<PAGE>
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:
[x] Preliminary Proxy Statement
[_] Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
[_] Definitive Proxy Statement
[_] Definitive Additional materials
[_] Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-12
INTERNATIONAL COMPUTEX, INC.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[_] No fee required
[X] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
Common Stock, $.001 par value
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(2) Aggregate number of securities to which transaction applies:
-------------------------------------------------------------------------
a. 1,683,357 shares of common stock
----------------------------------------------------------------
b. $2,198,800 in cash value of cashless stock option exercise
----------------------------------------------------------------
(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):
$9.50 per share
-------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
$15,991,891 for shares
2,198,800 for cash value of options
-----------
$18,190,691 Total
===========
-------------------------------------------------------------------------
(5) Total fee paid:
$3,638
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[_] Fee paid previously with preliminary materials.
[x] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
$3,638
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(2) Form, Schedule or Registration Statement No.:
Schedule 13E-3
-------------------------------------------------------------------------
(3) Filing Party:
Registrant, Haim E. Dahan, Michael J. Galvin, Patricia Tuxbury
Salem
-------------------------------------------------------------------------
(4) Date Filed:
January 19, 1999
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1
<PAGE>
PRELIMINARY COPIES
INTERNATIONAL COMPUTEX, INC.
5500 INTERSTATE NORTH PARKWAY, SUITE 507
ATLANTA, GEORGIA 30328-4662
770-953-1464
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
DEAR FELLOW STOCKHOLDERS:
Notice is hereby given that a Special Meeting of Stockholders of
International CompuTex, Inc., a Georgia corporation (the "Company"), will be
held at on February , 1999 at , local time, for the following
purposes:
1. To consider and vote upon the approval and adoption of an Agreement and
Plan of Merger, dated as of . The Agreement and Plan of Merger
provides for, among other things, the merger of [Merger Sub] ("Merger
Sub") with and into the Company, with the Company being the surviving
corporation. Upon consummation of the Merger, shares held by
stockholders of the Company would be converted into the right to receive
$9.50 per share. Merger Sub is a wholly-owned subsidiary of IHS
ItemQuest Holdings Inc., a Delaware corporation. IHS ItemQuest Holdings
Inc. was formed by Information Handling Services Inc. for the purpose of
receiving certain assets and liabilities of Information Handling
Services Inc. in a group of transactions expected to occur immediately
prior to the Merger and for the purpose of effectuating the Merger. The
Agreement and Plan of Merger and transactions expected to occur
immediately preceding the Merger are more fully described in the
accompanying proxy statement and attached to that document as an
exhibit.
2. To transact any other business that may properly come before the Special
Meeting or any adjournment or postponement thereof.
Stockholders of the Company who do not vote in favor of the Agreement and Plan
of Merger will have the right to dissent and to seek appraisal of the fair
market value of their shares if the Merger is consummated and they comply with
the Georgia law procedures explained in the accompanying proxy statement.
Only holders of record at the close of business on are entitled to
notice of and to vote at the Special Meeting or any adjournment or
postponement thereof.
Stockholders may vote in person or by proxy. The accompanying proxy
statement explains the Merger in detail and is accompanied by a proxy card. In
order to assure that your vote will be counted, please complete, date, sign
and return the enclosed proxy card promptly in the enclosed prepaid envelope
whether or not you plan to attend the Special Meeting. Your proxy may be
revoked at any time before it is voted, by submitting to the Secretary of the
Company a written revocation or a proxy bearing a later date, or by attending
and voting in person at the Special Meeting.
THE BOARD OF DIRECTORS OF THE COMPANY, ON RECOMMENDATION OF THE SPECIAL
INDEPENDENT COMMITTEE, HAS APPROVED THE AGREEMENT AND PLAN OF MERGER
AND THE MERGER, AND RECOMMENDS THAT STOCKHOLDERS VOTE FOR APPROVAL AND
ADOPTION OF THE AGREEMENT AND PLAN OF MERGER.
By Order of the Board of Directors
Haim E. Dahan
Chief Executive Officer
, 1999
Atlanta, Georgia
<PAGE>
IMPORTANT
WE HOPE YOU WILL ATTEND THE SPECIAL MEETING OF STOCKHOLDERS. IN ORDER
THAT THERE MAY BE A PROPER REPRESENTATION AT THE MEETING, EACH STOCKHOLDER
IS REQUESTED TO SEND IN HIS OR HER PROXY CARD IN THE ENCLOSED ENVELOPE,
WHICH REQUIRES NO POSTAGE IF MAILED IN THE UNITED STATES. ATTENTION TO
THIS REQUEST WILL REDUCE THE COMPANY'S EXPENSE IN SOLICITING PROXIES.
PLEASE DO NOT SEND IN ANY CERTIFICATES FOR YOUR SHARES AT THIS TIME.
2
<PAGE>
PRELIMINARY COPIES
INTERNATIONAL COMPUTEX, INC.
5500 INTERSTATE NORTH PARKWAY, SUITE 507
ATLANTA, GEORGIA 30328-4662
PROXY STATEMENT
SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON FEBRUARY , 1999
This Proxy Statement is being furnished to holders of Common Stock of
International CompuTex, Inc. (the "Company") in connection with the
solicitation of proxies by the Board of Directors of the Company. Those
proxies will be used at a Special Meeting of Stockholders to be held at
local time, on February , 1999, at , Atlanta, Georgia, and at any
adjournments or postponements of that meeting.
The purpose of the Special Meeting is to consider and vote on a proposal to
approve the Agreement and Plan of Merger, dated January , 1999 (the "Merger
Agreement"), among the Company, Information Handling Services Inc., a Delaware
corporation ("IHS"), IHS ItemQuest Holdings Inc., a Delaware corporation
("Holdings"), and [Merger Sub], a Georgia corporation that is a wholly-owned
subsidiary of Holdings ("Merger Sub"). Pursuant to the Merger Agreement,
Merger Sub will merge into the Company and the Company will become a wholly-
owned subsidiary of Holdings (the "Merger"). Upon consummation of the Merger,
each Company share outstanding immediately prior to the effective time of the
Merger, except for shares held by Holdings or Merger Sub or by dissenting
stockholders, will be converted into the right to receive $9.50.
Based on the 3,579,510 shares of Company common stock ("Common Stock")
outstanding on the Record Date, as defined below, less the 1,896,153 shares of
Common Stock expected to be held by Holdings at the effective time of the
Merger and which will be automatically cancelled and retired in the Merger
with no Merger consideration delivered in exchange therefor, a total of
1,683,357 shares of Common Stock of the Company are expected to be converted
into the right to receive the $9.50 per share Merger consideration.
See "Summary of the Merger Agreement" and "Summary of the Formation
Agreement."
In addition, a properly executed and returned proxy card gives the authority
to vote in accordance with the proxy-holders' best judgment on such other
business as may properly come before the meeting. No other business is
expected to be transacted at the meeting. Any proxy given pursuant to this
solicitation may be revoked, either by a written notice of revocation or by a
later proxy, in either case furnished to the Secretary of the Company in
writing prior to the meeting. Attendance at the meeting will not automatically
revoke a proxy, but a stockholder in attendance may request a ballot and vote
in person, thereby revoking a prior granted proxy.
THIS TRANSACTION HAS NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE FAIRNESS OR MERITS
OF SUCH TRANSACTION NOR UPON THE ACCURACY OR ADEQUACY OF THE INFORMATION
CONTAINED IN THIS DOCUMENT. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
RECORD DATE AND VOTING OF SECURITIES
The Board of Directors has fixed the close of business on , 1999 as the
record date for determining the holders of Common Stock entitled to notice of
and to vote at the meeting. On that date the Company had outstanding and
entitled to vote a total of 3,579,510 shares of Common Stock.
Each outstanding share of Common Stock is entitled to one vote on all
matters to be brought before this meeting. According to the By-Laws of the
Company, a one-third quorum of 1,193,170 shares of Common Stock is required to
be present or represented by proxy at the meeting in order to conduct the
business expected to come before the meeting. However, the only stockholder
action expected to take place at the Special Meeting is the stockholder vote
to approve the Merger Agreement, which requires the affirmative vote of a
majority of the Common Stock issued and outstanding on the record date, or
1,789,756 shares.
THE DATE OF THIS PROXY STATEMENT IS , 1999
AND IT IS BEING MAILED OR OTHERWISE DELIVERED TO STOCKHOLDERS
OF THE COMPANY ON OR ABOUT THAT DATE.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
QUESTIONS AND ANSWERS ABOUT THE MERGER..................................... iii
A WARNING ABOUT FORWARD LOOKING STATEMENTS................................. v
SUMMARY.................................................................... 1
SELECTED HISTORICAL FINANCIAL INFORMATION.................................. 5
THE SPECIAL MEETING........................................................ 8
PARTIES TO THE MERGER...................................................... 9
SPECIAL FACTORS............................................................ 20
BENEFICIAL OWNERSHIP OF MORE THAN 5% OF COMMON STOCK....................... 32
LITIGATION................................................................. 32
CERTAIN EFFECTS OF THE MERGER.............................................. 33
SUMMARY OF THE MERGER AGREEMENT............................................ 40
SUMMARY OF THE FORMATION AGREEMENT......................................... 42
MANAGEMENT................................................................. 43
DIRECTORS AND EXECUTIVE OFFICERS OF THE SURVIVING CORPORATION.............. 45
MARKET PRICES AND DIVIDENDS................................................ 46
FINANCING OF THE MERGER.................................................... 47
FINANCIAL STATEMENTS....................................................... 47
STOCKHOLDER PROPOSALS...................................................... 47
OTHER MATTERS.............................................................. 47
AVAILABLE INFORMATION...................................................... 48
APPENDIX F--FINANCIAL STATEMENTS
EXHIBIT A--MERGER AGREEMENT
EXHIBIT B--PROVISIONS OF CORPORATION CODE RELATING TO
DISSENTERS' RIGHTS OF APPRAISAL
EXHIBIT C--OPINION OF INTERSTATE/JOHNSON LANE CORPORATION
</TABLE>
ii
<PAGE>
QUESTIONS AND ANSWERS ABOUT THE MERGER
Q: WITH WHOM IS THE COMPANY MERGING?
A: The Company is merging with [Merger Sub] ("Merger Sub"), a wholly-owned
subsidiary of IHS ItemQuest Holdings Inc. ("Holdings"). Holdings was
recently formed as a Delaware corporation by Information Handling Services
Inc. ("IHS") for the purpose of acquiring certain contributed assets and
liabilities of IHS and effectuating the Merger. Merger Sub would merge with
and into the Company, with the Company being the surviving corporation.
After the Merger is completed, you would cease to be a stockholder of the
Company.
Q: WHAT TRANSACTIONS ARE TAKING PLACE PRIOR TO THE MERGER?
A: Haim E. Dahan, Michael J. Galvin, Patricia Tuxbury Salem, James L.
McAlarney, III and Peter W. Jeng, five early shareholders of the Company
(referred to as "Founders"), have entered into an agreement with IHS,
referred to as the "Formation Agreement". Under the Formation Agreement,
immediately before the closing of the Merger, IHS will contribute to
Holdings certain assets and liabilities relating to the CAPSXpert product
lines of IHS and 330,000 shares of Common Stock of the Company. IHS also
will contribute to Holdings an amount of cash so that when it is combined
with available cash of the Company there will be sufficient cash to pay the
Merger consideration. In exchange for these contributions, IHS will receive
approximately 7.9 million shares of Holdings common stock. In addition,
under the Formation Agreement, the Founders will contribute to Holdings
approximately 74% of their Common Stock of the Company. In exchange for
that contribution, the Founders collectively will receive approximately
1.5 million shares of Holdings common stock. Following the Merger, the
Company will be a wholly-owned subsidiary of Holdings. In addition, as a
result of the transactions under the Formation Agreement, IHS will own
83.611% of the common stock of Holdings and the Founders will collectively
own 16.389% of the common stock of Holdings.
Q: WHAT WILL I, AS A STOCKHOLDER OF THE COMPANY, RECEIVE IN THE MERGER?
A: Stockholders of the Company other than Holdings will be entitled to receive
$9.50 in cash in exchange for each share of the Company's common stock they
own as of the effective date of the Merger. Mr. Leo Benatar, an outside
director of the Company, and Mr. Haim E. Dahan, the CEO and largest
stockholder of the Company, negotiated this price with IHS and Holdings.
The Special Independent Committee formed by the Board of Directors of the
Company has approved the Merger as being fair to, and in the best interests
of, the Company and its stockholders.
Q: WILL THE FOUNDERS AND EMPLOYEES OF THE COMPANY BE TREATED THE SAME AS OTHER
STOCKHOLDERS IN THE MERGER?
A: Yes and No. The Founders have agreed to contribute approximately 74% of
their shares in the Company for shares in Holdings prior to the Merger.
Because those shares are being contributed to Holdings prior to the Merger,
the Founders will not hold those shares at the time of the Merger. With
respect to their remaining shares in the Company, the Founders will be
treated just like any other stockholder of the Company and will receive
$9.50 in cash for each share of Company common stock. Employees of the
Company who hold options to acquire shares of the Company's common stock
are expected to amend their option agreements. As amended, when the Merger
becomes effective they will be entitled to receive cash equal to the
"spread" between their option exercise prices and $9.50 per share,
multiplied by the number of option shares they hold. For more details on
how the Founders will be affected by the Merger, see pages 28 to 32.
Q: CAN STOCKHOLDERS EXCHANGE THEIR SHARES IN THE COMPANY FOR SHARES IN
HOLDINGS?
A: No. Stockholders of the Company, other than the Founders, will not be
required to, nor given an opportunity to, exchange their shares in the
Company for shares in Holdings. It is the desire of IHS, the parent
corporation of Holdings, to limit the stockholders of Holdings to
individuals who are actively involved in management of or employed by
Holdings. The Special Independent Committee has determined that the
treatment in the Merger of the Founders as described above is not more
favorable than, and may be less favorable than, treatment of the other
stockholders of the Company.
iii
<PAGE>
Q: WHY IS THE BOARD OF DIRECTORS RECOMMENDING THAT I VOTE FOR THE MERGER
AGREEMENT?
A: In the opinion of your Board, based upon the recommendation of the Special
Independent Committee, the terms and provisions of the Merger Agreement and
the Merger are fair to and in the best interests of the Company and its
stockholders. To review the background and reasons for the Merger in
greater detail, see pages 21 to 23.
Q: WHAT DO I NEED TO DO NOW?
A: Simply mail your signed proxy card in the enclosed return envelope as soon
as possible, so that your shares may be represented at the Special Meeting
to be held on February , 1999.
Q: WHAT RIGHTS DO I HAVE IF I OPPOSE THE MERGER?
A: Stockholders who wish to dissent from the Merger may seek appraisal of the
fair market value of their shares, but only if they do not vote their
shares in favor of the Merger and they comply with all of the other Georgia
law procedures explained on pages 35 to 37.
Q: WHO CAN VOTE ON THE MERGER?
A: All stockholders of record as of the close of business on , 1999 will be
entitled to notice of and to vote at the Special Meeting to approve the
proposed Merger and the Merger Agreement.
Q: SHOULD I SEND IN MY STOCK CERTIFICATES NOW?
A: No. After the Merger is completed, we will send you written instructions
for exchanging your share certificates. Please do not include your stock
certificates with your proxy card.
Q: IF MY SHARES ARE HELD IN "STREET NAME" BY MY BROKER, WILL MY BROKER VOTE MY
SHARES FOR ME?
A: Your broker will vote your shares only if you provide instructions on how
to vote. You should follow the directions provided by your broker about how
to give instructions about voting your shares.
Q: MAY I CHANGE MY VOTE AFTER I HAVE MAILED MY SIGNED PROXY CARD?
A: Yes. Just send in a written revocation or a later dated, signed proxy card
before the Special Meeting or attend the Special Meeting and vote in
person.
Q: WHEN DO YOU EXPECT THE MERGER TO BE COMPLETED?
A: We are working toward completing the Merger as quickly as possible. If the
Merger Agreement is approved and the other conditions to the Merger are
satisfied, we expect to complete the Merger promptly following the Special
Meeting.
Q: WHAT ARE THE TAX CONSEQUENCES OF THE MERGER TO ME?
A: The Merger generally will be taxable to you for U.S. federal income tax
purposes and typically will be eligible for capital gain treatment. To
review the federal income tax consequences to stockholders in greater
detail, see pages 34 to 35. As with any transaction of this type, you are
well advised to consult your own tax advisor to understand how this will
affect you personally.
Q: WHAT OTHER MATTERS WILL BE VOTED ON AT THE SPECIAL MEETING?
A: We do not expect to ask you to vote on any other matters at the Special
Meeting.
Q: WHO CAN HELP ANSWER MY QUESTIONS?
A: If you have more questions about the Merger or would like additional copies
of this Proxy Statement, you should contact Ralph E. Walter, Chief
Financial Officer, International CompuTex, Inc., 5500 Interstate North
Parkway, Suite 507, Atlanta, Georgia 30328; telephone number (770) 240-
2304; e-mail: [email protected].
iv
<PAGE>
A WARNING ABOUT FORWARD LOOKING STATEMENTS
The Company has made forward-looking statements in this document that are
subject to risks and uncertainties. These statements are based on the beliefs
and assumptions of the management of the Company and on information currently
available to such management. Forward-looking statements include information
about possible or assumed future results of operations of the Company as an
independent entity or as an entity combined with the CAPSXpert product lines
of IHS. This information is contained under "Parties to the Merger--The
Company," "--IHS;" "Special Factors--Background of the Transaction," "--
Reasons for the Merger; Recommendation of the Board of Directors," "--Purposes
and Reasons of IHS, Holdings and Merger Sub for the Merger;" and "Certain
Effects of the Merger--General," "--Plans for the Company After the Merger,"
"--Conduct of the Business of the Company if the Merger is not Consummated,"
and statements preceded by, followed by or that include the words "believes,"
"expects," "anticipates," "intends," "plans," "estimates" or similar
expressions.
Moreover, the consummation of the Merger is subject to certain conditions,
the satisfaction of which cannot be assured. See "Summary of the Merger
Agreement--Conditions."
v
<PAGE>
SUMMARY
This summary highlights selected information from this Proxy Statement. It
may not contain all of the information that you may consider to be important.
In order to understand the Merger and the related transactions fully, and for a
more complete description of the legal terms of the Merger and the related
transactions, you should read carefully this entire Proxy Statement and the
documents to which we have referred you, including those attached to this
document as exhibits and the Financial Statements attached as Appendix F. See
"Available Information," below.
PARTIES TO THE MERGER
International CompuTex, Inc. International CompuTex, Inc. ("Company") is a
software technology and services company that develops, markets and supports
enterprise-wide client/server solutions for discrete manufacturing companies
worldwide. The principal executive offices of the Company are located at 5500
Interstate North Parkway, Suite 507, Atlanta, Georgia 30328. The telephone
number of the Company is (770) 953-1464. For more information about the Company
and its business, see "Selected Historical Financial Information" and "Parties
to the Merger--The Company."
Merger Sub and Holdings. [Merger Sub] ("Merger Sub") is a wholly-owned
subsidiary of, and was recently formed by, IHS ItemQuest Holdings Inc.
("Holdings") for the purpose of effectuating this Merger. Holdings is a wholly-
owned subsidiary of Information Handling Services Inc. ("IHS") and was formed
to acquire certain assets and liabilities of the CAPSXpert product line of IHS,
330,000 shares of the Company's Common Stock currently owned by IHS or an
affiliate of IHS and cash in an amount that, together with all cash of the
Company available at the time of the Merger, will be sufficient to pay the
Merger consideration, and to consummate the Merger. Neither Merger Sub nor
Holdings has any assets, nor have they conducted any business, other than as
described in this document. If the proposed Merger and related transactions are
completed, Holdings will be 83.611% owned by IHS and 16.389% owned by the
Founders. The address of the principal executive offices of Merger Sub and
Holdings is Inverness Business Park, 15 Inverness Way East, Englewood, Colorado
80112. The telephone number of these companies is (303) 790-0600. See "Parties
to the Merger--Merger Sub and Holdings."
Information Handling Services Inc. IHS is a Delaware corporation principally
engaged in the business of publishing engineering-related technical information
databases. The address of the principal executive offices of IHS is Inverness
Business Park, 15 Inverness Way East, Englewood, Colorado 80112. See "Parties
to the Merger--IHS."
THE SPECIAL MEETING
A special meeting of the stockholders of the Company will be held at ,
local time, on February , 1999 at ("Special
Meeting"). At the Special Meeting, holders of the Company's common stock will
vote on a proposal to adopt an agreement that will merge Merger Sub with and
into the Company, with the Company becoming a wholly-owned subsidiary of
Holdings ("Merger Agreement"). The Board of Directors has fixed , 1999
as the date for the determination of stockholders entitled to vote at the
Special Meeting ("Record Date"). As of the Record Date, there were 3,579,510
shares of the Company's common stock, $.001 par value ("Common Stock"), issued
and outstanding and entitled to vote at the Special Meeting.
Adoption of the Merger Agreement requires the affirmative vote of the holders
of a majority of the issued and outstanding shares of Common Stock entitled to
vote at the Special Meeting. As of the Record Date, Haim E. Dahan, Patricia
Tuxbury Salem, Michael J. Galvin, James L. McAlarney, III and Peter W. Jeng
(collectively, "Founders"), were the owners of 2,125,000 shares of Common
Stock. The Founders have entered into written agreements obligating them to
vote their shares in favor of adopting the Merger Agreement. Their shares,
combined with 330,000 shares held by IHS or an affiliate of IHS, represent
68.6% of the total outstanding shares as of the Record Date. The affirmative
vote of the holders of these shares will be sufficient to approve the Merger
Agreement. See "Special Factors--Interests of Certain Persons in the Merger."
<PAGE>
REASONS FOR THE MERGER
The Board of Directors of the Company, acting on the recommendation of its
Special Independent Committee, has unanimously approved the Merger Agreement.
The Board of Directors has determined that the Merger Agreement is fair to and
in the best interests of the Company's stockholders. This determination was
based on, among other things, the following factors: a comparison of the risks
and benefits of the Merger against the risks and benefits of the other
strategic alternatives available to the Company, including continuing as an
independent entity; the cash merger price of $9.50 per share of the Common
Stock ("Cash Merger Price"), which represents a premium of 88% over the
average closing price per share for the ten business-day period ending on
January 8, 1999, the last full trading day before the public announcement of
the proposed merger; the written opinion of Interstate/Johnson Lane
Corporation ("Interstate/Johnson Lane" or "IJL") addressed to the Board of
Directors that, as of January 8, 1999, the $9.50 per share to be received by
the holders of the Common Stock in connection with the Merger is fair to the
public stockholders of the Company, from a financial point of view; and the
terms and conditions of the Merger Agreement. See "Special Factors--Reasons
for the Merger; Recommendation of the Board of Directors."
EFFECTIVE TIME
The effective time of the Merger will be the date and time of the filing of
the Certificate of Merger with the Georgia Secretary of State ("Effective
Time") in accordance with the Georgia Business Corporation Code ("GBCC"),
which is scheduled to occur as soon as practicable after the satisfaction of
certain closing conditions. If the Merger is not consummated by March 29,
1999, both IHS and the Company have the right to terminate the Merger
Agreement. See "Summary of the Merger Agreement--Termination."
TERMS OF THE MERGER
General. At the Effective Time, Merger Sub will be merged with and into the
Company, with the Company continuing as the surviving corporation ("Surviving
Corporation"), and the articles of incorporation of the Company (with certain
changes) and the bylaws of Merger Sub will become the articles of
incorporation and bylaws of the Surviving Corporation. The Merger Agreement
provides that Haim E. Dahan, who is the President, Chief Executive Officer and
Chairman of the Company, will become the President, the Chief Technology
Officer and a director of the Surviving Corporation. Other than Mr. Dahan, the
directors of Merger Sub immediately prior to the Effective Time will be the
directors of the Surviving Corporation. Michael J. Galvin and Patricia Tuxbury
Salem, who are currently directors and officers of the company, will become
officers, but not directors, of the Surviving Corporation.
Cash Merger Price. At the Effective Time, each share of Common Stock held by
the Company's stockholders (other than the shares held by Holdings as
described below) will automatically be converted into the right to receive
$9.50 (the "Cash Merger Price"). No interest will be paid or accrued on the
Cash Merger Price.
Payment of Cash Merger Price. Prior to the Merger, Holdings and Merger Sub
will select a paying agent to exchange your shares for the Cash Merger Price
("Paying Agent"). The Paying Agent will pay the Cash Merger Price as soon as
practicable after the Effective Time and upon its receipt of certificates
which, immediately prior to the Effective Time, represented the shares of
Common Stock held by the stockholders. Please do not mail your certificates
with the enclosed proxy card or mail them to the Paying Agent before you are
asked to do so. As of or at the Effective Time, the Surviving Corporation will
take all necessary steps to deposit with the Paying Agent the funds necessary
to pay the Cash Merger Price for each share payable pursuant to the terms of
the Merger Agreement. As soon as practicable after the Effective Time, the
Paying Agent will
2
<PAGE>
mail to each record holder of the Common Stock a notice and letter of
transmittal advising the holder of the effectiveness of the Merger and the
procedure for surrendering certificates to the Paying Agent for exchange into
the Cash Merger Price. The stockholders should not forward their stock
certificates to the Paying Agent before receiving the notice and transmittal
letter. See "Summary of the Merger Agreement--The Exchange Fund; Payment for
Shares of Common Stock."
AMENDMENT OF STOCK OPTION AGREEMENTS
Prior to the Merger, all current employees of the Company who hold options
to receive shares of Common Stock of the Company ("Employee Options") are
expected to approve an amendment to their respective stock option agreements.
Such amendments will entitle the employees to receive cash for their Employee
Options equal to the product of $9.50 minus the exercise price of the Employee
Option, multiplied by the number of option shares that employee has
outstanding. For example, an employee holding an option to purchase 2,000
shares at $3.50 per share would receive $12,000. ($9.50 minus $3.50 is $6.00,
multiplied by 2,000 shares is $12,000.) See "Special Factors--Interests of
Certain Persons in the Merger."
EXCHANGE OF COMPANY STOCK BY THE FOUNDERS AND IHS FOR HOLDINGS STOCK
Prior to the Merger, Common Stock of the Company currently held by IHS or
its affiliates will be contrtibuted, along with other assets, for common stock
of Holdings ("Holdings Shares"). In addition, prior to the Merger, the
Founders will exchange approximately 74% of their Common Stock of the Company,
on a one for one basis, for Holdings Shares. The remaining Common Stock of the
Company owned by the Founders will be exchanged in the Merger for the Cash
Merger Price. See "Special Factors--Interests of Certain Persons in the
Merger."
OWNERSHIP OF COMPANY AND HOLDINGS IMMEDIATELY AFTER THE MERGER
At the Effective Time, Merger Sub will be merged with and into the Company,
with the Company being the Surviving Corporation. After the Merger, the
Surviving Corporation will be a wholly-owned subsidiary of Holdings, and
Holdings will be 83.611% owned by IHS and 16.389% owned by the Founders.
Company stockholders other than Founders will not become stockholders of
Holdings. See "Certain Effects of the Merger --General."
FINANCING ARRANGEMENTS
Financing of the Merger will require approximately $ million to pay the
Cash Merger Price and the cashless exercise payments for stock options and to
pay the fees, expenses and other payments in connection with the Merger. These
funds are expected to be provided by IHS and its affiliates, from their own
funds and funds of the Company and from existing lines of credit.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
The Board of Directors of the Company, based upon the recommendations of the
Special Independent Committee, has recommended that stockholders vote in favor
of the Merger Agreement. In considering this recommendation, the stockholders
should be aware that certain members of the Company's Board of Directors,
other than the members of the Special Independent Committee, have interests in
the Merger that are in addition to, and may be deemed to be in conflict with,
the interests of the stockholders of the Company generally. These interests
include (a) the exchange by the Founders of approximately 74% of their Common
Stock for Holdings Shares; (b) payment of an aggregate of up to $223,000 by
IHS to the Founders as partial reimbursement for monies paid by Founders to
Debenture Warrant holders; (c) (i) benefits under certain employment
agreements to be executed between the Surviving Corporation and three of the
Founders, and (ii) a new stock option plan for the employees of Holdings or
its subsidiaries, in which the Founders are not currently expected to
participate; and (d) indemnification of officers and directors. See "Special
Factors--Interests of Certain Persons in the Merger."
RECOMMENDATION OF THE BOARD
Based upon the recommendation of the Special Independent Committee, the
Board of Directors of the Company unanimously approved the Merger Agreement
and the transactions contemplated thereby, including
3
<PAGE>
the Merger. The Board has determined that the Merger Agreement is fair to, and
in the best interests of, the stockholders of the Company, excluding from that
opinion the consideration received by the Founders. The Board recommends that
the stockholders vote FOR the approval and adoption of the Merger Agreement.
For a discussion of the factors considered by the Board in reaching its
recommendation and determination, see "Special Factors--Reasons for the
Merger; Recommendation of the Board of Directors."
OPINION OF FINANCIAL ADVISOR
Interstate/Johnson Lane has delivered a written opinion to the Board of
Directors in connection with the Merger. The opinion states that the cash
price to be received by the holders of the Common Stock in connection with the
Merger was, as of the date of the opinion, fair to stockholders from a
financial point of view. The opinion is subject to various assumptions,
exclusions and considerations. The full text of the opinion, including the
procedures followed, the matters considered and the assumptions made by
Interstate/Johnson Lane, is included as Exhibit C to this Proxy Statement. You
are highly encouraged to read the opinion in its entirety. See "Special
Factors--Opinion of Interstate/Johnson Lane, Financial Advisor to the
Company."
CONDITIONS TO CONSUMMATION OF THE MERGER
Consummation of the Merger is subject to various conditions, including among
other matters: (a) approval of the Merger Agreement and the transactions
contemplated thereby by the holders of a majority of the issued and
outstanding shares of Common Stock of the Company entitled to vote thereon;
and (b) satisfaction of certain conditions customary to transactions of this
type. See "Summary of the Merger Agreement--Conditions."
CERTAIN RELATED AGREEMENTS
In connection with the Merger, several ancillary agreements will be entered
into between various parties, including IHS, Holdings, Merger Sub, the
Founders and others. These agreements include the Formation Agreement,
Stockholders' Agreement, Employment Agreements, Option Amendment Agreements,
Services Agreement and Sales Agency Agreement. For a summary of certain terms
of these agreements, see "Special Factors--Certain Related Agreements,"
"Summary of the Merger Agreement" and "Summary of the Formation Agreement."
CERTAIN EFFECTS OF THE MERGER
If the Merger is consummated, the Company's stockholders (other than
Holdings and any dissenting stockholders) will have the right to receive $9.50
in cash, without interest, for each share of Common Stock held immediately
prior to the Effective Date. (Before the Merger is consummated, the Founders
will have contributed approximately 74% of their Common Stock and will have
received an equal number of Holdings shares.) As a result of the Merger,
stockholders of the Company will cease to have any ownership interest in the
Company. Moreover, if the Merger is consummated, public trading of the Common
Stock will cease, the Common Stock will cease to be quoted on the Nasdaq
National Market, the registration of the Common Stock under the Securities
Exchange Act of 1934, as amended ("Exchange Act"), will be terminated and the
Company will cease filing reports with the Securities and Exchange Commission
("SEC"). Because stockholders of the Company, other than the Founders, will
not have any ownership interest in Holdings, in the event there are any
earnings and growth in Holdings, such stockholders will not participate in
such earnings and growth.
Immediately following the Merger, 83.611% of the outstanding capital stock
of Holdings will be owned by IHS and the remaining 16.389% will be owned by
the Founders. It is currently anticipated that the Surviving Corporation will
be operated after the Merger in a manner substantially similar to the
Company's current operations, except that it may be combined with the
operations of the CAPSXpert product line of IHS. See "Special Factors--
Interests of Certain Persons in the Merger" and "Summary of the Formation
Agreement."
ACCOUNTING TREATMENT OF TRANSACTION
The Merger will be accounted for using the purchase method for accounting
and financial reporting purposes.
4
<PAGE>
CERTAIN FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER
The receipt of cash for the Common Stock in the Merger will be a taxable
transaction for federal income tax purposes, and any gain or loss to the
stockholder typically will be treated as capital gain or loss. See "Special
Factors--Certain Federal Income Tax Consequences of the Merger."
NO SOLICITATION
Under the Formation Agreement, the Founders have agreed immediately to cease
any existing activities, discussions or negotiations with any party (other
than IHS and its affiliates) regarding any merger or sale of assets involving
the Company. See "Summary of the Formation Agreement--Obligations of the
Founders to Vote in Favor of the Merger."
DISSENTERS' RIGHTS OF APPRAISAL
Stockholders who meet the requirements of and follow the procedures set
forth in Article 13 of the Georgia Business Corporation Code ("GBCC") may
receive, in lieu of the $9.50 cash per share of Common Stock to be paid in the
Merger, a cash payment equal to the "fair value" of their shares, excluding
any appreciation or depreciation in anticipation of the Merger, together with
a fair rate of interest, if any, as determined by the Superior Court of Fulton
County, Georgia. The "fair value" will be determined by judicial appraisal and
could be more than, the same as, or less than, the Cash Merger Price.
To be entitled to receive payment of the fair value of the shares of Common
Stock, a stockholder (a) must file a written demand for appraisal of his or
her shares with the Company prior to the voting by stockholders on the Merger
Agreement at the Special Meeting (such demand must reasonably inform the
Company of the identity of the stockholder and that the stockholder intends
thereby to demand an appraisal of his or her shares); (b) must not vote his or
her shares in favor of approval and adoption of the Merger Agreement; (c) must
hold shares of Common Stock on the date of the making of a demand for
appraisal and continuously hold such shares through the Effective Time; and
(d) must have his or her shares valued in an appraisal proceeding. See
"Special Factors--Dissenters' Rights of Appraisal." A proxy or vote against
approval and adoption of the Merger Agreement will not satisfy the requirement
that a stockholder file a written demand for appraisal as set forth above.
MARKET PRICES OF COMMON STOCK
The Common Stock of the Company is quoted on the Nasdaq National Market
under the symbol "ICIQ." Shortly after November 10, 1998 when Thybo New
Ventures, Ltd., an affiliate of IHS, amended its Schedule 13D to reflect a
change in its intentions and those of its affiliates, from passively holding
the shares of Common Stock, to the possibility of increasing its investment in
the Company, the market price of Common Stock of the Company increased to the
approximate range of $5.00 to $6.00 per share. On January 8, 1999, the last
trading day prior to the public announcement that the Company and IHS and
Merger Sub had executed the Merger Agreement, the high and low sale prices per
share of Common Stock as reported on the Nasdaq National Market were $6.75 and
$6.00, respectively. See "Market Prices and Dividends."
SELECTED HISTORICAL FINANCIAL INFORMATION
The following table sets forth selected historical financial information for
the Company as of December 31, 1998 and 1997 and for each of the three fiscal
years ended December 31, 1998 (unaudited for the fiscal year ended December
31, 1998). No separate financial information is provided for Merger Sub since
it is a special purpose entity formed in connection with the Merger and has no
independent operations. No pro forma data giving effect to the Merger have
been provided because the Company does not believe such information is
material to stockholders in evaluating the proposed Merger and Merger
Agreement. The Company reached this conclusion because (a) the proposed
consideration is all cash and (b) any pro forma financial information about
the combined results of operations of the Company and of the CAPSXpert product
line of IHS would not provide meaningful or relevant information in evaluating
the Cash Merger Price.
The financial information for the Company as of and for each of the two
fiscal years ended December 31, 1997 has been derived from audited financial
statements of the Company. The financial information as of and
5
<PAGE>
for the twelve months ended December 31, 1998 has been derived from unaudited
financial statements of the Company and, in the opinion of management,
includes all adjustments (consisting only of normal recurring adjustments)
necessary to present fairly the information set forth therein.
The following financial information should be read in conjunction with
"Parties to the Merger--Management's Discussion and Analysis of Financial
Condition and Results of Operations" and the Company's financial statements,
accompanying notes and other financial information included as Appendix F to
this Proxy Statement.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------------
1998 1997 1996
----------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C>
STATEMENT OF OPERATIONS DATA
Revenues
Services and other...................... $ 3,829,364 $5,042,570 $3,716,034
Software................................ 549,840 214,500 175,000
----------- ---------- ----------
Total revenues........................ 4,379,204 5,257,070 3,891,034
=========== ========== ==========
Operating expenses
Direct costs--services.................. 1,424,442 1,486,058 1,288,782
Direct costs--software.................. 177,864 111,264 0
Sales and marketing..................... 1,855,451 621,884 340,860
General and administrative.............. 1,716,029 1,276,736 408,538
Depreciation and amortization........... 167,384 94,041 31,518
Research and development................ 1,407,179 377,057 3,365
----------- ---------- ----------
Total operating expenses.............. 6,748,349 3,967,040 2,073,063
=========== ========== ==========
Income (loss) from operations............. (2,369,145) 1,290,030 1,817,971
Other income (expenses)................... 462,377 (174,448) 2,413
Income (loss) before provision for income
taxes.................................... 1,906,768 1,115,582 1,820,384
Provision for income taxes................ 0 218,922 0
Net income (loss)--historical............. (1,906,768) 896,660 1,820,384
Pro forma provision for income taxes...... 0 186,000 686,000
Pro forma net income (loss)............... (1,906,768) 710,660 1,134,384
Pro forma earnings (loss) per share--
diluted.................................. $ (0.54) $ 0.23 $ 0.50
Weighted average shares outstanding--
diluted.................................. 3,557,380 3,100,898 2,287,855
</TABLE>
6
<PAGE>
<TABLE>
<CAPTION>
DECEMBER 31
------------------------
1998 1997
----------- -----------
(UNAUDITED)
<S> <C> <C>
BALANCE SHEET DATA
Cash and cash equivalents............................. $ 6,099,689 $ 6,943,351
Accounts receivable, net of allowance................. 449,505 1,146,483
Investments........................................... 2,124,265 1,046,562
Prepaid expenses...................................... 203,256 197,956
----------- -----------
Total current assets.............................. 8,876,715 9,334,352
----------- -----------
Property and equipment, net........................... 767,370 548,209
Other assets
Software development costs, net..................... 244,469 422,333
Other............................................... 6,281 10,305
----------- -----------
Total assets...................................... 9,894,835 10,315,199
----------- -----------
Current liabilities................................... 128,347 320,042
Long term liabilities................................. 45,202 60,036
----------- -----------
Total liabilities................................. 173,549 380,078
----------- -----------
Common stock.......................................... 3,579 3,251
Additional paid-in-capital............................ 11,222,888 9,530,283
Retained earnings (accumulated deficit)............... (1,505,181) 401,587
----------- -----------
Total equity...................................... 9,721,286 9,935,121
----------- -----------
Total liabilities and equity...................... 9,894,835 10,315,199
=========== ===========
</TABLE>
7
<PAGE>
THE SPECIAL MEETING
GENERAL
The Company will hold a Special Meeting of stockholders at , local time,
on February , 1999. The Board of Directors of the Company is soliciting
proxies from holders of the outstanding shares of Common Stock of the Company
for use at the Special Meeting, and any adjournments and postponements
thereof. You are being furnished with this Proxy Statement in connection with
such solicitation by the Board of Directors. At the Special Meeting,
stockholders (a) will be asked to consider and vote upon a proposal to approve
and adopt the Merger Agreement and the transactions contemplated thereby; and
(b) will transact such other business as may properly come before the Special
Meeting.
RECORD DATE; SOLICITATION AND REVOCABILITY OF PROXIES
The Board of Directors has fixed , 1999, the Record Date, as the date for
determining the stockholders entitled to receive notice of and to vote at the
Special Meeting, and any adjournments or postponements thereof. If you are not
a holder of record of the Company's Common Stock as of the Record Date, you
will not be entitled to a notice of and to vote at the Special Meeting. As of
the Record Date, there were 3,579,510 shares of the Company's Common Stock
issued and outstanding, held by 25 holders of record and approximately 1,300
stockholders holding shares in street name. Holders of Common Stock are
entitled to one vote on each matter considered and voted on at the Special
Meeting for each share of Common Stock held of record at the close of business
on the Record Date.
Proxies in the form enclosed are being solicited by the Board of Directors
of the Company. Shares of the Company's Common Stock represented by properly
executed proxies, if such proxies are received in time and are not revoked,
will be voted in accordance with the instructions indicated on the proxies. If
you mail in a signed proxy card without indicating instructions, your proxy
will be voted FOR approval and adoption of the Merger Agreement and the
transactions contemplated thereby.
It is not anticipated that any matter other than the proposal to approve and
adopt the Merger Agreement will be brought before the Special Meeting. If any
other matter is properly presented at the Special Meeting for consideration,
including, among other things, a motion to adjourn the Special Meeting to
another time and/or place (including, without limitation, for the purpose of
soliciting additional proxies), the persons named in the enclosed form of
proxy card and acting thereunder will have discretion to vote on such matter
in accordance with their best judgment. No proxy that directs the shares
represented thereby to be voted against the proposal to approve and adopt the
Merger Agreement will be voted in favor of any adjournment of the Special
Meeting for purposes other than the absence of a quorum.
A stockholder who has given a proxy may revoke it at any time prior to its
exercise at the Special Meeting. To revoke your proxy, simply give a written
notice of revocation to the Secretary of the Company or properly submit to the
Company a duly executed proxy bearing a later date, prior to the time your
proxy has been exercised. You can also revoke your proxy by attending and
voting in person at the Special Meeting. All written notices of revocation and
other communications involving proxies should be addressed to the Company as
follows: International CompuTex, Inc., 5500 Interstate North Parkway, Suite
507, Atlanta, Georgia 30328, Attention: Secretary. A proxy appointment will
not be revoked by death or incapacity of the stockholder executing the proxy
unless, before the shares are voted, notice of such death or incapacity is
filed with the Company's Secretary or other person responsible for tabulating
votes on behalf of the Company.
The expense of soliciting proxies for the Special Meeting will be paid by
the Company. In addition to solicitation by use of the mails, proxies may be
solicited by directors, officers and employees of the Company in person or by
telephone, telegram or other means of communication. Such directors, officers
and employees will not be additionally compensated, but may be reimbursed for
reasonable out-of-pocket expenses incurred in connection with such
solicitation. Arrangements will be made with custodians, nominees and
fiduciaries for forwarding of proxy solicitation materials to beneficial
owners of shares held of record by such custodians,
8
<PAGE>
nominees and fiduciaries. In such cases, the Company will reimburse these
parties for reasonable out-of-pocket expenses they incur.
QUORUM; REQUIRED VOTE
Approval of the Merger Agreement and the transactions contemplated thereby
requires the presence of a quorum and the affirmative vote of the holders of a
majority of the issued and outstanding shares of the Company's Common Stock
entitled to vote at the Special Meeting. A quorum will exist if one-third of
the issued and outstanding shares of the Company's Common Stock are
represented at the Special Meeting, either in person or by properly executed
proxies. In determining if a quorum is present, abstentions and broker non-
votes will be counted as shares represented at the Special Meeting. However,
because the proposal to approve and adopt the Merger Agreement requires the
affirmative vote of a majority of the issued and outstanding shares of the
Company's Common Stock, the one-third quorum requirement is effectively
superseded by this majority requirement, and abstentions and broker non-votes
will have the effect of a vote against the Merger Agreement and the
transactions contemplated thereby. If for any reason a quorum is present, but
the absence of proxies or shareholders voting in person prevents this majority
vote, the Meeting may be adjourned in order to assure that sufficient shares
are represented.
The Merger does not require the approval of any particular percentage of
stockholders who are not affiliated with the Founders.
THE EFFECT OF FAILING TO PROPERLY EXECUTE AND RETURN A PROXY CARD OR TO VOTE
AT THE SPECIAL MEETING WILL BE THE SAME AS VOTING AGAINST THE APPROVAL AND
ADOPTION OF THE MERGER AGREEMENT AND THE TRANSACTIONS CONTEMPLATED THEREBY.
As of the Record Date, the Founders owned of record 2,125,000 shares of the
Company's Common Stock, constituting approximately 59% of the outstanding
Common Stock of the Company as of the Record Date. The Founders have entered
into agreements with IHS regarding the voting of their shares. Pursuant to
those agreements, the Founders have agreed to vote all of their respective
shares of Common Stock in favor of the Merger Agreement. See "Special
Factors--Interests of Certain Persons in the Merger--Voting Agreements."
PARTIES TO THE MERGER
THE COMPANY
General. International CompuTex, Inc. ( "Company") is a software company
that develops, markets and supports enterprise-wide client/server CSM
(Component and Supplier Management) solutions through its ItemQuest(TM)
product suite. This suite of products focuses on allowing manufacturing and
engineering industries to quickly find and retrieve existing parts for re-use
throughout a business enterprise and on vendor management. In addition to its
Window and Unix ItemQuest offerings, the Company also provides an
Internet/Intranet CSM solution through its Java based ItemWeb(TM) product. The
Company also provides CSM and PDM (Product Data Management) consulting and
implementation services for the engineering and manufacturing industries.
Since its formation as a Georgia corporation in 1991, the Company has built
strong skills in industry software services and applications for PDM and
manufacturing. From 1991 through mid-1996, all Company revenues resulted from
computer software-related services. During that period, the Company focused
its primary efforts in the area of PDM software applications services. The
Company provided a wide variety of services to IBM, including product
development and, on a subcontract basis, customer installation, implementation
and customization services relating to ProductManager, a PDM product
originally developed and owned by IBM. The Company also applied its expertise
in client/server software development by providing specialized PDM software
services directly to customers other than IBM, in some cases relating to IBM's
ProductManager and in other cases unrelated to IBM.
9
<PAGE>
In late 1996, the Company introduced on a controlled availability basis its
software solution, ItemQuest, based on a sophisticated classification and
search engine used to classify objects, such as parts and assemblies,
documents and drawings, and to retrieve references to those objects. These
capabilities enable ItemQuest to complement and enhance the effectiveness of
PDM software, as well as other systems, such as ERP (Enterprise Resource
Planning) and SCM.
In 1997, the Company's revenues were derived primarily from its services
business, which is comprised principally of PDM-related services and custom
software development. In late April 1997, the Company announced that ItemQuest
was generally available to the marketplace. In addition to the generation of
license fee revenue, Management anticipates that ItemQuest will add
significantly to the Company's services business. In 1998, the Company pursued
its transition from a services oriented business to a solutions oriented
business combining products and services. The Company intends to continue this
transition in 1999. Key technical resources have been moved to the strategic
development of new versions of ItemQuest and ItemWeb. Administrative, sales
and marketing, and product development expenses have also been significantly
increased in order to develop and enhance ItemQuest and ItemWeb.
Products
ItemQuest is a decision support system for procurement personnel and design
engineers, providing rapid access to enterprise data through flexible schema-
based searches. The Company Management believes that, as a "Distributed
Virtual CSM" solution, ItemQuest provides considerable benefits: vendor
consolidation, fewer components, lower priced parts, shorter product
development cycles, improved product quality and lower product cost.
Consequently, Management believes that ItemQuest can produce significant
return on investment (ROI) while offering ease-of-use, safety, flexibility and
growth.
Procurement personnel use CSM to consolidate and classify commodities and
vendors across the enterprise. Procurement departments also want to negotiate
better component price discounts based on volume and the elimination of parts
proliferation in the overall organization. The benefits of these gains are:
better strategic vendor relationships and reduced multi-vendor handling costs;
reduced parts costs resulting from higher quantity discounts; and reduced
inventory levels and related inventory carrying costs.
Design engineers use CSM to better locate potentially re-usable parts and
acceptable substitutes for new or upgraded designs. By doing so the following
benefits can accrue: faster time to market for new products due to less time
needed to design, test, manufacture (or buy) and develop new components;
improved product quality safety due to the knowledge of existing components'
capabilities; reduced design and prototyping costs, including the ability to
handle more projects due to CSM's efficiency impacts; and costs savings
through increased parts re-use.
ItemWeb. Using the same technology and architecture as ItemQuest (which
"pulls" components data), ItemWeb allows a manufacturer to "push" internal
parts and component data to its customers by a secured Web client search
interface schema to support their MRO (Maintenance, Repair and Operations)
parts needs. ItemWeb can also be used by distributors, dealers and brokers to
provide secured parts search access and access to drawings and documents.
Research and Development. The Company has committed, and expects to commit
in the future, substantial resources to product development, particularly
ItemQuest and ItemWeb. During 1996, 1997 and 1998, the Company spent
approximately $280,000, $634,000 and $1,400,000, respectively, on product
research and development activities. Research and development efforts are
directed at increasing product functionality, improving product performance
and expanding compatibility with third-party software.
The Company's future success will depend in part on its ability to enhance
its current products and to develop and introduce new products on a timely
basis that keep pace with technological developments, emerging
10
<PAGE>
industry standards and the increasingly sophisticated needs of its customers.
If the Company is unable, however, for technological or other reasons, to
develop and introduce new products or enhancements, the Company's business,
financial condition or results of operations could be materially adversely
affected.
In addition, products as complex as ItemQuest and ItemWeb frequently contain
undetected errors or failures when first introduced or when new versions are
released. The Company may discover errors in certain of its products and
enhancements, both before and after initial shipments, which may lead to
delays or lost revenues during the period required to correct these errors.
Marketing And Distribution. The Company markets and sells its products and
services primarily through its direct sales force based in Atlanta and a sales
office in Kent, England, as well as through strategic relationships. In 1998,
international sales comprised 7.7% of the Company's revenues. The Company's
sales and marketing organization consisted of seven employees as of December
31, 1998.
The Company strategy is to expand its distribution channels to reach a broad
customer base in its targeted industries. The Company's field sales force
conducts multiple presentation and demonstrations of the Company's CSM
solution to management and users at customer sites and the Company's Atlanta
office. Sales cycles generally range from six to twelve months. The Company
currently ships, and in the future intends to ship, its products within a
short period of time after the execution of a license, and, as a result, does
not and will not have a material backlog of unfulfilled license orders at any
given time. As a result, the Company does not consider backlog to be a
meaningful indicator of future performance.
With the continued development of ItemQuest and the introduction of ItemWeb,
the Company intends to establish sales channels either through relationships
it has developed with customers or through its own direct resources to
establish marketing, selling and consulting relationships both domestically
and internationally. In addition the Company intends to establish
relationships with hardware and software vendors and systems consultants to
increase the sales and distribution of the Company's products. To support its
sales force, the Company intends to conduct a number of marketing programs,
including public relations, telemarketing, seminars, trade shows and user
groups.
In general, pricing for ItemQuest and ItemWeb will follow the industry
standard of a one-time charge for each concurrent user license. In addition,
there will be an optional annual maintenance charge for each license. Site
licenses will be available on a special bid basis giving unrestricted use at a
given company site. Volume purchase discounts for the Company's products and
services will be offered on a special bid basis as well. The Company's pricing
strategy will focus on capturing market share and establishing a solid base of
customer references.
Strategic Relationships. The Company began developing two strategic
relationships in 1997 that were officially announced in February 1998. On
February 3, 1998, the Company signed a terms agreement to establish a
Strategic Business Alliance with IHS, integrating the CAPSXpert electronic
component database product line of IHS with the ItemQuest product. These two
products, in combination, enable engineers and procurement professionals to
access component information databases as well as other internal and external
parts databases from within the ItemQuest CSM solution. Since that time, this
integrated component management tool has been jointly marketed and sold on a
world-wide basis. On February 10, 1998, the Company and IBM announced the
signing of an agreement whereby the ProductManager/ItemQuest integration
module that seamlessly links ItemQuest and IBM's ProductManager software suite
for PDM would be sold to ProductManager customers through IBM's PDM Consulting
and Implementation Services organization. The ProductManager/ItemQuest
integration provides a way for ProductManager customers to implement a CSM
classification system in conjunction with ProductManager implementation.
Competition. CSM Products and Services. In the CSM market, the Company
currently faces competition principally from Aspect Development, Inc.
(Aspect). The other major competitor in the CSM market,
11
<PAGE>
CADIS, Inc., was acquired by Aspect in December 1997. Aspect is a publicly
owned, worldwide provider of enterprise-wide CSM systems for preferred parts
and supplier management, parts selection, and design re-use. Management
believes the Company can compete favorably with commercially available
products and services in the CSM solutions market.
PDM Services
The Company faces competition from numerous providers of services related to
the PDM market, including, but not limited to large national consulting firms
such as Andersen Consulting, Keane, Inc. and Decision Consultants, Inc., as
well as regional and local services providers. Although barriers to entry in
these markets are low, Management believes the Company will be able to remain
competitive on the basis of its skilled personnel, its reputation in the PDM
market, and its relationships with its customers. Beginning in 1998, the
Company's PDM Services have declined in relative size and importance as
compared to ItemQuest and ItemWeb products and services. This has resulted in
part from the Company's deliberate shift in its marketing and sales emphasis
toward the ItemQuest and ItemWeb products.
Employees. As of December 31, 1998, the Company employed 50 persons, of
whom 42 were based in Atlanta, seven were based in Charlotte, North Carolina,
and one was based in Kent, England. Of the total, seven were engaged in sales
and marketing, four were primarily in administration, and 39 were primarily in
product development and software services. No current employee of the Company
is represented by a labor union with respect to his or her employment by the
Company. The Company has experienced no organized work stoppage and believes
its relationship with its employees to be good. The Company's future success
will depend to a significant extent on its ability to attract, train and
retain highly skilled and effective technical, management, and sales and
marketing personnel. Competition for such personnel in the computer software
industry is intense. The Company has from time to time experienced difficulty
in locating candidates with appropriate qualifications. There can be no
assurance that the Company will be successful in attracting or retaining such
personnel, and the failure to attract or retain such personnel could have a
material adverse affect on the Company's business and results of operations.
Properties.
The Company's principal administrative, sales, marketing, support and
software research and development facility is located in approximately 6,000
square feet of space in Atlanta, Georgia. This facility is leased to the
Company through March 2002. The Company also leases a facility of
approximately 4,500 square feet in Charlotte, North Carolina, through June
2002, which it does not currently occupy and which the Company is attempting
to sublease. Previously, that facility housed six services personnel, who
either have been transferred to the Atlanta offices or are located at customer
sites. The Company believes that its current facilities are adequate for its
needs through the end of 1999, and that, should it be needed, suitable
additional or alternative space will be available in the future on
commercially reasonable terms.
12
<PAGE>
SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------------
1998 1997 1996
----------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C>
STATEMENT OF OPERATIONS DATA
Revenues
Services and other...................... $ 3,829,364 $5,042,570 $3,716,034
Software................................ 549,840 214,500 175,000
----------- ---------- ----------
Total revenues........................ 4,379,204 5,257,070 3,891,034
----------- ---------- ----------
Operating expenses
Direct costs--services.................. 1,424,442 1,486,058 1,288,782
Direct costs--software.................. 177,864 111,264 0
Sales and marketing..................... 1,855,451 621,884 340,860
General and administrative.............. 1,716,029 1,276,736 408,538
Depreciation and amortization........... 167,384 94,041 31,518
Research and development................ 1,407,179 377,057 3,365
----------- ---------- ----------
Total expenses........................ 6,748,349 3,967,040 2,073,063
----------- ---------- ----------
Income (loss) from operations............. (2,369,145) 1,290,030 1,817,971
Other income (expenses)................... 462,377 (174,448) 2,413
Income (loss) before provision for income
taxes.................................... (1,906,788) 1,115,582 1,820,384
Provision for income taxes................ 0 218,922 0
Net income (loss)--historical............. (1,906,768) 896,660 1,820,384
Pro forma provision for income taxes...... 0 186,000 686,000
Pro forma net income (loss)............... (1,906,768) 710,660 1,134,384
Pro forma earnings (loss) per share--
diluted.................................. $ (0.54) $ 0.23 $ 0.50
Weighted average shares outstanding--
diluted.................................. 3,557,380 3,100,898 2,287,855
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31
------------------------
1998 1997
----------- -----------
(UNAUDITED)
<S> <C> <C>
BALANCE SHEET DATA
Current assets........................................
Cash and cash equivalents........................... $ 6,099,689 $ 6,943,351
Accounts receivable, net of allowance............... 449,505 1,146,483
Investments......................................... 2,124,265 1,046,562
Prepaid expenses.................................... 203,256 197,956
----------- -----------
Total current assets.............................. 8,876,715 9,334,352
----------- -----------
Property and equipment, net........................... 767,370 548,209
Other assets
Software development costs, net..................... 244,469 422,333
Other............................................... 6,281 10,305
----------- -----------
Total assets...................................... 9,894,835 10,315,199
----------- -----------
Current liabilities................................... 128,347 320,042
Long term liabilities................................. 45,202 60,036
----------- -----------
Total liabilities................................. 173,549 380,078
----------- -----------
Common stock.......................................... 3,579 3,251
Additional paid-in-capital............................ 11,222,888 9,530,283
Retained earnings..................................... (1,505,181) 401,587
----------- -----------
Total equity...................................... 9,721,286 9,935,121
----------- -----------
Total liabilities and equity...................... 9,894,835 10,315,199
=========== ===========
</TABLE>
13
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
Overview
International CompuTex, Inc. ("ICI" or the "Company") is a software
technology company that develops, markets and supports enterprise-wide
client/server solutions. through its ItemQuest(TM) product suite. This suite
of products focuses on allowing manufacturing and engineering industries to
quickly find and retrieve existing parts for re-use throughout a business
enterprise and on vendor management. In addition to its Windows and Unix
ItemQuest offerings, the Company also provides an Internet/Intranet CSM
solution through its Java based ItemWeb(TM) product. The Company also provides
CSM and PDM (Product Data Management) consulting and implementation services
for the engineering and manufacturing industries.
Throughout its history, ICI has provided a wide variety of services to IBM,
including product development and, on a subcontract basis, customer
installation, implementation and customization services relating to IBM's PDM
product, ProductManager. Through December 1997, ICI derived the great majority
of its revenues from consulting and implementation services rendered directly
to IBM or as a subcontractor to IBM customers.
Beginning in 1995, the Company has developed ItemQuest, a classification and
search solution for CSM applications, that allows users to search, select and
re-use product data design and manufacturing information based on engineering
and manufacturing attributes. ItemQuest, which has the flexibility to be
integrated into existing software or to operate as a stand-alone system,
provides economic and strategic benefits to discrete manufacturing companies
by improving design, productivity, rationalization of parts, and the
implementation of strategic supplier relationships. It enables manufacturers
to reduce design and development costs, increase procurement efficiencies, and
shorten time to market. Management believed that the basis for the Company's
next stage of growth would be the further development, delivery, support and
evolution of ItemQuest and ItemWeb. Throughout 1998, the Company continued
making its planned transition from a services oriented business to a solutions
oriented business combining products and services. While the Company was
experienced in software development as part of custom development contracts,
it had no previous experience in the distribution and maintenance of its own
product prior to 1997. In attempting to be successful with ItemQuest, the
Company invested approximately $3.5 million in 1998 and has planned, prior to
the announcement of the proposed Merger, over the next six to twelve months to
invest approximately another $4 million of the total $9.3 million proceeds of
its initial public offering and $2.8 million proceeds from the IHS private
placement. This investment was used to develop and implement a strategy for
distribution, customer service, maintenance, pricing, marketing and sales.
ICI began development work on ItemQuest in April 1995. In the last quarter
of 1996, the Company began generating ItemQuest revenues from four customers
in a "controlled availability program". The product became generally available
in April 1997. Management anticipated that, beginning in the second half of
1998, there would be a substantial increase in revenues generated by ItemQuest
license fees as well as customer implementation and customization services
related to ItemQuest. That did not happen. There were no license fees
generated by new customers in the third and fourth quarters of 1998.
Furthermore, there can be no assurance that the efforts to develop and market
ItemQuest will be successful or profitable. In addition, as expenses related
to ItemQuest increased and anticipated PDM services revenues declined in 1998,
the Company failed to remain profitable. Even if the development and marketing
of ItemQuest would become successful, there can be no assurance as to when, if
ever, ItemQuest results would represent a substantial portion of the Company's
revenues or net income.
Increasingly, it has become apparent to the Company's management that to
dramatically expand sales in the CSM market, the Company must ally itself with
a supplier of electronic component databases that can be accessed using
ItemQuest. IHS is one of the main independent providers of this type of data
through its CAPSXpert product line. In early 1998, the Company and IHS entered
into a Strategic Business Alliance, integrating IHS' electronic component
databases with ItemQuest under an agreement providing for joint
14
<PAGE>
marketing and sales efforts. At about the same time, an IHS affiliate, Thybo
New Ventures, Ltd., invested $2.85 million in the Company, acquiring
approximately 8.4% of the Company's common stock in a private placement of
300,000 shares at $9.50 per share. Since entering into this relationship, the
Company and IHS have continued to work closely together with a variety of
customers and prospects.
The Company and IHS also have recognized that in order to enhance the market
for their products it is important to establish strategic relationships with
sellers of related products, such as vendors of Enterprise Resource Planning
(ERP) and Supply Chain Planning (SCP) software solutions. To enhance their
ability to negotiate such a marketing relationship, the Company and IHS agreed
in mid-1998 to seek out those relationships on a coordinated basis. To date,
those efforts have not resulted in a definitive relationship with ERP or SCP
vendors. Efforts in those areas continue at this time.
In September 1998, IHS approached the Company to discuss increasing its
investment in the Company or combining the operations of the Company with an
entity controlled by IHS. These informal discussions evolved into a more
concrete proposal, culminating in a Letter of Intent that was negotiated and
then ultimately signed on November 24, 1998.
THE COMPANY
Results of Operations
The following table presents for the periods indicated the percentage
relationship of certain statement of operations data items to total revenues.
<TABLE>
<CAPTION>
PERCENTAGE OF TOTAL REVENUES
--------------------------------
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
STATEMENT OF OPERATIONS DATA
Revenues
Services and other.......................... 87.4% 95.9% 95.5%
Software.................................... 12.6 4.1 4.5
--------- --------- ---------
Total revenues............................ 100.0 100.0 100.0
--------- --------- ---------
Operating expenses
Direct costs--services...................... 32.5 28.3 33.1
Direct costs--software...................... 4.1 2.1 0.0
Selling and marketing....................... 42.4 11.8 8.8
General and administrative.................. 39.2 24.3 10.5
Depreciation and amortization............... 3.8 1.8 0.8
Research and development.................... 32.1 7.2 0.1
--------- --------- ---------
Total operating expenses.................. 154.1 75.5 53.3
--------- --------- ---------
Operating income (loss)....................... (54.1) 24.5 46.7
Other income/(expenses)....................... 10.6 (3.3) 0.1
--------- --------- ---------
Income before taxes........................... (43.5) 21.2 46.8
--------- --------- ---------
Provision for income taxes.................... 0.0 4.2 0.0
--------- --------- ---------
Net income--historical........................ (43.5) 17.0 46.8
--------- --------- ---------
Pro forma provision for taxes................. 0.0 3.5 17.6
--------- --------- ---------
Pro forma net income.......................... (43.5)% 13.5% 29.2%
========= ========= =========
</TABLE>
15
<PAGE>
Revenues
Total revenues decreased 16.7% from $5,257,070 in 1997 to $4,379,204 in
1998. This decrease in operating revenues was due primarily to the decrease in
demand for ICI's software services, particularly related to product
development efforts for IBM's ProductManager. In 1998, 87.4%, or $3,829,364,
came from software services, and 12.6%, or $549,840, came from ItemQuest
license fees. In 1997, 95.9% of the Company's revenues, or $5,042,570, came
from software services, and 4.1% of the revenues, or $214,500, came from
ItemQuest license fees.
Total revenues increased 35.1% from $3,891,034 in 1996 to $5,257,070 in
1997. This increase in operating revenues was due primarily to the increase in
demand for ICI's software services, particularly related to product
development efforts for IBM's ProductManager, and the increase in billing
volume generated by additional personnel hired to provide those services. In
1997, 95.9% of the Company's revenues, or $5,042,570, came from software
services, and 4.1% of the revenues, or $214,500, came from ItemQuest license
fees. In 1996, 95.5% of the Company's revenues, or $3,716,034, came from
software services, and 4.5%, or $175,000, came from license fees. The
Company's business continued to be heavily reliant on IBM, with 72% of
revenues for 1997, or approximately $3,800,000, compared to 70% of revenues
for 1996, or approximately $2,740,000, for services to IBM or related to IBM's
ProductManager software product.
Management's objectives for revenues for 1998 and beyond were twofold: 1)
increase non-IBM revenues as a percentage of total revenues; and 2) increase
ItemQuest and ItemWeb revenues as a percentage of total revenues. Although
those objectives were achieved, the level of revenues, particularly for
ItemQuest, was significantly below the expectations of the Company's
management.
Direct Costs
Direct costs for services, consisting of payroll-related expenses, decreased
$61,616, or 4.1%, from $1,486,058, or 28.3% of revenues in 1997, to
$1,424,442, or 32.5% of revenues, in 1998. The decrease in direct costs
primarily reflects the decreased volume of business from 1997 to 1998. The
increase in direct costs as a percent of revenues is primarily due to better
margins from fixed bid contracts in 1997 compared to 1998.
Direct costs for software consists of amortization of software development
costs. Direct costs for software increased $66,600, or 59.8%, from $111,264,
or 2.1% of revenues, in 1997 to $177,864, or 4.1% of revenues, in 1998. This
increase was caused by the amortization of software development costs for the
entire year in 1998 versus part of the year in 1997. Software development
costs of $276,372 were capitalized in 1996, but amortization did not start
until May 1997, when ItemQuest was available for general release to customers.
Direct costs for services, consisting of payroll-related expenses, increased
15.3% from $1,288,782, or 33.1% of revenues, in 1996 to $1,486,057, or 28.3%
of revenues in 1997. The increase in direct costs primarily reflects the
increased volume of business from 1996 to 1997 and increasing labor costs in
the high technology market. The decrease in direct costs as a percent of
revenues is primarily due to increased margins from fixed bid contracts in
1997.
Direct costs for software increased from $0, or 0.0% of revenues, in 1996 to
$111,264, or 2.1% of revenues, in 1997. This increase was caused entirely by
the amortization of software development costs in 1997. Software development
costs of $276,372 were capitalized in 1996, but amortization did not start
until May 1997, when ItemQuest was available for general release to customers.
Sales and Marketing
Selling and marketing expenses increased $1,233,567, or 198.4%, from
$621,884, or 11.8% of revenues, in 1997, to $1,855,451, or 42.4% of revenues,
in 1998. Payroll-related sales and marketing expenses increased
16
<PAGE>
$706,454, or 237.7%, from $297,188 in 1997 to $1,003,642 in 1998, as a result
of increased sales and marketing personnel added in accordance to the
Company's business plan. Other sales and marketing expenses, including travel
entertainment and trade shows increased $527,113, or 162.3%, from $324,696 for
1997 to $851,809 for 1998, primarily because of increased expenses for trade
shows, marketing materials, research services, and the set-up of an office in
the United Kingdom.
Sales and marketing expenses increased 82.3% from $340,860, or 8.8% of
revenues, in 1996 to $621,884, or 11.8% of revenues, in 1997. Payroll-related
sales and marketing expenses increased 206.5% from $96,952 in 1996 to $297,188
in 1997, primarily as a result of increased sales personnel. Other sales and
marketing expenses, including travel entertainment and trade shows increased
33.1% from $243,908 for 1996 to $324,696 for 1997, primarily because of
increased expenses for trade shows and marketing materials.
General and Administrative
General and administrative expenses were $1,716,029, or 39.2% of revenues,
in 1998 compared to $1,276,736, or 24.3% of revenues, in 1997, an increase of
$439,293, or 34.4%. Payroll-related expenses increased $49,532, or 16.4% from
$301,354 in 1997 to $350,886 in 1998, reflecting a slight increase in
administrative personnel and an increase in salaries. Insurance expense
increased $94,446, or 96.0%, from $98,365 in 1997 to $192,811 in 1998,
primarily because of the addition of Directors and Officers insurance
necessitated by the addition of outside directors in August 1997.
General and administrative expenses were $1,276,736, or 24.3% of revenues,
in 1997 compared to $408,538, or 10.5% of revenues, in 1996, an increase of
212.5%. The biggest factor in this increase was a non-recurring non-cash
charge of compensation for $389,282 resulting from stock options granted to
employees in January 1997. Payroll-related expenses increased 339.1% from
$68,625 in 1996 to $301,354 in 1997 as administrative personnel were added to
accommodate the increase in the Company's revenues and assets and the
additional expenses related to being a public company. In addition, the
Company moved to a larger office in Charlotte in June 1997, and the Company
expanded its Atlanta location in June 1997. As a result, rent increased 83.2%
from $79,495 in 1996 to $145,662 in 1997.
Depreciation
Depreciation increased $73,343, or 78.0% from $94,041, or 1.8% of revenues,
in 1997 to $167,384, or 3.8% of revenues, in 1998. The main factor for this
increase was additional fixed assets, principally computer equipment, office
furniture and leasehold improvements, in 1998 versus 1997.
Depreciation increased 198.4% from $31,518, or 0.8% of revenues, in 1996 to
$94,041, or 1.8% of revenues, in 1997. The main factor for this increase was
additional fixed assets, principally computer equipment, office furniture and
leasehold improvements, in 1997 versus 1996.
Research and Development
Research and development expenditures consist exclusively of engineering
personnel costs. The Company expended $1,407,179, or 32.1% of total revenues,
for research and development in 1998 compared to $634,333, or 12.1% of
revenues, for 1997, an increase of $772,846, or 121.8%. This increase
reflected the hiring of additional development personnel for the Company's
ItemQuest and ItemWeb products. Of the amounts expended, the entire amount was
expensed in 1998, and $377,057 was expensed and $257,276 was capitalized in
1997. The Company began expensing research and development expenditures in
July 1997. Management expects that a significant level of research and
development expenses will be required to be competitive in the future in the
CSM marketplace.
17
<PAGE>
The Company expended $634,333, or 12.1% of total revenues, for research and
development in 1997 compared to $279,737, or 7.2% of revenues, for 1996, an
increase of 126.8%. This increase reflected the hiring of additional
development personnel for the Company's ItemQuest and ItemWeb products. Of the
amounts expended, $257,205 was capitalized in 1997, and $276,372 was
capitalized in 1996. The Company began expensing research and development
expenditures in July 1997.
Other Income (Expenses)
Other income/(expenses) (net) changed from an expense of $174,448 in 1997 to
income of $462,377 in 1998. This was a result of investment income earned on
the Company's cash reserves in 1998 compared to 1997 where a one-time interest
charge related to the Company's IPO caused interest expense of $473,259.
Other income/expenses (net) changed from interest income of $2,413 in 1996
to a net expense of $174,448 (comprised of $240,836 of interest income,
$57,975 of investment income from dividends and gains, and $473,259 of
interest expense) in 1997. Included in the interest expense for 1997 was a
non-recurring non-cash charge of $319,241 that was a result of warrants issued
by the Company's original stockholders in connection with the Company's Senior
Debentures. The Company determined that the warrants issued in connection with
the Senior Debentures had a fair market value of $2.72 per warrant or an
aggregate of $319,241, based upon 117,368 warrants granted. An initial non-
cash charge to interest was recognized in first quarter 1997. As a result of
the Company's initial public offering, the Senior Debentures were prepaid in
May 1997, and the balance of the non-cash charge ($297,071) was recognized in
second quarter 1997. This value ascribed to the warrants was deemed to be a
contribution to capital by the original stockholders of the Company and
treated as additional interest paid to the holders of the Senior Debentures.
The Company's original stockholders have offered to redeem these warrants at
the Closing of the Merger.
Provision for Income Taxes
The Company was not profitable in 1998 and consequently incurred no income
tax expense.
Prior to the Company's initial public offering, the Company had elected to
be treated as an S Corporation pursuant to the Internal Revenue Code for
federal and state income tax purposes. The income of an S Corporation is
taxable to the individual stockholders and is distributable to the
stockholders without any further tax consequences. The stockholders revoked
the S Corporation status on April 30, 1997 immediately prior to the closing of
the Company's initial public offering, and the Company became taxable as a C
Corporation from that date forward. A pro forma provision for income taxes has
been presented which represents income taxes that would have been provided had
the Company operated as a C Corporation throughout its history.
The historical provision for income taxes for 1997 was $218,922. The pro
forma provision for taxes for 1997 was $186,000, resulting in a combined
actual and pro forma income tax amount for 1997 of $404,922, or an effective
tax rate of 36.3%. In 1996, the Company was an S corporation for the entire
year. The pro forma provision for income taxes for 1996 was $686,000, or an
effective tax rate of 37.7%.
Net Income
The Company incurred a net loss of $1,906,768 in 1998. This resulted from
the addition of expenses in research and development, sales and marketing, and
administration in line with the Company's business plan and the decline of
PDM-related service revenues combined with slower than expected growth in CSM-
related revenues.
The Company realized pro forma net income of $710,660, or 13.5% of revenues,
in 1997 compared to $1,134,384, or 29.2% of revenues in 1996. Net income
declined both in absolute terms and as a percentage of
18
<PAGE>
revenues in 1997 primarily because of two factors: 1) the previously discussed
non-recurring charges for compensation related to options ($389,282) and the
non-recurring interest charges in connection with the Company's Senior
Debentures ($319,241 related to warrants and $132,650 related to financing
costs); and 2) the significant increase in the Company's expenses related to
the development and marketing of ItemQuest.
Liquidity and Capital Resources
The Company's working capital decreased $265,942 from $9,014,310 as of
December 31, 1997 to $8,748,368 as of December 31, 1998. This decrease
principally reflects proceeds received from the Company's private equity
placement in January 1998 offset by cash used in operations and investing
activities during 1998. In 1998, the Company used net cash in operations of
$930,735 as compared to cash provided by operations of $1,683,010 in 1997. In
1998, the Company used net cash in investing activities of $1,464,247 as
compared to net cash used in investing activities of $1,777,632 in 1997. Cash
used in investing activities for 1998 resulted from an increase in short-term
investments of $1,077,703 and acquisition of fixed assets totaling $386,544.
Cash provided by financing activities of $1,551,320 in 1998 resulted primarily
from proceeds received from the Company's private equity placement totaling
$1,674,798 in first quarter 1998 offset by the final distribution to
S Corporation stockholders of $123,003.
IHS
Information Handling Services Group Inc. is a leading international
information publisher, with annual sales in excess of $415 million.
Headquartered in Colorado with operations throughout the world, IHS Group
companies serve the information needs of a variety of technical, professional
and business markets.
Information Handling Services Inc. (IHS), a subsidiary of IHS Group, is a
leading publisher of engineering related technical information databases. IHS'
technical information collections include international and national industry
standards; corporate standards; military/federal specifications, standards and
related databases; government parts and logistics data; federal procurement
regulations; electronic component databases; and manufacturer and distributor
catalogs.
IHS' CAPSXpert product line consists of electronic component databases, with
extensive information on more than five million electronic and electro-
mechanical parts from over 1,500 manufacturers. The CAPSXpert product line is
comprised of four databases:
. The Semiconductors database consists of information on semiconductor
devices and integrated circuits.
. The Printed Circuit Board (PCB) Connectors database is comprised of
information on printed circuit board connectors.
19
<PAGE>
. The Passives database includes information on resistors, capacitators
and inductors.
. The Miltipin Cylindrical Connectors database contains information on
military cylindrical connectors.
The CAPSXpert databases are available in a variety of platforms and media.
HOLDINGS AND MERGER SUB
Holdings was formed as a Delaware corporation on January , 1999. Merger Sub
was formed as a Georgia corporation on January , 1999. Neither corporation has
engaged in business operations since formation. The corporations were formed
to negotiate and execute the Merger Agreement, Formation Agreement and other
related agreements.
Immediately prior to the Merger closing, IHS will transfer the CAPSXpert
product line to Holdings, and Holdings will issue shares of common stock to
the Founders in exchange for a portion of their Common Stock in the Company.
As a result of the Merger, Holdings would own 100% of the issued and
outstanding shares of the Company. It is currently anticipated that after the
Merger closing Holdings may transfer its operating assets to the Company, in
which event it will continue its existence as a non-operating holding company
of ICI.
Following the Merger, Merger Sub would cease its separate existence, as it
will merge into the Company and not survive the Merger.
SPECIAL FACTORS
BACKGROUND OF THE TRANSACTION
The Company made an underwritten initial public offering of its Common
Stock, effective April 29, 1997, selling 1,125,000 shares of Common Stock at
$9.50 per share, with aggregate gross proceeds of $10,687,500. Since becoming
a public company, the Company has focused on expanding its software licensing
business, concentrating on the market for Component Supplier Management (CSM)
software solutions. Increasingly, it has become apparent that to dramatically
expand sales in the CSM market, the Company must ally itself with a supplier
of electronic component databases that can be accessed using the Company's
ItemQuest CSM software solution. Currently one of the main independent
providers of this type of data is IHS, through its CAPSXpert product line. In
early 1998, the Company and IHS entered into a Strategic Business Alliance,
integrating IHS' electronic component databases with ItemQuest under an
agreement providing for joint marketing and sales efforts. At about the same
time, an affiliate of IHS, Thybo New Ventures, Ltd., invested $2.85 million in
the Company, acquiring approximately 8.4% of the Company's common stock in a
private placement of 300,000 shares at $9.50 per share. Since entering into
this relationship, the Company and IHS have worked closely together with a
variety of customers and have continued to jointly pursue customer
opportunities.
The Company and IHS also have recognized that in order to enhance the market
for their products it is important to establish strategic relationships with
sellers of related products, such as vendors of Enterprise Resource Planning
(ERP) and Supply Chain Planning (SCP) software solutions. To enhance their
ability to negotiate such a marketing relationship, the Company and IHS agreed
in mid-1998 to seek out those relationships on a coordinated basis. To date,
those efforts have not resulted in a definitive relationship with ERP or SCP
vendors. Efforts in those areas continue at this time.
Since becoming a public company, the price of the Company's common stock has
fluctuated between $1.25 and $12.875, reaching a low of $1.25 in October 1998.
Management of the Company believes that the disappointing performance of its
stock price is attributable to a variety of factors, including the Company's
failure to generate substantial software licensing revenues after shifting its
emphasis from software services to product sales, market uncertainty about
relatively small capitalization providers of software solutions and overall
uncertainty in the high tech securities market.
In September 1998, IHS approached the Company about the possibility of
increasing its investment in the Company or combining the operations of the
Company with an entity controlled by IHS. These informal
20
<PAGE>
discussions evolved into a more concrete proposal, culminating in a Letter of
Intent that was negotiated and then ultimately signed on November 24, 1998. In
negotiating the Letter of Intent, IHS expressed its position that it was
important for the success of a combined entity that the Founders of the
Company maintain a substantial continuing equity position in that entity. The
terms of the Letter of Intent, providing both for the creation of a new entity
combining the Company and the CAPSXpert product line, the exchange of certain
Company shares for Holdings shares and the payment of $9.50 per share for
remaining outstanding shares of the Company, were negotiated jointly on behalf
of the Company by an independent member of the Board of Directors, Leo
Benatar, and its CEO, Haim E. Dahan.
Prior to submitting a proposed letter of intent, IHS' affiliate, Thybo New
Ventures, Ltd., amended its Schedule 13D, as filed with the SEC regarding its
investment in the Company. The amendment reflected a change in its intentions
and those of its affiliates, from passively holding its shares in the Company,
to the possibility of increasing its investment in the Company or a
transaction in which the Company would be combined with an entity controlled
by IHS or its affiliate. At the same time, the Company issued a press release
alerting the investment community to this change. Shortly after this
announcement, the market price of Common Stock of the Company increased to the
approximate range of $5.00 to $6.00.
Following the execution of the Letter of Intent, each of the parties
undertook an extensive due diligence process with respect to the other party.
The Company investigated the operations, contracts and assets of the CAPSXpert
product lines of IHS, while IHS performed similar due diligence with respect
to the Company. After the parties completed those efforts, they began the
negotiation of definitive agreements to effect the Merger and the related
transactions.
To evaluate the merger and related transactions on behalf of the public
stockholders of the Company, the Board of Directors formed a Special
Independent Committee of the Board of Directors, consisting of Leo Benatar and
Hugh Sawyer, the two independent members of the Board of Directors. That
Committee selected and retained Interstate/Johnson Lane as financial advisor
to analyze the price, terms and other conditions of the Merger Agreement, and
to render an opinion to the Board of Directors as to the fairness of the
merger consideration, from a financial point of view, to the public
stockholders of the Company. Following that analysis, and based upon that
opinion, the Special Independent Committee concluded that the terms of the
Merger are fair to and in the best interests of the Company and its
stockholders, and recommended that the Board of Directors approve the Merger
Agreement and recommend its approval by the stockholders. The Board of
Directors as a whole then unanimously approved the Merger Agreement and
recommended its approval by the stockholders. A more detailed description of
those recommendations is set forth in "--Reasons for the Merger;
Recommendation of the Board of Directors," below.
REASONS FOR THE MERGER; RECOMMENDATION OF THE BOARD OF DIRECTORS
On January 8, 1999, the Special Independent Committee determined that the
Merger and the terms and provisions of the Merger Agreement are fair to and in
the best interests of the stockholders of the Company, and recommended to the
Board of Directors of the Company that it approve the Merger Agreement. At a
special meeting held following the Special Independent Committee's
determination, at which all directors of the Company were present, the Board
of Directors of the Company considered the recommendation of the Special
Independent Committee. Noting that Ms. Salem and Messrs. Dahan and Galvin are
interested parties under the GBCC, those three directors excused themselves
from voting on this issue, and Messrs. Benatar and Sawyer unanimously
concluded that the terms and provisions of the Merger Agreement and the Merger
are fair to and in the best interests of the Company and its stockholders,
approved the Merger Agreement, and recommended that the stockholders approve
and adopt the Merger Agreement. The Board of Directors further concluded that
this procedure constituted the action of the entire Board.
In reaching its determination to approve and recommend that the stockholders
of the Company approve the Merger Agreement, the Board of Directors considered
the following factors, each of which, in the opinion of the Board, supported
such determination:
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<PAGE>
(a) A comparison of the risks and benefits of the Merger against the
risks and benefits of the other strategic alternatives available to the
Company, including continuing as an independent entity. Of the alternatives
available to the Company, the Merger was determined by the Board of
Directors to be the option that would yield the best results to the
stockholders of the Company from a financial point of view. In particular,
the Merger was determined to be more favorable to the stockholders than the
Company continuing as an independent entity because the Company would
continue to experience difficulty in competing against integrated providers
of both CSM software and electronic component data. See "--Background of
the Transaction."
(b) The $9.50 per share of Common Stock to be paid to stockholders in the
Merger represents a premium of approximately 62% over the closing price of
$5.875 per share of Common Stock on January 7, 1999, the date immediately
preceding the January 8, 1999 Special Board Meeting. The Board of Directors
paid particular attention to the fact that shares of the Company's Common
Stock have traded at a range from a low of $1.25 to a high of $10.125
during the 52 weeks prior to that date. Given the historical market price
of the Company's Common Stock, the Merger offered a substantial premium to
stockholders.
(c) The written opinion, dated as of January 8, 1999, of
Interstate/Johnson Lane (and the analysis presented to the Special
Independent Committee underlying such opinion) to the effect that, based on
the assumptions made, matters considered and limits of the review
undertaken by Interstate/Johnson Lane, was that the Cash Merger Price to be
received by stockholders of the Company in the Merger is fair, from a
financial point of view, to the public stockholders of the Company. See "--
Opinion of Interstate/Johnson Lane, Financial Advisor to the Company."
(d) The terms and conditions of the Merger Agreement and related matters
were the product of arm's-length negotiations in which the Company was
assisted by its legal and financial advisors. See "Summary of the Merger
Agreement."
(e) The terms and the conditions of the Formation Agreement are
reasonable and not in conflict with the best interests of the public
stockholders of the Company. Under that Agreement, among other things, the
Founders, who in the aggregate own approximately 59% of the issued and
outstanding shares of the Company's Common Stock, have agreed to exchange
approximately 74% of their Common Stock in the Company for common stock of
Holdings. Remaining Company shares held by the Founders will be converted
into the right to receive the same price per share as shares held by public
stockholders. See "--Interests of Certain Persons in the Merger."
(f) There is a relatively limited trading market for the Company's
outstanding Common Stock. The small public float (i.e., shares held by
public shareholders) is believed by the Board and the Special Independent
Committee to negatively impact the liquidity of the market for the public's
shares. The public float is 1,123,760 shares of the Company's Common Stock,
if shares held by the Founders and by IHS or its affiliates are excluded.
With the Company's price fluctuating between $1.25 per share and $4.25 per
share during the weeks prior to November 24, 1998, there was a risk that
the Company's common stock would cease to qualify for listing on the Nasdaq
National Market, further impairing the market for the Company's stock.
(g) Availability of dissenters' rights of appraisal under Georgia law.
See "Dissenters' Rights of Appraisal."
The Board of Directors and the Special Independent Committee considered the
fact that if the Merger is approved, the stockholders of the Company (other
than the Founders) will not participate in the future growth of the Company.
Because of the risks and uncertainties associated with the Company's future
prospects, the Board and the Special Independent Committee concluded that this
detriment was not quantifiable. The Board and the Special Independent
Committee also concluded that obtaining a significant cash premium for the
Common Stock now was preferable to enabling the holders of Common Stock to
have a speculative potential return in the future.
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<PAGE>
THE BOARD OF DIRECTORS OF THE COMPANY BELIEVES THAT THE MERGER IS FAIR TO
AND IN THE BEST INTERESTS OF THE COMPANY AND ITS STOCKHOLDERS AND, UPON THE
RECOMMENDATION OF THE SPECIAL INDEPENDENT COMMITTEE, RECOMMENDS APPROVAL OF
THE MERGER AGREEMENT TO ITS STOCKHOLDERS.
PURPOSES AND REASONS OF IHS, HOLDINGS AND MERGER SUB FOR THE MERGER
The purposes of the Merger from the perspective of IHS and its affiliates
are (a) to enable IHS, through Holdings and Merger Sub, to make an investment
in, and obtain a controlling interest in, the Company, and (b) to attempt to
achieve certain business efficiencies and synergies by seamlessly combining
the marketing and sales efforts of the two companies. IHS, Holdings and Merger
Sub (collectively, "Merging Group") believe that the Merger is an attractive
investment opportunity at this time based upon, among other things, the past
performance of the Company and its future business prospects and the
reciprocal nature of the Company's ItemQuest product and the CAPSXpert product
line of IHS. The transaction was structured as a cash merger in order to
accomplish the acquisition in a single step, without the necessity of
financing separate purchases of shares in a tender offer or in open market
purchases while at the same time not materially disrupting the Company's
operations.
The acquisition of the Company has been structured as a Merger pursuant to
which the Company will be the Surviving Corporation. After the Merger, the
Founders will retain an aggregate ownership interest of 16.389% in Holdings.
As the Surviving Corporation will be a wholly-owned subsidiary of Holdings,
the Founders will indirectly have a continuing ownership interest in the
Surviving Corporation. The Merging Group desires to have the Founders retain
this ownership interest in Holdings in order to: (i) preserve the corporate
identity of the Company; and (ii) help maintain existing relationships with
customers and potential customers of the Company.
OPINION OF INTERSTATE/JOHNSON LANE, FINANCIAL ADVISOR TO THE COMPANY
Interstate/Johnson Lane Corporation ("IJL") was engaged by the Company to
render an opinion with respect to the fairness, from a financial point of
view, of the per share cash consideration to be received by the Company's
public, non-employee, non-affiliate shareholders (the "Certain Shareholders")
upon consummation of the acquisition contemplated by the Merger Agreement
between the Company, IHS, Holdings and Merger Sub. IJL delivered its oral
opinion as to its fairness, as well as IJL's analysis, to the Special
Independent Committee on December 23, 1998, and delivered its written opinion
dated January 8, 1999 (the "IJL Opinion") to the effect that, as of the date
thereof, based on the assumptions, limitations and qualifications set forth
therein, the per share cash consideration to be received by the Certain
Shareholders upon consummation of the Merger is fair, from a financial point
of view, to such shareholders. The per share cash consideration was determined
based upon negotiations between the parties, without the involvement of IJL.
23
<PAGE>
IJL has consented to the inclusion of the IJL Opinion in this Proxy
Statement.
THE FULL TEXT OF THE IJL OPINION, WHICH SETS FORTH THE ASSUMPTIONS MADE,
PROCEDURES FOLLOWED, MATTERS CONSIDERED AND LIMITS ON THE REVIEW UNDERTAKEN,
IS ATTACHED AS EXHIBIT C TO THIS PROXY STATEMENT AND IS INCORPORATED HEREIN BY
REFERENCE. THE SUMMARY OF THE IJL OPINION SET FORTH HEREIN IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO THE FULL TEXT OF THE OPINION IN EXHIBIT C. THE
COMPANY SHAREHOLDERS ARE URGED TO READ THE IJL OPINION IN ITS ENTIRETY. THE
IJL ANALYSES AND OPINION WERE PREPARED FOR AND ADDRESSED TO THE BOARD OF
DIRECTORS OF THE COMPANY AND ARE DIRECTED ONLY TO THE FAIRNESS, FROM A
FINANCIAL POINT OF VIEW, OF THE PER SHARE CASH CONSIDERATION TO BE RECEIVED BY
THE CERTAIN SHAREHOLDERS UPON CONSUMMATION OF THE MERGER AND DO NOT CONSTITUTE
AN OPINION AS TO THE MERITS OF THE MERGER OR A RECOMMENDATION TO ANY COMPANY
SHAREHOLDER AS TO HOW TO VOTE IN CONNECTION WITH THE MERGER.
IJL is a nationally recognized investment banking firm and was selected by
the Company based on the firm's reputation and general investment banking
experience, including its experience in rendering fairness opinions. IJL, as
part of its investment banking business, is engaged in the valuation of
businesses and their securities in connection with mergers and acquisitions,
negotiated underwritings, competitive biddings, secondary distributions of
listed and unlisted securities, private placements and valuations for estate,
corporate and other purposes.
In arriving at its opinion dated January 8, 1999, IJL, among other things,
(i) reviewed the January 7, 1999 drafts of the Formation Agreement and Merger
Agreement; (ii) reviewed publicly available information including recent
Securities and Exchange Commission filings and shareholder communications for
the Company, which include the Company's Prospectus for its Initial Public
Offering of April 30, 1997, subsequent Forms 10-Q, the Company's 1997 Form 10-
K, and Forms 8-K filed by the Company; (iii) reviewed annual audited financial
statements for the year ended December 31, 1997 and interim unaudited
financial statements of the Company through November 30, 1998 that were
provided by the Company; (iv) met with members of the senior management teams
of the Company and IHS to discuss their respective businesses, financial
conditions and operating results; (v) compared certain financial and stock
market data for the Company with similar data for selected publicly held
developers of enterprise software, component and supplier management software,
and computer aided design software, respectively; (vi) reviewed the financial
terms of certain recent acquisitions in the software industry; (vii) reviewed
acquisition premiums that have been paid to shareholders of publicly held
acquisition targets in the software industry in 1998; (viii) reviewed the
trading history for the common stock of the Company; (ix) reviewed various
published news articles and research reports on the enterprise software
industry; and (x) performed such other financial studies and analyses as it
deemed appropriate. IJL did not review a discounted cash flow analysis for the
Company, because only limited projections were available from the Company. IJL
did not review or consider any alternatives to the proposed Merger
transaction.
In rendering the opinion, IJL relied, without independent verification, upon
the accuracy and completeness of all financial and other information furnished
to IJL by or on behalf of the Company, other information used in arriving at
the opinion and other published information considered in its review. IJL was
not requested to and has not undertaken to verify independently the accuracy
and completeness of such information. To the extent that projections were
available, IJL relied upon the reasonableness of all projections provided by
the management of the Company and assumed that they were prepared in
accordance with accepted practice on bases reflecting the best currently
available estimates and good faith judgments of the Company's management. The
opinion is based upon the economic, monetary, market and other circumstances
existing and known to IJL as of the date of the IJL Opinion, and IJL assumed
that there have been no material changes in the assets, financial condition,
results of operations, business or prospects of the Company since the date of
the most recent financial statements made available to IJL. IJL has not made
or considered any independent evaluations or appraisals of the assets or
liabilities (contingent or otherwise) of the Company, nor was IJL furnished
with any such evaluations or appraisals.
24
<PAGE>
Consequently, IJL has not expressed any opinion regarding the value of any of
the Company's specific individual assets. IJL was not requested to, and
therefore did not, participate in the structuring or negotiating of the
proposed Merger transaction or any related transactions.
The following is a summary of the material financial analyses performed by
IJL to date in connection with providing its opinion to the Board of Directors
on January 8, 1999. Such summary does not purport to be a complete description
of the analyses performed by IJL. The preparation of a fairness opinion is a
complex process and is not necessarily susceptible to partial analysis or a
summary description. IJL's Opinion and analyses were one of several factors
considered by the Board of Directors in its evaluation of the Merger and
should not be viewed as the determining factor in the decision of the Board of
Directors or management with respect to the Cash Merger Price or the proposed
Merger.
Comparable Companies Analysis. Based on publicly available information and
First Call consensus earnings estimates, IJL reviewed and compared actual and
estimated selected financial, operating and stock market information and
financial ratios of the Company to groups of 16, five and four software
companies, respectively. (First Call compiles earnings estimates published by
selected research analysts for use by the investment community.) The Company
was compared to a group of 16 enterprise resource planning ("ERP") software
development companies consisting of: Aspect Development, Inc., Fourth Shift
Corporation, Gensym Corporation, Indus International, Inc., Logility, Inc.,
Made2Manage Systems, Inc., Manugistics Group, Inc., Mapics, Inc., ObjectShare
Inc., Project Software & Development, Inc., QAD, Inc., Ross Systems, Inc.,
Software AG Systems, Inc., Symix Systems, Inc., System Software Associates,
Inc. and Workgroup Technology Corporation (the "Selected Smaller ERP
Developers"). These companies were viewed as being similar in size to the
Company, and with one exception had equity market values below $500 million.
Aspect Development was included in this group, though its equity market value
is above $500 million, because it is the Company's most direct competitor and
offers products and services that compete directly with those of the Company.
The Company was also compared to a group of five larger ERP software
development companies consisting of: Computer Associates International, Inc.,
i2 Technologies, Inc., JD Edwards & Company, MicroStrategy, Inc. and Oracle
Corporation (the "Selected Larger ERP Developers). The Company was also
compared to a group of four computer aided design developers (the "Selected
CAD Developers") consisting of: Engineering Animation, Inc., ModaCAD, Inc.,
OrCAD, Inc. and Unigraphics Solutions, Inc. The three groups were used to
provide a perspective on the industry, as well as to allow comparisons between
different segments in the ERP market. The CAD Developers were used as a
comparison since the business of the Company has in the past contained some
elements of CAD. The historical financial information and ratios analyzed for
the companies are as of their respective most recent reported periods, as of
January 7, 1999. Earnings estimates and price-to-forward-earnings multiples
for the companies have been shifted to reflect calendar year ends. In the
analysis of comparable public companies, net cash (net debt less cash and cash
equivalents) is backed out of market value of capital computations (enterprise
value). Because a significant percentage of ERP developers have negative debt
balances (i.e. they have significant cash balances), cash is removed from
calculations of enterprise value in order to more accurately assess the
market's valuation of the Company's operations. The Company's last twelve
months' results were provided by the Company and reflected unaudited results
through November 30, 1998.
IJL's observations included, among other things, the following: The Company
had a compound annual growth rate in sales over the past three years of 13.3%
compared to the mean of 30.9% and median of 25.2% for the Selected Smaller ERP
Developers, a mean of 74.9% and a median of 37.9% for the Selected Larger ERP
Developers, and a mean of 40.6% and a median of 26.3% for the Selected CAD
Developers. The Company had an EBITDA margin for the last twelve months that
was -49.0%, while the EBITDA margins for the Selected Smaller ERP Developers
had a mean of -0.1% and a median of 8.4%. The Selected Larger ERP Developers
had a mean EBITDA margin of 22.4% and a median of 15.7% and the Selected CAD
Developers had a mean EBITDA margin of 13.9% and a median of 17.5%. (EBITDA
equals earnings before interest and taxes, depreciation, and amortization).
For the last twelve months, the Company had a net income margin of -42.6%,
compared to a mean of -8.6% and a median of 0.4% for the Selected Smaller ERP
Developers. The mean and median net income margin for the Selected Larger ERP
Developers were 11.4% and 7.3%, respectively. For the
25
<PAGE>
Selected CAD Developers, the net income margin median was 0.7% and the median
net income margin was 5.6%. (Net income is revenues less all expenses,
including taxes plus any other income. The Company had a net gain in other
income, composed primarily of interest income, in the last twelve months,
which decreased the size of its net loss).
IJL also observed, among other things, the following: the Company had a
market value of capitalization to sales multiple of 2.9 times compared to the
mean of 2.0 times and the median of 1.3 times for the Selected Smaller ERP
Developers. The mean and median market value of capitalization to sales
multiples for the Selected Larger ERP Developers were 6.5 times and 5.7 times,
respectively. For the Selected CAD Developers, the mean and median market
value of capitalization to sales multiples were 5.8 times and 5.6 times,
respectively. The market value of capitalization to sales ratio for the Merger
was 5.9 times. (Market value of capitalization equals the market value of
shareholders' equity plus net debt; net debt equals short term debt plus long
term debt less cash equivalents; in this analysis, if net debt was negative,
the net cash balance was subtracted from the market value of shareholders'
equity). The Company had negative multiples for market value of capitalization
to EBITDA, market value of capitalization to EBIT and market value of equity
to net income, which significantly limits the feasibility of making
comparisons of the Company's multiples to the Selected ERP Developers and
Selected CAD Developers' corresponding multiples. The mean and median for all
of the comparable companies' market value of capitalization to EBITDA
multiples were 24.1 times and 11.3 times, respectively. Mean and median market
value of capitalization to EBIT multiples for the entire group of comparable
companies were 37.1 times and 18.9 times, respectively. Market value of equity
to net income multiples for the entire comparable group had a mean of 78.7
times and a median of 44.8 times.
IJL also observed, among other things, the following: the Company had a
market value of equity to book value of equity multiple of 1.0 times. This
compares to the mean and median market value of equity to book value of equity
multiples for the Selected Smaller ERP Developers of 5.3 times and 3.5 times,
respectively. The Selected Larger ERP Developers had mean and median market
value of equity to book value of equity multiples of 12.7 times and 9.5 times,
respectively. The Selected CAD Developers had mean and median market value of
equity to book value of equity multiples of 5.7 times and 6.1 times,
respectively. P/E Ratios (the price of a stock relative to its earnings per
share, either historical or projected) of the Company were not compared to any
of the Selected ERP Developers or Selected CAD Developers, because the Company
has had negative earnings in the past twelve months. Future earnings
projections for the Company were not available since there is currently no
research coverage available for the Company.
Although the Selected Smaller ERP Developers, Selected Larger ERP Developers
and Selected CAD Developers were used for comparative purposes, none of such
companies is directly comparable to the Company. Accordingly, an analysis of
the results of such a comparison is not purely mathematical but involves
complex considerations and judgments concerning differences in historical and
projected financial and operating characteristics of the companies and other
factors that could affect the public trading values of the companies.
Comparable Transactions Analysis. IJL reviewed certain information relating
to ten completed mergers and acquisitions since June 1, 1995 in which a United
States ERP software development company was acquired, or was merged into
another entity (the "Selected ERP Software Transactions") in a transaction
with a value equal to or in excess of $5 million. Such analysis indicated that
the multiples of enterprise value to net sales for the Merger was 5.9 times,
compared to the mean and median multiples of 4.9 times and 3.7 times,
respectively, for the Selected ERP Software Transactions (enterprise value
equals equity value plus net debt, with net cash backed out of enterprise
value). For the acquisition of CADIS, Inc. by Aspect Development, the
Company's most direct competitor, the multiple of enterprise value to net
sales was 4.4 times. The multiples of enterprise value to operating cash flow
(EBITDA) and operating income (EBIT) are not available for the Company, since
the Company's last twelve months' EBITDA and EBIT are both negative. In
addition, equity value to net income figures were not applicable since the
Company had a net loss for the last twelve months. The equity value to book
value for the Merger was 3.4 times, compared to mean and median equity value
to book value multiples for the Selected ERP Software Transactions of 4.4
times and 4.3 times, respectively. In this analysis, most of IJL's emphasis
was placed on the multiples of enterprise value to net sales for the Selected
ERP Software
26
<PAGE>
Transactions, since IJL did not consider market value of equity to book value
of equity to be relevant for ERP software developers.
Premiums Paid Analysis. IJL reviewed certain information relating to
software industry transactions taking place between January 1 and December 31,
1998, in which a public company was acquired or merged into another entity.
The resulting group of 19 companies (the "Selected Premiums Paid
Transactions") were analyzed to determine the premiums paid relative to the
seller's stock price four weeks, one week and one day prior to the public
announcement of the acquisition of the acquired company. The premiums to be
paid for four weeks, one week and one day prior to public announcement for the
Merger are 61.7%, 117.1% and 58.3%, respectively, compared to the medians paid
of 25.6%, 38.2%, and 53.1%, respectively, for the Selected Premiums Paid
Transactions, assuming the public announcement took place on December 23,
1998.
Discounted Cash Flow Analysis. IJL did not perform a discounted cash flow
analysis to determine a range of present values for the Company. There were
limited projections available from the Company for 1999, and none available
for the year 2000 or beyond. In addition, the Company was unable to accurately
forecast its results for 1998, based on projections that were made by the
Company for fiscal year 1998.
Other Analyses. IJL reviewed various published research reports on Aspect
Development, other ERP software developers, the ERP software industry, and,
among other things, the investment opinions, stock price targets and earnings
estimates contained therein. In addition, IJL reviewed and analyzed the
historical trading prices and volumes for the Company common stock from the
date of its IPO (April 30, 1997) through January 7, 1999.
The summary set forth above describes the material analyses that IJL
performed, but does not purport to be a complete description of such analyses
or the analyses performed. The preparation of a fairness opinion is a complex
process and is not necessarily susceptible to partial analysis or a summary
description.
IJL has informed the Company that it believes that its analyses must be
considered as a whole and that selecting portions of its analyses without
considering all factors and analyses would create an incomplete view of the
analyses and processes underlying its opinion. IJL did not attribute any
particular weight to any analysis or factor considered but rather made
qualitative judgments as to the significance and relevance of each analysis
and factor. In its analyses, IJL relied upon numerous assumptions made by the
Company with respect to industry performance, general business and economic
conditions and other matters, many of which are beyond the control of the
Company, although IJL has informed the Company that it believes such
assumptions are reasonable. No company or transaction used as a comparison in
the analysis is identical to the Company or to the Merger. Additionally,
estimates of the value of businesses do not purport to be appraisals or
necessarily reflective of the prices at which businesses actually may be sold.
Because such estimates are inherently subject to uncertainty, IJL has informed
the Company that it does not assume responsibility for the accuracy of such
estimates, although it believes such estimates are reasonable. IJL's analyses
were prepared solely for purposes of its opinion rendered to the Board of
Directors regarding the fairness of the cash consideration to be received by
Certain Shareholders of the Company.
In performing its analyses, IJL made numerous assumptions with respect to
industry performance, general business, economic conditions and other matters,
many of which are beyond the control of the Company and IHS. The analyses
performed by IJL are not necessarily indicative of actual values, trading
values or actual future results which might be achieved, all of which may be
significantly more or less favorable than suggested by such analyses. Such
analyses were prepared solely as part of IJL's analysis of the fairness, from
a financial point of view, of the per share cash consideration to be received
by the Company's public nonaffiliate shareholders and were provided to the
Board of Directors of the Company. The analyses do not purport to be
appraisals or to reflect the prices at which a company might be sold. In
addition, as described above, the opinion of IJL was one of many factors taken
into consideration by the Board of Directors in making its determination to
approve the Merger. Consequently, the analyses described above should not be
viewed as determinative of the Board of Directors' or the Company managements'
opinion with respect to the value of the Company or a combination of the
Company and IHS. The Company placed no limitations on the scope of the
analysis or opinion expressed by IJL.
27
<PAGE>
For the services provided by IJL in connection with rendering the IJL
Opinion, IJL received a fee of $135,000. No portion of IJL's fee has been or
is contingent upon the consummation of the Merger. In addition, the Company
has agreed to reimburse IJL for its reasonable out-of-pocket expenses incurred
in connection with the Merger, but not to exceed $10,000 without the Company's
prior consent, and to indemnify IJL against certain liabilities, including
liabilities arising under federal securities laws.
IJL has advised the Company that, in the ordinary course of its business as
a full-service securities firm, IJL may, subject to certain restrictions,
actively trade the equity securities of the Company for its own account or for
the accounts of its customers and, accordingly, may at any time hold a long or
short position in such securities.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
General. In considering the recommendation of the Company's Board of
Directors that stockholders vote in favor of the Merger Agreement, you should
be aware that certain members of the Company's management and the Board of
Directors have interests in the Merger that are in addition to, and may be
deemed to be in conflict with, the interests of the stockholders of the
Company generally.
Officers of Merger Sub. Haim E. Dahan, who is currently the President, Chief
Executive Officer and Chairman of the Company, will, upon completion of the
Merger, become the President, the Chief Technology Officer and a director of
the Surviving Corporation and a director of Holdings. In addition, two other
members of the Company's Board of Directors will have continuing positions.
Michael J. Galvin, who currently is Vice President of Research and Development
of the Company, and Patricia Tuxbury Salem, who currently is Director of
Product Data Management Services of the Company, will, upon completion of the
Merger, retain the same positions as officers of the Surviving Corporation,
although neither will be a director of the Surviving Corporation. The two
independent directors of the Company, Messrs. Hugh E. Sawyer and Leo Benatar,
will not be directors of either Holdings or the Surviving Corporation upon
completion of the Merger. See "Directors and Executive Officers of the
Surviving Corporation."
Benefits Under Employment and Other Agreements. The Company currently does
not have formal employment agreements with any of the Founders. At the
Effective Time, the Surviving Corporation will enter into employment
agreements (each an "Employment Agreement") with Haim E. Dahan, Michael J.
Galvin and Patricia Tuxbury Salem. The Employment Agreements will each (a)
provide for annual bonus compensation and (b) provide for certain severance
payments. In addition, a stock option plan with respect to an aggregate amount
of 5% of the common stock of Holdings will be instituted by Holdings and the
Founders may participate in that plan, although it is not currently expected
that they will do so. No bonuses are payable to the Founders in connection
with the consummation of the Merger or related transactions. The chart below
describes the interests of the Founders in the Company both prior to and
following the Merger, and the benefits each Founder will receive upon
consummation of the Merger:
INTERESTS OF FOUNDERS PRIOR TO AND AFTER THE MERGER
<TABLE>
<CAPTION>
SHARES HELD IN
COMPANY PRIOR TO SHARES HELD IN
NAME MERGER(1) HOLDINGS AFTER MERGER
---- ---------------- ---------------------
<S> <C> <C>
Haim E. Dahan............................ 1,407,468 1,037,322
Michael J. Galvin........................ 331,171 244,077
Patricia Tuxbury Salem................... 275,973 203,396
James L. McAlarney, III.................. 55,194 40,679
Peter W. Jeng............................ 55,194 40,679
</TABLE>
- --------
(1) Of these shares, 77,737 shares held by Mr. Dahan, 18,291 held by Mr.
Galvin, 15,243 shares held by Ms. Salem, 3,049 shares held by Mr.
McAlarney and 3,049 shares held by Mr. Jeng are subject to warrants that
were granted to individuals who acquired debentures in a private placement
completed by the Company in January 1997. See "--Partial Reimbursement of
Warrant Spreads," below.
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<PAGE>
Partial Reimbursement of Warrant Spreads. In January 1997, the Company
completed a private placement of $1,115,000 in principal amount of debentures,
in a bridge financing prior to the Company's initial public offering of its
Common Stock. Seventeen individuals purchased the debentures, which were paid
in full out of the proceeds of the initial public offering in May 1997. Each
of these individuals received, in connection with his or her purchase of a
debenture, a warrant entitling the holder to purchase Common Stock from the
Founders after the initial public offering ("Debenture Holder Warrants"). A
total of 117,368 shares held by the Founders are subject to the Debenture
Holder Warrants.
The Debenture Holder Warrants are exercisable through January 17, 2000 at a
price equal to $5.70 per share. In connection with the Merger, the Founders
have given notice to each holder of the Debenture Holder Warrants, advising
them of the terms of the Merger and offering to retire the Debenture Holder
Warrants for a cash payment equal to the "spread" between the $9.50 Cash
Merger Price and the $5.70 Debenture Holder Warrant exercise price, or $3.80
per Warrant.
If the Founders retire all of the Debenture Holder Warrants, they will pay
an aggregate of $446,000, which represents the total "spread" on all 117,368
Debenture Holder Warrants. Under the Formation Agreement, IHS has agreed to
reimburse the Founders for 50% of "spread" paid by them in connection with the
retirement or exercise of the Debenture Holder Warrants. If any Debenture
Holder Warrants are not retired by the Closing date, the Founders and Holdings
will deposit $3.80 per Warrant share ($1.90 by each) into an escrow account,
to be held through January 17, 2000.
Exchange of Common Stock of the Company for Common Stock of Holdings. Prior
to the Merger, the Founders will be required under the terms of the Formation
Agreement to exchange approximately 74% of their shares of the Common Stock of
the Company, respectively, for shares of common stock of Holdings ("the
Exchange"). With respect to the remaining 26% of their shares of Common Stock,
the Founders will receive the Cash Merger Price for each share of the
Company's Common Stock they own as of the Effective Time.
Stock Options and Amendments to Stock Option Agreements. As of December 31,
1998, the employees of the Company, one former employee and the independent
directors of the Company held options to acquire an aggregate of
[455,733/452,133] shares of Common Stock. Prior to the Merger, holders of
these options ("Employee Options") will be asked to approve amendments to
their respective stock option agreements ("Amendments"). The Amendments will
provide that, at the Effective Time, holders of the Employee Options will
receive an amount of cash equal to the product of $9.50 minus the exercise
price of the particular Employee Option, multiplied by the number of total
option shares for that Employee Option. For any former employee, the number of
shares would be based on option shares that were vested at the time of
employment termination. For example, an employee holding an option to purchase
2,000 shares at $3.50 per share would receive $12,000 ($9.50 minus $3.50 is
$6.00, multiplied by 2,000 shares is $12,000).
Resale of Holdings Common Stock by Founders. Under the Stockholders'
Agreement among IHS and the Founders, commencing the third anniversary of the
Merger Closing, if Holdings has not commenced an initial public offering of
its common stock by the third anniversary of the Merger Closing and if the
Founders thereafter request that Holdings undertake an initial public
offering, but Holdings has declined to do so, the Founders will have the right
to sell their Holdings Shares back to Holdings at a price equal to the fair
market value of such stock, as determined by appraisal.
If Holdings does undertake a public offering of its common stock, the
Stockholders' Agreement provides that the Founders will have certain
registration rights, entitling them to include their Holdings common stock in
registered stock offerings undertaken by Holdings.
The Founders also have certain other rights and obligations with respect to
their Holdings common stock if IHS proposes to sell its own shares of Holdings
common stock. In general, either IHS or the Founders may
29
<PAGE>
require that the Founders shares be sold on the same terms offered to IHS. See
"Certain Effects of the Merger--Certain Related Agreements--Stockholders'
Agreement."
Tabular Presentation of Comparative Equity Positions of Founders, Employees
and Directors. The table below summarizes some information with respect to
Company stock and stock options held by the Founders, the employees and the
directors of the Company as of December 31, 1998 and how those shares and
options will be treated under the Formation Agreement and in the Merger. The
dollar amounts listed below are before accounting for federal and state income
taxes.
STOCK AND OPTIONS HELD BY THE FOUNDERS, THE EMPLOYEES AND
THE DIRECTORS OF THE COMPANY
<TABLE>
<CAPTION>
CASH TO BE
WEIGHTED COMPANY CASH TO BE RECEIVED IN
AVERAGE SHARES RECEIVED IN MERGER FOR
OPTION EXERCISE EXCHANGED FOR MERGER FOR COMPANY
SHARES PRICE OF HOLDINGS OPTION SHARES
SHARES HELD OUTSTANDING OPTIONS SHARES(1) SHARES(2) RETAINED
----------- ----------- -------- ------------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
FOUNDERS
Haim E. Dahan........... 1,407,468 -0- N/A 1,037,322 -0- 3,368,687(3)
Michael J. Galvin....... 331,171 -0- N/A 244,077 -0- 792,640(3)
Patricia Tuxbury Salem.. 275,973 -0- N/A 203,396 -0- 660,520(3)
James L. McAlarney,
III.................... 55,194 -0- N/A 40,679 -0- 132,099(3)
Peter W. Jeng........... 55,194 30,357 $0.543 40,679 271,908 132,099(3)
ALL INDEPENDENT
DIRECTORS AS A GROUP
(2 PERSONS)............ 3,500 46,000 $7.014 -0- 114,375 33,250
ALL EMPLOYEES AS A GROUP
(45 PERSONS)(4)........ -0-(5) 452,133 $4.637 -0- 2,198,800 -0-
</TABLE>
- --------
(1) Prior to the Merger the Founders have agreed to exchange approximately 74%
of their shares of Common Stock in the Company for shares of Holdings.
(2) Prior to the Merger, all employee option holders will be asked to agree to
an amendment to their stock option agreements whereby, upon effectiveness
of the Merger, their stock options will be exercised on a cashless basis,
and each option holder would receive an amount in cash equal to the excess
of $9.50 over the exercise price per share of Common Stock subject to the
stock option, multiplied by the number of option shares.
(3) These amounts reflect reductions for the unreimbursed portion of the
Debenture Holder Warrant "spreads" to be borne by each Founder: $147,700
for Mr. Dahan, $34,753 for Mr. Galvin, $28,962 for Ms. Salem, $5,793 for
Mr. McAlarney and $5,793 for Mr. Jeng, which assumes that all outstanding
Debenture Holder Warrants will be repurchased at the time of the Merger
Closing.
(4) Does not include the Founders. Includes one former employee to the extent
of his options that were vested as of his last day of employment.
(5) The number of shares held by employees other than officers of the Company
is not known, and is assumed to be zero for purposes of this table.
30
<PAGE>
Present Interests in Common Stock of the Company. The following table shows
the shares of Common Stock of the Company beneficially owned by each director
and executive officer, and by all directors and executive officers as a group
as of December 31, 1998. The statements as to securities beneficially owned
are, in each instance, based upon information provided by the person(s)
concerned:
COMMON STOCK OF THE COMPANY HELD BY
DIRECTORS AND EXECUTIVE OFFICERS
<TABLE>
<CAPTION>
SHARES
BENEFICIALLY PERCENT OF
NAME OF BENEFICIAL OWNER OR DESCRIPTION OF GROUP OWNED CLASS(1)
------------------------------------------------ ------------ ----------
<S> <C> <C>
DIRECTORS AND EXECUTIVE OFFICERS:
Leo Benatar...................................... 25,500(2) 0.7%
Haim E. Dahan.................................... 1,707,468(3)(4) 47.7%
Michael J. Galvin................................ 331,171(3) 9.3%
Patricia Tuxbury Salem........................... 275,973(3) 7.7%
Hugh E. Sawyer................................... 24,000(2) 0.7%
Ron Friedman..................................... 54,156(5) 1.5%
Robert A. DiCristina............................. 60,000(5) 1.6%
Ralph E. Walter.................................. 15,000(5) 0.4%
ALL DIRECTORS AND EXECUTIVE OFFICERS AS A GROUP
(8 PERSONS)..................................... 2,493,268(6) 66.4%
</TABLE>
- --------
(1) Based on a total of 3,579,510 shares of Common Stock outstanding, plus any
shares issuable pursuant to options held by the person or group in
question that may be exercised within 60 days.
(2) Includes, as to each of Messrs. Benatar and Sawyer, options to purchase
23,000 shares. It is anticipated that all of the stock options will be
exchanged for cash prior to the Merger.
(3) Messrs. Dahan and Galvin and Ms. Salem have granted rights to purchase
77,736, 18,291 and 15,243 of their shares, respectively, to individuals
holding Debenture Holder Warrants.
(4) Mr. Dahan holds, for a period of two years commencing February 2, 1998,
sole voting rights as to 300,000 of the shares held by Thybo New Ventures
Limited, an affiliate of IHS.
(5) Consists of stock options, all of which are anticipated to be exchanged
for cash prior to the Merger.
(6) Includes 175,156 shares subject to stock options that are anticipated to
be exchanged for cash prior to the Merger, as well as the 300,000 shares
described in footnote (4).
Indemnification of Officers And Directors. The Formation Agreement provides
that the Surviving Corporation will provide a run-off policy for the current
directors and officers liability insurance policy maintained by the Company.
The run-off policy will remain in effect for a minimum of five years after the
Effective Time of the Merger. In addition, the Formation Agreement provides
that all rights to indemnification for acts or omissions occurring prior to
the Effective Time in favor of the current or former directors or officers of
the Company, as provided in the Articles of Incorporation or By-laws of the
Company, or under indemnity agreements, will survive the Merger and continue
in full force and effect in accordance with their terms from the Effective
Time to the maximum extent permitted by law with respect to any claims against
the current or former directors or officers of the Company arising out of such
acts or omissions.
Voting Agreements. In the Formation Agreement, the Founders have agreed to
vote their respective shares of the Company's Common Stock in favor of the
Merger Agreement at the Special Meeting or any adjournment thereof. Unless the
Merger Agreement has been terminated in accordance with its terms, the
Founders also have agreed to vote their respective shares of the Company's
Common Stock against (i) any merger agreement or merger (other than the Merger
Agreement and Merger), consolidation, combination, sale of substantially all
of the assets, reorganization, dissolution, or other similar transaction, and
(ii) any amendment of the Company's Articles of Incorporation or By-Laws or
other proposal or transaction involving the Company, which amendment or other
proposal or transaction would in any manner impede, frustrate, prevent or
nullify the Merger or the
31
<PAGE>
Merger Agreement. As of December 31, 1998, the Founders owned 2,125,000 shares
of the Company's Common Stock, representing approximately 59% of the
outstanding shares on the Record Date. The affirmative votes of their shares,
when added to the 330,000 shares held by IHS and its affiliates, would be
sufficient to approve the Merger Agreement.
BENEFICIAL OWNERSHIP OF MORE THAN 5% OF COMMON STOCK
The only persons known by the Company to own beneficially more than 5% of
the outstanding shares of Common Stock of the Company are those set forth
below. Unless otherwise noted, this information is as of December 31, 1998:
<TABLE>
<CAPTION>
SHARES
BENEFICIALLY PERCENT OF
NAME AND ADDRESS OF BENEFICIAL OWNER OWNED CLASS(1)
------------------------------------ ------------ ----------
<S> <C> <C>
Haim E. Dahan...................................... 1,707,468(2)(3) 47.7%
5500 Interstate North Parkway
Suite 507
Atlanta, Georgia 30328-4662
Michael J. Galvin.................................. 331,171(2) 9.3%
5500 Interstate North Parkway
Suite 507
Atlanta, Georgia 30328-4662
Patricia Tuxbury Salem............................. 275,973(2) 7.7%
5500 Interstate North Parkway
Suite 507
Atlanta, Georgia 30328-4662
Thybo New Ventures Limited......................... 330,000(3) 9.2%
Par LaVille Place
14 Par LaVille Road
Hamilton HM JK, Bermuda
</TABLE>
- --------
(1) Based on a total of 3,578,760 shares of Common Stock outstanding.
(2) Messrs. Dahan and Galvin and Ms. Salem have granted rights to purchase
77,736, 18,291 and 15,243 of their shares, respectively, to individuals
holding Debenture Holder Warrants.
(3) Mr. Dahan holds, for a period of two years commencing February 2, 1998,
sole voting rights as to 300,000 of the shares held by Thybo New Ventures
Limited ("Thybo"). Accordingly, those shares are included as shares
beneficially owned both by Mr. Dahan and by Thybo.
LITIGATION
On January 15, 1998 Aspect Development, Inc. and CADIS, Inc. brought an
action against the Company and R. Steven Norwood, former Vice President of
Sales for the Company. The action was brought in the United States District
Court for the Northern District of California. The suit alleges that Mr.
Norwood breached alleged fiduciary and contractual obligations to his former
employer, CADIS, in performing his duties as Vice President of the Company.
The action further alleges that the Company and Mr. Norwood have used Aspect
or CADIS trade secrets (in the form of alleged customer lists) and interfered
with Aspect's business. The plaintiffs sought broad injunctive relief, as well
as damages, against the Company and Mr. Norwood.
On March 9, 1998, the Company filed counterclaims against Aspect, including
claims for actual and attempted monopolization under the Sherman Anti-Trust
Act, unfair competition and interference with prospective relationships. In
its counterclaims, the Company is seeking, among other things, injunctive
relief and unspecified compensatory relief.
32
<PAGE>
CERTAIN EFFECTS OF THE MERGER
GENERAL
If the Merger is consummated, the holders of the Company's Common Stock will
no longer have any interest in, and will not be stockholders of, the Company.
This means you will not benefit from any future earnings or growth of the
Company or any increases in the value of the Company. However, this also means
you will no longer bear the risk of any decreases in value of the Company.
Upon consummation of the Merger, each stockholder of the Company will have
the right to receive $9.50 in cash for each share of Common Stock held (other
than Common Stock (i) held in the treasury of the Company, (ii) held by IHS or
Holdings, and (iii) held by stockholders who perfect their rights under
Georgia law to dissent from the Merger and seek an appraisal of the fair
market value of their shares (the "Dissenting Stockholders")). The benefit of
the transaction to the stockholders of the Company is the payment of a
significant premium, in cash, above the market value for their stock prior to
the announcement of the Merger. This cash payment assures that all
stockholders will receive the same amount for their shares, rather than taking
the risks associated with attempting to sell their shares in the market. The
detriment to such stockholders is their inability to participate as continuing
stockholders in the possible future growth of the Company.
If the Merger is consummated, the Company will be a wholly-owned subsidiary
of Holdings, which will be owned approximately 83.611% by IHS and 16.389% by
the Founders of the Company. The Founders will benefit from any future
earnings or growth of Holdings and any increases in value of Holdings. They
also will bear the risk of any decreases in value of Holdings. Because the
securities of Holdings will be restricted shares under federal and state
securities laws and will not be publicly traded after the Merger, IHS and the
Founders will bear the risks associated with the lack of liquidity in their
investment in Holdings.
The Common Stock is currently registered under the Securities Exchange Act
of 1934, as amended ("Exchange Act"). As a result of the Merger, the Common
Stock will be delisted from the Nasdaq National Market, the registration of
the Common Stock under the Exchange Act will be terminated, the Company will
be relieved of the obligation to comply with the proxy rules of Regulation 14A
under Section 14 of the Exchange Act, and its officers, directors and
beneficial owners of more than 10% of the Common Stock will be relieved of the
reporting requirements and restrictions on insider trading under Section 16 of
the Exchange Act. Further, the Company will no longer be subject to the
periodic reporting requirements of the Exchange Act and will cease filing
information with the SEC.
After the Merger, Haim E. Dahan, who is currently the President, Chief
Executive Officer, and the Chairman of the Company, will become the President
and Chief Technology Officer and a director of the Surviving Corporation and a
director of Holdings. In addition, Michael J. Galvin and Patricia Tuxbury
Salem, who currently are officers and directors of the Company, will become
officers, but not directors, of the Surviving Corporation. See "Interests of
Certain Persons in the Merger." Aside from Mr. Dahan, the remainder of the
Directors of Holdings and the Surviving Corporation will be designated by IHS.
The articles of incorporation of the Company (with certain amendments) and the
bylaws of Merger Sub immediately prior to the Effective Time will become the
articles of incorporation and bylaws of the Surviving Corporation immediately
after the Merger.
PLANS FOR THE COMPANY AFTER THE MERGER
The Merging Group expects that the business and operations of the Surviving
Corporation will be continued substantially as they are currently being
conducted by the Company, except that they will be combined with the business
and operations of the CAPSXpert product line of IHS. The Merging Group does
not currently intend to dispose of any assets of the Surviving Corporation,
other than in the ordinary course of business. It is anticipated, however,
that the Merging Group will from time to time evaluate and review their
businesses, operations and properties and make such changes as are deemed
appropriate.
33
<PAGE>
Except as described in this Proxy Statement, none of the Merging Group, the
Founders or the Company has any present plans or proposals involving the
Company which relate to or would result in an extraordinary corporate
transaction such as a merger, reorganization or liquidation, or a sale or
transfer of a material amount of assets, or any material change in the present
dividend policy, indebtedness or capitalization, or any other material change
in the Company's or Holdings's corporate structure or business. However, the
Merging Group and the Founders will review proposals or may propose the
acquisition or disposition of assets or other changes in the Company's or
Holdings's business, corporate structure, capitalization, management or
dividend policy which they consider to be in the best interests of Holdings
and its stockholders. While IHS and the Founders have considered the
possibility that Holdings might in the future make an initial public offering
of its shares, there are no current plans to do so.
CONDUCT OF THE BUSINESS OF THE COMPANY IF THE MERGER IS NOT CONSUMMATED
If the Merger is not consummated, the Board of Directors expects that the
Company's current management will continue to operate the Company's business
substantially as presently operated. No other alternatives are presently being
considered.
ACCOUNTING TREATMENT OF TRANSACTION
The Merger will be accounted for using the purchase method for accounting
and financial reporting purposes.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER
The following discussion summarizes the material federal income tax
consequences of the Merger that are generally applicable to holders of the
Company's Common Stock who exchange all of their shares of Common Stock for
cash in the Merger. The discussion is based upon current provisions of the
Code, currently applicable Treasury regulations, and judicial and
administrative decisions and rulings. Future legislative, judicial, or
administrative changes or interpretations could alter or modify the statements
and conclusions set forth in this document. In addition, any future changes or
interpretations could be retroactive and could affect the tax consequences to
the stockholders of the Company.
The discussion below does not purport to deal with all aspects of federal
income taxation that may affect particular stockholders in light of their
individual circumstances. This summary is not intended for stockholders
subject to special treatment under the federal income tax law (including
insurance companies, tax-exempt organizations, financial institutions, broker-
dealers, foreign persons, stockholders who hold their stock as part of a
hedge, appreciated financial position, straddle or conversion transaction,
stockholders who do not hold their stock as capital assets, and stockholders
who have acquired their stock upon the exercise of employee options or
otherwise as compensation). Furthermore, the discussion below does not address
the federal income tax consequences of the Merger to (i) the Founders with
respect to the exchange of Common Stock of the Company for common stock of
Holdings (including, without limitation, the federal income tax consequences
to such stockholders of the receipt of cash pursuant to the Merger), (ii)
employees who receive cash in exchange for their Company stock options prior
to the Merger, or (iii) stockholders who may be considered to own shares of
stock of the Surviving Corporation after the Effective Time through
application of constructive ownership rules of Section 318 of the Code. In
very general terms, Section 318 of the Code deems a stockholder to own shares
of stock that are owned by certain members of his or her family (spouse,
children, grandchildren, and parents) and other related parties, including
certain entities in which the stockholder has a direct or indirect interest
(including partnerships, estates, trusts and corporations), as well as shares
of stock that such stockholder (or a related party) has the right to acquire
upon exercise of an option or conversion right. In addition, the discussion
below does not consider the effect of any applicable state, local or foreign
tax laws.
EACH HOLDER OF THE COMPANY'S COMMON STOCK IS STRONGLY URGED AND EXPECTED TO
CONSULT WITH HIS OR HER TAX ADVISOR TO DETERMINE THE FEDERAL INCOME TAX
CONSEQUENCES THE MERGER WILL HAVE IN LIGHT OF HIS OR HER SPECIFIC
CIRCUMSTANCES, AS WELL AS THE APPLICABILITY AND EFFECT OF STATE, LOCAL AND
FOREIGN TAX LAWS.
34
<PAGE>
The Merger. A stockholder who, pursuant to the Merger, exchanges all of his,
her or its Company's Common Stock for cash will recognize gain or loss equal
to the difference between (a) the amount of cash such stockholder receives in
the Merger and (b) the stockholder's adjusted tax basis in his, her or its
shares. Any gain or loss will be capital gain or loss, and generally will be
long-term capital gain or loss if at the Effective Time the stockholder's
holding period for the Company's Common Stock is more than one year. In the
case of individuals, "net capital gain," i.e., the excess of net long-term
capital gain over net short-term capital loss, is generally subject to a
reduced rate of federal income tax. A regular "C" corporation is taxed on its
capital gain at the regular income tax rate for corporations. Any stockholder
who elects appraisal rights will similarly be subject to a taxable event upon
the Merger based on fair market value of the Company's Common Stock.
Stockholders seeking appraisal rights are encouraged to consult with their tax
adviser.
Backup Withholding. Stockholders who own the Company's Common Stock should
be aware that the Company will be required in certain cases to withhold and
remit to the United States Internal Revenue Service 31% of amounts payable in
the Merger to any person (a) who has provided either an incorrect tax
identification number or no number at all, (b) who is subject to backup
withholding by the Internal Revenue Service for failure to report the receipt
of interest or dividend income properly, or (c) who has failed to certify to
the Company that it is not subject to backup withholding or that it is an
"exempt recipient." Backup withholding is not an additional tax, but rather
may be credited against the taxpayer's tax liability for the year.
DISSENTERS' RIGHTS OF APPRAISAL.
The following summary does not purport to be a complete statement of the
provisions of Georgia law relating to the appraisal rights of stockholders.
The summary is qualified in its entirety by reference to the provisions of
Article 13 of the Georgia Business Corporation Code ("GBCC") set forth in full
as Exhibit B to this Proxy Statement.
Holders of record of shares of Common Stock of the Company who meet the
requirements summarized in this document and comply with the applicable
procedures will be entitled to appraisal rights under Article 13 of the GBCC.
A person having a beneficial interest in shares of the Company's Common Stock
held of record in the name of another person, such as a broker or nominee,
must act promptly to cause the record holder to follow the steps summarized
below properly and in a timely manner to perfect dissenters' rights.
ALL REFERENCES IN ARTICLE 13 OF THE GBCC AND IN THIS SUMMARY TO A
"STOCKHOLDER" ARE TO THE RECORD HOLDER OF THE COMMON STOCK AS TO WHICH
APPRAISAL RIGHTS ARE ASSERTED. VOTING AGAINST, ABSTAINING FROM VOTING OR
FAILING TO VOTE ON APPROVAL AND ADOPTION OF THE MERGER AGREEMENT WILL NOT
CONSTITUTE A DEMAND FOR APPRAISAL WITHIN THE MEANING OF ARTICLE 13 OF THE
GBCC.
Stockholders who meet the requirements and follow the procedures set forth
in Article 13 of the GBCC may receive, in lieu of the $9.50 in cash to be paid
in the Merger for each share of the Company's Common Stock, a cash payment
equal to the "fair value" of their shares, excluding any appreciation or
depreciation in anticipation of the Merger, together with a fair rate of
interest, if any, as determined by the Superior Court of Fulton County. Such
fair value is to be determined by judicial appraisal and could be more than,
the same as, or less than, the Cash Merger Price. The statutory right of
appraisal granted in Article 13 is subject to strict compliance with the
procedures set forth in Article 13, and summarized below. Failure to follow
any of these procedures may result in termination or waiver of appraisal
rights under Article 13.
If you wish to exercise appraisal rights, or "dissenters' rights," you must
deliver to the Company, before the vote on the Merger Agreement, a written
notice of your intent to demand payment for your shares of Common Stock. You
must not vote in favor of or opposed to the Merger Agreement. A vote against
approval of the Merger Agreement will not, by itself, constitute a valid
written demand for dissenters' rights under Article 13.
35
<PAGE>
The Company must provide a written dissenters' notice to each dissenting
stockholder who has complied with the procedures of Article 13 within 10 days
after stockholder approval of the Merger Agreement (a) stating where the
demand for payment must be sent and where and when certificates must be
deposited, and (b) setting a date by which the Company must receive the demand
for payment, which date may not be fewer than 30 nor more than 60 days after
the date on which the dissenters' notice is delivered. A stockholder must
deliver a demand for payment and deposit his or her certificates for shares of
Common Stock on or prior to the payment demand date in accordance with the
terms of the dissenters' notice. Within 10 days after receipt of the demand
for payment or within 10 days after the Merger, whichever is later, the
Company must make a written offer to each dissenting stockholder who has filed
a demand for payment to pay an amount estimated to be the "fair value" of the
shares plus accrued interest. If the dissenting stockholder accepts the
Company's offer by written notice to the Company within 30 days of the
Company's offer, the Company must make payment within 60 days after it made
the offer or the closing of the Merger, whichever occurs later.
If the dissenting stockholder does not wish to accept the Company's offer,
he or she may notify the Company, in writing, of the stockholder's own
estimate of the "fair value" of his or her shares and demand payment, if such
notice is delivered within 30 days after the Company's offer. In addition, if
the Company does not offer payment within the time period set forth in the
preceding paragraph, a dissenting stockholder may demand delivery of certain
of the Company financial information (which the Company must provide within 10
days after receipt of such demand) and may, at any time within three years of
the consummation of the Merger, notify the Company of the stockholder's own
estimate of the fair value of the stockholder's shares and demand payment.
If a demand for payment remains unsettled, then the Company, within 60 days
after receipt of the demand for payment, must commence a court proceeding to
determine the "fair value" of the shares, together with accrued interest. If
the Company fails to bring such action within the 60-day period, the Company
will be required to pay each dissenter whose demand remains unsettled the
amount demanded.
The costs and expenses of any such action shall be determined by the court
and shall be assessed against the Company. Notwithstanding the foregoing, all
or any part of such costs and expenses may be apportioned and assigned as the
court may deem equitable against any and all of the dissenting stockholders
who are parties to the action and to whom the Company shall have made an offer
to pay for the shares, if the court finds that the stockholder acted
inappropriately in making a demand for payment. Such expenses may include
reasonable compensation and expenses of appraisers appointed by the court and
fees and expenses of counsel and experts employed by the Company. If the court
finds that the Company failed to comply with legal requirements, the court may
award to any stockholder who is a party to the proceeding such sum as the
court may determine to be reasonable compensation to any attorneys or experts
employed by the stockholder in the action.
Only a stockholder of record as of the date written demand is made and as of
the Effective Time of the Merger is entitled to assert dissenter's rights for
the Company's Common Stock registered in that holder's name. The demand for
dissenters' rights should be exercised by or on behalf of the holder of record
fully and correctly, as his or her name appears on the stock certificates. A
stockholder of record may assert dissenter's rights as to fewer than all of
the shares registered in his or her name only if the record stockholder
dissents with respect to all shares beneficially owned by any one beneficial
stockholder and notifies the Company in writing of the name and address of
each person on whose behalf the record stockholder asserts dissenter's rights.
If the Company's Common Stock is owned of record in a fiduciary capacity,
such as by a trustee, guardian or custodian, the fiduciary should execute the
demand in that capacity. Similarly, if the Common Stock is owned of record by
more than one person, such as a joint tenancy or tenants in common, all joint
owners should execute the demand. An authorized agent, including one or more
joint owners, may execute a demand for appraisal on behalf of a holder of
record, but the agent must identify the record owner or owners and expressly
disclose the fact that, in executing the demand, the agent is acting for the
owner or owners.
36
<PAGE>
If any holder of the Company's Common Stock who demands dissenters' rights
with respect to his or her shares fails to perfect, or effectively withdraws
or loses the right to dissent, he or she will no longer have the right to
receive the "fair value" of the shares. Rather, such a stockholder will be
entitled only to receive the Cash Merger Price. A stockholder of the Company
will fail to perfect, or effectively withdraw or lose, his or her right to
dissent if he or she (i) fails to deliver to the Company a notice of intent to
demand payment, prior to the vote on the Merger Agreement, (ii) votes "for"
approval of the Merger Agreement, (iii) fails to file a demand for payment
with the Company, or (iv) delivers to the Company a written withdrawal of his
or her demand for payment.
Failure to follow the steps required by Article 13 of the GBCC for
perfecting dissenters' rights will result in the loss of such rights.
Consequently, any stockholder of the Company who desires to exercise his or
her dissenters' rights is urged to consult his or her legal advisor before
attempting to exercise such rights.
Stockholders who hold their shares in brokerage accounts or other nominee
forms and who wish to exercise appraisal rights are urged to consult with
their brokers to determine the appropriate procedures for the making of a
demand for appraisal by such a nominee.
All written communications from stockholders with respect to the exercise of
appraisal rights should be mailed to International CompuTex, Inc., 5500
Interstate North Parkway, Suite 507, Atlanta, Georgia 30328, Attention:
Secretary.
REGULATORY APPROVALS
The consummation of the Merger is not subject to any regulatory approval,
including approval under the HSR Act. However, if the Federal Trade Commission
were to undertake any preliminary investigation of the Merger to assess
whether it may have an adverse effect on competition in the CSM software
market or CSM database market, this investigation could potentially result in
an action to challenge the Merger. The Company believes the possibility of any
investigation is unlikely given the Merger's pro-competitive nature.
CERTAIN RELATED AGREEMENTS
Certain related agreements will be entered into in connection with the
Merger and the transactions contemplated under the Merger Agreement and
Formation Agreement. The terms of such agreements are summarized below:
Stockholders' Agreement
1. General. IHS and the Founders will enter into a Stockholders Agreement at
the time of the Merger Closing (the "Stockholders Agreement"). The
Stockholders Agreement will prevent the Founders from transferring or
otherwise disposing of their shares of common stock of Holdings (the "Holdings
Common Stock") without the permission of IHS, except in certain limited
circumstances. In addition, the Stockholders Agreement will contain the
following rights and obligations:
2. Rights of Founders Regarding Initial Public Offering and Registration
Statement. The Founders have a right on the third anniversary of the
Stockholders Agreement, and on each anniversary thereafter until the right is
exercised, to request that IHS cause Holdings to undertake an initial public
offering of shares of Holdings Common Stock (the "Initial Public Offering").
In the event that Holdings proposes to register the Holdings Common Stock in a
manner that would permit such stock to be sold to the public, the Founders
also have a right to include their shares of Holdings Common Stock in any such
registration statement. All costs, fees and expenses, except those relating to
brokers used by the Founders, transfer taxes, and similar expenses, incurred
in connection with the registration statement will be paid by Holdings.
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3. Rights of Founders to Sell Stock to IHS. In the event that IHS declines
the request by Founders to commence the Initial Public Offering as set forth
above, the Founders have a right to sell to IHS, and IHS has an obligation to
purchase (unless such purchase would have a material adverse effect on the
business or assets of IHS and its subsidiaries), shares of Holdings Common
Stock held by the Founders. The purchase price for such shares would equal
their fair market value as determined by three appraisal firms selected by IHS
and the Founders. The closing of such sale would take place ten days after
determination of the fair market value by the appraisal firms.
4. Rights of IHS to Compel Sale by the Founders. In the event IHS enters
into an agreement to sell its shares of Holdings Common Stock to a non-
affiliated third party, IHS has the right to require the Founders to include
in such sale the proportion of shares of Holdings Common Stock held by each
Founder that is identical to the proportion of shares of Holdings Common Stock
held by IHS. The price per share received by the Founders would be equal to
the price per share received by IHS.
5. Obligations of the Founders to Sell Stock Upon Sale of Holdings. If the
Board of Directors of Holdings approves the sale of Holdings to any non-
affiliated third party, the Founders are obligated to consent to and vote in
favor of such sale of Holdings. In the event such sale involves the sale of
shares of Holdings Common Stock, the Founders are obligated to sell all their
shares of Holdings Common Stock to such non-affiliated third party.
6. Rights of the Founders to Sell Stock Upon Sale of Stock by IHS. In the
event IHS proposes to sell shares of Holdings Common Stock to a non-affiliated
third party, so long as the third party does not object, the Founders have an
option to participate in such sale and sell all of their shares of Holdings
Common Stock on the terms and subject to the conditions set forth in the
agreement between IHS and the non-affiliated third party. If the Founders do
not exercise this option, they also have an option to require IHS to include
in the sale to the non-affiliated third party the proportion of shares of
Holdings Common Stock held by the Founders that is identical to the proportion
of shares of Holdings Common Stock held by IHS that is to be sold by IHS in
connection with such sale.
7. Covenants in Effect prior to Initial Public Offering. Prior to any
Initial Public Offering, the Board of Directors of Holdings will consist of no
more than five members. The Founders have the right, so long as they in the
aggregate hold not less that 5% of the outstanding shares of Holdings Common
Stock or Haim E. Dahan is employed by Holdings or its subsidiary, to designate
one member of the Board of Directors. The Founders have currently designated
Haim E. Dahan as their designee to the Board of Directors.
8. Employee Option Plan. The Stockholders' Agreement also provides that
Holdings will commence the first grants of options under its employee stock
option plan within 90 days after the Merger closing.
Services Agreement. Holdings and IHS will enter into a Services Agreement at
the time of the Merger Closing ("Services Agreement"). Pursuant to the
Services Agreement, IHS will provide certain services to Holdings in
connection with the CAPSXpert products, including serving as a host for
Internet delivery of CAPSXpert databases, assembly of products, data
conversion, building CAPSXpert databases, data processing and general and
administrative duties. IHS also will provide office space and certain
ancillary services to Holdings personnel located in Colorado. In return for
providing those services, Holdings will pay IHS a monthly fixed fee of
$331,165. The monthly fixed fee will be adjusted annually to reflect any
increase in the Consumer Price Index. In addition, these fees will be adjusted
from time to time to reflect changes in the nature or level of services
provided by IHS.
The Services Agreement also will provide for IHS to (i) make a cash
contribution to Holdings, in the amount equal to the net negative cash flow
for such period, if the CAPXpert business contributed by IHS to Holdings does
not operate on a break-even cash flow basis for the first twelve months after
the effective date of the Merger; and (ii) make available to Holdings a
working capital line of credit in the aggregate principal amount of
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$5,000,000 during the first three years of the agreement. Any monies borrowed
by Holdings under the working line of credit will bear interest at the prime
rate in effect from time to time.
The Services Agreement will have a term of three years, and automatically
renews each year unless the other party terminates the agreement upon 180
days' notice. Both parties will have the right to terminate the Services
Agreement if the other is in material breach of the Services Agreement and the
breach is not cured within 90 days of notice of such breach. Holdings also has
the right, 90 days prior to each anniversary of the Services Agreement, to
terminate any one or more of the services provided by IHS without terminating
the entire agreement.
Sales Agreement. Holdings and IHS will enter into a Sales Agency Agreement
("Sales Agreement"). Pursuant to the Sales Agreement, IHS will solicit orders
worldwide for the CAPSXpert and ItemQuest products and services offered by
Holdings. In return for soliciting such orders, IHS will receive a commission
of 18% of the net subscription price paid by the customer, exclusive of
incidental charges, discounts and other similar adjustments. In the event IHS
simply refers a customer to Holdings, rather than making the actual sale, IHS
will receive a finders fee of $5,000 for each referral. The Sales Agreement
will provide that customers of Holdings solicited by IHS will receive
services, support and installation from IHS rather than Holdings.
The Sales Agreement will have a term of three years, and automatically
renews each year unless the other party terminates the agreement upon 90 days'
notice. Both parties will have the right to terminate the Sales Agreement if
the other is in material breach of the Sales Agreement and the breach is not
cured within 90 days of notice of such breach.
Employee Agreements. The Company will enter into employment agreements with
Haim E. Dahan, Michael J. Galvin and Patricia Tuxbury Salem at the time of the
Merger Closing ("Employee Agreements"). The Employee Agreements will provide
for a base salary, a right to receive an annual bonus pursuant to an annual
incentive compensation plan of Holdings if certain criteria are met and, in
the case of Mr. Dahan, the right to the use of a company vehicle. The Employee
Agreements also provide for severance packages if employment is terminated for
certain reasons. In addition to containing other terms typically found in
agreements of this type, the Employee Agreements provide that after
termination of his or her employment the employee will not compete with the
business of the Company or solicit customers or potential customers of the
Company. These restrictive covenants extend, in the case of Mr. Dahan, for a
period of three years, and, in the case of Mr. Galvin and Ms. Salem, for a
period of one year, in each case running from the effective date of
termination of employment with the Company.
Options Amendment Agreement. The Company has entered or intends to enter
into an agreement ("Option Amendment Agreement") with each current employee
who holds options to purchase shares of Common Stock of the Company ("Company
Options"). The Option Amendment Agreement amends the agreements evidencing the
Company Options to provide that, upon the effectiveness of the Merger, each
Company Option will be automatically exercised, on a cashless basis, and the
option holder will receive an amount in cash equal to the excess of $9.50 over
the exercise price per share of Common Stock of the Company subject to such
Company Option, multiplied by the number of shares of Common Stock of the
Company subject to the Company Option. The Option Amendment Agreement also
provides that such amendment will be effective only if, and upon, the
consummation of the transactions contemplated in the Formation Agreement. (In
addition, the Company may enter into a similar agreement with any former
employee who holds a stock option that has not terminated, but only as to
those options that were vested at the date on which employment was
terminated.)
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SUMMARY OF THE MERGER AGREEMENT
The following is a summary of the material provisions of the Merger
Agreement, dated January , 1999, a copy of which is attached as Exhibit A to
this Proxy Statement. This summary is qualified in its entirety by reference
to the full text of the Merger Agreement.
THE MERGER; CASH MERGER PRICE
The Merger Agreement provides that the Merger will become effective at such
time as a certificate of merger is duly filed with the Secretary of State of
the State of Georgia, or at such later time as specified in the certificate of
merger (the "Effective Time"). If the Merger is approved by the holders of a
majority of the issued and outstanding shares of Common Stock of the Company
at the Special Meeting, and if the other conditions to the Merger are
satisfied, it is currently anticipated that the Merger will become effective
as soon as practicable after the Special Meeting. However, there can be no
assurance as to the timing of the consummation of the Merger or that the
Merger will be consummated.
At the Effective Time, Merger Sub will be merged with and into the Company,
with the Company continuing as the Surviving Corporation. In the Merger, each
share of Common Stock (other than Common Stock (a) held in the treasury of the
Company, (b) held by Holdings or Merger Sub, or (c) held by Dissenting
Stockholders) will, by virtue of the Merger and without any action on the part
of the holder thereof, be converted into the right to receive the Cash Merger
Price. Each certificate representing shares of Common Stock that has been so
converted under the terms of the Merger Agreement will, after the Effective
Time, evidence only the right to receive, upon the surrender of such
certificate, an amount of cash per share equal to the Cash Merger Price.
Each share of Common Stock held in the treasury of the Company, or held by
Holdings or Merger Sub, will automatically be canceled, retired and cease to
exist. No payment of any kind will be made with respect to such shares of
Common Stock. Each share of common stock of Merger Sub issued and outstanding
immediately prior to the Effective Time will be converted into and become one
share of common stock of the Surviving Corporation.
Dissenting Stockholders who do not vote to approve and adopt the Merger
Agreement and who otherwise strictly comply with the provisions of Article 13
of the GBCC regarding statutory appraisal rights have the right to seek a
determination of the fair value of their shares of Common Stock, and to
receive such payment in cash therefor in lieu of the Cash Merger Price. See
"Dissenters' Rights of Appraisal."
THE EXCHANGE FUND; PAYMENT FOR SHARES OF COMMON STOCK
Prior to the Effective Time, Merger Sub will enter into an agreement with
American Stock Transfer & Trust Company, or other bank or trust company, to
act as paying agent (the "Paying Agent"). The Company is responsible for
taking all steps necessary to enable the Surviving Corporation to provide to
the Paying Agent, on a timely basis, as and when needed on and after the
Effective Time, cash in an amount equal to the aggregate Cash Merger Price
(the "Exchange Fund"). (Under the Formation Agreement, IHS also has agreed to
provide cash in an amount that, together with all available cash of the
Company at the time of the Merger, will be sufficient to pay the Merger
consideration.)
As soon as reasonably practicable after the Effective Time, the Paying Agent
will mail to each shareholder who is a record holder of shares of Common Stock
immediately prior to the Effective Time a letter of transmittal containing
instructions for use in surrendering certificates formerly representing shares
of Common Stock (the "Certificates") in exchange for the Cash Merger Price. No
stockholder should surrender any Certificates until the stockholder receives
the letter of transmittal and other materials for such surrender from the
Paying Agent. Upon surrender of a Certificate for cancellation to the Paying
Agent or to such other agent or agents as may be appointed by the Company,
together with a letter of transmittal duly executed by the stockholder, and
such other documents as may be reasonably required by the Paying Agent, the
holder of such Certificate shall be entitled to receive therefor the Cash
Merger Price for each share of Common Stock formerly represented by such
Certificate,
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without any interest thereon, less any required withholding of taxes, and the
Certificate so surrendered will be canceled. The Cash Merger Price will be
delivered by the Paying Agent as promptly as practicable following surrender
of a Certificate and delivery of the letter of transmittal and any other
related transmittal documents by the stockholder.
If payment of the Cash Merger Price is to be made to a person other than the
person in whose name the Certificate surrendered is registered, it will be a
condition of payment that the Certificate so surrendered will be properly
endorsed or otherwise be in proper form for transfer, and that the Exchange
Agent receives evidence that any applicable transfer or other taxes have been
paid.
STOCKHOLDERS SHOULD NOT SEND THEIR CERTIFICATES NOW AND SHOULD SEND THEM
ONLY PURSUANT TO INSTRUCTIONS SET FORTH IN LETTERS OF TRANSMITTAL TO BE MAILED
TO STOCKHOLDERS AS SOON AS PRACTICABLE AFTER THE EFFECTIVE TIME. IN ALL CASES,
THE CASH MERGER PRICE WILL BE PROVIDED ONLY IN ACCORDANCE WITH THE PROCEDURES
SET FORTH IN THIS PROXY STATEMENT AND SUCH LETTERS OF TRANSMITTAL.
Six months after the Effective Time, the Paying Agent will return to the
Surviving Corporation any portion of the Exchange Fund which remains
undistributed to the holders of the Common Stock (including the proceeds of
any investments thereof), and any holders of Common Stock who have not
theretofore complied with the above-described procedures to receive payment of
the Cash Merger Price may look only to the Surviving Corporation for payment
after such time.
TRANSFERS OF COMMON STOCK
At the Effective Time, the stock transfer books of the Company will be
closed, and there will no longer be any registration of transfers of shares of
Common Stock of the Company. If, after the Effective Time, Certificates are
presented to the Paying Agent or the Surviving Corporation, they will be
canceled and exchanged for the Cash Merger Price as provided above and
pursuant to the terms of the Merger Agreement (subject to applicable law in
the case of Dissenting Stockholders).
CONDITIONS
The only conditions precedent to the respective obligation of each party to
effect the Merger shall be satisfaction (or waiver by the applicable
beneficiary of the applicable condition) of the conditions set forth in
Article VII of the Formation Agreement and the consummation of the
transactions contemplated by Formation Agreement. These conditions include the
vote of holders of a majority of the shares of outstanding Common Stock in
favor of the Merger Agreement. See "Summary of Formation Agreement."
DIRECTORS AND OFFICERS OF THE SURVIVING CORPORATION FOLLOWING THE MERGER;
ARTICLES OF INCORPORATION; BYLAWS
The Merger Agreement provides that Haim E. Dahan, who is the President,
Chief Executive Officer and Chairman of the Company, will become the
President, the Chief Technology Officer and a director of the Surviving
Corporation. Other than Mr. Dahan, the directors of Merger Sub immediately
prior to the Effective Time will be the directors of the Surviving
Corporation. Michael J. Galvin and Patricia Tuxbury Salem, who are currently
directors and officers of the Company, will become officers, but not
directors, of the Surviving Corporation.
The Restated Articles of Incorporation of the Company in effect immediately
prior to the Effective Time, modified to reflect a change in the number of
shares authorized to be issued, will become the Articles of Incorporation of
the Surviving Corporation, until thereafter amended. The By-laws of Merger Sub
in effect immediately prior to the Effective Time will become the By-laws of
the Surviving Corporation, until thereafter amended.
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TERMINATION
The Merger Agreement may be terminated at any time prior to the Effective
Time, whether before or after the adoption of the agreement by the
stockholders of the Company, but only upon the termination of the Formation
Agreement on the terms and conditions set forth therein. See "Summary of
Formation Agreement."
AMENDMENT/WAIVER
Before or after approval of the Merger Agreement by the stockholders, the
Merger Agreement may be amended by a written agreement entered into by the
parties thereto at any time prior to the Effective Time, provided that, after
any such stockholder approval, no amendment may be made which under applicable
law may not be made without the approval of the stockholders of the Company if
such approval has not been obtained.
SUMMARY OF THE FORMATION AGREEMENT
The following is a summary of the material provisions of the Formation
Agreement, a copy of which (without the schedules thereto) is available upon
request to Ralph E. Walter, Chief Financial Officer of the Company, at 5500
Interstate North Parkway, Suite 507, Atlanta, Georgia 30328-4662, (404) 240-
2304. This summary is qualified in its entirety by reference to the full text
of the Formation Agreement.
FORMATION, OWNERSHIP AND ASSETS OF HOLDINGS
IHS and the Founders entered into a Formation Agreement effective January
10, 1999 ("Formation Agreement"). Pursuant to the terms of the Formation
Agreement, IHS has agreed to contribute to Holdings certain assets and
liabilities related to the CAPSXpert product line of IHS, 330,000 shares of
the Company's Common Stock and cash in an amount that, together with all the
cash of the Company available at the time of the Merger, will be sufficient to
pay the Merger consideration. The Founders have agreed to contribute to
Holdings an aggregate of 1,566,153 shares of the Company's Common Stock,
representing approximately 74% of the Common Stock that they currently own.
See "Special Factors--Interests of Certain Persons in the Merger."
As a result of these contributions of assets and liabilities, IHS will own
7,989,997 shares of Holdings common stock and the Founders will own an
aggregate of 1,566,153 shares of Holdings common stock. Following the
formation transaction and the Merger, IHS will own 83.611% of the outstanding
shares of Holdings common stock and the Founders will collectively own 16.389%
of the outstanding shares of Holdings common stock.
TREATMENT OF STOCK OPTIONS
It is anticipated that each employee of the Company will enter into an
agreement with Holdings regarding his or her Company stock options. Under
these agreements, prior to the Merger, each stock option will be automatically
exercised, on a cashless basis and the option holder will receive an amount in
cash equal to the excess of $9.50 over the exercise price per share of Common
Stock subject to such stock option, multiplied by the number of shares of
Common Stock subject to such stock option. See "Special Factors--Interest of
Certain Persons in the Merger" and "Certain Effects of the Merger--Certain
Related Agreements."
OBLIGATIONS OF THE FOUNDERS TO VOTE IN FAVOR OF THE MERGER
In the Formation Agreement, the Founders have agreed to vote their shares of
the Company's Common Stock in favor of the Merger. In addition, the Founders
have agreed to vote their shares against (a) any merger (other than the
Merger), consolidation, combination, reorganization, dissolution or a similar
transaction, and (b) any amendment to the Articles of Incorporation or By-laws
of the Company that would impede with or prevent the Merger. They also have
agreed not to discuss with any other party any alternative transactions
involving a change in control of the Company.
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DEBENTURE HOLDER WARRANTS
The Debenture Holder Warrants grant to holders a right to purchase an
aggregate 117,368 shares of the Company's Common Stock from the Founders for
an exercise price of $5.70 per share. The Formation Agreement provides that
IHS will pay to the Founders an aggregate amount of up to $223,000 as
reimbursement of one-half of the difference between the warrant exercise price
per share and the $9.50 per share Cash Merger Price. See "Special Factors--
Interests of Certain Persons in the Merger--Partial Reimbursement of Option
Spreads."
LIABILITY INSURANCE; INDEMNIFICATION
The Formation Agreement provides that the Surviving Corporation shall
maintain in effect, for not less than five years from the Effective Time, the
policies of the directors' and officers' liability insurance most recently
maintained by the Company with respect to matters occurring prior to the
Effective Time to the extent available, provided that the Surviving
Corporation may substitute policies of at least the same coverage containing
terms and conditions which are no less advantageous as long as such
substitution does not result in gaps or lapses in coverage. In addition, under
the Formation Agreement, the Surviving Corporation has provided certain
assurance regarding the continued indemnification of directors and officers of
the Company.
CUSTOMARY TERMS AND CONDITIONS
In addition to the specific terms set forth above, the Formation Agreement
contains terms and conditions customarily contained in a transaction of this
type. These include representations, warranties and covenants covering the
ownership of assets, authority to execute documents, absence of certain
changes, compliance with law, no conflicts, and other matters. The formation
transactions and the consummation of the Merger are subject to satisfaction or
waiver of certain conditions, including: (i) the Merger Agreement and the
Merger being approved by the affirmative vote of holders of shares of Common
Stock representing a majority of the votes entitled to be cast by holders of
Common Stock, (ii) the Company having entered into the Amendments to stock
option agreements with employees, directors and certain former employees,
(iii) the Company having entered into an Employment Agreement with each of
Messrs. Dahan and Galvin and Ms. Salem, (iv) IHS and Holdings having entered
into the Services Agreement, (v) Holdings and the Founders having entered into
the Stockholders Agreement and (vi) certain other conditions that are
customary in transactions similar to transactions contemplated by the
Formation Agreement and the Merger.
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
Set forth below are the name and business address of each director,
executive officer and controlling person of the Company, the present principal
occupation or employment of each such person, and the material occupations,
positions, offices and employment of such person during the last five years.
Unless otherwise indicated below, the business address of each director and
executive officer is 5500 Interstate North Parkway, Suite 507, Atlanta,
Georgia 30328.
Mr. Leo Benatar has been a director of the Company since shortly after the
consummation of the Company's initial public offering. Mr. Benatar has been an
Associated Consultant with A. T. Kearney since May 1996. From June 1995 until
May 1996, Mr. Benatar was Chairman of the Board of Engraph, Inc., a
manufacturer of packaging and product identification materials. Before June
1995, Mr. Benatar served as Chairman of the Board, President and Chief
Executive Officer of Engraph, Inc. for more than five years. Engraph, Inc. was
acquired by Sonoco Products Company, a manufacturer of packaging and product
identification materials in October 1993, and Mr. Benatar served as Senior
Vice President and a director of Sonoco Products Company from October 1993
until May 1996. Mr. Benatar is also a director of Interstate Bakeries
Corporation, Aaron Rents, Inc., Paxar Corporation, Mohawk Industries and Johns
Manville Corporation. From January 1, 1994 until December 31, 1995, Mr.
Benatar also served as Chairman of the Federal Reserve Bank of Atlanta. The
business address of Mr. Benatar is A. T. Kearney Incorporated, 1100 Abernathy
Road, N.E., Suite 900, Atlanta, Georgia 30328.
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Mr. Haim E. Dahan founded the Company in 1991 and has served as Chairman of
the Board of Directors and Chief Executive Officer of the Company since
January 1993. Prior to such time, from November 1989 to October 1992, Mr.
Dahan was a technical specialist for AGS Information Services, Inc. Mr. Dahan
received his M.Sc. in Mathematics and Computer Science from Ben-Gurion
University, Israel in 1986.
Mr. Michael J. Galvin joined the Company in August 1993 as Technical
Director and is currently the Vice-President of Research and Development.
Prior to joining the Company, Mr. Galvin was a Senior Analyst with Worldspan
from March 1991 to August 1993. Prior to such time, from January 1989 to March
1991, Mr. Galvin worked as a consultant for AGS Information Services, Inc.,
where he worked on the development of IBM's ProductManager. Mr. Galvin
received a Bachelor of Science degree in Computer Science from the Southern
College of Technology in 1988.
Ms. Patricia Tuxbury Salem joined the Company in June 1993 as Systems
Analyst and has served as Treasurer of the Company since that time. She
currently serves as Director of Product Data Management Services for the
Company. From February 1990 to May 1993, Ms. Salem worked as a consultant for
AGS Information Services, Inc., where she focused on the development of
software for the manufacturing sector and specialized in product data
management (PDM). Ms. Salem graduated from the University of Vermont in 1985
with a Bachelor of Science degree in Electrical Engineering.
Mr. Hugh E. Sawyer has been a director of the Company since shortly after
the consummation of the Company's initial public offering. Mr. Sawyer has
served as President and CEO of National Linen Service, Inc., a $350 million
annual sales subsidiary of National Service Industries, based in Atlanta,
Georgia, since February 1996. From March 1995 to January 1996, he served as
President of The Cunningham Group, a graphic arts company based in Atlanta,
Georgia. From 1988 to March 1995, Mr. Sawyer was President of Wells Fargo
Armored Service Corp. (a subsidiary of Borg-Warner Corp.), a security company
based in Atlanta, Georgia. Mr. Sawyer is also a director of Guardian
Technologies, Inc. The business address of Mr. Sawyer is National Linen
Service, 1420 Peachtree Street, N.E., Atlanta, Georgia 30309-3002.
Mr. Ronald Friedman joined the Company in October 1995 as Vice President of
Operations. Prior to such time, from January 1993 to September 1995, he served
as Program Manager and Technical Liaison at Elbit Fort Worth, a defense system
development provider. From January 1983 to January 1993, Mr. Friedman served
in various technical and managerial positions at Elbit Defense System, Ltd., a
defense system solution provider. Mr. Friedman received a B.A. degree in
Mathematics and Computer Science from the University of Haifa, Israel in 1988.
Mr. Robert A. DiCristina has been Vice President of Business Development of
ICI since June 1998. Prior to that time, he was a partner with Upside
Consulting Group, a management-consulting firm in Atlanta specializing in
strategic marketing issues for enterprise application software companies, from
February 1997 to June 1998 and from April 1990 to March 1995. From January
1996 to February 1997, Mr. DiCristina was Senior Vice-President for ProMIRA
Software, Inc., an enterprise software company located in Ottawa, Canada, and
from March 1995 to January 1996, he was Senior Vice-President of Worldwide
Marketing for Numetrix, Inc., a supply chain software company headquartered in
Toronto. Mr. DiCristina received a bachelors degree in Business Administration
from the University of North Carolina at Chapel Hill, and a MBA from the
University of Georgia.
Mr. Ralph E. Walter joined the Company as Controller and Chief Accounting
Officer in 1997 and was named Chief Financial Officer in July 1997. Prior to
such time, Mr. Walter worked as a self-employed corporate finance and
accounting consultant from May 1992 to March 1997, specializing in startup
companies and small businesses. During that period, he served as Controller of
Hurdy-Gurdy International, Inc., a food distributor and franchiser located in
Deerfield Beach, Florida, from May 1993 to December 1995. Mr. Walter received
a B.A. degree in Liberal Arts from University of Pennsylvania in 1970 and an
M.B.A. degree with a finance concentration from Carnegie Mellon University in
1977.
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DIRECTORS AND EXECUTIVE OFFICERS OF
THE SURVIVING CORPORATION
Set forth below are the name and business address of each person who is
expected to be a director, executive officer or controlling person of the
Surviving Corporation, the present principal occupation or employment of each
such person, and the material occupations, positions, offices and employment
of such persons during the last five years.
DIRECTORS
MICHAEL J. TIMBERS is Chairman and Chief Executive Officer of Information
Handling Services Group Inc. (IHS Group). Mr. Timbers joined Information
Handling Services Inc., the core IHS Group company, as president in 1981 and
became president of IHS Group in 1989. Prior to this time, from 1976 to 1981,
Mr. Timbers was president of Washington Management Group, a market research
firm, and from 1972 to 1975 he was CEO of the Federal Supply Service of the US
General Services Administration. Mr. Timbers received a bachelors degree in
Finance from the University of Virginia and an MBA from New York University.
CHRIS MEYER is President, Chief Operating Officer and Chief Financial
Officer of IHS Group. Mr. Meyer has also held Vice President, Executive Vice
President and Controller positions with IHS Group. From 1978 to 1985, Mr.
Meyer was an Assistant Controller for an affiliate of IHS Group. Prior to such
time, he was a certified public accountant with Price Waterhouse. Mr. Meyer
received bachelors degrees in Political Science and Economics from West
Virginia University and an MBA from New York University.
PAT ROMICH is President of the Engineering Products Division of Information
Handling Services Inc. Prior to becoming President, Mr. Romich spent 12 years
in the IHS Engineering Sales force, starting as a Sales Representative and
then being promoted to General Manager and to Vice President of Sales. Mr.
Romich received a bachelors degree in Business Administration from Wilkes
University.
STEPHEN GREEN is Vice President and General Counsel of TBG Services Inc., an
affiliate of IHS Group. Mr. Green has also held positions of Assistant General
Counsel and Senior Staff Attorney with TBG Services and affiliated companies.
Prior to joining TBG, Mr. Green was an associate with a law firm and a law
clerk. Mr. Green received a bachelors degree from Yale University and a law
degree from Columbia University.
Information regarding Mr. Dahan is provided above in "Management--Directors
and Executive Officers of the Company."
The business address for Michael Timbers, Chris Meyer, Pat Romich and Jim
Hofbauer is: 15 Inverness Way East, Englewood, Colorado 80150. The business
address for Stephen Green is: 565 Fifth Avenue, New York, New York 10017.
OFFICERS
Chris Meyer--Chairman
Pat Romich--Chief Executive Officer
Haim E. Dahan--President and Chief Technology Officer
Jim Hofbauer--Vice President and Chief Financial Officer
MR. JIM HOFBAUER is Vice President--Special Projects of IHS Group. From 1996
to 1998 Mr. Hofbauer held the position of Vice President of manufacturing for
IHS Group. Prior to joining IHS Group, Mr. Hofbauer
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held various financial and operating positions with an IHS Group subsidiary,
Continental Healthcare Systems Inc. and was President of Continental from 1994
to 1996. From 1992 to 1993 he was Executive Vice President Chief Operating
Officer of CLSI, another former IHS Group subsidiary. Mr. Hofbauer received a
degree in accounting from Kansas State University.
The Surviving Corporation will be controlled by Holdings and by IHS. The
ultimate parent company of IHS is TBG Holdings NV, and the ultimate
controlling person of the Surviving Corporation would be Thyssen-Bornemisza
Continuing Trust, whose address is:
Clarendon House
Church Street
Hamilton, Bermuda
MARKET PRICES AND DIVIDENDS
The Company's Common Stock is traded on the Nasdaq National Market under the
symbol "ICIQ." Shortly after November 10, 1998 when Thybo New Ventures, Ltd.,
an affiliate of IHS, amended its Schedule 13D to reflect a change in its
intentions and those of its affiliates, from passively holding the shares of
Common Stock, to the possibility of increasing its investment in the Company,
the market price of Common Stock of the Company increased to the approximate
range of $5.00 to $6.00 per share. On January 8, 1999, the last trading day
before the public announcement that the Company and Merger Sub had executed
the Merger Agreement, the high and low sale prices per share of the Company's
Common Stock as reported on the Nasdaq National Market were $6.75 and $6.00,
respectively.
The following table sets forth the high and low sale prices per share of the
Company's Common Stock on the Nasdaq National Market with respect to each
quarterly period since the Company went public on April 29, 1997:
MARKET PRICE OF COMMON STOCK
<TABLE>
<CAPTION>
HIGH TRADE LOW TRADE
---------- ---------
<S> <C> <C>
YEAR ENDED DECEMBER 31, 1997
Second Quarter (April 30 to June 30)....................... $10.625 $ 9.00
Third Quarter.............................................. $11.500 $ 8.75
Fourth Quarter............................................. $12.875 $ 6.50
YEAR ENDED DECEMBER 31, 1998
First Quarter.............................................. $10.125 $ 6.50
Second Quarter............................................. $ 8.75 $ 5.50
Third Quarter.............................................. $ 8.25 $ 3.00
Fourth Quarter............................................. $ 6.25 $ 1.25
YEAR ENDING DECEMBER 31, 1999
First Quarter (January 1 to January 15).................... $ 9.00* $4.6875
</TABLE>
- --------
* The high trade in this Quarter, prior to the announcement of the Merger, was
$6.75.
Since going public, except in connection with the conversion of the
Company's tax status from Subchapter S to Subchapter C, the Company has not
paid cash dividends on its Common Stock and has no present intention of paying
cash dividends on its Common Stock in the foreseeable future. Under the Merger
Agreement, the Company has agreed not to pay any dividends on its Common Stock
prior to the Effective Time.
46
<PAGE>
FINANCING OF THE MERGER
The Merger and the related transactions will be financed internally by the
Merging Group, including funds of the Company. Set forth below are the
estimated cash sources and uses of the financing for the consummation of the
Merger (in millions):
<TABLE>
<S> <C> <C>
SOURCES OF FUNDS:
Internal Financing..................................... $
--------
Total................................................ $
========
USES OF FUNDS:
Cash Merger Price...................................... $
--------
Payment to Option Holders.............................. $
========
Partial reimbursement of payments to holders of
Debenture Holder Warrants............................. $223,000
Estimated fees and expenses............................ $
--------
Total................................................ $
========
</TABLE>
There is no financing contingency with respect to the Merger.
EXPENSES OF THE MERGER
The Merger Agreement provides that the Company and Merger Sub will bear
their respective expenses incurred in connection with the Merger Agreement and
the transactions contemplated thereby, whether or not the Merger is
consummated, except that if the Merger is consummated, in effect, Holdings
will bear all expenses incurred by the Company. The estimated fees and
expenses incurred and to be incurred by the Company and Merger Sub in
connection with the Merger and the related transactions (assuming the
consummation thereof) are as follows:
<TABLE>
<S> <C>
Financial advisory fees........................................... $
Legal fees........................................................
Accounting fees...................................................
SEC filing fees................................................... 3,637
Printing and mailing..............................................
Miscellaneous.....................................................
------
Total........................................................... $
======
</TABLE>
FINANCIAL STATEMENTS
The firm of Habif, Arogeti & Wynne, P.C. served as the independent auditor
for the Company from 1994 through 1997, and performed the audit for the fiscal
years ended December 31, 1997 and 1996. The 1998 Financial Statements are
unaudited. See audited and unaudited financial statements of the Company in
Appendix F to this Proxy Statement.
STOCKHOLDER PROPOSALS
Any stockholder's proposals intended to be presented at the Company's 1999
annual meeting of stockholders were required to be forwarded in writing and
received at the principal executive offices of the Company no later than
December 1, 1998, directed to the attention of the Secretary, in order to be
considered for inclusion in the Company's proxy statement and form of proxy to
be distributed by the Board in connection with such meeting.
OTHER MATTERS
As of the date of this Proxy Statement, the Board of Directors does not
intend to present, and has not been informed that any other person intends to
present, any matter for action at the Special Meeting other than the single
matter specifically referred to in this Proxy Statement. If other matters
properly come before the meeting, the persons named in the proxy will vote
that proxy in accordance with their best judgment.
47
<PAGE>
AVAILABLE INFORMATION
Because the merger is a "going private" transaction, the Company and three
of the Founders have filed a Rule 13e-3 Transaction Statement on Schedule 13E-
3 with the SEC under the Exchange Act with respect to the Merger. The Schedule
13E-3 and the reports, proxy statements and other information referred to
below contain additional information about the Company. Copies of the Schedule
13E-3 are available for inspection and copying at the principal executive
offices of the Company during regular business hours by any interested
stockholder of the Company, or a representative who has been so designated in
writing. Copies can also be obtained by mail if you make a written request
directed to the Company at 5500 Interstate North Parkway, Suite 507, Atlanta,
Georgia 30328, Attention: Ralph E. Walter, Chief Financial Officer, or call
Mr. Walter at (770) 240-2304.
The Company is currently subject to the informational requirements of the
Exchange Act and in accordance therewith files periodic reports, proxy
statements and other information with the SEC relating to its business,
financial and other matters. Copies of such reports, proxy statements and
other information, as well as the Schedule 13E-3, may be copied (at prescribed
rates) at the public reference facilities maintained by the SEC at Room 1024,
450 Fifth Street, N.W., Judiciary Plaza, Washington, D.C. 20549. For further
information concerning the SEC's public reference rooms, you may call the SEC
at 1-800-SEC-0330. Some of this information may also be accessed on the World
Wide Web through the SEC's Internet address at http://www.sec.gov.
By Order of the Board of Directors,
Secretary
48
<PAGE>
INDEX TO
FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
Audited financial statements for the fiscal years ended December 31,
1997 and 1996, and notes thereto:
Independent auditors' report........................................ F-2
Financial statements:
Balance sheet..................................................... F-3
Statements of income.............................................. F-4
Statements of changes in stockholders' equity..................... F-5
Statements of cash flows.......................................... F-6
Notes to financial statements..................................... F-7--F-14
Unaudited financial statements for the year ended December 31, 1998
and notes thereto:
Balance sheet..................................................... F-15
Statement of operations........................................... F-16
Statement of cash flows........................................... F-17
Notes to financial statements..................................... F-18
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of International CompuTex, Inc.
We have audited the accompanying balance sheet of INTERNATIONAL COMPUTEX,
INC. [corporation] as of December 31, 1997, and the related statements of
income, changes in stockholders' equity, and cash flows for the years ended
December 31, 1997 and 1996. These financial statements are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of INTERNATIONAL COMPUTEX,
INC. as of December 31, 1997 and the results of its operations and its cash
flows for the years ended December 31, 1997 and 1996 in conformity with
generally accepted accounting principles.
Atlanta, Georgia
March 14, 1998, except Note M, as to which the date is March 24, 1998.
F-2
<PAGE>
INTERNATIONAL COMPUTEX, INC.
BALANCE SHEET
DECEMBER 31, 1997
<TABLE>
<S> <C>
ASSETS
Current assets
Cash and cash equivalents........................................ $ 6,943,351
Accounts receivable, net of allowance of $-0-.................... 1,146,483
Investments...................................................... 1,046,562
Prepaid expenses................................................. 197,956
-----------
Total current assets........................................... 9,334,352
-----------
Property and equipment, net........................................ 548,209
-----------
Other assets.......................................................
Software development costs, net of accumulated amortization of
$111,264........................................................ 422,333
Other............................................................ 10,305
-----------
432,638
-----------
$10,315,199
===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable and accrued expenses............................ $ 76,077
Current portion of long-term debt................................ 3,775
Deferred revenue................................................. 117,187
S corporation distributions payable.............................. 123,003
-----------
Total current liabilities...................................... 320,042
-----------
Long-term liabilities..............................................
Long-term debt, net of current portion............................. 14,834
Deferred taxes..................................................... 45,202
-----------
60,036
-----------
Total liabilities.............................................. 380,078
-----------
Stockholders' equity...............................................
Common stock, $.001 par value, 20,000,000 shares authorized;
3,250,690 shares issued and outstanding......................... 3,251
Additional paid-in-capital....................................... 9,530,283
Retained earnings................................................ 401,587
-----------
9,935,121
-----------
$10,315,199
===========
</TABLE>
See auditors' report and accompanying notes.
F-3
<PAGE>
INTERNATIONAL COMPUTEX, INC.
STATEMENTS OF INCOME
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
DECEMBER 31,
----------------------
1997 1996
---------- ----------
<S> <C> <C>
Operating revenues
Services.............................................. $5,042,570 $3,716,034
Software.............................................. 214,500 175,000
---------- ----------
5,257,070 3,891,034
---------- ----------
Expenses
Direct costs--services................................ 1,486,058 1,288,782
Direct costs--software................................ 111,264 --
Sales and marketing................................... 621,884 340,860
General and administrative............................ 1,276,736 408,538
Depreciation and amortization......................... 94,041 31,518
Research and development.............................. 377,057 3,365
---------- ----------
3,967,040 2,073,063
---------- ----------
Income from operations................................ 1,290,030 1,817,971
========== ==========
Other income (expense)
Interest income....................................... 240,836 3,067
Dividend income....................................... 33,986 --
Unrealized capital gains.............................. 24,655 --
Realized capital losses............................... (666)
Interest expense...................................... (473,259) (654)
---------- ----------
(174,448) 2,413
---------- ----------
Income before provision for income taxes................ 1,115,582 1,820,384
Provision for income taxes.............................. 218,922 --
---------- ----------
Net income--historical................................ 896,660 1,820,384
Pro forma provision for income taxes (Note A)........... 186,000 686,000
---------- ----------
Pro forma net income.................................... $ 710,660 $1,134,384
========== ==========
Pro forma earnings per share (Note A)................... $ .23 $ .50
========== ==========
Weighted average shares outstanding..................... 3,100,898 2,287,855
========== ==========
</TABLE>
See auditors' report and accompanying notes
F-4
<PAGE>
INTERNATIONAL COMPUTEX, INC.
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
COMMON STOCK
------------------- ADDITIONAL TOTAL
NUMBER OF $.001 PAR PAID-IN RETAINED STOCKHOLDERS'
SHARES STOCK CAPITAL EARNINGS EQUITY
--------- --------- ---------- ----------- -------------
<S> <C> <C> <C> <C> <C>
Balances, January 1,
1996................... 2,125,000 $2,125 $ -- $ 945,335 $ 947,460
Net income.............. -- -- -- 1,820,384 1,820,384
Distributions........... -- -- -- (1,215,217) (1,215,217)
--------- ------ ---------- ----------- -----------
Balances, December 31,
1996................... 2,125,000 2,125 -- 1,550,502 1,552,627
Issuance of stock
options (Note J)....... -- -- 442,382 -- 442,382
Issuance of warrants
(Note L)............... -- -- 22,170 -- 22,170
Net income as S
corporation January 1,
1997--April 30, 1997... -- -- -- 495,073 495,073
Distributions to S
corporation
shareholders (Note M).. -- -- (464,552) (2,045,575) (2,510,127)
Issuance of common stock
in connection with
initial public offering
(Note K)............... 1,125,000 1,125 9,285,938 -- 9,287,063
Issuance of common
stock.................. 690 1 374 -- 375
Lapse of stock options
(Note J)............... -- -- (53,100) -- (53,100)
Issuance of warrants
(Note L)............... -- -- 297,071 -- 297,071
Net income as C
corporation May 1,
1997--December 31,
1997................... -- -- -- 401,587 401,587
--------- ------ ---------- ----------- -----------
Balances, December 31,
1997................... 3,250,690 $3,251 $9,530,283 $ 401,587 $ 9,935,121
========= ====== ========== =========== ===========
</TABLE>
See auditors' report and accompanying notes.
F-5
<PAGE>
INTERNATIONAL COMPUTEX, INC.
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31,
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income.......................................... $ 896,660 $ 1,820,384
----------- -----------
Adjustments to reconcile net income to net cash
provided by operating activities
Depreciation and amortization....................... 205,305 31,518
Provision for bad debt.............................. -- 24,082
Deferred taxes...................................... 45,202 --
Noncash charge for option issuances................. 389,282 --
Noncash charge for warrant issuances................ 319,241 --
Changes in assets and liabilities
Increase in accounts receivable.................... (126,164) (237,031)
Increase in prepaid expenses....................... (184,218) (8,195)
Decrease [Increase] in other assets................ (10,302) 1,029
Increase in accounts payable and accrued expenses.. 30,817 10,640
Increase in deferred revenue....................... 117,187 --
----------- -----------
Total adjustments................................ 786,350 (177,957)
----------- -----------
Net cash provided by operating activities....... 1,683,010 1,642,427
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of property and equipment............... (473,842) (88,257)
Software development costs capitalized.............. (257,228) (276,372)
Investments......................................... (1,046,562) --
----------- -----------
Net cash used by investing activities........... (1,777,632) (364,629)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Deferred offering costs............................. 22,424 (22,424)
Principal payments on long-term debt................ (4,515) (1,376)
Issuance of common stock............................ 9,287,438 --
S Corporation distributions paid.................... (2,387,124) (1,215,217)
----------- -----------
Net cash provided [used] by financing activi-
ties........................................... 6,918,223 (1,239,017)
----------- -----------
Net increase in cash and cash equivalents....... 6,823,601 38,781
Cash and cash equivalents, beginning of year......... 119,750 80,969
----------- -----------
Cash and cash equivalents, end of year............. $ 6,943,351 $ 119,750
=========== ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the years for Interest............. $ 154,018 $ --
Taxes............................................... $ 295,000 $ --
NONCASH FINANCING AND INVESTING ACTIVITIES
Acquisition of property and equipment by long-term
debt............................................... $ -- $ 24,500
Distribution to S corporation shareholders by
declaring S corporation distribution payable....... $ 123,003 $ --
</TABLE>
See auditors' report and accompanying notes.
F-6
<PAGE>
INTERNATIONAL COMPUTEX, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1996
A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
GENERAL:
INTERNATIONAL COMPUTEX, INC., (the "Company"), a Georgia corporation, was
formed for the purpose of development and sale of licensed computer software
and computer consulting services. The Company develops, markets and supports
enterprise client/server software products that enable manufacturers to
improve product development and business processes through component and
supplier management and product data management. The Company licenses software
and provides software services both within and outside the United States.
CASH AND CASH EQUIVALENTS:
The Company considers all highly liquid debt instruments with an original
maturity of three months or less to be cash equivalents.
PROPERTY AND EQUIPMENT:
Property and equipment are carried at cost. Expenditures for maintenance and
repairs are expensed currently, while renewals and betterments that materially
extend the life of an asset are capitalized. The cost of assets sold, retired,
or otherwise disposed of, and the related allowance for depreciation, are
eliminated from the accounts, and any resulting gain or loss is recognized.
Depreciation is provided using the straight-line method over the estimated
useful lives of the assets, which are as follows:
<TABLE>
<S> <C>
Computer equipment 5 years
Office furniture and equipment 5-7 years
Other 5 years
</TABLE>
OTHER ASSETS:
Other assets consists of deposits and organization costs. Organization costs
are recorded at cost and amortized on a straight-line basis over a five-year
period.
SOFTWARE DEVELOPMENT COSTS:
In accordance with Statement of Financial Accounting Standards No. 86,
Accounting for the Costs of Computer Software to be Sold, Leased, or Otherwise
Marketed, initial costs incurred prior to the attainment of technological and
marketing feasibility of products are charged to operations. Thereafter, the
Company capitalizes the direct costs and allocated overhead associated with
the development of software products until the point of market release. Costs
incurred subsequent to the product release, and research and development
performed under contract, are charged to operations.
F-7
<PAGE>
INTERNATIONAL COMPUTEX, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997 AND 1996
Capitalized costs are amortized over the estimated product life, which is
three years, on the straight-line basis. Amortization begins when the product
is available for general release to customers. Unamortized costs are carried
at the lower of book value or net realizable value.
REVENUE RECOGNITION:
Revenue consists primarily of consulting services, licensing fees, and post
contract customer support. The Company accounts for such revenue in accordance
with the American Institute of Certified Public Accountants' (AICPA) Statement
of Position 91-1, Software Revenue Recognition, as follows:
<TABLE>
<C> <S>
License revenue Revenue from the license of software
is recognized after shipment of the
product and fulfillment of acceptance
terms, provided no significant
obligations remain and collection of
resulting receivable is deemed
probable.
Installation, consulting and education When services are provided.
Support contract Ratably over the life of the contract
from the effective date.
</TABLE>
INCOME TAXES:
The Company had elected to be treated as an S Corporation pursuant to the
Internal Revenue Code for federal and state income tax purposes, with income
taxable and distributable to the individual stockholders without any further
tax consequences. The stockholders revoked the S Corporation status on April
30, 1997, immediately prior to the closing of the Company's initial public
offering [Note K]. Upon termination of S Corporation Status [Note M], and the
Company's Initial Public Offering, the Company became taxable as a
C Corporation from that date forward. A pro forma provision for income taxes
has been presented that represents income taxes that would have been provided
had the Company operated as a C Corporation throughout its history.
ESTIMATES:
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts of assets, liabilities, and disclosures of
contingent assets and liabilities at the date of the financial statements and
the revenues and expenses during the period. Actual amounts could differ from
those estimates.
ADVERTISING:
The Company's policy is to expense advertising costs as incurred.
RECLASSIFICATIONS:
Certain amounts in the accompanying 1996 financial statements have been
reclassified to conform to the presentation adopted in the 1997 financial
statements.
F-8
<PAGE>
INTERNATIONAL COMPUTEX, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997 AND 1996
B. CASH--CONCENTRATION OF CREDIT RISK:
At times the Company maintains deposits in one institution which exceed the
FDIC limits. At December 31, 1997, the amounts at risk were approximately
$6,976,000.
C. ACCOUNTS RECEIVABLE:
Accounts receivable consist of the following at December 31, 1997:
<TABLE>
<S> <C>
Billed......................................................... $1,041,015
Unbilled....................................................... 93,576
Miscellaneous.................................................. 11,892
----------
1,146,483
Less allowance for doubtful accounts........................... --
----------
$1,146,483
==========
</TABLE>
The maximum accounting loss from the credit risk associated with accounts
receivable is the amount of the receivable recorded, which is the face amount
of the receivable, less the allowance for doubtful accounts.
D. PROPERTY AND EQUIPMENT, NET:
Property and equipment consist of the following at December 31, 1997:
<TABLE>
<S> <C>
Computer equipment............................................. $472,100
Office furniture and equipment................................. 190,708
Other.......................................................... 37,785
---------
700,593
Accumulated depreciation....................................... (152,384)
---------
$ 548,209
=========
</TABLE>
Depreciation expense for the years ended December 31, 1997 and 1996 amounted
to $93,811 and $31,288, respectively.
E. SOFTWARE DEVELOPMENT COSTS:
<TABLE>
<S> <C>
Year ended December 31, 1997:
Balance, beginning of year.................................... $ 276,372
Amounts capitalized........................................... 257,225
Amortization.................................................. (111,264)
---------
Balance, end of year.......................................... $ 422,333
=========
Research and development costs incurred $ 634,282
Less amounts capitalized (257,225)
---------
Research and development charged to expense................... $ 377,057
=========
</TABLE>
No amortization of capitalized software development costs was recognized in
1996, as market release had not occurred for the products. In management's
opinion, the net realizable value of future sales exceeds the carrying value
of unamortized software development costs; therefore, no adjustment to
carrying value is required.
F-9
<PAGE>
INTERNATIONAL COMPUTEX, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997 AND 1996
F. INVESTMENTS:
Investments are comprised of certain debt and equity securities which are
classified as trading securities in accordance with Financial Accounting
Standard No. 115: Accounting for Certain Investments in Debt and Equity
Securities. Accordingly, investments are recorded at fair market value and
unrealized holding gains and losses are included in current period earnings.
The carrying and fair values of investment securities at December 31, 1997
were as follows:
<TABLE>
<CAPTION>
GROSS
CARRYING UNREALIZED
VALUE FAIR VALUE GAINS
---------- ---------- ----------
<S> <C> <C> <C>
Corporate securities..................... $1,021,907 $1,046,562 $24,655
========== ========== =======
</TABLE>
G. LONG-TERM DEBT:
Long-term debt consists of the following at December 31, 1997:
<TABLE>
<S> <C>
Note payable, due in monthly installments of $507 including
principal and interest at 8.75% per annum through September
1, 2001, secured by vehicle................................. $18,609
Less: amount due within one year............................. (3,775)
-------
$14,834
=======
</TABLE>
Maturity of long-term debt is as follows:
<TABLE>
<S> <C>
December 31,
1998........................................................... $ 3,775
1999........................................................... 4,988
2000........................................................... 5,442
2001........................................................... 4,404
-------
$18,609
=======
</TABLE>
H. LEASES AND COMMITMENTS AND CONTINGENCIES:
Operating Leases:
The Company maintains operating leases for office space. Rent expense for
the years ended December 31, 1997 and 1996 totaled $169,621 and $79,496,
respectively.
The future minimum lease commitments are as follows:
<TABLE>
<S> <C>
December 31,
1998 $175,889
1999 180,419
2000 185,272
2001 191,065
2002 69,718
--------
$802,363
========
</TABLE>
F-10
<PAGE>
INTERNATIONAL COMPUTEX, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997 AND 1996
Pending Litigation:
On January 15, 1998, Aspect Development, Inc. and CADIS, Inc. brought an
action against the Company and R. Steven Norwood [Norwood], Vice President of
Sales for the Company. The action was brought in the United States District
Court for the Northern District of California. The suit alleges that Norwood
breached alleged fiduciary and contractual obligations to his former employer,
CADIS, in performing his duties as Vice President of the Company. The action
further alleges that the Company and Norwood have used Aspect or CADIS trade
secrets (in the form of alleged customer lists) and interfered with Aspect's
business. The plaintiffs sought broad injunctive relief, as well as damages,
against the Company and Norwood.
In an order dated February 19, 1998, the Court preliminarily enjoined the
Company and Norwood from using information contained in certain specified
customer lists and from soliciting any customers named on those lists. The
order, which expires April 15, 1998, permits the Company to contact
prospective customers that fall into certain categories, even if present on
the lists, including customers that were prior or potential customers of the
Company or introduced to ICI by one of its strategic marketing partners or
other third party.
On March 9, 1998, the Company filed counterclaims against Aspect, including
claims for actual and attempted monopolization under the Sherman Anti-Trust
Act, unfair competition and interference with prospective relationships. In
its counterclaims, the Company is seeking, among other things, injunctive
relief and unspecified compensatory relief.
I. INCOME TAXES:
The provision for income taxes consist of:
<TABLE>
<S> <C>
Current taxes:
Federal....................................................... $128,205
State......................................................... 45,515
--------
173,720
--------
Deferred Taxes:
Federal....................................................... 38,008
State......................................................... 7,194
--------
45,202
--------
Total....................................................... $218,922
========
</TABLE>
The tax effects of temporary differences that give rise to significant
portions of the deferred tax asset and deferred tax liability at December 31,
1997 are presented below:
<TABLE>
<S> <C>
Non-Current:
Deferred tax asset
Stock options................................................. $146,759
--------
Deferred tax liability:
Accumulated depreciation...................................... 32,742
Accumulated amortization...................................... 159,219
--------
191,961
--------
Net deferred tax liability.................................... $ 45,202
========
</TABLE>
F-11
<PAGE>
INTERNATIONAL COMPUTEX, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997 AND 1996
J. EMPLOYEE BENEFIT PLANS:
401(k) Plan:
Effective July 1, 1995, the Company adopted a qualified defined contribution
plan, under Section 401(k) of the Internal Revenue code. Under the plan,
employees may elect to contribute up to fifteen percent (15%) of their salary,
subject to Internal Revenue Service limits. The company contributes a matching
fifty percent (50%) of the first five percent (5%) of employee contributions.
In addition, the plan allows for the Company to make discretionary
contributions based on the participant's salary. The Company made
discretionary contributions of $-0- for 1997 and 1996. Company matching
contributions totaled $43,998 for 1997 and $29,143 for 1996.
Stock Option Plan:
The Company adopted the 1995 Restricted Nonqualified Incentive Stock Option
Plan (the "1995 Plan"), effective August 1, 1995, for officers and key
employees, which provided for non-qualified stock options. Options to purchase
173,311 shares of common stock have been granted at $.543 per share. Of that
amount, 2,760 options have been terminated as a result of employee
terminations and 690 options have been exercised, resulting in 169,861 options
outstanding under the 1995 Plan. The 1995 Plan was terminated, prospectively
effective December 20, 1996.
The Company adopted the 1996 Stock Option Plan, effective December 20, 1996
(the "1996 Plan"). Under the 1996 Plan, which provides for issuance of either
incentive stock options or nonqualified stock options, the maximum number of
shares of common stock for which options may be granted is 500,000 shares
reduced by the number of shares outstanding under or issued pursuant to stock
options granted under the 1995 Plan. In January 1997, the Company granted
stock options to 31 employees, covering an aggregate of 163,200 shares of
common stock, at an exercise price of $4.80 per share.
For financial statement purposes, the Company has determined that the
current value of the common stock at the grant date totaled $7.75, which
results in a $2.95 per option charge to compensation expense. During the year,
31,240 of these options expired as a result of employee terminations.
Accordingly, the results of operations for 1997 were affected by a noncash
charge for compensation expense of $389,282.
Options may be granted to employees (including officers), consultants,
advisors and directors, although only employees and directors and officers who
are also employees may receive "incentive stock options" intended to qualify
for certain tax treatment. The exercise price of stock options at the grant
date is determined by management. Options granted under the Option Plans
generally vest over a four-year period and have a term of ten years, expiring
in 2006 and 2007. The fair value of the options granted, prior to the IPO, at
prices of $.543 and $4.80 were determined by management. All other options
were issued at the closing price on the date of grant. The following is a
summary of transactions:
<TABLE>
<CAPTION>
SHARES UNDER OPTION
-------------------------------------
1997 1996
------------------ ------------------
WEIGHTED WEIGHTED
AVERAGE AVERAGE
NUMBER EXERCISE NUMBER EXERCISE
OF SHARES PRICE OF SHARES PRICE
--------- -------- --------- --------
<S> <C> <C> <C> <C>
Outstanding, beginning of year......... 173,311 $ .543 74,511 $.543
Granted during the year................ 255,700 6.268 98,800 .543
Exercised during the year.............. (690) .543 --
Expired during the year................ (34,000) 4.454 --
------- -------
Outstanding, end of year............... 394,321 3.918 173,311 .543
======= =======
Eligible, end of year for exercise cur-
rently................................ 41,948 .543 18,628 .543
======= =======
</TABLE>
F-12
<PAGE>
INTERNATIONAL COMPUTEX, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997 AND 1996
At December 31, 1997 and 1996, there were 105,879 and 326,689 shares,
respectively, reserved for future grants.
Statement of Financial Accounting Standards No. 123:
During 1995, the Financial Accounting Standards Board issued SFAS 123 which
defines a fair value based method of accounting for an employee stock option
or similar equity instrument and encourages all entities to adopt that method
of accounting for all of their employee stock compensation plans. However, it
also allows an entity to continue to measure compensation cost of those plans
using the method of accounting prescribed by APB 25. Entities electing to
remain with the accounting in APB 25 must make pro forma disclosures of net
income and, if presented, earnings per share, as if the fair value based
method of accounting defined in this statement had been applied.
The Company has elected to account for its stock-based compensation plans
under APB 25. However, the Company has computed for pro forma disclosure
purposes the value of options granted during 1997, subsequent to the IPO,
using the Black-Scholes option-pricing model as prescribed by SFAS 123. The
following weighted average assumptions were used for grants in 1997:
<TABLE>
<S> <C>
Risk-free interest rate.......................................... 6.2%
Expected dividend yield.......................................... 0.0%
Expected lives................................................... 5 years
Expected volatility.............................................. 36.3%
</TABLE>
The total value of options granted during 1997 was computed as approximately
$345,000, which would be amortized on a pro forma basis over the four-year
vesting period of the options. If the Company had accounted for these plans in
accordance with SFAS 123, the Company's net income and pro forma net income
per share to the year ended December 31, 1997 would have been as follows:
<TABLE>
<CAPTION>
AS REPORTED PRO FORMA
----------- ---------
<S> <C> <C>
Pro forma net income.................................... $710,660 $656,899
Pro forma net income per share.......................... $ .23 $ .21
</TABLE>
K. STOCKHOLDERS' EQUITY:
Initial Public Offering:
The Company completed its initial public offering of 1,125,000 shares of
common stock at $9.50 per share on May 5, 1997. Net proceeds to the Company
amounted to $9,287,063.
Stock Splits:
Effective January 23, 1996, the Board of Directors authorized a 1,000 for 1
forward stock split of the Company's common stock, to be effected in the form
of a stock dividend. Effective December 20, 1996, the Board of Directors
authorized a 2.7597 for 1 forward stock split to be effected in the form of a
stock dividend. After these splits, a total of 2,125,000 shares were issued
and outstanding. Retroactive effect has been given to these splits in the
accompanying financial statements.
L. SENIOR DEBENTURES:
In January 1997, the Company received proceeds from the sale of senior
debentures in the amount of $1,115,000 at 6% interest per annum, payable semi-
annually, with the principal amount due in January 2000.
F-13
<PAGE>
INTERNATIONAL COMPUTEX, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997 AND 1996
Purchasers of the senior debentures received warrants from the stockholders of
the Company to purchase 117,368 shares of common stock held by these
stockholders at 60% of the initial public offering price. As a result of its
initial public offering and the terms of the senior debentures, the Company
prepaid in whole the senior debentures principal with accrued interest of
$19,795 on May 5, 1997, and the stockholders issued 117,368 warrants at an
exercise price of $5.70 per share, or 60% of the initial public offering price
of $9.50 per share. The issuance of the warrants and prepayment of the senior
debentures resulted in the Company taking a noncash, nonrecurring charge to
interest expense of $319,241. The prepayment of the senior debentures resulted
in the Company recognizing interest expense of $132,650 related to financing
costs of the senior debentures, primarily sales commissions.
M. TERMINATION OF S CORPORATION STATUS:
On April 30, 1997, the Company's shareholders, in accordance with the
Company's original S Corporation Termination, Tax Allocation and
Indemnification Agreement (the "Agreement") dated March 24, 1997, elected to
terminate the Company's status as an S corporation, and the Company became
subject to federal and state income taxes. Under the amended Agreement, dated
March 24, 1998, $2,360,127 was distributed to the S Corporation stockholders
by an assignment of accounts receivable and cash equaling the Company's
stockholders' equity less common stock of $2,125 as of April 30, 1997.
Additionally, prior to April 30, 1997 the Company distributed $150,000 in cash
to the pre-IPO stockholders.
N. MAJOR CUSTOMER INFORMATION:
During the years ended December 31, 1997 and 1996, revenue from IBM totaled
approximately $3,710,000 and $2,740,000, respectively. These amounts accounted
for 71% and 70% of total revenues, respectively. The amount due from IBM
included in accounts receivable, totaled approximately $ 574,000 at December
31, 1997.
O. SUBSEQUENT EVENTS:
On February 2, 1998, the Company issued and sold to Thybo New Ventures
Limited (Thybo), a Bermuda corporation, and an affiliate of IHS Group, Inc. of
Denver, Colorado 300,000 shares of common stock of the Company, at $9.50 per
share. Payment of the purchase price was made on February 2, 1998. No
commissions or finders fees were payable out of the $2,850,000 proceeds of
this private placement.
Pursuant to the Common Stock Purchase Agreement between the Company and
Thybo, Thybo granted to Haim E. Dahan, the Chief Executive Officer of the
Company, exclusive voting rights with respect to the 300,000 shares for a two-
year period commencing February 2, 1998, so long as those shares are held by
Thybo or an affiliate during that period.
F-14
<PAGE>
INTERNATIONAL COMPUTEX, INC.
BALANCE SHEET
(UNAUDITED)
DECEMBER 31, 1998
<TABLE>
<S> <C>
ASSETS
Current assets:
Cash and cash equivalents....................................... $ 6,099,689
Accounts receivable, net........................................ 449,505
Investments available for sale.................................. 2,124,265
Prepaid expenses................................................ 203,256
-----------
Total current assets.......................................... 8,876,715
-----------
Property and equipment, net....................................... 767,370
-----------
Software development costs, net................................... 244,469
Other assets...................................................... 6,281
-----------
$ 9,894,835
===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable................................................ $ 70,054
Deferred revenue................................................ 58,293
-----------
Total current liabilities..................................... 128,347
-----------
Long-term liabilities:
Deferred income taxes............................................. 45,202
-----------
Total liabilities............................................. 173,549
-----------
Stockholders' equity:
Common stock, $.001 par value, 20,000,000 shares authorized;
3,578,760 issued and outstanding at December 31, 1998.......... 3,579
Additional paid in capital...................................... 11,222,888
Retained earnings (accumulated deficit)......................... (1,505,181)
-----------
Total stockholders' equity.................................... 9,721,286
-----------
$ 9,894,835
===========
</TABLE>
See accompanying notes to unaudited financial statements.
F-15
<PAGE>
INTERNATIONAL COMPUTEX, INC.
STATEMENT OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE YEAR
ENDED
DECEMBER 31,
1998
------------
<S> <C>
Revenues
Services and other [Note 2].................................... $ 3,829,364
Software....................................................... 549,840
-----------
Total revenues............................................... 4,379,204
-----------
Operating expenses
Direct costs--services......................................... 1,424,442
Direct costs--software......................................... 177,864
Selling and marketing.......................................... 1,855,451
General and administrative..................................... 1,716,029
Depreciation................................................... 167,384
Research and development....................................... 1,407,179
-----------
Total operating expenses..................................... 6,748,349
-----------
Loss from operations........................................... (2,369,145)
-----------
Other income (expense)
Investment income.............................................. 464,161
Interest expense............................................... (1,784)
-----------
Total other income........................................... 462,377
-----------
Loss before income taxes......................................... (1,906,768)
Provision for income taxes....................................... 0
-----------
Net loss....................................................... $(1,906,768)
===========
Loss per share
Basic.......................................................... $ (.54)
Diluted*....................................................... $ (.54)
===========
Weighted average common and common equivalent shares outstanding:
Basic:......................................................... 3,557,380
Diluted:*...................................................... 3,557,380
===========
</TABLE>
* Potentially dilutive common share equivalents outstanding are not included
in 1998 calculations due to the anti-dilution of the net losses for the
period.
See accompanying notes to unaudited financial statements.
F-16
<PAGE>
INTERNATIONAL COMPUTEX, INC.
STATEMENT OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE YEAR
ENDED
DECEMBER 31,
1998
------------
<S> <C>
Cash flows from operating activities
Net loss........................................................ $(1,906,768)
-----------
Adjustments to reconcile net loss to net cash used in operating
activities
Depreciation and amortization................................. 345,248
Changes in assets and liabilities
Decrease in accounts receivable............................. 696,978
Increase in prepaid expenses................................ (5,300)
Decrease in other assets.................................... 4,024
Decrease in accounts payable................................ (6,023)
Decrease in deferred revenue................................ (58,894)
-----------
Total adjustments......................................... 976,033
-----------
Net cash used in operating activities..................... (930,735)
-----------
Cash flows from investing activities
Acquisition of property and equipment........................... (386,544)
Increase in investments......................................... (1,077,703)
-----------
Net cash used in investing activities..................... (1,464,247)
-----------
Cash flows from financing activities
Principal payments on long-term debt............................ (18,609)
Stockholder distributions paid.................................. (123,003)
Proceeds from private placement, net............................ 1,674,798
Proceeds from exercise of options............................... 18,134
-----------
Net cash provided by financing activities................. 1,551,320
-----------
Net decrease in cash.............................................. (843,662)
Cash and cash equivalents, beginning of period.................... 6,943,351
-----------
Cash and cash equivalents, end of period.......................... $ 6,099,689
===========
</TABLE>
See accompanying notes to unaudited financial statements.
F-17
<PAGE>
INTERNATIONAL COMPUTEX, INC.
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF PRESENTATION
The accompanying unaudited financial statements have been prepared by
International CompuTex, Inc. (the "Company") in accordance with generally
accepted accounting principles. They do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements and should be read in conjunction with the financial
statements and notes thereto for the year ended December 31, 1997 included in
the Company's Annual Report on Form 10-KSB. The financial information included
herein is unaudited; however, the information reflects all adjustments that
are, in the opinion of management, necessary to a fair presentation of the
financial position, results of operations.
2. 1998 PRIVATE PLACEMENT
On February 2, 1998, the Company issued and sold to Thybo New Ventures
Limited (a Bermuda corporation), an affiliate of IHS Group, Inc. ("IHS") of
Denver, Colorado, 300,000 shares of common stock of the Company. No
commissions or finders fees were payable. The net proceeds from the
transaction were $2,823,498, of which $1,674,498 was allocated to the sale of
common stock based on a fair market valuation of the unregistered, non-voting
stock on the date of issuance of $5.67 per share. The balance of the proceeds
was allocated to deferred services revenues under the terms and conditions of
the related Strategic Business Alliance entered into by the Company with IHS
on January 23, 1998, of which $574,500 was recognized under the percentage of
completion basis in the first quarter of 1998, and $574,500 was recognized in
the second quarter of 1998.
3. PENDING LITIGATION
The Company is a party in pending litigation between the Company and Aspect
Development and CADIS, Inc., discussed in Part II, Item 1 of the Company's 10-
QSB for the quarter ended March 31, 1998. There can be no assurance that the
outcome of this case will be favorable to the Company, or that it will not
have a material adverse impact on the business, operations, and financial
condition of the Company.
4. RECENT ACCOUNTING PRONOUNCEMENTS
REVENUE RECOGNITION
On January 1, 1998, the Company adopted Statement of Position 97-2, Software
Revenue Recognition, issued by the Accounting Standards Executive Committee in
October 1997, effective for financial statements for fiscal years beginning
after December 15, 1997. The implementation of this statement has not had a
material impact on the Company's unaudited financial statements.
COMPREHENSIVE INCOME
On January 1, 1998, the Company adopted Statement of Financial Accounting
Standards No. 130, Reporting Comprehensive Income, issued by the Financial
Accounting Standards Board ("FASB") in June 1997, effective for the fiscal
years beginning after December 15, 1997. Comprehensive income includes all
changes in equity during a period except those resulting from investments by
owners and distributions to owners. The implementation of this statement has
had no impact on the Company's unaudited financial statements.
OTHER
The Company continues to evaluate the requirements of Statement of Financial
Accounting Standards No. 131, Disclosure about Segments of an Enterprise and
Related Information, issued by the FASB in June 1997, effective for fiscal
years beginning after December 15, 1997.
5. SUBSEQUENT EVENTS
On January 11, 1999 the Company announced an agreement with IHS to merge the
Company with a new subsidiary to be formed by IHS. Under the terms of the
merger, shares held by the Company's shareholders would be converted into the
right to receive $9.50 per share, subject to approval of the Company's
shareholders and satisfaction of certain other closing conditions.
F-18
<PAGE>
EXHIBIT A
AGREEMENT AND PLAN OF MERGER dated as of
January [ ], 1999 (this "Agreement"), among
INFORMATION HANDLING SERVICES INC., a
Delaware corporation ("IHS"), IHS ITEMQUEST
HOLDINGS INC., a Delaware corporation
("Holdings"), [MERGER SUB], a Georgia
corporation ("Merger Sub"), and International
CompuTex, Inc., a Georgia corporation
("ICI").
WHEREAS IHS and certain shareholders of ICI are parties to a Formation
Agreement dated as of January 10, 1999 (the "Formation Agreement"), pursuant
to which the Formation Transaction (capitalized terms used herein but not
defined herein shall have the meanings assigned thereto in the Formation
Agreement) will be consummated; and
WHEREAS the respective Boards of Directors of Holdings, Merger Sub and ICI
have approved the merger of Merger Sub with and into ICI on the terms and
subject to the conditions set forth in this Agreement, whereby each issued
share of common stock, par value $0.001 per share, of ICI (the "ICI Common
Stock") not owned directly or indirectly by Holdings or ICI shall be converted
into cash.
NOW, THEREFORE, the parties hereto agree as follows:
ARTICLE I
THE MERGER
SECTION 1.01. The Merger. On the terms and subject to the conditions set
forth in this Agreement, and in accordance with the Georgia Business
Corporation Code (the "GBCC"), Merger Sub shall be merged with and into ICI at
the Effective Time (as defined below). At the Effective Time, the separate
corporate existence of Merger Sub shall cease, and ICI shall continue as the
surviving corporation (the "Surviving Corporation").
SECTION 1.02. Closing. The closing of the Merger (the "Closing") shall take
place immediately following the consummation of the Formation Transaction.
SECTION 1.03. Effective Time. Prior to the Closing, Holdings shall prepare,
and on the date on which the Closing occurs (or as soon as practicable
thereafter), Holdings shall file with the Secretary of State of the State of
Georgia, a certificate or articles of merger or other appropriate documents
(in any such case, the "Certificate of Merger") executed in accordance with
the relevant provisions of the GBCC and shall make all other filings or
recordings required under the GBCC. The Merger shall become effective at such
time as the Certificate of Merger is duly filed with the Secretary of State of
the State of Georgia or at such subsequent time as shall be stated in the
Certificate of Merger (the "Effective Time").
SECTION 1.04. Effects. The Merger shall have the effects set forth in
Section 14-2-1106 of the GBCC.
SECTION 1.05. Articles of Incorporation and By-laws. (a) The Restated
Articles of Incorporation of ICI as in effect immediately prior to the
Effective Time shall be amended at the Effective Time so that (i) Article I of
such Restated Articles of Incorporation reads in its entirety as follows: "The
name of the Corporation is: "IHS Itemquest II Inc." and (ii) Article IV of
such Restated Articles of Incorporation reads in its entirety as follows: "The
Corporation shall have authority to issue not more than 110,000,000 shares of
a single class of Common Stock with par value $0.001 per share.", and, as so
amended, such Restated Articles of Incorporation shall be the articles of
incorporation of the Surviving Corporation until thereafter changed or amended
as provided therein or by applicable law.
A-1
<PAGE>
(b) The By-laws of Merger Sub as in effect immediately prior to the
Effective Time shall be the By-laws of the Surviving Corporation until
thereafter changed or amended as provided therein or by applicable law.
SECTION 1.06. Directors. Haim E. Dahan, who is currently the President,
Chief Executive Officer and Chairman of ICI, will become a director of the
Surviving Corporation at the Effective Time. Other than Mr. Dahan, the
directors of Merger Sub immediately prior to the Effective Time shall be the
directors of the Surviving Corporation, until the earlier of their resignation
or removal or until their respective successors are duly elected and
qualified, as the case may be.
SECTION 1.07. Officers. Mr. Dahan will become the President and Chief
Technology Officer of the Surviving Corporation. In addition, Michael J.
Galvin and Patricia Tuxbury Salem, who are currently officers and directors of
ICI, will become officers, but not directors, of the Surviving Corporation.
Other than Mr. Dahan, Mr. Galvin and Ms. Salem, the officers of Merger Sub
immediately prior to the Effective Time shall be the officers of the Surviving
Corporation, until the earlier of their resignation or removal or until their
respective successors are duly elected and qualified, as the case may be.
ARTICLE II
EFFECT OF THE MERGER ON THE CAPITAL STOCK OF THE
CONSTITUENT CORPORATIONS; EXCHANGE OF CERTIFICATES
SECTION 2.01. Effect on Capital Stock. As of the Effective Time, by virtue
of the Merger and without any action on the part of the holder of any shares
of ICI Common Stock or any shares of Merger Sub Common Stock:
(a) Capital Stock of Merger Sub. Each issued and outstanding share of Merger
Sub Common Stock shall be converted into and become one fully paid and
nonassessable share of common stock, par value $0.001 per share, of the
Surviving Corporation.
(b) Cancelation of Treasury Stock and Stock Owned by Holdings or Merger
Sub. Each share of ICI Common Stock that is owned by ICI and each share of ICI
Common Stock that is owned by Holdings or Merger Sub shall no longer be
outstanding and shall automatically be canceled and retired and shall cease to
exist, and no Merger Consideration (as defined below) or other consideration
shall be delivered in exchange therefor.
(c) Conversion of ICI Common Stock. Subject to Sections 2.01(b) and 2.01(d),
each issued and outstanding share of ICI Common Stock shall be converted into
the right to receive $9.50 in cash (the "Merger Consideration"). As of the
Effective Time, all such shares of ICI Common Stock shall no longer be
outstanding and shall automatically be canceled and retired and shall cease to
exist, and each holder of a certificate previously representing any such
shares shall cease to have any rights with respect thereto, except the right
to receive the Merger Consideration upon surrender of such certificate in
accordance with Section 2.02, without interest.
(d) Dissenters' Rights. Notwithstanding anything in this Agreement to the
contrary, shares ("Dissent Shares") of ICI Common Stock that are outstanding
immediately prior to the Effective Time and that are held by any Person who is
entitled to demand, and who properly demands, payment of the fair value of
such Dissent Shares pursuant to, and who complies in all respects with,
Article 13 of the GBCC ("Article 13") shall not be converted into Merger
Consideration as provided in Section 2.01(c), but rather the holders of
Dissent Shares shall be entitled to payment of the fair value of such Dissent
Shares in accordance with Article 13; provided, however, that if any such
holder shall fail to perfect or otherwise shall waive, withdraw or lose the
right to receive payment of fair value under Article 13, then the right of
such holder to be paid the fair value of such holder's Dissent Shares shall
cease and such Dissent Shares shall be deemed to have been converted as of the
Effective Time into, and to have become exchangeable solely for the right to
receive, the Merger Consideration as provided in Section 2.01(c). Prior to the
Effective Time, ICI shall not, without the prior written consent of IHS, make
any payment with respect to, or settle or offer to settle, any such demands,
or agree to do any of the foregoing.
A-2
<PAGE>
SECTION 2.02. Exchange of Certificates. (a) Paying Agent. Prior to the
Effective Time, ICI shall designate American Stock Transfer & Trust Company,
or other bank or trust company, to act as paying agent (the "Paying Agent")
for the payment of the Merger Consideration upon surrender of certificates
representing ICI Common Stock.
(b) ICI To Provide Funds. ICI shall take all steps necessary to enable the
Surviving Corporation to provide to the Paying Agent, on a timely basis, as
and when needed on and after the Effective Time, cash necessary to pay for the
shares of ICI Common Stock converted into the right to receive cash pursuant
to Section 2.01 (such cash being hereinafter referred to as the "Exchange
Fund").
(c) Exchange Procedures. As soon as reasonably practicable after the
Effective Time, the Surviving Corporation shall cause the Paying Agent to mail
to each holder of record of a certificate or certificates (each, a
"Certificate") which immediately prior to the Effective Time represented
outstanding shares of ICI Common Stock whose shares were converted into the
right to receive the Merger Consideration pursuant to Section 2.01 (i) a
letter of transmittal (which shall specify that delivery shall be effected,
and risk of loss and title to the Certificates shall pass, only upon delivery
of the Certificates to the Paying Agent and shall be in such form and have
such other provisions as the Surviving Corporation may reasonably specify) and
(ii) instructions for use in effecting the surrender of the Certificates in
exchange for the Merger Consideration. Upon surrender of a Certificate for
cancelation to the Paying Agent or to such other agent or agents as may be
appointed by ICI, together with such letter of transmittal, duly executed, and
such other documents as may be reasonably required by the Paying Agent, the
holder of such Certificate shall be entitled to receive in exchange therefor
the amount of cash into which the shares of ICI Common Stock theretofore
represented by such Certificate shall have been converted pursuant to Section
2.01, and the Certificate so surrendered shall forthwith be canceled. In the
event of a transfer of ownership of ICI Common Stock which is not registered
in the transfer records of ICI, payment may be made to a Person other than the
Person in whose name the Certificate so surrendered is registered, if such
Certificate shall be properly endorsed or otherwise be in proper form for
transfer and the Person requesting such payment shall pay any transfer or
other taxes required by reason of the payment to a Person other than the
registered holder of such Certificate or establish to the satisfaction of the
Surviving Corporation that such tax has been paid or is not applicable. Until
surrendered as contemplated by this Section 2.02, each Certificate shall be
deemed at any time after the Effective Time to represent only the right to
receive upon such surrender the amount of cash, without interest, into which
the shares of ICI Common Stock theretofore represented by such Certificate
shall have been converted pursuant to Section 2.01. No interest will be paid
or will accrue on the cash payable upon the surrender of any Certificate,
except to the extent provided under Article 13.
(d) No Further Ownership Rights in ICI Common Stock. The Merger
Consideration paid upon the surrender of Certificates in accordance with the
terms hereof shall be deemed to have been paid in full satisfaction of all
rights pertaining to the shares of ICI Common Stock theretofore represented by
such Certificates, subject, however, to the Surviving Corporation's obligation
to pay any dividends or make any other distributions with a record date prior
to the Effective Time which may have been declared or made by ICI on such
shares of ICI Common Stock in accordance with the terms of this Agreement and
the Formation Agreement on or prior to the Effective Time and which remain
unpaid at the Effective Time, and there shall be no further registration of
transfers on the stock transfer books of the Surviving Corporation of the
shares of ICI Common Stock which were outstanding immediately prior to the
Effective Time. If, after the Effective Time, Certificates are presented to
the Surviving Corporation for any reason, they shall be canceled and exchanged
as provided in this Article II.
(e) Termination of Exchange Fund. Any portion of the Exchange Fund that
remains undistributed to the holders of ICI Common Stock for six months after
the Effective Time shall be delivered to the Surviving Corporation, upon
demand, and any holder of ICI Common Stock who has not theretofore complied
with this Article II shall thereafter look only to the Surviving Corporation
for payment of its claim for Merger Consideration.
(f) No Liability. None of IHS, Holdings, Merger Sub, ICI or the Paying Agent
shall be liable to any Person in respect of any cash from the Exchange Fund
delivered to a public official pursuant to any applicable abandoned property,
escheat or similar law. If any Certificate has not been surrendered prior to
five years after
A-3
<PAGE>
the Effective Time (or immediately prior to such earlier date on which Merger
Consideration in respect of such Certificate would otherwise escheat to or
become the property of any Governmental Entity), any such shares, cash,
dividends or distributions in respect of such Certificate shall, to the extent
permitted by applicable law, become the property of the Surviving Corporation,
free and clear of all claims or interest of any Person previously entitled
thereto.
(g) Investment of Exchange Fund. The Paying Agent shall invest any cash
included in the Exchange Fund, as directed by the Surviving Corporation, on a
daily basis. Any interest and other income resulting from such investments
shall be paid to the Surviving Corporation.
(h) Withholding Rights. The Surviving Corporation shall be entitled to
deduct and withhold from the consideration otherwise payable to any holder of
ICI Common Stock pursuant to this Agreement such amounts as may be required to
be deducted and withheld with respect to the making of such payment under the
Code, or under any provision of state, local or foreign tax law.
ARTICLE III
CONDITIONS PRECEDENT
The only conditions precedent to the respective obligation of each party to
effect the Merger shall be satisfaction (or waiver by the applicable
beneficiary of the applicable condition) of the conditions set forth in
Article VII of the Formation Agreement and the consummation of the Formation
Transaction.
ARTICLE IV
TERMINATION, AMENDMENT AND WAIVER
SECTION 4.01. Termination. This Agreement may be terminated, whether before
or after receipt of the Shareholders' Approval, but only upon termination of
the Formation Agreement in accordance with the terms thereof.
SECTION 4.02. Effect of Termination. In the event of termination of this
Agreement as provided in Section 4.01, this Agreement shall forthwith become
void and have no effect, without any liability or obligation on the part of
IHS, Holdings, Merger Sub or ICI, other than this Section 4.02 and Article V.
SECTION 4.03. Amendment. This Agreement may be amended by IHS, Holdings,
Merger Sub and ICI at any time before or after receipt of the Shareholders'
Approval; provided, however, that, after receipt of the Shareholders'
Approval, there shall be made no amendment that by law requires further
approval by the shareholders of ICI without the further approval of such
shareholders. This Agreement may not be amended except by an instrument in
writing signed on behalf of each of IHS, Holdings, Merger Sub and ICI.
ARTICLE V
GENERAL PROVISIONS
SECTION 5.01. Notices. All notices, requests, claims, demands and other
communications under this Agreement shall be in writing and shall be deemed
given upon receipt by the parties hereto at the following addresses (or at
such other address for such party as shall be specified by like notice):
(a) if to IHS, Holdings or Merger Sub,
Information Handling Services Inc.
Iverness Business Park
15 Iverness Way East
Englewood, CO 80112
Attention: Mr. Darold Stagner
Telecopy: (303) 397-2742
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<PAGE>
with a copy to:
TBG Services Inc.
565 Fifth Avenue
New York, NY 10017
Attention: Mr. Steven Green
Telecopy: (212) 850-8530
and
Cravath, Swaine & Moore
Worldwide Plaza
828 Eighth Avenue
New York, NY 10019
Attention: Robert Rosenman, Esq.
Telecopy: (212) 474-3700
(b) if to ICI,
International CompuTex, Inc.
5500 Interstate North Parkway
Suite 507
Atlanta, GA 30328
Attention: Mr. Haim E. Dahan
Telecopy: (770) 953-1574
with a copy to
Gambrell & Stolz, L.L.P.
SunTrust Plaza
Suite 4300
303 Peachtree Street, N.E.
Atlanta, GA 30308
Attention: Henry Levi, Esq.
Telecopy: (404) 221-6501
SECTION 5.02. Headings. The table of contents and headings contained in this
Agreement are for reference purposes only and shall not affect in any way the
meaning or interpretation of this Agreement.
SECTION 5.03. Interpretation. When a reference is made in this Agreement to
a Section, such reference shall be to a Section of this Agreement unless
otherwise indicated. The table of contents and headings contained in this
Agreement are for reference purposes only and shall not affect in any way the
meaning or interpretation of this Agreement. Whenever the words "include",
"includes" or "including" are used in this Agreement, they shall be deemed to
be followed by the words "without limitation".
SECTION 5.04 Assignment. Neither this Agreement nor any of the rights,
interests or obligations under this Agreement shall be assigned, in whole or
in part, by operation of law or otherwise by any of the parties without the
prior written consent of the other parties. Any purported assignment without
such consent shall be void. Subject to the preceding sentences, this Agreement
will be binding upon, inure to the benefit of, and be enforceable by, the
parties and their respective successors and assigns.
SECTION 5.05. Severability. If any term or other provision of this Agreement
is invalid, illegal or incapable of being enforced by any rule or law, or
public policy, all other conditions and provisions of this Agreement shall
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 hereto. Upon such determination that
any term or other provision is invalid, illegal or incapable of being
enforced, the parties hereto shall 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.
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SECTION 5.06. Entire Agreement; No Third-Party Beneficiaries. This
Agreement, the Formation Agreement, the other Ancillary Agreements and the
Confidentiality Agreement (a) constitute the entire agreement, and supersede
all prior agreements and understandings, both written and oral, among the
parties hereto and thereto with respect to the transactions contemplated by
this Agreement, the Formation Agreement and the other Ancillary Agreements and
(b) are not intended to confer upon any Person other than the parties hereto
or thereto any rights or remedies.
SECTION 5.07. Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of Delaware, regardless of
the laws that might otherwise govern under applicable principles of conflicts
of laws thereof, except to the extent the laws of the State of Georgia are
mandatorily applicable to the Merger.
SECTION 5.08. Enforcement; Exclusive Jurisdiction. Each of the parties
hereto (a) consents to submit to the personal jurisdiction of any Federal
court located in the State of Delaware or any Delaware state court in the
event any dispute arises regarding this Agreement or the transactions
contemplated hereby, (b) agrees not to attempt to deny or defeat such personal
jurisdiction by motion or other request for leave from any such court,
(c) agrees not to bring any action relating to this Agreement or the
transactions contemplated hereby in any court other than any Federal court
sitting in the State of Delaware or any Delaware state court and (d) waives
any right to trial by jury with respect to any action related to, or arising
out of, this Agreement or the transactions contemplated hereby.
SECTION 5.09. Counterparts. This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same agreement and
shall become effective when one or more counterparts have been signed by each
of the parties and delivered to the other parties.
IN WITNESS WHEREOF, each of IHS, Holdings, Merger Sub and ICI have caused
this Agreement to be signed by their respective officers thereunto duly
authorized, and each of the Founders has signed this Agreement, all as of the
date first written above.
INFORMATION HANDLING SERVICES, INC.
By___________________________________
Name:
Title:
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IHS ITEMQUEST HOLDINGS INC.,
By
-----------------------------------
Name:
Title:
MERGER SUB
By
-----------------------------------
Name:
Title:
INTERNATIONAL COMPUTEX, INC.,
By
-----------------------------------
Name:
Title:
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<PAGE>
EXHIBIT B
ARTICLE 13
DISSENTERS' RIGHTS
PART 1
RIGHT TO DISSENT AND OBTAIN PAYMENT FOR SHARES
14-2-1301. DEFINITIONS.
As used in this article, the term:
(1) "Beneficial shareholder" means the person who is a beneficial owner
of shares held in a voting trust or by a nominee as the record shareholder.
(2) "Corporate action" means the transaction or other action by the
corporation that creates dissenters' rights under Code Section 14-2-1302.
(3) "Corporation" means the issuer of shares held by a dissenter before
the corporate action, or the surviving or acquiring corporation by merger
or share exchange of that issuer.
(4) "Dissenter" means a shareholder who is entitled to dissent from
corporate action under Code Section 14-2-1302 and who exercises that right
when and in the manner required by Code Sections 14-2-1320 through 14-2-
1327.
(5) "Fair value," with respect to a dissenter's shares, means the value
of the shares immediately before the effectuation of the corporate action
to which the dissenter objects, excluding any appreciation or depreciation
in anticipation of the corporate action.
(6) "Interest" means interest from the effective date of the corporate
action until the date of payment, at a rate that is fair and equitable
under all the circumstances.
(7) "Record shareholder" means the person in whose name shares are
registered in the records of a corporation or the beneficial owner of
shares to the extent of the rights granted by a nominee certificate on file
with a corporation.
(8) "Shareholder" means the record shareholder or the beneficial
shareholder.
14-2-1302. RIGHT TO DISSENT.
(a) A record shareholder of the corporation is entitled to dissent from, and
obtain payment of the fair value of his shares in the event of, any of the
following corporate actions:
(1) Consummation of a plan of merger to which the corporation is a party:
(A) If approval of the shareholders of the corporation is required
for the merger by Code Section 14-2-1103 or the articles of
incorporation and the shareholder is entitled to vote on the merger; or
(B) If the corporation is a subsidiary that is merged with its parent
under Code Section 14-2-1104;
(2) Consummation of a plan of share exchange to which the corporation is
a party as the corporation whose shares will be acquired, if the
shareholder is entitled to vote on the plan;
(3) Consummation of a sale or exchange of all or substantially all of the
property of the corporation if a shareholder vote is required on the sale
or exchange pursuant to Code Section 14-2-1202, but not including a sale
pursuant to court order or a sale for cash pursuant to a plan by which all
or substantially all of the net proceeds of the sale will be distributed to
the shareholders within one year after the date of sale;
(4) An amendment of the articles of incorporation that materially and
adversely affects rights in respect of a dissenter's shares because it:
(A) Alters or abolishes a preferential right of the shares;
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(B) Creates, alters, or abolishes a right in respect of redemption,
including a provision respecting a sinking fund for the redemption or
repurchase, of the shares;
(C) Alters or abolishes a preemptive right of the holder of the
shares to acquire shares or other securities;
(D) Excludes or limits the right of the shares to vote on any matter,
or to cumulate votes, other than a limitation by dilution through
issuance of shares or other securities with similar voting rights;
(E) Reduces the number of shares owned by the shareholder to a
fraction of a share if the fractional share so created is to be
acquired for cash under Code Section 14-2-604; or
(F) Cancels, redeems, or repurchases all or part of the shares of the
class; or
(5) Any corporate action taken pursuant to a shareholder vote to the
extent that Article 9 of this chapter, the articles of incorporation,
bylaws, or a resolution of the board of directors provides that voting or
nonvoting shareholders are entitled to dissent and obtain payment for their
shares.
(b) A shareholder entitled to dissent and obtain payment for his shares
under this article may not challenge the corporate action creating his
entitlement unless the corporate action fails to comply with procedural
requirements of this chapter or the articles of incorporation or bylaws of the
corporation or the vote required to obtain approval of the corporate action
was obtained by fraudulent and deceptive means, regardless of whether the
shareholder has exercised dissenter's rights.
(c) Notwithstanding any other provision of this article, there shall be no
right of dissent in favor of the holder of shares of any class or series
which, at the record date fixed to determine the shareholders entitled to
receive notice of and to vote at a meeting at which a plan of merger or share
exchange or a sale or exchange of property or an amendment of the articles of
incorporation is to be acted on, were either listed on a national securities
exchange or held of record by more than 2,000 shareholders, unless:
(1) In the case of a plan of merger or share exchange, the holders of
shares of the class or series are required under the plan of merger or
share exchange to accept for their shares anything except shares of the
surviving corporation or another publicly held corporation which at the
effective date of the merger or share exchange are either listed on a
national securities exchange or held of record by more than 2,000
shareholders, except for scrip or cash payments in lieu of fractional
shares; or
(2) The articles of incorporation or a resolution of the board of
directors approving the transaction provides otherwise.
14-2-1303. DISSENT BY NOMINEES AND BENEFICIAL OWNERS.
A record shareholder may assert dissenters' rights as to fewer than all the
shares registered in his name only if he dissents with respect to all shares
beneficially owned by any one beneficial shareholder and notifies the
corporation in writing of the name and address of each person on whose behalf
he asserts dissenters' rights. The rights of a partial dissenter under this
Code section are determined as if the shares as to which he dissents and his
other shares were registered in the names of different shareholders.
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PART 2
PROCEDURE FOR EXERCISE OF DISSENTERS' RIGHTS
14-2-1320. NOTICE OF DISSENTERS' RIGHTS.
(a) If proposed corporate action creating dissenters' rights under Code
Section 14-2-1302 is submitted to a vote at a shareholders' meeting, the
meeting notice must state that shareholders are or may be entitled to assert
dissenters' rights under this article and be accompanied by a copy of this
article.
(b) If corporate action creating dissenters' rights under Code Section 14-2-
1302 is taken without a vote of shareholders, the corporation shall notify in
writing all shareholders entitled to assert dissenters' rights that the action
was taken and send them the dissenters' notice described in Code Section 14-2-
1322 no later than ten days after the corporate action was taken.
14-2-1321. NOTICE OF INTENT TO DEMAND PAYMENT.
(a) If proposed corporate action creating dissenters' rights under Code
Section 14-2-1302 is submitted to a vote at a shareholders' meeting, a record
shareholder who wishes to assert dissenters' rights:
(1) Must deliver to the corporation before the vote is taken written
notice of his intent to demand payment for his shares if the proposed
action is effectuated; and
(2) Must not vote his shares in favor of the proposed action.
(b) A record shareholder who does not satisfy the requirements of subsection
(a) of this Code section is not entitled to payment for his shares under this
article.
14-2-1322. DISSENTERS' NOTICE.
(a) If proposed corporate action creating dissenters' rights under Code
Section 14-2-1302 is authorized at a shareholders' meeting, the corporation
shall deliver a written dissenters' notice to all shareholders who satisfied
the requirements of Code Section 14-2-1321.
(b) The dissenters' notice must be sent no later than ten days after the
corporate action was taken and must:
(1) State where the payment demand must be sent and where and when
certificates for certificated shares must be deposited;
(2) Inform holders of uncertificated shares to what extent transfer of
the shares will be restricted after the payment demand is received;
(3) Set a date by which the corporation must receive the payment demand,
which date may not be fewer than 30 nor more than 60 days after the date
the notice required in subsection (a) of this Code section is delivered;
and
(4) Be accompanied by a copy of this article.
14-2-1323. DUTY TO DEMAND PAYMENT.
(a) A record shareholder sent a dissenters' notice described in Code Section
14-2-1322 must demand payment and deposit his certificates in accordance with
the terms of the notice.
(b) A record shareholder who demands payment and deposits his shares under
subsection (a) of this Code section retains all other rights of a shareholder
until these rights are canceled or modified by the taking of the proposed
corporate action.
(c) A record shareholder who does not demand payment or deposit his share
certificates where required, each by the date set in the dissenters' notice,
is not entitled to payment for his shares under this article.
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14-2-1324. SHARE RESTRICTIONS.
(a) The corporation may restrict the transfer of uncertificated shares from
the date the demand for their payment is received until the proposed corporate
action is taken or the restrictions released under Code Section 14-2-1326.
(b) The person for whom dissenters' rights are asserted as to uncertificated
shares retains all other rights of a shareholder until these rights are
canceled or modified by the taking of the proposed corporate action.
14-2-1325. OFFER OF PAYMENT.
(a) Except as provided in Code Section 14-2-1327, within ten days of the
later of the date the proposed corporate action is taken or receipt of a
payment demand, the corporation shall by notice to each dissenter who complied
with Code Section 14-2-1323 offer to pay to such dissenter the amount the
corporation estimates to be the fair value of his or her shares, plus accrued
interest.
(b) The offer of payment must be accompanied by:
(1) The corporation's balance sheet as of the end of a fiscal year ending
not more than 16 months before the date of payment, an income statement for
that year, a statement of changes in shareholders' equity for that year,
and the latest available interim financial statements, if any;
(2) A statement of the corporation's estimate of the fair value of the
shares;
(3) An explanation of how the interest was calculated;
(4) A statement of the dissenter's right to demand payment under Code
Section 14-2-1327; and
(5) A copy of this article.
(c) If the shareholder accepts the corporation's offer by written notice to
the corporation within 30 days after the corporation's offer or is deemed to
have accepted such offer by failure to respond within said 30 days, payment
for his or her shares shall be made within 60 days after the making of the
offer or the taking of the proposed corporate action, whichever is later.
14-2-1326. FAILURE TO TAKE ACTION.
(a) If the corporation does not take the proposed action within 60 days
after the date set for demanding payment and depositing share certificates,
the corporation shall return the deposited certificates and release the
transfer restrictions imposed on uncertificated shares.
(b) If, after returning deposited certificates and releasing transfer
restrictions, the corporation takes the proposed action, it must send a new
dissenters' notice under Code Section 14-2-1322 and repeat the payment demand
procedure.
14-2-1327. PROCEDURE IF SHAREHOLDER DISSATISFIED WITH PAYMENT OR OFFER.
(a) A dissenter may notify the corporation in writing of his own estimate of
the fair value of his shares and amount of interest due, and demand payment of
his estimate of the fair value of his shares and interest due, if:
(1) The dissenter believes that the amount offered under Code Section 14-
2-1325 is less than the fair value of his shares or that the interest due
is incorrectly calculated; or
(2) The corporation, having failed to take the proposed action, does not
return the deposited certificates or release the transfer restrictions
imposed on uncertificated shares within 60 days after the date set for
demanding payment.
(b) A dissenter waives his or her right to demand payment under this Code
section and is deemed to have accepted the corporation's offer unless he or
she notifies the corporation of his or her demand in writing under
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subsection (a) of this Code section within 30 days after the corporation
offered payment for his or her shares, as provided in Code Section 14-2-1325.
(c) If the corporation does not offer payment within the time set forth in
subsection (a) of Code Section 14-2-1325:
(1) The shareholder may demand the information required under subsection
(b) of Code Section 14-2-1325, and the corporation shall provide the
information to the shareholder within ten days after receipt of a written
demand for the information; and
(2) The shareholder may at any time, subject to the limitations period of
Code Section 14-2-1332, notify the corporation of his own estimate of the
fair value of his shares and the amount of interest due and demand payment
of his estimate of the fair value of his shares and interest due.
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<PAGE>
PART 3
JUDICIAL APPRAISAL OF SHARES
14-2-1330. COURT ACTION.
(a) If a demand for payment under Code Section 14-2-1327 remains unsettled,
the corporation shall commence a proceeding within 60 days after receiving the
payment demand and petition the court to determine the fair value of the
shares and accrued interest. If the corporation does not commence the
proceeding within the 60 day period, it shall pay each dissenter whose demand
remains unsettled the amount demanded.
(b) The corporation shall commence the proceeding, which shall be a nonjury
equitable valuation proceeding, in the superior court of the county where a
corporation's registered office is located. If the surviving corporation is a
foreign corporation without a registered office in this state, it shall
commence the proceeding in the county in this state where the registered
office of the domestic corporation merged with or whose shares were acquired
by the foreign corporation was located.
(c) The corporation shall make all dissenters, whether or not residents of
this state, whose demands remain unsettled parties to the proceeding, which
shall have the effect of an action quasi in rem against their shares. The
corporation shall serve a copy of the petition in the proceeding upon each
dissenting shareholder who is a resident of this state in the manner provided
by law for the service of a summons and complaint, and upon each nonresident
dissenting shareholder either by registered or certified mail or by
publication, or in any other manner permitted by law.
(d) The jurisdiction of the court in which the proceeding is commenced under
subsection (b) of this Code section is plenary and exclusive. The court may
appoint one or more persons as appraisers to receive evidence and recommend
decision on the question of fair value. The appraisers have the powers
described in the order appointing them or in any amendment to it. Except as
otherwise provided in this chapter, Chapter 11 of Title 9, known as the
"Georgia Civil Practice Act," applies to any proceeding with respect to
dissenters' rights under this chapter.
(e) Each dissenter made a party to the proceeding is entitled to judgment
for the amount which the court finds to be the fair value of his shares, plus
interest to the date of judgment.
14-2-1331. COURT COSTS AND COUNSEL FEES.
(a) The court in an appraisal proceeding commenced under Code Section 14-2-
1330 shall determine all costs of the proceeding, including the reasonable
compensation and expenses of appraisers appointed by the court, but not
including fees and expenses of attorneys and experts for the respective
parties. The court shall assess the costs against the corporation, except that
the court may assess the costs against all or some of the dissenters, in
amounts the court finds equitable, to the extent the court finds the
dissenters acted arbitrarily, vexatiously, or not in good faith in demanding
payment under Code Section 14-2-1327.
(b) The court may also assess the fees and expenses of attorneys and experts
for the respective parties, in amounts the court finds equitable:
(1) Against the corporation and in favor of any or all dissenters if the
court finds the corporation did not substantially comply with the
requirements of Code Sections 14-2-1320 through 14-2-1327; or
(2) Against either the corporation or a dissenter, in favor of any other
party, if the court finds that the party against whom the fees and expenses
are assessed acted arbitrarily, vexatiously, or not in good faith with
respect to the rights provided by this article.
(c) If the court finds that the services of attorneys for any dissenter were
of substantial benefit to other dissenters similarly situated, and that the
fees for those services should not be assessed against the corporation,
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the court may award to these attorneys reasonable fees to be paid out of the
amounts awarded the dissenters who were benefited.
14-2-1332. LIMITATION OF ACTIONS.
No action by any dissenter to enforce dissenters' rights shall be brought
more than three years after the corporate action was taken, regardless of
whether notice of the corporate action and of the right to dissent was given by
the corporation in compliance with the provisions of Code Section 14-2-1320 and
Code Section 14-2-1322.
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EXHIBIT C
January 8, 1999
Board of Directors
International Computex, Inc.
5500 Interstate North Parkway
Suite 507 Atlanta, GA 30328
Gentlemen:
You have requested our opinion as to the fairness, from a financial point of
view, to public, non-employee, non-affiliate shareholders (the "Certain
Shareholders") of International Computex, Inc. ("ICI") of the cash
consideration proposed to be paid to such shareholders in the proposed offer
(the "Offer") by Information Handling Services Group, Inc. ("IHS"), a Delaware
Corporation, to merge ICI with a subsidiary ("Merger Sub") of NEWCO ("Newco"),
a Delaware Corporation and wholly-owned subsidiary of IHS. It is our
understanding that the consideration proposed to be paid to the Certain
Shareholders related to the proposed acquisition (the "Acquisition") will
consist of $9.50 in cash. Our opinion has not been requested as to the
fairness of the Offer, from a financial point of view, to the founders or
employee shareholders of ICI, and no efforts have been undertaken by us to
ascertain or determine the fairness of the Offer to such parties.
In arriving at our opinion, we have, among other things, (i) reviewed the
January 7, 1999 draft of the Formation Agreement and Merger Agreement between
ICI, IHS, Newco and Merger Sub; (ii) reviewed publicly available information
including recent Securities and Exchange Commission filings and shareholder
communications for ICI, which include ICI's Prospectus for its Initial Public
Offering of April 30, 1997, subsequent Forms 10-Q, ICI's 1997 Form 10-K, and
Forms 8-K filed by ICI; (iii) reviewed annual audited financial statements for
the year ended December 31, 1997 and interim unaudited financial statements of
ICI through November 30, 1998 that were provided by ICI; (iv) met with members
of the senior management teams of ICI and IHS to discuss their respective
businesses, financial conditions and operating results; (v) compared certain
financial and stock market data for ICI with similar data for selected
publicly held developers of enterprise software, component and supplier
management software, and computer aided design software, respectively; (vi)
reviewed the financial terms of certain recent acquisitions in the software
industry; (vii) reviewed acquisition premiums that have been paid to
shareholders of publicly held acquisition targets in the software industry in
1998; (viii) reviewed the trading history for the common stock of ICI; (ix)
reviewed various published news articles and research reports on the
enterprise software industry; and (x) performed such other financial studies
and analyses as we deemed appropriate. We have not reviewed a discounted cash
flow analysis for ICI, because only limited projections were available from
ICI. We have not reviewed or considered any specific alternatives to the
Acquisition or the Offer.
In rendering this opinion, we have relied upon the accuracy and completeness
of all financial and other information furnished to us by or on behalf of ICI,
other information used by us in arriving at our opinion and other published
information that we considered in our review. We were not requested to and
have not undertaken to verify independently the accuracy and completeness of
such information. To the extent that projections were available, we have
relied upon the reasonableness of all projections provided to us by the
management of ICI and have assumed that they were prepared in accordance with
accepted practice on bases reflecting the best currently available estimates
and good faith judgments of ICI's management. Our opinion herein is based upon
the economic, monetary, market and other circumstances existing and known to
us as of the date hereof, and we have assumed that there have been no material
changes in the assets, financial condition, results of operations, business or
prospects of ICI since the date of the most recent financial statements made
available to us. We have not made or considered any independent evaluations or
appraisals of the assets or liabilities (contingent or otherwise) of ICI, nor
were we furnished with any such evaluations or appraisals. Consequently, we do
not express any opinion regarding the value of any of ICI's specific
individual assets. We were not requested to, and therefore did not,
participate in the structuring or negotiating of the Offer or the Acquisition.
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Interstate/Johnson Lane Corporation, as part of its investment banking
business, is engaged in the valuation of businesses and their securities in
connection with mergers and acquisitions, negotiated underwritings,
competitive biddings, secondary distributions of listed and unlisted
securities, private placements and valuations for estate, corporate and other
purposes. Pursuant to our engagement in connection with this fairness opinion,
we will receive a fee for our services in rendering this opinion. Such fee is
not contingent upon the completion of the Acquisition.
The opinion expressed herein is provided to ICI's Board of Directors and
does not constitute a recommendation to any shareholder of ICI as to how any
such shareholder should vote on the Acquisition. The opinion, and any
supporting analysis or other material supplied by us may not be quoted,
referred to, summarized or used in any public filing or in any written
document without the prior written approval of Interstate/Johnson Lane
Corporation; provided that we hereby consent to the inclusion of this letter
in its entirety in the Proxy Statement to be filed with the Securities and
Exchange Commission in connection with the Acquisition.
Based upon the foregoing considerations and our review and analysis, it is
our opinion that as of the date hereof, the cash consideration proposed to be
paid to Certain Shareholders of ICI in connection with the Acquisition is
fair, from a financial point of view.
Sincerely,
INTERSTATE/JOHNSON LANE CORPORATION
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<PAGE>
PRELIMINARY COPIES
- ------------------
INTERNATIONAL COMPUTEX, INC.
PROXY SOLICITED BY THE BOARD OF DIRECTORS FOR THE
SPECIAL MEETING OF STOCKHOLDERS TO BE HELD
FEBRUARY __, 1999 AT _____ .M.
__________________________
____________________________
ATLANTA, GEORGIA
FOR HOLDERS OF COMMON STOCK
The undersigned hereby appoints Haim E. Dahan and Patricia Tuxbury Salem,
or either of them, attorneys and proxies, each with full power of substitution
to vote, in the absence of the other, all Common Stock of INTERNATIONAL
COMPUTEX, INC. held by the undersigned and entitled to vote at the Special
Meeting of Stockholders to be held on February __, 1999 and at any adjournment
or adjournments thereof, in the transaction of such business as may properly
come before the meeting, and particularly the proposals stated below, all in
accordance with and as more fully described in the accompanying Proxy Statement.
It is understood that this proxy may be revoked at any time insofar as it
has not been exercised and that the shares may be voted in person if the
undersigned attends the meeting.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE FOLLOWING PROPOSAL:
Approval of Merger Agreement. To approve the Merger Agreement between
----------------------------
International CompuTex, Inc., Information Handling Services Inc., IHS ItemQuest
Holdings Inc. and [Merger Sub], providing for the conversion of each outstanding
share of common stock of International CompuTex, Inc. (other than shares held by
IHS ItemQuest Holdings Inc.) into the right to receive $9.50.
FOR AGAINST ABSTAIN
[_] [_] [_]
(Continued and to be signed on reverse side.)
<PAGE>
[BACK OF CARD]
THE SHARES OF COMMON STOCK REPRESENTED BY THIS PROXY WILL BE VOTED AS DIRECTED
BY THE UNDERSIGNED STOCKHOLDER HEREON, OR IF NO DIRECTION IS GIVEN, THEY WILL BE
VOTED FOR THE ABOVE PROPOSAL. IN THEIR DISCRETION, THE PROXY HOLDERS ARE
AUTHORIZED TO VOTE UPON SUCH OTHER BUSINESS AS MAY PROPERLY COME BEFORE THE
MEETING.
PLEASE VOTE, SIGN, DATE AND RETURN THIS PROXY CARD PROMPTLY, USING THE ENCLOSED
ENVELOPE.
Dated:_________________, 1999.
Signature: _____________________________________
Signature if held jointly: ____________________________________
IMPORTANT: Please sign this Proxy exactly as your name or names appear hereon.
- ---------
If shares are held jointly, signatures should include both names. Executors,
administrators, trustees, guardians and others signing in a representative
capacity should give their full titles.
