SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934 (Amendment No. )
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 240.14a-11(c) or 240.14a-12
MACROVISION CORPORATION
-----------------------
(Name of Registrant as Specified In Its Charter)
------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
|_| No fee required
|X| Fee Computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11
(1) Title of each class of securities to which transaction applies:
COMMON STOCK
------------
(2) Aggregate number of securities to which transaction applies:
8,944,550 (Macrovision)
-----------------------
8,098,958 (GLOBEtrotter)
------------------------
(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):
$0.33*
------
(4) Proposed maximum aggregate value of transaction:
$574,687,337
------------
(5) Total fee paid:
$534.53*
--------
* Calculated in accordance with Exchange Act Rule 0-11(a)(4), based on
one-third of the stated value of GLOBEtrotter's common stock ($1.00), of
which there was 8,098,958 shares outstanding on June 29, 2000.
|X| Fee paid previously with preliminary materials.
<PAGE>
|_| 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:
---------------------------------------
<PAGE>
MACROVISION CORPORATION
1341 Orleans Drive
Sunnyvale, CA 94089
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD THURSDAY, AUGUST 24, 2000
TO OUR STOCKHOLDERS
The annual meeting of stockholders of Macrovision Corporation will
be held at The Wyndham Garden Hotel, 1300 Chesapeake Terrace, Sunnyvale,
California at 10:00 a.m. on Thursday, August 24, 2000.
At our meeting we will ask you to act on the following matters:
1. Election of Directors. You will have the opportunity to elect six
members of the board of directors for a term of one year. The following six
persons are the current members of the board of directors and are our nominees
for reelection:
John O. Ryan
William A. Krepick
Richard S. Matuszak
Donna S. Birks
William Stirlen
Thomas Wertheimer
2. Amendment of Certificate of Incorporation. You will be asked to
approve an amendment to our Restated Certificate of Incorporation that will
increase the authorized number of shares of our common stock from 50,000,000 to
250,000,000 shares.
3. Approval of Issuance of Shares in Merger. We have entered into an
Agreement and Plan of Merger, dated as of June 19, 2000, providing for the
acquisition by merger of all the stock of GLOBEtrotter Software, Inc. by us in
exchange for shares of our common stock. If the merger is completed,
approximately 8,944,550 shares of our common stock will be issued to the
stockholders of GLOBEtrotter in exchange for all of the 8,098,958 shares of
outstanding stock of GLOBEtrotter. We will ask you to approve the issuance of
the shares of our common stock in the merger. We cannot complete the merger
unless you approve this Proposal and Proposals 2 and 4.
4. Approval of 2000 Equity Incentive Plan. You will be asked to
authorize a new equity incentive plan that will provide for options to be
granted for a total of either 4,500,000 shares of our common stock if the
acquisition of GLOBEtrotter is completed or 3,000,000 shares of our common stock
if the acquisition of GLOBEtrotter is not completed.
5. Amendment to our 1996 Directors Stock Option Plan. You will be
asked to authorize 126,000 additional shares of our common stock to be made
available under this plan.
<PAGE>
6. Appointment of Auditors. You will be asked to ratify the
selection of KPMG LLP as our independent auditors for the year ending December
31, 2000.
7. Other Business. If other business is properly raised at the
meeting or if we need to adjourn the meeting, you will vote on these matters,
too.
If you were a stockholder as of the close of business on June 29,
2000, you are entitled to vote at this meeting.
We cordially invite all stockholders to attend the meeting in
person. To assure your representation at the meeting, however, you are urged to
mark, sign, date and return the enclosed proxy card as soon as possible in the
enclosed postage-prepaid envelope.
Whether or not you expect to attend the annual meeting, please
complete, sign, date and promptly mail your proxy in the envelope provided. You
may revoke this proxy at any time prior to the annual meeting, and, if you
attend the annual meeting, you may vote your shares in person.
BY ORDER OF THE BOARD OF DIRECTORS
/s/ Ian R. Halifax
------------------------------------
Ian R. Halifax, Secretary
Dated: July 28, 2000
<PAGE>
TABLE OF CONTENTS
Page
SUMMARY OF THE ACQUISITION ................................................ 1
Information About the Companies ....................................... 1
Summary of the Merger ................................................. 1
Federal Tax Treatment ................................................. 2
Accounting Treatment .................................................. 3
Conditions to the Merger .............................................. 3
Possible Termination of Transaction ................................... 3
Completion of Merger .................................................. 4
A WARNING ABOUT FORWARD-LOOKING INFORMATION ............................... 4
PROXY STATEMENT ........................................................... 1
GENERAL INFORMATION ....................................................... 1
Why Did You Send Me This Proxy Statement? ............................. 1
What Constitutes a Quorum? ............................................ 1
What Vote Is Required for Each Proposal? .............................. 1
What Are the Recommendations of the Board of Directors? ............... 3
How Many Votes Do I Have? ............................................. 3
How Do I Vote by Proxy? ............................................... 3
Can I Change My Vote After I Return My Proxy Card? .................... 4
How Will Macrovision Executive Officers and Directors Vote? ........... 4
What Are the Costs of Solicitation of Proxies? ........................ 4
Will There Be Any Other Matters Considered at the Annual Meeting? ..... 5
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT ............ 5
Who Are the Largest Owners of Macrovision Corporation's Common Stock? . 5
How Much Stock Do Macrovision Directors and Officers Own? ............. 6
Who Are Our Directors and Executive Officers? ......................... 7
What is the Background of Our Executives Who Are Not Directors? ....... 8
What Are the Responsibilities of Our Board of Directors and Committees? 9
Audit Committee Report ................................................ 10
EXECUTIVE AND DIRECTOR COMPENSATION ....................................... 11
i
<PAGE>
TABLE OF CONTENTS
(continued)
Page
How Do We Compensate Directors? ..................................... 11
How Do We Compensate Executive Officers? ............................ 13
Compensation Committee Report on Executive Compensation ............. 16
What Is Our Philosophy on Executive Compensation? ................... 16
Is The Compensation We Pay Our Executives Deductible? ............... 17
How Do We Compensate Our Chief Executive Officer? ................... 17
Compensation Committee Interlocks and Insider Participation ......... 18
Performance Graph ................................................... 18
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS .......................... 20
Transactions with Pacific Media Development, Inc. and Victor Company
of Japan, Limited, and Matsushita Electric Industrial Co., Ltd. ..... 20
Capitalization and Spinoff of Command Audio Corporation ("CAC") ..... 22
Did Directors and Officers Comply with Their Section 16(a) Beneficial
Ownership Reporting Compliance Requirements in 1999? ................ 23
DISCUSSION OF PROPOSALS RECOMMENDED BY THE BOARD ........................ 24
PROPOSAL 1: ELECTION OF DIRECTORS ...................................... 24
Who Are the Six Directors Standing for Re-Election? ................. 24
PROPOSAL 2: APPROVAL OF THE PROPOSED AMENDMENT TO MACROVISION'S
RESTATED CERTIFICATE OF INCORPORATION ............................... 26
General ............................................................. 26
How Many Shares Are Currently Authorized? ........................... 26
How Many Shares Are Currently Outstanding? .......................... 26
What Is the Effect of Increasing the Authorized Number of Shares? ... 26
Will My Rights As a Stockholder Change? ............................. 27
PROPOSAL 3: APPROVAL OF THE ISSUANCE OF SHARES OF OUR COMMON STOCK IN
THE MERGER WITH GLOBEtrotter SOFTWARE, INC .......................... 28
General ............................................................. 28
Who are the parties to the merger? .................................. 28
MATERIAL TERMS OF THE MERGER ............................................ 29
What is the structure of the merger? ................................ 29
What consideration will Macrovision pay to the GLOBEtrotter
shareholders and option holders? .................................... 33
ii
<PAGE>
TABLE OF CONTENTS
(continued)
Page
What is the background of this transaction? ....................... 33
Opinion Of Macrovision's Financial Advisor ........................ 34
Comparable Company Analysis ....................................... 36
Comparable Transaction Analysis ................................... 36
Discounted Cash Flow Analysis ..................................... 37
Relative Contribution ............................................. 37
Conclusion ........................................................ 38
What vote is required to effect this merger? ...................... 39
Why is my approval necessary? ..................................... 39
Do I have any rights if I do not approve the proposal? ............ 39
Will my rights as a Macrovision stockholder change
following the merger? ............................................. 39
How will the merger be treated for accounting purposes? ........... 39
How will the merger be treated for federal income tax purposes? ... 40
Who are the GLOBEtrotter shareholders? ............................ 40
Will the shares issued to the GLOBEtrotter shareholders be eligible
for listing or trading on an exchange system? ..................... 40
Does the merger require the approval of any regulators? ........... 40
Has an opinion from a financial advisor been received by either
party that the transaction is fair from a financial point of view? 41
Have Macrovision and GLOBEtrotter had any significant business
dealings with one another in the past? ............................ 41
SELECTED FINANCIAL DATA ............................................... 41
INFORMATION ABOUT GLOBETROTTER SOFTWARE INC ........................... 56
Description of GLOBEtrotter's Business ............................ 56
FLEXlm ............................................................ 56
GTlicensing ....................................................... 56
SAMsuite .......................................................... 56
Description of Patent Litigation .................................. 57
Market Price and Stock Dividends .................................. 57
Management's Discussion and Analysis of Financial Condition and
Results of Operations ............................................. 57
iii
<PAGE>
TABLE OF CONTENTS
(continued)
Page
Overview .............................................................. 58
Results of Operations ................................................. 59
Three Months Ended March 31, 2000 and 1999 ............................ 59
Years Ended December 31, 1997, 1998 and 1999 .......................... 61
Liquidity and Capital Resources ....................................... 63
Quantitative and Qualitative Disclosures About Market Risk ............ 63
RECOMMENDATION OF THE BOARD OF DIRECTORS .................................. 63
PROPOSAL 4: ADOPTION OF 2000 EQUITY INCENTIVE PLAN ........................ 66
General ............................................................... 66
Who is eligible to participate in the 2000 Equity Incentive Plan? ..... 66
How many shares may be granted to individual employees and how many
shares will be available in total under the 2000 Equity Incentive Plan? 67
Who will administer the 2000 Equity Incentive Plan? ................... 67
What will the option exercise price be? ............................... 67
What are the "other stock awards"? .................................... 67
How can options be exercised? ......................................... 68
Can the options or other awards be transferred? ....................... 68
When do the options terminate? ........................................ 68
What benefits will directors, executive officers and others receive
under the 2000 Equity Incentive Plan? ................................. 69
What happens if Macrovision declares a stock split or stock dividend? . 69
What happens if Macrovision decides to enter into a merger or
decides to dissolve? .................................................. 69
What are the federal income tax consequences with respect to
stock options? ........................................................ 69
When can the Board of Directors terminate or amend the 2000 Equity
Incentive Plan? ....................................................... 71
PROPOSAL 5: AMENDMENT TO THE 1996 DIRECTORS OPTION PLAN ................... 72
General ............................................................... 72
Why have you decreased the number of options that non-employee
directors receive annually? ........................................... 72
Why did you eliminate the automatic adjustment of future option grants? 73
Why do you need to increase the shares reserved for issuance? ......... 73
iv
<PAGE>
TABLE OF CONTENTS
(continued)
Page
PROPOSAL 6: RATIFICATION OF THE SELECTION OF INDEPENDENT AUDITORS ......... 76
STOCKHOLDER PROPOSALS ..................................................... 77
OTHER BUSINESS ............................................................ 77
ANNUAL REPORT ............................................................. 77
ADDITIONAL INFORMATION .................................................... 77
v
<PAGE>
SUMMARY OF THE ACQUISITION
This summary highlights selected information from this document relating
to the acquisition of all the stock of GLOBEtrotter Software, Inc. by
Macrovision and may not contain all the information that is important to you.
For a more complete understanding of the acquisition and for a more complete
description of the legal terms of the acquisition, you should read this entire
document carefully, as well as any additional documents we refer you to,
including the Agreement and Plan of Merger that we have attached as Annex B.
Information About the Companies
Macrovision
1341 Orleans Drive
Sunnyvale, California 94089
(408) 743-8600
o Macrovision designs, develops and licenses copy protection and
rights management technologies.
o Macrovision provides content owners with the means to protect
content on various media such as videocassette, DVD and
pay-per-view movies, PC games and educational software against
unauthorized copying and distribution.
o You can find more information about Macrovision on page 28 of
this document under the caption: "Who are the parties to the
merger? - Macrovision Corporation and GSI Acquisition Corp."
GLOBEtrotter Software, Inc.
1530 Meridian Ave,
San Jose, California 95125
(408) 445-8100
o GLOBEtrotter provides electronic licensing and license
management technology to software vendors and supplies
software asset management products to corporate customers
worldwide.
o You can find more information about GLOBEtrotter on page 28 of
this document under the caption: "Who are the parties to the
merger? - GLOBEtrotter Software, Inc."
Summary of the Merger
The Agreement and Plan of Merger provides that our new subsidiary,
GSI Acquisition Corp., will merge into GLOBEtrotter, with GLOBEtrotter surviving
as a wholly-owned subsidiary corporation of Macrovision. As a result of the
merger, the shareholders of GLOBEtrotter will receive 1.104407 shares of our
common stock for each share of GLOBEtrotter common stock held by them
immediately prior to the merger. In the merger, approximately 8,944,550 shares
of our common stock will be issued to the GLOBEtrotter shareholders. In
addition, upon consummation of the merger, we will assume the obligation to
issue our common stock to the employees of GLOBEtrotter who now hold stock
options for
<PAGE>
GLOBEtrotter common stock in the same exchange ratio as the merger when they
exercise their options under the terms of the 2000 Equity Incentive Plan,
described on page 66 of this document. You should read the Agreement and Plan of
Merger carefully, but we summarize its essential terms below.
o We will exchange approximately 8,944,550 million shares of our
common stock for all of GLOBEtrotter's outstanding shares of
common stock, which will then be cancelled. On June 19, 2000,
GLOBEtrotter had 8,098,958 shares of common stock outstanding.
Any change in the number of GLOBEtrotter common stock
outstanding prior to the merger will result in an appropriate
adjustment in the number of shares of our common stock to be
issued in the merger. The exchange procedure of our stock for
their stock is explained in greater detail on page 33 under
the caption "What consideration will Macrovision pay to the
GLOBEtrotter shareholders and option holders?"
o Options to purchase shares of GLOBEtrotter common stock that
have been issued to employees of GLOBEtrotter will be
converted into options to purchase shares of Macrovision
common stock, initially using the same exchange ratio as in
the merger. On June 19, 2000, there were outstanding options
to purchase 688,284 shares of GLOBEtrotter common stock. All
of these options will be converted upon completion of the
merger into options to purchase approximately 760,146 shares
of our common stock subject to the terms of the Macrovision
2000 Equity Incentive Plan without change to GLOBEtrotter's
current vesting schedules. We will need your approval of the
adoption of the new 2000 Equity Incentive Plan to carry out
the terms of this conversion of the GLOBEtrotter employee
stock options. The procedure for the conversion of the options
is more fully explained on page 33 under the caption: "What
consideration will Macrovision pay to the GLOBEtrotter
shareholders and option holders?"
o Because we are issuing more than 20% of our outstanding shares
of common stock in the merger, under the listing rules of The
Nasdaq Stock Market, we are required to seek your approval for
the issuance of our common stock. Please read the section
entitled "Why is my approval necessary" on page 39 of this
document.
o Under Delaware law, you do not have appraisal rights under
this transaction, as explained more fully on page 39 under the
caption "Do I have any rights if I do not approve the
proposal?"
o Your rights as a stockholder of Macrovision will not change
following the merger. In addition, GLOBEtrotter's shareholders
who will become new stockholders of Macrovision will have the
same rights as you do. Please refer to the section entitled
"Will my rights as a Macrovision stockholder change following
the merger?" on page 39 of this document.
Federal Tax Treatment
o The merger and exchange of stock is intended to be a tax-free
reorganization for Macrovision, GSI Acquisition Corp. and
GLOBEtrotter
<PAGE>
under the Internal Revenue Code, as explained more fully on
page 40 under the caption "How will the merger be treated for
federal income tax purposes?"
Accounting Treatment
o We intend to qualify the acquisition as a "pooling of
interests" for accounting purposes, which means that
Macrovision and GLOBEtrotter would be treated as if they had
always been combined for financial reporting purposes, as
explained more fully on page 39 under the caption "How will
the merger be treated for accounting purposes?"
Conditions to the Merger
The completion of the merger depends upon the satisfaction of a
number of conditions, including:
o Approval by our stockholders of Proposal 3, authorizing the
issuance of our shares of common stock in the merger, the
approval by our stockholders of Proposal 2, authorizing the
amendment of our restated certificate of incorporation to
increase our authorized shares of common stock, and the
approval by our stockholders of Proposal 4, authorizing the
adoption of the 2000 Equity Incentive Plan;
o Approval of the Agreement and Plan of Merger by the Board of
Directors and the shareholders of GLOBEtrotter;
o Absence of a determination by the Department of Justice and
Federal Trade Commission that the merger violates antitrust
laws or anti-competition regulations;
o Receipt by Macrovision of audited financial statements of
GLOBEtrotter, which statements do not differ significantly
from GLOBEtrotter's unaudited statements, and other opinions
on the merger from our independent accountants, KPMG LLP; and
o Receipt of a favorable determination by the Commissioner of
the California Department of Corporations that the terms and
conditions of the merger are fair.
Possible Termination of Transaction
Either Macrovision or GLOBEtrotter may call off the merger under
certain circumstances, including if:
o We both consent;
o The other party breaches in a material manner any of the
representations and warranties or any covenant or agreement
that it has made under the Agreement and Plan of Merger;
<PAGE>
o There is a valid injunction or prohibition against the merger
issued by a court or government agency;
o The merger is not completed on or before August 31, 2000; or
o The board of directors and the shareholders of GLOBEtrotter do
not approve the merger or our stockholders do not approve
Proposals 2, 3 and 4.
Completion of Merger
The merger will become effective when we file an agreement of merger
with the California Secretary of State, which will occur as soon as practicable
following the satisfaction or waiver of all of the conditions to the merger.
A WARNING ABOUT FORWARD-LOOKING INFORMATION
We have made forward-looking statements in this document, and in
certain documents that we refer to in this document, that are subject to risks
and uncertainties. These statements are based on the beliefs and assumptions of
our management, and on information currently available to such management.
Forward-looking statements include the information concerning possible or
assumed future results of operations of Macrovision set forth under "Proposal 3
-- What is the background of this transaction?" and "Unaudited Pro Forma
Condensed Combined Financial Statements," and statements preceded by, followed
by or that include the words "will," "believes," "expects," "anticipates,"
"intends," "plans," "estimates" or similar expressions. In particular, we have
made statements in this document regarding the anticipated effect of the
acquisition and our anticipated performance in future periods. Such statements
are subject to risks relating to, among other things, the following:
o Our revenues and earnings following the merger may be lower
than expected, or operating costs or customer or key employee
losses and business disruption following the acquisition may
be greater than expected;
o We may experience greater than expected costs or difficulties
relating to the integration of the businesses of Macrovision
and GLOBEtrotter;
o We may not be able to integrate GLOBEtrotter's products into
our product line;
o We may not be successful in the patent infringement litigation
begun by GLOBEtrotter, as explained more fully on page 57
under the caption "Description of Patent Litigation"; and
o We may not be able to acquire and absorb the current European
distribution of GLOBEtrotter's products and services into our
combined operation after the merger.
Macrovision management believes that these forward-looking
statements are reasonable. You should not, however, place undue reliance on such
forward-looking statements, which are based on current expectations.
<PAGE>
Forward-looking statements are not guarantees of performance. They
involve risks, uncertainties and assumptions. The future results and shareholder
values of Macrovision following completion of the acquisition may differ
materially from those expressed in these forward-looking statements. Many of the
factors that will determine these results and values are beyond our ability to
control or predict.
<PAGE>
MACROVISION CORPORATION
1341 Orleans Drive
Sunnyvale, CA 94089
PROXY STATEMENT
For the
Annual Meeting of Stockholders
To be held on August 24, 2000
------------------------------------------
GENERAL INFORMATION
This proxy statement contains information about Macrovision
Corporation's annual meeting of stockholders to be held on Thursday, August 24,
at The Wyndham Garden Hotel, 1300 Chesapeake Terrace, Sunnyvale, California at
10:00 a.m. and at any postponements or adjournments thereof.
Why Did You Send Me This Proxy Statement?
We sent you this proxy statement and the enclosed proxy card because
our board of directors is soliciting your votes for use at the 2000 Annual
Meeting of Stockholders.
This proxy statement summarizes information that you need to know in
order to cast an informed vote at the meeting. However, you do not need to
attend the meeting to vote your shares. Instead, you may simply complete, sign
and return the enclosed proxy card.
We will begin sending this proxy statement, notice of annual meeting
and the enclosed proxy card on or about July 31, 2000 to all stockholders
entitled to vote. The record date for those entitled to vote is June 29, 2000.
On June 29, 2000, there were 40,331,821 shares of our common stock outstanding.
Our Annual Report for 1999 accompanies this proxy statement.
What Constitutes a Quorum?
To establish a quorum at the annual meeting, a majority of the
shares of our common stock outstanding on the record date must be present either
in person or by proxy. Macrovision will count abstentions and broker non-votes
for purposes of establishing the presence of a quorum at the meeting.
What Vote Is Required for Each Proposal?
o Election of Directors. The six nominees for director who
receive the most votes will be elected. So, if you do not vote
for a particular nominee or you indicate "withhold authority
to vote" for a particular nominee on your proxy card, your
abstention will have no effect on the election of directors.
<PAGE>
o Amendment of Certificate of Incorporation. The proposal to
amend our restated certificate of incorporation will be
approved if a majority of the shares of our common stock
outstanding on June 29, 2000, vote in favor of this proposal.
If you abstain from voting, or do not give instructions to
your broker on how to vote, it has the same effect as if you
voted "against" this proposal.
o Issuance of Shares in the Merger. The proposal to approve the
issuance of shares in the merger must receive the affirmative
vote of a majority of the shares of Macrovision common stock
represented and voting at the meeting. If you are present in
person or represented by proxy at the meeting and abstain from
voting, it has the same effect as if you voted against this
proposal. In addition, if you do not instruct your broker on
how to vote on this proposal, your broker will not be able to
vote for you. This will have no effect on the proposal,
however, because those shares for which brokers are not able
to vote will not be considered voting at the annual meeting
and for purposes of approving this proposal.
o 2000 Equity Incentive Plan. The proposal to approve the 2000
Equity Incentive Plan must receive the affirmative vote of a
majority of the shares of Macrovision common stock represented
and voting at the meeting. If you are present in person or
represented by proxy at the meeting and abstain from voting,
it has the same effect as if you voted against this proposal.
In addition, if you do not instruct your broker on how to vote
on this proposal, your broker will not be able to vote for
you. This will have no effect on the proposal, however,
because those shares for which brokers are not able to vote
will not be considered voting at the annual meeting and for
purposes of approving the equity incentive plan.
o Amendment of 1996 Directors Option Plan. The proposal to
approve the amendment to the 1996 Directors Option Plan must
receive the affirmative vote of a majority of the shares of
Macrovision common stock represented and voting at the
meeting. If you are present in person or represented by proxy
at the meeting and abstain from voting, it has the same effect
as if you voted against this proposal. In addition, if you do
not instruct your broker on how to vote on this proposal, your
broker will not be able to vote for you. This will have no
effect on the proposal, however, because those shares for
which brokers are not able to vote will not be considered
voting at the annual meeting and for purposes of approving the
amendment to the 1996 Directors Option Plan.
o Ratification of Auditors. Stockholder ratification of the
selection of KPMG LLP as Macrovision's independent auditors is
not required. However, we are submitting the selection of KPMG
LLP to you for ratification as a matter of good corporate
practice. If you fail to ratify the selection by a majority
vote of the present and voting shares, we will reconsider
whether to retain KPMG. Even if the selection is ratified, we
may, in our discretion, direct the appointment of different
independent auditors at any time during the year if we
determine that such a change would be in the best interests of
Macrovision and its stockholders.
2
<PAGE>
What Are the Recommendations of the Board of Directors? The Macrovision board
has unanimously approved the following items:
o the election of each of the named nominees for director;
o the amendment of our restated certificate of incorporation;
o the issuance of our common stock in the merger;
o the adoption of the 2000 Equity Incentive Plan;
o the amendment to the 1996 Directors Option Plan; and
o the appointment of KPMG LLP as our independent auditors.
We believe that we need to amend our restated certificate of
incorporation so that we may complete the proposed merger and so we can
facilitate future acquisitions and other growth opportunities. The board of
directors therefore unanimously recommends that you vote FOR the amendment to
our restated certificate of incorporation.
We believe that the merger and the related transactions are fair to
and in the best interests of Macrovision and our stockholders. The board of
directors therefore unanimously recommends that you vote FOR approval of the
issuance of our common stock in the merger.
We believe that approval of the 2000 Equity Incentive Plan and the
amendment to the 1996 Directors Option Plan are in the best interests of
Macrovision and our stockholders because these plans will help us to attract and
retain top-quality personnel. The board of directors therefore unanimously
recommends that you vote FOR approval of the 2000 Equity Incentive Plan and FOR
the amendment to the 1996 Directors Option Plan.
The board of directors also recommends a vote FOR the six nominees
for director, and FOR ratification of KPMG LLP as our independent auditors for
the year ending December 31, 2000.
How Many Votes Do I Have?
Each share of common stock that you own entitles you to one vote on
each proposal. The proxy card indicates the number of shares that you own.
How Do I Vote by Proxy?
Whether you plan to attend the meeting or not, we urge you to
complete, sign and date the enclosed proxy card and to return it promptly in the
envelope provided. Returning the proxy card will not affect your right to vote
in person at the meeting.
If you properly fill in your proxy card and send it to us in time to
vote, your "proxy" (one of the individuals named on your proxy card) will vote
your shares as you have directed on each proposal. If you sign the proxy card
but do not make specific choices, your proxy will vote your shares as
recommended by the board of directors as follows:
o FOR the election of each of the six nominees for director;
3
<PAGE>
o FOR the amendment to our restated certificate of
incorporation;
o FOR the issuance of our common stock in the merger;
o FOR the adoption of the 2000 Equity Incentive Plan;
o FOR the amendment to the 1996 Directors Stock Option Plan;
o FOR ratification of KPMG LLP as Macrovision's independent
auditor; and
o in the discretion of the proxy holder as to any other matter
that may properly come before the meeting.
Can I Change My Vote After I Return My Proxy Card?
Yes. Even after you have submitted your proxy, you may change your
vote at any time before the proxy is exercised if:
o you file either a written revocation of your proxy, or a duly
executed proxy bearing a later date, with the Corporate
Secretary of Macrovision prior to the meeting, or
o you attend the meeting and vote in person. Presence at the
meeting will not revoke your proxy unless and until you vote
in person.
However, if your shares are held in the name of your broker, bank or
other nominee, and you wish to vote in person, you must bring an account
statement and a letter of authorization from your nominee so that you can vote
your shares.
How Will Macrovision Executive Officers and Directors Vote?
On the record date of June 29, 2000, our executive officers and
directors, including their affiliates, had voting power with respect to an
aggregate of 2,368,828 shares of Macrovision common stock or approximately 5.9%
of the shares of our common stock then-outstanding. We currently expect that
such directors and officers will vote all of their shares in favor of each of
the nominees for director and in favor of each of the other proposals.
What Are the Costs of Solicitation of Proxies?
We will bear the cost of solicitation of proxies from our
stockholders and the cost of printing and mailing this document. In addition to
solicitation by mail, Macrovision directors, officers and employees may solicit
proxies from stockholders by telephone, in person or through other means. These
persons will not receive additional compensation, but they will be reimbursed
for the reasonable out-of-pocket expenses they incur in connection with this
solicitation. We also will make arrangements with brokerage firms, fiduciaries
and other custodians who hold shares of record to forward solicitation materials
to the beneficial owner of these shares. We will reimburse these brokerage
firms, fiduciaries and other custodians for their reasonable out-of-pocket
expenses in connection with this solicitation.
4
<PAGE>
Will There Be Any Other Matters Considered at the Annual Meeting?
We are unaware of any matter to be presented at the annual meeting
other than the proposals discussed in this proxy statement. If other matters are
properly presented at the annual meeting, then the persons named in the proxy
will have authority to vote all properly executed proxies in accordance with
their judgment on any such matter, including any proposal to adjourn or postpone
the meeting. If you vote against any of the proposals (other than the election
of directors or ratification of auditors), your proxy will not vote in favor of
any proposal to adjourn or postpone the meeting if such postponement or
adjournment is for the purpose of soliciting additional proxies to approve the
proposal that you voted against.
SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
Who Are the Largest Owners of Macrovision Corporation's Common Stock?
The following table shows the beneficial ownership of our common
stock as of June 29, 2000 by each person who we knew owned more than 5% of our
common stock. "Beneficial ownership" is a technical term broadly defined by the
Securities and Exchange Commission to mean more than ownership in the usual
sense. So, for example, you beneficially own Macrovision's common stock not only
if you hold it directly, but also indirectly, if you, through a relationship,
contract or understanding, have, or share, the power to vote the stock, to sell
the stock or have the right to acquire the stock, within 60 days of June 29,
2000:
5
<PAGE>
Number of
Shares Percent of
Beneficially Beneficial
Name and Address Owned Ownership
---------------- ------------ ----------
Kopp Investment Advisors (1) 3,648,084 9.0%
7701 France Avenue South, Suite 500
Edina, MN 55435
Victor Company of Japan, Limited (2) 3,161,952 7.8%
12, 3-chome, Moriya-cho, Karagawa-ku
Yokohama 221, Japan
TCW Group (3) 2,610,390 6.5%
865 South Figueroa Street
Los Angeles, CA 90017
-----------------
(1) According to information provided by Kopp Investment Advisors, Inc. as of
March 24, 2000, these shares are held of record by Kopp Investment
Advisors, Inc., a Minnesota corporation, and by Kopp Holding Company, a
Minnesota corporation, of which Kopp Investment Advisors, Inc. is a
wholly-owned subsidiary; and by an individual, LeRoy C. Kopp, who holds
100% of the outstanding capital stock of Kopp Holding Company.
(2) According to a Form 4 filed with the Securities and Exchange Commission on
February 10, 2000, these shares are held of record by Pacific Media, an
indirect, wholly-owned subsidiary of JVC .
(3) According to information provided by TCW Group Inc. as of March 27, 2000,
these shares are held of record by The TCW Group Inc., a Nevada
corporation and by an individual, Robert Day, who may be deemed to control
The TCW Group Inc. and other holders of Macrovision's common stock.
How Much Stock Do Macrovision Directors and Officers Own?
The following table shows the beneficial ownership of Macrovision's
common stock as of June 29, 2000 by (i) our chairman and chief executive
officer; (ii) our four most highly compensated executive officers in 1999; (iii)
each director and nominee for director and (iv) all directors and executive
officers as a group.
6
<PAGE>
Number of Shares Percent of Common
Name and Title Beneficially Owned Stock Outstanding
-------------- ------------------ -----------------
John O. Ryan (1)
Chairman of the Board; and Chief
Executive Officer 1,879,204 4.7%
William A. Krepick(2)
Director, President and Chief
Operating Officer 402,262 1.0%
Richard S. Matuszak(2)
Director, Vice President -
Business Development, Video Copy
Protection 175,280 *
Brian R. Dunn(2)
Sr. Vice President - Computer
Software Copy Protection 27,520 *
William Stirlen(2)
Director 31,436 *
Donna S. Birks(2)
Director 20,800 *
Mark S. Belinsky(2)
Sr. Vice President - New Business
Development 29,566 *
Thomas Wertheimer(2)
Director 21,800 *
All executive officers and
directors as a group (11 persons)
(3) 2,597,868 6.4%
-------------------
* Represents less than 1%.
(1) Includes 1,459,220 shares held of record by a trust of which Mr.
Ryan and his wife are the trustees, 382,656 shares held of record by
Mr. Ryan, 4,664 shares held of record by Mr. Ryan as custodian for
various family members; and 32,664 shares held of record by Mr.
Ryan's daughter.
(2) Includes 106,932; 41,552; 520; 27,036; 12,000; 10,000; and 21,000
shares subject to stock options exercisable as of June 29, 2000, or
within 60 days thereafter by Krepick, Matuszak, Dunn, Stirlen,
Birks, Belinsky and Wertheimer, respectively.
(3) Includes the shares referenced in footnote (2).
Who Are Our Directors and Executive Officers?
We name and provide biographical summaries as to each person
nominated for election as a director under the heading "Proposal 1. Election of
Directors" on page 24 of the proxy statement. The following table names each of
our executive officers and is followed by
7
<PAGE>
biographical summaries as to each of Macrovision's executive officers who are
not also directors.
Executive Officers
<TABLE>
<CAPTION>
Officer
Name Age Since* Position held with Macrovision
---- --- ------ ------------------------------
<S> <C> <C>
John O. Ryan 54 Chairman and Chief Executive Officer
William A. Krepick 55 Director, President and Chief Operating Officer
Ian R. Halifax 39 Vice President, Finance and Administration, Chief
Financial Officer and Secretary
Richard S. Matuszak 56 Director, Vice President, Business Development,
Video Copy Protection
Mark S. Belinsky 43 Sr. Vice President, New Business Development
Carol Flaherty 47 Vice President, Video Copy Protection
Patrice J. Capitant 51 Vice President, Engineering
Brian R. Dunn 43 Sr. Vice President, Computer Software
Copy Protection
* Refer to the biographies.
</TABLE>
What is the Background of Our Executives Who Are Not Directors?
Ian R. Halifax. Mr. Halifax has served as our Vice President, Finance and
Administration, Chief Financial Officer and Secretary since October 1999. From
February 1999 to September 1999, he served as Chief Financial Officer of
S-Vision, a private semiconductor display technology company. From October 1997
to January 1999 he was Director, Corporate Transactions for KPMG LLP, providing
advisory services to technology companies in the areas of technology licensing,
financing, and strategic partnering. From November 1994 to September 1997 he was
Chief Financial Officer for Thomson/Sun Interactive, the predecessor for OpenTV,
Inc., a Sun Microsystems/Thomson multimedia joint venture in the field of
interactive TV operating systems. He also held finance and business development
positions at Sun Microsystems in Europe and the United States. He holds a B.A.
degree in English from the University of York and an M.B.A. in Finance from
Henley Management College. Mr. Halifax is also a Certified Public Accountant and
a Certified Management Accountant.
Mark S. Belinsky. Mr. Belinsky has served as Senior Vice President, New
Business Development since January 1999. From October 1997 to December 1998 he
was our Senior Vice President, Theatrical and Pay-Per-View Copy Protection.
Between June and September 1995, he was a consultant to various companies in the
Internet services and electronic commerce fields, and, between June 1995 and
August 1995, he was Chief Operating Officer of the McKinley Group, Inc., an
Internet directory services company. From May 1993 to June 1995, Mr. Belinsky
was Vice President and General Manager of the Electronic Marketplace Systems
Division of International Data Group, a developer of online shopping malls for
personal computer and software products. He was an independent consultant
between February and May 1993, and, from October 1988 to January 1993, he was
Vice President and General Manager of the Interop Company, a division of
Ziff-Davis Publishing Company. He holds a B.A. degree in Business Administration
from Wayne State University and an M.B.A. from Harvard Business School.
Carol Flaherty. Ms. Flaherty has served as our Vice President, Video Copy
Protection, since April of 1999. From September 1997 to April 1999, she was
Director of Business
8
<PAGE>
Development for Digital Link Corporation. From April 1996 to September 1997, Ms.
Flaherty was Vice President of Sales for Multipoint Networks, a company that
provided wireless transmission equipment to international carriers. From April
1995 to March 1996, she was Vice President of Business Development for a
division of California Microwave. Prior to joining California Microwave, Ms.
Flaherty spent nine years with GTE, serving first as Controller of GTE Telenet's
Public Data Network division and, later, as Director of Program management for
satellite system sales under GTE Spacenet. Ms. Flaherty holds a B.A. degree in
Economics from the University of Virginia and an M.B.A. from Golden Gate
University.
Patrice J. Capitant. Dr. Capitant has served as Vice President,
Engineering since October 1996. He joined Macrovision in October 1995 as
Director of Engineering. He served as Manager of Video Engineering at Radius,
Inc., a computer equipment manufacturer, from December 1994 to September 1995.
Dr. Capitant held engineering positions at Compression Labs, Inc., a
telecommunications equipment manufacturer, from September 1993 to December 1994
and Sony Corporation of America, Advanced Video Technology Center, from
September 1989 to September 1993. He completed his undergraduate and
post-graduate work in engineering and automatic control at Institut Industrial
du Nord, Lille, France and University of Lille. Dr. Capitant holds a Ph.D.
degree in Electrical Engineering from Stanford University.
Brian Dunn. Mr. Dunn has served as Sr. Vice President, Computer Software
Copy Protection since June 1999. He has been with Macrovision since January 1995
and served as our Vice President, Computer Software Copy Protection and Vice
President, Business Development in his prior roles. From January 1989 to
December 1994, he served as Vice President, Operations, Corporate Counsel and
Chief Financial Officer of Phase 2 Automation, a factory automation company. Mr.
Dunn holds a B.A. degree in Accounting from the University of Notre Dame and a
J.D. degree from Santa Clara University School of Law. He is a Certified Public
Accountant and a member of the California State Bar.
What Are the Responsibilities of Our Board of Directors and Committees?
The board of directors oversees our business and affairs. The board
also has two committees, a compensation committee and an audit committee. There
is no nominating committee. The procedures for nominating directors, other than
by the board of directors itself, are set forth in our bylaws. During 1999, the
board of directors met 8 times. Each board member attended at least 75% of the
board meetings that were held during the time he or she served as a member of
the board and 75% of all meetings of the committees of the board of directors on
which he or she served.
Compensation Committee.
We established the compensation committee in 1997. The members of
the compensation committee are Donna S. Birks, William Stirlen and Thomas
Wertheimer, none of whom are employees of Macrovision. The compensation
committee makes recommendations with respect to compensation of senior officers
and granting of stock options and stock awards. The compensation committee met 8
times in 1999.
Audit Committee.
The members of the audit committee are Donna S. Birks, William
Stirlen and Thomas Wertheimer. The audit committee meets with the independent
auditors to review the
9
<PAGE>
adequacy of Macrovision's internal control systems and financial reporting
procedures; reviews the general scope of the annual audit and the fees charged
by the independent auditors; reviews and monitors the performance of non-audit
services by the auditors; reviews the fairness of any proposed transaction
between Macrovision and any officer, director or other affiliate of Macrovision,
and after such review, makes recommendations to the full board; and performs
such further functions as may be required by any stock market or quotation
service upon which Macrovision's common stock may be listed. The audit committee
met 4 times during 1999.
Audit Committee Report
The audit committee of the board is responsible for providing
independent, objective oversight of Macrovision's accounting functions and
internal controls. The audit committee is composed of independent directors, and
acts under a written charter first adopted and approved by the board of
directors in June 2000. Each of the members of the Audit Committee is
independent as defined by Macrovision's policy and the Nasdaq Stock Market
listing standards. A copy of the audit committee charter is attached to this
Proxy Statement as Annex C.
The responsibilities of the audit committee include recommending to
the Board an accounting firm to be engaged as Macrovision's independent
accountants. Additionally, and as appropriate, the audit committee reviews and
evaluates the independent accountants' performance, and discusses and consults
with Macrovision's management and the independent accountants regarding the
following:
o the plan for, and the independent accountants' report on, each
audit of Macrovision's financial statements.
o Macrovision's financial disclosure documents, including all
financial statements and reports filed with the SEC or sent to
shareholders.
o changes in Macrovision's accounting practices, principles,
controls or methodologies, or in Macrovision's financial
statements.
o significant developments in accounting rules.
o the adequacy of Macrovision's internal accounting controls,
and accounting financial accounting and auditing personnel.
This year the audit committee adopted the audit committee charter
which reflects the new standards set forth in SEC regulations and the Nasdaq
Stock Market listing standards.
The audit committee is responsible for recommending to the board
that Macrovision's financial statements be included in Macrovision's annual
report. The audit committee took a number of steps in making this recommendation
for 1999. First, the audit committee discussed with KPMG LLP, Macrovision's
independent accountants for 1999, those matters communicated to and discussed
with the audit committee under applicable auditing standards, including
information regarding the scope and results of the audit. These recommendations
and discussions are intended to assist the audit committee in overseeing the
financial reporting and disclosure process. Second, the audit committee
discussed KPMG LLP's independence with KPMG LLP. This discussion informed the
audit committee of KPMG LLP's
10
<PAGE>
independence, and assisted the audit committee in evaluating such independence.
Finally, the audit committee reviewed and discussed, with Macrovision's
management and KPMG LLP, Macrovision's audited consolidated balance sheets at
December 31, 1999 and 1998, and consolidated statements of income, cash flows
and stockholders' equity for each of the years in the three-year period ended
December 31, 1999. Based on the discussions with KPMG LLP concerning the audit,
the independence discussions and the financial statement review, and such other
matters deemed relevant and appropriate by the audit committee, the audit
committee recommended to the board that these financial statements be included
in Macrovision's 1999 Annual Report on Form 10-K.
Dated: June 8, 2000
Audit Committee
William Stirlen (Chair)
Donna S. Birks
Thomas Wertheimer
EXECUTIVE AND DIRECTOR COMPENSATION
How Do We Compensate Directors?
Mr. Matuszak receives a fee of $1,000 for each board meeting he
attends. Each of our non-employee directors receives a fee of $1,000 for each
board meeting and $750 for each compensation and audit committee meeting he or
she attends. No other member of the board of directors currently receives a fee
for attending board or committee meetings. In 1999 and 2000, the board of
directors approved changes to the "Macrovision Corporation 1996 Directors Stock
Option Plan" and outside directors' compensation, to provide non-employee
director stock compensation is as set forth below, which has been adjusted to
reflect the two for one stock splits in August 1999 and March 2000:
1. The initial option granted to each new outside director is to
be 40,000 shares, vesting monthly over a 3-year period.
2. For 2000, the option granted on each outside director's
anniversary date after the initial option grant has decreased
from 30,000 to 10,000 shares, vesting monthly over a 1-year
period (reduced from 3 years).
3. Each outside director is paid in addition to meeting fees, a
retainer of $10,000 in stock or at the director's option, in
equal amounts of cash and stock, on an annual basis.
11
<PAGE>
The following non-employee directors were granted options to
purchase common stock pursuant to the 1996 Directors Stock Option Plan during
1999, which have been adjusted to reflect the two for one stock splits in August
1999 and March 2000:
Name Number of Shares Exercise Price
----------------------------- ---------------- --------------
Donna Birks .................. 30,000 $ 9.625
William Stirlen .............. 30,000 $ 9.625
Thomas Wertheimer ............ 30,000 $ 18.657
12
<PAGE>
The following non-employee directors received retainers of $10,000
each in stock and cash as indicated during 1999, with the number of shares and
the per share value of $12.469 adjusted to reflect the two for one stock splits
in August 1999 and March 2000:
Name Number of Shares Cash Amount
---------------------------------------- ---------------- -----------
Donna Birks ............................ 800 $ 25
William Stirlen ........................ 400 $5,013
Thomas Wertheimer ...................... 800 $ 25
How Do We Compensate Executive Officers?
Compensation.
The following table sets forth all compensation for 1999, 1998 and
1997 awarded to, earned by, or paid for services rendered to Macrovision in all
capacities by Macrovision's chief executive officer and our next four most
highly compensated executive officers, who, together, are our "Named Officers".
Summary Compensation Table
<TABLE>
<CAPTION>
Annual Compensation Long-Term
------------------- Compensation
Securities Underlying Other
Name and Principal Position Year Salary Bonus (1) Options (2) Compensation (3)
--------------------------- ---- ------ --------- ----------- ----------------
<S> <C> <C> <C> <C> <C>
John O. Ryan ........................ 1999 $225,000 $ -- -- $ 2,852
Chairman and Chief Executive 1998 225,000 69,041 -- 9,984
Officer 1997 204,801 52,603 -- 5,543
William A. Krepick .................. 1999 $245,833 $ 94,154 -- $ 12,607
President and Chief Operating Officer 1998 225,000 88,161 80,000 17,684
1997 204,801 54,303 133,600 8,372
Brian R. Dunn ....................... 1999 $159,105 $ 82,265 40,000 $ 2,754
Sr. Vice President, Computer Software 1998 144,943 47,327 39,272 8,242
Copy Protection 1997 137,455 18,503 -- 5,763
Mark S. Belinsky .................... 1999(4) $131,503 $ 65,475 60,000 $ 3,630
Sr. Vice President, New Business 1998 140,825 55,179 -- 3,510
Development 1997 137,507 36,803 72,000 3,382
Richard S. Matuszak .................
Vice President, Business Development, 1999 $117,500 $ 54,003 20,000 $ 16,481
Video Protection and Director 1998 111,417 30,923 28,436 15,736
1997 104,417 18,200 24,000 11,104
</TABLE>
----------
(1) Represents bonuses pursuant to the Executive Incentive Plan earned for
services rendered in each year indicated although paid in a subsequent
year. Mr. Ryan elected to waive the 1999 bonus for which he was eligible.
13
<PAGE>
(2) Represents number of shares of Common Stock subject to options granted in
each year indicated and adjusted for 2-for-1 stock splits in August 1999
and March 2000.
(3) Includes for each Named Officer some or all of the following: (i) company
contributions to the 401(k) Plan, (ii) taxable compensation for value of
life insurance coverage over $50,000, (iii) buy-back of accrued vacation
over allowable annual maximum, (iv) taxable health club membership
incentive reimbursement, (v) cash holiday gift of $200 in 1997 and 1998,
and $300 in 1999 given to all employees, (vi) travel incentives in the
form of a reimbursement for one-third of the difference between business
class and coach class air travel up to a maximum of $1,000 for each
business trip over six hours in duration traveled in coach class, and
(vii) director fees.
(4) In 1999, Mr. Belinsky took a three-month unpaid sabbatical from the
Company.
Option Exercises and Holdings.
The following table sets forth information regarding option grants
pursuant to Macrovision's 1996 Equity Incentive Plan during 1999 to each of the
Named Officers. In accordance with the rules of the Securities and Exchange
Commission, the table sets forth the hypothetical gains or "option spreads" that
would exist for the options at the end of their respective ten-year terms. These
gains are based on assumed rates of annual compound stock price appreciation of
5% and 10% from the date the option was granted to the end of the option term.
We have retroactively updated the share numbers in this table to take into
account all of our stock splits and stock dividends, including the stock split
occurring on March 17, 2000.
Options Granted in Last Fiscal Year
<TABLE>
<CAPTION>
(Individual Grants)
Number of Percent of Potential Realizable Value
Shares Total Options at Assumed Annual Rates
Underlying Granted to Exercise of Stock Price
Options Employees Price Per Expiration Appreciation for Option
Name Granted (1) In 1999 Share Date Term (2)
------------------- ------------ ------------- --------- ---------- --------------------------
5% 10%
---------- ----------
<S> <C> <C> <C> <C> <C> <C>
John O. Ryan ...... -- -- -- -- -- --
William A. Krepick -- -- -- -- -- --
Brian R. Dunn ..... 40,000 2.1% 8.785 04/05/2009 $220,994 $560,041
Mark S. Belinsky .. 60,000 3.1% 8.785 04/05/2009 $331,490 $840,062
Richard S. Matuszak 20,000 1.1% 8.785 04/05/2009 $110,496 $280,021
</TABLE>
-----------
(1) Options granted under the 1996 Equity Incentive Plan in 1999 were
incentive stock options or nonstatutory stock options that were granted at
fair market value and that vest annually over a three-year vesting period.
Options expire ten years from the date of grant, subject to earlier
termination if the optionee's employment terminates.
(2) The 5% and 10% assumed annual rates of stock price appreciation are
mandated by the rules of the Securities and Exchange Commission and do not
represent Macrovision's estimate or projection of future common stock
prices.
14
<PAGE>
The following table sets forth the number of shares acquired by each
Named Officer upon the exercise of stock options during 1999 and the number of
shares covered by both exercisable and unexercisable stock options held by each
Named Officer at December 31, 1999. Also reported are values of "in-the-money"
options, which represent the positive spread between the respective exercise
prices of outstanding stock options and $37.00 per share, which was the closing
price of the common stock on the Nasdaq National Market on December 31, 1999. We
have retroactively updated the share numbers in this table to take into account
all of our stock splits and stock dividends, including the stock split occurring
on March 17, 2000.
Aggregated Option Exercises in Last Fiscal Year and
Fiscal Year-End Option Values
<TABLE>
<CAPTION>
Number of Securities Value of Unexercised
Underlying Unexercised Options In-the-Money Options at Fiscal
at Fiscal Year-End Year-End
Shares ------------------------------ -------------------------------
Acquired Value
Name On Exercise Realized Exercisable Unexercisable Exercisable Unexercisable
------------------- ----------- -------- ------------- --------------- ------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
John Ryan -- -- -- -- -- --
William A. Krepick 154,068 $1,244,834 220,132 133,468 $7,755,910 $4,273,690
Brian R. Dunn 62,760 $1,346,567 -- 72,728 $ -- $2,216,806
Mark S. Belinsky 52,664 $ 862,182 -- 96,000 $ -- $2,894,400
Richard S. Matuszak 40,000 $ 686,800 110,064 55,696 $3,966,099 $1,770,692
</TABLE>
In October 1999, the Company entered into an employment agreement
with Ian R. Halifax, the Vice President, Finance and Administration, Chief
Financial Officer and Secretary of the Company. The agreement sets forth certain
of the terms of Mr. Halifax's employment, including Mr. Halifax's right to
receive a guaranteed minimum severance payment equal to six months' severance
calculated on base salary (excluding bonus) upon termination by the Company of
employment for any reason other than cause regardless of when the termination
occurs. In such event, the agreement also calls for Mr. Halifax's vesting
schedule on all of his outstanding stock options to accelerate by up to twelve
months. In the event of a change of control of the Company, Mr. Halifax's
unvested options immediately vest if he is terminated or constructively
terminated as a result of the change of control of the Company.
15
<PAGE>
Compensation Committee Report on Executive Compensation
What Is Our Philosophy on Executive Compensation?
We have adopted a basic philosophy and practice of offering a
compensation program designed to attract and retain highly qualified employees.
Our compensation practices encourage and motivate these individuals to achieve
superior performance. This underlying philosophy pertains specifically to
executive compensation, as well as employee compensation at all other levels
throughout the organization.
Our executive compensation program is administered by the
compensation committee of the board. The role of the compensation committee,
which is comprised of three outside non-employee directors, is to review and
approve the base salaries, bonuses, stock options and other compensation of the
executive officers and management-level employees of Macrovision. The
compensation committee also administers our stock option plans and makes grants
to executive officers under the 1996 Equity Incentive Plan.
The compensation committee has designed Macrovision's executive
compensation program to support what we believe to be an appropriate
relationship between executive pay and the creation of stockholder value. To
emphasize equity incentives, we link a significant portion of executive
compensation to the market performance of common stock. The objectives of our
program are:
o To support a pay-for-performance policy that differentiates
bonus amounts among all executives based on both their
individual performance and the performance of Macrovision;
o To align the interests of executives with the long-term
interests of stockholders through awards whose value over time
depends upon the market value of Macrovision's common stock;
and
o To motivate key executives to achieve strategic business
initiatives and to reward them for their achievement.
We also provide our executives with employee benefits, such as
retirement and health benefits.
Cash Compensation.
The compensation committee reviews high-technology executive
compensation surveys to ensure that the total cash compensation provided to
executive officers and senior management remains at a competitive level to
enable us to attract and retain management personnel with the talents and skills
required to meet the challenges of a highly competitive industry. The
compensation of executive officers is reviewed annually by the compensation
committee.
16
<PAGE>
Bonuses.
For 1999, the compensation committee approved cash bonuses for
specific senior management and executive staff and were determined based on
revenue and earnings targets for Macrovision, along with individual performance
objectives.
Equity-Based Compensation.
In 1999, the compensation committee emphasized equity-based
compensation, principally in the form of options, as a cornerstone of our
executive compensation program. Equity awards typically are set by the
compensation committee based on industry surveys, each officer's individual
performance and achievements, market factors and the recommendations of
executive management.
During 1999, executive officers of Macrovision received new option
grants under the 1996 Equity Incentive Plan at an exercise price equal to the
fair market value of the common stock on the date of grant. These options vest
in annual increments of 1/6, 1/3 and 1/2 of the total grant, subject to the
participant's continued employment with Macrovision. All options granted under
the 1996 Equity Incentive Plan expire ten years from the date of grant, unless a
shorter term is provided in the option agreement or the participant's employment
with Macrovision terminates before the end of such ten-year period.
Is The Compensation We Pay Our Executives Deductible?
As part of the Omnibus Reconciliation Act of 1993, Section 162(m)
was added to the Internal Revenue Code. Section 162(m) limits the deduction by
Macrovision of compensation paid to the chief executive officer and other named
executive officers to $1 million for a particular executive, unless such
compensation was based on predetermined quantifiable performance goals or paid
pursuant to a written contract that was in effect on February 17, 1993.
The compensation committee will continue to review and modify
Macrovision's compensation practices and programs as necessary to ensure
Macrovision's ability to attract and retain key executives while taking into
account the deductibility of compensation payments. Under the 1996 Equity
Incentive Plan and the 2000 Equity Incentive Plan, award of stock options and
performance stock are designed generally to satisfy the deductibility
requirements of Section 162(m). However, each plan contains provisions under
which awards, if granted, may not be fully deductible. The Plans permit the
compensation committee flexibility to reward senior management for extraordinary
contributions that cannot properly be recognized under a predetermined
quantitative plan.
How Do We Compensate Our Chief Executive Officer?
Mr. Ryan, the Chief Executive Officer of Macrovision, received a
base salary and elected to waive a bonus for which he was entitled for his
services during 1999. In addition, Mr. Ryan was entitled to the benefits which
also were provided to our executive officers and identified in footnote 3 of the
Summary Compensation Table.
17
<PAGE>
Dated: June 29, 2000
Compensation Committee
Thomas Wertheimer (Chair)
Donna S. Birks
William Stirlen
Compensation Committee Interlocks and Insider Participation
Except for Donna Birks who was employed by the Company from 1992 to
1994 as Vice President, Finance and Chief Financial Officer of the Company, none
of the members of the compensation committee during 1999 has ever been an
officer or employee of Macrovision or any of its subsidiaries. The compensation
committee made all decisions regarding compensation of executive officers during
1999.
Performance Graph
The following graph compares, for the period that Macrovision's
common stock has been registered under Section 12 of the Securities Exchange Act
of 1934 (which commenced on March 13, 1997) through December 31, 1999, the
cumulative total stockholder return for Macrovision, the Nasdaq Composite Index
(the "Nasdaq Composite Index"), and the S&P 500 Composite Index (the "S&P 500").
Measurement points are March 13, 1997 (the first trading day) and the last
trading day of each of Macrovision's fiscal years ended December 31, 1997,
December 31, 1998 and December 31, 1999. The graph assumes that $100 was
invested on March 13, 1997 in the common stock of Macrovision, The Nasdaq Market
Index and The S&P 500, and further assumes no payment or reinvestment of
dividends. The stock price performance on the following graph is not necessarily
indicative of future stock price performance.
The graph shall not be deemed filed or incorporated by reference
into any filing under the Securities Act of 1933 or under the Securities
Exchange Act of 1934, except to the extent that we specifically incorporate this
graph by reference.
18
<PAGE>
[GRAPHIC OMITTED]
Macrovision Corp. NASDAQ Composite Index S&P 500
3/13/97 $ 100 $100 $100
12/31/97 $ 184 $121 $123
12/31/98 $ 490 $170 $156
12/31/99 $ 1,716 $315 $186
19
<PAGE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In January 2000, the Company consummated an offering ("offering") of
3,820,000 shares of its common stock, of which 2,874,000 shares were issued and
sold by the Company and 946,000 shares were sold by stockholders of the Company.
All shares were sold for $53.438 per share. The net proceeds to the Company from
the offering, after deducting the underwriting discount and other expenses of
the offering, were approximately $146 million. The Company did not receive any
proceeds from the sale of shares sold by the selling shareholders. Three
directors participated in the offering by selling an aggregate of 86,000 shares
in the offering. All shares and prices noted above have been adjusted to reflect
the 2-for-1 stock split effective in March 2000.
Other than the offering, since January 1, 1999, Macrovision has not
been a party to nor does Macrovision have any currently proposed transaction or
series of similar transactions that involve an amount greater than $60,000 and
in which any director, executive officer or holder of more than 5% of
Macrovision's common stock had or will have a direct or indirect material
interest other than (a) compensation agreements, which are described elsewhere
in this proxy statement, where required, and (b) the transactions described
below.
Transactions with Pacific Media Development, Inc. and Victor Company of Japan,
Limited, and Matsushita Electric Industrial Co., Ltd.
The following transactions involve Victor Company of Japan, Limited
("JVC") and entities that are owned by JVC and Matsushita Electric Industrial
Co., Ltd. ("Matsushita"), which owns approximately 52% of JVC. Through a wholly
owned subsidiary, JVC owns 100% of Pacific Media Development, Inc. ("Pacific
Media"). JVC is a beneficial owner of the shares of Macrovision's common stock
that are held of record by Pacific Media and represent more than 5% of our
currently outstanding common stock.
Under the terms of the purchase agreement entered into in 1991 when
Pacific Media acquired its interest in Macrovision, Macrovision may not divide
or assign any rights to its patents that were existing or pending in June 1991,
without the prior written consent of Pacific Media, which consent may not be
unreasonably withheld.
Macrovision and JVC are parties to a Technology Application
Agreement, dated November 29, 1988 (the "Application Agreement"), a Duplicator
Agreement, dated June 1, 1988 (the "Duplicator Agreement"), and an Agreement,
dated July 15, 1994 (the "Video Agreement"). Pursuant to the Application
Agreement, JVC has applied Macrovision's copy protection process to prerecorded
videocassettes manufactured and distributed in Japan by JVC. Pursuant to the
Duplicator Agreement, JVC has applied Macrovision's copy protection process to
prerecorded videocassettes manufactured and distributed in Japan by certain of
Macrovision's licensees. Pursuant to the Video Agreement, JVC developed a
prototype of equipment to apply a copy protection process to prerecorded
videocassettes, and granted Macrovision exclusive rights to purchase such
equipment from JVC for resale and to sublicense the copy protection technology
for use with the equipment. In 1999, Macrovision recorded revenue from JVC of
approximately $410,000 and recorded expenses payable to JVC of approximately
$69,000 under these agreements.
20
<PAGE>
In connection with a license agreement dated September 26, 1995
among Macrovision, Victor Technobrain Co., Ltd. ("Techno"), a wholly owned
subsidiary of JVC, and an unrelated party, Macrovision has paid Techno a
development fee of $50,000 which has been recorded as an offset to the revenue
recognized from the unrelated party. Macrovision paid an additional $50,000 to
Techno in 1997 upon receipt of the final license payment from the unrelated
party. The license granted to Techno is for the development and manufacture of
products using Macrovision's copy protection and PhaseKrypt technologies.
Macrovision's Japanese subsidiary and Techno are parties to a
Technical Consulting Agreement, dated as of July 1, 1996 (the "Consulting
Agreement"), pursuant to which Techno agreed to provide technical consulting
services as assigned by certain officers of Macrovision or Macrovision Japan in
connection with technical support to licensed duplicators, rights owners and
system operators, set-top decoder manufacturers and semiconductor companies that
provide integrated circuits for set-top decoders in certain Asian countries. The
Consulting Agreement provides for Macrovision Japan to pay a consulting fee of
approximately $85 per hour, subject to a minimum consulting fee of approximately
$1,700 per quarter, and to reimburse Techno for its expenses in performing
services under the Consulting Agreement. In 1999, Macrovision paid to Techno
approximately $2,100 in consulting fees. (Amounts paid and payable under the
Consulting Agreement are denominated in yen, and the dollar equivalents stated
above are based on then-current exchange rates.)
In July 1996, Macrovision entered into a Copy Protection Technology
License Agreement with Matsushita. In June 1997, Macrovision entered into a Copy
Protection Technology License Agreement with Daiichikosho Co. Ltd and
Matsushita. Also in June 1997, Macrovision entered into a Copy Protection
Technology License Agreement with JVC. These agreements authorize each licensee
to include integrated circuits incorporating Macrovision's copy protection
technology in digital set-top decoders it manufactures. Each licensee paid to
Macrovision an initial fee of $50,000 and pays a standard per unit royalty for
each set top decoder manufactured. Under the agreement with Daiichikosho and
Matsushita, Matsushita paid the initial fee and Daiichikosho is obligated to pay
the per unit royalty. In 1999, Macrovision received approximately $189,000 under
these agreements.
In November 1996, Macrovision entered into a Digital Versatile Disc
Player/Digital Video Cassette Recorder License Agreement for Anticopy Technology
with Matsushita. In February 1997, Macrovision and JVC entered into a Digital
Versatile Disc Player/Digital Video Cassette Recorder License Agreement for
Anticopy Technology. These agreements authorize the licensee to include
integrated circuits incorporating Macrovision's copy protection technology in
DVD players and digital VCRs that it manufactures. This provides a royalty-free,
non-exclusive and non-transferable license in the technology licensed from
Macrovision, for which the licensee must make the VCRs or television sets that
it manufactures compatible with Macrovision's copy protection technology.
In January 1997, Macrovision and JVC entered into a Copy Protection
Technology Agreement (the "Technology Agreement"), pursuant to which Macrovision
agreed to license its copy protection technologies to JVC for use in territories
in which Macrovision has been issued patents, on terms and conditions comparable
to those provided under agreements between Macrovision and parties situated
similarly to JVC. Additionally, Macrovision agreed to continue to make its copy
protection technologies generally available for license to third parties on
terms commercially reasonable to Macrovision in the venues and for the purposes
that Macrovision currently license such technologies. The Technology Agreement
gives JVC the
21
<PAGE>
right to sublicense Macrovision's copy protection technologies to certain third
parties on terms and conditions comparable to those provided in similar
agreements previously entered into by Macrovision, with 95% of the royalties
from such sublicenses payable to Macrovision or its successor, in the event that
a party other than JVC acquires a majority interest in Macrovision or acquires
its copy protection business or patents, and following such acquisition
Macrovision or its successor refuses to continue to license Macrovision's copy
protection technologies on a nondiscriminatory basis to its current customers
and similarly situated parties.
In May 1997, Macrovision entered into a Replicator Agreement with
JVC Disc America Company, an indirect wholly-owned subsidiary of JVC. This
agreement gives authority to JVC Disc America to replicate discs containing
titles for which copy protection trigger bits have been applied. Macrovision
pays JVC Disc America a service fee to defray certain costs incurred by it under
this agreement. In 1999, Macrovision paid no such service fees.
In December 1997 and February 1999, Macrovision entered into a
Component Supplier Non-Assertion and Technical Services Agreement with
Matsushita and JVC, respectively. Under these agreements, Macrovision agreed not
to assert against Matsushita and JVC the apparatus claims for the technology
that Matsushita and JVC incorporate into devices that they manufacture and
distribute to authorized suppliers of electronic video products. Under this
agreement, Matsushita and JVC each paid Macrovision an initial fee of $15,000
and is obligated to pay an additional $5,000 for implementation of the apparatus
into each different device.
In May 1998, Macrovision entered into an Authoring and Replicator
Agreement with Matsushita. This agreement authorizes Matsushita to set the
trigger bits on a master digital linear tape or master digital disc to "on" such
that the copy protection is activated and to replicate discs containing titles
for which copy protection trigger bits have been applied. Macrovision pays
Matsushita a service fee to defray certain costs incurred by it under this
agreement. For 1999, the service fees paid by Macrovision under this agreement
were insignificant.
In May 1998, Macrovision entered into a DVD Copy Protection
Technology Application Agreement with Matsushita. The agreement allows
Matsushita to have Macrovision's copy protection technology applied to discs
containing material for which Matsushita is the title holder. Matsushita agreed
to pay a replication fee for the copy protected discs on a per unit basis
inclusive of a minimum annual number. In 1999, Macrovision recorded revenue of
$49,000 under this agreement.
In October 1998, Macrovision entered into a Copy Protection
Technology Application and Duplicator Agreement with JVC and a third party
duplicator by which JVC agrees to pay all fees to Macrovision on behalf of the
duplicator. JVC is required to pay Macrovision a $2,000 non-refundable minimum
payment every six months and also application fees on a per unit basis over the
minimum amount. In 1999, Macrovision recorded revenue of $5,000 under this
agreement.
Capitalization and Spinoff of Command Audio Corporation ("CAC")
CAC was incorporated in October 1995 as a wholly-owned subsidiary of
Macrovision. As of January 1, 1998, Macrovision held 11.9% of the voting stock
of CAC. In August 1999, the Company participated in a convertible bridge loan to
CAC by which investors
22
<PAGE>
would fund expenditures of CAC up to a predetermined amount. Our commitment
under the convertible note purchase agreement was $836,733. In December, we
converted our convertible bridge loan in the amount of $836,733 and accrued
interest into preferred stock of CAC as part of a round of third-party
financing. As of December 31, 1999 Macrovision held 7.8% of the voting stock of
CAC. John O. Ryan, Chairman of the Board and Chief Executive Officer of
Macrovision, is a director of CAC.
In 1996, Macrovision and CAC entered into a Technology Transfer and
Royalty Agreement, as amended. Under this agreement, Macrovision assigned to CAC
all rights in certain technology and released its reversion rights in technology
that Macrovision had previously assigned to CAC. In consideration of such
assignment and release, CAC agreed to pay to Macrovision royalties equal to 2.0%
of CAC's gross revenues (as defined in the agreement) for 12 years, beginning
when CAC has operating revenues from certain sources or, at the election of
Macrovision, at any time prior thereto.
Did Directors and Officers Comply with Their Section 16(a) Beneficial Ownership
Reporting Compliance Requirements in 1999?
Section 16(a) of the Securities Exchange Act of 1934 requires our
directors and executive officers, and persons who own more than 10% of our
equity securities, to file reports of ownership and reports of changes in
ownership of common stock with the Securities and Exchange Commission. The
Securities and Exchange Commission requires officers, directors and greater than
10% stockholders to furnish us with copies of all Section 16(a) forms they file.
To our best knowledge, based solely on a review of the copies of
such forms and certifications furnished to us, we believe that all Section 16(a)
filing requirements were complied with during 1999.
23
<PAGE>
DISCUSSION OF PROPOSALS RECOMMENDED BY THE BOARD
PROPOSAL 1:
ELECTION OF DIRECTORS
Our bylaws provide that the number of directors shall be not less
than five nor more than nine until changed by a bylaw amendment approved by our
stockholders. The exact number of directors is fixed from time to time, by a
bylaw or bylaw amendment approved by the board of directors. Currently, the
number of directors is fixed at six.
We have nominated six individuals to serve as our directors. Each
director will be elected to hold office until the next annual meeting and until
a successor is elected and qualified. All nominees for director are currently
members of our board of directors. If any nominee for any reason is unable to
serve or for good cause will not serve, the proxies may be voted for such
substitute nominee as the proxy holder may determine. Macrovision is not aware
of any nominee who will be unable to or for good cause will not serve as a
director. Information about the nominees is set forth below, under the heading
"Who Are the Six Directors Standing for Re-Election?"
Who Are the Six Directors Standing for Re-Election?
Director
Name Age Since Title
---- --- ----- -----
John O. Ryan 54 1987 Chairman of the Board of Directors
William A. Krepick 55 1995 Director
Richard S. Matuszak 56 1992 Director
Donna S. Birks 44 1997 Director
William Stirlen 61 1997 Director
Thomas Wertheimer 61 1997 Director
Director Biographies.
John O. Ryan. Mr. Ryan is a co-founder of Macrovision and an inventor of
its core copy protection and video scrambling technologies. He has served as
Chairman of the Board of Directors since June 1991, has served as our Chief
Executive Officer since June 1995, and served as Secretary from June 1991 to May
1999. He has been a director since June 1987 and served as our Vice-Chairman of
the Board of Directors from 1987 until June 1991. He also served as General
Partner of the partnership predecessor of Macrovision from 1985 to 1987 and as
President and Secretary of the corporate predecessor from 1983 to 1985. Prior to
founding Macrovision, Mr. Ryan was Director of Research and Development of Ampex
Corporation's broadcast camera group. Mr. Ryan holds more than 46 patents and
has 11 patent applications pending in the fields of video copy protection, video
scrambling television camera technology. Mr. Ryan took undergraduate courses in
Physics and Math at the University of Galway in Ireland and received a Full
Technological Certificate in Telecommunications from the City and Guilds
Institute of London. Mr. Ryan is also a director of Command Audio Corporation.
William A. Krepick. Mr. Krepick has served as a director since November
1995 and as our President and Chief Operating Officer since July 1995. He has
been with Macrovision since November 1988, and served as Vice President, Sales
and Marketing until June 1992 and Senior
24
<PAGE>
Vice President, Theatrical Copy Protection from July 1992 to June 1995. Prior to
joining Macrovision, Mr. Krepick held several executive marketing management
positions over a ten-year period with ROLM Corporation, a telecommunications
equipment manufacturing company. He holds a B.S. degree in Mechanical
Engineering from Rensselaer Polytechnic Institute and an M.B.A. from Stanford
University.
Richard S. Matuszak. Mr. Matuszak has served as our Vice President,
Business Development, Video Copy Protection since June 2000, and as a director
since May 1992. Mr. Matuszak served as our Vice President, Special Interest Copy
Protection from June 1992 to June 2000. He joined Macrovision in August 1985 and
held various sales and marketing positions from August 1985 to June 1992. From
June 1984 to August 1985, Mr. Matuszak was a Sales Manager for the Broadcast
Products Division of Hitachi Corporation. He holds an Associate degree in
Applied Technologies and Electronics from DeVry Institute of Technology.
Donna S. Birks. Ms. Birks has served as a director since May 1997. Since
December 1997, she has served as Executive Vice President and Chief Financial
Officer at Adaptive Broadband Inc., a satellite and wireless communications
company, and from August 1994 to June 1997, she served as Vice President,
Finance and Administration and Chief Financial Officer at ComStream. She has
also held senior management positions at GTE Spacenet, Macrovision, and Contel
ASC. Ms. Birks holds a B.A. degree in Business Administration from George Mason
University in Fairfax, Virginia and an M.S. degree in Finance from American
University in Washington, D.C. She is a Certified Public Accountant.
William Stirlen. Mr. Stirlen has served as a director since May 1997. Mr.
Stirlen has been a consultant to technology companies from February 1994 to
present. As a consultant, he has held various executive offices with Open Text
Corporation, an intranet software company headquartered in Waterloo, Ontario,
since June 1996, serving as Chief Financial Officer until October 1997 and as
Executive Vice President of Corporate Development until October 1998. From March
1993 to February 1994, he served as Chief Financial Officer of Supercuts, Inc.
He has also held senior management positions at Computer Consoles Inc. and
Trimble Navigation Ltd. Mr. Stirlen holds a B.A. degree from Yale University and
an M.B.A. in Finance from Northwestern University.
Thomas Wertheimer. Mr. Wertheimer has served as a director since July
1997. He has served as a consultant to Universal Studios since January 1996.
From 1992 to January 1996, Mr. Wertheimer served as Executive Vice President and
Chairman of the Home Video and Television Groups of MCA, Inc. He is a member of
the Columbia Law School Board of Visitors. He also serves as President of the
KCRW Foundation. Mr. Wertheimer holds a B.A. degree from Princeton University
and an L.L.B from Columbia University.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE "FOR" ALL SIX
NOMINEES FOR DIRECTOR.
25
<PAGE>
PROPOSAL 2:
APPROVAL OF THE PROPOSED AMENDMENT TO MACROVISION'S RESTATED
CERTIFICATE OF INCORPORATION
General.
Our board of directors has approved a proposed amendment to our
restated certificate of incorporation to increase the total number of authorized
shares of our common stock from 50,000,000 to 250,000,000. This amendment must
be approved before the GLOBEtrotter acquisition can be completed. We have
attached the proposed amendment to our Restated Certificate of Incorporation as
Annex A.
How Many Shares Are Currently Authorized?
As of June 29, 2000, Macrovision had 55,000,000 shares of authorized
capital stock, 50,000,000 of which are shares of common stock, par value $0.001
per share and 5,000,000 of which are shares of preferred stock, par value $0.001
per share.
How Many Shares Are Currently Outstanding?
As of June 29, 2000, the record date, there were 40,331,821 shares
of common stock and no shares of preferred stock outstanding. In addition, as of
the record date, Macrovision had 3,571,399 shares of common stock reserved for
issuance under certain employee and director benefit plans. Approximately
6,096,780 shares of Macrovision's common stock are authorized and remain
available for issuance.
What Is the Effect of Increasing the Authorized Number of Shares?
If you approve the proposed amendment to our restated certificate of
incorporation, we will have 250,000,000 total authorized shares of common stock
and 5,000,000 authorized shares of preferred stock. If the merger with
GLOBEtrotter is completed, then we would have approximately 49.3 million shares
of common stock outstanding and an additional 8.2 million shares of common stock
reserved for issuance pursuant to our employee and director benefit plans
(assuming that you approve the new 2000 Equity Incentive Plan and the amendment
to the 1996 Directors Option Plan). If the merger with GLOBEtrotter is
completed, then approximately 192.5 million shares of Macrovision common stock
would remain available for issuance.
Macrovision's board of directors believes that is it in our best
interests and in your best interests as a stockholder to increase the number of
authorized shares of common stock. The proposed amendment to our restated
certificate of incorporation will provide us with a sufficient number of
authorized shares to complete the merger with GLOBEtrotter and flexibility in
the future by assuring that there will be sufficient authorized but unissued
shares of our common stock available for financing requirements, possible
acquisitions, and other corporate purposes without requiring further stockholder
approval at any annual or special meeting. We currently have no plans to issue
additional shares of our common stock, other than as described in this proxy
statement. From time to time, however, we review potential acquisition
transactions, some of which could involve the issuance of our stock as
acquisition consideration.
26
<PAGE>
Will My Rights As a Stockholder Change?
No. When issued, the additional shares authorized by this proposed
amendment will have the same rights and privileges as the shares of common stock
currently authorized and outstanding. Holders of our common stock have no
preemptive rights, and therefore no stockholders have any preferential right to
purchase any of the additional shares of our common stock when such shares are
issued.
Under the provisions of the Delaware General Corporation Law, we
generally may issue authorized but unissued shares of common stock without
stockholder approval. A substantial number of authorized but unissued shares of
our common stock not reserved for a specific purpose allows us to take prompt
action with respect to corporate opportunities that develop, without the delay
and expense of convening another stockholder meeting. The issuance of additional
shares of our common stock may, depending on the circumstances under which such
shares are issued, dilute voting rights, net income, and/or net book value per
share of our common stock. However, we would receive valuable consideration for
any such shares issued, so the economic effect of a dilution to you should be
substantially eliminated. If you approve the proposed amendment to our restated
certificate of incorporation, we do not currently intend to seek stockholder
approval prior to any issuance of additional shares of our common stock unless
otherwise required by law or the rules of any securities exchange or any
inter-dealer quotation system on which the shares may be listed or quoted at the
time.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE "FOR" THE APPROVAL
OF PROPOSAL 2.
27
<PAGE>
PROPOSAL 3:
APPROVAL OF THE ISSUANCE OF SHARES OF OUR COMMON STOCK IN THE
MERGER WITH GLOBEtrotter SOFTWARE, INC.
General.
We have approved an Agreement and Plan of Merger which provides that
our new subsidiary, GSI Acquisition Corp., will merge with and into GLOBEtrotter
Software, Inc. GLOBEtrotter, as the surviving corporation in the merger, will
become a wholly-owned subsidiary of Macrovision. As a result of the merger, the
shareholders of GLOBEtrotter will receive approximately 8,944,550 shares of our
common stock. We seek your approval to issue our shares of common stock in the
merger. The summary information provided below is sufficient for you to make an
informed voting decision, however, we encourage you to carefully read the entire
Agreement and Plan of Merger, which we have included as Annex B to this proxy
statement.
Who are the parties to the merger?
Macrovision Corporation and GSI Acquisition Corp.
Macrovision's executive offices are located at 1341 Orleans Drive,
Sunnyvale, California 94089 and its telephone number is (408) 743-8600.
Macrovision designs, develops and licenses copy protection and rights management
technologies. We are the leading provider of copyright protection technologies
for major Hollywood movie studios, independent video producers, PC games and
educational software publishers, digital set-top box manufacturers and digital
pay-per-view network operators. Macrovision provides content owners with the
means to protect on such media as videocassette, DVD and pay-per-view movies, PC
games and educational software against unauthorized copying and distribution.
GSI Acquisition Corp. is a newly formed, wholly-owned subsidiary of
Macrovision. This subsidiary was formed for the sole purpose of merging into
GLOBEtrotter to effect a tax-free exchange of shares.
GLOBEtrotter Software, Inc.
GLOBEtrotter's executive offices are located at 1530 Meridian Ave,
San Jose, California 95125 and its telephone number is (408) 445-8100.
GLOBEtrotter provides electronic licensing and license management technology to
software vendors and supplies software asset management products to corporate
customers worldwide. GLOBEtrotter is a significant industry supplier of
electronic licensing and license management technology to software vendors and
corporate customers worldwide.
28
<PAGE>
MATERIAL TERMS OF THE MERGER
What is the structure of the merger?
General.
The Agreement and Plan of Merger provides that after approval by the
GLOBEtrotter Board of Directors and the shareholders and the satisfaction or
waiver of the other conditions to the transaction, GSI Acquisition Corp., will
merge with and into GLOBEtrotter. At the time of the merger, the articles of
incorporation and bylaws of GLOBEtrotter will be amended and restated to
substitute the terms of the former articles of incorporation and bylaws of GSI
Acquisition Corp. As a result of the merger, GLOBEtrotter will become a
wholly-owned subsidiary of Macrovision and will continue to operate under the
name "GLOBEtrotter Software, Inc.," substantially as before the merger. The
directors and officers of GLOBEtrotter after the merger will be John O. Ryan,
Director, Chairman and Chief Executive Officer; William A. Krepick, Director and
President; and Ian R. Halifax, Director, Chief Financial Officer and Secretary,
until they resign or until their respective successors are duly elected and
qualified.
Conditions to the Acquisition.
The obligation of Macrovision and GLOBEtrotter to consummate the
merger is subject to the satisfaction or waiver on or before the intended
closing date of many conditions, including the following:
o the merger must receive all required approvals of governmental
authorities;
o the merger must receive the required approval of the board of
directors and the shareholders of GLOBEtrotter;
o no judgment, decree, injunction, order or proceeding will be
outstanding or threatened by any governmental authority which
prohibits or restricts or threatens to invalidate or set aside
the merger; and
o Macrovision will have received all state and federal
securities permits and other authorizations, including the
approval of Proposals 2, 3 and 4 by our stockholders,
necessary to authorize and issue sufficient shares of
Macrovision common stock to GLOBEtrotter shareholders in the
merger and convert the GLOBEtrotter stock options into
Macrovision stock options under the 2000 Equity Incentive
Plan.
The obligation of Macrovision to consummate the merger is also
subject to fulfillment of other conditions, including the following:
o Each of the representations and warranties of GLOBEtrotter
under the Agreement and Plan of Merger must be true and
correct in all material respects as of the closing date;
29
<PAGE>
o The execution of employment agreements with certain key
employees of GLOBEtrotter;
o The execution of a lease amendment with respect to the office
building at which GLOBEtrotter maintains its corporate
offices;
o The receipt of certain representation letters from the
principal shareholders of GLOBEtrotter to support the "pooling
of interests" accounting;
o All GLOBEtrotter shareholders must approve the merger;
o The receipt of audited financial statements of GLOBEtrotter
for its two prior fiscal years, which statements do not differ
significantly from the unaudited statements furnished by
GLOBEtrotter;
o The receipt of an opinion from KPMG LLP to the effect that the
merger will eligible for "pooling of interest" accounting; and
o The performance by GLOBEtrotter in all material respects of
all the obligations, agreements and covenants required of it
by the Agreement and Plan of Merger prior to the closing date.
The obligation of GLOBEtrotter to consummate the merger is also
subject to the fulfillment of certain other conditions, including the following:
o The receipt of a favorable tax opinion from its counsel;
o The approval of the fairness of the terms and conditions of
the merger and the issuance of a permit from the California
Commissioner of Corporations;
o Each of the representations and warranties of Macrovision
under the Agreement and Plan of Merger must be true and
correct in all material respects as of the closing; and
o The performance by Macrovision in all material respects of all
the obligations, agreements and covenants required of it by
the Agreement and Plan of Merger prior to the closing date.
Additionally, the completion of the merger is subject to the
performance of certain covenants and the accuracy of representations and
warranties by the majority shareholders of GLOBEtrotter and the receipt of other
documents and opinions of KPMG LLP and Morrison & Foerster LLP, counsel to
GLOBEtrotter. If these and other conditions are not satisfied or waived,
Macrovision or GLOBEtrotter may terminate the Agreement and Plan of Merger.
Competing Acquisition Proposals.
Under the terms of the Agreement and Plan of Merger, GLOBEtrotter
and its majority shareholders have agreed not to solicit, initiate or encourage
any competing transaction.
30
<PAGE>
In addition, GLOBEtrotter has agreed not to participate in any negotiations or
discussions, or furnish any information, or otherwise cooperate in any way in
connection with, any effort or attempts to effect any competing transaction with
or involving any person regarding an acquisition proposal.
Termination.
Either Macrovision or GLOBEtrotter may call off the merger under
certain circumstances, including if:
o We both consent;
o The other party breaches in a material manner any of the
representations and warranties or any covenant or agreement
that it has made under the Agreement and Plan of Merger;
o There is a valid injunction or prohibition against the merger
issued by a court or government agency;
o The acquisition is not completed on or before August 31, 2000;
or
o The board of directors and the shareholders of GLOBEtrotter do
not approve the merger or our stockholders do not approve
increasing the number of authorized shares of our common stock
as described in Proposal 2, the issuance of the shares of our
common stock in the merger as described in Proposal 3 and the
new 2000 Equity Incentive Plan as described in Proposal 4.
In the event the Agreement and Plan of Merger is terminated by us
because the GLOBEtrotter board of directors or shareholders fail to approve the
merger, or the board of directors or the principal shareholders of GLOBEtrotter
take certain specified actions, including the solicitation or approval of a
competing acquisition proposal, we will be entitled to claim a termination fee
of $5 million from GLOBEtrotter. In the event the Agreement and Plan of Merger
is terminated by us because our board of directors fails to submit or recommend
for approval by our stockholders Proposals 2, 3 and 4, or KPMG LLP does not
advise us that the merger can properly be accounted for as a "pooling of
interests," KPMG LLP does not deliver its auditors report on the financial
statements of GLOBEtrotter, GLOBEtrotter will be entitled to claim a termination
fee from us of $2 million. In the event the Agreement and Plan of Merger is
terminated by GLOBEtrotter because we enter into agreements or an agreement to
acquire an interest in another company for an aggregate value of more than
500,000 shares of our common stock, or $31 million, without the consent of
GLOBEtrotter, GLOBEtrotter will be entitled to claim a termination fee from us
equal to its legal fees.
Covenants; Conduct of Business Prior to Completion of the Merger.
The Agreement and Plan of Merger provides that, during the period
from the date it was signed to the completion of the merger, GLOBEtrotter will
conduct its businesses only in the normal and customary manner in accordance
with sound business practices and will not, without the prior written consent of
Macrovision, take any of the following actions:
31
<PAGE>
o Issue any securities including stock options except in limited
amounts to newly hired employees;
o Declare, set aside or pay any dividend, or make any other
distribution upon, or purchase or redeem any shares of its
stock except dividends in amounts consistent with past
practices and for its shareholders' tax liability for the
short year ending upon the completion of the merger;
o Adopt any plans relating to the restructuring of GLOBEtrotter;
o Amend its articles of incorporation or bylaws;
o Incur any indebtedness not in the ordinary course of business;
o Make any acquisitions, other than in the ordinary course of
business;
o Sell, lease or otherwise dispose of any assets or release any
claims, except in the ordinary course of business consistent
with past practice;
o Make any capital expenditure in excess of $100,000 per project
or $250,000 in the aggregate;
o Make any material change to any policies and practices with
respect to accounting, except such changes as may be required
by generally accepted accounting principles or by applicable
governmental authorities;
o Grant any increase in salary, incentive compensation or
employee benefits or pay any bonus to any person, except any
increases in the ordinary course of business and consistent
with past practice;
o Compromise, settle or adjust any claim, action or proceeding
against it for a material amount;
o Adopt or amend any employment agreement or employee benefit or
other benefit plan or arrangement of any type except such
amendments as are required by law;
o Amend, modify or terminate, except in accordance with its
terms, any material contract;
o Settle any claim or proceeding involving any material
liability; or
o Knowingly take or cause to be taken any action which would
prevent the transactions contemplated by the Agreement and
Plan of Merger from qualifying as a tax-free reorganization
under Section 368 of the Internal Revenue Code or prevent
Macrovision from accounting for the business combination to be
effected by the merger as a pooling of interests.
32
<PAGE>
Amendment and Waiver of the Agreement and Plan of Merger.
Subject to applicable law, any provision of the Agreement and Plan
of Merger may be amended or waived by Macrovision and GLOBEtrotter prior to
closing if the parties mutually agree in writing to the amendment. In addition,
either Macrovision or GLOBEtrotter may waive the other party's performance of
covenants or conditions to the Agreement and Plan of Merger.
What consideration will Macrovision pay to the GLOBEtrotter shareholders and
option holders?
Each share of GLOBEtrotter common stock will be converted into and
exchanged for 1.104407 shares of Macrovision common stock. On June 19, 2000,
there were 8,098,958 shares of GLOBEtrotter common stock outstanding. Assuming
this number does not change before we complete the merger, we will issue a total
of approximately 8,944,550 shares of our common stock to the stockholders of
GLOBEtrotter.
In addition, upon consummation of the merger, we will assume the
obligation to issue our common stock to the employees of GLOBEtrotter who now
hold stock options for GLOBEtrotter common stock under GLOBEtrotter's employee
stock option plan. As of June 19, 2000, GLOBEtrotter had outstanding options to
purchase 688,284 shares of common stock. When we complete the merger, all of
these options will be converted into options to purchase shares of Macrovision
common stock based on the exchange ratio used in the merger for the issuance of
our common stock for GLOBEtrotter common stock, under the terms of the new 2000
Equity Incentive Plan, except that the original vesting schedules for such
options shall continue.
What is the background of this transaction?
On January 21, 2000, Mark Belinsky, Brian Dunn and Patrice Capitant
of Macrovision met with Richard Mirabella of GLOBEtrotter for an initial
overview and discussion of GLOBEtrotter's business. On February 1, 2000, John
Ryan, Bill Krepick, Ian Halifax, and Messrs. Belinsky and Dunn of Macrovision
met with Messrs. Christiano and Mirabella of GLOBEtrotter to view a presentation
by GLOBEtrotter regarding its corporate overview and strategy and to discuss the
benefits of a potential combination. On February 4, 2000, Messrs. Ryan and
Belinsky of Macrovision met with Mr. Christiano and Sallie Calhoun of
GLOBEtrotter to discuss GLOBEtrotter's market strategy and valuation issues
relating to GLOBEtrotter's business. On February 9, 2000, Mr. Belinsky of
Macrovision met with Messrs. Christiano and Mirabella and Ms. Calhoun of
GLOBEtrotter to discuss Macrovision's 1999 revenues by product group and
GLOBEtrotter's 1999 revenue and 2000 revenue projections. On February 11, 2000,
Messrs. Belinsky and Halifax of Macrovision met with Mr. Christiano and Ms.
Calhoun of GLOBEtrotter where Macrovision made a presentation regarding a
potential combination, and the parties discussed "pooling of interests"
accounting versus purchase accounting, employee retention, valuation scenarios,
and GLOBEtrotter's sales and international distribution strategy. On February
17, 2000, Messrs. Belinsky and Dunn of Macrovision met with Mr. Mirabella of
GLOBEtrotter to attend GLOBEtrotter's training session on "Business of License
Management." On February 18, 2000, Messrs. Belinsky and Dunn of Macrovision met
with Mr. Daniel Birns of GLOBEtrotter to attend GLOBEtrotter's training session
on "Technical Introduction to FLEXlm." On February 18, 2000, Mr. Ryan of
Macrovision met with Mr. Christiano and Ms. Calhoun of GLOBEtrotter to discuss
valuation scenarios. On
33
<PAGE>
February 23, 2000, Messrs. Dunn, Ellison and Collier of Macrovision met with Mr.
Christiano of GLOBEtrotter to discuss the synergies between the two companies'
products and the mutual benefits the companies could experience with
GLOBEtrotter's technology and Macrovision's technology as well as to discuss the
FLEXlm technical architecture.
On March 2, Messrs. Belinsky, Ryan, Krepick and Halifax met with
Messrs. Christiano and Mirabella to review GLOBEtrotter's financial projections
and business plan. On March 10, Messrs. Ryan, Krepick, Halifax and Belinsky of
Macrovision met with Messrs. Christiano and Mirabella of GLOBEtrotter to develop
the key elements of a non-binding letter of intent for Macrovision to acquire
GLOBEtrotter. During the weeks ending March 17 and March 24, numerous telephone
conversations and meetings were held and emails exchanged between Messrs. Ryan,
Krepick, Halifax and Belinsky of Macrovision and Messrs. Christiano and
Mirabella and Ms. Calhoun of GLOBEtrotter related to refining the terms of the
letter of intent and to reviewing GLOBEtrotter's revenue and earnings
projections for purposes of reaching agreement on the number of shares which
would be issued by Macrovision as consideration for the acquisition. Discussions
continued through the weekend and into the evening of March 27, at which time
Macrovision and GLOBEtrotter entered into a non-binding letter of intent.
During the months of April, May and the beginning of June, the
parties performed due diligence and negotiated the Agreement and Plan of Merger.
During the due diligence process, the two companies assessed various accounting
policies and procedures, and the revised treatment of revenue recognition to
comply with the requirements of SEC Staff Accounting Bulletin No. 101. As a
result, the purchase price was reduced from approximately 11.2 million shares to
approximately 9 million shares of Macrovision common stock.
On June 16, 2000, the board of directors of Macrovision met,
reviewed the draft of the Agreement and Plan of Merger, discussed with its
financial advisor, Alliant Partners, the valuation of the proposed merger and
voted to approve the Agreement and Plan of Merger and the merger.
On June 19, 2000, Macrovision and GLOBEtrotter and its principal
shareholders entered into the Agreement and Plan of Merger. Macrovision issued a
press release announcing the signing of the Agreement and Plan of Merger on
Tuesday, June 20, 2000.
Opinion Of Macrovision's Financial Advisor
Macrovision retained Alliant Partners to render an opinion regarding
the fairness of a possible acquisition of GLOBEtrotter by Macrovision, from a
financial point of view, to the holders of Macrovision's common stock.
On the morning of June 16, 2000, Macrovision's board of directors
met. At the meeting, Alliant Partners delivered to the board of directors its
opinion that as of June 16, 2000, and based on the matters described therein,
the total consideration to be paid by Macrovision was fair, from a financial
point of view, to the holders of Macrovision common stock. No limitations were
imposed by Macrovision on the scope of Alliant Partner's investigations or the
procedures to be followed by Alliant Partners in rendering the opinion. In
furnishing the opinion, Alliant Partners was not engaged as an agent or
fiduciary of Macrovision's stockholders or any other third party.
34
<PAGE>
The full text of the opinion, which sets forth, among other things,
assumptions made, matters considered and limitations on the review undertaken,
is attached hereto as Annex F and is incorporated herein by reference.
Macrovision's stockholders are urged to read the opinion in its entirety. The
opinion was prepared for the benefit and use of the board of directors in its
consideration of the merger and does not constitute a recommendation to
Macrovision stockholders as to how they should vote at the annual meeting on any
matters relating to the merger. The opinion does not address the relative merits
of the merger and any other transactions or business strategies discussed by the
board of directors as alternatives to the Agreement and Plan of Merger or the
underlying business decision of the board of directors to proceed with or effect
the merger, except with respect to the fairness of the total consideration to be
paid by Macrovision, from a financial point of view, to the holders of
Macrovision common stock. The summary of the opinion set forth in this proxy
statement is qualified in its entirety by reference to the full text of the
opinion.
In connection with the preparation of the opinion, Alliant Partners,
among other things: (i) reviewed the terms of the draft Agreement and Plan of
Merger dated June 12, 2000; (ii) reviewed GLOBEtrotter's Independent
Accountants' Review reports (unaudited, reviewed financial statements) for the
fiscal years ended December 31, 1995 through December 31, 1998; (iii) reviewed
certain internal, unaudited financial and operating information relating to
GLOBEtrotter as prepared by GLOBEtrotter management for the year ended December
31, 1999 and three months ended March 31, 2000; (iv) compared certain aspects of
the financial performance of GLOBEtrotter with comparable public companies; (v)
analyzed available information, both public and private, concerning other
mergers and acquisitions comparable in whole or in part to the merger; (vi)
participated in discussions with Macrovision management concerning the
operations, business strategy, financial performance and prospects for
Macrovision and GLOBEtrotter as a consolidated entity and its strategic
rationale for the merger; (vii) reviewed the recent reported closing prices and
trading activity for Macrovision common stock; (viii) reviewed the Macrovision
Form 10-K for the fiscal year ended December 31, 1999, and the Macrovision Form
10-Q for the three months ended March 31, 2000; (ix) participated in discussions
with GLOBEtrotter management concerning the operations, business strategy,
financial performance and prospects for Macrovision and GLOBEtrotter as a
combined entity; (x) reviewed recent equity analyst reports covering
Macrovision; (xi) considered the effect of the merger on the future financial
performance of the consolidated entity; (xii) participated in discussions
related to the merger among Macrovision, GLOBEtrotter and their legal advisors
and Macrovision's financial advisors; and (xiii) conducted other financial
studies, analyses and investigations as Alliant Partners deemed appropriate for
the purposes of its opinion.
In conducting its review and arriving at the opinion, Alliant
Partners relied upon and assumed the accuracy and completeness of the financial
statements and other information provided by Macrovision and GLOBEtrotter or
otherwise made available to Alliant Partners and did not assume responsibility
to verify such information independently. Alliant Partners further relied upon
the assurances of Macrovision's and GLOBEtrotter's managements that the
information provided was prepared on a reasonable basis in accordance with
industry practice and with respect to financial planning data, reflected the
best currently available estimates and good faith judgments of Macrovision's and
GLOBEtrotter's managements as to the expected future financial performance of
Macrovision and GLOBEtrotter and that such parties were not aware of any
information or facts that would make the information provided to Alliant
Partners incomplete or misleading. Without limiting the generality of the
foregoing, for the purpose of the opinion, Alliant Partners assumed that neither
Macrovision nor GLOBEtrotter was a party to
35
<PAGE>
any pending transaction, including external financing, recapitalization,
acquisitions or merger discussions, other than the merger or in the ordinary
course of business.
In arriving at the opinion, Alliant Partners did not perform any
appraisals or valuations of specific assets or liabilities of Macrovision or
GLOBEtrotter and was not furnished with any such appraisals or valuations.
Without limiting the generality of the foregoing, Alliant Partners
did not undertake any independent analysis of any pending or threatened
litigation, possible unasserted claims or other contingent liabilities, to which
Macrovision, GLOBEtrotter or any of their respective affiliates was a party or
may be subject and, at Macrovision's direction and with its consent, the opinion
made no assumption concerning, and therefore did not consider, the possible
assertion of claims, outcomes or damages arising out of such matters. Although
developments following the date of the opinion may affect the opinion, Alliant
Partners assumed no obligation to update, revise or reaffirm the opinion.
Following is a summary explanation of the various sources of
information and valuation methodologies employed by Alliant Partners in
conjunction with rendering its opinion to the Macrovision board of directors.
Comparable Company Analysis.
Alliant Partners compared certain financial information and
valuation ratios relating to Macrovision to corresponding publicly available
data and ratios from a group of selected publicly traded companies deemed
comparable to Macrovision. The comparable companies selected included twelve
publicly traded companies in the business of providing e-commerce solutions and
digital rights/security management for software products. Financial information
reviewed by Alliant Partners included each company's: Enterprise Value,
calculated as the market capitalization of the selected company, plus such
company's long term debt, less such company's excess cash; LTM (latest twelve
months) Revenue, EBIT (Earnings Before Interest and Taxes) and Earnings as
reported as of the date of the opinion; prior year and projected current year
Revenue Growth Rates; current year and projected Earnings Growth Rates; and most
recently available Headcount figures. Comparable companies included: Aladdin
Knowledge Systems; CyberSource Corporation; Digital River, Inc.; InterTrust
Technologies Corp.; Intraware, Inc.; Novadigm, Inc.; Preview Systems, Inc.;
Rainbow Technologies; SCM Microsystems; SoftLock.com; TTR Technologies, Inc.;
and Verisign, Inc.
The comparable companies had Enterprise Value/LTM Revenue ratios
with a weighted narrow average (narrow average excludes the highest and lowest
estimates) of 11.6; Enterprise Value/LTM EBIT ratios with a weighted narrow
average of 104.9; and Enterprise Value / Headcount ratios with a weighted narrow
average of $3.3. Certain adjustments for differences in performance and
liquidity and application of an acquisition control premium were made to the
multiples before reaching an implied Enterprise Value for GLOBEtrotter through
this methodology.
Comparable Transaction Analysis.
Alliant Partners reviewed eight comparable merger and acquisition
transactions from March 1999 through the present, which involve sellers that
share certain characteristics with GLOBEtrotter, including products offered and
business model. These comparable
36
<PAGE>
transactions of companies included: (i) Intraware's acquisition of Internet
Image; (ii) Inktomi's acquisition of WebSpective Software; (iii) Commerce One's
acquisition of Mergent Systems; (iv) Intraware's acquisition of BITSource; (v)
Peregrine Systems' acquisition of Harbinger; (vi) BroadVision's acquisition of
INTERLEAF; (vii) Bindview Development's acquisition of NETECT; and (viii) Wave
Systems' acquisition of N*ABLE Technologies.
Estimated multiples paid in the comparable transactions were based
on information obtained from public filings, public company disclosures, press
releases, industry and popular press reports, databases and other sources. The
Price / Revenue multiples of the eight transactions range had a weighted narrow
average of 10.7, and the Price / Headcount multiples of the transactions had a
weighted narrow average of $1.5. Price / EBIT and Price / Earnings multiples
were not used in the valuation analysis, as reliable EBIT or Earnings numbers
for these completed transactions were not available.
No company, transaction or business utilized as a comparison in the
Comparable Company Analysis or the Comparable Transaction Analysis is identical
to GLOBEtrotter, Macrovision or the merger. In evaluating the comparable
companies, Alliant made judgments and assumptions with regard to industry
performance, general business, economic, market and financial conditions and
other matters, many of which are beyond the control of Macrovision or
GLOBEtrotter. Accordingly, an analysis of the results of the foregoing is not
entirely mathematical; rather it involves complex considerations and judgments
concerning differences in financial and operating characteristics and other
factors that could affect the acquisition, public trading and other values of
the comparable companies, comparable transactions or the business segment,
company or transactions to which they are being compared.
Discounted Cash Flow Analysis.
Alliant Partners estimated the present value of the projected future
cash flows of GLOBEtrotter on a stand-alone basis using internal financial
planning data prepared by Macrovision management for the years ending December
31, 2000 through December 31, 2002, and a discount rate of 24%. Alliant Partners
obtained a terminal valuation based on application of an adjusted revenue
multiple to terminal year projected revenues.
Relative Contribution.
Alliant Partners analyzed GLOBEtrotter's relative contribution to
the combined entity based upon present and projected current year financial
performance. The analysis resulted in a weighted average contribution for
Macrovision of 76%, and a weighted average contribution for GLOBEtrotter of 24%.
To reach a value range for the Enterprise Value of GLOBEtrotter,
Alliant Partners utilized a weighted average of the value indications implied by
the four methodologies. The Relative Contribution method received the greatest
weighting, because it is considered the best indication of actual value to be
added to the combined entity going forward, both in terms of profitability and
overall growth. The Public Comparables method received less weight than the
Relative Contribution methodology, as it is considered less of an indicator of
actual value to be added to the combined entity going forward when a significant
percentage of the acquiror stock is exchanged. The Discounted Cash Flow method
received a weighting equal to the Public Comparables approach. This method
received less weight than the Relative Contribution method due to the margins of
error and limited future visibility inherent to this approach. The Related
37
<PAGE>
Industry M&A Transactions method received the lowest weighting, due to limited
available and meaningful income statement data for the comparable targets and
the fact that few transactions are comparable to both Macrovision and
GLOBEtrotter.
Conclusion.
While the foregoing summary describes certain analyses and factors
that Alliant Partners deemed material in its presentation to the Macrovision
board of directors, it is not a comprehensive description of all analyses and
factors considered by Alliant Partners. The preparation of a fairness opinion is
a complex process that involves various determinations as to the most
appropriate and relevant methods of financial analysis and the application of
these methods to the particular circumstances and, therefore, such an opinion is
not readily susceptible to summary description. Alliant Partners believes that
its analyses must be considered as a whole and that selecting portions of its
analyses and of the factors considered by it, without considering all analyses
and factors, would create an incomplete view of the evaluation process
underlying the opinion. Several analytical methodologies were employed and no
one method of analysis should be regarded as critical to the overall conclusion
reached by Alliant Partners. Each analytical technique has inherent strengths
and weaknesses, and the nature of the available information may further affect
the value of particular techniques. The conclusions reached by Alliant Partners
are based on all analyses and factors taken as a whole and also on application
of Alliant Partners' own experience and judgment. Such conclusions may involve
significant elements of subjective judgment and qualitative analysis. Alliant
Partners, therefore, gives no opinion as to the value or merit standing alone of
any one or more parts of the analysis it performed. In performing its analyses,
Alliant Partners considered general economic, market and financial conditions
and other matters, many of which are beyond the control of Macrovision and
GLOBEtrotter. The analyses performed by Alliant Partners are not necessarily
indicative of actual values or future results, which may be significantly more
or less favorable than those suggested by such analyses. Accordingly, analyses
relating to the value of a business do not purport to be appraisals or to
reflect the prices at which the business actually may be purchased. Furthermore,
no opinion is being expressed as to the prices at which shares of Macrovision
common stock may trade at any future time.
Pursuant to its letter agreement with Macrovision, Alliant Partners
is to receive a fee for the fairness opinion rendered to the Macrovision board
of directors. Macrovision also has agreed to reimburse Alliant Partners for its
out-of-pocket expenses and to indemnify and hold harmless Alliant Partners and
its affiliates and any person, director, employee or agent acting on behalf of
Alliant Partners or any of its affiliates, or any person controlling Alliant
Partners or its affiliates for certain losses, claims, damages, expenses and
liabilities relating to or arising out of services provided by Alliant Partners
as financial advisor to Macrovision. The terms of the fee arrangement with
Alliant Partners, which Macrovision and Alliant Partners believe are customary
in transactions of this nature, were negotiated at arm's length between
Macrovision and Alliant Partners, and the Macrovision board of directors was
aware of such fee arrangements.
Alliant Partners was retained based on Alliant Partners' experience
as a financial advisor in connection with mergers and acquisitions and in
securities valuations generally, as well as Alliant Partners' investment banking
relationship and familiarity with Macrovision. Alliant Partners has provided
financial advisory and investment banking services to Macrovision in the past.
38
<PAGE>
As part of its investment banking business, Alliant Partners is
frequently engaged in the valuation of businesses and their securities in
connection with mergers and acquisitions, sales and divestitures, joint ventures
and strategic partnerships, private financings and other specialized studies.
What vote is required to effect this merger?
Proposal 3, to approve the issuance of the shares of our common
stock in the merger, and Proposal 4, to approve the new 2000 Equity Incentive
Plan, must each receive the affirmative vote of a majority of the shares of
Macrovision common stock represented and voting at the meeting and Proposal 2 to
increase the number of our authorized shares of common stock must receive the
affirmative vote of a majority of the outstanding shares of Macrovision common
stock on June 29, 2000. The affirmative vote of a majority of the shares of
GLOBEtrotter common stock and the board of directors of GLOBEtrotter must
approve the Agreement and Plan of Merger and the merger. However, the approval
of the merger by all the GLOBEtrotter shareholders is a condition under the
Agreement and Plan of Merger for Macrovision to complete the merger.
Why is my approval necessary?
We must seek stockholder approval of our proposed issuance of shares
of our common stock in the merger under the listing requirements of The Nasdaq
Stock Market because we are issuing greater than 20% of our currently
outstanding shares of common stock as consideration to GLOBEtrotter's
stockholders. If we did not seek stockholder approval, Nasdaq could delist our
securities from quotation on the Nasdaq National Market.
Do I have any rights if I do not approve the proposal?
No. If you choose to vote against the proposal to issue shares of
our common stock in the merger, Delaware General Corporation Law does not afford
you any appraisal rights, as defined under such law, because your shares are
ineligible for such treatment pursuant to Section 262 of the Delaware General
Corporation Law.
Will my rights as a Macrovision stockholder change following the merger?
No. When issued, the shares of Macrovision common stock that the
GLOBEtrotter shareholders will receive will have the same rights and privileges
as the shares of common stock currently authorized and outstanding. Holders of
our common stock have no preemptive rights, and therefore you do not have any
preferential right to purchase any of the additional shares of our common stock
when such shares are issued. The issuance will result in each stockholder owning
a smaller percentage of outstanding shares of Macrovision common stock, but your
rights will remain the same. We believe, on balance, the benefits that the
transaction will provide is important to our success and, accordingly, will
benefit Macrovision and our stockholders. We believe it is in the best interests
of our stockholders to approve Proposals 2, 3 and 4.
How will the merger be treated for accounting purposes?
The merger is intended to qualify as a pooling of interests for
accounting and financial reporting purposes. Accordingly, after the merger, the
assets, liabilities and
39
<PAGE>
shareholder's equity of GLOBEtrotter will be added to the corresponding balance
sheet categories of Macrovision at their recorded book values, subject to any
adjustments required to conform the accounting policies and financial statement
classifications of the two companies. In future financial statements, the
results of operations of Macrovision will include the results of both
GLOBEtrotter and Macrovision for the entire fiscal year in which the merger
occurs and all prior fiscal periods presented. Macrovision must treat certain
expenses incurred to effect the merger as current charges against income rather
than as adjustments to its balance sheet.
How will the merger be treated for federal income tax purposes?
For federal income tax purposes we and GLOBEtrotter intend that (i)
the merger will qualify as a reorganization within the meaning of Section 368 of
the Internal Revenue Code of 1986, as amended; and (ii) none of Macrovision, GSI
Acquisition Corp. or GLOBEtrotter will recognize any gain or loss for federal or
state income tax purposes as a result of the merger.
Who are the GLOBEtrotter shareholders?
GLOBEtrotter has seven shareholders. Matthew Christiano and Sallie
Calhoun, who are husband and wife, and serve as GLOBEtrotter's directors and
officers, own directly and control for themselves and their children through
trusts approximately 98.8% of the outstanding GLOBEtrotter shares. Richard
Mirabella, an employee of GLOBEtrotter, owns the remaining outstanding shares.
Will the shares issued to the GLOBEtrotter shareholders be eligible for listing
or trading on an exchange system?
No. We are not registering any of the shares of common stock that
will be issued in connection with this transaction with the Securities and
Exchange Commission. Therefore, the shares issued in the merger will not be
immediately eligible for listing or trading on the Nasdaq National Market.
However, we are applying under the rules of the California Department of
Corporations to request a fairness hearing. If the Commissioner, during the
fairness hearing, determines that the terms and conditions of the merger are
fair, the shares of our common stock issued to the GLOBEtrotter's shareholders
will be considered exempt securities and eligible for listing on the Nasdaq
National Market. We will list such shares with the Nasdaq Stock Market if we are
successful in obtaining the Commissioner's determination.
Does the merger require the approval of any regulators?
Yes.
Department of Justice and the Federal Trade Commission.
Because of the size and nature of this transaction, we and
GLOBEtrotter filed an application with the Department of Justice and the Federal
Trade Commission under the rules of the Hart-Scott-Rodino Antitrust Improvements
Act. The Department of Justice and the Federal Trade Commission are reviewing
our applications to determine whether the merger will result in a violation of
any antitrust laws and whether the terms of the Agreement and Plan of Merger run
afoul of established anti-competition regulations and policies. If the
Department of Justice and the Federal Trade Commission determine that there are
no antitrust violations or anticompetitive effects, then the merger may proceed,
following a 30-day waiting period.
40
<PAGE>
California Secretary of State.
We also will file an agreement of merger with the Secretary of State
of the State of California for approval. Once the agreement of merger has been
approved by the California Secretary of State, the merger will be officially
completed and effective.
We do not anticipate that any additional regulatory approvals will
be necessary. However, if we later determine that we must seek such additional
approvals, we will seek them as quickly as possible so that we may consummate
the merger. GLOBEtrotter has agreed to cooperate in all regulatory approval
processes.
Has an opinion from a financial advisor been received by either party that the
transaction is fair from a financial point of view?
Yes. Macrovision retained Alliant Partners to render an opinion, as
explained more fully on page 34 under the caption "Opinion of Macrovision's
Financial Advisor."
Have Macrovision and GLOBEtrotter had any significant business dealings with one
another in the past?
No.
SELECTED FINANCIAL DATA.
We are providing the following information to aid you in your
analysis of the financial aspects of the merger. The following tables show
financial results actually achieved by each of Macrovision and GLOBEtrotter (the
"historical" figures). The tables also show results as if the companies had been
combined for the periods presented (the "pro forma combined" figures). Pro forma
combined figures are simply arithmetical combinations of Macrovision's and
GLOBEtrotter's separate financial results; you should not assume that
Macrovision and GLOBEtrotter would have achieved the pro forma combined results
if they actually had been combined during the periods presented.
Macrovision's annual historical figures are derived from financial
statements audited by KPMG LLP, independent auditors of Macrovision. The annual
historical information presented below should be read together with the
consolidated audited financial statements and related notes of Macrovision,
accompanying this document. GLOBEtrotter's annual historical figures for fiscal
year ended December 31, 1999 are derived from financial statements audited by
KPMG LLP, independent auditors of GLOBEtrotter and for the other fiscal years
referenced from financial statements prepared by GLOBEtrotter's management. The
annual historical information presented below should be read with the
consolidated audited and unaudited financial statements and related notes of
GLOBEtrotter that we have attached as Annex H. GLOBEtrotter is a privately held
corporation and, except for the fiscal year ended December 31, 1999, its
financial statements have not been audited.
We expect to incur restructuring and acquisition-related expenses as
a result of the merger. We also anticipate that the merger will provide the
resulting company with financial benefits such as the opportunity to earn
additional revenues and earnings. However, none of these anticipated expenses or
benefits has been factored into the pro forma combined income
41
<PAGE>
statement information. For that reason, the pro forma combined information,
while helpful in illustrating the financial attributes of the resulting company
under one set of assumptions, does not attempt to predict or suggest future
results.
Pooling of Interest Accounting Treatment
The merger is expected to be accounted for as a "pooling of
interests." This means that, for accounting and financial reporting purposes,
the companies will be treated as if they had always been combined. We have
presented unaudited pro forma condensed combined financial information that
reflects the pooling of interests method of accounting to provide a picture of
what the businesses might have looked like had they always been combined. The
pro forma condensed combined statements of income and pro forma condensed
combined statement of financial position were prepared by combining the
historical accounts of each company. The companies may have performed
differently had they always been combined. You should not rely on the unaudited
pro forma condensed combined financial information as being indicative of the
historical results that would have occurred or the future results that will
occur after the merger.
Periods Covered
The following unaudited pro forma condensed combined statement of
financial position as of March 31, 2000, is presented as if the merger had
occurred on March 31, 2000. The unaudited pro forma condensed combined
statements of income for the three months ended March 31, 2000, and for the
years ended December 31, 1999, 1998 and 1997, are presented as if the companies
had always been merged.
42
<PAGE>
Macrovision Corporation
Statement of Income Data
(Unaudited)
(in thousands, except per share data)
<TABLE>
<CAPTION>
Three Months Ended
March 31, Year Ended December 31,
-------------------- -----------------------------------------------------------
2000 1999 1999 1998 1997 1996 1995
------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Net revenues $12,726 $ 7,163 $37,390 $24,434 $20,340 $17,080 $14,189
Operating income from
continuing operations 5,217 2,598 9,588 9,169 5,756 3,318 2,183
Income from continuing
operations 4,376 1,858 7,230 6,342 3,821 1,835 1,056
Net income 4,376 1,858 7,230 6,342 3,821 1,008 931
Net earnings applicable to
common stock 4,376 1,858 7,230 6,342 3,665 421 931
Basic earnings per common
share $ 0.11 $ 0.05 $ 0.20 $ 0.20 $ 0.14
Diluted earnings per share $ 0.11 $ 0.05 $ 0.19 $ 0.19 $ 0.13
</TABLE>
43
<PAGE>
Macrovision Corporation
Balance Sheet Data
(Unaudited)
(in thousands)
<TABLE>
<CAPTION>
Three Months Ended
March 31, As of December 31,
---------------------- ----------------------------------------------------------------
2000 1999 1999 1998 1997 1996 1995
-------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Total assets $282,783 $ 69,544 $127,850 $ 65,494 $ 28,856 $ 11,953 $ 10,943
Convertible note -- -- -- -- -- -- 3,038
Long term obligations, net
of current portion -- -- -- 76 188 296 554
Total stockholders' equity 255,300 61,922 103,060 59,542 23,577 6,072 2,846
</TABLE>
44
<PAGE>
GLOBEtrotter Software, Inc.
Statement of Income Data
(Unaudited)
(in thousands, except per share data)
<TABLE>
<CAPTION>
Three Months Ended
March 31, Year Ended December 31,
-------------------- -------------------------------------------------------
2000 1999 1999 1998 1997 1996 1995
------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Net revenues $ 3,446 $ 3,099 $14,686 $12,238 $10,723 $ 8,163 $ 5,834
Operating income (7,315) 948 5,337 4,198 3,977 2,756 2,043
Net income (7,305) 972 5,257 4,149 3,945 2,719 1,996
Basic earnings per common share ($ 0.90) $ 0.12 $ 0.66 $ 0.52 $ 0.49 $ 0.34 $ 0.25
Diluted earnings per share ($ 0.89) $ 0.12 $ 0.66 $ 0.52 $ 0.49 $ 0.34 $ 0.25
</TABLE>
45
<PAGE>
GLOBEtrotter Software, Inc.
Balance Sheet Data
(Unaudited)
(in thousands)
<TABLE>
<CAPTION>
Three Months Ended
March 31, As of December 31,
-------------------- --------------------------------------------------------
2000 1999 1999 1998 1997 1996 1995
------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Total assets $ 3,899 $ 5,824 $ 4,839 $ 5,424 $ 4,635 $ 4,361 $ 3,617
Total long term
obligations 200 255 200 255 288 -- --
Total stockholders' equity
(deficit) (744) 2,144 (788) 1,278 1,729 2,174 1,969
</TABLE>
46
<PAGE>
Unaudited Pro Forma Combined Statement of Income
(in thousands, except per share data)
Year Ended December 31,
March 31, ----------------------------------
2000 1999 1998 1997
-------- -------- -------- --------
Net revenues $ 16,172 $ 52,076 $ 36,672 $ 31,063
Operating income (2,098) 14,925 13,367 9,733
Net income (3,364) 10,720 9,126 6,261
Basic earnings per
common share $ (0.07) $ 0.24 $ 0.22 $ 0.18
Diluted earnings per share $ (0.07) $ 0.23 $ 0.21 $ 0.17
47
<PAGE>
Unaudited Pro Forma Combined Balance Sheet of Data
(in thousands)
Three Months
Ended
March 31, 2000
--------------
Total assets 286,682
Long term obligations, net of current
portion 200
Total stockholders' equity 254,556
48
<PAGE>
PRO FORMA CONDENSED COMBINED STATEMENT OF FINANCIAL POSITION
March 31, 2000
(Unaudited)
(Amounts in thousands)
<TABLE>
<CAPTION>
Pro Forma Pro Forma
Macrovision Globetrotter Adjustments Combined
----------- ------------ ----------- --------
<S> <C> <C> <C> <C>
ASSETS
Cash and cash equivalents $ 25,156 $ 442 $ 25,598
Short-term investments 106,601 -- 106,601
Accounts receivable, net 13,193 2,386 15,579
Inventories 130 80 210
Prepaid expenses and other assets 5,369 51 5,420
--------- -------- ----------- --------
Total Current Assets 150,449 2,959 153,408
Property and equipment, net 1,647 233 1,880
Patents and other intangibles, net 1,313 707 2,020
Long-term marketable investment
securities 106,697 -- 106,697
Intangibles associated with
acquisition, net 15,888 -- 15,888
Other assets 6,789 -- 6,789
--------- -------- ----------- --------
TOTAL ASSETS $282,783 $ 3,899 $286,682
======== ======== =========== ========
LIABILITIES
Accounts payable $ 1,585 $ 63 $ 1,648
Accrued expenses 3,948 394 4,342
Deferred revenue 4,701 3,948 8,649
Income taxes payable 2,551 4 2,555
Current portion of capital lease
obligations 48 33 81
--------- -------- ----------- --------
Total Current Liabilities 12,833 4,442 17,275
Note payable -- 200 200
Deferred tax liabilities 14,650 -- 14,650
--------- -------- ----------- --------
TOTAL LIABILITIES 27,483 4,642 32,125
STOCKHOLDERS' EQUITY 255,300 (744) 254,556
--------- -------- ----------- --------
TOTAL LIABILITIES STOCKHOLDERS' EQUITY $282,783 $ 3,899 $286,682
======== ======== =========== ========
</TABLE>
----------
See accompanying notes to unaudited pro forma condensed combined financial
information
49
<PAGE>
PRO FORMA CONDENSED COMBINED STATEMENT OF INCOME
Year Ended December 31, 1997
(Unaudited)
(Amounts in thousands, except per share data)
<TABLE>
<CAPTION>
Pro Forma Pro Forma
Macrovision Globetrotter Adjustments Combined
----------- ------------ ----------- --------
<S> <C> <C> <C> <C>
Net revenues $20,340 $10,723 $31,063
Costs and expenses:
Costs of revenues 2,422 271 2,693
Research and development 2,248 1,293 3,541
Selling and marketing 5,765 3,156 8,921
General and administrative 4,149 2,026 6,175
------- ------- -------
Total costs and expenses 14,584 6,746 21,330
------- ------- -------
Operating income 5,756 3,977 9,733
Interest and other income, net 478 2 480
------- ------- -------
Income before income taxes 6,234 3,979 10,213
Income taxes 2,413 34 1,505(g) 3,952
------- ------- -------
Net income $ 3,821 $ 3,945 $ 6,261
======= ======= =======
Basic earnings per share $ 0.15 $ 0.49 $ 0.18
======= ======= =======
Shares used in computing basic earnings
per share 25,904 8,000 835(c) 34,739
======= ======= ===== =======
Diluted earnings per share $ 0.14 $ 0.49 $ 0.17
======= ======= =======
Shares used in computing diluted earnings
per share 27,840 8,000 1,000 36,840
======= ======= ===== =======
</TABLE>
50
<PAGE>
PRO FORMA CONDENSED COMBINED STATEMENT OF INCOME
Year Ended December 31, 1998
(Unaudited)
(Amounts in thousands, except per share data)
<TABLE>
<CAPTION>
Pro Forma Pro Forma
Macrovision Globetrotter Adjustments Combined
----------- ------------ ----------- --------
<S> <C> <C> <C> <C>
Net revenues $24,434 $12,238 $36,672
Costs and expenses:
Costs of revenues 2,081 354 2,435
Research and development 2,578 1,494 4,072
Selling and marketing 5,985 3,489 9,474
General and administrative 4,621 2,703 7,324
------- ------- -------
Total costs and expenses 15,265 8,040 23,305
------- ------- -------
Operating income 9,169 4,198 13,367
Interest and other income, net 1,102 77 1,179
------- ------- -------
Income before income taxes 10,271 4,275 14,546
Income taxes 3,929 126 1,365(g) 5,420
------- ------- -------
Net income $ 6,342 $ 4,149 $ 9,126
======= ======= =======
Basic earnings per share $ 0.20 $ 0.52 $ 0.22
======= ======= =======
Shares used in computing basic earnings
per share 32,016 8,000 835(c) 40,851
======= ======= ===== =======
Diluted earnings per share $ 0.19 $ 0.52 $ 0.21
======= ======= =======
Shares used in computing diluted earnings
per share 34,212 8,000 835 43,047
======= ======= ===== =======
</TABLE>
51
<PAGE>
PRO FORMA CONDENSED COMBINED STATEMENT OF INCOME
Year Ended December 31, 1999
(Unaudited)
(Amounts in thousands, except per share data)
<TABLE>
<CAPTION>
Pro Forma Pro Forma
Macrovision Globetrotter Adjustments Combined
----------- ------------ ----------- --------
<S> <C> <C> <C> <C>
Net revenues $37,390 $14,686 $52,076
Costs and expenses:
Costs of revenues 3,012 338 3,350
Research and development 4,402 1,213 5,615
Selling and marketing 8,973 3,968 12,941
General and administrative 5,529 3,830 9,359
Goodwill amortization 1,600 -- 1,600
In-process research & development 4,286 -- 4,286
------- ------- -------
Total costs and expenses 27,802 9,349 37,151
------- ------- -------
Operating income 9,588 5,337 14,925
Interest and other income, net 1,603 68 1,671
------- ------- -------
Income before income taxes 11,191 5,405 16,596
Income taxes 3,961 68 1,767(g) 5,876
------- ------- -------
Net income $ 7,230 $ 5,257 $10,720
======= ======= =======
Basic earnings per share $ 0.20 $ 0.66 $ 0.24
======= ======= =======
Shares used in computing basic earnings
per share 36,196 8,000 835(c) 45,031
======= ======= ===== =======
Diluted earnings per share $ 0.19 $ 0.66 $ 0.23
======= ======= =======
Shares used in computing diluted earnings
per share 38,262 8,000 835 47,097
======= ======= ===== =======
</TABLE>
52
<PAGE>
PRO FORMA CONDENSED COMBINED STATEMENT OF INCOME
Three Months Ended March 31, 2000
(Unaudited)
(Amounts in thousands, except per share information)
<TABLE>
<CAPTION>
Pro Forma Pro Forma
Macrovision Globetrotter Adjustments Combined
----------- ------------ ----------- --------
<S> <C> <C> <C> <C>
Net revenues $ 12,726 $ 3,446 $ 16,172
Costs and expenses:
Costs of revenues 1,154 103 1,257
Research and development 1,101 458 1,559
Selling and marketing 2,509 784 3,293
General and administrative 2,001 684 2,685
Goodwill amortization 744 -- 744
Deferred compensation amortization -- 8,732 8,732
-------- -------- --------
Total costs and expenses 7,509 10,761 18,270
-------- -------- --------
Operating income 5,217 (7,315) (2,098)
Interest and other income, net 2,004 20 2,024
-------- -------- --------
Income before income taxes 7,221 (7,295) (74)
Income taxes 2,845 10 435(g) 3,290
-------- -------- --------- --------
Net income $ 4,376 $ (7,305) $ (435) $ (3,364)
======== ======== ========= ========
Basic earnings per share $ 0.11 $ (0.90) $ (0.07)
======== ======== ========
Shares used in computing basic earnings
per share 38,784 8,099 846(c) 47,729
======== ======== ========= ========
Diluted earnings per share $ 0.11 $ (0.89) $ (0.07)
======== ======== ========
Shares used in computing diluted earnings
per share 41,418 8,169 853 50,440
======== ======== ========= ========
</TABLE>
53
<PAGE>
Notes to Unaudited Pro Forma Condensed Combined Financial Information
(a) Basis of Presentation
The unaudited pro forma condensed combined statements of income are
based on the condensed consolidated financial statements of Macrovision and
GLOBEtrotter for the three months ended March 31, 2000, the consolidated
financial statements of Macrovision for the years ended December 31, 1999, 1998
and 1997, the consolidated financial statements of GLOBEtrotter for the year
ended December 31, 1999 and the consolidated financial statements of
GLOBEtrotter for the years ended December 31, 1998 and 1997. The unaudited pro
forma condensed combined statement of financial position is based on the
unaudited condensed consolidated financial statements of Macrovision and
GLOBEtrotter at March 31, 2000. In the opinion of Macrovision and GLOBEtrotter
management, all adjustments and disclosures necessary for a fair presentation of
the pro forma data have been made. These unaudited pro forma combined condensed
financial statements are presented for illustrative purposes only and are not
necessarily indicative of the operating results or the financial position that
would have been achieved had the merger been consummated as of the dates
indicated or of the results that may be obtained in the future.
(b) Accounting Policies and Financial Statement Classifications
The accounting policies of Macrovision and GLOBEtrotter are
substantially comparable. Certain revenues, costs and other deductions in the
consolidated statements of earnings of Macrovision and GLOBEtrotter have been
reclassified to conform to the line item presentation in the pro forma condensed
combined statements of income. Certain assets and liabilities in the
consolidated statements of financial position of Macrovision and GLOBEtrotter
have been reclassified to conform to the line item presentation in the pro forma
condensed combined statement of financial position.
(c) Pro Forma Earnings Per Share
The pro forma combined diluted earnings per share is based on net
income and the weighted average number of outstanding common shares, including
the dilutive effect of incentive and non-qualified stock options. The weighted
average number of outstanding common shares has been adjusted to reflect the
exchange ratio of 1.104407 shares of Macrovision common stock for each share of
GLOBEtrotter common stock.
A pro forma adjustment has been made to reflect the assumed issuance
of approximately 8,944,550 shares of Macrovision common stock in exchange for
all of the outstanding GLOBEtrotter common stock (based on the exchange ratio of
1.104407). The actual number of shares of Macrovision common stock to be issued
in connection with the merger will be based on the number of shares of
GLOBEtrotter common stock issued and outstanding at the effective time of the
merger.
Each outstanding GLOBEtrotter option will be converted into an
option with respect to common stock of the combined company, in a manner that
maintains the intrinsic value of the converted option. The number of shares of
common stock of the combined company to which any such converted option will be
converted to equal the number of GLOBEtrotter shares subject to the option
multiplied by 1.104407 (the exchange ratio for
54
<PAGE>
the merger), and the exercise price of such award will be its current exercise
price divided by 1.104407.
(d) Merger-Related Expenses
A one-time charge for direct incremental merger-related transaction
costs will be recorded in the quarter in which the merger is consummated. The
direct incremental merger-related transaction costs consist principally of
charges related to investment banking fees, professional services, registration
and other regulatory costs (estimated to be between $1.6 million and $2.0
million).
(e) Deferred Stock Compensation
GLOBEtrotter granted 783,242 options to certain of its employees in
January 2000 at an exercise price equal to the underlying market value of
GLOBEtrotter common stock as supported by a valuation done in December 1999.
However, because of the chronological proximity of the letter of
intent (March 27, 2000) and the option issuance deferred compensation
amortization has been recorded in the three month-period ended March 31, 2000,
to reflect the amortization of the deferred stock compensation created by the
exchange of GLOBEtrotter options for Macrovision options, which have exercise
prices less than the deemed fair market value on the date of grant.
Macrovision's closing share price on January 25, 2000 of $52.19 was used to
calculate total deferred stock compensation of approximately $38 million. The
amortization of the deferred stock compensation for the three-month period ended
March 31, 2000 was $8.7 million based on the issuance of vested options. The
remaining unamortized deferred compensation will be amortized over the vesting
period of 45 months. Deferred stock compensation, related to incentive stock
options, is not tax deductible.
(f) Integration-Related Expenses
Macrovision and GLOBEtrotter expect to incur pre-tax charges to
operations, currently estimated to be between $1.0 million and $2.0 million, to
reflect costs associated with combining the operations of the two companies.
These costs will be recorded subsequent to consummation of the merger. These
amounts are preliminary estimates and are therefore subject to change.
Additional unanticipated expenses may be incurred in the integration of the
businesses of Macrovision and GLOBEtrotter. Although Macrovision and
GLOBEtrotter expect that the elimination of duplicative expenses as well as the
realization of other efficiencies related to the integration of the businesses
may result in cost savings, no assurance can be given that these benefits will
be achieved in the near term or at all. The unaudited pro forma condensed
combined financial statements reflect neither the impact of these charges nor
the benefit from the expected synergies.
(g) Taxes
A pro forma adjustment has been made to reflect a combined effective
tax rate for the combined company. As GLOBEtrotter elected S corporation status
for federal and state income tax purposes in the presented periods, the
Macrovision tax rate was used on the combined company's income to arrive at a
combined income tax expenses. Deferred stock compensation, related to incentive
stock options, is not tax deductible.
55
<PAGE>
INFORMATION ABOUT GLOBEtrotter SOFTWARE INC.
Description of GLOBEtrotter's Business.
GLOBEtrotter is a significant industry supplier of electronic
licensing and license management technology to software vendors and corporate
customers worldwide. GLOBEtrotter's products span the areas of electronic
software distribution, electronic licensing, license management, software asset
management and the distribution of electronic licenses through distribution
channels. More than 2000 software vendors incorporate GLOBEtrotter's electronic
licensing and license management software in their products, and more than $40
billion of installed third-party software uses GLOBEtrotter technology.
GLOBEtrotter currently does business in Europe through an exclusive
distribution relationship with Productivity through Software, PLC (PtS) and in
Japan through an exclusive relationship with Software Research Associates (SRA).
Macrovision has signed a binding letter agreement to acquire the assets and
employees of PtS which will enable Macrovision to operate GLOBEtrotter's
businesses on a unified basis in North America and Europe. GLOBEtrotter's
agreement with SRA expires on December 31, 2000.
Since 1994, GLOBEtrotter has developed an industry leadership
position as the provider of electronic license delivery and electronic license
management technology to software companies in a wide variety of market
segments, with more than 2,000 software vendor customers worldwide. In addition,
GLOBEtrotter has licensed companion products to over 500 corporate end users
which enable these end users to deploy, manage, and track the software they have
purchased from GLOBEtrotter's software vendor-customers.
FLEXlm
GLOBEtrotter's flagship product, FLEXlm (flexible license manager)
allows independent software vendors to license their products in various ways,
and to monitor usage and enforce compliance with license terms in an
enterprise-wide intranet, or with ASP (Application Service Provider) business
terms. The technology also supports try-before-you-buy, concurrent, and other
licensing models. Once FLEXlm is integrated into a software product, the product
is enabled for delivery across the Internet, as well as through more traditional
media, such as CD. The FLEXlm license server consists of two processes that
together perform the function of granting or refusing license requests based on
the contents of a license file that describes authorized license use within an
organization.
GTlicensing
GTlicensing is a license management tool for software vendors,
allowing vendors to create, ship and track licenses online without direct human
intervention. The system supports multi-tier software distribution, including
the capability for third-party distributors to sell software from participating
vendors and allowing end-users to pick up their licenses across the Internet.
SAMsuite
SAMsuite is GLOBEtrotter's flagship software asset management
product, designed for end-user companies that purchase large amounts of software
from third parties.
56
<PAGE>
SAMsuite captures and analyzes software data, to help organizations maximize
their return on investment, allocate related costs by project, department or
user, as well as administers license servers over global networks. SAMsuite
includes SAMreports, SAMalarms, and SAMStatus.
Description of Patent Litigation.
In November 1997, GLOBEtrotter filed a patent infringement lawsuit
(Case No. C-98-20419-JF/EAI) in the Federal District Court for the Northern
District of California against Elan Computer Group and Ken Greer alleging
infringement of one of its patents and unfair competition and trade practices.
In December 1997, GLOBEtrotter added Wind River Systems, a customer of Elan, to
the patent infringement suit. In March 1998, Rainbow Technologies North America,
Inc. entered into an agreement to purchase certain assets of Elan and entered
into a litigation cooperation agreement with Elan regarding pending GLOBEtrotter
litigation.
Wind River Systems subsequently settled the litigation with
GLOBEtrotter in October 1998. Under the settlement, GLOBEtrotter granted Wind
River a license to GLOBEtrotter's patents, including the Network Licensing
Patent, and Wind River agreed not to use the Elan License Manager in new
versions of all Wind River products. All other settlement terms are protected
and cannot be disclosed as mutually agreed by the parties. Wind River Systems
has since entered into a license agreement with GLOBEtrotter to use FLEXlm.
Rainbow Technologies North America, Inc. and Elan founder Ken Greer
filed separate counterclaims against GLOBEtrotter and Matthew Christiano
alleging antitrust violations, unfair competition, tortious interference of
business relations, and trade libel. Rainbow Technologies North America, Inc. is
seeking $60M in compensatory damages and $80M in punitive damages plus
injunctive relief and disgorgement of profits. Ken Greer is seeking $9M in
compensatory damages and $18M in punitive damages plus injunctive relief and
disgorgement of profits.
The patent infringement case has been bifurcated from the
counterclaims. In October 1999, Judge Fogel granted the motion for partial
summary judgment for non-infringement (claims 55-59) filed by Rainbow
Technologies North America, Inc. based on his claim construction order. In
February 2000, GLOBEtrotter filed an appeal with the federal Court of Appeals
for the Ninth Circuit on the summary judgment of claims 55-59 based on erroneous
claims construction. A trial date for the patent infringement case is scheduled
for April 9, 2001.
Market Price and Stock Dividends.
As of June 19, 2000, there were seven shareholders of record of
GLOBEtrotter common stock. There is no established public trading market for
GLOBEtrotter common stock, therefore a market price for GLOBEtrotter stock
cannot be determined. As of March 31, 2000, the book value of a share of common
stock of GLOBEtrotter was approximately $(.07).
Management's Discussion and Analysis of Financial Condition and Results of
Operations.
The following commentary should be read in conjunction with the
financial statements and related notes contained in Annex H hereto. The
discussion contains forward-looking statements that involve risks and
uncertainties. These statements
57
<PAGE>
relate to future events or our future financial performance. These statements
are only predictions. Actual results may differ materially from those
anticipated in these forward-looking statements as a result of a variety of
factors.
Overview
GLOBEtrotter was formed in 1982. GLOBEtrotter is a supplier of
business-to-business electronic licensing and license management technology to
software vendors and corporate customers worldwide. GLOBEtrotter's products span
the areas of electronic software distribution, electronic licensing, license
management, software asset management and distribution of electronic licenses
through distribution channels. GLOBEtrotter is headquartered in San Jose,
California.
Since inception, GLOBEtrotter has derived the majority of its
revenues and operating income from license management technology to independent
software vendors. Its customers have included those in the fields of systems
software, commercial applications, electronic design, mechanical CAD,
geophysical, manufacturing, telecom, software development and visualization.
License fees have represented a significant portion of its revenues.
GLOBEtrotter's expects that its license fees will generate a substantial part of
its net revenues and operating income at least through 2001. The major portion
of license fees are generated from developer products that allow customers to
enable their ultimate customers to manage compliance with the specific license
terms and conditions of their products. Additional license fees are generated
from GLOBEtrotter's end-user products. GLOBEtrotter also sells support and
upgrades for all of its products. GLOBEtrotter's other revenues are derived from
hardware, training and consulting.
GLOBEtrotter's cost of revenues consists primarily of hardware
purchase costs. GLOBEtrotter's research and development expenses are comprised
primarily of employee compensation and benefits, consulting fees and computer
hardware costs. GLOBEtrotter's selling and marketing expenses are comprised
primarily of employee compensation and benefits and advertising costs.
GLOBEtrotter's general and administrative expenses are comprised primarily of
employee compensation and benefits, facilities costs and the costs of
GLOBEtrotter's ongoing patent litigation with Rainbow Technologies North
America, Inc. and Elan Computer Group.
58
<PAGE>
Results of Operations
The following table sets forth selected consolidated statements of
income data expressed as a percentage of net revenues for the periods indicated:
<TABLE>
<CAPTION>
Year ended December 31, Three months ended March 31,
----------------------------- ---------------------------
1997 1998 1999 1999 2000
----- ----- ----- ------- ------
<S> <C> <C> <C> <C> <C>
Net revenues ..................... 100.0% 100.0% 100.0% 100.0% 100.0%
Costs and expenses:
Cost of revenues ............ 2.5% 2.9% 2.3% 2.4% 3.0%
Research and development .... 12.1% 12.2% 8.3% 10.5% 13.3%
Selling and marketing ....... 29.4% 28.5% 27.0% 29.9% 22.8%
General and administrative .. 18.9% 22.1 % 26.1% 25.4% 19.8%
Stock-based compensation .... 0% 0% 0% 0% 253.4%
----- ----- ----- ----- -----
Total costs and expenses .. 62.9% 65.7% 63.7% 68.1% 312.3%
Operating income .......... 37.1% 34.3% 36.3% 31.9% (212.3)%
Interest and other income, net ... 0.0% 0.6% 0.5% 0.6% 0.6%
Income before income taxes 37.1% 34.9% 36.8% 32.5% (211.7)%
Income taxes ..................... 0.3% 1.0% 1.0% 1.2% 0.3%
----- ----- ----- ----- -----
Net income ................ 36.8% 33.9% 35.8% 31.3% (212.0)%
===== ===== ===== ===== =====
</TABLE>
Three Months Ended March 31, 2000 and 1999
The following table provides revenue information by specific product
segments for the periods indicated (dollars in thousands):
Three months ended
March 31,
-------------------- $ %
1999 2000 Change Change
------ ------ ------ ------
License Fees $1,543 $1,409 $ (134) (8.7)%
Maintenance Fees 1,253 1,658 405 32.3%
Other 303 379 76 25.1%
------ ------ ------
Total $3,099 $3,446 $ 347 11.2%
====== ====== ======
Net Revenues. GLOBEtrotter's net revenues for the first three months
of 2000 increased 11.2% from $3.1 million in the first three months of 1999 to
$3.4 million in 2000. Revenues from license fees decreased $134,000 from $1.5
million in 1999 to $1.4 million in 2000 primarily due to a change in licensing
terms in certain contracts, wherein revenue is recognized ratably over the term
of the contract rather than up front. Maintenance revenue increased $405,000 or
32.3% from $1.3 million in 1999 to $1.7 million in 2000 due to the increase in
customer base. Other revenue increased from $303,000 to $379,000 or 25.1%,
primarily due to an increase in hardware and consulting revenues.
59
<PAGE>
GLOBEtrotter's international revenues as a percentage of net
revenues decreased from 29.3% for the three months ended March 31, 1999 to 28.5%
for the three months ended March 31, 2000. GLOBEtrotter has agreements with
software manufacturers representatives in both the United Kingdom and Japan. The
sales from these two representatives make up the majority of GLOBEtrotter's
international revenue. GLOBEtrotter expects that international revenues will
continue to represent a significant portion of its net revenues.
Cost of Revenues. Cost of revenues as a percentage of net revenues
increased from 2.4% for the first three months of 1999 to 3.0% for the first
three months of 2000. This increase was primarily due to the higher cost
associated with increased hardware shipments as a percentage of total net
revenues.
Research and Development. Research and development expenses
increased by $132,000 or 40.5% from $326,000 for the first three months of 1999
to $458,000 for the first three months of 2000. The increased expenses were a
result of additional headcount to develop new products. Research and development
expenses increased as a percentage of net revenues from 10.5% for the first
three months of 1999 to 13.3% for the first three months of 2000. GLOBEtrotter
believes that research and development expenses will increase as a dollar amount
in the future as GLOBEtrotter adds additional personnel to develop additional
products.
Selling and Marketing. Selling and marketing expenses decreased by
$142,000 or 15.3% from $926,000 for the first three months of 1999 to $784,000
for the first three months of 2000. This decrease was primarily due to a change
in GLOBEtrotter's benefits eliminating GLOBEtrotter's pension plan and replacing
it with a stock option plan, thus eliminating our pension contribution expenses.
Selling and marketing expenses decreased as a percentage of net revenues from
29.9% for the first three months of 1999 to 22.8% for the first three months of
2000. Selling and marketing expenses are expected to increase over the prior
year periods as GLOBEtrotter continues to expand its customer base and increase
market penetration.
General and Administrative. General and administrative expenses
decreased by $101,000 or 13.0% from $785,000 for the first three months of 1999
to $684,000 for the first three months of 2000, primarily due to a change in
GLOBEtrotter's benefits eliminating GLOBEtrotter's pension plan and replacing it
with a stock option plan, thus eliminating pension contribution expenses.
General and administrative expenses declined as a percentage of net revenues
from 25.4% for the first three months of 1999 to 19.8% for the first three
months of 2000. General and administrative expenses are expected to increase as
a dollar amount in the future as GLOBEtrotter adds additional personnel to
support growth of GLOBEtrotter.
Stock-Based Compensation. GLOBEtrotter granted 783,742 options to
certain of its employees in January 2000 at an exercise price equal to the
underlying market value of GLOBEtrotter common stock as supported by a valuation
done in December 1999. However, because of the chronological proximity of the
letter of intent with Macrovision (March 27, 2000) and the option issuance (i.e.
January 25, 2000), deferred compensation amortization has been recorded in the
three month period ended March 31, 2000, to reflect the amortization of the
deferred stock compensation created by the exchange of GLOBEtrotter options for
Macrovision options, which have exercise prices less than the deemed fair market
value on the date of grant. Macrovision's closing share price on January 25,
2000 (the date of the option grant) of $52.19 was used to calculate total
deferred stock compensation of approximately $38.0 million. The amortization of
the deferred stock compensation for the three month period ended March 31, 2000
was $8.7 million based on the issuance of vested options. The expense associated
with the
60
<PAGE>
stock based compensation award more than offsets all pension contribution
expense swings described above and will continue to result in substantial
non-cash compensation charges to future earnings.
Interest and Other Income. Other income increased $1,000 or 5.3%
from $19,000 for the first three months of 1999 to $20,000 for the first three
months of 2000, primarily from interest income from an employee note receivable.
Tax Expense. Income tax expense decreased $26,000 or 72.2% from
$36,000 for the first three months of 1999 to $10,000 for the first three months
of 2000. GLOBEtrotter has elected S Corporation status for federal and state
income tax purposes. Federal and state income tax on the earnings of an S
Corporation are payable by the individual shareholders rather than the
corporation with the exception of a state franchise tax.
Net Income. Net loss for the first three months of 2000 was $7.3
million compared to income of $972,000 for the first three months of 1999.
Years Ended December 31, 1997, 1998 and 1999
The following table provides revenue information by general product
lines for the periods indicated (dollars in thousands):
Comparison of Years Ended December 31, 1997 and 1998
Year ended December 31,
----------------------- $ %
1997 1998 Change Change
------- ------- ------- ------
License Fees $ 6,252 $ 6,530 $ 278 4.4%
Maintenance Fees 3,717 4,427 710 19.1%
Other 754 1,281 527 69.9%
------- ------- -------
Total $10,723 $12,238 $ 1,515 14.1%
======= ======= =======
Comparison of Years Ended December 31, 1998 and 1999
Year ended December 31,
----------------------- $ %
1998 1999 Change Change
------- ------- ------- ------
License Fees $ 6,530 $ 8,094 $ 1,564 24.0%
Maintenance Fees 4,427 5,295 868 19.6%
Other 1,281 1,297 16 1.2%
------- ------- -------
Total $12,238 $14,686 $ 2,448 20.0%
======= ======= =======
Net Revenues. Our net revenues increased 14.1% from $10.7 million in
1997 to $12.2 million in 1998 and an additional 20.0% to $14.7 million in 1999.
The increase from 1997
61
<PAGE>
to 1998 was principally the result of increased maintenance and hardware sales.
The increase from 1998 to 1999 was primarily the result of increased license and
maintenance fees.
In 1997, 1998 and 1999, GLOBEtrotter's international revenues
totaled $2.6 million, $3.4 million and $4.3 million, respectively, representing
24.1%, 28.4% and 29.2%, respectively, of our net revenues for the periods.
International and export revenues grew primarily as a result of increased sales
in the United Kingdom and Europe. GLOBEtrotter has agreements with software
manufacturers representatives in both the United Kingdom and Japan. The sales
from these two representatives make up the majority of GLOBEtrotter's
international revenue.
Cost of Revenues. Cost of revenues as a percentage of net revenues
was 2.5% in 1997, 2.9% in 1998 and 2.3% in 1999. Cost of revenues consists
primarily of hardware purchase costs.
Research and Development. Research and development expenses were
$1.3 million, $1.5 million and $1.2 million, which represented 12.1%, 12.2% and
8.3% of net revenues in 1997, 1998 and 1999, respectively. The increase from
1997 to 1998 was primarily due to the hiring of additional employees to develop
new products. The decrease from 1998 to 1999 is primarily due to reduced
headcount as a result of the transfer of employees to the consulting division.
Selling and Marketing. Selling and marketing expenses were $3.2
million, $3.5 million and $4.0 million, which represented 29.4%, 28.5% and 27.0%
of net revenues in 1997, 1998 and 1999, respectively. Selling and marketing
expenses increased in 1997, 1998 and 1999, primarily due to the hiring of
additional employees, and increased advertising and marketing costs.
General and Administrative. General and administrative expenses were
$2.0 million, $2.7 million and $3.8 million, which represented 18.9%, 22.1% and
26.1% of net revenues in 1997, 1998 and 1999, respectively. General and
administrative expenses increased in 1998 and 1999 primarily due to the hiring
of additional employees, the transfer of existing employees and the expenses
related to the ongoing patent litigation with Rainbow Technologies and Elan
Computer Group.
Interest and Other Income, Net. Other income was $2,000, $77,000 and
$68,000 in 1997, 1998 and 1999, respectively.
Tax Expense. Income tax expense was $34,000, $126,000 and $148,000
for 1997, 1998 and 1999, respectively. GLOBEtrotter elected S Corporation status
for federal and state income tax purposes. Federal and state income tax on the
earnings of an S Corporation are payable by the individual shareholders rather
than the corporation with the exception of a state franchise tax.
Net Income. Net income for 1997 was $3.9 million, $4.1 million in
1998 and $5.3 million in 1999.
62
<PAGE>
Liquidity and Capital Resources
GLOBEtrotter has financed its operations primarily from cash
generated by operations, principally by license fees generated from its FLEXlm
product line. GLOBEtrotter's operating activities provided net cash of $4.7
million, $4.6 million, $6.8 million and $993,000 in 1997, 1998, 1999 and the
first three months of 2000, respectively. In each of these periods, net cash was
provided primarily by net income, increases in accounts payable, accrued
liabilities and deferred revenue and depreciation and amortization.
Investing activities used net cash of $424,000, $120,000 $109,000
and $84,000 in 1997, 1998, 1999 and the first three months of 2000,
respectively. In 1997, cash was used to purchase an intangible asset and acquire
property and equipment. In 1998, 1999 and the first three months of 2000, cash
used in investing activities was used to acquire property and equipment.
Financing activities used net cash of $4.1 million, $4.6 million,
$7.4 million and $861,000 in 1997, 1998, 1999 and the first three months of
2000, respectively. In 1997, 1998, 1999, and the first three months of 2000, the
cash used in financing was primarily to pay cash dividends to the shareholders
of the S Corporation.
Quantitative and Qualitative Disclosures About Market Risk
The Company's operations are not subject to risks of material
foreign currency fluctuations, nor do we use derivative financial instruments in
our investment practices. The Company invests in instruments that meet high
credit quality standards, as specified in its investment policy guidelines. No
material losses are expected with respect to the investment portfolio or
exposure to market risks associated with interest rates.
RECOMMENDATION OF THE BOARD OF DIRECTORS
We believe that the proposed merger will create a company well
positioned to create comprehensive copy protection, electronic license
management, and digital rights management solutions for content owners, software
vendors and other proprietary rights holders. We believe the combined company
will have an effective business model and cost structure, a strong management
and development team, a broad and expanding customer base, extensive
intellectual property portfolio, and well-branded products, which we believe can
create value for stockholders.
Further, we have determined that the merger may provide the combined
company with the following benefits:
o Joining the two companies will enable Macrovision to develop
more comprehensive digital rights management solutions for
software vendors and other content owners.
o Joining the two companies should leverage GLOBEtrotter's
FLEXlm business-to-business electronic licensing business with
Macrovision's SafeDisc and SafeCast copy protection and
digital rights management solutions.
63
<PAGE>
o Joining the two companies will permit Macrovision to expand
its customer base and industry relationships.
o Joining the two companies should result in increased economies
of scale in marketing, sales, and research and development.
In its evaluation of the merger, the board of directors reviewed
several factors, including, but not limited to, the following:
o historical information concerning GLOBEtrotter's and
Macrovision's respective businesses, prospects, financial
performance and condition, operations, technology, management
and competitive position;
o Macrovision's management's view of the financial condition,
results of operations and businesses of GLOBEtrotter and
Macrovision before and after giving effect to the merger;
o the belief that the terms of the merger agreement, including
the parties' representations, warranties and covenants, and
the conditions to their respective obligations, are
reasonable;
o financial analysis and pro forma and other information with
respect to the companies;
o reports from management, and third party professional market
research, legal, accounting, and financial advisors as to the
results of the due diligence investigation of GLOBEtrotter;
and
o the expectation that the merger is expected to be accounted
for as a "pooling of interests."
The board of directors also identified and considered a number of
potentially negative factors in its deliberations concerning the merger
including the following:
o the risk that the potential benefits sought in the merger
might not be fully realized;
o the possibility that the merger might not be consummated and
the effect of public announcement of the merger on
Macrovision;
o the substantial charges to be incurred in connection with the
merger, including costs of integrating the businesses and
transaction expenses arising from the merger;
o the risk that despite the efforts of the combined company, key
technical and management personnel might not remain employed
by the combined company; and
o other applicable risks described in this proxy statement.
64
<PAGE>
The board of directors concluded, however, that, on balance, the
potential benefits of the merger outweighed the risks associated with the
merger.
The discussion of the information and factors considered by the
board of directors is not intended to be exhaustive, but is believed to include
all of the material factors considered by the board of directors. In view of the
variety of factors considered in connection with its evaluation of the merger,
the board of directors did not find it practicable to, and did not, quantify or
otherwise assign relative weight to, the specific factors considered in reaching
its determination. In addition, the board of directors did not reach any
specific conclusion on each factor considered, or any aspect of any particular
factor, but conducted an overall analysis of these factors. Individual members
of the board of directors may have given different weight to different factors.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE "FOR" THE APPROVAL
OF PROPOSAL 3.
65
<PAGE>
PROPOSAL 4:
ADOPTION OF 2000 EQUITY INCENTIVE PLAN
General.
Stock options are a key component of compensation in the extremely
competitive Silicon Valley employment environment. The Company's employees and
executives are targets for competitors seeking talented employees. Granting
stock options on an ongoing basis provides officers with a strong economic
interest in maximizing stock price appreciation over the longer term. The
Company believes that the practice of granting stock options is critical to
retaining and recruiting the key talent necessary at all employee levels to
ensure the Company's continued success. Our existing stock option pool is almost
depleted and to complete the merger which contemplates converting options for
approximately 688,284 shares of GLOBEtrotter into common stock options to
purchase approximately 760,146 shares of our common stock, we need additional
option availability. We are submitting a new equity incentive plan for your
approval.
On June 16, 2000, our board of directors adopted, subject to your
approval, the Macrovision Corporation 2000 Equity Incentive Plan as part of a
continuing program to attract, retain and motivate its employees, directors and
consultants and because shares available under the 1996 Equity Incentive Plan
are nearly depleted. The board of directors believes that the 2000 Equity
Incentive Plan will provide a continued incentive for employees, directors,
consultants and independent contractors to contribute to the continued
profitability and success of Macrovision and its subsidiaries and will increase
these individuals' financial stake in Macrovision. In addition, the 2000 Equity
Incentive Plan will underscore eligible participants' common interest with our
stockholders in increasing the value of Macrovision over the long term. We have
attached a copy of the 2000 Equity Incentive Plan to this Proxy Statement as
Annex D. The plan administrator for the 2000 Equity Incentive Plan has the
authority to adopt rules for the administration of the 2000 Equity Incentive
Plan or subparts of it. Pursuant to such authority, the board of directors has
adopted a set of rules that are applicable to specified stock options granted to
employees situated in the United Kingdom. These rules have been approved by
Inland Revenue and establish an approved share option plan as a subplan of the
2000 Equity Incentive Plan. Stock options granted to employees in the United
Kingdom that meet the additional requirements set forth in these approved rules
receive favorable tax treatment in the United Kingdom.
Who is eligible to participate in the 2000 Equity Incentive Plan?
The 2000 Equity Incentive Plan authorizes the granting of stock
options and other stock awards to employees, non-employee directors, consultants
and other independent contractors of Macrovision and its subsidiary companies.
If we consummate the acquisition of GLOBEtrotter or any other company, the board
of directors or an authorized committee may authorize the issuance of options
and other stock awarded to individuals performing services for GLOBEtrotter or
another acquired entity in substitution of options previously granted to those
individuals in connection with their performance and service for GLOBEtrotter or
another acquired entity.
66
<PAGE>
How many shares may be granted to individual employees and how many shares will
be available in total under the 2000 Equity Incentive Plan?
If we consummate the merger with GLOBEtrotter, then the total number
of shares of Macrovision common stock for which options and other stock awards
may be granted under the 2000 Equity Incentive Plan shall be 4,500,000, and the
maximum number of stock options that Macrovision may grant to any individual in
any calendar year shall be 500,000, in each case subject to adjustment as
described below. If we do not consummate the merger with GLOBEtrotter, then the
total number of shares of Macrovision common stock for which options and other
stock awards may be granted under the 2000 Equity Incentive Plan shall be
3,000,000, and the maximum number of stock options that Macrovision may grant to
any individual in any calendar year shall be 500,000, in each case subject to
adjustment as described below.
The shares available for issuance under the 2000 Equity Incentive
Plan may be authorized but unissued shares of common stock or shares of common
stock that we reacquire. If any shares subject to option expire or are forfeited
or canceled, those shares will be added back to the total number of shares
available for issuance under the 2000 Equity Incentive Plan.
Who will administer the 2000 Equity Incentive Plan?
The 2000 Equity Incentive Plan will be administered by the board of
directors or a designated committee of the board of directors composed of two or
more non-employee directors. The administrator shall determine who will receive
options, the date of grants of options and the terms and provisions of each
option grant (which need not be identical).
What will the option exercise price be?
An option's exercise price will depend on the type of option
granted. Options granted to employees and qualifying as incentive stock options
for possible long-term capital gains treatment on sale of the stock under
Section 422 of the Internal Revenue Code shall be at a purchase price not less
than 100% of the fair market value of Macrovision common stock on the date of
grant. Therefore, the amount of compensation with respect to these types of
options is determined by an increase in value of Macrovision common stock after
the date of grant of the option. If such a qualifying option is granted to any
employee owning greater than 10% of our outstanding common stock, then the
exercise price for that employee shall be not less than 110% of the fair market
value of our common stock on the date of grant.
Options granted to nonemployees or not otherwise meeting the
requirements of Section 422 of the Internal Revenue Code shall be at a purchase
price not less than 85% of the fair market value of Macrovision common stock on
the date of grant.
What are the "other stock awards"?
The 2000 Equity Incentive Plan authorizes the plan administrator to
grant stock appreciation rights in connection with all or a part of any stock
option. A stock appreciation right entitles its holder, at the time the right is
exercised, to receive an amount equal to the excess of fair market value of a
share of our common stock at the date of exercise over the price of the award
previously specified by the administrator, multiplied by the number of shares as
to which the holder is exercising the award. Macrovision has not granted stock
appreciation rights in the past. Macrovision may pay this award amount in shares
of common stock (valued at fair market
67
<PAGE>
value on the date of exercise), in cash, or in a combination of both. To the
extent a stock appreciation right is cancelled, any related stock option will
also be cancelled and, to the extent that a related stock option is cancelled,
the stock appreciation right will also be cancelled.
The 2000 Equity Incentive Plan also allows for the issuance of
restricted stock awards, which entitle recipients to acquire shares of stock
subject to such restrictions and conditions as the plan administrator may
provide. Restricted stock awards shall be limited to a total of 100,000 shares
of stock.
How can options be exercised?
Options may be exercised in whole or in part by cash or such other
form of consideration as the Company shall determine, such as the surrender of
outstanding shares of common stock or withholding shares that would otherwise be
issued upon exercise of the option.
Each option agreement will set forth when and under what terms an
option may be exercised. The board of directors or the committee that
administers the 2000 Equity Incentive Plan may accelerate the exercisability of
all or any portion of an option at any time.
Can the options or other awards be transferred?
An optionee cannot transfer an option or other award otherwise than
by will or by the laws of descent and distribution and all stock options and
other awards shall be exercisable, during the optionee's lifetime, only by the
optionee, except that nonstatutory options can be transferred under certain
circumstances to family members or family trusts established by an optionee for
estate planning purposes.
When do the options terminate?
Except to the extent the terms of an option agreement require its
prior termination, each option shall terminate ten years from the date on which
the option is granted (in the case of incentive stock options) or five years in
the case of an incentive stock option granted to a holder of 10% or more of our
common stock.
If Macrovision terminates someone for cause, such option shall
immediately terminate unless the board of directors or other plan administrator
provides that the option may be exercisable after the date of termination, but
in no case may the option be exercised for more than 30 days after such
termination.
If someone dies or becomes disabled, while holding a stock option,
the stock option may be exercised by the legal representative of the optionee,
or the optionee himself, as the case may be, for a period of 12 months from the
date of death or disability, but no later than the expiration of the option.
Any option held by an optionee who retires in accordance with the
terms of the 2000 Equity Incentive Plan, may exercise the option for a period of
12 months (or such other period as the board of directors or other plan
administrator shall specify) from the date of such retirement, but not later
than the expiration of the stated term of the option, if earlier.
68
<PAGE>
If an optionee's employment terminates for any reason other than
death, disability, retirement or cause, the optionee may exercise the option, to
the extent it was exercisable at the time of termination, for three months, or
such other period not to exceed 60 months, as the board of directors or other
plan administrator shall determine, from the date of termination, but not later
than the stated term of the option.
What benefits will directors, executive officers and others receive under the
2000 Equity Incentive Plan?
Stock options and other stock awards which may be provided under the
2000 Equity Incentive Plan to our directors, executive officers and others will
be determined prospectively by our compensation committee.
What happens if Macrovision declares a stock split or stock dividend?
In the event of a stock split, stock dividend, recapitalization,
reorganization, merger, consolidation, split-up, combination, exchange, or
similar change affecting common stock, Macrovision will make an appropriate
adjustment in the number and kind of shares covered by each outstanding option
or other award, the aggregate number and/or kind of shares for which options or
other awards may be granted under the 2000 Equity Incentive Plan, and the
exercise price per share in respect of each outstanding option or other award.
What happens if Macrovision decides to enter into a merger or decides to
dissolve?
In the event of a dissolution or liquidation of Macrovision or a
merger of Macrovision with and into another entity, or a sale of all or
substantially all of the assets of Macrovision, the board of directors or other
plan administrator will notify each optionee and each optionee will have the
right to exercise all of his or her options, regardless of their vesting
schedule. Upon the occurrence of a merger, dissolution or sale, the 2000 Equity
Incentive Plan and any option or other award or portion thereof not exercised
will terminate unless the 2000 Equity Incentive Plan and the options and other
awards thereunder are assumed by the surviving corporation or new options or
other awards in the successor corporation are substituted for the Macrovision
options or other awards.
What are the federal income tax consequences with respect to stock options?
Incentive Stock Options.
An optionee will not realize taxable income and Macrovision will not
receive any deduction at the time of a grant or exercise of incentive stock
options. Any gain or loss realized upon the disposition of the shares acquired
by optionees upon the exercise of incentive stock options after two years from
the date of grant or after one year from the date of exercise will be treated as
long-term capital gain or loss. For purposes of the alternative minimum tax
only, the excess of the fair market value of the shares at the time of exercise
of incentive options over the option price will be treated as additional income
unless such shares are disposed of in the year of exercise.
If the shares received upon exercise of an incentive stock option
are disposed of prior to the end of the applicable holding periods, the
difference between (a) the lesser of the fair
69
<PAGE>
market value of the shares on the date of exercise or the price received upon
disposition of the shares and (b) the exercise price will be taxable to the
optionee as ordinary income in the year in which such disposition occurs, and
Macrovision will be entitled to a deduction in the amount of such ordinary
income recognized by the optionee. Any further gain or loss upon disposition
will be treated as short-term or long-term capital gain or loss depending on the
holding period of the shares.
To the extent that the aggregate option price of an optionee's
incentive options which become exercisable in any year exceeds $100,000, such
options will be treated as non-qualified options. If incentive options are
exercised more than three months after the optionee's employment with
Macrovision has ended, the incentive options will be treated as non-qualified
options.
Non-qualified Options.
An optionee will not recognize taxable income and Macrovision will
not receive any deduction at the time of a grant of non-qualified options. Upon
the exercise of non-qualified options, the excess of the fair market value on
the date of exercise of the shares received over the exercise price for such
shares will be taxable to the optionee as ordinary income, and Macrovision may
be entitled to a deduction, subject to applicable withholding and regulatory
requirements, at that time for the amount of such ordinary income recognized by
the optionee. The subsequent sale of such shares by the optionee will generate
short-term or long-term capital gain or loss, as the case may be, in an amount
equal to the difference between the amount realized on such sale and the fair
market value of the shares at the time of exercise.
If options are exercised with Macrovision's common stock previously
owned by the optionee, such exercise will not be considered a taxable
disposition of the previously owned stock, unless such stock was itself received
on an exercise of incentive options and the relevant holding periods for the
exchanged stock have not been satisfied, and no gain or loss will be recognized
with respect to such stock upon such exercise. If additional shares are received
by the optionee, the excess of the fair market value of all of the shares
received over the sum of the fair market value of all of the shares surrendered
and any cash payment made by the optionee upon exercise will be taxable as
ordinary income to the optionee and may be deductible by us.
Stock Appreciation Rights
No income will be recognized by a recipient in connection with the
grant of a stock appreciation right. When a stock appreciation right is
exercised, the recipient generally will be required to include as taxable
ordinary income in the year of exercise an amount equal to the amount of cash
received and the fair market value of any common stock received on the exercise.
In the case of a recipient who is also an employee, any income recognized upon
exercise of a stock appreciation right will constitute wages for which
withholding will be required. Macrovision will be entitled to a tax deduction in
the same amount. If the optionee receives common stock upon the exercise of a
stock appreciation right, any gain or loss on the sale of such stock will be
treated in the same manner as described above under "Non-qualified Options."
70
<PAGE>
Restricted Stock
Generally, no income will be recognized by a recipient in connection
with the grant of restricted stock, unless an election under Section 83(b) of
the Internal Revenue Code is filed with the Internal Revenue Service within 30
days of the date of grant. Otherwise, at the time the restricted stock vests,
the recipient will generally recognize compensation income in an amount equal to
the fair market value of the award at the time of vesting. Generally, the
recipient will be subject to the tax consequences discussed above under
"Non-qualified Options." In the case of a recipient who is also an employee, the
amount included in income will constitute wages for which withholding will be
required. Macrovision will be entitled to a tax deduction in the same amount.
Special Rules Applicable to Corporate Insiders and Restricted Stock Purchasers.
Generally, individuals subject to Section 16(b) of the Exchange Act
and individuals who purchase restricted stock may have their recognition of
compensation income and the beginning of their capital gains holding period
deferred for up to six months after option exercise (for insiders), or until the
restrictions lapse (for restricted stock purchasers), with the excess of the
fair market value of the stock determined as of such date over the purchase
price being taxed as ordinary income, and the tax holding period for any
subsequent gain or loss beginning on the deferral date. However, an insider or
restricted stock purchaser who so elects under Section 83(b) of the Code on a
timely basis may instead be taxed on the difference between the excess of the
fair market value on the date of transfer over the purchase price, with the tax
holding period beginning on such date. Similar rules apply for alternative
minimum tax purposes with respect to the exercise of an incentive stock option
by an insider.
Capital Gains.
Generally, under law in effect as of January 1, 2000, net capital
gain (net long-term capital gain minus net short-term capital loss) is taxed at
a maximum federal income tax rate of 20%. Capital losses are allowed in full
against capital gains plus up to $3,000 per year of other income.
When can the Board of Directors terminate or amend the 2000 Equity Incentive
Plan?
The board of directors may, at any time, amend or discontinue the
2000 Equity Incentive Plan, and the board of directors or other administrator of
the 2000 Equity Incentive Plan may amend or cancel any option for any lawful
purpose, but no action can adversely affect the rights under any outstanding
option without obtaining the optionee's consent.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE "FOR" THE APPROVAL OF
PROPOSAL 4.
71
<PAGE>
PROPOSAL 5:
AMENDMENT TO THE 1996 DIRECTORS OPTION PLAN
General.
The 1996 Directors Option Plan was approved by the board of
directors on December 3, 1996 and by our stockholders on February 25, 1997. On
April 28, 2000, the Board adopted an amendment that will:
o decrease the number of shares that will be granted to
non-employee directors annually from 30,000 to 10,000, vesting
monthly over one year instead of three years;
o increase in the number of shares of common stock reserved for
issuance under the 1996 Directors Option Plan by 126,000
shares; and
o eliminate the provisions in the plan that provide for
automatic adjustments in future option grants when we have
changes in our capital due to stock splits and dividends.
We seek your approval of the increase in the number of shares of
common stock reserved for issuance under the 1996 Directors Option Plan by
126,000 shares.
Why have you decreased the number of options that non-employee directors receive
annually?
At the time of its adoption, the 1996 Directors Option Plan provided
that all non-employee directors would receive a grant of options to purchase
5,400 shares of common stock annually throughout the term of the plan, subject
to adjustments upon changes in our capital structure. As a result of a
nine-for-five reverse stock split in February 1997, that grant to our
non-employee directors was reduced to 3,000 options to purchase shares of our
common stock annually.
On April 23, 1999, the board of directors approved an increase to
the annual grant, so that our non-employee directors would thereafter receive
options to purchase 7,500 shares of our common stock annually. The board's
decision did not require stockholder approval.
In August 1999, we declared a two-for-one stock split, and in March
2000 we again declared a two-for-one stock split, which, in accordance with the
adjustment provisions in Section 9 of the plan, resulted in increasing the grant
to non-employee directors of options to purchase 30,000 shares of our common
stock annually.
We believe that it is appropriate to reduce the annual grant to our
three non-employee directors to options to purchase 10,000 shares of common
stock with vesting over one year instead of three years. The reduction in the
number of shares will make such grants more consistent with awards made to our
management. The change in the vesting schedule will lessen the impact of the
reduction in the number of shares.
72
<PAGE>
Even if Proposal 5 is not approved, the reduced grant will at least
allow our three current non-employee directors to each receive a grant of
options to purchase 10,000 shares of our common stock in the coming year from
the 34,000 shares that currently remain reserved under the 1996 Directors Option
Plan. If we did not reduce the grant amount, we could not issue the prescribed
options to our non-employee directors under the 1996 Directors Option Plan this
year.
Why did you eliminate the automatic adjustment of future option grants?
The board of directors approved eliminating provisions from the 1996
Directors Option Plan that automatically adjusted future initial and annual
stock option grants upon the occurrence of stock splits and similar events. The
board of directors determined that the fixed numbers of shares subject to
options to be granted under the 1996 Directors Option Plan at future dates
should not automatically increase as a result of such events, but rather should
remain at the currently set levels unless and until the board of directors
specifically determines, at the time of the event, that adjustment is
appropriate.
Why do you need to increase the shares reserved for issuance?
At the time of its adoption, the 1996 Directors Option Plan reserved
108,000 shares of common stock for issuance under the plan. Subsequently, as
discussed above, our common stock has undergone the following changes in
capital:
o a nine-for-five reverse stock split in February 1997;
o a two-for-one stock split in August 1999; and
o a two-for-one stock split in March 2000.
In accordance with the provisions for adjustment set forth in
Section 9 of the 1996 Directors Option Plan, these stock splits had the net
effect of increasing the 108,000 shares initially reserved for issuance to
240,000 shares.
As of June 16, 2000, of the 240,000 shares initially reserved for
issuance, as adjusted, only 34,000 remained available for future grants to our
non-employee directors.
We believe that to attract, retain and motivate our non-employee
directors, the number of shares available for issuance under the 1996 Directors
Option Plan must be increased.
While we recognize the possible dilutive effect on our stockholders,
we believe, on balance, the incentive that is provided by the opportunity to
participate in the growth and earnings of Macrovision through the granting of
awards to acquire our common stock is important to our success and, accordingly,
will benefit Macrovision and our stockholders. We believe it is in the best
interests of our stockholders to approve this amendment to the 1996 Directors
Option Plan. If the proposal is not approved by the stockholders, the 1996
Directors Option Plan will continue with only 34,000 shares of common stock
reserved for future grants thereunder.
73
<PAGE>
We have provided below the proposed amendment that replaces Section
5(a) of the 1996 Directors Option Plan. In addition, we have summarized below
certain key provisions of the 1996 Directors Option Plan and have also included,
for your review, the full text of the amended 1996 Directors Option Plan as
Annex E.
If you approve this proposal, the additional awards available under
the 1996 Directors Option Plan will be subject to the same terms and provisions
that are currently in the 1996 Directors Option Plan, except that Section 9 will
be modified as set forth in the Amended 1996 Directors Option Plan included as
Annex E.
Amended Section 5(a) provides as follows:
As of June 16, 2000, there shall be reserved for issue upon the
exercise of options granted under the Plan, including unexercised
options outstanding on such date, three hundred nineteen thousand
thirty-six (319,036) shares of Common Stock. If an option granted
under the Plan shall expire or terminate for any reason without
having been exercised in full, the unpurchased shares subject
thereto shall again be available for the purposes of the Plan.
DESCRIPTION OF 1996 The purpose of the 1996 Directors Option Plan (the
DIRECTORS OPTION "Plan") is to retain and motivate our non-employee
PLAN PURPOSES AND directors by providing them with or increasing
ELIGIBILITY their ownership interests in Macrovision. The Plan
authorizes the issuance of awards to our
employees, non-employee directors.
SHARES AVAILABLE -- As modified in accordance with the Plan's
OVERALL LIMIT adjustment provisions, a total of 240,000 shares
of common stock were currently authorized for
issuance under the Plan, with 34,000 of that
original 240,000 remaining available for future
grants. If this proposal is approved, the number
of shares of common stock available for future
grants will be increased to 160,000. This maximum
number does not include the number of shares
subject to the unexercised portion of any stock
option that expires or is terminated. As of the
record date, there were outstanding unexercised
options to purchase 159,036 shares of our common
stock under the Plan. We may reissue expired or
terminated shares under new options.
ADMINISTRATION Subject to the provisions of the Plan, the board
of directors administers, interprets and construes
the Plan, and adopts, amends and rescinds rules
and regulations relating to administration.
74
<PAGE>
TERMINATION OF PLAN The Plan shall terminate automatically on December
1, 2006. However, the board may suspend or
terminate the Plan at any time with or without
prior notice, but such termination cannot reduce
the amount of any outstanding options or change
the terms and conditions of such options without
the optionee's consent.
AMENDMENT OF PLAN The board may amend the Plan at any time with or
without prior notice, but such amendment cannot
reduce the amount of any outstanding options or
change the terms and conditions of such options
without the optionee's consent.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE "FOR" THE APPROVAL OF
PROPOSAL 5.
75
<PAGE>
PROPOSAL 6:
RATIFICATION OF THE SELECTION OF INDEPENDENT AUDITORS
General.
We have appointed KPMG LLP as our independent auditors for the year ending
December 31, 2000. The audit committee recommended the appointment of KPMG LLP
to the board. KPMG LLP, who performed our audit services in 1999, including an
examination of the consolidated financial statements and services related to
filings with the Securities and Exchange Commission, has served as our
accountants since November 1995. KPMG LLP performed all of its services in 1999
at customary rates and terms. Representatives of KPMG LLP will be present at the
meeting, will be available to respond to your questions and will be able to make
such statements as they desire.
If you do not ratify the selection of independent accountants, the audit
committee and the Board will reconsider the appointment. However, even if you
ratify the selection, the Board may still appoint new independent accountants at
any time during the year if it believes that such a change would be in the best
interests of Macrovision and our shareholders.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE "FOR" THE APPROVAL
OF PROPOSAL 6.
76
<PAGE>
STOCKHOLDER PROPOSALS
Macrovision must receive proposals of stockholders that are to be
presented at our 2001 annual meeting by no later than April 26, 2001, to be
included in the proxy statement and proxy relating to the 2001 annual meeting.
OTHER BUSINESS
The board of directors does not intend to bring any other business
before the meeting and, to the knowledge of the board, no matters are to be
brought before the meeting except as specified in the notice of the meeting. If
any other business does properly come before the meeting, however, the proxies
will be voted in accordance with the judgment of the persons voting them.
ANNUAL REPORT
Together with this Proxy Statement, we have distributed to each of
our stockholders an annual report for the year ended December 31, 1999. The
annual report contains consolidated financial statements of Macrovision and its
subsidiaries and the report thereon of KPMG LLP, our independent public
accountants.
UPON WRITTEN REQUEST OF ANY PERSON ENTITLED TO VOTE AT THE MEETING,
ADDRESSED TO IAN HALIFAX, CORPORATE SECRETARY, MACROVISION CORPORATION, 1341
ORLEANS DRIVE, SUNNYVALE, CALIFORNIA 94089, WE WILL PROVIDE, WITHOUT CHARGE, A
COPY OF OUR ANNUAL REPORT ON FORM 10-K, AS AMENDED FOR 1999, INCLUDING THE
FINANCIAL STATEMENTS AND THE SCHEDULES FILED WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO THE SECURITIES EXCHANGE ACT OF 1934.
ADDITIONAL INFORMATION
Macrovision files annual, quarterly and current reports with the
Securities and Exchange Commission. You may read and copy such reports,
statements and other information that is in the Securities and Exchange
Commission's public reference rooms in Washington, D.C., New York, New York, and
Chicago, Illinois. Please call the Securities and Exchange Commission at
1.800.SEC.0330 for further information about their public reference rooms. Our
public filings are also available from commercial document retrieval services
and via the Securities and Exchange Commission's Internet website, at
http://www.sec.gov.
77
<PAGE>
The following documents set forth below that we have previously
filed with the Securities and Exchange Commission accompany this proxy statement
and contain important information about us and our financial condition.
Macrovision SEC Filings Period
Annual Report on Form 10-K Year ended December 31, 1999
Quarterly Report on Form 10-Q March 31, 2000
If you would like to request additional copies of this document or
any of the documents accompanying this proxy statement, please do so at least
five business days before the date of the annual meeting to receive timely
delivery of such documents at the following:.
Corporate Secretary
Macrovision Corporation
1341 Orleans Drive
Sunnyvale, California 94089
(408) 743-8600.
You should rely only on the information contained in or accompanied
with this document to vote your shares at the annual meeting. We have not
authorized anyone to provide you with information that is different from what is
contained in this document. This document is dated July 28, 2000. You should not
assume that the information contained in this document is accurate as of any
date other than the date indicated, and neither the mailing of this document
creates any implication to the contrary.
By Order of the Board of Directors
__________________________________
Ian R. Halifax
Secretary
Dated: July 28, 2000
78
<PAGE>
"Annex A"
AMENDMENT TO
AMENDED AND RESTATED CERTIFICATE
OF INCORPORATION OF
MACROVISION CORPORATION
Macrovision Corporation, a corporation organized and existing under
and by virtue of the General Corporation Law of the State of Delaware (the
"Corporation") does hereby certify that:
ARTICLE IV.A. of the Corporation's Amended and Restated Certificate
of Incorporation is hereby deleted in its entirety and replaced with the
following language:
A. Classes of Stock. This Corporation is authorized to issue two
classes of stock to be designated, respectively, "Preferred Stock" and "Common
Stock." The total number of shares that the Corporation is authorized to issue
is two hundred fifty-five million (255,000,000) shares. Two hundred fifty
million (250,000,000) shares shall be Common Stock, par value one-tenth of one
cent ($0.001) per share (the "Common Stock"), and five million (5,000,000)
shares shall be Preferred Stock, par value one-tenth of one cent ($0.001) per
share (the "Preferred Stock").
IN WITNESS WHEREOF, Macrovision Corporation has caused this
Amendment to its Amended and Restated Certificate of Incorporation to be signed
by its President and attested by its Secretary this _________ day of
_____________, 2000.
MACROVISION CORPORATION
_____________________________
William A. Krepick, President
ATTEST:
_________________________________
Ian R. Halifax, Secretary
<PAGE>
"Annex B"
AGREEMENT AND PLAN OF MERGER
Dated as of June 19, 2000
By and Among
MACROVISION CORPORATION
GSI ACQUISITION CORP.
GLOBEtrotter SOFTWARE, INC.
MATTHEW CHRISTIANO
and
SALLIE J. CALHOUN
<PAGE>
TABLE OF CONTENTS
Page
ARTICLE I DEFINITIONS...................................................2
Section 1.1 Defined Terms............................................2
ARTICLE II TERMS OF MERGER...............................................8
Section 2.1 Statutory Merger.........................................8
Section 2.2 Effective Time...........................................8
Section 2.3 Articles of Incorporation; Bylaws........................9
Section 2.4 Directors and Officers...................................9
ARTICLE III CONVERSION OF SECURITIES; EXCHANGE OF CERTIFICATES............9
Section 3.1 Merger Consideration; Conversion and Cancellation of
Securities...............................................9
Section 3.2 Exchange of Certificates................................11
(a) Exchange...........................................11
(b) Exchange Procedures................................11
(c) Distributions with Respect to Unexchanged Shares
of Company Common Stock............................12
(d) No Fractional Shares...............................12
(e) Lost Certificates..................................13
Section 3.3 Closing.................................................13
Section 3.4 Stock Transfer Books....................................13
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF THE COMPANY................13
Section 4.1 Organization and Qualification; Subsidiaries............14
Section 4.2 Articles of Incorporation; Bylaws.......................14
Section 4.3 Capitalization..........................................14
Section 4.4 Authorization of Agreement..............................16
Section 4.5 Approvals...............................................16
Section 4.6 No Violation............................................17
Section 4.7 Reports; Financial Statements...........................17
Section 4.8 No Undisclosed Liabilities..............................18
Section 4.9 Absence of Certain Changes or Events....................18
Section 4.10 Title to Properties.....................................18
i
<PAGE>
TABLE OF CONTENTS
(continued)
Page
Section 4.11 Material Contracts......................................19
Section 4.12 Insurance...............................................19
Section 4.13 Permits; Compliance.....................................19
Section 4.14 Litigation..............................................20
Section 4.15 Compliance with Laws....................................20
Section 4.16 Employee Benefit Plans..................................20
Section 4.17 Taxes...................................................22
Section 4.18 Environmental Laws and Regulations......................24
Section 4.19 Intellectual Property...................................24
Section 4.20 Pooling; Tax Matters....................................27
Section 4.21 Affiliate Letters.......................................28
Section 4.22 Certain Business Practices..............................28
Section 4.23 Brokers.................................................28
ARTICLE V REPRESENTATIONS AND WARRANTIES OF THE ACQUIROR COMPANIES.....29
Section 5.1 Organization and Qualification; Subsidiaries............29
Section 5.2 Certificate of Incorporation; Bylaws....................29
Section 5.3 Capitalization..........................................29
Section 5.4 Authorization of Agreement..............................30
Section 5.5 Approvals...............................................31
Section 5.6 No Violation............................................31
Section 5.7 Reports.................................................32
Section 5.8 Absence of Certain Changes or Events....................32
Section 5.9 Pooling; Tax Matters....................................33
Section 5.10 Affiliates..............................................33
Section 5.11 No Undisclosed Liabilities..............................33
Section 5.12 Litigation..............................................33
Section 5.13 Compliance with Laws....................................33
Section 5.14 Insider Trading Policy..................................34
ii
<PAGE>
TABLE OF CONTENTS
(continued)
Page
ARTICLE VI COVENANTS RELATING TO THE CONDUCT OF BUSINESS................34
Section 6.1 Conduct of Business of the Company......................34
(a) Issuance and Redemption of Securities..............34
(b) Dividends..........................................35
(c) Restructuring......................................35
(d) Governing Documents................................35
(e) Indebtedness.......................................36
(f) No Acquisitions....................................36
(g) No Dispositions....................................36
(h) Capital Expenditures...............................36
(i) Contracts..........................................36
(j) Certain Prohibited Actions.........................37
(k) Accounting Policies and Procedures.................37
(l) Liens..............................................38
(m) Claims.............................................38
(n) Taxes..............................................38
(o) Insurance..........................................38
ARTICLE VII ADDITIONAL AGREEMENTS........................................38
Section 7.1 Access and Information..................................38
Section 7.2 Meeting of Shareholders.................................39
Section 7.3 Proxy Statement - Meeting of Stockholders...............40
(a) Proxy..............................................40
(b) Meeting of Stockholders............................40
Section 7.5 Affiliates; Pooling; Tax Treatment......................43
Section 7.6 Public Announcements....................................45
Section 7.7 Employee Benefit Plans..................................45
Section 7.8 Indemnification of Principal Shareholders for
Elan/Rainbow Corporation Litigation Matter..............47
Section 7.9 Event Notices...........................................48
Section 7.10 California Fairness Hearing.............................48
iii
<PAGE>
TABLE OF CONTENTS
(continued)
Page
Section 7.11 Post-Execution Distributions............................49
Section 7.12 Lease Amendment.........................................49
Section 7.13 Reasonable Efforts and Further Assurances...............50
ARTICLE VIII FURTHER REPRESENTATION, WARRANTIES AND COVENANTS.............50
Section 8.1 Representations and Warranties of Company...............50
Section 8.2 No Solicitation Covenant................................50
Section 8.3 No Derogation...........................................51
Section 8.4 Covenant of Approval of Agreement; Accounting and
Tax Effects.............................................52
Section 8.5 Covenant of Good Faith Negotiations to Closing..........52
Section 8.6 Indemnification.........................................53
(a) Indemnification by Principal Shareholders..........53
(b) Indemnification by Principal Shareholders --
Notice and Procedure...............................54
(i) Third Party Claims...........................54
(A) Control of Defense......................54
(B) Election Not to Defend..................55
(C) Principal Shareholders Payments of
Costs and Indemnity....................55
(ii) Existing Claims..............................56
(iii) Acquiror Indemnity Claims....................56
(iv) Principal Shareholders Payments - No
Right to Set-Off.............................57
(c) Indemnification by the Acquiror....................57
(d) Survival of Representation, Warranties,
Covenants and Agreements...........................57
(e) Limitation on Indemnification Payments.............58
Section 8.7 Notification............................................59
ARTICLE IX CLOSING CONDITIONS...........................................59
Section 9.1 Conditions to Obligations of Each Party Under
This Agreement..........................................59
(a) Acquiror and Company Approvals....................59
iv
<PAGE>
TABLE OF CONTENTS
(continued)
Page
(b) No Order...........................................59
(c) Regulatory Approvals...............................60
Section 9.2 Additional Conditions to Obligations of the
Acquiror Companies......................................60
(a) Representations and Warranties.....................60
(b) Agreements and Covenants...........................60
(c) Pooling of Interests...............................60
(d) Audited Financials.................................61
(e) Third Party Consents...............................61
(f) Affiliate Agreements...............................61
(g) Globetrotter Lease Amendment.......................62
(h) Key Employee Agreements............................62
(i) No Dissenting Shareholders.........................62
Section 9.3 Additional Conditions to Obligations of the Company.....62
(a) Representations and Warranties.....................62
(b) Agreements and Covenants...........................63
(c) Tax Opinion........................................63
(d) No Material Adverse Effect on Acquiror Companies ..63
(e) Fairness Permit....................................63
(f) Acquiror Stock Option Plan.........................63
(g) Acquisitions by Acquiror...........................63
ARTICLE X TERMINATION, AMENDMENT AND EXPENSES..........................64
Section 10.1 Termination.............................................64
Section 10.2 Effect of Termination...................................66
Section 10.3 Amendment...............................................68
Section 10.4 Waiver..................................................68
Section 10.5 Expenses................................................68
ARTICLE XI GENERAL PROVISIONS...........................................68
Section 11.1 Interpretation..........................................68
Section 11.2 Effectiveness of Representations, Warranties and
Agreements..............................................69
v
<PAGE>
TABLE OF CONTENTS
(continued)
Page
Section 11.3 Notices.................................................69
Section 11.4 Headings................................................72
Section 11.5 Severability............................................72
Section 11.6 Entire Agreement........................................72
Section 11.7 Assignment..............................................72
Section 11.8 Parties in Interest.....................................72
Section 11.9 Failure or Indulgence Not Waiver; Remedies Cumulative ..72
Section 11.10 Governing Law...........................................72
Section 11.11 Counterparts; Delivery by Facsimile.....................72
vi
<PAGE>
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER, dated as of June 19, 2000 (this "Agreement"),
is by and among Macrovision Corporation., a Delaware corporation ("Acquiror"),
GSI Acquisition Corp., a California wholly-owned direct subsidiary of Acquiror
("Newco"), GLOBEtrotter Software, Inc., a California corporation (the "Company")
and, solely with respect to Article VIII hereof, Matthew Christiano and Sallie
J. Calhoun (Mr. Christiano and Ms. Calhoun are hereinafter referred to as the
"Principal Shareholders"). Acquiror and Newco are sometimes referred to herein
as the "Acquiror Companies".
RECITALS:
WHEREAS, the Boards of Directors of Acquiror and the Company deem it advisable
and in the best interests of their respective companies and their respective
stockholders to enter into a business combination by means of the merger of
Newco with and into the Company under the terms of this Agreement and have
approved and adopted a letter of intent, dated March 27, 2000 (the "LOI")
setting forth a summary of the principal terms and conditions for such business
combination and for this Agreement;
WHEREAS, as a condition and inducement to the willingness of Acquiror to enter
into the LOI and this Agreement, the Principal Shareholders of the Company have
agreed, as members of the Board of Directors of the Company, to approve this
Agreement and the transactions contemplated herein, and, as the majority
shareholders of the Company, to vote their shares of Company Common Stock (as
defined herein) for the approval of this Agreement, the Merger (as defined
herein), and the other transactions contemplated herein;
WHEREAS, upon the terms and subject to the conditions of this Agreement and in
accordance with the California Corporations Code (the "CCC"), Newco will merge
with and into the Company (the "Merger") and the Company will be the surviving
corporation in the Merger (the "Surviving Corporation"); and
WHEREAS, for federal income tax purposes, it is intended that the Merger will
qualify as a reorganization within the meaning of Section 368(a) of the Internal
Revenue Code of
1
<PAGE>
1986, as amended (the "Code"), and that this Agreement shall be, and is hereby,
adopted as a plan of reorganization for purposes of Section 368 of the Code.
NOW, THEREFORE, in consideration of the foregoing and the respective
representations, warranties, covenants and agreements set forth in this
Agreement, the parties hereto agree as follows:
ARTICLE I
DEFINITIONS
Section 1.1 Defined Terms. For all purposes in this Agreement, the
following terms shall have the respective meanings set forth in this Section 1.
"Acquiror Common Stock" means the common stock, par value $0.001 per share, of
Acquiror.
"Acquiror's Disclosure Schedule" means a schedule of even date herewith
delivered by Acquiror to the Company concurrently with the execution of this
Agreement.
"Affiliate" means, with respect to any Person, any "affiliate" as such term is
defined in Rule 144 promulgated under the Securities Act.
"Agreement" means this Agreement and Plan of Merger, including any amendments
hereto and Schedules hereto (including Acquiror's Disclosure Schedule and the
Company's Disclosure Schedule).
"Agreement of Merger" has the meaning ascribed to such term in Section 2.2.
"Business Day" means any day other than a day on which banks in the State of
California are authorized or obligated to be closed.
"CCC" means the California Corporations Code, as amended.
"Closing" means a meeting, which will be held in accordance with Section 3.3, of
all Persons interested in the transactions contemplated by this Agreement at
which all documents necessary to evidence the fulfillment or waiver of all
conditions precedent to
2
<PAGE>
the consummation of the transactions contemplated by this Agreement are executed
and delivered.
"Closing Date" means the date the Closing occurs.
"Company Common Stock" means the common stock, no par value, of the Company.
"Company Plan" means the Company's 1999 Stock Incentive Plan.
"Company's Disclosure Schedule" means a schedule of even date herewith delivered
by the Company to the Acquiror Companies concurrently with the execution of this
Agreement.
"Confidentiality Agreement" means the Confidential Non-Disclosure Agreement by
and between Acquiror and the Company dated as of January 27, 2000.
"Control" (including the terms "control," "controls," "controlled," "controlled
by" and "under common control with") means the possession, directly or
indirectly or as trustee or executor, of the power to direct or cause the
direction of the management or policies of a Person, whether through the
ownership of stock or as trustee or executor, by contract or credit arrangement
or otherwise.
"Court" means any court of competent jurisdiction or arbitration tribunal of the
United States, any domestic state, or any foreign country, and any political
subdivision thereof.
"Effective Time" means the date and time of the completion of the filing of the
Agreement of Merger with the Secretary of State of the State of California in
accordance with Section 2.2.
"Environmental Claim" means any claim, action, cause of action, investigation or
notice by any person or entity alleging potential liability (including, without
limitation, potential liability for investigatory costs, cleanup costs,
governmental response costs, natural resources damages, property damages,
personal injuries, or penalties) arising out of, based on or resulting from (a)
the presence, release or disposal of any Hazardous Materials at any location,
whether or not owned or operated by the Company, or (b)
3
<PAGE>
circumstances forming the basis of any violation, or alleged violation, of any
Environmental Law.
"Environmental Law" means any Law pertaining to: (i) the protection of the
environment; (ii) the conservation, management or use of natural resources and
wildlife; (iii) the protection or use of surface water and ground water; (iv)
the management, manufacture, possession, presence, use, generation,
transportation, treatment, storage, disposal, release, threatened release,
abatement, removal, remediation or handling of, or exposure to, any Hazardous
Material; or (v) pollution (including any release to air, land, surface water
and ground water); and includes, without limitation, the Comprehensive
Environmental, Response, Compensation, and Liability Act of 1980, as amended,
and the Regulations promulgated thereunder and the Solid Waste Disposal Act, as
amended, 42 U.S.C. ss.ss. 6901 et seq.
"Exchange Act" means the Securities Exchange Act of 1934, as amended, and the
Regulations promulgated thereunder.
"Exchange Ratio" means the number of whole shares of Acquiror Common Stock,
expressed as a fraction or percentage, to be exchanged for each issued and
outstanding share of Company Common Stock (other than treasury stock, if any) in
the Merger, which shall be determined in accordance with the following formula:
the Exchange Ratio is equal to A/B; where A is nine million (9,000,000), and B
is the sum of all issued and outstanding shares of the Company's Common Stock as
of the Effective Time (other than treasury stock, if any; other than any shares
issued upon the exercise of Company stock options after March 31, 2000; and
other than any shares issued with the consent of Acquiror pursuant to Section
6.1), plus all shares of the Company's Common Stock issuable upon exercise of
all Company stock options issued and outstanding under the Company Plan that
were Vested as of March 31, 2000.
"GAAP" has the meaning ascribed to such term in Section 4.7(a).
"Governmental Authority" means any governmental agency or authority (other than
a Court) of the United States, any domestic state, or any foreign country, and
any political
4
<PAGE>
subdivision or agency thereof, and also includes any authority having
governmental or quasi-governmental powers and the NASDAQ.
"Hazardous Material" means any substance, chemical, compound, product, solid,
gas, liquid, waste, by-product, pollutant, contaminant or material which is
hazardous or toxic and is regulated under any Environmental Law, and includes
without limitation, asbestos or any substance containing asbestos,
polychlorinated biphenyls or petroleum (including crude oil or any fraction
thereof).
"Intellectual Property" means trademarks, service marks, trade names, URLs and
Internet domain names, designs, slogans and general intangibles of like nature,
together with all goodwill related to the foregoing (collectively,
"Trademarks"); patents (including any registrations, continuations,
continuations in part, renewals and applications for any of the foregoing);
copyrights (including any registrations and applications therefor); computer
software; databases; technology, trade secrets and other confidential
information, know-how, proprietary processes, formulae, algorithms, models, user
interfaces, customer lists, inventions, source codes, object codes,
methodologies and, with respect to all of the foregoing, related confidential
documentation (collectively, "Trade Secrets").
"Knowledge" means, with respect to an individual, that such individual will be
deemed to have "Knowledge" of a particular fact or other matter if such
individual is actually aware of such fact or other matter, whether or not due
inquiry has been made. A Person (other than an individual or the Company) will
be deemed to have "Knowledge" of a particular fact or other matter if any
individual who on the date hereof is serving as a director or executive officer
(including any Senior Vice President) has Knowledge of such fact or other
matter. The Company will be deemed to have "Knowledge" of a particular fact or
other matter if either of the Principal Shareholders, or Richard Mirabella or
John Adams has Knowledge of such fact or other matter.
"Law" means all laws, statutes, ordinances and Regulations of any Governmental
Authority including all decisions of Courts having the effect of law.
5
<PAGE>
"Lien" means any mortgage, pledge, security interest, attachment, encumbrance,
lien or charge of any kind (including any agreement to give any of the
foregoing); provided, however, that the term "Lien" shall not include (i)
statutory liens for Taxes, which are not yet due and payable or are being
contested in good faith by appropriate proceedings, (ii) statutory or common law
liens to secure landlords, lessors or renters under leases or rental agreements
confined to the premises rented, (iii) deposits or pledges made in connection
with, or to secure payment of, workers' compensation, unemployment insurance,
old age pension or other social security programs mandated under applicable
Laws, (iv) statutory or common law liens in favor of carriers, warehousemen,
mechanics and materialmen, to secure claims for labor, materials or supplies and
other like liens, and (v) restrictions on transfer of securities imposed by
applicable state and federal securities Laws.
"Litigation" means any suit, action, arbitration, cause of action, claim,
complaint, criminal prosecution, investigation, demand letter, governmental or
other administrative proceeding, whether at law or in equity, before or by any
Court or Governmental Authority or before any arbitrator.
"Material Adverse Effect" means, with respect to a specified Person, any change,
event or effect that individually or in the aggregate (taking into account all
other such changes, events or effects) has had, or would be reasonably likely to
have, a material adverse effect on the consolidated business, results of
operations, or financial condition of such Person and its Subsidiaries, if any,
taken as a whole, except to the extent that any such change, event or effect is
attributable to or results from (i) the direct effect of the public announcement
or pendency of the transactions contemplated hereby on current or prospective
customers or revenues of the Company, or (ii) changes in general economic
conditions or changes affecting the industry generally in which such Person
operates.
"Merger" means the merger of Newco with and into the Company provided for in
this Agreement.
"NASDAQ" means the Nasdaq Stock Market, Inc.
6
<PAGE>
"Newco" means GSI Acquisition Corp., a newly-formed California corporation and a
wholly-owned direct Subsidiary of Acquiror.
"Order" means any judgment, order or decree of any Court or Governmental
Authority.
"Permit" means any and all permits, licenses, authorizations, Orders,
certificates, registrations or other approvals granted by any Governmental
Authority.
"Person" means an individual, partnership, limited liability company,
corporation, joint stock company, trust, estate, joint venture, association or
unincorporated organization, or any other form of business or professional
entity, but will not include a Governmental Authority.
"Regulation" means any rule, regulation or requirement of any Governmental
Authority having the effect of Law.
"SEC" means the Securities and Exchange Commission.
"Securities Act" means the Securities Act of 1933, as amended, and the
Regulations promulgated thereunder.
"Subsidiary" of a specified Person means any corporation, partnership, limited
liability company, joint venture or other legal entity of which the specified
Person (either alone or through or together with any other Subsidiary) owns,
directly or indirectly, fifty percent (50%) or more of the stock or other equity
or partnership interests the holders of which are generally entitled to vote for
the election of the Board of Directors or other governing body of such
corporation or other legal entity.
"Tax Returns" means any declaration, return, report, schedule, certificate,
statement or other similar document (including relating or supporting
information) required to be filed with a Governmental Authority, or where none
is required to be filed with a Governmental Authority, the statement or other
document issued by a Governmental Authority in connection with any Tax,
including, without limitation, any information return, claim for refund, amended
return or declaration of estimated Tax.
7
<PAGE>
"Taxes" means any and all federal, state, local, foreign, provincial,
territorial or other taxes, imposts, tariffs, fees, levies or other similar
assessments or liabilities and other charges of any kind, including income
taxes, ad valorem taxes, excise taxes, withholding taxes, stamp taxes or other
taxes of or with respect to gross receipts, premiums, real property, personal
property, windfall profits, sales, use, transfers, licensing, employment, social
security, workers' compensation, unemployment, payroll and franchises imposed by
or under any Law; and such terms will include any interest, fines, penalties,
assessments or additions to tax resulting from, attributable to or incurred in
connection with any such tax or any contest or dispute thereof.
"Vested" means, with respect to any option to purchase shares of Company Common
Stock under the Company Plan, the right to exercise such option and own the
shares subject to such option without restriction under the Company Plan.
ARTICLE II
TERMS OF MERGER
Section 2.1 Statutory Merger. Subject to the terms and conditions and in
reliance upon the representations, warranties, covenants and agreements
contained herein, Newco will merge with and into the Company at the Effective
Time. The terms and conditions of the Merger and the mode of carrying the same
into effect will be as set forth in this Agreement and the applicable provisions
of the CCC. As a result of the Merger, the separate corporate existence of Newco
will cease and the Company will continue as the Surviving Corporation and shall
succeed to and assume all of the rights and obligations of Newco in accordance
with the CCC. The Merger shall have the effect set forth in the CCC.
Section 2.2 Effective Time. On the Closing Date as provided in Section 3.3
hereof, the parties hereto will cause the Merger to be consummated by filing an
agreement of merger (the "Agreement of Merger") with the Secretary of State of
the State of California, in such form as required by, and executed in accordance
with the relevant provisions of, the CCC. The Merger shall become effective at
the time at which the Agreement of Merger has been duly filed with the Secretary
of State of the State of
8
<PAGE>
California (the time the Merger becomes effective in accordance with the
foregoing being referred to as the "Effective Time").
Section 2.3 Articles of Incorporation; Bylaws. At the Effective Time, the
articles of incorporation of the Company shall be amended and restated by
deleting its provisions and substituting therefore the provisions of the
articles of incorporation of Newco, except that from and after the Effective
Time, Article First of the Surviving Corporation's articles of incorporation
will read in its entirety substantially as follows: "The name of the corporation
is "GLOBEtrotter Software, Inc." At the Effective Time, the by-laws of Newco, as
in effect immediately prior to the Effective Time, shall be the by-laws of the
Surviving Corporation until thereafter amended as provided by Law and the
articles of incorporation of the Surviving Corporation and such by-laws.
Section 2.4 Directors and Officers. At the Effective Time the persons
listed on Schedule 2.4A hereto will become the directors of the Surviving
Corporation, each to hold office in accordance with the articles of
incorporation and by-laws of the Surviving Corporation, and the persons listed
on Schedule 2.4B hereto will be the officers of the Surviving Corporation, in
each case until their respective successors are duly elected or appointed and
qualify for such election.
ARTICLE III
CONVERSION OF SECURITIES; EXCHANGE OF CERTIFICATES
Section 3.1 Merger Consideration; Conversion and Cancellation of
Securities. At the Effective Time, by virtue of the Merger and without any
action on the part of the holders of any of the following securities:
(a) Subject to the other provisions of this Article III, each share
of Company Common Stock issued and outstanding immediately prior to the
Effective Time (excluding any Company Common Stock held in the treasury of the
Company) will be automatically converted into the right to receive a number of
shares equal to the Exchange Ratio of Acquiror Common Stock per share of the
Company's Common Stock, with the total number of shares of Acquiror Common Stock
distributed to each Company Shareholder rounded up to the next whole number of
shares of Acquiror Common Stock
9
<PAGE>
(all such shares of Acquiror Common Stock issued in the Merger are collectively
referred to herein as the "Merger Consideration"). Notwithstanding the
foregoing, if between the date hereof and the Effective Time, the outstanding
shares of Company Common Stock shall have been changed into a different number
of shares or a different class, by reason of any stock dividend, subdivision,
reclassification, recapitalization, split, conversion, consolidation,
combination or exchange of shares, the Exchange Ratio will be correspondingly
adjusted to reflect such stock dividend, subdivision, reclassification,
recapitalization, split, conversion, consolidation, combination or exchange of
shares.
(b) Subject to the other provisions of this Article III, all shares
of Company Common Stock will, upon conversion thereof into shares of Acquiror
Common Stock at the Effective Time, cease to be outstanding and will
automatically be cancelled and retired, and each certificate previously
evidencing Company Common Stock outstanding immediately prior to the Effective
Time (other than Company Common Stock held in treasury) will thereafter
represent only the right to receive the number of whole shares of Acquiror
Common Stock into which the shares of Company Common Stock represented by such
certificate have been converted pursuant to this Section 3.1. The holders of
certificates previously evidencing Company Common Stock will cease to have any
rights with respect to such Company Common Stock except as otherwise provided
herein or by Law.
(c) Simultaneously with the Merger, (i) each outstanding option to
purchase or acquire a share of Company Common Stock under the Company Plan
whether or not vested shall, in accordance with the terms thereof, be converted
into an option under Acquiror's 2000 Equity Incentive Plan to purchase the
number of shares of Acquiror Common Stock equal to the Exchange Ratio times the
number of shares of Company Common Stock which could have been obtained prior to
the Effective Time upon the exercise of each such option and rounded down to the
nearest whole share, at an exercise price per share equal to the exercise price
for each such share of Company Common Stock subject to such option divided by
the Exchange Ratio (rounded up to the nearest whole cent), and (ii) Acquiror
shall issue replacement options setting forth such terms under Acquiror's 2000
Equity Incentive Plan. The other terms of each such option,
10
<PAGE>
shall continue to apply in accordance with their terms, including any provisions
providing for acceleration, termination or forfeiture. It is the intention of
the parties that the replacement options so provided by Acquiror qualify, to the
maximum extent permissible, following the Effective Time, as incentive stock
options as defined in Section 422 of the Code to the extent such option
qualified as an incentive stock option prior to the Effective Time. As soon as
reasonably practical after the Effective Time, Acquiror will deliver to each
person who, at the Effective Time, was a holder of an outstanding option under
the Company Plan a notice stating that (i) such option has been replaced with a
comparable option under Acquiror's 2000 Equity Incentive Plan, which shall
continue in effect subject to the terms and conditions applicable thereto
immediately prior to the Effective Time, except as otherwise provided herein and
in Acquiror's 2000 Equity Incentive Plan, and (ii) the number of shares of
Acquiror Common Stock covered by such option and the per share exercise price
for such shares of Acquiror Common Stock.
(d) Each share of Company Common Stock held in the treasury of the
Company, if any, immediately prior to the Effective Time will be cancelled.
(e) Each share of common stock, no par value, of Newco issued and
outstanding immediately prior to the Effective Time shall be converted into and
become one fully paid and nonassessable share of common stock, no par value, of
the Surviving Corporation.
Section 3.2 Exchange of Certificates.
(a) Exchange. On the day of the Effective Time, Acquiror will issue
and provide for delivery to the former holders of Company Common Stock
certificates representing shares of Acquiror Common Stock issuable pursuant to
Section 3.1 in exchange for certificates representing Company Common Stock
immediately prior to the Effective Time.
(b) Exchange Procedures. The Acquiror will direct and cause its
transfer agent to deliver to each former holder of Company Common Stock, upon
surrender to the
11
<PAGE>
Acquiror's transfer agent for cancellation of one or more certificates which
evidenced shares of Company Common Stock, certificates evidencing the
appropriate number of shares of Acquiror Common Stock into which such shares of
Company Common Stock were converted pursuant to the Merger (rounded down to the
nearest whole number) and any dividends or distributions related thereto which
such former holder of Company Common Stock is entitled to receive pursuant to
the provisions of this Article III. If shares of Acquiror Common Stock are to be
issued to a Person other than the Person in whose name the surrendered
certificate or certificates are registered, it will be a condition of issuance
of Acquiror Common Stock that the surrendered certificate or certificates shall
be properly endorsed, in proper form for transfer and that the Person requesting
such payment shall pay any transfer or other Taxes required by reason of the
issuance of Acquiror Common Stock to a Person other than the registered holder
of the surrendered certificate or certificates or such Person shall establish to
the satisfaction of Acquiror that any such Tax has been paid or is not
applicable.
(c) Distributions with Respect to Unexchanged Shares of Company
Common Stock. No dividends or other distributions declared or made with respect
to Acquiror Common Stock on or after the Effective Time, if any, will be paid to
the holder of any certificate that theretofore evidenced shares of Company
Common Stock until the holder of such certificate shall surrender such
certificate. Subject to the effect of any applicable escheat Law, following
surrender of any such certificate, there will be paid to the holder of the
certificates evidencing whole shares of Acquiror Common Stock issued, promptly
in exchange therefor, without interest, the amount of dividends or other
distributions with a record date after the Effective Time theretofore paid with
respect to such whole shares of Acquiror Common Stock.
(d) No Fractional Shares. No certificates or scrip representing
fractional shares of Acquiror Common Stock shall be issued upon the surrender
for exchange of certificates formerly representing shares of Company Common
Stock pursuant to this Article III and all such fractional interests shall be
rounded up to a whole share as set forth in Section 3.1(a) above.
12
<PAGE>
(e) Lost Certificates. If any certificate evidencing Company Common
Stock shall have been lost, stolen or destroyed, upon the making of an affidavit
of that fact by the Person claiming such certificate to be lost, stolen or
destroyed and, if reasonably required by Acquiror, the posting by such Person of
a bond, in such reasonable amount as Acquiror may direct, as indemnity against
claims that may be made against it with respect to such certificate, the
Acquirer will issue in exchange for such lost, stolen or destroyed certificate
of Acquiror Common Stock to which the holder may be entitled pursuant to this
Article III.
Section 3.3 Closing. The Closing will take place at the offices of Manatt,
Phelps & Phillips LLP, 1001 Page Mill Road, Building 2, Palo Alto, California
94304 at 10:00 a.m. on the next Business Day following the date on which the
conditions to the Closing have been satisfied or waived or at such other place,
time and date as the parties hereto may agree. At the conclusion of the Closing
on the Closing Date, the parties hereto will cause the Agreement of Merger to be
filed with the Secretary of State of the State of California.
Section 3.4 Stock Transfer Books. At the Effective Time, the stock
transfer books of the Company will be closed and there will be no further
registration of transfers of shares of Company Common Stock thereafter on the
records of the Company. If, after the Effective Time, certificates formerly
representing Company Common Stock are presented to the Surviving Corporation,
they shall be cancelled and exchanged for certificates representing Acquiror
Common Stock.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company hereby represents and warrants to the Acquiror Companies, subject to
the exceptions set forth in the Company's Disclosure Schedule (which exceptions
shall specifically identify a Section, Subsection or clause of a single Section
or Subsection hereof, as applicable, to which such exception relates, it being
understood and agreed that each such exception shall be deemed to be disclosed
both under such Section, Subsection or clause hereof and any other Section,
Subsection
13
<PAGE>
or clause hereof to which such disclosure reasonably relates) that:
Section 4.1 Organization and Qualification; Subsidiaries. The Company is
duly organized, validly existing and in good standing under the Laws of its
jurisdiction of incorporation or organization, has all requisite power and
authority to own, lease and operate its properties and to carry on its business
as it is now being conducted and is duly qualified and in good standing to do
business in each jurisdiction in which the nature of the business conducted by
it or the ownership or leasing of its properties makes such qualification
necessary, except where its failure to so qualify would not have a Material
Adverse Effect on the Company. Except as listed and described on Section 4.1 of
the Company's Disclosure Schedule, the Company does not own, directly or
indirectly, a five (5%) percent or more equity, capital stock or other ownership
interest in any other corporation, limited liability company or partnership.
Section 4.1 of the Company's Disclosure Schedule sets forth, as of the date of
this Agreement, a true and complete list of all the Company's directly or
indirectly owned Subsidiaries, or any equity interest owned by the Company,
directly or indirectly, in any limited liability company, partnership or joint
venture arrangement or other business entity, together with the jurisdiction of
incorporation or organization of each such Subsidiary or entity and the
percentage of capital stock or other equity, profit or participation interests
owned by the Company, directly or indirectly, in any such entities.
Section 4.2 Articles of Incorporation; Bylaws. The Company has furnished
to Acquiror complete and correct copies of the articles of incorporation and the
bylaws or the equivalent organizational documents, in each case as amended or
restated to the date hereof, of the Company and each of its Subsidiaries or
Affiliates. Neither the Company nor any of its Subsidiaries or Affiliates is in
violation of any of the provisions of their certificate of incorporation or
bylaws or equivalent organizational documents.
Section 4.3 Capitalization
(a) The authorized capital stock of the Company consists of
10,000,000 shares of Company Common Stock of which, as of the date hereof,
8,098,958 shares
14
<PAGE>
were issued and outstanding (other than treasury stock), all of which are duly
authorized, validly issued, fully paid and nonassessable and were not issued in
violation of any preemptive or similar rights of any Person. Section 4.3 (a) of
the Company's Disclosure Schedule hereto lists the name and number of shares
held by each recordholder of all of the issued and outstanding shares of the
Company's Common Stock as of the date hereof.
(b) Except for options issued under the Company's Plan, as of the
date hereof, no shares of Company Common Stock are reserved for issuance, and
there are no contracts, agreements, commitments or arrangements obligating the
Company to offer, sell, issue or grant any shares of, or any options, warrants
or rights of any kind to acquire any shares of, or any securities that are
convertible into or exchangeable for any shares of, capital stock of the
Company, to redeem, purchase or acquire, or offer to purchase or acquire, any
outstanding shares of, or any outstanding options, warrants or rights of any
kind to acquire any shares of, or any outstanding securities that are
convertible into or exchangeable for any shares of, capital stock of the Company
or to grant any Lien on any shares of capital stock of the Company. Section
4.3(b) of the Company's Disclosure Schedule lists each stock option issued or
awarded under the Company's Plan, the name and address of each option holder,
the number of shares of the Company's Common Stocks subject to such stock
options, the vesting schedule for all such options, the exercise price for all
such options and the restriction, forfeiture and termination provisions of all
such options. The total number of shares of the Company's Common Stock issuable
upon exercise of all such stock options, outstanding as of the date of this
Agreement, is 688,284. The number of shares of the Company's Common Stock
issuable upon exercise of such outstanding options which were Vested as of March
31, 2000 is 50,210.
(c) There are no voting trusts, proxies or other similar agreements
or understandings to which the Company or any of its Subsidiaries or Affiliates
is a party or by which the Company or any of its Subsidiaries or Affiliates is
bound with respect to the voting of any shares of capital stock of the Company
or any of its Subsidiaries or Affiliates or with respect to the sale or delivery
of any shares of capital stock of the Company.
15
<PAGE>
Section 4.4 Authorization of Agreement. The Company has all requisite
corporate power and authority to execute and deliver this Agreement and each
instrument required hereby to be executed and delivered by it at the Closing, to
perform its obligations hereunder and to consummate the transactions
contemplated hereby. The execution and delivery by the Company of this Agreement
and each instrument required hereby to be executed and delivered by it at the
Closing and the performance of its obligations hereunder have been duly and
validly authorized by all requisite corporate action on the part of the Company
other than, with respect to the Merger, the approval and adoption of this
Agreement by the shareholders of the Company, which approval and adoption in
accordance with the CCC and the Company's articles of incorporation shall
require the affirmative vote of the holders of at least a majority of the
outstanding shares of the Company's Common Stock. This Agreement has been duly
executed and delivered by the Company and, assuming due authorization, execution
and delivery hereof by the Acquiror Companies, this Agreement constitutes the
valid and binding obligation of the Company, enforceable against the Company in
accordance with its terms, subject to bankruptcy, insolvency, reorganization,
moratorium or similar Laws now or hereafter in effect relating to creditors'
rights generally or to general principles of equity.
Section 4.5 Approvals. Except for the applicable requirements, if any, of
(a) the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the
"HSR Act"), (b) the filing and recordation of appropriate merger documents as
required by the CCC and (c) those Laws, Regulations and Orders noncompliance
with which would not in the aggregate materially impair the ability of the
Company to perform its obligations under this Agreement or be material in any
respect to the Company, no filing or registration with, no waiting period
imposed by and no Permit, Order, authorization, consent or approval of, any
Court or Governmental Authority is required under any Law, Regulation or Order
applicable to the Company to permit the Company to execute, deliver or perform
this Agreement or any instrument required hereby to be executed and delivered by
it at the Closing.
16
<PAGE>
Section 4.6 No Violation. Assuming effectuation of all filings and
registrations with, termination or expiration of any applicable waiting periods
imposed by and receipt of all Permits or Orders of, Courts and/or Governmental
Authorities indicated as required in Section 4.5 and receipt of the approval of
this Agreement by the shareholders of the Company as required by the CCC,
neither the execution and delivery by the Company of this Agreement or any
instrument required hereby to be executed and delivered by it at the Closing,
nor the performance by the Company of its obligations hereunder, will (a)
violate or breach the terms of or cause a default, or accelerate the performance
of any obligation of the Company or give rise to any payment obligation of any
such Person, or give rise to any right of termination (any of the foregoing a
"Change of Control Effect"), or require any consent, approval or waiver (any of
the foregoing a "Change of Control Consent") of any third party that is not a
Governmental Authority, under, any Law, Regulation or Order applicable to the
Company or the articles of incorporation or bylaws of the Company or (b) with
the passage of time or the giving of notice have any of the effects set forth in
clause (a) of this Section, except effects that would not, individually or in
the aggregate, have a Material Adverse Effect upon the Company.
Section 4.7 Reports; Financial Statements.
(a) The unaudited statements of financial position, balance sheets
and the related statements of operations and stockholders' equity (including any
related notes thereto) of the Company for its fiscal years ending December 31,
1998 and 1999 and for the period ending March 31, 2000, attached hereto as
Schedule 4.7(a) (the "Company Financials") have been prepared on a basis
consistent throughout and with prior periods (except as otherwise noted
therein), and present fairly the financial position of the Company as at their
respective dates, and the results of its operations for the periods presented
therein subject, in the case of the interim financial statements, to normal
year-end adjustments that have not been and are not expected to be material in
amount. Without limiting the foregoing, the Company's subscription accounting
treatment may not conform with United States generally accepted accounting
principles ("GAAP").
17
<PAGE>
(b) The year 2000 revenue and profit forecast prepared jointly by
the Company and the Acquiror, attached hereto as Schedule 4.7(b), has been
prepared in a manner consistent with the Company's reasonable expectations of
its business prospects for such year. The Company does not guarantee that the
future results or performance levels set forth in such year 2000 revenue and
profit forecast will be achieved.
Section 4.8 No Undisclosed Liabilities. The Company has no liabilities or
obligations of any nature, whether or not accrued, contingent or otherwise,
except (a) liabilities or obligations reflected in the Company Financials
through the fiscal quarter ending March 31, 2000, (b) liabilities or obligations
incurred in the ordinary course of business consistent with past practice since
March 31, 2000 which are not, and will not have, individually or in the
aggregate, a Material Adverse Effect on the Company and (c) liabilities or
obligations which are not and will not have, individually or in the aggregate, a
Material Adverse Effect on the Company.
Section 4.9 Absence of Certain Changes or Events.
Since March 31, 2000, there is not and has not been a Material Adverse
Effect on the Company.
Section 4.10 Title to Properties. The Company has good, valid and
marketable title to or a valid leasehold in, all of the properties and assets
(real, personal and mixed, tangible and intangible) that are necessary to the
conduct of the business of the Company as it is currently being conducted,
including all of the properties and assets reflected in the Company's
consolidated balance sheet as at March 31, 2000, other than any such properties
or assets that have been sold or otherwise disposed of in the ordinary course of
business since March 31, 2000. The Company holds under valid lease agreements
all real and personal properties being held by the Company under capitalized
leases, and all real and personal property held by the Company that is subject
to operating leases, and enjoys peaceful and undisturbed possession of such
properties under such leases, other than any immaterial properties. The Company
has not received any written notice or has Knowledge of any adverse claim to the
title to any properties owned by it or with respect to any lease under which any
properties are held by it, other than any claims that,
18
<PAGE>
individually or in the aggregate, are immaterial to the Company. Notwithstanding
anything to the contrary, nothing in this Section 4.10 shall be construed to
relate to Intellectual Property (it being understood that Section 4.19 contains
representations and warranties relating to Intellectual Property).
Section 4.11 Material Contracts. Each Material Contract (as defined
herein) is in full force and effect, and is a valid and binding obligation of
the Company and, to the Knowledge of the Company, each of the other parties
thereto, enforceable in accordance with its terms, except (a) that the
enforcement thereof may be limited by (i) bankruptcy, insolvency,
reorganization, moratorium or other similar Laws now or hereafter in effect
relating to creditors' rights generally and (ii) general principles of equity
(regardless of whether enforceability is considered in a proceeding in equity or
at law) and (b) as would not have a Material Adverse Effect on the Company. No
condition exists or event has occurred which (whether with or without notice or
lapse of time or both, or the happening or occurrence of any other event) would
constitute a default by the Company, to the Knowledge of the Company, any other
party thereto under, or result in a right in termination of, any Material
Contract, except as would not have a Material Adverse Effect on the Company. The
term "Material Contract" shall mean any contract which is material to the
Company and its Subsidiaries taken as a whole or to the business, properties,
prospects or financial condition of the Company.
Section 4.12 Insurance. The Company maintains with third parties policies
of fire and casualty, liability and other forms of insurance in such amounts,
with such deductibles and retained amounts, and against such risks and losses,
as are set forth in the Company's Disclosure Schedule.
Section 4.13 Permits; Compliance. The Company has obtained all material
Permits that are necessary to carry on its businesses as currently conducted.
Such Permits are in full force and effect in all material respects. Such Permits
have not been violated, except for such violations as would not have a Material
Adverse Effect on the Company. To the Knowledge of the Company, no suspension,
revocation or cancellation of any of such Permits has been threatened. There is
no Litigation pending
19
<PAGE>
or, to the Knowledge of the Company, threatened regarding suspension, revocation
or cancellation of any of such Permits.
Section 4.14 Litigation. As of the date hereof, except for the Litigation
with Elan/Rainbow Corporation described in Section 4.14 of the Company's
Disclosure Schedule (the "E/R Litigation"), there is no Litigation pending, or
to the Knowledge of the Company, threatened against the Company, which if
adversely determined would be or have a Material Adverse Effect on the Company.
Except as set forth in Section 4.14 of the Company's Disclosure Schedule, as of
the Closing, there will be no Litigation pending, or to the Knowledge of the
Company, threatened against the Company that would be or have a Material Adverse
Effect on the Company, except for the E/R Litigation.
Section 4.15 Compliance with Laws. The Company is not subject to any
written agreement, written directive, memorandum of understanding or Order with
or by any Court or Governmental Authority restricting in any material respect
its operation or requiring any materially adverse actions by the Company. The
Company is in compliance in all material respects with all applicable Laws and
Regulations and is not in default in any material respect with respect to any
material Order applicable to the Company, except for such failure to comply or
defaults which would not have a Material Adverse Effect on the Company.
Section 4.16 Employee Benefit Plans.
(a) Section 4.16 of the Company's Disclosure Schedule contains a
true and complete list of each deferred compensation, incentive compensation,
stock purchase, stock option and other equity compensation plan, "welfare" plan,
fund or program (within the meaning of Section 3(1) of the Employee Retirement
Income Security Act of 1974, as amended ("ERISA")); each "pension" plan, fund or
program (within the meaning of Section 3(2) of ERISA); each employment,
termination or severance agreement, and each other material employee benefit
plan, fund, program, agreement or arrangement, in each case, that is sponsored,
maintained or contributed to or required to be contributed to by the Company or
any entity, that together with the
20
<PAGE>
Company would be deemed a "single employer" within the meaning of Section
4001(b) of ERISA (an "ERISA Affiliate"), or to which the Company or an ERISA
Affiliate is a party, whether written or oral, for the benefit of any employee
or former employee of the Company or any of its Subsidiaries (the "Employee
Plans").
(b) With respect to each Employee Plan, the Company has heretofore
delivered or made available to Acquiror true and complete copies of the Employee
Plan and any amendments thereto (or if the Employee Plan is not a written
Employee Plan, a description thereof), any related trust or other funding
vehicle, any reports or summaries required under ERISA or the Code and the most
recent determination letter, if any, received from the Internal Revenue Service
with respect to each Employee Plan intended to qualify under Section 401 of the
Code.
(c) No liability under Title IV or Section 302 of ERISA has been
incurred by the Company or any ERISA Affiliate that has not been satisfied in
full, and no condition exists that presents a material risk to the Company or
any ERISA Affiliate of incurring any such liability.
(d) No Employee Plan is subject to Title IV of ERISA or Section 412
of the Code, nor is any Employee Plan a "multiemployer pension plan", as defined
in Section 3(37) of ERISA, or subject to Section 302 of ERISA.
(e) Each Employee Plan has been operated and administered in all
respects in accordance with its terms and applicable Law, including ERISA and
the Code.
(f) Each Employee Plan intended to be "qualified" within the meaning
of Section 401(a) of the Code and the trusts maintained thereunder that are
intended to be exempt from taxation under Section 501(a) of the Code have
received, or the Company will properly submit a request to the Internal Revenue
Service prior to the Effective Time for, a favorable determination or other
letter indicating that they are so qualified, or has been established using a
prototype plan that has an Internal Revenue Service opinion letter on which the
Company is entitled to rely, and, to the Knowledge of the Company,
21
<PAGE>
no event has occurred since the date of said letter(s) that will adversely
affect the qualification of such Employee Plan.
(g) No Employee Plan provides medical, surgical, hospitalization,
death or similar benefits (whether or not insured) for employees or former
employees of the Company for periods extending beyond their retirement or other
termination of service, other than (i) coverage mandated by applicable Law, (ii)
death benefits under any "pension plan", or (iii) benefits the full cost of
which is borne by the current or former employee (or his beneficiary).
(h) No amounts payable under the Employee Plans will fail to be
deductible for federal income Tax purposes by virtue of Section 280G of the
Code.
(i) The execution, delivery and performance of, and consummation of
the transactions contemplated by, this Agreement by themselves will not (i)
entitle any current or former employee or officer of the Company or any ERISA
Affiliate to severance pay, unemployment compensation or any other payment,
except as expressly provided in this Agreement, (ii) accelerate the time of
payment or vesting, or increase the amount of compensation due any such employee
or officer, or (iii) assuming the Acquiror takes the action specified in Section
7.10(a), accelerate the vesting of any stock option or of any shares of
restricted stock.
(j) Except as would not be material in any respect to the Company,
there are no pending or, to the Knowledge of the Company, any threatened or
anticipated claims by or on behalf of any Employee Plan, by any employee or
beneficiary covered under any such Employee Plan, or otherwise involving any
such Employee Plan (other than routine claims for benefits).
Section 4.17 Taxes. Except as set forth in Section 4.17 of the Company's
Disclosure Schedule, the Company represents and warrants as follows:
(a) All federal, state, local and foreign Tax Returns required to be
filed (taking into account extensions) by or on behalf of the Company, and each
affiliated, combined, consolidated or unitary group of which the Company is or
has been a member
22
<PAGE>
have been timely filed, and all such Tax Returns are true, complete and correct
in all material respects.
(b) All Taxes payable by or with respect to the Company have been
timely paid, or adequately reserved for and shown on the Company's Financials.
No deficiencies for any Taxes have been proposed, asserted or assessed in
writing against the Company that are not adequately reserved for and shown on
the Company's Financials. All assessments for Taxes due and owing by or with
respect to the Company with respect to completed and settled examinations or
concluded Litigation have been paid.
(c) Prior to the date of this Agreement, the Company has provided
Acquiror with written schedules setting forth the taxable years of the Company
for which the statutes of limitations with respect to federal and material state
income Taxes have not expired and with respect to federal and material state
income Taxes, those years for which examinations have been completed and those
years for which examinations are presently being conducted.
(d) The Company has complied in all material respects with all rules
and Regulations relating to the payment and withholding of Taxes (including,
without limitation, withholding of Taxes pursuant to Sections 1441 and 1442 of
the Code or similar provisions under any foreign Laws) and have, within the time
and in the manner required by law, withheld from employee wages and paid over to
the proper Governmental Authorities all amounts required to be so withheld and
paid over under all applicable Laws.
(e) The Company (i) has not waived any statutory period of
limitations in respect of its or their Taxes or Tax Returns, which waiver
remains in effect, nor (ii) is it a party to, bound by, or have any obligation
under any Tax sharing, allocation, indemnity, or similar contract or
arrangement.
(f) The Company has not filed a consent pursuant to Section 341(f)
of the Code or agreed to have Section 341(f)(2) of the Code apply to any
disposition of a
23
<PAGE>
"Subsection (f) asset" (as such term is defined in Section 341(f)(4) of the
Code) owned by the Company.
Section 4.18 Environmental Laws and Regulations. Except as would not be or
result in a Material Adverse Effect on the Company: (a) the Company has been in
compliance with all applicable Environmental Laws; (b) the Company has obtained
all Permits required by any applicable Environmental Law and all such permits
are in full force and effect; (c) the Company has not, and the Company has no
Knowledge of any other Person who has, caused any release, threatened release or
disposal of any Hazardous Material at any properties or facilities previously or
currently owned, leased or occupied by the Company; (d) the Company has no
Knowledge that any of its properties or facilities are adversely affected by any
release, threatened release or disposal of a Hazardous Material originating or
emanating from any other property; (e) the Company (i) has no liability for
response or corrective action, natural resources damage, or any other harm
pursuant to any Environmental Law, (ii) is not subject to, has notice or
Knowledge of, or is required to give any notice of any environmental claim or
(iii) has Knowledge of any condition or occurrence which could form the basis of
an Environmental claim against the Company, or any of its properties or
facilities; (f) the Company properties and facilities are not subject to any,
and the Company has no Knowledge of any, imminent restriction on the ownership,
occupancy, use or transferability of their properties and facilities arising
from any (i) Environmental Law or (ii) release, threatened release or disposal
of any Hazardous Material; and (g) there is no Environmental Claim pending, or,
to the Company's knowledge, threatened, against the Company or, to the Company's
knowledge, against any Person whose liability for any Environmental Claim the
Company has or may have retained or assumed either contractually or by operation
of law.
Section 4.19 Intellectual Property.
(a) Section 4.19(a) of the Company's Disclosure Schedule sets forth,
for the Intellectual Property owned by the Company, a complete and accurate list
of all United States and foreign (i) patents and patent applications; (ii)
Trademark registrations
24
<PAGE>
(including material Internet domain registrations) and applications and material
unregistered Trademarks; (iii) copyright registrations and applications,
indicating for each, the applicable jurisdiction, registration number (or
application number), and date issued (or date filed); and (iv) Software (defined
in Section 4.19(c)(vii)).
(b) Section 4.19(b) of the Company's Disclosure Schedule sets forth
a complete and accurate list of all material license agreements granting to the
Company any material right to use or practice any rights under any Intellectual
Property other than Intellectual Property which is used for infrastructural
purposes, or is off-the-shelf "shrink-wrap" software, and is commercially
available on reasonable terms, (collectively, the "License Agreements"),
indicating for each the title and the parties thereto.
(c) Except as would not have a Material Adverse Effect on the
Company;
(i) the Company owns, free and clear of Liens, Orders and
arbitration awards, all owned Intellectual Property currently used in the
Company's business, and has a valid and enforceable right to use all of the
Intellectual Property licensed to the Company and currently used in the
Company's business;
(ii) to the Knowledge of the Company, the Company has taken
reasonable steps to protect the Intellectual Property of the Company;
(iii) to the Knowledge of the Company, the conduct of the
Company's businesses as currently conducted does not infringe upon any rights
owned or controlled by any third party, including, without limitation, the
rights of Highland Software, or any successors in interest to Highland Software;
(iv) except for the E/R Litigation, there is no Litigation
pending or to the Company's Knowledge threatened or any written claim from any
Person (A) alleging that the Company's activities or the conduct of its
businesses infringes upon, violates, or constitutes the unauthorized use of the
Intellectual Property rights of any third party or (B) challenging the
ownership, use, validity or enforceability of any Company Intellectual Property;
25
<PAGE>
(v) Except for the E/R Litigation, no legal action has been
brought against any third party by the Company for misappropriating, infringing,
diluting, or violating any Intellectual Property owned by the Company;
(vi) the execution, delivery and performance by the Company of
this Agreement, and the consummation of the transactions contemplated hereby,
will not result in the loss or impairment of, or give rise to any right of any
third party to terminate, any of the Company's rights to own any of its
Intellectual Property or their respective rights under the License Agreements,
nor require the consent of any Governmental Authority or third party in respect
of any such Intellectual Property; and
(vii) The Software, described in Section 4.19(a) of the
Company's Disclosure Schedule, was either (A) developed by employees of Company
within the scope of their employment; (B) developed by independent contractors
who have assigned their rights to the Company pursuant to written agreements; or
(C) otherwise acquired by the Company from a third party. For purposes of this
Section 4.19(c)(vii), "Software" means any and all (V) computer programs,
including any and all software implementations of algorithms, models and
methodologies, whether in source code or object code, (W) databases and
compilations, including any and all data and collections of data, whether
machine readable or otherwise, (X) descriptions, flow-charts and other work
product used to design, plan, organize and develop any of the foregoing, (Y) the
technology supporting any Internet site(s) operated by or on behalf of the
Company, and (Z) all documentation, including user manuals and training
materials, relating to any of the foregoing.
(d) All material Trademarks registered in the United States and in
other jurisdictions have been in continuous use by the Company. To the Knowledge
of the Company, with the exception of "SAM," there has been no prior use of such
Trademarks by any third party which would confer upon said third party superior
rights in such Trademarks; the Company has adequately policed the Trademarks
against third party infringement; and the material Trademarks registered in the
United States and in other jurisdictions have been continuously used in the form
appearing in, and in connection
26
<PAGE>
with the goods and services listed in, their respective registration
certificates or other documents.
(e) The Company has taken reasonable steps in accordance with normal
industry practice to protect the Company's rights in confidential information
and Trade Secrets of the Company. Without limiting the foregoing and except as
would not be materially adverse to the Company, the Company enforces a policy of
requiring each relevant employee, consultant and contractor to execute
proprietary information, confidentiality and assignment agreements substantially
in the Company's standard forms, and, except under confidentiality obligations,
there has been no disclosure by the Company of material confidential information
or Trade Secrets. The Company has taken reasonable steps in accordance with
normal industry practice to acquire and protect the Company's rights in all
Intellectual Property invented, created or developed by employees of the Company
within the scope of their employment.
(f) To the Company's Knowledge, the current versions of its products
(including existing products and technology and products and technology
currently under development) will, when used in accordance with associated
documentation on a specified platform or platforms, be capable upon installation
of accurately processing, providing, and receiving date data from, into, and
between the Twentieth and Twenty-First centuries, including the years 1999 and
2000, and making leap-year calculations, provided that all other non-Company
products (e.g., hardware, software and firmware) used in or in combination with
the Company's products, properly exchange data with the Company's products.
Section 4.20 Pooling; Tax Matters. As of the date hereof, neither the
Company nor any of its Affiliates has taken or agreed to take any action or
failed to take any action that they or any of them have been advised by their
accountants or legal advisers would prevent (a) the Merger from being treated
for financial accounting purposes as a "pooling of interests" in accordance with
GAAP and the Regulations and interpretations of the SEC or (b) the Merger from
constituting a reorganization within the meaning of Section 368(a) of the Code.
27
<PAGE>
Section 4.21 Affiliate Letters. Section 4.21 of the Company's Disclosure
Schedule contains a true and complete list of all Persons who, as of the date
hereof, to the Knowledge of the Company, may be deemed to be Affiliates of the
Company, including all directors and executive officers of the Company.
Section 4.22 Certain Business Practices. To the Knowledge of the Company,
neither the Company nor any director, officer, employee or agent of the Company
has (i) used any funds for unlawful contributions, gifts, entertainment or other
unlawful payments relating to political activity, (ii) made any unlawful payment
to any foreign or domestic government official or employee or to any foreign or
domestic political party or campaign or violated any provision of the Foreign
Corrupt Practices Act of 1977, as amended, assuming the full application of that
Act to the Company, (iii) consummated any transaction, made any payment, entered
into any agreement or arrangement or taken any other action in violation of the
False Claims Act, 31 U.S.CA. ss. 3729, et. seq., as amended, or (iv) made any
other unlawful payment except for the foregoing matters that are not material in
any respect to the Company.
Section 4.23 Brokers. No broker, finder, investment banker or other Person
is entitled to any brokerage, finder's or other fee or commission (excluding
Morrison & Foerster, LLP, counsel to the Company) in connection with the
transactions contemplated by this Agreement based upon arrangements made by or
on behalf of the Company.
28
<PAGE>
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF THE ACQUIROR COMPANIES
The Acquiror Companies hereby represent and warrant to the Company, subject to
the exceptions set forth in the Acquiror's Disclosure Schedule (which exceptions
shall specifically identify a Section, Subsection or clause of a single Section
or Subsection hereof, as applicable, to which such exception relates, it being
understood and agreed that each such exception shall be deemed to be disclosed
both under such Section, Subsection or clause hereof and any other Section,
Subsection or clause hereof to which such disclosure reasonably relates) that:
Section 5.1 Organization and Qualification; Subsidiaries. The Acquiror
Companies are legal entities duly organized, validly existing and in good
standing under the Laws of their respective jurisdictions of incorporation or
organization, have all requisite power and authority to own, lease and operate
their respective properties and to carry on their business as it is now being
conducted and are duly qualified and in good standing to do business in each
jurisdiction in which the nature of the business conducted by them or the
ownership or leasing of their respective properties makes such qualification
necessary.
Section 5.2 Certificate of Incorporation; Bylaws. The Acquiror has
furnished or made available to the Company complete and correct copies of the
certificate of incorporation and the bylaws in each case as amended or restated
to the date hereof, of Acquiror and Newco. Neither the Acquiror nor Newco is in
violation of any of the provisions of its certificate of incorporation or
bylaws.
Section 5.3 Capitalization.
(a) As of the date hereof, the authorized capital stock of Acquiror
consists of (i) 50,000,000 shares of Acquiror Common Stock, par value $0.001 per
share, of which, as of June 16, 2000, 40,327,586 shares were issued and
outstanding, and (ii) 5,000,000 shares of preferred stock, par value $0.001 per
share, of which none are issued or outstanding. All of the outstanding shares of
Acquiror Common Stock are, and all shares to be issued as part of the Merger
Consideration will be, when issued in
29
<PAGE>
accordance with the terms hereof, duly authorized, validly issued, fully paid
and nonassessable.
(b) As of June 16, 2000, except for approximately 3,188,278 shares
of Acquiror Common Stock issuable upon the exercise of options currently
outstanding under the Acquiror's 1988 Stock Option Plan, 1996 Equity Incentive
Plan and 1996 Directors Stock Option Plan, and approximately 461,156 additional
shares of Acquiror Common Stock reserved for issuance under Acquiror's
above-referenced plans and Acquiror's 1996 Employee Stock Purchase Plan, no
shares of Acquiror Common Stock are reserved for issuance, and there are no
contracts, agreements, commitments or arrangements obligating Acquiror to offer,
sell, issue or grant any shares of, or any options, warrants or rights of any
kind to acquire any shares of, or any securities that are convertible into or
exchangeable for any shares of, capital stock of Acquiror.
(c) As of the Closing Date, the authorized capital stock of Newco
will consist of 1,000 shares of common stock, no par value, all of which shares
will be issued to Acquiror.
Section 5.4 Authorization of Agreement. Subject to certain stockholder
approvals regarding the increase in the authorized shares of Acquiror's Common
Stock, the issuance of Acquiror Common Stock in the Merger and the approval and
adoption of Acquiror's 2000 Equity Incentive Plan: each of the Acquiror
Companies has all requisite corporate power and authority to execute and deliver
this Agreement, and each instrument required hereby to be executed and delivered
by the Acquiror Companies at the Closing, and to perform its obligations
hereunder and to consummate the transactions contemplated hereby and thereby;
the execution and delivery by the Acquiror Companies of this Agreement, and each
instrument required hereby to be executed and delivered by the Acquiror
Companies at the Closing, and the performance of their respective obligations
hereunder have been duly and validly authorized by the Board of Directors of
each of Acquiror and Newco and by Acquiror as the sole stockholder of Newco;
except for filing of the Agreement of Merger, no other corporate proceedings on
the part of Acquiror or Newco are necessary to authorize the consummation of the
transactions
30
<PAGE>
contemplated hereby; and this Agreement has been duly executed and delivered by
each of the Acquiror Companies and, assuming due authorization, execution and
delivery hereof by the Company, constitutes a valid and binding obligation of
each of the Acquiror Companies, enforceable against each of the Acquiror
Companies in accordance with its terms, subject to bankruptcy, insolvency,
reorganization, moratorium or similar Laws now or hereafter in effect relating
to creditors' rights generally or to general principles of equity.
Section 5.5 Approvals. Except for the applicable requirements, if any, of
(a) the Securities Act, (b) the Exchange Act, (c) state securities or blue sky
Laws, (d) the HSR Act, (e) Foreign Competition Laws, (f) NASDAQ, (g) the filing
and recordation of appropriate merger documents as required by the CCC and (h)
those Laws, Regulations and Orders noncompliance with which would not in the
aggregate materially impair the ability of Acquiror or Newco to perform its
obligations under this Agreement or be material in any respect to Acquiror, no
notices to, consents or approvals of, or filings or registrations with any Court
or Governmental Authority is required under any Law, Regulation or Order
applicable to Acquiror or Newco to permit Acquiror or Newco to execute, deliver
or perform this Agreement or any instrument required hereby to be executed and
delivered by it at the Closing.
Section 5.6 No Violation. Assuming effectuation of all filings and
registrations with, termination or expiration of any applicable waiting periods
imposed by and receipt of all Permits or Orders of, Courts and/or Governmental
Authorities indicated as required in Section 5.5, neither the execution and
delivery by Acquiror or Newco of this Agreement, or any instrument required
hereby to be executed and delivered by Acquiror or Newco at the Closing nor the
performance by Acquiror or Newco of their respective obligations hereunder or
thereunder will (a) violate or breach the terms of or cause a default under any
Law, Regulation or Order applicable to Acquiror or Newco, the certificate of
incorporation or by-laws of Acquiror or Newco or any contract, note, bond,
mortgage, indenture, license, agreement or other instrument to which Acquiror or
any of its Subsidiaries is a party or by which it or any of its properties or
assets is bound, or (b) with the passage of time, the giving of notice or the
taking of any action by a third
31
<PAGE>
Person, have any of the effects set forth in clause (a) of this Section, except
in any such case for any matters described in this Section 5.6 that would not in
the aggregate have a Material Adverse Effect upon the ability of Acquiror or
Newco to perform its obligations under this Agreement or be material in any
respect to Acquiror.
Section 5.7 Reports.
(a) Acquiror has timely filed all reports required to be filed by it
with the SEC with respect to this Agreement and the transactions contemplated
herein pursuant to the Exchange Act which complied, at the time of filing, in
all material respects with applicable requirements of the Exchange Act
(collectively, the "Acquiror SEC Reports"). None of the Acquiror SEC Reports, as
of their respective dates, contained or, if filed after the date hereof, will
contain any untrue statement of a material fact or omitted or, if filed after
the date hereof, will omit to state a material fact required to be stated
therein or necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading, except to the extent
superseded by an Acquiror SEC Report filed subsequently and prior to the date
hereof.
(b) The consolidated statements of financial position and the
related consolidated statements of operations, stockholders' equity and cash
flows (including the related notes thereto) of Acquiror included in the Acquiror
SEC Reports complied in all material respects with applicable accounting
requirements and the published rules and Regulations of the SEC with respect
thereto, have been prepared in conformity with GAAP (except, in the case of
unaudited statements, as permitted by Form 10-Q of the SEC) applied on a basis
consistent with prior periods (except as otherwise noted therein), and present
fairly the consolidated financial position of Acquiror as at their respective
dates, and the consolidated results of its operations and its cash flows for the
periods presented therein subject, in the case of the unaudited interim
financial statements, to normal year-end adjustments that have not been and are
not expected to be material in amount.
Section 5.8 Absence of Certain Changes or Events. Since December 31, 1999
there has not been a Material Adverse Effect on Acquiror.
32
<PAGE>
Section 5.9 Pooling; Tax Matters. As of the date hereof, neither Acquiror
nor any of its Affiliates has taken or agreed to take any action or failed to
take any action that they or any of them have been advised by their accountants
or legal advisors would prevent (a) the Merger from being treated for financial
accounting purposes as a "pooling of interests" in accordance with GAAP and the
Regulations and interpretations of the SEC or (b) the Merger from constituting a
reorganization within the meaning of Section 368(a) of the Code.
Section 5.10 Affiliates. Section 5.10 of Acquiror's Disclosure Schedule
contains a true and complete list of all Persons who, as of the date hereof, to
the Knowledge of Acquiror, may be deemed to be Affiliates of Acquiror, excluding
all its Subsidiaries but including all directors and executive officers of
Acquiror.
Section 5.11 No Undisclosed Liabilities. Except for the transactions
contemplated herein and proposed transactions related thereto, the Acquiror
Companies have no liabilities or obligations of any nature, whether or not
accrued, contingent or otherwise, except (a) liabilities or obligations
reflected in the Acquiror SEC Reports, (b) liabilities or obligations incurred
in the ordinary course of business consistent with past practice since the date
of the last Acquiror SEC Report which are not, and will not have, individually
or in the aggregate, a Material Adverse Effect on the Acquiror Companies and (c)
liabilities or obligations which are not and will not have, individually or in
the aggregate, a Material Adverse Effect on the Acquiror Companies.
Section 5.12 Litigation. Except as disclosed in the most recent SEC Form
10K filed by Acquiror, as of the date hereof, there is no Litigation pending, or
to the Knowledge of the Acquiror Companies, threatened against the Acquiror
Companies, which if adversely determined would have a Material Adverse Effect on
the Acquiror Companies.
Section 5.13 Compliance with Laws. The Acquiror Companies are not subject
to any written agreement, written directive, memorandum of understanding or
Order with or by any Court or Governmental Authority restricting in any material
respect their operations, except any restriction which would not have a Material
Adverse Effect on the
33
<PAGE>
Acquiror Companies. The Acquiror Companies are not in default in any material
respect of any material Order applicable to the Acquiror' Companies, except any
noncompliance which would not have a Material Adverse Effect on the Acquiror
Companies.
Section 5.14 Insider Trading Policy. Attached as Schedule 5.14 is a true
and correct copy of Acquiror's insider trading policy as of the date of this
Agreement.
ARTICLE VI
COVENANTS RELATING TO THE CONDUCT OF BUSINESS
Section 6.1 Conduct of Business of the Company. Except as set forth in
Section 6 of the Company's Disclosure Schedule, during the period from the date
of this Agreement to the Closing Date (unless Acquiror shall otherwise consent
in writing and except as otherwise expressly contemplated or permitted by this
Agreement), the Company will operate its businesses in good faith with the goal
of preserving intact its assets and current business organizations, keeping
available the services of its current officers and employees, maintaining its
Material Contracts and preserving its relationships with customers, suppliers,
creditors, brokers, distributors, agents and others having business dealings
with them, it being understood that the failure to so preserve, keep or maintain
shall not be a breach of this Section 6 so long as such businesses are operated
in good faith as aforesaid. Without limiting the generality of the foregoing,
and except as otherwise expressly contemplated by this Agreement, or as set
forth in Section 6 of the Company's Disclosure Schedule, or as agreed to in
writing by Acquiror, the Company agrees as follows:
(a) Issuance and Redemption of Securities. The Company shall not
issue, sell or grant any shares of capital stock of any class, or any securities
or rights convertible into, exchangeable for, or evidencing the right to
subscribe for any shares of capital stock, or any rights, warrants, options,
calls, commitments or any other agreements of any character to purchase or
acquire any shares of capital stock or any securities or rights convertible
into, exchangeable for, or evidencing the right to subscribe for, any shares of
capital stock or any other securities in respect of, in lieu of, or in
substitution for, shares outstanding on the date hereof, except the Company may
grant stock options to acquire
34
<PAGE>
up to a total of 25,000 additional shares of Company Common Stock (plus an
additional number of shares equal to the number of shares subject to options
outstanding on the date of this Agreement, as referenced in Section 4.3(b), that
are cancelled unexercised prior to the additional grant) to new hires in the
normal course of its business (at no more than 3,000 shares per option grant)
after the date hereof and prior to the Effective Time without the prior approval
or consent of Acquiror. In no event shall the vesting or exercisability of any
Company stock option or shares of restricted Company Common Stock granted or
issued under the Company Plan, an employment agreement or otherwise be
accelerated as a result of or in connection with the execution, delivery or
performance of this Agreement or the consummation of the transactions
contemplated hereby, except to the extent required under the terms of the
Company Plan or applicable individual agreement as in effect on the date hereof.
(b) Dividends. The Company shall not (i) split, combine, subdivide
or reclassify any shares of its capital stock or (ii) except as provided in
Section 7.11, declare, set aside for payment or pay any dividend, or make any
other distribution in respect of, any of its capital stock, or redeem or
repurchase any of its capital stock or any outstanding options, warrants or
rights of any kind to acquire any shares of, or any outstanding securities that
are convertible into or exchangeable for any shares of, capital stock of the
Company, except for repurchases of unvested shares in connection with the
termination of a relationship with any employee, consultant or director pursuant
to stock option, purchase or other agreements in effect on the date hereof or
approved by Acquiror.
(c) Restructuring. The Company shall not adopt a plan of complete or
partial liquidation, dissolution, merger, consolidation, restructuring,
recapitalization or other reorganization of the Company.
(d) Governing Documents. The Company shall not adopt any amendments
to its articles of incorporation or its bylaws, or alter through merger,
liquidation, reorganization, restructuring or in any other fashion the corporate
structure or ownership of the Company.
35
<PAGE>
(e) Indebtedness. The Company shall not incur any indebtedness for
money borrowed other than in the ordinary course of business or guarantee any
such indebtedness of another Person (other than the Company), enter into any
"keep well" or other agreement to maintain any financial condition of another
Person (other than the Company) or enter into any arrangement having the
economic effect of any of the foregoing in each case, other than (i) in
connection with the financing of ordinary course trade payables in the ordinary
course of business, (ii) pursuant to existing credit facilities in the ordinary
course of business or (iii) the guarantee by the Company of any indebtedness of
any Subsidiary of the Company.
(f) No Acquisitions. The Company shall not acquire or agree to
acquire (i) by merging or consolidating with, or by purchasing a substantial
portion of the assets or capital stock of, or by any other manner, any business
or any corporation, limited liability company, partnership, joint venture,
association or other business organization or division thereof or (ii) any
assets that, individually or in the aggregate, are material to the Company
except with the prior written consent of Acquiror.
(g) No Dispositions. Except in the ordinary course of business, the
Company shall not sell, lease, license or otherwise encumber or subject to any
Lien or otherwise dispose of any of the properties or assets of the Company
that, individually or in the aggregate, are material, in nature or amount, to
the business, properties, prospects or financial condition of the Company.
(h) Capital Expenditures. The Company shall not make or agree to
make any capital expenditures relating to a single project in excess of $100,000
or in the aggregate in excess of $250,000.
(i) Contracts. Except in the ordinary course of business, the
Company shall not (A) enter into any Material Contract, or (B) modify, amend or
transfer in any material respect or terminate any Material Contract to which the
Company is a party or waive, release or assign any material rights or claims
thereunder.
36
<PAGE>
(j) Certain Prohibited Actions. From and after the date of this
Agreement and through the Closing Date, the Company shall not, without the prior
written consent of the Acquiror, directly or indirectly, (i) increase the
compensation payable or to become payable to any officer or director of the
Company except in accordance with existing employment agreements or benefit
plans and except for increases consistent with past practice and which are
reasonably necessary for the operation of the business of the Company, (ii)
adopt, enter into, or amend (except to the extent necessary or advisable to
comply with applicable law) any stock option, bonus, profit sharing, pension,
retirement, deferred compensation, employment or other payment or employee
compensation plan, agreement or arrangement, (iii) grant any stock options or
stock appreciation rights (except as set forth in Section 6.1(a) hereof), (iv)
amend any employment agreement, (v) make any loan or advance to, or enter into
any contract, lease or commitment with, any officer, director or Affiliate of
the Company, except with the prior written consent of Acquiror, (vi) assume,
guarantee, endorse or otherwise become responsible for any material obligations
of any other individual, firm or corporation or make any material loans or
advances to any individual, firm or corporation, except in the ordinary course
of business, (vii) except for investments in equipment and other assets in the
ordinary course of business consistent with existing capital expenditure budgets
(and as permitted under Section 6.1(h) hereof), make any material investment of
a capital nature either by purchase of stock or securities, contributions to
capital, property transfers or otherwise, or by the purchase of any property or
assets of any other individual, firm or corporation, (viii) enter into, modify
or amend in any material respect or take any action to terminate any Material
Contract, except in the ordinary course of business, (ix) waive, release, grant
or transfer any rights of material value relating to the Company's assets,
except in the ordinary course of business, or as contemplated by this Agreement,
(x) transfer, lease, license, sell, mortgage, pledge, dispose of or encumber any
material assets other than in the ordinary course of business, or (xi) enter
into an agreement to do any of the foregoing.
(k) Accounting Policies and Procedures. Except for actions
consistent with the recommendations of KPMG LLP taken in response to the audit
conducted by KPMG LLP, the Company shall not make any change to its accounting
methods,
37
<PAGE>
principles or practices, except as may be required by GAAP, or applicable
statutory accounting principles.
(l) Liens. The Company shall not create, incur or assume any
material Lien on any of its material assets.
(m) Claims. The Company shall not settle any material Litigation or
waive, assign or release any material rights or claims except in either case (i)
in the ordinary course of business and (ii) for any such settlement which (A)
would not impose either material restrictions on the conduct of the business of
the Company or (B) for Litigation items settled for money, involve in the
aggregate in excess of $100,000 in cost to the Company. The Company shall not
pay, discharge or satisfy any liabilities or obligations (absolute, accrued,
asserted or unasserted, contingent or otherwise), except in the ordinary course
of business or in accordance with their terms.
(n) Taxes. The Company shall not make any Tax election or settle or
compromise any material Tax liability, except in respect of ongoing matters or
in the ordinary course of business, or with the prior written consent of
Acquiror.
(o) Insurance. The Company shall use commercially reasonable efforts
to maintain in full force and effect all self-insurance or insurance, as the
case may be, currently in effect.
ARTICLE VII
ADDITIONAL AGREEMENTS
Section 7.1 Access and Information.
(a) The Company will, (i) afford to the Acquiror and its officers,
directors, employees, accountants, consultants, legal counsel, agents and other
representatives (collectively, the "Representatives") full access at reasonable
times upon reasonable prior notice to the officers, employees, agents,
properties, offices and other facilities of the Company and its Subsidiaries and
to their books and records, (ii) furnish promptly to the Acquiror and its
Representatives such information concerning the business, properties, contracts,
records and personnel of the Company (including financial, operating and other
38
<PAGE>
data and information) as may be reasonably requested, from time to time, by or
on behalf of the Acquiror. No investigation by any party hereto shall affect any
representation or warranty in this Agreement of any party hereto or any
condition to the obligations of the parties hereto. All information obtained by
Acquiror pursuant to this Section 7.1 shall be kept confidential in accordance
with the Confidentiality Agreement. The Company will provide KPMG LLP full
access to the Company's officers, employees, agents, properties, offices and
other facilities (and its Subsidiaries, if any) and to its books and records,
(ii) furnish promptly to the KPMG LLP and its Representatives such information
concerning the business, properties, contracts, records and personnel of such
party (including financial, operating and other data and information) as may be
reasonably requested, from time to time, as necessary to permit KPMG LLP to
conduct a full audit of the Company for its fiscal years ending December 31,
1998 and 1999 and a review of the three-month period ending March 31, 2000. All
costs and expense of KPMG LLP in the conduct of such audit and the preparation
of its report or opinion with respect thereto shall be paid by the Acquiror in
the event this Agreement is terminated, provided that if this Agreement is
terminated pursuant to Section 10.1(f) or by Acquiror in breach of this
Agreement, the Company may retain any report received from KMPG, LLP.
(b) It is hereby acknowledged and agreed by Acquiror that the
cooperation and access provided by the Company since the date of the LOI and
prior to the date of this Agreement to Acquiror and KPMG LLP has materially
satisfied the requirements of Section 7.1(a) and, if continued, would satisfy
the requirements of Section 7.1(a) after the date hereof.
Section 7.2 Meeting of Shareholders. The Company, acting through its Board
of Directors, shall, in accordance with the Law and its articles of
incorporation and bylaws, promptly and duly call, give notice of, convene and
hold a special meeting of the Company's shareholders, or obtain the written
consent of all of the Company's shareholders, as soon as practicable, but not
later than three (3) business days, following the date of the granting of the
Permit (as defined in Section 7.10 hereof). The Board of Directors of the
Company shall declare that this Agreement is advisable and recommend that the
Agreement and the transactions contemplated herein be approved and adopted by
39
<PAGE>
the shareholders of the Company. The Company shall use its reasonable best
efforts to obtain from all the shareholders of the Company the approval and
adoption of this Agreement and the Merger and to secure the vote or written
consent of shareholders required by the Law and its articles of incorporation
and bylaws to approve and adopt this Agreement and the Merger.
Section 7.3 Proxy Statement - Meeting of Stockholders.
(a) Proxy. As promptly as practicable following the date of
execution of this Agreement by the parties hereto, the Acquiror and the Company
shall work together to complete preparation of Acquiror's preliminary Proxy
Statement relating to the Merger and this Agreement, such that Acquiror can
submit such preliminary Proxy Statement to the SEC on or before June 23, 2000,
and to obtain and furnish the information required to be included by the SEC in
the Proxy Statement and respond promptly to any comments made by the SEC with
respect to the Proxy Statement to be mailed to Acquiror's stockholders at the
earliest practicable date. Notwithstanding the foregoing, neither party shall be
considered in default of this Agreement if Acquiror's preliminary Proxy
Statement is not submitted to the SEC by June 23, 2000.
(b) Meeting of Stockholders. Acquiror shall, in accordance with the
CCC and its certificate of incorporation and bylaws, promptly and duly call,
give notice of, convene and hold as soon as practicable following the date
hereof, the annual meeting of the Acquiror's stockholders. The Board of
Directors of Acquiror shall declare that this Agreement and the Merger are
advisable and recommend that the authorization and issuance of the Acquiror
Common Stock pursuant to the Merger be approved and adopted by the stockholders
of the Acquiror. The Acquiror shall use its reasonable best efforts to obtain
from all the stockholders of the Acquiror the approval to issue the Acquiror's
Common Stock in the Merger as required by the Regulations of the NASDAQ.
Section 7.4 Appropriate Action; Consents; Filings
(a) The Company and Acquiror will each use reasonable efforts (i) to
take, or to cause to be taken, all appropriate action, and to do, or to cause to
be done, all things
40
<PAGE>
necessary, proper or advisable under applicable Law or otherwise to consummate
and make effective the Merger and the transactions contemplated by this
Agreement, unless the Board of Directors of the Acquiror has withdrawn its
recommendation of this Agreement in compliance herewith (in which case Acquiror
shall notify the Company within 24 hours of such withdrawal), (ii) to obtain
from any Governmental Authorities any Permits or Orders required to be obtained
by Acquiror or the Company or any of their Subsidiaries in connection with the
authorization, execution, delivery and performance of this Agreement and the
consummation of the transactions contemplated hereby, including the Merger,
(iii) to make all necessary filings, and thereafter make any other required
submissions, with respect to this Agreement and the Merger required under (A)
the Securities Act and the Exchange Act, and any other applicable federal or
state securities Laws, (B) the HSR Act (C) Foreign Competition Laws and (D) any
other applicable Law; provided that Acquiror and the Company will cooperate with
each other in connection with the making of all such filings, including
providing copies of all such documents to the nonfiling party and its advisors
prior to filings and, if requested, will accept all reasonable additions,
deletions or changes suggested in connection therewith and (iv) to furnish all
information required for any application or other filing to be made pursuant to
any applicable Law or any applicable Regulations of any Governmental Authority
(including all information required to be included in the Proxy Statement and
the Hearing Documents, as defined in Section 7.10 hereof) in connection with the
transactions contemplated by this Agreement provided, however, that neither
Acquiror nor any of its Affiliates shall be under any obligation to make
proposals, execute or carry out agreements or submit to Orders providing for the
sale or other disposition or holding separate (through the establishment of a
trust or otherwise) of any material (in nature or amount) assets or categories
of material (in nature or amount) assets of Acquiror, any of its Affiliates or
the Company or the holding separate of the shares of Company Common Stock or
imposing or seeking to impose any material limitation on the ability of Acquiror
or any of its Subsidiaries or Affiliates to conduct their business or own such
assets or to acquire, hold or exercise full rights of ownership of the shares of
Company Common Stock.
41
<PAGE>
(b) Each of the Company and Acquiror will give prompt notice to the
other of (i) any notice or other communication from any Person alleging that the
consent of such Person is or may be required in connection with the Merger, (ii)
any notice or other communication from any Governmental Authority in connection
with the Merger, (iii) any Litigation, relating to or involving or otherwise
affecting the Company, Acquiror or their Subsidiaries that relates to the
consummation of the Merger; and (iv) any change that is reasonably likely to
have a Material Adverse Effect on the Company or Acquiror.
(c) Each of the Company and Acquiror will give any notices to third
Persons, and use reasonable efforts to obtain any consents from third Persons
necessary, proper or advisable (as reasonably determined in good faith by
Acquiror with respect to such notices or consents to be delivered or obtained by
the Company) to consummate the Merger and the transactions contemplated by this
Agreement.
(d) The Company shall notify Acquiror immediately upon the
occurrence of any "Encumbrance" that may adversely affect the Company's right to
sublicense any Intellectual Property rights owned or licensed by the Company
(including the right to further sublicense such rights), including, without
limitation, Intellectual Property rights contained in the Company's clients' or
server software, including development tools, tests and other development
components, which will exist as of the Closing Date, and any maintenance
upgrades and new releases of such software, if any, which may be in progress at
the Company as of the Closing Date, and/or any components of the foregoing
(collectively, the "Software Products"). "Encumbrance" means any restriction or
limit that would prevent or materially limit or restrict the Company's ability
to sublicense any Intellectual Property right owned or licensed by the Company
(including the right to further sublicense such rights) with respect to the
Software Products, including, without limitation, limitations on source code
access and sublicensing rights, as well as prohibitions or required consents to
assignment of rights from the Company to the Acquiror upon the Closing Date,
which rights, if not available, would constitute an Encumbrance. If requested by
Acquiror, the Company shall use reasonable efforts in consultation with Acquiror
to remove, limit or diminish such Encumbrances in a reasonable priority order
designated by Acquiror, provided that any action or refrain from
42
<PAGE>
action shall be at the sole discretion of the Company and that the Company shall
not be required to initiate legal proceedings or license its technology in
response to any such request from Acquiror.
Section 7.5 Affiliates; Pooling; Tax Treatment.
(a) The Company will use reasonable efforts to obtain an executed
letter agreement substantially in the form of Exhibit A hereto from (i) each
Person identified in Section 4.21 of the Company's Disclosure Schedule within 15
days following the execution and delivery of this Agreement and (ii) from any
Person who, to the Company's Knowledge, may be deemed to have become an
Affiliate of the Company after the date of this Agreement and prior to the
Effective Time as soon as practicable after attaining such status.
(b) Acquiror will use reasonable efforts to obtain an executed
letter agreement substantially in the form of Exhibit B hereto from (i) each
Person identified in Section 5.10 of Acquiror's Disclosure Schedule within 15
days following the execution and delivery of this Agreement and (ii) from any
Person who, to Acquiror's Knowledge, may be deemed to have become an Affiliate
of Acquiror after the date of this Agreement and prior to the Effective Time as
soon as practicable after attaining such status.
(c) (i) Acquiror and the Company will each use reasonable efforts
before and after the Closing to cause the Merger to qualify as a reorganization
within the meaning of Section 368(a) of the Code, and will not take, and will
use reasonable efforts to prevent any Affiliate of such party from taking, any
actions which could prevent the Merger from qualifying as such a reorganization,
and will take such action as is available and may be reasonably required to
negate the impact of any past actions by such party or its respective Affiliates
which would reasonably be expected to adversely impact the qualification of the
Merger as a reorganization within the meaning of Section 368(a) of the Code.
(ii) As of the date hereof, the Company does not know of any
reason why it would not be able to deliver to Morrison & Foerster LLP, at the
date of the
43
<PAGE>
legal opinion referred to below, a certificate substantially in the form
attached hereto as Exhibit C-1, to enable such firm to deliver the legal opinion
contemplated by Section 9.3(c), and the Company hereby agrees to deliver such a
certificate effective as of the date of such opinions.
(iii) As of the date hereof, neither Acquiror nor Newco knows
of any reason why it would not be able to deliver to Morrison & Forerster LLP,
at the date of the legal opinion referred to below, a joint certificate
substantially in the form attached hereto as Exhibit C-2 to enable such firm to
deliver the legal opinion contemplated by Section 9.3(c), and the Acquiror and
Newco hereby agree to deliver such a certificate effective as of the date of
such opinions.
(d) (i) Acquiror and the Company will each use reasonable efforts
before and after the Closing to cause the Merger to qualify as a "pooling of
interests" for financial reporting purposes under GAAP and under SEC rules,
regulations and interpretations, and will not take, and will use reasonable
efforts to prevent any Affiliate of such party from taking, any actions which
could prevent the Merger from qualifying as such a "pooling of interests."
Acquiror and the Company understand that the grant of certain options permitted
under Section 6.1(a) hereof and the payment of dividends under Section 7.11
hereof are not actions that would prevent the Merger from being so treated.
Acquiror and the Company will each use reasonable efforts to obtain an executed
representation letter described in Section 9.2(c).
(ii) Acquiror will not knowingly take, or knowingly permit any
controlled Affiliate of Acquiror to take, any actions which could prevent the
Merger from being treated for financial accounting purposes as a "pooling of
interests" under GAAP, it being understood and agreed that if KPMG LLP advises
Acquiror that an action would not prevent the Merger from being so treated, such
action will be conclusively deemed not to constitute a breach of this Section
7.5 (d)(ii).
(iii) The Company will not knowingly take, or knowingly permit
any controlled Affiliate of the Company to take, any actions that could prevent
the Merger from being treated for financial accounting purposes as a "pooling of
interests"
44
<PAGE>
under GAAP, it being understood and agreed that if KPMG LLP advises the Company
that an action would not prevent the Merger from being so treated, such action
will be conclusively deemed not to constitute a breach of this Section 7.5
(d)(iii). Acquiror and the Company understand that the grant of certain options
permitted under Section 6.1(a) hereof and the payment of dividends under Section
7.11 hereof are not actions that would prevent the Merger from being so treated.
Section 7.6 Public Announcements. The parties will consult with each other
and will mutually agree upon any press release or public announcement pertaining
to the Merger and shall not issue any such press release or make any such public
announcement prior to such consultation and agreement, except as may be required
by applicable Law or by obligations pursuant to any listing agreement with any
national securities exchange or national automated quotation system, in which
case the party proposing to issue such press release or make such public
announcement shall use reasonable efforts to consult in good faith with the
other party before issuing any such press release or making any such public
announcement. Notwithstanding the foregoing, Company acknowledges and agrees
that Acquiror will issue a press release announcing the execution of this
Agreement, when and as it deems necessary in its sole discretion. Subject to
Acquiror's final determination of the content of such release, Acquiror shall
consult with Company prior to issuing such release and consider in good faith
any comments and suggestions of Company.
Section 7.7 Employee Benefit Plans.
(a) Acquiror agrees that individuals who are employed by the Company
immediately prior to the Effective Time shall become employees of the Surviving
Corporation following the Effective Time (each such employee, an "Affected
Employee"); provided, however, that this Section 7.7(a) shall not be construed
to limit the ability of the applicable employer to terminate the employment of
any Affected Employee at any time.
(b) For a period of not less than six months following the Effective
Time, Acquiror, in its sole and absolute discretion, shall either: (i) continue
(or cause Surviving
45
<PAGE>
Corporation to continue) to maintain Employee Plans that in the aggregate are
comparable to those in effect immediately prior to the Effective Time, or (ii)
arrange for each Affected Employee who is a participant in the Employee Plans
("Participants") to participate in Acquiror's (or its applicable Subsidiary's)
plans that are in the aggregate comparable to those provided to other similarly
situated (as to seniority, job description and salary) employees of Acquiror and
its other Subsidiaries from time to time ("Acquiror Plans"), or (iii) a
combination of clauses (i) and (ii). Notwithstanding the foregoing, the
Company's money purchase pension plan shall be terminated effective not later
than the Effective Time, without Acquiror providing any corresponding employee
benefit plan, and such money purchase pension plan shall not be taken into
account under clause (i) or (iii) above for purposes of determining whether
comparable employee benefit plans are provided after the Effective Time. Each
Participant who continues to be employed by Acquiror (or any of its
Subsidiaries) immediately following the Effective Time shall receive full credit
for years of service with the Company prior to the Effective Time for purposes
of service and waiting period requirements, eligibility to participate, future
benefit accrual, determination of level of benefits and vesting under Acquiror
Plans (other than any incentive compensation, bonus or similar plans), to the
same extent such years of service are taken into account under corresponding
Employee Plans (or, if there is no corresponding Employee Plan, the Acquiror
Plan) prior to the Effective Time. The foregoing provisions shall not be
construed to require the Acquiror Companies or the Surviving Corporation to
provide or accrue any benefit under any Acquiror Plan for any period of time
prior to the Effective Time. If option (ii) or (iii) is elected, then, to the
extent permitted by the applicable insurance carrier without undue charge,
Acquiror shall cause any and all pre-existing condition (or actively-at-work or
similar) limitations, eligibility waiting periods and evidence of insurability
requirements under any group health plans to be waived with respect to such
Participants and their eligible dependents and shall provide them with credit
for co-payments, deductibles, and offsets (or similar payments) prior to the
Effective Time for purposes of satisfying any applicable deductible,
out-of-pocket, or similar requirements under any Acquiror Plans in which they
are eligible to participate after the Effective Time. Additionally, upon
Acquiror's
46
<PAGE>
written request, the Company shall terminate any 401(k) plan it maintains, such
termination to be effective not less than one day prior to the Closing Date.
(c) The Acquiror intends to have the Surviving Corporation continue
to maintain, after the Effective Time, the day care center facility and program
operated by the Company as of the Effective Time, but shall have no obligation
to continue the day care center for any specific period of time.
(d) No Affected Employee, Participant or beneficiary shall be
considered a third party beneficiary of this Section 7.7 or any other provision
of this Agreement.
Section 7.8 Indemnification of Principal Shareholders for Elan/Rainbow
Corporation Litigation Matter. From and after the Effective Time, Acquiror shall
cause the Surviving Corporation to provide legal counsel, defend and hold
harmless each of the Principal Shareholders (and their successors and assigns)
after Closing from and against any costs, expenses or obligations (including
court costs, reasonable attorneys', accountants' and other professional
advisors' fees and associated expenses) incurred or suffered by any of the
Principal Shareholders (and their successors and assigns) in the defense of any
claim made or asserted against any of the Principal Shareholders (the "Legal
Defense Costs"), in connection with the E/R Litigation. In addition, the
Acquiror shall cause the Surviving Corporation to indemnify, defend and hold
harmless each of the Principal Shareholders (and their successors and assigns)
from and against any damages, claims, costs, losses, liabilities, expenses or
obligations incurred or suffered by any of the Principal Shareholders (and their
successors and assigns), in addition, and without regard, to the Legal Defense
Costs, as a result of or arising from any claims made or liabilities asserted
against any of the Principal Shareholders in connection with the E/R Litigation
(the "Litigation Liability").
Section 7.9 Event Notices. From and after the date of this Agreement until
the Effective Time, each party hereto will promptly notify the other party
hereto of (i) the occurrence or nonoccurrence of any event the occurrence or
nonoccurrence of which would be likely to cause any condition to the obligations
of such party to effect the Merger and the other transactions contemplated by
this Agreement not to be satisfied and
47
<PAGE>
(ii) the failure of such party to comply with any covenant or agreement to be
complied with by it pursuant to this Agreement which would be likely to result
in any condition to the obligations of such party to effect the Merger and the
other transactions contemplated by this Agreement not to be satisfied. No
delivery of any notice pursuant to this Section 7.9 will cure any breach of any
representation or warranty of such party contained in this Agreement or
otherwise limit or affect the remedies available hereunder to the party
receiving such notice.
Section 7.10 California Fairness Hearing.
(a) As soon as reasonably practicable, but in no event later than
ten (10) business days, following the date hereof, Acquiror shall apply to the
California Commissioner of Corporations for a permit (the "Permit") and request
a hearing on the fairness of the Merger Consideration to be issued in the Merger
(the "Fairness Hearing"), to qualify the issuance of Acquiror Common Stock to
the shareholders of the Company pursuant to the exemption from the registration
requirements of the Securities Act provided by Section 3(a)(10) of the
Securities Act. Acquiror, with the full cooperation and assistance of the
Company, shall prepare and file with the California Department of Corporations
an Application for Qualification of Securities by Permit under Section 25121 of
the California Corporate Securities Law of 1968, as amended, and related
materials required to be filed in connection with such Application
(collectively, the "Hearing Documents"). Acquiror and the Company will
thereafter endeavor in good faith to obtain a finding of fairness and the
issuance of a Permit to such effect by the California Department of Corporations
as a result of such hearing. All parties hereto shall proceed expeditiously and
cooperate fully in making available all information necessary to complete the
Permit application and to participate as may be necessary or appropriate at the
Fairness Hearing. The Company shall promptly inform Acquiror, at any time prior
to the Effective Time, of any event or information discovered by the Company
that should be set forth in an amendment to the Hearing Documents.
(b) The information provided by the Company and Acquiror shall not
contain any untrue statement of a material fact or omit to state any material
fact required
48
<PAGE>
to be stated therein or necessary to make the statements therein, in light of
the circumstances under which they were made, not misleading. Whenever the
Company obtains any Knowledge of any event that cause any of such information
provided by the Company to contain any untrue statement of a material fact or
omit to state any material fact required to be stated therein or necessary to
make the statements therein, in light of the circumstances under which they were
made, not misleading, the Company shall promptly inform Acquiror. The Company
shall promptly inform Acquiror if it obtains any Knowledge of any event or
occurrence that should be set forth in an amendment or a supplement to any
application or other documents relating to the exemption from registration, and
will cooperate in mailing to the shareholders such amendments or supplements as
may be appropriate.
(c) The Company and the Principal Shareholders hereby confirm that
they have independently evaluated the fairness of the Merger Consideration and
have bargained for the Merger Consideration in exchange for the Company's Common
Stock. The Company and the Principal Shareholders agree not to object at the
fairness hearing to the fairness of the Merger Consideration for the Company's
shareholders.
Section 7.11 Post-Execution Distributions. Acquiror agrees that prior to
the Effective Time, the Company may, consistent with past corporate practice in
the ordinary course of business, make distributions of Company income with
respect to its stock and may make such additional distributions to its
shareholders in amounts equal to their federal, state and local income and FICA
and FUTA tax and other similar tax liability for the short-year taxable year
ending on the Effective Time assuming the shareholders are in the maximum
marginal federal and state income tax brackets.
Section 7.12 Lease Amendment. At the Effective Time, the Surviving
Corporation shall enter into an amendment to the office building lease with the
Principal Shareholders for the current premises of the Company at 1530 Meridian
Avenue, San Jose, CA 95125, in the form attached hereto as Schedule 7.12. At the
Effective Time, the real property management agreement between the Company and
the Principal Shareholders relating to said property shall be terminated.
49
<PAGE>
Section 7.13 Reasonable Efforts and Further Assurances. Subject to the
terms and conditions hereof, each of the parties to this Agreement shall use
reasonable efforts to effectuate the transactions contemplated hereby and to
fulfill and cause to be fulfilled the conditions to Closing under this
Agreement. Subject to the terms and conditions hereof, 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 this Agreement and the
transactions contemplated hereby.
ARTICLE VIII
FURTHER REPRESENTATION, WARRANTIES AND COVENANTS
The Company and the Principal Shareholders, jointly and severally, hereby make
the following representations, warranties and covenants to the Acquiror
Companies, subject to the exceptions set forth in the Company's Disclosure
Schedule (which exceptions shall specifically identify a Section, subsection or
clause of a single Section or Subsection of this Article VIII, as applicable, to
which such exception relates), that:
Section 8.1 Representations and Warranties of Company. The representations
and warranties of the Company contained in Article IV are true and correct.
Section 8.2 No Solicitation Covenant. From the date hereof until the
earlier of the Effective Time or the termination of this Agreement in accordance
with its terms, neither the Company nor any Principal Shareholder shall (whether
directly or indirectly through advisors, agents or other intermediaries), and
the Principal Shareholders and the Company shall cause the Company's officers,
directors, advisors, representatives or other agents not to, (a) solicit,
initiate or encourage any Acquisition Proposal (as defined herein) or (b) engage
in discussions or negotiations with, or disclose any non-public information
relating to the Company or afford access to the properties, books or records of
the Company to, any Person that has made an Acquisition Proposal or has advised
the Company that it is interested in making an Acquisition Proposal. The Company
and the Principal Shareholders shall as promptly as practicable provide Acquiror
with a copy of any written Acquisition Proposal received and a written statement
with respect to any
50
<PAGE>
nonwritten Acquisition Proposal received, which statement shall include the
identity of the Person making the Acquisition Proposal and the material terms
thereof. The Company and the Principal Shareholders shall inform Acquiror as
promptly as practicable of any change in the price, structure, form of
consideration or material terms and conditions regarding the Acquisition
Proposal. For purposes of this Agreement, "Acquisition Proposal" means any offer
or proposal for a merger, consolidation, recapitalization, liquidation or other
business combination involving the Company (or any of its Subsidiaries) or the
acquisition or purchase of 5% or more of any class of equity securities of the
Company or any of its Subsidiaries, or any tender offer or exchange offer, that,
if consummated, would result in any Person (other than Acquiror and its
affiliates) beneficially owning 5% or more of any class of equity securities of
the Company (or any of its Subsidiaries), or the acquisition, license or
purchase of a substantial portion of the technology, business or assets of the
Company (and its Subsidiaries), other than the transactions contemplated by this
Agreement.
Section 8.3 No Derogation. From and after the date hereof, none of the
Principal Shareholders nor any Person claiming any rights through any of them,
shall challenge the title in and to any of the Intellectual Property of the
Company or the ownership or rights in the Intellectual Property of either the
Acquiror or the Surviving Corporation, including, but not limited to, Acquiror's
or the Surviving Corporation's rights in and to all renewals, extensions,
continuations, restorations and reversions of, in and to the Intellectual
Property, nor will any of the Principal Shareholders or any Person claiming any
rights through any of them take any action or conclude any contract, agreement
or license which will result in a breach of any contract, agreement or license
to be assumed by Acquiror or the Surviving Corporation hereunder or which will
result in a reduction or diminution of Acquiror's or the Surviving Corporation's
rights in the Intellectual Property acquired pursuant to this Agreement or by
reason of the Merger or the income to be derived by Acquiror or the Surviving
Corporation as the owner and proprietor of the Intellectual Property.
Section 8.4 Covenant of Approval of Agreement; Accounting and Tax Effects.
51
<PAGE>
(a) The Principal Shareholders, jointly and severally, irrevocably
and unconditionally, hereby covenant to and for the benefit of the Acquiror
Companies that they shall (i) vote for the approval of the transactions
contemplated herein by the Company as set forth in this Agreement, as members of
the Board of Directors of the Company, and vote, or provide their written
consent with respect to, all of their shares of capital stock in the Company for
such approval; (ii) recommend approval of the transactions contemplated herein
as set forth in this Agreement to all other Company shareholders, and to the
other members of the Board of Directors of Company; (iii) tender all of their
shares of capital stock in the Company in exchange for Acquiror Common Stock
pursuant to the terms of this Agreement; and (iv) not object to the fairness of
the Merger Consideration for the Company's shareholders with respect to all
shares of Company Common Stock owned, controlled or administered by the
Principal Shareholders.
(b) The Principal Shareholders, jointly and individually, shall not
knowingly take any action that could prevent the Merger from being treated for
financial accounting purposes as a "pooling of interests" under GAAP. However,
Acquiror and the Principal Shareholders understand that the granting of options
under Section 6.1(a) hereof and the payment of dividends under Section 7.11
hereof, are not actions that could prevent the Merger from being so treated. If
KPMG LLP advises the Principal Shareholders in writing that an action would not
prevent the Merger from being so treated, any of such actions shall not
constitute a breach of this Section 8.4(b).
Section 8.5 Covenant of Good Faith Negotiations to Closing. The Company
and the Principal Shareholders, jointly and severally, hereby covenant for the
benefit of the Acquiror Companies that, in the event (i) this Agreement is
terminated pursuant to Section 10.1(b) or Section 10.1(g) hereof, in any such
case without the mutual consent of the Acquiror, and (ii) either the Company or
any of the Principal Shareholders enter into, either directly or indirectly, an
agreement, option or proxy regarding the vote for, or the sale, exchange or
other disposition of, a majority of the Company's capital stock, including the
issuance of new shares or other securities convertible into or exchangeable for
capital stock of the Company (other than an initial public offering of the
Company's
52
<PAGE>
capital stock), or a majority of the assets of the Company, with the total
consideration in such transaction having a fair market value in excess of $1
billion, however effected, within three months following any such termination,
then the Company shall pay the Acquiror a termination fee in an amount equal to
five (5%) percent of the fair market value of the total consideration to be
received by the Company and its shareholders, officers and directors as provided
in any such agreement, option or proxy (the "Termination Fee"). The Company
shall pay the Termination Fee to Acquiror by wire transfer of same day funds
promptly, but not later than two Business Days after satisfaction of the
conditions to the payment thereof set forth herein.
Section 8.6 Indemnification.
(a) Indemnification by Principal Shareholders. From and after the
Closing, each of the Principal Shareholders, jointly and severally, shall
indemnify, defend and hold harmless Acquiror and each of its respective
subsidiaries, affiliates, officers, directors, employees, contractors, agents,
successors and assigns after Closing (such persons collectively referred to
herein as "Acquiror Indemnified Persons") from and against any damages, claims,
costs, losses, liabilities, expenses or obligations (including interest,
penalties, court costs, costs of preparation and investigation, reasonable
attorneys', accountants' and other professional advisors' fees and associated
expenses) (collectively, "Losses") incurred or suffered by any Acquiror
Indemnified Person, directly or indirectly, as a result of or arising from any
breach of any representation or warranty of the Principal Shareholders contained
in Article VIII hereof or the nonfulfillment of any covenant, agreement or other
obligation of the Principal Shareholders, set forth in Article VIII of this
Agreement, or any agreement, schedule, instrument, certificate or other document
delivered or to be delivered by the Principal Shareholders pursuant hereto.
(b) Indemnification by Principal Shareholders -- Notice and
Procedure. All claims for indemnification by any Acquiror Indemnified Person
against the Principal Shareholders under any provision of this Section 8.6 shall
be asserted and resolved as follows:
53
<PAGE>
(i) Third Party Claims. If any claim or demand for which
Principal Shareholders would be liable for Losses to an Acquiror Indemnified
Person is asserted against or sought to be collected by a third Person (other
than an Existing Claim as described in Section 8.6 (b)(ii) hereof) (a "Third
Party Claim"), the Acquiror Indemnified Person shall deliver a Claim Notice (as
defined below) with reasonable promptness to the Principal Shareholders. If the
Acquiror Indemnified Person fails to deliver the Claim Notice to the Principal
Shareholders within thirty (30) days after the Acquiror Indemnified Person
receives written notice of such Third Party Claim, Principal Shareholders will
not be obligated to indemnify the Acquiror Indemnified Person with respect to
such Third Party Claim if, and only to the extent that, the Principal
Shareholders' ability to defend the Third Party Claim has been materially
prejudiced by such failure. The Acquiror Indemnified Person shall have the sole
and exclusive right to elect to defend against any Third Party Claim, which
defense, if such election is made, shall be at the sole cost and expense of the
Acquiror Indemnified Person, by notifying the Principal Shareholders within
twenty (20) days of delivery of the Claim Notice (the "Notice Period"). The
refusal by the Acquiror Indemnified Person to defend against any Third Party
Claim shall not constitute an admission by the Acquiror Indemnified Person that
the Claim is one for which the Principal Shareholders are not liable under this
Section 8.6, to the extent provided herein, or in any way waive or reduce
Principal Shareholders' indemnification obligation to the Acquiror Indemnified
Persons hereunder.
(A) Control of Defense. If the Acquiror Indemnified
Person elects to defend against the Third Party Claim, then such Acquiror
Indemnified Person will have the sole and exclusive right to defend the Third
Party Claim by all appropriate proceedings in its judgment and reasonable
discretion, which proceedings will be diligently prosecuted by the Acquiror
Indemnified Person to a final conclusion or settled at the discretion of the
Acquiror Indemnified Person (with the consent of the Principal Shareholders,
which consent will not be unreasonably withheld). The Acquiror Indemnified
Person will have full control of such defense and proceedings; provided that the
Principal Shareholders may file, at the sole cost and expense of the Principal
Shareholders, any motion, answer or other pleading that the Principal
Shareholders may deem necessary or appropriate to protect their interests and
not
54
<PAGE>
prejudicial to the Acquiror Indemnified Person; and provided further that, if
requested by the Principal Shareholders, the Acquiror Indemnified Person shall
consult with, at the sole cost and expense of the Principal Shareholders, with
Principal Shareholders and their counsel in contesting any Third Party Claim
that the Acquiror Indemnified Person elects to contest or, if appropriate in the
judgment of the Acquiror Indemnified Person and related to the Third Party
Claim, in making any counterclaim or cross-claim against any person (other than
any Acquiror Indemnified Person). Principal Shareholders may participate in, but
not control, any defense or settlement of any Third Party Claim assumed by the
Acquiror Indemnified Person pursuant to this Section 8.6(b)(i)(A) and Principal
Shareholders will bear their own costs and expenses with respect to such
participation.
(B) Election Not to Defend. If the Acquiror Indemnified
Person fails to notify the Principal Shareholders within the Notice Period that
the Acquiror Indemnified Person intends to defend against the Third Party Claim,
or if such notice states that the Acquiror Indemnified Person elects not to
defend the Third Party Claim, then Principal Shareholders shall take full
control of the defense of the Third Party Claim, at Principal Shareholders' sole
cost and expense, by all appropriate proceedings, which proceedings will be
prosecuted diligently by the Principal Shareholders to a final conclusion or
settled at the discretion of the Principal Shareholders.
(C) Principal Shareholders Payments of Costs and
Indemnity. Upon a final resolution of such Third Party Claim, Principal
Shareholders shall pay the Acquiror Indemnified Persons for all Losses incurred
or suffered. A final resolution of a Third Party Claim shall include (i) a
decision, judgment, decree or other order by any court of competent
jurisdiction, (ii) a settlement agreement entered into whether or not in
connection with an administrative or judicial proceeding or (iii) the expiration
of the applicable statute of limitations (including extension) for such Third
Party Claim. Subject to its sole discretion, an Acquiror Indemnified Person
shall not be required to appeal any adverse judicial determination.
55
<PAGE>
(ii) Existing Claims. If any claim or demand has been made
against either of the Principal Shareholders and remains unresolved as of the
Closing Date (other than in the E/R Litigation) relating to a claim for which
Principal Shareholders may be liable for Losses to an Acquiror Indemnified
Person ("Existing Claims"), Principal Shareholders shall have the right to
defend and control the defense of any such Existing Claims, at Principal
Shareholders' sole cost and expense. Acquiror may participate in, but not
control, any defense or settlement of any Existing Claims assumed by Principal
Shareholders and Acquiror will bear its own costs and expenses with respect to
such participation. If Principal Shareholders fail to defend diligently against
any such Existing Claims, Acquiror shall have the right to take full control of
the defense of such Existing Claim, at Principal Shareholders' sole cost and
expense, by all appropriate proceedings, which proceedings will be prosecuted
diligently by Acquiror to a final conclusion or settled at the discretion of
Acquiror. Upon final resolution of such Existing Claims, Principal Shareholders
shall pay all amounts due all third Persons and shall pay the Acquiror
Indemnified Persons for all Losses suffered, paid or incurred with respect to
such Existing Claims and all reasonable fees and expenses incurred by the
Acquiror Indemnified Persons if such Acquiror Indemnified Person shall have
taken control of such defense, as provided herein.
(iii) Acquiror Indemnity Claims. In the event any Acquiror
Indemnified Person should have a claim against any of the Principal Shareholders
hereunder that is not a Third Party Claim, the Acquiror Indemnified Person shall
deliver an Indemnity Notice (as defined below) with reasonable promptness to the
Principal Shareholders. The failure by any Acquiror Indemnified Person to give
timely notice referred to in the preceding sentence shall not impair such
party's rights hereunder except to the extent that Principal Shareholders
demonstrate that they have been materially prejudiced thereby. If the Principal
Shareholders fail to notify the Acquiror Indemnified Person within thirty (30)
days following its receipt of the Indemnity Notice that the Principal
Shareholders dispute their obligation to indemnify the Acquiror Indemnified
Person hereunder, the claim will be conclusively deemed a liability of the
Principal Shareholders hereunder. If the Principal Shareholders timely dispute
their liability with respect to a claim described in an Indemnity Notice, the
Principal Shareholders and the
56
<PAGE>
Acquiror Indemnified Person shall proceed promptly and in good faith to
negotiate a resolution of such dispute within sixty (60) days following receipt
by the Principal Shareholders of an Indemnity Notice.
(iv) Principal Shareholders Payments - No Right to Set-Off. No
payment required to be made by Principal Shareholders pursuant to this Section
8.6 shall be subject to any right of set-off, counterclaim, defense, abatement,
suspension, deferment or reduction, and Principal Shareholders shall have no
right to be released, relieved, or discharged from any obligations or liability
under this Section 8.6 of this Agreement for any reason whatsoever.
(c) Indemnification by the Acquiror. From and after the Closing
Date, the Acquiror shall indemnify, defend and hold harmless the Principal
Shareholders and each of their respective successors and assigns after Closing
(such persons, collectively, "Principal Shareholders' Indemnified Persons") from
and against any Losses incurred or suffered by Principal Shareholders
Indemnified Persons, directly or indirectly, as a result of or arising from any
breach of or the nonfulfillment of the covenants, agreements or other
obligations of the Acquiror, set forth in Section 7.8 of this Agreement.
(d) Survival of Representation, Warranties, Covenants and
Agreements. The representations and warranties, covenants and agreements
respectively made by Principal Shareholders, on the one hand, and the Acquiror,
on the other hand, in this Agreement or in any certificate or Schedule
respectively delivered by Principal Shareholders or the Acquiror will survive
the Closing and be effective for the benefit of the Acquiror Indemnified Persons
or Principal Shareholders, as the case may be, and their respective successors
and assigns, for a period of 12 months following the Closing Date, provided,
however, that, with respect to any items that are subject to resolution through
the audit process, the period shall end on the completion date of the first
audit of Acquiror's financial statements after the Closing, if earlier. In
addition, Acquiror's covenants and agreements made in Section 7.8 of this
Agreement shall continue to survive and be effective for the benefit of the
Principal Shareholders until ninety (90) days after the termination, settlement,
dismissal or a final nonappealable judgment is
57
<PAGE>
issued, entered or concluded in the E/R Litigation matter referred to therein.
Notwithstanding the foregoing, any breach or nonfulfillment of the
representations and warranties, covenants and agreements made by Principal
Shareholders in this Agreement or in any certificate or Schedule delivered by
Principal Shareholders to Acquiror, which breach or nonfulfillment results from
the fraudulent conduct of any Principal Shareholder will survive the Closing and
be effective for the benefit of Acquiror and its respective successors and
assigns, for a period of six (6) years following the Closing Date.
(e) Limitation on Indemnification Payments.
(i) A Principal Shareholder Indemnified Person shall not make any
claim for indemnification pursuant to this Sections 8.6 with respect to any
matter unless the amount of all Losses incurred by Principal Shareholder
Indemnified Persons (in the aggregate) exceeds $750,000.
(ii) An Acquiror Indemnified Person shall not make any claim for
indemnification pursuant to this Sections 8.6 with respect to any matter unless
the amount of all Losses incurred by Acquiror Indemnified Persons (in the
aggregate) exceeds $750,000.
(iii) The aggregate liability of the Principal Shareholders,
collectively, under this Section 8.6 (excluding, however, any Termination Fee
payable under Section 8.5) shall not exceed twenty-five percent (25%) of the
fair market value of the Acquiror Common Stock issued in the Merger to such
Principal Shareholders, as of the Closing Date, and to the extent such Principal
Shareholders continue to hold Acquiror Common Stock, such liability shall be
satisfied by the return to Acquiror of Acquiror Common Stock valued as of the
Closing Date. Notwithstanding the foregoing sentence, the limitation on
liability provided in this Section 8.6(e)(iii) shall not apply in the event of
fraud in the making of any representation or warranty, or intentional, willful
or reckless nonfulfillment or breach of any covenant in this Agreement.
Section 8.7 Notification. The Principal Shareholders shall advise Acquiror
in writing promptly of any Material Adverse Effect with respect to Principal
Shareholders,
58
<PAGE>
any breach of Principal Shareholders' representations or warranties, or any
breach of a covenant contained herein of which they have Knowledge. The Acquiror
shall promptly advise Principal Shareholders in writing of any Material Adverse
Effect with respect to Acquiror, any breach of the Acquiror's representations or
warranties, or any breach of a covenant contained herein of which the Acquiror
has Knowledge.
ARTICLE IX
CLOSING CONDITIONS
Section 9.1 Conditions to Obligations of Each Party Under This Agreement.
The respective obligations of each party to effect the Merger and the other
transactions contemplated hereby will be subject to the satisfaction at or prior
to the Effective Time of the following conditions, any or all of which may be
waived by the party entitled to the benefit thereof, in whole or in part, to the
extent permitted by applicable Law:
(a) Acquiror and Company Approvals. This Agreement and the Merger
shall have been approved, adopted and not withdrawn by the Boards of Directors
and by the requisite vote of the shareholders of the Company and the Acquiror,
if and to the extent such approvals are necessary to consummate the transactions
contemplated herein, in accordance with the CCC, the articles of incorporation
and bylaws of the Company and the Acquiror and the Regulations of any stock
exchange.
(b) No Order. No Court or Governmental Authority having jurisdiction
over the Company or Acquiror shall have enacted, issued, promulgated, enforced
or entered any Law, Regulation or Order (whether temporary, preliminary or
permanent) which is then in effect and which has the effect of making the Merger
illegal or otherwise prohibiting consummation of the Merger substantially on the
terms contemplated by this Agreement.
(c) Regulatory Approvals. All approvals and consents of applicable
Courts and/or Governmental Authorities required to consummate the Merger shall
have been received, and all applicable waiting periods under the HSR Act shall
have expired or been terminated.
59
<PAGE>
Section 9.2 Additional Conditions to Obligations of the Acquiror
Companies. The obligations of the Acquiror Companies to effect the Merger and
the other transactions contemplated herein shall be subject to the satisfaction
at or prior to the Effective Time of the following additional conditions, any or
all of which may be waived by the Acquiror Companies, in whole or in part, to
the extent permitted by applicable Law:
(a) Representations and Warranties. Each of the representations and
warranties of the Company contained in this Agreement shall be true and correct
as of the date hereof and at and as of the Closing Date as if made at and as of
such time, except that, to the extent such representations and warranties
address matters only as of a particular date, such representations and
warranties shall, to such extent, be true and correct at and as of such
particular date as if made at and as of such particular date; provided that if
any of such representations and warranties shall not be true and correct as
aforesaid, then this condition shall nevertheless be deemed satisfied if the
cumulative effect of all inaccuracies of such representations and breaches of
such warranties shall not be or have a Material Adverse Effect on the Company.
The Acquiror Companies shall have received a certificate of an executive officer
of the Company, dated the date of the Effective Time, to such effect.
(b) Agreements and 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 at or prior to the
Closing. The Acquiror Companies shall have received a certificate of an
executive officer of the Company, dated the Closing Date, to such effect.
(c) Pooling of Interests. Acquiror shall have been advised in
writing by KPMG LLP, not less than twenty (20) Business Days prior to the date
upon which the Effective Time is to occur, in a form and in substance reasonably
acceptable to Acquiror, of their opinion that the business combination
contemplated by this Agreement, if consummated, meets the requirements to be
accounted for as a "pooling of interests" business combination in accordance
with GAAP and the criteria of Accounting Principles
60
<PAGE>
Board Opinion No. 16 and the Regulations of the SEC. Acquiror and the Company
agree to provide KPMG LLP such certificates of fact as it may reasonably require
to provide such opinion. It is understood and agreed that the obligations of the
Company to effect the Merger shall not be subject to the condition set forth in
this Section 9.2(c).
(d) Audited Financials. KPMG LLP shall have delivered to the
Acquiror not less than ten (10) Business Days prior to the date upon which the
Effective Time is to occur, its opinion on the audited consolidated balance
sheets of the Company and any subsidiaries as of December 31, 1998 and 1999 and
as of March 31, 2000 and the related consolidated statements of income,
stockholders' equity and cash flow for each of the two-year periods ended
December 31, 1999 and the three month period ended March 31, 2000 (the "Audited
Financials"); such opinion to state that the Audited Financials present fairly,
in all material respects, the financial position and the results of operations
and cash flows of the Company for such periods in conformity with GAAP. Such
Audited Financials shall not in the opinion of Acquiror contravene or conflict
with the representations and warranties of the Company contained in this
Agreement or the reasonable assumptions determined by Acquiror's due diligence
investigation.
(e) Third Party Consents. All Change of Control Consents of third
parties required in order for a Change of Control Effect not to occur under any
contract, note, bond, mortgage, indenture, license, agreement or other
instrument to which the Company (or any of its Subsidiaries) is a party or by
which it is bound and which is material to the Company shall have been obtained,
except where the failure to obtain such Change of Control Consents, either
individually or in the aggregate, shall not have or be a Material Adverse Effect
on the Company.
(f) Affiliate Agreements. Each of the parties identified by the
Company as being an Affiliate of the Company shall have delivered to Acquiror an
executed Affiliate Agreement, in the form attached hereto as Exhibit A, which
shall be in full force and effect.
(g) Globetrotter Lease Amendment. The Company and the Principal
Shareholders shall have entered into an amendment to the lease with respect to
its
61
<PAGE>
premises to be effective as of the Effective Time, substantially in the form of
Schedule 7.12 hereto, and shall have terminated the real property management
agreement as set forth in Section 7.12.
(h) Key Employee Agreements. The Company shall have entered into
employment agreements, in form and substance satisfactory to Acquiror, to be
effective as of the Effective Time with designated key employees, including each
of the Principal Shareholders, Richard Mirabella, Daniel Birns and John Adams.
(i) No Dissenting Shareholders. No shareholders of the Company shall
have any rights as dissenting shareholders under the CCC.
Section 9.3 Additional Conditions to Obligations of the Company. The
obligations of the Company to effect the Merger and the other transactions
contemplated hereby shall be subject to the satisfaction at or prior to the
Effective Time of the following additional conditions, any or all of which may
be waived by the Company, in whole or in part, to the extent permitted by
applicable Law:
(a) Representations and Warranties. Each of the representations and
warranties of the Acquiror Companies contained in this Agreement shall be true
and correct as of the date hereof and at and as of the Closing Date as if made
at and as of such time, except that to the extent such representations and
warranties address matters only as of a particular date, such representations
and warranties shall, to such extent, be true and correct as of the date hereof
and at and as of such particular date as if made at and as of such particular
date; provided that if any of such representations and warranties shall not be
true and correct as aforesaid, then this condition shall nevertheless be deemed
satisfied if the cumulative effect of all inaccuracies of such representations
and breaches of such warranties shall not be or have a Material Adverse Effect
on Acquiror. The Company shall have received a certificate of an executive
officer of each of the Acquiror Companies, dated the date of the Effective Time,
to such effect.
(b) Agreements and Covenants. The Acquiror Companies shall have
performed or complied in all material respects with all agreements and covenants
62
<PAGE>
required by this Agreement to be performed or complied with by them at or prior
to the Closing (other than the covenants specified in Section 7.5 (b) and (d)).
The Company shall have received a certificate of an executive officer of each of
the Acquiror Companies, dated the Closing Date, to such effect.
(c) Tax Opinion. The Company and the Shareholders shall have
received the opinion of Morrison & Foerster, LLP, counsel to the Company, to the
effect that the Merger will be treated for federal income tax purposes as a
"reorganization," within the meaning of section 368(a) of the Code, and that
each of Acquiror, Newco and Company will be a "party to a reorganization,"
within the meaning of section 368(b) of the Code, dated on or about the date
that is immediately prior the Effective Time, which opinion shall not have been
withdrawn or modified in any material respect.
(d) No Material Adverse Effect on Acquiror Companies. There shall
not have occurred any event, fact or circumstance that has had, or reasonably
could be anticipated to have, a Material Adverse Effect with respect to the
Acquiror Companies.
(e) Fairness Permit. Acquiror shall have received a favorable
determination in the Fairness Hearing and a Permit covering all of the shares of
Acquiror Common Stock to be issued in the Merger such that the issuance
qualifies for exemption from registration under Section 3(a)(10) of the
Securities Act.
(f) Acquiror Stock Option Plan. Acquiror shall have duly and validly
reserved for issuance under its 2000 Equity Incentive Plan a sufficient number
of shares of Acquiror Common Stock to issue the replacement options required by
Section 3.1(c).
(g) Acquisitions by Acquiror. After the execution of this Agreement,
and prior to the Effective Time, Acquiror shall not, without the prior written
consent of the Company, have entered into any agreement or agreements to acquire
any interest in any other entity for a consideration having a value that is more
than the greater of 500,000 shares of Acquiror Common Stock or $31 million, in
the aggregate. This provision shall not apply to any investments made by
Acquiror pursuant to the
63
<PAGE>
Macrovision Investment Policy adopted by Acquiror's Board of Directors for the
ongoing management of Acquiror's short-term investment of its liquid and working
funds.
ARTICLE X
TERMINATION, AMENDMENT AND EXPENSES
Section 10.1 Termination. This Agreement may be terminated at any time
prior to the Effective Time, whether before or after approval of this Agreement
and the Merger:
(a) by mutual consent of Acquiror and the Company;
(b) by Acquiror, upon a material breach or nonfulfillment of any
covenant or agreement on the part of the Company or the Principal Shareholders
set forth in this Agreement, or if any representation or warranty of the Company
or the Principal Shareholders hereunder shall be or become untrue or inaccurate,
in any case such that the conditions set forth in Section 9.2(a) or Section
9.2(b) would not be satisfied (a "Terminating Company Breach"); provided that,
if such Terminating Company Breach is curable by the Company through the
exercise of its reasonable efforts, and the Company continues to exercise such
reasonable efforts, Acquiror may not terminate this Agreement under this Section
10.1(b) if such Terminating Company Breach has been cured by August 31, 2000;
(c) by the Company, upon material breach or nonfulfillment of any
covenant or agreement on the part of the Acquiror Companies set forth in this
Agreement, or if any representation or warranty of the Acquiror Companies shall
be or become untrue or inaccurate, in any case such that the conditions set
forth in Section 9.3(a) or Section 9.3(b) would not be satisfied (a "Terminating
Acquiror Breach"); provided that, if such Terminating Acquiror Breach is curable
by the Acquiror Companies through the exercise of their reasonable efforts, and
the Acquiror Companies continue to exercise such reasonable efforts, the Company
may not terminate this Agreement under this Section 10.1(c) if such Terminating
Acquiror Breach has been cured by August 31, 2000;
64
<PAGE>
(d) by either Acquiror or the Company, if there shall be any Order
of a Court or Governmental Authority having jurisdiction over a party hereto
which is final and nonappealable permanently enjoining, restraining or
prohibiting the consummation of the Merger, unless the party relying on such
Order has not complied with its obligations under Section 7.4;
(e) by either Acquiror or the Company, if the Merger shall not have
been consummated on or before August 31, 2000 (the "Termination Date");
provided, however, that the right to terminate this Agreement under this Section
10.1(e) shall not be available to any party whose failure to fulfill any
obligation under this Agreement has been a cause of, or resulted in, the failure
of the Effective Time to occur on or before the Termination Date;
(f) by either Acquiror or the Company, if the stockholders of the
Acquiror shall fail to approve, by the Termination Date, the amendment to
Acquiror's Certificate of Incorporation increasing the number of authorized
shares of Acquiror Common Stock, the issuance of Acquiror's Common Stock
pursuant this Agreement, and the adoption of Acquiror's 2000 Equity Incentive
Plan, all as contemplated herein;
(g) by Acquiror (i) if the Board of Directors of the Company fails
to recommend approval and adoption of this Agreement and the Merger to the
shareholders of the Company or withdraws or modifies (or publicly announces an
intention to withdraw or modify) in any adverse manner its approval or
recommendation of this Agreement or the Merger; (ii) if the Board of Directors
of the Company makes any recommendation with respect to any Acquisition Proposal
other than a recommendation to reject such Acquisition Proposal; (iii) if the
Company or any of the Principal Shareholders take any action prohibited by
Section 8.2; or (iv) if the Board of Directors of the Company resolves to take
any of the actions specified above.
The right of any party hereto to terminate this Agreement pursuant to this
Section 10.1 will remain operative and in full force and effect regardless of
any investigation made by or on behalf of any party hereto, any Person
controlling any such party or any of their
65
<PAGE>
respective officers, directors, representatives or agents, whether prior to or
after the execution of this Agreement.
Section 10.2 Effect of Termination.
(a) Except as provided in this Section 10.2, in the event of the
termination of this Agreement pursuant to Section 10.1, this Agreement will
forthwith become void, and there will be no liability on the part of the
Acquiror Companies, the Company or the Principal Shareholders or any of their
respective officers or directors to the other and all rights and obligations of
any party hereto will cease, except that nothing herein will relieve any party
from liability for any breach or nonfulfillment, prior to termination of this
Agreement in accordance with its terms, of any representation, warranty,
covenant or agreement contained in this Agreement.
(b) If this Agreement is terminated by Acquiror pursuant to Section
9.1(a) hereof, because of the failure to obtain the required approval from the
Company shareholders or Board of Directors, the Company shall pay to Acquiror by
wire transfer of same day funds promptly, but not later than two Business Days
after the date of such termination, a termination fee of $5 million.
(c) If this Agreement is terminated by Acquiror pursuant to Section
10.1(g) hereto, because the Board of Directors of the Company or the Principal
Shareholders have taken any of the prohibited actions specified therein, the
Company shall pay to Acquiror by wire transfer of same day funds promptly but
not later than two Business Days after the date of such termination, a
termination fee of $5 million.
(d) If this Agreement is terminated by Acquiror for any reason
(other than as provided below), pursuant to Section 10.1(e) or otherwise,
Acquiror shall pay to the Company by wire transfer of same day funds promptly,
but not later than two Business Days after the date of such termination, a
termination fee of $2 million, provided that such termination (i) is not the
result of the failure to satisfy any condition to Acquiror's obligations
hereunder set forth in Sections 9.2(a), 9.2(b), 9.2(e), 9.2(f), 9.2(g), 9.2(h)
(other than as it relates to employment agreements with Daniel Burns and John
Adams)
66
<PAGE>
and 9.2(i), and (ii) does not occur pursuant to any of Sections 10.1(a),
10.1(b), 10.1(d), 10.1(f) (unless Acquiror's Board of Directors fails to
recommend approval and adoption of this Agreement and the Merger to Acquiror's
stockholders or withdraws or modifies (or publicly announces an intention to
withdraw or modify) in any adverse manner its approval or recommendation of this
Agreement or the Merger or unless Acquiror fails to hold its stockholder's
meeting by the Termination Date) and 10.1(g).
(e) If this Agreement is terminated by the Company pursuant to (i)
Section 10.1(c); (ii) Section 10.1(f), but only if Acquiror's Board of Directors
fails to recommend approval and adoption of this Agreement and the Merger to
Acquiror's stockholders or withdraws or modifies (or publicly announces an
intention to withdraw or modify) in any adverse manner its approval or
recommendation of this Agreement or the Merger or if Acquiror fails to hold its
stockholder's meeting by the Termination Date; or (iii) Section 10.1(e), and the
failure to close on or before August 31, 2000 is neither (A) the result of the
failure to satisfy any condition to Acquiror's obligations hereunder set forth
in Sections 9.2(a), 9.2(b), 9.2(e), 9.2(f), 9.2(g), 9.2(h) (other than as it
relates to employment agreements with Daniel Burns and John Adams) and 9.2(i),
nor (B) due solely to the failure to satisfy the Company's obligations hereunder
set forth in Sections 9.3(g) (which is addressed in Section 10.2(f) below), and
such termination does not occur pursuant to either of Sections 10.1(a) or
10.1(d), Acquiror shall pay to the Company by wire transfer of same day funds
promptly but not later than two Business Days after the date of such
termination, a termination fee of $2 million.
(f) If this Agreement is terminated by the Company pursuant to
Section 10.1(e) hereof and such termination is due solely to the failure to
satisfy the condition to the Company's obligations set forth in Sections 9.3(g),
Acquiror shall pay to the Company by wire transfer of same day funds promptly
but not later than two Business Days after the date of such termination, a
termination fee in the amount of the Company's reasonable legal fees incurred
prior to such termination in connection with the transactions contemplated by
this Agreement.
67
<PAGE>
Section 10.3 Amendment. This Agreement may be amended by the parties
hereto by action taken by or on behalf of their respective Boards of Directors
at any time prior to the Effective Time. This Agreement may not be amended
except by an instrument in writing signed by the parties hereto.
Section 10.4 Waiver. At any time prior to the Effective Time, any party
hereto may (a) extend the time for the performance of any of the obligations or
other acts of the other party hereto, (b) waive any inaccuracies in the
representations and warranties of the other party contained herein or in any
document delivered pursuant hereto and (c) waive compliance by the other party
with any of the agreements or conditions contained herein. Any such extension or
waiver will be valid only if set forth in an instrument in writing signed by the
party or parties to be bound thereby. For purposes of this Section 10.4,
Acquiror Companies will be deemed to be one party.
Section 10.5 Expenses. Except as set forth in Section 7.1 (with respect to
the audit expenses of KPMG LLP if the Merger is not consummated), Section 8.5
(with respect to the termination fee specified therein), Section 8.6 (with
respect to the indemnities specified therein) and Section 10.2 (with respect to
the termination fees specified therein), all expenses incurred by the parties
hereto will be borne solely and entirely by the party which has incurred such
expenses and that the fees of Morrison & Foerster, LLP, as set forth in that
certain Engagement Letter, dated April 3, 2000 (and signed by the Company on
April 19, 2000) shall be paid in full at the Closing.
ARTICLE XI
GENERAL PROVISIONS
Section 11.1 Interpretation.
(a) When a reference is made in this Agreement to a section or
article, such reference shall be to a section or article of this Agreement
unless otherwise clearly indicated to the contrary.
(b) Whenever the words "include", "includes" or "including" are used
in this Agreement they shall be deemed to be followed by the words "without
limitation."
68
<PAGE>
(c) The words "hereof", "hereby", "herein" and "herewith" and words
of similar import shall, unless otherwise stated, be construed to refer to this
Agreement as a whole and not to any particular provision of this Agreement, and
article, section, paragraph, exhibit and schedule references are to the
articles, sections, paragraphs, exhibits and schedules of this Agreement unless
otherwise specified.
(d) The plural of any defined term shall have a meaning correlative
to such defined term, and words denoting any gender shall include all genders.
Where a word or phrase is defined herein, each of its other grammatical forms
shall have a corresponding meaning.
(e) A reference to any legislation or to any provision of any
legislation shall include any modification or re-enactment thereof, any
legislative provision substituted therefor and all Regulations and statutory
instruments issued thereunder or pursuant thereto.
(f) The parties have participated jointly in the negotiation and
drafting of this Agreement. In the event an ambiguity or question of intent or
interpretation arises, this Agreement shall be construed as if drafted jointly
by the parties, and no presumption or burden of proof shall arise favoring or
disfavoring any party by virtue of the authorship of any provisions of this
Agreement.
Section 11.2 Effectiveness of Representations, Warranties and Agreements.
The representations, warranties and agreements of each party hereto will remain
operative and in full force and effect regardless of any investigation made by
or on behalf of any other party hereto, any Person controlling any such party or
any of their officers, directors, representatives or agents whether prior to or
after the execution of this Agreement.
Section 11.3 Notices. Any notice, request, instruction or other document
to be given hereunder by any party to another party shall be in writing and
shall be deemed given when delivered personally, upon receipt of a transmission
confirmation (with a confirming copy sent by overnight courier) if sent by
facsimile or like transmission, and
69
<PAGE>
on the next Business Day when sent by Federal Express, United Parcel Service,
Express Mail or other reputable overnight courier, as follows:
(a) If to either of the Acquiror Companies, to:
Macrovision Corporation
1341 Orleans Drive
Sunnyvale, CA 94089
Main Phone: 408-743-8600
Fax: (408) 743-8610
email domain: [email protected]
Attention: Ian Halifax
Chief Financial Officer
Facsimile No.: (408) 743-8610
with a copy to:
Manatt, Phelps & Phillips, LLP
3030 Hansen Way
Suite 100
Palo Alto, California 94304-1006
Main Phone: (650) 812-1300
email domain: [email protected]
Attention: David W. Herbst
(b) If to the Company, to:
GLOBEtrotter Software, Inc.
1530 Meridian Avenue
San Jose, CA 95125
Main Phone: (408) 445-8100
Fax: (408) 445-7760
email domain: [email protected]
Attention: Matthew Christiano
President and CEO
with a copy to:
Morrison & Forester, LLP
755 Page Mill Road
Palo Alto, CA 94304
Main Phone: (650) 813-5600
Fax: (650) 494-0792
Attention: Paul "Chip" L. Lion, III, Esq.
Email Domain: [email protected]
70
<PAGE>
or to such other persons or addresses as may be designated in writing by the
party to receive such notice. Nothing in this section shall be deemed to
constitute consent to the manner and address for service of process in
connection with any legal proceeding (including Litigation arising out of or in
connection with this Agreement), which service shall be effected as required by
applicable Law.
Section 11.4 Headings. The headings contained in this Agreement are for
reference purposes only and will not affect in any way the meaning or
interpretation of this Agreement.
Section 11.5 Severability. If any term or other provision of this
Agreement is invalid, illegal or incapable of being enforced by any rule of law
or public policy, all other conditions and provisions of this Agreement will
nevertheless remain in full force and effect so long as the economic or legal
substance of the transactions contemplated hereby is not affected in any manner
materially adverse to any party. Upon such determination that any term or other
provision is invalid, illegal or incapable of being enforced, the parties hereto
will negotiate in good faith to modify this Agreement so as to effect the
original intent of the parties as closely as possible in an acceptable manner to
the end that transactions contemplated hereby are fulfilled to the extent
possible.
Section 11.6 Entire Agreement. This Agreement (including the Company's
Disclosure Schedule and Acquiror's Disclosure Schedule) constitutes the entire
agreement of the parties, and supersedes all prior agreements and undertakings,
including, without limitation, the LOI (other than that certain Confidentiality
Agreement which will remain in full force and effect until the Effective Time,
at which time it will terminate), both written and oral, among the parties, with
respect to the subject matter hereof and thereof.
Section 11.7 Assignment. This Agreement may not be assigned by operation
of Law or otherwise.
Section 11.8 Parties in Interest. This Agreement will be binding upon and
inure solely to the benefit of each party hereto, and nothing in this Agreement,
express or
71
<PAGE>
implied, is intended to or will confer upon any other Person any right, benefit
or remedy of any nature whatsoever under or by reason of this Agreement.
Section 11.9 Failure or Indulgence Not Waiver; Remedies Cumulative. No
failure or delay on the part of any party hereto in the exercise of any right
hereunder will impair such right or be construed to be a waiver of, or
acquiescence in, any breach of any representation, warranty, agreement or
covenant herein, nor will any single or partial exercise of any such right
preclude other or further exercise thereof or of any other right. All rights and
remedies existing under this Agreement are cumulative to, and not exclusive to,
and not exclusive of, any rights or remedies otherwise available.
Section 11.10 Governing Law. This Agreement and the agreements,
instruments and documents contemplated hereby will be governed by and construed
in accordance with the Laws of the State of California (exclusive of conflicts
of law principles). Courts within the State of California, Santa Clara County,
will have jurisdiction over any and all disputes between the parties hereto,
whether in law or equity, arising out of or relating to this agreement and the
agreements, instruments and documents contemplated hereby. The parties consent
to and agree to submit to the jurisdiction of such Courts. Each of the parties
hereby waives, and agrees not to assert in any such dispute, to the fullest
extent permitted by applicable Law, any claim that (i) such party is not
personally subject to the jurisdiction of such Courts, (ii) such party and such
party's property is immune from any legal process issued by such Courts or (iii)
any Litigation commenced in such Courts is brought in an inconvenient forum.
Section 11.11 Counterparts; Delivery by Facsimile. This Agreement may be
executed in multiple counterparts, and delivered by facsimile, and by the
different parties hereto in separate counterparts, each of which when executed
will be deemed to be an original but all of which taken together will constitute
one and the same agreement.
72
<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to be
executed as of the date first written above by their respective officers
thereunto duly authorized.
MACROVISION CORPORATION
By: /s/ William A. Krepick
-------------------------------------
William A. Krepick
President
GSI ACQUISITION CORP.
By: /s/ William A. Krepick
-------------------------------------
William A. Krepick
President
GLOBEtrotter SOFTWARE, INC.
By: /s/ Matthew Christiano
-------------------------------------
Matthew Christiano
President
PRINCIPAL SHAREHOLDERS
The undersigned Principal Shareholders hereby agree to the provisions in Article
VIII hereof applicable to them and execute this Agreement as parties to the
extent of the provisions contained in Article VIII hereof, as of the date first
written above.
/s/ Matthew Christiano
-------------------------------------
Matthew Christiano
/s/ Sallie J. Calhoun
-------------------------------------
Sallie J. Calhoun
<PAGE>
"Annex C"
Charter of the Audit Committee of the Board of Directors
I. Audit Committee Purpose
The Audit Committee is appointed by the Board of Directors to provide
independent and objective oversight of the accounting functions and internal
controls of Macrovision Corporation, its subsidiaries and affiliates and to
ensure the objectivity of Macrovision's financial statements. The Committee and
the Board shall have the ultimate authority and responsibility to select,
evaluate and, where appropriate, replace the independent accountants. The
Committee's function is one of oversight and review, and it is not expected to
audit Macrovision, to define the scope of the audit, to control Macrovision's
accounting practices, or to define the standards to be used in preparation of
Macrovision's financial statements. The Audit Committee shall perform the
following functions:
o Monitor the integrity of the Company's financial reporting process
and systems of internal controls regarding finance, accounting, and
legal compliance.
o Monitor the independence and performance of the Company's
independent accountants.
o Provide an avenue of communication among independent accountants,
management, and the Board of Directors.
o Report to the Board of Directors.
o Encourage adherence to, and continuous improvement of, the Company's
policies, procedures, and practices of all levels.
o Review areas of potential significant financial risk to the Company.
o Monitor compliance with legal and regulatory requirements.
The Audit Committee has the authority to conduct any investigation appropriate
to fulfilling its responsibilities, and it has direct access to the independent
accountants and everyone in the organization. The Audit Committee has the
ability to retain, at the Company's expense, special legal, accounting, or other
consultants or experts it deems necessary in the performance of its duties.
II. Audit Committee Composition
The Audit Committee shall be comprised of not less than three directors
appointed by the Board of Directors, each of whom shall be an independent
non-employee director, free
1
<PAGE>
from any relationship that would interfere with the exercise of his or her
independent judgment. All members of the Committee shall have a basic
understanding of finance and accounting and be able to read and understand
fundamental financial statements or within a reasonable period of time after the
appointment to the Committee develop such skills. At least one member of the
Committee shall have accounting related financial management expertise or other
comparable experience or background sufficient to provide the individual with
financial sophistication. No member of the Committee shall be employed or have
any other relationship with Macrovision's independent accountants.
In the event that a Committee member faces a potential or actual conflict of
interest with respect to a matter before the Committee, that Committee member
shall be responsible for alerting the Committee Chair, and in the case where the
Committee Chair faces a potential or actual conflict of interest, the Committee
Chair shall advise the Chairman of the Board of Directors. In the event that the
Committee Chair, or the Chairman of the Board of Directors, concurs that a
potential or actual conflict of interest exists, the Committee member facing
such potential or actual conflict of interest shall recuse himself or herself
from the deliberations of the Committee until the potential or actual conflict
of interest, is resolved.
III. MEETINGS
If an Audit Committee Chair is not designated or present, the members of the
Committee may designate a Chair by majority vote. The Committee members shall
meet at least four times annually, or more frequently as circumstances dictate.
The Audit Committee Chair shall prepare or approve, as the case may be, an
agenda in advance of each meeting. The Committee should meet privately in
executive session at least annually with management, the independent
accountants, and as a Committee to discuss any matter that the Committee or any
of these groups believe should be discussed.
A quorum of the Committee shall be declared when a majority of the appointed
members of the Committee are in attendance. Meetings shall be scheduled at the
discretion of the Chair. Notice of the meetings shall be provided at least three
days in advance. The Committee may ask members of management or others to attend
the meeting and provide pertinent information as necessary.
The Committee shall maintain minutes of the meetings and periodically report to
the Board of Directors on significant activities.
IV. Audit Committee Responsibilities and Duties
1. Charter. Review and reassess the adequacy of this Charter at least
annually. Submit the charter to the Board of Directors for approval
and have the document published at least every three years in
accordance with Securities and Exchange Commission ("SEC")
regulations.
2
<PAGE>
2. Financial Disclosure Documents. Review with management and the
independent accountants Macrovision's financial disclosure
documents, including all financial statements and reports filed with
the SEC or sent to stockholders and, following the satisfactory
completion of each year-end review, recommend to the Board of
Directors the inclusion of the audited financial statements in
Macrovision's filing on Form 10-K. The review shall include any
significant problems and material disputes between management and
the independent accountants and a discussion with the independent
accountants out of management's presence of the quality of
Macrovision's accounting principles as applied in its financial
reporting, the clarity of Macrovision's financial disclosures and
degree of aggressiveness or conservatism of Macrovision's accounting
principles and underlying estimates, and a frank and open discussion
of other significant decisions made by management in preparing the
financial disclosure and reviewed by the independent accountants.
3. Quarterly Reports. Review with management and the independent
accountants Macrovision's quarterly financial statements prior to
filing or distribution. Discuss any significant changes to the
Company's accounting principles and any items required to be
communicated by the independent accountants in accordance with SAS
61. The Chair of the Committee may represent the entire Audit
Committee for purposes of this review.
4. Internal Control Systems. In consultation with management and the
independent accountants, the Committee shall consider the integrity
of the Company's financial reporting process and controls to ensure
reliability of the financial reporting and compliance with
applicable codes of conduct, laws and regulations. Review
significant findings prepared by the independent accountants
together with management's responses.
5. Oversight of Independent Accountants. Evaluate the independent
accountants on an annual basis and where appropriate recommend to
the Board of Directors the need for replacement of the independent
accountants. In such evaluation, the Committee shall ensure that the
independent accountants deliver to the Committee a formal written
statement delineating all relationships between the accountants and
Macrovision. The Committee also shall engage in a dialogue with the
accountants with respect to any disclosed relationships or services
that may impact the objectivity and independence of the independent
accountants and in response to the independent accountants' report
take, or recommend that the Board of Directors take, appropriate
action to satisfy itself of the independent accountants'
independence.
6. Compensation. Approve fees and other significant compensation to be
paid to the independent accountants.
3
<PAGE>
7. Plan of Audit. Consult with the independent accountants regarding
the plan of audit, including scope and staffing. The Committee also
shall review the independent accountants' report on the audit and
review with management the independent accountants' suggested
changes or improvements in Macrovision's accounting practices or
controls.
8. Accounting Principles and Disclosure. Review significant
developments in accounting rules. The Committee shall review with
management recommended changes in Macrovision's methods of
accounting or financial statements. The Committee also shall review
with the independent accountants any significant proposed changes in
accounting principles and financial statements. Discuss certain
matters required to be communicated to audit committees in
accordance with AICPA SAS 61.
9. Consultation with Legal Counsel. On at least an annual basis, review
with the Company's counsel, any legal matters that could have a
significant impact on Macrovision's financial statements, or
Macrovision's compliance with applicable laws and regulations, and
any inquiries received from the regulators or governmental agencies.
10. Report to Stockholders. Annually prepare a report to stockholders as
required by the SEC. The report shall be included in the Company's
annual proxy statement.
11. Adequacy of Personnel. Review periodically the adequacy of
Macrovision's accounting, financial and auditing personnel
resources.
12. Risk Management. Review and evaluate risk management policies in
light of business strategy, capital strength, and overall risk
tolerance. The Committee also shall evaluate on a periodic basis
Macrovision's investments and derivatives risk management policies,
including the internal system to review operational risks,
procedures for derivatives investment and trading, and safeguards to
ensure compliance with procedures.
13. Tax Policies. Review periodically Macrovision's tax policies,
reserves and pending audits or assessments.
14. Internal Audit. Determine the scope, role and responsibility of an
Internal Audit function, including assessment of resource
requirements (internal, external or combined).
4
<PAGE>
"Annex D"
MACROVISION CORPORATION
2000 EQUITY INCENTIVE PLAN
As Adopted by the Board of Directors on June 16, 2000
Approved by Stockholders on August __, 2000
Section 1. Purpose; Definitions.
The name of the plan is the Macrovision Corporation 2000 Equity Incentive
Plan (the "Plan"). The purpose of the Plan is to encourage and enable employees
(including officers and Directors) of Macrovision Corporation, a Delaware
corporation (the "Company") and its Subsidiaries, non-employee members of the
Board of Directors of the Company, and those consultants and other independent
contractors who provide services to the Company and its Subsidiaries and upon
whose judgment, initiative and efforts the Company and its Subsidiaries depend
for the successful conduct of their business to acquire proprietary interests in
the Company. It is anticipated that providing such persons with a direct stake
in the Company's welfare will assure a closer identification of their interests
with those of the Company, thereby stimulating their efforts on behalf of the
Company and its Subsidiaries and strengthening their desire to remain with the
Company and its Subsidiaries.
The following terms shall be defined as set forth below:
(a) "Act" means the Securities Act of 1933, as amended.
(b) "Administrator" means the Board or the Committee.
(c) "Award" or "Awards," except where referring to a particular category
of grant under the Plan, shall include Incentive Stock Options, Nonstatutory
Stock Options, Stock Appreciation Rights, and Restricted Stock Awards.
(d) "Board" means the Board of Directors of the Company.
(e) "Cause," as such term relates to the termination of any person's
status as an employee or other service provider of the Company, means the
occurrence of one or more of the following: (i) such person is convicted of,
pleads guilty to, or confesses to any felony or any act of fraud,
misappropriation or embezzlement which has an immediate and materially adverse
effect on the Company or any Subsidiary, as determined by the Board in good
faith in its sole discretion, (ii) such person engages in a fraudulent act to
the material damage or prejudice of the Company or any Subsidiary or in conduct
or activities materially damaging to the property, business or reputation of the
Company or any Subsidiary, all as determined by the Board in good faith in its
sole discretion, (iii) any material act or omission by such person involving
malfeasance or negligence in the performance of such person's duties to the
Company or any Subsidiary to the material detriment of the Company or any
Subsidiary, as determined by the Board in good faith in its sole discretion,
which has not been corrected by such person to the satisfaction of the Board
within 30 days after written notice from the Company of any such act or
<PAGE>
omission, (iv) failure by such person to comply in any material respect with the
terms of his employment agreement, if any, or any written policies or directives
of the Board as determined by the Board in good faith in its sole discretion,
which has not been corrected by such person to the satisfaction of the Board
within 30 days after written notice from the Company of such failure, or (v)
material breach by such person of any other agreement with the Company, as
determined by the Board in good faith in its sole discretion.
(f) "Code" means the Internal Revenue Code of 1986, as amended, and any
successor tax laws, and related rules, regulations and interpretations.
(g) "Committee" means a committee of two or more Independent Directors
appointed by the Board to administer the Plan.
(h) "Director" means a member of the Board.
(i) "Disability" means an individual's inability to perform his normal
required services for the Company and its Subsidiaries for a period of six
consecutive months by reason of the individual's mental or physical disability,
as determined by the Administrator in good faith in its sole discretion.
(j) "Fair Market Value" of the Stock on any given date under the Plan
shall be determined as follows:
(i) If the Stock is at the time listed or admitted to trading on any
national stock exchange, then the fair market value shall be the closing
selling price per share of the Stock on the date of determination on the
stock exchange determined by the Administrator to be the primary market
for the Common Stock, as such price is officially quoted in the composite
tape transactions on such exchange. If there is no reported sale of the
Stock on such exchange on the date of determination, then the fair market
value shall be the closing price on the exchange on the last preceding
date for which such quotation exists.
(ii) If the Stock is not at the time listed or admitted to trading
on any national exchange but is traded on the NASDAQ National Market
System, the fair market value shall be the closing selling price per share
of the Stock on the date of determination, as such price is reported by
the National Association of Securities Dealers, Inc. through the NASDAQ
National Market System or through any successor system. If there is no
reported closing selling price for the Stock on the date of determination,
then the fair market value shall be the closing selling price on the last
preceding date for which such quotation exists.
(iii) If the Stock is at the time neither listed nor admitted to
trading on any stock exchange nor traded in the over-the-counter market,
then the fair market value shall be determined by the Administrator after
taking into account such factors as the Administrator shall deem
appropriate.
(k) "Incentive Stock Option" means any Stock Option designated and
qualified as an "incentive stock option" as defined in Section 422 of the Code.
2
<PAGE>
(l) "Independent Director" means a member of the Board who is not also an
employee of the Company or any Subsidiary.
(m) "Nonstatutory Stock Option" means any Stock Option that is not an
Incentive Stock Option.
(n) "Option" or "Stock Option" means any option to purchase shares of
Stock granted pursuant to Section 5.
(o) "Restricted Stock Award" means any Award granted pursuant to Section
7.
(p) "Retirement" means an employee's termination of employment with the
Company and its Subsidiaries after attainment of age 65 or attainment of age 55
and completion of 10 years of employment.
(q) "Stock" means the Common Stock, par value $.001 per share, of the
Company, subject to adjustments pursuant to Section 3.
(r) "Stock Appreciation Right" means any Award granted pursuant to Section
6.
(s) "Subsidiary" means any corporation or other entity (other than the
Company) in any unbroken chain of corporations or other entities, beginning with
the Company if each of the corporations or entities (other than the last
corporation or entity in the unbroken chain) owns stock or other interests
possessing 50% or more of the economic interest or the total combined voting
power of all classes of stock or other interests in one of the other
corporations or entities in the chain.
Section 2. Administration of Plan; Authority to Select Participants and
Determine Awards
(a) Powers of Administrator. The Administrator shall have the power and
authority to grant Awards consistent with the terms of the Plan, including the
power and authority:
(i) to select those employees (including officers and Directors) of
the Company and its Subsidiaries, non-employee Directors, and consultants
and other independent contractors in service to the Company and its
Subsidiaries to whom Awards may from time to time be granted;
(ii) to determine the time or times of grant, and the extent, if
any, of Incentive Stock Options, Nonstatutory Stock Options, Stock
Appreciation Rights, and Restricted Stock Awards, or any combination of
the foregoing, granted to any one or more participants;
(iii) to determine the number of shares of Stock to be covered by
any Award;
(iv) to determine and modify from time to time the terms and
conditions, including restrictions, not inconsistent with the terms of the
Plan, of any Award, which
3
<PAGE>
terms and conditions may differ among individual Awards and participants,
and to approve the form of written instruments evidencing the Awards;
(v) to accelerate at any time the exercisability or vesting of all
or any portion of any Award;
(vi) subject to the provisions of Section 5(a)(ii), to extend at any
time the period in which Stock Options may be exercised;
(vii) to determine at any time whether, to what extent, and under
what circumstances Stock and other amounts payable with respect to an
Award shall be deferred either automatically or at the election of the
participant and whether and to what extent the Company shall pay or credit
amounts constituting interest (at rates determined by the Administrator)
or dividends or deemed dividends on such deferrals; and
(viii) at any time to adopt, alter and repeal such rules, guidelines
and practices for administration of the Plan (including for any subplan or
portion of the Plan that the Administrator may establish for a specific
group of employees or other service providers) and for its own acts and
proceedings as it shall deem advisable; to interpret the terms and
provisions of the Plan and any Award (including related written
instruments); to make all determinations it deems advisable for the
administration of the Plan; to decide all disputes arising in connection
with the Plan; and otherwise to supervise the administration of the Plan.
All decisions and interpretations of the Administrator shall be binding on
all persons, including the Company and Plan participants.
(b) Delegation of Authority to Grant Awards. The Administrator, in its
discretion, may delegate to the Chief Executive Officer or Chief Operating
Officer of the Company all or part of the Administrator's authority and duties
with respect to Awards, including the granting thereof, to individuals who are
not subject to the reporting and other provisions of Section 16 of the Act or
"covered employees" within the meaning of Section 162(m) of the Code. The
Administrator may revoke or amend the terms of a delegation at any time but such
action shall not invalidate any prior actions of the Administrator's delegate or
delegates that were consistent with the terms of the Plan.
Section 3. Stock Issuable Under the Plan; Mergers; Substitution
(a) Stock Issuable. The maximum number of shares of Stock reserved and
available for the grant of Awards under the Plan shall be three million
(3,000,000) shares; provided, however, that upon the Company's acquisition of
GLOBEtrotter Software, Inc., such maximum number of shares of Stock shall
increase automatically to four million five hundred thousand (4,500,000) shares.
For purposes of this limitation, the shares of Stock underlying any Awards which
expire or which are forfeited, canceled, reacquired by the Company, satisfied
without the issuance of Stock or otherwise terminated (other than by exercise)
shall be added back to the shares of Stock available for issuance under the
Plan. Subject to such overall limitation, shares of Stock may be issued up to
such maximum number pursuant to any type or types of Award; provided, however,
that Stock Options or Stock Appreciation Rights with respect to no more
4
<PAGE>
than five hundred thousand (500,000) shares of Stock may be granted to any one
individual participant during any one calendar year period. The shares available
for issuance under the Plan may be authorized but unissued shares of Stock or
shares of Stock reacquired by the Company. Upon the exercise of a Stock
Appreciation Right settled in shares of Stock, the right to purchase an equal
number of shares of Stock covered by a related Stock Option, if any, shall be
deemed to have been surrendered and will no longer be exercisable, and said
number of shares of Stock shall no longer be available under the Plan.
(b) Recapitalizations. If, through or as a result of any merger,
consolidation, sale of all or substantially all of the assets of the Company,
reorganization, recapitalization, reclassification, stock dividend, stock split,
reverse stock split or other similar transaction, the outstanding shares of
Stock are increased or decreased or are exchanged for a different number or kind
of shares or other securities of the Company, or additional shares or new or
different shares or other securities of the Company or other non-cash assets are
distributed with respect to such shares of Stock or other securities, the
Administrator shall make an appropriate or proportionate adjustment in (i) the
maximum number of shares reserved for issuance under the Plan, (ii) the number
of Stock Options or Stock Appreciation Rights that can be granted to any one
individual participant, (iii) the number and kind of shares or other securities
subject to any then outstanding Awards under the Plan, and (iv) the price for
each share subject to any then outstanding Stock Options and Stock Appreciation
Rights under the Plan, without changing the aggregate exercise price (i.e., the
exercise price multiplied by the number of Stock Options and Stock Appreciation
Rights) as to which such Stock Options and Stock Appreciation Rights remain
exercisable. The adjustment by the Administrator shall be final, binding and
conclusive. No fractional shares of Stock shall be issued under the Plan
resulting from any such adjustment, but the Administrator in its discretion may
make a cash payment in lieu of fractional shares.
(c) Mergers, etc. In the event of (i) a dissolution or liquidation of the
Company; (ii) a merger or consolidation in which the Company is the not the
surviving corporation (other than a merger or consolidation with a wholly-owned
subsidiary, a reincorporation of the Company in a different jurisdiction, or
other transaction in which there is no substantial change in the stockholders of
the Company or their relative stock holdings and the Stock Options and Stock
Appreciation Rights granted under this Plan are assumed, converted or replaced
by the successor corporation, which assumption will be binding on all
optionees); (iii) a merger in which the Company is the surviving corporation but
after which the stockholders of the Company (other than any stockholder which
merges (or which owns or controls another corporation which merges) with the
Company in such merger) cease to own their shares or other equity interests in
the Company; (iv) the sale of substantially all of the assets of the Company; or
(v) any other transaction which qualifies as a "corporate transaction" under
Section 424(a) of the Internal Revenue Code of 1986, as amended, wherein the
stockholders of the Company give up all of their equity interest in the Company
(except for the acquisition, sale or transfer of all or substantially all of the
outstanding shares of the Company from or by the stockholders of the Company),
the Board, or the board of directors of any corporation assuming the obligations
of the Company, may, in its discretion, take any one or more of the following
actions, as to outstanding Stock Options and Stock Appreciation Rights: (I)
provide that such Stock Options shall be assumed or equivalent options shall be
substituted, by the acquiring or succeeding corporation (or an affiliate
thereof), (II) upon written notice to the optionees, provide that all
unexercised Stock Options and Stock Appreciation Rights will terminate
immediately prior to
5
<PAGE>
the consummation of such transaction unless exercised by the optionee within a
specified period following the date of such notice, and/or (III) in the event of
a business combination under the terms of which holders of the Stock of the
Company will receive upon consummation thereof a cash payment for each share
surrendered in the business combination, make or provide for a cash payment to
the optionees, equal to the difference between (A) the value (as determined by
the Administrator) of the consideration payable per share of Stock pursuant to
the business combination (the "Merger Price") multiplied by the number of shares
of Stock subject to such outstanding Stock Options and Stock Appreciation Rights
(to the extent then exercisable at prices not in excess of the Merger Price) and
(B) the aggregate exercise price of all such outstanding Stock Options and Stock
Appreciation Rights, in exchange for the termination of such Stock Options and
Stock Appreciation Rights.
(d) Substitute Awards. The Administrator may grant Awards under the Plan
in substitution for stock and stock based awards held by employees of another
corporation who become employees of the Company or a Subsidiary as the result of
a merger or consolidation of the employing corporation with the Company or a
Subsidiary or the acquisition by the Company or a Subsidiary of property or
stock of the employing corporation. The Administrator may direct that the
substitute awards be granted on such terms and conditions as the Administrator
considers appropriate in the circumstances.
Section 4. Eligibility
Participants in the Plan shall be such full-time or part-time employees
(including officers and Directors) of the Company and its Subsidiaries,
non-employee Directors, and consultants and other independent contractors in
service to the Company and its Subsidiaries as the Administrator in its sole
discretion shall select from time to time.
Section 5. Stock Options
Any Stock Option granted under the Plan shall be in such form as the
Administrator may from time to time approve. Stock Options granted under the
Plan may be either Incentive Stock Options or Nonstatutory Stock Options.
Incentive Stock Options may be granted only to employees of the Company or any
Subsidiary that is a "subsidiary corporation" within the meaning of Section
424(f) of the Code. To the extent that any Option does not qualify as an
Incentive Stock Option, it shall be a Nonstatutory Stock Option. The
Administrator may from time to time adopt subplans to this Plan containing such
additional terms, conditions and restrictions, not inconsistent with the terms
of the Plan, as may be necessary to qualify the grants of Stock Options
thereunder for preferential treatment under the laws of any country or other
jurisdiction in which the Company or any of its Subsidiaries has employees,
non-employee Directors, consultants or other independent contractors.
No Incentive Stock Option shall be granted under the Plan after May 31,
2010.
(a) Terms and Conditions of Stock Options. The Administrator in its
discretion may grant Stock Options subject to the following terms and conditions
and such additional terms and conditions, not inconsistent with the terms of the
Plan, as the Administrator shall deem desirable:
6
<PAGE>
(i) Exercise Price. The exercise price per share for the Stock
covered by a Stock Option granted pursuant to this Section 5(a) shall be
determined by the Administrator at the time of grant, but shall not be
less than 100% of the Fair Market Value of a share of Stock on the date of
grant in the case of Incentive Stock Options, or less than 85% of the Fair
Market Value of a share of Stock on the date of grant in the case of
Nonstatutory Stock Options. If an employee owns or is deemed to own (by
reason of the attribution rules of Section 424(d) of the Code) more than
10% of the combined voting power of all classes of stock of the Company or
of any "parent or subsidiary corporation" of the Company (within the
meaning of Section 424(f) of the Code) and an Incentive Stock Option is
granted to such employee, the exercise price per share for the Stock
covered by such Incentive Stock Option shall be not less than 110% of the
Fair Market Value of a share of Stock on the grant date.
(ii) Option Term. The term of each Stock Option shall be fixed by
the Administrator, but no Incentive Stock Option shall be exercisable more
than ten years after the date the Option is granted. If an employee owns
or is deemed to own (by reason of the attribution rules of Section 424(d)
of the Code) more than 10% of the combined voting power of all classes of
stock of the Company or of any "parent or subsidiary corporation" of the
Company (within the meaning of Section 424(f) of the Code) and an
Incentive Stock Option is granted to such employee, the term of such
Option shall expire no more than five years after the date of grant.
(iii) Exercisability; Rights of a Stockholder. Stock Options shall
become exercisable at such time or times, whether or not in installments,
as shall be determined by the Administrator at the time of grant. The
Administrator may at any time accelerate the exercisability of all or any
portion of any Stock Option. An optionee shall have the rights of a
stockholder only as to shares acquired upon the exercise of a Stock Option
and not as to unexercised Stock Options.
(iv) Method of Exercise. Stock Options may be exercised in whole or
in part, by giving written notice of exercise to the Company specifying
the number of shares to be purchased. Payment of the purchase price shall
be made in full concurrently with such exercise by any one of the
following methods: (A) in cash; (B) if and to the extent the instrument
evidencing the Option so provides and if the Company is not then
prohibited from purchasing or acquiring shares of Stock, with shares of
Stock that have been held by the optionee for the requisite period
necessary to avoid a charge to the Company's earnings for financial
reporting purposes, delivered in lieu of cash and valued at their Fair
Market Value on the date of exercise; (C) through a "same day sale"
commitment from the optionee and a broker-dealer that is a member of the
National Association of Securities Dealers, Inc. (the "NASD Dealer")
whereby the optionee irrevocably elects to exercise the Option and to sell
a portion of the shares so purchased to pay for the exercise price, and
whereby the NASD Dealer irrevocably commits upon receipt of such
7
<PAGE>
shares to forward the exercise price directly to the Company; (D) through
a "margin" commitment from the optionee and a NASD Dealer whereby the
optionee irrevocably elects to exercise the Option and to pledge the
shares so purchased to the NASD Dealer in a margin account as security for
a loan from the NASD Dealer in the amount of the exercise price , and
whereby the NASD Dealer irrevocably commits upon receipt of such shares to
forward the exercise price directly to the Company; or (E) any combination
of the foregoing. The delivery of certificates representing the shares of
Stock to be purchased pursuant to the exercise of a Stock Option will be
contingent upon receipt from the optionee (or a purchaser acting in his
stead in accordance with the provisions of the Stock Option) by the
Company of the full purchase price for such shares and the fulfillment of
any other requirements contained in the Stock Option or applicable
provisions of laws.
(v) Termination by Reason of Death. Any Stock Option held by an
optionee whose employment by (or other business relationship with) the
Company and its Subsidiaries is terminated by reason of the optionee's
death may thereafter be exercised, to the extent it was exercisable by the
optionee on the date of the optionee's death, by the legal representative
of the optionee's estate or by any other person who acquires the right to
exercise the option by reason of such death under the optionee's will or
the laws of intestate succession, for a period of 12 months (or such other
period as the Administrator shall specify in the Stock Option) from the
date of death, but not later than the expiration of the stated term of the
Option, if earlier.
(vi) Termination by Reason of Disability. Any Stock Option held by
an optionee whose employment by (or other business relationship with) the
Company and its Subsidiaries is terminated by reason of Disability may
thereafter be exercised, to the extent it was exercisable on the date of
such termination, for a period of 12 months (or such other period as the
Administrator shall specify in the Stock Option) from the date of such
termination of employment (or business relationship), but not later than
the expiration of the stated term of the Option, if earlier. The
Administrator shall have sole authority and discretion to determine
whether a participant's employment (or business relationship) has been
terminated by reason of Disability. The Administrator may specify in any
Stock Option that the death of an optionee during the period provided in
this Section 5(a)(vi) for the exercise of the Option shall extend such
period for a period ending not later than 12 months following the date of
the optionee's death, subject to termination on the expiration of the
stated term of the Option, if earlier.
(vii) Termination by Reason of Retirement. Any Stock Option held by
an optionee whose employment by the Company and its Subsidiaries is
terminated by reason of Retirement may thereafter be exercised, to the
extent it was exercisable on the date of such termination, for a period of
12 months (or such other period as the Administrator shall specify) from
the date of such termination of employment, but not later than the
expiration of the stated term of the Option, if earlier. The Administrator
may specify in any Stock Option that the death of an optionee during the
period provided in this Section 5(a)(vii) for the exercise of the Option
shall extend such period for a period ending not later than 12 months
following the date of the optionee's death, subject to termination on the
expiration of the stated term of the Option, if earlier.
(viii) Termination for Cause. If any optionee's employment by (or
business relationship with) the Company and its Subsidiaries is terminated
for Cause, any Stock Option held by such optionee, including any Stock
Option that is exercisable at the time of such termination, shall
immediately terminate and be of no further force and effect;
8
<PAGE>
provided, however, that the Administrator may, in its sole discretion,
provide in any Stock Option that such Stock Option can be exercised, to
the extent it was exercisable on the date of such termination, for a
period of up to 30 days from the date of termination of employment (or
business relationship), but not later than the expiration of the stated
term of the Option, if earlier.
(ix) Other Termination. Unless otherwise determined by the
Administrator, if an optionee's employment by (or business relationship
with) the Company and its Subsidiaries terminates for any reason other
than death, Disability, Retirement, or for Cause, any Stock Option held by
such optionee may thereafter be exercised, to the extent it was
exercisable on the date of such termination, for three months (or such
other period not to exceed 60 months as the Administrator shall specify)
from the date of termination of employment (or business relationship), but
not later than the expiration of the stated term of the Option, if
earlier.
(x) Annual Limit on Incentive Stock Options. To the extent required
for "incentive stock option" treatment under Section 422 of the Code, the
aggregate Fair Market Value (determined as of the time of grant) of the
shares of Stock with respect to which Incentive Stock Options granted
under this Plan and any other plan of the Company or its parent and
subsidiary corporations become exercisable for the first time by an
optionee during any calendar year shall not exceed $100,000. To the extent
that any Stock Option exceeds this limit, it shall constitute a
Nonstatutory Stock Option.
(b) Non-Transferability of Options. No Stock Option shall be transferable
by the optionee otherwise than by will or by the laws of descent and
distribution and all Stock Options shall be exercisable, during the optionee's
lifetime, only by the optionee. Notwithstanding the foregoing, the Administrator
may provide in an option agreement evidencing a Nonstatutory Stock Option that
the optionee may transfer, without consideration for the transfer, such
Nonstatutory Stock Option to members of his immediate family, to trusts for the
benefit of such family members, to partnerships in which such family members are
the only partners, or to charitable organizations, provided that the transferee
agrees in writing with the Company to be bound by all of the terms and
conditions of the Plan and the applicable option agreement.
(c) Form of Settlement. Shares of Stock issued upon exercise of a Stock
Option shall be free of all restrictions under the Plan, except as otherwise
provided in the Plan.
Section 6. Stock Appreciation Rights.
(a) Nature of Stock Appreciation Rights. A Stock Appreciation Right is an
award entitling the recipient to receive an amount in cash or shares of Stock or
a combination thereof having a value equal to the excess of the Fair Market
Value of a share of Stock on the date of exercise over the per share exercise
price of the Stock Appreciation Right set by the Administrator at the time of
grant, which exercise price shall be not less than the Fair Market Value of a
share of Stock on the date of grant (or not less than the Option exercise price
per share, if the Stock Appreciation Right was granted in tandem with a Stock
Option) multiplied by the number of shares of Stock with respect to which the
Stock Appreciation Right shall have been exercised, with the Administrator
having the right to determine the form of payment.
9
<PAGE>
(b) Grant and Exercise of Stock Appreciation Rights. Stock Appreciation
Rights may be granted by the Administrator in tandem with, or independently of,
any Stock Option granted pursuant to Section 5 of the Plan. In the case of a
Stock Appreciation Right granted in tandem with a Nonstatutory Stock Option,
such Stock Appreciation Right may be granted either at or after the time of the
grant of such Option. In the case of a Stock Appreciation Right granted in
tandem with an Incentive Stock Option, such Stock Appreciation Right may be
granted only at the time of the grant of the Option.
(c) Terms and Conditions of Stock Appreciation Rights. Stock Appreciation
Rights shall be subject to such terms and conditions as shall be determined from
time to time by the Administrator, subject to the following:
(i) Stock Appreciation Rights granted in tandem with Options shall
be exercisable at such time or times and to the extent that the related
Stock Options shall be exercisable. A Stock Appreciation Right or
applicable portion thereof granted in tandem with a Stock Option shall
terminate and no longer be exercisable upon the termination or exercise of
the related Option.
(ii) Upon exercise of a Stock Appreciation Right, the applicable
portion of any related Option shall be surrendered.
(iii) Stock Appreciation Rights granted in tandem with an Option
shall be transferable only when and to the extent that the underlying
Option would be transferable. Stock Appreciation Rights not granted in
tandem with an Option shall not be transferable otherwise than by will or
the laws of descent or distribution. All Stock Appreciation Rights shall
be exercisable during the participant's lifetime only by the participant
or the participant's legal representative.
Section 7. Restricted Stock Awards
(a) Nature of Restricted Stock Awards. A Restricted Stock Award is an
Award entitling the recipient to acquire shares of Stock subject to such
restrictions and conditions as the Administrator may determine at the time of
grant ("Restricted Stock"), at a purchase price and for such consideration as
the Administrator may determine, which price shall not be less than 85% of the
Fair Market Value of the Stock on the date of issuance. Such Restricted Stock
issuances may, at the discretion of the Administrator, be based on continuing
employment (or other business relationship) with the Company and its
Subsidiaries and/or achievement of pre-established performance goals and
objectives. Restricted Stock Awards shall be limited to a total of one hundred
thousand (100,000) shares of Stock.
(b) Rights as a Stockholder. Upon execution of a written instrument
setting forth the Restricted Stock Award and paying any applicable purchase
price, a participant shall have the rights of a stockholder with respect to the
voting of the Restricted Stock, subject to such conditions contained in the
written instrument evidencing the Restricted Stock Award. Unless the
Administrator shall otherwise determine, certificates evidencing the Restricted
Stock shall remain in the possession of the Company or of a third party escrow
holder until such Restricted Stock is vested as provided in Section 7(d) below.
10
<PAGE>
(c) Restrictions. Restricted Stock may not be sold, assigned, transferred,
pledged or otherwise encumbered or disposed of except as specifically provided
herein or in the written instrument evidencing the Restricted Stock Award. If a
participant's employment (or other business relationship) with the Company and
its Subsidiaries terminates for any reason, the Company shall have the right to
repurchase from the participant or the participant's legal representative at
their purchase price the Restricted Stock with respect to which conditions have
not lapsed.
(d) Vesting of Restricted Stock. The Administrator at the time of grant
shall specify the date or dates and/or the attainment of pre-established
performance goals, objectives and other conditions on which the
non-transferability of the Restricted Stock and the Company's right of
repurchase shall lapse. Subsequent to such date or dates and/or the attainment
of such pre-established performance goals, objectives and other conditions, the
shares on which all restrictions have lapsed shall no longer be Restricted Stock
and shall be "vested." Except as may otherwise be provided by the Administrator,
a participant's rights in any shares of Restricted Stock that have not vested
shall terminate automatically upon the participant's termination of employment
(or other business relationship) with the Company and its Subsidiaries and such
shares shall be subject to the Company's right of repurchase as provided in
Section 7(c) above.
(e) Waiver, Deferral and Reinvestment of Dividends. The written instrument
evidencing the Restricted Stock Award may require or permit the immediate
payment, waiver, deferral or investment of dividends paid on the Restricted
Stock.
Section 8. Tax Withholding
(a) Payment By Participant. Each participant shall, no later than the date
as of which the value of an Award or of any Stock or other amounts received
thereunder first becomes includable in the gross income of the participant for
Federal income tax purposes, pay to the Company, or make arrangements
satisfactory to the Administrator regarding payment of, any Federal, state, or
local taxes of any kind required by law to be withheld with respect to such
income. The Company and its Subsidiaries shall, to the extent permitted by law,
have the right to deduct any such taxes from any payment of any kind otherwise
due to the participant.
(b) Payment in Stock. Subject to approval by the Administrator, a
participant may elect to have such tax withholding obligation satisfied, in
whole or in part, by (i) authorizing the Company to withhold from shares of
Stock to be issued pursuant to any Award a number of shares with an aggregate
Fair Market Value (as of the date the withholding is effected) that would
satisfy the withholding amount due, or (ii) transferring to the Company shares
of Stock owned by the participant with an aggregate Fair Market Value (as of the
date the withholding is effected) that would satisfy the withholding amount due.
Section 9. Transfer, Leave of Absence, Etc.
For purposes of the Plan, the following events shall not be deemed a
termination of employment:
(a) a transfer to the employment of the Company from a Subsidiary or from
the Company to a Subsidiary, or from one Subsidiary to another; or
11
<PAGE>
(b) an approved leave of absence for military service or sickness, or for
any other purpose approved by the Company, if the employee's right to
re-employment is guaranteed either by a statute or by contract or under the
policy pursuant to which the leave of absence was granted or if the
Administrator otherwise so provides in writing.
Section 10. Amendments and Termination
The Board may, at any time, amend or discontinue the Plan and the
Administrator may, at any time, amend or cancel any outstanding Award (or
provide substitute Awards at the same or reduced exercise or purchase price or
with no exercise or purchase price in a manner not inconsistent with the terms
of the Plan, but such price, if any, must satisfy the requirements which would
apply to the substitute or amended Award if it were then initially granted under
this Plan) for the purpose of satisfying changes in law or for any other lawful
purpose, but no such action shall adversely affect rights under any outstanding
Award without the holder's consent. If and to the extent determined by the
Administrator to be required to ensure that Incentive Stock Options granted
under the Plan are qualified under Section 422 of the Code, Plan amendments
shall be subject to approval by the Company's stockholders entitled to vote at a
meeting of stockholders.
Section 11. Status of Plan
With respect to the portion of any Award which has not been exercised and
any payments in cash, Stock or other consideration not received by a
participant, a participant shall have no rights greater than those of a general
creditor of the Company unless the Administrator shall otherwise expressly
determine in connection with any Award or Awards. In its sole discretion, the
Administrator may authorize the creation of trusts or other arrangements to meet
the Company's obligations to deliver Stock or make payments with respect to
Awards hereunder, provided that the existence of such trusts or other
arrangements is consistent with the foregoing sentence.
Section 12. General Provisions
(a) No Distribution; Compliance With Legal Requirements. The Administrator
may require each person acquiring Stock pursuant to an Award to represent to and
agree with the Company in writing that such person is acquiring the shares
without a view to distribution thereof. No shares of Stock shall be issued
pursuant to an Award until all applicable securities law and other legal and
stock exchange or similar requirements have been satisfied. The Administrator
may require the placing of such stop-orders and restrictive legends on
certificates for Stock and Awards as it considers appropriate.
(b) Delivery Of Stock Certificates. Delivery of stock certificates to
participants under this Plan shall be deemed effected for all purposes when the
Company or a stock transfer agent of the Company shall have mailed such
certificates in the United States mail, addressed to the participant, at the
participant's last known address on file with the Company.
(c) Other Compensation Arrangements; No Employment Rights. Nothing
contained in this Plan shall prevent the Board from adopting other or additional
compensation arrangements, including trusts, and such arrangements may be either
generally applicable or
12
<PAGE>
applicable only in specific cases. The adoption of this Plan and the grant of
Awards do not confer upon any employee any right to continued employment with
the Company or any Subsidiary.
Section 13. Effective Date of Plan
This Plan shall become effective when adopted by the Company's Board of
Directors, but no Award granted under the Plan shall become exercisable and no
shares shall be issuable under the Plan unless the Plan shall have been approved
by the Company's stockholders. If such stockholder approval is not obtained
within twelve (12) months of the Board's approval, then all Awards previously
granted under the Plan shall terminate, and no further Awards shall be granted
or issued.
Section 14. Governing Law
This Plan shall be governed by California law except to the extent such
law is preempted by federal law; provided, however, that the Delaware General
Corporation Law shall apply to the issuance of Stock and other securities
hereunder.
13
<PAGE>
"Annex E"
MACROVISION CORPORATION
1996 DIRECTORS STOCK OPTION PLAN
As Amended and Restated by the Board of Directors on June 16, 2000
1. Purpose. The purpose of the Macrovision Corporation 1996 Directors
Stock Option Plan (the "Plan") is to grant to non-employee members of the
Company's Board of Directors ("Outside Directors") of Macrovision Corporation, a
Delaware corporation (the "Company") the opportunity to acquire Common Stock of
the Company, thereby encouraging such persons to accept or continue their
service on the Company's Board of Directors; to align the interests of such
persons with those of the Company's stockholders through stock ownership; and to
furnish such persons an additional incentive to improve operations and increase
profits of the Company.
To accomplish the foregoing objectives, this Plan provides a means
whereby Outside Directors may receive options to purchase Common Stock. Options
granted under this Plan will be nonstatutory (nonqualified) stock options.
2. Administration. The Plan shall be administered by the Company's Board
of Directors (the "Administrator"), which shall have the power and authority to
grant stock options consistent with the terms of the Plan, including the power
and authority:
(a) to determine the terms and conditions of the stock option
agreements entered into between the Company and any Outside Director;
(b) to interpret the Plan;
(c) to modify or amend any such option; and
(d) to make all determinations necessary or advisable for the
administration of the Plan.
3. Eligibility; Number.
(a) Each Outside Director who first becomes a member of the
Company's Board of Directors after the effective date of the Registration
Statement on Form SB-2 for the initial public offering of the Company's Common
Stock (the "IPO Date") shall be granted options to purchase shares of the
Company's Common Stock effective as of the date he or she first becomes a member
of the Company's Board of Directors (the "Initial Grant Date"). On and after
April 23, 2000, the number of shares of the Company's Common Stock subject to
options granted to each such Outside Director on his or her Initial Grant Date
shall be forty thousand (40,000) shares.
(b) Each Outside Director who first becomes a member of the
Company's Board of Directors after the IPO Date shall be granted options to
purchase additional shares of
<PAGE>
the Company's Common Stock annually on each successive anniversary of the
Initial Grant Date commencing on the one (1) year anniversary of the Initial
Grant Date, provided that such Outside Director continues to serve on the
Company's Board of Directors on such dates. Each Outside Director who is serving
as a member of the Company's Board of Directors on the IPO Date will be granted
an option to purchase shares of the Company's Common Stock annually on each
successive anniversary of the IPO Date commencing on the one (1) year
anniversary of the IPO Date, provided that such Outside Director continues to
serve on the Company's Board of Directors on such dates. Each employee member of
the Company's Board of Directors who becomes an Outside Director as a result of
ceasing to be an employee of the Company will be granted an option to purchase
shares of the Company's Common Stock annually on each successive anniversary of
the IPO Date commencing on the first anniversary of the IPO Date on which such
individual serves as an Outside Director, provided that such individual
continues to serve as an Outside Director on the Company's Board of Directors on
such dates, but such an individual will not receive any initial grant of an
option to purchase shares of the Company's Common Stock under Subsection 3(a)
above. On and after April 23. 2000, the number of shares of the Company's Common
Stock subject to options granted to each Outside Director annually under this
Subsection 3(b) shall be ten thousand (10,000) shares.
4. Exercise Price. The exercise price of each option to purchase a share
of the Company's Common Stock shall be the fair market value of a share of the
Company's Common Stock on the date on which such option is granted. For all
purposes of this Plan, the fair market value of the Company's Common Stock on
any particular date shall be the closing price on the trading day next preceding
that date on the principal securities exchange on which the Company's Common
Stock is listed, or, if such Common Stock is not then listed on any securities
exchange, then the fair market value of the Common Stock on such date shall be
the closing price as reported by the National Association of Securities Dealers,
Inc. Automated Quotation System ("NASDAQ") on the trading day next preceding
such date. In the event that the Company's Common Stock is neither listed on a
securities exchange nor quoted by NASDAQ, then the Administrator shall determine
the fair market value of the Company's Common Stock on such date.
5. Common Stock Subject to Plan.
(a) As of June 16, 2000, there shall be reserved for issue upon the
exercise of options granted under the Plan, including unexercised options
outstanding on such date, three hundred nineteen thousand thirty-six (319,036)
shares of Common Stock. If an option granted under the Plan shall expire or
terminate for any reason without having been exercised in full, the unpurchased
shares subject thereto shall again be available for the purposes of the Plan.
(b) Notwithstanding any other provisions of this Plan, the aggregate
number of shares of Common Stock subject to outstanding options granted under
this Plan, plus the aggregate number of shares issued upon the exercise of all
options granted under this Plan, shall never be permitted to exceed the number
of shares specified in the first sentence of Subsection 5(a) above.
6. Terms of Options. Each option granted under the Plan shall be evidenced
by a nonstatutory stock option agreement between the individual to whom the
option is granted (the
2
<PAGE>
"optionee") and the Company. Each such agreement shall designate the option
thereby granted as a nonstatutory stock option. Each such agreement shall be
subject to the terms and conditions set forth in this Section 6, and to such
other terms and conditions not inconsistent herewith as the Administrator may
deem appropriate in each case. All options granted under this Plan shall be
subject to the following terms and conditions:
(a) Term of Options. The period or periods within which an option
may be exercised shall be determined by the Administrator at the time the option
is granted, but in no event shall such period extend beyond ten (10) years from
the date the option is granted.
(b) Method of Payment for Common Stock. Payment for stock purchased
upon any exercise of an option granted under this Plan shall be made in full
concurrently with such exercise by any one of the following methods: (i) in
cash; (ii) if and to the extent the instrument evidencing the option so provides
and if the Company is not then prohibited from purchasing or acquiring shares of
such stock, with shares of the same class of stock as are subject to the option
that have been held by the optionee for the requisite period necessary to avoid
a charge to the Company's earnings for financial reporting purposes, delivered
in lieu of cash, with the shares so delivered to be valued on the basis of the
fair market value of the stock (determined in a manner specified in the
instrument evidencing the option) on the date of exercise; (iii) through a "same
day sale" commitment from the optionee and a broker-dealer that is a member of
the National Association of Securities Dealers (the "NASD Dealer") whereby the
optionee irrevocably elects to exercise the option and to sell a portion of the
shares so purchased to pay for the exercise price, and whereby the NASD Dealer
irrevocably commits upon receipt of such shares to forward the exercise price
directly to the Company; (iv) through a "margin" commitment from the optionee
and a NASD Dealer whereby the optionee irrevocably elects to exercise the option
and to pledge the shares so purchased to the NASD Dealer in a margin account as
security for a loan from the NASD Dealer in the amount of the exercise price ,
and whereby the NASD Dealer irrevocably commits upon receipt of such shares to
forward the exercise price directly to the Company; or (v) any combination of
the foregoing.
(c) Vesting. Options granted under this Plan on or before April 22,
1999, shall become first exercisable ratably over a four (4) year period such
that each option shall become first exercisable as to one forty-eighth (1/48) of
the option shares on the last day of each month, beginning with the first full
month following the date of grant, provided that the optionee continues to serve
on the Company's Board of Directors on such dates. Initial options granted under
Subsection 3(a) of this Plan on or after April 23, 1999, and annual options
granted under Subsection 3(b) of this Plan on or after April 23, 1999, but prior
to April 23, 2000, shall become first exercisable ratably over a three (3) year
period such that each option shall become first exercisable as to one
thirty-sixth (1/36) of the option shares on the last day of each month,
beginning with the first full month following the date of grant, provided that
the optionee continues to serve on the Company's Board of Directors on such
dates. Annual options granted under Subsection 3(b) of this Plan on or after
April 23, 2000, shall become first exercisable ratably over a one (1) year
period such that each option shall become first exercisable as to one twelfth
(1/12) of the option shares on the last day of each month, beginning with the
first full month following the date of grant, provided that the optionee
continues to serve on the Company's Board of Directors on such dates.
Notwithstanding the foregoing, all options granted
3
<PAGE>
to an optionee under this Plan will become exercisable immediately upon the
optionee's death or disability while serving on the Company's Board of
Directors.
(d) Death; Disability; Resignation. In the event of an
optionee's death or disability while serving on the Company's Board of
Directors, all options granted to that optionee under this Plan may be exercised
by the optionee or the optionee's estate for a period of one (1) year after the
date on which the optionee ceases to serve on the Company's Board and will
terminate if not exercised during such period, subject to termination on the
expiration of the stated term of the option, if earlier. If an optionee resigns
from the Company's Board of Directors or declines to stand for reelection,
options that have become exercisable through the last date on which the optionee
serves on the Company's Board may be exercised for a period of three (3) months
thereafter and will terminate if not exercised during such period, subject to
termination on the expiration of the stated term of the option, if earlier. If
an optionee is removed from the Board by action of the Company's Stockholders or
Board of Directors, options that have become exercisable through the date of
such removal may be exercised for a period of one (1) week thereafter and will
terminate if not exercised during such period, subject to termination on the
expiration of the stated term of the option, if earlier. The "optionee's estate"
shall mean the duly authorized conservator or guardian of the estate of the
optionee or the executor of the optionee's last will or the duly authorized
administrator or special administrator of the optionee's probate estate or any
other legal representative of the optionee's estate duly appointed as a result
of the optionee's death or incapacity or any person who acquires the right to
exercise this option by reason of the optionee's death under the optionee's will
or the laws of intestate succession.
(e) Withholding and Employment Taxes. At the time of exercise
of an option, the optionee shall remit to the Company in cash the amount of any
and all applicable federal and state withholding and employment taxes.
7. Stock Issuance and Rights as Stockholder. Notwithstanding any other
provisions of the Plan, no optionee shall have any of the rights of a
stockholder (including the right to vote and receive dividends) of the Company,
by reason of the provisions of this Plan or any action taken hereunder, until
the date such optionee shall both have paid the exercise price for the Common
Stock and shall have been issued (as evidenced by the appropriate entry on the
books of the Company or of a duly authorized transfer agent of the Company) the
stock certificate evidencing such shares.
8. Non-Transferability of Options. No option shall be transferable by the
optionee otherwise than by will or by the laws of descent and distribution and
all options shall be exercisable, during the optionee's lifetime, only by the
optionee. Notwithstanding the foregoing, the Administrator may provide in any
option agreement that the optionee may transfer, without consideration for the
transfer, such option to members of his immediate family, to trusts for the
benefit of such family members, to partnerships in which such family members are
the only partners, or to charitable organizations, provided that the transferee
agrees in writing with the Company to be bound by all of the terms and
conditions of the Plan and the applicable option agreement.
4
<PAGE>
9. Adjustments Upon Changes in Capitalization or Merger.
(a) Subject to any required action by the Company's stockholders,
the number of shares of Common Stock covered by this Plan as provided in Section
5, the number of shares covered by each outstanding option granted hereunder and
the exercise price thereof shall be proportionately adjusted for any increase or
decrease in the number of issued shares of Common Stock resulting from a split,
reverse split, subdivision or consolidation of such shares or the payment of a
stock dividend (but only on the Common Stock) or any other increase or decrease
in the number of such outstanding shares of Common Stock effected without the
receipt of consideration by the Company; provided, however, that the conversion
of any convertible securities of the Company shall not be deemed to have been
"effected without receipt of consideration." The number of shares of Common
Stock, as provided in Section 3, covered by options to be granted after the date
of any event described in this Subsection 9(a) shall not be adjusted as a result
of such event, unless the Board determines that it is appropriate to make such
an adjustment and amends the Plan accordingly.
(b) In the event of (i) a dissolution or liquidation of the Company;
(ii) a merger or consolidation in which the Company is the not the surviving
corporation (other than a merger or consolidation with a wholly-owned
subsidiary, a reincorporation of the Company in a different jurisdiction, or
other transaction in which there is no substantial change in the stockholders of
the Company or their relative stock holdings and the options granted under this
Plan are assumed, converted or replaced by the successor corporation, which
assumption will be binding on all optionees); (iii) a merger in which the
Company is the surviving corporation but after which the stockholders of the
Company (other than any stockholder which merges (or which owns or controls
another corporation which merges) with the Company in such merger) cease to own
their shares or other equity interests in the Company; (iv) the sale of
substantially all of the assets of the Company; or (v) any other transaction
which qualifies as a "corporate transaction" under Section 424(a) of the
Internal Revenue Code of 1986, as amended, wherein the stockholders of the
Company give up all of their equity interest in the Company (except for the
acquisition, sale or transfer of all or substantially all of the outstanding
shares of the Company from or by the stockholders of the Company), any and all
outstanding options under this Plan shall become fully exercisable,
notwithstanding any other provision of this Plan and without regard to any
vesting provisions contained in the options, for a reasonable period of time
prior to the consummation of such event. Upon any such event, the successor
corporation (if any) may assume, convert or replace any outstanding options that
are not exercised prior to the consummation of the event or may substitute
equivalent options or provide substantially similar consideration to the
optionees as was provided to the stockholders (after taking into account the
existing provisions of the option grants). In the event such successor
corporation (if any) does not assume or substitute options, as provided above,
upon an event described in this Subsection 9(b), such options will terminate on
the consummation of such event at such time and on such conditions as the
Company's Board of Directors shall determine.
(c) To the extent that any adjustments described in this Section 9
relate to stock or securities of the Company, such adjustments shall be made by
the Company's Board of Directors, whose determination in that respect shall be
final, binding and conclusive.
5
<PAGE>
(d) Except as expressly provided in this Section 9, no optionee
shall have any rights by reason of any subdivision or consolidation of shares of
the capital stock of any class or the payment of any stock dividend or any other
increase or decrease in the number of shares of any class or by reason of any
dissolution, liquidation, merger or consolidation or spin-off of assets or stock
of another corporation, and any issue by the Company of shares of stock of any
class or of securities convertible into shares of stock of any class shall not
affect, and no adjustment by reason thereof shall be made with respect to, the
number or price of shares subject to any option granted hereunder.
(e) The grant of an option pursuant to this Plan shall not affect in
any way the right or power of the Company to make adjustments,
reclassifications, reorganizations or changes of its capital or business
structure or to merge or consolidate or to dissolve, liquidate, sell or transfer
all or any part of its business or assets.
10. Securities Law Requirements.
(a) The Administrator may require an individual as a condition of
the grant and of the exercise of an option, to represent and establish to the
satisfaction of the Administrator that all shares of Common Stock to be acquired
upon the exercise of such option will be acquired for investment and not for
resale. The Administrator shall cause such legends to be placed on certificates
evidencing shares of Common Stock issued upon exercise of an option as, in the
opinion of the Company's counsel, may be required by federal and applicable
state securities laws.
(b) No shares of Common Stock shall be issued upon the exercise of
any option unless and until counsel for the Company determines that: (i) the
Company and the optionee have satisfied all applicable requirements under the
Securities Act of 1933, as amended (the "Securities Act") and the Exchange Act;
(ii) any applicable listing requirement of any stock exchange on which the
Company's Common Stock is listed has been satisfied; and (iii) all other
applicable provisions of state and federal law have been satisfied.
11. Financial Assistance. The Company shall have the authority under this
Plan to assist any Outside Director to whom an option is granted hereunder in
the payment of the purchase price payable on exercise of that option, by lending
the amount of such purchase price to such Outside Director on such terms and at
such rates of interest and upon such security as shall have been authorized by
or under authority of the Company's Board of Directors.
12. Amendment. The Company's Board of Directors may terminate the Plan or
amend the Plan from time to time in such respects as the Board may deem
advisable.
13. Termination. The Plan shall terminate automatically on December 1,
2006, and may be terminated at any earlier date by the Company's Board of
Directors. No option shall be granted hereunder after termination of the Plan,
but such termination shall not affect the validity of any option then
outstanding.
14. Time of Granting Options. The date of grant of an option hereunder
shall, for all purposes, be the date on which the Administrator makes the
determination granting such option.
6
<PAGE>
15. Reservation of Shares. The Company, during the term of this Plan, will
at all times reserve and keep available such number of shares of its Common
Stock as shall be sufficient to satisfy the requirements of the Plan.
16. Effective Date. This Plan was adopted by the Company's Board of
Directors on December 3, 1996, and was approved by the stockholders of the
Company on February 25, 1997. The Plan was most recently amended and restated by
the Company's Board of Directors on June 16, 2000, and approved by the
stockholders of the Company on August __, 2000. However, no options shall be
granted under the Plan prior to the IPO Date.
7
<PAGE>
"Annex F"
[LOGO] Alliant Partners
June 16, 2000
Board of Directors
Macrovision Corporation
1341 Orleans Drive
Sunnyvale, CA 94089
Ladies and Gentlemen:
You have requested our opinion as to the fairness, from a financial point of
view, to the shareholders of Macrovision Corporation ("Macrovision") of the
consideration provided by Macrovision in the acquisition (the "Acquisition") of
GLOBEtrotter Software, Inc. ("GLOBEtrotter" or the "Company"). As contemplated
by the Draft Agreement and Plan of Merger (the "Merger Agreement") dated June
12, 2000, Macrovision will exchange 9.0 million shares of Macrovision common
stock for all of GLOBEtrotter's outstanding stock and vested stock options.
Total enterprise consideration provided to GLOBEtrotter is valued at $587.0
million at the signing of the Merger Agreement on today's date.
For purposes of the opinion set forth herein, we have:
(a) Reviewed public financial statements and other information concerning
Macrovison as well as selected analyst reports discussing historical and
projected future performance of Macrovision;
(b) Reviewed certain internal financial statements and other financial and
operating data concerning GLOBEtrotter that was prepared by GLOBEtrotter's
management;
(c) Analyzed certain financial projections prepared by the management of
Macrovision;
(d) Discussed the past and current operations, financial condition, and the
prospects of GLOBEtrotter with senior executives of Macrovision and
GLOBEtrotter;
(e) Discussed with the senior managements of Macrovision and GLOBEtrotter the
strategic objectives of the Acquisition;
(f) Compared the financial performance of GLOBEtrotter with that of certain
comparable publicly-traded companies and the prices paid for securities in
those publicly-traded companies;
(g) Reviewed the financial terms, to the extent publicly available, of certain
comparable acquisition transactions of comparable companies;
(h) Assessed GLOBEtrotter's value based upon a forecast of future cash flows
using a discounted cash flow analysis;
(i) Assessed GLOBEtrotter's relative contribution to the combined entity based
on present and projected current year financial performance;
-----------------------------------------------------------------
435 Tasso Street, Third Floor, Palo Alto, California 94301
Telephone: 650.325.1541, Facsimile: 650.325.0460
<PAGE>
Board of Directors Page 2
Macrovision Corporation June 16, 2000
-------------------------------------------------------------------------------
(j) Reviewed the Merger Agreement and discussed the proposed terms of the
transaction with managements of both Macrovision and GLOBEtrotter; and
(k) Performed such other analyses and considered such other factors as we have
deemed appropriate.
We have assumed and relied upon, without independent verification, the accuracy
and completeness of the information reviewed by us for the purposes of this
opinion. With respect to the financial projections of GLOBEtrotter, we have
assumed that they have been reasonably prepared on bases reflecting the best
currently available estimates and judgments of the future financial performance
of the Company. The financial and other information regarding GLOBEtrotter
reviewed by Alliant Partners in connection with the rendering of this opinion
was limited to information provided by Macrovision's and GLOBEtrotter's
managements and certain discussions with Macrovision's senior management
regarding the Company's financial condition and prospects as well as the
strategic objectives of the Acquisition. In addition, we have assumed that the
Acquisition will be consummated in accordance with the terms set forth in the
Agreement. We have not made any independent valuation or appraisal of the assets
or liabilities of GLOBEtrotter, nor have we been furnished with any such
appraisals. Our opinion is necessarily based on economic, market and other
conditions as in effect on, and the information made available to us as of, the
date hereof.
Our opinion addresses only the fairness of the proposed Acquisition, from a
financial point of view, to the stockholders of Macrovision, and we do not
express any views on any other terms of the proposed Acquisition or the business
and strategic bases underlying the Merger Agreement.
Alliant Partners has received fees from Macrovision in previous transactions.
Based upon and subject to the foregoing, it is our opinion that, as of the date
hereof, the total consideration provided by Macrovision to GLOBEtrotter pursuant
to the Agreement and Plan of Merger is fair, from a financial point of view, to
the Macrovision stockholders.
Very truly yours,
[GRAPHIC OMITTED]
Alliant Partners
<PAGE>
ANNEX "G"
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED March 31, 2000
OR
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from ________ to ___________
Commission file number: 000-22023
Macrovision Corporation
(Exact name of registrant as specified in its charter)
Delaware 77-0156161
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1341 Orleans Drive
Sunnyvale, California 94089
(Address of principal executive offices) (Zip code)
(408) 743-8600
(Registrant's telephone number including area code)
Check whether the issuer (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 12
months (or for such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for the past 90
days.
Yes |X| No | |
State the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
Title Outstanding as of April 30, 2000
Common Stock, $0.001 par value 40,238,528
<PAGE>
MACROVISION CORPORATION
FORM 10-Q
INDEX
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION Page
----
<S> <C> <C>
Item 1. Condensed Consolidated Financial Statements
Condensed Consolidated Balance Sheets
as of March 31, 2000 and December 31, 1999 ........................... 3
Condensed Consolidated Statements of Income
for the Three Month Periods Ended March 31, 2000 and 1999 ............ 4
Condensed Consolidated Statements of Cash Flows
for the Three Month Periods Ended March 31, 2000 and 1999............. 5
Notes to Condensed Consolidated Financial Statements........................ 6
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations .............................................................. 9
Item 3. Quantitative and Qualitative Disclosures about Market Risk.................. 12
Risk Factors................................................................ 13
PART II. OTHER INFORMATION
Item 1. Legal Proceedings........................................................... 20
Item 5. Other Information .......................................................... 21
Item 6. Exhibits and Reports on Form 8-K ........................................... 21
Signatures ........................................................................... 22
</TABLE>
2
<PAGE>
Part I. Financial Information
Item 1. Condensed Consolidated Financial Statements.
MACROVISION CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
<TABLE>
<CAPTION>
March 31,
2000 December 31,
(Unaudited) 1999
---------------- ----------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 25,156 $ 4,317
Short-term investments 106,601 31,452
Accounts receivable, less allowance for doubtful
accounts of $846 and $984 13,193 11,662
Inventories 130 178
Deferred tax assets 2,368 2,477
Prepaid expenses and other assets 3,001 1,066
----------------- ----------------
Total current assets 150,449 51,152
Property and equipment, net 1,647 1,655
Patents and other intangibles, net 1,313 1,647
Long-term marketable investment securities 106,697 52,241
Intangibles associated with C-Dilla Ltd acquisition, net 15,888 16,631
Other assets 6,789 4,524
---------------- ----------------
$ 282,783 $ 127,850
================ ================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 1,585 $ 1,267
Accrued expenses 3,948 4,726
Deferred revenue 4,701 3,124
Income taxes payable 2,551 1,524
Current portion of capital lease obligation 48 76
---------------- ----------------
Total current liabilities 12,833 10,717
Deferred tax liabilities 14,650 14,073
---------------- ----------------
27,483 24,790
Stockholders' equity:
Common stock 40 36
Additional paid-in capital 210,929 63,553
Accumulated other comprehensive gain 25,649 25,165
Retained earnings 18,682 14,306
---------------- ----------------
Total stockholders' equity 255,300 103,060
---------------- ----------------
$ 282,783 $ 127,850
================ ================
</TABLE>
See the accompanying notes to these condensed consolidated financial statements.
3
<PAGE>
MACROVISION CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
----------------------------
2000 1999
------------ -----------
<S> <C> <C>
Net revenues $ 12,726 $ 7,163
------------ -----------
Costs and expenses:
Cost of revenues 1,154 671
Research and development 1,101 631
Selling and marketing 2,509 1,882
General and administrative 2,001 1,381
Amortization of intangibles from acquisition 744 --
------------ -----------
Total costs and expenses 7,509 3,706
------------ -----------
Operating income 5,217 1,472
Interest and other income, net 2,004 131
------------ -----------
Income before income taxes 7,221 1,603
Income taxes 2,845 609
------------ -----------
Net income $ 4,376 $ 994
============ ===========
Computation of basic and diluted earnings per share:
Basic earnings per share $ 0.11 $ 0.05
============ ===========
Shares used in computing basic earnings per share 38,784 35,547
============ ===========
Diluted earnings per share $ 0.11 $ 0.05
============ ===========
Shares used in computing diluted earnings per share 41,418 37,355
============ ===========
</TABLE>
See the accompanying notes to these condensed consolidated financial statements.
4
<PAGE>
MACROVISION CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended March 31,
2000 1999
---------------- ----------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 4,376 $ 1,858
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization 1,086 232
Amortization of prepaid future royalties to C-Dilla Limited -- 69
Deferred income taxes 15 (206)
Loss on disposal of assets 416 --
Tax benefit from employee stock plans 236 --
Stock compensation 45 --
Changes in operating assets and liabilities:
Accounts receivable, inventories, and other current asssets (3,331) (446)
Accounts payable, accrued expenses, deferred revenue
and income taxes payable 1,661 1,680
Other (157) 11
---------------- ----------------
Net cash provided by operating activities 4,347 3,198
---------------- ----------------
Cash flows from investing activities:
Purchases of long-term marketable investment securities (58,983) (6,512)
Sales or maturities of long-term marketable investment securities 9,819 5,210
Purchases of short-term investments (82,199) (7,073)
Sales or maturities of short-term investments 7,005 6,377
Acquisition of property and equipment (225) (79)
Payments for patents and other intangibles (192) (93)
Minority equity investments in companies (6,200) --
Receivable from related party 156 --
Other, net 18 18
---------------- ----------------
Net cash used in investing activities (130,648) (2,152)
---------------- ----------------
Cash flows from financing activities:
Payments on capital lease obligations (28) (27)
Proceeds from stock offering, net 146,155 --
Proceeds from issuance of common stock, net 1,013 525
---------------- ----------------
Net cash provided by financing activities 147,140 498
---------------- ----------------
Net increase in cash and cash equivalents 20,836 1,544
Cash and cash equivalents at beginning of period 4,317 3,513
---------------- ---------------
Cash and cash equivalents at end of period $ 25,156 $ 5,057
================ ================
Supplemental cash flow information:
Interest paid $ 1 $ 1
================ ================
Income taxes paid $ 1,412 $ 87
================ ================
Unrealized gain on investments, net of tax $ 25,840 $ --
================ ================
</TABLE>
See the accompanying notes to these condensed consolidated financial statements.
5
<PAGE>
MACROVISION CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1 - BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements have been
prepared by Macrovision Corporation (the "Company") in accordance with the rules
and regulations of the Securities and Exchange Commission. Certain information
and footnote disclosures, normally included in financial statements prepared in
accordance with generally accepted accounting principles, have been condensed or
omitted in accordance with such rules and regulations. In the opinion of
management, the accompanying unaudited condensed consolidated financial
statements reflect all adjustments, consisting only of normal recurring
adjustments, necessary to present fairly the financial position of the Company,
and its results of operations and cash flows for those periods presented. This
quarterly report on Form 10-Q should be read in conjunction with the audited
financial statements and notes thereto for the year ended December 31, 1999, and
other disclosures, including risk factors, included in the Company's Annual
Report on Form 10-K filed on March 30, 2000 and the Company's Registration
Statement on Form S-3 (Registration No. 333-95337).
The results of operations for the interim periods presented are not necessarily
indicative of the results expected for the entire year ending December 31, 2000
or any other future interim period, and the Company makes no representations
related thereto.
In March 2000, the Company issued one additional share for every share
outstanding, thus effecting a 2 for 1 stock split. All share and per share
information presented have been retroactively adjusted for the effect of such
stock split.
NOTE 2 - CASH, CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS
The Company considers all highly liquid investments with a maturity from date of
purchase of three months or less to be cash equivalents. Cash and cash
equivalents consist of cash on deposit with banks and money market funds. All
other liquid investments with maturities over three months and less than 12
months are classified as short-term investments. Short-term investments
consisted of government bonds, government agency securities and corporate
securities. All marketable securities with maturities over one year or which the
Company's intent is to retain for the long-term are classified as long-term
marketable investment securities.
Management determines the appropriate classification of investment securities at
the time of purchase and reevaluates such designation as of each balance sheet
date. The Company enters into certain equity investments for the promotion of
business and strategic objectives, and typically does not attempt to reduce or
eliminate the inherent market risks on these investments. In December 1999,
Digimarc, in which the Company has a minority interest of 924,475 shares,
consummated an initial public offering for which the fair market valuation is
classified as long-term marketable investment securities on the consolidated
balance sheets. In January 2000, the Company invested $4 million in TTR
Technologies Ltd., a public company, representing 1,880,937 shares or 11.4%. As
of March 31, 2000 and December 31, 1999, all investment securities were
designated as "available-for-sale." Available-for-sale securities are carried at
fair value based on quoted market prices, with unrealized gains and losses,
reported in comprehensive income, a separate component of stockholders' equity.
Realized gains and losses and declines in value judged to be
other-than-temporary for available-for-sale securities are included in the
consolidated statements of income. The cost of securities sold is based on the
specific identification method. Interest and dividends on securities classified
as available-for-sale are included in interest income.
The following is a summary of available-for-sale securities (in thousands):
6
<PAGE>
<TABLE>
<CAPTION>
March 31, December
2000 31, 1999
------------- -------------
<S> <C> <C>
Cash equivalents - money market funds..................... $ 24,255 $ 2,951
------------- -------------
Investments:
Corporate preferred certificates....................... -- 2,000
Corporate bonds........................................ 131,382 --
Municipal preferred certificates....................... -- 2,000
United States government bonds and agency securities... 30,307 33,469
Equity investments..................................... 51,609 46,224
------------- -------------
213,298 83,693
------------- -------------
$237,553 $86,644
============= =============
</TABLE>
As of March 31, 2000 and December 31, 1999 government bond securities
and equity investments totaling $106.7 million and $52.2 million, respectively,
are classified as long-term marketable investment securities in the accompanying
consolidated balance sheet.
As of March 31, 2000 and December 31, 1999, the difference between the
fair value and the amortized cost of available-for-sale securities was a gain of
$43,611,000 and $42,634,000, respectively. These unrealized gains, net of
deferred income tax, related to short-term and long-term government bonds and
investment securities, have been recorded as a component of comprehensive
income. As of March 31, 2000 and December 31, 1999, the weighted average
portfolio duration and contractual maturity for the government bonds was
approximately ten months and eight months, respectively.
NOTE 3 - PUBLIC OFFERING, EXERCISE OF OPTIONS AND EMPLOYEE STOCK PURCHASE PLAN
On January 26, 2000, the Company consummated an offering (" the offering") of
3,820,000 shares of its Common Stock, of which 2,874,000 shares were issued and
sold by the Company and 946,000 shares were sold by shareholders of the Company.
All shares were sold for $53.44 per share. The net proceeds to the Company from
the offering, after deducting the underwriting discount and other expenses of
the offering, were approximately $146 million. The Company did not receive any
proceeds from the sale of shares sold by the selling stockholders.
During the quarter ended March 31, 2000, the Company issued 443,124 shares of
common stock and received proceeds of approximately $720,000 associated with the
exercise of stock options. Also during the quarter ended March 31, 2000, the
Company issued 30,978 shares of common stock under the Employee Stock Purchase
Plan and received proceeds of approximately $292,000.
NOTE 4 - INVENTORIES
Inventories are stated at the lower of cost or market. Cost is determined using
the first-in, first-out method and consisted of the following:
March 31, December 31,
(In thousands) 2000 1999
-------------- -------------
Raw materials $ 60 $ 72
Work in progress 8 26
Finished goods 61 80
-------------- -------------
$ 129 $ 178
============== =============
7
<PAGE>
NOTE 5 - OTHER ASSETS
The Company intends to hold its investments for the long term and monitors
whether there has been an other than a temporary decline in the value of these
investments based on management's estimates of their net realizable value taking
into account the achievement of milestones in business plans and third-party
financing. The Company records its investments using the cost method, and these
investments are classified as other assets in the accompanying condensed
consolidated balance sheets as follows:
(In thousands)
March 31, December 31,
1999 1999
-------------- --------------
Investment in CAC $ 3,688 $ 3,688
Minority equity investments in companies 2,950 750
Deposits and other assets 151 86
-------------- --------------
$ 9,981 $ 4,524
============== ==============
During the quarter ended March 31, 1999, the Company made a $1.0 million
strategic investment in RPK Security, Inc. ("RPK"). RPK develops encryption
technology for high data flow Internet applications such as streaming media and
digital communication. The Company also made a $1.2 million strategic
investiment in InterActual Technologies, Inc. InterActual develops client and
server software which enables DVDs to be seamlessly linked to Internet web
sites, E-Commerce transactions, interactive games, and online communities. The
Company does not have the ability to exert significant influence over either of
these companies.
NOTE 6 - ACQUISITIONS
In June 1999, the Company acquired the remaining shares of C-Dilla Ltd.,
developers of copy protection and rights management technologies for CD-ROM and
Internet-delivered software products. The Company paid approximately $12.8
million in cash and acquisition costs, 436,796 shares of the Company's stock
valued at $5.1 million and option grants in Macrovision valued at $1.8 million.
The Company previously invested approximately $3.6 million in C-Dilla. The
transaction has been accounted for under the purchase method. The excess
purchase price over the net tangible assets acquired was $22.5 million of which,
based on management's estimates prepared in conjunction with a third party
valuation consultant was allocated as follows (in thousands):
In-process research and development............... $ 4,286
Developed technology.............................. 3,824
Core technology................................... 7,844
Acquired workforce................................ 497
Covenant not to compete........................... 1,788
Goodwill.......................................... 4,278
----------------
$ 22,517
================
In connection with the purchase of C-Dilla Ltd., the Company allocated $4.3
million of the $23.3 million total purchase price to in-process research and
development projects. This allocation represents the estimated fair value based
on risk-adjusted cash flows related to the incomplete research and development
projects. At the date of the acquisition, this amount was expensed as a
non-recurring charge as the in-process technology had not yet reached
technological feasibility and had no alternative future uses. C-Dilla Ltd. had
five major copy protection projects in progress at the time of acquisition.
These projects include a product which is being designed to protect DVD-ROMs
from unauthorized replication or copying, three products that are being designed
to prohibit the unauthorized copying of audio products and a product which is
being designed to allow DVD manufacturers to track where any DVD has been
manufactured and trace illegal copies. As of the acquisition date, costs to
complete the development of the projects acquired were expected to be
approximately $1.4 million. The Company currently expects to complete the
development of the first four projects at various dates through fiscal 2001. The
project to produce a product
8
<PAGE>
to allow DVD manufacturers to track where any DVD has been manufactured and
trace illegal copies has been abandoned due to lack of a definitive interest in
the market for such a product.
The nature of the efforts required to develop the acquired in-process technology
into commercially viable products principally relate to the completion of all
planning, designing and testing activities necessary to establish that the
product will meet its design requirements including functions, features and
technical performance requirements. Though the Company currently expects that
the acquired in process technology will be successfully developed, there can be
no assurance that commercial or technical viability of these products will be
achieved. Furthermore, future developments in the computer software industry,
changes in the delivery of audio products, changes in other product offerings or
other developments may cause us to alter or abandon these plans.
The value assigned to purchased in-process technology was determined by
estimating the completion percentage of research and development efforts at the
acquisition date, forecasting risk adjusted revenues considering completion
percentage, estimating the resulting net cash flows from the projects and
discounting the net cash flows to their present values. The completion
percentages were estimated based on cost incurred to date, importance of
completed development tasks and elapsed portion of the total project time. A net
revenue projection of $52.5 million beginning in the year 2000 through the year
2007 was used to value the in-process research and development. This projection
is based on sales forecasts and adjusted to consider only the revenue related to
achievements completed at the acquisition date. Net cash flow estimates include
cost of goods sold, sales and marketing and general and administrative expenses
and taxes forecasted based on historical operating characteristics. The
estimated total costs are equal to approximately 78% of the projected revenue.
In addition, net cash flow estimates were adjusted to allow for fair return on
working capital and fixed assets, charges for technology leverage and return on
other intangibles. Appropriate risk adjusted discount rates ranging from 20% to
30% were used to discount the net cash flows back to their present values.
The remaining excess purchase price was allocated to existing products and
technologies, retention of workforce and noncompete agreements. The Company used
the income approach to determine the value allocated to existing products and
technologies and noncompete agreements and used the replacement cost approach to
determine the value allocated to workforce. The residual excess purchase price
was allocated to goodwill.
The Company will amortize such intangibles on a straight line basis over three
to seven years based on expected useful lives of existing products and
technologies, retention of workforce, noncompete agreements and goodwill. If the
identified projects are not successfully developed, the Company may not realize
the value assigned to the in-process research and development projects and the
value of the acquired intangible assets may also become impaired.
The results of C-Dilla Ltd. and the estimated fair value of assets acquired and
liabilities assumed are included in the Company's financial statements from the
date of acquisition. In connection with the C-Dilla Ltd. acquisition, the
purchase price has been allocated to the assets and liabilities assumed based
upon fair values on the date of acquisition, as follows (in thousands):
Current assets.............................................. $ 675
Property and equipment, net................................. 521
In-Process research and development......................... 4,286
Deferred tax asset.......................................... 1,440
Intangibles associated with C-Dilla Ltd. acquisition........ 18,231
Current liabilities......................................... (1,888)
-----------
$ 23,265
===========
9
<PAGE>
NOTE 7 - NET INCOME PER SHARE
Basic EPS is computed using the weighted average number of common shares
outstanding during the period. Diluted EPS is computed using the weighted
average number of common and dilutive common equivalent shares outstanding
during the period except for periods of operating loss for which no common share
equivalents are included because their effect would be antidilutive. Dilutive
common equivalent shares consist of common stock issuable upon exercise of stock
options using the treasury stock method. In August 1999 and March, 2000, the
Company issued one additional share for every share outstanding, thus affecting
a 2 for 1 stock splits. All share information presented has been retroactively
adjusted for the effect of both such stock split. The following is a
reconciliation of the shares used in the computation of basic and diluted EPS:
(in thousands):
<TABLE>
<CAPTION>
Three Months Ended
March 31,
-----------------------------
2000 1999
------------ -------------
<S> <C> <C>
Basic EPS - weighted average number of common shares outstanding 38,784 35,547
Effect of dilutive common equivalent shares - stock options outstanding 2,634 1,808
------------ -------------
Diluted EPS - weighted average number of common shares and
common equivalents shares outstanding 41,418 37,355
============ =============
</TABLE>
NOTE 8 - RECENT ACCOUNTING PRONOUNCEMENTS
In March 1998, the American Institute of Certified Public Accountants ("AICPA")
issued Statement of Position ("SOP") No. 98-1, "Accounting for the Costs of
Computer Software Developed or Obtained for Internal Use." SOP No. 98-1 requires
that entities capitalize certain costs related to internal-use software once
certain criteria have been met. The Company adopted SOP No. 98-1 on January 1,
1999, with no material effect.
In April 1998, the AICPA issued SOP No. 98-5, "Reporting on the Costs of
Start-Up Activities." SOP No. 98-5 requires that all start-up costs related to
new operations must be expensed as incurred. In addition, all start-up costs
that were capitalized in the past must be written off when SOP No. 98-5 is
adopted. The Company adopted SOP No. 98-5 on January 1, 1999, with no material
effect.
In December 1998, the AICPA issued SOP No. 98-9, "Modification of SOP No. 97-2,
Software Revenue Recognition, with Respect to Certain Transactions." SOP No.
98-9 requires recognition of revenue using the "residual method" in a multiple
element software arrangement when fair value does not exist for one or more of
the delivered elements in the arrangement. Under the "residual method," the
total fair value of the undelivered elements is deferred and recognized in
accordance with SOP No. 97-2. The Company will be required to implement SOP No.
98-9 for the year ending December 31, 2000. SOP No. 98-9 also extends the
deferral of the application of SOP No. 97-2 to certain other multiple-element
software arrangements through the Company's year ending December 31, 1999. The
Company does not expect the adoption of SOP No. 98-9 to have a material impact
on its financial position, results of operations or cash flows.
In June 1999, the Financial Accounting Standards Board (FASB) issued SFAS No.
137, "Accounting for Derivative Instruments and Hedging Activities, Deferral of
the Effective Date of SFAS No. 133", which amends the effective date of SFAS No.
133, "Accounting for Derivative Instruments and Hedging Activities. SFAS No. 133
establishes accounting and reporting standards for derivative instruments and
hedging activities and requires the Company to recognize all derivatives as
either assets or liabilities on the balance sheet and measure them at fair
value. Gains and losses resulting from changes in fair value would be accounted
for based on the intended use of the derivative and whether it is designated and
qualifies for hedge accounting. The Company will adopt SFAS No. 133 for its
first quarter of fiscal 2001. The Company has not determined the impact that
SFAS No. 133 will have on its financial statements and believes that such
determination will not be meaningful until closer to the date of the initial
adoption.
10
<PAGE>
NOTE 9 - SEGMENT AND GEOGRAPHIC INFORMATION
The Company operates in three industry segments as follows: Video Copy
Protection, Video Scrambling and Computer Software Copy Protection. In the Video
Copy Protection segment, the Company licenses its anti-copy video technologies
to customers in the home videocassette, DVD and digital pay-per-view markets. In
the Video Scrambling segment, the Company licenses and sells products utilizing
the Company's PhaseKrypt video scrambling technology to manufacturers of analog
set-top decoders for sale to cable television system operators in developing
cable television markets, to television broadcasters for securing incoming
contribution circuits to network control centers and outbound rebroadcast
circuits and to the government, military and law enforcement agencies for covert
surveillance applications. In the Computer Software Copy Protection segment, the
Company licenses copy protection technology in the multimedia software market.
The Company identifies segments based principally upon the type of products
sold. The accounting policies of these reportable segments are the same as those
described in the consolidated entity. The Company evaluates the performance of
its segments based on revenue and segment income. In addition, as the Company's
assets are primarily located in its corporate office in the United States and
not allocated to any specific segment, the Company does not produce reports for
or measure the performance of its segments based on any asset-based metrics.
Therefore, segment information is presented only for revenue and segment income.
The following segment reporting information of the Company is provided (dollars
in thousands):
Revenue:
Three Months Ended
March 31,
-------------------------------
2000 1999
-------------- -------------
Video Copy Protection $ 9,873 $ 6,865
Computer Software Copy Protection 2,466 213
Video Scrambling 351 85
Other 36 - -
-------------- -------------
Total $12,726 $ 7,163
============== =============
Operating Income:
Three Months Ended
March 31,
-------------------------------
2000 1999
-------------- -------------
Video Copy Protection $ 8,049 $ 5,328
Computer Software Copy Protection 1,179 (450)
Video Scrambling (191) (313)
Other 26 --
-------------- -------------
Segment income 9,063 4,610
Research and development 1,101 631
General and administrative 2,001 1,381
Amortization of intangibles from
acquisition 744
-------------- -------------
Operating income 5,217 2,598
Interest and other income, net 2,004 418
-------------- -------------
Income before income taxes $ 7,221 $ 3,016
============== =============
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
The following discussion contains forward-looking statements within the meaning
of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended. Statements concerning future
matters such as the Company's expectations for gross margins, operating expenses
and capital needs and other statements regarding matters that are not historical
are forward-looking statements.
11
<PAGE>
Predictions of future events are inherently uncertain. Actual events could
differ materially from those predicted in the forward-looking statements as a
result of the risks set forth in this Form 10-Q and in the "Risk Factors"
section of the Company's 1999 Annual Report on Form 10-K filed on March 30, 2000
and the Company's Registration Statement on Form S-3 (Registration No.
333-95337), which was declared effective by the Securities and Exchange
Commission on January 25, 2000. There are no assurances that the Company has
identified all possible problems that the Company might face. All investors
should carefully read the annual report on Form 10-K and the Company's
Registration Statement on Form S-3, together with this Form 10-Q, and consider
all such risks before making an investment decision with respect to the
Company's stock.
Overview
The Company was formed in 1983 and designs, develops and markets video copy
protection and rights management technologies that provide copy protection for
motion pictures and other proprietary content stored on videocassettes, DVDs or
other media or is transmitted by cable, satellite or microwave transmission or
through the Internet. In 1998, the Company broadened its focus to include the
copy protection of other media, including multimedia computer software on
CD-ROMs. The Company is headquartered in Sunnyvale, California and has
subsidiaries in the United Kingdom and Japan.
Results of Operations
Three Months Ended March 31, 2000 Compared to Three Months Ended March 31, 1999
The following table provides revenue information by specific product segments
for the periods indicated (dollars in thousands):
Three Months ended March 31,
----------------------------
$ %
2000 1999 Change Change
------------ ----------- -------- ---------
Video Copy Protection
Videocassette $ 3,566 $ 4,222 $ (656) (15.5)%
DVD 3,626 1,369 2,257 165.9
Pay-Per-View 2,681 1,274 1,407 110.4
Computer Software Copy
Protection 2,466 213 2,253 1,057.7
Video Scrambling 351 85 266 312.9
Other 36 -- 36 --
------------ ----------- --------
Total $12,726 $ 7,163 $5,563 77.7%
============ =========== ========
Net Revenues
Our net revenues for the first quarter of 2000 increased 77.7% from $7.2 million
in the first quarter of 1999 to $12.7 million in 2000. Revenues from
videocassette copy protection decreased $656,000 from $4.2 million in the first
quarter of 1999 to $3.6 million in 2000 as the studios continue to shift focus
to their DVD business. DVD copy protection revenues increased $2.3 million or
165.9% from $1.4 million in the first quarter of 1999 to $3.6 million in the
first quarter of 2000 due to increases in DVD shipments as the market for both
DVD players and DVD titles continued to expand including the international
market. Digital PPV copy protection revenues increased $1.4 million or 110.4%
from $1.3 million in the first quarter of 1999 to $2.7 million in the first
quarter of 2000 due to continued increases in the shipments of copy protection
enabled digital set-top boxes as the digital subscriber base grew in the direct
broadcast satellite (DBS) and cable TV domestic and international markets during
the past holiday season.
Computer Software/CD-ROM Copy Protection revenues increased $2.3 million from
$213,000 in the first quarter of 1999 to $2.5 million in the first quarter of
2000 as the installed base of customers implemented our SafeDisc copy protection
on their PC games and other consumer multimedia software along with the
roll-over affect of holiday cash given to children are spent on the PC games in
the first quarter. Revenues
12
<PAGE>
from Video Scrambling products increased 312.9% from $85,000 in the first
quarter of 1999 to $351,000 in the first quarter of 2000 primarily due to
shipments which incorporate our Phasekrypt technology from one of our licensees
to Brazil . Other revenue for the first quarter of 2000 was $36,000 relating to
a consulting agreement.
We expect that, although the videocassette copy protection will remain a
significant part of our business, it will continue to decline as a percentage of
our revenues and profits and in absolute terms as our copy protection business
in DVD, digital PPV and computer software continue to grow at much higher rates.
Our international and export revenues as a percentage of net revenues increased
from 42.8% for the first quarter of 1999 to 49.7% for the first quarter of 2000
due to higher DVD, set-top box and Computer Software/CD-ROM revenues.
Gross Margin
Gross margin for the first quarter of 2000 was 91% compared to 91% for the same
period in 1999. The increase in absolute dollars of $483,000 from $671,000 in
the first quarter of 1999 to $1.2 million in the first quarter of 2000 was due
primarily to the write-down of patents, assets and inventory related to the
Video Scrambling Group as the Company redirects its efforts into the other
growing markets that it serves. Cost of revenues includes items such as product
costs, duplicator/replicator fees, videocassette copy protection processor
costs, patent amortization and SafeDisc royalty expense prior to the acquisition
of C-Dilla Ltd. We expect gross margins to increase as a result of the
elimination of royalty expenses, although the increased margins will be
partially offset by patent defense costs associated with current patent
litigation.
Research and Development
Research and development expenses increased by $483,000 or 74.5% from $631,000
in the first quarter of 1999 to $1.1 million in 2000. The increased expenses
were a result of higher expenses relating to the software development at C-Dilla
that was not part of Macrovision in the first quarter of 1999 offset slightly by
the reimbursement from TTR Technologies of expenses relating to the audio
project. Research and development expenses remained level as a percentage of net
revenues at 9% for the first quarter of 2000 and 1999. We expect research and
development expenses to increase in absolute terms over the prior year periods
as a result of the research and development activity at C-Dilla and as we
develop new technologies in other areas.
Selling and Marketing
Selling and marketing expenses increased by $627,000 or 33.3% from $1.8 million
in the first quarter of 1999 to $2.5 million in the first quarter of 2000. This
increase was primarily due to the increased expenses relating to the growing
Computer Software /CD-ROM Copy Protection and the selling and marketing expenses
for C-Dilla that was not part of Macrovision in the first quarter of 1999.
Selling and marketing expenses decreased as a percentage of net revenues from
26.3% for the first quarter of 1999 to 19.7% for the first quarter of 2000.
Selling and marketing expenses are expected to increase over the prior year
periods as we continue to expand our efforts in selling and marketing Computer
Software/CD-ROM Copy Protection and other rights management products from
C-Dilla.
General and Administrative
General and administrative expenses increased by $575,000 or 41.6% from $1.4
million in the first quarter of 1999 to $2.0 million in the first quarter of
2000 primarily due higher accounting, legal and consulting expenses relating to
the pending GLOBEtrotter Software, Inc. acquisition, a tax consulting project
and general and administrative expenses for C-Dilla that was not part of
Macrovision in the first quarter of 1999. General and administrative expenses
declined as a percentage of net revenues from 19.3% in the first quarter of 1999
to 15.4% in the first quarter of 2000. General and administrative expenses are
expected to increase over the prior periods as we continue to expand our new
business development efforts.
13
<PAGE>
Amortization of Intangibles from Acquisitions
The Company amortizes intangibles relating to the acquisition of C-Dilla in June
of 1999 on a straight line basis over three to seven years based on expected
useful lives of existing products and technologies, retention of workforce,
non-compete agreements and goodwill. If the identified projects are not
successfully developed the value of the acquired intangible assets may also
become impaired.
Interest and Other Income
Other income increased $1.6 million or 379.4% from $418,000 in the first quarter
of 1999 to $2.0 million in the first quarter of 2000, primarily from interest
income received on the proceeds of our public stock offering in late January
2000.
Income Taxes
Income tax expense represents combined federal and state taxes at effective
rates of 39.4% and 38.4% for the first quarter of 2000 and 1999, respectively.
The higher rate for the first quarter of 2000 is the result taxable interest on
the Company's investments compared to tax-exempt instruments in the first
quarter of 1999.
Net Income
Net income for the first quarter of 2000 was $4.4 million compared to $1.9
million for the first quarter of 1999. The first quarter of 2000 included the
amortization of intangibles associated with the acquisition of C-Dilla of
$744,000.
Liquidity and Capital Resources
We have financed our operations primarily from cash generated by operations,
principally our copy protection businesses. Our operating activities provided
net cash of $4.3 and $3.2 million in the first quarter of 2000 and 1999,
respectively. In the first quarter of 2000, net cash was provided primarily by
net income before depreciation and amortization adjusted for noncash charges,
reduced by an increase in accounts receivable and prepaids offset by increases
in deferred revenue and income taxes payable. In the first quarter of 1999, net
cash was provided primarily by net income adjusted for noncash charges and an
increase in accounts payable, deferred revenue and income taxes payable, offset
slightly by an increase in accounts receivable and a decrease in accrued
expenses.
Investing activities used net cash of $130.6 million and $2.1 million in the
first quarter of 2000 and 1999, respectively. For the first quarter of 2000, net
cash used in investing activities was primarily for the net purchases of short
and long-term investment securities from the funds received from the public
offering and the minority equity investments in companies. For the first quarter
of 1999, net cash used in investing activities was primarily for the net
purchases of short and long-term investment securities. We made capital
expenditures of $225,000 and $79,000 in the first quarter of 2000 and 1999,
respectively. We also paid $192,000 and $93,000 in the first quarter of 2000 and
1999, respectively, related to patents and other intangibles during those
periods.
Net cash provided by financing activities was $147.1 million in the first
quarter of 2000 resulted from our January public offering. For the three months
ended March 31, 1999, the Company had net cash provided from financing
activities of $498,000 relating primarily to the issuance of common stock upon
the exercise of stock options and under the Company's stock purchase plan.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
We are exposed to financial market risks, including changes in interest rates,
foreign exchange rates and security investments. Changes in these factors may
cause fluctuations in our earnings and cash flows. We evaluate and manage the
exposure to these market risks as follows:
Fixed Income Investments. We have an investment portfolio of fixed income
securities, including those classified as cash equivalents, short-term
investments and long-term marketable investments securities of $186.8 million as
14
<PAGE>
of March 31, 2000. These securities are subject to interest rate fluctuations.
An increase in interest rates could adversely affect the market value of our
fixed income securities.
We do not use derivative financial instruments in our investment portfolio to
manage interest rate risk. We limit our exposure to interest rate and credit
risk, however, by establishing and strictly monitoring clear policies and
guidelines for our fixed income portfolios. The primary objective of these
policies is to preserve principal while at the same time maximizing yields,
without significantly increasing risk. A hypothetical 50 basis point increase in
interest rates would result in an approximate $696,000 decrease (approximately
0.4%) in the fair value of our available-for-sale securities as of March 31,
2000.
Foreign Exchange Rates. Due to our reliance on international and export sales,
we are subject to the risks of fluctuations in currency exchange rates. Because
a substantial majority of our international and export revenues are typically
denominated in United States dollars, fluctuations in currency exchange rates
could cause our products to become relatively more expensive to customers in a
particular country, leading to a reduction in sales or profitability in that
country. Our subsidiaries in England and Japan operate in their local currency,
which mitigates a portion of the exposure related to the respective currency
royalties collected.
Strategic Investments. We have expanded our technological base in current as
well as new markets through strategic investments in companies, technologies, or
products. We currently hold minority equity interests in CAC, Digimarc,
AudioSoft, TTR Technologies, RPK and InterActual Technologies. These
investments, totaling $58.2 million, represented 20.6% of our total assets as of
March 31, 2000. We subsequently invested an additional $750,000 in AudioSoft.
CAC, AudioSoft, RPK and InterActual are privately held companies. There is no
active trading market for their securities and our investments in them are
illiquid. We may never have an opportunity to realize a return on our investment
in these companies, and we may in the future be required to write off all or
part of one or more of these investments. Digimarc and TTR Technologies are
publicly traded companies.
In March 2000, we announced that we signed a letter of intent to acquire
privately held GLOBEtrotter Software of San Jose, California. GLOBEtrotter is
the leading OEM supplier of B2B (business-to-business) electronic licensing and
license management technology to software vendors and the leading direct
supplier of software asset management products to corporate customers worldwide.
We will acquire all outstanding shares and vested stock options of GLOBEtrotter
for 11.2 million shares of Macrovision common stock plus the assumption of
unvested GLOBEtrotter stock options, subject to completion of due diligence, the
approval of Macrovision's board of directors and stockholders, regulatory
approvals, and the completion of a definitive agreement.
We are exposed to financial market risks, including changes in interest rates,
foreign exchange rates and security investments. Changes in these factors may
cause fluctuations in the Company's earnings and cash flows. We evaluate and
manage the exposure to these market risks as follows:
RISK FACTORS
We depend on video copy protection technology and on advocacy of this technology
by major motion picture studios, and failure of the major motion picture
studios to support out technology could harm our business.
In the event that the major motion picture studios, or other customers of our
video copy protection technology were to determine that the benefits of using
our technology did not justify the cost of licensing the technology, demand for
our technology would decline. We currently derive a majority of our net revenues
and operating income from fees for the application of our patented video copy
protection technology to prerecorded videocassettes and DVDs of movies and other
copyrighted materials that video retailers sell or rent to consumers. These fees
represented 77.2%, 65.5% and 56.5% of our net revenues during 1998, 1999 and the
first three months of 2000, respectively.
Any future growth in revenues from these fees will depend on the use of our
video copy protection technology on a larger number of videocassettes, DVDs or
digital pay-per-view, or PPV, programs. In order to increase or maintain
ourmarket penetration, we must continue to persuade content owners that the cost
of licensing the technology is outweighed by the increase in revenues that the
content owners and retailers would achieve as a result of using copy protection,
such as revenues from additional sales of the copy protected material or
subsequent revenues from other venues.
15
<PAGE>
Any factor that results in a decline in demand for our video copy protection
technology, including a change of video copy protection policy by the major
motion picture studios or a decline in sales of prerecorded videocassettes and
DVDs that are encoded with our video copy protection technology, would have a
material adverse effect on our business. If several of the motion picture
studios withdraw their support for our copy protection technologies or otherwise
determine not to copy protect a significant portion of prerecorded
videocassettes or DVD or digital PPV programs, our business would be harmed.
We may experience fluctuations in future operating results, which may adversely
affect the price of our common stock.
We believe that our quarterly and annual revenues, expenses and operating
results could vary significantly in the future and that period-to-period
comparisons should not be relied upon as indications of future performance. We
may not be able to grow in future periods, or we may not be able to sustain our
level of net revenues, or our rate of revenue growth, on a quarterly or annual
basis. It is likely that, in some future quarter, our operating results will be
below the expectations of stock market analysts and investors. In this event,
the price of our common stock could decline.
Further, we may not be in a position to anticipate a decline in revenues in any
quarter until late in the quarter, due primarily to the delay inherent in
reporting from licensees and videocassette and optical disc manufacturers, or
replicators, resulting in a potentially more significant level of volatility in
the price of our common stock. Factors which could cause the price of our common
stock to decline include:
o the timing of releases of popular movies on videocassettes or
DVDs or by digital PPV transmission;
o the ability of the Motion Picture Association of America
studios to produce one or more "blockbuster" titles on an
annual basis;
o the degree of acceptance of our copy protection technologies
by major motion picture studios and software companies;
o the timing of releases of computer software CD-ROM multimedia
titles: and
o the degree to which various hacking technologies are viewed to
be successful by our customers.
We experience seasonality in our operating results, which may affect the price
of our common stock.
We have experienced significant seasonality in our business, and our business is
likely to be affected by seasonality in the future. We have typically
experienced our highest revenues in the fourth quarter of each calendar year
followed by lower revenues and operating income in the first quarter, and at
times in subsequent quarters, of the next year. We believe that this trend has
been principally due to the tendency of our customers to release their more
popular movies on videocassettes and DVDs during the year-end holiday shopping
season. We anticipate that revenues from multimedia CD-ROM copy protection will
also reflect this seasonal trend. In addition, our revenues have tended to be
lower in the summer months, particularly in Europe.
We depend on a small number of key customers for a high percentage of our
revenues and the loss of a significant customer could result in a substantial
decline in our revenues and profits.
Our customer base is highly concentrated among a limited number of customers,
primarily due to the fact that the Motion Picture Association of America studios
dominate the motion picture industry. Historically, we have derived the majority
of our net revenues from a relatively small number customers. For 1998, one of
our customers accounted for more than 12% of our net revenues. For 1999, no one
customer accounted for more than 10% of our net revenues. For the first three
months of 2000, revenues from one of our customers accounted for 11% of our net
revenues. The Motion Picture Association of America studios as a group accounted
for 45.1%, 34.4% and 32.5 % of our net revenues in 1998, 1999 and the first
three months of 2000, respectively.
16
<PAGE>
We expect that revenues from the Motion Picture Association of America studios
will continue to account for a substantial portion of our net revenues for the
foreseeable future. We have agreements with six of the major home video
companies for copy protection of a substantial part of their videocassettes
and/or DVDs in the United States. These agreements expire at various times
ranging from March 2000 to December 2004. The failure of any one of these
customers to renew its contract or to enter into a new contract with us on terms
that are favorable to us would likely result in a substantial decline in our net
revenues and operating income, and our business would be harmed.
Most of our other videocassette copy protection customers license our technology
on an annual contract basis or title-by-title or month-by-month. Our current
customers may not continue to use our technology at current or increased levels,
if at all, or we may not be able to obtain new customers. The loss of, or any
significant reduction in revenues from, a key customer would harm our business.
We are dependent on international sales for a substantial amount of our revenue.
We face diverse risks of international business, which could adversely affect
our operating results.
International and export sales together represented 44.5%, 45.6% and 49.7% of
our net revenues in 1998, 1999 and the first three months of 2000, respectively.
We expect that international and export sales will continue to represent a
substantial portion of our net revenues for the foreseeable future. Our future
growth will depend to a large extent on worldwide deployment of digital PPV
networks, DVDs, and computer software CD-ROMs, and the use of copy protection in
these media.
To the extent that foreign governments impose restrictions on importation of
programming, technology or components from the United States, the requirement
for copy protection in these markets could diminish. In addition, the laws of
some foreign countries may not protect our intellectual property rights to the
same extent as do the laws of the United States, which increases the risk of
unauthorized use of our technologies and the ready availability or use of
circumvention technologies. Such laws also may not be conducive to copyright
protection of video materials and digital media, which reduces the need for our
copy protection technology.
Due to our reliance on international and export sales, we are subject to the
risks of conducting business internationally, including:
o foreign government regulation;
o changes in diplomatic and trade relationships;
o changes in, or imposition of, regulatory requirements;
o tariffs or taxes and other trade barriers and restrictions;
and
o difficulty in staffing and managing foreign operations.
Our business could be materially adversely affected if foreign markets do
not continue to develop, if we do not receive additional orders to supply our
technologies or products for use in foreign prerecorded video, PPV and other
applications requiring our copy protection solutions or if regulations governing
our international business change. For example, under the United States Export
Administration Act of 1979, encryption algorithms such as those used in our
computer software copy protection technology are classified as munitions and
subject to stringent export controls. Any changes to the statute or the
regulations with respect to export of encryption technologies could require us
to redesign our products or technologies or prevent us from selling our products
and licensing our technologies internationally.
Foreign currency fluctuations could adversely affect our operating results.
While international and export sales are typically denominated in United
States dollars, fluctuations in currency exchange rates could cause our products
to become relatively more expensive to customers in a particular country,
leading to a reduction in sales or profitability in that country. Our future
results of operations may be materially adversely affected by currency
fluctuations.
17
<PAGE>
We may be unable to manage our growth, and if we cannot do so, it could harm our
business.
The growth of our business has placed, and is expected to continue to
place, significant demands on our personnel, management and other resources. Our
future results of operations will depend in part on the ability of our officers
and other key employees to continue to implement and expand our operational,
customer support and financial control systems and to expand, train and manage
our employee base. In order to manage our future growth successfully, we will
need to hire additional personnel and augment our existing financial and
management systems or implement new systems. We may not be able to augment or to
implement these systems efficiently, or on a timely basis, or to manage any
future expansion successfully. The failure to do so could harm our business.
Potential intellectual property claims and litigation could subject us to
significant liability for damages and invalidation of our property rights.
Litigation may be necessary in the future to enforce our patents and other
intellectual property rights, to protect our trade secrets or to determine the
validity and scope of the proprietary rights of others. We are currently subject
to several legal proceedings. See "Legal Proceedings."
Litigation could harm our business and result in:
o substantial settlement or related costs, including
indemnification of customers;
o diversion of management and technical resources;
o discontinuing the use and sale of infringing products;
o expending significant resources to develop non-infringing
technology; and
o obtaining licenses to infringed technology.
Our success is heavily dependent upon our proprietary technologies. We rely on
a combination of patent, trademark, copyright and trade secret laws,
nondisclosure and other contractual provisions, and technical measures to
protect our intellectual property rights. Our patents, trademarks or copyrights
may be challenged and invalidated or circumvented. Our patents may not be of
sufficient scope or strength or be issued in all countries where our products
can be sold. The expiration of some of our patents may harm our business.
Others may develop technologies that are similar or superior to our
technologies, duplicate our technologies or design around our patents. Effective
intellectual property protection may be unavailable or limited in some foreign
countries. Despite efforts to protect our proprietary rights, unauthorized
parties may attempt to copy or otherwise use aspects of processes and devices
that we regard as proprietary. Policing unauthorized use of our proprietary
information is difficult, and the steps we have taken may not prevent
misappropriation of our technologies.
It may be time-consuming and costly to enforce our patents against devices and
hacking techniques that attempt to circumvent our copy protection technology,
and our failure to control them could harm our business.
We use our patents to limit the proliferation of devices intended to circumvent
our video copy protection technologies. In the past, we have initiated a number
of patent infringement disputes against manufacturers and distributors of these
devices. Any legal action that we may initiate could be time-consuming to
pursue, result in costly litigation, and divert management's attention from
day-to-day operations.
In the event of an adverse ruling in a patent infringement lawsuit, we might
suffer from the legal availability of the circumvention device or have to obtain
rights to the offending device. The legal availability of circumvention devices
could result in the increased proliferation of devices that defeat our copy
protection technology and a decline in demand for our technologies, which could
have a material adverse effect on our business.
A limited number of DVD manufacturers may build products which either do not
contain our copy protection technology, or include features that allow consumers
to bypass copy protection. Though we believe this is in
18
<PAGE>
contravention of the Digital Copyright Millennium Copyright Act, as well as the
basic DVD CSS license, proliferation of these products could cause a decline in
demand for our technologies, which could harm our business. Any legal or other
enforcement action that we may initiate could be time consuming to pursue,
result in costly litigation, and divert management's attention from day-to-day
activities.
In the computer software copy protection market, a number of individuals have
developed and posted SafeDisc hacks on the Internet. If we are not able to
generate frequent SafeDisc software releases, which deter the hackers from
developing circumvention techniques, our customers could reduce their usage of
our technology because it was compromised. Although the anti-circumvention
provisions in the Digital Millennium Copyright Act may be applicable to Internet
service providers who support the hacker sites, any legal action that we
initiate could be time-consuming to pursue, result in costly litigation, and
divert management's attention from day-to-day operations.
We are exposed to risks associated with expanding our technological base through
strategic investments.
We have recently expanded our technological base in current as well as new
markets through strategic investments in companies with complementary
technologies or products, which may not prove to be of long-term benefit to us.
We currently hold minority equity interests in four privately held companies,
Command Audio Corporation, AudioSoft, RPK and Interactual and two publicly
traded companies, Digimarc and TTR.
The negotiation, creation and management of these strategic relationships
typically involve a substantial commitment of our management time and resources,
and we may never recover the cost of these management resources. We may in the
future be required to write off all or part of one or more of these investments
which could harm our business.
Our strategic investments typically involve joint development or marketing
efforts or technology licensing. Any joint development efforts may not result in
the successful introduction of any new products by us or a third party, and any
joint marketing efforts may not result in increased demand for our products.
Further, any current or future strategic investments by us may not allow us to
enter and compete effectively in new markets or improve our performance in any
current markets.
We depend on third parties to develop SafeDisc compatible encoding and quality
assurance applications.
We rely on third party vendors such as DCA, Eclipse, Media Morphics, CD
Associates, Koch Media and Audio Development to develop add-on enabling software
modules that will:
o apply the SafeDisc digital signature at licensed replication
facilities;
o allow replicators to run specialized quality assurance tests
to ensure the SafeDisc technology is applied; and
o check for manufacturing defects in the mass produced discs.
Our operations could be disrupted if our relationships with third party vendors
are disrupted or if their products are defective, not available or not accepted
by licensed replicators. This could result in a loss of customer orders and
revenue.
We must establish and maintain licensing relationships to continue to expand our
business, and failure to do so could harm our business prospects.
Our future success will depend upon our ability to establish and maintain
licensing relationships with companies in related business fields, including:
o videocassette duplicators;
o international distributors of videocassettes;
o DVD authoring facilities and replicators;
19
<PAGE>
o DVD authoring tools software companies;
o DVD hardware manufacturers;
o semiconductor and equipment manufacturers;
o operators of digital PPV networks;
o consumer electronics and digital PPV set-top hardware
manufacturers; and
o CD-ROM mastering facilities and replicators.
Other parties may not perform their obligations as expected and our reliance on
others for the development, manufacturing and distribution of our technologies
and products may result in unforeseen problems. Substantially all of our license
agreements are non-exclusive, and therefore our licensees are free to enter into
similar agreements with third parties, including our competitors. Our licensees
may develop or pursue alternative technologies either on their own or in
collaboration with others, including our competitors.
If we do not retain our key employees and attract new employees, our ability to
execute our business strategy will be impaired.
We compete for employees in California's Silicon Valley, one of the most
challenging employer environments in the United States. Hiring for key personnel
is highly competitive. Because of the specialized nature of our business, our
future success will depend upon our continuing ability to identify, attract,
train and retain other highly skilled managerial, technical, sales and marketing
personnel, particularly as we enter new markets. The loss of key employees could
harm our business.
Industry Risks
We are introducing products into the evolving market for digital PPV copy
protection, and if this market does not develop or we are unable to
effectively serve this market, our revenues will be adversely affected.
While our copy protection capability is embedded in more than 35 million digital
set-top boxes manufactured by the leading digital set-top box manufacturers,
only four system operators have activated copy protection for digital PPV
programming. Our ability to expand our markets in additional home entertainment
venues such as digital PPV will depend in large part on the support of the major
motion picture studios in advocating the incorporation of copy protection
technology into the hardware and network infrastructure required to distribute
such video programming. The Motion Picture Association of America studios may
not require copy protection for any of their PPV movies or PPVsystem operators
may not activate copy protection in other digital PPV networks outside of Japan,
Hong Kong or the United Kingdom.
Further, consumers may react negatively to copy protected PPV programming
because they have routinely copied for later viewing analog cable and
satellite-delivered subscription television and PPV programs, as well as free
broadcast programming. In addition, some television sets or combinations of VCRs
and television sets may exhibit impaired pictures while displaying a copy
protected digital PPV program. If there is consumer dissatisfaction that cannot
be managed, or if there are technical compatibility problems, our business would
be harmed.
Potential revenue may be lost if our digital video watermarking technology is
not selected as an industry standard.
In cooperation with Philips and Digimarc, we are jointly developing a digital
video watermarking solution to address the digital-to-digital copying issues
associated with the next generation of DVD recording devices. Our group has
submitted a proposed solution to the DVD Copy Control Association, or DVD/CCA, a
wholly owned subsidiary of Matsushita Electric Industries, which has assumed
responsibility for selecting the industry standard. Our group is competing with
a consortium of five other companies, comprised of IBM, NEC, Sony, Hitachi and
20
<PAGE>
Pioneer, that have submitted a similar proposal to the DVD/ CCA. Some of these
companies have substantially greater name recognition and significantly greater
financial, technical, marketing and other resources than Philips, Digimarc and
ourselves.
Our digital watermarking technology may not be selected by the DVD/CCA. The
group whose digital video watermarking solution is selected will have a
significant advantage in licensing its technology to video content owners
worldwide, and in working with consumer electronics manufacturers, PC platform
companies and their suppliers to implement digital-to-digital copy protection.
Even if the DVD/CCA adopts our solution, other companies may elect to compete in
this market. If the solution being developed by Philips, Digimarc and ourselves
is not the selected solution or otherwise is not widely adopted by studios or
consumer electronics manufacturers, our group will be at a competitive
disadvantage in marketing our solution. The solution being developed by our
group may not be selected as the standard by the DVD/CCA or our solution may not
achieve market acceptance as the market and the standards for digital-to-digital
copy protection evolve.
We have recently entered the market for computer software copy protection, and
we do not know if we will be successful in selling our products in this
market.
We acquired C-Dilla in June 1999. C-Dilla's products include SafeDisc, our copy
protection technology for CD-ROM software products in the consumer multimedia
market. The market for copy protection of CD-ROMs is unproven, and we may not be
successful in developing this market.
For us to be successful in entering this new market, producers of multimedia
CD-ROMs must accept copy protection generally and also adopt our SafeDisc
solution. Copy protection of multimedia CD-ROMs may not be accepted. For
example, consumers may react negatively to the introduction of copy protected
CD-ROMs if they are prevented from copying the content of their favorite
applications or if copy protection impairs the playability of a CD-ROM.
Moreover, copy protection may not be effective or compatible with all PC and
CD-ROM hardware platforms or configurations or may prove to be easily
circumvented.
A number of competitors and potential competitors are developing CD-ROM copy
protection solutions. Many of these competitors and potential competitors have
substantially greater name recognition and financial, technical and marketing
resources than we do. If the market for CD-ROM copy protection fails to develop
or develops more slowly than expected, or if our solution does not achieve or
sustain market acceptance, our business would be harmed.
We are entering the market for music CD copy protection and we do not know if we
will be successful in selling our products in this market.
We have entered into a strategic relationship with TTR to develop and market a
copy protection system that will inhibit casual copying of music CDs using
dual-deck CD recorder systems or personal computer systems. A number of
competitors and potential competitors may be developing similar and related
music copy protection solutions. The solution we expect to market may not
achieve or sustain market acceptance, or may not meet, or continue to meet, the
demands of the music industry. It is possible that there could be significant
consumer resistance to audio copy protection, as consumers may feel that they
are entitled to copy audio CDs, because no technology has been used in the past
to prevent copying. It is not clear what the reaction of the major music labels
would be to any consumer resistance.
If the market for music CD copy protection fails to develop, or develops more
slowly than expected, if our solution does not achieve or sustain market
acceptance or if there is consumer resistance to this technology, our business
would be harmed.
If we are unable to successfully compete against competitive technologies that
may be developed in the future our business will be harmed.
We believe that there are currently no significant videocassette copy protection
competitors other than companies that have occasionally developed hardware based
on our technology for sale in small foreign markets, where we have not sought
patent protection. It is possible, however, that a competitive copy protection
technology could be developed in the future. For example, our customers could
attempt to promote competition by supporting the development of alternative copy
protection technologies or solutions, including solutions that deter
professional
21
<PAGE>
duplication. Increased competition would be likely to result in price reductions
and loss of market share, either of which could harm our business.
Problems related to the year 2000 risks may not appear for several months after
January 1, 2000.
We believe that we have successfully rendered our product, internal management
and other administrative systems and external information systems year 2000
compliant. As of March 31, 2000 we have experienced no disruptions in our
business operations as a result of year 2000 compliance problems or otherwise,
and have received no reports of any year 2000 compliance problems with our
products. To date, the total cost of our efforts to address year 2000 compliance
has not been material.
Nonetheless, some problems related to the year 2000 risks may not appear for
some time after January 1, 2000. Year 2000 issues could include problems with
our own products or with third-party products or technology that we use. Any
problems that are not identified and corrected successfully and completely could
adversely affect our business.
Investment Risks
Ourmanagement has broad discretion as to how to use the proceeds from our
recent offering and the proceeds may not be used appropriately.
We expect to use the net proceeds of our recent offering primarily for
strategic investments, working capital and other general corporate purposes. In
particular, we intend to pursue strategic investments in businesses, products or
technology which would complement our existing products, expand our market
coverage or enhance our technological capabilities. We have no specific plan as
to how we will spend the majority of the proceeds of this offering. If our
management uses poor judgment in spending the proceeds, our business will be
adversely affected. Investment of the proceeds from this offering may not yield
a favorable return or any return.
Substantial sales of our common stock in the public market could cause our stock
price to fall.
If our stockholders sell substantial amounts of our common stock in the public
market, including shares issued upon the exercise of outstanding options, the
trading price of our common stock could fall. Such sales also might make it more
difficult for us to raise capital in the future at a time and price that we deem
appropriate.
JVC is entitled to register up to 3,161,952 of its shares under the Securities
Act of 1933. JVC has the right to participate in any registration of shares we
undertake on our own, except a registration of shares in connection with an
employee benefit plan or merger. If JVC exercises its registration rights, a
large number of our shares may be registered and sold in the public market. This
could adversely affect the trading price for our shares. If we attempted to
raise money through a registration and sale of our stock and JVC required us to
allow them to participate in the registration, our ability to raise the amount
of money we need to execute our business plan could be adversely affected.
The price of our common stock may be volatile.
The market price of our common stock has been, and in the future could be,
significantly affected by factors such as:
o actual or anticipated fluctuations in operating results;
o announcements of technical innovations;
o new products or new contracts;
o competitors or their customers;
o governmental regulatory action;
o developments with respect to patents or proprietary rights;
22
<PAGE>
o changes in financial estimates by securities analysts; and
o general market conditions.
In addition, announcements by the Motion Picture Association of America or its
members, satellite television operators, cable television operators or others
regarding motion picture distribution, computer software companies business
combinations, evolving industry standards or other developments could cause the
market price of our common stock to fluctuate substantially.
Further, the trading prices of the stocks of many technology companies,
including our share price, are at or near historical highs and reflect
price/earnings ratios substantially above historical levels. There can be no
assurance that these trading prices and price/earnings ratios will be sustained.
In the past, following periods of volatility in the market price of a company's
securities, securities class action litigation has been initiated against that
company.
Part II. Other Information
Item 1. Legal Proceedings.
We are involved in legal proceedings related to some of our intellectual
property rights.
Krypton Co., Ltd., a Japanese company, filed an invalidation claim against one
of our copy protection patents in Japan. After a hearing in March 1999, the
Japanese Patent Office has recommended that our patent be invalidated. We
believe that this conclusion was reached in error. On December 27, 1999, we
submitted to the Tokyo High Court a written statement indicating that the
decision of invalidity of the Macrovision patent should be overturned. In
February 2000, a second round of preparatory proceedings was conducted before
the Tokyo High Court, with Oral Arguments to commence in March 2000. Until a
decision is rendered, the patent remains valid and part of our business. In
connection with this reconsideration, we may reduce the scope of our claims
under the patent but the reduction in scope, if any, is not expected to have a
material effect on the value of this patent to our business. If an adverse
ruling ultimately is reached on this invalidation claim, we might incur legal
competition from clones of our own copy protection technology in Japan and a
corresponding decline in demand for our technology in Japan, which could have a
material adverse effect on our business.
In January 1999, we filed a complaint against Dwight-Cavendish Developments Ltd.
in the United States District Court for the District of Northern California
(Case No. 99-20011). The complaint alleges that Cavendish infringes a United
States patent held by us. We seek to recover compensatory damages, treble
damages and costs and to obtain injunctive relief arising from these claims.
Cavendish's response to the complaint contained a counterclaim alleging that we
have violated the federal Sherman Antitrust Act and the Lanham Act and the
California false advertising laws and Unfair Competition Act. The counterclaim
seeks injunctive relief, compensatory damages, treble damages and costs. It also
seeks a declaratory judgment that the United States patent held by us is invalid
and that Cavendish's products do not infringe the patent. We intend to defend
the allegations in the counterclaim vigorously.
We initiated a patent infringement lawsuit in March 1999 against Vitec Audio und
Video GmbH, a German company, which manufactures what we believe to be a video
copy protection circumvention device. Vitec has filed a reply brief arguing that
its product does not infringe. The case is being heard in the District Court of
Dusseldorf, Germany. In the event of an adverse ruling, we may incur a
corresponding decline in demand for our video copy protection technology, which
could harm our business in our Germany operations.
Item 5 - Other Information.
In March 2000, we announced that we signed a letter of intent to acquire
privately held GLOBEtrotter Software of San Jose, California. GLOBEtrotter is
the leading OEM supplier of B2B (business-to-business) electronic licensing and
license management technology to software vendors and the leading direct
supplier of software asset management products to corporate customers worldwide.
We will acquire all outstanding shares and vested stock options of GLOBEtrotter
for 11.2 million shares of Macrovision common stock plus the assumption of
unvested GLOBEtrotter stock options, subject to completion of due diligence, the
approval of Macrovision's board of directors and stockholders, regulatory
approvals, and the completion of a definitive agreement.
23
<PAGE>
Item 6 - Exhibits and Reports on Form 8-K.
(a) Exhibits.
27.1 - Financial Data Schedule.
(b) Reports on Form 8-K.
During the quarter ended March 31, 2000, the Company filed no Current
Reports on Form 8-K.
SIGNATURES
In accordance with the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Macrovision Corporation
Date: May 12 , 2000 By: /S/ William A. Krepick
--------------------- ---------------------------------------------
William A. Krepick, President and
Chief Operating Officer
Date: May 12 , 2000 By: /S/ Ian R. Halifax
-------------------- ---------------------------------------------
Ian Halifax, Vice President, Finance and
Administration, Chief Financial
Officer and Secretary
24
<PAGE>
"ANNEX H"
GLOBETROTTER SOFTWARE, INC.
Financial Statements
December 31, 1999 and March 31, 2000 (Unaudited)
(With Independent Auditors' Report Thereon)
<PAGE>
GLOBETROTTER SOFTWARE, INC.
Table of Contents
Page
Independent Auditors' Report................................................3
Balance Sheets..............................................................4
Statements of Operations....................................................5
Statements of Shareholders' Deficit.........................................6
Statements of Cash Flows....................................................7
Notes to Financial Statements...............................................8
<PAGE>
Independent Auditors' Report
The Board of Directors and Shareholders
GLOBEtrotter Software, Inc.:
We have audited the accompanying balance sheet of GLOBEtrotter Software, Inc.
(the Company) as of December 31, 1999, and the related statements of operations,
shareholders' deficit, and cash flows for the year then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of GLOBEtrotter Software, Inc. as
of December 31, 1999, and the results of its operations and its cash flows for
the year then ended in conformity with accounting principles generally accepted
in the United States of America.
July 20, 2000
KPMG, LLP
<PAGE>
GLOBEtrotter SOFTWARE, INC.
Balance Sheets
(In thousands, except share data)
<TABLE>
<CAPTION>
December 31, March 31,
Assets 1999 2000
------------ ---------
(Unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 394 442
Accounts receivable, net of allowance for doubtful accounts of
$75 as of December 31, 1999 and March 31, 2000 2,853 2,386
Inventories 87 80
Due from shareholders 555 --
Prepaid expenses and other current assets 30 51
------- -------
Total current assets 3,919 2,959
Property and equipment, net 176 233
Patents and other intangibles, net of accumulated amortization
of $610 and $647 as of December 31, 1999 and March 31, 2000,
respectively 744 707
------- -------
$ 4,839 3,899
======= =======
Liabilities and Shareholders' Deficit
Current liabilities:
Accounts payable $ 177 63
Current portion of long-term debt 67 34
Accrued expenses 482 369
Incentive bonus plan 300 --
Accrued pension contribution 672 25
Taxes payable 6 4
Deferred revenue 3,723 3,948
------- -------
Total current liabilities 5,427 4,443
Long-term liabilities 200 200
------- -------
Total liabilities 5,627 4,643
------- -------
Commitments and contingencies (Notes 4 and 5)
Shareholders' deficit:
Common stock; no par value; 10,000,000 shares authorized;
8,000,000 and 8,098,958 shares issued and outstanding as of
December 31, 1999 and March 31, 2000, respectively 208 38,811
Deferred stock-based compensation -- (29,574)
Employee notes receivable -- (297)
Accumulated deficit (996) (9,684)
------- -------
Total shareholders' deficit (788) (744)
------- -------
$ 4,839 3,899
======= =======
</TABLE>
See accompanying notes to financial statements.
4
<PAGE>
GLOBEtrotter SOFTWARE, INC.
Statements of Operations
(In thousands)
March 31,
December 31, -----------------
1999 1999 2000
------------ ------- -------
(Unaudited)
Net revenues $14,686 3,099 3,446
------- ------- -------
Costs and expenses:
Cost of revenues 338 73 103
Research and development 1,213 326 458
Selling and marketing 3,968 926 784
General and administrative 3,830 785 684
Stock-based compensation -- -- 8,732
------- ------- -------
Total costs and expenses 9,349 2,110 10,761
------- ------- -------
Operating income (loss) 5,337 989 (7,315)
Interest and other income, net 68 19 20
------- ------- -------
Income (loss) before tax expense 5,405 1,008 (7,295)
Tax expense 148 36 10
------- ------- -------
Net income (loss) $ 5,257 972 (7,305)
======= ======= =======
See accompanying notes to financial statements.
5
<PAGE>
GLOBEtrotter Software, Inc.
Statements of Shareholders' Deficit
Year ended December 31, 1999 and three maonths ended March 31, 2000 (Unaudited)
(In thousands, except share data)
<TABLE>
<CAPTION>
Common stock Deferred Employee
--------------------- stock-based notes Accumulated Shareholders'
Shares Amount compensation receivable deficit deficit
--------- --------- ------------ --------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Balances, January 1, 1999 8,000,000 $ 208 -- -- 542 750
Distribution to shareholders -- -- -- -- (6,795) (6,795)
Net income -- -- -- -- 5,257 5,257
--------- --------- --------- --------- --------- ---------
Balances, December 31, 1999 8,000,000 $ 208 -- -- (996) (788)
Distribution to shareholders
(unaudited) -- -- -- -- (1,383) (1,383)
Exercise of stock options
(unaudited) 98,958 297 -- (297) -- --
Deferred stock-based
compensation related to
option grants (unaudited) -- 38,306 (38,306) -- -- --
Deferred stock-based
compensation amortization
(unaudited) -- -- 8,732 -- -- 8,732
Net loss (unaudited) -- -- -- -- (7,305) (7,305)
--------- --------- --------- --------- --------- ---------
Balances, March 31, 2000
(unaudited) 8,098,958 38,811 (29,574) (297) (9,684) (744)
========= ========= ========= ========= ========= =========
</TABLE>
See accompanying notes to financial statements.
6
<PAGE>
GLOBEtrotter SOFTWARE, INC.
Statements of Cash Flows
(In thousands)
<TABLE>
<CAPTION>
March 31,
December 31, ------------------
1999 1999 2,000
------- ------- -------
(Unaudited)
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 5,257 972 (7,305)
Adjustments to reconcile net income (loss) to
net cash provided by continuing operations:
Depreciation and amortization 235 65 64
Deferred compensation expense -- -- 8,732
Changes in operating assets and liabilities:
Accounts receivable, inventories,
and other current assets (76) 822 454
Accounts payable, accrued expenses,
deferred revenue, and
taxes payable 1,363 (558) (952)
------- ------- -------
Net cash provided by operating
activities 6,779 1,301 993
------- ------- -------
Cash flows used in investing activities - acquisition
of property and equipment (109) (14) (84)
------- ------- -------
Cash flows from financing activities:
Payments on debt (20) -- (33)
Loan to shareholders (555) -- --
Repayment of loan to shareholders -- -- 555
Cash dividends (6,795) -- (1,383)
------- ------- -------
Net cash used by financing activities (7,370) -- (861)
------- ------- -------
Net (decrease) increase in cash and
cash equivalents (700) 1,287 48
Cash and cash equivalents at beginning
of year/period 1,094 1,094 394
------- ------- -------
Cash and cash equivalents at end of year/period $ 394 2,381 442
======= ======= =======
Supplemental disclosures of cash flow information:
Cash paid during the year/period:
Interest $ -- -- --
======= ======= =======
Income taxes 98 3 59
======= ======= =======
Noncash financing and investing activity -
exercise of stock options with note
receivable $ -- -- 297
======= ======= =======
</TABLE>
See accompanying notes to financial statements.
7
<PAGE>
GLOBEtrotter Software, Inc.
Notes to Financial Statements
December 31, 1999
(Information as of March 31, 2000 and for the
three-month periods ended March 31, 1999 and 2000 is unaudited)
(1) The Company
GLOBEtrotter Software, Inc. (the Company) was incorporated on August 5,
1982, in the state of California and is headquartered in San Jose,
California. The Company is a supplier of business-to-business electronic
licensing and license management technology to software vendors and
corporate customers worldwide. The Company's products span the areas of
electronic software distribution, electronic licensing, license
management, software asset management, and distribution of electronic
licenses through distribution channels.
Unaudited Interim Financial Information
The financial statements as of March 31, 2000 and for the three-month
periods ended March 31, 1999 and 2000, respectively, are unaudited. In the
opinion of the Company's management, the unaudited interim financial
statements include all adjustments, consisting of normal recurring
adjustments, necessary for a fair presentation of the financial position
and results of operations for those periods. The results of operations for
the three-month period ended March 31, 2000, are not necessarily
indicative of the results of operations to be expected for the year ending
December 31, 2000.
(2) Significant Accounting Policies
(a) Revenue Recognition
The Company generates revenue from the licensing of its software and
performance of services related to the support of this software. The
Company follows the provisions of Statements of Position (SOP) 97-2,
Software Revenue Recognition, and SOP 98-9, Modification of SOP
97-2, Software Revenue Recognition with Respect to Certain
Transactions.
License revenue is recognized upon the execution of a license
agreement, when the licensed product has been delivered, fees are
fixed and determinable, collection is probable, and when all other
significant obligations have been fulfilled. For license agreements
in which customer acceptance is a condition to earning the license
fees, revenue is not recognized until acceptance occurs. For
arrangements containing multiple elements, such as software license
fees, consulting services and maintenance, or multiple products and
where vendor-specific objective evidence of fair value (VSOE) exists
for all undelivered elements, the Company accounts for the delivered
elements in accordance with the "residual method" prescribed by SOP
98-9. For arrangements containing multiple elements where VSOE does
not exist, all revenue is deferred until such time that VSOE is
evidenced or all elements of the arrangement have been delivered.
Service revenues include consulting fees for training, support, and
other services and are recognized as revenue as the services are
performed. Maintenance and support revenues are deferred and
recognized ratably over the contract period.
(b) Cost of Revenues
Cost of revenues is comprised of the costs to purchase the hardware
products sold by the Company.
8
<PAGE>
(c) Cash and Cash Equivalents
The Company considers investments purchased with a maturity period
of three months or less at the date of purchase to be cash
equivalents.
(d) Inventories
Inventories are stated at the lower of cost or market. Cost is
determined using the first-in, first-out method.
(e) Property and Equipment
Property and equipment are stated at cost less accumulated
depreciation. Depreciation is provided using the straight-line
method over the estimated useful lives of the assets, which range
from 3 to 10 years. Significant improvements are capitalized;
maintenance and repairs are expensed as incurred.
(f) Patents
Patent costs are included in patents and other intangibles and, upon
the granting of the related patent, are amortized using the
straight-line method over the shorter of the estimated useful life
of the patent or 10 years.
(g) Impairment of Long-Lived Assets and Long-Lived Assets to Be Disposed
Of
The Company accounts for long-lived assets in accordance with the
provisions of Statements of Financial Accounting Standards (SFAS)
No. 121, Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of. SFAS No. 121 requires that
long-lived assets and certain identifiable intangibles be reviewed
for impairment whenever events or changes in circumstances indicate
that the carrying amount of an asset may not be recoverable.
Recoverability of assets to be held and used is measured by a
comparison of the carrying amount of an asset to future to future
net cash flows expected to be generated by the asset. If such assets
are considered to be impaired, the impairment to be recognized is
measured by the amount by which the carrying amount of the assets
exceeds the fair value of the assets. Assets to be disposed of are
reported at the lower of the carrying amount or fair value less
costs to sell.
(h) Product Development Costs
Costs incurred in the development of new software products and
enhancements to existing software products are expensed as incurred
until technological feasibility has been established. After
technological feasibility is established, and prior to general
release of the software, any additional development costs are
capitalized in accordance with SFAS No. 86, Accounting for the Costs
of Computer Software to Be Sold, Leased, or Otherwise Marketed. To
date, the period between achieving technological feasibility and the
general release of the software has been short, and software
development costs qualifying for capitalization have been
insignificant. Accordingly, the Company has not capitalized any
software development costs to date.
(i) Income Taxes
The Company is a S Corporation under the applicable provisions of
federal and state income tax statutes. As a S Corporation, all
income, deductions, and credits pass through to the Company's
shareholders with the exception of state franchise taxes.
(j) Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities, and disclosure of contingent assets and liabilities at
the date of the financial
9
<PAGE>
statements, and the reported amounts of revenues and expenses during
the reporting period. Accordingly, actual results could differ from
those estimates.
(k) Concentration of Credit Risk and Major Customer
Financial instruments that potentially subject the Company to
concentrations of credit risk consist primarily of accounts
receivable. For the year ended December 31, 1999, sales to a foreign
customer/reseller accounted for approximately 18% of revenues, and
one customer accounted for 20% of accounts receivable as of December
31, 1999. The Company performs ongoing credit evaluations of its
customers' financial condition and generally does not require
collateral for accounts receivable. When required, the Company
maintains allowances for credit losses. To date, such losses have
not been material.
(l) Advertising Expense
The cost of advertising is expensed as incurred. Such costs are
included in selling and marketing expense and totaled $697,415 for
the year ended December 31, 1999.
(m) Accounting for Stock Based Compensation
The Company applies the intrinsic-value based method of accounting
prescribed by Accounting Principles Board (APB) Opinion No. 25,
Accounting for Stock Issued to Employees, and related
interpretations in accounting for its fixed plan stock options. As
such, compensation expense would be recorded on the date of grant
only if the current market price of the underlying stock exceeded
the exercise price. SFAS No. 123, Accounting for Stock-Based
Compensation, established accounting and disclosure requirements
using the fair value-based method of accounting for stock-based
employee compensation plans. As allowed by SFAS No. 123, the Company
has elected to continue to apply the intrinsic value-based method of
accounting described above, and has adopted the disclosure only
requirements of SFAS No. 123.
(n) Recent Accounting Pronouncements
In March 1998, the American Institute of Certified Public
Accountants (AICPA) issued SOP. 98-1, Accounting for the Costs of
Computer Software Developed or Obtained for Internal Use. SOP 98-1
requires that entities capitalize certain costs related to
internal-use software once certain criteria have been met. The
Company adopted SOP 98-1 on January 1, 1999, with no material
effect.
In June 2000, the Financial Accounting Standards Board (FASB) issued
SFAS No. 138, Accounting for Derivative Instruments and Hedging
Activities, an amendment of SFAS No. 133. SFAS No. 133, as amended
by SFAS No. 138, establishes accounting and reporting standards for
derivative instruments and hedging activities and requires the
Company to recognize all derivatives as either assets or liabilities
on the balance sheet and measure them at fair value. Gains and
losses resulting from changes in fair value would be accounted for
based on the intended use of the derivative and whether it is
designated and qualifies for hedge accounting. The Company will
adopt SFAS No. 138 concurrently with SFAS No. 133 for its first
quarter of fiscal 2001. The Company expects adoption of SFAS Nos.
133 and 138 will not have a material effect on financial position or
results from operations.
In December 1999, the Securities and Exchange Commission (SEC)
issued Staff Accounting Bulletin (SAB) No. 101, Revenue Recognition
in Financial Statements. SAB No. 101 provides guidance on applying
generally accepted accounting principles to revenue recognition
issues in financial statements. In June 2000, the SEC issued SAB No.
101B, Amendment; Revenue Recognition in Financial Statements. SAB
No. 101B delays the implementation date of SAB No. 101 for
registrants with fiscal years that begin between December 16, 1999
and March 15, 2000. The Company will adopt SAB No. 101 as required
in the fourth quarter of 2000, and is evaluating the effect, if any,
that such adoption might have on its financial statements.
10
<PAGE>
In March 2000, the FASB issued Interpretation No. 44 (FIN No. 44),
Accounting for Certain Transactions Involving Stock Compensation -
an Interpretation of APB No. 25. FIN No. 44 clarifies (a) the
definition of an employee for purposes of applying APB No. 25; (b)
the criteria for determining whether a plan qualifies as a
noncompensatory plan; (c) the accounting consequences of various
modifications to the terms of a previously fixed stock option or
award; and (d) the accounting for an exchange of stock compensation
awards in a business combination. FIN No. 44 is effective July 1,
2000, but certain conclusions in this interpretation cover specific
events that occur after either December 15, 1998 or January 12,
2000. The Company is currently evaluating FIN No. 44, but believes
that it will not affect its current accounting for stock-based
compensation awards.
(2) Property and Equipment
Property and equipment consisted of the following (in thousands):
<TABLE>
<CAPTION>
December 31, March 31
1999 2000
------------ -----------
(Unaudited)
<S> <C> <C>
Machinery and equipment $407 436
Leasehold improvements 10 10
Furniture and fixtures 170 217
Software 49 57
---- ----
636 720
Less accumulated depreciation and amortization 460 487
---- ----
$176 233
==== ====
</TABLE>
(3) Shareholders' Deficit
(a) Common Stock
The Company's Certificate of Incorporation provides for the issuance
of up to 10,000,000 shares of no par value common stock.
(b) Stock Option Plan
In December 1999, the Company adopted the 1999 Stock Option Plan
(the Plan) to grant selected officers, employees, directors, and
consultants of the Company an opportunity to acquire the Company's
common stock. The Plan is administered by the Board of Directors
which sets the terms and conditions of the options. The options
become exercisable in increments over a four-year vesting period and
expire at the end of 10 years from date of grant or sooner if
terminated by the Board of Directors. The Board of Directors
reserved 1,200,000 shares of common stock for issuance under the
Plan. As of December 31, 1999 no options were issued or outstanding
under the Plan.
Effective January 25, 2000, 783,742 options were issued to officers
and employees of the Company. The exercise price of the options
granted was $3.00 per share with vesting periods up to four years.
Total compensation charge of $38,305,470 was recorded for the
difference between the exercise price and the market value of the
underlying stock at the date of grant. As of March 31, 2000, 149,168
options were vested with 634,574 options unvested. The value
attributed to the unvested options was reflected as deferred
stock-based compensation within shareholders' deficit.
11
<PAGE>
(4) Commitments
(a) Leases
The Company leases its office facility and certain equipment
pursuant to noncancelable operating lease agreements. The office
facility lease is with a Trust whose trustees are also the principal
shareholders of the Company.
Future minimum lease payments pursuant to these leases as of
December 31, 1999, were as follows (in thousands):
Year ended
December 31,
------------
2000 $ 325
2001 325
2002 320
2003 105
------
$1,075
======
Rent expense was $289,000 for the year ended December 31, 1999, of
which $258,000 was paid to a related party.
(b) Employee Benefit Plan
In 1998, the Company adopted a Money Purchase Pension Plan for all
employees meeting certain eligibility requirements. Contributions to
the Money Purchase Pension Plan are 15% of the annual compensation
of the plan participants. The participants of this plan receive
benefits upon retirement, in the event of disability or death, or as
otherwise approved by the plan's trustees. The Company adopted a
401(k) plan on January 1, 1998. Company contributions will be made
at the discretion of the Board of Directors. Participants are
immediately vested in the Company's contributions. Total
contribution expenses for the year ended December 31, 1999 were
approximately $647,000. In April 2000, the Company ended the Money
Purchase Pension Plan.
(5) Contingencies
In November 1997, the Company filed a patent infringement lawsuit in the
Federal District Court alleging infringement of one of its patents and
unfair competition and trade practices. In December 1997, the Company
added Wind River Systems, a customer of Elan, to the patent infringement
suit. In March 1998, Rainbow Technologies North America, Inc. entered into
an agreement to purchase certain assets of Elan and entered into
litigation cooperation agreement with Elan regarding pending GLOBEtrotter
Software, Inc. litigation.
Wind River Systems subsequently settled the litigation with the Company in
October 1998. Under the settlement, the Company granted Wind River Systems
a license to GLOBEtrotter Software, Inc.'s patents, including the Network
Licensing Patent, and Wind River Systems agreed not to use the Elan
License Manager in new versions of all Wind River Systems products. All
other settlement terms are protected and cannot be disclosed as mutually
agreed by the parties. Wind River Systems has since entered into a license
agreement with the Company to use FLEXlm.
Rainbow Technologies North America, Inc. and Elan founder Ken Greer filed
separate counterclaims against the Company and Matthew Christiano,
alleging antitrust violations, unfair competition, tortuous interference
of business relations, and trade libel. Rainbow Technologies North
America, Inc. is seeking compensatory and punitive damages plus injunctive
relief and disgorgement of profits. Ken Greer is seeking compensatory and
punitive damages plus injunctive relief and disgorgement of profits.
12
<PAGE>
The patent infringement case has been bifurcated from the counterclaims.
In October 1999, the motion for partial summary judgment for
non-infringement filed by Rainbow Technology North America, Inc. was
granted. In February 2000, the Company filed an appeal with the Federal
Court of Appeals for the Ninth Circuit on the summary judgment of the
claims based on erroneous claims construction. A trial date for the patent
infringement case is scheduled for April 9, 2001.
The Company believes that it has meritorious defenses against claims that
it has infringed on the patents of others. However, there can be no
assurance that the Company will prevail in these particular cases. An
adverse outcome in these cases could have a material adverse effect on the
Company. As of December 31, 1999, no accrual for these contingencies has
been recorded.
13
<PAGE>
GLOBETROTTER SOFTWARE, INC.
Financial Statements
December 31, 1997 and 1998
(Unaudited)
<PAGE>
GLOBETROTTER SOFTWARE, INC.
Table of Contents
Page
Balance Sheets.................................................................2
Statement of Operations and Retained Earnings..................................3
Statement of Cash Flows (In thousands).........................................4
Notes to Financial Statements..................................................5
<PAGE>
GLOBEtrotter SOFTWARE, INC.
Balance Sheets
December 31, 1997 and 1998
(Unaudited)
(In thousands, except share data)
Assets 1997 1998
------ ------
Current assets:
Cash $1,206 1,094
Accounts receivable, less allowance for doubtful
accounts of $75 as of December 31, 1997 and 1998 2,028 2,941
Other receivables 4 --
Inventories 50 160
Prepaid expenses 33 30
------ ------
Total current assets 3,321 4,225
Property and equipment, net 201 200
Intangible assets, net 1,113 999
------ ------
$4,635 5,424
====== ======
Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable $ 27 62
Current portion of long-term debt 33 33
Accrued expenses 297 507
Accrued pension contribution 164 596
Income taxes payable 15 18
Deferred revenue 2,082 2,675
------ ------
Total current liabilities 2,618 3,891
Long-term liabilities 288 255
------ ------
Total liabilities 2,906 4,146
------ ------
Commitments (Note 4)
Shareholders' equity:
Common stock; no par value; 10,000,000 shares authorized;
8,000,000 shares issued and outstanding 208 208
Retained earnings 1,521 1,070
------ ------
Total shareholders' equity 1,729 1,278
------ ------
$4,635 5,424
====== ======
2
<PAGE>
GLOBEtrotter SOFTWARE, INC.
Statements of Operations and Retained Earnings
Years ended December 31, 1997 and 1998
(Unaudited)
(In thousands)
1997 1998
-------- --------
Net sales $ 10,723 12,238
Cost of goods sold 271 354
-------- --------
Gross profit 10,452 11,884
General and administrative expense 6,475 7,686
-------- --------
Operating income 3,977 4,198
-------- --------
Other income (expense):
Interest income 15 27
Interest expense (15) --
Other income 5 50
Loss on disposal of property and equipment (3) --
-------- --------
2 77
-------- --------
Income before taxes 3,979 4,275
Provisions for state franchise taxes 34 126
-------- --------
Net income 3,945 4,149
Retained earnings, beginning of year 1,966 1,521
Dividends paid (4,390) (4,600)
-------- --------
Retained earnings, end of year $ 1,521 1,070
-------- --------
3
<PAGE>
GLOBEtrotter SOFTWARE, INC.
Statements of Cash Flows
Years ended December 31, 1997 and 1998
(Unaudited)
(In thousands)
1997 1998
------- -------
Cash flows from operating activities:
Net income $ 3,945 4,149
Adjustments to reconcile net income to
net cash provided by continuing operations:
Depreciation and amortization 191 235
Loss on disposal of property and equipment 2 --
Changes in operating assets and liabilities:
Accounts receivable 141 (913)
Other receivables -- 4
Inventories (46) (110)
Prepaid expenses (3) 3
Accounts payable 27 35
Accrued expenses 53 210
Accrued pension contributions 3 432
Income taxes payable 15 3
Deferred revenue 328 593
------- -------
Net cash provided by operating activities 4,656 4,641
------- -------
Cash flows from investing activities:
Purchase of property and equipment, net (41) (120)
Purchase of intangible asset (383) --
------- -------
Net cash used by investing activities (424) (120)
------- -------
Cash flows from financing activities:
Proceeds from long-term debt 383 --
Payments of long-term debt (91) (33)
Distribution to shareholders (4,390) (4,600)
------- -------
Net cash used by financing activities (4,098) (4,633)
------- -------
Net increase (decrease) in cash 134 (112)
Cash at beginning of year 1,072 1,206
------- -------
Cash at end of year $ 1,206 1,094
======= =======
Supplemental disclosures of cash flow information:
Cash paid during the year:
Interest $ 15 --
======= =======
Income taxes $ 24 104
======= =======
4
<PAGE>
GLOBETROTTER SOFTWARE, INC.
Notes to Financial Statements
December 31, 1997 and 1998
(Unaudited)
(1) Significant Accounting Policies
(a) Line of Business
GLOBEtrotter Software, Inc. (the Company) was incorporated on August
5, 1982, in the state of California and is headquartered in San
Jose, California. The Company is a supplier of business-to-business
electronic licensing and license management technology to software
vendors and corporate customers worldwide. The Company's products
span in the areas of electronic software distribution, electronic
licensing, license management, software asset management, and
distribution of electronic licenses through distribution channels.
(b) Inventories
Inventories of raw materials are stated at the lower of cost or
market and are valued at the most recent purchase price, which
approximates the first-in, first-out (FIFO) method.
(c) Depreciation and Amortization
Property and equipment are stated at cost. Depreciation is provided
using the straight-line method over the estimated useful lives of
the assets, which range from 3 to 10 years. Amortization is provided
using the straight-line method over the shorter of the estimated
useful lives of the intangible assets or 10 years.
(d) Income Taxes
The Company has elected S Corporation status for federal and state
income tax purposes. Federal and state income tax on the earnings of
an S Corporation are payable by the individual shareholders rather
than the corporation with the exception of a 1.5% state franchise
tax.
(e) Concentration of Credit Risk
Financial instruments that potentially subject the Company to
concentrations of credit risk consist primarily of cash and accounts
receivable. By policy, the Company places cash and other liquid
investments with high quality financial institutions. Such
investments are in excess of the FDIC insurance limits. In 1997 and
1998, a company in the business of being a software manufacturers
representative accounted for approximately 13% and 17% of the
Company's sales, respectively. These sales were primarily to
customers located in the United Kingdom and Western Europe. Related
amounts receivable as of December 31, 1997 and 1998 were
approximately $343,000 and $579,000, respectively. To reduce credit
risk, the Company generally requires payment within 30 days and
requires customer purchase orders. Historically, the Company has not
incurred material credit-related losses.
5
<PAGE>
(f) Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities, and disclosure of contingent assets and liabilities at
the date of the financial statements, and the reported amounts of
revenues and expenses during the reporting period. Accordingly,
actual results could differ from those estimates.
(2) Property and Equipment
Property and equipment consisted of the following (in thousands):
1997 1998
---- ----
Office equipment $323 408
Furniture and fixtures 96 116
Transportation equipment 38 53
---- ----
457 577
Less accumulated depreciation and amortization 256 377
---- ----
$201 200
==== ====
(3) Long-Term Debt
Long-term debt consisted of the following (in thousands):
1997 1998
---- ----
Note payable to an unrelated corporation, secured
by patent, annual payments of $33 through
2001, annual payments of $10 from 2002
through 2011, due September 2011 (Note 6) $321 288
Less current portion due September 2011 33 33
---- ----
$288 255
==== ====
Long-term debt maturities subsequent to 1998 are approximately as follows:
1999, $33,000; 2000, $33,000; 2001, $33,000; 2002, $10,000; and thereafter
$91,000.
(4) Commitments
The Company leases its facilities under three operating leases expiring
through April 2003. During April 1998, the principal shareholders of the
Company purchased a facility which was leased by the Company beginning May
1998. The monthly rent under this lease is approximately $18,000. Future
minimum lease payments are as follows:
6
<PAGE>
Other Related party
Year ended operating operating
December 31, leases lease
------------ ---------- -------------
1999 $ 10,000 243,000
2000 -- 255,000
2001 -- 273,000
2002 -- 282,000
2003 -- 95,000
---------- ----------
$ 10,000 1,139,000
========== ==========
Rent expense for the years ended December 31, 1997 and 1998, was
approximately $166,000 and $216,000, respectively.
(5) Patent
During 1997, the Company purchased a technology patent. Under the Patent
Assignment Agreement (the Agreement), the Company must pay the seller
approximately $383,000 for the patent. Of this amount, $50,000 was paid
upon the signing of the Agreement. The balance of the purchase price is to
be paid as follows: annual payments of $33,333 from 1998 through 2001,
annual payments of $10,000 from 2002 through 2011; and a $100,000 credit
to be used by the seller at any time to purchase the Company's product(s).
As of December 31, 1997 and 1998, the seller has utilized $11,800. The
remaining balance of this credit is included in long-term debt on the
accompanying balance sheet.
(6) Pension Plan
In 1982, the Company established a SEP IRA plan. Contributions to the SEP
IRA by the Company are discretionary and are determined by the Board of
Directors. The Company's contributions to the SEP IRA plan amounted to
approximately $456,000 as of December 31, 1997. The SEP IRA plan was
terminated effective December 31, 1997.
Effective January 1, 1998, the Company adopted a Money Purchase Pension
Plan (the Plan) for all employees meeting certain eligibility
requirements. Contributions to the Plan are 10% of the annual compensation
of the Plan participants. The participants of the Plan receive benefits
upon retirement in the event of disability or death, or as otherwise
approved by the Plan's trustees. The Company also adopted a 401(k) Plan
(the 401(k) Plan) effective January 1, 1998. The 401(k) Plan has
substantially the same requirements for entry as the Plan and is available
for all eligible employees. Contributions to the 401(k) Plan are at the
discretion of the Board of Directors. Participants are immediately vested
in the Company's contributions.
7
<PAGE>
ZMVC2B DETACH HERE
PROXY
MACROVISION CORPORATION
1341 Orleans Drive
Sunnyvale California 94089
John O. Ryan, William A. Krepick, Ian R. Halifax or any of them (each the
"Proxy"), each with the power of substitution, are hereby authorized to
represent and vote all shares of common stock of Macrovision Corporation held of
record on June 29, 2000 by the undersigned as designated below, with all the
powers which the undersigned would possess if personally present at the Annual
Meeting of Stockholders to be held on August 24, 2000, or any adjournment
thereof.
----------- -----------
SEE REVERSE CONTINUED AND TO BE SIGNED ON REVERSE SIDE SEE REVERSE
SIDE SIDE
----------- -----------
<PAGE>
ZMVC2A DETACH HERE
|X| Please mark
votes as in
this example.
--------------------------------------------------------------------------------
This Proxy is solicited on behalf of the Board of Directors of MACROVISION
CORPORATION. This Proxy when properly executed will be voted in the manner
directed herein by the undersigned stockholder. If no direction is made, this
Proxy will be voted FOR the nominees listed in Proposal 1 and FOR Proposals 2,
3, 4, 5, 6 and 7.
--------------------------------------------------------------------------------
1. Election of Directors.
Nominees: (01) John O. Ryan, (02) William A. Krepick, (03) Richard
S. Matuszak, (04) Donna S. Birks, (05) William Stirlen and (06)
Thomas Wertheimer
FOR WITHHELD
ALL |_| |_| FROM ALL
NOMINEES NOMINEES
MARK HERE
FOR ADDRESS
CHANGE AND
|_|___________________________________________________________ NOTE BELOW |_|
(INSTRUCTION: To withhold authority to vote for any individual
nominee please write that nominee's name on the line above.)
FOR AGAINST ABSTAIN
2. To amend the Company's Certificate of
Incorporation to increase the authorized |_| |_| |_|
number of shares of common stock from
50,000,000 to 250,000,000 shares.
3. To approve the issuance of approximately
8,944,550 shares of the Company's common
stock in exchange for approximately |_| |_| |_|
8,098,958 shares of stock of GLOBEtrotter
Software, Inc. so that we may acquire
GLOBEtrotter.
4. To approve the creation of the Company's |_| |_| |_|
2000 Equity Incentive Plan.
5. To approve an amendment to the Company's
1996 Directors Stock Option Plan to |_| |_| |_|
authorize 126,000 additional shares to be
available under that Plan.
6. To ratify the appointment of KPMG, LLP as
auditors of the Company's financial |_| |_| |_|
statements for the fiscal year ending
December 31, 2000.
7. In their discretion, the Proxies are authorized to vote upon such
other business as may properly come before the meeting or any
adjournments thereof.
The undersigned stockholder hereby acknowledges receipt of the Notice of
Annual Meeting and Proxy Statement and hereby revokes any proxy or proxies
heretofore given. This proxy may be revoked at any time prior to the
Annual Meeting. If you received more than one proxy card, please date,
sign and return all cards in the accompanying envelope.
Please sign exactly as your name appears on the left. When shares are held
by joint tenants, both should sign. When signing as attorney, executor,
administrator, trustee or guardian, please give full title as such. If a
corporation, please sign in corporate name by President or other
authorized officer. If a partnership, please sign in partnership name by
authorized person.
Signature:_______________ Date: _______ Signature: _______________ Date: _______
