuance and transfer of
the Merger Shares will be subject to and conditioned upon compliance by Parent
and Stockholder with all applicable state and federal laws and regulations and
with all applicable requirements of any stock exchange or automated quotation
system on which shares of Parent Common Stock may be listed or quoted at the
time of such issuance or transfer.
8. Entire Agreement. This Investment Representation Letter and the
Escrow Agreement supersede all prior and contemporaneous agreements or
understandings, inducements or conditions, express or implied, written or oral,
between the parties regarding the subject matter
3
hereof. The express terms hereof control and supersede any course of performance
or usage of the trade inconsistent with any of the terms hereof.
9. Construction of Agreement. This Investment Representation Letter has
been negotiated by Parent and Stockholder, and the parties hereto waive the
application of any law, regulation, holding or rule of construction providing
that ambiguities in an agreement, certificate or document will be construed
against the party drafting such agreement, certificate or document. Stockholder
acknowledges and understands that counsel to Company is not also acting as
counsel to Stockholder, and that Stockholder has had the opportunity to consult
with separate counsel regarding this Investment Representation Letter.
10. Governing Law; Venue. This Investment Representation Letter will be
governed by, and construed in accordance with, the internal laws of the State of
California applicable to contracts executed and performed entirely within the
State of California, without regard to the principles of choice of law or
conflicts or law of any jurisdiction. The exclusive venue for any judicial
action under and pursuant to this Investment Representation Letter will rest
with the California state and federal courts located in Santa Clara County,
California.
11. Successors and Assigns. This Investment Representation Letter will
inure to the benefit of the successors and assigns of Parent, including any
successor to, or assignee of, all or substantially all of the business and
assets of Parent or any other part of the business or assets of Parent. This
Investment Representation Letter and the rights and obligations of Stockholder
hereunder are personal to Stockholder and will not be assignable, delegable or
transferable by Stockholder in any respect.
12. Severability. If any provision of this Investment Representation
Letter, or the application thereof, is for any reason held to any extent to be
invalid or unenforceable, then the remainder of this Investment Representation
Letter and the application of such provision to other Persons or circumstances
will be interpreted so as reasonably to effect the intent of the parties hereto.
The parties further agree to replace such void or unenforceable provision of
this Investment Representation Letter with a valid and enforceable provision
that will achieve, to the extent possible, the economic, business and other
purposes of the void or unenforceable provision.
13. Counterparts. This Investment Representation Letter may be executed
in one or more counterparts, and by the different parties hereto in separate
counterparts, each of which when executed will be deemed to be an original but
all of which taken together will constitute one and the same agreement.
14. Other Remedies. Except as otherwise provided herein, any and all
remedies herein expressly conferred upon a party hereunder will be deemed
cumulative with and not exclusive of any other remedy conferred hereby or by law
on such party, and the exercise of any one remedy will not preclude the exercise
of any other. The parties hereto agree that irreparable damage would occur in
the event that any of the provisions of this Investment Representation Letter
were not performed in accordance with their specific terms or were otherwise
breached. It is accordingly agreed that the parties will be entitled to seek an
injunction or injunctions to prevent breaches of this Investment Representation
Letter and to enforce specifically the terms and provisions hereof in any court
of the United States or any state having jurisdiction.
4
15. Amendment; Waiver. Any term or provision of this Investment
Representation Letter may be amended, and the observance of any term of this
Investment Representation Letter may be waived (either generally or in a
particular instance and either retroactively or prospectively) only by a writing
signed by the party to be bound thereby. The waiver by a party of any breach
hereof or default in the performance hereof will not be deemed to constitute a
waiver of any other default or any succeeding breach or default.
Very truly yours,
______________________________________
Signature
______________________________________
Name (Please Type or Print)
______________________________________
Address
______________________________________
City, State and Zip Code
ACKNOWLEDGED AND AGREED:
Intuit Inc.
By: _________________________________
Name: _______________________________
Title: ______________________________
[SIGNATURE PAGE TO INVESTMENT REPRESENTATION LETTER - ACCREDITED]
5
ANNEX E
May __, 2002
Intuit Inc.
2632 Marine Way, Bldg. 7
Mountain View, CA 94043
RE: INVESTMENT REPRESENTATION LETTER [to be executed by unaccredited
investors]
Ladies and Gentlemen:
The undersigned ("STOCKHOLDER") holds shares of common stock of The
Flagship Group Inc., a Delaware corporation ("COMPANY"). Intuit Inc., a Delaware
corporation ("PARENT"), Ardent Acquisition Corporation, a Delaware corporation
and a wholly owned subsidiary of Parent, Company, Credence Acquisition
Corporation, a Delaware corporation and a wholly owned subsidiary of Parent,
American Fundware, Inc., a Colorado corporation and a wholly owned subsidiary of
Company ("SUB"), certain stockholders of Company and each of Michael Potts and
Scott Wylie, as representatives have entered into an Agreement and Plan of
Merger (the "MERGER AGREEMENT"). The Merger Agreement provides (subject to the
conditions set forth therein) for the merger of Merger Sub with and into Company
(the "MERGER"), with Company to survive the Merger. At the Effective Time, among
other things, outstanding shares of Company Common Stock will be converted into
the right to receive cash and shares of Parent Common Stock as more particularly
set forth in the Merger Agreement. The Merger Shares will be registered by
Parent under the Securities Act on Parent's currently effective Form S-4 shelf
registration statement for issuance as contemplated by the Merger Agreement.
Stockholder acknowledges and agrees that Parent is relying on the truth and
accuracy of the representations and warranties made by Stockholder in this
Investment Representation Letter to rely on the use of such shelf registration
statement described above. Capitalized terms used but not defined in this
Investment Representation Letter will have the meanings given to such terms in
the Merger Agreement.
Stockholder hereby makes the following representations, warranties and
agreements to Parent, each of which representations, warranties and agreements
contained in the following Sections of this Investment Representation Letter are
true and correct as to Stockholder as of the date hereof and will be true and
correct on and as of the Closing Date.
1. Binding Agreement; Authority. This Investment Representation Letter
constitutes Stockholder's valid and legally binding obligation, enforceable in
accordance with its terms, except as may be limited by (a) applicable
bankruptcy, insolvency, reorganization, moratorium or other similar laws now or
hereafter in effect relating to creditors' rights generally, and (b) rules of
law and equity governing specific performance, injunctive relief and other
equitable remedies. Stockholder has executed, delivered and performed
his/her/its obligations under, and has all requisite legal power, authority and
capacity to execute, deliver and perform his/her/its obligations under, this
Investment Representation Letter. The execution, delivery and performance by
Stockholder of this Investment Representation Letter have been duly and validly
approved and authorized by all necessary corporate, trust, partnership or
custodial action required by Applicable Law.
2. Title; No Other Securities. Stockholder has good and marketable title
to that number of shares of Company Common Stock and Company Options as set
forth beside his name on
Schedule 3.6(a) and Schedule 3.6(b) of the Company Disclosure Letter, free and
clear of all Encumbrances. Except as set forth in the preceding sentence,
Stockholder has no interest in, or right of any kind to, any securities of
Company, including, without limitation, any options, warrants, convertible
securities or other securities, calls, commitments, conversion privileges,
preemptive rights, rights of first refusal, rights of first offer or other
rights or agreements outstanding to purchase or otherwise acquire (whether
directly or indirectly) any shares of Company capital stock or any securities
convertible into or exchangeable for any shares of Company capital stock or
obligating Company to grant, issue, extend or enter into any such option,
warrant, convertible security or other security, call, commitment, conversion
privilege, preemptive right, right of first refusal, right of first offer or
other right or agreement.
3. Approval of the Merger Agreement and the Merger. Stockholder hereby
approves the terms of the Merger Agreement and the Merger, and agrees to be
bound by the Escrow Agreement. Stockholder further approves the designation of
and designates each of Michael Potts and Scott Wylie as the representatives of
Stockholder (collectively, the "REPRESENTATIVES") and as the attorneys-in-fact
and agents for and on behalf of Stockholder with respect to claims for
indemnification under Article VIII and the taking by the Representatives of any
and all actions and the making of any decisions required or permitted to be
taken by the Representatives under the Escrow Agreement and the Merger Agreement
in accordance with Article VIII thereof. In performing the functions specified
in the Merger Agreement, the Representatives will not be liable to Stockholder
in the absence of intentional misconduct or fraud on the part of the
Representatives. Stockholder will severally indemnify the Representatives and
hold them harmless against any Liability incurred without fraud or willful
misconduct on the part of the Representatives and arising out of or in
connection with the acceptance or administration of their duties hereunder. Any
out-of-pocket costs and expenses reasonably incurred by the Representatives in
connection with actions taken by the Representatives pursuant to the terms of
Article VIII of the Merger Agreement (including the hiring of legal counsel and
the incurring of legal fees and costs) will be paid by the Stockholder to the
Representatives on a pro rata basis based on each Stockholder's pro rata share
of the Escrow Cash. Notwithstanding anything herein to the contrary,
Stockholder's indemnification obligation to the Representatives hereunder will
in no event exceed Stockholder's pro rata share of the Escrow Cash.
4. Disclosure of Information. Stockholder has received or has had full
access to all the information Stockholder considers necessary or appropriate to
make an informed investment decision with respect to the Merger Shares to be
issued to Stockholder under the Merger Agreement. Stockholder has had an
opportunity to ask questions and receive answers from Parent and Company
regarding the terms and conditions of the offering of the Merger Shares pursuant
to the Merger Agreement and to obtain additional information (to the extent
Parent possessed such information or could acquire it without unreasonable
effort or expense) necessary to verify any information furnished to Stockholder
or to which Stockholder had access.
5. Investment Experience. Stockholder understands that the acquisition
of the Merger Shares pursuant to the Merger Agreement involves substantial risk.
Stockholder acknowledges that Stockholder can bear the economic risk of
Stockholder's investment in the Merger Shares, and has such knowledge and
experience in financial or business matters that Stockholder is capable of
evaluating the merits and risks of this investment in the Merger Shares and
protecting his/her/its own interests in connection with this investment.
6. Appointment of Purchaser. Stockholder hereby appoints Peter Feer of
The Wallach Company, a division of McDonald Investments Inc. ("McDonald") (the
"PURCHASER REPRESENTATIVE") to
2
act as a "purchaser representative," as that term is used in Rule 501(h)
promulgated under the Securities Act. Stockholder has been advised by Company
and on that basis reasonably believes that the Purchaser Representative
satisfies all of the conditions set forth in Rule 501(h) promulgated under the
Securities Act to act as a "purchaser representative." Stockholder acknowledges
that the Purchaser Representative is Stockholder's "purchaser representative" in
connection with his/her/its evaluation of the merits and risks of the
prospective investment in the Merger Shares. Stockholder acknowledges and agrees
that the neither Mr. Feer, McDonald nor any of their affiliates makes any
representations or warranties to any Stockholder regarding the Merger and, if
made, may not be relied upon by any Stockholder. Mr. Feer and McDonald will not
be liable to any Stockholder in connection with his and their capacity as
purchaser representative other than for intentional misconduct or fraud.
7. Compliance With Laws and Regulations. The issuance and transfer of
the Merger Shares will be subject to and conditioned upon compliance by Parent
and Stockholder with all applicable state and federal laws and regulations and
with all applicable requirements of any stock exchange or automated quotation
system on which shares of Parent Common Stock may be listed or quoted at the
time of such issuance or transfer.
8. Entire Agreement. This Investment Representation Letter and the
Escrow Agreement supersede all prior and contemporaneous agreements or
understandings, inducements or conditions, express or implied, written or oral,
between the parties. The express terms hereof control and supersede any course
of performance or usage of the trade inconsistent with any of the terms hereof.
9. Construction of Agreement. This Investment Representation Letter has
been negotiated by Parent and Stockholder and their respective attorneys, and
the parties hereto waive the application of any law, regulation, holding or rule
of construction providing that ambiguities in an agreement, certificate or
document will be construed against the party drafting such agreement,
certificate or document.
10. Governing Law; Venue. This Investment Representation Letter will be
governed by, and construed in accordance with, the internal laws of the State of
California applicable to contracts executed and performed entirely within the
State of California, without regard to the principles of choice of law or
conflicts or law of any jurisdiction. The exclusive venue for any judicial
action under and pursuant to this Investment Representation Letter will rest
with the California state and federal courts located in Santa Clara County,
California.
11. Successors and Assigns. This Investment Representation Letter will
inure to the benefit of the successors and assigns of Parent, including any
successor to, or assignee of, all or substantially all of the business and
assets of Parent or any other part of the business or assets of Parent. This
Investment Representation Letter and the rights and obligations of Stockholder
hereunder are personal to Stockholder and will not be assignable, delegable or
transferable by Stockholder in any respect.
12. Severability. If any provision of this Investment Representation
Letter, or the application thereof, is for any reason held to any extent to be
invalid or unenforceable, then the remainder of this Investment Representation
Letter and the application of such provision to other Persons or circumstances
will be interpreted so as reasonably to effect the intent of the parties hereto.
The parties further agree to replace such void or unenforceable provision of
this Investment Representation Letter with a valid and enforceable provision
that will achieve, to the extent possible, the economic, business and other
purposes of the void or unenforceable provision.
3
13. Counterparts. This Investment Representation Letter may be executed
in one or more counterparts, and by the different parties hereto in separate
counterparts, each of which when executed will be deemed to be an original but
all of which taken together will constitute one and the same agreement.
14. Other Remedies. Except as otherwise provided herein, any and all
remedies herein expressly conferred upon a party hereunder will be deemed
cumulative with and not exclusive of any other remedy conferred hereby or by law
on such party, and the exercise of any one remedy will not preclude the exercise
of any other. The parties hereto agree that irreparable damage would occur in
the event that any of the provisions of this Investment Representation Letter
were not performed in accordance with their specific terms or were otherwise
breached. It is accordingly agreed that the parties will be entitled to seek an
injunction or injunctions to prevent breaches of this Investment Representation
Letter and to enforce specifically the terms and provisions hereof in any court
of the United States or any state having jurisdiction.
15. Amendment; Waiver. Any term or provision of this Investment
Representation Letter may be amended, and the observance of any term of this
Investment Representation Letter may be waived (either generally or in a
particular instance and either retroactively or prospectively) only by a writing
signed by the party to be bound thereby. The waiver by a party of any breach
hereof or default in the performance hereof will not be deemed to constitute a
waiver of any other default or any succeeding breach or default.
Very truly yours,
______________________________________
Signature
______________________________________
Name (Please Type or Print)
______________________________________
Address
______________________________________
City, State and Zip Code
ACKNOWLEDGED AND AGREED:
Intuit Inc.
By: _______________________________
Name: _____________________________
Title: ____________________________
4
[SIGNATURE PAGE TO INVESTMENT REPRESENTATION LETTER - UNACCREDITED]
5
ANNEX F
Form W-9 REQUEST FOR TAXPAYER Give form to the
(Rev. January 2002) IDENTIFICATION NUMBER AND CERTIFICATION requester. Do not
Department of the Treasury send to the IRS.
Internal Revenue Service
------------------------------------------------------------------------------------------------------------------------------------
PRINT OR TYPE
See SPECIFIC INSTRUCTIONS on page 2.
Name
------------------------------------------------------------------------------------------------------------------------------------
Business name, if different from above
------------------------------------------------------------------------------------------------------------------------------------
Individual/ Exempt from backup
Check appropriate box: [ ] Sole proprietor [ ] Corporation [ ] Partnership [ ] Other _____________ [ ] withholding
------------------------------------------------------------------------------------------------------------------------------------
Address (number, street, and apt. or suite no.) Requester's name and address (optional)
--------------------------------------------------------------------------------
City, state, and ZIP code
-------------------------------------------------------------------------------- ---------------------------------------------
List account number(s) here (optional)
------------------------------------------------------------------------------------------------------------------------------------
PART I TAXPAYER IDENTIFICATION NUMBER (TIN)
Enter your TIN in the appropriate box. For individuals, this is your social SOCIAL SECURITY NUMBER
security number (SSN). HOWEVER, FOR A RESIDENT ALIEN, SOLE PROPRIETOR, OR
DISREGARDED ENTITY, SEE THE PART I INSTRUCTIONS ON PAGE 2. For other entities, -------------------------------------
it is your employer identification number (EIN). If you do not have a number, OR
see HOW TO GET A TIN on page 2.
EMPLOYER IDENTIFICATION NUMBER
NOTE: If the account is in more than one name, see the chart on page 2 for
guidelines on whose number to enter. -------------------------------------
------------------------------------------------------------------------------------------------------------------------------------
PART II CERTIFICATION
Under penalties of perjury, I certify that:
1. The number shown on this form is my correct taxpayer identification number
(or I am waiting for a number to be issued to me), AND
2. I am not subject to backup withholding because: (a) I am exempt from backup
withholding, or (b) I have not been notified by the Internal Revenue Service
(IRS) that I am subject to backup withholding as a result of a failure to
report all interest or dividends, or (c) the IRS has notified me that I am
no longer subject to backup withholding, AND
3. I am a U.S. person (including a U.S. resident alien).
CERTIFICATION INSTRUCTIONS. You must cross out item 2 above if you have been
notified by the IRS that you are currently subject to backup withholding because
you have failed to report all interest and dividends on your tax return. For
real estate transactions, item 2 does not apply. For mortgage interest paid,
acquisition or abandonment of secured property, cancellation of debt,
contributions to an individual retirement arrangement (IRA), and generally,
payments other than interest and dividends, you are not required to sign the
Certification, but you must provide your correct TIN. (See the instructions on
page 2.)
SIGN SIGNATURE OF
HERE U.S. PERSON: DATE:
----- ------------------------------------------ -------------------------
PURPOSE OF FORM
A person who is required to file an information return with the IRS must get
your correct taxpayer identification number (TIN) to report, for example, income
paid to you, real estate transactions, mortgage interest you paid, acquisition
or abandonment of secured property, cancellation of debt, or contributions you
made to an IRA.
USE FORM W-9 ONLY IF YOU ARE A U.S. PERSON (including a resident alien), to
give your correct TIN to the person requesting it (the requester) and, when
applicable, to:
1. Certify the TIN you are giving is correct (or you are waiting for a
number to be issued),
2. Certify you are not subject to backup withholding, or
3. Claim exemption from backup withholding if you are a U.S. exempt payee.
IF YOU ARE A FOREIGN PERSON, USE THE APPROPRIATE FORM W-8. See PUB. 515,
Withholding of Tax on Nonresident Aliens and Foreign Entities.
NOTE: If a requester gives you a form other than Form W-9 to request your
TIN, you must use the requester's form if it is substantially similar to this
Form W-9.
WHAT IS BACKUP WITHHOLDING? Persons making certain payments to you must under
certain conditions withhold and pay to the IRS 30% of such payments AFTER
December 31, 2001 (29% AFTER December 31, 2003). This is called "backup
withholding." Payments that may be subject to backup withholding include
interest, dividends, broker and barter exchange transactions, rents, royalties,
nonemployee pay, and certain payments from fishing boat operators. Real estate
transactions are not subject to backup withholding.
You will NOT be subject to backup withholding on payments you receive if you
give the requester your correct TIN, make the proper certifications, and report
all your taxable interest and dividends on your tax return.
PAYMENTS YOU RECEIVE WILL BE SUBJECT TO BACKUP WITHHOLDING IF:
1. You do not furnish your TIN to the requester, or
2. You do not certify your TIN when required (see the Part II instructions
on page 2 for details), or
3. The IRS tells the requester that you furnished an incorrect TIN, or
4. The IRS tells you that you are subject to backup withholding because you
did not report all your interest and dividends on your tax return (for
reportable interest and dividends only), or
5. You do not certify to the requester that you are not subject to backup
withholding under 4 above (for reportable interest and dividend accounts opened
after 1983 only).
Certain payees and payments are exempt from backup withholding. See the
instructions on page 2 and the separate INSTRUCTIONS FOR THE REQUESTER OF FORM
W-9.
PENALTIES
FAILURE TO FURNISH TIN. If you fail to furnish your correct TIN to a requester,
you are subject to a penalty of $50 for each such failure unless your failure is
due to reasonable cause and not to willful neglect.
CIVIL PENALTY FOR FALSE INFORMATION WITH RESPECT TO WITHHOLDING. If you make a
false statement with no reasonable basis that results in no backup withholding,
you are subject to a $500 penalty.
CRIMINAL PENALTY FOR FALSIFYING INFORMATION. Willfully falsifying certifications
or affirmations may subject you to criminal penalties including fines and/or
imprisonment.
MISUSE OF TINs. If the requester discloses or uses TINs in violation of Federal
law, the requester may be subject to civil and criminal penalties.
Cat. No. 10231x Form W-9 (Rev. 1-2002)
Form W-9 (Rev. 1-2002) Page 2
--------------------------------------------------------------------------------
SPECIFIC INSTRUCTIONS
NAME. If you are an individual, you must generally enter the name shown on your
social security card. However, if you have changed your last name, for instance,
due to marriage without informing the Social Security Administration of the name
change, enter your first name, the last name shown on your social security card,
and your new last name.
If the account is in joint names, list first and then circle the name of the
person or entity whose number you enter in Part I of the form.
SOLE PROPRIETOR. Enter your INDIVIDUAL name as shown on your social security
card on the "Name" line. You may enter your business, trade, or "doing business
as (DBA)" name on the "Business name" line.
LIMITED LIABILITY COMPANY (LLC). If you are a single-member LLC (including a
foreign LLC with a domestic owner) that is disregarded as an entity separate
from its owner under Treasury regulations section 301.7701-3, ENTER THE OWNER'S
NAME ON THE "NAME" LINE. Enter the LLC's name on the "Business name" line.
OTHER ENTITIES. Enter your business name as shown on required Federal tax
documents on the "Name" line. This name should match the name shown on the
charter or other legal document creating the entity. You may enter any business,
trade, or DBA name on the "Business name" line.
EXEMPT FROM BACKUP WITHHOLDING. If you are exempt, enter your name as
described above, then check the "Exempt from backup withholding" box in the line
following the business name, sign and date the form.
Individuals (including sole proprietors) are not exempt from backup
withholding. Corporations are exempt from backup withholding for certain
payments, such as interest and dividends. For more information on exempt payees,
see the Instructions for the Requester of Form W-9.
If you are a nonresident alien or a foreign entity not subject to backup
withholding, give the requester the appropriate completed Form W-8.
NOTE: If you are exempt from backup withholding, you should still complete this
form to avoid possible erroneous backup withholding.
PART I--TAXPAYER IDENTIFICATION NUMBER (TIN)
ENTER YOUR TIN IN THE APPROPRIATE BOX.
If you are a RESIDENT ALIEN and you do not have and are not eligible to get
an SSN, your TIN is your IRS individual taxpayer identification number (ITIN).
Enter it in the social security number box. If you do not have an ITIN, see HOW
TO GET A TIN below.
If you are a SOLE PROPRIETOR and you have an EIN, you may enter either your
SSN or EIN. However, the IRS prefers that you use your SSN.
If you are an LLC that is DISREGARDED AS AN ENTITY separate from its owner
(see LIMITED LIABILITY COMPANY (LLC) above), and are owned by an individual,
enter your SSN (or "pre-LLC" EIN, if desired). If the owner of a disregarded LLC
is a corporation, partnership, etc., enter the owner's EIN.
NOTE: See the chart on this page for further clarification of name and TIN
combinations.
HOW TO GET A TIN. If you do not have a TIN, apply for one immediately. To apply
for an SSN, get FORM SS-5, Application for a Social Security Card, from your
local Social Security Administration office. Get FORM W-7, Application for IRS
Individual Taxpayer Identification Number, to apply for an ITIN, or FORM SS-4,
Application for Employer Identification Number, to apply for an EIN. You can get
Forms W-7 and SS-4 from the IRS by calling 1-800-TAX-FORM (1-800-829-3676) or
from the IRS Web Site at WWW.IRS.GOV.
If you are asked to complete Form W-9 but do not have a TIN, write "Applied
For" in the space for the TIN, sign and date the form, and give it to the
requester. For interest and dividend payments, and certain payments made with
respect to readily tradable instruments, generally you will have 60 days to get
a TIN and give it to the requester before you are subject to backup withholding
on payments. The 60-day rule does not apply to other types of payments. You will
be subject to backup withholding on all such payments until you provide your TIN
to the requester.
NOTE: Writing "Applied For" means that you have already applied for a TIN or
that you intend to apply for one soon.
CAUTION: A disregarded domestic entity that has a foreign owner must use the
appropriate Form W-8.
PART II--CERTIFICATION
To establish to the withholding agent that you are a U.S. person, or
resident alien, sign Form W-9. You may be requested to sign by the withholding
agent even if items 1, 3, and 5 below indicate otherwise.
For a joint account, only the person whose TIN is shown in Part I should sign
(when required). Exempt recipients, see EXEMPT FROM BACKUP WITHHOLDING ABOVE.
SIGNATURE REQUIREMENTS. Complete the certification as indicated in 1 through 5
below.
1. INTEREST, DIVIDEND, AND BARTER EXCHANGE ACCOUNTS OPENED BEFORE 1984 AND
BROKER ACCOUNTS CONSIDERED ACTIVE DURING 1983. You must give your correct TIN,
but you do not have to sign the certification.
2. INTEREST, DIVIDEND, BROKER, AND BARTER EXCHANGE ACCOUNTS OPENED AFTER
1983 AND BROKER ACCOUNTS CONSIDERED INACTIVE DURING 1983. You must sign the
certification or backup withholding will apply. If you are subject to backup
withholding and you are merely providing your correct TIN to the requester, you
must cross out item 2 in the certification before signing the form.
3. REAL ESTATE TRANSACTIONS. You must sign the certification. You may cross
out item 2 of the certification.
4. OTHER PAYMENTS. You must give your correct TIN, but you do not have to
sign the certification unless you have been notified that you have previously
given an incorrect TIN. "Other payments" include payments made in the course of
the requester's trade or business for rents, royalties, goods (other than bills
for merchandise), medical and health care services (including payments to
corporations), payments to a nonemployee for services, payments to certain
fishing boat crew members and fishermen, and gross proceeds paid to attorneys
(including payments to corporations).
5. MORTGAGE INTEREST PAID BY YOU, ACQUISITION OR ABANDONMENT OF SECURED
PROPERTY, CANCELLATION OF DEBT, QUALIFIED TUITION PROGRAM PAYMENTS (UNDER
SECTION 529), IRA OR ARCHER MSA CONTRIBUTIONS OR DISTRIBUTIONS, AND PENSION
DISTRIBUTIONS. You must give your correct TIN, but you do not have to sign the
certification.
PRIVACY ACT NOTICE
Section 6109 of the Internal Revenue Code requires you to give your correct TIN
to persons who must file information returns with the IRS to report interest,
dividends, and certain other income paid to you, mortgage interest you paid, the
acquisition or abandonment of secured property, cancellation of debt, or
contributions you made to an IRA or Archer MSA. The IRS uses the numbers for
identification purposes and to help verify the accuracy of your tax return. The
IRS may also provide this information to the Department of Justice for civil and
criminal litigation, and to cities, states, and the District of Columbia to
carry out their tax laws.
You must provide your TIN whether or not you are required to file a tax
return. Payers must generally withhold 30% of taxable interest, dividend, and
certain other payments to a payee who does not give a TIN to a payer. Certain
penalties may also apply.
WHAT NAME AND NUMBER TO GIVE THE REQUESTER
FOR THIS TYPE OF ACCOUNT: GIVE NAME AND SSN OF:
------------------------- ---------------------
1. Individual The individual
2. Two or more The actual owner of the
individuals (joint account or, if combined
account) funds, the first individual
on the account(1)
3. Custodian account of The minor(2)
a minor (Uniform Gift
to Minors Act)
4. a. The usual The grantor-trustee(1)
revocable savings
trust (grantor is
also trustee)
b. So-called trust The actual owner(1)
account that is not
a legal or valid trust
under state law
5. Sole proprietorship The owner(3)
FOR THIS TYPE OF ACCOUNT: GIVE NAME AND EIN OF:
------------------------- ---------------------
6. Sole proprietorship The owner(3)
7. A valid trust, estate, or Legal entity(4)
pension trust
8. Corporate The corporation
9. Association, club, The organization
religious, charitable,
educational, or other
tax-exempt organization
10. Partnership The partnership
11. A broker or registered The broker or nominee
nominee
12. Account with the Department of The public entity
Agriculture in the name of a
public entity (such as a state
or local government, school
district, or prison) that
receives agricultural program
payments
----------
(1) List first and circle the name of the person whose number you furnish. If
only one person on a joint account has an SSN, that person's number must be
furnished.
(2) Circle the minor's name and furnish the minor's SSN.
(3) YOU MUST SHOW YOUR INDIVIDUAL NAME, but you may also enter your business or
"DBA" name. You may use either your SSN or EIN (if you have one).
(4) List first and circle the name of the legal trust, estate, or pension trust.
(Do not furnish the TIN of the personal representative or trustee unless the
legal entity itself is not designated in the account title.)
NOTE: If no name is circled when more than one name is listed, the number will
be considered to be that of the first name listed.
ANNEX G
VOTING AGREEMENT
This VOTING AGREEMENT (this "AGREEMENT") is made and entered into as of
May 6, 2002 (the "AGREEMENT DATE") by and among Intuit Inc. a Delaware
corporation ("PARENT"), __________ ("STOCKHOLDER") and, solely for purposes of
Section 6 of this Agreement, The Flagship Group Inc., a Delaware corporation
("COMPANY").
RECITALS
A. Concurrently with the execution of this Agreement, Parent, Ardent
Acquisition Corporation, a Delaware corporation and a wholly owned subsidiary of
Parent ("MERGER SUB"), Credence Acquisition Corporation, a Delaware corporation
and a wholly owned subsidiary of Parent, Company, American Fundware, Inc., a
Colorado corporation and a wholly owned subsidiary of Company ("SUB"), certain
stockholders of Company and each of Michael Potts and Scott Wylie, as
representatives, are entering into an Agreement and Plan of Merger (the "MERGER
AGREEMENT"). The Merger Agreement provides (subject to the conditions set forth
therein) for the merger of Merger Sub with and into Company (the "MERGER"), with
Company to survive the Merger. At the Effective Time, among other things,
outstanding shares of Company Common Stock will be converted into the right to
receive cash and shares of Parent Common Stock as more particularly set forth in
the Merger Agreement. Capitalized terms used but not defined in this Agreement
will have the meanings given to such terms in the Merger Agreement.
B. As a condition to the willingness of Parent to enter into the Merger
Agreement, Parent has required that Stockholder enter into this Agreement, and,
in order to induce Parent to enter into the Merger Agreement, Stockholder is
willing to enter into this Agreement.
The parties to this Agreement, intending to be legally bound by this
Agreement, hereby agree as follows:
1. RESTRICTIONS ON TRANSFER OF SUBJECT SHARES.
(a) Subject Shares. Stockholder represents and warrants to Parent
that, as of the Agreement Date, Stockholder owns (beneficially and of record),
free and clear of all Encumbrances, (a) the number of shares of Company Common
Stock and (b) Company Options to acquire the number of shares of Company Common
Stock, in each case as set forth below Stockholder's name on the signature page
of this Agreement (all such shares of Company Common Stock owned by Stockholder
and all shares of Company Common Stock subject to Company Options owned by
Stockholder, together with any shares of Company Common Stock that may hereafter
be acquired by Stockholder, are collectively referred to herein as the "SUBJECT
SHARES"). If, between the Agreement Date and the Expiration Time (as defined in
Section 1(b)), the outstanding shares of Company Common Stock are changed into a
different number or class of shares by reason of any stock split, stock
dividend, reverse stock split, reclassification, recapitalization or other
similar transaction, then the Subject Shares will be appropriately adjusted, and
will include any shares or other securities of Company issued on, or with
respect to, the Subject Shares in such a transaction.
(b) No Disposition or Encumbrance of Subject Shares.
(i) Notwithstanding any other provision of this Agreement to the
contrary, Stockholder will not sell, transfer, exchange, pledge, hypothecate,
encumber, distribute or otherwise dispose of any of the Subject Shares or make
any offer to do so or enter into or become bound by any agreement to do so;
provided, however, that Stockholder's obligations under this Section 1(b) will
expire immediately after the Expiration Time.
(ii) As used in this Agreement, the term "EXPIRATION TIME" will
mean immediately following the valid termination of the Merger Agreement in
accordance with its terms as set forth in Article IX of the Merger Agreement.
(c) Transfer of Voting Rights. Stockholder covenants and agrees
that, prior to the Expiration Time, Stockholder will not enter into any voting
agreement regarding any Subject Shares (other than this Agreement) and will not
deposit any of the Subject Shares into a voting trust or grant a proxy or enter
into an agreement of any kind with respect to any of the Subject Shares, except
for the Proxy called for by Section 2(b) of this Agreement. Stockholder
represents and warrants that the Subject Shares are not subject to any voting
agreement, voting trust, proxy or other similar arrangement except as provided
in this Agreement.
2. VOTING OF SUBJECT SHARES.
(a) Agreement. Stockholder hereby agrees that, prior to the
Expiration Time, at any meeting of the Company Stockholders, however called, and
in any action taken by the written consent of the Company Stockholders without a
meeting, unless otherwise directed in writing by Parent, Stockholder will vote
the Subject Shares:
(i) in favor of the Merger Agreement, the Merger, the
Certificate of Merger, the execution and delivery by Company of the Merger
Agreement and the Certificate of Merger and the adoption and approval of the
terms thereof and in favor of each of the other actions and transactions
contemplated by the Merger Agreement and any action required in furtherance
hereof and thereof;
(ii) against any action or agreement that would be reasonably
likely to (A) result in a breach of any representation, warranty, covenant or
obligation of Company in the Merger Agreement or that would preclude fulfillment
of any condition precedent under the Merger Agreement to Company's, Parent's or
any other party's obligation to consummate the Merger, or (B) impede, postpone,
discourage or adversely affect the consummation of the Merger in any material
respect;
(iii) against any action or agreement that would be in favor of
any Alternative Transaction; and
(iv) against any action or agreement that would result in a
change to Company's Board of Directors.
2
Prior to the Expiration Time, Stockholder will not enter into any agreement,
proxy or understanding with any person or entity to vote or give instructions in
any manner inconsistent with subparagraph (i), (ii), (iii) or (iv) of this
Section 2(a).
(b) Proxy. Contemporaneously with the execution of this Agreement,
Stockholder will execute and deliver to Parent a proxy with respect to the
Subject Shares in the form attached hereto as Exhibit "1", which proxy will be
irrevocable to the fullest extent permitted by law (the "PROXY").
4. REPRESENTATIONS AND WARRANTIES OF STOCKHOLDER. Stockholder hereby
represents and warrants to Parent as follows:
(a) Authorization, etc. Stockholder has all requisite power,
authority and capacity to execute and deliver this Agreement and to perform
Stockholder's obligations hereunder. This Agreement has been duly and validly
approved and authorized (if applicable), executed and delivered by Stockholder
and, assuming due execution and delivery by Parent, constitutes a legal, valid
and binding obligation of Stockholder, enforceable against Stockholder in
accordance with its terms.
(b) No Conflicts, Required Filings and Consents.
(i) The execution and delivery of this Agreement by Stockholder
does not, and the performance of this Agreement by Stockholder will not: (A) to
the extent applicable, conflict with or violate any trust agreement or other
similar document pursuant to which Stockholder was created or established; (B)
conflict with or violate any Applicable Law that is applicable to Stockholder or
any of its assets or properties; (C) conflict with or violate any order, decree
or judgment applicable to Stockholder or by which Stockholder or any of
Stockholder's properties or any of the Subject Shares is bound or affected; or
(D) result in any breach of or constitute a default (with or without notice or
lapse of time, or both) under, or give to others any rights of termination,
amendment, acceleration or cancellation of, or result in the creation of any
lien, restriction, adverse claim, encumbrance or security interest in or to any
of the Subject Shares pursuant to, any written, oral or other contract,
agreement, arrangement or commitment to which Stockholder is a party or by which
Stockholder or any of Stockholder's properties (including but not limited to the
Subject Shares) is bound or affected in any material respect.
(ii) The execution and delivery of this Agreement by Stockholder
does not, and the performance of this Agreement by Stockholder will not, require
any consent under any written, oral or other contract, agreement, arrangement or
commitment of any third party.
(c) Title to Subject Shares. As of the Agreement Date, Stockholder
does not directly or indirectly own, either beneficially or of record, any
shares of Company Common Stock or other options, warrants, convertible
securities or other securities, calls, commitments, conversion privileges,
preemptive rights, rights of first refusal, rights of first offer or other
rights or agreements to purchase or otherwise acquire from Company or Sub
(whether directly or indirectly) any shares of Company's authorized but unissued
capital stock or any securities
3
convertible into or exchangeable for any shares of Company's capital stock,
other than the Subject Shares set forth below Stockholder's name on the
signature page hereof.
(d) Accuracy of Representations. The representations and warranties
contained in this Agreement are accurate in all material respects as of the date
of this Agreement, will be accurate in all material respects at all times
through the Expiration Time.
5. COVENANTS OF STOCKHOLDER. From time to time and without additional
consideration, Stockholder will execute and deliver, or cause to be executed and
delivered, such additional or further transfers, assignments, endorsements,
proxies, consents and other instruments, and perform such further acts, as
Parent may reasonably request for the purpose of effectively carrying out and
furthering the intent of this Agreement and the Proxy.
6. AGREEMENTS OF COMPANY. Company acknowledges its awareness of the
provisions of this Agreement and will (a) recognize, honor and respect, and will
not contest, the voting by Parent of the Subject Shares through the use of the
Proxy in accordance with its terms at any meeting of Stockholders of Company or
pursuant to any action taken by written consent without a meeting of the
Stockholders of Company; and (b) to the extent permitted by law, will not
recognize any voting of the Subject Shares by Stockholder that is in violation
of this Agreement.
7. MISCELLANEOUS.
(a) Expenses. Except as provided otherwise in Section 7(k), all
costs and expenses incurred in connection with the transactions contemplated by
this Agreement will be paid by the party incurring such costs and expenses.
(b) Governing Law; Venue. This Agreement will be governed by, and
construed in accordance with, the internal laws of the State of Delaware
applicable to contracts executed and performed entirely within the State of
Delaware, without regard to the principles of choice of law or conflicts or law
of any jurisdiction. The exclusive venue for any judicial action under and
pursuant to this Agreement will rest with the California state and federal
courts located in Santa Clara County, California.
(c) Successors and Assigns. This Agreement will inure to the benefit
of the successors and assigns of Parent, including any successor to, or assignee
of, all or substantially all of the business and assets of Parent or any other
part of the business or assets of Parent. This Agreement and the rights and
obligations of Stockholder hereunder are personal to Stockholder and will not be
assignable, delegable or transferable by Stockholder in any respect.
(d) Severability. If any provision of this Agreement, or the
application thereof, is for any reason held to any extent to be invalid or
unenforceable, then the remainder of this Agreement and the application of such
provision to other Persons or circumstances will be interpreted so as reasonably
to effect the intent of the parties hereto. The parties further agree to replace
such void or unenforceable provision of this Agreement with a valid and
enforceable provision that will achieve, to the extent possible, the economic,
business and other purposes of the void or unenforceable provision.
4
(e) Counterparts. This Agreement may be executed in one or more
counterparts, and by the different parties hereto in separate counterparts, each
of which when executed will be deemed to be an original but all of which taken
together will constitute one and the same agreement.
(f) Amendment; Waiver; Termination. Any term or provision of this
Agreement may be amended, and the observance of any term of this Agreement may
be waived (either generally or in a particular instance and either retroactively
or prospectively) only by a writing signed by the party to be bound thereby. The
waiver by a party of any breach hereof or default in the performance hereof will
not be deemed to constitute a waiver of any other default or any succeeding
breach or default. Notwithstanding anything herein to the contrary, however,
Parent will be entitled to terminate this Agreement in full (but not in part) at
any time for any reason, and will be entitled to do so without terminating or
amending any other voting agreement entered into by Parent with any other holder
of shares or other securities of Company. This Agreement will terminate
automatically and immediately following the valid termination of the Merger
Agreement in accordance with its terms as set forth in Article IX of the Merger
Agreement.
(g) Notices. All notices and other communications required or
permitted under this Agreement will be delivered in the manner specified in
Section 10.2 (i) to Parent or Company at the address specified in Section 10.2
of the Merger Agreement and (ii) to Stockholder at the address specified below
Stockholder's name on the signature page to this Agreement.
(h) Entire Agreement. This Agreement and any documents delivered by
the parties in connection herewith constitute the entire understanding and
agreement of the parties hereto with respect to the subject matter hereof and
thereof and supersede all prior and contemporaneous agreements or
understandings, inducements or conditions, express or implied, written or oral,
between the parties. The express terms hereof control and supersede any course
of performance or usage of the trade inconsistent with any of the terms hereof.
(i) Specific Performance. The parties hereto agree that Parent would
suffer irreparable damage and injury in the event that any of the provisions of
this Agreement was not performed by Stockholder in accordance with its specific
terms or was otherwise breached by Stockholder. It is accordingly agreed that,
in addition to any other remedy to which Parent is entitled at law or in equity,
Parent will be entitled to injunctive relief to prevent breaches of this
Agreement and to enforce specifically the terms and provisions hereof in any
court of competent jurisdiction, without any requirement to post bond, surety or
other security.
(j) Other Agreements. Nothing in this Agreement will limit any of
the rights or remedies of Parent or any of the obligations of Stockholder under
any other agreement.
(k) Attorneys' Fees. Should suit be brought to enforce or interpret
any part of this Agreement, the prevailing party will be entitled to recover, as
an element of the costs of suit and not as damages, reasonable attorneys' fees
to be fixed by the court (including costs, expenses and fees on any appeal). The
prevailing party will be entitled to recover its costs of suit, regardless of
whether such suit proceeds to final judgment.
5
(l) Construction of Agreement. When a reference is made in this
Agreement to a Section, such reference will be to a Section of this Agreement
unless otherwise indicated. This Agreement has been negotiated by Parent and
Stockholder and their respective attorneys, and the parties hereto waive the
application of any law, regulation, holding or rule of construction providing
that ambiguities in an agreement, certificate or document will be construed
against the party drafting such agreement, certificate or document. Unless
otherwise indicated, the words "include," "includes," "including" and "such as"
when used herein will be deemed in each case to be followed by the words
"without limitation."
(m) Waiver of Jury Trial. EACH OF PURCHASER AND STOCKHOLDER HEREBY
IRREVOCABLY WAIVES ALL RIGHT TO TRIAL BY JURY IN ANY ACTION, PROCEEDING OR
COUNTERCLAIM (WHETHER BASED ON CONTRACT, TORT OR OTHERWISE) ARISING OUT OF OR
RELATING TO THIS AGREEMENT OR THE ACTIONS OF PURCHASER OR STOCKHOLDER IN THE
NEGOTIATION, ADMINISTRATION, PERFORMANCE AND ENFORCEMENT HEREOF.
[THE REMAINDER OF THIS PAGE HAS INTENTIONALLY BEEN LEFT BLANK.]
6
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first above written.
INTUIT INC. THE FLAGSHIP GROUP INC.
By: ___________________________ By: _________________________
Name: _________________________ Name: _______________________
Title: ________________________ Title: ______________________
STOCKHOLDER
_________________________________
(please print your name here)
_________________________________
(please sign your name here)
Address: ________________________
________________________
________________________
Facsimile: ______________________
________________________________________
Number of shares of Company Common Stock
owned by Stockholder
________________________________________
Number of shares of Company Common Stock
subject to each Company Option
[SIGNATURE PAGE TO VOTING AGREEMENT]
7
EXHIBIT 1
IRREVOCABLE PROXY
The undersigned ("STOCKHOLDER"), a stockholder of The Flagship Group,
Inc., a Delaware corporation ("COMPANY"), hereby irrevocably (to the fullest
extent permitted by law) appoints and constitutes Raymond Stern, Greg Santora
and/or Intuit Inc., a Delaware corporation ("PARENT"), and each of them, the
proxies of the undersigned, with full power of substitution, to the fullest
extent of the undersigned's rights with respect to (a) the shares of Company
Common Stock set forth below Stockholder's name on the signature page of this
Proxy; (b) the Company Options to acquire the number of shares of Company Common
Stock set forth below Stockholder's name on the signature page of this Proxy;
and (c) any shares of Company Common Stock that may hereafter be acquired by
Stockholder (collectively, the "SUBJECT SHARES"). Upon the execution hereof, all
prior proxies given by the undersigned with respect to any of the Subject Shares
are hereby revoked, and no subsequent proxies will be given with respect to any
of the Subject Shares.
This Proxy is irrevocable, is coupled with an interest and is granted in
connection with that certain Voting Agreement, dated as of the date hereof,
among Parent, Company and the undersigned (the "VOTING AGREEMENT"), and is
granted in consideration of Parent entering into that certain Agreement and Plan
of Merger dated as of the date hereof among Parent, Ardent Acquisition
Corporation, a Delaware corporation and a wholly owned subsidiary of Parent,
Credence Acquisition Corporation, a Delaware corporation and a wholly owned
subsidiary of Parent, Company, American Fundware, Inc., a Colorado corporation
and a wholly owned subsidiary of Company ("SUB"), certain stockholders of
Company and each of Michael Potts and Scott Wylie, as representatives (the
"MERGER AGREEMENT"). Capitalized terms used but not defined in this Proxy will
have the meanings given to such terms in the Merger Agreement.
The attorneys and proxies named above will be empowered, and may
exercise this Proxy, to vote the Subject Shares at any time until the Expiration
Time (as defined in the Voting Agreement) at any meeting of the Company
Stockholders, however called, or in any action taken by the written consent of
the Company Stockholders without a meeting:
(i) in favor of the Merger Agreement, the Merger, the Certificate of
Merger, the execution and delivery by Company of the Merger Agreement and the
Certificate of Merger and the adoption and approval of the terms thereof and in
favor of each of the other actions and transactions contemplated by the Merger
Agreement and any action required in furtherance hereof and thereof;
(ii) against any action or agreement that would be reasonably likely to
(A) result in a breach of any representation, warranty, covenant or obligation
of Company in the Merger Agreement or that would preclude fulfillment of any
condition precedent under the Merger Agreement to Company's, Parent's or any
other party's obligation to consummate the Merger, or (B) impede, postpone,
discourage or adversely affect the consummation of the Merger in any material
respect;
(iii) against any action or agreement that would be in favor of any
Alternative Transaction; and
(iv) against any action or agreement that would result in a change to
Company's Board of Directors.
The undersigned Stockholder may vote the Subject Shares on all other
matters.
Prior to the Expiration Time, at any meeting of the Company
Stockholders, however called, and in any action by written consent of the
Company Stockholders without a meeting, the attorneys and proxies named above
may, in their sole discretion, elect to abstain from voting on any matter
covered by subparagraphs (i), (ii), (iii) and/or (iv) above; provided that the
undersigned Stockholder is allowed to vote the Subject Shares in accordance with
the terms of the Voting Agreement; and provided, further, that nothing herein
(including the granting of this Proxy or any abstention by the attorneys and
proxies named above from voting this Proxy) will release the undersigned
Stockholder from the obligations that such undersigned Stockholder has to vote
the Subject Shares in accordance with the terms and conditions of the Voting
Agreement.
This Proxy will be binding upon the heirs, successors and assigns of the
undersigned (including any transferee of any of the Subject Shares) and any
obligation of the undersigned hereunder will be binding upon the heirs,
successors and assigns of the undersigned (including any transferee of any of
the Subject Shares).
This Proxy will terminate upon the Expiration Time. Notwithstanding
anything herein to the contrary, however, Parent will be entitled to terminate
this Proxy in full (but not in part) at any time for any reason, and will be
entitled to do so without terminating or amending any other proxy granted to
Parent or any Affiliate of Parent by any other holder of shares or other
securities of Company.
Dated: May 6, 2002
STOCKHOLDER
_________________________________
(please print your name here)
_________________________________
(please sign your name here)
_________________________________________
Number of shares of Company Common Stock
owned by Stockholder
_________________________________________
Number of shares of Company Common Stock
subject to each Company Option
[SIGNATURE PAGE TO IRREVOCABLE PROXY]
2
ANNNEX H
ESCROW AGREEMENT
This Escrow Agreement (this "AGREEMENT") is made and entered into as of
___________, 2002 by and among Intuit Inc., a Delaware corporation ("PARENT"),
Michael Potts and Scott Wylie, as the representatives (the "REPRESENTATIVES") of
the stockholders of The Flagship Group Inc., a Delaware corporation ("COMPANY"),
and American Stock Transfer and Trust Co., as escrow agent (the "ESCROW AGENT").
R E C I T A L S
A. Parent, Ardent Acquisition Corporation, a Delaware corporation and a
wholly owned subsidiary of Parent ("MERGER SUB"), Credence Acquisition
Corporation, a Delaware corporation and a wholly owned subsidiary of Parent,
Company, American Fundware, Inc., a Colorado corporation and a wholly owned
subsidiary of Company ("SUB"), certain stockholders of Company and the
Representatives have entered into an Agreement and Plan of Merger dated as of
May 6, 2002 (the "MERGER AGREEMENT"). The Merger Agreement provides (subject to
the conditions set forth therein) for the merger of Merger Sub with and into
Company (the "Merger"), with Company to survive the Merger. At the Effective
Time, among other things, outstanding shares of Company Common Stock will be
converted into the right to receive cash and shares of Parent Common Stock as
more particularly set forth in the Merger Agreement. A copy of the Merger
Agreement is attached as Exhibit A hereto. Capitalized terms used but not
defined in this Agreement will have the meanings given to such terms in the
Merger Agreement.
B. Section 2.4 of the Merger Agreement provides that Parent will be
entitled to withhold from the Company Stockholders at the Closing, the Cash
Amounts issued to each Company Stockholder upon conversion of their shares of
Company Common Stock under Section 2.2(b)(ii) of the Merger Agreement (such
withheld Cash Amounts, the "ESCROW CASH"). The Escrow Cash is to be placed in an
escrow account (the "ESCROW ACCOUNT") to secure certain indemnification
obligations of the Company Stockholders to Parent and other Parent Indemnitees
under Article VIII of the Merger Agreement on the terms and conditions set forth
in Article VIII of the Merger Agreement and in this Agreement. The amount of
Escrow Cash withheld from each Company Stockholder and deposited in the Escrow
Account by each Company Stockholder pursuant to this Agreement and Section 2.4
of the Merger Agreement, the taxpayer identification number of each Company
Stockholder and such Company Stockholder's percentage interest in the Escrow
Cash is set forth next to such Company Stockholder's name on Exhibit B attached
hereto.
C. The parties desire to set forth in this Agreement the terms and
conditions pursuant to which the Escrow Cash will be deposited, held in, and
disbursed from the Escrow Account.
NOW, THEREFORE, the parties hereby agree as follows:
1. ESCROW AND INDEMNIFICATION.
(a) Escrow of Funds.
(i) Escrow Cash. At the Effective Time, Parent will withhold the
Escrow Cash and deposit the Escrow Cash with the Escrow Agent in the manner
contemplated
by Section 2.4. Parent will provide written notice to the Escrow Agent making
reference to this Agreement and identifying the funds so deposited as the Escrow
Cash.
(ii) Agreement to Hold Escrow Cash; Escrow Cash Defined. The
Escrow Agent will hold the Escrow Cash in escrow as collateral for the
indemnification obligations of the Company Stockholders under Article VIII of
the Merger Agreement until the Escrow Agent is required to release such Escrow
Cash in accordance with the terms of this Agreement. As used in this Agreement,
the term "ESCROW CASH" means, collectively, the Escrow Cash and the Escrow
Earnings. The Escrow Agent agrees to accept delivery of the Escrow Cash and to
hold such Escrow Cash in escrow subject to the terms and conditions of this
Agreement.
(iii) Company Stockholder's Interest in Escrow Cash and Escrow
Earnings. The amount of Escrow Cash owned by each Company Stockholder will be
that amount of Escrow Cash set forth next to such Company Stockholder's name on
Exhibit B, which amount of Escrow Cash will be the total amount of Escrow Cash
multiplied by the percentage interest set forth next to such Company
Stockholder's name on Exhibit B. The amount of Escrow Earnings owned by each
Company Stockholder will be that amount of Escrow Earnings equal to the total
amount of Escrow Earnings multiplied by the percentage interest set forth next
to such Company Stockholder's name on Exhibit B.
(b) Indemnification. Parent and the other Parent Indemnitees are
indemnified pursuant to the terms of Article VIII of the Merger Agreement (which
terms are incorporated herein by reference) from and against any Damages,
subject to the limitations set forth in Article VIII of the Merger Agreement and
in this Agreement. The Escrow Cash will be security for such indemnity
obligations, subject to the terms and conditions of Article VIII of the Merger
Agreement and this Agreement. Michael Potts and Scott Wylie will act as the
initial Representatives of the Company Stockholders for purposes of this
Agreement, and they are duly authorized to be and act as such Representatives
and may bind the Company Stockholders as provided herein and in Article VIII of
the Merger Agreement.
(c) Notice of Claim. As used herein, the term "CLAIM" means a claim
for indemnification for Damages made against the Company Stockholders by Parent
(on its own behalf and/or on behalf of any other Parent Indemnitee) pursuant to
Article VIII of the Merger Agreement and this Agreement. Parent (and only
Parent) may give notice of a Claim under this Agreement, whether for its own
Damages or for Damages incurred by any other Parent Indemnitee and only Parent
may prosecute and arbitrate a Claim under Article VIII of the Merger Agreement.
A written notice of a Claim will be provided to the Representatives and the
Escrow Agent by Parent (a "NOTICE OF CLAIM") after Parent becomes aware of the
existence of any potential claim of the Company Stockholders for indemnification
under Article VIII of the Merger Agreement as provided in Section 8.7 of the
Merger Agreement.
No delay on the part of Parent in giving the Representatives and the
Escrow Agent a Notice of Claim will relieve the Company Stockholders from any of
their obligations under Article VIII of the Merger Agreement unless (and then
only to the extent) that such party is materially prejudiced thereby.
2
(d) Escrow Period. As used herein, the term "ESCROW PERIOD" means
that time period beginning on the Effective Time and ending on the
eighteen-month anniversary of the Effective Time.
(e) Third-Party Claims. Any Third-Party Claim will be defended in
the manner specified in Section 8.8 of the Merger Agreement.
(f) Limitation on Liability. The limitations on the Liability of the
Company Stockholders for indemnification under Article VIII of the Merger
Agreement will be as described in Section 8.6 of the Merger Agreement.
2. DEPOSIT OF ESCROW CASH; RELEASE FROM ESCROW.
(a) Delivery of Escrow Cash. On or prior to the Closing Date, Parent
will deliver the Escrow Cash of each Company Stockholder as shown on Exhibit B
to the Escrow Agent by check or wire transfer.
(b) Investment of Escrow Cash. The Escrow Cash will be placed by the
Escrow Agent into Chase Money Markets. The Escrow Earnings will be deemed to be
Escrow Cash and will be held by the Escrow Agent as additional security for the
indemnification obligations of the Company Stockholders.
(c) Distributions to the Company Stockholders. On the date upon
which the Escrow Period expires (the "RELEASE DATE"), upon written notice signed
by both Parent and the Representatives, the Escrow Agent will release from the
Escrow Account to the Company Stockholders in accordance with their percentage
interests set forth in Exhibit B, the Escrow Cash (including the Escrow
Earnings), less (i) any Escrow Cash delivered to Parent in accordance with
Section 4 in satisfaction of Claims by Parent or in accordance with Section 5(b)
or Section 9, and (ii) any Escrow Cash held by the Escrow Agent in accordance
with Section 4 hereof with respect to pending but unresolved Claims of Parent.
Any Escrow Cash held as a result of clause (ii) of the preceding sentence will
be released to the Company Stockholders or to Parent, as appropriate, within
three business days following the date on which written notice of the resolution
of such Claim has been given to the Escrow Agent by both the Representatives and
Parent or upon the delivery to the Escrow Agent of the appropriate order by a
court of competent jurisdiction or upon delivery to the Escrow Agent of a copy
of the final award of an arbitrator or court. Any court order or final award of
any arbitrator referred to above will be accompanied by a legal opinion of
counsel for the presenting party satisfactory to the Escrow Agent to the effect
that said court order or final award of such arbitrator is final and enforceable
and is not subject to further appeal. The Escrow Agent will act on such court
order or final award of such arbitrator and legal opinion without further
question.
(d) Release of Escrow Cash. The Escrow Cash will be held by the
Escrow Agent until such Escrow Cash is required to be released pursuant to
either: (i) Section 2(c); or (ii) when required under applicable provisions of
Section 4. The Escrow Agent will deliver to the Company Stockholders or to
Parent, as applicable hereunder, the requisite amount of Escrow Cash to be
released on such applicable date as is called for by this Agreement. Such
delivery of Escrow Cash will be by check. Escrow Cash released to the Company
Stockholders will be released to them in proportion to their respective
percentage interests in the Escrow Cash as set forth in Exhibit B.
3
(e) No Transfer or Encumbrance. No Escrow Cash or any beneficial
interest therein may be pledged, encumbered, sold, assigned or transferred
(including any transfer by operation of law), by a Company Stockholder or be
taken or reached by any legal or equitable process in satisfaction of any debt
or other liability of such Company Stockholder, prior to the delivery of such
Escrow Cash out of the Escrow Account to such Company Stockholder by the Escrow
Agent in accordance with this Agreement. None of the Company Stockholders will
be entitled to assign their rights to the Escrow Cash. The Escrow Agent will
have no responsibility for determining or enforcing compliance with this Section
2(e), except that the Escrow Agent will retain possession of the Escrow Cash.
(f) Power to Transfer Escrow Cash. The Escrow Agent is hereby
granted the power to effect any transfer of Escrow Cash contemplated by this
Agreement.
3. CONTENTS OF NOTICE OF CLAIM.
(a) Each Notice of Claim by Parent given pursuant to Section 1(c)
will contain the following information:
(i) Parent's good faith estimate of the reasonably foreseeable
maximum amount of the alleged Damages arising from or relating to such Claim
(which amount may be the amount of damages claimed by a third party in a
Third-Party Claim brought against any Parent Indemnitee based on alleged facts,
which if true, would give rise to Liability for Damages to such party under
Article VIII of the Merger Agreement); and
(ii) a brief description, in reasonable detail (to the extent
reasonably available to Parent), of the facts, circumstances or events giving
rise to the alleged Damages based on Parent's good faith belief thereof,
including the identity and address of any third-party claimant (to the extent
reasonably available to Parent) and copies of any formal demand or complaint.
(b) The Escrow Agent will not transfer any of the Escrow Cash held
in the Escrow Account to Parent pursuant to a Notice of Claim until such Notice
of Claim has been resolved in accordance with Section 4.
4. RESOLUTION OF CLAIMS. Any Notice of Claim received by the
Representatives and the Escrow Agent pursuant to Section 1(c) and Section 3 will
be resolved as follows:
(a) Uncontested Claims. In the event that, within forty-five
calendar days after a Notice of Claim is received by the Representatives and the
Escrow Agent pursuant to Section 1(c) and Section 3(a), the Representatives do
not contest such Notice of Claim in writing to Parent as provided in Section
4(b) (an "UNCONTESTED CLAIM"), the Representatives will be conclusively deemed
to have consented to the recovery by Parent of the full amount of Damages
specified in the Notice of Claim in accordance with Article VIII of the Merger
Agreement (subject to the limitations on the Company Stockholders' liability set
forth in Section 1(f)), including the forfeiture of the Escrow Cash withheld and
retained by the Escrow Agent pursuant to the terms of this Agreement and,
without further notice, to have stipulated to the entry of a final judgment for
damages against the Company Stockholders for such amount in the Superior Court
for the County of Santa Clara, the United States District Court for the Northern
District of California or any other court having jurisdiction over the matter
where venue is proper. With
4
respect to any Uncontested Claim, on the forty-sixth calendar day after the
receipt of the Notice of Claim, the Escrow Agent will: (i) immediately release
from escrow and transfer to Parent that amount of Escrow Cash relating to such
Uncontested Claim, which amount of Escrow Cash will be taken from and forfeited
by each of the Company Stockholders in proportion to such Company Stockholder's
respective percentage interest in the Escrow Cash as set forth on Exhibit B; and
(ii) notify the Representatives in writing of such transfer and forfeiture of
Escrow Cash as promptly as reasonably practicable
(b) Contested Claims. In the event that the Representatives give
Parent and the Escrow Agent written notice contesting all or any portion of a
Notice of Claim (a "CONTESTED CLAIM") within the forty-five-day period specified
in Section 4(a), then such Contested Claim will be resolved by either (i) a
written settlement agreement executed by Parent and the Representatives or (ii)
in the absence of such a written settlement agreement, by binding arbitration
between the Representatives and Parent in accordance with the terms and
provisions of Section 4(c).
(c) Arbitration of Contested Claims. Each of Parent and the
Representatives agrees that any Contested Claim that is not resolved in
accordance with Section 4(b)(i) will be submitted to mandatory, final and
binding arbitration before J.A.M.S./ENDISPUTE or its successor ("J.A.M.S."),
pursuant to the United States Arbitration Act, 9 U.S.C., Section 1 et seq. and
that any such arbitration will be conducted in Santa Clara County, California.
In the event J.A.M.S. ceases to provide arbitration service, then the term
"J.A.M.S" will thereafter mean and refer to the American Arbitration Association
("AAA"). Either Parent or the Representatives may commence the arbitration
process called for by this Agreement by filing a written demand for arbitration
with J.A.M.S. and giving a copy of such demand to each of the other parties to
this Agreement. The arbitration will be conducted in accordance with the
provisions of J.A.M.S' Streamlined Arbitration Rules and Procedures in effect at
the time of filing of the demand for arbitration (or, if J.A.M.S. then means the
AAA, the commercial arbitration rules of the AAA then in effect), subject to the
provisions of Section 4(c) of this Agreement. The parties will cooperate with
J.A.M.S. and with each other in promptly selecting a single arbitrator from
J.A.M.S.' panel of neutrals, and in scheduling the arbitration proceedings in
order to fulfill the provisions, purposes and intent of this Agreement. The
parties covenant that they will participate in the arbitration in good faith,
and that they will share in its costs in accordance with subparagraph (i) below.
The provisions of this Section 4(c) may be enforced by any court of competent
jurisdiction. Subject to the provisions of subparagraph (vii) below, judgment
upon the Final Award (as defined below) or any other final finding rendered by
the arbitrator in the arbitration may be entered in any court having competent
jurisdiction.
(i) Payment of Costs. Parent will bear all of the expense of
deposits and advances required by the arbitrator, but either party may advance
such amounts, subject to recovery as an addition or offset to any award. The
arbitrator will determine in the Final Award the party who is the prevailing
party (the "PREVAILING PARTY") and the party who is not the Prevailing Party
(the "NON-PREVAILING PARTY"). The Non-Prevailing Party will pay all reasonable
costs, fees and expenses related to the arbitration, including reasonable fees
and expenses of attorneys, accountants and other professionals incurred by the
Prevailing Party, the fees of each arbitrator and the administrative fee of the
arbitration proceedings. If such an award would result in manifest injustice,
however, the arbitrator may apportion such costs, fees and expenses between the
parties in such a manner as the arbitrator deems just and equitable.
5
(ii) Burden of Proof. Except as may be otherwise expressly
provided herein, for any Contested Claim submitted to arbitration, the burden of
proof will be as it would be if the claim were litigated in a judicial
proceeding governed exclusively by the internal laws of the State of California
applicable to contracts executed and entered into within the State of
California, without regard to the principles of choice of law or conflicts of
law of any jurisdiction.
(iii) Award. Upon the conclusion of any arbitration proceedings
hereunder, the arbitrator will render findings of fact and conclusions of law
and a final written arbitration award setting forth the basis and reasons for
any decision reached (the "FINAL AWARD") and will deliver such documents to the
Escrow Agent, the Representatives and Parent, together with a signed copy of the
Final Award. Subject to the provisions of subparagraph (vii) below, the Final
Award will constitute a conclusive determination of all issues in question,
binding upon the Representatives and Parent, and will include an affirmative
statement to such effect. To the extent that the Final Award determines that
Parent or any other Parent Indemnitee has actually incurred Damages in
connection with the Contested Claim through the date of the Final Award
("INCURRED DAMAGES"), the Final Award will set forth and award to Parent the
amount of such Incurred Damages. In addition, the Final Award will set forth and
award to Parent an additional amount of Damages equal to the reasonably
foreseeable amount of alleged Damages that the arbitrator determines (based on
the evidence submitted by the parties in the arbitration) are reasonably likely
to be incurred by Parent and any other Parent Indemnitee as a result of the
facts giving rise to the Contested Claim ("ESTIMATED DAMAGES"), which amount of
Estimated Damages may include the amount of damages claimed by a third party in
an action brought against any Parent Indemnitee based on alleged facts which, if
true, would give rise to Damages.
(iv) Timing. The Representatives, Parent and the arbitrator will
conclude each arbitration pursuant to this Section 4 as promptly as possible for
the Contested Claim being arbitrated.
(v) Terms of Arbitration. The arbitrator chosen in accordance
with these provisions will not have the power to alter, amend or otherwise
affect the terms of these arbitration provisions or any other provision of this
Agreement or the Merger Agreement.
(vi) Exclusive Remedy. Following the Effective Time, except as
specifically otherwise provided in this Agreement, arbitration conducted in
accordance with this Agreement will be the sole and exclusive remedy of the
parties for any Claim made pursuant to Article VIII of the Merger Agreement,
other than any Claim arising from or relating to the fraud, willful
misrepresentation or willful misconduct of Parent, Company, Sub or the Company
Stockholders.
(vii) Treatment of Damages. Upon issuance and delivery of the
Final Award as provided in subparagraph 4(c)(iii) above, Parent will immediately
be entitled to recover as provided in subparagraph 4(e) below the amount of any
Incurred Damages determined and awarded to Parent under such Final Award and the
amount of Estimated Damages determined and awarded under such Final Award, and
such Incurred Damages and such Estimated Damages will be deemed to be owed to
Parent for purposes of this Agreement. Both Incurred Damages and Estimated
Damages owed to Parent Indemnitees are deemed to be Damages for purposes of this
Agreement.
6
(d) Settled Claims. If a Claim (including a Contested Claim) is
settled by a written settlement agreement executed by the Representatives and
Parent (a "SETTLED CLAIM"), then the parties will resolve such Settled Claim as
provided in such settlement agreement and the Representatives and Parent will
promptly deliver such executed settlement agreement to the Escrow Agent together
with written instructions executed by both Parent and the Representatives to the
Escrow Agent ("SETTLEMENT INSTRUCTIONS"). The Settlement Instructions will, in
accordance with and subject to the terms of the written settlement agreement,
instruct the Escrow Agent either: (i) to release a stated amount of Escrow Cash
to Parent pursuant to such settlement agreement; and/or (ii) that no action need
be taken by the Escrow Agent with respect to such Claim. Upon its receipt of
such settlement agreement and Settlement Instructions instructing the Escrow
Agent to release Escrow Cash to Parent, the Escrow Agent will: (i) immediately
release from escrow and transfer to Parent that amount of Escrow Cash that
Parent and the Representatives have agreed will be transferred and forfeited by
the Company Stockholders in such Settlement Instructions, which transferred and
forfeited Escrow Cash will be taken from and forfeited by each of the Company
Stockholders in proportion to such Company Stockholder's respective percentage
interest in the Escrow Cash as set forth on Exhibit B; and (ii) notify the
Representatives in writing of such transfer and forfeiture of Escrow Cash as
promptly as reasonably practicable.
(e) Payment of Damages. Any Incurred Damages and Estimated Damages
that has been awarded to Parent and/or any other Parent Indemnitee pursuant to a
Final Award of an arbitration conducted pursuant to this Section 4 (all such
Incurred Damages, Estimated Damages and Uncontested Claims are hereinafter
referred to as "AWARDED DAMAGES") will be paid as follows. The Escrow Agent
will: (i) immediately release from escrow and transfer to Parent that amount of
Escrow Cash equal to the Awarded Damages, which amount will be taken from and
forfeited by each of the Company Stockholders in proportion to such Company
Stockholder's respective percentage interest in the Escrow Cash as set forth on
Exhibit B; and (ii) notify the Representatives in writing of such transfer and
forfeiture of Escrow Cash as promptly as reasonably practicable.
(f) Multiple Claims Permitted. The assertion of any single Claim for
indemnification hereunder will not bar Parent from asserting any other Claims
hereunder.
5. LIMITATION OF ESCROW AGENT'S LIABILITY.
(a) Limitation of Liability. The Escrow Agent will incur no
liability with respect to any action taken or suffered by it in reliance upon
any notice, direction, instruction, consent, statement or other document
believed by it to be genuine and duly authorized, nor for any other action or
inaction, except its own willful misconduct, fraud or gross negligence. The
Escrow Agent will have no duty to inquire into or investigate the validity,
accuracy or content of any document delivered to it. The Escrow Agent will not
be responsible for the validity or sufficiency of this Agreement. In all
questions arising under this Agreement, the Escrow Agent may rely on the advice
or opinion of counsel, and for anything done, omitted or suffered in good faith
by the Escrow Agent based on such advice, the Escrow Agent will not be liable to
anyone. The Escrow Agent will not be required to take any action hereunder
involving any expense unless the payment of such expense is made or provided for
in a manner satisfactory to it. The Escrow Agent will have no duties or
responsibilities other than those expressly set forth in this Agreement and the
implied duty of good faith and fair dealing.
7
(b) Resolution of Conflicting Demands. In the event conflicting
demands are made or conflicting notices are served upon the Escrow Agent with
respect to the Escrow Account, the Escrow Agent will have the absolute right, at
the Escrow Agent's election, to do either or both of the following: (i) resign
so a successor escrow agent can be appointed pursuant to Section 10; (ii) file a
suit in interpleader and obtain an order from a court of competent jurisdiction
requiring the parties to interplead and litigate in such court their several
claims and rights among themselves; or (iii) give written notice to the other
parties that it has received conflicting instructions from Parent and the
Representatives and is refraining from taking action until it receives
instructions consented to in writing by both Parent and the Representatives. In
the event an interpleader suit as described in clause (ii) above is brought, the
Escrow Agent will thereby be fully released and discharged from all further
obligations imposed upon it under this Agreement with respect to the matters
that are the subject of such interpleader suit, and Parent will pay the Escrow
Agent all costs, expenses and reasonable attorneys' fees expended or incurred by
the Escrow Agent pursuant to the exercise of Escrow Agent's rights under this
Section 5(b) (such costs, fees and expenses will be treated as extraordinary
fees and expenses for the purposes of Section 9), and one-half of such costs,
expenses and fees paid by Parent will reduce the Escrow Cash attributable to the
Company Stockholders, on a pro rata basis in accordance with their percentage
interests in the Escrow Cash as set forth in Exhibit B.
(c) Indemnification. Each party to this Agreement other than the
Escrow Agent (each an "INDEMNIFYING PARTY" and together the "INDEMNIFYING
PARTIES"), hereby jointly and severally covenants and agrees to reimburse,
indemnify and hold harmless Escrow Agent, the Escrow Agent's officers,
directors, employees, counsel and agents (severally and collectively, "ESCROW
AGENT"), from and against any loss, damage, liability or loss suffered, incurred
by, or asserted against Escrow Agent (including amounts paid in settlement of
any action, suit, proceeding, or claim brought or threatened to be brought and
including reasonable expenses of legal counsel) arising out of, in connection
with or based upon, any act or omission by Escrow Agent (not involving gross
negligence, willful misconduct or fraud on Escrow Agent's part) relating in any
way to this Agreement or the Escrow Agent's services hereunder. The aggregate
liability of Parent and the Company Stockholders to the Escrow Agent under this
indemnity will be limited to the Escrow Cash then in escrow hereunder. Anything
in this Agreement to the contrary notwithstanding, in no event will the Escrow
Agent be liable for special, indirect or consequential loss or damages of any
kind whatsoever (including but not limited to lost profits), even if the Escrow
Agent has been advised of the likelihood of such loss or damages and regardless
of the form of action. Any Indemnifying Party who reimburses or indemnifies the
Escrow Agent pursuant to this Section 5(c) will have a right to seek
contribution from any and all other Indemnifying Parties according to their
relative fault.
(d) Defense. Each Indemnifying Party may participate at its own
expense in the defense of any claim or action that may be asserted against
Escrow Agent, and if an Indemnifying Party so elects, such Indemnifying Party
may assume the defense of such claim or action; provided, however, that if there
exists a conflict of interest that would make it inappropriate, in the sole
discretion of the Escrow Agent, for the same counsel to represent both Escrow
Agent and any Indemnifying Party, Escrow Agent's retention of separate counsel
will be reimbursable as provided in Section 5(b). Escrow Agent's right to
indemnification hereunder will survive Escrow Agent's resignation or removal as
Escrow Agent and will survive the termination of this Agreement by lapse of time
or otherwise.
8
(e) Notice to Indemnifying Parties. The Escrow Agent will notify
each Indemnifying Party by letter, or by telephone or telecopy confirmed by
letter, of any receipt by Escrow Agent of a written assertion of a claim against
Escrow Agent, or any action commenced against Escrow Agent, for which
indemnification is required under Section 5(c), within ten (10) days after
Escrow Agent's receipt of written notice of such claim. The Indemnifying Parties
will be relieved of their indemnification obligations under this Section 5 if
Escrow Agent fails to timely give such notice and such failure materially and
adversely affects the Indemnifying Parties' ability to defend such claim.
However, Escrow Agent's failure to so notify each Indemnifying Party will not
operate in any manner whatsoever to relieve an Indemnifying Party from any
liability that it may have otherwise than on account of this Section 5.
(f) Use of Agents. The Escrow Agent may execute any of its powers or
responsibilities hereunder and exercise any rights hereunder either directly or
by or through its agents or attorneys and will be entitled to consult with its
legal counsel, including in-house legal counsel, as to any questions or matters
arising hereunder and the reasonable, good faith written opinion of such legal
counsel will be full and complete authorization and protection to Escrow Agent
in respect of any act or omission by Escrow Agent undertaken in good faith and
in accordance with the opinion of such legal counsel. The Escrow Agent will have
no liability for the conduct of any outside attorneys, accountants or other
similar professionals it retains. Nothing in this Agreement will be deemed to
impose upon Escrow Agent any duty to qualify to do business or to act as a
fiduciary or otherwise in any jurisdiction other than the State of New York.
6. STOCKHOLDERS' REPRESENTATIVES.
(a) Each Company Stockholder approves the designation of and
designates each of Michael Potts and Scott Wylie as representatives of the
Company Stockholders and as the attorneys-in-fact and agents for and on behalf
of each Company Stockholder (the "REPRESENTATIVES") with respect to Claims under
Article VIII of the Merger Agreement and the taking by the Representatives of
any and all actions and the making of any decisions required or permitted to be
taken by the Representatives under this Agreement and the Escrow Agreement,
including the exercise of the power to: (i) authorize the release or delivery to
Parent of the Escrow Cash in satisfaction of Claims of any Parent Indemnitee
pursuant to Article VIII of the Merger Agreement and the Escrow Agent; (ii)
agree to, negotiate, enter into settlements and compromises of, demand
arbitration of and comply with orders of courts and awards of arbitrators with
respect to, such Claims; (iii) arbitrate, resolve, settle or compromise any
Claim made pursuant to Article VIII of the Merger Agreement and the Escrow
Agreement; and (iv) take all actions necessary in the judgment of the
Representatives for the accomplishment of the foregoing. The Representatives
will have authority and power to act on behalf of each Company Stockholder with
respect to the disposition, settlement or other handling of all Claims under
Article VIII of the Merger Agreement and the Escrow Agreement and all rights or
obligations arising under Article VIII of the Merger Agreement and the Escrow
Agreement. The Company Stockholders will be bound by all actions taken and
documents executed by the Representatives in connection with Article VIII of the
Merger Agreement and the Escrow Agreement, and Parent will be entitled to rely
on any action or decision of the Representatives. In performing the functions
specified in this Agreement, the Representatives will not be liable to any
Company Stockholder in the absence of intentional misconduct or fraud on the
part of the Representatives. The Company Stockholders will severally indemnify
the Representatives and hold them harmless against any Liability incurred
without fraud or willful misconduct on the part of the
9
Representatives and arising out of or in connection with the acceptance or
administration of their duties hereunder. Any out-of-pocket costs and expenses
reasonably incurred by the Representatives in connection with actions taken by
the Representatives pursuant to the terms of Article VIII of the Merger
Agreement and the Escrow Agreement (including the hiring of legal counsel and
the incurring of legal fees and costs) will be paid by the Company Stockholders
to the Representatives on a on a pro rata basis in accordance with their
percentage interests in the Escrow Cash as set forth in Exhibit B.
Notwithstanding anything herein to the contrary, each Company Stockholder's
indemnification obligation to the Representatives hereunder will in no event
exceed such Company Stockholder's pro rata share of the Escrow Cash.
(b) In the event that either of the Representatives dies, becomes
unable to perform the responsibilities hereunder or resigns as the
Representatives hereunder, a substitute representative will be appointed by the
holders of a majority of the Escrow Cash to act as the Representatives of the
Company Stockholders hereunder. The Representatives may resign as the
Representatives hereunder, effective upon a new representative being appointed
in writing by Company Stockholders who beneficially own a majority of the Escrow
Cash. In either event described in this Section 6(b), the new Representative(s)
will provide notice to Parent and the Escrow Agent of the occurrence of such
event.
(c) The Representatives will not be entitled to receive any
compensation from Parent or the Company Stockholders in connection with this
Agreement. Any out-of-pocket costs and expenses reasonably incurred by the
Representatives in connection with actions taken pursuant to the terms of this
Agreement will be paid by the Company Stockholders to the Representatives in
proportion to their percentage interests in the Escrow Cash set forth on Exhibit
B.
(d) Each of the Company Stockholders agree to indemnify and hold the
Representatives harmless from and against all loss, liability, damages, cost or
expense (including but not limited to reasonable attorneys' and experts' fees
and court costs) incurred by the Representatives in connection with the
performance of the Representatives' duties and obligations under this Agreement
(other than any loss, liability, damages, cost or expense incurred through acts
or omissions constituting fraud or willful misconduct on the Representatives'
part). The provisions of this Section 6 are independent and severable, will
constitute an irrevocable power of attorney, coupled with an interest and
surviving death, granted by each Company Stockholder to the Representatives and
will be binding upon the executors, heirs, legal representatives and successors
of each Company Stockholder and any references in this Agreement to a
Stockholder will include the successor to the Company Stockholders' rights
hereunder, whether pursuant to testamentary disposition, the laws of descent and
distribution or otherwise.
7. NOTICES. All notices and other communications required or permitted
under this Agreement will be in writing and will be either hand delivered in
person, sent by facsimile, sent by certified or registered first class mail,
postage pre-paid, or sent by nationally recognized express courier service. Such
notices and other communications will be effective upon receipt if hand
delivered or sent by facsimile, three days after mailing if sent by mail, and
one day after dispatch if sent by express courier, to the following addresses,
or such other addresses as any party may notify the other parties in accordance
with this Section 7:
10
(a) If to the Escrow Agent:
American Stock Transfer and Trust Co.
59 Maiden Lane
New York, New York 10038
Attention: Executive Vice President
Phone: (718) 921-8200
Fax: (718) 234-5001
(b) If to Parent:
Intuit Inc.
M/S 2700C
2632 Marine Way
Mountain View, CA 94043
Attention: General Counsel, Legal Dept.
Phone:
Fax: (650) 944-6622
with a copy to:
Fenwick & West LLP
275 Battery, Suite 1500
San Francisco, CA 94111
Attention: Douglas N. Cogen, Esq.
Phone: (415) 875-2300
Fax: (415) 281-1350
(c) If to the Representatives:
Michael Potts
c/o The Flagship Group Inc.
1385 S. Colorado Boulevard, Suite 400
Denver, Colorado 80222
Phone: (303) 756-3030
Fax: (303) 756-3514
Scott Wylie
c/o The Flagship Group Inc.
1385 S. Colorado Boulevard, Suite 400
Denver, Colorado 80222
Phone: (303) 756-3030
Fax: (303) 756-3514
11
with a copy to:
E*Law Group
3555 W. 110th Place
Westminster, Colorado 80031
Attention: Jeremy W. Makarechian, Esq.
Phone: (303) 410-8988
Fax: (303) 410-0468
or to such other address as Parent, the Representatives or the Escrow Agent, as
the case may be, designates in a writing delivered to each of the other parties
hereto in accordance with this Section 7. Notwithstanding the foregoing, notices
and the like addressed to the Escrow Agent will be effective only upon receipt.
The Escrow Agent may assume without inquiry (unless the Escrow Agent has written
notice to the contrary) that notices received by it which are also required to
be delivered to another party have, in fact, been delivered to such other party.
8. GENERAL.
(a) Governing Law. This Agreement will be governed by, and construed
in accordance with, the internal laws of the State of California applicable to
contracts executed and performed entirely within the State of California,
without regard to the principles of choice of law or conflicts or law of any
jurisdiction.
(b) Counterparts. This Agreement may be executed in one or more
counterparts, and by the different parties hereto in separate counterparts, each
of which when executed will be deemed to be an original but all of which taken
together will constitute one and the same agreement.
(c) Entire Agreement. As between Parent and the Representatives,
except as otherwise provided in the Merger Agreement, this Agreement constitutes
the entire understanding and agreement of the parties with respect to the
subject matter of this Agreement and supersedes all prior agreements or
understandings, written or oral, between the parties with respect to the subject
matter hereof. As between the Escrow Agent and the other parties hereto, all
such parties agree that, as set forth in Section 11, the Escrow Agent's duties
are defined only in this Agreement, any contrary provisions of the Merger
Agreement notwithstanding.
(d) Waivers. No waiver by any party hereto of any condition or of
any breach of any provision of this Agreement will be effective unless in
writing. No waiver by any party of any such condition or breach, in any one
instance, will be deemed to be a further or continuing waiver of any such
condition or breach or a waiver of any other condition or breach of any other
provision contained herein.
9. COMPENSATION AND EXPENSES OF ESCROW AGENT. All fees and expenses of
the Escrow Agent incurred in the ordinary course of performing its
responsibilities hereunder will be paid by Parent (and one-half of such fees and
expenses will reduce the Escrow Cash attributable to the Company Stockholders,
on a pro rata basis in accordance with their percentage interests in the Escrow
Cash as set forth in Exhibit B), upon receipt by Parent of a written invoice by
Escrow Agent. Any extraordinary fees and expenses, including without limitation
any fees or expenses
12
(including the fees or expenses of outside counsel to the Escrow Agent) incurred
by the Escrow Agent in connection with a dispute over the distribution of Escrow
Cash or the validity of a Notice of Claim, will be paid by Parent (and one-half
of such fees and expenses will reduce the Escrow Cash attributable to the
Company Stockholders, on a pro rata basis in accordance with their percentage
interests in the Escrow Cash as set forth in Exhibit B) upon receipt of a
written invoice by Escrow Agent. The Escrow Agent will have no duty to solicit
any payments which may be due it hereunder.
10. SUCCESSOR ESCROW AGENT. In the event the Escrow Agent becomes
unavailable or unwilling to continue in its capacity herewith, the Escrow Agent
may resign and be discharged from its duties or obligations hereunder by giving
notice of its resignation to the parties to this Agreement, specifying a date
not less than thirty days following such notice date of when such resignation
will take effect and refunding to the Company Stockholders any prepaid but
unearned fees previously paid by Parent to the Escrow Agent hereunder. Parent
will designate a successor Escrow Agent prior to the expiration of such
thirty-day period by giving written notice to the escrow agent and the
Representatives. Parent may appoint a successor Escrow Agent without the consent
of the Representatives or the Company Stockholders so long as such successor is
a bank which, together with its parent, has assets of at least $100 million, and
may appoint any other successor Escrow Agent with the consent of the
Representatives, which will not be unreasonably withheld. If no successor escrow
agent is named by Parent, the Escrow Agent may apply to a court of competent
jurisdiction for the appointment of a successor Escrow Agent. The Escrow Agent
will promptly transfer the Escrow Cash to such designated successor.
11. LIMITATION OF RESPONSIBILITY. The Escrow Agent's duties are limited
to those set forth in this Agreement, and Escrow Agent, acting as such under
this Agreement, is not charged with knowledge of or any duties or
responsibilities under any other document or agreement, including without
limitation the Merger Agreement. Escrow Agent may execute any of its powers or
responsibilities hereunder and exercise any rights hereunder either directly or
by or through its agents or attorneys. Nothing in this Escrow Agreement will be
deemed to impose upon the Escrow Agent any duty to qualify to do business or to
act as a fiduciary or otherwise in any jurisdiction other than the State of New
York. Escrow Agent will not be responsible for and will not be under a duty to
examine into or pass upon the validity, binding effect, execution or sufficiency
of this Escrow Agreement or of any agreement amendatory or supplemental hereto.
In no event will the Escrow Agent have any duty or obligation to determine or
enforce compliance with the requirements of any agreement or instrument other
than this Agreement (including without limitation the Merger Agreement).
12. FORCE MAJEURE. Neither Parent nor the Company Stockholders nor
Escrow Agent will be responsible for any delays or failures in performance
resulting from acts beyond its control. Such acts will include but not be
limited to acts of God, strikes, lockouts, riots, acts of war, epidemics,
governmental regulations superimposed after the fact, fire, communication line
failures, computer viruses, power failures, earthquakes or other disasters.
13. REPRODUCTION OF DOCUMENTS. This Agreement and all documents relating
thereto, including, without limitation, (a) consents, waivers and modifications
which may hereafter be executed, and (b) certificates and other information
previously or hereafter furnished, may be reproduced by any photographic,
photostatic, microfilm, optical disk, micro-card, miniature photographic or
other similar process. The parties hereto agree that any such reproduction will
be admissible in evidence as the original itself in any judicial or
administrative
13
proceeding, whether or not the original is in existence and whether or not such
reproduction was made by a party in the regular course of business, and that any
enlargement, facsimile or further reproduction will likewise be admissible in
evidence.
14. AMENDMENT. This Agreement may be amended by the written agreement of
Parent, the Escrow Agent and the Representatives; provided that, if the Escrow
Agent does not agree to an amendment agreed upon by Parent and the
Representatives, the Escrow Agent will resign and Parent will appoint a
successor Escrow Agent in accordance with Section 10 above. No amendment of the
Merger Agreement will increase Escrow Agent's responsibilities or liability
hereunder without Escrow Agent's written agreement.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK.]
14
IN WITNESS WHEREOF, the parties have duly executed this Agreement as of
the day and year first above written.
INTUIT INC. AMERICAN STOCK TRANSFER AND TRUST CO.
By: ______________________________ By: _________________________________
Name: ____________________________ Name: _______________________________
Title: ___________________________ Title: ______________________________
REPRESENTATIVES
__________________________________ _____________________________
Michael Potts Scott Wylie
[SIGNATURE PAGE TO ESCROW AGREEMENT]
15
EXHIBIT A
AGREEMENT AND PLAN OF MERGER DATED MAY 6, 2002
EXHIBIT B
COMPANY
STOCKHOLDER'S
COMPANY STOCKHOLDER ESCROW CASH PERCENTAGE INTEREST
------------------- ----------- -------------------
______________________
______________________
______________________
Taxpayer ID#: ________
______________________
______________________
______________________
Taxpayer ID#: ________
______________________
______________________
______________________
Taxpayer ID#: ________
ANNEX I
ANNEX I -- APPRAISAL RIGHTS
SECTION 262 OF THE DELAWARE GENERAL CORPORATION LAW
SEC. 262. APPRAISAL RIGHTS.
(a) Any stockholder of a corporation of this State who holds shares of
stock on the date of the making of a demand pursuant to subsection (d) of this
section with respect to such shares, who continuously holds such shares through
the effective date of the merger or consolidation, who has otherwise complied
with subsection (d) of this section and who has neither voted in favor of the
merger or consolidation nor consented thereto in writing pursuant to Section 228
of this title shall be entitled to an appraisal by the Court of Chancery of the
fair value of the stockholder's shares of stock under the circumstances
described in subsections (b) and (c) of this section. As used in this section,
the word "stockholder" means a holder of record of stock in a stock corporation
and also a member of record of a nonstock corporation; the words "stock" and"
share" mean and include what is ordinarily meant by those words and also
membership or membership interest of a member of a nonstock corporation; and the
words "depository receipt" mean a receipt or other instrument issued by a
depository representing an interest in one or more shares, or fractions thereof,
solely of stock of a corporation, which stock is deposited with the depository.
(b) Appraisal rights shall be available for the shares of any class or
series of stock of a constituent corporation in a merger or consolidation to be
effected pursuant to Section 251 (other than a merger effected pursuant to
Section 251(g) of this title), Section 252, Section 254, Section 257, Section
258, Section 263 or Section 264 of this title:
(1) Provided, however, that no appraisal rights under this
section shall be available for the shares of any class or series of
stock, which stock, or depository receipts in respect thereof, at the
record date fixed to determine the stockholders entitled to receive
notice of and to vote at the meeting of stockholders to act upon the
agreement of merger or consolidation, were either (i) listed on a
national securities exchange or designated as a national market system
security on an interdealer quotation system by the National Association
of Securities Dealers, Inc. or (ii) held of record by more than 2,000
holders; and further provided that no appraisal rights shall be
available for any shares of stock of the constituent corporation
surviving a merger if the merger did not require for its approval the
vote of the stockholders of the surviving corporation as provided in
subsection (f) of Section 251 of this title.
(2) Notwithstanding paragraph (1) of this subsection, appraisal
rights under this section shall be available for the shares of any class
or series of stock of a constituent corporation if the holders thereof
are required by the terms of an agreement of merger or consolidation
pursuant to Sections 251, 252, 254, 257, 258, 263 and 264 of this title
to accept for such stock anything except:
a. Shares of stock of the corporation surviving or
resulting from such merger or consolidation, or depository
receipts in respect thereof;
b. Shares of stock of any other corporation, or depository
receipts in respect thereof, which shares of stock (or depository
receipts in respect thereof) or depository receipts at the
effective date of the merger or consolidation will be either
listed on a national securities exchange or designated as a
national market system security on an interdealer quotation
system by the National Association of Securities Dealers, Inc. or
held of record by more than 2,000 holders;
c. Cash in lieu of fractional shares or fractional
depository receipts described in the foregoing subparagraphs a.
and b. of this paragraph; or
d. Any combination of the shares of stock, depository
receipts and cash in lieu of fractional shares or fractional
depository receipts described in the foregoing subparagraphs a.,
b. and c. of this paragraph.
(3) In the event all of the stock of a subsidiary Delaware
corporation party to a merger effected under Section 253 of this title
is not owned by the parent corporation immediately prior to the merger,
appraisal rights shall be available for the shares of the subsidiary
Delaware corporation.
(c) Any corporation may provide in its certificate of incorporation that
appraisal rights under this section shall be available for the shares of any
class or series of its stock as a result of an amendment to its certificate of
incorporation, any merger or consolidation in which the corporation is a
constituent corporation or the sale of all or substantially all of the assets of
the corporation. If the certificate of incorporation contains such a provision,
the procedures of this section, including those set forth in subsections (d) and
(e) of this section, shall apply as nearly as is practicable.
(d) Appraisal rights shall be perfected as follows:
(1) If a proposed merger or consolidation for which appraisal
rights are provided under this section is to be submitted for approval
at a meeting of stockholders, the corporation, not less than 20 days
prior to the meeting, shall notify each of its stockholders who was such
on the record date for such meeting with respect to shares for which
appraisal rights are available pursuant to subsection (b) or (c) hereof
that appraisal rights are available for any or all of the shares of the
constituent corporations, and shall include in such notice a copy of
this section. Each stockholder electing to demand the appraisal of such
stockholder's shares shall deliver to the corporation, before the taking
of the vote on the merger or consolidation, a written demand for
appraisal of such stockholder's shares. Such demand will be sufficient
if it reasonably informs the corporation of the identity of the
stockholder and that the stockholder intends thereby to demand the
appraisal of such stockholder's shares. A proxy or vote against the
merger or consolidation shall not constitute such a demand. A
stockholder electing to take such action must do so by a separate
written demand as herein provided. Within 10 days after the effective
date of such merger or consolidation, the surviving or resulting
corporation shall notify each stockholder of each constituent
corporation who has complied with this subsection and has not voted in
favor of or consented to the merger or consolidation of the date that
the merger or consolidation has become effective; or
(2) If the merger or consolidation was approved pursuant to
Section 228 or Section 253 of this title, then, either a constituent
corporation before the effective date of the merger or consolidation, or
the surviving or resulting corporation within ten days thereafter, shall
notify each of the holders of any class or series of stock of such
constituent corporation who are entitled to appraisal rights of the
approval of the merger or consolidation and that appraisal rights are
available for any or all shares of such class or series of stock of such
constituent corporation, and shall include in such notice a copy of this
section. Such notice may, and, if given on or after the effective date
of the merger or consolidation, shall, also notify such stockholders of
the effective date of the merger or consolidation. Any stockholder
entitled to appraisal rights may, within 20 days after the date of
mailing of such notice, demand in writing from the surviving or
resulting corporation the appraisal of such holder's shares. Such demand
will be sufficient if it reasonably informs the corporation of the
identity of the stockholder and that the stockholder intends thereby to
demand the appraisal of such holder's shares. If such notice did not
notify stockholders of the effective date of the merger or
consolidation, either (i) each such constituent corporation shall send a
second notice before the effective date of the merger or consolidation
notifying each of the holders of any class or series of stock of such
constituent corporation that are entitled to appraisal rights of the
effective date of the merger or consolidation or (ii) the surviving or
resulting corporation shall send such a second notice to all such
holders on or within 10 days after such effective date; provided,
however, that if such second notice is sent more than 20 days following
the sending of the first notice, such second notice need only be sent to
each stockholder who is entitled to appraisal rights and who has
demanded appraisal of such holder's shares in accordance with this
subsection. An affidavit of the secretary or assistant secretary or of
the transfer agent of the corporation that is required to give either
notice that such notice has been given shall, in the absence of fraud,
be prima facie evidence of the facts stated therein. For purposes of
determining the stockholders entitled to receive either notice, each
constituent corporation may fix, in advance, a record date that shall be
not more than 10 days prior to the date the notice is given, provided,
that if the notice is given on or after the effective date of the merger
or consolidation, the record date shall be such effective date. If no
record date is fixed and the notice is given prior to the effective
date, the record date shall be the close of business on the day next
preceding the day on which the notice is given.
(e) Within 120 days after the effective date of the merger or
consolidation, the surviving or resulting corporation or any stockholder who has
complied with subsections (a) and (d) hereof and who is otherwise entitled
2
to appraisal rights, may file a petition in the Court of Chancery demanding a
determination of the value of the stock of all such stockholders.
Notwithstanding the foregoing, at any time within 60 days after the effective
date of the merger or consolidation, any stockholder shall have the right to
withdraw such stockholder's demand for appraisal and to accept the terms offered
upon the merger or consolidation. Within 120 days after the effective date of
the merger or consolidation, any stockholder who has complied with the
requirements of subsections (a) and (d) hereof, upon written request, shall be
entitled to receive from the corporation surviving the merger or resulting from
the consolidation a statement setting forth the aggregate number of shares not
voted in favor of the merger or consolidation and with respect to which demands
for appraisal have been received and the aggregate number of holders of such
shares. Such written statement shall be mailed to the stockholder within 10 days
after such stockholder's written request for such a statement is received by the
surviving or resulting corporation or within 10 days after expiration of the
period for delivery of demands for appraisal under subsection (d) hereof,
whichever is later.
(f) Upon the filing of any such petition by a stockholder, service of a
copy thereof shall be made upon the surviving or resulting corporation, which
shall within 20 days after such service file in the office of the Register in
Chancery in which the petition was filed a duly verified list containing the
names and addresses of all stockholders who have demanded payment for their
shares and with whom agreements as to the value of their shares have not been
reached by the surviving or resulting corporation. If the petition shall be
filed by the surviving or resulting corporation, the petition shall be
accompanied by such a duly verified list. The Register in Chancery, if so
ordered by the Court, shall give notice of the time and place fixed for the
hearing of such petition by registered or certified mail to the surviving or
resulting corporation and to the stockholders shown on the list at the addresses
therein stated. Such notice shall also be given by 1 or more publications at
least 1 week before the day of the hearing, in a newspaper of general
circulation published in the City of Wilmington, Delaware or such publication as
the Court deems advisable. The forms of the notices by mail and by publication
shall be approved by the Court, and the costs thereof shall be borne by the
surviving or resulting corporation.
(g) At the hearing on such petition, the Court shall determine the
stockholders who have complied with this section and who have become entitled to
appraisal rights. The Court may require the stockholders who have demanded an
appraisal for their shares and who hold stock represented by certificates to
submit their certificates of stock to the Register in Chancery for notation
thereon of the pendency of the appraisal proceedings; and if any stockholder
fails to comply with such direction, the Court may dismiss the proceedings as to
such stockholder.
(h) After determining the stockholders entitled to an appraisal, the
Court shall appraise the shares, determining their fair value exclusive of any
element of value arising from the accomplishment or expectation of the merger or
consolidation, together with a fair rate of interest, if any, to be paid upon
the amount determined to be the fair value. In determining such fair value, the
Court shall take into account all relevant factors. In determining the fair rate
of interest, the Court may consider all relevant factors, including the rate of
interest which the surviving or resulting corporation would have had to pay to
borrow money during the pendency of the proceeding. Upon application by the
surviving or resulting corporation or by any stockholder entitled to participate
in the appraisal proceeding, the Court may, in its discretion, permit discovery
or other pretrial proceedings and may proceed to trial upon the appraisal prior
to the final determination of the stockholder entitled to an appraisal. Any
stockholder whose name appears on the list filed by the surviving or resulting
corporation pursuant to subsection (f) of this section and who has submitted
such stockholder's certificates of stock to the Register in Chancery, if such is
required, may participate fully in all proceedings until it is finally
determined that such stockholder is not entitled to appraisal rights under this
section.
(i) The Court shall direct the payment of the fair value of the shares,
together with interest, if any, by the surviving or resulting corporation to the
stockholders entitled thereto. Interest may be simple or compound, as the Court
may direct. Payment shall be so made to each such stockholder, in the case of
holders of uncertificated stock forthwith, and the case of holders of shares
represented by certificates upon the surrender to the corporation of the
certificates representing such stock. The Court's decree may be enforced as
other decrees in the Court of Chancery may be enforced, whether such surviving
or resulting corporation be a corporation of this State or of any state.
(j) The costs of the proceeding may be determined by the Court and taxed
upon the parties as the Court deems equitable in the circumstances. Upon
application of a stockholder, the Court may order all or a portion of the
expenses incurred by any stockholder in connection with the appraisal
proceeding, including, without limitation,
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reasonable attorney's fees and the fees and expenses of experts, to be charged
pro rata against the value of all the shares entitled to an appraisal.
(k) From and after the effective date of the merger or consolidation, no
stockholder who has demanded appraisal rights as provided in subsection (d) of
this section shall be entitled to vote such stock for any purpose or to receive
payment of dividends or other distributions on the stock (except dividends or
other distributions payable to stockholders of record at a date which is prior
to the effective date of the merger or consolidation); provided, however, that
if no petition for an appraisal shall be filed within the time provided in
subsection (e) of this section, or if such stockholder shall deliver to the
surviving or resulting corporation a written withdrawal of such stockholder's
demand for an appraisal and an acceptance of the merger or consolidation, either
within 60 days after the effective date of the merger or consolidation as
provided in subsection (e) of this section or thereafter with the written
approval of the corporation, then the right of such stockholder to an appraisal
shall cease. Notwithstanding the foregoing, no appraisal proceeding in the Court
of Chancery shall be dismissed as to any stockholder without the approval of the
Court, and such approval may be conditioned upon such terms as the Court deems
just.
(l) The shares of the surviving or resulting corporation to which the
shares of such objecting stockholders would have been converted had they
assented to the merger or consolidation shall have the status of authorized and
unissued shares of the surviving or resulting corporation.
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