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SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF
THE SECURITIES EXCHANGE ACT OF 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[_] Preliminary Proxy Statement [ ] Confidential, for Use of the
Commission Only
(as permitted by Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
LEARMONTH & BURCHETT MANAGEMENT SYSTEMS PLC
(Name of Registrant as Specified In Its Charter)
(Name of Person(s) Filing Proxy Statement, if Other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[_] No fee required.
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
1) Title of each class of securities to which transaction applies:
2) Aggregate number of securities to which transaction applies:
3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
4) Proposed maximum aggregate value of transaction:
5) Total fee paid:
[X] Fee paid previously with preliminary materials.
[_] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
1) Amount Previously Paid: ________________________________________________
2) Form, Schedule or Registration Statement No.: __________________________
3)Filing Party: ___________________________________________________________
4) Date Filed: ____________________________________________________________
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THIS DOCUMENT IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION. IF YOU ARE
IN ANY DOUBT AS TO THE ACTION YOU SHOULD TAKE, YOU SHOULD IMMEDIATELY CONSULT
YOUR STOCKBROKER, BANK MANAGER, LAWYER, ACCOUNTANT OR OTHER DULY QUALIFIED
INDEPENDENT FINANCIAL ADVISER.
LEARMONTH & BURCHETT MANAGEMENT SYSTEMS PLC
1800 WEST LOOP SOUTH
SUITE 900
HOUSTON, TEXAS 77027
March 27, 1998
To the Holders of our Ordinary Shares and American Depositary Receipts
("ADRs"):
The Boards of Learmonth & Burchett Management Systems Plc ("LBMS") and
PLATINUM technology, inc. ("PLATINUM") have agreed on terms for the
acquisition of LBMS by PLATINUM. It is proposed that the acquisition of LBMS
be effected by way of a Scheme of Arrangement, a U.K. statutory procedure
whereby, subject to the requisite approvals of LBMS shareholders and the
sanction of the English High Court, the ordinary shares of 10p each in the
capital of LBMS (the "Ordinary Shares" or the "LBMS Ordinary Shares") in issue
on a specified date will be canceled and an equal number of new Ordinary
Shares will be issued to PLATINUM, leaving PLATINUM as the sole shareholder of
LBMS. In consideration, holders of Ordinary Shares will receive shares of
PLATINUM common stock. The acquisition of LBMS by PLATINUM requires the
approval by LBMS shareholders. It is our pleasure to invite you to attend two
shareholder meetings, at which resolutions will be proposed to approve and
implement the acquisition of LBMS by PLATINUM.
A meeting of LBMS shareholders (the "Court Meeting") has been convened by
Order of the High Court of England and Wales (the "High Court") to be held on
Monday, April 20, 1998 at 9:00 a.m. Houston time (3:00 p.m. London time) at
LBMS' executive offices, located at 1800 West Loop South, Suite 900, Houston,
Texas 77027, for the purposes of considering and, if thought fit, approving
the Scheme of Arrangement dated March 27, 1998 (the "Scheme of Arrangement")
and proposed to be made between LBMS and holders of Ordinary Shares (a) in
issue at 6:00 p.m. (London time) on the last business day prior to the date of
the Court Meeting (or, if such meeting shall be adjourned to a later date, on
the last business day prior to that later date); and (b) if any, issued
thereafter and before 6:00 p.m. (London time) on the last business day before
an order is made by the High Court to sanction the Scheme of Arrangement
(collectively, the "Scheme Shares"). Notice of the Court Meeting is set out
below in this document.
The Board of LBMS has convened an Extraordinary General Meeting (the "EGM")
of LBMS to be held on Monday, April 20, 1998 at 9:15 a.m. Houston time (3:15
p.m. London time), or as soon thereafter as the Court Meeting has been
concluded or adjourned, at LBMS' executive offices, located at 1800 West Loop
South, Suite 900, Houston, Texas 77027, for the purposes of considering and,
if thought fit, passing a Special Resolution (the "Resolution") to approve (i)
the Agreement and Plan of Reorganization, dated as of January 2, 1998, as
amended (as so amended, the "Acquisition Agreement"), by and between PLATINUM
and LBMS, (ii) the Scheme of Arrangement, (iii) the reduction of the capital
of LBMS by the reduction of its share premium account and the cancellation of
the Scheme Shares, (iv) the authorization of the Board of Directors of LBMS to
allot Ordinary Shares in order to give effect to the Resolution and (v) the
amendment of the Articles of Association of LBMS, each as more fully described
in the Explanatory Statement following this letter and in the accompanying
Proxy Statement. Notice of the EGM is set out below in this document.
If the Acquisition Agreement, the Scheme of Arrangement and the transactions
contemplated thereby are approved by shareholders, the Scheme of Arrangement
is sanctioned by the High Court and such transactions are consummated, among
other things, (i) each Ordinary Share will be canceled in consideration of
0.1047 shares of common stock, $.001 par value per share, of PLATINUM (the
"Exchange Ratio") being issued to the holder of each Scheme Share, (ii) new
Ordinary Shares will be issued to PLATINUM and (iii) LBMS will become a
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wholly-owned subsidiary of PLATINUM. A copy of the Acquisition Agreement is
attached as Appendix A to the accompanying Proxy Statement. If the Scheme of
Arrangement becomes effective, the Acquisition will be binding on all holders
of Scheme Shares, whether or not they have voted in favor of the relevant
resolutions at the Court Meeting and the EGM.
Forming part of this document are (i) the explanatory statement from LBMS'
Board of Directors, in compliance with Section 426 of the U.K. Companies Act
1985 (the "Explanatory Statement"), (ii) the Scheme of Arrangement, (iii)
Notice of the Court Meeting and (iv) the Notice of the EGM; and there is
enclosed with this document a Proxy Statement. Together these documents
provide you with detailed information concerning the proposed acquisition of
LBMS by PLATINUM pursuant to the Scheme of Arrangement and the Acquisition
Agreement (the "Acquisition") and related matters.
Broadview Associates, LBMS' financial advisor in connection with the
Acquisition, has rendered an opinion to the Board of Directors of LBMS that,
as of the date of such opinion, the Exchange Ratio is fair, from a financial
point of view, to the LBMS shareholders. The written opinion of Broadview
Associates is reproduced in full as Appendix B to the accompanying Proxy
Statement.
AFTER CAREFUL CONSIDERATION OF VARIOUS FACTORS SET FORTH IN THE PROXY
STATEMENT, INCLUDING THE WRITTEN OPINION OF BROADVIEW ASSOCIATES, THE BOARD OF
DIRECTORS OF LBMS HAS DETERMINED THE ACQUISITION TO BE FAIR AND IN THE BEST
INTERESTS OF LBMS AND ITS SHAREHOLDERS. THE BOARD OF DIRECTORS OF LBMS HAS
APPROVED THE ACQUISITION AGREEMENT AND THE SCHEME OF ARRANGEMENT AND
UNANIMOUSLY RECOMMENDS THEIR APPROVAL AND ADOPTION BY SHAREHOLDERS.
Whether or not you plan to attend, and regardless of the number of Ordinary
Shares or LBMS American Depositary Receipts (the "ADRs" or "LBMS ADRs") you
own, it is important that your shares be represented at the Court Meeting and
the EGM. Accordingly, holders of Ordinary Shares are urged to sign, date and
return the Forms of Proxy. Your return of the proxies in advance will not
affect your right to vote in person at the Court Meeting or EGM. Although ADR
holders are not entitled to attend or vote at either the Court Meeting or the
EGM, ADR holders may instruct the Depositary under the ADR facility how to
vote the Ordinary Shares underlying their ADRs at the Court Meeting and EGM by
return of the Form of Instruction. ADR holders are urged to sign, date and
return the Form of Instruction.
Sincerely,
GERALD N. CHRISTOPHER
Chairman of the Board of Directors
MICHAEL S. BENNETT
Director, President and Chief
Executive Officer
BVA Associates Limited, a wholly-owned subsidiary of LBMS' financial advisers,
Broadview Associates, has approved this document and the accompanying proxy
statement solely for the purposes of Section 57 of the U.K. Financial Services
Act 1986. BVA Associates Limited, which is regulated in the U.K. by The
Securities and Futures Authority Limited, is acting solely for LBMS and no-one
else in connection with the Acquisition and the Scheme of Arrangement and will
not be responsible to anyone other than LBMS for providing the protections
afforded to customers of BVA Associates Limited, nor for affording advice in
relation to the proposed transaction.
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NOTICE OF COURT MEETING
NO. 001300 OF 1998
IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
COMPANIES COURT
MR. REGISTRAR BUCKLEY
IN THE MATTER OF LEARMONTH & BURCHETT MANAGEMENT SYSTEMS PLC
AND
IN THE MATTER OF THE COMPANIES ACT 1985
NOTICE IS HEREBY GIVEN that by an Order dated the 19th day of March, 1998
made in the above matter the High Court of Justice of England and Wales has
directed a Meeting to be convened of the holders of the Ordinary Shares for
the purpose of considering and, if thought fit, approving (with or without
modification) a Scheme of Arrangement proposed to be made between Learmonth &
Burchett Management Systems Plc ("LBMS") and the holders of the Scheme Shares
as defined in the said Scheme and that such meeting will be held at LBMS'
executive offices, 1800 West Loop South, Suite 900, Houston, Texas 77027,
U.S.A., on 20 April, 1998 at 9:00 a.m. Houston time (3:00 p.m. London time),
at which place and time all holders of Ordinary Shares are requested to
attend.
A copy of the said Scheme of Arrangement and a copy of the Statement
required to be furnished pursuant to Section 426 of the above-mentioned Act
are incorporated in the document of which this Notice forms part.
THE HOLDERS OF ORDINARY SHARES MAY VOTE IN PERSON AT THE SAID MEETING OR
THEY MAY APPOINT ANOTHER PERSON, WHETHER A MEMBER OF LBMS OR NOT, AS THEIR
PROXY TO ATTEND AND VOTE IN THEIR STEAD. A PINK FORM OF PROXY FOR USE AT SUCH
MEETING IS ENCLOSED WITH THIS NOTICE.
Completion and return of a PINK Form of Proxy will not prevent a holder of
Ordinary Shares from attending and voting at the Meeting.
In the case of joint holders, the vote of the senior who tenders a vote
whether in person or by proxy will be accepted to the exclusion of the votes
of the other joint holders and for this purpose seniority will be determined
by the order in which the names stand in the Register of Members of LBMS in
respect of the joint holding.
IT IS REQUESTED THAT FORMS APPOINTING PROXIES BE LODGED WITH LBMS'
REGISTRARS, ROYAL BANK OF SCOTLAND PLC, REGISTRAR'S DEPARTMENT, P. O. BOX 82,
CAXTON HOUSE, REDCLIFFE WAY, BRISTOL BS99 7NH, ENGLAND, NOT LESS THAN 48 HOURS
BEFORE THE TIME APPOINTED FOR THE SAID MEETING, BUT IF FORMS ARE NOT SO LODGED
THEY MAY BE HANDED TO THE CHAIRMAN AT THE SAID MEETING. HOLDERS OF ORDINARY
SHARES MAY ALTERNATIVELY RETURN THE PINK FORM OF PROXY FOR THE COURT MEETING
SO THAT IT IS RECEIVED AT LBMS' EXECUTIVE OFFICES IN HOUSTON BY 12:00 P.M.
HOUSTON TIME ON 16 APRIL, 1998; LBMS HAS MADE ARRANGEMENTS TO SEND COMPLETED
FORMS OF PROXY RECEIVED BY IT BY SUCH TIME AND DATE VIA COURIER TO ITS
REGISTRARS IN ENGLAND.
By the said Order the High Court has appointed Michael Seth Bennett or,
failing him, Gerald Nelson Christopher or, failing him, Rainer Harold Burchett
to act as Chairman of the said Meeting and has directed the Chairman to report
the results thereof to the High Court.
The said Scheme of Arrangement will be subject to the subsequent approval of
the High Court.
Dated 27 March, 1998
Macfarlanes
10 Norwich Street
London EC4A 1BD
Solicitors for Learmonth & Burchett Management Systems Plc
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NOTICE OF EXTRAORDINARY GENERAL MEETING
Notice is hereby given that an Extraordinary General Meeting of Learmonth &
Burchett Management Systems Plc ("LBMS") will be held at LBMS' executive
offices, 1800 West Loop South, Suite 900, Houston, Texas 77027, U.S.A., on 20
April 1998 at 9:15 a.m. Houston time (3:15 p.m. London time) (or as soon
thereafter as the Meeting of the holders of Scheme Shares (as defined in the
Scheme referred to in paragraph B of the resolution set out below) convened by
direction of the High Court of Justice for the same date and place shall have
concluded or been adjourned) for the purpose of considering and, if thought
fit, passing the following resolution which will be proposed as a Special
Resolution:
SPECIAL RESOLUTION
THAT:
A the Agreement and Plan of Reorganization as of 2 January 1998 between
PLATINUM technology, inc. ("PLATINUM") and Learmonth & Burchett Management
Systems Plc ("LBMS") relating to the proposed acquisition of all the issued
shares in LBMS by PLATINUM (with such modifications or amendments as the
Directors of LBMS shall determine) be and is hereby approved;
B the Scheme of Arrangement dated 27 March, 1998 (the "Scheme") proposed to
be made between LBMS and the holders of the Scheme Shares (as defined in the
Scheme), a print of which has been produced to this Meeting and signed for the
purpose of identification by the Chairman of the Meeting, be approved;
C for the purpose of giving effect to the Scheme in its original form or
with or subject to any modification, addition or condition approved or imposed
by the Court:
(1) the capital of LBMS be reduced by the cancellation of the Scheme
Shares (as defined in the Scheme);
(2) the share premium account of LBMS be reduced by (Pounds)7,592,494.12;
and
(3) forthwith and contingently upon such reductions of share capital and
share premium account taking effect:
(a) the capital of LBMS be increased to its former amount by the
creation of such number of new Ordinary Shares of 10p each as shall be
equal to the number of Scheme Shares canceled as aforesaid; and
(b) the reserve arising in the books of account of LBMS as a result of
the said reduction of capital be applied in paying up in full at par the
Ordinary Shares of 10p each created pursuant to subparagraph (C)(3)(a) of
this resolution, which shall be allotted and issued credited as fully
paid up to PLATINUM and/or its nominees;
D the Directors be hereby authorized for the purposes of Section 80 of the
Companies Act 1985 to give effect to this Resolution and, accordingly, to
effect the allotment of the shares created pursuant to paragraph C(3)(a) of
this Resolution provided that (i) the maximum nominal amount of shares which
may be allotted hereunder is (Pounds)26,500,000; (ii) this authority shall
expire on 31 December, 1998; and (iii) this authority shall be without
prejudice to any other authority under the said Section 80 previously granted
and in force on the date on which this resolution is passed;
E the Articles of Association of LBMS shall be amended by:
(1) the adoption and inclusion of the following new Article as Article
4B:
"4B
(i) In this Article, references to the "Scheme" are to the Scheme of
Arrangement dated 27 March, 1998 under Section 425 of the Companies Act
1985, between the Company and the holders of the Scheme Shares (as defined
in the Scheme) and expressions defined in the Scheme shall have the same
meaning in this Article.
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(ii) If the Company issues any Ordinary Shares to any person after 6:00
p.m. (London time) on the last business day prior to the date of the
meeting of holders of Ordinary Shares convened pursuant to an Order of the
High Court of Justice in England and Wales to approve the Scheme (or, if
such meeting shall be adjourned to a later date, on the last business day
prior to that later date) and prior to 6:00 p.m. (London time) on the last
business day before an Order is made to sanction the Scheme (the "Relevant
Date"), such Ordinary Shares shall be subject to the terms of the Scheme
and the holder or holders of such Ordinary Shares shall be bound by the
Scheme accordingly.
(iii) Subject always to the Scheme becoming effective, any member of the
Company (the "Vendor") may at any time after the date on which the Scheme
becomes effective give to the Company a notice (the "Vendor Notice")
requiring the person holding the majority of Ordinary Shares in the Company
(the "Purchaser") to acquire all the Ordinary Shares in the Company held by
the Vendor (the "Disposal Shares") for a consideration consisting of 0.1047
shares of common stock, par value U.S. $0.001 per share, of the Purchaser
(the "Purchaser Shares") for every ordinary share in the Company held by
the Vendor and, within 21 days after the date of the Vendor Notice or such
other date as may be agreed between the Purchaser and the Vendor, the
Vendor shall be bound to transfer and the Purchaser shall be bound to
acquire the Disposal Shares for such consideration.
(iv) The Purchaser may on any date give a notice (the "Purchaser Notice")
to the Vendor requiring the Vendor to dispose of the Disposal Shares to the
Purchaser for the consideration determined in and subject to the terms of
paragraph (iii) above and, within 21 days after the date of the Purchaser
Notice or such other date as may be agreed between the Purchaser and the
Vendor, the Vendor shall be bound to transfer and the Purchaser shall be
bound to acquire the Disposal Shares for such consideration.
(v) The Purchaser Shares issued to the Vendor pursuant to paragraphs
(iii) or (iv) above will be fully paid and nonassessable and will rank
equally in all respects with all Purchaser Shares in issue at the time
(other than as regards any dividend or other distribution payable by
reference to a record date preceding the date of service of the Vendor
Notice or (as the case may be) the Purchaser Notice, the date of allotment
and issue of such Purchaser Shares or the close of business on the business
day before the hearing of the petition to sanction the Scheme, whichever is
later) and be subject to the charter documents of the Purchaser.
(vi) The number of Purchaser Shares to be issued to the Vendor under
paragraphs (iii) or (iv) above may be adjusted by the directors of the
Company in such manner as the Company's auditors may determine on any
reorganization of the share capital of the Company or of the Purchaser
effected after the close of business on the Effective Date.
(vii) Any fractions of a Purchaser Share to be issued to a Vendor
pursuant to this Article shall be disregarded and (after aggregating all
fractions of a Purchaser Share to be received by the Vendor) the Vendor
shall instead be paid by the Purchaser an amount in cash (rounded to the
nearest whole U.S. cent) equal to such fraction, multiplied by the average
closing (last) price for a Purchaser Share as reported on the Nasdaq
National Market (as reported in The Wall Street Journal, Midwest Edition)
for the five trading days immediately prior to the date on which the Vendor
Notice or (as the case may be) the Purchaser Notice is given.
(viii) To give effect to any transfer of Ordinary Shares in the Company
required by paragraph (iii) or (iv) above, the Company may appoint any
person to execute a form of transfer on behalf of the Vendor in favour of
the Purchaser and to agree for and on behalf of the Vendor to become a
shareholder in the Purchaser. Pending the registration of the Purchaser as
the holder of any Ordinary Shares in the Company to be so transferred, the
Purchaser shall be empowered to appoint a person to act as attorney on
behalf of the Purchaser in accordance with such directions as the Purchaser
may give in relation to any dealings with or disposal of such shares (or
any interests therein), exercising any rights attached thereto or receiving
any distribution or other benefit accruing or payable in respect thereof
and, if a person is so appointed to act as attorney, the Vendor shall not
be entitled to exercise any rights attaching thereto except:
(a) to the extent that the person appointed to act as attorney fails to
act in accordance with the directions of the Purchaser; and
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(b) in accordance with the directions of the Purchaser"; and
(2) the renumbering of Article 4 as Article 4A and all cross references
to that Article shall be amended accordingly.
By order of the Board
Secretary
27 March, 1998
Registered office:
10 Norwich Street
London EC4A 1BD
England
NOTE: Any member entitled to attend and vote at the Meeting is entitled to
appoint another person (whether a member or not) as a Proxy to attend and vote
on a poll. To be effective, the GREEN Form of Proxy must be deposited with
LBMS' Registrar, Computershare Services plc, P.O. Box 82, Caxton House,
Redcliffe Way, Bristol, BS99 7YA, England, not later than 9:15 a.m. (Houston
time) (3:15 p.m. London time) on 18 April, 1998. Holders of Ordinary Shares
may alternatively return the GREEN Form of Proxy for the EGM so that it is
received at LBMS' executive offices in Houston by 12:00 p.m. Houston time on
16 April, 1998; LBMS has made arrangements to send completed Forms of Proxy
received by it by such time and date via courier to its Registrars in England.
A GREEN Form of Proxy is enclosed for use at this Meeting.
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EXPLANATORY STATEMENT
(IN COMPLIANCE WITH SECTION 426 OF THE U.K. COMPANIES ACT 1985)
To the Holders of our Ordinary Shares and ADRs
Dear Sir or Madam:
Recommended Proposal for the Acquisition of Learmonth & Burchett Management
Systems Plc ("LBMS") by PLATINUM technology, inc. ("PLATINUM").
1. INTRODUCTION
The Boards of LBMS and PLATINUM have agreed on terms for the acquisition of
LBMS by PLATINUM.
It is proposed that the Acquisition be effected by way of a Scheme of
Arrangement, a U.K. statutory procedure whereby, subject to the requisite
approvals of LBMS shareholders and the sanction of the High Court, Ordinary
Shares in issue on a specified date (including the Ordinary Shares held by the
depositary for the LBMS American Depositary Receipts) (being the "Scheme
Shares") will be canceled and an equal number of new Ordinary Shares will be
issued to PLATINUM, leaving PLATINUM as LBMS' only shareholder. In
consideration, holders of Scheme Shares will receive shares of PLATINUM common
stock. If the Scheme of Arrangement becomes effective, the Acquisition will be
binding on all holders of Scheme Shares, whether or not they have voted in
favor of the relevant resolutions at the Court Meeting and the EGM. In the
formulation and consideration of this proposal, LBMS and PLATINUM have been
advised by Macfarlanes and Clifford Chance, respectively. We write to you to
explain the provisions of the proposed Scheme of Arrangement, which is set out
immediately following this Explanatory Statement.
You will see from the letter above addressed to you from the Chairman and
President of LBMS that the Directors of LBMS consider the terms of the
Acquisition and the Scheme of Arrangement to be in the best interests of
shareholders. Accordingly, they unanimously recommend that the holders of
Ordinary Shares vote in favor of the resolutions to be proposed at the Court
Meeting and the EGM and that ADR holders complete and return their Forms of
Instruction directing the Depositary, Morgan Guaranty Trust Company of New
York ("Morgan") to vote in favor of such resolutions.
2. THE CONSIDERATION
The Scheme of Arrangement is subject to the conditions set forth in the
accompanying Proxy Statement. The consideration payable to each person who is
the registered holder of Scheme Shares at 6:00 p.m. (London time) on the
business day immediately preceding the date on which the Scheme of Arrangement
becomes effective on the cancellation of the Scheme Shares will be:
For each Scheme Share then held by such person, 0.1047 shares (the
"Exchange Ratio") of PLATINUM common stock, $0.001 par value per share
("PLATINUM Common Stock")
(and so in proportion for any other number of Scheme Shares then held), except
that no fraction of a share of PLATINUM Common Stock will be issued pursuant
to the Scheme of Arrangement, but in lieu thereof each holder of Scheme Shares
on the relevant record date who would otherwise be entitled to a fraction of a
share of PLATINUM Common Stock (after aggregating all fractions to be received
by such person) shall instead be paid by PLATINUM an amount in cash (rounded
to the nearest whole U.S. cent) equal to such fraction multiplied by U.S.
$24.06. The total consideration will be approximately $2.434 per Ordinary
Share, based on 26,486,479 Scheme Shares in issue and the closing (last) price
for a share of PLATINUM Common Stock as reported on the Nasdaq National Market
(as reported in The Wall Street Journal, Midwest Edition) for March 20, 1998
(the latest practicable date prior to the filing of the accompanying Proxy
Statement). On this basis, the Acquisition and the Scheme of Arrangement
values the whole of the existing issued share capital of LBMS at approximately
$64,468,090.
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On 2 January, 1998, Broadview Associates, LBMS' financial adviser,
("Broadview") rendered its written opinion to the LBMS Board to the effect
that, as of December 31, 1997, based upon and subject to the various factors
and assumptions set forth therein, the Exchange Ratio to be paid to the
holders of Scheme Shares pursuant to the Acquisition Agreement was fair, from
a financial point of view, to such holders. The full text of the opinion of
Broadview, which sets forth the assumptions made, matters considered and
limitations on the review undertaken by Broadview, is attached as Appendix B
to the accompanying Proxy Statement under the heading "The Acquisition--
Opinion of Financial Advisor to LBMS." LBMS shareholders are urged to read
this opinion carefully in its entirety. Broadview will receive a fee from LBMS
contingent upon the successful conclusion of the Acquisition.
The Board of LBMS has resolved that no dividends will be declared or paid on
any Ordinary Shares prior to their cancellation under the Scheme of
Arrangement.
3. PARTICIPATION OF HOLDERS OF ADRS
If the Acquisition is consummated, the Ordinary Shares represented by the
ADRs and held by the Depositary, Morgan, will be canceled at the same time as
all other Scheme Shares, and PLATINUM will issue to Morgan, on behalf of the
holders of ADRs, PLATINUM Common Stock at the Exchange Ratio. After the
consummation of the Acquisition, ADRs will represent the right of each holder
of ADRs to such holder's pro rata interest in the PLATINUM Common Stock issued
to Morgan. After the consummation of the Acquisition, holders of ADRs may
withdraw the PLATINUM Common Stock underlying the ADRs represented by their
ADRs upon surrender to Morgan of their ADRs in accordance with the terms of
ADRs and the Deposit Agreement governing the ADRs.
Although ADR holders are not entitled to attend or vote at either the Court
Meeting or the EGM, they may direct Morgan as to how the votes attaching to
the Ordinary Shares underlying their ADRs shall be cast. A Form of Instruction
to Morgan for use by holders of ADRs in relation to the EGM and Court Meeting
will be provided by Morgan.
4. INFORMATION ON PLATINUM
PLATINUM, a corporation incorporated in Delaware in 1987, has its executive
offices at 1815 South Meyers Road, Oakbrook Terrace, Illinois 60181, U.S.A.
Its telephone number at that address is (630) 620-5000.
PLATINUM develops, markets and supports software products, and provides
related professional services, that help organizations manage and improve
their information technology ("IT") infrastructure-data, systems and
applications. PLATINUM's products and services help IT departments, primarily
in large and data intensive organizations, minimize risk and improve service
levels and leverage information to make better business decisions. PLATINUM's
products typically perform fundamental functions and mission-critical
automation, such as maintenance of data integrity, systems security, systems
scheduling, project and process management, and end-user specific analysis and
reporting. PLATINUM also offers a wide array of professional services,
including consulting, systems integration and educational programs, often in
conjunction with software product sales.
PLATINUM Common Stock is traded on the Nasdaq National Market and the
PLATINUM Common Stock to be issued to LBMS shareholders pursuant to the Scheme
of Arrangement and the Acquisition will be authorized for listing and trading
on the Nasdaq National Market. PLATINUM Common Stock is not listed or traded
on any other stock exchange.
Further information on PLATINUM, including financial information and
information relating to PLATINUM Common Stock, is set out in the accompanying
Proxy Statement.
5. INFORMATION ON LBMS
LBMS, a company incorporated in England and Wales under the Companies Acts
1948 to 1976 in 1977, has its executive offices at 1800 West Loop South, Suite
900, Houston, Texas 77027, U.S.A. Its telephone number at that address is
(713) 625-9300.
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LBMS' integrated line of management products provide organizations with a
library of best practices for all areas of applications development, and a
comprehensive set of tools for process management, project management, work
management and deliverables management. LBMS has an installed base of more
than 30,000 users worldwide in areas such as financial service, technology,
manufacturing, retailing, oil, government and utilities. LBMS also provides
maintenance and implementation services to its customers to assure effective
utilization of its products. All of LBMS' products operate on open, LAN
server-based repositories, providing more consistency, integrity and
completeness in the applications development process.
The LBMS ADRs are traded on the Nasdaq National Market and on no other stock
exchange. The LBMS Ordinary Shares are not listed or traded on any stock
exchange.
Further information on LBMS, including financial information, is set out in
the accompanying Proxy Statement.
6. UNITED KINGDOM TAXATION
It is expected that the implementation of the Scheme of Arrangement should
only result in a disposal of the Scheme Shares for the purposes of United
Kingdom taxation of capital gains to the extent that cash is paid in respect
of fractional entitlements and, accordingly, should not give rise to a
material liability to such taxation. LBMS shareholders and ADR holders are
urged to consult their own professional tax adviser as to the specific U.K.
tax consequences to them of the Acquisition. Further information in relation
to U.K. taxation is set out in the accompanying Proxy Statement under the
heading "The Acquisition--Certain U.K. Tax Consequences."
7. UNITED STATES TAXATION
It is expected that the Acquisition will constitute a reorganization for
U.S. federal income tax purposes and, accordingly, that no gain or loss will
be recognized for U.S. federal income tax purposes by holders of LBMS Ordinary
Shares and ADRs representing Ordinary Shares when the Ordinary Shares are
canceled and, in consideration of such cancellation, 0.1047 shares of PLATINUM
Common Stock are issued for each Ordinary Share (0.2094 shares of PLATINUM
Common Stock for each ADR) held by an LBMS shareholder (except to the extent
of any cash received in lieu of a fractional share interest in PLATINUM Common
Stock). Holders of Ordinary Shares or ADRs are urged to consult their own tax
advisors as to the specific tax consequences to them of the Acquisition.
Further information in relation to United States taxation is set out in the
accompanying Proxy Statement under the heading "The Acquisition--Certain U.S.
Federal Income Tax Consequences."
8. DIRECTORS' INTERESTS
The Directors of LBMS together beneficially own a total of 3,276,581
Ordinary Shares (representing approximately twelve percent (12%) of the issued
share capital of LBMS), which includes options over a total of 650,000
Ordinary Shares, and which excludes 1,996,898 Ordinary Shares owned by
Bessemer Venture Partners III L.P., of which Mr. Hardymon, a director of LBMS,
is a General Partner of its General Partner and of which Mr. Hardymon
disclaims beneficial ownership. Full details of the Directors' interests in
Ordinary Shares are set out in the accompanying Proxy Statement under the
heading "Securities Ownership of Certain Beneficial Owners and Management of
LBMS."
The effect of the Scheme of Arrangement on the interests of the Directors of
LBMS does not differ from its effect on the like interests of other persons,
save with regard to the requirement that they enter into affiliate agreements
and their interests as option holders (as described in paragraphs 11 and 12
below, respectively).
The Directors of LBMS intend to vote in favor of the resolutions to be
proposed at the Court Meeting and the EGM in respect of the Ordinary Shares
held by them and to direct Morgan to do so in respect of the ADRs held by
them.
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9. CONDITIONS AND OPERATION OF THE SCHEME OF ARRANGEMENT
The Scheme of Arrangement is subject to the conditions set out in the
Acquisition Agreement summarized in the accompanying Proxy Statement under the
heading "The Acquisition Agreement--Conditions to the Acquisition", including:
(i) the passing by the requisite majorities of the resolutions to be
proposed at the Court Meeting and the EGM;
(ii) the High Court sanctioning the Scheme of Arrangement and confirming
the proposed reduction of LBMS' share capital pursuant thereto;
(iii) the accuracy as of the date of the Acquisition Agreement (with
limited exceptions) in all material respects of the representations and
warranties of LBMS and PLATINUM, and the performance by each party of its
respective obligations and covenants;
(iv) the receipt of all necessary third party and governmental consents
and approvals;
(v) the absence of any temporary restraining order, preliminary or
permanent injunction or other court order preventing consummation of the
Acquisition;
(vi) (with certain exceptions) the receipt of each party's respective
accountant's letter regarding treatment of the business combination to be
effected by the Acquisition as a pooling of interests for accounting
purposes; and
(vii) the receipt of certain tax opinions and legal opinions.
Subject to the conditions set forth in the Acquisition Agreement being
satisfied, it is expected that the date that the Scheme of Arrangement will
become effective (the "Effective Date") will be on or about 12 May, 1998, with
the consideration being posted to holders of Ordinary Shares promptly, and in
any event no later than 21 days thereafter. If the Scheme of Arrangement does
not become effective on or before August 31, 1998 (except if the Acquisition
shall not have been consummated due to the waiting period (or any extension
thereof) under the Hart-Scott-Rodino Antitrust Improvements Act of 1976 not
having expired or been terminated, then such date shall be extended to
December 31, 1998), it will lapse.
Under the terms of the Scheme of Arrangement, LBMS will reduce its share
capital by the cancellation of the Scheme Shares. The reserve arising on the
cancellation of the Scheme Shares will be capitalized by the issue of an equal
number of new LBMS Ordinary Shares to PLATINUM.
In order for this capitalisation to take place, it will first be necessary
to eliminate the debit balance on the profit and loss account in the books of
LBMS. As at 30th April 1997 this amounted to approximately (Pounds)7.6
million, and as at 30th April 1998 it will be substantially the same, the
exact figure being (Pounds)7,592,494.12. It is therefore proposed that the
share premium account of LBMS, amounting to approximately (Pounds)13.2
million, should be reduced by (Pounds)7,592,494.12, and the reserve arising on
the reduction applied in eliminating the debit balance. LBMS will give to the
Court whatever undertaking the Court may require for the protection of the
creditors of LBMS.
10. AMENDMENT TO LBMS' ARTICLES OF ASSOCIATION
The Resolution to be proposed at the EGM includes an amendment to the
Articles of Association which, if the Resolution is duly passed, will
(conditional upon the Scheme of Arrangement becoming effective) provide that
the holder of any Ordinary Shares issued after 6:00 p.m. (London time) on the
last business day prior to the date of the Court Meeting and prior to the last
business day before an Order is made to sanction the Scheme of Arrangement
will be bound by the Scheme of Arrangement and:
(i) permit any person who is issued Ordinary Shares after the Effective
Date to require PLATINUM to acquire his or her Ordinary Shares; and
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(ii) permit PLATINUM to require any person who is issued Ordinary Shares
after such time and date to sell to PLATINUM such Ordinary Shares in each
case for effectively the same consideration as is payable to holders of
Scheme Shares under the Scheme of Arrangement.
11. AFFILIATES AGREEMENTS
The PLATINUM Common Stock to be issued in the Acquisition will not be
registered under the Securities Act of 1933, as amended (the "Securities
Act"), in reliance upon the exemption from registration provided by Section
3(a)(10) of the Securities Act. Shares of PLATINUM Common Stock acquired in
the Acquisition by shareholders of LBMS or PLATINUM who are deemed to control,
be controlled by or be under common control with LBMS or PLATINUM,
respectively ("Affiliates") will not be freely tradeable under the Securities
Act.
Accordingly, Affiliates of PLATINUM and LBMS (who include all of the
directors of LBMS) will deliver to PLATINUM, on or before the Effective Time,
a written agreement (the "Affiliates Agreement") in the form attached as
Exhibit E to the Acquisition Agreement, pursuant to which they will have
agreed, among other things, that, until such time as financial results
covering at least thirty days of combined operations of LBMS and PLATINUM have
been published by PLATINUM, they will not sell, transfer or otherwise dispose
of or encumber, or offer or agree to sell, transfer or otherwise dispose of or
encumber any shares of PLATINUM Common Stock received by them pursuant to the
Acquisition or any securities which may be paid as a dividend or otherwise
distributed thereon or with respect thereto or issued or delivered in exchange
or substitution therefor or which the Affiliate otherwise acquires during such
period. Legends restricting the transfer of such shares of PLATINUM Common
stock will be placed on all certificates representing such shares.
Further details are set out in the accompanying Proxy Statement under the
heading "The Acquisition Agreement--Certain Federal Securities Laws
Consequences; Affiliates Agreements".
12. LBMS SHARE OPTIONS
The Ordinary Shares held by LBMS Trustee Company Limited in its capacity as
the trustee (the "Trustee") of the LBMS Employees' Share Scheme Trust will
qualify as Scheme Shares and will be cancelled as described above. In
exchange, the Trustee will receive shares of PLATINUM Common Stock. The number
of such shares will be determined by multiplying the number of Scheme Shares
held by the Trustee by the Exchange Ratio and rounding down to the nearest
whole number. The Trustee will receive cash in respect of any fraction of a
share of PLATINUM Common Stock in the way described in paragraph 2 of this
Explanatory Statement.
LBMS maintains a number of share option plans under which options have been
granted including the LBMS Executive Share Option Scheme (the "Executive
Scheme"), the LBMS ESOP Share Option Scheme (the "ESOP Scheme") and the LBMS
1996 Equity Incentive Plan (the "Equity Plan"). Together, these schemes are
called the "LBMS Share Option Schemes."
If the Articles of Association of LBMS are amended as described in Paragraph
10 above, any Ordinary Shares which are issued pursuant to options under the
LBMS Share Option Schemes before 6:00 p.m. (London time) on the last business
day before the order of the High Court is made to sanction to the Scheme of
Arrangement will be Scheme Shares bound by the Scheme of Arrangement (if it
becomes effective). These shares will be dealt with as described above in
relation to the shares held by the Trustee. Ordinary Shares issued pursuant to
the LBMS Share Option Schemes at or after the Effective Date will not be
Scheme Shares. They will, though, be subject to the Articles of Association
and in particular the amendments described in subparagraphs (i) and (ii) of
paragraph 10 above under which the shareholder may require PLATINUM to acquire
his or her Ordinary Shares and PLATINUM may require the shareholder to sell
his or her Ordinary Shares to PLATINUM, in each case for effectively the same
consideration as is payable to holders of Scheme Shares under the Scheme of
Arrangement. This will not apply if the option holder has accepted the
exchange offer described below.
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PLATINUM has agreed to make an offer for all options granted under the LBMS
Share Option Schemes. Pursuant to such exchange offer, LBMS options will be
exercisable (when vested) for that number of whole shares of PLATINUM Common
Stock equal to the product of that number of shares of LBMS that were issuable
upon exercise of such options immediately prior to the Effective Time
multiplied by the Exchange Ratio, rounded to the nearest whole number of
shares of PLATINUM Common Stock, and the per share exercise price for the
shares of PLATINUM Common Stock issuable upon exercise of such PLATINUM
options will be equal to the quotient determined by dividing the exercise
price per share of LBMS Ordinary Shares at which such LBMS options were
exercisable immediately prior to the Effective Time by the Exchange Ratio,
rounded to the nearest whole cent.
13. MEETINGS
(a) Court Meeting of the LBMS Shareholders
You will find included in this document a Notice of the Meeting which has
been convened by Order of the High Court for the purpose of considering and,
if thought fit, approving the Scheme of Arrangement. The Court Meeting has
been convened for 9:00 a.m. Houston time (3:00 p.m. London time) on 20 April ,
1998 at LBMS' executive offices, 1800 West Loop South, Suite 900, Houston,
Texas 77027, U.S.A.
At the Court Meeting, the Scheme of Arrangement will be approved by the
holders of Scheme Shares if a majority in number, representing three-fourths
in nominal (par) value, of those holders of Scheme Shares present and voting
either in person or by proxy vote in favor of the Scheme of Arrangement. At
the Court Meeting, each holder of Scheme Shares will be entitled to one vote
for every Scheme Share registered in such holder's name.
(b) Extraordinary General Meeting
You will also find included in this document a Notice of an EGM of LBMS to
be held for the purpose of considering and, if thought fit, passing the
Resolution required to give effect to the acquisition of LBMS by PLATINUM,
including approval of the Scheme of Arrangement, the proposed reductions of
share capital and share premium account and the amendment of the Articles of
Association of LBMS described in paragraph 10 above.
The EGM has been convened for 9:15 a.m. Houston time (3:15 p.m. London time)
on 20 April, 1998 (or as soon thereafter as the Court Meeting has concluded or
been adjourned) at the same address as the Court Meeting. At the EGM, it is
necessary for the Special Resolution to be approved by a majority of not less
than three-fourths of the votes cast. At the EGM, each holder of Ordinary
Shares will be entitled to one vote for every Ordinary Share registered in his
name.
14. ACTION TO BE TAKEN BY HOLDERS OF ORDINARY SHARES
Whether or not a holder of Ordinary Shares intends to attend the meetings in
person, such holder is requested to complete and return the enclosed Forms of
Proxy without delay.
(a) Court Meeting.
PINK Forms of Proxy relating to the Court Meeting must be completed in
accordance with the instructions printed thereon and may be lodged with LBMS'
Registrar, Computershare Services plc, P.O. Box 82, Caxton House, Redcliffe
Way, Bristol BS99 7YA, England, in which case they must be so lodged not later
than 9:00 a.m. Houston time (3:00 p.m. London time) on 18 April, 1998. Holders
of Ordinary Shares may alternatively return the PINK Form of Proxy for the
Court Meeting so that it is received at LBMS' executive offices in Houston by
12:00 p.m. Houston time on 16 April, 1998; LBMS has made arrangements to send
completed Forms of Proxy received by it by such time and date via courier to
its Registrars in England.
However, if any such Form of Proxy is not so lodged, it will still be valid
if, at the Court Meeting, it is handed to the Chairman of the Court Meeting.
Completion and return of this Form of Proxy will not prevent a
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holder of Ordinary Shares from attending the Court Meeting and voting in
person should he subsequently decide to do so.
(b) Extraordinary General Meeting.
GREEN Forms of Proxy relating to the EGM should be completed in accordance
with the instructions printed thereon and lodged with LBMS' Registrars at the
above address not later than 9:15 a.m. Houston time (3:15 p.m. London time) on
18 April, 1998. Holders of Ordinary Shares may alternatively return the GREEN
Form of Proxy for the EGM so that it is received at LBMS' executive offices in
Houston by 12:00 p.m. Houston time on 16 April, 1998; LBMS has made
arrangements to send completed Forms of Proxy received by it by such time and
date via courier to its Registrars in England. Completion and return of this
Form of Proxy will not prevent a holder of Ordinary Shares from attending the
EGM and voting in person should he subsequently decide to do so.
Provided the requisite majorities are obtained and the Scheme of Arrangement
is sanctioned by the High Court (and assuming the conditions of the Scheme of
Arrangement and the Acquisition are satisfied or waived), holders of Scheme
Shares will receive their consideration without having to take any further
action.
15. ACTION TO BE TAKEN BY HOLDERS OF ADRS
Although holders of ADRs are not entitled to attend or vote at the Court
Meeting or the EGM, they are entitled to direct the ADR Depositary, Morgan, as
to how the votes attaching to Ordinary Shares underlying their ADRs shall be
voted at the Court Meeting and the EGM. Morgan will not exercise any voting
discretion in respect of any Ordinary Shares deposited with Morgan.
Holders of ADRs are requested to complete and return to Morgan the Form of
Instruction provided by Morgan without delay. A Form of Instruction relating
to the Court Meeting and the EGM must be completed in accordance with the
instructions printed thereon and returned to Morgan by 3:00 p.m. Eastern
Standard Time on 16 April, 1998 in the envelope provided by Morgan, which
requires no postage if mailed in the United States.
16. SETTLEMENT AND CANCELLATION OF LISTING
On the assumption that the Effective Date is 12 May, 1998, certificates for
PLATINUM Common Stock and cheques in relation to fractional shares will be
posted no later than June 2, 1998, but in any event within twenty one (21)
days after the Effective Date to the persons who were, at the close of
business on the business day immediately preceding the Effective Date), the
registered holders of the Scheme Shares. All certificates and cheques will be
sent by post to shareholders at their respective addresses appearing in the
register of members of LBMS (or, in the case of joint holders, at the address
of the joint holder whose name stands first in the register) at the close of
business on the Record Date or in accordance with any special instructions
regarding communications. Neither LBMS nor PLATINUM will be liable for any
loss or delay in transmission.
If the Acquisition is consummated, the Ordinary Shares represented by the
ADRs and held by the Depositary, Morgan, will be canceled at the same time as
all other Scheme Shares, and PLATINUM will issue to Morgan, on behalf of the
holders of ADRs, PLATINUM Common Stock at the Exchange Ratio. After the
consummation of the Acquisition, ADRs will represent the right of each holder
of ADRs to such holders pro rata interest in the PLATINUM Common Stock issued
to Morgan. After the Consummation of the Acquisition, holders of ADRs may
withdraw the PLATINUM Common Stock underlying the ADRs represented by that
ADRs upon surrender to Morgan or their ADRs in accordance with the terms of
ADRs and the Deposit Agreement governing the ADRs.
Subject to the Articles of Association of LBMS, the register of members will
be closed from the opening of business on the date for the hearing of the
petition to sanction the Scheme of Arrangement until the Effective Time. On
the Effective Date, existing share certificates will cease to be of any value.
The listing of ADRs on the Nasdaq National Market will be terminated as of the
close of business on the day before the Effective Time.
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17. FURTHER INFORMATION
Your attention is drawn to the accompanying Proxy Statement, which forms
part of this Explanatory Statement and contains full details of the conditions
of the Scheme of Arrangement, further information on LBMS and PLATINUM and
certain additional information.
Yours faithfully,
for and on behalf of
Board of Directors
Learmonth & Burchett Management
Systems Plc
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SCHEME OF ARRANGEMENT
IN THE HIGH COURT OF JUSTICE NO. 001300 OF 1998
CHANCERY DIVISION
COMPANIES COURT
IN THE MATTER OF
LEARMONTH & BURCHETT MANAGEMENT SYSTEMS PLC
AND
IN THE MATTER OF THE COMPANIES ACT 1985
(UNDER SECTION 425 OF THE COMPANIES ACT 1985)
BETWEEN
LEARMONTH & BURCHETT MANAGEMENT SYSTEMS PLC
AND
THE HOLDERS OF THE SCHEME SHARES
(AS HEREINAFTER DEFINED)
PRELIMINARY
A In this Scheme, unless inconsistent with the subject or context, the
following expressions bear the following meanings:
EFFECTIVE DATE: the day on which the Scheme becomes effective in accordance
with Clause 3 of this Scheme;
HOLDER: includes any person entitled by transmission;
LBMS: Learmonth & Burchett Management Systems Plc;
PLATINUM: PLATINUM technology, inc.;
PLATINUM SHARES: shares of common stock, par value U.S. $0.001 per share,
of PLATINUM;
RECORD DATE: the business day immediately preceding the Effective Date;
SCHEME SHARES: the Ordinary Shares of 10p each in the capital of LBMS: (a)
in issue at 6:00 p.m. (London time) on the last business day prior to the
date of the meeting of holders of such Ordinary Shares convened pursuant to
an Order of the High Court of Justice in England and Wales to approve this
Scheme (or, if such meeting shall be adjourned to a later date, on the last
business day prior to that later date); and (b) if any, issued thereafter
and before 6:00 p.m. (London time) on the last business day before an order
is made to sanction this Scheme on terms that the holder thereof is bound
by this Scheme;
THIS SCHEME: this Scheme in its present form or with or subject to any
modification, addition or condition approved or imposed by the Court.
B The authorized share capital of LBMS is (Pounds)3,350,000 divided into
33,500,000 Ordinary Shares of 10p each, of which 26,302,658 such shares
have been issued and are fully paid, and the remainder are unissued.
C PLATINUM was incorporated in the State of Delaware, United States of
America in 1987 under the General Corporation Law of the State of Delaware.
The present authorized share capital of PLATINUM is $280,000
17
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divided into (i) 180,000,000 shares of common stock, par value U.S. $0.001
per share, of which 63,753,675 shares were issued as fully paid as at 2
January 1998 and the remaining shares were unissued and (ii) 10,000,000
shares of Class II Preferred Stock, U.S.$0.01 par value per share
(1,000,000 of which (subject to adjustment upward or downward by PLATINUM's
Board of Directors), have been designated as Series A Junior Participating
Preferred Stock and 1,775,000 of which (subject to adjustment upward or
downward in accordance with PLATINUM'S Restated Certificate of
Incorporation) have been designated as Series B Preferred Stock). As at 2
January 1998, 1,768,421 shares of Series B Preferred Stock were issued
fully paid, the remaining shares of Series B Preferred Stock were unissued
and no shares of Series A Junior Participating Preferred Stock were in
issue.
D PLATINUM has agreed to appear by Counsel on the hearing of the Petition to
sanction this Scheme and to undertake to the Court to be bound thereby and
to execute and do or procure to be executed and done all such documents,
acts and things as may be necessary or desirable to be executed or done by
it for the purposes of giving effect to this Scheme.
THE SCHEME
1CANCELLATION OF SCHEME SHARES
1.1The share capital of LBMS shall be reduced by the cancellation of the
Scheme Shares.
1.2The share premium account of LBMS shall be reduced by
(Pounds)7,592,494.12 and the reserve arising on such reduction shall be
applied in eliminating the debit balance on the profit and loss account of
LBMS.
1.3Forthwith and contingently upon the said reductions of share capital and
share premium account taking effect:
1.3.1 the share capital of LBMS shall be increased to its former amount
by the creation of such number of Ordinary Shares of 10p each as
shall be equal to the number of Scheme Shares cancelled as
aforesaid; and
1.3.2 LBMS shall apply the reserve arising as a result of such reduction
of capital in paying up in full at par the Ordinary Shares of 10p
each created pursuant to Clause 1.3.1 which shall be allotted and
issued credited as fully paid to PLATINUM or its nominees.
2CONSIDERATION FOR THE CANCELLATION OF SCHEME SHARES
2.1 In consideration of the cancellation of the Scheme Shares, PLATINUM
shall allot and issue fully paid and nonassessable to each person who
at 6:00 p.m. (London time) on the Record Date is the registered holder
of Scheme Shares 0.1047 PLATINUM Shares for every Scheme Share then
held by such person, save that no fraction of a PLATINUM Share will be
issued pursuant to the Scheme, but in lieu thereof each holder of
Scheme Shares on the Record Date who would otherwise be entitled to a
fraction of a PLATINUM Share (after aggregating all fractions of a
PLATINUM Share to be received by such person) shall instead be paid by
PLATINUM an amount in cash (rounded to the nearest whole U.S. cent)
equal to such fraction multiplied by U.S. $24.06.
2.2 No later than 21 days from the Effective Date, PLATINUM shall make all
such allotments of and shall issue such PLATINUM Shares as are required
to be issued by it to give effect to this Scheme and shall deliver
documents of title for the PLATINUM Shares so issued and cheques (in
the case of joint holders of Scheme Shares, made payable to the first
named joint holder) in respect of fractional entitlements to the
persons respectively entitled thereto.
2.3 All deliveries of notices, documents of title and cheques required to
be made by this Scheme shall be effected by posting the same in pre-
paid envelopes addressed to the persons respectively entitled
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thereto at their respective addresses as appearing in the Register of
Members of LBMS at the close of business in London on the Record Date
(or, in the case of joint holders, to the address of that one of the
joint holders whose name stands first in the said Register of Members in
respect of the joint holding) or to such other addresses (if any) as
such persons may respectively direct in writing.
2.4 Neither LBMS nor PLATINUM shall be responsible for any loss in the
transmission of the documents of title or cheques posted in accordance
with Clause 2.3.
2.5 As from the Effective Date, each existing certificate representing a
holding of Scheme Shares shall cease to be of value and every holder of
such shares shall be bound on the request of PLATINUM to deliver up to
LBMS the certificate(s) for such shares for cancellation.
2.6 The provisions of this clause 2 shall be subject to any prohibition or
condition imposed by law.
3OPERATION OF THIS SCHEME
3.1 This Scheme shall become effective as soon as an office copy of the
Order of the Court sanctioning this Scheme under Section 425 of the
Companies Act 1985 and confirming under Section 137 of the said Act the
reductions of share capital and share premium account provided for by
this Scheme shall have been duly delivered to the Registrar of
Companies for registration and registered by him.
3.2 Unless this Scheme shall become effective on or before 31 December
1998, this Scheme shall never become effective.
3.3 LBMS and PLATINUM may jointly consent on behalf of all persons
concerned to any modification of or addition to this Scheme or to any
condition which the Court may approve or impose.
Dated 27 March, 1998
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<PAGE>
LEARMONTH & BURCHETT MANAGEMENT SYSTEMS PLC
1800 WEST LOOP SOUTH
SUITE 900
HOUSTON, TEXAS 77027
---------------
PROXY STATEMENT
---------------
This Proxy Statement ("Proxy Statement") is being furnished to the
shareholders of Learmonth & Burchett Management Systems Plc ("LBMS") and
holders of LBMS American Depositary Receipts ("ADRs") in connection with the
solicitation of proxies by the Board of Directors of LBMS (the "LBMS Board")
for use at: (i) a special shareholders' meeting (the "Court Meeting") convened
by the High Court of Justice of England and Wales (the "High Court") to be
held at 9:00 a.m. Houston time (3:00 p.m. London time) at the executive
offices of LBMS located at 1800 West Loop South, Suite 900 Houston, Texas
77027, and (ii) an Extraordinary General Meeting (the "EGM") of LBMS
shareholders to be held at 9:15 a.m. Houston time (3:15 p.m. London time), on
April 20, 1998 (or as soon thereafter as the Court Meeting shall have
concluded or been adjourned), also at the executive offices of LBMS.
At the Court Meeting, shareholders will be asked to consider and vote upon a
proposal to pass a resolution to approve the Scheme of Arrangement dated March
27, 1998 (the "Scheme of Arrangement") proposed to be made between LBMS and
the holders of the Scheme Shares (as defined below).
There is no quorum required to transact business at the Court Meeting. To be
passed, the resolution to be proposed at the Court Meeting must be passed on a
poll by a majority in number of the holders of Scheme Shares, representing
three-fourths in nominal (par) value of those holders of Scheme Shares present
and voting either in person or by proxy.
At the EGM, shareholders will be asked to consider and vote upon a proposal
to pass a special resolution (the "Resolution") to approve (i) the Agreement
and Plan of Reorganization, dated as of January 2, 1998, as amended (as so
amended, the "Acquisition Agreement"), by and among PLATINUM technology, inc.,
a Delaware corporation ("PLATINUM"), and LBMS, a company incorporated in
England and Wales under the Companies Acts 1948 to 1976, (ii) the Scheme of
Arrangement, (iii) the reduction of the capital of LBMS by the cancellation of
the Scheme Shares, (iv) the authorization of the LBMS Board to issue ordinary
shares in order to give effect to the Resolution and (v) the amendment of the
Articles of Association of LBMS, each as more fully described in this Proxy
Statement. If the Acquisition Agreement, the Scheme of Arrangement and the
transactions contemplated thereby are approved and the related transactions
are consummated, among other things, at the effective time (the "Effective
Time") of the acquisition of LBMS by PLATINUM pursuant to the Acquisition
Agreement and the Scheme of Arrangement, (i) each ordinary share of 10p each
in the capital of LBMS (each, an "Ordinary Share") will be canceled in
consideration of 0.1047 shares (the "Exchange Ratio") of common stock, $.001
par value per share, of PLATINUM (the "PLATINUM Common Stock") being issued to
the holder of each Scheme Share, (ii) new shares of LBMS will be issued to
PLATINUM and (iii) LBMS will become a wholly-owned subsidiary of PLATINUM.
Based on the price of PLATINUM Common Stock as of January 2, 1998, the last
trading day before the date of the signing of the Acquisition Agreement, and
on the number of Ordinary Shares of LBMS outstanding as of such date, the
aggregate value of the PLATINUM Common Stock to be issued in respect of all
Scheme Shares would be approximately $76.3 million or $2.91 per Ordinary Share
($5.82 per ADR). Based on the price of PLATINUM Common Stock as of March 20,
1998 and on the number of Ordinary Shares of LBMS outstanding as of such date,
the aggregate value of the PLATINUM Common Stock to be issued in respect of
all Scheme Shares would be approximately $64.5 million or $2.43 per Ordinary
Share ($4.87 per ADR). As used in the Acquisition Agreement and in this Proxy
Statement, "Scheme Shares" means the Ordinary Shares (i) in issue at 6:00 p.m.
(London time) on the last business day prior to the date of the meeting of
holders of such Ordinary Shares convened pursuant to an Order of the High
Court to approve the Scheme of Arrangement (or, if such meeting shall be
adjourned to a later date, on the last business day prior to that later date)
and (ii) if any, issued thereafter and before 6:00 p.m. (London time) on the
last business day before an order is made to sanction the Scheme of
Arrangement on terms that the holders of the Ordinary Shares are bound by the
Scheme of Arrangement. Prior to the Effective Time, PLATINUM will make a
written offer to holders of outstanding options under LBMS share option plans,
which offer will be subject to consummation of the Acquisition, to exchange
their LBMS options for options to purchase PLATINUM Common Stock to be issued
under PLATINUM's Employee Incentive Compensation Plan. A copy of the
Acquisition Agreement is attached as Appendix A to this Proxy Statement.
The quorum required to transact business at the EGM is three or more
shareholders who are present in person or by proxy and entitled to vote. To
approve the matters subject to vote, the Resolution must be passed by three-
quarters in number of those present in person who (being entitled to do so)
vote or (on a poll) by a three-quarters majority of the votes cast by
shareholders present in person or by proxy.
This Proxy Statement and the accompanying Forms of Proxy are first being
sent to LBMS shareholders on or about March 27, 1998. Only registered holders
of Ordinary Shares on the Register of Members at the date of the EGM are
entitled to vote at the EGM, and only registered holders of Ordinary Shares
that come within the definition of Scheme Shares are entitled to vote at the
Court Meeting. Holders of Ordinary Shares are entitled on a poll to one vote
for each Ordinary Share held of record. On March 20, 1998 (the latest
practicable date prior to the printing of this Proxy Statement), 26,486,479
Ordinary Shares were issued and outstanding and entitled to vote.
Although ADR holders are not entitled to attend or vote at either the Court
Meeting or the EGM, they may direct Morgan as to how the votes attaching to
the Ordinary Shares underlying their ADRs shall be cast. A Form of Instruction
to Morgan for use by holders of ADRs in relation to the EGM and Court Meeting
will be provided by Morgan.
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TABLE OF CONTENTS
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SUMMARY................................................................... 1
RISK FACTORS.............................................................. 7
THE COURT MEETING......................................................... 13
Time, Place and Date.................................................... 13
Purpose of the Court Meeting............................................ 13
Record Date; Shares Entitled to Vote.................................... 13
Voting and Revocation of Proxies........................................ 13
Vote Required........................................................... 13
Quorum; Abstentions and Broker Non-Votes................................ 13
THE EXTRAORDINARY GENERAL MEETING......................................... 14
Time, Place and Date.................................................... 14
Purpose of the Extraordinary General Meeting............................ 14
Record Date............................................................. 14
Voting and Revocation of Proxies........................................ 14
Vote Required........................................................... 14
Quorum; Abstentions and Broker Non-Votes................................ 15
THE ACQUISITION........................................................... 15
General................................................................. 15
Conversion of Ordinary Shares........................................... 15
Conversion of Options................................................... 16
Exchange Procedures..................................................... 16
Effective Time.......................................................... 17
Background of the Acquisition........................................... 17
Recommendation of LBMS Board of Directors and Reasons for the
Acquisition............................................................ 20
PLATINUM's Reasons for the Acquisition.................................. 21
Opinion of Financial Advisor to LBMS.................................... 21
Certain Considerations.................................................. 25
Interests of Certain Persons in the Acquisition......................... 26
Certain U.S. Federal Income Tax Consequences............................ 26
Certain U.K. Tax Consequences........................................... 27
Accounting Treatment.................................................... 29
Regulatory Approvals.................................................... 29
Certain Federal Securities Law Consequences; Affiliates Agreements...... 30
Nasdaq National Market Listing.......................................... 31
No Appraisal or Dissenters' Rights...................................... 31
THE ACQUISITION AGREEMENT................................................. 32
Representations and Covenants........................................... 32
Conduct of LBMS' Business Prior to the Acquisition...................... 33
No Solicitation......................................................... 34
Indemnification......................................................... 34
Conditions to the Acquisition........................................... 35
Termination............................................................. 35
Expenses and Termination Fee............................................ 35
Reseller Agreement...................................................... 36
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COMPARATIVE PER SHARE MARKET PRICE DATA.................................. 36
LBMS................................................................... 36
PLATINUM............................................................... 38
SELECTED FINANCIAL DATA.................................................. 39
LBMS Selected Historical Consolidated Financial Data................... 39
PLATINUM Selected Consolidated Financial Data (1)...................... 40
Pro Forma Selected Financial Data...................................... 42
LBMS' MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS................................................... 43
PLATINUM MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS................................................... 53
PRO FORMA COMBINED COMPARATIVE PER SHARE DATA............................ 65
INFORMATION REGARDING LBMS............................................... 65
INFORMATION REGARDING PLATINUM........................................... 74
SECURITIES OWNERSHIP OF CERTAIN BENEFICIAL OWNERSAND MANAGEMENT OF LBMS.. 83
UNAUDITED PRO FORMA CONDENSED COMBINING FINANCIAL STATEMENTS............. 85
DESCRIPTION OF CAPITAL STOCK OF PLATINUM................................. 91
DESCRIPTION OF AMERICAN DEPOSITARY RECEIPTS.............................. 94
Deposit, Transfer and Withdrawal....................................... 95
Distributions on Deposited Securities.................................. 96
Disclosure of Interests................................................ 97
Record Dates........................................................... 97
Voting of Deposited Securities......................................... 98
Inspection of Transfer Books........................................... 98
Reports and Other Communications....................................... 98
Changes Affecting Deposited Securities................................. 98
Amendment and Termination of Deposit Agreement......................... 99
Charges of Depositary.................................................. 99
Liability of Holders for Taxes......................................... 99
General Limitations.................................................... 100
Governing Law.......................................................... 101
Morgan Guaranty Trust Company of New York.............................. 101
COMPARISON OF SHAREHOLDER RIGHTS......................................... 101
Shareholder Voting..................................................... 101
Shareholder Approval of Certain Business Combinations.................. 102
Appraisal Rights....................................................... 103
Amendment of By-Laws................................................... 103
Limitation on Directors' Liability, Indemnification of Officers and
Directors............................................................. 103
Cumulative Voting for Directors........................................ 104
Removal of Directors................................................... 105
Newly Created Directorships and Vacancies.............................. 105
Special Meetings....................................................... 105
Inspection Rights...................................................... 106
Election of Directors.................................................. 106
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INDEPENDENT ACCOUNTANTS.................................................. 107
PROPOSALS BY LBMS SHAREHOLDERS FOR THE 1998 ANNUAL GENERAL MEETING OF
SHAREHOLDERS............................................................ 107
PROXY SOLICITATION....................................................... 107
APPENDICES:
Appendix A Agreement and Plan of Reorganization
Appendix A-1Amendment to Agreement and Plan of Reorganization
Appendix B Opinion of Broadview Associates
Appendix C Exhibit 99--Important Factors Regarding Forward-Looking
Statements of LBMS
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SUMMARY
Reference is made to, and this summary is qualified in its entirety by, the
more detailed information contained in this Proxy Statement and the Appendices
hereto. LBMS shareholders are urged to read this Proxy Statement and the
Appendices in their entirety.
THE COMPANIES
THE BUSINESS OF PLATINUM
PLATINUM technology, inc., a Delaware corporation ("PLATINUM") develops,
markets and supports software products, and provides related professional
services, that help organizations manage and improve their information
technology ("IT") infrastructures, which consist of data, systems and
applications. PLATINUM's products and services help IT departments, primarily
in large and data intensive organizations, minimize risk and improve service
levels and leverage information to make better business decisions. PLATINUM's
products typically perform fundamental functions, such as automating
operations, maintaining the efficiency of systems and applications, and
ensuring data access and integrity. PLATINUM also offers a wide array of
professional services, including consulting, systems integration and
educational programs, both in conjunction with and independent of software
product sales.
PLATINUM, a corporation incorporated in Delaware in 1987, has its executive
offices at 1815 South Meyers Road, Oakbrook Terrace, Illinois 60181. Its
telephone number at that address is (630) 620-5000 and its website is located
at http://www.platinum.com.
THE BUSINESS OF LBMS
LBMS' integrated line of management products provide organizations with a
library of best practices for all areas of applications development, and a
comprehensive set of tools for process management, project management, work
management and deliverables management. LBMS has an installed base of more than
30,000 users worldwide in areas such as financial service, technology,
manufacturing, retailing, oil, government and utilities. LBMS also provides
maintenance and implementation services to its customers to assure effective
utilization of its products. All of LBMS' products operate on open, LAN server-
based repositories, providing more consistency, integrity and completeness in
the applications development process.
LBMS, a company incorporated in 1977 in England and Wales under the U.K.
Companies Acts 1948 to 1976, has its executive offices at 1800 West Loop South,
Suite 900, Houston, Texas 77027. Its telephone number at that address is (713)
625-9300.
THE COURT MEETING
TIME, PLACE AND DATE
Pursuant to an Order of the High Court, the Court Meeting will be held on
April 20, 1998 at 9:00 a.m. Houston time (3:00 p.m. London time) at LBMS'
executive offices, 1800 West Loop South, Suite 900, Houston, Texas 77027,
U.S.A.
RECORD DATE; SHARES ENTITLED TO VOTE
Only registered holders of LBMS Ordinary Shares on the Register of Members on
the date of the Court Meeting (or, if such meeting be adjourned to a later
date, on the last business day prior to that later date) will be entitled to
vote at the Court Meeting. On March 20, 1998 (being the latest practicable date
prior to the printing of this Proxy Statement), there were 26,486,479 Ordinary
Shares in issue, the holders of which are entitled on a poll to one vote per
share on the matter to come before the Court Meeting. In accordance with the
terms of the LBMS American Depositary Receipts ("ADRs" or "LBMS ADRs"), holders
of ADRs may instruct the
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Depositary, Morgan Guaranty Trust of New York, ("Morgan"), how the American
Depositary Shares ("ADSs") underlying the ADRs, each of which represents two
(2) Ordinary Shares, should be voted on the matter to come before the Court
Meeting.
PURPOSE OF THE MEETING
At the Court Meeting, shareholders of record on the date of the Court Meeting
will be asked to consider and vote upon a resolution (the "Resolution") to
approve the Scheme of Arrangement. See "The Court Meeting--Purpose of the Court
Meeting."
VOTE REQUIRED; QUORUM; ABSTENTIONS AND BROKER NON-VOTES
The Scheme of Arrangement will be approved if a majority in number of holders
of Ordinary Shares, representing three-fourths in nominal (par) value, of those
holders of Ordinary Shares present and voting either in person or by proxy vote
in favor of the resolution to be proposed at the Court Meeting. There is no
quorum required to transact business at the Court Meeting. Neither abstentions
nor broker non-votes will have any effect on the votes to be taken at the Court
Meeting. See "The Court Meeting--Vote Required" and "--Quorum; Abstentions and
Broker Non-Votes."
THE EXTRAORDINARY GENERAL MEETING
TIME, PLACE AND DATE
The EGM will be held on April 20, 1998 at 9:15 a.m., Houston time (3:15 p.m.
London time) (or as soon thereafter as the Court Meeting shall have concluded
or been adjourned), at LBMS' executive offices, 1800 West Loop South, Suite
900, Houston, Texas 77027, U.S.A.
RECORD DATE; SHARES ENTITLED TO VOTE
Only registered holders of LBMS Ordinary Shares on the Register of Members at
the date of the EGM will be entitled to vote at the EGM. On March 20, 1998
(being the latest practicable date prior to the printing of this Proxy
Statement), there were 26,486,479 Ordinary Shares in issue, the holders of
which are entitled on a poll to one vote per share on each matter to come
before the EGM. In accordance with the terms of the ADRs, holders of ADRs may
instruct Morgan how the ADSs underlying the ADRs, each of which represents two
(2) Ordinary Shares, should be voted on each matter to come before the EGM.
PURPOSE OF THE MEETING
At the EGM, shareholders will be asked to consider and vote upon a resolution
to approve (i) the Acquisition Agreement, (ii) the Scheme of Arrangement, (iii)
the reduction of the capital of LBMS and the cancellation of the Scheme Shares,
(iv) the authorization of the LBMS Board to issue Ordinary Shares in order to
give effect to the resolution and (v) the amendment of the Articles of
Association of LBMS. See "The Extraordinary General Meeting--Purpose of the
Extraordinary General Meeting."
VOTE REQUIRED; QUORUM; ABSTENTIONS AND BROKER NON-VOTES
The affirmative vote of three-quarters in number of the holders of Ordinary
Shares present at the EGM and voting either in person or by proxy at the EGM is
required to approve the Acquisition Agreement, the Scheme and the other matters
included in the resolution to be proposed at the EGM. The quorum required at
the EGM is
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three or more persons who are present in person or by proxy and entitled to
vote. Abstentions and broker non-votes shall be counted as shares that are
present at the EGM and entitled to vote for purposes of determining the
presence of a quorum. Neither abstentions nor broker non-votes will have any
effect on the votes to be take at the EGM. See "The Extraordinary General
Meeting--Vote Required" and "--Quorum; Abstentions and Broker Non-Votes."
THE ACQUISITION
GENERAL
Upon the terms and subject to the conditions of the Acquisition Agreement,
LBMS will be acquired by PLATINUM, and the holders of LBMS Ordinary Shares will
become stockholders of PLATINUM. See "The Acquisition--General."
CONVERSION OF SHARES; ADRS; OPTIONS
At the Effective Time, each of the Scheme Shares will be canceled, and, in
consideration for the cancellation of the Scheme Shares, 0.1047 shares of
PLATINUM Common Stock, $0.001 par value per share (the "PLATINUM Common
Stock"), will be issued for each Ordinary Share held by an LBMS Shareholder
(0.2094 shares for each ADR), except that anyone entitled to a fraction of a
share of PLATINUM Common Stock shall receive cash in lieu thereof at the rate
of $24.06 per full share. Based on the price of PLATINUM Common Stock as of
January 2, 1998, the last trading day before the date of the signing of the
Acquisition Agreement, and on the number of Ordinary Shares of LBMS outstanding
as of such date, the aggregate value of the PLATINUM Common Stock to be issued
in respect of all Scheme Shares would be approximately $76.3 million or $2.91
per Ordinary Share ($5.82 per ADR). Based on the price of PLATINUM Common Stock
as of March 20, 1998 and on the number of Ordinary Shares of LBMS outstanding
as of such date, the aggregate value of the PLATINUM Common Stock to be issued
in respect of all Scheme Shares would be approximately $64.5 million or $2.43
per Ordinary Share ($4.87 per ADR). LBMS Ordinary Shares issued pursuant to the
LBMS share option schemes before 6:00 p.m. (London time) on the last business
day before the order of the High Court is made to sanction the Scheme of
Arrangement and the Ordinary Shares held by LBMS Trustee Company Limited as
Trustee of the LBMS Employees' Share Scheme Trust will be Scheme Shares which
will be treated as described above. After the Effective Time, holders of ADRs,
upon surrender of their ADRs to Morgan in accordance with the terms of the
ADRs, will be entitled to 0.2094 shares of PLATINUM Common Stock for each ADS
represented by such holder's ADRs, plus cash in lieu of fractional shares.
Prior to the effective time of the Acquisition (the "Effective Time"), PLATINUM
will make a written offer to holders of outstanding options under LBMS' share
option plans, which offer will be subject to consummation of the Acquisition,
to exchange their outstanding LBMS options for options to purchase PLATINUM
Common Stock to be issued under PLATINUM's Employee Incentive Compensation
Plan. Any acceptance of such offer will be effective immediately after the
Effective Time. For holders of options who do not accept this offer, LBMS
Ordinary Shares issued to them at or after 6:00 p.m. (London time) on the last
business day before the order of the High Court is made to sanction to the
Scheme of Arrangement will be bound by the Articles of Association of LBMS,
including the amendment to those Articles which is to be proposed at the EGM.
See "The Extraordinary General Meeting--Purpose of the Extraordinary General
Meeting" and see "The Acquisition--Conversion of Ordinary Shares;" "--
Conversion of Options" and "--Exchange Procedures."
LISTING
The shares of PLATINUM Common Stock to be issued to LBMS shareholders in
exchange for Ordinary Shares or ADRs in the Acquisition will be listed on the
Nasdaq National Market.
CONDITIONS TO THE ACQUISITION
The respective obligations of LBMS and PLATINUM to consummate the Acquisition
are subject to the fulfillment or waiver (where permissible) of certain
conditions set forth in the Acquisition Agreement. See "The Acquisition
Agreement--Conditions to the Acquisition."
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TERMINATION; EXPENSES AND TERMINATION FEE
The Acquisition Agreement is subject to termination at the option of either
LBMS or PLATINUM if the Acquisition has not been consummated by August 31, 1998
or if a court or other governmental action prevents consummation. If the
Acquisition is not consummated under certain circumstances, LBMS' Texas
subsidiary, Learmonth & Burchett Management Systems Inc. ("LBMS, Inc.") is
required to pay PLATINUM a fee in the amount of $2.1 million, and under certain
other circumstances, LBMS, Inc. may be required to pay PLATINUM a
nonaccountable expense allowance of $1 million. Similarly, if the Acquisition
is not consummated under other specified circumstances, PLATINUM may be
required to pay LBMS, Inc. a nonaccountable expense allowance of $1 million.
See "The Acquisition Agreement--Termination" and "--Expenses and Termination
Fee."
RECOMMENDATION OF THE LBMS BOARD OF DIRECTORS
The Board of Directors of LBMS has unanimously approved the Acquisition
Agreement and the Acquisition, and the transactions contemplated thereby, and
recommends that holders of LBMS Ordinary Shares approve and adopt the
Acquisition Agreement, the Acquisition and the transactions contemplated
thereby. See "The Acquisition--Recommendation of the LBMS Board of Directors
and Reasons for the Acquisition."
OPINION OF LBMS' FINANCIAL ADVISOR
On January 2, 1998, Broadview Associates ("Broadview") rendered its written
opinion to the LBMS Board of Directors to the effect that, as of December 31,
1997, based upon and subject to the various factors and assumptions set forth
therein, the Exchange Ratio to be paid to the holders of Scheme Shares pursuant
to the Acquisition Agreement was fair, from a financial point of view, to such
holders. The full text of the opinion of Broadview, which sets forth the
assumptions made, matters considered and limitations on the review undertaken
by Broadview, is attached as Appendix B to this Proxy Statement. LBMS
shareholders are urged to read this opinion carefully in its entirety. See "The
Acquisition--Opinion of Financial Advisor to LBMS."
INTERESTS OF CERTAIN PERSONS IN THE ACQUISITION
In considering the recommendation of the LBMS Board with respect to the
Acquisition, shareholders of LBMS should be aware that certain members of LBMS'
management and Board of Directors have certain interests in the Acquisition as
holders of options to purchase Ordinary Shares (which options vest upon a
change in control of LBMS) that are in addition to the interests of the
shareholders of LBMS generally.
CERTAIN TAX CONSEQUENCES
It is expected that the implementation of the Scheme of Arrangement should
only result in a disposal of the Scheme Shares for the purposes of U.K.
taxation of capital gains to the extent that cash is paid in respect of
fractional entitlements and, accordingly, should not give rise to a material
liability to such taxation. LBMS shareholders and ADR holders are urged to
consult their own professional tax advisers as to the specific U.K. tax
consequences to them of the Acquisition. See "The Acquisition--Certain U.K. Tax
Consequences."
It is a condition to the obligations of LBMS to consummate the Acquisition
that LBMS receive an opinion of Ropes & Gray, counsel to LBMS, that the
Acquisition constitutes a reorganization under section 368 of the Code and,
accordingly, that no gain or loss will be recognized for U.S. federal income
tax purposes by holders of LBMS Ordinary Shares (and ADRs representing Ordinary
Shares) when the Ordinary Shares are canceled and, in consideration of such
cancellation, 0.1047 shares of PLATINUM Common Stock are issued for each
Ordinary Share (0.2094 shares of PLATINUM Common Stock for each ADR) held by an
LBMS shareholder (except to the extent of any cash received in lieu of a
fractional share interest in PLATINUM Common Stock). Holders of Ordinary Shares
or ADRs are urged to consult their own tax advisers as to the specific tax
consequences to them of the Acquisition. See "The Acquisition--Certain U.S.
Federal Income Tax Consequences."
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ACCOUNTING TREATMENT
The Acquisition is expected to be accounted for under the pooling-of-
interests method of accounting in accordance with generally accepted accounting
principles. The receipt by each of PLATINUM and LBMS of a letter from its
respective independent public accountants with respect to pooling of interests
satisfactory to the other party is a condition precedent to the obligations of
PLATINUM and LBMS to effect the Acquisition. Such condition precedent shall not
be required to enforce the obligation of PLATINUM to effect the Acquisition if
the non-satisfaction of this condition is due to an action or inaction of
PLATINUM that prevents treating the business combination to be effected by the
Acquisition as a pooling of interests. See "The Acquisition--Accounting
Treatment."
REGULATORY APPROVALS
Certain federal, state and foreign regulatory requirements must be complied
with before the Acquisition can be consummated. See "The Acquisition--
Regulatory Approvals."
The Acquisition is subject to the requirements of the Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended, and the rules and regulations
thereunder, which provide that certain transactions (including the Acquisition)
may not be consummated until certain information has been furnished to the
Antitrust Division of the Department of Justice and the Federal Trade
Commission and certain waiting period requirements have been satisfied. LBMS
and PLATINUM have filed the required information and the applicable waiting
period has expired.
The Acquisition is being effected by means of the Scheme of Arrangement, a
U.K. statutory procedure requiring (in addition to the approval of the
resolution to be proposed at the Court Meeting) the sanction of the High Court
and the filing of the High Court Order at the U.K. Registrar of Companies. Once
effective, the Scheme of Arrangement will bind the holders of all Scheme
Shares.
RISKS ASSOCIATED WITH FIXED EXCHANGE RATIO
The Exchange Ratio is fixed and will not be adjusted in the event of any
increases or decreases in the price of either PLATINUM Common Stock or ADSs
representing LBMS Ordinary Shares. The prices of PLATINUM Common Stock and of
LBMS ADSs at the Effective Time may vary from their prices on the date of this
Proxy Statement and on the dates of the EGM or Court Meeting. The price of
PLATINUM Common Stock has historically been volatile. Various factors could
cause the market price of PLATINUM Common Stock to fluctuate, perhaps
substantially. See "Risk Factors--Volatility of PLATINUM Stock Price." Various
factors, including without limitation, changes in the business, operations or
prospects of LBMS, assessments of the likelihood that the Acquisition will be
consummated and general market and economic conditions could cause the market
price of LBMS ADSs to fluctuate. Because the Effective Time is expected to
occur approximately four weeks after the EGM and Court Meeting, there can be no
assurance that the prices of PLATINUM Common Stock and of LBMS ADSs on the date
of the EGM or Court Meeting will be indicative of their prices at the Effective
Time. See "The Acquisition--Effective Time." Shareholders of LBMS are urged to
obtain current market quotations for PLATINUM Common Stock and LBMS ADSs.
RISK FACTORS
IN CONSIDERING WHETHER TO APPROVE THE ACQUISITION AGREEMENT AND THE
ACQUISITION, LBMS SHAREHOLDERS SHOULD CAREFULLY REVIEW AND CONSIDER THE
INFORMATION CONTAINED HEREIN UNDER THE CAPTION "RISK FACTORS."
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NO APPRAISAL OR DISSENTERS' RIGHTS
Following the Court Meeting, the EGM and the High Court hearing to sanction
the Scheme of Arrangement and the registration of the High Court Order, holders
of ADRs and Ordinary Shares will not have any dissenters' rights or any other
means under English company law to challenge the Acquisition.
COMPARATIVE RIGHTS OF SHAREHOLDERS
The rights of stockholders of LBMS are currently governed by English company
law, including the U.K. Companies Act 1985 (as amended), LBMS' Articles of
Association and LBMS' Memorandum of Association. Upon consummation of the
Acquisition, shareholders of LBMS will become shareholders of PLATINUM, and
their rights as shareholders of PLATINUM will be governed by the General
Corporation Law of the State of Delaware (the "DGCL"), PLATINUM's Restated
Certificate of Incorporation, as amended, and PLATINUM's Bylaws. For a
discussion of various differences between the rights of shareholders of LBMS
and the rights of shareholders of PLATINUM, see "Comparison of Shareholder
Rights."
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RISK FACTORS
The following risk factors should be considered by holders of LBMS Ordinary
Shares in evaluating whether to approve and adopt the Acquisition Agreement
and the consummation of the Acquisition and thereby become holders of PLATINUM
Common Stock. These factors should be considered in conjunction with the other
information contained in this Proxy Statement and the Appendices hereto.
NET LOSSES; ABILITY TO SATISFY DEBT OBLIGATIONS
PLATINUM has experienced operating and net losses in 1995, 1996 and 1997.
There can be no assurance that PLATINUM will not continue to incur operating
and net losses. PLATINUM's future operating results will depend upon a number
of business factors, including other factors discussed in these "Risk
Factors," as well as general economic conditions. Furthermore, prior to a
given year or other fiscal period, PLATINUM hires sales and product
development personnel and makes other decisions which will result in increased
expenses in such year or other period, based upon anticipated revenues for
such year or other period. Due to the seasonality and concentration of
PLATINUM's revenues at the end of fiscal periods, particularly the fourth
quarter, PLATINUM's lack of backlog and PLATINUM's cost structure, if revenue
targets are not met, PLATINUM's operating results would be materially
adversely affected. See "--Seasonality and Variability of Quarterly Operating
Results." No assurances can be given that any of PLATINUM's revenue
expectations will be fulfilled, and PLATINUM's business, results of operations
and financial condition will be materially adversely affected if these
expectations are not fulfilled. If anticipated revenues and income are not
achieved, PLATINUM's ability to pay interest on, or ultimately pay the
principal amount of, its indebtedness could become impaired. As of February
28, 1998, PLATINUM had outstanding long-term obligations and acquisition-
related payables of approximately $300.9 million, requiring PLATINUM to make
payments of principal and interest of approximately $35.0 million and $36.0
million in 1998 and 1999, respectively. If PLATINUM is unable to meet its cash
requirements out of cash flow from operations and its available borrowings,
there can be no assurance that it will be able to obtain alternative financing
or that it will be permitted to do so under the terms of its existing
financing arrangements. In the absence of such financing, PLATINUM's ability
to respond to changing business and economic conditions, to make future
acquisitions, to absorb adverse operating results or to fund capital
expenditures or increased working capital requirements may be adversely
affected.
RAPID TECHNOLOGICAL CHANGE; DEPENDENCE ON NEW PRODUCTS AND MARKETS
PLATINUM expects that the market for IT software products will continue to
be subject to frequent and rapid changes in technology and customer
preferences. Substantially all of PLATINUM's products have maintained their
commercial viability for a significant period of time, as evidenced by the
fact that PLATINUM has discontinued very few of its products. However, the
introduction of products embodying new technologies and the emergence of new
industry standards can render existing products obsolete and unmarketable. The
timing of releases of new products and enhancements of existing products by
PLATINUM varies depending on customer demand and emerging technology.
PLATINUM's growth and future financial performance will depend upon its
ability to develop and introduce new products and enhancements of existing
products that accommodate the latest technological advances and customer
requirements. There can be no assurance that additional new products will be
successfully developed or marketed by PLATINUM, that any new products will
achieve market acceptance, or that other software vendors will not develop and
market products which are superior to PLATINUM's products or that such
products will not achieve greater market acceptance. Furthermore, customers
may delay purchases in anticipation of technological changes. PLATINUM's
ability to develop and market software infrastructure products and other new
products depends upon its ability to attract and retain qualified employees.
Any failure by PLATINUM to anticipate or respond adequately to the changes in
technology and customer preferences, to develop and introduce new products in
a timely fashion, or to attract and retain qualified employees, could
materially adversely affect PLATINUM's business, results of operations and
financial condition. See "Information Regarding PLATINUM--Product
Development."
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EXECUTION RISK
PLATINUM and LBMS believe that important benefits to be realized from the
Acquisition will be the integration of their strategies and product lines. The
anticipated benefits of the Acquisition may not be achieved unless PLATINUM's
and LBMS' product offerings are successfully integrated in a timely manner,
and the combined company could be materially adversely affected if these
expectations are unfulfilled. The difficulties of such integration may
initially be increased by the necessity of coordinating geographically
separated organizations and integrating personnel with disparate business
backgrounds and corporate cultures. The integration of LBMS into PLATINUM will
require the dedication of management resources that will temporarily detract
from attention to the daily business of the combined company. This integration
process may cause an interruption of, or a loss of, momentum in the activities
of either or both of PLATINUM's or LBMS' businesses, which could have a
material adverse effect on the revenues and operating results of the combined
company, at least in the near term. These other recent acquisitions, as well
as the rapid growth in PLATINUM's business, have strained management resources
and may impose additional difficulties on the integration of LBMS into
PLATINUM. Additionally, changes that may be made relating to the operations or
management of LBMS may have a material adverse effect on the revenues and
operating results of the combined company.
Upon consummation of the Acquisition, PLATINUM expects to incur charges
currently estimated to be approximately $6,000,000 in connection with the
combination of the companies. This amount is a preliminary estimate only and
is therefore subject to change. There can be no assurance that PLATINUM will
not incur additional charges to reflect costs associated with the Acquisition,
nor can there be any assurance that PLATINUM will realize the anticipated
benefits of the Acquisition.
RELIANCE ON AND RISKS OF ACQUISITION STRATEGY
PLATINUM expects to continue its strategy of identifying, acquiring and
developing software infrastructure products, services and technologies through
the acquisition of specific products and of businesses which have developed
such products, services and technologies. PLATINUM from time to time engages
in, and is currently engaged in, discussions with potential acquisition
candidates, including discussions relating to acquisitions that may be
material in size and/or scope and which may involve issuances by PLATINUM of a
significant number of shares of PLATINUM Common Stock.
PLATINUM believes that its future growth depends, in part, upon the success
of this strategy. There can be no assurance that PLATINUM will successfully
identify, acquire on favorable terms or integrate such businesses, products,
services or technologies. PLATINUM may in the future face increased
competition for acquisition opportunities, which may inhibit PLATINUM's
ability to consummate suitable acquisitions and increase the costs of
completing such acquisitions.
Acquisitions involve a number of special risks and challenges, including the
diversion of management's attention, assimilation of the operations and
personnel of acquired companies, incorporation of acquired products into
existing product lines, adverse short-term effects on reported operating
results, amortization of acquired intangible assets, assumption of liabilities
of acquired companies, possible loss of key employees and difficulty of
presenting a unified corporate image. No assurance can be given that any
potential acquisition by PLATINUM will or will not occur, or that, if an
acquisition does occur, it will not ultimately have a material adverse affect
on PLATINUM or that any such acquisition will succeed in enhancing the
PLATINUM's business.
PLATINUM has historically issued PLATINUM Common Stock as consideration for
business acquisitions and expects to continue to do so in the future. There
can be no assurances that such issuances will not be dilutive to the
PLATINUM's stockholders. Additionally, PLATINUM has recorded charges for
acquired in-process technology and merger costs in connection with certain of
its past acquisitions, which materially reduced operating and net income for
the periods in which the acquisitions were recorded. PLATINUM expects to
continue to incur such charges in connection with future acquisitions, which
could materially reduce operating
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and net income in the periods in which such acquisitions are consummated. See
"PLATINUM Management's Discussion and Analysis of Financial Condition and
Results of Operation."
HIGHLY COMPETITIVE MARKETS
The market for PLATINUM's products is highly competitive. PLATINUM expects
to encounter enhanced competition and new competitors as it continues to
penetrate the software infrastructure market, including competition from
relational database vendors and systems software companies. Many of PLATINUM's
current and prospective competitors have significantly greater financial,
technical and marketing resources than PLATINUM. Competitive pressure could
cause PLATINUM's products to lose market acceptance or result in significant
price erosion, with a material adverse effect upon the PLATINUM's results of
operations. See "Information Regarding PLATINUM--Competition."
A variety of external and internal factors could adversely affect PLATINUM's
ability to compete in the software infrastructure market. Such factors include
the following: relative functionality, integration, performance and
reliability of the products offered by PLATINUM and its competitors; the
success and timing of new product development efforts; changes affecting the
hardware, operating systems or database systems which PLATINUM currently
supports; the level of demonstrable economic benefits for users relative to
cost; relative quality of customer support and user documentation; ease of
installation; vendor reputation, experience and financial stability and price.
PLATINUM also encounters competition from a broad range of firms in the
market for professional services. Many of PLATINUM's current and prospective
competitors in the professional services market have significantly greater
financial, technical and marketing resources than PLATINUM. The competitive
factors affecting the market for PLATINUM's professional services include the
following: breadth and quality of services offered, vendor reputation and the
ability to retain qualified technical personnel.
DEPENDENCE ON PROPRIETARY TECHNOLOGY
PLATINUM's success is heavily dependent upon its proprietary software
technology. PLATINUM relies on a combination of contractual rights,
trademarks, trade secrets, patents and copyright laws to establish or protect
its proprietary rights in its products. PLATINUM's license agreements restrict
a customer's use of PLATINUM's software and prohibit disclosure to third
persons. Notwithstanding those restrictions, it may be possible for
unauthorized persons to obtain copies of PLATINUM's software products.
PLATINUM registers its product names and other trademarks in the United States
and certain foreign countries. There can be no assurance that the steps taken
by PLATINUM in this regard will be adequate to deter misappropriation of its
proprietary rights or independent third party development of functionally
equivalent technologies. Although PLATINUM does not believe that it is
materially infringing on the intellectual property rights of others, there can
be no assurance that such a claim will not be successfully asserted against
PLATINUM in the future or that any attempt to protect its technology will not
be challenged. See "Information Regarding PLATINUM--Intellectual Property
Rights."
DEPENDENCE ON DB2
A significant portion of PLATINUM's revenues will continue to be derived
from products that enhance the performance and functionality of IBM's DB2
relational database management software, which operates on IBM and compatible
mainframe computer systems running the MVS operating system. A decline or a
perceived decline in IBM's commitment to DB2 or a decline in the market's
acceptance and utilization of DB2 would have an adverse effect on PLATINUM,
and such adverse effect could be material. Also, if IBM were to enhance DB2 or
its DB2 utilities so as to render the PLATINUM's products obsolete or
unnecessary, or devote more resources to developing and marketing IBM's own
DB2 tools and utilities, PLATINUM's business could be materially adversely
affected.
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DEPENDENCE ON RELATIONSHIPS WITH RELATIONAL DATABASE VENDORS
PLATINUM believes that in order to address its markets, PLATINUM must
develop, maintain and enhance close associations with, and obtain access to
the technical personnel of, leading relational database vendors. This may
become increasingly difficult due to competition among such vendors. PLATINUM
has entered into alliances with, among others, Oracle Systems Corp., Sybase,
Inc. and Informix Software, Inc. There can be no assurance that PLATINUM will
be able to maintain existing relationships or enter into new relationships
with such vendors. PLATINUM's failure to do so would have an adverse effect on
its business, results of operations and financial condition, and such adverse
effect could be material.
SUSCEPTIBILITY TO GENERAL ECONOMIC CONDITIONS
PLATINUM's revenues and results of operations will be subject to
fluctuations based upon general economic conditions. If there were a general
economic downturn or a recession in the United States or certain other
markets, PLATINUM believes that certain of its customers might reduce or delay
their purchases of PLATINUM's products or services, leading to a reduction in
the PLATINUM's revenues. The factors that might influence current and
prospective customers to reduce their IT budgets under these circumstances are
beyond the PLATINUM's control. In the event of an economic downturn,
PLATINUM's business, results of operations and financial condition could be
materially adversely affected. There can be no assurance that growth in the
markets for PLATINUM's products and services will occur or that such growth
will result in increased demand for PLATINUM's products and services. See
"PLATINUM Management's Discussion and Analysis of Financial Condition and
Results of Operations" and "Information Regarding PLATINUM."
SEASONALITY AND VARIABILITY OF QUARTERLY OPERATING RESULTS
PLATINUM has experienced a seasonal pattern in its operating results, with
the fourth quarter typically having the highest total revenues and operating
income. Further, revenues for PLATINUM's fourth quarters have historically
been higher than those for the first quarters of the following years. Because
operating expenses continued to increase in the first quarters of those years,
PLATINUM realized substantially lower operating margins and net income
(excluding the effect of charges for acquired in-process technology and merger
costs) for such quarters. PLATINUM expects this pattern to continue for the
foreseeable future. PLATINUM believes the seasonality of its revenues results
primarily from the budgeting cycles of its software product customers and the
structure of PLATINUM's sales commission and bonus programs.
PLATINUM operates with relatively little order backlog, and substantially
all of its software product revenues in each quarter result from sales made in
that quarter. Consequently, if near term demand for PLATINUM's products
weakens or if sales do not close in any quarter as anticipated, PLATINUM's
results of operations for that quarter would be adversely, and perhaps
materially, affected. In addition, the timing and amount of the PLATINUM's
revenues are subject to a number of factors that make estimation of operating
results prior to the end of a quarter extremely uncertain. Historically, a
substantial majority of PLATINUM's quarterly software products revenues has
been recorded in the third month of any given quarter, with a concentration of
such revenues in the last week of that third month, further increasing the
difficulty of predicting operating results.
PLATINUM's operating results may vary significantly from quarter to quarter
depending on other factors such as the size and timing of customer orders,
price and other competitive conditions in the industry, the timing of new
product announcements and releases by PLATINUM and its competitors, the
ability of PLATINUM to develop, introduce and market new and enhanced versions
of PLATINUM's products on a timely basis, changes in PLATINUM's level of
operating expenses, changes in PLATINUM's sales incentive plans, budgeting
cycles of its customers, customer order deferrals in anticipation of
enhancements or new products offered by PLATINUM or its competitors, the
cancellation of licenses during the warranty period or nonrenewal of
maintenance agreements, product life cycles, software bugs and other risks
discussed herein. See "--Rapid Technological Change; Dependence on New
Products and Markets" and "--Highly Competitive Markets."
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RISKS OF INTERNATIONAL SALES
The risks inherent in conducting international business generally include
exposure to currency fluctuations, longer payment cycles, greater difficulties
in accounts receivable collection and the burdens of complying with a wide
variety of foreign laws. Approximately 32%, 30% and 29% of PLATINUM's revenues
in 1995, 1996 and 1997, respectively, were attributable to international
sales. Exchange rate fluctuations can have a material adverse effect on the
total level of foreign sales and the profitability of those sales. During the
past several years, PLATINUM has changed the primary means of international
distribution of its products from a network of independent distributors to
wholly-owned PLATINUM subsidiaries. PLATINUM may encounter difficulties in
integrating and managing these new overseas subsidiaries. See "PLATINUM
Management's Discussion and Analysis of Financial Condition and Results of
Operations."
RISKS OF CONSULTING SERVICES BUSINESS
PLATINUM is subject to the risks associated with a consulting services
business, including dependence on its reputation with existing customers,
volatility of workload and dependence on ability to attract and retain
qualified technical personnel. Also, a substantial portion of PLATINUM's
consulting services revenue may be derived from the performance of services
under fixed-price contracts. There can be no assurance that PLATINUM can
consistently perform in a profitable manner under these contracts,
particularly in the field of software development, where cost overruns are
commonplace.
SUBSTANTIAL LEVERAGE
On December 16, 1997, PLATINUM issued $150,000,000 of convertible
subordinated notes, which bear interest at 6.25% annually and mature on
December 15, 2002. As a result of this additional indebtedness, the Company's
principal and interest obligations increased substantially. The degree to
which the Company is leveraged could materially and adversely affect the
Company's ability to obtain financing for working capital, acquisitions or
other purposes and could make it more vulnerable to industry downturns and
competitive pressures.
DEPENDENCE ON KEY PERSONNEL
Competition for qualified personnel in the software industry is intense, and
there can be no assurance that PLATINUM will be able to attract and retain a
sufficient number of qualified employees. PLATINUM's success depends to a
significant degree upon the continued contributions of its key management,
marketing, product development, professional services and operational
personnel, including key personnel of acquired companies. As the business of
PLATINUM grows, it may become increasingly difficult for it to hire, train and
assimilate the number of new employees required. In addition, it is possible
that the business changes or uncertainty brought about by recent acquisitions
may cause key employees to leave PLATINUM, and certain key members of the
management of acquired companies may not continue with PLATINUM. Any
difficulty in attracting and retaining key employees could have a material
adverse effect on PLATINUM's business, results of operations and financial
condition.
PLATINUM's success to date has depended in large part on the skills and
efforts of Andrew J. Filipowski, PLATINUM's President and Chief Executive
Officer, and Paul L. Humenansky, PLATINUM's Executive Vice President-Product
Development and Chief Operations Officer. PLATINUM has not entered into non-
competition agreements with Messrs. Filipowski or Humenansky or any of its
other key personnel, nor does PLATINUM have "key man" life insurance policies
covering these individuals.
VOLATILITY OF PLATINUM'S STOCK PRICE
The price of PLATINUM Common Stock has historically been volatile. PLATINUM
believes factors such as quarterly fluctuations in results of operations,
announcements of new products and acquisitions by PLATINUM or by its
competitors, changes or anticipated changes in earnings estimates by analysts,
changes in
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accounting treatments or principles and other factors may cause the market
price of the PLATINUM Common Stock to fluctuate, perhaps substantially. The
market price of the PLATINUM Common Stock may be affected by PLATINUM's
ability to meet or exceed analysts' or "street" expectations, and any failure
to meet or exceed such expectations could have a material adverse effect on
the market price of the PLATINUM Common Stock. In addition, stock prices for
many technology companies fluctuate widely for reasons which may be unrelated
to operating results. These fluctuations, as well as general economic,
political and market conditions may adversely affect the market price of the
PLATINUM Common Stock in the future. In the past, following periods of
volatility in the market price of a company's securities, class action
securities litigation has often been instituted against such company. Any such
litigation instigated against PLATINUM could result in substantial costs and a
diversion of management's attention and resources, which could have a material
adverse effect on PLATINUM's business, results of operations and financial
condition. See "Comparative Per Share Market Price Data--PLATINUM."
ANTITAKEOVER EFFECT OF RIGHTS AGREEMENT, CHARTER AND STATUTORY PROVISIONS
PLATINUM has entered into a rights agreement (the "Rights Agreement"), which
provides that, in the event that 15% or more of the outstanding shares of
PLATINUM Common Stock are acquired by a person or group of persons, the holder
of each outstanding share of PLATINUM Common Stock, other than such acquiring
person(s), shall have the right to purchase from PLATINUM additional shares of
PLATINUM Common Stock having a market value equal to two times the exercise
price of such right. In addition, PLATINUM's Restated Certificate of
Incorporation, as amended, provides that the Board of Directors shall be
classified with respect to the terms for which its members shall hold office
by dividing the members into three classes. PLATINUM is also subject to
Section 203 of the Delaware General Corporation Law, which, in general,
imposes restrictions upon acquirors of 15% or more of PLATINUM Common Stock.
The Rights Agreement and these other provisions may have the effect of
delaying, deferring or preventing a change of control of PLATINUM, even if
such event would be beneficial to stockholders. See "Description of Capital
Stock of PLATINUM."
RISKS ASSOCIATED WITH A FIXED EXCHANGE RATIO DESPITE POTENTIAL CHANGES IN
STOCK PRICES
The Exchange Ratio is fixed and will not be adjusted in the event of any
increases or decreases in the price of either PLATINUM Common Stock or ADSs
representing LBMS Ordinary Shares. The prices of PLATINUM Common Stock and of
LBMS ADSs at the Effective Time may vary from their prices on the date of this
Proxy Statement and on the dates of the EGM or Court Meeting. The price of
PLATINUM Common Stock has historically been volatile. Various factors could
cause the market price of PLATINUM Common Stock to fluctuate, perhaps
substantially. See "--Volatility of PLATINUM's Stock Price." Various factors,
including without limitation, changes in the business, operations or prospects
of LBMS, assessments of the likelihood that the Acquisition will be
consummated, and general market and economic conditions could cause the market
price of LBMS ADSs to fluctuate. Because the Effective Time is expected to
occur approximately four weeks after the EGM and Court Meeting, there can be
no assurance that the prices of PLATINUM Common Stock and of LBMS ADSs on the
date of the EGM or Court Meeting will be indicative of their prices at the
Effective Time. See "The Acquisition--Effective Time." Shareholders of LBMS
are urged to obtain current market quotations for PLATINUM Common Stock and
LBMS ADSs.
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THE COURT MEETING
TIME AND PLACE AND DATE
The Court meeting will be held on April 20, 1998 at the offices of LBMS,
1800 West Loop South, Suite 900, Houston, Texas 77027, U.S.A., commencing at
9:00 a.m., Houston time.
PURPOSE OF THE COURT MEETING
Pursuant to the requirements of Section 425 of the U.K. Companies Act 1985,
at the Court Meeting, the holders of Ordinary Shares will be asked to consider
and vote upon a proposal to approve the Scheme of Arrangement, pursuant to
which, among other things, at the Effective Time, and subject to and upon the
terms and conditions of the Acquisition Agreement and the sanction of the High
Court, the share premium account of LBMS will be reduced and the issued
Ordinary Shares will be canceled in consideration of shares of PLATINUM Common
Stock being issued to LBMS shareholders at the Exchange Ratio of 0.1047 per
Ordinary Share (0.2094 per ADR). Concurrently with the cancellation of the
issued Ordinary Shares, new shares of LBMS will be issued to PLATINUM with the
result that LBMS will become a wholly-owned subsidiary of PLATINUM.
RECORD DATE; SHARES ENTITLED TO VOTE
Only holders of record of Ordinary Shares on the register of members of LBMS
on the date of the Court Meeting (or, if such Court Meeting shall be adjourned
to a later date, on that date) will be entitled to vote at the Court Meeting.
On March 20, 1998 (being the latest practicable date prior to the printing of
this Proxy Statement), there were 26,486,479 Ordinary Shares in issue, the
holders of which are entitled on a poll to one vote per share on the
resolution to be proposed at the Court Meeting.
VOTING AND REVOCATION OF PROXIES
The PINK Form of Proxy accompanying this Proxy Statement is solicited on
behalf of the LBMS Board for use at the Court Meeting. Shareholders are
requested to complete, date and sign the accompanying PINK Form of Proxy and
return it promptly. All Forms of Proxy that are properly executed and returned
will be voted at the Court Meeting in accordance with any directions noted
thereon. If no direction is indicated, the form of Proxy will be invalid.
Proxies will be voted in the discretion of the holders of the proxy with
respect to all matters incidental to the conduct of the meeting. Any
shareholder signing and delivering a PINK Form of Proxy may revoke it at any
time before it is voted by delivering to LBMS' Secretary a written revocation
or a duly executed PINK Form of Proxy bearing a later date than the date of
the PINK Form of Proxy being revoked. Any shareholder attending the Court
Meeting in person may revoke his or her PINK Form of Proxy and vote his or her
shares at the Court Meeting. Although ADR holders are not entitled to attend
or vote at either the Court Meeting or the EGM, they may instruct the
Depositary, Morgan, how the ADSs, each of which represents two (2) Ordinary
Shares, underlying their ADRs should be voted at such meetings, by means of
the Form of Instruction provided by Morgan. ADR holders do not have the power
to revoke voting instructions to Morgan.
VOTE REQUIRED
The Scheme of Arrangement will be approved if a majority in number of
holders of Ordinary Shares, representing three-fourths in nominal (par) value,
of those holders of Ordinary Shares present and voting either in person or by
proxy vote in favor of the resolution to be proposed at the Court Meeting. The
resolution to be proposed at the Court Meeting will be held on a poll.
QUORUM; ABSTENTIONS AND BROKER NON-VOTES
There is no quorum required for the conduct of business at the Court
Meeting. Votes cast by proxy or in person at the Court Meeting will be counted
by persons appointed by LBMS to act as election inspectors for the Court
Meeting. Neither abstentions nor broker non-votes have any effect on the
outcome of voting on the matter.
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THE EXTRAORDINARY GENERAL MEETING
TIME, PLACE AND DATE
The EGM will be held on April 20, 1998 at the offices of LBMS, 1800 West
Loop South, Suite 900, Houston, Texas 77027, U.S.A., commencing at 9:15 a.m.,
Houston time (or as soon thereafter as the Court Meeting shall have concluded
or been adjourned).
PURPOSE OF THE EXTRAORDINARY GENERAL MEETING
At the EGM, the holders of Ordinary Shares will be asked to consider and
vote upon a proposal to approve and adopt the Acquisition Agreement, pursuant
to which, among other things, at the Effective Time, and subject to and upon
the terms and conditions of the Acquisition Agreement and the applicable
provisions of the U.K. Companies Act 1985, LBMS' share premium account will be
reduced and the issued Ordinary Shares of LBMS will be canceled in
consideration of shares of PLATINUM Common Stock being issued to LBMS
shareholders at the Exchange Ratio of 0.1047 per Ordinary Share (0.2094 per
ADS). Concurrently with the cancellation of the issued Ordinary Shares, new
Ordinary Shares of LBMS will be issued to PLATINUM with the result that LBMS
will become a wholly-owned subsidiary of PLATINUM.
RECORD DATE; SHARES ENTITLED TO VOTE
Only holders of record of Ordinary Shares on the Register of Members at the
date of the EGM will be entitled to vote at the EGM. On March 20, 1998 (being
the latest practicable date prior to the printing of this Proxy Statement),
there were 26,486,479 Ordinary Shares in issue, the holders of which are
entitled on a poll to one vote per share on each matter to come before the
EGM.
VOTING AND REVOCATION OF PROXIES
The GREEN Form of Proxy accompanying this Proxy Statement is solicited on
behalf of the LBMS Board for use at the EGM. Shareholders are requested to
complete, date and sign the accompanying GREEN Form of Proxy and return it
promptly. All Forms of Proxy that are properly executed and returned will be
voted at the EGM in accordance with any directions noted thereon, or if no
direction is indicated, proxies will be voted FOR approval and adoption of the
Acquisition Agreement, FOR approval of the Scheme of Arrangement, FOR
Cancellation of the Scheme Shares, FOR the authorization of the LBMS Board to
issue Ordinary Shares in order to give effect to the resolution and FOR
approval of the amendment to the Articles of Incorporation. Proxies will be
voted in the discretion of the holders of the proxy with respect to any other
business that may properly come before the meeting and all matters incidental
to the conduct of the meeting. Any shareholder signing and delivering a GREEN
Form of Proxy may revoke it at any time before it is voted by delivering to
LBMS' Secretary a written revocation or a duly executed proxy bearing a later
date than the date of the proxy being revoked. Any shareholder attending the
EGM in person may revoke his or her GREEN Form of Proxy and vote his or her
shares at the EGM. Although ADR holders are not entitled to attend or vote at
either the Court Meeting or EGM, they may instruct the Depositary, Morgan
Guaranty Trust Company of New York, how the ADSs, each of which represents two
(2) Ordinary Shares, underlying their ADRs should be voted at such meetings by
means of the Form of Instruction provided by Morgan. ADR holders do not have
the power to revoke such Form of Instruction.
VOTE REQUIRED
For the Acquisition to be consummated, the proposal is required to be passed
(on a show of hands) by three-quarters in number of those present in person
who (being entitled to do so) vote or (on a poll) by a three-quarters majority
of the votes cast by shareholders present in person or by proxy. A resolution
shall be voted on a poll at the demand of: (i) the Chairman of the EGM; or
(ii) not less than five shareholders (present in person or by
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proxy) having the right to vote at the EGM; or (iii) by a shareholder or
shareholders (present in person or by proxy) holding not less than one-tenth
of the total voting rights of all shareholders.
QUORUM; ABSTENTIONS AND BROKER NON-VOTES
The quorum required at the EGM is three or more persons who are present in
person or by proxy and entitled to vote. Votes cast by proxy or in person at
the EGM will be counted by persons appointed by LBMS to act as election
inspectors for the EGM. The election inspectors will count shares represented
by proxies that withhold authority to vote for a particular matter or that
reflect abstentions and "broker non-votes" (i.e., shares represented at the
EGM held by brokers or nominees as to which (i) instructions have not been
received from the beneficial owners or persons entitled to vote and (ii) the
broker or nominee does not have the discretionary voting power on a particular
matter) only as shares that are present and entitled to vote on the matter for
purposes of determining the presence of a quorum, but neither abstentions nor
broker non-votes will have any effect on the outcome of voting on the matter.
THE ACQUISITION
GENERAL
At the Effective Time (as described below) and subject to and upon the terms
and conditions of the Acquisition Agreement and the applicable provisions of
the U.K. Companies Act 1985, LBMS will be acquired by PLATINUM, whereupon (i)
the share premium account of LBMS will be reduced, (ii) the issued Ordinary
Shares of LBMS will be canceled in consideration of shares of PLATINUM Common
Stock being issued to LBMS shareholders at the Exchange Ratio, (iii) new
shares of LBMS will be issued to PLATINUM and (iv) LBMS will become a wholly-
owned subsidiary of PLATINUM. For the Acquisition to be consummated, it must
be approved by the LBMS shareholders, and the other conditions specified in
the Acquisition Agreement must be satisfied or waived. The discussion in this
Proxy Statement of the Acquisition and the description of the principal terms
and conditions of the Acquisition Agreement are subject to and qualified in
their entirety by reference to the Acquisition Agreement, a copy of which is
attached to this Proxy Statement as Appendix A and is incorporated herein by
reference. LBMS shareholders are urged to read the Acquisition Agreement
carefully in its entirety.
CONVERSION OF ORDINARY SHARES
Each of the LBMS Ordinary Shares (i) in issue at 6:00 p.m. (London time) on
the last business day prior to the date of the meeting of the holders of such
Ordinary Shares convened pursuant to an Order of the High Court to approve the
Scheme (or, if such meeting should be adjourned to a later date, on the last
business day prior to that later date) and (ii) if any, issued thereafter and
before 6:00 p.m. (London time) on the last business day before the hearing of
the petition to sanction the Scheme (the "Hearing Date") on terms that the
holder thereof is bound by the Scheme (together, the "Scheme Shares") will be
canceled, and in consideration for the cancellation of the Scheme Shares,
PLATINUM shall allot and issue to each of the persons who at 6:00 p.m. (London
time) on the business day immediately preceding the Effective Time (the
"Record Date") is the registered holder of Scheme Shares that number of shares
(the "Conversion Shares") of common stock of PLATINUM, $0.001 par value per
share (the "PLATINUM Common Stock"), which is determined by multiplying the
number of Scheme Shares held by such person on the Record Date by 0.1047 (the
"Exchange Ratio"). The Exchange Ratio shall be adjusted to reflect fully the
effect of any split, reverse stock split, stock dividend (including any
dividend or distribution of securities into PLATINUM Common Stock or LBMS
Ordinary Shares), reorganization, recapitalization or other like change with
respect to PLATINUM Common Stock or LBMS Ordinary Shares occurring prior to
6:00 p.m. (London time) on the last business day before the Hearing Date.
Based on the price of PLATINUM Common Stock as of January 2, 1998, the last
trading day before the date of the signing of the Acquisition Agreement, and
on the number of Ordinary Shares of LBMS outstanding as of such date, the
aggregate value of the PLATINUM Common Stock to be issued in respect of all
Scheme Shares would be approximately $76.3 million or $2.91 per Ordinary Share
($5.82 per ADR). Based on
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the price of PLATINUM Common Stock as of March 20, 1998 and on the number of
Ordinary Shares of LBMS outstanding as of such date, the aggregate value of
the PLATINUM Common Stock to be issued in respect of all Scheme Shares would
be approximately $64.5 million or $2.43 per Ordinary Share ($4.87 per ADR).
Forthwith and contingently upon the said cancellation of capital taking
effect: (i) the share capital of LBMS shall be increased to its former amount
by the creation of such number of ordinary shares of 10 pence each as shall be
equal to the number of Scheme Shares canceled and (ii) LBMS shall apply the
reserve arising as a result of such cancellation of capital in paying up in
full at par the 10 pence each so created which shall be allotted and issued
credited as fully paid to PLATINUM.
CONVERSION OF OPTIONS
Prior to the Effective Time, PLATINUM will make a written offer to holders
of outstanding options under LBMS' 1996 Equity Incentive Plan, Executive Share
Option Scheme and ESOP Share Option Scheme (collectively, the "LBMS Share
Option Plans"), which offer will be subject to consummation of the
Acquisition, to exchange their outstanding options to purchase LBMS Ordinary
Shares (the "LBMS Options") for options to purchase PLATINUM Common Stock to
be issued under PLATINUM's Employee Incentive Compensation Plan (the "PLATINUM
Options"). Any acceptance of such offer will be effective immediately after
the Effective Time. The PLATINUM Options offered by PLATINUM to the holders of
LBMS Options will have the following terms and conditions: (i) the vested or
unvested status of the PLATINUM Options and the vesting schedule shall be
identical to that provided by the terms of the applicable LBMS Share Option
Plan, giving effect to any accelerated vesting by virtue of a "change of
control," it being understood that, to the extent applicable, the option
holder's acceptance of PLATINUM's offer shall constitute an agreement to
"release options" in consideration of the grant of "equivalent options" in
PLATINUM and, as a result, PLATINUM Options will reflect the remaining vesting
schedule of the LBMS Options released, (ii) the term of the PLATINUM Options
shall be identical to that provided in the applicable LBMS Share Option Plan;
provided, however, that if the terms of the applicable LBMS Share Option Plan
provides that the LBMS Option will expire or terminate prior to the first
anniversary of the Effective Time, whether due to a change of control or by
virtue of termination of employment after the Effective Time, then the term of
the PLATINUM Option shall expire or terminate on the first anniversary of the
Effective Time, and (iii) except as set forth above, the terms and conditions
of the PLATINUM Options shall be substantially identical to those set forth in
the applicable LBMS Share Option Plan. Pursuant to the exchange offer, (i)
PLATINUM Options shall be exercisable (when vested) for that number of whole
shares of PLATINUM Common Stock equal to the product of the number of LBMS of
Ordinary Shares that were issuable upon exercise of such LBMS Options
immediately prior to the Effective Time multiplied by the Exchange Ratio,
rounded to the nearest whole number of shares of PLATINUM Common Stock and
(ii) the per share exercise price for the shares of PLATINUM Common Stock
issuable upon exercise of such PLATINUM Options shall be equal to the quotient
determined by dividing the exercise price per LBMS Ordinary Shares at which
such LBMS Options were exercisable immediately prior to the Effective Time by
the Exchange Ratio, rounded to the nearest whole cent.
If a holder of an LBMS Option does not accept the exchange offer described
above, then any LBMS Ordinary Shares issued to him or her pursuant to LBMS
Options will be held subject to the terms of the Articles of Association of
LBMS. Subject to the relevant resolution being passed at the EGM, the Articles
of Association will include a provision allowing the holder of the LBMS
Ordinary Shares to require PLATINUM to acquire his or her Ordinary Shares and
to permit PLATINUM to require the holder of the Ordinary Shares to sell them
to PLATINUM in each case for effectively the same consideration as is payable
to holders of Scheme Shares under the Scheme of Arrangement.
EXCHANGE PROCEDURES
Promptly after the Effective Time (and in any event within 21 days
thereafter), PLATINUM shall cause to be mailed to each person who at 6:00 p.m.
(London time) on the Record Date was the registered holder of Scheme Shares a
certificate representing the number of whole shares of PLATINUM Common Stock
and a check in lieu of fractional shares which such holder has the right to
receive.
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Upon consummation of the Acquisition, the ADRs will no longer be listed on
the Nasdaq National Market and PLATINUM will notify Morgan, the Depositary, of
the cancellation of the Scheme Shares. It is expected that the Deposit
Agreement pursuant to which ADRs evidencing ADSs have been issued will be
terminated after the Effective Time. After the Effective Time, holders of
ADRs, upon surrender of ADRs in form satisfactory to Morgan in accordance with
the terms of the ADRs, will be entitled to delivery at Morgan's office (or at
the request, risk and expense of the holder, at such other place requested by
the holder) of 0.2094 shares of PLATINUM Common Stock for each ADS represented
by such holder's ADRs plus cash in lieu of fractional shares. Morgan may
charge each person surrendering ADRs a fee of $5.00 for each 100 ADS (or
portion thereof) evidenced by the ADRs surrendered. For a summary of certain
provisions of such Deposit Agreement, see "Description of American Depositary
Receipts."
EFFECTIVE TIME
Following approval by the LBMS shareholders, the Acquisition will be
consummated, subject to satisfaction or (where permitted under the terms of
the Acquisition Agreement) waiver of the conditions precedent set forth in the
Acquisition Agreement, at the date and time on which an office copy of the
Order of the High Court approving the Scheme of Arrangement under Section 425
of the U.K. Companies Act 1985 and confirming under Section 137 of the U.K.
Companies Act 1985 the reduction of capital provided for in connection with
the Scheme of Arrangement shall have been duly delivered to the Registrar of
Companies in England and Wales for registration, such High Court Order shall
have been registered and the Companies Registry has issued its certificate of
registration of the High Court Order.
BACKGROUND OF THE ACQUISITION
In early 1997, having restored LBMS to profitability, LBMS management and
the Board turned their attention to various goals integral to maximizing
shareholder value, including, but not limited to, gaining critical mass,
broadening its product line, expanding its sales force and channels, and
improving profitability. Management and the Board identified various routes to
attaining these goals, including raising additional capital and strategic
partnering, and concluded that a strategic acquisition by LBMS, or an
acquisition of LBMS by a strategic partner, would be most effective in terms
of fastest implementation and greatest impact on the business. Accordingly, on
February 12, 1997, LBMS engaged Broadview to assist LBMS in connection with
its intent to consider acquisition offers or other transactions with respect
to LBMS; and to consider selected acquisition targets on an opportunistic
basis. Throughout the process described below, and in rendering a fairness
opinion, Broadview considered such non-public information (in addition to
publicly available information) as quarterly income statement forecasts
through LBMS's fiscal year ending April 30, 1999 as well as detailed LBMS
options schedules.
On February 14, 1997, Michael Bennett, President and Chief Executive Officer
of LBMS, Stephen Odom, Chief Financial Officer of LBMS, and Rick Pleczko,
Senior Vice President of LBMS, met with Stephen O'Leary, a Managing Director
of Broadview, and Andrea Meakem, a Senior Associate of Broadview, in Houston
to discuss LBMS business activities, including products and technology, sales
and marketing, organizational and personnel matters, financial performance,
market performance and ownership information.
During March and April of 1997, Broadview approached ten application
development software tools companies to discuss a possible acquisition of LBMS
and met with one application development software tool company to discuss an
acquisition by LBMS. Broadview and LBMS considered the following criteria in
selecting the aforementioned companies: strategic imperative and business fit
with LBMS, proclivity to acquisitions, and acquisition currency (cash or
liquid stock).
On April 24, 1997, Ms. Meakem spoke with Andrew Filipowski, President and
Chief Executive Officer of PLATINUM, regarding a matter other than a potential
business combination with LBMS. During that conversation, Mr. Filipowski
indicated that PLATINUM would be interested in considering the acquisition of
LBMS, among other companies. Subsequently, on April 30, 1997, Mr. Bennett
authorized Broadview to approach PLATINUM to discuss a possible transaction
between LBMS and PLATINUM.
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On May 2, 1997, Broadview approached PLATINUM to introduce a possible
partnership between PLATINUM and LBMS. On a subsequent conference call held on
May 16, 1997, Mr. Filipowski and Larry Freedman, then the Vice President and
associate General Counsel of PLATINUM (currently the Senior Vice President and
General Counsel), spoke to Mr. O'Leary and Ms. Meakem and indicated a
potential interest in moving forward and requested further review of the
publicly available information.
On May 20, 1997, Paul Hessinger, Chief Technology Counsel for PLATINUM,
indicated via voicemail an interest in meeting LBMS to explore a possible
business combination of the two parties.
On June 4, 1997, Messrs. Bennett, Odom and Pleczko from LBMS, and Mr.
O'Leary and Ms. Meakem from Broadview, met with Mr. Hessinger and Edward
Miller, Business Unit Vice President of PLATINUM, in Houston to discuss the
possibility of LBMS entering into a strategic business combination with
PLATINUM. At this meeting, the parties presented general overviews of their
respective businesses, strategic direction, products, services, market
presence and management personnel.
On June 20, 1997, Mr. Hessinger left a message for Ms. Meakem indicating
that PLATINUM would like to put discussions on hold, pending the completion of
PLATINUM's second fiscal quarter.
On July 18, 1997, Mr. Hessinger requested of Mr. O'Leary, before moving
forward with any further discussions of a business combination, an indication
of LBMS' price expectations.
From July 21 through 23, 1997, representatives of the LBMS Board met
telephonically to discuss a response to PLATINUM's request on valuation. On
July 24, 1997, Mr. Bennett, on behalf of the LBMS Board, instructed Mr.
O'Leary to respond to PLATINUM with a valuation range expressed in terms of a
premium to market based on current market value and type of transaction. In a
cash transaction, the LBMS Board proposed a premium to current market of 25%
and in a stock transaction, the Board proposed a premium to current market of
50%.
On July 24, 1997, Mr. O'Leary conveyed the valuation range outlined by the
LBMS Board to Mr. Hessinger.
On August 6, 1997, Mr. Hessinger spoke to Mr. O'Leary and responded by
putting discussions on hold pending the completion of PLATINUM's fiscal third
quarter and the perception that valuation expectations were too high.
On August 13, 1997, Mr. Freedman confirmed the request to put discussions on
hold until after the third fiscal quarter but agreed to hold a meeting between
Mr. Filipowski and Mr. Bennett to introduce the two principals.
On September 25, 1997, Mr. Bennett met with Mr. Filipowski and Mr. Freedman
in Chicago. Messrs. Filipowski and Freedman proposed an acquisition of LBMS in
which the shareholders of LBMS would receive shares of PLATINUM, on a tax-free
basis based on the pooling of interests accounting method, with a value
between $4.00 to $5.00 per ADS. Mr. Bennett indicated that a higher valuation
would most likely be necessary to gain LBMS Board approval; however, Mr.
Bennett indicated that the valuation range presented a basis for discussions
to move forward. Following this meeting, the LBMS Board concluded that it
would be in the best interests of LBMS and its shareholders to explore further
the possibility of a business combination with PLATINUM and authorized
management, in conjunction with Broadview, to negotiate further with PLATINUM.
Furthermore, as the LBMS board continued to hold the view that a strategic
acquisition would be the most effective means to maximize shareholder value,
and there had not been strong interest in partnering with LBMS from any other
potential acquirers approached, LBMS viewed it important to continue
discussions with PLATINUM.
The parties proceeded to hold two separate meetings to discuss their
respective businesses in greater detail. On October 13, 1997, Mr. Pleczko,
Robert Prochnow, Senior Vice President, Research and Development of LBMS, and
Wayne Washburn, Director of Product Development of LBMS, met with Eric Rivas,
Vice President of Engineering of Clear Lake Development Lab, a division of
PLATINUM, in Houston to focus on LBMS' products and technology. Subsequently,
on November 5, 1997, Messrs. Bennett, Odom, and Pleczko of LBMS, and Mr.
O'Leary and Ms. Meakem of Broadview, met with Messrs. Hessinger and Miller in
Fort Lee, New Jersey to discuss LBMS' operations and financials in more
detail.
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From May 1997 through October 1997, Broadview approached another 12
application development software tools companies (in addition to the ten
approached during March and April of 1997) to discuss a possible acquisition
of LBMS. Broadview and LBMS considered the following criteria in selecting the
aforementioned companies: strategic imperative and business fit with LBMS,
proclivity to acquisitions, and acquisition currency (cash or liquid stock).
In total, LBMS met with five application development software tools companies
to discuss an acquisition by LBMS.
On November 11, 1997, PLATINUM provided a term sheet proposing an
acquisition of LBMS on a tax-free basis, based on the pooling of interests
accounting method, valuing LBMS at $70 million.
The LBMS Board agreed to initiate the due diligence process and
simultaneously proceed with the negotiation of a definitive agreement.
Furthermore, the LBMS Board determined that it was in the best interests of
the LBMS shareholders to put the activity relating to acquisition targets on
hold while continuing to pursue an acquisition of LBMS as a strategic partner.
Over the period November 15, 1997 to January 2, 1998, the parties and their
respective counsel worked on drafting a mutually acceptable acquisition
agreement and related documents.
On November 17, 1997, Messrs. Bennett, Odom, and Pleczko of LBMS, and Ms.
Meakem of Broadview met with an alternative possible strategic partner
("Alternative Partner") of LBMS, which Broadview had initially approached in
September 1997. Following that meeting, the LBMS Board authorized Broadview to
continue to pursue a business combination with Alternative Partner, giving
careful consideration to the current conversations with PLATINUM.
On November 19, 1997, a representative of Alternative Partner spoke to Mr.
Bennett and to Ms. Meakem in separate conversations and indicated to both that
it would not be feasible to consider an acquisition of LBMS at that time,
given the price expectations and the timing requirements. Specifically, as
part of these discussions, Broadview and LBMS provided Alternative Partner
with guidance as to how quickly the company would have to react and the
relative valuation to reach, given the receipt of a term sheet by LBMS from
another company (i.e., PLATINUM).
On November 20, 1997, a special meeting of the LBMS Board was held via
conference call. Representatives of the LBMS Board, Gregory Moore of Ropes &
Gray, LBMS' U.S. legal counsel, and Mr. O'Leary and Ms. Meakem of Broadview
participated. Mr. Moore and Mr. O'Leary reported on the status of negotiations
with respect to the Acquisition Agreement. No potential acquirers other than
PLATINUM submitted bids to LBMS throughout the process.
On December 1, 1997, Gerald Christopher, Chairman of the Board of LBMS,
Messrs. Bennett, Odom, O'Leary and Ms. Meakem met with Messrs. Filipowski,
Freedman and Mr. Michael Cullinane, Executive Vice President and Chief
Financial Officer of PLATINUM, in Chicago. The parties discussed the status of
the terms and conditions of the Acquisition and the operations, business
strategy, financial performance and prospects of PLATINUM. During the meeting,
PLATINUM reviewed its recent quarters' performance, expectations for
PLATINUM's fourth fiscal quarter of 1997 and first fiscal quarter of 1998 in
terms of financial performance, specific operational goals specifically
relating to PLATINUM's professional services and sales organizations, and its
current product suites and solutions strategy. PLATINUM also discussed more
generally its long-term strategic direction and financial objectives.
On December 10, 1997, a meeting of the PLATINUM Board was held via
conference call, in which five of the seven members of the PLATINUM Board
participated. During this meeting, the PLATINUM Board discussed the
Acquisition and the Acquisition Agreement, a draft of which had been
previously circulated to the PLATINUM Board. After further deliberation, the
five members of the PLATINUM Board unanimously approved the Acquisition and
the Acquisition Agreement.
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On December 19, 1997, a special meeting of the LBMS Board was held via
conference call with representatives of Ropes & Gray; Macfarlanes, LBMS'
English legal counsel; and Broadview to discuss the progress of the
negotiations with PLATINUM. During this meeting, Mr. O'Leary delivered a draft
opinion to the LBMS Board that the consideration to be received by LBMS
shareholders in the Acquisition was fair, from a financial point of view.
On December 31, the parties completed, subject to approval of LBMS' Board,
an Acquisition Agreement.
On January 2, 1998, a special meeting of the LBMS Board was held via
conference call in which all members of the LBMS Board and representatives of
Ropes & Gray, Macfarlanes and Broadview participated. Mr. Moore informed the
Board that the Acquisition Agreement, a draft of which had been distributed
previously to the LBMS Board, was close to being finalized pending the
inclusion of the final Exchange Ratio. Representatives of Broadview presented
an oral opinion to the LBMS Board that the consideration to be received by
LBMS shareholders in the Acquisition was fair, from a financial point of view,
which opinion was subsequently confirmed in writing. After further
deliberation, the LBMS Board unanimously approved the Acquisition and the
Acquisition Agreement. On January 3, 1998, each company executed and delivered
the Acquisition Agreement. The execution of the Acquisition Agreement was
announced on Monday, January 5, 1998 by issuance of a press release.
RECOMMENDATION OF LBMS BOARD OF DIRECTORS AND REASONS FOR THE ACQUISITION
At its January 2, 1998 meeting, the LBMS Board of Directors determined that
the Acquisition was advisable and in the best interests of LBMS and its
shareholders. Accordingly, at such meeting the Board unanimously approved the
Acquisition Agreement and directed that the Acquisition Agreement be submitted
to the LBMS shareholders for approval.
The determination of the LBMS Board to approve the Acquisition Agreement was
based upon consideration of a number of factors, including without limitation,
the following:
(a) The Board's familiarity with, and consideration of the business,
operations, financial condition, competitive position and prospects of
LBMS, including without limitation, LBMS' leading position in the process
management market, LBMS' strong core product offering, potential revenue
from international sales, LBMS' lack of critical mass necessary for long
term viability, LBMS' relatively small size and moderate growth rate, the
expected growth rate of the process management market, the sole reliance of
LBMS on process management products and services, the strengths of its
competitors, including PLATINUM, and the limited availability of skilled
software sales people;
(b) The Board's consideration of information with respect to the
financial condition, results of operations, business and prospects of
PLATINUM;
(c) The Board's review of the historical market prices of the ADSs
compared to the market prices of PLATINUM Common Stock as well as the
relative trading volume of the ADSs compared to that of the PLATINUM Common
Stock;
(d) The Board's review of oral presentations by, and discussions of the
terms and conditions of the Acquisition Agreement with, representatives of
LBMS' U.S. and U.K. legal counsel and of Broadview Associates and senior
executive officers of LBMS;
(e) The Board's receipt of the oral opinion of Broadview Associates,
later confirmed in writing, to the effect that, as of the date of such
opinion and based upon and subject to certain matters stated therein, the
Exchange Ratio was fair to the holders of the LBMS Ordinary Shares from a
financial point of view; and
(f) The Board's consideration of the terms of the Acquisition Agreement,
including without limitation:
(i) that the Acquisition would be structured so as to be a tax free
reorganization under (S) 368(a)(1)(B) of the Internal Revenue Code of
1986, as amended, for U.S. federal income tax purposes;
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(ii) with certain limited exceptions, the absence of a condition to
PLATINUM's obligation to consummate the Acquisition that the
representations and warranties made by LBMS in the Acquisition
Agreement be true and correct as of the Effective Time;
(iii) that, for purposes of the condition to PLATINUM's obligations
to consummate the Acquisition that there shall not have occurred any
Material Adverse Effect (as defined in the Acquisition Agreement) on
LBMS since the date of the Acquisition Agreement, a Material Adverse
Effect is not deemed to have occurred as a result of (i) a decline in
the actual or potential future financial condition, properties, assets,
liabilities, operations or results of operations of LBMS provided that
LBMS has operated its business in accordance with the covenants set
forth under "The Acquisition Agreement--Conduct of LBMS' Business Prior
to the Acquisition" and otherwise consistent with its past practices,
(ii) losses of employees or other matters related to the transactions
contemplated by the Acquisition Agreement (including the public
announcement thereof) or (iii) actions taken by LBMS at the specific
request of PLATINUM. See "The Acquisition Agreement."
The foregoing list of factors considered by the LBMS Board in its evaluation
of the Acquisition is not intended to be exhaustive. In view of the wide
variety of factors considered in connection with its evaluation of the
Acquisition, the LBMS Board did not find it practicable to, and did not,
quantify or otherwise attempt to assign relative weights to the specific
factors considered in reaching its determination. In addition, individual
members of the LBMS Board may well have given different weights to different
factors.
THE LBMS BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THE APPROVAL OF THE
ACQUISITION AGREEMENT, THE ACQUISITION AND THE TRANSACTIONS CONTEMPLATED
THEREBY.
PLATINUM'S REASONS FOR THE ACQUISITION
PLATINUM desires to integrate LBMS' process management products into the
PLATINUM Process Continuum Suite, an integrated process and project management
tool for application delivery. PLATINUM's management believes that the
integration of LBMS' Process Engineer products as key components of the
PLATINUM Process Continuum Suite will significantly enhance PLATINUM's product
lines and its professional service capabilities to provide solutions for
organizations seeking to manage and continuously improve the process of
building and delivering applications.
OPINION OF FINANCIAL ADVISOR TO LBMS
LBMS engaged Broadview to act as its financial advisor and requested that
Broadview render an opinion regarding the fairness, from a financial point of
view, to LBMS' shareholders, of the consideration to be received by LBMS
shareholders in the Acquisition. At the meeting of the LBMS Board on Friday,
January 2, 1998, Broadview rendered its written opinion (the "Broadview
Opinion") that, as of December 31, 1997, based upon and subject to the various
factors and assumptions set forth in the Broadview Opinion, the Exchange Ratio
was fair, from a financial point of view, to the LBMS shareholders. The
Exchange Ratio was determined pursuant to negotiations between Broadview,
LBMS, PLATINUM and their respective legal advisors.
The text of the Broadview Opinion, which sets forth assumptions made,
matters considered, and limitations on the review undertaken, is attached as
Appendix B to this Proxy Statement. LBMS shareholders are urged to read the
Broadview Opinion carefully in its entirety. The Broadview Opinion addresses
only the fairness of the Exchange Ratio from a financial point of view and
does not constitute a recommendation to any shareholder of LBMS as to how such
shareholder should vote at the Court Meeting or EGM. The LBMS Board selected
Broadview as its financial advisor on the basis of Broadview's reputation and
experience in the information technology sector and the computer software
industry in particular. Pursuant to the terms of an engagement letter between
LBMS and Broadview dated February 12, 1997, LBMS agreed to pay Broadview a fee
upon the consummation of a transaction calculated as 2% of the total
consideration received by shareholders. A fee of
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$250,000 paid in connection with the delivery of the Broadview Opinion will be
credited against such amount. Broadview's engagement letter also specifies
reimbursement by LBMS for certain of its expenses in connection with its
engagement. The summary of the Broadview Opinion set forth in this Proxy
Statement is qualified in its entirety by reference to the full text of such
opinion.
In rendering its opinion, Broadview, among other actions: (i) reviewed the
terms of the Acquisition Agreement and Plan of Reorganization and the
associated schedules thereto in the form of the draft dated December 26, 1997
(the "Draft Acquisition Agreement") which draft contained no material
differences from the definitive Acquisition Agreement (except the omission of
the Exchange Ratio); (ii) reviewed LBMS' Form 10-K for its fiscal year ended
April 30, 1997, including the audited financial statements included therein,
and LBMS' Form 10-Q for the six months ended October 31, 1997, including the
unaudited financial statements included therein; (iii) reviewed financial
projections for LBMS prepared and provided to Broadview by LBMS management;
(iv) participated in discussions with LBMS management concerning the
operations, business strategy, financial performance and prospects for LBMS;
(v) discussed with LBMS management its view of the strategic rationale for the
Acquisition; (vi) reviewed the reported closing prices and trading activity
for the LBMS ADSs; (vii) compared certain aspects of the financial performance
of LBMS with public companies Broadview deemed comparable; (viii) analyzed
available information, both public and private, concerning other mergers and
acquisitions Broadview believed to be comparable in whole or in part to the
Acquisition; (ix) reviewed PLATINUM's annual report and Form 10-K for its
fiscal year ended December 31, 1996, including the audited financial
statements included therein, and PLATINUM's Form 10-Q for the nine months
ended September 30, 1997, including the unaudited financial statements
included therein; (x) participated in discussions with PLATINUM management
concerning the operations, business strategy, financial performance and
prospects for PLATINUM; (xi)discussed with PLATINUM management its view of the
strategic rationale for the Acquisition; (xii) reviewed the reported closing
prices and trading activity for PLATINUM Common Stock; (xiii) compared certain
aspects of the financial performance of PLATINUM with public companies
Broadview deemed comparable; (xiv) considered the total number of shares of
PLATINUM Common Stock outstanding, the average weekly trading volume of
PLATINUM Common Stock, and the maximum time period for LBMS shareholders to
liquidate their PLATINUM Common Stock given SEC regulations; (xv) reviewed
recent equity analyst reports covering LBMS and PLATINUM; (xvi) analyzed the
anticipated effect of the Acquisition on the future financial performance of
the consolidated entity; (xvii) participated in negotiations and discussions
related to the Acquisition among LBMS, PLATINUM and their legal advisors; and
(xviii) conducted other financial studies, analyses and investigations as
deemed appropriate for purposes of the Broadview Opinion.
In rendering the Broadview Opinion, Broadview relied, without independent
verification, on the accuracy and completeness of all the financial and other
information (including without limitation the representations and warranties
contained in the Draft Acquisition Agreement) that was publicly available or
furnished by LBMS or PLATINUM. Broadview assumed that those projections
prepared and provided by LBMS were reasonably prepared and reflected the best
available estimates and good faith judgments of the management of LBMS as to
the future performance of LBMS. Broadview did not make or obtain an
independent appraisal or valuation of any of LBMS' assets. Broadview did not
review any internal financial projections prepared by PLATINUM management, as
such projections were not made available to Broadview.
The following is a summary explanation of the various sources of information
and valuation methodologies employed by Broadview in conjunction with
rendering the Broadview Opinion regarding the proposed Acquisition.
Public Company Comparables Analysis. Total Market Capitalization/Revenue
("TMC/R") and Price/Earnings ("P/E") multiples indicate the value public
markets place on companies in a particular market segment. Although there are
no public company "pure plays" in the market in which LBMS competes, several
companies are comparable to LBMS based on revenue size, products offered,
business model, and management structure. Broadview reviewed nine public
company comparables in the analysis, design and modeling;
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development management; or application construction markets from a financial
point of view including each company's: Trailing Twelve Month ("TTM") Revenue;
TTM Revenue Growth; TTM Operating Margin; 5-year EPS Compound Annual Growth
Rate ("CAGR"); Equity Market Capitalization; TTM P/E ratio; Price/Forward
Calendar 1998 EPS ratio ("Forward P/E"); TTM TMC/R ratio; and Forward Calendar
1998 TMC/R ratio ("Forward TMC/R"). The public company comparables were
selected from the Broadview Barometer, a proprietary database of publicly-
traded Information Technology ("IT") companies maintained by Broadview and
broken down by industry segment. In order of descending TTM TMC/R ratio, the
public company comparables consist of: SEEC, Inc., Viasoft, Inc., Mercury
Interactive, Inc., Rational Software, Inc., INTERSOLV, Inc., SELECT Software
Tools, Inc., Segue Software, Inc., Logic Works, Inc. and Cayenne Software,
Inc. These comparables have a TTM P/E ratio range of 25.5 to 56.3 with a
median of 42.1; Forward 1998 P/E ratio range of 11.3 to 37.7 with a median of
23.2; TTM TMC/R ratio range of 0.62 to 11.01 with a median of 2.42; and
Forward 1998 TMC/R ratio range of 0.96 to 5.16 with a median of 1.92.
LBMS has experienced net losses during the trailing twelve month period
ended October 31, 1997. For this reason, Broadview derived a normalized
earnings figure by applying a 36% tax rate (based on discussions with LBMS
management) to LBMS' pretax income for the same period. The per ADS valuation
implied by the median TTM P/E multiple is $7.84. LBMS does not expect to pay
taxes until the quarter ending July 31, 1998. For this reason, Broadview has
derived a normalized earnings figure by applying a 36% tax rate (based on
discussions with LBMS management) to LBMS' pretax income for the same period.
The per ADS valuation implied by the median Forward P/E multiple is $6.33. The
per ADS valuation implied by the median TTM TMC/R multiple is $4.72. The per
ADS valuation implied by the median Forward TMC/R multiple is $5.13.
Evaluation of PLATINUM Equity. Broadview compared the ranges and medians of
public companies deemed comparable to PLATINUM based upon revenue size,
product offering, business model and management structure. Broadview reviewed
nine public company comparables in the systems management software and
application development tools markets from a financial point of view. In order
of descending TMC/R, the public company comparables consist of: BMC Software,
Inc., Computer Associates Inc., Compuware Corporation, Oracle Corporation,
Boole & Babbage, Inc., Rational Software Corp., Sterling Software Corp.,
Informix Corp., and Sybase, Inc. The multiples were based upon December 31,
1997 closing share prices for PLATINUM and the public company comparables.
Transaction Comparables Analysis. Valuation statistics from transaction
comparables indicate the Adjusted Price/Revenue ("P/R") and Equity
Price/Pretax Income ("Equity Price/Pretax") multiples acquirers have paid for
comparable companies in a particular market segment. Broadview reviewed six
comparable public company merger and acquisition ("M&A") transactions and ten
comparable private company merger and acquisition transactions from 1995
through the present with seller revenue greater than $5 million that involved
sellers sharing many characteristics with LBMS including products offered and
business model. Transactions were selected from Broadview's proprietary
database of published and confidential M&A transactions in the IT industry.
These transactions represent sixteen sellers in the analysis, design and
modeling; development management; or application construction markets IT
market segments. In order of descending P/R multiple, the public company
transactions used are the acquisition of: (i) Atria Software Inc. by Pure
Software Inc.; (ii) SQA Inc. by Rational Software Corp.; (iii) Pure Atria
Corp. by Rational Software Corp.; (iv) Trinzic Corp. by PLATINUM; (v) Open
Environment Corp. by Borland International Inc.; and (vi) Easel Corp. by VMARK
Software Inc. The P/R multiples of the six transactions range from 1.05 to
19.93 with a median of 4.71. The Equity Price/Pretax multiples of the six
transactions range from 31.12 to 92.75 with a median of 51.00.
The per ADS valuation implied by the median P/R multiple of the six public
seller transaction comparables is $8.63. The per ADS valuation implied by the
median Equity Price/Pretax multiple of the six public seller transaction
comparables is $13.24.
In order of descending P/R multiple, the private company transactions used
are the acquisition of: (i) Performix by Pure Software Inc.; (ii) Prodea
Software Corp. by PLATINUM; (iii) Digitalk Inc. by Parcplace Systems Inc.;
(iv) Texas Instruments Inc. (Texas Instruments Software Division) by Sterling
Software Inc.
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Additionally, Broadview considered six transactions with respect to which
Broadview has information that is not publicly available. The P/R multiples of
all sixteen transactions range from 0.61 to 19.93 with a median of 3.25. The
Equity Price/Pretax multiples of all sixteen transactions range from 8.78 to
92.75 with a median of 41.06.
The per ADS valuation implied by the median P/R multiple of all sixteen
transaction comparables is $6.14. The per ADS valuation implied by the median
Equity Price/Pretax multiple of all sixteen transaction comparables is $10.66.
Transaction Premiums Paid Analysis. Premiums paid in comparable public
seller transactions indicate the amount of consideration acquirers are willing
to pay above the seller's equity market capitalization. In this analysis, the
value of consideration paid in transactions involving stock is computed using
the buyer's stock price immediately prior to announcement, while the seller's
equity market capitalization is measured one day prior and thirty days prior
to announcement. Broadview reviewed 31 comparable M&A transactions involving
software vendors from January 1, 1995 to the present with total consideration
greater than $25 million and less than $250 million. Transactions were
selected from Broadview's proprietary database of published and confidential
M&A transactions in the IT industry. In order of descending premium paid
thirty days prior to announce date, the transactions used were the acquisition
of: (i) High Level Design Systems Inc. by Cadence Design Systems Inc.; (ii)
GMIS Inc. by HBO & Company; (iii) Softdesk, Inc. by Autodesk, Inc.; (iv)
National Health Enhancement Systems, Inc. by HBO & Company; (v) Triad Systems
Corp. by Cooperative Computing, Inc.; (vi) Visigenic Software Inc. by Borland
International Inc. (pending); (vii) Interactive Group by Dataworks Corp.;
(viii) TGV Software, Inc. by Cisco Systems Inc.; (ix) Open Environment Corp.
by Borland International Inc.; (x) Hogan Systems Inc by Continuum Co.; (xi)
Software Artistry, Inc. by IBM Corp. (Tivoli Systems) (pending); (xii) Aurum
Software Inc. by Baan International BV; (xiii) Datalogix International Inc. by
Oracle Corp.; (xiv) Intermetrics Inc. by Apollo Holdings Inc.; (xv) Trinzic
Corp. by PLATINUM; (xvi) Amisys Managed Care Systems, Inc. by HBO & Company;
(xvii) Saber Software Corp. by McAfee Associates, Inc.; (xviii) Clinicom Inc.
by HBO & Company; (xix) Altai Inc. by PLATINUM; (xx) CIS Technologies Inc. by
National Data Corp.; (xxi) Wavefront Technologies Inc. by Silicon Graphics,
Inc.; (xxii) Microtec Research Inc. by Mentor Graphics Corp.; (xxiii) HPR Inc.
by HBO & Company; (xxiv) PHAMIS Inc. by IDX Systems Corp.; (xv) Unison
Software, Inc. by IBM Corp. (Tivoli Systems); (xvi) Premenos Corp. by
Harbinger Corp.; (xvii) Enterprise Systems, Inc. by HBO & Company; (xviii)
Technalysis Corp. by Compuware Corp.; (xxix) Meta-Software Inc. by Avant!
Corp.; (xxx) Fractal Design Corp. by MetaTools Inc.; and (xxxi) Firefox
Communications Inc. by FTP Software, Inc.
Based upon Broadview's analysis of premiums paid in comparable software
transactions, Broadview found that premiums/(discounts) paid to sellers'
equity market capitalizations (using the buyer's share price on the day prior
to the announcement date of the transaction to calculate consideration in
stock acquisitions) one day prior to announce date ranged from (0.5%) to 87.4%
with a median of 29.6%. The premiums/(discounts) paid to each sellers' equity
market capitalization thirty days prior to announce date ranged from (47.8%)
to 138.5% with a median of 44.3%.
In the comparable software transactions, the per ADS valuation implied by
the median premium paid one day prior to announce date is $5.35. The per ADS
valuation implied by the median premium paid thirty days prior to announce
date is $6.22.
Stock Performance Analysis. For comparative purposes, Broadview examined the
weekly historical volume and trading prices and the daily relative share
prices for both LBMS ADSs and PLATINUM Common Stock. Broadview examined the
following: (i) the trading prices of PLATINUM Common Stock and the LBMS ADSs
and trading volumes from December 27, 1996 to December 31, 1997; (ii)
PLATINUM, LBMS and their respective Public Company Comparables Indexed share
prices from December 27, 1996 to December 31, 1997; (iii) Relative ratio of
the trading prices of the LBMS ADSs to PLATINUM Common Stock actual share
prices from December 30, 1996 to December 31, 1997.
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Pro Forma Pooling Model Analysis. A pro forma combination analysis
calculates the EPS accretion/dilution of the pro forma combined entity taking
into consideration various financial affects which will result from the
consummation of a transaction. This analysis relies upon certain financial and
operating assumptions provided by an equity research analyst, publicly
available data about LBMS and PLATINUM, and LBMS management. Based on the
analyst's forecast for PLATINUM and internal projections provided by LBMS
management, the pro forma pooling analysis indicates EPS accretion/(dilution)
without acquisition expenses for the fiscal year ending December 31, 1998 and
1999 of 1.8% and 2.1%, respectively.
Consideration of the Discounted Cash Flow Valuation Methodology. While
discounted cash flow is a commonly used valuation methodology, Broadview did
not employ such an analysis for the purposes of this opinion. Discounted cash
flow analysis is most appropriate for companies that exhibit relatively steady
or somewhat predictable streams of future cash flow. Given the uncertainty in
estimating LBMS' future cash flows, Broadview considered a discounted cash
flow analysis inappropriate for valuing LBMS.
Selection and Compensation of Broadview. The LBMS Board selected Broadview
as its financial advisor on the basis of Broadview's reputation and experience
in the Information Technology sector and the computer software industry in
particular, as well as Broadview's historical relationship with LBMS. Pursuant
to the terms of an engagement letter between LBMS and Broadview, the fees
payable by LBMS to Broadview upon completion of the Acquisition are based upon
the consideration to be received by LBMS pursuant to the Acquisition.
Broadview will be reimbursed by LBMS for certain of its expenses incurred in
connection with its engagement. The terms of the fee arrangement with
Broadview, which LBMS and Broadview believe are customary in acquisitions of
this nature, were negotiated at arms' length between LBMS and Broadview, and
the LBMS Board was aware of the nature of the fee arrangement, including the
fact that a significant portion of the fees payable to Broadview is contingent
upon completion of the Acquisition.
The above summary of the presentations by Broadview to the LBMS Board does
not purport to be a complete description of such presentations or of all the
advice rendered by Broadview. Broadview believes that its analyses and the
summary set forth above must be considered as a whole and that selecting
portions of its analyses, without considering all analyses, could create an
incomplete view of the process underlying the analyses set forth in
Broadview's presentations to the LBMS Board and in the Broadview Opinion. In
rendering the Broadview Opinion, Broadview assumed that neither LBMS nor
PLATINUM was involved in any material acquisition other than the Acquisition,
other acquisitions of which we are aware and those activities undertaken in
the ordinary course of conducting their respective businesses. The Broadview
Opinion is necessarily based upon market, economic, financial and other
conditions as they existed and could be evaluated as of the date of the
Broadview Opinion. The Broadview Opinion expresses no opinion as to the price
at which PLATINUM Common Stock will trade subsequent to the Effective Time. In
performing its analyses, Broadview made numerous assumptions with respect to
software industry performance and general economic conditions, many of which
are beyond the control of LBMS or PLATINUM. The analyses performed by
Broadview are not necessarily indicative of actual values or actual future
results, which may be significantly more or less favorable than suggested by
such analyses.
CERTAIN CONSIDERATIONS
In considering whether to approve the Acquisition Agreement and the
transactions contemplated thereby, shareholders of LBMS should be aware that
the price of PLATINUM Common Stock at the Effective Time may vary
significantly from the price as of the date of execution of the Acquisition
Agreement, the date hereof or the date on which shareholders of LBMS vote on
the Acquisition due to changes in the business, operations and prospects of
PLATINUM, general market and economic conditions, and other factors. Because
the market price of PLATINUM Common Stock is subject to fluctuation, the
market value of the shares of PLATINUM Common Stock that holders of LBMS
Ordinary Shares will receive in the Acquisition may increase or decrease prior
to and following the Acquisition. SHAREHOLDERS ARE URGED TO OBTAIN CURRENT
MARKET QUOTATIONS FOR PLATINUM COMMON STOCK. NO ASSURANCE CAN BE GIVEN AS TO
THE FUTURE PRICES OR MARKETS FOR PLATINUM COMMON STOCK.
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INTERESTS OF CERTAIN PERSONS IN THE ACQUISITION
In considering the recommendation of the LBMS Board with respect to the
Acquisition, shareholders of LBMS should be aware that Mssrs. Bennett, Odom,
Combe, Plezko and Prochnow, members of LBMS' management and/or Board of
Directors, have certain interests in the Acquisition as holders of options to
purchase Ordinary Shares (which options vest upon a change in control of LBMS)
that are in addition to the interests of the shareholders of LBMS generally.
CERTAIN U.S. FEDERAL INCOME TAX CONSEQUENCES
The following is a summary of certain U.S. federal income tax consequences
of the Acquisition. This summary is not a complete description of all the tax
consequences relevant to a decision whether to vote in favor of the
Acquisition Agreement and the Acquisition. The discussion does not address the
tax consequences that may be relevant to particular categories of shareholders
subject to special treatment under certain federal income tax laws, such as
dealers in securities, banks, insurance companies, non-U.S. persons, tax-
exempt organizations and shareholders who acquired Ordinary Shares of LBMS (or
ADRs representing Ordinary Shares) pursuant to the exercise of employee stock
options or otherwise as compensation. Each shareholder's individual
circumstances may affect the tax consequences of the Acquisition to him or
her. No information is provided herein with respect to the tax consequences of
the Acquisition under foreign, state or local laws (other than as described
below in "Certain U.K. Income Tax Consequences") or the tax consequences of
transactions effected prior to, concurrently with, or after the Acquisition
(whether or not such transactions are undertaken in connection with the
Acquisition). Moreover, the tax consequences to holders of LBMS Options are
not discussed. The description set forth below is based on existing law and
currently applicable United States Treasury regulations promulgated under the
Internal Revenue Code of 1986, as amended (the "Code"), judicial authority,
and administrative positions of the Internal Revenue Service, all of which are
subject to change either prospectively or retroactively. Any such changes
could affect the accuracy of the statements and conclusions set forth herein.
It is a condition to the obligations of LBMS to consummate the Acquisition
that LBMS receive an opinion of Ropes & Gray that the Acquisition constitutes
a reorganization under section 368 of the Code. Ropes & Gray's opinion will be
based upon representations, made as of the Effective Time, by PLATINUM, LBMS
and certain shareholders of LBMS, which representations Ropes & Gray will
assume to be true, correct and complete, including representations that the
historic shareholders of LBMS have no present plan or intention to transfer or
otherwise reduce the risk of ownership of the PLATINUM stock that they receive
in the Acquisition. If representations cannot be made as of the Effective Time
(by 5% stockholders of LBMS or to the best of the knowledge of LBMS with
respect to less than 5% stockholders) that sufficient historic stockholders of
the Company have no present plan or intention to dispose of the PLATINUM
Common Stock they receive in the Acquisition, counsel may be unable to deliver
its opinion. LBMS or its 5% shareholders may be unable to make such
representations if (i) historic holders of a significant number of LBMS shares
have sold their Ordinary Shares of LBMS (and ADRs representing Ordinary
Shares) in anticipation of the Acquisition or (ii) historic holders of a
significant number of LBMS shares have a present intent, as of the Effective
Time, to sell the PLATINUM Common Stock to be received in the Acquisition.
Moreover, if such representations are untrue, incorrect, or incomplete, the
opinion could be adversely affected.
No advance ruling will be requested or received from the Internal Revenue
Service as to the U.S. federal income tax consequences of the Acquisition.
LBMS shareholders should be aware that Ropes & Gray's opinion will not bind
the Internal Revenue Service and the Internal Revenue Service is therefore not
precluded from successfully asserting a contrary opinion. Subject to the
limitations and qualifications referred to herein, the opinion of Ropes & Gray
will state that the Acquisition qualifies as a reorganization under Section
368(a) of the Code and will state that the material U.S. federal income tax
consequences of the Acquisition are as follows:
(i) No gain or loss will be recognized by holders of Ordinary Shares of
LBMS (or holders of ADRs representing Ordinary Shares) upon their receipt
in the Acquisition of PLATINUM Common Stock (except
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to the extent of cash received by LBMS shareholders in lieu of fractional
share interests in PLATINUM Common Stock).
(ii) The aggregate tax basis of the PLATINUM Common Stock received by a
LBMS shareholder in the Acquisition will be the same as the aggregate tax
basis of the Ordinary Shares of LBMS (or of the ADRs representing Ordinary
Shares) surrendered in exchange therefor, decreased by the tax basis
allocated to any fractional share interest exchanged for cash.
(iii) The holding period of the shares of PLATINUM Common Stock received
in the Acquisition by LBMS shareholders will include the period during
which the Ordinary Shares of LBMS (or ADRs representing Ordinary Shares)
surrendered in exchange therefor were held, provided that such Ordinary
Shares (or ADRs) were held as capital assets at the Effective Time.
(iv) Cash received by a holder of Ordinary Shares of LBMS (or by a holder
of ADRs representing Ordinary Shares) in lieu of a fractional share
interest in PLATINUM Common Stock will be treated as if it was received
upon the sale by such LBMS shareholder of a fractional share of PLATINUM
Common Stock issued in the Acquisition. A shareholder receiving such cash
will recognize gain or loss for federal income tax purposes upon such
payment, equal to the difference (if any) between the amount of cash
received and such shareholder's tax basis allocated to the fractional
share. Such gain or loss will be capital gain or loss if such shareholder's
Ordinary Shares of LBMS (or ADRs representing Ordinary Shares) were held as
capital assets at the Effective Time and will be long-term capital gain or
loss if at the Effective Time such Ordinary Shares (or ADRs) had been held
for more than one year (the maximum rate of tax on any such long-term
capital gain being further reduced if the Ordinary Shares (or ADRs) were
held for more than 18 months).
(v) No gain or loss will be recognized by PLATINUM or LBMS as a result of
the Acquisition.
Even if the Acquisition qualifies as a reorganization, a recipient of shares
of PLATINUM Common Stock could recognize gain for U.S. federal income tax
purposes to the extent that such shares were considered by the Internal
Revenue Service to be received in exchange for consideration other than
Ordinary Shares of LBMS (or ADRs representing Ordinary Shares). All or a
portion of such gain may be taxable as ordinary income.
A successful Internal Revenue Service challenge to the status of the
Acquisition as a reorganization under Section 368(a) of the Code would result
in the LBMS shareholders recognizing taxable gain or loss with respect to each
Ordinary Share of LBMS (or ADR representing Ordinary Shares) surrendered equal
to the difference between the shareholder's tax basis in such Ordinary Share
(or ADR) and the fair market value, as of the Effective Time, of the PLATINUM
Common Stock received in exchange therefor. In such event, a shareholder's
aggregate tax basis in the PLATINUM Common Stock so received would equal its
fair market value and the holding period for such stock would begin the day
after the Acquisition.
CERTAIN U.K. TAX CONSEQUENCES
The following summary is only intended as a brief and general guide to the
main aspects of current U.K. tax law and what is understood to be current
Inland Revenue practice applicable to the Scheme of Arrangement (which may
change in the future). This summary is not intended to provide specific advice
and no action should be taken or omitted to be taken in reliance upon it. It
is addressed to ordinary investors who are the absolute beneficial owners of
Ordinary Shares of LBMS held as investments and not, therefore, to special
classes of shareholders such as financial institutions. Accordingly, its
applicability will depend upon the particular circumstances of individual
shareholders. The summary is not exhaustive and does not generally consider
tax reliefs or exemptions. Any LBMS shareholder who is in any doubt as to his
or her U.K. tax position in relation to the Scheme of Arrangement should
consult his U.K. professional adviser, and LBMS shareholders who are resident
or otherwise subject to taxation in a jurisdiction other than the U.K. should
in addition obtain professional advice about their tax position in relation to
the Scheme of Arrangement in their own country of citizenship, residence or
domicile.
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Scheme of Arrangement: capital gains tax. Implementation of the Scheme of
Arrangement should not result in any LBMS shareholder, who by virtue of U.K.
residence or otherwise is within the scope of U.K. taxation of capital gains
and who does not hold, either alone or together with persons connected with
him, more than 5 per cent of, or of any class of, the issued share capital or
debentures of LBMS, being treated as making a disposal of his Ordinary Shares
in LBMS for the purposes of capital gains tax or corporation tax on chargeable
gains.
However, such an LBMS shareholder will, to the extent that he or she
receives cash from PLATINUM under the Scheme of Arrangement in respect of a
fractional entitlement, be treated as making a part disposal of his LBMS
Ordinary Shares for the purposes of U.K. capital gains tax or corporation tax
on chargeable gains and, accordingly, he may be liable to such tax on any
chargeable gain arising. For this purpose, the capital gains tax base cost
(including indexation allowance) of such shareholder's LBMS Ordinary Shares
will generally be
appointed by reference to market value at the date of disposal between the
part deemed disposed of and the part retained.
Subsequent disposal of PLATINUM common stock: capital gains tax. If a former
LBMS shareholder who by virtue of U.K. residence or otherwise is within the
scope of U.K. taxation of capital gains disposes or is deemed to dispose of
all or part of his PLATINUM shares of common stock, such shareholder may be
liable to capital gains tax or corporation tax on any chargeable gain arising.
For the purposes of computing any such liability, the capital gains tax base
cost of the shareholder's PLATINUM shares immediately after acquiring them
pursuant to the Scheme of Arrangement will be equal to the base cost
(including indexation allowance) of his LBMS Ordinary Shares immediately prior
to their cancellation pursuant to that scheme, as reduced by that part of such
base cost and accrued indexation allowance attributed to any fractional
entitlement. However, this may not apply to a former LBMS shareholder who,
either alone or together with persons connected with him, held at the time of
the Scheme of Arrangement more than 5% of, or of any class of, the issued
share capital or debentures of LBMS. A former LBMS shareholder who is an
individual resident or ordinarily resident but not domiciled in the U.K. will
only be liable to capital gains tax on a gain arising on the disposal or
deemed disposal of his or her shares of PLATINUM Common Stock to the extent
that such gain is remitted to the U.K. A former LBMS shareholder who is
neither resident nor ordinarily resident in the U.K. and does not carry on a
trade, profession or vocation in the U.K. through a branch or agency will not
normally be liable to U.K. tax on capital gains accruing to such shareholder
on the disposal or deemed disposal of shares of PLATINUM Common Stock. The
indexation allowance can reduce or eliminate a chargeable gain but cannot
create or increase an allowable loss.
In certain circumstances, a gain arising on the disposal of shares in a
company which is resident outside the U.K. can be subject to U.K. income tax
rather than U.K. capital gains tax. This discussion is not covered in this
brief summary.
Subsequent holding of PLATINUM common stock: dividends. Dividends and other
distributions of an income nature made in respect of PLATINUM Common Stock
held by a former LBMS shareholder who is within the scope of U.K. income tax
or corporation tax may be subject to either of those taxes. In the case of
U.K. resident shareholders who are individuals not subject to income tax at
the higher rate, foreign dividends not carrying a tax credit are charged to
income tax at the lower rate (currently 20%). U.K. resident shareholders who
are individuals not domiciled within the U.K. will only be liable to income
tax on such a dividend to the extent that it is remitted to the U.K. but, in
the case of such individuals not subject to income tax at the higher rate, the
remitted portion is charged to income tax at the basic rate (currently 23%).
Where certain U.K. collecting agents receive or obtain payment of a dividend
in respect of foreign shares on behalf of any shareholder wherever resident or
payment of such dividend is obtained through a U.K. paying agent, such agent
may be required to withhold U.K. income tax at the lower rate (20%) from the
dividend.
Subsequent holding or disposal of PLATINUM common stock: inheritance tax. A
gift of PLATINUM Common Stock or the death of a holder of such shares may give
rise to a liability to U.K. inheritance tax. For these purposes, a transfer of
assets at less than their full market value may be treated as a gift. Special
rules
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apply to gifts of assets where the donor retains an interest or reserves a
benefit. However, an individual who is not domiciled in the U.K., and is not
deemed to be domiciled there under special rules relating to long residence or
previous domicile in the U.K., is not normally within the scope of inheritance
tax as respects assets situated outside the U.K. Shares of PLATINUM Common
Stock are assets situated outside the U.K. for inheritance tax purposes.
EACH HOLDER OF ORDINARY SHARES OF LBMS IS URGED TO CONSULT HIS OR HER OWN
TAX ADVISER AS TO THE U.S. FEDERAL INCOME AND U.K. TAX CONSEQUENCES OF THE
ACQUISITION TO HIM OR HER, AND ALSO AS TO ANY STATE, LOCAL, FOREIGN OR OTHER
TAX CONSEQUENCES.
ACCOUNTING TREATMENT
The Acquisition is intended to qualify as a pooling of interests for
accounting purposes. Under this method of accounting, the assets and
liabilities of PLATINUM and LBMS will be combined based on the respective
carrying values of the accounts in the historical financial statements of each
entity. Results of operations of the combined company will include income of
PLATINUM and LBMS for the entire fiscal period in which the combination
occurs, and the historical results of operation of the separate companies for
fiscal years prior to the Acquisition will be combined and reported as the
results of operations of the combined company.
The receipt by each of PLATINUM and LBMS of a letter from its respective
independent public accountants with respect to pooling of interests
satisfactory to the other party is a condition precedent to the obligation of
each of LBMS and PLATINUM to consummate the Acquisition. Certain events,
including certain transactions with respect to PLATINUM Common Stock or LBMS
Ordinary Shares by affiliates of PLATINUM or LBMS, respectively, may prevent
the Acquisition from qualifying as a pooling of interests for accounting and
financial reporting purposes. The condition precedent that the parties each
receive such letters from their respective independent public accountants
shall not be required to enforce the obligation of PLATINUM to effect the
Acquisition if the non-satisfaction of this condition is due to an action or
inaction of PLATINUM that prevents treating the business combination to be
effected by the Acquisition as a pooling of interests. To support the
treatment of the Acquisition as a pooling of interests, the Affiliates of LBMS
and PLATINUM have entered into agreements imposing certain resale limitations
on their stock. See "--Certain Federal Securities Law Consequences; Affiliates
Agreements."
REGULATORY APPROVALS
Certain federal, state and foreign regulatory requirements must be complied
with before the Acquisition can be consummated.
The Acquisition is subject to the requirements of the Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended, and the regulations
thereunder, which provide that certain acquisition transactions (including the
Acquisition) may not be consummated until certain information has been
furnished to the Antitrust Division of the Department of Justice (the
"Antitrust Division") and the Federal Trade Commission (the "FTC"), and
certain waiting period requirements have been satisfied. LBMS and PLATINUM
have filed the required information and material with the Antitrust Division
and the FTC, and the applicable waiting period has expired. Termination of the
waiting period does not preclude the Antitrust Division, the FTC, or any other
party from challenging or seeking to delay or enjoin the Acquisition on
antitrust or other grounds. There can be no assurance that any such challenge,
if made, would not be successful; however, neither LBMS nor PLATINUM believes
that the Acquisition will violate the antitrust laws. Any such action taken or
threatened prior to the consummation of the Acquisition could relieve LBMS and
PLATINUM of their respective obligations to consummate the Acquisition.
The Acquisition is being effected by way of the Scheme of Arrangement, a
U.K. statutory procedure. Under Section 425 of the U.K. Companies Act 1985 in
order for the Scheme of Arrangement to be effective, among
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other things, application must be made to the High Court. In determining
whether to sanction the Scheme of Arrangement, the High Court must be
satisfied that the statutory provisions have been complied with, including
correct notice of the Court Meeting having been given, an Explanatory
Statement under Section 426 of the U.K. Companies Act 1985 having been
dispatched and the passing at the Court Meeting by the requisite majorities of
the resolution to approve the Scheme of Arrangement. The High Court also must
be satisfied that the holders of Ordinary Shares were fairly represented by
those attending the Court Meeting, that those constituting the statutory
voting majority acted bona fide and that approval of the Scheme of Arrangement
is reasonable.
The Scheme of Arrangement will become effective upon registration with the
U.K. Registrar of Companies of the Order of the High Court sanctioning the
Scheme of Arrangement and the issue by the Registrar of a certificate to such
effect. Once effective, the Scheme of Arrangement will bind the holders of all
Ordinary Shares in issue before 6:00 pm on the last business day before the
High Court makes its Order sanctioning the Scheme of Arrangement, whether or
not such holders voted in favor of the resolution to be proposed at the Court
Meeting.
The Acquisition and the Scheme of Arrangement also involve (among other
things) a reduction of LBMS' share capital by the cancellation of all the
Scheme Shares pursuant to Section 135 of the U.K. Companies Act 1985. The
resolution to cancel the Scheme Shares is subject, under Section 137 of the
U.K. Companies Act 1985, to the confirmation of the High Court. Such
confirmation is a discretionary remedy and the cancellation will not become
effective unless and until the High Court has made the requisite Order and the
Order has been duly delivered to, and registered by, the Registrar of
Companies in England and Wales.
CERTAIN FEDERAL SECURITIES LAW CONSEQUENCES; AFFILIATES AGREEMENTS
The PLATINUM Common Stock to be issued in the Acquisition will not be
registered under the Securities Act of 1933, as amended (the "Securities
Act"), in reliance upon the exemption from registration provided by Section
3(a)(10) of the Securities Act. Shares of PLATINUM Common Stock acquired in
the Acquisition by shareholders of LBMS or PLATINUM who are deemed to control,
be controlled by or be under common control with LBMS or PLATINUM,
respectively ("Affiliates"), will not be freely tradeable under the Securities
Act. Shares held by shareholders that are not Affiliates of LBMS or PLATINUM
will be freely tradeable under the Securities Act. Affiliates of LBMS may not
sell their shares of PLATINUM Common Stock acquired in the Acquisition except
pursuant to (i) an effective registration statement under the Securities Act
covering such shares, (ii) the resale provisions of Rule 145 promulgated under
the Securities Act or (iii) another applicable exemption from the registration
requirements of the Securities Act. In general, Rule 145, as currently in
effect, imposes restrictions on the manner in which such Affiliates may make
resales of PLATINUM Common Stock and also on the number of shares of PLATINUM
Common Stock that such Affiliates, and others (including persons with whom the
Affiliates act in concert), may sell within any three-month period. These
restrictions will generally apply for at least a period of two years after the
Acquisition (or longer if the person is an Affiliate of PLATINUM).
Each Affiliate has been informed that the treatment of the Acquisition as a
pooling of interests for accounting purposes and as a tax-free reorganization
under the Code is dependent upon the accuracy of certain representations and
warranties made by such Affiliate and compliance with the Affiliates Agreement
(as defined below). The pooling of interests method of accounting generally
will not be challenged on the basis of sales of shares by Affiliates of the
acquiring or acquired company if the Affiliates do not dispose of any of the
shares of the acquiring or acquired company that the Affiliates own or shares
of a corporation they receive in connection with the Acquisition during the
period beginning 30 days before the Acquisition is consummated and ending when
financial results covering at least 30 days of post-Acquisition operations of
the combined enterprise have been published.
All Affiliates of PLATINUM and LBMS must deliver to PLATINUM, on or before
the Effective Time, a written agreement (the "Affiliates Agreement") in the
form attached as Exhibit E to the Acquisition Agreement, pursuant to which
they will have agreed, among other things, that, until such time as financial
results covering at
30
<PAGE>
least thirty days of combined operations of LBMS and PLATINUM have been
published by PLATINUM, they will not sell, transfer or otherwise dispose of or
encumber, or offer or agree to sell, transfer or otherwise dispose of or
encumber any shares of PLATINUM Common Stock received by them pursuant to the
Acquisition or any securities which may be paid as a dividend or otherwise
distributed thereon or with respect thereto or issued or delivered in exchange
or substitution therefor or which the Affiliate otherwise acquires during such
period. Legends restricting the transfer of such shares of PLATINUM Common
Stock will be placed on all certificates representing such shares.
NASDAQ NATIONAL MARKET LISTING
The shares of PLATINUM Common Stock to be issued in the Acquisition will be
listed on the Nasdaq National Market.
The LBMS ADRs will be delisted from the Nasdaq National Market at the end of
the trading day immediately preceding the Effective Time.
NO APPRAISAL OR DISSENTERS' RIGHTS
Following the Court Meeting, the EGM and the date on which the Order of the
High Court approving the Scheme of Arrangement under Section 425 of the U.K.
Companies Act 1985 and confirming under Section 137 of the U.K. Companies Act
1985 the reduction of capital provided for in connection with the Scheme has
been duly delivered to the Registrar of Companies in England and Wales for
registration and the Companies Registry has issued its certificate of
registration of the High Court Order, LBMS shareholders shall have no further
rights under English law to object to or otherwise challenge the Acquisition.
31
<PAGE>
THE ACQUISITION AGREEMENT
Following is a summary of certain provisions of the Acquisition Agreement.
The summary does not purport to be complete and is qualified in its entirety
by reference to the Acquisition Agreement, a copy of which is attached to this
Proxy Statement as Appendix A and incorporated herein by reference. Statements
in this Proxy Statement with respect to the terms of the Acquisition are
qualified in their entirety by reference to the Acquisition Agreement. LBMS
shareholders are urged to read the full text of the Acquisition Agreement.
REPRESENTATIONS AND COVENANTS
Under the Acquisition Agreement, PLATINUM and LBMS made certain
representations and warranties that each is duly organized and validly
existing and that each has authority to enter into the Acquisition Agreement.
PLATINUM and LBMS also made a number of representations and warranties to each
other, including those regarding: (i) their respective capital structure; (ii)
corporate power and authority; (iii) required Securities and Exchange
Commission (the "Commission") filings and financial statements; (iv) absence
of certain changes or events; (v) absence of undisclosed liabilities; (vi)
pooling of interests accounting treatment; (vii) absence of litigation; (viii)
the Proxy Statement and (ix) the completeness of representations and
statements in the Acquisition Agreement.
LBMS also made certain representations regarding, among other things: (i)
taxes; (ii) restrictions on business activities; (iii) absence of liens and
encumbrances; (iv) intellectual property; (v) absence of certain agreements,
contracts and commitments; (vi) the absence of breach of certain contracts;
(vii) governmental authorizations; (viii) insurance; (ix) health, safety and
environment; (x) labor matters; (xi) employee benefit plans; (xii) certain
payments; (xiii) relationships with related persons; (xiv) bank accounts; (xv)
certain change of control payments and (xvi) receipt of a fairness opinion.
PLATINUM and LBMS each also made certain representations and warranties with
respect to brokers' and finders' fees. All representations and warranties of
LBMS and PLATINUM will terminate as of the Effective Time.
Under the Acquisition Agreement, the parties make certain agreements and
covenants with respect to actions to be taken in connection with the
Acquisition. Each of LBMS and PLATINUM agrees to use its reasonable commercial
efforts to (i) cause the business combination to be effected by the
Acquisition to be accounted for as a pooling of interests; (ii) deliver to the
other party the letter of its independent public accountants regarding the
accounting treatment of the Acquisition; (iii) deliver or cause to be
delivered to the other party an executed Affiliates Agreement from each of its
Affiliates; (iv) comply with all legal requirements imposed on it with respect
to the consummation of the Acquisition (including, on the part of PLATINUM,
all federal and state securities laws applicable to the issuance of the
PLATINUM Common Stock pursuant to the Acquisition) and (v) effectuate the
transactions contemplated by the Acquisition Agreement and fulfill or cause to
be fulfilled each of the conditions precedent to the consummation of the
Acquisition. PLATINUM further agreed, subject to compliance with pooling of
interests accounting treatment and the requirements of any applicable laws, to
take such reasonable actions as are necessary or appropriate to allow eligible
employees of LBMS or its subsidiaries to participate in the employee benefit
programs of PLATINUM (or in similar alternative programs) as soon as is
reasonably practicable after the Effective Time.
Pursuant to the Acquisition Agreement, PLATINUM also covenants with LBMS
(for itself and as trustee for holders of LBMS Options), in order to permit
the proper operation of LBMS' Articles of Association (as amended by the
Resolution), that, upon service of a Vendor Notice or a Purchaser Notice (as
such terms are defined in the Articles of Association, as proposed to be
amended and as described in the Notice of Extraordinary General Meeting
included in this Proxy Statement), it will issue to the person from whom such
new Ordinary Shares (the "Later Shareholders") are acquired by PLATINUM shares
of PLATINUM Common Stock in accordance with the Exchange Ratio, as may be
adjusted pursuant to LBMS' Articles of Association (as so
32
<PAGE>
amended), in consideration of the transfer to PLATINUM of such Ordinary
Shares. No fraction of a share of PLATINUM Common Stock will be issued to the
Later Shareholders by virtue of the foregoing sentence, but in lieu thereof
each Later Shareholder who would otherwise be entitled to a fraction of a
share of PLATINUM Common Stock (after aggregating all fractional shares of
PLATINUM Common Stock to be received by such holder) shall receive from
PLATINUM an amount of cash calculated as set forth in Article 4B of the
Articles of Association (as so amended). The PLATINUM Common Stock so issued
will be fully paid and non-assessable and will rank equally in all respects
with all PLATINUM Common Stock in issue at the time (other than as regards any
dividend or other distribution payable by reference to a second date preceding
the date of allotment). Pursuant to the Acquisition Agreement, PLATINUM agrees
to file a registration statement on Form S-8 with the Commission for the
shares of PLATINUM Common Stock issuable to any Later Shareholders in
accordance with the foregoing provisions no later than ten days after the
Effective Time.
PLATINUM has agreed, if the Acquisition is consummated, to instruct English
Counsel to appear at the hearing of petition to sanction the Scheme of
Arrangement, to pay all and any U.K. stamp duty and/or stamp duty reserve tax
payable in relation to the Acquisition, and that it will not cause any change
with respect to PLATINUM Common Stock between the Hearing Date and the
Effective Time.
CONDUCT OF LBMS' BUSINESS PRIOR TO THE ACQUISITION
Under the Acquisition Agreement, LBMS has agreed, during the period from the
date of the Acquisition Agreement and continuing until the earlier of the
termination of the Acquisition Agreement pursuant to its terms and the
Effective Time, except to the extent that PLATINUM otherwise consents in
writing, that LBMS will carry on its business in the usual, regular and
ordinary course in substantially the same manner as heretofore conducted, to
keep financial records in accordance with sound business practices, to pay its
debts and taxes when due subject to good faith disputes over such debts or
taxes, to pay or perform other material obligations when due, to file all
necessary and/or required forms, reports and documents required to be filed
with the Commission and to prepare such future Commission reports in
accordance with the requirements of the Securities Act or the Exchange Act,
and to use commercially reasonable efforts consistent with past practices and
policies to preserve intact LBMS' present business organizations, to the best
of its ability and except as a result of announcement of the signing of the
Acquisition Agreement, to keep available the services of its of its present
officers and employees and preserve its relationships with customers,
suppliers, distributors, licensors, licensees, and others having business
dealings with LBMS, to the end that LBMS' goodwill and ongoing business be
unimpaired at the effective time. Among other things, LBMS has agreed that,
except as expressly provided for in the Acquisition Agreement, it will not,
without the prior written consent of PLATINUM, which consent will not be
unreasonably withheld: (i) accelerate, amend or change the period of
exercisability of options or restricted stock, or authorize cash payments in
exchange for any options granted under the employee stock plans of LBMS or
authorize cash payments in exchange for any options granted under any of such
plans; (ii) grant any severance or termination pay (a) to any executive
officer or (b) to any other employee except payments made in connection with
the termination of employees who are not executive officers in amounts
consistent with LBMS' policies and past practices or pursuant to written
agreements outstanding, or policies existing, on the date of the Acquisition
Agreement and as previously disclosed in writing to PLATINUM or pursuant to
written agreements consistent with LBMS' past agreements under similar
circumstances; (iii) create any new subsidiaries, or enter into partnership
arrangements, joint ventures, joint development agreements, or strategic
alliances; (iv) declare or pay any dividends on or make any other
distributions (whether in cash, stock or property) in respect of any of its
share capital, or split, combine or reclassify any of its share capital or
issue or authorize the issuance of any other securities in respect of, in lieu
of or in substitution for shares of the share capital of LBMS; (v) repurchase
or otherwise acquire, directly or indirectly, any of its share capital; (vi)
with certain exceptions, issue, deliver or sell or authorize or propose the
issuance, delivery or sale of, any shares of its share capital of any class or
securities convertible into, or subscriptions, rights, warrants or options to
acquire, or enter into other agreements or commitments of any character
obligating LBMS to issue any such shares or other convertible securities;
(vii) cause, permit or propose any amendments to LBMS' Articles of Association
or Memorandum of Association (except as required by the Scheme of Arrangement
and the Acquisition Agreement); (viii) sell, lease,
33
<PAGE>
license, encumber or otherwise dispose of any of LBMS' properties or assets
(including intellectual property rights ) which are material, individually or
in the aggregate, to its business, except in the ordinary course of business;
or (ix) incur any indebtedness for borrowed money, other than certain
borrowings in the ordinary course of business.
NO SOLICITATION
The Acquisition Agreement provides that from the date of the Acquisition
Agreement until the Effective Time or the earlier termination of the
Acquisition Agreement, subject to certain exceptions described below, LBMS
will not, and will not permit its directors, officers, employees,
representatives, investment bankers, agents and affiliates to, directly or
indirectly, (i) solicit or encourage submission of any inquiries, proposals or
offers by, (ii) participate in negotiations with, (iii) afford any access to
the properties, books or records or LBMS or any of its subsidiaries to, or
(iv) otherwise assist, facilitate or encourage, or enter into any agreement or
understanding with, any person, entity or group (other than PLATINUM and its
affiliates, agents and representatives), in connection with any Acquisition
Proposal. Under the Acquisition Agreement, an "Acquisition Proposal" means any
proposal relating to the possible acquisition of LBMS, whether by way of
acquisition, consolidation, sale of material assets, or otherwise.
Additionally, subject to certain exceptions described below, LBMS will not,
and will not permit its directors, officers, employees, representatives,
investment bankers, agents and affiliates to, directly or indirectly, make or
authorize any statement, recommendation or solicitation in support of any
Acquisition Proposal made by any person, entity or group (other than
PLATINUM).
Notwithstanding the foregoing, prior to the approval of the Acquisition
Agreement and the Acquisition as a Scheme of Arrangement by the shareholders
of LBMS and the approval of resolutions at the EGM, LBMS may furnish
information concerning LBMS to any third party (but shall not encourage the
request for such information); provided that such information will not be
provided unless (i) such third party has delivered to LBMS in writing an
unsolicited, bona fide Superior Proposal (as defined below), (ii) any non-
public information is provided pursuant to a confidentiality agreement at
least as restrictive as the confidentiality agreement between LBMS and
PLATINUM and (iii) LBMS notifies PLATINUM immediately of any non-public
information disclosed to such third party with a description of the
information to be disclosed. If LBMS receives any Acquisition Proposal which
the LBMS Board in its good faith reasonable judgment determines, after
consultation with its independent financial advisors, would result in a
transaction more favorable to the shareholders of LBMS from a financial point
of view than the Acquisition and for which financing, to the extent required,
is then committed or which, in the good faith reasonable judgment of the LBMS
Board (based upon the advice of independent financial advisors), is reasonably
capable of being financed by such person, entity or group and which is likely
to be consummated (a "Superior Proposal"), nothing contained in the
Acquisition Agreement shall prevent the LBMS Board from approving such
Superior Proposal or recommending such Superior Proposal to LBMS shareholders,
if the LBMS Board determines in good faith, after consultation with outside
legal counsel, that such action is required by its fiduciary duties under
applicable law; and in such case, the LBMS Board may amend or withdraw its
recommendation of the Acquisition.
LBMS must (i) notify PLATINUM immediately if any proposal is made or any
information or access is requested in connection with a Superior Proposal or
potential Superior Proposal and (ii) immediately communicate to PLATINUM the
terms and conditions of any such Superior Proposal or potential Superior
Proposal or inquiry and the identity of the offeror or potential offeror.
INDEMNIFICATION
The Acquisition Agreement provides that, for a period of two years after the
Effective Time, LBMS shall indemnify and hold harmless each person who at any
time prior to the Effective Time has been an officer, director or employee of
LBMS and each other person entitled to indemnification by LBMS pursuant to its
Memorandum of Association or Articles of Association, as such documents were
in effect on the date of the Acquisition Agreement, to the same extent as
provided for in such documents.
34
<PAGE>
CONDITIONS TO THE ACQUISITION
In addition to the approval by the shareholders of LBMS, the obligations of
PLATINUM and LBMS to consummate the Acquisition will be subject to the
satisfaction of a number of other conditions including, among others: (i) the
sanction of the Scheme of Arrangement and confirmation of the proposed
reduction of LBMS' share capital by the High Court of Justice in England and
Wales; (ii) the absence of any adverse similar proceeding by the Commission;
(iii) the absence of any temporary restraining order, preliminary or permanent
injunction or other court order preventing the consummation of the
Acquisition; (iv) the expiration of the applicable Hart-Scott-Rodino Antitrust
Improvements Act waiting period; (v) the receipt of each party's respective
accountant's letter satisfactory to the other party; (vi) and the
authorization for listing on the Nasdaq National Market of the shares of
PLATINUM Common Stock issuable to shareholders of LBMS pursuant to the
Acquisition. Additionally, the obligations of PLATINUM and LBMS will also be
conditioned upon: (i) the accuracy as of the date of the Acquisition Agreement
(with limited exceptions) in all material respects of the representations and
warranties made by the other party; (ii) performance in all material respects
by the other party of its agreements and covenants; (iii) the receipt of all
necessary third party consents; (iv) with certain exceptions in the case of
LBMS, the absence of any Material Adverse Effect (as defined in the
Acquisition Agreement) on PLATINUM or LBMS; (v) executed Affiliates Agreements
and (vi) the receipt of certain tax opinions and legal opinions.
TERMINATION
The Acquisition Agreement may be terminated at any time prior to 6:00 p.m.
(London time) on the day immediately preceding the date on which the High
Court hears the petition to sanction the Scheme by mutual agreement of both
parties or: (i) by either party as a result of a material breach by the other
party of a representation, warranty, covenant or agreement set forth in the
Acquisition Agreement if such breach is not under certain circumstances cured
within ten (10) business days after written notice (except that no cure period
is provided for a breach which by its nature cannot be cured), provided that
the party seeking termination is not in material breach of the Acquisition
Agreement; (ii) by either party if the Board of Directors of the other party
adversely amends, withholds or withdraws its recommendation of the Acquisition
or if the Acquisition is not submitted to LBMS' shareholders (provided that
the party seeking termination is not in material breach of the Acquisition
Agreement); (iii) by either party if the Acquisition or the Scheme of
Arrangement is not approved by LBMS' shareholders; (iv) by either party if the
Acquisition is not consummated on or before the Final Date (as defined below)
and the party seeking the termination has not caused the delay by willfully
failing to fulfill its material obligations under the Acquisition Agreement;
or (v) by either party if there is a final non-appealable order of a Federal
or state court, or the High Court in effect preventing consummation of the
Acquisition or there is any final action taken, or any statute, rule,
regulation or order enacted, promulgated or issued or deemed applicable to the
Acquisition by any government entity which would make the Acquisition illegal,
prohibit PLATINUM from owning a material portion of LBMS' business or require
PLATINUM to divest a material portion of its business. The Acquisition
Agreement may also be terminated by LBMS or PLATINUM if, prior to the
consummation of the Acquisition, the LBMS Board accepts, approves or
recommends to the shareholders of LBMS, a Superior Proposal.
The term "Final Date" means August 31, 1998, except that if the Acquisition
shall not have been consummated due to the waiting period (or any extension
thereof) under the Hart-Scott-Rodino Antitrust Improvements Act not having
expired or been terminated, then such date shall be extended to December 31,
1998.
The Acquisition Agreement may be amended by PLATINUM and LBMS at any time by
execution of an instrument in writing signed on behalf of each of the parties
thereto.
EXPENSES AND TERMINATION FEE
Whether or not the Acquisition is consummated, each party will bear its own
costs and expenses in connection with the Acquisition Agreement and the
transactions provided for therein. If, however, the
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<PAGE>
Acquisition is not consummated because of a material breach of any
representation, warranty, covenant or agreement contained in the Acquisition
Agreement by either PLATINUM or LBMS, then under certain circumstances the
defaulting party is required to pay a nonaccountable expense allowance of $1
million. In the event of such a breach by LBMS, LBMS, Inc. would pay such
allowance to PLATINUM in accordance with the Compensation Agreement dated as
of January 2, 1998 (the "Compensation Agreement") between PLATINUM and LBMS,
Inc. If the Acquisition Agreement is terminated because the LBMS Board
adversely amends, withholds or withdraws its recommendation of the Acquisition
or the Acquisition is not submitted to LBMS shareholders, or the LBMS
shareholders do not approve the Acquisition, or if LBMS accepts a Superior
Proposal, then PLATINUM (provided it is not then in material breach of the
Acquisition Agreement) may in certain circumstances collect a $2.1 million fee
from LBMS, Inc. pursuant to the Compensation Agreement. If the Acquisition
Agreement is terminated in accordance with the mutual agreement of both
parties, or in a manner not addressed above, then neither party will be
required to pay any expenses or fees to the other party.
RESELLER AGREEMENT
In connection with the Acquisition Agreement, PLATINUM, LBMS and LBMS, Inc.
entered into a reseller agreement (the "Reseller Agreement") (i) giving
PLATINUM the right to market, sell, distribute, license and sublicense the
LBMS process management products and (ii) giving LBMS the right to market,
sell, distribute, license and sublicense PLATINUM's Process Continuum Suite
products, all on the terms and conditions provided in the Reseller Agreement.
The term of the Reseller Agreement is from January 2, 1998 until December 31,
1998, unless terminated earlier for breach. The Reseller Agreement will
automatically terminate if the Scheme of Arrangement is not sanctioned by the
High Court or if the Acquisition Agreement is otherwise terminated.
COMPARATIVE PER SHARE MARKET PRICE DATA
LBMS
The principal trading market for LBMS' ADSs, each representing two (2)
Ordinary Shares, is the Nasdaq National Market under the symbol "LBMSY." Until
December 1996, the principal trading market for the Ordinary Shares was the
U.K. Unlisted Securities Market ("USM"), on which the Ordinary Shares had
traded since June 1987. At the end of December 1996, the USM was discontinued
by the London Stock Exchange. At that time, LBMS determined that the Nasdaq
National Market would serve as its only public trading market. A holder of
Ordinary Shares may convert such shares into ADSs. The conversion results in
an assessment to the holder for taxes payable to the U.K. government (equal to
approximately 1.5% of the market value of ADSs issued) and an administrative
fee payable to the ADS facility manager (equal to approximately $0.05 per ADS
issued).
The table below sets forth, for the periods indicated, the reported high and
low prices for the Ordinary Shares on the USM. See "--Exchange Rate Data" with
respect to exchange rates applicable to the periods set forth below.
<TABLE>
<CAPTION>
EQUIVALENT PRICE PRICE PER
PER ADS(1) ORDINARY SHARE
---------------- -------------------------
FISCAL PERIOD HIGH LOW HIGH LOW
------------- -------- ------- ------------ ------------
<S> <C> <C> <C> <C>
Quarter ended July 31, 1995........ $ 9.18 $ 4.92 (Pounds)2.87 (Pounds)1.54
Quarter ended October 31, 1995..... 12.19 8.10 3.85 2.58
Quarter ended January 31, 1996..... 11.64 8.83 3.71 2.86
Quarter ended April 30, 1996....... 9.89 3.76 3.24 1.23
Quarter ended July 31, 1996........ 7.71 2.65 2.55 0.85
Quarter ended October 31, 1996..... 3.88 2.18 1.25 0.70
Quarter beginning November 1, 1996
(through December 31, 1996) 3.98 1.98 1.19 0.60
</TABLE>
- --------
(1) Translated solely for convenience of reference into U.S. dollars on the
respective dates on which the prices shown were reported on the USM or on
the following date if such date was a U.S. holiday at the closing buying
rate from Reuters Interbank System.
36
<PAGE>
The table below sets forth, for the periods indicated, the reported high and
low prices for the ADSs on the Nasdaq National Market.
<TABLE>
<CAPTION>
EQUIVALENT PROFORMA
PRICE PER PRICE PER LBMS PRICE PER
ADS ORDINARY SHARE ORDINARY SHARES(1)
----------- --------------- -------------------
FISCAL PERIOD HIGH LOW HIGH LOW HIGH LOW
------------- ------ ---- ------- ------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Period beginning November 23,
1995 (through January 31,
1996)........................ $10.63 8.75 $ 5.32 $ 4.38 $ 1.96 $ 1.33
Quarter ended April 30, 1996.. 9.75 3.88 4.88 1.94 1.69 1.18
Quarter ended July 31, 1996... 8.00 2.38 4.00 1.19 1.96 .97
Quarter ended October 31,
1996......................... 4.13 2.25 2.06 1.13 1.98 1.02
Quarter ended January 31,
1997......................... 5.25 2.00 2.63 1.00 1.87 1.15
Quarter ended April 30, 1997.. 5.75 3.38 2.88 1.69 1.79 1.07
Quarter ended July 31, 1997... 5.63 4.13 2.82 2.07 1.68 1.26
Quarter ended October 31,
1997......................... 5.19 2.75 2.60 1.38 3.02 1.57
Quarter ended January 31,
1998......................... 5.25 2.75 2.63 1.38 3.02 2.45
Quarter beginning February 1,
1998 (through March 20,
1998)........................ 6.06 4.50 3.03 2.25 3.26 2.38
</TABLE>
- --------
(1) Determined by multiplying the applicable prices for PLATINUM Common Stock
by the Exchange Ratio. As of January 2, 1998, the last trading day before
the announcement of the proposed Acquisition, the last reported sales
price on the Nasdaq National Market for the ADSs was $4.25. On March 20,
1998, the latest practicable trading day before the printing of this Proxy
Statement, the last reported sales price on the Nasdaq National Market for
the ADSs was $4.625. On January 2, 1998, there were 686 and 67 holders of
record of the Ordinary Shares and ADSs, respectively.
LBMS has not paid any cash dividends on its Ordinary Shares in the last two
fiscal years and does not currently intend to pay any cash dividends in the
foreseeable future. LBMS currently intends to retain its earnings, if any, for
the continued growth of its business. LBMS, Inc. is party to a loan agreement
that limits the amount of cash transferable outside the U.S. during any fiscal
year to 50% of its net income during such fiscal year. Consequently, LBMS'
ability to pay dividends on the Ordinary Shares or ADSs may be limited by such
restrictions.
EXCHANGE RATE DATA
The table below sets forth for information purposes, for the periods
indicated, the high, low, average and end of period noon buying rates for
pounds sterling expressed in U.S. dollars per (Pounds)1.00 reported by the
Federal Reserve Bank of New York ("Noon Buying Rate").
<TABLE>
<CAPTION>
YEARS ENDED APRIL 30 HIGH LOW AVERAGE RATE (1) END OF PERIOD
-------------------- ----- ----- ---------------- -------------
<S> <C> <C> <C> <C>
1994................................ $1.57 $1.46 $1.50 $1.51
1995................................ 1.64 1.49 1.57 1.61
1996................................ 1.64 1.50 1.56 1.50
1997................................ 1.72 1.49 1.60 1.63
1998 (through March 20, 1998)(2).... 1.67 1.61 1.64 1.66
</TABLE>
- --------
(1) The average of the noon Buying Rates for each month during the relevant
period.
(2) The closing rate on March 20, 1998 was $1.6643 per (Pounds)1.00.
37
<PAGE>
PLATINUM
PLATINUM Common Stock is traded on the Nasdaq National Market under the
symbol "PLAT." The table below sets forth, for the periods indicated, the
reported high and low prices for the PLATINUM Common Stock as reported on the
Nasdaq National Market.
<TABLE>
<CAPTION>
FISCAL PERIOD HIGH LOW
------------- -------- --------
<S> <C> <C>
1996
Quarter ended March 31....................................... $18.7500 $11.2500
Quarter ended June 30........................................ 18.7500 12.7500
Quarter ended September 30................................... 15.8750 9.2500
Quarter ended December 31.................................... 15.5000 10.6250
1997
Quarter ended March 31....................................... 17.8750 10.8750
Quarter ended June 30........................................ 14.8125 10.5000
Quarter ended September 30................................... 25.0000 12.6250
Quarter ended December 31.................................... 30.8125 20.1250
1998
Quarter beginning January 1 (through March 20)............... 30.1250 23.2500
</TABLE>
As of January 2, 1998, the last trading day before the announcement of the
proposed Acquisition, the last reported sales price on the Nasdaq National
Market for the PLATINUM Common Stock was $27.8125. On March 20, 1998, the
latest practicable trading day before the printing of this Proxy Statement,
the last reported sales price on the Nasdaq National Market for the Platinum
Common Stock was $23.2500.
As of March 10, 1998, there were approximately 927 record holders of
PLATINUM Common Stock.
PLATINUM has not paid dividends on the PLATINUM Common Stock, and the
PLATINUM Board intends to continue a policy of retaining earnings to finance
its growth and for general corporate purposes. PLATINUM does not anticipate
paying any such dividends in the foreseeable future.
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<PAGE>
SELECTED FINANCIAL DATA
LBMS SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA
The following selected historical financial data for each of the years ended
April 30, 1993 through 1997 have been derived from LBMS' Consolidated
Financial Statements. The Selected Historical Financial Data set forth below
for the nine months ended January 31, 1997 and 1998 have been derived from
LBMS' unaudited Consolidated Financial Statements and reflect all adjustments
which LBMS' management considers necessary for a fair presentation. The
information set forth below with respect to the fiscal years ended April 30,
1995, 1996 and 1997 and the nine months ended January 31, 1997 and 1998 is
qualified by reference to and should be read in conjunction with the
consolidated financial statements and related notes included in this Proxy
Statement.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED APRIL 30, JANUARY 31,
-------------------------------------------- -------------------
1993 1994 1995 1996 1997 1997 1998
------- ------- ------- ------- -------- --------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
Statement of Operations
Data:
Revenue:
Product licenses...... $15,451 $17,980 $21,629 $25,077 $ 12,170 $ 8,163 $ 11,978
Services.............. 17,020 18,670 18,857 16,081 9,691 7,510 5,731
------- ------- ------- ------- -------- --------- --------
Total revenue....... 32,471 36,650 40,486 41,158 21,861 15,673 17,709
------- ------- ------- ------- -------- --------- --------
Cost of revenue:
Product licenses...... 975 1,401 1,399 838 195 123 53
Services.............. 8,339 10,187 8,417 6,975 4,218 3,363 2,786
------- ------- ------- ------- -------- --------- --------
Total cost of
revenue............ 9,314 11,588 9,816 7,813 4,413 3,486 2,839
------- ------- ------- ------- -------- --------- --------
Gross profit............ 23,157 25,062 30,670 33,345 17,448 12,187 14,870
------- ------- ------- ------- -------- --------- --------
Operating expenses:
Sales and marketing.... 9,627 13,984 16,100 20,045 11,704 9,134 7,723
Research and
development........... 5,981 7,196 8,578 8,059 5,296 4,263 3,662
General and
administrative........ 5,180 5,288 5,430 5,724 3,108 2,470 1,983
Merger expense......... -- -- -- 468 -- -- --
Restructuring charge
(recovery)............ -- -- 4,418 -- 14,109 14,109 (1,490)
------- ------- ------- ------- -------- --------- --------
Total operating
expenses........... 20,788 26,468 34,526 34,296 34,217 29,976 11,878
------- ------- ------- ------- -------- --------- --------
Operating income
(loss)................. 2,369 (1,406) (3,856) (951) (16,769) (17,789) 2,992
Interest income
(expense), net......... (286) (22) 53 167 301 247 303
------- ------- ------- ------- -------- --------- --------
Income (loss) from
continuing operations
before income taxes.... 2,083 (1,428) (3,803) (784) (16,468) (17,542) 3,295
Income tax benefit
(provision)............ (682) 272 36 -- 150 150 100
------- ------- ------- ------- -------- --------- --------
Income (loss) from
continuing operations.. 1,401 (1,156) (3,767) (784) (16,318) $ -- $ --
Discontinued operations:
Income (loss) from
operations............ 238 155 (4,074) -- -- -- --
Loss on disposal...... -- -- (834) -- -- -- --
------- ------- ------- ------- -------- --------- --------
Net income (loss)....... $ 1,639 $(1,001) $(8,675) $ (784) $(16,318) $ (17,392) $ 3,395
======= ======= ======= ======= ======== ========= ========
Operating income (loss)
per Ordinary Share..... $ 0.13 $ (0.07) $ (0.18) $ (0.04) $ (0.66) $ (0.70) $ 0.11
Operating income (loss)
per Ordinary Share-
assuming dilution...... $0.13 n/a n/a n/a n/a n/a $ 0.11
</TABLE>
39
<PAGE>
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED APRIL 30, JANUARY 31,
------------------------------------------ ------------------
1993 1994 1995 1996 1997 1997 1998
------- ------- ------- ------- ------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
Income (loss) per
Orindary Share from
discontinued
operations, net of
tax.................... $ 0.01 $ 0.01 $ (0.22) n/a n/a n/a n/a
Income (loss) per
Ordinary Share from
discontinued operations
- assuming dilution,
net of tax............. $ 0.01 n/a n/a n/a n/a n/a n/a
Net income (loss) per
Ordinary Share......... $ 0.10 $ (0.05) $ (0.40) $ (0.03) $ (0.64) $ (0.68) $ 0.13
Net income (loss) per
Ordinary Share -
assuming dilution...... $ 0.10 n/a n/a n/a n/a n/a $ 0.12
Weighted average
Ordinary Shares
outstanding............ 16,178 18,760 21,844 23,639 25,551 25,543 26,036
Weighted average
Ordinary and Ordinary
Share equivalents
outstanding............ 16,580 n/a n/a n/a n/a n/a 27,711
</TABLE>
<TABLE>
<CAPTION>
AS OF APRIL 30,
--------------------------------------- AS OF
1993 1994 1995 1996 1997 JANUARY 31, 1998
------- ------- ------- ------- ------- ----------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
Balance Sheet Data:
Cash and cash
equivalents........... $ 3,398 $ 297 $ 5,026 $10,960 $ 8,461 $10,321
Working capital........ 5,458 4,134 2,119 11,466 2,322 5,275
Total assets........... 20,141 17,716 20,921 27,179 15,354 14,936
Total indebtedness(1)... 314 417 1,803 1,527 983 325
Shareholders' (deficit)
equity................. 7,651 6,241 490 11,935 (5,247) 762
</TABLE>
- --------
(1) Does not include indebtedness of the Executive Stock Option Trust which
has been guaranteed by LBMS.
PLATINUM SELECTED CONSOLIDATED FINANCIAL DATA
The selected consolidated financial data set forth below has been derived
from the historical financial statements of PLATINUM. The selected
consolidated financial data should be read in conjunction with "PLATINUM
Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the consolidated financial statements and related notes
thereto contained elsewhere herein.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------------------------------------------------
1997 1996(1) 1995(1) 1994(1) 1993(1)
--------- -------- --------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA AND
RATIOS)
<S> <C> <C> <C> <C> <C>
Statement of Operations
Data:
Total revenues........ $ 623,503 $468,065 $ 326,411 $243,607 $190,623
Operating income
(loss)............... (115,792)(2) (79,404)(3) (127,377)(4) (517)(5) 3,062(6)
Net income (loss)..... (117,784)(2) (64,922)(3) (111,567)(4) (1,562)(5) 126(6)
Net income (loss) per
share................ $ (1.90)(2) $ (1.14)(3) $ (2.50)(4) $ (0.04)(5) $ -- (6)
Shares used in per
share calculation.... 62,042 56,968 44,671 41,294 39,375
Other Operating Data:
Ratio of Earnings to
Fixed Charges(7)..... -- (2)(8) -- (3)(8) -- (4)(8) 7.49(5) 10.47(6)
</TABLE>
40
<PAGE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
-------------------------------------------
1997 1996(1) 1995(1) 1994(1) 1993(1)
-------- -------- -------- -------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Balance Sheet Data:
Cash, cash equivalents and
investments..................... $261,288 $185,673 $136,737 $126,215 $71,148
Working capital.................. 288,349 217,157 127,990 90,500 43,672
Total assets..................... 834,177 618,572 452,267 273,333 176,064
Long-term obligations and
acquisition-related payables,
less current portion............ 285,144 118,305 11,389 9,080 3,465
Total stockholders' equity....... $243,560 $295,760 $290,213 $160,126 $93,350
</TABLE>
- --------
(1) The selected consolidated financial data give retroactive effect to the
acquisitions of Australian Technology Resources Pty Limited ("ATR") as of
January 31, 1997 and I&S Informationstechnik and Services GmbH ("I&S") as
of February 28, 1997, each of which has been accounted for as a pooling of
interests for financial reporting purposes. As a result, the financial
position and results of operations are presented as if the combining
companies had been consolidated for all periods presented.
(2) Reflects a pre-tax charge for acquired in-process technology of
$67,904,000 relating to PLATINUM's acquisitions of GEJAC, Inc. ("GEJAC")
and ProMetrics Group Limited ("ProMetrics"), the purchase of certain
product technologies and other intangible assets from Intel Corporation
("Intel") and the purchase of certain other product technologies. Also
reflects a pre-tax charge for merger costs of $8,927,000 relating to the
Company's acquisitions of ATR, I&S and Vayda Consulting, Inc. ("Vayda")
and a pre-tax charge of $57,319,000 for restructuring costs.
(3) Reflects a pre-tax charge for acquired in-process technology of
$48,456,000 relating to PLATINUM's acquisitions of Advanced Systems
Technologies, Inc. ("AST"), Software Alternatives, Inc. (d/b/a System
Software Alternatives) ("Software Alternatives"), Grateful Data, Inc.
(d/b/a TransCentury Data Systems) ("Grateful Data") and VREAM, Inc.
("VREAM"); substantially all of the assets of the Access Manager business
unit of the High Performance Systems division of International Computers
Limited ("Access Manager"); and certain product technologies. Also
reflects a pre-tax charge for merger costs of $5,782,000 relating
primarily to PLATINUM's acquisitions of Prodea Software Corporation
("Prodea"), Paradigm Systems Corporation ("Paradigm") and Axis Systems
International, Inc. ("Axis").
(4) Reflects a pre-tax charge for acquired in-process technology of
$88,493,000 relating primarily to PLATINUM's acquisitions of Advanced
Software Concepts, Inc. ("ASC"), SQL Software Corporation ("SQL"), RELTECH
Group, Inc. ("Reltech"), Protellicess Software, Inc. ("Protellicess"), AIB
Software Corporation ("AIB") and BMS Computer, Inc. ("BMS") and the net
assets of ViaTech Development, Inc. ("ViaTech"), BrownStone Solutions,
Inc. ("BrownStone") and ProtoSoft, Inc. ("ProtoSoft") and to certain
product acquisitions. Also reflects a pre-tax charge for merger costs of
$30,819,000 relating to PLATINUM's acquisitions of Software Interfaces,
Inc. ("SII"), Answer Systems, Inc. ("Answer"), Locus Computing Corporation
("Locus"), Altai, Inc. ("Altai"), Trinzic Corporation ("Trinzic") and
Softool Corporation ("Softool").
(5) Reflects a pre-tax charge for acquired in-process technology of
$24,594,000 relating primarily to PLATINUM's acquisitions of Dimeric
Development, Inc. ("Dimeric") and the net assets of Aston Brooke Software,
Inc. ("Aston Brooke") and AutoSystems Corporation ("AutoSystems").
(6) Reflects a pre-tax charge for acquired in-process technology of $8,735,000
relating primarily to PLATINUM's acquisition of Datura Corporation
("Datura") and a pre-tax charge of $4,659,000 relating to Trinzic and
Locus restructuring costs.
(7) The ratio of earnings to fixed charges has been computed by dividing
earnings available for fixed charges (earnings before income taxes plus
fixed charges less capitalized interest) by fixed charges (interest
expense plus capitalized interest and the portion of rental expense which
represents interest).
(8) Earnings available for fixed charges of $(89,933,000), $(72,342,000) and
$(122,465,000) were inadequate to cover fixed charges of $9,130,000,
$1,825,000 and $782,000 for the years ended December 31, 1997, 1996 and
1995, respectively.
41
<PAGE>
PRO FORMA SELECTED FINANCIAL DATA
The unaudited pro forma condensed combined financial data are qualified in
their entirety by reference to, and should be read in conjunction with, the
pro forma unaudited condensed combining financial statements and notes thereto
that are included elsewhere in this Proxy Statement.
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL DATA
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------------------
1995 1996 1997
------------ ------------ ------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
Pro Forma Combined Statement of
Operations Data:
Total revenues..................... $ 367,569 $ 489,926 $ 647,400
Operating loss..................... (128,328) (96,173) (111,780)
Net loss........................... (112,351) (81,240) (113,315)
Net loss per share................. $ (2.38) $ (1.36) $ (1.75)
Shares used in computing per share
amounts........................... 47,146 59,643 64,756
</TABLE>
<TABLE>
<CAPTION>
AS OF
DECEMBER 31, 1997
-----------------
<S> <C>
Pro Forma Combined Balance Sheet Data:
Cash, cash equivalents and investment securities........... $271,609
Working capital............................................ 293,624
Total assets............................................... 849,113
Long-term obligations and acquisition-related payables,
less current portion...................................... 285,633
Stockholders' equity....................................... 244,322
Book value per share(1).................................... 3.67
</TABLE>
- --------
(1) Book value per share is computed by dividing pro forma stockholders'
equity by the pro forma number of shares of common stock outstanding at
December 31, 1997.
42
<PAGE>
LBMS' MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
INTRODUCTION
When used in this discussion, the words "believes," "anticipated" and
similar expressions are intended to identify forward-looking statements. Such
statements are subject to certain risks and uncertainties which could cause
actual results to differ materially from those projected. See Exhibit 99
"Important Factors Regarding Forward-Looking Statements" which is attached
hereto as Appendix C. Readers are cautioned not to place undue reliance on
these forward-looking statements which speak only as of the date hereof. LBMS
undertakes no obligation to publicly release any revisions to these forward-
looking statements which may be made to reflect events or circumstances after
the date hereof or to reflect the occurrence of unanticipated events.
OVERVIEW
On January 3, 1998, LBMS entered into a definitive agreement under which
PLATINUM would acquire LBMS. If the proposed acquisition is consummated, LBMS
would become a wholly owned subsidiary of PLATINUM, and PLATINUM would issue
0.1047 PLATINUM shares for each outstanding LBMS Ordinary Share. See "The
Acquisition" and "The Acquisition Agreement." The proposed acquisition is
structured to be accounted for as a pooling of interest. In connection with
the proposed acquisition, LBMS and PLATINUM entered into a cross licensing
agreement under which each has distribution rights to the other's respective
process management product lines. Management believes that the announcement of
the proposed acquisition resulted in lower license revenue for the month of
January 1998 than anticipated prior to the acquisition announcement. The
reduction in license revenue LBMS experienced in January 1998 could continue
into LBMS' fiscal fourth quarter, negatively affecting operating results. If
the proposed acquisition is delayed or not completed, LBMS' revenue and
operating results could be negatively affected in future periods. Further,
potential uncertainty due to a delay or failure to complete the proposed
acquisition could result in an inability to retain and attract key employees,
which would also adversely affect LBMS.
In August 1996, the Board of Directors approved a plan to restructure LBMS'
operations and made certain changes to executive management. Included in the
restructuring was a shift in LBMS' development and marketing efforts to focus
substantially all its resources on LBMS' Process Engineer product line,
eliminating or substantially reducing its development and marketing investment
in the Systems Engineer, Insight, GUI Guidelines and Client Server Guidelines
product lines. LBMS also discontinued its direct sales and service operations
outside the U.S., replacing its non-U.S. operations with third-party
distributor relationships. There is no assurance that such distributors will
be successful. Also, LBMS discontinued its telesales operations in the U.S.
LBMS' future ability to generate sustained profitability is dependent on LBMS'
Process Engineer product line and LBMS' direct sales operations in the U.S.
There is no assurance that LBMS will be able to generate or sustain
profitability. LBMS has not historically been successful in selling its
Process Engineer product line outside the U.S.
In connection with LBMS' restructuring plan, LBMS recorded a $17.6 million
restructuring charge in the three months ended October 31, 1996. The
restructuring charge was comprised primarily of lease costs, severance and
other employee costs and impairment of certain operating assets, principally
outside the U.S. The lease costs include all future costs associated with
LBMS' U.K., Australia and Hong Kong facilities and the Chicago, Illinois
facility, which supported the GUI Guidelines and Client Server Guidelines
product lines, and portions of the Houston facility which became excessive as
a result of the elimination of certain product lines supported by LBMS. The
severance costs were for the termination of approximately 130 employees, all
of whom were terminated in the quarter ended October 31, 1996. The charge for
impairment of certain operating assets reflects the abandonment of net
operating assets outside the U.S. as well as net operating assets inside the
U.S. related to product lines which were eliminated. LBMS' restructuring
activities were essentially completed as of October 31, 1996, except for the
sale of the Systems Engineer product line which was completed in December
1996. Subsequent to the sale of the Systems Engineer product line, the only
substantial restructuring activity remaining related to attempts to sublease
abandoned properties. LBMS' abandoned leases expire between 1999 and 2014.
43
<PAGE>
The restructuring actions have resulted and may continue to result in a
substantial reduction in LBMS' cash balance. The estimated total cash
requirements associated with the restructuring actions extends over many
years. Additionally, LBMS' restructuring plan could result in additional
claims or liabilities which LBMS has not anticipated or included in the
restructuring charge. Unanticipated claims or liabilities could result in
additional cash needs for LBMS.
During the nine months ended January 31, 1998, LBMS recorded a restructuring
benefit of $1.5 million related to the subleasing and/or buy out of various
abandoned leases. During fiscal 1997, LBMS recorded a restructuring benefit of
$3.5 million. Approximately, $2.1 million represented proceeds from the sale
of the Systems Engineer product line and the remainder related to sublease
arrangements and other recoveries of charges recorded in the previous period.
LBMS expects additional recoveries, through sublease or other arrangements;
however, there is no assurance that such recoveries will actually occur.
As a result of the significant changes in the business, the results of
operations and financial position of LBMS for the nine months ended January
31, 1998 and from the fiscal year ended April 30, 1997, are substantially
different than for the comparative prior period. LBMS' financial results for
the periods subsequent to July 31, 1996, excluding restructuring
charges/benefits, are generally reflective of the reduced labor, facilities,
depreciation and amortization costs resulting from LBMS' restructuring
activities. Those results also reflect a general reduction in revenues as a
result of LBMS' exit from product lines other than Process Engineer and
elimination of direct operations outside the U.S.
In fiscal 1995, the Board of Directors of LBMS decided to focus exclusively
on its software products business, center that activity in the U.S. and
discontinue its consulting business. Accordingly, LBMS relocated its
operational headquarters and the majority of its U.K.-based research and
development activities to the U.S. This resulted in a restructuring charge of
$4.4 million, primarily related to the abandonment of excess U.K.-based
facilities and assets, employee severance costs and employee relocation costs.
In connection with the discontinuance of its consulting business, LBMS
disposed of its U.K.-based General Consultancy Division (the "Division") and
ceased all other similar consulting activities across the business. The
consulting business had provided services that included custom systems
development, strategic planning and other traditional systems integration
activities principally for mainframe environments. The operating results from
the consulting business are included in the financial statements as
discontinued operations. The operating results of LBMS' consulting business
and the loss from the sale of that business are shown in the accompanying
financial statements as Discontinued operations. In accordance with accounting
principles generally accepted in the U.S., only direct costs associated with
the consulting business have been used to determine the results of operations
for that business. The loss on disposal of the Division included incremental
direct costs consisting of $1.4 million related to the abandonment of U.K.-
based facilities and assets formerly utilized by the Division, as well as
approximately $0.9 million of employee severance and related costs, net of
proceeds of $1.5 million from the sale.
As part of LBMS' efforts to expand its software products business, in August
1995, LBMS acquired Corporate Computing Inc. ("CCI"), a provider of entry-
level, client/server process management software products, in exchange for
700,000 Ordinary Shares of LBMS. The acquisition was accounted for as a
pooling of interests. The Consolidated Financial Statements of LBMS contained
in this Proxy Statement include the effects of this acquisition for all
periods presented.
LBMS' revenue is derived from license fees for its software products and
related maintenance and implementation fees. LBMS recognizes revenue in
accordance with the provisions of American Institute of Certified Public
Accountants Statement of Position No. 91-1, "Software Revenue Recognition".
LBMS licenses its software products on a perpetual, fully paid-up basis.
Product license revenue is recognized upon shipment of the product. Product
returns are estimated and provided for at the time of sale. LBMS' revenue from
maintenance services, which includes technical support, is generally based on
a percentage of the product license fee. Maintenance fee revenue is recognized
ratably over the term of the maintenance agreement, which typically runs for
12 months. LBMS' revenue from implementation services, which includes product
installation, training and assisting customers with the effective deployment
of LBMS products, is based on daily rates and is recognized
44
<PAGE>
as services are provided. Implementation services generally are not provided
under long-term contracts. LBMS historically has recognized a substantial
portion of its revenue in the last weeks of its fiscal quarters. Since a
substantial portion of LBMS' revenues are generated in the last weeks of each
respective quarter, a large portion of LBMS' revenues for the fiscal quarter
remain uncollected at the end of the period because they are not yet due under
normal trade terms.
LBMS does not currently expect to incur material additional costs to ensure
that its systems and products are Year 2000 compliant.
LBMS' fiscal year ends April 30. References in this section to a specific
year refer to the year ended April 30 of the year cited.
45
<PAGE>
RESULTS OF OPERATIONS
The following table sets forth certain operating data as a percentage of
total revenue for the periods indicated (subtotals not adjusted for rounding):
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED APRIL 30, JANUARY 31,
-------------------------- --------------------
1995 1996 1997 1997 1998
------ ------ ------ --------- --------
<S> <C> <C> <C> <C> <C>
Consolidated Statement of
Operations Data:
Revenue:
Product licenses...... 53% 61% 56% 52% 68%
Services.............. 47 39 44 48 32
------ ------ ------ --------- --------
Total revenue....... 100 100 100 100 100
------ ------ ------ --------- --------
Cost of revenue:
Product licenses........ 3 2 1 1 --
Services................ 21 17 19 21 16
------ ------ ------ --------- --------
Total cost of
revenue............ 24 19 20 22 16
------ ------ ------ --------- --------
Gross margin.............. 76 81 80 78 84
------ ------ ------ --------- --------
Operating expenses:
Sales and marketing..... 40 49 54 58 44
Research and
development............ 21 20 24 27 21
General and
administrative......... 13 14 14 16 11
Merger expense.......... -- 1 -- -- --
Restructuring charge.... 11 -- 65 90 (8)
------ ------ ------ --------- --------
Total operating
expenses........... 85 83 157 191 67
------ ------ ------ --------- --------
Operating loss............ (10) (2) (77) (114) 17
Interest income (expense),
net...................... -- -- 1 2 2
------ ------ ------ --------- --------
Loss from continuing
operations before income
taxes.................... (10) (2) (75) (112) 19
Income tax benefit........ -- -- 1 1 1
------ ------ ------ --------- --------
Loss from continuing
operations............... (10) (2) (76) (111) 19
Discontinued operations:
Loss from operations.... (10) -- -- -- --
Loss on disposal........ (2) -- -- -- --
------ ------ ------ --------- --------
Net loss.................. (21)% (2)% (75)% (111)% 19%
====== ====== ====== ========= ========
Gross margin:
Product licenses........ 94% 97% 98% 98% 100%
Services................ 55% 57% 56% 55% 51%
</TABLE>
THREE MONTHS ENDED JANUARY 31, 1998 COMPARED TO THREE MONTHS ENDED JANUARY 31,
1997
Total Revenue
Total revenue decreased 5.2% from $5.6 million in the three months ended
January 31, 1997 to $5.3 million in the three months ended January 31, 1998.
This decrease is attributed to licenses revenue being lower than anticipated
as a result of the announcement of a proposed acquisition of LBMS by PLATINUM
and the elimination of Systems Engineer maintenance revenue with the sale of
the Systems Engineer product line in December 1996.
Product Licenses. Product license revenue decreased 5.2% from $3.4 million
in the three months ended January 31, 1997 to $3.2 million in the three months
ended January 31, 1998. This decrease is attributed to
46
<PAGE>
licenses revenue being lower than anticipated as a result of the announcement
of a proposed acquisition of LBMS by PLATINUM. This decline reflects a
reduction in the number of licenses sold.
Services. LBMS provides maintenance and implementation services to its
customers. Maintenance services include technical support and access to
product upgrades. Implementation services include product installation,
training and assisting customers with the effective deployment of LBMS
products. Overall services revenue decreased 5.2% from $2.2 million for the
three months ended January 31, 1997 to $2.1 million for the three months ended
January 31, 1998, due to a reduction in maintenance revenue as a result of the
sale of the Systems Engineer product line in December 1996 and an increase in
employee and related recruiting costs associated with the addition of service
personnel in the U.S.
Cost of Revenue
Cost of Product Licenses. Cost of product licenses consists of sublicense
fees, product media and duplication cost, manuals, packaging materials and
shipping expenses. Cost of product licenses was $54,000 and $15,000 in the
three months ended January 31, 1997 and 1998, respectively. The decrease is
the result of a change in the mix of products with license fees payable to a
third party licensor to products without such third party fees.
Cost of Services. Cost of services consists primarily of personnel costs for
implementation, training and customer support. Cost of services was $0.8
million and $1 million in the three months ended January 31, 1997 and 1998,
respectively, resulting in a gross margin of 62% and 52% of the related
service revenue in each respective period. The reduction in gross margin
percentage predominately reflects the elimination of maintenance revenue from
the Systems Engineer product line, which was sold in December 1996, and an
increase in employee and related recruiting costs due to the addition of
service personnel in the U.S.
Operating Expenses
Sales and Marketing. Sales and marketing expenses consist primarily of
salaries and commissions of sales and marketing personnel, travel and
promotional expenses and related indirect costs. Sales and marketing expenses
remained flat at $2.4 million, or 43% of total revenue, in the three months
ended January 31, 1997 and 46% of total revenue, for the three months ended
January 31, 1998. The increase in sales and marketing as a percentage of total
revenue is due to the reduction in license revenue in the three months ended
January 31, 1998.
Research and Development. Research and development (R & D) expenses consist
primarily of cost of research and development personnel and related indirect
costs. R & D expenses were $1.1 million, or 20% of total revenue, for the
three months ended January 31, 1997 compared to $1.4 million, or 27% of total
revenue for the three months ended January 31, 1998. The increase in R & D
expenses reflects LBMS' additional investment in personnel and contracted
development cost related to its Process Engineer product line.
General and Administrative. General and administrative expenses consist
primarily of salaries of financial, administrative and management personnel
and related indirect costs. General and administrative expenses increased 15%
from $0.6 million for the three months ended January 31, 1997 to $0.7 million
for the three months ended January 31, 1998. The increase primarily resulted
from additional expenses to support LBMS' recruiting efforts, including the
addition of a director of human resources, and the expansion of facilities and
its related costs in Austin, Texas.
Operating Income. LBMS generated income from operations of $3,000 in the
three months ended January 31, 1998 compared to $4.1 million for the
comparable period in 1997. This decrease is attributed to license revenue
being lower than anticipated as a result of the announcement of a proposed
acquisition of LBMS by PLATINUM, the elimination of Systems Engineer
maintenance revenue with the sale of the Systems Engineer product line in
December 1996 and the reduction in restructuring benefit from $3.5 million in
the three months ended January 31, 1997 to $0.2 million for the 1998
comparable period.
47
<PAGE>
Income taxes. During the three month period ended January 31, 1998, LBMS
recorded a tax refund of $0.1 million compared to $0.15 million for the three
month period ended January 31, 1997. Both refunds are related to the recovery
of taxes paid in prior years.
NINE MONTHS ENDED JANUARY 31, 1998 COMPARED TO NINE MONTHS ENDED JANUARY 31,
1997
Total Revenue
Total revenue increased 13% from $15.7 million in the nine months ended
January 31, 1997 to $17.7 million in the nine months ended January 31, 1998.
This increase was attributable to increased Process Engineer license revenue
partially offset by a reduction in services revenue related to the elimination
of the service personnel outside the U.S. and the elimination of Systems
Engineer license and maintenance revenue with the sale of the Systems Engineer
product line in December 1996.
Product Licenses. Product licenses revenue increased 47% from $8.2 million
in the nine months ended January 31, 1997 to $12 million in the nine months
ended January 31, 1998. License revenue from the Process Engineer product line
increased 78%, partially offset by the elimination of Systems Engineer license
revenue as a result of the sale of the Systems Engineer product line in
December 1996.
Services. LBMS provides maintenance and implementation services to its
customers. Maintenance services include technical support and access to
product upgrades. Implementation services include product installation,
training and assisting customers with the effective deployment of LBMS
products. Service revenue was $7.5 million for the nine months ended January
31, 1997 compared to $5.7 million for the nine months ended January 31, 1998.
Overall services revenue decreased 24% due to a reduction in maintenance
revenue from the Systems Engineer product line which was sold in December
1996.
Cost of Revenue
Cost of Product Licenses. Cost of product licenses consists of sublicense
fees, product media and duplication cost, manuals, packaging materials and
shipping expenses. Cost of product licenses was $0.1 million in the nine
months ended January 31, 1997 and 1998, respectively, resulting in a gross
margin of 98% and 100% for each respective period. The increase in margin is
the result of a change in the mix of product from products with license fees
payable to a third party licensor to products without such third party fees.
Cost of Services. Cost of services consists primarily of personnel costs for
implementation and customer support. Cost of services was $3.4 million and
$2.8 million in the nine months ended January 31, 1997 and 1998, respectively,
resulting in a gross margin of 55% and 51% of the related service revenue in
each respective period. The reduction of the gross margin percentage reflects
the elimination of maintenance revenue from the Systems Engineer product line
which was sold in December 1996 and an increase in employee and related
recruiting costs associated with the addition of service personnel in the U.S.
Operating Expenses
Sales and Marketing. Sales and marketing expenses consists primarily of
salaries and commissions of sales and marketing personnel, travel and
promotional expenses and related indirect costs. Sales and marketing expenses
decreased 15% from $9.1 million, or 58% of total revenue in the nine months
ended January 31, 1997 to $7.7 million, or 44% of total revenue, for the nine
months ended January 31, 1998. This decrease of $1.3 million is due to the
elimination of sales and marketing costs outside the U.S. after July 31, 1996.
Research and Development. Research and development ("R&D") expenses consist
primarily of cost of research and development personnel and related indirect
costs. R & D expenses were $4.3 million, or 27% of total revenue, for the nine
months ended January 31, 1997 compared to $3.7 million, or 21% of total
revenue for the nine months ended January 31, 1998. The decrease in R & D
expenses reflect the elimination or substantial reduction in development
efforts related to the Systems Engineer, Insight, GUI Guidelines and Client
Server
48
<PAGE>
Guidelines products subsequent to July 31, 1996, partially offset by LBMS'
increased investment in personnel and contracted development cost for the
Process Engineer product line. Development headcount and expenses related to
the Process Engineer product line were increased in the nine months ended
January 31, 1998 compared to the nine months ended January 31, 1997.
General and Administrative. General and administrative expenses consist
primarily of salaries of financial, administrative and management personnel
and related indirect costs. General and administrative expenses decreased 20%
from $2.5 million for the nine months ended January 31, 1997 to $2 million for
the nine months ended January 31, 1998. The decrease resulted from the
elimination of general and administrative expenses outside the U.S. and a
reduction of general and administrative expenses, principally leasehold costs,
in the U.S. subsequent to July 31, 1996, offset by additional expenses to
support LBMS' recruiting efforts, including the addition of a director of
human resources, and the expansion of facilities and related cost in Austin,
Texas.
Operating Income. The Company generated income from operations of $3 million
in the nine months ended January 31, 1998 compared to a loss from operations
of $17.8 million for the nine month period ended January 31, 1997. The nine
month period ended January 31, 1998, contained a $1.5 million recovery of
restructuring benefit compared to the 1997 period which contained a net
restructuring charge of $14.1 million.
Income Taxes. During the nine month period ended January 31, 1998, LBMS
recorded a tax refund of $0.1 million compared to $0.15 million for the nine
month period ended January 31, 1997. Both refunds are related to the recovery
of taxes paid in prior years.
Liquidity and Capital Resources
At January 31, 1998, LBMS had cash and cash equivalents of $10.3 million and
working capital of $5.3 million. LBMS generated approximately $4 million in
cash from operations for the nine months ended January 31, 1998 before
payments of approximately $2.6 million related to LBMS' restructuring
activities and legal settlement.
LBMS' investing activities consist primarily of purchases of equipment. LBMS
had capital expenditures of $0.4 million for the nine months ended January 31,
1998, compared to $0.2 million for the comparable period in fiscal 1997. LBMS
does not currently have any significant capital commitments.
LBMS' restructuring activities in July 1994 and August 1996 resulted in
abandonment of certain leased properties with leasehold costs payable over
future periods. As of January 31, 1998, remaining cash outlays, net of
sublease recoveries, related to the restructuring charge were approximately
$6.4 million, payable through the year 2014. See Note 4 to LBMS' Consolidated
Financial Statements for the period ended January 31, 1998 for further
discussion.
LBMS has an available line of credit from a bank in the amount of $2.5
million. At January 31, 1998, LBMS could only access approximately $0.75
million of the available line of credit due to borrowing base limitations.
During the nine months ended January 31, 1998, LBMS repaid approximately $0.5
million in outstanding indebtedness under the line of credit. This credit
facility requires LBMS to comply with certain restrictive covenants and
maintain certain financial ratios. At July 31, 1997, LBMS was in violation of
certain restrictive covenants and obtained a waiver from the Bank. In
September 1997, LBMS renewed its credit facilities and modified certain of the
restrictive covenants and financial ratios requirements. As of January 31,
1998 and February 28, 1998, LBMS was in compliance with all credit facility
covenants.
In June 1997, LBMS' Executive Share Option Trust repaid approximately $1
million of indebtedness to a Bank with proceeds from the sale of the shares
held by the Trust; consequently, LBMS was released from its guarantee of that
indebtedness.
LBMS believes that its existing cash will be adequate to finance its
operations through the close of the proposed acquisition, projected for May
1998. However, a failure to complete the proposed acquisition with PLATINUM
would negatively impact LBMS' cash position. If LBMS' shareholders do not
approve the
49
<PAGE>
acquisition, LBMS will be required to pay termination fee to PLATINUM in the
amount of $2.1 million and will have incurred professional services and other
liabilities in connection with the proposed acquisition that could range from
$1.0 million to $1.5 million.
See Exhibit 99 for further discussions about potential risk factors.
FISCAL YEARS 1995, 1996 AND 1997
Total Revenue
Total revenue increased 2% from $40.5 million in 1995 to $41.2 million in
1996 and decreased 47% to $21.9 million in 1997. The increase from 1995 to
1996 was primarily due to increased license fee revenue due to expansion of
sales offices and personnel. The decrease from 1996 to 1997 was attributable
to the elimination of the direct sales and service operations outside the U.S.
after the three months ended July 31, 1996 and a decline in Systems Engineer
license revenue in the U.S. The Systems Engineer product line was sold in
December 1996.
Product Licenses. Product license revenue increased 16% to $25.1 million in
1996 and decreased 52% to $12.2 million in 1997. U.S. product license revenue
constituted 66%, 78% and 94% of total Company product license revenue in 1995,
1996 and 1997, respectively. U.S. product license revenue increased 36% from
1995 to 1996 and decreased 41% from 1996 to 1997. The increase in product
license revenue in the U.S. from 1995 to 1996, was primarily attributable to
increases in sales of the Process Engineer product line. The decrease in
product license revenue in the U.S. from 1996 to 1997, was primarily
attributable to the decline in revenue from and subsequent sale of the Systems
Engineer product line.
Direct sales of product licenses outside the U.S. were via third-party
distributors subsequent to the three months ended July 31, 1996.
Services. Service revenue decreased 15% to $16.1 million from 1995 to 1996
and decreased 40% to $9.7 million in 1997. From 1995 to 1996, LBMS experienced
decreases in implementation service revenues in all geographic areas. The
decrease in the U.S. was attributable to a decrease in implementation service
personnel. The decrease outside the U.S. was attributable to the decrease in
product license revenue. From 1996 to 1997, the service revenue decrease was
attributable to the elimination of direct service operations outside the U.S.
subsequent to July 1996. U.S. service revenue was generally flat from 1996 to
1997.
Cost of Revenue
Cost of Product Licenses. Cost of product licenses was $1.4 million, $0.8
million and $0.2 million in 1995, 1996 and 1997, respectively, resulting in a
gross margin of 94%, 97% and 98% of the related product license revenue for
each respective period. In 1995, license fees payable to a third party
licensor were a higher percentage of product license revenue than in 1996 and
1997. This decrease is due to a higher percentage of license revenue being
generated by products for which no such license fees are paid in 1996 and
1997.
Cost of Services. Cost of services was $8.4 million, $7.0 million and $4.2
million in 1995, 1996 and 1997, respectively, resulting in a gross margin of
55%, 57% and 56% of the related service revenue for each respective period.
The decrease in cost of services from 1995 to 1996 is attributable to a
decrease in implementation service personnel. The decrease from 1996 to 1997
is attributable to the elimination of service operations outside the U.S.
subsequent to July 1996.
Operating Expenses
Sales and Marketing. Sales and marketing expenses were $16.1 million, $20
million and $11.7 million, or 40%, 49% and 54% of total revenue, in 1995, 1996
and 1997, respectively. The increase in sales and marketing expenses in dollar
amount and as a percentage of revenue from 1995 to 1996 was primarily due to
the addition of two sales offices and related personnel in the U.S. and
increased marketing headcount and activities. The increase in sales and
marketing expense as a percentage of revenue from 1996 to 1997 is attributable
to LBMS' revenue performance in the three months ended July 31, 1996. Sales
and marketing expense was 86% of revenues
50
<PAGE>
during the three months ended July 31, 1996 compared to a range of 42%-46% in
each of the three fiscal quarters subsequent to the first fiscal quarter. The
decrease in sales and marketing expense in dollars from 1996 to 1997 is due to
the elimination of all direct sales personnel and activities outside the U.S.
subsequent to July 31, 1996.
Research and Development. Research and development expenses were $8.6
million, $8.1 million and $5.3 million in 1995, 1996 and 1997, respectively.
Research and development costs have been expensed as incurred and have not
been capitalized because capitalizable costs have not been material. The
decrease from 1995 to 1996 was primarily the result of cost efficiencies and
headcount reduction through consolidation of certain of LBMS' development
activities in the U.S. The decrease from 1996 to 1997 resulted from
elimination or substantial reduction in the development and investment in the
Systems Engineer, GUI Guidelines and Client Server Guidelines product lines.
General and Administrative. General and administrative expenses were $5.4
million, $5.7 million and $3.1 million in 1995, 1996 and 1997, respectively.
General and administrative expenses in dollar amount remained relatively
constant from 1995 to 1996. The decrease in general and administrative expense
from 1996 to 1997 was attributable to the restructuring plan implemented in
August 1996, including the elimination of direct operations outside the U.S.
General and administrative expenses as a percentage of total revenue have
remained relatively constant over the three fiscal periods.
Operating Income
LBMS posted an operating losses of $3.8 million, $0.8 million and $16.3
million in 1995, 1996 and 1997, respectively. Included in LBMS' operating
losses were net restructuring charges of $4.4 million and $14.1 million in
1995 and 1997, respectively. Included in the operating loss in 1996 was $0.5
million of merger costs.
Income Taxes
In 1995, 1996 and 1997, LBMS recognized approximately $8.7 million, $0.8
million and $16.5 million in pre-tax losses, respectively, for financial
statement purposes. A substantial portion of these losses have been recognized
in LBMS' tax returns or will be recognized in future years. Given the
historical tax losses experienced in 1995, 1996 and 1997, there can be no
assurance that LBMS' operations will generate taxable income to utilize these
losses, therefore, as of April 30, 1997, LBMS has recorded a full valuation
allowance for the deferred tax assets related to the future benefits, if any,
for these losses. In 1997, LBMS recognized a tax benefit of $150,000 based on
carryback benefits recognized in the U.S.
Discontinued Operations
The income from operations of the General Consultancy Division (the
"Division"), net of related taxes, was $155,000 in 1994. In 1995, LBMS
recognized a loss of $4.1 million related to the discontinued operations of
the Division. This loss includes a provision of $3.9 million related to the
settlement of litigation in connection with an asserted failure to fulfill
contractual obligations related to an unsuccessful consulting project of the
Division. LBMS paid $1.0 million of the settlement in June 1995, and the
remaining $2.9 million is to be paid in installments through June 1999. LBMS
believes that it is remote that further claims or payments will be required
with regard to this or other consulting project. In addition, the customer
associated with the settlement has indemnified LBMS against any related future
claims. LBMS is no longer a party to similar consulting projects as a result
of its disposal of the Division and is not aware of any asserted or unasserted
claims of this nature.
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New Accounting Pronouncements
LBMS was required to implement Statement of Financial Accounting Standards
No. 128 "Earnings per Share" (SFAS 128) which became effective for periods
ending after December 15, 1997, SFAS 128 requires the presentation of basic
and diluted EPS and the restatement of EPS amounts reported for previous
periods.
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 130, "Reporting for Comprehensive Income"
and No. 131 "Disclosure about Segments of an Enterprise and Related
Information." These statements are effective for financial statements issued
for periods beginning after December 15, 1997. LBMS has not yet analyzed the
impact of adopting these statements.
The American Institute of Certified Public Accountants has issued a new
Statement of Position to amend the provisions of Statement of Position 91-1,
"Software Revenue Recognition." The adoption of this standard will not have a
significant impact on the LBMS' results of operations or financial position.
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<PAGE>
PLATINUM MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The discussion and analysis below contains certain forward-looking
statements (as such term is defined in Section 21E of the Securities Exchange
Act of 1934, as amended (the "Exchange Act")) that are based on the beliefs of
the management of PLATINUM, as well as assumptions made by, and information
currently available to, PLATINUM'S management. PLATINUM'S actual growth,
results, performance and business prospects and opportunities in 1998 and
beyond could differ materially from those expressed in, or implied by, any
such forward-looking statements. See "--Special Note Regarding Forward-Looking
Statements" on page 64 for a discussion of risks, uncertainties and other
factors that could cause or contribute to such material differences.
GENERAL
PLATINUM develops, markets and supports software products, and provides
related professional services, that help organizations manage and improve
their IT infrastructures, which consist of data, systems and applications.
PLATINUM's products and services help IT infrastructure departments, primarily
in large and data-intensive organizations, minimize risk, improve service
levels and leverage information to make better business decisions. As an
integral part of PLATINUM's growth strategy, it has consummated a number of
significant business combinations, including acquisitions of SII, Answer,
Locus, Altai, Trinzic, Softool, Prodea, Paradigm, Axis, ATR and I&S, each of
which has been accounted for using the pooling-of-interests method. As a
result, PLATINUM's consolidated financial statements are presented as if
PLATINUM and such acquired companies had been consolidated for all periods
presented. Information regarding PLATINUM in this Management's Discussion and
Analysis of Financial Condition and Results of Operations gives retroactive
effect to these acquisitions. In addition, PLATINUM has consummated a number
of acquisitions accounted for as purchases, in which cases the acquired
businesses have been included in PLATINUM's results of operations beginning
with the effective dates of the acquisitions.
RESULTS OF OPERATIONS
The table below sets forth for the periods indicated: (1) line items from
PLATINUM's consolidated statements of operations expressed as a percentage of
revenues, and (2) the percentage changes in these line items from the prior
period.
<TABLE>
<CAPTION>
PERCENTAGE OF YEAR-TO-YEAR
TOTAL REVENUES PERCENTAGE CHANGE
------------------ -----------------
YEARS ENDED
DECEMBER 31, 1997 1996
------------------ COMPARED COMPARED
1997 1996 1995 TO 1996 TO 1995
---- ---- ---- -------- --------
<S> <C> <C> <C> <C> <C>
Statement of Operations Data:
Revenues:
Software products...................... 57% 52% 49% 46% 54%
Maintenance............................ 20 22 23 22 34
Professional services.................. 23 26 28 16 33
--- --- ---
Total revenues........................ 100 100 100 33 43
--- --- ---
Costs and expenses:
Professional services.................. 20 25 28 10 26
Product development and support........ 30 33 29 21 65
Sales and marketing.................... 37 39 35 25 60
General and administrative............. 10 9 11 58 15
Restructuring charges.................. 9 -- -- * --
Merger costs........................... 2 1 9 54 (81)
Acquired in-process technology......... 11 10 27 40 (45)
--- --- ---
Total costs and expenses.............. 119 117 139 35 21
--- --- ---
Operating loss......................... (19) (17) (39) * *
Other income, net...................... 3 1 1 219 27
--- --- ---
Loss before income taxes............... (16) (16) (38) * *
Income taxes........................... 3 (2) (4) * *
--- --- ---
Net loss............................... (19)% (14)% (34)% *% *%
=== === ===
</TABLE>
- --------
*Not meaningful.
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<PAGE>
REVENUES
PLATINUM's revenues are derived from three sources: (1) license and upgrade
fees for licensing PLATINUM's proprietary and other parties' software products
and providing additional processing capacity on already-licensed products, (2)
maintenance fees for maintaining, supporting and providing updates and
enhancements to software products, and (3) revenues from PLATINUM's
professional services business. Total revenues for 1997 were $623,503,000, an
increase of $155,438,000, or 33%, over 1996 total revenues of $468,065,000.
Total revenues in 1996 increased $141,654,000, or 43%, over 1995 revenues of
$326,411,000.
PLATINUM has a diversified customer base, with no single customer
representing greater than 10% of its total revenues generated in 1997, 1996 or
1995. PLATINUM estimates that sales to repeat customers represented over 90%
of its revenues generated in 1997.
Revenues from domestic (U.S.) customers represented 71%, 70% and 68% of
PLATINUM's total revenues in 1997, 1996 and 1995, respectively. Domestic
revenues are generated primarily by PLATINUM's direct sales force (which
visits customer sites to assist with trials, demonstrate product features and
close sales transactions) and inside sales force (which predominantly supports
the direct sales force by developing sales leads and arranging product
evaluations), as well as a telemarketing organization. Since January 1, 1997,
PLATINUM has organized its domestic direct sales force by regions throughout
the United States. PLATINUM formerly combined the domestic and Canadian sales
forces to represent the North American sales force. The Canadian sales team is
now part of PLATINUM's international sales force.
Revenues from international customers, principally in Western Europe,
represented 29%, 30% and 32% of PLATINUM's total revenues in 1997, 1996 and
1995, respectively. PLATINUM generates the majority of its international
revenues through a network of wholly-owned subsidiaries, primarily utilizing a
direct sales force. Over the past two years, PLATINUM has invested
significantly in the global marketplace, increasing its focus on international
sales efforts and expanding its international operations.
The table below sets forth, for the periods indicated, PLATINUM's primary
sources of revenues expressed as a percentage of total revenues.
<TABLE>
<CAPTION>
PERCENTAGE OF TOTAL REVENUES
---------------------------------
YEARS ENDED DECEMBER 31,
---------------------------------
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
Revenues:
Software products:
Licenses.................................. 41% 39% 46%
Upgrades.................................. 16 13 3
--------- --------- ---------
Total software products................. 57 52 49
--------- --------- ---------
Maintenance................................ 20 22 23
Professional services...................... 23 26 28
--------- --------- ---------
Total revenues.......................... 100% 100% 100%
========= ========= =========
</TABLE>
Software Products. Software products revenues represented 57%, 52% and 49%
of total revenues in 1997, 1996 and 1995, respectively. In 1997, software
products revenues increased 46% to $357,223,000 from $243,938,000 in 1996, as
a result of increases of 48%, 56%, 25% and 48%, respectively, experienced by
PLATINUM's database management, systems management, application infrastructure
management, and data warehousing and decision support business units. From
1995 to 1996, software product revenues increased 54% from $158,597,000.
PLATINUM believes the growth in software products revenues over the past three
years has resulted from the continued marketplace acceptance of PLATINUM's
products across all business units and PLATINUM's aggressive expansion of its
sales and marketing efforts. PLATINUM has continuously increased its product
offerings over the past three years, in part through the acquisitions of
businesses and technologies, which also contributed to the growth in software
products revenues. The substantial majority of the increases in
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<PAGE>
software products revenues in 1997 and 1996 resulted from increases in the
volume of sales of existing products. A smaller, but still significant,
portion of the increases related to sales of newly introduced products, while
only a small percentage was attributable to price increases. During 1996 and
1997, PLATINUM expanded its customer base, increased sales of product bundles
and integrated product suites, and executed increasingly larger sales
transactions. Additionally, TransCentury, PLATINUM's Year 2000 product suite,
which was first introduced in the third quarter of 1996, contributed
significantly to the growth in revenues of the data warehousing and decision
support business unit during 1997. PLATINUM's database management (principally
DB2-related products), systems management, application infrastructure
management and data warehousing and decision support business units
represented 40%, 30%, 10% and 20%, respectively, of total software products
revenues in 1997; 40%, 29%, 11% and 20%, respectively, of total software
products revenues in 1996; and 38%, 29%, 11% and 22%, respectively, of total
software products revenues in 1995.
Maintenance. Maintenance revenues in 1997 increased 22% over 1996 to
$125,245,000, and 1996 maintenance revenues of $102,364,000 represented an
increase of 34% over 1995 maintenance revenues of $76,498,000. Maintenance
revenues are derived from recurring fees charged to perpetual license
customers and the implicit first-year maintenance fees bundled in certain
software product sales. PLATINUM provides maintenance customers with technical
support and product enhancements. Maintenance revenues are deferred and
recognized ratably over the term of the agreement. The increases during 1997
and 1996 were primarily attributable to the expansion of PLATINUM's installed
customer base, from which maintenance fees are derived. Because maintenance
fees are implicit in certain new software product licenses, the increase in
software licensing transactions also contributed to the increase in
maintenance revenues. In 1997, PLATINUM's database management, systems
management, application infrastructure management, and data warehousing and
decision support business units represented 45%, 23%, 13% and 19%,
respectively, of total maintenance revenues.
Professional Services. Professional services revenues are associated with
PLATINUM's consulting services business and educational programs. In 1997,
professional services revenues increased 16% over 1996 to $141,035,000 from
$121,763,000 in 1996. From 1995 to 1996, professional services revenues
increased 33% from $91,316,000. The growth in professional services revenues
during 1997 was primarily attributable to an increase in billable consultants,
as well as a higher ratio of billable hours to total hours worked. To a much
lesser extent, increases in rates charged per billable hour contributed to
this growth. Additionally, the revenues generated by PLATINUM's new specialty
consulting services practices, established near the end of 1996, contributed
to the increase in professional services revenues during 1997. The increase in
professional services revenues during 1996 was primarily due to the addition
of established consulting practices through various acquisitions, as well as
the growth experienced within these acquired businesses.
COSTS AND EXPENSES
Total expenses for 1997 were $739,295,000, an increase of 35% over 1996
expenses of $547,469,000, which represented an increase of 21% over 1995
expenses of $453,788,000. Total expenses increased in 1997 due to greater
variable expenses related to higher revenue results, as well as increased
costs, including training and system-support expenses, associated with the
integration of recently acquired companies. Additionally, a restructuring
charge recorded in the second quarter of 1997 (as discussed below under "--
Restructuring Charges") contributed to the increase in total expenses.
Excluding restructuring charges, merger costs acquired in-process technology
charges and the integration-related charges in 1997 discussed under "--General
and Administrative" below, total expenses for 1997 were $591,632,000, an
increase of $98,401,000, or 20%, compared to $493,231,000 for 1996. Total
expenses, excluding merger costs and acquired in-process technology charges,
increased 47% in 1996 as compared to $334,476,000 in 1995. Total expenses,
excluding restructuring charges, merger costs, acquired in-process technology
charges and the integration-related charges, represented 95%, 105% and 102% of
total revenues for 1997, 1996 and 1995, respectively. As a percentage of total
revenues, total expenses, excluding restructuring charges, merger costs,
acquired in-process technology charges and the integration-related charges,
decreased in 1997, as compared to 1996, primarily due to overall cost
containment efforts and the savings realized from the restructuring plan.
During 1996 and 1995, PLATINUM incurred significant costs in supporting its
development laboratories and in building the infrastructure to support the
significantly larger combined company that resulted from
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<PAGE>
PLATINUM's acquisitions in those years. These costs were primarily associated
with the expansion of the inside and outside sales forces, hiring of product
developers and support technicians plus key management personnel, training all
personnel in IT infrastructure systems issues and new products, providing
additional financial and technical support to the international subsidiaries
established in those years, translating product materials into numerous
foreign languages, and augmenting internal support systems. Greater commission
and bonus expenses associated with the increase in revenues during 1996, as
compared to 1995, also contributed to the increase in total expenses in 1996.
Professional Services. Costs of professional services increased to
$127,499,000 in 1997, from $116,133,000 in 1996 and $92,374,000 in 1995. The
increases in these expenses during 1997 and 1996 were related to salaries and
other direct employment expenses resulting from PLATINUM's continued hiring to
support this business, as well as the costs incurred to integrate the numerous
consulting practices acquired over the past three years. Greater commission
and bonus expenses associated with higher professional services revenues in
each year also contributed to the increases. Costs of professional services
represented 90%, 95% and 101% of professional services revenues in 1997, 1996
and 1995, respectively. During 1997, as part of PLATINUM's overall
restructuring plan, PLATINUM realigned its professional services business
through the consolidation of redundant functions. The savings realized from
the restructuring plan, as well as the increased productivity of the
consulting staff, contributed to the decrease in professional services
expenses as a percentage of professional services revenues in 1997.
Product Development and Support. Product development and support expenses
increased to $187,383,000 in 1997, from $155,277,000 in 1996 and $94,027,000
in 1995. The increases in these expenses in 1997 and 1996 were primarily
attributable to an increase in the number of product development and support
personnel, from approximately 1,215 at December 31, 1995 to approximately
1,400 at December 31, 1996 and approximately 1,625 at December 31, 1997, and
to other higher employee-related expenses associated with expanded product
offerings in each year, as well as continued product integration and
internationalization efforts in 1997 and, to a lesser extent, 1996; increased
allocated charges for office space and overhead; an increase in information
technology costs to support the expanded development efforts and product
offerings; higher bonuses and royalty expenses related to greater revenues;
and higher travel expenses in 1997 and 1996 associated with PLATINUM's product
integration efforts and expanded product offerings. Product development and
support expenses represented 30%, 33% and 29%, of total revenues in 1997, 1996
and 1995, respectively. During 1997, PLATINUM began consolidating certain
product development and support efforts to coincide with its product
integration focus. As a result of these consolidation efforts, PLATINUM
reduced product development and support expenses as a percentage of total
revenues during 1997.
In 1997, 1996 and 1995, PLATINUM capitalized $41,143,000, $27,246,000 and
$13,591,000, respectively, of internal software development costs, net of
related amortization expense, in accordance with Statement of Financial
Accounting Standards ("SFAS") No. 86, "Accounting for the Costs of Computer
Software to Be Sold, Leased, or Otherwise Marketed." Product development and
support expenses plus capitalized internal software development costs, net of
related amortization expense, were $228,526,000 in 1997, $182,523,000 in 1996
and $107,618,000 in 1995, which amounted to 47%, 53% and 46%, respectively, of
software product and maintenance revenues for these years.
Sales and Marketing. Sales and marketing expenses increased to $228,387,000
in 1997, from $182,597,000 in 1996 and $113,978,000 in 1995. The increase in
sales and marketing expenses during 1997 was primarily attributable to the
significant expansion of the domestic and international outside sales force
and higher commission expenses relating to the increase in software products
revenues. During 1996, as compared to 1995, PLATINUM incurred higher
commission expenses associated with the increase in software products revenues
and greater marketing costs associated with PLATINUM's expanded product line.
Sales and marketing expenses represented 37%, 39% and 35% of total revenues in
1997, 1996 and 1995, respectively. During the second quarter of 1997, PLATINUM
realigned its inside sales force to be more compatible with its strategy of
providing
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<PAGE>
complete IT infrastructure solutions and to correspond with the restructuring
plan. This realignment resulted in a significant reduction in the inside sales
force. PLATINUM also consolidated certain remote sales facilities.
Consequently, sales and marketing expenses as a percentage of total revenues
decreased during 1997. The increase in sales and marketing expenses as a
percentage of total revenues in 1996, as compared to 1995, was primarily
attributable to costs associated with the significant expansion of the
domestic and international outside and inside sales forces and the
telemarketing organization.
General and Administrative. General and administrative expenses increased to
$61,876,000 in 1997, from $39,224,000 in 1996 and $34,097,000 in 1995. General
and administrative expenses represented 10%, 9% and 11% of total revenues in
1997, 1996 and 1995, respectively. The increase in general and administrative
expenses during 1997 was primarily due to total charges of $13,513,000
recorded during the second quarter of 1997 for write-offs of certain assets,
as well as severance and other employee-related expenses, related to the
integration procedures discussed below. In conjunction with the restructuring
plan executed during the second quarter of 1997, PLATINUM performed additional
integration procedures related to past acquisition activity. PLATINUM
evaluated the fair value of assets recorded through prior acquisitions and
identified certain trade receivables, prepaid expenses and intangible assets
that had no future value. The respective balances of these assets were
written-off during the second quarter of 1997. Additionally, PLATINUM expensed
severance and other employee benefits, including guaranteed bonuses, for
certain employees of acquired companies who were terminated as a result of the
integration efforts, but not specifically as part of the restructuring plan.
The increase in general and administrative expenses in 1997 was also
attributable to the costs associated with integrating recently acquired
businesses and maintaining the infrastructure to support the restructured
company, including administrative system upgrade expenses and associated
consulting fees, as well as the amortization of intangible assets relating to
PLATINUM's convertible debt offerings (see "--Liquidity and Capital
Resources"). Total general and administrative expenses in 1997, excluding the
charges related to the integration efforts, were $48,363,000, representing 8%
of total revenues. PLATINUM believes the decrease in general and
administrative expenses as a percentage of total revenues, excluding the
integration charges, was the result of PLATINUM's overall cost containment
efforts, as well as the savings realized by the restructuring plan.
The increase in general and administrative expenses in 1996 was primarily
related to salaries and other direct employment expenses attributable to an
expanded administrative staff both in the U.S. and in international
subsidiaries, amortization of excess of cost over net assets acquired related
to PLATINUM's acquisitions accounted for as purchases, and increased
professional fees. During 1996, a concerted effort to consolidate redundant
administrative functions at PLATINUM's various domestic locations resulted in
a reduction in these expenses as a percentage of total revenues.
Restructuring Charges. During the second quarter of 1997, PLATINUM executed
a restructuring plan to consolidate its sales, marketing, business development
and product development operations to achieve cost efficiencies through the
elimination of redundant functions. These redundancies resulted primarily from
businesses acquired over the last three years. PLATINUM also realigned its
business units and inside sales force to redirect focus on its strongest
product lines and better integrate the efforts of certain product development
teams. As part of the plan, PLATINUM reduced its worldwide work force by
approximately 10%, eliminating approximately 400 positions, primarily in the
areas of product development and support, marketing and inside sales and, to a
lesser extent, professional services and administration.
PLATINUM recorded a one-time charge of $57,319,000 during the second quarter
of 1997 related to the restructuring plan. The restructuring charge included
the following expenses: $24,032,000 for facility-related costs, including a
reserve for estimated lease obligations associated with the closing of office
facilities; $3,510,000 for write-offs of excess equipment, furniture and
fixtures; $19,413,000 for write-offs of capitalized software costs and other
intangible assets related to the termination of development efforts for
certain discontinued products, as well as penalties for the cancellation of
distributorship agreements for such products; and $10,364,000 for severance
and other employee-related costs of the terminated staff. Of the $57,319,000
restructuring charge, PLATINUM paid out approximately $15,322,000 and wrote
off $19,687,000 of non-cash
57
<PAGE>
charges during 1997. Consequently, PLATINUM had $22,310,000 of accrued
restructuring costs recorded as of December 31, 1997. PLATINUM anticipates
that approximately $6,300,000 of these costs will be paid out during 1998.
PLATINUM estimates that annual restructuring payments will be approximately
$3,300,000 to $4,000,000 for the years 1999 through 2002 and that the
remaining approximately $1,300,000 of cash disbursements related to the
restructuring plan will be paid out in 2003.
PLATINUM currently expects to realize a reduction in annual operating
expenses of approximately $40,000,000 in 1998 and subsequent years as a result
of the restructuring, without an adverse impact on revenues. However, there
can be no assurance as to the ultimate effects of the restructuring on
PLATINUM's operating results.
Merger Costs. Merger costs were $8,927,000, $5,782,000 and $30,819,000 in
1997, 1996 and 1995, respectively. Merger costs relate to acquisitions
accounted for as poolings of interests and include investment banking and
other professional fees, employee severance payments, costs of closing excess
office facilities and various other expenses. PLATINUM from time to time
engages in, and is currently engaged in, discussions relating to acquisitions
that may be material in size and/or scope and may involve issuances by
PLATINUM of a significant number of shares of PLATINUM Common Stock. PLATINUM
continues to pursue merger and acquisition opportunities, because it believes
that acquisitions are an essential part of PLATINUM's strategy to compete
effectively in its rapidly evolving marketplace. PLATINUM expects to incur
merger costs in connection with future acquisitions accounted for as poolings
of interests. These costs will be expensed in the periods in which the
transactions are consummated. See "--Recent Developments" for a description of
certain pending acquisitions.
Acquired In-Process Technology. Acquired in-process technology charges were
$67,904,000, $48,456,000 and $88,493,000 in 1997, 1996 and 1995, respectively.
Acquired in-process technology charges relate to acquisitions of software
companies and product technologies accounted for under the purchase method. In
these cases, portions of the purchase prices were allocated to acquired in-
process technology.
Prior to completing these acquisitions, PLATINUM conducted reviews in order
to determine the fair market value of the organizations and technologies to be
acquired. These reviews consisted of an evaluation of existing products,
research and development in process (projects that had not reached
technological feasibility and had no alternative future use), customers,
financial position and other matters. The acquired in-process research and
development represents unique and emerging technologies, the application of
which is limited to PLATINUM's IT infrastructure strategy. Accordingly, these
acquired technologies have no alternative future use. PLATINUM believes it has
budgeted adequate research and development resources to complete the
contemplated projects over time periods generally ranging from six to 18
months from the dates of acquisition.
PLATINUM has already devoted substantial resources to the development of
products from research and development purchased in 1997. PLATINUM estimates
that up to an additional 12 months and approximately $9,000,000 in cash
expenditures will be required to develop commercially viable products from
this acquired research and development. With respect to research and
development acquired prior to 1997, PLATINUM has either completed the
development of commercially viable products or discontinued the product
development efforts.
PLATINUM expects to continue to incur charges for acquired in-process
technology in connection with future acquisitions, which will reduce operating
and net income for the periods in which the acquisitions are consummated.
OPERATING LOSS
For the reasons discussed above, PLATINUM incurred an operating loss of
$115,792,000 in 1997, as compared to an operating loss of $79,404,000 in 1996
and an operating loss of $127,377,000 in 1995. PLATINUM had operating margins
of (19)%, (17)% and (39)% in 1997, 1996 and 1995, respectively. The
significant restructuring charges, merger costs, acquired in-process
technology charges and integration-related charges incurred in these years
contributed significantly to the operating losses and negative operating
margins
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experienced by PLATINUM. Excluding restructuring charges, merger costs,
acquired in-process technology charges and the integration-related charges in
1997 discussed under "--General and Administrative" above, PLATINUM would have
reported operating income of $31,871,000 in 1997, an operating loss of
$25,166,000 in 1996 and an operating loss of $8,065,000 in 1995. Excluding
such charges, PLATINUM would have reported operating margins of 5%, (5)% and
(2)% in 1997, 1996 and 1995, respectively. During 1997, PLATINUM improved its
operating margin, excluding restructuring charges, merger costs, acquired in-
process technology charges and the integration-related charges, through cost
containment efforts and the savings realized from the restructuring plan.
PLATINUM's operating margin, excluding merger costs and acquired in-process
technology charges, decreased in 1996, as compared to 1995, due primarily to
the significant costs incurred to integrate the numerous acquisitions
consummated during 1996 and 1995. Because acquisitions remain an important
part of PLATINUM's growth strategy, PLATINUM expects to continue to incur
acquisition-related charges, as well as expenses related to the integration of
acquired businesses, which could materially adversely affect operating results
in the periods in which such acquisitions are consummated and in subsequent
periods.
OTHER INCOME
Other income was $16,729,000 in 1997 as compared to $5,237,000 in 1996 and
$4,130,000 in 1995. The increase in other income in 1997, as compared to 1996,
was primarily attributable to unrealized holding gains that resulted from the
reclassification of certain available-for-sale securities into the trading
classification; unrealized holding gains on trading securities, the market
values of which increased during 1997; and realized gains on the sales of
investment securities. The increase in other income during 1996, as compared
to 1995, was primarily attributable to realized gains on the sales of
investment securities and unrealized holding gains on trading securities.
Because unrealized holding gains and losses for trading securities are
reflected in pre-tax earnings, fluctuations in the market value of these
securities are continuously recorded as additions to, or deductions from,
other income until the securities are sold. The increase in other income
during 1997, as compared to 1996, was partially offset by interest expense on
PLATINUM's convertible subordinated notes issued in November 1996 and December
1997. To a lesser extent, the interest expense on the convertible subordinated
notes issued in November 1996 reduced the increase in other income in 1996, as
compared to 1995. See "--Liquidity and Capital Resources."
INCOME TAXES
PLATINUM recognized income tax expense of $18,721,000 in 1997, and income
tax benefits of $9,245,000 in 1996 and $11,680,000 in 1995. The income tax
expense recorded in 1997 included an amount of $13,651,000 based on PLATINUM's
28% effective tax rate, plus an additional $5,070,000 recorded in the second
quarter of 1997 to reduce PLATINUM's deferred tax asset balance. PLATINUM
reduced its deferred tax asset balance so that it would reflect an asset
amount that will, more likely than not, be realized in future periods.
PLATINUM has available approximately $294,715,000 of net operating loss
carryforwards and $14,000,000 of tax credit carryforwards, which are available
to reduce future Federal income taxes, if any, through the year 2012. Some of
PLATINUM's tax carryforwards are subject to limitations as to the amounts that
may be used in any particular future year.
NET LOSS
For the reasons discussed above, PLATINUM incurred a net loss of
$117,784,000 in 1997, as compared to $64,922,000 in 1996 and $111,567,000 in
1995. The significant restructuring charges, merger costs and acquired in-
process technology charges incurred in these years contributed significantly
to the net losses experienced by PLATINUM. See "--Operating Loss" above.
RECENT DEVELOPMENTS
On January 2, 1998, PLATINUM entered into the Acquisition Agreement,
pursuant to which PLATINUM has agreed to acquire LBMS, as described in this
Proxy Statement.
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On February 18, 1998, PLATINUM entered into an agreement and plan of merger,
pursuant to which PLATINUM has agreed to acquire Mastering, Inc.
("Mastering"), a leading provider of information technology training. Under
the terms of this acquisition, Mastering will become a wholly-owned subsidiary
of PLATINUM. PLATINUM has agreed to exchange approximately 6,165,000 shares of
Platinum Common Stock for all of the outstanding common shares of Mastering
and to assume stock options which will convert into options to purchase
approximately 2,143,000 shares of Platinum Common Stock. This acquisition,
which is expected to be consummated in the second quarter of 1998, is subject
to the filing of a registration statement with the Securities and Exchange
Commission, the approval of the stockholders of Mastering and customary legal
and regulatory conditions.
On March 14, 1998, PLATINUM entered into an agreement and plan of merger,
pursuant to which PLATINUM has agreed to acquire Logic Works, Inc. ("Logic"),
a leading provider of data modeling tools. Under the terms of this
acquisition, Logic will become a wholly-owned subsidiary of PLATINUM. PLATINUM
has agreed to exchange approximately 7,240,095 shares of Platinum Common Stock
for all of the outstanding common shares of Logic and to assume stock options
which will convert into options to purchase approximately 1,325,716 shares of
Platinum Common Stock. This acquisition, which is expected to be consummated
in mid-1998, is subject to the filing of a registration statement with the
Securities and Exchange Commission, the approval of the stockholders of Logic
and customary legal and regulatory conditions.
The acquisitions of LBMS, Mastering and Logic are expected to be accounted
for as poolings of interests. Costs incurred in connection with these
transactions will be expensed in the periods in which the acquisitions are
consummated.
LIQUIDITY AND CAPITAL RESOURCES
PLATINUM's cash, cash equivalents and investments were $261,288,000 and
$185,673,000 as of December 31, 1997 and 1996, respectively. For the year
ended December 31, 1997, cash and cash equivalents increased $37,355,000, from
$140,783,000 at the beginning of the year to $178,138,000 at the end of the
year. This increase was attributable primarily to net proceeds of $144,967,000
from the sale of $150,000,000 principal amount of 6.25% convertible
subordinated notes due 2002 (the "1997 Notes") and net cash provided by
operating activities of $32,586,000. The positive cash flow from operating
activities was reduced by an increase in trade and installment receivables,
net of proceeds from the sale of installment receivables. Previously, PLATINUM
reported trade and installment receivables on a gross basis and the sale of
installment receivables as a financing activity. Of the $191,266,000 of cash
provided by financing and operating activities, $153,911,000 was used in
investing activities. The principal components of investing activities were
purchases of marketable securities and the investment of resources in
purchased and developed software. For 1996, cash and cash equivalents
increased from $115,809,000 at the beginning of the year to $140,783,000 at
the end of the year, with the primary sources of cash being sales of
installment receivables and the net proceeds from the sale of $115,000,000
principal amount of 6.75% convertible subordinated notes due 2001 (the "1996
Notes"). For 1995, cash and cash equivalents increased from $80,110,000 at the
beginning of the year to $115,809,000 at the end of the year, with the
principal source of cash being the net proceeds from a public offering of
Common Stock.
In recent years, PLATINUM's sources of liquidity have primarily been funds
from capital markets and sales of installment receivables. PLATINUM believes
the funding available to it from these sources, as well as cash flows from
operations, will be sufficient to satisfy its working capital and debt service
requirements for the foreseeable future. PLATINUM's capital requirements are
primarily dependent on management's business plans regarding the levels and
timing of investments in existing and newly acquired businesses and
technologies. These plans and the related capital requirements may change
based upon various factors, such as PLATINUM's strategic opportunities,
developments in PLATINUM's markets, the timing of closing and integrating
acquisitions and the conditions of financial markets.
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<PAGE>
PLATINUM had trade and installment accounts receivable, net of allowances,
of $264,686,000 and $200,399,000 as of December 31, 1997 and 1996,
respectively. PLATINUM sells software products and services to customers in
diversified industries and geographic regions and, therefore, has no
significant concentration of credit risk. Historically, a substantial amount
of PLATINUM's revenues have been recorded in the third month of any given
quarter, with a concentration of such revenues in the last week of the third
month. This trend results in a high balance of accounts receivable relative to
reported revenues at the end of any quarterly reporting period.
PLATINUM sells a significant portion of its installment receivables to third
parties. Installment receivables represent amounts collectible on long-term
financing arrangements and include fees for product licenses, upgrades and
maintenance, sometimes also bundled with professional services contracts.
Installment receivables are generally financed over three to five years, with
interest payable on the license and upgrade portions only. Over the past two
years, PLATINUM executed an increasingly greater number and higher dollar
value of sales transactions having long-term financing arrangements, primarily
attributable to sales of product bundles and integrated product suites.
Consequently, PLATINUM's volume of installment receivable sales increased
significantly over the past two years. However, PLATINUM expects to reduce the
volume of installment receivable sales, as a percentage of total revenues, in
1998 as compared to 1997.
PLATINUM receives proceeds equal to the entire installment receivable
balance sold to a third party finance company, net of an amount representing
the interest to be earned by the finance company. The finance company collects
customer remittances over the term of the agreement. Proceeds from the sale of
receivables were $206,916,000, $129,328,000 and $2,903,000 for the years ended
December 31, 1997, 1996 and 1995, respectively. Accounts receivable sold with
recourse were $19,373,000 and $2,993,000 for the years ended December 31, 1996
and 1995, respectively, and as of December 31, 1996 and 1995, potential
obligations for accounts receivable sold with recourse were $16,817,000 and
$5,177,000, respectively. There were no accounts receivable sold with recourse
for the year ended December 31, 1997, and as of December 31, 1997, there were
no remaining potential recourse obligations for accounts receivable sold with
recourse. PLATINUM has an agreement with a third party that provides for
potential recourse obligations in the form of a loss pool based on the
performance of the related accounts receivable portfolio. Under the terms of
that agreement, potential recourse obligations at December 31, 1997 and 1996
were $14,600,000 and $9,300,000, respectively. There were no potential
recourse obligations in the form of a loss pool as of December 31, 1995. Based
on the credit ratings of the underlying obligors to the accounts receivable
and the performance history of the accounts receivable portfolio, PLATINUM has
assessed the exposure related to these recourse obligations and determined the
potential liability to be minimal.
PLATINUM's installment receivables are recorded net of unamortized discounts
and deferred maintenance fees. When these receivables are sold, PLATINUM
reduces the gross installment receivable balance. Additionally, PLATINUM
reclassifies the deferred maintenance, which was previously reflected as a
reduction of the related installment receivable balance, to an obligation. The
deferred maintenance is recognized into income ratably over the term of the
maintenance agreement.
PLATINUM had long-term acquisition-related payables of $18,320,000 and
$2,502,000 and other long-term obligations of $266,824,000 and $115,803,000 as
of December 31, 1997 and 1996, respectively. The significant increase in long-
term obligations from December 31, 1996 to December 31, 1997 was attributable
to the 1997 Notes issued by PLATINUM in December 1997. The 1997 Notes bear
interest at 6.25% annually and mature on December 15, 2002. The holders of the
1997 Notes have the option to convert them into shares of Common Stock, at any
time prior to maturity, at a conversion price of $36.05 per share. PLATINUM
received proceeds, net of issuance costs, of $144,967,000 from the offering of
the 1997 Notes. PLATINUM completed an offering of convertible subordinated
notes due November 15, 2001 in November 1996 (the "1996 Notes"). The 1996
Notes bear interest at 6.75% annually, and the holders of the 1996 Notes have
the option to convert them into shares of Common Stock, at any time prior to
maturity, at a conversion price of $13.95 per share. PLATINUM received
proceeds, net of issuance costs, of $110,783,000 from the offering of the 1996
Notes. PLATINUM currently has total debt service obligations of approximately
$35,000,000 for 1998, consisting primarily of obligations to pay interest on
the 1996 Notes and the 1997 Notes, as well as acquisition-related payables.
Based on current outstanding indebtedness, PLATINUM estimates its debt service
requirements to be approximately
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$36,000,000, $18,000,000, $132,000,000 and $160,000,000 for 1999, 2000, 2001
and 2002, respectively, which amounts include the outstanding principal
balance of the 1996 Notes in 2001 and the outstanding principal balance of the
1997 Notes in 2002.
PLATINUM currently has an unsecured bank line of credit of $55,000,000,
under which borrowings bear interest at rates ranging from approximately LIBOR
plus 1% to the bank's prime rate. As of March 10, 1998, PLATINUM had no
outstanding borrowings under this line of credit, but had aggregate letters of
credit outstanding for approximately $2,598,000, with expiration dates ranging
from April 1998 to May 1999. These letters of credit reduce the available line
of credit balance. Under this credit agreement, PLATINUM has agreed: (i) to
maintain a ratio of current assets to current liabilities of at least 1.0 to
1.0; (ii) to maintain a tangible net worth of not less than $100,000,000; and
(iii) not to permit its ratio of total liabilities to tangible net worth to at
any time exceed 1.0 to 1.0.
FOREIGN CURRENCY EXCHANGE RATES
To date, fluctuations in foreign currency exchange rates have not had a
material effect on PLATINUM's results of operations or liquidity. However,
PLATINUM closely monitors its foreign operations and net asset position to
ascertain the need for hedging foreign currency exchange risk. Since 1997, the
only exposure related to foreign currency exchange for which PLATINUM has
considered hedging appropriate has been related to short-term intercompany
balances. These non-functional currency balances are hedged by purchases and
sales of forward exchange contracts to reduce this exchange rate exposure. At
December 31, 1997, PLATINUM held an aggregate of approximately $26,800,000 in
notional amount of forward exchange contracts. As PLATINUM's operations expand
in international regions outside Western Europe, where PLATINUM's
international operations are currently concentrated, PLATINUM may increasingly
hedge foreign currency exchange risk.
YEAR 2000 CONSIDERATIONS
During 1997, PLATINUM substantially completed the implementation of an
enterprise-wide financial accounting system which is Year 2000 compliant.
Further, PLATINUM has evaluated its internal software and computer systems and
believes its potential liability relating to the Year 2000 problem is minimal.
PLATINUM believes that certain of its customers may allocate a substantial
portion of their 1998 and 1999 IT budgets to products and services addressing
the Year 2000 problem. PLATINUM is unable to determine whether this trend will
negatively impact sales of its traditional product offerings, but believes
that it may lead to increased sales of its Year 2000 products and services.
PLATINUM believes that, in 1997, sales of its Year 2000 products and services
were favorably affected by this trend. All of PLATINUM's current software
product offerings are Year 2000 compliant.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board issued SFAS No. 130,
"Reporting Comprehensive Income." PLATINUM is required to adopt SFAS No. 130
for periods beginning after December 15, 1997. This statement establishes
standards for reporting comprehensive income and its components in a full set
of general-purpose financial statements. The standard requires all items that
are required to be recognized under accounting standards as components of
comprehensive income be reported in a financial statement that is displayed in
equal prominence with the other financial statements. The standard is not
expected to have a material impact on PLATINUM's current presentation of
income.
In June 1997, the Financial Accounting Standards Board also issued SFAS No.
131, "Disclosures about Segments of an Enterprise and Related Information."
PLATINUM is required to adopt the disclosures of SFAS No. 131 beginning with
its December 31, 1998 annual financial statements. This statement establishes
standards for the way companies are to report information about operating
segments. It also establishes standards for related disclosures about products
and services, geographic areas and major customers. PLATINUM is currently
evaluating the impact of this standard on its financial statements.
In November 1997, the American Institute of Certified Public Accountants
issued Statement of Position ("SOP") 97-2, "Software Revenue Recognition."
PLATINUM is required to adopt SOP 97-2 on January 1, 1998. SOP 97-2 is
intended to reduce diversity in current revenue recognition practices within
the software industry. PLATINUM is currently evaluating the effects of SOP 97-
2 on its operations.
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QUARTERLY COMPARISONS
The following tables set forth an unaudited summary of quarterly financial
data. This quarterly information has been prepared on the same basis as the
annual consolidated financial statements and, in management's opinion,
reflects all adjustments necessary for a fair presentation of the information
for the periods presented. The operating results for any quarter are not
necessarily indicative of results for any future period.
PLATINUM has experienced a seasonal pattern in its operating results, with
the fourth quarter typically having the highest total revenues and operating
income in a given year. For example, 34% and 32% of PLATINUM's total revenues
in 1997 and 1996, respectively, were generated in the fourth quarter. Further,
revenues for the fourth quarter of 1996 were higher than revenues for the
first quarter of 1997. PLATINUM believes the seasonality of its revenue
results primarily from the budgeting cycles of its software product customers
and the structure of PLATINUM's sales commission and bonus programs. In
addition, PLATINUM's software products revenues may vary significantly from
quarter to quarter depending upon other factors, such as the timing of new
product announcements and releases by PLATINUM and its competitors. PLATINUM
operates with relatively little backlog, and substantially all of its software
products revenues in each quarter result from sales made in that quarter.
<TABLE>
<CAPTION>
1997
-----------------------------------------------
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
-------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE
AMOUNTS)
(UNAUDITED)
<S> <C> <C> <C> <C>
Total revenues............ $115,623 $136,438 $160,201 $211,241
Operating income (loss)... (33,086)(1) (77,336)(2) 10,553 (15,923)(3)
Net income (loss)......... (25,269)(1) (78,933)(2) 10,160 (23,742)(3)
Net income (loss) per
share.................... $ (0.41)(1) $ (1.28)(2) $ 0.16 $ (0.37)(3)
Shares used in computing
net income (loss) per
share.................... 60,947 61,477 65,328 63,615
<CAPTION>
1996
-----------------------------------------------
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
-------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE
AMOUNTS)
(UNAUDITED)
<S> <C> <C> <C> <C>
Total revenues, as
previously reported(4)... $ 82,471 $100,485 $113,430 $142,804
Adjustments(5)............ 6,588 6,712 6,884 8,691
Total revenues.......... 89,059 107,197 120,314 151,495
Operating loss, as
previously reported(4)... (32,374)(6) (10,072) (10,636)(7) (29,411)(8)
Adjustments(5)............ 293 271 209 2,316
Operating loss.......... (32,081)(6) (9,801) (10,427)(7) (27,095)(8)
Net loss, as previously
reported(4).............. (24,504)(6) (5,791) (7,693)(7) (29,974)(8)
Adjustments(5)............ 283 235 208 2,314
Net loss................ (24,221)(6) (5,556) (7,485)(7) (27,660)(8)
Net loss per share, as
previously reported(4)... $ (0.45)(6) $ (0.10) $ (0.14)(7) $ (0.53)(8)
Net loss per share...... (0.43)(6) (0.10) (0.13)(7) (0.48)(8)
Shares used in computing
net loss per share, as
previously reported...... 54,915 55,214 55,678 56,419
Shares used in computing
net loss per share..... 56,341 56,625 57,070 57,823
</TABLE>
- --------
(1) Reflects a pre-tax charge for acquired in-process technology of
$10,417,000 relating to PLATINUM's acquisition of GEJAC and the purchase
of certain product technologies. Also reflects a pre-tax charge for merger
costs of $3,706,000 relating to PLATINUM's acquisitions of ATR and I&S.
(2) Reflects a pre-tax charge for acquired in-process technology of $6,747,000
relating to PLATINUM's acquisition of certain product technologies. Also
reflects a pre-tax charge of $57,319,000 for restructuring costs.
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<PAGE>
(3) Reflects a pre-tax charge for acquired in-process technology of
$50,740,000 relating to PLATINUM's acquisition of ProMetrics, the purchase
of certain product technologies and other intangible assets from Intel and
the purchase of certain other product technologies. Also reflects a pre-
tax charge for merger costs of $5,221,000 relating primarily to PLATINUM's
acquisition of Vayda.
(4) As reported under "Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations--Quarterly Comparisons" in
PLATINUM's Annual Report on Form 10-K for the year ended December 31,
1996.
(5) Adjustments reflect the effects of the acquisitions of ATR and I&S, each
of which has been accounted for using the pooling-of-interests method. See
Note 2 of the notes to PLATINUM's consolidated financial statements
included elsewhere herein for a more detailed discussion of these
transactions.
(6) Reflects a pre-tax charge for acquired in-process technology of $7,005,000
relating to PLATINUM's acquisition of AST and the purchase of certain
product technologies. Also reflects a pre-tax charge for merger costs of
$5,782,000 relating primarily to PLATINUM's acquisitions of Prodea,
Paradigm and Axis.
(7) Reflects a pre-tax charge for acquired in-process technology of $4,090,000
relating to PLATINUM's acquisitions of Software Alternatives and Grateful
Data.
(8) Reflects a pre-tax charge for acquired in-process technology of
$37,361,000 relating to PLATINUM's acquisitions of VREAM and substantially
all of the assets of Access Manager.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Proxy Statement contains certain "forward-looking statements" (as
defined in Section 21E of the Exchange Act) that reflect PLATINUM's
expectations regarding its future growth, results of operations, performance
and business prospects and opportunities. Words such as "anticipates,"
"believes," "plans," "expects," "estimates" and similar expressions have been
used to identify these forward-looking statements, but are not the exclusive
means of identifying these statements. These statements reflect PLATINUM's
current beliefs and are based on information currently available to PLATINUM.
Accordingly, these statements are subject to known and unknown risks,
uncertainties and other factors that could cause PLATINUM's actual growth,
results, performance and business prospects and opportunities to differ from
those expressed in, or implied by, these statements. These risks,
uncertainties and other factors include PLATINUM's ability to develop and
market existing and acquired products for the IT infrastructure market;
PLATINUM's ability to successfully integrate its acquired products, services
and businesses and continue its acquisition strategy; PLATINUM's ability to
adjust to changes in technology, customer preferences, enhanced competition
and new competitors in the IT infrastructure and professional services
markets; currency exchange rate fluctuations, collection of receivables,
compliance with foreign laws and other risks inherent in conducting
international business; risks associated with conducting a consulting services
business; general economic and business conditions, which may reduce or delay
customers' purchases of PLATINUM's products and services; charges and costs
related to acquisitions; and PLATINUM's ability to protect its proprietary
software rights from infringement or misappropriation, to maintain or enhance
its relationships with relational database vendors, and to attract and retain
key employees. PLATINUM is not obligated to update or revise these forward-
looking statements to reflect new events or circumstances.
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PRO FORMA COMBINED COMPARATIVE PER SHARE DATA
The following table sets forth certain historical per share data of PLATINUM
and LBMS and combined per share data on an unaudited pro forma basis after
giving effect to the Acquisition on a pooling-of-interests basis utilizing the
exchange ratio discussed in Note (4) below. This data should be read in
conjunction with the selected financial data, the unaudited pro forma
condensed combining financial statements and the separate historical financial
statements of PLATINUM and LBMS and notes thereto, included elsewhere in this
Proxy Statement. The unaudited pro forma combined financial data are not
necessarily indicative of the operating results that would have been achieved
had the transactions been in effect as of the beginning of the periods
presented and should not be construed as representative of future operations.
<TABLE>
<CAPTION>
EQUIVALENT LBMS
HISTORICAL HISTORICAL PROFORMA PRO FORMA
PLATINUM LBMS COMBINED(3) COMBINED(4)
---------- ---------- ----------- ---------------
<S> <C> <C> <C> <C>
Net Loss Per Share
Year ended December 31:(1)
1995...................... $(2.50) $(0.03) $(2.38) $(0.25)
1996...................... (1.14) (0.64) (1.36) (0.14)
1997...................... (1.90) 0.16 (1.75) (0.18)
Book Value Per Share:(2)
December 31, 1997........... 3.81 0.03 3.67 0.38
</TABLE>
- --------
(1) The years ended December 31, 1995, 1996 and 1997 combine PLATINUM's
statements of operations for the fiscal years ended December 31, 1995,
1996 and 1997 with LBMS's results of operations for the fiscal years ended
April 30, 1996 and 1997 and the twelve months ended January 31, 1998.
(2) Book value per share reflects PLATINUM at December 31, 1997 and LBMS at
January 31, 1998 and is computed by dividing stockholders' equity by the
number of shares of common stock outstanding at the respective dates.
(3) Pro Forma combined per share amounts reflect the Acquisition.
(4) The equivalent LBMS pro forma combined per share amount is calculated by
multiplying the pro forma combined per share amount by the exchange ratio
of .1047.
INFORMATION REGARDING LBMS
GENERAL
LBMS conducts its operations through one operating subsidiary, LBMS, Inc.,
which conducts business in North America. During its 1996 fiscal year and the
first quarter of fiscal 1997, LBMS also conducted business through four
additional subsidiaries. LBMS Pty. Ltd., which conducted business in Australia
and the Pacific region, and LBMS (Hong Kong) Limited, which conducted business
in Hong Kong and Asia, are wholly-owned subsidiaries of LBMS Holdings Limited,
which is a holding company wholly-owned by LBMS. LBMS Europe Limited, which
conducted business in Europe, owns the intellectual property rights to Process
Engineer, Deliverables Manager and their related products and owned the
intellectual property rights to the Systems Engineer product line, prior to
its sale. Corporate Computing, Inc. owns the intellectual property rights to
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RADPath and Client/Server Guidelines (product lines no longer actively
developed and marketed). Both Corporate Computing, Inc. and LBMS Europe
Limited are owned directly by LBMS.
OVERVIEW
In August 1996, the Board of Directors approved a plan to restructure LBMS'
operations and made certain changes to executive management. Included in the
restructuring was a shift in LBMS' development and marketing efforts to focus
substantially all its resources on LBMS' Process Engineer product line,
eliminating or substantially reducing its development and marketing investment
in the Systems Engineer, Insight, GUI Guidelines and Client Server Guidelines
product lines. LBMS also discontinued its direct sales and service operations
outside the U.S., replacing its non-U.S. operations with third-party
distributor relationships. There is no assurance that such distributors will
be successful. Also, LBMS discontinued its telesales operations in the U.S.
LBMS' future ability to generate sustained profitability is dependent on LBMS'
Process Engineer product line and LBMS' direct sales operations in the U.S.
There is no assurance that LBMS will be able to generate or sustain
profitability. LBMS has not historically been successful in selling its
Process Engineer product line outside the U.S. For further discussion see
"Overview--LBMS' Management's Discussion and Analysis of Financial Condition
and Results of Operations."
PRODUCTS
LBMS' integrated line of management products provide organizations with a
library of best practices for all areas of applications development, and a
comprehensive set of tools for process management, project management, work
management and deliverables management. LBMS has an installed base of more
than 30,000 users worldwide in areas such as financial service, technology,
manufacturing, retailing, oil, government and utilities. LBMS also provides
maintenance and implementation services to its customers to assure effective
utilization of its products. All of LBMS' products operate on open, LAN
server-based repositories, providing more consistency, integrity and
completeness in the applications development process.
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Process Management Tools. Set forth below is a description of LBMS' current
process management tools.
LBMS PROCESS MANAGEMENT TOOLS
<TABLE>
<CAPTION>
INITIAL
PRODUCTS FUNCTIONALITY RELEASE DATE
-------- ------------- ------------
<S> <C> <C>
Process Engineer Client/server-based, interactive process management 1993
environment that automates applications development processes;
consists of six components: PE/Process Library, PE/Process
Manager, PE/Project Manager, PE/Activity Manager, PE/Web
Publisher and PE/Project Warehouse
PE/Process Library Server-based process repository containing industry and 1993
organization best practices for software applications
development and management
PE/Process Manager Process Authoring Tool, enables definition of best practices 1993
as processes in the PE/Process Library; used by process
managers to define and continuously improve organization
processes for applications development
PE/Project Manager Used by project managers to rapidly build project plans from 1993
best practices stored in the PE/Process Library. Provides
facilities for project definition, estimating, resourcing,
scheduling, work distribution and project control
PE/Activity Manager Used by project team members to receive work from project October 1995
managers, manage work queues, execute work using appropriate
tools deliverables, capture and report performance metrics and
to route completed deliverables to the project manager
PE/Web Publisher Used by Process Managers to publish best practices contained July 1996
in the PE/Process Library onto a corporate Intranet for
organization wide reference
PE/Project Warehouse Provides an integrated repository containing all project and July 1996
process performance data for management reporting, project
status reporting and data analysis for continuous process
improvement
</TABLE>
Process Engineer, a market leading process management product, is used by
customers who need to manage complex applications development processes. These
organizations include Fortune 2000 companies who use the product to manage
their own development programs as well as consulting companies that use the
product to manage the delivery of development expertise to their customers.
Process Engineer, together with its support components, enables organizations
to define, deploy, measure and continuously improve development processes. At
the core of the product is a repository of processes, PE/Process Library,
which contains the enterprise's knowledge base for applications development.
Unique within the architecture of the PE/Process Library is support for
reusable process components which are used to assemble templates rapidly in
order to address a variety of application development needs. This architecture
makes the implementation of continuous process improvement a practical
reality. Through its ProcessWare program, LBMS has opened its repository to
include "best practices", or processes from a broad range of vendors including
Powersoft, SQA, Lotus, Computer Horizons Corporation and James Martin,
supplementing its own proprietary processes and techniques for applications
development. Currently there are over 150 processes available in PE/Process
Library as well as over 15 titles through the ProcessWare program. Under this
program, LBMS will continue to recruit industry subject matter experts to
provide best practices for a wide range of applications development topics
delivered in the PE/Process Library.
The Process Engineer environment provides complete, automated integration of
process, project and work management functions within a customer's development
organization:
. The best practices of the industry or the customer are defined as
processes in the PE/Process Library by LBMS, by ProcessWare partners and
by the customer organization itself using PE/Process
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Manager. These processes may be published on a corporate intranet for
reference and education purposes using PE/Web Publisher.
. Processes are selected from PE/Process Library and customized, using
PE/Project Manager, to meet the needs of a particular project.
The project plan is estimated, resources allocated and schedules developed
to create detailed project plans.
. Project managers distribute work packets to team members using a web
based messaging transport. Each work packet contains a comprehensive set
of information including task definitions, work guidance, techniques,
tools, template deliverables, metrics, roles and responsibilities and
dependencies that provide clear information as to what is to be produced
and how it should be produced.
. Team members manage the execution of their work using the PE/Activity
Manager component. They can launch tools and invoke templates to produce
the deliverables for the project task. Actual performance may be
measured and reported to the project manager at any point. Once an
activity has been completed, all information, including completed
deliverables, is sent back to the project manager for review and
possible further routing to other team members.
. Management reports regarding the status of the project portfolio and
analysis reports regarding the usage of process data may be produced
using the PE/Project Warehouse Component.
. Once a process has been used, the process may be evaluated and its
content improved in PE/Process Library using the PE/Process Manager
component.
Deliverables Management Tools. Set forth below is a description of LBMS'
product for managing application development deliverables (Deliverables
Manager).
LBMS DELIVERABLES MANAGEMENT TOOLS
<TABLE>
<CAPTION>
INITIAL
PRODUCTS FUNCTIONALITY RELEASE DATE
-------- ------------- ------------
<S> <C> <C>
Deliverables Manager Provides storage, organization, configuration management, June 1997
access control and reuse brokering facilities for all types of
software development assets
</TABLE>
Deliverables Manager is the industry's first facility for storing, managing
and reusing all types of software development deliverables, from project
plans, to requirements documents, to code and executable components. Using
Deliverables Manager, organizations are able to store all deliverables in a
secure central repository, apply configuration management, version control and
change management and realize the benefits of reuse. Deliverables Manager
enables an organization to realize the full value of its software development
assets.
Deliverables Manager is sold as a stand-alone product and is also sold as a
companion product to the Process Engineer product line.
Key features of Deliverables Manager include:
INTEGRATED, SECURE STORAGE--One of the key requirements for successfully
leveraging software development deliverables is having a reliable way to
organize, locate, understand, and update common development assets.
Deliverables Manager provides a comprehensive repository environment for
storing, cataloging, searching, and securing all deliverable components
including project plans, requirements documents, design models, test cases,
source code and reusable components (ActiveX, OLE objects, Java Classes,
etc.). Deliverables Manager may also be used to store organization template
deliverables to enable the implementation of consistent standards throughout
the organization. In addition, Deliverables Manager provides Visual Links
which graphically cross-reference components and clearly define their
relationships.
Deliverables Manager uses industry-standard relational databases that easily
fit existing development environments and can be used effectively by
individuals, teams, or entire enterprises.
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COMPREHENSIVE CONFIGURATION MANAGEMENT AND VERSION CONTROL--The
configuration management of all project deliverables, not just code files,
provides significant benefits for the whole development organization. Using
Deliverables Manager, project managers, team members and the whole development
organization can feel secure that all deliverables are stored, controlled,
versioned and can be easily retrieved. In addition, Deliverables Manager
provides comprehensive security facilities ensuring only authorized users are
enabled to change project deliverables.
Deliverables Manager enables snapshots of the complete set of project
deliverables to be taken at any point in the project. It retains this snapshot
as a baseline for future reference. Branching and Merging facilities are
provided to enable parallel working on a project.
DESKTOP TOOL INTEGRATION--Deliverables Manager provides integration with
common desktop development tools such as the Microsoft Office (Word, Excel,
Powerpoint, Project, etc.) and Microsoft Developer Studio (Visual Basic,
Visual C++, Visual J++, etc.) suites. This enables team members to retrieve
and store deliverables directly from their development tools, enabling
transparent use of Deliverables Manager facilities. This avoids the overhead
associated with using traditional software configuration management tools.
REUSE BROKERING--The collection and reuse or re-cycling of "development
assets" is a key factor in increasing project productivity. Deliverables
Manager acts as a broker, or "clearinghouse", of reusable objects where
multiple projects can share components with minimal overhead.
Project team members can start by searching the Deliverables Manager for
useful components to reuse or for deliverables from other projects to recycle.
As revisions are made to components, Deliverables Manager creates graphical
revision indicators, notifying and allowing other team members to selectively
update the components. Deliverables Manager in effect creates a dynamic "use
and improve" environment--project teams coordinate the use of common software
assets and continuously improve them in the process.
INTEGRATION WITH PROCESS ENGINEER--Deliverables Manager is completely
integrated into the Process Engineer environment. This integration provides
Process Engineer users with facilities for: setting up a repository for
storing all organizational standard deliverables
. creating project folders for all project deliverables, using
organizational standard deliverables as a baseline
. configuration management and version control of all project deliverables
. browsing deliverables to find reusable components
. checking in and out deliverables for use on tasks assigned in
PE/Activity Manager
. viewing and editing deliverables using the appropriate development tool
MAINTENANCE AND IMPLEMENTATION SERVICES
LBMS believes that a high level of customer support is important to the
successful marketing and sale of its products. LBMS provides maintenance and
implementation services to its customers for all of its products. Typically,
when purchasing LBMS' products, a majority of customers enter into separate
maintenance agreements. To address technical support issues, LBMS has
established support by telephone, e-mail and facsimile. Technical "hotlines"
are staffed by trained technical support personnel during extended business
hours each day. Implementation services provided by LBMS include product
installation, training and assisting customers with the effective deployment
of LBMS products.
CUSTOMERS
LBMS targets its products to major corporations and governmental entities
worldwide. Typical prospective customers have identified the need to improve
the quality, productivity and economics of the application
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development process and require an integrated process, project, work and
deliverables management environment to enable this improvement.
MARKETING, SALES AND DISTRIBUTION
In North America, LBMS sells its products and services directly to its
customers using a sales team approach. Each sales team generally consists of
three persons: a sales manager, an inside sales person and a sales engineer.
The sales manager is responsible for coordinating the efforts of the sales
team and for finalizing customer requirements and closing the sale. The inside
sales person is responsible for maintaining contact with existing customers as
well as prospecting for and qualifying potential new customers. The sales
engineer is a highly skilled technical employee responsible for supporting
product sales, including all technical aspects related to sales of LBMS'
products. LBMS believes that the use of sales teams has enabled it to sell its
products and services more effectively. Leveraging on its existing
infrastructure, LBMS intends to add sales professionals to its existing sales
teams so it can reach a broader market and increase its sales revenue.
Outside of North America, LBMS sells its products and services to its
customers via a network of distributors and services contractors. LBMS intends
to add various revenue channels to enable it to increase its penetration of
existing international markets as well as entering into markets not currently
served. The timing of such expansion and the rate at which new channels and
markets become productive is difficult to forecast and may cause fluctuations
in quarterly operating results.
LBMS conducts comprehensive marketing activities such as advertising in
trade journals and general business press, direct mail, and telemarketing to
generate sales leads. LBMS also runs sales seminars and participates in
industry conferences and trade shows to introduce prospective customers to its
products.
RESEARCH AND DEVELOPMENT
LBMS believes that the timely development of new products and enhancements
to current products is essential to maintaining its competitive position as a
technological leader. LBMS conducts research and development activities to
enhance its existing products and to design new products complementary to its
existing product lines.
In determining customer needs and developing products to address those
needs, LBMS relies heavily on market feedback. LBMS establishes focus groups
consisting of selected customers to aid in the product development process,
both in determining the need for products or applications and in testing new
products or applications under development.
Following these initial research stages LBMS documents certain themes for
new products or applications. LBMS then works to develop prototypes and
product specifications for new products engendered by the research process.
Once a new product idea is tested and sufficient positive user feedback is
received, LBMS begins to implement the development plan for the product.
COMPETITION
The process management tools market is extremely competitive, fragmented and
rapidly changing. LBMS believes that its ability to compete depends on many
factors both within and outside of its control, including corporate and
product reputation, breadth of coverage with an integrated product line,
product architecture, functionality and features, product quality,
performance, ease-of-use, quality of support, availability of product
implementation and training services, and price.
LBMS' competitors include companies that offer applications development
tools, process management tools and project management tools and consulting
firms offering development methodologies. LBMS believes that
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the primary competition to its process management tools come from companies
such as Acquisition Technologies, MCI Systemhouse, James Martin, Applied
Business Technologies, Ernst & Young, and Coopers & Lybrand. LBMS believes
that the primary competition to its deliverables management tools comes from
companies such as Acquisition Technologies, Intersolv, PCDocs and Softlab. In
addition, because of the complexities inherent in software development,
software companies and the information technology departments of other
business organizations may determine that it is more cost effective to develop
their own software development tools offering similar solutions to those
products offered by LBMS. Furthermore, LBMS faces the risk that vendors of
tools, databases and other elements of the software development tools market
may add to their products some or all of the functionality that LBMS' products
provide to customers, thereby reducing the number of prospective customers in
need of LBMS' products. There can be no assurance that the loss of customers
will not have a material and adverse effect on LBMS' business, financial
condition and results of operations.
LBMS expects competition from existing and additional competitors to
increase. Many of LBMS' competitors have, and new competitors may have, larger
technical staffs, more established and larger marketing and sales
organizations, better developed distribution systems and significantly greater
financial resources than LBMS. There can be no assurance that either existing
or new competitors will not develop products that are superior to LBMS'
products or achieve greater market acceptance. There can be no assurance that
future competition will not have a material adverse effect on LBMS' business,
financial condition or results of operations. In addition, distribution
channels, technical requirements and levels and bases of competition may
differ as LBMS introduces new products, and there can be no assurance that
LBMS will be able to compete favorably. The proliferation of software products
to meet the needs of the applications development market may have a downward
pressure on the prices of such products. Such downward pressure on product
prices could have an impact on LBMS' operating margins. There can be no
assurance that LBMS could avoid these price pressures.
PROPRIETARY TECHNOLOGY
LBMS' success is heavily dependent upon proprietary technology. LBMS'
products are licensed to customers under signed license agreements containing,
among other things, provisions protecting against the unauthorized usage,
copying and transferring of the licensed program. In addition, LBMS relies on
a combination of trade secret, copyright and trademark laws, nondisclosure
agreements and contractual provisions to protect its proprietary rights in its
products and technology. LBMS has no patents or patent applications pending,
and existing trade secrets and copyright laws afford only limited protection.
Despite LBMS' efforts to protect its proprietary rights, unauthorized parties
may attempt to copy aspects of LBMS' products or to obtain and use information
that LBMS regards as proprietary. Policing unauthorized use of LBMS' products
is difficult, and while LBMS is unable to determine the extent to which piracy
of its software products exists, software piracy can be expected to be a
persistent problem, particularly in international markets and as a result of
the growing use of the Internet. In addition, the laws of some foreign
countries do not protect LBMS' proprietary rights to the same extent as do the
laws of the U.K. and U.S. There can be no assurance that the steps taken by
LBMS to protect its proprietary rights will be adequate or that LBMS'
competitors will not independently develop technologies that are substantially
equivalent or superior to LBMS' technologies.
LBMS has various trademarks including LBMS, LBMS Process Engineer and LBMS
Deliverables Manager. LBMS is not aware that any of these products and
trademarks infringe the proprietary rights of third parties. However, there
can be no assurance that third parties will not assert infringement claims
against LBMS in the future with respect to current or future products. As the
number of software products in the market increases and the functionality of
these products further overlap, software developers may become increasingly
subject to infringement claims. Any such claims against LBMS, with or without
merit, could be time-consuming and expensive to defend, cause product shipment
delays or require LBMS to enter into royalty or licensing agreements. Such
royalty agreements, if required, may not be available on terms acceptable to
LBMS, or at all, which could have a material adverse effect on LBMS' business,
results of operations and financial condition.
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EMPLOYEES
As of February 28, 1998, LBMS had a total of 121 employees. Of the total, 62
were engaged in software sales and technical support, 5 in marketing, 16 in
administration and management, and 38 in research and development. All of
LBMS' employees are in the U.S.
The executive officers of LBMS are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Michael S. Bennett................ 46 Chief Executive Officer and Director
Stephen E. Odom................... 46 Chief Financial Officer, Senior Vice
President--Finance and Administration and
Company Secretary
47 Senior Vice President--North American
Peter Combe....................... Operations
Rick Pleczko...................... 40 Senior Vice President--Product Management
Robert A. Prochnow................ 43 Senior Vice President--Engineering
</TABLE>
Mr. Bennett has served as the President, Chief Executive Officer and
Director since August 1996. Mr. Bennett served as the President and Chief
Executive Officer of Summagraphics until the time of its acquisition by
Lockheed Martin's CalComp subsidiary. Prior to Summagraphics, Mr. Bennett
served as Senior Executive with Dell Computer and Chief Executive Officer of
several high technology organizations. He also has spent over 12 years in
various capacities with Digital Equipment Corporation in both domestic and
international positions.
Mr. Odom has served as Chief Financial Officer and Senior Vice President-
Finance and Administration of LBMS since April 1995. Mr. Odom was appointed as
Company Secretary in July 1995. From 1988 to April 1995, Mr. Odom was a
Partner with Price Waterhouse LLP. Mr. Odom is a certified public accountant.
Mr. Combe has served as Senior Vice President-North American Operations of
LBMS since July 1994. Prior to that he served as Vice President-Sales from
1991 to 1994. Mr. Combe joined LBMS in 1985.
Mr. Pleczko has served as Senior Vice President-Product Management since
August 1997. From November 1996 to August 1997, he served as Senior Vice
President-Marketing and Product Development. From November 1996 to August 1997
he served as Senior Vice President-Marketing and Product Development. From
1994 to 1996 he served as Senior Vice President-Product Management of LBMS.
From 1990 to 1994, Mr. Pleczko served as Vice President-Product Services of
LBMS, Inc. Mr. Pleczko joined LBMS in 1984.
Mr. Prochnow has served as Senior Vice President-Engineering of LBMS since
August 1997. Prior to joining LBMS, Mr. Prochnow served as Vice President,
Research & Development for GlobalSoft, a software development company, from
1994 to 1997. Prior to GlobalSoft, he served as Technical coordinator for
Schlumberger from 1977 to 1994.
LBMS has experienced an extended period of significant changes (i.e.,
refocusing of the business, relocation of a significant portion of the
development personnel, stock registration on the Nasdaq National Market, etc.)
which have increased the pressure on the viability and scope of its operating
and financial systems. The changes have resulted in new and increased
responsibilities for management personnel and has placed a significant strain
upon LBMS' management, operating and financial controls and resources. To
accommodate recent changes, compete effectively and manage potential future
growth and changes in the market place, LBMS must continue to implement and
improve the speed and quality of its information decision systems, management
decisions, reporting systems, procedures and controls and further expand,
train and motivate its workforce. There can be no assurance that LBMS'
personnel, procedures, systems and controls will be adequate to support LBMS'
future operations. Additionally, LBMS faces intense competition in hiring and
retaining skilled management, technical, marketing, and sales personnel. The
loss of services of one or more of LBMS' key employees could have a material
adverse effect on LBMS' business, operating results and financial condition.
LBMS intends to hire a
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significant number of additional sales, service and technical personnel in
fiscal 1998. Competition for the hiring of such personnel in the software
industry is intense, and LBMS from time to time experiences difficulty in
locating candidates with appropriate qualifications, particularly within the
desired geographic locations. None of LBMS' employees is represented by a
labor union or covered by a collective bargaining agreement, and LBMS
considers its relations with its employees to be good.
SERVICE OF PROCESS
LBMS is a public limited company incorporated in England and Wales in 1977.
Two of its directors are not subject to the jurisdiction of the U.S. because
they are neither citizens nor residents of the U.S. All or a substantial
portion of the assets of such persons and certain of the assets of LBMS are
located in jurisdictions outside the U.S. As a result, it may not be possible
for investors to effect service of process within the U.S. upon such persons
or upon LBMS or any of its subsidiaries (other than its U.S. subsidiaries) or
to realize upon judgments of U.S. courts predicated upon civil liability under
the U.S. federal or state securities laws. LBMS has been advised by English
solicitors, that there is doubt as to the enforceability in the U.K. against
LBMS or any of its subsidiaries (other than its U.S. subsidiaries) or any of
their respective directors, controlling persons or executive officers who are
not residents of the U.S., in actions for enforcement of judgments of U.S.
courts of liabilities predicated upon, or in original actions predicated
solely upon, U.S. federal or state securities laws.
PROPERTIES
LBMS' principal executive offices are located in approximately 22,000 square
feet of leased space in Houston, Texas. As of December 31, 1997, LBMS also
leased office space in Bristol and Stockport, England and Edinburgh, Scotland,
Australia, which have been abandoned by LBMS. (See further discussion in the
Notes to the Consolidated Financial Statements contained herein). In support
of its North American field sales and support operations, LBMS also leases
offices in Ann Arbor, Atlanta, Austin, Boston, Chicago, Dallas, Iselin (New
Jersey), Los Angeles, Minneapolis, New York, Philadelphia, Pleasanton
(California), Seattle and Toronto. LBMS believes that its current facilities
are adequate for its existing needs although additional facilities will be
required as LBMS expands into additional North American cities.
LEGAL PROCEEDINGS
LBMS is not a party to any material legal proceedings at January 31, 1998;
however, from time to time LBMS has legal or administrative proceedings which
are generally incidental to its normal business activities. While the outcome
of any such proceeding can not be accurately predicted, LBMS does not believe
the ultimate resolution of any such existing matters should have a material
adverse effect on its financial position or results of operations.
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INFORMATION REGARDING PLATINUM
The discussion below contains certain forward-looking statements (as such
term is defined in Section 21E of the Exchange Act) that are based on the
beliefs of the management of PLATINUM, as well as assumptions made by, and
information currently available to, PLATINUM's management. PLATINUM's actual
growth, results, performance and business prospects and opportunities in 1998
and beyond could differ materially from those expressed in, or implied by, any
such forward-looking statements. See "PLATINUM Management's Discussion and
Analysis of Financial Condition and Results of Operations--Special Note
Regarding Forward-Looking Statements" on page 64 for a discussion of risks,
uncertainties and other factors that could cause or contribute to such
material differences.
OVERVIEW
PLATINUM develops, markets and supports software products, and provides
related professional services, that help organizations manage and improve
their information technology ("IT") infrastructures, which consist of data,
systems and applications. PLATINUM's products and services help IT
departments, primarily in large and data intensive organizations, minimize
risk, improve service levels, and leverage information to make better business
decisions. PLATINUM's products typically perform fundamental functions such as
automating operations, maintaining the operating efficiency of systems and
applications, and ensuring data access and integrity. PLATINUM currently
develops software products through its four business units: database
management, systems management, application infrastructure management, and
data warehousing and decision support. Addressing businesses' increasing
demand for simplified vendor relationships and complete solutions to IT
problems, PLATINUM's goal is to become the leading provider of IT
infrastructure management solutions by offering a comprehensive set of "best
in class" point products, product bundles and integrated product suites.
PLATINUM also offers a wide array of professional services, including
consulting, systems integration and educational programs, both in conjunction
with and independent of software product sales.
To achieve its goal, PLATINUM identified key technologies and skill sets
required to better manage the IT infrastructure. Through a combination of an
aggressive acquisition program and vigorous internal product development
efforts, PLATINUM assembled the competencies to create complete infrastructure
management solutions. Devoting substantial resources to integrating its
products and technologies, PLATINUM is now leveraging the breadth of its
product lines and its professional services capabilities to provide complete,
customized solutions for IT infrastructure problems. These solutions include
single products; product suites, which are sets of integrated products drawn
together from multiple business units of PLATINUM; and product bundles, which
are sets of software applications that are packaged together but do not
necessarily have the level of integration that defines a suite; as well as
design and implementation services provided by PLATINUM's professional
services staff. These solutions also include ongoing product upgrades,
maintenance and support, sometimes pursuant to multi-year contracts.
Evidencing the increasing demand from PLATINUM's customers for comprehensive
solutions, PLATINUM completed 102 transactions of over $1 million during 1997,
as compared to 55 such transactions during 1996 and only two such transactions
during 1995. Each of these large transactions included licenses for software
product bundles or suites, along with future upgrades and maintenance;
software consulting services; or both product licenses and related consulting
services.
PLATINUM is focusing on the development of products and services that offer
its customers maximum flexibility and functionality. PLATINUM's products are
designed to permit a customer to either purchase prepackaged integrated suites
or to choose individual products and later add other products as needed. The
cornerstone of PLATINUM's integration efforts is POEMS (PLATINUM Open
Enterprise Management Services), an internally developed set of shared
components that give PLATINUM's products a common look and feel, common
installation and distribution and common communication, data and events
handling. POEMS integration is built into individual products so that, as
customers purchase additional PLATINUM products, the newly acquired and
previously installed products can begin working together immediately. In
February 1998, PLATINUM released for general availability its ProVision suite
of integrated systems and database management tools, which is
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PLATINUM's most significant POEMS-enabled integrated offering of products to
date. ProVision initially includes nine tools within the following key IT
management disciplines: job management, performance management and analysis,
software distribution, problem resolution, security, database utilities, and
database administration.
PLATINUM is also creating solutions for the needs of specific industries, as
well as general business needs. PLATINUM also is enabling its products and
suites for application with intranets and the internet and offers a broad set
of solutions for the Year 2000 problem. Additionally, in late 1996, PLATINUM
formed specialty consulting practice groups within its professional services
business unit, including groups dedicated to Year 2000 solutions and
internet/intranet technologies.
MARKET OVERVIEW
Companies today rely on their IT infrastructures to keep their businesses
operating efficiently. As organizations have moved from host-based computing
systems to open systems environments, the deployment, management, maintenance
and productive use of IT has become increasingly complex. These open computing
environments service numerous end-users spread across various locations and
consist of a diverse set of applications, computing platforms (including
mainframes, minicomputers, workstations and desktop PCs/LANs), relational
database management systems ("RDBMS"), operating systems (including UNIX,
Windows, Windows NT, OS/400, OS/2, MVS and VMS) and media, including intranets
and the internet. These open environments are also dynamic; users, as well as
hardware and software resources, are frequently added, removed or changed; and
new, mission-critical applications are continually being developed and
deployed.
PLATINUM believes that, due to the complexities of these new computing
environments, organizations are increasingly seeking to purchase IT management
products and services from a smaller number of vendors that can provide
complete, flexible and integrated solutions for managing and improving their
IT infrastructures.
PRODUCTS
PLATINUM provides software solutions that help organizations efficiently
operate and manage their complex IT infrastructures and related environments,
which contain multiple computing platforms, database management systems,
applications and operating systems. These tools increase the efficiency and
interoperability of these systems and applications in distributed environments
of any size. PLATINUM's solutions support platforms and operating systems that
span mainframe, midrange and PC/LAN computing environments, including MVS,
UNIX, OS/2, OS/400, Windows and Windows NT. They also support multiple
database management systems, such as the DB2 family, Oracle, Sybase, Microsoft
SQL Service and Informix. In addition, PLATINUM's solutions provide support
for packaged applications such as SAP, PeopleSoft and Oracle Financials.
PLATINUM now offers over 160 robust and adaptable point products. While
point products are initially developed and supported through one of PLATINUM's
four business units described below, PLATINUM continues to build integrated
suites of products drawn from different business units, such as ProVision, in
order to provide comprehensive solutions to organizations' IT needs.
Database Management Products-PLATINUM provides a leading set of tools and
utilities for centralized or distributed database administration, performance
analysis and monitoring and database backup and recovery for heterogeneous
database management systems. By automating administrative and maintenance
tasks, these software solutions enable users to achieve the highest
performance levels possible, increase data availability, automate arduous
administrative tasks, and deliver new products or enhancements to end-users
faster and with more flexibility. Principal database management products
include the following:
. Database Analyzer-a DB2 direct access storage device and database
monitoring, analysis, validation, forecasting and tuning tool. It
provides extensive statistical reporting capabilities, automated
maintenance and auditing of internal structures, as well as a DB2 page
editor.
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. RC/Migrator-a tool that automates DB2 object and data migrations and
alterations, while maintaining object dependencies and preserving data
security. Migrations may be performed on a one-to-one or one-to-many
basis.
. TSreorg-a tablespace reorganization tool for heterogeneous databases of
any size. TSreorg delivers fast reorganizations of entire tablespaces,
individual tables and indexes. It also provides efficient fragmentation
of used and free space and automatic data partitioning. TSreorg can run
on UNIX, VMS or Windows NT-based server systems.
Systems Management Products-PLATINUM offers products that enable
organizations to automate routine systems maintenance tasks and processes,
thereby streamlining enterprise management, enhancing system reliability and
reducing costs. These products also simplify the management of disparate
systems and enterprise-wide applications, and increase end-user productivity.
Systems management product offerings span many disciplines, including job and
process management, enterprise automation, desktop management, output
management, problem resolution, security management, distribution management,
performance management, enterprise-wide resource management, storage
management, and networking and connectivity. PLATINUM offers over 20 products
that provide the functionality required by businesses, while scaling across
multiple platforms that include UNIX, Windows, Windows NT, OS/400, OS/2, MVS
and VMS. Principal systems management products include the following:
. AutoSys - a job scheduling and management tool that simplifies the task
of managing and monitoring multiple jobs in distributed environments. It
provides centralized control of job execution across heterogeneous
platforms and offers flexible features, such as self-correcting job
control and automated restart and recovery capabilities.
. DBVision - a scaleable tool for continuous monitoring and centralized
management of heterogeneous databases in any size network. DBVision
collects and displays performance measurements in real time or
retrospect. It automatically detects and corrects performance problems
and predicts space shortages.
. AutoSecure - a tool set that enables organizations to secure and manage
large, heterogeneous computing environments. It protects information by
preventing unauthorized access to data and system resources in
distributed environments; provides single sign-on for users to
applications and services they are authorized to use, whether they are
on mainframes, distributed systems or Pcs; and provides a single point
for user registration in other security systems.
Application Infrastructure Management Products - PLATINUM offers products
that enable organizations to establish an application development process that
is systematic, error-resistant and flexible to adapt to changing business
needs. These products include tools for integrated project and process
management, component modeling, construction, testing, application deployment
and software distribution, integrated change and configuration management,
help desk support and decision support. These products facilitate the
development of sophisticated, high-performance applications and improve the
overall productivity and quality of development efforts. Principal application
infrastructure management products include the following:
. ADvantage - an integrated set of tools for managing the application
development infrastructure. ADvantage helps organizations automate and
improve the processes for building, managing and delivering applications
through solutions for component modeling (Paradigm Plus), integrated
project and process management (Process Continuum), integrated change
and configuration management (CCC/Harvest), rule-based application
development (AionDS) and decision support (ADvisor).
. ADvisor - a decision-support tool, and key component of ADvantage, that
helps IT executives and development managers minimize the risks and
costs associated with the applications that run their businesses by
providing the information needed to ensure on-time, on-budget delivery
of applications. ADvisor delivers the critical project information
organizations need to manage application development as a core business
process.
Data Warehousing and Decision Support Products-PLATINUM offers an integrated
set of solutions for all major data warehousing functions, including data
transformation and movement, data warehouse management,
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metadata management and repository, and decision support. These comprehensive
solutions help organizations build, manage and maintain data warehouses. A
data warehouse is a data store that gives end-users full access to
periodically consolidated, historical data for making business decisions and
analyzing trends without jeopardizing the performance of mission-critical
operations. Warehousing tools can capture data in many forms on numerous
platforms, transfer it to multiple database platforms and provide users with
the means to access and manage such information. Repository tools play a key
role in data warehouses as places for centralized control and as collection
points for status information concerning the warehouses and their activities.
PLATINUM's products enable organizations to better leverage their corporate
data investments by allowing end-users to derive maximum value and insight
from information. These products ensure enterprise-wide data access and enable
complex data analysis and reporting so that users can effectively identify
business trends and make informed decisions. Principal data warehousing and
decision support products include the following:
. InfoPump - a bi-directional data movement tool, InfoPump automates the
process of replicating, transferring and integrating data in
heterogeneous environments on a scheduled or event-driven basis.
. Repository - a product that serves as a central point of control,
enabling organizations to easily manage, maintain and access vast
amounts of corporate data, applications, and systems in a heterogeneous
environment. Repository provides information such as where data is
located, who created and who maintains data, what application processes
the data drives, and what relationship the data has with other data.
. Forest & Trees - a rapid decision-support system development tool which
enables IT departments to deliver customized desktop applications that
provide the necessary components for intuitive navigation and data
investigation. Forest & Trees applications can simultaneously access
multiple data sources and combine data into information that makes sense
to the knowledge worker. Forest & Trees applications can monitor key
strategic, tactical and operational indicators for the business and
automatically alert users to specific conditions via the corporate
network or via the web.
. InfoBeacon - a decision support tool that provides advanced online
analytical processing (OLAP) capabilities for data warehouse
environments. This product creates a virtual, multidimensional view on
top of the relational database. It provides end-users with advanced
analysis capabilities - such as drill down, pivoting, ranking, ratios,
and exception-and date-handling - without requiring the organization to
redundantly store and manage data in a proprietary multidimensional
database.
. Perspectives - an environment for rapidly developing custom, server-
centric, OLAP-enabled decision-support systems. Combining the power of
tools with the speed of packaged applications, Perspectives provides the
benefits of rapid time to market without sacrificing flexibility for
future growth. Perspectives for Market Analysis helps profit/loss
managers (such as brand managers, product managers, VPs of marketing)
view and analyze complex relationships between multiple product
dimensions and measures so that they can understand and respond to
emerging trends.
New Product Suites - In the past, businesses licensed products on a stand-
alone basis to address each of their needs as they arose. By combining tools
and technologies within and across its business units, PLATINUM now provides
product suites that are complete solutions to businesses' IT infrastructure
problems. These integrated product offerings allow businesses to experience
comprehensive benefits without having to deal with multiple products or
multiple vendors. PLATINUM has designed product suites that address IT
infrastructure problems that are shared by businesses from various industries,
as well as product suites that target IT infrastructure problems that are
unique to specific industries. The following provides a brief description of
some of PLATINUM's recent product suite offerings:
. ProVision - this integrated product suite, a combination of database
management and systems management tools, enables companies to reduce the
costs and risks associated with managing their IT
infrastructures, while improving service levels, availability and
productivity. ProVision initially includes nine tools within the
following key IT management disciplines: job management, performance
management and analysis, software distribution, problem resolution,
security, database utilities and database administration. Because
integration is built into each ProVision tool, organizations can
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implement one or more tools, and add more tools as needed, to solve
their most immediate IT problems. ProVision became generally available
in February 1998.
. TransCentury - this product suite, developed through a combination of
tools and technologies made available through internal development,
acquisitions and marketing agreements, provides an end-to-end solution
to the problem created by the century date change, commonly known as the
Year 2000 problem. TransCentury applies a "find-it, fix-it, test-it"
approach that enables businesses to analyze, plan, implement and test
century date changes in an integrated manner. It helps organizations
ensure business continuity and compliance by minimizing exposure,
helping them more effectively plan resources, and reducing costs and
time associated with the Year 2000 problem.
PRODUCT LICENSES
PLATINUM provides its software products to customers under non-exclusive,
non-transferable license agreements (including standard shrink-wrap licenses
for certain products). As is customary in the software industry, in order to
protect its intellectual property rights, PLATINUM does not sell or transfer
title to its software products to customers. Under PLATINUM's current standard
form license agreement, licensed software may be used solely for the
customers' internal operations and only on designated hardware at specified
sites, which may be comprised of a stand-alone computer, a single network
server with multiple terminals or multiple network servers with multiple
terminals.
Licenses for PLATINUM's software are almost exclusively perpetual, although
annual and monthly licenses are also offered. License fees may be due upon
execution by the customer of the applicable product agreement or may be
payable over time for contracts involving multi-year commitments for
maintenance and product upgrades. List prices are based upon the size of the
processor, number of servers and/or number of users, depending upon the type
of license and product being licensed. PLATINUM's published list prices
include discounts for suite, enterprise and multi-site licenses. Licenses
generally include more than one product. Under PLATINUM's current standard
form license agreement, maintenance is renewed on an annual basis by the
customer paying the current maintenance fee. See "--Technical Support and
Maintenance."
PRODUCT DEVELOPMENT
PLATINUM is pursuing its strategy by continuing its emphasis on internally
developing new software products and product enhancements, acquiring products,
technologies and businesses complementary to PLATINUM's existing product
lines: and forming alliances with leading technology companies. PLATINUM has
formed separate in-house development teams to efficiently integrate acquired
products and technologies into existing product lines. During 1995, 1996 and
1997, product development and support expenses of PLATINUM were $51,404,000,
$94,027,000, $155,277,000 and $187,383,000, respectively. As of February 28,
1998, PLATINUM employed approximately 1,660 persons in product development and
support.
Internal Development. PLATINUM will continue to rely on the internal
development of products to expand its product lines. PLATINUM believes its
RDBMS expertise and experience give it a competitive advantage in developing
products that address increasingly complex environments and that meet evolving
customer needs. In order to fully exploit acquired software development
personnel, and to access new sources of talent, PLATINUM has established
approximately 36 independent development laboratories, generally at the
locations of newly-acquired companies. These development laboratories are
interconnected via video conferencing, e-mail, Lotus Notes and other
communication technologies, and use various hardware, operating systems and
database systems which give PLATINUM the ability to simulate the environments
of its customers. Laboratories have responsibility for their product lines and
receive guidance from POEMS teams to foster interoperability.
Acquisitions. PLATINUM continually reviews acquisition candidates with
leading-edge products and technologies that could enhance PLATINUM's product
portfolio. The technologies associated with the products of the acquired
businesses are being incorporated into PLATINUM's existing internally
developed products and
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are being used in developing new products. In addition to providing PLATINUM
with new products and technologies, these acquisitions have provided PLATINUM
with experienced teams of product developers who now staff PLATINUM's
independent development laboratories. PLATINUM plans to continue to pursue
acquisition opportunities because it believes that acquisitions are an
essential part of PLATINUM's strategy to compete effectively in its rapidly
evolving marketplace. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Results of Operations--Costs and
Expenses--Merger Costs" and "--Recent Developments."
Technology Relationships. To reinforce its commitment to providing
interoperable solutions for managing IT infrastructures, PLATINUM has
implemented its PLATINUM Partners Program, whereby PLATINUM has established
strategic and technology relationships with other leading IT vendors. PLATINUM
believes that in order to provide solutions for heterogeneous computing
environments, it will need to continue to establish and maintain key
relationships with leading technology companies. PLATINUM's current partners
include Intel, IBM, Hewlett-Packard, Oracle, Microsoft, SAP and Lucent
Technologies. These technical and marketing alliances provide PLATINUM early
access to product information and pre-release software.
PROFESSIONAL SERVICES
As part of its strategy to provide complete solutions for Global 10,000 IT
organizations, PLATINUM offers a range of professional services, including
consulting services, systems integration, and educational programs, in support
of and independent of its products. These services help businesses plan,
construct and manage infrastructures in which complex software products can be
used. These services can improve and accelerate customization, implementation
and deployment of PLATINUM's software products. PLATINUM believes that more
rapid and effective implementation of its software products will lead to
increased customer satisfaction and greater follow-on sales. For these
reasons, PLATINUM is now packaging professional services as a standard feature
of its product sales. As of February 28, 1998, PLATINUM employed approximately
1,100 persons in professional services.
Consulting Services. PLATINUM is focusing significant effort on developing
and expanding its consulting services group. Primarily developed through
recent acquisitions of consulting services companies, this group provides
consulting services that help Global 10,000 companies manage risks, manage the
implementation of new technologies and products, and optimize their current
computing environments. Areas of expertise span systems and database
management, information management, security, Year 2000 reengineering,
application lifecycle management, internet/intranet development, and
electronic commerce. PLATINUM's consultants provide flexible, customizable
solutions as well as prepackaged solutions. They can serve all of an
organization's software consulting needs, from strategy and organization to
implementation.
Educational Programs. PLATINUM believes that its training and education
services play an important role in increasing market awareness of its software
products among IT personnel, including application developers, database
administrators and end-users. Offering a comprehensive curriculum that
supports leading technologies, PLATINUM conducts a set of training courses
designed to deal with the critical issue of skills management. These courses
cover several key technology areas of IT infrastructure management and are
held at various training centers in the United States and throughout
PLATINUM's international operations. PLATINUM also offers on-site computer-
based training courses and self-led internet-based training courses that users
may complete in their own offices or homes.
PLATINUM continually reviews acquisition candidates that are leading-edge IT
education service providers. Most recently, PLATINUM entered into an agreement
to acquire Mastering, Inc., a leading provider of IT technology training to
Fortune 1000 companies, universities and large governmental agencies. PLATINUM
believes that, upon consummation, this acquisition will significantly enhance
PLATINUM's educational service offerings. PLATINUM is also expanding its
professional services through internal growth. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations--Recent
Developments."
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SALES AND MARKETING
PLATINUM employs a multi-faceted sales strategy. For software products,
PLATINUM utilizes telemarketers, an inside sales force, an outside sales
force, product seminars, user group participation, direct mail, print and web-
based advertising, and web promotions. PLATINUM also utilizes certain indirect
sales channels, such as distributors, VAR and OEM relationships for selected
products.
Domestic (U.S.) Software Sales. Since January 1, 1997, PLATINUM has
organized its domestic direct sales force by regions throughout the United
States. PLATINUM formerly combined the domestic and Canadian sales forces to
represent the North American sales force. As of February 28, 1998, PLATINUM
had approximately 450 domestic direct sales representatives.
Generally, for domestic software product licenses, PLATINUM's telemarketing
specialists call prospective customers to identify and qualify leads. Once a
lead has been qualified, the prospective client is turned over to the inside
sales force, which predominantly supports the direct sales force by developing
sales leads and arranging product evaluations. Established sales leads are
then typically forwarded to the direct sales force, which visits customer
sites to assist with trials, demonstrate product features and close sales
transactions. For certain sales to smaller customers, as well as the licensing
of standard shrink-wrap products, the inside sales force may handle the full
sales cycle for completing such transactions.
International Software Sales. PLATINUM generally markets its products
overseas through a network of wholly-owned subsidiaries. Generally, these
subsidiaries use an approach similar to that used by PLATINUM domestically. As
of February 28, 1998, PLATINUM had approximately 220 international (non-U.S.)
direct sales representatives and had subsidiaries in Australia, Austria,
Belgium, Brazil, Canada, China, Denmark, Finland, France, Germany, Hong Kong,
Indonesia, Italy, Japan, Korea, Malaysia, the Netherlands, Norway, Singapore,
South Africa, Spain, Sweden, Switzerland, Taiwan, Thailand and the United
Kingdom. PLATINUM expects that it will establish other foreign subsidiaries in
the future to meet its strategic objectives. In a few countries, primarily in
South America and the Middle East, PLATINUM markets its products through
independent distributors.
Global Accounts. PLATINUM now designates certain large, geographically
dispersed entities as "global accounts." Each of these accounts is managed, on
a worldwide basis, by a single executive who focuses his or her attention on
the diverse needs of the enterprise.
Professional Services. PLATINUM's consulting services and educational
programs are marketed by a specialized direct sales force.
User Group Leadership. PLATINUM believes that its sales and marketing
efforts have also been greatly enhanced by participation in domestic and
international user groups. PLATINUM plays a major role in the activities of
the International DB2 Users Group, the International Oracle Users Group, the
International Sybase Users Group and other smaller user groups, and expects to
continue to do so in the future.
TECHNICAL SUPPORT AND MAINTENANCE
PLATINUM's in-house technical support group, situated at various sites
throughout the U.S., provides pre- sale, installation and post-sale support,
including toll-free telephone support during regular business hours, to
current users and potential customers evaluating PLATINUM's products. The
technical support group also offers seven-day, 24-hour toll-free telephone
service for an additional fee. PLATINUM believes that effective technical
support during product evaluation substantially contributes to product
acceptance, and that post-sale support has been, and will continue to be, a
substantial factor in customer satisfaction.
PLATINUM offers a maintenance program for its software products, which
consists of product enhancements, updated products and technical support.
Maintenance is typically provided without additional charge during the
warranty period defined in PLATINUM's license agreements. Under PLATINUM's
standard
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license agreement, customers renew maintenance support on an annual basis by
paying the current maintenance fee. Customers may also commit for maintenance
and product support over extended periods of time. Maintenance revenue
implicit in new product sales and recurring maintenance charges are recognized
ratably over the period the maintenance and support services are to be
provided.
COMPETITION
PLATINUM operates in highly competitive markets and expects competition to
increase. PLATINUM encountered substantially intensified competition as it
moved from the relational database tools market to the much larger IT
infrastructure products market and as it entered the consulting services
business. PLATINUM also experienced many new competitors, including relational
database vendors and systems software companies. Many of PLATINUM's current
and prospective competitors have significantly greater financial, technical
and marketing resources than PLATINUM. In addition, many prospective customers
may have the internal capability to implement solutions to their IT
infrastructure problems.
The competitive factors affecting the market for PLATINUM's software
products include the following: product functionality, integration,
performance and reliability; demonstrable economic benefits for users relative
to cost; quality of customer support and user documentation and ease of
installation; vendor reputation, experience and financial stability; and
price.
PLATINUM believes that it has competed effectively to date and that its
ability to remain competitive will depend, to a great extent, upon its ongoing
performance in the areas of product development and customer support. To be
successful in the future, PLATINUM must respond promptly and effectively to
the challenges of technological change and its competitors' innovations by
continually enhancing its own product offerings. Performance in these areas
will, in turn, depend upon PLATINUM's ability to attract and retain highly
qualified technical personnel in a competitive market for experienced and
talented software developers. PLATINUM also expects to continue its strategy
of identifying and acquiring IT infrastructure products and technologies and
businesses which have developed such products and technologies.
In addition, PLATINUM encounters competition from a broader range of firms
in the market for professional services. Many of PLATINUM's current and
prospective competitors in the professional services business have
significantly greater financial, technical and marketing resources than
PLATINUM. The competitive factors affecting the market for PLATINUM's
professional services include the following: breadth and quality of services
offered, vendor reputation and the ability to retain qualified technical
personnel.
INTELLECTUAL PROPERTY RIGHTS
PLATINUM has historically relied upon a combination of contractual rights,
trademarks, trade secrets and copyright laws to establish and protect its
proprietary rights in its products. PLATINUM also holds some patents and
believes that patents are becoming increasingly important to the software
industry. Consequently, PLATINUM is taking actions to further protect its
proprietary rights through software patents. PLATINUM's license agreements
restrict a customer's use of PLATINUM's software and prohibit disclosure to
third persons. Notwithstanding those restrictions, it may be possible for
unauthorized persons to obtain copies of PLATINUM's software products.
PLATINUM believes that because of the rapid pace of technological change in
the computer software industry, the legal protections for its products are
less significant factors in PLATINUM's success than the knowledge, ability and
experience of PLATINUM's employees, the frequency of product enhancements, and
the timeliness and quality of support services provided by PLATINUM. PLATINUM
registers its product names and other trademarks in the United States and
certain foreign countries.
EMPLOYEES
As of February 28, 1998, PLATINUM employed approximately 4,330 persons,
including 1,280 in sales, marketing and related activities, 1,660 in product
development and support, 1,100 in professional services, and
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290 in management, administration and finance. PLATINUM's success is highly
dependent on its ability to attract and retain qualified employees.
Competition for employees is intense in the software industry. None of
PLATINUM's employees is represented by a labor union or is the subject of a
collective bargaining agreement. PLATINUM has never experienced a work
stoppage and believes that its employee relations are good.
PROPERTIES
PLATINUM's principal administrative, marketing, training, and product
development and support facilities are located in Oakbrook Terrace, Illinois,
where PLATINUM leases approximately 334,000 square feet under leases
terminating in April 2003, with plans to lease additional space in the near
future. PLATINUM also leases approximately 164,000 square feet of
administrative, marketing, sales and product development space in Lisle,
Illinois, near PLATINUM's headquarters, under leases terminating in January
and October 2003. In addition, PLATINUM leases space for approximately 75
sales offices and product development laboratories throughout the United
States, ranging in size from approximately 1,000 to 45,000 square feet. In
conjunction with the restructuring plan executed during the second quarter of
1997, PLATINUM closed certain sales offices and product development
laboratories in the United States and certain foreign countries. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Results of Operations--Restructuring Charges."
LEGAL PROCEEDINGS
Computer Associates' International, Inc., and L'Agence pour la Protection
des Programmes v. La Societe Faster, S.A.R.L. (Commercial Court of Bobigny,
Paris, France). Altai, a wholly-owned subsidiary of PLATINUM, is involved in a
suit in France which concerns copyright infringement claims identical to those
on which Altai previously prevailed against Computer Associates International,
Inc. ("CAI") in the United States. The French appellate court granted Altai's
request that the U.S. appellate court's copyright ruling should bind the
Commercial Court of Bobigny as a matter of law. In January 1995, the French
appellate court issued a decision rejecting CAI's claim of copyright
infringement. CAI's subsequent appeal in the French appellate court is still
pending, as are motions from Altai that the U.S. court decisions are binding
with respect to the French case.
PLATINUM is also subject to certain other legal proceedings and claims which
have arisen in the ordinary course of business and which have not been fully
adjudicated. Management currently believes the ultimate outcome of such
matters and those described above will not have a material adverse effect on
PLATINUM's results of operations or financial position.
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SECURITIES OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT OF LBMS
The following table and notes thereto set forth certain information with
respect to the beneficial ownership of the Ordinary Shares as of February 28,
1998 by (i) each person who is known to LBMS to beneficially own more than 5%
of the outstanding Ordinary Shares of LBMS; (ii) LBMS' Chief Executive Officer
and each of the four other most highly paid executive officers of LBMS who
received compensation in excess of $100,000 for fiscal 1997; (iii) each
director of LBMS; (iv) each current executive officer and (iv) all officers
and directors of LBMS as a group. Except as otherwise indicated, each of the
shareholders named below has sole voting and investment power with respect to
the Ordinary Shares beneficially owned:
<TABLE>
<CAPTION>
ORDINARY SHARES
BENEFICIALLY OWNED(1)
-----------------------------
OFFICERS, DIRECTORS AND 5% SHAREHOLDERS NUMBER PERCENT
--------------------------------------- ------------- -----------
<S> <C> <C>
Rainer H. Burchett................................ 1,500,000(2) 5.4%
c/o Learmonth & Burchett
Management Systems Plc
10 Norwich Street
London EC4A 1BD England
Roger A. Learmonth................................ 1,049,749(3) 3.8%
c/o Learmonth & Burchett
Management Systems Plc
10 Norwich Street
London EC4 1BD England
S Squared Technology Corp. ....................... 2,344,654 8.4%
515 Madison Avenue
New York, NY 10022
Bessemer Venture Partners III L.P. ............... 1,996,898(4) 7.2%
1025 Old Country Road
Suite 205
Westbury, NY 11590
Pioneering Management Corp. ...................... 1,417,500 5.1%
60 State Street
Boston, MA 02109
Gerald N. Christopher............................. 252,000(5) *
Michael S. Bennett................................ 412,418(6) 1.5%
Stephen E. Odom................................... 319,782(7) 1.1%
Peter Combe....................................... 368,682(8) 1.3%
Rick Pleczko...................................... 321,848(9) 1.2%
Felda Hardymon.................................... 65,262(10) *
Robert A. Prochnow................................ 0(11) *
All current directors and executive officers as a 4,289,741 15.0%
group(12)........................................
</TABLE>
- --------
* Less than one percent.
(1) Applicable percentage of ownership as of February 28, 1998 is based upon
27,920,359 Ordinary Shares outstanding (including 1,630,200 Ordinary
Shares issuable within 60 days of February 28, 1998 upon the exercise of
options beneficially owned by the indicated shareholder on that date).
Unless otherwise indicated, the persons named in the table have sole
voting power and sole investment control with respect to all Ordinary
Shares beneficially owned. Beneficial ownership is determined in
accordance with the rules of the Securities and Exchange Commission and
includes voting and investment power with respect to such Ordinary
Shares.
(2) Includes 692,000 Ordinary Shares held by 9 trusts for which Mr. Burchett
is a co-trustee. Mr. Burchett disclaims beneficial ownership in all
shares held by LBMS Trustee Company Limited, of which Mr.
83
<PAGE>
Burchett is a shareholder and director including shares to be acquired in
the future pursuant to subscription rights granted to LBMS Trustee Company
Limited.
(3) Includes 600,000 Ordinary Shares held in a trust for which Mr. Learmonth
serves as co-trustee. Also includes 2,850 Ordinary Shares held by his
daughter. Mr. Learmonth disclaims beneficial ownership in all shares held
by LBMS Trustee Company Limited, of which Mr. Learmonth is a director,
including shares to be acquired in the future pursuant to subscription
rights granted to the LBMS Trustee Company Limited.
(4) Does not include 38,903 Ordinary Shares owned by BVP III Special
Situations L.P. and 80,566 owned beneficially by certain consultants and
employees of Bessemer Securities Corporation, the sole owner of the sole
limited partner of Bessemer Venture Partners III L.P. Under certain
circumstances Bessemer Venture Partners III L.P. may direct the voting of
such shares.
(5) Includes 250,000 Ordinary Shares issuable upon exercise of the vested
portion of a share option.
(6) Includes 400,000 Ordinary Shares issuable upon exercise of the vested
portion of a share option.
(7) Includes 304,000 Ordinary Shares issuable upon exercise of the vested
portion of a share option.
(8) Includes 367,400 Ordinary Shares issuable upon exercise of the vested
portion of a share option.
(9) Includes 308,800 Ordinary Shares issuable upon exercise of the vested
portion of a share option.
(10) Excludes 1,996,898 Ordinary Shares owned by Bessemer Venture Partners III
LP. Mr. Hardymon is a general partner of the general partner of Bessemer
Venture Partners III LP.
(11) Mr. Prochnow was granted an option to purchase 150,000 Ordinary Shares,
none of which are currently vested.
(12) Includes 1,630,200 Ordinary Shares issuable upon exercise of the vested
portions of share options but excludes shares owned by Bessemer Venture
Partners III LP, of which Mr. Hardymon is a general partner of the
general partner of Bessemer.
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<PAGE>
UNAUDITED PRO FORMA CONDENSED COMBINING FINANCIAL STATEMENTS
The unaudited pro forma condensed combining balance sheet combines
PLATINUM's December 31, 1997 consolidated balance sheet with LBMS' January 31,
1998 consolidated balance sheet as if the Acquisition occurred on December 31,
1997. The unaudited pro forma condensed combining statements of operations
combine PLATINUM's statements of operations for the fiscal years ended
December 31, 1995, 1996 and 1997 with LBMS' results of operations for the
fiscal years ended April 30, 1996 and 1997, and the twelve months ended
January 31, 1998, respectively, applying the pooling-of-interests method of
accounting.
The revenue and operating results of LBMS for the three months ended April
30, 1997 are included in the pro forma condensed combining statements of
operations for both the fiscal years ended December 31, 1996 and 1997. The
revenue and net income of LBMS reflected in both years are $6,188,000 and
$1,074,000, respectively.
The pro forma information is presented for illustrative purposes only and is
not necessarily indicative of the operating results or financial position that
would have occurred if the Acquisition had been consummated as of the
beginning of each period presented, nor is it necessarily indicative of the
future operating results or financial position of the combined companies
following the Acquisition. These financial statements should be read in
conjunction with the historical consolidated financial statements and related
notes thereto, included elsewhere in this Proxy Statement.
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<PAGE>
UNAUDITED PRO FORMA CONDENSED COMBINING BALANCE SHEET
DECEMBER 31, 1997
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
PLATINUM LBMS
HISTORICAL HISTORICAL PRO FORMA
DECEMBER 31, JANUARY 31, PRO FORMA DECEMBER 31,
1997 1998 ADJUSTMENTS 1997
------------ ----------- ----------- ------------
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.. $178,138 $10,321 $-- $188,459
Short-term investment secu-
rities.................... 57,597 -- -- 57,597
Trade accounts receivable,
net of allowances of
$2,183.................... 212,731 2,035 -- 214,766
Installment accounts re-
ceivable, net of allow-
ances of $878............. 30,043 -- -- 30,043
Other current assets....... 32,679 1,005 -- 33,684
-------- ------- ---- --------
Total current assets..... 511,188 13,361 -- 524,549
-------- ------- ---- --------
Non-current investment secu-
rities...................... 25,553 -- -- 25,553
Property and equipment, net.. 77,842 1,575 -- 79,417
Purchased and developed soft-
ware, net................... 116,717 -- -- 116,717
Excess of cost over net
assets acquired, net of
accumulated amortization of
$15,975..................... 52,759 -- -- 52,759
Non-current installment
receivables, net of
allowances of $1,616........ 21,912 -- -- 21,912
Other assets................. 28,206 -- -- 28,206
-------- ------- ---- --------
Total assets............. $834,177 $14,936 $-- $849,113
======== ======= ==== ========
LIABILITIES AND STOCKHOLDERS'
EQUITY
Current liabilities:
Acquisition-related
payables.................. $ 15,717 $ -- $-- $ 15,717
Accounts payable........... 16,091 664 -- 16,755
Accrued restructuring
costs..................... 6,308 836 -- 7,144
Other accrued liabilities.. 67,030 3,156 -- 70,186
Current maturities of long-
term obligations.......... 1,319 165 1,484
Deferred revenue........... 116,374 3,265 -- 119,639
-------- ------- ---- --------
Total current liabili-
ties.................... 222,839 8,086 -- 230,925
-------- ------- ---- --------
Acquisitions-related
payables.................... 18,320 -- -- 18,320
Deferred revenue............. 60,435 -- -- 60,435
Deferred rent................ 6,197 -- -- 6,197
Accrued restructuring costs.. 16,002 5,599 -- 21,601
Long-term obligations, net of
current maturities.......... 266,824 489 -- 267,313
-------- ------- ---- --------
Total liabilities........ 590,617 14,174 -- 604,791
-------- ------- ---- --------
Stockholders' equity......... 243,560 762 -- 244,322
-------- ------- ---- --------
Total liabilities and
stockholders' equity.... $834,177 $14,936 $-- $849,113
======== ======= ==== ========
</TABLE>
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<PAGE>
UNAUDITED PRO FORMA CONDENSED COMBINING STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1995
<TABLE>
<CAPTION>
PLATINUM LBMS
HISTORICAL HISTORICAL PRO FORMA
YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, APRIL 30, PRO FORMA DECEMBER 31,
1995 1996 ADJUSTMENTS 1995
------------ ---------- ----------- ------------
(AMOUNTS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
Revenues:
Software products.......... $ 158,597 $25,077 $ -- $ 183,674
Maintenance................ 76,498 8,272 -- 84,770
Professional services...... 91,316 7,809 -- 99,125
--------- ------- ----- ---------
Total revenues........... 326,411 41,158 -- 367,569
--------- ------- ----- ---------
Costs and expenses:
Professional services...... 92,374 6,975 -- 99,349
Product development and
support................... 94,027 8,059 -- 102,086
Sales and marketing........ 113,978 20,883 -- 134,861
General and
administrative............ 34,097 5,724 -- 39,821
Merger costs............... 30,819 468 -- 31,287
Acquired in-process
technology................ 88,493 -- -- 88,493
--------- ------- ----- ---------
Total costs and
expenses................ 453,788 42,109 -- 495,897
--------- ------- ----- ---------
Operating loss............... (127,377) (951) -- (128,328)
Other income, net............ 4,130 167 -- 4,297
--------- ------- ----- ---------
Loss before income taxes..... (123,247) (784) -- (124,031)
Income taxes................. (11,680) -- -- (11,680)
--------- ------- ----- ---------
Net loss..................... $(111,567) $ (784) $ -- (112,351)
========= ======= ===== =========
Net loss per share........... $ (2.50) $ (0.03) $ -- $ (2.38)
========= ======= ===== =========
Shares used in computing per
share amounts............... 44,671 23,639 -- 47,146
========= ======= ===== =========
</TABLE>
87
<PAGE>
UNAUDITED PRO FORMA CONDENSED COMBINING STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
PLATINUM LBMS
HISTORICAL HISTORICAL PRO FORMA
YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, APRIL 30, PRO FORMA DECEMBER 31,
1996 1997 ADJUSTMENTS 1996
------------ ---------- ----------- ------------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
Revenues:
Software products.......... $243,938 $ 12,170 $ -- $256,108
Maintenance................ 102,364 5,498 -- 107,862
Professional services...... 121,763 4,193 -- 125,956
-------- -------- ----- --------
Total revenues........... 468,065 21,861 -- 489,926
-------- -------- ----- --------
Costs and expenses:
Professional services...... 116,133 4,218 -- 120,351
Product development and
support................... 155,277 5,296 -- 160,573
Sales and marketing........ 182,597 11,899 -- 194,496
General and
administrative............ 39,224 3,108 -- 42,332
Restructuring charge....... -- 14,109 -- 14,109
Merger costs............... 5,782 -- -- 5,782
Acquired in-process
technology................ 48,456 -- -- 48,456
-------- -------- ----- --------
Total costs and
expenses................ 547,469 38,630 -- 586,099
-------- -------- ----- --------
Operating loss............... (79,404) (16,769) -- (96,173)
Other income, net............ 5,237 301 -- 5,538
-------- -------- ----- --------
Loss before income taxes..... (74,167) (16,468) -- (90,635)
Income taxes................. (9,245) (150) -- (9,395)
-------- -------- ----- --------
Net loss..................... $(64,922) $(16,318) $ -- $(81,240)
======== ======== ===== ========
Net loss per share........... $ (1.14) $ (0.64) $ -- $ (1.36)
======== ======== ===== ========
Shares used in computing per
share amounts............... 56,968 25,551 -- 59,643
======== ======== ===== ========
</TABLE>
88
<PAGE>
UNAUDITED PRO FORMA CONDENSED COMBINING STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
PLATINUM
HISTORICAL LBMS YEAR PRO FORMA
YEAR ENDED ENDED YEAR ENDED
DECEMBER 31, JANUARY 31, PRO FORMA DECEMBER 31,
1997 1998 ADJUSTMENTS 1997
------------ ------------ ----------- ------------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
Revenues:
Software products........ $ 357,223 $15,985 $ -- $ 373,208
Maintenance.............. 125,245 3,878 -- 129,123
Professional services.... 141,035 4,034 -- 145,069
--------- ------- ----- ---------
Total revenues......... 623,503 23,897 -- 647,400
--------- ------- ----- ---------
Costs and expenses:
Professional services.... 127,499 3,641 -- 131,140
Product development and
support................. 187,383 4,695 -- 192,078
Sales and marketing...... 228,387 10,418 -- 238,805
General and
administrative.......... 61,876 2,621 -- 64,497
Restructuring charges.... 57,319 (1,490) -- 55,829
Merger costs............. 8,927 -- -- 8,927
Acquired in-process
technology.............. 67,904 -- -- 67,904
--------- ------- ----- ---------
Total costs and
expenses.............. 739,295 19,885 -- 759,180
--------- ------- ----- ---------
Operating income (loss).... (115,792) 4,012 -- (111,780)
Other income, net.......... 16,729 357 -- 17,086
--------- ------- ----- ---------
Income (loss) before income
taxes..................... (99,063) 4,369 -- (94,694)
Income taxes............... 18,721 (100) -- 18,621
--------- ------- ----- ---------
Net income (loss).......... $(117,784) $ 4,469 $ -- $(113,315)
========= ======= ===== =========
Net income (loss) per
share..................... $ (1.90) $ 0.16 $ -- $ (1.75)
========= ======= ===== =========
Shares used in computing
per share amounts......... 62,042 27,597 -- 64,756
========= ======= ===== =========
</TABLE>
89
<PAGE>
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINING FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
NOTE A--DESCRIPTION OF ACQUISITION
On January 2, 1998, PLATINUM signed a definitive agreement to acquire all of
the outstanding capital stock of LBMS. PLATINUM will exchange .1047 shares of
PLATINUM Common Stock for each Ordinary Share of LBMS stock (0.2094 shares for
each ADR). LBMS will become a wholly-owned subsidiary of PLATINUM. The closing
of the definitive Acquisition Agreement is subject to approval by the
stockholders of LBMS and the sanction of the English Court as well as the
satisfaction of conditions customary in such agreements. It is expected that
the acquisition will qualify as a tax-free reorganization and be accounted for
as a pooling of interests.
The revenue and operating results of LBMS for the three months ended April
30, 1997 are included in the pro forma condensed combining statements of
operations for both the fiscal years ended December 31, 1996 and 1997. The
revenues and net income of LBMS reflected in both years are $6,188,000 and
$1,074,000, respectively.
The following table summarizes the assumed average shares outstanding used
in computing pro forma net loss per share, using the exchange ratio of .1047,
for the years ended December 31, 1995, 1996 and 1997 (in thousands):
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------
1995 1996 1997
-------- -------- --------
<S> <C> <C> <C>
PLATINUM average shares outstanding.................. 44,671 56,968 62,042
LBMS assumed average shares outstanding.............. 2,475 2,675 2,714
-------- -------- --------
Pro forma average shares outstanding................. 47,146 59,643 64,756
======== ======== ========
</TABLE>
NOTE B--RECLASSIFICATIONS
Certain historical amounts have been reclassified to conform to the pro
forma combined presentation.
NOTE C--SUBSEQUENT EVENTS
See PLATINUM's "Subsequent Events" footnote in the accompanying financial
statements, included elsewhere in this Proxy Statement, for unaudited pro
forma revenues and net income (loss) information of PLATINUM, LBMS, Mastering,
Inc. and Logic.
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<PAGE>
DESCRIPTION OF CAPITAL STOCK OF PLATINUM
The authorized capital stock of PLATINUM consists of 180,000,000 shares of
Common Stock, $.001 par value per share (the "PLATINUM Common Stock"), and
10,000,000 shares of Class II Preferred Stock, $0.01 par value per share (the
"Preferred Stock"), 1,000,000 shares of which (subject to adjustment upward or
downward by PLATINUM's Board of Directors) have been designated as Series A
Junior Participating Preferred Stock, and 1,775,000 of which (subject to
adjustment upward or downward in accordance with PLATINUM's Restated
Certificate of Incorporation, as amended (the "Certificate")) have been
designated as Series B Preferred Stock. As of January 2, 1998, 63,753,657
shares of PLATINUM Common Stock were issued and outstanding; 1,768,421 shares
of Series B Preferred Stock were subscribed; and no shares of the Series A
Junior Participating Preferred Stock were issued or outstanding. The following
description is a summary and is qualified in its entirety by reference to the
provisions of PLATINUM's Restated Certificate of Incorporation, as amended,
and its Bylaws, copies of which have been filed with and are available from
the Commission and PLATINUM upon request.
COMMON STOCK
Holders of PLATINUM Common Stock are entitled to one vote for each share
held of record on all matters submitted to a vote of the stockholders. Holders
of a majority of the shares of PLATINUM Common Stock represented at a meeting
can elect all of the directors to be elected at that meeting. Holders of
PLATINUM Common Stock are not permitted to act by written consent. Subject to
preferences that may be applicable to any then outstanding Preferred Stock,
holders of PLATINUM Common Stock are entitled to receive ratably such
dividends as may be declared by the PLATINUM Board of Directors out of funds
legally available therefor. See "Comparative Per Share Market Price Data--
PLATINUM." In the event of a liquidation, dissolution, or winding up of
PLATINUM, holders of the PLATINUM Common Stock are entitled to share ratably
in all assets remaining after payment of liabilities and the liquidation
preference of any then outstanding Preferred Stock. Holders of PLATINUM Common
Stock have no preemptive rights and have no right to convert their PLATINUM
Common Stock into any other securities. There are no redemption or sinking
fund provisions applicable to the PLATINUM Common Stock. All outstanding
shares of PLATINUM Common Stock are, and any shares of PLATINUM Common Stock
which are issued in connection with the Acquisition, when so issued, will be,
fully paid and nonassessable.
PREFERRED STOCK
The PLATINUM Board of Directors has the authority, without further action by
the stockholders, to issue up to 8,231,579 shares of Preferred Stock in one or
more series and to fix the voting powers, designations, preferences, and
relative, participating, optional, or other special rights, and
qualifications, limitations, and restrictions thereof, including dividend
rights, conversion rights, voting rights, terms of redemption, liquidation
preferences, and the number of shares constituting any series. Because the
PLATINUM Board of Directors has the power to establish the preferences and
rights of the shares of any such series of Preferred Stock, it may afford
holders of any Preferred Stock preferences, powers, and rights (including
voting rights), senior to the rights of holders of PLATINUM Common Stock,
which could adversely affect the rights of holders of PLATINUM Common Stock
and could have the effect of delaying, deferring, or preventing a change in
control of PLATINUM.
SERIES B PREFERRED STOCK
Holders of shares of Series B Preferred Stock have voting rights only with
respect to actions by PLATINUM which will materially and adversely change any
of the rights, privileges and preferences of the Series B Preferred Stock.
Shares of Series B Preferred Stock may only be transferred to PLATINUM, or any
person or entity that, directly or indirectly, controls, is controlled by, or
is under common control with the holder of such shares. Shares of Series B
Preferred Stock are convertible, at any time, into shares of PLATINUM Common
Stock at the rate of one-for-one (subject to certain adjustments).
Furthermore, each share of Series B Preferred Stock shall
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<PAGE>
automatically be converted into shares of PLATINUM Common Stock at the rate of
one-for-one (subject to certain adjustments) upon the improper transfer of any
shares of Series B Preferred Stock by any holder thereof. In the event of any
liquidation, dissolution, or winding up of PLATINUM, holders of Series B
Preferred Stock are entitled to receive up to an amount equal to (i) $23.75
per share for each share of Series B Preferred Stock then held by them, plus
(ii) the amount of declared but unpaid dividends thereon.
PREFERRED STOCK PURCHASE RIGHTS
The registered holders of PLATINUM Common Stock have the right (a "Right")
to purchase from PLATINUM, for each share of PLATINUM Common Stock owned, one
one-hundredth of a share of Class II Series A Junior Participating Preferred
Stock, par value $.01 per share (the "Preferred Rights Shares"), of PLATINUM
at a price of $125.00 per one one-hundredth of a Preferred Rights Share (the
"Rights Purchase Price"), subject to adjustment. Each one-one hundredth of a
Preferred Rights Share is entitled to one vote, a dividend equal to the
dividend per share paid on the PLATINUM Common Stock, and a liquidation
payment equal to the liquidation payment per share paid on the PLATINUM Common
Stock. The description and terms of the Rights are set forth in a Rights
Agreement (the "Rights Agreement") between PLATINUM and Harris Trust and
Savings Bank, as Rights Agent (the "Rights Agent").
The Rights are not exercisable until the earlier of (i) the close of
business on the tenth business day after the first public announcement that a
person or group of affiliated or associated persons have acquired beneficial
ownership of 15% or more of the outstanding shares of PLATINUM Common Stock
(an "Acquired Person"), or (ii) the close of business on the tenth business
day (or such later date as may be determined by action of the PLATINUM Board
of Directors prior to such time as any Person becomes an Acquiring Person)
following the commencement of, or announcement of an intention to make, a
tender offer or exchange offer, the consummation of which would result in the
beneficial ownership by such person or group of 15% or more of the outstanding
shares of PLATINUM Common Stock (the earlier of such dates being called the
"Distribution Date"). Until the Distribution Date, the Rights will be
evidenced by the certificates for the PLATINUM Common Stock, will be
transferable only by the transfer of the shares of PLATINUM Common Stock
(including a transfer to PLATINUM) will constitute a transfer of the Rights.
As described below, after a person or group becomes an Acquiring Person, the
Rights may not be redeemed or amended. The Rights will expire on January 5,
2006 (the "Final Expiration Date"), unless the Final Expiration Date is
extended or unless the Rights are redeemed earlier by PLATINUM, in each case,
as described below. Until a Right is exercised, the holder thereof, as such,
will have no rights as a stockholder of PLATINUM as a result of the ownership
of the Right, including, without limitation, the right to vote or to receive
dividends.
Until the Distribution Date (or earlier redemption or expiration of the
Rights), certificates for the PLATINUM Common Stock issued upon the transfer
or new issuance of shares of PLATINUM Common Stock will contain a legend
incorporating the Rights Agreement by reference. Until the Distribution Date
(or earlier redemption or expiration of the Rights), the surrender for
transfer of any certificates for shares of PLATINUM Common Stock will also
constitute the transfer of Rights associated with the shares of PLATINUM
Common Stock represented by such certificate. As soon as practicable following
the Distribution Date, separate certificates evidencing the Rights ("Rights
Certificates") will be mailed to the holders of record of shares of PLATINUM
Common Stock as of the close of business on the Distribution Date and such
separate Rights Certificates alone will evidence the Rights.
At any time after the Distribution Date, each holder of a Right (other than
those described in the next sentence) will thereafter have the right to
receive, upon exercise and in lieu of Preferred Rights Shares, shares of
PLATINUM Common Stock (or, in certain circumstances, cash, property or other
securities of PLATINUM) having a value equal to two times the Rights Purchase
Price. All Rights that are, or (under certain circumstances specified in the
Rights Agreement) were, beneficially owned by any Acquiring Person will be
void.
At any time after the first date of public announcement by PLATINUM or an
Acquiring Person that an Acquiring Person has become such (a "Shares
Acquisition Date"), if (i) PLATINUM is the surviving
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<PAGE>
corporation in a merger with any other company or entity, (ii) PLATINUM is
acquired in a merger or other business combination transaction, or (iii) 50%
or more of PLATINUM's consolidated assets or earning power are sold, each
holder of a Right (other than those whose rights have become void) will
thereafter have the right to receive, upon the exercise thereof at the then
current Rights Purchase Price and in lieu of Preferred Rights Shares, that
number of shares of common stock of the surviving or acquiring company which
at the time of such transaction will have a market value of two times the
exercise price of such Right.
At any time after a person or group becomes an Acquiring Person and prior to
the acquisition by such person or group of 50% or more of the outstanding
shares of PLATINUM Common Stock, the Board of Directors of PLATINUM may
exchange the Rights (other than Rights owned by such person or group which
have become void), in whole or in part, without any additional payment, for
shares of PLATINUM Common Stock at an exchange ratio equal to one share of
PLATINUM Common Stock (or a share of a class or series of PLATINUM's preferred
shares having equivalent rights, preferences and privileges) per Right,
subject to adjustment.
With certain exceptions, no adjustment in the Rights Purchase Price will be
required until cumulative adjustments require an adjustment of at least 1% in
such Rights Purchase Price. No fractional Rights Preferred Shares will be
issued (other than fractions which are integral multiples of one one-hundredth
of a Rights Preferred Share, which may, at the election of PLATINUM, be
evidenced by depositary receipts) and in lieu thereof, an adjustment in cash
will be made based on the market price of the Rights Preferred Shares on the
last trading day prior to the date of exercise.
At any time prior to the Shares Acquisition Date, the Board of Directors of
PLATINUM may redeem all, but not less than all, of the Rights at a price of
$.01 per Right (the "Redemption Price"). The redemption of the Rights may be
made effective at such time, on such basis and with such conditions as the
PLATINUM Board of Directors in its sole discretion may establish. Immediately
upon any redemption of the Rights, the right to exercise the Rights will
terminate and the only right of the holders of Rights will be to receive the
Redemption Price.
Any provisions of the Rights may be amended by the Board of Directors of
PLATINUM prior to the Shares Acquisition Date. After the Shares Acquisition
Date, the provisions of the Rights Agreement may be amended by the Board of
Directors of PLATINUM in order to cure any ambiguity or to make changes which
do not adversely affect the interests of holders of Rights (excluding the
interests of any Acquiring Person).
A copy of the Rights Agreement is available free of charge from PLATINUM.
This summary description of the Rights does not purport to be complete and is
qualified in its entirety by reference to the Rights Agreement.
The Rights have certain anti-takeover effects. The Rights should not
interfere with any merger or business combination approved by the Board of
Directors of PLATINUM because the Rights may be redeemed by PLATINUM at the
Redemption Price prior to the time that a person or group has acquired
beneficial ownership of 15% or more of the outstanding shares of PLATINUM
Common Stock. However, by causing substantial dilution to a person or group
that attempts to acquire PLATINUM on terms not approved by PLATINUM's Board of
Directors, the Rights may interfere with certain acquisitions, including
acquisitions that may offer a premium over market price to some or all of
PLATINUM's stockholders. The PLATINUM Board of Directors has stated that the
Rights are not intended to prevent an acquisition of PLATINUM on terms that
are favorable and fair to all stockholders.
CERTAIN CERTIFICATE AND BYLAWS PROVISIONS
The Certificate and the Bylaws contain a number of provisions relating to
corporate governance and to the rights of PLATINUM stockholders. Certain of
these provisions may be deemed to have a potential "anti-takeover" effect in
that such provisions may delay, defer or prevent a change of control of
PLATINUM. These provisions include (i) the classification of PLATINUM's Board
of Directors into three classes, each class serving
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<PAGE>
for staggered three year terms; (ii) restrictions on the removal of directors;
(iii) a requirement that special meetings of PLATINUM stockholders may be
called only by the Board of Directors of PLATINUM and that PLATINUM
stockholder action may be taken only at PLATINUM stockholder meetings and not
by written consent; (iv) the authority of the Board of Directors of PLATINUM
to issue series of Preferred Stock with such voting rights and other powers as
it may determine; (v) a requirement that the affirmative vote of greater than
80% of the voting power of shares entitled to vote generally for the election
of directors is required to amend provisions of the Certificate relating to
(a) the classification of PLATINUM's Board of Directors, (b) removal of
directors, and (c) the inability of PLATINUM stockholders to call special
meetings and to take action by written consent; (vi) a requirement that the
Bylaws may only be amended (other than by PLATINUM's Board of Directors) by
the vote of the holders of 66% of the shares entitled to vote generally for
the election of directors; and (vii) notice requirements in the Bylaws
relating to nominations to the Board of Directors of PLATINUM and to the
raising of business matters at PLATINUM stockholder meetings.
DELAWARE GENERAL CORPORATION LAW
PLATINUM is subject to the provisions of Section 203 of the DGCL ("Section
203"). Pursuant to Section 203, with certain exceptions, a Delaware
corporation may not engage in any of a broad range of business combinations,
such as mergers, consolidations and sales of assets with an "interested
stockholder" for a period of three years from the date that such person became
an interested stockholder, unless (i) the transaction that results in the
person becoming an interested stockholder, or the business combination, is
approved by the board of directors of the corporation before the person
becomes an interested stockholder, (ii) upon consummation of the transaction
which results in the stockholder becoming an interested stockholder, the
interested stockholder owns 85% or more of the voting stock of the corporation
outstanding at the time the transaction commenced (other than certain excluded
shares), or (iii) on or after the date the person becomes an interested
stockholder, the business combination is approved by the corporation's board
of directors and by holders of at least two-thirds of the corporation's
outstanding voting stock, excluding shares owned by the interested
stockholder, at a meeting of stockholders. Under Section 203, an "interested
stockholder" is defined as any person, other than the corporation and any
direct or indirect majority-owned subsidiaries of the corporation, that is (i)
the owner of 15% or more of the outstanding voting stock of the corporation or
(ii) an affiliate or associate of the corporation and the owner of 15% or more
of the outstanding voting stock of the corporation at any time within the
three-year period immediately prior to the date on which it is sought to be
determined whether such person is an interested stockholder.
Under certain circumstances, Section 203 makes it more difficult for a
person who would be an "interested stockholder" to effect various business
combinations with a corporation for a three-year period. The provisions of
Section 203 may encourage persons interested in acquiring PLATINUM to
negotiate in advance with PLATINUM's Board of Directors because the
stockholder approval requirement would be avoided if a majority of the
PLATINUM's directors then in office approve either the business combination or
the transaction which results in the person becoming an interested
stockholder. Such provisions also may have the effect of preventing changes in
management of PLATINUM. It is possible that such provisions could make it more
difficult to accomplish transactions that stockholders may otherwise deem to
be in their best interests.
TRANSFER AGENT
The transfer agent and registrar for the PLATINUM Common Stock is Harris
Trust and Savings Bank, Chicago, Illinois.
DESCRIPTION OF AMERICAN DEPOSITARY RECEIPTS
The following is a summary of certain provisions of the Deposit Agreement
(including all exhibits thereto, the "Deposit Agreement") dated as of November
15, 1995 among LBMS, Morgan Guaranty Trust Company of New York, as depositary
(the "Depositary"), and the registered holders ("Holders") from time to time
of the
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ADRs issued thereunder. This summary does not purport to be complete and is
qualified in its entirety by reference to the Deposit Agreement. Copies of the
Deposit Agreement are available for inspection at the principal office of the
Depositary in New York (the "Principal New York Office"), which is presently
located at 60 Wall Street, New York, New York 10260. Terms used herein and not
otherwise defined shall have the respective meanings set forth in the Deposit
Agreement.
ADRs evidencing ADSs are issuable by the Depositary pursuant to the terms of
the Deposit Agreement. Each ADS represents, as of the date hereof, the right
to receive two Ordinary Shares deposited under the Deposit Agreement (together
with any additional Ordinary Shares deposited thereunder and all other
securities, property and cash received and held thereunder at any time in
respect of or in lieu of such deposited Ordinary Shares, the "Deposited
Securities") with the Custodian, currently the London office of Morgan
Guaranty Trust Company of New York (together with any successor or successors
thereto, the "Custodian"). An ADR may evidence any number of ADSs. Only
persons in whose names ADRs are registered on the books of the Depositary will
be treated by the Depositary and LBMS as Holders.
DEPOSIT, TRANSFER AND WITHDRAWAL
In connection with the deposit of Ordinary Shares under the Deposit
Agreement, the Depositary or the Custodian may require the following in form
satisfactory to it: (a) a written order directing the Depositary to execute
and deliver to, or upon the written order of, the person or persons designated
in such order an ADR or ADRs evidencing the number of ADSs representing such
deposited Ordinary Shares (a "Delivery Order"); (b) proper endorsement or duly
executed instruments of transfer in respect of such deposited Ordinary Shares;
(c) instruments assigning to the Custodian or its nominee any distribution on
or in respect of such deposited Ordinary Shares or indemnity therefor; and,
(d) proxies entitling the Custodian to vote such deposited Ordinary Shares
until the Ordinary Shares are registered in the name of the Custodian or its
nominee. As soon as practicable after the Custodian receives Deposited
Securities pursuant to any such deposit or pursuant to the form of ADR, the
Custodian shall present such Deposited Securities for registration of transfer
into the name of the Depositary or its nominee or the Custodian or its
nominee, to the extent such registration is practicable, at the cost and
expense of the person making such deposit (or for whose benefit such deposit
is made) and shall obtain evidence satisfactory to it of such registration.
Deposited Securities shall be held by the Custodian for the account and to the
order of the Depositary at such place or places and in such manner as the
Depositary shall determine. Deposited Securities may be delivered by the
Custodian to any person only under the circumstances expressly contemplated in
the Deposit Agreement.
After any such deposit of Ordinary Shares, the Custodian shall notify the
Depositary of such deposit and of the information contained in any related
Delivery Order by letter, first class airmail postage prepaid, or, at the
request, risk and expense of the person making the deposit, by cable, telex or
facsimile transmission. After receiving such notice from the Custodian, the
Depositary, subject to the terms and conditions of the Deposit Agreement,
shall execute and deliver at the Transfer Office which is presently located at
the Principal New York Office, to or upon the order of any person named in
such notice, an ADR or ADRs registered as requested and evidencing the
aggregate ADSs to which such person is entitled.
Subject to the terms and conditions of the Deposit Agreement, the Depositary
may so issue ADRs for delivery at the Transfer Office only against deposit
with the Custodian of: (a) Ordinary Shares in form satisfactory to the
Custodian; (b) rights to receive Ordinary Shares from LBMS or any registrar,
transfer agent, clearing agent or other entity recording Share ownership or
transactions; or, (c) other rights to receive Ordinary Shares (until such
Ordinary Shares are actually deposited pursuant to (a) or (b) above, "Pre-
released ADRs") only if (i) Pre-released ADRs are fully collateralized (marked
to market daily) with cash or U.S. government securities held by the
Depositary for the benefit of Holders (but such collateral shall not
constitute "Deposited Securities"), (ii) each recipient of Pre-released ADRs
agrees in writing with the Depositary that such recipient (a) owns such
Ordinary Shares, (b) assigns all beneficial right, title and interest therein
to the Depositary, (c) holds such Ordinary Shares for the account of the
Depositary and (d) will deliver such Ordinary Shares to the
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Custodian as soon as practicable and promptly upon demand therefor and (iii)
all Pre-released ADRs evidence not more than 20% of all ADSs (excluding those
evidenced by Pre-released ADRs), except to the extent that the Depositary (in
its sole discretion) determines that unusual market conditions require the
issuance of Pre-released ADRs in addition to 20% of all such ADSs. The
Depositary may retain for its own account any earnings on collateral for Pre-
released ADRs and its charges for issuance thereof. At the request, risk and
expense of the person depositing Ordinary Shares, the Depositary may accept
deposits together with other specified instruments for forwarding to the
Custodian and may deliver ADRs at a place other than its office. Every person
depositing Ordinary Shares under the Deposit Agreement represents and warrants
that such Ordinary Shares are validly issued and outstanding, fully paid,
nonassessable and free of pre-emptive rights, that the person making such
deposit is duly authorized so to do and that such Ordinary Shares are not
"restricted securities" as such term is defined in Rule 144 under the
Securities Act of 1933. Such representations and warranties shall survive the
deposit of Ordinary Shares and issuance of ADRs.
Subject to the terms and conditions of the Deposit Agreement, upon surrender
of an ADR in form satisfactory to the Depositary at the Transfer office, the
Holder thereof is entitled to delivery at the Custodian's office of the
Deposited Securities at the time represented by the ADSs evidenced by such
ADR. At the request, risk and expense of the Holder thereof, the Depositary
may deliver such Deposited Securities at such other place as may have been
requested by the Holder. Notwithstanding any other provision of the Deposit
Agreement or the ADR, the withdrawal of Deposited Securities may be restricted
only for the reasons set forth in General Instruction I.A.(1) of Form F-6
under the Securities Act of 1933.
DISTRIBUTIONS ON DEPOSITED SECURITIES
Subject to the terms and conditions of the Deposit Agreement, to the extent
practicable, the Depositary will distribute by mail to each Holder entitled
thereto on the record date set by the Depositary therefor at such Holder's
address shown on the ADR Register, in proportion to the number of Deposited
Securities (on which the following distributions on Deposited Securities are
received by the Custodian) represented by ADSs evidenced by such Holder's
ADRs: (a) Cash. Any U.S. dollars available to the Depositary resulting from a
cash dividend or other cash distribution or the net proceeds of sales of any
other distribution or portion thereof authorized in the Deposit Agreement
("Cash"), on an averaged or other practicable basis, subject to appropriate
adjustments for (i) taxes withheld, (ii) such distribution being impermissible
or impracticable with respect to certain Holders, and (iii) deduction of the
Depositary's expenses in (1) converting any foreign currency to U.S. dollars
by sale or in such other manner as the Depositary may determine to the extent
that it determines that such conversion may be made on a reasonable basis, (2)
transferring foreign currency or U.S. dollars to the U.S. by such means as the
Depositary may determine to the extent that it determines that such transfer
may be made on a reasonable basis, (3) obtaining any approval or license of
any governmental authority required for-such conversion or transfer, which is
obtainable at a reasonable cost and within a reasonable time and (4) making
any sale by public or private means in any commercially reasonable manner. If
the Depositary determines that in its judgment any foreign currency received
by it cannot be converted on a reasonable basis and transferred to the U.S.,
the Depositary may distribute the foreign currency received by it or, at its
discretion, hold such foreign currency, uninvested and without liability for
interest thereon, for the respective accounts of the Holders entitled to
receive the same. (b) Ordinary Shares. (i) Additional ADRs evidencing whole
ADSs representing any Ordinary Shares available to the Depositary resulting
from a dividend or free distribution on Deposited Securities consisting of
Ordinary Shares (a "Share Distribution") and (ii) U.S. dollars available to it
resulting from the net proceeds of sales of Ordinary Shares received in a
Share Distribution, which Ordinary Shares would give rise to fractional ADSs
if additional ADRs were issued therefor, as in the case of Cash. (c) Rights.
(i) warrants or other instruments in the discretion of the Depositary
representing rights to acquire additional ADRs in respect of any rights to
subscribe for additional Ordinary Shares or rights of any nature available to
the Depositary as a result of a distribution on Deposited Securities
("Rights"), to the extent that LBMS timely furnishes to the Depositary
evidence satisfactory to the Depositary that the Depositary may lawfully
distribute same (LBMS has no obligation to so furnish such evidence), or (ii)
to the extent LBMS does not so furnish such evidence and sales of Rights are
practicable, any U.S. dollars available to the Depositary from the net
proceeds of sales of Rights as in the case
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of Cash, or (iii) to the extent LBMS does not so furnish such evidence and
such sales cannot practicably be accomplished by reason of the
nontransferability of the Rights, limited markets therefor, their short
duration or otherwise, nothing (and any Rights may lapse). (d) Other
Distributions. (i) Securities or property available to the Depositary
resulting from any distribution on Deposited Securities other than Cash, Share
Distributions and Rights ("Other Distributions"), by any means that the
Depositary may deem equitable and practicable, or (ii) to the extent the
Depositary deems distribution of such securities or property not to be
equitable and practicable, any U.S. dollars available to the Depositary from
the net proceeds of sales of Other Distributions as in the case of Cash. Such
U.S. dollars available will be distributed by checks drawn on a bank in the
U.S. for whole dollars and cents (any fractional cents being withheld without
liability for interest and added to future Cash distributions).
To the extent that the Depositary determines in its discretion that any
distribution is not practicable with respect to any Holder, the Depositary may
make such distribution as it so determines is practicable, including the
distribution of foreign currency, securities or property (or appropriate
documents evidencing the right to receive foreign currency, securities or
property) or the retention thereof as Deposited Securities with respect to
such Holder's ADRs (without liability for interest thereon or the investment
thereof).
There can be no assurance that the Depositary will be able to effect any
currency conversion or to sell or otherwise dispose of any distributed or
offered property, subscription or other rights, Ordinary Shares or other
securities in a timely manner or at a specified rate or price, as the case may
be.
DISCLOSURE OF INTERESTS
To the extent that the provisions of or governing any Deposited Securities
may require disclosure of or impose limits on beneficial or other ownership of
Deposited Securities, other Ordinary Shares and other securities and may
provide for blocking transfer, voting or other rights to enforce such
disclosure or limits, Holders and all persons holding ADRs agree to comply
with all such disclosure requirements and ownership limitations and to
cooperate with the Depositary in the Depositary's compliance with any LBMS
instructions in respect thereof, and the Depositary will use reasonable
efforts to comply with such LBMS instructions.
Notwithstanding any other provision of the Deposit Agreement or the ADRs,
each Holder agrees to provide such information as LBMS may request in a
disclosure notice (a "Disclosure Notice") given pursuant to the Companies Act
or the Articles. Each Holder acknowledges that it understands that failure to
comply with a Disclosure Notice may result in the imposition of sanctions
against the holder of the Ordinary Shares in respect of which the non-
complying person is or was, or appears to be or has been, interested as
provided in the Companies Act and the Articles of Association which currently
include, the withdrawal of the voting rights of such Ordinary Shares and the
imposition of restrictions on the rights to receive dividends on and to
transfer such Ordinary Shares. In addition, each Holder agrees to comply with
the provisions of the Companies Act with regard to the notification to LBMS of
interests in Ordinary Shares, which currently provide, inter alia, that any
Holder who is or becomes directly or indirectly interested (within the meaning
of the Companies Act) in 3% or more of the outstanding Ordinary Shares, or is
aware that another person for whom it holds such ADRs is so interested, must
within two business days after becoming so interested or so aware (and
thereafter in certain circumstances upon any change to the particulars
previously notified) notify LBMS as required by the Companies Act.
RECORD DATES
The Depositary may, after consultation with LBMS if practicable, fix a
record date (which shall be as near as practicable to any corresponding record
date set by LBMS) for the determination of the Holders who shall be entitled
to receive any distribution on or in respect of Deposited Securities, to give
instructions for the exercise of any voting rights, to receive any notice or
to act in respect of other matters and only such Holders shall be so entitled.
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VOTING OF DEPOSITED SECURITIES
As soon as practicable after receipt from LBMS of notice of any meeting or
solicitation of consents or proxies of holders of Ordinary Shares or other
Deposited Securities, the Depositary shall mail to Holders a notice stating
(a) such information as is contained in such notice and any solicitation
materials, (b) that each Holder on the record date set by the Depositary
therefor will be entitled to instruct the Depositary as to the exercise of the
voting rights, if any, pertaining to the Deposited Securities represented by
the ADSs evidenced by such Holder's ADRs and (c) the manner in which such
instructions may be given, including instructions to give a discretionary
proxy to a person designated by LBMS. Upon receipt of instructions of a Holder
on such record date in the manner and on or before the date established by
Depositary for such purpose, the Depositary shall endeavor insofar as
practicable and permitted under provisions of or governing Deposited
Securities to vote or cause to be voted the Deposited Securities represented
by the ADSs evidenced by such Holder's ADRs in accordance with such
instructions. The Depositary will not itself exercise any voting discretion in
respect of any Deposited Securities.
INSPECTION OF TRANSFER BOOKS
The Deposit Agreement provides that the Depositary will keep books at its
Transfer Office for the registration, registration of transfer, combination
and split-up of ADRs, which at all reasonable times will be open for
inspection by the Holders and LBMS for the purpose of communicating with
Holders in the interest of the business of the Company or a matter related to
the Deposit Agreement.
REPORTS AND OTHER COMMUNICATIONS
The Depositary shall make available for inspection by Holders at the
Transfer Office any reports and communications received from LBMS which are
both (a) received by the Depositary as the holder of the Deposited Securities
and (b) made generally available to the holders of such Deposited Securities
by LBMS. The Depositary shall also send to the Holders copies of such reports
when furnished by LBMS. Any such reports and communications furnished to the
Depositary by LBMS shall be furnished in English.
On or before the first date on which LBMS gives notice, by publication or
otherwise, of any meeting of holders of Ordinary Shares or other Deposited
Securities, or of any adjourned meeting of such holders, or the taking of any
action by such holders other than at a meeting, LBMS shall transmit to the
Depositary and the Custodian a copy of the notice thereof (in English) in the
form given or to be given to holders of Ordinary Shares or other Deposited
Securities. The Depositary will, at LBMS' expense, arrange for the prompt
mailing of copies thereof to all Holders. In connection with any registration
statement under the Securities Act of 1933 relating to the ADRs or with any
undertaking contained therein, LBMS and the Depositary shall each furnish to
the other and to the U.S. Securities and Exchange Commission or any successor
governmental agency such information as shall be required to make such filing
or comply with such undertakings. LBMS has delivered to the Depositary, the
Custodian and an Transfer Office, a copy of all provisions of or governing the
Ordinary Shares and any other Deposited Securities issued by LBMS or any
affiliate of LBMS and, promptly upon any change thereto LBMS shall deliver to
the Depositary, the Custodian and any Transfer Office, a copy of such
provision as so changed. The Depositary and its agents may rely upon LBMS'
delivery thereof for all purpose of the Deposit Agreement.
CHANGES AFFECTING DEPOSITED SECURITIES
Subject to the terms and conditions of the Deposit Agreement, the Depositary
may, in its discretion, amend the form of ADR or distribute additional or
amended ADRs (with or without calling the ADRs for exchange) or cash,
securities or property on the record date set by the Depositary therefor to
reflect any change in par value, split-up, consolidation, cancellation or
other reclassification of Deposited Securities, any Share Distribution or
Other Distribution not distributed to Holders or any cash, securities or
property available to the Depositary in respect of Deposited Securities from
(and the Depositary is hereby authorized to surrender any Deposited Securities
to any person and to sell by public or private sale any property received in
connection with) any
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recapitalization, reorganization, merger, consolidation, liquidation,
receivership, bankruptcy or sale of all or substantially all the assets of
LBMS, and to the extent the Depositary does not so amend the ADR or make a
distribution to Holders to reflect any of the foregoing, or the net proceeds
thereof, whatever cash, securities or property results from any of the
foregoing shall constitute Deposited Securities and each ADS shall
automatically represent its pro rata interest in the Deposited Securities as
then constituted.
AMENDMENT AND TERMINATION OF DEPOSIT AGREEMENT
The ADRs and the Deposit Agreement may be amended by LBMS and the
Depositary, provided that any amendment that imposes or increases any fees or
charges (other than stock transfer or other taxes and other governmental
charges, transfer or registration fees, cable, telex or facsimile transmission
costs, delivery costs or other such expenses), or that shall otherwise
prejudice any substantial existing right of Holders, shall become effective 30
days after notice of such amendment shall have been given to the Holders.
Every Holder of an ADR at the time any amendment to the Deposit Agreement so
becomes effective shall be deemed, by continuing to hold such ADR, to consent
and agree to such amendment and to be bound by the Deposit Agreement as
amended thereby. In no event shall any amendment impair the right of the
Holder of any ADR to surrender such ADR and receive the Deposited Securities
represented thereby, except in order to comply with mandatory provisions of
applicable law.
The Depositary may, and shall at the written direction of LBMS, terminate
the Deposit Agreement and the ADRs by mailing notice of such termination to
the Holders at least 30 days prior to the date fixed in such notice for such
termination. After the date so fixed for termination, the Depositary and its
agents will perform no further acts under the Deposit Agreement and the ADRs,
except to advise Holders of such termination, receive and hold (or sell)
distributions on Deposited Securities and deliver Deposited Securities being
withdrawn. As soon as practicable after the expiration of six months from the
date so fixed for termination, the Depositary shall sell the Deposited
Securities and shall thereafter (as long as it may lawfully do so) hold in a
segregated account the net proceeds of such sales, together with any other
cash then held by it under the Deposit Agreement, without liability for
interest, in trust for the pro rata benefit of the Holders not theretofore
surrendered. After making such sale, the Depositary shall be discharged from
all obligations in respect of the Deposit Agreement and the ADRs, except to
account for such net proceeds and other cash. After the date so fixed for
termination, LBMS shall be discharged from all obligations under the Deposit
Agreement except for its obligations to the Depositary and its agents.
CHARGES OF DEPOSITARY
The Depositary may charge each person to whom ADRs are issued against
deposits of Ordinary Shares including deposits in respect of Share
Distributions, Rights and Other Distributions and each person surrendering
ADRs for withdrawal of Deposited Securities, U.S. $5.00 for each 100 ADSs (or
portion thereof) evidenced by the ADRs delivered or surrendered. LBMS will pay
all other charges and expenses of the Depositary and any agent of the
Depositary (except the Custodian) pursuant to agreements from time to time
between LBMS and the Depositary, except (i) stock transfer or other taxes and
other governmental charges (which are payable by Holders or persons depositing
Ordinary Shares), (ii) cable, telex and facsimile transmission and delivery
charges incurred at the request of persons depositing, or Holders delivering
Ordinary Shares, ADRs or Deposited Securities (which are payable by such
persons or Holders), (iii) transfer or registration fees for the registration
of transfer of Deposited Securities on any applicable register in connection
with the deposit or withdrawal of Deposited Securities (which are payable by
persons depositing Ordinary Shares or Holders withdrawing Deposited
Securities; there are no such fees in respect of the Ordinary Shares as of the
date of the Deposit Agreement) and (iv) expenses of the Depositary in
connection with the conversion of foreign currency into U.S. dollars (which
are paid out of such foreign currency).
LIABILITY OF HOLDERS FOR TAXES
If any tax or other governmental charge shall become payable by or on behalf
of the Custodian or the Depositary with respect to the ADRs, any Deposited
Securities represented by the ADSs evidenced thereby or
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any distribution thereon, such tax or other governmental charge shall be paid
by the Holder thereof to the Depositary. The Depositary may refuse to effect
any registration, registration of transfer, split-up or combination thereof
or, subject to the terms and conditions of the Deposit Agreement, any
withdrawal of such Deposited Securities until such payment is made. The
Depositary may also deduct from any distributions on or in respect of
Deposited Securities, or may sell by public or private sale for the account of
the Holder thereof any part or all of such Deposited Securities (after
attempting by reasonable means to notify the Holder thereof prior to such
sale), and may apply such deduction or the proceeds of any such sale in
payment of such tax or other governmental charge, the Holder thereof remaining
liable for any deficiency, and shall reduce the number of ADSs evidenced
hereby to reflect any such sales of Deposited Securities. In connection with
any distribution to Holders, LBMS will remit to the appropriate governmental
authority or agency all amounts (if any) required to be withheld and owing to
such authority or agency by LBMS; and the Depositary and the Custodian will
remit to the appropriate governmental authority or agency all amounts (if any)
required to be withheld and owing to such authority or agency by the
Depositary or the Custodian. If the Depositary determines that any
distribution in property other than cash (including Ordinary Shares or rights)
on Deposited Securities is subject to any tax that the Depositary or the
Custodian is obligated to withhold, the Depositary may dispose of all or a
portion of such property in such amounts and in such manner as the Depositary
deems necessary and practicable to pay such taxes, by public or private sale,
and the Depositary shall distribute the net proceeds of any such sale or the
balance of any such property after deduction of such taxes to the Holders
entitled thereto.
GENERAL LIMITATIONS
The Depositary, LBMS, their agents and each of them shall: (a) incur no
liability (i) if any present or future law, regulation of any country or of
any governmental or regulatory authority or stock exchange, the provisions of
or governing any Deposited Security, act of God, war or other circumstance
beyond its control shall prevent, delay or subject to any civil or criminal
penalty any act which the Deposit Agreement or the ADRs provides shall be done
or performed by it, or (ii) by reason of any exercise or failure to exercise
any discretion given it in the Deposit Agreement or the ADRs; (b) assume no
liability except to perform its obligations to the extent they are
specifically set forth in the ADRs and the Deposit Agreement without gross
negligence or bad faith; (c) be under no obligation to appear in, prosecute or
defend any action, suit or other proceeding in respect of any Deposited
Securities or the ADRs; or (d) not be liable for any action or inaction by it
in reliance upon the advice of or information from legal counsel, accountants,
any person presenting Ordinary Shares for deposit, any Holder, or any other
person believed by it to be competent to give such advice or information. The
Depositary, its agents and LBMS may rely and shall be protected in acting upon
any written notice, request, direction or other document believed by them to
be genuine and to have been signed or presented by the proper party or
parties. The Depositary and its agents will not be responsible for any failure
to carry out any instructions to vote any of the Deposited Securities, for the
manner in which any such vote is cast or for the effect of any such vote. The
Depositary and its agents may own and deal in a class of securities of LBMS
and its affiliates and in ADRs. LBMS has agreed to indemnify the Depositary
and its agents under certain circumstances and the Depositary has agreed to
indemnify LBMS against losses incurred by LBMS to the extent such losses are
due to the negligence or bad faith of the Depositary.
Prior to the issue, registration, registration of transfer, split-up or
combination of any ADR, the delivery of any distribution in respect thereof,
or, subject to the terms and conditions of the Deposit Agreement, the
withdrawal of any Deposited Securities, LBMS, the Depositary or the Custodian
may require (a) payment with respect thereto of (i) any stock transfer or
other tax or other governmental charge, (ii) any stock transfer or
registration fees in effect for the registration of transfers of Ordinary
Shares or other Deposited Securities upon any applicable register, and (iii)
any applicable charges as provided in the Deposit Agreement; (b) the
production of proof satisfactory to it of (i) the identity and genuineness of
any signature and (ii) such other information, including without limitation,
information as to citizenship, residence, exchange control approval,
beneficial ownership of any securities, compliance with applicable law,
regulations, provisions of or governing Deposited Securities and terms of the
Deposit Agreement and the ADRs, as it may deem necessary or proper; and (c)
compliance with such regulations as the Depositary may establish consistent
with the Deposit Agreement. The
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issuance of ADRs, the acceptance of deposits of Ordinary Shares, the
registration, registration of transfer, split-up or combination of ADRs or,
subject to the terms of the Deposit Agreement, the withdrawal of Deposited
Securities may be suspended, generally or in particular instances, when the
ADR Register or any register for Deposited Securities is closed or when any
such action is deemed advisable by the Depositary or LBMS.
GOVERNING LAW
The Deposit Agreement is governed by and shall be construed in accordance
with the laws of the State of New York.
MORGAN GUARANTY TRUST COMPANY OF NEW YORK
The Depositary is Morgan Guaranty Trust Company of New York, a New York
banking corporation, which has its principal office located in New York, New
York. Morgan Guaranty Trust Company of New York is a commercial bank offering
a wide range of banking and trust services to its customers in the New York
metropolitan area, throughout the U.S. and around the world. The Consolidated
Balance Sheets of J.P. Morgan & Co. Incorporated ("J.P. Morgan"), the parent
corporation of Morgan Guaranty Trust Company of New York, are set forth in the
most recent Annual Report and Form 10-Q. The Annual Report, Form 10-K and Form
10-Q of J.P. Morgan are on file with the Securities and Exchange Commission.
The Articles of Association of Morgan Guaranty Trust Company of New York and
By-Laws together with the annual report, Form 10-K and Form 10-Q of J.P.
Morgan will be available for inspection at the Principal New York Office of
the Depositary.
COMPARISON OF SHAREHOLDER RIGHTS
Upon consummation of the Acquisition, the shareholders of LBMS, a company
incorporated in England and Wales under the Companies Acts 1948 to 1976 (the
"Companies Act"), will become shareholders of PLATINUM, a Delaware
corporation. The Delaware General Corporation Law (the "DGCL") and English
Company Law, including the U.K. Companies Act 1985 (the "Companies Act"),
differ in many respects, and these differences will result in changes in the
rights of LBMS shareholders. The following description summarizes certain
differences between the DGCL and English Company Law that may affect the
rights of LBMS shareholders as a result of the Acquisition. No securities of
LBMS are currently listed on any stock exchange other than the Nasdaq National
Market. The U.K. Panel on Takeovers and Mergers has recently confirmed that
the provisions of the City Code on Takeovers and Mergers (the "City Code") do
not apply to LBMS in relation to the Acquisition. The protections afforded to
shareholders of a company to which the City Code applies are not available to
holders of Ordinary Shares and ADRs and are not therefore summarized here.
This summary is not, and does not purport to be, complete and does not
purport to identify all differences that may, under given fact situations, be
material to LBMS shareholders. This summary is qualified in its entirety by
reference to the corporate laws of Delaware and of England and Wales and the
governing instruments of LBMS and PLATINUM.
SHAREHOLDER VOTING
The DGCL generally requires a majority vote of the shares of stock of each
constituent corporation outstanding and entitled to vote in order to
effectuate an acquisition between two Delaware corporations (Section 251) or
between a Delaware corporation and a corporation organized under the laws of
another state (a "foreign" corporation) (Section 252). Under English law, the
voting rights of shareholders are governed by a company's articles of
association, subject to the statutory right of shareholders to demand a poll
(a vote by the number of shares held) at a general meeting. Cumulative voting
is essentially unknown under English law. An ordinary resolution (e.g., a
resolution for the election of directors, the approval of financial
statements, the appointment of auditors, the increase of authorized share
capital or the grant of authority to allot shares) requires the affirmative
vote of a majority of the members present in person in the case of a vote by
show of hands, or present in person
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<PAGE>
or by proxy and holding shares conferring in the aggregate a majority of the
votes actually cast on the ordinary resolution, in the case of a vote by poll.
A special resolution (e.g., a resolution amending the articles of association,
changing the name of the company or waiving statutory preemptive rights on the
issue of new shares for cash) or an extraordinary resolution (e.g., a
resolution modifying the rights of any class of shares at a meeting of the
holders of such class or relating to certain matters concerning the
liquidation of the company) requires the affirmative vote of not less than
three-fourths of the shareholders present in person, in the case of a vote by
show of hands, or present in person or by proxy and holding shares conferring
in the aggregate at least three-fourths of the votes actually cast on the
resolutions, in the case of a vote by poll. In the case of a tie, the chairman
of the meeting is entitled to cast a deciding vote.
SHAREHOLDER APPROVAL OF CERTAIN BUSINESS COMBINATIONS
Section 203 of the DGCL prohibits a Delaware corporation from engaging in a
"business combination" with an "interested shareholder" for three years
following the date that such person becomes an interested shareholder. With
certain exceptions, an interested shareholder is a person or group, other than
the corporation and any direct or indirect majority-owned subsidiaries of the
corporation, who or which owns 15% or more of the corporation's outstanding
voting stock (including any rights to acquire stock pursuant to an option,
warrant, agreement, arrangement or understanding, or upon the exercise of
conversion or exchange rights and stock with respect to which the person has
voting rights only), or is an affiliate or associate of the corporation and
was the owner of 15% or more of such voting stock at any time within the
previous three years.
For purposes of Section 203, the term "business combination" is defined
broadly to include acquisitions with or caused by the interested shareholder;
sales or other dispositions to the interested shareholder (except
proportionately with the corporation's other shareholders) of assets of the
corporation or a subsidiary equal to 10% or more of the aggregate market value
of the corporation's consolidated assets or its outstanding stock; the
issuance or transfer by the corporation or a subsidiary of stock of the
corporation or such subsidiary to the interested shareholder (except for
transfers in a conversion or exchange or a pro rata distribution or certain
other transactions, none of which increase the interested shareholder's
proportionate ownership of any class or series of the corporation's or such
subsidiary's stock); and receipt by the interested shareholder (except
proportionately as a shareholder), directly or indirectly, of any loans,
advances, guarantees, pledges or other financial benefits provided by or
through the corporation or a subsidiary.
The three-year moratorium imposed on business combinations by Section 203
does not apply if: (i) prior to the date on which such shareholder becomes an
interested shareholder the board of directors approves either the business
combination or the transaction which resulted in the person becoming an
interested shareholder; (ii) the interested shareholder owns 85% of the
corporation's voting stock upon consummation of the transaction which made him
an interested shareholder (excluding shares held by certain affiliates of the
corporation); or (iii) on or after the date such person becomes an interested
shareholder, the business combination is approved by both the board of
directors and 66 2/3% of the outstanding voting stock of the corporation
(excluding shares held by the interested shareholder).
Section 203 only applies to Delaware corporations which have a class of
voting stock that is listed on a national securities exchange, is quoted by an
interdealer quotation system such as Nasdaq or is held of record by more than
2,000 shareholders. A Delaware corporation may elect in its original
certificate of incorporation, or by amending its certificate of incorporation
or by-laws, that it will not be governed by Section 203. Any such amendment
must be approved by the shareholders and may not be further amended by the
board of directors. PLATINUM has not "opted out" of the provisions of Section
203.
Under English law, certain transactions between a company and its directors
must be approved by the shareholders (by way of ordinary resolution). The
relevant transactions are those involving the acquisition by the company from
a director (or vice versa) of a non-cash asset with a value exceeding
(Pounds)100,000 or 10% of the company's asset value.
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APPRAISAL RIGHTS
Section 262 of the DGCL provides for appraisal rights only in the case of a
statutory acquisition or consolidation of the corporation where the
petitioning stockholder does not consent to the transaction. In addition, no
appraisal rights are available where the corporation is to be the surviving
corporation and a vote of its stockholders is not required under DGCL Section
251(f). There are also no appraisal rights, unless otherwise provided for in a
corporation's certificate of incorporation, for shares listed on a national
securities exchange or designated as a national market system security on an
interdealer quotation system by the National Association of Securities
Dealers, Inc., or held by more than 2,000 holders of record, unless such
stockholders would be required to accept anything other than shares of the
surviving corporation, shares of another corporation so listed or held by such
number of holders of record, cash in lieu of fractional shares of such stock
or any combination thereof. The Restated Certificate of Incorporation of
PLATINUM does not provide for such additional appraisal rights. PLATINUM is
designated as a national market system security and thus its stockholders do
not have statutory dissenters' rights.
English law does not provide for appraisal rights in a scheme of
arrangement. Once a scheme has been approved by the shareholders and the High
Court, and the Court Order sanctioning it has been registered at the Companies
Registry, all shareholders of the relevant class are bound by the terms of the
scheme; a dissenting shareholder would have no rights comparable to the
dissenters' rights described below.
The Companies Act provides that where a takeover offer (as defined therein)
is made for the shares of a company incorporated in the United Kingdom and,
within four months of the date of the offer the offeror has, by virtue of
acceptances of the offer, acquired or contracted to acquire not less than
nine-tenths in value of the shares to which the offer relates, the offeror
may, within two months of reaching the nine-tenths level, by notice require
shareholders who do not accept the offer to transfer their shares on the terms
of the offer. On an application by a dissenting shareholder within six weeks
of the date on which such notice was given objecting to the transfer or its
proposed terms, the court has a discretion to order that the acquisition not
take effect. The Court is unlikely (absent fraud or oppression) to exercise
this discretion, but it may specify such other terms for the transfer as it
finds appropriate. A minority shareholder is also entitled in these
circumstances to require the offeror to acquire such shareholder's shares on
the terms of the offer.
AMENDMENT OF BY-LAWS
Section 109 of the DGCL provides that the power to adopt, amend or repeal
by-laws shall be in the shareholders entitled to vote, provided that a
corporation may, in its certificate of incorporation, confer such powers on
the board of directors. In accordance with the Restated Certificate of
Incorporation of PLATINUM, the PLATINUM Board is expressly authorized to make,
alter, amend or repeal the By-laws of PLATINUM; provided, however, that if
such action is to be taken by stockholders, the affirmative vote of 66 2/3% of
the total votes eligible to be cast by stockholders is required.
Under English law, the shareholders have the authority to alter, delete,
substitute or add to most provisions of a company's memorandum and all
provisions of its articles of association by special resolution subject, in
the case of certain alterations to the memorandum of association, to the right
of dissenting shareholders to apply to the courts to cancel the alterations.
Under English law, the board of directors is not authorized to change the
memorandum or the articles of association. Where an English company has issued
shares of more than one class, amendments affecting the rights of the holders
of any class of shares may, depending on the rights attached to such class and
the nature of the amendments, also require approval of the classes affected in
separate class meetings.
LIMITATION ON DIRECTORS' LIABILITY, INDEMNIFICATION OF OFFICERS AND DIRECTORS
Section 102 of the DGCL allows a corporation to include in its certificate
of incorporation a provision that limits or eliminates the personal liability
of directors to the corporation and its shareholders for monetary
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<PAGE>
damages for breach of fiduciary duty as a director. Section 102 of the DGCL
does not, however, permit a corporation to limit or eliminate the personal
liability of a director for (i) any breach of the director's duty of loyalty
to the corporation or its shareholders, (ii) acts or omissions not in good
faith or which involve intentional misconduct or a knowing violation of law,
(iii) intentional or negligent payment of unlawful dividends or unlawful stock
purchases or redemptions or (iv) any transaction from which the director
derives an improper personal benefit. The Restated Certificate of
Incorporation of PLATINUM provides for limitations on directors' liability to
the fullest extent permitted by the DGCL.
English law does not permit a company to exempt any director or other
officer of the company or any person employed by the company as auditor from
any liability which by virtue of any rule of law would otherwise attach to him
in respect of any negligence, default, breach of duty or breach of trust of
which he may be guilty in relation to the company.
Section 145 of the DGCL provides that a corporation may indemnify any of its
officers and directors party to any action, suit or proceeding by reason of
the fact that he or she is or was a director, officer, employee or agent of
the corporation or is or was serving at the request of the corporation as a
director, officer, employee or agent of another organization by, among other
things, a majority vote of a quorum consisting of directors who were not
parties to such action, suit or proceedings, provided that such officer or
director acted in good faith and in a manner he or she reasonably believed to
be in or not opposed to the best interests of the corporation. The Restated
Certificate of Incorporation of PLATINUM provide for indemnification of
officers and directors of PLATINUM to the maximum extent and in the manner
permitted by the DGCL.
English law does not permit a company to indemnify a director or an officer
of the company or any person employed by the company as auditor against any
liability which by virtue of any rule of law would otherwise attach to such
person in respect of negligence, default, breach of duty or breach of trust in
relation to the company except liability incurred by such director, officer or
auditor in defending any legal proceedings (whether civil or criminal) in
which judgment is given in such person's favor or in which such person is
acquitted or in certain instances where, although liable, a court finds that
such director, officer or auditor acted honestly and reasonably and that
having regard to all the circumstances he ought fairly to be excused and
relief is granted by the court. Subject to the provisions of the Companies
Act, LBMS' Articles of Association provide for the indemnification of
directors and officers against costs, charges, expenses, losses, and
liabilities incurred by such directors and officers. Section 310 of the
Companies Act enables companies to purchase and maintain insurance for
directors, officers and auditors against any liability which would otherwise
attach to them in respect of any negligence, default, breach of duty or breach
of trust in relation to the company.
CUMULATIVE VOTING FOR DIRECTORS
Section 214 of the DGCL permits cumulative voting for directors to the
extent provided for in a Delaware corporations's certificate of incorporation.
The Restated Certificate of Incorporation of PLATINUM does not provide for
cumulative voting. As a result, the shareholders of PLATINUM do not have
cumulative voting rights. The elimination of cumulative voting limits the
ability of minority shareholders to obtain representation on the PLATINUM
Board. English law does not have a concept of cumulative voting.
CLASSIFIED BOARD OF DIRECTORS
A classified board is one with respect to which a certain number of the
directors, but not necessarily all, are elected on a rotating basis each year.
The DGCL permits, but does not require, a Delaware corporation to provide in
its certificate of incorporation for a classified board of directors, pursuant
to which the directors can be divided into up to three classes of directors
with staggered terms of office, with only one class of directors to be elected
each year for a maximum term of three years.
PLATINUM's Restated Certificate of Incorporation currently provides that the
Board of Directors shall be divided into three classes, each class consisting
as nearly as possible of one-third of the total number of directors, with each
class having a three-year term.
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<PAGE>
REMOVAL OF DIRECTORS
Under Section 141 of the DGCL, any director or the entire board of directors
may be removed, with or without cause, by the holders of a majority of the
shares entitled to vote at an election of directors, except (i) unless the
certificate of incorporation otherwise provides, in the case of a corporation
having a classified board, stockholders may effect such removal only for cause
and (ii) in the case of a corporation having cumulative voting, if less than
the entire board is to be removed, no director may be removed without cause if
the votes cast against his removal would be sufficient to elect him if then
cumulatively voted at an election of the entire board of directors. PLATINUM's
Restated Certificate of Incorporation provides that directors may be removed
only with cause by a vote of a majority of the combined voting power of
PLATINUM's outstanding stock.
Under the Companies Act, shareholders have the right to remove a director by
ordinary resolution of which special notice (28 clear days) has been given to
the company.
NEWLY CREATED DIRECTORSHIPS AND VACANCIES
Section 223 of the DGCL provides that vacancies and newly created
directorships may be filled by a majority of the directors then in office
(even though less than a quorum) unless (i) otherwise provided in the
certificate of incorporation or by-laws of the corporation (PLATINUM's
Restated Certificate of Incorporation and By-laws do not provide otherwise) or
(ii) the certificate of incorporation directs that a particular class is to
elect such director, in which case any other directors elected by such class,
or a sole remaining director, shall fill such vacancy (PLATINUM's Restated
Certificate of Incorporation does not have such a provision). In addition, if,
at the time of filling any vacancy or newly created directorship, the
directors then in office constitute less than a majority of the whole board,
the Delaware Court of Chancery may, upon application of shareholders holding
at least ten percent of the shares outstanding at the time and entitled to
vote for such directors, summarily order an election to be held to fill any
such vacancies or newly created directorships, or to replace the directors
chosen by the directors then in office. Such elections are to be conducted in
accordance with the procedures provided by the DGCL. Unless otherwise provided
in the certificate of incorporation or by-laws, when one or more directors
resign from the board, a majority of directors then in office, including those
who have so resigned, may vote to fill the vacancy. PLATINUM's By-laws limit
this provision with respect to directors that have resigned such that it
applies only where the director has resigned, effective at a future date.
Under English law, shareholders of an English public company may, by
ordinary resolution at a meeting at which any director retires by rotation,
appoint a person who is willing to be a director either to fill a vacancy or
as an additional director. The board of directors also has the power to
appoint a director to fill a vacancy or as an additional director, subject to
such conditions as may be set out in the company's articles of association,
provided that such appointment will only last until the next following annual
general meeting of the company, at which the director concerned may be re-
elected.
SPECIAL MEETINGS
Under Section 211 of the DGCL, special meetings of shareholders may be
called by the board of directors and by such other person or persons
authorized to do so by the corporation's certificate of incorporation or by-
laws. Under PLATINUM's By-laws, a special meeting of shareholders may be
called only by the Board of Directors.
Under English law, an extraordinary general meeting of shareholders may be
called by the board of directors or by requisition of shareholders holding not
less than one-tenth of the paid-up capital of the company carrying voting
rights at general meetings.
SHAREHOLDER PROPOSALS
The PLATINUM Bylaws provide that, to be timely, a stockholder must deliver
written notice to, or mail such written notice so that it is received by the
Secretary of PLATINUM at the principal executive offices of
105
<PAGE>
PLATINUM, not less than 120 nor more than 150 days prior to the first
anniversary of the date of PLATINUM's consent solicitation or proxy statement
released to stockholders in connection with the previous year's election of
directors or meeting of stockholders except that if no annual meeting of
stockholders or election by consent was held in the previous year or if the
date of the meeting has been changed from the previous year's meeting date, a
proposal must be received within 10 days after the meeting date has been
"publicly disclosed."
CONFLICT OF INTEREST
The PLATINUM Bylaws provide that no contract entered into between PLATINUM
and one or more of its directors or officers or between PLATINUM and any other
corporation, partnership, association or other organization in which one or
more of its directors or officers are directors or officers, or have a
financial interest, shall be void or voidable solely because the director or
officer is present or participates in a meeting which authorizes the contract
or transaction, or solely because his or her votes are counted for such
purpose, if: (i) the director or officer's relationship or interest in the
contract or transaction are disclosed to the disinterested directors and the
disinterested directors in good faith authorize the contract or transaction;
(ii) the material facts as to the director or officer's relationship or
interest in the contract are disclosed to the stockholders entitled to vote
thereon, and a contract is approved in good faith by the vote of the
stockholders; or (iii) the contract is fair as to the corporation as of the
time it is authorized, by the Board of Directors, or by the stockholders.
ACTIONS BY WRITTEN CONSENT OF STOCKHOLDERS
Under the DGCL, stockholders may execute an action by written consent in
lieu of a stockholders meeting. The DGCL permits a corporation to eliminate
such actions by written consent in its certificate of incorporation. Under
PLATINUM's Restated Certificate of Incorporation, such actions by written
consent are prohibited.
INSPECTION RIGHTS
Section 220 of the DGCL provides that any shareholder, upon written demand
stating the purpose of the inspection, shall have the right to inspect for any
proper purpose the corporation's stock ledger, a list of its shareholders, and
its other books and records.
Except when closed in accordance with the provisions of the Companies Act,
the register and index of names of shareholders of an English public company
may be inspected during business hours by its shareholders, without charge and
by other persons upon payment of a (Pounds)0.05 charge, and copies may be
obtained on payment of a charge. The shareholders of an English public
company, may, without charge, also inspect the minutes of meetings of the
shareholders during business hours and obtain copies upon payment of a charge.
The published annual accounts of an English public company are required to be
laid before the shareholders in a general meeting and each shareholder is
entitled to a copy of such accounts. The shareholders of LBMS have no right to
inspect the accounting records of the company or minutes of meetings of
directors. Certain registers required to be kept by LBMS are open to public
inspection and service contracts of directors of the company (which have more
than twelve months unexpired or require more than twelve months' notice to
terminate) must be available for inspection during business hours. Rights of
inspection during business hours mean that LBMS must make the register, index
or document available for inspection for not less than two hours during the
period between 9:00 a.m. and 5:00 p.m. on each business day.
ELECTION OF DIRECTORS
The PLATINUM's Restated Certificate of Incorporation provides that the
PLATINUM Board shall consist of at least six and no more than 11 members and
that such number shall otherwise be fixed from time to time by resolution of
the PLATINUM Board.
The Articles of Association of LBMS provide that the LBMS Board shall
consist of not less than 2 directors and that the number of directors may be
increased to a maximum of 20.
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INDEPENDENT ACCOUNTANTS
The consolidated financial statements of PLATINUM, as of December 31, 1996
and 1997, and for each of the years in the three-year period ended December
31, 1997, appearing in this Proxy Statement have been audited by KPMG Peat
Marwick LLP, independent certified public accountants, as set forth in their
report thereon appearing elsewhere herein and in the Proxy Statement.
The consolidated financial statements of LBMS, as of April 30, 1996 and
1997, and for each of the three years in the period ended April 30, 1997
included in this Proxy Statement have been audited by Price Waterhouse LLP,
independent accounts, as stated in the report.
Representatives of Price Waterhouse LLP are expected to be present at the
EGM and to be available to respond to appropriate questions.
PROPOSALS BY LBMS SHAREHOLDERS FOR THE
1998 ANNUAL GENERAL MEETING OF SHAREHOLDERS
If the Acquisition is not consummated, or if it is not consummated within
the time period currently contemplated, LBMS will hold a 1998 Annual General
Meeting of Shareholders. As described in LBMS' proxy statement relating to its
1997 Annual General Meeting of Shareholders, in order for proposals of LBMS'
shareholders to be considered for inclusion in the proxy statement relating to
its 1998 Annual General Meeting, such proposals must have been received not
later than July 1, 1998 at its principal office, 1800 West Loop South, Suite
900, Houston, Texas 77027, U.S.A., Attention: Company Secretary.
PROXY SOLICITATION
The cost of soliciting proxies will be paid by LBMS. Proxies may be
solicited without extra compensation by certain directors, officers and
regular employees of LBMS by mail, telegram or personally.
Shareholders are urged to return their proxies without delay.
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INDEX TO FINANCIAL STATEMENTS
LBMS
<TABLE>
<S> <C>
Consolidated Balance Sheet as of January 31, 1998 (unaudited) and April
30, 1997................................................................. F-2
Consolidated Statement of Operations for the three and nine months ended
January 31, 1998 (unaudited) and January 31, 1997 (unaudited)............ F-3
Consolidated Statement of Cash Flows for the nine months ended January 31,
1998 (unaudited) and January 31, 1997 (unaudited)........................ F-4
Notes to the Consolidated Financial Statements............................ F-5
Report of Independent Accountants......................................... F-8
Consolidated Balance Sheet as of April 30, 1996 and 1997.................. F-9
Consolidated Statement of Operations for the three years ended April 30,
1997..................................................................... F-10
Consolidated Statement of Shareholders' (Deficit) Equity for the three
years ended April 30, 1997............................................... F-11
Consolidated Statement of Cash Flows for the three years ended April 30,
1997..................................................................... F-12
Notes to Consolidated Financial Statements................................ F-13
Financial Statement Schedules:
Schedule II--Valuation and Qualifying Accounts and Reserve................ F-23
All other schedules are omitted because they are not applicable or the re-
quired information is shown in the financial statements or notes thereto.
PLATINUM
Report of KPMG Peat Marwick LLP........................................... F-24
Consolidated Balance Sheets as of December 31, 1996 and 1997.............. F-25
Consolidated Statements of Operations for the years ended December 31,
1995, 1996 and 1997...................................................... F-26
Consolidated Statements of Stockholders' Equity for the years ended Decem-
ber 31, 1995, 1996 and 1997.............................................. F-27
Consolidated Statements of Cash Flows for the years ended December 31,
1995, 1996 and 1997...................................................... F-28
Notes to Consolidated Financial Statements................................ F-29
</TABLE>
F-1
<PAGE>
LEARMONTH & BURCHETT MANAGEMENT SYSTEMS PLC
CONSOLIDATED BALANCE SHEET
(IN THOUSANDS, EXCEPT PER SHARE INFORMATION)
<TABLE>
<CAPTION>
JANUARY 31, APRIL 30,
1998 1997
----------- ---------
(UNAUDITED) (AUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.............................. $ 10,321 $ 8,461
Trade accounts receivable.............................. 2,035 4,358
Other current assets................................... 1,005 1,023
-------- --------
Total current assets................................. 13,361 13,842
Furniture, fixture and equipment, net.................... 1,575 1,512
-------- --------
Total assets......................................... $ 14,936 $ 15,354
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Current maturities of indebtedness..................... $ 165 $ 745
Accounts payable....................................... 664 486
Deferred revenue....................................... 3,265 3,534
Accrued liabilities.................................... 3,992 5,778
Executive Share Option Trust indebtedness.............. -- 977
-------- --------
Total current liabilities............................ 8,806 11,520
-------- --------
Indebtedness............................................. 160 238
Other liabilities........................................ 5,928 8,843
-------- --------
Total liabilities.................................... 14,174 20,601
-------- --------
Shareholders' equity (deficit):
Ordinary shares, 10 pence par value.................... 4,380 4,267
Additional paid-in capital............................. 21,753 20,330
Executive Share Option Trust indebtedness.............. (977)
Cumulative translation adjustment...................... (271) (372)
Accumulated deficit.................................... (25,100) (28,495)
-------- --------
Total shareholders' equity (deficit)................. 762 (5,247)
-------- --------
Commitments and contingencies
Total liabilities and shareholders' equity (defi-
cit)................................................ $ 14,936 $ 15,354
======== ========
</TABLE>
F-2
<PAGE>
LEARMONTH & BURCHETT MANAGEMENT SYSTEMS PLC
CONSOLIDATED STATEMENT OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE INFORMATION)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
JANUARY 31, JANUARY 31,
-------------------- -------------------
1998 1997 1998 1997
--------- --------- -------- ---------
<S> <C> <C> <C> <C>
Revenue:
Product licenses................. $ 3,226 $ 3,402 $ 11,978 $ 8,163
Services......................... 2,052 2,165 5,731 7,510
--------- --------- -------- ---------
Total revenue.................... 5,278 5,567 17,709 15,673
--------- --------- -------- ---------
Costs and expenses:
Cost of product licenses......... 15 54 53 123
Cost of services................. 975 826 2,786 3,363
--------- --------- -------- ---------
Total cost of revenue.......... 990 880 2,839 3,486
--------- --------- -------- ---------
Gross margin....................... 4,288 4,687 14,870 12,187
--------- --------- -------- ---------
Sales and marketing................ 2,426 2,395 7,723 9,134
Research and development........... 1,418 1,104 3,662 4,263
General and administrative......... 675 584 1,983 2,470
Restructuring charge (recovery).... (234) (3,512) (1,490) 14,109
--------- --------- -------- ---------
Total operating expenses......... 4,285 571 11,878 24,976
--------- --------- -------- ---------
Operating income (loss)............ 3 4,116 2,992 (17,789)
Interest income.................... 119 85 352 327
Interest expense................... (9) (26) (49) (95)
Other income....................... 15
--------- --------- -------- ---------
Income (loss) from continuing oper-
ations before income taxes........ 113 4,175 3,295 (17,542)
Income tax benefit................. 100 150 100 150
--------- --------- -------- ---------
Net Income (loss).................. $ 213 $ 4,325 $ 3,395 $ (17,392)
========= ========= ======== =========
Operating income (loss) per Ordi-
nary Share........................ $ 0.00 $ 0.16 $ 0.11 $ (0.70)
========= ========= ======== =========
Operating income (loss) per Ordi-
nary Share - assuming dilution.... $ 0.00 $ 0.16 $ 0.11 $ (0.70)
========= ========= ======== =========
Net income (loss) per Ordinary
Share............................. $ 0.01 $ 0.17 $ 0.13 $ (0.68)
========= ========= ======== =========
Net income (loss) per Ordinary
Share - assuming dilution......... $ 0.01 $ 0.16 $ 0.12 $ (0.68)
========= ========= ======== =========
</TABLE>
F-3
<PAGE>
LEARMONTH & BURCHETT MANAGEMENT SYSTEMS PLC
CONSOLIDATED STATEMENT OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
JANUARY 31,
-------------------
1998 1997
-------- ---------
<S> <C> <C>
Cash flow from operating activities:-
Net income (loss)....................................... $ 3,395 $ (17,392)
Adjustments to reconcile net income (loss) to cash used
by operating activities:
Depreciation and amortization.......................... 337 378
Write-off / (recovery) of net assets from restructur-
ing................................................... (1,490) 1,412
Changes in current assets and liabilities, net of the
effect of net asset
write-offs from restructuring:
Trade accounts receivable............................. 2,323 3,869
Other current assets.................................. 18 1,058
Accounts payable...................................... 178 (1,142)
Accrued restructuring................................. (1,941) 10,024
Accrued legal settlement.............................. (672) (665)
Other accrued liabilities............................. (684) (431)
Deferred revenue...................................... (269) 1,959
Other noncurrent assets and liabilities, net........... 187 (628)
-------- ---------
Net cash provided (used) by operating activities...... 1,382 (1,558)
-------- ---------
Cash flows from investing activities:
Purchases of furniture, fixtures and equipment.......... (400) (227)
-------- ---------
Net cash used by investing activities................. (400) (227)
-------- ---------
Cash flows from financing activities:
Repayments of indebtedness.............................. (1,635) (432)
Sale of ESOT Ordinary Shares, net....................... 1,636
Issuance of Ordinary Shares, net........................ 877 (28)
-------- ---------
Net cash provided (used) by financing activities...... 878 (460)
-------- ---------
Increase (decrease) in cash............................... 1,860 (2,245)
Beginning cash and cash equivalents....................... 8,461 10,960
-------- ---------
Ending cash and cash equivalents.......................... $ 10,321 $ 8,715
======== =========
</TABLE>
F-4
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED
JANUARY 31, 1998
UNAUDITED
NOTE 1--BASIS OF PRESENTATION:
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles of the
United States for interim financial reporting and in accordance with Form 10-Q
and Rule 10.01 of Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting principles
of the United States for complete financial statements. In the opinion of
management, the unaudited consolidated financial statements contained in this
report reflect all adjustments, consisting of only normal recurring
adjustments considered necessary for a fair presentation of the financial
position and the results of operations for the interim periods presented.
Operating results for interim periods are not necessarily indicative of
results for the full year. These unaudited consolidated financial statements,
footnote disclosures and other information should be read in conjunction with
the financial statements and the notes thereto included in the Company's
annual 10-K filed with the Securities and Exchange Commission on July 29,
1997.
NOTE 2--SHAREHOLDERS' EQUITY:
In the period May 1, 1997 through January 31, 1998, options to purchase
534,479 Ordinary Shares at exercise prices of $0.69 to $1.50 per share were
exercised. At January 31, 1998, there were options to purchase 4,370,491
Ordinary Shares. In November 1997, the shareholders formally approved an
amendment to the 1996 Stock Option Plan (the Plan) to increase the maximum
number of shares available in the Plan by 1.5 million Ordinary Shares.
In June 1997, the Company's Executive Share Option Trust (the Trust)
completed a Private Placement for 988,240 of restricted Ordinary Shares of the
Company and repaid approximately $1.0 million of indebtedness to a Bank with
proceeds from the sale; consequently, the Company was released from its
guarantee of the indebtedness. The Company recognized an increase of $0.7
million in Additional Paid in Capital which represents the net proceeds of the
sale after the repayment of indebtedness and transaction cost.
The Company issued 144,960 Ordinary Shares and the Trust issued 36,000
Ordinary Shares to the Company's employees during the nine months ended
January 31, 1998 under the Employee Stock Purchase Plan. Consequently, the
Company recognized an increase to its equity accounts of $0.3 million.
F-5
<PAGE>
NOTE 3--EARNINGS PER ORDINARY SHARE:
Statement of Financial Accounting Standards No. 128 "Earnings per Share"
(SFAS 128) became effective for periods ending after December 15, 1997. SFAS
128 requires the presentation of basic and diluted EPS and EPS amounts
reported for previous periods are to be restated. Basic EPS is calculated by
dividing income available to common shareholders by the weighted average
number of Ordinary Shares outstanding during the period. Diluted EPS is
calculated by dividing income available to common shareholders by the weighted
average number of Ordinary Shares outstanding adjusted to reflect options, to
the extent they are dilutive, less the number of shares that could have been
repurchased with the exercise proceeds using the treasury stock method. The
EPS calculations below are in thousands except for per share information and
all prior periods have been restated to comply with SFAS 128:
<TABLE>
<CAPTION>
NET EFFECTS OF DILUTED
BASIC EARNINGS DILUTIVE SHARE EARNINGS
PER SHARE OPTIONS PER SHARE
-------------- -------------- ---------
<S> <C> <C> <C>
For the three months ended January
31, 1998:
Net income $ 213 -- $ 213
Ordinary Shares 26,179 1,808 27,987
-------- ----- --------
$ 0.01 $ 0.01
======== ========
For the three months ended January
31, 1997:
Net income $ 4,325 -- $ 4,325
Ordinary Shares 25,555 780 26,335
-------- ----- --------
$ 0.17 $ 0.16
======== ========
For the nine months ended January 31,
1998:
Net income $ 3,395 -- $ 3,395
Ordinary Shares 26,036 1,808 27,844
-------- ----- --------
$ 0.13 $ 0.12
======== ========
For the nine months ended January 31,
1997:
Net loss ($17,392) -- ($17,392)
Ordinary Shares 25,543 -- 25,543
-------- ----- --------
($ 0.68) ($ 0.68)
======== ========
</TABLE>
F-6
<PAGE>
NOTE 4--RESTRUCTURING CHARGE:
In August 1996, the Board of Directors approved a plan to restructure the
Company's operations. Under the approved plan, the Company recorded a
restructuring charge of $17.6 million in the three months ending October 31,
1996. During the nine months ended January 31, 1998, the Company recorded a
restructuring benefit of $1.5 million related to the subleasing and/or buy out
of various abandoned leases. At January 31, 1998, the Company had
approximately $6.4 million of the restructuring liabilities remaining. These
primarily relate to abandoned lease costs which will be paid out through the
year 2014. Minimum lease commitments for the abandoned leases before existing
subleases for fiscal years ending April 30 are as follows:
<TABLE>
<S> <C>
1998 $ 244
1999 965
2000 763
2001 606
2002 403
Thereafter 4,531
------
$7,512
======
</TABLE>
Sublease income from noncancellable sublease agreements related to the rental
agreements which have been abandoned for fiscal years ending April 30 are as
follows:
<TABLE>
<S> <C>
1998 $ 115
1999 428
2000 262
2001 225
2002 46
Thereafter
------
$1,076
======
</TABLE>
F-7
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and Board of Directors of
Learmonth & Burchett Management Systems Plc
In our opinion, the consolidated financial statements listed in the
accompanying index present fairly, in all material respects, the financial
position of Learmonth & Burchett Management Systems Plc and its subsidiaries
(the Company) at April 30, 1996 and 1997, and the results of their operations
and their cash flows for each of the three years in the period ended April 30,
1997, in conformity with generally accepted accounting principles. These
financial statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these statements in accordance with
generally accepted auditing standards which 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, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for the
opinion expressed above.
/s/ Price Waterhouse LLP
Houston, Texas
June 7, 1997
F-8
<PAGE>
LEARMONTH & BURCHETT MANAGEMENT SYSTEMS PLC
CONSOLIDATED BALANCE SHEET
(AMOUNTS IN THOUSANDS, EXCEPT FOR PAR VALUE INFORMATION)
<TABLE>
<CAPTION>
APRIL 30,
----------------
1996 1997
------- -------
ASSETS
------
<S> <C> <C>
Current assets:
Cash and cash equivalents.................................. $10,960 $ 8,461
Trade accounts receivable, net of allowance for returns of
$526 and $780............................................. 9,579 4,358
Other current assets....................................... 3,498 1,023
------- -------
Total current assets..................................... 24,037 13,842
Furniture, fixtures and equipment, net....................... 2,982 1,512
Other assets................................................. 160
------- -------
Total assets............................................. $27,179 $15,354
======= =======
<CAPTION>
LIABILITIES AND SHAREHOLDERS' (DEFICIT) EQUITY
----------------------------------------------
<S> <C> <C>
Current liabilities:
Current maturities of indebtedness......................... $ 1,003 $ 745
Accounts payable........................................... 1,630 486
Deferred revenue........................................... 3,691 3,534
Accrued liabilities........................................ 5,344 5,778
ESOT indebtedness.......................................... 903 977
------- -------
Total current liabilities................................ 12,571 11,520
Indebtedness................................................. 524 238
Other liabilities............................................ 2,149 8,843
------- -------
Total liabilities........................................ 15,244 20,601
------- -------
Shareholders' (deficit) equity:
Ordinary Shares, 10 pence par value, 33,500 shares autho-
rized, 25,531 and 25,611 shares issued and outstanding.... 4,253 4,267
Additional paid-in capital................................. 20,323 20,330
Adjustment for ESOT........................................ (903) (977)
Cumulative translation adjustment.......................... 439 (372)
Accumulated deficit........................................ (12,177) (28,495)
------- -------
Total shareholders' (deficit) equity..................... 11,935 (5,247)
------- -------
Commitments and contingencies (Note 12)
Total liabilities and shareholders' (deficit) equity..... $27,179 $15,354
======= =======
</TABLE>
The accompanying notes are an integral part of this statement.
F-9
<PAGE>
LEARMONTH & BURCHETT MANAGEMENT SYSTEMS PLC
CONSOLIDATED STATEMENT OF OPERATIONS
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE INFORMATION)
<TABLE>
<CAPTION>
YEAR ENDED APRIL 30,
--------------------------
1995 1996 1997
------- ------- --------
<S> <C> <C> <C>
Revenue:
Product licenses................................. $21,629 $25,077 $ 12,170
Services......................................... 18,857 16,081 9,691
------- ------- --------
Total revenue.................................. 40,486 41,158 21,861
------- ------- --------
Costs of revenue:
Cost of product licenses......................... 1,399 838 195
Cost of services................................. 8,417 6,975 4,218
------- ------- --------
Total costs of revenue......................... 9,816 7,813 4,413
------- ------- --------
Gross margin....................................... 30,670 33,345 17,448
------- ------- --------
Operating expenses:
Sales and marketing.............................. 16,100 20,045 11,704
Research and development......................... 8,578 8,059 5,296
General and administrative....................... 5,430 5,724 3,108
Merger expense................................... 468
Restructuring charge (Note 3).................... 4,418 14,109
------- ------- --------
Total operating expenses....................... 34,526 34,296 34,217
------- ------- --------
(3,856) (951) (16,769)
Interest income.................................... 162 301 445
Interest expense................................... (99) (83) (159)
Other income (expense), net........................ (10) (51) 15
Loss from continuing operations before income tax-
es................................................ (3,803) (784) (16,468)
Income tax benefit................................. 36 150
------- ------- --------
Loss from continuing operations.................... (3,767) (784) (16,318)
Discontinued operations (Note 2):
Loss from operations of General Consultancy
Division (net of applicable income tax provision
of $0).......................................... (4,074)
Loss on disposal of General Consultancy Divi-
sion............................................ (834)
------- ------- --------
Net loss........................................... $(8,675) $ (784) $(16,318)
======= ======= ========
Income (loss) per share:
Continuing operations............................ $ (.17) $ (.03) $ (.64)
Discontinued operations.......................... (.23)
------- ------- --------
Net loss per share................................. $ (.40) $ (.03) $ (.64)
======= ======= ========
Weighted average ordinary and ordinary equivalent
shares outstanding................................ 21,844 23,639 25,551
======= ======= ========
</TABLE>
The accompanying notes are an integral part of this statement.
F-10
<PAGE>
LEARMONTH & BURCHETT MANAGEMENT SYSTEMS PLC
CONSOLIDATED STATEMENT OF SHAREHOLDERS' (DEFICIT) EQUITY
(AMOUNTS IN THOUSANDS, EXCEPT FOR SHARE INFORMATION)
<TABLE>
<CAPTION>
ORDINARY SHARES
-------------------- ---
ADDITIONAL ADJUSTMENT CUMULATIVE
PAID-IN FOR TRANSLATION ACCUMULATED
SHARES PAR VALUE CAPITAL ESOT ADJUSTMENT DEFICIT TOTAL
---------- --------- ---------- ---------- ----------- ----------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, April 30,
1994................... 18,837,350 $3,219 $ 5,919 $(172) $ (39) $ (2,686) $ 6,241
Issuance of shares in
connection with rights
issue.................. 3,627,470 554 2,871 3,425
Exercise of stock
options................ 84,100 13 38 51
Executive Stock Option
Trust borrowings....... (763) (763)
Distribution to CCI
shareholders........... (32) (32)
Cumulative translation
adjustment............. 243 243
Net loss............ (8,675) (8,675)
---------- ------ ------- ----- ----- -------- -------
Balance, April 30,
1995................... 22,548,920 3,786 8,828 (935) 204 (11,393) 490
Public share offering,
net.................... 2,900,000 452 11,382 11,834
Exercise of stock
options................ 81,800 15 113 128
Reductions from
translation of foreign
exchange............... 32 32
Cumulative translation
adjustment............. 235 235
Net loss................ (784) (784)
---------- ------ ------- ----- ----- -------- -------
Balance, April 30,
1996................... 25,530,720 4,253 20,323 (903) 439 (12,177) 11,935
Public offering cost.... (47) (47)
Exercise of stock
options................ 80,000 14 54 68
Increases from
translation of foreign
exchange............... (74) (74)
Cumulative translation
adjustment............. (811) (811)
Net loss................ (16,318) (16,318)
---------- ------ ------- ----- ----- -------- -------
Balance, April 30,
1997................... 25,610,720 $4,267 $20,330 $(977) $(372) $(28,495) $(5,247)
========== ====== ======= ===== ===== ======== =======
</TABLE>
The accompanying notes are an integral part of this statement.
F-11
<PAGE>
LEARMONTH & BURCHETT MANAGEMENT SYSTEMS PLC
CONSOLIDATED STATEMENT OF CASH FLOWS
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED APRIL 30,
--------------------------
1995 1996 1997
------- ------- --------
<S> <C> <C> <C>
Cash flows from operating activities:--
Net loss......................................... $(8,675) $ (784) $(16,318)
Adjustments to reconcile net loss to cash pro-
vided by operating activities:
Depreciation................................... 1,006 580 453
Gain (loss) on sale of assets.................. (834) 94
Write-off from restructuring, net.............. 2,894
Changes in current assets and liabilities, net
of the effect of the business disposal:
Trade accounts receivable.................... 1,997 1,055 3,434
Other current assets......................... (411) (753) 1,287
Accounts payable............................. (1,828) (512) (1,144)
Deferred revenue............................. 1,161 (11) 1,348
Accrued restructuring charges................ 3,608 (3,488) 8,706
Accrued legal settlement..................... 3,922 (1,815) (665)
Other accrued liabilities.................... 774 952 (1,136)
Other.......................................... 2 (92) (490)
------- ------- --------
Net cash provided (used) by operating ac-
tivities.................................. 722 (4,774) (1,631)
------- ------- --------
Cash flows from investing activities:
Purchases of furniture, fixtures and equipment,
net............................................. (1,437) (1,906) (345)
Proceeds from sale of General Consulting Divi-
sion............................................ 1,537
Other............................................ (160)
------- ------- --------
Net cash used by investing activities...... (60) (1,906) (345)
------- ------- --------
Cash flows from financing activities:
Issuance of Ordinary Shares, net................. 3,476 11,962 21
Proceeds from indebtedness....................... 623 1,219
Repayments of indebtedness....................... (560) (544)
Distribution to CCI shareholders................. (32) (7)
------- ------- --------
Net cash provided (used) by financing ac-
tivities.................................. 4,067 12,614 (523)
------- ------- --------
Increase (decrease) in cash and cash equivalents... 4,729 5,934 (2,499)
Beginning cash and cash equivalents................ 297 5,026 10,960
------- ------- --------
Ending cash and cash equivalents................... $ 5,026 $10,960 $ 8,461
======= ======= ========
Supplemental cash flow disclosures:--
Cash paid for:
Interest....................................... $ 99 $ 104 $ 150
Income taxes................................... 348 282
Noncash transactions:
Impairment of furniture, fixtures and equipment.. 600
Executive Stock Option Trust borrowings.......... 763
</TABLE>
The accompanying notes are an integral part of this statement.
F-12
<PAGE>
LEARMONTH & BURCHETT MANAGEMENT SYSTEMS PLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE INFORMATION)
NOTE 1--BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Learmonth & Burchett Management Systems Plc (LBMS or the Company) designs,
develops, markets and supports client/server software development management
tools. The Company also provides services such as maintenance, training,
consulting and support services related to its products directly in North
America and via distributors in Europe, United Kingdom and Asia.
Consolidation and basis of presentation
The consolidated financial statements include the accounts of the Company
and its wholly-owned subsidiaries. In August 1995, the Company acquired
Corporate Computing Inc. (CCI). The Company exchanged 700,000 newly issued
Ordinary Shares for all the outstanding interests of CCI in a transaction
accounted for as a pooling of interests. These consolidated financial
statements have been restated to include CCI for all periods presented. All
significant intercompany accounts and transactions have been eliminated. These
financial statements have been prepared under the historical cost convention
and in accordance with accounting principles generally accepted in the U.S.
using U.S. dollars as the reporting currency.
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 amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
Revenue recognition
The Company recognizes revenue in accordance with the provisions of American
Institute of Certified Public Accountants Statement of Position No. 91-1,
"Software Revenue Recognition". Product revenue is recognized when products
are shipped. Product returns are estimated and provided for at the time of
sale. Training and implementation services revenue is recognized as services
are provided. Revenue from support and maintenance agreements is recognized
ratably over the term of the agreement which is typically 12 months.
Deferred revenue
Deferred revenue represents advance payments for training and implementation
and support and maintenance services.
Furniture, fixtures and equipment
Furniture, fixtures and equipment are recorded at cost. Depreciation is
provided using the straight-line method over the estimated useful lives of the
related assets. Leasehold improvements are amortized on a straight-line basis
over the shorter of the estimated useful life or lease term.
Research and development
Research and development costs are charged to operations as incurred. The
Company considers technological feasibility to have been established once a
working model of a product has been produced and tested. To date, the Company
has not capitalized software development costs since costs incurred subsequent
to the establishment of technological feasibility have not been material.
F-13
<PAGE>
LEARMONTH & BURCHETT MANAGEMENT SYSTEMS PLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Income taxes
Deferred income taxes are provided using the liability method for the
temporary differences between the financial reporting basis and income tax
basis of the Company's assets and liabilities. Deferred income taxes are
measured based on the tax rates expected to be in effect when differences are
expected to be included in the Company's tax returns.
Loss per share
Loss per share is computed by dividing net loss by the weighted average
number of Ordinary Shares and dilutive Ordinary Share equivalents outstanding
during the period. Ordinary Share equivalents include the number of shares
issuable upon the exercise of stock options, less the number of shares that
could have been repurchased with the exercise proceeds using the Treasury
stock method.
Statement of cash flows
The Company considers all investments with original maturities of three
months or less at the date acquired by the Company as cash equivalents. The
effect of exchange rates on cash balances was not material for any of the
periods presented.
Financial instruments
The Company records all financial instruments at cost. The fair values of
accounts receivable, accounts payable, accrued liabilities and indebtedness
approximate cost due to their short-term nature or adjustable interest rates.
Foreign currency translation
The functional currency for the Company's subsidiaries is the applicable
local currency. Accordingly, monetary assets and liabilities are translated at
period-end exchange rates. Income and expense accounts are translated at the
average exchange rates during the period. Gains and losses from translation
are recorded as a separate component of shareholders' equity. Transaction
gains and losses are included in current operations and were not significant
for any of the periods presented.
Concentration of credit risk
Financial instruments that subject the Company to credit risk consist of
cash and cash equivalents and accounts receivable. The Company's investment
policy limits its exposure to credit risk for cash and cash equivalents. The
Company sells its products primarily to major corporations in a number of
industries. Collateral or deposits generally are not required from customers
who demonstrate creditworthiness. Credit risk is considered limited for
accounts receivable. The Company provides a reserve for returns and such
returns have not been significant in any of the periods presented. During
fiscal 1997, the Company's five largest customers accounted for approximately
21% of it total revenues. Although the particular customers may change from
period to period, the Company expects that large sales to a limited number of
customers will continue to account for a significant percentage of its
revenues in any particular period for the foreseeable future. In fiscal 1996
and 1995, the Company's five largest customers did not represent a significant
percentages of revenue.
Reclassifications
Certain amounts in the prior year's consolidated financial statements have
been reclassified to conform to the current year's presentation.
F-14
<PAGE>
LEARMONTH & BURCHETT MANAGEMENT SYSTEMS PLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 2--DISCONTINUED OPERATIONS:
In the first quarter of fiscal 1995, the Company discontinued its general
consulting business and disposed of its U.K.-based General Consultancy
Division for $1,537 in cash, resulting in a loss from disposition of $834
after considering provisions for costs directly related to the disposition.
The loss from operations of the discontinued consulting business include a
charge for a legal settlement and related costs (Notes 5 and 7). Revenue from
the discontinued consulting business was $632 for the year ended April 30,
1995.
NOTE 3--RESTRUCTURING CHARGES:
During fiscal 1995, the Company decided to focus exclusively on its software
products business, center that activity in the U.S. and discontinue its
consulting business (Notes 2 and 7). Accordingly, the Company relocated its
operational headquarters and the majority of its U.K.-based research and
development activities to the U.S. This resulted in a restructuring charge of
$4,418, primarily related to the abandonment of U.K.-based facilities and
assets and employee severance and relocation costs. The restructuring charge
included $2,670 related to employee severance and relocation costs. At April
30, 1997, all restructuring cost had been paid except for $755 of abandoned
lease cost which will be paid out through 1999.
On August 2, 1996, the Board of Directors approved a plan to restructure the
Company's operations. Under the approved plan, the Company recorded a
restructuring charge of $17,621. This charge was comprised of approximately
$10,278 in abandoned lease costs which is payable through 2014, $4,449 in
severance, personnel and other costs and $2,894 for the abandonment of certain
net operating assets predominately outside the U.S. The following table
illustrates the restructure change taken in the quarter ended October 31,
1996:
<TABLE>
<CAPTION>
PROVISION RESERVES
DURING IMPACT OF AT
QUARTER ENDED FOREIGN APRIL 30,
OCTOBER 31, 1996 PAYMENTS RECOVERIES EXCHANGE 1997
---------------- -------- ---------- --------- ---------
<S> <C> <C> <C> <C> <C>
Abandoned leasehold..... $10,278 $(1,035) $(1,143) $354 $8,454
Employee severance and
other related cost..... 2,986 (2,986)
Other costs............. 1,463 (522) (339) 602
------- ------- ------- ---- ------
Restructuring re-
serve................ $14,727 $(4,543) $(1,482) $354 $9,056
======= ======= ======= ==== ======
Write-off of operating
assets................. 2,894
-------
Total restructuring
charge ................ $17,621
=======
</TABLE>
In December 1996, the Company released $3,512 of the amount previously
accrued to reflect the sublease of abandoned properties, the sale of the
Systems Engineer product line and reduction in related costs.
Minimum lease commitments related to the rental agreements before existing
subleases which have been abandoned for fiscal years ending April 30 are as
follows:
<TABLE>
<S> <C>
1998................................................................. $ 1,778
1999................................................................. 1,872
2000................................................................. 1,375
2001................................................................. 606
2002................................................................. 352
Thereafter........................................................... 4,413
-------
Total.............................................................. $10,396
=======
</TABLE>
F-15
<PAGE>
LEARMONTH & BURCHETT MANAGEMENT SYSTEMS PLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Sublease income from noncancellable sublease agreements related to the
rental agreements which have been abandoned for fiscal years ending April 30
are as follows:
<TABLE>
<S> <C>
1998.................................................................. $ 435
1999.................................................................. 443
2000.................................................................. 80
2001.................................................................. 57
2002.................................................................. 57
Thereafter............................................................ 115
------
Total............................................................... $1,187
======
</TABLE>
NOTE 4--FURNITURE, FIXTURES AND EQUIPMENT:
Furniture, fixtures and equipment at April 30 are as follows:
<TABLE>
<CAPTION>
ESTIMATED
USEFUL LIFE 1996 1997
----------- ------- -------
<S> <C> <C> <C>
Furniture and equipment........................... 3-7 years $ 4,531 $ 3,061
Leasehold improvements............................ 5 years 814 14
Real estate....................................... 50 years 102 98
------- -------
5,447 3,173
Less--accumulated depreciation.................... (2,465) (1,661)
------- -------
$ 2,982 $ 1,512
======= =======
</TABLE>
NOTE 5--ACCRUED LIABILITIES:
Accrued expenses at April 30 are summarized as follows:
<TABLE>
<CAPTION>
1996 1997
------ ------
<S> <C> <C>
Accrued compensation.......................................... $1,375 $1,245
Accrued restructuring......................................... 602
Accrued abandoned leaseholds.................................. 424 1,343
Accrued legal settlement and related costs.................... 602 651
Other accrued expenses........................................ 2,943 1,937
------ ------
$5,344 $5,778
====== ======
</TABLE>
The accrued abandoned leaseholds relate to provisions made for both the
discontinued operations (Note 2) and the restructuring charges (Note 3).
During fiscal 1995, the Company reached a settlement with a third party over
claims related to a consulting project of the Company's discontinued
consulting business. A settlement charge of $3,922 was included in the loss
from discontinued operations in fiscal 1995. The Company paid the third party
(Pounds)1,000 and (Pounds)400 in 1996 and 1997, respectively. The settlement
provides for remaining payments to be made to the third party of (Pounds)400
in fiscal 1998 and 1999 and (Pounds)200 on or before June 30, 1999. The
Company believes it is remote that further claims or payments will be required
with regard to this consulting project. In addition, the customer associated
with the settlement has indemnified the Company against any related future
claims. The Company is no longer a party to
F-16
<PAGE>
LEARMONTH & BURCHETT MANAGEMENT SYSTEMS PLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
similar consulting projects as a result of its disposal of the Division and is
not aware of any asserted or unasserted claims of this nature.
NOTE 6--INDEBTEDNESS:
Indebtedness at April 30 consists of the following:
<TABLE>
<CAPTION>
1996 1997
------ ----
<S> <C> <C>
Revolving line of credit facilities with a bank which mature in
September 1997, interest is payable monthly at prime (8.5% at
April 30, 1997), secured by substantially all the assets of the
U.S. Company.................................................... $ 475 $500
Notes payable to a bank, monthly principal instalments totaling
$45, interest payable monthly at prime plus 1% (9.5% at April
30, 1997), maturing at various dates from June 1997 through
April 1999, secured by substantially all the assets of the U.S.
Company......................................................... $ 742 $448
Note payable to a bank, monthly principal instalments of $20 un-
til December 1996, interest payable monthly at prime plus 1%,
secured by substantially all of the assets of the U.S. Company.. $ 160
Other............................................................ $ 150 $ 35
$1,527 $983
Less--current maturities......................................... (1,003) (745)
------ ----
$ 524 $238
====== ====
</TABLE>
Bank lines of credit
The Company has two revolving line of credit facilities with a U.S. bank
amounting to $2,500 and $500. At April 30, 1997, there is $325 and $175
outstanding under the respective facilities. The credit facilities subject the
Company to certain restrictive and financial covenants including limitations
of distributions and maintaining certain financial ratios. At April 30, 1997,
the Company was in violation of certain covenants and obtained a waiver from
the Bank which extended through September 30, 1997.
The Company has guaranteed certain indebtedness incurred by the LBMS
Executive Share Option Trust (the Trust) ($977 at April 30, 1997) in
connection with the Trust's purchase of Company Ordinary Shares and,
accordingly, the Company has reflected the amount of its guarantee of the
indebtedness as a reduction of shareholders' equity in the accompanying
financial statements. Subsequent to year end, the Trust indebtedness was
repaid with proceeds from the sale of the shares held by the Trust and the
Company's guarantee was relinquished (Note 9).
Maturities
Future principal payments of indebtedness for the fiscal years ending April
30 are as follows:
<TABLE>
<S> <C>
1998................................................................ $745
1999................................................................ 181
2000................................................................ 13
2001................................................................ 2
2002................................................................ 2
Thereafter............................................................ 40
----
$983
====
</TABLE>
F-17
<PAGE>
LEARMONTH & BURCHETT MANAGEMENT SYSTEMS PLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 7--OTHER LIABILITIES:
Other liabilities at April 30 consist of the following:
<TABLE>
<CAPTION>
1996 1997
------ ------
<S> <C> <C>
Abandoned leaseholds (Note 2 and 3)......................... $ 644 $7,866
Accrued legal settlement (Note 5)........................... 1,505 977
------ ------
$2,149 $8,843
====== ======
</TABLE>
The accrued abandoned leaseholds relate to provisions made for both the
discontinued operations (Note 2) and the restructuring charges (Note 3).
NOTE 8--INCOME TAXES:
The current income tax benefit (provision) for the year ended April 30
consists of the following:
<TABLE>
<CAPTION>
1995 1996 1997
------- ------- --------
<S> <C> <C> <C>
U.S........................................... $ (174) $ 98 $ 102
U.K........................................... 201
Other......................................... 9 (98) 48
------- ------- --------
$ 36 $ -- $ 150
======= ======= ========
Components of book pretax loss were as follows for the year ended April 30:
<CAPTION>
1995 1996 1997
------- ------- --------
<S> <C> <C> <C>
U.K........................................... $(7,210) $(1,898) $ (7,146)
Other......................................... 3,407 1,114 (9,172)
------- ------- --------
$(3,803) $ (784) $(16,318)
======= ======= ========
The Company's effective tax rate reconciliation is as follows for the year
ended April 30:
<CAPTION>
1995 1996 1997
------- ------- --------
<S> <C> <C> <C>
Benefit at U.K. statutory rates............... 33% 33% 33%
Restructuring reserve......................... (15) 121 (17)
Net operating losses not benefited............ (11) (188) (12)
Other, net.................................... (6) 34 (3)
------- ------- --------
Tax benefit................................. 1% % 1%
======= ======= ========
</TABLE>
The statutory tax rates in U.K., U.S. and Australia are 33%, 34% and 33%,
respectively.
The tax effects of the principal temporary differences between financial
reporting and income tax reporting at April 30 are as follows:
<TABLE>
<CAPTION>
1996 1997
------- --------
<S> <C> <C>
Accrued restructuring.................................... $ 840 $ 3,934
Net operating loss carryforwards......................... 3,071 5,731
Related party interest expense........................... 486
Tax credit carryforwards................................. 160 160
Other.................................................... 279
------- --------
4,071 10,590
Depreciation............................................. (239) (382)
------- --------
3,832 10,208
Valuation allowance...................................... (3,832) (10,208)
------- --------
Net deferred taxes....................................... $ -- $ --
======= ========
</TABLE>
F-18
<PAGE>
LEARMONTH & BURCHETT MANAGEMENT SYSTEMS PLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
At April 30, 1997, the Company has net operating loss carryforwards of
approximately $9,500 for income tax purposes outside of the U.S. and $6,700
available for U.S. income tax purposes which expire from 2006 through 2012. In
addition, the Company has $160 of General Business Credit carryforwards
available in the U.S. Certain of the U.S. carryforwards relate to
preacquisition net operating losses and tax credit carryforwards of acquired
companies and are subject to limitations under Section 382 of the U.S.
Internal Revenue Code. Given the historical tax losses experienced in 1995,
1996 and 1997, there can be no assurance that operations will generate future
taxable income to utilize the net operating losses and future deductions
related to the restructuring reserve. Accordingly, the Company has provided a
valuation allowance against its deferred tax assets.
NOTE 9--SHAREHOLDERS' EQUITY:
Stock Option Plans
The Company's various Stock Option Plans (Option Plans) provide for the
grant of incentive and nonstatutory stock options, as determined by the Board
of Directors. Options are generally granted at an exercise price of not less
than the fair value per Ordinary Share on the date of grant. The vesting and
exercise provisions are determined by the Board of Directors with a maximum
term of ten years. Options granted under the Plans are immediately exercisable
and generally vest over an eighteen-month to five-year period. Information
related to share options granted to directors, officers and employees under
various plans is as follows (share amounts in thousands, prices translated at
April 30, 1997 exchange rate):
<TABLE>
<CAPTION>
WEIGHTED-
SHARES EXERCISE AVERAGE
UNDER OPTION PRICE EXERCISE PRICE
------------ -------------- --------------
<S> <C> <C> <C>
Options outstanding April 30,
1994.............................. 470 $0.62 to $2.64 $1.91
Granted.......................... 2,412 $1.27 to $2.12 1.83
Canceled......................... (105) $0.62 to $2.64 1.19
Exercised........................ (84) $0.62 to $0.64 0.63
------ -----
Options outstanding April 30,
1995.............................. 2,693 $0.62 to $2.64 1.91
Granted.......................... 814 $2.00 to $4.84 2.56
Canceled......................... (485) $0.98 to $4.84 2.80
Exercised........................ (116) $0.62 to $2.75 1.72
------ -----
Options outstanding at April 30,
1996.............................. 2,906 $0.70 to $2.75 1.95
Granted.......................... 2,499 $1.19 to $2.69 1.23
Canceled......................... (1,200) $1.03 to $2.75 1.73
Exercised........................ (105) $0.71 to $1.36 1.19
------ -----
Options outstanding at April 30,
1997.............................. 4,100 $0.71 to $2.69 1.60
======
Options exercisable at April 30,
1995.............................. 147 $0.65 to $2.64 1.40
======
Options exercisable at April 30,
1996.............................. 165 $0.70 to $2.75 1.66
======
Options exercisable at April 30,
1997.............................. 1,722 $0.71 to $2.37 1.53
======
</TABLE>
During 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standard No. 123 (SFAS 123), "Accounting for Stock-Based
Compensation" which defines a fair value-based method of accounting for
employee stock option plans or similar equity instruments. However, it also
allows an entity to continue to measure compensation cost for those plans
using the method of accounting prescribed by APB Opinion No. 25, "Accounting
for Stock Issued to Employees". Entities electing to remain with the
accounting
F-19
<PAGE>
LEARMONTH & BURCHETT MANAGEMENT SYSTEMS PLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
prescribed in APB No. 25 must make pro forma disclosures of net income and
earnings per share, as if the fair value-based method of accounting defined in
the statement had been applied.
The Company has elected to account for its stock-based compensation plan
under APB No. 25. The Company has computed for pro forma disclosure purposes
the value of all options granted during 1996 and 1997 using the Black-Scholes
option pricing model as prescribed by SFAS No. 123. The weighted average
assumptions used for grants in 1996 and 1997 were:
<TABLE>
<S> <C>
Risk-free interest rate................................... 6.0%--6.3%
Expected dividend yield................................... 0
Expected lives............................................ 18 to 84 months
Expected volatility....................................... 73%
</TABLE>
The total value under SFAS 123 of the options granted during the years ended
April 30, 1996 and 1997 was computed to be approximately $1,395 and $2,199,
respectively. Under SFAS 123, these amounts would be amortized over the
vesting period of the options. If the company had accounted for these plans in
accordance with SFAS 123, the Company's reported net loss and net loss per
Ordinary Share for the years ended April 30, would have increased to the
following pro forma amounts:
<TABLE>
<CAPTION>
1996 1997
------ --------
<S> <C> <C>
Pro forma net loss:
As reported in the statement of operations........... $ (784) $(16,318)
Pro forma in accordance with SFAS 123................ (858) (18,190)
Pro forma net loss per Ordinary Share and Ordinary
Share equivalents:
As reported in the statement of operations........... (0.03) (0.64)
Pro forma in accordance with SFAS No. 123............ (0.04) (0.71)
</TABLE>
Because SFAS 123 is applicable only to awards granted subsequent to May 1,
1995, its pro forma effect will not be fully reflected until all options
granted prior to that date have vested and is not expected to be indicative of
the effect on net loss and net loss per share in future years.
For options outstanding as of the latest balance sheet, the range of
exercise prices, the weighted-average exercise price and the weighted-average
remaining contractual life is provided in the schedule below. The number and
weighted-average exercise price of options currently exercisable is also
included in the schedule below:
<TABLE>
<S> <C> <C> <C> <C> <C>
<CAPTION>
WEIGHTED-
WEIGHTED- AVERAGE
AVERAGE WEIGHTED- EXERCISE PRICE
RANGE OF REMAINING AVERAGE OF EXERCISABLE
EXERCISE PRICES OUTSTANDING CONTRACTUAL LIFE EXERCISE PRICE EXERCISABLE OPTIONS
- --------------- ----------- ---------------- -------------- ----------- --------------
<S> <C> <C> <C> <C> <C>
$0.00--$1.00............ 73 4.63 $0.89 72 $0.89
$1.01--$2.00............ 2,966 8.98 1.22 1,318 1.23
$2.01--$3.00............ 1,061 8.53 2.20 332 2.26
----- ---- ----- ----- -----
4,100 8.83 $1.60 1,722 $1.53
===== ==== ===== ===== =====
</TABLE>
1996 Employee Stock Purchase Plan
In November 1996, the Board adopted and the shareholders approved the 1996
Employee Stock Purchase Plan (the "Purchase Plan"). The Company has reserved
500,000 shares of Ordinary Shares (250,000 ADSs) for
F-20
<PAGE>
LEARMONTH & BURCHETT MANAGEMENT SYSTEMS PLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
issuance under the Purchase Plan. The Purchase Plan will enable eligible
employees to purchase ADSs at 85% of the lower of the fair market value of the
Company's ADSs on the first or the last day of each offering period.
Executive Share Option Trust
The Company has established the LBMS Executive Share Option Trust (the
Trust). The Trust purchases shares to be issued to satisfy the exercise of
certain stock options. During 1995, the Trust purchased at market price,
311,000 and 134,000 shares from two directors of the Company, respectively.
The Trust held 1,024,000 shares at April 30, 1997. The trustees of the Trust
have designated that certain options representing 643,000 Ordinary Shares will
be satisfied through the issuance of shares held by the Trust (Note 6).
The Trust completed a Private Placement for 988,240 of restricted Ordinary
Shares of the Company on June 5, 1997 and the outstanding indebtedness of $994
was repaid. The Company recognized a increase of $661 in Additional Paid in
Capital which represents the net proceeds of the transaction after
approximately $75 in legal and professional fees.
U.S. Registration of Shares
In December of 1995, the Company completed its initial U.S. offering of
1,450,000 American Depository Shares (ADS). Proceeds from the offering were
$13,485 before expenses of approximately $1,700. Each ADS represents two
Ordinary Shares.
NOTE 10--EMPLOYEE BENEFIT PLANS:
The Company contributed $67 into a defined contribution plan on behalf of
its employees in fiscal 1997. In prior years, the Company maintained two
contribution plans and contributed a total of $355 and $241 for the years
ended April 30, 1995 and 1996, respectively.
F-21
<PAGE>
LEARMONTH & BURCHETT MANAGEMENT SYSTEMS PLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 11--SEGMENT INFORMATION:
Starting in fiscal 1995 (Note 2), the Company began operating in a single
industry segment. Selected information regarding the Company's continuing
operations by geographic region are as follows:
<TABLE>
<CAPTION>
YEAR ENDED APRIL 30,
--------------------------
1995 1996 1997
------- ------- --------
<S> <C> <C> <C>
Revenues:
U.S. ...................................... $24,292 $28,029 $ 19,871
U.K. and Europe............................ 10,848 8,858 1,310
Australia and Asia......................... 5,346 4,271 680
------- ------- --------
$40,486 $41,158 $ 21,861
======= ======= ========
Operating income (loss):
U.S. ...................................... $ 2,471 $ 2,626 $ (7,119)
U.K. and Europe............................ (4,579) (1,509) (7,411)
Australia and Asia......................... 7 (74) (1,210)
(2,101) 1,043 (15,740)
------- ------- --------
Corporate general and administrative......... (1,755) (2,045) (1,014)
Interest income, net....................... 53 218 286
------- ------- --------
Loss from continuing operations before
income taxes.............................. $(3,803) $ (784) $(16,468)
======= ======= ========
</TABLE>
<TABLE>
<CAPTION>
APRIL 30,
---------------
1996 1997
------- -------
<S> <C> <C>
Identifiable assets:
U.S...................................................... $12,241 $ 6,739
U.K. and Europe.......................................... 3,994 147
Australia and Asia....................................... 1,444 7
------- -------
17,679 6,893
Corporate cash............................................. 9,500 8,461
------- -------
$27,179 $15,354
======= =======
</TABLE>
NOTE 12--COMMITMENTS AND CONTINGENCIES:
The Company has entered into certain noncancelable operating leases for
office space which expire through 2001. Rent expense totaled $2,703, $2,400
and $1,250 for the years ended April 30, 1995, 1996 and 1997. Minimum lease
commitments related to these rental agreements, exclusive of amounts related
to abandonment leaseholds (Note 3), for the fiscal years ending April 30 are
as follows:
<TABLE>
<S> <C>
1998.................................................................. $ 513
1999.................................................................. 345
2000.................................................................. 328
2001.................................................................. 291
2002.................................................................. 70
Thereafter............................................................
------
Total............................................................... $1,547
======
</TABLE>
F-22
<PAGE>
LEARMONTH & BURCHETT MANAGEMENT SYSTEMS PLC
VALUATION AND QUALIFYING ACCOUNTS
ALLOWANCE FOR RETURNS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED APRIL 30,
------------------------
1995 1996 1997
------ -------- ------
<S> <C> <C> <C>
Balance, beginning of period.......................... $ 177 $ 369 $ 526
Additions charged to revenue.......................... 897 1,341 957
Reductions............................................ (705) (1,184) (703)
------ -------- ------
Balance, end of period................................ $ 369 $ 526 $ 780
====== ======== ======
</TABLE>
F-23
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Stockholders and Board of Directors
PLATINUM technology, inc.:
We have audited the accompanying consolidated balance sheets of PLATINUM
technology, inc. and subsidiaries as of December 31, 1997 and 1996, and the
related consolidated statements of operations, stockholders' equity, and cash
flows for each of the years in the three-year period ended December 31, 1997.
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, based on our audits, the consolidated financial statements
referred to above present fairly, in all material respects, the financial
position of PLATINUM technology, inc. and subsidiaries as of December 31, 1997
and 1996, and the results of their operations and their cash flows for each of
the years in the three-year period ended December 31, 1997, in conformity with
generally accepted accounting principles.
/s/ KPMG Peat Marwick LLP
Chicago, Illinois
February 9, 1998, except for Note 18,
which is as of March 14, 1998
F-24
<PAGE>
PLATINUM TECHNOLOGY, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
--------------------
ASSETS 1997 1996
---------------------------------------------------- --------- ---------
<S> <C> <C>
Current assets:
Cash and cash equivalents............................. $ 178,138 $ 140,783
Short-term investment securities...................... 57,597 42,755
Trade accounts receivable, net of allowances of $1,613
and $2,503........................................... 212,731 165,131
Installment accounts receivable, net of allowances of
$878 and $395........................................ 30,043 13,603
Accrued interest and other current assets............. 32,132 11,729
Refundable income taxes............................... 547 629
--------- ---------
Total current assets................................ 511,188 374,630
--------- ---------
Non-current investment securities....................... 25,553 2,135
Property and equipment, net............................. 77,842 72,750
Purchased and developed software, net................... 116,717 82,438
Excess of cost over net assets acquired, net of
accumulated amortization of $15,975 and $10,610........ 52,759 37,382
Non-current installment receivables, net of allowances
of $1,616 and $816..................................... 21,912 21,665
Other assets............................................ 28,206 27,572
--------- ---------
Total assets........................................ $ 834,177 $ 618,572
========= =========
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
----------------------------------------------------
<S> <C> <C>
Current liabilities:
Acquisition-related payables.......................... $ 15,717 $ 7,872
Income taxes payable.................................. 3,698 2,420
Accounts payable...................................... 16,091 15,436
Accrued commissions and bonuses....................... 13,357 10,622
Accrued royalties..................................... 7,070 3,913
Accrued restructuring costs........................... 6,308 --
Other accrued liabilities............................. 42,905 29,798
Current maturities of long-term obligations........... 1,319 3,246
Deferred revenue...................................... 116,374 84,166
--------- ---------
Total current liabilities........................... 222,839 157,473
--------- ---------
Acquisition-related payables............................ 18,320 2,502
Deferred revenue........................................ 60,435 38,674
Deferred rent........................................... 6,197 8,360
Accrued restructuring costs............................. 16,002 --
Long-term obligations, net of current maturities........ 266,824 115,803
--------- ---------
Total liabilities................................... 590,617 322,812
--------- ---------
Stockholders' equity:
Class II preferred stock, $.01 par value; authorized
10,000, none issued and outstanding.................. -- --
Subscribed Class II preferred stock, $.01 par value;
1,768 shares subscribed in 1997...................... 18 --
Common stock, $.001 par value; authorized 180,000,
issued and outstanding 63,860 and 60,577............. 64 61
Paid-in capital....................................... 565,371 487,417
Accumulated deficit................................... (325,558) (208,788)
Unrealized holding gains on marketable securities..... 8,262 17,805
Foreign currency translation adjustment............... (4,597) (735)
--------- ---------
Total stockholders' equity.......................... 243,560 295,760
--------- ---------
Total liabilities and stockholders' equity.......... $ 834,177 $ 618,572
========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
F-25
<PAGE>
PLATINUM TECHNOLOGY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------
1997 1996 1995
--------- -------- ---------
<S> <C> <C> <C>
Revenues:
Software products............................ $ 357,223 $243,938 $ 158,597
Maintenance.................................. 125,245 102,364 76,498
Professional services........................ 141,035 121,763 91,316
--------- -------- ---------
Total revenues............................. 623,503 468,065 326,411
--------- -------- ---------
Costs and expenses:
Professional services........................ 127,499 116,133 92,374
Product development and support.............. 187,383 155,277 94,027
Sales and marketing.......................... 228,387 182,597 113,978
General and administrative................... 61,876 39,224 34,097
Restructuring charges........................ 57,319 -- --
Merger costs................................. 8,927 5,782 30,819
Acquired in-process technology............... 67,904 48,456 88,493
--------- -------- ---------
Total costs and expenses................... 739,295 547,469 453,788
--------- -------- ---------
Operating loss................................. (115,792) (79,404) (127,377)
Other income, net.............................. 16,729 5,237 4,130
--------- -------- ---------
Loss before income taxes....................... (99,063) (74,167) (123,247)
Income taxes................................... 18,721 (9,245) (11,680)
--------- -------- ---------
Net loss....................................... $(117,784) $(64,922) $(111,567)
========= ======== =========
Net loss per share............................. $ (1.90) $ (1.14) $ (2.50)
========= ======== =========
Shares used in computing per share amounts..... 62,042 56,968 44,671
</TABLE>
See accompanying notes to consolidated financial statements.
F-26
<PAGE>
PLATINUM TECHNOLOGY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------------------------
1997 1996 1995
---------------- ---------------- ----------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
------ --------- ------ --------- ------ ---------
<S> <C> <C> <C> <C> <C> <C>
Preferred stock:
Balance at beginning of
year................... -- $ -- -- $ -- -- $ --
Stock subscribed........ 1,768 18 -- -- -- --
------ --------- ------ --------- ------ ---------
Balance at end of
year................... 1,768 $ 18 -- $ -- -- $ --
====== ========= ====== ========= ====== =========
Common stock:
Balance at beginning of
year................... 60,577 $ 61 54,598 $ 55 39,670 $ 40
Exercise of stock
options................ 939 1 517 1 803 1
Issuance of common
stock under Stock
Purchase Plan.......... 882 1 197 -- -- --
Issuance of common
stock.................. 1,461 1 5,265 5 14,125 14
Conversion of
subordinated notes..... 1 -- -- -- -- --
------ --------- ------ --------- ------ ---------
Balance at end of
year................... 63,860 $ 64 60,577 $ 61 54,598 $ 55
====== ========= ====== ========= ====== =========
Paid-in capital:
Balance at beginning of
year................... $ 487,417 $ 433,856 $ 191,194
Exercise of stock
options................ 7,067 2,380 4,754
Issuance of common
stock under Stock
Purchase Plan.......... 11,540 1,801 --
Issuance of common
stock.................. 17,514 49,515 237,907
Preferred stock
subscribed............. 41,848 -- --
Amortization of shelf
registration costs..... (25) (135) --
Conversion of
subordinated notes..... 10 -- --
Adjustment to conform
fiscal years of pooled
businesses............. -- -- 1
--------- --------- ---------
Balance at end of
year................... $ 565,371 $ 487,417 $ 433,856
========= ========= =========
Notes receivable:
Balance at beginning of
year................... $ -- $ (515) $ (333)
Issuance of notes
receivable............. -- -- (200)
Repayment of notes
receivable............. -- -- 18
Reclassification to
other assets........... -- 515 --
--------- --------- ---------
Balance at end of
year................... $ -- $ -- $ (515)
========= ========= =========
Accumulated deficit:
Balance at beginning of
year................... $(208,788) $(143,771) $ (30,958)
Net loss................ (117,784) (64,922) (111,567)
Adjustment for
immaterial pooled
businesses............. 1,014 45 --
Other................... -- -- (22)
Adjustment to conform
fiscal years of pooled
businesses............. -- (140) (1,224)
--------- --------- ---------
Balance at end of
year................... $(325,558) $(208,788) $(143,771)
========= ========= =========
Unrealized appreciation
in marketable
securities:
Balance at beginning of
year................... $ 17,805 $ -- $ --
Change in unrealized
holding gains, net of
tax.................... (9,543) 17,805 --
--------- --------- ---------
Balance at end of
year................... $ 8,262 $ 17,805 $ --
========= ========= =========
Foreign currency
translation adjustment:
Balance at beginning of
year................... $ (735) $ 588 $ 183
Translation
adjustment............. (3,862) (1,323) 405
--------- --------- ---------
Balance at end of
year................... $ (4,597) $ (735) $ 588
========= ========= =========
Total stockholders'
equity............... $ 243,560 $ 295,760 $ 290,213
========= ========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
F-27
<PAGE>
PLATINUM TECHNOLOGY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------
1997 1996 1995
--------- -------- ---------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss..................................... $(117,784) $(64,922) $(111,567)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Depreciation and amortization.............. 57,191 38,824 24,140
Acquired in-process technology............. 67,904 48,456 88,493
Write-off of fixed assets, capitalized
software and other intangible assets in
conjunction with the restructuring plan... 19,687 -- --
Unrealized holding gains on marketable
equity securities......................... (12,581) (920) --
Realized net gain on sales of investment
securities................................ (7,566) (1,032) (332)
Write-off of capitalized software in
connection with product stabilization and
mergers................................... -- 654 942
Noncash compensation....................... -- -- 78
Sales of trading securities.................. 9,489 -- --
Changes in assets and liabilities, net of
acquisitions:
Trade and installment receivables............ (62,316) (67,219) (53,845)
Deferred income taxes........................ 14,580 (16,337) (13,000)
Accrued interest and other current assets ... (10,394) (1,170) (3,134)
Accounts payable and accrued liabilities..... 32,547 (7,080) 6,888
Deferred revenue............................. 53,969 59,196 20,325
Income taxes payable......................... 1,092 993 2,615
Other........................................ (13,232) 6,657 16,073
--------- -------- ---------
Net cash provided by (used in) operating
activities.............................. 32,586 (3,900) (22,324)
--------- -------- ---------
Cash flows from investing activities:
Purchases of investment securities........... (66,957) (18,797) (61,484)
Sales of investment securities............... 87 30,223 75,519
Maturities of investment securities.......... 24,383 5,846 10,753
Purchases of property and equipment.......... (26,940) (35,542) (39,435)
Purchased and developed software............. (63,781) (41,279) (20,742)
Payments for acquisitions.................... (19,338) (17,853) (103,085)
Other assets................................. (1,365) (3,749) (482)
--------- -------- ---------
Net cash used in investing activities.... (153,911) (81,151) (138,956)
--------- -------- ---------
Cash flows from financing activities:
Proceeds from issuance of common stock, net
of issuance costs........................... -- -- 194,420
Proceeds from issuance of convertible notes,
net of issuance costs....................... 144,967 110,783 --
Proceeds from exercise of stock options and
Stock Purchase Plan......................... 18,609 4,182 4,144
Short-term borrowings........................ -- 1,115 8,205
Payments on borrowings....................... (4,896) (5,915) (7,331)
Other........................................ -- -- (256)
--------- -------- ---------
Net cash provided by financing
activities.............................. 158,680 110,165 199,182
--------- -------- ---------
Adjustment to conform fiscal years of pooled
businesses.................................... -- (140) (2,203)
--------- -------- ---------
Net increase in cash and cash equivalents...... 37,355 24,974 35,699
Cash and cash equivalents at beginning of
year.......................................... 140,783 115,809 80,110
--------- -------- ---------
Cash and cash equivalents at end of year....... $ 178,138 $140,783 $ 115,809
========= ======== =========
</TABLE>
See accompanying notes to consolidated financial statements.
F-28
<PAGE>
PLATINUM TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Operations
PLATINUM technology, inc. and its subsidiaries (collectively, the "Company"
or "PLATINUM") develop, market and support software products, and provide
related professional services, that help organizations manage and improve
their information technology ("IT") infrastructures, which consist of data,
systems and applications. The Company's products and services help IT
departments, primarily in large and data-intensive organizations, minimize
risk, improve service levels and leverage information to make better business
decisions. The Company's products typically perform fundamental functions such
as automating operations, maintaining the operating efficiency of systems and
applications and ensuring data access and integrity. The Company currently
develops software products through its four business units: database
management, systems management, application infrastructure management and data
warehousing and decision support. The Company markets and supports its
products and services principally through its own sales organization,
including an international network of wholly-owned subsidiaries.
Use of Estimates
In preparing the consolidated financial statements in conformity with
generally accepted accounting principles, the Company's management makes
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 periods. Actual results could differ from those
estimates.
Principles of Consolidation
The consolidated financial statements include the accounts of PLATINUM
technology, inc. and its subsidiaries. All intercompany accounts and
transactions are eliminated in consolidation.
Revenue Recognition
Revenues from software product sales of perpetual and fixed-term license
agreements are recognized upon product delivery and customer acceptance, when
all significant contractual obligations are satisfied and the collection of
the resulting receivables is reasonably assured. Software product sales under
extended payment terms are discounted to present value. Revenues from
maintenance fees implicit in software product sales or separately priced
maintenance agreements are recognized on a straight-line basis over the
maintenance period.
Professional service revenues are derived from the Company's consulting
services business and educational programs. These revenues are comprised of
both time and material contracts and fixed-price contracts. Time and material
contract revenues are recognized as services are performed. Fixed-price
contract revenues are recognized based on the percentage-of-completion method.
Cash Equivalents and Investment Securities
Cash equivalents are comprised of highly liquid investments with original
maturities of three months or less. Investment securities consist primarily of
state and municipal bonds with original maturities generally ranging from four
to thirty years, corporate bonds with original maturities of less than one
year and marketable equity securities. The Company classifies its investment
securities as either available-for-sale or trading and reports them at fair
value.
Available-for-sale securities represent those securities that do not meet
the classification of held-to-maturity and are not actively traded. Trading
securities represent those securities which the Company intends to buy or sell
in the near term for the purpose of generating profits on increases in market
values. For available-for-sale
F-29
<PAGE>
securities, unrealized holding gains and losses, net of income taxes, are
reported as a separate component of stockholders' equity. For trading
securities, unrealized holding gains and losses are reflected in pre-tax
earnings. For securities transferred from available-for-sale to the trading
classification, any unrealized holding gains or losses at the date of transfer
are recognized in pre-tax earnings immediately.
Property and Equipment
Property and equipment are stated at cost. Depreciation is computed using
the straight-line method based on the estimated useful lives, generally three
to seven years, of the various classes of property and equipment. Amortization
of leasehold improvements is computed over the shorter of the lease term or
the estimated useful life of the asset.
Purchased and Developed Software
Software development costs are accounted for in accordance with Statement of
Financial Accounting Standards ("SFAS") No. 86, "Accounting for the Costs of
Computer Software to Be Sold, Leased, or Otherwise Marketed." Costs associated
with the planning and designing phase of software development, including
coding and testing activities necessary to establish technological
feasibility, are classified as product development and expensed as incurred.
Once technological feasibility has been determined, additional costs incurred
in development, including coding, testing and documentation, are capitalized.
Amortization of purchased and developed software is provided on a product-
by-product basis over the estimated economic life of the software, generally
four years, using the straight-line method. This method generally results in
greater amortization expense per year than the method based on the ratio of
current year gross product revenue to current and anticipated future gross
product revenue. Amortization commences when a product is available for
general release to customers. Unamortized capitalized costs determined to be
in excess of the net realizable value of a product are expensed at the date of
such determination.
Excess of Cost Over Net Assets Acquired
Excess of cost over net assets acquired is amortized on a straight-line
basis over the expected period to be benefited, generally seven to 10 years.
Adjustments to the carrying value of excess of cost over net assets acquired
are made if the sum of expected future net cash flows from the business
acquired is less than book value.
Income Taxes
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to temporary differences between the financial
statement carrying amounts of existing assets and liabilities and their
respective tax bases and operating loss and tax credit carryforwards. Deferred
tax assets and liabilities are measured using enacted tax rates expected to
apply to taxable income in the years in which those temporary differences are
expected to be recovered or settled. The effect on deferred tax assets and
liabilities of a change in tax rates is recognized in earnings in the period
of enactment.
Fair Value of Financial Instruments and Long-Lived Assets
The Company has reviewed the following financial instruments and determined
that their fair values approximated their carrying values as of December 31,
1997: cash and cash equivalents; trade and installment receivables; accrued
interest and other current assets; refundable income taxes; acquisition-
related payables; accounts payable and other accrued liabilities; and long-
term obligations, excluding convertible subordinated notes. Investment
securities are discussed in Note 3, and convertible subordinated notes are
discussed in Note 12.
On January 1, 1996, the Company adopted SFAS No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of,"
under which the Company has reviewed long-lived assets and certain intangible
assets and determined that their carrying values as of December 31, 1997 are
recoverable in future periods.
F-30
<PAGE>
Earnings Per Share
In the fourth quarter of 1997, the Company adopted SFAS No. 128, "Earnings
Per Share," which established new methods for computing and presenting
earnings per share ("EPS") and replaced the presentation of primary and fully-
diluted EPS with basic ("Basic") and diluted EPS. Basic earnings per share is
based on the weighted average number of shares outstanding and excludes the
dilutive effect of unexercised common stock equivalents. Diluted earnings per
share is based on the weighted average number of shares outstanding and
includes the dilutive effect of unexercised common stock equivalents. Because
the Company reported a net loss for the years ended December 31, 1997, 1996
and 1995, per share amounts have been presented under the Basic method only.
Had the Company reported net earnings for the years ended December 31, 1997,
1996 and 1995, the weighted average number of shares outstanding would have
potentially been diluted by the following common equivalent securities (not
assuming the effects of applying the treasury stock method to outstanding
stock options or the if-invested method to convertible securities):
<TABLE>
<CAPTION>
1997 1996 1995
---------- ---------- ---------
<S> <C> <C> <C>
Stock options.............................. 11,861,865 10,143,622 8,404,911
Convertible subordinated notes (November
1996)..................................... 8,243,010 8,243,727 --
Convertible subordinated notes (December
1997)..................................... 4,160,600 -- --
---------- ---------- ---------
24,265,475 18,387,349 8,404,911
========== ========== =========
</TABLE>
Additionally, net earnings applicable to common stockholders for the years
ended December 31, 1997 and 1996 would have been increased by interest
expense, net of income taxes, related to the convertible subordinated notes of
$5,870,000 and $501,000, respectively.
Foreign Currency Translation and Transactions
The financial position and results of operations of the Company's foreign
subsidiaries are measured using the local currency as the functional currency.
Accordingly, assets and liabilities are translated into U.S. dollars using
current exchange rates as of the balance sheet date. Revenues and expenses are
translated at average exchange rates prevailing during the year. Translation
adjustments arising from differences in exchange rates are included as a
separate component of stockholders' equity. Gains and losses resulting from
foreign currency transactions are included in the consolidated statement of
operations.
Derivative Financial Instruments
In the ordinary course of business, the Company enters into forward exchange
contracts to minimize the short-term impact of foreign currency fluctuations
on assets and liabilities denominated in currencies other than the functional
currency of the reporting entity. All foreign exchange forward contracts
designated and effective as hedges of firm commitments are treated as hedges,
as required by generally accepted accounting principles.
Forward exchange contracts are reported at fair value within short-term
investment securities. Fair values of forward exchange contracts are
determined using published rates. Gains and losses on the forward exchange
contracts are included in other income and expense and offset foreign exchange
gains and losses from the revaluation of intercompany balances denominated in
currencies other than the functional currency of the reporting entity.
Realized and unrealized holding gains and losses on the forward exchange
contracts are reported within operating activities in the statement of cash
flows.
Stock-Based Compensation
On January 1, 1996, the Company adopted SFAS No. 123, "Accounting for Stock-
Based Compensation," which permits entities to recognize the compensation
expense associated with the fair value of all stock-based
F-31
<PAGE>
awards on the date of grant. Alternatively, SFAS No. 123 allows entities to
continue to apply the provisions of Accounting Principles Board ("APB")
Opinion No. 25, "Accounting for Stock Issued to Employees," and provide pro
forma net income and earnings per share disclosures as if the fair value
method defined in SFAS No. 123 had been applied. The Company has elected to
apply the provisions of APB Opinion No. 25 and provide the pro forma
disclosures of SFAS No. 123.
Transfers and Servicing of Financial Assets and Extinguishments of
Liabilities
On January 1, 1997, the Company adopted SFAS No. 125, "Accounting for
Transfers and Servicing of Financial Assets and Extinguishments of
Liabilities," which distinguishes transfers of financial assets that are sales
from transfers that are secured borrowings. The Company sells installment
receivables to third party finance companies in the normal course of business.
During 1997, all such transactions were accounted for as sales in accordance
with SFAS No. 125.
Supplemental Cash Flow Disclosure
Income tax refunds received by the Company amounted to $524,000, $307,000
and $933,000 in 1997, 1996 and 1995, respectively. Cash paid for income taxes
in 1997, 1996 and 1995 was $1,173,000, $2,179,000 and
$987,000, respectively. Cash paid for interest in 1997, 1996 and 1995 was
$8,419,000, $787,000 and $824,000, respectively.
Reclassifications
Certain prior year amounts have been reclassified to conform to the 1997
presentation.
2. ACQUISITIONS
Poolings of Interests
On June 15, 1995, the Company acquired all of the outstanding capital stock
of Software Interfaces, Inc. ("SII"), a leading provider of data access,
reporting and data conversion utilities for relational and non-relational
database management systems, in exchange for 1,085,450 shares of the Company's
Common Stock, $.001 par value (the "Common Stock"), which had a market value,
based upon the trading price of the Common Stock on the Nasdaq National Market
("Market Value"), of approximately $20,000,000 at the time of the acquisition.
In addition, the Company assumed stock options which converted into options to
purchase 14,377 shares of Common Stock.
On August 9, 1995, the Company acquired all of the outstanding capital stock
and warrants of Answer Systems, Inc. ("Answer"), a pioneer in client/server
help desk solutions, in exchange for 1,567,946 shares of Common Stock, which
had a Market Value of approximately $38,000,000 at the time of the
acquisition. In addition, the Company assumed stock options which converted
into options to purchase 42,176 shares of Common Stock.
On August 16, 1995, the Company acquired all of the outstanding capital
stock of Locus Computing Corporation ("Locus"), a leading provider of
consulting services for information technology users and suppliers, in
exchange for 1,452,445 shares of Common Stock, which had a Market Value of
approximately $33,000,000 at the time of the acquisition. In addition, the
Company assumed stock options which converted into options to purchase 231,905
shares of Common Stock.
On August 23, 1995, the Company acquired all of the outstanding capital
stock of Altai, Inc. ("Altai"), a vendor of integrated automated operations
software for open computing, in exchange for 1,098,295 shares of Common Stock,
which had a Market Value of approximately $23,000,000 at the time of the
acquisition. In addition, the Company assumed stock options which converted
into options to purchase 52,696 shares of Common Stock.
F-32
<PAGE>
On August 25, 1995, the Company acquired all of the outstanding capital
stock of Trinzic Corporation ("Trinzic"), a major provider of data warehousing
and open systems tools and services, in exchange for 6,654,484 shares of
Common Stock, which had a Market Value of approximately $150,000,000 at the
time of the acquisition. In addition, the Company assumed stock options which
converted into options to purchase 620,948 shares of Common Stock.
On November 17, 1995, the Company acquired all of the outstanding capital
stock of Softool Corporation ("Softool"), a leading provider of software
change and configuration management technology, in exchange for 1,452,708
shares of Common Stock, which had a Market Value of approximately $25,000,000
at the time of the acquisition.
On February 8, 1996, the Company acquired all of the outstanding capital
stock of Prodea Software Corporation ("Prodea"), a leading provider of data
warehousing and business intelligence tools, in exchange for 2,126,913 shares
of Common Stock, which had a Market Value of approximately $36,000,000 at the
time of the acquisition. In addition, the Company assumed stock options which
converted into options to purchase 212,427 shares of Common Stock.
On March 26, 1996, the Company acquired all of the outstanding capital stock
of Paradigm Systems Corporation ("Paradigm"), a leading provider of
information technology consulting services, in exchange for 762,503 shares of
Common Stock, which had a Market Value of approximately $12,800,000 at the
time of the acquisition. In addition, the Company assumed stock options which
converted into options to purchase 87,912 shares of Common Stock.
On March 29, 1996, the Company acquired all of the outstanding capital stock
of Axis Systems International, Inc. ("Axis"), a leading provider of
information technology consulting services, in exchange for 319,926 shares of
Common Stock, which had a Market Value of approximately $6,300,000 at the time
of the acquisition. In addition, the Company assumed stock options which
converted into options to purchase 59,986 shares of Common Stock.
On January 31, 1997, the Company acquired all of the outstanding capital
stock of Australian Technology Resources Pty Limited ("ATR"), a leading
provider of information technology consulting services, in exchange for
313,784 shares of Common Stock, which had a Market Value of approximately
$5,000,000 at the time of the acquisition.
On February 28, 1997, the Company acquired all of the outstanding capital
stock of I&S Informationstechnik and Services GmbH ("I&S"), a leading provider
of information technology consulting services, in exchange for 1,089,867
shares of Common Stock, which had a Market Value of approximately $17,200,000
at the time of the acquisition.
Each of the aforementioned transactions was accounted for as a pooling of
interests and, accordingly, the consolidated financial statements have been
restated as if the combining companies had been combined for all periods
presented. Merger costs relating to the acquisitions consummated in 1997, 1996
and 1995 amounted to $8,927,000, $5,782,000 and $30,819,000, respectively, of
which $3,155,000, $353,000 and $1,942,000, were included in other accrued
liabilities at December 31, 1997, 1996 and 1995, respectively. These costs
included investment banking and other professional fees, write-downs of
certain assets, employee severance payments, costs of closing excess office
facilities and various other expenses.
F-33
<PAGE>
The following information reconciles total revenues and net loss of PLATINUM
technology, inc. as previously reported in the Company's Annual Report on Form
10-K for the year ended December 31, 1996 with the amounts presented in the
accompanying consolidated statements of operations for the years ended
December 31, 1996 and 1995, as well as separate results of operations for 1997
of ATR and I&S during the periods preceding their acquisition. The 1997
results presented for ATR represent the one-month period ended January 31,
1997. The 1997 results for I&S represent the two-month period ended February
28, 1997.
<TABLE>
<CAPTION>
1997 1996 1995
------------------- ------------------- ------------------
NET
NET INCOME NET INCOME INCOME
REVENUES (LOSS) REVENUES (LOSS) REVENUES (LOSS)
-------- ---------- -------- ---------- -------- ---------
<S> <C> <C> <C> <C> <C> <C>
PLATINUM(1)..... $439,190 $(67,962) $304,676 $(111,933)
ATR............. $ 511 $(56) 9,132 142 9,492 301
I&S............. 2,627 109 19,743 2,898 12,243 65
-------- -------- -------- ---------
Total....... $468,065 $(64,922) $326,411 $(111,567)
======== ======== ======== =========
</TABLE>
- --------
(1) Represents the historical results of PLATINUM technology, inc. without
considering the effect of the poolings of interests consummated during
1997. All merger costs and acquired in-process technology charges are
reflected in the historical results of PLATINUM.
The consolidated statement of operations for the year ended December 31,
1996 reflects the impact of ATR's operating results for the six months ended
June 30, 1996, which are also included in the year ended December 31, 1995
statement of operations due to differences in reporting periods relative to
PLATINUM. The revenues and net income of ATR included more than once were
$5,061,000 and $140,000, respectively.
The consolidated statement of operations for the year ended December 31,
1995 reflects the impact of Trinzic's operating results for the quarter ended
March 31, 1995, which are also included in the year ended December 31, 1994
statement of operations due to differences in reporting periods relative to
PLATINUM. The revenues and net income of Trinzic included more than once were
$12,553,000 and $215,000, respectively.
The consolidated statement of operations for the year ended December 31,
1995 reflects the impact of certain operating results included more than once,
due to the differences in reporting periods of Altai and Locus relative to
that of PLATINUM. The revenues and net income of Altai included more than once
were $2,514,000 and $441,100, respectively. The revenue and net income of
Locus included more than once were $3,197,000 and $568,000, respectively.
During 1996, the Company consummated an immaterial acquisition accounted for
as a pooling of interests. The Company did not restate the consolidated
financial statements to reflect the results of this entity for the periods
preceding the acquisition. As a result, the retained earnings of this entity
were recorded as of the acquisition date, causing a $45,000 adjustment to the
Company's accumulated deficit in 1996. This adjustment is reflected in the
consolidated statement of stockholders' equity.
On November 26, 1997, the Company consummated an immaterial acquisition
accounted for as a pooling of interests. The Company acquired all of the
outstanding capital stock of Vayda Consulting, Inc. ("Vayda"), a leading
provider of information technology consulting services, in exchange for
580,231 shares of Common Stock, which had a Market Value of approximately
$15,300,000 at the time of the acquisition. In addition, the Company assumed
stock options which converted into options to purchase 67,937 shares of Common
Stock. The Company did not restate the consolidated financial statements to
reflect the results of Vayda for the periods preceding the acquisition. As a
result, the retained earnings of Vayda were recorded as of the acquisition
date, causing an adjustment of $1,014,000 to the Company's accumulated deficit
in 1997. This adjustment is reflected in the consolidated statement of
stockholders' equity.
F-34
<PAGE>
Purchase Transactions
The Company has also made a number of acquisitions that have been accounted
for under the purchase method. Accordingly, purchase prices have been
allocated to identifiable tangible and intangible assets acquired and
liabilities assumed based on their estimated fair values. Amounts allocated to
acquired in-process technology have been expensed at the time of acquisition.
Excess of cost over net assets acquired is amortized on a straight-line basis
over the expected period to be benefited, generally seven to ten years. The
consolidated statements of operations reflect the results of operations of the
purchased companies since the effective dates of the acquisitions.
To determine the fair market value of the acquired in-process technology,
the Company considered the three traditional approaches of value: the cost
approach, the market approach and the income approach. The Company relied
primarily on the income approach, whereupon fair market value is a function of
the future revenues expected to be generated by an asset, net of all allocable
expenses and charges for the use of contributory assets. The future net
revenue stream is discounted to present value based upon the specific level of
risk associated with achieving the forecasted asset earnings. The income
approach focuses on the income producing capability of the acquired assets and
best represents the present value of the future economic benefits expected to
be derived from these assets.
The Company determined that the acquired in-process technologies had not
reached technological feasibility based on the status of design and
development activities that required further refinement and testing. The
development activities required to complete the acquired in-process
technologies included additional coding, cross-platform porting and
validation, quality assurance procedures and customer beta testing.
The acquired technologies represent unique and emerging technologies, the
application of which is limited to the Company's IT infrastructure strategy.
Accordingly, these acquired technologies have no alternative future use.
Effective March 1995, the Company acquired all of the outstanding capital
stock of SQL Software Corporation ("SQL"), a provider of Windows-based
development tools for managing multiple relational databases, for
approximately $2,000,000; the assets of Viatech Development, Inc. ("Viatech"),
a provider of electronic distribution tools, for approximately $5,300,000; and
the assets of BrownStone Solutions, Inc. ("BrownStone"), a vendor of
repository technology, for approximately $6,300,000. Also effective March
1995, the Company acquired all of the outstanding capital stock of RELTECH
Group, Inc. ("Reltech"), a vendor of repository technology, for approximately
$9,800,000 in cash plus 318,453 shares of Common Stock, which had a Market
Value of approximately $7,500,000 at the time of the acquisition.
Effective July 1995, the Company acquired all of the outstanding capital
stock of Advanced Software Concepts, Inc. ("ASC"), a leading provider of
distributed storage network management solutions for heterogeneous
environments, for approximately $7,000,000.
Effective November 1995, the Company acquired substantially all of the
assets of ProtoSoft, Inc. ("ProtoSoft"), a pioneer in portable, object-
oriented analysis and design software for building enterprise-wide
applications and the developer of Paradigm Plus, for approximately $30,000,000
in cash plus 582,121 shares of Common Stock, which had a Market Value of
approximately $10,000,000 at the time of the acquisition.
Effective December 1995, the Company purchased all of the outstanding
capital stock of AIB Software Corporation ("AIB"), a leader in multi-platform
application development and testing tools, for approximately $2,200,000 in
cash plus 478,045 shares of Common Stock, which had a Market Value of
approximately $9,000,000 at the time of the acquisition; Protellicess
Software, Inc. ("Protellicess"), a leader in enterprise project and process
management software, in exchange for 822,077 shares of Common Stock, which had
a Market Value of approximately $15,000,000 at the time of the acquisition;
and BMS Computer, Inc. ("BMS"), a leader in integrated chargeback systems that
provide job accounting, chargeback, cost analysis and resource reporting for
heterogeneous environments, for approximately $6,900,000. In conjunction with
the acquisitions of
F-35
<PAGE>
AIB and Protellicess, the Company assumed stock options which converted into
options to purchase 116,144 and 128,320 shares of Common Stock, respectively.
During 1995, the Company also acquired certain software technologies with an
aggregate purchase price of approximately $10,227,000.
Internationally, during 1995, the Company acquired Echo-Soft Technologies
Sarl, a software sales and consulting firm located in France, Krystal Software
SA, an international affiliate of the Company in France, and Sequel UK Ltd.,
an international affiliate of the Company in the United Kingdom. The Company
also terminated its agreements with four other international affiliates and
established wholly-owned subsidiaries for these operations. The aggregate
price for these transactions was approximately $11,563,000.
Effective January 1996, the Company acquired all of the outstanding capital
stock of Advanced Systems Technologies, Inc. ("AST"), a leading developer of
performance management tools, in exchange for approximately $445,000 in cash
plus 344,640 shares of Common Stock, which had a Market Value of approximately
$5,800,000 at the time of the acquisition.
Effective July 1996, the Company acquired all of the outstanding capital
stock of Software Alternatives, Inc. (d/b/a System Software Alternatives)
("Software Alternatives"), a leading provider of production scheduling
software, for approximately $1,900,000. Also effective July 1996, the Company
acquired all of the outstanding capital stock of Grateful Data, Inc. (d/b/a
TransCentury Data Systems) ("Grateful Data"), a Year 2000 solution provider,
for $100,000 in cash plus 333,333 shares of Common Stock, which had a Market
Value of approximately $4,000,000 at the time of the acquisition.
Effective December 1996, the Company acquired all of the outstanding capital
stock of VREAM, Inc. ("VREAM"), a leading provider of virtual reality software
for the World Wide Web and other interactive environments, in exchange for
760,383 shares of Common Stock, which had a Market Value of approximately
$10,300,000 at the time of the acquisition. In addition, the Company assumed
stock options which converted into options to purchase 70,257 shares of Common
Stock.
During 1996, the Company also acquired certain software technologies for an
aggregate purchase price of approximately $3,513,000.
Internationally, effective December 1996, the Company acquired substantially
all of the assets of the Access Manager business unit of the High Performance
Systems division of International Computers Limited ("Access Manager"), a
leading provider of single-sign-on security computer software for enterprise
computing technology, in exchange for 2,286,222 shares of Common Stock, which
had a Market Value of approximately $30,000,000 at the time of the
acquisition.
Effective February 1997, the Company acquired all of the outstanding capital
stock of GEJAC, Inc. ("GEJAC"), a leading provider of UNIX and NT charge-back
software, in exchange for 412,801 shares of Common Stock, which had a Market
Value of approximately $6,800,000 at the time of the acquisition.
Internationally, effective October 1997, the Company acquired all of the
outstanding capital stock of ProMetrics Group Limited ("ProMetrics"), a
leading provider of productivity management software, in exchange for
approximately $8,000,000 in cash plus 364,396 shares of Common Stock, which
had a Market Value of approximately $9,500,000 at the time of the acquisition,
plus contingent consideration of approximately $11,000,000, as specified in
the acquisition agreement. The Company's issuance of Common Stock was
substantially used to retire approximately $7,000,000 of assumed debt under
the acquisition agreement.
On December 23, 1997, the Company and Intel Corporation ("Intel") entered
into certain agreements providing for the sale and license to the Company by
Intel of certain product technologies and the payment to the Company by Intel
of certain cash consideration. In exchange, the Company agreed to issue to
Intel 1,768,421
F-36
<PAGE>
shares of the Company's Class II Series B Preferred Stock ("Preferred Stock"),
which had a Market Value of approximately $42,000,000 on the date of the
agreement, and to distribute certain products manufactured by Intel.
Additionally, the Company licensed certain product technologies to Intel.
During 1997, the Company also acquired certain other software technologies
for an aggregate purchase price of approximately $6,800,000.
The following unaudited pro forma summary presents the Company's results of
operations as if the acquisitions accounted for as purchases had occurred at
the beginning of each period. This summary is provided for informational
purposes only. It does not necessarily reflect the actual results that would
have occurred had the acquisitions been made as of those dates or of results
that may occur in the future.
<TABLE>
<CAPTION>
1997 1996
--------- --------
(IN THOUSANDS,
EXCEPT
PER SHARE DATA)
<S> <C> <C>
Revenues............................................. $ 632,150 $485,456
Net loss............................................. (120,431) (73,853)
Net loss per share................................... (1.92) (1.27)
</TABLE>
The Company estimates aggregate payments for acquisition-related payables in
connection with the acquisitions described above to be $15,717,000,
$17,682,000 and $638,000 for the years ended December 31, 1998, 1999 and 2000,
respectively.
The Company may be required to make additional payments in future years to
various former owners of acquired businesses based upon the attainment of
certain operating results by such businesses. The amount of these payments was
not determinable at December 31, 1997. Additional payments will be charged to
compensation expense or recorded as an adjustment to the respective purchase
price in the periods in which such payments are determinable.
3. INVESTMENT SECURITIES
At December 31, 1997, the Company classified its marketable debt and equity
securities as either available-for-sale or trading. Available-for-sale
securities represent those securities that do not meet the classification of
held-to-maturity and are not actively traded. Trading securities represent
those securities which the Company intends to buy or sell in the near term for
the purpose of generating profits on increases in market values. At December
31, 1997, net unrealized holding gains from available-for-sale securities of
$13,770,000, reduced by income taxes of approximately $5,508,000, were
included as a separate component of stockholders' equity. For the year ended
December 31, 1997, available-for-sale securities amounting to $24,972,000 were
reclassified to trading securities. The Company reclassified its available-
for-sale securities to trading securities during 1997, because the Company
intended to sell the securities at various dates in the near future to benefit
from increases in the market price of those securities. Unrealized holding
gains from reclassified securities of approximately $19,829,000, previously
reported as a separate component of stockholders' equity in the amount of
$11,897,000 (net of income taxes), were recognized in pre-tax earnings for the
year ended December 31, 1997. The Company sold a portion of its trading
securities during 1997 and consequently reclassified the corresponding
unrealized gains to realized gains. For the year ended December 31, 1997, the
Company reported unrealized holding gains of approximately $12,581,000 in pre-
tax earnings.
During 1996, certain cost-basis equity investments became marketable equity
securities and were reclassified as either available-for-sale or trading. The
Company owns equity interests in certain technology companies that executed
initial public offerings during 1996. As a result, the Company reclassified
these investments based upon future trading intentions. The cost and
unrealized gain, net of income taxes, on the investment transferred to the
available-for-sale classification were approximately $8,383,000 and
$17,805,000, respectively. The cost and unrealized gain on the investment
transferred to the trading classification were approximately $1,125,000 and
$920,000, respectively.
F-37
<PAGE>
The amortized cost, gross unrealized holding gains, gross unrealized holding
losses and aggregate fair value of investment securities at December 31, 1997
were as follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1997
-------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED
COST HOLDING GAINS HOLDING LOSSES FAIR VALUE
--------- ------------- -------------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Current:
Available-for-sale--
U.S. Government
securities......... $ 7,571 $ 2 $ -- $ 7,573
State and municipal
bonds.............. 1,356 4 (36) 1,324
Corporate bonds..... 13,812 26 (2) 13,836
Marketable equity
securities......... 3,240 13,770 -- 17,010
------- ------- ----- -------
25,979 13,802 (38) 39,743
------- ------- ----- -------
Trading securities--
Marketable equity
securities......... 4,338 13,867 (351) 17,854
------- ------- ----- -------
$30,317 $27,669 $(389) $57,597
======= ======= ===== =======
Non-current:
Available-for-sale--
State and municipal
bonds.............. $25,498 $ 55 $ -- $25,553
======= ======= ===== =======
</TABLE>
The amortized cost, gross unrealized holding gains, gross unrealized holding
losses and aggregate fair value of investment securities at December 31, 1996
were as follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1996
-------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED
COST HOLDING GAINS HOLDING LOSSES FAIR VALUE
--------- ------------- -------------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Current:
Available-for-sale--
State and municipal
bonds.............. $ 402 $ 1 $-- $ 403
Corporate bonds..... 2,002 -- (1) 2,001
Marketable equity
securities......... 8,383 29,923 -- 38,306
------- ------- ---- -------
10,787 29,924 (1) 40,710
------- ------- ---- -------
Trading securities--
Marketable equity
securities......... 1,125 920 -- 2,045
------- ------- ---- -------
$11,912 $30,844 $ (1) $42,755
======= ======= ==== =======
Non-current:
Available-for-sale--
State and municipal
bonds.............. $ 2,122 $ 51 $(38) $ 2,135
======= ======= ==== =======
</TABLE>
F-38
<PAGE>
The contractual maturities of debt securities at December 31, 1997 were as
follows:
<TABLE>
<CAPTION>
FAIR VALUE
--------------
(IN THOUSANDS)
<S> <C>
Due within one year........................................ $22,733
Due after one year through five years...................... 416
Due after five years....................................... 25,137
-------
$48,286
=======
</TABLE>
Using the specific identification method, the gross realized gains and gross
realized losses on the sale of available-for-sale securities were
approximately $44,000 and $0, respectively, for the year ended December 31,
1997, $1,032,000 and $0, respectively, for the year ended December 31, 1996
and $467,000 and $(135,000), respectively, for the year ended December 31,
1995. For the year ended December 31, 1997, the Company also sold investments
classified as trading securities. Gross realized gains and gross realized
losses related to these sales were $7,522,000 and $0, respectively.
4. PROPERTY AND EQUIPMENT
Property and equipment are summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------
1997 1996
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Furniture and fixtures................................. $ 28,070 $ 26,568
Computers and software................................. 65,717 62,338
Transportation......................................... 11,445 8,117
Leasehold improvements................................. 26,498 20,780
-------- --------
131,730 117,803
Less accumulated depreciation and amortization......... 53,888 45,053
-------- --------
$ 77,842 $ 72,750
======== ========
</TABLE>
5. PURCHASED AND DEVELOPED SOFTWARE
Purchased and developed software consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------
1997 1996
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Purchased software..................................... $ 47,238 $ 34,618
Software development costs............................. 141,690 89,400
-------- --------
188,928 124,018
Less accumulated amortization.......................... 72,211 41,580
-------- --------
$116,717 $ 82,438
======== ========
</TABLE>
During the years ended December 31, 1997, 1996 and 1995, $62,504,000,
$38,555,000 and $19,867,000, respectively, of software development costs were
capitalized. The Company recognized amortization expense applicable to
internally developed capitalized software of $21,361,000, $11,309,000 and
$6,276,000 during 1997, 1996 and 1995, respectively. The Company recognized
amortization expense applicable to purchased software of $9,270,000,
$6,237,000 and $3,084,000 during 1997, 1996 and 1995, respectively. During
1997, the Company wrote-off $10,214,000 of capitalized software development
costs and $1,450,000 of purchased software related to the restructuring plan
executed in May 1997. During 1996, the Company wrote off $654,000 of
capitalized software development costs related to certain AIB, SII and other
product technologies.
F-39
<PAGE>
6. INSTALLMENT ACCOUNTS RECEIVABLE
Installment accounts receivable consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1997 1996
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Current installment receivables....................... $ 42,753 $ 19,763
Allowance for uncollectible amounts................... (878) (395)
Deferred maintenance fees............................. (10,124) (5,058)
Unamortized discounts................................. (1,708) (707)
-------- --------
$ 30,043 $ 13,603
======== ========
Non-current installment receivables................... $ 58,889 $ 40,827
Allowance for uncollectible amounts................... (1,616) (816)
Deferred maintenance fees............................. (27,603) (16,347)
Unamortized discounts................................. (7,758) (1,999)
-------- --------
$ 21,912 $ 21,665
======== ========
</TABLE>
Installment accounts receivable represent amounts collectible on long-term
financing arrangements and include fees for product licenses, upgrades and
maintenance, sometimes also bundled with professional services contracts.
Installment receivables are generally financed over three to five years and
are recorded net of unamortized discounts, deferred maintenance fees and
allowances for uncollectible amounts.
The Company sells a significant portion of its installment receivables to
third parties. When these receivables are sold, the Company reduces the gross
installment receivable balance. Additionally, the Company reclassifies the
deferred maintenance to an obligation, which was previously reflected as a
reduction of the related installment receivable balance. The deferred
maintenance is recognized ratably into income over the term of the maintenance
agreement.
Proceeds from the sale of installment receivables for 1997 and 1996 were
approximately $206,916,000 and $129,328,000, respectively. There were no
accounts receivable sold with recourse for the year ended December 31, 1997.
Accounts receivable sold with recourse were $19,373,000 and $2,993,000 for the
years ended
December 31, 1996 and 1995, respectively. As of December 31, 1997, there were
no potential recourse obligations for accounts receivable sold with recourse.
As of December 31, 1996 and 1995, potential obligations for accounts
receivable sold with recourse were $16,817,000 and $5,177,000, respectively.
In addition to accounts receivable sold with recourse, the Company has an
agreement with a third party that provides for potential recourse obligations
in the form of a loss pool based on the performance of the related accounts
receivable portfolio. Based on the terms of that agreement, potential recourse
obligations at December 31, 1997 and 1996 were $14,632,000 and $9,300,000,
respectively. Based on the credit ratings of the underlying obligors to the
accounts receivable and the performance history of the accounts receivable
portfolio, the Company has assessed the exposure related to these recourse
obligations and determined the potential liability to be minimal. The fair
market value of the recourse obligations at December 31, 1997 was not
determinable.
7. EMPLOYEE BENEFIT PLANS
The Company has various defined contribution retirement plans (401(k) and
profit sharing) for qualified employees. Employer contributions made under the
plans totaled $1,511,000, $1,071,000 and $406,000 in 1997, 1996 and 1995,
respectively.
8. LINE OF CREDIT
At December 31, 1997, the Company had an unsecured bank line of credit for
$55,000,000, under which borrowings bear interest at rates ranging from
approximately LIBOR plus 1% to the bank's prime rate. This line
F-40
<PAGE>
of credit is subject to limitations based upon certain financial covenants. At
December 31, 1997, there were no borrowings outstanding under this line of
credit.
At December 31, 1997, the Company had aggregate letters of credit
outstanding for approximately $2,623,000, with expiration dates ranging from
March 1998 to December 1998. These letters of credit reduce the available line
of credit balance.
9. STOCK OPTIONS AND EMPLOYEE STOCK PURCHASE PLAN
As of December 31, 1997, the Company and its subsidiaries had seven stock
option plans, which are described below, as well as several plans that have
been assumed pursuant to acquisitions. The Company applies APB Opinion No. 25
in accounting for its plans. Accordingly, no compensation cost has been
recognized for its fixed stock option plans and its employee stock purchase
plan (the "Stock Purchase Plan").
Had compensation cost for the Company's stock option plans and the Stock
Purchase Plan been determined consistent with SFAS No. 123, the Company's net
loss and net loss per share would have been the pro forma amounts indicated
below for the years ended December 31, 1997, 1996 and 1995:
<TABLE>
<CAPTION>
1997 1996 1995
--------- -------- ---------
(IN THOUSANDS, EXCEPT PER
SHARE DATA)
<S> <C> <C> <C>
Net loss:
As reported............................. $(117,784) $(64,922) $(111,567)
Pro forma............................... (127,972) (70,866) (117,114)
Net loss per share:
As reported............................. $ (1.90) $ (1.14) $ (2.50)
Pro forma............................... (2.06) (1.24) (2.62)
</TABLE>
Under SFAS No. 123, the pro forma compensation expense related to the
Company's stock option plans and Stock Purchase Plan, before effects for
income taxes, was approximately $17,130,000, $9,940,000 and $9,326,000 in
1997, 1996 and 1995, respectively.
Excluding stock option plans assumed pursuant to acquisitions, the Company
has six stock option plans ("Company Plans"). The Employee Incentive
Compensation Plan, 1994 Stock Incentive Plan, 1991 Option Plan
and 1989 Option Plan provide for the granting of options to employees and non-
employee directors for up to an aggregate of 16,160,000 shares. Under the
Chief Executive Option Plan, the Company has authority to grant options for up
to 1,600,000 shares to its Chief Executive Officer and President. Under the
Directors' Option Plan, the Company may grant options for up to 500,000 shares
to non-employee directors.
In general, the options granted under the Company Plans, excluding the
Directors' Option Plan, during 1997, 1996 and 1995 have similar provisions.
Under these plans, the Company has granted both non-qualified and incentive
stock options. These options have an exercise price equal to the closing
market price of the Company's stock on the date of grant, have a legal life of
ten years and typically vest in equal annual installments over a four-year
period beginning one year from the date of grant. Certain options granted
prior to 1995 have a legal life of fifteen years. The specific provisions of
any grant are determined by the Compensation Committee of the Board of
Directors or another designated committee.
Under the Directors' Option Plan, only non-qualified options have been
granted. These options have an exercise price equal to the closing market
price of the Company's stock on the date of grant and have a legal life of ten
years. The options granted in 1995 under this plan vested immediately, while
those granted in 1996 and 1997 vest annually over a three-year period
beginning one year from the date of grant.
As discussed in Note 2, the Company has assumed various option grants
related to certain acquisitions. The assumption of these option grants
resulted in the deemed issuance by the Company of options for 67,937, 430,582
and 1,206,566 shares in 1997, 1996 and 1995, respectively. The options assumed
reflect outstanding
F-41
<PAGE>
options at the time of acquisition. The provisions of the assumed options are
generally the same as those provided for in the original option agreements.
In 1996, the Company began offering the Stock Purchase Plan to its employees
who work more than 20 hours per week. Under this Plan, the Company is
authorized to issue up to 5,000,000 shares of Common Stock. Under terms of the
Stock Purchase Plan and current policies of the administrative committee,
employees may elect each year to withhold between one and 50 percent of their
cash compensation through regular payroll deductions to purchase Common Stock,
subject to Internal Revenue Service limitations. The purchase price of the
stock is 85 percent of the lower of the price at the grant date, which is the
beginning of the plan year (March 1 or September 1 for employees with a start
date between March 1 and August 31) or the exercise date, which is the end of
each plan quarter (February 28, May 31, August 31 and November 30). As of
December 31, 1997, approximately 50% of eligible employees were participating
in the Stock Purchase Plan. Under the Stock Purchase Plan, the Company sold
882,229 and 197,165 shares to employees in 1997 and 1996, respectively.
The fair value of stock option grants is estimated using the Black-Scholes
option-pricing model, with the following weighted-average assumptions used for
stock option grants in 1997, 1996 and 1995, respectively: weighted-average
option price, which equals the fair market value at date of grant, of $14.61,
$12.03 and $16.56; expected dividend yields of 0% for all years; expected
volatility of 61%, 55% and 55%; risk-free interest rates of 5.66%, 6.37% and
6.12%; and an expected life of five years for all years. The fair value of the
employees' purchase rights pursuant to the Stock Purchase Plan are estimated
using the Black-Scholes option-pricing model, with the following weighted-
average assumptions used for purchase rights granted in 1997 and 1996,
respectively: average fair market value of $13.75 and $10.75; average option
price of $11.69 and $9.14; expected dividend yield of 0% for both years;
expected volatility of 61% and 51%; average risk-free interest rate of 5.52%
and 5.42%; and expected life of three months for both years.
Stock option plan activity during the years ended December 31, 1997, 1996
and 1995 was as follows:
<TABLE>
<CAPTION>
1997 1996 1995
-------------------------- -------------------------- -------------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
FIXED OPTIONS SHARES EXERCISE PRICE SHARES EXERCISE PRICE SHARES EXERCISE PRICE
------------- ---------- -------------- ---------- -------------- --------- --------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning
of year................ 10,143,622 $12.18 8,404,911 $11.87 6,813,468 $ 9.66
Granted................. 3,590,727 14.61 2,781,172 12.03 2,683,058 16.56
Exercised............... (938,817) 8.91 (517,219) 4.60 (738,030) 6.27
Canceled................ (933,667) 13.49 (525,242) 13.80 (353,585) 14.02
---------- ---------- ---------
Outstanding at end of
year................... 11,861,865 13.08 10,143,622 12.18 8,404,911 11.87
========== ========== =========
Options exercisable at
end of year............ 5,797,724 5,488,725 5,211,103
========== ========== =========
Weighted-average grant-
date fair value of op-
tions granted during
the year............... $ 8.35 $ 6.96 $ 11.36
</TABLE>
The following table summarizes information about fixed stock options
outstanding at December 31, 1997:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
------------------------------------------ ------------------------
RANGE OF WEIGHTED-AVG.
EXERCISE NUMBER OF REMAINING WEIGHTED-AVG. NUMBER OF WEIGHTED-AVG.
PRICES SHARES CONTRACTUAL LIFE EXERCISE PRICE SHARES EXERCISE PRICE
-------- ---------- ---------------- -------------- --------- --------------
<S> <C> <C> <C> <C> <C>
$.0025-
9.75 1,419,229 3.87 years $ 3.52 1,330,587 $ 3.39
10.13-
12.00 2,062,375 7.00 10.74 1,092,745 10.41
12.38-
14.00 4,174,778 7.75 13.08 1,462,639 12.95
14.06-
18.13 2,165,479 7.56 15.14 1,030,550 14.99
$18.25-
33.73 2,040,004 7.91 19.92 881,203 19.18
---------- ---------
11,861,865 7.15 13.08 5,797,724 11.59
========== =========
</TABLE>
F-42
<PAGE>
During 1997, a wholly-owned subsidiary of the Company adopted a fixed stock
option plan (the "1997 Option Plan"). The 1997 Option Plan provides for the
granting of options to employees for up to an aggregate of 7,500,000 shares of
the subsidiary's common stock. Under this plan, the subsidiary has granted
non-qualified stock options. These options have an exercise price equal to the
fair market value of the subsidiary's stock on the date of grant, have a legal
life of ten years and vest on the sixth anniversary of the grant date. Options
granted under the 1997 Option Plan are exercisable in shares of the
subsidiary's common stock and are not convertible to the Company's Common
Stock. During 1997, the subsidiary granted 5,170,000 options at a fair market
value of $0.92. For the year ended December 31, 1997, 247,500 options were
canceled. The weighted-average grant-date fair value of these options was
$0.33 using the Minimum Value option-pricing method and a risk-free interest
rate of 5.80%.
10. PREFERRED STOCK
On December 23, 1997, the Company agreed, pursuant to a stock purchase
agreement, to issue to Intel 1,768,421 shares of its Preferred Stock, which
had a fair market value of approximately $42,000,000 on the date of
subscription, for certain product technologies and other intangible assets.
The shares of Preferred Stock were subscribed for as of December 31, 1997 and
subsequently issued on January 14, 1998.
The holders of the Preferred Stock have the option to convert, at any time,
each share of Preferred Stock into one share of Common Stock. Each share of
Preferred Stock will automatically convert into one share of Common Stock upon
the tranfer by any holder of Preferred Stock in a non-permitted transfer. In
the event of a liquidation of the Company, the holders of the Preferred Stock
are entitled to receive $23.75 per share plus the amount of any declared but
unpaid dividends. The conversion and liquidation terms are subject to
adjustment based upon subsequent changes in equity interests.
As of December 31, 1997, the Company had reserved 1,768,421 shares of its
authorized Common Stock to be issued upon conversion of the Preferred Stock.
11. INCOME TAXES
Income (loss) before income taxes for the years ended December 31, 1997,
1996 and 1995 consisted of the following:
<TABLE>
<CAPTION>
1997 1996 1995
--------- -------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
U.S....................................... $(113,313) $(68,911) $(137,724)
Non-U.S................................... 14,250 (5,256) 14,477
--------- -------- ---------
Total................................. $ (99,063) $(74,167) $(123,247)
========= ======== =========
</TABLE>
Income tax expense (benefit) for the years ended December 31, 1997, 1996 and
1995 consisted of the following:
<TABLE>
<CAPTION>
1997 1996 1995
------- ------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Current:
Federal..................................... $ -- $ -- $ 315
State....................................... 241 175 133
Foreign..................................... 2,309 2,035 740
Deferred:
Federal..................................... 22,096 (7,838) (7,899)
State....................................... (3,295) (3,617) (4,969)
Foreign..................................... (2,630) -- --
------- ------- --------
$18,721 $(9,245) $(11,680)
======= ======= ========
</TABLE>
F-43
<PAGE>
The reconciliation of income taxes computed using the Federal statutory rate
of 35% to the income tax provision is as follows for the years ended December
31, 1997, 1996 and 1995:
<TABLE>
<CAPTION>
1997 1996 1995
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Income tax computed at statutory rate..... $(34,672) $(25,959) $(43,137)
State income tax, net of Federal tax
benefit.................................. (3,053) (3,442) (4,836)
Research and experimentation credits...... (3,514) (1,491) (1,213)
Foreign tax credit........................ (117) (59) (239)
Foreign taxes............................. 1,271 751 240
Foreign sales corporation................. (557) (1,036) (294)
Municipal interest........................ (80) (289) (554)
Stock acquisitions........................ 9,953 6,281 11,450
Nondeductible merger costs................ 443 1,440 4,625
Change in valuation allowance............. 45,064 12,608 22,856
Other..................................... 3,983 1,951 (578)
-------- -------- --------
Effective tax............................. $ 18,721 $ (9,245) $(11,680)
======== ======== ========
</TABLE>
The tax effects of temporary differences and carryforwards that give rise to
deferred tax assets and liabilities at December 31, 1997 and 1996 were as
follows:
<TABLE>
<CAPTION>
1997 1996
--------- --------
(IN THOUSANDS)
<S> <C> <C>
Deferred tax assets:
Deferred revenue.................................. $ 6,419 $ 1,152
Allowance for doubtful accounts................... 561 749
Net operating loss carryforwards.................. 118,475 95,190
Foreign net operating losses...................... 2,630 --
General business, AMT and state tax credits....... 12,907 9,544
Foreign tax credits............................... 952 1,138
Accrued expenses and reserves..................... 9,097 157
Rent abatement.................................... 2,471 1,957
Other............................................. 5,856 5,128
--------- --------
Total gross deferred tax assets................. 159,368 115,015
Less valuation allowance.......................... (105,000) (59,936)
--------- --------
Net deferred tax assets......................... 54,368 55,079
--------- --------
Deferred tax liabilities:
Capitalized software, net......................... 36,420 23,908
Installment sales................................. 819 826
Acquired technology............................... 1,000 3,124
Unrealized gain on marketable equity securities... 11,161 12,499
--------- --------
Total gross deferred tax liabilities............ 49,400 40,357
--------- --------
Net deferred tax asset.......................... $ 4,968 $ 14,722
========= ========
</TABLE>
The net change in the valuation allowance during 1997, 1996 and 1995 was an
increase of $45,064,000, $12,608,000 and $22,856,000, respectively.
The Company has reduced gross deferred tax assets by a valuation allowance
to reflect the estimated amount of deferred tax assets which will, more likely
than not, be realized. The net deferred tax asset at December 31, 1997
reflects management's estimate of the amount that will be realized as a result
of future profitability. The
F-44
<PAGE>
amount of the deferred tax asset considered realizable could be reduced if
estimates of future taxable income are reduced.
At December 31, 1997, the Company had approximately $294,715,000 of net
operating loss carryforwards and $14,000,000 of tax credit carryforwards,
which are available to reduce future Federal income taxes, if any, through the
year 2012. The Company's ability to utilize the net operating loss
carryforwards and available tax credits may be limited due to changes in
ownership as a result of business combinations.
12. CONVERTIBLE SUBORDINATED NOTES
In November 1996, the Company issued $115,000,000 of convertible
subordinated notes (the "1996 Notes") due November 15, 2001, bearing interest
at 6.75% annually. Interest is payable semi-annually on May 15 and November
15. The holders of the Notes have the option to convert them into shares of
Common Stock, at any time prior to maturity, at a conversion price of $13.95
per share. The Notes are redeemable at the option of the Company, in whole or
in part, at any time during the twelve-month period commencing November 15,
1999 at 102.7% of their principal amount and during the twelve-month period
commencing November 15, 2000 at 101.35% of their principal amount. During
1997, $10,000 of the 1996 Notes were converted to Common Stock. As of December
31, 1997, $114,990,000 of the 1996 Notes were outstanding.
The Company estimated the fair value of the 1996 Notes as of December 31,
1997 at approximately $236,879,000, based upon their trading price on the
Nasdaq SmallCap Market on that date.
In December 1997, the Company issued $150,000,000 of convertible
subordinated notes (the "1997 Notes") due December 15, 2002, bearing interest
at 6.25% annually. Interest is payable semi-annually on June 15 and December
15, commencing June 15, 1998. The holders of the 1997 Notes have the option to
convert them into shares of Common Stock, at any time prior to maturity, at a
conversion price of $36.05 per share. The 1997 Notes are redeemable at the
option of the Company, in whole or in part, at any time during the twelve-
month period commencing December 15, 2000 at 102.5% of their principal amount
and during the twelve-month period commencing December 15, 2001 at 101.25% of
their principal amount. As of December 31, 1997, $150,000,000 of the 1997
Notes were outstanding.
The Company estimated the fair value of the 1997 Notes as of December 31,
1997 at approximately $159,375,000, based upon their bid price in the
convertible debentures market on that date.
For the years ended December 31, 1998, 1999, 2000, 2001 and 2002, aggregate
annual maturities of the 1996 Notes and the 1997 Notes are $0, $0, $0,
$114,990,000 and $150,000,000, respectively.
13. RESTRUCTURING
In May 1997, the Company executed a restructuring plan to consolidate its
sales, marketing, business development and product development operations to
achieve cost efficiencies through the elimination of redundant functions.
These redundancies resulted primarily from businesses acquired over the last
three years. The Company also realigned its business units and inside sales
force to redirect focus on its strongest product lines and better integrate
the efforts of certain product development teams. As part of the plan, the
Company reduced its worldwide work force by approximately 10%, eliminating
approximately 400 positions primarily in the areas of product development and
support, marketing and inside sales and, to a lesser extent, professional
services and administration.
The Company recorded a restructuring charge of $57,319,000 during the second
quarter of 1997 related to the restructuring plan. The restructuring charge
included the following expenses: facility-related costs, including a reserve
for estimated lease obligations associated with the closing of office
facilities; write-offs of excess equipment, furniture and fixtures; write-offs
of capitalized software costs and other intangible assets related to the
termination of development efforts for certain discontinued products, as well
as penalties for the cancellation
F-45
<PAGE>
of distributorship agreements for such products; and severance and other
employee-related costs of the terminated staff.
The following table summarizes the Company's restructuring activity for the
year ended December 31, 1997:
<TABLE>
<CAPTION>
INTANGIBLE ASSETS AND PROPERTY
EXCESS SEVERANCE AND PENALTIES FOR CANCELLED AND
FACILITIES BENEFITS AGREEMENTS EQUIPMENT TOTAL
---------- ------------- ----------------------- --------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
1997 restructuring
charges:
Cash-related charges.. $24,032 $10,364 $ 3,236 $ -- $ 37,632
Non-cash charges...... -- -- 16,177 3,510 19,687
------- ------- ------- ------ --------
$24,032 $10,364 $19,413 $3,510 57,319
======= ======= ======= ======
Payments made in 1997.............................................................. (15,322)
Write-offs taken in 1997........................................................... (19,687)
--------
Total accrued restructuring costs at December 31, 1997............................. 22,310
Less current portion............................................................... 6,308
--------
Long-term accrued restructuring costs ............................................. $ 16,002
========
</TABLE>
14. DERIVATIVE FINANCIAL INSTRUMENTS
The Company conducts business on a global basis in numerous major
international currencies and is, therefore, exposed to adverse movements in
foreign currency exchange rates. The Company has established a foreign
currency hedging program utilizing forward foreign exchange contracts to
reduce certain currency
exposures. These contracts hedge exposures associated with nonfunctional
currency assets and liabilities denominated in Japanese, Australian, numerous
Asian and various European currencies. At the present time, the Company hedges
only those currency exposures associated with certain nonfunctional currency
assets and liabilities resulting from intercompany balances and does not
generally hedge anticipated foreign currency cash flows. The Company does not
enter into forward exchange contracts for trading purposes.
Gains and losses on the foreign currency forward exchange contracts are
included in other income and offset foreign exchange gains and losses from the
revaluation of intercompany balances denominated in currencies other than the
functional currency of the reporting entity. The Company's forward contracts
generally have original maturities of one month.
The table below provides information as of December 31, 1997 about the
Company's foreign currency forward exchange contracts, including notional
values of outstanding forward contracts purchased and sold and the unrealized
gains or losses recorded for each contract.
<TABLE>
<CAPTION>
NOTIONAL NOTIONAL
VALUE VALUE UNREALIZED
PURCHASED SOLD GAINS (LOSSES)
--------- -------- --------------
(IN THOUSANDS)
<S> <C> <C> <C>
European currencies................... $4,407 $(20,649) $(173)
Asian currencies...................... -- (412) 4
Japanese Yen.......................... -- (972) 4
Australian Dollar..................... -- (338) 11
--
------ -------- -----
Total............................. $4,407 $(22,371) $(154)
====== ======== =====
</TABLE>
While the notional or contract amounts of the Company's forward exchange
contracts provide one measure of the volume of these transactions, they do not
represent the Company's full exposure to credit risk. The Company faces
additional risks if the banking counterparties are unable to meet the terms of
the agreements.
F-46
<PAGE>
The Company has established policies to minimize such risks and will only
execute forward exchange contracts with major financial institutions. The
Company has assessed the potential exposure related to default by such
institutions to be minimal.
15. COMMITMENTS AND CONTINGENCIES
Operating Leases
The Company leases office space and certain computer and telecommunications
equipment under long-term lease agreements expiring through the year 2016.
Total future minimum lease payments under noncancelable leases are as follows:
<TABLE>
<CAPTION>
AMOUNT
--------------
(IN THOUSANDS)
<S> <C>
1998...................... $ 40,980
1999...................... 33,133
2000...................... 24,727
2001...................... 20,067
2002 and thereafter....... 35,226
--------
Total................. $154,133
========
</TABLE>
Future minimum lease payments have not been reduced by minimum sublease
rentals of $603,000 due in the future under noncancelable subleases. Total
rent expense under all operating leases, net of insignificant sublease rental
income, amounted to $32,021,000, $22,510,000 and $15,659,000 in 1997, 1996 and
1995, respectively.
Litigation
The Company is subject to certain legal proceedings and claims that have
arisen in the ordinary course of business and have not been fully adjudicated.
Management currently believes the ultimate outcome of these matters will not
have a material adverse effect on the Company's results of operations or
financial position.
16. OTHER INCOME, NET
Other income (expense), net, for the years ended December 31, 1997, 1996 and
1995 is comprised of the following:
<TABLE>
<CAPTION>
1997 1996 1995
-------- ------- ------
(IN THOUSANDS)
<S> <C> <C> <C>
Interest income.............................. $ 5,365 $ 5,163 $4,637
Interest expense............................. (9,130) (1,825) (782)
Foreign exchange gains (losses).............. 469 (35) 64
Net realized gains on sales of investments... 7,566 1,032 332
Unrealized gains on marketable equity
securities.................................. 12,581 920 --
Other........................................ (122) (18) (121)
-------- ------- ------
$ 16,729 $ 5,237 $4,130
======== ======= ======
</TABLE>
17. SEGMENT AND GEOGRAPHIC INFORMATION
The Company operates in one industry segment. The Company markets and
services its products in the United States and in foreign countries through
its direct sales organization and affiliates (which are non-controlled product
representatives).
F-47
<PAGE>
The following table presents information about the Company by geographic
area for the years ended December 31, 1997, 1996 and 1995. Export sales and
certain income and expense items are reported in the geographic area where the
final sale is made rather than where the transaction originates.
<TABLE>
<CAPTION>
DOMESTIC EUROPE OTHER TOTAL
--------- -------- ------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
1997
Revenues....................... $ 444,577 $119,919 $59,007 $ 623,503
Operating income (loss)........ (122,573) 4,135 2,646 (115,792)
Identifiable assets............ 690,127 89,958 54,092 834,177
1996
Revenues....................... $ 326,673 $ 97,708 $43,684 $ 468,065
Operating loss................. (74,742) (1,892) (2,770) (79,404)
Identifiable assets............ 498,500 84,201 35,871 618,572
1995
Revenues....................... $ 222,568 $ 67,906 $35,937 $ 326,411
Operating income (loss)........ (137,672) 9,885 410 (127,377)
Identifiable assets............ 365,799 59,465 27,003 452,267
</TABLE>
The revenues and operating income (loss) amounts above exclude the effect of
intercompany royalties. The domestic operating losses in 1997, 1996 and 1995
include all merger costs, restructuring costs and acquired in-process
technology charges.
No single customer accounted for 10% or more of total revenues in 1997, 1996
or 1995.
18. SUBSEQUENT EVENTS
On January 2, 1998, the Company entered into an agreement and plan of
merger, pursuant to which the Company has agreed to acquire Learmonth and
Burchett Management Systems PLC ("LBMS"), a leading provider of process
management solutions. Under the terms of this acquisition, LBMS will become a
wholly-owned subsidiary of the Company. The Company has agreed to exchange
approximately 2,745,000 shares of Common Stock for all of the outstanding
common shares of LBMS and has offered to exchange options to purchase
approximately 468,000 shares of Common Stock for the outstanding LBMS options.
This acquisition, which is expected to be consummated in the second quarter of
1998, is subject to the sanction of the English High Court, the approval of
the shareholders of LBMS and customary legal and regulatory conditions.
On February 18, 1998, the Company entered into an agreement and plan of
merger, pursuant to which the Company has agreed to acquire Mastering, Inc.
("Mastering"), a leading provider of information technology training. Under
the terms of this acquisition, Mastering will become a wholly-owned subsidiary
of the Company. The Company has agreed to exchange approximately 6,165,000
shares of Common Stock for all of the outstanding common shares of Mastering
and to assume stock options which will convert into options to purchase
approximately 2,143,000 shares of Common Stock. This acquisition, which is
expected to be consummated in the second quarter of 1998, is subject to the
filing of a registration statement with the Securities and Exchange
Commission, the approval of the stockholders of Mastering and customary legal
and regulatory conditions.
On March 14, 1998, the Company entered into an agreement and plan of merger,
pursuant to which the Company has agreed to acquire Logic Works, Inc.
("Logic"), a leading provider of data modeling tools. Under the terms of this
acquisition, Logic will become a wholly-owned subsidiary of the Company. The
Company has agreed to exchange approximately 7,240,095 shares of Common Stock
for all of the outstanding common shares of Logic and to assume stock options
which will convert into options to purchase approximately 1,325,716 shares of
Common Stock. This acquisition, which is expected to be consummated in mid-
1998, is subject to the filing of a registration statement with the Securities
and Exchange Commission, the approval of the stockholders of Logic and
customary legal and regulatory conditions.
F-48
<PAGE>
The acquisitions of LBMS, Mastering and Logic are expected to be accounted
for as poolings of interests. Costs incurred in connection with these
transactions will be expensed in the periods in which the acquisitions are
consummated.
The following unaudited pro forma information shows total revenues and net
income (loss) of PLATINUM, LBMS, Mastering and Logic during the three years
ended December 31, 1997, 1996 and 1995, as if the transactions had been
consummated as of the earliest period presented. This summary is provided for
informational purposes only. It does not necessarily reflect the actual
results that would have occurred had the acquisitions been made as of those
dates or of results that may occur in the future.
<TABLE>
<CAPTION>
1997 1996 1995
------------------ ----------------- ------------------
NET NET
INCOME INCOME
REVENUES (LOSS) REVENUES NET LOSS REVENUES (LOSS)
-------- --------- -------- -------- -------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
PLATINUM................ $623,503 $(117,784) $468,065 $(64,922) $326,411 $(111,567)
LBMS.................... 23,897 4,469 21,861 (16,318) 41,158 (784)
Mastering............... 40,966 2,581 21,018 (2,892) 10,168 518
Logic................... 50,513 4,605 42,540 (3,062) 30,688 1,407
-------- --------- -------- -------- -------- ---------
Total............... $738,879 $(106,129) $553,484 $(87,194) $408,425 $(110,426)
======== ========= ======== ======== ======== =========
Net loss per share.. $ (1.36) $ (1.22) $ (2.04)
========= ======== =========
</TABLE>
F-49
<PAGE>
AGREEMENT AND PLAN OF REORGANIZATION
BY AND BETWEEN
PLATINUM TECHNOLOGY, INC.
AND
LEARMONTH & BURCHETT MANAGEMENT SYSTEMS PLC.
DATED JANUARY 2, 1998
<PAGE>
AGREEMENT AND PLAN OF REORGANIZATION
This Agreement and Plan of Reorganization (this "Agreement") is made and
entered into as of January , 1998, by and between Platinum technology, inc.,
a Delaware corporation ("Purchaser"), and Learmonth & Burchett Management
Systems Plc, a company incorporated in England and Wales under the Companies
Acts 1948 to 1976 (the "Company").
RECITALS
A. The Boards of Directors of each of the Company and Purchaser believe that
it is in the best interests of each company and their respective shareholders
that the Company be acquired by Purchaser (the "Acquisition").
B. Pursuant to such acquisition, among other things, the Ordinary Shares of
the Company shall be cancelled in consideration of shares of Common Stock of
Purchaser being issued to Company shareholders at the rate determined herein,
new shares of the Company will be issued to Purchaser, and the Company will
become a wholly-owned subsidiary of Purchaser.
C. The Company and Purchaser desire to make certain representations and
warranties and other agreements in connection with the Acquisition.
D. The parties intend that, for purpose of the laws of the United Kingdom
("U.K."), the Acquisition be effected by way of a Scheme of Arrangement under
Section 425 of the U.K. Companies Act of 1985 (the "Companies Act") in the
form set out in Exhibit A (the "Scheme," which term shall include the Scheme
with or subject to any modification, addition or condition approved or imposed
by the High Court of Justice in England and Wales (the "High Court") and
agreed between the parties) and, for purposes of the laws of the United
States, that this Agreement constitutes the adoption of a plan of
reorganization within the meaning of Section 368 of the Internal Revenue Code
of 1986, as amended (the "Code").
NOW, THEREFORE, in consideration of the covenants, promises and
representations set forth herein, and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged,
the parties agree as follows:
1. THE ACQUISITION
1.1 THE ACQUISITION. At the Effective Time (as defined in Section 1.2) and
subject to and upon the terms and conditions of this Agreement and the
applicable provisions of the General Corporation Law of the State of Delaware
("Delaware Law") and Companies Act, the issued Ordinary Shares of the Company
will be cancelled in consideration of shares of Common Stock of Purchaser
being issued to Company shareholders at the rate determined herein, new shares
of the Company will be issued to Purchaser, and the Company will become a
wholly-owned subsidiary of Purchaser.
1.2 EFFECTIVE TIME. Subject to the provisions of this Agreement, the closing
of the Acquisition shall take place, subject to satisfaction or (where
permitted under the terms of this (Agreement) waiver of the conditions set
forth in Article VI, at the time and date on which an office copy of the Order
of the High Court approving the Scheme under Section 425 of the Companies Act
and confirming under Section 137 of the Companies Act the reduction of capital
provided for in connection with the Scheme shall have been duly delivered to
the Registrar of Companies in England and Wales for registration, such Court
Order shall have been registered by him and the Companies Registry has issued
its certificate of registration of the Court Order (the "Effective Time").
1.3 EFFECT ON CAPITAL STOCK. At the Effective Time:
(a) Cancellation of Company Ordinary Shares. Each of the Company's
Ordinary Shares of 10 pence each (the "Company Ordinary Shares") (i) in
issue at 6:00 p.m. (London time) on the last business day prior to the date
of the meeting of holders of such Company Ordinary Shares convened pursuant
to an Order
A-1
<PAGE>
of the High Court to approve the Scheme (or, if such meeting should be
adjourned to a later date, on the last business day prior to that later
date); and (ii) if any, issued thereafter and before 6:00 p.m. (London
time) on the last business day before the hearing of the petition to
sanction the Scheme (the "Hearing Date") on terms that the holder thereof
is bound by the Scheme (together, the "Scheme Shares") will be cancelled,
and in consideration for the cancellation of the Scheme Shares, Purchaser
shall allot and issue to each of the persons who at 6:00 p.m. (London time)
on the business day immediately preceding the Effective Time (the "Record
Date") is the registered holder of Scheme Shares that number of shares (the
"Conversion Shares") of Common Stock, par value $0.001 per share, of
Purchaser (the "Purchaser Common Stock") which is determined by multiplying
the number of Scheme Shares held by such person on the Record Date by
0.1047 (the "Exchange Ratio").
(b) Issuance of Ordinary Shares to Purchaser. Forthwith and contingently
upon the said cancellation of capital taking effect: (i) the share capital
of the Company shall be increased to its former amount by the creation of
such number of ordinary shares of 10 pence each as shall be equal to the
number of Scheme Shares cancelled; and (ii) the Company shall apply the
reserve arising as a result of such cancellation of capital in paying up in
full at par the ordinary shares of 10 pence each so created which shall be
allotted and issued credited as fully paid to Purchaser.
(c) Employee Stock Purchase Plan. The Company has not, and shall not,
commence any "option periods" under its 1996 U.S. Employee Stock Purchase
Plan (the "Stock Purchase Plan") after December 31, 1997, shall apply all
amounts deducted and withheld thereunder on or prior to December 31, 1997
to purchase Company Ordinary Shares in accordance with the provisions
thereof, and shall suspend the Stock Purchase Plan as of December 31, 1997
until the Effective Time. Purchaser shall have no obligation or duty in
respect of the Stock Purchase Plan or the rights granted thereunder.
(d) Adjustments to the Exchange Ratio. The Exchange Ratio shall be
adjusted to reflect fully the effect of any split, reverse stock split,
stock dividend (including any dividend or distribution of securities
convertible into Purchaser Common Stock or Company Ordinary Shares),
reorganization or other like change with respect to Purchaser Common Stock
or Company Ordinary Shares occurring after the date hereof and prior to
6:00 p.m. (London Time) on the last business day before the Hearing Date.
(e) Fractional Shares. No fraction of a share of Purchaser Common Stock
will be issued by virtue of the Scheme, but in lieu thereof each holder of
shares of Scheme Shares who would otherwise be entitled to a fraction of a
share of Purchaser Common Stock (after aggregating all fractional shares of
Purchaser Common Stock to be received by such holder) shall receive from
Purchaser an amount of cash (rounded to the nearest whole cent) equal to
the product of (i) such fraction, multiplied by (ii) $24.06 (the "Closing
Share Value").
1.4 ISSUANCE OF PURCHASER COMMON STOCK.
(a) Exchange Agent. The Harris Trust and Savings Bank, or another similar
institution selected by Purchaser, shall act as the exchange agent (the
"Exchange Agent") in the Acquisition.
(b) Intentionally left blank.
(c) Exchange Procedures. Promptly after the Effective Time (and in any event
within 21 days thereafter), Purchaser shall cause to be mailed to each person
who was at 6:00 p.m. (London time) on the Record Date the registered holder of
the Scheme Shares a certificate representing the number of whole shares of
Purchaser Common Stock and a check in payment in lieu of fractional shares
which such holder has the right to receive pursuant to Section 1.3 (e) (in the
case of joint holders, made payable to the first named joint holder).
(d) No Liability. Notwithstanding anything to the contrary in this Section
1.4 none of the Exchange Agent, the Company or Purchaser shall be liable to a
holder of shares of Purchaser Common Stock or Company Ordinary Shares for any
amount properly paid to a public official pursuant to any applicable abandoned
property, escheat or similar law, nor shall they be responsible for any loss
in the transmission of documents of title or failure of the applicable postal
system(s) for items sent in accordance with Clause 2.3 of the Scheme.
A-2
<PAGE>
1.5 NO FURTHER OWNERSHIP RIGHTS IN COMPANY ORDINARY SHARES. All shares of
Purchaser Common Stock issued in consideration for the cancellation of the
Scheme Shares in accordance with the terms hereof (including any cash paid in
respect thereof) shall be deemed to have been issued in full satisfaction of
all rights pertaining to such Company Ordinary Shares and there shall be no
further registration of transfers on the records of the Company of Company
Ordinary Shares which were outstanding immediately prior to the Effective
Time. If, after the Effective Time, Certificates are presented to the Company
for any reason, they shall be cancelled as provided in this Article I.
1.6 TAX AND ACCOUNTING CONSEQUENCES. It is intended by the parties hereto
that, for purposes of U.S. law, the Acquisition shall (i) constitute a
reorganization within the meaning of Section 368 of the Code and (ii) qualify
for accounting treatment as a pooling of interests.
1.7 TAKING OF NECESSARY ACTION; FURTHER ACTION. If, at any time after the
Effective Time, any further action is necessary or desirable to carry out the
purposes of this Agreement, the officers and directors of the Company and
Purchaser are fully authorized in the name of their respective corporations or
otherwise to take, and will take, all such lawful and necessary action, so
long as such action is consistent with this Agreement.
2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to Purchaser, subject to the exceptions
disclosed in writing in the disclosure letter supplied by the Company to
Purchaser (the "Company Schedules") which identifies the Section numbers
hereof to which the disclosures pertain and which is dated as of the date
hereof, as set forth below. As used herein, the term the "Company" includes
the Company and each direct and indirect subsidiary of the Company, unless
otherwise provided.
2.1 ORGANIZATION OF THE COMPANY. The Company and each of its subsidiaries is
duly organized, validly existing and in good standing under the laws of the
jurisdiction of its organization, has the corporate power and authority to
own, lease and operate its property and to carry on its business as now being
conducted and as proposed to be conducted, and is duly qualified to do
business and in good standing in each jurisdiction in which such qualification
is required by virtue of the nature of the activities conducted by it, except
to the extent that the failure to be so qualified and in good standing would
not have a Material Adverse Effect on the Company (as hereinafter defined).
The Company Schedules contain a true and complete list of all of the Company's
subsidiaries, the jurisdiction of organization of each subsidiary and each
jurisdiction in which the Company or any subsidiary is authorized to do
business. Except as set forth in the Company's Schedules, the Company owns,
directly or indirectly through one or more subsidiaries, 100% of the capital
stock of each of its subsidiaries. Except as set forth in the Company
Schedules, the Company does not directly or indirectly own any equity or
similar interest in, or any interest convertible into or exchangeable or
exercisable for any interest in, any corporation, partnership, joint venture
or other business association or entity. Except for those subsidiaries listed
in the Company Schedules as specifically not having had their governing
instruments delivered or available to Purchaser ("Missing Subsidiaries"), the
Company has delivered or made available to Purchaser a true and correct copy
of the Memorandum of Association and Articles of Association of the Company,
and Certificate (or Articles) of Incorporation and Bylaws, or similar
governing instruments of each of its subsidiaries, each as amended to date.
Each of the Missing Subsidiaries is currently not conducting any business.
2.2 COMPANY CAPITAL STRUCTURE. The authorized share capital of the Company
consists of 33,500,000 Company Ordinary Shares, 10 pence each, of which there
were 26,153,738 such shares issued as of the date hereof. Of the Company
Ordinary Shares issued and allotted credited as fully paid, a total of
16,098,849 are represented by 8,049,424 American Depository Shares ("ADSs") as
of December 12, 1997. All shares of Company Ordinary Shares are duly
authorized, validly issued and allotted, fully paid and non-assessable and are
not subject to preemptive rights created by statute, the Memorandum of
Association or Articles of Association of the Company or any agreement or
document to which the Company is a party or by which it is
A-3
<PAGE>
bound. As of the date hereof, the Company had reserved 6,934,483 Company
Ordinary Shares, net of exercises, for issuance to employees and directors
pursuant to the Company's 1996 Equity Incentive Plan, the Executive Share
Option Scheme and ESOP Share Option Scheme (collectively referred to herein as
the "Company Share Option Plans"), under which options are outstanding for
4,506,904 shares of Company Ordinary Shares (vested and unvested options under
the Company Share Option Plans are referred to herein as the "Company
Options"). All shares of Company Ordinary Shares, subject to issuance as
aforesaid, upon issuance on the terms and conditions specified in the
instruments pursuant to which they are issuable, shall be duly authorized,
validly issued, fully paid and nonassessable. The Company Schedules include a
list as of the date hereof of all issuances of share capital by the Company
since November 1, 1995 (other than issuances pursuant to any options under the
Company Share Option Plans and the Company's Stock Purchase Plan referred to
above) and also list for each outstanding option as of the date hereof, the
following: (i) the name of the holder of such option, (ii) the number of
shares subject to such option, (iii) the exercise price of such option, (iv)
any repricing of options which has taken place since November 1, 1995, (v) the
number of shares as to which such option will have been vested at the date
hereof, and (vi) the vesting for the remainder of the shares covered by such
option as of the date hereof and future dates. The Company Schedules also
include a list of all of the participants in the Stock Purchase Plan and the
number of shares of Company Ordinary Shares (or ADSs) which will be issuable
to the participants therein for the option period ended December 31, 1997
(assuming the purchase price of such shares to be 85% of the fair market value
of the Company Ordinary Shares on the first day of the current option period).
There is no current option period under the Stock Purchase Plan, the most
recent option period thereunder having expired on December 31, 1997, and
except for the issuances of Company Ordinary Shares (or ADSs) with respect to
option period ended December 31, 1997, there will be no further issuances
under the Stock Purchase Plan until this Agreement is terminated. Except as
set forth in the Company Schedules, since April 30, 1997, there have been no
changes in the capital structure of the Company other than issuances of
Company Ordinary Shares (i) upon the exercise of options granted under the
Company Share Option Plans and (ii) pursuant to the Stock Purchase Plan.
2.3 OBLIGATIONS WITH RESPECT TO CAPITAL STOCK. Except as set forth in
Section 2.2 hereof, there are no equity securities of any class of the
Company, or any security exchangeable into or exercisable for such equity
securities, issued, reserved for issuance or outstanding. Except for
securities the Company owns, directly or indirectly through one or more
subsidiaries, and except as set forth on the Company Schedules, there are no
equity securities of any class of any subsidiary of the Company, or any
security exchangeable into or exercisable for such equity securities, issued,
reserved for issuance or outstanding. Except as set forth in Section 2.2
hereof, there are no options, warrants, equity securities, calls, rights,
commitments or agreements of any character to which the Company or any of its
subsidiaries is a party or by which it is bound obligating the Company or any
of its subsidiaries to issue, deliver or sell, or cause to be issued,
delivered or sold, additional share capital of the Company or any of its
subsidiaries or obligating the Company or any of its subsidiaries to grant,
extend, accelerate the vesting of or enter into any such option, warrant,
equity security, call, right, commitment or agreement. To the knowledge of the
Company, except as set forth in the Company Schedules, there are no voting
trusts, proxies or other agreements or understandings with respect to the
share capital of the Company.
2.4 AUTHORITY; NO CONFLICTS.
(a) The Company has all requisite corporate power and authority to enter
into this Agreement and, subject to obtaining requisite shareholder approvals
and sanction by the High Court of Justice of England and Wales (the "High
Court"), to consummate the transactions contemplated hereby. The execution and
delivery of this Agreement and the consummation of the transactions
contemplated hereby have been duly authorized by all necessary corporate
action on the part of the Company, subject only to (i) the approval of the
Acquisition as a Scheme under Section 425 of the Companies Act 1985 pursuant
to U.K. law, by the vote of a majority in number, representing three-fourths
in value, of the shareholders who vote (either in person or by proxy) at the
meeting of the shareholders convened in accordance with the direction of the
High Court for the purpose of considering and approving the Acquisition (the
"Court Meeting"), (ii) the passing of a special resolution (the "Resolution")
approving the entering into of this Agreement, approving the reduction of the
Company's share capital in
A-4
<PAGE>
connection with the Acquisition, and creating and authorizing the issue of
necessary Ordinary Shares of the Company to be issued to Purchaser and
amending the Company's Articles of Association in accordance with Section 5.19
hereof, at an Extraordinary General Meeting of the Company (the "General
Meeting"), (iii) sanction of the Acquisition as a Scheme, and confirmation of
the reduction of capital involved therein, by the High Court, and (iv)
registration of the Order of the High Court regarding the Scheme with the
Registrar of Companies. This Agreement has been duly executed and delivered by
the Company and constitutes the valid and binding obligation of the Company,
enforceable in accordance with its terms, except as enforceability may be
limited by bankruptcy and other similar laws and general principles of equity.
(b) The execution and delivery of this Agreement by the Company does not,
and the consummation of the transactions contemplated hereby will not,
conflict with, or result in any violation of, or default under (with or
without notice or lapse of time, or both), or give rise to a right of
termination, cancellation or acceleration of any obligation or loss of any
benefit under (i) any provision of the Memorandum of Association, Articles of
Association of the Company, or the Certificate (or Articles) of Incorporation,
as amended, or Bylaws, as amended, or similar governing instruments of any of
its subsidiaries or (ii) any mortgage, indenture, lease, contract or other
agreement disclosed or required to be disclosed in the Company Schedules
pursuant to Section 2.14 or Section 2.15, which conflict, violation or default
would, individually or collectively, be material or (iii) any permit,
concession, franchise, license, judgment, order, decree, statute, law,
ordinance, rule or regulation applicable to the Company, any of its
subsidiaries or their respective properties or assets, which conflict,
violation or default would, individually or collectively, be material.
(c) No consent, approval, order or authorization of, or registration,
declaration or filing with, any U.S., U.K. or other foreign court,
administrative agency or commission or other governmental authority or
instrumentality ("Governmental Entity"), is required by or with respect to the
Company in connection with the execution and delivery of this Agreement or the
consummation of the transactions contemplated hereby, except for (i) the
filing of the pre-merger notification report under the Hart-Scott-Rodino
Antitrust Improvement Act of 1976, as amended ("HSR Act"), (ii) the filing of
a Form S-4 Registration Statement with the Securities and Exchange Commission
("SEC") in accordance with the Securities Act of 1933, as amended (the
"Securities Act"), (iii) the direction of the High Court to convene the Court
Meeting and the sanction of the Scheme and the confirmation of the reduction
of capital involved therein by the High Court, (iv) registration of the Order
of the High Court regarding the Scheme with the Registrar of Companies, (v)
the filing of the Proxy Statement (as defined in Section 2.28 hereof) with the
SEC in accordance with the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), (vi) the filing of a Form 8-K with the SEC, and (vii) such
consents, approvals, orders, authorizations, registrations, declarations and
filings as may be required under applicable federal and state securities laws
and the laws of any foreign country, which is not obtained or made would have
a Material Adverse Effect on the Company.
2.5 SEC FILINGS; COMPANY FINANCIAL STATEMENTS.
(a) The Company has filed all forms, reports and documents required to be
filed with the SEC since April 30, 1996, and has made available to Purchaser
in the form filed with the SEC (i) its Annual Report on Form 10-K for the
fiscal years ended April 30, 1996 and 1997, (ii) its Quarterly Reports on Form
10-Q for the periods ended July 31, 1997 and October 31, 1997 (the "October
1997 10-Q"), (iii) all proxy statements relating to the Company's meetings of
shareholders (whether annual or special) held since October 31, 1996, (iv) all
other reports or registration statements filed by the Company with the SEC
since October 31, 1996, and (v) all amendments and supplements to all such
reports and registration statements filed by the Company with the SEC. All
such required forms, reports and documents (including those enumerated in
clauses (i) through (v) of the preceding sentence) are referred to herein as
the "Company SEC Reports." As of their respective dates, the Company SEC
Reports (i) were prepared in accordance with the requirements of the
Securities Act or the Exchange Act, as the case may be, and the rules and
regulations of the SEC thereunder applicable to such Company SEC Reports, and
(ii) did not at the time they were filed (or if amended or superseded by a
filing prior to the date of this Agreement, then on the date of such filing)
contain any untrue statement of a material fact or
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omit to state a material fact required to be stated therein or necessary in
order to make the statements therein, in the light of the circumstances under
which they were made, not misleading. Except as set forth above or in the
Company's Schedules, neither the Company nor any of its subsidiaries is
required to file any forms, reports or other documents with the SEC or with
any similar foreign Governmental Entity with respect to the Company's or its
subsidiaries securities.
(b) Each of the consolidated financial statements (including, in each case,
any related notes thereto) contained in the Company SEC Reports (the "Company
Financials"), including any Company SEC Reports filed after the date hereof
until the Effective Time, (x) complies as to form in all material respects
with the published rules and regulations of the SEC with respect thereto, (y)
was prepared in accordance with generally accepted accounting principles
applied on a consistent basis throughout the periods involved and (z) fairly
presented the consolidated financial position of the Company and its
subsidiaries as at the respective dates thereof and the consolidated results
of its operations and cash flows for the periods indicated, except that the
unaudited interim financial statements do not include footnote disclosure of
the type associated with audited financial statements are were or are subject
to normal and recurring year-end adjustments, which as to the October 1997 10-
Q are not expected to be material in amount. The audited balance sheet of the
Company contained in the Company SEC Reports as of April 30, 1997 is
hereinafter referred to as the "Company Balance Sheet."
(c) There are no amendments or modifications to agreements, documents or
other instruments which previously had been filed by the Company with the SEC
pursuant to the Securities Act or the Exchange Act, which have not yet been
filed with the SEC but which are required to be filed.
2.6 ABSENCE OF CERTAIN CHANGES OF EVENTS. Since the date of the Company
Balance Sheet, except as disclosed in the Company's 10-Q's as of July 31, 1997
and October 31, 1997, and except with respect to the actions contemplated by
this Agreement, the Company has conducted its business only in the ordinary
course and in a manner consistent with past practice and, since such date,
there has not been (i) any Material Adverse Effect on the Company or any
development that reasonably would be expected to have a Material Adverse
Effect on the Company; (ii) any damage, destruction or loss (whether or not
covered by insurance) on the Company having a Material Adverse Effect on the
Company; (iii) any material change by the Company in its accounting methods,
principles or practices; (iv) any material revaluation by the Company of any
of its assets, including, without limitation, writing down the value of
capitalized software or inventory or deferred tax assets or writing off notes
or accounts receivable other than in the ordinary course of business; and (v)
any labor dispute or charge of unfair labor practice (other than routine
individual grievances), any activity or proceeding by a labor union or
representative thereof to organize any employee of the Company or any campaign
being conducted to solicit authorization from employees to be represented by
such labor union. In this Agreement, the term "Material Adverse Effect" used
in connection with a party or any of such party's subsidiaries means any
event, change or effect that is, or reasonably can be expected to be,
materially adverse to the financial condition, properties, assets,
liabilities, businesses, operations, or results of operations of such party
and its subsidiaries, taken as a whole.
2.7 BOOKS AND RECORDS. The stock record books of the Company are complete
and correct and all other material records of the Company have been maintained
in accordance with sound business practices. All Company minute books, stock
record books and other material records have been made available to Purchaser.
The minute books of the Company contain complete and accurate records of all
meetings held of, and corporate action taken by, the shareholders, the boards
of directors, and committees of the boards of directors of the Company, and no
meeting of any such shareholders, board of directors, or committee has been
held for which minutes have not been prepared and are not contained in such
minute books. At the Effective Time, all of those books and records will be in
the possession of the Company. The Company Schedules contain a complete and
accurate list of the top 15 customers or licensees of the Company, based on
total license revenues for the fiscal year ended April 30, 1997.
2.8 CONDITION AND SUFFICIENCY OF ASSETS. To the knowledge of the Company,
the material equipment and other tangible personal property used by the
Company in the conduct of its business, and the hearing, ventilation, and air-
conditioning systems at each of the Company's facilities, are in good
operating
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condition and repair, are adequate for the uses to which they are being put,
are not in need of maintenance or repairs except for ordinary, routine
maintenance and repairs that are not material in nature or cost, and are
sufficient for the continued conduct of the Company's business after the
Effective Time in substantially the same manner as conducted prior to the
Effective Time.
2.9 ACCOUNTS RECEIVABLE. The accounting records of the Company, all of which
have been made available to Purchaser, are complete and correct and have been
maintained in accordance with sound business practices. For purposes of this
Agreement, the term "Accounts Receivable" shall mean all accounts receivable
of the Company that are reflected on the Company Balance Sheet or on the
accounting records of the Company as of the Effective Time. All Accounts
Receivable that represent trade receivables represent or will represent as of
the Effective Time valid obligations arising from sales actually made or
services actually performed in the ordinary course of business. Substantially
all Accounts Receivable of the Company are trade receivables. Unless paid
prior to the Effective Time, the Accounts Receivable are or will be as of the
Effective Time collectible in accordance with past practice net of the
respective reserves shown on the Company Balance Sheet or on the accounting
records of the Company as of the Effective Time (which reserves shown on the
Company Balance Sheet are adequate and determined consistent with past
practice). Subject to such reserves, each of the Accounts Receivable either
has been or will be collected in full, without any set-off, within one hundred
twenty (120) days after the day on which it first becomes due and payable.
There is no contest, claim, or contractual right of set-off, other than
returns in the ordinary course of business, with any maker of an Accounts
Receivable relating to the amount or validity of such Accounts Receivable. The
Company Schedules relating to Accounts Receivable contains a complete and
accurate list of all Accounts Receivable as of November 30, 1997 which list
sets forth (i) the aging of such Accounts Receivable, (ii) with respect to
Accounts Receivable for consulting services, the type of contract underlying
such obligation (such as fixed-price or time and expense or a combination or
variation thereof), and (iii) with respect to Accounts Receivable which arise
from fixed-price consulting contracts, the amount by which the fixed-price
deviates from the actual fees and disbursements incurred in connection with
the contract. The Company Schedules set forth a description of the standard
billing practices of the Company with respect to consulting services,
including, without limitation, the billing periods and the types of contracts
(such as fixed-price or time and expense or a combination or variation
thereof). The Company Schedules set forth the fees and disbursements accrued
but not yet billed by the Company as of November 30, 1997 ("Accrued Fees").
Except as set forth in the Company Schedules, all of the Accrued Fees are
billable and collectible by the Company.
2.10 NO UNDISCLOSED LIABILITIES. Except as set forth in the Company
Schedules, and except as set forth in the unaudited balance sheet of the
Company included in the October 1997 10-Q, the Company has no liabilities or
obligations of any nature (whether known or unknown and whether absolute,
accrued, contingent, or otherwise) other than liabilities or obligations
reflected or adequately reserved against in the Company Balance Sheet, current
liabilities incurred in the ordinary course of business since the date of the
Company Balance Sheet, and obligations under executory contracts that are set
forth in the Company Schedules and that are not required to be so set forth
and which obligations are to be performed in the ordinary course of business,
which obligations are apparent from the plain reading of such contracts (none
of which matters is a liability resulting from a breach of contract, breach of
warranty, tort, infringement or lawsuit).
2.11 TAXES.
(a) Definition of Taxes. For the purposes of this Agreement, "Tax" or
"Taxes" refers to any and all federal, state, local and foreign taxes,
assessments and other governmental charges, duties, impositions and
liabilities relating to taxes, including taxes based upon or measured by gross
receipts income, profits, sales, use and occupation, and value added, ad
valorem, transfer, franchise, withholding, payroll, recapture, employment,
excise and property taxes, together with all interest, penalties and additions
imposed with respect to such amounts and any obligations under any agreements
or arrangements with any other person with respect to such amounts and
including any liability for taxes of a predecessor entity.
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(b) Tax Returns and Audits. Except as disclosed in the Company Schedules:
(i) The Company and each of its subsidiaries has filed all material
federal, state, local and foreign returns, estimates, information
statements and reports ("Returns") relating to Taxes required to be filed
by the Company and each of its subsidiaries. All Taxes required to be paid
by the Company and its subsidiaries payment for which is due on or before
the date hereof have been paid, except for any failure to pay that would
not have a Material Adverse Effect on the Company.
(ii) Except to the extent that it would not have a Material Adverse
Effect on the Company, The Company and each of its subsidiaries has
withheld with respect to its employees all federal and state income taxes,
FICA, FUTA and other Taxes required to be withheld by any Governmental
Entity.
(iii) Except to the extent that it would not have a Material Adverse
Effect on the Company, neither the Company nor any of its subsidiaries is
currently delinquent in the payment of any Tax. Except as set forth on the
Company's Schedules, there is no Tax deficiency outstanding, proposed or
assessed against the Company or any of its subsidiaries. Neither the
Company nor any of its subsidiaries executed or requested any waiver of any
statute of limitations on or extending the period for the assessment or
collection of any tax.
(iv) Neither the Company nor any of its subsidiaries have received
written or, to its knowledge, oral notice that any audit or other
examination of any Return of the Company or any of its subsidiaries is
presently in progress, nor has the Company or any of its subsidiaries been
notified in writing or, to its knowledge, orally, of any request for such
an audit or other examination.
(v) Neither the Company nor any of its subsidiaries has any liability for
unpaid federal, state, local or foreign Taxes which has not been accrued
for or reserved on the Company Balance Sheet, in accordance with GAAP,
which is material to the Company. There are no liens for Taxes on the
assets of the Company or of any of its subsidiaries other than Taxes not
yet due and payable.
(vi) There is no contract, agreement, plan or arrangement, including but
not limited to the provisions of this Agreement, covering any employee or
former employee of the Company or any of its subsidiaries that,
individually or collectively, could give rise to the payment of any amount
that would not be deductible pursuant to Sections 280G, 404 or 162 of the
Code.
(vii) Neither the Company nor any of its subsidiaries has filed any
consent agreement under Section 341(f) of the Code or agreed to have
Section 341(f)(2) of the Code apply to any disposition of a subsection (f)
asset (as defined in Section 341(f)(4) of the Code) owned by the Company.
(viii) The Company is not, and has not been during the applicable period
specified in Section 897(i)(1)(A)(ii) of the Code, a "United States real
property holding corporation" within the meaning of Section 8997(c)(2) of
the Code.
(ix) Neither the Company nor any of its subsidiaries is a party to or
bound by any tax indemnity, tax sharing or tax allocation agreements.
(x) Neither the Company nor any of its subsidiaries has ever been a
member of an affiliate group of corporations within the meaning of Sections
1504 of the Code filing a consolidated federal income Tax Return.
(xi) None of the assets of the Company or any of its subsidiaries is
property that the Company of any of its subsidiaries is required to treat
as being owned by any other person pursuant to the "safe harbor lease"
provisions of former Section 168(f)(8) of the Code.
(xii) None of the assets of the Company or any of its subsidiaries
directly or indirectly secures any debt the interest on which is tax-exempt
under Section 103(a) of the Code.
(xiii) Except as set forth in the Company Schedules, neither the Company
nor any of its subsidiaries has agreed to make nor is it required to make
any adjustment under Section 481(a) of the Code by reason of a change in
accounting method or otherwise.
(xiv) Neither the Company nor any of its subsidiaries has participated in
an international boycott within the meaning of Section 999 of the Code.
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(xv) Except as set forth in the Company Schedules, neither the Company
nor any of its United States subsidiaries has or, within the last three (3)
years, had a permanent establishment in any foreign country, as defined in
any applicable tax treaty or convention between the United States and such
foreign country.
(xvi) Except as set forth in the Company Schedules, neither the company
nor any of its subsidiaries is a party to any joint venture, partnership,
or other arrangement or contract that is or, to its knowledge, could
reasonably be treated as a partnership for federal income tax purposes.
2.12 RESTRICTIONS ON BUSINESS ACTIVITIES. Except as disclosed in the Company
Schedules, there is no agreement, judgment, injunction, order or decree
binding upon the Company or its subsidiaries or the Company Intellectual
Property Rights (as defined in Section 2.14), which has or could reasonably be
expected to have the effect of prohibiting or materially impairing any
material current or currently proposed business practice of the Company, any
acquisition of material property by the Company or the conduct of business by
the Company as currently conducted or as proposed to be conducted by the
Company.
2.13 ABSENCE OF LIENS AND ENCUMBRANCES. Except as disclosed in the Company
Schedules, the Company and each of its subsidiaries has good, valid and
marketable title to, or, in the case of leased properties and assets, valid
leasehold interests in, all of its properties and assets (whether real,
personal or mixed, and whether tangible or intangible), necessary for the
conduct of its business, free and clear of any liens or encumbrances except as
reflected in the Company Financials and except for liens for taxes not yet due
and payable.
2.14 INTELLECTUAL PROPERTY.
(a) The Company or its subsidiaries owns, or is licensed or otherwise
possesses legally enforceable rights to use, sell or license all patents,
trademarks, trade names, service marks, copyrights, and any applications
therefor, maskworks, net lists, schematics, technology, trade secrets, know-
how, computer software programs or applications (in both source code and
object code form), and tangible or intangible proprietary information or
material (excluding in each case Commercial Software as defined in Paragraph
(i) below) that are material to the business of the Company as currently
conducted (the "Company Intellectual Property Rights").
(b) The Company Schedules set forth a list of all patents, trademarks,
copyrights, trade names and service marks, included in the Company
Intellectual Property Rights, and specify, where applicable, the jurisdictions
in which each such Company Intellectual Property Right has been issued or
registered or in which an application for such issuance and registration has
been filed, including the respective registration or application numbers and
the names of all registered owners. No person or entity has any right of
renewal, reversion, or termination with respect to any patents, trademarks,
copyrights, trade names or service marks included in the Company Intellectual
Property Rights or any rights thereunder. Except as listed in the Company
Schedules, none of the Company's currently marketed software products has been
registered for copyright protection with the United States Copyright Office or
any foreign offices, nor, to the knowledge of the Company, has the Company
been requested to make any such registration, and the Company has made no
application for such copyright.
(c) The Company Schedules set forth a complete list of all licenses,
sublicenses and other agreements as to which the Company or any of its
subsidiaries is a party (as licensor, licensee or otherwise) and pursuant to
which the Company or any other person is authorized to use, sell, or license
any Company Intellectual Property Rights (excluding object code end-user
licenses granted to end-users in the ordinary course of business that permit
use of software products without a right to modify, distribute or sublicense
the same ("End-User Licenses")) or other trade secret material to the Company,
and includes the identity of all parties thereto. Neither the Company nor any
of its subsidiaries is in material violation of any license, sublicense or
agreement described on such list or under any End-User License. The execution
and delivery of this Agreement by the Company, and the consummation of the
transactions contemplated hereby, will neither cause the Company nor any of
its subsidiaries to be in any violation or default under any such license,
sublicense or agreement, nor limit in any way the Company's ability to conduct
its business or use or provide the use of the Company Intellectual Property
Rights or intellectual property rights of others.
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(d) Except for Embedded Products (as hereinafter defined), for which the
Company has valid non-exclusive licenses which are disclosed in the Company
Schedules and which are adequate for the Company's business as presently
conducted, (and except for trademarks, service marks, know-how, trade secrets,
for which this representation and warranty is given to the best of the
Company's knowledge), the Company is the sole and exclusive owner or licensee
of, with all right, title and interest in and to (free and clear of any liens
or encumbrances), the Company Intellectual Property Rights, and has sole and
exclusive rights (and is not contractually obligated to pay any compensation
to any third party in respect thereof) to the use and distribution therefor or
the material covered thereby in connection with the services or products in
respect of which the Company Intellectual Property Rights are being used.
(e) Except as disclosed in the Company Schedules, no claims with respect to
the Company Intellectual Property Rights have been asserted or, to the
knowledge of the Company, threatened by any person, nor, to the knowledge of
the Company, are there any valid grounds for any claims, (i) to the effect
that the manufacture, sale, licensing or use of any of the products of the
Company or any of its subsidiaries as now manufactured, sold or licensed or
used in development or otherwise or proposed for manufacture, use, sale or
licensing by the Company or any of its subsidiaries infringes on any
copyright, patent, trademark, service mark or trade secret, or requires the
Company to pay any amounts on account of any such sale, license or use other
than pursuant to its contractual obligations, (ii) against the use by the
Company or any of its subsidiaries of any trademarks, service marks, trade
names, trade secrets, copyrights, patents, technology, know-how or computer
software programs and applications used in the Company's business as currently
conducted or in development or otherwise as proposed to be conducted by the
Company, or (iii) challenging the ownership by the Company or any of its
subsidiaries, validity or effectiveness of any of the Company Intellectual
Property Rights.
(f) All registered trademarks, service marks and copyrights held by the
Company or any of its subsidiaries are valid and subsisting. To the knowledge
of the Company, there is no unauthorized use, infringement or misappropriation
of any of the Company Intellectual Property Rights by any third party,
including any employee or former employee of the Company. Neither the Company
nor any of its subsidiaries is subject to any outstanding decree, order,
judgment, or stipulation restricting in any manner the licensing of any of the
Company Intellectual Property Rights or product. Neither the Company nor any
of its subsidiaries has entered into any agreement (other than exclusive
distribution agreements identified as such in the Company Schedules) under
which the Company or its subsidiaries is restricted from selling, licensing or
otherwise distributing any products to any class of customers, in any
geographic area, during any period of time or in any segment of the market.
(g) The Company has heretofore delivered to Purchaser copies of its standard
form End-User License. Except as disclosed in the Company Schedules, the
Company has not entered into any End-User Licenses which contain terms
materially different than as set forth in the standard form of such agreements
made available to Purchaser.
(h) The Company has taken all reasonable security measures to safeguard and
maintain the secrecy, confidentiality and value of, and its property rights
in, all Company Intellectual Property Rights. All consultants of the Company
or any of its subsidiaries have executed and delivered to the Company or any
of its subsidiaries an agreement regarding the assignment to the Company or
any of its subsidiaries of all Company Intellectual Property Rights arising
from the services performed for the Company or any of its subsidiaries by such
persons. No current or prior officers, employees or consultants of the Company
claim any ownership interest in any Company Intellectual Property Right as a
result of having been involved in the development of such property which
employed by or consulting to the Company, or otherwise. Except as set forth in
the Company Schedules and except for the Embedded Products, all of the Company
Intellectual Property Rights have been developed by employees of the Company,
within the scope of their employment.
(i) "Commercial Software" means packaged commercially available software
programs generally available to the public which have been licensed to the
Company pursuant to end-user licenses and which are used in the
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Company's business. The Company Schedules set forth the following with respect
to Commercial Software: (i) a complete list of all Commercial Software which
is a component of or incorporated in or specifically required to develop or
support any of the Company's products and related trademarks, technology and
know-how ("Embedded Products"), and (ii) a list of any restrictions on the
Company's or its subsidiaries' unrestricted right to use the Embedded
Products. Each of the Company or its subsidiaries is licensed or otherwise
possesses legally enforceable rights to use, sell and/or license the Embedded
Products as now, or proposed to be, used, sold and/or licensed, and neither
the Company nor any of its subsidiaries is in violation of any license,
sublicense or agreement with respect to an Embedded Product, except such
violations as do not materially impair the Company's or any of its
subsidiaries' rights under such licenses, sublicenses or agreements.
(j) The Company Schedules contain a complete list of all software products
(i) published and/or distributed by the Company or any of its subsidiaries
(the "Company Published Products"), and (ii) under development or
consideration by the Company or any of its subsidiaries with a scheduled
public availability date on or prior to April 30, 1998 (the "Company Products
Under Development" and, collectively with the Company Published Products,
referred to as the "Company Products"). In addition, the Company Schedules set
forth:
(i) for the Company Products: (A) a list of all material contracts and
agreements (including, without limitation, all development, trademark
license, technology license, distribution or other agreements) relating to
the Company Products (to the extent not already listed on another Company
Schedule and excluding End-User Licenses); and (B) the advances paid or
payable, and the royalties payable, to any third parties with respect to
such Company Products;
(ii) for each Company Product Under Development, the currently scheduled
public availability date (which the Company believes as of the date hereof
to be reasonable); and
(iii) a list of revenues of the Company by Company Product Group for each
of the last three fiscal years.
(k) Neither the Company or any of its subsidiaries use any software
development tools, not entirely developed internally in the development of any
Company Products, except for tools that are generally available and are used
in their generally available form, (such as standard compilers).
(l) There are no defects in the Company Published Products, and there are no
errors in any documentation, specifications, manuals, user guides, promotional
material, internal notes and memos, technical documentation, drawings, flow
charts, diagrams, source language statements, demo disks, benchmark test
results, and other written materials related to, associated with or used or
produced in the development of the Company's software products (collectively,
the "Design Documentation"), which defects or errors would in any material
respect affect the Company's or any licensee's use of such software products
or the functioning of such software products in accordance with the
specifications therefor published by the Company; the Company's Published
Products have all the features described in the Design Documentation or
advertisements and materials made available to the Company's customers; and
the Company's Published Products do not contain any "back door", "timebomb",
"Trojan Horse", "worm", "drop dead device", "virus" (as these terms are
commonly used in the computer software industry) or other software routines or
hardware components designed to permit unauthorized access, to disable or
erase software, hardware or data or to perform any other similar type of
function. The occurrence in or use by the Company Published Products and
Company Intellectual Property rights used internally, of dates on or after
January 1, 2000 (the "Millennial Dates") will not adversely affect the
performance of the software with respect to date dependent data, computations,
output or other functions (including, without limitations, calculating,
computing and sequencing) and the software will create, sort and generate
output data related to or including Millennial Dates without errors or
omissions.
(m) No government funding or university or college facilities were used in
the development of the Company's software products and the software was not
developed pursuant to any contract or other agreement with any person or
entity except pursuant to contracts or agreements listed in the Company
Schedules.
(n) The Company Schedules list all warranty claims (including any pending
claims) related to the Company's products and the nature of such claims.
Except as set forth in the Company Schedules, the Company has made no oral or
written representations or warranties with respect to its products or
services.
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2.15 AGREEMENTS, CONTRACTS AND COMMITMENTS. Except as set forth in the
Company Schedules or in the schedule of Exhibits to the SEC Reports, neither
the Company nor any of its subsidiaries has, nor is it a party to nor is it
bound by:
(a) any collective bargaining agreements;
(b) any employment or consulting agreement, contract or commitment
(including royalty agreements with employees) not terminable by the Company
on thirty days notice without liability, except to the extent general
principles of wrongful termination or other employment law may limit the
Company's ability to terminate employees at will;
(c) any agreement or plan, including, without limitation, any stock
option plan, stock appreciation right plan, or stock purchase plan, any of
the benefits of which will be increased, or the vesting of benefits of
which will be accelerated, by the occurrence of any of the transactions
contemplated by this Agreement;
(d) any agreement of indemnification or guaranty not entered into in the
ordinary course of business with any party in excess of, or which could
result in a payment of, $50,000 individually or in the aggregate, and any
agreement or guarantee between the Company and of its officers or
directors, irrespective of the amount of such agreement or guarantee;
(e) Any agreement, contract or commitment containing any covenant
limiting the freedom of the Company to engage in any line of business,
complete with any person, or sell any product, or following the
consummation of the Acquisition would so limit Purchaser or the Company;
(f) any agreement, contract or commitment relating to capital
expenditures and involving future obligations in excess of $100,000;
(g) any agreement, contract or commitment relating to the disposition or
acquisition of assets not in the ordinary course of business (within the
last 3 years) or any ownership interest in any corporation, partnership,
joint venture or other business enterprise;
(h) any mortgages, indentures, loans or credit agreements, security
agreements or other agreements or instruments relating to the borrowing of
money or extension of credit (other than extensions of credit in the
ordinary course of business from vendors in an amount not exceeding
$50,000);
(i) any joint marketing or development agreement (including any
agreements with independent contractors);
(j) any distribution, sales representative, reseller, or value-added
reseller agreement, including in such Company Schedules an indication of
those distributors, sales representatives, resellers or value-added
resellers who have not met the quotas established in accordance with those
agreements or whose agreements are otherwise currently terminable;
(k) any other agreement, contract or commitment (excluding real and
personal property leases) which involves payment by the Company of $50,000
or more in any twelve (12) month period or $100,000 in the aggregate and is
not cancelable without penalty within thirty (30) days;
(l) any escrow agreements involving Company Intellectual Property Rights
(including source code escrow agreement);
(m) any agreements to register its securities, or
(n) any other material agreements, contracts or commitments.
In addition, the Company Schedules set forth a description of all material
proposed agreements, contracts and commitments which the Company or any of its
subsidiaries is currently negotiating with any third party and which, if
entered into, would be required to be included in the Company Schedules.
2.16 NO DEFAULT. Except as disclosed in the Company Schedules, neither the
Company nor any of its subsidiaries has breached, or received in writing any
claim or threat that it has breached, any of the terms or conditions of any
agreement, contract or commitment listed or required to be listed on the
Company Schedules
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pursuant to Section 2.14 or Section 2.15, in such manner as would permit any
other party to cancel or terminate the same or would permit any other party to
seek material damages from the Company thereunder, or would otherwise
materially adversely affect the Company's rights thereunder. Each of such
agreements, contracts and commitments that has not expired or been terminated
in accordance with its terms is in full force and effect and, except as
otherwise disclosed, is not subject to any material default thereunder of
which the Company is aware by any party obligated to the Company pursuant
thereto.
2.17 GOVERNMENTAL AUTHORIZATION. The Company holds all permit, licenses,
variances, exemptions, orders and approvals of all Governmental Entities which
are material to the operation of the Company's business as currently conducted
(the "Company Permits"). The Company is in compliance with the terms of the
Company Permits, except for violations or possible violations which in the
aggregate do not, and insofar as reasonably can be foreseen, in the future
will not have a Material Adverse Effect on the Company. The business of the
Company is not being conducted in violation of any law, ordinance or
regulation of any Governmental Entity, except for violations or possible
violations which individually or in the aggregate do not, and insofar as
reasonably can be foreseen, in the future will not, have a Material Adverse
Effect on the Company. As of the date of this Agreement, no investigation or
review by any Governmental Entity with respect to the Company is pending or,
to the knowledge of the Company, threatened, nor has any Governmental Entity
indicated an intention to conduct the same.
2.18 LITIGATION. Except as disclosed in the Company Schedules, there is no
suit, action, arbitration, demand, claim or proceeding pending, or, to the
knowledge of the Company, threatened against the Company or any of its
subsidiaries; nor is there any judgement, decree, injunction, rule or order or
any Governmental Entity or arbitrator outstanding against the Company or any
of its subsidiaries. To the knowledge of the Company, there are no facts which
could reasonably form the basis of any material claim against the Company or
any of its subsidiaries. The Company has made available to Purchaser or its
counsel correct complete copies of all correspondence prepared by its counsel
for the Company's auditors in connection with the last two completed audits of
the Company's financial statements and any such correspondence since the date
of the last such audit.
2.19 INSURANCE. The Company Schedules contain a complete and accurate list
of all insurance policies (including "self-insurance" programs) now maintained
by the Company (the "Insurance Policies") and all claims made, or with respect
to which the Company had continuing obligations, under any such current or
prior insurance policies during the past two (2) years. All of the Company's
prior insurance policies were "claims made" policies. The Insurance Policies
are in full force and effect, the Company is not in default under any
Insurance Policy, and no claim for coverage under any Insurance Policy has
been denied. All of the Insurance Policies will be maintained in full force
and effect until the Effective Time.
2.20 HEALTH, SAFETY AND ENVIRONMENT.
(a) No Hazardous Material. The Company has never generated, transported,
treated, stored, disposed of or otherwise handled any Hazardous Materials (as
Hereinafter defined) at any site, location or facility in connection with its
business, its assets or its owned or leased premises ("Company Premises") and,
to the knowledge of the Company, no such Hazardous Materials are present on,
in or under the Company Premises used in connection with the business or
operations of the Company, and, to the knowledge of the Company, such property
does not contain (including without limitation, containment by means of any
underground storage tank) any Hazardous Materials in violation of any
applicable Environmental and Safety Requirements (as hereinafter defined).
There are no underground storage tanks on the Company Premises.
(b) Compliance. The Company is (i) in compliance with all applicable
Environmental and Safety Requirements, and (ii) possesses all required
permits, licenses, certifications and approvals and has filed all notices or
applications required thereby or pertaining thereto, except where the failure
so to comply, possess or file would not have a Material Adverse Effect on the
Company.
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(c) No Actions or Proceedings. The Company has never been subject to, or
received any notice (written or oral) of, any private, administrative or
judicial inquiry, investigation, order or action, or any notice (written or
oral) of any intended or threatened private, administrative, or judicial
inquiry, investigation, order or action relating to the presence or alleged
presence of Hazardous Materials in, under or upon the Company Premises; and
there are no pending or, to the Company's knowledge, threatened
investigations, actions, orders or proceedings (or notices of potential
investigations, actions, orders or proceedings) from any governmental agency
or any other entity regarding any matter relating to Environmental and Safety
Requirements.
(d) Other Condition. To the Company's knowledge, no facts, events or
conditions with respect to the past or present operations or facilities of the
Company exist which could reasonably be expected to interfere with or prevent
continued compliance with, or could give rise to any material common law or
statutory liability or otherwise form the basis of any material claim, action,
suit, proceeding, hearing or investigation against or involving the Company or
the Company Premises under any Environmental and Safety Requirements or
related common law theories based on any such fact, event or circumstance,
including, without limitation, liability for investigation costs, cleanup
costs, personal injury or property damage.
(e) Definitions. For purposes of this Agreement, "Environmental and Safety
Requirements" means all federal, state, local and foreign statutes, laws,
rules, regulations, codes, ordinances, orders, standards, permits, licenses,
actions, policies and requirements (including consent decrees, judicial
decisions and administrative orders) relating to protection, preservation or
conservation of the environment and public or worker health and safety, all as
amended, hereafter amended or reauthorized. For purposes of this Agreement,
"Hazardous Materials" means (i) hazardous substances, as defined by the
Comprehensive Environmental Response, Compensation and Liability Act, 42
U.S.C. (S)9601 et seq.; (ii) hazardous wastes as defined by the Resource
Conservation and Recovery Act, 42 U.S.C. (S)6901 et seq.; (iii) petroleum,
including without limitation, crude oil or any fraction thereof which is
liquid at standard conditions of temperature and pressure (60 degrees
Fahrenheit and 14.7 pounds per square inch absolute); (iv) any radioactive
material, including, without limitation, any source, special nuclear, or by-
product material as defined in 42 U.S.C. (S)2011 et seq.; (v) asbestos in any
form or condition; (vi) polychlorinated biphenyls ("PCBs"); and (vii) any
other material, substance or waste to which liability or standards of conduct
may be imposed under any Environmental and Safety Requirements.
2.21 LABOR MATTERS. The Company has complied in all material respects with
all applicable laws, and there is no allegation, charge or complaint or
proceeding pending or, to the Company's knowledge, threatened against the
Company or any of its officers, directors or employees, relating to the
employment of labor, including with respect to employment, equal employment
opportunity, discrimination, harassment, immigration, wages, hours, benefits,
collective bargaining, the payment of social security and other taxes, workers
compensation or long term disability, and the Company has no knowledge of any
basis for any such allegation, charge, complaint or proceeding. There has
never been, there is not presently pending or existing, and to the Company's
knowledge there is not threatened, any strike, slowdown, picketing, work
stoppage, labor arbitration, or proceeding in respect of the grievance of any
employee, application or complaint filed by an employee or union with the
National Labor Relations Board or any comparable governmental authority,
organizational activity, or other labor dispute against or affecting the
Company, and no application for certification of a collective bargaining agent
is pending or, to the Company's knowledge, threatened. There is no lockout of
any employees by the Company, and no such action is contemplated by the
Company. Neither the Company nor any of its subsidiaries has given to or
received from any current employee of the Company or any of its subsidiaries
notice of termination of employment or has the knowledge that any such
employee intends to terminate such employment. The Company and each of its
subsidiaries has good labor relations and has no knowledge of any facts that
would indicate that the consummation of this transaction hereby will have a
Material Adverse Effect on labor relations.
2.22 EMPLOYEE BENEFIT PLANS.
(a) Except as is described in the Company Schedules with respect to current
employees, former employees, independent contractors or any other persons, or
the beneficiaries or dependents thereof, neither the Company nor any current
or former Company Plan Affiliate (as hereinafter defined) has at any time
maintained, made
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contributions to or had any other liability with respect to any of the
following (whether written or unwritten and whether or not terminated): (i)
any employee welfare benefit plan, as defined in Section 3(1) of ERISA (as
hereinafter defined), including, but not limited to, any medical plan, life
insurance plan, short-term or long-term disability plan, dental plan and sick
leave; (ii) any "employee pension benefit plan," as defined in Section 3(2) of
ERISA, including, but not limited to, any non-qualified deferred compensation
or retirement plan or arrangement, any excess benefit plan, top hat plan or
any qualified defined contribution or defined benefit arrangement; or (iii)
any other plan, policy, program, arrangement or agreement providing benefits
or perquisites to employees, former employees, directors, independent
contractors or other persons, or the dependents or beneficiaries thereof,
including, but not limited to, any severance agreement or plan, any material
fringe benefit plan or program, any bonus or incentive plan, personnel policy,
vacation time, holiday pay, service award, stock option, restricted stock,
stock bonus, deferred bonus plan, salary reduction agreement, cafeteria plan
or change-of-control agreement, any of the foregoing of which could result in
Purchaser or the Company having any material liability, whether direct or
indirect.
(b) Except as specifically provided for in this Agreement, each Company
Employee Benefit Plan (as hereinafter defined) and any related contract,
insurance policy or other agreement or documentation necessary or appropriate
for the customary operation of such plan, policy or agreement shall not be
terminated or otherwise made inoperable or ineffective by the consummation of
the transactions contemplated by this Agreement.
(c) A complete copy of each written Company Employee Benefit Plan as amended
to the date hereof, together with audited financial statements and/or
actuarial reports for the three (3) most recent plan years, if any; each trust
agreement, insurance contract, if any, or any other funding vehicle with
respect to each such plan; the most recent determination letter or recognition
of exemption and each other material letter, ruling or notice issued by a
Governmental Entity with respect to such plan, if any; the Form 5500 Annual
Report and any related schedules or attachments for the three (3) most recent
plan years; each summary plan description or summary of material
modifications; and each and any general explanation or communication which
describes any relevant aspect of any such plan that is not disclosed in
previously delivered materials; have been delivered to Purchaser. A
description of the material terms of any unwritten Company Employee Benefit
Plan or of any material oral or otherwise unwritten amendment or modification
to any Company Employee Benefit Plan, is set forth in the Company Schedules.
(d) Except to the extent that the failure to do so would not result in a
material liability to the Company, each Company Employee Benefit Plan (i) has
been and currently complies in form and in operations in all respects with all
applicable requirements of ERISA, the Code and applicable U.K. law, and the
regulations, administrative rulings and case law promulgated thereunder; (ii)
has been and is in compliance with the reporting and disclosure requirements
of applicable Federal, state and applicable U.K. laws and regulations and
administrative rulings and case law promulgated thereunder; (iii) has been and
is operated and administered in compliance with its terms (except as otherwise
required by law); and (iv) has been and is operated, administered, maintained
and funded in compliance with the applicable requirements of the Code, ERISA,
and applicable U.K. law, in such a manner as to qualify, where appropriate,
for both Federal, state and U.K. law purposes, for income tax exclusions to
its participants, tax-exempt income for its funding vehicle, and the allowance
of deductions and credits with respect to contributions thereto. Each Company
Employee Benefit Plan has, if appropriate or intended, received a favorable
determination letter or recognition of exemption from the Internal Revenue
Service ("Service") or similar U.K. Governmental Entity, upon which it may
rely.
(e) With respect to each Company Employee Benefit Plan, there are no
actions, suits or investigations or claims pending or, to the Company's
knowledge, threatened with respect to the assets thereof (other than routine
claims for benefits), and, to the Company's knowledge, there are no facts
which could reasonably give rise to any liability, action, suit,
investigation, or claim against any Company Employee Benefit Plan, any
fiduciary or plan administrator or other person dealing with any Company
Employee Benefit Plan or the assets of any such Company Employee Benefit Plan.
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(f) With respect to each Company Employee Benefit Plan, no person: (i) has
entered into any "prohibited transaction," as such term is defined in ERISA or
the Code and the regulations, administrative rulings and case law thereunder;
(ii) has breached a fiduciary obligation or violated Sections 402, 403, 405,
503, 510 or 511 of ERISA; (iii) has any liability for any failure to act or
comply in connection with the administration or investment of the assets of
such plan; or (iv) engaged in any transaction with respect to such plan which
could subject either Purchaser, the Company, or any Plan Affiliate or
Purchaser or the Company, or any fiduciary or plan administrator or any other
person dealing with any such plan to liability under Sections 409 or 502 of
ERISA or Sections 4972 or 4975 through 4980B of the Code.
(g) Each Company Employee Benefit Plan may be amended, terminated, modified
or otherwise revised by the Company or Purchaser, on and after the Closing,
without further liability to the Company or Purchaser, except in the case of
an "employee pension benefit" as defined in Section 3(2) of ERISA, the
foregoing is true only with respect to benefits not yet accrued. For purposes
of this paragraph, termination of a Company Employee Benefit Plan includes the
requirement of a cessation of liability for claims incurred after the
termination date regardless of any status having been obtained or achieved.
(h) Neither the Company nor any current or former Company Plan Affiliate has
at any time participated in, made contributions to or had any other liability
with respect to any Company Employee Benefit Plan which is a "multi-employer
plan" as defined in Section 4001 of ERISA, a "multi-employer plan" within the
meaning of Section 3(37) of ERISA, a "multiple employer plan" within the
meaning of Section 413(c) of the Code, a "multiple employer welfare
arrangement" within the meaning of Section 3(40) of ERISA or is subject to
Title IV of ERISA or the funding requirements of Section 412 of the Code.
(i) Neither the Company nor any current or former Company Plan Affiliate has
ever maintained or contributed to or obligated itself to make contributions to
(or had any other liability with respect to) any funded or unfunded employee
welfare plan, whether or not terminated, which provides medical, health, life
insurance or other welfare-type benefits for current or future retirees or
current or future former employees, their spouses or dependents or any other
persons (except for severance and limited continued medical benefit coverage
for former employees, their spouses and other dependents as required to be
provided under Section 4980B of the Code and Part 6 of Subtitle B of Title I
of ERISA and the accompanying proposed regulations or state continuation
coverage laws ("COBRA")).
(j) all required reports and descriptions (including Form 5500 Annual
Reports, Summary Annual Reports and Summary Plan Descriptions) with respect to
each Company Employee Benefit Plan have been appropriately filed or
distributed to participants, and the requirements of COBRA have been satisfied
with respect to each Company Employee Benefit Plan.
(k) there has been no oral or written communication or explanation with
respect to any Company Employee Benefit Plan which would materially revise or
amend any such plan, which has not previously been delivered or disclosed to
Purchaser.
(l) all contributions, payments, premiums, expenses, reimbursements or
accruals for all periods ending prior to or as of the date hereof for each
Company Employee Benefit Plan (including periods from the first day of the
then current plan year to the date hereof) shall have been made or accrued on
the Company Financials and each such plan otherwise has no unfunded liability
which is not reflected on the Company Financials. All contributions made or
accrued with respect to each Company Employee Benefit Plan is fully deductible
by the Company or a Company Plan Affiliate.
(m) the Company has otherwise performed all material obligations required to
be performed by it under, is not in default under or in violation of, and has
no knowledge of any default or violation by any other party to, each Company
Employee Benefit Plan; neither the Company nor any current or former Company
Plan Affiliate has otherwise incurred any liability to the PBGC, the Service,
any multi-employer plan, the Department of Labor
or otherwise with respect to any Company Employee Benefit Plan that has not
been satisfied in full, and, to the Company's knowledge and the knowledge of
any current or former Company Plan Affiliates, no condition exists that
presents a material risk to the Company or Purchaser of incurring such a
material liability.
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(n) As used in this Agreement, the following terms shall have the following
respective meanings:
(i) the term "Company Employee Benefit Plan" shall mean any plan
described in (i), (ii) or (iii) of Section 2.22(a), whether or not
scheduled, which the Company, or any current or former Company Plan
Affiliate has at any time maintained, made contributions to or had any
other liability with respect to, and which could result in Purchaser or the
Company having any liability, whether direct or indirect.
(ii) the term "ERISA" shall mean the Employee Retirement Income Security
Act of 1974, as amended.
(iii) with respect to any person ("First Person") the term "Plan
Affiliate" shall mean any other person or entity with whom the First Person
constitutes or has constituted all or part of a controlled group, or which
would be treated or has been treated with the First Person as under common
control or whose employees would be treated or have been treated as
employed by the First Person, under Section 414 of the Code or Section
4001(b) of ERISA, and any regulations, administrative rulings and case law
interpreting the foregoing.
(o) There are no options outstanding under the 1996 Non-Employee Director's
Share Option Plan.
2.23 CERTAIN PAYMENTS. Neither the Company nor any director, officer, agent,
or employee of the Company or any other person or entity associated with or
acting for or on behalf of the Company, has directly or indirectly made any
contribution, gift, bribe, rebate, payoff, influence payment, kickback, or
other payment to any person or entity, private or public, regardless of form,
whether in money, property, or services (a) to obtain favorable treatment in
securing business, (b) to pay for favorable treatment for business secured,
(c) to obtain special concessions or for special concessions already obtained,
for or in respect of the Company or any affiliate of the Company, or (d) in
violation of any federal, state, local, municipal, foreign or other
constitution, ordinance, regulation, statute, treaty, or other law, which
could result in the Company or the Purchaser having any material liability.
The Company has not established or maintained any fund or asset that has not
been recorded in the books and records of the Company.
2.24 RELATIONSHIPS WITH RELATED PERSONS. Except as set forth in the section
of the Company SEC Reports captioned "Security Ownership of Certain Beneficial
Owners and Management" and "Other Information-Directors and their Interests';
Certain Transactions," and except for their equity interest in the Company and
any claim for compensation and expense reimbursement for the current payroll
or expense reimbursement period, the directors and officers of the Company and
their Related Persons (as defined below) do not have any interest in any of
the assets of the Company and do not own, of record or as a beneficial owner,
an equity interest or any other financial or profit interest in any person or
entity that has (i) had material business dealings or a material financial
interest in any transaction with the Company, or (ii) engaged in competition
with the Company with respect to any line of products or services of the
Company (a "Competing Business") in any market presently served by the
Company, except a solely passive investment of less than three (3) percent of
the outstanding capital stock of any Competing Business that is publicly
traded on any recognized exchange or in over-the-counter market. Except as set
forth in the Company Schedules and except as set forth in the section of the
Company SEC Reports captioned: "Other Information--Directors and their
Interests'; Certain Transactions," no officer or director of the Company and
none of their Related Persons is a party to any contract with, or has any
claim or right against, the Company. All money owed by the Company to officers
or directors or their "Related Persons" (other than for salary) are for bona
fide debts. For purposes hereof, the term "Related Persons" shall mean: (a)
each other member of such individual's Family; and (b) any person or entity
that is directly or indirectly controlled by any one or more members of such
individual's Family. For purposes of this definition, the "Family" of an
individual includes (i) such individual, (ii) the individual's spouse, (iii)
any lineal descendant of such individual, or (iv) a trust for the benefit of
the foregoing.
2.25 BANK ACCOUNTS. The Company Schedules contain a complete and accurate
list of each bank or other financial institution at which the Company has an
account or safe deposit box, the number of each such account or box, and the
names of all persons authorized to draw on such accounts or to have access to
such boxes.
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2.26 POOLING OF INTERESTS. To the knowledge of the Company, based on
consultation with its independent accountants, neither the Company nor its
directors, officers or shareholders has taken any action which would interfere
with (i) Purchaser's ability to account for the Acquisition as a pooling of
interests or (ii) Purchaser's or the Company's ability to continue to account
for as a pooling of interests any past acquisition by the Company currently
accounted for as a pooling of interests.
2.27 CHANGE OF CONTROL PAYMENTS. Except for the acceleration of vesting and
exercise of outstanding stock options in accordance with the terms of the
Company Share Option Plans, neither the execution and delivery of this
Agreement nor the consummation of the transactions contemplated hereby will
(i) result in any payment (including, without limitation, severance,
unemployment compensation, golden parachute, bonus or otherwise) becoming due
to any director or employee of the Company or any of its subsidiaries from the
Company or any of its subsidiaries, under any Company Employee Benefit Plan or
otherwise, (ii) materially increase any benefits otherwise payable under any
Company Employee Benefit Plan, or (iii) result in the acceleration of the time
of payment or vesting of any such benefits, except as disclosed in the Company
Schedules.
2.28 REGISTRATION STATEMENTS; PROXY STATEMENTS/PROSPECTUS. If the
Registration Statement (as defined in Section 3.6) is filed, the information
supplied by the Company for inclusion in the Registration Statement shall not
at the time the Registration Statement is filed with the SEC and at the time
it becomes effective under the Securities Act, contain any untrue statement of
a material fact or omit to state any material fact required to be stated
therein or necessary in order to make the statements therein not misleading.
The information supplied by the Company for inclusion in the proxy
statement/prospectus to be sent to the shareholders of the Company in
connection with the Court Meeting and the General Meeting (such proxy
statement/prospectus as amended or supplemented is referred to herein as the
"Proxy Statement") shall not, on the date of the Proxy Statement is first
mailed to the Company's shareholders, at the time of the Court Meeting or at
the Closing, contain any untrue statement of a material fact or omit to state
any material fact required to be stated therein or necessary in order to make
the statements therein, in light of the circumstances under which they are
made, not false or misleading; or omit to state any material fact necessary to
correct any statement in any earlier communication with respect to the
solicitation of proxies for the Court Meeting or General Meeting which has
become false or misleading. The Proxy Statement will comply as to form in all
material respects with the provisions of the Exchange Act and the rules and
regulations thereunder. If at any time prior to the Effective Time any event
relating to the Company or any of its affiliates, officers or directors should
be discovered by the Company which should be set forth in an amendment to the
Registration Statement or a supplement to the Proxy Statement, the Company
shall promptly inform Purchaser. Notwithstanding the foregoing, the Company
makes no representation or warranty with respect to any information supplied
by or concerning Purchaser which is contained in any of the foregoing
documents.
2.29 BOARD APPROVAL. The Board of Directors of the Company has, on or prior
to the date hereof, unanimously approved this Agreement and the Acquisition.
2.30 FAIRNESS OPINION. The Company has received a written opinion from
Broadview Associates, dated as of the date hereof, that the Exchange Ratio
contemplated by this Agreement is fair to the Company's shareholders from a
financial point of view and has delivered to Purchaser a copy of such opinion.
2.31 BROKERS' AND FINDERS' FEES. The Company has not incurred, nor will it
incur, directly or indirectly, any liability for brokerage or finders' fees or
agents' commissions or any similar charges in connection with this Agreement
or any transaction contemplated hereby, except for a fee due to Broadview
Associates at the Effective Time pursuant to an agreement, a copy of which has
been provided to Purchaser.
2.32 REPRESENTATIONS AND STATEMENTS COMPLETE. None of the written or oral
representations or warranties made by the Company or any of its officers or
directors, nor any statement made in the Company Schedules, exhibits hereto,
or certificate furnished by the Company or its officers, contains any untrue
statement of a material fact, or omits to state any material fact necessary in
order to make the statements contained herein or therein, in light of the
circumstances under which they were made, not misleading.
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3. REPRESENTATIONS AND WARRANTIES OF PURCHASER
Purchaser represents and warrants to the Company, subject to the exceptions
specifically disclosed in the disclosure letter supplied by Purchaser to the
Company (the "Purchaser Schedules") and dated as of the date hereof as
follows:
3.1 ORGANIZATION OF PURCHASER. Each of Purchaser and its material
subsidiaries is a corporation duly organized, validly existing and in good
standing under the laws of the jurisdiction of its incorporation, has the
corporate power to own, lease and operate its property and to carry on its
business as now being conducted and as proposed to be conducted, and is duly
qualified to do business and in good standing as a foreign corporation in each
jurisdiction in which the failure to be so qualified would have a Material
Adverse Effect on Purchaser. Accurate copies of the Certificate of
Incorporation and Bylaws of Purchaser, each as amended to date, are filed as
Exhibits to the Purchaser SEC Reports.
3.2 CAPITAL STRUCTURE.
(a) The authorized stock of Purchaser consists of 180,000,000 shares of
Common Stock, $.001 par value, of which 63,753,657 shares were issued and
outstanding as of the date hereof, and 10,000,000 shares of Class II Preferred
Stock, $.01 par value, 1,000,000 shares of which (subject to adjustment upward
or downward by the Company's Board of Directors) have been designated as
Series A Junior Participating Preferred Stock, and 1,775,000 of which (subject
to adjustment upward or downward in accordance with the Purchaser's
Certificate of Incorporation, as amended) have been designated as Class II
Series B Preferred Stock. No shares of the Series A Junior Participating
Preferred Stock are issued or outstanding. A total of 1,768,421 shares of
Class II Series B Preferred Stock are issued and outstanding. A total of
1,768,421 shares of Class II Series B Preferred Stock are issued and
outstanding. All such shares have been duly authorized, and all such issued
and outstanding shares have been validly issued, are fully paid and
nonassessable and are free of any liens or encumbrances other than any liens
or encumbrances created by or imposed upon the holders thereof. The registered
holders of Purchaser Common Stock have the right (a "Right") to purchase from
Purchaser upon the occurrence of certain events, for each share of Purchaser
Common Stock owned, one-hundredth of a share of Class II Series A Junior
Participating Preferred Stock, par value $.01 per share (the "Preferred Rights
Shares"), of Purchaser at a price of $125.00 per one-hundredth of a Preferred
Rights Share, subject to adjustment. Each one-hundredth of a Preferred Rights
Share is entitled to one vote, a dividend equal to the dividend per share paid
on the Purchaser Common Stock, and a liquidation payment equal to the
liquidation payment per share paid on the Purchaser Common Stock. The
description and terms of the Rights are set forth in a Rights Agreement
between Purchaser and Harris Trust and Savings Bank, as Rights Agent, a copy
of which has been provided to the Company. As of the date hereof, Purchaser
has also reserved (i) 1,075,034 shares of Common Stock for issuance to the
Purchaser's officers, directors, employees or independent contractors or
affiliates thereof under the Purchaser's 1989 Stock Option Plan, (ii) 115,000
shares of Common Stock for issuance to the Chief Executive Officer of the
Purchaser under the Purchaser's Chief Executive Officer Stock Option Plan,
(iii) 2,815,274 shares of Common Stock for issuance to the Purchaser's
officers, directors, employees or independent contractors or affiliates
thereof under the Purchaser's 1991 Stock Option Plan, (iv) 100,000 shares of
its Common Stock for issuance to non-employee directors of the Purchaser under
the Purchaser's Directors' Stock Option Plan, (v) 1,000,000 shares of its
Common Stock for issuance to officers, directors, employees, independent
contractors or other service providers of the Purchaser under the 1995 Stock
Incentive Plan, (vi) 8,600,000 shares of its Common Stock for issuance to
officers, directors, employees, independent contractors or other service
providers of the Purchaser under the Purchaser's 1995 Employee Incentive
Compensation Plan, (vii) 1,768,421 shares (subject to adjustment upward or
downward) of its Common Stock for issuance upon conversion of outstanding
shares of Class II Series B Preferred Stock, and (viii) 8,243,726 shares of
Common Stock for issuance upon the election by the holders of 6.25%
Convertible Subordinated Notes to convert such notes into shares of Common
Stock as provided therein. As of November 30, 1997, of the 13,379,526 shares
of Purchaser Common Stock reserved for issuance upon exercise of options
therefor, 11,699,167 shares remained subject to outstanding options and
1,680,359 shares were reserved for future grant. In addition, pursuant to
Purchaser's Employee Stock Purchase Plan, 260,000 shares of Purchaser's Common
Stock will be issuable to the participants therein for the offering period
ending
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February 28, 1998, [provided that all participants continue to contribute at
current levels (assuming the purchase price of such shares to be 85% of the
fair market value of Purchaser's Common Stock on the first day of the current
offering period)]. In addition, there are outstanding (A) $115,000,000
(aggregate principal amount) of 6 3/4% Convertible Subordinated Notes Due
2001, which are (i) convertible at the option of the holder into shares of
Purchaser Common Stock at any time prior to maturity at a conversion price of
$13.95 per share (equivalent to a conversion rate of 71.685 shares per $1,000
principal amount of Notes), (ii) redeemable at the option of Purchaser at any
time after November 15, 1999 and (iii) mature on November 15, 2001, and (B)
$150,000,000 (aggregate principal amount) of 6.25% Convertible Subordinated
Notes Due 2002, which (i) are redeemable at the option of the Purchaser at any
time after December 15, 2000 and (ii) mature on December 15, 2002. All shares
of Purchaser Common Stock subject to issuance as aforesaid, upon issuance on
the terms and conditions specified in the instruments pursuant to which they
are issuable, shall be duly authorized, validly issued, fully paid and
nonassessable. Except as set forth above and for shares of Purchaser Common
Stock issuable in connection with business combinations or acquisitions of
technology pursuant to agreements entered into after the date hereof, there
are no other equity securities, options, warrants, calls, rights, commitments
or agreements of any character to which Purchaser is a party or by which it is
bound obligating Purchaser to issue, deliver, sell, repurchase or redeem, or
cause to be issued, delivered, sold, repurchased or redeemed, any shares of
the capital stock of Purchaser or obligating Purchaser to grant, extend or
enter into any such equity security, option, warrant, call, right, commitment
or agreement.
(b) The shares of Purchaser Common Stock to be issued pursuant to the
Acquisition will, upon assistance, be duly authorized, validly issued, fully
paid and non-assessable.
3.3 AUTHORITY
(a) Purchaser has all requisite corporate power and authority to enter into
this Agreement and to consummate the transactions contemplated hereby. The
execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby have been duly authorized by all necessary
corporate action on the part of Purchaser. This Agreement has been duly
executed and delivered by Purchaser and constitutes the valid and binding
obligations of Purchaser, enforceable in accordance with its terms, except as
enforceability may be limited by bankruptcy and other similar laws and general
principles of equity.
(b) The execution and delivery of this Agreement does not, and the
consummation of the transactions contemplated hereby will not, conflict with,
or result in any violation of, or default under (with or without notice or
lapse of time, or both), or give rise to a right of termination, cancellation
or acceleration of any obligation or loss of a benefit under (i) any provision
of the Certificate of Incorporation or Bylaws of Purchaser or (ii) any
material mortgage, indenture, lease, contract or other agreement or
instrument, permit, concession, franchise, license, judgment, order, decree,
statute, law, ordinance, rule or regulation applicable to Purchaser or its
properties or assets other than any such conflicts, violations, defaults,
terminations, cancellations or accelerations which would not have a Material
Adverse Effect on the ability of Purchaser to consummate the transactions
contemplated hereby.
(c) No consent, approval, order or authorization of, or registration,
declaration or filing with, any Governmental Entity, is required by or with
respect to Purchaser in connection with the execution and delivery of this
Agreement by Purchaser or the consummation by Purchaser of the transactions
contemplated hereby, except for (i) the filing of a pre-merger notification
report under the HSR Act, (ii) the filing of the From S-4 Registration
Statement with the SEC, (iii) the filing of a Form 8-K with the SEC within 15
days after the Effective Time, (iv) listing of the Conversion Shares on the
Nasdaq National Market, (v) any filings as may be required under applicable
state securities laws and the laws of any foreign country, and (vi) such other
consents, authorizations, filings, approvals and registrations which if not
obtained or made would not have a Material Adverse Effect on Purchaser.
3.4 SEC FILINGS; PURCHASER FINANCIAL STATEMENTS
(a) Purchaser and each of its subsidiaries has filed all material forms,
reports and documents required to be filed with the SEC since January 1, 1996,
and has made available to the Company, in the form filed with the
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SEC, (i) its Annual Reports on From 10-K for the fiscal years ended 1995 and
1996, respectively, (ii) its Quarterly Reports on From 10-Q for the periods
ended March 31, June 30, and September 30, 1997 (the "September 1997 10-Q"),
(iii) all proxy statements relating to Purchaser's meetings of stockholders
(whether annual or special) held since December 31, 1995, (iv) all other
reports or registration statements filed by Purchaser with the SEC since
December 31, 1995, and (v) all amendments and supplements to all such reports
and registration statements filed by Purchaser with the SEC. All such required
forms, reports and documents (including those enumerated in clauses (i)
through (iii) of the preceding sentence) are referred to herein as the
"Purchaser SEC Reports." As of their respective dates, the Purchaser SEC
Reports (i) were prepared in accordance with the requirements of the
Securities Act or the Exchange Act. as the case may be, and the rules and
regulations of the SEC thereunder applicable to such Purchaser SEC Reports and
(ii) did not at the time they were filed (or if amended or superseded by a
filing prior to the date of this Agreement, then on the date of such filing)
contain any untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary in order to make the
statements therein, in the light of the circumstances under which they were
made, not misleading. None of Purchaser's subsidiaries is required to file any
forms, reports or other documents with the SEC.
(b) Each of the consolidated financial statements (including, in each case,
any related notes thereto) contained in the Purchaser SEC Reports (the
"Purchaser Financials"), including any Purchaser SEC Reports filed after the
date hereof until the Closing, (i) complies as to form in all material
respects with the published rules and regulations of the SEC with respect
thereto, (ii) was prepared in accordance with generally accepted accounting
principles applied on a consistent basis throughout the periods involved
(except as may be indicated in the notes thereto) and (iii) fairly presented
the consolidated financial position of Purchaser and its subsidiaries as at
the respective dates thereof and the consolidated results of its operations
and cash flows for the periods indicated, except that the unaudited interim
financial statements do not include footnote disclosure of the type associated
with audited financial statements and were or are subject to normal and
recurring year-end adjustments, which, as to September 1997 10-Q, are not
expected to be material in amount. The audited balance sheet of the Company
contained in the Purchaser SEC Reports as of December 31, 1996 is hereinafter
referred to as the "Purchaser Balance Sheet."
(c) Purchaser has heretofore furnished or made available to the Company a
complete and correct copy of any amendments or modifications, which have not
yet been filed with the SEC but which are required to be filed, to agreements,
documents or other instruments which previously had been filed by Purchaser
with the SEC pursuant to the Securities Act or the Exchange Act.
3.5 POOLING OF INTERESTS. To Purchaser's knowledge, based on consultation
with its independent accountants, neither Purchaser nor its directors,
officers or stockholders nor any of its subsidiaries has taken any action
which would interfere with Purchaser's ability to account for the Acquisition
as a pooling of interests.
3.6 REGISTRATION STATEMENT; PROXY STATEMENT/PROSPECTUS. Provided that
Purchaser determines to have a Form S-4 filed, and subject to the accuracy of
the representations of the Company made in Section 2.28, the registration
statement on Form S-4 (or such other or successor form as shall be
appropriate), (including any amendments or supplements thereto, the
"Registration Statement"), pursuant to which the shares of Purchaser Common
Stock to be issued in the Acquisition may be registered with the SEC shall
not, at the time the Registration Statement is filed with the SEC and at the
time it becomes effective under the Securities Act, contain any untrue
statement of a material fact or omit to state any material fact necessary in
order to make the statements included therein not misleading. The information
supplied by Purchaser for inclusion in the Proxy Statement shall not, on the
date the Proxy Statement is first mailed to shareholders, at the time of the
Court Meeting or at the Closing, contain any untrue statement of a material
fact or omit to state any material fact required to be stated therein or
necessary in order to make the statements therein, in light of the
circumstances under which they are made, not false or misleading, or omit to
state any material fact necessary to correct any statement in any earlier
communication with respect to the solicitation of proxies for the Court
Meeting and General Meeting which has become false or misleading. The Proxy
Statement will comply as to form in all
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material respects with the provisions of the Exchange Act and the rules and
regulations thereunder. If at any time prior to the Effective Time any event
relating to Purchaser, or any of their respective affiliates, officers or
directors should be discovered by Purchaser which should be set forth in an
amendment to the Registration Statement or a supplement to the Proxy
Statement, Purchaser will promptly inform the Company. Notwithstanding the
foregoing, Purchaser makes no representation or warranty with respect to any
information supplied by the Company which is contained in any of the foregoing
documents.
3.7 BOARD APPROVAL. The Board of Directors of Purchaser has, as of the date
hereof, unanimously approved this Agreement and the Acquisition.
3.8 BROKERS' AND FINDERS' FEES. Purchaser has not incurred, and will not
incur, directly or indirectly, any liability for brokerage or finders' fees or
agents' commissions or any similar charges in connection with this Agreement,
the Acquisition or any transaction contemplated hereby.
3.9 ABSENCE OF CERTAIN CHANGES OF EVENTS. Since the date of the Purchaser
Balance Sheet, except with respect to the actions contemplated by this
Agreement, Purchaser has conducted its business in the ordinary course and in
a manner consistent with past practice and, since such date, there has not
been any Material Adverse Effect on Purchaser or any development that
reasonably would be expected to have a Material Adverse Effect on the
Purchaser.
3.10 NO UNDISCLOSED LIABILITIES. Except as set forth in Purchaser Schedules,
and except as set forth in the unaudited balance sheet of Purchaser included
in the September 1997 10-Q, Purchaser has no liabilities or obligations of any
nature (whether known or unknown and whether absolute, accrued, contingent, or
otherwise) other than liabilities or obligations reflected or adequately
reserved against in the Purchaser Balance Sheet, current liabilities incurred
in the ordinary course of business since the date of the Purchaser Balance
Sheet, and obligations under executory contracts.
3.11 LITIGATION. There is no suit, action, arbitration, demand, claim or
proceeding pending, or, to the knowledge of Purchaser, threatened against
Purchaser or any of its subsidiaries, nor is there any judgment, decree,
injunction, rule or order of any Governmental Entity or arbitrator outstanding
against Purchaser or any of its subsidiaries, which reasonably would be
expected to be material to Purchaser. To the knowledge of Purchaser, there are
no facts which could reasonably from the basis of any material claim against
the Company or any of its subsidiaries.
3.12 TAX FREE REORGANIZATION. Purchaser will treat the transactions
contemplated hereby as a tax-free reorganization under (S)368(a)(1)(B) of the
Code for U.S. income tax purposes and will not take any contrary position,
unless required to do so in order to comply with applicable federal and state
law.
3.13 REPRESENTATIONS AND STATEMENTS COMPLETE. None of the written or oral
representations or warranties made by Purchaser or any of its officers or
directors, nor any statement made in Purchaser Schedules, exhibits hereto, or
certificates furnished by Purchaser or its officers, contains any untrue
statement of a material fact, or omits to state any material fact necessary in
order to make the statements contained herein or therein, in light of the
circumstances under which they were made, not misleading.
4. CONDUCT PRIOR TO THE EFFECTIVE TIME
4.1 CONDUCT OF BUSINESS OF THE COMPANY. During the period from the date of
this Agreement and continuing until the earlier of the termination of this
Agreement pursuant to its terms and the Effective Time, the Company (which for
the purposes of this Section 4.1 shall include the Company and each of its
subsidiaries) agrees, except to the extent that Purchaser shall otherwise
consent in writing, to carry on its business in the usual, regular and
ordinary course in substantially the same manner as heretofore conducted, to
keep financial records of the Company in accordance with sound business
practices, to pay its debts and taxes when due subject to
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good faith disputes over such debts or taxes, to pay or perform other material
obligations when due, to file all necessary and/or required forms, reports and
documents required to be filed with the SEC ("Future SEC Reports") and to
prepare such Future SEC Reports in accordance with the requirements of the
Securities Act or the Exchange Act, as the case may be, and the rules and
regulations of the SEC thereunder applicable to such Future SEC Reports,
including without limitation, Section 10(b)(5) of the Securities Act, and to
use commercially reasonable efforts consistent with past practices and
policies to preserve intact the Company's present business organizations, to
the best of its ability and except as a result of announcement of the signing
of this Agreement, to keep available the services of its present officers and
employees and preserve its relationships with customers, suppliers,
distributors, licensors, licensees, and others having business dealings with
the Company, to the end that the Company's goodwill and ongoing businesses be
unimpaired at the Effective Time. The Company shall promptly notify Purchaser
of any event or occurrence not in the ordinary course of business of the
Company, and will not enter into or amend any agreement or take any action
which reasonably would be expected to have a Material Adverse Effect on the
Company. Except as expressly provided for by this Agreement, the Company shall
not, prior to the Effective Time or earlier termination of this Agreement
pursuant to its terms, without the prior written consent of Purchaser, which
consent will not be unreasonably withheld:
(a) Accelerate, amend or change the period of exercisability of options
or restricted stock, or reprice options granted under the Company Share
Option Plans or authorize cash payments in exchange for any options granted
under any of such plans;
(b) Create any new subsidiaries, or enter into partnership arrangements,
joint ventures, joint development agreements or strategic alliances,
agreements to create standards or agreements with "Standard" bodies;
(c) Grant any severance or termination pay (i) to any executive officer
or (ii) to any other employee except payments made in connection with the
termination of employees who are not executive officers in amounts
consistent with the Company's policies and past practices or pursuant to
written agreements outstanding, or policies existing, on the date hereof
and as previously disclosed in writing to Purchaser or pursuant to written
agreements consistent with the Company's past agreements under similar
circumstances;
(d) Transfer or license to any person or entity or otherwise extend,
amend or modify any rights to the Company Intellectual Property Rights
(including rights to resell or relicense the Company Intellectual Property
Rights) or enter into grants to future patent rights, other than End-User
Licenses entered into in the ordinary course of business consistent with
past practices (which End-User Licenses may include, without limitation,
non-material changes, but may not include a right to modify, distribute or
sublicense the software covered by such End-User Licenses, and which may
include, or have in connection with such End-User License, a software
escrow containing release conditions consistent with escrow agreements
previously entered into by the Company);
(e) Commence any litigation other than (i) for the routine collection of
bills, (ii) for software piracy, or (iii) in such cases where the Company
in good faith determines that failure to commence suit would result in the
material impairment of a valuable aspect of the Company's business,
provided that the Company consults with the Purchaser prior to the filing
of such a suit;
(f) Declare or pay any dividends on or make any other distributions
(whether in cash, stock or property) in respect of any of its share
capital, or split, combine or reclassify any of its share capital or issue
or authorize the issuance of any other securities in respect of, in lieu of
or in substitution for shares of share capital of the Company;
(g) Repurchase or otherwise acquire, directly or indirectly, any Company
Ordinary Shares;
(h) Issue, deliver or sell or authorize or propose the issuance, delivery
or sale of, any Company Ordinary Shares or any other security of the
Company, or of any class or securities convertible into, or subscriptions,
rights, warrants or options to acquire, or enter into other agreements or
commitments of any character obligating it to issue, any such shares,
securities or other convertible securities, other than (i) the issuance of
shares of Company Ordinary Shares pursuant to the exercise of Company stock
options or warrants therefor outstanding as of the date of this Agreement
consistent with the terms of the applicable
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Company Share Option Plan, and (ii) shares of Company Ordinary Shares
issuable to participants in the Stock Purchase Plan consistent with the
terms of that Plan;
(i) Cause, permit or propose any amendments to the Company's Memorandum
of Association or Articles of Association or the Articles (or Certificates)
of Incorporation or Bylaws of any of the Company's subsidiaries (other than
any amendments specifically provided for in the Resolution);
(j) Sell, lease, license, encumber or otherwise dispose of any of the
Company's properties or assets which are material, individually or in the
aggregate, to the business of the Company;
(k) Incur any indebtedness for borrowed money (other than ordinary course
trade payables or pursuant to existing credit facilities in the ordinary
course of business) or guarantee any such indebtedness or issue or sell any
debt securities or warrants or rights to acquire debt securities of the
Company or guarantee any debt securities of others;
(l) Adopt or amend any Company Employee Benefit Plan or increase the
salaries or wage rates of any of its employees (except for wage increases
in the ordinary course of business and consistent with past practices),
including but not limited to (but without limiting the generality of the
foregoing), the adoption or amendment of any share purchase or option plan,
the entering into of any employment contract or the payment of any special
bonus or special remuneration in excess of $50,000 to any individual
director or employee, or $400,000 to all directors and employees;
(m) Revalue any of the Company's assets, including without limitation
writing down the value of inventory, writing off notes or accounts
receivable other than in the ordinary course of business consistent with
past practice;
(n) Except as set forth in the Company Schedules, pay, discharge or
satisfy in an amount in excess of $50,000 (in any one case) or $100,000 (in
the aggregate), any claim, liability or obligation (absolute, accrued,
asserted or unasserted, contingent or otherwise), including, without
limitation, under any employment contract or with respect to any bonus or
special remuneration, other than the payment, discharge or satisfaction in
the ordinary course of business of liabilities and of the type reflected or
reserved against in the Company Financials (or the notes thereto);
(o) Except as set forth in the Company Schedules, make or change any
material election in respect of Taxes, adopt or change any accounting
method in respect of Taxes, file any amendment to a material Return, enter
into any closing agreement, settle any claim or assessment in respect of
Taxes (except settlements effected solely through payment of immaterial
sums of money), or consent to any extension or waiver of the limitation
period applicable to any claim or assessment in respect of Taxes;
(p) Intentionally take any action, including the acceleration of vesting
of any options, warrants, restricted shares or other rights to acquire
shares of the Company Ordinary Shares, which would be reasonably likely to
interfere with Purchaser's ability to account for the Acquisition as a
pooling of interests;
(q) Incur costs and expenses in excess of $1,250,000, in the aggregate,
in connection with the preparation, negotiation and execution of this
Agreement and the completion of the transactions contemplated hereby,
including without limitation, costs and expenses of lawyers, accountants,
investment bankers and other consultants or representatives, but excluding
any filing fees and printing and mailing costs incurred in connection with
the Registration Statement or Proxy Statement and fees and expenses which
may be owed to Broadview Associates;
(r) Enter into any mortgage, indenture, lease, contract or other
agreement, the terms of which conflict with or are violated by, or under
which a default occurs or will occur, by or as a result of this Agreement
or the consummation of the Acquisition, which conflict, violation or
default would, individually or collectively, be material;
(s) Voluntarily enter into any agreement, judgment, injunction, order or
decree binding upon the Company or its subsidiaries or the Company
Intellectual Property Rights, which has or could reasonably be expected to
have the effect of prohibiting or materially impairing any material current
or currently proposed business practice of the Company, any acquisition of
material property by the Company or the conduct of business by the Company
as currently conducted or as proposed to be conducted by the Company;
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(t) Enter into any agreement that would have been required to be
disclosed under Section 2.14 or 2.15 had the agreement been entered into
prior to the date hereof (other than End-User Licenses which adhere to the
provisions set forth in the second parenthetical of Section 4.1(d), and
other than licenses for Embedded Products, which End-User Licenses and
licenses for Embedded Products are generally available, will be used in
their generally available form, and are entered into in ordinary course of
business, consistent with past practices) or take any action which would
constitute a material violation under any agreement or agreements, which
are, individually or collectively, material to the Company;
(u) Take any action which wilfully violates the proprietary rights of a
third party;
(v) Take any action which constitutes a violation of any law, ordinance
or regulation of any Governmental Entity, except for violations or possible
violations which individually or in the aggregate do not, and insofar as
reasonably can be foreseen, in the future will not, have a Material Adverse
Effect on the Company;
(w) Take any action that would, if taken prior to the date hereof,
constitute a violation of a representation and warranty contained in
Section 2.23;
(x) Agree in writing or otherwise to take, any of the actions described
in Section 4.1(a) through (x) above; or
(y) Agree in writing or otherwise to take, any other action with would
cause or would be reasonably likely to cause any of the conditions to the
Acquisition set forth in Sections 6.1 or 6.3, not to be satisfied.
4.2 COVENANT REGARDING AMENDMENT TO THE SCHEME. No amendment to the Scheme
will be proposed by the Company without the consent of Purchaser (which
consent will not be unreasonable withheld or delayed). If any amendment to the
Scheme or the Resolution is proposed at the Court Hearing by the Court or any
party (other than the Company), the Company will withdraw its application for
the Scheme to be sanctioned by the Court, unless and until Purchaser will
withdraw its application for the Scheme to be sanctioned by the Court, unless
and until Purchaser consents to such amendment; provided that both the Company
and Purchaser agree to accept any amendment to the Scheme required by the High
Court if the amendment is (i) consistent with the provisions of this Agreement
or (ii) not materially less favorable to the Company and Purchaser than the
terms set forth in this Agreement.
4.3 PURCHASER'S COVENANTS.
(a) Except as expressly provided for in this Agreement, Purchaser shall not,
prior to the Effective Time or earlier termination of this Agreement pursuant
to its terms, without the prior written consent of the Company, which consent
will not be unreasonably withheld, take, or agree in writing or otherwise to
take, any action which would cause, or which would be reasonably likely to
cause, any of the conditions to the Acquisition set forth in Sections 6.1 or
6.2, not to be satisfied.
(b) Purchaser covenants to the Company (for itself and as trustee for
holders of Scheme Shares) that it will instruct English Counsel to appear at
the hearing of the petition to sanction the Scheme and, by such Counsel, that
it shall undertake to the High Court to be bound by the Scheme and, subject to
Section 4.2 hereof, to execute and do, and to procure to be executed and done,
all such documents, acts and things as may be necessary or desirable to be
executed or done by it for the purpose of giving effect to the Scheme.
(c) For the avoidance of doubt, all and any UK Stamp Duty and/or Stamp Duty
Reserve Tax payable in relation to the Acquisition shall be borne and paid by
Purchaser. Purchaser further covenants to Company (for itself and as trustee
for holders of Scheme Shares) to execute and do, and procure to be executed
and done, all documents, acts and things (including the giving of undertakings
to submit and/or the submission of documentation relating to the Scheme for
Stamp Duty adjudication) as may be necessary or desirable to be executed or
done for the purpose of enabling registration at the Registrar of Companies of
the Order of the High Court sanctioning the Scheme and confirming the
reduction of capital in connection with the Scheme to occur as expeditiously
as possible, including in the event that the UK Inland Revenue or the
Registrar of Companies shall allege that Stamp Duty or Stamp Duty Reserve Tax
is payable in relation to the Acquisition.
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(d) Purchaser covenants to the Company that it shall not cause any split,
reverse stock split, stock dividend (including any dividend or distribution of
securities convertible into Purchaser Common Stock or Company Ordinary
Shares), reorganization, recapitalization or other like change with respect to
Purchaser Common Stock between the Hearing Date and the Effective Time.
4.4 PAYMENT OF STAMP DUTY AFTER EFFECTIVE TIME. If, following the Effective
Time, Purchaser shall acquire any Company Ordinary Shares (including such
shares arising on exercise of Company Options), any U.K. Stamp Duty or Stamp
Duty Reserve Tax shall be borne by Purchaser.
4.5 COMPANY ACTIONS REGARDING CERTAIN COMPANY SHARE OPTION PLANS. Company
hereby covenants that it shall enter into an agreement (to the extent it has
not already done so) with LBMS Trustee Company Limited (the "Trustee"), as
trustee under the LBMS Employees' Share Scheme Trust (the "Trust") to the
effect that (a) the Company will provide Company Ordinary Shares to the
Trustee to allow the Trustee to meet its commitment under the Trust to holders
of Company Options to the extent it does not already possess such shares and
(b) the Trustee shall use its Company Ordinary Shares to also satisfy the
Company's obligations to employees under the Employee Stock Purchase Plan. The
Company shall prior to the Effective Time provide Purchaser with such
agreement with the Trustee.
5. ADDITIONAL AGREEMENTS
5.1 PROXY STATEMENT/PROSPECTUS; REGISTRATION STATEMENT. As promptly as
practicable after the execution of this Agreement, Purchaser and the Company
shall prepare, and file with the SEC, the Proxy Statement and, if Purchaser
elects to file a registration statement with respect to the issuance of
Purchaser Common Stock in respect of the Scheme Shares, which such election
shall be made if Purchaser is required to do so in order to comply with
applicable securities laws, Purchaser shall prepare and file with the SEC the
Registration Statement in which the Proxy Statement will be included as a
prospectus. Subject to the preceding sentence, each of the Purchaser and
Company shall use its best efforts to have the Registration Statement declared
effective as soon thereafter as practicable; provided, however, that Purchaser
shall have no obligation to agree to account for the Acquisition as a
"purchase" in order to cause the Registration Statement to become effective.
The Proxy Statement shall include the fairness opinion of Broadview Associates
referred to in Section 2.30. The Proxy Statement shall, subject to the proper
exercise of the fiduciary duties of the Directors of the Company, also include
the recommendations of the Board of Directors of the Company in favor of the
Acquisition which shall not be withdrawn, modified or withheld except in
compliance with this Agreement.
5.2 MEETINGS OF SHAREHOLDERS. Promptly after the date hereof, the Company
shall take all action necessary in accordance with the U.K. and U.S. Law and
its Memorandum of Association and Articles of Association to convene the Court
Meeting and the General Meeting, to be held as promptly as practicable for the
purpose of voting upon this Agreement and the Acquisition as a Scheme and the
Resolution, respectively. The Proxy Statement shall contain the Scheme in the
form set out in the Exhibit A, the notice of the Court Meeting in the form set
out in Exhibit B and the notice convening the General Meeting in the form set
out in Exhibit C, in each case subject to such changes and amendments as may
be agreed between the Company and Purchaser and/or as may be directed by the
High Court, together with an "Explanatory Statement" complying with the
provisions of Section 426 of the Companies Act and otherwise in a form
reasonably satisfactory to the Company and the Purchaser.
5.3 ACCESS TO INFORMATION; CONFIDENTIALITY.
(a) The Company shall afford Purchaser and its accountants, counsel and
other representatives reasonable access during normal business hours during
the period prior to the Effective Time to all information concerning the
business, including the status of product development efforts, properties and
personnel of the Company as Purchaser may reasonably request. No information
or knowledge obtained in any investigation pursuant to this Section 5.3 shall
affect or be deemed to modify any representation or warranty contained herein
or the conditions to the obligations of the parties to consummate the
Acquisition.
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(b) The parties acknowledge that Purchaser and the Company have previously
executed a Nondisclosure Agreement, dated October 10, 1997 (the "Nondisclosure
Agreement") and a Non-Recruitment dated November 21, 1997, which Nondisclosure
Agreement and Non-Recruitment Agreement shall continue in full force and
effect in accordance with their respective terms.
5.4 NO SOLICITATION.
(a) From and after the date of this Agreement until the Effective Time or
the earlier termination of this Agreement in accordance with its terms, the
Company and its subsidiaries will not, and will not permit their respective
directors, officers, employees, representatives, investment bankers, agents
and affiliates to, directly or indirectly, (i) solicit, initiate or encourage
submission of any inquiries, proposals or offers by, (ii) (save where required
otherwise by applicable law or regulation) participate in any negotiations nor
negotiations with, (iii) (save where required otherwise by applicable law or
regulation) afford any access to the properties, books or records of the
Company or any of its subsidiaries to, or (iv) otherwise assist, facilitate or
encourage, or enter into any agreement or understanding with, any person,
entity or group (other than Purchaser and its affiliates, agents and
representatives), in connection with any Acquisition Proposal. For the
purposes of this Agreement, an "Acquisition Proposal" shall mean any proposal
relating to any merger, consolidation, sale of material assets, tender offer,
recapitalization, accumulation of Company Ordinary Shares, ADRs or ADSs, proxy
solicitation, or other business combination involving the Company or any
subsidiary thereof. In addition, from and after the date of this Agreement
until the Effective Time or the earlier termination of this Agreement in
accordance with its terms, (save where required otherwise by applicable law or
regulation) the Company and its subsidiaries will not, and will not permit
their respective directors, officers, employees, representatives, investment
bankers, agents and affiliates to, directly or indirectly, make or authorize
any statement, recommendation or solicitation in support of any Acquisition
Proposal made by any person, entity or group (other than Purchaser). The
Company will immediately cease any and all existing activities, discussions or
negotiations with any parties conducted heretofore with respect to any of the
foregoing.
(b) Notwithstanding the provisions of paragraph (a) above, prior to the
approval of this Agreement and the Acquisition as a Scheme by the shareholders
of the Company at the Court Meeting and the approval of Resolutions at the
General Meeting, nothing contained in this Agreement shall prevent the Company
from furnishing information concerning the Company and its business,
properties and assets (but not encouraging the requests for such information)
to any third party, provided that (i) such third party has delivered to the
Company in writing an unsolicited, bona fide Superior Proposal (as hereinafter
defined), (ii) the Company notifies Purchaser immediately of any disclosure of
non-public information to any such third party, with a description of the
information to be disclosed, and (iii) the Company provides such non-public
information pursuant to a confidentiality agreement at least as restrictive as
the Confidentiality Agreement. Notwithstanding the foregoing, the Company may
not provide any non-public information to any third party if it has not prior
to the date thereof provided such information to Purchaser or Purchaser's
representatives.
(c) In the event the Company receives an Acquisition Proposal which the
Board of Directors of the Company in its good faith reasonable judgement
determines, after consultation with its independent financial advisors, would
result in a transaction more favorable to the shareholders of the Company from
a financial point of view than the Acquisition and for which financing, to the
extent required, is then committed or which, in the good faith reasonable
judgement of the Board of Directors of the Company (based upon the advice of
independent financial advisors), is reasonably capable of being financed by
such person, entity or group and which is likely to be consummated (a
"Superior Proposal"), nothing contained in this Agreement shall prevent the
Board of Directors of the Company from accepting or approving such Superior
Proposal or recommending such Superior Proposal to the Company's shareholders,
if the Board determines in good faith, after consultation with and based upon
the advice of its outside legal counsel, that such action is required by its
fiduciary duties under applicable law; in such case, the Board may amend,
withhold or withdraw its recommendation of the Acquisition. Subject to the
right of termination set forth in Section 7.1(g), except to the extent
expressly set forth in this Section 5.4, nothing shall relieve the Company
from complying with all other terms of this Agreement. Notwithstanding the
foregoing, the Company shall provide not less than five (5) business days
prior written notice to Purchaser before accepting or approving a Superior
Proposal.
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(d) The Company will (i) notify Purchaser immediately if any proposal is
made or any information or access is requested in connection with an
Acquisition Proposal or potential Acquisition Proposal and (ii) immediately
communicate to Purchaser the principal terms and conditions of any such
Acquisition Proposal or potential Acquisition Proposal or inquiry and the
identity of the offeror or potential offeror.
(e) Nothing contained in this Section 5.4 shall prevent the Company or its
Board of Directors from complying with the provisions of Rule 14e-2(a) and
14d-9 promulgated under the Exchange Act.
5.5 EXPENSES. All fees and expenses incurred in connection with the
Agreement and the transactions contemplated hereby shall be paid by the party
incurring such expenses, whether or not the Acquisition is consummated;
provided, however, that Purchaser and the Company shall share equally all fees
and expenses, other than attorneys', accountants' and financial advisor's
fees, incurred in connection with the printing and filing of the Registration
Statement (including financial statements and exhibits) and any amendment or
supplements thereto.
5.6 PUBLIC DISCLOSURE. Purchaser and the Company shall consult with each
other before issuing any press release or otherwise making any public
statement with respect to the Acquisition or this Agreement and shall not
issue any such press release or make any such public statement prior to such
consultation, except as may be required by law or any listing agreement with a
national securities exchange or the Nasdaq National Market, and in any event
in accordance with the terms of the Confidentiality Agreements.
5.7 POOLING ACCOUNTING. Purchaser and the Company shall each use its
reasonable commercial efforts to cause the business combination to be effected
by the Acquisition to be accounted for as a pooling of interests. Each of
Purchaser and the Company shall use its reasonable commercial efforts to cause
its Affiliates (as defined in Section 5.9) not to take any action that would
adversely affect the ability of Purchaser to account for the business
combination to be effected by the Acquisition as a pooling of interests.
5.8 AUDITORS' LETTERS. The Company shall use its reasonable commercial
efforts to cause to be delivered to Purchaser a letter of Price Waterhouse
LLP, independent auditors to the Company, dated a date within two business
days before the date on which the Registration Statement (if any) becomes
effective, and addressed to Purchaser, in form and substance reasonably
satisfactory to Purchaser and customary in scope and substance for letters
delivered by independent public accountants in connection with registration
statements similar to the Registration Statement. The Purchaser shall use its
reasonable commercial efforts to be delivered to the Company a letter of KPMG
Peat Marwick LLP, independent auditors to the Purchaser, dated a date within
two business days before the date on which the Registration Statement (if any)
becomes effective, and addressed to the Company, in form and substance
reasonably satisfactory to the Company and customary in scope and substance
for letters delivered by independent public accountants in connection with
registration statements similar to the Registration Statement.
5.9 AFFILIATE AGREEMENTS. Set forth respectively in Purchaser's Schedules
and the Company's Schedules is a list of those persons who are, in Purchaser's
or the Company's reasonable judgment, as the case may be, "Affiliates" of
Purchaser of the Company, as the case may be, within the meaning of Rule 145
(each such person who is an "affiliate" of Purchaser or the Company within the
meaning of Rule 145 is referred to as an "Affiliate") promulgated under the
Securities Act ("Rule 145"). Each of Purchaser and the Company shall provide
the other such information and documents as the other shall reasonably request
for purposes of reviewing such list. The Company shall use its reasonable
commercial efforts to deliver or cause to be delivered to Purchaser,
concurrently with the execution of this Agreement, from each of the Affiliates
of the Company, an executed Affiliate Agreement in the form attached hereto as
Exhibit D (each, a "Company Affiliate Agreement" and, collectively, the
"Company Affiliate Agreements"). Purchaser shall use its reasonable commercial
efforts to deliver or cause to be delivered to the Company, concurrently with
the execution of this Agreement, an Affiliate Agreement, executed by each of
the Affiliates of Purchaser, in the form attached hereto as Exhibit E (the
"Purchaser Affiliate Agreement"). Purchaser shall be entitled to place
appropriate legends on the certificates evidencing any Purchaser Common Stock
to be received by such Affiliates of the Company pursuant
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to the terms of this Agreement, and to issue appropriate stop transfer
instructions to the transfer agent for Purchaser Common Stock, consistent with
the terms of the Company Affiliate Agreements.
5.10 LEGAL REQUIREMENTS. Each of Purchaser and the Company will take all
reasonable actions necessary or desirable to comply promptly with all legal
requirements which may be imposed on them with respect to the consummation of
the transactions contemplated by this Agreement (including furnishing all
information required under the HSR Act and in connection with approvals of or
filings with any Governmental Entity, and prompt resolution of any litigation
prompted hereby) and will promptly cooperate with and furnish information to
any party hereto necessary in connection with any such requirements imposed
upon any of them or their respective subsidiaries in connection with the
consummation of the transactions contemplated by this Agreement, and will take
all reasonable actions necessary to obtain (and will cooperate with the other
parties hereto in obtaining) any consent, approval, order or authorization of,
or any registration, declaration or filing with, any Governmental Entity or
other public or private third party required to be obtained or made in
connection with the Acquisition or taking of any action contemplated by this
Agreement.
5.11 BLUE SKY LAWS. Purchaser shall take such steps as may be necessary to
comply with the securities and blue sky laws of all jurisdictions which are
applicable to the issuance of Purchaser Common Stock pursuant hereto. The
Company shall use its reasonable commercial efforts to assist Purchaser as
many be necessary to comply with the securities and blue sky laws of all
jurisdictions which are applicable in connection with the issuance of
Purchaser Common Stock pursuant hereto.
5.12 REASONABLE COMMERCIAL EFFORTS AND FURTHER ASSURANCES. Each of the
parties to this Agreement shall each use its reasonable commercial efforts to
effectuate the transactions contemplated hereby and to fulfill and cause to be
fulfilled the conditions to closing under this Agreement (including resolution
of any litigation prompted hereby). Each party hereto, at the reasonable
request of another party hereto, shall execute and deliver such other
instruments and do and perform such other acts and things as may be necessary
or desirable for effecting completely the consummation of the transactions
contemplated hereby.
5.13 CERTAIN BENEFIT PLANS. Subject to compliance with pooling of interests
accounting treatment of the Acquisition and the requirements of any applicable
laws, Purchaser shall take such reasonable actions as are necessary or
appropriate to allow eligible employees of the Company or its subsidiaries to
participate in the benefit programs of Purchaser (or in alternative benefit
programs on similar terms) as soon as is reasonably practicable after the
Effective Time, in accordance with the terms of such programs.
5.14 TAX-FREE REORGANIZATION. Purchaser and the Company shall each use all
reasonable commercial efforts to cause the Acquisition to be treated for
purposes of U.S. law as a reorganization within the meaning of Section 368 of
the Code.
5.15 NASDAQ LISTING. Purchaser agrees to authorize for listing on the Nasdaq
National Market the shares of Purchaser Common Stock issuable, and those
required to be reserved for issuance, in connection with the Acquisition, upon
official notice of issuance.
5.16 INDEMNIFICATION. For a period of two years after the Effective Time,
the Company shall indemnify and hold harmless each person who has at any time
prior to the Effective Time been an officer, director or employee of the
Company or other person entitled to be indemnified by the Company pursuant to
its Memorandum of Association or Articles of Association as they are currently
in effect on the date hereof to the same extent as provided in such documents.
5.17 NOTIFICATION. Between the date of this Agreement and the Effective
Time, each party will promptly notify the other in writing if that party
becomes aware of any fact or condition that causes or constitutes
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a breach of any of such party's representations and warranties as of the date
of this Agreement, or if the party becomes aware of the occurrence after the
date of this Agreement of any fact or condition that would cause or constitute
a breach of any such representation or warranty had such representation or
warranty been made as of the time of occurrence or discovery of such fact or
condition.
5.18 DELISTING OF ADRS. Prior to the Effective Time, the Company will delist
from the Nasdaq National Market, the American Depository Receipts ("ADRs") of
the Company, evidencing ownership of American Depository Shares, which
represent Company Ordinary Shares, which ADRs are traded on the Nasdaq
National Market.
5.19 AMENDMENT TO THE ARTICLES OF ASSOCIATION. The Resolution presented by
the Company at the General Meeting shall include a proposal to amend the
Articles of Association in the manner provided by paragraph C of the draft
Resolution set out in Exhibit C, incorporating such changes thereto as Company
shall determine, provided the written consent of Purchaser is obtained (such
consent not to be unreasonably withheld or delayed).
5.20 ISSUANCE OF COMPANY ORDINARY SHARES AFTER SCHEME. Purchaser covenants
with the Company (for itself and as trustee for holders of options over the
Company Ordinary Shares), in order to permit the proper operation of the
Articles of Association (as amended by the Resolution), that, upon service of
a Vendor Notice or a Purchaser Notice (as such terms are defined in the said
Articles, as so amended), it will issue to the person from whom such new
Company Ordinary Shares ("Later Shareholders") are acquired by Purchaser
shares of Purchaser Common Stock in accordance with the Exchange Ratio, as may
be adjusted pursuant to the Articles of Association (as so amended), in
consideration of the transfer to Purchaser of such Company Ordinary Shares. No
fraction of a share of Purchaser Common Stock will be issued to the Later
Shareholders by virtue of the forgoing sentence, but in lieu thereof each
Later Shareholder who would otherwise be entitled to a fraction of a share of
Purchaser Common Stock (after aggregating all fractional shares of Purchaser
Common Stock to be received by such holder) shall receive from Purchaser an
amount of cash calculated as set out in Article 4B of the Articles of
Association (as so amended). The Purchaser Common Stock issued will be fully
paid and non-assessable, will rank equally in all respects with all Purchaser
Common Stock in issue at the time (other than as regards any dividend or other
distribution payable by reference to a second date preceding the date of
allotment).
5.21 FORM S-8. Purchaser agrees to file a registration statement on Form S-8
for the shares of Purchaser Common Stock issuable to any Later Shareholders in
accordance with Section 5.20 hereof no later than 10 days after the Effective
Time.
5.22 COMPANY SHARE OPTION PLANS.
(a) Prior to the Effective Time, Purchaser will make a written offer to
holders of outstanding options under the Company Share Option Plans, which
offer will be subject to consummation of the Acquisition, to exchange their
outstanding Company Options for options to purchase Purchaser Common Stock to
be issued under Purchaser's Employee Incentive Compensation Plan ("Purchaser
Options"). Any acceptance of such offer will be effective immediately after
the Effective Time. The Purchaser Options offered by Purchaser to the holders
of Company Options will have the following terms and conditions: (i) the
vested or unvested status of the Purchaser Options and the vesting schedule
shall be identical to that provided by the terms of the applicable Company
Share Option Plan, giving effect to any accelerated vesting by virtue of a
"change of control," it being understood that, to the extent applicable, the
optionholder's acceptance of Purchaser's offer pursuant to this Section shall
constitute an agreement to "release options" in consideration of the grant of
"equivalent options" in Purchaser and, as a result, Purchaser Options will
reflect the remaining vesting schedule of the Company Option, (ii) the term of
the Purchaser Options shall be identical to that provided in the applicable
Company Share Option Plan; provided, however, that if the terms of the
applicable Company Share Option Plan provides that the Company Option will
expire or terminate prior to the first anniversary of the Effective Time,
whether due to a change of control or by virtue of termination of employment
after the Effective Time, than the term of the Purchaser Option shall expire
or terminate on the first anniversary of the Effective Time, and (iii) except
as set
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forth above, the terms and conditions of the Purchaser Options shall be
substantially identical to those set forth in the applicable Company Share
Option Plan. Pursuant to the exchange offer, (1) Company Options shall be
exercisable (when vested) for that number of whole shares of Purchaser Common
Stock equal to the product of the number of shares of Company Ordinary Shares
that were issuable upon exercise of such Company Options immediately prior to
the Effective Time multiplied by the Exchange Ratio, rounded to the nearest
whole number of shares of Purchaser Common Stock, and (2) the per share
exercise price for the shares of Purchaser Common Stock issuable upon exercise
of such Purchaser Options shall be equal to the quotient determined by
dividing the exercise price per share of Company Ordinary Shares at which such
Company Options were exercisable immediately prior to the Effective Time by
the Exchange Ratio, rounded to the nearest whole cent. Purchaser shall make
the offer in accordance with applicable securities laws, including, without
limitation, requiring, where it believes necessary, the use of investor
representatives for optionholders, and the Company shall cooperate with
Purchaser in the offer.
(b) Purchaser and the Company agree to consider in good faith including the
exchange offer provided for in (a) above as part of the Scheme for purposes of
obtaining the High Court's approval of the exchange offer.
6. CONDITIONS TO THE ACQUISITION
6.1 CONDITIONS TO OBLIGATIONS OF EACH PARTY TO EFFECT THE ACQUISITION. The
respective obligations of each party to this Agreement to effect the
Acquisition shall be subject to the satisfaction at or prior to the Effective
Time of the following conditions, and the Order of the High Court regarding
the Scheme shall not be filed with the U.K. Registrar of Companies until the
following conditions have been met:
(a) Shareholder Approval. The Agreement, the Acquisition as a Scheme, and
the Resolution at the General Meeting, shall have been approved and adopted
by the requisite vote under applicable law of the shareholders of the
Company.
(b) High Court Approval/Filing. The Scheme shall have been sanctioned,
and the proposed reduction of the Company's share capital shall have been
confirmed, by the High Court.
(c) Registration Statement Effective. If a Registration Statement is
filed, the SEC shall have declared the Registration Statement effective. No
stop order suspending the effectiveness of the Registration Statement or
any part thereof shall have been issued and no proceeding for that purpose,
and no similar proceeding in respect of the Proxy Statement, shall have
been initiated or threatened in writing by the SEC; and all requests for
additional information on the part of the SEC shall have been complied with
to the reasonable satisfaction of the parties hereto.
(d) No Injunctions. No temporary restraining order, preliminary or
permanent injunction or other order issued by any court of competent
jurisdiction or other legal or regulatory restraint or prohibition
preventing the consummation of the Acquisition shall be in effect.
(e) HSR Act. Any applicable waiting period under the HSR Act shall have
expired or been terminated.
(f) Opinion of Accountants. Each of the parties to this Agreement shall
have received letters from its respective accountants with respect to
pooling of interests that shall be satisfactory to the other party;
provided, however, that the satisfaction of this condition shall not be
required to enforce the obligation of Purchaser to effect the Acquisition
if the non-satisfaction of this condition is due to an action or inaction
of Purchaser which prevents treating the business combination to be
effected by the Acquisition as a pooling of interests.
(g) Nasdaq Listing. The shares of Purchaser Common Stock issuable to
stockholders of the Company pursuant to this Agreement and such other
shares required to be reserved for issuance in connection with the
Acquisition shall have been authorized for listing on the Nasdaq National
Market upon official notice of issuance.
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6.2 ADDITIONAL CONDITIONS TO OBLIGATIONS OF COMPANY. The obligations of the
Company to consummate and effect this Agreement and the transactions
contemplated hereby shall be subject to the satisfaction at or prior to the
Effective Time of each of the following conditions, and the Order of the High
Court regarding the Scheme shall not be filed with the U.K. Registrar of
Companies until the following conditions have been met, any of which may be
waived, in writing, exclusively by the Company:
(a) Representations and Warranties. The representations and warranties of
Purchaser contained in this Agreement shall have been true and correct in
all material respects as of the date of this Agreement and the Company
shall have received a certificate to such effect signed on behalf of
Purchaser by the President, Chief Operating Officer or Chief Financial
Officer of Purchaser.
(b) Agreements and Covenants. Purchaser shall have performed or complied
in all materials respect with all agreements and covenants required by this
Agreement to be performed or complied with by them on or prior to Effective
Time, and the Company shall have received a certificate to such effect
signed by the President, Chief Operating Officer or Chief Financial Officer
of Purchaser.
(c) Legal Opinion. The Company shall have received a legal opinion from
Katten Muchin & Zavis, legal counsel to Purchaser, in substantially the
form attached hereto as Exhibit F.
(d) Material Adverse Effect. Since the date of this Agreement, there
shall not have occurred any Material Adverse Effect on Purchaser.
(e) Affiliate Agreements. Each of the parties identified by Purchaser
pursuant to Section 5.10 hereof as being an Affiliate of Purchaser shall
have delivered to Purchaser an executed Purchaser Affiliate Agreement which
shall be in full force and effect.
(f) Tax Opinion. The Company shall have received a legal opinion from
Ropes & Gray, legal counsel to the Company, to the effect that the
Acquisition will be treated for Federal income tax purposes as a
reorganization within the meaning of Section 368(a)(1) of the Code.
6.3 ADDITIONAL CONDITIONS TO OBLIGATIONS OF PURCHASER. The obligations of
Purchaser to consummate and effect this Agreement and the transactions
contemplated hereby shall be subject to the satisfaction at or prior to the
Effective Time of each of the following conditions, and the Order of the High
Court regarding the Scheme shall not be filed with the U.K. Registrar of
Companies until the following conditions have been met, any of which may be
waived, in writing, exclusively by Purchaser:
(a) Representations and Warranties. The representations and warranties of
the Company contained in this Agreement shall have been true and correct in
all material respects as of the date of this Agreement, except for the
representations and warranties in Section 2.5 (b), 2.7, 2.9 and 2.19 to the
extent specifically given as of the Effective Time, and without giving
effect to any notice thereof pursuant to Section 5.17 hereof; Purchaser
shall have received a certificate to such effect signed on behalf of the
Company by the President and Chief Financial Officer of the Company;
(b) Agreement of Covenants. The Company shall have performed or complied
in all material respects with all agreements and covenants required by this
Agreement to be performed or complied with by it on or prior to the
Effective Time, and the Purchaser shall have received a certificate to such
effect signed by the President and Chief Financial Officer of the Company.
(c) Third Party Consents. Purchaser shall have received all written
consents, assignments, waivers, authorizations or other certificates
reasonably deemed necessary by Purchaser's legal counsel to provide for the
continuation in full force and effect of any and all material contracts and
leases of the Company and for the Company to consummate the transactions
contemplated hereby except when the failure to receive such consents, etc.
would not have a Material Adverse Effect on the Company.
(d) Legal Opinions. Purchaser shall have received a legal opinion from
Ropes & Gray, U.S. legal counsel to the Company, in substantially the form
attached hereto as Exhibit G, a legal opinion from Macfarlanes, English
legal counsel to the Company, in substantially the form attached hereto as
Exhibit H, a legal opinion from Ziegler, Ziegler & Altman, legal counsel
for Morgan Guaranty Trust Company of
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New York, the Depository for the Company's ADSs, in substantially the form
attached hereto as Exhibit I, and a legal opinion of Hughes & Luce,
additional legal counsel to the Company, in substantially the form attached
hereto as Exhibit J.
(e) Material Adverse Effect. Since the date of this Agreement, there
shall not have occurred any Material Adverse Effect on the Company;
provided that, for purposes of this Section 6.3(e), a Material Adverse
Effect on the Company shall not be deemed to have occurred as a result of
(i) a decline in the actual or potential future financial condition,
properties, assets, liabilities, businesses, operations or results of
operations of the Company provided that the Company has operated its
business in accordance with Section 4.1 and otherwise consistent with its
past practices, (ii) losses of employees or other matters related to the
transactions contemplated hereby (including, without limitation, the public
announcement thereof), or (iii) actions taken by the Company at the
specific request of Purchaser.
(f) Affiliate Agreements. Each of the parties identified by the Company
pursuant to Section 5.10 hereof as being an Affiliate of the Company shall
have delivered to Purchaser an executed Company Affiliate Agreement which
shall be in full force and effect.
(g) Transfer of Minority Interests. Any minority interest in the Company
subsidiaries not already held by the Company or a wholly-owned subsidiary
of the Company shall have been validly transferred to a nominee of
Purchaser.
(h) Termination of the Stock Purchase Plan. The Company shall have
terminated the Stock Purchase Plan.
7. TERMINATION, AMENDMENT AND WAIVER
7.1 TERMINATION. This Agreement may be terminated and the Acquisition
abandoned by notice served at any time prior to noon (London time) on the
business day immediately following the date on which the High Court shall
sanction the Scheme:
(a) by mutual written consent of the Company and Purchaser;
(b) by any party if the Company's shareholders do not approve the
Acquisition at the Court Meeting or do not approve the Resolution at the
General Meeting as provided in this Agreement;
(c) by Purchaser if:
(i) there has been a material breach of any representation, warranty,
covenant or agreement, contained in this Agreement on the part of the
Company and such breach has not been cured within ten (10) business
days after written notice to the Company (provided, that Purchaser is
not in material breach of the terms of this Agreement; and provided
further, that no cure period shall be required for a breach which by
its nature cannot be cured) such that the conditions set forth in
Section 6.3(a) or Section 6.3(b), as the case may be, will not be
satisfied, or
(ii) the Board of Directors of the Company adversely amends,
withholds or withdraws its recommendation of the Acquisition, or shall
have resolved or publicly announced or disclosed to any third party its
intention to do so, or the Acquisition is not submitted to the
Company's shareholders as contemplated by this Agreement (provided that
Purchaser is not in material breach of the terms of this Agreement);
(d) by the Company if:
(i) there has been a material breach of any representation, warranty,
covenant or agreement, contained in this Agreement on the part of the
Purchaser and such breach has not been cured within ten (10) business
days after written notice to the Purchaser (provided, that the Company
is not in material breach of the terms of this Agreement; and provided
further, that no cure period shall be required for a breach which by
its nature cannot be cured) such that the conditions set forth in
Section 6.2(a) or Section 6.2(b), as the case may be, will not be
satisfied,
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(ii) the Board of Directors of Purchaser adversely amends, withholds
or withdraws its recommendation of the Acquisition (provided that the
Company is not in material breach of the terms of this Agreement), or
(e) by any party hereto if: (i) there shall be a final, non-appealable
order of a Federal or state court, or the High Court in effect preventing
consummation of the Acquisition; or (ii) there shall be any final action
taken, or any statute, rule, regulation or order enacted, promulgated or
issued or deemed applicable to the Acquisition by any Governmental Entity
which would make consummation of the Acquisition illegal or which would
prohibit Purchaser's ownership or operation of all or a material portion of
the business of the Company, or compel Purchaser to dispose of or hold
separate all or a material portion of the business or assets of the Company
or Purchaser as a result of the Acquisition;
(f) by any party hereto if the Acquisition shall not have been
consummated by August 31, 1998 (provided that if the Acquisition shall not
have been consummated solely due to the waiting period, or any extension
thereof, under the HSR Act not having expired or been terminated, then such
date shall be extended to December 31, 1998); provided, further, that the
right to terminate this Agreement under this Section 7.1(f) shall not be
available to any party whose willful failure to fulfill any material
obligation under this Agreement has been the cause of, or resulted in, the
failure of the Effective Time to occur on or before such date; and
(g) by any party if the Board of Directors of the Company accepts or
approves a Superior Proposal, or recommends a Superior Proposal to the
shareholders of the Company.
Where action is taken to terminate this Agreement pursuant to this Section
7.1, it shall be sufficient for such action to be authorized by the Board of
Directors (as applicable) of the party taking such action.
7.2. EFFECT OF TERMINATION. In the event of termination of this Agreement as
provided in Section 7.1, this Agreement shall forthwith become void and there
shall be no liability or obligation on the part of Purchaser, the Company or
their respective officers, directors, stockholders or affiliates, except to
the extent that such termination results from the breach by a party hereto of
any of its representations, warranties, covenants or agreements set forth in
this Agreement, and, provided that the provisions of Sections 5.3(b) and 5.5
and Article VIII of this Agreement shall remain in full force and effect and
survive any termination of this Agreement.
7.3 NOTICE OF TERMINATION. Any termination of this Agreement under Section
7.1 above will be effective immediately upon the delivery of written notice
made in accordance with Section 8.1 below by the terminating party to the
other party hereto (which shall be copied by facsimile to Macfarlanes
(attention: Tim Oldridge) and Clifford Chance (attention: Martin Richards).
7.4. AMENDMENT. This Agreement may be amended by the parties hereto at any
time by execution of an instrument in writing signed on behalf of each of the
parties hereto.
7.5. EXTENSION; WAIVER. At any time prior to the Effective Time any party
hereto may, to the extent legally allowed, (i) extend the time for the
performance of any of the obligations or other acts of the other parties
hereto, (ii) waive any inaccuracies in the representations and warranties made
to such party contained herein or in any document delivered pursuant hereto
and (iii) waive compliance with any of the agreements or conditions for the
benefit of such party contained herein. Any agreement on the part of a party
hereto to any such extension or waiver shall be valid only if set forth in an
instrument in writing signed on behalf of such party.
8. GENERAL PROVISIONS
8.1 NOTICES. All notices and other communications hereunder shall be in
writing and shall be deemed given if delivered personally or by commercial
delivery service, or mailed by registered or certified mail (return
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receipt requested) or sent via telecopy (receipt confirmed) to the parties at
the following addresses or telecopy numbers (or at such other address or
telecopy numbers for a party as shall be specified by like notice):
(a) if to Purchaser, to:
1815 South Meyers Road
Oak Brook Terrace, Illinois 60181
Attention: Andrew J. Filipowski
Telecopy No.: (630) 691-0710
with a copy to:
Katten Muchin & Zavis
525 West Monroe, Suite 1600
Chicago, Illinois 60661
Attention: Matthew S. Brown, Esq.
Telecopy No.: (312) 902-1061
(b) if to Company, to:
1800 West Loop South
Houston, Texas 77027
Attention: Chief Executive Officer
Telecopy No.: (713) 625-9470
with a copy to:
Ropes & Gray
One International Place
Boston, Massachusetts 02110
Attention: Gregory Moore, Esq.
Telecopy No.: (617) 951-7050
8.2 INTERPRETATION. When a reference is made in this Agreement to Exhibits,
such reference shall be to an Exhibit to this Agreement unless otherwise
indicated. The words "include", "includes" and "including" when used herein
shall be deemed in each case to be followed by the words "without limitation."
The table of contents and headings contained in this Agreement are for
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement. When reference is made herein to "the
business of" an entity, such reference shall be deemed to include the business
of all direct and indirect subsidiaries of such entity. Reference to the
subsidiaries of an entity shall be deemed to include all direct and indirect
subsidiaries of such entity.
8.3 COUNTERPARTS. This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same agreement and
shall become effective when one or more counterparts have been signed by each
of the parties and delivered to the other party, it being understood that all
parties need not sign the same counterpart.
8.4 ENTIRE AGREEMENT. This Agreement and the documents and instruments and
other agreements among the parties hereto as contemplated by or referred to
herein, including the Company Schedules and the Purchase Schedules (a)
constitute the entire agreement among the parties with respect to the subject
matter hereof and supersede all prior agreements and understandings, both
written and oral, among the parties with respect to the subject matter hereof,
it being understood that the Confidentiality Agreement shall continue in full
force and effect until the Effective Time and shall survive any termination of
this Agreement; and (b) are not intended to confer upon any other person any
rights or remedies hereunder, except as specifically set forth in Section
5.20.
8.5 SEVERABILITY. In the event that any provision of this Agreement or the
application thereof, becomes or is declared by a court of competent
jurisdiction to be illegal, void or unenforceable, the remainder of this
Agreement will continue in full force and effect and the application of such
provision to other persons or circumstances will be interpreted so as
reasonably to effect the intent of the parties hereto. The parties further
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agree to replace such void or unenforceable provision of this Agreement with a
valid and enforceable provision that will achieve, to the extent possible, the
economic, business and other purposes of such void or unenforceable provison.
8.6 OTHER REMEDIES. Except as otherwise provided herein, any and all
remedies herein expressly conferred upon a party will be deemed cumulative
with and not exclusive of any other remedy conferred hereby, or by law or
equity upon such party, and the exercise by a party of any one remedy will not
preclude the exercise of any other remedy.
8.7 GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the State of Delaware, regardless of the laws that
might otherwise govern under applicable principles of conflicts of law
thereof. Each of the parties hereto irrevocably consents to the exclusive
jurisdiction of any state or federal court within the State of Delaware, in
connection with any matter based upon or arising out of this Agreement or the
matters contemplated herein, agrees that process may be served upon them in
any manner authorized by the laws of the State of Delaware for such persons
and waives and covenants not to assert or plead any objection which they might
otherwise have to such jurisdiction and such process.
8.8 RULES OF CONSTRUCTION. The parties hereto agree that they have been
represented by counsel during the negotiation and execution of this Agreement
and, therefore, waive the application of any law, regulation, holding or rule
of construction providing that ambiguities in an agreement or other document
will be construed against the party drafting such agreement or document.
8.9 ASSIGNMENT. No party may assign either this Agreement or any of its
rights, interests, or obligations hereunder without the prior written approval
of the parties.
IN WITNESS WHEREOF, Purchaser and the Company have caused this Agreement to
be signed by themselves or their duly authorized respective officers, all as
of the date first written above.
Platinum technolgy, inc.
Learmonth & Burchett Management
Systems PLC
By: By:
Name: Title:
Title: Chief Executive Officer and
President
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APPENDIX A-1
9 March 1998
THIS SUPPLEMENTAL AGREEMENT is made on 9 March, 1998.
BETWEEN (1) PLATINUM technology inc., a Delaware Corporation ("PLATINUM")
(2) LEARMONTH & BURCHETT MANAGEMENT SYSTEMS Plc, a company incorporated
in England and Wales ("LBMS")
RECITALS(A) By an Agreement and Plan of Reorganisation dated as of 2 January,
1998 ("the Agreement"), PLATINUM and LBMS have agreed, inter alia,
terms for the acquisition by PLATINUM of LBMS.
(B) LBMS and PLATINUM have agreed, inter alia, that the Section 7.1
Agreement shall be amended.
AGREEMENT
LBMS and PLATINUM hereby agree that:
1 the words:
"This Agreement shall be terminated and the Acquisition abandoned by
notice served at any time prior to noon (London time) on the business
day immediately following the date on which the High Court shall
sanction the Scheme:"
where they appear at the commencement of Section 7.1 of the Agreement
shall be replaced with the words
"This Agreement may be terminated and the Acquisition abandoned by
notice served at any time prior to 6.00 pm (London time) on the day
immediately prior to the Hearing Date:";
2 the words:
"The respective obligations of each party to this Agreement to effect
the Acquisition shall be subject to the satisfaction at or prior to
the Effective Time of the following conditions, and the Order of the
High Court regarding the Scheme shall not be filed with the UK
Registrar of Companies until the following conditions have been met;"
where they appear at the beginning of Section 6.1 of the Agreement
shall be deleted and replaced with the words
"The respective obligations of each party to this Agreement to effect
the Acquisition shall be subject to the satisfaction, immediately prior
to 6.00 pm (London time) on the day immediately prior to the Hearing
Date, or such later time as set forth below, of the following
conditions, and if not so satisfied the Company shall withdraw its
application for the Scheme to be sanctioned by the Court:";
3 the words:
"The obligations of the Company to consummate and effect this
Agreement and the transactions contemplated hereby shall be subject to
the satisfaction at or prior to the Effective Time of each of the
following conditions, and the Order of the High Court regarding the
Scheme shall not be filed with the UK Registrar of Companies until the
following conditions have been met, any of which may be waived, in
writing, exclusively by the Company:"
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where they appear at the beginning of Section 6.2 of the Agreement
shall be deleted and replaced with the words
"The obligations of the Company to consummate and effect this
Agreement and the transactions contemplated hereby shall be subject to
the satisfaction, immediately prior to the 6:00 pm (London time) on
the day immediately prior to the Hearing Date, or such later time as
set forth below, of the following conditions, and if not so satisfied,
or waived, in writing, exclusively by the Company, the Company shall
withdraw its application for the Scheme to be sanctioned by the
Court:";
4 the words:
"The obligations of Purchaser to consummate the effect this Agreement
and the transactions contemplated hereby shall be subject to the
satisfaction at or prior to the Effective Time of each of the
following conditions, and the Order of the High Court regarding the
Scheme shall not be filed with the UK Registrar of Companies until the
following conditions have been met, any of which may be waived, in
writing, exclusively by Purchaser."
where they appear at the beginning of Section 6.3 of the Agreement
shall be deleted and replaced with the words
"The obligations of Purchaser to consummate and effect this Agreement
and the transactions contemplated hereby shall be subject to the
satisfaction, immediately prior to 6:00 pm (London time) on the day
immediately prior to the Hearing Date, or such later time as set forth
below, of the following conditions, and if not so satisfied, or
waived, in writing, exclusively by Purchaser, the Company shall
withdraw its application for the Scheme to be sanctioned by the
Court:";
5 the words:
"on the Hearing Date" are added at the end of Section 6.1.(b).
6 Section 6.3(g) is hereby deleted and replaced with the following:
"The Company shall have delivered to Purchaser executed documents
validly transferring any minority interest in the Company subsidiaries
not already held by the Company or a wholly-owned subsidiary of the
Company to a nominee of Purchaser, which documents shall be held in
trust by Purchaser pending consummation of the Acquisition, and which
shall be returned to the Company in the event that the Acquisition is
not consummated."; and
7 that the Agreement be construed and interpreted accordingly and, in
all other respects, the provisions of the Agreement shall continue in
full and effect without amendment.
IN WITNESS WHEREOF, PLATINUM and LBMS have caused this Agreement to be signed
by themselves as their duly authorised respective officers, all as of the date
first written above.
PLATINUM technology inc. Learmonth & Burchett Management Systems Plc
By: /s/ Larry S. Freedman By: /s/ Michael S. Bennett
----------------------------- ---------------------------------------
Name: Larry S. Freedman Name: Michael S. Bennett
---------------------------- -------------------------------------
Title: Senior V.P. and
General Counsel Title: CEO/President
----------------------------- --------------------------------------
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December 31, 1997
CONFIDENTIAL
Board of Directors
Learmonth & Burchett Management Systems plc
Evelyn House
62 Oxford Street
London, W1N9LF
U.K.
Dear Members of the Board:
We understand that Learmonth & Burchett Management Systems plc ("LBMS") and
PLATINUM technology, inc. ("PLATINUM") propose to enter into an Agreement and
Plan of Reorganization (the "Agreement") pursuant to which (i) each ordinary
share of LBMS, ten (10) pence each ("LMBS Ordinary Shares"), will be
cancelled, (ii) shares of PLATINUM common stock, $0.001 par value per share
("PLATINUM Common Stock"), will be issued to LBMS shareholders in accordance
with the Exchange Ratio (as defined in the Agreement) and (iii) new shares of
LBMS Common Stock, representing one hundred percent of the outstanding LBMS
Ordinary Shares will be issued to PLATINUM. The above described transaction
(the "Transaction") for purposes of the laws of the United Kingdom ("U.K."),
will be effected by way of a Scheme of Arrangement under Section 425 of the
U.K. Companies Act 1985 and, for purposes of the laws of the United States, is
intended to constitute a tax-free reorganization within the meaning of section
368(a) of the United States Internal Revenue Code of 1986, as amended, and be
accounted for as a pooling of interests pursuant to Opinion No. 16 of the
Accounting Principles Board. The terms and conditions of the Transaction are
more fully detailed in the Agreement.
You have requested our opinion as to whether the Exchange Ratio is fair,
from a financial point of view, to LBMS shareholders.
Broadview Associates focuses on providing merger and acquisition advisory
services to information technology ("IT") companies. In this capacity, we are
continually engaged in valuing such businesses, and we maintain an extensive
database of IT mergers and acquisitions for comparative purposes. We are
currently acting as financial advisor to the LBMS Board of Directors and will
receive a fee from LBMS upon the successful conclusion of the Transaction.
In rendering our opinion, we have, among other things:
1.) reviewed the terms of the Agreement and Plan of Reorganization and
the associated schedules thereto in the form of the draft dated December
26, 1997 (the "Agreement") furnished to us by Ropes & Gray on December 29,
1997 (which, for the purposes of this opinion, we have assumed, with your
permission, to be identical in all material respects to the agreement to be
executed);
2.) reviewed LBMS' Form 10-K for its fiscal year ended April 30, 1996,
including the audited financial statements included therein, and LBMS' Form
10-Q for the six months ended October 31, 1997, including the unaudited
financial statements included therein;
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3.) reviewed financial projections for LBMS prepared and provided to us
by LBMS management;
4.) participated in discussions with LBMS management concerning the
operations, business strategy, financial performance and prospects for
LBMS;
5.) discussed with LBMS management its view of the strategic rationale
for the Transaction;
6.) reviewed the reported closing prices and trading activity for LBMS'
American Depository Shares;
7.) compared certain aspects of the financial performance of LBMS with
public companies we deemed comparable;
8.) analyzed available information, both public and private, concerning
other mergers and acquisitions we believe to be comparable in whole or in
part to the Transaction;
9.) reviewed PLATINUM's annual report and Form 10-K for its fiscal year
ended December 31, 1996, including the audited financial statements
included therein, and PLATINUM's Form 10-Q for the nine months ended
September 30, 1997, including the unaudited financial statements included
therein;
10.) participated in discussions with PLATINUM management concerning the
operations, business strategy, financial performance and prospects for
PLATINUM;
11.) discussed with PLATINUM management its view of the strategic
rationale for the Transaction;
12.) reviewed the reported closing prices and trading activity for
PLATINUM Common Stock;
13.) compared certain aspects of the financial performance of PLATINUM
with public companies we deemed comparable;
14.) considered the total number of shares of PLATINUM Common Stock
outstanding, the average weekly trading volume of PLATINUM Common Stock,
and the maximum time period for LBMS shareholders to liquidate their
PLATINUM Common Stock given SEC regulations;
15.) reviewed recent equity analyst reports covering LBMS and PLATINUM;
16.) analyzed the anticipated effect of the Transaction on the future
financial performance of the consolidated entity;
17.) participated in negotiations and discussions related to the
Transaction among LBMS, PLATINUM and their legal advisors; and
18.) conducted other financial studies, analyses and investigations as we
deemed appropriate for purposes of this opinion.
In rendering our opinion, we have relied, without independent verification,
on the accuracy and completeness of all the financial and other information
(including without limitation the representations and warranties contained in
the Agreement) that was publicly available or furnished to us by LBMS or
PLATINUM. With respect to the financial projections examined by us, we have
assumed that they were reasonably prepared and reflected the best available
estimates and good faith judgments of the management of LBMS as to the future
performance of LBMS. We have neither made nor obtained an independent
appraisal or valuation of any of LBMS' assets. We have not reviewed any
internal financial projections prepared by PLATINUM management as such
projections have not been made available to us.
Based upon and subject to the foregoing, we are of the opinion that the
Exchange Ratio is fair, from a financial point of view, to LBMS shareholders.
For purposes of this opinion, we have assumed that neither LBMS nor PLATINUM
is currently involved in any material transaction other the Transaction, other
transactions of which we are aware and those activities undertaken in the
ordinary course of conducting their respective businesses. Our opinion is
necessarily based upon market, economic, financial and other conditions as
they exist and can be evaluated as of the date of this opinion, and any change
in such conditions may impact this opinion. We express no opinion as to the
price at which PLATINUM Common Stock will trade subsequent to the Effective
Time (as defined in the Agreement).
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This opinion speaks only as of the date hereof. It is understood that this
opinion is for the information of the Board of Directors of LBMS in connection
with its consideration of the Transaction and does not constitute a
recommendation to any LBMS shareholder as to how such shareholder should vote
on the Transaction. This opinion may not be published or referred to, in whole
or part, without our prior written permission, which shall not be unreasonably
withheld. Broadview Associates hereby consents to references to and the
inclusion of this opinion in its entirety in the Proxy Statement/Prospectus to
be distributed to LBMS shareholders in connection with the Transaction.
Sincerely,
Broadway Associates llc
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APPENDIX C
IMPORTANT FACTORS REGARDING FORWARD-LOOKING STATEMENTS
The Private Securities Litigation Reform Act of 1995 provides a new "safe
harbor" for forward-looking statements to encourage companies to provide
prospective information about their companies without fear of litigation so
long as those statements are identified as forward-looking and are accompanied
by meaningful cautionary statements identifying important factors that could
cause actual results to differ materially from those projected in the
statement. Learmonth & Burchett Management Systems Plc (the "Company") desires
to take advantage of the new "safe harbor" provisions of the Private
Securities Litigation Reform Act of 1995 and is including this exhibit in
order to do so. Accordingly, the Company hereby identifies the following
important factors which could cause the Company's actual financial results to
differ materially from any such results which might be projected, forecast or
estimated by the Company in forward-looking statements.
The following factors, among others, could cause actual results to differ
materially from those contained in forward-looking statements made in this
report and presented elsewhere by management from time to time in Company
filings with the Securities and Exchange Commission.
(a) Restructuring--In August 1996, the Board of Directors approved a plan to
restructure the Company's operations and made changes to executive management.
Included in the restructuring was a shift in the Company's development and
marketing efforts to focus substantially all its resources on the Company's
Process Engineer product line, eliminating or substantially reducing its
development and marketing investment in the System Engineer, Insight, GUI
Guidelines and Client Server Guidelines product lines, and to discontinue its
direct sales and service operations outside the U.S. The Company replaced its
non-U.S. operations with third-party distributor relationships. There is no
assurance that such distributors will be successful. Also, the Company
discontinued its telesales operations in the U.S. The Company's future ability
to generate sustained profitability is dependent on the Company's Process
Engineer product line and the Company's direct sales operations in the U.S.
There is no assurance that the Company will be able to generate or sustain
profitability. The Company has not historically been successful in selling its
Process Engineer product line outside the U.S.
In connection with the Company's restructuring plan, the Company recorded a
$17.6 million restructuring charge in the three months ended October 31, 1996.
The restructuring charge was comprised primarily of lease costs, severance and
other employee costs and impairment of certain operating assets, principally
outside the U.S.
The restructuring actions may result in a substantially reduction in the
Company's cash balance. The estimated total cash requirements associated with
the restructuring actions is substantial, however, currently, such cash
requirements extend over several years. Additionally, the Company's
restructuring plan could result in additional claims or liabilities which the
Company has not anticipated or included in the restructuring charge.
Unanticipated claims or liabilities could result in additional cash needs for
the Company.
Publicity concerning the Company's reported loss for fiscal 1997 and losses
reported in previous years, could adversely affect the Company's operations
and financial position including the ability to complete product sales and
retain or attract key management and other personnel.
(b) Fluctuations in Operating Results; Seasonality. The Company has
experienced substantial fluctuations in quarterly operating results in the
past, and future operating results could vary substantially from quarter to
quarter. Fluctuations in operating results may result in volatility in the
price of the ADSs. The Company generally fulfills orders as received and as a
result typically has little or no product license backlog. Quarterly revenue
and operating results therefore depend on the volume and timing of orders
received during the quarter, which are difficult to forecast. In addition, the
Company historically has recognized a substantial portion of its revenue in
the last weeks of a quarter. To the extent this trend continues, the failure
to achieve such revenue in the last weeks of any given quarter may have a
material adverse effect on the Company's financial results for that quarter.
The timing of sales and related revenue recognition is influenced by a number
of other factors,
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including seasonal customer buying patterns, changes in product development
and sales and marketing expenditures, and compensation incentives for sales
teams. Because the Company's staffing and operating expenses are based on
anticipated revenue levels and a high percentage of the Company's costs are
fixed in the short-term, small variations in timing of recognition of specific
revenue can cause significant variations in operating results from quarter to
quarter. Results from quarter to quarter may not be indicative of future
results. There can be no assurance that the Company will be able to sustain
profitability on an annual or quarterly basis.
(c) Need for Market Acceptance of Process Management. The Company's product
lines are designed specifically for process management in the client/server
environment. The Company's future financial performance will depend in large
part on continued growth in the number of organizations using process
management tools to manage their development processes. The Company believes
that while the market for process management tools is growing, it is still
immature. Even if broader market acceptance is achieved, there can be no
assurance that the market will continue to grow or that the Company will be
able to respond effectively to the evolving requirements of the market. The
Company's reduced focus and investment on products other than process
management could result in reduced opportunities for sales of process
management products and adversely affect the Company's business, financial
condition and results of operations.
(d) Risks Relating to New Product Releases and Product Enhancements. The
Company's future success will depend, in large part, upon the Company's
ability to enhance its current process management product line and develop and
introduce new products to meet customers' process management tool needs as
well as emerging industry standards. There can be no assurance that the
Company will be able to successfully develop and market a broader line of such
products or that the Company will not encounter unexpected difficulties and
delays in enhancing its existing products. The Company has introduced a new
product, Deliverables Manager, which has required and will continue to require
substantial development, marketing, management and other investment. There can
be no assurance that Deliverables Manager or other new products or product
enhancements will meet the requirements of the marketplace or achieve market
acceptance.
Software products such as the products offered by the Company often
encounter development delays and may contain undetected errors or failures
when introduced or when new versions are released. Because of the complexity
of the Company's products and the possibility of unforeseen technical problems
in the development process, the Company risks missing announced delivery dates
for new products or product enhancements. The Company has in the past and may
in the future experience delays in the introduction of new products and
product enhancements. There can be no assurance that the Company will not
experience difficulties that could delay or prevent the successful
development, introduction and marketing of a new product or product
enhancement of its functioning after release. Substantial delays in the
availability of any of the Company's products could have a material adverse
effect on the Company's business, financial condition and results of
operations. Furthermore, products such as those offered by the Company may
contain undetected or unresolved software errors when they are first
introduced or as new or enhanced versions are released. The Company has in the
past discovered software errors in certain of its new products and product
enhancements. Although the Company has not experienced any material adverse
effects resulting from any such errors to date, there can be no assurance
that, despite testing by the Company and by current and potential customers,
errors will not be found in new products or releases after commencement of
commercial shipments resulting in loss of or delay in market acceptance, which
could have a material adverse effect on the Company's business, financial
condition and results of operations.
(e) Rapid Technological Change. The market for process and asset management
tools is characterized by rapid technological advances, evolving industry
standards, changes in customer requirements and frequent new product
introductions and enhancements. The Company's future success will depend in
part on its ability to enhance its existing products and introduce new
products that address changing customer requirements and emerging industry
standards, such as new operating systems, including Windows 95. Any failure by
the Company to anticipate or respond adequately to technology developments and
customer requirements, or any
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significant delays in product development or introduction, could result in a
loss of competitiveness or revenue. In addition, from time to time the Company
or others may announce products, features or technologies which have the
potential to shorten the life cycle or replace the Company's existing
products. Such announcements could cause customers to defer the decision to
buy, or determine not to buy, the Company's products, which would have a
material adverse effect on the Company's business, financial condition and
results of operations.
(f) Competition. The process and asset management tools market is extremely
competitive, fragmented and rapidly changing, and is characterized by a lack
of standards and numerous competitors in the areas of tools, methodologies and
services. The Company believes that its ability to compete depends on many
factors both within and outside of its control, including corporate and
product reputation, product architecture, functionality and features, product
quality, performance, ease-of-use, quality of support, availability of product
implementation and training services, and price.
In addition, because of the complexities inherent in software development,
software companies and the information technology departments of other
business organizations may determine that it is more cost effective to develop
their own software tools offering similar solutions to those products offered
by the Company. Furthermore, the Company faces the risk that vendors of tools,
databases and other elements of the client/server development market may add
to their products some or all of the functionality that the Company's products
provided to customers, thereby reducing the number of prospective customers in
need of the Company's products. There can be no assurance that the loss of
customers will not have a material adverse effect on the Company's business,
financial condition and results of operations.
The Company expects competition from existing and additional competitors to
increase. Many of the Company's competitors have, and new competitors may
have, larger technical staffs, more established and larger marketing and sales
organizations, better developed distribution systems and significantly greater
financial resources than the Company. There can be no assurance that either
existing or new competitors will not develop products that are superior to the
Company's products or that achieve greater market acceptance. There can be no
assurance that future competition will not have a material adverse effect on
the Company's business, financial condition and results of operations. In
addition, distribution channels, technical requirements and levels and bases
of competition may differ as the Company introduces new products, and there
can be no assurance that the Company will be able to compete favorably. In
addition, a proliferation of software products to meet the needs of the
process and asset management tools market may have a downward pressure on the
prices of such products. Such downward pressure on product prices could have
an impact on the Company's operating margins. There can be no assurance that
the Company could avoid these price pressures.
(g) Risks Relating to Indirect Sales Channels. An important aspect of the
Company's future sales and marketing strategy is to increase the effectiveness
of current indirect sales channels outside the U.S. and develop indirect
channels inside the U.S. Although the Company currently sells its products
through indirect sales channels outside the U.S., revenue from such sales,
particularly since the restructuring, has been minimal. There can be no
assurance that the Company will be able to increase revenue from its current
indirect sales channels or establish new indirect sales channels. There can be
no assurance that any current distributor of the Company's products will
continue to represent the Company's products, and the inability to improve the
effectiveness of current indirect sales channels or establish new indirect
sales channels could adversely affect the Company's business, financial
condition and results of operations. The Company's strategy of marketing its
products directly to end-users and indirectly through distributors may result
in distribution channel conflicts, particularly in the U.S. The Company's
direct sales efforts may compete with those of its indirect channels and to
the extent different distributors target the same customers, distributors may
also come into conflict with each other. Although the Company attempts to
allocate the markets for its products among its distribution channels in a
manner to avoid potential conflicts, there can be no assurance that channel
conflict will not materially and adversely affect its relationship with
existing distributors.
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(h) Dependence on Proprietary Technology. The Company's success is heavily
dependent upon proprietary technology. The Company's products are licensed to
customers under signed license agreements containing, among other things,
provisions protecting against the unauthorized use, copying and transfer of
the licensed program. In addition, the Company relies on a combination of
trade secret, copyright and trademark laws, non-disclosure agreements and
contractual provisions to protect its proprietary rights in its products and
technology. The Company has no patents or patent applications pending, and
existing trade secrets and copyright laws afford only limited protection.
Despite the Company's efforts to protect its proprietary rights, unauthorized
parties may attempt to copy aspects of the Company's products or to obtain and
use information that the Company regards as proprietary. Policing unauthorized
use of the Company's products is difficult, and while the Company is unable to
determine the extent to which piracy of its software products exists, software
piracy can be expected to be a persistent problem, particularly in
international markets and as a result of the growing use of the Internet. In
addition, the laws of some foreign countries do not protect the Company's
proprietary rights to the same extent as do the laws of the U.K. and the U.S.
There can be no assurance that the steps taken by the Company to protect its
proprietary rights will be adequate or that the Company's competitors will not
independently develop technologies that are substantially equivalent or
superior to the Company's technologies.
The Company is not aware that any of its products, trademarks or other
proprietary rights infringe the proprietary rights of third parties. However,
there can be no assurance that third parties will not assert infringement
claims against the Company in the future with respect to current or future
products. As the number of software products in the market increases and the
functionality of these products further overlap, software developers may
become increasingly subject to infringement claims. Any such claims against
the Company, with or without merit, could be time-consuming and expensive to
defend, cause product shipment delays or require the Company to enter into
royalty or licensing agreements. Such royalty agreements, if required, may not
be available on terms acceptable to the Company, or at all, which could have a
material adverse effect on the Company's business, financial condition and
results of operations.
(i) Dependence on Key Personnel. The Company's future success depends to a
significant extent on the performance of a number of key management and
technical personnel, the loss of one or more of whom could have a material
adverse effect on the Company. The Company's success will also depend in part
on its ability to attract and retain qualified professional, technical,
managerial, sales and marketing and customer support personnel. Competition
for such personnel in the software industry is intense. There can be no
assurance that the Company will be successful in attracting and retaining the
personnel it requires to develop new and enhanced products and to conduct its
operations successfully.
(j) Risks Associated with Global Operations. Although the Company's
restructuring strategy (discussed in (a) above) relies primarily on the U.S.
marketplace, the Company's current and future efforts outside the U.S. are
subject to risks inherent in international business activities, including, in
particular, general economic conditions in each such country, overlapping of
differing tax structures, managing an organization spread over various
jurisdictions, unexpected changes in regulatory requirements and complying
with a variety of foreign laws and regulations. Other risks associated with
operations outside the U.S. in general include import and export licensing
requirements, trade restrictions and changes in tariff and freight rates.
There can be no assurance that these factors will not have a material adverse
effect on the Company's business, financial condition and results of
operations.
The Company's non-U.S. sales have historically been denominated in foreign
currencies. To date, the Company has not established an exchange rate hedging
policy and has not engaged in any significant exchange rate hedging activities
to minimize the risks of exchange rate fluctuations. The Company may seek to
implement hedging techniques in the future with respect to its foreign
currency transactions. There can be no assurance that the Company will be
successful in such hedging activities. Gains and losses on the translation
and/or conversion of foreign transactions into U.S. dollars may contribute to
fluctuations in the Company's results of operations. Although the Company has
not experienced any material adverse impact to date from fluctuations in
foreign currencies, there can be no assurance that the Company will not
experience a material adverse affect on its business, financial condition and
results of operations from fluctuations in foreign currencies in the future.
C-4
<PAGE>
(k) Prior Losses; Risks Associated with Management of Changing Business. The
Company experienced losses in fiscal 1994, 1995, 1996 and 1997. While the
Company has refocused its strategy, there can be no assurance that such
reorientation will result in sustained profitability. Furthermore, in
connection with such reorientation, the Company has experienced and will
continue to experience a period of transition. This transition has placed, and
may continue to place, a significant strain on its resources, including its
personnel. If Company management is unable to manage these changes
effectively, the Company's business, financial condition and results of
operations will be materially adversely affected.
Many of the foregoing factors discussed have been discussed in the Company's
prior SEC filings and, had the Act become effective at a different time, would
have been discussed in earlier SEC filings. The foregoing review of factors
pursuant to the Private Litigation Securities Reform Act of 1995 should not be
construed as exhaustive or as any admission regarding the adequacy of
disclosures made by the Company prior to the effective date of said Act.
C-5
<PAGE>
IN THE HIGH COURT OF JUSTICE NO. 001300 OF 1998
CHANCERY DIVISION
COMPANIES COURT
IN THE MATTER OF LEARMONTH & BURCHETT MANAGEMENT SYSTEMS PLC
AND
IN THE MATTER OF THE COMPANIES ACT 1985
(UNDER SECTION 425 OF THE COMPANIES ACT 1985)
PINK FORM OF PROXY
TO BE USED FOR THE COURT MEETING OF THE HOLDERS OF ORDINARY SHARES
I/We.........................................of................................
..................... (Please insert full name(s) and address in BLOCK CAPITALS)
being a holder/holders of Ordinary Shares of Learmonth & Burchett Management
Systems Plc ("LBMS") HEREBY APPOINT the Chairman of the Meeting .....(see note 5
below) as my/our proxy for me/us and on my/our behalf at the Meeting of the
holders of Ordinary Shares of LBMS convened by the High Court of Justice of
England and Wales to be held at 9:00 a.m. Houston time (3:00 p.m. London time)
on 20 April, 1998 at LBMS' executive offices, 1800 West Loop South, Suite 900,
Houston, Texas 77027, USA and at any adjournment thereof. The proxy is to vote
as instructed in respect of the resolution specified below.
<TABLE>
<S> <C> <C> <C>
RESOLUTION FOR AGAINST
- ------------------------------------------------------------------------------------------------------------
Important: The Resolution Signature (see notes 2 and 3) Signature (see notes 2 and 3)
. If you wish to vote for approving the
the Scheme of
Scheme of Arrangement, Arrangement dated
sign in the box marked 27 March, 1998 as
"FOR". contained in the
. If you wish to vote circular and proxy
against statement to ............................. .............................
the Scheme of Arrangement, shareholders dated
sign in the Box marked 27 March, 1998.
"AGAINST".
</TABLE>
Dated this ............. day of..............1998 IMPORTANT: SEE NOTES BELOW.
1. In the case of joint holders, only one signature is required. The vote of
the senior who tenders a vote whether in person or by proxy will be accepted
to the exclusion of the votes of the other joint holders, and for this
purpose seniority will be determined by the order in which the names stand
in the Register of Members in respect of the joint holding.
2. If the member is a company or other corporation, this Form of Proxy must be
executed under its common seal or under the hand of an officer or attorney
duly authorized in writing.
3. This Form of Proxy and the power of attorney or other authority, if any,
under which it is signed or a notarially certified copy thereof may be
completed, signed and deposited with LBMS' Registrars, Computershare
Services plc, PO Box 82, Caxton House, Redcliffe Way, Bristol BS99 7YA,
England, not later than 9:00 a.m. Houston time (3:00 p.m. London time) on 18
April, 1998. However, if this Form of Proxy is not so lodged, it will still
be valid if it is handed to the Chairman of the Meeting.
4. United States holders of LBMS shares should note that they may alternatively
return this Form of Proxy so that it is received at LBMS' executive offices
in Houston by 12:00 p.m. Houston time on 16 April, 1998; LBMS has made
arrangements to send completed Forms of Proxy received by it by such time
and date by courier to its Registrars in England.
5. A member may appoint a proxy of his own choice. If such an appointment is
made, delete the words "the Chairman of the Meeting", initial the alteration
and insert the name of the person appointed as proxy in the space provided.
The person to whom this Proxy is given need not be a member of the Company
but must attend the Meeting in person to represent you.
6. Any alteration to this Form of Proxy must be initialled by the person who
signs it.
7. This Form of Proxy is NOT for use by holders of LBMS American Depository
Receipts.
8. Completion and return of this Form of Proxy will not prevent you from
attending and voting at the Court Meeting should you subsequently decide to
do so.
<PAGE>
LEARMONTH & BURCHETT MANAGEMENT SYSTEMS PLC
GREEN FORM OF PROXY
TO BE USED AT THE EXTRAORDINARY GENERAL MEETING
I/We................................... of ....................................
...............................................................................
(Please insert full name(s) and address in BLOCK CAPITALS)
being a holder/holders of Ordinary Shares of Learmonth & Burchett Management
Systems Plc ("LBMS") HEREBY APPOINT the Chairman of the
Meeting .............................. (see note 6 below) as my/our proxy for
me/us and on my/our behalf at an Extraordinary General Meeting of LBMS to be
held at 9:15 a.m. Houston time (3:15 p.m. London time) on 20 April, 1998 (or
as soon thereafter as the Court Meeting of the holders of Scheme Shares (as
defined in the Notice of the Extraordinary General Meeting) shall have
concluded or been adjourned) at LBMS' executive offices, 1800 West Loop South,
Suite 900, Houston, Texas 77027, USA and at any adjournment thereof. The proxy
is to vote as instructed in respect of the resolution specified below.
<TABLE>
<CAPTION>
RESOLUTION FOR AGAINST
- ---------------------------------------------------------------------------------
<S> <C> <C>
The Special Resolution approving: (i) the Agreement and Plan of
Reorganisation dated as of 2 January 1998; (ii) the Scheme of
Arrangement dated 27 March 1998; (iii) the reduction of LBMS'
share premium accounts and share capital; (iv) the authority to
the directors of LBMS to allot shares; and (v) the amendment of
the Articles of Association of LBMS.
</TABLE>
Dated this day of Signature(s) ........... (see notes 2 and 3 below)
1998.
Notes
1. Please indicate how you wish your proxy to vote by placing a tick in the
appropriate box. Unless otherwise indicated, the proxy will exercise his
discretion either as to how he votes or as to whether or not he abstains
from voting.
2. In the case of joint holders, the signature of one holder will be
sufficient. The vote of the senior who tenders a vote whether in person or
by proxy will be accepted to the exclusion of the votes of the other joint
holders, and for this purpose seniority will be determined by the order in
which the names stand in the Register of Members in respect of the joint
holding.
3. If the member is a company or other corporation, this Form of Proxy must be
executed under its common seal or under the hand of an officer or attorney
duly authorised in writing.
4. To be valid this Form of Proxy and the power of attorney or other
authority, if any, under which it is signed or a notarially certified copy
thereof must be completed, signed and deposited with LBMS' Registrars,
Computershare Services plc, PO Box 82, Caxton House, Redcliffe Way, Bristol
BS99 7YA, England, not later than 9:15 a.m. Houston time (3:15 p.m. London
time) on 18 April, 1998.
5. United States holders of LBMS shares should note that they may
alternatively return this Form of Proxy so that it is received at LBMS'
executive offices in Houston by 12:00 p.m. Houston time on 16 April, 1998;
LBMS has made arrangements to send completed Forms of Proxy received by it
by such time and date by courier to its Registrars in England.
6. A member may appoint a proxy of his own choice. If such an appointment is
made, delete the words "the Chairman of the Meeting", initial the
alteration and insert the name of the person appointed as proxy in the
space provided. The person to whom this Proxy is given need not be a member
of the Company but must attend the Meeting in person to represent you.
7. Any alteration to this Form of Proxy must be initialled by the person who
signs it.
8. This Form of Proxy is NOT for use by holders of LBMS American Depository
Receipts.
9. Completion and return of this Form of Proxy will not prevent you from
attending and voting at the Extraordinary General Meeting should you
subsequently decide to do so.
