SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(MARK ONE)
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
For the fiscal year ended June 30, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from _____________ to _____________
Commission Number 0-14112
JACK HENRY & ASSOCIATES, INC.
(Exact name of registrant as specified in its charter)
Delaware 43-1128385
(State or other jurisdiction of (I.R.S.Employer
incorporation or organization) Identification No.)
663 Highway 60, P. O. Box 807, Monett, MO 65708
(Address of principal executive offices)
Registrant's telephone number
including area code: (417) 235-6652
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock ($.01 par value)
(Title of Class)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the Registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes x No
As of August 14, 1998, Registrant had 18,955,217 shares of Common Stock
outstanding ($.01 par value). On that date, the aggregate market value of the
Common Stock held by persons other than those who may be deemed affiliates of
Registrant was $554,904,000 (based on the average of the reported high and low
sales prices on NASDAQ on such date).
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
DOCUMENTS INCORPORATED BY REFERENCE
The below indicated portions of the Jack Henry & Associates, Inc. definitive
Proxy Statement for the 1998 Annual Meeting of Stockholders (the "Proxy
Statement") are incorporated by reference into Part III of this Report.
CROSS REFERENCE SHEET
Part of
Form 10-K Proxy Statement
Part III, Item 10 "Election of Directors" and
"Executive Officers and
Significant Employees"
Part III, Item 11 "Executive Compensation";
"Compensation Committee
Report"; and "Company
Performance"
Part III, Item 12 "Stock Ownership of Certain
Stockholders" and
"Election of Directors"
PART I
ITEM 1. BUSINESS
INTEGRATED BANKING SOFTWARE SYSTEMS
OVERVIEW -- Jack Henry & Associates, Inc. ("JHA" or the "Company") provides
integrated computer systems for in-house and service bureau data processing to
banks and other financial institutions. JHA has developed several banking
applications software systems which it markets, along with the computer
hardware, to financial institutions throughout the United States. JHA also
performs data conversion, software installation and software customization for
the implementation of its systems, and provides continuing customer mainte-
nance/support services after the systems are installed.
Over the last five years, the Company s revenues have grown from $32.6 million
to $113.4 million; and earnings have grown from $6.3 million to $21.6 million.
The Company s growth has resulted primarily from acquisitions and internal
expansion. This growth has allowed the Company to develop new products and
expand its core systems customer base from 837 to 1,150. The number of Company
employees has increased from 154 to 605 since 1993.
MARKETS AND COMPETITION -- JHA's primary market consists of the approximately
9,200 commercial banks in the United States with less than $10 billion in total
assets. Community banks account for approximately 9,100 of that number. The
population of community banks decreased by 3% in 1997. In 1997, statistics
reported in "Automation in Banking 1998" showed that financial institutions
spent approximately $31 billion on hardware, software, services and telecommuni-
cations. In-house vendors have 58% of the commercial banks as customers.
Centralized off-site service bureaus provide data processing for 37% of the
banks, down from two-thirds in the mid 80's. Many organizations provide data
processing to banks through a service bureau approach. Some service bureaus are
affiliated with large financial institutions which may have other relationships
with potential bank customers, but this is less prevalent than in the past.
Typically, a bank which is making a data processing decision will consider both
service bureau and in-house alternatives.
Of the small-to-mid-size banks with in-house installations, 43% utilize IBM
hardware, 26% NCR and 20% Unisys Corporation, respectively. All other vendors
were under 5% shares of the in-house community bank market. In 1997, eight of
the top ten software providers in this market, ranked by number of installed
customers, offered their products on IBM hardware. According to that survey,
JHA had the most installed customers (approximately 1150 at 12-31-97) of the IBM
providers. Only one other software provider had a larger customer base than
JHA. Although the top ten software providers accounted for about 89% of in-
house systems installed, the study identified 20 other software vendors in this
arena. That number has been declining in recent years.
JHA believes that the primary competitive factors in software selection are
comprehensiveness of applications, features and functions, flexibility and ease
of use, customer support, references of existing customers, and hardware
preferences and pricing. The price of the software and the related services is
also a significant competitive factor which may be determinative, particularly
for smaller banks. Management believes that JHA's results and the size of its
customer base indicate that JHA generally compares favorably in the competitive
factors. However, the in-house banking software industry includes several
competitors, based upon the size of their respective customer bases. Over half
of the most successful competitors utilize IBM hardware.
PRODUCTS AND SERVICES -- JHA's business and operations include three major
categories which are software and installation, maintenance/support and
hardware. Software includes the development and licensing of applications
software systems and the conversion, installation and customization services
required for the customer's installation of the systems. Maintenance/support
consists of the ongoing services to assist the customer in operating the systems
and to modify and update the software to meet changes in banking. Hardware
sales (often referred to as remarketing) include both the computer equipment and
the equipment maintenance on which the JHA software systems operate. Also,
included in hardware is the resale of forms and supplies. The following table
illustrates the significance of each of these three areas, expressed as a
percentage of total revenues:
Year Ended June 30,
1998 1997 1996
Software licensing and installation 29% 28% 27%
Maintenance/support and services 31% 33% 33%
Hardware sales 40% 39% 40%
Total Revenues 100% 100% 100%
JHA's primary banking software systems are CIF 20/20(TM) and the Silverlake
System(R). CIF 20/20 is the latest version of a series of systems that has
evolved from JHA's original system which was first installed in 1977. It is
written using the RPG/400 language to take advantage of the relational data base
features and functions of the IBM AS/400(TM ) computer. CIF/36, CIF/34 and
CIF/32 are all predecessors of this software system, which ran on IBM System 36,
34 and 32 hardware. CIF 20/20 operates on IBM AS/400 and IBM System 36 hardware
and is designed primarily for financial institutions with total assets ranging
up to $300 million. The Silverlake System was developed (rather than having
been migrated from equipment with other architecture) by JHA in 1986 and 1987 to
take advantage of the relational data base characteristics of IBM System 38 and
AS/400 hardware. It is designed generally for somewhat larger banks than CIF
20/20 and multi-bank groups ranging up to $10 billion in total assets. The
computer equipment now being offered extends this system into the low end of the
large bank arena, previously limited to "mainframe" computer systems. JHA is
one of the few vendors that offers its customers truly native software products
for use on the AS/400.
Each of the systems consists of several fully integrated applications software
modules, such as Deposits, Loans, General Ledger, and the Customer Information
File (which is a centralized file containing customer data for all
applications). The systems make extensive use of parameters established by the
customer. The systems can be interfaced with (connected to) a variety of
peripheral devices used in bank operations including teller machines, on-line
teller terminals and magnetic character readers. JHA software is designed to
provide maximum flexibility in meeting a bank's data processing requirements
within a single system, minimizing data entry.
JHA devotes significant effort and expense to develop and continually upgrade
and enhance its software. Upgrades and enhancement efforts are directed
primarily through prioritized lists prepared by its national users organization
and in response to changes in the banking environment. Bank regulation, by
federal and state banking agencies, has a significant impact on JHA's software
since JHA must maintain its systems in compliance with those regulations. JHA's
research and development expenditures were $3,107,000, $2,019,000 and $2,047,000
in FY '98, '97 and '96, respectively. Portions of the expenditures are required
to be capitalized when incurred and then amortized in subsequent periods.
Including the effect of this amortization, the amount of research and
development costs charged to expense in those years is $3,132,000, $2,045,000
and $1,775,000, respectively.
The Company licenses CIF 20/20 and the Silverlake System under standard license
agreements which provide the customer with a fully-paid, nonexclusive,
nontransferable right to use the software for a term of 25 years on a single
computer and for a single financial institution location upon payment of the
license fee. Generally, license fees are payable 25% upon execution of a
license agreement, 65% upon delivery of the software, and the balance at the
installation of the last application module. The Company provides a limited
warranty for its unmodified software for a period of 60 days from delivery.
Under the warranty, the Company will correct any program errors at no additional
charge to the customer.
JHA claims a proprietary interest in its software programs, documentation,
methodology and know-how. It also utilizes copyright protection, trademark
registration, trade secret laws and contract restrictions to protect its
interest in these products.
JHA provides data conversion and software installation services to assist its
customers in implementing their JHA software system. JHA provides these
services on an hourly or a fixed-fee basis, depending on the customers'
preference. After a customer installation is complete, the customer is
encouraged (but not required) to contract with JHA for software mainte-
nance/support. These services, which are provided for an annual fee, include
updates of the software to meet regulatory requirements and telephone support to
assist the customer in operating the system. JHA also offers maintenance
services for hardware, providing customers who have contracted for this service
with "one-call" system support covering hardware, system software and
applications software. The hardware maintenance contract is between JHA and its
customer. The actual hardware maintenance is performed by the hardware
manufacturer under a contract between the manufacturer and JHA.
Silverlake System(R) is a registered trademark of Jack Henry & Associates, Inc.
CIF 20/20(TM) is a trademark of Jack Henry & Associates, Inc. AS/400(TM) is a
trademark of International Business Machines Corporation.
Hardware manufacturers enter into marketing and other arrangements with software
companies, such as JHA, because each depends upon the products of the other.
These arrangements generally include financial incentives paid by the
manufacturer to the software company. They may be structured as hardware
commissions based upon hardware sold by the manufacturer in conjunction with the
company's software or as a remarketer arrangement. A remarketer arrangement
allows the software company to purchase hardware from the manufacturer at a
discount and sell (remarket) it to customers along with the company's software.
Remarketer arrangements usually require the software company to assume more of
the marketing and customer contact responsibilities. The margin earned by a
remarketer on hardware it sells is generally greater than the amounts received
on commission arrangements. Only a minor portion of JHA s revenues are realized
from commission arrangements. Remarketer arrangements are generally not
exclusive. All of the major hardware manufacturers, except one, have more than
one software company as remarketers of their hardware in the banking industry.
Effective January 1, 1997, JHA renewed its industry remarketer (IR) agreement
with IBM that has a two year term. The Company continues to operate under the
IBM Business Partner marketing program.
The IR agreement allows JHA to sell IBM's newest mid-range computer system, the
AS/400, along with its banking software system. It also allows JHA to provide
upgraded and additional equipment to its existing IBM customers. IBM hardware
maintenance will also continue to be offered to customers, providing "one-call"
customer support service for hardware, system software and applications software
support.
JHA offers outsourcing solutions to customers through service bureaus, which
give the customers the same capabilities as the in-house offering, which perform
data and item processing. Customers pay monthly usage fees on the multi-year
service contracts for these services.
JHA offers automatic teller machine (ATM) software and provides regional and
national switching services for various electronic fund transactions. Customers
pay license and maintenance fees for the software and monthly usage and item
processing fees for the switching services.
JHA also offers emergency facilities backup to its CIF 20/20 and Silverlake
System customers using its Bank Business Recovery Services ("BBRS"). The
Company has established six locations, strategically located geographically, to
provide backup to its customers. Each location contains the computer equipment
needed to provide bank data processing in the event a subscriber s equipment is
destroyed in a fire or natural disaster.
The service bureau, electronic funds switching services and bank business
recovery services provided by JHA are subject to specific review by various
banking regulatory agencies.
MARKETING -- JHA markets its products throughout the United States using sales
representatives who are employed by and work directly for JHA. The Company
offers both Silverlake System, CIF 20/20 and its other ancillary products
through the efforts of its company sales representatives.
JHA's primary market is commercial banks. JHA has not devoted significant
marketing and sales efforts to other financial institutions such as savings and
loans or credit unions. JHA does have some savings and loan and savings bank
customers, but most of them operate more like a commercial bank than a
traditional thrift institution. With its current range of products, JHA systems
are appropriate for all but the largest regional money center banks. Most of
the sales effort and success has been in banks from $2 million to $2 billion in
total assets.
JHA also has a few installations in the Caribbean and one in West Africa through
the marketing efforts of its small foreign sales corporation, Jack Henry
International Limited ("JHI"). JHI's international sales have historically
accounted for substantially less than 5% of JHA's revenues.
The Company's backlog of business was $56,742,000 and $29,671,000 at June 30,
1998 and 1997. Backlog at August 14, 1998 was $56,860,000.
RISK FACTORS AFFECTING THE COMPANY S BUSINESS AND PROSPECTS
The Company's business and the results of its operations are affected by
numerous factors and uncertainties, some of which are beyond the control of the
Company. The following is a description of some of the important risk factors
and uncertainties that may cause the actual results of the Company's operations
in future periods to differ materially from those currently expected or desired.
TECHNOLOGICAL CHANGE. The market for the Company s software and hardware is
characterized by technological advances and evolving standards. In addition,
changes in banking requirements and new equipment introductions and enhancements
could render the Company s existing products unmarketable. Accordingly, the
Company s future success depends heavily upon its ability to enhance its current
products in a timely fashion and develop and introduce new products that keep
pace with technological developments.
AGGRESSIVE COMPETITION. Competition in the banking software and services
industries is expected to remain vigorous. The Company competes on the basis of
product quality, reliability, performance, ease of use, quality of support and
product pricing. Some of the Company's competitors have strong financial,
marketing, manufacturing and technological resources, broad product lines and
larger installed customer bases than does the Company.
DEPENDENCE ON IBM RELATIONSHIP. The Company s products incorporate and use
computer hardware and equipment developed by IBM. There can be no assurance
that IBM will continue to manufacture hardware that supports the Company s
product lines or that IBM s products will be available to the Company on a
timely basis.
RAPID GROWTH OF THE COMPANY. The Company is growing at a rapid pace, both
internally and through acquisitions. The Company s ability to compete
effectively and to manage future growth, if any, also will depend on its ability
to implement and improve operational, financial and management information
systems on a timely basis. The Company's continued success and profitability
partly depends on its ability to continue to improve its infrastructure to keep
pace with this growth in its business activities.
CHANGES IN THE BANKING AND FINANCIAL SERVICES INDUSTRIES. The Company s primary
market for its products consists of approximately 9,200 commercial banks in the
United States. The number of commercial banks in the United States has
decreased, and will continue to decrease due to the increasing consolidation of
banks around the country. While the Company to date has generally profited from
this consolidation trend, over the long term the Company s growth could be
affected by the shrinking pool of bank customers.
YEAR 2000 COMPLIANCE. Jack Henry currently does not expect that the cost of its
Year 2000 ( Y2K ) compliance program will be material to its financial condition
or results of operations or that its business will be adversely affected by the
Year 2000 issue in any material respect. The Company has prepared a documented,
systematic approach to review all products and internal systems for Year 2000
compliance ( Y2K Plan ), and believes the products it currently sells to be Y2K
ready and that the majority, if not all, of its internal systems will be Y2K
ready by March 31, 1999. Notwithstanding the Company s Y2K compliance efforts
to date, achieving Y2K compliance is dependent on many factors, some of which
are not completely within Jack Henry's control. Should either Jack Henry's
systems or the systems of one or more significant vendors or suppliers fail to
achieve Year 2000 compliance, Jack Henry's business and financial condition
could be adversely affected.
OTHER INFORMATION
SUBSIDIARIES
From July 1, 1995 through June 30, 1998, the Company has had the following
subsidiaries and affiliates:
Company Effective Dates Percent Ownership Comments
Jack Henry Interna- July '86 - Present 100% Markets USA products
tional, Ltd. outside the U.S.
Silverlake System June '89 - March '96 25% Marketed, installed,
Sdn Bhd and supported the
Asian Pacific Ver-
sion of Silverlake
System
BankVision Software, August '93 - Present 100% Marketed banking
Ltd. products outside the
U.S.
CommLink Corp. July '94 - Present 100% Markets ATM
switching products
and services
Liberty Software, June '95 - June '96 100% Marketed Liberty
Inc. system throughout
the U.S.
Central September 95 - June 100% Marketed ATM
Interchange, Inc. 96 switching products
and services
Liberty Banking September 96 - June 100% Marketed service
Services, Inc. 97 bureau in Rocky
Mountain region
GG Pulley & 100%
Associates, Inc. July 97 - Present Markets image and
item processing
100% products and
Financial Software September 97 - services
Systems, Inc. Present Markets payroll
100% software and
services
Vertex, Inc. December 97 -
Present Markets teller
software and
services
CORPORATE HISTORY
JHA was incorporated in Missouri in 1977 and was privately held until November
1985 when it sold 725,000 shares of its common stock to the public (along with
375,000 shares sold by stockholders). JHA also reincorporated in Delaware at
that time. The Company became subject to periodic reporting and certain other
requirements of the Securities Exchange Act of 1934 as a result of that initial
public stock offering. The common stock was then qualified for quotation on the
National Market System of the NASDAQ interdealer quotation system. The
Company's stock symbol is JKHY.
The Company paid a 50% stock dividend March 3, 1992, March 8, 1993, and March
13, 1997. It also paid a 33 1/3% stock dividend March 10, 1994. These,
combined with new shares issued under stock options exercised and shares issued
to purchase businesses, have increased the total number of shares of common
stock outstanding to 18,955,217 as of August 14, 1998.
EMPLOYEES
As of August 14, 1998 the Company had 605 full-time employees. The Company's
employees are not covered by a collective bargaining agreement and there have
been no labor-related work stoppages. The Company considers its employee
relations to be good.
ITEM 2. PROPERTIES
The Company owns approximately 132 acres located in the town of Monett, MO on
which it maintains four existing office buildings, two maintenance buildings and
a print shop. It also owns a building in Houston, TX which houses its CommLink
unit. The Company owns an office building in Angola, IN. Office space owned
totals approximately 59,000 square feet. Leased office facilities in various
cities in the United States total approximately 87,000 square feet.
The Company owns five aircraft which are utilized for business purposes. Many
of the Company's customers are located in communities which do not have easily
accessible commercial airline service. The Company uses its airplanes in
connection with installation, maintenance and sales of its systems.
Transportation costs for installation and other customer services are billed to
the Company's customers. The Company leases property, which includes real
estate, a hangar, and related facilities at the Monett, MO municipal airport.
In addition, JHA leases a smaller plane for shorter flights and fewer
passengers.
ITEM 3. LEGAL PROCEEDINGS
As in prior years, the Company is subject to various routine legal proceedings
and claims arising in the ordinary course of business. The Company's management
does not expect that the results in any of these legal proceedings will have a
material adverse effect on the Company's financial condition, results of
operations or cash flows.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
The Company's common stock is traded in the over-the-counter market and is
quoted on the NASDAQ - National Market System under the symbol JKHY . The
following table shows the reported closing sales prices for the common stock
during the last two fiscal years. Prices and cash dividends have been adjusted
for stock dividends as appropriate.
FISCAL 1998
HIGH LOW
First Quarter $30.25 $22.00
Second Quarter 28.13 22.75
Third Quarter 36.75 24.75
Fourth Quarter 38.88 29.00
Fiscal 1997
First Quarter $24.08 $16.67
Second Quarter 27.83 20.25
Third Quarter 27.17 20.63
Fourth Quarter 24.75 17.50
Cash dividends of $.0467 per share were paid on September 24, 1996 and December
10, 1996. A cash dividend of $.053 was paid March 13, 1997. Cash dividends of
$.055 were paid on May 28, 1997, September 23, 1997 and December 9, 1997. Cash
dividends of $.065 were paid on March 12, 1998 and May 27, 1998. Further, a
cash dividend of $.065 per share was declared on August 25, 1998, payable
September 24, 1998 to stockholders of record on September 8, 1998.
The Company established a practice of paying quarterly dividends at the end of
FY 1990. Payment of dividends will continue to be at the discretion of the
Board of Directors and will depend, among other factors, upon the earnings,
capital requirements, and operating and financial condition of the Company. The
Company does not foresee any changes in its dividend practices in the immediate
future.
As of August 20, 1998, there were 7,262 holders of the Company's common stock.
On that same date the last sale price of the common shares as reported on NASDAQ
was $44.00 per share.
ITEM 6. SELECTED FINANCIAL DATA
Selected Financial Information
(In Thousands, Except Per Share Information)
YEAR ENDED JUNE 30,
INCOME STATEMENT DATA 1998 1997 1996 1995 1994
Gross revenue (1) $113,423 $82,600 $67,558 $46,124 $38,390
Income from continuing opera- $ 22,237 $15,755 $12,268 $ 7,978 $ 6,259
tions
Loss from discontinued oper
ations (2) $ (668) $ (450) $(2,620) - -
Net income $ 21,569 $15,305 $ 9,648 $ 7,978 $ 6,259
Income (loss) per share (3):
Continuing operations $ 1.13 $ .83 $ .65 $ .44 $ .35
Discontinued operations $ (.04) $ (.03) $ (.14) - -
Net income $ 1.09 $ .80 $ .51 $ .44 $ .35
Dividends declared per share $ .24 $ .20 $ .17 $ .15 $ .13
JUNE 30,
BALANCE SHEET DATA 1998 1997 1996 1995 1994
Working capital $ 29,878 $15,490 $ 6,895 $ (666) $11,181
Total assets $115,286 $82,069 $60,401 $58,721 $38,347
Long-term debt - - - - -
Stockholders' equity $ 73,500 $52,782 $37,418 $29,484 $23,650
Notes:
(1) Gross revenue includes software licensing and installation revenues;
support revenues; and hardware sales; less sales returns and allowances.
(2) Losses from discontinued operations are reported as such from the
appropriate date.
(3) Per share data have been adjusted to reflect the 50% stock dividends paid
in prior years and are the diluted numbers required by FASB 128.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
RESULTS OF OPERATIONS
Introduction - All of the revenues (and costs and expenses) in the statements of
income relate to JHA's continuing operations, i.e., the installation and support
of banking software systems that JHA developed and the marketing of the JHA
software along with computer hardware manufactured by others to provide a
complete data processing system for in-house or outsourced operations in finan-
cial institutions.
The Company has established a Year 2000 (Y2K) Committee. This Committee has
prepared a documented, systematic approach (the Y2K Plan) to review all products
and internal systems for Y2K compliance. The Company s Board of Directors has
reviewed and approved the Plan as required by the banking regulators of all
service bureau providers. The Company believes the products it currently sells
to be Y2K ready and that the majority, if not all, of its internal systems will
be Y2K ready by March 31, 1999. The estimated cost of the above efforts is not
reasonably determinable at the current time and is not expected to be material
to the Company s financial position or results of operations.
Total revenues, presented in the statements of income, include software
licensing and installation revenues; maintenance/support and services revenues;
and hardware sales and commissions which includes revenues from the sale of
forms and supplies.
Business operations for FY '98 and '97 continue to reflect JHA's success in its
market niche. JHA s approach of expanding its product and service offerings to
provide a top quality, comprehensive data processing installation for its
customers helps to drive its success. Results of operations for JHA's banking
system business in each of the last two fiscal years are discussed separately
below.
FY 98
REVENUE - The Company continued significant growth with each major component of
revenue contributing to the record $113.4 million, - a 37% increase over FY 97.
Continued demand for the Company s core products and related hardware was a
driving force in the revenue growth. Acquisitions, electronic transaction fees,
service bureau, forms sales and customer support fees also contributed to the
significant growth with increases at similar levels.
COST OF SALES - Cost of sales increased 35%, reflecting the strong revenue
growth. Cost of hardware increased 38% while cost of services only increased
33%, both mirroring the related revenue.
GROSS PROFIT - Gross profit increased 39%, relatively consistent with the
revenue growth. Minor changes in product mix helped to improve the gross margin
to 51% - a 1% increase above FY 97.
OPERATING EXPENSES - The 39% increase in operating expenses was consistent with
the increase in gross profit. The selling and marketing increase of 29% was
directly related to the increase in revenues. Research and development costs
experienced the largest increase at 53%. General and administrative costs
increased by 49%, supporting the overall growth of the Company and acquisitions.
OTHER INCOME - Other income rose 88% over last year, primarily due to the
increased amount of invested funds throughout the current year compared to last
year.
DISCONTINUED OPERATIONS - The Company incurred a $668,000 loss from discontinued
operations, a $218,000 increase compared to last year. Several issues which
were raised during negotiations for the sale of BankVision caused a delay in the
Company s plan for disposing of this subsidiary. These issues have now been
addressed. The Company is currently honoring commitments to existing customers
and anticipates final resolution regarding its discontinued operations by June
30, 1999.
FY '97
REVENUE - The Company continued great strides forward with each major component
of revenue contributing to the record $82.6 million, - a 22% increase.
Increased demand for the Company s flagship products continued to be a driving
force in the revenue growth. Other significant growth contributors were
electronic transaction fees, service bureau and customer support fees - all
increasing at similar levels.
COST OF SALES - Cost of sales increased 22%, equaling the rate of revenue
growth. Cost of hardware increased 26% while cost of services only increased
18%.
GROSS PROFIT - Gross profit increased 22%, consistent with the revenue increase.
This change helped to keep the gross margin at 50%, the same level as FY 96.
OPERATING EXPENSES - The 17% increase in operating expenses was favorable when
compared to the revenue and gross profit increase. The selling and marketing
increase (21%) was directly related to the increase in revenues.
OTHER INCOME - Other income rose 27% over last year, primarily due to the
increased amount of invested funds throughout the year than was the case the
previous year.
DISCONTINUED OPERATIONS - The Company incurred a $450,000 loss from discontinued
operations, down significantly from last year. Due to a planned sale not
closing within the expected timeframe, the Company continued to support and
maintenance with its existing customers.
FINANCIAL CONDITION
Liquidity - JHA's liquidity position (cash plus short-term investments minus
working capital borrowings) at June 30, 1998 increased significantly to
$26,523,000 versus $13,867,000 last year. The Company generated significantly
higher cash flows from operations, but the additional outlays for capital
expenditures (some of which resulted from acquisitions) and dividends held
liquidity growth to its current level. Working capital increased significantly
from $15,490,000 last year to $29,878,000 in the current year.
The Company believes its liquid assets on hand and those generated from
operations are sufficient to meet its cash requirements for FY '99. Cash and
investments are expected to increase during the first quarter of FY '99 as the
annual software maintenance billings in trade receivables at June 30, 1998 are
collected. The Company expects to utilize its $5,000,000 credit line minimally
during the next fiscal year.
Capital Requirements and Resources - JHA generally uses existing resources and
funds generated from operations to meet its capital requirements. Capital
expenditures of $7,755,000 were made for expansion of facilities and additional
equipment to provide for the Company's current and future growth. The most
significant individual outlays were for upgrades and additions to the corporate
aircraft. The Company has no long-term debt and anticipates capital
expenditures could approach $10,000,000 during the next fiscal year. These will
be paid with funds from operations.
Subsequent to June 30, 1998, the Company's Board of Directors declared a cash
dividend of $.065 per share on its common stock payable on September 24, 1998 to
stockholders of record as of September 8, 1998. Current funds from operations
are adequate for this purpose. The Board has indicated that it plans to
continue paying dividends so long as the Company's financial picture continues
to be favorable.
ITEM 7A. QUANTITATIVES AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
Not applicable.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Index to Financial Statements
Independent Auditors' Report................................13
Independent Accountants' Report.............................14
Financial Statements:
Consolidated Statements of Income,
Years Ended June 30, 1998, 1997 and 1996.........15
Consolidated Balance Sheets,
June 30, 1998 and 1997...........................16
Consolidated Statements of Changes in Stockholders' Equity,
Years Ended June 30, 1998, 1997 and 1996.........17
Consolidated Statements of Cash Flows,
Years Ended June 30, 1998, 1997 and 1996.........18
Notes to Consolidated Financial Statements.......19
Financial Statement Schedules:
There are no schedules included because they are not applicable or the required
information is shown in the consolidated financial statements or notes thereto.
INDEPENDENT AUDITORS' REPORT
To the Board of Directors of
Jack Henry & Associates, Inc.:
We have audited the accompanying consolidated balance sheets of Jack Henry &
Associates, Inc. and its subsidiaries (the "Company") as of June 30, 1998 and
1997 and the related consolidated statements of income, stockholders' equity,
and cash flows for the years then ended. These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of the Company at June 30, 1998 and
1997 and the results of its operations and its cash flows for the years then
ended in conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
August 18, 1998
St Louis, Missouri
Independent Accountants Report
Board of Directors
Jack Henry & Associates, Inc.
Monett, Missouri
We have audited the accompanying consolidated statements of income, changes in
stockholders equity and cash flows of JACK HENRY & ASSOCIATES, INC. AND
SUBSIDIARIES for the year ended June 30, 1996. These financial statements are
the responsibility of the Company s management. Our responsibility is to
express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the results of operations and the cash flows
of JACK HENRY & ASSOCIATES, INC. AND SUBSIDIARIES for the year ended June 30,
1996, in conformity with generally accepted accounting principles.
Baird, Kurtz & Dobson
August 22, 1996
Joplin, Missouri
JACK HENRY & ASSOCIATES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(In Thousands, Except Per Share Data)
YEAR ENDED JUNE 30,
1998 1997 1996
REVENUES
Software licensing & installation $ 32,988 $ 22,955 $ 18,111
Maintenance/support & service 35,444 27,433 22,595
Hardware 44,991 32,212 26,852
Total $113,423 $ 82,600 $ 67,558
COST OF SALES
Cost of hardware $ 30,832 $ 22,397 $ 17,764
Cost of services 24,798 18,679 15,829
Total $ 55,630 $ 41,076 $ 33,593
GROSS PROFIT $ 57,793 $ 41,524 $ 33,965
OPERATING EXPENSES
Selling and marketing $ 11,804 $ 9,162 $ 7,573
Research and development 3,132 2,045 1,775
General and administrative 9,081 6,076 5,411
Total $ 24,017 $ 17,283 $ 14,759
OPERATING INCOME FROM CONTINUING OPERATIONS $ 33,776 $ 24,241 $ 19,206
Percent of total revenue 29.7% 29.3% 28.4%
OTHER INCOME
Interest $ 1,221 $ 660 $ 541
Other, net 367 186 126
Total $ 1,588 $ 846 $ 667
INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES $ 35,364 $ 25,087 $ 19,873
PROVISION FOR INCOME TAXES 13,127 9,332 7,605
INCOME FROM CONTINUING OPERATIONS $ 22,237 $ 15,755 $ 12,268
LOSS FROM DISCONTINUED OPERATIONS $ 668 $ 450 $ 2,620
NET INCOME $ 21,569 $ 15,305 $ 9,648
Diluted earnings per share:
Income from continuing operations $ 1.13 $ .83 $ .65
Loss from discontinued operations $ .04 $ .03 $ .14
Net income per share $ 1.09 $ .80 $ .51
Diluted weighted average shares outstanding 19,761 19,072 18,726
Basic earnings per share:
Income from continuing operations $ 1.18 $ .88 $ .69
Loss from discontinued operations $ .04 $ .03 $ .15
Net income per share $ 1.14 $ .85 $ .55
Basic weighted average shares outstanding 18,850 17,977 17,656
See notes to consolidated financial statements.
JACK HENRY & ASSOCIATES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In Thousands, Except Share Data)
JUNE 30,
ASSETS 1998 1997
CURRENT ASSETS:
Cash and cash equivalents $ 23,306 $ 7,948
Investments 3,217 5,919
Trade receivables 36,826 22,703
Income taxes receivable - 1,982
Prepaid expenses and other 5,789 4,177
Total $ 69,138 $42,729
PROPERTY AND EQUIPMENT, net $ 26,855 $21,869
OTHER ASSETS:
Intangible assets, net of amortization $ 15,272 $15,469
Computer software 2,838 1,226
Other non-current assets 1,183 776
Total $ 19,293 $17,471
Total assets $115,286 $82,069
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 6,854 $ 2,911
Accrued expenses 3,968 3,648
Accrued income taxes 136 -
Deferred revenues 28,302 20,680
Total $ 39,260 $27,239
DEFERRED INCOME TAXES 2,526 2,048
Total liabilities $ 41,786 $29,287
STOCKHOLDERS' EQUITY:
Preferred stock; $1 par value; 500,000 shares authorized;
none issued - -
Common stock; $.01 par value; 50,000,000 shares authorized;
shares issued 1998 - 18,950,527; 1997 - 18,532,719 189 185
Less treasury shares; 1997 - 15,410 - (293)
Additional paid-in capital 18,599 14,744
Retained earnings 54,712 38,146
Total stockholders' equity $ 73,500 $52,782
Total liabilities and stockholders' equity $115,286 $82,069
See notes to consolidated financial statements.
JACK HENRY & ASSOCIATES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(In Thousands, Except Share and Per Share Data)
YEAR ENDED JUNE 30,
1998 1997 1996
PREFERRED SHARES (500,000 AUTHORIZED): - - -
COMMON SHARES (50,000,000 AUTHORIZED):
Shares, beginning of year 18,532,719 11,867,593 11,732,028
Shares issued upon exercise of stock options 104,465 618,750 133,242
Shares issued for Employee Stock Purchase 5,926 1,659 2,323
Plan
Shares issued for acquisitions 307,417 56,144 -
Stock dividend - 5,988,573 -
18,950,527 18,532,719 11,867,593
Less: Held in treasury - (15,410) -
Shares, end of year 18,950,527 18,517,309 11,867,593
COMMON STOCK - PAR VALUE $.01 PER SHARE:
Balance, beginning of year $ 185 $ 119 $ 117
Shares issued upon exercise of stock options 1 5 2
Shares issued for acquisitions 3 1 -
Stock dividend - 60 -
Balance, end of year $ 189 $ 185 $ 119
ADDITIONAL PAID-IN CAPITAL:
Balance, beginning of year $14,744 $10,711 $ 9,425
Shares issued upon exercise of stock options 1,286 2,788 (37)
Shares issued for Employee Stock Purchase 176 42 63
Plan
Shares issued for acquisitions 1,617 (306) -
Stock dividend - (60) -
Sale of treasury stock - (451) -
Tax benefit on exercise of options 776 2,020 1,260
Balance, end of year $18,599 $ 14,744 $10,711
TREASURY STOCK:
Balance, beginning of year $ (293) $ - $ -
Purchases of treasury stock - (7,469) (1,604)
Sales of treasury stock - 6,871 1,604
Shares issued for acquisitions 293 305 -
Balance, end of year $ 0 $ (293) $ -
RETAINED EARNINGS:
Balance, beginning of year $38,146 $26,588 $19,942
Retained deficit of acquired businesses (475) (116) -
Net income 21,569 15,305 9,648
Dividends (1998 - $.24 per share; 1997 - $.28
per share; 1996 - $.26 per share) (4,528) (3,631) (3,002)
Balance, end of year $54,712 $38,146 $26,588
TOTAL STOCKHOLDERS' EQUITY $73,500 $52,782 $37,418
See notes to consolidated financial statements.
JACK HENRY & ASSOCIATES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
YEAR ENDED JUNE 30,
1998 1997 1996
CASH FLOWS - OPERATING ACTIVITIES:
Cash received from customers $106,955 $ 80,673 $ 68,726
Cash paid to suppliers and employees (72,801) (53,922) (47,637)
Interest received 1,436 755 619
Income taxes paid, net (9,821) (7,875) (6,637)
Other, net 100 (151) (400)
Net cash provided by continuing operating
activities $ 25,869 $ 19,480 $ 14,671
CASH FLOWS FROM DISCONTINUED OPERATIONS $ (1,075) $ (819) $ (151)
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of property & equipment $ 76 $ 13 $ 15
Capital expenditures (7,755) (10,313) (5,017)
Purchases of investments (3,165) (5,887) (2,057)
Proceeds from sales of investments 5,800 3,002 4,500
Purchases of customer contracts - (33) (6,767)
Computer software development cost (281) (191) (441)
Business acquisitions, net of cash acquired (892) (282) -
Net cash used in investing activities $ (6,217) $(13,691) $(9,767)
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on notes payable $ (154) $ (129) -
Proceeds from issuance of common stock
upon exercise of stock options 1,463 1,532 1,382
Dividends paid (4,528) (3,631) (3,002)
Purchases of treasury stock - (5,392) (1,604)
Proceeds from sale of treasury stock - 5,646 -
Net cash used in financing activities $ (3,219) $ (1,974) $ (3,224)
NET INCREASE IN CASH AND CASH EQUIVALENTS $ 15,358 $ 2,996 $ 1,529
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 7,948 4,952 3,423
CASH AND CASH EQUIVALENTS, END OF YEAR $ 23,306 $ 7,948 $ 4,952
See notes to consolidated financial statements.
JACK HENRY & ASSOCIATES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1: NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF THE COMPANY
Jack Henry & Associates, Inc. ("JHA" or the "Company") is a computer software
company which has developed several banking software systems. The Company's
revenues are predominately earned by marketing those systems to financial
institutions nationwide along with the computer equipment (hardware) and by
providing the conversion and software customization services necessary for a
financial institution to install a JHA software system. JHA also provides
continuing support and maintenance services to customers using the system.
CONSOLIDATION
The consolidated financial statements include the accounts of JHA and its
wholly-owned subsidiaries: Jack Henry International, Ltd., BankVision Software,
Ltd., CommLink Corp., G.G. Pulley & Associates, Inc. and Vertex, Inc. All
significant intercompany accounts and transactions have been eliminated.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
REVENUE RECOGNITION
The Company's various sources of revenue and the methods of revenue recognition
are as follows:
SOFTWARE LICENSING FEES - Initial licensing fees are recognized upon
delivery of the
unmodified software. Monthly software usage charges are recognized ratably
over the contract period.
SOFTWARE INSTALLATION AND RELATED SERVICES - Fees for these services are
recognized as the services are performed on hourly contracts and at
completion on fixed-fee contracts.
PRODUCT MAINTENANCE/SUPPORT FEES - Fees from these contracts are recognized
ratably over the life of the contract.
HARDWARE - Revenues from sales of hardware are recognized upon direct
shipment by the supplier to the Company s customers. Hardware maintenance
revenues are also included. Costs of items purchased and remarketed are
reported as cost of hardware in cost of sales.
DEFERRED REVENUES
Deferred revenues consist primarily of prepaid annual software and hardware
maintenance fees. Nonrefundable software and hardware deposits are also
reflected as deferred revenues.
COMPUTER SOFTWARE DEVELOPMENT
The Company capitalizes new product development costs incurred from the point at
which technological feasibility has been established through the point at which
customer installations begin. The capitalized costs, which include salaries and
related expenses, equipment/facility costs and other direct expenses, are
amortized to expense based on estimated revenues over the estimated product life
(generally five years).
INCOME PER SHARE
Per share information is based on the weighted average number of common shares
outstanding during the year. Stock options have been included in the
calculation of income per share to the extent they are dilutive.
CASH EQUIVALENTS
The Company considers all highly liquid debt instruments with original
maturities of three months or less to be cash equivalents.
INVESTMENTS
The Company invests its cash primarily in U.S. government securities.
Debt securities for which the Company has the positive intent and ability to
hold until maturity are classified as held-to-maturity and are carried at
historical cost adjusted for amortization of premiums and accretion of
discounts. Premiums and discounts are amortized and accreted, respectively, to
interest income using the level-yield method over the period to maturity.
Interest on investments in debt securities is included in income when earned.
PROPERTY AND EQUIPMENT
Property and equipment is stated at cost and depreciated principally using the
straight-line method over the estimated useful lives of the assets.
INTANGIBLE ASSETS
Intangible assets consist primarily of excess purchase price over the fair value
of net assets acquired, software maintenance/support contracts and marketing
agreements acquired in business acquisitions. The amounts are amortized over an
estimated economic benefit period, generally five to fifteen years.
The excess of purchase price over the net assets of entities acquired is
amortized using the straight-line method over periods of up to 15 years from
acquisition date.
The Company s reviews long-lived assets and certain identifiable intangibles for
impairment whenever events or changes in circumstances have indicated that the
carrying amount of its assets might not be recoverable.
INCOME TAXES
Deferred tax liabilities and assets are recognized for the tax effects of
differences between the financial statement and tax bases of assets and
liabilities. A valuation allowance is established to reduce deferred tax assets
if it is likely that a deferred tax asset will not be realized.
NOTE 2: INVESTMENTS
The amortized cost and approximate fair values of held-to-maturity securities at
June 30, 1998 and 1997 is included in the following table. Fair market values
of these securities did not differ significantly from amortized cost due to the
nature of the securities and minor interest rate fluctuations during the
periods.
(In Thousands)
1998 1997
U.S. treasury notes $3,101 $5,808
Accrued interest 116 111
Total $3,217 $5,919
/TABLE
NOTE 3: FAIR VALUE OF FINANCIAL INSTRUMENTS
Fair values for held-to-maturity securities are based on quoted market prices
(See Note 2). For all other financial instruments, including amounts receivable
and payable, fair values approximate carrying value.
NOTE 4: PROPERTY AND EQUIPMENT
The classification of property and equipment, together with their estimated
useful lives is as follows:
(In Thousands)
June 30, Estimated
1998 1997 useful life
Land $ 699 $ 434
Land Improvements 707 519 5-20 years
Buildings 5,726 3,735 25-30 years
Equipment and furniture 20,578 14,580 5-8 years
Aircraft 10,536 10,472 8-10 years
$38,246 $29,740
Less accumulated depreciation 11,391 7,871
Property and equipment, net $26,855 $21,869
NOTE 5: OTHER ASSETS
Following is an analysis of intangible assets:
(In Thousands)
Year ended June 30,
1998 1997
Balance, beginning of year $15,469 $16,805
Excess purchase price over net assets acquired 1,339 318
Amortization (1,536) (1,654)
Balance, end of year $15,272 $15,469
Computer software includes the unamortized cost of software products developed
or acquired by the Company which were required to be capitalized by generally
accepted accounting principles. The costs are amortized over an estimated
economic benefit period, generally five years. Following is an analysis of the
computer software costs:
(In Thousands)
Year ended June 30,
1998 1997
Balance, beginning of year $1,226 $1,375
Software development costs capitalized 281 191
Software acquired 1,845 -
Amortization (514) (340)
Balance, end of year $2,838 $1,226
NOTE 6: LINE OF CREDIT
The Company has a line of credit with First State Bank of Purdy at June 30,
1998, for $5 million as described below. It also had lines of credit with the
same bank at June 30, 1997. There were no amounts outstanding under the lines
at June 30, 1998, or 1997. Utilization of the lines was minimal during each of
the last three fiscal years.
The line of credit is payable upon demand or March 31, 1999, and is secured by
$1 million of investments with the remainder unsecured. Borrowings under the
line bear interest at a floating prime rate, 8.5% at June 30, 1998.
NOTE 7: INCOME TAXES
The provision for income taxes on income from continuing operations consists of
the following:
(In Thousands)
Year ended June 30,
1998 1997 1996
Current:
Federal $11,536 $8,184 $6,588
State 1,113 832 593
Foreign - - -
Deferred:
Federal 431 291 374
State 47 25 50
$13,127 $9,332 $7,605
Effective tax rate 37% 37% 38%
The tax effects of temporary differences related to deferred taxes shown on the
balance sheets were:
(In Thousands)
Year ended June 30,
1998 1997
Deferred tax assets:
Carryforwards (operating losses, capi
tal losses, credits, etc.) $ 112 $ 126
Expense reserves (bad debts, insur-
ance, franchise tax, vacation, etc.) 524 397
636 557
Deferred tax liabilities:
Excess tax depreciation (2,983) (2,207)
Excess tax amortization (158) (398)
Other, net (21) -
(3,162) (2,605)
Net deferred tax liability $(2,526) $(2,048)
The following analysis reconciles the statutory federal income tax rate to the
effective income tax rates reflected above:
S>
Year ended June 30,
1998 1997 1996
Computed "expected" tax expense
(benefit) 35% 35% 35%
Increase (reduction) in taxes resulting
from:
State income taxes, net of federal 3% 3%
income tax benefits 3%
Research & Development Credit (1%) (1%) -
Nondeductible excess purchase price - - 1%
Other - - (1%)
37% 37% 38%
The Company has available at June 30, 1998, unused capital loss carryforwards of
$181,000 which expire in 1999.
NOTE 8: INDUSTRY AND SUPPLIER CONCENTRATIONS
The Company sells its products to banks and financial institutions throughout
the United States and generally does not require collateral. Adequate reserves
(which are insignificant at June 30, 1998, and 1997) are maintained for
potential credit losses.
In addition, the Company purchases most of its computer equipment (hardware) for
resale in relation to installation of JHA software systems from one supplier.
There are a limited number of hardware suppliers for these required materials.
NOTE 9: STOCK OPTION PLANS
The Company has two stock option plans: the 1996 Stock Option Plan ("1996 SOP")
and the Non-Qualified Stock Option Plan ("NSOP").
The 1996 SOP was adopted by the Company October 29, 1996, for its employees.
This plan replaced the terminating 1987 SOP. Terms of the options are
determined by the Compensation Committee of the Board of Directors when granted
and for options outstanding include vesting periods up to 2.5 years. Shares of
common stock are reserved for issuance under this plan at the time of each grant
which must be at or above fair market value at the grant date. The options
terminate upon termination of employment, three months after retirement, one
year after death or ten years after grant.
The NSOP was adopted by the Company on October 31, 1995, for its outside
directors. Options are exercisable beginning six months after grant at a price
equal to 100% of the fair market value of the stock at the grant date. The
options terminate when director status ends, upon surrender of the option or ten
years after grant. A total of 300,000 shares of common stock have been reserved
for issuance under this plan with a maximum of 75,000 for each director.
A summary of the activity of all of the Company's stock option plans is:
Year ended June 30,
1998 1997 1996
Options outstanding, beginning of
year: 1,420,541 1,352,612 1,027,278
Options issued 796,158 64,500 530,500
Options exercised (104,465) (679,125) (205,166)
Options terminated (12,000) (18,750) -
Increase in options outstanding due
to 50% stock dividend - 676,304 -
Options outstanding, end of year: 2,100,234 1,395,541 1,352,612
Currently exercisable 1,462,276 1,358,042 975,611
Range of exercise price for $ 1.25 $ 1.25 $ 1.875
options outstanding
to $34.375 to $27.00 to $26.875
Range of exercise price for $ 3.50 $ 1.25 $ 1.25
options exercised
to $24.125 to $17.917 to $9.75
Following is an analysis of stock options outstanding (O) and exercisable (E) as
of June 30, 1998
RANGE OF EXERCISE WEIGHTED-AVERAGE WEIGHTED-
AVERAGE PRICES SHARES REMAINING CONTRACTUAL
EXERCISE PRICE
LIFE IN YEARS
O E O O E
$ 1 to 7 531,929 531,929 5.2 $ 4.87 $ 4.87
8 to 18 715,797 715,797 7.0 14.61 14.61
19 to 23 54,500 42,000 8.6 20.26 20.63
24 to 25 648,350 127,550 9.3 24.13 24.13
25 to 35 149,658 45,000 9.6 29.27 26.31
$ 1 to 35 2,100,234 1.462,276 7.50 $16.31 $12.43
OPTIONS
CANCELED:
FISCAL YEAR RANGE OF SHARES WEIGHTED-AVERAGE
EXERCISE EXERCISE PRICE
PRICE
1998 $24 to 25 12,000 $24.13
1997 $13 to 18 15,000 $17.92
1996 $ 7 to 12 3,750 $ 9.75
As permitted under SFAS 123, the Company has elected to continue to follow APB
25 in accounting for stock-based awards to employees. Under APB 25, the Company
generally recognizes no compensation expense with respect to such awards, since
the exercise price of the stock options awarded are equal to the fair market
value of the underlying security on the grant date.
Pro forma information regarding net income and earnings per share is required by
SFAS 123 for awards granted after December 31, 1994, as if the Company had
accounted for its stock-based awards to employees under the fair value method of
SFAS 123. The fair value of the Company s stock-based awards to employees was
estimated as of the date of the grant using a Black-Scholes option pricing
model.
The Company s pro forma information for continuing operations follows:
1998 1997 1996
Net income As reported $ 22,237 $ 15,755 $ 12,268
Pro forma $ 20,182 $ 15,524 $ 10,382
Diluted earnings per share As reported $ 1.13 $ .83 $ .65
Pro forma $ 1.02 $ .81 $ .55
Assumptions:
Expected life (years) 2.55 2.16 2.16
Volatility 52% 40% 40%
Risk free interest rate 5.7% 6.1% 5.9%
Dividend yield .6% .7% .7%
NOTE 10: EMPLOYEE BENEFIT PLANS
Stock Purchase Plan - The Company established an employee stock purchase plan on
January 1, 1996. The plan allows the majority of employees the opportunity to
directly purchase shares of the Company. Purchase prices for all participants
are based on the closing bid price on the last business day of the month.
401(k) Employee Stock Ownership Plan - The Company has a 401(k) Employee Stock
Ownership Plan ("ESOP") covering substantially all employees of the Company and
its subsidiaries. As of July 1, 1987, the plan was amended and restated to
include most of the existing ESOP provisions and to add salary reduction
contributions allowed under Section 401(k) of the Internal Revenue Code and to
require employer matching contributions. The Company has the option of making a
discretionary contribution to the Plan, however, none has been made for any of
the three most recent fiscal years. The total expense related to the Plan was
$827,000, $617,000, and $549,000 for 1998, 1997, and 1996, respectively.
NOTE 11: RECONCILIATION OF INCOME FROM CONTINUING OPERATIONS TO NET CASH
PROVIDED BY CONTINUING OPERATING ACTIVITIES
A reconciliation of income from continuing operations to net cash provided by
continuing operating activities is as follows:
Year ended June 30,
1998 1997 1996
(In Thousands)
Income from continuing operations $22,237 $15,755 $12,268
Adjustments to reconcile income from
continuing operations to net cash provided by
operating activities:
Depreciation and amortization 5,105 4,071 3,562
Provision for deferred income taxes 478 316 424
(Gain)loss on sale of fixed assets 22 (4) 3
Other, net 67 91 81
(Increase) decrease in assets:
Trade receivables (11,352) (5,721) 760
Prepaid expenses and other (1,537) (987) (1,424)
Increase (decrease) in liabilities:
Accounts payable 3,197 601 (2,903)
Accrued expenses 81 755 1,825
Income taxes 872 0 (843)
Deferred revenues 6,699 4,603 918
Total adjustments $ 3,632 $ 3,725 $ 2,403
Net cash provided by continuing operating $25,869 $19,480 $14,671
activities
NOTE 12: DISCONTINUED OPERATIONS
In the last quarter of 1996, the Company decided to discontinue the operations
of its BankVision Software, Ltd. subsidiary (BankVision) which it planned to
sell by December 31, 1996. The estimated loss on disposal recorded in 1996
consisted of the following:
Estimated loss on sale, net of applicable income tax benefit $2,390,000
Operating losses from April 1, 1996, through June 30, 1996, net of
income tax benefit of $78,000 $ 130,000
Estimated operating losses from July 1, 1996, to anticipated dis-
posal date, net of income tax benefit of $38,000 $ 100,000
$2,620,000
The planned sale of BankVision was not concluded as of June 30, 1998. Thus,
additional losses of $668,000 and $450,000 were reported for the discontinued
BankVision unit for the years ended June 30, 1998 and 1997, respectively.
Several issues which were raised during negotiations for the sale of BankVision
caused a delay in the Company s plan for disposing of this subsidiary. These
issues have now been addressed. The Company is currently honoring commitments
to existing customers and anticipates final resolution regarding its
discontinued operations by June 30, 1999.
NOTE 13: BUSINESS ACQUISITIONS
POOLING OF INTERESTS TRANSACTIONS
The Company acquired all the outstanding shares of G. G. Pulley & Associates,
Inc. on July 1, 1997, for $5,000,000 in Company stock.
The Company acquired all the outstanding shares of Financial Software Systems,
Inc. on September 2, 1997, for $600,000 in Company stock.
The Company acquired all the outstanding shares of Liberty Banking Services,
Inc. on September 1, 1996, for $2,000,000 in Company stock.
Prior year financial statements have not been restated for the effect of the
pooling transactions because of the insignificance of the related amounts.
PURCHASE TRANSACTIONS
On December 12, 1997, the Company acquired all the outstanding shares of Vertex,
Inc. common stock for $1,905,000 in Company stock and $1,095,000 in cash.
The Company purchased the remaining shares in Central Interchange, Inc. that it
didn't already own (81%) on September 1, 1995, for $250,000 in Company stock.
The consolidated operations of the Company include the operations of the
acquirees from their acquisition dates for acquisitions accounted for as
purchases and from the beginning of the year for acquisitions accounted for as a
pooling of interests. Unaudited Pro Forma consolidated operations assuming the
purchase transactions were made at the beginning of the year are shown below:
1998 1997 1996
(In Thousands)
Net revenues $113,870 $83,301 $67,661
Income from continuing operations $ 21,911 $15,276 $12,262
Loss from discontinued operations $ 668 $ 450 $ 2,620
Net income $ 21,243 $14,826 $ 9,642
Income from continuing operations per share $ 1.11 $ .80 $ .65
Net income per share $ 1.07 $ .78 $ .51
The Pro Forma results are not necessarily indicative of what would have occurred
had
the acquisitions been on these dates, nor are they necessarily indicative of
future operations. Pro Forma data reflect the adjusted amortized excess
purchase price over net assets acquired. No adjustments were made to reflect
the combined impact of operations on income tax expense of the separate
companies.
NOTE 14: SUBSEQUENT EVENTS
On June 26, 1998, the Company entered into an agreement to acquire Hewlett
Computer Services, Inc., a Texas corporation ( HCS ), through a merger agreement
effective July 1, 1998 ( the merger ). HCS was a privately owned company engaged
in the business of providing a variety of service bureau options to community
banks. Pursuant to the merger, all outstanding shares of the capital stock of
HCS were purchased for $2,250,000 in cash. The transaction will be accounted
for using the purchase method of accounting.
After the close of business on August 18, 1998, the Company entered a definitive
agreement to acquire Peerless Group, Inc. (NASDAQ:PLSS), through a merger
agreement expected to close in the fourth calendar quarter of 1998, pending
regulatory and PLSS shareholder approval. PLSS is a publically owned company
that installs and supports integrated information systems for community banks
and credit unions throughout the United States. The price is approximately $36
million or $7.25 per Peerless Group share. Peerless Group generated profits of
$1.9 million on revenues of $30.1 million in calendar 1997.
ITEM 9. CHANGES IN AND DISAGREEMENTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
On January 31, 1997, the Audit Committee of the Board of Directors recommended
that the Company consider engaging a larger accounting firm as independent
public accountants for the fiscal year ended June 30, 1997. A letter formally
dismissing the Company s prior independent public accountants (Baird, Kurtz &
Dobson) was sent March 10, 1997. On May 5, 1997, the Company engaged Deloitte &
Touche LLP to serve as its independent public accountants.
Baird, Kurtz & Dobson s report on the financial statements of the Company for
the fiscal year ending June 30, 1996, contained no adverse opinion or disclaimer
of opinion and was not qualified or modified as to uncertainty, audit scope, or
accounting principles. During the fiscal year ended June 30, 1996, and the
subsequent interim period preceding its dismissal, there were no disagreements
with Baird, Kurtz & Dobson on any matter of accounting principles or practices,
financial statement disclosures or auditing scope or procedure, which
disagreements if not resolved to the satisfaction of Baird, Kurtz & Dobson would
have caused that firm to make reference in connection with its report to the
event or subject matter of the disagreement.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
See the information under the captions "Election of Directors" and "Executive
Officers and Significant Employees" in the Company's definitive Proxy Statement
which is incorporated herein by reference.*
ITEM 11. EXECUTIVE COMPENSATION
See the information under the captions "Executive Compensation"; "Compensation
Committee Report"; and "Company Performance" in the Company's definitive Proxy
Statement which is incorporated herein by reference.*
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
See the information under the captions "Stock Ownership of Certain Stockholders
and "Election of Directors" in the Company's definitive Proxy Statement which is
incorporated herein by reference.*
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
None.
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a) The following documents are filed as a part of this Report:
(1) Financial Statements:
The following Consolidated Financial Statements of the Company and its
subsidiaries and the Reports of Independent Accountants thereon appear under
Item 8 of this Report:
- Independent Auditors Report.
- Independent Accountants' Report.
- Consolidated Statements of Income for the Years Ended June 30, 1998, 1997
and 1996.
- Consolidated Balance Sheets as of June 30, 1998 and 1997.
- Consolidated Statements of Changes in Stockholders' Equity for the Years
Ended June 30, 1998, 1997 and 1996.
- Consolidated Statements of Cash Flows for the Years Ended June 30, 1998,
1997 and 1996.
- Notes to Consolidated Financial Statements.
(2) Financial Statement Schedules:
The following Financial Statement Schedules filed as part of this Report appear
under Item 8 of this Report:
There are no schedules included because they are not applicable or the required
information is shown in the Consolidated Financial Statements or Notes thereto.
*Incorporated by reference pursuant to Rule 12b-23 and General Instruction G(3)
to Form 10-K.
(3) Articles of Incorporation and Bylaws
Except as otherwise specifically noted, the following documents are
incorporated by reference as exhibits hereto pursuant to Rule 12b-32:
3.1 Certificate of Incorporation attached as Exhibit 3.1 to the Company s
Registration Statement on Form S-1, filed November 17, 1985.
3.2 Certificate of Amendment of Certificate of Incorporation attached as
Exhibit 4 to the Company s Quarterly Report on Form 10-Q for the
Quarter ended December 31, 1987.
3.3 Certificate of Amendment of Certificate of Incorporation attached as
Exhibit 3.1 to the Company s Annual Report on Form 10-K for the Year
Ended June 30, 1993.
3.4 Amended and Restated Bylaws attached as Exhibit A to the Company s
Quarterly Report on Form 10-Q for the Quarter ended March 31, 1996.
3.5 Certificate of Amendment of Certificate of Incorporation attached as
Exhibit 3.5 to the Company s Annual Report on Form 10-K for the Year
Ended June 30, 1997.
3.6 Certificate of Amendment of Certificate of Incorporation (attached
hereto).
(10) Material Contracts
Except as otherwise noted, the following Material Contracts are
incorporated herein by reference as Exhibits hereto pursuant to Rule
12b-32:
10.1 The Company's 1987 Stock Option Plan, as amended as of October
27, 1992, attached as Exhibit 19.1 to the Company's Quarterly
Report on Form 10-Q for the Quarter ended September 30, 1992.
10.2 The Company's Non-Qualified Stock Option Plan, as amended as of
October 26, 1993, attached as Exhibit 19.2 to the Company's Quarterly
Report on Form 10-Q for the Quarter ended September 30, 1993.
10.3 The Company's 1995 Non-Qualified Stock Option Plan, attached as
Exhibit 10.3 to the Company s Annual Report on Form 10-K for the Year
Ended June 30, 1996.
10.4 IBM Remarketer Agreement dated May 21, 1992, attached as Exhibit
10.1 to the Company's Annual Report on Form 10-K for the Year Ended
June 30, 1992.
10.5 Form of Indemnity Agreement which has been entered into as of
August 27, 1996, between the Company and each of its Directors,
attached as Exhibit 10.8 to the Company s Annual Report on Form 10-K
for the Year Ended June 30, 1996.
10.6 The Company s 1996 Stock Option Plan, attached as Exhibit 10.9
to the Company s Annual Report on Form 10-K for the Year Ended June
30, 1997.
10.7 The Agreement and Plan of Merger regarding acquisition of
Peerless Group, Inc., dated August 18, 1998 (attached hereto).
(21) Subsidiaries of the Registrant
A list of the Company's subsidiaries is attached hereto as Exhibit 21.
(23) Consents of Experts and Counsel
Consents of Independent Accountants are attached hereto as Exhibit 23A
and 23B.
(b) Reports on Form 8-K:
None.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized this 25th day of September,
1998.
JACK HENRY & ASSOCIATES, INC., Registrant
By /s/ Michael E. Henry
Michael E. Henry
Chairman of the Board
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated:
SIGNATURE CAPACITY DATE
/s/ Michael E. Henry Chairman of the September 25, 1998
Michael E. Henry Board and Chief
Executive Officer
and Director
/s/ Michael R. Wallace President, Chief September 25, 1998
Michael R. Wallace Operating Officer
and Director
/s/ John W. Henry Vice Chairman, Senior September 25, 1998
John W. Henry Vice President and
Director
/s/ Jerry D. Hall Executive Vice September 25, 1998
Jerry D. Hall President and
Director
/s/ Terry W. Thompson Vice President, September 25, 1998
Terry W. Thompson Treasurer and
Chief Financial
Officer
(Principal
Accounting
Officer)
/s/ James J. Ellis Director September 25, 1998
James J. Ellis
/s/ Burton O. George Director September 25, 1998
Burton O. George
/s/ George R. Curry Director September 25, 1998
George R. Curry
Exhibit 3.6
STATE OF DELAWARE
CERTIFICATE OF AMENDMENT OF
CERTIFICATE OF INCORPORATION
FIRST: That at a meeting of the Board of Directors of Jack Henry &
Associates, Inc., resolutions were duly adopted setting forth a proposed
amendment of the Certificate of Incorporation of said corporation, declaring
said amendment to be advisable and requesting that the stockholders consider
same. The resolution setting forth the proposed amendment is as follows:
RESOLVED, that the Certificate of Incorporation of this corporation be
amended as follows:
Article 5.1 shall be deleted in its entirety and the following substituted
in lieu thereof:
5.1: The total number of shares which the Corporation shall have
authority to issue is 50,500,000 shares, which shall consist of two
classes. One class, designated common stock, shall consist of
50,000,000 shares, each of which shall have a par value of $.01 per
share. The other class, designated preferred stock, shall consist
of 500,000 shares, each of which shall have a par value of $1.00 per
share.
SECOND: That thereafter, pursuant to resolution of its Board of Directors, an
annual meeting of the stockholders of said corporation was duly called and held,
upon notice in accordance with Section 222 of the General Corporation Law of the
State of Delaware at which meeting the necessary number of shares as required by
statute were voted in favor of the amendment.
THIRD: That said amendment was duly adopted in accordance with the provisions
of Section 242 of the General Corporation Law of the State of Delaware.
FOURTH: That the capital of said corporation shall not be reduced under or by
reason of said amendment.
IN WITNESS WHEREOF, said Jack Henry & Associates, Inc. has caused this
certificate to be signed by Michael R. Wallace, its President, and Janet E.
Gray, its Secretary, this 31st day of October, A.D., 1997.
By: /s/ Michael R. Wallace
Michael R. Wallace, President
Attest: /s/ Janet E. Gray
Janet E. Gray, Secretary
Exhibit 10.7
AGREEMENT AND PLAN OF MERGER
BY AND AMONG
JACK HENRY & ASSOCIATES, INC.
PEERLESS ACQUISITION CORP.
AND
PEERLESS GROUP, INC.
AUGUST 18, 1998
TABLE OF CONTENTS
Page No.
ARTICLE I DEFINITIONS 1
Section 1.1 Affiliate 1
Section 1.2 Company Disclosure Schedule 1
Section 1.3 Company Shares 1
Section 1.4 Company Stock 1
Section 1.5 Confidential Information 1
Section 1.6 Delaware General Corporation Law 2
Section 1.7 Documentation 2
Section 1.8 Exchange Act 2
Section 1.9 Exchange Agent 2
Section 1.10 Form S-4 2
Section 1.11 GAAP 2
Section 1.12 Hart-Scott-Rodino Act 2
Section 1.13 JHA Shares 2
Section 1.14 Joint Disclosure Document 2
Section 1.15 Knowledge 2
Section 1.16 Material Adverse Effect 2
Section 1.17 Ordinary Course of Business 3
Section 1.18 Person 3
Section 1.19 Pre-Closing Average Price 3
Section 1.20 Requisite Company Stockholder Approval 3
Section 1.21 SEC 3
Section 1.22 Securities Act 3
Section 1.23 Software 3
Section 1.24 Security Interest 3
Section 1.25 Subsidiary 4
ARTICLE II MERGER 4
Section 2.1 The Merger 4
Section 2.2 Effective Time 4
Section 2.3 The Closing 4
Section 2.4 Effects of the Merger 4
ARTICLE III THE SURVIVING CORPORATION 4
Section 3.1 Certificate of Incorporation 4
Section 3.2 Bylaws 4
Section 3.3 Directors 5
Section 3.4 Officers 5
ARTICLE IV CONVERSION OF SHARES AND OPTIONS 5
Section 4.1 Conversion of Company Common Stock 5
Section 4.2 Conversion of Company Options and Warrants 6
Section 4.3 Procedure for Payment 7
Section 4.4 No Fractional Shares 8
Section 4.5 Conversion of Newco Stock 8
Section 4.6 Closing of Transfer Records 8
ARTICLE V REPRESENTATIONS AND WARRANTIES OF COMPANY 8
Section 5.1 Organization, Qualification, and Corporate Power 8
Section 5.2 Capitalization 9
Section 5.3 Subsidiaries 9
Section 5.4 Authorization of Transaction 9
Section 5.5 Noncontravention 9
Section 5.6 SEC Reports 10
Section 5.7 Financial Statements 10
Section 5.8 Events Subsequent to Most Recent Fiscal
Quarter End 10
Section 5.9 Properties 11
Section 5.10 Agreements, Contracts and Commitments 11
Section 5.11 Employee Benefit Plans; ERISA 11
Section 5.12 Proprietary Rights 11
Section 5.13 Labor Matters 13
Section 5.14 Undisclosed Liabilities 13
Section 5.15 Litigation 13
Section 5.16 Taxes 14
Section 5.17 Brokers Fees 14
Section 5.18 Year 2000 14
Section 5.19 Compliance with Laws 14
Section 5.20 Tax and Accounting Matters 15
Section 5.21 Disclosure 15
Section 5.22 Fairness Opinion 15
ARTICLE VI REPRESENTATIONS AND WARRANTIES OF PARENT
AND NEWCO 15
Section 6.1 Organization 15
Section 6.2 Capitalization 15
Section 6.3 Authorization of Transaction 16
Section 6.4 Noncontravention 16
Section 6.5 Brokers Fees 16
Section 6.6 Disclosure 16
Section 6.7 SEC Reports 16
Section 6.8 Events Subsequent to Most Recent Fiscal
Quarter End 17
Section 6.9 Litigation 17
Section 6.10 Tax and Accounting Matters 17
Section 6.11 Ownership of Newco; No Prior Activities 17
Section 6.12 Issuance of JHA Shares 17
Section 6.13 Undisclosed Liabilities 17
ARTICLE VII ADDITIONAL COVENANTS 18
Section 7.1 General 18
Section 7.2 Notices and Consents 18
Section 7.3 Preparation of the Joint Disclosure
Document and the Form S-4 18
Section 7.4 Compliance with the Securities Act 19
Section 7.5 NASDAQ Quotation 19
Section 7.6 Stockholder Approval 19
Section 7.7 Hart-Scott-Rodino Act 19
Section 7.8 Pooling of Interests 20
Section 7.9 Comfort Letters 20
Section 7.10 Pooling of Interests Opinions 20
Section 7.11 Tax-Free Reorganization 20
Section 7.12 Operation of Business 20
Section 7.13 Full Access and Confidentiality 21
Section 7.14 Notice of Developments 22
Section 7.15 Exclusivity 22
Section 7.16 Insurance and Indemnification 22
Section 7.17 Expenses 23
Section 7.18 Cooperation 23
Section 7.19 Governmental Approvals 23
Section 7.20 Obligations of Newco 23
Section 7.21 Public Announcements 23
Section 7.22 Nasdaq National Market System 24
ARTICLE VIII CONDITIONS TO OBLIGATIONS TO CLOSE 24
Section 8.1 Conditions to Obligation of Parent and Newco 24
Section 8.2 Conditions to Obligation of Company 25
ARTICLE IX TERMINATION 27
Section 9.1 Termination of Agreement 27
Section 9.2 Termination Fee 28
Section 9.3 Effect of Termination 29
ARTICLE X MISCELLANEOUS 29
Section 10.1 Survival 29
Section 10.2 Press Releases and Public Announcements 29
Section 10.3 No Third Party Beneficiaries 29
Section 10.4 Entire Agreement 29
Section 10.5 Succession and Assignment 29
Section 10.6 Counterparts 29
Section 10.7 Headings 30
Section 10.8 Notices 30
Section 10.9 Governing Law 30
Section 10.10 Amendments and Waivers 30
Section 10.11 Severability 31
Section 10.12 Construction 31
Section 10.13 Incorporation of Exhibits and Schedules 31
Section 10.14 Cooperation 31
Section 10.15 Submission to Jurisdiction 31
INDEX TO EXHIBITS & SCHEDULES
Exhibit A Form of Certificate of Incorporation of Surviving Corporation
Exhibit B Form of Bylaws of Surviving Corporation
Exhibit C Form of Affiliate Letter
Schedule 1 Company Disclosure Schedule
Schedule 2 List of Proprietary and Third-Party Software
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER (the Agreement ) entered into as of this
18th day of August, 1998 by and among JACK HENRY & ASSOCIATES, INC., a Delaware
corporation ( Parent ), PEERLESS ACQUISITION CORP., a Delaware corporation and
wholly-owned subsidiary of Parent ( Newco ) and PEERLESS GROUP, INC., a Delaware
corporation ( Company ).
WHEREAS, the Boards of Directors of Parent and Newco and Company deem it
advisable and in the best interests of their respective stockholders that Parent
acquire Company, and such Boards of Directors have approved the merger (the
Merger ) of Newco with and into Company upon the terms and subject to the
conditions set forth herein; and
WHEREAS, for federal income tax purposes, this Agreement contemplates a tax-
free merger of Newco with and into Company in a reorganization pursuant to
Section 368(a)(1)(A) and (B) of the Internal Revenue Code of 1986, as amended
(the Code ); and
WHEREAS, for accounting purposes, it is intended that the Merger shall be
accounted for as a pooling of interests.
NOW, THEREFORE, in consideration of the premises and the mutual promises
herein made, and in consideration of the representations, warranties, and
covenants herein contained, and in order to set forth the terms of the Merger,
the parties hereto agree as follows.
ARTICLE I
DEFINITIONS
For purposes of this Agreement, the following terms shall have the following
meanings, and additional capitalized terms defined elsewhere in this Agreement
shall have such meaning:
Section 1.1 An Affiliate of any Person means another Person that directly or
indirectly, through one or more intermediaries, controls, is controlled by or is
under common control with, such first Person.
Section 1.2 Company Disclosure Schedule means the disclosure schedule
prepared by Company.
Section 1.3 Company Shares means issued and outstanding shares of Company
Stock.
Section 1.4 Company Stock means the Company s common stock par value $.01.
Section 1.5 Confidential Information means any information concerning the
businesses and affairs of Company and its Subsidiaries or Parent and its
subsidiaries, as applicable, that is not already generally available to the
public.
Section 1.6 Delaware General Corporation Law means the General Corporation
Law of the State of Delaware, as amended.
Section 1.7 Documentation means Proprietary Documentation and Third Party
Documentation, defined as follows:
1.7.1 Proprietary Documentation means those written materials
created by the Company that explain Proprietary Software, were used by Company
or its Subsidiaries in the development of Proprietary Software, or represent
an interim step in Company s development of Proprietary Software, including,
without limitation, logic diagrams, flowcharts, procedural diagrams and
algorithms, as well as manuals, training materials, sales materials, error
reports and related correspondence and memoranda.
1.7.2 Third Party Documentation means those written materials owned
by Company or its Subsidiaries that explain any Third Party Software or the
use thereof.
Section 1.8 Exchange Act means the Securities Exchange Act of 1934, as
amended.
Section 1.9 Exchange Agent means UMB Bank, N.A.
Section 1.10 Form S-4 shall mean that certain Form S-4 filed by Parent with
the SEC, which incorporates the Joint Disclosure Document.
Section 1.11 GAAP means generally accepted accounting principles in the
United States as in effect from time to time.
Section 1.12 Hart-Scott-Rodino Act means the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended (sometimes referred to as the HSR Act ).
Section 1.13 JHA Shares shall mean the shares of common stock, par value
$.01, of Parent ( Parent Stock ) which holders of Company Shares will receive in
exchange for their Company Shares, pursuant to this Agreement.
Section 1.14 Joint Disclosure Document means the document filed by the
Company with the SEC and sent to the holders of record of the Company Shares
which includes the Company s definitive proxy statement relating to the Special
Company Meeting and Parent s prospectus relating to the issuance of JHA Shares.
Section 1.15 Knowledge means the actual knowledge of such person after
reasonable investigation. When used with respect to Company, on the one hand,
or Parent or Newco, on the other hand, Knowledge shall mean the actual
knowledge, after reasonable investigation, of those persons identified in the
Management section of the most recent Form 10-K of Company or Parent,
respectively.
Section 1.16 Material Adverse Effect with respect to any Person means a
material adverse effect on (a) the ability of such Person to perform its
obligations under this Agreement or to consummate the transactions contemplated
hereby, or (b) the condition (financial or otherwise), assets, liabilities
(actual or contingent), results of operations or business of such Person and its
subsidiaries taken as a whole.
Section 1.17 Ordinary Course of Business means the ordinary course of
business consistent with past custom and practice (including with respect to
quantity and frequency).
Section 1.18 Person means an individual, a partnership, a corporation, an
association, a joint stock company, a trust, a joint venture, an unincorporated
organization, a governmental entity (or any department, agency, or political
subdivision thereof), or any other form of business organization or any other
entity.
Section 1.19 Pre-Closing Average Price means the average closing price of
JHA Shares, as reported on the NASDAQ National Market System by the Wall Street
Journal, for the ten (10) consecutive trading days ending on the fifth day prior
to the Special Company Meeting held to vote on the Merger.
Section 1.20 Requisite Company Stockholder Approval means the affirmative
vote of the holders of a majority of the Company Shares in favor of this
Agreement and the Merger.
Section 1.21 SEC means the Securities and Exchange Commission.
Section 1.22 Securities Act means the Securities Act of 1933, as amended.
Section 1.23 Software means Proprietary Software and Third Party
Software, defined as follows:
1.23.1 Proprietary Software means those computer software programs
that are owned by Company or its Subsidiaries (in both object code and source
code versions) listed on Schedule 2 hereto, including every modification and
enhancement thereto that has been created and owned by Company or its
Subsidiaries, together with any additional modifications and enhancements
thereto created by Company or its Subsidiaries between the date hereof and the
Closing Date.
1.23.2 Third Party Software means those computer software programs
separately listed on Schedule 2 (in object code only or both source code and
object code) that are owned by third parties and used or sublicensed by
Company or its Subsidiaries.
Section 1.24 Security Interest means any mortgage, pledge, lien,
encumbrance, charge, or other security interest, other than (a) mechanic s,
materialmen s, and similar liens, (b) liens for taxes not yet due and payable or
for taxes that the taxpayer is contesting in good faith through appropriate
proceedings, (c) purchase money liens and liens securing rental payments under
capital lease arrangements, and (d) other liens arising in the Ordinary Course
of Business and not incurred in connection with the borrowing of money.
Section 1.25 Subsidiary means any corporation or other entity with respect
to which Company (or a Subsidiary thereof) owns a majority of the common stock
or has the power to vote or direct the voting of sufficient securities to elect
a majority of the directors.
ARTICLE II
MERGER
Section 2.1 The Merger. At the Effective Time (as hereinafter defined in
Section 2.2 hereof), Newco shall be merged with and into Company on the terms
and conditions hereinafter set forth as permitted by and in accordance with the
Delaware General Corporation Law. Thereupon, the separate existence of Newco
shall cease, and Company, as the surviving corporation ( Surviving
Corporation ), shall continue to exist under and be governed by Delaware General
Corporation Law.
Section 2.2 Effective Time. The Merger shall become effective immediately
upon the later of the filing of the Certificate of Merger ( Certificate of
Merger ) with the Secretary of State of the State of Delaware or such other time
or date as the parties hereto may agree (the Effective Time ). The Surviving
Corporation may, at any time after the Effective Time, take any action
(including executing and delivering any document) in the name and on behalf of
either Company or Newco in order to carry out and effectuate the transactions
contemplated by this Agreement.
Section 2.3 The Closing. The closing of the transactions contemplated by
this Agreement (the Closing ) shall take place at the executive offices of the
Company, commencing at 9:00 a.m. local time no later than the second business
day following the satisfaction or waiver of all conditions to the obligations of
the parties to consummate the transactions contemplated hereby (other than
conditions with respect to actions the respective parties will take at the
Closing itself) or such other place or time and date as the parties may mutually
determine (the Closing Date ).
Section 2.4 Effects of the Merger. The Merger shall have the effects set
forth in this Agreement and in the applicable provisions of the Delaware General
Corporation Law. Without limiting the generality of the foregoing, and subject
thereto, at the Effective Time, all property of Company and Newco shall vest in
the Surviving Corporation, and all liabilities of Company and Newco shall become
the liabilities of the Surviving Corporation.
ARTICLE III
THE SURVIVING CORPORATION
Section 3.1 Certificate of Incorporation. At the Effective Time, the
Certificate of Incorporation of the Surviving Corporation shall be amended to be
in the form set forth in Exhibit A, until thereafter changed or amended in
accordance with the provisions thereof and applicable law.
Section 3.2 Bylaws. At the Effective Time, the Bylaws of the Surviving
Corporation shall be amended to be in the form set forth in Exhibit B, until
thereafter changed or amended in accordance with the provisions thereof and
applicable law.
Section 3.3 Directors. From and after the Effective Time, the members of the
Board of Directors of the Surviving Corporation shall consist of the members of
the Board of Directors of Newco (as constituted immediately prior to the
Effective Time).
Section 3.4 Officers. From and after the Effective Time, the officers of the
Surviving Corporation shall consist of the officers of Newco, as constituted
immediately prior to the Effective Time, until the earlier of their resignation
or removal or until their respective successors are duly elected and qualified,
as the case may be.
ARTICLE IV
CONVERSION OF SHARES AND OPTIONS
Section 4.1 Conversion of Company Common Stock. At and as of the Effective
Time, by virtue of the Merger and without any action on the part of Parent,
Newco, Company or any holder of any securities thereof:
4.1.1 All shares of capital stock of Company that are owned directly
or indirectly by Parent, Newco, Company or any subsidiary of any of the
foregoing immediately prior to the Effective Time (as treasury shares or
otherwise) shall be canceled and no Parent Stock or other consideration shall
be delivered in exchange therefor.
4.1.2 Subject to Sections 4.1.3, 4.1.4, 4.1.5 and 4.4, each share
of Company Stock, (other than any shares to be canceled pursuant to Section
4.1.1, above) shall be converted into the right to receive 0.16145 fully paid
and nonassessable shares (the Conversion Ratio ) of Parent Stock. The
Conversion Ratio has been calculated by dividing (i) $7.25 by (ii) the average
closing price of JHA Shares, as reported on the NASDAQ National Market System
by The Wall Street Journal, for the three (3) consecutive trading days prior
to the date of announcement made pursuant to Section 7.21 of the proposed
Merger by Company and Parent (the Pre-Announcement Average Price ).
4.1.3 In the event the Pre-Closing Average Price (as defined in
Section 1.18) is less than or equal to 85% of the Pre-Announcement Average
Price, the Conversion Ratio shall be adjusted to equal the product of (A) (i)
85% of the Pre-Announcement Average Price divided by (ii) the Pre-Closing
Average Price, and (B) the Conversion Ratio.
4.1.4 In the event the Pre-Closing Average Price is greater than or
equal to 115% of the Pre-Announcement Average Price, the Conversion Ratio
shall be adjusted to equal the product of (A) (i) 115% of the Pre-Announcement
Average Price divided by (ii) the Pre-Closing Average Price, and (B) the
Conversion Ratio.
4.1.5 The Conversion Ratio shall be subject to equitable adjustment
in the event of any stock split, stock dividend, reverse stock split, or other
change in the number of Company Shares outstanding.
Any references to Conversion Ratio hereafter in this Agreement shall be deemed
to include any subsequent adjustments required by the terms of 4.1.3, 4.1.4 and
4.1.5, above. No Company Share shall be deemed to be outstanding or to have any
rights other than those set forth above in this Section 4.1 after the Effective
Time, and each holder of a certificate representing any such shares will cease
to have any rights with respect thereto, except to receive the shares of Parent
Stock and any cash in lieu of fractional shares of Company Stock to be issued or
paid in consideration therefor upon surrender of such certificate in accordance
with Sections 4.3 and 4.4.
Section 4.2 Conversion of Company Options and Warrants. At the Effective
Time:
4.2.1 Each then-outstanding option to purchase Company Stock
(collectively, the Options ) whether or not then exercisable or fully vested
(after giving effect to any provisions that would result in acceleration of
vesting of such Options upon the occurrence of the Merger), shall be assumed
by Parent and shall constitute an option (a Substitute Option ) to acquire,
on terms and subject to conditions no less favorable to the optionee than
those that were applicable under such Option, including without limitation
term, vesting, exercisability, method of payment, status as an incentive
stock option under Section 422 of the Code (if applicable) or as an employee
stock purchase plan option under Section 423 of the Code (if applicable), and
termination provisions, the number of JHA Shares determined by multiplying the
number of shares of Company Stock subject to such Option immediately prior to
the Effective Time by the Conversion Ratio, at an exercise price per share
equal to the exercise price per share of Company Stock immediately prior to
the Effective Time divided by the Conversion Ratio and rounded to the nearest
cent; provided, however, that in the case of any Option to which Section 421
of the Code applies by reason of its qualification as an incentive stock
option under Section 422 of the Code or as an employee stock purchase plan
option under Section 423 of the Code, the conversion formula shall be adjusted
if necessary to comply with Section 424(a) of the Code.
4.2.2 Each then-outstanding warrant to purchase Company Stock
(collectively, the Warrants ) shall be assumed by Parent and shall constitute
a warrant (a Substitute Warrant ) to acquire, on the same terms and subject
to the same conditions as were applicable to such Warrant, including without
limitation term, exercisability, and any anti-dilution or other adjustment
provisions, the number of JHA Shares determined by multiplying the number of
shares of Company Stock subject to such Warrant immediately prior to the
Effective Time by the Conversion Ratio, at an exercise price per share equal
to the exercise price per share of Company Stock immediately prior to the
Effective Time divided by the Conversion Ratio.
4.2.3 Parent shall take all corporate action necessary to reserve for
issuance a sufficient number of JHA Shares for delivery upon exercise of
Substitute Options and Substitute Warrants pursuant to the terms set forth in
Section 4.2.1 and Section 4.2.2, respectively. Within 5 business days after
the Effective Time, the JHA Shares subject to Substitute Options issued to
holders of Options which were originally issued under employee benefit plans
of the Company, as defined in Rule 405 under the Securities Act, will be
covered by an effective registration statement on Form S-8 (or any successor
form) or another appropriate form and Parent shall use all reasonable efforts
to maintain the effectiveness of such registration statement for so long as
any Substitute Options are outstanding.
Section 4.3 Procedure for Payment.
4.3.1 Immediately after the Effective Time, Parent will deposit, or
cause to be deposited with, the Exchange Agent for the benefit of holders of
Company Shares, for exchange in accordance with this Article IV, (a) that
number of JHA Shares equal to the product of (i) the Conversion Ratio (as
adjusted) times (ii) the number of issued and outstanding Company Shares
(excluding shares held in treasury) and (b) an estimated amount of cash
required to be delivered in exchange for fractional shares of Parent Stock.
4.3.2 As soon as practicable after the Effective Time, Parent will
cause the Exchange Agent to mail a letter of transmittal (with instructions
for its use) to each record holder of outstanding Company Shares for the
holder to use in surrendering the certificates which represented his or its
Company Shares in exchange for a certificate representing the number of JHA
Shares to which he or it is entitled.
4.3.3 As soon as practicable after the Effective Time and after the
surrender to the Exchange Agent of any certificate which, prior to the
Effective Time, shall have represented any shares of Company Stock (a
Certificate ) together with such letter of transmittal, duly executed, and
such other customary documents as may be required pursuant to such
instructions, the holder of such Certificate shall be entitled to receive
certificates registered in the name of such person representing the JHA Shares
to which such person shall be entitled as described in Section 4.1.2 and cash
payable to such person representing payment in lieu of a fraction of any JHA
Share, if any, as determined in accordance with Section 4.4 (such cash to be
provided in the form of a check).
4.3.4 If any cash is to be paid to, or certificates representing JHA
Shares are to be issued to, a person other than the person in whose name the
Certificate surrendered in exchange therefor is registered, it shall be a
condition of the payment or issuance thereof that the Certificate so
surrendered shall be properly endorsed and otherwise in proper form for
transfer and that the person requesting such exchange shall pay to the
Exchange Agent any transfer or other taxes required by reason of the payment
of cash to a person other than, or the issuance of certificates representing
the JHA Shares in any name other than, that of, if any, the registered holder
of the Certificate surrendered, or otherwise required, or shall establish to
the satisfaction of the Exchange Agent that such tax has been paid or is not
payable.
4.3.5 Parent will not pay any dividend or make any distribution on
JHA Shares (with a record date at or after the Effective Time) to any holder
of an unsurrendered Certificate until the holder surrenders for exchange of
such Certificate. Parent instead will pay the dividend or make the
distribution to the Exchange Agent in trust for the benefit of the holder
pending surrender and exchange of such Certificate. Parent may cause the
Exchange Agent to invest any cash the Exchange Agent receives from the Parent
as a dividend or distribution; provided, however, that the terms and
conditions of the investments shall be such as to permit the Exchange Agent to
make prompt payments of cash to the holders of outstanding Company Shares as
necessary. Parent may cause the Exchange Agent to pay over to Parent any net
earnings with respect to the investments, and the Parent will replace promptly
any cash which the Exchange Agent loses through investments. In no event,
however, will any holder of an unsurrendered Certificate be entitled to any
interest or earnings on the dividend or distribution pending receipt.
4.3.6 Parent may cause the Exchange Agent to return any JHA Shares
and dividends and distributions thereon remaining unclaimed 180 days after the
Effective Time, and thereafter each remaining holder of an unsurrendered
Certificate shall be entitled to look to Parent (subject to abandoned
property, escheat, and other similar laws) as a general creditor thereof with
respect to the JHA Shares and dividends and distributions thereon to which he
or it is entitled upon surrender of his or its Certificates.
4.3.7 In the event any Certificate shall have been lost, stolen or
destroyed, Exchange Agent shall cause to be distributed JHA Shares in exchange
for such lost, stolen or destroyed Certificate upon the making of an affidavit
of that fact by the holder thereof; provided, however, that Parent may, in its
reasonable discretion and as a condition precedent thereto, require the owner
of such lost, stolen or destroyed Certificate to deliver a bond in such sum as
Parent may reasonably direct as indemnity against any claim that may be made
against Parent with respect to the Certificate alleged to have been lost,
stolen or destroyed.
4.3.8 Parent shall pay all charges and expenses of the Exchange Agent.
Section 4.4 No Fractional Shares. No certificate or scrip representing
fractional JHA Shares shall be issued upon the surrender for exchange of
certificates, and no dividend, stock split or interest shall relate to any such
fractional shares. In lieu of any fractional JHA Share being issued, cash shall
be paid to a holder of Company Stock who would otherwise be entitled to receive
a fraction of a JHA Share in an amount equal to (a) the fraction of a JHA Share
to which such holder would otherwise be entitled multiplied by (b) the Pre-
Closing Average Price.
Section 4.5 Conversion of Newco Stock. Each issued and outstanding share of
capital stock of Newco shall be converted into and become one validly issued,
fully paid and non-assessable share of common stock, par value $.01, of the
Surviving Corporation.
Section 4.6 Closing of Transfer Records. At and after the Effective Time,
transfers of Company Shares outstanding immediately prior to the Effective Time
shall not be made on the stock transfer books of the Surviving Corporation.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF COMPANY
Company represents and warrants to Parent and Newco that the statements
contained in this Article V are correct and complete as of the date of this
Agreement and will be correct and complete as of the Closing Date.
Section 5.1 Organization, Qualification, and Corporate Power. Each of
Company and its Subsidiaries is a corporation duly organized, validly existing,
and in good standing under the laws of its jurisdiction of incorporation. Each
of Company and its Subsidiaries is duly authorized to conduct business and is in
good standing under the laws of each jurisdiction where such qualification is
required, except where the lack of such qualification would not have a Material
Adverse Effect. Each of Company and its Subsidiaries has full corporate power
and authority to carry on the businesses in which it is engaged and to own and
use the properties owned and used by it.
Section 5.2 Capitalization. The entire authorized capital stock of Company
consists of 10,000,000 Company Shares and 5,000,000 shares of Preferred Stock.
At the close of business on the date hereof, no shares of Preferred Stock are
issued or outstanding, 4,923,695 Company Shares are issued and outstanding,
645,734 Company Shares are reserved for issuance pursuant to outstanding Options
and Warrants and 51,892 Company Shares are held by Company in its treasury. All
of the issued and outstanding Company Shares are duly authorized and are validly
issued, fully paid, and nonassessable. Except as set forth above, or on Section
5.2 of the Company Disclosure Schedule, there are no outstanding or authorized
Company Shares, options, warrants, purchase rights, subscription rights,
conversion rights, exchange rights, or other contracts or commitments that could
require Company to issue, sell, or otherwise cause to become outstanding any of
its capital stock. There are no outstanding or authorized stock appreciation,
phantom stock, profit participation, or similar rights with respect to Company.
Section 5.3 Subsidiaries. Except as set forth in Section 5.3 of the Company
Disclosure Schedule, all of the outstanding shares of capital stock of the
Subsidiaries are validly issued, fully paid and nonassessable and are owned by
Company or by a Subsidiary free and clear of any liens, claims, charges and
encumbrances. There are not now, and at the Effective Time there will not be,
any outstanding options, warrants, subscriptions, calls, rights, convertible
securities or other agreements or other commitments obligating Company or any
Subsidiary to issue, transfer or sell any securities of any Subsidiary. There
are not now, and at the Effective Time there will not be, any voting trusts or
other agreements or understandings to which Company or any Subsidiary is a party
or is bound with respect to the voting of the capital stock of any Subsidiary.
Section 5.4 Authorization of Transaction. Company has full power and
authority (including full corporate power and authority) to execute and deliver
this Agreement and to perform its obligations hereunder; provided, however, that
Company cannot consummate the Merger unless and until it receives the Requisite
Company Stockholder Approval. This Agreement constitutes the valid and legally
binding obligation of Company, enforceable against Company in accordance with
its terms and conditions. The Board of Directors of Company has approved this
Merger Agreement and has declared the advisability of the Merger Agreement and
the Merger. The Board of Directors has taken all appropriate action so that (a)
neither Parent nor Newco will be an interested stockholder within the meaning
of Section 203 of the Delaware General Corporation Law by virtue of the parties
entering into this Agreement and consummating the transactions contemplated
hereby, and (b) no special vote of the Company s stockholders shall be required
with regard to the Merger under Article 12 of the Company s Certificate of
Incorporation pertaining to fair price in certain business combinations.
Section 5.5 Noncontravention. Except as set forth in Section 5.5 of the
Company Disclosure Schedule, neither the execution and the delivery of this
Agreement, nor the consummation of the transactions contemplated hereby, will
(a) subject to the provisions of the next sentence, violate any constitution,
statute, regulation, rule, injunction, judgment, order, decree, ruling, charge,
or other restriction of any government, governmental agency, or court to which
Company or any of its Subsidiaries is subject or any provision of the charter or
bylaws of Company or any of its Subsidiaries or (b) conflict with, result in a
breach of, constitute a default under, result in the acceleration of, create in
any party the right to accelerate, terminate, modify, or cancel, or require any
notice under any agreement, contract, lease, license, instrument or other
arrangement to which Company or any of its Subsidiaries is a party or by which
it is bound or to which any of its assets is subject (or result in the
imposition of any Security Interest upon any of its assets), except where any
such violations, conflicts, breaches, defaults, accelerations, or creation of
the right to accelerate, terminate, modify, or cancel would not have a Material
Adverse Effect. Other than in connection with the provisions of the Hart-Scott-
Rodino Act, the Delaware General Corporation Law, the Securities Act, the
Exchange Act, state securities laws, neither Company nor its Subsidiaries needs
to give any notice to, make any filing with, or obtain any authorization,
consent, or approval of any government or governmental agency in order for the
parties to consummate the transactions contemplated by this Agreement.
Section 5.6 SEC Reports. Company has made all filings with the SEC that it
has been required to make under the Securities Act and the Exchange Act
(collectively the Public Reports ). Each of the Public Reports has complied
with the Securities Act and the Exchange Act in all material respects. None of
the Public Reports, as of their respective dates (or if amended or superseded by
a subsequent filing, then on the date of such filing), contained any untrue
statement of a material fact or omitted to state a material fact necessary in
order to make the statements made therein, in light of the circumstances under
which they were made, not misleading. Company has delivered to Parent a correct
and complete copy of each Public Report (together with all exhibits and
schedules thereto and as amended to date).
Section 5.7 Financial Statements. Company has filed a Quarterly Report on
Form 10-Q for the fiscal quarter ended June 30, 1998 (the Most Recent Fiscal
Quarter End ), and an Annual Report on Form 10-K for the fiscal years ended
December 31, 1997 and 1996. The financial statements included in or
incorporated by reference into these Public Reports (including the related notes
and schedules) have been prepared in accordance with GAAP applied on a
consistent basis throughout the periods covered thereby (except as may be
indicated in the notes to such financial statements or, in the case of unaudited
statements, as permitted by Form 10-Q promulgated by the SEC) and fairly present
in all material respects the financial condition of Company and its Subsidiaries
as of the indicated dates and the results of operations of Company and its
Subsidiaries for the indicated periods, are correct and complete in all material
respects, and are consistent with prior accounting policies (other than as
disclosed in the Public Reports) and with the books and records of Company and
its Subsidiaries; provided, however, that the interim statements are subject to
normal year-end adjustments.
Section 5.8 Events Subsequent to Most Recent Fiscal Quarter End. Since the
Most Recent Fiscal Quarter End, there has not been any material adverse change
in the business, financial condition, operations, results of operations, or
future prospects of Company or its Subsidiaries. Material adverse changes in
the business, financial condition, operations, results of operations, or future
prospects of Company or its Subsidiaries which occur after the date of this
Agreement and are caused by consequences directly relating to the announcement
of the Merger shall not be considered a violation of the representation made in
this Section 5.8.
Section 5.9 Properties. (a) Company does not own of record any real
property; and (b) except as would not have a Material Adverse Effect, all
material real property leases of Company and its Subsidiaries are in good
standing, valid and effective in accordance with their respective terms, and
neither Company nor any of its Subsidiaries is in default under any of such
leases.
Section 5.10 Agreements, Contracts and Commitments. Except as set forth in
Section 5.10 of the Company Disclosure Schedule, Company has not breached, or
received in writing any claim or notice that it has breached, any of the terms
or conditions of any agreement, contract or commitment in such a manner as,
individually or in the aggregate, would have a Material Adverse Effect. Each
Company contract that has not expired by its terms is, to Company s Knowledge,
in full force and effect and enforceable against the parties thereto in
accordance with its terms.
Section 5.11 Employee Benefit Plans; ERISA. Section 5.11 of the Company
Disclosure Schedule identifies each employee pension, retirement, profit
sharing, bonus, incentive, deferred compensation, hospitalization, medical,
dental, vacation, insurance, sick pay, disability, severance or other plan,
fund, program, policy, contract or arrangement providing employee benefits
maintained, promised or contributed to by Company, whether created in writing,
through an employee manual or similar document or orally (the Plans ). Company
has no formal plan or commitment, whether legally binding or not, to create any
additional Plan or modify or change any existing Plan. Section 5.11 of the
Company Disclosure Schedule sets forth all liabilities, obligations and
commitments of Company, whether legally binding or not, to make any
contributions to any Plan or payments to any employee or any other Person (other
than payments being made on claims under Company s health plans) with respect to
any of the Plans as of the date hereof. Except as set forth in Section 5.11 of
the Company Disclosure Schedule: (a) all such Plans that are subject to the
Employee Retirement Income Security Act of 1974, as amended, and any successor
statute of similar import, together with the regulations thereunder ( ERISA )
comply in all material respects with ERISA and the Internal Revenue Code, (b)
all contributions to or payments under such Plans that were due and payable by
Company on or before the date hereof have been made, and (c) Company does not
sponsor, maintain or contribute to any Plan which is subject to Title IV of
ERISA, nor has Company terminated or withdrawn from any such Plan. Company will
take all appropriate and necessary action on or before Closing to begin the
process for terminating Company s defined contribution retirement plan,
including the filing of Internal Revenue Service Form 5310, and upon approval of
the Internal Revenue Service as to its qualified status upon termination, all
account balances shall be distributed as directed by the participants,
including, without limitation, as rollovers to Parent s 401(k) plan to the
extent permissible.
Section 5.12 Proprietary Rights.
5.12.1 Except as set forth in Section 5.12 of the Company Disclosure
Schedule, Company or one of its Subsidiaries owns or is licensed to use all
copyrights, know-how, patents, trademarks and trade secrets (collectively, the
Proprietary Rights ) necessary for the operation of its business as now
conducted.
5.12.2 Except as set forth in Section 5.12 of the Company Disclosure
Schedule, Company and its Subsidiaries have not entered into any agreement
that limits or restricts its right to use, copy, modify, prepare derivatives
of, sublicense, distribute and otherwise market, severally or together, the
Proprietary Software and/or the Proprietary Documentation. Except as set
forth in Section 5.12 of the Company Disclosure Schedule, there are no
agreements or arrangements in effect with respect to the marketing,
distribution, licensing or promotion of the Proprietary Software with any
current or past employee of Company or its Subsidiaries, or with any
independent sales person, distributor, sublicensee or other remarketer or
sales organization. Company s and its Subsidiaries present use, copying,
modification, preparation of derivatives of, sublicensing, distribution or
other marketing of the Proprietary Software does not infringe any intellectual
property right of any Person.
5.12.3 Except as set forth in Section 5.12 of the Company Disclosure
Schedule, Company and its Subsidiaries own all right, title and interest in
and to the copyrights in all Proprietary Software and Proprietary
Documentation. Company and its Subsidiaries have not obtained registrations
of any copyrights. Except as set forth in the Company Disclosure Schedule,
each Person who has participated in or contributed to the development of the
Proprietary Software and the Proprietary Documentation since the inception of
Company, has either: (a) so contributed or participated as an employee of
Company or a Subsidiary within the scope of his or her employment obligations,
(b) so contributed or participated as an independent contractor pursuant to a
valid and binding agreement which specifically assigns all copyrights to
Company or Subsidiary, or (c) otherwise assigned to Company or Subsidiary the
copyright in any Proprietary Software and Proprietary Documentation.
5.12.4 Except as set forth in Section 5.12 of the Company Disclosure
Schedule, Company and its Subsidiaries have taken efforts that are reasonable
under the circumstances to prevent the unauthorized disclosure to other
Persons of such portions of Company s and Subsidiaries trade secrets as would
enable any such other Person to compete with Company or its Subsidiaries
within the scope of its business as now conducted.
5.12.5 Company or its Subsidiaries do not use any trademark in
connection with its business in any material way, except for those trademarks
listed in Section 5.12 of the Company Disclosure Schedule, and no such
trademark is registered except as otherwise indicated therein.
5.12.6 Any Third Party Software used by Company or its Subsidiaries
within the scope of its business is identified in Schedule 2. Company and its
Subsidiaries have the legal right to use, sublicense, distribute and otherwise
market all Third Party Software in the manner that each presently uses,
sublicenses, distributes and otherwise markets such Third Party Software in
the normal course of its business. Except as set forth in Section 5.12 of the
Company Disclosure Schedule, Company and its Subsidiaries have no obligation
to make any payments by way of royalty, fee, settlement or otherwise to any
Person in connection with Company s or Subsidiaries present use,
sublicensing, distribution or other marketing of such Third Party Software.
5.12.7 Except as set forth in Section 5.12 of the Company Disclosure
Schedule, no claim has been asserted against Company or its Subsidiaries
within the scope of its business by any other Person: (a) that such Person has
any right, title or interest in or to any of Company s or Subsidiaries
copyrights, patents or trade secrets, (b) that such Person has the right to
use any of Company s or Subsidiaries trademarks, (c) to the effect that any
past, present or projected act or omission by Company or Subsidiary infringes
any rights of such Person to any copyright, patent, trade secret, know-how or
trademark, or (d) that challenges Company s or Subsidiaries right to use any
copyrights, patents, trade secrets, know-how or trademarks.
Section 5.13 Labor Matters. Neither Company nor any of the Subsidiaries is
a party to, or bound by, any collective bargaining agreement, contract or other
agreement or understanding with a labor union or labor organization. There is no
unfair labor practice or labor arbitration proceeding pending or, to the
Knowledge of Company, threatened against Company or the Subsidiaries relating to
their business, except for any such proceeding which would not have a Material
Adverse Effect. To the Knowledge of Company, there are no organizational
efforts with respect to the formation of a collective bargaining unit presently
being made or threatened involving employees of Company or any of the
Subsidiaries.
Section 5.14 Undisclosed Liabilities. Except as disclosed in Section 5.14
of the Company Disclosure Schedule, neither Company nor its Subsidiaries has any
liability (whether known or unknown, whether asserted or unasserted, whether
absolute or contingent, whether accrued or unaccrued, whether liquidated or
unliquidated, and whether due or to become due), including any liability for
taxes, except for (a) liabilities set forth on the face of the balance sheet
dated as of the Most Recent Fiscal Quarter End (or in the notes thereto), (b)
liabilities which have arisen after the Most Recent Fiscal Quarter End in the
Ordinary Course of Business (none of which results from, arises out of, relates
to, is in the nature of, or was caused by any breach of contract, breach of
warranty, tort, infringement, or violation of law), (c) liabilities specifically
described in this Agreement or in the Company Disclosure Schedule and (d)
liabilities permitted to be incurred under Section 7.12 hereof.
Section 5.15 Litigation. As of the date hereof, except as specified in
Section 5.15 of the Company Disclosure Schedule, (a) there is no suit, claim,
action, proceeding, at law or in equity, or investigation pending or, to the
Knowledge of Company, threatened against Company or any of its Subsidiaries
before any court or other governmental entity, and (b) neither Company nor any
of its Subsidiaries is subject to any outstanding order, writ, judgment,
injunction, decree or arbitration order or award. As of the date hereof, there
are no suits, claims, actions, proceedings or investigations pending or, to the
Knowledge of Company, threatened, seeking to prevent, hinder, modify or
challenge the transactions contemplated by this Agreement.
Section 5.16 Taxes.
5.16.1 Except as disclosed in Section 5.16 of the Company Disclosure
Schedule, all federal, state and local tax returns required to be filed by
Company and its Subsidiaries on or prior to the date hereof have been filed;
(ii) all Taxes and assessments including, without limitation, estimated tax
payments, excise, unemployment, social security, occupation, franchise,
property, sales and use taxes, and all penalties or interest in respect
thereof now or heretofore due and payable by or with respect to Company and
its Subsidiaries have been paid; (iii) all federal, state and local
withholdings of Company and its Subsidiaries including, without limitation,
withholding taxes, social security, and any similar taxes, have been withheld
and paid over as required by law; and (iv) no extension with any taxing
authority concerning any tax liability of or with respect to Company or its
Subsidiaries is currently outstanding.
5.16.2 There are no tax liens, whether imposed by any federal, state,
local or foreign taxing authority, outstanding against any of the assets,
properties or business of Company or its Subsidiaries (except for liens for
property (ad valorem) taxes not yet due and payable).
For purposes of this Agreement, Taxes shall mean all federal, state, local,
foreign income, property, sales, excise, employment, payroll, franchise,
withholding and other taxes, tariffs, charges, fees, levies, imposts, duties,
licenses or other assessments of every kind and description, together with any
interest and any penalties, additions to tax or additional amounts imposed by
any taxing authority.
Section 5.17 Brokers Fees. Except as set forth in Section 5.17 of the
Company Disclosure Schedule, neither of Company nor its Subsidiaries has any
liability or obligation to pay any fees or commissions to any broker, finder, or
agent with respect to the transactions contemplated by this Agreement.
Section 5.18 Year 2000. Company believes that, assuming the continued
implementation without alteration or disruption of its plan for Year 2000
compliance, Company s and its Subsidiaries Proprietary Software will not be
materially and adversely affected by the occurrence or use of dates before, on,
or after January 1, 2000 A.D., including dates and leap years between the
twentieth and twenty-first centuries ( Millennial Dates ), the Proprietary
Software will without error or omission, create, receive, store, process and
output (collectively Compute ) information related to the Millennial Dates.
This warranty includes, without limitation, that the Proprietary Software will
accurately, and without performance degradation, Compute Millennial Dates, date-
dependent data, date-related interfaces, or other date-related functions
(including, without limitation, calculating, comparing and sequencing such
functions).
Section 5.19 Compliance with Laws. Company and each of its Subsidiaries has
complied with, is not in violation of, and has not received any notices of
violation with respect to, any federal, state, local or foreign statute, law or
regulation with respect to the conduct of its business, or the ownership or
operation of its business, except for failure to comply or violations which,
individually or in the aggregate, have not had and are not reasonably likely to
have a Material Adverse Effect.
Section 5.20 Tax and Accounting Matters. Neither Company, nor its
Subsidiaries, nor any of its Affiliates has taken or agreed to take any action,
and Company does not have Knowledge of any circumstances relating to Company or
its Subsidiaries or any of its Affiliates, that (a) would prevent the Merger
from constituting a reorganization within the meaning of Section 368(a) of the
Code or (b) would prevent the Merger from being accounted for as a pooling of
interests under the requirements of Opinion No. 16 of the American Institute of
Certified Public Accounts ( AICPA ), as amended by the Statements of Financial
Accounting Standards Board (the SFAS Board ) and the related interpretations of
the AICPA, the SFAS Board, and the rules and regulations of the SEC.
Section 5.21 Disclosure. The information supplied by Company for inclusion
in the Joint Disclosure Document insofar as it relates to Company will not (a)
at the time the Joint Disclosure Document is first mailed to the Company s
stockholders, or (b) on the date of the Special Company Meeting, contain any
untrue statement of a material fact or omit to state a material fact necessary
in order to make the statements made therein, in the light of the circumstances
under which they are made, not misleading. None of the information supplied by
Company specifically for use in the Form S-4 will, at the time the Form S-4 is
declared effective by the SEC, contain any untrue statement of a material fact
or omit to state a material fact necessary in order to make the statements made
therein, in the light of the circumstances under which they are made, not
misleading.
Section 5.22 Fairness Opinion. Dain Rauscher Wessels has delivered to
Company as of, or immediately prior to, the date of this Agreement, an opinion
to the effect that the Conversion Ratio is fair to Company s stockholders from a
financial point of view (the Fairness Opinion ).
ARTICLE VI
REPRESENTATIONS AND WARRANTIES OF PARENT AND NEWCO
Parent and Newco represent and warrant to Company that the statements
contained in this Article VI are correct and complete as of the date of this
Agreement and will be correct and complete as of the Closing Date.
Section 6.1 Organization. Each of Parent and Newco is a corporation duly
organized, validly existing, and in good standing under the laws of the State of
Delaware. Parent has full corporate power and authority to carry on the
businesses in which it is engaged and to own and use the properties owned and
used by it.
Section 6.2 Capitalization. The entire authorized capital stock of Parent
consists of (a) 50,000,000 JHA Shares and 500,000 shares of Preferred Stock, of
which no shares of Preferred Stock are issued and outstanding, 18,955,217 JHA
Shares are issued and outstanding, 2,096,234 JHA Shares are reserved for
issuance pursuant to outstanding stock options, and no JHA Shares are held in
treasury. All of the JHA Shares to be issued in the Merger have been duly
authorized and, upon consummation of the Merger, will be validly issued, fully
paid, and nonassessable. Other than the aforementioned outstanding stock
options, there are no options, warrants, purchase rights, subscription rights,
conversion rights, exchange rights, or other contracts or commitments that could
cause Parent to issue, sell or otherwise cause to become outstanding any of its
capital stock. There are no outstanding or authorized stock appreciation,
phantom stock, profit participation, or similar rights with respect to Parent.
Section 6.3 Authorization of Transaction. Each of Parent and Newco has full
power and authority (including full corporate power and authority) to execute
and deliver this Agreement and to perform its obligations hereunder. This
Agreement constitutes the valid and legally binding obligation of Parent and
Newco, enforceable in accordance with its terms and conditions. No approval of
this Agreement or the Merger by Parent s security holders is required under the
provisions of Parent s Certificate of Incorporation or Bylaws or the Delaware
General Corporation Law or the rules and regulations of the National Association
of Securities Dealers.
Section 6.4 Noncontravention. Neither the execution and the delivery of this
Agreement, nor the consummation of the transactions contemplated hereby, will
(a) subject to the provisions of the next sentence, violate any constitution,
statute, regulation, rule, injunction, judgment, order, decree, ruling, charge,
or other restriction of any government, governmental agency, or court to which
Parent or Newco is subject or any provision of the charter or bylaws of Parent
or Newco or (b) conflict with, result in a breach of, constitute a default
under, result in the acceleration of, create in any party the right to
accelerate, terminate, modify, or cancel, or require any notice under any
agreement, contract, lease, license, instrument or other arrangement to which
Parent or Newco is a party or by which it is bound or to which any of its assets
is subject, except where the violation, conflict, breach, default, acceleration,
termination, modification, cancellation, or failure to give notice would not
have a Material Adverse Effect. Other than in connection with the provisions of
the Hart-Scott-Rodino Act, the Delaware General Corporation Law, the Exchange
Act, the Securities Act, and the state securities laws, neither Parent nor Newco
needs to give any notice to, make any filing with, or obtain any authorization,
consent, or approval of any government or governmental agency in order for the
parties to consummate the transactions contemplated by this Agreement.
Section 6.5 Brokers Fees. Neither Parent nor Newco has any liability or
obligation to pay any fees or commissions to any broker, finder, or agent with
respect to the transactions contemplated by this Agreement for which Company or
its Subsidiaries could become liable or obligated.
Section 6.6 Disclosure. The Form S-4 will comply with the Securities Act and
the Exchange Act in all material respects. The Form S-4 will not contain any
untrue statement of a material fact or omit to state a material fact necessary
in order to make the statements made therein, in the light of the circumstances
under which they will be made, not misleading; provided, however, that Parent
makes no representation or warranty with respect to any information that Company
will supply specifically for use in the Form S-4. None of the information that
Parent or Newco will supply specifically for use in the Form S-4 will contain
any untrue statement of a material fact or omit to state a material fact
necessary in order to make the statements made therein, in the light of the
circumstances under which they will be made, not misleading.
Section 6.7 SEC Reports. Parent has made all filings with the SEC that it
has been required to make under the Securities and Exchange Act. Each of such
of the filings has complied with the Securities Act and the Exchange Act in all
material respects. None of the reports contained in such filings, as of their
respective dates (or if amended or superseded by subsequent filing, on the date
of such filing), contained any untrue statement of a material fact or omitted to
state a material fact in order to make the statements therein, in light of the
circumstances under which they were made, not misleading. The financial
statements of Parent contained in such filings and reports were prepared in
accordance with GAAP applied on a consistent basis through the periods covered
thereby (except as may be indicated in the notes to such financial statements
or, in the case of unaudited statements, as permitted by Form 10-Q promulgated
by the SEC) and present fairly the financial condition of Parent as of the
indicated dates and the results of operations of Parent for the indicated
periods and are correct and complete in all material respects.
Section 6.8 Events Subsequent to Most Recent Fiscal Quarter End. Since March
31, 1998, there has not been any material adverse change in the business,
financial condition, operations, results of operations, or future prospects of
Parent provided, however, that material adverse changes in the business,
financial condition, operations, results of operations or future prospects of
Parent which occur after the date of this Agreement and are caused by
consequences directly relating to the announcement of the Merger shall not be
considered a violation of the representation made in this Section 6.8.
Section 6.9 Litigation. As of the date hereof, there are no suits, claims,
actions, proceedings or investigations pending or, to the Knowledge of Parent,
threatened, seeking to prevent, hinder, modify or challenge the transactions
contemplated by this Agreement.
Section 6.10 Tax and Accounting Matters. Neither Parent, nor its
subsidiaries nor any of its affiliates has taken or agreed to take any action,
and Parent does not have Knowledge of any circumstances relating to Parent or
its subsidiaries or any of its Affiliates that (a) would prevent the Merger from
constituting a reorganization within the meaning of Section 368(a) of the Code
or (b) would prevent the Merger from being accounted for as a pooling of
interests under the requirements of Opinion No. 16 of the AICPA, as amended by
the SFAS Board and the related interpretations of the AICPA, the SFAS Board, and
the rules and regulations of the SEC.
Section 6.11 Ownership of Newco; No Prior Activities. Newco was formed
solely for the purpose of engaging in the Merger, and is wholly owned by Parent.
As of the date hereof and the Effective Time, except for obligations or
liabilities incurred in connection with its incorporation or organization and
the Merger and except for this Agreement and any other agreements or
arrangements contemplated by this Agreement, Newco has not and will not have
incurred, directly or indirectly, through any subsidiary or Affiliate, any
obligations or liabilities or engaged in any business activities of any type or
kind whatsoever or entered into any agreements or arrangements with any Person.
Section 6.12 Issuance of JHA Shares. The JHA Shares to be issued pursuant to
the Merger will be duly authorized, validly issued, fully paid and nonassessable
and not subject to preemptive rights created by statute, Parent s Certificate of
Incorporation or Bylaws or any agreement to which Parent is a party or by which
Parent is bound.
Section 6.13 Undisclosed Liabilities. Neither Parent nor its subsidiaries
has any material liability (whether known or unknown, whether asserted or
unasserted, whether absolute or contingent, whether accrued or unaccrued,
whether liquidated or unliquidated, and whether due or to become due), including
any liability for taxes, except for (a) liabilities set forth on the face of its
balance sheet as of March 31, 1998 (or in the notes thereto), (b) liabilities
which have arisen after March 31, 1998 in the Ordinary Course of Business (none
of which results from, arises out of, relates to, is in the nature of, or was
caused by any breach of contract, breach of warranty, tort, infringement, or
violation of law), and (c) liabilities specifically described in this Agreement.
ARTICLE VII
ADDITIONAL COVENANTS
The parties agree as follows with respect to the period from and after the
execution of this Agreement.
Section 7.1 General. Each of the parties will use its best efforts to take
all action and to do all things necessary, proper or advisable in order to
consummate and make effective the transactions contemplated by this Agreement
(including satisfaction, but not waiver, of the closing conditions set forth in
Article VIII below).
Section 7.2 Notices and Consents. Each of the parties hereto will give any
notices (and will cause each of its subsidiaries to give any notices) to third
parties, and will use its best efforts to obtain (and will cause each of its
subsidiaries to use its best efforts to obtain) any third party consents, that
the other party reasonably may request.
Section 7.3 Preparation of the Joint Disclosure Document and the Form S-4. As
soon as practicable following the date hereof:
7.3.1 Company shall prepare for inclusion in the Joint Disclosure
Document and Form S-4 a proxy statement relating to the Merger in accordance
with the Exchange Act and the rules and regulations under the Exchange Act, to
the extent applicable. Parent shall prepare for inclusion in the Joint
Disclosure Document and Form S-4 a prospectus relating to the issuance of JHA
Shares. Company, Parent and Newco shall cooperate with each other in the
preparation of the Joint Disclosure Document and the Form S-4. Company and
Parent shall use all reasonable efforts to respond promptly to any comments
made by the SEC with respect to the Joint Disclosure Document and Form S-4 and
to cause the Joint Disclosure Document to be mailed to the stockholders of
Company at the earliest practicable date after the Form S-4 is declared
effective by the SEC.
7.3.2 Parent shall prepare and file with the SEC the Form S-4.
Parent shall also, prior to the Effective Time, take any action required to be
taken under any applicable state securities laws in connection with the
issuance of JHA Shares in the Merger, and Company shall furnish all
information concerning Company and the holders of the Company Shares as may be
reasonably requested in connection with any such action.
7.3.3 Without limiting the generality of the foregoing, Company and
Parent shall notify each other promptly of the issuance of any stop order
relating to the Form S-4 or the Joint Disclosure Document, the receipt of the
comments of the SEC and of any request by the SEC for amendments or
supplements to the Joint Disclosure Document and Form S-4, or for additional
information, and shall supply each other with copies of all correspondence
between them or their respective representatives, on the one hand, and any
state securities commission or the SEC or members of its staff, on the other
hand, with respect to the Joint Disclosure Document and Form S-4. If at any
time prior to the Special Company Meeting (as hereinafter defined) any event
should occur relating to Company or Parent or their respective officers or
directors which is required to be described in any amendment or supplement to
the Joint Disclosure Document and Form S-4, the parties shall promptly inform
each other. Whenever any event occurs which is required to be described in an
amendment or a supplement to the Form S-4, Company and Parent shall, upon
learning of such event, cooperate in promptly preparing, filing and (to the
extent applicable) clearing with the SEC and mailing to the stockholders of
Company such amendment or supplement; provided, however, that, prior to such
mailing, (a) Company and Parent shall consult with each other with respect to
such amendment or supplement, (b) Company and Parent shall afford each other
reasonable opportunity to comment thereon, and (c) each such amendment or
supplement shall be reasonably satisfactory to the other.
7.3.4 Parent shall send the Form S-4 to Company for Company s review
and comment prior to the filing of the Form S-4 with the SEC. Parent and
Company each shall use all reasonable efforts to cause the Form S-4 to become
effective as promptly as practicable.
Section 7.4 Compliance with the Securities Act. Prior to the Effective
Time, Company shall cause to be delivered to Parent a list identifying all
persons who where at the record date for the Special Company Meeting convened in
accordance with Section 7.6 hereof, affiliates of Company as that term is used
in paragraphs (c) and (d) of Rule 145 under the Securities Act (the
Affiliates ). Company shall use its efforts to cause each person who is
identified as an Affiliate in the list referred to above to deliver to Parent at
or prior to the Effective Time a written agreement in the form attached hereto
as Exhibit C (the Affiliate Letters ).
Section 7.5 NASDAQ Quotation. Each of Company and Parent agrees to continue
the quotation of Company Shares and JHA Shares on the NASDAQ National Market
during the term of this Agreement so that appraisal rights will not be available
to stockholders of Company under Section 262 of the Delaware General Corporation
Law.
Section 7.6 Stockholder Approval. Company will call a special meeting of its
stockholders (the Special Company Meeting ) as soon as reasonably practicable
in order that Company s stockholders may consider and vote upon the adoption of
this Agreement and the approval of the Merger in accordance with the Delaware
General Corporation Law. Company will mail the Joint Disclosure Document to its
stockholders as soon as reasonably practicable. The Joint Disclosure Document
will contain the affirmative recommendation of the Company s Board of Directors
in favor of the adoption of this Agreement and the approval of the Merger;
provided, however, that no director or officer shall be required to violate any
fiduciary duty or other requirement imposed by law in connection therewith.
Section 7.7 Hart-Scott-Rodino Act. Each of the parties will file (and
Company will cause each of its Subsidiaries to file) any Notification and Report
Forms and related material that it may be required to file with the Federal
Trade Commission and the Antitrust Division of the United States Department of
Justice under the Hart-Scott-Rodino Act, will use its reasonable best efforts to
obtain (and Company will cause each of its Subsidiaries to use its reasonable
best efforts to obtain) an early termination of the applicable waiting period,
and will make (and Company will cause each of its Subsidiaries to make) any
further filings pursuant thereto that may be necessary.
Section 7.8 Pooling of Interests. Company and Parent shall each use their
best efforts to cause the business combination to be effected by the Merger to
be accounted for as a pooling of interests. Each of Company and Parent shall
use their best efforts to not take any action and to cause its respective
Affiliates not to take any action (including, without limitation any
transactions involving the securities of Parent or Company) that would adversely
affect the ability of Parent to account for the business combination to be
effected by the Merger as a pooling of interests.
Section 7.9 Comfort Letters. Company will deliver to Parent on or before
the date the Joint Disclosure Document is mailed to Company stockholders a
letter of Ernst & Young, stating their conclusions as to the accuracy of certain
information derived from the financial records of Company and its Subsidiaries
and contained in the Joint Disclosure Document (the Company Comfort Letter ).
The Company Comfort Letter shall be reasonably satisfactory to Parent in form
and substance. Parent will deliver to Company on or before the date the Joint
Disclosure Document is mailed to Company stockholders a letter of Deloitte &
Touche stating their conclusions as to the accuracy of certain information
derived from the financial records of Parent and its subsidiaries and contained
in the Joint Disclosure Document (the Parent Comfort Letter ). The Parent
Comfort Letter shall be reasonably satisfactory to Company in form and
substance.
Section 7.10 Pooling of Interests Opinions. Company shall cause to be
delivered to Parent an opinion of Ernst & Young in form reasonably satisfactory
to Parent at the Closing, addressed to Company, setting forth the concurrence of
Ernst & Young with Company as to the eligibility of Company to participate in
the Merger, and that such participation will not, in and of itself, disqualify
the Merger from pooling of interests accounting under Opinion No. 16 of the
AICPA, as amended by the SFAS Board and the related interpretations of the
AICPA, the SFAS Board, and the rules and regulations of the SEC. Parent shall
cause to be delivered to Company an opinion of Deloitte & Touche in form
reasonably satisfactory to Company at the Closing, addressed to Parent, setting
forth the concurrence of Deloitte & Touche with Parent s management as to the
appropriateness of pooling of interest accounting for the Merger under Opinion
No. 16 of the AICPA, as amended by the SFAS Board and the related
interpretations of the AICPA, the SFAS Board, and the rules and regulations of
the SEC.
Section 7.11 Tax-Free Reorganization. Company and Parent shall each use its
best efforts to cause the Merger to be treated as a reorganization within the
meaning of Section 368(a) of the Code. Parent shall file, and shall cause its
Affiliates (including the Surviving Corporation) to, file all tax returns in a
manner that is consistent with the intended treatment of the Merger as a
reorganization within the meaning of Section 368(a) of the Code. Parent shall
not, and shall not permit its Affiliates (including the Surviving Corporation)
to, take any action that adversely affects the foregoing intended treatments.
Section 7.12 Operation of Business. Company will not (and will not cause or
permit any of its Subsidiaries to), without the consent of Parent, engage in any
practice, take any action, or enter into any transaction outside the Ordinary
Course of Business. Without limiting the generality of the foregoing, neither
Company nor its Subsidiaries:
7.12.1 will authorize or effect any change in its charter or bylaws;
7.12.2 will grant any options, warrants, or other rights to purchase
or obtain any of its capital stock or issue, sell, or otherwise dispose of any
of its capital stock (except upon the conversion or exercise of options,
warrants, and other rights currently outstanding);
7.12.3 will declare, set aside, or pay any dividend or distribution
with respect to its capital stock (whether in cash or in kind), or redeem,
repurchase, or otherwise acquire any of its capital stock, in either case
outside the Ordinary Course of Business;
7.12.4 will issue any note, bond, or other debt security or create,
incur, assume, or guarantee any indebtedness for borrowed money or capitalized
lease obligation outside the Ordinary Course of Business;
7.12.5 will impose any Security Interest upon any of its assets
outside the Ordinary Course of Business;
7.12.6 will make any capital investment in, make any loan to, or
acquire the securities or assets of any other Person outside the Ordinary
Course of Business; and
7.12.7 will make any change in employment terms for any of its
directors, officers, and employees outside the Ordinary Course of Business.
Section 7.13 Full Access and Confidentiality. Except for information
relating to any claims either party may have against the other, Company and
Parent shall each afford to the other and to the other s financial advisors,
legal counsel, accountants, consultants and other representatives full access
during normal business hours throughout the period prior to the Effective Time
to all of its books, records, properties, plans and personnel and, during such
period, each shall furnish promptly to the other (a) a copy of each report,
schedule and other document filed or received by it pursuant to the requirements
of federal or state securities laws, and (b) all other information as such other
party may reasonably request, provided that no investigation pursuant to this
Section 7.13 shall affect any representations or warranties made herein or the
conditions to the obligations of the respective parties to consummate the
Merger. Each party shall hold in confidence all Confidential Information until
such time as such information is otherwise publicly available and, if this
Agreement is terminated, each party will deliver to the other all documents,
work papers and other material (including copies) obtained by such party or on
its behalf from the other party as a result of this Agreement or in connection
herewith, whether so obtained before or after the execution hereof. The
confidentiality obligations of the parties hereto shall be terminated regarding
any Confidential Information obtained or acquired if (a) such Confidential
Information becomes known to the public generally through no fault of the
receiving party, (b) disclosure is required by law or the order of any
governmental authority, or (c) the disclosing party reasonably believes that
such disclosure is required in connection with the defense of a lawsuit against
the disclosing party; provided, that prior to disclosing any information
pursuant to clause (a), (b) or (c), such party shall, if possible, give prior
written notice thereof to the other party to provide the other party with the
opportunity to contest such disclosure.
Section 7.14 Notice of Developments. Each party will give prompt written
notice to the other of any material adverse development causing a breach of any
of its own representations and warranties in Article V and VI above. No
disclosure by any party pursuant to this Section 7.14, however, shall be deemed
to amend or supplement either parties respective Disclosure Schedule or to
prevent or cure any misrepresentation, breach of warranty, or breach of
covenant.
Section 7.15 Exclusivity. Company agrees (a) that, neither Company nor its
Subsidiaries shall, and that it and they will cause their respective directors,
officers, employees not to, and will use their best efforts to cause their
financial advisors, legal counsel, accountants and other agents and
representatives not to, initiate or solicit, directly or indirectly, any
inquiries or the making of any proposal with respect to, engage in negotiations
concerning, provide any Confidential Information or data to or have any
discussions with any Person relating to, any acquisition, business combination
or purchase of all or the major portion of the assets of, or any equity interest
in such party or any subsidiary of such party (an Acquisition Proposal ), other
than the Merger, (b) that Company will immediately cease and cause to be
terminated any existing activities, discussions or negotiations with any Person
conducted heretofore with respect to any of the foregoing, and (c) that Company
will notify Parent immediately in writing if any such inquiries or proposals are
received by, any such information is requested from, or any such negotiations or
discussions are sought to be initiated or continued with, the Company; provided,
however, that nothing contained in this Section 7.15 shall prohibit the Board of
Directors of Company from furnishing information to or entering into discussions
or negotiations with, any Person that makes an unsolicited bona fide written
Acquisition Proposal, if and only to the extent that, the Board of Directors of
Company, after consultation with legal counsel, determines in good faith that
(i) the Acquisition Proposal would be more favorable to Company s stockholders
than the Merger, (ii) failure to take such action would result in a breach by
the Board of Directors of Company of its fiduciary duties to Company s
stockholders under applicable law, and (iii) prior to furnishing any
Confidential Information to such Person or entering into discussions or
negotiations with such Person, Company receives from such Person an executed
confidentiality agreement with provisions no less favorable to Company than the
Confidentiality Agreement referred to in Section 10.4 and Company provides
written notice to Parent that it is furnishing information to, or entering into
discussions or negotiations with, such Person. Company shall keep Parent
informed in reasonable detail of the terms, status and other pertinent details
of any Acquisition Proposal including the identity of any Person making an
Acquisition Proposal. Nothing in this Section 7.15 shall (A) permit Company to
terminate this Agreement (except as specifically provided in Article IX hereof),
(B) permit Company to enter into any agreement with respect to an Acquisition
Proposal, except as set forth in Section 9.1.5, during the term of this
Agreement (it being agreed that during the term of this Agreement, Company shall
not enter into any agreement with any Person that provides for, or in any way
facilitates, an Acquisition Proposal (other than a confidentiality agreement or
as set forth in Section 9.1.5)) or (C) affect any other obligation of any party
under this Agreement.
Section 7.16 Insurance and Indemnification.
7.16.1 Parent will provide each individual who served as a director
or officer of Company at any time prior to the Effective Time with liability
insurance in respect of acts or omissions occurring at or prior to the
Effective Time for a period of six (6) years after the Effective Time, such
coverage to be on terms no less favorable in coverage and amount than any
applicable insurance in effect immediately prior to the Effective Time;
provided, however, that Parent may reduce the coverage and amount of liability
insurance to the extent the cost of liability insurance having the full
coverage and amount would exceed $130,000 per annum.
7.16.2 The Surviving Corporation will observe any indemnification and
limitation on liability provisions now existing in the certificate of
incorporation or bylaws of Company for the benefit of any individual who
served as a director or officer of Company at any time prior to the Effective
Time.
7.16.3 If the Surviving Corporation or any of its successors or
assigns (a) consolidates with or mergers into any other Person and shall not
be the continuing or surviving corporation or entity of such consolidation or
merger or (b) transfers all or substantially all of its properties and assets
to any Person other than in the Ordinary Course of Business, then, and in each
such case, proper provision shall be made so that the successors and assigns
of the Surviving Corporation, or at Parent s option, Parent shall assume the
obligations of the Surviving Corporation set forth in this Section 7.16.
Section 7.17 Expenses. Whether or not the Merger is consummated, all costs
and expenses incurred in connection with this Agreement and the transactions
contemplated hereby shall be paid by the party incurring such expenses, except
that the filing fees in connection with the HSR Act filing and those expenses
incurred in connection with printing the Form S-4 and the related Joint
Disclosure Document, as well as the filing fee relating to the Form S-4 shall be
paid by the Parent.
Section 7.18 Cooperation. For all consents and approvals which Company is
required to obtain pursuant to this Agreement, Parent shall cooperate and
provide to Company such documentation or other information as Company shall
reasonably request. For all consents and approval which Parent is required to
obtain pursuant to this Agreement, Company shall cooperate and provide to Parent
such documentation or other information as Parent shall reasonably request.
Section 7.19 Governmental Approvals. Company and Parent shall use their
reasonable best efforts to (a) take, or cause to be taken, all appropriate
action necessary, proper or advisable under applicable law or required to be
taken by any governmental entity or otherwise to consummate and make effective
the Merger as promptly as practicable, (b) obtain from any governmental entity
any consents, licenses, permits, waivers, approvals, authorizations or orders
required to be obtained or made by Parent, Newco, or Company or of their
respective subsidiaries in connection with the authorization, execution and
delivery of this Agreement and the consummation of the Merger, and (c) furnish
to each other all information required for any application or other filing to be
made pursuant to any applicable law in connection with this Agreement and the
Merger.
Section 7.20 Obligations of Newco. Parent shall take all action necessary
to cause Newco to perform its agreements, covenants, and obligations under this
Agreement and to consummate the Merger.
Section 7.21 Public Announcements. Parent and Company shall consult with
each other before issuing any press release or otherwise making any public
statements with respect to this Agreement or the Merger and shall not issue any
such press release or make any such public statement prior to such consultation.
The parties have agreed on the text of a joint release by which Parent and
Company will announce the execution of this Agreement.
Section 7.22 Nasdaq National Market System. Parent shall promptly prepare
and submit to the National Association of Securities Dealers a Notification Form
for listing of the additional shares of Parent Stock issuable in the Merger on
the Nasdaq National Market System.
ARTICLE VIII
CONDITIONS TO OBLIGATIONS TO CLOSE
Section 8.1 Conditions to Obligation of Parent and Newco. The obligation of
Parent and Newco to consummate the transactions to be performed by it in
connection with the Closing is subject to satisfaction of the following
conditions:
8.1.1 this Agreement and the Merger shall have received the
Requisite Company Stockholder Approval;
8.1.2 Company and its Subsidiaries shall have procured all third
party consents reasonably requested by Parent pursuant to Section 7.2 the
failure of which to receive would have a Material Adverse Effect on Company or
Parent;
8.1.3 the representations and warranties of Company set forth in
Article V above (a) that are qualified as to materiality by a Material Adverse
Effect shall be true and correct at and as of the Closing Date (except that
representations and warranties that are confined to a specific date and
qualified as to materiality by a Material Adverse Effect shall be true and
correct as of such date) and (b) that are not so qualified as to materiality
shall be true and correct in all material respects at and as of the Closing
(except that representations and warranties that are confined to a specific
date and are not so qualified as to materiality shall be true and correct in
all material respects as of such date);
8.1.4 Company shall have performed and complied in all material
respects with all of its covenants hereunder through the Closing;
8.1.5 no action, suit, or proceeding shall be pending or threatened
before any court or quasi-judicial or administrative agency of any federal,
state, local, or foreign jurisdiction or before any arbitrator wherein an
unfavorable injunction, judgment, order, decree, ruling, or charge would (A)
prevent consummation of any of the transactions contemplated by this
Agreement, (B) cause any of the transactions contemplated by this Agreement to
be rescinded following consummation, (C) adversely affect the right of the
Surviving Corporation to own the assets, to operate the businesses, and to
control the Subsidiaries of Company, or (D) adversely affect the right of any
Subsidiary of Company to own its assets and to operate its businesses;
8.1.6 Company shall have delivered to Parent a certificate to the
effect that each of the conditions specified above in Sections 8.1.1 through
8.1.5 are satisfied in all respects;
8.1.7 the Form S-4 shall have become effective under the Securities
Act, no stop order suspending the effectiveness the Form S-4 shall be in
effect and no proceeding for that purpose shall have been initiated or
threatened by the SEC;
8.1.8 the waiting period applicable to the Merger (and any
extensions thereof) under the Hart-Scott-Rodino Act shall have expired or
otherwise been terminated and the parties shall have received all other
required authorizations, consents, and approvals of governments and
governmental agencies;
8.1.9 Parent shall have received from Ernst & Young the opinions
described in Sections 7.9 and 7.10;
8.1.10 no governmental entity shall have issued, enacted, promulgated,
enforced or entered any order, stay, decree, judgment, injunction, rule,
regulation or statute which is in effect and has the effect of making the
Merger illegal or otherwise prohibiting consummation of the Merger;
8.1.11 Parent shall have received executed Affiliate Letters in
accordance with Section 7.4 of this Agreement;
8.1.12 Parent shall have received the resignations, effective as of
the Closing, of each director and officer of Company and its Subsidiaries
other than those whom Parent shall have specified in writing at least five (5)
business days prior to the Closing; and
8.1.13 Company shall have terminated the Peerless Group, Inc. Employee
Stock Purchase Plan.
Parent may waive any condition specified in this Section 8.1 if it executes a
writing so stating at or prior to the Closing.
Section 8.2 Conditions to Obligation of Company. The obligation of Company to
consummate the transactions to be performed by it in connection with the Closing
is subject to satisfaction of the following conditions:
8.2.1 the Form S-4 shall have become effective under the Securities
Act, no stop order suspending the effectiveness the Form S-4 shall be in
effect and no proceeding for that purpose shall have been initiated or
threatened by the SEC;
8.2.2 Parent and its subsidiaries shall have procured all third party
consents reasonably requested by Company pursuant to Section 7.2 the failure
of which to receive would have a Material Adverse Effect on Company or Parent;
8.2.3 the representations and warranties of Parent set forth in
Article VI above (a) that are qualified as to materiality by a Material
Adverse Effect shall be true and correct at and as of the Closing Date (except
that representations and warranties that are confined to a specific date and
qualified as to materiality by a Material Adverse Effect shall be true and
correct as of such date) and (b) that are not so qualified as to materiality
shall be true and correct in all material respects at and as of the Closing
(except that representations and warranties that are confined to a specific
date and are not so qualified as to materiality shall be true and correct in
all material respects as of such date);
8.2.4 Parent shall have performed and complied in all material
respects with all of its covenants hereunder through the Closing;
8.2.5 no action, suit, or proceeding shall be pending or threatened
before any court or quasi-judicial or administrative agency of any federal,
state, local, or foreign jurisdiction or before any arbitrator wherein an
unfavorable injunction, judgment, order, decree, ruling, or charge would (a)
prevent consummation of any of the transactions contemplated by this
Agreement, (b) cause any of the transactions contemplated by this Agreement to
be rescinded following consummation, (c) affect adversely the right of the
Surviving Corporation to own the assets, to operate the businesses, and to
control the Subsidiaries of Company, or (d) affect adversely the right of any
of the Subsidiaries of Company to own its assets and to operate its
businesses.
8.2.6 Parent shall have delivered to Company a certificate to the
effect that each of the conditions specified above in Sections 8.2.1 through
8.2.5 are satisfied in all respects;
8.2.7 this Agreement and the Merger shall have received the Requisite
Company Stockholder Approval;
8.2.8 the waiting period applicable to the Merger (and any extensions
thereof) under the Hart-Scott-Rodino Act shall have expired or otherwise been
terminated and the parties shall have received all other required
authorizations, consents, and approvals of governments and governmental
agencies;
8.2.9 no governmental entity shall have issued, enacted, promulgated,
enforced or entered any order, stay, decree, judgment, injunction, rule,
regulation or statute which is in effect and has the effect of making the
Merger illegal or otherwise prohibiting consummation of the Merger;
8.2.10 Company shall have received from Deloitte & Touche the opinions
described in Sections 7.9 and 7.10; and
8.2.11 Company shall have received an opinion of counsel, in form
reasonably acceptable to it, to the effect that the Merger will be treated for
federal income tax purposes as a tax-free reorganization within the meaning of
Section 368(a) of the Code.
Company may waive any condition specified in this Section 8.2 if it executes a
writing so stating at or prior to the Closing.
ARTICLE IX
TERMINATION
Section 9.1 Termination of Agreement. Either Parent or Company may terminate
this Agreement with the prior authorization of its Board of Directors (whether
before or after obtaining the Requisite Company Stockholder Approval) as
provided below:
9.1.1 this Agreement may be terminated by mutual written consent of
Parent and Company at any time prior to the Effective Time;
9.1.2 Parent may terminate this Agreement by giving written notice to
the Company at any time prior to the Effective Time (a) in the event Company
has breached any material representation, warranty, or covenant contained in
this Agreement in any material respect, Parent has notified Company of the
breach, and the breach has continued without cure for a period of 30 days
after the notice of breach, or (b) if the Closing shall not have occurred on
or before February 19, 1999 by reason of the failure of any condition
precedent under Section 8.1 hereof (unless the failure results primarily from
Parent or Newco breaching any representation, warranty, or covenant contained
in this Agreement);
9.1.3 Company may terminate this Agreement by giving written notice
to Parent at any time prior to the Effective Time (a) in the event Parent has
breached any material representation, warranty, or covenant contained in this
Agreement in any material respect, Company has notified Parent of the breach,
and the breach has continued without cure for a period of 30 days after the
notice of breach, or (b) if the Closing shall not have occurred on or before
February 19, 1999 by reason of the failure of any condition precedent under
Section 8.2 hereof (unless the failure results primarily from Company or any
Subsidiary breaching any representation, warranty, or covenant contained in
this Agreement);
9.1.4 Parent or Company may terminate this Agreement by giving
written notice to the other party at any time after the Special Company
Meeting in the event this Agreement and the Merger fail to receive the
Requisite Company Stockholder Approval, provided that Company may not
terminate this Agreement pursuant to this Section 9.1.4 unless it shall have
paid to Parent the fee provided in Section 9.2;
9.1.5 Company may terminate this Agreement at any time prior to the
Special Company Meeting by giving written notice to Parent upon Company s
execution of a definitive and binding written agreement with any Person, other
than Parent, who has made an unsolicited Acquisition Proposal which the Board
of Directors of Company has determined in good faith (a) is more favorable to
Company stockholders than the Merger and (b) would result in a breach by the
Board of Directors of Company of its fiduciary duties to Company stockholders
if such Acquisition Proposal were not accepted; provided that Company may not
terminate this Agreement pursuant to this Section 9.1.5 unless it pays to
Parent the fee provided in Section 9.2.2 and complies with all obligations to
Parent under Section 7.15;
9.1.6 either Company or Parent may terminate this Agreement by giving
written notice to the other if there shall be a final nonappealable order in
effect preventing consummation of the Merger, or there shall be any action
taken, or any governmental entity shall have issued, enacted, promulgated,
enforced or entered any order, stay, decree, judgment, injunction, statute,
law, rule or regulation deemed applicable to the Merger that would make
consummation of the Merger illegal (provided, that the right to terminate the
Agreement pursuant to this Section 9.1.6 shall not be available to any party
that has not complied with the obligations under Sections 6.6, 7.3, 7.7 or
7.19); or
9.1.7 subject to Company s and Parent s obligations under Section
7.8, either Company or Parent may terminate this Agreement by giving written
notice to the other that (a) such party is in receipt of opinions of counsel
or of their accountants to the effect that the Merger is not reasonably likely
to qualify for pooling of interests accounting or (b) that any of the opinions
required by Section 7.10 hereof have been withdrawn.
Section 9.2 Termination Fee. If the Agreement is terminated by Company
pursuant to Section 9.1.4, Section 9.1.5 or Section 9.1.6, all rights and
obligations of Company hereunder shall terminate without any further liability
of Company to Parent (except as provided in this Section 9.2); provided,
however, that the confidentiality provisions contained in Section 7.13 and the
expense provisions contained in Section 7.17 shall survive any such termination.
9.1.1 If this Agreement is terminated pursuant to Section 9.1.4,
then, in such event, Company shall pay to Parent prior to or simultaneously
with such termination, in immediately available funds, a fee in an amount
equal to $500,000.
9.1.2 If this Agreement is terminated pursuant to Section 9.1.5,
then, in such event, Company shall pay to Parent prior to such termination,
in immediately available funds, a fee in an amount equal to $750,000, and
shall, upon the effective date of the merger or acquisition contemplated in
the Acquisition Proposal, pay to Parent, in immediately available funds, an
additional fee in an amount equal to $750,000.
9.1.3 If (a) this Agreement is terminated pursuant to Section 9.1.4;
(b) at the time of such termination, an Acquisition Proposal shall have been
made by any other Person and (c) within 12 months of such termination, Company
or any of its Subsidiaries accepts a written offer or enters into a definitive
written agreement to consummate an Acquisition Proposal with such other
Person, or any successor or assign thereof, then Company shall pay Parent in
immediately available funds, an additional fee of $500,000, and shall, upon
the effective date of the merger or acquisition contemplated in the
Acquisition Proposal, pay to Parent, in immediately available funds, an
additional fee in an amount equal to $500,000.
Section 9.3 Effect of Termination. If any party terminates this Agreement
pursuant to Sections 9.1.1 to 9.1.3 or 9.1.5, all rights and obligations of the
parties hereunder shall terminate without any liability of any party to any
other party (except for any liability of any party then in breach); provided,
however, that the confidentiality provisions contained in Sections 7.13 and
7.17, shall survive any such termination.
ARTICLE X
MISCELLANEOUS
Section 10.1 Survival. None of the representations and warranties of the
parties shall survive the Effective Time. This Section 10.1 shall not limit any
covenant or agreement of the parties that by its terms contemplates performance
after the Effective Time.
Section 10.2 Press Releases and Public Announcements. No party shall issue
any press release or make any public announcement relating to the subject matter
of this Agreement without the prior written approval of the other parties;
provided, however, that any party may make any public disclosure it believes in
good faith is required by applicable law or any listing or trading agreement
concerning its publicly-traded securities (in which case the disclosing party
will use its reasonable best efforts to advise the other parties prior to making
the disclosure).
Section 10.3 No Third Party Beneficiaries. This Agreement shall not confer
any rights or remedies upon any Person other than the parties and their
respective successors and permitted assigns; provided, however, that (a) the
provisions in Section 4.1 above concerning issuance of the JHA Shares are
intended for the benefit of Company stockholders and (b) the provisions in
Section 7.16 above concerning insurance and indemnification are intended for the
benefit of the individuals specified therein and their respective legal
representatives.
Section 10.4 Entire Agreement. Other than the Confidentiality Agreement
between Company and Parent dated June 8, 1998, and the Stock Option Agreement of
even date, this Agreement, including the Exhibits and Schedules attached hereto,
constitutes the entire agreement between the parties and supersedes any prior
understandings, agreements, or representations by or between the parties,
written or oral, to the extent they relate in any way to the subject matter
hereof. No representation, warranty, promise, inducement or statement of
intention has been made by any party hereto which is not embodied in this
Agreement or such other documents, and no party hereto shall be bound by, or be
liable for, any alleged representation, warranty, promise, inducement or
statement of intention not embodied herein or therein.
Section 10.5 Succession and Assignment. This Agreement shall be binding upon
and inure to the benefit of the parties named herein and their respective
successors and permitted assigns. No party may assign either this Agreement or
any of its rights, interests, or obligations hereunder without the prior written
approval of the other parties.
Section 10.6 Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
Section 10.7 Headings. The section headings contained in this Agreement
are inserted for convenience only and shall not affect in any way the meaning or
interpretation of this Agreement.
Section 10.8 Notices. All notices, requests, demands, claims, and other
communications hereunder shall be in writing and shall be deemed duly given if
(and then two business days after) it is sent by registered or certified mail,
return receipt requested, postage prepaid, and addressed to the intended
recipient as set forth below:
If to Company: with a copy to:
Peerless Group, Inc. Haynes and Boone, LLP
1212 East Arapaho Road 901 Main Street,
Richardson, Texas 75081 3100 NationsBank Plaza
FAX: 972-497-9246 Dallas, Texas 75202
Attn: Rodney L. Armstrong, C.E.O. FAX: 214-651-5940
Attn: Robert Kibby
If to Parent or Newco: with a copy to:
Jack Henry & Associates, Inc. Shughart Thomson & Kilroy, P.C.
663 Highway 60 12 Wyandotte Plaza
P.O. Box 807 120 W. 12th Street
Monett, Missouri 65708 Kansas City, Missouri 64105
FAX: 417-235-1765 FAX: 816-374-0509
Attn: Michael E. Henry, President Attn: Robert T. Schendel
Any party may send any notice, request, demand, claim, or other communication
hereunder to the intended recipient at the address set forth above using any
other means (including personal delivery, expedited courier, messenger service,
telecopy, telex, ordinary mail, or electronic mail), but no such notice,
request, demand, claim, or other communication shall be deemed to have been duly
given unless and until it actually is received by the intended recipient. Any
party may change the address to which notices, requests, demands, claims, and
other communications hereunder are to be delivered by giving the other party
notice in the manner herein set forth.
Section 10.9 Governing Law. This Agreement shall be governed by and
construed in accordance with the domestic laws of the State of Delaware without
giving effect to any choice or conflict of law provision or rule (whether of the
State of Delaware or any other jurisdiction) that would cause the application of
the laws of any jurisdiction other than the State of Delaware.
Section 10.10 Amendments and Waivers. The parties may mutually amend any
provision of this Agreement at any time prior to the Effective Time with the
prior authorization of their respective Boards of Directors; provided, however,
that any amendment effected subsequent to obtaining the Requisite Company
Stockholder Approval will be subject to the restrictions contained in the
Delaware General Corporation Law. No amendment of any provision of this
Agreement shall be valid unless the same shall be in writing and signed by all
of the parties. No waiver by any party of any default, misrepresentation, or
breach of warranty or covenant hereunder, whether intentional or not, shall be
valid unless signed by the party to be charged with such waiver. No waiver by
any party of any default, misrepresentation, or breach of warranty or covenant
hereunder, whether intentional or not, shall be deemed to extend to any prior or
subsequent default, misrepresentation, or breach of warranty or covenant
hereunder or affect in any way any rights arising by virtue of any prior or
subsequent such occurrence.
Section 10.11 Severability. Any term or provision of this Agreement that is
invalid or unenforceable in any situation in any jurisdiction shall not affect
the validity or enforceability of the remaining terms and provisions hereof or
the validity or enforceability of the offending term or provision in any other
situation or in any other jurisdiction.
Section 10.12 Construction. The parties have participated jointly in the
negotiation and drafting of this Agreement. In the event an ambiguity or
question of intent or interpretation arises, this Agreement shall be construed
as if drafted jointly by the parties and no presumption or burden of proof shall
arise favoring or disfavoring any party by virtue of the authorship of any of
the provisions of this Agreement. Any reference to any federal, state, local,
or foreign statute or law shall be deemed also to refer to all rules and
regulations promulgated thereunder, unless the context otherwise requires. The
word including shall mean including without limitation.
Section 10.13 Incorporation of Exhibits and Schedules. The Exhibits and
Schedules identified in this Agreement are incorporated herein by reference and
made a part hereof. Inclusion of information in any Schedule to this Agreement
does not constitute an admission or acknowledgment of the materiality of such
information. To the extent that any information included in any Section of any
Schedule provided by a party hereto applies or pertains to any other Section of
such Schedule, such information shall be deemed to be incorporated by reference
in all Sections of such Schedule to which such information is applicable.
Section 10.14 Cooperation. Parent, Newco and Company shall each deliver or
cause to be delivered to the other at the Closing, and at such times and places
as shall be reasonably agreed to, such additional instruments as the other may
reasonably request for the purpose of effectuating this Agreement.
Section 10.15 Submission to Jurisdiction. Each of the parties hereto
irrevocably (a) consent to submit itself to the personal jurisdiction of any
federal court located in the State of Delaware or any Delaware state court in
the event that nay dispute arises out of this Agreement or of the transactions
contemplated by this Agreement, (b) agrees that it will not attempt to deny or
defeat such personal jurisdiction by motion or other request for leave from any
such court and (c) agrees that it will not initiate any action related to this
Agreement or any of the transactions contemplated by this Agreement in any court
other than a Federal court in the State of Delaware or a Delaware state court.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the
date first above written.
JACK HENRY & ASSOCIATES, INC.
By:
Title:
PEERLESS ACQUISITION CORP.
By:
Title:
PEERLESS GROUP, INC.
By:
Title:
Exhibit 21
JACK HENRY & ASSOCIATES, INC.
MONETT, MO 65708
LIST OF SUBSIDIARIES AT 6/30/98
Jack Henry International, Ltd.
Monett, Missouri
BankVision Software, Ltd.
Monett, Missouri
CommLink Corp.
Houston, Texas
G.G. Pulley, Inc.
Albuquerque, New Mexico
Financial Software Services, Inc.
Rogers, Arkansas
Vertex, Inc.
Birmingham, Alabama
Exhibit 23A
INDEPENDENT AUDITORS CONSENT
We consent to the incorporation by reference in the Registration Statements of
Jack Henry & Associates, Inc. on Form S-8 (File Nos. 33-65231, 33-65251 and 33-
16989) of our report dated August 18, 1998 appearing in the Annual Report on
Form 10-K of Jack Henry & Associates, Inc. for the years ended June 30, 1998 and
1997.
Deloitte & Touche LLP
St Louis, Missouri
September 22, 1998
Exhibit 23B
Consent of Independent Certified Public Accountants
We hereby consent to the incorporation by reference in this annual report on
Form 10-K of JACK HENRY & ASSOCIATES, INC. For the year ended June 30, 1998 of
our report dated August 22, 1996, which appears on page 14 of the annual report
to shareholders for the year ended June 30, 1998
We also consent to the incorporation in the Company s Registration Statement on
Form S-8 (Commission file number 333-16989) of our report dated August 22, 1996,
by reference to page 14 of the Company s annual report to shareholders for the
year ended June 30, 1998.
Baird, Kurtz & Dobson
Joplin, Missouri
September 23, 1998
5
12-MOS
JUN-30-1998
JUN-30-1998
23306
3217
36826
0
0
69138
38246
11391
115286
39260
0
189
0
0
73311
115286
113423
113423
55630
24017
1588
0
0
35364
13127
22237
(668)
0
0
21569
1.13
1.13
