CONFIDENTIAL, FOR USE OF THE COMMISSION ONLY
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934
Filed by the Registrant /X/
Filed by a Party other than the Registrant / /
Check the appropriate box:
/X/ Preliminary Proxy Statement
/ / Confidential, for Use of the Commission
Only (as permitted by Rule 14a-6(e)(2))
/ / Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
Loronix Information Systems, Inc.
---------------------------------------------------
(Name of Registrant as Specified In Its Charter)
----------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
/ / No fee required.
/X/ Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and
0-11.
(1) Title of each class of securities to which transaction
applies: Common Stock
(2) Aggregate number of securities to which transaction applies:
5,157,288 Loronix shares outstanding
(3) Per unit price or other underlying value of transaction
computed pursuant to Exchange Act Rule 0-11 (set forth the
amount on which the filing fee is calculated and state how it
was determined): $30.28125
(4) Proposed maximum aggregate value of transaction:
$156,169,127.25 (FOR FILING FEE ONLY)
(5) Total fee paid: $31,233.83
/ / Fee paid previously with preliminary materials:
/ / Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration
statement number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
[LORONIX INFORMATION SYSTEMS, INC. LOGO]
A MERGER PROPOSAL -- YOUR VOTE IS VERY IMPORTANT
TO THE STOCKHOLDERS OF LORONIX INFORMATION SYSTEMS, INC.:
On March 6, 2000, Loronix Information Systems, Inc.'s board of directors
approved a merger agreement by and among Comverse Technology, Inc., Comverse
Acquisition Corp., a direct, wholly-owned subsidiary of Comverse, and Loronix.
The merger agreement provides for the merger of Comverse Acquisition with and
into Loronix, with Loronix being the surviving corporation and a direct,
wholly-owned subsidiary of Comverse following the merger.
In the merger, each share of your Loronix common stock, and all associated
rights under the Loronix Preferred Shares Rights Agreement, will be exchanged
for 0.385 shares of Comverse common stock. Comverse common stock is listed on
the Nasdaq National Market under the trading symbol "CMVT."
The merger cannot be completed unless the holders of a majority of Loronix
common stock entitled to vote approve the merger agreement. We have picked _____
___, 2000, as the record date for voting on the merger. Only stockholders who
were holders of Loronix common stock at the close of business on _____ ___,
2000, will be entitled to vote at the special meeting.
AFTER CAREFUL CONSIDERATION, YOUR BOARD OF DIRECTORS DETERMINED THE MERGER
TO BE ADVISABLE AND FAIR TO YOU AND IN YOUR BEST INTERESTS. YOUR BOARD OF
DIRECTORS ADOPTED THE MERGER AGREEMENT AND RECOMMENDS THAT YOU VOTE TO APPROVE
IT.
This proxy statement/prospectus provides you with detailed information
concerning Comverse and the proposed merger. Please give all of the information
contained in this proxy statement/prospectus your careful attention. IN
PARTICULAR, YOU SHOULD CAREFULLY CONSIDER THE DISCUSSION IN THE SECTION OF THIS
PROXY STATEMENT/PROSPECTUS ENTITLED "RISK FACTORS" BEGINNING ON PAGE 18.
Please use this opportunity to take part in the affairs of Loronix by
voting on the approval of the merger agreement. Whether or not you plan to
attend the meeting, please complete, sign, date and return the accompanying
proxy in the enclosed self-addressed, stamped envelope. Returning the proxy does
NOT deprive you of your right to attend the meeting and to vote your shares in
person. YOUR VOTE IS VERY IMPORTANT.
We appreciate your interest in Loronix and consideration of this matter.
/s/ David Ledwell
--------------------------------------------------
David Ledwell, President, Chief Executive Officer,
and Member of the board of directors
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THE SHARES OF COMVERSE COMMON STOCK TO
BE ISSUED IN CONNECTION WITH THE MERGER OR DETERMINED WHETHER THIS PROXY
STATEMENT/PROSPECTUS IS ADEQUATE OR ACCURATE. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE. This proxy statement/prospectus is dated ___________, and
was first mailed to stockholders on or about _______, 2000.
Loronix Information 820 Airport Road, Telephone: (970) 259-6161
Systems, Inc Durango, Colorado 81301 Facsimile: (970) 259-9399
LORONIX INFORMATION SYSTEMS, INC.
820 AIRPORT ROAD
DURANGO, CO 81301
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
Date: _______, 2000
Time: _____ a.m.
Place: _______________
_______________
Durango, CO 81301
-----------------
At the meeting you will be asked:
1. To consider and vote upon a proposal to approve the Agreement
and Plan of Merger, dated as of March 5, 2000, by and among Comverse Technology,
Inc., Comverse Acquisition Corp., a direct, wholly-owned subsidiary of Comverse,
and Loronix, pursuant to which Comverse Acquisition will merge with and into
Loronix and Loronix will survive the merger as a direct, wholly-owned subsidiary
of Comverse. In the merger, holders of outstanding shares of Loronix common
stock, $0.001 par value per share, will receive 0.385 shares of Comverse common
stock, $0.10 par value per share, for each share of Loronix common stock they
hold, together with all associated rights under the Loronix Preferred Shares
Rights Agreement. Approval of the merger agreement will also constitute approval
of the merger and the other transactions contemplated by the merger agreement.
2. To transact such other business as may properly come before
the special meeting or any adjournment of the special meeting.
The attached proxy statement/prospectus contains a more complete
description of these items of business. Only holders of record of Loronix common
stock at the close of business on _____ ___, 2000, the record date, are entitled
to vote on the matters listed in this notice of special meeting. You may vote in
person at the Loronix special meeting even if you have returned a proxy.
By Order of the board of
directors of Loronix
Information Systems, Inc.
/s/ Jonathan Lupia
----------------------------------------
Jonathan Lupia, Chief Operating Officer,
Chief Financial Officer and Secretary
Durango, Colorado. ________ __, 2000
TO ASSURE THAT YOUR SHARES ARE REPRESENTED AT THE MEETING, AND WHETHER
OR NOT YOU PLAN TO ATTEND, PLEASE COMPLETE, DATE AND SIGN THE ENCLOSED PROXY AND
MAIL IT PROMPTLY IN THE PRE-ADDRESSED, POSTAGE PREPAID ENVELOPE PROVIDED. YOU
CAN REVOKE YOUR PROXY AT ANY TIME BEFORE IT IS VOTED.
TABLE OF CONTENTS
PAGE
WHERE YOU CAN FIND MORE INFORMATION...................................................................................1
QUESTIONS AND ANSWERS ABOUT THE MERGER................................................................................3
SUMMARY...............................................................................................................5
SELECTED HISTORICAL FINANCIAL DATA...................................................................................11
COMPARATIVE PER SHARE DATA...........................................................................................14
COMPARATIVE PER SHARE MARKET PRICE DATA..............................................................................16
RISK FACTORS.........................................................................................................18
THE SPECIAL MEETING..................................................................................................26
Date, Time, Place and Purpose of the Special Meeting........................................................26
Stockholder Record Date for the Special Meeting and Outstanding Shares......................................26
Vote of Loronix Stockholders Required for Approval of the Merger............................................26
Proxies.....................................................................................................26
Proxy Solicitation..........................................................................................27
Availability of Accountants.................................................................................28
THE MERGER AND RELATED TRANSACTIONS..................................................................................29
Background of the Merger....................................................................................29
Loronix's Reasons for the Merger............................................................................32
Recommendation of Loronix's Board of Directors..............................................................35
Opinion of Loronix's Financial Advisor......................................................................35
Interests of Certain Loronix Directors, Officers and Affiliates in the Merger...............................45
Completion and Effectiveness of the Merger..................................................................46
United States Federal Income Tax Considerations of the Merger...............................................47
Accounting Treatment of the Merger..........................................................................49
Regulatory Filings and Approvals Required to Complete the Merger............................................49
Restrictions on Sales of Shares by Affiliates of Loronix and Comverse.......................................49
Listing on the Nasdaq National Market of Comverse Common Stock to be Issued in the Merger...................50
Dissenters'Rights of Appraisal..............................................................................50
De-Listing and De-Registration of Loronix Common Stock after the Merger.....................................50
Dividend Policy.............................................................................................50
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TABLE OF CONTENTS
(CONTINUED)
PAGE
THE MERGER AGREEMENT AND RELATED AGREEMENTS..........................................................................51
The Merger..................................................................................................51
Merger Consideration........................................................................................51
Exchange of Shares..........................................................................................52
Treatment of Loronix Options................................................................................52
Conditions to Completion of the Merger......................................................................52
Representations and Warranties..............................................................................54
Covenants...................................................................................................55
Additional Agreements.......................................................................................58
No-Shop Provisions..........................................................................................58
Waiver and Amendment of the Merger Agreement................................................................58
Termination of the Merger Agreement.........................................................................58
Payment of Termination Fee and Expenses.....................................................................59
The Stock Option Agreement..................................................................................60
Voting Agreements...........................................................................................63
Affiliate Agreements........................................................................................63
Amendment to the Preferred Shares Rights Agreement..........................................................63
Operations after the Merger.................................................................................64
UNAUDITED PRO FORMA FINANCIAL INFORMATION............................................................................65
COMPARISON OF RIGHTS OF HOLDERS OF LORONIX COMMON STOCK AND HOLDERS OF COMVERSE COMMON STOCK.........................71
SHARE OWNERSHIP BY PRINCIPAL STOCKHOLDERS, MANAGEMENT AND DIRECTORS OF LORONIX.......................................80
LEGAL MATTERS........................................................................................................82
EXPERTS..............................................................................................................83
STOCKHOLDER PROPOSALS IF THE MERGER IS NOT COMPLETED.................................................................84
ADDITIONAL STATEMENTS................................................................................................85
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION...........................................................86
Annex A - Copy of Agreement and Plan of Merger......................................................................A-1
Annex B - Copy of Stock Option Agreement............................................................................B-1
Annex C - Form of Voting Agreement..................................................................................C-1
Annex D - Copy of Opinion of Broadview International LLC ...........................................................D-1
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WHERE YOU CAN FIND MORE INFORMATION
THIS PROXY STATEMENT/PROSPECTUS INCORPORATES DOCUMENTS BY REFERENCE
WHICH ARE NOT PRESENTED IN OR DELIVERED WITH THIS PROXY STATEMENT/PROSPECTUS.
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS DOCUMENT OR
THAT COMVERSE OR LORONIX HAVE REFERRED TO. NEITHER COMVERSE NOR LORONIX HAS
AUTHORIZED ANYONE TO PROVIDE YOU WITH INFORMATION THAT IS DIFFERENT.
All documents filed by Comverse or Loronix pursuant to Section 13(a),
13(c), 14 or 15(d) of the Securities Exchange Act of 1934, as amended, after the
date of this proxy statement/prospectus and before the date of the special
meeting are incorporated by reference into and deemed to be a part of this proxy
statement/prospectus from the date of filing of those documents.
The following documents, which were filed by Loronix with the Securities
and Exchange Commission, are incorporated by reference into this proxy
statement/prospectus:
- Loronix's Annual Report on Form 10-KSB for the fiscal year ended
December 31, 1999.
The following documents, which have been filed by Comverse with the
Securities and Exchange Commission, are incorporated by reference into this
proxy statement/prospectus:
- Comverse's Description of its common stock contained in its
registration statement on Form 8-A filed with the SEC on March 17,
1987, as amended.
- Comverse's Annual Report on Form 10-K for the year ended January
31, 2000.
Any statement contained in a document incorporated or deemed to be
incorporated by reference into this proxy statement/prospectus will be deemed to
be modified or superseded for purposes of this proxy statement/prospectus to the
extent that a statement contained in this proxy statement/prospectus or any
other subsequently filed document that is deemed to be incorporated by reference
into this proxy statement/prospectus modifies or supersedes the statement. Any
statement so modified or superseded will not be deemed, except as so modified or
superseded, to constitute a part of this proxy statement/prospectus.
-1-
The documents incorporated by reference into this proxy
statement/prospectus are available from Comverse or Loronix upon request and
copies of any and all of the information that is incorporated by reference in
this proxy statement/prospectus, not including exhibits to the information
unless those exhibits are specifically incorporated by reference into this proxy
statement/prospectus, will be provided to any person without charge, upon
written or oral request. ANY REQUEST FOR DOCUMENTS SHOULD BE MADE BY ______,
2000, TO ENSURE TIMELY DELIVERY OF THE DOCUMENTS REQUESTED.
Requests for documents relating to Requests for documents relating to
Loronix should be directed to: Converse should be directed to:
Loronix Information Systems, Inc. Comverse Technology, Inc.
820 Airport Road 170 Crossways Park Drive
Durango, Colorado 81301 Woodbury, New York 11797
Attention: Investor Relations Attention: Investor Relations
(970) 259-6161 (516) 677-7200
Both Comverse and Loronix file reports, proxy statements and other
information with the Securities and Exchange Commission. Copies of those
reports, proxy statements and other information may be inspected and copied at
the public reference facilities maintained by the SEC at:
Judiciary Plaza Citicorp Center
Room 1024 500 West Madison Street Seven World Trade Center
450 Fifth Street, N.W. Suite 1400 13th Floor
Washington, D.C. 20549 Chicago, Illinois 60661 New York, New York 10048
Reports, proxy statements and other information concerning both Loronix and
Comverse may also be inspected at The National Association of Securities
Dealers, 1735 K Street, N.W., Washington, D.C. 20006.
Copies of these materials can also be obtained by mail at prescribed rates
from the Public Reference Section of the Securities and Exchange Commission, 450
Fifth Street, N.W., Washington, D.C. 20549 or by calling the SEC at (800)
SEC-0330. The SEC maintains a website that contains reports, proxy statements
and other information regarding each of Comverse and Loronix. The address of the
SEC website is "http://www.sec.gov."
Comverse has filed a registration statement on Form S-4 under the
Securities Act with the SEC with respect to Comverse's common stock to be issued
to Loronix stockholders in the merger. This proxy statement/prospectus
constitutes the prospectus of Comverse filed as part of the registration
statement. This proxy statement/prospectus does not contain all of the
information set forth in the registration statement because parts of the
registration statement are omitted in accordance with the rules and regulations
of the SEC. The registration statement and its exhibits are available for
inspection and copying as set forth above.
If you have any questions about the merger, please call Loronix Investor
Relations at (970) 259-6161. You may also call Comverse Investor Relations at
(516) 677-7200. You may call either investor relations number during normal
business hours at any time before the special meeting to obtain the prior day's
closing market quotations of Loronix common stock and Comverse common stock.
-2-
QUESTIONS AND ANSWERS ABOUT THE MERGER
Q: WHEN AND WHERE IS THE STOCKHOLDER MEETING?
A: The meeting will take place on _____, 2000, in Durango, Colorado. The exact
location for the meeting can be found on page 26.
Q: WHAT DO I NEED TO DO NOW?
A: After carefully reading and considering the information contained in this
document, the attachments to this documents, and the documents referred to in
this document, please fill out, sign and mail your signed proxy card in the
enclosed return envelope as soon as possible so that we may vote your shares at
the special meeting of our stockholders.
In order to assure that we obtain your vote, please give your proxy as
instructed on your proxy card, even if you currently plan to attend the meeting
in person.
Q: WHAT IF I DON'T INDICATE HOW TO VOTE MY PROXY?
A: If you do not include instructions on how to vote your properly signed proxy,
your shares will be voted FOR adoption of the merger agreement and approval of
the merger.
Q: WHAT IF I DON'T RETURN A PROXY CARD?
A: Not returning your proxy card will have the same effect as voting against
the merger.
Q: CAN I CHANGE MY VOTE AFTER I HAVE MAILED MY SIGNED PROXY CARD?
A: Yes. You can change your vote at any time before your proxy is voted at the
special meeting. You can do this in one of three ways. First, you can send a
written notice to our Secretary stating that you would like to revoke your
proxy. Second, you can complete and submit a new proxy card.
Third, you can attend the special meeting, file a written notice of revocation
of your proxy with our Secretary and vote in person. Your attendance alone will
not revoke your proxy.
Q: IF MY SHARES ARE HELD IN "STREET NAME" BY MY BROKER, WILL MY BROKER VOTE MY
SHARES FOR ME?
A: No. Your broker will not be able to vote your shares without instructions
from you. If you do not provide your broker with voting instructions, your
shares will be considered present at the special meeting for purposes of
determining a quorum, but will not be considered to have been voted in favor of
adoption of the merger agreement and will have the same effect as voting against
the merger. If you have instructed a broker to vote your shares, you must follow
directions received from your broker to change those instructions.
Q: SHOULD I SEND IN MY STOCK CERTIFICATES NOW?
A: No. After the merger is completed, Comverse and/or its exchange agent will
send you written instructions for exchanging your stock certificates.
Q: WHAT WILL I RECEIVE IN THE MERGER?
A: If the merger is completed, you will receive 0.385 shares of Comverse common
stock for each share of our common stock that you own. Please note that this is
different than the ratio stated in the merger agreement, since it gives effect
to a two-for-one stock split by Comverse completed on April 3, 2000, after the
date on which Comverse and Loronix entered into the merger agreement.
Comverse will not issue fractional shares of common stock, but will pay you
cash in lieu of fractional shares.
The number of shares of Comverse common stock to be issued for each of our
shares will be fixed. However, if the value of the merger consideration, based
on the average per share
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closing price of Comverse common stock for the five consecutive trading days
ending on the third trading day prior to the effective time of the merger, is
less than $36 per Loronix share, we will have the right to notify Comverse of
our desire to terminate the merger agreement. Comverse will then have the
right to proceed with the merger by increasing the exchange ratio so that the
merger consideration equals $36 per Loronix share. If Comverse does not
increase the exchange ratio, the merger agreement would terminate and we
would have no further obligation to consummate the merger.
If the merger were to become effective on the date of this proxy
statement/prospectus, the merger consideration would be $__ based on the average
per share closing price of Comverse common stock for the five consecutive
trading days ending on ______, 2000, the third trading day prior to the date of
this proxy statement/prospectus.
We do not know whether we will exercise our right to seek to terminate the
merger agreement if the value of the merger consideration is below $36 per
Loronix share. If under these circumstances we do not exercise this right, then
you will receive Comverse common stock valued at less than $36 per Loronix
share.
If we do exercise our right to seek to terminate, we do not know if
Comverse will exercise its right to increase the exchange ratio to adjust the
merger consideration to $36 per Loronix share. If Comverse does not exercise
that right, the merger agreement will terminate.
Your approval of the merger agreement, therefore, will give us discretion
in the event that the consideration to be received is less than $36 per Loronix
share, to seek to terminate the merger and to take the risk that Comverse may or
may not elect to increase the exchange ratio to adjust the merger consideration
to $36 per Loronix share. We will also have the right not to seek to terminate
the merger, in which case you would receive less than $36 per share.
Q: WHEN CAN I EXPECT THE MERGER TO BE COMPLETE?
A: We are working toward completing the merger as quickly as possible. We hope
to complete the merger prior to July 31, 2000.
Q: WILL I RECOGNIZE A GAIN OR LOSS ON THE TRANSACTION?
A: In the opinion of our counsel and Comverse's counsel, the merger will qualify
as a tax-free reorganization for federal income tax purposes. Accordingly, the
exchange of your shares for Comverse shares generally will not cause you to
recognize any gain or loss for federal income tax purposes. You may, however,
have to recognize gain or loss in connection with any cash you receive in lieu
of fractional shares. You should consult with your independent tax adviser
concerning your particular situation, as well as with regard to state and
foreign laws that might affect you, as a result of the merger.
Q: AM I ENTITLED TO DISSENTERS' RIGHTS OF APPRAISAL?
A: You will not have the right under Nevada law to dissent from the merger,
request an appraisal of the value of your shares, and have them purchased by
Loronix.
Q: WHO CAN HELP ANSWER MY QUESTIONS?
A: You can write or call Loronix's Investor Relations at 820 Airport Road,
Durango, Colorado 81301, telephone (970) 259-6161, with any questions about the
merger or the merger agreement.
-4-
SUMMARY
THIS SUMMARY HIGHLIGHTS SELECTED INFORMATION FROM THIS DOCUMENT AND MAY
NOT CONTAIN ALL OF THE INFORMATION THAT IS IMPORTANT TO YOU. TO UNDERSTAND THE
MERGER MORE FULLY AND FOR A MORE COMPLETE DESCRIPTION OF THE LEGAL TERMS OF THE
MERGER, YOU SHOULD READ THIS DOCUMENT AND THE DOCUMENTS WE HAVE REFERRED YOU TO
CAREFULLY, INCLUDING THE MERGER AGREEMENT, THE STOCK OPTION AGREEMENT, THE FORM
OF VOTING AGREEMENT AND THE FAIRNESS OPINION OF BROADVIEW INTERNATIONAL LLC,
COPIES OF WHICH ARE ATTACHED AS ANNEXES A, B, C AND D. PLEASE SEE THE SECTION OF
THIS PROXY STATEMENT/PROSPECTUS ENTITLED, "WHERE YOU CAN FIND MORE INFORMATION,"
ON PAGE 1.
THE COMPANIES
LORONIX INFORMATION SYSTEMS, INC.
820 Airport Road
Durango, Colorado 81301
(970) 259-6161
Headquartered in Durango, Colorado, Loronix develops, markets, sells and
supports a family of software-based digital video recording and identification
management systems. Loronix is a leading provider of networked digital video
management solutions worldwide with an extensive installed base of
network-enabled digital video recorders.
Loronix was incorporated in Nevada in 1992. Its principal executive offices
are located at 820 Airport Road, Durango, Colorado 81301, and its telephone
number is (970) 259-6161. For additional information relating to Loronix's
business, operations, properties, certain acquisitions and other matters, see
the documents referred to under "Where You Can Find More Information" and
"Incorporation of Certain Documents by Reference."
COMVERSE TECHNOLOGY, INC.
170 Crossways Park Drive
Woodbury, New York 11797
(516) 677-7200
Comverse manufactures and markets systems and software for multimedia
communications and information processing applications. Comverse's products are
used in a broad range of applications by wireless and wireline telephone network
operators, call centers, financial institutions, government agencies and other
public and commercial organizations worldwide. Comverse is a holding company and
substantially all of its operations are conducted through its subsidiaries,
including Comverse Network Systems, Inc., Comverse Infosys, Inc., and Ulticom,
Inc.
Comverse Network Systems is the leading provider of multimedia enhanced
services systems and software, which are currently used by more than 310
wireless and wireline telecommunications network operators. These products
enable its customers to provide value-added enhanced services, such as call
answering, wireless data and Internet-based information services, prepaid
wireless services, mailbox-to-mailbox messaging, Internet-based unified
messaging (voice, fax and e-mail in a single mailbox), interactive voice
response, virtual phone/fax, one-touch call return, personal number service,
call screening/caller introduction, voice-controlled Internet portal and other
speech recognition-based services, Internet messaging, Internet call waiting and
other personal communication services.
Comverse Infosys provides multiple channel, multimedia digital recording,
logging and quality monitoring systems to call centers, financial institutions
and other organizations. Comverse Infosys also provides multiple channel,
multimedia digital monitoring systems to law enforcement and intelligence
agencies.
Ulticom is a provider of network signaling software for wireless, wireline
and Internet
-5-
communications services. Its call control products enable communication
service providers to offer intelligent network services, such as
voice-activated dialing, prepaid calling, caller ID and text messaging.
Comverse was incorporated in New York in October 1984. Its principal
executive offices are located at 170 Crossways Park Drive, Woodbury, New York
11797, and its telephone number is (516) 677-7200. For additional information
relating to Comverse's business, operations, properties, certain acquisitions
and other matters, see the documents referred to under "Where You Can Find More
Information" and "Incorporation of Certain Documents by Reference."
PRINCIPAL REASONS FOR THE MERGER (SEE PAGE 32)
We believe that the merger will represent a significant step forward in
Loronix's strategy of remaining a global leader in digital recording and video
management systems and digital identification products.
We believe that the combination of Loronix's proprietary software and open
architecture product design, together with Comverse's existing capital,
infrastructure, and access to capital, will provide opportunities to realize
significant benefits and long-term value to stockholders.
We believe that by combining with Comverse, Loronix's stockholders will be
afforded substantially increased trading liquidity for their investment.
RECOMMENDATION TO STOCKHOLDERS (SEE PAGE 35)
Our board of directors believes that the merger is advisable and fair to
you and in your best interests and recommends that you vote FOR approval of the
merger agreement.
OPINION OF FINANCIAL ADVISOR (SEE PAGE 35)
Our financial advisor, Broadview International LLC, delivered an opinion to
our board of directors that, as of the date of its opinion, subject to the
considerations described in its opinion, the exchange ratio in the merger
agreement is fair, from a financial point of view, to you. The complete
Broadview opinion is attached as ANNEX D and you are urged to read it in its
entirety.
THE MERGER (SEE PAGE 51)
Under the terms of the proposed merger, a direct, wholly-owned subsidiary
of Comverse, formed for the purpose of the merger, will merge with and into
Loronix with Loronix being the surviving corporation. As a result, we will
become a direct, wholly-owned subsidiary of Comverse. Following the merger, you
will become a shareholder of Comverse.
The merger agreement is attached as ANNEX A to this document. We encourage
you to read the merger agreement as it is the legal document that governs the
merger.
WHAT LORONIX STOCKHOLDERS WILL RECEIVE (SEE PAGE 51)
The merger agreement provides that each share of our common stock
outstanding immediately prior to the effective time of the merger will be
converted into the right to receive 0.385 shares of Comverse common stock, after
giving effect to the two-for-one stock split of Comverse common stock that was
completed on April 3, 2000.
However, if the value of the Comverse shares to be received by you will be
less than $36 per Loronix share, determined by the procedures set forth in the
merger agreement, we will have the right to seek to terminate the agreement and,
subsequently, Comverse will have the right to proceed with the merger by
adjusting the consideration to $36 per share. If Comverse elects to adjust the
consideration, we will not be able to terminate the merger agreement. If
Comverse does not elect to adjust the consideration, the merger agreement will
terminate.
-6-
If the value of the Comverse shares to be received by you will be less than
$36 per Loronix share, we may in our discretion elect not to seek to terminate
the merger, in which case you will receive less than $36 per Loronix share.
At the effective time, each outstanding option granted by us to purchase
shares of our common stock will be assumed by Comverse and converted into an
option to acquire Comverse common stock having the same terms and conditions
that the stock option had before the merger. The number of shares that the new
Comverse option will be exercisable for, and the exercise price of the new
Comverse option, will reflect the same exchange ratio applicable to you in the
merger.
LISTING OF COMVERSE COMMON STOCK (SEE PAGE 50)
All shares of Comverse common stock to be issued to you in connection with
the merger will be listed on the Nasdaq National Market by Comverse at or before
the closing of the merger.
STOCKHOLDER VOTE REQUIRED TO APPROVE THE MERGER (SEE PAGE 26)
The affirmative vote of holders of a majority of the shares of common stock
outstanding on the record date for the special meeting and entitled to vote is
required to approve the merger agreement.
You are entitled to cast one vote per share of Loronix common stock you
owned at the close of trading on _____ ___, 2000, the record date.
You should mail your signed proxy card in the enclosed return envelope as
soon as possible so that your shares of Loronix common stock may be represented
at the special meeting. If you do not include instructions on how to vote your
properly executed proxy, your shares will be voted FOR adoption of the merger
agreement.
If your shares are held in street name, your broker will vote your shares
only if you provide instructions on how to vote by following the information
provided to you by your broker. IF YOU DO NOT PROVIDE YOUR BROKER WITH VOTING
INSTRUCTIONS, YOUR SHARES WILL NOT BE VOTED AT THE LORONIX SPECIAL MEETING,
WHICH WILL HAVE THE SAME EFFECT AS VOTING AGAINST THE APPROVAL OF THE MERGER.
If you should desire to change your vote, just deliver to the Secretary of
Loronix a later-dated, signed proxy card, before the special meeting, or attend
the special meeting in person, revoke your proxy there and vote in person.
DISSENTERS' RIGHTS OF APPRAISAL (SEE PAGE 50)
You will not have the right under Nevada law to dissent from the merger,
request an appraisal of the value of your shares, and have them purchased by
Loronix.
INTERESTS OF CERTAIN PERSONS (SEE PAGE 45)
When considering our board's recommendation that you vote in favor of the
merger, you should be aware that some of Loronix's directors and officers may
have interests in the merger that are different from or in addition to yours.
In connection with the merger, David Ledwell, our President and Chief
Executive Officer, Peter Jankowski, our Chief Technical Officer and Jonathan
Lupia, our Chief Operating Officer, Chief Financial Officer and Secretary,
agreed to enter into employment agreements with Loronix.
Also, following the closing, certain members of the board of directors,
namely C. Rodney Wilger, Donald W. Stevens and Louis Colonna, will continue to
be members of our board of directors through May 2003.
For a limited time following the merger, Ed Jankowski, the Chairman of the
Board, and James Price, a Vice President, will be employees of Loronix.
-7-
As of the record date, directors and executive officers of Loronix and
their affiliates held approximately 21% of the outstanding shares of Loronix
common stock.
ACCOUNTING TREATMENT (SEE PAGE 49)
Comverse and Loronix intend to account for the merger as a
pooling-of-interests business combination, which means that we will treat our
companies as if they had always been combined for accounting and financial
reporting purposes.
MATERIAL FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER (SEE PAGE 47)
In the opinion of our counsel and Comverse's counsel, the merger will
qualify as a tax-free reorganization for federal income tax purposes.
Accordingly, the exchange of your shares for Comverse shares generally will not
cause you to recognize any gain or loss for federal income tax purposes. You
may, however, have to recognize gain or loss in connection with any cash you
receive in lieu of fractional shares. It is a condition to the merger that
Comverse and Loronix receive legal opinions stating that the merger will be
treated for federal income tax purposes as a tax-free reorganization.
CONDITIONS TO COMPLETION OF THE MERGER (SEE PAGE 52)
The completion of the merger depends upon meeting a number of conditions,
including the following:
- - approval and adoption of the merger agreement by our stockholders;
- - receipt of opinions of counsel that the merger will be treated for
federal income tax purposes as a tax-free reorganization; and
- - absence of any law prohibiting the merger.
REGULATORY APPROVALS (SEE PAGE 49)
The merger is subject to antitrust laws. Comverse and we have made the
required filings with the Department of Justice and the Federal Trade Commission
and have been granted early termination of the applicable waiting period, as of
April 14, 2000.
TERMINATION OF THE MERGER AGREEMENT (SEE PAGE 58)
Either Loronix or Comverse can terminate the merger agreement if any of the
following occur:
- - we do not complete the merger by August 31, 2000;
- - you do not approve the merger; or
- - a law or court order permanently prohibits the merger.
We may terminate the merger agreement if any of the following occurs:
- - we have not breached any of the covenants in the merger agreement, we
receive an offer that is superior to the merger with Comverse, and
Comverse, within a specified time period, does not make a counter offer
that is as favorable to you as a Loronix stockholder as the superior
proposal;
- - Comverse breaches any condition, representation or warranty contained in
the merger agreement; or
- - the value of the merger consideration is less than $36 per Loronix share,
we exercise our right to seek to terminate the merger, and Comverse does
not notify us that they intend to adjust the consideration.
Comverse may terminate the merger agreement if any of the following occurs:
- - we enter into a binding agreement with a third party for a superior
proposal;
- - our board breaches its obligation to recommend the merger or modifies
its
-8-
recommendation in a manner adverse to Comverse;
- - any person or group acquires beneficial ownership of at least 15% of
our shares; or
- - we breach any condition, representation or warranty contained in the
merger agreement.
TERMINATION FEES (SEE PAGE 59)
We must pay Comverse a termination fee of $11 million if the merger is not
consummated due to certain circumstances, generally described as follows:
- - we accept a superior third party proposal;
- - our board fails to recommend or modifies in a manner adverse to
Comverse, its approval or recommendation of the merger;
- - we allow any person or group to acquire beneficial ownership of at
least 15% of our outstanding shares; or
- - Comverse terminates the merger agreement because of one of the
following reasons:
- the merger has not been consummated by August 31, 2000;
- our stockholders do not approve the merger; or
- we breach a condition of the merger agreement;
AND, in the event Comverse terminates the merger agreement for one of
those reasons, ONLY IF, on or before the termination date, an
acquisition proposal is made by a third party and within six months of
termination, we have entered into a merger agreement with a third party.
We will also pay Comverse up to $1 million for Comverse's expenses, in
addition to the termination fee that may be applicable, if Comverse terminates
the merger agreement because we breach any of the representations, warranties,
covenants or agreements contained in the merger agreement.
STOCK OPTION AGREEMENT (SEE PAGE 60)
In connection with the merger agreement, we entered into a stock option
agreement with Comverse under which we granted Comverse an option to purchase
approximately 19.9% of our outstanding common stock at a price of $43.79 per
share. Comverse also has the right under some circumstances to require us to
purchase the option or shares acquired by Comverse. The option is exercisable
under circumstances similar to those under which we are required to pay Comverse
the $11 million termination fee, generally described as follows:
- - we accept a superior third party proposal;
- - our board fails to recommend or modifies in a manner adverse to
Comverse, its approval or recommendation of the merger; or
- - any person or group acquires beneficial ownership of at least 15% of
our outstanding shares.
The Stock Option Agreement is attached as ANNEX B. We encourage you to
read this agreement.
VOTING AGREEMENTS (SEE PAGE 63)
Certain of our directors, executive officers and management including David
Ledwell, our President and Chief Executive Officer and Jonathan Lupia, our Chief
Operating Officer, Chief Financial Officer and Secretary, Peter Jankowski, our
Chief Technical Officer, and a trust established by Edward Jankowski, our
Chairman, entered into voting agreements with Comverse. The voting agreements
require them to vote all of their shares of our common stock in favor of the
approval of the merger agreement. These stockholders collectively held
approximately 22% of our common stock as of the record date. You are urged to
read the voting agreement, the form of which is attached as ANNEX C.
-9-
CLOSING OF THE MERGER AND EXCHANGE OF SHARES (SEE PAGE 52)
The closing and effectiveness of the merger will occur after the conditions
to closing have been satisfied or waived. Comverse and Loronix are working
towards completing the merger as quickly as possible and hope to complete the
merger by July 31, 2000.
Comverse will appoint an exchange agent to handle the exchange of shares
and the payment of cash for any fractional shares. IF YOU HAVE CERTIFICATES
REPRESENTING LORONIX SHARES, PLEASE DO NOT SEND THEM TO US NOW. Shortly after
the merger is effective, you will receive written instructions concerning what
to do with your certificates.
SALES OF COMVERSE SHARES RECEIVED IN THE MERGER (SEE PAGE 49)
Your shares of Comverse that you receive in the merger will be freely
tradable, unless you are an affiliate of Loronix. Shares of Comverse received by
Loronix affiliates may only be sold pursuant to SEC Rule 145 and the terms of
applicable affiliate agreements.
-10-
SELECTED HISTORICAL FINANCIAL DATA
The following tables present (1) selected historical financial data of
Comverse, (2) selected historical financial data of Loronix and (3) selected
unaudited pro forma combined financial data of Comverse and Loronix.
SELECTED HISTORICAL FINANCIAL DATA OF COMVERSE
(IN THOUSANDS EXCEPT PER SHARE DATA)
The following selected historical financial data of Comverse as of and for
the years ended December 31, 1995, 1996 and 1997, as of and for the one month
ended January 31, 1998 and as of and for the years ended January 31, 1999 and
2000 has been derived from their respective audited historical financial
statements and should be read in conjunction with such consolidated financial
statements and notes thereto.
TRANSITION
PERIOD
ENDED
HISTORICAL CONSOLIDATED STATEMENT OF YEARS ENDED DECEMBER 31, JANUARY 31, YEAR ENDED JANUARY 31,
------------------------ ----------- ----------------------
OPERATIONS DATA: 1995(1) 1996(1) 1997(2) 1998(3) 1999 2000
------- ------- ------- ------- ---- ----
Net sales.......................... $ 242,416 $ 389,639 $ 488,940 $ 14,401 $ 696,094 $ 872,190
Income (loss) before income tax
provision....................... 4,322 52,307 43,923 (114,340) 123,310 185,838
Net income (loss) 2,160 42,137 34,525 (115,207) 111,527 170,261
Earnings (loss) per share - diluted $ 0.02 $ 0.34 $ 0.25 $ (0.89) $ 0.78 $ 1.07
Shares used in computing earnings per
share - diluted................. 116,280 133,132 137,908 130,060 143,650 176,862
DECEMBER 31, JANUARY 31,
---------------------------------------- ----------------------------------------
BALANCE SHEET DATA: 1995(4) 1996(4) 1997 1998 1999 2000
------- ------- ---- ---- ---- ----
Working capital..................... $ 193,693 $ 332,660 $ 395,744 $ 280,793 $ 707,281 $ 848,826
Total assets........................ 306,115 519,074 622,931 527,652 1,031,393 1,352,368
Long-term debt, including current
portion.......................... 61,361 117,605 142,075 124,257 415,247 306,774
Stockholders' equity................ 176,080 288,550 346,161 231,390 381,662 711,340
- ---
(1) Includes the results of Boston Technology, Inc., which was merged into
Comverse on January 14, 1998, and accounted for pursuant to the
pooling-of-interests method, for each of its fiscal years ended January 31.
(2) Includes the results of Boston Technology for the 11 months ended December
31, 1997.
(3) In January 1998, Comverse changed its fiscal year end from December 31 to
January 31. Accordingly, the one month transition period ended January 31,
1998, is presented.
(4) Includes amounts for Boston Technology as of its fiscal year ended January
31.
-11-
SELECTED HISTORICAL FINANCIAL DATA OF LORONIX
(IN THOUSANDS EXCEPT PER SHARE DATA)
The selected data presented below under the captions "Historical
Consolidated Statement of Operations Data" and "Balance Sheet Data" for, and as
of the end of, each of the periods presented below, are derived from the
consolidated financial statements of Loronix Information Systems, Inc., which
financial statements have been audited by KPMG LLP ("KPMG"), our independent
certified public accountants. The consolidated balance sheets as of December 31,
1998 and 1999 and related consolidated statements of operations, stockholders'
equity and cash flows for each of the years in the three year period ended
December 31, 1999, together with the report thereon, are incorporated by
reference into this proxy statement/prospectus.
HISTORICAL CONSOLIDATED
STATEMENT OF OPERATIONS DATA: YEARS ENDED DECEMBER 31,
-----------------------------------------------------------------------------
1995 1996 1997 1998 1999
------------- ------------- ------------- ------------- -------------
Net sales................................ $ 6,838 $ 10,916 $ 9,403 $ 12,711 $ 37,477
Income (loss) before income tax provision (960) 1,192 (2,480) (2,162) 3,007
Net income (loss)........................ (854) 1,031 (2,512) (2,162) 2,886
Earnings (loss) per share - diluted...... $ (0.18) $ 0.22 $ (0.54) $ (0.47) $ 0.52
Shares used in computing earnings per
share - diluted....................... 4,670 4,667 4,659 4,647 5,516
BALANCE SHEET DATA:
Working capital.......................... $ 9,555 $ 9,479 $ 7,157 $ 4,884 $ 9,478
Total assets............................. 13,863 14,558 13,263 11,418 20,381
Long-term debt, including current portion - - 715 1,170 1,308
Stockholders' equity..................... 12,681 13,712 11,205 9,044 13,401
-12-
SELECTED UNAUDITED PRO FORMA COMBINED FINANCIAL DATA
OF COMVERSE AND LORONIX
(IN THOUSANDS EXCEPT PER SHARE DATA)
The following tables set forth selected unaudited pro forma combined
financial data that are presented to give effect to the merger. Comverse's
consolidated statement of operations for the years ended December 31, 1997
and January 31, 1999 and 2000, have been combined with Loronix's consolidated
statement of operations for the years ended December 31, 1997, 1998 and 1999.
Comverse's consolidated balance sheet as of January 31, 2000 has been
combined with Loronix's consolidated balance sheet as of December 31, 1999.
The unaudited pro forma information is presented for illustrative purposes
only and is not necessarily indicative of the operating results or financial
position that would have occurred if the merger had been consummated at the
beginning of the periods indicated, nor is it necessarily indicative of
future operating results or financial position. The unaudited pro forma
combined financial data should be read together with the historical financial
statements of Comverse and Loronix incorporated by reference in this document
and the unaudited pro forma condensed combined financial information
contained elsewhere in this document.
YEAR ENDED
DECEMBER 31, YEAR ENDED JANUARY 31,
PRO FORMA COMBINED --------------- ------------------------------
STATEMENT OF OPERATIONS DATA: 1997 1999 2000
--------------- ---------------- -------------
Net sales................................ $ 498,343 $ 708,805 $ 909,667
Income before income tax provision....... 41,443 121,148 188,845
Net income............................... 32,013 109,365 173,147
Earnings per share - diluted............. $ 0.23 $ 0.75 $ 1.08
Shares used in computing earnings per
share - diluted....................... 139,702 145,439 178,986
JANUARY 31,
BALANCE SHEET DATA: 2000
--------------
Working capital.......................... $ 858,304
Total assets............................. 1,372,749
Long-term debt, including current portion 308,082
Stockholders' equity..................... 724,741
-13-
COMPARATIVE PER SHARE DATA
The following tables set forth certain earnings, dividend and book value
per share data for Comverse and Loronix on historical and pro forma bases. For
purposes of the unaudited pro forma operating data, Comverse's consolidated
financial statements for the fiscal years ended December 31, 1997 and the fiscal
years ended January 31, 1999 and 2000, have been combined with Loronix's
consolidated financial statements for each of the three fiscal years in the
period ended December 31, 1999. Book value data for all unaudited pro forma
presentations are based upon the number of outstanding shares of Comverse common
stock, adjusted to include the shares of Comverse common stock to be issued in
the merger.
The unaudited pro forma data set forth below do not reflect any costs
associated with the integration and consolidation of the companies anticipated
by Comverse's management as a result of the merger. The pro forma data set forth
below should be read together with the historical financial statements of
Comverse and Loronix incorporated by reference in this document and the
unaudited pro forma condensed combined financial information contained elsewhere
in this document.
YEAR ENDED
DECEMBER 31, YEAR ENDED JANUARY 31,
--------------- -------------------------
1997(1) 1999(2) 2000(2)
--------------- ------------- -----------
COMVERSE HISTORICAL
Earnings per share - diluted........................................ $ 0.25 $ 0.78 $ 1.07
Cash dividends paid per share....................................... -- -- --
LORONIX HISTORICAL
Earnings (loss) per share - diluted................................. $ (0.54) $(0.47) $ 0.52
Cash dividends paid per share....................................... -- -- --
COMVERSE UNAUDITED PRO FORMA
Earnings per share - diluted........................................ $ 0.23 $ 0.75 $ 1.08
Cash dividends paid per share....................................... -- -- --
LORONIX UNAUDITED PRO FORMA EQUIVALENT (3)
Earnings per share - diluted........................................ $ 0.09 $ 0.29 $ 0.42
Cash dividends paid per share....................................... -- -- --
- -------------------------------
(1) Includes the results of Boston Technology for the 11 months ended December
31, 1997.
(2) Information for Loronix is for its fiscal years ended December 31, 1998 and
1999, respectively.
(3) The Loronix unaudited pro forma equivalent per share amounts are calculated
by multiplying the Comverse unaudited pro forma amounts by the exchange
ratio of 0.385.
-14-
JANUARY 31, 2000(1)
---------------------
BOOK VALUE PER SHARE
Comverse Historical.......................................... $ 4.62
Loronix Historical........................................... 2.64
Comverse Unaudited Pro Forma................................. 4.65
Loronix Unaudited Pro Forma Equivalent (2)................... 1.79
- ------------------------
(1) Information for Loronix is as of December 31, 1999.
(2) The Loronix unaudited pro forma equivalent per share amounts are calculated
by multiplying the Comverse unaudited pro forma amounts by the exchange
ratio of 0.385.
-15-
COMPARATIVE PER SHARE MARKET PRICE DATA
Loronix common stock is traded on the Nasdaq National Market under the
symbol "LORX." Comverse common stock is traded on the Nasdaq National Market
under the symbol "CMVT." The prices of Comverse common stock in the following
table have been adjusted to reflect a three-for-two stock split on April 15,
1999, and a two-for-one stock split on April 3, 2000. Because the value of
shares of Comverse common stock that Loronix stockholders will receive in the
merger will be determined based on the market price of Comverse common stock
prior to the merger, you are urged to obtain current market quotations.
The following table sets forth, for the calendar quarters indicated, the
high and low sale prices per share of Loronix common stock and Comverse common
stock as reported on Nasdaq.
LORONIX COMVERSE
COMMON STOCK COMMON STOCK
--------------------- -----------------------
HIGH LOW HIGH LOW
------ ------ ------- ------
Year Ended December 31, 1998:
First Quarter.................................... $ 2.13 $ 1.38 $ 16.34 $10.21
Second Quarter................................... 3.38 1.53 18.36 14.09
Third Quarter.................................... 3.06 1.94 18.98 12.21
Fourth Quarter................................... 2.94 1.75 23.67 9.98
Year Ended December 31, 1999
First Quarter.................................... $ 7.75 $ 2.31 $ 28.50 $21.81
Second Quarter................................... 12.44 6.50 38.60 27.28
Third Quarter.................................... 11.88 7.00 47.44 33.60
Fourth Quarter................................... 28.00 11.38 72.38 46.50
Year Ended December 31, 2000
First Quarter.................................... $43.38 $19.00 $119.69 $67.63
Second Quarter (through _____ ___, 2000).........
-16-
The following table sets forth the closing prices per share of Comverse
common stock and Loronix common stock as reported on Nasdaq on (i) March 3,
2000, the business day preceding the public announcement that Comverse and
Loronix had entered into the merger agreement (Comverse's stock price adjusted
to give effect to the two-for-one stock split) and (ii) _____ ___, 2000, the
last full trading day for which closing prices were available at the time of the
printing of this proxy statement/prospectus.
The following table also sets forth the equivalent price per share of
Loronix common stock on those dates. The equivalent price per share is equal to
0.385 multiplied by the closing sale price of a share of Comverse common stock
on March 3, 2000, and _____ ___, 2000, respectively.
LORONIX CONVERSE EQUIVALENT
COMMON STOCK COMMON STOCK PER SHARE PRICE
------------ ------------ ---------------
March 3, 2000........................... $31.375 $113.75 $43.79
_____ ___, 2000.........................
Loronix stockholders are advised to obtain current market quotations for
Comverse common stock and Loronix common stock. No assurance can be given as to
the market prices of Comverse common stock or Loronix common stock at any time
before the completion of the merger or as to the market price of Comverse common
stock at any time afterwards. The value of shares of Comverse common stock to be
received in the merger in exchange for Loronix common stock will fluctuate with
the market price of Comverse common stock prior to the completion of the merger.
Comverse and Loronix have never paid cash dividends on their respective
shares of capital stock. Pursuant to the merger agreement, Loronix has agreed
not to pay cash dividends pending the completion of the merger, without written
consent of Comverse. If the merger is not completed, the Loronix board of
directors presently intends that it would continue its policy of retaining all
earnings to finance the expansion of its business. The Comverse board of
directors presently intends to retain all earnings for use in its business and
has no present intention to pay cash dividends before or after the merger.
-17-
RISK FACTORS
THIS PROXY STATEMENT AND DOCUMENTS INCORPORATED BY REFERENCE IN THIS PROXY
STATEMENT CONTAIN FORWARD-LOOKING STATEMENTS ABOUT US, COMVERSE AND THE
INDUSTRIES IN WHICH WE AND COMVERSE OPERATE. THESE STATEMENTS MAY BE IDENTIFIED
BY THE USE OF FORWARD-LOOKING WORDS OR PHRASES SUCH AS "PLAN," "PLANNED,"
"INTEND," "INTENDED," "WILL BE POSITIONED," "EXPECT," "ESTIMATE," IS OR ARE
"EXPECTED," "ANTICIPATE," "ANTICIPATED"' AND SIMILAR EXPRESSIONS.
THESE FORWARD-LOOKING STATEMENTS REFLECT ONLY CURRENT EXPECTATIONS AND
INVOLVE RISKS AND UNCERTAINTIES. TO THE EXTENT ANY OF THE INFORMATION CONTAINED
OR INCORPORATED BY REFERENCE IN THIS PROXY STATEMENT CONSTITUTES A
"FORWARD-LOOKING STATEMENT" AS DEFINED IN SECTION 27A(i)(1) OF THE SECURITIES
ACT, THE RISK FACTORS ARE CAUTIONARY STATEMENTS IDENTIFYING IMPORTANT FACTORS
THAT COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE IN THE
FORWARD-LOOKING STATEMENT.
BY VOTING IN FAVOR OF THE MERGER, YOU WILL BE CHOOSING TO INVEST IN
COMVERSE COMMON STOCK. AN INVESTMENT IN COMVERSE COMMON STOCK INVOLVES RISKS
THAT ARE DIFFERENT FROM THE RISKS THAT ARE ASSOCIATED WITH YOUR INVESTMENT IN
LORONIX.
YOU SHOULD CAREFULLY CONSIDER THE FOLLOWING IMPORTANT RISK FACTORS IN
ADDITION TO THE OTHER INFORMATION CONTAINED AND INCORPORATED BY REFERENCE IN
THIS PROXY STATEMENT IN DECIDING WHETHER TO VOTE FOR THE MERGER.
WE MAY SEEK TO TERMINATE THE MERGER IF THE VALUE OF COMVERSE COMMON STOCK TO BE
RECEIVED IN THE MERGER IS LESS THAN $36 PER LORONIX SHARE, SUBJECT TO COMVERSE'S
RIGHT "TO TOP UP," WHICH COMVERSE MAY NOT EXERCISE, AND THE MERGER COULD BE
TERMINATED.
The number of shares of Comverse common stock to be received in the merger
for each share of Loronix common stock is fixed at 0.385 Comverse shares for
each Loronix share. Because the market price of Comverse common stock
fluctuates, the value of the merger consideration to be received by the Loronix
stockholders could fluctuate. Accordingly, the value of the Comverse common
stock received by you upon completion of the merger will depend upon the market
value of the Comverse common stock at the time of the completion of the merger.
We do not know what the fair market value of the consideration to be received by
the Loronix stockholders will be at the time of the merger.
We have the right to seek to terminate the merger agreement if, based on
the average of the daily closing prices of Comverse common stock on the Nasdaq
National Market for the five consecutive trading days ending on the third
trading day prior to the merger, the merger consideration would be less than $36
per Loronix share. If the average closing price of the Comverse common stock
during that period is such that the merger consideration will be less than $36
per Loronix share and we exercise our right to seek to terminate the merger
agreement, Comverse will have the right to increase the exchange ratio to adjust
the merger consideration to $36 per Loronix share.
If the merger were to become effective on the date of this proxy
statement/prospectus, the merger consideration would be $ __ per share based on
the average per share closing price of Comverse common stock for the five
consecutive trading days ending on _____, the third trading day prior to the
date of this proxy statement/prospectus. We do not know whether we will exercise
our right to seek to terminate the merger agreement if the value of the merger
consideration is below $36 per Loronix share at the time of the merger. If we
exercise this right, we do not know if Comverse will exercise its right to
increase the exchange
-18-
ratio to adjust the consideration to $36 per Loronix share. If Comverse fails
to do so, the merger agreement will be terminated and you will not receive
any Comverse common stock.
WE MAY NOT SEEK TO TERMINATE THE MERGER IF THE VALUE OF COMVERSE COMMON STOCK TO
BE RECEIVED IN THE MERGER CORRESPONDS TO LESS THAN $36 PER SHARE, AND YOU MAY
RECEIVE COMVERSE COMMON STOCK VALUED AT LESS THAN $36 PER LORONIX SHARE.
If, based on the average closing price of Comverse common stock during the
five consecutive trading days ending on the third trading day prior to the
merger, the merger consideration is less than $36 per Loronix share, we may
choose not to seek to terminate the merger. We do not know whether we would or
would not seek to terminate the merger if the merger consideration was less than
$36 per share. By approving the merger agreement, you are giving us the
discretion not to seek to terminate the merger if the merger consideration is
less than $36 per share. If the merger consideration would be less than $36 per
Loronix share and we do not seek to terminate the merger, you will receive less
than $36 per Loronix share.
FAILURE TO COMPLETE THE MERGER COULD NEGATIVELY IMPACT OUR STOCK PRICE, FUTURE
BUSINESS AND OPERATIONS.
If the merger is not completed for certain reasons, we may be subject to a
number of material risks, including the following:
- We may be required to pay Comverse a termination fee of $11 million;
and
- The option granted to Comverse by us may become exercisable.
If the merger is not completed for any reason, we may be subject to a
number of material risks, including the following:
- The price of our common stock may decline to the extent that the
current market price of our common stock reflects a market assumption
that the merger will be completed; and
- Certain costs related to the merger, such as legal, accounting and
financial advisor fees, must be paid even if the merger is not
completed.
In addition, our customers may, in response to the announcement of the
merger, delay or defer purchasing decisions. Any delay or deferral in purchasing
decisions by our customers could have a material adverse effect on our business,
regardless of whether or not the merger is ultimately completed. Similarly, our
current and prospective employees may experience uncertainty about their future
role with Comverse until Comverse's strategies with regard to us are announced
or executed. This may adversely affect our ability to attract and retain key
management, marketing and technical personnel.
Further, if the merger is terminated and our board of directors determines
to seek another merger or business combination, we do not know if we will be
able to find a partner willing to pay an equivalent or more attractive price
than that which would be paid in the merger. In addition, while the merger
agreement is in effect and subject to certain limited exceptions described on
page 56 of this proxy statement/prospectus, we are prohibited from soliciting,
initiating or knowingly encouraging or entering into certain extraordinary
transactions, such as a merger, sale of assets or other business combination,
with any party other than Comverse. Furthermore, if the merger agreement is
terminated and Comverse exercises its option to purchase our common stock, we
may not be able to account for future transactions as a pooling-of-interests.
-19-
IF COMVERSE IS NOT ABLE TO MANAGE ITS GROWTH EFFECTIVELY, ITS BUSINESS AND
OPERATING RESULTS COULD SUFFER.
Comverse has grown rapidly over the past decade and continues to experience
rapid growth in its operations, both through internal expansion and acquisitions
of other companies. Comverse's future success will depend in part on its
continued ability to manage growth effectively. As its operations continue to
expand worldwide, management issues are likely to become more complex and
challenging. Comverse also regularly examines opportunities to acquire other
companies or lines of business. Acquisitions present a number of significant
financial, operational and legal risks. It can also be difficult to combine the
operations of an acquired business with Comverse's operations, without suffering
the loss of key personnel, customers or distributors. If Comverse fails to
manage its growth effectively or experiences problems with its acquisitions, its
future operations and financial results will be adversely affected.
COMVERSE'S BUSINESS IS VULNERABLE TO RISKS ASSOCIATED WITH THE SALE OF LARGE,
COMPLEX, HIGH CAPACITY SYSTEMS.
Comverse's business has, to a significant extent, been based on contracts
for large, high capacity systems. Comverse continues to emphasize these systems
in its product development and marketing plans. Users of high-capacity systems,
such as telephone companies, require systems that provide an exceptionally high
level of reliability. Such systems are typically more costly to design, build
and support. Contracts for large installations typically involve a lengthy and
complex bidding and selection process, and Comverse's ability to obtain
particular contracts is difficult to predict. In addition, the timing and scope
of these opportunities and the pricing and margins associated with any eventual
contract award are difficult to forecast, and may vary substantially from
transaction to transaction. Comverse's traditional dependence on large orders,
and the investment required to enable it to perform such orders, without
assurance of continuing order flow from the same customers and predictability of
gross margins on any future orders, increase the risk associated with its
business.
BECAUSE THE MARKET FOR COMVERSE'S PRODUCTS IS CHARACTERIZED BY RAPIDLY CHANGING
TECHNOLOGY, COMVERSE'S CONTINUED SUCCESS WILL DEPEND ON ITS ABILITY TO ENHANCE
ITS EXISTING PRODUCTS AND TO INTRODUCE NEW PRODUCTS ON A TIMELY AND
COST-EFFECTIVE BASIS.
The market for Comverse's products is characterized by rapidly changing
technology, frequent new product introductions and enhancements and evolving
industry standards. Comverse's continued success will depend to a significant
extent upon its ability to anticipate accurately the evolution of new products
and technologies and to enhance its existing products. It will also depend on
its ability to develop and introduce innovative new products that gain market
acceptance. We cannot assure you that Comverse will continue to be successful in
selecting, developing, manufacturing and marketing new products or enhancing its
existing products on a timely or cost-effective basis. In addition, Comverse's
products utilize complex hardware and software technology that performs critical
functions to highly demanding standards. The greater the complexity of
Comverse's products, the greater is the risk of future performance problems or
delays in product introductions, which could damage its business and financial
results.
COMVERSE'S BUSINESS CAN BE SERIOUSLY AFFECTED BY CHANGES IN THE COMPETITIVE OR
REGULATORY ENVIRONMENT IN COMMUNICATIONS MARKETS WORLDWIDE.
Comverse sells a majority of its products to telephone companies and other
communication services providers. The communications services industry is
undergoing significant change as a result of deregulation and privatization
worldwide. Comverse's business is extremely competitive, and Comverse expects
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competition to continue to intensify. Comverse's existing competitors will
continue to present substantial competition, and other companies, many with
considerably greater financial, marketing and sales and other resources, may
enter Comverse's markets in the future. The communications industry has
experienced a continuing evolution of product offerings and alternatives for
delivery of services. These trends have affected and may be expected to have a
significant continuing influence on conditions in Comverse's markets. Rapid and
significant change makes planning decisions more difficult and increases the
risk inherent in the planning process.
BECAUSE A SIGNIFICANT AMOUNT OF COMVERSE'S SALES ARE MADE TO GOVERNMENT
ENTITIES, COMVERSE IS VULNERABLE TO RISKS ASSOCIATED WITH GOVERNMENT BUSINESS.
Many of Comverse's sales are made to customers that are owned or controlled
by governments or government agencies. Government business is, in general,
subject to special risks, such as delays in funding; termination of contracts or
subcontracts for the convenience of the government; termination, reduction or
modification of contracts or subcontracts in the event of changes in the
government's policies or as a result of budgetary constraints; obligations of
performance guarantees and restrictions on the draw-down of funds subject to
achievement of performance milestones; requirements to obtain and maintain
security clearances for operating subsidiaries and key personnel; and increased
or unexpected costs resulting in losses or reduced profits under fixed price
contracts. The special risks associated with government contracts could have a
material adverse effect on Comverse's future business and financial performance.
The market for telecommunications monitoring systems sold to government
customers is in a period of significant transition. Budgetary constraints,
uncertainties resulting from the introduction of new technologies in the
telecommunications industry and shifts in the pattern of government expenditures
resulting from geopolitical events have increased uncertainties in this
industry, resulting in certain instances in the attenuation of government
procurement programs beyond their originally expected performance periods and an
increased incidence of delay, cancellation or reduction of planned projects. The
delay and uncertainties surrounding the Communications Assistance for Law
Enforcement Act have had a significant negative impact on purchasing plans of
law enforcement agencies in North America engaged in monitoring activities.
Comverse's ability to obtain government orders in particular instances may also
be affected by decisions of potential government customers to develop their own
products or technical solutions internally, rather than through the use of
outside suppliers, and by decisions of government contractors and systems
integrators to bid on individual government procurement opportunities. The lack
of predictability in the timing and scope of government procurements has made
planning decisions more difficult and has increased the associated risks.
COMVERSE HAS SIGNIFICANT INTERNATIONAL SALES, WHICH SUBJECTS IT TO RISKS
INHERENT IN FOREIGN OPERATIONS.
A significant portion of Comverse's sales are made to customers outside of
the United States. International transactions involve particular risks,
including political decisions affecting tariffs and trade conditions, rapid and
unforeseen changes in economic conditions in individual countries, turbulence in
foreign currency and credit markets, and increased costs resulting from lack of
proximity to the customer. Comverse's products must be designed to meet the
regulatory standards of foreign markets, and any inability to obtain foreign
regulatory approvals can cause it to lose sales opportunities. In addition,
international sales frequently require special features and customization to
satisfy local market conditions, and certain international customers may require
longer payment terms than Comverse may typically provide.
Volatility in international currency exchange rates may have an impact on
Comverse's operating results. Comverse has significant contracts payable in
foreign (primarily Western European) currencies. As a result of
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the unpredictable timing of purchase orders and payments under these
contracts and other factors, it is often not practicable for Comverse to
effectively hedge the risk of significant changes in currency rates during
the contract period. Since Comverse engages in currency hedging only to a
limited extent, if at all, its financial results can be affected by the
impact of currency fluctuations in any particular period, as well as the cost
of such hedging activities that Comverse does perform.
COMVERSE'S CASH MANAGEMENT AND INVESTMENT ACTIVITIES COULD ADVERSELY AFFECT ITS
BUSINESS AND OPERATING RESULTS.
Comverse has a significant portion of its assets in a variety of financial
instruments, including government obligations, commercial paper, medium-term
notes, bank term deposits, money-market accounts, common and preferred stocks
and convertible debt obligations. Decisions as to Comverse's financial holdings
are made both for purposes of cash management and, to some extent, as strategic
and portfolio investments. These activities subject Comverse to risks inherent
in the capital markets generally, and to the performance of other businesses
over which Comverse has no direct control. Comverse also engages in investment
activities, including venture capital investments in high technology firms and
funds, as well as strategic and capital management investment activities for its
own account.
Comverse believes that its investments will enable it to participate in
technology innovation opportunities in areas of interest to it without having to
dedicate the capital and management resources that would be necessary for such
participation through its own internal research and development efforts.
Comverse's objectives are also to initiate relationships that may result in
eventual expansion of its product and marketing positions and potential
acquisition opportunities, and to leverage its technological expertise and
establish relationships in the technology, business and financial communities to
identify and participate in special opportunities. Investments in early-stage
technology ventures, however, are subject to a number of risks associated with
the limited operating history of such ventures and the frequent absence of
liquidity of their securities. While Comverse does not regard its portfolio and
strategic investment activities as a primary element of its overall business
plan, it expects to continue to allocate some of its liquid assets for these
purposes and, in particular, to increase its holdings in technology companies as
part of its long-term growth strategy. Since Comverse maintains a significant
amount of liquid assets relative to its overall size, its financial results in
the future may, to a greater degree than in the past, be affected by the results
of its capital management and investment activities and the risks associated
with those activities.
THE ISRAELI GOVERNMENT PROGRAMS AND TAX BENEFITS THAT COMVERSE CURRENTLY
RECEIVES REQUIRE IT TO MEET SEVERAL CONDITIONS AND MAY BE TERMINATED OR REDUCED
IN THE FUTURE, WHICH WOULD INCREASE ITS COSTS AND TAXES.
A significant portion of Comverse's research and development and
manufacturing operations are located in Israel. Comverse's historical operating
results reflect substantial benefits it received from programs sponsored by the
Israeli government for the support of research and development, as well as tax
moratoriums and favorable tax rates associated with investments in approved
projects ("Approved Enterprises") in Israel. To be eligible for these programs
and tax benefits, Comverse must continue to meet conditions, including making
specified investments in fixed assets and financing a percentage of investments
with share capital. If Comverse fails to meet such conditions in the future, the
tax benefits would be canceled and Comverse could be required to refund the tax
benefits already received.
These programs and tax benefits may not be continued in the future at their
current levels or at any level. The Israeli government has reduced the benefits
available under some of these programs in recent years, and
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Israeli governmental authorities have indicated that the government may
further reduce or eliminate some of these benefits in the future. In 1996,
the Israeli government acted to increase, from between 2% and 3% of
associated product sales to between 3% and 5% (or 6% under certain
circumstances) of associated product revenues (including service and other
related revenues), the annual rate of royalties to be applied to repayment of
benefits under a conditional grant program administered by the Office of the
Chief Scientist of the Ministry of Industry and Trade, a program in which
Comverse has regularly participated and under which Comverse continues to
receive significant benefits through reimbursement of up to 50% of qualified
research and development expenditures. The repayment of amounts received
under the program will be accelerated through these higher royalty rates
until repayment is completed. Repayment of any amount received under programs
which have been, or will be, approved by the Office of the Chief Scientist
after January 1, 1999, entail repayment of the amount received (calculated in
U.S. dollars), plus interest on such amount at a rate equal to the 12-month
LIBOR rate in effect at the time of the approval of the program. In addition,
permission from the Government of Israel is required for Comverse to
manufacture outside of Israel products resulting from research and
development activities funded under these programs, or to transfer outside of
Israel related technology rights. In order to obtain such permission,
Comverse may be required to increase the royalties to the applicable funding
agencies and/or repay certain amounts received as reimbursement of research
and development costs. The Israeli authorities have also indicated that this
funding program will be further reduced significantly or eliminated in the
future, particularly for larger companies such as Comverse. The termination
or reduction of these programs could adversely affect Comverse's operating
results.
The Israeli government has also shortened the period of the tax moratorium
applicable to Approved Enterprises from four years to two years. Although this
change has not affected the tax status of Comverse's projects that were eligible
for the moratorium prior to 1997, it applies to subsequent "Approved Enterprise"
projects. If further changes in the law or government policies regarding those
programs were to result in their termination or adverse modification, or if
Comverse were to become unable to participate in or take advantage of those
programs, the cost of its operations in Israel would increase and there could be
a material adverse effect on its operations and financial results. To the extent
that Comverse increases its activities outside Israel, which could result from,
among other things, future acquisitions, such increased activities will not be
eligible for programs sponsored by Israel.
BECAUSE A SIGNIFICANT PORTION OF COMVERSE'S OPERATIONS ARE LOCATED IN ISRAEL,
POLITICAL, MILITARY AND ECONOMIC CONDITIONS IN THAT COUNTRY MAY ADVERSELY AFFECT
ITS BUSINESS AND OPERATING RESULTS.
Although Comverse's operations have not been adversely affected to date by
political or military conditions in Israel, a disruption of its operations in
Israel due to political, military or other conditions could have a material
adverse effect on its operations and financial results. General inflation in
Israel and increases in the cost of attracting and retaining qualified
scientific, engineering and technical personnel in Israel, where the demand for
such personnel is growing rapidly with the expansion of high technology
industries, have increased Comverse's cost of operations in Israel. These
increases have not been offset in all periods by proportional devaluation of the
Israeli shekel relative to the U.S. dollar and, as a result, have had a negative
impact on Comverse's results of operations. Continued increases in Comverse's
shekel-denominated costs without corresponding devaluation could have a material
adverse effect on Comverse's future operating results.
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COMVERSE'S FUTURE SUCCESS DEPENDS ON ITS EXISTING KEY PERSONNEL, THE LOSS OF
WHOM COULD ADVERSELY IMPACT ITS BUSINESS AND OPERATING RESULTS.
Comverse's future success will depend, to a considerable extent, on the
contributions of senior management and key employees, many of whom are not
subject to employment agreements and/or would be difficult to replace.
Comverse's future success also depends on its ability to attract and retain
qualified employees in all areas of its business. Competition for such personnel
is intense, particularly in the computer and communications industries. In order
to attract and retain talented and qualified personnel, and to provide
incentives for their performance, Comverse has emphasized the award of stock
options as an important element of its compensation program, including, in the
case of certain personnel, options to purchase shares in certain of its
subsidiaries.
COMVERSE'S BUSINESS AND OPERATING RESULTS MAY SUFFER FROM INCREASED EXPENDITURES
IN ITS OPERATIONS.
Comverse has significantly increased expenditures in all areas of its
operations during recent years, and it plans to continue to make significant
investment in the growth of its operations during future periods. The
competitiveness of Comverse's products and its ability to take advantage of
future growth opportunities will depend upon its ability to enhance the range of
features and capabilities of its existing product lines, develop new generations
of products and expand its marketing, sales and product support capabilities. In
many instances, Comverse will have to make large expenditures for research and
development and product marketing in anticipation of future market requirements
that are uncertain and may undergo significant change prior to product
introduction. The success of Comverse's efforts will depend, to a considerable
extent, on its ability to anticipate future market requirements and successfully
implement corresponding research and development and marketing programs on a
timely basis.
THIRD PARTIES MAY INFRINGE UPON COMVERSE'S PROPRIETARY TECHNOLOGY AND COMVERSE
MAY INFRINGE ON THE INTELLECTUAL PROPERTY RIGHTS OF OTHERS.
Although Comverse uses what it believes to be customary and appropriate
measures to protect its technology, these measures may not prove to be
successful, and Comverse's competitors may be able to develop similar technology
independently. Comverse's currently holds a limited number of United States and
foreign patents and Comverse periodically files additional applications for
patents on various features of its products. Comverse cannot assure you that
claims allowed with respect to any current or future patents will prove to be
sufficiently broad to protect its technology. In addition, Comverse cannot
assure you that its patents will not be challenged, invalidated or circumvented,
or that the rights granted under the patents will provide significant benefits.
Comverse and its customers from time to time receive communications from third
parties, including some of its competitors, alleging infringement by its
products of certain of such parties' patent rights. Although these types of
communications are common in the computer and telecommunications industries, and
Comverse has in the past been able to obtain any necessary licenses on
commercially reasonable terms, Comverse cannot assure you that it would prevail
in any litigation to enjoin its sale of any products on the basis of such
alleged infringement, or that it would be able to license any valid patents on
reasonable terms.
THE TRADING PRICE OF COMVERSE COMMON STOCK MAY BE VOLATILE.
The trading price of Comverse's common stock may be affected by the risk
factors described in this proxy statement as well as prevailing economic and
financial trends and conditions in the public securities markets. Stock prices
of companies in technology businesses tend to exhibit a high degree of
volatility.
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Shortfalls in revenues or earnings from the levels anticipated by the public
markets could have an immediate and significant adverse effect on the trading
price of Comverse's common stock in any given period. Such shortfalls may
result from events that are beyond Comverse's immediate control, can be
unpredictable and, since a significant proportion of its sales during each
fiscal quarter often occurs in the latter stages of the quarter, may not be
discernible until the end of a financial reporting period. These factors can
contribute to the volatility of the trading price of Comverse's common stock
regardless of its long-term prospects. The trading price of Comverse's common
stock may also be affected by developments, including reported financial
results and fluctuations in trading prices of the shares of other
publicly-held companies in the computer and communications industries
generally, and in Comverse's industry in particular, which may not have any
direct relationship with its business or prospects.
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THE SPECIAL MEETING
DATE, TIME, PLACE AND PURPOSE OF THE SPECIAL MEETING
The special meeting of our stockholders will be held at _____ a.m.,
Colorado time, on _______, _______, 2000, at _______________, located at
_______________, Durango, CO 81301. At the meeting, you will be asked:
1. to consider and vote upon a proposal to approve the merger agreement,
which will also constitute approval of the merger and the other
transactions contemplated by the merger agreement; and
2. to transact any other business that properly comes before the special
meeting or any adjournment or postponement of the special meeting.
STOCKHOLDER RECORD DATE FOR THE SPECIAL MEETING AND OUTSTANDING SHARES
Only holders of record of Loronix common stock at the close of business
on the record date are entitled to notice of and to vote at the meeting. Our
board of directors has fixed the close of business on _____ ___, 2000, as the
record date for determination of stockholders entitled to notice of and
entitled to vote at the special meeting. On the record date, there were
5,157,288 shares of Loronix common stock outstanding and entitled to vote,
held of record by approximately 69 holders of record, although Loronix is
informed that there are approximately 2,650 beneficial owners. Each
stockholder is entitled to one vote for each share of common stock held as of
the record date.
VOTE OF LORONIX STOCKHOLDERS REQUIRED FOR APPROVAL OF THE MERGER
A majority of the outstanding shares of Loronix common stock entitled to
vote at the special meeting must be represented, either in person or by
proxy, to constitute a quorum at the special meeting. The affirmative vote of
the holders of at least a majority of our outstanding common stock is
required to approve the merger agreement. You are entitled to one vote for
each share held by you on the record date on each proposal to be presented to
stockholders at the special meeting.
As of the record date for the special meeting, directors and executive
officers of Loronix and their affiliates held approximately 1,097,817
outstanding shares of Loronix stock, which represented approximately 21% of
all outstanding shares of Loronix common stock entitled to vote at the
special meeting.
Certain of our directors, executive officers and management are parties
to voting agreements with Comverse and have agreed to vote their outstanding
shares in favor of the approval of the merger agreement. As of the record
date, they held approximately 1,125,981 outstanding shares, which represented
approximately 22% of the outstanding shares of our common stock.
PROXIES
All shares of Loronix common stock represented by properly executed
proxies that we receive before or at the special meeting will, unless the
proxies are revoked, be voted in accordance with the instructions indicated
thereon. If no instructions are indicated on a properly executed proxy, the
shares will be voted FOR approval of the merger agreement. You are urged to
mark the applicable box on the proxy to indicate how to vote your shares.
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If a properly executed proxy is returned and the stockholder has
abstained from voting on approval of the merger agreement, the Loronix common
stock represented by the proxy will be considered present at the special
meeting for purposes of determining a quorum, but will not be considered to
have been voted in favor of approving the merger agreement. Similarly, if an
executed proxy is returned by a broker holding shares of Loronix common stock
in street name which indicates that the broker does not have discretionary
authority to vote on approval of the merger agreement, the shares will be
considered present at the meeting for purposes of determining the presence of
a quorum, but will not be considered to have been voted in favor of approval
of the merger agreement. Your broker will vote your shares only if you
provide instructions on how to vote by following the information provided to
you by your broker, so please instruct your broker.
BECAUSE APPROVAL OF THE MERGER AGREEMENT REQUIRES THE AFFIRMATIVE VOTE
OF AT LEAST A MAJORITY OF LORONIX'S COMMON STOCK OUTSTANDING AS OF THE RECORD
DATE, ABSTENTIONS, FAILURES TO VOTE AND BROKER NON-VOTES WILL HAVE THE SAME
EFFECT AS VOTES AGAINST APPROVAL.
We do not expect that any matter other than approval of the merger
agreement will be brought before the special meeting. If, however, other
matters are properly presented, the persons named as proxies will vote in
accordance with their judgment with respect to those matters, unless
authority to do so is withheld in the proxy.
You may revoke your proxy at any time before it is voted by:
- notifying in writing the Secretary of Loronix at 820 Airport Road,
Durango, Colorado 81301, Attention: Secretary;
- granting a subsequent proxy; or
- appearing in person and voting at the special meeting (attendance
at the special meeting will not in and of itself constitute
revocation of a proxy).
Comverse and Loronix will equally share the expenses incurred in
connection with the printing and mailing of this proxy statement/prospectus.
Loronix and American Stock Transfer and Trust Company will request banks,
brokers and other intermediaries holding shares beneficially owned by others
to send this proxy statement/prospectus to and obtain proxies from the
beneficial owners, and will reimburse the holders for their reasonable
expenses in doing so.
YOU SHOULD NOT SEND IN ANY STOCK CERTIFICATES WITH YOUR PROXIES. A
TRANSMITTAL FORM WITH INSTRUCTIONS FOR THE SURRENDER OF ANY STOCK
CERTIFICATES HELD BY YOU WILL BE MAILED TO YOU SOON AFTER THE COMPLETION OF
THE MERGER.
PROXY SOLICITATION
Following the original mailing of the proxies and other soliciting
materials, Loronix and its agents also may solicit proxies by mail,
telephone, e-mail or in person. Loronix will pay the expenses of soliciting
proxies to be voted at the meeting.
Following the original mailing of the proxies and other soliciting
materials, Loronix may request brokers, custodians, nominees and other record
holders of Loronix common stock to forward copies of the proxy and other
soliciting materials to persons for whom they hold shares of common stock and
to request authority for the exercise of proxies. In those cases, Loronix
will reimburse record holders for their reasonable expenses upon their
request.
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Although it currently has no plans to engage the services of a proxy
solicitor to solicit proxies, Loronix might ultimately do so, at a cost not
anticipated to exceed $10,000.
AVAILABILITY OF ACCOUNTANTS
KPMG LLP has acted as our independent accounting firm since 1990.
Representatives of KPMG are expected to be present at the special meeting,
will have an opportunity to make a statement if they desire to do so and are
expected to be available to respond to appropriate questions. Deloitte and
Touche LLP, Comverse's independent auditors, are not expected to appear at
the meeting.
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THE MERGER AND RELATED TRANSACTIONS
THIS SECTION OF THE PROXY STATEMENT/PROSPECTUS DESCRIBES MATERIAL
ASPECTS OF THE PROPOSED MERGER. WHILE WE BELIEVE THAT THE DESCRIPTION COVERS
THE MATERIAL TERMS OF THE MERGER AND THE RELATED TRANSACTIONS, THIS SUMMARY
MAY NOT CONTAIN ALL OF THE INFORMATION THAT IS IMPORTANT TO YOU. YOU SHOULD
READ THIS ENTIRE DOCUMENT AND THE OTHER DOCUMENTS WE REFER TO CAREFULLY FOR A
MORE COMPLETE UNDERSTANDING OF THE MERGER.
BACKGROUND OF THE MERGER
In pursuing Loronix's strategy for enhancing stockholder value,
Loronix has regularly considered opportunities for acquisitions, joint
ventures, and other strategic alliances.
From mid-January to mid-June, 1999, Loronix senior management, in
consultation with the board of directors, was involved in discussions with
another company ("Company A") regarding a potential business combination.
In January, 1999, Company A inquired with Loronix senior management
about the possibility of acquiring Loronix. On January 29, 1999, at a meeting
of the Loronix board, Loronix senior management discussed Company A's inquiry
and the board authorized and directed Loronix management to engage in further
discussions with Company A about it.
Loronix senior management met with representatives of Company A on
March 5, 1999, in Durango, Colorado, at which time Company A senior
management presented a corporate overview and discussed its acquisitions
process and valuation methodology. Loronix senior management presented a
corporate overview and 1999 revenue projections. During the meeting, Loronix
and Company A entered into a nondisclosure and standstill agreement.
On March 16, 1999, at the headquarters of Company A, Loronix senior
management and representatives of Company A met again, and Company A
representatives made a presentation regarding Company A's understanding of
Loronix's competition, potential competition and the risks associated with
Loronix's business. Loronix representatives presented a revenue forecast for
1999, as well as estimates for year 2000. At the end of the meeting, the
participants discussed a schedule for additional review of Loronix's business
by Company A.
During Loronix's discussions with Company A, Loronix contacted its
attorneys, Wilson Sonsini Goodrich & Rosati, Professional Corporation
("WSGR"), and asked WSGR to make recommendations for an investment banking
firm that could render a fairness opinion should the transaction with Company
A be consummated. WSGR put Loronix in touch with Warburg Dillon Read
("Warburg") and Broadview International LLC ("Broadview").
Both Warburg and Broadview came to Durango in March, 1999, met with
Loronix senior management, and presented their corporate profile, history of
transactions and how they would approach a potential transaction with Company
A. Based on several factors, including fee structure and synergies with the
potential transaction, Loronix chose Broadview.
On April 6, 1999, Loronix engaged Broadview to act as its financial
advisor in connection with the potential transaction with Company A, or any
other potential business combination. (The amount of
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Broadview's fee was subsequently revised on October 19, 1999.) On April 19,
1999, Loronix senior management, together with Broadview, met with
representatives of Company A to detail the strategic rationale for an
acquisition. Loronix representatives outlined a detailed operating plan and
Broadview presented an outline of valuation expectations for Loronix.
On May 3, 1999, the Loronix board of directors reviewed a report
setting out valuation considerations relating to the proposed acquisition of
Loronix by Company A. The report was discussed by the board with guidance
from Loronix's senior management, and the board further authorized and
directed Loronix management to continue discussions with Company A.
On June 24, 1999, Company A notified Loronix that Company A was
terminating further discussions and due diligence concerning a potential
transaction with Loronix due to an internal reorganization of Company A.
In July 1999, at Loronix's request, Broadview contacted the
management of several other companies that Broadview believed might be
interested in engaging in a business combination with Loronix. On July 15,
1999, Broadview received an indication of interest from one of those
companies ("Company B").
On September 1, 1999, Loronix senior management, together with
Broadview, met with representatives of Company B and its financial advisor at
Broadview's headquarters in Fort Lee, New Jersey. Loronix representatives
presented a corporate overview to Company B. The representatives of Company B
and Loronix also discussed the potential synergies and benefits of a business
combination between Loronix and Company B.
On September 28, 1999, the board discussed the possibility of an
acquisition of Loronix by Company B, and the board authorized and instructed
Loronix management, with the assistance of Broadview, to continue discussions
with Company B. On October 4, 1999, Company B and Loronix entered into a
non-disclosure and standstill agreement.
On October 20, 1999, a second meeting between representatives of
Loronix and Company B was held in Durango, Colorado, to discuss further the
merits of a possible business combination and to permit Company B to
investigate Loronix further. Loronix representatives presented another
corporate overview and year 2000 projections. Company B representatives
presented an overview of Company B, and Loronix and Company B further
discussed the potential benefits of a business combination involving the
companies. Loronix's board of directors was updated as to the status of such
negotiations in November, 1999.
Negotiations between Loronix, Broadview and Company B's financial
advisor stalled in mid-November. On December 21, 1999, however,
representatives of Company B invited Loronix senior management to Company B's
headquarters to continue discussions.
In early February 2000, Broadview representatives discussed with
Loronix senior management the possibility of engaging in exploratory
discussions with Comverse. On February 14, 2000, a Broadview representative
contacted Kobi Alexander, Chairman and Chief Executive Officer of Comverse,
and inquired whether Comverse was interested in discussing a potential
transaction with Loronix.
On February 17, 2000, Loronix's senior management and Broadview met
with representatives of Company B and its financial advisor at Company B's
headquarters. Company B provided Loronix representatives and Broadview
representatives with a tour of Company B's facilities and presented an
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overview of Company B's operations and products. Loronix representatives
provided an update of year 2000 revenue projections and valuation
methodologies were discussed. At the end of the meeting, Company B indicated
they would be interested in acquiring Loronix in exchange for shares of
Company B common stock based on a fixed exchange ratio that represented an
offer price as of that date equal to $31.56 per Loronix share.
On February, 21, 2000, a conference call was conducted among
Broadview, Mr. Alexander of Comverse, Mr. Dan Bodner, President of Comverse
Infosys, Inc., Mr. David Ledwell, Chief Executive Officer and Director of
Loronix, and Mr. Jonathan Lupia, Chief Operating Officer, Chief Financial
Officer and Secretary of Loronix, to discuss a possible business combination
between Loronix and Comverse. Comverse representatives provided an overview
of the business of Comverse and Loronix representatives provided an overview
of the business of Loronix, including product offerings, customers,
distribution strategies, challenges, and the potential benefits of a business
combination of Comverse and Loronix.
On February 22, 2000, the Loronix board of directors held a
telephonic board meeting during which Broadview and Loronix management
discussed the results of their meetings with Company B. Among the topics
discussed were different possible transaction and pricing structures with
Company B. The board discussed and considered the merits of such transaction
and pricing structures and directed Loronix management to continue
discussions with Company B. Loronix management and Broadview next updated the
board on the February 21, 2000, conference call with Comverse and the board
directed management to continue discussions with Comverse.
On February 24, 2000, a meeting was held in New York City to discuss
further the merits of a possible business combination between Loronix and
Comverse. This meeting was attended by Broadview, Mr. Alexander of Comverse,
Mr. Bodner of Comverse Infosys, Mr. Igal Nissim, Vice President of Comverse
Infosys, Mr. Ted Lubowsky, Vice President of Comverse Infosys, and by Mr.
Ledwell, Mr. Lupia and Mr. Peter Jankowski, Chief Technical Officer of
Loronix. Comverse and Loronix representatives made presentations and
discussed the merits of a business combination. A confidentiality agreement
was executed and delivered at the meeting.
On February 25, 2000, Mr. Bodner and Mr. Nissim of Comverse Infosys
visited Loronix in Durango, Colorado, to conduct further investigation of
Loronix. This investigation continued through the week, and on March 1, 2000,
Comverse delivered to Loronix a draft of a definitive agreement with respect
to a business combination concerning Loronix and Comverse.
On March 2, 2000, Loronix senior management, together with
Broadview, met with Company B in New York City to discuss further the terms
of a potential strategic combination. Representatives of Loronix, Broadview
and Company B discussed the status of Company B's investigation of Loronix.
At the end of the meeting, Company B submitted a final proposal to acquire
Loronix in exchange for shares of Company B's common stock, based on a fixed
exchange ratio that represented an offer price of $38.49 per Loronix share as
of March 3, 2000.
On Friday, March 3, 2000, Mr. Ledwell, Mr. Lupia and Mr. Jankowski
of Loronix, together with representatives of Broadview and WSGR, met in New
York City with Mr. Alexander and Mr. David Kreinberg, Chief Financial Officer
of Comverse, together with representatives of Weil, Gotshal & Manges LLP,
legal counsel to Comverse, to discuss further and negotiate the terms of a
strategic combination. During the negotiations, the executive team of Loronix
consulted by telephone with Mr. Edward Jankowski, Chairman of the board of
directors of Loronix. At the end of this meeting, Comverse submitted a final
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proposal, offering a fixed exchange ratio of 0.1925 (or 0.385 after giving
effect to the Comverse two-for-one stock split completed on April 3, 2000),
representing an offer price, as of the trading on that day, equal to $43.79
per Loronix share and including a "soft floor" of $36 per Loronix share
(i.e., a minimum exchange ratio below which Loronix could seek to terminate
the deal, subject to Comverse's option "to top up" to $36 per share).
From Friday, March 3, 2000, through, Sunday, March 5, 2000,
Loronix's executive team and financial and legal advisors had extended
meetings with Mr. Alexander and Mr. Kreinberg of Comverse and Comverse's
legal advisors, concerning proposed definitive terms of a business
combination between Loronix and Comverse. At the end of the meetings, the
executives and representatives of Loronix reached terms of proposed
definitive documentation that they were prepared to present to the Loronix
board.
Early in the morning hours of March 6, 2000, a meeting of the
Loronix board of directors and Loronix's financial and legal advisors was
held in Carefree, Arizona. Broadview reviewed the outstanding proposals from
Comverse and Company B and the history of the negotiations, and Loronix's
legal counsel reviewed the terms of the proposed definitive documentation.
After analysis, discussion and consideration of the proposed transactions, as
well as the written opinion of Broadview that, as of the date of its opinion,
the exchange ratio set forth in the merger agreement was fair, from a
financial point of view, to Loronix stockholders, the Loronix board
determined that the merger with Comverse was advisable and in the best
interests of Loronix and its stockholders.
At the conclusion of the board meeting, the Loronix board approved
the merger documentation, and recommended that the stockholders of Loronix
vote in favor of the merger. Loronix and Comverse then entered into the
merger agreement and the stock option agreement, and each of David Ledwell,
Jonathan Lupia, Peter Jankowski, Donald Stevens, Rodney Wilger, F. James
Price, Timothy Whitehead, and the Jankowski Family Trust entered into a
voting agreement with Comverse. Shortly thereafter, and prior to the opening
of business on March 6, 2000, Comverse and Loronix issued a press release to
announce the definitive agreement.
LORONIX'S REASONS FOR THE MERGER
Loronix's board of directors consulted with management, as well as
Broadview and WSGR, and considered a number of factors, including the factors
described below, and determined that the terms of the merger and the merger
agreement are advisable and fair to, and in the best interests of, Loronix
and its stockholders. Accordingly, Loronix's board of directors approved the
merger agreement, the stock option agreement, and the consummation of the
merger, and recommends that you vote FOR approval of the merger agreement and
the merger.
In reaching its decision, the Loronix board of directors identified
several benefits it believes will result from the merger, the most important
of which included:
- the merger will represent a significant step forward in Loronix's
strategy of remaining a global leader in digital recording and video
management systems and digital identification products;
- the combination of Loronix's proprietary software and open architecture
product design, together with Comverse's existing capital,
infrastructure, and access to capital, will provide opportunities to
realize significant benefits and long-term value to stockholders;
- Comverse stock should afford Loronix stockholders with substantially
increased trading liquidity for their investment; and
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- access to Comverse's greater resources including its size and standing
within the industry.
PLEASE NOTE THAT THE FOREGOING STATEMENTS REGARDING THE BUSINESS PROSPECTS
AND BENEFITS TO LORONIX AND COMVERSE ARE FORWARD LOOKING.
Among the factors considered by the Loronix board of directors in its
deliberations were the following:
- the financial condition, results of operations, cash flow, business and
prospects of Loronix, and Comverse, on both a historical and
prospective basis;
- the current economic and industry environment, including Loronix's
position within its industry;
- the complementary nature of the technology, products, services and
customer base of Loronix and Comverse, including that Comverse does not
presently have products that compete with Loronix's products;
- the merger would provide Loronix with access to technologies not
presently available to it;
- the merger would provide Loronix with a much larger potential customer
base;
- the merger would provide Loronix with significantly more potential
distribution channels;
- the intense competition in the digital video technology industry and
the ability of larger industry participants to increase market share
more easily than smaller participants like Loronix;
- the key strengths that Comverse will provide as a merger partner;
including breadth and expertise, distribution and logistics strength,
its strong customer relationships and its reputation as a leading
worldwide technology company;
- the fairness to Loronix of the terms of the merger agreement and the
stock option agreement, which were the product of extensive arm's
length negotiations. In particular, Loronix's board of directors
considered the stock option granted to Comverse, the events triggering
payment of the termination fee and the limitations on the ability of
Loronix to negotiate with other companies regarding an alternative
transaction, the potential effect these provisions would have on
Loronix receiving alternative proposals that could be superior to the
merger, the strategic alternatives, and the requirement by Comverse of
the granting of the stock option in order for Comverse to enter into
the merger agreement;
- the fact that the merger is expected to qualify as a tax-free
reorganization and to be accounted for using the pooling-of-interests
method of accounting;
- the analysis prepared by Broadview and presented to Loronix's board of
directors and the opinion of Broadview that, as of March 5, 2000, the
exchange ratio set forth in the merger agreement was fair, from a
financial point of view, to the holders of Loronix common stock, as
described more fully in the text of the entire opinion attached as
Annex D to this proxy statement/prospectus;
- the capital needs of Loronix if it were to remain a stand-alone
company, and that there could be no assurance that Loronix could
satisfy those capital requirements on acceptable terms; and
- the manpower, infrastructure and engineering needs of Loronix that
would potentially be more easily met if Loronix were to be acquired by
Comverse.
In assessing the transaction, the Loronix board of directors considered a
variety of information, including the following:
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- written and oral reports from Broadview on companies comparable to
Comverse and other financial analyses performed by Broadview, and
Broadview's conclusion that the proposed exchange ratio was fair from a
financial point of view to Loronix stockholders;
- historical information concerning the businesses operations, positions
and results of operations, technology and management style, competitive
position, industry trends and prospects of Loronix and Comverse;
- information contained in SEC filings of Comverse;
- current and historical market prices, volatility and trading data for
the two companies, and the premium over the closing price of Loronix
common stock on March 3, 2000, the last full trading day prior to the
board meeting at which the merger was approved, and the date on which
Loronix stock closed at the highest last-sale price in its trading
history through such date;
- information and advice based on investigations made by Mr. Ledwell, Mr.
Lupia, and Mr. P. Jankowski, and Loronix's legal and financial advisors
concerning the business, technology, services, operations, properties,
assets, financial condition, operating results and prospects of
Comverse, trends in Comverse's business and financial results and
capabilities of Comverse's management team; and
- the terms and conditions of the proposed agreement, including those
permitting the board to receive and to consider unsolicited inquiries
and proposals from, and to negotiate and give information to, third
parties in accordance with a negotiated procedure for doing so, that
the total amount that could be paid to Comverse pursuant to the
termination fee and stock option agreement was limited to $11 million,
that the fee would not, in and of itself, preclude alternative
proposals, and that Comverse had stated that it would not enter into a
transaction that did not include a termination fee to be paid in the
event of acceptance of a superior proposal.
The Loronix board of directors compared the proposal of Comverse to an
alternative acquisition proposal made by Company B and, after an extensive
comparison, determined that the Comverse proposal was superior for various
reasons, including:
- the Comverse proposal provided a significantly higher implied price per
share for Loronix stockholders compared to the alternative acquisition
proposal made by Company B;
- unlike the Company B proposal, under the Comverse proposal we have the
right to seek to terminate the merger agreement if the value of
Comverse shares to be received by you, based on a five-day average of
the daily closing prices of Comverse common stock, measured as of the
third trading day prior to the closing of the merger, is less than $36
per Loronix share, subject to Comverse's right to increase the exchange
ratio to adjust the merger consideration to $36 per Loronix share;
- the believed superior ability of Comverse to consummate a transaction,
in light of the demonstrated ability of Comverse to move quickly,
decisively and efficiently to complete due diligence and definitive
documentation prior to Company B;
- the larger size and resources of Comverse, compared to Company B;
- the values of the common stock of Comverse and the common stock of
Company B;
- analysts stock price targets and recommendations with respect to
Comverse shares and shares of Company B;
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- historical price and volume data for Comverse shares and Company B
shares; and
- historical and pro-forma combined financial statements for each of
Comverse and Company B.
Loronix's board of directors also identified and considered a number of
uncertainties and risks in its deliberations concerning the merger, including
the following:
- the risk that the potential benefits sought in the merger might not be
fully realized, if at all;
- the risk that Comverse's stock price is volatile and might decrease
significantly between the date of the merger agreement and the
closing;
- the risk that the stock option agreement, if exercisable, would
diminish the ability of a third party acquiror to account for an
acquisition of Loronix using the pooling-of-interests method of
accounting, which would reduce the number of potential acquirers; and
- the other risks associated with the businesses of Comverse, Loronix,
the merged companies and the merger, including those described in this
proxy statement/prospectus under "Risk Factors."
As a result of the foregoing considerations, Loronix's board of
directors determined that the potential advantages of the merger outweighed
the benefits of remaining an independent company. Loronix's board of
directors believes that Loronix, following its combination with Comverse,
will have a far greater opportunity than Loronix as an independent company to
compete effectively in its industry.
In view of the variety of factors considered in connection with its
evaluation of the merger, Loronix's board of directors did not find it
practicable to quantify or otherwise assign relative weights to the specific
factors considered in reaching its determination and did not do so. In
addition, many of the factors contained elements which may affect the
fairness of the merger in both a positive and negative way. Except as
described above, Loronix's board of directors, as a whole, did not attempt to
analyze each individual factor separately to determine how it impacted the
fairness of the merger. Consequently, individual members of Loronix's board
of directors may have given different weights to different factors and may
have viewed different factors as affecting the determination of fairness
differently.
RECOMMENDATION OF LORONIX'S BOARD OF DIRECTORS
AFTER CAREFUL CONSIDERATION, LORONIX'S BOARD OF DIRECTORS DETERMINED THE
MERGER TO BE ADVISABLE AND FAIR TO YOU AND IN YOUR BEST INTERESTS. THE
LORONIX BOARD OF DIRECTORS ADOPTED THE MERGER AGREEMENT AND RECOMMENDS THAT
YOU VOTE FOR APPROVAL OF THE MERGER.
In considering the recommendation of Loronix's board of directors with
respect to the merger agreement, you should be aware that some directors and
officers of Loronix have interests in the merger that are different from, or
are in addition to, the interests of Loronix stockholders generally. Please
see the section entitled "Interests of Certain Loronix Directors, Officers
and Affiliates in the Merger" on page 45 of this proxy statement/prospectus.
OPINION OF LORONIX'S FINANCIAL ADVISOR
Pursuant to a letter agreement dated as of April 6, 1999 (the fee
portion of which was revised on October 19, 1999), Broadview was engaged to
act as financial advisor to the Loronix board and to render an opinion to the
Loronix board regarding the fairness of the exchange ratio, from a financial
point of view, to Loronix stockholders. The Loronix board selected Broadview
to act as financial advisor based on Broadview's
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reputation and experience in the information technology, communication and
media sector. At the meeting of the Loronix board on March 6, 2000, Broadview
rendered its opinion that, as of March 5, 2000, based upon and subject to the
various factors and assumptions, the exchange ratio was fair, from a
financial point of view, to Loronix stockholders.
BROADVIEW'S OPINION, WHICH DESCRIBES THE ASSUMPTIONS MADE, MATTERS
CONSIDERED AND LIMITATIONS ON THE REVIEW UNDERTAKEN BY BROADVIEW, IS ATTACHED
AS ANNEX D TO THIS DOCUMENT. LORONIX STOCKHOLDERS ARE URGED TO, AND SHOULD,
READ THE BROADVIEW OPINION CAREFULLY AND IN ITS ENTIRETY. THE BROADVIEW
OPINION IS DIRECTED TO THE LORONIX BOARD AND ADDRESSES ONLY THE FAIRNESS OF
THE EXCHANGE RATIO FROM A FINANCIAL POINT OF VIEW TO THE HOLDERS OF SHARES OF
LORONIX COMMON STOCK AS OF THE DATE OF THE OPINION. THE BROADVIEW OPINION
DOES NOT ADDRESS ANY OTHER ASPECT OF THE MERGER AND DOES NOT CONSTITUTE A
RECOMMENDATION TO ANY HOLDER OF LORONIX COMMON STOCK AS TO HOW TO VOTE AT THE
LORONIX SPECIAL MEETING. THE SUMMARY OF THE BROADVIEW OPINION SET FORTH IN
THIS PROXY STATEMENT, ALTHOUGH MATERIALLY COMPLETE, IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO THE FULL TEXT OF SUCH OPINION.
In connection with rendering its opinion, Broadview, among other things:
- reviewed the terms of a draft of the Agreement dated March 5, 2000
furnished to Broadview by Loronix on March 5, 2000;
- reviewed certain publicly available financial statements and other
information of Loronix and Comverse, respectively;
- reviewed certain financial projections for Loronix prepared and
provided to Broadview by Loronix management;
- participated in discussions with Loronix and Comverse management
concerning the operations, business strategy, financial performance
and prospects for Loronix and Comverse, respectively;
- discussed the strategic rationale for the merger with Loronix
management and Comverse management;
- reviewed the reported closing prices and trading activity for Loronix
common stock and Comverse common stock;
- compared certain aspects of the financial performance of Loronix and
Comverse with other comparable public companies;
- analyzed available information, both public and private, concerning
other comparable mergers and acquisitions;
- reviewed recent equity research analyst reports covering Loronix and
Comverse;
- analyzed the anticipated effect of the merger on the future financial
performance of Comverse;
- participated in discussions related to the merger among Loronix,
Comverse and their respective advisors; and
- conducted other financial studies, analyses and investigations as
Broadview deemed appropriate for purposes of its opinion.
In rendering its opinion, Broadview relied, without independent
verification, on the accuracy and completeness of all the financial and other
information (including without limitation the representations and warranties
contained in the Agreement) that was publicly available or furnished to
Broadview by Loronix or
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Comverse. With respect to the financial projections examined by Broadview,
Broadview assumed that they were reasonably prepared and reflected the best
available estimates and good faith judgments of the management of Loronix as
to the future performance of Loronix. For purposes of Broadview's opinion,
Broadview assumed that, as of the date of Broadview's opinion, Loronix is not
currently involved in any material transaction other than the merger and
those activities undertaken in the ordinary course of conducting its business.
Broadview did not make or obtain an independent appraisal or valuation
of any of Loronix's assets. Broadview's opinion is necessarily based upon
market, economic, financial and other conditions as they exist and can be
evaluated as of March 5, 2000, and any change since such date may impact
Broadview's opinion. The Broadview opinion did not express any opinion as to
the price at which Comverse Common Stock will trade at any time.
The following is a brief summary of some of the sources of information
and valuation methodologies employed by Broadview in rendering the Broadview
opinion. These analyses were presented to the Loronix Board at its meeting on
March 6, 2000. This summary includes the financial analyses used by Broadview
and deemed to be material, but does not purport to be a complete description
of analyses performed by Broadview in arriving at its opinion. This summary
of financial analyses includes information presented in tabular format. In
order fully to understand the financial analyses used by Broadview, the
tables must be read together with the text of each summary. The tables alone
do not constitute a complete description of the financial analyses.
LORONIX STOCK PERFORMANCE ANALYSIS. Broadview compared the recent stock
performance of Loronix with that of the following indices:
- S&P 500
- The Loronix Comparable Index, consisting of the following companies:
> Optimal Robotics Corp.;
> NICE Systems Ltd.;
> Pinnacle Systems, Inc.;
> Digital Biometrics, Inc.;
> Aspeon, Inc.;
> HMG Corp;
> Printrak International Inc.; and
> PAR Technology Corp.
This index is comprised of public companies Broadview deemed
comparable to Loronix's business. Broadview selected companies
providing integrated hardware and software solutions with the
following financial operating characteristics:
> revenues between $25 million and $200 million for the
last twelve months;
> revenue growth greater than 15% for the last twelve
months; and
> positive net margins for the last twelve months.
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PUBLIC COMPANY COMPARABLES ANALYSIS. Broadview considered ratios of share
price and market capitalization, adjusted for cash and debt when necessary,
to selected historical and projected operating results in order to derive
multiples placed on a company in a particular market segment. In order to
perform this analysis, Broadview compared financial information of Loronix
with publicly available information for the companies comprising the Loronix
Comparable Index. For this analysis, as well as other analyses, Broadview
examined publicly available information, as well as a range of estimates
based on equity research analyst reports and financial projections prepared
by Loronix management.
The following table presents, as of March 5, 2000, the median multiples
and the range of multiples for the Loronix Comparable Index of Total Market
Capitalization (defined as equity market capitalization plus total debt minus
cash and cash equivalents), Equity Market Capitalization and Share Price
divided by selected operating metrics:
Median Multiple Range of Multiples
--------------- ------------------
Total Market Capitalization to Last
Twelve Months Revenue................... 3.48x 0.33x - 11.43x
Share Price to Last Twelve Months
Earnings Per Share...................... 55.53x 13.96x - 114.84x
Total Market Capitalization to
Projected Calendar Year 2000 Revenue.... 3.89x 0.99x - 5.68x
Share Price to Projected Calendar Year
2000 Earnings Per Share................. 41.82x 6.56x - 78.03x
The following table presents, as of March 5, 2000, the median implied
value and the range of implied values of Loronix's stock, calculated by using
the multiples of the index shown above and the appropriate Loronix operating
metric:
Median Implied Value Range of Implied Values
-------------------- -----------------------
Total Market Capitalization to Last
Twelve Months Revenue................. $24.10 $2.68 - $77.95
Share Price to Last Twelve Months
Earnings Per Share.................... $44.94 $11.30 - $92.94
Total Market Capitalization to
Projected Calendar Year 2000 Revenue.. $42.67 $11.19 - $62.12
Share Price to Projected Calendar
Year 2000 Earnings Per Share.......... $43.91 $6.89 - $81.93
No company utilized in the public company comparables analysis as a
comparison is identical to Loronix. In evaluating the comparables, Broadview
made numerous assumptions with respect to integrated hardware
-38-
and software solutions industry performance and general economic conditions,
many of which are beyond the control of Loronix. Mathematical analysis, such
as determining the median, average, or range, is not in itself a meaningful
method of using comparable company data.
TRANSACTION COMPARABLES ANALYSIS. Broadview considered ratios of equity
purchase price, adjusted for the seller's cash and debt when appropriate, to
selected historical operating results in order to indicate multiples
strategic and financial acquirers have been willing to pay for companies in a
particular market segment. In order to perform this analysis, Broadview
reviewed a number of transactions considered similar to the merger. Broadview
selected these transactions by choosing recent transactions involving sellers
providing integrated hardware and software solutions with revenues between
$10 million and $200 million in the last reported twelve months before their
acquisition. For this analysis, as well as other analyses, Broadview examined
publicly available information, as well as information from Broadview's
proprietary database of published and confidential merger and acquisition
transactions in the IT, communication and media industries.
In order of descending adjusted purchase price to seller's revenue
multiple, the eleven public and private company transactions used were the
acquisitions of:
- Meridian Data, Inc. by Quantum Corp.;
- ATL Products, Inc. by Quantum Corp.;
- Elron International, Inc. by Zebra Technologies Corp.;
- Percon, Inc. by PSC, Inc.;
- Checkmate Electronics, Inc. by International Verifact, Inc.;
- Kofax Image Products, Inc. by Dicom Group plc;
- Texas Micro Inc. by RadiSys Corp.;
- Motion Analysis Systems Division (The Eastman Kodak Co.) by Roper
Industries, Inc.;
- Artecon, Inc. by BoxHill Systems Corp.;
- EMASS Tape Storage Business (Raytheon Co.) by Advanced Digital
Information Corp.; and
- Scitex Digital Video, Inc. (Scitex, Inc.) by Accom, Inc.
The following table presents, as of March 5, 2000, the median multiple and
the range of multiples of adjusted price (defined as equity price plus total
debt minus cash and cash equivalents) divided by the seller's revenue; earnings
before interest, taxes, depreciation, and amortization; and earnings before
interest and taxes in the last reported twelve months prior to acquisition for
the transactions listed above:
Median Multiple Range of Multiples
--------------- ------------------
Adjusted Purchase Price to Seller's
Revenue.................................. 1.16x 0.36x - 3.61x
The following table presents, as of March 5, 2000, the median implied value
and the range of implied values of Loronix's stock, calculated by using the
multiples of both indexes, considered together, shown above and the appropriate
Loronix operating metric for the trailing twelve months ended December 31, 1999.
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Median Implied Value Range of Implied Values
-------------------- -----------------------
Adjusted Purchase Price to Seller's
Revenue.................................. $8.31 $2.89 - $24.93
No transaction utilized as a comparable in the transaction comparables
analysis is identical to the merger. In evaluating the comparables, Broadview
made numerous assumptions with respect to integrated hardware and software
solutions industry performance and general economic conditions, many of which
are beyond the control of Loronix or Comverse. Mathematical analysis, such as
determining the average, median, or range, is not in itself a meaningful method
of using comparable transaction data.
TRANSACTION PREMIUMS PAID ANALYSIS. Broadview considered the premiums paid
above a seller's share price in order to determine the additional value
strategic and financial acquirers, when compared to public stockholders, are
willing to pay for companies in a particular market segment. In order to
perform this analysis, Broadview reviewed a number of transactions involving
publicly-held hardware and software vendors. Broadview selected these
transactions from its proprietary database by choosing recent transactions
with an equity purchase price between $100 million and $500 million. These
transactions consisted of the acquisitions of:
- Isocor by Critical Path, Inc.;
- Mustang.com, Inc. by Quintus Corp;
- NetMoves Corp. by Mail.com, Inc.;
- nFront, Inc. by Digital Insight Corp.;
- Edify Corp. by Security First Technologies;
- Summa Four, Inc. by Cisco Systems, Inc.;
- SEEQ Technology, Inc. by LSI Logic Corp.;
- WorldTalk Communications Corp. by Tumbleweed Communications Corp.;
- Cybermedia, Inc. by Network Associates, Inc.;
- Mylex Corp. by IBM Corp.;
- Oshap Technologies Ltd. by Sungard Data Systems Inc.;
- Teltrend Corp. by Westell Technologies, Inc.;
- Scopus Technology Inc. by Siebel Systems Inc.;
- ATL Products, Inc. by Quantum Corp.
- Softworks, Inc. by EMC Corp.;
- Trusted Information Systems Inc. by Network Associates Inc.;
- Faroudja, Inc. by Sage, Inc.;
- Texas Micro, Inc. by Radisys Corp.;
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- Integrated Systems, Inc. by Wind River Systems, Inc.;
- STB Systems, Inc. by 3DFX Interactive, Inc.;
- Trident International, Inc. by Illinois Tool Works, Inc.;
- Imnet Systems Inc. by HBO & Company;
- Transition Systems, Inc. by Eclipsys Corp.;
- Moore Products Company by Siemens AG;
- Wonderware Corp. by Siebe Plc;
- Vertex Communications Corp. by Tripoint Global Communications, Inc.;
- OrCAD Inc. by Cadence Design Systems Inc.;
- Benmarq Microelectronics, Inc. by Unitrode Corp.;
- Computer Language Research Inc. by Thomson Corp.;
- Brite Voice Systems, Inc. by Intervoice, Inc.;
- Continental Circuits Corp. by Hadco Corp.;
- Caere Corp. by Scansoft, Inc.;
- Positron Fiber Systems Corp. by Reltec Corp.;
- FDP Corp. by SunGard Data Systems Inc.;
- Logic Works, Inc. by PLATINUM technology, inc.;
- Information Advantage, Inc. by Sterling Software, Inc.;
- Plasma-Therm, Inc. by Oerlikon-Buhrle Holding AG;
- Award Software International, Inc. by Phoenix Technologies Ltd.;
- Cade Industries, Inc. by United Technologies Corp.;
- Eltron International, Inc. by Zebra Technologies Corp.;
- Walsh International, Inc. by Cognizant Corp.;
- Powerhouse Technologies, Inc. by Anchor Gaming;
- Vantive Corp. by Peoplesoft, Inc.;
- The ForeFront Group by CBT Group plc;
- Shiva Corp. by Intel Corp.;
- Memco Software Ltd. by Platinum Technology Inc.;
- Best Software, Inc. by Sage Group PLC (Sage US, Inc.);
- Integrated Circuit Systems by Investor Group;
- Zero Corp. by Applied Power, Inc.;
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- Mosaix Inc. by Lucent Technologies, Inc.;
- BGS Systems Inc. by BMC Software Inc.;
- Daniel Industries, Inc. by Emerson Electric Company;
- PC DOCS Group International Inc. by Hummingbird Communications Ltd.;
- Instron Corp. by Kirtland Capital Partners;
- State Of The Art, Inc. by Sage Group plc;
- International Telecommunications Data Systems, Inc. by Amdocs Ltd.;
- Aavid Thermal Technologies, Inc. by Willis Stein & Partners LP;
- Periphonics Corp. by Nortel Networks Corp.;
- Watkins-Johnson Company by Fox Paine & Company LLC;
- Banctec, Inc. by Welsh, Carson, Anderson & Stowe;
- Premisys Communications, Inc. by Zhone Technologies, Inc.;
- Integrated Process Equipment Corp. by SpeedFam International, Inc.;
- NACT Telecommunications, Inc. by World Access, Inc.;
- Control Devices, Inc. by First Technology plc;
- Simulation Sciences, Inc. by Siebe plc;
- XcelleNet, Inc. by Sterling Commerce, Inc.;
- Interactive Pictures Corp. and Bamboo.com; and
- Diamond Multimedia Systems, Inc. by S3, Inc.
The following table presents, as of March 5, 2000, the median premium and
the range of premiums for these transactions calculated by dividing
1) the offer price per share minus the closing share price of the
seller's common stock twenty trading days or one trading day prior to
the public announcement of the transaction, by
2) the closing share price of the seller's common stock twenty trading
days or one trading day prior to the public announcement of the
transaction:
Median Premium Range of Premiums
-------------- -----------------
Premium Paid to Seller's Share Price
20 Trading Days Prior to Announcement... 57.2% (2.5%) - 233.2%
Premium Paid to Seller's Share Price
1 Trading Day Prior to Announcement..... 29.6% (13.7%) - 132.4%
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The following table presents the median implied value and the range of
implied values of Loronix's stock, calculated by using the premiums shown
above and Loronix's share price twenty trading days and one trading day prior
to March 5, 2000:
Median Implied Value Range of Implied Values
-------------------- -----------------------
Premium Paid to Seller's Share Price
20 Trading Days Prior to Announcement... $39.49 $24.51 - $83.73
Premium Paid to Seller's Share Price
1 Trading Day Prior to Announcement..... $40.67 $27.07 - $72.93
No transaction utilized as a comparable in the transaction premiums paid
analysis is identical to the merger. In evaluating the comparables, Broadview
made numerous assumptions with respect to integrated hardware and software
solutions industry performance and general economic conditions, many of which
are beyond the control of Loronix or Comverse. Mathematical analysis, such as
determining the average, median, or range, is not in itself a meaningful
method of using comparable transaction data.
PRESENT VALUE OF PROJECTED SHARE PRICE ANALYSIS. Broadview calculated the
present value of potential future share prices of Loronix common stock on a
standalone basis using analyst estimates and management-provided projections
for the twelve months ending December 31, 2000. The implied share price,
calculated by using analyst estimates, the median price to last twelve months
earnings multiple for the Loronix Comparable Index and a discount rate
determined by the Capital Asset Pricing Model with the risk implied by the
past stock performance of the Loronix Comparable Index, was $50.93. The
implied share price, calculated by using management-provided projections, the
median price to last twelve months earnings multiple for the Loronix
Comparable Index and a discount rate determined by the Capital Asset Pricing
Model with the risk implied by the past stock performance of the Loronix
Comparable Index, was $58.21.
HISTORICAL IMPLIED EXCHANGE RATIO ANALYSIS. Broadview reviewed the ratios of
the closing prices of Loronix Common Stock divided by the corresponding
prices of Comverse Common Stock over the period from March 5, 1999 to March
3, 2000, in contrast with the exchange ratio defined in the agreement. Based
on this analysis, the historical exchange ratio has ranged from 0.1408 to
0.4454 with an average of 0.2710.
COMVERSE STOCK PERFORMANCE ANALYSIS. Broadview compared the recent stock
performance of Comverse with that of the following indices:
- S&P 500
- The Comverse Comparable Index, consisting of the following companies:
> Cisco Systems, Inc.;
> Tekelec;
> Tellabs, Inc.;
> LM Ericsson Telephone Co;
> Nortel Networks Corp.;
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> Lucent Technologies Inc.; and
> ADC Telecommunications, Inc.
This index is comprised of public companies Broadview deemed
comparable to Comverse. Broadview selected companies competing in
the computer telephony industry with revenue for the last twelve
months greater than $200 million and positive revenue growth.
EVALUATION OF COMVERSE EQUITY. Broadview compared financial information of
Comverse with publicly available information for companies in the Comverse
Comparable Index. For this analysis, as well as other analyses, Broadview
examined publicly available information, as well as a range of estimates
based on equity research analyst reports.
PRO FORMA COMBINATION ANALYSIS. Broadview calculated the pro forma impact of
the merger on the combined entity's projected earnings per share for the
fiscal year ending January 31, 2001, taking into consideration various
financial effects which will result from consummation of the merger. This
analysis relies upon certain financial and operating assumptions provided by
equity research analysts and publicly available data about Comverse and
Loronix. Broadview assumed that the merger would be treated as a
pooling-of-interests transaction and that no opportunities for cost savings
or revenue enhancements exist. Based on this analysis, the pro forma pooling
model indicates that the merger would not result in earnings per share
dilution for shareholders of the combined entity excluding acquisition
expenses, for the fiscal year ending January 31, 2001.
In connection with the review of the merger by the Loronix Board,
Broadview performed a variety of financial and comparative analyses. The
summary set forth above does not purport to be a complete description of the
analyses performed by Broadview in connection with the merger.
The preparation of a fairness opinion is a complex process and is not
necessarily susceptible to partial analysis or summary description. In
arriving at its opinion, Broadview considered the results of all of its
analyses as a whole and did not attribute any particular weight to any
analysis or factor considered by it. Furthermore, Broadview believes that
selecting any portion of its analyses, without considering all analyses,
would create an incomplete view of the process underlying its opinion.
In performing its analyses, Broadview made numerous assumptions with
respect to industry performance and general business and economic conditions
and other matters, many of which are beyond the control of Loronix or
Comverse. The analyses performed by Broadview are not necessarily indicative
of actual values or actual future results, which may be significantly more or
less favorable than suggested by such analyses. The exchange ratio pursuant
to the merger agreement and other terms of the merger agreement were
determined through arm's length negotiations between Loronix and Comverse,
and were approved by Loronix's Board. Broadview provided advice to Loronix's
Board during such negotiations; however, Broadview did not recommend any
specific consideration to Loronix's Board or that any specific consideration
constituted the only appropriate consideration for the merger. In arriving at
its opinion, Broadview was not authorized to solicit, and did not solicit,
interest from any party with respect to the acquisition, business combination
or other extraordinary transaction involving Loronix, although, in the course
of its engagement, Broadview did provide advice to Loronix in connection with
potential business combinations with parties other than Comverse. In
addition, Broadview's opinion and presentation to Loronix's Board was one of
many factors taken into consideration by Loronix's Board in making its
decision to approve the merger. Consequently, the Broadview analyses as
described above should not be viewed as
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determinative of the opinion of Loronix's Board with respect to the value of
Loronix or of whether Loronix's Board would have been willing to agree to a
different consideration.
Pursuant to a letter agreement dated as of April 6, 1999, (the fee
portion of which was revised on October 19, 1999), Broadview was engaged to
act as financial advisor to Loronix's Board and to render an opinion to the
Loronix Board regarding the fairness of the exchange ratio, from a financial
point of view, to Loronix stockholders in the merger. Upon consummation of
the merger, Loronix will be obligated to pay Broadview a transaction fee,
dependent upon Comverse's closing price prior to the transaction or which, by
way of example, would be approximately $2,172,000 based on the closing price
of the Comverse common stock on _____ ___, 2000. Loronix has already paid
Broadview a fairness opinion fee of $200,000. The fairness opinion fee will
be credited against the transaction fee payable by Loronix upon completion of
the merger. In addition, Loronix has agreed to reimburse Broadview for its
reasonable expenses, including fees and expenses of its counsel, and to
indemnify Broadview and its affiliates against certain liabilities and
expenses related to their engagement, including liabilities under the federal
securities laws. The terms of the fee arrangement with Broadview, which
Loronix and Broadview believe are customary in transactions of this nature,
were negotiated at arm's length between Loronix and Broadview, and the
Loronix Board was aware of the nature of the fee arrangement, including the
fact that a significant portion of the fees payable to Broadview is
contingent upon completion of the merger.
INTERESTS OF CERTAIN LORONIX DIRECTORS, OFFICERS AND AFFILIATES IN THE MERGER
When considering the recommendation of Loronix's board of directors, you
should be aware that Loronix's directors and officers have interests in the
merger that are different from, or are in addition to, your interests. In
particular, some of the directors and officers of Loronix participate in
arrangements and have continuing indemnification against liabilities that
provide them with interests in the merger that are different from, or are in
addition to, your interests.
Under the merger agreement, Comverse has agreed to honor Loronix's
obligations under indemnification agreements between Loronix and its
directors and officers in effect before the completion of the merger and any
indemnification provisions of Loronix's articles of incorporation and bylaws.
Comverse has also agreed to provide for indemnification provisions in the
articles of incorporation and bylaws of the surviving corporation of the
merger that are at least as favorable as Loronix's provisions and to maintain
these provisions for at least six (6) years from the completion of the merger.
In addition, Comverse has agreed to obtain and maintain directors' and
officers' liability insurance for Loronix's directors and officers, for five
(5) years from the effective time of the merger, consistent with insurance
coverage provided for Comverse's or its subsidiaries' directors and officers
of similar position.
Further, Comverse has agreed to cause certain directors of Loronix,
namely Messrs. C. Rodney Wilger, Donald W. Stevens and Louis E. Colonna, to
be elected to the board of directors of Loronix following the merger through
May, 2003, provided that such directors desire to continue to so serve. We do
not expect that they will receive any additional compensation for continuing
to act as directors.
The officers of Loronix at the effective time of the merger will
continue to be the initial officers of Loronix after the merger, to hold
office until their successors are elected or appointed or until their earlier
resignation or removal. Comverse has agreed to enter into employment
agreements with certain officers of Loronix. In connection with the merger,
David Ledwell, the Chief Executive Officer and President of Loronix, Peter
Jankowski, the Chief Technical Officer of Loronix, and Jonathan Lupia, the
Chief Operating
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Officer, Chief Financial Officer and Secretary of Loronix, will enter into
employment agreements with Loronix.
Under the terms of the employment agreements for Messrs. Ledwell and
Lupia, they will have minimum salaries and bonus opportunities for a term of
two years following the effective date of the merger. Their minimum salaries
will be $200,000 and $140,000 per year, respectively. Their bonus
opportunities will be $70,000 and $42,000 for fiscal year 2000, respectively.
In addition, Mr. Ledwell will receive options to purchase 24,000 shares
Comverse common stock (after giving effect to the two-for-one split completed
on April 3, 2000) in lieu of options Loronix had previously undertaken to
grant to Mr. Ledwell, which had not yet been granted as of the date of merger
agreement. Mr. Lupia will receive options to purchase 10,000 shares of the
Comverse common stock (after giving effect to the two-for-one split completed
on April 3, 2000). Mr. Ledwell will continue in his positions as Chief
Executive Officer and President of Loronix and Mr. Lupia will continue in the
capacity of Chief Financial Officer of Loronix. Under the agreements, either
Loronix or the employee may, at any time during the employment term,
terminate employment on six months prior notice.
Under the terms of the employment agreement for Mr. Jankowski, he will
receive a minimum salary of $150,000 per year for a term of three years
following the effective date of the merger. Mr. Jankowski will also receive a
bonus opportunity of $45,000 for fiscal year 2000, as well as options to
purchase 16,000 shares of Comverse common stock (after giving effect to the
two-for-one split completed on April 3, 2000). Mr. Jankowski will continue in
the capacity of Chief Technical Officer of Loronix. Under the agreement,
either Loronix or Mr. Jankowski may, at any time during the employment term,
terminate employment on one year prior notice.
The terms of the employment agreements also contain non-competition and
non-solicitation covenants. Under the non-competition and nonsolicitation
covenants, those officers will agree neither to solicit Loronix's or its
affiliate's (including Comverse's) employees, nor compete with Loronix or its
affiliates (including Comverse), during the term of the respective employment
agreement and for two years after termination, in the design, development,
marketing, licensing and/or sale of closed circuit television recording and
video management products, digital identification products, or other products
that enable the provision of services similar to the services available on
Loronix's existing or planned systems and software known by them on the date
hereof or on the date of termination of his employment.
Following the merger, Ed Jankowski, the Chairman of the Loronix board of
directors, will be an employee of Loronix and receive an annual salary of
$150,000 through December 31, 2000 and $12,000 thereafter through January 6,
2002. F. James Price, a Vice President of Loronix, will be an employee of
Loronix and receive an annual salary of $75,000 in 2000 and $37,500
thereafter through January 6, 2002.
As a result of these interests, these directors and officers of Loronix
could be more likely to vote to approve the merger agreement than if they did
not hold these interests. Loronix's stockholders should consider whether
these interests may have influenced these directors and officers to support
or recommend the merger.
COMPLETION AND EFFECTIVENESS OF THE MERGER
The merger will be completed when all of the conditions to completion of
the merger are satisfied or waived, including approval of the merger
agreement by the stockholders of Loronix, and the merger becomes
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effective. The merger will become effective upon the filing of articles of
merger with the Secretary of State of the State of Nevada.
Comverse and Loronix are working towards completing the merger as
quickly as possible and hope to complete the merger by July 31, 2000.
UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS OF THE MERGER
The following is a discussion of the material United States federal
income tax consequences of the merger and is based on and subject to the
Internal Revenue Code of 1986, as amended, the regulations promulgated
thereunder, existing administrative interpretations and court decisions, all
of which are subject to change, possibly with retroactive effect. 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 not citizens or residents of the United States;
- stockholders who do not hold their shares of Loronix common stock as
capital assets within the meaning of Section 1221 of the Internal
Revenue Code;
- stockholders subject to the alternate minimum tax provisions of the
Internal Revenue Code;
- financial institutions;
- tax-exempt organizations;
- insurance companies;
- dealers in securities;
- mutual funds;
- stockholders who acquired their shares of Loronix or Comverse
common stock pursuant to the exercise of options or similar
derivative securities or otherwise as compensation; and
- stockholders who hold their shares of Loronix common stock as part
of a hedge, straddle or other risk reduction, constructive sale or
conversion transaction.
In addition, we do not discuss the tax consequences of the merger under
foreign, state or local tax laws, 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,
including, without limitation, any transactions in which Loronix shares are
acquired or shares of Comverse are disposed of, or the tax consequences to
holders of options, warrants or similar rights to acquire Loronix common
stock.
Loronix has received from its counsel, WSGR, an opinion to the effect
that the merger will be treated for federal income tax purposes as a tax-free
reorganization within the meaning of Section 368(a) of the Internal Revenue
Code. Comverse has received from its counsel, Weil, Gotshal & Manges LLP, an
opinion to the effect that the merger will be treated for federal income tax
purposes as a tax-free reorganization within the meaning of Section 368(a) of
the Internal Revenue Code. In rendering their opinions, counsel of each of
Loronix and Comverse have relied upon representations made by Loronix,
Comverse and certain stockholders of Loronix. The opinions neither bind 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
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Comverse nor Loronix intends to obtain a ruling from the IRS with respect to
the tax consequences of the merger.
The merger is intended to constitute a reorganization within the meaning
of Section 368(a) of the Internal Revenue Code. In the event the merger so
qualifies, the following tax consequences will result:
TAX IMPLICATIONS TO LORONIX STOCKHOLDERS
Except as discussed below, with respect to cash received in lieu of
fractional shares, you will not recognize gain or loss for United States
federal income tax purposes when you exchange your Loronix common stock for
Comverse common stock pursuant to the merger. The aggregate tax basis of the
Comverse common stock you receive as a result of the merger will be the same
as your aggregate tax basis in the Loronix common stock you surrender in
exchange for the Comverse common stock, reduced by the tax basis of any
shares of Loronix common stock for which you receive cash instead of
fractional shares of Comverse common stock. The holding period of the
Comverse common stock you receive as a result of the exchange will include
the period during which you held the Loronix common stock you exchange in the
merger.
You will recognize gain or loss for United States federal income tax
purposes with respect to the cash you receive instead of a fractional share
interest in Comverse common stock. Your gain or loss will be measured by the
difference between the amount of cash you receive and the portion of the tax
basis of your shares of Loronix common stock allocable to the shares of
Loronix common stock exchanged for such fractional share interest. This gain
or loss will be capital gain or loss and will be a long-term capital gain or
loss if you have held your shares of Loronix common stock for more than one
year at the time the merger is completed.
If the Internal Revenue Service successfully challenges the status of
the merger as a reorganization, you would generally recognize taxable gain or
loss with respect to your shares of Loronix common stock surrendered equal to
the difference between your basis in such shares and (i) the fair market
value, as of the completion of the merger, of the Comverse common stock, and
(ii) cash in lieu of a fractional share of Comverse common stock, received in
exchange therefor. In such event, your aggregate basis in the Comverse common
stock so received would equal its fair market value as of the effective time
of the merger, and your holding period for such stock would begin the day
after the merger.
TAX IMPLICATIONS TO COMVERSE, LORONIX AND COMVERSE ACQUISITION
Comverse, Loronix and Comverse Acquisition will not recognize gain or
loss for United States federal income tax purposes solely as a result of the
merger.
BACKUP WITHHOLDING
Under the Internal Revenue Code, you may be subject, under certain
circumstances, to backup withholding at a rate of 31% with respect to the
amount of cash, if any, received in lieu of fractional shares, unless you
provide proof of an applicable exemption or a correct taxpayer identification
number, and otherwise comply with the applicable requirements of the backup
withholding rules. Any amount withheld under such rules is not an additional
tax and may be refunded or credited against your federal income tax
liability, provided that the required information is furnished to the IRS.
THE FOREGOING DISCUSSION IS NOT INTENDED TO BE A COMPLETE ANALYSIS OR
DESCRIPTION OF ALL POTENTIAL UNITED STATES FEDERAL TAX CONSEQUENCES OR ANY
OTHER CONSEQUENCES OF THE MERGER. IN ADDITION, THE
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DISCUSSION DOES NOT ADDRESS TAX CONSEQUENCES THAT 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 AND ANY APPLICABLE FOREIGN INCOME OR OTHER TAX CONSEQUENCES TO
YOU OF THE MERGER.
ACCOUNTING TREATMENT OF THE MERGER
Comverse intends to account for the merger as a pooling-of-interests
business combination. It is a condition to completion of the merger that
Comverse be advised by Deloitte & Touche LLP that the accounting of the
merger as a pooling-of-interests is appropriate if the merger is consummated
as contemplated. Further, Loronix must be advised by KPMG, that Loronix is
not precluded from entering into a merger accounted for under the
pooling-of-interests method of accounting for business combinations.
Under the pooling-of-interests method of accounting, each of Comverse's
and Loronix's historical recorded assets and liabilities will be carried
forward to the combined company at their recorded amounts. In addition, the
operating results of the combined company will include Comverse's and
Loronix's operating results for the entire fiscal year in which the merger is
completed and Comverse's and Loronix's historical reported operating results
for prior periods will be combined and restated as the operating results of
the combined company.
REGULATORY FILINGS AND APPROVALS REQUIRED TO COMPLETE THE MERGER
The merger is subject to the requirements of the Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended, which prevents some
transactions from being completed until required information and materials
are furnished to the Antitrust Division of the Department of Justice and the
Federal Trade Commission and related waiting periods end or expire. Comverse
and Loronix have made the required filings with the Department of Justice or
the Federal Trade Commission and have been granted early termination of the
applicable waiting period, as of April 14, 2000. The requirements of
Hart-Scott-Rodino have been satisfied provided the merger is completed within
one year from the termination of the waiting period.
However, the Antitrust Division of the Department of Justice or the
Federal Trade Commission may challenge the merger on antitrust grounds either
before or after expiration of the waiting period. Accordingly, at any time
before or after the completion of the merger, either the Antitrust Division
of the Department of Justice or the Federal Trade Commission could take
action under the antitrust laws as it deems necessary or desirable in the
public interest, or another person could take action under the antitrust
laws, including seeking to enjoin the merger. Additionally, at any time
before or after the completion of the merger, notwithstanding that the
applicable waiting period of the Hart-Scott-Rodino requirements has been
terminated, any state could take action under the antitrust laws as it deems
necessary or desirable in the public interest. Comverse and Loronix cannot be
sure that a challenge to the merger will not be made or that, if a challenge
is made, Comverse and Loronix will prevail.
RESTRICTIONS ON SALES OF SHARES BY AFFILIATES OF LORONIX AND COMVERSE
The shares of Comverse common stock to be issued in connection with the
merger will be registered under the Securities Act of 1933, as amended, and
will be freely transferable under the Securities Act, except for shares of
Comverse common stock issued to any person who is deemed to be an affiliate
of either Comverse or Loronix at the time of the special meeting. Persons who
may be deemed to be affiliates include
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individuals or entities that control, are controlled by, or are under common
control with either Comverse or Loronix and may include some of our officers
and directors, as well as our principal stockholders. Some affiliates of
Loronix entered into affiliate agreements in connection with the merger. See
"The Merger -- Affiliate Agreements." Affiliates may not sell their shares of
Comverse common stock acquired in connection with the merger except:
- under an effective registration statement under the Securities Act
covering the resale of those shares, under an exemption under
paragraph (d) of Rule 145 under the Securities Act, or under any other
applicable exemption under the Securities Act; and
- otherwise in accordance with an applicable affiliate agreement.
Comverse's registration statement on Form S-4, of which this proxy
statement/prospectus forms a part, does not cover the resale of shares of
Comverse common stock to be received by affiliates in the merger.
LISTING ON THE NASDAQ NATIONAL MARKET OF COMVERSE COMMON STOCK TO BE ISSUED
IN THE MERGER
It is a condition to closing the merger that Comverse cause the shares
of Comverse common stock to be issued in the merger to be approved for
listing on the Nasdaq National Market, subject to official notice of issuance.
DISSENTERS' RIGHTS OF APPRAISAL
Under Nevada law, there is no dissenters' rights of appraisal with
respect to a plan of merger or exchange in favor of stockholders of any class
or series which, at the record date fixed to determine the stockholders
entitled to receive notice of and to vote at the meeting at which the plan of
merger or exchange is to be acted upon, were listed on the Nasdaq National
Market, unless the articles of incorporation provide otherwise, or the
holders are required under the plan of merger or exchange to accept for their
shares anything other than cash, stock or stock and cash in lieu of
fractional shares of the surviving or acquiring entity, or any other entity
which, at the effective date of the plan of merger or exchange, were listed
on the Nasdaq National Market.
The articles of incorporation of Loronix do not provide appraisal rights
to Loronix stockholders. As of _____ ___, 2000, the record date, shares of
Loronix common stock to be exchanged in the merger will have been listed on
the Nasdaq National Market on such date. The holders of Loronix shares will
be required under the merger agreement to accept stock and cash in lieu of
fractional shares of Comverse, which stock will, at the effective date of the
merger, be listed on the Nasdaq National Market. Accordingly, stockholders of
Loronix do not have dissenters' rights of appraisal under Nevada law with
respect to the merger.
DE-LISTING AND DE-REGISTRATION OF LORONIX COMMON STOCK AFTER THE MERGER
If the merger is completed, Loronix common stock will be de-listed from
the Nasdaq National Market, and will be de-registered under the Securities
Exchange Act of 1934.
DIVIDEND POLICY
Neither Comverse nor Loronix has ever paid a cash dividend on its common
stock since its inception and neither anticipates paying any cash dividends
in the foreseeable future.
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THE MERGER AGREEMENT AND RELATED AGREEMENTS
THE FOLLOWING IS A BRIEF SUMMARY OF CERTAIN PROVISIONS OF THE MERGER
AGREEMENT, A COPY OF WHICH IS ATTACHED AS ANNEX A TO THIS PROXY
STATEMENT/PROSPECTUS AND IS INCORPORATED HEREIN BY REFERENCE, AS WELL AS CERTAIN
PROVISIONS OF THE STOCK OPTION AGREEMENT AND OTHER RELATED AGREEMENTS. THIS
SUMMARY IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE MERGER AGREEMENT, THE
STOCK OPTION AGREEMENT AND THE OTHER RELATED AGREEMENTS. YOU SHOULD READ THE
MERGER AGREEMENT, THE STOCK OPTION AGREEMENT AND THE VOTING AGREEMENT CAREFULLY
FOR A MORE COMPLETE UNDERSTANDING OF THEM.
THE MERGER
The merger agreement provides that, following the approval of the merger
agreement by the stockholders of Loronix and the satisfaction or waiver of the
other conditions to the merger, Comverse Acquisition, a direct wholly-owned
subsidiary of Comverse will merge with and into Loronix with Loronix continuing
as the surviving corporation. Upon the closing of the merger, we will file
Articles of Merger with the Secretary of State of the State of Nevada, at which
time the merger will become effective.
MERGER CONSIDERATION
Under the merger agreement, each share of Loronix common stock outstanding
immediately prior to the effective time of the merger, together with all
associated rights under the Loronix Preferred Shares Rights Agreement, will, at
the effective time, be converted into the right to receive 0.385 shares of
Comverse common stock. This is different than the ratio stated in the merger
agreement, since it gives effect to a two-for-one stock split by Comverse that
was completed on April 3, 2000, after the date on which Comverse and Loronix
entered into the merger agreement. However, if the value of the Comverse shares
of common stock to be received by you, based on a five day trading average of
closing prices measured as of the third trading day prior to the effective time,
is less than $36 per Loronix share, Loronix will have the right to seek to
terminate the agreement and, subsequently, Comverse will have the right to
provide written notice ("top-up notice") to Loronix that it will adjust the
consideration to $36 per share. If Comverse delivers the top-up notice, the
merger agreement will not terminate and you will be entitled to receive, for
each share of Loronix common stock outstanding immediately prior to the
effective time, the fraction of a share of Comverse equal to $36, based on the
same Comverse share price measurement period. Any shares of Loronix common stock
held by Loronix or owned by Comverse or any subsidiary of Loronix will be
canceled without any payment for those shares.
It is not possible to know until the date on which we calculate the average
trading price of Comverse common stock for the applicable measurement period
whether the consideration to be received by you will be less than $36 per
Loronix share. The Loronix board of directors has not decided whether it will
cause Loronix to exercise its right to seek to terminate the merger agreement if
the average trading price of Comverse common stock for the applicable
measurement period will cause the consideration to be received by you to be less
than $36 per share. Similarly, Comverse has not decided whether it would
exercise its related right to increase the merger consideration in the event
that Loronix chooses to seek to terminate the merger agreement. Accordingly, we
cannot assure you that Loronix will exercise its right to terminate the merger
agreement if the average trading price of Comverse common stock for the
applicable measurement period will cause the consideration to be received by you
to be less than $36 per share and, if Loronix does elect to terminate the merger
agreement, we cannot assure you that Comverse will elect to increase the merger
consideration.
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YOUR APPROVAL OF THE MERGER AGREEMENT WILL GIVE THE LORONIX BOARD OF
DIRECTORS DISCRETION IN THE EVENT THAT THE CONSIDERATION TO BE RECEIVED BY YOU
IS LESS THAN $36 PER SHARE, TO SEEK TO TERMINATE THE MERGER AND TO TAKE THE RISK
THAT COMVERSE MAY OR MAY NOT ELECT TO INCREASE THE CONSIDERATION TO BE RECEIVED
TO $36 PER LORONIX SHARE. THE BOARD OF DIRECTORS WILL ALSO HAVE THE DISCRETION
NOT TO SEEK TO TERMINATE THE MERGER IN WHICH CASE YOU WILL RECEIVE LESS THAN $36
PER SHARE.
In any event, no fraction of a share of Comverse common stock will be
issued. Instead, each holder of shares of Loronix common stock who would
otherwise be entitled to a fraction of a share of Comverse common stock (after
aggregating all fractional shares of Comverse common stock to be received by the
holder) will be entitled to receive from Comverse an amount of cash equal to the
product of (i) the fraction and (ii) the closing price of one share of Comverse
common stock as reported on the Nasdaq National Market for the date of the
Effective Time.
EXCHANGE OF SHARES
Comverse will appoint an exchange agent to handle the exchange of Loronix
stock certificates in the merger for Comverse stock and the payment of cash for
any fractional shares of Loronix stock. As soon as reasonably practicable, the
exchange agent will send each holder of Loronix stock a letter of transmittal
for use in the exchange and instructions explaining how to surrender Loronix
stock certificates to the exchange agent. The holders of Loronix stock that
surrender their certificates to the exchange agent, together with a properly
completed letter of transmittal, will receive the appropriate merger
consideration.
The holders of unexchanged shares of Loronix stock will not be entitled to
receive any dividends or other distributions payable with respect to Comverse's
stock after the closing until their certificates are surrendered.
YOU SHOULD NOT FORWARD LORONIX STOCK CERTIFICATES TO THE EXCHANGE AGENT
UNTIL YOU HAVE RECEIVED TRANSMITTAL FORMS. YOU SHOULD NOT RETURN LORONIX STOCK
CERTIFICATES WITH THE ENCLOSED PROXY.
TREATMENT OF LORONIX OPTIONS
At the effective time, each outstanding option granted by Loronix to
purchase shares of Loronix common stock will be assumed by Comverse and
converted into an option to acquire Comverse common stock having the same terms
and conditions that the Loronix stock option had before the effective time of
the merger. The number of shares that the new Comverse option will be
exercisable for, and the exercise price of the new Comverse option will reflect
the same exchange ratio applicable to Loronix stockholders in the merger.
CONDITIONS TO COMPLETION OF THE MERGER
MUTUAL CLOSING CONDITIONS
The obligations of Comverse and Loronix to complete the merger are subject
to the satisfaction or, to the extent legally permissible, waiver of the
following conditions:
- approval of the merger agreement by Loronix stockholders;
- expiration or termination of the waiting period under the
Hart-Scott-Rodino Antitrust Improvements Act (early termination
having been granted as of April 14, 2000);
- receipt of written agreements from Comverse's and Loronix's
affiliates, not later than 45 days prior to the Loronix
stockholder meeting;
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- absence of any law of any governmental entity prohibiting the
merger;
- Comverse's registration statement on Form S-4 being effective and
not subject to any stop order by the SEC;
- approval for listing on the Nasdaq National Market of the shares
of Comverse to be issued in the merger; and
- receipt of letters from the independent public accountants of
Comverse and Loronix, respectively, stating that pooling-of-
interests accounting treatment for the merger is appropriate.
ADDITIONAL CLOSING CONDITIONS FOR COMVERSE'S AND COMVERSE ACQUISITION'S
BENEFIT
Comverse's and Comverse Acquisition's obligations to complete the
merger are subject to the following additional conditions:
- accuracy, as of the closing date, of the representations and
warranties of Loronix to the extent specified in the merger
agreement;
- Loronix's performance in all material respects with the
obligations required under all agreements and conditions contained
in the merger agreement at or prior to the closing;
- receipt of a certificate, dated as of the closing, signed by the
President or Vice President of Loronix certifying the fulfillment
of the two prior conditions;
- receipt of an opinion of Comverse's counsel that the merger will
qualify as tax-free reorganization within the meaning of Section
368(a) of the Internal Revenue Code;
- receipt of all authorizations, consents or approvals of a
governmental entity required in connection with execution of the
merger agreement and the performance of the obligations under the
merger agreement; and
- execution of the employment agreements of Messrs. David Ledwell,
Jonathan Lupia and Peter Jankowski.
ADDITIONAL CLOSING CONDITIONS FOR LORONIX'S BENEFIT
Loronix's obligation to complete the merger is subject to the following
additional conditions:
- accuracy, as of the closing date, of the representations and
warranties of Comverse and Comverse Acquisition to the extent
specified in the merger agreement;
- Comverse's performance in all material respects with the
obligations required under all agreements and conditions contained
in the merger agreement at or prior to the closing;
- receipt of a certificate, dated as of the closing, signed by the
President or Vice President of Comverse certifying the fulfillment
of the two prior conditions; and
- receipt of an opinion of Loronix's counsel that the merger will
qualify as a tax-free reorganization within the meaning of Section
368(a) of the Internal Revenue Code.
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REPRESENTATIONS AND WARRANTIES
The merger agreement contains representations and warranties made by
Loronix on the one hand, and Comverse and Comverse Acquisition, on the other
hand. The most significant representations made by Loronix, Comverse and
Comverse Acquisition relate to:
- corporate existence and qualification
- capitalization of itself and subsidiaries
- authorization to enter into the contemplated transaction
- consents and approvals required in connection with the contemplated
transaction
- absence of undisclosed liabilities
- absence of changes
- filings with the SEC
- financial statements
- information provided for inclusion in this registration statement
on Form S-4
- litigation
- accounting matters
- tax matters
In addition Loronix made additional representations and warranties. The
most significant relate to:
- absence of any breach of organizational documents, law or certain
material agreements as a result of the contemplated transaction
- real property
- compliance with laws
- employee benefit matters
- labor matters
- environmental matters
- material contracts
- insurance
- intellectual property
- products
Loronix also represents and warrants to Comverse, as to certain other
matters including the inapplicability of both the Nevada anti-takeover statute
and the Loronix Preferred Shares Rights Agreement to the merger.
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COVENANTS
Each of Loronix, Comverse and Comverse Acquisition has undertaken certain
covenants in the merger agreement. The following summarizes the more significant
of these covenants:
INTERIM OPERATIONS OF LORONIX
Loronix has undertaken a covenant that places restrictions on it and its
subsidiaries until the effective time of the merger. Loronix and its
subsidiaries are required to conduct its business in the ordinary course
consistent with past practice, and to use reasonable best efforts to preserve
intact and keep available its business organization, services of its current
officers and employees and relationships with third parties. Loronix and its
subsidiaries have also agreed to some specific restrictions which are subject to
exceptions described in the merger agreement. The following summarizes the more
significant of these restrictions undertaken by Loronix and its subsidiaries:
- no amending its charter or bylaws or amending, modifying or
terminating its Preferred Shares Rights Agreement;
- no issuing, selling, delivering or agreeing or committing to issue,
sell or deliver any stock of any class or any other securities
convertible into or exchangeable for any stock or any equity
equivalents, except for the issuing of shares pursuant to
outstanding stock options;
- no splitting, combining, or reclassifying any of its capital stock,
declaring any dividend on its capital stock or redeeming any of its
securities;
- no adopting a plan of liquidation, dissolution, merger,
consolidation, restructuring, recapitalization or other
reorganization
- no altering the corporate structure or ownership of any subsidiary;
- no incurring or assuming any debt;
- no entering into, adopting, amending or terminating any bonus,
profit sharing, compensation, severance, termination, stock
option, stock appreciation right, restricted stock, performance
unit, stock equivalent, stock purchase agreement, pension,
retirement, deferred compensation, employment, severance or other
employee benefit agreement, trust, plan, fund, award or other
arrangement for the benefit or welfare of any director, officer,
employee or independent contractor;
- no acquiring or disposing of any assets, except in the ordinary
course of business consistent with past practices and pursuant to
existing commitments;
- no changing in accounting principles;
- no acquiring any business organization;
- no entering into any contracts or agreements except in the
ordinary course of business consistent with past business
practices or amending in any material respect any material
contract listed in the merger agreement;
- no authorizing any new capital expenditures if the amount of the
expenditure plus the sum of all previously authorized capital
expenditures exceeds $1.2 million;
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- no paying, discharging or satisfying of any material claims or
obligations, other than in the ordinary course of business
consistent with past business practices; and
- no taking any action that would prevent or impede the merger from
qualifying as a pooling-of-interests.
ACCESS TO INFORMATION
Until the merger becomes effective, Comverse and Comverse Acquisition will
have reasonable access to employees, offices, warehouses and other facilities
and the books and records of Loronix and its subsidiaries. Comverse and Comverse
Acquisition will hold all information received from Loronix and its subsidiaries
in connection with the merger in confidence pursuant to the terms of a
confidentiality agreement entered into between Comverse and Loronix.
BEST EFFORTS COVENANTS
Loronix and Comverse have agreed to cooperate with each other and use their
reasonable best efforts to take all actions and to do all things necessary or
advisable under the merger agreement and under the applicable laws to complete
the merger and other transactions contemplated by the merger agreement.
Loronix has agreed to use its reasonable best efforts to obtain and
maintain any licenses or approvals required to be obtained pursuant to the Sale
and License Agreement dated February, 2000 between Loronix and an Indian gaming
entity and to use its reasonable best efforts to cause each of its directors and
officers to provide all information to be provided by them in connection with
such license or approvals. However, Loronix will not be in breach of this
covenant if Comverse does not provide the information required by it to obtain
such license or approval.
ACQUISITION PROPOSALS
Loronix has agreed that it and its subsidiaries and its officers,
directors, employees and advisors will not take any action to solicit, initiate
or encourage any proposals for any alternative acquisition proposals involving
Loronix of a nature defined in the merger agreement or participate in any
discussions or negotiations with any person to facilitate an acquisition
proposal.
However, Loronix shall not be prohibited from engaging in discussion or
furnishing information to a person who makes an unsolicited bona fide written
acquisition proposal so long as prior to doing so, all of the following are
satisfied:
- the Loronix stockholders meeting has not yet occurred or it has
occurred and the merger with Comverse was not approved;
- the Loronix board determines in good faith that it is necessary to
do so to comply with its fiduciary duty to stockholders, after
receiving advice of independent counsel;
- the Loronix board determines in good faith that such proposal, if
accepted, is reasonably likely to be consummated, and believes in
good faith and in consultation with Broadview, and considering the
strategic benefits to be derived from a merger with Comverse, that
if such proposal were consummated, it would result in a transaction
more favorable to Loronix stockholders from a financial point of
view than the merger with Comverse; and
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- Loronix provides reasonable notice to Comverse that it is taking
such action and receives from such person an executed
confidentiality agreement with terms at least as stringent as
those contained in the existing confidentiality agreement between
Comverse and Loronix.
Prior to providing any information or entering into discussions or
negotiations with such person, Loronix must notify Comverse within 24 hours of
receiving an offer or request for such information. The notice must indicate the
identity of the person and the terms and conditions of any offer or request.
Loronix must keep Comverse informed on a prompt basis of the status and details
of any offer or request.
The Loronix board has agreed to recommend the approval of the merger
agreement to the Loronix stockholders. However, the Loronix board is permitted
not to make this recommendation, to withdraw this recommendation or to modify
this recommendation in a manner adverse to Comverse if the Loronix board
determines, in its good faith judgment, that it is necessary to do so to comply
with its fiduciary duty to its stockholders, after receiving advice of
independent counsel. Loronix must deliver notice to Comverse of such pending
action four days prior to taking such action.
INDEMNIFICATION AND INSURANCE OF LORONIX OFFICERS AND DIRECTORS
Comverse has agreed that:
- For five years after effective time of the merger it will provide
directors' and officers' liability insurance for the benefit of
those persons who are directors and officers of Loronix following
the effective time of the merger consistent with the insurance
coverage provided for Comverse's or its subsidiaries' officers and
directors of similar position; and
- For at least six years after the effective time of the merger
Comverse will indemnify employees, agents, directors and officers
of Loronix and its subsidiaries from their activities occurring
prior to the effective time of the merger to the extent provided
under Loronix's charter and bylaws.
EMPLOYEE MATTERS
The merger agreement provides that Comverse will honor all the obligations
under Loronix's and its subsidiary's employment, consulting, severance, change
of control and indemnification agreements, and the obligations of Loronix to
enter into employment agreements with David Ledwell, Jonathan Lupia and Peter
Jankowski.
Comverse has also agreed, following the closing, to adopt and maintain
Loronix employee benefit plans that were in effect immediately prior to the
closing for one year or to arrange for each employee of Loronix or its
subsidiaries to participate in any counterpart Comverse employee benefit plan,
receiving credit for service with Loronix for purposes of eligibility to
participate and vesting under such Comverse employee benefit plans.
LISTING OF STOCK
Comverse has agreed to use its best efforts to cause the shares of Comverse
common stock to be issued in the merger to be listed on the Nasdaq National
Market.
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LORONIX STOCKHOLDER MEETING
Loronix has agreed to take all lawful actions necessary to cause a special
meeting of its stockholders to be duly called and to solicit proxies from its
stockholders for approval of the merger agreement.
ADDITIONAL AGREEMENTS
The merger agreement contains additional agreements between Loronix and
Comverse. The following summarizes the most significant of these agreements.
- Loronix and Comverse have agreed to prepare and file a proxy
statement, registration statement and all necessary filings
with the SEC relating to the merger;
- Loronix and Comverse have agreed to consult each other before
issuing any public announcements regarding the merger; and
- Loronix and Comverse have each agreed to notify the other party
promptly of certain events, including any occurrence or
nonoccurrence of any event that would be likely to cause any
representation or warranty contained in the merger agreement to be
untrue or inaccurate, or of receipt of any notice from any third
party alleging that the consent of that third party is required to
complete the merger.
NO-SHOP PROVISIONS
Loronix has agreed, subject to some limited exceptions, not to initiate or
engage in discussions with any other party about a business combination with the
other party while the merger is pending.
WAIVER AND AMENDMENT OF THE MERGER AGREEMENT
Any provision of the merger agreement may be amended at any time before or
after approval of the merger by the Loronix stockholders if the amendment is in
writing and signed by all parties. After Loronix stockholders have approved the
merger agreement, no amendment that requires further approval by Loronix
stockholders may be made without the approval of Loronix stockholders. Any
provision of the merger agreement may be waived at or prior to the effective
time of the merger if the waiver is in writing and signed by the party against
whom the waiver is to be effective.
TERMINATION OF THE MERGER AGREEMENT
RIGHT TO TERMINATE
The merger agreement may be terminated at any time prior to the effective
time of the merger, even if it was approved by the Loronix stockholders, by the
mutual written consent of Loronix and Comverse.
TERMINATION BY EITHER COMVERSE OR LORONIX
The merger agreement may be terminated at any time prior to the effective
time of the merger by either Loronix or Comverse under any of the following
circumstances:
- The merger is not consummated by August 31, 2000, whether or not
such date is before or after date of the approval by the Loronix
stockholders;
- Loronix stockholders fail to approve the merger agreement at a duly
held meeting; or
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- There is a permanent legal prohibition to closing the merger.
TERMINATION BY LORONIX
The merger agreement may be terminated at any time prior to the effective
time of the merger, even if it was approved previously by Loronix's
stockholders, by Loronix under any of the following circumstances:
- All of the following are true: (i) Loronix is not in material breach
of its covenants with respect to other acquisition proposals, (ii)
the merger with Comverse has not been approved by the Loronix
stockholders, (iii) the Loronix board authorizes Loronix, subject to
complying with merger agreement, to enter into a binding written
agreement accepting a proposal superior to the Comverse merger and
notifies Comverse three business days in advance, and (iv) during
the three business days after the notice, Loronix negotiates with
Comverse in an attempt to make commercially reasonable adjustments
to the terms of the merger with Comverse and the board of directors
of Loronix concludes that the superior proposal continues to be
superior;
- Comverse breaches any of the representations, warranties, covenants
or agreements contained in the merger agreement; or
- The value of the merger consideration is less than $36 per Loronix
share, Loronix elects to terminate the agreement, and Comverse does
not deliver notice to Loronix that Comverse will adjust the
consideration to $36 per share.
TERMINATION BY COMVERSE
The merger agreement may be terminated at any time prior to the effective
time of the merger by Comverse if:
- Loronix enters into a binding agreement with a third party and
accepts a proposal superior to the merger with Comverse;
- The Loronix board fails to recommend approval of the merger
agreement, withdraws or modifies in a manner adverse to Comverse,
its approval or recommendation of the merger agreement or
recommends any other acquiring proposal;
- Any person or group acquires beneficial ownership of at least 15% if
the outstanding shares of Loronix; or
- Loronix breaches any of the representations, warranties, covenants
or agreements contained in the merger agreement.
PAYMENT OF TERMINATION FEE AND EXPENSES
TERMINATION FEE
Loronix has agreed to pay Comverse a termination fee of $11 million in any
of the following circumstances:
- Loronix terminates the merger agreement under the circumstances
described in the first bullet under "Termination by Loronix" above;
- Comverse terminates the merger agreement because of any of the
following:
> Loronix enters into a binding agreement with a third party for a
superior proposal;
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> The Loronix board fails to recommend, or withdraws or modifies
in a manner adverse to Comverse, its approval or recommendation
of the merger agreement, or recommends any other acquiring
proposal; or
> Loronix permits any person or group to acquire beneficial
ownership of at least 15% of the outstanding shares of Loronix;
or
- All of the following occur:
> Comverse terminates the merger agreement for any of the
following reasons:
- The merger is not consummated by August 31, 2000;
- Loronix stockholders fail to approve the merger agreement at
a duly held meeting; or
- Loronix breaches any of the representations, warranties,
covenants or agreements contained in the merger agreement;
> On or before the termination date, an acquisition proposal is
made by a third party; and
> Loronix accepts another acquisition proposal within 6 months of
the termination.
EXPENSES
Loronix will pay Comverse up to $1,000,000 for Comverse's expenses if
Comverse terminates the merger agreement because Loronix breaches any of the
representations, warranties, covenants or agreements contained in the merger
agreement, in addition to the termination fee that may apply.
THE STOCK OPTION AGREEMENT
THE FOLLOWING SUMMARY OF THE STOCK OPTION AGREEMENT IS QUALIFIED BY
REFERENCE TO THE COMPLETE TEXT OF THE AGREEMENT, WHICH IS INCORPORATED BY
REFERENCE AND ATTACHED AS ANNEX B. YOU ARE URGED TO READ THE STOCK OPTION
AGREEMENT IN ITS ENTIRETY.
GENERALLY
At the same time Comverse and Loronix entered into the merger agreement,
they also entered into a stock option agreement. Under the stock option
agreement, Loronix granted Comverse an irrevocable option to purchase up to
1,020,000 shares of Loronix common stock (or such other number of shares of
Loronix common stock as equals 19.9% of the issued and outstanding shares of
Loronix common stock as the time of the exercise of the option) at a price per
share of $43.79, payable at Comverse's option in cash or Comverse common stock.
The option is exercisable in the circumstances described below.
EXERCISE OF THE OPTION
Comverse can exercise the option in whole or in part at any time after the
merger agreement has been terminated under the following circumstances:
- Loronix terminates the merger and all of the following are true: (i)
Loronix is not in material breach of its covenants with respect to
other acquisition proposals, (ii) the merger with Comverse has not
been approved by the Loronix stockholders, (iii) the Loronix board
authorizes Loronix, subject to complying with merger agreement, to
enter into a binding written agreement accepting a proposal superior
to the Comverse merger and notifies Comverse three business days in
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advance, and (iv) during the three business days after the notice,
Loronix negotiates with Comverse in an attempt to make commercially
reasonable adjustments to the terms of the merger with Comverse and
the board of directors of Loronix concludes that the superior
proposal continues to be superior;
- Comverse terminates the merger agreement because:
- Loronix enters into a binding agreement with a third party for a
superior proposal;
- The Loronix Board fails to recommend or withdraws or modifies in
a manner adverse to Comverse, its approval or recommendation of
the merger agreement or recommends any other acquiring proposal;
or
- Any person or group acquires beneficial ownership of 15% or more
of the outstanding shares of Loronix.
If Comverse wishes to exercise the option, Comverse will deliver an
exercise notice to Loronix specifying the total number of shares of Loronix
common stock Comverse wishes to purchase.
The option terminates upon the earliest to occur of:
- the effective time of the merger;
- the termination of the merger agreement by the Comverse or Loronix,
other than a termination that gives rise to the right to exercise
the option; or
- 180 days after any termination of the merger agreement as a result
of the occurrence of a right to exercise the option.
The option may not be exercised if Comverse is in material breach of any of
the representations, warranties, covenants or agreements contained in the merger
agreement.
The option is not currently exercisable and Comverse may exercise the
option only if the merger agreement is terminated in circumstances similar to
those in which the termination fee is payable. If the merger agreement is
terminated under any other circumstances, the option will terminate.
CONDITIONS TO CLOSING UNDER THE STOCK OPTION AGREEMENT
The obligation of Loronix to issue the option shares is subject to the
satisfaction or, to the extent legally permissible, waiver of the following
conditions:
- expiration or termination of the waiting period under the
Hart-Scott-Rodino Antitrust Improvements Act (early termination
having been granted as of April 14, 2000);
- absence of any injunction or order prohibiting the issuance of the
options; or
- approval for listing on the Nasdaq National Market of the shares of
Comverse to be issued.
CLOSING OF THE STOCK OPTION EXERCISE
At the closing, Loronix shall deliver a single certificate for the number
of shares of Loronix common stock designated by Comverse in its exercise notice
and Comverse will deliver to Loronix the aggregate purchase price in cash,
Comverse common stock or any combination thereof.
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REPRESENTATIONS AND WARRANTIES
The stock option agreement contains substantially reciprocal
representations and warranties made by Loronix and Comverse to each other. The
most significant of these relate to:
- corporate authorization to enter into the contemplated transaction
and
- execution and delivery of the stock option agreement.
Loronix also represents and warrants that is has taken all necessary
corporate actions to authorize and reserve for issuance the number of shares of
Loronix common stock subject to the option.
CERTAIN REPURCHASES
Comverse has the right to request that Loronix repurchase from Comverse the
option, in whole or in part, for a price equal to the amount by which the market
price of Loronix common stock, as of the date Comverse gives notice of this
request, exceeds the exercise price multiplied by the number of shares of
Loronix common stock purchasable pursuant to the stock option agreement.
If Comverse exercises this right, Loronix will have ten business days to
purchase the stock option from Comverse.
REGISTRATION RIGHTS
Loronix has agreed to grant Comverse rights to require registration by
Loronix of the option shares for sale by Comverse under the securities laws.
PROFIT LIMITATION
The stock option agreement provides that, notwithstanding any other
provisions of that agreement, Comverse's Total Profits (as defined below) will
not exceed $11 million. If Comverse's Total Profits otherwise exceed such
amount, Comverse, at is sole election, may
- deliver to Loronix for cancellation shares of Loronix common stock
previously purchased by Comverse;
- pay cash to Loronix; or
- pay any combination of cash and stock;
so that Comverse's actual realized Total Profit does not exceed $11 million
after taking into account the foregoing actions.
For the purposes of the stock option agreement, "Total Profit" means the
aggregate amount before taxes of the following:
- the amount received by Comverse pursuant to the Loronix's
repurchase of the stock option pursuant to "Certain Repurchases"
above;
- the cash amounts received by Comverse pursuant to the sale of
option shares (or any other securities into which such shares
are converted or exchanged) to any unaffiliated party, less
Comverse's purchase price for such shares; and
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- the cash amount actually received by Comverse in payment by
Loronix of the termination fee under the merger agreement.
VOTING AGREEMENTS
As a condition to Comverse's entering into the merger agreement, Comverse
and each of Peter Jankowski, David Ledwell, Jonathan Lupia, F. James Price, C.
Rodney Wilger, Timothy Whitehead, Donald W. Stevens, and a trust established by
Edward Jankowski, entered into voting agreements. By entering into the voting
agreements these Loronix stockholders have irrevocably appointed Comverse as
their lawful attorney and proxy. These proxies give Comverse the limited right
to vote the shares of Loronix common stock beneficially owned by these Loronix
stockholders, including shares of Loronix common stock acquired after the date
of the voting agreements, in favor of the approval of the merger agreement, in
favor of the merger and in favor of each other matter that could reasonably be
expected to facilitate the merger. These Loronix stockholders may vote their
shares of Loronix common stock on all other matters.
As of the record date, these individuals and entities collectively
beneficially owned 1,125,981 shares of Loronix common stock which represented
approximately 22% of the outstanding Loronix common stock. None of the Loronix
stockholders who are parties to the voting agreements were paid additional
consideration in connection with them.
Under these voting agreements, and except as otherwise waived by Comverse,
the Loronix stockholders agreed not to sell their Loronix common stock and
options owned, controlled or acquired, either directly or indirectly, by them
until the earlier of the termination of the merger agreement or the completion
of the merger, unless the transfer is in accordance with an affiliate agreement
between the stockholder and Comverse and each person to which any shares or any
interest in any shares is transferred agrees to be bound by the terms and
provisions of the voting agreement.
These voting agreements will terminate upon the earlier to occur of the
termination of the merger agreement and the completion of the merger. The form
of voting agreement is attached to this proxy statement/prospectus as ANNEX C,
and you are urged to read it in its entirety.
AFFILIATE AGREEMENTS
As a condition to Comverse's entering into the merger agreement, each
member of Loronix's board of directors and some officers of Loronix will execute
affiliate agreements. Under the affiliate agreements, each of these persons has
agreed not to sell or otherwise dispose of, or to reduce their risk relative to,
any shares of Loronix common stock owned by them during the period beginning 30
days prior to the merger and after Comverse publicly announces financial results
covering at least 30 days of combined operations of Comverse and Loronix. Also,
under the affiliate agreements, Comverse will be entitled to place appropriate
legends on the certificates evidencing any Comverse common stock to be received
by these persons and to issue stop transfer instructions to the transfer agent
for the Comverse common stock. Further, these persons have also acknowledged the
resale restrictions imposed by Rule 145 under the Securities Act on shares of
Comverse common stock to be received by them in the merger.
AMENDMENT TO THE PREFERRED SHARES RIGHTS AGREEMENT
In connection with the execution of the merger agreement, Loronix has
amended the Preferred Shares Rights Agreement (or "poison pill"), dated as of
January 9, 1997, between Loronix and American Stock
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Transfer & Trust Company, as rights agent, so that, among other things, the
execution, delivery and performance by Loronix of the merger agreement and
the stock option agreement do not cause the rights issued under the Loronix
rights agreement to become exercisable or Comverse or Comverse Acquisition to
be deemed an "acquiring person" with respect to Loronix, and to cause the
expiration of the rights agreement to occur immediately prior to the
effective time of the merger.
OPERATIONS AFTER THE MERGER
Following the merger, Loronix will continue its operations as a
wholly-owned subsidiary of Comverse for some period of time determined by
Comverse. The membership of Comverse's board of directors will remain unchanged
as a result of the merger. The stockholders of Loronix will become shareholders
of Comverse, and their rights as stockholders will be governed by the Comverse
charter, the Comverse bylaws, and the laws of the State of New York. See
"Comparison of Rights of Holders of Loronix Common Stock and Comverse Common
Stock" on page 71 of this proxy statement/prospectus.
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UNAUDITED PRO FORMA FINANCIAL INFORMATION
The following unaudited pro forma condensed combined balance sheet as of
January 31, 2000 combines the audited historical balance sheet of Comverse as of
January 31, 2000 and the audited historical balance sheet of Loronix as of
December 31, 1999, giving effect to the merger as though it had been consummated
as of January 31, 2000. The following unaudited pro forma condensed combined
statements of income for the years ended December 31, 1997 and January 31, 1999
and 2000 combine the audited historical consolidated statements of income of
Comverse for the years ended December 31, 1997 and January 31, 1999 and 2000 and
the audited historical consolidated statements of income of Loronix for the
three years ended December 31, 1999, giving effect to the merger as if it had
been consummated at the beginning of each period presented. The merger is being
accounted for as a pooling-of-interests.
The unaudited pro forma condensed combined financial information should be
read in conjunction with the:
- Accompanying notes to the unaudited pro forma condensed combined
financial statements; and
- Audited historical consolidated financial statements and related
notes of Comverse and Loronix, which are incorporated by reference
into this proxy statement/prospectus.
The unaudited pro forma condensed combined financial information excludes
costs associated with the integration and consolidation of the companies.
This unaudited pro forma condensed combined financial information is not
necessarily indicative of the operating results and financial position that
might have been achieved had the merger occurred as of the beginning of the
earliest period presented, nor are they necessarily indicative of operating
results and financial position which may occur in the future.
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UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
JANUARY 31, 2000
(IN THOUSANDS)
COMVERSE LORONIX
JANUARY 31, DECEMBER 31, PRO FORMA
2000 1999 ADJUSTMENTS COMBINED (1)
-------------- -------------- -------------- --------------
ASSETS
Current assets:
Cash and cash equivalents.......................... $ 338,638 $ 3,897 $ $ 342,535
Bank time deposits and short-term investments...... 439,054 -- 439,054
Accounts receivable, net........................... 259,357 6,846 266,203
Inventories........................................ 97,653 4,075 101,728
Prepaid expenses and other current assets.......... 40,829 414 41,243
-------------- -------------- -------------- --------------
Total current assets......................... 1,175,531 15,232 -- 1,190,763
Property and equipment, net........................... 121,897 4,204 126,101
Investments........................................... 19,749 -- 19,749
Other assets.......................................... 35,191 945 36,136
-------------- -------------- -------------- --------------
$ 1,352,368 $ 20,381 $ -- $ 1,372,749
============== ============== ============== ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses.............. $ 231,245 $ 4,615 $ $ 235,860
Other current liabilities.......................... 95,460 1,139 96,599
----------- ----------- ---------- -----------
Total current liabilities.................... 326,705 5,754 -- 332,459
Convertible subordinated debentures................... 300,000 -- 300,000
Other liabilities..................................... 14,323 1,226 15,549
----------- ----------- ---------- -----------
Total liabilities............................ 641,028 6,980 -- 648,008
----------- ----------- ---------- -----------
Stockholders' equity:
Common stock....................................... 15,382 5 190 (2) 15,577
Additional paid-in capital......................... 407,645 16,620 (190) (2) 424,075
Retained earnings (accumulated deficit)............ 285,890 (3,126) 282,764
Note receivable from stockholders.................. -- (98) (98)
Accumulated other comprehensive income............. 2,423 -- 2,423
----------- ----------- ----------- -----------
Total stockholders' equity................... 711,340 13,401 -- 724,741
----------- ----------- ----------- -----------
$ 1,352,368 $ 20,381 $ -- $ 1,372,749
=========== =========== =========== ===========
- -------------------
See Notes to Unaudited Pro Forma Condensed Combined Financial Information.
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UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENTS OF INCOME
FOR YEAR ENDED DECEMBER 31, 1997
(IN THOUSANDS, EXCEPT PER SHARE DATA)
COMVERSE LORONIX
YEAR ENDED YEAR ENDED
DECEMBER 31, 1997 DECEMBER 31, 1997 PRO FORMA
HISTORICAL HISTORICAL COMBINED (1)
----------------- ------------------- ---------------
Sales.......................................... $ 488,940 $ 9,403 $ 498,343
Cost of sales.................................. 202,640 5,117 207,757
----------------- ------------------- ---------------
Gross margin................................... 286,300 4,286 290,586
Operating expenses:
Research and development, net............... 96,626 1,526 98,152
Selling, general and administrative......... 138,305 5,318 (3) 143,623
Royalties and license fees.................. 12,325 -- 12,325
----------------- ------------------- ---------------
Income (loss) from operations.................. 39,044 (2,558) 36,486
Interest and other income, net................. 4,879 78 4,957
----------------- ------------------- ---------------
Income (loss) before income tax provision...... 43,923 (2,480) 41,443
Income tax provision........................... 9,398 32 9,430
----------------- ------------------- ---------------
Net income (loss).............................. $ 34,525 $ (2,512) $ 32,013
================= =================== ===============
Earnings (loss) per share:
Basic....................................... $ 0.27 $ (0.54) $ 0.25
================= =================== ===============
Diluted..................................... $ 0.25 $ (0.54) $ 0.23
================= =================== ===============
Weighted average number of common and common
equivalent shares outstanding:
Basic....................................... 127,240 4,659 129,034
================= =================== ===============
Diluted..................................... 137,908 4,659 139,702
================= =================== ===============
- -------------------
See Notes to Unaudited Pro Forma Condensed Combined Financial Information.
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UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENTS OF INCOME
FOR YEAR ENDED JANUARY 31, 1999
(IN THOUSANDS, EXCEPT PER SHARE DATA)
COMVERSE LORONIX
YEAR ENDED YEAR ENDED
JANUARY 31, 1999 DECEMBER 31, 1998 PRO FORMA
HISTORICAL HISTORICAL COMBINED (1)
----------------- ------------------- ---------------
Sales.......................................... $ 696,094 $ 12,711 $ 708,805
Cost of sales.................................. 279,690 6,817 286,507
----------------- ------------------- ---------------
Gross margin................................... 416,404 5,894 422,298
Operating expenses:
Research and development, net............... 132,820 1,381 134,201
Selling, general and administrative......... 151,985 6,727 (3) 158,712
Royalties and license fees.................. 16,552 -- 16,552
----------------- ------------------- ---------------
Income (loss) from operations.................. 115,047 (2,214) 112,833
Interest and other income, net................. 8,263 52 8,315
----------------- ------------------- ---------------
Income (loss) before income tax provision...... 123,310 (2,162) 121,148
Income tax provision........................... 11,783 -- 11,783
----------------- ------------------- ---------------
Net income (loss).............................. $ 111,527 $ (2,162) $ 109,365
================= =================== ===============
Earnings (loss) per share:
Basic....................................... $ 0.84 $ (0.47) $ 0.81
================= =================== ===============
Diluted..................................... $ 0.78 $ (0.47) $ 0.75
================= =================== ===============
Weighted average number of common and common
equivalent shares outstanding:
Basic....................................... 132,600 4,647 134,389
================= =================== ===============
Diluted..................................... 143,650 4,647 145,439
================= =================== ===============
- --------------------
See Notes to Unaudited Pro Forma Condensed Combined Financial Information.
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UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENTS OF INCOME
FOR YEAR ENDED JANUARY 31, 2000
(IN THOUSANDS, EXCEPT PER SHARE DATA)
COMVERSE LORONIX
YEAR ENDED YEAR ENDED
JANUARY 31, 2000 DECEMBER 31, 1999 PRO FORMA
HISTORICAL HISTORICAL COMBINED (1)
--------------------------------------------------------------
Sales.......................................... $ 872,190 $ 37,477 $ 909,667
Cost of sales.................................. 329,802 20,301 350,103
----------------- ------------------- ---------------
Gross margin................................... 542,388 17,176 559,564
Operating expenses:
Research and development, net............... 168,132 1,684 169,816
Selling, general and administrative......... 184,080 11,661 (3) 195,741
Royalties and license fees.................. 18,841 -- 18,841
Non-recurring charges....................... 2,016 900 2,916
----------------- ------------------- ---------------
Income from operations......................... 169,319 2,931 172,250
Interest and other income, net................. 16,519 76 16,595
----------------- ------------------- ---------------
Income before income tax provision............. 185,838 3,007 188,845
Income tax provision........................... 15,577 121 15,698
----------------- ------------------- ---------------
Net income..................................... $ 170,261 $ 2,886 $ 173,147
================= =================== ===============
Earnings per share:
Basic....................................... $ 1.18 $ 0.59 $ 1.19
================= =================== ===============
Diluted..................................... $ 1.07 $ 0.52 $ 1.08
================= =================== ===============
Weighted average number of common and common
equivalent shares outstanding:
Basic....................................... 144,018 4,859 145,889
================= =================== ===============
Diluted..................................... 176,862 5,516 178,986
================= =================== ===============
- -------------------
See Notes to Unaudited Pro Forma Condensed Combined Financial Information.
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NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION
(1) The unaudited pro forma condensed combined balance sheet combines the
audited historical consolidated balance sheet of Comverse at January 31,
2000 with the audited historical consolidated balance sheet of Loronix at
December 31, 1999. The unaudited pro forma condensed combined statements of
income combines the audited historical consolidated statements of income of
Comverse for the years ended December 31, 1997 and January 31, 1999 and
2000 with the audited historical consolidated statements of income of
Loronix for the years ended December 31, 1997, 1998 and 1999, respectively.
Certain amounts reflected in the historical financial statement
presentation have been reclassified to conform to the unaudited pro forma
condensed combined presentation.
The unaudited pro forma condensed combined financial information
excludes costs associated with the integration and consolidation of the
companies. The unaudited pro forma combined basic and diluted earnings
per share for the respective periods represented is based on the
combined weighted average number of common shares and share equivalents
of Comverse and Loronix. The number of common shares and share
equivalents of Loronix is based on an exchange ratio of 0.385 shares of
Comverse Common Stock for each issued and outstanding share of Loronix
common stock.
(2) Adjustment to reflect the issuance of Comverse common stock for Loronix
common stock.
(3) Includes operations and customer support expenses of $1,568,000 in 1997,
$1,606,000 in 1998, and $2,645,000 in 1999.
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COMPARISON OF RIGHTS OF HOLDERS OF LORONIX COMMON STOCK AND
HOLDERS OF COMVERSE COMMON STOCK
Upon consummation of the merger, you will become shareholders of Comverse
and your rights will be governed by the Comverse charter and the Comverse
bylaws, which differ in certain material respects from our charter and bylaws.
As shareholders of Comverse, your rights will also be governed by the New York
Business Corporation Law instead of the Nevada General Corporation Law. New York
is the jurisdiction of incorporation of Comverse and Nevada is our jurisdiction
of incorporation.
The following comparison of the New York Business Corporation Law, the
Comverse charter and the Comverse bylaws, on the one hand, and the Nevada
General Corporation Law, our charter and our bylaws, on the other hand,
summarizes the material differences but is not intended to list all differences.
BUSINESS COMBINATIONS AND TAKEOVER CONSIDERATIONS
Nevada law restricts the ability of certain corporations to engage in any
"business combinations" (defined broadly to include mergers, consolidations or
issuance of stock) with, involving or proposed by an "interested stockholder"
(defined generally as any person who, directly or indirectly, beneficially owns
10% or more of the voting shares of a Nevada corporation or any affiliate or
associate of the Nevada corporation). The corporation may not engage in a
business combination with an interested stockholder for three years after the
interested stockholder acquired 10% of the voting power, unless the business
combination or purchase of the shares that caused the stockholder to become an
interested stockholder was approved by the board of directors of the corporation
before the date of acquisition. If the combination was not previously approved,
the interested stockholder may effect a combination after the three year period
only if such stockholder receives approval from a majority of the disinterested
shares or if the consideration to be paid by the interested stockholder meets
certain fair price criteria.
New York's law regarding business combinations is similar to that of
Nevada's, except that under New York law, an "interested stockholder" is defined
as any person who, directly or indirectly, beneficially owns 20% or more of the
outstanding voting stock of a New York corporation, and the restriction extends
for five years after the date on which the interested stockholder became an
interested stockholder.
In certain circumstances Nevada law prohibits an acquiror from voting
shares of a target corporation's stock unless the acquisition is approved by a
majority of the disinterested stockholders. Any person who acquires in excess of
20%, 33 1/3% or 50% of the outstanding shares of the company's stock must obtain
approval by a majority of the disinterested stockholders whenever one of the
thresholds is exceeded in order to be able to exercise voting rights with
respect to the shares. If the disinterested stockholders vote in favor of the
acquisition, the stockholders who did not vote in favor of authorizing voting
rights are entitled to demand payment for the fair value of their shares. This
statute applies only to corporations with 200 or more stockholders, of whom 100
or more must be Nevada residents of record. We have exempted ourselves from this
statute. New York does not have a similar law.
Under New York law, a plan of merger or consolidation, a plan of share
exchange or the sale, lease, exchange or other disposition of all or
substantially all of the assets of a corporation is required to be approved (1)
in the case of corporations like Comverse that were in existence on February 22,
1998, and that do not expressly provide in their certificates of incorporation
for majority approval of such transactions, by two-thirds of the votes of all
outstanding shares entitled to vote thereon, and (2) in the case of all other
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corporations, by a majority of the votes of all outstanding shares entitled to
vote thereon. The Comverse charter does not contain a provision expressly
providing for majority approval of such transactions.
New York law also provides that holders of shares of a class, or series of
a class, of capital stock of a corporation shall be entitled to vote together
and to vote as a separate class on any merger or consolidation in which (1) such
shares will remain outstanding after the merger or consolidation or will be
converted into the right to receive shares of stock of the surviving or
consolidated corporation or another corporation and (2) the charter of the
surviving or consolidated corporation or such other corporation immediately
after the effectiveness of the merger or consolidation would contain any
provision that is not contained in the charter of the pre-merger corporation and
that, if contained in an amendment thereto, would entitle the holders of shares
of such class or series of a class to vote as a separate class pursuant to the
procedures under New York law for class voting on charter amendments discussed
under "Amendments to Charters."
RIGHTS OF DISSENTING STOCKHOLDERS
A stockholder of a Nevada corporation, with certain exceptions, generally
has the right to dissent from, and obtain payment of the fair value of his
shares in the event of:
- a merger or consolidation to which the corporation is a party;
- consummation of a plan of exchange to which the corporation is a
party as the corporation whose shares will be acquired, if the
stockholder is entitled to vote on the plan; and
- any corporate action taken pursuant to a vote of the stockholders
to the extent that the articles of incorporation, bylaws or a
resolution of the board of directors provides that voting or
non-voting stockholders are entitled to dissent and obtain payment
for their shares.
Nevada law provides that unless a corporation's articles of incorporation
provide otherwise, a stockholder does NOT have dissenters' rights with respect
to a plan of merger or share exchange if the shares held by the stockholder are
either registered 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 by at least 2,000 stockholders
AND if the holders are not required under the plan of merger or exchange to
accept anything in exchange for their shares other than cash, shares or shares
and cash in lieu of fractional shares of the surviving or acquiring entity or
another entity, which shares, at the effective date of the plan or exchange,
were either listed on a national securities exchange, included in the national
market system by the National Association of Securities Dealers, Inc., or held
of record by at least 2,000 stockholders.
Our charter does not modify the dissenters' rights provided by the Nevada
General Corporation Law.
A stockholder of record of a Nevada corporation that has dissenters' rights
may dissent as to less than all the shares registered in his name only if he
dissents with respect to all shares beneficially owned by any one person and
notifies the corporation in writing of the name and address of each person on
whose behalf he asserts dissenter's rights. In such event, the stockholder's
rights will be determined as if the shares to which he dissented and his other
shares were registered in the names of different stockholders.
Stockholders of a New York corporation whose shares are not listed on a
national securities exchange or designated as a national market system security
on an inter-dealer quotation system by the National Association of Securities
Dealers, Inc. have the right to dissent and receive payment of the fair value of
their shares, except as otherwise provided by the New York law, in the event of
certain amendments or changes to the certificate of incorporation adversely
affecting their shares, certain mergers or consolidations, certain
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sales, leases, exchanges or other dispositions of all or substantially all
the corporation's assets and certain share exchanges.
Neither holders of Comverse common stock nor holders of our common stock
have dissenters rights because each of our shares are designated as a national
market system security.
AMENDMENTS TO CHARTERS
Under Nevada law, amendments to the charter, must be adopted by a
resolution of the board and approved by the holders of a majority of the shares
entitled to vote, as well as a majority of shares by class of each class
entitled to vote.
Our charter and bylaws are silent as to amendments to the charter, except
that no amendment, adoption or repeal of provisions relating to indemnification
and personal liability of directors and officers may reduce or eliminate the
effect of these provisions regarding any actions that arose prior to the
amendment or revision.
Under New York law, amendments to a charter generally must be approved by a
vote of the board of directors followed by vote of a majority of all outstanding
shares entitled to vote thereon at a meeting of stockholders, provided that, if
a provision of the charter requires the vote of a greater number or proportion
of shares, such provision may not be altered, amended or repealed except by such
greater vote. The Comverse charter is silent as to amendments.
AMENDMENT TO BYLAWS
Under Nevada law, the board of directors create the bylaws, except to the
extent the bylaws provide otherwise. Our bylaws may be amended, added to or
repealed by our board of directors or by our stockholders at any meeting.
Under the New York law, except as otherwise provided in the certificate of
incorporation, bylaws may be amended, repealed or adopted by a majority of the
votes cast by the shares at the time entitled to vote in the election of any
directors. When so provided in the certificate of incorporation or a bylaw
adopted by the stockholders, bylaws also may be amended, repealed or adopted by
the board of directors, but any bylaw adopted by the board of directors may be
amended or repealed by the stockholders entitled to vote thereon as provided by
the New York law.
The Comverse bylaws may be amended, repealed, or new bylaws may be adopted,
by a majority vote of the Comverse stockholders or by a majority of the Comverse
board; provided, that the Comverse board may not repeal any bylaw passed by the
Comverse stockholders.
DIVIDENDS
Under Nevada Law, except as otherwise provided in the corporation's
articles of incorporation, the board of directors may make distributions to is
stockholders. However, no distribution is permitted, if after giving effect to
such declaration:
- the corporation would not be able to pay its debts as they become
due in the ordinary course of business; or
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- the corporation's total assets would be less than the sum of its
total liabilities plus any amount owed if the corporation would
be dissolved at the time of the distribution, to stockholders
with preferential rights superior to those receiving the
distribution.
Our charter is silent with respect to dividends, except that the Loronix
board has full authority to determine the dividend policy relating to shares of
our preferred stock.
Under the New York law dividends may be declared and paid and other
distributions may be made out of surplus only, so that the net assets of the
corporation remaining after such declaration, payment or distribution must at
least equal the amount of its stated capital. A corporation may declare and pay
dividends or make other distributions, except when the corporation is insolvent
or would thereby be made insolvent, or when the declaration, payment or
distribution would be contrary to any restrictions contained in the
corporation's certificate of incorporation.
DURATION OF PROXIES
Under Nevada law a proxy is not valid after six months, unless it is
coupled with an interest or unless the stockholder specifies a length of time
for it to be in effect, but in no case will it be valid after seven years from
the date of execution. We expressly include this provision in our bylaws.
Under New York law, no proxy is valid for more than eleven months, unless
otherwise provided in the proxy. Irrevocable proxies may be created for:
- a pledgee;
- a person who has purchased or agreed to purchase the shares;
- a creditor of the corporation who extends credit in consideration
of the proxy;
- a person who has contracted to perform services as an officer of
the corporation if a proxy is required by the employment
contract; and
- a person designated under a voting agreement.
STOCKHOLDER MEETINGS AND NOTICE PROVISIONS
Nevada law does not specifically address who may call a special meeting of
stockholders.
Our bylaws provide that a special meeting of stockholders may be called at
any time by the president, the Loronix board or by a written request by
stockholders representing at least 25% of the Loronix stock issued and
outstanding.
New York law provides that, if, one month after the date fixed by or under
the bylaws for the annual meeting of stockholders or, if no date has been so
fixed, 13 months after the last annual meeting, a corporation fails to elect a
sufficient number of directors to conduct the business of the corporation, the
board of directors of the corporation is required to call a special meeting for
the election of directors. If a special meeting is not called by the board of
directors within two weeks after the required time period or if it is called but
there is a failure to elect directors for a period of two months after the
expiration of the required period, holders of 10% of the votes of the shares
entitled to vote in an election of directors may, in writing, demand the call of
a special meeting for the election of directors. New York law also provides that
special meetings of shareholders may be called by the board of directors and by
those persons authorized in the certificate of incorporation or bylaws.
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The Comverse bylaws provide that a special meeting of Comverse shareholders
may be called only by the Comverse board, the chairman of the board, the
president or the holders of at least a majority of the Comverse shares entitled
to vote at a meeting.
STOCKHOLDER ACTION
Generally under Nevada and New York law unless otherwise provided in the
articles of incorporation or bylaws, any action required or permitted to be
taken at a meeting of stockholders may be taken without a meeting if a written
consent or consents setting forth the action taken is signed by the holders of
outstanding stock having not less than the minimum number of votes that would be
necessary to authorize or take such action at a meeting at which all shares
entitled to vote upon such action were present and voted.
New York law also provides that no written consent of stockholders shall
be effective unless, within 60 days of the earliest dated consent delivered to
the corporation, the corporation shall have received written consents from a
sufficient number of holders to take the action specified therein. Prompt notice
of the taking of corporate action without a meeting shall be given to those
stockholders who have not consented in writing.
Our bylaws permit actions by written consent. The Comverse bylaws provide
that when Comverse stockholders are permitted or required to action by a vote,
the vote may be taken without a meeting by written consent, setting forth the
action to be taken and signed by the holders of all the outstanding shares.
QUORUM AND STOCKHOLDER VOTING
Generally under both Nevada and New York law, in order for business to be
transacted at a stockholder meeting, a quorum of stockholders must be present.
Unless the articles of incorporation or bylaws provide for different
proportions, the holders of a majority in voting power of the shares entitled to
vote are necessary to constitute a quorum. New York law also provides that in
the case of a special meeting called by the stockholders for the election of
directors, the stockholders attending, in person or by proxy, and entitled to
vote in the election of directors, constitute a quorum solely for the purpose of
electing directors.
Under Nevada law generally, if the number of votes cast in favor of an
action exceeds the number of votes cast in opposition, then the action is
approved. Under our bylaws, however, as well as under New York, law a vote of
the majority of the stockholders present at a meeting will be recognized as an
act of the stockholders, except that, under both Nevada and New York law,
directors are elected by a plurality of the votes of the holders of the shares
entitled to vote for directors.
Our bylaws and the Comverse's bylaws provide that the holders of a majority
of the outstanding shares entitled to vote at such meeting, whether present in
person or by proxy, constitutes a quorum.
INSPECTION OF STOCKHOLDER LIST
Under Nevada law, any person who has been a stockholder of record of the
corporation for at least six months or any stockholder holding at least five
percent of the outstanding shares of the corporation, upon at least five days'
written demand shall have the right to inspect the stock ledger and make
extracts from it during the normal business hours of the corporation.
Under New York law, any stockholder of record of the corporation upon at
least five days' written demand shall have the right to inspect the stock ledger
and make extracts from it, during the normal business
-75-
hours of the corporation. The Comverse bylaws provide that, upon request, a
list of stockholders as of the record date shall be produced at any meeting.
NUMBER OF DIRECTORS
Generally under Nevada and New York law, a change in the number of a
directors must be approved by the stockholders. A corporation may fix the exact
number of directors within a stated range set forth in the articles of
incorporation or bylaws. At each annual meeting of stockholders, directors are
to be elected to hold office until the next annual meeting, except to the extent
the corporation has a classified board as discussed below.
Nevada law provides that a corporation's board of directors may be divided
into various classes, with the term of the office of each class of directors
expiring each year. This is known as a classified board. Under Nevada law at
least one-fourth of the directors must be elected each year. New York law
permits a corporation's board of directors to be divided into either two, three
or four classes. All classes must be as nearly equal in number as possible. The
term of office of one class of directors shall expire each year, with the terms
of office of no two classes expiring the same year.
Our bylaws provide that the number of directors will be as determined by
our board of directors, but may not be fewer than five directors nor more than
nine directors. Our board of directors currently consist of six directors. We do
not have a classified board.
The Comverse bylaws provide that the number of directors constituting the
Comverse board shall not be less than three nor more than eleven, as fixed from
time to time by the Comverse board. The Comverse board currently consists of
eight directors. Comverse does not have a classified board.
REMOVAL OF DIRECTORS
Under Nevada law, subject the corporation's articles of incorporation, any
director or the entire board of directors may be removed, with or without cause,
by the holders of at least two-thirds of the voting power of shares entitled to
vote; however, in the case of a corporation with cumulative voting, no director
may be removed from office except upon the vote of stockholders owning
sufficient shares to have prevented his election to office in the first
instance.
Our bylaws provide that Loronix directors may be removed by the affirmative
vote of at least two-thirds of the outstanding shares of Loronix voting stock.
New York law provides that any or all of the directors may be removed for
cause by vote of the stockholders and, if the certificate of incorporation or
the specific provisions of a bylaw adopted by the stockholders provide,
directors may be removed for cause by action of the board of directors. If the
certificate of incorporation or the bylaws so provide, any or all of the
directors may be removed without cause by vote of the stockholders. The removal
of directors, with or without cause, is subject to the following:
- in the case of a corporation having cumulative voting, no director
may be removed when the votes cast against such director's removal
would be sufficient to elect the director if voted cumulatively;
and
- if a director is elected by the holders of shares of any class or
series, such director may be removed only by the applicable vote
of the holders of the shares of that class or series voting as a
class.
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An action to procure a judgment removing a director for cause may be
brought by the Attorney General of the State of New York or by the holders of
10% of the outstanding shares, whether or not entitled to vote.
The Comverse bylaws provide that a director may be removed from office,
with or without cause, by a vote the stockholders at a special meeting called
for that purpose, or, with cause, by the Comverse board.
VACANCIES
Generally under Nevada law, all vacancies, including those caused by an
increase in the number of directors, may be filled by a majority of the
remaining directors, even though less than a quorum, unless the articles of
incorporation or bylaws provide otherwise.
Our bylaws provide that any vacancy on the board, shall be filled by an
affirmative vote of a majority of a quorum of directors. If there is less than a
quorum of directors, but at least two directors in office, those two directors,
by a majority may fill the vacancy. If the directors then in office do not fill
the vacancies, the Loronix stockholders at a meeting called for that purpose,
may fill the vacancies. Our bylaws also provide that any director elected to
fill a vacancy on the board of directors will hold office for the unexpired
term.
Under New York law, newly created directorships resulting from an increase
in the number of directors and vacancies occurring on the board of directors for
any reason except the removal of directors without cause may be filled by the
vote of the board of directors. Unless the certificate of incorporation or
bylaws provide otherwise, a vacancy in a directorship elected by holders of a
particular class or series of shares shall be filled by a vote of the other
directors elected by holders of the same class or series. Unless the certificate
of incorporation or the specific provisions of a bylaw adopted by the
stockholders provide that the board of directors may fill vacancies occurring on
the board of directors by reason of the removal of directors without cause, such
vacancies may be filled only by vote of the stockholders. Notwithstanding the
foregoing, unless otherwise provided in the certificate of incorporation or
bylaws, whenever the holders of one or more classes or series of shares are
entitled to elect one or more directors by the certificate of incorporation, any
vacancy that may be filled by the board or a majority of the directors then in
office shall be filled by a majority of the directors then in office that were
elected by such classes or series.
The Comverse bylaws provide that any vacancy on the Comverse board may be
filled by a majority vote of the remaining directors, though less than a quorum,
or by election by the stockholders.
INDEMNIFICATION
Generally under Nevada and New York law, a corporation may indemnify any
director, officer, employee or agent of the corporation or an individual who was
serving at the request of the corporation as a director, officer, employee or
agent of another corporation for expenses including amounts paid in settlement
actually and reasonably incurred as a party to a suit or proceeding by reason of
his relationship with the corporation if the he acted in a manner that he
reasonably believed in good faith in, or not opposed to, the best interests of
the corporation and, in the case of any criminal proceeding, that he had no
reasonable cause to believe his conduct was unlawful.
Under Nevada law, if a determination that the officer or director met a
specified standard of conduct is required, such determination shall be made:
- by the stockholders;
- by the majority vote of a quorum of the board of directors not
parties to the proceeding; or
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- by independent legal counsel when a quorum of disinterested
directors so orders or when no quorum of disinterested directors
can be obtained.
Expenses incurred by such individual as deemed appropriate by the board of
directors, in defending civil or criminal proceedings may be paid by the
corporation in advance of the final disposition of such proceeding upon receipt
of an undertaking by or on behalf of such person to repay the amount if it is
ultimately determined that such person is not entitled to be indemnified by the
corporation.
Our charter provides that Loronix directors, officers, agents or employees
shall be indemnified to the fullest extent permitted by applicable law.
Under New York law, any individual who has been successful on the merits or
otherwise in the defense of a civil or criminal action or proceeding will be
entitled to indemnification. Except as provided in the preceding sentence, or
ordered by a court pursuant to New York law, any indemnification under New York
law pursuant to the above paragraph may be made only if authorized in the
specific case and after a finding that the director or officer met the
applicable standard of conduct by the disinterested directors if a quorum is
available, or, if such a quorum so directs or is unavailable (1) the board of
directors upon the written opinion of independent legal counsel or (2) the
stockholders. A corporation may advance expenses incurred by a director or
officer in defending any action or proceeding prior to its final disposition
upon receipt of an undertaking by or on behalf of such individual to repay such
advance to the extent that it exceeds the indemnification to which such
individual is entitled.
The Comverse bylaws provide that Comverse will indemnify and advance the
expenses of each person in the corporation to the fullest extent permitted under
New York law as described above. The Comverse bylaws further provide that the
indemnification described above is not exclusive of other indemnification rights
to which a director or officer may be entitled, when authorized by:
- a resolution of stockholders;
- a resolution of directors; or
- an agreement providing for such indemnification;
PROVIDED, that no indemnification may be made to or on behalf of any director or
officer if a judgment or other final adjudication adverse to the director or
officer establishes that his or her acts were committed in bad faith or were the
result of active and deliberate dishonesty and were material to the cause of
action so adjudicated, or that he or she personally gained in fact a financial
profit or other advantage to which he or she was not legally entitled.
LIMITATIONS OF PERSONAL LIABILITY OF DIRECTORS
Generally under Nevada and New York law, a corporation's articles of
incorporation may include a provision limiting the personal liability of a
director or officer to the corporation or its stockholders for monetary damages
for breach of fiduciary duty as a director or officer. However, no protection is
available for a person adjudged by a competent court to be liable for
intentional misconduct, fraud, or knowing violation of the law, except by a
court ordering advancement of expenses or indemnification. New York law further
eliminates protection for any directors actions that violate Section 719 of the
New York Business Corporation Law (which includes declaration of dividends,
purchase of capital stock, distribution of assets to stockholders after
dissolution of the corporation and loans to directors to the extent contrary to
New York law) or for any act or omission prior to the adoption of such a
provision in the certificate of incorporation.
-78-
Our charter and the Comverse charter limit the liability of our respective
directors to the fullest extent under the applicable law.
-79-
SHARE OWNERSHIP BY PRINCIPAL STOCKHOLDERS, MANAGEMENT AND DIRECTORS OF LORONIX
The following table sets forth information concerning the beneficial
ownership of common stock of Loronix as of _____ ___, 2000, for the following:
- each person or entity who is known by Loronix to own beneficially
more than five percent of the outstanding shares of Loronix common
stock;
- each of Loronix's current directors;
- the chief executive officer and other highly compensated officers of
Loronix; and
- all directors and executive officers of Loronix as a group.
The number and percentage of shares beneficially owned is determined in
accordance with Rule 13d-3 of the Securities Exchange Act and the information is
not necessarily indicative of beneficial ownership for any other purpose. Under
such rule, beneficial ownership includes any shares as to which the individual
or entity has voting power or investment power and any shares that the
individual has the right to acquire within 60 days of _____ ___, 2000, through
the exercise of any stock option or other right. Unless otherwise indicated in
the footnotes or table, each person or entity has sole voting and investment
power, or shares such powers with his or her spouse, with respect to the shares
shown as beneficially owned and has an address of c/o Loronix Information
Systems, Inc., 820 Airport Road, Durango, Colorado 81301.
Certain stockholders of Loronix, as indicated below, have entered into a
voting agreement with Comverse agreeing to vote their shares of Loronix common
stock in favor of the merger.
LORONIX INFORMATION SYSTEMS STOCK TABLE
As of _____ ___, 2000
COMMON OPTIONS TOTAL
- ------------------------------------------------------------ ------------ ----------- ----------
Comverse Technology, Inc.
170 Crossways Park Drive
Woodbury, New York 11797..................................... 1,148,481 1,020,000 2,168,481
Edward Jankowski............................................. 735,133 25,000 760,133
Peter A. Jankowski........................................... 207,616 131,250 338,866
Jonathan C. Lupia............................................ 17,000 90,000 107,000
David T. Ledwell............................................. 2,000 2,000
F. James Price............................................... 24,700 54,500 79,200
C. Rodney Wilger............................................. 88,568 37,500 126,068
Donald Stevens............................................... 22,800 5,000 27,800
Louis E. Colonna............................................. 3,750 3,750
Total........................................................ 1,148,481 1,367,000 2,515,481
"Options" includes shares of Loronix common stock subject to options
currently exerciseable within 60 days of _____ ___, 2000.
The shares of common stock owned by Comverse includes the following: (i)
1,020,000 shares of the Loronix common stock that Comverse has the option to
purchase upon the happening of specific events, none
-80-
of which has occurred as of _____ ___, 2000, pursuant to the stock option
agreement a description of which can be found on page 60; (ii) 1,125,981
shares of Loronix common stock owned by Loronix officers, directors and an
employee with whom Comverse has entered into voting agreements (strictly in
their capacities as stockholders and not as directors or officers)
descriptions of which can be found on page 63; and (iii) 22,500 shares of
Loronix common stock owned by Comverse and purchased in the open market.
Pursuant to the voting agreements referred to in clause (ii) above, Comverse
may be deemed to have shared voting power with respect to the shares to which
the voting agreements pertain. Each stockholder has agreed to vote or cause
to be voted all shares of common stock held of record or beneficially owned
by him (whether currently owned or thereafter acquired) in favor of the
merger with Comverse and the adoption of the merger agreement, and not to
sell, transfer, pledge, encumber, assign or otherwise dispose of any of his
shares of common stock. Nothing contained herein shall be deemed to be an
admission by Comverse as to the beneficial ownership of any common stock
(other than the 22,500 shares referred to in clause (iii) above), and
Comverse disclaims beneficial ownership of the shares referred to in clauses
(i) and (ii) above. Pursuant to Rule 13d-3 under the Securities Exchange Act
of 1934, the shares referred to in clause (i) above are also deemed to be
outstanding for the purpose of computing the percentage of Comverse's
beneficial ownership of the common stock.
Outstanding shares and shares issued and issuable upon exercise of options
held by Messrs. Edward Jankowski, Peter A. Jankowski, Jonathan C. Lupia, David
T. Ledwell, F. James Price, C. Rodney Wilger and Donald Stevens are the subject
of voting agreements between each of them and Comverse with respect to the
merger.
The shares of outstanding common stock indicated for Mr. E. Jankowski are
held in the Jankowski Family Trust, established by Mr. E. Jankowski and of which
Mr. E. Jankowski is a trustee.
The shares of outstanding common stock indicated for Mr. P. Jankowski
excludes 3,250 shares held by his spouse.
The shares of outstanding common stock indicated for Mr. Wilger includes
36,476 and 45,592 shares held by Serendipity, Inc., and the Wilger Profit
Sharing Fund, respectively, each under the control of Mr. Wilger.
-81-
LEGAL MATTERS
The validity of the shares of Comverse common stock offered by this proxy
statement/prospectus and certain legal matters with respect to the federal
income tax consequences of the merger will be passed upon for Comverse by Weil,
Gotshal & Manges LLP, New York, New York. Some legal matters with respect to
federal income tax consequences of the merger will be passed upon for Loronix by
Wilson Sonsini Goodrich & Rosati, Palo Alto, California.
-82-
EXPERTS
The consolidated financial statements of Comverse Technology, Inc. and its
subsidiaries ("Comverse") as of January 31, 1999 and 2000 and for the years
ended December 31, 1997, and January 31, 1999 and 2000, incorporated by
reference herein from Comverse's Annual Report on Form 10-K for the year ended
January 31, 2000, have been audited by Deloitte & Touche LLP, independent
auditors, as stated in their report, which is incorporated herein by reference,
and have been so incorporated in reliance upon the report of such firm given
upon their authority as experts in accounting and auditing.
The consolidated financial statements of Loronix as of December 31, 1999
and for the two-year period ended December 31, 1999 have been incorporated by
reference in this proxy statement/prospectus in reliance upon the report of
KPMG LLP, independent certified public accountants, incorporated by reference
herein, and upon the authority of said firm as experts in accounting and
auditing.
-83-
STOCKHOLDER PROPOSALS IF THE MERGER IS NOT COMPLETED
Loronix will hold a 2000 annual meeting of Loronix stockholders only if the
merger is not completed before July 31, 2000. The deadline for submission of
stockholder proposals for inclusion in Loronix's proxy materials for the 2000
annual meeting of Loronix stockholders has passed.
If the merger is not completed, Loronix stockholders may present proper
proposals for consideration at the next annual meeting of Loronix stockholders
by submitting their proposal in writing to the Secretary of Loronix in a timely
manner. However, in order for such stockholder proposals to be eligible to be
brought before Loronix's stockholders at the next annual meeting of Loronix's
stockholders, the stockholder submitting the proposal must also comply with the
procedures, including the deadlines, required by the articles of incorporation
and bylaws of Loronix. Stockholder nominations of directors are not stockholder
proposals within the meaning of Rule 14a-8 and are not eligible for inclusion in
Loronix's proxy statement.
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ADDITIONAL STATEMENTS
THIS PROXY STATEMENT/PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL, OR A
SOLICITATION OF AN OFFER TO PURCHASE, THE SECURITIES OFFERED BY THIS PROXY
STATEMENT/PROSPECTUS, OR THE SOLICITATION OF A PROXY, IN ANY JURISDICTION TO OR
FROM ANY PERSON TO WHOM OR FROM WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER,
SOLICITATION OF AN OFFER OR PROXY SOLICITATION IN SUCH JURISDICTION. NEITHER THE
DELIVERY OF THIS PROXY STATEMENT/PROSPECTUS NOR ANY DISTRIBUTION OF SECURITIES
PURSUANT TO THIS PROXY STATEMENT/PROSPECTUS SHALL, UNDER ANY CIRCUMSTANCES,
CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE INFORMATION SET
FORTH OR INCORPORATED INTO THIS PROXY STATEMENT/PROSPECTUS BY REFERENCE OR IN
OUR AFFAIRS SINCE THE DATE OF THIS PROXY STATEMENT/PROSPECTUS. THE INFORMATION
CONTAINED IN THIS PROXY STATEMENT/PROSPECTUS WITH RESPECT TO LORONIX AND ITS
SUBSIDIARIES WAS PROVIDED BY LORONIX AND THE INFORMATION CONTAINED IN THIS PROXY
STATEMENT/PROSPECTUS WITH RESPECT TO COMVERSE WAS PROVIDED BY COMVERSE.
-85-
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION
This proxy statement/prospectus and the documents incorporated herein
by reference contain forward-looking statements within the "safe harbor"
provisions of the Private Securities Litigation Reform Act of 1995 with respect
to our financial condition, results of operations and business, and on the
expected impact of the merger on Loronix's financial performance. Words such as
"anticipates," "expects," "intends," "plans," "believes," "seeks," "estimates"
and similar expressions identify forward-looking statements. These
forward-looking statements are not guarantees of future performance and are
subject to certain risks and uncertainties that could cause actual results to
differ materially from the results contemplated by the forward-looking
statements.
In evaluating the merger, you should carefully consider the discussion of
the risk factors identified in the section entitled "Risk Factors" on page 18 of
this proxy statement/prospectus.
-86-
ANNEX A
AGREEMENT AND PLAN OF MERGER
- -------------------------------------------------------------------------------
AGREEMENT AND PLAN OF MERGER
DATED AS OF MARCH 5, 2000
AMONG
LORONIX INFORMATION SYSTEMS, INC.
COMVERSE TECHNOLOGY, INC.
AND
COMVERSE ACQUISITION CORP.
- -------------------------------------------------------------------------------
TABLE OF CONTENTS
PAGE
Article I THE MERGER......................................................................... 1
SECTION 1.1..........................................................................The Merger 1
SECTION 1.2......................................................................Effective Time 2
SECTION 1.3...............................................................Closing of the Merger 2
SECTION 1.4...............................................................Effects of the Merger 2
SECTION 1.5.............................................Certificate of Incorporation and Bylaws 2
SECTION 1.6...........................................................................Directors 2
SECTION 1.7............................................................................Officers 2
Article II CONVERSION OF SHARES............................................................... 3
SECTION 2.1................................................................Conversion of Shares 3
SECTION 2.2.......................................................................Stock Options 4
SECTION 2.3.......................................................................Exchange Fund 5
SECTION 2.4.................................................................Exchange Procedures 5
SECTION 2.5............................Distributions with Respect to Unsurrendered Certificates 6
SECTION 2.6.................................No Further Ownership Rights in Company Common Stock 6
SECTION 2.7.........................................No Fractional Shares of Parent Common Stock 6
SECTION 2.8........................................................Termination of Exchange Fund 7
SECTION 2.9........................................................................No Liability 7
SECTION 2.10....................................................Investment of the Exchange Fund 7
SECTION 2.11..................................................................Lost Certificates 7
SECTION 2.12.................................................................Withholding Rights 7
SECTION 2.13...............................................................Stock Transfer Books 8
SECTION 2.14.........................................................................Affiliates 8
Article III REPRESENTATIONS AND WARRANTIES OF THE COMPANY...................................... 8
SECTION 3.1........................................Organization and Qualification; Subsidiaries 8
SECTION 3.2..................................Capitalization of the Company and Its Subsidiaries 9
SECTION 3.3........................Authority Relative to This Agreement; Consents and Approvals 10
SECTION 3.4...................................................SEC Reports; Financial Statements 11
SECTION 3.5..........................................................No Undisclosed Liabilities 11
SECTION 3.6..................................................................Absence of Changes 12
i
TABLE OF CONTENTS
(CONTINUED)
PAGE
SECTION 3.7................................................................Information Supplied 13
SECTION 3.8...............................................Consents and Approvals; No Violations 14
SECTION 3.9..........................................................................No Default 14
SECTION 3.10......................................................................Real Property 15
SECTION 3.11.........................................................................Litigation 16
SECTION 3.12.....................................................Compliance with Applicable Law 16
SECTION 3.13.....................................................................Employee Plans 17
SECTION 3.14......................................................................Labor Matters 19
SECTION 3.15..............................................................Environmental Matters 20
SECTION 3.16........................................................................Tax Matters 22
SECTION 3.17.................................................................Material Contracts 25
SECTION 3.18..........................................................................Insurance 26
SECTION 3.19..............................................................Intellectual Property 26
SECTION 3.20.......................................................Opinion of Financial Advisor 28
SECTION 3.21............................................................................Brokers 28
SECTION 3.22..................................................Accounting Matters; Tax Treatment 29
SECTION 3.23...............................................Takeover Statute; Dissenters' Rights 29
SECTION 3.24..........................................Amendment to the Company Rights Agreement 29
SECTION 3.25.........................................................Related Party Transactions 29
Article IV REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB............................ 30
SECTION 4.1........................................................................Organization 30
SECTION 4.2.......................................Capitalization of Parent and Its Subsidiaries 30
SECTION 4.3................................................Authority Relative to This Agreement 31
SECTION 4.4...................................................SEC Reports; Financial Statements 31
SECTION 4.5................................................................Information Supplied 32
SECTION 4.6...............................................Consents and Approvals; No Violations 32
SECTION 4.7.................................................................No Prior Activities 33
SECTION 4.8..........................................................No Undisclosed Liabilities 33
SECTION 4.9..................................................................Absence of Changes 33
SECTION 4.10.........................................................................Litigation 33
ii
TABLE OF CONTENTS
(CONTINUED)
PAGE
SECTION 4.11..................................................Accounting Matters; Tax Treatment 33
Article V COVENANTS RELATED TO CONDUCT OF BUSINESS........................................... 34
SECTION 5.1..................................................Conduct of Business of the Company 34
SECTION 5.2...............................................................Access to Information 36
Article VI ADDITIONAL AGREEMENTS.............................................................. 37
SECTION 6.1..........................................Preparation of S-4 and the Proxy Statement 37
SECTION 6.2.............................................................................Meeting 38
SECTION 6.3.............................................................Reasonable Best Efforts 38
SECTION 6.4...............................................................Acquisition Proposals 39
SECTION 6.5................................................................Public Announcements 41
SECTION 6.6.................................Indemnification; Directors' and Officers' Insurance 41
SECTION 6.7.....................................................Notification of Certain Matters 42
SECTION 6.8.............................................................................Pooling 42
SECTION 6.9...................................................Tax-Free Reorganization Treatment 42
SECTION 6.10...................................................................Employee Matters 43
SECTION 6.11..................................................................Affiliate Letters 44
SECTION 6.12........................................................................SEC Filings 44
SECTION 6.13..................................................................Fees and Expenses 44
SECTION 6.14..........................................................Obligations of Merger Sub 44
SECTION 6.15...................................................................Listing of Stock 44
SECTION 6.16..............................................................Antitakeover Statutes 44
Article VII CONDITIONS TO CONSUMMATION OF THE MERGER........................................... 45
SECTION 7.1.........................Conditions to Each Party's Obligations to Effect the Merger 45
SECTION 7.2..........................Conditions to the Obligations of the Parent and Merger Sub 46
SECTION 7.3........................................Conditions to the Obligations of the Company 47
Article VIII TERMINATION; AMENDMENT; WAIVER..................................................... 48
SECTION 8.1.....................................................Termination by Mutual Agreement 48
SECTION 8.2.........................................Termination by Either Parent or the Company 48
SECTION 8.3..........................................................Termination by the Company 48
SECTION 8.4...............................................................Termination by Parent 49
iii
TABLE OF CONTENTS
(CONTINUED)
PAGE
SECTION 8.5...............................................Effect of Termination and Abandonment 49
SECTION 8.6...........................................................................Amendment 50
SECTION 8.7...................................................................Extension; Waiver 51
Article IX MISCELLANEOUS...................................................................... 51
SECTION 9.1.......................................Nonsurvival of Representations and Warranties 51
SECTION 9.2........................................................Entire Agreement; Assignment 51
SECTION 9.3.............................................................................Notices 51
SECTION 9.4.......................................................................Governing Law 53
SECTION 9.5................................................................Descriptive Headings 53
SECTION 9.6.................................................................Parties in Interest 53
SECTION 9.7........................................................................Severability 53
SECTION 9.8................................................................Specific Performance 54
SECTION 9.9........................................................................Counterparts 54
SECTION 9.10.....................................................................Interpretation 54
SECTION 9.11........................................................................Definitions 55
iv
GLOSSARY OF DEFINED TERMS
DEFINED TERMS DEFINED IN PAGE
ACQUIRING PERSON:.......................................................................................29
ACQUISITION PROPOSAL:...................................................................................55
ANTITRUST LAW:..........................................................................................39
APB 16:.................................................................................................43
ARTICLES OF MERGER:......................................................................................2
ASSUMED STOCK OPTION:....................................................................................4
AVERAGE PARENT STOCK PRICE:..............................................................................3
BALANCE SHEET DATE:.....................................................................................11
BENEFICIAL OWNERSHIP:...................................................................................55
BENEFICIALLY OWN:.......................................................................................55
CERCLA:.................................................................................................20
CERTIFICATES:............................................................................................5
CLOSING DATE:............................................................................................2
CLOSING:.................................................................................................2
COBRA:..................................................................................................18
CODE:....................................................................................................1
COMPANY BOARD:..........................................................................................10
COMPANY COMMON STOCK:....................................................................................3
COMPANY DISCLOSURE SCHEDULE:.............................................................................8
COMPANY OPTION PLANS:....................................................................................4
COMPANY PERMITS:........................................................................................16
COMPANY REQUISITE VOTE:.................................................................................10
COMPANY RIGHTS AGREEMENT:...............................................................................29
COMPANY SEC REPORTS:....................................................................................11
COMPANY SECURITIES:......................................................................................9
COMPANY STOCK OPTION:....................................................................................4
COMPANY STOCKHOLDER MEETING:............................................................................38
COMPANY:.................................................................................................1
CONFIDENTIALITY AGREEMENT:..............................................................................37
COVERED TRANSACTIONS:...................................................................................29
DOJ:....................................................................................................39
EFFECTIVE TIME:..........................................................................................2
EMPLOYEE BENEFIT PLAN:..................................................................................17
EMPLOYEE BENEFIT PLANS:.................................................................................17
ENVIRONMENTAL COSTS AND LIABILITIES:....................................................................20
ENVIRONMENTAL LAW:......................................................................................20
ERISA AFFILIATE:........................................................................................17
EXCHANGE ACT:...........................................................................................11
EXCHANGE AGENT:..........................................................................................5
EXCHANGE FUND:...........................................................................................5
v
DEFINED TERMS DEFINED IN PAGE
EXCHANGE RATIO:..........................................................................................3
EXPENSES:...............................................................................................44
EXPIRATION DATE:........................................................................................29
FINANCIAL ADVISOR:......................................................................................28
FTC:....................................................................................................39
GAAP:...................................................................................................11
GOVERNMENTAL ENTITY:....................................................................................14
HAZARDOUS MATERIAL:.....................................................................................21
HSR ACT:................................................................................................14
INDEMNIFIED PARTIES:....................................................................................41
INDEMNIFIED PARTY:......................................................................................41
IRS:....................................................................................................17
KNOW:...................................................................................................55
KNOWLEDGE:..............................................................................................55
LAW:....................................................................................................15
LICENSES:...............................................................................................27
LIEN:...................................................................................................10
LIMITED USE PROPERTY:...................................................................................24
MATERIAL ADVERSE EFFECT:................................................................................55
MATERIAL CONTRACTS:.....................................................................................25
MERGER CONSIDERATION:....................................................................................3
MERGER SUB:..............................................................................................1
MERGER:..................................................................................................1
MULTIEMPLOYER PLAN:.....................................................................................17
MULTIPLE EMPLOYER PLANS:................................................................................17
NRS:.....................................................................................................1
OSHA:...................................................................................................21
OTHER INTELLECTUAL PROPERTY:............................................................................28
PARENT BOARD:...........................................................................................31
PARENT DISCLOSURE SCHEDULE:.............................................................................30
PARENT SEC REPORTS:.....................................................................................31
PARENT SECURITIES:......................................................................................31
PARENT:..................................................................................................1
PBGC:...................................................................................................18
PERSON:.................................................................................................56
PREFERRED STOCK:.........................................................................................9
PROXY STATEMENT:........................................................................................13
REAL PROPERTY LEASES:...................................................................................15
RELEASE:................................................................................................21
REMEDIAL ACTION:........................................................................................21
RIGHTS:.................................................................................................29
S-4:....................................................................................................13
SEC:..................................................................................................1, 8
SECURITIES ACT:..........................................................................................8
SHARE:...................................................................................................3
vi
DEFINED TERMS DEFINED IN PAGE
SHARES:..................................................................................................3
STOCK OPTION AGREEMENT:..................................................................................1
SUBSIDIARY:.............................................................................................56
SUPERIOR PROPOSAL:......................................................................................40
SURVIVING CORPORATION:...................................................................................1
TAKEOVER STATUTES:......................................................................................29
TAX EXEMPT BOND FINANCED PROPERTY:......................................................................24
TAX EXEMPT USE PROPERTY:................................................................................24
TAX RETURNS:............................................................................................23
TAX:....................................................................................................23
TAXES:..................................................................................................23
TERMINATION DATE:.......................................................................................48
TERMINATION NOTICE:......................................................................................3
TITLE IV PLANS:.........................................................................................17
TOP-UP EXCHANGE RATIO....................................................................................3
TOP-UP NOTICE............................................................................................3
TRADEMARKS:.............................................................................................28
Unaudited 1999 Financial Statements.....................................................................11
vii
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER, dated as of March 5, 2000, is among
Loronix Information Systems, Inc., a Nevada corporation (the "COMPANY"),
Comverse Technology, Inc., a New York corporation ("PARENT"), and Comverse
Acquisition Corp., a Nevada corporation and a direct wholly owned subsidiary
(as hereinafter defined) of Parent ("MERGER SUB").
WHEREAS, the Boards of Directors of the Company, Parent and Merger Sub
each have, in light of and subject to the terms and conditions set forth
herein, resolved to deem this Agreement and the transactions contemplated
hereby, including the Merger, taken together, advisable and fair to, and in
the best interests of, their respective stockholders;
WHEREAS, for federal income Tax purposes, it is intended that the Merger
shall qualify as a reorganization within the meaning of Section 368(a) of the
Internal Revenue Code of 1986, as amended (the "CODE");
WHEREAS, for accounting purposes, it is intended that the Merger be
accounted for as a "POOLING OF INTERESTS" under APB 16 (as hereinafter
defined) and the applicable rules and regulations of the Securities and
Exchange Commission (the "SEC"); and
WHEREAS, contemporaneously with the execution and delivery of this
Agreement, as a condition and an inducement to the willingness of Parent and
Merger Sub to enter into this Agreement, the Company is entering into a stock
option agreement with Parent (the "STOCK OPTION AGREEMENT"), pursuant to
which the Company has granted Parent an option to purchase Shares (as
hereinafter defined) under the terms and conditions set forth in the Stock
Option Agreement;
NOW, THEREFORE, in consideration of the premises and the
representations, warranties, covenants and agreements herein contained, and
intending to be legally bound hereby, the Company, Parent and Merger Sub
hereby agree as follows:
ARTICLE I
THE MERGER
SECTION 1.1 THE MERGER. At the Effective Time (as hereinafter defined)
and upon the terms and subject to the conditions of this Agreement and in
accordance with the Chapter 92A of the Nevada Revised Statutes (the "NRS"),
Merger Sub shall be merged with and into the Company (the "MERGER").
Following the Merger, the Company shall continue as the surviving corporation
(the "SURVIVING CORPORATION") and the separate corporate existence of Merger
Sub shall cease.
A-1
SECTION 1.2 EFFECTIVE TIME. Subject to the provisions of this Agreement,
Parent, Merger Sub and the Company shall cause the Merger to be consummated
by filing the appropriate Articles of Merger or other appropriate documents
(the "ARTICLES OF MERGER") with the Secretary of State of the State of Nevada
in such form as required by, and executed in accordance with, the relevant
provisions of the NRS, as soon as practicable on or after the Closing Date
(as hereinafter defined). The Merger shall become effective upon such filing
or at such time thereafter as is provided in the Certificate of Merger (the
"EFFECTIVE TIME").
SECTION 1.3 CLOSING OF THE MERGER. The closing of the Merger (the
"CLOSING") will take place at a time and on a date to be specified by the
parties (the "CLOSING DATE"), which shall be no later than the second
business day after satisfaction or waiver of the conditions set forth in
Article VII (other than those conditions that by their nature are to be
satisfied at the Closing, but subject to the fulfillment or waiver of those
conditions), at the offices of Weil, Gotshal & Manges LLP, 767 Fifth Avenue,
New York, New York 10153, or at such other time, date or place as agreed to
in writing by the parties hereto.
SECTION 1.4 EFFECTS OF THE MERGER. The Merger shall have the effects set
forth in the NRS. Without limiting the generality of the foregoing, and
subject thereto, at the Effective Time, all the properties, rights,
privileges, powers and franchises of the Company and Merger Sub shall vest in
the Surviving Corporation, and all debts, liabilities and duties of the
Company and Merger Sub shall become the debts, liabilities and duties of the
Surviving Corporation.
SECTION 1.5 CERTIFICATE OF INCORPORATION AND BYLAWS. The Restated
Articles of Incorporation of the Company in effect at the Effective Time
shall be the articles of incorporation of the Surviving Corporation until
amended in accordance with applicable Law (as hereinafter defined). The
bylaws of the Company in effect at the Effective Time shall be the bylaws of
the Surviving Corporation until amended in accordance with applicable Law and
as may be required to increase the size of the Board of Directors of the
Surviving Company.
SECTION 1.6 DIRECTORS. The directors of Merger Sub at the Effective Time
shall be the initial directors of the Surviving Corporation, to hold office
in accordance with the certificate of incorporation and bylaws of the
Surviving Corporation until their successors are duly elected or appointed
and qualified or until their earlier death, resignation or removal; PROVIDED,
HOWEVER, that Parent shall cause each of Messrs. C. Rodney Wilger, Donald W.
Stevens and Louis E. Colonna to be elected to the Board of Directors of the
Surviving Corporation until May 2003; PROVIDED, FURTHER, HOWEVER, that such
individuals shall then continue to desire to be elected as directors of the
Surviving Corporation.
SECTION 1.7 OFFICERS. The officers of the Company at the Effective Time
shall be the initial officers of the Surviving Corporation, to hold office in
accordance with the certificate of incorporation and bylaws of the Surviving
Corporation
A-2
until their successors are duly elected or appointed and qualified or until
their earlier death, resignation or removal.
ARTICLE II
CONVERSION OF SHARES
SECTION 2.1 CONVERSION OF SHARES. (a) At the Effective Time, each
outstanding share of the common stock, par value $.01 per share, of Merger
Sub shall, by virtue of the Merger and without any action on the part of
Parent, Merger Sub or the Company, be converted into one fully paid and
non-assessable share of common stock, par value $.01 per share, of the
Surviving Corporation.
(b) At the Effective Time, each share of common stock, par value $.01
per share, of the Company including the associated Rights (as hereinafter
defined) ("COMPANY COMMON STOCK") issued and outstanding immediately prior to
the Effective Time (individually, a "SHARE" and collectively, the "SHARES")
(other than (i) Shares held by the Company and (ii) Shares held by Parent or
Merger Sub) shall, by virtue of the Merger and without any action on the part
of Merger Sub, the Company or any holder thereof, be converted into and be
exchangeable for the right to receive 0.1925 fully paid and non-assessable
shares (the "EXCHANGE RATIO") of common stock, par value $.10 per share, of
Parent, (all such shares of Parent Common Stock issued, together with any
cash in lieu of fractional shares of Parent Common Stock to be paid pursuant
to Section 2.7, being referred to as the "MERGER CONSIDERATION"); PROVIDED,
HOWEVER, THAT in the event the Exchange Ratio multiplied by the Average
Parent Stock Price is less than $36 the Company shall have the right to give
written notice to Parent (the "SECTION 2.1(b) TERMINATION NOTICE") that the
Company elects to terminate this Agreement under this Section 2.1(b). The
Section 2.1(b) Termination Notice shall be delivered to Parent not later than
5:00 pm, New York time, on the second trading day prior to the Effective
Time. Upon delivery of a Section 2.1(b) Termination Notice, Parent shall have
the option, in it sole discretion, by written notice to the Company (the
"TOP-UP NOTICE") delivered not later than 5:00 pm, New York time, on the
trading day prior to the Effective Time, to increase the Exchange Ratio to an
amount equal to $36 divided by the Average Parent Stock Price (the "TOP-UP
EXCHANGE RATIO"). If Parent delivers a Top-Up Notice, this Agreement shall
not terminate and the Exchange Ratio shall be the Top-Up Exchange Ratio for
all purposes under this Agreement. As used herein, the "AVERAGE PARENT STOCK
PRICE" shall mean the average of the daily closing prices, regular way, of
one share of Parent Common Stock (rounded to the nearest thousandth) on the
Nasdaq National Market (as reported in the New York City edition of the Wall
Street Journal or, if not reported thereby, another nationally recognized
source) for the five (5) consecutive trading day period ending on the third
trading day prior to the Effective Time.
(c) At the Effective Time, each Share held by Parent, Merger Sub or the
Company immediately prior to the Effective Time shall, by virtue of the
Merger and without any action on the part of Merger Sub, the Company or
Parent, be canceled, retired and cease to exist and no payment shall be made
with respect thereto.
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(d) If between the date of this Agreement and the Effective Time the
outstanding shares of Parent Common Stock shall have been changed into a
different number of shares or a different class by reason of any stock
dividend, subdivision, reclassification, recapitalization, split, combination
or exchange of shares or any similar event, the amount of shares of Parent
Common Stock constituting the Exchange Ratio shall be correspondingly
adjusted to reflect such stock dividend, subdivision, reclassification,
recapitalization, split, combination or exchange of shares or such similar
event.
SECTION 2.2 STOCK OPTIONS. (a) As soon as practicable following the date
of this Agreement, Parent and Company (or, if appropriate, any committee of
the Board of Directors of Company administering Company's 1992 Stock Plan,
1995 Director Option Plan, and the 1999 Nonstatutory Stock Option Plan
(collectively, the "COMPANY OPTION PLANS") shall take such action as may be
required to effect the following provisions of this Section 2.2(a). Subject
to the provisions of Section 16 of the Exchange Act (as hereinafter defined),
as of the Effective Time each option to purchase Shares pursuant to the
Company Stock Plans (a "COMPANY STOCK OPTION") which is then outstanding
shall be assumed by Parent and converted into an option (or a new substitute
option shall be granted) (an "ASSUMED STOCK OPTION") to purchase the number
of shares of Parent Common Stock (rounded up to the nearest whole share)
equal to (x) the number of Shares subject to such option multiplied by (y)
the Exchange Ratio, at an exercise price per share of Parent Common Stock
(rounded down to the nearest penny) equal to (A) the former exercise price
per share of Company Common Stock under such option immediately prior to the
Effective Time divided by (B) the Exchange Ratio; PROVIDED, HOWEVER, that in
the case of any Company Stock Option which is an "incentive stock option" (as
defined in Section 422 of the Code), the conversion formula shall be
adjusted, if necessary, in a manner consistent with Section 424(a) of the
Code. Except as provided above, the Assumed Stock Option shall be subject to
the same terms and conditions (including expiration date, vesting and
exercise provisions) as were applicable to the converted Company Stock Option
immediately prior to the Effective Time.
(b) As soon as practicable after the Effective Time, Parent shall or
shall cause the Surviving Corporation on its behalf to deliver to the holders
of Company Stock Options appropriate notices setting forth such holders'
rights pursuant to the respective Company Option Plans and the agreements
evidencing the grants of such Company Stock Options and that such Company
Stock Options and agreements have been assumed by Parent and shall continue
in effect on the same terms and conditions (subject to the adjustments
required by this Section 2.2). Parent shall comply with the terms of the
Company Option Plans and ensure, to the extent required by, and subject to
the provisions of, such Company Option Plans, that the Company Stock Options
which qualified as incentive stock options prior to the Effective Time
continue to qualify as incentive stock options after the Effective Time.
(c) Parent shall take such actions as are reasonably necessary for the
assumption of the Company Option Plans pursuant to this Section 2.2,
including the reservation, issuance and listing of Parent Common Stock as is
necessary to effectuate the
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transactions contemplated by this Section 2.2. Parent shall use its
reasonable best efforts to prepare and file with the SEC a registration
statement on Form S-8 or other appropriate form with respect to shares of
Parent Common Stock subject to the Assumed Stock Options within 30 days
following the Effective Time and to maintain the effectiveness of such
registration statement or registration statements covering such Assumed Stock
Options (and maintain the current status of the prospectus or prospectuses
contained therein) for so long as such Assumed Stock Options remain
outstanding.
SECTION 2.3 EXCHANGE FUND. Prior to the Effective Time, Parent shall
appoint a commercial bank or trust company reasonably acceptable to the
Company to act as exchange agent hereunder for the purpose of exchanging
Shares for the Merger Consideration (the "EXCHANGE AGENT"). At or prior to
the Effective Time, Parent shall deposit with the Exchange Agent, in trust
for the benefit of holders of Shares, certificates representing the Parent
Common Stock issuable pursuant to Section 2.1 in exchange for outstanding
Shares. Parent agrees to make available to the Exchange Agent from time to
time as needed, cash sufficient to pay cash in lieu of fractional shares
pursuant to Section 2.7 and any dividends and other distributions pursuant to
Section 2.5. Any cash and certificates of Parent Common Stock deposited with
the Exchange Agent shall hereinafter be referred to as the "EXCHANGE FUND."
SECTION 2.4 EXCHANGE PROCEDURES. As soon as reasonably practicable after
the Effective Time, the Surviving Corporation shall cause the Exchange Agent
to mail to each holder of a certificate or certificates which immediately
prior to the Effective Time represented outstanding Shares (the
"CERTIFICATES") (i) a letter of transmittal which shall specify that delivery
shall be effected, and risk of loss and title to the Certificates shall pass,
only upon delivery of the Certificates to the Exchange Agent, and which
letter shall be in customary form and have such other provisions as Parent
may reasonably specify; and (ii) instructions for effecting the surrender of
such Certificates in exchange for the applicable Merger Consideration. Upon
surrender of a Certificate to the Exchange Agent together with such letter of
transmittal, duly executed and completed in accordance with the instructions
thereto, and such other documents as may reasonably be required by the
Exchange Agent, the holder of such Certificate shall be entitled to receive
in exchange therefor (A) shares of Parent Common Stock representing, in the
aggregate, the whole number of shares that such holder has the right to
receive pursuant to Section 2.1 (after taking into account all Shares then
held by such holder) and (B) a check in the amount equal to the cash that
such holder has the right to receive pursuant to the provisions of this
Article II, including cash in lieu of any dividends and other distributions
pursuant to Section 2.5. No interest will be paid or will accrue on any cash
payable pursuant to Section 2.5 or Section 2.7. In the event of a transfer of
ownership of Company Common Stock which is not registered in the transfer
records of the Company, shares of Parent Common Stock evidencing, in the
aggregate, the proper number of shares of Parent Common Stock, a check in the
proper amount of cash in lieu of any fractional shares of Parent Common Stock
pursuant to Section 2.7 and any dividends or other distributions to which
such holder is entitled pursuant to Section 2.5, may be issued with respect
to such Shares to the a transferee if the Certificate representing such
Shares
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are presented to the Exchange Agent, accompanied by all documents required to
evidence and effect such transfer and to evidence that any applicable stock
transfer Taxes have been paid.
SECTION 2.5 DISTRIBUTIONS WITH RESPECT TO UNSURRENDERED CERTIFICATES. No
dividends or other distributions declared or made with respect to shares of
Parent Common Stock with a record date after the Effective Time shall be paid
to the holder of any unsurrendered Certificate with respect to the shares of
Parent Common Stock that such holder would be entitled to receive upon
surrender of such Certificate and no cash payment in lieu of fractional
shares of Parent Common Stock shall be paid to any such holder pursuant to
Section 2.7 until such holder shall surrender such Certificate in accordance
with Section 2.4. Subject to the effect of applicable Laws, following
surrender of any such Certificate, there shall be paid to such holder of
shares of Parent Common Stock issuable in exchange therefor, without
interest, (a) promptly after the time of such surrender, the amount of any
cash payable in lieu of fractional shares of Parent Common Stock to which
such holder is entitled pursuant to Section 2.7 and the amount of dividends
or other distributions with a record date after the Effective Time
theretofore paid with respect to such whole shares of Parent Common Stock,
and (b) at the appropriate payment date, the amount of dividends or other
distributions with a record date after the Effective Time but prior to such
surrender and a payment date subsequent to such surrender payable with
respect to such shares of Parent Common Stock.
SECTION 2.6 NO FURTHER OWNERSHIP RIGHTS IN COMPANY COMMON STOCK. All
shares of Parent Common Stock issued and cash paid upon conversion of the
Shares in accordance with the terms of Article I and this Article II
(including any cash paid pursuant to Sections 2.5 and 2.7) shall be deemed to
have been issued or paid in full satisfaction of all rights pertaining to the
Shares.
SECTION 2.7 NO FRACTIONAL SHARES OF PARENT COMMON STOCK. (a) No
certificates or scrip of shares of Parent Common Stock representing
fractional shares of Parent Common Stock or book-entry credit of the same
shall be issued upon the surrender for exchange of Certificates and such
fractional share interests will not entitle the owner thereof to vote or to
have any rights of a shareholder of Parent or a holder of shares of Parent
Common Stock.
(b) Notwithstanding any other provision of this Agreement, each holder
of Shares exchanged pursuant to the Merger who would otherwise have been
entitled to receive a fraction of a share of Parent Common Stock (after
taking into account all Certificates delivered by such holder) shall receive,
in lieu thereof, cash (without interest) in an amount equal to the product of
(i) such fractional part of a share of Parent Common Stock multiplied by (ii)
the closing price on the Nasdaq National Market (as reported in the New York
City edition of the Wall Street Journal or, if not reported thereby, another
nationally recognized source) for a share of Parent Common Stock on the date
of the Effective Time. As promptly as practicable after the determination of
the aggregate amount of cash to be paid to holders of fractional interests,
the Exchange Agent shall notify Parent and Parent shall cause the Surviving
Corporation to deposit such amount
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with the Exchange Agent and shall cause the Exchange Agent to forward
payments to such holders of fractional interests subject to and in accordance
with the terms hereof.
SECTION 2.8 TERMINATION OF EXCHANGE FUND. Any portion of the Exchange
Fund which remains undistributed to the holders of Certificates for six
months after the Effective Time shall be delivered to Parent or otherwise on
the instruction of Parent, and any holders of the Certificates who have not
theretofore complied with this Article II shall thereafter look only to the
Surviving Corporation and Parent for the Merger Consideration with respect to
the Shares formerly represented thereby to which such holders are entitled
pursuant to Section 2.1 and Section 2.4, any cash in lieu of fractional
shares of Parent Common Stock to which such holders are entitled pursuant to
Section 2.7 and any dividends or distributions with respect to shares of
parent Common Stock to which such holders are entitled pursuant to Section
2.5. Any such portion of the Exchange Fund remaining unclaimed by holders of
Shares five years after the Effective Time (or such earlier date immediately
prior to such time as such amounts would otherwise escheat to or become
property of any Governmental Entity (as hereinafter defined)) shall, to the
extent permitted by law, become the property of the Surviving Corporation
free and clear of any claims or interest of any person previously entitled
thereto.
SECTION 2.9 NO LIABILITY. None of Parent, Merger Sub, the Company, the
Surviving Corporation or the Exchange Agent shall be liable to any person in
respect of any Merger Consideration from the Exchange Fund delivered to a
public official pursuant to any applicable abandoned property, escheat or
similar Law.
SECTION 2.10 INVESTMENT OF THE EXCHANGE FUND. The Exchange Agent shall
invest any cash included in the Exchange Fund as directed by Parent on a
daily basis. Any interest and other income resulting from such investments
shall promptly be paid to Parent.
SECTION 2.11 LOST CERTIFICATES. If any Certificate shall have been lost,
stolen or destroyed, upon the making of an affidavit of that fact by the
person claiming such Certificate to be lost, stolen or destroyed and, if
required by the Surviving Corporation, the posting by such person of a bond
in such reasonable amount as the Surviving Corporation may direct as
indemnity against any claim that may be made against it with respect to such
Certificate, the Exchange Agent will deliver in exchange for such lost,
stolen or destroyed Certificate the applicable Merger Consideration with
respect to the Shares formerly represented thereby, any cash in lieu of
fractional shares of Parent Common Stock and unpaid dividends and
distributions on shares of Parent Common Stock deliverable in respect
thereof, pursuant to this Agreement.
SECTION 2.12 WITHHOLDING RIGHTS. Each of the Surviving Corporation and
Parent shall be entitled to deduct and withhold from the Merger Consideration
otherwise payable pursuant to this Agreement to any holder of Shares such
amounts as it is required to deduct and withhold with respect to the making
of such payment under the Code and the rules and regulations promulgated
thereunder, or any provision of a Tax
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Law. To the extent that amounts are so withheld by the Surviving Corporation
or Parent, as the case may be, such withheld amounts shall be treated for all
purposes of this Agreement as having been paid to the holder of the Shares in
respect to which such deduction and withholding was made by the Surviving
Corporation or Parent, as the case may be.
SECTION 2.13 STOCK TRANSFER BOOKS. The stock transfer books of the
Company shall be closed immediately upon the Effective Time and there shall
be no further registration of transfers of Shares thereafter on the records
of the Company. On or after the Effective Time, any Certificates presented to
the Exchange Agent or Parent for any reason shall be converted into the
Merger Consideration with respect to the Shares formerly represented thereby,
any cash in lieu of fractional shares of Parent Common Stock to which the
holders thereof are entitled pursuant to Section 2.7 and any dividends or
other distributions to which the holders thereof are entitled pursuant to
Section 2.5.
SECTION 2.14 AFFILIATES. Notwithstanding anything to the contrary
herein, no shares of Parent Common Stock or cash shall be delivered to a
person who may be deemed an "AFFILIATE" of the Company in accordance with
Section 6.11 hereof for purposes of Rule 145 under the Securities Act of
1933, as amended (the "SECURITIES ACT"), or for purposes of qualifying the
Merger for "POOLING OF INTERESTS" under APB 16 and the applicable SEC rules
and regulations until such person has executed and delivered to Parent the
written agreement contemplated by Section 6.11.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
Except as set forth in the disclosure schedule delivered by the Company
to Parent prior to the execution of this Agreement (the "COMPANY DISCLOSURE
SCHEDULE") (each section of which qualifies the correspondingly numbered
representation and warranty or covenant to the extent specified therein), the
Company hereby represents and warrants to each of Parent and Merger Sub as
follows:
SECTION 3.1 ORGANIZATION AND QUALIFICATION; SUBSIDIARIES. (a) The
Company and each of its subsidiaries, is a corporation or legal entity duly
organized, validly existing and in good standing under the Laws of the
jurisdiction of its incorporation and has all requisite corporate,
partnership or similar power and authority to own, lease and operate its
properties and to carry on its businesses as now conducted and proposed by
the Company to be conducted.
(b) Section 3.1(b) of the Company Disclosure Schedule sets forth a list
of all subsidiaries of the Company. Except as listed in Section 3.1(b) of the
Company Disclosure Schedule, the Company does not own, directly or
indirectly, beneficially or of record, any shares of capital stock or other
security of any other entity or any other investment in any other entity.
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(c) Each of the Company and its subsidiaries is duly qualified or
licensed and in good standing to do business in each jurisdiction in which
the property owned, leased or operated by it or the nature of the business
conducted by it makes such qualification or licensing necessary, except where
the failure to be so duly qualified or licensed and in good standing does not
and would not reasonably be expected to have, individually or in the
aggregate, a Material Adverse Effect on the Company.
(d) The Company has heretofore delivered to Parent accurate and complete
copies of the certificate of incorporation and bylaws, as currently in
effect, of each of the Company.
SECTION 3.2 CAPITALIZATION OF THE COMPANY AND ITS SUBSIDIARIES. (a) The
authorized capital stock of the Company consists of: (i) 22,000,000 Shares,
of which 5,127,775 Shares were issued and outstanding as of the close of
business on March 3, 2000 and none of which are held in the Company's
treasury, and (ii) 2,000,000 shares of preferred stock, par value $.001 per
share (the "PREFERRED STOCK"), no shares of which are outstanding. All of the
issued and outstanding Shares have been validly issued, and are duly
authorized, fully paid, non-assessable and free of preemptive rights. As of
March 3, 2000, 952,541 Shares were reserved for issuance and issuable upon or
otherwise deliverable in connection with the exercise of outstanding Company
Stock Options issued pursuant to the Company Option Plans. Since September
30, 1999, no shares of the Company's capital stock have been issued other
than pursuant to Company Stock Options already in existence on such date.
Except as set forth above, as of the date hereof, there are outstanding (i)
no shares of capital stock or other voting securities of the Company; (ii) no
securities of the Company or any of its subsidiaries convertible into or
exchangeable for shares of capital stock or voting securities of the Company;
(iii) except for the Company Rights Agreement (as hereinafter defined) and
the Stock Option Agreement, no options or other rights to acquire from the
Company or any of its subsidiaries, and no obligations of the Company or any
of its subsidiaries to issue, any capital stock, voting securities or
securities convertible into or exchangeable for capital stock or voting
securities of the Company; and (iv) no equity equivalents, interests in the
ownership or earnings of the Company or any of its subsidiaries or other
similar rights (including stock appreciation rights) (collectively, "COMPANY
SECURITIES"). There are no outstanding obligations of the Company or any of
its subsidiaries to repurchase, redeem or otherwise acquire any Company
Securities. There are no stockholder agreements (other than the Voting
Agreements dated as of the date hereof between Parent and each of Edward
Jankowski and Peter Jankowski), voting trusts or other agreements or
understandings to which the Company or any of its subsidiaries is a party or
to which it is bound relating to the voting of any shares of capital stock of
the Company. Section 3.2 of the Company Disclosure Schedule sets forth
information regarding the current exercise price, date of grant and number
granted Company Stock Options for each holder thereof. Following the
Effective Time, no holder of Company Stock Options will have any right to
receive shares of common stock of the Surviving Corporation upon exercise of
the Company Stock Options.
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(b) All of the outstanding capital stock of the Company's subsidiaries
is owned by the Company, directly or indirectly, free and clear of any Lien
(as hereinafter defined) or any other limitation or restriction (including
any restriction on the right to vote or sell the same, except as may be
provided as a matter of Law). There are no securities of the Company or its
subsidiaries convertible into or exchangeable for, no options or other rights
to acquire from the Company or its subsidiaries, and no other contract,
understanding, arrangement or obligation (whether or not contingent)
providing for the issuance or sale, directly or indirectly of, any capital
stock or other ownership interests in, or any other securities of, any
subsidiary of the Company. There are no outstanding contractual obligations
of the Company or its subsidiaries to repurchase, redeem or otherwise acquire
any outstanding shares of capital stock or other ownership interests in any
subsidiary of the Company. For purposes of this Agreement, "LIEN" means, with
respect to any asset (including, without limitation, any security) any
mortgage, lien, pledge, charge, security interest or encumbrance of any kind
in respect of such asset.
SECTION 3.3 AUTHORITY RELATIVE TO THIS AGREEMENT; CONSENTS AND
APPROVALS. (a) The Company has all necessary corporate power and authority to
execute and deliver this Agreement and the Stock Option Agreement and to
consummate the transactions contemplated hereby and thereby. No other
corporate proceedings on the part of the Company are necessary to authorize
this Agreement and the Stock Option Agreement or to consummate the
transactions contemplated hereby and thereby (other than, with respect to the
Merger and this Agreement, the Company Requisite Vote (as hereinafter
defined)). This Agreement and the Stock Option Agreement have been duly and
validly executed and delivered by the Company and constitute valid, legal and
binding agreements of the Company, enforceable against the Company in
accordance with their respective terms.
(b) The Board of Directors of the Company (the "COMPANY BOARD") has, by
unanimous vote of those present duly and validly authorized the execution and
delivery of this Agreement and the Stock Option Agreement and approved the
consummation of the transactions contemplated hereby and thereby, and taken
all corporate actions required to be taken by the Company Board for the
consummation of the transactions, including the Merger, contemplated hereby
and has resolved (i) to deem this Agreement and the transactions contemplated
hereby, including the Merger, taken together, advisable and fair to, and in
the best interests of, the Company and its stockholders; and (ii) to
recommend that the stockholders of the Company approve and adopt this
Agreement. The Company Board has directed that this Agreement be submitted to
the stockholders of the Company for their approval. The affirmative approval
of the holders of Shares representing a majority of the votes that may be
cast by the holders of all outstanding Shares (voting as a single class) as
of the record date for the Company (the "COMPANY REQUISITE VOTE") is the only
vote of the holders of any class or series of capital stock of the Company
necessary to adopt this Agreement and approve the transactions contemplated
hereby, including the Merger.
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SECTION 3.4 SEC REPORTS; FINANCIAL STATEMENTS. The Company has filed all
required forms, reports and documents with the SEC since January 1, 1997, each
of which has complied in all material respects with all applicable requirements
of the Securities Act and the Securities Exchange Act of 1934, as amended (the
"EXCHANGE ACT"), each as in effect on the dates such forms, reports and
documents were filed. The Company has heretofore made available to Parent, in
the form filed with the SEC (including any amendments thereto), (i) its Annual
Reports on Form 10-KSB for each of the fiscal years ended December 31, 1997 and
1998; (ii) all definitive proxy statements relating to the Company's meetings of
stockholders (whether annual or special) held since January 1, 1997; and (iii)
all other reports or registration statements filed by the Company with the SEC
since January 1, 1997 (the "COMPANY SEC REPORTS"). None of such forms, reports
or documents, including, without limitation, any financial statements or
schedules included or incorporated by reference therein, contained, when filed,
any untrue statement of a material fact or omitted to state a material fact
required to be stated or incorporated by reference therein or necessary in order
to make the statements therein, in light of the circumstances under which they
were made, not misleading. The draft of the Company's Annual Report on Form
10-KSB for the year ended December 31, 1999 previously provided to Parent (which
omits the financial statements) does not contain any untrue statement of a
material fact or omit to state a material fact required to be stated or
incorporated by reference therein or necessary in order to make the statements
therein, in light of the circumstances in which they were made, not misleading.
The consolidated financial statements of the Company included in the Company SEC
Reports complied, and the unaudited consolidated financial statements of the
Company for its fiscal year ended December 31, 1999 (including the notes
thereto) previously provided to Parent (the "UNAUDITED 1999 FINANCIAL
STATEMENTS") comply, as to form in all material respects with applicable
accounting requirements and the published rules and regulations of the SEC with
respect thereto and fairly present, in conformity with generally accepted
accounting principles applied on a consistent basis ("GAAP") (except as may be
indicated in the notes thereto), the consolidated financial position of the
Company and its consolidated subsidiaries as of the dates thereof and their
consolidated results of operations and changes in financial position for the
periods then ended (subject, in the case of the unaudited interim financial
statements, to normal year-end adjustments). The audited consolidated financial
statements of the Company for the year ended December 31, 1999 (including the
notes thereto) shall not differ in any material respect from the Unaudited 1999
Financial Statements. Since January 1, 1999, there has not been any change, or
any application or request for any change, by the Company or any of its
subsidiaries in accounting principles, methods or policies for financial
accounting or Tax purposes (subject, in the case of the unaudited interim
financial statements, to normal year-end adjustments).
SECTION 3.5 NO UNDISCLOSED LIABILITIES. Except as and to the extent set
forth in the Company's unaudited balance sheet as of December 31, 1999 (the
"BALANCE SHEET DATE") and notes thereto previously provided to Parent, or as
incurred by the Company subsequent to the Balance Sheet Date in the ordinary
and usual course of business consistent with past practice, none of the
Company or its subsidiaries has any
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liabilities or obligations of any nature, whether or not accrued, contingent
or otherwise, and whether due or to become due or asserted or unasserted,
which would be required by GAAP to be reflected in, reserved against or
otherwise described in the consolidated balance sheet of the Company
(including the notes thereto).
SECTION 3.6 ABSENCE OF CHANGES. Except as and to the extent publicly
disclosed in the Company SEC Reports as set forth in Section 3.6 of the
Company Disclosure Schedule or as otherwise permitted pursuant to this
Agreement, since the Balance Sheet Date, the Company and its subsidiaries
have conducted their business in the ordinary and usual course consistent
with past practice and there has not been:
(a) any event, occurrence or development which does or would reasonably be
expected to have, individually or in the aggregate, a Material Adverse Effect on
the Company;
(b) any declaration, setting aside or payment of any dividend or other
distribution with respect to any shares of capital stock of the Company, or any
repurchase, redemption or other acquisition by the Company or any subsidiary of
any Company securities;
(c) any amendment of any term of any outstanding security of the Company
or any subsidiary that would materially increase the obligations of the
Company or such subsidiary under such security;
(d) (i) any incurrence or assumption by the Company or any subsidiary of
any indebtedness for borrowed money other than under existing credit
facilities (or any renewals, replacements or extensions that do not increase
the aggregate commitments thereunder) other than (A) in the ordinary and
usual course of business consistent with past practice or (B) in connection
with (x) any acquisition or capital expenditure permitted by Section 5.1 or
(y) the transactions contemplated hereby, or (ii) any guarantee, endorsement
or other incurrence or assumption of liability (whether directly,
contingently or otherwise) by the Company or any subsidiary for the
obligations of any other person (other than any wholly owned subsidiary of
the Company) other than in the ordinary and usual course of business
consistent with past practice;
(e) any creation or assumption by the Company or any subsidiary of any
Lien which is material to the Company on any material asset of the Company or
any subsidiary other than in the ordinary and usual course of business
consistent with past practice;
(f) any making of any loan, advance or capital contribution to or
investment in any person by the Company or any subsidiary other than (i) any
acquisition permitted by Section 5.1, (ii) loans, advances or capital
contributions to or investments in wholly owned subsidiaries of the Company
or (iii) loans or advances to employees of the
A-12
Company or any subsidiary made in the ordinary and usual course of business
consistent with past practice;
(g) (i) any contract or agreement entered into by the Company or any
subsidiary on or prior to the date hereof relating to any material
acquisition or disposition of any assets or business or (ii) any
modification, amendment, assignment, termination or relinquishment by the
Company or any subsidiary of any material contract, license or other material
right (including any insurance policy naming it as a beneficiary or a loss
payable payee) other than, in the case of (i) and (ii), transactions,
commitments, contracts or agreements in the ordinary and usual course of
business consistent with past practice and those contemplated by this
Agreement;
(h) any material change in any method of accounting or accounting
principles or practice by the Company or any subsidiary, except for any such
change required by reason of a change in GAAP;
(i) any (i) grant of any severance or termination pay to any director,
officer or employee of the Company or any of its subsidiaries; (ii) entering
into of any employment, deferred compensation or other similar agreement (or
any amendment to any such existing agreement) with any director, officer or
employee of the Company or any of its subsidiaries; (iii) increase in
benefits payable under any existing severance or termination pay policies or
employment agreements; or (iv) increase in compensation, bonus or other
benefits payable to directors, officers or employees of the Company or any of
its subsidiaries other than, in the case of clause (iv) only, increases prior
to the date hereof in compensation, bonus or other benefits payable to
employees of the Company or any of its subsidiaries in the ordinary and usual
course of business consistent with past practice or merit increases in
salaries of employees at regularly scheduled times in customary amounts
consistent with past practices; or
(j) any making or rescission of any material express or deemed
election relating to Taxes, settlement or compromise of any material claim,
action, suit, litigation, proceeding, arbitration, investigation, audit or
controversy relating to Taxes, or except as may be required by applicable law,
making of any change to any of its material methods of reporting income or
deductions for federal income tax purposes from those employed in the
preparation of its most recently filed federal income tax return.
SECTION 3.7 INFORMATION SUPPLIED. None of the information supplied or
to be supplied by the Company for inclusion or incorporation by reference in
(i) the registration statement on Form S-4 to be filed with the SEC by Parent
in connection with the issuance of Parent Common Stock as required by the
terms of this Agreement pursuant to the Merger (the "S-4"), at the time the
S-4 is filed with the SEC and at the time it becomes effective under the
Securities Act, will contain any untrue statement of a material fact or omit
to state any material fact required to be stated therein or necessary to make
the statements therein not misleading, and (ii) the proxy statement relating
to the Company Stockholder Meeting (as hereinafter defined) to be held in
connection with the Merger (the "PROXY STATEMENT") will, at the date mailed
to
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stockholders and at the times of the meeting of stockholders to be held in
connection with the Merger, contain any untrue statement of a material fact
or omit to state any material fact required to be stated therein or necessary
in order to make the statements therein, in light of the circumstances under
which they are made, not misleading. If at any time prior to the Effective
Time any event with respect to the Company, its officers and directors or any
of its subsidiaries should occur which is required to be described in an
amendment of, or a supplement to, the S-4 or the Proxy Statement, the Company
shall promptly so advise Parent and such event shall be so described, and
such amendment or supplement (which Parent shall have a reasonable
opportunity to review) shall be promptly filed with the SEC and, as required
by Law, disseminated to the stockholders of the Company. The Proxy Statement,
insofar as it relates to the Company Stockholder Meeting, will comply as to
form in all material respects with the provisions of the Exchange Act and the
rules and regulations thereunder.
SECTION 3.8 CONSENTS AND APPROVALS; NO VIOLATIONS. Except for filings,
permits, authorizations, consents and approvals as may be required under, and
other applicable requirements of, the Securities Act, the Exchange Act, state
securities or blue sky Laws, the Hart-Scott-Rodino Antitrust Improvements Act
of 1976, as amended (the "HSR ACT"), the filing and recordation of the
Articles of Merger as required by the NRS and as otherwise set forth in
Section 3.8 to the Company Disclosure Schedule, no filing by the Company with
or notice by the Company to, and no permit, authorization, consent or
approval of, any court or tribunal or administrative, governmental or
regulatory body, agency or authority (a "GOVERNMENTAL ENTITY") is necessary
for the execution and delivery by the Company of this Agreement or the Stock
Option Agreement or the consummation by the Company of the transactions
contemplated hereby or thereby. Neither the execution, delivery and
performance of this Agreement or the Stock Option Agreement by the Company
nor the consummation by the Company of the transactions contemplated hereby
or thereby will (i) conflict with or result in any breach of any provision of
the respective certificate or articles of incorporation or bylaws (or similar
governing documents) of the Company or any of its subsidiaries, (ii) result
in a violation or breach of, or constitute (with or without due notice or
lapse of time or both) a default (or give rise to any right of termination,
amendment, cancellation or acceleration or Lien) under, any of the terms,
conditions or provisions of any note, bond, mortgage, indenture, lease,
license, contract, agreement or other instrument or obligation to which the
Company or any of its subsidiaries is a party or by which any of them or any
of their respective properties or assets may be bound, or (iii) violate any
Law applicable to the Company or any of its subsidiaries or any of their
respective properties or assets, except in the case of (ii) or (iii) for
violations, breaches or defaults which do not or would not reasonably be
expected to have, individually or in the aggregate, a Material Adverse Effect
on the Company.
SECTION 3.9 NO DEFAULT. Neither the Company nor any of its subsidiaries
are in violation of any term of (i) its certificate of incorporation, bylaws
or other organizational documents, (ii) any agreement or instrument related
to indebtedness for borrowed money or any other agreement to which it is a
party or by which it is bound,
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or (iii) any foreign or domestic law, order, writ, injunction, decree,
ordinance, award, stipulation, statute, judicial or administrative doctrine,
rule or regulation entered by a Governmental Entity ("LAW") applicable to the
Company, its subsidiaries or any of their respective properties or assets,
the consequence of which violation does or would reasonably be expected to
(A) have, individually or in the aggregate, a Material Adverse Effect on the
Company or (B) prevent or materially delay the performance of this Agreement
and the Stock Option Agreement by the Company. Except as set forth in Section
3.6 of the Company Disclosure Schedule, the execution, delivery and
performance of this Agreement and the Stock Option Agreement and the
consummation of the transactions contemplated hereby and thereby will not
result in any violation of or conflict with, constitute a default under,
require any consent, waiver or notice under any term of, or result in the
reduction or loss of any benefit or the creation or acceleration of any right
or obligation under, (i) the certificate of incorporation, bylaws or other
organizational document of the Company (or any of its subsidiaries), (ii) any
agreement, note, bond, mortgage, indenture, contract, lease, Company Permit
(as hereinafter defined), instrument or other obligation or right to which
the Company or any of its subsidiaries is a party or by which any of the
assets or properties of the Company or any of its subsidiaries is bound,
(iii) any Law, or (iv) result in the creation of (or impose any obligation on
the Company or any of its subsidiaries to create) any Lien upon any of the
properties or assets of the Company or any of its subsidiaries pursuant to
any such term, except in the case of clause (ii) where any of the foregoing
do not or would not reasonably be expected to have, individually or in the
aggregate, a Material Adverse Effect on the Company.
SECTION 3.10 REAL PROPERTY. (a) Section 3.10 of the Company Disclosure
Schedule sets forth all of the real property owned in fee by the Company and
its subsidiaries. Except as set forth on Section 3.10 of the Company
Disclosure Schedule, each of the Company and its subsidiaries has good and
marketable title to each parcel of real property owned by it free and clear
of all Liens, except (i) Taxes and general and special assessments not in
default and payable without penalty and interest, and (ii) other Liens, which
do not materially interfere with the Company's or any of its subsidiaries'
use and enjoyment of such real property.
(b) Section 3.10 of the Company Disclosure Schedule sets forth all
leases, subleases and other agreements (the "REAL PROPERTY LEASES") under
which the Company or any of its subsidiaries uses or occupies or has the
right to use or occupy, now or in the future, any real property. The Company
has heretofore delivered to Parent true, correct and complete copies of all
Real Property Leases (and all modifications, amendments and supplements
thereto and all side letters to which the Company or any of its subsidiaries
is a party affecting the obligations of any party thereunder). Each Real
Property Lease constitutes the valid and legally binding obligation of the
Company or its subsidiaries, enforceable in accordance with its terms (except
as enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium, fraudulent transfer and similar Laws of general
applicability relating to or affecting creditors' rights or by general equity
principles), and is in full force and effect. No termination event or
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condition or uncured default of a material nature on the part of the Company
or any such subsidiary or, to the Company's knowledge, the landlord, exists
under any Real Property Lease. Each of the Company and its subsidiaries has a
good and valid leasehold interest in each parcel of real property leased by
it free and clear of all Liens, except (i) Taxes and general and special
assessments not in default and payable without penalty and interest, and (ii)
other Liens, which do not materially interfere with the Company's or any of
its subsidiaries' use and enjoyment of such real property.
(c) No party to any such Real Property Leases has given notice to the
Company or any of its subsidiaries of or made a claim against the Company or
any of its subsidiaries with respect to any breach or default thereunder, in
any such case in which such breach or default does or would reasonably be
expected to have, individually or in the aggregate, a Material Adverse Effect
on the Company.
SECTION 3.11 LITIGATION. Except as and to the extent publicly disclosed
by the Company in the Company SEC Reports, and except for litigation that may
arise as a result of the announcement, pendency or performance of this
Agreement or the transactions contemplated hereby, there is no suit, claim,
action, proceeding or investigation pending or, to the Company's knowledge,
threatened against the Company or any of its subsidiaries or any of their
respective properties or assets which (a) seeks damages in excess of
$500,000, (b) seeks equitable relief or remediation, (c) does or would
reasonably be expected to have, individually or in the aggregate, a Material
Adverse Effect on the Company or (d) questions the validity of this
Agreement, the Stock Option Agreement or any action to be taken by the
Company in connection with the consummation of the transactions contemplated
hereby or could otherwise prevent or delay the consummation of the
transactions contemplated by this Agreement. Except as and to the extent
publicly disclosed by the Company in the Company SEC Reports, none of the
Company or its subsidiaries is subject to any outstanding order, writ,
injunction or decree.
SECTION 3.12 COMPLIANCE WITH APPLICABLE LAW. The Company and its
subsidiaries hold all material permits, licenses, variances, exemptions,
orders and approvals of all Governmental Entities necessary for the lawful
conduct of their respective businesses (the "COMPANY PERMITS"). The Company
and its subsidiaries are in compliance with the terms of the Company Permits,
except where the failure to so comply does not or would not reasonably be
expected to have, individually or in the aggregate, a Material Adverse Effect
on the Company. The businesses of the Company and its subsidiaries are being
conducted in compliance in all material respects with all Laws applicable to
the Company or its subsidiaries. To the Company's knowledge, no investigation
or review by any Governmental Entity with respect to the Company or its
subsidiaries is pending or threatened, nor, to the Company's knowledge, has
any Governmental Entity indicated an intention to conduct the same.
SECTION 3.13 EMPLOYEE PLANS. (a) Section 3.13(a) of the Company
Disclosure Schedule sets forth a list of (i) all material "EMPLOYEE BENEFIT
PLANS," as defined in Section 3(3) of ERISA, and all other employee benefit
plans or other benefit
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arrangements or payroll practices including, without limitation, bonus plans,
executive compensation, consulting or other compensation agreements,
incentive, equity or equity-based compensation, deferred compensation
arrangements, stock purchase, severance pay, sick leave, vacation pay, salary
continuation disability, hospitalization, medical insurance, life insurance,
scholarship programs, directors' benefit, bonus or other incentive
compensation, which the Company or any of its subsidiaries maintains,
contributes to or has any obligation to or liability for (each an "EMPLOYEE
BENEFIT PLAN" and collectively, the "EMPLOYEE BENEFIT PLANS"); and (ii) all
"EMPLOYEE PENSION PLANS", as defined in Section 3(2) of ERISA, subject to
Title IV of ERISA or Section 412 of the Code, to which the Company, any of
its subsidiaries or any trade or business (whether or not incorporated) which
is or has ever been under common control, or which is or has ever been
treated as a single employer, with the Company or any subsidiary under
Section 414(b), (c), (m) or (o) of the Code ("ERISA AFFILIATE") has ever
sponsored, maintained, contributed or been obligated to contribute in the
last six years (the "TITLE IV PLANS"). Except as separately set forth on
Section 3.14(a) of the Company Disclosure Schedule, none of the Employee
Benefit Plans is a multiemployer plan, as defined in Section 3(37) of ERISA
("MULTIEMPLOYER PLAN"), or is or has been subject to Sections 4063 or 4064 of
ERISA ("MULTIPLE EMPLOYER PLANS"), nor has the Company, its subsidiaries or
any ERISA Affiliate ever been obligated to contribute to a Multiemployer Plan.
(b) True, correct and complete copies of the following documents, with
respect to each of the Employee Benefit Plans and Title IV Plans (other than
a Multiemployer Plan) have been made available or delivered to Parent by the
Company (i) any plans and related trust documents, and amendments thereto;
(ii) the three most recent Forms 5500 and schedules thereto; (iii) the most
recent Internal Revenue Service ("IRS") determination letter; (iv) the three
most recent financial statements and actuarial valuations, if applicable; (v)
summary plan descriptions; (vi) written communications to employees relating
to the Employee Benefit Plans; and (vii) written descriptions of all
non-written agreements relating to the Employee Benefit Plans.
(c) As of the date hereof, (i) all material payments required to be made
by or under any Employee Benefit Plan, any related trusts, or any collective
bargaining agreement or pursuant to Law have been made by the due date
thereof (including any valid extension), and all contributions for any period
ending on or before the Closing Date which are not yet due will have been
paid or accrued on the balance sheet on or prior to the Closing Date; (ii)
the Company and its subsidiaries have performed all material obligations
required to be performed by them under any Employee Benefit Plan; (iii) the
Employee Benefit Plans, have been administered in material compliance with
their terms and the requirements of ERISA, the Code and other applicable
Laws; (iv) there are no material actions, suits, arbitrations or claims
(other than routine claims for benefit) pending or threatened with respect to
any Employee Benefit Plan; and (v) the Company and its subsidiaries have no
material liability as a result of any "PROHIBITED TRANSACTION" (as defined in
Section 406 of ERISA and Section 4975 of the Code) for any excise Tax or
civil penalty.
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(d) Except as set forth in Section 3.13(d) of the Company Disclosure
Schedule:
(i) There is no "AMOUNT OF UNFUNDED BENEFIT LIABILITIES" as
defined in Section 4001(a)(18) of ERISA in any of the respective Title
IV Plans. Each of the respective Title IV Plans are fully funded in
accordance with the actuarial assumptions used by the Pension Benefit
Guaranty Corporation ("PBGC") to determine the level of funding required
in the event of the termination of such Title IV Plan and the "BENEFIT
LIABILITIES" as defined in Section 4001(a)(16) of ERISA of such Title IV
Plan using such PBGC assumptions do not exceed the assets of such Title
IV Plan.
(ii) There has been no "REPORTABLE EVENT" as that term is
defined in Section 4043 of ERISA and the regulations thereunder with
respect to the Title Iv Plans which would require the giving of notice
or any event requiring disclosure under Section 4041(c)(3)(C) or 4063(a)
of ERISA.
(iii) Neither the Company nor any ERISA Affiliate has terminated
any Title IV Plan, or incurred any outstanding liability under Section
4062 of ERISA to the PBGC, or to a trustee appointed under Section 4042
of ERISA. All premiums due the PBGC with respect to the Title IV Plans
have been paid.
(iv) Neither the Company nor any ERISA Affiliate or any
organization to which the Company or any ERISA Affiliate is a successor
or parent corporation, within the meaning of Section 4069(b) of ERISA,
has engaged in any transaction within the last five years which might be
alleged to come within the meaning of Section 4069 of ERISA.
(e) The Company and its subsidiaries are not subject to any unsatisfied
withdrawal liability with respect to any Multiemployer Plan.
(f) Each of the Employee Benefit Plans which is intended to be "QUALIFIED"
within the meaning of Section 401(a) of the Code has been determined by the IRS
to be so "QUALIFIED" and the trusts maintained pursuant thereto are exempt from
federal income taxation under Section 501 of the Code, and the Company knows of
no fact which would adversely affect the qualified status of any such Employee
Benefit Plans or the exemption of such trust.
(g) None of the Employee Benefit Plans provide for continuing
post-employment health or life insurance coverage for any participant or any
beneficiary of a participant except as may be required under the Consolidated
Omnibus Budget Reconciliation Act of 1985, as amended, ("COBRA"). Each of the
Company and any ERISA Affiliate which maintains a "group health plan" within
the meaning Section 5000(b)(1) of the Code has materially complied with the
notice and continuation
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requirements of Section 4980B of the Code, COBRA, Part 6 of Subtitle B of
Title I of ERISA and the regulations thereunder.
(h) No stock or other security issued by the Company forms or has formed a
material part of the assets of any Employee Benefit Plan.
(i) Neither the execution and delivery of this Agreement nor the
consummation of the transactions contemplated hereby will by itself or in
combination with any other event, except as expressly contemplated by this
Agreement, (i) result in any material payment becoming due, or materially
increase the amount of compensation due, to any current or former employee of
the Company or any of its subsidiaries; (ii) materially increase any benefits
otherwise payable under any Employee Benefit Plan; or (iii) result in the
acceleration of the time of payment or vesting of any such material benefits.
SECTION 3.14 LABOR MATTERS. (a) Section 3.14 of the Company Disclosure
sets forth a list of all employment, labor or collective bargaining
agreements to which the Company or any subsidiary is party and except as set
forth therein, there are no employment, labor or collective bargaining
agreements which pertain to employees of the Company or any of its
subsidiaries. The Company has heretofore made available to Parent true and
complete copies of (i) the employment agreements listed on Section 3.14 of
the Company Disclosure Schedule and (ii) the labor or collective bargaining
agreements listed on Section 3.14 of the Company Disclosure Schedule,
together with all amendments, modifications, supplements and side letters
affecting the duties, rights and obligations of any party thereunder.
(b) No employees of the Company or any of its subsidiaries are
represented by any labor organization; no labor organization or group of
employees of the Company or any of its subsidiaries has made a pending demand
for recognition or certification; and, to the Company's knowledge, there are
no representation or certification proceedings or petitions seeking a
representation proceeding presently pending or threatened in writing to be
brought or filed with the National Labor Relations Board or any other labor
relations tribunal or authority. To the Company's knowledge, there are no
organizing activities involving the Company or any of its Subsidiaries
pending with any labor organization or group of employees of the Company or
any of its subsidiaries.
(c) There are no strikes, work stoppages, slowdowns, lockouts, material
arbitrations or material grievances or other material labor disputes pending
or threatened in writing against or involving the Company. There are no
unfair labor practice charges, grievances or complaints pending or threatened
in writing by or on behalf of any employee or group of employees of the
Company which, if individually or collectively resolved against Company, as
the case may be, could result in a material liability.
A-19
(d) There are no unfair labor practice charges, grievances or complaints
pending or threatened in writing by or on behalf of any employee or group of
employees of the Company or any of its Subsidiaries.
(e) There are no complaints, charges or claims against the Company or
any of its subsidiaries pending, or threatened in writing to be brought or
filed, with any Governmental Entity or arbitrator based on, arising out of,
in connection with, or otherwise relating to the employment or termination of
employment of any individual by the Company or any of its subsidiaries.
(f) The Company and each of its subsidiaries is in compliance with all
Laws relating to the employment of labor, including all such Laws and orders
relating to wages, hours, collective bargaining, discrimination, civil
rights, safety and health workers' compensation and the collection and
payment of withholding and/or Social Security Taxes and similar Taxes other
than any such non-compliance which does not or would not reasonably be
expected to have, individually or in the aggregate, a Material Adverse Effect
on the Company.
(g) There has been no "mass layoff" or "plant closing" as defined by the
Workers Adjustment Retraining Notification Act, as amended ("WARN"), with
respect to the Company within the six (6) months prior to Closing.
SECTION 3.15 ENVIRONMENTAL MATTERS. (a) For purposes of this Agreement:
(i) "ENVIRONMENTAL COSTS AND LIABILITIES" means any and all
losses, liabilities, obligations, damages (including compensatory,
punitive and consequential damages), fines, penalties, judgments,
actions, claims, costs and expenses (including, without limitation,
fees, disbursements and expenses of legal counsel, experts, engineers
and consultants and the costs of investigation and feasibility studies
and clean up, remove, treat, or in any other way address any Hazardous
Materials (as hereinafter defined)) arising from, under or pursuant to
any Environmental Law (as hereinafter defined);
(ii) "ENVIRONMENTAL LAW" means any applicable federal, state,
local or foreign Law (including common Law), statute, rule, regulation,
ordinance, decree or other legal requirement relating to the protection
of natural resources, the environment and public and employee health and
safety or pollution or the release or exposure to Hazardous Materials
(as hereinafter defined) and shall include, without limitation, the
Comprehensive Environmental Response, Compensation, and Liability Act
("CERCLA") (42 U.S.C. Section 9601 ET SEQ.), the Hazardous Materials
Transportation Act (49 U.S.C. Section 1801 ET SEQ.), the Resource
Conservation and Recovery Act (42 U.S.C. Section 6901 ET SEQ.), the
Clean Water Act (33 U.S.C. Section 1251 ET SEQ.), the Clean Air Act (33
U.S.C. Section 7401 ET SEQ.), the Toxic Substances Control Act (15
U.S.C. Section 7401 ET SEQ.), the Federal Insecticide, Fungicide, and
Rodenticide Act (7 U.S.C. Section 136 ET SEQ.), and the
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Occupational Safety and Health Act (29 U.S.C. Section 651 ET SEQ.)
("OSHA") and the regulations promulgated pursuant thereto, and any such
applicable state or local statutes, and the regulations promulgated
pursuant thereto, as such Laws have been and may be amended or
supplemented through the Closing Date;
(iii) "HAZARDOUS MATERIAL" means any substance, material or waste
which is regulated, classified or otherwise characterized as hazardous,
toxic, pollutant, contaminant or words of similar meaning or regulatory
effect by any Governmental Entity or the United States, and includes,
without limitation, petroleum, petroleum by-products, asbestos and
polychlorinated biphenyls;
(iv) "RELEASE" means any release, spill, effluent, emission,
leaking, pumping, injection, deposit, disposal, discharge, dispersal,
leaching, or migration into the environment, including any property
owned, operated or leased by the applicable party or its subsidiaries;
and
(v) "REMEDIAL ACTION" means all actions, including, without
limitation, any capital expenditures, required by a Governmental Entity
or required under or taken pursuant to any Environmental Law, or
voluntarily undertaken to (A) clean up, remove, treat, or in any other
way, ameliorate or address any Hazardous Materials released into the
environment; (B) prevent the Release or threat of Release, or minimize
the further Release of any Hazardous Material so it does not endanger or
threaten to endanger the public health or welfare of the environment;
(C) perform pre-remedial studies and investigations or post-remedial
monitoring and care pertaining or relating to a Release; or (D) bring
the applicable party into compliance with any Environmental Law.
(b) Except as set forth in Section 3.15 of the Company Disclosure Schedule:
(i) The operations of the Company and its subsidiaries have been
and, as of the Closing Date, will be, in compliance with all
Environmental Laws except where the failure to be in compliance would be
material to the Company, and the Company is not aware of any facts,
circumstances or conditions, which without significant capital
expenditures, would prevent material compliance in the future;
(ii) The Company and its subsidiaries have obtained all material
permits, authorizations, licenses or similar approvals required under
applicable Environmental Laws for the continued operations of their
respective businesses as currently conducted;
(iii) The Company and its subsidiaries are not subject to any
outstanding written orders or material agreements with any Governmental
Entity or other person respecting (A) Environmental Laws, (B) Remedial
Action or (C) any Release or threatened Release of a Hazardous Material;
A-21
(iv) The Company and its subsidiaries have not received
any written communication alleging, with respect to any such party, the
violation of or liability (real or potential) under any Environmental
Law;
(v) Neither the Company nor any of its subsidiaries has
any contingent liability in connection with the Release of any
Hazardous Material (whether on-site or off-site) which does or would
reasonably be expected to have, individually or in the aggregate, a
Material Adverse Effect;
(vi) The operations of the Company or its subsidiaries
do not involve the generation, transportation, treatment, storage or
disposal of hazardous waste, as defined and regulated and requiring a
permit under 40 C.F.R. Parts 260-270 (in effect as of the date of this
Agreement) or any state equivalent;
(vii) To the Company's knowledge, there is not now nor
has there been in the past, on or in any property of the Company or
its subsidiaries any of the following: (A) any underground storage
tanks or surface impoundments, (B) any asbestos-containing materials,
or (C) any polychlorinated biphenyls; and
(viii) No judicial or administrative proceedings are
pending or, to the Company's knowledge, threatened against the Company
and its subsidiaries alleging the violation of or seeking to impose
liability pursuant to any Environmental Law and, to the Company's
knowledge, there are no investigations pending or threatened against
the Company or any of its subsidiaries under Environmental Laws.
(c) None of the exceptions set forth on Schedule 3.15 are
reasonably likely to result in the Company and its Subsidiaries incurring
Environmental Costs and Liabilities which would exceed $500,000 in the
aggregate.
(d) The Company has provided to or made available for inspection
to Parent and Purchaser copies of all environmentally related assessments,
audits, investigations, sampling or similar reports relating to the Company or
its subsidiaries or any real property currently or formerly owned, operated or
leased by or for the Company and its subsidiaries.
SECTION 3.16 TAX MATTERS. (a) The Company and each of its
subsidiaries, and each affiliated group (within the meaning of Section 1504 of
the Code) of which the Company or any of its subsidiaries is or has been a
member, has timely filed all federal income Tax Returns and all other material
Tax Returns and reports required to be filed by it. All such Tax Returns are
true, complete and correct in all material respects. The Company and each of its
subsidiaries has paid (or the Company has paid on its subsidiaries' behalf) all
Taxes shown due on such Tax Returns. The Unaudited 1999 Financial Statements
reflect an adequate reserve for all Taxes payable by the Company and its
subsidiaries for all Taxable periods and portions thereof through the
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date of such financial statements. The Company has made available to Parent
copies of (i) all federal, state, local and foreign income and franchise Tax
Returns filed by the Company and each of its subsidiaries related to the
Taxable years since December 31, 1996; and (ii) any audit report issued
within the last three years (or otherwise with respect to any audit or
investigation in progress) relating to Taxes due from or with respect to the
Company and each of its subsidiaries. For purposes of this Agreement, "TAX"
or "TAXES" shall mean all Taxes, charges, fees, imposts, levies, gaming or
other assessments, including, without limitation, all net income, gross
receipts, capital, sales, use, ad valorem, value added, transfer, franchise,
profits, inventory, capital stock, license, withholding, payroll, employment,
social security, unemployment, excise, severance, stamp, occupation, property
and estimated Taxes, customs duties, fees, assessments and charges of any
kind whatsoever, together with any interest and any penalties, fines,
additions to Tax or additional amounts imposed by any taxing authority
(domestic or foreign) and shall include any transferee liability in respect
of Taxes, any liability in respect of Taxes imposed by contract, Tax sharing
agreement, Tax indemnity agreement or any similar agreement (whether oral or
written). "TAX RETURNS" shall mean any report, return, document, declaration
or any other information or filing required to be supplied to any taxing
authority or jurisdiction (foreign or domestic) with respect to Taxes,
including, without limitation, information returns, any document with respect
to or accompanying payments or estimated Taxes, or with respect to or
accompanying requests for the extension of time in which to file any such
report, return document, declaration or other information.
(b) No material deficiencies for any Taxes have been proposed,
asserted or assessed against the Company or any of its subsidiaries that have
not been fully paid or adequately provided for in the appropriate financial
statements of the Company and its subsidiaries, and no power of attorney with
respect to any Taxes has been executed or filed with any taxing authority.
(c) No liens for Taxes exist with respect to any assets or
properties of the Company or any of its subsidiaries, except for statutory
liens for Taxes not yet due.
(d) None of the Company or any of its subsidiaries is a party
to or is bound by any Tax sharing agreement, Tax indemnity obligation or
similar agreement, arrangement or practice with respect to Taxes (including
any advance pricing agreement or other agreement relating to Taxes with any
taxing authority).
(e) None of the Company or any of its subsidiaries has taken or
agreed to take any action that would prevent the Merger from constituting a
reorganization qualifying under the provisions of Section 368(a) of the Code.
(f) The Company has duly and timely withheld from employee
salaries, wages and other compensation and has paid over to the appropriate
taxing authorities all amounts required to be so withheld and paid over for
all periods under all applicable laws.
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(g) There are no employment, severance or termination
agreements, other compensation arrangements or Employee Benefit Plans
currently in effect which provide for the payment of any amount (whether in
cash or property or the vesting of property) as a result of any of the
transactions contemplated by this Agreement that would give rise to a payment
which is nondeductable by reason of Section 280G of the Code.
(h) No federal, state, local or foreign audits or other
administrative proceedings or court proceedings are presently pending with
regard to any federal income or material state, local or foreign Taxes or Tax
Returns of the Company or its subsidiaries and neither the Company nor any of
its subsidiaries has received a written notice of any pending audit or
proceeding.
(i) Neither the Company nor any of its subsidiaries has agreed
to or is required to make any adjustment under Section 481(a) of the Code.
(j) Neither the Company nor any of its subsidiaries has (i)
with regard to any assets or property held or acquired by any of them, filed
a consent to the application of Section 341(f) of the Code or agreed to have
Section 341(f)(2) of the Code apply to any disposition of a subsection (f)
asset (as such term is defined in Section 341(f)(4) of the Code) owned by the
Company or any of its subsidiaries; (ii) executed or entered into a closing
agreement pursuant to Section 7121 of the Code or any similar provision of
state, local or foreign Tax Law; (iii) received or filed any requests for
rulings or determinations in respect of any Taxes within the last five years;
or (iv) extended the time within which to file any Tax Return, which Tax
Return has since not been filed.
(k) No property owned by the Company or any of its subsidiaries
(i) is property required to be treated as being owned by another person
pursuant to the provisions of Section 168(f)(8) of the Internal Revenue Code
of 1954, as amended and in effect immediately prior to the enactment of the
Tax Reform Act of 1986; (ii) constitutes "TAX EXEMPT USE PROPERTY" within the
meaning of Section 168(h)(1) of the Code; (iii) is "TAX EXEMPT BOND FINANCED
PROPERTY" within the meaning of Section 168(g) of the Code; or (iv) is
"LIMITED USE PROPERTY" within the meaning of Rev. Proc. 76-30.
(l) The Company and each of its subsidiaries are not currently,
have not been within the last five years, and do not anticipate becoming a
"UNITED STATES REAL PROPERTY HOLDING COMPANY" within the meaning of Section
897(c) of the Code.
(m) No subsidiary of the Company owns any Shares.
(n) No claim has been made by a taxing authority in a
jurisdiction where the Company or any of its subsidiaries does not file Tax
Returns to the effect that the Company or any of its subsidiaries is or may
be subject to Taxation by that jurisdiction.
(o) Neither the Company nor any of its subsidiaries is a party
to any contract, agreement or other arrangement which could result in the
payment of amounts that could be nondeductible by reason of Section 162(m) of
the Code.
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(p) Neither the Company nor any of its subsidiaries has
received any private letter rulings from the IRS or comparable rulings from
other taxing authorities.
SECTION 3.17 MATERIAL CONTRACTS. (a) Section 3.17 of the
Company Disclosure Schedule sets forth a list of all Material Contracts (as
hereinafter defined). The Company has heretofore made available to Parent
true, correct and complete copies of all written or oral contracts and
agreements (and all amendments, modifications and supplements thereto and all
side letters to which the Company or any of its subsidiaries is a party
affecting the obligations of any party thereunder) to which the Company or
any of its subsidiaries is a party or by which any of its properties or
assets are bound that are material to the business, properties or assets of
the Company and its subsidiaries taken as a whole, including, without
limitation, to the extent any of the following are, individually or in the
aggregate, material to the business, properties or assets of the Company and
its subsidiaries taken as a whole, all: (i) employment, severance, product
design or development, personal services, consulting, non-competition or
indemnification contracts (including, without limitation, any contract to
which the Company or any of its subsidiaries is a party involving employees
of the Company); (ii) licensing, merchandising or distribution agreements;
(iii) contracts granting a right of first refusal or first negotiation; (iv)
partnership or joint venture agreements; (v) agreements for the acquisition,
sale or lease of material properties or assets of the Company other than real
property (by merger, purchase or sale of assets or stock or otherwise)
entered into since January 1, 1997; (vi) contracts or agreements with any
Governmental Entity; (vii) loan or credit agreements, mortgages, indentures
or other agreements or instruments evidencing indebtedness for borrowed money
by the Company or any of its subsidiaries or any such agreement pursuant to
which indebtedness for borrowed money may be incurred; (viii) agreements that
purport to limit, curtail or restrict the ability of the Company or any of
its subsidiaries to compete in any geographic area or line of business; (ix)
contracts or agreements that would be required to be filed as an exhibit to a
Form 10-K filed by the Company with the SEC on the date hereof; (x) contracts
with customers (other than purchase orders) accounting for, or expected to
account for, in excess of $1.8 million and (xi) commitments and agreements to
enter into any of the foregoing (collectively, together with any such
contracts entered into in accordance with Section 5.1 hereof, the "MATERIAL
CONTRACTS"). Neither the Company nor any of its subsidiaries is a party to or
bound by any severance or other agreement with any employee or consultant
pursuant to which such person would be entitled to receive any additional
compensation or an accelerated payment of compensation as a result of the
consummation of the transactions contemplated hereby.
(b) Each of the Material Contracts constitutes the valid and
legally binding obligation of the Company or its subsidiaries, enforceable in
accordance with its terms (except as enforceability may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium, fraudulent
transfer and similar Laws of general applicability relating to or affecting
creditors' rights or by general equity principles), and is in full force and
effect. There is no default under any Material Contract so listed either by
the Company or, to the Company's knowledge, by any other party thereto, and
no event has
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occurred that with the lapse of time or the giving of notice or both would
constitute a default thereunder by the Company or, to the Company's
knowledge, any other party.
(c) No party to any such Material Contract has given notice to
the Company of or made a claim against the Company with respect to any breach
or default thereunder, and the Company is not aware of any basis for such
claim, in any such case in which such breach or default does or would
reasonably be expected to have, individually or in the aggregate, a Material
Adverse Effect on the Company.
SECTION 3.18 INSURANCE. The insurance coverage maintained by
the Company and any of its subsidiaries have been issued by insurers, which,
to the Company's knowledge, are reputable and financially sound and provide
coverage for the operations conducted by the Company and its subsidiaries of
a scope and coverage consistent with customary industry practice.
SECTION 3.19 INTELLECTUAL PROPERTY. (a) (i) Except as set forth
on Section 3.19(a)(i) of the Company Disclosure Schedule, the Company is the
sole and exclusive owner of, or has the valid and transferable exclusive
right to use and enforce, the Trademarks (as hereinafter defined), free and
clear of all Liens. Section 3.19(a)(i) of the Company Disclosure Schedule
sets forth a list of all U.S., state and foreign (A) Trademark registrations
and applications, and (B) material unregistered Trademarks, each as owned by
the Company or its subsidiaries. The Company currently is listed in the
records of the appropriate U.S., state or foreign Governmental Entity as the
sole owner of record for each application and registration listed on Section
3.19(a)(i) of the Company Disclosure Schedule.
(ii) Except as set forth on Section 3.19(a)(ii) of the
Company Disclosure Schedule, the Company is the sole and exclusive
owner of, or has the valid and transferable exclusive right to use and
enforce any Other Intellectual Property (as hereinafter defined) that
is material to the business of the Company, free and clear of all
Liens. Section 3.19(a)(ii) of the Company Disclosure Schedule sets
forth a list of all U.S. and foreign: (A) patents and patent
applications, (B) copyright registration and applications, and (C)
material unregistered copyrights. The Company currently is listed in
the records of the appropriate U.S., state or foreign Governmental
Entity as the sole owner of record for each patent, patent application,
copyright application, and copyright registration listed on Section
3.19(a)(ii) of the Company Disclosure Schedule that is currently owned
by the Company or one of its subsidiaries.
(b) The Company does not own any patents and has no pending
patent applications. To the Company's knowledge, there is no pending,
existing or threatened, opposition, interference, cancellation proceedings or
other legal or governmental proceeding before any Governmental Entity in any
jurisdiction against any of the Trademarks or any of the material Other
Intellectual Property owned by the Company or its Subsidiaries.
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(c) Section 3.19(c)(i) of the Company Disclosure Schedule
sets forth a list of all agreements granting to third parties any right to
use or practice any rights under any of the Trademarks or any of the material
Other Intellectual Property owned by the Company. Section 3.19(c)(ii) of the
Company Disclosure Schedule sets forth a list of all agreements permitting
the Company or its subsidiaries to use any third party's Trademarks or Other
Intellectual Property (such agreements, together with the agreements
referenced on Section 3.19(c)(i) of the Company Disclosure Schedule are
collectively referred to herein as the "LICENSES"). The Licenses are valid
and binding agreements of the Company or one or more of its subsidiaries, as
applicable, fully transferable to Parent and Merger Sub, enforceable in
accordance with their terms, and the Company and the subsidiaries, and to the
Company's knowledge, the other parties thereto, as applicable, are not in
material breach or default thereunder.
(d) The Company has taken reasonable measures to protect the
confidentiality of its material trade secrets, including requiring employees
having access thereto to execute written non-disclosure agreements. To the
Company's knowledge, no trade secret or confidential know-how material to the
business of the Company or any of its subsidiaries as currently operated has
been disclosed or authorized to be disclosed to any third party, other than
pursuant to a non-disclosure agreement that protects the Company's or such
subsidiary's proprietary interests in and to such trade secrets and
confidential know-how.
(e) To the Company's knowledge, the conduct of the business
of the Company and each of its subsidiaries does not infringe upon any
intellectual property right owned or controlled by any person. There are no
claims or suits pending or, to the Company's knowledge, threatened, and
neither the Company nor any of its subsidiaries has received any written
notice of a third party claim or suit: (i) alleging that the Company's or
such subsidiary's activities or the conduct of its business infringes upon or
constitutes the unauthorized use of the proprietary rights of any third
party; or (ii) challenging the ownership, use, validity or enforceability of
the Trademarks or the Other Intellectual Property owned or used by the
Company or its subsidiaries.
(f) To the Company's knowledge, except as set forth on
Section 3.19(f) of the Company Disclosure Schedule, no third party is
infringing upon any of the Trademarks or the Other Intellectual Property
owned by the Company or any of its subsidiaries and, except as set forth on
Section 3.19(f) of the Company Disclosure Schedule, no such claims have been
made against a third party by the Company or any of its subsidiaries.
(g) Except as set forth on Section 3.19(g) of the Company
Disclosure Schedule, there are no settlements, consents, judgments or orders
or other agreements which restrict the Company's or any of its subsidiaries'
rights to use any of the Trademarks or the Other Intellectual Property, and
no concurrent use or other agreements (aside from license and other like
agreements) which restrict the Company's or any of its subsidiaries' rights
to use any of the Trademarks or the Other Intellectual Property owned by the
Company or any of its subsidiaries.
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(h) The consummation of the transactions contemplated by
this Agreement and the Stock Option Agreement will not result in the loss or
impairment of the Company's or any of its subsidiaries' rights to own or use
any of the Trademarks or the material Other Intellectual Property owned by or
licensed to the Company or its subsidiaries nor will it require the consent
of any Governmental Entity or third party in respect of any such Trademarks
or the Other Intellectual Property.
1. For purposes of this Agreement, "TRADEMARKS" means all United
States and foreign trademarks (including service marks and trade
names, whether registered or at common law), registrations and
applications therefor, owned or licensed by the Company or its
subsidiaries, and the goodwill of the Company's and each of its
subsidiaries' respective businesses associated therewith, together
with any and all (i) rights of renewal thereof and (ii) rights to
sue for past, present and future infringements or misappropriation
thereof; and "OTHER INTELLECTUAL PROPERTY" means all intellectual
property rights used in the business of the Company or any of its
subsidiaries as currently conducted, including but not limited to
all patents and patent applications; copyrights, copyright
registrations and applications (including copyrights in Computer
Programs (as hereinafter defined); Computer Programs; technology,
trade secrets, know-how, confidential information, proprietary
processes and formulae; semiconductor chip product" and "MASK
WORKS" (as such terms are defined in 17 U.S.C. 901); and rights
of publicity and privacy relating to the use of the names,
signatures, likenesses, voices and biographical information of
real persons; together with any and all rights of renewal thereof
and the right to sue for past, present or future infringements or
misappropriations thereof.
SECTION 3.20 OPINION OF FINANCIAL ADVISOR. Broadview
International LLC (the "FINANCIAL ADVISOR") has delivered to the Company
Board its opinion, dated the date of this Agreement, to the effect that, as
of such date, the Merger Consideration is fair to the holders of Shares from
a financial point of view, and such opinion has not been withdrawn or
modified.
SECTION 3.21 BROKERS. No broker, finder or investment banker
(other than the Financial Advisor, a true and correct copy of whose
engagement agreement has been provided to Parent) is entitled to any
brokerage, finder's or other fee or commission or expense reimbursement in
connection with the transactions contemplated by this Agreement based upon
arrangements made by and on behalf of the Company or any of its affiliates.
SECTION 3.22 ACCOUNTING MATTERS; TAX TREATMENT. To the
Company's knowledge, neither the Company nor, any of its affiliates or
stockholders, has taken or agreed to take any action or is aware of any fact
or circumstance that would (i) prevent the Merger from qualifying as a
"pooling of interests" under APB 16 and the applicable SEC rules and
regulations or (ii) cause any representation contained in the
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certificates relating to tax-free reorganization treatment attached hereto as
Exhibit D to be untrue. The Company has not failed to bring to the attention
of Parent any actions, agreements or understandings, whether written or oral,
that to its knowledge would be reasonably likely to prevent Parent from
accounting for the Merger as a "POOLING OF INTERESTS" under APB 16 and the
applicable SEC rules and regulations.
SECTION 3.23 TAKEOVER STATUTE; DISSENTERS' RIGHTS. The Company
has taken all action required to be taken by it in order to exempt this
Agreement, the Stock Option Agreement and the transactions contemplated
hereby and thereby from, and this Agreement, the Stock Option Agreement and
the transactions contemplated hereby and thereby (the "COVERED TRANSACTIONS")
are exempt from, the requirements of any "MORATORIUM", "CONTROL SHARE", "FAIR
PRICE", "AFFILIATE TRANSACTION", "BUSINESS COMBINATION" or other antitakeover
Laws and regulations of any state (collectively, "TAKEOVER STATUTES"). The
provisions of Sections 78.378 through 78.3793 of the NRS do not apply to the
Covered Transactions. Holders of Shares do not have dissenters' rights in
connection with the Merger.
SECTION 3.24 AMENDMENT TO THE COMPANY RIGHTS AGREEMENT. The
Company Board has taken all necessary action (including any amendment
thereof) under the Preferred Shares Rights Agreement, dated as of January 9,
1997, between the Company and American Stock Transfer & Trust Company, as
Rights Agent (the "COMPANY RIGHTS AGREEMENT") so that (a) none of the
execution or delivery of this Agreement or the Stock Option Agreement, the
exchange of the shares of Parent Common Stock for the Shares in accordance
with Article II, or any other transaction contemplated hereby or thereby will
cause (i) the rights (the "RIGHTS") issued pursuant to the Company Rights
Agreement to become exercisable under the Company Rights Agreement, (ii)
Parent or Merger Sub to be deemed an "ACQUIRING PERSON" (as defined in the
Company Rights Agreement), or (iii) the "SHARES ACQUISITION DATE" or
"DISTRIBUTION DATE" (as defined in the Company Rights Agreement) to occur
upon any such event; and (b) the "EXPIRATION DATE" (as defined in the Company
Rights Agreement) of the Rights shall occur immediately prior to the
Effective Time.
SECTION 3.25 RELATED PARTY TRANSACTIONS. Except as set forth in
the Company SEC Reports or Section 3.25 of the Company Disclosure Schedule,
no director or officer of the Company, nor any Affiliate of the Company or of
any such director or officer (i) has borrowed any money from or has
outstanding, directly or indirectly, any indebtedness or other similar
obligations to the Company; (ii) owns any direct or indirect interest in, or
controls or is a director, officer or partner of, or consultant or lender to,
or borrower from, or has the right to participate in the profits of, any
Person which is a competitor, supplier, customer, landlord, tenant, lessor,
lessee, creditor or debtor of the Company; or (iii) is a party to any
Contract with the Company.
SECTION 3.26 PRODUCT WARRANTY. To the Company's knowledge,
except as set forth in Section 3.26 of the Company Disclosure Schedule, since
January 1, 1998 (i) the Company has not experienced or received any material
claims from any person relating to the performance of the products designed,
manufactured, assembled,
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repaired, maintained or delivered by the Company prior to the Closing, or
relating to the repair, maintenance or installation by the Company of such
products or to services otherwise rendered by the Company prior to the
Closing, and (ii) there has been no occurrence which would give rise to or
form the basis of, any material liability for breach of warranty (whether
covered by insurance or not) on the part of the Company with respect to
products designed, manufactured, assembled, repaired, maintained, delivered
or installed by the Company or services rendered by the Company prior to the
Closing. Except as set forth in Section 3.26 of the Company Disclosure
Schedule, since January 1, 1998, the Company has not experienced any
significant delays in the release of any of the Company's products.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
OF PARENT AND MERGER SUB
Except as set forth in the disclosure schedule delivered by
Parent to the Company prior to the execution of this Agreement (the "PARENT
DISCLOSURE SCHEDULE") (each section of which qualifies the correspondingly
numbered representation and warranty or covenant to the extent specified
therein), Parent and Merger Sub hereby represent and warrant to the Company
as follows:
SECTION 4.1 ORGANIZATION. (a) Each of Parent and its
subsidiaries is a corporation duly organized, validly existing and in good
standing under the Laws of the jurisdiction of its incorporation and has all
requisite corporate power and authority to own, lease and operate its
properties and to carry on its businesses as now conducted or proposed by
Parent to be conducted, except where the failure to be duly organized,
existing and in good standing or to have such power and authority would not
reasonably be expected to have, individually or in the aggregate, a Material
Adverse Effect on Parent.
(b) Each of Parent and its subsidiaries is duly qualified or
licensed and in good standing to do business in each jurisdiction in which
the property owned, leased or operated by it or the nature of the business
conducted by it makes such qualification or licensing necessary, except where
the failure to be so duly qualified or licensed and in good standing does not
and would not reasonably be expected to have, individually or in the
aggregate, a Material Adverse Effect on Parent.
(c) Parent has heretofore delivered to the Company accurate and
complete copies of the articles of incorporation and bylaws of Parent as
currently in effect.
SECTION 4.2 CAPITALIZATION OF PARENT AND ITS SUBSIDIARIES. (a)
The authorized capital stock of Parent consists of: (i) 300,000,000 shares of
Parent Common Stock, of which 76,911,204 shares of Parent Common Stock were
issued and outstanding as of the close of business on January 31, 2000, none
of which are held in Parent's treasury, and (ii) 2,500,000 shares of
preferred stock, $.01 par value per share, none of
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which are outstanding. All of the shares of Parent Common Stock have been
validly issued, and are fully paid, non-assessable and free of preemptive
rights. As of January 31, 2000, 12,662,116 shares of Parent Common Stock were
reserved for issuance and issuable upon or otherwise deliverable in
connection with the exercise of outstanding options and warrants and
6,976,744 shares of Parent Common Stock reserved for issuance upon conversion
of Parent's convertible subordinated debentures. Except as described in the
Parent SEC Reports and as set forth above, as of the date hereof, there are
outstanding (i) no shares of capital stock or other voting securities of
Parent, (ii) no securities of Parent or any of its subsidiaries convertible
into or exchangeable for shares of capital stock or voting securities of
Parent, (iii) no options or other rights to acquire from Parent or any of its
subsidiaries, and no obligations of Parent or any of its subsidiaries to
issue, any capital stock, voting securities or securities convertible into or
exchangeable for capital stock or voting securities of Parent, and (iv) no
equity equivalents, interests in the ownership or earnings of Parent or other
similar rights (including stock appreciation rights) (collectively, "PARENT
SECURITIES").
SECTION 4.3 AUTHORITY RELATIVE TO THIS AGREEMENT. (a) Each of
Parent and Merger Sub has all necessary corporate power and authority to
execute and deliver this Agreement and the Stock Option Agreement and to
consummate the transactions contemplated hereby and thereby. No other
corporate proceedings on the part of Parent or Merger Sub are necessary to
authorize this Agreement and the Stock Option Agreement or to consummate the
transactions contemplated hereby or thereby. This Agreement and the Stock
Option Agreement have been duly and validly executed and delivered by each of
Parent and Merger Sub and constitute valid, legal and binding agreements of
each of Parent and Merger Sub, enforceable against each of Parent and Merger
Sub in accordance with their respective terms.
(b) The Boards of Directors of Parent (the "PARENT BOARD") and
Merger Sub and Parent as the sole stockholder of Merger Sub have duly and
validly authorized the execution and delivery of this Agreement and the Stock
Option Agreement and the consummation of the transactions contemplated hereby
and thereby, and taken all corporate actions required to be taken by such
Boards of Directors and Parent as the sole stockholder of Merger Sub for the
consummation of the transactions. No approval by the shareholders of Parent
is necessary for the consummation of the transactions contemplated hereby.
SECTION 4.4 SEC REPORTS; FINANCIAL STATEMENTS. (a) Parent has
filed all required forms, reports and documents with the SEC since January 1,
1997, each of which has complied in all material respects with all applicable
requirements of the Securities Act and the Exchange Act, each as in effect on
the dates such forms, reports and documents were filed (the "PARENT SEC
REPORTS"). None of such forms, reports or documents, including, without
limitation, any financial statements or schedules included or incorporated by
reference therein, contained, when filed, any untrue statement of a material
fact or omitted to state a material fact required to be stated or
incorporated by reference therein or necessary in order to make the
statements therein, in light of the circumstances under which they were made,
not misleading. The consolidated financial
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statements of Parent included in the Parent SEC Reports complied as to form
in all material respects with applicable accounting requirements and the
published rules and regulations of the SEC with respect thereto and fairly
present, in conformity with GAAP on a consistent basis (except as may be
indicated in the notes thereto), the consolidated financial position of
Parent and its consolidated subsidiaries as of the dates thereof and their
consolidated results of operations and changes in financial position for the
periods then ended (subject, in the case of the unaudited interim financial
statements, to normal year-end adjustments).
SECTION 4.5 INFORMATION SUPPLIED. None of the information
supplied or to be supplied by Parent or Merger Sub for inclusion or
incorporation by reference in (i) the S-4 will, at the time the S-4 is filed
with the SEC and at the time it becomes effective under the Securities Act,
contain any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary to make the statements
therein not misleading and (ii) the Proxy Statement will, at the date mailed
to stockholders and at the times of the Company Stockholder Meeting, contain
any untrue statement of a material fact or omit to state any material fact
required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they are made, not
misleading. If at any time prior to the Effective Time any event with respect
to Parent, its officers and directors or any of its subsidiaries should occur
which is required to be described in an amendment of, or a supplement to, the
S-4 or the Proxy Statement, Parent shall promptly so advise the Company and
such event shall be so described, and such amendment or supplement (which the
Company shall have a reasonable opportunity to review) shall be promptly
filed with the SEC. The S-4 will comply as to form in all material respects
with the provisions of the Securities Act and the rules and regulations
thereunder.
SECTION 4.6 CONSENTS AND APPROVALS; NO VIOLATIONS. Except for
filings, permits, authorizations, consents and approvals as may be required
under, and other applicable requirements of, the Securities Act, the Exchange
Act, state securities or blue sky Laws, the HSR Act, the filing and
recordation of the Articles of Merger as required by the NRS and as otherwise
set forth in Section 4.6 to the Parent Disclosure Schedule, no filing with or
notice to, and no permit, authorization, consent or approval of, any
Governmental Entity is necessary for the execution and delivery by Parent or
Merger Sub of this Agreement or the Stock Option Agreement or the
consummation by Parent or Merger Sub of the transactions contemplated hereby
or thereby, except where the failure to obtain such permits, authorizations,
consents or approvals or to make such filings or give such notice do not or
would not reasonably be expected to have, individually or in the aggregate, a
Material Adverse Effect on Parent. Neither the execution, delivery and
performance of this Agreement or the Stock Option Agreement by Parent or
Merger Sub nor the consummation by Parent or Merger Sub of the transactions
contemplated hereby or thereby will (i) conflict with or result in any breach
of any provision of the respective articles of incorporation or bylaws (or
similar governing documents) of Parent or Merger Sub or any of Parent's
subsidiaries, (ii) result in a violation or breach of, or constitute (with or
without due notice or lapse of time or both) a default (or give rise to any
right of
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termination, amendment, cancellation or acceleration or Lien) under, any of
the terms, conditions or provisions of any note, bond, mortgage, indenture,
lease, license, contract, agreement or other instrument or obligation to
which Parent or Merger Sub or any of Parent's subsidiaries is a party or by
which any of them or any of their respective properties or assets may be
bound or (iii) violate any Law applicable to Parent or Merger Sub or any of
Parent's subsidiaries or any of their respective properties or assets, except
in the case of (ii) or (iii) for violations, breaches or defaults which do
not or would not reasonably be expected to have, individually or in the
aggregate, a Material Adverse Effect on Parent.
SECTION 4.7 NO PRIOR ACTIVITIES. Except for obligations
incurred in connection with its incorporation or organization or the
negotiation and consummation of this Agreement and the transactions
contemplated hereby, Merger Sub has neither incurred any obligation or
liability nor engaged in any business or activity of any type or kind
whatsoever or entered into any agreement or arrangement with any person.
SECTION 4.8 NO UNDISCLOSED LIABILITIES. Except as and to the
extent publicly disclosed by Parent in the Parent SEC Reports, as of October
31, 1999, or as incurred by Parent or any of its subsidiaries subsequent to
such date in the ordinary and usual course of business consistent with past
practice, none of the Parent or its subsidiaries has any liabilities or
obligations of any nature, whether or not accrued, contingent or otherwise,
and whether due or to become due or asserted or unasserted, which would be
required by GAAP to be reflected in, reserved against or otherwise described
in the consolidated balance sheet of Parent (including the notes thereto).
SECTION 4.9 ABSENCE OF CHANGES. Except as and to the extent
publicly disclosed in Parent SEC Reports, since October 31, 1999, there has
not been any event, occurrence or development which does or would reasonably
be expected to have, individually or in the aggregate, a Material Adverse
Effect on Parent and its subsidiaries taken as a whole.
SECTION 4.10 LITIGATION. Except as and to the extent publicly
disclosed by Parent in the Parent SEC Reports, and except for litigation that
may arise as a result of the announcement or performance of this Agreement or
the transactions contemplated hereby, there is no suit, claim, action,
proceeding or investigation pending or, to Parent's knowledge, threatened
against Parent or any of its subsidiaries or any of their respective
properties or assets which (a) does or would reasonably be expected to have,
individually or in the aggregate, a Material Adverse Effect on Parent and its
subsidiaries taken as a whole, or (b) questions the validity of this
Agreement, or any action to be taken by Parent in connection with the
consummation of the transactions contemplated hereby or could otherwise
prevent or delay the consummation of the transactions contemplated by this
Agreement.
SECTION 4.11 ACCOUNTING MATTERS; TAX TREATMENT. Neither Parent
nor, to Parent's knowledge, any of its affiliates, has taken or agreed to
take any action or is aware of any fact or circumstance that would (a)
prevent the Merger from qualifying as
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a "POOLING OF INTERESTS" under APB 16 and the applicable SEC rules and
regulations, or (b) cause any representation contained in the certificates
relating to tax-free reorganization treatment attached hereto as Exhibit C to
be untrue. Parent has not failed to bring to the attention of the Company any
actions, agreements or understandings, whether written or oral, that would be
reasonably likely to prevent Parent from accounting for the Merger as a
"POOLING OF INTERESTS" under APB 16 and the applicable SEC rules and
regulations.
ARTICLE V
COVENANTS RELATED TO CONDUCT OF BUSINESS
SECTION 5.1 CONDUCT OF BUSINESS OF THE COMPANY. Except as
contemplated by this Agreement, during the period from the date hereof to the
Effective Time, the Company will, and will cause each of its subsidiaries to,
conduct its operations in the ordinary and usual course of business
consistent with past practice and, to the extent consistent therewith, with
no less diligence and effort than would be applied in the absence of this
Agreement, seek to preserve intact its current business organizations, seek
to keep available the service of its current officers and employees and seek
to preserve its relationships with customers, suppliers and others having
business dealings with it to the end that goodwill and ongoing businesses
shall be unimpaired at the Effective Time. Without limiting the generality of
the foregoing, and except as otherwise expressly provided in this Agreement
or in Section 5.1 of the Company Disclosure Schedule, prior to the Effective
Time, neither the Company nor any of its subsidiaries will, without the prior
written consent of Parent:
(a) amend its articles of incorporation or bylaws (or other
similar governing instrument) or amend, modify or terminate the Company
Rights Agreement;
(b) authorize for issuance, issue, sell, deliver or agree or
commit to issue, sell or deliver (whether through the issuance or granting of
options, warrants, commitments, subscriptions, rights to purchase or
otherwise) any stock of any class or any other securities convertible into or
exchangeable for any stock or any equity equivalents (including, without
limitation, any stock options or stock appreciation rights), except for the
issuance or sale of Shares pursuant to outstanding Company Stock Options;
(c) (i) split, combine or reclassify any shares of its capital
stock; (ii) declare, set aside or pay any dividend or other distribution
(whether in cash, stock or property or any combination thereof) in respect of
its capital stock; (iii) make any other actual, constructive or deemed
distribution in respect of any shares of its capital stock or otherwise make
any payments to stockholders in their capacity as such; or (iv) redeem,
repurchase or otherwise acquire any of its securities or any securities of
any of its subsidiaries (including redeeming any Rights);
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(d) adopt a plan of complete or partial liquidation, dissolution,
merger, consolidation, restructuring, recapitalization or other
reorganization of the Company or any of its subsidiaries (other than the
Merger);
(e) alter through merger, liquidation, reorganization, restructuring or
in any other fashion the corporate structure or ownership of any subsidiary;
(f) (i) incur or assume any long-term or short-term debt or issue any
debt securities; (ii) assume, guarantee, endorse or otherwise become liable
or responsible (whether directly, contingently or otherwise) for the
obligations of any other person, except in either case in the ordinary and
usual course of business consistent with past practice and in amounts not
material to the Company and its subsidiaries, taken as a whole, and except
for obligations of the wholly owned subsidiaries of the Company; (iii) make
any loans, advances or capital contributions to, or investments in, any other
person (other than to the wholly owned subsidiaries of the Company or
customary loans or advances to employees in the ordinary and usual course of
business consistent with past practice and in amounts not material to the
maker of such loan or advance); (iv) pledge or otherwise encumber shares of
capital stock of the Company or its subsidiaries; or (v) mortgage or pledge
any of its material assets, tangible or intangible, or create or suffer to
exist any material Lien thereupon;
(g) except as may be required by Law or as contemplated by this
Agreement, enter into, adopt or amend or terminate any bonus, profit sharing,
compensation, severance, termination, stock option, stock appreciation right,
restricted stock, performance unit, stock equivalent, stock purchase
agreement, pension, retirement, deferred compensation, employment, severance
or other employee benefit agreement, trust, plan, fund, award or other
arrangement for the benefit or welfare of any director, officer, employee or
independent contractor in any manner, or (except as set forth in Section 5.1(g)
of the Company Disclosure Schedule, and as required under existing
agreements) increase in any manner the compensation or fringe benefits of any
director, officer, employee or independent contractor or pay any benefit not
required by any plan and arrangement as in effect as of the date hereof
(including, without limitation, the granting of any equity based compensation
except as in the ordinary and usual course of business);
(h) acquire, sell, lease or dispose of any assets outside the ordinary
and usual course of business consistent with past practice or any assets
which in the aggregate are material to the Company and its subsidiaries taken
as a whole, enter into any commitment or transaction outside the ordinary and
usual course of business consistent with past practice or grant any exclusive
distribution rights;
(i) except as may be required as a result of a change in Law or in GAAP,
change any of the accounting principles or practices used by it;
(j) revalue in any material respect any of its assets, including,
without limitation, writing down the value of inventory or writing-off notes
or accounts
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receivable other than in the ordinary and usual course of business consistent
with past practice or as required by GAAP;
(k) acquire (by merger, consolidation, or acquisition of stock or
assets) any corporation, partnership or other business organization or
division thereof or any equity interest therein; (ii) enter into any contract
or agreement, other than in the ordinary and usual course of business
consistent with past practice or amend in any material respect any of the
Material Contracts or the agreements referred to in Section 3.17;
(iii) authorize any new capital expenditure if the amount of such capital
expenditure plus the sum all other capital expenditures previously authorized
by the Company exceeds an aggregate of $1,200,000; or (iv) enter into or
amend any contract, agreement, commitment or arrangement providing for the
taking of any action that would be prohibited hereunder;
(l) make or rescind any material express or deemed election relating to
Taxes, settle or compromise any material claim, action, suit, litigation,
proceeding, arbitration, investigation, audit or controversy relating to
Taxes, or except as may be required by applicable law, make any change to any
of its material methods of reporting income or deductions for federal income
tax purposes from those employed in the preparation of its most recently
filed federal income tax return;
(m) pay, discharge or satisfy any material claims, liabilities or
obligations (absolute, accrued, asserted or unasserted, contingent or
otherwise), other than the payment, discharge or satisfaction in the ordinary
and usual course of business consistent with past practice of liabilities
reflected or reserved against in, the consolidated financial statements of
the Company and its subsidiaries or incurred in the ordinary and usual course
of business consistent with past practice or waive the benefits of, or agree
to modify in any manner, any confidentiality, standstill or similar agreement
to which the Company or any of its subsidiaries is a party;
(n) settle or compromise any pending or threatened suit, action or claim
relating to the transactions contemplated hereby;
(o) take any action (including any action otherwise permitted by this
Section 5.1) that would prevent or impede the Merger from qualifying as a
"POOLING OF INTERESTS" under APB 16 and the applicable SEC rules and
regulations or as a reorganization under Section 368 of the Code;
(p) enter into any agreement or arrangement that limits or otherwise
restricts the Company or any of its subsidiaries or any successor thereto or
that could, after the Effective Time, limit or restrict the Surviving
Corporation and its affiliates (including Parent) or any successor thereto,
from engaging or competing in any line of business or in any geographic area;
or
(q) take, propose to take, or agree in writing or otherwise to take, any
of the actions described in Sections 5.1(a) through 5.1(p) or any action
which would make
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any of the representations or warranties of the Company contained in this
Agreement (i) which are qualified as to materiality untrue or incorrect or
(ii) which are not so qualified untrue or incorrect in any material respect.
SECTION 5.2 ACCESS TO INFORMATION. (a) Between the date hereof and the
Effective Time, the Company will give Parent and Merger Sub and their
authorized representatives (including counsel, financial advisors and
auditors) reasonable access during normal business hours to all employees,
plants, offices, warehouses and other facilities and to all books and records
of the Company and its subsidiaries, will permit Parent and Merger Sub to
make such inspections as Parent and Merger Sub may reasonably require
including investigations of the environmental conditions of the properties
and facilities of the Company and will cause the Company's officers and those
of its subsidiaries to furnish Parent and Merger Sub with such financial and
operating data and other information with respect to the business, properties
and personnel of the Company and its subsidiaries as Parent or Merger Sub may
from time to time reasonably request, provided that no investigation pursuant
to this Section 5.2(a) shall affect or be deemed to modify any of the
representations or warranties made by the Company.
(b) Between the date hereof and the Effective Time, the Company shall
furnish to Parent and Merger Sub (i) within five business days after the
delivery thereof to management, such monthly financial statements and data as
are regularly prepared for distribution to Company management, (ii) at the
earliest time they are available, such quarterly and annual financial
statements as are prepared for the Company's SEC filings, which (in the case
of this clause (ii)), shall be in accordance with the books and records of
the Company, and (iii) no later than two Business Days prior to the release
thereof to the public, any press release announcing any quarterly or annual
financial results or financial statements of the Company.
(c) Each of Parent and Merger Sub will hold and will cause its
authorized representatives to hold in confidence all documents and
information concerning the Company and its subsidiaries furnished to Parent
or Merger Sub in connection with the transactions contemplated by this
Agreement pursuant to the terms of that certain Confidentiality Agreement
entered into between the Company and Parent dated February 24, 2000 (the
"CONFIDENTIALITY AGREEMENT").
ARTICLE VI
ADDITIONAL AGREEMENTS
SECTION 6.1 PREPARATION OF S-4 AND THE PROXY STATEMENT. Parent and the
Company will, as promptly as practicable, jointly prepare and file with the
SEC the Proxy Statement in connection with the vote of the stockholders of
the Company with respect to the Merger. Parent will, as promptly as
practicable, prepare, following receipt of notification from the SEC that it
has no further comments on the Proxy Statement, and file with the SEC the
S-4, containing a proxy statement/prospectus and form of proxy, in connection
with the registration under the Securities Act of the shares of Parent Common
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Stock issuable upon conversion of the Shares and the other transactions
contemplated hereby. Parent and the Company will, and will use reasonable
best efforts to cause their accountants and lawyers to, use all reasonable
best efforts to have or cause the S-4 declared effective as promptly as
practicable after filing with the SEC, including, without limitation, using
reasonable best efforts to cause their accountants to deliver necessary or
required instruments such as opinions, consents and certificates, and will
take any other action required or necessary to be taken under federal or
state securities Laws or otherwise in connection with the registration
process (other than qualifying to do business in any jurisdiction which it is
not now so qualified or to file a general consent to service of process in
any jurisdiction). The Company and Parent shall, as promptly as practicable
after the receipt thereof, provide to the other party copies of any written
comments and advise the other party of any oral comments, with respect to the
Proxy Statement or the S-4 received from the staff of the SEC. The Company
will provide Parent with a reasonable opportunity to review and comment on
any amendment or supplement to the Proxy Statement prior to filing with the
SEC and will provide Parent with a copy of all such filings with the SEC. The
Company will use its reasonable best efforts to cause the Proxy Statement to
be mailed to its stockholders at the earliest practicable date.
SECTION 6.2 MEETING. The Company shall take all lawful action to
(i) cause a special meeting of its stockholders (the "COMPANY STOCKHOLDER
MEETING") to be duly called and held as soon as practicable after the date of
this Agreement for the purpose of voting on the approval and adoption of this
Agreement and (ii) solicit proxies from its stockholders to obtain the
Company Requisite Vote for the approval and adoption of this Agreement. The
Company Board shall recommend approval and adoption of this Agreement and the
Merger by the Company's stockholders and, except as permitted by Section 6.4(b),
the Company Board shall not withdraw, amend or modify in a manner adverse to
Parent such recommendation (or announce publicly its intention to do so).
SECTION 6.3 REASONABLE BEST EFFORTS. (a) Subject to the terms and
conditions of this Agreement, each party will use its reasonable best efforts
to take, or cause to be taken, all actions and to do, or cause to be done,
all things necessary, proper or advisable under applicable Laws to consummate
the Merger and the other transactions contemplated by this Agreement. In
furtherance and not in limitation of the foregoing, each party hereto agrees
to make an appropriate filing of a Notification and Report Form pursuant to
the HSR Act with respect to the transactions contemplated hereby as promptly
as practicable and in any event within ten business days of the date hereof
and to supply as promptly as practicable any additional information and
documentary material that may be requested pursuant to the HSR Act and use
its reasonable best efforts to take, or cause to be taken, all other actions
consistent with this Section 6.3 necessary to cause the expiration or
termination of the applicable waiting periods under the HSR Act as soon as
practicable.
(b) Each of Parent and the Company shall, in connection with the efforts
referenced in Section 6.3(a) to obtain all requisite approvals and
authorizations for the transactions contemplated by this Agreement under the
HSR Act or any other Antitrust
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Law, use its reasonable best efforts to (i) cooperate in all respects with
each other in connection with any filing or submission and in connection with
any investigation or other inquiry, including any proceeding initiated by a
private party; (ii) keep the other party informed in all material respects of
any material communication received by such party from, or given by such
party to, the Federal Trade Commission (the "FTC"), the Antitrust Division of
the Department of Justice (the "DOJ") or any other Governmental Entity and of
any material communication received or given in connection with any
proceeding by a private party, in each case regarding any of the transactions
contemplated hereby; and (iii) permit the other party to review any material
communication given by it to, and consult with each other in advance of any
meeting or conference with, the FTC, the DOJ or any such other Governmental
Entity or, in connection with any proceeding by a private party, with any
other person, and to the extent permitted by the FTC, the DOJ or such other
applicable Governmental Entity or other person, give the other party the
opportunity to attend and participate in such meetings and conferences. For
purposes of this Agreement, "ANTITRUST LAW" means the Sherman Act, as
amended, the Clayton Act, as amended, the HSR Act, the Federal Trade
Commission Act, as amended, and all other Laws that are designed or intended
to prohibit, restrict or regulate actions having the purpose or effect of
monopolization or restraint of trade or lessening of competition through
merger or acquisition.
(c) The Company shall use its reasonable best efforts to obtain as
promptly as practicable and maintain any licenses or approvals required to be
obtained by the Company pursuant to the Sale and Software License Agreement
dated February 2000 between the Company and the Forest County Potawatomi
Community of Wisconsin and shall use reasonable best efforts to cause each of
its directors and officers to provide all information required to be provided
by them in connection with such licenses or approvals; PROVIDED that the
Company shall not be in breach of this covenant if and to the extent Parent
(or its directors and officers) fails to provide information required to be
provided by them in order to obtain such licenses or approvals.
SECTION 6.4 ACQUISITION PROPOSALS. (a) From the date hereof until the
termination hereof and except as expressly permitted by the following
provisions of this Section 6.4, the Company will not, nor will it permit any
of its subsidiaries to, nor will it authorize or permit any officer, director
or employee of or any investment banker, attorney, accountant or other
advisor or representative of, the Company or any of its subsidiaries to,
directly or indirectly, (i) solicit, initiate or encourage the submission of
any Acquisition Proposal (as hereinafter defined) or (ii) participate in any
discussions or negotiations regarding, or furnish to any person any
information with respect to, or take any other action to facilitate, any
Acquisition Proposal or any inquiries or the making of any proposal that
constitutes, or may reasonably be expected to lead to, any Acquisition
Proposal; PROVIDED, HOWEVER, that nothing contained in this Section 6.4(a)
shall prohibit the Company Board from furnishing information to, or entering
into discussions or negotiations with, any person that makes an unsolicited
bona fide written Acquisition Proposal if, and only to the extent that
(A) the Company Stockholder Meeting shall not have occurred or shall have
occurred and the Merger shall not have been approved, (B)
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the Company Board, after consultation with and based upon the advice of
independent legal counsel, determines in good faith that such action is
necessary for the Company Board to comply with its fiduciary duties to the
Company's stockholders under applicable Law, (C) the Company Board determines
in good faith that such Acquisition Proposal, if accepted, is reasonably
likely to be consummated taking into account all legal, financial, regulatory
and other aspects of the proposal and the person making the proposal, and
believes in good faith, after consultation with its Financial Advisor and
after taking into account the strategic benefits to be derived from the
Merger, would, if consummated, result in a transaction more favorable to the
Company's stockholders from a financial point of view than the Merger (any
such more favorable Acquisition Proposal being referred to herein as a
"SUPERIOR PROPOSAL"), and (D) prior to taking such action, the Company
(x) provides reasonable notice to Parent to the effect that it is taking such
action and (y) receives from such person an executed confidentiality/standstill
agreement in reasonably customary form and in any event containing terms at
least as stringent as those contained in the Confidentiality Agreement
between Parent and the Company. Prior to providing any information to or
entering into discussions or negotiations with any person in connection with
an Acquisition Proposal by such person, the Company shall notify Parent of
any Acquisition Proposal (including, without limitation, the material terms
and conditions thereof and the identity of the person making it) as promptly
as practicable (but in no case later than 24 hours) after its receipt
thereof, and shall provide Parent with a copy of any written Acquisition
Proposal or amendments or supplements thereto, and shall thereafter inform
Parent on a prompt basis of the status of any discussions or negotiations
with such a third party, and any material changes to the terms and conditions
of such Acquisition Proposal, and shall promptly give Parent a copy of any
information delivered to such person which has not previously been delivered
to Parent. Immediately after the execution and delivery of this Agreement,
the Company will, and will cause its subsidiaries and affiliates, and their
respective officers, directors, employees, investment bankers, attorneys,
accountants and other agents to, cease and terminate any existing activities,
discussions or negotiations with any parties conducted heretofore with
respect to any possible Acquisition Proposal and shall notify each party that
it, or any officer, director, investment advisor, financial advisor, attorney
or other representative retained by it, has had discussions with during the
30 days prior to the date of this Agreement that the Company Board no longer
seeks the making of any Acquisition Proposal. The Company agrees that it will
take the necessary steps to promptly inform the individuals or entities
referred to in the first sentence hereof of the obligations undertaken in
this Section 6.4(a).
(b) The Company Board will not withdraw or modify, or propose to
withdraw or modify, in a manner adverse to Parent, its approval or
recommendation of this Agreement or the Merger unless the Company Board after
consultation with and based upon the advice of independent legal counsel,
determines in good faith that such action is necessary for the Company Board
to comply with the fiduciary duties to the Company's stockholders under
applicable Law; PROVIDED, HOWEVER, the Company Board may not approve or
recommend (and in connection therewith, withdraw or modify its approval or
recommendation of this Agreement or the Merger) an Acquisition Proposal
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unless such an Acquisition Proposal is a Superior Proposal (and the Company
shall have first complied with its obligations set forth in Section 8.3(a)
and the time period referred to in the last sentence of Section 8.3(a) has
expired) and unless it shall have first consulted with independent legal
counsel, and have determined, based upon such advice, that such action is
necessary for the Company Board to comply with its fiduciary duties to the
Company's stockholders. Nothing contained in this Section 6.4(b) shall
prohibit the Company from taking and disclosing to its stockholders a
position contemplated by Rule 14e-2(a) promulgated under the Exchange Act or
from making any disclosure to the Company's stockholders which, in the good
faith reasonable judgment of the Company Board, based on the advice of
independent legal counsel, is required under applicable Law; PROVIDED, that
except as otherwise permitted in this Section 6.4(b), the Company does not
withdraw or modify, or propose to withdraw or modify, its position with
respect to the Merger or approve or recommend, or propose to approve or
recommend, an Acquisition Proposal. Notwithstanding anything contained in
this Agreement to the contrary, any action by the Company Board permitted by,
and taken in accordance with, this Section 6.4(b) shall not constitute a
breach of this Agreement by the Company. Nothing in this Section 6.4(b) shall
(i) permit the Company to terminate this Agreement (except as provided in
Article VIII hereof) or (ii) affect any other obligations of the Company
under this Agreement.
SECTION 6.5 PUBLIC ANNOUNCEMENTS. Each of Parent, Merger Sub and the
Company will consult with one another before issuing any press release or
otherwise making any public statements with respect to the transactions
contemplated by this Agreement, including, without limitation, the Merger,
and shall not issue any such press release or make any such public statement
prior to such consultation, except as may be required by applicable Law or by
obligations pursuant to any listing agreement, as determined by Parent,
Merger Sub or the Company, as the case may be. The parties agree that the
initial press release to be issued with respect to the transaction
contemplated by this Agreement shall be in the form agreed to by the parties.
SECTION 6.6 INDEMNIFICATION; DIRECTORS' AND OFFICERS' INSURANCE.
(a) From and after the Effective Time, Parent shall, to the fullest extent
permitted by applicable Law, indemnify, defend and hold harmless each person
who is now, or has been at any time prior to the date hereof, or who becomes
prior to the Effective Time, a director, officer or employee of the parties
hereto or any subsidiary thereof (each an "INDEMNIFIED PARTY" and,
collectively, the "INDEMNIFIED PARTIES") against all losses, expenses
(including reasonable attorneys' fees and expenses), claims, damages or
liabilities or, subject to the proviso of the next succeeding sentence,
amounts paid in settlement, arising out of actions or omissions occurring at
or prior to the Effective Time and whether asserted or claimed prior to, at
or after the Effective Time that are in whole or in part (i) based on, or
arising out of the fact that such person is or was a director, officer or
employee of such party or a subsidiary of such party or (ii) based on,
arising out of or pertaining to the transactions contemplated by this
Agreement.
(b) For a period of 5 years after the Effective Time, Parent shall cause
to be obtained and maintained in effect policies of directors' and officers'
liability insurance
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for the benefit of those persons who are directors and officers of the
Company following the Effective Time consistent with insurance coverage
provided for Parent's or its subsidiary's directors and officers of similar
position.
(c) In the event Parent or any of its successors or assigns
(i) consolidates with or merges into any other person and shall not be the
continuing or surviving corporation or entity or such consolidation or merger
or (ii) transfers all or substantially all of its properties and assets to
any person, then and in either such case, proper provision shall be made so
that the successors and assigns of Parent shall assume the obligations set
for in this Section 6.6.
(d) To the fullest extent permitted by Law, from and after the Effective
Time, all rights to indemnification now existing in favor of the employees,
agents, directors or officers of the Company and its subsidiaries with
respect to their activities as such prior to the Effective Time, as provided
in the Company's certificate of incorporation or bylaws, in effect on the
date thereof or otherwise in effect on the date hereof, shall survive the
Merger and shall continue in full force and effect for a period of not less
than six years from the Effective Time.
(e) The provisions of this Section 6.6 are intended to be for the
benefit of, and shall be enforceable by, each Indemnified Party, his or her
heirs and his or her representatives.
SECTION 6.7 NOTIFICATION OF CERTAIN MATTERS. The Company shall give
prompt notice to Parent and Merger Sub, and Parent and Merger Sub shall give
prompt notice to the Company, of (i) the occurrence or nonoccurrence of any
event the occurrence or nonoccurrence of which would be likely to cause any
representation or warranty contained in this Agreement, which is qualified as
to materiality, to be untrue or inaccurate, or any representation or warranty
not so qualified, to be untrue or inaccurate in any material respect at or
prior to the Effective Time, (ii) any material failure of the Company, Parent
or Merger Sub, as the case may be, to comply with or satisfy any covenant,
condition or agreement to be complied with or satisfied by it hereunder,
(iii) any notice of, or other communication relating to, a default or event
which, with notice or lapse of time or both, would become a default, received
by it or any of its subsidiaries subsequent to the date of this Agreement and
prior to the Effective Time, under any contract or agreement material to the
financial condition, properties, businesses, results of operations or
prospects of it and its subsidiaries taken as a whole to which it or any of
its subsidiaries is a party or is subject, (iv) any notice or other
communication from any third party alleging that the consent of such third
party is or may be required in connection with the transactions contemplated
by this Agreement, or (v) any Material Adverse Effect in their respective
financial condition, properties, businesses, results of operations or
prospects, taken as a whole, other than changes resulting from general
economic conditions; PROVIDED, HOWEVER, that the delivery of any notice
pursuant to this Section 6.7 shall not cure such breach or non-compliance or
limit or otherwise affect the remedies available hereunder to the party
receiving such notice.
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SECTION 6.8 POOLING. (a) The Company shall use its reasonable best
efforts to cause to be delivered to Parent a letter from KPMG LLP dated as of
the date the S-4 is declared effective and dated as of the Closing Date,
stating that the accounting of the Merger as a "POOLING OF INTERESTS" under
Opinion 16 of the Accounting Principles Board ("APB 16") and the applicable
SEC rules and regulations is appropriate if the Merger is consummated as
contemplated by this Agreement.
(b) Parent shall use its reasonable best efforts to cause to be
delivered to the Company a letter from Deloitte & Touche LLP dated as of the
date the S-4 is declared effective and dated as of the Closing Date, stating
that the accounting of the Merger as a "POOLING OF INTERESTS" under APB 16
and the applicable SEC rules and regulations is appropriate if the Merger is
consummated as contemplated by this Agreement.
SECTION 6.9 TAX-FREE REORGANIZATION TREATMENT. The Company, Parent and
Merger Sub shall execute and deliver to Wilson Sonsini Goodrich & Rosati,
Professional Corporation, counsel to the Company, and Weil, Gotshal & Manges
LLP, counsel to Parent, certificates substantially in the forms attached
hereto a Exhibits C and D at such time or times as reasonably requested by
such law firms in connection with their respective deliveries of opinions
with respect to the transactions contemplated hereby. Prior to the Effective
Time, none of the Company, Parent or Merger Sub shall take or cause to be
taken any action which would cause to be untrue (or fail to take or cause not
to be taken any action which would cause to be untrue) any of the
representations in such previously-agreed certificates.
SECTION 6.10 EMPLOYEE MATTERS. (a) Parent will cause the Surviving
Corporation to honor the obligations of the Company or any of its
subsidiaries under the provisions of all employment, consulting, termination,
severance, change in control and indemnification agreements between and among
the Company or any of its subsidiaries and any current or former officer,
director, consultant or employee of the Company or any of its subsidiaries
and to enter into employment agreements (the "Employment Agreements") with
the following officers of the Company in the form of Exhibit E hereto: David
Ledwell, Peter Jankowski and Jonathan Lupia.
(b) Following the Effective Time, Parent shall either: (A) cause
Surviving Corporation to adopt and maintain Company Employee Benefit Plans in
effect immediately prior to the Effective Time and, accordingly, shall
thereby continue in full force and effect each such Company Employee Benefit
Plan subject to the terms and conditions thereof for a period of at least one
(1) year, or (B) arrange for each employee of the Company or any Company
subsidiary to participate in any counterpart Parent Employee Benefit Plan
(which shall mean all plans, programs and arrangements set forth in Section
3.14(a) that are maintained by Parent or its subsidiaries at or after the
Effective Time) in accordance with the eligibility criteria thereof, provided
that (i) such participants shall receive full credit for years of service
with the Company or any Company subsidiary (and service otherwise credited by
the Company or any Company subsidiary) prior to the Effective Time for all
purposes for which such service was recognized under the Company Employee
Benefit Plans including, but not limited to,
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eligibility to participate and vesting, (ii) such participants and their
dependents (to the extent that the terms and conditions of each Parent
Employee Benefit Plan provide for coverage and/or benefits of eligible
employees' dependents) shall participate in the Parent Employee Benefit Plans
on terms no less favorable than those offered by Parent to employees of
Parent, and (iii) Parent shall cause any and all pre-existing condition
limitations, eligibility waiting periods and evidence of insurability
requirements under any group plans to be waived with respect to such
participants and their eligible dependents and shall provide each such
participant with credit for any co-payments and deductibles paid prior to the
Effective Time for purposes of satisfying any applicable deductible,
out-of-pocket, or similar requirements under all Parent Employee Benefit
Plans in which such participants are eligible to participate after the
Effective Time. Notwithstanding any of the foregoing to the contrary, none of
the provisions contained herein shall operate to duplicate any benefit
provided to any employee of the Company or the funding of any such benefit.
SECTION 6.11 AFFILIATE LETTERS. Section 6.11 of the Company Disclosure
Schedule sets forth a list of all persons who are, and all persons who to the
Company's knowledge will be at the Closing Date, "AFFILIATES" of the Company
for purposes of Rule 145 under the Securities Act or for purposes of
qualifying the Merger for "POOLING-OF-INTERESTS" accounting treatment under
APB 16 and applicable SEC rules, and Section 6.11 of the Parent Disclosure
Schedule sets forth a list of all persons who are, and all persons who to
Parent's knowledge will be at the Closing Date, "AFFILIATES" of Parent for
purposes of qualifying the Merger for "POOLING OF INTERESTS" under APB 16 and
the applicable SEC rules and regulations. The Company and Parent will each
respectively cause such lists to be updated promptly through the Closing
Date. Not later than 45 days prior to the date of the Company Stockholder
Meeting, the Company shall cause its "AFFILIATES" to deliver to Parent a
written agreement substantially in the form attached as Exhibit A, and Parent
shall cause its "AFFILIATES" to deliver to the Company a written agreement
substantially in the form attached as Exhibit B.
SECTION 6.12 SEC FILINGS. Each of Parent and the Company shall promptly
provide the other party (or its counsel) with copies of all filings made by
the other party or any of its subsidiaries with the SEC or any other state or
federal Governmental Entity in connection with this Agreement and the
transactions contemplated hereby.
SECTION 6.13 FEES AND EXPENSES. Whether or not the Merger is
consummated, all Expenses (as hereinafter defined) incurred in connection
with this Agreement, the Stock Option Agreement and the transactions
contemplated hereby and thereby shall be paid by the party incurring such
Expenses, except as provided in Section 8.5. As used in this Agreement,
"EXPENSES" includes all out-of-pocket expenses (including, without
limitation, all fees and expenses of counsel, accountants, investment
bankers, experts and consultants to a party hereto and its affiliates)
incurred by a party or on its behalf in connection with, or related to, the
authorization, preparation, negotiation, execution and performance of this
Agreement, the Stock Option Agreement and the transactions contemplated
hereby and thereby, including the preparation, filing, printing
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and mailing of the Proxy Statement and the S-4 and the solicitation of
stockholder approvals and all other matters related to the transactions
contemplated hereby.
SECTION 6.14 OBLIGATIONS OF MERGER SUB. Parent will take all action
necessary to cause Merger Sub to perform its obligations under this Agreement
and to consummate the Merger on the terms and conditions set forth in this
Agreement.
SECTION 6.15 LISTING OF STOCK. Parent shall use its best efforts to
cause the shares of Parent Common Stock to be issued in connection with the
Merger to be listed for quotation on the Nasdaq National Market on or prior
to the Closing Date, subject to official notice of issuance.
SECTION 6.16 ANTITAKEOVER STATUTES. If any Takeover Statute is or may
become applicable to the Merger, each of Parent and Company shall take such
actions as are necessary so that the transactions contemplated by this
Agreement may be consummated as promptly as practicable on the terms
contemplated hereby and otherwise act to eliminate or minimize the effects of
any Takeover Statute on the Merger.
ARTICLE VII
CONDITIONS TO CONSUMMATION OF THE MERGER
SECTION 7.1 CONDITIONS TO EACH PARTY'S OBLIGATIONS TO EFFECT THE MERGER.
The respective obligations of each party to consummate the transactions
contemplated by this Agreement are subject to the fulfillment at or prior to
the Effective Time of each of the following conditions, any or all of which
may be waived in whole or in part by the party being benefited thereby, to
the extent permitted by applicable Law:
(a) This Agreement shall have been approved and adopted by the Company
Requisite Vote;
(b) Any waiting period applicable to the Merger under the HSR Act shall
have expired or early termination thereof shall have been granted without
limitation, restriction or condition;
(c) Not later than 45 days prior to the date of the Company Stockholder
Meeting, the Company shall have received from Parent's "AFFILIATES" a written
agreement substantially in the form attached as Exhibit B, and Parent shall
have received from the Company's "AFFILIATES" a written agreement
substantially in the form attached as Exhibit A.
(d) There shall not be in effect any Law of any Governmental Entity of
competent jurisdiction, restraining, enjoining or otherwise preventing
consummation of the transactions contemplated by this Agreement or permitting
such consummation only subject to any condition or restriction that has or
would reasonably be expected to have, individually or in the aggregate, a
Material Adverse Effect on the Company (or an effect
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on Parent and its subsidiaries that, were such effect applied to the Company
and its subsidiaries, has or would reasonably be expected to have,
individually or in the aggregate, a Material Adverse Effect on the Company)
and no Governmental Entity shall have instituted any proceeding which
continues to be pending seeking any such Law.
(e) The S-4 shall have been declared effective by the SEC and shall be
effective at the Effective Time, and no stop order suspending effectiveness
shall have been issued, no action, suit, proceeding or investigation by the
SEC to suspend the effectiveness thereof shall have been initiated and be
continuing, and all necessary approvals under state securities Laws or the
Securities Act or Exchange Act relating to the issuance or trading of the
Parent Common Stock shall have been received.
(f) The Parent Common Stock required to be issued hereunder shall have
been listed for quotation on the Nasdaq National Market, subject only to
official notice of issuance.
(g) The Company shall have received and delivered to Parent a letter
from KPMG LLP dated as of the date the S-4 is declared effective and dated as
of the Closing Date, stating that the accounting of the Merger as a "POOLING
OF INTERESTS" under APB 16 and the applicable SEC rules and regulations is
appropriate if the Merger is consummated as contemplated by this Agreement.
Parent shall have received and delivered to the Company a letter from
Deloitte & Touche LLP, dated as of the date the S-4 is declared effective and
dated as of the Closing Date, stating that accounting of the Merger as a
"POOLING OF INTERESTS" under APB 16 and the applicable SEC rules and
regulations is appropriate if the Merger is consummated as contemplated by
this Agreement.
SECTION 7.2 CONDITIONS TO THE OBLIGATIONS OF THE PARENT AND MERGER SUB.
The respective obligations of Parent and Merger Sub to consummate the
transactions contemplated by this Agreement are subject to the fulfillment at
or prior to the Effective Time of each of the following additional
conditions, any or all of which may be waived in whole or part by Parent and
Merger Sub, as the case may be, to the extent permitted by applicable Law:
(a) The representations and warranties of the Company contained herein
or otherwise required to be made after the date hereof in a writing expressly
referred to herein by or on behalf of the Company pursuant to this Agreement,
to the extent qualified by materiality or Material Adverse Effect, shall have
been true and, to the extent not qualified by materiality or Material Adverse
Effect, shall have been true in all material respects, in each case when made
and on and as of the Closing Date as though made on and as of the Closing
Date (except for representations and warranties made as of a specified date,
which need be true, or true in all material respects, as the case may be,
only as of the specified date).
(b) The Company shall have performed or complied in all material
respects with all agreements and conditions contained herein required to be
performed or complied with by it prior to or at the time of the Closing.
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(c) The Company shall have delivered to Parent a certificate, dated the
date of the Closing, signed by the President or any Vice President of the
Company (but without personal liability thereto), certifying as to the
fulfillment of the conditions specified in Sections 7.2(a) and 7.2(b).
(d) Parent shall have received an opinion of Weil, Gotshal & Manges LLP,
dated the Effective Time, based on the representations of Parent and the
Company substantially in the forms attached hereto as Exhibits C and D, 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.
(e) All authorizations, consents or approvals of a Governmental Entity
(other than those specified in Section 7.1(b) hereof) required in connection
with the execution and delivery of this Agreement and the performance of the
obligations hereunder shall have been made or obtained, without any
limitation, restriction or condition that has or would reasonably be expected
to have, individually or in the aggregate, a Material Adverse Effect on the
Company (or an effect on Parent and its subsidiaries that, were such effect
applied to the Company and its subsidiaries, would have or would reasonably
be expected to have, individually or in the aggregate, a Material Adverse
Effect on the Company), except for such authorizations, consents or
approvals, the failure of which to have been made or obtained does not and
would not reasonably be expected to have, individually or in the aggregate, a
Material Adverse Effect on the Company (or an effect on Parent and its
subsidiaries that, were such effect applied to the Company and its
subsidiaries, would have or would reasonably be expected to have,
individually or in the aggregate, a Material Adverse Effect on the Company).
(f) Each of the officers of the Company named in Section 6.10(a) shall
have entered into an Employment Agreement.
SECTION 7.3 CONDITIONS TO THE OBLIGATIONS OF THE COMPANY. The
obligations of the Company to consummate the transactions contemplated by
this Agreement are subject to the fulfillment at or prior to the Effective
Time of each of the following conditions, any or all of which may be waived
in whole or in part by the Company to the extent permitted by applicable Law:
(a) The representations and warranties of Parent and Merger Sub
contained herein or otherwise required to be made after the date hereof in a
writing expressly referred to herein by or on behalf of Parent and Merger Sub
pursuant to this Agreement, to the extent qualified by materiality or
Material Adverse Effect, shall have been true and, to the extent not
qualified by materiality or Material Adverse Effect, shall have been true in
all material respects, in each case when made and on and as of the Closing
Date as though made on and as of the Closing Date (except for representations
and warranties made as of a specified date, which need be true, or true in
all material respects, as the case may be, only as of the specified date).
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(b) Parent shall have performed or complied in all material respects
with all agreements and conditions contained herein required to be performed
or complied with by it prior to or at the time of the Closing.
(c) Parent shall have delivered to the Company a certificate, dated the
date of the Closing, signed by the President or any Vice President of Parent
(but without personal liability thereto), certifying as to the fulfillment of
the conditions specified in Section 7.3(a) and 7.3(b).
(d) The Company shall have received an opinion of Wilson Sonsini,
Goodrich & Rosati, Professional Corporation dated the Effective Time, based
on the representations of Parent and the Company substantially in the forms
attached hereto as Exhibits C and D , 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.
ARTICLE VIII
TERMINATION; AMENDMENT; WAIVER
SECTION 8.1 TERMINATION BY MUTUAL AGREEMENT. This Agreement may be
terminated and the Merger may be abandoned at any time prior to the Effective
Time, whether before or after the approval of the Merger by the Company
Requisite Vote referred to in Section 7.1(a), by mutual written consent of
the Company and Parent by action of their respective Boards of Directors.
SECTION 8.2 TERMINATION BY EITHER PARENT OR THE COMPANY. This Agreement
may be terminated and the Merger may be abandoned at any time prior to the
Effective Time by action of the Board of Directors of either Parent or the
Company if:
(a) the Merger shall not have been consummated by August 31, 2000,
whether such date is before or after the date of approval of the Merger by
the Company Requisite Vote (the "TERMINATION DATE");
(b) the Company Requisite Vote shall not have been obtained at the
Company Stockholder Meeting or at any adjournment or postponement thereof;
(c) any Law permanently restraining, enjoining or otherwise prohibiting
consummation of the Merger shall become final and non-appealable (whether
before or after the approval of the Merger by the Company Requisite Vote; or
(d) any Governmental Entity shall have failed to issue an order, decree
or ruling or to take any other action which is necessary to fulfill the
conditions set forth in Sections 7.1(b), and 7.2(e), as applicable, and such
denial of a request to issue such order, decree, ruling or take such other
action shall have been final and nonappealable;
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PROVIDED, that the right to terminate this Agreement pursuant to this
Section 8.2 shall not be available to any party that has breached in any
material respect its obligations under this Agreement in any manner that
shall have proximately contributed to the occurrence of the failure of the
Merger to be consummated.
SECTION 8.3 TERMINATION BY THE COMPANY. This Agreement may be terminated
and the Merger may be abandoned at any time prior to the Effective Time,
whether before or after the approval of the Merger by the Company Requisite
Vote referred to in Section 7.1(a), by action of the Company Board:
(a) if (i) the Company is not in material breach of Section 6.4, (ii)
the Merger shall not have been approved by the Company Requisite Vote, (iii)
the Company Board authorizes the Company, subject to complying with the terms
of this Agreement, to enter into a binding written agreement concerning a
transaction that constitutes a Superior Proposal and the Company notifies
Parent in writing as soon as practicable, but in any event no later than
three business days in advance of entering into such agreement, that it
intends to enter into such an agreement, attaching the most current version
of such agreement to such notice, and (iv) during the three business day
period after the Company's notice, (A) the Company shall have negotiated
with, and shall have caused its respective financial and legal advisors to,
negotiate with Parent to attempt to make such commercially reasonable
adjustments in the terms and conditions of this Agreement as would enable the
Company to proceed with the transactions contemplated herein and (B) but only
if the Board of Directors of the Company shall have concluded, after
considering the results of such negotiations, that any Superior Proposal
giving rise to the Company's notice continues to be a Superior Proposal. The
Company may not effect such termination unless contemporaneously therewith
the Company pays to Parent in immediately available funds the fees required
to be paid pursuant to Section 8.5. The Company agrees (x) that it will not
enter into a binding agreement referred to in clause (iii) above until at
least the fourth business day after it has provided the notice to Parent
required thereby and (y) to notify Parent promptly if its intention to enter
into a written agreement referred to in its notification shall change at any
time after giving such notification;
(b) if there is a breach by Parent or Merger Subsidiary of any
representation, warranty, covenant or agreement contained in this Agreement
that cannot be cured and would cause a condition set forth in Section 7.3(a)
or 7.3(b) to be incapable of being satisfied as of the Termination Date; or
(c) pursuant to, and in accordance with, Section 2.1(b) if Parent has
not delivered a Top-Up Notice.
SECTION 8.4 TERMINATION BY PARENT. This Agreement may be terminated and
the Merger may be abandoned at any time prior to the Effective Time, by
action of the Parent Board of Directors if:
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(a) (i) the Company enters or shall have determined to enter into a
binding agreement for a Superior Proposal, (ii) the Company Board shall have
withdrawn or adversely modified its approval or recommendation of this
Agreement or the Merger or failed to reconfirm its recommendation of this
Agreement or the Merger within five business days after a written request by
Parent to do so, (iii) the Company shall have recommended or determined to
recommend any other Acquisition Proposal or (iv) any Person or group shall
have acquired beneficial ownership of at least 15% of the outstanding shares;
or
(b) there is a breach by the Company of any representation, warranty,
covenant or agreement contained in this Agreement that cannot be cured and
would cause a condition set forth in Section 7.2(a) or 7.2(b) to be incapable
of being satisfied as of the Termination Date.
SECTION 8.5 EFFECT OF TERMINATION AND ABANDONMENT. (a) In the event of
termination of this Agreement and the abandonment of the Merger pursuant to
this Article VIII, this Agreement (other than this Section 8.5 and Sections
5.2(c), 6.13 and Article IX) shall become void and of no effect with no
liability on the part of any party hereto (or of any of its directors,
officers, employees, agents, legal and financial advisors or other
representatives); PROVIDED, HOWEVER, except as otherwise provided herein, no
such termination shall relieve any party hereto of any liability or damages
resulting from any willful breach of this Agreement.
(b) In the event that (i) this Agreement is terminated by the Company
pursuant to Section 8.3(a), or (ii) this Agreement is terminated by Parent
pursuant to Section 8.4(a) (other than Section 8.4(a)(iv) unless the Company
shall have permitted the acquisition of shares pursuant thereto), or (iii) if
within 6 months of the termination of this Agreement by Parent pursuant to
Section 8.2(a), 8.2(b) or 8.4(b) and if on or before the Termination Date,
prior to the time of the Company Stockholder Meeting or prior to the
Company's breach, as applicable, an Acquisition Proposal has been made to the
Company or any person shall have announced an intention to make an
Acquisition Proposal and such Acquisition Proposal or intention shall not
have been withdrawn, any Acquisition Proposal by a third party is entered
into, agreed to or consummated by the Company, then the Company shall pay
Parent a termination fee of $11,000,000 in same-day funds, on the date of
such termination, in the case of clauses (i) or (ii), or on the earlier of
the date an agreement is entered into with respect to an Acquisition Proposal
or an Acquisition Proposal is consummated in the case of clause (iii). Any
amount paid pursuant to this Section 8.5(b) shall be net of any amount
previously paid to Parent pursuant to Section 8.5(c).
(c) In the event this Agreement is terminated pursuant to Section
8.4(b), then the Company shall reimburse Parent for its Expenses in same day
funds, on the date of such termination, provided that in no event shall such
reimbursement exceed $1,000,000.
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(d) The Company acknowledges that the agreements contained in Section
8.5(b) and 8.5(c) are an integral part of the transactions contemplated by
this Agreement, and that, without these agreements, the Company, Parent and
Merger Sub would not have entered into this Agreement; accordingly, if the
Company fails to promptly pay the amount due pursuant to Section 8.5(b) or
8.5(c), and, in order to obtain such payment, Parent commences a suit which
results in a judgment against the Company for the fee set forth in this
Section 8.5, the Company shall pay to Parent its costs and expenses
(including attorneys' fees) in connection with such suit, together with
interest from the date of termination of this Agreement on the amounts owed
at the prime rate of Chase Manhattan Bank in effect from time to time during
such period plus two percent.
SECTION 8.6 AMENDMENT. This Agreement may be amended by action taken by
the Company, Parent and Merger Sub at any time before or after approval of
the Merger by the Company Requisite Vote but, after any such approval, no
amendment shall be made which requires the approval of such stockholders
under applicable Law without such approval. This Agreement may not be amended
except by an instrument in writing signed on behalf of the parties hereto.
SECTION 8.7 EXTENSION; WAIVER. At any time prior to the Effective Time,
each party hereto (for these purposes, Parent and Merger Sub shall together
be deemed one party and the Company shall be deemed the other party) may (i)
extend the time for the performance of any of the obligations or other acts
of the other party, (ii) waive any inaccuracies in the representations and
warranties of the other party contained herein or in any document,
certificate or writing delivered pursuant hereto, or (iii) waive compliance
by the other party with any of the agreements or conditions contained herein.
Any agreement on the part of either party hereto to any such extension or
waiver shall be valid only if set forth in an instrument in writing signed on
behalf of such party. The failure of either party hereto to assert any of its
rights hereunder shall not constitute a waiver of such rights.
ARTICLE IX
MISCELLANEOUS
SECTION 9.1 NONSURVIVAL OF REPRESENTATIONS AND WARRANTIES. None of the
representations, warranties, covenants and agreements in this Agreement or in
any exhibit, schedule or instrument delivered pursuant to this Agreement
shall survive beyond the Effective Time, except for those covenants and
agreements contained herein and therein that by their terms apply or are to
be performed in whole or in part after the Effective Time and this Article
IX. This Section 9.1 shall not limit any covenant or agreement of the parties
which by its terms contemplates performance after the Effective Time.
SECTION 9.2 ENTIRE AGREEMENT; ASSIGNMENT. (a) This Agreement constitutes
the entire agreement between the parties hereto with respect to the subject
matter hereof and supersedes all other prior agreements and understandings,
both written
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and oral, between the parties with respect to the subject matter hereof other
than the Confidentiality Agreement.
(b) Neither this Agreement nor any of the rights, interests or
obligations hereunder shall be assigned by operation of Law (including, but
not limited to, by merger or consolidation) or otherwise; PROVIDED, HOWEVER,
that Merger Sub may assign, in its sole discretion, any or all of its rights,
interests and obligations under this Agreement to any direct wholly owned
subsidiary of Parent, but no such assignment shall relieve Parent or Merger
Sub of its obligations hereunder if such assignee does not perform such
obligations. Any assignment in violation of the preceding sentence shall be
void. Subject to the preceding sentence, this Agreement will be binding upon,
inure to the benefit of, and be enforceable by, the parties and their
respective successors and assigns.
SECTION 9.3 NOTICES. All notices, requests, instructions or other
documents to be given under this Agreement shall be in writing and shall be
deemed given, (i) five business days following sending by registered or
certified mail, postage prepaid, (ii) when sent if sent by facsimile;
PROVIDED that the fax is promptly confirmed by telephone confirmation
thereof, (iii) when delivered, if delivered personally to the intended
recipient and (iv) one business day following sending by overnight delivery
via a national courier service, and in each case, addressed to a party at the
following address for such party:
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if to Parent or to Merger
Sub, to: Comverse Technology, Inc.
170 Crossways Park Drive
Woodbury, New York 11797
Attention: Chief Financial Officer
Facsimile: (516) 677-7323
with a copy to: Weil, Gotshal & Manges LLP
767 Fifth Avenue
New York, New York 10153
Attention: Stephen M. Besen, Esq.
Facsimile: (212) 310-8007
if to the Company, to: Loronix Information Systems, Inc.
820 Airport Road
Durango, Colorado 81301
Attention: Chief Financial Officer
Facsimile: (970) 328-3388
with a copy to: Wilson, Sonsini, Goodrich & Rosati
Professional Corporation
650 Page Mill Road
Palo Alto, California 94304
Attention: Henry P. Massey, Jr., Esq.
Facsimile: (650) 493-6811
or to such other address as the person to whom notice is given may have
previously furnished to the other in writing in the manner set forth above.
SECTION 9.4 GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the Laws of the State of Nevada, without giving
effect to the choice of Law principles thereof.
SECTION 9.5 DESCRIPTIVE HEADINGS. The descriptive headings herein are
inserted for convenience of reference only and are not intended to be part of
or to affect the meaning or interpretation of this Agreement.
SECTION 9.6 PARTIES IN INTEREST. This Agreement shall be binding upon
and inure solely to the benefit of each party hereto and its successors and
permitted assigns, and, except as provided in Section 6.6, nothing in this
Agreement, express or implied, is intended to or shall confer upon any other
person any rights, benefits or remedies of any nature whatsoever under or by
reason of this Agreement.
SECTION 9.7 SEVERABILITY. The provisions of this Agreement shall be
deemed severable and the invalidity or unenforceability of any provision
shall not affect the validity or enforceability of the other provisions
hereof. If any provision of this
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Agreement, or the application thereof to any person or any circumstance, is
invalid or unenforceable, (a) if necessary, a suitable and equitable
provision shall be substituted therefor in order to carry out, so far as may
be valid and enforceable, the intent and purpose of such invalid or
unenforceable provision and (b) the remainder of this Agreement and the
application of such provision to other persons or circumstances shall not be
affected by such invalidity or unenforceability, nor shall such invalidity or
unenforceability affect the validity or enforceability of such provision, or
the application thereof, in any other jurisdiction.
SECTION 9.8 SPECIFIC PERFORMANCE. The parties agree that irreparable
damage would occur in the event that any of the provisions of this Agreement
were not performed in accordance with their specific terms or were otherwise
breached. It is accordingly agreed that the parties shall be entitled to an
injunction or injunctions to prevent breaches of this Agreement and to
enforce specifically the terms and provisions of this Agreement in any court
of the United States located in the State of Nevada or in Nevada state court,
this being in addition to any other remedy to which they are entitled at Law
or in equity. In addition, each of the parties hereto (a) consents to submit
itself to the personal jurisdiction of any federal court located in the State
of Nevada or any Nevada state court in the event any dispute arises out of
this Agreement or any of the transactions contemplated hereby, (b) agrees
that it will not attempt to deny or defeat such personal jurisdiction by
motion or other request for leave from any such court and (c) agrees that it
will not bring any action relating to this Agreement or any of the
transactions contemplated hereby in any court other than a federal or state
court sitting in the State of Nevada.
SECTION 9.9 COUNTERPARTS. This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same agreement and
shall become effective when one or more counterparts have been signed by each
of the parties and delivered to the other parties.
SECTION 9.10 INTERPRETATION. (a) The words "HEREOF," "HEREIN" and
"HEREWITH" and words of similar import shall, unless otherwise stated, be
construed to refer to this Agreement as a whole and not to any particular
provision of this Agreement, and article, section, paragraph, exhibit and
schedule references are to the articles, sections, paragraphs, exhibits and
schedules of this Agreement unless otherwise specified. Whenever the words
"INCLUDE," "INCLUDES" or "INCLUDING" are used in this Agreement, they shall
be deemed to be followed by the words "WITHOUT LIMITATION." All terms defined
in this Agreement shall have the defined meanings contained herein when used
in any certificate or other document made or delivered pursuant hereto unless
otherwise defined therein. The definitions contained in this Agreement are
applicable to the singular as well as the plural forms of such terms and to
the masculine as well as to the feminine and neuter genders of such terms.
Any agreement, instrument or statute defined or referred to herein or in any
agreement or instrument that is referred to herein means such agreement,
instrument or statute as from time to time, amended, qualified or
supplemented, including (in the case of agreements and instruments) by waiver
or consent and (in the case of statutes) by succession of comparable
successor statutes and
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all attachments thereto and instruments incorporated therein. References to a
person are also to its permitted successors and assigns.
(b) The phrases "THE DATE OF THIS AGREEMENT," "THE DATE HEREOF" and
terms of similar import, unless the context otherwise requires, shall be
deemed to refer to March 5, 2000. The phrase "MADE AVAILABLE" in this
agreement shall mean that the information referred to has been actually
delivered to the party to whom such information is to be made available.
(c) The parties have participated jointly in the negotiation and
drafting of this Agreement. In the event an ambiguity or question of intent
or interpretation arises, this Agreement shall be construed as if drafted
jointly by the parties and no presumption or burden of proof shall arise
favoring or disfavoring any party by virtue of the authorship of any
provisions of this Agreement.
SECTION 9.11 DEFINITIONS. (a) "ACQUISITION PROPOSAL" means an offer
regarding any of the following (other than the transactions contemplated by
this Agreement) involving the Company or any of its subsidiaries: (i) any
merger, consolidation, share exchange, recapitalization, business combination
or other similar transaction; (ii) any sale, lease, exchange, mortgage,
pledge, transfer or other disposition of all or substantially all the assets
of the Company and its subsidiaries, taken as a whole, in a single
transaction or series of related transactions; (iii) any tender offer or
exchange offer for 40 percent or more of the outstanding Shares or the filing
of a registration statement under the Securities Act in connection therewith;
or (iv) any public announcement of a proposal, plan or intention to do any of
the foregoing or any agreement to engage in any of the foregoing.
(b) "BENEFICIAL OWNERSHIP" or "BENEFICIALLY OWN" shall have the meaning
provided in Section 13(d) of the Exchange Act and the rules and regulations
thereunder.
(c) "KNOW" or "KNOWLEDGE" means, with respect to any party, the
knowledge of such party's executive officers after due inquiry, including
inquiry of such party's counsel and other officers or employees of such party
responsible for the relevant matter.
(d) "MATERIAL ADVERSE EFFECT" means with respect to any entity, any
change, circumstance or effect that, individually or in the aggregate with
all other changes, circumstances and effects, is or is reasonably likely to
be materially adverse to (i) the assets, properties, condition (financial or
otherwise), results of operations or prospects of such entity and its
subsidiaries taken as a whole or (ii) the ability of such party to consummate
the transactions contemplated by this Agreement; provided, however, that with
respect to the Company a Material Adverse Effect shall not include litigation
commenced subsequent to the public announcement of the Merger or other events
resulting from the announcement or pendancy of the transactions contemplated
hereby.
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(e) "PERSON" means an individual, corporation, limited liability
company, partnership, association, trust, unincorporated organization, other
entity or group (as defined in the Exchange Act).
(f) "SUBSIDIARY" means, when used with reference to any entity, any
corporation or other organization, whether incorporated or unincorporated,
(i) of which such party or any other subsidiary of such party is a general or
managing partner or (ii) the outstanding voting securities or interests of,
which having by their terms ordinary voting power to elect a majority of the
Board of Directors or others performing similar functions with respect to
such corporation or other organization, is directly or indirectly owned or
controlled by such party or by any one or more of its subsidiaries.
[signature page follows]
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IN WITNESS WHEREOF, each of the parties has caused this Agreement to be
duly executed on its behalf as of the day and year first above written.
COMVERSE TECHNOLOGY, INC.
By:
---------------------------------------
Name:
Title:
COMVERSE ACQUISITION CORP.
By:
---------------------------------------
Name:
Title:
LORONIX INFORMATION SYSTEMS, INC.
By:
---------------------------------------
Name:
Title:
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ANNEX B
STOCK OPTION AGREEMENT
STOCK OPTION AGREEMENT
STOCK OPTION AGREEMENT, dated March 5, 2000, by and between
Loronix Information Systems, Inc., a Nevada corporation (the "Company"), and
Comverse Technology, Inc., a New York corporation ("Parent").
WHEREAS, concurrently with the execution and delivery of this
Agreement, the Company, Parent and Comverse Acquisition Corp., a Nevada
corporation and wholly-owned subsidiary of Parent ("Sub"), are entering into an
Agreement and Plan of Merger, dated as of the date hereof (the "Merger
Agreement"; capitalized terms used and not otherwise defined in this Agreement
shall have the meanings set forth in the Merger Agreement), which provides that,
among other things, upon the terms and subject to the conditions thereof, Sub
will be merged with the Company; and
WHEREAS, as a condition to Parent's and Sub's willingness to
enter into the Merger Agreement, Parent has requested that the Company agree,
and in order to induce Parent to enter into the Merger Agreement, the Company
has so agreed, to grant to Parent an option with respect to certain shares of
the Company's common stock on the terms and subject to the conditions set forth
herein.
NOW, THEREFORE, in consideration of the foregoing and of the
mutual covenants and agreements set forth herein and in the Merger Agreement and
for other good and valuable consideration, the receipt and adequacy of which are
hereby acknowledged, the parties hereto hereby agree as follows:
1. GRANT OF OPTION. The Company hereby grants Parent an
irrevocable option (the "Stock Option") to purchase up to 1,020,000 shares of
common stock, $0.001 par value per share, of the Company (the "Company Common
Stock"), or such other number of shares of Company Common Stock as equals 19.9%
of the issued and outstanding shares of Company Common Stock at the time of
exercise of the Stock Option, in the manner set forth below, at a price of
$43.79 per share (the "Exercise Price"), payable, at Parent's option, either (a)
in cash or (b) in shares of Parent Common Stock, in each case, in accordance
with Section 4 hereof.
2. EXERCISE OF OPTION. (a) The Stock Option may be exercised
by Parent, in whole or in part, at any time or from time to time after the
Merger Agreement is terminated pursuant to Section 8.3(a) or 8.4(a) ( a "Trigger
Event").
In the event Parent wishes to exercise the Stock Option,
Parent shall deliver to the Company a written notice (an "Exercise Notice")
specifying the total number of shares of Company Common Stock it wishes to
purchase. Each closing of a purchase of shares of Company Common Stock (a
"Closing") shall occur at a place, on a date and at a time designated by Parent
in an Exercise Notice delivered at least two business days prior to the date of
the Closing.
(b) The Stock Option shall terminate upon the earlier of:
(i) the Effective Time; (ii) the termination of the Merger Agreement pursuant
to Section 8.2, 8.3 or 8.4
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thereof, other than a termination as a result of the occurrence of a Trigger
Event; or (ii) 180 days following any termination of the Merger Agreement as
the result of the occurrence of a Trigger Event (or if, at the expiration of
such 180 day period the Stock Option cannot be exercised by reason of any
applicable judgment, decree, order, law or regulation, or because the
applicable waiting period under the HSR Act has not expired or been
terminated, 10 business days after such impediment to exercise shall have
been removed or shall have become final and not subject to appeal, but in no
event under this clause (ii) later than 270 days after the date of
termination of the Merger Agreement).
(c) Notwithstanding the foregoing, the Stock Option may
not be exercised if Parent is in material breach of any of its
representations, warranties, covenants or agreements contained in this
Agreement or in the Merger Agreement.
3. CONDITIONS TO CLOSING. The obligation of the Company to
issue shares of Company Common Stock to Parent hereunder is subject to the
conditions (which, other than the conditions described in clauses (i) and (ii)
below, may be waived by the Company in its sole discretion) that (i) all waiting
periods, if any, under the HSR Act applicable to the issuance of shares of
Company Common Stock hereunder shall have expired or have been terminated, and
all consents, approvals, orders or authorizations of, or registrations,
declarations or filings with, any federal administrative agency or commission or
other federal governmental authority or instrumentality, if any, required in
connection with the issuance of shares of Company Common Stock hereunder shall
have been obtained or made, as the case may be; (ii) no preliminary or permanent
injunction or other order by any court of competent jurisdiction prohibiting or
otherwise restraining such issuance shall be in effect; and (iii) such shares
shall have been approved for listing on the Nasdaq National Market ("Nasdaq")
upon official notice of issuance.
4. CLOSING. At any Closing, (a) the Company will deliver to
Parent a single certificate in definitive form representing the number of shares
of the Company Common Stock designated by Parent in its Exercise Notice, such
certificate to be registered in the name of Parent, Sub or such other affiliate
of Parent as Parent shall designate in the Exercise Notice and shall bear the
legend set forth in Section 11, and (b) Parent will deliver to the Company the
aggregate Exercise Price for the shares of the Company Common Stock so
designated and being purchased at such Closing by (x) wire transfer of
immediately available funds, (y) a certificate or certificates representing the
number of shares of Parent Common Stock issuable in consideration thereof or (z)
any combination of such funds and Parent Common Stock. For the purposes of this
Agreement, the number of shares of Parent Common Stock to be delivered to the
Company shall be equal to the number of shares of the Company Common Stock with
respect to which the Stock Option is being exercised multiplied by an amount
equal to (i) $43.79 divided by (ii) the average of the closing sale prices of
shares of Parent Common Stock on the Nasdaq National Market for the five trading
days immediately preceding the date the Exercise Notice is delivered to the
Company.
5. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The
Company represents and warrants to Parent that (a) the Company is a
corporation duly organized, validly existing and in good standing under the
laws of the State of Delaware and has the
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corporate power and authority to enter into this Agreement and to carry out
its obligations hereunder; (b) the execution and delivery of this Agreement
by the Company and the consummation by the Company of the transactions
contemplated hereby have been duly authorized by all necessary corporate
action on the part of the Company and no other corporate proceedings on the
part of the Company are necessary to authorize this Agreement or any of the
transactions contemplated hereby; (c) this Agreement has been duly executed
and delivered by the Company and constitutes a valid and binding obligation
of the Company, and, assuming this Agreement constitutes a valid and binding
obligation of Parent, is enforceable against the Company in accordance with
its terms, subject to bankruptcy, insolvency, fraudulent conveyance,
reorganization, moratorium and similar laws of general applicability relating
to or affecting creditors' rights and to general equity principles; (d) the
Company has taken all necessary corporate action to authorize and reserve for
issuance and to permit it to issue, upon exercise of the Stock Option, and at
all times from the date hereof through the expiration of the Stock Option
will have so reserved, such number of unissued shares of Company Common Stock
equal to not less than 19.9% of the shares of Company Common Stock then
outstanding, all of which shares, upon their issuance and delivery in
accordance with the terms of this Agreement, will be validly issued, fully
paid and nonassessable; (e) upon delivery of such shares of Company Common
Stock to Parent upon exercise of the Stock Option, such shares shall be
validly issued, fully paid and non-assessable and Parent will acquire valid
title to all of such shares, free and clear of any and all Liens of any
nature whatsoever; (f) the execution and delivery of this Agreement by the
Company does not, and the performance of this Agreement by the Company will
not (1) violate the certificate of incorporation or by-laws of the Company,
(2) conflict with or violate any statute, rule, regulation, order, judgment
or decree applicable to the Company or by which it or any of its assets or
properties is bound or affected, or (3) result in any breach or violation of
or constitute a default (or an event which with notice or lapse of time or
both would become a default) under, or give rise to any rights of
termination, amendment, acceleration or cancellation of, or result in the
creation of any lien or other encumbrance on any of the property or assets of
the Company pursuant to, any note, bond, mortgage, indenture, contract,
agreement, lease, license, or other instrument or obligation to which the
Company or any of its Subsidiaries is a party or by which the Company or any
of its assets or properties is bound or affected (except, in the case of
clauses (2) or (3) above, for violations, breaches or defaults which would
not, individually or in the aggregate, have a Material Adverse Effect on the
Company); (g) the execution and delivery of this Agreement by the Company
does not, and the performance of this Agreement by the Company will not,
require any consent, approval, authorization or permit of, or filing with or
notification to, any governmental or regulatory authority except for
pre-merger notification requirements of the HSR Act; and (h) any shares of
Parent Common Stock acquired by the Company pursuant to this Agreement will
not be acquired by the Company with a view toward the public distribution or
resale thereof in any manner which would be in violation of applicable
securities laws.
6. REPRESENTATIONS AND WARRANTIES OF PARENT. Parent
represents and warrants to the Company that (a) Parent is a corporation duly
organized, validly existing and in good standing under the laws of the State
of New York and has the corporate power and authority to enter into this
Agreement and to carry out its obligations
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hereunder; (b) the execution and delivery of this Agreement by Parent and the
consummation by Parent of the transactions contemplated hereby have been duly
authorized by all necessary corporate action on the part of Parent and no
other corporate proceedings on the part of Parent are necessary to authorize
this Agreement or any of the transactions contemplated hereby; (c) this
Agreement has been duly executed and delivered by Parent and constitutes a
valid and binding obligation of Parent, and, assuming this Agreement
constitutes a valid and binding obligation of the Company, is enforceable
against Parent in accordance with its terms subject to bankruptcy,
insolvency, fraudulent conveyance, reorganization, moratorium and similar
laws of general applicability relating to or affecting creditors' rights and
to general equity principles; (d) the execution and delivery of this
Agreement by Parent does not, and the performance of this Agreement by Parent
will not (1) violate the certificate of incorporation or by-laws of Parent,
(2) conflict with or violate any statute, rule, regulation, order, judgment
or decree applicable to Parent or by which it or any of its properties or
assets is bound or affected or (3) result in any breach of or constitute a
default (or an event which with notice or lapse of time or both would become
a default) under, or give rise to any rights of termination, amendment,
acceleration or cancellation of, or result in the creation of a lien or other
encumbrance on any of the property or assets of Parent pursuant to, any note,
bond, mortgage, indenture, contract, agreement, lease, license, or other
instrument or obligation to which Parent is a party or by which Parent or any
of its properties or assets is bound or affected (except, in the case of
clauses (2) and (3) above, for violations, breaches, or defaults which would
not, individually or in the aggregate, have a Material Adverse Effect on
Parent); (e) the execution and delivery of this Agreement by Parent does not,
and the performance of this Agreement by Parent will not, require any
consent, approval, authorization or permit of, or filing with or notification
to, any governmental or regulatory authority, except for pre-merger
notification requirements of the HSR Act; (f) any shares of the Company
Common Stock acquired upon exercise of the Stock Option will be, and the
Stock Option is being, acquired by Parent for its own account and not with a
view to the public distribution or resale thereof in any manner which would
be in violation of applicable United States securities laws; and (g) prior to
any delivery of shares of Parent Common Stock in consideration of the
purchase of shares of the Company Common Stock pursuant hereto, Parent will
have taken all necessary corporate action to authorize for issuance and to
permit it to issue such shares of Parent Common Stock, all of which, upon
their issuance and delivery in accordance with the terms of this Agreement,
will be validly issued, fully paid and nonassessable.
7. CERTAIN REPURCHASES. (a) PARENT PUT. At the request
of Parent at any time during which the Stock Option is exercisable pursuant
to Section 2 (the "Repurchase Period"), the Company (or any successor entity
thereof) shall repurchase from Parent the Stock Option, or any portion
thereof, for a price equal to the amount by which the "Market/Tender Offer
Price" for shares of the Company Common Stock as of the date Parent gives
notice of its intent to exercise its rights under this Section 7 (defined as
the higher of (A) the highest price per share of the Company Common Stock
paid as of such date pursuant to any tender or exchange offer or other
Acquisition Proposal and (B) the average of the closing sale prices of shares
of the Company Common Stock on the Nasdaq National Market for the five
trading days immediately preceding such date) exceeds the Exercise Price,
multiplied by the number of shares of the Company Common
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Stock purchasable pursuant to the Stock Option (or portion thereof with
respect to which Parent is exercising its rights under this Section 7)).
(b) PAYMENT AND REDELIVERY OF STOCK OPTION OR SHARES. In
the event Parent exercises its rights under this Section 7, the Company
shall, within 10 business days thereafter, pay the required amount to Parent
in immediately available funds and Parent shall surrender to the Company the
Stock Option, and Parent shall warrant that it owns the Stock Option free and
clear of all liens or other encumbrances of any kind or nature whatsoever.
8. REGISTRATION RIGHTS. In the event that Parent shall
desire to sell any of the shares of Company Common Stock purchased pursuant
to the Stock Option within three years after such purchase, and such sale
requires, in the opinion of counsel to Parent, which opinion shall be
reasonable satisfactory to the Company and its counsel, registration of such
shares under the Securities Act, Parent may, by written notice (the
"Registration Notice") to the Company or any successor entity of the Company
(the "Registrant"), request the Registrant to register under the Securities
Act all or any part of the shares purchased pursuant to the Stock Option
("Restricted Shares") beneficially owned by Parent (the "Registrable
Securities") pursuant to a BONA FIDE firm commitment underwritten public
offering in which the Parent and the underwriters shall effect as wide a
distribution of such Registrable Securities as is reasonably practicable and
shall use their best efforts to prevent any person (including any Group) and
its affiliates from purchasing through such offering Restricted Shares
representing more than 5% of the outstanding shares of common stock of the
Registrant on a fully diluted basis (a "Permitted Offering"). The
Registration Notice shall include a certificate executed by the Parent and
its proposed managing underwriter, which underwriter shall be an investment
banking firm of nationally recognized standing reasonably acceptable to the
Registrant (the "Manager"), stating that (i) they have a good faith intention
to commence promptly a Permitted Offering and (ii) the Manager in good faith
believes that, based on the then prevailing market conditions, it will be
able to sell the Registrable Securities at a per share price to be specified
in such Registration Notice (the "Fair Market Value"). The Registrant (and/or
any person designated by the Registrant) shall thereupon have the option
exercisable by written notice delivered to Parent within 10 business days
after the receipt of the Registration Notice, irrevocably to agree to
purchase all or any part of the Registrable Securities for cash at a price
(the "Option Price") equal to the product of (i) the number of Registrable
Securities and (ii) the Fair Market Value of such Registrable Securities. Any
such purchase of Registrable Securities by the Registrant hereunder shall
take place at a closing to be held at the principal executive offices of the
Registrant or its counsel at any reasonable date and time designated by the
Registrant and its designee in such notice within 20 business days after
delivery of such notice. Any payment for the shares to be purchased shall be
made by delivery at the time of such closing of the Option Price in
immediately available funds.
If the Registrant does not elect to exercise its option
pursuant to this Section 8 with respect to all Registrable Securities designated
in the Registration Notice, it shall use its reasonable best efforts to effect,
as promptly as practicable, the registration under the Securities Act of the
unpurchased Registrable Securities; PROVIDED, HOWEVER,
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that (i) Parent shall not be entitled to more than an aggregate of three
effective registration statements hereunder and (ii) the Registrant will not
be required to file any such registration statement during any period of time
(not to exceed 90 days after such request in the case of clause (B) below or
120 days in the case of clause (A) and [150 days] in the case of clause (C)
below) when (A) the Registrant is in possession of material non-public
information which it reasonably believes would be detrimental to be disclosed
at such time and, in the judgment of the board of directors of the
Registrant, such information would have to be disclosed if a registration
statement were filed at that time; (B) the Registrant is required under the
Securities Act to include audited financial statements for any period in such
registration statement and such financial statements are not yet available
for inclusion in such registration statement; or (C) the Registrant
determines, in its reasonable judgment, that such registration would
interfere with any financing, acquisition or other material transaction
involving the Registrant or any of its affiliates. If consummation of the
sale of any Registrable Securities pursuant to a registration hereunder does
not occur within 120 days after the filing with the SEC of the initial
registration statement with respect thereto, the provisions of this Section 8
shall again be applicable to any proposed registration; PROVIDED, HOWEVER,
that Parent shall not be entitled to request more than two registrations
pursuant to this Section 8 in any 18 month period. The Registrant shall use
its reasonable best efforts to cause all Registrable Securities registered
pursuant to this Section 8 to be qualified for sale under the securities or
blue-sky laws of such jurisdictions as Parent may reasonably request and
shall continue such registration or qualification in effect in such
jurisdiction; PROVIDED, HOWEVER, that the Registrant shall not be required to
qualify to do business, subject itself to general taxation or consent to
general service of process in, any jurisdiction by reason of this provision.
The registration rights set forth in this Section 8 are
subject to the condition that Parent shall provide the Registrant with such
information with respect to Parent's Registrable Securities, the plans for the
distribution thereof, and such other information with respect to Parent as, in
the reasonable judgment of counsel for the Registrant, is necessary to enable
the Registrant to include in such registration statement all material facts
required by applicable law to be disclosed with respect to a registration
thereunder.
A registration effected under this Section 8 shall be effected
at the Registrant's expense, except for underwriting discounts and commissions
and the fees and the expenses of counsel to Parent, and the Registrant shall
provide to the underwriters such documentation (including certificates, opinions
of counsel and accountants' "comfort" letters from auditors) as are customary in
connection with underwritten public offerings as such underwriters may
reasonably require. In connection with any such registration, the parties agree
(i) to indemnify each other and the underwriters in the customary manner and
(ii) to enter into an underwriting agreement in form and substance customary to
transactions of this type with the Manager and the other underwriters
participating in such offering.
B-6
The registration rights set forth in this Section 8 terminate
upon the registration of Registrable Securities becoming saleable pursuant to
Rule 144 of the Securities Act of 1933, as amended.
9. PROFIT LIMITATION. Notwithstanding any other provision
of this Agreement, in no event shall Parent's Total Profit (as hereinafter
defined) exceed $11 million and, if it otherwise would exceed such amount
Parent, at its sole election, shall either (a) deliver to the Company for
cancellation shares of Company Common Stock previously purchased by Parent,
(b) pay cash or other consideration to the Company or (c) undertake any
combination thereof, so that Parent's Total Profit shall not exceed $11
million after taking into account the foregoing actions. As used herein, the
term "Total Profit" shall mean the aggregate amount (before taxes) of the
following: (i) the amount received by Parent pursuant to the Company's
repurchase of the Stock Option pursuant to Section 7 hereof, (ii)(A) the net
cash amounts received by Parent pursuant to the sale of Restricted Shares (or
any other securities into which such shares are converted or exchanged) to
any unaffiliated party, less (B) Parent's purchase price for such shares, and
(iii) the aggregate amount received by Parent from the Company pursuant to
Sections 8.5(b) of the Merger Agreement.
10. ADJUSTMENT UPON CHANGES IN CAPITALIZATION. In the
event of any change in Company Common Stock by reason of stock dividends,
stock splits, mergers (other than the Merger), recapitalizations,
combinations, exchange of shares or the like, the type and number of shares
or securities subject to the Stock Option, and the Exercise Price per share,
shall be adjusted appropriately.
11. RESTRICTIVE LEGENDS. Each certificate representing
shares of Company Common Stock issued to Parent hereunder (and any shares of
Parent Common Stock delivered to the Company at a Closing) shall initially be
endorsed with a legend in substantially the following form:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE
NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, AND MAY BE REOFFERED OR SOLD ONLY IF SO REGISTERED OR
IF AN EXEMPTION FROM SUCH REGISTRATION AND APPLICABLE STATE
SECURITIES LAWS IS AVAILABLE. SUCH SECURITIES ARE ALSO SUBJECT
TO ADDITIONAL RESTRICTIONS ON TRANSFER AS SET FORTH IN THE
STOCK OPTION AGREEMENT, DATED MARCH 5, 2000, A COPY OF WHICH
MAY BE OBTAINED FROM THE ISSUER HEREOF.
Certificates representing shares sold in a registered public
offering pursuant to Section 8 shall not be required to bear such legend.
12. BINDING EFFECT; NO ASSIGNMENT. This Agreement shall be
binding upon and inure to the benefit of the parties hereto and their respective
successors, and permitted assigns. Except as expressly provided in this
Agreement, neither this
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Agreement nor the rights or the obligations of either party hereto are
assignable, except by operation of law, or with the written consent of the
other party, except that Parent may assign its rights hereunder to any
wholly-owned subsidiary of Parent. Nothing contained in this Agreement,
express or implied, is intended to confer upon any person other than the
parties hereto and their respective permitted assigns any rights or remedies
of any nature whatsoever by reason of this Agreement. Any Restricted Shares
sold by a party in compliance with the provisions of Section 8 shall, upon
consummation of such sale, be free of the restrictions imposed with respect
to such shares by this Agreement, unless and until such party shall
repurchase or otherwise become the beneficial owner of such shares, and any
transferee of such shares shall not be entitled to the rights of such party.
Certificates representing shares sold in a registered public offering
pursuant to Section 8 shall not be required to bear the legend set forth in
Section 11.
13. SPECIFIC PERFORMANCE. The parties recognize and agree
that if for any reason any of the provisions of this Agreement are not
performed in accordance with their specific terms or are otherwise breached,
immediate and irreparable harm or injury would be caused for which money
damages would not be an adequate remedy. Accordingly, each party agrees that,
in addition to other remedies, the other party shall be entitled to an
injunction restraining any violation or threatened violation of the
provisions of this Agreement. In the event that any action should be brought
in equity to enforce the provisions of the Agreement, neither party will
allege, and each party hereby waives the defense, that there is an adequate
remedy at law.
14. ENTIRE AGREEMENT. This Agreement and the Merger
Agreement (together with the other documents and instruments referred to in
the Merger Agreement, and the exhibits and disclosure schedules thereto)
constitute the entire agreement among the parties with respect to the subject
matter hereof and supersede all other prior agreements and understandings,
both written and oral, among the parties or any of them with respect to the
subject matter hereof.
15. FURTHER ASSURANCES. Each party will execute and deliver
all such further documents and instruments and take all such further action as
may be necessary in order to consummate the transactions contemplated hereby.
16. NO REMEDY IN CERTAIN CIRCUMSTANCES. Each party agrees
that, should any court or other competent authority hold any provision of this
Agreement or part hereof to be null, void or unenforceable, or order any party
to take any action inconsistent herewith or not to take an action consistent
herewith or required hereby, the validity, legality and enforceability of the
remaining provisions and obligations contained or set forth herein shall not in
any way be affected or impaired thereby, unless the foregoing inconsistent
action or the failure to take an action constitutes a material breach of this
Agreement or makes the Agreement impossible to perform in which case this
Agreement shall terminate. Except as otherwise contemplated by this Agreement,
to the extent that a party hereto took an action inconsistent herewith or failed
to take action consistent herewith or required hereby pursuant to an order or
judgment of a court or other competent authority, such party shall incur no
liability or obligation unless such
B-8
party did not in good faith seek to resist or object to the imposition or
entering of such order or judgment.
17. NOTICES. Any notice or communication required or
permitted hereunder shall be in writing and either delivered personally,
telegraphed or telecopied or sent by certified or registered mail, postage
prepaid, and shall be deemed to be given, dated and received when so
delivered personally, telegraphed or telecopied (answerback received) or, if
mailed, five business days after the date of mailing, to the following
address or telecopy number, or to such other address or addresses as such
person may subsequently designate by notice given hereunder:
(a) if to Parent, to:
Comverse Technology, Inc.
170 Crossways Park Drive
Woodbury, New York 11797
Attn: Chief Financial Officer
Telecopy: (516) 677-7323
Telephone: (516) 677-7200
with copies (which shall not constitute notice) to:
Weil, Gotshal & Manges LLP
767 Fifth Avenue
New York, New York 10153
Attn: Stephen M. Besen, Esq.
Telecopy: (212) 310-8007
Telephone: (212) 310-8000
(b) if to the Company, to:
Loronix Information Systems, Inc.
820 Airport Road
Durango, Colorado 81301
Attn: Chief Financial Officer
Telecopy: (970) 328-3383
Telephone: (970) 259-6161
with a copy (which shall not constitute notice) to:
Wilson, Sonsini, Goodrich & Rosati Professional
Corporation 650 Page Mill Road
Palo Alto, California 94304
Attn: Henry P. Massey, Jr., Esq.
Telecopy: (650) 493-6811
Telephone: (650) 493-9300
B-9
18. GOVERNING LAW. This Agreement shall be governed by
and construed in accordance with the laws of the State of Nevada applicable
to agreements made and to be performed entirely within such state.
19. DESCRIPTIVE HEADINGS. The descriptive headings herein
are inserted for convenience of reference only and are not intended to be
part of or to affect the meaning or interpretation of this Agreement.
20. COUNTERPARTS. This Agreement may be executed in multiple
counterparts, each of which shall be deemed to be an original, but all of which,
taken together, shall constitute one and the same instrument.
21. EXPENSES. Except as otherwise expressly provided
herein or in the Merger Agreement, all costs and expenses incurred in
connection with the transactions contemplated by this Agreement shall be paid
by the party incurring such expenses.
22. AMENDMENTS; WAIVER. This Agreement may be amended by the
parties hereto and the terms and conditions hereof may be waived only by an
instrument in writing signed on behalf of each of the parties hereto, or, in the
case of a waiver, by an instrument signed on behalf of the party waiving
compliance.
[signature page follows]
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IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed by their respective duly authorized officers as of the
date first above written.
LORONIX INFORMATION SYSTEMS, INC.
By: _______________________________
Name:
Title:
COMVERSE TECHNOLOGY, INC.
By: _______________________________
Name:
Title:
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ANNEX C
FORM OF VOTING AGREEMENT
VOTING AGREEMENT
----------------
VOTING AGREEMENT, dated as of March 5, 2000 (this "AGREEMENT"), by and
among Comverse Technology, Inc., a New York corporation ("PARENT") and
______________ (the "STOCKHOLDER").
W I T N E S S E T H:
WHEREAS, concurrently herewith, Parent, Comverse Acquisition Corp., a
Nevada corporation and wholly-owned subsidiary of Parent ("MERGER SUB") and
Loronix Information Systems, Inc., a Nevada corporation (the "COMPANY"), are
entering into an Agreement and Plan of Merger (as such agreement may hereafter
be amended from time to time, the "MERGER AGREEMENT"; capitalized terms used and
not defined herein have the respective meanings ascribed to them in the Merger
Agreement) pursuant to which Merger Sub will be merged with and into the
Company, with the Company as the Surviving Corporation (the "MERGER");
WHEREAS, the Stockholder beneficially owns _______ shares (the
"SHARES") of Common Stock of the Company; and
WHEREAS, as an inducement and a condition to entering into the Merger
Agreement, Parent and Merger Sub have required that the Stockholder agree, and
the Stockholder has agreed, to enter into this Agreement; and further the
Stockholder has agreed to enter into this Agreement strictly in his capacity as
a beneficial owner of the Shares and not in his capacity as a director or
officer of the Company.
NOW, THEREFORE, in consideration of the foregoing and the mutual
premises, representations, warranties, covenants and agreements contained
herein, and intending to be legally bound hereby, the parties hereto hereby
agree as follows:
1. Provisions Concerning the Shares. (a) The Stockholder hereby
agrees that during the period commencing on the date hereof and continuing
until this provision terminates pursuant to Section 5 hereof, at any meeting
of the holders of shares of Common Stock of the Company, however called, or
in connection with any written consent of the holders of shares of Common
Stock of the Company, the Stockholder shall vote, (or cause to be voted) any
shares of Common Stock of the Company held of record or Beneficially Owned
(as defined below) by the Stockholder, including the Shares, whether
heretofore owned or hereafter acquired, in favor of the Merger and the
adoption of the Merger Agreement and any actions required in furtherance
thereof and hereof.
(b) The Stockholder shall not enter into any agreement or understanding
with any Person (as defined below) the effect of which would be inconsistent or
violative of the provisions of this Agreement.
(c) For purposes of this Agreement:
"BENEFICIALLY OWN" or "BENEFICIAL OWNERSHIP" with respect to any
securities shall mean having "beneficial ownership" of such securities (as
determined pursuant to Rule 13d-3 under the Securities Exchange Act of 1934, as
amended (the "EXCHANGE ACT")), including pursuant to any agreement, arrangement
or understanding, whether or not in writing; without duplicative counting of the
same securities by the same holder, securities Beneficially Owned by a Person
shall include securities Beneficially Owned by all other Persons with whom such
Person would constitute a "group" within the meaning of Section 13(d)(3) of the
Exchange Act; and
"PERSON" shall mean an individual, corporation, partnership, limited
liability company, joint venture, association, trust, unincorporated
organization or other entity.
(d) In the event of a stock dividend or distribution, or any change in
the Common Stock of the Company by reason of any stock dividend, stock split,
recapitalization, reclassification, combination, exchange of shares, merger or
the like, the term "SHARES" as used in this Agreement shall be deemed to refer
to and include the Shares as well
C-1
as all such stock dividends and distributions and any shares or other
securities into which or for which any or all of the Shares may be converted,
changed or exchanged.
2. Representations and Warranties. As of the date hereof, the
Stockholder hereby represents and warrants to Merger Sub as follows:
(a) Ownership of Shares. The Stockholder is the Beneficial Owner of all
of the Shares. On the date hereof, the Shares constitute all of the shares of
Common Stock of the Company owned of record or Beneficially Owned by the
Stockholder. The Stockholder has sole voting power and sole power to issue
instructions with respect to the matters set forth in Section 1 hereof, sole
power of disposition and sole power to agree to all of the matters set forth in
this Agreement, in each case with respect to all of the Shares, with no
limitations, qualifications or restrictions on such rights (subject to
applicable securities laws).
(b) Power; Binding Agreement. The Stockholder has the legal capacity,
power and authority to enter into and perform all of its obligations under this
Agreement. This Agreement has been duly and validly authorized, executed and
delivered by the Stockholder and constitutes a valid and binding agreement of
the Stockholder, enforceable against the Stockholder in accordance with its
terms, subject to applicable bankruptcy, insolvency, fraudulent conveyance,
reorganization, moratorium and similar laws affecting creditors' rights and
remedies generally, and subject, as to enforceability, to general principles of
equity, including principles of commercial reasonableness, good faith and fair
dealing (regardless of whether enforcement is sought in a proceeding at law or
in equity). There is no beneficiary or holder of a voting trust certificate or
other interest of any trust of which the Stockholder is settlor or trustee or
any other person whose consent is required for the execution and delivery of
this Agreement or the consummation by the Stockholder of the transactions
contemplated hereby.
(c) No Conflicts. (i) Except for filings under the HSR Act, if any, and
filings under the Exchange Act, no filing with, and no permit, authorization,
consent or approval of, any state or federal public body or authority is
necessary for the execution of this Agreement by the Stockholder and the
consummation by the Stockholder of the transactions contemplated hereby and (ii)
none of the execution and delivery of this Agreement by the Stockholder, the
consummation by the Stockholder of the transactions contemplated hereby or
compliance by the Stockholder with any of the provisions hereof will (A) result
in a violation or breach of, or constitute (with or without notice or lapse of
time or both) a default (or give rise to any third party right of termination,
cancellation, material modification or acceleration) under any of the terms,
conditions or provisions of any declaration of trust, note, bond, mortgage,
indenture, security or pledge agreement, voting agreement, stockholders'
agreement or voting trust, license, contract, commitment, arrangement,
understanding, agreement or other instrument or obligation of any kind to which
the Stockholder is a party or by which the Stockholder or any of the
Stockholder's properties or assets may be bound, or (B) violate any order, writ,
injunction, decree, judgment, order, statute, rule or regulation applicable to
the Stockholder or any of the Stockholder's properties or assets.
(d) Reliance by Parent. The Stockholder understands and acknowledges
that Parent and Merger Sub are entering into the Merger Agreement in reliance
upon execution and delivery of this Agreement by the Stockholder.
(e) Sophistication. The Stockholder acknowledges being an informed and
sophisticated investor and, together with the Stockholder's advisors, has
undertaken such investigation as they have deemed necessary, including the
review of the Merger Agreement and this Agreement, to enable the Stockholder to
make an informed and intelligent decision with respect to the Merger Agreement
and this Agreement and the transactions contemplated thereby and hereby.
(f) No Broker. No broker, investment banker, financial adviser or other
Person is entitled to any commission, broker's fee, finder's fee, adviser's fee
or similar fee in connection with the transactions contemplated by this
Agreement based upon arrangements made by or on behalf of the Stockholder.
3. No Solicitation. (a) From and after the date hereof and continuing
until this provision terminates pursuant to Section 5 hereof, the Stockholder
shall not directly or indirectly, initiate, solicit or encourage (including
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by way of furnishing non-public information or assistance), or take any other
action to facilitate, any inquiries or the making of any proposal that
constitutes, or may reasonably be expected to lead to, any Acquisition
Proposal with respect to the Company or enter into or maintain or continue
discussions or negotiate with any Person in furtherance of such inquiries or
to obtain such a Acquisition Proposal or agree to or endorse any such
Acquisition Proposal, and the Stockholder shall promptly notify Parent or
Merger Sub orally (in all events within 24 hours) and in writing (as promptly
thereafter as practicable) of the material terms and status of all inquiries
and proposals which the Stockholder or any agent of the Stockholder may
receive after the date hereof relating to any of such matters and, if such
inquiry or proposal is in writing, the Stockholder shall deliver to Parent or
Merger Sub a copy of such inquiry or proposal promptly; provided, however,
that, notwithstanding any other provision of this Agreement, the Stockholder
may take any action in his capacity as a director or officer of the Company
as the board of directors of the Company directs him to take in compliance
with Section 6.4 of the Merger Agreement or in order to permit the Board to
comply with its fiduciary duties under applicable law as advised by counsel.
The Stockholder will immediately cease and cause to be terminated any
existing activities, discussions or negotiations, with any parties conducted
heretofore with respect to any of the foregoing.
(b) Parent acknowledges that this Agreement is entered into by the
Stockholder in such Stockholder's capacity as a beneficial owner of the Shares,
and that nothing in this Agreement shall in any way restrict or limit the
Stockholder from taking any action in his capacity as a director or officer of
the Company or otherwise fulfilling his fiduciary obligations as a director or
officer of the Company, notwithstanding that any such action would be
inconsistent with or violative of the Stockholder's obligations under this
Agreement if taken in his capacity as a beneficial owner of the Shares.
4. Restriction on Transfer; Proxies; Non-Interference; Stop Transfers;
etc.
(a) The Stockholder shall not, directly or indirectly, during the
period commencing on the date hereof and continuing until this provision
terminates pursuant to Section 5 hereof: (i) except as contemplated by the
Merger Agreement offer for sale, sell, transfer, tender, pledge, encumber,
assign or otherwise dispose of, or grant or enter into any contract, option or
other arrangement or understanding with respect to or consent to the offer for
sale, sale, transfer, tender, pledge, encumbrance, assignment or other
disposition of, any or all of the Shares or any interest therein; (ii) except as
contemplated by this Agreement, grant any proxies or powers of attorney, deposit
any Shares into a voting trust or enter into a voting agreement with respect to
any Shares; or (iii) take any action that would make any of the Stockholder's
representations or warranties contained herein untrue or incorrect or have the
effect of preventing or disabling the Stockholder from performing his/her
respective obligations under this Agreement; provided that the foregoing shall
not prevent the Stockholder from (x) disposing of not greater than 40,000 Shares
or (y) pledging any of the Shares to a bank or other financial institution or to
prevent such bank or financial institution from selling the Shares on
foreclosure so long as the Stockholder retains the right to vote such Shares if
the pledge has not been foreclosed upon.
(b) Without limiting the generality of Section 4(a) above, the
Stockholder agrees with, and covenants to, Parent that the Stockholder shall
not, during the period set forth in Section 4(a), request that the Company
register the transfer (book-entry or otherwise) of any certificate or
uncertificated interest representing the Shares, unless such transfer is made in
compliance with this Agreement.
5. Termination. Except as otherwise provided herein, the covenants and
agreements contained in Sections 1, 3 and 4 hereof shall terminate (i) in the
event the Merger Agreement is terminated in accordance with the terms thereof,
upon such termination, and (ii) in the event the Merger is consummated, upon the
Effective Time. Notwithstanding anything to the contrary herein no termination
of this Agreement shall relieve any party of liability for a breach hereof prior
to termination.
6. Further Assurances. From time to time, at the other party's request
and without further consideration, the Stockholder and Merger Sub shall execute
and deliver such additional documents and take all such further lawful action as
may be necessary or desirable to consummate and make effective, in the most
expeditious manner practicable, the transactions contemplated by this Agreement.
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7. Entire Agreement. This Agreement and the Merger Agreement constitute
the entire agreement between the parties with respect to the subject matter
hereof and supersede all other prior agreements and understandings, both written
and oral, between the parties with respect to the subject matter hereof.
8. Certain Events. The Stockholder agrees that this Agreement and the
obligations hereunder shall attach to the Shares and shall be binding upon any
Person or entity to which legal or beneficial ownership of such Shares shall
pass, whether by operation of law or otherwise, including, without limitation,
the Stockholder's heirs, executors, guardians, administrators, trustees or
successors. Notwithstanding any transfer of Shares, the transferor shall remain
liable for the performance of all obligations of the transferor under this
Agreement.
9. Assignment. This Agreement shall not be assigned by any party
hereto, by operation of law or otherwise, without the prior written consent of
the other party, and any purported assignment without such consent shall be null
and void; provided, however, that Parent may assign, in its sole discretion, its
rights and obligations hereunder to Merger Sub or any direct or indirect wholly
owned subsidiary of Parent without the consent of the Stockholder. All covenants
and agreements contained in this Agreement by or on behalf of the parties hereto
shall be binding on and inure to the benefit of the respective successors, heirs
and permitted assigns of the parties hereto.
10. Amendments, Waivers, Etc. This Agreement may not be amended,
changed, supplemented, waived or otherwise modified or terminated except upon
the execution and delivery of a written agreement executed by each of the
parties hereto.
11. Notices. All notices, requests, claims, demands and other
communications hereunder shall be in writing and shall be given (and shall be
deemed to have been duly received if so given) by hand delivery, telegram, telex
or telecopy, or by mail (registered or certified mail, postage prepaid, return
receipt requested) or by any courier service, such as Federal Express, providing
proof of delivery. All communications hereunder shall be delivered to the
respective parties at the following addresses: (i) if to Parent, to its address
set forth in the Merger Agreement; and (ii) if to the Stockholder, to the
address set forth under the Stockholder's signature on the signature page
hereto; or, in each case, to such other address as the Person to whom notice is
given may have previously furnished to the others in writing in the manner set
forth above.
12. Severability. If any term or other provision of this Agreement is
invalid, illegal or incapable of being enforced by any rule of law or public
policy, all other conditions and provisions of this Agreement shall nevertheless
remain in full force and effect so 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 shall
negotiate in good faith to modify this Agreement so as to effect the original
intent of the parties as closely as possible to the fullest extent permitted by
applicable law in an acceptable manner to the end that the transactions
contemplated hereby are fulfilled to the extent possible.
13. Specific Performance. The Stockholder recognizes and acknowledges
that a breach by it of any covenants or agreements contained in this Agreement
will cause Parent to sustain damages for which it would not have an adequate
remedy at law for money damages, and therefore the Stockholder agrees that in
the event of any such breach Parent party shall be entitled to the remedy of
specific performance of such covenants and agreements and injunctive and other
equitable relief in addition to any other remedy to which Parent may be
entitled, at law or in equity.
14. Remedies Cumulative. All rights, powers and remedies provided under
this Agreement or otherwise available in respect hereof at law or in equity
shall be cumulative and not alternative, and the exercise of any thereof by any
party shall not preclude the simultaneous or later exercise of any other such
right, power or remedy by such party.
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15. No Waiver. The failure of any party hereto to exercise any right,
power or remedy provided under this Agreement or otherwise available in respect
hereof at law or in equity, or to insist upon compliance by any other party
hereto with its obligations hereunder, and any custom or practice of the parties
at variance with the terms hereof, shall not constitute a waiver by such party
of its right to exercise any such or other right, power or remedy or to demand
such compliance.
16. No Third Party Beneficiaries. This Agreement is not intended to be
for the benefit of, and shall not be enforceable by, any Person who or which is
not a party hereto .
17. Governing Law. This Agreement shall be governed and construed in
accordance with the laws of the State of Nevada, without giving effect to the
principles of conflicts of law thereof.
18. Waiver of Jury Trial. The parties hereto waive all right to trial
by jury in any action or proceeding to enforce or defend any rights under this
Agreement and any document executed in connection herewith.
19. Descriptive Headings. The descriptive headings used herein are
inserted for convenience of reference only and are not intended to be part of or
to affect the meaning or interpretation of this Agreement.
20. Counterparts. This Agreement may be executed in counterparts, each
of which shall be deemed to be an original, but all of which, taken together,
shall constitute one and the same Agreement.
[signature page follows]
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IN WITNESS WHEREOF, Parent and the Stockholder have executed and
delivered this Agreement as of the day and year first above written.
COMVERSE TECHNOLOGY, INC.
By:
-----------------------------------
Name:
Title:
STOCKHOLDER
By:
-----------------------------------
C-6
ANNEX D
COPY OF OPINION OF BROADVIEW INTERNATIONAL LLC
March 5, 2000
CONFIDENTIAL
Board of Directors
Loronix Information Systems, Inc.
820 Airport Road
Durango, CO 81301-6790
Dear Members of the Board:
We understand that Loronix Information Systems, Inc. ("Loronix" or
"Company"), Comverse Technology, Inc.. ("Comverse" or "Parent") and Comverse
Acquisition Corp., a wholly-owned subsidiary of Parent ("Merger Sub"),
propose to enter into an Agreement and Plan of Merger and Reorganization (the
"Agreement") pursuant to which, Merger Sub will be merged with and into the
Company (the "Merger"). Pursuant to the Merger each share of Loronix common
stock ("Company Common Stock") will be converted into the right to receive
(the "Exchange Ratio") 0.1925 shares of Comverse Common Stock, provided
however that Loronix may terminate the Agreement if (i) the Average Parent
Stock Price, as defined in the Agreement, multiplied by the Exchange Ratio is
less than $36.00 and (ii) Comverse does not exercise its option, in
accordance with the Agreement, to increase the Exchange Ratio to an amount
equal to $36.00 divided by the Average Parent Stock Price. The Merger is
intended to qualify as a reorganization within the meaning of Section 368(a)
of the United States Internal Revenue Code of 1986, as amended and to be
accounted for as a "pooling of interests" for accounting and financial
reporting purposes. The terms and conditions of the above described Merger
are more fully detailed in the Agreement.
You have requested our opinion as to whether the Exchange Ratio is fair, from
a financial point of view, to Loronix stockholders.
Broadview International LLC ("Broadview") focuses on providing merger and
acquisition advisory services to information technology ("IT"),
communications and media companies. In this capacity, we are continually
engaged in valuing such businesses, and we maintain an extensive database of
IT, communications and media mergers and acquisitions for comparative
purposes. We are currently acting as financial advisor to Loronix's Board of
Directors and will receive a fee from Loronix upon the successful conclusion
of the Merger.
In rendering our opinion, we have, among other things:
1.) reviewed the terms of a draft of the Agreement dated March 5, 2000
furnished to us by the Company on March 5, 2000 (which, for the purposes of
this opinion, we have assumed, with your permission, to be identical in all
material respects to the Agreement to be executed);
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2.) reviewed Loronix's annual report on Form 10-KSB40 for the fiscal year
ended December 31, 1998, including the audited financial statements included
therein, Loronix's quarterly report on Form 10-QSB for the period ended
September 30, 1999, including the unaudited financial statements included
therein and the press release issued by Loronix dated February 8, 1999 with
respect to Loronix's financial performance for the fiscal year ended December
31, 1999;
3.) reviewed certain internal financial and operating information concerning
Loronix, including quarterly projections through December 31 2000, prepared
and furnished to us by Loronix management;
4.) participated in discussions with Loronix management concerning the
operations, business strategy, current financial performance and prospects
for Loronix;
5.) discussed with Loronix management its view of the strategic rationale for
the Merger;
6.) reviewed the recent reported closing prices and trading activity for
Company Common Stock;
7.) compared certain aspects of the financial performance of Loronix with
public companies we deemed comparable;
8.) analyzed available information, both public and private, concerning other
mergers and acquisitions we believe to be comparable in whole or in part to
the Merger;
9.) reviewed recent equity research analyst reports covering Loronix;
10.) reviewed Comverse's annual report on Form 10-K405 for the fiscal year
ended January 31, 1999, including the audited financial statements included
therein, and Comverse's quarterly report on Form 10-Q for the period ended
October 31, 1999, including the unaudited financial statements included
therein;
11.) participated in discussions with Comverse management concerning the
operations, business strategy, financial performance and prospects for
Comverse;
12.) reviewed the recent reported closing prices and trading activity for
Comverse Common Stock;
13.) discussed with Comverse management its view of the strategic rationale
for the Merger;
14.) compared certain aspects of the financial performance of Comverse with
public companies we deemed comparable;
15.) reviewed recent equity analyst reports covering Comverse;
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16.) analyzed the anticipated effect of the Merger on the future financial
performance of the combined entity;
17.) participated in discussions related to the Merger with Loronix, Comverse
and their respective advisors; and
18.) conducted other financial studies, analyses and investigations as we
deemed appropriate for purposes of this opinion.
In rendering our opinion, we have relied, without independent verification,
on the accuracy and completeness of all the financial and other information
(including without limitation the representations and warranties contained in
the Agreement) that was publicly available or furnished to us by Loronix or
Comverse. With respect to the financial projections examined by us, we have
assumed that they were reasonably prepared and reflected the best available
estimates and good faith judgments of the management of Loronix as to the
future performance of Loronix. We have neither made nor obtained an
independent appraisal or valuation of any of Loronix's assets.
Based upon and subject to the foregoing, we are of the opinion that the
Exchange Ratio is fair, from a financial point of view, to Loronix
stockholders.
For purposes of this opinion, we have assumed that neither Loronix nor
Comverse is currently involved in any material transaction other than the
Merger, other publicly announced transactions, other preliminary discussions
confidentially disclosed to us, and those activities undertaken in the
ordinary course of conducting their respective businesses. Our opinion is
necessarily based upon market, economic, financial and other conditions as
they exist and can be evaluated as of the date of this opinion, and any
change in such conditions would require a reevaluation of this opinion. We
express no opinion as to the price at which Comverse Common Stock will trade
at any time in the future.
This opinion speaks only as of the date hereof. It is understood that this
opinion is for the information of the Board of Directors of Loronix in
connection with its consideration of the Merger and does not constitute a
recommendation to any Loronix stockholder as to how such stockholder should
vote on the Merger. This opinion may not be published or referred to, in
whole or part, without our prior written permission, which shall not be
unreasonably withheld. Broadview hereby consents to references to and the
inclusion of this opinion in its entirety in the Prospectus/Proxy Statement
to be distributed to Loronix stockholders in connection with the Merger.
Sincerely,
/s/ Broadview International LLC
Broadview International LLC
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DETACH HERE
PROXY
LORONIX INFORMATION SYSTEMS, INC.
PROXY FOR SPECIAL MEETING OF STOCKHOLDERS
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned stockholder of LORONIX INFORMATION SYSTEMS, INC., a Nevada
corporation, hereby acknowledges receipt of the Notice of Special Meeting of
Stockholders and Proxy Statement, each dated April __, 2000, and hereby appoints
Edward Jankowski, David Ledwell, and Jon Lupia, and each of them, proxies and
attorneys-in-fact, with full power to each of substitution and re-substitution,
on behalf and in the name of the undersigned, to represent the undersigned at
the Special Meeting of Stockholders of LORONIX INFORMATION SYSTEMS, INC., to be
held on _______, ______, 2000, at _____ a.m., Colorado time, at _______________,
located at _______________, Durango, Colorado, and at any and all
continuation(s) or adjournment(s) thereof, and to vote all shares of Common
Stock which the undersigned would be entitled to vote, if then and there
personally present, on the matters set forth on the reverse side.
Both of such attorneys or substitutes as shall be present and shall act at
said meeting or any and all continuation(s) or adjournment(s) thereof (or if
only one shall be present and acting, then that one) and shall have and may
exercise all the powers of said attorneys-in-fact hereunder.
THIS PROXY WILL BE VOTED AS DIRECTED, OR IF NO CONTRARY DIRECTION IS INDICATED,
WILL BE VOTED IN FAVOR OF APPROVAL OF THE AGREEMENT AND PLAN OF MERGER, DATED AS
OF MARCH 5, 2000, BY AND AMONG COMVERSE TECHNOLOGY, INC., COMVERSE ACQUISITION
CORP., A WHOLLY-OWNED SUBSIDIARY OF COMVERSE, AND LORONIX INFORMATION SYSTEMS,
INC., AND AS SAID PROXIES DEEM ADVISABLE ON SUCH OTHER MATTER(S) AS MAY PROPERLY
COME BEFORE THE MEETING.
- ---------------- ---------------------------------------- ------------------
SEE REVERSE CONTINUED AND TO BE SIGNED SEE REVERSE
SIDE ON REVERSE SIDE SIDE
- ---------------- ---------------------------------------- ------------------
LORONIX INFORMATION SYSTEMS, INC.
C/O EQUISERVE
P.O. BOX 9040
BOSTON, MA 02266-9040
DETACH HERE
/X/ PLEASE MARK VOTES AS IN THIS EXAMPLE
FOR AGAINST ABSTAIN
1. Proposal to approve the Agreement and Plan of / / / / / /
Merger, dated as of March 5, 1999, by and
among Comverse Technology, Inc., Comverse
Acquisition Corp., a wholly-owned subsidiary
of Comverse, and Loronix Information Systems, Inc.
In their discretion, the proxies are authorized
to vote upon such other matter(s) which may
properly come before the meeting or any
and all continuation(s) or adjournment(s)
thereof.
MARK HERE FOR ADDRESS CHANGE AND NOTE AT LEFT / /
This Proxy should be marked, dated and
signed by the stockholder(s) exactly as his
or her name appears hereon, and returned
promptly in the enclosed envelope. Persons
signing in a fiduciary capacity should so
indicate. If a corporation, please sign in full
corporate name by an authorized officer. If a
partnership, please sign in partnership name
by an authorized person. If shares are held
by joint tenants or as community property,
both should sign.
Signature:______________ Date:_____ Signature:_______________ Date:_____