SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A
(RULE 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
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 ss.240.14a-11(c) or ss.240.14a-12
CTI Group (Holdings) 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 and number of each class of securities to which this transaction
applies:
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Issuer and Number of Price Proposed Maximum Filing Fee
Title of Class Securities Per Share Aggregate Value Payable
- ------------------------------------------------------------------------------------------------------------------------------------
Class A common stock, 15,180,005 $1.4375(a) $21,821,257.00 $4,364.26
par value $0.01 per
share, of CTI Group
(Holdings), Inc.
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Class B common stock, 2,833,334 $2.00(b) $5,666,668.00 $1,133.34
par value $0.01 per
hare, of CTI Group
(Holdings), Inc.
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Total 18,013,339 $27,487,925.00 $5,497.60
====================================================================================================================================
(a) The price per share of CTI Group (Holdings) Inc.'s Common
Stock, which is listed on the OTC Bulletin Board, is based on
the average of the bid and asked price on April 28, 2000.
(b) Assumes that the price per share of CTI Group (Holdings),
Inc.'s Class B common stock (which will not be publicly
traded) is based on a one to one conversion ratio with CTIG's
Class A Common Stock, and is therefore valued at the same
price as the Class A Common Stock. The price per share of CTI
Group (Holdings) Inc.'s Common Stock, which is listed on the
OTC Bulletin Board, is based on the average of the bid and
asked price on July 25, 2000.
2. Aggregate number of securities to which transaction applies: 18,013,339.
3. Calculation of the underlying value of the transaction: The total
underlying transaction value: $27,487,925.00
4. Proposed maximum aggregate value of transaction: $27,487,925.00.
5. Total fee paid: $5,497.60.
|X| Fee paid previously with preliminary materials.
|X| 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.
|X| Amount Previously Paid: $5,497.60
|X| Form, Schedule or Registration Statement No.: Schedule 14A
|X| Filing Party: CTI Group (Holdings) Inc.
|X| Date Filed: May 4, 2000 and July 27, 2000
CTI GROUP (HOLDINGS) INC.
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Anthony P. Johns 2550 Eisenhower Avenue
Chairman of the Board Norristown, PA 19403
MERGERS PROPOSED -- YOUR VOTE IS VERY IMPORTANT
The boards of directors of CTI Group (Holdings) Inc. and Centillion
Data Systems, Inc. have agreed on a merger designed to create a premier
worldwide provider of software and services for managing billing and billing
analysis for telecommunications systems. In addition, the board of directors of
CTIG, contingent upon the approval of the Centillion merger, has approved a
merger with Celltech Information Systems, Inc., which would have the effect of
merging Celltech with and into a subsidiary of CTIG. The company resulting from
the merger, which will continue under the name of CTIG Group (Holdings) Inc., is
referred to throughout this document as CTIG.
If the Centillion merger is completed, Centillion's stockholders will
receive 9,747,404 shares of Class A common stock in exchange for all of the
issued and outstanding capital stock of Centillion with the right to acquire up
to an additional 3,215,100 shares of Class A common stock. In addition,
Centillion's stockholders will receive 2,833,334 shares of newly created Class B
common stock. Centillion stockholders will also be entitled to acquire
additional shares of common stock after closing, as described more fully herein.
If the Celltech merger is completed, Celltech stockholders will
receive $262,599 in cash and between 1,330,501 and 2,217,501 shares of Class A
common stock.
Neither the Centillion merger nor the Celltech merger may be completed
unless each is approved by a majority of the holders of CTIG common stock, and
the Celltech merger is contingent upon the consummation of the Centillion
merger.
We have scheduled a special meeting for CTIG stockholders to vote on
each of the Centillion merger and the Celltech merger. YOUR VOTE IS VERY
IMPORTANT. At the special meeting, you also will vote on (1) amendments to
CTIG's certificate of incorporation, which will be contingent upon the
consummation of the Centillion merger, to redesignate its current common stock
as Class A common stock, create a new Class B common stock and restructure and
designate CTIG's post-merger board of directors all for purposes of the
Centillion merger, and (2) an amendment to CTIG's stock option and restricted
stock plan to enable CTIG to issue additional options. CTIG stockholders should
note that adoption of the amendment of CTIG's certificate of incorporation will
have the effect of electing a new board of directors, the members of which have
already been determined in accordance with the Centillion merger agreement.
Whether or not you plan to attend the special meeting, please take the
time to vote by completing and mailing the enclosed proxy card to us. If you
sign, date and mail your proxy card without indicating how you want to vote,
your proxy will be counted as a vote in favor of the mergers, the amendments to
the CTIG certificate of incorporation, and the authorization to increase the
number of options available under the CTIG stock option and restricted stock
plan. If you fail to return your proxy card, the effect will be a vote against
the mergers, the amendments to the certificate of incorporation and the
amendment to the CTIG stock option and restricted stock plan. This solicitation
is being made by CTIG. The costs of the solicitation are being borne by CTIG.
The special meeting will be held at 10:00 a.m., local time, on
[Wednesday, September 27, 2000 at 10:00a.m., Eastern Daylight Saving Time].
This proxy statement provides you with detailed information about the
proposed mergers and related transactions. In addition, you may obtain
information about the business of CTIG from our latest Annual Report on Form
10-KSB which accompanies this proxy statement, as well as other documents we
have filed with the Securities and Exchange Commission. We encourage you to read
these documents carefully.
We are mailing this proxy statement and accompanying form of proxy to
the stockholders of CTIG on or about [September 7], 2000.
Anthony P. Johns
Chairman of the Board
CTI Group (Holdings) Inc.
Proxy statement dated [September 7], 2000.
2
CTI GROUP (HOLDINGS) INC.
2550 Eisenhower Avenue
Norristown, Pennsylvania 19403
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
To Be Held on [September 27], 2000
To the stockholders of CTI Group (Holdings) Inc.:
A special meeting of our stockholders will be held on [September 27],
at 10:00 a.m., Eastern Daylight Saving Time, for the following purposes:
o to approve and adopt the Centillion merger agreement dated as of
February 3, 2000, by and between CTIG and Centillion, pursuant to
which (i) Centillion will be merged with and into CTIG, with CTIG
being the surviving entity, (ii) holders of Centillion common stock
will receive 9,747,404 shares of Class A common stock and 2,833,334
shares of Class B common stock, with the right to acquire up to an
additional 3,215,100 shares of Class A common stock after closing,
and (iii) holders of Centillion common stock also will have rights
to acquire additional shares of Common A common stock within the
next five years;
o to approve and adopt the Celltech merger agreement dated as of April
5, 2000, by and among CTIG, CTI Billing Solutions Inc., a
wholly-owned subsidiary of CTIG, which we will refer to as CTIB,
Celltech and all of Celltech's stockholders, pursuant to which
Celltech will be merged with and into CTIB, with CTIB being the
surviving entity and Celltech shareholders receiving $262,599 in
cash and between 1,330,501 and 2,217,501 shares of Class A Common
Stock, depending upon the average or price of CTIG's common stock
prior to the mergers;
o to approve and adopt amendments to CTIG's certificate of
incorporation to redesignate its current common stock as Class A
common stock, create a new Class B common stock and restructure and
designate CTIG's post-merger board of directors all for purposes of
the Centillion merger;
o to approve and adopt an amendment to the CTIG stock option and
restricted stock plan to enable CTIG to authorize additional
options; and
o to act upon any other matters as may properly come before the
special meeting or any adjournment or postponement.
The CTIG board of directors has unanimously approved the merger agreements, the
amendments to the certificate of incorporation, the amendment to the stock
option and restricted stock plan, and the transactions that these actions
concern and recommends that stockholders vote FOR approval and adoption of the
above proposals.
Under Delaware law, appraisal rights will be available to holders of
our common stock in connection with the Centillion merger. For stockholders to
exercise their appraisal rights, they must follow the procedures prescribed by
Delaware law. These procedures are summarized under "The Centillion Merger --
Appraisal Rights" beginning on page [42] of this proxy statement. Appraisal
rights are not available to holders of our common stock in connection with the
Celltech merger.
3
The merger agreements, the amendments to the certificate of
incorporation, and the authorization of additional options, and other important
matters are explained in the accompanying proxy statement, which you are urged
to read carefully. A copy of the Centillion merger agreement is attached as
Annex A to the proxy statement, and a copy of the Celltech merger agreement is
attached as Annex H.
The CTIG board of directors has fixed the close of business on [July
31, 2000] as the record date for determining the stockholders entitled to
receive notice of and to vote at the special meeting and at any and all
adjournments or postponements thereof.
Management welcomes your attendance at the special meeting. Whether or
not you expect to attend the special meeting in person, you are requested to
complete, sign, date and promptly return the enclosed proxy in the accompanying
postage-paid envelope. The prompt return of your proxy will save expenses
involved in further communication. Your proxy will not affect your right to vote
in person if you attend the special meeting.
By:___________________________
Mary Ann Davis
Corporate Secretary
Norristown, Pennsylvania
[September 7], 2000
YOUR VOTE IS IMPORTANT.
TO VOTE YOUR SHARES, PLEASE SIGN, DATE AND COMPLETE
THE ENCLOSED PROXY AND MAIL IT PROMPTLY IN THE
ENCLOSED RETURN ENVELOPE.
4
TABLE OF CONTENTS
Page
----
SUMMARY TERM SHEET............................................................ 9
QUESTIONS AND ANSWERS
ABOUT THE PROPOSED MERGERS....................................................11
SELECTED HISTORICAL FINANCIAL DATA OF CTIG....................................17
SELECTED HISTORICAL FINANCIAL DATA OF CENTILLION..............................18
SELECTED HISTORICAL FINANCIAL DATA OF CELLTECH................................20
SELECTED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL DATA .....................21
COMPARATIVE PER SHARE DATA....................................................22
SPECIAL CONSIDERATIONS........................................................24
Risks Relating to the Mergers...........................................24
Risks Relating to the Business of the Resulting Company.................26
SPECIAL MEETING OF STOCKHOLDERS...............................................28
PROPOSAL I
THE CENTILLION MERGER PROPOSAL................................................30
Background of the Centillion Merger.....................................30
Recommendation of the Board of Directors of CTIG;
Reasons for the Centillion Merger......................................31
Opinion of Financial Advisor to CTIG....................................34
Pro Forma Ownership.....................................................36
Projected Financial Data................................................36
Analysis of Publicly Traded Companies Comparable to Centillion..........37
Analysis of Selected Mergers and Acquisitions Transactions..............38
Other Analyses..........................................................38
Interests of First Colonial in the Centillion Merger....................39
Interest of Certain Persons in the Centillion Merger....................39
Accounting Treatment of the Centillion Merger...........................40
Federal Income Tax Consequences.........................................40
Listing of Class A Common Stock.........................................41
Resales of CTIG Common Stock Issued in Connection with the Merger;
Affiliate Agreements...................................................41
Regulatory Approvals....................................................41
Appraisal Rights........................................................42
THE CENTILLION MERGER AGREEMENT...............................................45
Conversion and Issuance of Shares.......................................45
Exchange of Stock Certificate...........................................47
Representations and Warranties..........................................48
Covenants...............................................................48
Conditions to Obligations to Effect the Centillion Merger...............50
Termination; Termination Fees and Expenses..............................51
Amendment and Waiver....................................................52
5
THE BUSINESS OF CENTILLION....................................................53
Overview ...............................................................53
Smart Bill(R)...........................................................53
Traditional Billing.....................................................53
Customers...............................................................53
Patent and Patent Litigation............................................53
Employees...............................................................54
Competitors.............................................................54
Properties..............................................................54
Contracts with Related Entities ........................................54
CENTILLION MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS OF CENTILLION.............................55
PROPOSAL II
THE CELLTECH MERGER PROPOSAL..................................................58
Background of the Celltech Merger.......................................58
Recommendation of the Board; Reasons for the Merger.....................59
Interests of Certain Persons in the Celltech Merger.....................61
Accounting Treatment of the Celltech Merger.............................61
Federal Income Tax Consequences.........................................61
Regulatory Approvals....................................................62
THE CELLTECH MERGER AGREEMENT.................................................63
Conversion and Issuance of Shares.......................................63
Exchange of Stock Certificates..........................................64
Representations and Warranties..........................................65
Covenants...............................................................66
Conditions to Obligations to Effect the Celltech Merger.................67
Termination; Termination Fees and Expenses..............................68
Amendment and Waiver....................................................68
THE BUSINESS OF CELLTECH......................................................69
Overview ...............................................................69
Competition.............................................................69
Celltech Service Capabilities and Product Offerings.....................69
Customers...............................................................70
Employees...............................................................70
Properties..............................................................70
CELLTECH'S MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS...........................................71
THE RESULTING COMPANY.........................................................77
Business and Strategy...................................................77
Directors and Executive Officers........................................77
Executive Compensation .................................................79
AGGREGATED OPTIONS/SAR EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION/SAR VALUES.........................................81
6
SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT OF CTIG......................................82
Certain Relationships and Related Transactions..........................84
Section 16(a) Beneficial Ownership Reporting Compliance.......................85
DESCRIPTION OF CTIG COMMON STOCK..............................................86
CTIG Common Stock.......................................................86
Voting ...............................................................86
Conversion of Class B Common Stock......................................87
Dividends...............................................................87
Prohibited Business Transactions........................................87
Registrar and Transfer Agent............................................87
CTIG MARKET PRICES AND DIVIDENDS..............................................88
PROPOSAL III..................................................................89
APPROVAL OF AMENDMENTS TO CTIG's
CERTIFICATE OF INCORPORATION..................................................89
Purposes and Effects of the Amendment...................................89
Restructure of the Board of Directors...................................89
Redesignation of Existing Common Stock as Class A Common Stock
and Class B Common Stock...............................................90
Effective Date of Proposed Amendment....................................91
Vote Required for Approval..............................................91
PROPOSAL IV...................................................................92
PROPOSAL TO AMEND STOCK OPTION AND RESTRICTED STOCK PLAN......................92
Purposes and Effects of the Amendment...................................92
Benefits Under the Plan.................................................92
Summary of stock option and restricted stock plan.......................92
General ...............................................................92
Administration of the Plan..............................................93
Stock Option Grants.....................................................93
Restricted Stock........................................................94
Federal Income Tax Consequences.........................................95
Effective Date of Proposed Amendment....................................95
Vote Required for Approval..............................................95
Market Price of Shares..................................................95
CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS....................96
OTHER MATTERS.................................................................97
WHERE YOU CAN FIND MORE INFORMATION...........................................97
INCORPORATION OF DOCUMENTS BY REFERENCE.......................................97
7
CENTILLION DATA SYSTEMS, INC. AND SUBSIDIARIES:
Financial Statements as of and for the Years Ended December 31, 1999
and 1998...................................................................F-2
Unaudited Condensed Consolidated Financial Statements as of March 31, 2000 and
for the Six Months Ended June 30, 2000 a..................................F-21
CELLTECH INFORMATION SYSTEMS, INC.:
Financial Statements as of and for the Years Ended December 31, 1999
and 1998..................................................................F-29
Unaudited Condensed Financial Statements as of March 31, 2000 and
for the Six Months Ended June 30, 2000 and 1999...........................F-42
CTI GROUP (HOLDINGS) INC.:
Unaudited Condensed Consolidated Pro Forma Financial Data...................F-46
ANNEX A - AGREEMENT AND PLAN OF MERGER BY AND BETWEEN CTI
GROUP (HOLDINGS) INC. AND CENTILLION DATA SYSTEMS, INC.,
DATED AS OF FEBRUARY 3, 2000.......................................A-1
ANNEX B - SURVIVING CORPORATION ARTICLES OF INCORPORATION....................B-1
ANNEX C - SURVIVING CORPORATION BYLAWS.......................................C-1
ANNEX D - SHAREHOLDER LLC PROMISSORY NOTE....................................D-1
ANNEX E - FORM OF PROMISSORY NOTE............................................E-1
ANNEX F - OPINION OF FIRST COLONIAL SECURITIES GROUP, INC....................F-1
ANNEX G - SECTION 262 OF THE DELAWARE GENERAL CORPORATION LAW................G-1
ANNEX H - AGREEMENT AND PLAN OF MERGER BY AND AMONG CTI GROUP (HOLDINGS) INC.,
CTI BILLING SOLUTIONS, INC., DAVID A. WARREN, FRANK S. SCARPA,
VALERIE S. HART AND RICHARD J. DONNELLY, DATED AS OF
APRIL 5, 2000......................................................H-1
ANNEX I - COMMUNICATIONS GROUP INC. STOCK OPTION AND RESTRICTED
STOCK PLAN.........................................................I-1
8
SUMMARY TERM SHEET
This summary highlights selected information from this document and
contains information concerning the most material terms of the mergers that may
be important to you. To more fully understand the mergers, the proposed
amendments to the certificate of incorporation and proposed amendments to the
stock option and restricted stock plan, our stockholders are urged to read this
entire document carefully, including the annexes, and the documents we have
referred you to. See "Where You Can Find More Information" on page [101].
The Companies
CTIG is a publicly-held company which designs and develops data
processing software for managing telecommunications systems. Its headquarters is
located at 2550 Eisenhower Avenue, Norristown, Pennsylvania 19403, Telephone:
(800) 355-5353, Facsimile: (610) 666-7707.
Centillion is a privately-held company which designs and develops data
processing software for managing telecommunications services. Its headquarters
is located at 333 North Alabama Street, Suite 240, Indianapolis, IN 46204,
Telephone: (317) 262-4666, Facsimile: (317) 262-4849.
Celltech is a privately-held company which provides custom software
development, customer management systems, billing, rating, printing and mailing
services for the telecommunications industry. Celltech focuses on the wireless
marketplace. Its headquarters is located at 15425 I45 North, Suite 200, Houston,
TX 77090, Telephone: (281) 873-2300, Facsimile: (281) 873-3018.
The Special Meeting (page [27])
The special meeting will be held at [The offices of Klehr, Harrison,
Harvey, Branzburg and Ellers LLP, 260 S. Broad Street, Philadelphia, PA 10102,
(215) 568-6060]. At the special meeting, we will ask our stockholders to approve
the following proposals:
Proposal I: To approve and adopt the Centillion merger
agreement dated as of February 3, 2000, by and between CTIG and Centillion, in
which, among other things, Centillion will be merged with and into CTIG, with
CTIG being the surviving entity; and
Proposal II: To approve and adopt the Celltech merger
agreement dated as of April 5, 2000, by and among CTIG, CTIB, Celltech and all
of Celltech's stockholders, in which, among other things, Celltech will be
merged with and into CTIB, with CTIB being the surviving entity; and,
Proposal III: To approve and adopt amendments to CTIG's
certificate of incorporation, contingent upon the consummation of the Centillion
merger, to redesignate its current common stock as Class A common stock, create
a new Class B common stock and restructure and designate CTIG's post-Centillion
merger board of directors all for purposes of the Centillion merger; and,
Proposal IV: To approve and adopt an amendment to the CTIG
stock option and restricted stock plan to enable CTIG to authorize additional
options.
The CTIG board of directors believes that the above proposals are in
our stockholders' best interests and recommends that you vote for these
proposals. If the mergers are adopted, Anthony P. Johns, Chairman of the board
of directors of CTIG will receive a new employment agreement with CTIG.
Additionally, directors of CTIG have options whose vesting will accelerate upon
the closing of the Centillion merger. Also, Mr. Johns will be permitted to
exercise, over a three year period, 300,000 CTIG stock options which he owns.
9
Summary Description of the Mergers
The Merger between CTIG and Centillion
Centillion's stockholders will receive:
o 9,747,404 shares of Class A common stock;
o up to an additional 3,215,100 shares of Class A common stock based
on revenues from Centillion's largest current customer, plus
business revenues (other than settlement or judgment proceeds)
received from defendants in Centillion or CTIG patent litigation
and from parties who have received a letter from Centillion or
CTIG alleging patent infringement; and
o 2,833,334 shares of Class B common stock, which have conversion
rights into Class A common stock.
The assets of Centillion businesses that are not related to its billing
business and specified cash balances are being transferred to a limited
liability company that will be owned by all of the Centillion stockholders (the
"Holding LLC") in exchange for a promissory note which will be acquired by CTIG
in the Centillion merger (the "Shareholder LLC Promissory Note"). CTIG will
issue additional shares of Class A common stock to the Centillion stockholders
for the amount of principal payments received under the promissory note. If the
promissory note is not fully paid in five years, it is to be appraised, and
shares of Class A common stock are to be issued based upon the appraised value.
As of July 18, 2000, CTIG had 7,576,505 shares of common stock issued
and outstanding. Each share will entitle the holder to one vote per share.
Ownership of CTIG Following the Centillion Merger (see pages [84-87])
Assuming that the escrowed stock is fully released, current CTIG
stockholders will own approximately 38% of Class A common stock after the
Centillion merger. Centillion stockholders will own approximately 62% of the
Class A common stock and 100% of the Class B common stock of CTIG. The
percentage ownership of CTIG upon conversion of the Class B common stock is not
determinable at the present time. The number of Class A shares to be issued in
exchange for Class B shares depends on three variables which will not be known
at the time of closing:
o The value, if any, of the patent claims held by the Tracking LLC;
o The costs associated with pursuing those claims; and
o The then current market price of CTIG Class A common stock.
Of the Class A and Class B common stock that will be owned by former
Centillion stockholders, an aggregate of 51.8% of the Class A common stock and
83.7% of the Class B common stock will be owned by two corporations which are
controlled by Mr. Salah Osseiran, resulting in a majority ownership stake and
effective control of CTIG by Mr. Osseiran. Mr. Osseiran is currently a member of
the board of directors of Centillion, and will be an initial member of the board
of directors of CTIG following the Centillion merger. Additionally, 1.1% and
1.8% of outstanding shares of Class A and Class B common stock will be owned by
Harold Garrison, who is currently the Chairman of Centillion and will be
Chairman of the board of CTIG after the Centillion merger.
Board of Directors and Management of CTIG Following the Centillion Merger
(see pages [80 to 81])
If the Centillion merger is completed, the board of directors will
consist of seven members. Pursuant to the Centillion merger agreement and the
proposed amendments to CTIG's certificate of incorporation, for a period of
three years after the closing of the Centillion merger the current Centillion
stockholders have the right to designate four of those directors, and the
current CTIG stockholders have the right to designate three.
10
The Merger between CTIG and Celltech
If the Celltech merger is completed, Celltech will be merged with and
into CTIB, a wholly-owned subsidiary of CTIG, with CTIB remaining as the
surviving entity. In the Celltech merger, Celltech stockholders will receive:
o a pro rata distribution of an aggregate of $262,599 in cash; and
o 1,663,126 shares of Class A common stock, subject to possible
adjustment, as follows: in the event that the average market price
per share (based on the previous twenty (20) trading days) of the
Class A common stock on the closing date is greater than $3.00, to
a maximum of $3.75, or below $3.00 to a minimum of $2.25, then the
number of shares of Class A common stock to be issued in the
Celltech merger will be determined by dividing $4,989,378 by this
average market price per share; provided that in no event will the
number of shares issued be less than 1,330,501 shares nor more
than 2,217,501 shares.
Ownership of CTIG Following the Celltech Merger (see pages [84-87])
Current CTIG stockholders will own approximately 34.4% of Class A
common stock after the Centillion and Celltech mergers. Celltech stockholders
will own approximately 9.6% of the Class A common stock and none of the Class B
common stock. Of the Class A common stock that will be owned by former Celltech
stockholders, an aggregate of 85% will be owned by David A. Warren, Celltech's
president and sole director, and the present owner of 85% of Celltech's
outstanding common stock.
Our stockholders may call 800-355-5353 to obtain more information about
the mergers, including updates on the number of shares issued in the mergers.
QUESTIONS AND ANSWERS
ABOUT THE PROPOSED MERGERS
Q: Why is CTIG proposing to merge with Centillion?
A: Because we believe the Centillion merger will provide our stockholders with
substantial benefits and enable us to better serve our customers. The Centillion
merger will allow CTIG to improve its capital position, increase liquidity and
expand the functionality of its products. CTIG and Centillion are two very
complementary businesses. CTIG has a history in front end call tracking and
accounting as well as general billing. Centillion has a 10-year history in
billing analysis. The combination of these product offerings will present a more
complete billing solution to our customer base, and lay the foundation for
CTIG's convergent billing strategy which would allow customers to receive a
single bill for their usage of local and long distance telephone service, cable
television, internet content, wireless service, and other media, to track and
analyze these various forms of communications media in conjunction with one
another, and to view this bill in near-real time via the Internet.
Q: What will the stockholders of CTIG and Centillion receive from the Centillion
merger?
A: Prior to the Centillion merger, Centillion divested itself of all businesses
other than its telecommunications industry billing business. Centillion's
stockholders will receive 9,747,404 shares of newly-authorized Class A common
stock and 2,833,334 shares of newly-authorized Class B common stock with the
right to acquire up to an additional 3,215,100 shares of Class A common stock.
Centillion will be required to have cash reflected on its balance sheet at the
closing of the merger of not less than $8,000,000 (minus expenditures made by
Centillion for software in its billing business in fiscal year 2000, to a
maximum deduction of $1,500,000). Centillion stockholders will also be able to
receive up to an additional 3,215,100 shares of Class A common stock over a
three-year period based upon revenues received by CTIG from Centillion's current
largest customer and from any business that CTIG
11
may derive from defendants in patent infringement actions brought by Centillion.
If these revenue targets are not met, Centillion's stockholders will be entitled
to purchase any shares not issued, at $1.50 per share, at the end of the three
year period. Additionally, over the next five years, current Centillion
stockholders will receive additional shares of CTIG, Class A common stock for
the amount of principal payments received under the Shareholders LLC Promissory
Note, or after an appraisal of that Note which was acquired by CTIG in the
merger.
Q: What will happen to the non-billing businesses of Centillion?
A: The Centillion businesses that are not related to the billing business have
been transferred to the Holding LLC in exchange for a promissory note issued to
Centillion in the principal amount of approximately $10 million, which CTIG will
acquire in the Centillion merger. Principal and interest will be paid as those
businesses are sold. CTIG will issue additional shares of Class A common stock
to the Centillion stockholders for the amount of principal payments received, at
a per share value of 88% of the average market value of the Class A common stock
at the time. If the promissory note is not fully paid in five years, it is to be
appraised, and shares of Class A common stock are to be issued for the appraised
value at 88% of the average market price at the time. In effect, this will
permit CTIG over time to raise additional capital by selling its shares of Class
A common stock at a 12% discount from the then average market value of its
stock.
Q: What will happen to the current patent claims being pursued by Centillion?
A: Centillion's right to enforce its patents, and its current and future patent
infringement litigation, are being transferred to the Tracking LLC. As noted
above, in connection with the transfer, 2,833,334 newly-authorized shares of
Class B common stock will be issued to the Centillion stockholders (the current
outstanding common stock will be re-designated as Class A). CTIG and the holders
of Class B common stock have the right to convert the Class B common stock into
Class A common stock at various times after the merger based on the value of the
Tracking LLC at a Class A common stock value of $2.25 per share, for a maximum
of 333,334 additional shares if issued within one year of closing, and
thereafter at either 88% of the average market value at the time or 100% of the
average market value at the time, depending upon the type and amount of the
conversion. Affiliates of Centillion's current stockholders have committed to
loan, on a non-recourse basis, up to $2,000,000 to the Tracking LLC to pursue
its patent infringement litigation.
Q: Why does CTIG need to create the Class B common stock and pursue the patent
litigation through a separately owned company?
A: This is being done so that the value of the Centillion patent claims can be
easily tracked and valued, and so that these shares may be converted into shares
of Class A common stock of CTIG based upon the value to CTIG as those claims are
resolved.
Q: Why is CTIG proposing to merge with Celltech?
A: Celltech focuses on the wireless marketplace including cellular, personal
communication services (PCS) and enhanced specialized mobile radio (ESMR). Its
domain knowledge skill, source code and industry expertise are considered
complementary to both CTIG and Centillion and should enhance CTIG's deployment
of its convergent billing strategy. Furthermore, the combination should assist
each company in attracting new and retaining existing clients by being able to
offer immediate "cross market" complementary billing solutions and a clearly
defined product road map to true convergent billing solutions.
Q: What will Celltech stockholders receive from the Celltech merger?
A: Under the Celltech merger agreement, Celltech stockholders will receive
$262,599 to be distributed pro rata on a per share equivalent basis and between
1,330,501 and 2,217,501 shares of Class A common stock based upon the closing
price of the Class A common stock over the 20 trading days preceding the
Celltech merger. Approximately
12
47% of the shares of stock will be placed in escrow and may be released to the
Celltech stockholders over the course of three years based upon receipt of
target revenue derived from Celltech/CTIB's largest customer. The cash to be
received by the Celltech stockholders in the Celltech merger will be used by
them to pay fees due Celltech's broker in this transaction.
Q: Why are additional options being authorized under the stock option and
restricted stock plan?
A: Up to 2,000,000 new options would be available at the board's discretion to
compensate employees of Centillion and Celltech who will now become employees of
CTIG, current CTIG employees, individuals who will become directors of CTIG
after the mergers, and individuals that the company will need to hire after the
mergers.
Q: Why does CTIG need to amend its certificate of incorporation?
A: The amendments to CTIG's certificate of incorporation change the capital
structure of CTIG, resulting in the conversion of all outstanding common stock
to Class A common stock and Class B common stock, and provide a mechanism for
converting Class B common stock into Class A common stock. Additionally, the new
certificate of incorporation changes the structure and the membership of the
board of directors. All of these changes were negotiated as part of the
Centillion merger agreement. The certificate of incorporation will only be
amended if the Centillion merger is consummated.
Q: What do I need to do now?
A: Just mail your signed proxy card in the enclosed return envelope as soon as
possible, so that your shares may be represented at the special meeting. The
special meeting will take place on [September 27], 2000. The board of directors
of CTIG unanimously recommends voting in favor of the proposed mergers, the
amendments to the certificate of incorporation of CTIG, and increasing the
number of options available under the CTIG stock option and restricted stock
plan.
Q: If my shares are held in "street name" by my broker, will my broker vote my
shares for me?
A: Your broker will vote your shares only if you provide instructions on how to
vote. You should follow the directions provided by your broker regarding how to
instruct your broker to vote your shares.
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 stating that you would like to revoke your
proxy.
Second, you can complete and submit a new proxy card. If you choose either of
these first two methods, you must submit your notice of revocation or your new
proxy card to CTIG. Your submissions must be mailed to CTIG at the address on
page [16].
Third, you can attend the special meeting and vote in person. Simply attending
the meeting, however, will not revoke your proxy.
If you have instructed a broker to vote your shares, you must follow directions
received from your broker to change your vote.
13
Q: Should I send in my stock certificates now?
A: No. Our stockholders will not need to exchange their current certificates of
CTIG common stock for new certificates as a result of the redesignation of
those shares as Class A common stock.
Q: When do you expect the mergers to be completed?
A: We are working towards completing the mergers as quickly as possible. We
expect to complete the mergers within two business days following the special
meeting.
Q: What are the tax consequences of the mergers?
A: CTIG management believes that the mergers should be tax-free to CTIG and our
stockholders for Federal income tax purposes. To review the tax consequences to
CTIG and our stockholders in greater detail, see pages [41 and 62].
Q: How can I get more information about the mergers?
A: You can call Mary Ann Davis, Corporate Secretary of CTIG at (800) 355-5353 to
obtain more information about the mergers and updates on the number of shares to
be issued in the mergers.
14
Structure of CTI Group (Holdings) Inc.
Following the Centillion and Celltech Mergers
---------------------------------- ---------------------------------- ------------------------------
| Centillion | | Current CTIG | | Celltech |
| Stockholders | | Stockholders | | Stockholders |
| ------------ | | ------------ | | ------------ |
| 56% (approximate) of post-merger | | 34.4% (approximate) of post- | | 9.6% (approximate) of post- |
| Class A common stock of CTIG | | merger Class A common stock | | merger Class A common |
| and 100% of post-merger Class B | | of CTIG and 0% of post- | | stock of CTIG and 0% of |
| Common Stock | | merger Class B common stock | | post-merger Class B |
---------------------------------- ---------------------------------- | common stock |
| | | -----------------------------
| | | |
| | | |
| | | |
| -------------------------- | --------------------------------
| | | |
| | | |
| | | |
| | | |
------------------- | | |
| | | | |
| Holding LLC+ | | | |
| | --------------------------------
------------------- | |
| $10 million Promissory | |
| Note -------------- | | ------------------
| | | | CTI Group | | |
--------------------|Centillion |-- | (Holdings) |---------| CTI Billing |
|Data Systems, | | Inc. | | Solutions Inc.** |
-------------------- |Inc. | | | | |
| | -------------- | | ------------------
| Tracking | | |
| LLC |--------------------------- | |
| | | |
-------------------- --------------------------------
|
|
|
|
-------------------------------------------------------------------------------------------
| | | | | |
-------------- -------------- ----------- ------------ ------------- --------------
| | | | | | | | | Telephone | | Plymouth |
| CTI Data | | | | CTI Data | |CTI Soft-Com| | Budgeting | |Communications|
|Solution, Ltd.| | CTI Delaware | | Solutions | | Inc. | |Systems, Inc.| | Inc. |
| (UK) | |Holdings, Inc.| |(USA) Inc.*| | (Dormant) | | (Dormant) | | (Dormant) |
-------------- -------------- ----------- ------------- ------------- --------------
* Will contain the operations of Centillion after the Centillion merger.
** Will contain the operations of Celltech after the Celltech merger.
+ Will contain the former non-billing businesses of Centillion. The promissory
note indicated was issued to Centillion and will be acquired by CTIG upon
consummation of the Centillion merger.
15
WHO CAN HELP ANSWER YOUR QUESTIONS?
If you have more questions about the mergers, you should contact:
CTI Group (Holdings) Inc.
2550 Eisenhower Avenue
Norristown, Pennsylvania 19403
Telephone: (800) 355-5353
Facsimile: (610) 666-7707
Attention: Fred Hanuschek
e-mail: fhanuschek@ctigroup.com
If you would like additional copies of the proxy statement or if you
would like to receive updated information about the number of CTIG shares to be
issued in the mergers, you can also contact Mary Ann Davis, Corporate Secretary
of CTIG at the above address.
16
SELECTED HISTORICAL FINANCIAL DATA OF CTIG
The selected financial data presented below for the years ended March
31, 2000 and 1999 are derived from the consolidated financial statements of CTI
Group (Holdings), Inc. which have been audited by Deloitte & Touche LLP,
independent auditors (whose report included an explanatory paragraph indicating
substantial doubt exists as to CTIG's ability to continue as a going concern),
and which are incorporated by reference from information delivered with this
proxy statement. The selected financial data presented below for the years ended
March 31, 1998, 1997 and 1996 are derived from the audited consolidated
financial statements of CTIG which are not incorporated by reference herein. The
financial data as of June 30, 2000 and for the three months ended June 30, 2000
and 1999 are derived from the Company's unaudited financial statements
incorporated herein by reference. The unaudited financial statements include all
adjustments, consisting of normal, recurring accruals, which CTIG considers
necessary for a fair presentation of the financial position and the results of
operations for these periods, and are not necessarily indicative of CTIG's
results of operations for the full year. The selected financial data should be
read in conjunction with the consolidated financial statements of CTIG and the
related notes thereto and "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS OF CTIG" incorporated by reference from
information delivered with this proxy statement.
Fiscal Years Three Months
Ended March 31, Ended June 30,
----------------------------------------------------------------------------------------
1996 1997 1998 1999 2000 2000 1999
----------------------------------------------------------------------------------------
Statement of Operations Data:
Net Sales 4,134,830 3,223,290 3,598,720 7,043,026 7,230,336 1,265,142 2,003,117
Gross Profit 2,310,790 1,839,220 1,569,770 2,664,458 3,027,407 504,618 1,060,222
Operating Income (loss) 172,440 (193,750) (1,756,441) (308,646) (514,482) (398,934) 137,181
Income (loss) before Income Taxes 227,510 (192,710) (1,804,321) (338,343) (521,291) (397,571) 135,457
Net Income (loss) 223,850 (197,510) (1,727,821) (414,843) (521,291) (397,571) 135,457
Income (loss) per common Share -
basic and diluted 0.04 (0.04) (0.27) (0.06) (0.07) (0.05) (0.02)
Weighted Average Number of common
shares outstanding:
Basic 5,340,089 5,641,765 6,479,341 6,898,946 7,007,295 7,429,588 6,944,135
Diluted 5,340,089 5,641,765 6,479,341 6,898,946 7,007,295 7,429,588 7,105.528
Balance Sheet Data (at period end):
Working Capital (Deficiency) 177,970 (1,250,617) (1,340,890) (1,369,928) (944,635) (1,039,558)
Total Assets 2,107,260 2,755,770 4,420,057 2,583,073 1,721,402 1,556,117
Short-term debt 28,710 57,360 293,820 218,424 50,398 65,115
Long-term debt 34,720 25,280 1,267,743 0 0 0
Stockholders' equity (deficiency) 1,113,190 1,479,000 8,530 (305,604) (354,700) (578,495)
Other Data:
Gross Profit Margin 55.9% 57.1% 43.6% 37.8% 41.9% 39.9% 52.9%
Operating Margin 4.2% (6.0%) (48.8%) (4.4%) (7.1%) (31.5%) 6.8%
Current Ratio (at Period end) 118.6% 69.8% 57.3% 52.6% 54.5% 51.3%
Cash Flows(Uses of Cash):
Operating Activities 282,280 396,000 (15,632) 396,679 (466,155) (109,051) (29,052)
Investing Activities (588,860) (569,240) 324,651 (184,978) (149,395) (12,100) (27,357)
Financing Activities 29,900 (8,710) 213,084 (94,838) (25,401) 17,217 (35,704)
17
SELECTED HISTORICAL FINANCIAL DATA OF CENTILLION
The selected financial data presented below for the years ended
December 31, 1999 and 1998 are derived from the consolidated financial
statements of Centillion which have been audited by Olive LLP, independent
auditors, and which are included elsewhere within this proxy statement. The
selected financial data presented below for the years ended December 31, 1997,
1996, and 1995 are derived from the audited consolidated financial statements of
Centillion which are not included herein. Reclassifications were made to the
1997, 1996, and 1995 financial statements in order for them to conform to the
1999 and 1998 presentation. The statement of operations and cash flows data for
the three month and six month periods ended June 30, 2000 and 1999 are derived
from unaudited financial statements included elsewhere in this proxy statement.
The unaudited financial statements include all adjustments, consisting of normal
recurring accruals, which Centillion considers necessary for a fair presentation
of the financial position and the results of its operations for these periods,
and are not necessarily indicative of Centillion's results of operations for the
full year. The selected financial data should be read in conjunction with the
consolidated financial statements of Centillion and the related notes thereto
and "CENTILLION MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS OF CENTILLION" included elsewhere in this proxy statement.
18
Fiscal Years
Ended December 31,
------------------------------------------------------------------
1995 1996 1997 1998 1999
------------------------------------------------------------------
Statement of Operations Data:
Net Sales 11,023,498 12,655,662 12,753,950 10,573,501 10,734,642
Patent license Revenues 25,000,000
Cost of Revenue:
Service 5,461,739 5,673,621 5,183,078 3,874,610 3,973,282
Patent licenses 112,494 454,683 2,629,913 4,091,290 549,503
Gross Profit 5,449,265 6,527,358 4,940,959 27,607,601 6,211,857
Operating Income 4,960,339 5,665,540 4,305,129 25,575,928 4,253,272
Income from Continuing Operations before
Income Taxes & Minority Interests
4,813,603 5,566,345 4,394,795 26,172,272 4,353,047
Net Income from Continuing Operations Before 2,846,149 3,604,716 2,645,667 15,749,869 2,619,563
Minority Interests
Net Income (Loss) 2,155,728 2,271,910 (1,683,671) 10,282,092 (2,127,731)
Basic Earnings Per Share
Income from Continuing Operations
Per Share 0.81 1.01 0.67 4.28 0.74
Weighted Average Shares Outstanding 3,525,290 3,565,942 3,971,127 3,683,143 3,559,018
Balance Sheet Data (at period end):
Working Capital 1,561,519 509,941 1,385,803 12,840,041 15,790,777
Total assets of discontinued operations 1,026,691 9,449,863 7,253,142 5,597,738 4,379,631
Total Assets 5,488,957 15,046,635 12,328,028 21,311,346 21,418,052
Short-term debt 136,106 746,759 616,285 367,285 118,285
Long-term debt 0 0 0 0 0
Total liabilities of discontinued operations 47,309 2,095,330 961,742 455,805 1,688,762
Redeemable Common Stock 510,125 653,108 799,986 397,969 490,711
Minority Interest 0 0 0 1,145,165 1,399,441
Stockholders' equity 3,890,291 10,503,800 8,755,823 16,721,536 16,375,737
Other Data:
Gross Profit Margin 49.4% 51.6% 38.7% 77.6% 57.9%
Operating Margin 45.0% 44.8% 33.8% 71.9% 39.6%
Current Ratio (at Period end) 243.5% 115.0% 150.2% 521.4% 601.0%
Cash Flows(Uses of Cash):
Operating Activities 2,609,989 3,576,637 1,274,199 17,227,257 112,694
Investing Activities (2,546,878) (2,040,164) (1,081,975) (2,401,429) (6,427,909)
Financing Activities (691,397) 235,020 (620,197) (3,365,226) (83,141)
[RESTUBBED]
Three Months Ended Six Months Ended
June 30, June 30,
------------------------------------------------------
2000 1999 2000 1999
------------------------------------------------------
Statement of Operations Data:
Net Sales 2,729,940 2,699,929 5,357,919 5,320,723
Patent license revenue 7,500,000
Cost of revenues:
Service 1,069,716 805,184 2,240,920 1,880,894
Patent licenses 265,963 124,969 2,356,549 215,197
Gross Profit 1,394,261 1,769,776 8,260,450 3,224,632
Operating Income 801,299 1,232,400 7,194,251 2,255,327
Income from Continuing Operations before
Income Taxes & Minority Interests
1,526,101 1,225,385 8,436,635 2,341,189
Net Income from Continuing Operations Before 924,897 736,311 5,141,995 1,407,054
Minority Interests
Net Income (Loss) 341,414 (129,252) 4,558,512 (295,526)
Basic Earnings Per Share
Income from Continuing Operations
Per Share 0.25 0.21 1.42 0.40
Weighted Average Shares Outstanding 3,630,220 3,485,548 3,630,220 3,485,548
Balance Sheet Data (at period end):
Working Capital 18,667,912
Total assets of discontinued operations 3,741,952
Total Assets 24,752,817
Short-term debt 0
Long-term debt 0
Total liabilities of discontinued operations 1,078,139
Redeemable Common Stock 487,498
Minority Interest 1,516,761
Stockholders' equity 20,199,164
Other Data:
Gross Profit Margin 51.1% 65.5% 64.2% 60.6%
Operating Margin 29.4% 45.6% 56.0% 42.4%
Current Ratio (at Period end) 832.2%
Cash Flows(Uses of Cash):
Operating Activities 4,822,821 (501,387)
Investing Activities 3,777,288 (4,733,216)
Financing Activities (267,384) (135,651)
19
SELECTED HISTORICAL FINANCIAL DATA OF CELLTECH
The selected financial data presented below for the years ended
December 31, 1999 and 1998 are derived from the financial statements of Celltech
which have been audited by Arthur Andersen LLP, independent auditors, and which
are included elsewhere within this proxy statement. The selected financial data
presented below for the years ended December 31, 1997, 1996, and 1995 are
derived from unaudited financial statements of Celltech which are not included
herein. The statement of operations and cash flows data for the three and six
month periods ended June 30, 2000 and 1999 are derived from unaudited financial
statements included elsewhere in this proxy statement. The unaudited financial
statements include all adjustments, consisting of normal recurring accruals,
which Celltech considers necessary for a fair presentation of the financial
position and the results of its operations for these periods. The selected
financial data should be read in conjunction with the consolidated financial
statements of Celltech and the related notes thereto and "CELLTECH MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF
CELLTECH" included elsewhere in this proxy statement.
Fiscal Years Ended
December 31,
--------------------------------------------------------------
1995 1996 1997 1998 1999
--------------------------------------------------------------
Statement of Operations Data:
Net Sales 4,565,489 3,896,796 5,600,381 8,991,445 7,952,798
Gross Profit 2,490,219 1,903,284 3,121,637 4,761,268 3,968,862
Operating Income (loss) (17,495) (444,349) (48,007) 553,288 (714,580)
Income (loss) before Income (5,410) 15,383 (37,010) 595,800 (860,386)
Taxes
Net Income (loss) (5,410) 17,928 (34,501) 386,584 (577,411)
Income (loss) per share - basic and
diluted (2.30) 7.62 (14.66) 164.29 (245.39)
Weighted average shares outstanding
2,353 2,353 2,353 2,353 2,353
Balance Sheet Data (at period end):
Working Capital (Deficiency) 541,430 518,417 484,382 777,388 290,064
Total Assets 1,283,042 1,224,899 1,397,623 2,124,902 1,783,465
Short-term debt 31,392 0 0 147,222 140,963
Long-term debt 0 0 0 0 164,001
Stockholders' equity (deficiency) 702,740 720,668 686,167 1,039,682 462,271
Other Data:
Gross Profit Margin 54.5% 48.8% 55.7% 53.0% 49.9%
Operating Margin (0.4%) (11.4%) (0.9%) 6.2% (9.0%)
Current Ratio (at Period end) 193.3% 202.8% 168.1% 171.8% 125.3%
Cash Flows(Uses of Cash):
Operating Activities 533,970 84,336 (134,722) 475,164 (342,927)
Investing Activities (65,856) (110,798) (70,830) (165,634) (208,897)
Financing Activities (94,072) (31,392) 0 147,222 157,742
[RESTUBBED]
Three Months Ended Six Months Ended
June 30, June 30,
-------------------------------------------------
2000 1999 2000 1999
-------------------------------------------------
Statement of Operations Data:
Net Sales 1,753,804 1,938,142 3,610,333 4,324,229
Gross Profit 995,277 1,060,751 1,921,499 2,460,339
Operating Income (loss) 93,474 (191,310) 190,565 (5,524)
Income (loss) before Income 93,308 (188,182) 200,802 (2,794)
Taxes
Net Income (loss) 69,982 (132,381) 150,602 (2,794)
Income (loss) per share - basic and
diluted 29.74 (56.26) 64.00 (1.19)
Weighted average shares outstanding
2,353 2,353 2,353 2,353
Balance Sheet Data (at period end):
Working Capital (Deficiency) 462,823
Total Assets 1,638,699
Short-term debt 106,384
Long-term debt 129,895
Stockholders' equity (deficiency) 612,872
Other Data:
Gross Profit Margin 56.7%
Operating Margin 5.3% 54.7% 53.2% 56.9%
Current Ratio (at Period end) 152.4% (9.9%) 5.3% (0.1%)
Cash Flows(Uses of Cash):
Operating Activities 278,905 177,985
Investing Activities (9,742) (41,536)
Financing Activities (68,687) (36,667)
20
SELECTED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL DATA
The following table summarizes specified unaudited selected pro forma
condensed consolidated data for CTIG, giving effect to the Centillion merger and
the Celltech merger. The unaudited selected pro forma balance sheet data as of
June 30, 2000 assumes that the Centillion and Celltech mergers had both occurred
on that date and was prepared utilizing the unaudited balance sheets of CTIG,
Centillion and Celltech as of June 30, 2000. The unaudited selected pro forma
operations data for the year ended March 31, 2000 has been prepared on the basis
of the results of operations for the year ended March 31, 2000 for CTIG. The
operating results for Centillion and Celltech were developed by adding the
results for the quarter ended March 31, 2000 and subtracting the results for the
quarter ended March 31, 1999 from the historical results for the year ended
December 31, 1999. These quarterly results were derived from schedules prepared
by Centillion and Celltech's management. The unaudited selected pro forma
operations data for the three months ended June 30, 2000 has been prepared using
the unaudited financial statements of CTIG, Centillion and Celltech,
incorporated by reference into or included with this proxy statement. The
unaudited selected pro forma operating data give effect to the Centillion and
Celltech mergers as if they occurred on April 1, 1999.
The unaudited selected pro forma condensed consolidated financial data
set forth in the following table is derived from, and should be read in
conjunction with, the historical consolidated financial statements of CTIG,
Centillion and Celltech, including the respective notes thereto, and the
unaudited pro forma condensed consolidated financial data, including the
respective notes thereto, incorporated by reference into or included in this
proxy statement. See "Where You Can Find More Information", "Incorporation of
Documents by Reference" and "Unaudited Pro Forma Condensed Consolidated
Financial Data". The following selected unaudited pro forma condensed
consolidated financial data is presented for informational purposes only and is
not necessarily indicative of the results that would have been achieved had the
Centillion merger and Celltech merger been consummated on the dates or prior to
the periods presented.
Three Months
Year ended Ended
March 31, June 30,
2000 2000
--------------- -------------
Statement of Operations Data:
Net Sales 25,395,403 5,748,886
License for settlement revenue 7,500,000
Cost of revenues:
Service 12,409,489 2,482,977
Patent licenses 1,954,000 265,963
Gross Profit 18,531,914 2,999,946
Depreciation and Amortization 5,988,816 1,499,653
Operating Income (loss) 2,641,313 (698,081)
Income before Income Taxes 2,531,042 (541,632)
Net loss from Continuing Operations (496,495) (779,314)
Primary and Diluted loss from Continuing Operations
per common Share (0.03) (0.04)
Weighted Average Number of common shares
outstanding:
Basic and Diluted 17,633,279 18,052,321
Pro Forma as of
June 30,
2000
---------------
Balance Sheet Data:
Cash and Short Term Investments 7,476,749
Working Capital 6,889,207
Goodwill 33,429,747
Total Assets 48,404,475
Short-term debt 171,499
Long-term debt 129,895
Stockholders' equity 43,825,300
21
COMPARATIVE PER SHARE DATA
The following table presents CTIG's historical and pro forma per share
data, and historical and equivalent pro forma per share data of Centillion and
Celltech, as of June 30, 2000 and March 31, 2000 and for the three months ended
June 30, 2000 and the year ended March 31, 2000. The information in the
following table is based upon the historical financial statements of CTIG,
Centillion and Celltech included within, or incorporated by reference from
information delivered with, this proxy statement. The income (loss) per share to
Centillion and Celltech is based on the results of operations for the year ended
December 31, 1999. The pro forma per share data is not necessarily indicative of
the results that would have been achieved had the mergers been consummated on
the dates or prior to the periods presented. The following per share data should
be read in conjunction with the consolidated financial statements and related
notes thereto of CTIG, Centillion and Celltech, and the unaudited pro forma
condensed consolidated financial data, including the notes thereto, included
elsewhere in this proxy statement, or incorporated by reference from information
delivered with this proxy statement.
22
CTIG CENTILLION CELLTECH
---------------------------- --------------------------------- ---------------------------------
Historical Equivalent Historical Equivalent
Historical Pro Forma (1)(2) Pro Forma (3) (1)(2) Pro Forma (4)
-------------- ----------- ----------- -------------- ------------ -------------
Book Value per Share (5)
June 30, 2000 (0.08) 2.49 5.56 5.14 260.46 924.57
March 31, 2000 (0.05) 2.41 5.68 4.98 230.72 895.53
Cash Dividends Declared per
Share:
Three Months Ended June N/A N/A N/A N/A N/A N/A
30, 2000
Year Ended March 31, 2000 N/A N/A N/A N/A N/A N/A
Income (loss) from Continuing
Operations per Share:
Three Months Ended
June 30, 2000: (0.05) (0.04) 0.25 (0.09) (29.74) (16.44)
Basic (0.05) (0.04) 0.25 (0.09) (29.74) (16.44)
Diluted
Year Ended March 31, 2000
Basic (0.07) (0.03) 0.74 (0.06) (245.39) (10.47)
Diluted (0.07) (0.03) 0.73 (0.06) (245.39) (10.47)
(1) The historical Income (loss) from Continuing Operations per Share is based
on information for the Three Months ended June 30, 2000.
(2) The historical Income (loss) from Continuing Operations per Share is based
on information for the Year Ended December 31, 2000.
(3) The equivalent pro forma per share data for Centillion is computed by
multiplying CTIG's pro forma per share information by the Centillion
exchange ratio of 2.069.
(4) The equivalent pro forma per share data for Celltech is computed by
multiplying CTIG's pro forma per share information by the Celltech exchange
ratio of 372.01.
(5) Book value per share is computed by dividing total stockholders' equity by
the aggregate number of common shares outstanding as of the balance sheet
date.
23
SPECIAL CONSIDERATIONS
In addition to general investment risks and those factors set forth
throughout this document (including those set forth under the caption
"Cautionary Statement Concerning Forward-Looking Statements"), the following
issues should be considered by stockholders of CTIG in deciding whether to
approve and adopt the Centillion merger agreement and Celltech merger agreement.
Risks Relating to the Mergers
We face risks associated with a new control group.
Upon completion of the Centillion merger, the former management of CTIG
will no longer have control over CTIG. Rather, directors of Centillion will
initially constitute a majority of the members of the board of directors and the
executive committee of CTIG, and the majority of outstanding shares of CTIG
common stock will be owned by Centillion stockholders. This new control group
may implement policies which are different than those currently in place, and
have interests which are different than the interests of present CTIG
stockholders.
We may have difficulty integrating three companies which could reduce our
anticipated revenues or cost savings.
The mergers involve the integration of three companies that have previously
operated independently. We cannot assure that the respective operations of CTIG,
Centillion and Celltech will be integrated without encountering difficulties.
These difficulties could arise from integrating different business strategies
and integrating personnel with disparate business backgrounds and corporate
cultures. The resulting corporations may also lose key CTIG, Centillion or
Celltech personnel due to the mergers. One-time costs to CTIG related to the
mergers (consisting primarily of financial advisors' fees and expenses, legal
and accounting fees and expenses and severance and other exit costs) and
integration of operations are anticipated to be approximately $1 million. We
cannot assure whether and to what extent the integration and consolidation will
achieve increased revenues or operating synergies or that the costs of the
mergers and integration of operations will not be greater than anticipated.
We are greatly dependent on some personnel, and the loss of these personnel
could have a material adverse effect on the operations of CTIG.
CTIG's, Centillion's and Celltech's senior executive officers have
substantial experience and expertise and make significant contributions to
CTIG's, Centillion's and Celltech's growth and success. In particular, CTIG is
highly dependent on some of its employees who are responsible for programming
software. Further, the ultimate success of the combination of CTIG, Centillion
and Celltech after the merger will be largely dependent on the leadership of the
Chief Executive Officer, Anthony P. Johns. The unexpected loss of the services
of one or more of CTIG's, Centillion's or Celltech's senior executive officers,
or employees responsible for programming software, may have a material adverse
effect on the operations of CTIG.
Amortization of goodwill created by the mergers will have a significant
negative impact on the net income of CTIG.
Based upon the average price of CTIG Common Stock being $3.76 at the time
of signing the Centillion merger agreement, and $3.00 at the time of the signing
of the Celltech merger agreement, it is anticipated that, on a pro forma basis,
the mergers will result in the creation of approximately $33,430,000 of
goodwill. On a pro forma basis, amortization of goodwill will reduce net income
by approximately $4,776,000 per year over the next seven years, based upon an
assumed seven-year amortization period (which period may be shorter or longer
depending on a number of factors). The amount of goodwill created will be
determined by the stock price at the effective time of the mergers and the
higher price of CTIG stock at that time, the greater will be the amount of the
goodwill. Any change in the price of CTIG common stock prior to the mergers may
have a substantial impact on the amount of goodwill that is created.
24
If we complete the mergers, our use of our NOL's will be limited which
could increase our current tax obligations.
At December 31, 1999, CTIG had federal net operating loss carry forwards in
excess of $3.7 million. These NOL's are due to expire in the years 2006 through
2020. These NOL's may be used to offset future taxable income through 2020 and
thereby reduce or eliminate federal income taxes otherwise payable. The Internal
Revenue Code imposes significant limitations on the utilization of NOL's in the
event of an "ownership change" as defined in section 382 of the code. In
general, NOL's may be utilized to offset income in the 20 year period following
the tax year in which the losses are generated. This is an annual limitation on
the amount of pre-ownership change NOL's that a corporation generally may use to
offset its post-ownership change income. Any portion of the limitation that is
not used in one year will increase the limitation for the following year. The
limitation is calculated by multiplying the value of a corporation's stock
immediately before an ownership change by the federal long-term tax exempt rate,
which rate is currently 5.10%. The Centillion merger will cause an "ownership
change" of CTIG and will, as a result, limit the amount of NOL's that CTIG may
use to offset its separately generated future taxable income following the
Centillion merger. CTIG estimates that the annual limitation would be
approximately $1 million as a result of the Centillion merger. Consequently,
there can be no assurance that CTIG will fully utilize the tax benefits
associated with its NOL's before their expiration.
Our existing stockholders may experience additional dilution of their
ownership interests due to the issuance of shares of our Class A common stock in
connection with payments of principal on the Shareholder LLC Promissory Note,
conversion of the Class B common stock, additional shares issued in the Celltech
merger, and other stock issuances upon exercise of or in connection with future
acquisitions.
If the Shareholder LLC Promissory Note, which is currently valued at
approximately $10 million, was paid on [July 18,] 2000, CTIG would issue
[4,914,005] shares of its Class A common stock, which would dilute our current
stockholders' holdings of the post-merger entity from 34.4% to 28.4%. Dilution
from the conversion of the Class B common stock is not presently determinable,
as this conversion is based on several currently unknown variables including the
value of patent claims held by the Tracking LLC (if any), the costs of pursuing
these claims and the market price of CTIG Class A common stock on the date of
conversion. Additional dilution may result from the Celltech merger. The number
of shares to be issued in the Celltech merger is based upon a CTIG stock price
of $3.00 per share. If the price of CTIG Stock is below $3.00 on the closing
date down to a minimum of $2.25 per share, a maximum of 554,375 additional
shares of CTIG Class A common stock will be issued, further diluting current
CTIG stockholders.
In the future, we may also issue additional securities upon the exercise of
outstanding stock options or for future acquisitions. These issuances would
result in the dilution of the ownership interests of our present stockholders.
Currently, we have 50,000,000 shares of common stock that are authorized for
issuance. After the mergers, we will have issued a total of approximately
23,141,510 of those shares, assuming that all currently outstanding stock
options are exercised and assuming that the maximum number of shares are issued
under the mergers (but not including conversion of the Class B stock).
As a result of our merger with Centillion and the amendments to the
certificate of incorporation, our existing stockholders will not be able to
elect directors until July, 2003 and will not have majority representation on
our board of directors.
The amendments to our certificate of incorporation will have the effect of
designating a new board of directors which will be classified. The initial two
directors in Class I and the initial two directors in Class II have been
designated by Centillion. Prior to July 2003, directors in Class I and II will
be elected only by holders of Class B common stock, and those holders will be
the current Centillion stockholders. The initial three directors in Class III
have been designated by CTIG, and their term expires in July 2003. After July
2003, the holders of shares of Class A and Class B common stock will each have
one vote for each share held, in the election of all directors. Until that date,
however, our existing stockholders will not be able to vote in an election of
directors.
25
Risks Relating to the Business of the Resulting Company
We have incurred losses and been plagued by poor cash flow.
CTIG has suffered operating losses in the last three of its fiscal years,
including net losses of $1,727,821 in fiscal 1998, $414,843 in fiscal 1999 and
$521,291 in fiscal 2000. Based upon the deterioration which occurred in CTIG's
financial condition during fiscal 1999 and 2000 and the presence of other
conditions, as of March 31, 1999 and 2000, in connection with their audit of
CTIG's financial statements, CTIG's independent auditors opined that substantial
doubt existed as to CTIG's ability to continue as a going concern. While CTIG
has developed a business plan and implemented a number of programs designed to
return CTIG to profitability, including consummation of the mergers with
Centillion and Celltech, there can be no assurance that our business plan
adequately addresses the circumstances and situations which resulted in CTIG's
poor financial performance in the periods referred to above.
We will derive a substantial percentage of our revenue from contracts with
a few customers.
In 1999, the billing business of Centillion derived approximately 83% of
its revenue from a single customer, Sprint Communications, L.P. Centillion has
made a recent proposal to extend the contract with Sprint for an additional
three years. Centillion is hopeful this contract will be renewed but cannot
predict whether that will occur or, if it occurs, the terms of any new contract.
Also, in 1999 Celltech derived approximately 47% of its revenue from its largest
customer and 65% of its revenue from its three largest customers. In May, 2000,
Celltech signed an agreement with its largest customer to extend the term of the
previous agreement from February 28, 2000 to February 28, 2001. In May, 1999,
Celltech entered into a five year contract extension with its second largest
customer. However, later in 1999, the customer filed for Chapter 11
reorganization under the United States Bankruptcy Code. That customer expects to
file and seek approval for a plan of reorganization. At the present time,
Celltech does not know what impact the bankruptcy will have on its business
relationship with this customer. Celltech currently does not have a written
contract with its third largest customer. The loss by any of CTIG, Centillion or
Celltech of the business of one of these customers could have a substantial
negative impact on the resulting company.
We may not be able to compete successfully in our industry which would have
a negative impact on our results of operations.
CTIG competes with a number of companies in both the United States and
United Kingdom that provide products and services that serve the same function
as those provided by CTIG. Although CTIG operates in a highly fragmented market,
competitors such as Amdocs Corp., Daleen Technologies, Veramark Technologies and
Billing Concepts in the United States and BTS, FDS, Softech, Oak and Tiger in
the United Kingdom provide products and services comparable to those of CTIG
which have the potential to acquire some or all of CTIG's market share in their
respective geographic markets. In addition, there are competitors serving the
same market niche as Celltech, including Baja Systems, CBill, PSA, Infotech
Solutions Corp. and Ito Systems, as well as public companies such as ITDS
(recently acquired by Amdocs Corp.) and Convergys Corp. that provide similar
services to larger accounts. Centillion competes with many of the same companies
as CTIG and Celltech mentioned above. Additionally, new high profile entrants
into the market such as Lucent Technologies have created the potential for
CTIG's loss of market share, which would have a negative impact on CTIG's
business.
Competition in CTIG's international marketplace is increasing rapidly which
could adversely effect our results of operations.
CTIG is also subject to many risks associated with doing business abroad,
including:
o adverse fluctuations in currency exchange rates;
o political and economic disruptions;
o the imposition of tariffs and import and export controls; and
o increased customs or local regulations.
26
The occurrence of any one or more of the foregoing could have a material
negative effect on our results of operations.
We may not be successful when we enter new markets and that lack of success
could limit our growth.
As CTIG enters into new markets, including countries in Asia, Europe and
South America, it is faced with the uncertainty of not having previously done
business in those commercial, political and social settings. Accordingly,
despite our best efforts, our likelihood of success in each new market which we
enter is unpredictable for reasons particular to each new market. For example,
our success in any new market is based primarily on strong acceptance of our
products and services in the new market. It is also possible that, despite our
apparently successful entrance into a new market, such as the United Kingdom,
some unforeseen circumstances could arise which would limit our ability to
continue to do business or to expand in that new market. This would limit our
ability to expand and grow.
The telecommunications billing services industry is subject to continually
evolving industry standards and rapid technological changes to which we may not
be able to respond.
The markets for our software products and services are characterized by
rapidly changing technology, evolving industry standards and frequent new
product introductions. Our business success will depend in part upon our
continued ability to enhance our existing products and services, to introduce
new products and services quickly and cost-effectively to meet evolving customer
needs, to achieve market acceptance for new product and service offerings and to
respond to emerging industry standards and other technological changes. We may
not be able to respond effectively to technological changes or new industry
standards. Moreover, there can be no assurance that our competitors will not
develop competitive products, or that any new competitive products will not have
an adverse effect on our operating results.
We intend further to refine, enhance and develop some of our existing
software and billing systems and to change all of our billing and accounts
receivable management services operations over to the most proven software
systems and technology to reduce the number of systems and technologies that
must be maintained and supported. There can be no assurances that:
o We will be successful in refining, enhancing and developing our software
and billing systems in the future;
o The costs associated with refining, enhancing and developing these
software products and billing systems will not increase significantly in
future periods;
o We will be able to successfully migrate our billing and accounts
receivable management services operations to the most proven software
systems and technology; or
o Our existing software and technology will not become obsolete as a result
of ongoing technological developments in the marketplace.
CTIG's business may suffer as a result of the settlement of Centillion's
patent claims.
Centillion has written letters and filed lawsuits claiming the possible
infringement of its patents in connection with the Smart Bill<< technology. Two
settlements in those actions have been entered into and additional settlements
may be negotiated in the future. These settlements have provided substantial
cash payments to Centillion and, in return, Centillion has waived its claims for
past patent violations and granted ongoing licenses to use the technology to the
parties involved in those actions. Since these parties are potential customers
of CTIG, the effect of granting these licenses as well as the fact that
Centillion has brought legal claims against those parties could reduce the
ability of CTIG, after the Centillion merger, to find new customers for its
products.
27
SPECIAL MEETING OF STOCKHOLDERS
The Special Meeting
General
This proxy statement is being furnished to our stockholders as part of the
solicitation of proxies by the CTIG board of directors for use at a special
meeting of stockholders of CTIG to be held on [September 27], 2000 at 10:00 a.m.
local time, at [the offices of Klehr, Harrison, Harvey, Branzburg & Ellers,
LLP.] This proxy statement and the enclosed form of proxy are first being mailed
to stockholders of CTIG on or about [September 7], 2000.
The purpose of the special meeting is to:
(a) approve and adopt the Centillion merger agreement;
(b) approve and adopt the Celltech merger agreement;
(c) approve and adopt amendments to CTIG's certificate of incorporation;
(d) approve and adopt an amendment to the CTIG stock option and restricted
stock plan; and
(e) transact any other business that may properly come before the special
meeting.
Each copy of this proxy statement mailed to our stockholders is accompanied
by a form of proxy for use at the special meeting.
The CTIG board of directors recommends that our stockholders vote FOR the
approval and adoption of the Centillion merger agreement, the Celltech merger
agreement, the amendments to the certificate of incorporation, and the amendment
to the CTIG stock option and restricted stock plan.
Record Date and Voting
CTIG has fixed the close of business on [July 31, 2000] as the record date
for the determination of the CTIG stockholders entitled to notice of and to vote
at the special meeting. Accordingly, only holders of record of CTIG common stock
on the record date will be entitled to notice of and to vote at the special
meeting. As of July 18, 2000, there were outstanding and entitled to vote
7,576,505 shares of CTIG common stock (constituting all of the voting stock of
CTIG), which shares were held by approximately 500 holders of record. Each
holder of record of shares of CTIG common stock on the record date is entitled
to one vote per share which may be cast either in person or by properly executed
proxy, at the special meeting. The presence, in person or by properly executed
proxy, of the holders of a majority of the outstanding shares of CTIG common
stock entitled to vote at the special meeting is necessary to constitute a
quorum at the special meeting.
The approval of the Centillion and Celltech merger agreements and the
amendments to the CTIG certificate of incorporation will require the affirmative
vote of the holders of a majority of the shares of CTIG common stock outstanding
on the record date. The amendment to the CTIG stock option and restricted stock
plan will require the affirmative vote of the holders of a majority of the
shares of CTIG common stock represented at the special meeting.
Shares of CTIG common stock represented in person or by proxy will be
counted for the purposes of determining whether a quorum is present at the
special meeting. Shares which abstain from voting as to a particular matter will
be treated as shares that are present and entitled to vote at the special
meeting for purposes of determining whether a quorum exists, but will not be
counted as votes cast on that matter. Because CTIG's Certificate of
Incorporation and Bylaws are silent with respect to this issue, if a broker or
nominee holding stock in "street name" indicates on a proxy that it does not
have discretionary authority to vote as to a particular matter, which are
referred to as "broker non-votes," those shares will be treated as present and
entitled to vote at the special meeting for purposes of determining whether a
quorum exists, but will not be counted as votes cast on that matter.
Accordingly, abstentions and broker non-votes will have the same effect as votes
against approval of the merger agreements and the amendments to CTIG's
certificate because they will not be counted for purposes of achieving a
majority vote in favor of those proposals.
28
As of July 18, 2000, directors and executive officers of CTIG and their
affiliates are beneficial owners of approximately 37.3% of the outstanding
shares of CTIG common stock and have expressed their intent to vote their shares
in favor of the merger agreements.
Voting and Revocation of Proxies
All shares of CTIG common stock which are entitled to vote and are
represented at the special meeting by properly executed proxies received prior
to or at this meeting, and not revoked, will be voted at this meeting in
accordance with the instructions indicated on those proxies. If no instructions
are indicated (other than in the case of broker non-votes), those proxies will
be voted for approval and adoption of the merger agreements, the amendments to
CTIG's certificate of incorporation, and the authorization of additional options
under the CTIG stock option and restricted stock plan.
The CTIG board of directors does not know of any matters other than those
described in the notice of the special meeting that are to come before the
meeting. If any other matters are properly presented at the special meeting for
consideration, including, among other things, consideration of a motion to
adjourn the meeting to another time and/or place (including, without limitation,
for the purposes of soliciting additional proxies or allowing additional time
for the satisfaction of conditions to the mergers), the persons named in the
enclosed forms of proxy and acting thereunder generally will have discretion to
vote on those matters in accordance with their best judgment. Notwithstanding
the foregoing, proxies voting against a specific proposal may not be used by the
persons named in the proxies to vote for adjournment of the meeting for the
purpose of giving management additional time to solicit votes to approve that
proposal.
Any proxy given pursuant to this solicitation may be revoked by the person
giving it at any time before it is voted. Proxies may be revoked by
o filing with the corporate secretary of CTIG, at or before the taking of
the vote at the special meeting, a written notice of revocation bearing a
later date than the proxy,
o duly executing a later dated proxy relating to the same shares and
delivering it to the secretary of CTIG before the taking of the vote at
the special meeting, or
o attending the special meeting and voting in person (although attendance
at the special meeting will not in and of itself constitute a revocation
of a proxy). Any written notice of revocation or subsequent proxy should
be sent to CTI Group (Holdings) Inc., 2550 Eisenhower Avenue, Norristown,
Pennsylvania 19403, Attention: Mary Ann Davis, or hand delivered to the
secretary of CTIG at or before the taking of the vote at the special
meeting.
All expenses of CTIG's solicitation of proxies for the special meeting will
be borne by CTIG. In addition to solicitation by use of the mails, proxies may
be solicited from CTIG stockholders by directors, officers and employees of CTIG
in person or by telephone, telegram or other means of communication. These
directors, officers and employees will not be additionally compensated, but may
be reimbursed for reasonable out-of-pocket expenses in connection with this
solicitation. Arrangements will also be made with brokerage houses, custodians,
nominees and fiduciaries for forwarding of proxy solicitation materials to
beneficial owners of shares held of record by these brokerage houses,
custodians, nominees and fiduciaries, and CTIG will reimburse those brokerage
houses, custodians, nominees and fiduciaries for their reasonable expenses
incurred in connection with this solicitation.
29
PROPOSAL I
THE CENTILLION MERGER PROPOSAL
Background of the Centillion Merger
In July 1998, the board of directors of CTIG decided to evaluate various
alternatives to increase stockholder value. In connection with evaluating its
alternatives, the board of directors engaged Sokoloff & Co. as financial
advisors. Sokoloff & Co., in turn, solicited various parties which it thought
might be interested in either making an investment in CTIG or forming a
strategic alliance. Management of CTIG met with management of several
competitors to discuss the possibility of a merger, acquisition, sale or
investment. This search continued for a period of approximately 12 months.
However, in the opinion of CTIG management, none of the companies provided the
right strategic fit or offered stockholders adequate value.
After developing a new business plan, and conducting further negotiations
with several potential investors and strategic partners, senior management of
CTIG initiated contact with members of the management of Centillion to discuss a
possible strategic alliance. Centillion had originally contacted CTIG in 1996 to
consider the potential of a licensing agreement in respect of CTIG's Neptune
billing software. The project did not develop any further at that time due to
Centillion's alternative internal development plans. No further contact was made
until CTIG re-initiated contact in June, 1999 with William Miller, Vice
President of Centillion. Sokoloff & Co., arranged for Mr. Miller to meet with
Mr. Johns and Mr. Sokoloff in Dallas, Texas to explore potential possibilities
with Centillion.
At that meeting the parties discussed the fact that Centillion had
significant capital reserves and would be able to provide at least $5 million in
cash to CTIG in connection with a possible business combination. In addition,
Centillion's patented Smart Bill billing analysis software would complement and
expand the functionality and capabilities of CTIG's Neptune - billing software
and would significantly enhance CTIG's billing analysis capabilities. The
parties believed that the combination of the companies' respective competencies
would enable the merged company to provide a complete billing and billing
analysis solution to customers and pursue a "convergent billing" strategy.
Because of Centillion's ability to provide cash to CTIG, and because of the
perceived synergistic fit between the two businesses, CTIG management decided
that a potential merger with Centillion was the best strategic alternative to be
pursued.
An initial exploratory discussion was held among Mr. Johns and Mr. Garrison
and Mr. Leeds of Centillion in the middle of October, 1999. In this discussion,
those individuals conveyed to Mr. Johns that any transaction negotiated between
the parties could not include an arrangement that would provide a 5% profit
share to the resulting company's president, noting that Mr. Johns' then current
employment agreement held this type of provision. Mr. Johns reported this to a
regularly convened board meeting of CTIG held on November 3, 1999, and excused
himself from the meeting while the board deliberated on this issue. Upon his
return to the meeting it was proposed by the board and accepted by Mr. Johns,
that in lieu of the 5% profit share, Mr. Johns be issued 300,000 options at the
then current prevailing stock price of $1.09, which would vest equally over 3
years, and be conditioned upon a successful conclusion of the negotiations with
Centillion.
In early November 1999, representatives of CTIG, Centillion, Sokoloff &
Co., Klehr, Harrison, Harvey, Branzburg & Ellers LLP (outside counsel for CTIG)
and Blank Rome Comisky & McCauley (outside counsel for Centillion) met at CTIG's
headquarters to discuss a possible business combination. At that meeting,
representatives of Centillion suggested a transaction with CTIG in which
Centillion placed a value of $40 million on their company and a value of $10
million on CTIG's business. Mr. Johns countered by proposing the negotiation be
split into two separate parts. In the first instance, he proposed that CTIG
would likely accept a valuation placed upon it of $12 million for the purpose of
attracting new investment capital into its business. However, in the second
instance, he argued, while Centillion was financially far stronger than CTIG,
that this was because CTIG had already invested its resources into the
establishment of a European presence and the development of its marketable
products. CTIG therefore benefitted from the "time value" it had achieved. He
therefore advised Centillion that CTIG would strongly disagree with the 80% /
20% relative values that Centillion had placed on the two businesses.
30
Centillion responded by accepting the "investment capital" valuation and
agreed to invest $5 million into the common stock of the combined businesses
provided that relative values could be agreed upon. It was further agreed that
CTIG would appoint a neutral entity to carry out an independent relative
valuation of the two businesses.
Following this review, in mid-November 1999, the same representatives of
CTIG, Sokoloff & Co., and Klehr, Harrison met with the representatives of
Centillion and Blank Rome in Philadelphia, Pennsylvania. Messrs. Johns and
Sokoloff proposed that the operations of the two businesses be valued on a 50% /
50% basis and, therefore, the total number of CTIG outstanding shares and
options (approximately eight million) would be the number of shares issued to
the Centillion stockholders. However, Mr. Johns believed that Centillion's
future revenue stream could be at risk, being largely dependent on one customer.
Therefore, it was agreed that approximately 3,250,000 of the 8,000,000 shares
proposed to be issued to Centillion shareholders would be held in escrow pending
the receipt of future revenues from that or specific substitute customers over a
three-year period.
It was further agreed that Centillion would provide additional working
capital to the combined business by contributing $5 million in cash as part of
the transaction, which cash CTIG had been attempting to raise independently of
the merger. For this $5 million, Centillion would receive an additional
3,333,333 shares of CTIG common stock in the transaction. It was later
negotiated that Centillion would contribute an additional $3 million in cash to
the combined entity, which funds it had recently received from the settlement of
a patent infringement claim it had brought against another company. In exchange
for this additional $3 million in cash, CTIG agreed to issue additional shares
of CTIG to Centillion stockholders. The final exchange negotiated would be a
total of five million shares of CTIG for $8 million cash, in addition to the
approximately eight million shares referred to above.
After substantial discussion, these parties reached a basis of
understanding for a proposed merger of CTIG and Centillion, subject to
satisfactory due diligence, finalization of economic terms and negotiation of a
definitive merger agreement.
On December 6, 1999, CTIG management reviewed the terms of the proposed
merger with its board of directors. Following this review, the board of
directors authorized management to continue to pursue a possible merger with
Centillion and to appoint First Colonial Securities Group to act as its
financial advisor.
In mid-to-late December 1999, the parties began a review of definitive
documentation and commenced a comprehensive due diligence review. This process
lasted through most of January 2000.
On February 3, 2000, the board of directors of CTIG, after reviewing all
documentation relating to the proposed merger, and after receiving a preliminary
opinion issued by First Colonial Securities Corporation, that the transaction
was fair, from a financial point of view, to the holders of CTIG common stock,
authorized the execution and delivery of the Centillion merger agreement.
Recommendation of the Board of Directors of CTIG; Reasons for the Centillion
Merger
The CTIG board of directors believes that the terms of the Centillion
merger are fair to, and in the best interests of, CTIG and its stockholders.
Accordingly, the CTIG board of directors has approved and adopted the Centillion
merger agreement and the transactions contemplated thereby and recommends its
approval and adoption by the stockholders of CTIG.
The CTIG board of directors believes that the Centillion merger represents
the best available strategic alternative for CTIG. It believes that by combining
CTIG's strengths in front-end call tracking, accounting and general billing,
with Centillion's strengths in billing analysis and its favorable financial
position, a new company will be created which will have a better, more
competitive position. The CTIG board of directors believes that the resulting
company will be able to offer a more complete billing solution to its customers,
and lay the foundation for a convergent billing strategy, which would allow its
customers to receive a single bill for their usage of local and long distance
telephone service, internet,
31
cellular phone, and other media, to track and analyze these various forms of
communications media in conjunction with one another, and to view this bill in
near-real time via the Internet. See "The Resulting Company."
In reaching its determination to approve the Centillion merger agreement
and recommend approval of the Centillion merger to the CTIG stockholders, the
CTIG board of directors considered the information presented to it by CTIG's
management, as well as CTIG's professional advisors, and weighed the positive
and countervailing factors associated with the Centillion merger. The factors
considered by the CTIG board of directors included, without limitation:
(i) Favorable Considerations:
(a) CTIG's Business. The CTIG board of directors considered historical
and prospective information concerning the financial condition,
results of operations and business of CTIG, including in
particular, the cash flow needs of the business and its cash
position. The CTIG board of directors also considered the current
state (and its perception of the future state) of the domestic and
international telecommunications billing and billing analysis
industry and the economic and market conditions relating to this
industry. CTIG's management and professional advisors made several
presentations to the CTIG board of directors providing it with
operational, financial and legal information concerning CTIG and
its future prospects. The CTIG board of directors considered the
strategic theoretical alternatives available to CTIG in lieu of
the Centillion merger, including maintaining the status quo,
seeking to remain independent through alternative financing or
partnership transactions, seeking to sell CTIG for cash, or to
another third party for stock, as well as the likelihood of being
able to pursue any similar alternatives to a successful
conclusion. The board determined that the Centillion merger was
the most favorable alternative.
(b) Centillion's Business. The CTIG board of directors considered the
operational, financial and legal due diligence materials provided
to it by CTIG's management and professional advisors concerning
Centillion. This due diligence included historical and prospective
information regarding the results of operations, financial
condition and business of Centillion and the current state (and
its perception of the future state) of the telecommunications
billing and billing analysis industry. Factors included in
evaluating Centillion included, among other things: its strong
balance sheet position, its patented Smart Bill technology, and
the expertise of its management in the telecommunications billing
industry.
(c) Opinion of First Colonial Securities Corporation. The CTIG board
of directors considered the presentation of First Colonial
Securities Corporation, and First Colonial's preliminary opinion,
delivered on February 2, 2000, and finalized as of April 5, 2000,
that as of those dates, the transaction was fair, from a financial
point of view, to the holders of CTIG common stock. A copy of this
written opinion, which sets forth the assumptions made, matters
considered and limitations on the review undertaken is attached as
Annex F to this proxy statement.
(d) Strategic Merits of the Centillion Merger. The CTIG board of
directors approved the Centillion merger based upon its assessment
of the strategic merits of the Centillion merger as well as its
assessment of the likelihood that other strategic and financing
alternatives, which had been pursued by CTIG over the course of
the 1999 calendar year, would come to fruition. The strategic
merits of the Centillion merger, as assessed by the CTIG board of
directors, include, but are not limited to:
o Centillion would provide CTIG with substantial working capital
to enable CTIG to increase its marketing, product development
and customer support activities;
o Centillion's strengths in billing analysis would complement
CTIG's strengths in front-end call tracking and accounting, as
well as general billing;
32
o Centillion would provide greater management depth to CTIG, with
substantial experience in the telecommunications billing
industry; and
o CTIG's President and CEO would continue to preside over the
operations of the combined business.
(e) Structure of Centillion Merger; Terms of the Centillion Merger
Agreement. The CTIG board of directors considered the terms of the
Centillion merger agreement and its legal and tax implications.
Because the Centillion merger will be tax neutral to CTIG and our
stockholders, this factor weighed in favor of approving the
Centillion merger. The board of directors also considered that
3,215,100 shares of Class A common stock will be held in escrow
for three years and released depending upon CTIG continuing to
realize revenue from Sprint or from any business that CTIG may
derive from defendants in patent infringement actions brought by
Centillion. The escrowed stock weighed in favor of the Centillion
merger because it will protect CTIG in the event that the business
of Centillion fails to produce these revenues.
(ii) Countervailing Considerations. The CTIG board of directors also
seriously considered factors which may be characterized as
countervailing considerations, including, but not limited to:
(a) The change in control that will result from current stockholders
of Centillion owning approximately 62% of the outstanding shares
of CTIG, including the fact that after the Centillion merger, one
stockholder, Mr. Salah Osseiran, will control approximately 51.8%
of the outstanding shares of CTIG;
(b) The change in the composition of the board of directors of CTIG,
which will result in former Centillion directors constituting a
majority of the directors of CTIG;
(c) The risks inherent in attempting to successfully integrate the
management of CTIG and Centillion into an effective organization;
(d) The possibility that key employees and members of the management
of CTIG may not be willing to remain with CTIG pending the
consummation of the Centillion merger and, therefore, may leave
CTIG; and
(e) Approximately 82% of the gross revenues of Centillion's billing
business are derived from a single customer. The contract between
Centillion and this customer expires on September 20, 2000.
Although Centillion has made a recent proposal to extend the
contract for an additional three years, if this customer chooses
not to renew its contract, these revenues would be difficult to
replace.
(f) The size of the termination fee payable, in some circumstances, by
CTIG under the Centillion merger agreement.
(g) The number of shares of CTIG common stock which would be exchanged
for the number of shares of Centillion Common Stock and which
would result in a transfer of control to Centillion stockholders;
and
(h) The expectation that the Centillion merger would be accounted for
as a purchase of CTIG by Centillion resulting in the creation of
an amount of goodwill which, based on CTIG's net assets, could
have been equivalent to the value of the Centillion transaction.
The foregoing discussion of the information and factors considered and
given weight by the CTIG board of directors is not intended to be exhaustive but
is believed to include the material factors considered by the CTIG board of
directors. In addition, in reaching the determination to approve and recommend
approval and adoption of the Centillion merger
33
agreement, in view of the wide variety of factors considered in connection with
its evaluation of the Centillion merger, the CTIG board of directors did not
assign any relative or specific weights to the foregoing factors. The CTIG board
of directors did, however, take into account, and placed reliance upon, the
analyses performed by, and the opinion rendered by, First Colonial Securities
Corporation as to the fairness, from a financial point of view, of the number of
shares being issued to Centillion stockholders.
THE CTIG BOARD OF DIRECTORS HAS UNANIMOUSLY APPROVED THE CENTILLION MERGER
AGREEMENT AND THE TRANSACTIONS CONTEMPLATED THEREBY AND BELIEVES THAT THE TERMS
OF THE CENTILLION MERGER ARE FAIR TO, AND IN THE BEST INTERESTS OF, CTIG AND ITS
STOCKHOLDERS. THE CTIG BOARD OF DIRECTORS RECOMMENDS A VOTE FOR APPROVAL AND
ADOPTION OF THE CENTILLION MERGER AGREEMENT.
Opinion of Financial Advisor to CTIG
On December 15, 1999, CTIG engaged First Colonial Securities Group, Inc. an
investment banking firm, to act as its exclusive financial advisor in connection
with the proposed merger of CTIG and Centillion and to render an opinion as to
the fairness, from a financial point of view, of the Centillion merger to the
holders of outstanding shares of CTIG common stock. First Colonial Securities
Group, Inc., is a 12-year-old regional investment-banking firm that, as part of
its investment banking services, is regularly engaged in the valuation of
businesses and their securities in connection with mergers and acquisitions,
strategic transactions, corporate restructurings, negotiated underwritings,
secondary distributions of listed and unlisted securities, private placements
and valuations for other corporate purposes. First Colonial was selected by the
CTIG board of directors based on First Colonial's qualifications, expertise and
reputation. First Colonial rendered its oral opinion on February 2, 2000,
subsequently confirmed in writing on April 5, 2000, to the CTIG board of
directors that, as of that date, the Centillion merger is fair, from a financial
point of view, to the holders of outstanding shares of CTIG common stock. The
amount of consideration to be paid in the Centillion merger was ultimately
determined by CTIG.
The CTIG board of directors relied on the opinion of First Colonial which
opinion did not take into account the approximately $30,778,000 of goodwill that
would be created as a result of the Centillion merger, and the required
amortization of that goodwill over seven years (which period may be shorter or
longer based upon a number of different factors). This amount of goodwill is
calculated based on an average of the value of CTIG common stock around the date
of the Centillion merger agreement. However, the final amount of goodwill will
be determined as of the closing date, and may be significantly different on that
date. While CTIG, commencing at the earliest stages of the merger negotiations,
had been aware that, based upon CTIG's net assets, the amount of goodwill
created by the transaction could be equivalent to the value of the Centillion
transaction, the final number had not been derived as of February 2, 2000, when
First Colonial issued its preliminary opinion (and will not be determined
definitively until the closing of the merger)- therefore, the actual amount of
goodwill was not available to First Colonial at that time.
Furthermore, the potential amount of goodwill was only one of many factors
considered by the board. Of paramount importance to CTIG at the time of the
merger negotiations was the significant amount of cash that would be received by
CTIG, as well as the significant operating synergies of the two companies. Since
the board believed that the value of CTIG's business following the mergers
should be evaluated on the basis of factors like earnings and cash flow before
taxes, interest, depreciation and amortization (which evaluation would exclude
goodwill), and since First Colonial's opinion considered these other factors,
CTIG's board still placed reliance on First Colonial's opinion that the
Centillion merger was fair from an overall financial point of view.
The full text of the opinion delivered by First Colonial to the CTIG board
of directors, dated April 5, 2000, which sets forth the assumptions made,
general procedures followed, matters considered, and limitations on the scope of
the review undertaken by First Colonial in rendering its opinion, is attached as
Annex F to this proxy statement. First Colonial's opinion is directed only to
the fairness, from a financial point of view, of the Centillion merger and does
not constitute a recommendation to any CTIG stockholder as to how such
stockholder should vote with respect to the
34
proposed transaction. The summary of First Colonial's fairness opinion set forth
below is qualified in its entirety by reference to the full text of the fairness
opinion. CTIG stockholders are urged to read the opinion carefully in its
entirety.
In reviewing the proposed transaction, and in arriving at its opinion,
First Colonial, among other things:
o reviewed the available consolidated financial statements of Centillion
for recent years and interim periods to date and other relevant financial
and operating data of Centillion made available to First Colonial by
Centillion and CTIG;
o discussed the business, financial condition and prospects of Centillion
with members of its senior management;
o reviewed the publicly available consolidated financial statements of CTIG
for recent years and interim periods to date and other relevant financial
and operating data of CTIG made available to First Colonial from
published sources;
o reviewed internal financial and operating information relating to CTIG
prepared by senior management of CTIG;
o discussed the business, financial condition and prospects of CTIG with
members of its senior management;
o reviewed the recent reported prices and trading activity for the common
stock of CTIG and compared this information and financial information for
CTIG and Centillion with similar information for other companies engaged
in the businesses that First Colonial considered comparable;
o reviewed the financial terms, to the extent publicly available, of other
merger and acquisition transactions that First Colonial considered
comparable;
o reviewed the Centillion merger agreement and related employment agreement
and promissory notes;
o performed such other analyses and examinations and considered such other
information, financial studies, analyses and investigations and
financial, economic and market data as First Colonial deemed relevant.
First Colonial did not independently verify any of the information
concerning CTIG or Centillion in connection with its review of the proposed
transaction. For purposes of its opinion, First Colonial assumed and relied upon
the accuracy and completeness of all such information. In connection with its
opinion, First Colonial did not prepare or obtain any independent valuation or
appraisal of any of the assets or liabilities of CTIG or Centillion. With
respect to the financial forecasts and projections used in its analyses, First
Colonial assumed that they reflected the best currently available estimates and
judgments of the expected future financial performance of CTIG and Centillion.
For the purposes of its opinion, First Colonial also assumed that neither CTIG
nor Centillion was a party to any pending transactions, including external
financings, recapitalizations or material merger discussions, other than the
proposed transaction and those activities undertaken in the ordinary course of
conducting their respective businesses. Since the Celltech merger discussions
had developed after CTIG had entered into the Centillion merger agreement, First
Colonial did not consider the impact of the Celltech merger in performing its
analysis. For purposes of its opinion, First Colonial assumed that the proposed
transaction would qualify as a tax-free reorganization under the Internal
Revenue Code for the CTIG stockholders and that the proposed transaction will be
accounted for as a purchase.
First Colonial's opinion is necessarily based upon market, economic,
financial and other conditions as they existed and can be evaluated as of the
date of the opinion.
The following is a brief summary of all material financial analyses
performed by First Colonial in connection with providing its opinion to the CTIG
board of directors on April 5, 2000.
35
Pro Forma Ownership
Based on the projections for CTIG for the period January 1, 1999 through
December 31, 2002 provided by the management of CTIG the projections for
Centillion for the period January 1, 2000 through December 31, 2004, each
company's relative contribution to the combined entity's balance sheet and the
estimates by the management of both companies as to the potential cost savings
anticipated to result from the Centillion merger, First Colonial compared the
estimated implied equity value of a share of CTIG with the theoretical implied
equity value of a share of CTIG common stock in the combined company. In its
analysis, First Colonial made the following assumptions: (i) CTIG will maintain
its roughly $2 million of net operating loss carry forward (ii) Centillion
achieves its revenue threshold to receive the full 3,215,100 escrowed shares
(iii) no accounting for potential recoverable patent infringement claims and
(iv) Centillion achieving $3.7 million in 1999 operating income and contributing
at least $8 million in cash to the combined entity's balance sheet. Based upon
such assumptions and estimates, including all potential cost savings, synergies
and strategic benefits expected by the management of both companies, First
Colonial noted that the Centillion merger would result in a theoretical implied
equity per share price of $2.91 to $4.85. Therefore, when compared to the
theoretical implied equity value of a share of CTIG common stock prior to the
Centillion merger of $1.35 to $2.25, the Centillion merger should result in per
share value accretion for current holders of CTIG common stock of between 5.8%
and 76%.
Projected Financial Data
Internal management forecasts, projections and estimates were furnished to
First Colonial in January, 2000, in connection with its analysis of the
Centillion merger. As a matter of policy, neither CTIG nor Centillion publicly
disclose forecasts, projections and estimates of this type and such forecasts,
projections and estimates were not prepared with a view towards public
disclosure or with a view toward complying with the guidelines established by
the American Institute of Certified Public Accountants with respect to
prospective financial information, but, in the view of CTIG's and Centillion's
management, was prepared on a reasonable basis, reflects the best available
estimates and judgments and presents, to the best of management's knowledge and
belief, the expected course of action and the expected future financial
performance of CTIG and Centillion at the time it was provided to First
Colonial. However, this information is not fact and should not be relied upon as
necessarily indicative of future results, and readers of this proxy statement
are cautioned not to place reliance on the prospective financial information.
These forecasts, projections and estimates were based on numerous variables and
assumptions which are inherently uncertain and which may not be within the
control of management, including, without limitation, general economic,
financial market, regulatory and competitive conditions. Additionally, these
projections were prepared independently of the Centillion merger and will be
affected by the outcome of the Centillion merger. Accordingly, actual results
could vary materially from those set forth in those forecasts, projects and
estimates.
Neither CTIG's nor Centillion's independent auditors, nor any other
independent accountants, have compiled, examined, or performed any procedures
with respect to the prospective financial information contained herein, nor have
they expressed any opinion or any other form of assurance on such information or
its achievability, and assume no responsibility for, and disclaim any
association with, the prospective financial information.
The assumptions and estimates underlying the prospective financial
information are inherently uncertain and, though considered reasonable by the
management of CTIG and Centillion as of the date provided to First Colonial, are
subject to a wide variety of significant business, economic, and competitive
risks and uncertainties that could cause actual results to differ materially
from those contained in the prospective financial information, including, among
others, those enumerated in the section of this proxy statement entitled
"Special Considerations." Actual results for CTIG and Centillion through June
30, 2000, exclusive of non-recurring licensing revenues to Centillion resulting
from the settlement of patent litigation, were significantly lower than the
projections provided to First Colonial and presented below. Accordingly, there
can be no assurance that the prospective results are indicative of the future
performance of CTIG or Centillion or that actual results will not differ
materially from those presented in the prospective financial information.
Inclusion of the prospective financial information in this proxy statement
should not be regarded as a representation by any person that the results
contained in the prospective financial information will be achieved.
36
Neither CTIG nor Centillion generally publish their business plans and
strategies or make external disclosures of their anticipated financial position
or results of operations. Accordingly, neither CTIG nor Centillion intend to
update or otherwise revise the prospective financial information to reflect
circumstances existing since their preparation or to reflect the occurrence of
unanticipated events, even in the event that any or all of the underlying
assumptions are shown to be in error. Furthermore, neither CTIG nor Centillion
intend to update or revise the prospective financial information to reflect
changes in general economic or industry conditions.
Centillion Projections. The following projections assumed that (i)
Centillion was a stand-alone company with $5 million dollars of cash and (ii)
Centillion's new product would be available for delivery to the market on or
about June, 2000. As a result of the Centillion merger, Centillion has committed
its available cash to this merger and delivery of Centillion's new product has
been delayed and will not be delivered until November, 2000. Therefore, at the
time of the First Colonial analysis, Centillion's projections were as follows:
Centillion projected revenues relating to its traditional billing business
as follows: $402,000 for Fiscal Year 2000; $3,367,000 for Fiscal Year 2001;
$6,742,000 for Fiscal Year 2002; $14,533,000 for Fiscal Year 2003; and
$28,093,000 for Fiscal Year 2004; with corresponding net income before taxes of
$(1,082,000) for Fiscal Year 2000; $(814,000) for Fiscal Year 2001; $(413,000)
for Fiscal Year 2002; $3,064,000 for Fiscal Year 2003; and $9,269,000 for Fiscal
Year 2004.
Centillion projected revenues relating to its electronic billing business
as follows: $10,307,000 for Fiscal Year 2000; $10,731,000 for Fiscal Year 2001;
$15,254,000 for Fiscal Year 2002; $ 28,836,000 for Fiscal Year 2003; and
$41,058,000 for Fiscal Year 2004; with corresponding net income before taxes of
$3,377,000 for Fiscal Year 2000; $(1,036,000) for Fiscal Year 2001; $(319,000)
for Fiscal Year 2002; $9,367,000 for Fiscal Year 2003; and $17,905,000 for
Fiscal Year 2004.
Centillion projected cash flow relating to its combined traditional and
electronic billing businesses as follows: $(1,129,000) for Fiscal Year 2000;
$(4,275,000) for Fiscal Year 2001; $(2,437,000) for Fiscal Year 2002; $
10,762,000 for Fiscal Year 2003; and $25,312,000 for Fiscal Year 2004.
CTIG Projections. The CTIG projections provided by CTIG to First Colonial
were part of a business plan that originally involved the proposed investment of
$5 million in cash which was to be applied to CTIG's working capital in order to
further develop, support and market is new software. CTIG provided two sets of
projections, one showing the result with the investment of the $5 million
dollars and one without that investment. Because that $5 million will be
obtained from Centillion upon consummation of the Centillion merger, only the
set of projections involving the $5 million are included in this proxy
statement.
CTIG's projections assumed that $5 million would be invested into its
business by September 30, 1999. Therefore the revenue projections were as
follows: $8,648,000 for Fiscal Year 2000; $10,902,000 for Fiscal Year 2001;
$14,494,000 for Fiscal Year 2002; and $19,497,000 for Fiscal Year 2003; with
corresponding net income before taxes of $678,000 for Fiscal Year 2000;
$1,221,000 for Fiscal Year 2001; $3,483,000 for Fiscal Year 2002; and $7,264,000
for Fiscal Year 2003. Actual results for Fiscal Year 2000 were less than the
projected amounts.
Analysis of Publicly Traded Companies Comparable to Centillion
Using published Wall Street estimates and First Colonial research, First
Colonial compared, among other things, financial, trading and valuation
statistics and projected revenues for calendar year 2000 as well as resulting
multiples for Centillion to corresponding measures for publicly traded companies
that First Colonial considered comparable to Centillion. The companies that
First Colonial considered comparable to Centillion were:
Billing Concepts Telespectrum Worldwide Teletech Holdings
TCSI Group Boston Communication Objective Systems
Clarify Convergys Amdocs Ltd.
Remedy Siebel Systems Management Network Group
37
First Colonial determined the implied equity value of Centillion, not
taking into consideration potential recoverable payments for the tracked assets'
patent infringement claims, to be in the range of $26.75 million to $48.15
million by applying revenue multiples of Centillion and such comparable
companies to projected calendar year 2000. Using First Colonial research, First
Colonial calculated the multiples of market value to projected 2000 revenues.
With respect to all companies deemed comparable, this analysis yielded the
following multiples: a range of 2.5x to 4.5x projected calendar year 2000
revenues. As of March 31, 2000, the proposed transaction values Centillion at
$39 million, or 3.64x the projected 2000 revenues, within the stated range of
industry standards for comparables.
Analysis of Selected Mergers and Acquisitions Transactions
First Colonial compared the proposed transaction with selected mergers and
acquisitions of comparable companies within the industry. This analysis included
seven transactions involving companies in the industry announced since September
1999. No company or transaction used in the above analyses is identical to the
proposed transaction and participants. In examining these transactions, First
Colonial analyzed, among other things, the multiples of offer prices to revenues
for the last 12-month period and the multiples of offer prices to projected EBIT
for the years 2000 and 2001.
First Colonial's analysis found that for these transactions the multiples
of offer prices to revenues for the last 12-month period yielded a range of 3x
to 5x revenue. Using this range, the implied equity value of Centillion using
this method of analysis yielded a range of $32.4 million to $54 million. As of
March 31, 2000, the proposed transaction values Centillion at $39 million, or
3.61x trailing 12-month revenues, within the stated range of industry standards
for comparables.
First Colonial's analysis found that for these transactions the multiples
of offer prices to projected 2000 EBIT yielded a range of 12x to 20x projected
2000 EBIT. Using this range, the implied equity value of Centillion using this
method of analysis yielded a range of $27.6 million to $46 million. As of March
10, 2000, the proposed transaction values Centillion at $39 million, or 16.9x
projected 2000 EBIT, within the stated range of industry standards for
comparables.
This analysis did not take into consideration the considerable amount of
goodwill that CTIG will assume in the proposed transaction. It is currently
anticipated that CTIG will assume approximately $30,778,000 of goodwill which
will be amortized over a period currently anticipated to be seven years, or
approximately $4.39 million per year. If additional analyses were performed to
incorporate this data, the resulting analyses might result in implied equity per
share prices that are significantly different from those found using different
analyses. For more information, please see "Special Considerations -- Risk
Relating to the Mergers -- Creation of Goodwill."
Other Analyses
First Colonial conducted other analyses as it deemed necessary, including
reviewing historical and projected financial and operating data for CTIG and
Centillion as well as trading data for CTIG. In addition, First Colonial
analyzed information pertaining to the estimated revenues for each of the
entities and assessing future growth and acquisition opportunities for each of
the companies.
The preparation of a fairness opinion is a complex process and involves
various judgments and determinations as to the most appropriate and relevant
assumptions and financial analyses and the application of these methods to the
particular circumstances involved. Such an opinion is therefore not readily
susceptible to partial analysis or summary description. Taking portions of the
analyses set out above, without considering the analysis as a whole, would, in
the view of First Colonial, create an incomplete and misleading picture of the
processes underlying the analyses considered in rendering the First Colonial
opinion. First Colonial did not form an opinion as to whether any individual
analysis or factor, positive or negative, considered in isolation, supported or
failed to support the First Colonial opinion. In arriving at this opinion, First
Colonial considered the results of its separate analyses and did not attribute
particular weight to any one analysis or factor considered by it, but rather
made qualitative judgments as to the significance and relevance of each
38
analysis and factor. The analyses performed by First Colonial, particularly
those based on estimates and projections, are not necessarily indicative of
actual values or actual future results, which may be significantly more or less
favorable than suggested by such analyses. Such analyses were prepared solely as
part of the First Colonial analysis of the fairness to CTIG shareholders, from a
financial point of view, of the financial terms of the transaction.
The foregoing description of First Colonial's opinion is qualified in its
entirety by reference to the full text of the opinion that is attached as Annex
F to this proxy statement.
Interests of First Colonial in the Centillion Merger
First Colonial was engaged by CTIG in December, 1999, to render a fairness
opinion to the board of directors of CTIG, as to the fairness, from a financial
point of view, of the Centillion merger. Pursuant to the engagement letter dated
December 15, 1999, CTIG agreed to pay First Colonial a fee of $60,000 upon
consummation of the Centillion merger of which $20,000 has been paid to date.
The balance of $40,000 is due upon closing of the proposed transaction as well
as reimbursement to First Colonial for its reasonable out of pocket expenses.
CTIG has agreed to indemnify First Colonial against certain liabilities under
the federal securities laws or relating to or arising out of First Colonial's
engagement.
Interest of Certain Persons in the Centillion Merger
In considering the recommendations of the board of directors of CTIG with
respect to the Centillion merger, the holders of CTIG common stock should be
aware that some members of management of CTIG and of the CTIG board of directors
have interests in the Centillion merger that are different from, or in addition
to, the interests of the holders of CTIG common stock generally. The board of
directors of CTIG was aware of these interests and considered them, among other
matters, in approving the Centillion merger agreement and the transactions
contemplated thereby.
Board Of Directors, Committees and Management of CTIG after the Centillion
merger. As provided in the Centillion merger agreement, upon the Centillion
merger, the CTIG board of directors will initially consist of seven directors,
three of which will be designated by CTIG and four of which will be designated
by Centillion. The CTIG board will be divided into three classes for purposes of
their initial terms (See "Approval of an Amendment to CTIG's Articles of
Incorporation -- Restructure of Board of Directors"). All seven of the
individuals served previously on the board of directors of either CTIG or
Centillion, and are receiving their appointments as a result of the Centillion
merger agreement. As board members, these individuals, other than CTIG's chief
executive officer, will receive directors' fees, and they will be eligible to
participate in the CTIG Stock Option and Restricted Stock Plan. After the
Centillion merger, members of CTIG's board of directors will receive
compensation in the form of options to acquire shares of Class A common stock
and cash as more fully described in The Resulting Company -- Executive
Compensation" beginning on page [82].
Indemnification of Directors and Officers of CTIG and Centillion. The
Centillion merger agreement provides that upon consummation of the Centillion
merger, CTIG will indemnify and hold harmless each present and former director
and officers of CTIG and Centillion and its subsidiaries to the extent permitted
under the organizational documents of those companies with respect to matters
existing or occurring at or prior to the Centillion merger, whether asserted or
claimed prior to, at or after the Centillion merger. The Centillion merger
agreement also provides that if CTIG is a party to any business combination
where it is not the surviving entity, it will make reasonable efforts to ensure
that the surviving entity assumes this indemnification of Centillion officers
and directors.
Employment Agreement - Anthony P. Johns. Pursuant to the terms of the
Centillion merger agreement, Mr. Johns and CTIG will execute an employment
agreement to become effective upon consummation of the transactions contemplated
by the Centillion merger agreement. This agreement will supersede an employment
agreement between CTIG and Mr. Johns which was originally scheduled to terminate
on March 31, 2001. Pursuant to the new employment agreement, Mr. Johns will
serve as President and Chief Executive Officer of CTIG for a period of 36 months
following the completion of the Centillion merger at an annual minimum salary of
$250,000. Mr. Johns' prior employment agreement provided for Mr. Johns to
receive an annual salary of $175,000. Under his new agreement, Mr. Johns may
39
also receive an annual cash bonus in the sole discretion of the board of
directors of CTIG, which will be based on performance, profitability, or other
factors. In his prior employment agreement, Mr. Johns was entitled to a 5% share
of CTIG's pre-tax profit. Under his new agreement, Mr. Johns will further be
entitled to reimbursement of specified expenses relating to accommodations and
transportation, as well as medical insurance, 401(k), and other similar plans in
which the company may participate as in his prior agreement. Additionally, the
new employment agreement provides for severance payments under certain
circumstances in the event of termination of Mr. Johns' employment, of 24 months
salary, at his current salary at the time of the termination. Under his prior
agreement, Mr. Johns was not entitled to any severance pay except for salary
accrued through the termination of the agreement.
In addition, the CTIG board of directors, in November, 1999, granted Mr.
Johns options to purchase 300,000 shares of CTIG common stock at an exercise
price of $1.09 per share in the event that CTIG enters into a merger agreement
with Centillion. These options were granted to Mr. Johns in lieu of proceeds
from a 5% profit share arrangement which was part of the employment agreement
entered into with CTIG during fiscal year 1998.
Stock Options. The CTIG Stock Option and Restricted Stock Plan provides for
vesting of all issued CTIG stock options and a lifting of all restrictions on
transfer of CTIG restricted stock upon a "change in control." The Centillion
merger will constitute a change in control under the plan. As a result, all of
the currently unvested options outstanding under the plan, with the exception of
the 300,000 options granted to Mr. Johns as described above, will become fully
vested and immediately exercisable, and all restrictions on transfer of CTIG
restricted stock issued under the plan will be eliminated upon consummation of
the Centillion merger. The treatment in the Centillion merger of outstanding
options and restricted stock under the plan is described under "Proposal to
Amend Stock Option and Restricted Stock Plan."
Additionally, there are 155,000 options to purchase CTIG common stock which
have been issued outside of the plan. All of these options will vest and become
immediately exercisable upon consummation of the Centillion merger.
Accounting Treatment of the Centillion Merger
The Centillion merger will be accounted for as a reverse acquisition of
CTIG by Centillion. Under this method of accounting, the legal acquirer, CTIG,
will continue in existence as the legal entity whose shares represent the
outstanding common stock of the combined company. In applying purchase
accounting to a reverse acquisition, the assets and liabilities of the legal
acquirer are revalued and the purchase price allocated to those assets and
liabilities assumed.
Federal Income Tax Consequences
The following discussion summarizes the material federal income tax
consequences of the Centillion merger that are generally applicable to CTIG and
our stockholders. This discussion is based on currently existing provisions of
the Internal Revenue Code, existing and proposed Treasury regulations thereunder
and the current administrative rulings and court decisions, all of which are
subject to change. Any such change, which may or may not be retroactive, could
alter the tax consequences to CTIG or our stockholders.
The following does not purport to deal with all aspects of federal income
taxation that may affect particular stockholders in light of their individual
circumstances, and is not intended for stockholders subject to special treatment
under the federal income tax law (including insurance companies, tax-exempt
organizations, financial institutions, broker-dealers, foreign persons,
stockholders who hold their stock as part of a hedge, appreciated financial
position, straddle or conversion transaction, stockholders who do not hold their
stock as capital assets and stockholders who have acquired their stock upon the
exercise of employee options or otherwise as compensation). In addition, the
discussion below does not consider the effect of any applicable state, local or
foreign tax laws. ACCORDINGLY, OUR STOCKHOLDERS ARE URGED TO CONSULT THEIR OWN
TAX ADVISORS AS TO THE SPECIFIC CONSEQUENCES OF THE MERGER TO THEM, INCLUDING
THE APPLICABLE FEDERAL, STATE, LOCAL AND FOREIGN TAX CONSEQUENCES OF THE MERGER
IN THEIR PARTICULAR CIRCUMSTANCES. THE DISCUSSION SET FORTH BELOW IS NOT
INTENDED AND SHOULD NOT BE CONSIDERED TAX ADVICE.
40
Neither CTIG nor Centillion has requested or will request, a ruling from
the IRS with regard to any of the federal income tax consequences of the
Centillion merger. As a condition to CTIG's and Centillion's obligation to
consummate the Centillion merger, since the date of the Centillion merger
agreement, there is not to have been any changes in the facts, circumstances or
applicable federal tax laws that would negatively impact the treatment of the
Centillion merger for federal income tax purposes as a tax-free reorganization
within the meaning of Section 368(a) of the Code, and at the effective time, the
price of CTIG common stock is not to be below $1.26 per share.
Treatment Of CTIG. No income, gain or loss should be recognized by CTIG
upon the consummation of the Centillion merger. Accordingly, no income, gain or
loss should be recognized for federal income tax purposes by CTIG upon the
issuance of the Class A common stock to the Centillion stockholders in exchange
for all of the issued and outstanding common stock of Centillion. In addition,
no income, gain, or loss should be recognized for Federal income tax purposes by
CTIG upon the issuance of the Class B common stock to the Centillion
stockholders in exchange for all of the issued and outstanding common stock of
Centillion or upon the conversion of the Class B common stock to Class A common
stock.
Treatment Of Holders of CTIG common stock. No income, gain or loss will be
recognized by the holders of CTIG common stock upon the consummation of the
Centillion merger. Accordingly, no income, gain or loss will be recognized for
federal income tax purposes by the holders of CTIG common stock upon CTIG's
issuance of the Class A common stock to the Centillion stockholders in exchange
for all of the issued and outstanding common stock of Centillion. In addition,
no income, gain, or loss will be recognized for Federal income tax purposes by
the holders of CTIG common stock upon CTIG's issuance of the Class B common
stock to the Centillion stockholders in exchange for all of the issued and
outstanding common stock of Centillion or upon the conversion of the Class B
common stock to Class A common stock.
Net Operating Loss Limitations. For a discussion of limitations on the use
of CTIG's net operating losses, see "Risk Factors -- Risks Relating to the
Centillion Merger."
CTIG will report to stockholders of CTIG and to the IRS the amount of
"reportable payments" and any amount withheld with respect to Class A common
stock and Class B common stock during each calendar year.
Exercise of Dissenters' Rights. Holders of CTIG common stock who exercise
their statutory dissenters' rights will recognize gain or loss equal to the
difference between their tax basis in their stock and the amount of cash they
receive in exchange for that stock. See "The Centillion Merger -- Appraisal
Rights."
EACH OF OUR STOCKHOLDERS IS URGED TO CONSULT HIS OR HER OWN TAX ADVISOR
WITH RESPECT TO THE TAX CONSEQUENCES OF THE CENTILLION MERGER, INCLUDING THE
APPLICABILITY AND EFFECT OF STATE, LOCAL OR FOREIGN TAX LAWS.
Listing of Class A Common Stock
CTIG common stock currently is listed on the Over-the-Counter Bulletin
Board. At the time of the Centillion merger, CTIG will attempt to have its Class
A common stock listed on the NASDAQ National Market or SmallCap Market. There
can be no assurance that CTIG's application for NASDAQ listing will be
successful.
Resales of CTIG Common Stock Issued in Connection with the Merger; Affiliate
Agreements
Upon registration of the Class A common stock issued in connection with the
mergers for resale, such shares will be freely transferable.
Regulatory Approvals
No federal or state regulatory approvals or consents are required in
connection with the Centillion merger.
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Appraisal Rights
Holders of CTIG common stock who do not vote for the approval and adoption
of the Centillion merger agreement and who otherwise comply with the applicable
statutory procedures of Section 262 of the Delaware General Corporation Law may
be entitled to appraisal rights under Section 262. In order to exercise and
perfect appraisal rights, the record holder of CTIG common stock must follow the
steps summarized below properly and in a timely manner. A person having a
beneficial interest in shares of CTIG common stock held of record in the name of
another person, such as a broker or nominee, must act promptly to cause the
record holder to follow the steps summarized below properly and in a timely
manner to perfect appraisal rights.
Section 262 of the DGCL is reprinted in its entirety as Annex G to this
proxy statement. Failure to comply strictly with the procedures set forth in
Section 262 of the DGCL will result in the loss of appraisal rights. Set forth
below are all material provisions relating to appraisal rights under Section
262.
Under the DGCL, holders of CTIG common stock who follow the procedures set
forth in Section 262 will be entitled to have their shares appraised by the
Delaware Court of Chancery and to receive payment in cash of the "fair value" of
those shares, exclusive of any element of value arising from the accomplishment
or expectation of the merger, together with a fair rate of interest, if any, as
determined by such court.
Under Section 262, where a proposed merger is to be submitted for approval
at a meeting of stockholders, as in the case of the special meeting, the
corporation, not less than 20 days prior to such meeting, must notify each of
its stockholders who was a stockholder on the record date with respect to such
shares for which appraisal rights are available, that appraisal rights are so
available, and must include in each such notice a copy of Section 262. This
proxy statement constitutes such notice to the holders of CTIG common stock and
Section 262 of the DGCL is attached to this proxy statement as Annex G. Any
holder who wishes to exercise such appraisal rights or who wishes to preserve
his right to do so should review the following discussion and Annex G carefully,
because failure to timely and properly comply with the procedures specified will
result in the loss of appraisal rights under the DGCL.
A holder wishing to exercise appraisal rights (a) must not vote for the
approval and adoption of the merger agreement and (b) must deliver to CTIG,
before the vote or the proposal to approve and adopt the merger agreement, a
written demand for appraisal of such holder's shares of CTIG common stock. A
holder who signs and returns a proxy card without expressly directing that his
or her shares of CTIG common stock be voted against the merger agreement will
effectively waive his, her or its appraisal rights because such shares
represented by the proxy card will be voted for the approval and adoption of the
merger agreement. Accordingly, a holder who desires to exercise and perfect
appraisal rights with respect to any of his or her shares of CTIG common stock
must either (i) refrain from executing and returning the enclosed proxy card and
from voting in person in favor of the proposal to approve the merger agreement,
or (ii) check either the "Against" or the "Abstain" box next to the proposal on
such card or affirmatively vote in person against the proposal or register in
person an abstention with respect thereto. A vote or proxy against the merger
agreement shall not, in and of itself, constitute a demand for appraisal.
A demand for appraisal will be sufficient if it reasonably informs CTIG of
the identity of the holder and that such holder intends thereby to demand
appraisal of such holder's shares of CTIG common stock. This written demand for
appraisal must be separate from any proxy or vote abstaining from or voting
against the approval and adoption of the merger agreement. A holder wishing to
exercise appraisal rights must be the record holder of such shares of CTIG
common stock on the date the written demand for appraisal is made and must
continue to hold such shares through the effective time. Accordingly, a holder
who is the record holder of shares of CTIG common stock on the date the written
demand for appraisal is made, but who thereafter transfers such shares prior to
the effective time, will lose any right to appraisal in respect of such shares.
Only a holder of record of shares of CTIG common stock is entitled to
assert appraisal rights for the shares of CTIG common stock registered in that
holder's name. A demand for appraisal should be executed by or on behalf of the
holder of record, fully and correctly, as the holder's name appears on the stock
certificates and must state that such person
42
intends thereby to demand appraisal of his, her or its shares of CTIG common
stock. If the shares are owned of record in a fiduciary capacity, such as by a
trustee, guardian or custodian, execution of the demand for appraisal should be
made in that capacity, and if the shares are owned of record by more than one
person, as in a joint tenancy or tenancy in common, the demand should be
executed by or on behalf of all joint owners. An authorized agent, including one
for two or more joint owners, may execute the demand for appraisal on behalf of
a holder of record; however, the agent must identify the record owner or owners
and expressly disclose the fact that, in executing the demand, he or she is
acting as agent for such owner or owners.
A record holder such as a broker who holds shares as nominee for several
beneficial owners may exercise appraisal rights with respect to the shares of
CTIG common stock held for one or more beneficial owners while not exercising
such rights with respect to the shares held for other beneficial owners; in such
case, the written demand should set forth the number of shares as to which
appraisal is sought. Where the number of shares of CTIG common stock is not
expressly stated, the demand will be presumed to cover all shares held in the
name of the record owner. Holders of CTIG common stock who hold their shares in
brokerage accounts or other nominee form and who wish to exercise appraisal
rights are urged to consult with their brokers to determine the appropriate
procedures for the making of a demand for appraisal by such nominee.
All written demands for appraisal of shares must be mailed or delivered to:
CTI Group (Holdings) Inc., 2550 Eisenhower Avenue, Norristown, Pennsylvania
19403, or should be delivered to the secretary at the special meeting, prior to
the vote on the merger agreements.
Within ten days after the effective time, CTIG will notify each holder who
properly asserted appraisal rights under Section 262 and has not voted for the
approval and adoption of the merger agreement as of the effective time.
Within 120 days after the effective time, but not thereafter, CTIG or any
holder who has complied with the statutory requirements summarized above may
file a petition in the Delaware Chancery Court demanding a determination of the
fair value of the shares held by the holder. If no such petition is filed,
appraisal rights will be lost for all holders who had previously demanded
appraisal of their shares. CTIG is not under any obligation, and has no present
intention, to file a petition with respect to appraisal of the value of the
shares. Accordingly, holders who wish to exercise their appraisal rights should
regard it as their obligation to take all steps necessary to perfect their
appraisal rights in the manner prescribed in Section 262.
Within 120 days after the effective time, any holder who has complied with
the provisions of Section 262 will be entitled, upon written request, to receive
from CTIG a statement setting forth the aggregate number of shares of CTIG
common stock not voted in favor of the approval and adoption of the merger
agreement and with respect to which demands for appraisal were received by CTIG,
and the number of holders of such shares. Such statement must be mailed within
ten days after the written request therefore has been received by CTIG.
If a petition for an appraisal is timely filed and a copy thereof served
upon CTIG, CTIG will then be obligated within 20 days to file with the Delaware
Register in Chancery a duly verified list containing the names and addresses of
the holders who have demanded appraisal of their shares and with whom agreements
as to the value of their shares have not been reached. After notice to the
holders of CTIG common stock as required by the Delaware Chancery Court, the
Delaware Chancery Court is empowered to conduct a hearing on such petition to
determine those holders of CTIG common stock who have complied with Section 262
and who have become entitled to appraisal rights thereunder. The Delaware
Chancery Court may require the holders who demanded appraisal rights of their
shares of CTIG common stock to submit their stock certificates to the Register
in Chancery for notation thereon of the pendency of the appraisal proceeding;
and if any holder fails to comply with such direction, the Delaware Chancery
Court may dismiss the proceedings as to such holder.
After determining which holders are entitled to appraisal, the Delaware
Chancery Court will appraise the "fair value" of their shares of CTIG common
stock, exclusive of any element of value arising from the accomplishment or
expectation of the merger, together with a fair rate of interest, if any, to be
paid upon the amount determined to be the fair value.
43
Holders considering seeking appraisal should be aware that the fair value of
their shares as determined under Section 262 could be more than, the same as or
less than the consideration they are entitled to receive pursuant to the merger
agreement if they did not seek appraisal of their shares and that investment
banking opinions as to fairness from a financial point of view are not
necessarily opinions as to fair value under Section 262. In determining "fair
value" of shares, the Delaware Chancery Court shall take into account all
relevant factors. In Weinberger v. UOP, Inc., the Delaware Supreme Court has
stated that these factors include "market value, asset value, dividends,
earnings prospects, the nature of the enterprise and any other facts which were
known or which could be ascertained as of the date of the merger which throw any
light on future prospects of the merged corporation." In Weinberger, the
Delaware Supreme Court stated, among other things, that "proof of value by any
techniques or methods generally considered acceptable in the financial community
and otherwise admissible in court" should be considered in an appraisal
proceeding. In addition, the Delaware Chancery Court has decided that the
statutory appraisal remedy, depending on factual circumstances, may or may not
be a dissenter's exclusive remedy.
The Delaware Chancery Court will also determine the amount of interest, if
any, to be paid on the amounts to be received by persons whose shares of CTIG
common stock have been appraised. The costs of the action may be determined by
the Delaware Chancery Court and taxed upon the parties as the Delaware Chancery
Court deems equitable. The Delaware Chancery Court may also order that all or a
portion of the expenses incurred by any holder in connection with an appraisal,
including without limitation, reasonable attorneys' fees and the fees and
expenses of experts utilized in the appraisal proceeding, be charged pro rata
against the value of all of the shares entitled to appraisal. In the absence of
such determination or assessment, each party bears its own expenses.
Any holder who has duly demanded and perfected an appraisal in compliance
with Section 262 will not, after the effective time, be entitled to vote his or
her shares for any purpose or be entitled to the payment of dividends or other
distributions thereon, except dividends or other distributions payable to
holders of record of shares of CTIG common stock as of a date prior to the
effective time.
At any time within 60 days after the effective time, any holder will have
the right to withdraw his or her demand for appraisal and to accept the merger
consideration. After this period, a holder may withdraw his or her demand for
appraisal only with the written consent of CTIG. If no petition for appraisal is
filed with the Delaware Chancery Court within 120 days after the effective time,
a holder's right to appraisal will cease and he or she will be entitled to
receive the merger consideration, without interest, as if he or she had not
demanded appraisal of his or her shares. No petition timely filed in the
Delaware Chancery Court demanding appraisal will be dismissed as to any holder
without the approval of the Delaware Chancery Court, and this approval may be
conditioned on such terms as the Delaware Chancery Court deems just.
If any holder who properly demands appraisal of his or her shares of CTIG
common stock under Section 262 fails to perfect, or effectively withdraws or
loses, his right to appraisal, as provided in the DGCL, the shares of such
holder will be converted into the right to receive the consideration receivable
with respect to such shares in accordance with the merger agreement. A holder
will fail to perfect, or effectively lose or withdraw, his right to appraisal
if, among other things, no petition for appraisal is filed within 120 days after
the effective time, or if the holder delivers to CTIG a written withdrawal of
his demand for appraisal. Any such attempt to withdraw an appraisal demand more
than 60 days after the effective time will require the written approval of CTIG.
HOLDERS OF CTIG COMMON STOCK DESIRING TO EXERCISE THEIR APPRAISAL RIGHTS
MUST NOT VOTE IN FAVOR OF THE APPROVAL AND ADOPTION OF THE MERGER AGREEMENT AND
MUST STRICTLY COMPLY WITH THE PROCEDURES SET FORTH IN SECTION 262 OF THE DGCL.
FAILURE TO TAKE ANY REQUIRED STEP IN CONNECTION WITH THE EXERCISE OF
APPRAISAL RIGHTS WILL RESULT IN THE TERMINATION OR WAIVER OF THESE RIGHTS.
44
THE CENTILLION MERGER AGREEMENT
The following is a summary of the material terms of the Centillion merger
agreement, a copy of which is attached as Annex A to this proxy statement and is
incorporated herein by reference. Holders of CTIG common stock and Centillion
common stock are urged to read the Centillion merger agreement in its entirety.
The Centillion merger agreement provides that, following the approval of
the Centillion merger by the holders of CTIG common stock and the holders of
Centillion common stock and the satisfaction or waiver of the other conditions
to the Centillion merger, Centillion will merge with, and into, CTIG, with CTIG
becoming the surviving corporation. The holders of Centillion common stock will
become holders of Class A common stock and Class B common stock.
If the Centillion merger agreement is approved by a majority of the holders
of CTIG common stock and Centillion common stock, and the other conditions to
the Centillion merger are satisfied or waived, the closing will take place
within two business days following the date on which the last of the conditions
is satisfied or waived, or at any other time and date to which CTIG and
Centillion mutually agree. As soon as practicable, after the closing date, CTIG
will cause a certificate of merger to be filed with the Secretary of State of
the State of Delaware as provided in Section 251 of the DGCL and Centillion will
cause articles of merger to be filed with the Secretary of State of Indiana as
provided in Section 23-1-40-5 of the Indiana Business Corporation Law. The
Centillion merger will become effective upon the filing of the certificate of
merger and articles of merger or at a later time as is specified in those
documents. Subject to the satisfaction (or waiver) of the other conditions to
the obligations of CTIG and Centillion to consummate the merger, it is presently
expected that the Centillion merger will be consummated during the third
calendar quarter of 2000. See "The Centillion Merger Agreement -- Conditions to
Obligations to Effect the Merger."
Conversion and Issuance of Shares
Shares Issued at Effective Time. The Centillion merger agreement provides
that the Centillion merger will be effected by the merger of Centillion with and
into CTIG, with CTIG being the surviving corporation.
At the effective time, all issued and outstanding Centillion common stock
will be converted pro rata, into
(1) 9,080,738 shares of Class A common stock (subject to adjustment as
described below).
(2) 3,500,000 shares of Class B common stock which may be converted to
Class A common stock, as described below (subject to adjustment as
described below).
(3) the right to receive up to an additional 3,215,100 shares of Class A
common stock which will be placed in escrow at the effective time, as
described below.
(4) the right to receive additional shares of Class A common stock (the
"Additional Stock Rights") attributable to specified Centillion assets
that will be transferred to a new limited liability company prior to
the merger, as described below.
Under the Centillion merger agreement, Centillion has the option to
increase the number of shares of Class A common stock issued at the effective
time from 9,080,738 to 9,747,404, and decrease the number of shares of Class B
common stock from 3,500,000 to 2,833,334. This option may be exercised by
increasing the cash Centillion is required to have reflected on its balance
sheet at the effective time by $1,500,000 to $8,000,000 (minus expenditures made
by Centillion for software in its billing business in fiscal year 2000, to a
maximum deduction of $1,500,000). Centillion has committed to exercise this
option.
Escrowed Class A Common Stock. The release of the escrowed stock depends
upon revenues received from (1) Centillion's largest customer (Sprint
Communications Company LP) over a three year period commencing on September 20,
2000, which is the date Centillion's current contract with Sprint expires, and
(2) business obtained during that three
45
year period from companies that are defendants in Centillion's patent
infringement actions, or who have been sent letters prior to closing indicating
that they may be infringing Centillion's patents. If the total revenue from
these sources over the three year period equals or exceeds $12,000,000, then all
of the escrowed stock will be issued at the end of the period. If the revenues
are less than $12,000,000, a proportionate number of shares of the escrowed
stock will be forfeited. However, the pre-merger Centillion stockholders will be
entitled to purchase the forfeited shares at a purchase price of $1.50 per
share.
Additional Stock Rights. In addition to its billing division, Centillion
owns portions of four companies (the "Other Entities". While the billing
division will be an integral part of CTIG's operations after the Centillion
merger, the Other Entities will not be a part of CTIG at all. Prior to the
closing, the Other Entities will be sold to the Holding LLC which will be owned
by the present stockholders of Centillion. Along with the Other Entities,
Centillion is transferring cash in the approximate amount of $6.3 million and
certain employees, together with assets and liabilities related to such
employees, as well as other miscellaneous assets. The sale price for the Other
Entities and the other assets being transferred will be approximately $10
million, which represents their fair market value. The value of the $10 million
will be satisfied by the Holding LLC giving Centillion a promissory note, which
will be subsequently acquired by CTIG as a result of the Centillion merger.
The basic terms of the promissory note are:
o Interest will be at the minimum rate set by the Internal Revenue
Service.
o Payments of principal and interest will be made only when the Holding
LLC sells all or a portion of the Other Entities, or at the end of ten
years.
o When principal payments on the promissory note are made, additional
shares of Class A common stock will be issued by the Company to the
present stockholders of Centillion equal to the value of the principal
paid. The shares of Class A common stock will be valued at 88 percent
of the market value of the Class A common stock at time of issuance. A
formula is used to determine the market value by using the average of
the market price over the preceding 20 business days.
o If the promissory note has not been paid in full five years after the
effective time, an appraisal of its value will be obtained. Shares of
Class A common stock will be issued to the pre-merger Centillion
stockholders based on this appraisal, at the same value of Class A
common stock described above.
The procedure described above is intended to provide Centillion
stockholders with proper payment in Class A common stock for the promissory
note. Rather than just relying on a current appraisal, this method allows for
Class A common stock to be issued during the first five years only when actual
payments are received. If an appraisal is needed later (i.e., five years after
the closing date), there will be five more years of operations to consider for
purposes of accurately valuing the Shareholder LLC Promissory Note transferred
by Centillion to CTIG pursuant to the Centillion merger.
Class B Common Stock. Centillion's assets include two registered patents.
Centillion has various claims against other companies for violating these
patents. Centillion has already reached successful settlements on some patent
infringement lawsuits, has additional pending lawsuits and may make additional
patent claims in the future. The value of these current and potential claims is
difficult to determine. To fairly compensate Centillion stockholders for the
value of these claims, it was agreed that CTIG would issue a class of stock
(that being the Class B common stock) the value of which would be tied to the
economic performance of the patent rights claims. Prior to the effective time of
the Centillion merger, these patent claims, the underlying patents and the right
to make future claims will be contributed by Centillion to the Tracking LLC, the
ownership interests in the Tracking LLC will be transferred to CTIG pursuant to
the Centillion merger, and the Class B common stock will be issued to Centillion
stockholders as part of the consideration for their Centillion shares. As a
result, the Tracking LLC and the assets it owns will remain a part of, and under
the control of CTIG. Class B stockholders have no direct or exclusive financial
interests in the assets of the Tracking LLC.
46
The assets of the Tracking LLC are available to all creditors of CTIG. CTIG's
Board of Directors does not have the power to move the assets or liabilities of
the Tracking LLC without shareholder approval.
The Class B common stock is a mechanism through which the pre-merger
stockholders of Centillion can possess an ownership interest in CTIG which
reflects an ownership interest in the patent claims held by the Tracking LLC. At
any time within an initial conversion period commencing at the effective time
and ending on the earlier of two years after the effective time or the date
Centillion stockholders cease to own at least 51% of Class A common stock, CTIG
can convert the Class B common stock into Class A common stock. For a three year
period after the initial conversion period, the holders of the Class B common
stock can convert the Class B common stock into shares of Class A common stock.
All Class B common stock shall convert, on a mandatory basis, if the Tracking
LLC transfers 50% or more of its equity interests, or any such transfer results
in receipt of more than $7,500,000. A mandatory conversion may not be effected
prior to the fourth anniversary of the effective time. All conversions of Class
B common stock shall be based upon the value of the Tracking LLC at the time of
conversion. Any conversion of Class B common stock during the first year after
the closing shall be at Class A common stock value per share of $2.25 for the
first 333,334 shares of Class A common stock issued, and at 88% of the average
market price of Class A common stock at the time for shares beyond 333,334. All
other conversions, other than a mandatory conversion, shall be at 88% of the
average market price of Class A common stock. Any mandatory conversion shall be
at 100% of the average market price. Affiliates of Centillion's current
stockholders have committed to loan up to $2,000,000 on a non-recourse basis to
the Tracking LLC to pursue its patent infringement litigation.
Exchange of Stock Certificate
As soon as reasonably practicable after the effective time, CTIG will have
its appointed exchange agent mail to each holder of Centillion common stock (i)
a transmittal letter stating that certificates representing Class A common stock
and Class B common stock will be sent to holders of Centillion common stock only
upon delivery of Centillion stockholder's stock certificates to the exchange
agent, and (ii) instructions for holders of shares of Centillion common stock to
exchange their certificates for the applicable shares of Class A common stock
and Class B common stock. Upon surrender of Centillion common stock to the
exchange agent together with the transmittal letter completed and executed by a
Centillion stockholder, the Centillion certificates, a stockholder will receive
the whole number of the shares of Class A common stock and Class B common stock
that the holder has the right to receive, and a check in the amount equal to the
cash that the holder has the right to receive in lieu of any fractional shares.
The Centillion share certificates surrendered will be canceled. No interest will
be paid or will accrue on any cash payable for fractional shares.
No Further Ownership Rights In Centillion Common Stock. All shares of Class
A common stock and Class B common stock (and cash in lieu of fractional shares)
issued upon the surrender for exchange of certificates, which immediately prior
to the effective time represented shares of Centillion common stock, will be
deemed to have been issued (and paid) in full satisfaction of all rights
pertaining to the shares of Centillion common stock represented by those
certificates.
Fractional Shares. No fractional shares of CTIG common stock will be issued
in the Centillion merger. In lieu of any fractional shares, each holder of
shares of Centillion common stock outstanding immediately prior to the effective
time, exchanged pursuant to the Centillion merger, who would otherwise have been
entitled to receive a fraction of a share of Class A common stock or Class B
common stock (after taking into account all certificates representing shares of
Centillion common stock delivered by the holder) will receive, in lieu thereof,
cash (without interest) in an amount equal to this fractional part of a share of
CTIG common stock multiplied by the per share average market price for Class A
common stock or $1.50 per share for Class B common stock. The term "Average
Market Price of Class A Common Stock" is based on a 20 business day market price
average.
Dividends and Distributions. No dividends or other distributions declared
or made with respect to Class A common stock or Class B common stock with a
record date after the effective time will be paid to the holder of any
unsurrendered Centillion common stock certificate with respect to the shares of
Class A common stock or Class B common stock that
47
the holder would be entitled to receive upon surrender of that certificate, and
no cash payment in lieu of fractional shares will be paid to any such holder
until the holder of record of such certificate surrenders such certificate to
CTIG.
No Liability. None of CTIG, Centillion, or the exchange agent will be
liable to any third party for any shares of CTIG common stock (or cash in lieu
of fractional shares of CTIG common stock or any dividends or distributions with
respect thereto) delivered to a public official pursuant to any applicable
abandoned property, escheat or similar law.
Lost Certificates. If any certificate which prior to the effective time
represented shares of Centillion common stock shall have been lost, stolen or
destroyed, then upon the making of an affidavit of that fact by the person
claiming the certificate to be lost, stolen or destroyed and, if required by
CTIG, the posting of a bond as indemnity against any claim that may be made
against it with respect to that certificate, the exchange agent will issue in
exchange for the lost, stolen or destroyed certificate the shares of Class A
common stock and Class B common stock, and any cash in lieu of fractional shares
and unpaid dividends and distributions on shares of CTIG common stock otherwise
deliverable in respect thereof.
Representations and Warranties
The Centillion merger agreement contains various customary representations
and warranties, subject to identified exceptions, relating to, among other
things, (a) due organization, valid existence and good standing of each of CTIG,
Centillion and their respective material subsidiaries and some similar corporate
matters; (b) the capital structure of each of CTIG and Centillion; (c) the
authorization, execution, delivery and enforceability of the Centillion merger
agreement and related documents, the consummation of the transactions
contemplated by the Centillion merger agreement and documents and related
matters; (d) conflicts under certificate of incorporations or by-laws, required
consents or approvals and violations of any instruments or law; (e) documents
and financial statements of CTIG and Centillion and the accuracy of information
contained therein; (f) the absence of undisclosed liabilities; (g) the absence
of certain material adverse events, changes or events; (h) taxes and tax
returns; (i) properties; (j) intellectual property; (k) agreements, contracts
and commitments; (l) litigation; (m) environmental matters and hazardous
materials; (n) employees, independent contractors and labor matters; (o)
employee benefit plans; (p) compliance with laws and permits; (q) the accuracy
of information supplied by each of CTIG and Centillion in connection with the
registration statement to be filed by CTIG in connection with the issuance of
the Class A common stock and this proxy statement; (r) insurance; and (s)
conflicts of interest. In addition, Centillion has made representations and
warranties concerning the transfer of the Other Entities to the Holding LLC and
the assets of the billing division that will remain in Centillion.
Covenants
Conduct of Business. The Centillion merger agreement provides that each of
CTIG and Centillion has agreed that, during the period from the date of the
signing of the Centillion merger agreement until the effective time, except as
contemplated by the Centillion merger agreement, it and each of its respective
subsidiaries will: (a) carry on its business in the usual, regular and ordinary
course in substantially the same manner as previously conducted, and not enter
into any new line of business; (b) pay its debts and taxes when due subject to
good faith disputes over these debts or taxes, and pay or perform other
obligations when due; (c) use reasonable efforts consistent with past practices
to preserve intact its present business organization, management team and
business relationships; (d) not accelerate, amend or change the period of
exercisability of options or restricted stock granted under any employee stock
plan or authorize cash payments in exchange for any options granted under any
employee stock plan, except as required pursuant to the plan or any related
agreement; (e) not declare or pay any dividends on or make other distributions
in respect of any of its capital stock, not effect certain other changes in its
capitalization; (f) not issue or sell, or authorize or propose the issuance or
sale of, any shares of its capital stock or securities convertible into or
exchangeable for shares of its capital stock, or any subscriptions, rights,
warrants or options to acquire or other agreements or commitments of any
character obligating it to issue any such shares or other convertible
securities, other than the issuance of shares upon the exercise of outstanding
stock options, but only if these options were outstanding on February 3, 2000;
(g) not make any material acquisitions; (h) not sell, lease, license or
otherwise dispose of material properties or assets outside the ordinary course
of business; (i) not increase the compensation payable to its directors,
officers or employees (except for increases to non-officer employees consistent
with past practices), grant additional severance or termination pay or enter
into employment or
48
severance agreements with any consultants, employees, officers or directors,
enter into any collective bargaining agreement (other than as required by law)
or establish, adopt, enter into or amend any plan for the benefit of its
directors, officers, employees or consultants; (j) not amend its certificate of
incorporation or certificate of incorporation, as the case may be, or bylaws,
except as provided for in the Centillion merger agreement; (k) not incur
indebtedness for money borrowed other than in the ordinary course of business;
(l) not take any action that would or is reasonably likely to result in a
material breach of any provision of the Centillion merger agreement to which it
is a party or in any of its representations or warranties set forth in the
Centillion merger agreement to which it is a party being untrue as of and on the
closing date; (m) not make or rescind any material tax elections, including any
actions which would prevent the Centillion merger from qualifying for tax-free
treatment under the Code, settle any tax claims or make any material change in
its accounting methods; (n) make its reasonable best efforts to carry out the
terms of the Centillion merger agreement; (o) make its reasonable best efforts
to obtain all consents, waivers, approvals or permits of any governmental
entity; (p) develop a joint communications plan and obtain the other party's
consent before issuing any press releases or public statements; (q) notify the
other party of any fact which would result in the breach of any of the above
warranties or covenants; (r) provide access to all corporate records and other
information to the other party; (s) hold, as promptly as possible, a
stockholders' meeting to vote on approval of the merger.
No Solicitation. The Centillion merger agreement provides that neither CTIG
nor any of its subsidiaries will authorize or permit any of its directors,
officers or employees or representatives to solicit, initiate, or encourage or
take any other action to facilitate, the making of any proposal or offer for the
acquisition of 20% or more of the assets or voting equity of CTIG or engage in
any discussion with respect to such a proposal. However, prior to the special
meeting, CTIG's board of directors, in the exercise of its fiduciary duty may
furnish information and engage in discussions on negotiations if it receives a
proposal for the acquisition of 50% or more of the assets or voting securities
of CTIG which is more favorable to CTIG's stockholders than the Centillion
merger, is reasonably capable of being completed and for which financing is
reasonably capable of being obtained. The board of directors may only modify its
recommendation with respect to the Centillion merger, if it does so in response
to a superior proposal. In addition, the CTIG board of directors may, in the
exercise of its fiduciary duties and subject to the terms of the Centillion
merger agreement, terminate the Centillion merger agreement and accept the
superior proposal.
CTIG has agreed to file a registration statement to register the resale of
the shares of Class A common stock to be issued in the merger.
Special Meetings. The Centillion merger agreement provides that each of
CTIG and Centillion will call a meeting of its respective stockholders to be
held as promptly as practicable for the purpose of voting upon the Centillion
merger agreement and the Centillion merger. Subject to the discussion above
under "The Centillion Merger Agreement -- Covenants -- No Solicitation," the
board of directors of each of CTIG and Centillion agreed to recommend to its
respective stockholders adoption of the Centillion merger agreement and approval
of these matters, to coordinate and cooperate with respect to the timing of its
special meeting and to use its best efforts to hold the meeting on the same day
as the other party's special meeting and as soon as practicable after the date
of the Centillion merger agreement. Unless otherwise required to comply with the
applicable fiduciary duties of the directors of CTIG, as determined by the
directors in good faith after consultation with outside legal counsel, each
party agreed to use all reasonable efforts to solicit from its stockholders
proxies in favor of the Centillion merger.
Post-Merger Corporate Governance; Employment Arrangement. The Centillion
merger agreement provides that some corporate governance matters relating to
CTIG will be as described above under "The Centillion Merger -- Interests of
Certain Persons in the Merger -- Board of Directors and Committees of CTIG" and
"The Resulting Company -- Directors and Executive Officers." The Centillion
merger agreement also provides that CTIG will enter into an executive employment
agreement and have executive officers as described under "The Centillion Merger
- -- Interests of Certain Person in the Merger -- Employment Agreement" and "The
Resulting Company -- Directors and Executive Officers." The Centillion merger
agreement provides that CTIG will have an executive committee which initially
will be comprised of the following: Michael Leeds, Harold Garrison and Rupert
Armitage. See "The Resulting Company."
49
Stock Option and Benefit Plans. At the effective time, the CTIG stock
option and restricted stock plan and any benefit plans in effect at the time
will cover employees of Centillion who become employees of CTIG after the
Centillion merger.
Indemnifications. For a period of one year after the effective time, CTIG
and Centillion shall indemnify each other and their stockholders against damages
resulting from a breach of their respective representations, warranties or
agreements under the Centillion merger agreement. Claims for indemnification
damages on behalf of CTIG or its stockholders shall be made by the Class III
directors to the board of directors and a decision is to be made by the
affirmative vote of a majority of the Class I and II directors. Claims for
indemnification damages on behalf of Centillion or its stockholders shall be
made by the Class I and II directors to the board of directors and a decision is
to be made by the affirmative vote of a majority of the Class III directors. If
an affirmative vote is not obtained, the decision can be submitted to
arbitration by the directors asserting the claim. The remedy for damages found
to be due CTIG or its stockholders shall be a reduction in the number of shares
that would otherwise be issued either as a result of a distribution of the
escrowed stock, issued pursuant to the terms governing the Shareholder LLC
Promissory Note or conversion of shares of Class B Common Stock. The remedy for
damages found to be due Centillion or its stockholders shall be an increase in
shares of Class A common stock issued to the pre-merger Centillion Stockholders
in the amount of those damages, adjusted for dilution to these stockholders.
The Centillion merger agreement provides that CTIG, after the Centillion
merger, will indemnify and hold harmless former directors or officers of
Centillion and its subsidiaries as provided in their respective certificate of
incorporation or by-laws and indemnification agreements for acts or omissions
occurring at or prior to the effective time. The merger agreement also provides
that if CTIG is a party to a further consolidation or merger, and is not the
surviving party in that transaction, it will make a reasonable effort to require
the surviving corporation to continue the indemnification of prior Centillion
officers and directors.
Conditions to Obligations to Effect the Centillion Merger
The respective obligations of CTIG and Centillion to effect the Centillion
merger are subject to the satisfaction (or waiver) of the following conditions:
(a) the Centillion merger agreement and the Centillion merger shall have been
approved in the manner required under the Delaware General Corporation Law and
the Indiana Business Corporation Law, as the case may be, by the respective
holders of the issued and outstanding shares of capital stock of CTIG and
Centillion; (b) the merger will not be prohibited by any order, judgment or
ruling of any court or other governmental entity; (c) CTIG must receive the
written opinion of First Colonial Securities Corporation that the Centillion
merger is fair, from a financial point of view, to CTIG's stockholders; (d) the
employment agreement with Anthony P. Johns must be executed; (e) Centillion must
enter into a security agreement with certain stockholders regarding the
promissory note issued in connection with the Additional Stock Rights, which is
attached to this proxy statement at Annex D; (f) the representations and
warranties made by each of Centillion and CTIG are true and correct as of the
effective time; (g) Centillion must transfer specified assets to the Tracking
LLC, as described in "The Centillion Merger Agreement -- Conversion and Issuance
of Shares -- Additional Stock Rights" and in section 6.2(c) of the Centillion
merger agreement; (h) the adjusted balance sheet of Centillion, on and as of the
effective time (which shall be certified by Centillion's chief financial
officer) must reflect: (1) net current assets (i.e., current assets less current
liabilities) of not less than $1.00; (2) cash of not less than $8,000,000 (minus
expenditures made by Centillion for software in its billing business in fiscal
year 2000, to a maximum deduction of $1,500,000)- (3) no long term liabilities
other than deferred taxes, (4) net worth of not less than $2,000,000, after
eliminating from consideration in determining this net worth (x) $8,000,000 of
cash, (y) the Shareholder LLC Promissory Note and (z) the legal claims of
Centillion which are being transferred to the Tracking LLC, in connection with
the issuance of the Class B common stock, and (5) all earnings of Centillion's
billing business for the period from January 1, 2000 to the effective time; (i)
there must not have been any event that has occurred to either Centillion or
CTIG which has caused a material adverse effect (as that term is defined in the
merger agreement) to their respective businesses; (j) holders of no more than 5%
of the issued and outstanding shares of CTIG common stock shall have made the
demands and given the notices required under Delaware law to assert dissenters'
appraisal rights; (k) any severance obligations as a result of a change of
control or termination of employment which are owed by Centillion must be paid
prior to closing; (l) there must be no change in the law which would prevent the
merger
50
from being treated as a tax-free reorganization under the Code; and (m) the
price of Class A common stock must not be below $1.26 per share.
Termination; Termination Fees and Expenses
The Centillion merger agreement may be terminated at any time prior to the
effective time by CTIG or Centillion:
(a) by the mutual written consent of CTIG and Centillion;
(b) By either CTIG or Centillion if the effective time does not occur on or
before September 30, 2000. However, this right to terminate shall not
be available to any party whose intentional failure to fulfill any
material obligation under the Centillion merger agreement has caused,
or resulted in, the failure of the effective time to occur on or before
that date;
(c) By either CTIG or Centillion if any governmental entity (i) has issued
an order, decree or ruling or taken any other action permanently
restraining, enjoining or otherwise prohibiting the transactions
contemplated by the Centillion merger agreement, and such order,
decree, ruling or other action has become final and non-appealable or
(ii) shall have failed to issue an order, decree or ruling or to take
any other action (which order, decree, ruling or other action the
parties shall have used their reasonable best efforts to obtain, in
accordance with the Centillion merger agreement);
(d) By either CTIG or Centillion if either (i) the approval by the
stockholders of Centillion required for the consummation of the
Centillion merger has not been obtained or (ii) the approval by the
stockholders of CTIG required for the consummation of the Centillion
merger has not have been obtained;
(e) By CTIG, if it obtains a superior proposal (See "The Centillion Merger
Agreement -- Covenants -- No Solicitation) from a third party. If CTIG
claims the benefit of this section, it must comply with notice
provisions and pay the termination fee described below;
(f) By Centillion, if CTIG has breached or failed to perform any of its
representations, warranties, covenants or other agreements contained in
the Centillion merger agreement, which breach or failure to perform (A)
would give rise to the failure of a condition of the Centillion merger
agreement and (B) has not been or is incapable of being cured by CTIG
within 14 calendar days after receipt of written notice of that breach
from Centillion;
(g) By CTIG, if Centillion has breached or failed to perform any of its
representations, warranties, covenants or other agreements contained in
the Centillion merger agreement, which breach or failure to perform (A)
would give rise to the failure of a condition of the Centillion merger
agreement and (B) has not been or is incapable of being cured by
Centillion within 14 calendar days after its receipt of written notice
thereof from CTIG; or
(h) By Centillion, in the event that CTIG takes any action relating to the
modification or a public proposal to modify the terms of the Centillion
merger or the Centillion merger agreement in response to a CTIG
superior proposal.
In the event of any termination of the Centillion merger agreement by
either CTIG or Centillion as provided above, the merger agreement will become
void and there will be no liability or obligation (with limited exceptions) on
the part of CTIG, Centillion, or their respective officers, directors,
stockholders or affiliates, except as provided below with respect to termination
fees in some circumstances and except that such termination will not limit
liability for a willful and material breach of the Centillion merger agreement;
provided that, the indemnification provisions described above under
"Indemnifications" and the termination fee provisions described below will
remain in full force and effect and survive any termination of the Centillion
merger agreement.
51
Except as discussed in the following paragraph, if the Centillion merger is
not consummated, all fees, costs and expenses incurred in connection with the
Centillion merger agreement and the transactions contemplated thereby will be
paid by the party incurring such expenses.
If CTIG terminates the Centillion merger agreement because it has received
and accepted a CTIG superior proposal CTIG is required to pay to Centillion a
termination fee of $1.5 million within five business days after this
termination. This fee is non-refundable, and is Centillion's sole remedy for a
termination by CTIG.
Amendment and Waiver
The Centillion merger agreement may be amended by CTIG and Centillion at
any time before or after any approval of the Centillion merger agreement by the
stockholders of CTIG and/or Centillion. However, after any approval by the
Centillion stockholders, no amendment may be made by Centillion which decreases
the amount of consideration that Centillion stockholders will be receiving under
the Centillion merger, or adversely affects the rights of Centillion's
stockholders without the approval of a majority of the holders of common stock
of Centillion. In addition, after any approval by the CTIG stockholders, no
amendment may be made by CTIG which increases the amount of consideration that
Centillion stockholders will be receiving under the Centillion merger, or
adversely affects the rights of CTIG stockholders without the approval of a
majority of the holders of common stock of CTIG. The agreement may only be
amended by an instrument in writing signed on behalf of all the parties.
52
THE BUSINESS OF CENTILLION
Overview
Centillion provides traditional paper billing and electronic billing and
analysis services to the telecommunications industry. It was established in 1983
and is headquartered in Indianapolis, Indiana.
Smart Bill(R)
Centillion's primary service is based on its Smart Bill system which is an
electronic billing analysis tool. This service is currently sold via distributor
relationships with telecommunications providers who make it available to their
business customers.
Telecommunications companies provide Centillion complete billing
information for their Smart Bill customers. This data is first processed by
Centillion's main frame computers using Centillion's patented technology. The
processed data is then made available to the telecommunications company's Smart
Bill customers on diskette, CD Rom or via the internet. These customers utilize
the Smart Bill end user application to access over 200 standard reports or they
can utilize the ad hoc system to create customized reports. Smart Bill also
allows customers to access a flat rate or percentage mark-up for rebilling
telecom charges to internal or external clients.
Processing of more than 600 million calls for more than 7,000 end users is
normally accomplished in less than two days although contracts allow five day
turnaround.
Traditional Billing
Centillion also provides billing and customer care services to clients
using the company's traditional billing software. On a limited basis, this
service can combine long distance, local call, wireless and data charges.
Traditional billing only represents a small component of Centillion's business
at the present time (7% in 1999). Centillion has been developing a new product
which will enable it to more aggressively enter this convergent segment of the
market. Centillion believes that traditional billing represents the largest
component of its telecommunications billing opportunity and, therefore, future
growth is most likely to come from this area.
Customers
Centillion currently has eight customers for Smart Bill. Sprint accounted
for approximately 82% of its billing division revenue in 1999. Centillion has a
three year contract with Sprint that expires in September 2000. Centillion is
hopeful this contract will be renewed but cannot predict whether that will occur
or, if it occurs, the terms of any new contract.
Patent and Patent Litigation
Centillion has two patents on its Smart Bill process. These patents enable
customer data to be sorted in a manner so that the customer's generation of
reports is much faster than using a non-patented method. Several
telecommunications companies have developed programs to replicate Centillion's
patented process which the company believes violates its patents. Centillion has
instituted several legal actions alleging that the telecommunications companies
being sued have improperly copied Centillion's patents. As a matter of course,
the defense of these lawsuits attack the validity of Centillion's patents.
Centillion does not anticipate that these attacks will be successful but the
results of litigation are difficult to predict. Centillion's suits against AT&T
and Ameritech Corporation were settled resulting in their purchasing licenses
for Centillion's patents. Ameritech's settlement included its affiliates SBC
Communications, Inc., Pacific Bell, Inc. and Southwestern Bell
Telecommunications. Inc. As a result of this purchase, AT&T and SBC and its
subsidiaries can provide their customers a product similar to Smart Bill.
53
Employees
Centillion has approximately 98 employees most of whom are located in
Indianapolis, Indiana, approximately 62 of whom will be continuing with CTIG
after the merger. None of Centillion's employees is represented by a labor
union. Centillion considers its relations with its employees to be good.
Competitors
There are numerous competitors in the traditional billing area. Many
companies perform these services in-house while others outsource. There are only
a few competitors selling a product which directly competes with Smart Bill.
However, several telecommunications companies offer a similar product using
in-house resources. Centillion is suing several of these telecommunications
companies alleging patent infringement.
Properties
Centillion leases 38,758 square feet in Indianapolis, Indiana at a cost of
$16.27 per rentable square foot. The lease expires on November 30, 2003. The
landlord is an affiliate of Centillion stockholders, Harold Garrison, Cornelius
Alig and Salah Osseiran. In Centillion's opinion, the terms of the lease are at
least as favorable as terms available from a non-affiliated landlord. Messrs.
Garrison and Osseiran serve on Centillion's board of directors and will serve on
CTIG's board of directors after the completion of the Centillion merger.
Contracts with Related Entities
XILA, LLC provides local and long distance telephone and data services to
local businesses. XILA operates in Indianapolis, Indiana and is organized under
the laws of Indiana. XILA is a wholly-owned subsidiary of eNova, LLC.
Approximately 47% of eNova is owned by Centillion with another 45% owned by the
current Centillion stockholders.
XILA is one of Centillion's current customers that distributes and utilizes
the Smart Bill system. For the years ending December 31, 1997, 1998 and 1999,
XILA paid Centillion $8,083, $10,547 and $7,685 pursuant to the terms of the
contract between Centillion and XILA. For the six months ended June 30, 2000,
XILA paid Centillion $3,819 pursuant to the terms of the contract between
Centillion and XILA.
Centillion also has a month-to-month contract with XILA whereby XILA
provides to Centillion telecommunication services including the arrangement of
Centillion's use of local exchange services and facilities from Indiana Bell
Telephone as well as the arrangement of joint and shared usage of facilities
leased from other common carriers. In addition to the services provided under
the contract, XILA leases to Centillion telecommunication equipment, which
includes telephones, switchboards, data lines and other computer related
equipment. Throughout the initial term of the lease and all renewal terms, the
equipment continues to be the sole and exclusive property of XILA. Monthly
charges fluctuate depending upon usage, and average $12,000 per month.
A number of Centillion's employees provide management and clerical services
for XILA from Centillion's office. XILA paid Centillion $19,145, $21,203 and
$28,966 for the calendar year ended December 31, 1997, 1998 and 1999 for their
services. XILA paid Centillion $12,405 for the six months ended June 30, 2000.
54
CENTILLION MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS OF CENTILLION
Cautionary Statements Regarding Forward-Looking Statements
This report contains "forward-looking" statements. Examples of
forward-looking statements include, but are not limited to: (a) projections of
revenues, capital expenditures, growth, prospects, dividends, capital structure
and other financial matters; (b) statements of plans and objectives of
Centillion or its management or Board of Directors; (c) statements of future
economic performance; (d) statements of assumptions underlying other statements
and statements about Centillion and its business relating to the future; and (e)
any statements using the words "anticipate", "expect", "may", "project",
"intend" or similar expressions.
Centillion's ability to predict projected results or the effect of events
on Centillion's operating results is inherently uncertain. Forward-looking
statements involve a number of risks, uncertainties and other factors that could
cause actual results to differ materially from those discussed in this document.
In addition to information provided elsewhere in this document, shareholders
should consider the following: the risk that Centillion will not be able to
attract and retain customers to purchase its products, the risk that Centillion
will not be able to commercialize and market products; results of research and
development; technological advances by third parties; competition; future
capital needs of Centillion; history of operating losses; dependence upon key
personnel and general economic and business conditions.
Background
Centillion provides traditional paper billing and electronic billing and
analysis services to the telecommunications industry. It was established in 1983
and is headquartered in Indianapolis, Indiana where it has approximately 62
employees. Its primary product is Smart Bill which is an electronic billing
analysis tool. This product is currently sold via distributor relationships with
telecommunications providers who make it available to their business customers.
Centillion holds two patents which are embodied in the Smart Bill product and
data preparation process. Centillion currently produces Smart Bill software and
Smart Bill monthly data for eight telecommunications providers, the largest of
which is Sprint. Additionally, it has also licensed its patents to AT&T and SBC.
Results of Operations - Three and Six months Ending June 30, 2000 Compared to
Three and Six months Ending June 30, 1999
Revenues from continuing operations for the three months ended June 30, 2000
were $2,729,940 compared to $2,699,929 for the three months ended June 30,1999,
an increase of 1% in the three months ended June 30, 2000. Of the recurring
continuing operations revenues, 84% in the three months ended June 30, 2000 and
83% of the three months ended June 30, 1999 were from a single customer.
Revenues from continuing operations for the six months ended June 30, 2000 were
$12,857,919 compared to $5,320,723 in the six months ended June 30, 1999.
However, eliminating $7,500,000 in one-time 2000 revenues derived from licenses
resulting from patent litigation settlements, the six months ended June 30, 2000
revenues were $5,357,919, an increase of 1% over the six months ended June 30,
1999. Of the recurring continuing operations revenues, 84% in the six months
ended June 30, 2000 and 84% of the six months ended June 30, 1999 were from a
single customer.
Cost of revenues were $1,335,679 in the three months ended June 30, 2000 and
$930,153 in the three months ended June 30,1999. The cost of revenues were 49%
of revenue in the three months ended June 30, 2000 and 34% in the three months
ended June 30,1999. The difference resulted from an increase in development
costs of $118,436, an increase in patent litigation costs of $140,994, and an
increase in production costs of $146,096.
Eliminating $2,356,549 of pre-tax patent litigation costs in the six months
ended June 30, 2000, cost of revenues were $2,240,920 in the six months ended
June 30, 2000 and $1,880,894 in the six months ended June 30,1999. The
55
cost of revenues were 42% of revenue in the six months ended June 30, 2000 and
35% in the six months ended June 30,1999. The difference resulted from an
increase in development costs of $68,835 and an increase in production costs of
$291,191.
Operating expenses were 22% of revenues in the three months ended June 30, 2000
and 20% of revenues in the three months ended June 30,1999. Without one-time
license revenues, operating expenses were 20% of revenues in the six months
ended June 30, 2000 and 18% of revenues in the six months ended June 30,1999.
The increases were attributable to additional corporate marketing staffing and
non-capitalizable merger expenses.
Other income increased to $724,802 in the three months ended June 30, 2000 from
a negative $7,015 in the three months ended June 30,1999. Other income increased
to $1,242,384 in the six months ended June 30, 2000 from $85,862 in the six
months ended June 30,1999. These increases were the result of liquidating a
portion of the company's equity investments during the six months ended June 30,
2000 and realizing the gain. The liquidation of the investments was in
anticipation of the merger of Centillion with CTIG.
The tax rate, which reflects both federal and state taxes, was 39% for the three
months ended June 30, 2000 and 40% for the three months ended June 30,1999. The
tax rate was 39% for the six months ended June 30, 2000 and 40% for the six
months ended June 30,1999. The differences are due to additional non-deducible
expenses in 1999.
Non-telecommunications software activities for the three months ended June 30,
1999 are classified as Discontinuing Operations in anticipation of their sale
prior to the merger of Centillion with CTIG. In the three months and six months
ended June 30, 2000 the losses from these activities were offset against the
combination of an accrued liability established at December 31, 1999 and an
additional reserve of $648,582 established at June 30, 2000. The additional
reserve is estimated to cover the losses of the Discontinuing Operations until
their sale.
Liquidity and Capital Resources
Centillion is currently financing operations through cash generated from
operations. On June 30, 2000 it had $15,703,912 in cash, cash equivalents, and
securities available for sale and on June 30, 1999 the corresponding amount was
$11,389,259. The increase is the result of the one-time revenues realized in the
three months ended March 31, 2000 and the investment income from June 30, 1999
to June 30, 2000.
During the three months ended June 30, 2000, Centillion invested $642,725 in
telecommunications software development. In the three months ended June 30, 2000
Centillion capitalized $53,552 of expenses incurred in the development of
version 7.0 of its Smart Bill(R) product. In the three months ended June 30,
2000 Centillion capitalized $340,563 of expenses incurred in the continued
development of Magnaflex, its new client server, convergent, traditional billing
system.
During the six months ended June 30, 2000, Centillion invested $1,226,540 in
telecommunications software development. In the six months ended June 30, 2000
Centillion capitalized $134,086 of expenses incurred in the development of
version 7.0 of its Smart Bill(R) product. In the six months ended June 30, 2000,
Centillion capitalized $586,184 of expenses incurred in the continued
development of Magnaflex, its new client server, convergent, traditional billing
system.
On June 30, 2000 Centillion had approximately $1,064,966 invested in marketable
securities. On June 30, 1999 Centillion had approximately $4,934,513 invested in
marketable securities. The difference is the result of Centillion selling its
marketable securities in preparation for its merger with CTI Group [Holdings},
Inc. The final return on the securities is subject to the risks associated with
the stock market. Centillion has also invested in tax exempt industrial rate
bonds, with a rate that varies weekly. The bonds include a weekly put back
option at face value so there is no risk to changes in the market. On June 30,
2000 Centillion had $8,565,164 invested in these bonds which are considered a
cash equivalent.
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Year 2000 Compliance
In 1997 Centillion appointed a Year 2000 Task Force to assess the scope of
Centillion's risks and to bring its applications, both internal and external,
into compliance. Through 1999 Centillion spent approximately $150,000 getting
compliance statements from external vendors and examining and testing its own
internal systems. The few problems that were identified were fixed prior to
December 31, 1999. No Year 2000 problems were encountered in the six months
ended June 30, 2000.
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PROPOSAL II
THE CELLTECH MERGER PROPOSAL
Background of the Celltech Merger
In mid-January 2000, during the final stages of the negotiations of the
Centillion merger agreement, CTIG was informed that Sokoloff & Co. had been
retained by a Houston, Texas-based company that specializes in wireless
telephone billing. Being familiar with CTIG's plans to develop a convergent
billing solution, the investment banker suggested that CTIG could benefit from
this type of additional strategic acquisition.
In late January, prior to the signing of the Centillion merger agreement,
CTIG disclosed to Centillion the existence of this potential acquisition
opportunity. It was agreed between the parties that a representative from each
of CTIG and Centillion would visit Celltech in Houston on February 16, 2000,
conduct an evaluation of the suitability of this potential acquisition and
report their findings to the individuals who will comprise the executive
committee of the CTIG board of directors after the Centillion merger.
On March 2, 2000, Mr. Johns, representing CTIG, accompanied by Mr. Garrison
and Mr. Leeds representing Centillion, visited the Houston, Texas offices of
Celltech and met with its President, Mr. Warren, and Celltech's investment
banker/advisor, Mr. Sokoloff. Over dinner the previous evening, Messrs. Johns,
Garrison and Leeds met to discuss and agree upon: (1) the strategic approach
that CTIG/Centillion would adopt for their combined negotiation with Celltech,
(2) the value range of the Celltech business to the CTIG/Centillion business,
and (3) the consideration to be used utilizing various cash and stock formulae.
During these deliberations it was agreed that Mr. Johns would lead with an
initial proposal to Celltech in accordance with the understanding reached
between the parties. Based upon earlier discussions between Mr. Sokoloff and Mr.
Johns, Mr. Sokoloff had indicated that Celltech was seeking a valuation of 1.25
to 1.5 times current annual gross revenues of $8 million. Mr. Johns' initial
proposal was for approximately .75 times Celltech's estimated annual revenues,
but based upon a six-month trailing average. The next day, following a
presentation of the Celltech business by its management to the parties, Mr.
Johns led the negotiations on behalf of CTIG/Centillion. After the submission of
the above offer, Mr. Warren adjourned for a separate meeting with Mr. Sokoloff.
Upon their return Mr. Sokoloff, on behalf of Celltech, put forward a counter
proposal to the parties, offering a valuation of .75 times the prior annual
revenue. The parties reviewed the counter proposal and, following further
negotiations, agreed on a valuation of .75 times the prior year's actual
revenue, rather than the trailing average which had been previously employed.
Agreeing in principle to these figures, the parties reached a basis of
understanding for the acquisition of Celltech by the combined CTIG/Centillion
merged business entity, subject to satisfactory due diligence and the subsequent
finalization of valuation and negotiation of a definitive merger agreement.
The principal terms of the acquisition of Celltech negotiated among the
parties at that time provided for a price of $6,000,000, the cash component of
which was $300,000 and the stock component of which was CTIG Class A Common
Stock in the amount of $5,700,000 based upon an assumed "average price per
share" on the date of closing of $3.00 per share. It was agreed that the stock
component would be adjusted at closing to address fluctuations in the value of
CTIG Class A stock. In addition, it was agreed that the stock component of the
purchase price would be subject to further adjustment through a mechanism
whereby 47.37% of the stock would be delivered in escrow at closing and released
to the Celltech shareholders in specified increments upon the achievement of
earn-out thresholds measured against future revenues generated by Celltech's
largest customer.
On March 7, 2000, CTIG received the necessary written consent from
Centillion under the Centillion merger agreement to conclude a merger agreement
with Celltech in accordance with the terms of a term sheet between CTIG and
Celltech dated March 6, 2000. Through March 2000, the parties began a review of
definitive documentation and commenced a comprehensive due diligence review,
which process lasted until early April 2000.
On March 22, 2000, Mr. Johns met with Messrs. Warren and Sokoloff at the
Centillion offices in Indianapolis, Indiana where Centillion and its Smart Bill
product was presented to Celltech. Following the presentation, Mr. Johns
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proceeded with further negotiations on the Celltech valuation following his
receipt of an initial due diligence report received from Deloitte & Touche which
report indicated, among other things, that a portion of Celltech's revenues
consisted of pass-through postage charges which it received from its customers,
a fact that was not known during the initial negotiations.
Following this new information, the parties reduced the purchase price and
agreed upon the final terms on which Celltech would be merged with, and into
CTIB, a wholly-owned subsidiary of CTIG. Under these terms, Celltech
stockholders, who collectively own 100% of the outstanding stock of Celltech,
would receive an aggregate of $262,599 in cash to be distributed pro rata on a
per share equivalent basis. The cash to be received would be used to pay fees
due Celltech's broker in this transaction. Additionally, Celltech stockholders
would receive 1,663,126 shares of Class A common stock subject to adjustment if
any, as follows: in the event that the average market price per share based on
the 20 preceding trading days of the CTIG common stock on the closing date is
greater than $3.00, to a maximum of $3.75, or below $3.00 to a minimum of $2.25,
then the number of shares of Celltech merger stock would be determined by
dividing $4,989,378 by the average market price per share; provided that in no
event would the Celltech merger stock be less than 1,330,501 shares nor more
than 2,217,501 shares regardless of the average market price per share of common
stock. Of the shares of Class A common stock to be issued to the Celltech
stockholders, 52.63% would be delivered at closing, and 47.37% of the stock
would be placed in escrow. This escrowed stock would be released to current
Celltech stockholders in varying amounts based upon future revenues received
over three years from Celltech's largest customer. Any shares of Class A common
stock which were not issued to Celltech stockholders would be returned to CTIG
and cancelled. It was further understood that the Celltech merger would only
occur if the Centillion merger was approved by CTIG and Centillion stockholders,
and was ultimately consummated. The parties agreed to begin the process of
incorporating these terms into a definitive agreement. Subsequent to this
meeting, Mr. Johns reported the outcome of these final negotiations to Mr.
Garrison, Mr. Leeds and Mr. Armitage.
On April 5, 2000, Centillion reviewed the final draft of the proposed
merger agreement between CTIG and Celltech, and notified CTIG of its acceptance
of the final terms negotiated therein.
On April 5, 2000, CTIG management reviewed the terms of the Celltech merger
and the Celltech merger agreement with its board of directors. After reviewing
all documentation relating to the proposed merger, including the assurances of
acceptance from Centillion, the board of directors of CTIG authorized the
execution and delivery of the Celltech merger agreement.
Recommendation of the Board; Reasons for the Merger
The CTIG board of directors believes that the terms of the Celltech merger
are fair to, and in the best interests of, CTIG and its stockholders.
Accordingly, the CTIG board of directors has approved and adopted the Celltech
merger agreement and the transactions contemplated thereby and recommends its
approval and adoption by the stockholders of CTIG.
The CTIG board of directors believes that the Celltech merger would enhance
CTIG's ability to pursue its convergent billing strategy. See "The Resulting
Company."
In reaching its determination to approve the Celltech merger agreement and
recommend approval of the Celltech merger to the CTIG stockholders, the CTIG
board of directors considered the information presented to it by CTIG's
management, as well as CTIG's professional advisors, and weighed the positive
and countervailing factors associated with the Celltech merger. The factors
considered by the CTIG board of directors included, without limitation:
(i) Favorable Considerations.
(a) Celltech Business. The CTIG board of directors considered the
operational, financial and legal due diligence materials provided to it by
CTIG's management and professional advisors concerning Celltech. This due
diligence included historical and prospective information regarding the results
of operations, financial condition and
59
business of Celltech and the current state (and its perception of the future
state) of the telecommunications billing and billing analysis industry,
particularly in the wireless segment.
(b) Strategic Merits of the Celltech merger. The CTIG board of
directors approved the Celltech merger based upon its assessment of the
strategic merits of the Celltech merger. The strategic merits of the Celltech
merger, as assessed by the CTIG board of directors, include, but are not limited
to the fact that Celltech focuses on the wireless marketplace including
cellular, personal communication services and enhanced specialized mobile radio.
Its domain knowledge skill, source code and industry expertise are considered
complementary to both CTIG and Centillion and should enhance CTIG's deployment
of its convergent billing strategy. Furthermore, the combination should assist
each company in attracting new and retaining existing clients by being able to
offer immediate "cross market" complementary billing solutions and a clearly
defined product road map to true convergent billing solutions.
(c) Structure of Merger; Terms of the Celltech Merger Agreement. The
CTIG board of directors considered the terms of the Celltech merger agreement
and its legal and tax implications. The CTIG board of directors considered the
number of shares of Class A common stock which would be exchanged for the number
of shares of Celltech Stock. The CTIG board of directors considered that the
Celltech merger is expected to be a tax free exchange by Celltech's stockholders
for federal income tax purposes. The board also considered that approximately
47% of Class A common stock to be issued in the Celltech merger would be held in
escrow and released over the course of three years, depending upon CTIG
continuing to realize revenue from Celltech's largest customer that accounts for
approximately 47% of its business.
(ii) Countervailing Considerations. The CTIG board of directors also
seriously considered factors which may be characterized as countervailing
considerations, including, but not limited to:
(a) The risks inherent in attempting to successfully integrate the
management of CTIG, Centillion, and Celltech into an effective organization;
(b) The possibility that key employees and members of the management
of CTIG may not be willing to stay on pending the consummation of the Celltech
merger and, therefore, may leave CTIG;
(c) Approximately 47% of Celltech's gross revenues are derived from a
single customer. In May, 2000, Celltech signed an agreement with its largest
customer to extend the term of the previous agreement which ended February 28,
2000, to February 28, 2001; and
(d) The Celltech merger would be accounted for as a purchase of
Celltech by CTIG and would result in the creation of a substantial amount of
goodwill.
The foregoing discussion of the information and factors considered and
given weight by the CTIG board of directors is not intended to be exhaustive but
is believed to include the material factors considered by the CTIG board of
directors. In addition, in reaching the determination to approve and recommend
approval and adoption of the Celltech merger agreement, in view of the wide
variety of factors considered in connection with its evaluation of the Celltech
merger, the CTIG board of directors did not assign any relative or specific
weights to the foregoing factors. The CTIG board of directors did not attempt to
analyze the fairness of the number of shares being issued to Celltech
stockholders in isolation from the considerations as to the businesses of CTIG
and Celltech, the strategic merits of the Celltech merger or the other
considerations referred to above.
THE CTIG BOARD OF DIRECTORS HAS UNANIMOUSLY APPROVED THE CELLTECH MERGER
AGREEMENT AND THE TRANSACTIONS CONTEMPLATED THEREBY AND BELIEVES THAT THE TERMS
OF THE CELLTECH MERGER ARE FAIR TO, AND IN THE BEST INTERESTS OF, CTIG AND ITS
STOCKHOLDERS. THE CTIG BOARD OF DIRECTORS RECOMMENDS A VOTE FOR APPROVAL AND
ADOPTION OF THE CELLTECH MERGER AGREEMENT.
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Interests of Certain Persons in the Celltech Merger
No officers or directors of CTIG had any additional interests in the
Celltech merger.
Accounting Treatment of the Celltech Merger
The Celltech merger will be accounted for as a purchase for accounting
purposes. Under this method of accounting, the assets and liabilities of
Celltech will be recorded by CTIG at their estimated fair market value and the
remaining purchase price will be recorded as goodwill.
Federal Income Tax Consequences
The following discussion summarizes the material income tax consequences of
the Celltech merger that are generally applicable to CTIG and our stockholders.
This discussion is based on currently existing provisions of the Code, existing
and proposed Treasury Regulations thereunder and the current administrative
rulings and court decisions, all of which are subject to change. Any such
change, which may or may not be retroactive, could alter the tax consequences to
our stockholders.
The following discussions do not purport to deal with all aspects of
federal income taxation that may affect particular stockholders in light of
their individual circumstances, and is not intended for stockholders subject to
special treatment under the federal income tax law (including insurance
companies, tax-exempt organizations, financial institutions, broker-dealers,
foreign persons, stockholders who hold their stock as part of a hedge,
appreciated financial position, straddle or conversion transaction, stockholders
who do not hold their stock as capital assets and stockholders who have acquired
their stock upon the exercise of employee options or otherwise as compensation).
In addition, the discussion does not consider the effect of any applicable
state, local or foreign tax laws. ACCORDINGLY, OUR STOCKHOLDERS ARE URGED TO
CONSULT THEIR OWN TAX ADVISORS AS TO THE SPECIFIC CONSEQUENCES OF THE CELLTECH
MERGER TO THEM, INCLUDING THE APPLICABLE FEDERAL, STATE, LOCAL AND FOREIGN TAX
CONSEQUENCES OF THE CELLTECH MERGER IN THEIR PARTICULAR CIRCUMSTANCES. THE
DISCUSSION SET FORTH BELOW IS NOT INTENDED AND SHOULD NOT BE CONSIDERED TAX
ADVICE.
Neither CTIG nor Celltech has requested , or will request, a ruling from
the IRS with regard to any of the federal income tax consequences of the
Celltech merger. As a condition to CTIG's and Celltech's obligation to
consummate the Celltech merger, since the date of the Celltech merger agreement,
there shall not have been any changes in the facts, circumstances or applicable
federal tax laws that would negatively impact the treatment of the Celltech
merger for federal income tax purposes as a tax-free reorganization within the
meaning of Section 368(a) of the Code.
Treatment Of CTIG. No income, gain or loss will be recognized by CTIG upon
the consummation of the Celltech merger. Accordingly, no income, gain or loss
will be recognized for federal income tax purposes by CTIG upon the issuance of
the Class A common stock to the Celltech shareholders in exchange for all of the
issued and outstanding common stock of Celltech.
Treatment Of Holders of CTIG Common Stock. No income, gain or loss will be
recognized by the holders of CTIG common stock upon the consummation of the
Celltech merger. Accordingly, no income, gain or loss will be recognized for
federal income tax purposes by the holders of CTIG common stock upon CTIG's
issuance of the Class A common stock to the Celltech shareholders in exchange
for all of the issued and outstanding common stock of Celltech.
Net Operating Loss Limitations. For a discussion of limitations on the use
of CTIG's net operating losses, see "Risk Factors -- Risks Relating to the
Celltech Merger."
CTIG will report to stockholders of CTIG and to the IRS the amount of
"reportable payments" and any amount withheld with respect to Class A common
stock.
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EACH OF OUR STOCKHOLDERS IS URGED TO CONSULT THEIR OWN TAX ADVISOR WITH
RESPECT TO THE TAX CONSEQUENCES OF THE CELLTECH MERGER, INCLUDING THE
APPLICABILITY AND EFFECT OF STATE, LOCAL OR FOREIGN TAX LAWS.
Regulatory Approvals
No federal or state regulatory approvals or consents are required in
connection with the Celltech merger.
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THE CELLTECH MERGER AGREEMENT
The following is a summary of the material terms of the Celltech merger
agreement, a copy of which is attached as Annex H to this proxy statement and is
incorporated by reference. Our stockholders are urged to read the Celltech
merger agreement in its entirety.
The Celltech merger agreement provides that, following the approval of the
Celltech merger by the holders of CTIG common stock and the holders of Celltech
common stock and the satisfaction or waiver of the other conditions to the
Celltech merger, Celltech will merge with, and into, CTIB, a subsidiary of CTIG,
with CTIB becoming the surviving corporation. The holders of Celltech common
stock will become holders of CTIG Class A common stock.
If the merger agreement is approved by a majority of the holders of CTIG
common stock and Celltech common stock, and the other conditions to the merger
are satisfied or waived, the closing will take place no later than two business
days following the date on which the last of the conditions is satisfied or
waived, or at another time and date to which CTIG and Celltech agree. As soon as
practical after the closing date, CTIG and Celltech will file a certificate of
merger with the Secretary of State of the State of Delaware as provided in
section 251of the DGCL. The Celltech merger will become effective upon the
filing of this certificate. Subject to the satisfaction (or waiver) of the other
conditions to the obligations of CTIG and Celltech to consummate the merger, it
is presently expected that the Celltech merger will be consummated during the
third calendar quarter of 2000. See "The Celltech Merger Agreement -- Conditions
to Obligations to Effect the Merger."
All Celltech stockholders are parties to the Celltech merger agreement and
have agreed to vote their shares of Celltech common stock in favor of the
Celltech merger.
Conversion and Issuance of Shares
Shares Issued at effective time. The Celltech merger agreement provides
that the Celltech merger will be effected by the merger of Celltech with and
into CTIB, with CTIB being the surviving corporation.
At the effective time, all issued and outstanding Celltech common stock
will be converted pro rata, into:
(1) the right to receive an aggregate $262,599 in cash; and
(2) 1,663,126 shares of CTIG Class A common stock, subject to adjustment if
any, as follows: in the event that the average market price per share
(based on the 20 preceding trading days) of the CTIG common stock on
the closing date is greater than $3.00, to a maximum of $3.75, or below
$3.00 to a minimum of $2.25, then the number of shares of Celltech
merger stock will be determined by dividing $4,989,378 by the average
market price per share; provided that in no event will the number of
shares of Class A common stock to be received by Celltech stockholders
in the Celltech merger be less than 1,330,501 shares nor more than
2,217,501 shares regardless of the average market price per share of
CTIG common stock.
Of the shares of Celltech merger stock, 52.63% will be delivered to
Celltech stockholders at closing, and 47.37% will be placed in escrow. The
escrowed stock may be released to current Celltech stockholders in varying
amounts based upon future revenues received over a three year period from
Celltech's largest customer. Any shares of Celltech escrowed stock which are not
issued to Celltech stockholders will be returned to CTIG and cancelled.
The Celltech stockholders have assigned their right to receive the cash
portion of the merger consideration to PASCO Business Trust, on behalf of
Sokoloff & Co., the broker retained by Celltech in connection with the Celltech
merger, to pay the broker fee.
No shares of Class B common stock will be issued in the Celltech merger.
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Escrowed Class A Common Stock. The release of the escrowed stock depends
upon revenues received from Celltech's largest customer as follows: Fifty
percent of the escrowed stock will be subject to release during the first escrow
year, 35% during the second escrow year and the final 15% during the third
escrow year. For purposes of the Celltech merger agreement, an "escrow year"
means each of the first three consecutive 12 calendar month periods commencing
on March 1, 2000 and ending on February 28, 2003, and an "Escrow quarter" means
each of the three consecutive calendar month periods within a respective escrow
year. In the event gross revenues received from the customer, less a portion of
the revenue attributed to postage ("Celltech Target Revenue"), equals or exceeds
$645,652 in any escrow quarter, then 25% of the Celltech escrowed stock that is
subject to release in the escrow year in which that escrow quarter occurs shall
be released from escrow to the Celltech stockholders. If the Celltech Target
Revenue in an escrow quarter is less than $645,652, then a pro rata portion
(based upon the ratio of that actual Revenue to $645,652) of the full number
that would potentially be subject to release in that escrow quarter shall be
released. If at the end of the third escrow year the proportion that all
escrowed stock previously released from escrow bears to the total escrowed stock
placed in escrow is less than the proportion that the aggregate Celltech Target
Revenue received during all three Celltech Escrow Years bears to $7,747,821,
then an additional number of shares of Celltech escrowed stock shall be released
to the Celltech stockholders in order to eliminate that difference to a maximum
of the total escrowed stock remaining in escrow; provided that CTIG shall not
issue any shares of Class A common stock in excess of the number originally
placed in escrow as escrowed stock, regardless of the amount of such aggregate
Celltech Target Revenue.
If at any time prior to the end of the third escrow year, CTIG sells or
licenses software to this target customer that replaces the software that has
produced the gross revenue received by CTIB/Celltech from this customer,
resulting in a reduction or elimination of that customer's revenue, then any
shares of escrowed stock then remaining in escrow shall be released to the
Celltech stockholders.
All releases of Celltech escrowed stock from escrow to the Celltech
stockholders shall be made in the same proportions to Celltech stockholders as
the closing stock was distributed. No fractional shares or scrip representing
shares of the Celltech escrowed stock shall be issued. If at anytime during any
escrow year, the customer discontinues its relationship with the surviving
corporation, then all Celltech escrowed stock then in escrow shall be returned
to CTIG and cancelled, and no additional shares of Class A common stock shall be
subject to issue to the Celltech stockholders.
Based upon the number of shares of CTIG common stock outstanding on the
record date for the special meeting, the number of shares of Celltech common
stock outstanding, and the conversion described above, at the Celltech effective
time CTIG's current stockholders, Centillion's stockholders and Celltech's
stockholders will own approximately 34.4%, 56.0% and 9.6% respectively, of
CTIG's issued and outstanding Class A common stock after the Celltech merger.
These figures assume the release of all escrowed stock under the Centillion
merger agreement, the maximum number of shares issued under the Celltech merger
agreement, and the exercise of all CTIG stock options currently outstanding
which vest upon the consummation of the Centillion merger.
Exchange of Stock Certificates
As soon as reasonably practicable after the Celltech merger, CTIG will have
its appointed exchange agent mail to each holder of Celltech common stock (i) a
transmittal letter stating that certificates representing Class A common stock
will be sent to holders of Celltech common stock only upon delivery of Celltech
stockholder's stock certificates to the exchange agent, and (ii) instructions
for holders of shares of Celltech common stock to exchange their certificates
for the applicable shares of Class A common stock. Upon surrender of Celltech
common stock certificates to the exchange agent together with the transmittal
letter completed and executed by a Celltech stockholder, a Celltech stockholder
will receive the whole number of the shares of Class A that the holder has the
right to receive, and a check in the amount equal to the cash that the holder
has the right to receive in lieu of any fractional shares. The Celltech share
certificates surrendered will be canceled. No interest will be paid or will
accrue on any cash payable for fractional shares.
No Further Ownership Rights In Celltech Common Stock. All shares of Class A
common stock (and cash in lieu of fractional shares) issued upon the surrender
for exchange of certificates which, immediately prior to the Celltech merger
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effective time, represented shares of Celltech common stock will be deemed to
have been issued (and paid) in full satisfaction of all rights pertaining to the
shares of Celltech common stock represented by those certificates.
Fractional Shares. No fractional shares of CTIG Class A common stock will
be issued in the Celltech merger. In lieu of any fractional shares, each holder
of shares of Celltech common stock outstanding immediately prior to the Celltech
merger effective time exchanged pursuant to the Celltech merger who would
otherwise have been entitled to receive a fraction of a share of Class A (after
taking into account all certificates representing shares of Celltech common
stock delivered by the holder) will receive, in lieu thereof, cash (without
interest) in an amount equal to such fractional part of a share of CTIG common
stock multiplied by the per share average market price (based on a 20 business
day market price average) for CTIG common stock.
Dividends and Distributions. No dividends or other distributions declared
or made with respect to Class A common stock with a record date after the
effective time will be paid to the holder of any unsurrendered Celltech common
stock certificate with respect to the shares of Class A common stock that the
holder would be entitled to receive upon surrender of such certificate, and no
cash payment in lieu of fractional shares will be paid to any such holder until
the holder of record of such certificate surrenders such certificate to CTIG.
No Liability. None of CTIG, Celltech, or the exchange agent will be liable
to any third party for any shares of Class A common stock (or cash in lieu of
fractional shares of Class A common stock or any dividends or distributions with
respect thereto) delivered to a public official pursuant to any applicable
abandoned property, escheat or similar law.
Lost Certificates. If any certificate, which prior to the effective time
represented shares of Celltech common stock, shall have been lost, stolen or
destroyed, then upon the making of an affidavit of that fact by the person
claiming the certificate to be lost, stolen or destroyed and, if required by
CTIG, the posting of a bond as indemnity against any claim that may be made
against it with respect to such certificate, the exchange agent will issue in
exchange for the lost, stolen or destroyed certificate the shares of Class A
common stock, and any cash in lieu of fractional shares and unpaid dividends and
distributions on shares of Class A common stock otherwise deliverable in respect
thereof.
Representations and Warranties
The Celltech merger agreement contains various customary representations
and warranties by Celltech, subject to identified exceptions, relating to, among
other things, (a) due organization, valid existence and good standing and
similar corporate matters; (b) the capital structure of Celltech; (c) the
authorization, execution, delivery and enforceability of the Celltech merger
agreement and related documents, and the consummation of the transactions
contemplated by the Celltech merger agreement and related documents and matters;
(d) conflicts under certificates of incorporation or by-laws, required consents
or approvals and violations of any instruments or law; (e) documents and
financial statements of Celltech and the accuracy of information contained
therein; (f) the absence of undisclosed liabilities; (g) the absence of
specified material adverse events, changes or events; (h) taxes and tax returns;
(i) properties; (j) intellectual property; (k) agreements, contracts and
commitments; (l) legal proceedings; (m) environmental matters and hazardous
materials; (n) employees, independent contractors and labor matters; (o)
employee benefit plans; (p) compliance with laws and permits; (q) the accuracy
of information supplied by Celltech in connection with the registration
statement to be filed by CTIG in connection with the issuance of the Class A
common stock and this proxy statement; (r) insurance; (s) conflicts of interest;
(t) broker's fees; (u) principal customers and suppliers; (v) accounts
receivable; and (w) amount of revenue previously received from Celltech's
largest customer.
The Celltech merger agreement also contains various customary
representations and warranties by the Celltech stockholders relating to, among
other things, (a) their ownership of Celltech common stock; (b) the execution,
delivery and enforceability of the Celltech merger agreement against them, the
consummation of the transactions contemplated by the Celltech merger agreement,
and violations of any agreements, instruments or law; (c) the absence of any
claims by them against Celltech as of the date of the Celltech merger agreement;
and (d) their agreement to vote in favor of the Celltech merger at a
stockholders' meeting.
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Finally, the Celltech merger agreement contains various customary
representations and warranties by CTIG and CTIB relating to, among other things
(a) due organization, valid existence and good standing; (b) the authorization,
execution, delivery and enforceability of the Celltech merger agreement and
related documents, and the consummation of the transactions contemplated by the
Celltech merger agreement and related documents and matters; (c) conflicts under
their respective certificates of incorporation or bylaws, required consents or
approvals and violations of any instruments of law; (d) legal proceedings; (e)
the accuracy of information supplied in connection with the registration
statement to be filed by CTIG in connection with the issuance of the Class A
common stock and this proxy statement; (f) broker's fees; (g) capitalization of
CTIB; (h) SEC filings and reports of CTIG; and (i) authorization and issuance of
the Celltech merger Stock.
Covenants
Conduct of Business. The Celltech merger agreement provides that Celltech
has agreed that, during the period from the date of the signing of the Celltech
merger agreement until the effective time, except as contemplated by the
Celltech merger agreement, it will not: (a) amend its certificate of
incorporation or by-laws; authorize for issuance, issue, sell, deliver, grant
any options for, or otherwise agree or commit to issue, sell or deliver any
shares of any class of its capital stock or any securities convertible into
shares of any class of its capital stock; (b) split, combine or reclassify any
shares of its capital stock, 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 or purchase, redeem or otherwise acquire any shares
of its capital stock; (c) create, incur, assume, maintain or permit to exist any
long-term debt or any short-term debt for borrowed money other than under
existing lines of credit or replacements thereof, or the negotiation of a
capital lease or buy-out agreement with Pitney Bowes at the expiration of the
current lease for a mail-inserter machine; (d) assume, guarantee, endorse or
otherwise become liable or responsible (whether directly, contingently or
otherwise) for the obligations of any third party, or (e) make any loans,
advances or capital contributions to, or investments in, any third party; (f)
increase in any manner the compensation of any of its directors, officers or
other employees (other than regularly scheduled raises for employees other than
David A. Warren, Celltech's principal stockholder), or pay any bonuses to any
director or officer or to Mr. Warren; (g) pay or agree to pay any pension,
retirement allowance or other employee benefit not required, or enter into or
agree to enter into any agreement or arrangement with such director, officer or
employee, whether past or present, relating to any such pension, retirement
allowance or other employee benefit except as required under currently existing
agreements, plans or arrangements; (h) grant any severance or termination pay
to, or enter into any employment or severance agreement with, any of its
directors, officers or other employees; or (i) except as may be required to
comply with applicable law, become obligated under any new pension plan, welfare
plan, multi-employer plan, employee benefit plan, benefit arrangement, or
similar plan or arrangement, which was not in existence on the date hereof,
including any bonus, incentive, deferred compensation, stock purchase, stock
option, stock appreciation right, group insurance, severance pay, retirement or
other benefit plan, agreement or arrangement, or employment or consulting
agreement with or for the benefit of any third party, or amend any of such plans
or any of such agreements in existence on the date hereof; (j) except as
otherwise expressly contemplated by the Celltech merger agreement, enter into
any material agreements, commitments or contracts, except agreements,
commitments or contracts for the purchase, sale or lease of goods or services in
the ordinary course of business, consistent with past practices; provided that
Celltech shall not enter into any agreement, commitment or contract that
requires payments by Celltech in excess of $50,000 without the prior written
consent of CTIG, which shall not be unreasonably withheld; (k) authorize,
recommend, propose or announce an intention to authorize, recommend or propose,
or enter into, any agreement in principle or any agreement with respect to any
plan of liquidation or dissolution, any sale, transfer, lease, license, pledge,
mortgage, or other disposition or encumbrance of a material amount of assets or
securities or any change in its capitalization, or any entry into a material
contract or any amendment or modification of any material contract or any
release or relinquishment of any material contract rights; (l) acquire or agree
to acquire by merging or consolidating with, or by purchasing a substantial
equity interest in or all or a substantial portion of the assets of, or by any
other manner, any business or any corporation, partnership, association or other
business organization or division thereof, or enter into any new material line
of business outside its existing core businesses; (m) knowingly undertake any
act, or suffer to exist any condition, causing any insurance policy naming it as
a beneficiary or a loss payee to be canceled or terminated; (n) take any action
that would, or could reasonably be expected to, result in any of the conditions
to the Celltech merger agreement (other than those exclusively in CTIG's
control) not being satisfied or a material delay in the satisfaction of such
conditions;
66
(o) make any material change in its methods of accounting in effect at December
31, 1999, except as required by changes in GAAP as concurred in by its
independent auditors, or change its fiscal year; (p) take any action that would
cause its representations and warranties to no longer be true and correct; (q)
commit to any capital expenditures, other than those incurred or committed in
the ordinary course of business and which are not in excess of $15,000,
individually or $50,000 in the aggregate; or (o) agree to do or authorize any of
the foregoing.
No Solicitation. The Celltech merger agreement provides that Celltech and
Mr. Warren, jointly and severally represent and warrant to, and covenant and
agree with, CTIG and CTIB that Celltech does not have any agreement, arrangement
or understanding with any other potential acquiror. Celltech and each Celltech
stockholder further represent and warrant that from and after the date of the
Celltech merger agreement and until the earlier of the consummation of the
Celltech merger or the termination of the Celltech merger agreement, they shall,
and Celltech and Mr. Warren shall cause Celltech's officers, directors,
advisors, investment bankers, agents and attorneys to (a) not solicit (or
authorize any third party to solicit), directly or indirectly, any inquiries,
proposals or offers from any third party relating to any acquisition or purchase
of all or substantially all the assets of, or any equity interest in, or any
merger, consolidation or business combination with Celltech, (b) not enter into
any agreement with respect to any such transaction, and (c) not elicit any
discussions of, participate in any negotiations regarding, cooperate with,
facilitate or encourage such a transaction or furnish to any other third party
any information concerning Celltech in connection with any such transaction.
Celltech shall immediately notify CTIG if any unsolicited proposal or offer with
respect to such transaction is received by Celltech and communicate to CTIG the
terms of any such proposal or offer.
CTIG has agreed to file a registration statement to register the resale of
the shares of Class A common stock to be issued in the mergers.
Merger with Centillion Data Systems, Inc. The Celltech merger agreement
requires that the Centillion merger must occur prior to the Celltech merger.
Stock Option and Benefit Plans. At the effective time, the CTIG stock
option and restricted stock plan and any benefit plans in effect at the time
will cover employees of Celltech who become employees of CTIB after the Celltech
merger.
Indemnifications. For a period of one year after the effective time,
subject to some specified conditions contained in the Celltech merger agreement,
David A. Warren will indemnify and hold harmless CTIG and CTIB against all
losses, claims, damages, liabilities and expenses resulting from a material
breach of the Celltech merger agreement or any related documents, any material
error contained in any statement or document delivered to CTIG or CTIB in
connection with the merger, any claim, debt or obligation of Celltech or Mr.
Warren incurred prior to the effective time (with certain limited exceptions
specified in the Celltech merger agreement), any claims made by current or
former stockholders of Celltech, and claims made by any governmental entity.
Damages due CTIG or CTIB as a result of this indemnification shall first be
paid by Mr. Warren by reducing the number of shares of Celltech escrowed stock
he would have otherwise received. In the event that the amount of damages
exceeds the value of such Celltech escrowed stock, such excess shall be paid in
cash. Any cash payment is not to exceed $500,000 in the aggregate (unless it is
caused by a claim made by Celltech stockholders), and the total indemnification
liability of Mr. Warren shall not exceed the value of the Celltech merger
consideration to be received by Mr. Warren.
Conditions to Obligations to Effect the Celltech Merger
The respective obligations of CTIG and Celltech to effect the Celltech
merger are subject to the satisfaction (or waiver) of the following conditions:
(a) the Celltech merger agreement and the Celltech merger shall have been
approved in the manner required under the Delaware General Corporation Law by
the respective holders of the issued and outstanding shares of capital stock of
Celltech and CTIG; (b) the merger will not be prohibited by any order, judgment
or ruling of any court or other governmental entity; (c) the Centillion merger
shall have occurred; (d) the employment agreement with David A. Warren must be
executed; (e) Celltech shall have delivered to CTIG all required third party
67
consents; (f) Celltech shall have delivered to CTIG general releases from the
Celltech stockholders, all Celltech directors and a third party with which it
had been engaged in litigation that was settled prior to the date of the
Celltech merger agreement; (g) the representations and warranties made by each
of Celltech and CTIG are true and correct as of the effective time and each
party shall have performed their respective obligations under the Celltech
merger agreement; (h) the adjusted balance sheet of Celltech, on and as of the
effective time (which shall be certified by Celltech's President) must reflect:
(1) net current assets (i.e., current assets less current liabilities) of not
less than $1.00; (2) no long term liabilities other than deferred taxes; (3) all
earnings of Celltech for the period from January 1, 2000 to the effective time;
and (i) there must not have been any material adverse change in Celltech's
business operations, assets, financial condition or results of operation.
Termination; Termination Fees and Expenses
The merger agreement may be terminated at any time prior to the effective
time by CTIG or Celltech:
(a) by the mutual written consent of the boards of directors of CTIG and
Celltech;
(b) by either CTIG or Celltech if, without a material breach of the
Celltech agreement by the terminating party, the Celltech merger shall
not have been consummated on or before September 30, 2000, which date
may be extended by mutual written consent of CTIG and Celltech; or
(c) by either CTIG or Celltech, if any court of competent jurisdiction in
the United States or other governmental entity issues an order (other
than a temporary restraining order), decree or ruling or taken any
other action restraining, enjoining or otherwise prohibiting the
merger, and such order, decree, ruling or other action has become final
and nonappealable; provided that the party seeking to terminate this
agreement has used reasonable efforts to remove or lift such order,
decree or ruling; or
(d) by CTIG if the approval of CTIG's stockholders required for the
consummation has not been obtained.
The Celltech merger agreement may be terminated at any time prior to the
effective time by CTIG if Celltech or David A. Warren fail to comply in any
material respect with their respective obligations under the Celltech merger
agreement, there is a material breach of a representation or warranty made by
Celltech or a Celltech stockholder in the Celltech merger agreement or Celltech
fails to deliver audited financial statements for its last two fiscal years to
CTIG.
The Celltech merger agreement may be terminated at any time prior to the
effective time by Celltech if CTIG or CTIB fails to comply in any material
respect with their respective obligations under the Celltech merger agreement,
or if there is a material breach of a representation or warranty made by CTIG or
CTIB in the Celltech merger agreement.
Amendment and Waiver
The Celltech merger agreement may be amended by CTIG and Celltech at any
time before or after any approval of the Agreement by the stockholders of CTIG
and/or Celltech. However, after any approval by the Celltech stockholders, no
amendment may be made by Celltech which decreases the amount of consideration
that Celltech stockholders will be receiving under the Celltech merger, or
adversely affects the rights of Celltech's stockholders without the approval of
a majority of the holders of common stock of Celltech. Additionally, after any
approval by the CTIG stockholders, no amendment may be made by CTIG which
increases the amount of consideration that Celltech will be receiving under the
Celltech merger, or adversely affects the rights of CTIG stockholders without
the approval of all of the holders of CTIG common stock. The Celltech merger
agreement may only be amended by an instrument in writing signed on behalf of
all the parties to that agreement.
68
THE BUSINESS OF CELLTECH
Overview
Celltech, a Houston, Texas, based company, provides custom software
development, customer management systems, billing, rating, printing and mailing
services to the telecommunications industry, focusing on the wireless segment.
Founded in 1983 by individuals from the private telephone industry,
Celltech developed software solutions for facilities-based cellular telephone
companies. The Company's primary focus was on the small to medium sized cellular
telephone company that would benefit from Celltech's experience and expertise.
In the early 1990's the cellular market underwent a period of consolidation. A
large number of Celltech's clients were acquired by cellular companies intent on
developing a national or regional presence. As a result of this consolidation,
the Company downsized and reviewed market strategy. The result of this market
strategy review was a shift away from facilities-based cellular operators to
resellers of cellular and other telecommunications services. In addition,
deregulation of telecommunications services provided Celltech's target client
base with an opportunity to deliver multiple telecommunications products to
their customer base. In response to this market shift, Celltech started
development on a Windows based product that would meet the needs of the emerging
multi-service telecommunications provider.
Celltech has extensive skills in managing complex, time/usage sensitive
billing issues that require proper calculation of usage charges and discounting
based on variable pricing schemes, such as time-of-day, group cumulative usage,
individual cumulative usage, originating point of call, receipt point of call
and re-rating of pass through charges based on multiple criteria. In addition to
the management of these billing issues a complete billing system needs to be
able to integrate usage information from multiple sources, long distance
providers, cellular operators, other billing vendors and corresponding clearing
houses.
Celltech has transferred its competency in managing the time and usage
sensitive billing of the facilities-based cellular operator to the needs and
demands of other providers of telecommunications services such as paging, long
distance, 1-800, Personal Communications Services "PCS," Internet and local
exchange services.
Competition
Competitors serving the same market as Celltech include Baja Systems,
CBill, PSA, Infotech Solutions Corp. and HO Systems. Public companies that
target similar, but larger accounts, are ITDS (recently acquired by Amdocs Corp)
and Convergys Corp.
Celltech Service Capabilities and Product Offerings
With a corporate mission to provide services and products that are
scalable, flexible and competitive, Celltech has recently released a
Windows-based Customer Care and Management System to support the needs of the
Multi-Service Telecommunications provider. Celltech's comprehensive services
solution, Win Command, is a fully-integrated Windows-based, GUI (graphical user
interface) technology. Win Command is designed to work in an operating
environment using Windows 95, Windows 98, Windows NT network or client, Novell
network and Citrix. The Win Command product suite consists of billing as well as
work flow management modules such as Customer Care, Inventory Management,
Collections/Credit with an interface for credit reporting agencies, and Order
Entry. Unlike a majority of its competitors, Celltech allows clients to have
on-site access to their database enabling clients to analyze their underlying
usage/customer information more effectively and to provide superior customer
service.
The complete, Win Command product suite consists of two key components
having a common client database interface:
69
o The Business Information System (BIS), is located at the client's site.
Win Command performs all the routine daily functions of the
telecommunications business office. This includes sophisticated
database management capabilities which enable clients to analyze
underlying subscriber information. It also includes several integrated
work flow management modules to support ongoing operations. These
modules include Customer Care, Inventory Management,
Collections/Credits, New Order Entry, Remote Order Entry, Service
Center Scheduling and Switch Management.
o The Billing Engine, is located at Celltech in Houston, Texas on a
DEC/VAX computer utilizing the ALPHA/VMS operating system. It performs
the highly complex recurring billing, rating, taxing and fulfillment
functions. This process leverages the company's extensive expertise in
bill production with the need for timely completion of the billing
cycle. The processing done by the Billing Engine includes weekly
roaming processing, sorting, rating, taxing and tabulation of all call
and usage records made by telecommunications subscribers.
Customers
Celltech currently has 13 customers. Its largest customer accounted for
approximately 47% of its revenue in 1999. In May, 2000, Celltech signed an
agreement with this customer to extend the term of its previous agreement, which
ended February 28, 2000, to February 28, 2001.
Employees
Celltech has approximately 58 employees all located in Houston, Texas. None
of Celltech's employees are represented by a labor union. Celltech considers its
relations with its employees to be good, and expects all 58 employees to
continue with CTIG after the Celltech merger.
Properties
Celltech leases 18,005 square feet in Houston, Texas at an average cost of
$14.65 per square foot. The lease expires in October, 2004.
70
CELLTECH'S MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Overview
Celltech Information Systems, Inc, a Houston, Texas based company, provides
customer management systems for billing, rating, printing and mailing services
to the telecommunications industry. The following discussion compares Celltech's
actual results for the three and six months ended June 30, 2000 and 1999.
STATEMENTS OF OPERATIONS
CELLTECH INFORMATION SYSTEMS, INC.
For the Three Months For the Six Months
Ended June 30, Ended June 30,
2000 1999 2000 1999
-------------------------- -------------------------
REVENUES $1,753,804 $1,938,141 $3,610,333 $4,324,229
EXPENSES:
Cost of revenues (excluding
depreciation and amortization) 758,527 877,391 1,688,834 1,863,890
Research and development 17,824 150,177 42,880 301,304
Selling, general and administrative 849,602 1,075,028 1,619,398 2,111,444
Depreciation and amortization 34,377 26,855 68,656 53,115
-------------------------- -----------------------------
Total Expenses 1,660,330 2,129,451 3,419,768 4,329,753
-------------------------- -----------------------------
Operating (loss) income 93,474 (191,310) 190,565 (5,524)
-------------------------- -----------------------------
OTHER (EXPENSE) INCOME:
Interest income (expense) (1,291) 3,128 (1,557) 2,730
Other (expense) income 1,125 0 11,795 0
-------------------------- -----------------------------
Income (loss) before provision
for income taxes 93,308 (188,182) 200,803 (2,794)
INCOME TAX BENEFIT (PROVISION) (23,327) 55,801 (50,201) 0
-------------------------- -----------------------------
NET (LOSS) INCOME $69,981 ($132,381) $150,602 ($2,794)
========================== =============================
NET (LOSS) INCOME PER COMMON SHARE $29.74 ($56.26) $64.00 ($1.19)
========================== =============================
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING 2,353 2,353 2,353 2,353
========================== =============================
71
Results From Operations for the Period Ended June 30, 2000 Compared to the
Period Ended June 30, 1999
Celltech typically enters into contracts to provide software
products and billing services at its Houston based service bureau. Approximately
96% of Celltech's revenue result from the recurring, monthly processing and
printing of telecommunications bills for its clients. The rate structure is
based on a price per bill plus charges for additional services such as second
telephone, pager, etc. The revenue per bill will tier downward based on the
volume of bills produced. Additional sources of revenue may be earned through
services such as custom programming, generation of special reports and
transmission of data. Revenues decreased $713,896 to $3,610,333 for the six
months and $184,337 to $1,753,804 for the quarter ended June 30, 2000 as
compared to the prior year period. This reflects a decrease of 16.5% and 9.5%
respectively due primarily to the reduction in business of one customer.
Cost of revenues primarily includes the costs associated with bill
production. To manage its variable processing needs, Celltech utilizes
state-of-the-art Alpha/Vax processors at its data center operation, to provide
data processing and data storage capability. Cost of revenues decreased 9.4% for
the six months and 13.5% for the quarter ended June 30, 2000 primarily related
to the reduction of revenues.
Celltech incurred significant research and development charges in
1999 for the development of its new billing product. These costs include those
expenses incurred for contractors and consultants outside of the Company. With
the roll-out of the new billing product to the market, research and development
cost decreased 85.8% for six months and 88.1% for the quarter ended June 30,
2000 as compared to the prior year period.
Selling, general and administrative expenses decreased $492,046 to
$1,619,398 for the six months and $225,426 to $849,602 for the quarter ended
June 30, 2000 primarily as a result of reduced operating expenses as a result of
completing its Y2K compliance testing.
Depreciation and amortization expense increased $15,541 to $68,656
for the six months and $7,522 to $34,377 for the quarter ended June 30, 2000 as
compared to 1999 due to an increase of $36,140 in Property and Equipment. The
Property and Equipment cost increase was due primarily to the acquisition of
equipment for an in-house system acquired in 1999.
Other Income for the six months ended June 30, 2000 was $11,795 and
for the Quarter was $1,125 primarily derived from payments on a legal settlement
against a former customer for an early termination claim brought by Celltech.
72
STATEMENTS OF OPERATIONS
CELLTECH INFORMATION SYSTEMS, INC.
% Chg
For the Year Ended December 31 1999 % 1998 % '98 to '99
---------- ----- ---------- ----- ---------
REVENUES $7,952,798 100.0% $8,991,445 100.0% -11.6%
EXPENSES:
Cost of revenues (excluding depreciation
and amortization) 3,983,936 50.1% 4,230,177 47.0% -5.8%
Research and development 422,252 5.3% 451,856 5.0% -6.6%
Selling, general and administrative 4,135,768 52.0% 3,658,694 40.7% 13.0%
Depreciation and amortization 125,422 1.6% 97,430 1.1% 28.7%
---------- ----------
Total Expenses 8,667,378 109.0% 8,438,157 93.8% 2.7%
---------- ----------
Operating (loss) income (714,580) -9.0% 553,288 6.2% -229.2%
---------- ----------
OTHER (EXPENSE) INCOME:
Interest income (expense) 6,547 0.1% (2,488) -0.0% -363.1%
Other (expense) income (152,353) -1.9% 45,000 0.5% -438.6%
---------- ----------
Income (loss) before provision
for income taxes (860,386) -10.8% 595,800 6.6% -244.4%
INCOME TAX BENEFIT (PROVISION) 282,975 3.6% (209,216) -2.3% -235.3%
---------- ----------
NET (LOSS) INCOME ($577,411) -7.3% $ 386,584 4.3% -249.4%
========== ==========
NET (LOSS) INCOME PER COMMON SHARE ($245.39) $ 164.29
========== ==========
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING 2,353 2,353
========== ==========
Results From Operations for the Year Ended December 31, 1999 Compared to the
Year Ended December 31, 1998
Celltech typically enters into contracts to provide software
products and billing services at its Houston based service bureau. Approximately
96% of Celltech's revenue result from the recurring, monthly processing and
printing of telecommunications bills for its clients. The rate structure is
based on a price per bill plus charges for additional services such as second
telephone, pager, etc. The revenue per bill will tier downward based on the
volume of bills produced. Additional sources of revenue may be earned through
services such as custom programming, generation of special reports and
transmission of data. Revenues for the year ended December 31, 1999 were
$7,952,798 as compared to $8,991,445 in 1998. This reflects a decrease of 11.6%
due primarily to the reduction in business of one customer.
Cost of revenues primarily includes the costs associated with bill
production. To manage its variable processing needs Celltech utilizes
state-of-the-art Alpha/Vax processors at its data center operation, to provide
data processing and data storage capability. While Cost of revenues decreased
5.8% primarily related to the reduction of revenues, Celltech incurred one-time
charges associated with the migration of its core rater processing from an
outsource provider to an in-house system, including a $75,000 contract
termination fee, and incurred increased postage expense
73
due to a U.S.P.S. rate increase. Celltech projects annual savings in excess of
$250,000 associated with the in-house migration of its rater processing.
Celltech incurred significant research and development charges of
$422,252 in 1999 for the development of its new billing product which was
$29,604, or 6.6% less than 1998 charges for research and development. These
costs include those expenses incurred for contractors and consultants outside of
the Company.
Selling, general and administrative expenses increased $477,074 in
1999 from $3,658,694 in 1998 primarily as a result of on-going new production
development and implementation of Celltech's Y2K compliance testing and due to a
one-time charge off of $150,000 from accounts receivable and a bad debt reserve
of an additional $410,072 primarily for one client (see Significant and Recent
Events).
Depreciation and amortization expense increased $27,992, to $125,422
as compared to 1998, reflecting a 28.7% increase due to an increase of $83,475
in Property and Equipment. The Property and Equipment cost increase was due
primarily to the acquisition of equipment for the in-house system discussed
under Cost of revenues.
Interest Income in 1999 increased 41.8% from $15,417 in 1998 to
$21,862 in 1999 due primarily to cash management strategies. Interest Expense
increased from $2,844 in 1998 to $15,315 in 1999 primarily to Celltech's
strategy of establishing bank lending relationships. Celltech established
lending facilities in lieu of establishing lease facilities. Net Interest Income
increased from ($2,488) in 1998 to $6,547 in 1999.
Other Income in 1998 of $45,000 was a legal settlement against a
former customer for an early termination claim brought by Celltech. Other
Expense in 1999 was a settlement of a lawsuit brought by the minority
shareholders of Celltech, filed in January 2000. The suit was settled in March
2000, resulting in a payment to the minority shareholders in the amount of
$152,353.
An Income tax provision of $209,216 in 1998 was replaced by an
Income tax benefit of $282,975 in 1999 primarily due to 1999 losses.
Liquidity and Capital Resources
Historically, Celltech has financed its activities primarily from
customer revenues and use of its lease and bank credit facilities. At June 30,
2000 Celltech's cash and cash equivalents increased $200,475 from December 31,
1999 as compared to $99,782 for the same period in 1999. This was related to the
cumulative effect of Celltech completing its Y2K compliance program, the
roll-out of its new WinCommand product and receipt of an Income Tax Receivable
in the amount of $161,786.
Net accounts receivable at June 30, 2000 were $581,943 which
reflects a 43.7% decrease compared to June 30, 1999. The accounts receivable
decrease is due in part to an increase allowance for doubtful accounts from
$11,700 at December 31, 1998 to $410,072 at December 31, 1999 primarily due to a
one-time reserve for one client. Inventory of forms decreased $22,400 at June
30, 2000 compared to 1999 due to implementation of an as-need basis of inventory
supply. Net Property and Equipment increased $36,140 from $248,686 in 1999 to
$284,826 in 2000 due primarily to the acquisition of equipment for an in-house
system acquired in 1999.
Celltech maintains two credit facility arrangements with a bank for
equipment loans that are secured by the equipment, and maintains one $400,000
line-of-credit facility for a working capital line. The balance of the equipment
loans is $60,550 at June 30, 2000 as compared to $110,556 at June 30, 1999. The
working capital line, personally guaranteed by the principal shareholder, has a
current balance of $0 at June 30, 2000.
The financial statements attached to this proxy statement have been
prepared assuming that Celltech will continue as a going concern. Celltech
incurred an operating loss of $714,580 and an operating cash flow deficit of
$342,927 during 1999. In addition, during 1999 Celltech was not in compliance
with the financial covenants of a
74
Promissory Note, as discussed in Note 5, for which there was no balance
outstanding at December 31, 1999. Celltech has obtained a waiver through the
period ended December 31, 1999 for this covenant violation. This waiver does not
extend beyond December 31, 1999. Management's operating plan for 2000 indicates
positive cash flow from operations. To the extent necessary, management intends
to reduce its costs during 2000 to fund its obligations. These conditions raise
substantial doubt about Celltech's ability to continue as a going concern. The
accompanying financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
Significant and Recent Events
Throughout 1999 one of Celltech's largest clients materially
decreased its operations, which substantially reduced Celltech's revenues. In
May 1999 Celltech agreed to forgive $150,000 in accounts receivable from this
client in exchange for a five-year contract commitment. In October 1999 this
client filed for Chapter 11 bankruptcy protection from its creditors. As a
result, Celltech increased its allowance for doubtful accounts by approximately
$400,000 to provide for the client's outstanding accounts receivable at
12/31/99.
Subsequent Events
On April 5, 2000 Celltech entered into a definitive merger agreement
with CTIG, a leading provider of software and services for the management of
telecommunications systems, to acquire 100% of the outstanding shares of
Celltech stock for total consideration valued at $5,251,977. The purchase will
include $262,599 in cash; the balance of $4,989,378 will be satisfied by the
issuance of 1,663,126 newly registered shares of CTIG Class A common stock at an
assumed value of $3.00 per share. The shares, to be issued at closing, may be
adjusted by the effect of a maximum 25% ceiling and floor collar dependent on
the average stock price during the twenty-day trading period prior to the
closing. In no event will Celltech's shareholders receive fewer than 1,330,501
or more than 2,217,501 shares. Approximately 47% of these common shares will be
held in escrow for up to three years pending the attainment of specified
business goals to be accomplished by Celltech.
Celltech was involved in a lawsuit with minority shareholders, filed
in January, 2000. The suit was settled in March 2000, resulting in a payment to
minority shareholders in the amount of $152,353. The settlement was reflected in
the 1999 financial statements.
Year 2000
Many computer programs have been written using two digits rather
than four to define the applicable year. Any computer programs with
time-sensitive software or embedded chips may recognize a date using "00" as the
year 1900 rather than the year 2000. This could result in a system failure or
miscalculations causing disruptions of operations. During 1999 and 1998,
Management of the Company and their staff completed their assessment of the
various computer software and hardware used in connection with the ongoing
operations of the Registrant. In some cases software modifications were made. In
all cases programs were tested for Y2K compliance.
During this two year period Celltech allocated $288,619 of its
operating costs to the review, modification and testing of its compliance
program. Since December 31, 1999, Celltech has not experienced any adverse
effects associated with the Year 2000 issues.
New Accounting Pronouncements
In June 1998, the FASB issued SFAS No. 133, as amended by SFAS No.
137, "Accounting for Derivative Instruments and Hedging Activity," is required
to be adopted by the company on January 1, 2001. Management is currently
assessing the effect of this statement on the financial disclosures of the
company, however management does not expect adoption of this statement to have a
material effect on the company's financial position or results of operations.
In December 1999, the Securities and Exchange Commission (the "SEC")
issued Staff Accounting Bulletin No. 101, Revenue Recognition in Financial
Statements ("SAB No. 101"). SAB No. 101 provides guidance on the
75
recognition, presentation, and disclosure of revenue in financial statements
filed with the SEC, and is required to be adopted in the fourth quarter of
fiscal years beginning after December 15, 1999. Celltech has not yet determined
the impact SAB No. 101 will have on its financial position or results of
operations.
76
THE RESULTING COMPANY
As a result of the Centillion merger, the telecommunications industry
billing division of Centillion will be merged into CTIG. As a result of the
Celltech merger, Celltech will be merged into CTIB, a subsidiary of CTIG. The
executive management of CTIG will be comprised of members of the existing
executive management of CTIG and Centillion, with Anthony Johns serving as
president and chief executive officer and Harold Garrison serving as chairman of
the board of CTIG. The CTIG board of directors will initially consist of seven
persons (with CTIG designating three members and Centillion designating four
members) and will have an executive committee (with CTIG designating one member
and Centillion designating two members). See "The Resulting Company --Directors
and Executive Officers."
Management of CTIG, Centillion and Celltech are jointly reviewing the
companies' operations in order to develop plans and proposals regarding the
integration and combination of all functional areas of the resulting business.
The goal of management of CTIG, Centillion and Celltech is to complete its
transition plan prior to the consummation of the mergers, so that the plan may
be implemented as soon thereafter as possible.
CTIG and Centillion will consummate the Centillion merger (subject to
stockholder approval and satisfaction or waiver of all conditions to closing in
the Centillion merger agreement) even if the Celltech merger is not approved by
CTIG stockholders or, if approved, is not consummated. If the Centillion merger
is not consummated, the Celltech merger will not be consummated, even if
approved by CTIG stockholders.
Business and Strategy
As the global telecommunications market continues to evolve, end
customers will be drawn to service providers who can offer a broad array of
services and single point of contact for support. "Convergent billing" refers to
the need for telecom firms to integrate the many different service inputs
(voice, data, wireless, Internet service provider, xDSL, VolP) arising from the
combination of customer demand, technology evolution, increasing competition and
market deregulation. Whether established incumbents or new market entrants,
telecommunications providers must have systems that allow all services to be
combined on a single bill. Furthermore, these providers will require customer
management systems that enable increasingly complex customer relationships to be
managed through a unified, user-friendly interface into the customer database.
CTIG intends to pursue such a convergent billing strategy after the mergers,
leveraging its experience in front-end call tracking and accounting, with
Centillion's expertise in billing analysis. Additionally, Celltech's expertise
in the area of billing services for wireless communications will further enable
CTIG to pursue a convergent billing strategy. Additionally, the funds provided
by Centillion will enable CTIG to repair its working capital deficit, thereby
increasing the marketing, product development and support efforts behind its
core billing products and services.
Directors and Executive Officers
Currently, CTIG has a compensation committee, but no audit or
nominating committee. The purpose of the compensation committee is to determine
the compensation of directors and executive officers of CTIG. This committee is
currently comprised of Anthony P. Johns, Rupert D. Armitage and Francis O.
Hunnewell. Members of the compensation committee following the mergers have not
yet been determined.
In fiscal year 1999, the CTIG board of directors held four meetings,
and the compensation committee held one meeting. No director failed to attend
fewer than 75% of either the four full board meetings or the compensation
meeting.
There are no material proceedings to which any director, officer,
affiliate of CTIG or five percent holder of CTIG common stock is a party adverse
to CTIG or has a material interest adverse to CTIG.
After the Centillion merger, and as provided for in the Centillion
merger agreement and CTIG's proposed amended certificate of incorporation, the
CTIG board of directors will be divided into three classes. Class I and Class
77
II will initially consist of two directors each, whose initial terms will be one
year and two years, respectively. Both Class I directors and Class II directors
will initially be designated by Centillion. Class III will initially consist of
three directors, each of whose initial term will be three years, and initially
will be designated by CTIG. After the initial terms all directors in each class
will serve for three year terms. The board of directors will also have an
executive committee, of which one member will be designated by CTIG and two
members will be designated by Centillion.
In the event of vacancies during the first three years following the
Centillion merger, Class I and Class II directors will designate a director to
occupy any vacancy, while Class III directors will designate a director to
occupy any vacancy to a Class III director position.
For the initial board, Centillion will designate: Harold D. Garrison,
(who will serve as chairman of the board of CTIG and an Executive Committee
member) and Salah N. Osseiran as the Class I directors; and Michael H. Leeds,
who will serve as vice chairman and an executive committee member, and Thomas W.
Grein as the Class II directors. CTIG will appoint Anthony P. Johns, who will
also serve as president and chief executive officer, Rupert D. Armitage, who
will also serve as an executive committee member, and Graham Bevington as the
Class III directors. Neither the Celltech merger nor the Celltech merger
agreement will have any effect on CTIG's board of directors.
The following table sets forth information regarding individuals who
will be either directors, officers or significant employees of the resulting
company following the mergers.
Name and Age Occupation During Past Five (5) Years
- ------------ -------------------------------------
Anthony P. Johns (51)
President, Chief Executive
Officer and Director Mr. Johns, a citizen of the United Kingdom,
has served as chairman of the board of CTIG
since October, 1996, and president, chief
executive officer and director of CTIG since
March, 1990. He was chairman of the board of
directors of Britannic Group Holdings Ltd.,
Britannic Telecom Company Ltd. and Britannic
Telecare Ltd. from December, 1989 to May,
1995.
Rupert D. Armitage (52)
Director Mr. Armitage, a citizen of the United
Kingdom, has been a director of CTIG since
November, 1995. He is a founding member,
chairman and managing director of three
software-related companies in the United
Kingdom: Ambit Research Ltd. formed in 1987;
Information from Data Ltd. formed in 1993;
and Personal and Corporate Training Systems
Ltd. formed in 1995.
Graham Bevington (40)
Director Mr. Bevington, a citizen of the United
Kingdom, has been a director of CTIG since
July, 1999. He is presently the managing
director of Mitel Telecommunications Ltd.
(EMEAAP), a business telecommunications
company. He has served as managing director of
DeTeWe Ltd., a telecommunications distributor
based in the United Kingdom, since 1997, and
had been a director of that company since
1992.
Michael H. Leeds (53)
Director and Vice Chairman Mr. Leeds has served as a member of the
executive committee of the board of directors
of Centillion since 1987. He is the managing
partner of the Boca Raton, Florida office of
the law firm of Blank Rome Comisky & McCauley
LLP, which is a legal advisor to Centillion.
78
Salah N. Osseiran (45)
Director Mr. Osseiran, a Lebanese citizen, has been a
director of Centillion since 1987. He is the
President and CEO of Business Projects Company
(BPC), a Lebanese company located in Beirut.
BPC owns a bottled water company operating in
Lebanon and interests in the other business
activities in Lebanon which include a
department store, a supermarket, an investment
bank and a commercial bank, a satellite
television station and FM radio station, a
hotel and an electronics manufacturing
company, as well as a polystyrene
manufacturing company in the United Arab
Emirates.
Thomas W. Grein (48)
Director Mr. Grein has served as a director of
Centillion since October, 1999, and is
currently vice president and treasurer of Eli
Lilly and Company. He has served as director
of investor relations from 1994 to 1997,
assistant treasurer and executive director of
investor relations from 1997 to 1998 and
executive director of finance from 1998 to
2000. Mr. Grein is also a member of the board
of directors of the Walther Cancer Foundation.
Harold D. Garrison (51)
Chairman of the Board
of Directors Mr. Garrison has served as chairman of
Centillion since 1988. He is also serving as
the chairman and chief executive officer of
Mansur Group since 1982 and served as chairman
of XILA Communications, Inc. from 1983 to
1999. Mr. Garrison currently serves as a
chairman of XILA Communications, LLC and
e.Nova, LLC.
Mary Ann Davis (61)
Corporate Secretary Ms. Davis has been corporate secretary of CTIG
since May 1989. Prior to that, Ms. Davis was
an Administrative Assistant to a Judge of the
Common Pleas Court of Montgomery County,
Pennsylvania.
Executive Compensation
The following table sets forth the compensation paid or accrued for our
highest paid officer and our subsidiaries. We had only one officer for the year
ended March 31, 2000 who received in excess of $100,000.
Annual Compensation
-----------------------------
Other Annual
Name and Principal Position Year Salary Bonus Compensation
- --------------------------- ---- ------ ----- ------------
Anthony P. Johns, President 2000 $175,000 -- $32,434 (1)
and Chief Executive Officer 1999 $175,000 -- $32,762 (1)
1998 $175,000 -- $32,651 (1)
(1) Includes an $11,100 annual automobile allowance, $15,600 of living
expense payments and automobile, life and medical insurance premiums
paid by CTIG.
On April 1, 1998, CTIG entered into an employment agreement with
Anthony P. Johns. Pursuant to this agreement, Mr. Johns is employed as president
and chief executive officer of CTIG for a three-year term at an annual base
salary of $175,000. Should CTIG regain its listing on NASDAQ, Mr. Johns' salary
would be increased to $200,000 for the remaining term of the employment
agreement. In addition to the annual base salary, Mr. Johns is entitled to
receive as additional compensation in the form of an annual bonus, an amount
equal to five percent (5%) of our pretax profit. CTIG has also agreed to:
79
(i) provide Mr. Johns with a monthly automobile allowance,
(ii) an accommodation allowance in recognition of his need to maintain
a residence both here and in the United Kingdom, and
(iii) pay the premiums on life insurance and health insurance policies
for the benefit of Mr. Johns.
Mr. Johns is also reimbursed by the Company for all expenses reasonably
incurred by him in the performance of his duties. Upon consummation of the
Centillion merger, Mr. Johns and CTIG will enter a new employment agreement that
will replace the current agreement. Mr. Johns' proposed employment agreement (to
become effective upon consummation of the Centillion merger) and options granted
to him in lieu of his 5% profit share arrangement in his current employment
agreement are described on Page [40] of this proxy statement.
Director Compensation
Our current practice is that the members of the board of directors who
are not our employees, are paid fees of $1,000 per quarter and $500 per board of
director meeting attended, plus reasonable travel expenses. The chairman of the
board, if not our employee, receives an additional $2,000 per year as
compensation for his duties as chairman. Mr. Armitage receives an additional
$1,000 per board meeting attended due to the two additional days needed for
travel to and from the United Kingdom pursuant to an agreement upon his election
to the board in November 1995. During the fiscal year ended March 31, 2000,
Messrs. Armitage, Hunnewell, Rohn and Bevington earned fees for their services
on the board of directors of approximately $10,000, $6,000, $6,000 and $5,000,
respectively, plus expenses. In addition, in fiscal year 1999, Mr. Armitage
earned fees of approximately $23,000 for consulting and advisory services
rendered to CTI Data Solutions Ltd. These services were to assist the new
managing director of CTI Data Solutions Ltd. The fees were earned over the
course of the year and were determined by CTIG management to be the fair market
value of the services rendered by Mr. Armitage. During the fiscal year ended
March 31, 2000, Mr. Bevington received 30,000 stock options pursuant to the
stock option and restricted stock plan upon his appointment to the board of
directors, and Mr. Hunnewell received 10,000 shares of CTIG in recognition of
advisory services that he provided to CTIG in connection with the Centillion
merger.
After the mergers, the compensation paid to the board of directors will
be as follows: non-employee board members will receive:
o $5,000, plus reasonable expenses for attendance at annual meetings,
o $3,000 plus reasonable expenses for attendance at quarterly
meetings,
o $1,500, plus reasonable expenses for attendance at special meetings,
and
o $2,500 plus reasonable expenses for attendance at executive
committee meetings.
In addition, the chairman of the board will receive $5,000 per month
plus reasonable expenses and the vice-chairman will receive $4,000 per month
plus reasonable expenses.
After the mergers, it is contemplated that some non-employee
individuals will also receive options to purchase shares of Class A common stock
in accordance with the following:
o the chairman of the board will receive options to purchase 20,000
shares of Class A common stock per year;
o the vice-chairman of the board will receive options to purchase
15,000 shares of Class A common stock per year,
o each executive committee member will receive options to purchase
10,000 shares of Class A common stock per year, and
o each board member will receive options to purchase 10,000 shares of
Class A common stock per year.
80
If any individual serves in more than one of the above capacities he or
she will receive options for each position, and these options will be
cumulative.
The following table sets forth option and stock appreciation rights,
exercises in last fiscal year and year end values for all employees who are
required to disclose such options and rights.
AGGREGATED OPTIONS/SAR EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION/SAR VALUES
Number of Securities Value of Unexercised
Underlying Unexercised in-the-Money
Options/SARS at Options/SARS at
FY-End (#) FY-End ($)
Shares Acquired Value Received Exercisable/ Exercisable/
Name on Exercise (#) Unexercisable Unexercisable
- ------------------------------------------------------------------------------------------------------------------------------------
Anthony P. Johns, 50,000 $140,000(1) 0/300,000 $0.00/[$339,000](2)
President and Chief
Executive Officer
(1) Options were granted at an exercise price of $1.09 per share. As of December
13, 1999, the date of exercise of the options, the market value of CTIG's
stock was $3.89 per share.
(2) Options were granted at an exercise price of $1.09 per share. As of [August
25], the market value of CTIG's stock was [$2.22] per share.
OPTION/SAR GRANTS IN LAST FISCAL YEAR
Percent of Total
Number of Securities Options/SARS
Underlying Unexercised Granted to
Options/SARS Employees in Exercise or Expiration
Name Granted Fiscal Year Base Price Date
- ------------------------------------------------------------------------------------------------------------
Anthony P. Johns, 300,000 57% $1.09 November 3, 2009
President and Chief
Executive Officer
81
SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT OF CTIG
The following table sets forth current and pro forma information as to
the number of shares of CTIG common stock that is, or will be beneficially owned
by:
(i) each person currently known by us or expected to be the
beneficial owner of more than 5% of any of our voting securities
after the Centillion merger and the Celltech merger,
(ii) each person who will be a director after the Centillion merger
and the Celltech merger,
(iii) our chief executive officer and the other highly compensated
executive officers, and
(iv) our executive officers and directors as a group assuming the
mergers had been consummated on March 31, 2000.
Except as indicated by the notes to the following table (a) the holders listed
below will have sole voting power and investment power over the shares
beneficially held by them and (b) the beneficial ownership is direct, as
determined in accordance with Rule 13d-3 of the Securities Exchange Act of 1934.
82
Pro Forma
Beneficial Ownership Beneficial Ownership
Prior to Both Mergers After the Centillion Merger
------------------------ ------------------------------------------------------
Common Class A Class B
Name and Address of Beneficial Owner Stock Percent Shares Percent Shares Percent
- ------------------------------------ ----- ------- ------ ------- ------ -------
Anthony P. Johns 1,883,456(1) 23.7 1,883,456(1) 9.0 0 0
c/o CTI Group (Holdings) Inc.
2550 Eisenhower Avenue
Norristown, PA 19403
Rupert D. Armitage 396,219(2) 5.0 396,219(2) 1.9 0 0
c/o Ambit Researc
100 New Kings Road
London SW64LX United
Kingdom
Graham Bevington 32,938(3) 0.4 32,938(3) 0 0
c/o Mitel Telecom Ltd.
Portskewett, Monmouthshire
NP 26 5YR United Kingdom
Harold D. Garrison 0 0 951,787(4)(5) 4.6 208,041(6) 7.3
c/o Centillion Data Systems, Inc.
333 North Alabama Street
Suite 240
Indianapolis, IN 46204
Salah N. Osseiran 0 0 10,848,444(4)(7) 51.8 2,371,244(8) 83.7
c/o Centillion Data Systems, Inc.
333 North Alabama Street
Suite 240
Indianapolis, IN 46204
Michael H. Leeds 0 0 0 0 0 0
c/o Centillion Data Systems, Inc.
333 North Alabama Street
Suite 240
Indianapolis, IN 46204
Thomas W. Grein 0 0 0 0 0 0
c/o Centillion Data Systems, Inc.
333 North Alabama Street
Suite 240
Indianapolis, IN 46204
David A. Warren 0 0 0 0 0 0
Celltech Information Systems, Inc.
15425 I45 North, Suite 200
Houston, TX 77090
All directors and executive 2,366,223 29.7 13,450,524 64.3 2,422,797 85.5
officers as a group
(9 individuals (10))
Pro Forma
Beneficial Ownership
After the Centillion
and Celltech Mergers
------------------------------------------------------
Class A Class B
Name and Address of Beneficial Owner Shares Percent Shares Percent
- ------------------------------------ ------ ------- ------ -------
Anthony P. Johns 1,883,456(1) 8.1 0 0
c/o CTI Group (Holdings) Inc.
2550 Eisenhower Avenue
Norristown, PA 19403
Rupert D. Armitage 396,219(2) 1.7 0 0
c/o Ambit Researc
100 New Kings Road
London SW64LX United
Kingdom
Graham Bevington 32,938(3) * 0 0
c/o Mitel Telecom Ltd.
Portskewett, Monmouthshire
NP 26 5YR United Kingdom
Harold D. Garrison 951,787(4)(5) 4.1 208,041(6) 7.3
c/o Centillion Data Systems, Inc.
333 North Alabama Street
Suite 240
Indianapolis, IN 46204
Salah N. Osseiran 10,848,444(4)(7) 46.9 2,371,244(8) 83.7
c/o Centillion Data Systems, Inc.
333 North Alabama Street
Suite 240
Indianapolis, IN 46204
Michael H. Leeds 0 0 0 0
c/o Centillion Data Systems, Inc.
333 North Alabama Street
Suite 240
Indianapolis, IN 46204
Thomas W. Grein 0 0 0 0
c/o Centillion Data Systems, Inc.
333 North Alabama Street
Suite 240
Indianapolis, IN 46204
David A. Warren 1,884,875(9) 8.1 0 0
Celltech Information Systems, Inc.
15425 I45 North, Suite 200
Houston, TX 77090
All directors and executive 15,335,399 66.0 2,422,797 85.5
officers as a group
(9 individuals (10))
83
Notes to pro forma security ownership of some of our beneficial owners and
management:
(1) Does not include options to purchase 300,000 shares of common stock of
CTIG, which vest more than 60 days after the consummation of the Centillion
merger.
(2) Includes options to purchase 60,000 shares of common stock of CTIG, all of
which will vest and become immediately exercisable upon consummation of the
Centillion merger.
(3) Includes options to purchase 30,000 shares of common stock of CTIG, all of
which will vest and become immediately exercisable upon consummation of the
Centillion merger.
(4) Assumes the release of all escrowed stock pursuant to the Centillion merger
agreement.
(5) Includes 433,538 shares which will be owned by Sunset LLC, of which Mr.
Garrison is the Managing Member, and 282,394 shares which will be owned by
XCI Holdings, Inc., of which Mr. Garrison is Chairman and Chief Executive
Officer.
(6) Includes 94,762 shares which will be owned by Sunset LLC, of which Mr.
Garrison is the Managing Member, and 61,725 shares which will be owned by
XCI Holdings, Inc., of which Mr. Garrison is Chairman and Chief Executive
Officer.
(7) Includes 9,671,104 shares which will be owned by Hawazen, BVI of which Mr.
Osseiran the sole shareholder and 1,177,340 shares which will be owned by
Fairford Holdings, Ltd., of which Mr. Osseiran is also the sole
shareholder.
(8) Includes 2,113,902 shares which will be owned by Hawazen, BVI of which Mr.
Osseiran is the sole shareholder and 257,342 shares which will be owned by
Fairford Holdings, Ltd., of which Mr. Osseiran is also the sole
shareholder.
(9) Assumes that the maximum number of shares of Class A common stock
authorized under the Celltech merger agreement will be issued, and that all
stock placed into escrow pursuant to the Celltech merger agreement will be
released.
(10) If the Centillion merger is consummated, but the Celltech merger is not
consummated, David A. Warren will not serve as an executive officer of
CTIG, and would not be counted for purposes of this table.
Certain Relationships and Related Transactions
In fiscal year 1999, Rupert Armitage, a director of CTIG, provided
consulting and advisory services to CTI Data Solutions, Ltd., the U.K.
subsidiary of CTIG. For services rendered, Mr. Armitage earned fees of
approximately $23,000, which was determined by CTIG management to be the fair
market value of services rendered. During the fiscal year ended March 31, 2000,
Mr. Bevington received 30,000 stock options pursuant to the stock option and
restricted stock plan upon his appointment to the board of directors, and Mr.
Hunnewell received 10,000 shares of CTIG in recognition of advisory services
that he provided to CTIG in connection with the Centillion merger.
Also, as part of the Centillion merger, Anthony Johns, Chairman and
Chief Executive Officer of CTIG, will receive an employment agreement that
entitles him to a base salary of $250,000 per year for a period of three years,
as well as additional compensation and benefits. Mr. Johns has also been granted
300,000 options at an exercise price of $1.09 each which will not vest and
become exercisable upon the consummation of the Centillion merger, but will vest
over a three-year period commencing in November 2000. These options were issued
to compensate Mr. Johns for his forfeiture of funds under a profit-sharing
agreement with CTIG. For more information regarding Mr. Johns' employment
agreement and stock options, please see "Proposal I - Interests of Certain
Persons in the Centillion Merger - Employment
84
Agreement - Anthony P. Johns." In addition, a number of CTIG officers and
directors also have options to purchase an aggregate of 200,000 shares of CTIG
common stock which will accelerate and vest as a result of the Centillion
merger.
Centillion is currently leasing 38,758 square feet of office space at
333 North Alabama Street, Indianapolis, Indiana at a cost of $16.27 per rentable
square foot. The landlord is an affiliate of Harold Garrison and Salah Osseiran,
both of whom are Centillion stockholders who will become stockholders of CTIG
after the Centillion merger. In Centillion's opinion, the terms of the lease are
at least as favorable as terms available from a non-affiliated landlord.
Prior to consummation of the Centillion merger, Centillion intends to
loan to CTI Data Solutions, Inc., a subsidiary of CTIG, $250,000 in cash.
Interest will accrue at the rate of 10% per annum. Principal and interest will
be payable upon demand at the earlier of the consummation of the Centillion
merger or one year from the date of the loan, which is expected to occur on or
about September 6, 2000. The loan will be secured by the trade receivables of
CTI Data Solutions Inc.
Upon consummation of the Centillion merger, the loan will be repaid by
reducing the amount of cash required to be reflected on Centillion's balance
sheet (pursuant to the Centillion merger agreement) from $8 million to $7.75
million.
The proceeds of the loan will be applied by CTIG toward its working
capital.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Exchange Act requires CTIG's directors and some of
its officers and persons who own more than 10% of CTIG Common Stock
(collectively, "Insiders"), to file reports of ownership and changes in their
ownership of CTIG Common Stock with the SEC. Insiders are required by SEC
regulations to furnish CTIG with copies of all Section 16(a) forms they file.
Based solely on its review of the copies of such forms received by it,
CTIG believes that its Insiders complied with all applicable Section 16(a)
filing requirements for fiscal 2000, with the exception of Messrs. Rohn,
Bevington, Hunnewell and Ms. Davis, each of whom filed a late Form 4 reporting
one transaction per person. Each of the above Forms 4 was due on January 10,
2000, and all were filed with the SEC on March 9, 2000.
85
DESCRIPTION OF CTIG COMMON STOCK
THE FOLLOWING IS A SUMMARY DESCRIPTION OF THE MATERIAL ASPECTS OF THE
CAPITAL STOCK OF CTIG AND IS QUALIFIED IN ITS ENTIRETY BY THE COMPLETE TEXT OF
CTIG's AMENDED CERTIFICATE OF INCORPORATION, AMENDED AND RESTATED BYLAWS WHICH
ARE INCORPORATED HEREIN BY REFERENCE AND ARE ATTACHED TO THIS PROXY STATEMENT AS
ANNEXES B AND C, RESPECTIVELY.
CTIG Common Stock
Our authorized capital stock currently consists of 50,000,000 shares of
common stock, par value $.01 per share. Upon completion of the mergers,
46,500,000 shares shall be designated Class A common stock, and 3,500,000 shares
shall be designated Class B common stock. Based upon the number of shares of our
common stock and Centillion common stock outstanding as of July 18, 2000, it is
anticipated that 20,924,009 shares of Class A common stock and 2,833,334 shares
of Class B common stock will be issued and outstanding immediately after the
completion of the Centillion merger, and 23,141,510 shares of Class A common
stock, and 2,833,334 shares of Class B common stock will be issued and
outstanding immediately after the Celltech merger, assuming that the maximum
number of shares of CTIG common stock are issued under the Celltech merger
agreement. All of the above figures assume the exercise of all CTIG options
currently outstanding which will vest upon the closing of the Centillion merger.
Voting
Except with respect to the election of directors occurring prior to
July 1, 2003, as described below, each share of Class A common stock and Class B
common stock entitles the holder to one vote on matters submitted to a vote of
the stockholders. Under the proposed amended certificate of incorporation, the
board of directors will be classified into three classes consisting of two, two
and three directors, respectively. The holders of common stock will not be
entitled to cumulate votes for the election of directors.
Assuming the adoption of the amended certificate of incorporation set
forth in Proposal III, and the filing of the certificate of merger with the
Delaware Secretary of State, the existing board of directors shall be
reclassified. The board of directors shall be divided into three classes, which
shall be as nearly equal in number as possible. After their initial terms,
directors of each class shall serve for a term of three years, and until their
successors shall have been elected and qualified. Each director of the
reclassified board of directors shall be placed in one of the three classes, and
the initial term of office of each such class shall expire (except in the event
of his earlier resignation or removal) at the annual stockholders' meeting
taking place in the year set forth opposite such director's name (or, if later,
upon the election and qualification of his successor), as follows:
Name Class Term Expires
Harold Garrison I 2001
Salah Osseiran
Michael Leeds II 2002
Tom Grein
Graham Bevington III 2003
Rupert Armitage
Anthony Johns
For any meeting of stockholders held prior to July 1, 2003, the holders
of Class B common stock, voting together as a single class, shall have the right
to elect the Class I directors. For any meeting of stockholders held prior to
July 1, 2003, the holders of Class B common stock, voting together as a single
class, shall have the right to elect the
86
Class II directors. For any meeting of stockholders held prior to July 1, 2003,
any vacancies with respect to Class I or Class II directors shall be filled by
the remaining Class I and Class II directors voting as a group, or with respect
to a Class III director by the remaining Class III directors.
If, prior to July 1, 2003, there is any increase or decrease in the
number of directors, such directors shall be assigned as Class I, II or III so
that the holders of Class B common stock, voting togther as a single class,
maintain a majority of the board of directors.
Conversion of Class B Common Stock
For a description of the provisions in the proposed amendments to the
certificate of incorporation regarding conversion of shares of Class B common
stock into Class A common stock, see "The Centillion Merger Agreement --
Conversion and Issuance of Shares."
Dividends
The board of directors may declare and pay dividends on the Class A
common stock and the Class B common stock, in equal or unequal amounts
(including declaring and paying dividends on one class of shares while not
declaring or paying dividends, or paying a different dividend on the other
classes of shares. However, whenever a dividend is paid to the holders of the
Class B common stock, CTIG will also pay to the holders of Class A common stock
a dividend per share equal to or greater than the dividend per share paid to the
holders of Class B common stock unless a different dividend amount (or no
dividend) has been authorized by a two-thirds majority of the board of
directors.
Prohibited Business Transactions
As a corporation organized under the laws of the State of Delaware,
CTIG is subject to Section 203 of the DGCL, which restricts some types of
business combinations between CTIG and an "interested stockholder," in general,
a stockholder owning 15% or more of the outstanding voting stock of CTIG, or
such stockholder's affiliates or associates for a period of three years
following the date on which the stockholder becomes an "interested stockholder."
The restrictions do not apply if:
(i) prior to an interested stockholder becoming an interested
stockholder, the board approves either the business combination or the
transaction by which the person became an interested stockholder;
(ii) upon consummation of the transaction, the interested stockholder
owns at least 85% of the voting stock outstanding at the time the transaction
commenced, excluding shares owned by certain employee stock plans and persons
who are both directors and officers, or
(iii) at or subsequent to the time an interested stockholder becomes an
interested stockholder, the business combination is both approved by the board
of directors and authorized at an annual or special meeting of our stockholders
by the affirmative vote of at least two-thirds of the outstanding voting stock
not owned by the interested stockholder.
Registrar and Transfer Agent
The registrar and transfer agent of CTIG will be American Stock
Transfer.
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CTIG MARKET PRICES AND DIVIDENDS
Our common stock is listed on the OTC Bulletin Board. The table below
sets forth, for the fiscal quarters indicated, the reported high and low sales
prices of our common stock as reported by the OTCBB, based on published
financial sources. These quotations reflect inter-dealer prices, without retail
mark-up, mark-down or commission, and may not represent actual transactions. Our
fiscal year ends on March 31 of each year. Centillion and Celltech are both
privately-held corporations, and therefore no stock quotations are available.
CTIG
Common Stock
High Low
---- ---
Fiscal Year ended 2001
2nd Quarter (through [August 25,] 2000) [$2.38] [$1.56]
1st Quarter 3.44 1.375
Fiscal Year ended 2000
4th Quarter 5.75 1.91
3rd Quarter 4.88 0.45
2nd Quarter 0.75 0.31
1st Quarter 0.56 0.35
Fiscal Year Ended 1999
4th Quarter 0.69 0.12
3rd Quarter 0.15 0.10
2nd Quarter 0.33 0.27
1st Quarter 0.31 0.22
On February 2, 2000, the last trading date prior to the date on which
CTIG and Centillion publicly announced the signing of the Centillion merger
agreement, the high and low sales prices on the OTCBB were $4.6875 and $4.00 per
share, respectively, for our common stock.
On April 5, 2000, the last trading date prior to the date on which CTIG
and Celltech publicly announced the signing of the Celltech merger agreement,
the high and low sales prices on the OTCBB were $2.6875 and $2.34375 per share,
respectively, for our common stock.
We have not paid any dividends in the past two fiscal years.
OUR STOCKHOLDERS ARE URGED TO OBTAIN CURRENT MARKET QUOTATIONS FOR OUR
COMMON STOCK.
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PROPOSAL III
APPROVAL OF AMENDMENTS TO CTIG's
CERTIFICATE OF INCORPORATION
The Centillion merger agreement requires amendments to our certificate
of incorporation. By unanimously approving the Centillion merger and the
Centillion merger agreement at a board meeting held on February 3, 2000, the
board of directors also unanimously authorized an amendment to our certificate
of incorporation. The board of directors determined that such an amendment is
advisable and directed that the proposed amendment be considered by our
stockholders at the special meeting.
The full text of the proposed amendments to the certificate of
incorporation is set out in Annex B, and will have the following effects:
o restructure the board of directors to provide for a larger
classified board with representatives of Centillion and CTIG,
and designate the initial CTIG board of directors after the
Centillion merger,
o redesignate 46,500,000 shares of the currently authorized
common stock of CTIG as Class A common stock, and describe the
voting, dividend and other rights of Class A stockholders,
o redesignate 3,500,000 shares of currently authorized common
stock as Class B common stock which will be issued to
Centillion stockholders, and describe the voting, dividend,
and conversion rights of Class B stockholders.
Holders of common stock should note that the approval of the amendments
to the certificate of incorporation will have the practical result of electing a
new board of directors. The members of this board of directors have been
predetermined in accordance with the Centillion merger agreement.
Purposes and Effects of the Amendment
The following is a summary of the material terms of the proposed
amendments to the certificate of incorporation, a copy of which is attached as
Annex B to this proxy statement, and is incorporated herein by reference. This
summary is qualified in its entirety by reference to the proposed amendments.
Our stockholders are urged to read the proposed amendments in their entirety for
a more complete description of their terms and conditions.
Restructure of the Board of Directors
CTIG's current certificate of incorporation provides for a board of
five directors, of a single class, each elected for a one year term. Under the
Centillion merger agreement, our board of directors is to increase from five to
seven members at the effective time, and CTIG has the right to designate three
of the members for three years after the Centillion merger. To accomplish this,
the proposed amendments to the certificate of incorporation increase the board
to seven members and divide it into three classes. Class I directors have an
initial term of one year, Class II directors have an initial term of two years
and Class III directors have an initial term of three years. After the
respective initial terms, each class of directors will serve for a three year
term. There are two directors in each of Class I and Class II, and three
directors in Class III. The initial Class I and Class II directors have been
designated by Centillion and the initial Class III directors have been
designated by CTIG. All of the initial directors are named in the proposed
amendments to the certificate of incorporation, and information about each of
them is set forth in "The Resulting Company -- Directors and Executive
Officers."
Except with respect to elections of directors prior to July 1, 2003,
the holders of Class A common stock and Class B common stock shall each be
entitled to one vote for each share of stock of either class owned for the
election of directors of each class. For any meeting of stockholders held prior
to July 1, 2003 the holders of Class B common stock shall have the right to
elect the Class I and Class II directors. Prior to July 1, 2003, any vacancies
with respect to Class I or Class II directors are to be filled by the remaining
Class I and Class II directors voting as a group, and any vacancies with respect
to Class III directors are to be filled by the remaining Class III directors.
Any director appointed
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to fill a vacancy will serve until the end of the term of the director's class.
This structure will assure that the three directors designated initially by CTIG
as Class III directors prior to the Centillion merger (or their proper
successors) will serve for at least a three year term.
Pursuant to the Centillion merger agreement, the amendments to the
certificate of incorporation require the board of directors to establish a three
member executive committee to be composed of one Class III director (initially,
Rupert Armitage), and one director from each of Class I and Class II (initially,
Michael Leeds and Harold Garrison). In addition to its other powers to act for
the full board between meetings, all decisions with respect to the Tracking LLC
are to be made by the executive committee. All decisions with respect to this
limited liability company will be made by the majority vote of the members of
the executive committee present at a meeting at which a quorum is present. A
majority of the total number of members of the executive committee will
constitute a quorum. The executive committee will have the same fiduciary duties
to all CTIG stockholders that the full Board has, and will have no separate duty
solely to the holders of Class B common stock.
Initial board of directors after merger
The amendment of the certificate of incorporation includes the
designation of the new board of directors of CTIG. This board will consist of:
Harold D. Garrison, who will serve as chairman of the board of CTIG and an
executive committee member, and Salah Osseiran as Class I directors, and Michael
H. Leeds, who will serve as vice chairman and an executive committee member, and
Thomas W. Grein as the Class II directors. CTIG will appoint Anthony P. Johns,
who will also serve as president and chief executive officer, Rupert D.
Armitage, who will also serve as an executive committee member, and Graham
Bevington as Class III directors. Biographical information on these individuals
may be found in "The Resulting Company -- Directors and Executive Officers."
Redesignation of Existing Common Stock as Class A Common Stock and Class B
Common Stock
Our current certificate of incorporation authorizes 50,000,000 shares
of a single class of common stock. In order to create the Class B common stock
required by the merger agreement (see "The Centillion Merger Agreement --
Conversion and Issuance of Shares"), the proposed amendments redesignate the
current common stock as 46,500,000 shares of Class A common stock, par value
$0.01 per share, and 3,500,000 shares of Class B common stock, par value $0.01
per share. Except as specifically set forth in the amended certificate, each
share of Class A and Class B common stock have identical rights. The Class B
common stock may only be issued:
(a) pursuant to the merger agreement,
(b) in a stock split or after subdivision of outstanding shares of
Class B common stock, or
(c) as a stock dividend or share distribution with respect to
shares of Class B common stock.
Voting Rights
Except with respect to any election of directors prior to July 1, 2003,
as described above, the holders of shares of Class A common stock and Class B
common stock will have one vote for each share held and shall vote as a single
class with no separate votes or consents required for any matter.
Dividends
The board of directors may declare and pay dividends on the Class A
common stock and the Class B common stock, in equal or unequal amounts
(including declaring and paying dividends on one class while not declaring or
paying a dividend, or paying a different dividend, on the other class of
shares). However, whenever a dividend is paid to the holders of the Class B
common stock, we will also pay to the holders of Class A common stock a dividend
per share equal to or greater than the dividend per share paid to the holders of
Class B common stock unless a different dividend amount (or no dividend) has
been authorized by a two-thirds majority of the board of directors.
Liquidation
In the event of a liquidation, dissolution or winding up of CTIG,
whether voluntary or involuntary, after payment or provision for payment of its
debts and other liabilities, the holders of the shares of Class A common stock
and the
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holders of the shares of Class B common stock will be entitled to their
respective share of the remaining assets after payment of all applicable
liabilities. The respective share of the assets distributed to the holders of
Class B common stock will be based on the relative fair market value of the net
assets of the wholly-owned limited liability company which will hold the patent
claims to the total assets at the time of the liquidation. The respective share
of the assets distributed to the holders of Class A common stock will be based
on the relative fair market value of CTIG's assets without regard to the net
assets of the limited liability company to the total assets of CTIG at the time
of the liquidation. Neither the consolidation or merger of CTIG with or into any
other corporation or corporations nor the sale, transfer or lease of all or
substantially all of CTIG's assets shall itself be deemed to be a liquidation,
dissolution or winding up of CTIG. The holders of the Class B common stock shall
have no rights to the specific assets owned by the limited liability company at
the time of liquidation, dissolution or winding up of CTIG.
Conversion of Class B Common Stock
For a summary of the provisions in the proposed amendments to the
certificate of incorporation regarding conversion of shares of Class B common
stock into Class A common stock, see "The Centillion Merger Agreement --
Conversion and Issuance of Shares."
Further Amendments to Certificate of Incorporation
In order to protect the rights of our current stockholders for the
initial three years after the effective time, the proposed amendments to the
certificate of incorporation provide that until July 1, 2003, except for
amendments as a result of acquisitions or raising capital, further amendments
will require, prior to submission to the stockholders, the affirmative vote of a
majority of the board of directors, which vote must contain the affirmative vote
of at least one Class III director.
Effective Date of Proposed Amendment
If the amendment to the certificate of incorporation is adopted by the
required vote of our stockholders, such amendment will become effective at the
effective time of the Centillion merger, pursuant to the filing by us of a
certificate of amendment to the certificate of incorporation with the secretary
of the State of Delaware.
Vote Required for Approval
The proposal to approve the amendment to the certificate of
incorporation as described above requires the affirmative vote of a majority of
our outstanding shares for its approval. Abstentions may be specified on the
proxy and will be considered present at the special meeting, but will not be
counted as affirmative votes. Abstentions, therefore, will have the practical
effect of voting against the proposal because the affirmative vote of a majority
of our outstanding shares is required to approve the proposal.
The board of directors unanimously recommends a vote FOR the proposed
amendment.
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PROPOSAL IV
PROPOSAL TO AMEND STOCK OPTION AND RESTRICTED STOCK PLAN
Purposes and Effects of the Amendment
Prior to the special meeting, the board of directors will adopt and
approve the amendment to our stock option and restricted stock plan and reserve
an additional 2,000,000 shares of Class A common stock for stock options and
other stock awards to employees and officers of CTIG and its subsidiaries and
other eligible participants after the mergers. There are currently 600,000
option shares authorized under the plan, of which 390,000 have been issued and
250,000 of which remain unexercised. If this amendment is adopted, there will be
an additional 2,000,000 options authorized. The principal purpose of the plan is
to provide incentives for our officers, employees and consultants and those of
our subsidiaries through the granting of options and restricted stock, thereby
stimulating their personal and active interest in our development and financial
success, and inducing them to remain in our company's employ. In addition to
awards made to officers, directors, employees or consultants, the plan will
continue to permit the granting of stock options to our non-employee directors.
Benefits Under the Plan
If this proposal to amend the stock option and restricted stock plan is
approved, along with the mergers, CTIG management intends to grant some of the
additional authorized options to some non-employee individuals in accordance
with the following:
o the chairman of the board will receive 20,000 options per year;
o the vice-chairman of the board will receive 15,000 options per
year;
o each executive committee member will receive 10,000 options per
year; and
o each board member will receive 10,000 options per year.
If any individual serves in more than one of the above capacities he or
she will receive options for each position, and such shares shall be cumulative.
Assuming both the Centillion and Celltech mergers are consummated,
approximately 11 CTIG directors and/or executive officers and 180 CTIG employees
will be eligible to participate in the CTIG stock option plan. Assuming only the
Centillion merger is consummated, approximately 10 CTIG directors and/or
executive officers and 120 CTIG employees will be eligible to participate in the
CTIG stock option plan. Assuming neither the Centillion nor the Celltech mergers
are consummated, approximately seven CTIG directors and/or executive officers
and approximately 60 CTIG employees will be eligible to participate in the CTIG
stock option plan.
The material features of the plan are summarized below. The plan is
attached as Annex I to this proxy statement.
Summary of stock option and restricted stock plan
General
Pursuant to the plan, we afford eligible participants the opportunity
to receive three types of grants. Eligible participants of the plan may include:
(i) designated key employees (including employees who also serve
as members of the board of directors)-
(ii) non-employee members of the board of directors; and
(iii) independent contractors and consultants who perform services
for CTIG.
Grants under the plan include: (1) Incentive Stock Options ("ISO's"),
(2) Nonqualified Stock Options ("NQSO's"), and (3) Restricted Stock. ISO's and
NQSO's are collectively referred to as "stock options". A director's grant is a
special type of grant of NQSO's made only to particular members of the board of
directors who are not
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employees of CTIG and who serve on the compensation committee of the board of
directors. Prior to the adoption of the proposal to increase the number of
options authorized under the plan, CTIG has been able to issue or transfer stock
options to purchase up to 600,000 shares of CTIG common stock pursuant to the
provisions of the plan.
A stock option gives a holder the right to purchase stock in the future
within a specified exercise period at a price fixed in advance. An ISO is an
option granted to an employee of a corporation, and the ISO qualifies for
special tax treatment under the Internal Revenue Code. An NQSO, however, may be
granted to both employees and non-employees, and NQSOs do not qualify for
special tax treatment under the code.
Restricted stock is common stock issued to eligible participants in
consideration for cash or services. Such stock is made subject to restrictions
as may be determined by the committee. Generally, restricted stock may not be
sold or otherwise transferred until restrictions are removed or expire. Unlike
recipients of stock options, holders of restricted stock will have voting rights
and will receive dividends prior to the time when the restrictions lapse.
Administration of the Plan
Generally, the committee administers and interprets the plan. The
committee consists of at least two persons, both of whom are "outside
directors", as defined in the code, and each of whom is a "disinterested
person", as defined in the Securities Exchange Act of 1934. Except with respect
to director's grants, the committee has full authority to determine the persons
to whom grants are to be made, the type, size, and terms of each grant, the time
when each grant will be made, the duration of any exercise or restriction
period, any restrictions on resale, and the number of shares to be subject to
the plan. Notably, the provisions of the plan relating to director's grants
operate automatically, without any administration of the committee.
The board of directors has full authority to amend the plan.
Stockholder approval, however, is required:
(a) to materially increase the benefits accruing to eligible
participants,
(b) to increase the number of shares available for the plan,
(c) to materially modify the eligibility requirements for
participation in the plan, or
(d) to modify the provisions for determining fair market value under
the plan.
The board may not amend more than once every six months those
provisions of the plan relating to Director's Grants. The board may amend such
provisions more than once every six months only if the amendments are necessary
to conform the plan to changes in the provisions of the Code or Employee
Retirement Income Security Act of 1974, or to conform to the rules promulgated
under the code or ERISA.
The plan offers stock option grants and restricted stock grants. The
two types of stock option grants include ISO's and NQSO's. As to ISO's, only
employees of CTIG are eligible to receive ISO's; non-employee directors and
independent contractors and consultants are not eligible to receive ISO's. As to
NQSO's, all eligible participants may receive this type of option. As to
restricted stock, all eligible participants may hold restricted stock. Each
stock option grant and each restricted stock grant is evidenced by a grant
letter containing terms and conditions that the committee approves.
Stock Option Grants
Exercise price. The exercise price of all ISO's and NQSO's granted is
the higher of the fair market value, as defined in the plan, and the book value
of the common stock on the date of the grant. If a grantee owns common stock
representing more than 10% of the total combined voting power of all classes of
stock of CTIG, the option price per share in the case of an ISO shall not be
less than 110% of the fair market value of a share of common stock on the date
of the grant and such option is not exercisable after the expiration of five (5)
years from the date of the grant. The exercise price of a stock option is
payable in cash, shares of common stock already owned by the grantee, or a
combination of cash and shares. If the grantee pays the exercise price, in any
part, with shares of common stock already owned, the optionee must obtain the
consent of the committee.
Exercise period. The committee determines the option exercise period of
each stock option. The holder of stock options may exercise such options at a
date no later than ten (10) years from the date of the grant. An exercise
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period may terminate earlier because the grantee dies, the grantee becomes
disabled, or because CTIG terminates the grantee's employment or relationship
with CTIG.
In the event of a change of control, as defined in the plan, grantees
may immediately exercise all stock options. Upon a sale or exchange of assets or
upon a dissolution, liquidation, merger or consolidation of CTIG where CTIG is
not the surviving corporation, each such grantee has the right to exercise in
full any such Grants not previously exercised, within ten (10) days after the
grantee receives the required written notice of such event. If upon a merger or
consolidation where CTIG does survive, the committee, in its sole discretion,
may elect to give grantees notice of such event. If notice is given, the grantee
has the right to exercise the grant within ten (10) days after such written
notice is sent.
Special limits on ISO's. In the case of ISO's, when the grantee
exercises an ISO for the first time, the aggregate fair market value of such
common stock, determined as of the date of the grant, shall not exceed $100,000.
Also, unless a grantee of an ISO could otherwise transfer common stock issued
pursuant to the stock option without incurring liability under Section 16 (b) of
the Securities and Exchange Act of 1934, at least six months must elapse from
the date of acquisition of the ISO grant until the date of disposition of the
common stock issued upon exercise.
Assignability. A grantee may not assign or otherwise transfer the ISO
except by will, or the laws of descent and distribution. However, an eligible
participant may assign an NQSO if he or she is permitted under Rule 16b-3 of the
Exchange Act, by the committee, pursuant to a qualified domestic relations order
as defined under the Internal Revenue Code or Title I of ERISA, and to a trust
for the benefit of a member of the grantee's immediate family.
Director's grants: A special type of NQSO grant for non-employee
directors. All non-employee directors who serve on the committee each receive an
automatic grant of NQSO's with respect to 30,000 shares of common stock at the
commencement of and in consideration for their service to CTIG as a committee
member. One-half (50%) or 15,000 shares of common stock of each director's grant
vests on the first anniversary of the date of such grant , and one-quarter (25%)
or 7,500 shares of common stock vests on each of the second and third
anniversaries of the date of such director's grant, provided such non-employee
director is then serving as a director. After this initial vesting period, at
the end of each successive three-year period, such non-employee director
receives an additional grant of options to purchase 30,000 shares of common
stock, which are classified as NQSOs. This additional director's grant is
subject to the same vesting schedule, provided the non-employee director is
continuously reelected to the board and provided the non-employee director has
continuously served as a director during each such three-year period. Upon a
change of control, all restrictions imposed on any restricted stock immediately
lapse. Such non-employee directors may exercise the NQSOs at a date no later
than ten (10) years from the date of the director's grant.
Upon a sale or exchange of assets or upon a dissolution, liquidation,
merger or consolidation of CTIG where CTIG is not the surviving corporation,
each grantee has the right to exercise in full any installment of grants not
previously exercised (whether or not the right to exercise such installments has
accrued), within ten (10) days after the grantee receives the required written
notice of the event. If upon a merger or consolidation where CTIG does survive,
the committee in its sole discretion, may elect to give grantees notice of the
event; if notice is given, the grantee has the right to exercise the grant
within ten (10) days after the required written notice is sent.
Restricted Stock
The committee may issue restricted stock to eligible participants,
subject to terms set by the committee. The committee may issue such shares of
common stock in consideration for cash or services rendered having a value, as
determined by the board, at least equal to the par value of the common stock.
The committee determines the number of shares of common stock that will be
granted in each restricted stock grant. In general, any recipient (including
non-employee directors) of restricted stock is not permitted to sell, transfer,
pledge or otherwise dispose of the restricted stock until the restrictions,
established by the committee, lapse. Each certificate representing a share of
such common stock issued or transferred must contain a legend giving appropriate
notice of the restrictions in the grant.
In the event of a change of control, as defined in the plan, all
restrictions on any restricted stock will immediately lapse. If CTIG terminates
the recipient's relationship with CTIG before the restrictions lapse, all shares
issued pursuant to a director's grant immediately revert to CTIG, unless the
committee determines otherwise.
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Federal Income Tax Consequences
The current federal income tax consequence of grants under the stock
option plan are described below.
Tax Deductibility under Section 162(m)
Section 162(m) of the Internal Revenue Code disallows a public
company's deductions for employee compensation exceeding $1,000,000 per year for
the chief executive officer and the four other most highly compensated executive
officers. Section 162(m) contains an exception for performance-based
compensation that meets specific requirements. The Compensation Committee may
grant stock awards that are based on the attainment of objective performance
goals and are intended to qualify as performance-based compensation.
Tax Treatment of Options
An optionee will not be subject to federal income tax upon the grant of
non-qualified stock option. Upon the exercise of a non-qualified stock option,
the optionee will recognize ordinary compensation income in an amount equal to
the excess, if any, of the then fair market value of the shares acquired over
the exercise price. CTIG will generally be able to take a deduction with respect
to this compensation income for federal income tax purposes. The optionee's tax
basis in the shares acquired will equal the exercise price plus the amount
taxable as compensation to the optionee. Upon a sale of the shares acquired upon
exercise, any gain or loss is generally long term or short-term capital gain or
loss, depending on how long the shares are held. The required holding period for
long-term capital gain is presently more than one year. The optionee's holding
period for shares acquired upon exercise will begin on the date of exercise.
An employee who receives incentive stock options generally incurs no
federal tax liability at the time of grant or upon exercise of the options.
However, the spread will be an item of tax preference which may give rise to
alternative minimum tax liability at the time of exercise. If the optionee does
not dispose of the shares before the date that is two years from the date of
grant and one year from the date of exercise, the difference between the
exercise price and the amount realized upon disposition of the shares will
constitute long-term capital gain or loss, as the case may be. Assuming both
holding periods are satisfied, no deduction will be allowable to CTIG for
federal income tax purposes in connection with the option. If, within two years
of the date of grant or within one year from the date of exercise, the optionee
disposes of the shares, the optionee will generally realize ordinary
compensation income at the time of the disposition equal to the difference
between the exercise price and the lesser of the fair market value of the stock
on the date of exercise or the amount realized on the disposition. The amount
realized upon such a disposition will generally be deductible by CTIG for
federal income tax purposes.
Effective Date of Proposed Amendment
If the amendment to the stock option and restricted stock plan is
adopted by the required vote of the stockholders, the amendment will become
effective at the effective time of the Centillion merger.
Vote Required for Approval
The proposal to approve the amendment to the plan as described above
requires the affirmative vote of a majority of shares present in person or
represented by proxy at the special meeting for its approval. Abstentions may be
specified on the proxy and will be considered present at the special meeting,
but will not be counted as affirmative votes. Abstentions, therefore, will have
the practical effect of voting against the proposal because the affirmative vote
of a majority of the shares present at the special meeting, in person or by
proxy, is required to approve the proposal. Broker non-votes are considered not
present at the special meeting and, therefore, will not be voted or have any
effect on the proposal.
The board of directors unanimously recommends a vote FOR the proposed
amendment.
Market Price of Shares
The closing price of CTIG's common stock, as reported on the OTCBB for
[August 25, 2000, was $2.22].
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CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS
We have made forward-looking statements in this document and the
documents incorporated by reference herein that are subject to risks and
uncertainties. These statements are based on management's beliefs and
assumptions, based on information currently available to management.
Forward-looking statements include the information concerning possible or
assumed future results of operations of CTIG after the mergers set forth: (i)
under "Summary," "Special Considerations," "The Centillion Merger Proposal --
Background of the Merger," "The Celltech Merger Proposal -- Background of the
Merger," "Recommendations of the Boards of Directors of CTIG and Centillion;
Reasons for the Merger," "Opinion of Financial Advisor to CTIG (including
without limitation the projections of Centillion and CTIG included therein)" and
"Selected Pro Forma Condensed Consolidation Financial Information," (ii) under
"Business" and "Management's Discussion and Analysis" in CTIG's Annual Report on
Form 10-KSB incorporated by reference into this document, (iii) under "The
Resulting Company -- Business and Strategy" and (iv) in this document and the
documents incorporated herein by reference preceded by, followed by or that
include the words "believes," "expects," "anticipates," "intends," "plans,"
"estimates" or similar expressions, or the negotiations of those words.
Forward-looking statements are not guarantees of performance. They
involve risks, uncertainties and assumptions. Our future results and stockholder
values after the mergers may differ materially from those expressed in these
forward-looking statements. Many of the factors that will determine these
results and values are beyond our ability to control or predict. Our
stockholders are cautioned not to put undue reliance on any forward-looking
statements. In addition, we have no intention or obligation to update
forward-looking statements after we distribute this proxy statement, even if new
information, future events or other circumstances have made them incorrect or
misleading. For those statements, we claim the protection of the safe harbor for
forward-looking statements contained in the Private Securities Litigation Reform
Act of 1995.
Our stockholders should understand that the following important
factors, in addition to those discussed elsewhere in the documents which are
incorporated by reference into this proxy statement, could affect the future
results of CTIG and could cause results to differ materially from those
expressed in such forward-looking statements:
(i) the effect of economic and market conditions,
(ii) our ability to successfully integrate Centillion's and
Celltech's operations with our operations,
(iii) the impact of competition; and
(iv) customer demand.
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OTHER MATTERS
As of the date of this proxy statement, the board of directors know of
no matters that will be presented for consideration at the special meeting other
than as described in this proxy statement. If any other matters shall properly
come before the special meeting or any adjournments or postponements of the
meeting and be voted upon, the enclosed proxies will be deemed to confer
discretionary authority on the individuals named as proxies on the proxy to vote
the shares represented by the proxies as to any other matters. The persons named
as proxies intend to vote or not to vote in accordance with the recommendation
of the management of CTIG.
WHERE YOU CAN FIND MORE INFORMATION
CTIG is subject to the Exchange Act and files annual, quarterly and
special reports, proxy statements and other information with the SEC. You may
read and copy any reports, statements or other information we file at the SEC's
public reference rooms in Washington, D.C., New York, New York and Chicago,
Illinois. Please call the SEC at 1-800-SEC-0330 for further information on the
public reference rooms. Our SEC filings are also available to the public from
commercial document retrieval services and at the web site maintained by the SEC
at "http://www.sec.gov."
INCORPORATION OF DOCUMENTS BY REFERENCE
The SEC allows CTIG to "incorporate by reference" information into this
proxy statement, which means that we can disclose important information to you
by referring you to another document filed separately with the SEC. We are
providing each of these documents to you along with this proxy statement. The
information incorporated by reference is deemed to be part of this proxy
statement, except for any information superseded by information in this proxy
statement. This proxy statement incorporates by reference CTIG's Annual Report
on Form 10-KSB for the year ended March 31, 2000 and Quarterly Report on Form
10-QSB for the quarter ended June 30, 2000. (SEC File No. 000-10560), that we
have previously filed with the SEC. These documents contain important
information about CTIG and its finances.
You may obtain additional copies of documents incorporated by reference
in this proxy statement, without charge, by requesting them in writing or by
telephone from:
Mary Ann Davis, Corporate Secretary
CTI Group (Holdings) Inc.
2550 Eisenhower Avenue
Norristown, PA 19403
(800) 355-5353
If you would like to request documents from us, please do so by [August
20, 2000] to receive them before the special meeting.
You should rely only on the information contained or incorporated by
reference in this proxy statement to vote on the mergers. We have not authorized
anyone to provide you with information that is different from what is contained
in this proxy statement. This proxy statement is dated [September 7, 2000].
97
Index
Page
----
Centillion Data Systems, Inc. and Subsidiaries:
Financial Statements as of and for the Years Ended December 31, 1999 and 1998:
Independent Auditor's Report F-2
Consolidated Statements of Income for the Years Ended December 31, 1999 and 1998 F-3
Consolidated Balance Sheets as of December 31, 1999 and 1998 F-4
Consolidated Statements of Stockholders' Equity for the Years Ended December 31, 1999 and 1998 F-5
Consolidated Statements of Cash Flows for the Years Ended December 31, 1999 and 1998 F-6
Notes to the Consolidated Financial Statements F-7
Unaudited Condensed Consolidated Financial Statements as of June 30, 2000 and
for The period Ended June 30, 2000 and 1999:
Unaudited Condensed Consolidated Statements of Operations for the Three and Six Months Ended
June 30, 2000 and 1999 F-21
Unaudited Condensed Consolidated Balance Sheets as of June 30, 2000 and December 31, 1999 F-22
Unaudited Condensed Consolidated Statements of Stockholders' Equity for the Six Months Ended
June 30, 2000 F-23
Unaudited Condensed Consolidated Statements of Cash Flows for the Sx Months Ended
June 30, 2000 and 1999 F-24
Notes to the Unaudited Condensed Consolidated Financial Statements F-25
Celltech Information Systems, Inc.:
Financial Statements as of and for the Years Ended December 31, 1999 and 1998:
Report of Independent Public Accountants F-28
Balance Sheets as of December 31, 1999 and 1998 F-29
Statements of Operations for the Years Ended December 31, 1999 and 1998 F-30
Statements of Shareholders' Equity for the Years Ended December 31, 1999 and 1998 F-31
Statements of Cash Flows for the Years Ended December 31, 1999 and 1998 F-32
Notes to the Financial Statements F-33
Unaudited Condensed Financial Statements as of june 30, 2000 and for The period
Ended June 30, 2000 and 1999:
Unaudited Condensed Balance Sheets as of June 30, 2000 and December 31, 1999 F-41
Unaudited Condensed Statements of Operations for the Three and Six Months
Ended June 30, 2000 and 1999 F-42
Unaudited Condensed Statements of Cash Flows for the Three and Six Months Ended
June 30, 2000 and 1999 F-43
Notes to the Unaudited Condensed Financial Statements F-44
Unaudited Condensed Consolidated Pro Forma Financial Data:
Introduction F-45
Unaudited Condensed Consolidated Pro Forma Balance Sheet Data as of June 30, 2000 F-46
Notes to the Unaudited Condensed Consolidated Pro Forma Balance Sheet Data F-47
Unaudited Condensed Consolidated Pro Forma Statement of Operations Data for the Year
Ended March 31, 2000 F-50
Unaudited Condensed Consolidated Pro Forma Statement of Operations Data for the Three
Months Ended June 30, 2000 F-51
Notes to the Unaudited Condensed Consolidated Pro Forma Statement of Operations Data F-52
Independent Auditor's Report
To Stockholders of
Centillion Data Systems, Inc. and Subsidiaries
Indianapolis, Indiana
We have audited the accompanying consolidated balance sheet of Centillion Data
Systems, Inc. and Subsidiaries as of December 31, 1999 and 1998, and the related
consolidated statements of income, stockholders' equity and cash flows for the
years then ended. These consolidated financial statements are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
Centillion Data Systems, Inc. and Subsidiaries as of December 31, 1999 and 1998,
and the results of their operations and their cash flows for the years then
ended in conformity with generally accepted accounting principles.
[OBJECT OMITTED]
Indianapolis, Indiana
January 21, 2000, except for Notes 2 and 17,
which are as of February 3, 2000
F-2
CENTILLION DATA SYSTEMS, INC. AND SUBSIDIARIES
Consolidated Statement of Income
Year Ended December 31 1999 1998
- ---------------------------------------------------------------------------------------------------------------------
Net Revenues
Service fees $ 10,375,914 $10,179,217
Patent licenses 25,000,000
Reimbursed expense 303,828 308,595
Other 54,900 85,689
--------------------------------
10,734,642 35,573,501
--------------------------------
Cost of Revenues
Service 3,973,282 3,874,610
Patent licenses 549,503 4,091,290
--------------------------------
4,522,785 7,965,900
--------------------------------
Gross Profit 6,211,857 27,607,601
--------------------------------
Operating Expenses
General and administrative 1,782,832 1,695,412
Selling 175,753 336,261
--------------------------------
1,958,585 2,031,673
--------------------------------
Operating income 4,253,272 25,575,928
--------------------------------
Other Income (Expense)
Investment income 156,095 598,184
Loss on disposal of assets (56,320) (1,840)
--------------------------------
99,775 596,344
--------------------------------
Income From Continuing Operations Before Income Taxes and Minority Interest 4,353,047 26,172,272
Income Tax 1,733,484 10,422,403
--------------------------------
Income From Continuing Operations Before Minority Interest 2,619,563 15,749,869
Discontinuing Operations
Loss from discontinuing operations--net of applicable tax benefit of $1,834,204
and $1,796,154 (3,622,867) (5,467,777)
Loss on disposal of discontinuing operations--net of applicable tax benefit of
$521,624 (1,281,706)
Minority Interest in Net Loss of Discontinuing Operations 157,279
--------------------------------
Net Income (Loss) $ (2,127,731) $10,282,092
================================
Earnings Per Common Share
Income From Continuing Operations Before Minority Interest $ 0.74 $ 4.28
Discontinuing Operations
Loss from discontinuing operations (1.02) (1.49)
Loss on disposal of discontinuing operations (0.36)
Minority interest in discontinuing operations 0.04
--------------------------------
Net Income (Loss) $ (0.60) $ 2.79
================================
Earnings Per Common Share--Assuming Dilution
Income From Continuing Operations Before Minority Interest $ 0.73 $ 4.26
Discontinuing Operations
Loss from discontinuing operations (1.01) (1.48)
Loss on disposal of discontinuing operations (0.36)
Minority interest in discontinuing operations 0.04
--------------------------------
Net Income (Loss) $ (0.60) $ 2.78
================================
See notes to consolidated financial statements.
F-3
CENTILLION DATA SYSTEMS, INC. AND SUBSIDIARIES
Consolidated Balance Sheet
December 31 1999 1998
- ----------------------------------------------------------------------------------------------------------------------
Assets
Current Assets
Cash and cash equivalents $ 6,097,338 $11,669,606
Securities available for sale 6,116,112 1,051,995
Accounts receivable (net of allowance of $70,510 and $115,366) 1,136,502 1,077,715
Other receivables 53,904 2,833
Prepaid assets 129,917 117,907
Income taxes refundable 507,912
Deferred income tax benefit 521,624 58,669
Assets of discontinuing operations 4,379,631 1,907,992
--------------------------------
Total current assets 18,942,940 15,886,717
--------------------------------
Property and Equipment 2,012,751 1,444,569
--------------------------------
Assets of Discontinuing Operations 3,689,746
--------------------------------
Other Assets
Intangible assets 432,883 244,092
Investments 19,800 19,800
Deferred income tax benefit 9,678 26,422
--------------------------------
462,361 290,314
--------------------------------
$ 21,418,052 $21,311,346
================================
Liabilities and Stockholders' Equity
Current Liabilities
Notes payable--banks $ 118,285 $ 367,285
Accounts payable 261,941 177,738
Income taxes payable 1,507,148
Deferred income tax liability 389,009
Accrued liabilities 694,166 538,700
Liabilities of discontinuing operations 1,688,762 455,805
--------------------------------
Total current liabilities 3,152,163 3,046,676
--------------------------------
Minority Interest In Discontinuing Operations 1,399,441 1,145,165
--------------------------------
Redeemable Common Stock 490,711 397,969
--------------------------------
Stockholders' Equity
Common stock--no-par value
Authorized--10,000,000 shares
Issued and outstanding--3,632,487 and 3,485,548 shares, respectively, at
stated value of $.0001 per share 363 348
Additional paid-in capital 8,396,220 7,321,475
Accumulated other comprehensive income 795,657 88,485
Retained earnings 7,183,497 9,311,228
--------------------------------
16,375,737 16,721,536
--------------------------------
$ 21,418,052 $21,311,346
================================
See notes to consolidated financial statements.
F-4
CENTILLION DATA SYSTEMS, INC. AND SUBSIDIARIES
Consolidated Statement of Stockholders' Equity
Accumulated
Additional Retained Other
Common Paid-in Comprehensive Earnings Comprehensive
Stock Capital Income (Deficit) Income Total
- -----------------------------------------------------------------------------------------------------------------------------------
Balances, January 1, 1998, as
originally reported $404 $10,475,763 $ (970,864) $ 50,506 $ 9,555,809
Reclassification of
redeemable common stock (7) (799,979) (799,986)
-------------------------- --------------------------------------------
Balances, January 1, 1998, as
restated 397 9,675,784 (970,864) 50,506 8,755,823
Comprehensive Income
Net income $10,282,092 10,282,092 10,282,092
Unrealized gains on securities 34,401 34,401 34,401
Foreign currency translation
adjustments 3,578 3,578 3,578
-----------
Comprehensive Income $10,320,071
===========
Stock redemption (49) (2,731,886) (2,731,935)
Issuance of common stock 13,243 13,243
Revaluation of redeemable
common stock 364,334 364,334
-------------------------- --------------------------------------------
Balances, December 31, 1998 348 7,321,475 9,311,228 88,485 16,721,536
Comprehensive Income
Net loss $(2,127,731) (2,127,731) (2,127,731)
Unrealized gains on securities 625,589 625,589 625,589
Foreign currency translation
adjustments 81,583 81,583 81,583
-----------
Comprehensive loss $(1,420,559)
===========
Issuance of common stock 15 1,079,989 1,080,004
Revaluation of redeemable
common stock (5,244) (5,244)
-------------------------- --------------------------------------------
Balances, December 31, 1999 $363 $ 8,396,220 $7,183,497 $795,657 $16,375,737
========================== ============================================
See notes to consolidated financial statements.
F-5
CENTILLION DATA SYSTEMS, INC. AND SUBSIDIARIES
Consolidated Statement of Cash Flows
Year Ended December 31 1999 1998
- ------------------------------------------------------------------------------------------------------------------------
Operating Activities
Net income (loss) $ (2,127,731) $10,282,092
Adjustments to reconcile net income (loss) to net cash provided by operating
activities
Depreciation 1,943,709 2,014,920
Amortization 1,157,008 1,631,325
Provision for bad debts (44,856) (24,691)
Deferred income tax (27,965) (19,603)
(Gain) loss on disposal of assets (135,904) 3,850
Loss on disposal of discontinuing operations 1,281,706
Write down of intangible assets 1,590,621
Deferred revenue 36,130 8,422
Minority interest 254,276
Changes in
Receivables (436,204) 424,045
Prepaid assets (30,553) (5,300)
Income tax (refundable) payable (2,015,060) 1,945,851
Accounts payable 76,691 (482,286)
Accrued expenses and other liabilities 181,447 (141,989)
------------------------------
Net cash provided by operating activities 112,694 17,227,257
------------------------------
Investing Activities
Purchase of equipment (1,915,499) (1,137,126)
Proceeds from asset disposals 1,275,260 3,434
Purchase of available-for-sale securities (4,914,002) (991,642)
Purchase of business interests (873,668) (1,750,000)
Cash of business acquired 1,473,905
------------------------------
Net cash used by investing activities (6,427,909) (2,401,429)
------------------------------
Financing Activities
Net advances (repayments) on line of credit 94,390 (355,741)
Repayment of debt (265,031) (253,110)
Issuance of stock 87,500 174,157
Redemption of stock (2,930,532)
------------------------------
Net cash used by financing activities (83,141) (3,365,226)
------------------------------
Effect of Foreign Currency Exchange Rate Changes on Cash and Cash Equivalents 81,583 3,578
------------------------------
Increase (Decrease) in Cash and Cash Equivalents (6,316,773) 11,464,180
Cash and Cash Equivalents, Beginning of Year 13,182,315 1,718,135
------------------------------
6,865,542 13,182,315
Cash and Cash Equivalents Included in Assets of Discontinued Operations (768,204) (1,512,709)
------------------------------
Cash and Cash Equivalents, End of Year $ 6,097,338 $11,669,606
==============================
Supplemental Cash Flows Information
Cash paid for interest $24,000 $45,167
Cash paid for income taxes 1,942,000 6,700,000
Assets and liabilities acquired in purchase of business
Cash 1,473,905
Receivables 105,534
Prepaid expenses 729
Property and equipment 38,860
Accounts payable (1,170)
Accrued expenses (4,950)
See notes to consolidated financial statements.
F-6
CENTILLION DATA SYSTEMS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Note 1 - Nature of Operations and Summary of Significant Accounting Policies
Nature of Operations
Founded in 1987, Centillion Data Systems, Inc. pioneered and patented an
electronic billing analysis system for the telecommunications industry. Today,
Centillion processes data using this software for customers throughout the
United States, which based on net revenue, is its most significant service. In
addition, Centillion subsidiaries market an internationally recognized digital
asset management software application and launched one of the first ASP
(Application Service Provider) initiatives in the Indianapolis area. At December
31, 1999, net assets of the Company located in Sweden and Germany are
approximately $145,000 and $101,000, respectively.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates. Significant estimates are used
when accounting for the allowance for doubtful accounts, depreciation and
amortization and capitalization of computer software development costs.
Principles of Consolidation
The consolidated financial statements include the accounts of the Company and
its wholly owned subsidiaries, Centillion Digital Systems, Inc. (formerly
PhotoImaging North America, Inc.), Centillion Digital GmbH (Germany), and an
entity controlled by the Company, e.Nova, LLC (formerly Computer Bank Services
LLC) and its wholly owned subsidiary, Xila Communications, LLC. The Company
purchased its interest in e.Nova, LLC on December 30, 1998. Xila Communications,
LLC was formed during 1999. All intercompany accounts and transactions have been
eliminated in consolidation.
Foreign Currency Translation
The consolidated statements include the accounts of the Swedish branch office
and the German subsidiary. The accounts of the Swedish branch have been
translated from Swedish Kroner to U. S. dollars and the accounts of the German
subsidiary have been translated from German DM to U. S. dollars at the average
of the monthly exchange rates for income and expense accounts and at the rates
existing at the respective year ends for assets and liabilities. The effects of
these translation adjustments have been recorded as a separate component of
accumulated other comprehensive income.
Cash and Cash Equivalents
Cash and cash equivalents consist of bank deposits in federally insured
accounts. The Company's cash accounts exceeded federally insured limits by
approximately $6,000,000 at December 31, 1999.
For purposes of the statement of cash flows, the Company considers all highly
liquid debt instruments, if any, purchased with an original maturity of three
months or less to be cash equivalents.
F-7
CENTILLION DATA SYSTEMS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Property and Equipment
Property and equipment are recorded at cost. Provisions for depreciation and
amortization are computed using straight-line and accelerated methods over the
estimated useful lives of the assets.
Capitalized Software Development Costs
Amortization of capitalized software costs is based upon straight-line
amortization over three years. When the technological feasibility of a software
product has been established, development costs are capitalized.
Intangible Assets
The Company amortizes its intangible assets using the straight-line method over
their respective lives, which range from 3 to 15 years.
Investments
Marketable equity securities are classified as available for sale. Securities
available for sale are carried at fair value with unrealized gains and losses
reported in accumulated other comprehensive income. Realized gains and losses
are recorded as gains (losses) on disposal of assets. Gains and losses on sales
of securities are determined on the specific-identification method.
Bad Debt
The Company uses the reserve method of accounting for bad debts on receivables.
Earnings Per Share
Earnings per share have been computed based upon the weighted average common
shares outstanding during each year.
Income Taxes
Income tax in the consolidated statement of income includes deferred income tax
provisions or benefits for all significant temporary differences in recognizing
income and expenses for financial reporting and income tax purposes. The Company
files consolidated income tax returns with its subsidiaries, except for e.Nova,
LLC.
Revenue Recognition
The Company recognizes revenue, net of discounts, for services by work order in
the period in which the information is processed and billed. One time license
revenue has resulted from settlements of patent infringement litigation.
Pursuant to these settlements, the Company has no further obligations related to
these licenses. The revenue is recorded when received and related expenses are
recorded as incurred.
Research and Development
Research and development costs are expensed as incurred. Total research and
development costs were approximately $700,000 for 1999 and $800,000 for 1998.
Reclassifications and Restatement
Certain amounts in prior year financial statements have been reclassified to
conform to the current year presentation.
Redeemable common stock was not separately reported prior to 1999. Beginning
common stock and additional paid-in capital for 1998 were restated to reflect
the reclassification of the redeemable common stock.
F-8
CENTILLION DATA SYSTEMS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Note 2 - Discontinuing Operations
The Company's management having the authority to approve the action determined
on February 3, 2000 to dispose of its interests in Centillion Digital Systems,
Inc., Centillion Digital GmbH, and e.Nova, LLC and subsidiary. These entities
provide technology and telecommunication services different than those of the
Company and represent a separate major line of business from the core
telecommunication billing business of Centillion Data Systems, Inc. Accordingly,
the operations of these subsidiaries and investees have been reported separately
as discontinued operations in the accompanying financial statements. Under the
proposed merger discussed in Note 18, these entities will be sold to Holdings
LLC, which will be owned by the present stockholders of the Company. The sale
will be for $3,100,000 with the Company receiving a promissory note for the
purchase amount. In addition, cash and other assets will be transferred to
Holdings LLC in the amount of approximately $6,900,000. The Company will receive
a total promissory note of approximately $10,000,000.
At December 31, 1999 and 1998, the assets of these entities consisted primarily
of cash, accounts receivable, property and equipment, capitalized software
costs, goodwill, and other intangible assets. The liabilities consisted of
accounts payable and short-term bank financing.
December 31 1999 1998
- --------------------------------------------------------------------------------------------------------------------------
Assets $4,379,631 $5,597,738
Liabilities 1,688,762 455,805
Revenues, losses from operations and loss on disposal of these entities follows:
Year Ended December 31 1999 1998
- --------------------------------------------------------------------------------------------------------------------------
Revenues $1,570,000 $1,200,000
Loss from operations, net of tax benefit of $1,834,204 in 1999 and
$1,796,154 in 1998 3,622,867 5,467,777
Loss on disposal, net of tax benefit of $521,624 1,281,706
Note 3 - Investments
1999
-------------------------------------------------------------------
Gross Gross Approximate
Unrealized Unrealized Market
December 31 Cost Gains Losses Value
- -----------------------------------------------------------------------------------------------------------------------
Available for sale
Marketable equity securities $4,985,867 $1,370,841 $(240,596) $6,116,112
===================================================================
F-9
CENTILLION DATA SYSTEMS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
1998
------------------------------------------------------------------
Gross Gross Approximate
Unrealized Unrealized Market
December 31 Cost Gains Losses Value
- ----------------------------------------------------------------------------------------------------------------------
Available for sale
Marketable equity securities $991,642 $75,018 $(14,665) $1,051,995
==================================================================
Proceeds from sales of securities available for sale during 1999 were $751,777.
The net loss realized was approximately $168,000.
Note 4 - Intangible Assets
Intangible assets of continuing operations consist of the following:
December 31 1999 1998
- ------------------------------------------------------------------------------------------------------------------
Patents $344,850 $344,850
Goodwill 211,781
--------------------------
Total cost 556,631 344,850
Accumulated amortization (123,748) (100,758)
--------------------------
$432,883 $244,092
==========================
During 1998, certain intangibles relating to discontinuing operations were
written down to their estimated net realizable value due to accelerated
technological obsolescence. The write down of $1,590,621 is included in loss
from discontinuing operations.
Note 5 - Property and Equipment
Property and equipment of continuing operations consists of the following:
December 31 1999 1998
- -------------------------------------------------------------------------------------------------------------------------
Data processing equipment $1,578,754 $1,546,176
Furniture and equipment 473,597 444,784
Automobiles 12,105 12,105
Software 2,439,144 1,634,109
Leasehold improvements 318,449 360,450
-----------------------------
Total cost 4,822,049 3,997,624
Accumulated depreciation and amortization (2,809,298) (2,553,055)
-----------------------------
$2,012,751 $1,444,569
=============================
F-10
CENTILLION DATA SYSTEMS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
At December 31, 1999 and 1998, software of continuing operations was comprised
of the following:
1999 1998
- -------------------------------------------------------------------------------------------------------------------
Developed internally $2,028,566 $1,344,062
Purchased for internal use 410,578 290,047
-----------------------------
Total 2,439,144 1,634,109
Accumulated amortization (1,103,078) (957,659)
-----------------------------
Software--net $1,336,066 $ 676,450
=============================
Software purchased and developed internally is being amortized using the
straight-line method over three years. Amortization expense for continuing
operations was $145,419 and $146,063 for the years ended December 31, 1999 and
1998.
Note 6 - Investment
On December 30, 1998, the Company acquired a 29% membership interest in e.Nova,
LLC for $1,750,000. Although the Company owns less than a 50% interest at
December 31, 1998, e.Nova, LLC has been consolidated because the Company has
effective control as it has a large minority interest and is funding the
operations. This transaction was accounted for using the purchase method of
accounting. The purchase price was allocated to various tangible and intangible
assets based upon their estimated fair values at December 30, 1998. During 1999,
the Company acquired additional membership interest in e.Nova, LLC through
various transactions. At December 31, 1999, the Company owns 46.9% of the
membership interest of e.Nova. Profits and losses are allocated to the members
based upon the terms of the LLC operating agreement. As discussed in Note 2,
e.Nova, LLC is included as part of discontinuing operations for all periods
presented.
During 1999, the Company acquired substantially all of the assets of XMS Corp.
for 146,939 shares of Centillion Data Systems stock, valued at $1,080,002. The
transaction has been accounted for using the purchase method of accounting. The
operations of XMS Corp. have been included in the results of operations from the
date of acquisition. Goodwill resulting from the transaction is being amortized
using the straight-line method over three years.
Note 7 - Line of Credit
The Company has a $250,000 revolving line of credit expiring on November 1,
2000. At December 31, 1999, there was $94,390 borrowed against this line. This
line relates to the discontinuing operations. The line is collateralized by
substantially all of the Company's assets. Interest varies with the bank's prime
rate.
In connection with the line of credit and other notes payable, the Company has
agreed to loan covenants, which require that certain criteria be met, including
the limiting of annual fixed asset acquisitions and minimum equity levels.
F-11
CENTILLION DATA SYSTEMS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Note 8 - Notes Payable
Notes payable consist of the following:
1999 1998
- ---------------------------------------------------------------------------------------------------------------------
Note payable--bank--8.9%; payable in monthly payments of $20,750 plus interest,
final payment due July 1, 2000, collateralized by substantially all of the
Company's assets $118,285 $367,285
Note payable--bank--9.0%; principal and interest payable monthly; paid off in 1999 16,031
----------------------
118,285 383,316
Note payable of discontinuing operations (16,031)
----------------------
$118,285 $367,285
======================
Note 9 - Leases
The Company has a noncancellable operating lease with a related party for office
space that expires in 2003. On January 1, 1999, the lease agreement was amended
to include additional office space. Rental expense for this lease totaled
$630,593 and $478,712 for the years ended December 31, 1999 and 1998.
Minimum annual rental payments required under this operating lease as of
December 31, 1999 are as follows:
Years Ending December 31
- ---------------------------------------------------------------------------------------------------------------------
2000 $ 630,593
2001 630,593
2002 630,593
2003 578,044
------------
$2,469,823
============
Note 10 - Common Stock
During 1999, the Company issued 10,000 shares for the exercise of a stock
option. The Company also issued 146,939 shares for the acquisition of the net
assets of XMS Corp. These net assets were then contributed to e.Nova, LLC in
exchange for additional membership units. The net effect of these transactions
increased additional paid-in capital by $1,167,486.
During 1998, the Company bought back 526,128 shares of its common stock through
a stock redemption and issued 20,200 shares for the exercise of stock options.
The net effect of these transactions decreased additional paid-in capital by
$2,756,325.
F-12
CENTILLION DATA SYSTEMS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Note 11 - Redeemable Common Stock
The Company and its stockholders are party to a stockholders agreement. The
agreement provides that upon the termination of a management stockholder
(specified as two individuals) such stockholder will sell, and the Company will
purchase, all outstanding shares held by the management stockholder. In the case
of one management stockholder, the Company will purchase all shares into which
options then held by such stockholder may be exercised. Additionally, upon a
change in control of the Company, all options of the one management shareholder
will become immediately exercisable. The purchase price per share shall be
determined by mutual agreement between the Company and the management
stockholder. If no agreement can be reached, the purchase price will be
determined by independent appraisal. At December 31, 1999 and 1998, there were
64,145 and 54,145 shares and 45,655 and 45,655 options subject to repurchase
only if the above conditions are met. The Company's Board annually determines a
share value for its options. This value for December 31, 1999 and 1998 was $7.65
and $7.35 per share. Using these values, the value of the redeemable shares at
December 31, 1999 and 1998 was $490,711 and $397,969.
Changes in redeemable common stock are as follows:
Shares Amount
- ----------------------------------------------------------------------------------------------------------------
Balance at December 31, 1997 71,300 $799,986
Stock redeemed (35,655) (198,598)
Stock issued 18,500 160,915
Adjust value to Board determined value of $7.35 per share (364,334)
-----------------------
Balance at December 31, 1998 54,145 397,969
Stock issued 10,000 87,498
Adjust value to Board determined value of $7.65 per share 5,244
-----------------------
64,145 $490,711
=======================
Note 12 - Employee Benefit Plans
The Company maintains a profit-sharing plan that covers certain eligible
employees. Contributions to the Plan are discretionary. The Company elected to
contribute $165,000 to the plan in both 1999 and 1998.
The Company maintains a wage-deferral plan qualified under Section 401(k) of the
Internal Revenue Code that covers certain eligible full-time employees.
Effective January 1, 1999, the Company matches 50% of participant contributions
up to 2% of participant compensation. During 1999, the Company made
contributions of approximately $20,000.
F-13
CENTILLION DATA SYSTEMS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Note 13 - Income Taxes
Year Ended December 31 1999 1998
- -------------------------------------------------------------------------------------------------------------------
Income tax expense
Currently payable
Federal $ 1,555,148 $ 8,412,364
State 158,217 2,033,724
Deferred
Federal 11,304 (18,817)
State 8,815 (4,868)
-------------------------------
Income tax expense from continuing operations $ 1,733,484 $ 10,422,403
===============================
Income taxes (benefit) were reported as follows:
From continuing operations $ 2,177,787 $ 10,448,355
Discontinued operations (2,355,828) (1,796,154)
Item charged directly to stockholders' equity (444,303) (25,952)
-------------------------------
Total income tax expense (benefit) $ (622,344) $ 8,626,249
===============================
Reconciliation of federal statutory to actual tax expense
Federal statutory income tax at 34% $ 1,480,036 $ 8,898,572
Effect of state income taxes 110,241 1,339,045
Excess tax rate 199,597
Effect of nondeductible expenses and other 143,207 (14,811)
-------------------------------
Actual income tax expense from continuing operations $ 1,733,484 $ 10,422,403
===============================
F-14
CENTILLION DATA SYSTEMS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
The components of the net deferred tax asset related to continuing operations
are as follows:
December 31 1999 1998
- --------------------------------------------------------------------------------------------------------------------
Assets
Depreciation and amortization $ 9,679 $26,424
Basis of discontinuing operations 521,624
Allowance for bad debts 10,463 45,657
Vacation and bonus compensation 40,938 42,393
Property tax 4,299 3,792
State income tax 25,545
----------------------------
Total assets 612,548 118,266
----------------------------
Liabilities
Unrealized gain on securities available for sale (470,255) (25,952)
State income tax (7,223)
----------------------------
Total liabilities (470,255) (33,175)
----------------------------
$ 142,293 $85,091
============================
Note 14 - Major Customer
Contract revenue from one major customer (defined as a customer who provided in
excess of 10% of total revenue) approximated 71% and 77% of total contract
revenues during 1999 and 1998. Accounts receivable from this major customer
approximated 64% and 68% of total accounts receivable at December 31, 1999 and
1998, respectively. The Company has a three year contract with this customer
which expires September 2000.
Note 15 - Stock Options
Under the Company's various stock option plans, which are accounted for in
accordance with Accounting Principles Board Opinion (APB) No. 25, Accounting for
Stock Issued to Employees, and related interpretations, the Company grants
selected executives and other employees stock option awards. Some of the options
vest immediately while others vest over a period of several years. The options
have lives ranging from 3 to 15 years. During 1997, the Company granted options
for the purchase of 20,200 shares of common stock at 85% of the fair market
value of the stock at the date of grant. During 1999 and 1998, the Company
granted options for the purchase of 10,000 and 9,000 shares, respectively, of
common stock at 85% of the fair market value of the stock at the date of grant.
In 1998, the Company also granted options for 35,655 shares of common stock with
an exercise price of $5.57 per share.
The Company has entered into a stock option agreement with one of its officers
which (as adjusted for the 1996 10,000 for 1 stock split and as amended in 1997
to grant an additional 10,000 shares) grants to the officer the option to
purchase 95,000 shares of common stock. When an option is exercised, the
employee receives a cash bonus in the amount of the exercise price plus all
related income taxes. No options were exercised in 1997. The employee exercised
17,500 shares for $153,125 during 1998. The employee exercised 10,000 shares for
$87,500 during 1999. These amounts and the related tax amounts are included as
compensation expense for 1999 and 1998. The balance of the remaining options
will expire at a rate of 10,000 shares per year through March 31, 2002.
F-15
CENTILLION DATA SYSTEMS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Although the Company has elected to follow APB No. 25, SFAS No. 123 requires pro
forma disclosures of net income as if the Company had accounted for its employee
stock options under that Statement. The fair value of each option grant was
estimated on the grant date using a present value calculation with the following
assumptions:
1999 1998
--------------------------
Risk-free interest rates 5.75% 5.75%
Dividend yields 1.31% 1.36%
Weighted-average expected life of the options 15 years 7 years
Under SFAS No. 123, compensation cost is recognized in the amount of the
estimated fair value of the options and amortized to expense over the options'
vesting period. The pro forma effect on net income and earnings per share of
this statement are as follows:
1999 1998
-----------------------------------
Net income (loss) As reported $(2,127,731) $10,282,092
Pro forma (2,187,431) 10,115,092
Earnings per common share As reported (0.60) 2.79
Pro forma (0.61) 2.75
Earnings per common share--assuming dilution As reported (0.60) 2.78
Pro forma (0.61) 2.74
The following is a summary of the status of the Company's stock option plans and
changes in those plans as of and for the years ended December 31, 1999 and 1998.
Year Ended December 31 1999 1998
- ----------------------------------------------------------------------------------------------------------------------------
Weighted-Average Weighted-Average
Options Shares Exercise Price Shares Exercise Price
- ----------------------------------------------------------------------------------------------------------------------------
Outstanding, beginning of year 90,955 $7.20 66,500 $8.63
Granted 10,000 6.50 44,655 5.71
Exercised (10,000) 8.75 (20,200) 8.62
Forfeited/expired
-------- -------
Outstanding, end of year 90,955 $6.95 90,955 $7.20
======== =======
Options exercisable at year end 70,955 57,555
Weighted-average fair value of options granted during the year $4.83 $3.49
As of December 31, 1999, the 90,955 options outstanding have exercise prices
ranging from $5.57 to $9.54 and a weighted-average remaining contractual life of
5.82 years.
F-16
CENTILLION DATA SYSTEMS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Note 16 - Other Comprehensive Income
1999
---------------------------------------------------
Tax
Before-Tax (Expense) Net-of-Tax
Year Ended December 31 Amount Benefit Amount
- --------------------------------------------------------------------------------------------------------------------------
Unrealized holding gains arising during the year $ 901,892 $(374,536) $527,356
Less: reclassification adjustment for gains (losses) realized in
net income (168,000) 69,767 (237,767)
--------------------------------------------------
Net unrealized gains 1,069,892 (444,303) 625,589
Foreign currency translation adjustment 196,443 (114,860) 81,583
--------------------------------------------------
$ 1,266,335 $(559,163) $707,172
==================================================
1998
--------------------------------------------------
Tax
Before-Tax (Expense) Net-of-Tax
Year Ended December 31 Amount Benefit Amount
- --------------------------------------------------------------------------------------------------------------------------
Unrealized holding gains arising during the year $ 60,353 $ (25,952) $ 34,401
Foreign currency translation adjustment 6,277 (2,699) 3,578
--------------------------------------------------
$ 66,630 $ (28,651) $ 37,979
==================================================
The components of other comprehensive income are as follows:
Foreign Accumulated
Unrealized Currency Other
Gains Translation Comprehensive
on Securities Adjustment Income
- -----------------------------------------------------------------------------------------------------------------------
Balance, January 1, 1998 $ 50,506 $ 50,506
Net change, 1998 $ 34,401 3,578 37,979
---------------------------------------------------
Balance, December 31, 1998 34,401 54,084 88,485
Net change, 1999 625,589 81,583 707,172
---------------------------------------------------
Balance, December 31, 1999 $ 659,990 $135,667 $795,657
===================================================
F-17
CENTILLION DATA SYSTEMS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Note 17 - Earnings Per Share
Earnings per share (EPS) were computed as follows:
Year Ended December 31, 1999
----------------------------------------------
Weighted Average Per-Share
Income Shares Amount
- ---------------------------------------------------------------------------------------------------------------------
Basic Earnings Per Share
Income available to common stockholders $2,619,563 3,559,018 $.74
========
Effect of Dilutive Securities
Stock options 12,844
---------------------------------
Diluted Earnings Per Share
Income available to common stockholders and assumed conversions $2,619,563 3,571,862 $.73
==============================================
Options to purchase 36,300 shares of common stock from $7.79 to $9.54 per share
were outstanding at December 31, 1999, but were not included in the computation
of diluted EPS because the options' exercise price was greater than the average
market price of the common shares.
Year Ended December 31, 1998
-------------------------------------------------
Weighted Average Per-Share
Income Shares Amount
- ------------------------------------------------------------------------------------------------------------------------
Basic Earnings Per Share
Income available to common stockholders $15,749,869 3,683,143 $4.28
==============
Effect of Dilutive Securities
Stock options 10,194
--------------------------------
Diluted Earnings Per Share
Income available to common stockholders and assumed conversions $15,749,869 3,693,337 $4.26
=================================================
Options to purchase 46,300 shares of common stock from $7.79 to $9.54 per share
were outstanding at December 31, 1998, but were not included in the computation
of diluted EPS because the options' exercise price was greater than the average
market price of the common shares.
F-18
CENTILLION DATA SYSTEMS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Note 18 - Subsequent Acquisition
On February 3, 2000, the Company entered into an Agreement and Plan of Merger
with CTI Group Holdings, Inc.(CTIG). This merger is to be effective as soon as
each company receives stockholder approval and articles of merger are filed in
the respective states. As a result of this Plan of Merger, the shares of the
Company's issued and outstanding common stock prior to the merger will be
converted into shares of Class A Common Stock and Class B Common Stock of CTIG.
In addition, the Company's stockholders will receive the right to additional
shares of CTIG Class A Common Stock if certain conditions are met.
Certain of the shares of CTIG Class A Common Stock will be placed in escrow at
the merger date and will be transferred to the Company's stockholders if a
targeted revenue amount is met during the three-year period following the merger
date. If the goal is not met, then the number of shares released from escrow to
the Company's stockholders is reduced on a pro rata basis based on the actual
target revenue received compared to the goal. If the number of shares from
escrow is reduced due to the Company not meeting the target revenue, then its
stockholders will have the right to purchase the remaining escrow shares at the
price of $1.50 per share.
Prior to the merger date, the Company will create a single member LLC, owned by
the Company, to which it will transfer all of its patent rights and patent
claims. In addition, the Company will sell its ownership interests in Centillion
Digital Systems, Inc., Centillion Digital GmbH, and e.Nova, LLC to its
stockholders in exchange for a promissory note due and payable in ten years with
interest at the applicable federal rate. These entities are accounted for as
discontinued operations at December 31, 1999 (see note 2).
As payments are received by CTIG on the above promissory note, the Company's
stockholders will be entitled to receive additional shares of CTIG Class A
Common Stock equal in value to the payment received (the CTIG stock to be issued
would be valued at 88% of its average market value on the date of distribution).
If all or any portion of the promissory note remains outstanding more than five
years after the merger, then the Company's stockholders shall receive CTIG Class
A Common Stock (on the same basis as if payments were received) based on the
fair market value of the promissory note.
As a result of the exchange of CTIG stock for the Company's stock, the
stockholders of the Company will hold a majority of the outstanding voting stock
of CTIG. Therefore, this transaction will be treated as a recapitalization of
the Company with the Company as the acquirer (reverse acquisition). As the
acquirer, the Company has capitalized all direct legal and other fees related to
the acquisition.
*****
F-19
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F-20
CENTILLION DATA SYSTEMS, INC. AND SUBSIDIARIES
Unaudited Consolidated Statement of Income
The Three The Three The Six The Six
Ended Months Months Ended Months Ended Months Ended
June 30, 2000 June 30, 1999 June 30, 2000 June 30, 1999
Net Revenues
Service Fees $2,604,159 $2,626,905 $5,151,348 $5,156,991
Patent Licenses 0 0 7,500,000 0
Reimbursed expense 66,440 73,024 137,287 147,896
Other 59,341 0 69,284 15,836
--------------------------------------------------------------------
2,729,940 2,699,929 12,857,919 5,320,723
Cost of Revenues
Services 1,069,716 805,184 2,240,920 1,880,894
Patent Licenses 265,963 124,969 2,356,549 215,197
--------------------------------------------------------------------
1,335,679 930,153 4,597,469 2,096,091
Gross Profit 1,394,261 1,769,776 8,260,450 3,224,632
Operating Expenses 592,962 537,376 1,066,199 969,305
--------------------------------------------------------------------
Operating income 801,299 1,232,400 7,194,251 2,255,327
Other Income 724,802 (7,015) 1,242,384 85,862
--------------------------------------------------------------------
Income From Continuing Operations Before Income
Taxes and Minority Interest 1,526,101 1,225,385 8,436,635 2,341,189
Income Tax 601,204 489,074 3,294,640 934,135
--------------------------------------------------------------------
Income From Continuing Operations Before Minority
Interest 924,897 736,311 5,141,995 1,407,054
Discontinuing Operations
Loss from discontinuing operations--net of
applicable tax benefit of $251,231, $494,990,
$251,231 and $884,719 (392,952) (882,795) (392,952) (1,748,374)
Loss on disposal of discontinuing operations -
net of applicable tax benefit of $163,436, 0,
$163,436, and 0 (255,630) 0 (255,630) 0
Minority Interest in Net Loss of Discontinuing
Operations 65,099 17,232 65,099 45,794
--------------------------------------------------------------------
Net Income (Loss) $ 341,414 $ (129,252) $4,558,512 $ (295,526)
====================================================================
See notes to consolidated financial statements
F-21
CENTILLION DATA SYSTEMS, INC. AND SUBSIDIARIES
Unaudited Consolidated Balance Sheet
June 30, December 31,
2000 1999
- --------------------------------------------------------------------------------------------------------------------
Assets
Current Assets
Cash and cash equivalents $14,638,946 $ 6,097,338
Securities available for sale 1,064,966 6,116,112
Accounts receivable (net of allowance of $70,510) 1,408,464 1,136,502
Other receivables 53,474 53,904
Prepaid assets 150,210 129,917
Income taxes refundable 507,912
Deferred income tax benefit 159,294 521,624
Assets of discontinuing operations 3,741,952 4,379,631
-------------------------------
Total current assets 21,217,306 18,942,940
-------------------------------
Property and Equipment 2,665,816 2,012,751
-------------------------------
Other Assets
Intangible assets 209,608 221,102
Deferred Costs 640,287 211,781
Investments 19,800 19,800
Deferred income tax benefit 0 9,678
-------------------------------
869,695 462,361
-------------------------------
$24,752,817 $21,418,052
===============================
Liabilities and Stockholders' Equity
Current Liabilities
Notes payable - banks 118,285
Accounts payable 144,074 261,941
Income taxes payable 865,850
Deferred income tax liability 82,223 389,009
Accrued liabilities 379,108 694,166
Liabilities of discontinuing operations 1,078,139 1,688,762
-------------------------------
Total current liabilities 2,549,394 3,152,163
-------------------------------
Minority Interest In Discontinuing Operations 1,516,761 1,399,441
-------------------------------
Redeemable Common Stock 487,498 490,711
Stockholders' Equity
Common stock--no-par value 363 363
Additional paid-in capital 8,346,554 8,396,220
Accumulated other comprehensive income 110,238 795,657
Retained earnings 11,742,009 7,183,497
-------------------------------
20,199,164 16,375,737
-------------------------------
$24,752,817 $21,418,052
===============================
See notes to consolidated financial statements.
F-22
CENTILLION DATA SYSTEMS, INC. AND SUBSIDIARIES
Unaudited Consolidated Statement of Stockholders' Equity
Accumulated
Additional Other
Common Paid-In Comprehensive Retained Comprehensive
Stock Capital Income Earnings Income Total
- -----------------------------------------------------------------------------------------------------------------------------------
Balances, January 1, 2000 363 $8,396,220 $ 7,183,497 $795,657 $16,375,737
Comprehensive Income
Net income $4,558,512 4,558,512 4,558,512
Unrealized gains on
securities, net of
reclassification
adjustment (546,770) (546,770) (546,770)
Foreign currency
translation (138,649)
adjustments (138,649) (138,649) (138,649)
----------
Comprehensive Income $3,873,093
Stock redemption (52,879) (52,879)
Revaluation of redeemable
common stock 3,213 3,213
------------------------ -------------------------------------------
Balances, June 30, 2000 $363 $8,346,554 $11,742,009 $110,238 $20,199,164
======================== ===========================================
See notes to consolidated financial statements.
F-23
CENTILLION DATA SYSTEMS, INC. AND SUBSIDIARIES
Unaudited Consolidated Statement of Cash Flows
Six Months Ended June 30 2000 1999
- -----------------------------------------------------------------------------------------------------------------
Net Cash Provided (used) by Operating Activities $ 4,822,821 $(501,387)
-----------------------------
Net Cash Provided (Used) by Investing Activities 3,777,288 (4,733,216)
-----------------------------
Net Cash Used by Financing Activities (267,384) (135,651)
-----------------------------
Effect of Foreign Currency Exchange Rate Changes on Cash
and Cash Equivalents (138,649) (51,642)
-----------------------------
Increase (Decrease) in Cash and Cash Equivalents 8,194,076 (5,421,896)
Cash and Cash Equivalents, Beginning of Period 6,865,542 13,182,315
-----------------------------
15,059,618 7,760,419
Cash and Cash Equivalents Included in Assets of
Discontinued Operations (420,672) (1,305,673)
-----------------------------
Cash and Cash Equivalents, End of Period $14,638,946 $6,454,746
=============================
Supplemental Cash Flows Information
Cash paid for interest $3,896 $14,086
Cash paid for income taxes 1,050,000 1,643,000
See notes to consolidated financial statements.
F-24
CENTILLION DATA SYSTEMS, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements
Note 1 - Business and Basis of Presentation
Founded in 1987, Centillion Data Systems, Inc. pioneered and patented an
electronic billing analysis system for the telecommunications industry. Today,
Centillion processes data using this software for customers throughout the
United States, which based upon net revenue, is its most significant service. In
addition, Centillion subsidiaries market an internationally recognized digital
asset management software application, and launched one of the first ASP
(Application Service Provider) initiatives in the Indianapolis area.
The accompanying consolidated financial statements have been prepared by
Centillion Data Systems, Inc. and Subsidiaries without audit, and reflect all
adjustments (consisting only of normal and recurring adjustments), which, in the
opinion of management, are necessary to state fairly the financial information
set forth therein in accordance with generally accepted accounting principles.
The interim results may not be indicative of the results that may be expected
for the year. These financial statements should be read in conjunction with the
audited consolidated financial statements for the year ended December 31, 1999
included elsewhere in this proxy statement.
Certain information in footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
has been condensed or omitted, although the Company believes the disclosures are
adequate to make the information presented not misleading. These financial
statements should be read in conjunction with the financial statements and notes
thereto included in the Company's financial statements for the year ended
December 31, 1999.
Note 2 - Discontinuing Operations
The Company's management having the authority to approve the action, determined
on February 3, 2000 to dispose of its interests in Centillion Digital Systems,
Inc., Centillion Digital GmbH, and e.Nova, LLC and subsidiary. These entities
provide technology and telecommunication services different than those of the
Company and have distinct operations and customers and therefore represent
separate major lines of business from the core business of Centillion Data
Systems, Inc. Accordingly, the operations of these subsidiaries and investees
have been reported separately as discontinued operations in the accompanying
financial statements. Under the proposed merger discussed in note 18, these
entities will be sold to a limited liability company, Holdings, LLC, which will
be owned by the present stockholders of the Company. The sale will be for
$3,100,000 with the Company receiving a promissory note for the purchase amount.
In addition, cash and other assets will be transferred to Holdings, LLC in the
amount of approximately $6,900,000. The Company will receive a promissory note
in the amount of $10,000,000.
At June 30, 2000 and December 31, 1999, the assets and liabilities of these
entities consist primarily of cash, accounts receivable, property and equipment,
capitalized software costs, goodwill, other intangible assets, accounts payable
and short-term bank financing. Revenues from these entities for the six months
ended June 30, 2000 and the six months ended June 30, 1999 amount to
approximately $811,000 and $630,000 respectively. During the six months ended
June 30, 2000 additional estimated future losses of $419,066 (before tax
benefit) have been accrued for the discontinuing operations.
F-25
CENTILLION DATA SYSTEMS, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements
Note 3 - Major Customer
Contract revenue from one major customer (defined as a customer who provided in
excess of 10% of total revenue) approximated 84% of total revenues from
continuing operations, net of one-time license fees, during the first six months
of 2000 and 1999. Accounts receivable from this major customer approximated 55%
of accounts receivable from continuing operations at June 30, 2000. The Company
has a three year contract with this customer which expires September 2000.
Note 4 - Investments
During the six months ended June 30, 2000, the Company liquidated approximately
$4,500,000 at cost of its securities available for sale. The net unrealized gain
on remaining securities available for sale at June 30, 2000 is approximately
$113,000. The Company realized a gain of approximately $998,000 on the sale of
these securities during the six months ended June 30, 2000.
Note 5 - Patent Litigation
During the six months ended June 30, 2000, the Company received a one-time
license fee of $7,500,000 due to a settlement of patent litigation. Costs
related to this litigation were $1,954,000 during this period. This one-time
license fee was all recognized as income during this period as the Company has
no further obligation under the settlement agreement.
Note 6 - Pending Acquisition
On February 3, 2000, the Company entered into an Agreement and Plan of Merger
with CTI Group Holdings, Inc.(CTIG). This merger is to be effective as soon as
each company receives stockholder approval and articles of merger are filed in
the respective states. As of June 30, 2000, these conditions have not yet been
met. As a result of this Plan of Merger, the shares of the Company's issued and
outstanding common stock prior to the merger will be converted into shares of
Class A Common Stock and Class B Common Stock of CTIG. In addition, the
Company's stockholders will receive the right to additional shares of CTIG Class
A Common Stock if certain conditions are met.
Certain of the shares of CTIG Class A Common Stock will be placed in escrow at
the merger date and will be transferred to the Company's stockholders if a
targeted revenue amount is met during the three-year period following the merger
date. If the goal is not met, then the number of shares released from escrow to
the Company's stockholders is reduced on a pro rata basis based on the actual
target revenue received compared to the goal. If the number of shares from
escrow is reduced due to the Company not meeting the target revenue, then its
stockholders will have the right to purchase the remaining escrow shares at the
price of $1.50 per share.
F-26
CENTILLION DATA SYSTEMS, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements
Note 6 - Pending Acquisition (cont.)
Prior to the merger date, the Company will create a single member LLC, owned by
the Company to which it will transfer all of its patent rights and patent
claims. In addition, on July 31, 2000 the shareholders of the Company
established CDS Holdings, LLC and transferred its ownership interest in e.Nova
LLC, CHS, LLC and Lockerbie Vermont,L.L.C. for fair value of $2,051,036 along
with $3,000,000 in cash. The Company will also sell its ownership in Centillion
Digital Systems, Inc. and Centillion Digital GmbH at fair value to CDS Holdings
LLC. Both of these transactions are at fair value in exchange for a promissory
note due and payable in ten years with interest at the applicable federal rate.
These entities are accounted for as discontinued operations at December 31, 1999
(see Note 2).
As payments are received by CTIG on the above promissory note, the Company's
stockholders will be entitled to receive additional shares of CTIG Class A
Common Stock equal in value to the payment received (the CTIG stock to be issued
would be valued at 88% of its average market value on the date of distribution).
If all or any portion of the promissory note remains outstanding more than five
years after the merger, then the Company's stockholders shall receive CTIG Class
A Common Stock (on the same basis as if payments were received) based on the
fair market value of the promissory note.
As a result of the exchange of CTIG stock for the Company's stock, the
stockholders of the Company will hold a majority of the outstanding voting stock
of CTIG. Therefore, this transaction will be treated as a recapitalization of
the Company with the Company as the acquirer (reverse acquisition). As the
acquirer, the Company has capitalized all direct legal and other fees related to
the acquisition. The amounts are included as Deferred Costs on the balance sheet
and totaled $640,278 and $211,781 at June 30, 2000 and December 31, 1999,
respectively.
F-27
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Celltech Information Systems, Inc.:
We have audited the accompanying balance sheets of Celltech Information Systems,
Inc. (a Delaware Corporation) as of December 31, 1999 and 1998, and the related
statements of operations, shareholders' equity and cash flows for the years then
ended. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Celltech Information Systems,
Inc. as of December 31, 1999 and 1998, and the results of its operations and its
cash flows for the years then ended in conformity with accounting principles
generally accepted in the United States.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 1 to the
financial statements, the Company has suffered a loss from operations and an
operating cash flow deficit in 1999 that raises substantial doubt about its
ability to continue as a going concern. Management's plans in regard to these
matters are also described in Note 1. The financial statements do not include
any adjustments that might result from the outcome of this uncertainty.
/s/ Arthur Andersen LLP
Philadelphia, Pa.,
April 17, 2000
F-28
CELLTECH INFORMATION SYSTEMS, INC.
BALANCE SHEETS
December 31
------------------------------
1999 1998
------------- -------------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 325,627 $ 719,709
Accounts receivable, net of allowance for doubtful accounts of $410,072 and
$13,708 at December 31, 1999 and 1998, respectively 666,408 983,964
Inventory 6,886 29,286
Prepaid expenses 83,118 66,529
Income tax receivable 161,786 60,479
Deferred income taxes 191,230 --
----------- -----------
Total current assets 1,435,055 1,859,967
----------- -----------
PROPERTY AND EQUIPMENT, net of accumulated depreciation of $278,617 and
$591,244 at December 31, 1999 and 1998, respectively 343,740 260,265
OTHER ASSETS 4,670 4,670
----------- -----------
$ 1,783,465 $ 2,124,902
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 449,186 $ 349,268
Accrued expenses 554,842 586,089
Promissory notes payable 95,130 147,222
Current portion of capital leases 45,833 --
----------- -----------
Total current liabilities 1,144,991 1,082,579
CAPITAL LEASES, LESS CURRENT PORTION 164,001 --
DEFERRED INCOME TAXES 12,202 2,641
----------- -----------
1,321,194 1,085,220
COMMITMENTS AND CONTINGENCIES (Notes 1 and 11)
SHAREHOLDERS' EQUITY:
Common stock, par value of $1.00,
2,353 shares authorized and issued 2,353 2,353
Additional paid-in capital 1,000 1,000
Retained earnings 458,918 1,036,329
----------- -----------
Total shareholders' equity 462,271 1,039,682
----------- -----------
$ 1,783,465 $ 2,124,902
=========== ===========
The accompanying notes are an integral part of these financial statements.
F-29
CELLTECH INFORMATION SYSTEMS, INC.
STATEMENTS OF OPERATIONS
December 31
------------------------------
1999 1998
------------- -------------
REVENUES $ 7,952,798 $ 8,991,445
EXPENSES:
Cost of revenues (excluding depreciation and amortization) 3,983,936 4,230,177
Research and development 422,252 451,856
Selling, general and administrative 4,135,768 3,658,694
Depreciation and amortization 125,422 97,430
----------- -----------
8,667,378 8,438,157
----------- -----------
Operating (loss) income (714,580) 553,288
----------- -----------
OTHER (EXPENSE) INCOME:
Interest income (expense) 6,547 (2,488)
Other (expense) income (152,353) 45,000
----------- -----------
(Loss) income before provision
for income taxes (860,386) 595,800
INCOME TAX BENEFIT (PROVISION) 282,975 (209,216)
----------- -----------
NET (LOSS) INCOME $ (577,411) $ 386,584
=========== ===========
NET (LOSS) INCOME PER COMMON SHARE $ (245.39) $ 164.29
=========== ===========
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING 2,353 2,353
=========== ===========
The accompanying notes are an integral part of these financial statements.
F-30
CELLTECH INFORMATION SYSTEMS, INC.
STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
Additional Total
Common Paid-In Retained Shareholders'
Stock Capital Earnings Equity
----------- ------------ ------------ --------------
BALANCE, DECEMBER 31, 1997 $ 2,353 $ 1,000 $ 649,745 $ 653,098
Net income -- -- 386,584 386,584
---------- ----------- ------------ -----------
BALANCE, DECEMBER 31, 1998 2,353 1,000 1,036,329 1,039,682
Net loss -- -- (577,411) (577,411)
---------- ----------- ------------ -----------
BALANCE, DECEMBER 31, 1999 $ 2,353 $ 1,000 $ 458,918 $ 462,271
========== =========== ============ ===========
The accompanying notes are an integral part of these financial statements.
F-31
CELLTECH INFORMATION SYSTEMS, INC.
STATEMENTS OF CASH FLOWS
For the Years Ended
December 31
--------------------------------
1999 1998
--------------- ---------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) income $ (577,411) $ 386,584
Adjustments to reconcile net income from operations
to cash (used in) provided by operations-
Depreciation and amortization 125,422 97,430
Deferred tax (benefit) provision (181,669) 2,738
Changes in operating assets and liabilities-
Accounts receivable 317,556 (331,532)
Accounts receivable from related parties -- 180,000
Inventory 22,400 2,523
Prepaid expenses (16,589) 2,111
Income tax receivable (101,307) (58,163)
Accounts payable 99,918 (71,917)
Other assets -- --
Accrued expenses (31,247) 265,390
----------- -----------
Net cash (used in) provided by operating activities (342,927) 475,164
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and equipment (208,897) (165,634)
----------- -----------
Net cash used in investment activities (208,897) (165,634)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of debt (52,092) (2,778)
Proceeds from borrowings 209,834 150,000
----------- -----------
Net cash provided by financing activities 157,742 147,222
----------- -----------
Net (decrease) increase in cash and cash equivalents (394,082) 456,752
CASH AND CASH EQUIVALENTS, beginning of year 719,709 262,957
----------- -----------
CASH AND CASH EQUIVALENTS, end of year $ 325,627 $ 719,709
=========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest $ 15,313 $ 2,488
=========== ===========
Cash paid for taxes $ -- $ 262,000
=========== ===========
The accompanying notes are an integral part of these financial statements.
F-32
CELLTECH INFORMATION SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998
1. DESCRIPTION OF BUSINESS:
Celltech Information Systems, Inc. (the "Company") (formerly Celltech Cellular
Information Systems, Inc. and Radio Telephone Billing Service Company, Inc.) was
incorporated under the laws of the State of Delaware on March 3, 1988.
The Company provides data processing services for the telecommunications
industry. These services include processing and rating of call records,
statement fulfillment and consulting services, and software development.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. The Company incurred an operating loss
of $714,580 and an operating cash flow deficit of $342,927 during 1999. In
addition, during 1999 the Company was not in compliance with the financial
covenants of a Promissory Note, as discussed in Note 5, for which there was no
balance outstanding at December 31, 1999. The Company has obtained a waiver
through the period ended December 31, 1999 for this covenant violation. This
waiver does not extend beyond December 31, 1999. Management's operating plan for
2000 indicates positive cash flow from operations. To the extent necessary,
management intends to reduce its costs during 2000 to fund its obligations.
These conditions raise substantial doubt about the Company's ability to continue
as a going concern. The accompanying financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Cash and Cash Equivalents
The Company considers all highly liquid investments purchased with an original
maturity of three months or less to be cash equivalents.
Inventory
Inventory is stated at the lower of cost or market, with cost determined by the
specific identification method.
F-33
Property and Equipment
Property and equipment are stated at cost. Major additions are capitalized while
minor improvements, which do not extend the useful life of the asset, are
expensed in the period incurred. The cost and accumulated depreciation of assets
retired, sold or otherwise disposed of are eliminated from the accounts and
resulting gains or losses, if any, are reflected in the statements of
operations. Depreciation is computed on the straight-line method over the
estimated useful lives of the assets, primarily three to seven years. Leasehold
improvements are depreciated over the shorter of their useful lives or the
remaining lease terms. Capital leases are depreciated over the shorter of their
useful lives or lease term.
Computer Software Costs
The Company classifies the costs of planning, designing and establishing the
technological feasibility of a computer software product as research and
development costs and charges those costs to expense when incurred. After
technological feasibility has been established, costs of producing a marketable
product and product masters are capitalized and amortized over the estimated
life of the product. Costs of maintenance and customer support are charged to
expense when costs are incurred. Capitalized software development costs, net,
which are amortized over a three-year life, amounted to $0 and $41,940 at
December 31, 1999 and 1998, respectively. Research and development costs
expensed during 1999 and 1998 were $422,252 and $451,856, respectively.
Revenue Recognition
The Company recognizes revenues from processing and rating of call records and
billing fulfillment when the related services are complete. Software license
fees are recognized after both acceptance by the client and delivery of the
product. Software maintenance and customer support revenues, which are bundled
with service revenues, are recognized ratably over the related customer
agreement periods. During 1999 and 1998, revenues included $1,714,033 and
$1,511,026 related to postage revenues, respectively. The related postage costs
during 1999 and 1998 were $1,528,302 and $1,374,512, respectively.
Income Taxes
The Company records deferred income taxes for the estimated future tax effects
of temporary differences between financial statement carrying amounts and the
tax bases of existing assets and liabilities. A valuation allowance is recorded
against deferred tax assets when it is concluded that it is more likely than not
the related tax benefit will not be realized.
Fair Value of Financial Instruments
The fair value of financial instruments is determined by reference to various
market data and other valuation techniques, as appropriate. The Company's
financial instruments include accounts receivable and debt. The fair value of
these financial instruments approximate their recorded book value as of December
31, 1999 and 1998.
New Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activity." SFAS No. 133, as
amended by SFAS No. 137, is required to be adopted by the Company on January 1,
2001. Management is currently assessing the effect of this pronouncement;
however, management does not expect adoption of this statement to have a
material effect on the Company's financial position or results of operations.
F-34
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make reasonable estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements. Actual results could differ from those estimates.
3. INVENTORY:
As of December 31, 1999 and 1998, inventory consists of the following:
1999 1998
-------------- ---------------
Forms and envelopes $ 6,886 $ 29,286
============== ===============
4. PROPERTY AND EQUIPMENT:
As of December 31, 1999 and 1998, the major classifications of property and
equipment are as follows:
1999 1998
--------------- ---------------
Furniture and office equipment $ 39,288 $ 113,815
Computer equipment 405,292 350,326
Leasehold improvements 30,879 222,111
Software 146,898 165,257
-------------- ---------------
622,357 851,509
Accumulated depreciation (278,617) (591,244)
-------------- ---------------
Property and equipment, net $ 343,740 $ 260,265
============== ===============
F-35
5. DEBT:
Debt consists of the following:
1999 1998
-------------- --------------
Facility A $ -- $ 50,000
Facility B 63,886 97,222
Facility C 31,244 --
-------------- --------------
Total debt $ 95,130 $ 147,222
============== ==============
On August 26, 1997, the Company entered into a promissory note ("Facility A").
Facility A provided for borrowings up to $200,000. Subsequently, on August 26,
1999, the Company and the bank modified the terms of Facility A. The modified
terms provided for the following: (1) borrowing availability up to $400,000 and
(2) an interest rate of Prime plus 0.50%. Amounts outstanding under Facility A,
which were $0 and $50,000 at December 31, 1999 and 1998, respectively, are
personally guaranteed by the President of the Company. Facility A is due upon
demand by the bank. If no demand is made, all outstanding principal and interest
are due on August 26, 2000. Management intends to renew the facility at that
time. In addition, the Company is subject to certain financial covenants,
including (1) tangible minimum net worth, as defined by the promissory note, of
$900,000, and (2) a minimum net worth ratio, as defined by the promissory note,
of 1.7 to 1.0. During 1999, the Company was not in compliance with the tangible
net worth requirement. The Company has obtained a waiver through the period
ended December 31, 1999 for this covenant violation This waiver does not extend
beyond December 31, 1999.
On July 16, 1998, the Company entered into a second promissory note ("Facility
B"). Facility B provides for borrowings up to $100,000 at an interest rate of
Prime plus 1.00%. In addition, the bank is not obligated to advance funds
requested by the Company after November 13, 1998. The borrowings are due upon
demand by the bank. Monthly principal payments began on December 13, 1998, and
will continue, in the absence of demand by the bank, until November 13, 2001, at
which time all remaining amounts due will be satisfied.
On May 3, 1999, the Company entered into a third promissory note ("Facility C").
Facility C provided for borrowings up to $100,000 at an interest rate of 8.25%.
In addition, the bank is not obligated to advance funds requested by the Company
after August 31, 1999. The borrowings are due upon demand by the bank. Monthly
principal payments began on September 31, 1999, and will continue, in the
absence of demand by the bank, until August 31, 2002, at which time all
remaining amounts due will be satisfied.
Total interest expense during 1999 and 1998 was $15,315 and $2,488,
respectively. The weighted-average interest rate at December 31, 1999 and 1998
was 8.83% and 9.50%, respectively. Weighted-average borrowings outstanding
during 1999 and 1998 were $121,735 and $42,013, respectively. During 1999,
borrowings ranged from $95,129 to $147,222. During 1998, borrowings ranged from
$0 to $147,222.
6. CAPITAL LEASE OBLIGATIONS:
Property under capital lease obligations at December 31, 1999 consist of the
following:
Leased property - capital leases $ 142,945
Less: Accumulated depreciation (14,295)
---------------
$ 128,650
===============
Depreciation of leased property under capital leases amounted to $14,295 and $0
during 1999 and 1998, respectively.
F-36
Capital lease obligations at December 31, 1999 consist of the following:
Green Tree Vendor Service Corporation due $3,380
per month including interest through November 2003 with a $1 buyout.
Secured by related computer equipment. $ 129,033
Conseco Finance Vendor Service Corporation due $264
per month including interest through December 2003
with a $1 buyout. Secured by the related voice mail system. 9,047
Conseco Finance Vendor Service Corporation due $2,057 per month
including interest through December 2003. Secured by related
computer equipment. 71,754
Less: Amounts due within one year (45,833)
---------------
$ 164,001
===============
Future lease payments under capital lease obligations are as follows:
2000 $ 68,412
2001 68,412
2002 68,412
2003 60,215
2004 --
---------------
265,451
Less: Imputed interest (55,617)
---------------
$ 209,834
===============
F-37
7. EARNINGS PER SHARE:
Basic earnings per share are computed by dividing net loss or net income
applicable to common shareholders by the weighted average number of shares
outstanding during the period. There are no potentially dilutive securities
which would have a dilutive effect on earnings per share outstanding during 1999
or 1998.
8. INCOME TAXES:
Summaries of the benefit (provisions) for income taxes are as follows for
December 31:
1999 1998
--------------- ---------------
Current $ 101,306 $ (206,478)
Deferred 181,669 (2,738)
--------------- ---------------
Benefit (provision) for income taxes $ 282,975 $ (209,216)
=============== ===============
The significant components of deferred tax assets and liabilities are as
follows:
Year Ended December 31
------------------------
1999 1998
---------- ----------
Deferred tax assets:
Receivables reserve $ 139,430 $ --
Accruals 51,800 --
---------- ----------
191,230 --
Deferred tax liabilities:
Plant and equipment (12,202) (2,641)
---------- -----------
Net deferred income tax asset (liability) $ 179,028 $ (2,641)
========== ===========
9. CONCENTRATION OF CREDIT RISK:
In 1999 and 1998, approximately 84% and 65.2%of the Company's revenues were
derived from three customers. The revenues during 1999 and 1998 and the accounts
receivable balances at December 31, 1999 and 1998 related to these three
customers are as follows:
F-38
REVENUES ACCOUNTS RECEIVABLE
---------------------------- ---------------------------
1999 1998 1999 1998
------------- ------------- ------------ ------------
Customer A $ 3,700,330 $ 2,188,217 $ 331,675 $ 185,871
Customer B 1,443,268 2,295,318 0 380,105
Customer C 1,453,487 1,390,266 245,543 298,299
During 1999, Customer B filed for Chapter 11 reorganization under the United
States Bankruptcy Code. During 1999, the Company recorded a charge of
approximately $407,000 to reduce Customer B's receivable to its net realizable
value. There is no accounts receivable, net of related reserves, due from this
customer at December 31, 1999. The contract with Customer A expired in February
2000 and an extension is currently being negotiated. The loss of any major
customer could have a material effect on the Company.
10. PROFIT-SHARING PLAN:
The Company maintains a profit-sharing plan (the "Plan") under the provisions of
Section 401(k) of the Internal Revenue Code. The plan covers all eligible
employees. Contributions to the plan by the Company are equal to 50% of the
employee's contribution, up to a maximum of 6% of the employee's salary. As of
December 31, 1999 and 1998, the Company made $51,265 and $32,108, respectively,
of contributions to the Plan.
11. COMMITMENTS AND CONTINGENCIES:
The Company leases office facilities, computer and office equipment under
cancelable and noncancellable leases expiring at various times through October
2004. The following is a schedule by year of the future minimum rental payments
required under operating leases that have initial or remaining noncancellable
lease terms in excess of one year.
2000 $ 473,819
2001 449,494
2002 459,973
2003 461,896
2004 231,854
---------------
$ 2,077,036
Total rental expense for all operating leases was $479,036 and $309,780 for 1999
and 1998, respectively.
12. RELATED PARTY TRANSACTIONS:
On December 29, 1999, three individual minority shareholders of the Company
filed a complaint (the "Complaint") against the Company and the majority
shareholder of the Company. On March 29, the minority shareholders and the
majority shareholder entered into a Compromise, Settlement and Indemnity
Agreement whereby the Company paid $152,353. The court subsequently dismissed
the Complaint. The payment is reflected in other expense (income) and accrued
expenses in the 1999 financial statements.
F-39
During 1998, the Company recorded a charge of $180,000 to reflect the write-off
of a related party receivable from Symphony Management Associates, Inc.
("Symphony"). Symphony is majority owned by the minority shareholders of the
Company. This charge was recorded in the selling, general and administrative
expenses in the accompanying 1998 statement of operations. No receivable balance
exists from Symphony at December 31, 1999 or 1998.
13. SUPPLEMENTARY DATA:
Components of accrued expenses:
Year Ended December 31
---------------------------------
1999 1998
-------------- ---------------
Accrued vacation and sick pay $ 197,006 $ 203,328
Accrued incentives -- 240,000
Accrued settlement 152,353 --
Accrued rent 12,424 17,679
Accrued other 64,837 37,299
Customer deposits 128,222 87,783
-------------- ---------------
Total accrued expenses $ 554,842 $ 586,089
============== ===============
14. SUBSEQUENT EVENT:
On April 6, 2000, the Company and CTI (Holding) Group, Inc. ("CTIG") entered
into a definitive merger agreement (the "Agreement") for the sale of 100% of the
common stock of the Company. The merger is expected to be consummated during the
second quarter of 2000, subject to CTIG shareholder approval. The total
estimated purchase price for the Company is $2,888,587. The estimated purchase
price is based on: (1) a $262,599 cash payment to the Company shareholders; (2)
934,515 shares of CTIG Class A common stock; valued at $2.81 based on the
average trading price preceding the most recent 20 consecutive business days
through April 7, 2000 and (3) 841,064 shares of CTIG Class A common stock to be
delivered to an escrow agent upon closing. The shares delivered to the escrow
agent are considered contingent consideration, payable to Company shareholders
upon attainment of certain performance criteria over three years. This
contingent consideration will be recorded as additional purchase price when the
contingency is resolved and consideration is issued or becomes issuable.
In the event that the average market price per share, as defined by the
Agreement, of the CTIG Class A common stock on the closing date is greater than
$3.00, to a maximum of $3.75, or below $3.00 to a minimum of $2.25, then the
total number of shares shall be determined by dividing $4,989,378 by such
average market price per share; provided that in no event will the stock be less
than 1,330,501 shares nor more than 2,217,501 shares regardless of the average
market price per share of CTIG Class A common stock.
*****
F-40
CELLTECH INFORMATION SYSTEMS, INC.
UNAUDITED BALANCE SHEETS
June 30, December 31,
2000 1999
--------------- ---------------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 526,102 $ 325,627
Accounts receivable, net of allowance for doubtful accounts of $410,072 at
both June 30, 2000 and December 31, 1999 581,943 666,408
Inventory 6,886 6,886
Prepaid expenses 40,392 83,118
Income tax receivable 0 161,786
Deferred income taxes 191,230 191,230
---------------- ---------------
Total current assets 1,346,553 1,435,055
--------------- ---------------
PROPERTY AND EQUIPMENT, net of accumulated depreciation of
$347,274 and $278,617 at June 30, 2000 and December 31, 1999,
respectively
284,826 343,740
OTHER ASSETS 7,321 4,670
--------------- ---------------
$ 1,638,699 $ 1,783,465
=============== ===============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 342,959 $ 449,186
Accrued expenses 384,187 554,842
Promissory notes payable 60,550 95,130
Current portion of capital leases 45,834 45,833
Federal Income Tax Payable 50,201 0
--------------- ---------------
Total current liabilities 883,730 1,144,991
CAPITAL LEASES, LESS CURRENT PORTION 129,895 164,001
DEFERRED INCOME TAXES 12,202 12,202
--------------- ---------------
1,025,827 1,321,194
--------------- ---------------
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY:
Common stock, par value of $1.00,
2,353 shares authorized and issued 2,353 2,353
Additional paid-in capital 1,000 1,000
Retained earnings 609,519 458,918
--------------- ---------------
Total shareholders' equity 612,872 462,271
--------------- ---------------
$ 1,638,699 $ 1,783,465
=============== ===============
The accompanying notes are an integral part
of these financial statements.
F-41
CELLTECH INFORMATION SYSTEMS, INC.
UNAUDITED STATEMENTS OF OPERATIONS
For the Three Months Ended For the Six Months Ended
June 30, June 30,
------------------------------------ -----------------------------------
2000 1999 2000 1999
---------------- ---------------- ---------------- ----------------
REVENUES $ 1,753,804 $ 1,938,141 $ 3,610,333 $ 4,324,229
EXPENSES:
Cost of revenues (excluding depreciation
and amortization) 758,527 877,391 1,688,834 1,863,890
Research and development 17,824 150,177 42,880 301,304
Selling, general and administrative 849,602 1,075,028 1,619,398 2,111,444
Depreciation and amortization 34,377 26,855 68,656 53,115
---------------- ---------------- ---------------- ----------------
1,660,330 2,129,451 3,419,768 4,329,753
---------------- ---------------- ---------------- ----------------
Operating (loss) income 93,474 (191,310) 190,565 (5,524)
---------------- ----------------- ---------------- ----------------
OTHER (EXPENSE) INCOME:
Interest income (expense) (1,291) 3,128 (1,557) 2,730
Other (expense) income 1,125 0 11,795 0
---------------- ---------------- ---------------- ----------------
(Loss) income before provision
for income taxes 93,308 (188,182) 200,802 (2,794)
INCOME TAX BENEFIT (PROVISION) (23,327) 55,801 (50,201) 0
----------------- ---------------- ---------------- ----------------
NET (LOSS) INCOME $ 69,981 $ (132,381) $ 150,602 $ (2,794)
================ ================ ================ ================
NET (LOSS) INCOME PER COMMON SHARE $ 29.74 $ (56.26) $ 64.00 $ (1.19)
================ ================ ================ ================
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING 2,353 2,353 2,353 2,353
================ ================ ================ =================
The accompanying notes are an integral part
of these financial statements.
F-42
CELLTECH INFORMATION SYSTEMS, INC.
UNAUDITED STATEMENTS OF CASH FLOWS
For the Six Months Ended
June 30,
--------------------------------
2000 1999
--------------- ---------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) income $ 150,602 $ (2,469)
Adjustments to reconcile net income from operations
to cash (used in) provided by operations-
Depreciation and amortization 68,656 53,116
Deferred tax (benefit) provision -- --
Changes in operating assets and liabilities-
Accounts receivable 84,465 (49,048)
Prepaid expenses 42,727 9,687
Income tax receivable 161,786
Accounts payable (106,227) (45,968)
Other assets (2,650)
Accrued expenses (170,653) 212,667
Federal Income Tax Payable 50,201 0
--------------- ---------------
Net cash (used in) provided by operating activities 278,905 177,985
--------------- ---------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and equipment (9,742) (41,536)
--------------- ----------------
Net cash used in investment activities (9,742) (41,536)
--------------- ---------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of debt (68,687) (36,667)
Proceeds from borrowings 0 0
--------------- ---------------
Net cash provided by financing activities (68,687) (36,667)
---------------- ----------------
Net (decrease) increase in cash and cash equivalents 200,475 99,782
CASH AND CASH EQUIVALENTS, beginning of year 325,627 719,709
--------------- ---------------
CASH AND CASH EQUIVALENTS, end of quarter $ 526,102 $ 819,491
=============== ===============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest $ 3,928 $ 5,540
=============== ===============
Cash paid for taxes $ -- $ --
=============== ===============
The accompanying notes are an integral part
of these financial statements.
F-43
CELLTECH INFORMATION SYSTEMS, INC.
NOTES TO UNAUDITED FINANCIAL STATEMENTS
NOTE 1: Business and Basis of Presentation
Celltech provides data processing services for the telecommunications industry.
These services include processing and rating of call records, statement
fulfillment and consulting services, and software development.
The accompanying financial statements have been prepared by Celltech Information
Systems, Inc. without audit, and pursuant to the rules and regulations of the
Securities and Exchange Commission ("SEC"), and reflect all adjustments which,
in the opinion of management, are necessary for a fair statement of the results
for the interim periods presented. All such adjustments are of a normal
recurring nature.
Certain information in footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
has been condensed or omitted pursuant to the rules and regulations of the SEC,
although the Company believes the disclosures are adequate to make the
information presented not misleading. These financial statements should be read
in conjunction with financial statements and the notes thereto included in the
Company's December 31, 1999 audited financial statements.
NOTE 2: Subsequent Event
On April 6, 2000, the Company and CTI (Holding) Group, Inc. ("CTIG") entered
into a definitive merger agreement (the "Agreement") for the sale of 100% of the
common stock of the Company. The merger is expected to be consummated during the
third quarter of 2000, subject to CTIG shareholder approval. The total estimated
purchase price for the Company is $2,888,587. The estimated purchase price is
based on: (1) a $262,599 cash payment to the Company shareholders; (2) 934,515
shares of CTIG Class A common stock; valued at $2.81 based on the average
trading price preceding the most recent 20 consecutive business days through
April 7, 2000 and (3) 841,064 shares of CTIG Class A common stock to be
delivered to an escrow agent upon closing. The shares delivered to the escrow
agent are considered contingent consideration, payable to Company shareholders
upon attainment of certain performance criteria over three years. This
contingent consideration will be recorded as additional purchase price when the
contingency is resolved and consideration is issued or becomes issuable.
In the event that the average market price per share, as defined by the
Agreement, of the CTIG Class A common stock on the closing date is greater than
$3.00, to a maximum of $3.75, or below $3.00 to a minimum of $2.25, then the
total number of shares shall be determined by dividing $4,989,378 by such
average market price per share; provided that in no event will the stock be less
than 1,330,501 shares nor more than 2,217,501 shares regardless of the average
market price per share of CTIG Class A common stock.
F-44
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL DATA
The following unaudited pro forma condensed consolidated financial data (the
"Pro Forma Data") of CTIG is based on the historical consolidated financial
statements of CTIG, Centillion and Celltech, which are incorporated by reference
into or presented elsewhere within this Proxy Statement/Prospectus, as adjusted
to give effect to the Merger and the Celltech acquisition (the "Acquisition"),
as described elsewhere within this Proxy Statement/Prospectus. The unaudited
condensed consolidated balance sheet as of June 30, 2000 gives effect to the
Merger and Acquisition as if they had occurred on that date. The unaudited pro
forma statements of operations for the year ended March 31, 2000 and the three
months ended June 30, 2000 give effect to the Merger and Acquisition as if they
had occurred on April 1, 1999. In the preparation of the pro forma condensed
consolidated statement of operations for the year ended March 31, 2000, the
columns pertaining to Centillion and Celltech were developed by adding the
results of the quarter ended March 31, 2000 and subtracting the results of the
quarter ended March 31, 1999 from the audited results for the year ended
December 31, 1999. Certain amounts in the Centillion and Celltech historical
financial statements have been reclassified to conform to CTIG's financial
statement presentation.
The Centillion Merger will be accounted for as a reverse acquisition of CTIG by
Centillion. Under such method of accounting the legal acquirer, CTIG, will
continue in existence as the legal entity whose shares represent the outstanding
common stock of the combined company. In applying purchase accounting to a
reverse acquisition, the assets and liabilities of the legal acquirer are
revalued and the purchase price allocated to those assets and liabilities
assumed. The Celltech Acquisition will be accounted for under the purchase
method of accounting. The allocation of the purchase price of each transaction,
including the revaluation of CTIG's and Celltech's tangible and intangible
assets and liabilities, the value of goodwill and the goodwill amortization
period, will be dependent on the results of final appraisal, which has not yet
been received.
The pro forma adjustments are based upon available information and upon certain
assumptions that management believes are reasonable under the circumstances. The
Pro Forma Data and accompanying notes should be read in conjunction with the
annual and interim consolidated financial statements and notes thereto of CTIG,
Centillion and Celltech appearing elsewhere herein or incorporated by reference
into this Proxy Statement/Prospectus. The Pro Forma Data do not purport to
represent what CTIG's actual results of operations or actual financial position
would have been if the Merger and Acquisition had, in fact, occurred on such
dates or to project CTIG's results of operations or financial position for any
future period or date. The Pro Forma Data do not give effect to any transactions
other than the Merger and Acquisition, discussed in the notes to the Pro Forma
Data below.
F-45
UNAUDITED CONDENSED CONSOLIDATED PRO FORM BALANCE SHEET DATA
JUNE 30, 2000
Historical
----------------------------------------------------------------
CTI Group Centillion Celltech Information
(Holdings) Inc. Data Systems, Inc. Systems, Inc.
--------------- ------------------ --------------------
Current Assets:
Cash & cash equivalents 74,139 14,638,946 526,102
Securities Available for Sale 1,064,966
Trade Accounts Receivable, net 954,643 1,408,464 581,943
Other Receivables 53,474
Inventories 7,827 6,886
Prepaid expenses 58,445 150,210 40,392
Income Taxes Receivable and Deferred Income Taxes 159,294 191,230
Assets of discontinuing operations 3,741,952 -
--------- ---------- ---------
Total Current Assets 1,095,054 21,217,306 1,346,553
--------- ---------- ---------
PP&E 168,599 600,074 284,826
Computer Software 282,841 2,065,742
Intangible Assets 849,895
Goodwill
Other Assets 9,623 19,800 7,321
--------- ---------- ---------
TOTAL ASSETS 1,556,117 24,752,817 1,638,700
========= ========== =========
LIABILITIES
Current Liabilities:
Current portion of long-term debt 65,115 - 106,384
Accounts payable 237,191 144,074 342,959
Income taxes payable 143,114 865,850 50,201
Deferred income tax liability 82,223
Other accrued expenses 1,039,814 379,108 384,187
Deferred revenues 649,378
Amount due to former Centillion Shareholders
Liabilities of discontinuing operations 1,078,139
--------- ---------- ---------
Total current liabilities 2,134,612 2,549,394 883,731
--------- ---------- ---------
Long Term Debt 129,895
Deferred Income Taxes 12,202
Minority interest in Consolidated Subsidiary 1,516,761
Commitments and contingencies
Redeemable Common Stock 487,498
Stockholders' Equity:
Common Stock - Class A 75,765 363 2,353
Common Stock - Class B
Common Stock in Escrow
Capital in excess of par value 8,660,946 8,346,554 1,000
Retained Earnings (accumulated deficit) (9,004,546) 11,742,009 609,519
Accumulated other Comprehensive income 95,740 110,238
Deferred Compensation Expense
Tresury Stock (406,400)
--------- ---------- ---------
Total Stockholders' Equity (578,495) 20,199,164 612,872
--------- ---------- ---------
TOTAL LIABILITIES & STOCKHOLDERS' EQUITY 1,556,117 24,752,817 1,638,700
========= ========== =========
[RESTUBBED]
Pro Forma Adjustments
-----------------------------------------
Centillion Celltech Information Pro Forma
Data Systems, Inc. Systems, Inc. Balance
------------------ -------------------- ---------
Current Assets:
Cash & cash equivalents (5,243,839)(2.4) (262,599){3} 7,476,749
(2,331,000)(6)
75,000 {5}
Securities Available for Sale (1,064,966)(2.4) 0
Trade Accounts Receivable, net 2,945,050
Other Receivables 53,474
Inventories 14,713
Prepaid expenses 249,047
Income Taxes Receivable and Deferred Income Taxes 236,728 {5} 587,252
Assets of discontinuing operations (3,741,952)(1) 0
----------- ---------- -----------
Total Current Assets (12,070,029) (262,599) 11,326,285
----------- ---------- -----------
PP&E 1,053,499
Computer Software 2,348,583
Intangible Assets (640,278)(2.3) 209,617
Goodwill 31,154,032 (2.3) 2,275,715 {4} 33,429,747
Other Assets 36,744
----------- ---------- -----------
TOTAL ASSETS 18,443,725 2,013,116 48,404,475
=========== ========== ===========
LIABILITIES
Current Liabilities:
Current portion of long-term debt 171,499
Accounts payable 724,224
Income taxes payable (931,000)(6) 128,165
Deferred income tax liability 82,223
Other accrued expenses 1,803,109
Deferred revenues 649,378
Amount due to former Centillion Shareholders 878,480 (2.4) 878,480
Liabilities of discontinuing operations (1,078,139)(1) 0
----------- ---------- -----------
Total current liabilities (1,130,659) 0 4,437,078
----------- ---------- -----------
Long Term Debt 129,895
Deferred Income Taxes 12,202
Minority interest in Consolidated Subsidiary (1,516,761)(1) 0
Commitments and contingencies
Redeemable Common Stock (487,498)(2.5) 0
Stockholders' Equity:
Common Stock - Class A 129,625 (2.2) 16,631 {3} 222,021
7 {5}
(370)(2.5) (2,353){3}
Common Stock - Class B 28,333 (2.2) 28,333
Common Stock in Escrow (12,088,776)(2.2) (2,363,390){3} (14,452,166)
Capital in excess of par value 43,053,441 (2.2) 4,972,747 {3} 57,858,059
(8,330,311)(2.1) (1,000){3}
370 (2.5)
666,814 {5}
487,498 (2.5)
Retained Earnings (accumulated deficit) (1,147,052)(1) (609,519){3} 1,762,818
(7,187,285)(2.4)
9,004,546 (2.1)
110,238 (2.4)
(355,092){5}
(1,400,000)(6)
Accumulated other Comprehensive income (95,740)(2.1) 0
(110,238)(2.4)
Deferred Compensation Expense (1,187,365)(2.3) (1,187,365)
Tresury Stock (406,400)
----------- ---------- -----------
Total Stockholders' Equity 21,578,643 2,013,116 43,825,300
----------- ---------- -----------
TOTAL LIABILITIES & STOCKHOLDERS' EQUITY 18,443,725 2,013,116 48,404,475
=========== ========== ===========
See Notes to the Unaudited Condensed Consolidated Pro Forma Balance Sheet Data
F-46
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED PRO FORMA BALANCE SHEET DATA
(1) To remove the assets and liabilities related to Centillion's divested
operations. Such assets and liabilities will not be part of the merged
entity.
(2) To record the Centillion reverse acquisition entries based on the total
consideration of $29,935,259 computed as follows:
Total number of shares of CTIG common stock outstanding prior to Merger (A) 7,576,505
Total number of CTIG vested opitons outstanding upon consummation of the Merger (A)(B) 385,000
----------
Total shares to be held by CTIG shareholders after the Merger (A) 7,961,505
Market value of CTIG Stock on Transaction Date (C) 3.76
----------
Value of consideration given by Centillion 29,935,259
==========
(A) As the Centillion Merger is being accounted for as a reverse
acquisition of CTIG by Centillion, the consideration paid represents
the value of the shares that will remain held by the CTIG shareholders
after the transaction.
(B) Assumes that all CTIG options outstanding prior to the Merger,
except for the 300,000 options granted to CTIG's President and CEO,
will be 100% vested upon closing of the transaction. The options
granted to the CEO vest over a three year period.
(C) The market price was determined based on a normalized average
closing price of CTIG's common stock during the 3 day period before and
after the signing of the definitive agreement and the issuance of the
press release related to the transaction.
The entries recorded to effect the reverse merger were as follows:
(2.1) To eliminate CTIG's historical equity accounts with a related
adjustment to Additional Paid-In Capital.
(2.2) To record the issuance of 12,962,504 shares of $0.01 par Class A
Common Stock, of which 3,215,100 shares valued at $12,088,776 are to be
held in escrow pending the meeting of pre-defined revenue levels, and
2,833,334 shares of $0.01 par Class B Common Stock.
(2.3) To record the goodwill as a result of the Centillion transaction.
As the transaction will be accounted for as a reverse acquisition, the
goodwill recorded is calculated by adding the book value of the net
liabilities of CTIG ($578,495) and Centillion's capitalized merger
costs ($640,278) to the total value of the consideration of $29.9
million. The allocation of the purchase price, including the
revaluation of CTIG's tangible and intangible assets and liabilities,
the value of goodwill and the goodwill amortization period, will be
dependent on the results of final appraisal, which has not yet been
received. Additionally, the value of the unvested options held by the
CEO ($1.2 million) have been recorded as deferred compensation cost
within Stockholders' Equity to be recognized over the remaining vesting
period of approximately 2.25 years.
(2.4) To record the payment of excess cash and investments held by
Centillion to the former shareholders of Centillion, as the Merger
Agreement only requires Centillion to
F-47
contribute net cash or investments of $8.0 million, less the amount of
capitalized software costs from January 2000 through closing ($861,000
through June 30, 2000) and total net assets of $2.0 million, excluding
the cash and investments and the net earnings of the billing business
through Closing ($1,027,000 through June 30, 2000). The adjustment
assumes the liquidation of all short-term investments into the required
cash to be contributed. See Note 7.
(2.5) To eliminate Centillion's historical common stock which will be
cancelled in connection with the Merger.
(3) To record the acquisition of Celltech Information Systems, Inc. through
the issuance of a total of 1,663,126 shares, at an assumed value of
$3.00 per common share, of which 787,797 shares are to be held in
escrow pending the meeting of certain pre-defined revenue targets, and
cash of $262,599. The number of shares to be issued in connection with
the Celltech acquisition may be adjusted by the effect of a maximum of
25% ceiling and floor collar depending on the average stock price
during the twenty-day trading period prior to closing. The ultimate
value of such shares will be dependent on the average price of CTIG's
common stock for a period of three days before and after the
measurement date, which will either be the date the agreement was
entered into or the date CTIG's stock price breaks the ceiling or floor
and does not return within the defined range.
(4) To record value of software and goodwill obtained in connection with
the acquisition of Celltech Information Systems, Inc. under the
purchase method of accounting. The allocation of purchase price to net
assets acquired is preliminary and is subject to change based on the
completion of the appraisal of such assets.
(5) To record the value of the 20,000 additional shares of Centillion
common stock and 50,000 options to purchase Centillion shares issued to
the Chairman of Centillion in connection with the Merger transaction.
The value was determined based on the assumed market value of the CTIG
stock the shares and options are convertible into and the exchange
ratio of Centillion to CTIG common stock of approximately 2.5 to 1.
This transaction will result in a tax benefit of approximately 40% of
the recorded adjustment. The deferred tax asset to be created in this
transaction has been removed as such asset is remain with the former
Centillion shareholders.
(6) To record the estimated closing costs, consisting of various severance
and employee costs, by Centillion upon consummation of the transaction
as well as the related income tax benefit associated with such costs.
The tax benefit has been determined based on an effective tax rate of
approximately 40%.
F-48
(7) As a result of entries (1) and (2.4), Holdings LLC's pro forma balance
sheet as of June 30, 2000 will consist of the following:
Cash and Investments $ 6,308,805
Due from CTIG 878,480
Other Assets 3,741,952
-----------
Total Assets $10,929,237
===========
Liabilities 1,078,139
Minority Interest 1,516,761
-----------
Net Assets $ 8,334,337
===========
The $10 million note receivable from Holdings LLC has not been recorded
as an asset on the pro forma balance sheet of CTIG since its value and
recoverability is uncertain. Although the face value of the note is $10
million, the amount to be repaid to the combined company is dependent
upon Holdings LLC's ability to sell off the collateral assets or repay
the Note at the end of 10 years. The Note will be recorded on the
balance sheet as a contra equity account only after it is appraised in
five years. Until that time, the note and the potential dilutive shares
that could be issued upon its repayment will be disclosed in the notes
to the financial statements.
It should be noted that the actual amount of the Note from Holdings LLC
will be determined immediately prior to closing based upon the cash and
other assets transferred at that time.
F-49
UNAUDITED CONDENSED CONSOLIDATED PRO FORMA STATEMENT OF OPERATIONS DATA
FOR THE YEAR ENDED MARCH 31, 2000
Historical Results
-----------------------------------------------------------
CTI Group Centillion Data Celltech Information
(Holdings) Inc. Systems, Inc (A) Systems, Inc (A)
--------------- --------------- --------------------
Net Sales (B) 7,230,336 10,741,827 7,423,240
License Fee Settlement Revenue 7,500,000
--------- --------- ---------
Total Revenues 7,230,336 18,241,827 7,423,240
Costs & Expenses:
Cost of Sales (B) 4,202,929 4,278,815 3,927,745
Cost of License Fee Settlements 1,954,000
Selling & Administrative expenses 2,948,925 1,898,982 4,165,329
Depreciation and amortization 592,964 486,733 133,441
--------- --------- ---------
Total Costs & Expenses 7,744,818 8,618,530 8,226,515
--------- --------- ---------
Income (loss) from Operations (514,482) 9,623,297 (803,275)
--------- --------- ---------
Other expenses (income):
Investment income (580,800)
Other income 141,683
Loss on disposal of assets 56,320 0
Minority interest in Earnings of Sub 0
Interest expense 6,809 0 (6,679)
--------- --------- ---------
Income (loss) from continuing operations
before Income taxes (521,291) 10,147,777 (938,279)
--------- --------- ---------
Provision for income taxes (3,981,859) 311,902
--------- --------- ---------
Income (Loss) from continuing operations (521,291) 6,165,918 (626,377)
========= ========= =========
EPS from continuing operations:
Basic and Diluted (0.07)
Wtd Avg Shares O/S:
Basic and Diluted 7,010,546
[RESTUBBED]
Pro Forma Adjustments
--------------------------------------
Centillion Data Celltech Information Pro Forma
Systems, Inc Systems, Inc Balance
--------------- -------------------- ----------
Net Sales (B) 25,395,403
License Fee Settlement Revenue 7,500,000
---------- -------- ----------
Total Revenues 0 0 32,895,403
Costs & Expenses:
Cost of Sales (B) 12,409,489
Cost of License Fee Settlements 1,954,000
Selling & Administrative expenses 591,821 {3} 9,901,785
296,728 {4}
Depreciation and amortization 4,450,576 {1} 325,102 {7} 5,988,816
---------- -------- ----------
Total Costs & Expenses 5,339,125 325,102 30,254,090
---------- -------- ----------
Income (loss) from Operations (5,339,125) (325,102) 2,641,313
---------- -------- ----------
Other expenses (income):
Investment income 492,938 {2} (87,862)
Other income 141,683
Loss on disposal of assets 56,320
Minority interest in Earnings of Sub 0 0
Interest expense 130
---------- -------- ----------
Income (loss) from continuing operations
before Income taxes (5,832,063) (325,102) 2,531,042
---------- -------- ----------
Provision for income taxes 236,728 {3} (3,027,537)
197,175 {2}
208,516 {5}
---------- -------- ----------
Income (Loss) from continuing operations (5,189,643) (325,102) (496,495)
========== ======== ==========
EPS from continuing operations:
Basic and Diluted (0.03)
Wtd Avg Shares O/S:
Basic and Diluted 9,747,404 {6} 875,329 {8} 17,633,279
(A) The historical statements of operations for Centillion and Celltech were
developed by adding the results for the quarter ended March 31, 2000 and
subtracting the results for the quarter ended March 31, 1999 from the
results for the year ended December 31, 1999.
(B) Net Sales and Cost of Sales in Celltech's historical statement of
operations for the year ended March 31, 2000 includes $1,694,696 and
$1,520,779related to postage revenues and costs, respectively.
(C) Net Sales and Cost of Sales in Centillion's historical statement of
operations for the year ended March 31, 2000 includes $7,500,000 and
$1,954,000, respectively related to a one-time license fee due to
settlement of patent litigation.
See Notes to the Unaudited Condensed Consolidated
Pro Forma Statement of Operations Data.
F-50
UNAUDITED CONDENSED CONSOLIDATED PRO FORMA STATEMENT OF OPERATIONS DATA
FOR THE THREE MONTHS ENDED JUNE 30, 2000
Historical Results
------------------------------------------------------------
CTI Group Centillion Data Celltech Information
(Holdings) Inc. Systems, Inc Systems, Inc
--------------- --------------- --------------------
Net Sales (a) 1,265,142 2,729,940 1,753,804
Costs & Expenses:
Cost of Sales (a) 760,524 1,229,889 758,527
Selling & Administrative expenses 762,581 568,367 867,426
Depreciation and amortization 140,971 130,385 34,377
--------- --------- ---------
Total Costs & Expenses 1,664,076 1,928,641 1,660,330
--------- --------- ---------
Income (loss) from Operations (398,934) 801,299 93,474
--------- --------- ---------
Other expenses (income):
Interest expense (1,363) 0 1,291
Investment Income (724,802) 0
Other expenses (1,125)
--------- --------- ---------
Income (loss) before Income taxes (397,571) 1,526,101 93,308
--------- --------- ---------
Provision for income taxes 0 (601,204) (23,327)
--------- --------- ---------
Income (Loss) from continuing
operations (397,571) 924,897 69,981
========= ========= =========
EPS:
Basic and Diluted -0.05
Wtd Avg Shares O/S:
Basic and Diluted 7,429,588
[RESTUBEED]
Pro Forma Adjustments
----------------------------------------
Centillion Data Celltech Information Pro Forma
Systems, Inc Systems, Inc Balance
--------------- -------------------- ---------
Net Sales (a) 5,748,886
Costs & Expenses:
Cost of Sales (a) 2,748,940
Selling & Administrative expenses 2,198,374
Depreciation and amortization 1,112,644 {1} 81,276 {5} 1,499,653
---------- ------- ---------
Total Costs & Expenses 1,112,644 81,276 6,446,967
---------- ------- ---------
Income (loss) from Operations (1,112,644) (81,276) (698,081)
---------- ------- ---------
Other expenses (income):
Interest expense (72)
Investment Income 569,550 (155,252)
Other expenses (1,125)
---------- ------- ---------
Income (loss) before Income taxes (1,682,194) (81,276) (541,632)
---------- ------- ---------
Provision for income taxes 227,820 (237,683)
159,028 {5}
---------- ------- ---------
Income (Loss) from continuing
operations (1,295,346) (81,276) (779,314)
========== ======= =========
EPS:
Basic and Diluted (0.04)
Wtd Avg Shares O/S:
Basic and Diluted 9,747,404 {4} 875,329 {6} 18,052,321
(a) Net Sales and Cost of Sales in Celltech's historical statement of
operations for the three months ended June 30, 2000 includes $392,059 and
$348,990 related to postage revenues and costs, respectively.
See Notes to the Unaudited Condensed Consolidated
Pro Forma Statement of Operations Data.
F-51
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED PRO FORMA
STATEMENT OF OPERATIONS DATA
(1) To provide for amortization of the goodwill recorded in connection with
the Centillion transaction. For the purpose of this pro forma
adjustment, the life of such goodwill has been assumed to be seven
years. The assumed amortization period is subject to change based upon
the results of the final appraisal which has not yet been received and
management's evaluation of the recoverability of such costs. The
amortization period related to value ascribed to other identifiable
assets, such as computer software, could be significantly shorter than
the seven years used herein.
(2) To reduce investment income and related tax benefit as a result of the
lower investment and cash balance to be held after the transaction. The
amount was determined based on the average investment return earned
during the period applied to the pro forma cash balance upon
consummation of the transaction. The tax benefit was calculated based
on 40% of the recorded pro forma adjustment.
(3) To record the compensation expense related to the issuance of the
20,000 additional shares of Centillion common stock and 50,000 options
to purchase Centillion shares issued to the Chairman of Centillion in
connection with the Merger transaction. The value was determined based
on the assumed market value of the CTIG stock the shares and options
are convertible into and the exchange ratio of Centillion to CTIG
common stock of approximately 2.5 to 1. This transaction will result in
a tax benefit of approximately 40% of the recorded adjustment.
(4) To record a full year's compensation expense related to the value of
options granted to CTIG's President and Chief Executive Officer, that
were contingent on CTIG entering into a definitive merger agreement
with Centillion. These options vest over a three year period and are
not immediately vested upon consummation of the Merger.
(5) To record an income tax benefit related to the historical CTIG net
loss. Such benefit had not been recorded in the historical financial
statements since recoverability was not determined to be more likely
than not. The amount was calculated using a tax rate of 40%.
(6) To record stock issued and to be issued in connection with the
Centillion transaction. The adjustment includes 9,747,404 shares of
common stock issued upon closing of the transaction. Basic and diluted
weighted average shares outstanding and loss per share are the same
since the Company has reported a pro forma net loss. Potential dilutive
securities include the following: (a) 385,000 vested options to
purchase CTIG Class A Stock, the exercise of which would yield proceeds
of $138,100; (b) potential shares issuable in connection with exercise
of the additional stock rights, the ultimate number of which is
dependent on the total proceeds to be received from the sale of the
Holdings LLC assets, estimated to be $10 million, and the market value
of the Class A Stock on the exercise dates; and (c) potential shares
issuable in connection with the conversion of the Class B Stock, the
ultimate number of which is dependent on the total net proceeds to be
F-52
received from various patent litigation pending, and the market value
of the Class A Stock on the exercise dates.
The exercise price of the additional stock rights is based on 88% of
the market value of the Class A Stock on the exercise dates. Assuming
proceeds of $10 million, which is the face value of the promissory
note, and a Class A market price of $3.76, the stock rights would
result in the issuance of an additional 3,022,244 shares of Class A
Stock. The $10 million note receivable related to these stock rights
has not been recorded as an asset on the pro forma balance sheet since
its value is uncertain. Such value will be dependent on the proceeds
received by Holdings LLC from the ultimate sale of these businesses to
third parties or, alternatively, it will be fixed based on an appraisal
of the underlying businesses after a five-year period. Once valued, the
note receivable will be recorded, net of any potential impairment, with
a corresponding increase to additional paid in capital, representing
the value of the stock to be issued. See Note 7 to the unaudited pro
forma balance sheet data.
The conversion price of the Class B Stock is $2.25 per share for the
first 333,334 shares exercised in the first year after consummation of
the Merger and 88% of the market value of the Class A Stock for
subsequent conversions. The total proceeds to be received in connection
with the Class B conversions is wholly dependent on the net proceeds
ultimately received by CTIG from the settlement of pending patent
infringement litigation. Assuming net proceeds of $5.0 million, which
is based on the current best estimate of Centillion's management, and a
Class A Stock market value of $3.76, the conversion of Class B Stock
would result in the issuance of an additional 1,617,787 shares of Class
A Stock.
(7) To provide for amortization of the goodwill and software costs recorded
in connection with the Celltech transaction. For the purpose of this
pro forma adjustment, the life of such goodwill has been assumed to be
seven years. The final allocation of the purchase price, including the
valuation of the assets acquired and the amortization periods used,
will be dependent upon the results of the appraisal not yet received.
(8) To record stock issued and issuable in connection with the Celltech
transaction. The number of shares excludes the 787,797 shares held in
escrow pending the resolution of certain contingencies.
F-53
ANNEX LISTING
Annex Title Page
----- ----- ----
A Agreement and Plan of Merger by and between
CTI Group (Holdings) Inc. and Centillion Data Systems, Inc.,
dated as of February 3, 2000 ...............................A-1
B Surviving Corporation - Articles of Incorporation.................B-1
C Surviving Corporation Bylaws......................................C-1
D Shareholder LLC Promissory Note...................................D-1
E Form of Promissory Note...........................................E-1
F Opinion of First Colonial Securities Group, Inc...................F-1
G ss.262 of the Delaware Corporation Law............................G-1
H Agreement and Plan of Merger by and among
CTI Group (Holdings) Inc., CTI Billing Solutions, Inc., Celltech
Information Systems, Inc., David A. Warren, Frank S. Scarpa,
Valerie S. Hart and Richard J. Donnelly, dated as of
April 5, 2000.....................................................H-1
I Communications Group Inc. Stock Option and
Restricted Stock Plan.............................................I-1
ANNEX A
================================================================================
AGREEMENT AND PLAN OF MERGER
by and between
CTI GROUP (HOLDINGS) INC.
and
CENTILLION DATA SYSTEMS, INC.
------------------------------------
Dated as of February 3, 2000
------------------------------------
================================================================================
A-1
TABLE OF CONTENTS
Page
----
ARTICLE I. THE MERGER.......................................................2
1.1 The Merger.......................................................2
1.2 Closing..........................................................2
1.3 Effective Time...................................................2
1.4 Effects of the Merger............................................2
1.5 Effect on Capital Stock..........................................2
1.6 Exchange Agent...................................................4
1.7 Exchange Procedures..............................................4
1.8 Distributions with Respect to Unexchanged Shares.................5
1.9 No Fractional Shares of CTI Group Capital Stock..................5
1.10 No Liability.....................................................6
1.11 Lost Certificates................................................6
1.12 Stock Transfer Books.............................................6
1.13 Dissenting Shares................................................7
1.14 Escrow...........................................................7
1.15 Additional Stock Rights..........................................9
ARTICLE II. THE SURVIVING CORPORATION.......................................10
2.1 Certificate of Incorporation....................................10
2.2 Bylaws..........................................................10
2.3 Directors.......................................................10
2.4 Officers........................................................10
ARTICLE III. REPRESENTATIONS AND WARRANTIES OF CTI GROUP.....................11
3.1 Corporate Existence and Power...................................11
3.2 Corporate Authorization.........................................11
3.3 Governmental Authorization......................................12
3.4 Non-contravention...............................................12
3.5 Capitalization..................................................13
3.6 Subsidiaries....................................................13
3.7 SEC Filings; Financial Statements...............................13
3.8 No Undisclosed Material Liabilities.............................14
3.9 Absence of Certain Changes......................................15
3.10 Litigation......................................................16
3.11 Compliance with Applicable Laws.................................16
3.12 Permits.........................................................16
3.13 Insurance.......................................................16
3.14 Contracts.......................................................16
3.15 Properties......................................................17
A-2
3.16 Employees and Independent Contractors...........................18
3.17 Employee Benefit Plans..........................................18
3.18 Taxes...........................................................19
3.19 Environmental Matters...........................................20
3.20 Patents and Other Proprietary Rights............................20
3.21 Year 2000.......................................................22
3.22 Brokers.........................................................22
3.23 Intentional Left Blank..........................................22
3.24 No Other Representations........................................22
3.25 Certain Interests...............................................22
ARTICLE IV. REPRESENTATIONS AND WARRANTIES OF CENTILLION....................23
4.1 Corporate Existence and Power...................................23
4.2 Corporate Authorization.........................................23
4.3 Governmental Authorization......................................23
4.4 Non-contravention...............................................24
4.5 Capitalization..................................................24
4.6 Subsidiaries....................................................24
4.7 SEC Filing Information; Financial Statements....................25
4.8 No Undisclosed Material Liabilities.............................25
4.9 Absence of Certain Changes......................................26
4.10 Litigation......................................................27
4.11 Compliance with Laws............................................27
4.12 Permits.........................................................27
4.13 Insurance.......................................................27
4.14 Contracts.......................................................27
4.15 Properties......................................................28
4.16 Employees and Independent Contractors...........................29
4.17 Employee Benefit Plans..........................................29
4.18 Taxes...........................................................30
4.19 Environmental Matters...........................................30
4.20 Patents and Other Proprietary Rights............................31
4.21 Year 2000.......................................................32
4.22 Brokers.........................................................32
4.23 No Other Representations........................................32
4.24 Certain Interests...............................................32
4.25 Reorganization..................................................33
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ARTICLE V. COVENANTS OF CENTILLION AND CTI GROUP...........................34
5.1 Reasonable Best Efforts.........................................34
5.2 Consents........................................................34
5.3 Public Announcements............................................34
5.4 Notification of Certain Matters.................................34
5.5 Access to Information...........................................35
5.6 Preparation of the Form S-4 and the Proxy Statement/Prospectus;
Stockholders Meetings...........................................35
5.7 Additional Covenants of Centillion..............................36
5.8 Additional Covenants of CTI Group...............................38
5.9 Indemnification, Exculpation and Insurance......................40
5.10 No Solicitation by CTI Group....................................41
5.11 Employee Stock Option and Benefit Plans.........................43
ARTICLE VI. CONDITIONS TO THE MERGER........................................44
6.1 Conditions......................................................44
6.2 Additional Conditions to Obligations of CTI Group...............44
6.3 Additional Conditions to Obligations of Centillion..............46
ARTICLE VII. TERMINATION......................................................48
7.1 Termination.....................................................48
7.2 Effect of Termination...........................................49
7.3 Fees and Expenses...............................................49
ARTICLE VIII. INDEMNIFICATION.................................................50
8.1 Indemnification.................................................50
8.2 Conditions of Indemnification...................................50
8.3 Remedies........................................................51
ARTICLE IX. MISCELLANEOUS...................................................52
9.1 Notices.........................................................52
9.2 Survival of Representations and Warranties and Agreements.......53
9.3 Amendment.......................................................53
9.4 Extension; Waiver...............................................53
9.5 Successors and Assigns..........................................53
9.6 Governing Law...................................................53
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9.7 Jurisdiction....................................................53
9.8 Counterparts; Effectiveness.....................................54
9.9 Entire Agreement; No Third-Party Beneficiaries..................54
9.10 Headings........................................................54
9.11 Schedules.......................................................54
9.12 Waiver of Jury Trial............................................54
9.13 Severability....................................................54
9.14 Disclosure Schedules............................................54
EXHIBITS
EXHIBIT A SURVIVING CORPORATION - ARTICLES OF INCORPORATION
CAPITAL STOCK PROVISIONS
EXHIBIT B SURVIVING CORPORATION BYLAWS
EXHIBIT C DIRECTORS AND EXECUTIVE EMPLOYMENT
EXHIBIT D SHAREHOLDER LLC PROMISSORY NOTE
EXHIBIT E ANTHONY JOHNS EMPLOYMENT AGREEMENT
EXHIBIT F FORM OF PROMISSORY NOTE
EXHIBIT G DIVESTED CENTILLION SUBSIDIARIES
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INDEX OF DEFINED TERMS
Term Section
- ---- -------
Additional Stock Rights .....................................................1.5
Affiliate ..................................................................1.14
Average Market Price ........................................................1.9
Billing Business ...........................................................4.25
Business Day ...............................................................5.10
Centillion Capital Stock ...................................................1.5
Centillion Dissenting Shares ..............................................1.13
Centillion Disclosure Schedule .......................................Article IV
Centillion Financial Statements .............................................4.7
Centillion Required Vote ...................................................4.2
Centillion Stockholders ...................................................1.14
Centillion Stockholders Meeting .............................................5.6
Certificate .................................................................1.5
Change in Law................................................................6.3
Class A Common Stock .......................................................1.5
Class B Common Stock ........................................................1.5
Closing .....................................................................1.2
Closing Date ................................................................1.2
Code ...................................................................Preamble
Confidentiality Agreement ...................................................5.5
Contingent Stock Warrant ...................................................1.5
CTI Group Acquisition Agreement ...........................................5.10
CTI Group Applicable Period ................................................5.10
CTI Group Capital Stock ....................................................1.5
CTI Group Competing Proposal ..............................................5.10
CTI Group Disclosure Schedule ......................................Article III
CTI Group Dissenting Shares ................................................1.13
CTI Group Required Vote ....................................................3.2
CTI Group Shareholders Meeting .............................................5.6
CTI Group Superior Proposal ...............................................5.10
Covered Disposition .................................................Exhibit "A"
Delaware Certificate of Merger ..............................................1.3
DGCL .......................................................................1.1
Dissenting Shares ..........................................................1.13
Effective Time ..............................................................1.3
Employee Plan ..............................................................3.17
Environmental Law ..........................................................3.19
ERISA ......................................................................3.17
Escrow Conversion Ratio . ..................................................1.14
Escrow Distribution Date ..................................................1.14
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Term Section
- ---- -------
Escrowed Stock ..............................................................1.5
Exchange Act ................................................................3.3
Exchange Agent ..............................................................1.6
Form S-4 ...................................................................5.6
GAAP .......................................................................3.8
Governmental Entity .........................................................3.3
Hazardous Substance ........................................................3.19
IBCL .......................................................................1.1
Indiana Articles of Merger ..................................................1.3
Intellectual Property .....................................................3.20
Lien ........................................................................3.4
LLC ........................................................................6.2
Material Adverse Effect .....................................................3.1
Merger .................................................................Preamble
Merger Consideration ........................................................1.5
Other Filings ...............................................................3.7
Person .....................................................................1.10
Proxy Statement/Prospectus ..................................................5.6
SEC Reports .................................................................3.7
Shareholder Promissory Note ................................................1.15
Specified Contracts .......................................................3.14
Subsidiary ..................................................................3.1
Subsidiary Securities .......................................................3.6
Surviving Corporation .......................................................1.1
Target Revenue ............................................................1.14
Taxes ......................................................................3.18
Termination Date ...........................................................7.1
Tracked Assets .............................................................6.2
Violation ...................................................................3.4
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AGREEMENT AND PLAN OF MERGER, dated as of February 3, 2000 (this "Agreement"),
between CTI GROUP (HOLDINGS) INC., a Delaware corporation ("CTI Group"), and
CENTILLION DATA SYSTEMS, INC., an Indiana corporation ("Centillion").
W I T N E S S E T H:
-------------------
WHEREAS, the respective Boards of Directors of CTI Group and Centillion
have each determined that the merger of Centillion with and into CTI Group (the
"Merger") is in the best interests of their respective stockholders, such Boards
of Directors have adopted resolutions approving the Merger and recommending that
their respective stockholders adopt and approve this Agreement, and the Board of
Directors of Centillion has also determined that the terms of the Merger are
fair to holders of the issued and outstanding shares of capital stock of
Centillion, upon the terms and subject to the conditions set forth in this
Agreement, pursuant to which each share of capital stock of Centillion issued
and outstanding immediately prior to the Effective Time, other than shares owned
or held by CTI Group or Centillion and other than Dissenting Shares, will be
converted into the right to receive the applicable Merger Consideration as set
forth in Section 1.5;
WHEREAS, CTI Group and Centillion desire to make certain
representations, warranties, covenants and agreements in connection with the
transactions contemplated hereby and also to prescribe various conditions to the
transactions contemplated hereby; and
WHEREAS, CTI Group and Centillion intend, by approving resolutions
authorizing this Agreement, to adopt this Agreement as a plan of reorganization
within the meaning of Section 368(a) of the Internal Revenue Code of 1986, as
amended (the "Code"), and the regulations promulgated thereunder.
NOW, THEREFORE, in consideration of the foregoing and the respective
representations, warranties, covenants and agreements set forth herein and
intending to be legally bound hereby, the parties hereto agree as follows:
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ARTICLE I
THE MERGER
1.1 The Merger. Upon the terms and subject to the conditions set forth in this
Agreement, and in accordance with the Delaware General Corporation Law (the
"DGCL") and the Indiana Business Corporation Law (the "IBCL"), Centillion shall
be merged with and into CTI Group at the Effective Time. Following the Merger,
the separate corporate existence of Centillion shall cease and CTI Group shall
continue as the surviving corporation (the "Surviving Corporation").
1.2 Closing. The closing of the Merger (the "Closing") will take place at 10:00
a.m., Eastern Standard time, on the second Business Day after the satisfaction
or (subject to applicable law) waiver of the conditions (excluding conditions
that, by their terms, cannot be satisfied until the Closing Date) set forth in
Article VI (the "Closing Date"), unless another time or date is agreed to in
writing by the parties hereto. The Closing shall be held at the offices of Blank
Rome Comisky & McCauley LLP, One Logan Square, Philadelphia, Pennsylvania 19103,
unless another place is agreed to in writing by the parties hereto.
1.3 Effective Time. As soon as practicable following the Closing, the parties
shall:
(a) (i) file a certificate of merger (the "Delaware Certificate of
Merger") in such form as is required by and executed in accordance with the
relevant provisions of the DGCL and (ii) make all other filings or recordings
required under the DGCL; and
(b) (i) file articles of merger (the "Indiana Articles of Merger") in
such form as is required by and executed in accordance with the relevant
provisions of the IBCL and (ii) make all other filings or recordings required
under the IBCL. The Merger shall become effective upon the later to occur of the
filing of (i) the Delaware Certificate of Merger with the Delaware Secretary of
State and (ii) the Indiana Articles of Merger with the Indiana Secretary of
State, or at such subsequent time as CTI Group and Centillion shall agree and
set forth in the Delaware Certificate of Merger and the Indiana Articles of
Merger (the date and time the Merger becomes effective being the "Effective
Time").
1.4 Effects of the Merger. At and after the Effective Time, the Merger will have
the effects set forth in the DGCL and the IBCL. Without limiting the generality
of the foregoing, and subject thereto, at the Effective Time, all the property,
rights, privileges, powers and franchises of Centillion shall be vested in the
Surviving Corporation, and all debts, liabilities and duties of Centillion shall
become the debts, liabilities and duties of the Surviving Corporation.
1.5 Effect on Capital Stock.
(a) As contemplated in Section 2.1, at the Effective Time, the
certificate of incorporation of CTI Group will be amended to provide for the
following classes of capital stock of CTI Group:
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(i) Class A Common Stock; par value $0.01 per share;
46,500,000 shares ("Class A Common Stock"); and
(ii) Class B Common Stock; par value $0.01 per share;
3,500,000 shares ("Class B Common Stock").
The foregoing classes of capital stock, including the capital stock of CTI Group
outstanding (and included in the Class A Common Stock as of the date hereof) are
herein collectively referred to as "CTI Group Capital Stock".
(b) At the Effective Time by virtue of the Merger and without any
action on the part of the holders thereof (in each of the following cases other
than such shares owned or held by CTI Group or Centillion, which shall
automatically be retired and shall cease to exist, and no consideration shall be
delivered in exchange therefor, and other than Dissenting Shares):
(i) Except to the extent that subparagraph (b)(ii) below
applies, the shares of capital stock of Centillion issued and outstanding
immediately prior to the Effective Time (the "Centillion Capital Stock"), shall
be converted into the following (the "Merger Consideration") pro rata, on a per
share equivalent basis:
(A) 12,295,838 shares of Class A Common Stock, of
which 9,080,738 shares shall be distributed at Closing, and 3,215,100 shares
(the "Escrowed Stock") shall be delivered at Closing into the escrow established
in Section 1.14 hereof for the benefit of the holders of Centillion Capital
Stock, to be held, distributed and/or canceled in accordance with the terms of
such escrow.
(B) 3,500,000 of Class B Common Stock.
(C) The right to receive additional shares of Class A
Common Stock on the terms and conditions set forth in Section 1.15 hereof (the
"Additional Stock Rights").
(D) The right to purchase some or all of the Escrowed
Stock under Section 1.14(d).
(ii) Centillion shall have the option to have the Merger
Consideration to be as set forth below instead of as set forth in 1.5(b)(i)
above. The option shall be exercised by Centillion having, at the Effective
Time, the balance sheet of Centillion reflecting cash of not less than
$8,000,000 in lieu of the $6,500,000 provided for in Section 6.2(d). In such
event, the Centillion Capital Stock shall be converted pro rata, on a per share
equivalent basis as follows:
(A) 12,962,504 shares of Class A Common Stock, of
which 9,747,404 shares shall be distributed at Closing, and 3,215,100 of
Escrowed Stock shall be delivered at Closing into the escrow established in
Section 1.14 hereof for the benefit of the holders of
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Centillion Capital Stock, to be held, distributed and/or canceled in accordance
with the terms of such escrow.
(B) 2,833,334 of Class B Common Stock.
(C) The right to receive Additional Stock Rights on
the terms and conditions set forth in Section 1.15 hereof.
(D) The right to purchase some or all of the Escrowed
Stock under Section 1.14(d).
(c) As a result of the Merger and without any action on the part of the
holders thereof, at the Effective Time, all shares of Centillion Capital Stock
shall cease to be outstanding and shall be canceled and retired and shall cease
to exist, and each holder of a certificate which immediately prior to the
Effective Time represented any such shares of Centillion Capital Stock (a
"Certificate") shall thereafter cease to have any rights with respect to such
shares of Centillion Capital Stock, except the right to receive the applicable
Merger Consideration and any cash in lieu of fractional shares of applicable CTI
Group Capital Stock to be issued in consideration therefor and any dividends or
other distributions to which holders of Centillion Capital Stock become entitled
all in accordance with this Article I upon the surrender of such certificate.
(d) Each share of Centillion Capital Stock issued and owned or held by
CTI Group or Centillion at the Effective Time shall, by virtue of the Merger,
cease to be outstanding and shall be canceled and retired and no stock of CTI
Group or other consideration shall be delivered in exchange therefor.
(e) The Surviving Corporation shall be entitled to deduct and withhold
from the consideration otherwise payable pursuant to this Agreement to any
holder of shares of Centillion Capital Stock 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 state,
local or foreign tax law. To the extent that amounts are so withheld by the
Surviving Corporation such withheld amounts shall be treated for all purposes of
this Agreement as having been paid to the holder of the shares of Centillion
Capital Stock in respect of which such deduction and withholding was made by the
Surviving Corporation.
1.6 Exchange Agent. Prior to the Effective Time, CTI Group shall appoint
American Stock Transfer or another commercial bank or trust company reasonably
satisfactory to Centillion to act as exchange agent hereunder for the purpose of
exchanging Certificates for the applicable Merger Consideration (the "Exchange
Agent"). At or prior to the Effective Time, CTI Group shall deposit with the
Exchange Agent, in trust for the benefit of holders of shares of Centillion
Capital Stock, certificates representing the applicable CTI Group Capital Stock
issuable pursuant to Section 1.5 in exchange for outstanding shares of
Centillion Capital Stock in the Merger. CTI
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Group 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 1.9.
1.7 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 (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 such form and have such other provisions as CTI Group 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)
one or more shares of applicable CTI Group Capital Stock representing, in the
aggregate, the whole number of shares that such holder has the right to receive
pursuant to Section 1.5, and (B) a check in the amount equal to the cash that
such holder has the right to receive in lieu of any fractional shares of
applicable CTI Group Capital Stock pursuant to Section 1.9 and in each case the
Certificate so surrendered shall forthwith be canceled. No interest will be paid
or will accrue on any cash so payable.
1.8 Distributions with Respect to Unexchanged Shares. No dividends or other
distributions declared or made with respect to shares of CTI Group Capital Stock
with a record date after the Effective Time shall be paid to the holder of any
un-surrendered Certificate with respect to the shares of CTI Group Capital Stock
that such holder would be entitled to receive upon surrender of such Certificate
and no cash payment in lieu of fractional shares of CTI Group Capital Stock
shall be paid to any such holder until such holder shall surrender such
Certificate. Subject to the effect of applicable laws, following surrender of
any such Certificate, there shall be paid to such holder of shares of CTI Group
Capital Stock issuable in exchange therefor, without interest, promptly after
the time of such surrender, the amount of any cash payable in lieu of fractional
shares of CTI Group Capital Stock to which such holder is entitled pursuant to
Section 1.9 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 CTI Group Capital Stock.
1.9 No Fractional Shares of CTI Group Capital Stock.
(a) No certificates or scrip or shares of CTI Group Capital Stock
representing fractional shares of CTI Group Capital Stock 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 CTI Group or a holder of shares of CTI Group Capital Stock.
(b) Notwithstanding any other provision of this Agreement, each holder
of shares of Centillion Capital Stock exchanged pursuant to the Merger who would
otherwise have been entitled to receive a fraction of a share of applicable CTI
Group Capital Stock (after taking into
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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 applicable CTI Group Capital Stock multiplied by
(ii) the per share Average Market Price (as hereinafter defined) for Class A
Common Stock or $1.50 per share for Class B Common Stock. The fractional share
interests of CTI Group Capital Stock will be aggregated, and no recordholder of
Centillion Capital Stock will receive cash in an amount equal to or greater than
the value of one full share of CTI Group Capital Stock determined as of the
Effective Time.
(c) For purposes of this Agreement, the "Average Market Price" of the
Class A Common Stock at any date shall mean the average of the daily last
reported sale price per share of the Class A Common Stock on the NASDAQ National
Market System (or if such stock is then listed on the New York Stock Exchange,
on such Exchange) during the most recent twenty (20) consecutive full Business
Days before such date, provided that if there was no reported sale on any such
day or days, there shall be substituted the average of the closing bid and asked
quotations on that Market or Exchange on that day or days, and provided further
that, if the Class A Common Stock is not listed on that Market or Exchange on
any such day or days, there shall be substituted the comparable sale price or
average of bid and asked quotations on the principal national securities
exchange on which such Class A Common Stock is so listed, or if not so listed on
any national securities exchange, the average of the highest bid and the lowest
asked quotations in the over-the-counter market that day or days.
1.10 No Liability. None of Centillion, CTI Group or the Exchange Agent shall be
liable to any Person (as defined below) in respect of any Merger Consideration,
any dividends or distributions with respect thereto or any cash in lieu of
fractional shares of applicable CTI Group Capital Stock, in each case delivered
to a public official pursuant to any applicable abandoned property, escheat or
similar law. For purposes of this Agreement, "Person" shall mean any individual,
corporation, partnership, limited liability company, association, trust or other
entity or organization, including a government or political subdivision or an
agency or instrumentality thereof. If any Certificate shall not have been
surrendered prior to eight (8) years after the Effective Time (or immediately
prior to such earlier date on which any Merger Consideration, any dividends or
distributions payable to the holder of such Certificate or any cash payable in
lieu of fractional shares of CTI Group Capital Stock pursuant to this Article I,
would otherwise escheat to or become the property of any Governmental Entity(as
defined below)), any such Merger Consideration, dividends or distributions in
respect thereof or such cash shall, to the extent permitted by applicable law,
be delivered to CTI Group, upon demand, and any holders of Centillion Capital
Stock who have not theretofore complied with the provisions of this Article I
shall thereafter look only to CTI Group for satisfaction of their claims for
such Merger Consideration, dividends or distributions in respect thereof or such
cash.
1.11 Lost Certificates. If any Certificate shall have been lost, stolen or
destroyed, upon the making of an affidavit of that fact by the Person, in a form
and substance satisfactory to CTI Group and containing an appropriate indemnity
against claims, claiming such Certificate to be lost, stolen or destroyed and,
if required by the Surviving Corporation, the posting by such
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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 of Centillion Capital Stock formerly represented thereby, any cash
in lieu of fractional shares of CTI Group Capital Stock, and unpaid dividends
and distributions on shares of CTI Group Capital Stock deliverable in respect
thereof, pursuant to this Agreement.
1.12 Stock Transfer Books. At the close of business, Eastern Standard Time, on
the day the Effective Time occurs, the stock transfer books of Centillion shall
be closed and there shall be no further registration of transfers of shares of
Centillion Capital Stock thereafter on the records of Centillion. From and after
the Effective Time, the holders of Certificates shall cease to have any rights
with respect to such shares of Centillion Capital Stock formerly represented
thereby, except as otherwise provided herein or by law.
1.13 Dissenting Shares.
(a) Notwithstanding anything in this Agreement to the contrary and
unless provided for by applicable law, shares of Centillion Capital Stock that
are issued and outstanding immediately prior to the Effective Time and that are
owned by stockholders who have properly perfected their rights of appraisal
within the meaning of Sections 23-1-44-1 et seq. of the IBCL (the "Centillion
Dissenting Shares") shall not be converted into the right to receive the Merger
Consideration unless and until such stockholders shall have failed to perfect
their right of payment under applicable law, but, instead, the holders thereof
shall be entitled to payment of the fair value of such Centillion Dissenting
Shares in accordance with the IBCL. If any such holder shall have failed to
perfect or shall have effectively withdrawn or lost such right of appraisal,
each share of such Centillion Capital Stock held by such stockholder shall
thereupon be deemed to have been converted into the right to receive and become
exchangeable for, at the Effective Time, the applicable Merger Consideration, in
the manner provided for in Section 1.5(b). Centillion shall give CTI Group
prompt notice of any notice or demand filed pursuant to Sections 23-1-44-1 et
seq. of the IBCL received by Centillion, withdrawals of such notice or demand
and any other instruments served in connection therewith pursuant to the IBCL
and received by Centillion. Centillion shall not, except with the prior written
consent of CTI Group, (x) make any payment with respect to any such objection,
(y) offer to settle or settle any such objection or (z) waive any failure to
timely deliver a written objection in accordance with the IBCL.
(b) Notwithstanding anything in this Agreement to the contrary and
unless provided for by applicable law, holders of shares of CTI Group Capital
Stock that are issued and outstanding immediately prior to the Effective Time
and that are owned by stockholders who have properly perfected their rights of
appraisal within the meaning of Section 262 of the DGCL (the "CTI Group
Dissenting Shares") shall be entitled to payment of the fair value of such CTI
Group Dissenting Shares determined in accordance with Section 262 of the DGCL.
If any such stockholder shall have failed to perfect or shall have effectively
withdrawn or lost such right of
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appraisal, each such share of CTI Group Capital Stock held by such stockholder
shall thereupon be deemed to remain issued and outstanding and unchanged as a
validly issued, fully paid and non-assessable share of capital stock of the
Surviving Corporation. CTI Group shall give Centillion prompt notice of CTI
Group's receipt of any notice or demand for appraisal or payment pursuant to
Section 262 of the DGCL, withdrawals thereof and any other instruments served in
connection therewith pursuant to the DGCL and received by CTI Group. CTI Group
shall not, except with the prior written consent of Centillion, (x) make any
payment with respect to such objection, (y) settle or offer to settle any such
objection or (z) waive any failure to timely deliver a written objection in
accordance with the DGCL.
1.14 Escrow. The Escrowed Stock shall be delivered to the holders of Centillion
Capital Stock who received Class A Common Stock in the Merger (the "Centillion
Stockholders"), in the manner set forth below on (or within thirty (30) days
following) the Escrow Distribution Date.
(a) If the Target Revenue is equal to or greater than $12 million,
then, all of the Escrowed Stock shall be delivered by the Escrow Agent to the
Centillion Stockholders who received Class A Common Stock under Section
1.5(b)(i), on the same per share basis; and
(b) If the Target Revenue is less than $12 million, then, only such
number of shares of the Escrowed Stock (rounded down to the nearest whole
number) as is equal to the number of shares of Escrowed Stock originally
delivered into escrow, multiplied by the Escrow Conversion Ratio shall be
distributed; and any shares of the Escrowed Stock which are not so distributed,
after giving effect to the provisions of Subsection (d) below, shall be canceled
and/or returned to treasury. For purposes of this provision the "Escrow
Conversion Ratio" shall be the fraction obtained by subtracting from 1.000, the
number determined by dividing: (A) the result obtained by subtracting the amount
of Target Revenue from $12 million; by (B) $12 million.
(c) For purposes of this provision, the term "Target Revenue" shall
mean the sum of the gross revenues received by CTI Group during, and properly
attributable thereto under GAAP (as hereinafter defined), the period beginning
on September 20, 2000 and ending on the third anniversary following such date
(such third anniversary being the "Escrow Distribution Date"), from (i) a
contract with Sprint Communications Company, L.P. dated August 8, 1997 or any
successor or affiliate of such company and (ii) revenues, other than the
proceeds of any settlements or judgments, received from parties which are either
defendants in any patent infringement action relating to U.S. Patent No. 5287270
or U.S. Patent No. 5325290 or who have been or may be sent letters in the future
indicating that CTI Group believes are infringing such patents. Section 4.20(d)
of Centillion's Disclosure Schedule contains a list of defendants or parties
that have been notified that Centillion believes may be infringing on such
patents.
(d) No fractional shares or scrip representing fractional shares of the
Escrowed Stock shall be issued pursuant to this Section 1.14; provided, however,
that if as the result of the operation of Subsection (b) above, a recipient of
Merger Consideration under Section 1.5 is to
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receive a number of shares of Escrowed Stock which is less than the number of
shares of Escrowed Stock such holder would have received had the distribution
been made under Subsection (a) above, then, and in such event, such holder shall
have the right (exercisable in whole or in part, but not later than ten (10)
days after the date on which the Escrowed Stock was or would have been
distributed as the case may be) to purchase from CTI Group (at a per share
equivalent purchase price of $1.50 per share) such number of shares (or partial
shares) of the Escrowed Stock as will result in such holder receiving, in the
aggregate under subsections (b) and (d), the same number of shares of Escrowed
Stock as such holder would have received if the distribution of Escrowed Stock
had been made under Subsection (a) above.
(e) An executive committee described in Exhibit "C" shall, by unanimous
vote, determine the Escrow Stock to be distributed pursuant to this Section
1.14. Any controversy or claim arising out of or relating to this Section 1.14,
shall be settled by a binding arbitration in Philadelphia, Pennsylvania in
accordance with the Commercial Arbitration Rules of the American Arbitration
Association.
1.15 Additional Stock Rights.
(a) Subject to Subsection (b) below, on the last day of the fiscal
quarter in which payments of any kind are received by CTI Group with respect to
the outstanding principal balance of the Promissory Note issued to Centillion
attached as Exhibit "D" (the "Shareholder LLC Promissory Note"), the Centillion
Stockholders shall be entitled to receive, and CTI Group shall distribute, pro
rata on a per share basis, additional shares of Class A Common Stock equal in
value to the payment received. The number of additional shares of Class A Common
Stock to be so distributed shall be determined by dividing (x) the dollar amount
of payment(s) received by CTI Group with respect to the outstanding principal
balance of the Shareholder LLC Promissory Note (subject to Subsection (b)
below), by (y) an amount equal to eighty-eight percent (88%) of the Average
Market Value of a single share of Class A Common Stock on the date of
distribution.
(b) CTI Group shall not be required to distribute additional shares of
Class A Common Stock under Subsection (a) above unless and until the aggregate
amount of principal payments received equals or exceeds $1,000,000 in a fiscal
quarter, with distribution to be made on the last day of such fiscal quarter.
For purposes of this Subparagraph (b), if the aggregate payments received in any
fiscal quarter do not equal or exceed $1,000,000, then such payments shall be
carried over to subsequent quarters until the aggregate amount of payments
received equals or exceeds $1,000,000.
(c) If all or any portion of the Shareholder LLC Promissory Note
remains outstanding more than five (5) years after the Effective Time, the value
of the Shareholder LLC Promissory Note at such time (after giving effect to
payments already made with respect to the Shareholder LLC Promissory Note and
the Class A Common Stock issued in connection therewith under
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Subsection (a) above) shall be determined by appraisal in accordance with
Section 3(d) of the Articles of Incorporation attached hereto as Exhibit "A",
and the appraised value of the Shareholder LLC Promissory Note shall be
distributed to the Centillion Stockholders in the form of additional shares of
Class A Common Stock, pro rata on a per share basis, with the number of
additional shares of Class A Common Stock to be so distributed, determined by
dividing (x) the appraised value of the Shareholder LLC Promissory Note, by (y)
an amount equal to eighty-eight percent (88%) of the then Average Market Value
of a single share of Class A Common Stock on the date of distribution.
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ARTICLE II
THE SURVIVING CORPORATION
2.1 Certificate of Incorporation. The certificate of incorporation of the CTI
Group in effect at the Effective Time shall be amended to read as set forth in
Exhibit "A" hereto.
2.2 Bylaws. The bylaws of CTI Group in effect at the Effective Time shall be the
bylaws of the Surviving Corporation until amended in accordance with applicable
law; provided, however, that at and as of the Effective Time, the bylaws of CTI
Group shall be amended to read as set forth in Exhibit "B" hereto.
2.3 Directors. From and after the Effective Time, until successors are duly
elected or appointed and qualified in accordance with applicable law, the
directors of the Surviving Corporation shall be determined in the manner set
forth in Exhibit "C" hereto.
2.4 Officers. From and after the Effective Time, until successors are duly
elected or appointed and qualified in accordance with applicable law, the
officers of the Surviving Corporation shall be determined in the manner set
forth in Exhibit "C" hereto.
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ARTICLE III
REPRESENTATIONS AND WARRANTIES OF CTI GROUP
CTI Group represents and warrants to Centillion that except as set
forth in the Disclosure Statement delivered to Centillion prior to the execution
of this Agreement (the "CTI Group Disclosure Schedule"):
3.1 Corporate Existence and Power. CTI Group is a corporation duly incorporated,
validly existing and in good standing under the laws of the State of Delaware,
and has all corporate powers and authority and all governmental licenses,
authorizations, permits, consents and approvals required to own, operate or
lease the properties that it purports to own, operate or lease and to carry on
its business as now conducted, except for those licenses, authorizations,
permits, consents and approvals the absence of which would not have,
individually or in the aggregate, a material adverse effect on the condition
(financial or otherwise), business assets or results of operations of CTI Group
and its Subsidiaries (as defined below), taken as a whole, or upon the ability
of CTI Group to consummate the transactions contemplated by this Agreement or
perform its obligations hereunder (a "Material Adverse Effect"). CTI Group is
duly qualified to do business as a foreign corporation and is in good standing
in each jurisdiction where the character of the property owned or leased by it
or the nature of its activities makes such qualification necessary, except for
those jurisdictions where the failure to be so qualified would not have a
Material Adverse Effect. CTI Group has heretofore delivered to Centillion
complete and correct copies of CTI Group's and each Subsidiary's certificate of
incorporation and bylaws or equivalent organizational documents as currently in
effect. Such certificate of incorporation, bylaws and equivalent organizational
documents are in full force and effect. A true and complete list of all of CTI
Group's Subsidiaries, together with the jurisdiction of incorporation of each
Subsidiary is set forth in Section 3.1 of the CTI Group Disclosure Schedule. For
purposes of this Agreement, a "subsidiary" of any Person means any other Person
of which securities or other ownership interests having ordinary voting power to
elect a majority of the board of directors or other Persons performing similar
functions are directly or indirectly owned or controlled by such Person, or any
Person otherwise consolidated or aggregated in accordance with GAAP, and unless
otherwise specified, "Subsidiary" means a subsidiary of CTI Group or Centillion,
as the context requires.
3.2 Corporate Authorization. The execution, delivery and performance by CTI
Group of this Agreement and the consummation by CTI Group of the transactions
contemplated hereby are within CTI Group's corporate powers and except for any
required approvals by CTI Group's stockholders in connection with the
consummation of the Merger, have been duly authorized by all necessary corporate
action. The affirmative vote of the holders of a majority of the outstanding
shares (if required by law) is the only vote of the holders of any of CTI
Group's capital stock necessary in connection with the consummation of the
Merger (the "CTI Group Required Vote"). This Agreement has been duly and validly
authorized (assuming receipt of the CTI Group Required Vote), executed and
delivered by CTI Group and, assuming the due and valid authorization, execution
and delivery of this Agreement by Centillion and receipt of all
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required approvals by Centillion's stockholders in connection with the
consummation of the Merger, constitutes a valid and binding agreement of CTI
Group, enforceable against it in accordance with its terms, except as may be
limited by bankruptcy, insolvency, reorganization, moratorium, fraudulent
transfer and other similar laws affecting creditors' rights generally and by
equitable principles of general applicability.
3.3 Governmental Authorization. The execution, delivery and performance by CTI
Group of this Agreement and the consummation by CTI Group of the Merger and the
other transactions contemplated hereby require no consent, waiver, approval,
authorization or permit by or from, or action by or in respect of, or filing
with, any Governmental Entity (as defined below), other than (i) the filing of a
certificate of merger and articles of merger in accordance with the DGCL and the
IBCL, respectively, (ii) compliance with any applicable requirements of state
takeover laws, (iii) compliance with any applicable requirements of the
Securities Exchange Act of 1934 (the "Exchange Act"), and (iv) any action,
filing, consent, waiver, approval, authorization or permit that would not in the
aggregate prevent or delay consummation of the Merger in any material respect,
or otherwise prevent CTI Group from performing its obligations under this
Agreement in any material respect or would not in the aggregate have a Material
Adverse Effect. For purposes of this Agreement, "Governmental Entity" shall mean
any nation or government, any state or other political subdivision thereof, any
entity exercising executive, legislative, judicial, regulatory or administrative
functions of or pertaining to government, including, but not limited to, any
government authority, agency, department, board, commission or instrumentality
of the United States, any State of the United States, or any political
subdivision thereof, and any tribunal or arbitrator(s) of competent
jurisdiction, and any self-regulatory organization.
3.4 Non-contravention. Assuming compliance with the matters referred to in
Section 3.2 and Section 3.3, the execution, delivery and performance by CTI
Group of this Agreement and the consummation by CTI Group of the transactions
contemplated hereby do not and will not (i) assuming receipt of the approval of
stockholders referred to in Section 3.2, contravene or conflict with the
certificate of incorporation or bylaws of CTI Group, (ii) contravene or conflict
with or constitute a violation of any provision of any law, regulation,
judgment, injunction, order or decree binding upon or applicable to CTI Group or
any Subsidiary, (iii) result in a breach or violation of or constitute a default
under (or an event which with the giving of notice or the lapse of time or both
would constitute a default under) or give rise to a right of termination,
amendment, cancellation or acceleration of any right or obligation of CTI Group
or any Subsidiary or to a loss of any benefit to which CTI Group or any
Subsidiary is entitled or require any consent, approval or authorization under
any provision of any material agreement, contract or other instrument binding
upon CTI Group or any Subsidiary or any of their respective assets (including
any material license, franchise, permit or other similar authorization held by
CTI Group or any Subsidiary) or (iv) result in the creation or imposition of any
Lien on any asset of CTI Group or any Subsidiary, except for such
contraventions, conflicts or violations referred to in clause (ii) and breaches,
violations, defaults, rights of termination, cancellation or acceleration,
losses, Liens or other occurrences referred to in clauses (iii) and (iv) (each,
a "Violation") that individually or in the aggregate would not reasonably be
expected to result in a Material Adverse
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Effect. For purposes of this Agreement, "Lien" means, with respect to any asset,
any mortgage, lien, pledge, charge, security interest or encumbrance of any kind
in respect of such asset.
3.5 Capitalization. The authorized capital stock of CTI Group consists of
50,000,000 shares of Common Stock. Section 3.5 of the CTI Group's Disclosure
Schedule accurately lists all outstanding shares, warrants and options of CTI
Group's stock outstanding (including for any options and warrants the identity
of the holder, the exercise price and the expiration date) as of the date of
this Agreement.
3.6 Subsidiaries.
(a) Each Subsidiary is an entity duly organized, validly existing and
in good standing under the laws of its jurisdiction of organization, has all
corporate or partnership powers and authority and all governmental licenses,
authorizations, permits, consents and approvals required to own, operate or
lease the properties that it purports to own, operate or lease and to carry on
its business as now conducted, except for those licenses, authorizations,
permits, consents and approvals, the absence of which would not have
individually or in the aggregate a Material Adverse Effect. Each Subsidiary is
duly qualified to do business as a foreign corporation and is in good standing
in each jurisdiction where the character of the property owned or leased by it
or the nature of its activities makes such qualification necessary, except for
such qualifications the failure of which to obtain would not, individually or in
the aggregate, have a Material Adverse Effect.
(b) All of the outstanding capital stock of, or other ownership
interests in, each Subsidiary of CTI Group, is owned by CTI Group, directly or
indirectly, free and clear of any Lien and free of any other limitation or
restriction (including any restriction on the right to vote, sell or otherwise
dispose of such capital stock or other ownership interests). There are no
outstanding (i) securities of CTI Group or any Subsidiary convertible into or
exchangeable for shares of capital stock or other voting securities or ownership
interests in any Subsidiary or (ii) options or other rights to acquire from CTI
Group or any Subsidiary, and no other obligation of CTI Group or any Subsidiary
to issue, any capital stock, voting securities or other ownership interests in,
or any securities convertible into or exchangeable for any capital stock, voting
securities or ownership interests in, any Subsidiary (the items in clauses
3.6(b)(i) and 3.6(b)(ii) being referred to collectively as the "Subsidiary
Securities"). There are no outstanding obligations of CTI Group or any
Subsidiary to repurchase, redeem or otherwise acquire any outstanding Subsidiary
Securities.
3.7 SEC Filings; Financial Statements.
(a) SEC Filings:
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(i) CTI Group has filed with the SEC all forms, reports,
definitive proxy statements, schedules and registration statements (the "SEC
Reports") required to be filed with the SEC since October 25, 1999;
(ii) As of their respective filing dates, none of the SEC
Reports as amended or supplemented contained any untrue statement of a material
fact or omitted to state any material fact required to be stated therein or
necessary to make the statements made therein, in the light of the circumstances
under which they were made, not misleading;
(iii) The SEC Reports when filed complied in all material
respects with applicable substantive requirements of the Exchange Act;
(iv) None of the information (i) supplied by CTI Group in
writing specifically for inclusion or incorporation by reference in the Proxy
Statement (ii) in any document to be filed with the SEC in connection with the
transactions contemplated by this Agreement (the "Other Filings") or (iii)
provided to Centillion in connection with or in contemplation of the
transactions set forth in this Agreement will, at the respective times filed
with the SEC or at the Effective Time, respectively, 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 made therein, in light of the
circumstances under which they were made, not misleading; and
(v) Each document required to be filed by CTI Group with the
SEC or required to be distributed or otherwise disseminated to CTI Group's
stockholders in connection with the transactions contemplated by this Agreement,
when filed, distributed or disseminated, as applicable, will comply as to form
in all material respects with the applicable requirements of the Exchange Act.
(b) Except as set forth in Section 3.7 of the CTI Group Disclosure
Schedule, the audited consolidated financial statements of CTI Group dated March
31, 1999 and unaudited consolidated interim financial statements of CTI Group
included in the SEC Reports filed prior to and including October 25, 1999 fairly
present, in conformity with GAAP applied on a consistent basis (except as may be
indicated in the notes thereto or in the case of unaudited interim financial
statements as permitted by Form 10-Q of the SEC), the consolidated financial
position of CTI Group and its consolidated Subsidiaries as of the dates thereof
and its consolidated statements of operations, stockholders' equity and cash
flows for the periods then ended (subject to normal year-end adjustments in the
case of any unaudited interim financial statements). Notwithstanding any
provision contained herein, no representation is made in this Agreement with
respect to any financial statement contained in an SEC Report that has been
restated or amended in a subsequent SEC Report.
3.8 No Undisclosed Material Liabilities. Except as set forth in Section 3.8 of
CTI Group's Disclosure Schedule and as disclosed in the SEC Reports, or to the
extent the existence of such liability would not have a Material Adverse Effect,
neither CTI Group nor any of its Subsidiaries
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has any liabilities of the type that are required to be disclosed in financial
statements, including the notes thereto, prepared in accordance with generally
accepted accounting principles ("GAAP") which are, either individually or in the
aggregate, material to the business, operations or financial condition of CTI
Group and its subsidiaries taken as a whole, except liabilities adequately
provided for or referred to in CTI Group's balance sheet and the related notes
attached thereto as of September 30, 1999.
3.9 Absence of Certain Changes. Since September 30, 1999, the business of CTI
Group and its Subsidiaries has been conducted in the ordinary course consistent
with past practices and, except as disclosed in the SEC Reports or in the CTI
Group Disclosure Schedule, there has not been:
(a) any change, event or development having, or that could be
reasonably expected to have, individually or in the aggregate, a Material
Adverse Effect on CTI Group;
(b) any amendments or changes in the Certificate of Incorporation or
bylaws of CTI Group;
(c) any damage to, destruction or loss of any assets of CTI Group
(whether or not covered by insurance) that would have a Material Adverse Effect;
(d) any change by CTI Group in its accounting methods, principles or
practices;
(e) any revaluation by CTI Group of any of its assets, including,
without limitation, writing down the value of inventory or writing off notes or
accounts receivable other than in the ordinary course of business;
(f) any sale of a material amount of assets of CTI Group, except for
the sale of inventory in the ordinary course of business;
(g) any declaration, setting aside or payment of any dividend or
distribution in respect of any capital stock of CTI Group or any redemption,
purchase or other acquisition of any of its securities;
(h) any entry by CTI Group into any commitment or transaction material
to CTI Group, including, without limitation, any long-term supply agreements or
partnership, joint venture or other similar arrangements;
(i) any increase in or establishment of any bonus, insurance,
severance, deferred compensation, pension, profit sharing, stock option
(including without limitation, the granting of stock options, stock appreciation
rights, performance awards, or restricted stock awards), stock purchase or other
employee benefit plan, or any increase in the compensation payable to any
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officers or key employees of CTI Group except in the ordinary course of business
consistent with past practice;
(j) any issuance, delivery, or sale of, or authorization of the
issuance, delivery or sale of, any share of capital stock or any option or
rights with respect thereto, other than the issuance of common stock pursuant to
Plans outstanding on the date of this Agreement, or modification or amendment of
any right of any holder of outstanding shares of capital stock or Options with
respect thereto; or
(k) any incurring of (which shall be deemed to include entering into
credit agreements, lines of credit or similar arrangements until borrowings are
made under such arrangements) any indebtedness for borrowed money or guarantee
of any such indebtedness other than in the ordinary course of business
consistent with past practice.
3.10 Litigation. Except as set forth in CTI Group's SEC Reports filed prior to
the date hereof or in Section 3.10 of CTI Group's Disclosure Schedule, as of the
date hereof there is no action, suit investigation or proceeding pending, or to
the knowledge of CTI Group, threatened, against CTI Group or any of its
Subsidiaries, or any of their respective properties, before any court,
arbitrator or other Governmental Entity which would reasonably be expected to
have individually or in the aggregate a Material Adverse Effect.
3.11 Compliance with Applicable Laws. CTI Group and its Subsidiaries are in
substantial compliance with all laws, regulations and orders of any Governmental
Entity applicable to it or such Subsidiaries, except for such failures so to
comply which would not have a Material Adverse Effect.
3.12 Permits. CTI Group and its Subsidiaries hold all material licenses, permits
and other authorizations issued by Governmental Entities for the operation of
their respective businesses, except those licenses, permits and authorizations
the absence of which would not have a Material Adverse Effect.
3.13 Insurance. Schedule 3.13 is an accurate and complete list and description
of all Insurance Policies currently owned or maintained by CTI Group and its
Subsidiaries (except Insurance Policies that constitute Employee Benefit Plans)
in connection with or for the benefit of its business and all liability and
errors and omissions Insurance Policies owned or maintained by it or any of its
predecessors at any time during the five (5) years prior to the date of this
Agreement. Except as described in Schedule 3.13, all such Insurance Policies are
or were on an "occurrence" rather than a "claims made" basis. CTI Group has not
received notice of cancellation with respect to any such current Insurance
Policy, and there is no basis for the insurer thereunder to terminate any such
current Insurance Policy. Each such Insurance Policy is or was in full force and
effect during the period(s) of coverage indicated on Schedule 3.13. Except as
described on Schedule 3.13, there are no claims that are pending under any of
the Insurance Policies described on Schedule 3.13.
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3.14 Contracts.
(a) Schedule 3.14 is an accurate and complete list of all of the
following types of Contracts to which CTI Group is a party or by which CTI Group
is bound (collectively, the "Specified Contracts"), grouped into the following
categories and, where applicable, subdivided by product line: (a) each customer
Contract that is in excess of $25,000 and to the extent that the total number of
such Contracts is less than 20, then the 20 largest Contracts; (b) each supplier
Contract, each Contract for the purchase, lease or maintenance of computer
equipment and other equipment and each Contract for the purchase, license, lease
or maintenance of software under which CTI Group is the purchaser, licensee,
lessee or user that is in excess of $25,000 and to the extent that the total
number of such Contracts over $25,000 is less than 20, then the 20 largest
Contracts; (c) Contracts for the purchase or lease of Real Property or otherwise
concerning Real Property owned or used by CTI Group including a description of
the Real Property; (d) loan agreements, mortgages, notes, guarantees and other
financing Contracts; (e) employment, consulting and sales representative
Contracts other than those for "at will" employment; (f) Contracts under which
any rights in or ownership of CTI Group's business, any predecessor thereof, or
any part of the customer base or business of CTI Group's business was acquired;
(g) other Contracts (excluding Contracts which constitute Insurance Policies
listed on Schedule 3.13, excluding this Agreement and all other Contracts
entered into between CTI Group and Centillion, or among CTI Group, Centillion
and other parties in connection herewith); and (h) each Contract listed as an
exhibit to CTI Group's 10-KSB or any SEC Report filed thereafter. A description
of each oral Specified Contract is included on Schedule 3.14, and copies of each
written Specified Contract have been delivered to Centillion. Except as
described in Schedule 3.14, with respect to each of the Specified Contracts,
neither the CTI Group nor any of its Subsidiaries nor, to the knowledge of CTI
Group, any other party thereto, is in breach, default or violation of any term,
condition or provision of any Specified Contract, except for any breaches,
defaults or violations that would not reasonably be expected to have,
individually or in the aggregate, a Material Adverse Effect. Except as described
in Schedule 3.14, neither CTI Group nor any of its Subsidiaries has given or
received any notice of default or notice of termination with respect to any
Specified Contract where such default would result in a Material Adverse Effect.
(b) Each Specified Contract is a valid, binding and enforceable
obligation of CTI Group or its Subsidiary, as the case may be, and, to the
knowledge of CTI Group, of each party thereto, and is in full force and effect,
except where the failure to be valid, binding and enforceable and in full force
and effect would not reasonably be expected to have, individually or in the
aggregate, a Material Adverse Effect.
3.15 Properties.
(a) Except as set forth in Section 3.15 of CTI Group's Disclosure
Schedule, CTI Group and its Subsidiaries have good and marketable title, or
valid leasehold rights in the case of
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leased property, to all real property and all personal property purported to be
owned or leased by them, free and clear of all liens, security interests,
claims, encumbrances and charges, excluding (i) immaterial liens for fees,
taxes, levies, imposts, duties or governmental charges of any kind which are not
yet delinquent or are being contested in good faith by appropriate proceedings
which suspend the collection thereof, (ii) immaterial liens for mechanics,
materialmen, laborers, employees, suppliers or other liens arising by operation
of law for sums which are not yet delinquent or are being contested in good
faith by appropriate proceedings, (iii) purchase money liens on office, computer
and related equipment and supplies incurred in the ordinary course of business,
and (iv) liens or defects in title on leasehold rights. All buildings, and all
fixtures, equipment and other property and assets held under leases or
sub-leases by CTI Group or any of its Subsidiaries are held under valid
instruments enforceable in accordance with their respective terms against CTI
Group and, to CTI Group's knowledge, against the other parties thereto. The
tangible personal property of CTI Group has no material defects and is in good
operating condition and repair (ordinary wear and tear excepted) and is adequate
for its current uses. None of such tangible personal property is in need of
maintenance or repairs except for ordinary routine maintenance and repairs that
are not material in nature or cost.
(b) Except as set forth in Section 3.15 of CTI Group's Disclosure
Schedule, Consummation of the Merger will not result in any breach of or
constitute a default (or an event with which notice or lapse of time or both
would constitute a default) under, or give to others any rights of termination
or cancellation or, or require the consent of others under, any lease in which
CTI Group or any of its Subsidiaries is a lessee.
3.16 Employees and Independent Contractors. Schedule 3.16 is a list of all of
CTI Group's employees and (a) their titles or responsibilities; (b) their
current salaries or wages; (c) their last compensation changes and the dates on
which such changes were made; (d) any specific bonus, commission or incentive
plans or agreements for or with them; and (e) any outstanding loans or advances
made to them. CTI Group has delivered to Centillion an accurate and complete
list of all bonuses, commissions and incentives paid to the employees listed on
Schedule 3.16 at any time during the past twelve months. Schedule 3.16 includes
a list of all sales representatives and independent contractors engaged in CTI
Group's business, their payment arrangements, and a brief description of their
jobs or projects currently in progress. CTI Group is in substantial compliance
with all Laws respecting employment practices, except where such non-compliance
will not result in a Material Adverse Effect. CTI Group has never been a party
to or bound by any union or collective bargaining Contract, nor is any such
Contract currently in effect or being negotiated by or on behalf of CTI Group.
CTI Group has not experienced any labor problem that was or would have a
Material Adverse Effect on CTI Group's business. CTI Group's relations with its
employees are currently on a good and normal basis, and no employee of CTI
Group, to its actual knowledge, has indicated an intention to terminate his or
her employment where such termination shall have a Material Adverse Effect. CTI
Group does not have any actual knowledge or belief that the transactions
contemplated by this Agreement will adversely affect relations with CTI Group's
employees in a manner that would have a Material Adverse Effect.
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3.17 Employee Benefit Plans.
(a) Section 3.17 of the CTI Group Disclosure Schedule identifies each
employment, severance or similar contract or arrangement (whether or not
written) or any plan, policy, fund, program or contract or arrangement (whether
or not written) providing for compensation, bonus, profit-sharing, stock option,
or other stock related rights or other forms of incentive or deferred
compensation, vacation benefits, insurance coverage (including any self-insured
arrangements), health or medical benefits, disability benefits, workers'
compensation, supplemental unemployment benefits, severance benefits and
post-employment or retirement benefits (including compensation, pension, health,
medical or life insurance or other benefits) that (i) has been entered into,
maintained, administered or contributed to, as the case may be, by CTI Group or
any Subsidiary and (ii) covers any employee or former employee (each, an
"Employee Plan").
(b) CTI Group has furnished or made available to Centillion copies of
the Employee Plans (and, if applicable, related trust agreements) and all
amendments thereto and written interpretations thereof, together with the most
recent annual report (Form 5500 including, if applicable, Schedule B thereto)
and the most recent actuarial valuation report prepared in connection with any
Employee Plan.
(c) Each Employee Plan that is intended to be qualified under Section
401(a) of the Code has been determined by the Internal Revenue Service to be
qualified under Section 401(a) of the Code and each trust related thereto has
been determined to be exempt from tax pursuant to Section 501(a) of the Code,
and CTI Group is not aware of any event that has occurred since the date of such
determinations that would adversely affect such qualification or tax exempt
status. CTI Group has provided Centillion with the most recent determination
letter of the Internal Revenue Service relating to each such Employee Plan. Each
Employee Plan has been maintained in compliance in all material respects with
its terms and with the requirements prescribed by any and all applicable
statutes, orders, rules and regulations, including but not limited to the
Employee Retirement Income Security Act of 1974, as amended ("ERISA"), and the
Code.
(d) No Employee Plan is a multi-employer plan as defined in Section
3(37) of ERISA or is a plan subject to Title IV of ERISA.
(e) Neither CTI Group nor any Subsidiaries has any current or projected
liability in respect of post-employment or post-retirement health or medical or
life insurance benefits for retired, former or current employees of CTI Group,
except as required to avoid excise tax under Section 4980B of the Code.
(f) Except as set forth in Section 3.17 of CTI Group's Disclosure
Schedule, there has been no amendment to, written interpretation of or
announcement (whether or not written) by CTI Group or any Subsidiary relating
to, or change in employee participation or coverage under, any Employee Plan
that would increase materially the expense of maintaining such Employee
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Plan above the level of the expense incurred in respect thereof for the most
recent fiscal year ended prior to the date hereof.
(g) Other than as described in Section 3.17 of CTI Group's Disclosure
Schedule, no employee or former employee of CTI Group or any Subsidiary will
become entitled to any bonus, retirement, severance, job security or similar
benefit or an enhancement of such benefit (including acceleration of vesting or
exercise of an incentive award) under any Employee Plan as a result of the
transactions contemplated hereby.
3.18 Taxes. Each of CTI Group and its Subsidiaries has filed all material Tax
returns and reports required to be filed by it and has paid, or established
adequate reserves for, all Taxes required to be paid by it. No deficiencies for
any Taxes have been proposed, asserted or assessed against CTI Group, and no
requests for waivers of the time to assess any such Taxes are pending. As used
in this Agreement, "Taxes" shall include all federal, state, local and foreign
income, property, sales, excise and other taxes, tariffs or governmental charges
of any nature whatsoever.
3.19 Environmental Matters. Except as set forth in Section 3.19 of the CTI Group
Disclosure Schedule or as would not reasonably be expected to have, individually
or in the aggregate, a Material Adverse Effect, (i) to CTI Group's knowledge no
real property or any part thereof currently or formerly owned or operated by CTI
Group or any current or former Subsidiary is contaminated with any Hazardous
Substance (as defined herein) to an extent or in a manner or condition which may
reasonably be expected to require investigation or remediation under any
Environmental Law (as defined herein), (ii) no judicial or administrative
action, suit or other proceeding is pending or to the knowledge of CTI Group or
its Subsidiaries, threatened relating to or arising out of any Environmental
Law, including, but not limited to, claims with respect to off-site disposal,
off-site contamination, personal injury, property damage or natural resources
damages, (iii) CTI Group and its Subsidiaries have not received in writing any
claims, orders, citations, demands, requests for information or other notices
alleging or concerning liability or assessing a penalty under any Environmental
Law; and neither CTI Group nor any Subsidiary nor any of their operations is or
has been in violation of or has any liability under an applicable Environmental
Law and no condition or event has occurred with respect to CTI Group or any
Subsidiary that would constitute a violation of or create liability under such
Environmental Law, whether accrued, contingent, absolute, determined,
determinable or otherwise, except for any condition(s) or violation(s) that
would not reasonably be expected to have, individually or in the aggregate, a
Material Adverse Effect, and (iv) no expenditures by CTI Group or its
Subsidiaries to maintain or achieve compliance with applicable Environmental
Laws during the three (3) year period following the date hereof are anticipated
except where such expenditures, individually or in the aggregate would not
reasonably be expected to have a Material Adverse Effect. "Environmental Law"
means any applicable federal, state or local law, including common law,
regulation, permit, license, certificate or other authorization, agreement,
standard, directive, order, decree, judicial opinion or any other enforceable
governmental authority requirement relating to noise, odor, Hazardous
Substances, public and worker health and safety or the protection of the
environment. "Hazardous Substance" means
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any toxic, hazardous or dangerous material, substance, chemical, waste,
pollutant or contaminant, including, but not limited to petroleum and petroleum
containing products, asbestos containing materials, PCBs and radioactive
substances that is regulated by or under authority of any Environmental Law.
3.20 Patents and Other Proprietary Rights.
(a) CTI Group and its Subsidiaries have not granted or promised to
grant any exclusive licenses, or any material non-exclusive licenses other than
those that have been previously granted or as may be granted in the normal
course of business or granted as a result of any patent litigation, or covenants
not to sue thereunder to any third party in respect of any Intellectual Property
(as defined below) used in or necessary for the conduct of its business as
currently conducted or as proposed to be conducted as reflected in CTI Group's
existing business plans. The patents owned by CTI Group and its Subsidiaries are
valid and enforceable to the best of CTI Group's and its Subsidiaries knowledge
and any patent issuing from patent applications of CTI Group and its
Subsidiaries will be valid and enforceable to the best of CTI Group's and its
Subsidiaries knowledge for the duration of its term other than any such lack of
validity or enforceability which, individually or in the aggregate, would not
reasonably be expected to have a Material Adverse Effect.
(b) Except as would not have a Material Adverse Effect:
(i) To the best of CTI Group's and its Subsidiaries knowledge,
CTI Group and each of its Subsidiaries owns, or is licensed to use or to CTI
Group's knowledge otherwise possesses the legal right to use (in each case, free
and clear of any Liens (other than Liens arising out of payment obligations in
respect of such Intellectual Property) in respect of CTI Group's or any of its
Subsidiaries' interests therein) all Intellectual Property used in or necessary
for the conduct of its business as currently conducted;
(ii) to the best of CTI Group's and its Subsidiaries
knowledge, the use of any Intellectual Property by CTI Group and its
Subsidiaries does not infringe on or otherwise violate the rights of any Person;
(iii) to the best of CTI Group's and its Subsidiaries
knowledge, no product (or component thereof or process) used, sold or
manufactured by CTI Group or any of its Subsidiaries infringes or otherwise
violates the Intellectual Property of any other Person; and
(iv) to the best of CTI Group's and its Subsidiaries current
knowledge, CTI Group or its Subsidiaries does not have any present knowledge of
any Person that is challenging, infringing on or otherwise violating any right
of CTI Group or any of its Subsidiaries with respect to any Intellectual
Property owned by and/or licensed to CTI Group and its Subsidiaries. CTI Group
and its Subsidiaries continue to diligently inform themselves of any actions by
any other Person.
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For purposes of this Agreement "Intellectual Property" shall mean trademarks,
service marks, brand names, certification marks, trade dress, assumed names,
trade names and other indications of origin, the goodwill associated with the
foregoing and registrations in any jurisdiction of, and applications in any
jurisdiction to register the foregoing, including any extension, modification or
renewal of any such registration or application; inventions, discoveries and
ideas, whether patentable or not in any jurisdiction; manufacturing know-how;
patents, applications for patents (including, without limitation, divisions,
continuations, continuations in part, reissuances, reexaminations, extensions
and renewal applications), and any renewals, extensions of reissues thereof, in
any jurisdiction; nonpublic information, trade secrets and confidential
information and rights in any jurisdiction to limit the use or disclosure
thereof by any person; writings and other works, whether copyrightable or not in
any jurisdiction; registration or applications for registration of copyrights in
any jurisdiction, and any renewals or extensions thereof; or any similar
intellectual property or proprietary rights.
(c) Except as set forth in Section 3.20 of CTI Group's Disclosure
Schedule, none of the processes, techniques and formulae, research and
development results and other know-how relating to the business of CTI Group and
its Subsidiaries, the value of which to CTI Group is contingent upon maintenance
of the confidentiality thereof has been disclosed by CTI Group or any affiliate
thereof to any Person other than Persons who are bound to hold such information
in confidence pursuant to confidentiality agreements or by operation of law,
other than any such disclosure which, individually or in the aggregate, would
not reasonably be expected to have a Material Adverse Effect.
(d) Section 3.20 of CTI Group's Disclosure Schedule sets forth all CTI
Group Intellectual Property used in or necessary for the conduct of its business
as currently conducted.
3.21 Year 2000. CTI Group and its Subsidiaries have put into effect practices
and programs which CTI Group believes will enable all material software,
hardware and equipment (including microprocessors) that are owned or utilized by
CTI Group or any of its Subsidiaries in the operations of its or their
respective business to be capable, by December 31, 1999, of accounting for all
calculations using a century and date sensitive algorithm for the year 2000 and
the fact that the year 2000 is a leap year and to otherwise continue to function
without any interruption caused by the occurrence of the year 2000, except for
those failures that would not reasonably be expected to have a Material Adverse
Effect.
3.22 Brokers. Except for Pasco Business Trust, neither CTI Group or any of its
Subsidiaries, or any of their respective officers, directors or employees has
employed any investment banker, broker, finder or other intermediary or incurred
any liability for any brokerage fees, commissions or finder's fees in connection
with the transactions contemplated by this Agreement for which Centillion or any
Subsidiary is or might be liable. The compensation payable to Pasco Business
Trust shall not exceed $283,125.14.
3.23 Intentionally left blank
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3.24 No Other Representations. Except as specifically set forth in this Article
III, CTI Group has not made, and the Centillion has not relied upon, any other
representations or warranties, whether express or implied.
3.25 Certain Interests. Except as set forth in Section 3.25 of the CTI Group
Disclosure Schedule, neither CTI Group nor any Subsidiary, nor any of their
respective officers, directors or affiliates, has (a) any direct or indirect
interest (other than the ownership of less than 1% of the outstanding securities
of a publicly held company) in any corporation or business that is involved in
or competes with CTI Group, or (b) any direct or indirect interest in any
property or assets used by, or relating to, CTI Group or its business, except
for the ownership of CTI Group's capital stock.
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ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF CENTILLION
Centillion represents and warrants to CTI Group that except as set
forth in the Disclosure Schedule delivered to CTI Group prior to the execution
of this Agreement (the "Centillion Disclosure Schedule"):
4.1 Corporate Existence and Power. Centillion is a corporation duly
incorporated, validly existing and in good standing under the laws of the State
of Indiana, and has all corporate powers and authority and all governmental
licenses, authorizations, permits, consents and approvals required to own,
operate or lease the properties that it purports to own, operate or lease and to
carry on its business as now conducted, except for those licenses,
authorizations, permits, consents and approvals the absence of which would not
have, individually or in the aggregate, a Material Adverse Effect. Centillion is
duly qualified to do business as a foreign corporation and is in good standing
in each jurisdiction where the character of the property owned or leased by it
or the nature of its activities makes such qualification necessary, except for
those jurisdictions where the failure to be so qualified would not have a
Material Adverse Effect. Centillion has heretofore delivered to CTI Group
complete and correct copies of Centillion's and each Subsidiary's articles of
incorporation and bylaws or equivalent organizational documents as currently in
effect. Such articles of incorporation, bylaws and equivalent organizational
documents are in full force and effect. A true and complete list of all of
Centillion's Subsidiaries, together with the jurisdiction of incorporation of
each Subsidiary is set forth in Section 4.1 of the Centillion Disclosure
Schedule.
4.2 Corporate Authorization. The execution, delivery and performance by
Centillion of this Agreement and the consummation by Centillion of the
transactions contemplated hereby are within Centillion's corporate powers and
except for any required approvals by Centillion's stockholders in connection
with the consummation of the Merger, have been duly authorized by all necessary
corporate action. The affirmative vote of the holders of a majority of the
outstanding shares (if required by law) is the only vote of the holders of any
of Centillion's capital stock necessary in connection with the consummation of
the Merger (the "Centillion Required Vote"). This Agreement has been duly and
validly authorized (assuming receipt of the Centillion Required Vote), executed
and delivered by Centillion and, assuming the due and valid authorization,
execution and delivery of this Agreement by CTI Group and receipt of all
required approvals by CTI Group's stockholders in connection with the
consummation of the Merger, constitutes a valid and binding agreement of
Centillion, enforceable against it in accordance with its terms, except as may
be limited by bankruptcy, insolvency, reorganization, moratorium, fraudulent
transfer and other similar laws affecting creditors' rights generally and by
equitable principles of general applicability. Certain shareholders of
Centillion have executed agreements pursuant to which they have agreed to vote
their shares or shares within their control in favor of approving this Merger.
Such agreements accurately set forth the number of shares held by each
shareholder.
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4.3 Governmental Authorization. The execution, delivery and performance by
Centillion of this Agreement and the consummation by Centillion of the Merger
and the other transactions contemplated hereby require no consent, waiver,
approval, authorization or permit by or from, or action by or in respect of, or
filing with, any Governmental Entity, other than (i) the filing of a certificate
of merger and articles of merger in accordance with the DGCL and the IBCL,
respectively, (ii) compliance with any applicable requirements of state takeover
laws, and (iii) any action, filing, consent, waiver, approval, authorization or
permit that would not in the aggregate prevent or delay consummation of the
Merger in any material respect, or otherwise prevent Centillion from performing
its obligations under this Agreement in any material respect or would not in the
aggregate have a Material Adverse Effect.
4.4 Non-contravention. Assuming compliance with matters in Section 4.2 and 4.3,
the execution, delivery and performance by Centillion of this Agreement and the
consummation by Centillion of the transactions contemplated hereby do not and
will not (i) assuming receipt of the approval of stockholders referred to in
Section 4.2, contravene or conflict with the certificate of incorporation or
bylaws of Centillion, (ii) contravene or conflict with or constitute a violation
of any provision of any law, regulation, judgment, injunction, order or decree
binding upon or applicable to Centillion or any Subsidiary, (iii) result in a
breach or violation of or constitute a default under (or an event which with the
giving of notice or the lapse of time or both would constitute a default under)
or give rise to a right of termination, amendment, cancellation or acceleration
of any right or obligation of Centillion or any Subsidiary or to a loss of any
benefit to which Centillion or any Subsidiary is entitled or require any
consent, approval or authorization under any provision of any material
agreement, contract or other instrument binding upon Centillion or any
Subsidiary or any of their respective assets (including any material license,
franchise, permit or other similar authorization held by Centillion or any
Subsidiary) or (iv) result in the creation or imposition of any Lien on any
asset of Centillion or any Subsidiary, except for such contraventions, conflicts
or violations referred to in clause (ii) and breaches, violations, defaults,
rights of termination, cancellation or acceleration, losses, Liens or other
occurrences referred to in clauses (iii) and (iv) that individually or in the
aggregate would not reasonably be expected to result in a Material Adverse
Effect.
4.5 Capitalization. The authorized capital stock of Centillion consists of
10,000,000 shares of Common Stock of which 3,696,632 are outstanding on a
diluted basis or 3,787,587 are outstanding on an undiluted basis. By the
Effective Time Centillion shall deliver a list of all outstanding shares and
shareholders of such stock. As of the Effective Time there will be no options or
warrants outstanding.
4.6 Subsidiaries.
(a) Each Subsidiary is an entity duly organized, validly existing and
in good standing under the laws of its jurisdiction of organization, has all
corporate or partnership powers and authority and all governmental licenses,
authorizations, permits, consents and approvals required
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to own, operate or lease the properties that it purports to own, operate or
lease and to carry on its business as now conducted, except for those licenses,
authorizations, permits, consents and approvals, the absence of which would not
have individually or in the aggregate a Material Adverse Effect. Each Subsidiary
is duly qualified to do business as a foreign corporation and is in good
standing in each jurisdiction where the character of the property owned or
leased by it or the nature of its activities makes such qualification necessary,
except for such qualifications the failure of which to obtain would not,
individually or in the aggregate, have a Material Adverse Effect. All
Subsidiaries and their respective jurisdictions of organization are identified
in Section 4.6(a) of the Centillion Disclosure Schedule.
(b) Except as set forth in Section 4.6 of the Centillion Disclosure
Schedule, all of the outstanding capital stock of, or other ownership interests
in, each Subsidiary of Centillion, is owned by Centillion, directly or
indirectly, free and clear of any Lien and free of any other limitation or
restriction (including any restriction on the right to vote, sell or otherwise
dispose of such capital stock or other ownership interests). There are no
outstanding Subsidiary Securities. There are no outstanding obligations of
Centillion or any Subsidiary to repurchase, redeem or otherwise acquire any
outstanding Subsidiary Securities.
4.7 SEC Filing Information; Financial Statements.
(a) None of the information (i) supplied or to be supplied by
Centillion in writing specifically for inclusion in the Proxy Statement or (ii)
provided to CTI Group in connection with or in contemplation of the transactions
set forth in this Agreement will, at the respective times filed with the SEC or
at the Effective Time, respectively, 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 made therein, in light of the circumstances
under which they were made, not misleading.
(b) Except as set forth in Section 4.7 of the Centillion Disclosure
Schedule, the audited consolidated financial statements of Centillion dated
December 31, 1998 and unaudited consolidated interim financial statements of
Centillion dated October 31, 1999 (the "Centillion Financial Statements") fairly
present, in conformity with GAAP applied on a consistent basis (except as may be
indicated in the notes thereto or in the case of unaudited interim financial
statements), the consolidated financial position of Centillion and its
consolidated Subsidiaries as of the dates thereof and its consolidated
statements of operations, stockholders' equity and cash flows for the periods
then ended (subject to normal year-end adjustments in the case of any unaudited
interim financial statements). Notwithstanding any provision contained herein,
no representation is made in this Agreement with respect to any financial
statement that has been restated or amended.
4.8 No Undisclosed Material Liabilities. Except as is disclosed in the
Centillion Financial Statements, or to the extent the existence of such
liability would not have a Material Adverse Effect, neither Centillion nor any
of its Subsidiaries has any liabilities of the type that are
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required to be disclosed in financial statements, including the notes thereto,
prepared in accordance with GAAP which are, either individually or in the
aggregate, material to the business, operations or financial condition of
Centillion and its Subsidiaries taken as a whole, except liabilities, adequately
provided for or referred to in Centillion's balance sheet and the related notes
thereto as of October 31, 1999.
4.9 Absence of Certain Changes. Since October 31, 1999, the business of
Centillion and its Subsidiaries has been conducted in the ordinary course
consistent with past practices and, except as disclosed in the Centillion
Disclosure Schedule, there has not been:
(a) any change, event or development having, or that could be
reasonably expected to have, individually or in the aggregate, a Material
Adverse Effect on Centillion;
(b) any amendments or changes in the Certificate of Incorporation or
bylaws of Centillion;
(c) any material damage to, destruction or loss of any assets of
Centillion (whether or not covered by insurance);
(d) any change by Centillion in its accounting methods, principles or
practices;
(e) any revaluation by Centillion of any of its assets, including,
without limitation, writing down the value of inventory or writing off notes or
accounts receivable other than in the ordinary course of business;
(f) any sale of a material amount of assets of Centillion, except for
the sale of inventory in the ordinary course of business and the transactions
contemplated by Section 6.2(c) of this Agreement;
(g) any declaration, setting aside or payment of any dividend or
distribution in respect of any capital stock of Centillion or any redemption,
purchase or other acquisition of any of its securities;
(h) any entry by Centillion into any commitment or transaction material
to Centillion, including, without limitation, any long-term supply agreements or
partnership, joint venture or other similar arrangements;
(i) any increase in or establishment of any bonus, insurance,
severance, deferred compensation, pension, profit sharing, stock option
(including without limitation, the granting of stock options, stock appreciation
rights, performance awards, or restricted stock awards), stock purchase or other
employee benefit plan, or any increase in the compensation payable to any
officers or key employees of Centillion except in the ordinary course of
business consistent with past practice;
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(j) any issuance, delivery, or sale of, or authorization of the
issuance, delivery or sale of, any share of capital stock or any options or
rights with respect thereto, other than the issuance of common stock pursuant to
Plans outstanding on the date of this Agreement, or modification or amendment of
any right of any holder of outstanding shares of capital stock or options with
respect thereto except that Lars Danielsson has agreed to sell his outstanding
shares and options back to Centillion and certain other transactions may take
place between present shareholders, which transactions shall be completed prior
to Effective Time; or
(k) any incurring of (which shall be deemed to include entering into
credit agreements, lines of credit or similar arrangements until borrowings are
made under such arrangements) any indebtedness for borrowed money or guarantee
of any such indebtedness other than in the ordinary course of business
consistent with past practice.
4.10 Litigation. Except as set forth in the Centillion Disclosure Schedule as of
the date hereof, there is no action, suit, investigation or proceeding pending
or, to the knowledge of the Centillion, threatened, against Centillion or any of
its Subsidiaries or any of their respective properties before any court,
arbitrator or other Governmental Entity which would reasonably be expected to
have, individually or in the aggregate, a Material Adverse Effect.
4.11 Compliance with Laws. Centillion and its Subsidiaries are in substantial
compliance with all laws, regulations and orders of any Governmental Entity
applicable to it or such Subsidiaries, except for such failures to comply which
would not have a Material Adverse Effect.
4.12 Permits. Centillion and its Subsidiaries hold all material licenses,
permits and other authorizations issued by Governmental Entities for the
operation of their respective businesses, except those licenses, permits and
authorizations the absence of which would not have a Material Adverse Effect.
4.13 Insurance. Schedule 4.13 is an accurate and complete list and description
of all Insurance Policies currently owned or maintained by Centillion and its
Subsidiaries (excluding Insurance Policies that constitute Employee Benefit
Plans) in connection with or for the benefit of its business and all liability
and errors and omissions Insurance Policies owned or maintained by it or any of
its predecessors at any time during the five (5) years prior to the date of this
Agreement. Except as described in Schedule 4.13, all such Insurance Policies are
or were on an "occurrence" rather than a "claims made" basis. Centillion has not
received notice of cancellation with respect to any such current Insurance
Policy, and there is no basis for the insurer thereunder to terminate any such
current Insurance Policy. Each such Insurance Policy is or was in full force and
effect during the period(s) of coverage indicated on Schedule 4.13. Except as
described on Schedule 4.13, there are no claims that are pending under any of
the Insurance Policies described on Schedule 4.13.
4.14 Contracts.
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(a) Schedule 4.14 is an accurate and complete list of all of the
following types of Contracts to which Centillion is a party or by which
Centillion is bound, excluding, however, any Contracts that Centillion will not
be a party to as of the Effective Time as a result of the Reorganization
(collectively, the "Specified Contracts"), grouped into the following categories
and, where applicable, subdivided by product line: (a) each customer Contract
that is in excess of $25,000 and to the extent that the total number of such
Contracts is less than 20, then the 20 largest Contracts; (b) each supplier
Contract, each Contract for the purchase, lease or maintenance of computer
equipment and other equipment and each Contract for the purchase, license, lease
or maintenance of software under which Centillion is the purchaser, licensee,
lessee or user that is in excess of $25,000 and to the extent that the total
number of such Contracts over $25,000 is less than 20, then the 20 largest
Contracts; (c) Contracts for the purchase or lease of Real Property or otherwise
concerning Real Property owned or used by Centillion including a description of
the Real Property; (d) loan agreements, mortgages, notes, guarantees and other
financing Contracts; (e) employment, consulting and sales representative
Contracts other than those for "at will" employment; (f) Contracts under which
any rights in or ownership of Centillion's business, any predecessor thereof, or
any part of the customer base or business of Centillion's business was acquired;
and (g) other Contracts (excluding Contracts which constitute Insurance Policies
listed on Schedule 4.13, excluding this Agreement and all other Contracts
entered into between Centillion and CTI Group, or among Centillion, CTI Group
and other parties in connection herewith). A description of each oral Specified
Contract is included on Schedule 4.14, and copies of each written Specified
Contract have been delivered to CTI Group. Except as described in Schedule 4.14,
with respect to each of the Specified Contracts, neither Centillion nor any of
its Subsidiaries nor, to the knowledge of Centillion, any other party thereto,
is in breach, default or violation of any term, condition or provision of any
Specified Contract, except for any breaches, defaults or violations that would
not reasonably be expected to have, individually or in the aggregate, a Material
Adverse Effect. Except as described in Schedule 4.14, neither Centillion nor any
of its Subsidiaries has given or received any notice of default or notice of
termination with respect to any Specified Contract where such default would
result in a Material Adverse Effect.
(b) Each Specified Contract is a valid, binding and enforceable
obligation of Centillion or its Subsidiary, as the case may be, and, to the
knowledge of Centillion, of each party thereto, and is in full force and effect,
except where the failure to be valid, binding and enforceable and in full force
and effect would not reasonably be expected to have, individually or in the
aggregate, a Material Adverse Effect. None of Centillion nor any of its
Subsidiaries nor, to the knowledge of Centillion, any party thereto, is in
breach, default or violation of any term, condition or provision of any
Specified Contract, except for any breaches, defaults or violations that would
not reasonably be expected to have, individually or in the aggregate, a Material
Adverse Effect.
4.15 Properties.
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(a) Except as set forth in Section 4.15 of the Centillion Disclosure
Schedule, Centillion and its Subsidiaries have good and marketable title, or
valid leasehold rights in the case of leased property, to all real property and
all personal property (excluding, however, any real or personal property which
will not be owned by Centillion as of the Effective Time as a result of the
Reorganization) purported to be owned or leased by them, free and clear of all
liens, security interests, claims, encumbrances and charges, excluding (i)
immaterial liens for fees, taxes, levies, imposts, duties or governmental
charges of any kind which are not yet delinquent or are being contested in good
faith by appropriate proceedings which suspend the collection thereof, (ii)
immaterial liens for mechanics, materialmen, laborers, employees, suppliers or
other liens arising by operation of law for sums which are not yet delinquent or
are being contested in good faith by appropriate proceedings, (iii) purchase
money liens on office, computer and related equipment and supplies incurred in
the ordinary course of business, and (iv) liens or defects in title on leasehold
rights. All buildings, and all fixtures, equipment and other property and assets
held under leases or sub-leases by Centillion or any of its Subsidiaries are
held under valid instruments enforceable in accordance with their respective
terms. The tangible personal property of Centillion has no material defects and
is in good operating condition and repair (ordinary wear and tear excepted) and
is adequate for its current uses. None of such tangible personal property is in
need of maintenance or repairs except for ordinary routine maintenance and
repairs that are not material in nature or cost.
(b) Except as set forth in Section 4.15 of the Centillion Disclosure
Schedule, consummation of the Merger will not result in any breach of or
constitute a default (or an event with which notice or lapse of time or both
would constitute a default) under, or give to others any rights of termination
or cancellation or, or require the consent of others under, any lease in which
Centillion or any of its subsidiaries is a lessee.
4.16 Employees and Independent Contractors. Schedule 4.16 is a list of all of
Centillion's employees (excluding, however, employees no longer employed as of
the Effective Time as a result of the Reorganization) and (a) their titles or
responsibilities; (b) their current salaries or wages; (c) their last
compensation changes and the dates on which such changes were made; (d) any
specific bonus, commission or incentive plans or agreements for or with them;
and (e) any outstanding loans or advances made to them. Centillion has delivered
to CTI Group an accurate and complete list of all bonuses, commissions and
incentives paid to the employees listed on Schedule 4.16 at any time during the
past twelve months. Schedule 4.16 includes a list of all sales representatives
and independent contractors engaged in Centillion's business, their payment
arrangements, and a brief description of their jobs or projects currently in
progress. Centillion is in full compliance with all Laws respecting employment
practices. Centillion has never been a party to or bound by any union or
collective bargaining Contract, nor is any such Contract currently in effect or
being negotiated by or on behalf of Centillion. Centillion has not experienced
any labor problem that was or is material to its business. Centillion's
relations with its employees are currently on a good and normal basis, and no
employee of Centillion has indicated an intention to terminate his or her
employment. Centillion does not have any
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knowledge or belief that the transactions contemplated by this Agreement will
adversely affect relations with Centillion's employees.
4.17 Employee Benefit Plans.
(a) Section 4.17 of the Centillion Disclosure Schedule identifies each
Employee Plan (whether or not written) that (i) has been entered into,
maintained, administered or contributed to, as the case may be, by Centillion or
any Subsidiary and (ii) covers any employee or former employee.
(b) Centillion has furnished or made available to CTI Group copies of
the Employee Plans (and, if applicable, related trust agreements) and all
amendments thereto and written interpretations thereof, together with the most
recent annual report (Form 5500 including, if applicable, Schedule B thereto)
and the most recent actuarial valuation report prepared in connection with any
Employee Plan.
(c) Each Employee Plan that is intended to be qualified under Section
401(a) of the Code has been determined by the Internal Revenue Service to be
qualified under Section 401(a) of the Code and each trust related thereto has
been determined to be exempt from tax pursuant to Section 501(a) of the Code,
and Centillion is not aware of any event that has occurred since the date of
such determinations that would adversely affect such qualification or tax exempt
status. Centillion has provided CTI Group with the most recent determination
letter of the Internal Revenue Service relating to each such Employee Plan. Each
Employee Plan has been maintained in compliance in all material respects with
its terms and with the requirements prescribed by any and all applicable
statutes, orders, rules and regulations, including but not limited to ERISA, and
the Code.
(d) No Employee Plan is a multi-employer plan as defined in Section
3(37) of ERISA or is a plan subject to Title IV of ERISA.
(e) Neither Centillion nor any Subsidiaries has any current or
projected liability in respect of post-employment or post-retirement health or
medical or life insurance benefits for retired, former or current employees of
Centillion, except as required to avoid excise tax under Section 4980B of the
Code.
(f) Except as set forth in Centillion's Disclosure Schedule, there has
been no amendment to, written interpretation of or announcement (whether or not
written) by Centillion or any Subsidiary relating to, or change in employee
participation or coverage under, any Employee Plan that would increase
materially the expense of maintaining such Employee Plan above the level of the
expense incurred in respect thereof for the most recent fiscal year ended prior
to the date hereof.
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(g) Other than as described in Section 4.17 of Centillion's Disclosure
Schedule, no employee or former employee of Centillion or any Subsidiary will
become entitled to any bonus, retirement, severance, job security or similar
benefit or an enhancement of such benefit (including acceleration of vesting or
exercise of an incentive award) under any Employee Plan as a result of the
transactions contemplated hereby.
4.18 Taxes. Each of Centillion and its Subsidiaries has filed all material Tax
returns and reports required to be filed by it and has paid, or established
adequate reserves for, all Taxes required to be paid by it. No deficiencies for
any Taxes have been proposed, asserted or assessed against Centillion, and no
requests for waivers of the time to assess any such Taxes are pending.
4.19 Environmental Matters. Except as set forth in Section 4.19 of the
Centillion Disclosure Schedule or as would not reasonably be expected to have,
individually or in the aggregate, a Material Adverse Effect, (i) no real
property or any part thereof currently or formerly owned or operated by
Centillion or any current or former Subsidiary is contaminated with any
Hazardous Substance to an extent or in a manner or condition which may
reasonably be expected to require investigation or remediation under any
Environmental Law, (ii) no judicial or administrative action, suit or other
proceeding is pending or to the knowledge of Centillion or its Subsidiaries,
threatened relating to or arising out of any Environmental Law, including, but
not limited to, claims with respect to off-site disposal, off-site
contamination, personal injury, property damage or natural resources damages,
(iii) Centillion and its Subsidiaries have not received in writing any claims,
orders, citations, demands, requests for information or other notices alleging
or concerning liability or assessing a penalty under any Environmental Law.
Neither Centillion nor any Subsidiary nor any of their operations is or has been
in violation of or has any liability under an applicable Environmental Law and
no condition or event has occurred with respect to Centillion or any Subsidiary
that would constitute a violation of or create liability under such
Environmental Law, whether accrued, contingent, absolute, determined,
determinable or otherwise, and (iv) no expenditures by Centillion or its
Subsidiaries to maintain or achieve compliance with applicable Environmental
Laws during the three (3) year period following the date hereof are anticipated
except where such expenditures, individually or in the aggregate would not
reasonably be expected to have a Material Adverse Effect.
4.20 Patents and Other Proprietary Rights.
(a) Centillion and its Subsidiaries have not granted or promised to
grant any exclusive licenses, or any material non-exclusive licenses other than
those that have been previously granted or as may be granted in the normal
course of business or granted as a result of any patent litigation, or covenants
not to sue thereunder to any third party in respect of any Intellectual Property
used in or necessary for the conduct of its Billing Business as currently
conducted or as proposed to be conducted as reflected in Centillion's existing
business plans. The patents owned by Centillion and its Subsidiaries are valid
and enforceable to the best of Centillion's and its Subsidiaries knowledge and
any patent issuing from patent applications of Centillion and its Subsidiaries
will be valid and enforceable to the best of Centillion's and its Subsidiaries
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knowledge for the duration of its term other than any such lack of validity or
enforceability which, individually or in the aggregate, would not reasonably
be expected to have a Material Adverse Effect.
(b) Except as would not have a Material Adverse Effect:
(i) To the best of Centillion's and its Subsidiaries
knowledge, Centillion and each of its Subsidiaries owns, or is licensed to use
or otherwise possesses the legal right to use (in each case, free and clear of
any Liens (other than Liens arising out of payment obligations in respect of
such Intellectual Property) in respect of Centillion's or any of its
Subsidiaries' interests therein) all Intellectual Property used in or necessary
for the conduct of its Billing Business as currently conducted;
(ii) to the best of Centillion's and its Subsidiaries
knowledge, the use of any Intellectual Property by Centillion and its
Subsidiaries in the Billing Business does not infringe on or otherwise violate
the rights of any Person;
(iii) to the best of Centillion's and its Subsidiaries
knowledge, no product (or component thereof or process) used, sold or
manufactured by Centillion or any of its Subsidiaries infringes or otherwise
violates the Intellectual Property of any other Person; and
(iv) to the best of Centillion's and its Subsidiaries current
knowledge, other than those defendants or parties identified in Section 4.20 of
Centillion's Disclosure Schedule, Centillion or its Subsidiaries does not have
any present knowledge of any Person that is challenging, infringing on or
otherwise violating any right of Centillion or any of its Subsidiaries with
respect to any Intellectual Property owned by and/or licensed to Centillion and
its Subsidiaries. Centillion and its Subsidiaries continue to diligently inform
themselves of any actions by any other Person.
(c) Except as set forth in the Centillion Disclosure Schedule, none of
the processes, techniques and formulae, research and development results and
other know-how relating to the business of Centillion and its Subsidiaries, the
value of which to Centillion is contingent upon maintenance of the
confidentiality thereof has been disclosed by Centillion or any affiliate
thereof to any Person other than Persons who are bound to hold such information
in confidence pursuant to confidentiality agreements or by operation of law,
other than any such disclosure which, individually or in the aggregate, would
not reasonably be expected to have a Material Adverse Effect.
(d) Section 4.20 of Centillion's Disclosure Schedule sets forth all
Centillion Intellectual Property used in or necessary for the conduct of its
Billing Business as currently conducted.
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4.21 Year 2000. Centillion and its Subsidiaries have put into effect practices
and programs which Centillion believes will enable all material software,
hardware and equipment (including microprocessors) that are owned or utilized by
Centillion or any of its Subsidiaries in the operations of its or their
respective business to be capable, by December 31, 1999, of accounting for all
calculations using a century and date sensitive algorithm for the year 2000 and
the fact that the year 2000 is a leap year and to otherwise continue to function
without any interruption caused by the occurrence of the year 2000, except for
those failures that would not reasonably be expected to have a Material Adverse
Effect.
4.22 Brokers. Neither Centillion, nor any of its Subsidiaries nor any of their
respective, officers, directors or employees, has employed any investment
banker, broker, finder or other intermediary or incurred any liability for any
brokerage fees, commissions or finder's fees in connection with the transactions
contemplated by this Agreement for or with respect to which Centillion or any
Subsidiary is or might be liable.
4.23 No Other Representations. Except as specifically set forth in this Article
IV, Centillion has not made, and the CTI Group has not relied upon, any other
representations or warranties, whether express or implied.
4.24 Certain Interests. Except as set forth in Section 4.24 of the Centillion
Disclosure Schedule, neither Centillion nor any Subsidiary of Centillion, nor
any of their respective officers, directors, shareholders of affiliates, has (a)
any direct or indirect interest (other than the ownership of less than 1% of the
outstanding securities of a publicly held company) in any corporation or
business that is involved in or competes with Centillion, or (b) any direct or
indirect interest in any property or assets used by, or relating to, Centillion
or its business, except for the ownership of Centillion's capital stock.
4.25 Reorganization. The parties acknowledge that Centillion and certain of its
Subsidiaries will execute a reorganization (the "Reorganization") prior to the
Effective Time pursuant to which certain businesses and Subsidiaries will be
divested by Centillion. After the Reorganization, Centillion will continue to
own all assets necessary, appropriate, used or useful in the ownership and
continued operation (in the same manner as operated prior to the Reorganization)
of its Billing Business (the "Billing Business"), including, without limitation,
(a) the items of tangible personal property set forth in Section 4.25 of the
Centillion Disclosure Schedule, (b) Centillion's Specified Contracts, (c)
Centillion's Intellectual Property applicable to the Billing Business, (d) the
Accounts Receivable, and (e) all other rights, interests and property applicable
to the Billing Business. At the Effective Time, Centillion's business will be
limited to the Billing Business. The Reorganization will not result in or create
any rights of, or any liabilities, obligations or claims by any third parties
against the Surviving Corporation and will not result in a breach or violation
of, or default under, any contract or other agreements to which Centillion or
any of its Subsidiaries is a party.
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ARTICLE V
COVENANTS OF CENTILLION AND CTI GROUP
Each of the parties hereto agrees that from the date hereof and, unless
otherwise provided herein, until the Effective Time:
5.1 Reasonable Best Efforts.
(a) Subject to the terms and conditions herein provided, each of the
parties hereto agrees to use its reasonable best efforts to take, or cause to be
taken, all action, and to do, or cause to be done consistent with the fiduciary
duties of their respective Boards of Directors, and to assist and cooperate with
the other parties hereto in doing, as promptly as practicable, all things
necessary or advisable under applicable laws and regulations to ensure that the
conditions set forth in Article VI are satisfied and to consummate and make
effective the transactions contemplated by this Agreement.
(b) If at any time after the Effective Time any further action is
necessary or desirable to carry out the purposes of this Agreement, including
the execution of additional instruments, the proper officers and directors of
each party to this Agreement shall take all such necessary action.
5.2 Consents. Each of the parties will use its reasonable best efforts to obtain
as promptly as practicable all consents, waivers, approvals, authorizations or
permits of any Governmental Entity or any other Person required in connection
with, and waivers of any Violations that may be caused by, the consummation of
the transactions contemplated by this Agreement.
5.3 Public Announcements. Centillion and CTI Group shall use all reasonable best
efforts to develop a joint communications plan and each party shall use all
reasonable best efforts (i) to ensure that all press releases and other public
statements with respect to the transactions contemplated hereby shall be
consistent with such joint communications plan, and (ii) unless otherwise
required by applicable law or by obligations pursuant to any listing agreement
with or rules of any securities exchange, to consult with each other before
issuing any press release or otherwise making any public statement with respect
to this Agreement or the transactions contemplated hereby.
5.4 Notification of Certain Matters. Centillion and CTI Group shall promptly
notify each other of (i) the occurrence or non-occurrence of any fact or event
which would be reasonably likely (x) to cause any representation or warranty
contained in this Agreement to be untrue or inaccurate in any material respect
at any time from the date hereof to the Effective Time or (y) to cause any
material covenant, condition or agreement hereunder not to be complied with or
satisfied in all material respects and (ii) any failure of CTI Group or
Centillion, as the case may be, to comply with or satisfy any covenant,
condition or agreement to be complied with or satisfied by it hereunder in any
material respect; provided, however, that no such notification
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shall affect the representations or warranties of any party or the conditions to
the obligations of any party hereunder.
5.5 Access to Information. Upon reasonable notice, each of CTI Group and
Centillion shall, and shall cause its Subsidiaries to, afford to the other party
and to the officers, employees, accountants, counsel, financial advisors and
other representatives of such other party reasonable access during normal
business hours, during the period prior to the Effective Time, to all its
properties, books, contracts, commitments and records and, during such period,
each of CTI Group and Centillion shall, and shall cause its Subsidiaries to,
furnish promptly to the other party consistent with its legal obligations, all
other information concerning its business, properties and personnel as such
other party may reasonably request; provided, however, that each of CTI Group
and Centillion may restrict the foregoing access to the extent that (i) a
Governmental Entity requires either party or any of its Subsidiaries to restrict
access to any properties or information reasonably related to any such contract
on the basis of applicable laws and regulations with respect to national
security matters, (ii) in the reasonable judgment of such party, any law,
treaty, rule or regulation of any Governmental Entity applicable to such party
requires it or its Subsidiaries to restrict access to any properties or
information, or (iii) such restriction is pursuant to a confidentiality
agreement described in the respective Disclosure Schedule. The parties will hold
any such information in confidence to the extent required by, and in accordance
with, the provisions of the letter signed July 19 and 20, 1999, between
Centillion and CTI Group (the "Confidentiality Agreement"). Any investigation by
CTI Group or Centillion shall not affect the representations and warranties of
Centillion or CTI Group, as the case may be.
5.6 Preparation of the Form S-4 and the Proxy Statement/Prospectus; Stockholders
Meetings.
(a) As promptly as practicable following the date hereof, CTI Group
shall prepare and file with the SEC preliminary proxy materials and any
amendments or supplements thereto which shall constitute the proxy
statement/prospectus (such proxy statement/prospectus, and any amendments or
supplements thereto, the "Proxy Statement/Prospectus") and CTI Group shall
prepare and file with the SEC the Registration Statement on Form S-4 with
respect to the issuance of CTI Group Capital Stock in the Merger (the "Form
S-4") in which the Proxy Statement/Prospectus will be included. The Form S-4 and
the Proxy Statement/Prospectus shall comply as to form in all material respects
with the applicable provisions of the Securities Act and the Exchange Act. CTI
Group shall use all reasonable efforts to have the Form S-4 declared effective
under the Securities Act as promptly as practicable after filing with the SEC
and to keep the Form S-4 effective as long as is necessary to consummate the
Merger. The parties shall promptly provide copies to and consult with each other
and prepare written responses with respect to any written comments received from
the SEC with respect to the Form S-4 and the Proxy Statement/Prospectus and
promptly advise the other party of any oral comments received from the SEC. CTI
Group agrees that none of the information supplied or to be supplied by CTI
Group for inclusion or incorporation by reference in the Proxy
Statement/Prospectus and each
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amendment or supplement thereto, at the time of mailing thereof and at the time
of the Centillion Stockholders Meeting or the CTI Group Shareholders Meeting,
will contain an untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary to make the statements therein,
in light of the circumstances under which they were made, not misleading.
Centillion agrees that none of the information supplied or to be supplied by
Centillion for inclusion or incorporation by reference in the Proxy
Statement/Prospectus and each amendment or supplement thereto, at the time of
mailing thereof and at the time of the meetings will contain an untrue statement
of a material fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading. For purposes of the
foregoing, it is understood and agreed that information concerning or related to
CTI Group and the CTI Group Shareholders Meeting will be deemed to have been
supplied by CTI Group and information concerning or related to Centillion and
the Centillion Stockholders Meeting shall be deemed to have been supplied by
Centillion. No amendment or supplement to the information supplied by Centillion
for inclusion in the Proxy Statement/Prospectus shall be made without the
approval of Centillion, which approval shall not be unreasonably withheld or
delayed.
(b) Centillion shall, as promptly as practicable following the
execution of this Agreement, duly call, give notice of, convene and hold a
meeting of its stockholders (the "Centillion Stockholders Meeting") for the
purpose of obtaining the Required Centillion Vote with respect to the
transactions contemplated by this Agreement, shall use its reasonable best
efforts to solicit the adoption of this Agreement by the Required Centillion
Vote and the Board of Directors of Centillion shall recommend adoption of this
Agreement by the stockholders of Centillion.
(c) CTI Group shall, as promptly as practicable following the execution
of this Agreement, duly call, give notice of, convene and hold a meeting of its
shareholders (the "CTI Group Shareholders Meeting") for the purpose of obtaining
the Required CTI Group Vote with respect to the transactions contemplated by
this Agreement, shall use its reasonable best efforts to solicit the approval of
this Agreement by the Required CTI Group Vote and the Board of Directors of CTI
Group shall recommend the approval of this Agreement by the shareholders of CTI
Group.
(d) The Centillion Stockholders Meeting and the CTI Group Shareholders
Meeting shall take place on the same date, to the extent practicable.
5.7 Additional Covenants of Centillion. During the period from the date of this
Agreement and continuing until the Effective Time, Centillion agrees as to
itself and its Subsidiaries that (except as expressly contemplated, permitted or
required by this Agreement or as otherwise indicated on the Centillion
Disclosure Schedule or to the extent that CTI Group shall otherwise consent in
writing, which consent shall not be unreasonably withheld or delayed):
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(a) Ordinary Course. Except to the extent not reasonably practicable in
light of the announcement or existence of this Agreement and the transactions
contemplated hereby, Centillion shall, and shall cause its Subsidiaries taken as
a whole to, carry on its business in the usual, regular and ordinary course in
all material respects, in substantially the same manner as heretofore conducted,
and shall use all reasonable efforts to maintain its rights and franchises and
preserve its relationships with customers, suppliers and others having business
dealings with it with the objective to minimize the impairment of its ongoing
business; provided, however, that no action by Centillion or its Subsidiaries
with respect to matters specifically addressed by any other provisions of this
Agreement or the Centillion Disclosure Schedule shall be deemed a breach of this
Section 5.7(a) unless such action would constitute a breach of one or more of
such other provisions.
(b) Issuance of Securities. Centillion shall not, and shall not permit
any of its Subsidiaries to, issue, deliver or sell, or authorize or propose the
issuance, delivery or sale of, any shares of its capital stock of any class, any
Centillion Voting Debt or any securities convertible into or exercisable for, or
any rights, warrants or options to acquire, any such shares or Centillion Voting
Debt, or enter into any agreement with respect to any of the foregoing, other
than the issuance of Centillion Common Stock upon the exercise of stock options
or in connection with rights under other stock-based benefits plans, to the
extent such options or rights are outstanding on the date hereof in accordance
with their present terms.
(c) Governing Documents. Except to the extent required to comply with
its obligations hereunder or required by law, Centillion shall not amend its
articles of incorporation or by-laws.
(d) No Acquisitions. Centillion shall not, and shall not permit any of
its Subsidiaries to, acquire or agree to acquire by merging or consolidating
with, or by purchasing a substantial equity interest in or a substantial portion
of the assets of, or by any other manner, any business or any corporation,
partnership, association or other business organization or division thereof that
relates in any way to the Billing Business or otherwise acquire or agree to
acquire any assets with respect to the Billing Business; provided, however, that
the foregoing shall not prohibit either (i) acquisitions of assets used in the
operations of the business of Centillion and its Subsidiaries in the ordinary
course of business consistent with past practice, or (ii) acquisitions to be
made by the Subsidiaries to be divested, as described in Section 6.2(c)(ii)
prior to the Effective Time.
(e) No Dispositions. Other than (i) in the ordinary course of business
consistent with past practice and, in any event, which are not material,
individually or in the aggregate, to Centillion and its Subsidiaries taken as a
whole or (ii) internal reorganizations or consolidations involving existing
Subsidiaries of Centillion, or (iii) the transfer of the Tracked Assets and the
businesses described in Section 6.2(c), Centillion shall not, and shall not
permit any of its Subsidiaries to, sell, lease, encumber or otherwise dispose
of, or agree to sell, lease, encumber or otherwise dispose of (including by way
of a spin-off or similar transaction), any of its assets.
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(f) Indebtedness; Investments. Centillion shall not, and shall not
permit any of its Subsidiaries to, (i) incur any indebtedness for borrowed money
or guarantee any such indebtedness of another Person, issue or sell any debt
securities or warrants or other rights to acquire any debt securities of
Centillion or any of its Subsidiaries, guarantee any debt securities of another
Person, enter into any "keep well" or other agreement to maintain any financial
statement condition of another Person (other than any wholly owned Subsidiary)
or enter into any arrangement having the economic effect of any of the
foregoing, (ii) make any loans or advances to any other Person, or (iii)
investments in any Person other than investments in the ordinary course of
business consistent with past practice and, in any event, which are not
material, individually or in the aggregate, to Centillion.
(g) New Line of Business; Capital Expenditures. Centillion shall not,
and shall not permit any of its Subsidiaries to incur or commit to any capital
expenditures with respect to the Billing Business other than capital
expenditures incurred or committed to in the ordinary course of business and
which are not in excess of $25,000.
(h) Tax-Free Qualification. Centillion shall not, and shall not permit
any of its Subsidiaries to, take any action that would prevent or impede the
Merger from qualifying as a reorganization under Section 368 of the Code, and
tax free under Section 354 of the Code.
(i) Other Actions. Centillion shall not, and shall not permit any of
its Subsidiaries to, take any action that would, or that could reasonably be
expected to, result in (i) any of the conditions to the Merger set forth in
Article VI not being satisfied or (ii) a material delay in the satisfaction of
any such conditions.
(j) Accounting Methods. Centillion shall not make any material change
in its methods of accounting in effect at October 31, 1999, except as required
by changes in GAAP as concurred in by Centillion's independent auditors.
Centillion shall not change its fiscal year.
(k) Representations and Warranties. Centillion shall not take any
action that would cause the representations and warranties set forth in Article
III to no longer be true and correct.
(l) Authorization of the Foregoing. Centillion shall not, and shall not
permit any of its Subsidiaries to, authorize, commit or agree to take any of the
foregoing actions.
5.8 Additional Covenants of CTI Group. During the period from the date of this
Agreement and continuing until the Effective Time, CTI Group agrees as to itself
and its Subsidiaries that (except as expressly contemplated, permitted or
required by this Agreement or as otherwise indicated on the CTI Group Disclosure
Schedule or to the extent that Centillion shall otherwise consent in writing,
which consent shall not be unreasonably withheld or delayed):
(a) Ordinary Course. Except to the extent not reasonably practicable in
light of the announcement or existence of this Agreement and the transactions
contemplated hereby, CTI
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Group shall, and shall cause its Subsidiaries taken as a whole to, carry on its
business in the usual, regular and ordinary course in all material respects, in
substantially the same manner as heretofore conducted, and shall use all
reasonable efforts to maintain its rights and franchises and preserve its
relationships with customers, suppliers and others having business dealings with
it with the objective to minimize the impairment of its ongoing business;
provided, however, that no action by CTI Group or its Subsidiaries with respect
to matters specifically addressed by any other provisions of this Agreement or
the CTI Group Disclosure Schedule shall be deemed a breach of this Section
5.8(a) unless such action would constitute a breach of one or more of such other
provisions.
(b) Dividends; Changes in Share Capital. CTI Group shall not, and shall
not permit any of its Subsidiaries to, and shall not propose to, (i) declare or
pay any dividends on or make any other distributions in respect of any of its
capital stock, (ii) split, combine or reclassify any of its capital stock or
issue or authorize or propose the issuance of any other securities in respect
of, in lieu of, or in substitution for, shares of its capital stock, except for
any such transaction by a wholly owned Subsidiary of CTI Group which remains a
wholly owned Subsidiary after consummation of such transaction, or (iii)
repurchase, redeem or otherwise acquire any shares of its capital stock or any
securities convertible into or exercisable for any shares of its capital stock.
(c) Issuance of Securities. CTI Group shall not, and shall not permit
any of its Subsidiaries to, issue, deliver or sell, or authorize or propose the
issuance, delivery or sale of, any shares of its capital stock of any class, any
CTI Group Voting Debt or any securities convertible into or exercisable for, or
any rights, warrants or options to acquire, any such shares or CTI Group Voting
Debt, or enter into any agreement with respect to any of the foregoing, other
than the issuance of CTI Group Common Stock upon the exercise of stock options
or in connection with rights under other stock-based benefits plans, to the
extent such options or rights are outstanding on the date hereof in accordance
with their present terms.
(d) Governing Documents. Except to the extent required to comply with
its obligations hereunder, or required by law, CTI Group shall not amend its
certificate of incorporation or by-laws.
(e) No Acquisitions. Without the prior written consent of Centillion
(which consent shall not be unreasonably withheld), CTI Group shall not, and
shall not permit any of its Subsidiaries to, acquire or agree to acquire by
merging or consolidating with, or by purchasing a substantial equity interest in
or all or a substantial portion of the assets of, or by any other manner, any
business or any corporation, partnership, association or other business
organization or division thereof; provided, however, that the foregoing shall
not prohibit either the (i) acquisitions of assets used in the operations of the
business of CTI Group or any of its Subsidiaries in the ordinary course of
business consistent with past practice. CTI Group shall not, and shall not
permit any of its Subsidiaries to, enter into any new material line of business
outside its existing core businesses.
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(f) No Dispositions. CTI Group shall not, and shall not permit any of
its Subsidiaries to, sell, lease, encumber or otherwise dispose of all or
substantially all of any material line of business for CTI Group and its
Subsidiaries taken as a whole or any material portion of its assets, other than
(i) in the ordinary course of business consistent with past practice and, in any
event, which are not material, individually or in the aggregate, to CTI Group
and its Subsidiaries taken as a whole or (ii) internal reorganizations or
consolidations involving existing Subsidiaries of CTI Group.
(g) Indebtedness; Investments. Unless in the ordinary course of
business and in accordance with past practices, the CTI Group shall not, and
shall not permit any of its Subsidiaries to, (i) incur any indebtedness for
borrowed money or guarantee any such indebtedness of another Person, issue or
sell any debt securities or warrants or other rights to acquire any debt
securities of CTI Group or any of its Subsidiaries, guarantee any debt
securities of another Person, enter into any "keep well" or other agreement to
maintain any financial statement condition of another Person (other than any
wholly owned Subsidiary) or enter into any arrangement having the economic
effect of any of the foregoing, (ii) make any loans or advances to any other
Person, or (iii) investments in any Person other than investments in the
ordinary course of business consistent with past practice and, in any event,
which are not material, individually or in the aggregate, to CTI Group.
(h) New Line of Business; Capital Expenditures. Except for the expenses
related to the relocation of the U.K. office, CTI Group shall not, and shall not
permit any of its Subsidiaries to, (i) enter into any new material line of
business outside its present, principal lines of business or (ii) incur or
commit to any capital expenditures other than capital expenditures incurred or
committed to in the ordinary course of business and which are not in excess of
$25,000.
(i) Tax-Free Qualification. CTI Group shall not and shall not permit
any of its Subsidiaries to, take any action that would prevent or impede the
Merger from qualifying as a reorganization under Section 368 of the Code, and
tax free under Section 354 of the Code.
(j) Other Actions. CTI Group shall not, and shall not permit any of its
Subsidiaries to, take any action that would, or could reasonably be expected to,
result in (i) any of the conditions to the Merger set forth in Article VI not
being satisfied or (ii) a material delay in the satisfaction of such conditions.
(k) Accounting Methods. Except as set forth in Section 5.8 of CTI
Group's Disclosure Schedule, CTI Group shall not make any material change in its
methods of accounting in effect at September 30, 1999, except as required by
changes in GAAP as concurred in by its independent auditors. CTI Group shall not
change its fiscal year.
(l) Representations and Warranties. CTI Group shall not take any action
that would cause the representations and warranties set forth in Article IV to
no longer be true and correct.
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(m) Authorization of the Foregoing. CTI Group shall not, and shall not
permit any of its Subsidiaries to, authorize, commit or agree to take, any of
the foregoing actions.
5.9 Indemnification, Exculpation and Insurance.
(a) CTI Group agrees that all rights to indemnification and exculpation
from liabilities for acts or omissions occurring at or prior to the Effective
Time now existing in favor of the current or former directors or officers of
Centillion and its Subsidiaries as provided in their respective articles of
incorporation or by-laws (or comparable organizational documents) and
indemnification agreements of Centillion set forth on Schedule 5.9 of
Centillion's Disclosure Schedule (copies of which agreements have been provided
to CTI Group), the existence of which does not constitute a breach of this
Agreement, shall be assumed by CTI Group, as the Surviving Corporation in the
Merger, without further action, as of the Effective Time and shall survive the
Merger and shall continue in full force and effect in accordance with their
terms.
(b) In the event that CTI Group or any of its successors or assigns (i)
consolidates with or merges into any other Person and is not the continuing or
surviving corporation or entity of such consolidation or merger or (ii)
transfers or conveys all or substantially all of its properties and assets to
any Person, then, and in each such case, reasonable efforts shall be made for
proper provisions to be made so that the successors and assigns of CTI Group
assume the obligations set forth in this Section 5.9.
5.10 No Solicitation by CTI Group.
(a) CTI Group shall not, nor shall it permit any of its Subsidiaries
to, nor shall it authorize or permit any of its directors, officers or employees
or any investment banker, financial advisor, attorney, accountant or other
representative retained by it or any of its Subsidiaries to, directly or
indirectly through another Person, (i) solicit, initiate or knowingly encourage
(including by way of furnishing information), or knowingly take any other action
to facilitate, the making of any proposal that constitutes an CTI Group
Competing Proposal or (ii) participate in any discussions or negotiations
regarding any CTI Group Competing Proposal; provided, however, that if, at any
time during the period commencing on the 10th day after the date hereof and
ending on the date Required CTI Group Vote is obtained (the "CTI Group
Applicable Period"), the Board of Directors of CTI Group, in the exercise of its
fiduciary duties, determines in good faith, after consultation with outside
counsel, that to do otherwise would not be in the best interests of CTI Group's
shareholders, CTI Group and its representatives may, in response to an CTI Group
Superior Proposal which did not result from a breach of this Section 5.10(a),
and subject to providing prior or contemporaneous notice of its decision to take
such action to Centillion, (x) furnish information with respect to CTI Group and
its Subsidiaries to any Person making a CTI Group Superior Proposal pursuant to
a customary confidentiality agreement (as determined by CTI Group after
consultation with its outside counsel) and (y) participate in discussions or
negotiations regarding such CTI Group Superior Proposal. For purposes of this
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Agreement, "CTI Group Competing Proposal" means any bona fide proposal or offer
from any Person relating to any direct or indirect acquisition or purchase of
20% or more of the assets of CTI Group and its Subsidiaries, taken as a whole,
or 20% or more of the combined voting power of the shares of CTI Group Capital
Stock, any tender offer or exchange offer that if consummated would result in
any Person beneficially owning 20% or more of the combined voting power of the
shares of CTI Group Capital Stock, or any merger, consolidation, business
combination, recapitalization, liquidation, dissolution or similar transaction
involving CTI Group or any of its Subsidiaries in which the other party thereto
or its shareholders will own 20% or more of the combined voting power of the
shares of the parent entity resulting from any such transaction, other than the
transactions contemplated by this Agreement. For purposes of this Agreement, a
"CTI Group Superior Proposal" means (i) (A) any proposal made by a third party
relating to any direct or indirect acquisition or purchase of 50% or more of the
assets of CTI Group and its Subsidiaries, taken as a whole, or 50% or more of
the combined voting power of the shares of CTI Group Capital Stock, any tender
offer or exchange offer that if consummated would result in any Person
beneficially owning 50% or more of the combined voting power of the shares of
CTI Group Capital Stock, or (B) any merger, consolidation, business combination,
recapitalization, liquidation, dissolution or similar transaction involving CTI
Group or any of its Subsidiaries in which (1) the other party thereto or its
shareholders will own 50% or more of the combined voting power of the shares of
the parent entity resulting from any such transaction and (2) representatives of
such other party shall represent a majority of the Board of Directors of such
parent entity, and (ii) otherwise on terms which the Board of Directors of CTI
Group determines in its good faith judgment (based on the advice of a financial
advisor of nationally recognized reputation), taking into account the Person
making the proposal and the legal, financial, regulatory and other aspects of
the proposal deemed appropriate by the Board of Directors of CTI Group, (x)
would be more favorable than the Merger to CTI Group's shareholders taken as a
whole, (y) is reasonably capable of being completed and (z) for which financing,
to the extent required, is then committed or is reasonably capable of being
obtained by such third party.
(b) Neither the Board of Directors of CTI Group nor any committee
thereof shall (i) withdraw, or propose publicly to withdraw, in a manner adverse
to Centillion, the approval or recommendation by such Board of Directors or such
committee of the Merger or this Agreement, (ii) subject to Section 5.10(d),
modify, or propose publicly to modify, in a manner adverse to Centillion, the
approval or recommendation by such Board of Directors or such committee of the
Merger or this Agreement, (iii) approve or recommend, or propose publicly to
approve or recommend, any CTI Group Competing Proposal or (iv) approve or
recommend, or propose to approve or recommend, or execute or enter into, any
letter of intent, agreement in principle, merger agreement, acquisition
agreement, option agreement or other similar agreement or propose publicly or
agree to do any of the foregoing (each, an "CTI Group Acquisition Agreement")
related to any CTI Group Competing Proposal. Notwithstanding the foregoing,
during the CTI Group Applicable Period, in response to an CTI Group Superior
Proposal which did not result from a breach of Section 5.10(a), if the Board of
Directors of CTI Group, in the exercise of its fiduciary duties, determines in
good faith, after consultation with outside counsel, that to do otherwise would
not be in the best interests of CTI Group's shareholders, the Board of
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Directors of CTI Group may (x) modify or propose publicly to modify, in a manner
adverse to Centillion, the approval or recommendation of the Merger or this
Agreement by the Board of Directors of CTI Group and/or (y) terminate this
Agreement (and concurrently with or after such termination, if it so chooses,
cause CTI Group to enter into any CTI Group Acquisition Agreement with respect
to any CTI Group Superior Proposal), but, in the case of clause (y), only at a
time that is during the CTI Group Applicable Period and is after the fourth
Business Day (or the second calendar day in the case of a material amendment to
a CTI Group Superior Proposal) following Centillion's receipt of written notice
advising Centillion that the Board of Directors of CTI Group is prepared to
accept a CTI Group Superior Proposal (or any material amendment thereto),
specifying the material terms and conditions of such CTI Group Superior Proposal
(or any material amendment thereto) and identifying the Person making such CTI
Group Superior Proposal (or any material amendment thereto). "Business Day"
shall mean every day of the week excluding Saturdays, Sundays and Federal
holidays.
(c) In addition to the obligations of CTI Group set forth in paragraphs
(a) and (b) of this Section 5.10, CTI Group shall promptly advise Centillion of
any CTI Group Competing Proposal or any inquiry or request for information
relating thereto, the material terms and conditions of such request or CTI Group
Competing Proposal and the identity of the Person making such request or CTI
Group Competing Proposal. CTI Group will promptly keep Centillion reasonably
informed of the status (including amendments) of any such request or CTI Group
Competing Proposal.
(d) Nothing contained in this Section 5.10 shall prohibit CTI Group
from making any disclosure to CTI Group's shareholders if, in the good faith
judgment of the Board of Directors of CTI Group, after consultation with outside
counsel, failure so to disclose would be inconsistent with its obligations under
applicable law; provided, however, that, subject to Section 5.10(b), neither CTI
Group nor its Board of Directors nor any committee thereof shall withdraw, or
propose publicly to withdraw, its position with respect to this Agreement or the
Merger or approve or recommend, or propose publicly to approve or recommend, a
CTI Group Competing Proposal.
5.11 Employee Stock Option and Benefit Plans. The parties agree that any
employee stock option and benefit plans adopted by the Surviving Corporation
shall cover employees thereof regardless of whether they (a) were previously
employed by CTI Group or Centillion or (b) previously had been issued shares of
stock, or options to acquire shares of stock of either CTI Group or Centillion.
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ARTICLE VI
CONDITIONS TO THE MERGER
6.1 Conditions. The respective obligations of Centillion and CTI Group to
consummate the Merger are subject to the satisfaction, at or before the
Effective Time, of each of the following conditions; any and all of which may be
waived in whole or in part by Centillion or CTI Group, as the case may be, to
the extent permitted by applicable law:
(a) Stockholder Approval. The stockholders of CTI Group and Centillion,
respectively, shall have duly approved the transactions contemplated by this
Agreement, pursuant to the requirements of their respective certificates of
incorporation and applicable law to the extent required thereby.
(b) Injunctions; Illegality. The consummation of the Merger shall not
be restrained, enjoined or prohibited by any order, judgment, decree, injunction
or ruling of a court of competent jurisdiction or any Governmental Entity
entered after the parties have used reasonable best efforts to prevent such
entry and there shall not have been any statute, rule or regulation enacted,
promulgated or deemed applicable to the Merger by any Governmental Entity which
prevents the consummation of the Merger.
(c) Opinion of Financial Advisor. CTI Group shall have received the
written opinion of First Colonial Securities Group to the effect that the Merger
Consideration is fair from a financial point of view to the stockholders of CTI
Group. A true and correct copy of such opinion shall have been delivered to
Centillion. Fees payable to First Colonial Securities Group shall not exceed
$70,000.
(d) Employment Agreement. The employment agreement with Anthony Johns
attached hereto as Exhibit "E" shall be executed.
(e) Security Agreement. Centillion shall enter into a security
agreement with certain shareholders with respect to the Shareholder LLC
Promissory Note issued in contemplation of this Merger. Such security agreement
shall be in a form and substance reasonably satisfactory to CTI Group and
Centillion.
6.2 Additional Conditions to Obligations of CTI Group. The obligation of CTI
Group to effect the Merger is also subject to the fulfillment of the following
conditions:
(a) Representations and Warranties. The representations and warranties
of Centillion contained in this Agreement shall be true and correct on and as of
the Effective Time (except where such representation and warranty speaks by its
terms as of a different date, in which case it shall be true and correct as of
such date), with the same force and effect as if made on and as of the Effective
Time, unless the failure of such representations and warranties to be true and
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correct would not reasonably be expected to result in a Material Adverse Effect.
CTI Group shall have received a certificate of the President of Centillion to
this effect.
(b) Agreements, Conditions and Covenants. Centillion shall have
performed or complied in all material respects with all agreements, conditions
and covenants required by this Agreement to be performed or complied with by it
on or before the Effective Time. CTI Group shall have received a certificate of
the President of Centillion to this effect.
(c) Transfer of Assets. Prior to the Effective Time:
(i) Centillion shall have created a single member,
member-managed limited liability company under the laws of the state of Delaware
where Centillion is the member to be called Centillion L.L.C. (the "LLC") into
which Centillion shall have transferred (x) all of its causes of action, claims
and counterclaims relating to any patent owned by Centillion and its
Subsidiaries as of the Effective Time or to any patent issuing after the
Effective Time from patent applications owned by Centillion and its Subsidiaries
(ownership of such patents and patent applications shall be retained by the
Surviving Corporation) plus, (y) the SBC Settlement Proceeds (less the cost of
litigation expenses, taxes and $1,500,000 (or $3,000,000 in the event Centillion
exercises the option provided for in 1.5(b)(ii))(collectively, the "Tracked
Assets"), and the LLC shall have obtained, from an affiliate of the Centillion
Stockholders, a commitment to lend to the LLC on a non-recourse basis up to
$2,000,000 to finance the LLC's patent enforcement action. The $2,000,000 loan
shall be secured by the Tracked Assets and evidenced by a $2,000,000 promissory
note attached as Exhibit "F".
(ii) Centillion shall have sold, in exchange for the
Shareholder LLC Promissory Note all of its ownership interests in the
subsidiaries identified in Exhibit "G" hereto. The Shareholder LLC Promissory
Note will be due and payable in ten (10) years and will bear interest at the
applicable federal rate in effect at the time it is executed. Prior to the
stated maturity date of the Shareholder LLC Promissory Note, principal and
interest will be payable only upon the occurrence of a Covered Disposition.
(d) Minimum Balance Sheet Requirements. The adjusted balance sheet of
Centillion, on and as of the Effective Time (which shall be certified by
Centillion's Chief Financial Officer) must reflect: (i) Net current assets
(i.e., over current liabilities) of not less than $1.00; (ii) cash of not less
than $6,500,000 (or $8,000,000 in the event that Centillion exercises the option
provided for in Section 1.5(b)(ii)); (iii) no long term liabilities other than
deferred taxes, (iv) net worth of not less than $2,000,000, after eliminating
from consideration in determining such net worth (x) $6,500,000 of cash, (y) the
Shareholder LLC Promissory Note, and (z) the Tracked Assets, and (v) all
earnings of Centillion's Billing Business for the period from January 1, 2000 to
the Effective Time.
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(e) No Adverse Change. Since October 31, 1999, no event or events shall
have occurred which resulted in or which would reasonably be expected to result
in a Material Adverse Effect with respect to Centillion.
(f) Severance. Any severance obligations of Centillion as a result of
termination of employment or a change in control of Centillion shall be paid by
Centillion prior to Closing.
(g) Reorganization. (i) There has been no Change in Law (as defined
below) on or prior to the Effective Time which could negatively impact the
treatment of the Merger as a tax- free reorganization within the meaning of
Section 368(a) of the Code, and (ii) that, at the Effective Time, the price of
the Class A Common Stock is not below $1.26 per share. For purposes of this
Agreement, a "Change in Law" shall include any statutory amendment to the Code,
the promulgation of any Treasury Regulation, or the issuance of any judicial or
administrative guidance (including, without limitation, the issuance of any
official interpretation of existing law by the Internal Revenue Service).
6.3 Additional Conditions to Obligations of Centillion. The obligations of
Centillion to effect the Merger are also subject to the following conditions:
(a) Representations and Warranties. The representations and warranties
of CTI Group contained in the this Agreement shall be true and correct in all
respects on and as of the Effective Time (except where such representation and
warranty speaks by its terms as of a different date, in which case it shall be
true and correct as of such date), with the same force and effect as if made on
and as of the Effective Time, unless the failure of such representations and
warranties to be true and correct would not reasonably be expected to result in,
individually or in the aggregate, a Material Adverse Effect. Centillion shall
have received a certificate of the President of CTI Group to this effect.
(b) Agreements, Conditions and Covenants. CTI Group shall have
performed or complied in all material respects with all agreements, conditions
and covenants required by this Agreement to be performed or complied with by it
on or before the Effective Time. Centillion shall have received a certificate of
the President of CTI Group to this effect.
(c) No Adverse Change. Since September 30, 1999, no event or events
shall have occurred which resulted in or would reasonably be expected to result
in a Material Adverse Effect with respect to CTI Group.
(d) Dissenting Shares. The aggregate number of shares of stock held by
stockholders of CTI Group who exercise their appraisal or dissenting rights
under the DGCL shall not exceed 5% of the number of shares of stock outstanding
on a fully diluted basis immediately prior to the Effective Time.
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(e) Effectiveness of the Form S-4. The Form S-4 shall have been
declared effective by the SEC under the Securities Act. No stop order suspending
the effectiveness of the Form S-4 shall have been issued by the SEC and no
proceedings for that purpose shall have been initiated or threatened by the SEC.
(f) Reorganization. (i) There has been no Change in Law (as defined
below) on or prior to the Effective Time which could negatively impact the
treatment of the Merger as a tax- free reorganization within the meaning of
Section 368(a) of the Code, and (ii) that, at the Effective Time, the price of
the Class A Common Stock is not below $1.26 per share. For purposes of this
Agreement, a "Change in Law" shall include any statutory amendment to the Code,
the promulgation of any Treasury Regulation, or the issuance of any judicial or
administrative guidance (including, without limitation, the issuance of any
official interpretation of existing law by the Internal Revenue Service).
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ARTICLE VII
TERMINATION
7.1 Termination. This Agreement may be terminated and the Merger contemplated
hereby may be abandoned at any time prior to the Effective Time, notwithstanding
approval thereof by the stockholders of CTI Group and/or Centillion:
(a) by the mutual written consent of Centillion and CTI Group;
(b) By either Centillion or CTI Group if the Effective Time shall not
have occurred on or before June 30, 2000 (the "Termination Date"); provided,
however, that the right to terminate this Agreement under this Section 7.1(b)
shall not be available to any party whose intentional failure to fulfill any
material obligation under this Agreement has caused, or resulted in, the failure
of the Effective Time to occur on or before the Termination Date;
(c) By either Centillion or CTI Group if any Governmental Entity (i)
shall have issued an order, decree or ruling or taken any other action
permanently restraining, enjoining or otherwise prohibiting the transactions
contemplated by this Agreement, and such order, decree, ruling or other action
shall have become final and non-appealable or (ii) shall have failed to issue an
order, decree or ruling or to take any other action (which order, decree, ruling
or other action the parties shall have used their reasonable best efforts to
obtain, in accordance with Section 5.2, in each case (i) and (ii) which is
necessary to fulfill the conditions set forth in Sections 6.1(c) and 6.3(g), as
applicable, and such denial of a request to issue such order, decree, ruling or
take such other action shall have become final and non-appealable; provided,
however, that the right to terminate this Agreement under this Section 7.1(c)
shall not be available to any party whose failure to comply with Section 5.2 has
caused or resulted in such action or inaction;
(d) By either Centillion or CTI Group if either (i) the approval by the
stockholders of Centillion required for the consummation of the Merger shall not
have been obtained or (ii) the approval by the shareholders of CTI Group
required for the consummation of the Merger shall not have been obtained;
(e) By CTI Group in accordance with Section 5.10(b); provided that, in
order for the termination of this Agreement pursuant to this paragraph (e) to be
deemed effective, CTI Group shall have complied with the notice provisions of
Section 5.10 and shall have paid the Termination Fee in accordance with Section
7.3(b).
(f) By Centillion, if CTI Group shall have breached or failed to
perform any of its representations, warranties, covenants or other agreements
contained in this Agreement, which breach or failure to perform (A) would give
rise to the failure of a condition set forth in Section 6.3 and (B) has not been
or is incapable of being cured by CTI Group within fourteen (14) calendar days
after receipt of written notice thereof from Centillion;
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(g) By CTI Group, if Centillion shall have breached or failed to
perform any of its representations, warranties, covenants or other agreements
contained in this Agreement, which breach or failure to perform (A) would give
rise to the failure of a condition set forth in Section 6.2 and (B) has not been
or is incapable of being cured by Centillion within fourteen (14) calendar days
after its receipt of written notice thereof from CTI Group; or
(h) By Centillion, in the event that CTI Group takes any action set
forth in Section 5.10(b)(x).
Notwithstanding anything else contained in this Agreement, the right to
terminate this Agreement under this Section 7.1 shall not be available to any
party (a) that is in material breach of its obligations hereunder or (b) whose
failure to fulfill its obligations or to comply with its covenants under this
Agreement has been the cause of, or resulted in, the failure to satisfy any
condition to the obligations of either party hereunder.
7.2 Effect of Termination. In the event of termination of this Agreement by
either Centillion or CTI Group as provided in Section 7.1, this Agreement shall
forthwith become void and there shall be no liability or obligation on the part
of CTI Group or Centillion or their respective directors or officers except with
respect to Section 5.3, the second sentence of Section 5.6, Section 7.3, this
Section 7.2 and Article VIII. Termination of this Agreement will not relieve a
breaching party from liability for any willful and material breach by such party
of any of its representations, warranties, covenants or agreements set forth in
this Agreement.
7.3 Fees and Expenses.
(a) Except as otherwise provided herein, whether or not the Merger is
consummated, all costs and expenses incurred in connection with this Agreement
and the transactions contemplated by this Agreement shall be paid by the party
incurring such expenses.
(b) Termination Fee. If this Agreement is terminated by CTI Group
pursuant to Section 5.10(b), then CTI Group shall pay to Centillion, in cash,
within five Business Days after the termination of this Agreement a
non-refundable fee in the amount of $1,500,000, which fee shall be Centillion's
sole and exclusive remedy for such termination.
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ARTICLE VIII
INDEMNIFICATION
8.1 Indemnification
(a) Subject to the terms and conditions of this Article VIII,
Centillion shall indemnify, defend and hold harmless CTI Group and its
shareholders as they exist immediately prior to the Effective Time (the "CTI
Shareholders") for a period of one year after the Effective Time, from and
against all losses, claims, damages, liabilities and expenses, including
interest, penalties and reasonable attorney's fees and expenses (collectively
"Damages"), resulting or arising, directly or indirectly, from a breach of any
representation, warranty or agreement of Centillion contained in or made part of
this Agreement.
(b) Subject to the terms and conditions of this Article VIII, CTI Group
shall indemnify, defend and hold harmless Centillion and its shareholder as they
existed prior to the Effective Time (the "CDS Shareholders") for a period of one
year after the Effective Time, from and against all Damages resulting or
arising, directly or indirectly, from a breach of any representation, warranty
or agreement of CTI Group contained in or made pursuant to this Agreement.
8.2 Conditions of Indemnification
The obligations and liabilities of Centillion and CTI Group as
indemnifying parties (each, an "Indemnified Party") to indemnify CTI Group and
Centillion, respectively (each, an "Indemnified Party"), under Section 8.1 shall
be subject to the following terms and conditions:
(a) In the event that CTI Group or the CTI Shareholders is the
Indemnified Party, its claims for Damages shall be made by the Class III (as
defined in the Surviving Corporation's Articles of Incorporation) to the Board
of Directors. In the event that Centillion or the CDS Shareholders is the
Indemnified Party, its claim for Damages shall be made by the Class I and Class
II Directors (as defined in the Surviving Corporation's Articles of
Incorporation) to the Board of Directors. The Indemnified Party shall give the
Board of Directors prompt notice of any such claim and all claims for Damages
must be made within one year after the Effective Time. In the event the claim is
the result of an action or threatened action by a third party, the Indemnifying
Party shall have the right to undertake the defense thereof by representatives
chosen by it. If the Indemnifying Party, within a reasonable time after notice
of any such claim by a third party, fails to defend an Indemnified Party against
which such claim has been asserted, such Indemnified Party shall (upon further
notice to the Board of Directors) have the right to undertake the defense,
compromise or settlement of such claim on behalf of and for the account and risk
of Indemnifying Party, subject to the right of the Indemnifying Party to assume
the defense of such claim at any time prior to settlement, compromise or final
determination thereof.
(b) Any decision made by the Board with respect to claims for Damages
asserted by Centillion or CDS Shareholders as Indemnifying Party, shall require
the affirmative vote of majority
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of the Class III Directors. Any vote by the Board of Directors with respect to
claims for Damages asserted by CTI Group or CTI Shareholders shall require the
affirmative vote of a majority of the Class I and Class II Directors. In the
event that an Indemnified Party is unable to obtain the foregoing affirmative
vote, it shall be entitled to submit the claim for Damages to final and binding
arbitration in Philadelphia, Pennsylvania, before a panel of three arbitrators
in accordance with the Commercial Arbitration Rules of the American Arbitration
Association.
8.3 Remedies
(a) In the event that pursuant to this Article VIII Damages are found
to be due CTI Group or CTI Shareholders then all amounts of Class A Common Stock
that would otherwise be issued either as a result of the distribution of Escrow
Stock, conversion of amounts under the Promissory Note or conversion of shares
of Class B Common Stock, shall be reduced by an amount equal in value to such
Damages. The number of shares by which such distribution or conversion shall be
reduced, (i) shall be valued at $1.50 per share for the Escrow Stock, and (ii)
shall be based upon the valuation per share to be used in connection with the
conversion under the Promissory Note or for Class B Common Stock, as of the date
that such distribution or conversion is to occur, as the case may be.
(b) In the event that pursuant to this Article VIII Damages are found
to be due Centillion or CDS Shareholders, then such Damages shall be satisfied
solely and exclusively by the Surviving Corporation issuing an additional number
of shares of Class A Common Stock to the Persons who received Merger
Consideration, such number to be calculated by dividing the amount of the
Damages by the Average Market Price on the date of determination by the Board of
Directors or the arbitrators that such Damages are due (the "Determination
Date") and multiplying that number by a fraction, the numerator of which is
100%, and the denominator of which is the percentage of the issued and
outstanding Class A Common Stock on the Determination Date that is then owned by
Persons who did not receive Merger Consideration, or by transferees of Merger
Consideration.
(c) The remedies set forth in Section 8.3(a) and (b) shall be the
exclusive remedies for damages pursuant to this Article VIII.
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ARTICLE IX
MISCELLANEOUS
9.1 Notices. All notices, requests and other communications to any party
hereunder shall be in writing and shall be deemed to have been duly given when
delivered in person, by overnight courier or by facsimile to the respective
parties as follows:
If to Centillion, to:
Centillion Data Systems, Inc.
333 North Alabama Street, Suite 240
Indianapolis, Indiana 46204
Attn: John Cauffman, President
with a copy to:
Blank Rome Comisky & McCauley LLP
One Logan Square
Philadelphia, PA 19103
Facsimile: (215) 569-5628
Attn: A. Fred Ruttenberg, Esq.
If to CTI Group, to:
CTI Group (Holdings) Inc.
2550 Eisenhower Avenue
Norristown, PA 19403
Attn: Anthony Johns
with a copy to:
Klehr, Harrison, Harvey, Brandzburg & Ellers LLP
260 S. Broad Street
Philadelphia, PA 19102
Facsimile: (215) 568-6060
Attn: Donald M. Millinger, Esq.
or such other address or facsimile number as such party may hereafter specify
for the purpose by written notice to the other parties hereto. Each such notice,
request or other communication shall be effective (i) if delivered in person,
when such delivery is made at the address specified in this Section 9.1; (ii) if
delivered by overnight courier, the next Business Day after such delivery is
sent to the address specified in this Section 9.1; or (iii) if delivered by
facsimile, when such facsimile
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is transmitted to the facsimile number specified in this Section 9.1 and the
appropriate confirmation of receipt is received.
9.2 Survival of Representations and Warranties and Agreements. The
representations and warranties and agreements contained herein and in any
certificate or other writing delivered pursuant hereto shall not survive beyond
the Effective Time except for the agreements set forth in Article III, Article
IV, Sections 5.1(b), 5.3, 5.4, 5.6, 5.10, 7.3(a), 7.3(b) and Article VIII which
shall survive the Effective Time for one year, and Section 5.11 and this Article
IX, which shall survive the termination of this Agreement.
9.3 Amendment. This Agreement may be amended by CTI Group and Centillion at any
time before or after any approval of this Agreement by the stockholders of CTI
Group and/or Centillion, but, after any such approval, no amendment shall be
made which decreases the Merger Consideration or which adversely affects the
rights of Centillion's stockholders hereunder without the approval of a majority
of the holders of common stock of Centillion. This Agreement may not be amended
except by an instrument in writing signed on behalf of all the parties.
9.4 Extension; Waiver. At any time prior to the Effective Time, the parties
hereto may (i) extend the time for the performance of any of the obligations or
other acts of any other party hereto, (ii) waive any inaccuracies in the
representations and warranties contained herein by any other party or in any
document, certificate or writing delivered pursuant hereto by any other party or
(iii) waive compliance with any of the agreements of any other party or with any
conditions to its own obligations. Any agreement on the part of any party to any
such extension or waiver shall be valid only if set forth in an instrument in
writing signed on behalf of such party. No failure or delay by any party in
exercising any right, power or privilege hereunder shall operate as a waiver
thereof nor shall any single or partial exercise preclude any other or further
exercise thereof or the exercise of any other right, power or privilege. The
rights and remedies herein provided shall be cumulative and not exclusive of any
rights or remedies provided by law.
9.5 Successors and Assigns. The provisions of this Agreement shall be binding
upon and inure to the benefit of the parties hereto and their respective
successors and assigns, provided that no party may assign, delegate or otherwise
transfer any of its rights or obligations under this Agreement without the prior
written consent of the other parties hereto.
9.6 Governing Law. This Agreement shall be construed in accordance with and
governed by the law of the State of Delaware applicable to agreements entered
into and to be performed wholly within such State.
9.7 Jurisdiction. Each of the parties hereto (a) consents to submit itself to
the personal jurisdiction of any federal court located in the State of Delaware
or any Delaware state court in the event any dispute arises out of this
Agreement or any of the transactions contemplated by this Agreement, (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
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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 Delaware.
9.8 Counterparts; Effectiveness. This Agreement may be signed in any number of
counterparts, each of which shall be an original, with the same effect as if the
signatures thereto and hereto were upon the same instrument. This Agreement
shall become effective when each party hereto shall have received counterparts
hereof signed by all of the other parties hereto.
9.9 Entire Agreement; No Third-Party Beneficiaries. This Agreement and the other
agreements referred to herein or executed contemporaneously herewith constitute
the entire agreement, and supersede all prior agreements and understandings,
both written and oral, among the parties with respect to the subject matter of
this Agreement, including the letter, dated November 18, 1999, among the parties
hereto, which is of no further force and effect. No representation, inducement,
promise, understanding, condition or warranty not set forth herein has been made
or relied upon by any party hereto. Except as set forth in Article VIII, this
Agreement is not intended to confer upon any Person other than the parties
hereto and their respective successors and assigns any rights or remedies.
9.10 Headings. The headings contained in this Agreement are for reference
purposes only and shall not affect in any way the meaning or interpretation of
this Agreement.
9.11 Schedules. Schedule references contained in Article III and Article IV of
this Agreement are for convenience only and matters disclosed pursuant to one
section, subsection or other provision of Article III or Article IV are deemed
disclosed for all purposes of Article III and Article IV to the extent this
Agreement requires such disclosure.
9.12 WAIVER OF JURY TRIAL. EACH OF CTI GROUP AND CENTILLION HEREBY IRREVOCABLY
WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, ALL RIGHTS TO TRIAL BY JURY IN
ANY ACTION, PROCEEDING OR COUNTERCLAIM (WHETHER BASED ON CONTRACT, TORT OR
OTHERWISE) ARISING OUT OF OR RELATING TO THIS AGREEMENT OR ANY OF THE
TRANSACTIONS CONTEMPLATED HEREBY.
9.13 Severability. If any term, provision, covenant or restriction of this
Agreement is held by a court of competent jurisdiction or other authority to be
invalid, void or unenforceable, the remainder of the terms, provisions,
covenants and restrictions of this Agreement shall remain in full force and
effect and shall in no way be affected, impaired or invalidated so long as
economic or legal substance of the transactions contemplated hereby are not
effected in any manner materially adverse to any party. Upon such a
determination, the parties shall negotiate in good faith to modify this
Agreement so as to effect the original interest of the parties as closely as
possible in an acceptable manner in order that the transactions contemplated
hereby be consummated as originally contemplated to the fullest extent possible.
A-63
9.14 Disclosure Schedules. Any item disclosed in a Section of a party's
Disclosure Schedule shall be deemed disclosed in other relevant Sections,
regardless of whether specifically set forth therein.
A-64
IN WITNESS WHEREOF, each of the parties hereto has caused this
Agreement to be duly executed by its respective authorized officer as of the day
and year first above written.
CTI GROUP (HOLDINGS) INC.
By:
------------------------------
Name:
Title:
CENTILLION DATA SYSTEMS, INC.
By:
------------------------------
Name:
Title:
A-65
EXHIBITS
EXHIBIT A SURVIVING CORPORATION - ARTICLES OF INCORPORATION
CAPITAL STOCK PROVISIONS
See Annex B, attached hereto
EXHIBIT B SURVIVING CORPORATION BYLAWS
See Annex C, attached hereto
EXHIBIT C DIRECTORS AND EXECUTIVE EMPLOYMENT
Intentionally omitted
EXHIBIT D SHAREHOLDER LLC PROMISSORY NOTE
See Annex D, attached hereto
EXHIBIT E ANTHONY JOHNS EMPLOYMENT AGREEMENT
Intentionally omitted
EXHIBIT F FORM OF PROMISSORY NOTE
See Annex E, attached hereto
EXHIBIT G DIVESTED CENTILLION SUBSIDIARIES
See Annex F, attached hereto
A-66
FIRST AMENDMENT TO AGREEMENT AND PLAN OF MERGER
This FIRST AMENDMENT TO AGREEMENT AND PLAN OF MERGER is made this 1st
day of May, 2000 by and between Centillion Data Systems, Inc. ("Centillion") and
CTI Group Holdings, Inc. ("CTI Group").
BACKGROUND
A. Centillion agreed to merge with and into CTI Group pursuant to the
Agreement and Plan of Merger ("Agreement") dated as of February 3, 2000.
B. Section 7.1(b) of the Agreement provides that either Centillion or
CTI Group may terminate the Agreement if the Effective Time (as defined therein)
does not occur on or before June 30, 2000 (the "Termination Date").
C. The parties hereto have mutually agreed to amend the Agreement to
reflect a new Termination Date.
NOW, THEREFORE, in consideration of the foregoing and intending to be
legally bound hereby, the parties hereto agree as follows:
Section 7.1(b) of the Agreement shall be deleted in its entirety and
replaced as follows:
(b) by either Centillion or CTI Group if the Effective Time
shall not have occurred on or before September 30, 2000 (the
"Termination Date"); provided, however, that the right to
terminate this Agreement and under this Section 7.1(b) shall
not be available to any party whose intentional failure to
fulfill any material obligation under this Agreement has
caused, or resulted in, the failure of the Effective Time to
occur on or before the Termination Date;
IN WITNESS WHEREOF, the parties have executed this Amendment the day
and year first written above.
CENTILLION DATA SYSTEMS, INC. CTI GROUP HOLDINGS, INC.
By:_______________________________ By:_________________________________
Name:_____________________________ Name:_______________________________
Title:____________________________ Title:______________________________
A-67
SECOND AMENDMENT TO AGREEMENT AND PLAN OF MERGER
This SECOND AMENDMENT TO AGREEMENT AND PLAN OF MERGER is made this 1st
day of May, 2000 by and between Centillion Data Systems, Inc. ("Centillion") and
CTI Group Holdings, Inc. ("CTI Group").
BACKGROUND
A. Centillion agreed to merge with and into CTI Group pursuant to the
Agreement and Plan of Merger ("Agreement") dated as of February 3, 2000.
B. Section 3(a) of Exhibit A to the Agreement provides that the shares
of Class CTIG B Common Stock may be converted into CTIG Class A Common Stock at
a conversion rate equal to $2.25 per share for the first one (1) million shares
and 88% of the then Current Market Value of CTIG Class A Common Stock for those
shares converted in excess of one (1) million.
C. The parties have mutually agreed that only the first 333,334 and not
the first one (1) million shares of CTIG Class B Common Stock converted into
CTIG Class A Common Stock shall be converted at $2.25 per share as currently
reflected in the Agreement.
NOW, THEREFORE, in consideration of the foregoing and intending to be
legally bound hereby, the parties hereto agree as follows:
Section 3(a) of the Agreement shall be deleted in its entirety and
replaced as follows:
(a) Conversion at the Corporation's Election. During the
Initial Conversion Period the shares of Class B Common Stock
shall be subject, in the sole discretion of the Board of
Directors, to conversion into a number of shares of Class A
Common Stock equal in value, on a per share equivalent basis,
to the value of Centillion LLC, with the number of shares into
which the Class B Common Stock will be converted to be
determined as follows: during the first twelve (12) months of
the Initial Conversion Period, the conversion would be based
on the Class A Common Stock valued at (A) $2.25 per share (for
the first 333,334 shares of Class A Common Stock so issued)
and (B) an amount equal to 88% of the then Current Market
Value of the Class A Common Stock, for any additional shares
of Class A Common Stock (beyond 333,334 shares) so issued.
During the remainder of the Initial Conversion Period all of
the Class A Common Stock to be issued upon conversion of the
Class B Common Stock under this Section 3(a) would be valued
at an amount equal to 88% of the then current market value of
the Class A Common Stock.
IN WITNESS WHEREOF, the parties have executed this Second Amendment the
day and year first written above.
CENTILLION DATA SYSTEMS, INC. CTI GROUP HOLDINGS, INC.
By:_______________________________ By:_________________________________
Name:_____________________________ Name:_______________________________
Title:____________________________ Title:______________________________
A-68
THIRD AMENDMENT TO AGREEMENT AND PLAN OF MERGER
This THIRD AMENDMENT TO AGREEMENT AND PLAN OF MERGER ("Amendment") is
made this 26th day of July, 2000 by and between Centillion Data Systems, Inc.
("Centillion") and CTI Group Holdings, Inc. ("CTI Group").
BACKGROUND
A. Centillion agreed to merge with and into CTI Group pursuant to that
certain Agreement and Plan of Merger ("Agreement") dated as of February 3, 2000.
B. The Securities and Exchange Commission ("SEC") has reviewed a proxy
statement to be delivered to the CTI Group shareholders in connection with the
shareholder vote to approve the Agreement.
C. The SEC has requested modifications to the proxy statement, which
will require that clarification be made in certain provisions of Exhibit A to
the Agreement.
D. The parties have mutually agreed to revise Exhibit A of the
Agreement and other provisions of the Agreement in accordance with the
provisions set forth in this Amendment.
NOW, THEREFORE, in consideration of the foregoing and intending to be
legally bound hereby, the parties hereto agree as follows:
1. Section 1.5(b)(ii) shall be modified by deleting the second sentence
in its entirety and replacing it as follows:
The option shall be exercised by Centillion having, at the Effective
Time, the balance sheet of Centillion reflecting cash of not less
than $8,000,000 less all expenditures made by Centillion for
software research and development relating to the Billing Business
(not to exceed $1,500,000) in fiscal year 2000 in lieu of the
$6,500,000 provided for in Section 6.2(d).
2. Section 6.2(d)(ii) shall be deleted in its entirety and replaced as
follows:
cash of not less than $6,500,000 (or $8,000,000 less all
expenditures made by Centillion for software research and
development relating to the Billing Business (not to exceed
$1,500,000) in fiscal year 2000 in the event that Centillion
exercises the option provided for in Section 1.5(b)(ii));
3. Section 6.2(d)(iv)(x) of the Agreement shall be deleted in its
entirety and replaced as follows:
$8,000,000 of cash.
A-69
4. Section 5 of Exhibit A to the Agreement shall be deleted in its
entirety and replaced as follows:
5. Liquidation.
In the event of a liquidation, dissolution or winding up of the
corporation, whether voluntary or involuntary, after payment or provision for
payment of the debts and other liabilities of the corporation the holders of the
shares of Class A Common Stock and the holders of the shares of Class B Common
Stock shall share in the aggregate in the funds of the Corporation as follows:
Class A Common Stock shall receive the proportion represented by
(1) the net assets of the corporation without regard to the net assets of
Centillion LLC divided by (2) the net assets of the corporation.
Class B Common Stock shall receive the proportion represented by
(1) the net assets of Centillion LLC divided by (2) the net assets of the
corporation.
Neither the consolidation or merger of the corporation with or
into any other corporation or corporations nor the sale, transfer or lease of
all or substantially all of the assets of the corporation shall itself be deemed
to be a liquidation, dissolution or winding up of the corporation within the
meaning of this Paragraph 5 of this Article. Notwithstanding anything to the
contrary herein, the holders of the Class B Common Stock shall have no rights to
the specific assets owned by Centillion LLC at the time of liquidation,
dissolution or winding up of the Corporation.
5. The definition of "Covered Disposition" contained in Section 8 of
Exhibit A to the Agreement shall be deleted in its entirety and replaced as
follows:
"Covered Disposition" shall mean: (a) any direct or indirect sale,
transfer or conveyance by the Corporation of fifty percent (50%) or more of its
equity interest in the LLC; or (b) any grant of any pledge or other security
interest in fifty percent (50%) or more of the equity interest of the
Corporation in Centillion LLC; or
IN WITNESS WHEREOF, the parties have executed this Third Amendment the
day and year first written above.
CENTILLION DATA SYSTEMS, INC. CTI GROUP HOLDINGS, INC.
By:_______________________________ By:________________________________
Name:_____________________________ Name:______________________________
Title:_____________________________ Title:_____________________________
A-70
ANNEX B
SURVIVING CORPORATION - ARTICLES OF INCORPORATION
1. Total Authorized Shares.
(a) Common Stock. The aggregate number of shares which the Corporation
is authorized to issue is 50,000,000 common shares (collectively, the "Common
Stock"), of which:
(i) 46,500,000 common shares shall be designated Class A Common
Stock having a par value of $0.01 per share (the "Class A Common Stock"); and
(ii) 3,500,000 common shares shall be designated Class B Common
Stock having a par value of $0.01 per share ("Class B Common Stock"). The Class
A Common Stock and the Class B Common Stock are collectively referred to herein
as the "Common Stock".
(b) Rights and Preferences. Each share of Class A Common Stock and each
share of Class B Common Stock shall, except as otherwise expressly provided in
this Article, be identical in all respects and shall have equal rights, powers
and privileges.
(c) Issuance. The authorized shares of Class B Common Stock will be
issued only (i) pursuant to the Agreement and Plan of Merger, dated February 3,
2000 (the "Merger Agreement"), among Centillion Data Systems, Inc. and the
Corporation, (ii) in a subdivision (by stock split or otherwise) of outstanding
shares of Class B Common Stock, or (iii) as a stock dividend or share
distribution (with respect to such shares of Class B Common Stock).
2. Voting Rights.
(a) General. Except with respect to the election of directors of the
Corporation occurring prior to July 1, 2003 which shall be governed by the
provisions of Section 2(b) below, and except as may otherwise be required by
laws of the State of Delaware, the holders of shares of Class A Common Stock and
the holders of shares of Class B Common Stock shall be entitled to one (1) vote
for each share of such stock held, shall vote as one class with respect to all
matters to be voted on by shareholders of the Corporation, and no separate vote
or consent of the holders of shares of Class A Common Stock, the holders of
share of Class B Common Stock (or the holders of shares of any other class or
series of stock of Corporation) shall be required for the approval of any such
matter.
B-1
(b) Board of Directors. The Board of Directors shall be divided into
three classes, which shall be as nearly equal in number as possible. Directors
of each class shall serve for a term of three years, and until their successors
shall have been elected and qualified. Upon the adoption of these Articles and
the filing of the Certificate of Merger with the Delaware Secretary of State,
the existing Board of Directors shall be reclassified. Each Director of the
reclassified Board of Directors shall be placed in one of the three classes, and
the initial term of office of each such class shall (except in the event of his
earlier resignation or removal) expire at the annual shareholders' taking place
in the year set forth opposite such Director's name (or, if later, upon the
election and qualification of his successor), as follows:
Name Class Term Expires
- ---- ----- ------------
Harold Garrison I 2001
Salah Osseiran
Michael H. Leeds II 2002
Tom Grein
Graham Bevington III 2003
Rupert Armitage
Anthony P. Johns
(i) For any meeting of Shareholders held prior to July 1,
2003, the holders of Class B Common Stock, voting together as a single class,
shall have the right to elect the Class I Directors;
(ii) For any meeting of Shareholders held prior to July 1,
2003, the holders of Class B Common Stock, voting together as a single class,
shall have the right to elect the Class II Directors;
(iii) For any meeting of Shareholders held prior to July 1,
2003, any vacancies with respect to Class I or Class II Directors shall be
filled by the remaining Class I and Class II Directors voting as a group, or
with respect to a Class III Director by the remaining Class III Directors; and
(iv) If, prior to July 1, 2003, there is any increase or
decrease in the number of Directors, such Directors shall be assigned as Class
I, II or II so that the holders of Class B Common Stock, voting together as a
single class, maintain a majority of the Board of Directors.
3. Conversion of Class B Common Stock.
The Class B Common Stock shall be subject to conversion as follows:
B-2
(a) Conversion at the Corporation's Election. During the Initial
Conversion Period the shares of Class B Common Stock shall be subject, in the
sole discretion of the Board of Directors, to conversion into a number of shares
of Class A Common Stock equal in value, on a per share equivalent basis, to the
value of Centillion LLC, with the number of shares into which the Class B Common
Stock will be converted to be determined as follows: during the first twelve
(12) months of the Initial Conversion Period, the conversion would be based on
the Class A Common Stock valued at (A) $2.25 per share (for the first 333,334
shares of Class A Common Stock so issued) and (B) an amount equal to 88% of the
then Current Market Value of the Class A Common Stock, for any additional shares
of Class A Common Stock (beyond 333,334 shares) so issued. During the remainder
of the Initial Conversion Period all of the Class A Common Stock to be issued
upon conversion of the Class B Common Stock under this Section 3(a) would be
valued at an amount equal to 88% of the then current market value of the Class A
Common Stock.
(b) Conversion at the election of the holders of Class B Common Stock.
During the Interim Conversion Period, the shares of Class B Common Stock, at the
election of the holders of more than 50% of the outstanding shares of such Class
B Common Stock, shall be converted into shares of Class A Common Stock in the
manner set forth in Section 3(a) above but using the valuation applicable to
conversions occurring subsequent to the first twelve (12) months of the Initial
Conversion Period.
(c) Mandatory Conversion. Upon the occurrence of a Covered Disposition,
all of the issued and outstanding shares of Class B Common Stock shall be
converted into shares of Class A Common Stock equal in value, on a per share
equivalent basis, to the value of Centillion LLC, with the conversion based on
100% of the then current market value of the Class A Common Stock to be issued
upon such conversion; provided, however, that in no event shall a mandatory
conversion under this Section 3(c) occur earlier than the fourth anniversary of
the Effective Time under the Merger Agreement.
(d) Valuation Procedures. In the event an appraisal is required under
these Articles of Incorporation with respect to the market value of Centillion
LLC or the Class B Common Stock, the Class III Directors will appoint a
qualified appraiser to determine such value. If the appraiser so appointed by
the Class III Directors is not acceptable to the Class I and Class II Directors,
then the Class I and Class II Directors shall appoint a qualified appraiser to
determine such value. If the appraiser appointed by the Class I and Class II
Directors is not acceptable to the Class III Directors, the two appraisers so
selected shall appoint a third appraiser who shall perform such appraisal and
the results thereof shall be binding upon all of the parties, with the cost of
the appraisal to be paid by the Corporation.
(e) Definitions. For purposes of this Section 3,
B-3
(i) The term "Initial Conversion Period" shall mean the period
beginning on the Effective Time under the Merger Agreement and ending on the
earlier to occur of (x) the second anniversary of such date, or (y) the date on
which those persons who were the original recipients of the Merger Consideration
cease to own, collectively fifty-one percent (51%) or more of the issued and
outstanding shares of Common Stock of the Corporation received pursuant to the
Merger; and
(ii) The term "Interim Conversion Period" shall mean the three
(3) year period commencing immediately upon the expiration of the Initial
Conversion Period and ending on the third anniversary of such commencement date.
(f) Conversion Procedures. Any such conversion may be effected by
surrendering such holder's certificate or certificates for the stock to be
converted, duly endorsed, at the office of the Corporation or any transfer
agent. If so required by the Corporation, any certificate for shares surrendered
for conversion shall be accompanied by instruments of transfer, in form
satisfactory to the Corporation, duly executed by the holder of such shares or
the duly authorized representative of such holder. Promptly thereafter, the
Corporation shall issue and deliver to such holder or such holder's nominee or
nominees, a certificate or certificates for the number of shares of Class A
Common Stock to which such holder shall be entitled as herein provided. All
conversions are to be effective, and valued, as of the last day of the calendar
quarter in which the election or event giving rise to mandatory conversion
occurs.
4. Dividends; Discrimination Between or Among Classes of Common Shares.
The Board of Directors shall have the sole authority and discretion to
declare and pay dividends on (i) the Class A Common Stock and (iii) the Class B
Common Stock, in equal or unequal amounts (including declaring and paying
dividends on one or more class of shares while declaring and paying no
dividends, or a different dividend, on one or more other classes of shares);
provided, however, that whenever a dividend is paid to the holders of the Class
B Common Stock, the Corporation shall also pay to the holders of Class A Common
Stock a dividend per share equal to or greater than the dividend per share paid
to the holders of Class B Common Stock unless a different dividend amount (or no
dividend) has been authorized by a 2/3's majority of the Board of Directors.
5. Liquidation.
In the event of a liquidation, dissolution or winding up of the
corporation, whether voluntary or involuntary, after payment or provision for
payment of the debts and other liabilities of the corporation the holders of the
shares of Class A Common Stock and the holders of the shares of Class B Common
Stock shall share in the aggregate in the funds of the Corporation as follows:
Class A Common Stock shall receive the proportion represented
by (1) the net assets of the corporation without regard to the net assets of
Centillion LLC divided by (2) the net assets of the corporation.
B-4
Class B Common Stock shall receive the proportion represented
by (1) the net assets of Centillion LLC divided by (2) the net assets of the
corporation.
Neither the consolidation or merger of the corporation with or
into any other corporation or corporations nor the sale, transfer or lease of
all or substantially all of the assets of the corporation shall itself be deemed
to be a liquidation, dissolution or winding up of the corporation within the
meaning of this Paragraph 5 of this Article. Notwithstanding anything to the
contrary herein, the holders of the Class B Common Stock shall have no rights to
the specific assets owned by Centillion LLC at the time of liquidation,
dissolution or winding up of the Corporation.
6. Determinations by the Board of Directors.
Any determinations made by the Board of Directors under any provision
in this Article shall be final and binding on all shareholders of the
corporation, except as may otherwise be required by law. The Corporation shall
prepare a statement of any such determination by the Board of Directors
respecting the fair market value of any properties, assets or securities and
shall file such statement with the Secretary of the corporation. The Board of
Directors shall establish an Executive Committee to be composed of one Class III
Director and two Directors from Class I And Class II selected by each class of
Directors. All decisions of the Corporation or by the Directors required (i) by
these Articles, (ii) by any other Agreement, or (iii) otherwise, with respect to
Centillion LLC shall be made by the Executive Committee.
7. Relationship Between the Centillion Group and the Corporation.
The Directors of the Corporation shall require Centillion LLC to
preserve, maintain and maximize the value of its assets, and any contracts with
respect to, utilization of, or transfer of any of Centillion LLC's assets
between and among Centillion LLC and any other party (including the Corporation
and its other affiliates) shall be pursuant to transactions entered into at
arm's- length.
8. Certain Definitions.
Unless the context otherwise requires, the terms defined in this
Section shall have, for all purposes of this Article, the meanings herein
specified:
"Centillion LLC" shall mean the Delaware limited liability company
included in the assets of Centillion Data Systems, Inc. immediately prior to the
Effective Time specified in the Merger Agreement.
"Common Stock Group" shall mean, as of any date, the interest of the
Corporation or any subsidiary in all of the businesses in which the Corporation
or any subsidiary is or has been engaged, directly or indirectly, and the
respective assets and liabilities of the Corporation or any subsidiary, other
than any businesses, assets or liabilities of Centillion LLC.
B-5
"Covered Disposition" shall mean: (a) any direct or indirect sale,
transfer or conveyance by the Corporation of fifty percent (50%) or more of its
equity interest in the LLC; or (b) any grant of any pledge or other security
interest in fifty percent (50%) or more of the equity interest of the
Corporation in Centillion LLC.
"Current Market Value of the Class A Common Stock" shall mean the
average of the daily last reported sale price per share of the Class A Common
Stock on the NASDAQ National Market System (or if such stock is then listed on
the New York Stock Exchange, on such Exchange) during the most recent twenty
(20) consecutive full Business Days before such date, provided that if there was
no reported sale on any such day or days, there shall be substituted the average
of the closing bid and asked quotations on that Market or Exchange on that day
or days, and provided further that, if the Class A Common Stock is not listed on
that Market or Exchange on any such day or days, there shall be substituted the
comparable sale price or average of bid and asked quotations on the principal
national securities exchange on which such Class A Common Stock is so listed, or
if not so listed on any national securities exchange, the average of the highest
bid and the lowest asked quotations in the over-the-counter market that day or
days.
9. Amendments.
(a) Except as provided for in subparagraph (b) below, this Certificate
of Incorporation shall be amended in the manner provided for in the Delaware
General Corporation Law.
(b) Until July 1, 2003, except for amendments as a result of
acquisitions or capital raising, which amendments shall not be governed by this
subparagraph (b), all amendments to this Certificate of Incorporation shall
require, prior to submission to shareholders, the affirmative vote of a majority
of the Board of Directors, which vote must contain the affirmative vote of at
least one (1) Class III Director.
B-6
ANNEX C
SURVIVING CORPORATION BYLAWS
Section 5.2. Term of Office.
The Board of Directors shall be divided into three classes with each
class serving three-year terms. As a result of an Amendment to the Certificate
of Incorporation filed in 2000, the Board was re-classified and each director
placed in one of three classes. The directors in Class I shall hold office for a
term expiring at the next annual meeting (to be held in 2001), the directors in
Class II shall hold office for a term expiring at the second succeeding annual
meeting, and the directors in Class III shall hold office for a term expiring at
the third succeeding annual meeting.
At each annual shareholders meeting commencing at the annual meeting
to be held in 2001, the number of directors equal to the number of directors in
the class whose term expires at the time of such meeting shall be elected to
hold office until the third succeeding annual meeting of shareholders following
such meeting. Each director so elected shall hold office until his term expires
and his successor is elected and qualified, or until his earlier resignation or
removal.
Section 5.5. Vacancies. Except as otherwise provided in the Certificate
of Incorporation, vacancies in the Board of Directors, including vacancies
resulting from an increase in the number of directors, shall be filled by the
vote of a majority of the remaining members of the Board though less than a
quorum; provided, that whenever the holders of any class or classes of stock or
series thereof are entitled to elect one or more directors by the provisions of
the certificate of incorporation, vacancies and newly created directorships of
such class or classes or series may be filled by a majority of the directors
elected by such class or classes or series thereof then in office or by the sole
remaining director so elected, and each person so elected shall be a director
until his or her successor is elected by the stockholders, or until his or her
earlier resignation or removal.
Section 5.8. Committees.
Section 1. (a) The Board of Directors may, by resolution adopted by a
majority of the votes entitled to be cast by the entire board, alter or
eliminate the committees of the board described in Section 2 below or designate
one or more other committees, each committee to consist of one or more
directors. Any such committee, to the extent provided in such resolution or
these bylaws, shall have and exercise all of the authority of the Board of
Directors in the management of the corporation, except as otherwise required by
law. Such committee or committees shall have such name or names as may be
determined from time to time by resolution adopted by the Board of Directors.
The Board of Directors may, by resolution adopted by a majority of the votes
entitled to be cast by the entire board, fill any vacancy in any such committee,
appoint one or more directors to serve as alternate members of any such
committee, to act in the absence or disability of members of any such committee.
C-1
with all the powers of such absent or disabled members, abolish any such
committee at its pleasure, and remove any director from membership on such
committee at any time, with or without cause.
(b) Each committee of the Board of Directors formed
pursuant to this section shall keep regular minutes of its meetings and actions
taken at a meeting of any such committee shall be reported to the board at its
next meeting following such committee meeting; except that, when the meting of
the board is held within two days after the committee meeting, such report
shall, if not made at the first meeting, be made to the board at its second
meeting following such committee meeting unless otherwise required by law to be
earlier reported.
Section 2. The present standing committees of the board are as follows:
Executive Committee. An Executive Committee shall be composed of one
Class I, one Class II and one Class III director. All decisions of the
corporation with respect to Centillion, L.L.C. shall be made by the Executive
Committee. The Executive Committee shall have such other duties and powers as
are established by resolution of the Board of Directors.
Audit Committee. The Audit Committee shall be composed of two members
of the board as may from time to time be chosen by the Board of Directors, none
of whom shall be an employee of the corporation. The Audit Committee shall have
the authority and responsibility to (a) hire one or more firms of independent
public accountants to audit the corporation's books, records and financial
statements and to review the corporation's systems of accounting (including its
system of internal controls); (b) discuss with such independent public
accountants the results of such audit and review; (c) periodically conduct
independent reviews of the corporation's systems of accounting (including its
system of internal control); and (d) periodically make reports to the board with
respect to its findings.
Nominating Committee. The Nominating Committee shall be composed of
three members of the board as may from time to time be chosen by the Board of
Directors. The Nominating Committee shall (a) make recommendations to the board
with respect to management nominees to the board, (b) review such shareholder
nominees to the board as may be submitted to the corporation, and (c)
periodically report to the board with respect to its findings.
Section 11.1 These By-Laws may be amended or repealed at any regular or
special meeting of the Board of Directors by the majority vote of the Board of
Directors, or an any regular or special meeting of the stockholders (or by
written consent as provided in Section 228 of the Delaware Corporation Law, as
amended), by the majority vote of the total outstanding shares of the
corporation, as provided by law. These By-Laws may be amended without a meeting
of the Board of Directors by a resolution adopted and signed by all members of
the Board of Directors.
C-2
ANNEX D
SHAREHOLDER LLC PROMISSORY NOTE
not to exceed $10,000,000 Dated: February __, 2000
FOR VALUE RECEIVED and intending to be legally bound, the undersigned,
a Delaware Limited Liability Company ("Maker"), promises to pay to the order of
Centillion Data Systems, Inc. (the "Payee") the maximum Principal Sum of Ten
Million Dollars ($10,000,000), together with interest thereon on the unpaid
portion at the Rate.
Principal and Interest shall be paid upon the earlier to occur of the
following:
1. A "Liquidity Event" to the extent of such Liquidity Event, or
2. Ten years from the date of this Note (the "Maturity Date").
A "Liquidity Event" shall mean the actual receipt of cash by Maker upon
the sale of all or part of the Collateral after the making of a Permitted
Distribution. A "Permitted Distribution" shall be Maker's right to distribute to
its members forty-two percent (42%) of any cash received upon the sale of all or
part of any Collateral. Maker shall send Payee written notification within five
(5) days of a Liquidity Event.
All sums realized by the Holder on account of this Note, from whatever
source received, shall be applied first to any substantiated fees, costs and
expenses (including reasonable attorney's fees) incurred by the Holder, second
to accrued and unpaid interest, and then to principal.
As security for this Note, Maker hereby grants, conveys, and assigns to
the Payee a security interest in the property described in Exhibit "A" to this
Note ("Collateral"). Maker shall have the absolute right to sell all or part of
the Collateral for a price equal to or greater than the value set forth on
Exhibit "A," without the consent of Payee, provided that fifty-eight percent
(58%) of the proceeds of such sale are paid to Payee as a Liquidity Event as
provided above.
The nonpayment when due of any amount payable under this Note within
fifteen (15) days after the date due and written demand shall be an "Event of
Default".
Upon the Event of Default or in the event this Note remains unpaid
after the Maturity Date, Payee shall have the right to sell all or part of the
Collateral in any commercially reasonable manner to satisfy the balance due
under this Note. Such rights with respect to the Collateral shall be Payee's
exclusive remedy. Payee shall not have the right to collect any balance due
under this Note from any assets of Maker not
D-1
included as part of the Collateral.
The Rate shall mean ____ percent (___%) per annum.**
Maker shall have the privilege, without premium or penalty, of
prepaying this Note, at any time, in whole or in part, provided that each
prepayment shall be accompanied by accrued interest on the amount prepaid.
Upon an Event of Default, this Note shall, at Payee's option, become
immediately due and payable in full without further notice to or demand on Maker
of any kind and without presentment, demand or protest, notice of dishonor and
notice of protest, all of which are hereby waived.
In the event that the Holder engages an attorney to represent it in
connection with (a) any Event of Default, (b) any potential and/or actual
bankruptcy or other insolvency proceedings commenced by or against the Maker
and/or (c) any actual litigation arising out of or related to any of the
foregoing, or any of the Obligations, then the Maker shall be liable to and
shall reimburse the Holder on demand for all reasonable attorneys' fees, costs
and expenses incurred by the Holder in connection with any of the foregoing. The
Maker shall also be liable and shall also reimburse the Holder on demand for all
other reasonable, substantiated costs and expenses (including reasonable
attorney's fees) incurred by the Holder in connection with the enforcement of
the Obligations.
No extension of time for payment granted by the Holder of all or any
part of the amount owing on this Note at any time shall affect the liability of
the Maker hereunder.
Acceptance by the Holder of any payment after any Event of Default
shall not operate to extend the time of payment of any amount then remaining
unpaid and shall not constitute a waiver of any future installments, such Event
of Default or any other rights of the Holder under this Note. No delay by the
Holder in exercising any power or right shall operate as a waiver of any power
or right held by the Holder. The Maker hereby waives presentment for payment,
demand, protest, or notice of protest. No single or partial exercise of any
power or right shall preclude other or future exercise of the power or right, or
the exercise of any other power or right. The waiver of any default or grounds
for acceleration by the Holder shall not operate as a waiver of any subsequent
default, or grounds for acceleration of any power or right that the Holder may
have under the terms of this Note.
D-2
No waiver or modification of the terms of this Note shall be valid
unless in writing, signed by the Maker and the Holder, and appended hereto.
This Note and all questions relating to its validity, interpretation,
performance, remediation and enforcement (including, without limitation,
provisions concerning limitations of actions) shall be governed by and construed
in accordance with the domestic laws of the State of Delaware, notwithstanding
any choice-of-laws doctrines of such jurisdiction or any other jurisdiction
which ordinarily would cause the substantive law of another jurisdiction to
apply, without the aid of any canon, custom or rule of law requiring
construction against the draftsman.
If any provision of this Note or the application thereof is held by a
court of competent jurisdiction to be invalid or unenforceable, the remaining
provisions hereof shall not be affected thereby, and each provision of this Note
shall be valid and enforceable to the fullest extent permitted by law.
Waiver of Jury Trial. THE MAKER HEREBY KNOWINGLY, VOLUNTARILY AND
INTENTIONALLY WAIVES ANY RIGHTS IT MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY
LITIGATION BASED HEREON OR ARISING OUT OF , UNDER, OR IN CONNECTION WITH THIS
NOTE OR ANY COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER VERBAL OR
WRITTEN) OR ACTIONS OF THE HOLDER. THE MAKER HEREBY WAIVES THE RIGHT TO
INTERPOSE ANY COUNTERCLAIM OR OFFSET OF ANY NATURE OR DESCRIPTION IN ANY
LITIGATION RELATING TO THE PURCHASE DOCUMENTS OR THIS NOTE OR ANY LIABILITY
THEREUNDER OR HEREUNDER, OR ENFORCEMENT OF REMEDIES THEREUNDER OR HEREUNDER.
IN WITNESS WHEREOF, Maker has caused this instrument to be executed on
its behalf by its duly authorized officer, on the date first set forth above.
DELAWARE LIMITED LIABILITY
COMPANY
By: _____________________________
Manager
**The then applicable federal rate will be inserted at the time this note is
executed.
D-3
Exhibit "A" to Promissory Note
Intentionally Omitted
D-4
ANNEX E
(Patent LLC Note)
FORM OF PROMISSORY NOTE
$2,000,000 Dated: __________, 2000
FOR VALUE RECEIVED and intending to be legally bound, the undersigned,
a Delaware Limited Liability Company ("Maker"), promises to pay to the order of
______________ (the "Payee") the Principal Sum of Two Million Dollars
($2,000,000), together with interest thereon on the unpaid portion at the Rate.
Maker shall, from time to time, request from Payee advances up to the
aggregate face amount of this Note ("Advance"). The proceeds of Advances shall
be used to cover the costs associated with any Enforcement Action. Once an
Advance has been repaid from the proceeds of a Recovery Event or a prepayment,
in accordance with the terms hereof, the amount of Advances that Maker may
request under this Note shall be reduced by the amount of such Recovery Event or
prepayment.
Principal and Interest shall be paid upon the earlier to occur of the
following:
1. A "Recovery Event " to the extent of such Recovery Event, or
2. Five years from the date of this Note (the "Maturity Date").
A "Recovery Event" shall mean the Net Cash Received from any
settlements or judgments from parties which are either defendants or who may be
defendants in any action for the enforcement or infringement of any patent
rights under U.S. Patent Nos. 5287270 and 5325290 ("Enforcement Action") after
the making of a Permitted Distribution. A "Permitted Distribution" shall be
Maker's right to distribute to its member a percentage, equal to that member's
Applicable Tax Rate, of any Net Cash Received upon the recovery under any
Enforcement Action. "Applicable Tax Rate" shall mean the tax rate that applies
to Maker's member based upon the net income reported in the member's latest
annual financial statement filed with the Securities and Exchange Commission.
"Net Cash Received" shall mean the actual receipt of cash by Maker after payment
of legal fees and other expenses related to the Enforcement Action. Maker shall
send Payee written notification within five (5) days of a Recovery Event.
All sums realized by the Holder on account of this Note, from whatever
source received, shall be applied first to any substantiated fees, costs and
expenses (including reasonable attorney's fees) incurred by the Holder, second
to accrued and unpaid interest, and then to principal.
E-1
As security for this Note, Maker hereby grants, conveys, and assigns to
the Payee a security interest in the property described in Exhibit "A" to this
Note ("Collateral").
The nonpayment when due of any amount payable under this Note within
fifteen (15) days of the date due and written notice thereof shall be an "Event
of Default".
Upon an Event of Default, this Note shall, at Payee's option, become
immediately due and payable in full without further notice to or demand on Maker
of any kind and without presentment, demand or protest, notice of dishonor and
notice of protest, all of which are hereby waived.
In the Event of Default, Payee shall have the right to sell all or part
of the Collateral in any commercially reasonable manner to satisfy the balance
due under this Note. Such rights with respect to the Collateral shall be Payee's
exclusive remedy. Payee shall not have the right to collect any balance due
under this Note or for expenses, fees or other charges provided for in the next
paragraph from any assets of Maker not included as part of the Collateral.
In the event that the Holder engages an attorney to represent it in
connection with (a) an Event of Default, (b) any potential and/or actual
bankruptcy or other insolvency proceedings commenced by or against the Maker
and/or (c) any actual litigation arising out of or related to any of the
foregoing, or any of the Obligations, then the Maker shall be liable to and
shall reimburse the Holder on demand for all reasonable attorneys' fees, costs
and expenses incurred by the Holder in connection with any of the foregoing. The
Maker shall also be liable and shall also reimburse the Holder on demand for all
other reasonable, substantiated costs and expenses (including reasonable
attorney's fees) incurred by the Holder in connection with the enforcement of
the Obligations.
No extension of time for payment granted by the Holder of all or any
part of the amount owing on this Note at any time shall affect the liability of
the Maker hereunder.
Acceptance by the Holder of any payment after any Event of Default
shall not operate to extend the time of payment of any amount then remaining
unpaid and shall not constitute a waiver of any future installments, such Event
of Default or any other rights of the Holder under this Note. No delay by the
Holder in exercising any power or right shall operate as a waiver of any power
or right held by the Holder. The Maker hereby waives presentment for payment,
demand, protest, or notice of protest. No single or partial exercise of any
power or right shall preclude other or future exercise of the power or right, or
the exercise of any other power or right. The waiver of any default or grounds
for acceleration by the Holder shall not operate as a waiver of any subsequent
default, or grounds for acceleration of any power or right that the Holder may
have under the terms of this Note.
No waiver or modification of the terms of this Note shall be valid
unless in writing, signed by the Maker and the Holder, and appended hereto.
This Note and all questions relating to its validity, interpretation,
performance, remediation and enforcement (including, without limitation,
provisions concerning limitations of actions) shall be governed by and construed
in accordance with the domestic laws of the State of Delaware, notwithstanding
any choice-of-laws doctrines of such jurisdiction or any other jurisdiction
which ordinarily would cause the substantive law of another jurisdiction to
apply, without the aid of any canon, custom or rule of law requiring
construction against the draftsman.
E-2
If any provision of this Note or the application thereof is held by a
court of competent jurisdiction to be invalid or unenforceable, the remaining
provisions hereof shall not be affected thereby, and each provision of this Note
shall be valid and enforceable to the fullest extent permitted by law.
The Rate shall mean ____ percent (___%) per annum.**
Maker shall have the privilege, without premium or penalty, of
prepaying this Note, at any time, in whole or in part, provided that each
prepayment shall be accompanied by accrued interest on the amount prepaid.
Waiver of Jury Trial. THE MAKER HEREBY KNOWINGLY, VOLUNTARILY
AND INTENTIONALLY WAIVES ANY RIGHTS IT MAY HAVE TO A TRIAL BY JURY IN RESPECT OF
ANY LITIGATION BASED HEREON OR ARISING OUT OF , UNDER, OR IN CONNECTION WITH
THIS NOTE OR ANY COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER
VERBAL OR WRITTEN) OR ACTIONS OF THE HOLDER. THE MAKER HEREBY WAIVES THE RIGHT
TO INTERPOSE ANY COUNTERCLAIM OR OFFSET OF ANY NATURE OR DESCRIPTION IN ANY
LITIGATION RELATING TO THE PURCHASE DOCUMENTS OR THIS NOTE OR ANY LIABILITY
THEREUNDER OR HEREUNDER, OR ENFORCEMENT OF REMEDIES THEREUNDER OR HEREUNDER.
IN WITNESS WHEREOF, Maker has caused this instrument to be
executed on its behalf by its duly authorized officer, on the date first set
forth above.
Centillion L.L.C.
By: _________________________
Manager
** The then applicable federal rate will be inserted at the time this
Note is executed.
E-3
ANNEX F
OPINION OF FIRST COLONIAL SECURITIES GROUP, INC.
April 5, 2000
Directors:
You have asked us to render our opinion as to the fairness as
of the date hereof, from a financial point of view, to the shareholders of CTI
Group (Holdings) Inc. ("CTIG") of the consideration to be paid to the
shareholders of CTI Group (Holdings) Inc. in a proposed business combination of
CTI Group (Holdings) Inc. and Centillion Data Systems Inc. ("CDS") pursuant to
the Agreement and Plan of Merger dated February 4, 2000 between CTI Group
(Holdings) Inc. and Centillion Data Systems Inc.
We understand that each holder of Centillion Data Systems Inc. common
stock will be entitled to exchange each share of Centillion Data Systems Inc.
common stock for 9,747,404 shares of CTI Group (Holdings) Inc. common stock for
the non-tracked assets of Centillion Data Systems Inc. and 3,500,000 shares of a
special class of voting tracking stock of CTI Group (Holdings) Inc. common stock
for the tracked assets of Centillion Data Systems Inc. subject to certain
conditions and provisions of the Agreement.
In developing our opinion as to the fairness of the amount of shares to
be issued and price to be paid by the shareholders of CTI Group (Holdings) Inc.,
we have, among other things:
o Reviewed the Annual Reports to Shareholders and Annual Reports on Form
10-K and related financial information of CTI Group (Holdings) Inc. for
the two years ended March 31, 1999 and the audited financial
information provided by Centillion Data Systems Inc. for the two year
period ended December 31, 1999;
o Reviewed the Quarterly Reports to Shareholders and Quarterly Reports on
Form 10-Q of CTI Group (Holdings) Inc. for the fiscal quarters ended
September 30, 1999 and the audited financial information provided by
Centillion Data Systems Inc. for the three months ended December 31,
1999;
o Discussed with CTI Group (Holdings) Inc. management and Centillion Data
Systems Inc. management the operations, financial condition and future
prospects of their respective companies, including historical and
projected financial performance, trends and business opportunities;
o Reviewed the historical market prices and trading activity of CTI Group
(Holdings) Inc. common stock;
o Compared the results of operations of CTI Group (Holdings) Inc. and
Centillion Data Systems Inc. with those of certain companies designing,
developing, marketing and supporting data processing software and
F-1
services for managing telecommunications systems which we deemed to be
reasonably similar to CTI Group (Holdings) Inc. and Centillion Data
Systems Inc.;
o Compared the combination of CTI Group (Holdings Inc. and Centillion
Data Systems Inc. with certain other mergers and acquisitions of
companies supporting data processing software and services for the
telecommunications industry which we deemed to be reasonably similar to
the proposed transaction;
o Read the Agreement, employment agreements, promissory notes and related
documents dated February 4, 2000;
o Such other information, financial studies and analyses, and financial,
economic and market data that we considered relevant to our opinion.
In arriving at our opinion, we also have considered the relative
contributions of each company to, and resulting share in, the pro forma
combined balance sheet and income statement of the combined entity,
including revenues, net income, and net worth, as well as the pro forma per
share earnings, dividends, and book value.
In preparing our opinion, we have relied upon CTI Group (Holdings)
Inc. and Centillion Data Systems Inc. with respect to the accuracy and
completeness of the financial and other information provided by each
company. We have neither independently verified such information, including
financial information, nor made any independent evaluation of any of the
assets of CTI Group (Holdings) Inc. and Centillion Data Systems Inc.
On the basis of our review and analysis as discussed above, it is
our opinion that as of the date hereof, the consideration to be paid by the
shareholders of CTI Group (Holdings) Inc. pursuant to the proposed business
combination is fair from a financial point of view to the shareholders of
CTI Group (Holdings) Inc.
Very truly yours,
/s/
First Colonial Securities Group, Inc.
F-2
ANNEX G
ss.262 OF THE DELAWARE GENERAL CORPORATION LAW
(a) Any stockholder of a corporation of this State who holds shares
of stock on the date of the making of a demand pursuant to subsection (d) of
this section with respect to such shares, who continuously holds such shares
through the effective date of the merger or consolidation, who has otherwise
complied with subsection (d) of this section and who has neither voted in
favor of the merger or consolidation nor consented thereto in writing
pursuant to ss.ss. 228 of this title shall be entitled to an appraisal by
the Court of Chancery of the fair value of the stockholder's shares of stock
under the circumstances described in subsections (b) and (c) of this
section. As used in this section, the word "stockholder" means a holder of
record of stock in a stock corporation and also a member of record of a
nonstock corporation; the words "stock" and "share" mean and include what is
ordinarily meant by those words and also membership or membership interest
of a member of a nonstock corporation; and the words "depository receipt"
mean a receipt or other instrument issued by a depository representing an
interest in one or more shares, or fractions thereof, solely of stock of a
corporation, which stock is deposited with the depository.
(b) Appraisal rights shall be available for the shares of any class
or series of stock of a constituent corporation in a merger or consolidation
to be effected pursuant to ss.ss. 251 (other than a merger effected pursuant
to ss.ss. 251(g) of this title), ss.ss. 252, ss.ss. 254, ss.ss. 257, ss.ss.
258, ss.ss. 263 or ss.ss. 264 of this title:
(1) Provided, however, that no appraisal rights under this
section shall be available for the shares of any class or series of stock,
which stock, or depository receipts in respect thereof, at the record date
fixed to determine the stockholders entitled to receive notice of and to
vote at the meeting of stockholders to act upon the agreement of merger or
consolidation, were either (i) listed on a national securities exchange or
designated as a national market system security on an interdealer quotation
system by the National Association of Securities Dealers, Inc. or (ii) held
of record by more than 2,000 holders; and further provided that no appraisal
rights shall be available for any shares of stock of the constituent
corporation surviving a merger if the merger did not require for its
approval the vote of the stockholders of the surviving corporation as
provided in subsection (f) of ss.ss. 251 of this title.
(2) Notwithstanding paragraph (1) of this subsection,
appraisal rights under this section shall be available for the shares of any
class or series of stock of a constituent corporation if the holders thereof
are required by the terms of an agreement of merger or consolidation
pursuant to ss.ss.ss.ss. 251, 252, 254, 257, 258, 263 and 264 of this title
to accept for such stock anything except:
a. Shares of stock of the corporation surviving or
resulting from such merger or consolidation, or depository receipts in
respect thereof;
b. Shares of stock of any other corporation, or
depository receipts in respect thereof, which shares of stock (or depository
receipts in respect thereof) or depository receipts at the effective date of
the merger or consolidation will be either listed on a national securities
exchange or designated as a national market system security on an
interdealer quotation system by the National Association of Securities
Dealers, Inc. or held of record by more than 2,000 holders;
G-1
c. Cash in lieu of fractional shares or fractional
depository receipts described in the foregoing subparagraphs a. and b. of
this paragraph; or
d. Any combination of the shares of stock, depository
receipts and cash in lieu of fractional shares or fractional depository
receipts described in the foregoing subparagraphs a., b. and c. of this
paragraph.
(3) In the event all of the stock of a subsidiary Delaware
corporation party to a merger effected under ss.ss. 253 of this title is not
owned by the parent corporation immediately prior to the merger, appraisal
rights shall be available for the shares of the subsidiary Delaware
corporation.
(c) Any corporation may provide in its certificate of incorporation
that appraisal rights under this section shall be available for the shares
of any class or series of its stock as a result of an amendment to its
certificate of incorporation, any merger or consolidation in which the
corporation is a constituent corporation or the sale of all or substantially
all of the assets of the corporation. If the certificate of incorporation
contains such a provision, the procedures of this section, including those
set forth in subsections (d) and (e) of this section, shall apply as nearly
as is practicable.
(d) Appraisal rights shall be perfected as follows:
(1) If a proposed merger or consolidation for which appraisal
rights are provided under this section is to be submitted for approval at a
meeting of stockholders, the corporation, not less than 20 days prior to the
meeting, shall notify each of its stockholders who was such on the record
date for such meeting with respect to shares for which appraisal rights are
available pursuant to subsection (b) or (c) hereof that appraisal rights are
available for any or all of the shares of the constituent corporations, and
shall include in such notice a copy of this section. Each stockholder
electing to demand the appraisal of such stockholder's shares shall deliver
to the corporation, before the taking of the vote on the merger or
consolidation, a written demand for appraisal of such stockholder's shares.
Such demand will be sufficient if it reasonably informs the corporation of
the identity of the stockholder and that the stockholder intends thereby to
demand the appraisal of such stockholder's shares. A proxy or vote against
the merger or consolidation shall not constitute such a demand. A
stockholder electing to take such action must do so by a separate written
demand as herein provided. Within 10 days after the effective date of such
merger or consolidation, the surviving or resulting corporation shall notify
each stockholder of each constituent corporation who has complied with this
subsection and has not voted in favor of or consented to the merger or
consolidation of the date that the merger or consolidation has become
effective; or
(2) If the merger or consolidation was approved pursuant to
ss.ss. 228 or ss.ss. 253 of this title, each constituent corporation, either
before the effective date of the merger or consolidation or within ten days
thereafter, shall notify each of the holders of any class or series of stock
of such constituent corporation who are entitled to appraisal rights of the
approval of the merger or consolidation and that appraisal rights are
available for any or all shares of such class or series of stock of such
constituent corporation, and shall include in such notice a copy of this
section; provided that, if the notice is given on or after the effective
date of the merger or consolidation, such notice shall be given by the
surviving or resulting corporation to all such holders of any class or
series of stock of a constituent corporation that are
G-2
entitled to appraisal rights. Such notice may, and, if given on or after the
effective date of the merger or consolidation, shall, also notify such
stockholders of the effective date of the merger or consolidation. Any
stockholder entitled to appraisal rights may, within 20 days after the date
of mailing of such notice, demand in writing from the surviving or resulting
corporation the appraisal of such holder's shares. Such demand will be
sufficient if it reasonably informs the corporation of the identity of the
stockholder and that the stockholder intends thereby to demand the appraisal
of such holder's shares. If such notice did not notify stockholders of the
effective date of the merger or consolidation, either (i) each such
constituent corporation shall send a second notice before the effective date
of the merger or consolidation notifying each of the holders of any class or
series of stock of such constituent corporation that are entitled to
appraisal rights of the effective date of the merger or consolidation or
(ii) the surviving or resulting corporation shall send such a second notice
to all such holders on or within 10 days after such effective date;
provided, however, that if such second notice is sent more than 20 days
following the sending of the first notice, such second notice need only be
sent to each stockholder who is entitled to appraisal rights and who has
demanded appraisal of such holder's shares in accordance with this
subsection. An affidavit of the secretary or assistant secretary or of the
transfer agent of the corporation that is required to give either notice
that such notice has been given shall, in the absence of fraud, be prima
facie evidence of the facts stated therein. For purposes of determining the
stockholders entitled to receive either notice, each constituent
corporation may fix, in advance, a record date that shall be not more than
10 days prior to the date the notice is given, provided, that if the notice
is given on or after the effective date of the merger or consolidation, the
record date shall be such effective date. If no record date is fixed and the
notice is given prior to the effective date, the record date shall be the
close of business on the day next preceding the day on which the notice is
given.
(e) Within 120 days after the effective date of the merger or
consolidation, the surviving or resulting corporation or any stockholder who
has complied with subsections (a) and (d) hereof and who is otherwise
entitled to appraisal rights, may file a petition in the Court of Chancery
demanding a determination of the value of the stock of all such
stockholders. Notwithstanding the foregoing, at any time within 60 days
after the effective date of the merger or consolidation, any stockholder
shall have the right to withdraw such stockholder's demand for appraisal and
to accept the terms offered upon the merger or consolidation. Within 120
days after the effective date of the merger or consolidation, any
stockholder who has complied with the requirements of subsections (a) and
(d) hereof, upon written request, shall be entitled to receive from the
corporation surviving the merger or resulting from the consolidation a
statement setting forth the aggregate number of shares not voted in favor of
the merger or consolidation and with respect to which demands for appraisal
have been received and the aggregate number of holders of such shares. Such
written statement shall be mailed to the stockholder within 10 days after
such stockholder's written request for such a statement is received by the
surviving or resulting corporation or within 10 days after expiration of the
period for delivery of demands for appraisal under subsection (d) hereof,
whichever is later.
(f) Upon the filing of any such petition by a stockholder, service
of a copy thereof shall be made upon the surviving or resulting corporation,
which shall within 20 days after such service file in the office of the
Register in Chancery in which the petition was filed a duly verified list
containing the names and addresses of all stockholders who have demanded
payment for their shares and with whom agreements as to the value of their
shares have not been reached by the surviving or resulting corporation. If
the petition shall be filed by the surviving or resulting
G-3
corporation, the petition shall be accompanied by such a duly verified list.
The Register in Chancery, if so ordered by the Court, shall give notice of
the time and place fixed for the hearing of such petition by registered or
certified mail to the surviving or resulting corporation and to the
stockholders shown on the list at the addresses therein stated. Such notice
shall also be given by 1 or more publications at least 1 week before the day
of the hearing, in a newspaper of general circulation published in the City
of Wilmington, Delaware or such publication as the Court deems advisable.
The forms of the notices by mail and by publication shall be approved by the
Court, and the costs thereof shall be borne by the surviving or resulting
corporation.
(g) At the hearing on such petition, the Court shall determine the
stockholders who have complied with this section and who have become
entitled to appraisal rights. The Court may require the stockholders who
have demanded an appraisal for their shares and who hold stock represented
by certificates to submit their certificates of stock to the Register in
Chancery for notation thereon of the pendency of the appraisal proceedings;
and if any stockholder fails to comply with such direction, the Court may
dismiss the proceedings as to such stockholder.
(h) After determining the stockholders entitled to an appraisal, the
Court shall appraise the shares, determining their fair value exclusive of
any element of value arising from the accomplishment or expectation of the
merger or consolidation, together with a fair rate of interest, if any, to
be paid upon the amount determined to be the fair value. In determining such
fair value, the Court shall take into account all relevant factors. In
determining the fair rate of interest, the Court may consider all relevant
factors, including the rate of interest which the surviving or resulting
corporation would have had to pay to borrow money during the pendency of the
proceeding. Upon application by the surviving or resulting corporation or by
any stockholder entitled to participate in the appraisal proceeding, the
Court may, in its discretion, permit discovery or other pretrial proceedings
and may proceed to trial upon the appraisal prior to the final determination
of the stockholder entitled to an appraisal. Any stockholder whose name
appears on the list filed by the surviving or resulting corporation pursuant
to subsection (f) of this section and who has submitted such stockholder's
certificates of stock to the Register in Chancery, if such is required, may
participate fully in all proceedings until it is finally determined that
such stockholder is not entitled to appraisal rights under this section.
(i) The Court shall direct the payment of the fair value of the
shares, together with interest, if any, by the surviving or resulting
corporation to the stockholders entitled thereto. Interest may be simple or
compound, as the Court may direct. Payment shall be so made to each such
stockholder, in the case of holders of uncertificated stock forthwith, and
the case of holders of shares represented by certificates upon the surrender
to the corporation of the certificates representing such stock. The Court's
decree may be enforced as other decrees in the Court of Chancery may be
enforced, whether such surviving or resulting corporation be a corporation
of this State or of any state.
(j) The costs of the proceeding may be determined by the Court and
taxed upon the parties as the Court deems equitable in the circumstances.
Upon application of a stockholder, the Court may order all or a portion of
the expenses incurred by any stockholder in connection with the appraisal
proceeding, including, without limitation, reasonable attorney's fees and
the fees and expenses of experts, to be charged pro rata against the value
of all the shares entitled to an appraisal.
G-4
(k) From and after the effective date of the merger or
consolidation, no stockholder who has demanded appraisal rights as provided
in subsection (d) of this section shall be entitled to vote such stock for
any purpose or to receive payment of dividends or other distributions on the
stock (except dividends or other distributions payable to stockholders of
record at a date which is prior to the effective date of the merger or
consolidation); provided, however, that if no petition for an appraisal
shall be filed within the time provided in subsection (e) of this section,
or if such stockholder shall deliver to the surviving or resulting
corporation a written withdrawal of such stockholder's demand for an
appraisal and an acceptance of the merger or consolidation, either within 60
days after the effective date of the merger or consolidation as provided in
subsection (e) of this section or thereafter with the written approval of
the corporation, then the right of such stockholder to an appraisal shall
cease. Notwithstanding the foregoing, no appraisal proceeding in the Court
of Chancery shall be dismissed as to any stockholder without the approval of
the Court, and such approval may be conditioned upon such terms as the Court
deems just.
(l) The shares of the surviving or resulting corporation to which
the shares of such objecting stockholders would have been converted had they
assented to the merger or consolidation shall have the status of authorized
and unissued shares of the surviving or resulting corporation.
G-5
ANNEX H
AGREEMENT AND PLAN OF MERGER
by and among
CTI GROUP (HOLDINGS) INC.,
CTI BILLING SOLUTIONS INC.,
CELLTECH INFORMATION SYSTEMS, INC.,
DAVID A. WARREN,
FRANK S. SCARPA,
VALERIE S. HART
and
RICHARD J. DONNELLY
Dated as of April 5, 2000
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TABLE OF CONTENTS
Page
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ARTICLE I - MERGER.............................................................1
1.1 The Merger.........................................................1
1.2 Effective Time.....................................................2
1.3 Closing............................................................2
1.4 Certificate of Incorporation and By-Laws of Surviving
Corporation........................................................2
1.5 Directors and Officers of Surviving Corporation....................2
1.6 Further Assurances.................................................2
1.7 Effect on Shares of Merger Sub and Company.........................3
1.8 ...................................................................4
1.9 Exchange Agent.....................................................4
1.10 Exchange Procedures................................................4
1.11 Distributions with Respect to Unexchanged Shares...................4
1.12 No Fractional Shares of CTIG Stock.................................5
1.13 No Liability.......................................................5
1.14 Lost Certificates..................................................5
1.15 Stock Transfer Books...............................................6
1.16 CTIG Dissenting Shares.............................................6
1.17 Escrowed Stock.....................................................6
1.18 Special Meeting....................................................7
ARTICLE II - REPRESENTATIONS AND WARRANTIES OF COMPANY.........................8
2.1 Organization.......................................................8
2.2 Capitalization.....................................................8
2.3 Authority..........................................................9
2.4 No Violations; Consents and Approvals..............................9
2.5 Financial Statements..............................................10
2.6 Absence of Certain Changes........................................10
2.7 Legal Proceedings.................................................11
2.8 Compliance with Laws and Agreements...............................11
2.9 SEC Filing Information............................................12
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2.10 State Antitakeover Statutes.......................................12
2.11 Broker's Fees.....................................................12
2.12 Environmental Matters.............................................12
2.13 Intellectual Property Rights......................................13
2.14 Taxes.............................................................14
2.15 Employee Benefit Plans............................................14
2.16 Insurance.........................................................15
2.17 Contracts.........................................................16
2.18 Properties........................................................17
2.19 Employees and Independent Contractors.............................17
2.20 Year 2000.........................................................18
2.21 Certain Interests.................................................18
2.22 Customers and Suppliers...........................................18
2.23 Accounts Receivable...............................................18
2.24 America One Revenue...............................................18
2.25 Reorganization Treatment..........................................18
2.26 Disclosure........................................................19
ARTICLE IIA - REPRESENTATIONS AND WARRANTIES OF CELLTECH STOCKHOLDERS.........19
2A.1 Ownership of Celltech Common Stock................................19
2A.2 Agreement Not in Breach of Other Instruments Affecting Celltech
Stockholders......................................................19
2A.3 Valid and Binding Agreement. .....................................19
2A.4 No Claims Against Celltech........................................19
2A.5 Further Assurances................................................19
2A.6 Shareholder Meeting...............................................19
2A.7 Reorganization Treatment..........................................20
ARTICLE III - REPRESENTATIONS AND WARRANTIES OF CTIG AND MERGER SUB...........20
3.1 Organization......................................................20
3.2 Authority.........................................................20
3.3 No Violations; Consents and Approvals.............................20
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3.4 Legal Proceedings.................................................21
3.5 Proxy Statement...................................................21
3.6 Broker's Fees.....................................................21
3.7 Capitalization of Merger Sub......................................21
3.8 CTIG Disclosures..................................................21
3.9 Merger Stock......................................................22
3.10 Reorganization Treatment..........................................22
ARTICLE IV - COVENANTS .......................................................22
4.1 Conduct of Business of Celltech...................................22
4.2 No Solicitation by Celltech.......................................24
4.3 Access to Information.............................................25
4.4 CTIG Proxy Statement and Special Meeting..........................25
4.5 Preparation of Form S-4; Stockholders Meeting.....................26
4.6 Reasonable Best Efforts; Other Actions............................26
4.7 Public Announcements..............................................27
4.8 Notification of Certain Matters...................................27
4.9 Expenses..........................................................27
ARTICLE V - CONDITIONS TO THE OBLIGATIONS OF THE PARTIES ....................28
5.1 Stockholder Approval..............................................28
5.2 Consents and Approvals............................................28
5.3 Opinion of Financial Advisor......................................28
5.4 Employment Agreement..............................................28
ARTICLE VI - CONDITIONS TO THE OBLIGATIONS OF CTIG AND MERGER SUB ............28
6.1 Representations and Warranties True...............................28
6.2 Performance.......................................................29
6.3 Additional Documents..............................................29
6.4 Certain Proceedings...............................................29
6.5 Minimum Balance Sheet Requirements................................29
6.6 Material Adverse Change...........................................30
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ARTICLE VII - CONDITIONS TO THE OBLIGATIONS OF CELLTECH ......................30
7.1 Representations and Warranties True...............................30
7.2 Performance.......................................................30
7.3 Certificates......................................................30
7.4 Certain Proceedings...............................................30
7.5 Effectiveness of the Form S-4.....................................31
ARTICLE VIII - TERMINATION AND ABANDONMENT....................................31
8.1 Termination by CTIG or Celltech...................................31
8.2 Termination by CTIG...............................................31
8.3 Termination by Celltech...........................................31
8.4 Procedure for Termination.........................................32
8.5 Effect of Termination and Abandonment.............................32
ARTICLE IX - INDEMNIFICATION BY PRINCIPAL STOCKHOLDER.........................32
9.1 Indemnification...................................................32
9.2 Conditions of Indemnification.....................................32
9.3 Remedies..........................................................33
ARTICLE X - DEFINITIONS ......................................................33
10.1 Terms Defined in the Agreement....................................33
ARTICLE XI - MISCELLANEOUS....................................................35
11.1 Amendment and Modification........................................35
11.2 Waiver of Compliance; Consents....................................35
11.3 Survivability; Investigations.....................................35
11.4 Reasonable Efforts................................................36
11.5 Notices...........................................................36
11.6 Successor and Assigns.............................................38
11.7 Governing Law.....................................................38
11.8 Counterparts......................................................38
11.9 Severability......................................................38
11.10 Interpretation....................................................38
11.11 Entire Agreement..................................................39
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11.12 Jurisdiction......................................................39
11.13 WAIVER OF JURY TRIAL..............................................39
11.14 Class A Common Stock..............................................39
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AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER, dated as of April 5, 2000, is by and
among CTI GROUP (HOLDINGS) INC., a Delaware corporation ("CTIG"), CTI
BILLING SOLUTIONS INC., a Delaware corporation ("Merger Sub"), CELLTECH
INFORMATION SYSTEMS, INC., a Delaware corporation ("Celltech"), DAVID A.
WARREN, an individual ("Principal Stockholder"), FRANK S. SCARPA
("Scarpa"), VALERIE S. HART ("Hart") and RICHARD J. DONNELLY ("Donnelly",
and together with Scarpa and Hart, the "Minority Stockholders"). Celltech
and Merger Sub are sometimes collectively referred to as the "Constituent
Corporations." Principal Stockholder and the Minority Stockholders are
sometimes collectively referred to as the "Celltech Stockholders".
BACKGROUND
The Boards of Directors of CTIG, Merger Sub and Celltech, respectively,
deem it advisable and in their respective best interests and the best
interests of their respective stockholders that CTIG and Celltech combine
in order to advance the long-term business interests of CTIG and Celltech.
The combination of CTIG and Celltech shall be effected by the terms of
this Agreement through the merger (the "Merger") of Celltech with and into
Merger Sub, a wholly-owned subsidiary of CTIG.
The Boards of Directors of CTIG, Merger Sub and Celltech have approved
this Agreement and each of the documents required to be executed in
connection with this Agreement to which it is a party.
The Celltech Stockholders own 100% of the issued and outstanding shares
of Celltech Common Stock, no par value (the "Celltech Common Stock"), and
believe the Merger to be in Celltech's and their own best interests.
NOW, THEREFORE, in consideration of the foregoing, the mutual
covenants, representations, warranties and agreements herein contained, and
other good and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, the parties hereto, intending to be legally bound
hereby, agree as follows:
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ARTICLE I
MERGER
1.1 The Merger.
(a) In accordance with the provisions of this Agreement and
the General Corporation Law of the State of Delaware (the "DGCL"), at the
Effective Time (as defined in Section 1.2 hereof), Celltech shall be merged
with and into Merger Sub, and Merger Sub shall be the surviving corporation
(sometimes called the "Surviving Corporation") and shall continue its
corporate existence under the laws of the State of Delaware. At the
Effective Time the separate existence of Celltech shall cease.
(b) The Merger shall have the effects on Celltech and Merger
Sub as the constituent corporations of the Merger as provided under the
DGCL.
1.2 Effective Time. The Merger shall become effective at the time
of filing of, or at such later time as may be specified in, a
Certificate of Merger, in the form required by and executed in
accordance with the DGCL, with the Secretary of State of the
State of Delaware in accordance with the provisions of Section
251 of the DGCL (the "Certificate of Merger"). The date and
time when the Merger shall become effective is referred to as
the "Effective Time."
1.3 Closing. The closing of the Merger (the "Closing") will take
place at 10:00 a.m., Eastern Standard Time, on the second
Business Day (as defined below) after the satisfaction or
(subject to applicable law) waiver of the conditions
(excluding conditions that, by their terms, cannot be
satisfied until the Closing Date) set forth in Articles V, VI
and VII (the "Closing Date"), unless another time or date is
agreed to in writing by the parties hereto. The Closing shall
be held at the offices of Klehr, Harrison, Harvey, Branzburg &
Ellers LLP, 260 South Broad Street, Philadelphia, Pennsylvania
19102, unless another place is agreed to in writing by the
parties hereto. "Business Day" shall mean every day of the
week excluding Saturdays, Sundays and Federal holidays.
1.4 Certificate of Incorporation and By-Laws of Surviving
Corporation. The Certificate of Incorporation and By-Laws of
Merger Sub shall be the Certificate of Incorporation and
By-Laws of the Surviving Corporation until thereafter amended
as provided by law.
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1.5 Directors and Officers of Surviving Corporation.
(a) The number of directors of the Surviving Corporation shall
be as determined pursuant to the By-Laws of the Surviving Corporation. The
directors of Merger Sub shall be the directors of the Surviving Corporation
and will hold office from and after the Effective Time until their
respective successors are duly elected or appointed and qualify in the
manner provided in the Certificate of Incorporation and By-Laws of the
Surviving Corporation or as otherwise provided by law or their earlier
resignation or removal.
(b) The officers of the Surviving Corporation shall be
determined by the Board of Directors of the Surviving Corporation
immediately after the Effective Time, and will hold office from and after
the Effective Time until their respective successors are duly appointed and
qualify in the manner provided in the By-Laws of the Surviving Corporation
or as otherwise provided by law or their earlier resignation or removal.
1.6 Further Assurances. If, at any time after the Effective Time,
the Surviving Corporation shall consider or be advised that
any deeds, bills of sale, assignments, assurances, or any
other actions or things are necessary or desirable to vest,
perfect or confirm of record or otherwise in the Surviving
Corporation its right, title or interest in, to or under any
of the rights, properties or assets of either of the
Constituent Corporations acquired or to be acquired by the
Surviving Corporation as a result of, or in connection with,
the Merger or otherwise to carry out this Agreement, the
officers and directors of the Surviving Corporation shall be
authorized to execute and deliver, in the name and on behalf
of each of the Constituent Corporations or otherwise, all such
deeds, bills of sale, assignments and assurances and to take
and do, in the name and on behalf of each of the Constituent
Corporations or otherwise, all such other actions and things
as may be necessary or desirable to vest, perfect or confirm
any and all right, title and interest in, to and under such
rights, properties or assets in the Surviving Corporation or
otherwise to carry out this Agreement and the transactions
contemplated hereby.
1.7 Effect on Shares of Merger Sub and Company. At the Effective
Time, by virtue of the Merger, and without any action on the
part of the Celltech Stockholders, all issued and outstanding
shares of Celltech Common Stock (other than shares owned by
Celltech) shall be converted into the following (the "Merger
Consideration") to be distributed among the Celltech
Stockholders, pro rata on a per share equivalent basis:
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(a) the right to receive an aggregate $262,599 (the "Merger
Cash");
(b) 1,663,126 shares of CTIG Class A Common Stock, par value
.01 per share ("Class A Common Stock") subject to adjustment (the "Merger
Stock"), if any, as follows:
(i) in the event that the Average Market Price Per
Share (as defined below) of the CTIG Class A Common Stock on the Closing
Date is greater than $3.00, to a maximum of $3.75, or below $3.00 to a
minimum of $2.25, then the number of shares of Merger Stock shall be
determined by dividing $4,989,378 by such Average Market Price per Share;
provided that in no event will the Merger Stock be less than 1,330,501
shares nor more than 2,217,501 shares regardless of the Average Market
Price per Share of CTIG Class A Common Stock.
(ii) 52.63158% of the Merger Stock will be delivered
at Closing (the "Closing Stock") to be distributed pursuant to Sections 1.9
through 1.15, and 47.36842% of the Merger Stock (the "Escrowed Stock") will
be delivered to escrow to be held, delivered and/or cancelled in accordance
with Section 1.17.
(iii) For purposes of this Agreement, the "Average
Market Price per Share" of the Class A Common Stock at any date shall mean
the average of the daily last reported sale price per share of the Class A
Common Stock on the NASDAQ National Market System (or if such stock is then
listed on the New York Stock Exchange, on such Exchange) during the most
recent 20 consecutive full Business Days before such date, provided that if
there was no reported sale on any such day or days, there shall be
substituted the average of the closing bid and asked quotations on that
Market System or Exchange on that day or days, and provided further that,
if the Class A Common Stock is not listed on that Market System or Exchange
on any such day or days, there shall be substituted the comparable sale
price or average of bid and asked quotations on the principal national
securities exchange on which such Class A Common Stock is so listed, or if
not so listed on any national securities exchange, the average of the
highest bid and the lowest asked quotations in the over-the-counter market
that day or days.
(c) Each share of Celltech Common Stock owned by Celltech as
treasury stock shall be cancelled.
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(d) All shares of Celltech Common Stock shall be cancelled and
retired, and each certificate representing any such shares of Celltech
Common Stock shall thereafter represent only the right to receive the
Merger Consideration, and any cash in lieu of fractional shares of Merger
Stock, payable in exchange for such shares of Celltech Common Stock upon
the surrender of such certificate for payment in accordance with Sections
1.9 and 1.15.
1.8 [Intentionally left blank]
1.9 Exchange Agent. Prior to the Effective Time, CTIG shall
appoint American Stock Transfer or another commercial bank or
trust company to act as exchange agent for the purpose of
exchanging certificates representing Celltech Common Stock
("Certificates") for the applicable Merger Consideration (the
"Exchange Agent"). At or prior to the Effective Time, CTIG
shall deposit with the Exchange Agent, in trust for the
benefit of holders of shares of Celltech, sufficient funds and
certificates representing the applicable Merger Stock issuable
at Closing pursuant to Section 1.7 in exchange for outstanding
shares of Celltech Common Stock in the Merger. CTIG 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 1.12.
1.10 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 (i) a
transmittal letter 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 (ii) instructions for effecting the surrender of
Certificates in exchange for the applicable Merger
Consideration. Upon surrender of a Certificate to the Exchange
Agent together with the transmittal letter, duly executed and
completed in accordance with its instructions, and such other
documents as may reasonably be required by the Exchange Agent,
the Certificate holder shall be entitled to receive in
exchange therefor (A) a pro rata portion of the Merger Cash,
(B) one or more shares of Class A Common Stock representing,
in the aggregate, the whole number of shares that such holder
has the right to receive pursuant to Section 1.7, and (C) a
check in the amount equal to the cash that such holder has the
right to receive in lieu of any fractional shares of Class A
Common Stock pursuant to Section 1.12. All Certificates so
surrendered shall be canceled. No interest will be paid or
will accrue on any cash so payable.
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1.11 Distributions with Respect to Unexchanged Shares. No dividends
or other distributions declared or made with respect to shares
of Class A Common Stock with a record date after the Effective
Time shall be paid to the holder of any un-surrendered
Certificate with respect to the shares of Class A 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 Class A Common Stock shall be paid to any such
holder until such holder shall surrender such Certificate.
Subject to the effect of applicable laws, following surrender
of any such Certificate, there shall be paid to such holder of
shares of Class A Common Stock issuable in exchange therefor,
without interest, promptly after the time of such surrender,
the amount of any cash payable in lieu of fractional shares of
Class A Common Stock to which such holder is entitled pursuant
to Section 1.12 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 Class A
Common Stock.
1.12 No Fractional Shares of CTIG Stock. No fractional shares of
Class A Common Stock 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 CTIG or a holder of shares of CTIG
Class A Common Stock. Each holder of shares of Celltech Common
Stock exchanged pursuant to the Merger who would otherwise
have been entitled to receive a fraction of a share of CTIG
Class A 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 CTIG Class A
Common Stock multiplied by (ii) the Average Market Price per
Share of CTIG Class A Common Stock. The fractional share
interests of CTIG Class A Common Stock will be aggregated, and
no recordholder of Celltech Capital Stock will receive cash in
an amount equal to or greater than the value of one full share
of CTIG Class A Common Stock determined as of the Effective
Time.
1.13 No Liability. None of Celltech, Merger Sub or the Exchange
Agent shall be liable to any Person (as defined below) in
respect of any Merger Consideration, any dividends or
distributions with respect thereto or any cash in lieu of
fractional shares of applicable Class A Common Stock, in each
case delivered to a public official pursuant to any applicable
abandoned property, escheat or similar law. For purposes of
this Agreement, "Person" shall mean any individual,
corporation, partnership, limited liability company,
association, trust, joint venture, unincorporated association
or other entity or organization, including a government or
political subdivision or an agency or instrumentality thereof.
If any Certificate shall not have been surrendered prior to
six (6) months after the Effective Time (or immediately prior
to such
H-12
earlier date on which any Merger Consideration, any dividends
or distributions payable to the holder of such Certificate or
any cash payable in lieu of fractional shares of Class A
Common Stock pursuant to this Article I, would otherwise
escheat to or become the property of any Governmental
Entity (as defined below)), any such Merger Consideration,
dividends or distributions in respect thereof or such cash
shall, to the extent permitted by applicable law, be delivered
to CTIG, upon demand, and any holders of Celltech Common Stock
who have not theretofore complied with the provisions of this
Article I shall thereafter look only to CTIG for satisfaction
of their claims for such Merger Consideration, dividends or
distributions in respect thereof or such cash. For purposes of
this Agreement, "Governmental Entity" shall mean any nation or
government, any state or other political subdivision thereof,
any entity exercising executive, legislative, judicial,
regulatory or administrative functions of or pertaining to
government, including, but not limited to, any government
authority, agency, department, board, commission or
instrumentality of the United States, any State of the United
States, or any political subdivision thereof, and any tribunal
or arbitrator(s) of competent jurisdiction, and any
self-regulatory organization.
1.14 Lost Certificates. If any Certificate shall have been lost,
stolen or destroyed, upon the making of an affidavit of that
fact by the Person (such affidavit to be in a form and
substance satisfactory to CTIG and containing an appropriate
indemnity against claims) 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 of
Celltech Capital Stock formerly represented thereby, any cash
in lieu of fractional shares of Class A Common Stock, and
unpaid dividends and distributions on shares of Class A Common
Stock deliverable in respect thereof, pursuant to this
Agreement.
1.15 Stock Transfer Books. At the close of business, Eastern
Standard Time, on the day the Effective Time occurs, the stock
transfer books of Celltech shall be closed and there shall be
no further registration of transfers of shares of Celltech
Common Stock thereafter on the records of Celltech. From and
after the Effective Time, the holders of Certificates shall
cease to have any rights with respect to such shares of
Celltech Common Stock formerly represented thereby, except as
otherwise provided herein or by law.
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1.16 CTIG Dissenting Shares. Notwithstanding anything in this
Agreement to the contrary and unless provided for by
applicable law, holders of shares of CTIG Class A Common Stock
that are issued and outstanding immediately prior to the
Effective Time and that are owned by stockholders who have
properly perfected their rights of appraisal within the
meaning of Section 262 of the DGCL (the "CTIG Dissenting
Shares") shall be entitled to payment of the fair value of
such CTIG Dissenting Shares determined in accordance with
Section 262 of the DGCL. If any such stockholder shall have
failed to perfect or shall have effectively withdrawn or lost
such right of appraisal, each such share of CTIG Class A
Common Stock held by such stockholder shall thereupon be
deemed to remain issued and outstanding and unchanged as a
validly issued, fully paid and non-assessable share of capital
stock of the Surviving Corporation. CTIG shall give Celltech
prompt notice of CTIG's receipt of any notice or demand for
appraisal or payment pursuant to Section 262 of the DGCL,
withdrawals thereof and any other instruments served in
connection therewith pursuant to the DGCL and received by
CTIG.
1.17 Escrowed Stock.
(a) The Escrowed Stock shall be delivered to Celltech
Stockholders who received Merger Consideration at Closing only as follows:
(i) 50% of the Escrowed Stock will be subject to
release during the first Escrow Year (as defined below), 35% during the
second Escrow Year and the final 15% during the third Escrow Year.
(ii) At the end of each Escrow Quarter (as defined
below) a fraction (the "Quarter Fraction") shall be determined, the
numerator of which will be the actual gross revenue received from America
One Communications, Inc. ("America One") minus that portion of such gross
revenue attributed to postage ("America One Revenue") and the denominator
of which will be $645,652. If the Quarter Fraction is 1 or greater than 1,
then no later than 10 Business Days after the end of such Escrow Quarter,
25% of the Escrowed Stock that is subject to release pursuant to Section
1.17(a)(i) for the Escrow Year in which such Escrow Quarter occurs shall be
released from escrow to the Celltech Stockholders. If the Quarter Fraction
is less than 1, then no later than 10 Business Days after the end of such
Escrow Quarter, said fraction shall be multiplied by 25% of the Escrowed
Stock that is subject to release pursuant to Section 1.17(a)(i) for the
Escrow Year in which such Escrow Quarter occurs, the product thereof shall
be rounded to the nearest whole number, and that number of shares of the
Escrowed Stock shall, no later than 10
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Business Days after the end of such Escrow Quarter, be released from escrow
to the Celltech Stockholders.
(iii) If at the end of the third Escrow Year the
proportion that all Escrowed Stock released from escrow pursuant to Section
1.17(a)(ii) bears to the total Escrowed Stock placed in escrow pursuant to
Section 1.7(b)(ii) is less than the proportion that the aggregate America
One Revenue produced during all three Escrow Years bears to $7,747,821,
then no later then April 30, 2003 an additional number of shares of
Escrowed Stock shall be released to the Celltech Stockholders in order to
eliminate such difference up to a maximum of the total Escrowed Stock
remaining in escrow; provided that CTIG shall not issue any shares of CTIG
Class A Common Stock in excess of the number originally placed in escrow as
Escrowed Stock, regardless of the amount of such aggregate America One
Revenue.
(iv) Notwithstanding the foregoing, if at any time
prior to the end of the third Escrow Year, CTIG sells or licenses software
to America One that replaces the software that has produced the gross
revenue from America One referred to in Section 2.24, resulting in a
reduction or elimination of America One Revenue, then within 10 Business
Days after the end of the Escrow Quarter in which such reduction or
elimination first occurs, any shares of Escrowed Stock then remaining in
escrow shall be released to the Celltech Stockholders.
(b) All releases of Escrowed Stock from escrow to the Celltech
Stockholders shall be made in the same proportions to Celltech Stockholders
as the Closing Stock was distributed. No fractional shares or scrip
representing shares of the Escrowed Stock shall be issued pursuant to this
Section 1.17. If at any time during any Escrow Year, America One
discontinues its relationship with the Surviving Corporation, then all
Escrowed Stock then in escrow shall be returned to CTIG and cancelled, and
no additional shares of CTIG Class A Common Stock shall be subject to issue
to the Celltech Stockholders.
(c) For purposes of this Agreement, an "Escrow Year" shall
mean each of the first three consecutive 12 calendar month periods
commencing on March 1, 2000 and ending on February 28, 2003, and an "Escrow
Quarter" shall mean each of the three consecutive calendar month periods
within a respective Escrow Year.
1.18 Special Meeting.
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(a) If required by applicable law in order to consummate the
Merger, CTIG, acting through its Board of Directors, shall, in accordance
with applicable law and subject to the applicable provisions of this
Agreement:
(i) duly call, give notice of, convene and hold a
special meeting (the "Special Meeting") of its stockholders as soon as
practicable following the execution of this Agreement for the purpose of
considering and taking action upon the Merger and this Agreement;
(ii) file with the Securities and Exchange Commission
(the "SEC") under the Securities Exchange Act of 1934 as amended (the
"Exchange Act"), a Proxy Statement (as defined below) and use its best
efforts to obtain and furnish the information required to be included by it
in the Proxy Statement and, after consultation with Celltech, to respond
promptly to any comments made by the SEC with respect to the Proxy
Statement and any preliminary version thereof and cause the Proxy Statement
to be mailed to its stockholders at the earliest practicable time following
the execution of this Agreement;
(iii) include in the Proxy Statement the
recommendation of its Board of Directors that CTIG stockholders vote in
favor of the approval of this Agreement and the Merger and use its best
efforts to obtain the necessary approval of this Agreement and the Merger
by its stockholders.
(b) As used in this Agreement, the term "Proxy Statement"
means the letter to CTIG stockholders, notice of meeting, proxy statement
and form of proxy, or the information statement, as the case may be, to be
distributed to CTIG stockholders in connection with the Merger, including
any schedules required to be filed with the SEC in connection therewith.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF COMPANY
Celltech and Principal Stockholder, jointly and severally, represent
and warrant to CTIG and Merger Sub as follows:
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2.1 Organization. Celltech is a corporation duly organized,
validly existing and in good standing under the laws of the
State of Delaware and has all requisite corporate power and
authority to own, lease and operate its properties and to
carry on its business as now being conducted. It 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 necessary, except in such
jurisdictions where the failure to be so duly qualified or
licensed and in good standing would not, individually or in
the aggregate, have a material adverse effect on the business,
operations, assets, financial condition or results of
operations of Celltech or on the ability of Celltech to
consummate the transactions contemplated by this Agreement or
perform its obligations hereunder (a "Material Adverse
Effect"). Celltech has delivered to CTIG complete and correct
copies of its certificate of incorporation and bylaws as
currently in effect. It does not own any equity interests in
any corporation, partnership, limited liability company or
other entity.
2.2 Capitalization. Celltech's authorized capital stock consists
of 2,352.941 shares of Celltech Common Stock. Schedule 2.2 of
the Celltech Disclosure Schedules delivered to CTIG and Merger
Sub together with this Agreement (the "Celltech Disclosure
Schedules") sets forth all stockholders of Celltech and the
issued and outstanding shares of Celltech Common Stock issued
to each stockholder. There are not now, and at the Effective
Time there will not be, any existing options, warrants, calls,
subscriptions, or other rights, agreements or commitments
obligating Celltech to issue, transfer or sell any shares of
capital stock of or any other securities convertible into or
evidencing the right to subscribe for any such shares. All
issued and outstanding shares of Celltech Common Stock are
duly authorized and validly issued, fully paid, non-assessable
and free of preemptive rights with respect thereto.
2.3 Authority.
(a) Celltech has full corporate power and authority to execute
and deliver this Agreement and to consummate the transactions contemplated
hereby. The execution and delivery of this Agreement and the consummation
of the transactions contemplated hereby have been duly and validly
authorized and approved by its Board of Directors, and no corporate
proceedings are necessary to authorize this Agreement or the consummation
of the transactions contemplated hereby. This Agreement has been duly and
validly executed and delivered by Celltech, and it constitutes a legal,
valid and binding agreement of Celltech, enforceable against Celltech in
accordance with its terms.
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(b) The provisions of Section 203 of the DGCL do not apply to
the transactions contemplated by this Agreement.
2.4 No Violations; Consents and Approvals.
(a) Neither the execution and delivery of this Agreement or
the consummation of the transactions contemplated hereby nor compliance by
Celltech with any of the provisions hereof will (i) violate any provision
of its certificate of incorporation or by-laws, (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, cancellation or
acceleration or any right which becomes effective upon the occurrence of a
merger, consolidation or change in control, under, any of the terms,
conditions or provisions of any note, bond, mortgage, indenture or other
instrument of indebtedness for money borrowed to which it is a party, or by
which it or any of its properties is bound, or (iii) result in a violation
or breach of, or constitute (with or without due notice or lapse of time or
both) a default, or except as set forth in Schedule 2.4 of the Celltech
Disclosure Schedules give rise to any right of termination, cancellation or
acceleration or any right which becomes effective upon the occurrence of a
merger, consolidation or change in control, under, any of the terms,
conditions or provisions of any license, franchise, permit or agreement to
which it is a party, or by which it or any of its properties is bound, or
(iv) violate any statute, rule, regulation, order or decree of any public
body or authority by which it or any of its properties is bound, excluding
from the foregoing clauses (iii) and (iv) violations, breaches, defaults or
rights which, either individually or in the aggregate, would not have a
Material Adverse Effect on Celltech or materially impair its ability to
consummate the transactions contemplated hereby or for which it has
received or, prior to the Closing Date, shall have received appropriate
consents or waivers.
(b) No filing or registration with, notification to, or
authorization, consent or approval of, any Governmental Entity is required
by Celltech in connection with the execution and delivery of this Agreement
or the consummation by it of the transactions contemplated hereby, except
the filing of the Certificate of Merger with the Secretary of State of the
State of Delaware.
2.5 Financial Statements.
(a) Celltech has provided CTIG the following financial
statements: (i) balance sheets as of December 31, 1998 and December 31,
1999 which have been reviewed by John Massanova, C.P.A., and (ii)
statements of income for the years ended December 31, 1998 and December 31,
1999 which have been reviewed by John Massanova, C.P.A. As of their
respective dates, the Financial Statements were
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prepared in accordance with generally accepted accounting principles
("GAAP") applied on a consistent basis during the periods involved (except
as may be indicated therein or in the notes thereto) and fairly presented
its financial position as at the dates thereof and the results of its
operations and statements of cash flows for the periods then ended
(subject, in the case of unaudited statements, to the lack of footnotes
thereto, to normal year-end audit adjustments and to any other adjustments
described therein).
(b) As soon as practicable after the date hereof, Celltech
shall provide CTIG the following financial statements (the "Financial
Statements"): (i) balance sheets as of December 31, 1998 and December 31,
1999 audited by Arthur Andersen LLP, and (ii) statements of income for the
years ended December 31, 1998 and December 31, 1999 audited by Arthur
Andersen LLP. As of their respective dates, the Financial Statements will
be prepared in accordance with GAAP applied on a consistent basis during
the periods involved (except as may be indicated therein or in the notes
thereto) and will fairly present Celltech's financial position as at the
dates thereof and the results of its operations and statements of cash
flows for the periods then ended. The December 31, 1999 audited balance
sheet is referred to as the "Balance Sheet" and the date thereof as the
"Balance Sheet Date."
(c) There are no liabilities or obligations of Celltech
accrued, absolute, or contingent and whether due or to become due, other
than liabilities and obligations (i) reflected, or adequately reserved
against, in the Balance Sheet, (ii) arising in the ordinary course of
business subsequent to the date of the Balance Sheet, or (iii) which,
individually or in the aggregate, would not have a Material Adverse Effect.
2.6 Absence of Certain Changes. Since the Balance Sheet Date,
Celltech's business has been conducted in the ordinary course
consistent with past practices and, except as disclosed in
Schedule 2.6 to the Celltech Disclosure Schedules, there has
not been:
(a) any change, event or development having, or that could be
reasonably expected to have, individually or in the aggregate, a Material
Adverse Effect on Celltech;
(b) any amendments or changes in its Certificate of
Incorporation or bylaws;
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(c) any material damage to, destruction or loss of any of its
assets (whether or not covered by insurance);
(d) any change by Celltech in its accounting methods,
principles or practices;
(e) any revaluation by Celltech of any of its assets,
including, without limitation, writing down the value of inventory or
writing off notes or accounts receivable other than in the ordinary course
of business;
(f) any sale of a material amount of assets of Celltech,
except for the sale of inventory in the ordinary course of business;
(g) any declaration, setting aside or payment of any dividend
or distribution in respect of any of its capital stock or any redemption,
purchase or other acquisition of any of its securities;
(h) any entry by Celltech into any commitment or transaction
material to it, including, without limitation, any long-term supply
agreements or partnership, joint venture or other similar arrangements;
(i) any increase in or establishment of any bonus, insurance,
severance, deferred compensation, pension, profit sharing, stock option
(including without limitation, the granting of stock options, stock
appreciation rights, performance awards, or restricted stock awards), stock
purchase or other employee benefit plan, or any increase in the
compensation payable to any officers or key employees of Celltech except in
the ordinary course of business consistent with past practice;
(j) any issuance, delivery, or sale of, or authorization of
the issuance, delivery or sale of, any share of capital stock or any
options or rights with respect thereto, or modification or amendment of any
right of any holder of outstanding shares of capital stock or options with
respect thereto; or
(k) any incurring of (which shall be deemed to include
entering into credit agreements, lines of credit or similar arrangements
until borrowings are made under such arrangements) any indebtedness for
borrowed money or guarantee of
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any such indebtedness other than in the ordinary course of business
consistent with past practice.
2.7 Legal Proceedings. Except as disclosed in Schedule 2.7 of the
Celltech Disclosure Schedules there is no (a) claim, action,
suit or proceeding pending or, to its best knowledge,
threatened, against or relating to it or any of its assets
before any court or Governmental Entity, or (b) outstanding
judgment, order, writ, injunction or decree, or application,
request or motion therefor, of any court or Governmental
Entity in a proceeding to which Celltech is a party.
2.8 Compliance with Laws and Agreements. Celltech is not (a) in
violation of or noncompliance with any statute, law,
ordinance, regulation, rule or order of any Governmental
Entity, or any judgment, decree or order of any court,
applicable to its business or operations or (b) in violation,
breach or default (with or without due notice or lapse of time
or both) under any of the terms, conditions or provisions of
any agreement to which it is a party, or by which its
properties are bound, except where any such violations or
failures to comply or breaches or defaults would not,
individually or in the aggregate, have a Material Adverse
Effect. Celltech has all permits, licenses, authorizations and
franchises from Governmental Entities required to conduct its
business as now being conducted, except for such permits,
licenses and franchises the absence of which would not,
individually or in the aggregate, have a Material Adverse
Effect.
2.9 SEC Filing Information. If a Proxy Statement is required for
the consummation of the Merger under applicable law, the
information supplied or to be supplied by Celltech for
inclusion in the Proxy Statement will not 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, in light of circumstances under which they
were made, not misleading.
2.10 State Antitakeover Statutes. No "business combination,"
"moratorium," "control share" or other state antitakeover
statute or regulation (a) prohibits or restricts Celltech's
ability to perform its obligations under this Agreement or its
ability to consummate the transactions contemplated hereby,
(b) would have the effect of invalidating or voiding this
Agreement, or any material provision hereof, or (c) would
subject CTIG or Merger Sub to any material impediment or
condition in connection with the exercise of any of their
respective rights under this Agreement or with respect to
Celltech or the Surviving Corporation.
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2.11 Broker's Fees. Except for the engagement of PASCO Business
Trust ("PASCO") by Celltech, neither Celltech, any of its
directors or officers nor Principal Stockholder has employed
any broker, finder or financial advisor or incurred any
liability for any broker's fees, commissions, or financial
advisory or finder's fees in connection with any of the
transactions contemplated by this Agreement. The Celltech
Stockholders hereby assign to PASCO, effective as of the
Closing Date, their right to receive the Merger Cash, on a pro
rata basis, to pay all fees and expenses due PASCO, to an
amount not to exceed $262,599.
2.12 Environmental Matters. Except as set forth in Schedule 2.12 of
the Celltech Disclosure Schedules or as would not reasonably
be expected to have, individually or in the aggregate, a
Material Adverse Effect, (a) to Celltech's knowledge no real
property or any part thereof currently or formerly owned or
operated by Celltech is contaminated with any Hazardous
Substance (as defined herein) to an extent or in a manner or
condition which may reasonably be expected to require
investigation or remediation under any Environmental Law (as
defined herein), (b) no judicial or administrative action,
suit or other proceeding is pending or to the knowledge of
Celltech, threatened relating to or arising out of any
Environmental Law, including, but not limited to, claims with
respect to off-site disposal, off-site contamination, personal
injury, property damage or natural resources damages, (c)
Celltech has not received any claims, orders, citations,
demands, requests for information or other notices alleging or
concerning liability or assessing a penalty under any
Environmental Law; and neither Celltech nor any of its
operations is or has been in violation of or has any liability
under an applicable Environmental Law and no condition or
event has occurred with respect to Celltech that would
constitute a violation of or create liability under such
Environmental Law, whether accrued, contingent, absolute,
determined, determinable or otherwise, except for any
conditions or violations that would not reasonably be expected
to have, individually or in the aggregate, a Material Adverse
Effect, and (d) no expenditures by Celltech to maintain or
achieve compliance with applicable Environmental Laws during
the three (3) year period following the date hereof are
anticipated except where such expenditures, individually or in
the aggregate would not reasonably be expected to have a
Material Adverse Effect. "Environmental Law" means any
applicable federal, state or local law, including common law,
regulation, permit, license, certificate or other
authorization, agreement, standard, directive, order, decree,
judicial opinion or any other enforceable governmental
authority requirement relating to noise, odor, Hazardous
Substances, public and worker health and safety or the
protection of the environment. "Hazardous Substance" means any
toxic, hazardous or dangerous material, substance, chemical,
waste,
H-22
pollutant or contaminant, including, but not limited to
petroleum and petroleum containing products, asbestos
containing materials, PCBs and radioactive substances that is
regulated by or under authority of any Environmental Law.
2.13 Intellectual Property Rights.
(a) Celltech owns or has the right to use all Intellectual
Property Rights (as defined below) necessary to the conduct of its
business. Schedule 2.13 of the Celltech Disclosure Statement contains a
list of all patents, trademarks, trade names, service marks, and registered
copyrights and any application for the foregoing owned by Celltech.
Celltech has clear and unencumbered title to the Intellectual Property
Rights set forth in Schedule 2.13 of the Celltech Disclosure Schedules and
such title has not been challenged (pending or, to its best knowledge,
threatened) by others except for the encumbrances listed in Schedule 2.13
of the Celltech Disclosure Schedules. Schedule 2.13 of the Celltech
Disclosure Schedules also contains a list of invention disclosures for
which applications for patent are in progress. No material rights or
licenses to use the Intellectual Property Rights have been granted or
acquired by Celltech except those listed in Schedule 2.13 of the Celltech
Disclosure Schedules. Except as listed in Schedule 2.13 of the Celltech
Disclosure Schedules, there have been no claims or assertions made or, to
Celltech's best knowledge, threatened by others that Celltech does not own
or have the right to use all Intellectual Property Rights or that Celltech
has infringed or will infringe any Intellectual Property Rights of others
and, to the knowledge of Celltech, there has been no such infringement by
the Celltech. Except as listed in Schedule 2.13 of the Celltech Disclosure
Schedules, Celltech has no knowledge of any infringement of Intellectual
Property Rights of Celltech by others. All such registered patents,
trademarks, service marks, and copyrights owned by Celltech are in good
standing, and are recorded in the name of Celltech. True and complete
copies of all material listed in Schedule 2.13 of the Celltech Disclosure
Statement have been delivered to CTIG.
(b) Except as set forth in Schedule 2.13 of the Celltech
Disclosure Schedules, none of the processes, techniques and formulae,
research and development results and other know-how relating to the
business of Celltech, the value of which to Celltech is contingent upon
maintenance of the confidentiality thereof has been disclosed by Celltech
or any affiliate to any third party other than third parties who are bound
to hold such information in confidence pursuant to confidentiality
agreements or by operation of law, other than any such disclosure which,
individually or in the aggregate, would not reasonably be expected to have
a Material Adverse Effect.
H-23
(c) "Intellectual Property Rights" shall mean and include
rights relating to patents, trademarks, service marks, trade names,
copyrights, mask works, inventions, processes, trade secrets, know-how,
confidentiality agreements, consulting agreements, software and
documentation.
2.14 Taxes. Except as set forth in Schedule 2.14 of the Celltech
Disclosure Schedules (a) Celltech has prepared and timely
filed or will timely file with the appropriate governmental
agencies all franchise, income and all other Tax (as defined
below) returns and reports (Tax returns and reports are
hereinafter collectively referred to as "Tax Returns")
required to be filed for any period on or before the Effective
Time, taking into account any extension of time to file
granted to or obtained on behalf of the Celltech (Schedules
for which the past three fiscal years have been delivered to
CTIG to be followed by delivery of returns to CTIG as
requested); (b) all Taxes of Celltech due (whether or not
reported) in respect of the pre-Merger period have been paid
in full to the proper authorities or fully accrued, other than
such Taxes as are being contested in good faith by appropriate
proceedings and are adequately reserved for in accordance with
GAAP; (c) all deficiencies resulting from Tax examinations of
federal, state and foreign income, sales and franchise and all
other Tax Returns filed by the Celltech have either been paid
or adequately reserved for in accordance with GAAP; (d) no
deficiency has been asserted or assessed against Celltech and
is pending, and no examination of Celltech is pending or, to
Celltech's best knowledge, threatened for any amount of Tax by
any taxing authority (with respect to any such action,
Schedule 2.14 of the Disclosure Statement sets forth the
periods at issue and the category of Tax, and the examining
authority's and any corresponding revenue agents' reports
relating to the issue have been delivered to CTIG); (e) no
extension of the period for assessment or collection of any
Tax is currently in effect and no extension of time within
which to file any Tax Return has been requested, which Tax
Return has not since been filed; (f) no Tax liens have been
filed with respect to any Taxes; (g) Celltech has made timely
payments of the Taxes required to be deducted and withheld
from the wages paid to its employees; and (h) Celltech is not
obligated to make any payments that would constitute excess
parachute payments within the meaning of Section 280G of the
Internal Revenue Code of 1986, as amended (the "Code.")
"Tax" or "Taxes" shall mean all federal, state, local and foreign
taxes, duties, levies, charges and assessments of any nature, including
social security payments and deductibles relating to wages, salaries and
benefits and payments to sub-contractors (to the extent required under
applicable Tax law), and also including all interest, penalties and
additions imposed with respect to such amounts.
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2.15 Employee Benefit Plans.
(a) Schedule 2.15 of the Celltech Disclosure Schedules
identifies each employment, severance or similar contract or arrangement
(whether or not written) or any plan, policy, fund, program or contract or
arrangement (whether or not written) providing for compensation, bonus,
profit-sharing, stock option, or other stock related rights or other forms
of incentive or deferred compensation, vacation benefits, insurance
coverage (including any self-insured arrangements), health or medical
benefits, disability benefits, workers' compensation, supplemental
unemployment benefits, severance benefits and post-employment or retirement
benefits (including compensation, pension, health, medical or life
insurance or other benefits) that (i) has been entered into, maintained,
administered or contributed to, as the case may be, by Celltech and (ii)
covers any employee or former employee (each, an "Employee Plan").
(b) Celltech has furnished or made available to CTIG copies of
the Employee Plans (and, if applicable, related trust agreements) and all
amendments thereto and written interpretations thereof, together with the
most recent annual report (Form 5500 including, if applicable, Schedule B
thereto) and the most recent actuarial valuation report prepared in
connection with any Employee Plan.
(c) Each Employee Plan that is intended to be qualified under
Section 401(a) of the Code has been determined by the Internal Revenue
Service to be qualified under Section 401(a) of the Code and each trust
related thereto has been determined to be exempt from tax pursuant to
Section 501(a) of the Code, and Celltech is not aware of any event that has
occurred since the date of such determinations that would adversely affect
such qualification or tax exempt status. Celltech has provided CTIG with
the most recent determination letter of the Internal Revenue Service
relating to each such Employee Plan. Each Employee Plan has been maintained
in compliance in all material respects with its terms and with the
requirements prescribed by any and all applicable statutes, orders, rules
and regulations, including but not limited to the Employee Retirement
Income Security Act of 1974, as amended ("ERISA"), and the Code.
(d) No Employee Plan is a multi-employer plan as defined in
Section 3(37) of ERISA or is a plan subject to Title IV of ERISA.
(e) Celltech does not have any current or projected liability
in respect of post-employment or post-retirement health or medical or life
insurance benefits for retired, former or current employees of Celltech,
except as required to avoid excise tax under Section 4980B of the Code.
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(f) Except as set forth in Schedule 2.15 of the Celltech
Disclosure Schedules, there has been no amendment to, written
interpretation of or announcement (whether or not written) by Celltech
relating to, or change in employee participation or coverage under, any
Employee Plan that would increase materially the expense of maintaining
such Employee Plan above the level of the expense incurred in respect
thereof for the most recent fiscal year ended prior to the date hereof.
(g) Other than as described in Schedule 2.15 of the Celltech
Disclosure Schedules, no employee or former employee of Celltech will
become entitled to any bonus, retirement, severance, job security or
similar benefit or an enhancement of such benefit (including acceleration
of vesting or exercise of an incentive award) under any Employee Plan as a
result of the transactions contemplated hereby.
2.16 Insurance. Schedule 2.16 to the Celltech Disclosure Schedules
is an accurate and complete list and description of all
insurance policies currently owned or maintained by Celltech
(excluding insurance policies that constitute Employee Benefit
Plans) in connection with or for the benefit of its business
and all liability and errors and omissions insurance policies
owned or maintained by it or any of its predecessors at any
time during the five years prior to the date of this
Agreement. Except as described in Schedule 2.16, all such
insurance policies are or were on an "occurrence" rather than
a "claims made" basis. Celltech has not received notice of
cancellation with respect to any such current insurance
policy, and there is no basis for the insurer thereunder to
terminate any such current insurance policy. Each such
insurance policy is or was in full force and effect during the
period(s) of coverage indicated on Schedule 2.16. Except as
described on Schedule 2.16, there are no claims that are
pending under any of the Insurance Policies described on
Schedule 2.16.
2.17 Contracts.
(a) Schedule 2.17 is an accurate and complete list of all of
the following types of Contracts to which Celltech is a party or by which
Celltech is bound (collectively, the "Contracts"), grouped into the
following categories and, where applicable, subdivided by product line: (a)
each customer Contract; (b) each supplier Contract, each Contract for the
purchase, lease or maintenance of computer equipment and other equipment
and each Contract for the purchase, license, lease or maintenance of
software under which Celltech is the purchaser, licensee, lessee or user;
(c) Contracts for the purchase or lease of real property or otherwise
concerning real property owned or used by Celltech including a description
of the real property;
H-26
(d) loan agreements, mortgages, notes, guarantees and other financing
Contracts; (e) employment, consulting and sales representative Contracts
other than those for "at will" employment; (f) Contracts under which any
rights in or ownership of Celltech's business, any predecessor thereof, or
any part of the customer base or business of Celltech's business was
acquired; and (g) other Contracts (excluding Contracts which constitute
insurance policies listed on Schedule 2.16, this Agreement and all other
Contracts entered into between Celltech and CTIG, or among Celltech, CTIG
and other parties in connection herewith). A description of each oral
Contract is included on Schedule 2.17, and copies of each written Contract
have been delivered to CTIG. Except as described in Schedule 2.17, with
respect to each of the Contracts, neither Celltech nor, to the knowledge of
Celltech, any other party thereto, is in breach, default or violation of
any term, condition or provision of any Contract, except for any breaches,
defaults or violations that would not reasonably be expected to have,
individually or in the aggregate, a Material Adverse Effect. Except as
described in Schedule 2.17, Celltech has not given or received any notice
of default or notice of termination with respect to any Contract.
(b) Each Contract is a valid, binding and enforceable
obligation of Celltech and, to the knowledge of Celltech, of each party
thereto, and is in full force and effect, except where the failure to be
valid, binding and enforceable and in full force and effect would not
reasonably be expected to have, individually or in the aggregate, a
Material Adverse Effect. Neither Celltech nor, to the knowledge of
Celltech, any party thereto, is in breach, default or violation of any
term, condition or provision of any Contract, except for any breaches,
defaults or violations that would not reasonably be expected to have,
individually or in the aggregate, a Material Adverse Effect.
2.18 Properties.
(a) Schedule 2.18 to the Celltech Disclosure Schedules sets
forth all tangible personal property owned by Celltech and all real
property owned or leased by Celltech, as of the date of this Agreement.
Except as set forth in Schedule 2.18, Celltech has good and marketable
title, or valid leasehold rights in the case of leased property, to all
real property and all personal property purported to be owned or leased by
it, free and clear of all liens, security interests, claims, encumbrances
and charges, excluding (i) liens for fees, taxes, levies, imposts, duties
or governmental charges of any kind which are not yet delinquent or are
being contested in good faith by appropriate proceedings which suspend the
collection thereof, (ii) liens for mechanics, materialmen, laborers,
employees, suppliers or other liens arising by operation of law for sums
which are not yet delinquent or are being contested in good faith by
appropriate proceedings, and (iii) purchase money liens on office, computer
and related equipment and supplies incurred in the ordinary course of
business. All
H-27
buildings, and all fixtures, equipment and other property and assets held
under leases or sub-leases by Celltech are held under valid instruments
enforceable in accordance with their respective terms, except to the extent
that certain leases for equipment set forth on Schedule 2.18 to the
Celltech Disclosure Schedule prohibit an assignment, merger or change of
control of Celltech, and the violation of which prohibition or loss of such
lease, alone or in the aggregate, would not have a Material Adverse Effect
on Celltech or the Surviving Corporation . The tangible personal property
of Celltech has no material defects and is in good operating condition and
repair (ordinary wear and tear excepted) and is adequate for its current
uses. None of such tangible personal property is in need of maintenance or
repairs except for ordinary routine maintenance and repairs that are not
material in nature or cost.
(b) Except as set forth on Schedule 2.18, consummation of the
Merger will not result in any breach of or constitute a default (or an
event with which notice or lapse of time or both would constitute a
default) under, or give to others any rights of termination or cancellation
or, or require the consent of others under, any lease in which Celltech is
a lessee.
2.19 Employees and Independent Contractors. Schedule 2.19 to the
Celltech Disclosure Schedules is a list of all of Celltech's
employees and (a) their titles or responsibilities; (b) their
current salaries or wages; (c) their last compensation changes
and the dates on which such changes were made; (d) any
specific bonus, commission or incentive plans or agreements
for or with them; and (e) any outstanding loans or advances
made to them. Celltech has delivered to CTIG an accurate and
complete list of all bonuses, commissions and incentives paid
to the employees listed on Schedule 2.19 at any time during
the past twelve months. Schedule 2.19 includes a list of all
sales representatives and independent contractors engaged in
Celltech's business, their payment arrangements, and a brief
description of their jobs or projects currently in progress.
Celltech is in full compliance with all applicable statutes,
laws, ordinances, rules and regulations of any Governmental
Entity respecting employment practices. Celltech has never
been a party to or bound by any union or collective bargaining
contract, nor is any such contract currently in effect or
being negotiated by or on behalf of Celltech. Celltech has not
experienced any labor problem that was or is material to its
business. Celltech's relations with its employees are
currently on a good and normal basis, and no employee of
Celltech has indicated an intention to terminate his or her
employment. Celltech does not have any knowledge or belief
that the transactions contemplated by this Agreement will
adversely affect relations with Celltech's employees.
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2.20 Year 2000. Celltech has put into effect practices and programs
which Celltech believes will enable all material software,
hardware and equipment (including microprocessors) that are
owned or utilized by Celltech in the operations of its
business to be capable of accounting for all calculations
using a century and date sensitive algorithm for the year 2000
and the fact that the year 2000 is a leap year and to
otherwise continue to function without any interruption caused
by the occurrence of the year 2000.
2.21 Certain Interests. Except as set forth in Schedule 2.21 of the
Celltech Disclosure Schedules, none of Celltech, or any of its
officers, directors, or affiliates or Principal Stockholder,
has (a) any direct or indirect interest (other than the
ownership of less than 1% of the outstanding securities of a
publicly held company) in any corporation or business that is
involved in or competes with Celltech, or (b) any direct or
indirect interest in any property or assets used by, or
relating to, Celltech or its business, except for the
ownership of Celltech's capital stock.
2.22 Customers and Suppliers. Schedule 2.22 of the Celltech
Disclosure Schedules sets forth a list of Celltech's ten
largest customers and ten largest suppliers in terms of sales
and purchases, respectively, during the fiscal year ended
December 31, 1999, showing the approximate total of sales by
Celltech to each such customer and the approximate total
purchases by Celltech from each such supplier during such
year. Except as set forth on Schedule 2.22 of the Celltech
Disclosure Schedules, no material adverse change has occurred
in the business relationship or contracts of Celltech with any
such customer or any such supplier and, to Celltech's
knowledge, no facts exist and no events have occurred that
could reasonably be expected to result in a material adverse
change to any such relationship.
2.23 Accounts Receivable. Schedule 2.23 of the Celltech Disclosure
Schedules sets forth a true and complete list of all accounts
receivable of Celltech as of the date hereof and the aging
thereof. All accounts receivable of Celltech reflected on such
Schedule or subsequently created through the Effective Time
(the "Accounts Receivable"), represent sales actually made or
services actually performed in the ordinary course of business
and are current and either have been collected in full or will
be collectable in full without any setoff. Notwithstanding the
foregoing, no representation or warranty is made with respect
to the ability to collect an account receivable of Ameritel
Communications in the amount of $406,999.09.
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2.24 America One Revenue. The gross revenue received by Celltech
from America One from March 1, 1999 to February 29, 2000 was
$3,758,691, with $1,176,084 of such revenue attributed to
postage.
2.25 Reorganization Treatment. Except as required by this
Agreement, Celltech has not taken or agreed to take, and does
not intend to take, any action that would cause the Merger to
fail to qualify as a reorganization within the meaning of
Section 368 of the Code.
2.26 Disclosure. No representation or warranty by Celltech or
Principal Stockholder and no statement or information relating
to Celltech contained herein, or in any certificate furnished
by or on behalf of Celltech to CTIG or Merger Sub in
connection herewith, contains or will contain any untrue
statement of a material fact or omits or will omit to state a
material fact necessary in order to make the statements herein
or therein, in light of the circumstances under which they
were made, not misleading.
ARTICLE IIA
REPRESENTATIONS AND WARRANTIES
OF CELLTECH STOCKHOLDERS
Each Celltech Stockholder severally makes the following
representations, warranties and agreements to and with CTIG and Merger Sub:
2A.1 Ownership of Celltech Common Stock. He or she owns the number of
shares of Celltech Common Stock set forth under his or her name on the
signature page to this Agreement. He or she has good, marketable and
unencumbered title to such shares, free and clear of all liens, security
interests, pledges, claims, encumbrances, options and rights of others.
There are no restrictions on his or her right to transfer such shares
pursuant to this Agreement. No transfer of record ownership of, or
beneficial interest in, any of such shares will be made between the date
hereof and the Effective Time.
2A.2 Agreement Not in Breach of Other Instruments Affecting Celltech
Stockholders. The execution and delivery of this Agreement, the
consummation of the transactions provided for herein, and the fulfillment
of the terms hereof by the Celltech Stockholder, will not result in the
breach of any of the terms and provisions of, or constitute a default
under, or conflict with, any agreement or other instrument
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by which he or she is bound, any judgment, decree, order, or award of any
court, Governmental Entity, or arbitrator, or any applicable law, rule or
regulation.
2A.3 Valid and Binding Agreement. This Agreement constitutes the valid
and binding obligation of the Celltech Stockholder, and is enforceable
against him or her in accordance with its terms.
2A.4 No Claims Against Celltech. The Celltech Stockholder, as of the
date of this Agreement, has no claims, no intent to assert any claims and
no basis to make any claims, against Celltech, for any reason.
2A.5 Further Assurances. The Celltech Stockholder will take such
actions, and shall execute such additional documents, as shall be necessary
or appropriate, to effectuate the Merger and the transactions contemplated
by this Agreement.
2A.6 Shareholder Meeting. The Celltech Stockholder agrees to vote all
of his or her shares of Celltech Common Stock in favor of the Merger and
this Agreement at any meeting called for the authorization and approval
thereof, or to execute any consents in writing in lieu of such meeting.
2A.7 Reorganization Treatment. Except as required by this Agreement,
the Celltech Stockholder has not taken or agreed to take, and does not
intend to take, any action that would cause the Merger to fail to qualify
as a reorganization within the meaning of Section 368 of the Code.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF CTIG AND MERGER SUB
CTIG and Merger Sub hereby jointly and severally represent and warrant
to Celltech and the Celltech Stockholders as follows:
3.1 Organization. Each is a corporation duly organized, validly
existing and in good standing under the laws of the State of
Delaware and each has all requisite corporate power and
authority to own, lease and operate its respective properties
and to carry on its respective businesses as now being
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conducted. Each is duly qualified or licensed and in good
standing to do business in each jurisdiction in which the
property owned, licensed or operated by it or the nature of
the business conducted by it makes such qualification
necessary, except where failure to be so duly certified or
licensed and in good standing would not, individually and or
in the aggregate, have a Material Adverse Effect.
3.2 Authority. Each has full corporate power and authority to
execute and deliver this Agreement and, subject to approval of
CTIG's stockholders, to consummate the transactions
contemplated hereby. The execution and delivery of this
Agreement and the consummation of the transactions
contemplated hereby have been duly and validly authorized and
approved by their respective Boards of Directors and by CTIG
as the sole stockholder of Merger Sub, and no other corporate
proceedings are necessary to authorize this Agreement or the
consummation of the transactions contemplated hereby. This
Agreement has been duly and validly executed and delivered by
CTIG and Merger Sub and, it constitutes a legal, valid and
binding agreement of CTIG and Merger Sub, enforceable against
each of them in accordance with its terms.
3.3 No Violations; Consents and Approvals.
(a) Neither the execution and delivery of this Agreement or
the consummation of the transactions contemplated hereby nor compliance by
CTIG and Merger Sub with any of the provisions hereof will violate any
provision of their respective certificates of incorporation or by-laws.
(b) No filing or registration with, notification to, or
authorization, consent or approval of, any Governmental Entity is required
by CTIG or Merger Sub in connection with the execution and delivery of this
Agreement or the consummation by either of the transactions contemplated
hereby, except (i) in connection, or in compliance, with the provisions of
the Exchange Act, (ii) the Proxy Statement, if required (iii) the Form S-4
(as defined in Section 4.5), (iv) the filing of the Certificate of Merger
with the Secretary of State of the State of Delaware, (v) such consents,
approvals, orders, authorizations, notifications, approvals, registrations,
declarations and filings as may be required under the corporation, takeover
or blue sky laws of various states and (vi) such other consents, orders,
authorizations, registrations, declarations and filings not obtained prior
to the Effective Time the failure of which to be obtained or made would
not, individually or in the aggregate, materially impair the ability of
CTIG or Merger Sub to perform their respective obligations hereunder or
prevent the consummation of any of the transactions contemplated hereby or
for
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which they have received or, prior to the Closing Date shall have received,
appropriate consents or warranties.
3.4 Legal Proceedings. There is no (a) claim, action, suit or
proceeding pending or, to CTIG's best knowledge, threatened,
against or relating to it or any of its subsidiaries or any of
their respective assets before any court or Governmental
Entity or (b) outstanding judgment, order, writ, injunction or
decree, or application, request or motion therefor, of any
court or arbitration tribunal or Governmental Entity in a
proceeding to which CTIG or any of its subsidiaries is a
party, except any such claim, action, suit or proceeding or
judgment, order, writ, injunction, decree, application,
request or motion which would not, individually or in the
aggregate, materially impair the ability of CTIG or Merger Sub
to perform their respective obligations hereunder or prevent
the consummation of any of the transactions contemplated
hereby.
3.5 Proxy Statement. If a Proxy Statement is required for
consummation of the Merger under applicable law, none of the
information to be supplied by CTIG or Merger Sub for inclusion
or incorporation by reference in such Proxy Statement at the
time of its mailing to its stockholders and at the time of the
Special Meeting, will 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 not misleading.
3.6 Broker's Fees. Neither CTIG nor Merger Sub or any of their
respective directors or officers has employed any broker,
finder or financial advisor or incurred any liability for any
broker's fees, commissions, or financial advisory or finder's
fees in connection with any of the transactions contemplated
by this Agreement.
3.7 Capitalization of Merger Sub. The authorized capital stock of
Merger Sub consists of 1,000 shares of its common stock, $.01
par value per share. 500 such shares are outstanding and owned
beneficially and of record by CTIG. All such outstanding
shares were duly authorized and validly issued and are fully
paid and nonassessable. There are no outstanding options,
warrants or other rights to acquire any capital stock of
Merger Sub.
3.8 CTIG Disclosures. (a) CTIG has made available to the Celltech
Stockholders the following documents:
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(a) CTIG's Annual Report on Form 10-K for the fiscal year
ended March 31, 1999
(b) CTIG 's Proxy Statement for its 1999 annual meeting
of stockholders;
(c) CTIG's Current Report on Form 8-K dated February 22,
2000; and
(d) CTIG's Form 10-Q for the quarterly period ended
December 31, 1999.
CTIG will provide the Celltech Stockholders with a copy of the
Prospectus (as defined in Section 4.5) at the same time it is provided to
stockholders of Centillion Data System, Inc.
Since December 31, 1999, CTIG has filed with the SEC all forms, reports
and documents required to be filed by it pursuant to the federal securities
laws and the rules and regulations promulgated by the SEC thereunder, and
each such form, report and document complied in all material respects with
the applicable substantive requirements of the Securities Act and the
Exchange Act as in effect at the time of the filing of such form, report or
document.
3.9 Merger Stock. The Merger Stock (i) prior to Closing will be
duly authorized, (ii) upon issuance, delivery and payment
therefor in the manner described herein, will be validly
issued, fully paid and nonassessable, (iii) prior to Closing
will be registered under the Securities Act as set forth in
Section 4.5 and upon issuance will not be listed and will be
traded in the over the counter market, (iv) will conform to
the description thereof contained in the Form S-4, (v) will be
evidenced by certificates bearing no restrictive legends
relating to the securities laws, and (vi) subject to the
foregoing, the escrow of the Escrowed Stock and any
restrictions on Principal Stockholder as the result of any
"affiliate" status under the securities laws, may be resold by
the holders thereof without further registration under the
Securities Act, except to the extent set forth in Section 4.5.
3.10 Reorganization Treatment. Except as required by this
Agreement, neither CTIG nor Merger Sub has taken, agreed to
take, or intends to take any action that would cause the
Merger to fail to qualify as a reorganization within the
meaning of Section 368 of the Code.
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ARTICLE IV
COVENANTS
4.1 Conduct of Business of Celltech. Except as contemplated by
this Agreement or as expressly agreed to in writing by CTIG,
during the period from the date of this Agreement to the
Effective Time, Celltech will conduct its operations according
to its ordinary course of business consistent with past
practice, and will use all commercially reasonable efforts to
preserve intact its business organization, to keep available
the services of its officers and employees and to maintain
satisfactory relationships with suppliers, distributors,
customers and others having business relationships with it and
will take no action which would materially adversely affect
the ability of the parties to consummate the transactions
contemplated by this Agreement. Without limiting the
generality of the foregoing, and except as otherwise expressly
provided in this Agreement, prior to the Effective Time,
Celltech will not, without the prior written consent of CTIG:
(a) amend its certificate of incorporation or by-laws;
(b) authorize for issuance, issue, sell, deliver, grant any
options for, or otherwise agree or commit to issue, sell or deliver any
shares of any class of its capital stock or any securities convertible into
shares of any class of its capital stock;
(c) split, combine or reclassify any shares of its capital
stock, 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 or purchase, redeem or otherwise acquire any shares of
its capital stock;
(d) (i) create, incur, assume, maintain or permit to exist any
long- term debt or any short-term debt for borrowed money other than under
existing lines of credit or replacements thereof, or the negotiation of a
capital lease or buy-out agreement with Pitney Bowes at the expiration of
the current lease for a mail-inserter machine (ii) assume, guarantee,
endorse or otherwise become liable or responsible (whether directly,
contingently or otherwise) for the obligations of any Person, or (iii) make
any loans, advances or capital contributions to, or investments in, any
Person;
(e) except as otherwise expressly contemplated by this
Agreement or as set forth in Schedule 4.1 of the Celltech Disclosure
Statement, (i) increase in any manner the compensation of any of its
directors, officers or other employees (other
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than regularly scheduled raises for employees other than Principal
Stockholder), or pay any bonuses to any director or officer or to Principal
Stockholder; (ii) pay or agree to pay any pension, retirement allowance or
other employee benefit not required, or enter into or agree to enter into
any agreement or arrangement with such director, officer or employee,
whether past or present, relating to any such pension, retirement allowance
or other employee benefit except as required under currently existing
agreements, plans or arrangements; (iii) grant any severance or termination
pay to, or enter into any employment or severance agreement with, any of
its directors, officers or other employees; or (iv) except as may be
required to comply with applicable law, become obligated under any new
pension plan, welfare plan, multi-employer plan, employee benefit plan,
benefit arrangement, or similar plan or arrangement, which was not in
existence on the date hereof, including any bonus, incentive, deferred
compensation, stock purchase, stock option, stock appreciation right, group
insurance, severance pay, retirement or other benefit plan, agreement or
arrangement, or employment or consulting agreement with or for the benefit
of any Person, or amend any of such plans or any of such agreements in
existence on the date hereof;
(f) except as otherwise expressly contemplated by this
Agreement, enter into any material agreements, commitments or contracts,
except agreements, commitments or contracts for the purchase, sale or lease
of goods or services in the ordinary course of business, consistent with
past practices; provided that Celltech shall not enter into any agreement,
commitment or contract that requires payments by Celltech in excess of
$50,000 without the prior written consent of CTIG, which shall not be
unreasonably withheld;
(g) authorize, recommend, propose or announce an intention to
authorize, recommend or propose, or enter into, any agreement in principle
or any agreement with respect to any plan of liquidation or dissolution,
any sale, transfer, lease, license, pledge, mortgage, or other disposition
or encumbrance of a material amount of assets or securities or any change
in its capitalization, or any entry into a material contract or any
amendment or modification of any material contract or any release or
relinquishment of any material contract rights;
(h) acquire or agree to acquire by merging or consolidating
with, or by purchasing a substantial equity interest in or all or a
substantial portion of the assets of, or by any other manner, any business
or any corporation, partnership, association or other business organization
or division thereof, or enter into any new material line of business
outside its existing core businesses;
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(i) knowingly undertake any act, or suffer to exist any
condition, causing any insurance policy naming it as a beneficiary or a
loss payee to be canceled or terminated;
(j) take any action that would, or could reasonably be
expected to, result in (i) any of the conditions to the Merger set forth in
Article V and VI not being satisfied or (ii) a material delay in the
satisfaction of such conditions;
(k) make any material change in its methods of accounting in
effect at the Balance Sheet Date, except as required by changes in GAAP as
concurred in by its independent auditors, or change its fiscal year;
(l) take any action that would cause the representations and
warranties set forth in Article II to no longer be true and correct;
(m) commit to any capital expenditures, other than those
incurred or committed in the ordinary course of business and which are not
in excess of $15,000, individually or $50,000 in the aggregate; or
(n) agree to do or authorize any of the foregoing.
4.2 No Solicitation by Celltech. Celltech and Principal
Stockholder, jointly and severally, represent and warrant to,
and covenant and agree with, CTIG and Merger Sub that Celltech
does not have any agreement, arrangement or understanding with
any other potential acquiror. Celltech and each Celltech
Stockholder agrees that from and after the date hereof and
until the earlier of the consummation of the Merger or the
termination of this Agreement, they shall, and Celltech and
Principal Stockholder shall cause Celltech's officers,
directors, advisors, investment bankers, agents and attorneys
to (a) not solicit (or authorize any Person to solicit),
directly or indirectly, any inquiries, proposals or offers
from any Person relating to any acquisition or purchase of all
or substantially all the assets of, or any equity interest in,
or any merger, consolidation or business combination with
Celltech (the foregoing being referred to as an "Acquisition
Transaction"), (b) not enter into any agreement with respect
to any Acquisition Transaction, and (c) not elicit any
discussions of, participate in any negotiations regarding,
cooperate with, facilitate or encourage an Acquisition
Transaction or furnish to any other Person any information
concerning Celltech in connection therewith. Celltech shall
immediately notify CTIG if any unsolicited proposal or offer
with respect to
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an Acquisition Transaction is received by Celltech and
communicate to CTIG the terms of any such proposal or offer.
4.3 Access to Information.
(a) From the date of this Agreement until the Effective Time,
Celltech will continue to give CTIG and its authorized representatives
(including counsel, consultants, financial advisors, accountants and
auditors) reasonable access during normal business hours to all of its
facilities, personnel and operations and to all of its books and records,
will continue to permit CTIG to make such inspections as it may reasonably
require and will continue to cause its officers to furnish CTIG with such
financial and operating data and other information with respect to its
business and properties as CTIG may from time to time reasonably request.
(b) Each of the parties will hold, and CTIG, Merger Sub and
Celltech will cause all of their respective employees and representatives
to hold, in strict confidence all documents and information furnished to
the other in connection with the transactions contemplated by this
Agreement.
4.4 CTIG Proxy Statement and Special Meeting.
(a) If required by applicable law, CTIG shall file the Proxy
Statement with the SEC as soon as practicable after the execution of this
Agreement. Celltech shall promptly furnish to CTIG all information, and
take such other actions, as may reasonably be requested by CTIG in
connection with the Proxy Statement. The Proxy Statement shall state that
the Board of Directors of CTIG has, subject to the applicable provisions of
this Agreement, (i) approved the Merger and (ii) determined that the Merger
is fair and in the best interest of the stockholders of CTIG.
(b) CTIG agrees that the Proxy Statement and each amendment or
supplement thereto, at the time of mailing thereof and at the time of the
Special Meeting, will not include any untrue statement of a material fact
or omit to state a material fact required to be stated therein or necessary
to make the statements therein, in light of the circumstances under which
they were made, not misleading; provided, however, that the foregoing shall
not apply to the extent that any such untrue statement of a material fact
or omission to state a material fact was made by CTIG in reliance upon and
in conformity with information concerning Celltech to be furnished by it
for use in the Proxy Statement. Celltech agrees that none of the
information to be furnished in writing to CTIG for use in the Proxy
Statement and each amendment or supplement thereto, at the time of mailing
thereof and at the time of the Special
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Meeting, will include any untrue statement of material fact or omit to
state a material fact required to be stated therein or necessary to make
the statements therein, in light of the circumstances under which they were
made, not misleading. If at any time prior to the Effective Time any event
shall occur which is required to be described in the Proxy Statement, the
party that becomes aware of such event shall immediately notify the other
parties and such event shall be so described, and an amendment or
supplement shall be promptly filed with the SEC and, as required by law,
disseminated to the stockholders of CTIG. CTIG will advise Celltech
promptly after it receives notice thereof, of any comments by the SEC on
the Proxy Statement and the responses thereto and of any requests by the
SEC for additional information.
(c) If required by applicable law, CTIG shall call the Special
Meeting, to be held as promptly as practicable in accordance with
applicable law for the purpose of voting upon the adoption of this
Agreement and the approval of the Merger.
4.5 Preparation of Form S-4; Stockholders Meeting. As promptly as
practicable following the date hereof, CTIG shall prepare and
file with the SEC a Registration Statement on Form S-4 with
respect to the issuance of the Closing Stock (the "Form S-4")
in which a Proxy Statement (which may be a Proxy
Statement/Prospectus if the Special Meeting and Proxy
Statement is required by applicable law) will be included (the
"Prospectus"). The Form S-4 shall also register the Escrowed
Stock on a "shelf" basis to be valid until the first of the
following to occur: (a) April 30, 2003, (b) the release to the
Celltech Stockholders and/or return to CTIG of all Escrowed
Stock pursuant to Section 1.17, or (c) the longest period
allowed by law, regulation or the SEC. The Form S-4 and
Prospectus shall comply as to form in all material respects
with the applicable provisions of the Securities Act and the
Exchange Act. CTIG shall use all reasonable efforts to have
the Form S-4 declared effective under the Securities Act as
promptly as practicable after filing with the SEC and to keep
the Form S-4 effective as long as is necessary to consummate
the Merger. The parties shall promptly provide copies to and
consult with each other and prepare written responses with
respect to any written comments received from the SEC with
respect to the Form S-4 and the Prospectus and promptly advise
the other party of any oral comments received from the SEC.
CTIG agrees that none of the information supplied or to be
supplied by CTIG for inclusion or incorporation by reference
in the Prospectus and each amendment or supplement thereto, at
the time of mailing thereof and at the time of the Special
Meeting, will contain an untrue statement of a material fact
or omit to state a material fact required to be stated therein
or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading.
Celltech agrees that none of the information supplied or to be
supplied by Celltech for inclusion or
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incorporation by reference in the Prospectus and each
amendment or supplement thereto, at the time of mailing
thereof and at the time of the Special Meeting will contain an
untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to
make the statements therein, in light of the circumstances
under which they were made, not misleading. CTIG agrees that
upon release of any of the Escrowed Stock to the Celltech
Stockholders pursuant to Section 1.17 (i) CTIG shall file,
from time to time, as applicable, such supplemental prospectus
for each such "shelf takedown" as may be required by the SEC
in respect thereof, and otherwise comply in all material
respects with the applicable provisions of the Securities Act
and the Exchange Act, and (ii) such released shares will be
evidenced by certificates bearing no restrictive legends
relating to the securities laws, and, subject to any
restrictions on Principal Stockholder as the result of any
"affiliate" status under the securities laws, may be resold by
the holders thereof without further registration under the
Securities Act.
4.6 Reasonable Best Efforts; Other Actions. Subject to the terms
and conditions of this Agreement and applicable law, the
parties shall use all commercially reasonable best efforts
promptly to take, or cause to be taken, all other actions and
do, or cause to be done, consistent with the fiduciary
obligations of the respective Board of Directors, all other
things necessary, proper or appropriate under applicable laws
and regulations to consummate and make effective the
transactions contemplated by this Agreement, including,
without limitation, (a) the obtaining of all necessary
consents, approvals or waivers from third parties that are
required in connection with the Merger, and (b) the lifting of
any legal bar to the Merger.
4.7 Public Announcements. Before issuing any press release or
otherwise making any public statements with respect to
transactions contemplated by this Agreement, CTIG and Celltech
will consult with each other as to its form and substance and
shall not issue any such press release or make any such public
statement prior to such consultation, except as may be
required by law.
4.8 Notification of Certain Matters. Each of Celltech and CTIG
shall give prompt notice to the other of (a) 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 subsequent to the date of this Agreement and
prior to the Effective Time, under any contract material to
the financial condition, properties, businesses or results of
operations of Celltech or to which Celltech is a party or is
subject, (b) 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, (c) the
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occurrence or non-occurrence of any fact or event which would
be reasonably likely (i) to cause any representation or
warranty contained in this Agreement to be untrue or
inaccurate in any material respect at any time from the date
hereof to the Effective Time or (ii) to cause any material
covenant, condition or agreement hereunder not to be complied
with or satisfied in all material respects and (d) any failure
of CTIG or Celltech, as the case may be, to comply with or
satisfy any covenant, condition or agreement to be complied
with or satisfied by it hereunder in any material respect;
provided, however, that no such notification shall affect the
representations or warranties of any party or the conditions
to the obligations of any party hereunder.
4.9 Expenses. Except as set forth in Section 2.11, the parties
shall bear their respective expenses incurred in connection
with the transactions contemplated by this Agreement,
including, without limitation, the preparation, execution and
performance of this Agreement and the transactions
contemplated hereby, and all fees and expenses of their
respective investment bankers, finders, brokers, agents,
representatives, counsel and accountants; provided that CTIG
shall reimburse Celltech for fees it pays to Arthur Andersen
LLP to prepare the Financial Statements unless CTIG terminates
this Agreement pursuant to Section 8.2.
4.10 Line of Credit. As soon as practicable after the Effective
Time, the Surviving Corporation will exert reasonable
commercial efforts to cause Southwest Bank of Texas N.A. to
remove Principal Stockholder as a guarantor of that certain
revolving line of credit promissory note, dated August 26,
1999, in the original principal amount of $400,000, executed
by Celltech, and payable to the order of Southwest Bank of
Texas N.A. If Surviving Corporation is unable to remove
Principal Stockholder as a guarantor, it will terminate the
foregoing line of credit facility.
ARTICLE V
CONDITIONS TO THE OBLIGATIONS OF THE PARTIES
The respective obligations of each party to effect the transactions
contemplated by this Agreement shall be subject to the fulfillment at or
prior to the Closing of each of the following conditions, any all of which
may be waived in whole or in part by CTIG or Celltech, as the case may be,
to the extent permitted by applicable law:
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5.1 Stockholder Approval. If required by applicable law, the
requisite vote of the stockholders of CTIG necessary to
consummate the Merger shall have been obtained. The requisite
vote of the Celltech Stockholders shall have been obtained.
5.2 Consents and Approvals. All necessary consents and approvals
of any Governmental Entity or any other third party required
for the consummation of the transactions contemplated by this
Agreement shall have been obtained, except for such consents
and approvals the failure to obtain which individually or in
the aggregate would not have a Material Adverse Effect.
5.3 Opinion of Financial Advisor. If CTIG determines that a
"fairness opinion" is required or appropriate for the Merger,
CTIG shall have received the written opinion of First Colonial
Securities Group to the effect that the Merger Consideration
is fair from a financial point of view to the stockholders of
CTIG. A true and correct copy of such opinion shall have been
delivered to Celltech.
5.4 Employment Agreement. The employment agreement with David
Warren, in the form attached hereto as Exhibit "A," shall be
executed.
5.5 Merger with Centillion Data Systems, Inc. The merger of CTIG
and Centillion Data Systems pursuant to an Agreement and Plan
of Merger between them, dated as of February 3, 2000 (the
"Centillion Merger"), shall have closed.
ARTICLE VI
CONDITIONS TO THE OBLIGATIONS OF CTIG AND MERGER SUB
The obligations of CTIG and Merger Sub to effect the transactions
contemplated by this Agreement and to perform their other obligations to be
performed at or subsequent to the Closing shall be subject to the
fulfillment at or prior to the Closing of the following additional
conditions, any one or more of which may be waived by CTIG to the extent
permitted by applicable law:
6.1 Representations and Warranties True. The representations and
warranties of Celltech and the Celltech Stockholders,
contained in this Agreement shall be
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true and correct on the date of this Agreement and at and on
the Closing Date as though such representations and warranties
were made at and on such dates (except where such
representation and warranty speaks by its terms as of a
different date, in which case it shall be true and correct as
of such date), except for such untruths or inaccuracies which
would not, individually or in the aggregate, have a Material
Adverse Effect on Celltech.
6.2 Performance. Celltech and the Celltech Stockholders shall have
performed and complied in all material respects with all
agreements, obligations and conditions required by this
Agreement to be performed or complied with by it on or prior
to the Closing Date.
6.3 Additional Documents. Celltech shall furnish the following:
(a) such certificates of Celltech's President and of each of
the Celltech Stockholders to evidence compliance with the conditions set
forth in Sections 6.1 and 6.2 as may be reasonably requested by CTIG,
(b) resolutions of Celltech's Board of Directors and the
Celltech Stockholders authorizing and approving the Merger, this Agreement
and all transactions contemplated hereby, certified by Celltech's
Secretary,
(c) a "good standing" certificate for Celltech and a certified
copy of its Certificate of Incorporation, and all amendments thereto,
issued by the Delaware Secretary of State and dated as of a date within
five days prior to the Closing Date,
(d) general releases in favor of Celltech executed by each
Celltech Stockholder and each director, in the form previously approved by
CTIG, releasing Celltech from all liability to such person,
(e) a general release, in the form previously approved by
CTIG, executed by Symphony Management Associates, Inc., releasing Celltech
from all liability,
(f) all consents and approvals by third parties that may be
required for Celltech to perform its obligations under this Agreement, and
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(g) any documents of transfer reasonably requested by CTIG
including, without limitation, documents to be filed with the United States
Patent and Trademark Office with respect to Celltech's registered
trademarks.
6.4 Certain Proceedings. No writ, order, decree or injunction of a
court of competent jurisdiction or Governmental Entity shall
be in effect against any of the parties, and no proceedings
therefor shall have been threatened or commenced by any
Governmental Entity, which prohibits or restricts the
consummation of the Merger or would otherwise restrict the
Surviving Corporation's exercise of full rights to own and
operate its business in a manner which would have a Material
Adverse Effect on Celltech or the Surviving Corporation.
6.5 Minimum Balance Sheet Requirements. The adjusted balance sheet
of Celltech, on and as of the Closing Date (which shall be
certified by Celltech's President) must reflect: (i) net
current assets (i.e., over current liabilities) of not less
than $1.00, (ii) no long term liabilities other than deferred
taxes, and (iii) all earnings for the period from January 1,
2000 to the Effective Time.
6.6 Material Adverse Change. There shall not have occurred any
material adverse change in the business, operations, assets,
financial condition or results of operations of Celltech since
the Balance Sheet Date.
ARTICLE VII
CONDITIONS TO THE OBLIGATIONS OF CELLTECH
The obligation of Company under this Agreement to effect the
transactions contemplated by this Agreement shall be subject to the
fulfillment on or before the Closing Date of each of the following
additional conditions, any one or more or which may be waived by Company:
7.1 Representations and Warranties True. The representations and
warranties of CTIG and Merger Sub contained in this Agreement
shall be true and correct on the date of this Agreement and at
and on the Closing Date as though such representations and
warranties were made at and on such dates (except when such
representation and warranty speaks by its terms of a different
date, in which case it shall be true and correct as of such
date), except for such untruths or inaccuracies which would
not, individually or in the aggregate, have a Material Adverse
Effect on CTIG and Merger Sub.
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7.2 Performance. CTIG and Merger Sub shall have each performed and
complied in all material respects with all agreements,
obligations and conditions required by this Agreement to be
performed or complied with by either of them on or prior to
the Closing Date.
7.3 Certificates.
(a) CTIG and Merger Sub shall furnish such certificates of
their respective Presidents to evidence compliance with the conditions set
forth in Sections 7.1 and 7.2 as may be reasonably requested by Celltech;
(b) evidence that the CTIG Board of Directors and/or CTIG
stockholders, as appropriate, have taken all appropriate corporate action
authorizing and approving the Merger, this Agreement and all transactions
contemplated thereby, certified by CTIG's Secretary; and
(c) a "good standing" certificate for Celltech issued by the
Delaware Secretary of State and dated as of a date within five days prior
to the Closing Date.
7.4 Certain Proceedings. No writ, order, decree or injunction of a
court of competent jurisdiction or Governmental Entity shall
be in effect against any of the parties, and no proceedings
therefor shall have been threatened or commenced by any
governmental entity, which prohibits or restricts the
consummation of the Merger.
7.5 Effectiveness of the Form S-4. The Form S-4 shall have been
declared effective by the SEC under the Securities Act. No
stop order suspending the effectiveness of the Form S-4 shall
have been issued by the SEC and no proceedings for that
purpose shall have been initiated or threatened by the SEC.
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ARTICLE VIII
TERMINATION AND ABANDONMENT
8.1 Termination by CTIG or Celltech. This Agreement may be
terminated at any time prior to the Effective Time, whether
before or after approval by the stockholders of CTIG and/or
Celltech:
(a) by mutual consent of the Boards of Directors of CTIG and
Celltech;
(b) by either CTIG or Celltech if, without a material breach
of this Agreement by such terminating party, the Merger shall not have been
consummated on or before June 30, 2000, which date may be extended by
mutual written consent of CTIG and Celltech; or
(c) by either CTIG or Celltech, if any court of competent
jurisdiction in the United States or other Governmental Entity shall have
issued an order (other than a temporary restraining order) , decree or
ruling or taken any other action restraining, enjoining or otherwise
prohibiting the Merger, and such order, decree, ruling or other action
shall have become final and nonappealable; provided that the party seeking
to terminate this Agreement shall have used all commercially reasonable
efforts to remove or lift such order, decree or ruling; or
(d) if a Special Meeting is required by applicable law, by
either CTIG if the approval of CTIG's stockholders required for the
consummation shall not have been obtained.
8.2 Termination by CTIG. This Agreement may be terminated and the
transactions contemplated hereby abandoned by action of the
Board of Directors of CTIG, at any time prior to the Effective
Time, before or after the approval by the stockholders of
CTIG, if (a) Celltech or Principal Stockholder shall have
failed to comply in any material respect with any of their
respective covenants or agreements contained in this Agreement
to be complied with or performed by Celltech or Principal
Stockholder at or prior to such date of termination or (b)
there exists a material breach or breaches of any
representation or warranty of Celltech or a Celltech
Stockholder contained in this Agreement such that the closing
condition set forth in Section 6.1 would not be satisfied as
of the Closing Date, or (c) if Celltech fails to deliver the
Financial Statements as required by Section 2.5(b).
8.3 Termination by Celltech. This Agreement may be terminated and
the transactions contemplated hereby abandoned at any time
prior to the Effective Time, before or after the approval by
the stockholders of Celltech, by action of
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the Board of the Directors of Celltech, if (a) CTIG or Merger
Sub shall have failed to comply in any material respect with
any of their respective covenants or agreements contained in
this Agreement to be complied with or performed by CTIG or
Merger Sub at or prior to such date of termination, or (b)
there exists a material breach or breaches of any
representation or warranty of CTIG or Merger Sub contained in
this Agreement such that the closing condition set forth in
Section 7.1 would not be satisfied as of the Closing Date.
8.4 Procedure for Termination. In the event of termination of this
Agreement and abandonment of the transactions contemplated
hereby by CTIG or Celltech pursuant to this Article VIII,
written notice thereof shall forthwith be given to the other.
8.5 Effect of Termination and Abandonment. In the event of
termination of this Agreement and abandonment of the
transactions contemplated hereby pursuant to this Article
VIII, no party (or any of its respective directors or
officers) shall have any liability or further obligation to
any other party to this Agreement; provided that nothing
herein shall relieve any party from liability for any breach
of its representations, warrants, covenants and agreements
under this Agreement.
ARTICLE IX
INDEMNIFICATION BY PRINCIPAL STOCKHOLDER
9.1 Indemnification. Subject to the terms and conditions of this
Article IX, Principal Stockholder does hereby indemnify,
defend and hold harmless CTIG and Merger Sub (each an
"Indemnified Party") for a period of one year after the
Effective Time, from and against all losses, claims, damages,
liabilities and expenses, including interest, penalties and
reasonable attorney's fees and expenses (collectively
"Damages"), resulting or arising, directly or indirectly, from
(a) a material breach of any representation, warranty or
agreement of Celltech or Principal Stockholder contained in or
made part of this Agreement or any document executed in
connection herewith, (b) any material error contained in any
statement, report, certificate or other document or instrument
delivered to CTIG or Merger Sub pursuant to this Agreement or
contained in any Schedule, (c) any claim, debt, liability or
obligation of Celltech or Principal Stockholder to any party,
incurred prior to the Effective Time or arising from any
matter or thing occurring prior to the Effective Time,
including but not limited to claims made by current or former
stockholders of Celltech and claims made by Governmental
Entities for Taxes, except for (i)
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liabilities expressly disclosed in this Agreement, the
Celltech Disclosure Schedules or the Celltech Financial
Statements, and (ii) liabilities incurred between the date of
this Agreement and the Effective Time, the incurrence of which
is not in violation of the provisions of this Agreement, and
(d) the cause of action filed by the Minority Stockholders
styled Frank S. Scarpa, Valerie S. Hart and Richard J.
Donnelly, Plaintiffs v. David A. Warren and Celltech
Information Systems, Inc., Defendants in the Delaware Chancery
Court, New Castle Delaware, C.A. No. 17704 NC, including,
without limitation, the settlement thereof.
9.2 Conditions of Indemnification. The obligations and liabilities
of Principal Stockholder to indemnify the Indemnified Parties
under Section 9.1 shall be subject to the following terms and
conditions:
(a) An Indemnified Party shall give Principal Stockholder
prompt notice of any claim for Damages. Failure to provide, or a delay in
providing, the foregoing notice shall not relieve Principal Stockholder of
his obligations under this Article IX unless, and only to the extent that,
his rights to defend a third party claim are materially prejudiced thereby.
In the event the claim is the result of an action or threatened action by a
third party, Principal Stockholder shall have the right to undertake the
defense thereof by representatives chosen by it. If Principal Stockholder,
within a reasonable time after notice of any such claim by a third party,
fails to defend an Indemnified Party against which such claim has been
asserted, such Indemnified Party shall upon further notice to Principal
Stockholder have the right to undertake the defense, compromise or
settlement of such claim on behalf of and for the account and risk of
Principal Stockholder, subject to the right of the Principal Stockholder to
assume the defense of such claim at any time prior to settlement,
compromise or final determination thereof.
(b) Principal Stockholder still have the right to contest a claim for
Damages by providing written notice to the Indemnified Party that is making
the claim within 10 days after receiving notice of the claim. All such
contests shall be resolved by final and binding arbitration before a panel
of three arbitrators in Wilmington, DE in accordance with the Commercial
Arbitration Rules of the American Arbitration Association.
9.3 Remedies.
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(a) No shares of Principal Stockholder's Escrowed Stock then
in escrow shall be released pursuant to Section 1.17 after a claim for
Damages has been made, until all such claims have been resolved.
(b) Any Damages due an Indemnified Party shall first be paid
by reducing the number of shares of Principal Stockholder's Escrowed Stock
that would otherwise have been issued to Principal Stockholder by an amount
equal in value to such Damages. The number of shares by which such
distribution shall be reduced, shall be valued at the Average Market Price
per Share of the Class A Common Stock on the date notice of the claim for
Damages was provided to Principal Stockholder.
(c) In the event that the amount of Damages exceeds the value
of Principal Stockholder's Escrowed Stock then in escrow that would
otherwise have been issued to Principal Stockholder, then within 30 days
after the final determination of such number of shares Principal
Stockholder shall pay the balance due (the "Cash Indemnity Payment") by
certified or bank check or by wire transfer. Notwithstanding the foregoing,
the parties agree that the Cash Indemnity Payment shall not exceed $500,000
except to the extent such excess is caused by a claim by a Minority
Stockholder or former stockholders, if any, or pursuant to Section 9.1(d)
but in all cases the total amount of Principal Stockholder's liability
pursuant to this Article IX shall not exceed the value of the Merger
Consideration otherwise to be received by him.
ARTICLE X
DEFINITIONS
10.1 Terms Defined in the Agreement. The following capitalized
terms used herein shall have the meanings ascribed in the
indicated sections.
Accounts Receivable 2.23
Acquisition Transaction 4.2
America One 1.17
America One Revenue 1.17
Average Market Price Per Share 1.7
Balance Sheet 2.5
Balance Sheet Date 2.5
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Business Day 1.3
CTIG Preamble
CTIG Dissenting Shares 1.16
Cash Indemnity Payment 9.3
Celltech Preamble
Celltech Common Stock Recitals
Celltech Disclosure Schedules 2.2
Celltech Stockholders Preamble
Celltech Common Stock 1.7
Centillion Merger 6.7
Certificate of Merger 1.2
Certificates 1.9
Class A Common Stock 1.7
Closing 1.3
Closing Date 1.3
Closing Stock 1.7
Code 2.14
Constituent Corporations Preamble
Contracts 2.17
DGCL 1.1
Damages 9.1
Effective Time 1.2
Employee Plans 2.15
Environmental Law 2.12
ERISA 2.15
Escrow Quarter 1.17
Escrow Year 1.17
Escrowed Stock 1.7
Exchange Act 1.18
Exchange Agent 1.9
Financial Statements 2.5
Form S-4 4.5
GAAP 2.5
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Governmental Entity 1.13
Hazardous Substance 2.12
Indemnified Party 9.1
Intellectual Property Rights 2.13
Material Adverse Effect 2.1
Merger Recitals
Merger Cash 1.7
Merger Stock 1.7
Merger Consideration 1.7
Merger Sub Preamble
Minority Stockholders Preamble
PASCO 2.11
Person 1.13
Principal Stockholder Preamble
Prospectus 4.5
Proxy Statement 1.18
SEC 1.18
SEC Reports 3.6
Securities Act 3.6
Special Meeting 1.18
Surviving Corporation 1.1
Target Revenue 1.17
Tax 2.14
Tax Returns 2.14
ARTICLE XI
MISCELLANEOUS
11.1 Amendment and Modification. Subject to applicable law, this
Agreement may be amended, modified or supplemented only by
written agreement of the parties at any time prior to the
Effective Time with respect to any of the terms contained
herein; provided, however, that, after this Agreement is
adopted by the Celltech Stockholders, no such amendment or
modification shall reduce
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the amount or change the form of the Merger Consideration or
in any way adversely affect the rights of the Celltech
Stockholders without their further approval.
11.2 Waiver of Compliance; Consents. Any failure of CTIG and Merger
Sub or Celltech to comply with any obligation, covenant,
agreement or condition herein may be waived only by a written
instrument signed by the party granting such waiver, but such
waiver or failure to insist upon strict compliance with such
obligation, covenant, agreement or condition shall not operate
as a waiver of, or estoppel with respect to, any subsequent or
other failure. Whenever this Agreement requires or permits
consent by or on behalf of any party hereto, such consent
shall be given in writing in a manner consistent with the
requirements for a waiver of compliance as set forth in this
Section 11.2.
11.3 Survivability; Investigations. The respective representations
and warranties of the parties contained in this Agreement or
in any certificates or other documents delivered prior to or
at the Closing (a) shall not be deemed waived or otherwise
affected by any investigation made by any party hereto and (b)
subject to the time limitation on Principal Stockholder's
indemnity set forth in Section 9.1 shall not survive beyond
the Effective Time except for the representations, warranties
and agreements set forth in Articles II, IIA and III, which
shall survive the Effective Time for a period of three years,
and Sections 1.6, 1.9, 1.10, 1.11, 1.12, 1.13, 1.14, 1.17,
4.7, 4.8 and 4.9 and Articles IX and XI, which shall survive
the Effective Time and a termination of this Agreement. This
Section 11.3 shall have no effect upon any other obligation of
any of the parties hereto, whether to be performed before or
after the Closing Date.
11.4 Reasonable Efforts. Subject to the terms and conditions herein
provided, and applicable law, the parties each agree to use
all commercially reasonable best efforts to take, or cause to
be taken, all action, and to do, or cause to be done, all
things necessary, proper and advisable under applicable laws
and regulations to consummate and make effective the
transactions contemplated by this Agreement.
11.5 Notices. All notices and other communications hereunder shall
be in writing and shall be delivered personally, by next-day
courier or mailed by registered or certified mail (return
receipt requested), first class postage prepaid, or
telecopied with confirmation of receipt, to the Parties at the
addresses specified below (or at such other address for a
party as shall be specified by like notice; provided that
notices of a change of address shall be effective only
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upon receipt thereof). Any such notice shall be effective upon
receipt, if personally delivered or telecopied, one day after
delivery to a courier for next- day delivery, or three days
after mailing, if deposited in the U.S. mail, first class
postage prepaid.
(a) if to Company, to
Celltech Information Systems, Inc.
152 Cloverly Road
Grosse Pointe Farms, MI
Telecopy: (313) 886-2466
Attention: David A. Warren, President
with a copy to:
Fouts & Moore, L.L.P
1300 Post Oak Boulevard
20th Floor
Houston, TX 77056-8000
Telecopy: (713) 986-7299
Attention: Robbie Morris, Esquire
(b) if to CTIG or Merger Sub, to
CTI Group (Holdings) Inc.
2550 Eisenhower Avenue
Norristown, PA 19403
Telecopy: (610) 666-7707
Attention: Anthony Johns
with a copy to:
Klehr, Harrison, Harvey, Branzburg & Ellers LLP
260 S. Broad Street
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Philadelphia, PA 19102
Telecopy: (215) 568-6603
Attention: Donald M. Millinger, Esquire
(c) if to Principal Stockholder:
David A. Warren
152 Cloverly Road
Grosse Pointe Farms, MI 48236
Telecopy: (313) 886-2466
with a copy to:
Fouts & Moore, L.L.P
1300 Post Oak Boulevard
20th Floor
Houston, TX 77056-8000
Telecopy: (713) 986-7299
Attention: Robbie Morris, Esquire
(d) if to a Minority Stockholder:
Frank Scarpa
c/o Daller Greenberg & Dietrich
Valley Green Corporate Center
7111 Valley Green Road
Fort Washington, PA 19034
Telecopy: (215) 836-2845
Attention: Edward A. Greenberg, Esquire
Valerie Hart
c/o Daller Greenberg & Dietrich
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Valley Green Corporate Center
7111 Valley Green Road
Fort Washington, PA 19034
Telecopy: (215) 836-2845
Attention: Edward A. Greenberg, Esquire
Richard Donnelly
c/o Daller Greenberg & Dietrich
Valley Green Corporate Center
7111 Valley Green Road
Fort Washington, PA 19034
Telecopy: (215) 836-2845
Attention: Edward A. Greenberg, Esquire
with a copy to:
Daller Greenberg & Dietrich
Valley Green Corporate Center
7111 Valley Green Road
Fort Washington, PA 19034
Telecopy: (215) 836-2845
Attention: Edward A. Greenberg, Esquire
11.6 Successor and Assigns. This Agreement and all of the
provisions hereof shall be binding upon and inure to the
benefit of the parties and their respective successors and
permitted assigns. However neither this Agreement nor any of
the rights, interests or obligations hereunder shall be
assigned by any of the parties without the prior written
consent of the other parties, nor is this Agreement intended
to confer any rights or remedies hereunder upon any other
Person.
11.7 Governing Law. This Agreement shall be governed by the laws of
the State of Delaware as to all matters, including but not
limited to matters of validity,
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construction, effect, performance and remedies,
notwithstanding any conflict of laws, doctrines of such state
or any other jurisdiction, and without the aid of any cannon,
custom or rule of law requiring construction against the
draftsman.
11.8 Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but
all of which together shall constitute one and the same
instrument. This Agreement shall become effective when each
party has received counterparts signed by all of the other
parties.
11.9 Severability. In case any one or more of the provisions
contained in this Agreement should be invalid, illegal or
unenforceable in any respect against a party, the validity,
legality and enforceability of the remaining provisions
contained herein shall not in any way be affected or impaired
thereby. Such invalidity, illegality or unenforceability shall
only apply as to such party in the specific jurisdiction where
such judgment shall be made.
11.10 Interpretation. The article and section headings contained in
this Agreement are solely for the purpose of reference, are
not part of the agreement of the parties and shall not in any
way affect the meaning or interpretation of this Agreement.
11.11 Entire Agreement. This Agreement, including the schedules and
exhibits hereto and the documents and instruments referred to
herein and therein, embodies the entire agreement and
understanding of the parties hereto in respect of the subject
matter contained herein and supersedes all prior agreements
and the understandings between the parties with respect to
such subject matter. There are no representations, promises,
warranties, covenants, or undertakings, other than those
expressly set forth or referred to herein and therein.
11.12 Jurisdiction. Each of the parties hereto (a) consents to
submit itself to the personal jurisdiction of any federal
court located in the State of Delaware or any Delaware state
court in the event any dispute arises out of this Agreement or
any of the transactions contemplated by this Agreement, (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 Delaware.
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11.13 WAIVER OF JURY TRIAL. EACH OF CTIG, MERGER SUB, CELLTECH AND
THE CELLTECH STOCKHOLDERS HEREBY IRREVOCABLY WAIVES, TO THE
FULLEST EXTENT PERMITTED BY LAW, ALL RIGHTS TO TRIAL BY JURY
IN ANY ACTION, PROCEEDING OR COUNTERCLAIM (WHETHER BASED ON
CONTRACT, TORT OR OTHERWISE) ARISING OUT OF OR RELATING TO
THIS AGREEMENT OR ANY OF THE TRANSACTIONS CONTEMPLATED HEREBY.
11.14 Class A Common Stock. Celltech and the Celltech Stockholders
acknowledge that (a) as of the date hereof, CTIG has a single
class of Common Stock, and (b) the Class A Common Stock to be
issued to them will be created by a redesignation of such
Common Stock as Class A Common Stock pursuant to amendments to
CTIG's Certificate of Incorporation which will be effected in
connection with the Centillion Merger.
IN WITNESS WHEREOF, CTIG, MERGER SUB and CELLTECH have caused this
Agreement to be signed by their respective duly authorized officers, and
the CELLTECH STOCKHOLDERS have signed this Agreement, as of the date first
above written.
CTI GROUP (HOLDINGS) INC.
By: _____________________________
---------
Name:
Title:
[SIGNATURES CONTINUED ON NEXT PAGE]
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[SIGNATURES CONTINUED FROM PREVIOUS PAGE]
CTI BILLING SOLUTIONS INC.
By: ______________________________
Name:
Title:
CELLTECH INFORMATION SYSTEMS, INC.
By: ___________________________________
David A. Warren
President
------------------------------------------------
David A. Warren
Number of Shares of Celltech Common Stock Owned:2000
------------------------------------------------
Frank S. Scarpa
Number of Shares of Celltech Common Stock Owned:117.647
------------------------------------------------
Valerie S. Hart
Number of Shares of Celltech Common Stock Owned:117.647
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------------------------------------------------
Richard J. Donnelly
Number of Shares of Celltech Common Stock Owned:117.647
H-59
EXHIBIT "A"
DAVID WARREN EMPLOYMENT AGREEMENT
Intentionally Omitted
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ANNEX I
COMMUNICATIONS GROUP INC.
STOCK OPTION AND RESTRICTED STOCK PLAN
The purpose of the Stock Option and Restricted Stock Plan (the "Plan")
of Communications Group Inc. (the "Company") is to promote the interests of
the Company by providing incentives to (i) designated officers and other
employees of the Company or a Subsidiary Corporation (as defined herein),
(ii) members of the Company's Board of Directors (the "Board") and (iii)
independent contractors and consultants (who may be individuals or
entities) who perform services for the Company to enable the Company to
attract and retain them and to encourage them to acquire a proprietary
interest, or to increase their proprietary interest, in the Company. The
Company believes that the Plan will cause participants to contribute
materially to the growth of the Company, thereby benefitting the Company's
shareholders. For purposes of the Plan, the terms "Parent Corporation" and
"Subsidiary Corporation" shall have the meanings set forth in subsections
(e) and (f) of Section 424 of the Internal Revenue Code of 1986, as amended
(the "Code").
1. Administration
a. Except with respect to a Director's Grant (as hereinafter defined)
granted pursuant to Section 2(b) hereof, the Plan shall be administered and
interpreted by a committee of the Board (the "Committee") consisting of not
less than two persons, all of whom shall be "outside directors" within the
meaning of Section 162(m) of the Code and each of whom shall be a
"disinterested person" as defined under Rule 16b-3 promulgated under the
Securities Exchange Act of 1934, as amended. With respect to Eligible
Participants (as hereinafter defined), the Committee shall have the sole
authority to determine (i) who is eligible to receive Grants (as defined in
Section 2 below) under the Plan, (ii) the type, size and terms of each
Grant under the Plan (subject to Section 4 below), (iii) the time when each
Grant will be made and the duration of any exercise or restriction period;
(iv) any restrictions on resale applicable to the shares to be issued or
transferred pursuant to the Grant; and (v) any other matters arising under
the Plan. The Committee may, if it so desires, base any of the foregoing
determinations upon the recommendations of management of the Company. The
Committee shall have full power and authority to administer and interpret
the Plan with respect to Eligible Participants and to adopt or amend such
rules, regulations, agreements and instruments as it may deem appropriate
for the proper administration of the Plan. The Committee's interpretations
of the Plan and all determinations made by the Committee pursuant to the
powers vested in it hereunder shall be conclusive and binding on all
Eligible Participants having any interests in the Plan or in any Grants
under the Plan. No person acting under this subsection shall be held liable
for any action or determination made in good faith with respect to the Plan
or any Grant under the Plan.
b. Each member of the Committee shall be indemnified and held harmless
by the Company against any cost or expense (including counsel fees)
reasonably incurred by
I-1
him or her, or liability (including any sum paid in settlement of a claim
with the approval of the Company) arising out of any act or omission to act
in connection with the Plan, unless arising out of such member's own fraud
or bad faith, to the extent permitted by applicable law. Such
indemnification shall be in addition to any rights of indemnification the
members may have as directors or otherwise under the Articles of
Incorporation or By-Laws of the Company, any agreement of shareholders or
disinterested directors or otherwise.
2. Grants
a. Grants to Eligible Participants. With respect to Eligible
Participants, Incentives under the Plan shall consist of Incentive Stock
Options (as defined in Section 5(b) below), Nonqualified Stock Options (as
defined in Section 5(b) below) and Restricted Stock Grants (as defined in
Section 6 below), (hereinafter sometimes collectively referred to as
"Grants"). All Grants, except with respect to Director's Grants (as
hereinafter defined) as specifically provided in Section 2(b) hereof, shall
be subject to the terms and conditions set forth herein and to such other
terms and conditions of any nature as long as they are not inconsistent
with the Plan as the Committee deems appropriate and specifies in writing
to the participant (the "Grant Letter"). The Committee shall approve the
form and provisions of each Grant Letter. Grants under any section of the
Plan need not be uniform as among the participants receiving the same type
of Grant, and Grants under two or more sections of the Plan may be combined
in one Grant Letter.
b. Director's Grants. A member of the Board of the Company who is not
an --- employee of the Company or a Subsidiary Corporation and who serves
as a member of the Committee (a "Committee Member") shall be entitled to
receive a Director's Grant in accordance with this Section 2(b).
i. Committee Members shall receive a Nonqualified Stock Option
to purchase Thirty Thousand (30,000) shares of Common Stock (as hereinafter
defined) of the Company at an exercise price equal to the higher of the
fair market value (as defined herein) or the book value of a share of
Common Stock on the date of grant, subject to adjustment as provided in
Section 3(b) of this Plan, at the commencement of and in consideration for
their service to the Company as a director (a "Director's Grant"). One-half
of such Director's Grant shall vest on the first anniversary of the date of
grant and one-quarter shall vest on each of the second and third
anniversaries of the date of grant, provided such Committee Member is then
serving as a director (the "Initial Vesting Period"). If a Committee Member
is not serving as a director on the first, second or third anniversary of
the date of such grant, then any such Director's Grant shall terminate as
to all shares covered by the Director's Grant which have not vested.
Director's Grants shall be exercisable for a period of ten years from the
date of grant.
ii. Upon the expiration of the Initial Vesting Period, and at
the commencement of each succeeding three year period, Committee Members
shall be eligible to receive an additional Director's Grant, which grants
shall vest in accordance with the schedule set forth in Section 2(b)(i)
hereof.
I-2
iii. Upon the occurrence of (a) a Change In Control (as
defined in Section 7 hereof or (b) a sale or exchange of assets of the
Company or (c) dissolution, liquidation, merger or consolidation of the
Company (in which the Company is not the surviving corporation), all
restrictions imposed under any Director's Grant shall immediately lapse.
iv. Each Committee Member who receives a Director's Grant
pursuant to this Section 2(b) shall receive a written agreement setting
forth the terms and conditions of such grant including, but not limited to,
the restrictions set forth in this Section 2(b) (the "Director's Grant
Letter").
v. Except as otherwise provided in this Section 2(b), Director
Grants shall be subject to the provisions of this Plan applicable to
Non-Qualified Stock Options granted to other persons.
vi. Notwithstanding any other provision of the Plan, this
Section 2(b) may not be amended more than once every six months, except for
amendments necessary to conform the plan to changes in the provisions of
the Code or the Employee Retirement Income Security Act of 1974 ("ERISA"),
or the rules promulgated thereunder.
vii. The provisions of this Section 2(b) are intended to
operate automatically and not require administration. To the extent that
any administrative determinations may be required, such determination shall
be made by a member or members of the Board of Directors who is/are not
eligible to be granted Options under this Section 2(b), but in no event
shall such determinations affect the eligibility of Committee Members, the
timing of the grants or the number of shares of Common Stock subject to
Restricted Stock Grants hereunder.
3. Shares Subject to the Plan
a. The aggregate number of shares of the Common Stock, par value $.01
("Common Stock"), of the Company that may be issued or transferred under
the Plan is 600,000, subject to adjustment pursuant to Section 3(b) below.
Such shares may be authorized but unissued shares or reacquired shares. If
and to the extent that options granted under the Plan terminate, expire or
are canceled without having been exercised (including shares cancelled as
part of an exchange of Grants), or if any shares of restricted stock are
forfeited, the shares subject to such Grant or of such restricted stock
shall again be available for subsequent Grants under the Plan.
b. If any change is made to the Common Stock (whether by reason of
merger, consolidation, reorganization, recapitalization, stock dividend,
stock split, combination of shares, or exchange of shares or any other
change in capital structure made without receipt of consideration), then
unless such event or change results in the termination of all outstanding
I-3
Grants and Director's Grants under the Plan, the Committee shall preserve
the value of the outstanding Grants and Director's Grants by adjusting the
maximum number and class of shares issuable under the Plan to reflect the
effect of such event or change in the Company's capital structure, and by
making appropriate adjustments to the number and class of shares, the
exercise price of each outstanding option and otherwise, except that any
fractional shares resulting from such adjustments shall be eliminated by
rounding any portion of a share equal to .500 or greater up, and any
portion of a share equal to less than .500 down, in each case to the
nearest whole number.
4. Eligibility for Participation
Committee Members, Officers and other employees of the Company or a
Subsidiary Corporation and independent contractors and consultants who
perform services for the Company (hereinafter referred to individually as
an "Eligible Participant" and collectively as "Eligible Participants")
shall be eligible to participate in the Plan. Only Eligible Participants
who are officers or other employees of the Company or a Subsidiary
Corporation shall be eligible to receive Incentive Stock Options. All
Eligible Participants shall be eligible to receive Nonqualified Stock
Options and Restricted Stock Grants. The Committee shall select from among
the Eligible Participants those who will receive Grants (such Eligible
Participants and Committee Members who receive Director's Grants pursuant
to Section 2(b) hereof are hereinafter sometimes collectively referred to
as the "Grantees") and, except in the case of a Director's Grant made
pursuant to Section 2(b) hereof, the Committee shall determine the number
of shares of Common Stock subject to each Grant; provided, however, that
the maximum number of shares of Common Stock which may be subject to Grants
awarded to any Grantee shall not exceed 600,000. The Committee may, if it
so desires, base any such selections or determinations upon the
recommendations of management of the Company. Nothing contained in the Plan
shall be construed to limit in any manner whatsoever the right of the
Company to grant rights or options to acquire Common Stock or awards of
Common Stock otherwise than pursuant to the Plan.
5. Stock Options to Eligible Participants
a. Number of Shares. The Committee, in its sole discretion, shall
determine the number of shares of Common Stock that will be subject to each
option.
b. Type of Option and Option Price.
(1) The Committee may grant options qualifying as incentive
stock options within the meaning of Section 422 of the Code ("Incentive
Stock Options") and other stock options ("Nonqualified Stock Options"), in
accordance with the terms and conditions set forth herein, or may grant any
combination of Incentive Stock Options and Nonqualified Stock Options
(hereinafter referred to collectively as "Stock Options"). The option price
per share of an Incentive Stock Option shall be the higher of the Fair
Market Value or the book value of a share of Common Stock on the date: of
grant. If the Grantee of an Incentive Stock
I-4
Option owns Common Stock (as determined under section 424(d) of the Code)
possessing more than 10% of the total combined voting power of all classes
of stock of the Company or a Parent Corporation or Subsidiary Corporation,
the option price per share in the case of an Incentive Stock Option shall
not be less than 110% of the fair market value of a share of Common Stock
on the date of grant and such option by its terms is not exercisable after
the expiration of five (5) years from the date of grant.
(2) For all valuation purposes under the Plan, the fair market
value of a share of Common Stock shall be determined in accordance with the
following provisions:
(a) If the Common Stock is not at the time listed or
admitted to trading on any stock exchange but is traded in the
over-the-counter market (but not on the Nasdaq National Market
segment of The Nasdaq Stock Market), the fair market value
shall be the mean between the last reported bid and asked
prices of one share of Common Stock on the date in question in
the over-the-counter market, as such prices are reported by
the National Association of Securities Dealers through its
Nasdaq system or any successor system. If there are no
reported bid and asked prices on the date in question, then
the mean between the last reported bid and asked prices on the
next preceding date for which such quotations exist shall be
determinative of fair market value. If the Common Stock is
traded over-the-counter on the Nasdaq National Market segment
of The Nasdaq Stock Market, the fair market value shall be the
closing selling price of one share of Common Stock on the date
in question as such price is reported by the National
Association of Securities Dealers, Inc. through such system or
any successor system. If there is no reported closing selling
price for the Common Stock on the date in question, then the
closing selling price on the next preceding date for which
such quotation exists shall be determinative of fair market
value.
(b) If the Common Stock is at the time listed or
admitted to trading on any stock exchange, then the fair
market value shall be the closing selling price of one share
of Common Stock on the date in question on the stock exchange
determined by the Committee to be the primary market for the
Common Stock, as such prices are officially quoted on such
exchange. If there is no reported closing selling price of
Common Stock on such exchange on the date in question, then
the fair market value shall be the closing selling price on
the next preceding date for which such quotation exists.
(c) If the Common Stock is at the time neither listed
nor admitted to trading on any stock exchange nor traded in
the over-the-counter market (or, the Committee determines that
the value as determined pursuant to Section 5(b)(2)(A) or (B)
above does not reflect fair market value), then the Committee
shall determine fair market value after taking into account
such factors as it deems appropriate.
I-5
c. Exercise Period. The Committee shall determine the option exercise
period of each Stock Option. The exercise period shall not exceed ten years
from the date of grant. Notwithstanding any determinations by the Committee
regarding the exercise period of any Stock Option, all outstanding Stock
Options shall be immediately exercisable upon a Change of Control of the
Company (as defined in Section 7 below).
d. Vesting of Options and Restrictions on Shares. The vesting period
for Stock Options shall commence on the date of grant and shall end on the
date or dates, determined by the Committee, that shall be specified in the
Grant Letter. The Committee may impose upon the shares of Common Stock
issuable upon the exercise of a Stock Option such restrictions as it deems
appropriate and specifies in the Grant Letter. During any period in which
such restrictions apply a Grantee may not sell, assign, transfer, pledge or
otherwise dispose of the shares of Common Stock issued upon exercise of
such stock options except to a successor Grantee pursuant to Section 7
hereof and the Committee, in such circumstances as it deems equitable, may
determine that all such restrictions shall lapse. Notwithstanding any other
provision of the Plan, all outstanding Stock Options shall become
immediately exercisable upon a Change of Control of the Company (as,
defined in Section 7 below).
e. Manner of Exercise. A Grantee may exercise a Stock Option by
delivering a duly completed notice of exercise to the Committee, together
with payment of the option price. Such notice may include instructions
authorizing the Company to deliver the certificates representing the shares
of Common Stock issuable upon the exercise of such Stock Option to any
designated registered broker or dealer ("Designated Broker"). Such
instructions shall designate the account into which the shares are to be
deposited. The Grantee may tender such notice of exercise, which has been
properly executed by the Grantee, and the aforementioned delivery
instructions to any Designated Broker.
f. Termination of Employment, Disability or Death.
(1) If a Grantee who is an employee ceases to be an employee
(in the case of an Incentive Stock Option) or ceases to be an Eligible
Participant (in the case of a Nonqualified Stock Option) for any reason
(other than, in the case of an individual, the death of such individual)
any Stock Option which is otherwise exercisable by the Grantee shall
terminate unless exercised within three months after the date on which the
Grantee ceases to be an employee or an Eligible Participant, as the case
may be (or in the case of Non- Qualified Stock Options within such other
period of time, which may be longer or shorter than three months, as may be
specified in the Grant Letter), but in any event no later than the date of
expiration of the option exercise period, except that in the case of an
individual Grantee who is disabled within the meaning of Section 22(e)(3)
of the Code, such period shall be one year rather than three months (or in
the case of Non-Qualified Stock Options within such other period of time,
which may be longer or shorter than three months, as may be specified in
the Grant Letter).
(2) In the event of the death of an individual Grantee while
he or she is an Eligible Participant or within not more than three months
after the date on which the
I-6
Grantee ceases to be an Eligible Participant (or within such other period
of time, which may be longer or shorter than three months, as may be
specified in the Grant Letter), any Stock Option which was otherwise
exercisable by the Grantee at the date of death may be exercised by the
Grantee's personal representative at any time prior to the expiration of
one year from the date of death, but in any event no later than the date of
expiration of the option exercise period.
g. Satisfaction of Option Price. The Grantee shall pay the option price
in full at the time of exercise in cash, or, with the consent of the
Committee in its sole discretion, by delivering shares of Common Stock
already owned by the Grantee and having a fair market value on the date of
exercise equal to the option price or a combination of cash and shares of
Common Stock. The Grantee shall also pay the amount of withholding tax due,
if any, at the time of exercise. Shares of Common Stock shall not be issued
or transferred upon any purported exercise of a Stock Option until the
option price and the withholding obligation are fully paid.
h. Limits on Incentive Stock Options. Each Option Grant of an Incentive
Stock Option shall provide that:
(1) the Stock Option is not transferable by the Grantee,
except, in the case of an individual Grantee, by will or the laws of
descent and distribution;
(2) the Stock Option is exercisable only by the Grantee,
except as otherwise provided herein or in the Grant Letter in the event of
the death of an individual Grantee;
(3) the aggregate fair market value of the Common Stock
determined as of the date of the Grant with respect to which Incentive
Stock Options are exercisable for the first time by a Grantee during any
calendar year under the Plan and under any other stock option plan of the
Company shall not exceed $100,000; and
(4) unless the Grantee could otherwise transfer Common Stock
issued pursuant to the Stock Option without incurring liability under
Section 16(b) of the Securities and Exchange Act of 1934, as amended (the
"Exchange Act"), at least six months must elapse from the date of
acquisition of the Stock Option until the date of disposition of the Common
Stock issued upon exercise thereof.
6. Restricted Stock Grants
The Committee may issue shares of Common Stock to an Eligible
Participant pursuant to an incentive or long range compensation plan,
program or contract approved by the Committee (a "Restricted Stock Grant").
The following provisions are applicable to Restricted Stock Grants:
I-7
a. General Requirements. Shares of Common Stock issued pursuant to
Restricted Stock Grants will be issued in consideration for cash or
services rendered having a value, as determined by the Board, at least
equal to the par value thereof. All conditions and restrictions imposed
under each Restricted Stock Grant, and the period of years during which the
Restricted Stock Grant will remain subject to such restrictions, shall be
set forth in the Grant Letter and designated therein as the "Restriction
Period." All restrictions imposed under any Restricted Stock Grant shall
lapse on such date or dates as the Committee may approve until the
restrictions have lapsed as to 100% of the shares, except that upon a
Change of Control of the Company, all restrictions on the transfer of the
shares which have not been forfeited prior to such date shall lapse. In
addition, the Committee, in circumstances that it deems equitable, may
determine as to any or all Restricted Stock Grants, that all the
restrictions shall lapse, notwithstanding any Restriction Period.
b. Number of Shares. The Committee, in its sole discretion, shall
determine the number of shares of Common Stock that will be granted in each
Restricted Stock Grant.
c. Requirement of Relationship with Company. If the Grantee's
relationship with the Company (as an employee, independent contractor or
consultant, as the case may be) terminates during the period designated in
the Grant Letter as the Restriction Period, the Restricted Stock Grant
shall terminate as to all shares covered by the Grant as to which
restrictions on transfer have not lapsed, and such shares shall be
immediately returned to the Company. The Committee may, in its sole
discretion, provide for complete or partial exceptions to the provisions of
this Section 6(c).
d. Restrictions on Transfer and Legend on Stock Certificate. During the
Restriction Period, a Grantee may not sell, assign, transfer, pledge or
otherwise dispose of the shares of Common Stock to which such Restriction
Period applies except to a Successor Grantee pursuant to Section 7 below.
Each certificate representing a share of Common Stock issued or transferred
under a Restricted Stock Grant shall contain a legend giving appropriate
notice of the restrictions in the Grant. The Grantee shall be entitled to
have the legend removed from the stock certificate or certificates
representing any such shares as to which all restrictions have lapsed.
7. Transferability of Options and Grants
Only a Grantee or Committee Member (or, in the case of an individual
Grantee and a Committee Member, his or her authorized legal representative
on behalf of Grantee or Committee Member) may exercise rights under a Grant
or a Director's Grant. No individual Grantee or Committee Member may
transfer those rights except by will or by the laws of descent and
distribution or, in the case of a Grant other than an Incentive Stock
Option and to the extent permitted under Rule 16b-3 of the Exchange Act and
by the Committee in its sole discretion, (a) pursuant to a qualified
domestic relations order as defined under the Code or Title I of ERISA or
the rules thereunder and (b) to a trust for the benefit of a member of the
Grantee's immediate family. Upon the death of an individual Grantee or
Committee Member,
I-8
the personal representative or other person entitled to succeed to the
rights of the Grantee or Committee Member ("Successor Grantee") may
exercise such rights. A Successor Grantee shall furnish proof satisfactory
to the Company of such person's right to receive the Grant or the
Director's Grant under the Grantee's will or under the applicable laws of
descent and distribution.
8. Change of Control of the Company
As used herein, a "Change of Control" shall be deemed to have occurred
when (a) any "person" (as such term is used in Section 13(d) and 14(d) of
the Exchange Act) becomes the "beneficial owner", directly or indirectly,
of securities of the Company representing thirty (30%) percent or more of
the combined voting power of the Company's then outstanding securities or
(b) the Company becomes a subsidiary of another corporation or is merged or
consolidated into another corporation or if substantially all of its assets
shall have been sold to an unaffiliated party or parties unless thereafter
(1) directors of the Company immediately prior thereto continue to
constitute at least fifty (50%) percent of the directors of the surviving
entity or purchaser or (2) the Company's securities continue to represent,
or are converted into securities which represent, more than seventy (70%)
percent of the combined voting power of the surviving entity or purchaser,
or (c) fifty (50%) percent or more of the Board is comprised of persons who
were not nominated by the Board for election as directors, or (d) the Board
adopts a plan of complete liquidation of the Company.
9. Certain Corporate Changes
a. Sale or Exchange of Assets, Dissolution or Liquidation or Merger or
Consolidation Where the Company Does Not Survive. If all or substantially
all of the assets of the Company are to be sold or exchanged, the Company
is to be dissolved or liquidated, or the Company is a party to a merger or
consolidation with another corporation in which the Company will not be the
surviving corporation, then, at least ten days prior to the effective date
of such event, the Company shall give each Grantee with any outstanding
Grants (including Director's Grants) written notice of such event. Each
such Grantee shall thereupon have the right to exercise in full any
installments of such Grants (including Director's Grants) not previously
exercised (whether or not the right to exercise such installments has
accrued pursuant to such Grants (including Director's Grants), within ten
days after such written notice is sent by the Company. Any installments of
such Grants (including Director's Grants) not so exercised shall thereafter
lapse and be of no further force or effect.
b. Merger or Consolidation Where the Company Survives. If the Company
is a party to a merger or consolidation in which the Company will be the
surviving corporation, then the Committee may, in its sole discretion,
elect to give each Grantee with any outstanding Grants (including
Director's Grants) written notice of such event. If such notice is given,
each such Grantee shall thereupon have the right to exercise in full any
installments of such Grants (including Director's Grants) not previously
exercised (whether or not the right to exercise such installments has
accrued pursuant to such Grants (including Director's
I-9
Grants), within ten days after such written notice is sent by the Company.
Any installments of such Grants (including Director's Grants) not so
exercised shall thereafter lapse and be of no further force or effect.
10. Shareholder Approval
This Plan is subject to and no Options shall be exercisable hereunder
until after approval by holders of a majority of the shares of the stock of
the Company present or represented by a proxy in a separate vote at a duly
held meeting of the shareholders of the Company within twelve months after
the date of the adoption of the Plan by the Board. If the Plan is not so
approved by shareholders, the Plan and all Stock Options and Restricted
Stock Grants, including Director's Grants, hereunder shall terminate and be
of no force or effect.
11. Amendment and Termination of the Plan
a. Amendment. Subject to the provisions of Section 2(b)(ii) hereof, the
Board may amend or terminate the Plan at any time; provided that the
approval of the shareholders of the Company shall be required in respect of
any amendment that (A) materially increases the benefits accruing to
Eligible Participants under the Plan, (B) increases the aggregate number of
shares of Common Stock that may be issued or transferred under the Plan
(other than by operation of Section 3(b) above), (C) materially modifies
the requirements as to eligibility for participation in the Plan; or (D)
modifies the provisions for determining the fair market value of a share of
Common Stock.
b. Termination of Plan. The Plan shall terminate on January 11, 2005
(as set forth in Section 19 below) unless earlier terminated by the Board
or unless extended by the Board with the approval of the shareholders.
c. Termination and Amendment of Outstanding Grants. A termination or
amendment of the Plan that occurs after a Grant (including Director's
Grant) is made shall not result in the termination or amendment of such
Grant (including Director's Grant) unless the Grantee or the Committee
Member, as the case may be, consents or unless the Committee acts under
Section 17(b) below. The termination of the Plan shall not impair the power
and authority of the Committee with respect to an outstanding Grant.
Whether or not the Plan has terminated, an outstanding Grant may be
terminated or amended under Section 17(b) below or may be amended by
agreement of the Company and the Grantee which is consistent with the Plan.
d. Employees in Foreign Countries. The Board shall have the authority
to adopt such modifications, procedures and subplans as may be necessary or
desirable to comply with provisions of the laws of foreign countries in
which the Company or its Subsidiaries may operate to assure the viability
of benefits from Grants made to participants employed in such countries and
to meet the objectives of the Plan.
I-10
12. Rights of Eligible Participants
Nothing in the Plan shall entitle any Eligible Participant or other
person to any claim or right to any Grant under the Plan. Neither the Plan
nor any action taken hereunder shall be construed as giving any Eligible
Participant, Committee Member or Grantee any rights to be retained by the
Company in any capacity, whether as an employee, member of the Board,
independent contractor, consultant or otherwise.
13. Withholding of Taxes
The Company shall have the right to require a Grantee or Committee
Member to pay to the Company the amount of any taxes which the Company is
required to withhold in respect of an Option Grant or Restricted Stock
Grant or to take whatever action it deems necessary to protect the
interests of the Company in respect of such tax liabilities, including,
without limitation, withholding a portion of the shares of Common Stock
otherwise deliverable pursuant to the Plan. The Company's obligation to
issue or transfer shares of Common Stock upon the exercise of a Stock
Option or the acceptance of a Restricted Stock Grant shall be conditioned
upon the Grantee's or Committee Member's compliance with the requirements
of this section to the satisfaction of the Committee.
14. Agreements with Grantees and Committee Members
Each Option Grant made under the Plan shall be evidenced by a Grant
Letter containing such terms and conditions as the Committee shall approve.
Each Restricted Stock Grant shall be evidenced by a Grant Letter containing
the restrictions imposed upon such grant, including but not limited to,
restrictions imposed by federal and state securities laws.
15. Requirements for Issuance of Shares
No Common Stock shall be issued or transferred under the Plan unless
and until all applicable legal requirements have been complied with to the
satisfaction of the Committee. The Committee shall have the right to
condition any Stock Option or Restricted Stock Grant on the Grantee's
undertaking in writing to comply with such restrictions on any subsequent
disposition of the shares of Common Stock issued or transferred thereunder
as the Committee shall deem necessary or advisable as a result of any
applicable law, regulation or official interpretation thereof, and
certificates representing such shares may be legended to reflect any such
restrictions.
I-11
16. Headings
The section headings of the Plan are for reference only. In the event
of a conflict between a section heading and the content of a section of the
Plan, the content of the section shall control.
17. Effective Date of the Plan
The Plan shall be effective as of January 11, 1995, subject to the
approval of the Company's shareholders within 12 months after such
effective date.
18. Miscellaneous
a. Substitute Grants. The Committee may make a Grant to an employee, or
an independent contractor or consultant of another corporation, if such
person shall become an Eligible Participant by reason of a corporate
merger, consolidation, acquisition of stock or property, reorganization or
liquidation involving the Company or a Subsidiary Corporation and such
other corporation. Any such Grant shall be made in substitution for a stock
option or restricted stock grant granted by the other corporation
("Substituted Stock Incentives"), but the terms and conditions of the
substitute Grant may vary from the terms and conditions required by the
Plan and from those of the Substituted Stock Incentives. The Committee
shall prescribe the provisions of the substitute Grants.
b. Compliance with Law. The Plan, the exercise of Grants and the
obligations of the Company to issue or transfer shares of Common Stock
under Grants shall be subject to all applicable laws and required approvals
by any governmental or regulatory agencies. The Committee (or in the case
of Director's Grants, the Board of Directors) may revoke any Grant if it is
contrary to law or modify any Grant to bring it into compliance with any
valid and mandatory government regulations. The Committee may also adopt
rules regarding the withholding of taxes on payments to Grantees. The
Committee may, in its sole discretion, agree to limit its authority under
this section.
c. Ownership of Stock. A Grantee or Successor Grantee shall have no
rights as a shareholder with respect to any shares of Common Stock covered
by a Grant or Director's Grant until the shares are issued or transferred
to the Grantee or Successor Grantee on the stock transfer records of the
Company.
I-12
CTI Group (Holdings) Inc.
PROXY
Solicited on Behalf of the Board of Directors for the
Special Meeting of Stockholders to be held on
August 28, 2000, 10:00,
local time at ________________.
The undersigned hereby appoints Mary Ann Davis and Bonnie Yost, and
each of them, with full power of substitution, proxies to represent the
undersigned at the special meeting of stockholders of CTI Group (Holdings)
Inc.("CTIG") to be held August 28, 2000, 10:00, local time, and at any
adjournments or postponements thereof and thereat to vote all of the shares of
stock which the undersigned would be entitled to vote, with all powers the
undersigned would possess if personally present, as follows. The Board of
Directors recommends that you vote FOR the following proposals:
1. To approve and adopt a Merger Agreement by and between CTIG and
Centillion Data Systems, Inc.
|_| FOR |_| AGAINST |_| ABSTAIN
2. To approve and adopt a Merger Agreement whereby Celltech Information
Systems, Inc. will be merged with, and into CTI Billing Solutions Inc., a
wholly-owned subsidiary of CTIG.
|_| FOR |_| AGAINST |_| ABSTAIN
3. To approve and adopt amendments to CTIG's Certificate of
Incorporation to redesignate its current common stock as either Class A Common
Stock or Class B Common Stock and restructure and designate CTIG's post-merger
Board of Directors.
|_| FOR |_| AGAINST |_| ABSTAIN
4. To approve and adopt an amendment to the CTIG Stock Option and
Restricted Stock Plan to enable CTIG to authorize additional options.
|_| FOR |_| AGAINST |_| ABSTAIN
5. In their discretion to act upon such other business as may properly
come before the meeting and any adjournments or postponements of the meeting.
The Board of Directors of CTIG Group (Holdings) Inc. recommends a vote for the
approval of each proposal.
The proxy holders will vote the shares represented by this proxy in the
manner indicated on the reverse side hereof. Unless a contrary direction is
indicated, the proxy holders will vote FOR approval of each of the stated
proposals and at the discretion of the proxy holders as to any other matter
related to the proposals that may properly come before the special meeting.
The undersigned hereby acknowledges notification of the special meeting
and receipt of the proxy statement dated ______________, 2000, relating to the
special meeting.
______________________________________
Signature
______________________________________
Signature
Dated , 2000
In case of joint owners, each joint
owner must sign, if signing for a
corporation or partnership or as agent,
attorney or fiduciary, indicate the
capacity in which you are signing.
PLEASE MARK, DATE, AND SIGN YOUR NAME AS IT APPEARS ON
THIS CARD AND RETURN IN THE ENCLOSED ENVELOPE.