Agreement and Plan of Reorganization - HNC Software Inc., Celerity Technologies Inc. and Frank Gates Companies
AGREEMENT AND PLAN OF REORGANIZATION
THIS AGREEMENT AND PLAN OF REORGANIZATION (this "AGREEMENT") is made and
entered into as of April 10, 2000 (the "AGREEMENT DATE") by and among HNC
SOFTWARE INC., a Delaware corporation ("HNC"), CTI MERGER CORP., a Delaware
corporation that is a wholly-owned subsidiary of HNC ("SUB"), CELERITY
TECHNOLOGIES, INC., an Ohio corporation ("CTI") and, solely for purposes of
Sections 3, 5, 7.2, 11 and 12 of this Agreement, THE FRANK GATES COMPANIES,
INC., an Ohio corporation ("FGC").
RECITALS
A. The parties intend that, subject to the terms and conditions of this
Agreement, Sub will be merged with and into CTI in a merger, with CTI to be the
surviving corporation of such merger, pursuant to the terms and conditions of
this Agreement and the applicable laws of the States of Ohio and Delaware.
B. Upon the effectiveness of such merger (a) CTI will become a
wholly-owned subsidiary of HNC and (b) all the common stock of CTI that is
outstanding immediately prior to the effectiveness of the merger will be
converted into the right to receive shares of the common stock of HNC and cash,
all subject to the terms and conditions of this Agreement.
C. The parties also intend for such merger to be treated as a
"reorganization" under Section 368(a) of the Internal Revenue Code of 1986, as
amended (the "CODE").
NOW, THEREFORE, in consideration of the above-recited facts and the
mutual promises, covenants and conditions contained herein, the parties hereby
agree as follows:
ARTICLE 1
CERTAIN DEFINITIONS
As used in this Agreement and its exhibits, the following terms will
have the respective meanings set forth below:
"CASH AMOUNT PER SHARE" means the quotient obtained by dividing (a) Two
Million Four Hundred Thousand Dollars ($2,400,000) by (b) the CTI Fully Diluted
Number (as defined below).
"CTI ANCILLARY AGREEMENTS" means, collectively, each agreement or
certificate (other than this Agreement) which CTI is to enter into as a party
thereto, or otherwise is to execute and deliver, pursuant to this Agreement.
"CTI COMMON STOCK" means CTI's Common Stock, no par value per share.
"CTI DERIVATIVE SECURITIES" means, collectively: (a) any warrant,
option, right or other security that entitles the holder thereof to purchase or
otherwise acquire any shares of the capital stock of CTI of any class or series
(collectively, "CTI STOCK RIGHTS"); (b) any note, evidence of indebtedness,
stock (including without limitation convertible preferred stock) or other
security of CTI that is convertible into or exchangeable for any shares of the
capital stock of CTI of any class or series or for any CTI Stock Rights ("CTI
CONVERTIBLE SECURITY"); and (c) any warrant, option,
<PAGE> 2
right, note, evidence of indebtedness, stock or other security that entitles the
holder thereof to purchase or otherwise acquire any CTI Stock Right or any CTI
Convertible Security.
"CTI FULLY DILUTED NUMBER" means that number of shares of the capital
stock of CTI that is equal to the sum of: (a) the total number of shares of the
capital stock of CTI that are issued and outstanding immediately prior to the
Effective Time; plus (b) the total number of shares of the capital stock of CTI
that, immediately prior to the Effective Time, are, directly or indirectly,
potentially issuable by CTI upon the exercise, conversion or exchange in full of
all CTI Derivative Securities (if any) that are issued and outstanding (or
issuable) immediately prior to the Effective Time (determined as if all such CTI
Derivative Securities were then fully vested and exercisable in full).
"CTI STOCKHOLDERS" means those persons or entities (each being
individually referred to herein as a "CTI STOCKHOLDER") who, as of immediately
prior to the Effective Time, hold the shares of CTI Common Stock that are issued
and outstanding immediately prior to the Effective Time.
"CTI STOCKHOLDERS' VOTE" means, as applicable, (a) the written consent
of CTI stockholders in lieu of a meeting effected in accordance with Section
1701.54 of the OGCL or (b) the special meeting of CTI stockholders to be called
and held by CTI, in order to seek the CTI stockholders' approval of the Merger,
this Agreement and the transactions contemplated thereby.
"CTI WEBSITE" means all websites or other sites accessed via the
internet or any other electronic network (including without limitation any
cable-based network or private network), that are, in whole or in part, owned or
operated by CTI including without limitation that certain website currently
accessible at the URL address "http://www. celeritytech.com" (the "HOME CTI
WEBSITE").
"CONVERSION NUMBER" means the quotient obtained by dividing (a) the
number of shares of HNC Common Stock constituting the HNC Merger Shares by (b)
the CTI Fully Diluted Number.
"DGCL" means the Delaware General Corporation Law, as amended.
"EFFECTIVE TIME" means the time and date on which the Merger first
becomes legally effective under the laws of the States of Delaware and Ohio as a
result of: (a) the filing with the Delaware Secretary of State of a Certificate
of Merger in substantially the form of Exhibit A hereto (the "DELAWARE
CERTIFICATE OF MERGER") in accordance with, and conforming to, the provisions of
this Agreement and the requirements of Section 252 of the DGCL, and (b) the
filing with the Ohio Secretary of State of a Certificate of Merger in the form
of Exhibit B hereto (the "OHIO CERTIFICATE OF MERGER") conforming to the
provisions of this Agreement and the applicable requirements of Section 1701.81
of the OGCL (the Delaware Certificate of Merger and the Ohio Certificate of
Merger are collectively referred to herein as the "CERTIFICATES OF MERGER").
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended,
and the rules and regulations promulgated thereunder.
"FGC ANCILLARY AGREEMENTS" means, collectively, the Escrow Agreement,
the Non-Competition Agreement and each other agreement or certificate (other
than this Agreement) which FGC is to enter into as a party thereto, or otherwise
is to execute and deliver, pursuant to this Agreement.
2
<PAGE> 3
"HNC ANCILLARY AGREEMENTS" means, collectively, each agreement or
certificate (other than this Agreement) which HNC is to enter into as a party
thereto, or otherwise is to execute and deliver, pursuant to this Agreement.
"HNC CLOSING PRICE PER SHARE" means the average of the closing prices
per share of HNC Common Stock as quoted on the Nasdaq National Market and
reported in The Wall Street Journal for the ten (10) trading days immediately
preceding (but not including) the Closing Date.
"HNC COMMON STOCK" means HNC's Common Stock, $0.001 par value per share.
"HNC MERGER SHARES" means Two Hundred Twenty Thousand (220,000) shares
of HNC Common Stock, as constituted on the Agreement Date.
"HSR ACT" means the Hart-Scott-Rodino Antitrust Improvements Act of
1976, as amended, and the rules and regulations promulgated thereunder.
"KNOWLEDGE" (a) when used with reference to CTI, means the collective
actual knowledge of any person who, at the Agreement Date, was an officer of CTI
or a member of CTI's Board of Directors; and (b) when used with reference to
HNC, means the collective actual knowledge of the persons who, at the Agreement
Date, are HNC's officers (within the meaning of Section 16 of the Exchange Act
and the regulations promulgated thereunder).
"LOSS" means, collectively, any and all claims, demands, suits, actions,
causes of action, losses, damages, debts, liabilities, judgments, fines,
penalties, costs and expenses including, without limitation, reasonable
attorneys' fees, accountants' fees, tax preparers' fees, other professionals'
and experts' reasonable fees and court or arbitration costs.
"MATERIAL ADVERSE EFFECT" when used with reference to any entity or
group of entities, means any event, change or effect that is (or will with the
passage of time be) materially adverse to the financial condition, properties,
assets, liabilities, business, operations, or results of operations of such
entity and its subsidiaries, taken as a whole.
"MATERIAL ADVERSE CHANGE" when used with reference to any entity or
group of entities, means a material adverse change to the financial condition,
properties, assets, liabilities, business, operations or results of operations
of such entity and its consolidated subsidiaries, taken as a whole; provided
however, that none of the following shall constitute a Material Adverse Change:
(a) a change to the extent it arises or results, directly or indirectly, from
general industry, economic or stock market conditions; or (b) a change that is
proximately caused by the public announcement of, and the response or reaction
of customers, vendors, licensors, investors, employees of such entity or group
of entities to, this Agreement, the Merger or any of the transactions
contemplated by this Agreement; or (c) solely with respect to HNC, a reduction
in the market price of the capital stock of HNC and/or any of HNC's
subsidiaries; or (d) solely with respect to HNC (i) any investment by third
parties or any sale of stock or other equity security (including any public
offering) in any subsidiary, business unit or asset of HNC, (ii) the grant by
HNC of licenses or other rights in Intellectual Property or products to a
business or entity of which HNC is not the sole owner; (iii) any distribution by
HNC to its stockholders (or any distribution by a subsidiary of HNC to such
subsidiary's stockholders) of stock or equity interests in a business unit or
subsidiary of HNC.
3
<PAGE> 4
The "MERGER" means the statutory merger of Sub with and into CTI to be
effected pursuant to the terms and conditions of this Agreement.
"OGCL" means the Ohio General Corporation Law, as amended.
"SEC" means the U.S. Securities and Exchange Commission.
"SECURITIES ACT" means the Securities Act of 1933, as amended, and the
rules and regulations promulgated thereunder.
"SUB ANCILLARY AGREEMENTS" means, collectively, each agreement or
certificate (other than this Agreement) which Sub is to enter into as a party
thereto, or otherwise is to execute and deliver, pursuant to this Agreement.
"TERMINATION DATE" means May 15, 2000.
Other capitalized terms defined elsewhere in this Agreement and not
defined in this Article 1 will have the meanings assigned to such terms in this
Agreement.
ARTICLE 2
PLAN OF REORGANIZATION
2.1 Conversion of Shares Upon Effectiveness of Merger.
2.1.1 Conversion of Sub Common Stock. At the Effective Time,
each share of the Common Stock of Sub that is issued and outstanding immediately
prior to the Effective Time will, by virtue of the Merger and without the need
for any further action on the part of the holder thereof, be converted into and
become one (1) share of CTI Common Stock that is issued and outstanding
immediately after the Effective Time, and the shares of CTI Common Stock into
which the shares of Sub Common Stock are so converted in the Merger will be the
only shares of capital stock of CTI that are issued and outstanding immediately
after the Effective Time.
2.1.2 Conversion of CTI Common Stock. Subject to the terms and
conditions of this Agreement, at the Effective Time each share of CTI Common
Stock that is issued and outstanding immediately prior to the Effective Time
will, by virtue of the Merger, and without the need for any further action on
the part of the holder thereof, be converted into:
(a) the right to receive a number of shares of HNC
Common Stock that is equal to the Conversion Number, subject to the provisions
of Section 2.2 regarding the elimination of fractional shares; and
(b) the right to receive an amount of cash equal to the
Cash Amount Per Share.
2.2 Fractional Shares. No fractional shares of HNC Common Stock will be
issued in connection with the Merger. In lieu thereof, each CTI Stockholder who
would otherwise be entitled to receive a fraction of a share of HNC Common Stock
pursuant to Section 2.1.2 (where the amount of such fraction will be determined
in each case after aggregating all shares of HNC Common Stock to be received by
such holder pursuant to Section 2.1.2), will instead receive from HNC, in lieu
of any fractional share that would otherwise issuable to such holder under
Section 2.1.2, a payment of cash in an amount equal to the fraction of a share
of HNC Common Stock
4
<PAGE> 5
that such holder would otherwise be entitled to receive (determined as provided
above) multiplied by the HNC Closing Price Per Share, which amount shall be paid
when such person is entitled, under the terms of Article 7, to receive a stock
certificate for shares of HNC Common Stock issued to such holder in the Merger
under Section 2.1.2 (and the amount of such cash payment will be rounded down to
the nearest whole number of cents).
2.3 Tax-Free Reorganization.
2.3.1 The parties intend that this Agreement be a plan of
reorganization, and that the Merger qualify as a reorganization within the
meaning of Section 368(a) of the Code. The shares of HNC Common Stock issued in
the Merger pursuant to Section 2.1.2 and the cash consideration to be paid in
the Merger pursuant to Section 2.1.2, will be issued or paid solely for the
issued and outstanding shares of CTI Common Stock pursuant to this Agreement. In
addition, HNC represents that it presently intends, and that at the Effective
Time it will intend, to continue CTI's historic business or use a significant
portion of CTI's business assets in a business.
2.3.2 Notwithstanding anything herein, HNC makes no
representations or warranty to CTI or to any stockholder of CTI regarding the
tax treatment of the Merger or whether the Merger will qualify as a
reorganization within the meaning of Section 368(a) of the Code or any other law
or statute regarding taxation. CTI hereby acknowledges and agrees that CTI has
not relied, and that no CTI stockholder is entitled to rely, on HNC or HNC's
legal counsel, accountants or tax advisers, for any advice or counsel with
respect to the tax treatment of the Merger, including without limitation its
status as a reorganization under the Code.
2.4 Adjustments for Capital Changes. Notwithstanding the provisions of
this Article 2, if at any time after the Agreement Date and prior to the
Effective Time, HNC (a) recapitalizes, either through a subdivision (or stock
split) of the outstanding shares of HNC Common Stock into a greater number of
shares of HNC Common Stock, or a combination (or reverse stock split) of the
outstanding shares of HNC Common Stock into a lesser number of shares of HNC
Common Stock, or (b) declares a dividend or distribution on the outstanding
shares of HNC Common Stock payable in shares of HNC Common Stock or in other
securities, cash or property, or (c) reorganizes, reclassifies, exchanges or
otherwise changes the outstanding shares of HNC Common Stock into other
securities, cash or property through, without limitation, a merger,
consolidation, reorganization, or recapitalization (other than through a
subdivision or combination of shares provided for in clause (a) above or through
a dividend or distribution provided for in clause (b) above), or (d) sets a
record date that is prior to the Effective Time, for determining which holders
of outstanding HNC Common Stock will be entitled to receive a dividend of the
type described in clause (b) above, or to have their shares of HNC Common Stock
reorganized, reclassified, exchanged or changed into other securities, cash or
property as described in clause (c) above (each, a "CAPITAL CHANGE"), then the
HNC Closing Price Per Share, the number of shares of HNC Common Stock
constituting the HNC Merger Shares and the Conversion Number will each, if and
to the extent necessary, be appropriately adjusted, the number of shares of HNC
Common Stock constituting the HNC Merger Shares so as to equitably maintain the
proportionate interests of the stockholders of HNC and CTI intended by this
Agreement (but, in the case of stockholders of CTI, only with respect to their
interests in the equity of HNC represented by those shares of HNC Common Stock
that are issued or issuable pursuant to the Merger and this Agreement and, in
the case of stockholders of HNC, only with respect to their interests in the
equity of HNC as of the Effective Time); provided, however, that there shall
only be a single such adjustment to reflect any event constituting a Capital
Change, and there shall not be multiple adjustments with respect to any event
due to the fact that such event may be described under more than one of the
clauses (a) through (d) in this Section 2.4.
5
<PAGE> 6
2.5 Escrow Agreement.
2.5.1 Escrow; Escrow Shares. HNC will be entitled to withhold
from the CTI Stockholders, and to place in escrow as provided herein, fifteen
percent (15%) of the shares of HNC Common Stock that are issuable to the CTI
Stockholders at the Effective Time pursuant to Section 2.1.2 (such number of
shares of HNC Common Stock to be so withheld and placed in escrow pursuant to
this Section 2.5.1 are hereinafter collectively referred to as the "ESCROW
SHARES"). HNC will deliver (i) certificates representing the Escrow Shares to
State Street Bank and Trust Co., N.A. or a similar institution mutually agreed
upon by the parties (the "ESCROW AGENT"), to be held by the Escrow Agent in
escrow as security for CTI Stockholders' indemnification obligations under
Article 11 hereof pursuant to the provisions of an Escrow Agreement in
substantially the form of Exhibit C to be entered into at the Closing by HNC,
the Escrow Agent, the Representative (as defined below) and each CTI Stockholder
(the "ESCROW AGREEMENT"). The number of the Escrow Shares to be withheld from
the shares of HNC Common Stock issued to each CTI Stockholder pursuant to
Section 2.1.2 and placed in escrow under the Escrow Agreement (such CTI
Stockholder's "ESCROW PRO RATA") will be fifteen percent (15%) of the number of
shares of HNC Common Stock issuable to such CTI Stockholder at the Effective
Time in the Merger pursuant to Section 2.1.2. The Escrow Shares will be
represented by certificates issued and registered in the name of the Escrow
Agent, but will be beneficially owned by the CTI Stockholders in proportion to
their respective Escrow Pro Rata interests in the Escrow Shares and will be held
in escrow by the Escrow Agent during the Escrow Period (as that term is defined
in the Escrow Agreement) pursuant to the provisions of the Escrow Agreement.
2.5.2 Additional Provisions; Terms Binding on CTI Stockholders;
Representative's Authority. By their approval of the Merger, each of the CTI
Stockholders will be conclusively deemed to have consented to, approved and
agreed to be personally bound by: (i) the provisions of Article 11, including
without limitation all indemnification obligations of the CTI Stockholders
thereunder; (ii) the Escrow Agreement and the terms and conditions thereof;
(iii) the appointment of Niles C. Overly (in his capacity as the Chief Executive
Officer of FGC) as the representative of the CTI Stockholders (together with
each of his successor(s) appointed pursuant to this Agreement and the Escrow
Agreement (the "REPRESENTATIVE")) and as the attorney-in-fact and agent for and
on behalf of each CTI Stockholder as provided in this Agreement and the Escrow
Agreement; and (iv) the taking by the Representative of any and all actions and
the making of any decisions required or permitted to be taken by the
Representative under this Agreement and/or under the Escrow Agreement, including
without limitation the exercise by the Representative of the power to: (1)
authorize delivery to HNC of Escrow Shares (or, if elected by a CTI Stockholder,
the payment of cash in lieu thereof, in accordance with the provisions of the
Escrow Agreement) in satisfaction of indemnity claims by HNC or any other
Indemnified Person (as defined herein) pursuant to Article 11 and/or the Escrow
Agreement; (2) agree to, negotiate, enter into settlements and compromises of,
demand arbitration of, and comply with orders of courts and awards of
arbitrators with respect to, any claim for indemnification made pursuant to
Article 11; (3) arbitrate, contest, defend, resolve, settle or compromise any
claim for indemnification made pursuant to Article 11 or any other dispute
arising under this Agreement or the Escrow Agreement; and (4) take all actions
necessary in the good faith judgment of the Representative for the
accomplishment of the foregoing. The Representative will have the full right,
power and authority to act on behalf of each CTI Stockholder with respect to all
matters arising under or relating to Article 11 of this Agreement and/or the
Escrow Agreement, including but not limited to the disposition, settlement or
other handling of all indemnity claims, and any other matters, arising under
Article 11 of this
6
<PAGE> 7
Agreement and/or the Escrow so long as all CTI Stockholders are treated under
the Escrow Agreement in the same manner on a pro rata basis in proportion to
their respective Escrow Pro Rata interests in the Escrow Shares (except as an
adversely affected CTI Stockholder may otherwise consent in writing). Each CTI
Stockholder will be irrevocably bound by all actions taken by the Representative
in connection with all matters arising under or relating to Article 11 of this
Agreement and/or the Escrow Agreement, and HNC will be entitled to rely on any
action or decision of the Representative in connection therewith. In performing
the functions specified in this Agreement and the Escrow Agreement, the
Representative will not be liable to any CTI Stockholder in the absence of gross
negligence or willful misconduct on the part of the Representative. Any fees and
expenses of the Escrow Agent will be paid by HNC except to the extent otherwise
expressly provided in the Escrow Agreement.
2.6 Effects of the Merger. At and upon the Effective Time of the Merger:
(a) the separate existence of Sub will cease, Sub will be merged
with and into CTI and CTI will be the surviving corporation of the Merger (the
"SURVIVING CORPORATION") pursuant to the terms of this Agreement and the
Certificates of Merger;
(b) each share of Sub Common Stock that is outstanding
immediately prior to the Effective Time will be converted into one (1) share of
CTI Common Stock as provided in Section 2.1.1;
(c) each share of CTI Common Stock that is issued and
outstanding immediately prior to the Effective Time will be converted into HNC
Common Stock as provided in Section 2.1.2 and the applicable provisions of this
Article 2;
(d) the officers of the Surviving Corporation (and the
respective offices they will hold) will be Earl Malit -- President and Chief
Executive Officer, and John Falliers -- Chief Financial Officer and Secretary;
(e) the directors of the Surviving Corporation will be Earl
Malit and John Falliers (unless any such person declines to serve as a director
of the Surviving Corporation, in which case HNC shall be authorized to appoint a
substitute for such director); and
(f) the Merger will, from and after the Effective Time, have all
of the effects provided by applicable law.
2.7 Securities Laws Compliance - Private Placement Exemption. Subject to
the terms and conditions of this Agreement, HNC will issue the shares of HNC
Common Stock to be issued in the Merger pursuant to Section 2.1.2 pursuant to
the exemption(s) from registration provided under Section 4(2) and/or Regulation
D promulgated under the Securities Act, the exemption from qualification under
Section 25120 of the California Corporate Securities Law of 1968, as amended
(the "CALIFORNIA LAW") provided by Section 25100(o) of the California Law and
applicable exemptions under applicable state securities laws. Accordingly, as a
condition to consummation of the Merger, each CTI Stockholder must execute and
deliver to HNC an Investment Representation Letter in the form of Exhibit D
attached hereto (the "INVESTMENT REPRESENTATION LETTER").
2.8 Further Assurances. If, at any time before or after the Effective
Time, HNC believes or is advised that any further instruments, deeds,
assignments or assurances are reasonably necessary or desirable to consummate
the Merger or to carry out the purposes and
7
<PAGE> 8
intent of this Agreement at or after the Effective Time, then HNC, the Surviving
Corporation and their respective officers and directors may, execute and deliver
all such proper deeds, assignments, instruments and assurances and do all other
things necessary or desirable to consummate the Merger and to carry out the
purposes of this Agreement, in the name of CTI or otherwise.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF CTI AND FGC
CTI and FGC jointly and severally represent and warrant to HNC that,
except as set forth in the letter addressed to HNC from CTI that is executed by
the President of CTI and dated as of the Agreement Date (including all schedules
thereto) which has been delivered by CTI to HNC concurrently with the parties'
execution of this Agreement (the "CTI DISCLOSURE LETTER"), each of the
representations, warranties and statements contained in the following sections
of this Article 3 is true and correct as of the Agreement Date and will be true
and correct on and as of the Closing Date. For all purposes of this Agreement
(including without limitation Articles 8 and 9 hereof), the statements contained
in the CTI Disclosure Letter and its schedules shall also be deemed to be
representations and warranties made and given by CTI and FGC under Article 3 of
this Agreement.
3.1 Organization and Good Standing. CTI is a corporation duly organized,
validly existing and in good standing under the laws of the State of Ohio. CTI
has the corporate power and authority to own, operate and lease its properties
and to carry on its business as now conducted and as proposed to be conducted,
and is qualified to transact business, and is in good standing, as a foreign
corporation in each jurisdiction in which its failure to be so qualified would
have a Material Adverse Effect on CTI. CTI has delivered to HNC and to HNC's
counsel, Fenwick & West LLP, true and correct copies of the currently effective
Articles of Incorporation and Code of Regulations or other charter documents, as
applicable, of CTI, each as amended to date. CTI is not in violation of its
Articles of Incorporation, Code of Regulations or any other charter documents.
All of the members of CTI's Board of Directors have been validly and lawfully
elected to CTI's Board of Directors in compliance with CTI's Articles of
Incorporation and Code of Regulations and applicable law (including without
limitation the OGCL).
3.2 Subsidiaries. CTI does not have any subsidiary or any equity or
ownership interest, whether direct or indirect, in any corporation, partnership,
limited liability company, joint venture or other business entity.
3.3 Power, Authorization and Validity.
3.3.1 Power and Authority. CTI has all requisite corporate power
and authority to enter into, execute, deliver, and perform its obligations
under, this Agreement and each of the CTI Ancillary Agreements, and to
consummate the Merger. The execution, delivery and performance by CTI of this
Agreement and each of the CTI Ancillary Agreements have been duly and validly
approved and authorized by CTI's Board of Directors and CTI's stockholders in
full compliance with applicable law (including without limitation the OGCL) and
CTI's Articles of Incorporation and Code of Regulations, each as amended.
3.3.2 No Consents. No consent, approval, order or authorization
of, or registration, declaration or filing with, any court, administrative
agency, commission or other governmental authority (each, a "GOVERNMENTAL
AUTHORITY") is necessary or required to be made or obtained by CTI to enable CTI
to lawfully execute and deliver, enter into, and to perform its
8
<PAGE> 9
obligations under, this Agreement and each of the CTI Ancillary Agreements, or
to consummate the Merger, except for: (a) the filing of the Delaware Certificate
of Merger with the Delaware Secretary of State as required under the DGCL to
effect the Merger; (b) the filing of the Ohio Certificate of Merger with the
Ohio Secretary of State as required under the OGCL to effect the Merger; (c)
such filings and notifications as may be necessary under the HSR Act with
respect to the Merger and the other transactions contemplated by this Agreement
and the expiration or early termination of any applicable waiting periods
thereunder; and (d) any filings required to be made by CTI under applicable
securities laws.
3.3.3 Enforceability. This Agreement and each of the CTI
Ancillary Agreements are, or when executed by CTI will be, valid and binding
obligations of CTI, enforceable against CTI in accordance with their respective
terms, subject to the effect of (a) applicable bankruptcy and other similar laws
affecting the rights of creditors generally and (b) rules of law and equity
governing specific performance, injunctive relief and other equitable remedies.
This Agreement, the Escrow Agreement and any agreement entered into by FGC
pursuant to this Agreement are, or when executed by FGC will be, valid and
binding obligations of FGC, enforceable against FGC in accordance with their
respective terms, subject to the effect of (a) applicable bankruptcy and other
similar laws affecting the rights of creditors generally and (b) rules of law
and equity governing specific performance, injunctive relief and other equitable
remedies.
3.4 Capitalization of CTI.
3.4.1 Capital Stock.
(a) Authorized and Outstanding Shares. The authorized
capital stock of CTI consists entirely of 850 shares of Common Stock, no par
value per share, of which a total of 100 shares are issued and outstanding as of
the Agreement Date. No fractional shares of CTI Common Stock are issued or
outstanding and CTI holds no treasury shares. No shares of any preferred stock
of CTI are, or ever have been, authorized, issued or outstanding.
(b) Status of Shares. All of the issued and outstanding
shares of CTI's capital stock have been duly authorized and validly issued, are
fully paid and nonassessable, are not subject to any claim, lien, encumbrance,
preemptive right, right of first refusal, right of first offer or right of
rescission. All of the issued and outstanding shares of CTI's capital stock
issued prior to the Effective Time have been offered, issued, sold and delivered
by CTI in compliance with all registration or qualification requirements (or
applicable exemptions therefrom) of all applicable federal and state securities
laws. No stockholder of CTI owes CTI any money or other consideration
representing any part of the purchase price of any outstanding shares of CTI's
capital stock, including without limitation any money due under a promissory
note payable to CTI. CTI has no liability (or potential liability) to any
stockholder (or former stockholder) for any dividends that have been declared or
accrued or for any portion of any repurchase or redemption price payable to such
stockholder (or former stockholder) to repurchase or redeem any of the
stockholder's shares of CTI capital stock.
(c) Stockholders. FGC is the sole stockholder of CTI and
owns all 100 outstanding shares of CTI Common Stock free and clear of any
claims, liens, pledges, security interests, encumbrances and other impairments
or imperfections of title. FGC's principal offices are located in the State of
Ohio. FGC lawfully, validly and effectively acquired all of the issued and
outstanding shares of CTI's stock as a dividend and distribution from The Frank
Gates Service Company, an Ohio corporation that is an affiliate of FGC ("FGSC").
9
<PAGE> 10
3.4.2 No Options, Warrants or Rights. There are no options,
warrants, convertible securities or other securities, calls, commitments,
conversion privileges, preemptive rights, rights of first refusal, rights of
first offer or other rights or agreements outstanding to purchase or otherwise
acquire (whether directly or indirectly) any shares of CTI's authorized but
unissued capital stock or any securities convertible into or exchangeable for
any shares of CTI's capital stock or obligating CTI to grant, issue, extend, or
enter into any such option, warrant, convertible security or other security,
call, commitment, conversion privilege, preemptive right, right of first
refusal, right of first offer or other right or agreement. There are no options,
warrants, convertible debentures, or any other securities of CTI, or any rights
to acquire shares of CTI stock or any warrants or other securities of CTI, that
will become an option, warrant, convertible debenture, security or other right
to purchase or otherwise acquire any capital stock or other securities of HNC by
reason of the Merger or this Agreement. No person or entity holds, or has any
option, warrant or other right to acquire, any issued and outstanding shares of
the capital stock of CTI from any holder of shares of the capital stock of CTI
or any other security holder of CTI.
3.4.3 No Voting Arrangements, Registration Rights. Except as set
forth in Schedule 3.4.3 to the CTI Disclosure Letter, there are no voting
agreements, voting trusts, proxies, preemptive rights, rights of first refusal,
rights of first offer, rights of co-sale or tag-along rights, or any put option
arrangements, buy-sell agreements or redemption agreements obligating CTI to
redeem or repurchase any shares of its capital stock under any conditions or
other restrictions applicable to any shares of CTI's outstanding stock or other
securities or to the conversion of any shares of CTI's capital stock in the
Merger pursuant to any agreement or obligation to which CTI is a party or, to
CTI's knowledge, pursuant to any other agreement or obligation. CTI is not under
any obligation to register under the Securities Act any of its presently
outstanding shares of stock or other securities or any stock or other securities
that may subsequently be issued by CTI.
3.5 No Conflict. Neither the execution and delivery of this Agreement
nor any of the CTI Ancillary Agreements by CTI or FGC, nor the consummation of
the Merger or any of the other transactions contemplated hereby or thereby, will
conflict with, or (with or without notice or lapse of time, or both) result in:
(a) a termination, or a breach, impairment or violation by CTI or FGC of (i) any
provision of the Articles of Incorporation or Code of Regulations or other
charter documents of CTI or FGC as currently in effect or (ii) any federal,
state, local or foreign law, statute, rule, regulation, judgment, writ, decree
or order, applicable to CTI or FGC or to any of their assets or properties; or
(b) a termination, or a material breach, impairment or violation by CTI or FGC
of (i) any Material CTI Agreement (as defined in Section 3.11) or (ii) any
material agreement, instrument, commitment or obligation of FGC. Neither CTI's
nor FGC's entering into this Agreement nor the consummation of the Merger will
give rise to, or trigger the application of, any rights of any third party under
any agreement, instrument, commitment or obligation of CTI or FGC that would
come into effect upon the effectiveness of the Merger. The consummation of the
Merger or any other transaction contemplated by this Agreement by CTI will not
require the consent, release, waiver or approval of any third party other than
the required approval of CTI's stockholders under the OGCL. Except as set forth
in Schedule 3.5 to the CTI Disclosure Letter, no consent or approval of any
third party is required to ensure that, following the Effective Time, any CTI
Material Agreement will continue to be in full force and effect without any
breach, default or violation thereof caused by virtue of this Agreement, the
consummation of the Merger or by any other transaction called for by this
Agreement or by any CTI Ancillary Agreement or any agreement entered into by FGC
pursuant to this Agreement.
10
<PAGE> 11
3.6 Litigation. There is no action, claim, suit, arbitration, mediation,
proceeding, claim or investigation pending against CTI (or, to CTI's and FGC's
knowledge, against any officer, director, stockholder, employee, key consultant
or agent of CTI in their capacity as such or relating to their employment,
services, stock holdings or relationship with CTI) before any court,
administrative agency or arbitrator, nor, to CTI's knowledge, has any such
action, suit, proceeding, arbitration, mediation, claim or investigation been
threatened. There is no judgment, decree, injunction, rule or order of any
governmental entity or agency, court or arbitrator outstanding against CTI or,
to CTI's and FGC's knowledge, against any officer, director, stockholder,
employee, key consultant or agent of CTI in their capacity as such. To CTI's and
FGC's knowledge, there is no basis for any person, firm, corporation or other
entity to assert a claim against CTI or FGC based upon: (a) CTI's or FGC's
entering into this Agreement, any CTI Ancillary Agreement or consummating the
Merger or any of the transactions contemplated by this Agreement or any CTI
Ancillary Agreement or any agreement entered into by FGC pursuant to this
Agreement; or (b) a disputed claim of ownership of any CTI capital stock or
options, warrants or other rights to acquire ownership of, any shares of the
capital stock of CTI or any rights as a CTI stockholder, including any option,
warrant or preemptive rights, right of refusal, rights of co-sale or tag-along
rights or rights to notice or to vote.
3.7 Taxes.
3.7.1 CTI has timely filed all federal, state, local and foreign
tax returns required to be filed by it, has timely paid all taxes required to be
paid by it for which payment is due, has established an adequate accrual or
reserve for the payment of all taxes payable in respect of the periods
subsequent to the periods covered by its most recent applicable tax returns
(which accrual or reserve as of the Balance Sheet Date (as defined in Section
3.8) is fully reflected on the Balance Sheet (as defined in Section 3.8) and in
any more recent balance sheet of CTI provided by CTI to HNC on or before the
Agreement Date), has made all necessary estimated tax payments, and has no
material liability for taxes in excess of the amount so paid or accruals or
reserves so established except for taxes arising in the ordinary course of CTI's
business since the Balance Sheet Date (as defined in Section 3.8). CTI is not
delinquent in the payment of any tax or in the filing of any tax return, and no
deficiencies for any tax have been threatened, claimed, proposed or assessed
against CTI or any of the officers, employees or agents of CTI in their capacity
as such. CTI has not received any notification from the Internal Revenue Service
or any other taxing authority (including but not limited to any sales or use tax
authority) that any material issues have been raised by (or are currently
pending) before the Internal Revenue Service or such tax authority regarding CTI
and no tax return of CTI has ever been audited by the Internal Revenue Service
or any state or local taxing agency or authority. No tax liens have been filed
or exist against any assets of CTI. CTI is not, and since its inception has not
been, (a) an "S corporation" within the meaning of the Code or (b) a "personal
holding company" within the meaning of the Code. CTI has not filed any election
under Section 341(f) of the Code. CTI is not, and has never been, a "qualified
subchapter S subsidiary" within the meaning of the Code. CTI has withheld with
respect to each of its employees and independent contractors all taxes,
including but not limited to federal and state income taxes, FICA, Medicare,
FUTA and other taxes, required to be withheld, and paid such withheld amounts to
the appropriate tax authority within the time prescribed by law. CTI has not
made any payments, nor is it obligated to make any payments, nor is it a party
to any agreement that under certain circumstances could obligate it to make any
payments, that will not be deductible under Section 280G of the Code. CTI is
not, and has not been at any time, a United States real property holding
corporation within the meaning of Section 897(c)(2) of the Code. CTI is not a
party to any tax allocation, tax indemnity or tax sharing agreement nor does CTI
owe any amount under any such agreement. CTI has no liability for the taxes of
any person (other than CTI) under Treasury Regulation 1.1502-6 (or any
11
<PAGE> 12
similar provision of state, local or foreign law) or as a transferee or
successor or by contract or otherwise. CTI has not distributed the stock of any
corporation in a transaction satisfying the requirements of Section 355 of the
Code nor has the stock of CTI been distributed by any other corporation in a
transaction satisfying the requirements of Section 355 of the Code. Prior to
January 1, 2000, CTI had during its entire existence been a member of an
affiliated group filing a consolidated federal income tax return, the common
parent of which is FGC (and which was formerly FGSC, an affiliate of FGC).
3.7.2 As used herein, the term "FGC AFFILIATED GROUP" means an
affiliated group, the common parent of which is or was FGC. The FGC Affiliated
Group has timely filed all federal, state, local and foreign tax returns
required to be filed by it, has timely paid all taxes required to be paid by it
for which payment is due, has established an adequate accrual or reserve for the
payment of all taxes payable in respect of the periods subsequent to the periods
covered by its most recent applicable tax returns, has made all necessary
estimated tax payments, and has no material liability for taxes in excess of the
amount so paid or accruals or reserves so established except for taxes arising
in the ordinary course of the FGC Affiliated Group's business since the Balance
Sheet Date (as defined in Section 3.8). Neither the FGC Affiliated Group nor any
member thereof is delinquent in the payment of any tax or in the filing of any
tax return, and no deficiencies for any tax have been threatened, claimed,
proposed or assessed against the FGC Affiliated Group, any member thereof or any
of the officers, employees or agents of FGC or any other member of the FGC
Affiliated Group in their capacity as such. Neither FGC nor any other member of
the FGC Affiliated Group has received any notification from the Internal Revenue
Service or any other taxing authority (including but not limited to any sales or
use tax authority) that any material issues have been raised by (or are
currently pending) before the Internal Revenue Service or such tax authority
regarding the FGC Affiliated Group, FGC or any other member of the FGC
Affiliated Group and no tax return of the FGC Affiliated Group has ever been
audited by the Internal Revenue Service or any state or local taxing agency or
authority. No tax liens have been filed or exist against any assets of the FGC
Affiliated Group. FGC made a valid election to be treated as an "S" corporation
within the meaning of the Code effective January 1, 2000 and such election has
not been terminated. Neither FGC nor any other member of the FGC Affiliated
Group is or has ever been a "personal holding company" within the meaning of the
Code. Neither the FGC Affiliated Group, FGC nor any other member of the FGC
Affiliated Group has filed any election under Section 341(f) of the Code. The
FGC Affiliated Group has withheld with respect to each of its employees and
independent contractors all taxes, including but not limited to federal and
state income taxes, FICA, Medicare, FUTA and other taxes, required to be
withheld, and paid such withheld amounts to the appropriate tax authority within
the time prescribed by law.
3.7.3 Any tax sharing, tax allocation and/or tax indemnity
agreement ever made or entered into by and between FGC and CTI (if any) shall be
terminated effective no later than immediately prior to the Effective Time and
will have no further force or effect for any taxable year, whether the current
year, a future year or a past year.
3.7.4 For the purposes of this Section, the terms "TAX" and
"TAXES" include all federal, state, local and foreign income, alternative or
add-on minimum income, gains, franchise, excise, property, property transfer,
sales, use, employment, license, payroll, ad valorem, documentary, stamp,
withholding, occupation, recording, value added or transfer taxes, governmental
charges, fees, customs duties, levies or assessments (whether payable directly
or by withholding), and, with respect to any such taxes, any estimated tax,
interest, fines and penalties or additions to tax and interest on such fines,
penalties and additions to tax.
12
<PAGE> 13
3.8 CTI Financial Statements.
(a) CTI has delivered to HNC, as Schedule 3.8 to the CTI
Disclosure Letter, (a) the audited consolidating balance sheets of CTI as of
December 31, 1997, 1998 and 1999 and CTI's audited consolidating income
statements for each of its three full fiscal years ended December 31, 1997, 1998
and 1999 and (b) the unaudited consolidated balance sheets of CTI as of January
31, 2000 and February 29, 2000 and CTI's unaudited statements of profit and loss
for the month ended January 31, 2000 and for the month ended February 29, 2000
(all such audited and unaudited financial statements of CTI and any notes
thereto are hereinafter collectively referred to as the "CTI FINANCIAL
STATEMENTS"). The CTI Financial Statements (a) are derived from and in
accordance with the books and records of CTI, (b) fairly present the financial
condition of CTI at the dates therein indicated and the results of operations
for the periods therein specified and (c) have been prepared in accordance with
generally accepted accounting principles applied on a basis consistent with
prior periods (except, solely in the case of any of the CTI Financial Statements
that are unaudited, for any absence of notes thereto and the absence of year-end
audit adjustments). CTI has no material debt, liability or obligation of any
nature, whether accrued, absolute, contingent or otherwise, and whether due or
to become due, except for (i) those shown on CTI's unaudited balance sheet as of
February 29, 2000 included in the CTI Financial Statements (the "BALANCE
SHEET"), and (ii) those that may have been incurred after February 29, 2000 (the
"BALANCE SHEET DATE") in the ordinary course of CTI's business consistent with
its past practices, and that are not material in amount, either individually or
collectively, and are not required to be set forth in the Balance Sheet under
generally accepted accounting principles. All reserves established by CTI that
are set forth in or reflected in the Balance Sheet (including but not limited to
bad debt and warranty reserves and reserves for taxes) are reasonably adequate.
At the Balance Sheet Date, there were no material loss contingencies (as such
term is used in Statement of Financial Accounting Standards No. 5 issued by the
Financial Accounting Standards Board in March 1975) which are not adequately
provided for in the Balance Sheet as required by said Statement No. 5. CTI and
FGC acknowledge that the number of shares of HNC Common Stock to be issued to
the stockholders of CTI in the Merger was computed based on the amounts set
forth in the CTI Financial Statements (including but not limited to the stated
amounts of CTI's assets, liabilities, net revenues, expenses and net income (or
loss) set forth in the Financial Statements).
(b) The Closing Balance Sheet (as defined in Section 5.19
hereof): (i) will be derived from and in accordance with the books and records
of CTI as such exist on and through the date of the Closing Balance Sheet; (ii)
will fairly present the assets and liabilities and stockholders' equity of CTI
as of the date of the Closing Balance Sheet; and (iii) will be prepared in
accordance with generally accepted accounting principles (except for the absence
of notes thereto and the absence of year-end audit adjustments) applied on a
basis consistent with prior periods. The accounts receivable of CTI reflected on
the Closing Balance Sheet will (i) be stated net of an adequate reserve for
doubtful accounts, which reserve shall not exceed fifteen percent (15%) of the
gross amount of CTI's accounts receivable as of the close of business on the
date of the Closing Balance Sheet (less any intercompany receivables that are to
be eliminated pursuant to the provisions of Section 9.17), and (b) be
collectible in full in the amount of such accounts receivable as set forth in
the Closing Balance Sheet, without offset or deduction.
(c) The total outstanding balance of unpaid principal and
accrued interest payable by CTI to Fifth Third Bank, Central Ohio ("FIFTH THIRD
BANK") under that certain loan made by Fifth Third Bank to CTI and evidenced by
that certain Term Note (Note No. 901951848-00018) of CTI dated August 1, 1999 in
the initial principal amount of $550,000 made payable to the order of Fifth
Third Bank (the "FIFTH THIRD BANK LOAN") shall not, as of the Effective Time,
13
<PAGE> 14
exceed a total of $490,300, and no prepayment penalties or similar additional
payments will arise or become payable in connection with the Fifth Third Bank
Loan as a result of the repayment of the Fifth Third Bank Loan by HNC as
contemplated by Section 6.9.
3.9 Title to Properties. Except as set forth in Schedule 3.9 to the CTI
Disclosure Letter, CTI has good and marketable title to all of its respective
assets and properties (including but not limited to those shown on the Balance
Sheet), free and clear of all mortgages, deeds of trust, security interests,
pledges, liens, title retention devices, collateral assignments, claims,
charges, restrictions or other encumbrances of any kind (other than liens for
current taxes that are not yet due and payable) except for liens of Taxes not
yet due and payable. All machinery, vehicles, equipment and other tangible
personal property owned or leased by CTI or used in its business are in
reasonably good condition and repair, normal wear and tear excepted, and all
leases of real or personal property to which CTI is a party are in full force
and effect and afford CTI a valid leasehold interest in, and the right to
peaceful and undisturbed leasehold possession of, the real or personal property
that is the subject of the lease. CTI is not in violation in any material
respect of any zoning, building or safety ordinance, regulation or requirement
or other law or regulation applicable to the operation of its owned or leased
properties, nor has CTI received any notice of violation of law with which it
has not complied. CTI does not own any real property.
3.10 Absence of Certain Changes. Except as set forth in Schedule 3.10 to
the CTI Disclosure Letter, since the Balance Sheet Date, there has not been with
respect to CTI any:
(a) Material Adverse Change;
(b) amendment or change in the Articles of Incorporation or Code
of Regulations of CTI;
(c) incurrence, creation or assumption by CTI of (i) any
mortgage, deed of trust, security interest, pledge, lien, title retention
device, collateral assignment, claim, charge, restriction or other encumbrance
of any kind on any of the assets or properties of CTI; or (ii) any obligation,
liability or indebtedness for borrowed money;
(d) payment or discharge by CTI of any security interest, lien,
claim, or encumbrance of any kind on any asset or property of CTI, or the
payment or discharge of any liability that was not shown on the Balance Sheet or
was not incurred in the ordinary course of CTI's business after the Balance
Sheet Date;
(e) purchase, license, sale, assignment or other disposition or
transfer, or any agreement or other arrangement binding on CTI for the purchase,
license, sale, assignment or other disposition or transfer, of any assets,
properties or goodwill of CTI other than in the ordinary course of CTI's
business, consistent with its past practices;
(f) damage, destruction, theft or loss of any property or asset
of CTI, whether or not covered by insurance, having (or likely with the passage
of time to have) a Material Adverse Effect on CTI;
(g) declaration, setting aside or payment of any dividend on, or
the making of any other distribution in respect of, any shares of the capital
stock of CTI, or any direct or indirect redemption, repurchase or other
acquisition by CTI of any shares of its capital stock or
14
<PAGE> 15
other securities or any change in any rights, preferences, privileges or
restrictions of any outstanding security of CTI;
(h) change or increase in the compensation payable or to become
payable to any of the officers, directors, employees or key consultants of CTI;
(i) payment of cash, property or other consideration by CTI, or
commitment, agreement or understanding that would require any payment of cash or
other consideration by CTI to any of officer, director, employee, consultant or
independent contractor of CTI, FGC or any of their respective affiliates in
connection with, upon the consummation of, or by reason of, the Merger, this
Agreement or any transaction contemplated by this Agreement;
(j) change in any bonus or pension, insurance or other benefit
payment, plan or arrangement (including without limitation stock awards, stock
option grants, stock appreciation rights or stock option grants) made to or with
any of such officers, employees, key consultants or agents except in connection
with normal employee salary or performance reviews or otherwise in the ordinary
course of CTI's business, consistent with its past practices and not in conflict
with any of the provisions of this Agreement or any of the conditions contained
in Article 8 or Article 9 of this Agreement);
(k) the entering into, amendment of, relinquishment, termination
or non-renewal by CTI of any CTI Material Agreement, other than in the ordinary
course of CTI's business consistent with its past practices or as may be
expressly required by the terms of this Agreement;
(l) entering into by CTI of any transaction, contract or
agreement that by its terms requires or contemplates a current and/or future
financial commitment, expense (inclusive of overhead expense) or obligation on
the part of CTI involving in excess of $50,000 that is not entered into in the
ordinary course of CTI's business, or the conduct of any business or operations
other than in the ordinary course of CTI's business; or
(m) any license, transfer or grant by CTI of any CTI IP Rights
(as defined in Section 3.13) or any rights thereunder, other than any such
license, transfer or grant made in the ordinary course of CTI's business
consistent with its past practices.
3.11 Contracts and Commitments/Licenses and Permits. Schedule 3.11 to
the CTI Disclosure Letter sets forth a list of (i) each of the written or oral
contracts, agreements, commitments or other instruments to which CTI is a party
or to which CTI or any of its assets or properties is bound that are described
below in this Section 3.11 and (ii) each of the licenses and permits held by CTI
that are described below in this Section 3.11:
(a) any distribution, marketing, sales representative or similar
agreement under which any third party is authorized to sell, sublicense, lease,
distribute, market or take orders for, any product, service or technology owned,
marketed, licensed or provided by CTI;
(b) any continuing contract for the future purchase, sale,
license, provision or manufacture of products, material, supplies, equipment or
services requiring payment to or from CTI in an amount in excess of $50,000 per
annum which is not terminable on ninety (90) or fewer days' notice without cost
or other liability to CTI;
15
<PAGE> 16
(c) any contract or commitment in which CTI has granted or
received most favored customer pricing provisions, exclusive sales,
distribution, marketing or on-line distribution rights, rights of refusal,
rights of first negotiation or similar rights with respect to any product,
service, technology or Intellectual Property (as defined in Section 3.13) that
is now or hereafter owned by, provided to, or provided by, CTI;
(d) any grant, authorization, contract or agreement between CTI
and any Governmental Authority;
(e) any contract or arrangement providing for the development of
any software, content (including without limitation textual content and visual
or graphics content), technology or Intellectual Property by or for (or for the
benefit or use of) CTI;
(f) any agreement, contract or arrangement (including without
limitation any agreement, contract or arrangement described in Section 3.13.7
hereof) providing for the purchase, lease or license of any software, content
(including without limitation textual content and visual or graphics content),
data (including but not limited to electronically stored data), technology or
Intellectual Property to (or for the benefit or use of) CTI (indicating under
which of such agreements, contracts or arrangements CTI pays royalties or
similar payments to any third party); but excluding licenses for software that
is generally available to the public at retail stores or which is generally
available on standard, non-negotiable license terms at a per copy license fee of
less than $2,000 per copy);
(g) any agreement, contract or arrangement pursuant to which CTI
has sold, leased or licensed any rights in or to any software, content
(including without limitation textual content and visual or graphics content),
data (including electronically stored data), technology or Intellectual Property
to any third party, including but not limited to any agreement, contract or
arrangement regarding CTI Source Code described in Section 3.13.8, if such
agreement, contract or arrangement (i) involves or involved a payment to or from
CTI of $25,000 or more, (ii) grants any exclusive rights, including but not
limited to any exclusivity with respect to any product, market, industry, field
of use or geographic territory; (iii) requires the ongoing payment of any
royalties or periodic fees or payments by or to CTI; (iv) is material to CTI's
business, Intellectual Property or technology; or (v) grants any third party any
rights or licenses (whether currently effective or contingent) with respect to
any CTI Source Code;
(h) any joint venture or partnership contract or agreement, any
agreement relating to a limited liability company, or any other agreement which
has involved, or is reasonably expected to involve, a sharing of revenues,
profits, cash flows, expenses or losses by CTI with any other party;
(i) any contract or commitment for or relating to the employment
or hiring for services of any officer, director, employee, consultant or
independent contractor of CTI or any other type of contract or understanding
with any director, officer, employee or consultant of CTI that is not
immediately terminable by CTI without cost or other liability, including but not
limited to any contract or agreement requiring CTI to make a payment to any
officer, director, employee, consultant or independent contractor on account of
the Merger or any transaction contemplated by this Agreement or agreement that
is an exhibit to this Agreement;
(j) any indenture, mortgage or trust deed encumbering any asset
or property of CTI, any promissory note of CTI, any credit line, credit
facility, loan agreement or other agreement or commitment for the borrowing of
money pursuant to which CTI may borrow or
16
<PAGE> 17
loan funds, any security agreement encumbering any asset or property of CTI, any
security agreement encumbering any asset or property of a third party for the
benefit of CTI, any guarantee by CTI of any obligation or indebtedness of
another party or any guarantee of any obligation or indebtedness of CTI, and any
agreement or commitment for a leasing transaction of a type required to be
capitalized in accordance with Statement of Financial Accounting Standards No.
13 of the Financial Accounting Standards Board;
(k) any lease or other agreement under which CTI is lessee of or
holds or operates any items of tangible personal property or real property owned
by any third party and under which payments to such third party exceed $20,000
per annum, and any agreement for the sale, purchase or disposition of any real
property;
(l) any agreement or arrangement for the sale, licensing or
leasing by or to CTI of any assets, properties, products, services (including
network access or network services) or rights having a value in excess of
$50,000 or which is material to CTI's business as currently conducted;
(m) any agreement that restricts CTI from engaging in any aspect
of its business, from engaging, participating or competing in any line of
business or market or that restricts CTI from engaging in any business in any
market, with any customer(s) or in any geographic area;
(n) any CTI IP Rights Agreement (as defined in Section 3.13) if
such CTI IP Rights Agreement (i) involves or involved a payment to or from CTI
of $25,000 or more, (ii) grants any exclusive rights, including but not limited
to any exclusivity with respect to any product, service, market, industry, field
of use or geographic territory; (iii) requires the ongoing payment of any
royalties or periodic fees or payments by CTI; or (iv) is material to CTI's
business, to CTI's Intellectual Property or technology or to any of CTI's
current or proposed products or services;
(o) any website hosting, website linking, consent or data
sharing, data feed, information exchange, advertising, fee sharing, lead or
customer referral, commerce, co-branding, framing, service, order or transaction
processing or similar agreement relating to any aspect or element of any of the
CTI Websites or any other website;
(p) any agreement or plan (including but not limited to any
stock option, stock purchase and/or stock bonus plan) relating to the sale,
issuance, grant, exercise, award, purchase, repurchase or redemption of any
shares of capital stock or any other securities of CTI or any options, warrants,
convertible notes or other rights to purchase or otherwise acquire any such
shares of stock, other securities or options, warrants or other rights
therefore;
(q) consulting or similar agreement under which CTI provides any
advice or services to a third party (i) for an annual compensation to CTI of
$25,000 per year or more or (ii) which by its terms is not terminable by CTI
within six (6) months of the Effective Time;
(r) any contract with or commitment to any labor union or any
collective bargaining agreement or similar agreement with employees of CTI;
(s) any agreement pursuant to which CTI has acquired a business
or entity, or assets of a business or entity, whether by way of merger,
consolidation, purchase of stock, purchase of assets, license or otherwise;
17
<PAGE> 18
(t) any other instrument, agreement, contract, undertaking,
understanding, understanding or commitment (whether verbal or in writing) to
which CTI is a party or by which CTI or any of its assets or properties are
bound that is (i) material to CTI's business, operations, assets, properties,
operating results or financial condition or (ii) that involves a future
financial commitment by CTI in excess of $100,000; and
(u) any Governmental Permit (as defined in Section 3.14.4).
A true and complete copy of each agreement or document required
by subsections (a) through (t) of this Section to be listed on Schedule 3.11 to
the CTI Disclosure Letter (such agreements and documents being collectively
referred to in this Agreement as the "CTI MATERIAL AGREEMENTS") and a copy of
each Governmental Permit required by subparagraph (u) of this Section to be
listed on Schedule 3.11 to the CTI Disclosure Letter, has been delivered to
HNC's counsel, Fenwick & West LLP. All CTI Material Agreements are in full force
and effect. With respect to each CTI Material Agreement required to be described
pursuant to subparagraph (a), (b), (c), (e), (f), (g) or (l) of this Section
3.11, Schedule 3.11 to the CTI Disclosure Letter shall set forth, as part of the
description of such CTI Material Agreement, a true and complete listing of each
product or service of CTI that is licensed (whether for end-use, distribution,
resale or otherwise) under such agreement or that is subject to such agreement.
3.12 No Default; No Restrictions.
(a) No Default. CTI is not in breach, default or violation of
any CTI Material Agreement or of any representations or warranties made by CTI
under any CTI Material Agreement. No event has occurred, and no circumstance or
condition exists, that (with or without notice or lapse of time) will, or would
reasonably be expected to: (i) result in a breach, default or violation of any
of the provisions of any CTI Material Agreement; or (ii) give any third party
(A) the right to declare a default or exercise any remedy under any CTI Material
Agreement, (B) the right to a rebate, repurchase, charge back, penalty or change
in delivery schedule under any CTI Material Agreement, (C) the right to
accelerate the maturity or performance of any obligation of CTI under any CTI
Material Agreement, or (D) the right to cancel, terminate, rescind, modify or
refuse to renew any CTI Material Agreement. CTI has not received any notice or
other communication (i) regarding any actual or asserted breach, default or
violation of any CTI Material Agreement by CTI or by any other party to any CTI
Material Agreement, or (ii) that any party to an CTI Material Agreement that is
renewable by its terms does not intend or expect to renew any such CTI Material
Agreement.
(b) No Restrictions. CTI is not a party to any contract,
agreement or arrangement which has had, or could reasonably be expected to have,
a Material Adverse Effect on CTI, its business or financial condition. CTI has
incurred no material liability for renegotiation of government contracts or
subcontracts, if any. CTI is not a party to, and no asset or property of CTI is
bound or affected by, any judgment, injunction, order, decree, contract,
covenant or agreement (non-compete or otherwise) that restricts or prohibits (or
purports to restrict or prohibit) CTI from freely engaging in any business now
conducted by CTI or from competing anywhere in the world (including without
limitation any contracts, covenants or agreements restricting the geographic
area or markets in which CTI may sell, license, market, distribute, provide or
support any product, technology or service, or restricting the markets,
customers or industries that CTI may address in operating its businesses), or
includes any grants by CTI of any exclusive license or distribution rights.
3.13 Intellectual Property.
18
<PAGE> 19
3.13.1 CTI IP Rights; Intellectual Property. CTI owns, or has
the valid right or license to use, possess, sell or license, all Intellectual
Property (as defined below) necessary or required for the conduct of CTI's
business as presently conducted and as presently proposed to be conducted (such
Intellectual Property being hereinafter collectively referred to as the "CTI IP
RIGHTS"), and such rights to use, possess, sell or license are sufficient for
the conduct of such business. CTI owns all right, title and interest in and to,
and all Intellectual Property associated with, all of the products or services
developed and/or marketed by CTI, including but not limited to each of the
following products: Employer-Connect; Admin-Connect; Provider-Connect;
State-Connect and Trans-Connect; all Synapse network software not provided by
AT&T; and all software developed for and used in the CTI Website. Except as may
be set forth in Schedule 3.13 to the CTI Disclosure Letter, no Governmental
Authority owns or holds any rights in any of the CTI IP Rights. On July 6, 1994,
CTI duly and validly acquired sole ownership of, and currently owns, all right,
title and interest in and to all of the Intellectual Property, other assets and
agreements that were used by FGSC, an affiliate of FGC, in conducting the
Employer-Connect, Medical First and Network Services businesses of FGSC as of
July 6, 1994. As used herein, the term "INTELLECTUAL PROPERTY" means,
collectively, all worldwide industrial and intellectual property rights,
including, without limitation, patents, patent applications, patent rights,
trademarks, trademark registrations and applications therefor, trade dress
rights, trade names, service marks, service mark registrations and applications
therefor, logos, Internet domain names, Internet and World Wide Web URLs or
addresses, copyrights, copyright registrations and applications therefor, moral
rights, mask work rights, mask work registrations and applications therefor,
franchises, licenses, inventions, trade secrets, know-how, customer lists,
supplier lists, proprietary processes and formulae, software source code and
object code, algorithms, net lists, architectures, structures, screen displays,
layouts, inventions, development tools, designs, blueprints, specifications,
technical drawings (or similar information in electronic format) and all
documentation and media constituting, describing or relating to the foregoing,
including, without limitation, manuals, programmers' notes, memoranda and
records.
3.13.2 No Default. Neither the execution, delivery and
performance of this Agreement, the Certificates of Merger, or the consummation
of the Merger and the other agreements and transactions contemplated hereby
and/or by CTI Ancillary Agreements will: (a) constitute a material breach,
violation or default of any instrument, contract, license or other agreement
governing any CTI IP Right to which CTI or any of its subsidiaries is a party
(collectively, the "CTI IP RIGHTS AGREEMENTS"); (b) cause the forfeiture or
termination of, or give rise to a right of forfeiture or termination of, any CTI
IP Right held or owned by CTI; or (c) materially impair the right of CTI or the
Surviving Corporation or their affiliates to use, possess, sell or license any
CTI IP Right or any portion thereof. There are no royalties, honoraria, fees or
other payments payable by CTI or any of its subsidiaries to any third person by
reason of the ownership, use, possession, license, sale, marketing, advertising
or disposition of any CTI IP Rights by CTI or any of its subsidiaries.
3.13.3 No Infringement. Neither the manufacture, marketing,
license, sale, furnishing, provision or intended use of any product or service
(including without limitation any of the CTI Websites) currently licensed,
utilized, sold, distributed, provided or furnished by CTI or currently under
development by CTI violates any license or agreement between CTI and any third
party or any law or infringes or misappropriates any Intellectual Property Right
of any other party; and there is no pending or, to the knowledge of CTI,
threatened, claim or litigation contesting the validity, ownership or right of
CTI or any of its subsidiaries to use, possess, sell, market, distribute,
advertise, license, or dispose of any CTI IP Right nor, to the knowledge of CTI,
is there any basis for any such claim, nor has CTI received any notice asserting
that any CTI IP Right or the proposed use, sale, distribution, license or
disposition thereof conflicts or will
19
<PAGE> 20
conflict with the rights of any other party, nor, to the knowledge of CTI, is
there any reasonable basis for any such assertion.
3.13.4 No Breach by Employees or Consultants. No employee,
consultant or independent contractor of CTI: (a) is in material violation of any
term or covenant of any employment contract, patent disclosure agreement,
invention assignment agreement, non-disclosure agreement, non-competition
agreement or any other contract or agreement with any other party by virtue of
such employee's, consultant's, or independent contractor's being employed by, or
performing services for, CTI or using trade secrets or proprietary information
of others; or (b) has developed any technology, software or other copyrightable,
patentable, or otherwise proprietary work for CTI that is subject to any
agreement under which such employee, consultant or independent contractor has
assigned or otherwise granted to any third party any rights (including without
limitation Intellectual Property) in or to such technology, software or other
copyrightable, patentable or otherwise proprietary work or any Intellectual
Property related thereto. To CTI's knowledge, the employment of any employee of
CTI or the use by CTI or any subsidiary of CTI of the services of any consultant
or independent contractor does not subject CTI to any liability to any third
party.
3.13.5 Protection of Proprietary Information. CTI has taken all
necessary steps to protect, preserve and maintain the secrecy and
confidentiality of the CTI IP Rights and all CTI's ownership interests and
proprietary rights therein. All officers, employees, consultants and contractors
of CTI having access to proprietary information of CTI, its customers or
business partners, or who have developed for CTI, or have access to, any
software, proprietary information or inventions used or possessed by CTI, have
executed and delivered to CTI an agreement whereby they have agreed to hold such
software, proprietary information and inventions in confidence, and copies of
the form of all such agreements have been delivered to HNC's counsel. CTI has
secured from all consultants, contractors and employees who were involved in, or
who contributed to, the creation or development of any CTI IP Rights, valid
written assignments of all rights to such contributions that may be owned by
such persons or that CTI does not already own by operation of law. No current or
former employee, officer, director, consultant or independent contractor of CTI
has any right, license, claim or interest whatsoever in or with respect to any
CTI IP Rights.
3.13.6 Registered and Unregistered Intellectual Property.
Schedule 3.13.6 to the CTI Disclosure Letter contains a complete list of (i) all
worldwide registrations (if any) of any patents, copyrights, mask works,
trademarks, service marks, Internet domain names or Internet or World Wide Web
URLs or addresses with any governmental or quasi-governmental authority; (ii)
all applications, registrations, filings and other formal actions made or taken
by CTI pursuant to federal, state and foreign laws to secure, perfect or protect
its interest in CTI IP Rights, including, without limitation, all patent
applications, copyright applications, and applications for registration of
trademarks and service marks, (iii) all CTI's unregistered copyrights,
trademarks and service marks that have been used in CTI's business. All patents,
and all registered trademarks, service marks, Internet domain names, Internet or
World Wide Web URLs or addresses and copyrights held by CTI are valid and
enforceable.
3.13.7 Licenses. Schedule 3.13.7 to the CTI Disclosure Letter
contains a complete list of (i) all licenses, sublicenses and other agreements
as to which CTI or any of its subsidiaries is a party and pursuant to which any
person or entity is authorized to use any CTI IP Rights, and (ii) all licenses,
sublicenses and other agreements to which CTI is a party and pursuant to which
CTI is authorized to use any third party patents, trademarks, Internet domain
names, Internet or World Wide Web URLs or addresses, or copyrights, including
but not limited
20
<PAGE> 21
to software ("THIRD PARTY IP RIGHTS") which would be infringed by, or are
incorporated in, or form a part of, any product or service sold, licensed,
distributed, provided or marketed by CTI, but excluding licenses held by CTI to
use software that is generally available to the public at retail stores or which
is generally available on standard, non-negotiable license terms at a per copy
license fee of less than $2,000 per copy. Each end-user of any software that has
been marketed, distributed, provided or licensed, whether directly or
indirectly, by CTI (collectively, "CTI SOFTWARE") is bound by a written license
agreement enforceable by CTI pursuant to which such end-user is prohibited from
reverse engineering, disassembling, disclosing or transferring any code of such
CTI Software and is not entitled to modify, or make derivative works from, any
CTI Software (a "RESTRICTED USE LICENSE AGREEMENT"). CTI has not granted to any
party any license or other right to: (a) make, prepare, create, develop or have
made, prepared, created or developed, any modifications to, or any derivative
works of, any CTI Software (any such modifications to or derivative works of any
CTI Software being hereinafter referred to as "CTI SOFTWARE DERIVATIVES"); (b)
market, distribute, provide or license any CTI Software or any CTI Software
Derivative to any end-user who has not executed and delivered a restricted use
license agreement , or (c) market, distribute, provide or license any CTI
Software or any CTI Software Derivative in source code form. Continental
Casualty Company ("CNA") has not exercised its rights under that certain
Electronic Data Interchange Purchase for Distribution Agreement between CNA and
CTI (the "CNA AGREEMENT") to receive a fully-paid license to distribute the CTI
Software that is subject to such CNA Agreement, and the only CTI Software that
is subject to the CNA Agreement are CTI's Employer-Connect and Admin-Connect
products.
3.13.8 Source Code. Except as set forth on Schedule 3.13.8 of
the CTI Disclosure Letter, neither CTI nor any other party acting on its or
their behalf, has disclosed or delivered to any party, or permitted the
disclosure or delivery to any escrow agent or other party, of any CTI Source
Code (as defined below). No event has occurred, and no circumstance or condition
exists, that (with or without notice or lapse of time) will, or would reasonably
be expected to, result in the disclosure or delivery to any party of any CTI
Source Code (as defined below). Schedule 3.13.8 of the CTI Disclosure Letter
identifies each contract, agreement and instrument (whether written or oral)
pursuant to which CTI has deposited, or is or may be required to deposit, with
an escrowholder or any other party, any CTI Source Code and further describes
whether the execution of this Agreement or the consummation of the Merger or any
of the other transactions contemplated hereby, in and of itself, would
reasonably be expected to result in the release from escrow of any CTI Source
Code. As used herein, "CTI SOURCE CODE" means, collectively, any software source
code (or portion thereof) of any software that is (a) included in the definition
of CTI IP Rights; (b) incorporated or embodied in any product marketed by CTI;
or (c) used by CTI to provide a service.
3.13.9 Infringement of CTI Rights. To CTI's knowledge, there is
no unauthorized use, disclosure, infringement or misappropriation of any CTI IP
Rights or any Intellectual Property Right of CTI by any third party, including
any employee or former employee of CTI. CTI has not agreed to indemnify any
person for any infringement of any Intellectual Property of any third party by
any product or service that has been sold, licensed, leased, supplied, marketed,
distributed, or provided by CTI.
3.13.10 Conformity to Warranty. All software developed by CTI
and licensed by CTI to customers, all other products manufactured, sold,
licensed, leased or delivered by CTI to customers and all services provided by
CTI to customers on or prior to the Closing Date, conforms in all material
respects to applicable contractual commitments, express and implied warranties,
product specifications and product documentation and to any representations
provided to CTI's customers and CTI does not have any material liability (and,
to CTI's knowledge, there
21
<PAGE> 22
is no reasonable basis for any present or future action, suit, proceeding,
hearing, investigation, charge, complaint, claim or demand against CTI or any of
its subsidiaries giving rise to any material liability or any liability in
excess of $100,000 in the aggregate) for replacement or repair thereof or other
damages in connection therewith in excess of any reserves therefor reflected on
the Balance Sheet.
3.13.11 Year 2000 Compliance. The CTI Websites, and all
services, products and software developed, owned, licensed and/or marketed or
distributed by CTI or utilized by CTI in connection with any of the CTI Websites
or otherwise, both individually and when operating in conjunction with all other
systems and products with which they are designed to work or interface, are Year
2000 Compliant (as defined below). All internal computer systems of CTI are,
both individually and in conjunction with all other systems with which they work
or interface, Year 2000 Compliant. CTI has made inquiries of the manufacturers,
suppliers, vendors and customers and, to CTI's knowledge, is not relying on any
third party whose systems are not Year 2000 Compliant. CTI has no material
expenses or other material liabilities associated with securing Year 2000
Compliance, or making contingency arrangements to address Year 2000 Compliance
issues, with respect to the CTI Websites, the services or products of CTI, the
internal computer systems of CTI and its subsidiaries or the computer systems or
products or services of manufacturers, suppliers, vendors or customers of CTI.
"YEAR 2000 COMPLIANT" or "YEAR 2000 COMPLIANCE" means, as applied to hardware
and software, that: (i) such hardware and software will operate and correctly
store, represent and process (including sort) all dates (including single and
multi-century formulas and leap year calculations), such that errors will not
occur when the date being used is in the Year 2000, or in a year preceding or
following the Year 2000; (ii) such hardware and software has been written,
developed and tested to support numeric and date transitions from the twentieth
century to the twenty-first century, and back (including without limitation all
calculations, aging, reporting, printing, displays, reversals, disaster and
vital records recoveries) without error, corruption or impact to current and/or
future operations; and (iii) such hardware and software will function without
error or interruption related to any date information, specifically including
errors or interruptions from functions which may involve date information from
more than one century.
3.14 Compliance with Laws.
3.14.1 Compliance with Applicable Law. CTI has complied, and is
now and at the Closing Date will be in compliance with, all applicable federal,
state, local or foreign laws, ordinances, regulations, and rules, and all
orders, writs, injunctions, awards, judgments, and decrees applicable to it or
to its assets, properties, and business (collectively, "APPLICABLE LAW").
3.14.2 Disclosures. None of the disclosures made or contained in
any CTI Website have been inaccurate, misleading or deceptive or in violation of
Applicable Law in any material respect.
3.14.3 No Audit. To CTI's knowledge, CTI has not been the
subject of any audit by any governmental agency or authority for the purpose of
determining whether CTI has complied with any Applicable Law.
3.14.4 Governmental Permits. CTI holds all permits, licenses and
approvals from, and has made all filings with, government (and
quasi-governmental) agencies and authorities, that are necessary for CTI to
conduct its present business without any violation of Applicable Law
("GOVERNMENTAL PERMITS") and all such Governmental Permits are in full force and
effect. CTI has not received any written notice from any Governmental Authority
(or quasi-
22
<PAGE> 23
governmental authority) regarding (a) any actual or possible violation of law or
any Governmental Permit or any failure to comply with any term or requirement of
any Governmental Permit, or (b) any actual or possible revocation, withdrawal,
suspension, cancellation, termination or modification of any Governmental
Permit.
3.14.5 Improper Payments. Neither CTI nor any director, officer,
agent or employee of CTI has, for or on behalf of CTI, (a) used any funds for
unlawful contributions, gifts, entertainment or other unlawful expenses relating
to political activity, (b) made any unlawful payment to foreign or domestic
government officials or employees or to foreign or domestic political parties or
campaigns or violated any provision of the Foreign Corrupt Practices Act of
1977, as amended, or (c) made any other unlawful payment.
3.15 Certain Transactions and Agreements. To CTI's knowledge, none of
the stockholders, officers, directors or key employees of CTI nor any member of
their immediate families, has any direct or indirect ownership interest in any
firm or corporation that competes with, or does business with, or has any
contractual arrangement with, CTI (except with respect to any interest in less
than one percent (1%) of the stock of any corporation whose stock is publicly
traded). To CTI's knowledge, none of said stockholders, officers, directors or
key employees or any member of their immediate families, is a party to, or
otherwise directly or indirectly interested in, any contract or informal
arrangement with CTI, except for normal compensation for services as an officer,
director, employee or consultant of CTI that have been disclosed to HNC. To
CTI's knowledge, none of said stockholders, officers, directors or key
employees, or any of their family members has any interest in any property, real
or personal, tangible or intangible (including but not limited to any CTI IP
Rights or any other Intellectual Property) that is used in, or that pertains to,
the business of CTI, except for the normal rights of a stockholder.
3.16 Employees, ERISA and Other Compliance.
3.16.1 Employment Compliance. CTI is in compliance in all
material respects with all applicable laws, agreements and contracts relating to
employment, employment practices, immigration, wages, hours, and terms and
conditions of employment, including, but not limited to, employee compensation
matters. A list of all current employees, officers and consultants of CTI and
their current title and/or job description and compensation is set forth on
Schedule 3.16.1 to the CTI Disclosure Letter. CTI does not have any employment
contracts or consulting agreements currently in effect that are not terminable
at will (other than agreements with the sole purpose of providing for the
confidentiality of proprietary information or assignment of inventions). CTI has
no liability to any employee, officer or director of CTI, FGC or any affiliate
of FGC for the payment of any bonus or other compensatory payment that will be
triggered by or become payable as a result of, the execution or delivery of this
Agreement or the consummation of the Merger or any of the other transactions
contemplated by this Agreement or any of the agreements which are exhibits
hereto.
3.16.2 Labor Relations. Neither CTI nor any of its subsidiaries
(i) now is, nor has ever been, subject to a union organizing effort, (ii) is
subject to any collective bargaining agreement with respect to any of its
employees, (iii) is subject to any other contract, written or oral, with any
trade or labor union, employees' association or similar organization or (iv) has
any current labor disputes. To its knowledge, CTI has generally good labor
relations with its employees, and CTI has no knowledge of any facts indicating
that the consummation of the Merger or any of the other transactions
contemplated hereby will have a Material Adverse Effect on such labor relations,
and have no knowledge that any of their key employees intends to leave
23
<PAGE> 24
their employ. All of the employees of CTI are legally permitted to be employed
by CTI in the United States of America in their current job capacities.
3.16.3 ERISA. Neither CTI nor any other employer that is under
common control with CTI, within the meaning of Code Section 414(b), (c), (m) or
(o) and the regulations promulgated thereunder (each such employer an "ERISA
AFFILIATE") has any pension plan which constitutes, or has since the enactment
of the Employee Retirement Income Security Act of 1974, as amended ("ERISA")
constituted, a "multiemployer plan" as defined in Section 3(37) of ERISA. No
pension plan of CTI is subject to Title IV of ERISA.
3.16.4 Employment Benefit Arrangements.
(a) CTI Benefit Arrangements. Schedule 3.16.4 to the CTI
Disclosure Letter lists each employment, severance or other similar contract,
arrangement or policy, each "employee benefit plan" as defined in Section 3(3)
of ERISA and each plan or arrangement (written or oral) providing for insurance
coverage (including any self-insured arrangements), workers' benefits, vacation
benefits, severance benefits, disability benefits, death benefits,
hospitalization benefits, retirement benefits, deferred compensation,
profit-sharing, bonuses, stock options, stock purchase, phantom stock, stock
appreciation or other forms of incentive compensation or post-retirement
insurance, compensation or benefits for employees, consultants or directors
which is entered into, maintained or contributed to by CTI or which is sponsored
by FGC or any other ERISA Affiliate and covers any employee or former employee
of CTI. Such contracts, plans and arrangements as are described in this Section
3.16.4(a) are hereinafter collectively referred to as "CTI BENEFIT
ARRANGEMENTS." CTI has delivered to HNC or its counsel a complete and correct
copy of each CTI Benefit Arrangement or, if no such document exists, a written
description of such CTI Benefit Arrangement.
(b) Compliance. Each CTI Benefit Arrangement has been
maintained in compliance in all material respects with its terms and with the
requirements prescribed by any and all statutes, orders, rules and regulations
that are applicable to such CTI Benefit Arrangement, and each such CTI Benefit
Arrangement that is an "employee pension benefit plan" as defined in Section
3(2) of ERISA which is intended to qualify under Section 401(a) of the Code has
received a favorable determination letter that such plan satisfies the
requirements of the Tax Reform Act of 1986 (a copy of which letter(s) have been
delivered to HNC and its counsel). CTI (and/or FGC, if applicable) has timely
filed and delivered to HNC and its counsel the most recent annual report (Form
Series 5500) for each CTI Benefit Arrangement that is an "employee benefit plan"
as defined under ERISA and for which such report is required. CTI has not been a
participant in any "prohibited transaction", within the meaning of Section 406
of ERISA with respect to any employee pension benefit plan (as defined in
Section 3(2) of ERISA) which CTI sponsors as employer or in which CTI
participates as an employer, which was not otherwise exempt pursuant to Section
408 of ERISA (including any individual exemption granted under Section 408(a) of
ERISA), Code Section 4975, or which could result in an excise tax under the
Code.
(c) Contributions. All contributions due from CTI with
respect to any CTI Benefit Arrangements have been made or have been accrued on
CTI's financial statements (including without limitation the CTI Financial
Statements). All contributions with respect to any CTI Benefit Arrangements have
been timely made in accordance with the terms of the CTI Benefit Arrangement and
applicable law. CTI shall not have any liability for contributions attributable
to or benefits payable under any CTI Benefit Arrangement to employees of any
other ERISA Affiliates.
24
<PAGE> 25
(d) Participation. All individuals who, pursuant to the
terms of any CTI Benefit Arrangement, are entitled to participate in any such
CTI Benefit Arrangement, are currently participating in such CTI Benefit
Arrangement or have been offered an opportunity to do so. CTI shall have no
liability for benefits accrued or claims attributable to service of CTI
employees following the effective date of its withdrawal from any CTI Benefit
Arrangement. CTI shall have no liability under the CTI Benefit Arrangements for
benefits accrued or claims attributable to the employees of any other ERISA
Affiliates at any time.
3.16.5 No Increase in Expense. There has been no amendment to,
written interpretation or announcement (whether or not written) by CT, FGC or
any ERISA Affiliate relating to, or change in employee participation or coverage
under, any CTI Benefit Arrangement that would materially increase the expense of
maintaining such CTI Benefit Arrangement above the level of the expense incurred
in respect thereof for CTI's fiscal year ended December 31, 1999. The
termination of, or the termination of CTI's participation in, any of the
employee pension benefit plans which CTI sponsors as employer or in which CTI
participates as an employer and the distribution of the assets thereunder shall
not trigger any surrender fee, reverse load or other cost that would reduce a
participant's account or benefit. Furthermore any such termination would not
trigger a fee payable by HNC or CTI which would exceed $1,000 per employee
pension benefit plan in connection with the termination of such a plan.
3.16.6 Continuation of Coverage; COBRA. The group health plans
(as defined in Section 4980B(g) of the Code) that benefit employees of CTI are
in compliance, in all material respects, with the continuation coverage
requirements of Section 4980B of the Code as such requirements affect CTI
employees. As of the Closing Date, there will be no material outstanding,
uncorrected violations under the Consolidation Omnibus Budget Reconciliation Act
of 1985, as amended ("COBRA"), with respect to any of CTI Benefit Arrangements,
covered employees, or qualified beneficiaries that could result in a Material
Adverse Effect on CTI, or in a Material Adverse Effect on HNC after the
Effective Time.
3.16.7 Parachute Payments. No benefit payable or which may
become payable by CTI pursuant to any CTI Benefit Arrangement or as a result of
or arising under this Agreement or the Merger will constitute an "excess
parachute payment" (as defined in Section 280G(b)(1) of the Code) which is
subject to the imposition of an excise Tax under Section 4999 of the Code or
which would not be deductible by reason of Section 280G of the Code. Neither CTI
nor any subsidiary of CTI is a party to any: (a) agreement with any executive
officer or other key employee thereof (i) the benefits of which are contingent,
or the terms of which are materially altered, upon the occurrence of a
transaction involving CTI or such CTI subsidiary in the nature of the Merger or
any of the other transactions contemplated by this Agreement or any CTI
Ancillary Agreement, (ii) providing any term of employment or compensation
guarantee, or (iii) providing severance benefits or other benefits after the
termination of employment of such employee regardless of the reason for such
termination of employment; or (b) agreement or plan, including, without
limitation, any stock option plan, stock appreciation rights plan or stock
purchase plan, any of the benefits of which will be increased, or the vesting of
benefits of which will be accelerated, by the occurrence of the Merger or any of
the other transactions contemplated by this Agreement or any CTI Ancillary
Agreement, or the value of any of the benefits of which will be calculated on
the basis of any of the transactions contemplated by this Agreement or any CTI
Ancillary Agreement.
3.17 Corporate Documents. CTI has made available to HNC for examination
all documents and information listed in the CTI Disclosure Letter or in any
schedule thereto or in any other exhibit or schedule called for by this
Agreement which have been requested by HNC's
25
<PAGE> 26
legal counsel, including, without limitation, the following: (a) copies of CTI's
Articles of Incorporation and Code of Regulations, each as amended and currently
in effect; (b) CTI's Minute Book containing all records of all proceedings,
consents, actions, and meetings of CTI's stockholders, board of directors and
any committees thereof; (c) CTI's stock ledger and journal reflecting all stock
issuances and transfers; (d) all permits, orders, and consents issued by, and
filings by CTI with, any regulatory agency with respect to CTI, or any
securities of CTI, and all applications for such permits, orders, and consents;
and (e) all the CTI Material Agreements.
3.18 No Brokers. Neither CTI, nor any affiliate of CTI is obligated for
the payment of any fees or expenses of any investment banker, broker, finder or
similar party in connection with the origin, negotiation or execution of this
Agreement or in connection with the Merger or any other transaction contemplated
by this Agreement, and HNC will not incur any liability, either directly or
indirectly, to any such investment banker, broker, finder or similar party as a
result of, this Agreement, the Merger or any act or omission of CTI, any of its
employees, officers, directors, stockholders, agents, subsidiaries or
affiliates.
3.19 Books and Records.
3.19.1 Records. The books, records and accounts of CTI (a) are
in all material respects true, complete and correct, (b) have been maintained in
accordance with good business practices on a basis consistent with prior years,
(c) are stated in reasonable detail and accurately and fairly reflect the
transactions and dispositions of the assets of CTI, and (d) accurately and
fairly reflect the basis for the CTI Financial Statements.
3.19.2 Accounting Controls. CTI has devised and maintains a
system of internal accounting controls sufficient to provide reasonable
assurances that: (a) transactions are executed in accordance with management's
general or specific authorization; (b) transactions are recorded as necessary
(i) to permit preparation of financial statements in conformity with generally
accepted accounting principles or any other criteria applicable to such
statements, and (ii) to maintain accountability for assets; and (c) the amount
recorded for assets on the books and records of CTI is compared with the
existing assets at reasonable intervals and appropriate action is taken with
respect to any differences.
3.20 Insurance. During the prior two years, CTI has maintained, and now
maintains, policies of insurance and bonds of the type and in amounts
customarily carried by persons conducting businesses or owning assets similar in
type and size to those of CTI, including without limitation errors and
omissions, casualty, fire and general liability insurance and all legally
required workers' compensation insurance. There is no material claim pending
under any of such policies or bonds as to which coverage has been questioned,
denied or disputed by the underwriters of such policies or bonds. All premiums
due and payable under all such policies and bonds have been timely paid and CTI
are otherwise in compliance with the terms of such policies and bonds. CTI has
no knowledge of any threatened termination of, or material premium increase with
respect to, any of such policies. All policies of insurance now held by CTI are
set forth in Schedule 3.20 to the CTI Disclosure Letter, together with the name
of the insurer under each policy, the type of policy, the policy coverage amount
and any applicable deductible.
3.21 Environmental Matters.
3.21.1 Compliance. CTI is in compliance with all applicable
Environmental Laws (as defined below), which compliance includes the possession
by CTI and its subsidiaries of all permits and other governmental authorizations
required under applicable Environmental
26
<PAGE> 27
Laws, and compliance with the terms and conditions thereof. CTI has not received
any written notice, whether from a governmental body, citizens' group, employee
or otherwise, that alleges that CTI is not in compliance with any Environmental
Law, and there are no circumstances that may prevent or interfere with CTI's
compliance with any current Environmental Law in the future. To CTI's and FGC's
knowledge, no current or prior owner of any property leased, possessed or ever
owned by CTI has received any written notice or communication, whether from a
government body, citizens' group, employee or otherwise, that alleges that such
current or prior owner or CTI is not in compliance with any Environmental Law.
All governmental authorizations currently held by CTI pursuant to any
Environmental Law (if any) are identified in Schedule 3.21 of CTI Disclosure
Letter. To CTI's and FGC's knowledge, (a) the real estate and improvements
thereon comprising the premises on which CTI's offices, buildings and facilities
are located (the "CTI PREMISES") have not been tainted or polluted by any
Material of Environmental Concern and (b) no Materials of Environmental Concern
are present on the CTI Premises.
3.21.2 Defined Terms. For purposes of this Section 3.21: (i)
"ENVIRONMENTAL LAW" means any federal, state, local or foreign statute, law
regulation or other legal requirement relating to pollution or protection of
human health or the environment (including ambient air, surface water, ground
water, land surface or subsurface strata), including any law or regulation
relating to emissions, discharges, releases or threatened releases of Materials
of Environmental Concern, or otherwise relating to the manufacture, processing,
distribution, use, treatment, storage, disposal, transport or handling of
Materials of Environmental Concern; and (ii) "MATERIAL OF ENVIRONMENTAL CONCERN"
include chemicals, pollutants, contaminants, wastes, toxic substances,
radioactive substances, petroleum and petroleum products and any other substance
that is currently regulated by an Environmental Law or that is otherwise a
danger to health, reproduction or the environment.
3.22 Vote Required. The affirmative vote of the holders of: (a) more
than 50% of the shares of CTI Common Stock that are issued and outstanding on
the Record Date (as defined below) is the only vote of the holders of any of the
shares of CTI's capital stock that is necessary to approve this Agreement, the
Merger, the Certificates of Merger, the Escrow Agreement and the other
transactions contemplated by this Agreement under applicable law (including but
not limited to the OGCL), CTI's Articles of Incorporation, Code of Regulations
and any other charter documents of CTI, and under any agreement or contract
regarding the voting of shares of CTI's capital stock. As used in this Section,
the term "RECORD DATE" means the record date for determining those stockholders
of CTI who are entitled to vote at the CTI Stockholders' Vote, whether such vote
is taken at a stockholders' meeting or by written consent without a meeting.
3.23 Board Approval. The Board of Directors of CTI has unanimously (a)
approved this Agreement and the Merger, the CTI Ancillary Agreements and all the
agreements, transactions and actions contemplated by this Agreement, (b)
determined that the Merger is in the best interests of the stockholders of CTI
and is on terms that are fair to such stockholders and (c) voted to submit this
Agreement, the Merger, the Merger and the transactions and agreements
contemplated by this Agreement to the vote and approval of CTI's stockholders
and to recommend approval of this Agreement and the Merger to the stockholders
of CTI.
3.24 No Existing Discussions. Neither CTI nor any director, officer or
agent of CTI is engaged, directly or indirectly, in any discussions or
negotiations with any third party relating to any transaction that would be
inconsistent with the accomplishment of the Merger, such as, without limitation,
any merger, consolidation, sale of assets or similar business combination
transaction with a third party involving CTI.
27
<PAGE> 28
3.25 Disclosure.
(a) Neither the representations and warranties of CTI contained
in Article 3 of this Agreement and the CTI Disclosure Letter, nor any of the
certificates to be delivered by CTI to HNC under Article 9 of this Agreement,
taken together, contains any untrue statement of a material fact or omits to
state any material fact necessary in order to make the statements contained
herein and therein, in light of the circumstances under which such statements
were made, not misleading.
(b) None of the information supplied or to be supplied by or on
behalf of CTI for inclusion in any information statement to be provided to the
stockholders of CTI in connection with the CTI Stockholders' Vote (the
"INFORMATION STATEMENT") will, as of the date such Information Statement is
first sent to the stockholders of CTI, contain any untrue statement of a
material fact or omit to state any material fact regarding CTI that is required
to be stated therein or necessary in order to make the statements therein, in
the light of the circumstances under which they are made, not misleading.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF HNC AND SUB
HNC and Sub hereby represent and warrant that, except as set forth in
the letter addressed to CTI from HNC executed by the Chief Executive Officer or
the Chief Financial Officer of HNC and dated as of the Agreement Date which has
been delivered by HNC to CTI concurrently herewith (the "HNC DISCLOSURE
LETTER"), each of the following representations, warranties and statements in
the following sections of this Article 4 is true and correct as of the Agreement
Date and will be true and correct on and as of the Closing Date. For all
purposes of this Agreement (including without limitation Articles 8 and 9
hereof), the statements contained in the HNC Disclosure Letter and its schedules
shall also be deemed to be representations and warranties made and given by HNC
under Article 4 of this Agreement.
4.1 Organization and Good Standing. HNC is a corporation duly organized,
validly existing and in good standing under the laws of the State of Delaware,
and has the corporate power and authority to own, operate and lease its
properties and to carry on its business as now conducted and as proposed to be
conducted, and is qualified to transact business, and is in good standing, as a
foreign corporation in each jurisdiction in which its failure to be so qualified
would have a Material Adverse Effect on HNC. Sub is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware, and has the corporate power and authority to own, operate and lease
its properties and to carry on its business as now conducted, and is in good
standing, as a foreign corporation in each jurisdiction in which its failure to
be so qualified would have a Material Adverse Effect on HNC. Neither HNC nor Sub
is in violation of its Certificate of Incorporation, Bylaws or other charter
documents.
4.2 Power, Authorization and Validity.
4.2.1 HNC has the requisite corporate power and authority to
enter into, execute, deliver and perform its obligations under this Agreement
and each of the HNC Ancillary Agreements. The execution, delivery and
performance by HNC of this Agreement and the HNC Ancillary Agreements have been
duly and validly approved and authorized by HNC's Board of Directors in
compliance with applicable law (including without limitation the DGCL) and HNC's
Certificate of Incorporation and Bylaws, each as amended. The issuance by HNC of
the shares of
28
<PAGE> 29
HNC Common Stock to be issued in the Merger does not require the approval of
HNC's stockholders. Sub has the requisite corporate power and authority to enter
into, execute, deliver and perform its obligations under this Agreement, and
each of the Sub Ancillary Agreements. The execution, delivery and performance of
this Agreement and all other Sub Ancillary Agreements by Sub have been duly and
validly approved and authorized by Sub's Board of Directors and by HNC as the
sole stockholder of Sub in compliance with applicable law (including without
limitation the DGCL) and Sub's Certificate of Incorporation and Bylaws, each as
amended.
4.2.2 No consent, approval, order or authorization of, or
registration, declaration or filing with, any Governmental Authority is
necessary or required to be made or obtained by HNC or Sub to enable them to
lawfully execute and deliver enter into, and to perform their respective
obligations under, this Agreement, and each of the HNC Ancillary Agreements and
the Sub Ancillary Agreements, as applicable, or to consummate the Merger, except
for: (a) the filing by HNC of such reports and information with the SEC under
the Exchange Act as may be required in connection with this Agreement, the
Merger and the transactions contemplated hereby; (b) the filing with the SEC of
a Form D relating to the issuance of HNC securities in the Merger, if so elected
by HNC; (c) the filing of the Certificates of Merger with the Delaware Secretary
of State and the Ohio Secretary of State and any such further documents as may
be required under the DGCL or the OGCL to effect the Merger; (d) such filings
and notifications as may be necessary under the HSR Act with respect to the
Merger and the other transactions contemplated by this Agreement and the
expiration or early termination of any applicable waiting periods thereunder;
(e) such other filings as may be required by the Nasdaq National Market System
with respect to the Merger; and (f) such other filings, if any, as may be
required to comply with federal and state securities laws.
4.2.3 Enforceability. This Agreement and each of the HNC
Ancillary Agreements are, or when executed by HNC will be, valid and binding
obligations of HNC, enforceable against HNC in accordance with their respective
terms, subject to the effect, if any, of (a) applicable bankruptcy and other
similar laws affecting the rights of creditors generally and (b) rules of law
and equity governing specific performance, injunctive relief and other equitable
remedies. This Agreement and each of the Sub Ancillary Agreements are, or when
executed by Sub will be, valid and binding obligations of Sub, enforceable
against Sub in accordance with their respective terms, subject to the effect, if
any, of (a) applicable bankruptcy and other similar laws affecting the rights of
creditors generally and (b) rules of law and equity governing specific
performance, injunctive relief and other equitable remedies.
4.3 Capitalization of HNC.
4.3.1 Stock. The authorized capital stock of HNC consists
entirely of 50,000,000 shares of HNC Common Stock, $0.001 par value per share,
and 4,000,000 shares of Preferred Stock, $0.001 par value per share (the "HNC
PREFERRED STOCK"). At the close of business on February 29, 2000, 24,950,840
shares of HNC Common Stock were issued and outstanding. No shares of HNC
Preferred Stock are issued or outstanding at the Agreement Date. All issued and
outstanding shares of HNC Common Stock have been duly authorized and validly
issued, are fully paid and nonassessable and not subject to preemptive rights.
As of the date hereof, the authorized capital stock of Sub consists of 100
shares of Common Stock, $0.001 par value per share, of which 100 shares have
been duly authorized and validly issued, are fully paid and nonassessable, all
of which are owned by HNC.
29
<PAGE> 30
4.3.2 Options; Convertible Notes. As of February 29, 2000: (a)
options to purchase an aggregate total of 6,238,298 shares of HNC Common Stock
were outstanding (the "OUTSTANDING HNC OPTIONS"). As of the Agreement Date,
there are outstanding $100,000,000 in principal face amount of 4.75% Convertible
Subordinated Notes due 2003 of HNC, which, as of the Agreement Date, are
convertible into shares of HNC Common Stock at the price of $44.85 per share of
HNC Common Stock, as presently constituted, which price is subject to adjustment
as provided in such notes (the "CONVERTIBLE NOTES").
4.3.3 No Other Options, Etc. Except for the Outstanding HNC
Options described in Section 4.3.2 above, options to purchase HNC Common Stock
granted after February 29, 2000, the rights to convert Convertible Notes into
HNC Common Stock, and rights of HNC employees to subscribe for shares of HNC
Common Stock under the HNC 1995 Employee Stock Purchase Plan, as of February 29,
2000, there were no outstanding options, warrants, convertible or other
securities of HNC entitling any party to purchase or acquire shares of HNC
Common Stock or any other stock or security of HNC.
4.4 No Violation of Material Agreements. Neither the execution and
delivery of this Agreement nor any HNC Ancillary Agreement, nor the consummation
of the transactions contemplated by this Agreement or any HNC Ancillary
Agreement, will conflict with, or (with or without notice or lapse of time, or
both) result in: (a) a material breach, impairment or violation of (i) any
provision of the Certificate of Incorporation or Bylaws of HNC, as currently in
effect or (ii) any federal, state, local or foreign judgment, writ, decree,
order, statute, rule or regulation to which HNC or its assets or properties is
subject that would have a Material Adverse Effect on HNC; or (b) a termination,
or a material breach, impairment or violation, of any material instrument or
contract to which HNC is a party or by which HNC or its properties are bound
which is listed as a material agreement in the exhibit list to (a) HNC's annual
report on Form 10-K for its fiscal year ended December 31, 1999, as amended by
the annual report on Form 10-K/A filed on March 27, 2000 (the "1999 10-K") or
(b) any report on Form 10-Q or Form 8-K filed by HNC since the date on which HNC
filed the 1999 10-K with the SEC or (c) any registration statement that HNC has
filed with the SEC pursuant to the Securities Act or the Exchange Act since the
date on which HNC filed the 1999 10-K.
4.5 SEC Documents; HNC Financial Statements. HNC has furnished or made
available to CTI: (a) the 1999 10-K and true and complete copies of all reports,
proxy statements or registration statements filed by HNC with the SEC under the
Securities Act or the Exchange Act subsequent to March 27, 2000 and prior to the
Agreement Date, including HNC's report on Form 8-K filed on March 27, 2000 (all
of the foregoing reports, proxy statements or registration statements of HNC
being collectively referred to as the "HNC SEC DOCUMENTS"); (b) a Prospectus
dated February 27, 1998 forming part of HNC's registration statement on Form S-3
relating to the offering of the Convertible Notes; (c) a Prospectus of Retek
Inc. ("RETEK"), a subsidiary of HNC, dated November 17, 1999 forming part of
Retek's registration statement on Form S-1 relating to the initial public
offering of Retek's common stock; and (d) Retek's annual report on Form 10-K for
its fiscal year ended December 31, 1999. As of their respective filing dates,
the HNC SEC Documents complied in all material respects with the requirements of
the Securities Act or the Exchange Act, as applicable, and no HNC SEC Documents
contained, as of its respective filing date, any untrue statement of a material
fact or omitted to state any material fact necessary in order to make the
statements contained therein, in light of the circumstances under which such
statements were made, not misleading in any material respect, except to the
extent corrected by a document subsequently filed with the SEC. The HNC SEC
Documents constitute all reports and documents that HNC was required to file
with the SEC under applicable law during the period beginning on March 27, 2000
and ending on the Agreement Date. The
30
<PAGE> 31
financial statements of HNC, including the notes thereto, included in the HNC
SEC Documents (the "HNC FINANCIAL STATEMENTS") were prepared in accordance with
generally accepted accounting principles consistently applied (except as may be
indicated in the notes thereto) and, as of their filing dates, presented fairly
the consolidated financial position of HNC at the dates thereof and of its
operations and cash flows for the periods then ended (subject, in the case of
unaudited statements, to normal, recurring audit adjustments), and except to the
extent modified or corrected by financial statements subsequently filed with the
SEC. Since January 1, 2000, there has been no change in HNC's accounting
policies except as described in the notes to the HNC Financial Statements.
4.6 Validity of Shares. The shares of HNC Common Stock to be issued
pursuant to the Merger will, when issued: (a) be duly authorized, validly
issued, fully paid and nonassessable and free of liens and encumbrances created
by HNC, (b) will be subject to applicable securities law restrictions on
transfer, including those imposed by Regulation D or Section 4(2) of the
Securities Act and Rule 144 promulgated under the Securities Act, and under
applicable "blue sky" state securities laws, and (c) will be authorized for
listing on the Nasdaq National Market subject to notice of issuance.
4.7 No Brokers; Accredited Status. HNC is not obligated for the payment
of any fees or expenses of any investment banker, broker, finder or similar
party in connection with the origin, negotiation or execution of this Agreement
or the HNC Ancillary Agreements or in connection with any transaction
contemplated hereby or thereby for which CTI or any of the CTI Stockholders will
incur any personal liability. HNC is an "accredited investor" within the meaning
of Regulation D promulgated under the Securities Act.
4.8 Litigation. There is no action, claim, suit, arbitration,
proceeding, claim or investigation pending (or, to HNC's knowledge, threatened)
against HNC before any court, administrative agency or arbitrator that, if
determined adversely to HNC, is likely to have a Material Adverse Effect on
HNC's financial condition or results of operation.
4.9 No Material Adverse Change. Since December 31, 1999, there has not
occurred: (a) any Material Adverse Change to HNC (excluding for purposes of this
Section any fact or event that has been publicly disclosed by HNC prior to the
Agreement Date, by a press release or filing with the SEC or otherwise) or (b)
any amendment or change in the Certificate of Incorporation or Bylaws of HNC
that adversely affects the rights of the HNC Common Stock.
4.10 Disclosure.
(a) Neither the representations and warranties contained in
Article 4 of this Agreement and the HNC Disclosure Letter, nor any of the
certificates to be delivered by HNC to CTI under Article 8 of this Agreement,
taken together, contains any untrue statement of a material fact or omits to
state any material fact necessary in order to make the statements contained
herein and therein, in light of the circumstances under which such statements
were made, not misleading.
(b) None of the information regarding HNC supplied or to be
supplied by or on behalf of HNC for inclusion in the Information Statement will,
as of the date such Information Statement is first sent to the stockholders of
CTI, contain any untrue statement of a material fact or omit to state any
material fact regarding HNC that is required to be stated therein or necessary
in order to make the statements therein, in the light of the circumstances under
which they are made, not misleading.
31
<PAGE> 32
ARTICLE 5
COVENANTS OF CTI AND FGC
CTI and, solely with respect to Sections 5.1, 5.2, 5.6, 5.7, 5.8, 5.9,
5.17 and 5.18, FGC covenant and agree with HNC and Sub as follows:
5.1 Advice of Changes. During the time period from the Agreement Date
until the earlier to occur of (i) the Effective Time or (ii) the termination of
this Agreement in accordance with Article 10, CTI will promptly advise HNC in
writing (a) of any event occurring subsequent to the Agreement Date of which CTI
or FGC has knowledge that would render any representation or warranty of CTI and
FGC contained in Article 3 of this Agreement (as qualified by the CTI Disclosure
Letter), if made on or as of the date of such event or the Closing Date, untrue
or inaccurate in any material respect and (b) of any Material Adverse Change in
CTI.
5.2 Maintenance of Business. During the time period from the Agreement
Date until the earlier to occur of (i) the Effective Time or (ii) the
termination of this Agreement in accordance with Article 10, (a) CTI will use
its good faith diligent efforts to carry on and preserve its business and its
relationships with customers, suppliers, employees and others in substantially
the same manner as it has prior to the Agreement Date, and (b) if CTI or FGC
becomes aware of a material deterioration in the relationship between CTI and
any key customer, key supplier or key employee of CTI, it will promptly bring
such information to the attention of HNC in writing.
5.3 Conduct of Business. During the time period from the Agreement Date
until the earlier to occur of (i) the Effective Time or (ii) the termination of
this Agreement in accordance with Article 10, CTI will continue to conduct its
business and maintain its business relationships in the ordinary and usual
course and CTI shall not, without the prior written consent and approval of the
President or Chief Financial Officer of HNC:
(a) borrow or lend any money, other than reasonable and
customary advances to employees for bona fide travel and expenses that are
incurred in the ordinary course of CTI's business consistent with CTI's past
practices;
(b) enter into any material transaction or agreement that is not
in the ordinary course of CTI's business;
(c) grant any lien, security interest, other encumbrance on any
of CTI's assets or guarantee or act as a surety for any obligation of any third
party;
(d) sell, transfer or dispose of any of its assets except in the
ordinary course of CTI's business consistent with CTI's past practices;
(e) enter into any material lease or any contract for the
purchase or sale of any property, whether real or personal, tangible or
intangible;
(f) pay any bonus, increased salary or special remuneration to
any officer, director, employee or consultant (except for normal salary
increases and bonus payments that are consistent with CTI's past practices and,
in each case, not to exceed 5% of such officer's, employee's or consultant's
base annual compensation), enter into any new employment or consulting agreement
with any such person or enter into any indemnification agreement or agreement to
advance expenses of defending any claim, suit or proceeding with any such
person;
32
<PAGE> 33
(g) declare, set aside or pay any cash or stock dividend or
other distribution in respect of its capital stock, redeem, repurchase or
otherwise acquire any of its capital stock or other securities, pay or
distribute any cash or property to any stockholder or securityholder of CTI or
make any other cash payment to any stockholder or securityholder of CTI that is
unusual, extraordinary, or not made in the ordinary course of CTI's business
consistent with its past practices;
(h) amend or terminate any contract, agreement or license to
which CTI or any of its subsidiaries is a party except for (i) those amended or
terminated in the ordinary course of CTI's business, consistent with its past
practices, or (ii) those amended to enable CTI to satisfy any condition to the
consummation of the Merger set forth in Article 8 or 9 which shall not have any
material impact on CTI's business or financial condition;
(i) waive or release any material right or claim except in the
ordinary course of CTI's business, consistent with CTI's past practice;
(j) issue, sell, create or authorize any shares of its capital
stock of any class or series or any other of its securities, or issue, grant or
create any options, warrants, rights, obligations, subscriptions, convertible
securities, or other commitments to issue shares of its capital stock or
securities ultimately exchangeable for, or convertible into, shares of its
capital stock;
(k) subdivide, split, combine or reverse split the outstanding
shares of its capital stock of any class or series or enter into any
recapitalization affecting the number of outstanding shares of its capital stock
of any class or series or affecting any other of its securities;
(l) merge, consolidate or reorganize with, or acquire, or enter
into any other business combination with, any corporation, partnership, limited
liability company or any other entity or enter into any negotiations,
discussions or agreement for such purpose;
(m) amend its Articles of Incorporation or Code of Regulations;
(n) license any of its technology or Intellectual Property
except for licenses of products made in the ordinary course of CTI's business on
terms consistent with CTI's past practices, or acquire any Intellectual Property
(or any license thereto) from any third party except for any such license
obtained in the ordinary course of CTI's business consistent with its past
practices;
(o) materially change any insurance coverage or issue any
certificates of insurance;
(p) agree to any audit assessment proposed by any tax authority
or file without HNC's prior written consent (which will not be unreasonably
withheld or delayed) any federal or state income or franchise tax return unless
copies of such returns have first been delivered to HNC for its review prior to
filing;
(q) modify or change the terms or rights of any CTI stock or
other CTI securities;
33
<PAGE> 34
(r) agree to do any of the things described in the preceding
clauses 5.3(a) through 5.3(q).
5.4 Approval of CTI's Stockholders. CTI shall take the actions necessary
to conduct and obtain the CTI Stockholders' Vote (as defined in Article 1) at
the earliest practicable date on or after the Agreement Date (consistent with,
and subject to, the requirements of Section 4(2) and/or Regulation D under the
Securities Act and CTI's performance of its obligations under Section 5.12). In
connection therewith CTI's Board of Directors shall recommend to CTI's
stockholders that they approve the Merger, this Agreement and the transactions
contemplated thereby. The CTI Stockholders' Vote shall be called, held and
conducted, and any proxies or written consents shall be solicited, in compliance
with CTI's Articles of Incorporation and Code of Regulations, both as amended,
and in compliance with applicable law (including without limitation the OGCL).
CTI will not put any proposal up for the vote of its stockholders (as part of
the CTI Stockholders' Vote or otherwise) other than the proposal to approve this
Agreement and the Merger, without obtaining HNC's prior written consent to do
so, which consent will not be unreasonably withheld, consistent with the
provisions, purposes and intent of this Agreement.
5.5 Information Statement; Cooperation. CTI will be solely responsible
for any statement, information or omission in the Information Statement relating
to CTI or its affiliates that is provided to CTI's Stockholders in connection
with the CTI Stockholders' Vote. CTI will in good faith comply with its
obligations under Section 5.12 (including without limitation its obligations to
cooperate with HNC in connection with the Information Statement) and CTI will
use its good faith diligent efforts to assist HNC in all reasonable ways in
complying with the requirements of the exemptions provided by Section 4(2)
and/or Regulation D under the Securities Act with respect to the issuance of HNC
securities in the Merger.
5.6 Regulatory Approvals. CTI and FGC will promptly execute and file, or
join in the execution and filing, of any application, notification or any other
document that may be necessary in order to obtain the authorization, approval or
consent of any Governmental Authority, whether federal, state, local or foreign,
which may be reasonably required, or which HNC may reasonably request, in
connection with the consummation of the Merger or any other transactions
contemplated by this Agreement or any CTI Ancillary Agreement, including but not
limited to any filings required to be made by CTI or FGC under the HSR Act. CTI
and FGC will each use its diligent efforts to obtain, and to cooperate with HNC
to promptly obtain, all such authorizations, approvals and consents.
5.7 Necessary Consents. CTI and FGC will each use its diligent efforts
to obtain such consents and authorizations of third parties, give notices to
third parties and take such other actions as may be necessary or appropriate in
addition to those set forth in the foregoing Sections of this Article 5 in order
to effect the consummation of the Merger and the other transactions contemplated
by this Agreement and to enable CTI to carry on its business after the Effective
Time substantially as such business was conducted by CTI prior to the Effective
Time.
5.8 Litigation. During the time period from the Agreement Date until the
earlier to occur of (i) the Effective Time or (ii) the termination of this
Agreement in accordance with Article 10, CTI and/or FGC will notify HNC in
writing promptly after learning of any claim, demand, action, suit, arbitration,
mediation, proceeding or investigation by or before any court, arbitrator or
arbitration panel, tribunal, board or governmental agency, initiated by or
against CTI, or known by CTI or FGC to be threatened against CTI or against any
of its stockholders, officers, directors, employees or stockholders in their
capacity as such.
34
<PAGE> 35
5.9 No Other Negotiations. During the time period commencing on the
Agreement Date and ending on the earlier to occur of (a) termination of this
Agreement in accordance with the provisions of Article 10, or (b) consummation
of the Merger at the Effective Time, neither CTI nor FGC will, and neither CTI
nor FGC will authorize, encourage or permit any officer, director, employee,
stockholder or agent of CTI or any other person on CTI's behalf to, directly or
indirectly: (i) solicit, initiate, encourage or induce the making, submission or
announcement of, any offer or proposal from any party concerning any Alternative
Transaction (as defined below) or take any other action that could reasonably be
expected to lead to an Alternative Transaction or a proposal therefore; (ii)
consider any inquiry, offer or proposal received from any party concerning any
Alternative Transaction; (iii) furnish any information regarding CTI to any
person or entity in connection with or in response to any inquiry, offer or
proposal for or regarding any Alternative Transaction; (iv) participate in any
discussions or negotiations with any person or entity with respect to any
Alternative Transaction; (v) otherwise cooperate with, facilitate or encourage
any effort or attempt by any person or entity (other than HNC) to effect any
Alternative Transaction; or (vi) execute, enter into or become bound by any
letter of intent, agreement, commitment or understanding between CTI or FGC and
any third party that is related to, provides for or concerns any Alternative
Transaction. During the foregoing time period identified in the preceding
sentence, each of CTI and FGC will promptly disclose to HNC any inquiries or
proposals for Alternative Transactions received by it from any third parties,
which disclosure shall include the identity of the party making the inquiry or
proposal and the terms of any proposal that are received. As used herein, the
term "ALTERNATIVE TRANSACTION" means (i) any commitment, agreement or
transaction involving or providing for the possible disposition of all or any
substantial portion of CTI's business, assets or capital stock, whether by way
of merger, consolidation, sale of assets, sale of stock, tender offer, license
and/or any other form of business combination or (ii) any initial public
offering of capital stock or other securities of CTI pursuant to a registration
statement filed under the Securities Act or otherwise.
5.10 Access to Information. During the time period commencing on the
Agreement Date and ending on the earlier to occur of (a) termination of this
Agreement in accordance with the provisions of Article 10, or (b) consummation
of the Merger at the Effective Time, CTI will allow HNC and its agents, during
normal business hours and on reasonable advance notice (which may be given
orally), access to the files, books, records, personnel and offices of CTI,
including, without limitation, any and all information relating to CTI's taxes,
commitments, contracts, leases, licenses, and real, personal and intangible
property and financial condition, subject to the terms of any written
nondisclosure or confidentiality Agreement between CTI and HNC. CTI will cause
its accountants to cooperate with HNC and its agents in making available all
financial information reasonably requested by HNC, including without limitation
the right to examine all working papers pertaining to all financial statements
prepared or audited by such accountants.
5.11 Satisfaction of Conditions Precedent. During the time period from
the Agreement Date until the earlier to occur of (i) the Effective Time or (ii)
the termination of this Agreement in accordance with Article 10, CTI will use
its diligent efforts to satisfy or cause to be satisfied all the conditions
precedent which are set forth in Articles 8 and 9, and CTI will use its diligent
efforts to cause the Merger and the other transactions contemplated by this
Agreement to be consummated in accordance with the terms of this Agreement by
the Termination Date.
5.12 Securities Law Compliance. CTI will use its diligent good faith
efforts: (a) to cause each CTI Stockholder to execute and deliver to HNC, at or
prior to the Closing, an Investment Representation Letter and (b) to deliver to
each CTI Stockholder (i) all disclosure
35
<PAGE> 36
documents regarding HNC and the Merger that HNC requests CTI to deliver to each
CTI Stockholder for the purposes of making disclosures to such stockholders
regarding HNC.
5.13 Blue Sky Laws. CTI will use its diligent efforts to assist HNC to
the extent necessary to comply with the securities and Blue Sky laws of all
jurisdictions which are applicable in connection with the Merger.
5.14 CTI Employee Plans and Benefit Arrangements. CTI shall terminate
its participation in any CTI Benefit Arrangement at, immediately prior to or as
soon as administratively feasible following, the Effective Time upon the request
of HNC. In the event that the distribution or rollover of assets from the trust
of a Code Section 401(k) plan in which CTI was a participating employer prior to
the Effective Time will trigger liquidation, surrender or other fees which will
be imposed on the account of any participant or beneficiary of such terminated
plan, CTI and FGC shall take such actions as are necessary to reasonably
estimate the amount of such fees and provide such reasonable estimate in writing
to HNC prior to the Effective Time.
5.15 Closing of Merger. CTI will not refuse to effect the Merger if, on
or before the Closing Date, all the conditions precedent to CTI's obligations to
effect the Merger under Article 8 have been satisfied or waived by CTI and HNC
elects to consummate the Merger.
5.16 Tax-Free Reorganization. CTI and FGC will not take any action that
it knows would cause the Merger not to qualify as a tax-free reorganization
under Section 368(a) of the Code.
5.17 No Transfer. During the time period from the Agreement Date until
the earlier to occur of (i) the Effective Time or (ii) the termination of this
Agreement in accordance with Article 10, FGC shall not sell, pledge, encumber,
transfer or dispose of any shares of CTI stock it owns as of the Agreement Date.
5.18 Tax Matters. FGC covenants and agrees with HNC and CTI that, from
and after the Effective Time:
(a) FGC will include the income of CTI (including any deferred
income triggered into income by Treasury Regulation Section 1.1502-13 and
Section 1.1502-14 and any excess loss accounts taken into income under Treasury
Regulation Section 1.1502-19) on the FGC consolidated federal income tax returns
for all periods through December 31, 1999 and FGC will be responsible for and
will pay any federal income taxes attributable to such income.
(b) HNC shall prepare or cause to be prepared and file or cause
to be filed all tax returns for CTI for all periods ending on or prior to the
Effective Time which are filed after the Effective Time other than income tax
returns with respect to periods for which a consolidated, unitary or combined
income tax return of FGC will include the operations of CTI. HNC shall permit
FGC to review and comment on each such tax return prepared and filed or caused
to be filed by HNC and described in the preceding sentence prior to filing but
the ultimate decision as to the contents of any such tax return shall be made by
HNC; provided, however, that HNC shall not unreasonably withhold its consent to
changes requested by FGC. HNC or the Surviving Corporation shall prepare or
cause to be prepared and file or cause to be filed all tax returns for the
Surviving Corporation for all periods ending after the Effective Time which are
filed after the Effective Time. HNC, FGC and the Surviving Corporation shall
cooperate fully, as and to the extent reasonably requested by each other, in
connection with the filing of tax returns pursuant to
36
<PAGE> 37
this Section 5.18(b) and any audit, litigation or other proceeding with respect
to taxes relating to such tax returns. Such cooperation shall include the
retention and (upon request) the provision of records and information which are
reasonably relevant to any such audit, litigation, or other proceeding and
making employees available on a mutually convenient basis to provide additional
information and explanation of any material provided hereunder. FGC agrees, and
HNC agrees to cause the Surviving Corporation: (A) to retain all books and
records with respect to tax matters pertinent to CTI or the Surviving
Corporation relating to any taxable period beginning before the Effective Time
until the expiration of the statute of limitations (and, to the extent notified
by FGC or HNC, any extensions thereof) of the respective taxable periods, and
(B) to give the other party reasonable written notice prior to transferring,
destroying or discarding any such books and records and, if the other party so
requests, FGC or the Surviving Corporation, as the case may be, shall allow the
other to take possession of such books and records as are to be transferred,
destroyed or discarded. HNC and FGC further agree, upon request, to use diligent
efforts to obtain any certificate or other document from any governmental
authority or any other person or entity as may be necessary to mitigate, reduce
or eliminate any tax that could be imposed (including, but not limited to, with
respect to the transactions contemplated hereby). FGC will allow CTI and its
counsel to participate in any audits of FGC consolidated federal income tax
returns to the extent that such returns relate to CTI. FGC will not settle any
such audit in a manner which would adversely affect CTI after the Effective Time
without the prior written consent of HNC, which consent shall not be
unreasonably withheld.
5.19 Delivery of Closing Balance Sheet. FGC covenants and agrees with
HNC that, promptly following the Effective Time, FGC shall promptly prepare a
balance sheet of CTI as of the close of business on the date immediately prior
to the date on which the Effective Time occurs (the "CLOSING BALANCE SHEET") in
accordance with, and conforming to, all the requirements for such Closing
Balance Sheet set forth in Section 3.8(b). The Closing Balance Sheet shall not
reflect any intercompany receivables or payables required to be eliminated by
the provisions of Section 9.17. FGC shall prepare and deliver the Closing
Balance Sheet to HNC promptly following the Effective Time, but in no event
later than ten (10) days following the Effective Time. HNC will afford FGC
access to CTI's accounting books and other records as reasonably necessary to
enable FGC to prepare the Closing Balance Sheet within the time required by this
Section 5.19.
ARTICLE 6
HNC COVENANTS
6.1 Advice of Changes. During the time period from the Agreement Date
until the earlier to occur of (i) the Effective Time or (ii) the termination of
this Agreement in accordance with Article 10, HNC will promptly advise CTI (a)
of any event occurring subsequent to the Agreement Date of which HNC has
knowledge that would render any representation or warranty of HNC contained in
Article 4 of this Agreement (as qualified by the HNC Disclosure Letter), if made
on or as of the date of such event or the Closing Date, untrue or inaccurate in
any material respect and (b) of any Material Adverse Change in HNC arising after
the Agreement Date.
6.2 Regulatory Approvals. HNC will promptly execute and file, or join in
the execution and filing, of any application, notification or any other document
that may be necessary in order to obtain the authorization, approval or consent
of any Governmental Authority, whether federal, state, local or foreign, which
may be reasonably required, in connection with the consummation of the Merger
and the other transactions contemplated by this Agreement and the HNC Ancillary
Agreements and Sub Ancillary Agreements in accordance with the terms of this
37
<PAGE> 38
Agreement, including but not limited to any filings required to be made by HNC
under the HSR Act. HNC will use diligent efforts to obtain all such
authorizations, approvals and consents.
6.3 Satisfaction of Conditions Precedent. HNC will use its diligent
efforts to satisfy or cause to be satisfied all of the conditions precedent
which are set forth in Article 8, and HNC will use its diligent efforts to cause
the Merger and the other transactions contemplated by this Agreement to be
consummated in accordance with the terms of this Agreement by the Termination
Date.
6.4 Nasdaq Listing. Prior to the Effective Time, HNC will take all
actions necessary to authorize for listing on the Nasdaq Stock Market (or on
whatever other securities exchange HNC Common Stock is issuable), the shares of
HNC Common Stock to be issued upon consummation of the Merger pursuant to
Section 2.1.2 (including the Escrow Shares).
6.5 Closing of Merger. HNC will not refuse to effect the Merger if, on
or before the Closing Date, all the conditions precedent to HNC's obligations to
effect the Merger under Article 9 have been satisfied or waived by HNC and CTI
elects to consummate the Merger.
6.6 Tax-Free Reorganization. HNC will not take any action that it knows
would cause the Merger not to qualify as a tax-free reorganization under Section
368(a) of the Code.
6.7 Blue Sky Laws. HNC will use its diligent efforts, subject to CTI's
good faith cooperation, to the extent necessary to comply with the securities
and Blue Sky laws of all jurisdictions which are applicable to the issuance of
securities of HNC in connection with the Merger.
6.8 Tax Matters. HNC agrees to the provisions of Section 5.18(b) hereof.
6.9 Post-Closing Payment of Fifth Third Bank Loan. HNC agrees with FGC
that, within one (1) week after the Effective Time, HNC or CTI shall pay in full
to Fifth Third Bank the entire amount of unpaid principal and accrued interest
under the Fifth Third Bank Loan (as defined in Section 3.8(c)); provided,
however, that notwithstanding the foregoing, the maximum amount that HNC and/or
CTI shall be obligated to pay under this Section 6.9 shall not exceed the total
sum of $490,300; and provided further, that such payment by HNC shall be
contingent on Fifth Third Bank releasing CTI from any potential liability or
indebtedness associated with any loans, other credit arrangements or agreements
between Fifth Third Bank, on the one hand, and/or FGC, any direct or indirect
subsidiary of FGC or any direct or indirect affiliate of FGC.
6.10 Replacement of Guarantees. FGC has guaranteed CTI's obligation to
pay amounts under several equipment leases now held by Fifth Third Bank, Central
Ohio. HNC agrees with FGC that, promptly after the Effective Time, HNC will
cooperate with FGC for the purpose of convincing the holders of such equipment
leases to release FGC from such guaranty obligations for such leases, and, if
necessary, HNC will provide such holders replacement guarantees of such
equipment leases provide that the aggregate amount of indebtedness of CTI that
HNC must so guarantee under such equipment leases does not exceed the amounts
guaranteed by FGC and does not exceed $98,637.00 in the aggregate.
38
<PAGE> 39
ARTICLE 7
CLOSING MATTERS
7.1 The Closing. Subject to termination of this Agreement as provided in
Article 10, the closing of the transactions to consummate the Merger (the
"CLOSING") will take place at the offices of Fenwick & West LLP, Two Palo Alto
Square, Palo Alto, California 94306 at 10:00 a.m., Pacific Standard Time on the
first business day after all of the conditions to Closing set forth in Articles
8 and 9 have been satisfied and/or waived in accordance with this Agreement, or
on such later day as HNC and CTI may mutually agree on (the "CLOSING DATE").
Concurrently with the Closing, the Delaware Certificate of Merger will be filed
with the Delaware Secretary of State and the Ohio Certificate of Merger will be
filed with the Ohio Secretary of State.
7.2 Surrender and Exchange of Stock Certificates.
7.2.1 Surrender by CTI Stockholders. At or after the Closing,
each holder of shares of CTI Stock will surrender the certificate(s) for all
such shares of CTI Common Stock (each a "CTI CERTIFICATE"), duly endorsed to CTI
(or accompanied by a stock power duly endorsed and executed by such holder),
with the holder's signature notarized or signature guaranteed, for cancellation
as of the Effective Time, together with an Investment Representation Letter
executed by such holder.
7.2.2 Delivery by HNC. Promptly after the surrender by a CTI
Stockholder to HNC of (i) such CTI Stockholder's CTI Certificate(s) duly
endorsed as required in Section 7.2.1 above, and (ii) the delivery to HNC of an
Investment Representation Letter executed by such CTI Stockholder, HNC or its
transfer agent will issue and pay to each CTI Stockholder who has tendered to
HNC CTI Certificate(s) representing all of the shares of CTI Common Stock held
by such CTI Stockholder immediately prior to the Effective Time in accordance
with the foregoing provisions of Section 7.2.1 and an Investment Representation
Letter executed by such CTI Stockholder, (a) a certificate for the number of
shares of HNC Common Stock that such holder is entitled to receive upon the
conversion of such holder's shares of CTI Common Stock pursuant to Section
2.1.2(a) (less the number of such shares that represent such holder's Escrow Pro
Rata of the Escrow Shares, which shall be withheld and placed in escrow pursuant
to the provisions of Section 2.5 and the Escrow Agreement) plus (b) the amount
of cash that such holder is entitled to receive upon the conversion of such
holder's shares of CTI Common Stock pursuant to Section 2.1.2(b) plus (c) the
amount of cash in lieu of fractional shares in the amount payable to such holder
in accordance with Section 2.2, payable by check or wire transfer, at HNC's
option. Within ten (10) business days after the execution by HNC, FGC, Overly
and the Escrow Agent, HNC will also deliver the certificates representing the
Escrow Shares to the Escrow Agent pursuant to the Escrow Agreement.
7.2.3 No payments of certificates of HNC Common Stock or cash
described in Section 7.2.2 and no dividends or distributions payable to holders
of record of HNC Common Stock after the Effective Time, will be paid to the
holder of any unsurrendered CTI Certificate with respect to the shares of HNC
Common Stock into which the shares of CTI Common Stock represented by such CTI
certificate have been converted in the Merger until the holder of such
unsurrendered CTI Certificate surrenders such CTI Certificate to HNC as provided
in Sections 7.2.1 and 7.2.2 above, together with an executed Investment
Representation Letter as provided in Section 7.2.2 above. Subject to the effect,
if any, of applicable escheat and other laws, following the surrender of any CTI
Certificate, there will be delivered to the person entitled thereto, without
interest, the amount of any such dividends and distributions theretofore paid
with respect to HNC
39
<PAGE> 40
Common Stock so withheld as of any date subsequent to the Effective Time and
prior to such date of delivery.
7.2.4 After the Effective Time there will be no further
registration of transfers on the stock transfer books of CTI or its transfer
agent of any shares of CTI capital stock that were outstanding immediately prior
to the Effective Time. If, after the Effective Time, CTI Certificates are
presented for any reason, they will be canceled and exchanged as provided in
this Section 7.2.
7.2.5 Until CTI Certificates representing shares of CTI Common
Stock outstanding immediately prior to the Effective Time are surrendered
pursuant to Section 7.2.1 above, such CTI Certificates will be deemed, for all
purposes, to evidence ownership of the right to receive the number of shares of
HNC Common Stock and cash (plus cash for fractional shares as provided in
Section 2.2) into which such shares of CTI Common Stock will have been converted
pursuant to Section 2.1.2 in the Merger, subject to all the provisions of this
Agreement, including but not limited to the provisions of Section 2.5 regarding
the escrow, and the Escrow Agreement.
7.2.6. Each stock certificate representing shares of HNC Common
Stock issued pursuant to this Agreement shall bear the following legend (in
addition to any legends required by applicable state laws):
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE U.S. SECURITIES ACT OF 1933, AS AMENDED
(THE "1933 ACT"). THESE SECURITIES MAY NOT BE OFFERED, SOLD,
PLEDGED, OR TRANSFERRED UNLESS (1) A REGISTRATION STATEMENT
UNDER THE 1933 ACT (AND A CURRENT PROSPECTUS) IS IN EFFECT AS TO
THE SECURITIES, (2) AN EXEMPTION FROM THE REGISTRATION
REQUIREMENTS OF THE 1933 ACT IS AVAILABLE, OR (3) THE SECURITIES
ARE SOLD PURSUANT TO RULE 144 OF THE 1933 ACT. THE ISSUER OF
THESE SECURITIES MAY REQUIRE AN OPINION OF COUNSEL IN FORM AND
SUBSTANCE SATISFACTORY TO THE ISSUER TO THE EFFECT THAT ANY
PROPOSED TRANSFER OR RESALE IS IN COMPLIANCE WITH THE 1933 ACT
AND ANY APPLICABLE STATE SECURITIES LAWS.
7.2.7 HNC may issue appropriate "stop transfer" instructions to
its transfer agent. HNC shall not be required (a) to transfer or have
transferred on its books any shares of HNC Common Stock issued pursuant to this
Agreement that have been sold or otherwise transferred in violation of any of
the provisions of (i) the legend set forth in Section 7.2.6, (ii) any other
provisions of this Agreement, (iii) any applicable law or (iv) the Investment
Representation Letter, or (b) to treat as owner of such shares or to accord the
right to vote or pay dividends to any purchaser or other transferee to whom such
shares shall have been so transferred in violation of any law or of any
provision of this Agreement or the Investment Representation Letter.
40
<PAGE> 41
ARTICLE 8
CONDITIONS TO OBLIGATIONS OF CTI
CTI's obligations to consummate the Merger hereunder are subject to the
fulfillment or satisfaction, on and as of the Closing, of each of the following
conditions (any one or more of which may be waived by CTI, but only in a writing
signed by CTI):
8.1 Accuracy of Representations and Warranties. The representations and
warranties of HNC and Sub set forth in Article 4 (as qualified by the HNC
Disclosure Letter) will be true and correct in all material respects on and as
of the Closing with the same force and effect as if they had been made at the
Closing (except for those representations and warranties which address matters
only as of a particular date or dates, which need be true and correct only as of
such date or dates), except for such breaches, inaccuracies or omissions of such
representations and warranties that neither have, nor reasonably would be
expected to have, a Material Adverse Effect on HNC; and CTI will have received a
certificate to such effect executed by HNC's President or Chief Financial
Officer.
8.2 Agreements and Covenants. HNC and Sub shall have performed or
complied in all material respects with all agreements and covenants required by
this Agreement to be performed or complied with by them on or prior to the
Effective Time, and CTI shall have received a certificate to such effect
executed by HNC's President or Chief Financial Officer.
8.3 No Material Adverse Change to HNC. There shall not have occurred any
Material Adverse Change to HNC since December 31, 1999 (excluding for purposes
of this Section any fact or event that has been publicly disclosed by HNC prior
to the Agreement Date, by a press release or filing with the SEC or otherwise),
and CTI shall have received a certificate to such effect executed by HNC's
President or Chief Financial Officer.
8.4 Compliance with Law; No Legal Restraints; No Litigation. No
litigation or proceeding (other than any litigation or proceeding initiated by
CTI or any of its affiliates) will be pending (a) for the purpose or with the
probable effect of enjoining or preventing the consummation of the Merger or any
of the other material transactions contemplated by this Agreement, or (b) which
could be reasonably expected to have a Material Adverse Effect on (i) CTI or
(ii) following the Merger, HNC and its consolidated subsidiaries, considered
together as a whole. There will not be any outstanding, or enacted or adopted,
any order, decree, temporary, preliminary or permanent injunction, legislative
enactment, statute, regulation or any judgment or ruling by any court,
arbitrator, governmental agency or authority, that, directly or indirectly,
challenges, prohibits, enjoins, restrains, suspends, delays, conditions or
renders illegal or imposes limitations on the Merger or any other material
transaction contemplated by this Agreement.
8.5 Government Consents; HSR Act Compliance. There will have been
obtained at or prior to the Closing Date such permits or authorizations, and
there will have been taken all such other actions by any regulatory authority
having jurisdiction over the parties and the actions herein proposed to be
taken, as may be required to lawfully consummate the Merger, including but not
limited to (a) the completion of all filings required to be made by HNC, CTI and
FGC under the HSR Act regarding the Merger and the other transactions
contemplated hereby and the expiration (or early termination) of all waiting
periods with respect to such transactions under the HSR Act and (b) requirements
under applicable federal and state securities laws
41
<PAGE> 42
8.6 Opinion of HNC's Counsel. CTI will have received from Fenwick & West
LLP, counsel to HNC, a favorable opinion regarding the matters set forth in
Exhibit E.
8.7 Stockholder Approval. This Agreement and the Merger shall have been
approved and adopted by the CTI Stockholders by the requisite vote required
under the OGCL and the Articles of Incorporation, Code of Regulations and any
other charter documents of CTI.
8.8 Nasdaq Listing. The shares of HNC Common Stock issuable to CTI
Stockholders pursuant to this Agreement and such other shares required to be
reserved for issuance in connection with the Merger shall have been authorized
for listing on the Nasdaq Stock Market upon official notice of issuance in
accordance with the provisions of Section 6.4.
ARTICLE 9
CONDITIONS TO OBLIGATIONS OF HNC AND SUB
The obligations of HNC and Sub hereunder are subject to the fulfillment
or satisfaction on, and as of the Closing, of each of the following conditions
(any one or more of which may be waived by HNC, but only in a writing signed by
HNC):
9.1 Accuracy of Representations and Warranties. The representations and
warranties of CTI and FGC set forth in Article 3 (as qualified by CTI Disclosure
Letter) will be true and correct in all material respects on and as of the
Closing with the same force and effect as if they had been made at the Closing
(except for those representations and warranties which address matters only as
of a particular date or dates, which need be true and correct only as of such
date or dates), and except for such breaches, inaccuracies or omissions of such
representations and warranties that neither have, nor reasonably would be
expected to have, a Material Adverse Effect on CTI; and HNC will have received a
certificate to such effect executed by CTI's Chief Executive Officer and Chief
Financial Officer and FGC's Chief Executive Officer or Chief Financial Officer.
9.2 Agreements and Covenants. CTI and FGC shall have performed or
complied in all material respects with all agreements and covenants required by
this Agreement to be performed or complied with by CTI or FGC (as applicable) on
or prior to the Effective Time, and HNC shall have received a certificate to
such effect executed by CTI's Chief Executive Officer and Chief Financial
Officer and by FGC's Chief Executive Officer or Chief Financial Officer.
9.3 No Material Adverse Change to CTI. There shall not have occurred any
Material Adverse Change to CTI since the Balance Sheet Date, and HNC shall have
received a certificate to such effect executed by CTI's Chief Executive Officer
and Chief Financial Officer.
9.4 Compliance with Law; No Legal Restraints; No Litigation. No
litigation or proceeding (other than any litigation or proceeding initiated by
HNC or any of its affiliates) will be pending (a) for the purpose or with the
probable effect of enjoining or preventing the consummation of the Merger or any
of the other material transactions contemplated by this Agreement, or (b) which
could be reasonably expected to have a Material Adverse Effect on (i) CTI or
(ii) following the Merger, HNC and its consolidated subsidiaries, taken as a
whole. There will not be any outstanding or enacted or adopted, any order,
decree, temporary, preliminary or permanent injunction, legislative enactment,
statute, regulation or any judgment or ruling by any court, arbitrator,
governmental agency or authority, that, directly or indirectly,
42
<PAGE> 43
challenges, prohibits, enjoins, restrains, suspends, delays, conditions or
renders illegal or imposes limitations on the Merger or any other material
transaction contemplated by this Agreement.
9.5 Government Consents. There will have been obtained at or prior to
the Closing Date such permits or authorizations, and there will have been taken
all such other actions, as may be required to consummate the Merger by any
governmental or regulatory authority having jurisdiction over the parties and
the actions herein proposed to be taken, including but not limited to (a) the
completion of all filings required to be made by HNC, CTI and FGC under the HSR
Act regarding the Merger and the other transactions contemplated hereby and the
expiration (or early termination) of all waiting periods with respect to such
transactions under the HSR Act and (b) the requirements under applicable federal
and state securities laws.
9.6 Opinion of CTI's Counsel. HNC will have received from Schottenstein,
Zox & Dunn, Co., L.P.A. counsel to CTI, a favorable opinion regarding the
matters set forth in the form of Exhibit F.
9.7 Consents Obtained. HNC will have received duly executed copies of
all material third-party consents, approvals, assignments, waivers,
authorizations or other certificates necessary for CTI to consummate the Merger
set forth in Schedule 3.5 to the CTI Disclosure Letter in form and substance
reasonably satisfactory to HNC.
9.8 Requisite Approvals; No Dissenters. This Agreement, the Merger and
the CTI Ancillary Agreements will have been duly and validly approved and
adopted, as required by applicable law and CTI's Articles of Incorporation and
Code of Regulations, by (a) CTI's Board of Directors and (b) the valid and
affirmative vote of not less than one hundred percent (100%) of the outstanding
shares of CTI Common Stock entitled to vote thereon. Immediately prior to the
Closing no holder of any outstanding shares of CTI's capital stock shall be
eligible to exercise any dissenting stockholders' appraisal rights under the
OGCL or any other law with respect to the Merger.
9.9 Escrow Agreement. HNC will have received a fully executed copy of
the Escrow Agreement in the form of Exhibit C executed by the Escrow Agent, the
Representative and FGC.
9.10 Non-Competition Agreement. HNC will have received a copy of a
Non-Competition Agreement in substantially the form of Exhibit H, duly executed
by CTI and FGC.
9.11 Resignation of Directors. The directors of CTI in office
immediately prior to the Effective Time of the Merger (other than any such
director who is designated in Section 2.6(e) to be a director of CTI immediately
after the Effective Time) will have resigned as directors of the Surviving
Corporation effective as of the Effective Time.
9.12 Investment Representation Letter. Each holder of outstanding shares
of CTI Common Stock shall have executed and delivered an Investment
Representation Letter to HNC.
9.13 Securities Compliance. HNC shall be reasonably satisfied that the
issuance of its shares of HNC Common Stock and other securities in the Merger
shall: (a) be exempt from the registration requirements of the Securities Act by
reason of the exemption(s) provided by Section 4(2) of the Securities Act and/or
Regulation D promulgated under the Securities Act and (b) be exempt from the
registration and/or qualification requirements of all applicable state "blue
sky" securities laws.
43
<PAGE> 44
9.14 Assignment of EDICT Agreement. FGC shall, pursuant to a written
agreement executed by CTI and FGC that is reasonably satisfactory to HNC and its
counsel, have validly assigned and transferred to CTI all right, title and
interest in and to all of the assets and properties and licenses (including but
not limited to Intellectual Property and licenses thereto) acquired by FGC
pursuant to that certain Asset Purchase Agreement dated as of February 26, 1996
between FGC and EDICT Systems, Inc. ("EDICT"), free and clear of all claims,
demands, liens and encumbrances whatsoever.
9.15 Confirmation of Ownership. FGC and FGSC shall have confirmed, in a
writing executed by them that is reasonably satisfactory to HNC and its counsel,
that each of FGC and FGSC have assigned and transferred to CTI all right, title
and interest in and to all products, software, technology, Intellectual Property
and other properties and assets that are used or marketed in CTI's business,
including but not limited to all right, title and interest in and to all of the
Intellectual Property, other assets and agreements that were used by FGSC in
conducting the Employee-Connect, Medical First Aid Network Services businesses
of FGSC as of July 6, 1994.
9.16 Termination of Employment Agreement. That certain Employment
Agreement dated as of December 21, 1995 between Shawn Maloney ("MALONEY") and
FGSC, as such may have been amended (the "MALONEY EMPLOYMENT AGREEMENT") and
that certain letter agreement dated February 24, 2000 between Maloney and FGC
relating to the Merger (the "MALONEY ADDENDUM") shall each have been validly
terminated by each of the parties thereto and CTI shall have been released of
any obligation or liability to Maloney or any of his heirs, successors or
assigns under the Maloney Employment Agreement and the Maloney Addendum.
9.17 Elimination of Certain Intercompany Accounts. All intercompany
debts and payables that are owed by CTI to FGC and/or to any subsidiary or
direct or indirect affiliate of FGC (other than ordinary trade payables owed by
CTI to such persons), and all intercompany debts and receivables that are
payable to CTI by FGC and/or by any direct or indirect subsidiary or direct or
indirect affiliate of FGC (other than ordinary trade payables owed to CTI by
such persons), shall have been eliminated and cancelled, and HNC shall have
received a written instrument to that effect executed by FGC and in form and
substance reasonably satisfactory to HNC and its counsel. For purposes of
clarification, the parties agree that satisfaction of the condition set forth in
this Section 9.17 shall not, without limitation, require the cancellation or
release of (a) any trade receivable payable to CTI by FGC, FGSC, CareWorks (as
defined below), and/or by any direct or indirect subsidiary of FGC or any direct
or indirect affiliate of FGC, or (b) any non-pecuniary performance obligation of
CTI (such as license, maintenance or support obligations) to CareWorks of Ohio
Ltd. ("CAREWORKS") under that certain Synapse Network Services Agreement dated
as of April 8, 1997 between CTI and CareWorks, and under that certain Synapse
Network Services Agreement between CTI and FGSC, as such agreements may be
amended pursuant to Section 9.19 below.
9.18 AT&T Agreement in Effect. That certain AT&T Easycommerce Services
Reseller Agreement dated as of September 5, 1996 between CTI and AT&T Corp.
("AT&T") and that certain AT&T Easycommerce Services Messaging and Software
License Agreement between CTI and AT&T shall each be in full force and effect
and CTI shall not be in breach, violation or default of either of such
agreements.
9.19 Amendment of CareWorks and FGC Agreement. That certain Synapse
Network Services Agreement between CTI and CareWorks dated as of April 8, 1997
shall have been amended to extend the term of such agreement for an additional
two (2) year term effective April
44
<PAGE> 45
1,2000 (with the potential for automatic renewal of such term) by a writing
executed and delivered by CareWorks and CTI that is in form and substance
reasonably acceptable to HNC and its counsel, and that certain Synapse Network
Services Agreement between CTI and FGSC shall have been amended to extend the
term of such agreement for an additional two (2) year term effective April 1,
2000 (with the potential for automatic renewal of such term) by a writing
executed by FGSC and CTI that is in form and substance reasonably acceptable to
HNC and its counsel.
ARTICLE 10
TERMINATION OF AGREEMENT
10.1 By Consent. This Agreement may be terminated at any time prior to
the Effective Time by the mutual written consent of HNC and CTI.
10.2 Governmental Order. Either HNC or CTI, by giving written notice to
the other, may terminate this Agreement if a court of competent jurisdiction or
other Governmental Authority shall have issued a non-appealable final order,
decree or ruling or taken any other action, in each case having the effect of
permanently restraining, enjoining or otherwise prohibiting the Merger.
10.3 At Termination Date. Either HNC or CTI, by giving written notice to
the other, may terminate this Agreement if the Merger shall not have been
consummated and the Effective Time has not occurred on or before the Termination
Date; provided, however, that notwithstanding the foregoing, a party may not
terminate this Agreement pursuant to this Section 10.3 if: (a) the failure of
such party to perform any of its obligations or covenants under this Agreement
in any material respect, or the material breach of a representation or warranty
made by such party in this Agreement (or its applicable Disclosure Letter),
results in the failure of any condition set forth in Article 8 or Article 9 that
has not been waived by the other party; and (b) the other party has performed
its obligations under this Agreement in all material respects and the
representations and warranties of such other party under Article 3 or Article 4
of this Agreement (as applicable) are true and correct in all material respects
as of the Termination Date.
10.4 Termination for Material Breach. HNC or CTI may terminate this
Agreement at any time prior to the Closing if the other party ("BREACHING
PARTY") has committed a material breach of any of the breaching party's
representations and warranties under Article 3 or Article 4 of this Agreement,
as applicable, or a material breach of any of the breaching party's covenants or
obligations under this Agreement, and the breaching party has not cured such
material breach or breaches within thirty (30) days after the party seeking to
terminate this Agreement has given the breaching party written notice of its
intention to terminate this Agreement pursuant to this Section 10.4; provided,
that if the material breach of any of a party's representations and warranties
or covenants or obligations cannot by its nature be substantially cured, then
this Agreement shall terminate immediately upon the giving by the party seeking
to terminate this Agreement to the breaching party of written notice of
termination of this Agreement pursuant to this Section 10.4, but only if such
notice states that this Agreement will be immediately terminated because the
breach cannot by its nature be cured. For purposes of this Section 10.4, HNC and
Sub shall be considered to be one party, and CTI and FGC shall be considered to
be one party; provided that neither Sub nor FGC may terminate this Agreement.
10.5 No Liability. No party who terminates this Agreement in accordance
with the provisions of this Article 10 shall incur any obligation or liability
to any other party on account of
45
<PAGE> 46
such termination. However, nothing herein will limit or modify the obligations
of CTI and HNC under Sections 5.11 and 6.3, respectively.
ARTICLE 11
SURVIVAL OF REPRESENTATIONS, INDEMNIFICATION
AND REMEDIES, CONTINUING COVENANTS
11.1 Survival of Representations. Subject to the provisions of Section
11.3, all representations, warranties and covenants of CTI and FGC contained in
Article 3 of this Agreement or in the CTI Disclosure Letter will remain
operative and in full force and effect, regardless of any investigation made by
or on behalf of HNC, until that date (the "ESCROW RELEASE DATE") which is the
first (1st) anniversary of the Effective Time.
11.2 Indemnification.
(a) Agreement to Indemnify; Indemnifiable Loss. Subject to the
terms and conditions of this Article 11, FGC and the other CTI Stockholders (if
any) shall jointly and severally indemnify and hold harmless HNC and the
Surviving Corporation and their respective officers, directors, agents and
employees, and each person, if any, who, controls or may hereafter control HNC
or the Surviving Corporation within the meaning of the Securities Act or the
Exchange Act (HNC, the Surviving Corporation and each such other person being
hereinafter referred to individually as an "INDEMNIFIED PERSON" and collectively
as "INDEMNIFIED PERSONS") from and against any and all Loss (as defined in
Article 1) incurred with respect to, and/or arising out of, any inaccuracy,
misrepresentation, breach or violation of, or default in, any of the
representations, warranties or covenants given or made by CTI in this Agreement,
in the CTI Disclosure Letter or in any certificate delivered by or on behalf of
CTI to HNC pursuant to this Agreement, if such inaccuracy, misrepresentation,
breach or default existed at the Closing Date (all such Loss being hereinafter
called "INDEMNIFIABLE LOSS"). Without limitation, any and all fees (including
without limitation reasonable attorneys' fees, accountants' fees and tax
preparers' fees) relating to the investigation, defense, remedy, settlement or
satisfaction of any Indemnifiable Loss shall be deemed to be Indemnifiable Loss.
(b) Timing. Except with respect to a claim for Special Loss (as
defined in Section 11.3), any claim for indemnification for Indemnifiable Loss
made by or on behalf of any Indemnified Person under this Section 11.2 against
any CTI Stockholder (an "INDEMNITY CLAIM") must be raised in a writing delivered
to the Escrow Agent by no later than the Escrow Release Date, but any such
Indemnity Claim, if so raised prior to the Escrow Release Date, may continue to
be prosecuted and resolved after the Escrow Release Date in accordance with the
provisions of this Article 11 and the provisions of the Escrow Agreement, as
applicable.
(c) Limitations. Except as otherwise provided in Section 11.3 or
as otherwise provided in this Article 11 with respect to Special Loss and claims
by HNC or other persons to recover Special Loss (which shall not be subject to
any of the following limitations set forth in this Section 11.2(c)):
(i) in seeking indemnification for Indemnifiable Loss
that is not Special Loss under Section 11.2, the Indemnified Persons will
exercise their remedies solely with respect to the Escrow Shares and any other
assets deposited in escrow pursuant to the Escrow Agreement (collectively, the
"ESCROW PROPERTY") and neither FGC nor any CTI Stockholder will have any
liability to an Indemnified Person under Section 11.2 of this Agreement for
46
<PAGE> 47
Indemnifiable Loss that is not Special Loss except to the extent of such CTI
Stockholder's interest in the Escrow Property; and
(ii) the remedies set forth in this Section 11.2 and the
Escrow Agreement will be the exclusive remedies of HNC and the other Indemnified
Persons under Section 11.2 of this Agreement against FGC or any CTI Stockholder
for their indemnification obligations under Section 11.2 with respect to
Indemnifiable Loss that is not Special Loss.
(iii) the indemnification obligations of FGC and the CTI
Stockholders under this Section 11.2 for Indemnifiable Loss that is not Special
Loss shall not apply unless and until the aggregate amount of Indemnifiable Loss
for which one or more Indemnified Persons seeks or has sought indemnification
under Section 11.2 exceeds a cumulative aggregate of One Hundred Thousand
Dollars ($100,000) (the "BASKET"), in which event the CTI Stockholders shall,
subject to the foregoing limitations, be liable to indemnify the Indemnified
Persons for all Indemnifiable Loss.
(d) Special Loss Claims Against Escrow Property. Claims for
Special Loss that is also Indemnifiable Loss that are raised by HNC or any other
Indemnified Person prior to the Escrow Release Date may, at HNC's or an
Indemnified Person's sole option and discretion, be prosecuted (i) under the
arbitration and other provisions of the Escrow Agreement so that HNC can recover
such Special Loss from the Escrow Property (except that HNC's remedy will not be
restricted to the recovery of Escrow Property) and/or (ii) before any court of
competent jurisdiction having jurisdiction of the parties against whom HNC or an
Indemnified Person seeks recovery for such Special Loss; provided, however, that
(x) HNC shall have no obligation to prosecute claims for Special Loss (A)
pursuant to the Escrow Agreement or (B) prior to the Escrow Release Date, and,
in addition to prosecuting any such claim for Special Loss that is Indemnifiable
Loss under the arbitration and other provisions of the Escrow Agreement as
provided in clause (i) above, at its option, HNC and/or an Indemnified Person
may prosecute such claim to recover Special Loss in or before any court of
competent jurisdiction having jurisdiction of the parties against whom HNC or an
Indemnified Person seeks recovery of such Special Loss at any time prior to
expiration of the applicable statute of limitations. Nothing herein will require
HNC or any other Indemnified Person to first exercise any rights or remedies
with respect to the Escrow Property with respect to any claim for Special Loss.
11.3 Claims for Special Loss.
(a) Special Loss. As used herein, "SPECIAL LOSS" means
Misconduct Loss, Tax Loss, Compensation Loss, Title Loss and/or D&O Indemnity
Loss, collectively and individually, and "SPECIAL LOSS CLAIM" means a Misconduct
Loss Claim, a Tax Loss Claim, a Compensation Loss Claim, a Title Loss Claim
and/or a D&O Indemnity Claim, collectively and individually.
(b) Misconduct Loss. As used herein, "MISCONDUCT LOSS" means,
collectively, any Loss suffered or incurred by HNC and/or any other Indemnified
Person that arises or results from (i) the fraudulent conduct of FGC or any
other CTI Stockholder, or (ii) from conduct of FGC or any other CTI Stockholder
that constitutes a willful and intentional effort to cause CTI to commit a
material breach of any of its covenants, obligations, representations or
warranties under this Agreement. As used herein, "MISCONDUCT LOSS CLAIM" means
any claim, suit, arbitration, action or other proceeding brought by HNC and/or
any other Indemnified Person to recover Misconduct Loss from any CTI Stockholder
whose conduct described in clause (i) and/or clause (ii) of this Section
11.3(b), gave rise to or resulted in such Misconduct Loss.
47
<PAGE> 48
(c) Tax Loss. As used herein "TAX LOSS" means any Loss suffered
or incurred by HNC and/or any Indemnified Person arising or resulting from: (i)
any breach or violation of the representations and warranties of CTI set forth
in Section 3.7 of this Agreement; and/or (ii) any liability of CTI for taxes of
any person or entity other than CTI (A) under Treasury Regulation Section
1.1502-6 (or any similar provision of state, local or foreign law), (B) as a
transferee or successor, (C) by contract or agreement, or (D) otherwise. As used
herein, "TAX LOSS CLAIM" means any claim, suit, arbitration, action or other
proceeding brought by HNC and/or any other Indemnified Person to recover Tax
Loss from FGC, any FGC Affiliate (other than CTI) and/or any other CTI
Stockholder (if any).
(d) Compensation Loss. As used herein "COMPENSATION LOSS" means
any Loss suffered or incurred by HNC and/or any Indemnified Person arising or
resulting from any claim, demand, suit, action or proceeding by any employee,
officer, director, consultant, independent contractor or other service provider
of CTI, FGC or any subsidiary or affiliate of FGC: (i) for any payment of cash,
property (including but not limited to stock, options, securities or derivatives
thereof) or any compensation in connection with, payable upon the consummation
of, or payable by reason of, the Merger, this Agreement or any transaction
contemplated by this Agreement or any agreement that is an exhibit to this
Agreement; or (ii) arising in any manner under the Maloney Agreement or the
Maloney Addendum or any modification, termination, release or rescission
thereof. As used herein, "COMPENSATION LOSS CLAIM" means any claim, suit,
arbitration, action or other proceeding brought by HNC, CTI and/or any other
Indemnified Person to recover Compensation Loss from FGC, any FGC Affiliate
(other than CTI) and/or any other CTI Stockholder (if any).
(e) Title Loss. As used herein "TITLE LOSS" means any Loss
suffered or incurred by HNC and/or any Indemnified Person arising or resulting
from (i) any failure by FGC or any other CTI Stockholder to hold good, valid and
marketable title to the number of shares of CTI Common Stock that such CTI
Stockholder is represented to own under this Agreement and/or the CTI Disclosure
Letter or any schedule thereto, free and clear of all claims, liens, pledges and
encumbrances and/or (ii) the existence (or claim asserting the existence) of any
option, warrant or other right to purchase or otherwise acquire any CTI Common
Stock or other securities of CTI, from CTI or from any CTI Stockholder. As used
herein, "TITLE LOSS CLAIM" means any claim, suit, arbitration, action or other
proceeding brought by HNC and/or any other Indemnified Person against a CTI
Stockholder to recover Title Loss from such CTI Stockholder based on the failure
of such CTI Stockholder, to hold good, valid and marketable title to the full
number of shares of CTI Common Stock that such CTI Stockholder is represented to
own under this Agreement and/or the CTI Disclosure Letter or any schedule
thereto, free and clear of all claims, liens, pledges and encumbrances.
(f) D&O Indemnity Loss. As used herein, "D&O INDEMNITY LOSS"
means any Loss suffered or incurred by HNC and/or any Indemnified Person arising
or resulting from any claim, demand, suit, action, arbitration or other
proceeding brought by any person who served as a director or officer of CTI
prior to the Effective Time for indemnification or advancement or reimbursement
of expenses or similar compensation pursuant to any provisions of CTI's Articles
of Incorporation or Code of Regulations, each as amended, or under an agreement
or applicable law to the extent such claim arises from any facts or events
occurring prior to the Effective Time. As used herein, "D&O INDEMNITY CLAIM"
means any claim, suit, action, arbitration or other proceeding brought by HNC
and/or any other Indemnified Person against a CTI Stockholder to recover D&O
Indemnity Loss.
48
<PAGE> 49
(g) Special Treatment of Special Loss Claims. Notwithstanding
anything in the foregoing provisions of this Article 11 to the contrary, none of
the limitations on the indemnification obligations and liabilities of the CTI
Stockholders set forth in the foregoing provisions of this Article 11 (including
but not limited to those limitations set forth in Section 11.2) shall be
applicable to, or otherwise in any manner limit, the right or ability of HNC
and/or any other Indemnified Person to recover, or seek recovery for, any
Special Loss with respect to any Special Loss Claim. Accordingly, without
limitation: (i) there shall be no limitation on the liability of a CTI
Stockholder for the amount of Special Loss arising from the fraudulent conduct
of such CTI Stockholder and/or from conduct of such CTI Stockholder described in
clause (ii) of Section 11.3(b); (ii) there shall be no limitation on the
liability of any CTI Stockholder for any Tax Loss arising from any Tax Loss
Claim; (iii) there shall be no limitation on the liability of a CTI Stockholder
for any Title Loss arising from a Title Loss Claim; (iv) there shall be no
limitation on the liability of any CTI Stockholder for any D&O Indemnity Loss
arising from any D&O Indemnity Loss Claim; (v) Special Loss Claims need not be
made, brought or raised prior to the Escrow Release Date and any Special Loss
Claim may be made, brought or raised by HNC and/or any other Indemnified Person
at any time prior to expiration of the statute of limitations applicable to such
Special Loss Claim under applicable law; and (vi) the Basket limitation
described in Section 11.2(c) shall not apply to any Special Loss Claim. In
addition, claims for Special Loss not required to be prosecuted under the Escrow
Agreement under the terms of Section 11.2, or Special Loss Claims that are first
made, brought or raised after the Escrow Release Date, need not be prosecuted
pursuant to the Escrow Agreement and may be prosecuted by HNC, at its election,
(A) pursuant to the arbitration process described in Section 3 of the Escrow
Agreement (except that HNC's remedy will not be restricted to the recovery of
Escrow Shares) and/or (B) before any court having jurisdiction of the parties.
(h) Third-Party Claims. As used in this Section 11.3, a
"THIRD-PARTY Claim" means a claim, demand, suit, arbitration, investigation,
inquiry or proceeding brought by a third party against HNC or any Indemnified
Person that, if successful, would result in HNC and/or an Indemnified Person
suffering or incurring Special Loss of any kind.
(i) After an executive officer of HNC becomes aware of
the bringing of a Third-Party Claim against HNC or any Indemnified Person, HNC
will, within a reasonable time thereafter, give FGC notice of such Third-Party
Claim; provided that any failure by HNC to give FGC notice of a Third-Party
Claim shall not release FGC of any liability or obligations it has to HNC with
respect to such Third-Party Claim under this Article 11 unless (A) HNC's failure
to notify FGC of such Third-Party Claim materially prejudices the ability to
defend such Third-Party Claim, (B) FGC is entitled to defend such Third-Party
Claim under the provisions of this Section 11.3(h) and (C) HNC does not take
reasonable efforts to defend such Third-Party Claim, but in no event will FGC be
released of any liability that FGC may have to HNC and/or any Indemnified Person
otherwise than under Section 11.2 hereof.
(ii) Subject to the provisions of Section 11.3(h)(iii)
below, HNC shall defend any Third-Party Claim, and the costs and expenses
incurred by HNC in connection with such defense (including but not limited to
reasonable attorneys' fees, other professionals' and experts' fees and court or
arbitration costs) shall be deemed to be Special Loss included in the Special
Loss for which HNC is entitled to indemnification pursuant to such Third-Party
Claim.
(iii) Notwithstanding the provisions of Section
11.3(h)(ii) above, subject to the terms and conditions of this Section 11.3(h),
FGC will have the right, at its sole option, and at its sole cost and expense,
to assume and control the defense of HNC and all other Indemnified Persons
against a Third-Party Claim with reputable legal counsel of FGC's choice
49
<PAGE> 50
that is reasonably satisfactory to HNC and all the other affected Indemnified
Person(s) ("ACCEPTABLE COUNSEL") so long as: (A) FGC notifies HNC and each
affected Indemnified Person in writing within ten (10) days after HNC or the
Indemnified Person has given notice of the Third-Party Claim for which FGC
intends to undertake such defense; (B) FGC provides HNC and each Indemnified
Person with reasonably acceptable evidence that FGC has, and will have, the
financial resources necessary to provide Acceptable Counsel to defend HNC and
the Indemnified Persons against the Third-Party Claim and fulfill the CTI
Stockholders' defense and indemnification obligations; (C) the Third-Party Claim
involves only money damages and does not seek an injunction or other equitable
relief (unless HNC and all affected Indemnified Persons agree in writing that
FGC may nevertheless control the defense of such action for an injunction or
other equitable relief); (D) settlement of, or an adverse judgment with respect
to, the Third-Party Claim is not, in the good faith judgment of HNC, likely to
establish a precedent, custom or practice adverse to the continuing business
interests of HNC; (E) FGC conducts the defense of the Third-Party Claim actively
and diligently; and (F) the Acceptable Counsel chosen by FGC does not have any
conflict of interest in representing the interests of HNC or any of the affected
Indemnified Person(s).
(iv) So long as FGC is conducting the defense of the
Third-Party Claim in accordance with Section 11.3(h)(iii) above: (A) HNC and
each Indemnified Person may retain separate co-counsel and participate in the
defense of the Third-Party Claim at its own cost and expense and shall have the
right to receive copies of all pleadings, notices and communications with
respect to the Third-Party Claim to the extent no privilege of FGC is thereby
waived; (B) HNC and each Indemnified Person may participate in all settlement
negotiations with respect to the Third-Party Claim; and (C) FGC will not consent
to the entry of any judgment or enter into any settlement with respect to the
Third-Party Claim unless (1) HNC and each of the affected Indemnified Persons
consent thereto in writing (which consent will not unreasonably be withheld) or
(2) the settlement, compromise or consent includes an unconditional release from
all liability with respect to the Third-Party Claim in favor of HNC and each
Indemnified Person.
(v) If FGC does not elect to assume control of or
otherwise participate in the defense or settlement of any Third-Party Claim, or
if FGC does so elect but any of the conditions to FGC's being entitled to defend
such Third-Party Claim set forth in Section 11.3(h)(iii) above are not satisfied
or later cease to be unsatisfied, or if FGC ceases at any time to actively and
diligently defend the Third-Party Claim, then: (A) HNC and the affected
Indemnified Person(s) may assume control of the defense of and consent to the
entry of any judgment or enter into any settlement with respect to the
Third-Party Claim; provided, however, that (1) FGC shall have the right to
receive copies of all pleadings, notices and communications with respect to the
Third-Party Claim so long as the receipt of such documents by FGC does not
adversely affect any privilege relating to HNC or any Indemnified Person, and
(2) FGC may participate in settlement negotiations with respect to the
Third-Party Claim; (B) HNC and the Indemnified Person(s) shall not enter into
any settlement of such Third-Party Claim without the prior written consent of
FGC (which consent shall not be unreasonably withheld); and (C) FGC will remain
responsible to indemnify HNC and all Indemnified Person(s) for all Loss they may
incur arising out of, resulting from or caused by the Third-Party Claim to the
fullest extent provided in Sections 11.2 and 11.3.
50
<PAGE> 51
ARTICLE 12
MISCELLANEOUS
12.1 Governing Law. The internal laws of the State of California
(irrespective of its choice of law principles) will govern the validity of this
Agreement, the construction of its terms, and the interpretation and enforcement
of the rights and duties of the parties hereto.
12.2 Assignment; Binding Upon Successors and Assigns. No party hereto
may assign any of its rights or obligations hereunder without the prior written
consent of each other party hereto. This Agreement will be binding upon and
inure to the benefit of the parties hereto and their respective successors and
permitted assigns.
12.3 Severability. If any provision of this Agreement, or the
application thereof, will for any reason and to any extent be invalid or
unenforceable, then the remainder of this Agreement and the application of such
provision to other persons or circumstances will be interpreted so as reasonably
to give effect to the intent of the parties hereto. The parties further agree to
replace such void or unenforceable provision of this Agreement with a valid and
enforceable provision that will achieve, to the maximum extent legally
permissible, the economic, business and other purposes of the void or
unenforceable provision.
12.4 Counterparts. This Agreement may be executed in any number of
counterparts, each of which will be an original as regards any party whose
signature appears thereon and all of which together will constitute one and the
same instrument. This Agreement will become binding when one or more
counterparts hereof, individually or taken together, bear the signatures of all
the parties reflected hereon as signatories and have been delivered by each
party to each other party (whether in facsimile or original form).
12.5 Other Remedies. Except as otherwise provided herein, any and all
remedies herein expressly conferred upon a party will be deemed cumulative with,
and not exclusive of, any other remedy conferred hereby or by law on such party,
and the exercise of any one right or remedy will not preclude the exercise of
any other right or remedy.
12.6 Amendment and Waivers. This Agreement may be amended by the parties
hereto at any time but only by a writing signed solely by HNC and CTI. Any such
amendment may be made at any time before or after approval of this Agreement by
the stockholders of CTI, but, after such approval, no amendment will be made
which by applicable law requires the further approval of the stockholders of CTI
without obtaining such further approval. The observance of any term or provision
of this Agreement may be waived (either generally or in a particular instance
and either retroactively or prospectively) only by a writing signed by the party
to be bound by such waiver. The waiver by a party of any breach hereof or
default in the performance hereof will not be deemed to constitute a waiver of
any other default or any succeeding breach or default. At any time prior to the
Effective Time, each of CTI and HNC, by action taken by its Board of Directors,
may, to the extent legally allowed, (a) extend the time for the performance of
any of the obligations or other acts of the other; (b) waive any inaccuracies in
the representations and warranties made to it contained herein or in any
document delivered pursuant hereto; and (c) waive compliance with any of the
agreements or conditions for its benefit contained herein. No such waiver or
extension will be effective unless signed in writing by the party against whom
such waiver or extension is asserted. The failure of any party to enforce any of
the provisions
51
<PAGE> 52
hereof will not be construed to be a waiver of the right of such party
thereafter to enforce such provisions.
12.7 Expenses. HNC and Sub will bear their own expenses and legal fees
incurred with respect to this Agreement, and the transactions contemplated
hereby. All legal fees and other expenses, including without limitation
accounting fees, brokers' fees, investment banking or financial advisors' fees
incurred by CTI or any CTI Stockholder prior to the Effective Time with respect
to this Agreement and the transactions contemplated hereby shall be paid solely
by the CTI Stockholders.
12.8 Attorneys' Fees. Should suit be brought to enforce or interpret any
part of this Agreement, including the provisions of Article 11, the prevailing
party will be entitled to recover, as an element of the costs of suit and not as
damages, reasonable attorneys' fees and arbitration or court costs to be fixed
by the arbitrator, arbitral panel or court, as applicable (including without
limitation, costs, expenses and fees on any appeal). The prevailing party will
be entitled to recover its costs of suit, regardless of whether such suit
proceeds to final judgment. Notwithstanding anything to the contrary in the
preceding provisions of this Section, the preceding sentence of this Section
12.8 shall not apply to arbitrations of claims for indemnification under Article
11 of this Agreement that are arbitrated pursuant to the terms of Article 11 of
this Agreement and the Escrow Agreement, and the award of attorneys' fees and
costs of arbitration to the prevailing party in any such arbitration shall
instead be determined in accordance with the provisions of the Escrow Agreement.
12.9 Notices. All notices and other communications required or permitted
under this Agreement will be in writing and will be either hand delivered in
person, sent by telecopier, sent by certified or registered first class mail,
postage pre-paid, or sent by a nationally recognized express courier service.
Such notices and other communications will be effective upon receipt if hand
delivered or sent by telecopier, (b) five (5) days after mailing if sent by
mail, and (c) one (l) day after dispatch if sent by express courier, to the
following addresses, or such other addresses as any party may notify the other
parties in accordance with the notice provisions of this Section:
If to HNC or Sub: If to CTI or FGC:
HNC Software Inc. The Frank Gates Companies, Inc.
5935 Cornerstone Court West 5000 Bradenton Avenue
San Diego, CA 92121 Dublin, Ohio 43017
Attention: President Attention: Chief Executive Officer
Fax Number: (858) 452-3220 Fax Number: (614) 791-7650
with a copy to: with a copy to:
Fenwick & West, LLP Schottenstein, Zox & Dunn Co., L.P.A.
Two Palo Alto Square, Suite 800 41 South High Street, Suite 2600
Palo Alto, CA 94306 Columbus, Ohio 43215
Attention: Kenneth A. Linhares, Esq. Attention: Bill Zox, Esq.
Fax Number: (650) 494-1417 Fax Number: (614) 462-5135
or to such other address as a party may have furnished to the other parties in
writing pursuant to this Section 12.9.
52
<PAGE> 53
12.10 Construction of Agreement. This Agreement has been negotiated by
the respective parties hereto and their attorneys and the language hereof will
not be construed for or against either party. A reference to a Section or an
exhibit will mean a Section in, or exhibit to, this Agreement unless otherwise
explicitly set forth. The titles and headings herein are for reference purposes
only and will not in any manner limit the construction of this Agreement which
will be considered as a whole.
12.11 Further Assurances. Each party agrees to cooperate fully with the
other parties and to execute such further instruments, documents and agreements
and to give such further written assurances as may be reasonably requested by
any other party to evidence and reflect the transactions described herein and
contemplated hereby and to carry into effect the intents and purposes of this
Agreement.
12.12 Absence of Third Party Beneficiary Rights. No provisions of this
Agreement are intended, nor will be interpreted, to provide or create any third
party beneficiary rights or any other rights of any kind in any client,
customer, affiliate, stockholder, or partner of any party hereto or any other
person or entity unless specifically provided otherwise herein, and, except as
so provided, all provisions hereof will be personal solely between the parties
to this Agreement.
12.13 Public Announcement. Upon execution of this Agreement, HNC and CTI
will issue a press release approved by both parties announcing the Merger.
Thereafter, HNC may issue such press releases, and make such other disclosures
regarding the Merger, as it determines are required under applicable securities
laws or regulatory rules; provided, that HNC will afford CTI an opportunity to
review and comment on such press releases prior to their publication. Prior to
the publication of such press release (unless this Agreement has been
terminated), neither party will make any public announcement relating to this
Agreement or the transactions contemplated hereby and CTI will use its
reasonable efforts to prevent any trading in HNC Common Stock by its officers,
directors, employees, stockholders and agents.
12.14 Confidentiality. CTI and HNC recognize that they have received
confidential information concerning the others during the course of the Merger
negotiations and preparations. Accordingly, each of the parties hereto (a)
represents that it has not permitted the unauthorized disclosure of any
confidential information concerning the other parties hereto that was disclosed
during the course of such negotiations and preparations and (b) agrees to not
make use of or permit to be used any confidential information of the other party
other than for the purpose of effectuating the Merger and related transactions.
The obligations of CTI and HNC under this Section will terminate upon the
Effective Time. Otherwise, the obligations under this Section will not apply to,
and the term "confidential information" shall not include, information that (i)
is or becomes part of the public domain, (ii) is disclosed by the disclosing
party to third parties without restrictions on disclosure, (iii) is received by
the receiving party from a third party without breach of a nondisclosure
obligation to the other party, or (iv) is required to be disclosed by subpoena
or by law. If this Agreement is terminated, all copies of documents containing
confidential information shall be returned by the receiving party to the
disclosing party.
12.15 CTI Disclosure Letter. The CTI Disclosure Letter shall be arranged
in separate parts corresponding to the numbered and lettered sections contained
in Article 3, and the information disclosed in any numbered or lettered part
shall be deemed to relate to and to qualify only the particular representation
or warranty set forth in the corresponding numbered or lettered Section in
Article 3, and shall not be deemed to relate to or to qualify any other
representation or
53
<PAGE> 54
warranty (unless it is reasonably apparent from the information set forth in CTI
Disclosure Letter, that such information qualifies another representation or
warranty of CTI and FGC in Article 3).
12.16 Entire Agreement. This Agreement and the exhibits hereto
constitute the entire understanding and agreement of the parties hereto with
respect to the subject matter hereof and supersede all prior and contemporaneous
agreements or understandings, inducements or conditions, express or implied,
written or oral, between the parties with respect hereto other than the
Confidentiality Agreement. The express terms hereof control and supersede any
course of performance or usage of the trade inconsistent with any of the terms
hereof.
[THE REMAINDER OF THIS PAGE HAS INTENTIONALLY BEEN LEFT BLANK]
54
<PAGE> 55
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
effective as of the date first above written.
HNC SOFTWARE INC. CELERITY TECHNOLOGIES, INC.
By:
---------------------------------
By:
---------------------------------
Title:
------------------------------
Title:
------------------------------
CTI MERGER CORP. Solely for Purposes of Sections 3,
5, 7.2, 11 and 12 hereof
By: THE FRANK GATES COMPANIES, INC.
---------------------------------
Title: By:
------------------------------ ---------------------------------
Title:
------------------------------
[SIGNATURE PAGE TO AGREEMENT AND PLAN OF REORGANIZATION]
[SIGNATURE PAGE TO AGREEMENT AND PLAN OF REORGANIZATION]
55
<PAGE> 56
EXHIBIT INDEX
TO
AGREEMENT AND PLAN OF REORGANIZATION
Exhibit A: Delaware Certificate of Merger
Exhibit B: Ohio Certificate of Merger
Exhibit C: Escrow Agreement
Exhibit D: Investment Representation Letter
Exhibit E: Matters to be Opined on by Fenwick & West LLP
Exhibit F: Matters to be Opined on by Schottenstein, Zox & Dunn Co., L.P.A.
Exhibit H: Non-Competition Agreement
56